Culture Clash In Barrick/Randgold Merger Could Be Hugely Beneficial For Both

Link to my latest article on Seeking Alpha on the proposed Barrick/randgold merger
Summary

Top gold miners Barrick Gold and Randgold Resources are planning to merge in an US$18 billion plus all-share deal.

Key operating management positions will be held by Randgold executives with the intent of applying Randgold’s leaner and meaner ethos to Barrick’s management and operations.

The merged company will majority own and operate five of the top ten Tier One global gold mining assets and will again become the world’s biggest gold mining company.

If I were a Barrick Gold (NYSE:ABX) shareholder, I would be enthused about the proposed merger of the company with Randgold Resources (GOLD). Not only would Barrick be merging with one of the most successful companies in the gold mining universe over the past several years, it will return it to being the world’s largest gold miner (eclipsing Newmont Mining (NEM) – which has only just become the current No.1) – but also by effectively buying new management with a totally different approach to the top tier gold mining sector. While Barrick’s current Chairman, ex-Goldman Sachs banker John Thornton, will be Executive Chairman of the combined company, two key executive management positions will be held by Randgold executives Mark Bristow as President and CEO and Graham Shuttleworth as Senior Executive Vice President and Chief Financial Officer. In some respects, the merger could thus almost be seen as a reverse take-over. According to a quote in the UK’s Daily Telegraph newspaper, the Randgold execs will have the brief to “implement the Randgold way” across the enlarged company…….

To read full article click here

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Hong Kong an also-ran in latest Swiss gold export figures

Another of my articles on Sharpspixley.com emphasising the reduction in importance of Hong Kong as a conduit for gold flows into mainland China.  The latest gold export figures from Switzerland demonstrate this well.  For many year gold flows through Hong Kong were considered a proxy for those into China at which time ups and downs in the Hong Kong figures were indeed significant – but the Territory has for several years now been of diminishing importance in this respect but still some of the media considers them as the proxy for ups and downs in Chinese demand.  Such articles should thus be ignored as not presenting the true picture.

An excerpt from my Sharps Pixley article follows – and a link to the full article is available by clicking here:

Perhaps then biggest surprise was the enormous fall in gold exports to Hong Kong in the Ausuts Swiss gold export figures. The Chinese semi-autonomous administrative state imported only 3.4 tonnes of gold from Switzerland in August demonstrating in no uncertain terms that the Territory is being sidelined as an import routing for mainland Chinese gold imports in favour of mainland ports of entry like Beijing and Shanghai. Hong Kong gold imports can definitely no longer be considered a proxy for Chinese gold demand as we have been saying for some time, although global media still gives undue importance to the level of Hong Kong gold imports and to the Territory’s exposts to the Chinese mainland.

Mainland China was again the biggest recipient of Swiss gold in August at 45.2 tonnes, closely followed by India with 40 tonnes (see chart from Nick Laird’s www.goldchartsrus.com website below.), suggesting that gold demand in the two biggest gold consumers is holding up reasonably well, but perhaps the biggest surprises were the big rise in Swiss gold exports to Singapore (12.6 tonnes) and even more so Thailand (21.6 tonnes). Interestingly Turkey apparently imported no gold at all from Switzerland in August, but actually exported 12.8 tonnes to the small European nation at the centre of the global gold refining trade.

As usual, the Swiss figures show an ever-continuing flow of gold from West to East with Asia and the Middle East accounting for over 88% of the total export figures…..

To read the rest of the article and view a graphic of the latest country-by-country Swiss gold exports please click on this link

Could proposed Barrick/Randgold merger kick off new era for top gold miners?

My latest article on Sharps Pixley website

Where the leader goes, others will follow! Arguably Barrick Gold is the company other top gold miners aspire to emulate, so will its proposed merger with Randgold Resources to buy in an alternative management strategy see other top gold miners follow suit in terms of management direction? If the proposed merger goes ahead and the ‘Randgold way’ is successfully implemented at what will again be the world’s top gold miner, the answer is probably yes!

Barrick was very much at the forefront of the production growth at any cost strategy which worked well in a continuing rising gold price scenario, but once gold peaked in 2011 and started to come down from its highs, the company was left with some hugely expensive capital projects on its books and a mountainous debt position. Most of its capital projects were too far advanced to be halted, although the horrendously costly, and technically complex Pascua Lama development straddling the Chile/Argentina border was able to be stopped, but only after expenditures of around $6 billion had already been sunk into the project. When gold was strong and rising mega producers like Barrick could handle costs like this and the banks were still falling over themselves to lend money accordingly.

