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Opportunities in opulence

March 7th, 2014

From Canada to Antwerp, diamond explorers, miners and traders serve a thriving market

by Greg Klein

For giant miners and junior explorers alike, diamonds upheld their market lustre in 2013 and show further encouragement this year. So it wasn’t quite an industry-wide shock when one record-shattering sale fell through. A group of investors fronted by New York diamond cutter Isaac Wolf defaulted on last November’s $83.2-million bid for the Pink Star, Sotheby’s revealed late last month. Now the auctioneer’s out the $60 million guaranteed to the anonymous seller. But the company retains the stone, to which it attributes an “inventory” value of $72 million. Meanwhile, undeterred by the caprice of the super-rich, efforts continue to find, mine and market opulence for the affluent.

This month Rio Tinto NYE:RIO heads to Antwerp and Israel for the company’s first rough diamond tender of 2014. Rio says this offer of 124 lots “showcases a unique combination of white and fancy-coloured rough diamonds” from its mines in Australia, the Northwest Territories and Zimbabwe. Among notable stones from the NWT’s Diavik, Rio’s peddling a 70-carat white diamond, several purple diamonds and some “fancy and intense” yellow diamonds.

From Canada to Antwerp, diamond explorers, miners and traders serve a thriving market

Kennady Diamonds has infill drilling underway
at its Northwest Territories diamond project.

Once pulled out of the ground, about 80% of the world’s diamonds go to Antwerp, the undisputed capital of global trade since the 15th century. The city handles about $11.2 billion worth of rough stones annually, out of a global total of $14.2 billion, according to the Antwerp World Diamond Centre. Vying for a piece of the action are some 1,850 local companies crowded into their own fabled district with “Flemish, Orthodox Jewish and Indian diamantaires working alongside manufacturers, rough and polished dealers, buyers and services providers from almost every country in which diamonds are mined, processed, bought and sold.”

The centre characterized last January as an “excellent 2014 kick-off” in which the value of exports jumped 27.7% and imports 21% over the same month last year. Exports showed “an all-around increase, principally to the usual consumer markets India, the United Arab Emirates and Hong Kong.”

Polished diamonds picked up too. January exports improved 9.69% and imports 13.79% in value over the same month in 2013.

Although the stones’ esthetic vagaries complicate matters, diamond prices remained relatively stable last year, avoiding the declines seen in precious metals. Giants did well, with Rio reporting a 15% increase in diamond revenue over 2012. De Beers proclaimed 2013 “a strong year of growth” for its Forevermark diamond brand, “driven predominantly by continued consumer demand in core markets, China, U.S., India and Japan.” Many Canadian-listed juniors and mid-tiers rose well above the malaise suffered by their counterparts in other commodities.

Among activity within Canada, Kennady Diamonds TSXV:KDI continues working towards a maiden resource for its eponymous project in the NWT. Infill drilling began last week, according to a March 6 statement, part of a plan to better define the Kelvin kimberlite body prior to a mini-bulk sample of 25 to 30 tonnes. Last year a 4.3-tonne sample from Kelvin showed 5.38 carats per tonne with the three largest diamonds comprising “a 2.48-carat off-white transparent octahedral, 1.06-carat off-white broken aggregate and a 0.9-carat off-white transparent irregular,” Kennady stated.

The March 6 update also reported an amended exploration agreement with the Lutsel K’e Dene First Nation and receipt of a five-year land use permit and seven-year water licence.

The same day Shore Gold TSX:SGF announced a “target for further exploration” for its central Saskatchewan properties. A TFFE uses exploration data to disclose potential quantity and grade that might not be realized in an eventual resource estimate. On that basis, Shore’s TFFE for seven kimberlites “is estimated to include between 983 million and 1.17 billion tonnes of kimberlite containing between 52 and 90 million carats.”

The seven kimberlites spread over two properties, Shore’s wholly-owned Star-Orion South project and the adjacent Fort à la Corne, a joint venture shared 67%/33% between Shore and Newmont Mining Corp of Canada TSX:NMC.

A 2011 feasibility study showed a probable reserve for the Star and Orion South deposits:

  • Star: 165.89 million tonnes averaging 12.3 carats per hundred tonnes for 20.386 million carats of diamonds

  • Orion South: 113.09 million tonnes averaging 12.4 cpht for 13.994 million carats

  • Total: 278.98 million tonnes averaging 12.3 cpht for 34.38 million carats

The two deposits also have inferred resources totalling 9.1 million carats.

In other Canadian diamond activity, North Arrow Minerals TSXV:NAR closed a $5-million private placement late last month to fund three projects, two of them 80% options with Stornoway Diamond TSX:SWY. The Qilalugaq property in Nunavut is slated for a 1,500-tonne bulk sample and an Antwerp valuation next summer. Pikoo, a Saskatchewan project heralded for its diamond discovery in November, is expected to undergo till sampling this year to seek out additional kimberlites.

On the earlier-stage Redemption project in the NWT, North Arrow holds a 55% option with Arctic Star Exploration TSXV:ADD. This year’s plans include till sampling and geophysics at the 11,493-hectare project, 32 kilometres from the Ekati mine and 47 from the Diavik mine.

Dominion Diamond TSX:DDC looms large in the region, holding an 80% interest in Ekati, 58.8% of the mine’s Buffer zone and 40% of Diavik. Chuck Fipke and Stewart Blusson, two pioneers of Canadian diamond exploration, each hold 10% of Ekati, while Rio holds 60% of Diavik. Dominion ranks fourth worldwide for diamond production by value.

An Antwerp report that came through in late February evaluated a 1,013.5-carat parcel of commercial-size stones for Peregrine Diamonds TSX:PGD. Taken from the CH-6 kimberlite pipe in Nunavut, the gems were priced at an average of $213 per carat for a total of $215,605. Peregrine has a resource scheduled for CH-6 by the end of Q2.

The valuation was conducted by WWW International Diamond Consultants, a company that’s familiar with Canadian projects and currently evaluating diamonds for Gahcho Kué in the NWT. JV partners De Beers (51%) and Mountain Province Diamonds TSX:MPV (49%) plan to use the data in a feasibility update scheduled for release by the end of March. Gahcho Kué’s expected to become Canada’s next diamond mine.

Read more about diamond mining and exploration in Canada here and here.

Five reasons China is coming to buy your gold mine

August 21st, 2013

by Frik Els | August 21, 2013 | Reprinted by permission of

Chinese producers are aggressively looking at picking up gold companies and mines elsewhere as domestic demand reaches record highs.

Takeovers and asset purchases by Hong Kong and mainland miners increased to a record $2.2 billion in 2013 according to data compiled by Bloomberg.

Five reasons China is coming to buy your gold mine

Chinese companies like Zijin Mining Group and Zhaojin Mining Industry Co are in a good position to take a bite out of struggling North American and European-based producers because:

Chinese gold demand is soaring and at 1,000 tonnes will overtake Indian purchases this year, but domestic deposits are less than 5% of the global total.

Targets are cheap—the S&P/TSX Global Gold Index of the globe’s 49 biggest gold companies are down 31% this year alone.

Domestic Chinese producers enjoy some of the lowest cash costs—Zhaojin manages $549 an ounce, compared with a global average of $831.

Chinese and Hong Kong companies have access to cheap capital—Zijin got $4.9 billion in soft loans from a state bank for M&A.

The majors are actively looking to sell as debt levels increase and high-cost mines are mothballed—Barrick Gold TSX:ABX could dump as many as 12 of its mines.

Possible targets include:

While these companies are looking to get rid of a number of mines:

See also: $45bn and counting: China’s foreign mining misadventures

Reprinted by permission of

Clarifying cash costs

June 27th, 2013

The World Gold Council wants miners to report expenses more thoroughly

by Greg Klein

According to convention, gold can be mined for a few hundred bucks an ounce. Or, when byproduct metals are factored in, for less than nothing. But that method of reporting cash costs might be coming to an end, thanks to the World Gold Council. On June 27 the agency prodded companies to report “all-in sustaining costs” and “all-in costs metrics” to include “additional costs which reflect the varying costs of producing gold over the life cycle of a mine.” That includes exploration.

The guidelines aren’t compulsory, even for WGC members. Nevertheless council spokesperson Terry Heymann said, “We expect that many will use these new metrics, providing further consistency for investors and other stakeholders.”

The World Gold Council wants miners to report expenses more thoroughly

Goldcorp’s Porcupine fleet comprises just one of many mining expenses. With the company’s predicted all-in sustaining costs already close to the price of gold, total all-in costs would be even closer under the
World Gold Council’s new guidelines.

The WGC, which describes itself as “the market development organization for the gold industry,” devised the formula in consultation with its mining company members. Some of them began reporting all-in sustaining costs earlier this year. Barrick TSX:ABX explained its new approach in February. “Our current definition of all-in sustaining cash costs starts with total cash costs and adds sustaining capital expenditures, general and administrative costs, mine site exploration and evaluation costs, and environmental rehabilitation costs.”