But when the gold price plateaued and started to fall it was another story altogether. Profits and any free cashflow were substantially reduced and big institutional shareholders who had been perfectly happy with the growth at almost any cost strategy pressured Barrick into top management changes and some fairly drastic cost cutting and debt reduction programmes. So it was with other major god miners too. They had been pursuing similar strategies to Barrick and found them selves in similar predicaments. In that period from 2012 to 2015 virtually all the gold major CEOs were ousted and replaced as were many others in exec management positions. The miners entered a period of unmatched austerity from which few have recovered to any meaningful extent. The industry as a whole has substantially reduced debt, has cut back drastically on capital projects and has cut, or reduced, various management tiers. But with a lacklustre gold price stock p[rices have continued to slip and shareholders with clout are not happy…..

But all the while one tier one gold mining company with operations all in the unfavoured regions of West and Central Africa continued to grow without incurring massive debt and managing at the same time to sharply increase its dividend payments by sticking to strict new mine investment parameters…..

To Read Full article click here

Could gold and bitcoin be headed for parity?

Here’s a lightly edited version of an article I published on the http://www.sharpspixley.com website.  To read the original article click here.

At current prices with gold closing last week back over $1,200 and the bitcoin BTC token at around $6,600, the idea of gold and bitcoin regaining parity they last saw a year and a half ago might seem a little far fetched. But Bloomberg Intelligence’s Mike McGlone seems to think otherwise. In a report earlier this week, he painted a scenario of the BTC price falling and gold rising which could bring the two back into parity.

McGlone’s hypothesis is that market volatility, particularly in the bitcoin price, is an important indicator which investors need to watch. After all, bitcoin has already fallen from its peak of almost $20,000 achieved only seven months ago, to its current levels – a fall of nearly 70% – and he sees another similar fall, coupled with a possible pick-up in the gold price as being a distinct, but perhaps arguable, possibility.

As readers will be aware, this commentator is no believer in bitcoin. We feel there is no substance behind it. It is only worth what people are prepared to pay for it. It has no real inherent value having been purely a computer creation. I read somewhere that one observer (Richard Bernstein) likened it to a Candy Crush token which struck me as being extremely apposite. As people fall out of love with bitcoin – and it will have lost a lot of adherents with its fall from last December’s peak – the potential for it to fall back towards zero is, to my mind, a strong one. Bitcoin itself (BTC) is currently struggling to stay above the $6,000 mark despite a concerted campaign by pro-bitcoin commentators to drive it back up – many will probably have a vested interest in high crypto-currency prices. If it does come back down to the $5,000s or below this could signify a stronger fall ahead.

We tend to watch some of the other less costly cryptos as a guide and the fall of these from their respective peaks has been immense. Ethereum, probably the second highest market cap cryptocurrency, for example is nowadays comfortably below the $300 mark. It peaked in January at just under $1,400, so it has seen a fall of over 80% in around seven months. Monero, reputedly the crypto of choice for ransomware scammers and the criminal element wishing to keep transactions out of sight of the law and the tax collectors, is also down over 80% from its December 2017 peak and most of the other minor cryptocurrencies are also down by similar percentages or more.

Gold, on the other hand, despite it having been having a particularly torrid time of late is only down by 12% from its peak this year in U.S. dollars and beginning to pick up again as the dollar turns weaker. Unlike the cryptocurrencies, gold has stood the test of time as a store of value and does at least have substance behind it.  The recent price fall has been all about dollar strength after a period of sustained decline, and perhaps we are due a reversal again as the real ramifications of the confrontational U.S. trade tariff impositions begin to sink in in terms of raised prices, and thus inflation, in the U.S. domestic economy.

We see gold’s long term fundamentals as strong. Even if we are not quite yet at peak gold we are there or thereabouts and global new mined production will start to decline – and once the decline starts it will accelerate as there has been a huge drop in gold exploration and new mega-project construction necessary to replace depleting older assets. Meanwhile global incomes in the emerging gold buying nations are rising and the longer term increase in demand likely to be thus generated, coupled with eventually declining output, will put the gold price under some strong positive pressure.