As a result the company reported traditionally calculated cash costs for 2012 at $584 per ounce of gold, but all-in sustaining costs of $972. The company predicted 2013 cash costs holding firm at $584 but a drop in all-in sustaining costs to $945.

The previous month Goldcorp TSX:G explained that it considered “byproduct cash costs, sustaining capital, corporate general and administrative expenses and exploration.” But “as the measure seeks to reflect the full cost of gold production from current operations, new project capital is not included in the calculation.”

The company’s 2012 cash costs came to $645 or, after factoring in credits for other metals, a measly $315 an ounce. (Byproduct credits have given other companies negative cash costs.) But under the all-in sustaining cost formula, Goldcorp reckoned $865 an ounce for 2012. The company’s January statement forecast 2013 all-in sustaining costs at $1,000 to $1,100 an ounce, attributing the increase to inflation and “the impacts of lower grades and byproduct production at Peñasquito,” the company’s second-largest producer.

Newmont TSX:NMC and Yamana TSX:YRI ranked among others reporting all-in sustaining costs. The WGC suggests others start the next calendar year with the new guidelines.

But those announced June 27 go further than all-in sustaining costs. Now considered are costs not related to current operations: community, permitting, and reclamation and remediation. Also included are non-sustaining costs: exploration and study, capital exploration, capitalized mine development and other capital expenditures. Added together, they form the “all-in cost.”

Not factored in, however, are income tax, working capital, financing charges, “costs related to business combinations, asset acquisitions and asset disposals [and] items needed to normalize earnings, for example impairments on non-current assets and one-time material severance charges.”

The WGC considers the new approach “helpful to investors, governments, local communities and other stakeholders in understanding the economics of gold mining.” Presumably that might help clarify discussions about investment return, royalties and community benefits.

Of course the guidelines come at a time when bullion prices are falling towards or even below inflationary costs. Among last week’s most widely publicized mining news was Barrick’s announcement that it was slashing 100 desk jobs. Looked at less dramatically, that amounts to about 0.004% of the company’s 25,000 employees.

More troubling news, however, came from smaller companies. Golden Minerals TSX:AUM, Huldra Silver TSXV:HDA and Atna Resources TSX:ATN have all suspended mining over the last week, while Troy Resources TSX:TRY cut pay, staff and exploration, among other expenses. In a statement accompanying Troy’s June 27 announcement, CEO Paul Benson said, “Although we are bullish on the gold price over the medium and longer term, we will position the company to operate in the current price environment and any rise in the price of gold will be a bonus.”

A perspective on Peru

May 23rd, 2013

Panoro’s Luquman Shaheen talks about social concerns, political policies and copper

by Greg Klein

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Even before the conference with President Ollanta Humala, Canadian Prime Minister Stephen Harper’s Peruvian visit included a May 22 meeting with mining executives in Lima. Among them was Glenn Nolan, president of the Prospectors and Developers Association of Canada, who urged the PM to press Humala to unlock some $4 billion of unspent royalties earmarked for regional spending. Nolan, who’s also Noront Resources’ TSXV:NOT VP of aboriginal affairs and a former chief of Ontario’s Missanabie Cree First Nation, told Canadian Press, “We want to see good laws and transparency so that our (royalties) go back into the community.” At least by implication, he drew attention to powerful community concerns that have sometimes resulted in deadly clashes. Speaking to ResourceClips, Panoro Minerals TSXV:PML president/CEO Luquman Shaheen discussed Peruvian social issues and public policy, as well as his company’s Cotabambas and Antilla copper projects.

According to Reuters, anti-mining protests caused about 200 deaths during the term of former president Alan Garcia and at least another 24 since Humala gained office in 2011. Shaheen emphasizes, however, that “social issues differ not just by region but from valley to valley, from community to community. Throughout Peru the social issues are very local issues related to employment, land use, water use, etc.”

Panoro’s Luquman Shaheen talks about social concerns, political policies and copper projects

Barely visible near the centre of the photo,
blue tarp marks a Cotabambas drill site.

Cotabambas and Antilla, about 100 kilometres apart in southern Peru, each face different local concerns. But, Shaheen says, “the issues at both our projects are very progressive, very manageable. We have agreements signed with all the communities at both our projects—socio-economic, development agreements where we commit to employment, investment into education, health care, agricultural projects. Although there’s been news about social issues at some projects in Peru, there’s dozens, if not hundreds of others where the issues are very well managed.”

He adds, “As for the political issues, if you look into the details, I think you would be hard-pressed to find a national political environment that is more pro-mining, more pro-development or more pro-private investment.”

The country’s pinning part of its economic strategy on a plan to double copper output by 2016, making Peru once again the world’s second-largest producer. To do so, the government’s actively encouraging the industry in three key areas, he says.