Gold at the moment is being squeezed by the strong dollar brought on by President Trump’s tariff war and the prospect of rising U.S. Fed interest rates. But Trump is beginning to recognise that the strong dollar is putting U.S. exporters at risk while mitigating the pricing effects of the tariffs and is unhappy with this. How long before he initiates steps, perhaps behind the scenes, to start to bring the dollar down with a corresponding uplift in the gold price?

Back to Bloomberg’s McGlone: he comments that “Bitcoin is down to about 5x the price of gold after stretching toward 15x. There’s little to prevent another four-turn reduction to get it back toward 1-to-1, in our view”.

He also feels that the gold market is about to start picking up again. He pointed out that gold’s 90-day volatility is at its lowest level since 1999, at the same time its 60-day volatility is at its lowest level since 1997 and that the last time volatility was this low, the price entered a three-week rally which saw it pick up 34%. A similar increase now would put the price back to close to $1,600 and that it only needs a minor spark to ignite such a change in perception. There are plenty of geopolitical uncertainties out there which could initiate such a spark. Gold investors will hope McGlone is at least halfway correct in his analysis. Bitcoin investors will be less enamoured!

Gold News from Russia and China

My latest articles published on http://www.sharpspixley.com website looking at the latest gold related news from China and Russia – two real believers in the future of the precious metal.  Click on the titles to read full articles

Russia’s largest gold miners sees H1 gold output rise substantially

Both Polyus Gold and Polymetal – Russia’s two largest gold producers have seen substantial output increases in H1 making suggestions that Russia’s gold output this year might rise by 3% look distinctly conservative.

China’s H1 gold output falls 7.9%, but demand rises

China, the world’s largest gold consumer, appears to be seeing its own gold production fall – down 7.9% in H1 2018

China imports 400 tonnes of Swiss gold in H1

Greater China (mainland plus Hong Kong) remained the principal destination for Swiss gold exports again in June. So far this year Greater China has imported around 400 tonnes of gold from Switzerland alone.

Russia continues to add to its gold reserves

Russia, which has been running down its holdings of U.S. Treasuries, is continuing to increase its gold reserves at a rate of over 200 tonnes a year. At the current rate of increase the nation’s holdings will exceed 2,000 tonnes by the end of 2018.

 

UPDATE: Gold, Silver, Platinum, Palladium – Price And Stock Forecasts/Recommendations For 2018

My latest article on Seeking Alpha looks at changes to my precious metals price predictions for 2018 and recommended stocks given the underperformance in the precious metals space so far this year

Summary

Our precious metals-related stock selections of late December last year have underperformed along with the corresponding metals prices.

We anticipate an improvement in precious metals prices in the remaining months of 2018.

We have re-worked our tabulation of stock and metal price predictions and look for growth over the remainder of the year.

To read the full article click on: Gold And Silver Now And Forecast Target Price Adjustments For End 2018

China, South Africa, Trump trade moves and the Dollar – My recent SP articles

Here are links to four recent articles published by me on the Sharps Pixley website.  Sharps Pixley is probably about the best consolidator of links to pertinent articles on precious metals globally so should be on every gold investor’s list of go-to places for precious metals news and comment.

China’s gold reserves – fact or fiction?

China has again reported a zero increase in its official gold reserves to the IMF for the 20th successive month increasing speculation that it is building up its gold holdings in other non-reported accounts.

How the mighty are fallen. RSA gold on the decline

The Republic of South Africa (RSA) used to be by far the world’s biggest gold producer but output there peaked nearly 50 years ago and has been on the decline ever since.

Markets nervous as Trump trade rhetoric escalates

The U.S.-China trade (tariff) war appears to be escalating and markets are reacting nervously accordingly.

Gold held back by dollar index upturn

Gold looked as though it might be about to break out from its recent weak trading range, but has been brought back down to earth by a stronger dollar

Polymetal’s big new gold mine on stream ahead of schedule, under budget

Russia’s No. 2 gold miner, and world No. 5 silver miner, Polymetal, has announced that its big new precious metals mine – Kyzyl in north-eastern Kazakhstan – poured its first gold on June 25th a month ahead of schedule.  What is more, start-up has been achieved under budget.  Polymetal is London Stock Exchange quoted (ticker POLY).

As we noted when writing about the Russian miner a month or so ago, Kyzyl is a key element in the company’s long term production growth strategy and now that it appears to have started up successfully Polymetal can concentrate on the next major project in its production pipeline – the Nezhda mine.