Soon after taking power, Humala replaced Peru’s royalty regimen with one based on operating margins. “It’s a very progressive decision in which governments and companies share the risk of potential decline in margins, as commodity prices soften or as costs increase,” Shaheen explains.

A second development suggests some progress on the issue PDAC discussed with Harper. “The central government collects revenues from the mining sector and is obliged by statute to re-invest those revenues in the regions that produced the mining revenue,” says Shaheen. “The regional governments have lacked the infrastructure and the institutional strength to invest that money into projects. The national government has taken on a number of projects to assist the re-investment of those revenues into road projects, railway projects, other community infrastructure development. It takes time, but you see from the national government a very pro-active approach to the inequality of the regions.”

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From Greenpeace to mining

March 19th, 2013

Eco-activist Patrick Moore on how environmentalism lost its way

by Greg Klein

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What does it signify when Greenpeace founder Patrick Moore joins the board of a mineral exploration company—the final break with his former principles? Or the continuation of “sensible environmentalism,” a lifelong vocation that eventually severed him from mainstream activists? Moore discussed his background, beliefs and work with ResourceClips on March 19, the day Astur Gold TSXV:AST announced his appointment as an independent director.

Astur hopes to begin underground gold production at its Salave project in northern Spain by late 2014. At first this company might seem an odd fit for Moore, who came to prominence in the early 1970s while protesting U.S. hydrogen bomb tests in Alaska. That was when he and his fellow protestors harried the American military from a boat they called Greenpeace. In those early days of environmentalism, that boat lent its name to their scrappy little group. It grew tremendously, along with the movement. Moore continued to play a prominent role, serving nine years as president of Greenpeace Canada and seven as a director of Greenpeace International. But by 1986 he left—both Greenpeace and the wider mainstream movement.

Eco-activist Patrick Moore on how environmentalism lost its way

Left: Patrick Moore in 1971, on his way to protest American
H-bomb testing in Alaska. Right: The eco-activist today.

Since then he’s scandalized more conventional activists with his support for a number of supposedly unenvironmental causes including forestry, genetically modified food and nuclear energy. And mining, which is “how I cut my teeth on environmental research.”

As a doctoral candidate from 1969 to 1974, he studied the environmental impact of British Columbia’s Island Copper Mine, which was eventually taken over by BHP Billiton. “It became a very political thesis because the mining industry didn’t like what I was doing,” Moore says. “They stacked my thesis committee with pro-mining people—not that I was anti-mining, I just wanted to get at the truth.”

He adds, “I’ve been close to the mining issue all through my time as an environmental activist. Recently in my consulting career I’ve worked with Newmont Mining [NEM] on their environmental and social programs in Indonesia, Peru, Africa, Nevada, so I’ve seen a fair bit of mining all my life.”

His work focuses on sustainable mining. “What I mean by sustainable mining is that you leave the environment in a condition that is going to heal itself. The second thing is leaving the community better than it was when you came, in terms of education, health care, industry training, capacity of all sorts. That’s why I’m involved in the mining industry.”

Since leaving Greenpeace he’s found more fulfilling work through endeavours like Greenspirit Strategies Ltd, a company that encourages corporate social responsibility and sustainability, and his current work as an independent scientist and consultant. He’s written extensively for a number of journals, in his Greenspirit Website and books like Confessions of a Greenpeace Dropout. But to accentuate the positive, he finds it necessary to expose the negative. As the rise of Greenpeace mirrored that of the wider movement, Moore uses the organization to explain how environmentalism lost its way.

“In Confessions I describe the insanity of Greenpeace today,” he says. “Basically they’re against mining. If you ask them to show you a mining operation that is being done in a way that they consider acceptable, you’ll get no reply because they will not tell you that there is one. And yet they at the very least ride bicycles and use cellphones and laptops and ride in trains and perhaps an airplane or two when they go to their international meetings. Those are all made of metal. Where else can you get it?” he asks.

“They say, ‘Well maybe mining in general is needed, but not here—or here, or here, or there or anywhere.’”

Greenpeace began by opposing nuclear weapons, “which seemed an obvious target because nuclear war would have been a terrible disaster for humanity and the environment,” he says. Next was the save-the-whales campaign which protected a species from needless extinction.

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Week in review

December 21st, 2012

A mining and exploration retrospect for December 15 to 21, 2012

by Greg Klein

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Algorithmic short-sellers could drive juniors to ASX

“The world’s number one stock exchange for mining companies”—that’s the consensus about Toronto, even from companies with operations and headquarters in other countries. But John Kaiser fears TSXV traders will drive juniors to the Australian Securities Exchange. In a Business News Network interview posted by Equedia on Sunday, the editor of Kaiser Research Online explained why.