According to Polymetal, Nezhda is Russia’s fourth largest gold property based in the Republic of Sakha (Yakutia) with a resource inventory of 55.9 million tonnes of mineralised material containing 8.9 million ounces of gold equivalent with an average grade of 5.0 g/tonne gold equivalent based on the latest resource estimate.

Currently, the Company envisions the construction of an open-pit mine at Nezhda and a conventional on-site concentrator followed by concentrate processing at the Amursk POX or 3rd-party off-take. This ensures low capital intensity for the project, making it an excellent fit for Polymetal’s core capabilities. Total capital costs for Nezhda are estimated at US$249 million, including $15 million capitalised pre-stripping costs, with approximately $30 million to be invested in 2018 into project design, permitting and exploration.

Polymetal currently has been operating eight producing mines – six in Russia and one each in Kazakhstan and Armenia and has other projects in the pipeline as well as Kyzyl.  However it has a policy of only managing two new projects at any given time and the current concentration, now that Kyzyl is in production, will be on de-bottlenecking its state-of-the-art pressure oxidation (POX) facility at Amursk in Russia’s Far East, and can now take the decision to progress Nezhda. Then in the prospective pipeline it has a second POX line which could be installed at  Amursk, but won’t take the decision on that until the current POX debottlenecking programme is also seen to be successfully implemented – due to be in early 2019.

At Kyzyl Polymetal has achieved the start-up of the concentrator one quarter ahead of the original schedule that had been announced in 2014, and one month earlier compared with the January 2018 updated plan. Project Capex is expected to be approximately 3% below the original US$325 million budget, inclusive of 62 million tonnes of pre-stripping.

Mining activities at Kyzyl have already reached full design capacity with 315,000 tonnes of ore stockpiled ahead of start-up. The grade control programme demonstrated robust reconciliation with the reserve model with both ore grade and gold contained tracking slightly above plan.   Kyzyl is, in today’s terms, a high grade operation with a reserve grade of over 7g/tonne gold.  First concentrate deliveries to off-takers are scheduled for the end of July with shipments to the Amursk POX facility expected to commence in September.

The Kyzyl concentrator will now be entering a 3-month ramp-up period, after which it is expected to reach nameplate capacity of 150,000 tonne/month mand recoveries of 86% by October 2018. This year Polymetal plans to produce 80,000 ounces (around 2.5 tonnes) of payable gold at Kyzyl, ramping up production to 280,000 ounces (8.7 tonnes) in 2019 and nameplate capacity of 330,000 ounces (10 tonnes plus) thereafter at a very low AISC of approximately US$ 500-550/ounce.

At Kyzyl, the JORC compliant gold reserve is estimated at 7.3 million ounces at 7.7 g/t of gold. This would support a life-of-mine of 10 years for the open pit followed by further 14 years of underground mining. Additional JORC-compliant gold resources comprise 3.1 million ounces at 6.8 g/t indicating strong potential to further extend operations.

“Polymetal is delighted and proud to successfully complete the largest development project in the company’s history ahead of time and below budget”, said Vitaly Nesis, Group CEO of Polymetal who we interviewed back in April (see: Polymetal CEO, Vitaly Nesis, very bullish on silver) “Significant cash flow and net income contributions from Kyzyl should start in Q4 2018.”

Russia is the world’s third largest producer of gold after China and Australia but is expanding output and aiming for the No. 2 spot.  Kazakhstan is currently the world’s 15th largest gold miner and Kyzyl’s output could help move it up a couple of slots by the end of the decade.  Its central bank currently buys most of the gold produced by the country’s mines as it aggressively builds its gold reserve.

 

 

 

 

 

 

China gold – positive news on all fronts

Linked below are two articles I have posted recently on the Sharp Pixley website – both on the latest state of play in the Chinese gold markets.  The first of these looks at gold withdrawals from the Shanghai Gold Exchange (SGE), which some observers equate to the real level of Chinese gold demand being somewhat higher than that suggested by the major Western consultancies which have perhaps more limited criteria on what should actually be included in the demand figure.  We have noted beforehand, quite frequently in fact, that SGE gold withdrawal figures equate far more closely to the total of known gold imports from countries/areas which break down their gold export statistics by country of destination, plus China’s own gold output plus an allowance for scrap and from unpublished import data than the estimated Chinese consumption figures by the consultancies.