Monitoring systems now in use can immediately spot significant buying, allowing traders to “intercept the capital that’s flowing in from real investors who are betting on fundamental outcomes, and they sell into this. Then, when that inflow is exhausted, they can simply lean into the order book and continue selling stock that they don’t have, selling short on a down-tick, creating a cascade of buyer’s regret and discouraging the longs, and actually facilitating being able to cover by the end of the day. So their intent to deliver the borrowed stock never has to be materialized. This sort of culture now lurks on top of a system where trading value has been in steep decline since April and May of last year.”

A mining and exploration retrospect for December 15 to 21, 2012

That’s especially troubling, he emphasized, because he believes the sector is moving back to a “discovery/exploration cycle” as prevailed during the 1980s and ’90s, “after a decade of resource feasibility demonstration.” Early-stage exploration companies are especially vulnerable, he said.

But Down Under has its downside too. “I don’t like the Australian stock exchange system because they don’t have a proper reporting system on a scale of technical detail that we in Canada have,” Kaiser added. “I think the Canadian system is fabulous for the entire resource exploration and development cycle. And I think it’s a shame that they allow this type of algorithmic hook-up that basically victimizes real speculators, as opposed to those simply trying to harvest the volatility that they’re literally manufacturing in this sector.”

Credit-card-sized gold bars as a crisis currency

A new product might make physical gold a more practical response to economic fears, according to a Friday Reuters story. The size of a credit card, the CombiBar is made up of 50 one-gram gold squares that can be broken off to use as currency. It’s selling well in Switzerland, Austria and especially Germany, where memories linger of post-WWI hyperinflation. The CombiBar is produced by the Swiss refinery Valcambi, which wants to introduce it to the American and Indian markets next year, while producing platinum and palladium CombiBars for Japan. Valcambi, by the way, is owned 60.6% by Newmont Mining TSX:NMC.

European demand “is rising every week,” Reuters quoted Andreas Habluetzel, head of the Swiss gold trading company Degussa. “Particularly in Germany, people buying gold fear that the euro will break apart or that banks will run into problems.”

Another company, Ex Oriente Lux, has sold 21 million euros of gold through its 17 vending machines in the United States, Europe and United Arab Emirates, Reuters added. “Sales rise according to the temperature of the crisis,” CEO Thomas Geissler told the news agency.

Former Solid Gold CEO accuses natives of slander

Darryl Stretch, the former CEO of Solid Gold Resources TSXV:SLD, has accused two native chiefs of “slanderous and defamatory remarks,” the Sudbury Star and Timmins Daily Press reported this week. He’s demanding public apologies from Wahgoshig chief Dave Babin and Nishnawbe Aski chief Harvey Yesno, who called him a “racist” at a Sudbury press conference in November, the Daily Press stated on Wednesday.

Stretch’s letter to the chiefs warned, “In the event that you do not respond to this notice I will take whatever action is available to me.”

Monday’s Star said Babin has no plans to respond and Yesno couldn’t be reached for comment.

Solid Gold replaced Stretch on December 3 after ongoing controversy between the outspoken CEO and native bands.

Rhodes redux in Zimbabwe

Zimbabwe’s policy of “indigenisation and empowerment” requires foreign miners to divest 51% of their operations to Zimbabwean companies and community groups, as these examples show. Monday’s Harare Herald quoted Defence Minister Emmerson Mnangagwa explaining that the country was willing to work with foreign companies as long as Zimbabweans were the major beneficiaries.

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Newmont announces LOI for TMAC Resources to acquire Hope Bay Nunavut gold project

December 18th, 2012

Resource Clips - essential news on junior gold mining and junior silver miningA letter of intent announced late December 17 brings new hope to Newmont Mining’s TSX:NMC Hope Bay gold project in Nunavut. The privately held TMAC Resources proposes to acquire the development, for which Newmont took a $1.6-billion write-down in January 2012. The project has been on care and maintenance since.

Details of the LOI weren’t provided, other than to say it will terminate by March 31, 2013, and Newmont would be “a significant shareholder of TMAC.” TMAC principals include Terry MacGibbon and Catharine Farrow, both alumni of FNX Mining.

Newmont now controls the entire 80-kilometre greenstone belt that MacGibbon says “has great potential to be Canada’s next major gold mining camp.” But, according to the February 16, 2012, Nunatsiaq News, “after spending $2.1 billion on building an airstrip, fuel tanks, a road system, mine site, tailings facility and accommodations at the site, the mine couldn’t square off on deals with the Kitikmeot Inuit Association.”

In the company statement, Randy Engel, Newmont’s executive VP of strategic development, commented, “TMAC’s management team has a proven track record of developing projects with similar characteristics, both profitably and responsibly, while maximizing value for shareholders and other stakeholders.”

by Greg Klein

Week in review

December 14th, 2012

A mining and exploration retrospect for December 8 to 14, 2012

by Greg Klein

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U.S. politicians ponder windfall royalties

The United States has joined the list of countries considering additional ways to mine miners, according to a Wednesday Reuters story. Some American politicians are talking about royalties as high as 12.5%, the same benchmark applied to certain other resources, including oil and gas.

Reuters said the proposal would get about $700 million during the lifespan of Freeport-McMoRan’s copper-molybdenum operations in Colorado, Arizona and New Mexico. Last year alone, the royalty could have taken $150 million from Barrick’s TSX:ABX Goldstrike mine in Nevada, according to Reuters’ figures. Barrick told the news agency the company’s taxes have already jumped four-fold over five years.

Democrat Representative Raul Grijalva, a proponent of the 12.5% levy, sees it differently. “As we face these fiscal challenges, these are the pennies that we should pinch,” Reuters quoted him. Along with some other U.S. federal politicians, Grijalva also wants to review miners’ tax breaks.

Previous attempts to raise miners’ taxes have failed, Reuters stated, “as the industry has strong political allies.” The story added that “state and local governments often catch a windfall from mining revenue.”

Ivory Coast hikes taxes but overestimates profits, miner says

A mining and exploration retrospect

A new tax on Ivory Coast gold extraction underestimates cash costs by nearly 50%, according to at least one source. New legislation that applies to 2012 production assumes cash costs of $615 an ounce, Reuters stated on Friday. The tax on “profits” above that amount will fluctuate with the yellow metal’s price. At $1,600, that comes to 17%. The rate will be lower for companies that pay the country a corporate tax, the news agency added. Randgold Resources CEO Mark Bristow called the new levy, expected to raise $79.8 million, a “punitive tax,” Reuters said.

In a December 7 Bloomberg report, Endeavour Mining TSX:EDV spokesperson Nouho Kone said Ivory Coast gold production can actually cost between $1,000 and $1,200 an ounce. “The worst-case scenario would be to see companies shut down their mines in the short term,” he told Bloomberg. Reuters stated that Perseus Mining TSX:PRU put its $160-million Sissingue project on hold last September “pending clarification of the fiscal regime applicable to the project.”

Maybe Ghana too

Ghanaian President John Dramani Mahama’s re-election brings to mind his previous effort to impose a 10% tax on windfall profits, Monday’s Financial Post reported.

The government had already raised miners’ corporate taxes from 25% to 35% and imposed “a uniform regime for capital allowance of 20% for five years of mining,” the FP stated. But the government’s intended windfall tax had been shelved due to industry pressure, according to a Wednesday Reuters dispatch.

Reuters added that government discussions with gold miners are underway “to loosen up so-called ‘stability agreements’ held by some firms that lock in royalty and tax rates.” This year Ghana raised gold royalties from 3% to 5%, but the stability agreement exempted companies like AngloGold Ashanti and Newmont Mining TSX:NMC, the news agency stated.

Unions lose bid to block foreign workers from staffing B.C. mine

HD Mining International called it a “massive victory,” the Globe and Mail reported Friday. A federal court judge has allowed the company to import Chinese workers for its proposed Murray River coal mine in British Columbia. Two unions had applied for an injunction blocking the work permits after learning that HD Mining planned to staff its underground operation exclusively with Chinese workers—which would total over 400 at full production.

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Week in review

November 9th, 2012

A mining and exploration retrospect for November 3 to 9, 2012

by Greg Klein

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“So why buy the seniors?”

Briefly but significantly, Goldcorp TSX:G overtook Barrick TSX:ABX to become the world’s biggest gold miner by market cap. Goldcorp closed Tuesday with a $35.32-billion cap, slightly above Barrick’s $35.3 billion, Reuters stated.

That, despite the fact Barrick produces far more gold, with guidance of 7.3 million to 7.5 million ounces this year, compared to Goldcorp’s 2.35 million to 2.45 million ounces. Newmont, the world’s second-largest gold producer, expects to come in “at the low end” of its projected 5 million to 5.1 million ounces.

A mining and exploration retrospect

“It’s not necessarily that Goldcorp is doing so well, it’s just that Barrick is doing so poorly,” Reuters quoted John Ing, Maison Placements Canada president and mining analyst. The news agency noted that Barrick shares fell nearly 25% so far this year, while Goldcorp weathered the storms with a mere 3.5% drop.

In a Friday Bloomberg article, one of Barrick’s fired CEOs pointed out the proportionately greater potential of smaller companies. “You’ve got no growth in total in the industry and a lot of your mines are aging and closing down, so you have to work very hard just to stay even,” Randall Oliphant told the news agency. Now executive chairman of New Gold TSX:NGD, Oliphant was Barrick’s CEO from 1999 to 2003. He told Bloomberg that once a company’s producing more than two million ounces a year, shareholders’ growth expectations are hard to meet.

Bloomberg’s index of 20 mid-tier gold miners “rose 1.3% in the past three years through [Thursday], compared with a 19% decline in a gauge of 14 seniors. In the same period, New Gold has climbed 154% in Toronto, while Barrick slumped 18%,” the agency reported.

Craig West, an analyst with GMP Securities, told Bloomberg, “Barrick isn’t going to grow by 50% in the next three years. I can name eight different juniors that will, so why buy the seniors?”

The juniors West referred to might have been mid-caps like New Gold, which closed Friday with 462.55 million shares outstanding at $10.74 for a market cap of $4.97 billion. But some micro-caps don’t do too badly. On Monday Brixton Metals’ TSXV:BBB share price rose 33%, from $0.15 to $0.20, on news from its Thorn silver-gold-polymetallic project in British Columbia. The $13.55-million-market-cap company closed Friday at $0.215, with 63.03 million shares outstanding.

By Wednesday’s close, Barrick’s market cap was back on top. The giant closed Friday with a billion shares outstanding at $36.06 for a market cap of $36.08 billion. On October 31 Barrick announced a quarterly dividend of $0.20.

Goldcorp closed the week with 811.21 million shares at $44.24 for a market cap of $35.89 billion. Goldcorp announced a monthly dividend on November 5 of $0.045.

Friday’s closing bell found Newmont with 491.54 million shares at $48.07 for a $23.63-billion market cap. On October 31 the company announced a quarterly dividend of $0.35.

Cow Mountain no bull, says Barkerville

Still under a Cease Trade Order imposed last August, Barkerville Gold Mines TSXV:BGM intends to release a revised resource estimate later this month, Business in Vancouver reported on Tuesday. The CTO remains in effect until the company’s Cow Mountain resource estimate meets the B.C. Securities Commission’s satisfaction.

Last June Barkerville shocked and awed the market with an indicated resource of 69 million tons (not tonnes) grading an average 5.28 g/t gold for 10.63 million gold ounces.

On June 28 close, Barkerville’s stock sat at $0.81. The following day, when the Cow resource was announced, Barkerville opened at $1.35 and closed at $1.21. That evening the company announced “incentive stock options to certain directors, officers, employees and consultants of the company to purchase up to an aggregate of 634,980 common shares” at $1.21 a share. The next trading day, July 3, the stock hit a 52-week high of $1.67. On the August 13 CTO it closed at $1.22.

Investor enthusiasm aside, some observers were skeptical, even derisive of the resource estimate. “Hilarious” was the Northern Miner’s response.

Barkerville’s June 29 press release also suggested a non-43-101 “total geological potential” for the Island Mountain/Cow Mountain/Barkerville Mountain trend of 405 million to 684 million tons with an average grade between 4.11 g/t and 5.49 g/t for 65 million to 90 million gold ounces. Those numbers, the company stressed, were potential “and it is uncertain if further exploration will result in the delineation of mineral resources.”

Referring to the 43-101 resource estimate, Barkerville president/CEO Frank Callaghan told BIV, “We’re really confident in the numbers. We support the guy that’s done the work and we’re not prepared to throw him under the bus. He’s done a good job.”

The company has been twinning holes and drilling deeper, and has contracted Snowden Mining Industry Consultants to oversee the new 43-101. As a result it should be “very, very comprehensive to a point where a 10-year-old is going to be able to read it and understand it,” Callaghan told BIV.

The story quoted Northern Securities mining analyst Matthew Zylstra, who said that Snowden “adds some credibility. So whatever they come out with, I think this is going to be viewed a lot more positively.”

But he added, “I think they’re going to use a lot more strict criteria, so my feeling is that they won’t come out with the same kind of numbers that [the previous QP] Peter George did.”

Sub-Saharan Klondike

Where better to find an elephant country than in elephant country? Except for oil, South Sudan’s underground riches have long been neglected. But, according to a Friday Reuters dispatch, artisanal miners talk of finding the occasional nugget grading 200 grams or more. Now foreign companies are lining up in anticipation of new mining legislation scheduled to pass later this month. It’s expected to spark a licensing and exploration rush for several minerals.

“Nobody knows the extent of South Sudan’s mineral reserves because the 22-year war prevented exploration,” Reuters stated. “The latest geological surveys date back to the 1970s and ‘80s, but mining officials say diamond and gold deposits in South Sudan’s mineral-rich neighbours are encouraging. They describe the 16-month-old country as virgin territory.” South Sudan split from Sudan last year.

The news agency noted the trials of working “in a landlocked country with just 300 kilometres of paved road.” As government adviser Rainer Hengstmann told Reuters, “You need a railway if you want to go large-scale. It will take time. They really need roads and power.”

In the meantime artisanal miners prevail. Reuters described dozens of “Toposa tribesmen and women, festooned with plastic necklaces, brass piercings and beaded amulets, hack[ing] away at the red soil with metal poles and shovels, digging small craters in a boozy revelry.”

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Growth Without Risk

August 17th, 2012

Silver Wheaton Strikes Big in Peru and Manitoba with its HudBay Deal

By Kevin Michael Grace

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See here for a Resource Clips feature on Peru and mining.

For investors in gold and silver bullion, ETFs (paper bullion) and mining companies all have their risks and rewards. Randy Smallwood, President/CEO of Silver Wheaton TSX:SLW, argues that his company supplies the rewards without the risks. “I think,” he declares, “we provide the best—and I’m not just going to say silver—I think we provide the best option for exposure to precious metals.”

He explains, “We provide growth and dividends, and we provide leverage. The key is growth. Currently about 20% of the reserves that we have on our books right now have come from organic growth within the company. When you invest in bullion or ETFs it doesn’t grow—an ounce stays an ounce stays an ounce. We also provide protection on the costs. Our costs are fixed by contract; our capital costs are fixed; and our production costs are fixed.”

Silver Wheaton Strikes Big in Peru and Manitoba with its HudBay Deal

Constancia: A big vote of confidence in Peru.

Silver Wheaton is not a mining company; it is a streaming company, the largest of its kind. It signs deals with miners which sell future production of silver and gold to SLW. For years, it paid $3.90 per silver ounce. Its $750-million deal with HudBay Minerals TSX:HBM bumps that up to $5.90 per ounce.

“This is the first acquisition we’ve done in over three years, and there is no doubt costs are higher,” Smallwood says. “Analysts looking at this from an undiscounted basis estimate we’ve paid somewhere between $15 and $16 per ounce. I think it will be better than that, mainly because the exploration success isn’t being factored in; they’re just looking at current reserves. For instance, when [HudBay's] 777 [Manitoba mine] started production in 2004, it had 14 years of reserves. [In 2012,] it’s still got 14 years of reserves. That’s pretty typical of the VMS deposits.”

Under the terms of the deal with HudBay announced August 8, SWL acquires 100% of the life-of-mine silver production from 777 and 100% of the life-of-mine silver production from HudBay’s Constancia Copper-Molybdenum-Silver Project in south Peru. SLW has also acquired 100% of gold production (at $400 per ounce) from the 777 Mine until Constancia satisfies a completion test, or the end of 2016, whichever is later. SLW‘s share of gold production from 777 will then be reduced to 50%. SLW will not share in any ongoing capital or exploration expenditures at the mines.

I think we provide the best option for exposure to precious metals —Randy Smallwood

Smallwood reports that the HudBay deal is “the largest we’ve ever done in terms of total dollar value. It’s the third largest in terms of metal production behind the Pascua-Lama and Peñasquito transactions, which were nine and seven million ounces silver equivalent a year, respectively. [The HudBay deal] will produce five million ounces a year for us. What’s intriguing on this one is it has a bit more gold than we’ve traditionally had. It still keeps us dominantly silver-focused, but I’m happy to have a bit of gold in the mix.”

Silver Wheaton had $1.1 billion cash in hand as of June 30. “We can easily afford a billion-dollar deal now,” Smallwood says. On August 9, SLW reported 2Q net earnings of $141.4 million, $0.40 per share, on revenues of $201.4 million. (Figures for 2Q 2011 were $148.1 million, $0.42 per share, $194.8 million.) Production was 6.5 million ounces silver and 3,200 ounces gold or 6.7 million silver-equivalent ounces, up 10% from a year earlier. Sales were 6.9 million silver-equivalent ounces. Proven and probable silver reserves were 798 million ounces. Smallwood says that the HudBay deal will result in a 10.7% increase in proven and probable silver reserves.

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