Be this as it may, for the first five months of the year, SGE withdrawals are up by 8.55% on the figure at the same time a year ago and up 7.79% on the first five months of 2016 .  We speculate further that if we add Hong Kong consumption to that of the Chinese mainland this account for around 70% of all new mined gold, and with the continuing growth in numbers of the Chinese middle classes, and the continually rising national GDP, gold demand is likely to be on the increase given the propensity of the Chinese middle class population to buy precious metals as a hedge Ginat difficult financial times.  A link to that article is as follows:

Chinese gold demand continues to rise yoy

My second article in the past week on Sharps Pixley noted that the total reported amount of gold in China’s forex reserves, as reported monthly to the IMF, remains unchanged as it has done now for nineteen successive months – indeed ever since the Chinese yuan, or renminbi, has been accepted as an integral part of the IMF’s Special Drawing Right.  We think this situation is highly unlikely given indications over the years from Chinese politicians and academics that the country is aiming to at least match the gold reserves of the Big Western national gold holders.

China has a track record of announcing big gold reserve increases only at multi-year intervals and putting this down to gold being purchased and held in non-reportable accounts until moved into its official forex figures.  Again, we speculate that this gold may be being purchased and held by the state-owned commercial banks on behalf of the People’s Bank of China and only moved into the PBoC reportable accounts at say five or six year intervals.  A link to this article is:

China official gold reserves unchanged again as forex holdings dip

Another piece of positive news on Chinese gold demand came from the World Gold Council which reported a return to growth in Chinese gold jewellery demand.

Market Update: China’s jewellery market – quietly improving

Trump opens Pandora’s box. Global trade war very positive for gold.

Article first published on Sharps Pixley website

Well we’ll soon see if President Trump’s imposition of steel and aluminium tariffs on the EU, Canada and Mexico is for real – or just another negotiating tactic.  He is very much a believer in promising the worst as a tactic for generating concessions in his business dealings, but will this work in global geopolitics?  Tit for tat tariffs are already being promised by those affected – they can play at that game too! – and if they all come about they could cost far more in American jobs than any possible regeneration that might be seen in the U.S. steel and aluminium sectors.  Those are too far down the line of closures and write-offs to see any kind of short term recovery.  And U.S. manufacturers currently relying on imported aluminium and steel for their products will see costs rise which, no doubt, will see them having to increase prices for their goods making them less competitive in both domestic and global markets.

And, of course, such a trade tariff war could easily escalate dragging in more products and countries.  A global trade war does nobody any good as noted by top economist Martin Murenbeeld (www.murenbeeld.com) in his latest weekly Gold Monitor newsletter for his subscribers.

Martin is renowned for his comprehensive, but conservative, analyses of the gold market.  As we have noted before he is mildly bullish, but circumspect, on his stated outlook for precious metals.  He is not a predictor of a rapid rise to a $5,000 or $10,000 metal price but, in our view is a much more realistic observer of metal price trends in looking for steadily rising medium to long term price levels in line with a perhaps weakening dollar index.

As he states: “a global trade war would be catastrophic for the world economy – and would be a big issue for the gold market! A global trade war would seriously alter central bank policies – more loosening/less tightening – which is a plus for gold! And the dollar’s reserve-currency role would be damaged, and accelerate the move to a multiple reserve-currency world (with the dollar playing a much-reduced role).   Central bank gold reserves around the world would likely rise accordingly.”  If he is correct in his analysis and President Trump does not reverse course, the global economy could be in for some very uncomfortable years as /a tariff war stutters and possibly escalates.

What is puzzling about the Trump tariffs so far is the countries which have been targeted – all supposedly allies of the U.S. – while China, which most see as the biggest culprit in terms of what are seen as unfair trade practices, seems to be attracting less immediate attention, although talks with the Chinese are ongoing.  However, one suspects that China, and some other Asian nations will become targets too and again tit-for-tat  tariff increases will result with damaging results for the sectors so chosen.  While President Trump has described the tariff increases as a national security issue given steel and aluminium are used in weapons manufacture, others see the moves as pure protectionism of the worst kind.  Such trading issues usually end up as economically disadvantageous to all parties – hence the likely benefits to the gold market as investors look to so-called safe havens.

My posts on Sharpspixley.com so far this month

Readers of lawrieongold.com will be aware that I also write articles for the Sharps Pixley website.  In case you’ve missed these and would like to read them links to those I’ve published there so far this month are set out below:

Further thoughts on peak gold

18 May 2018 – Additional thoughts on peak gold following a couple of emails from Jeff Christian of the CPM Group which agree that Ian Telfer’s assertion that all major gold deposits have been found already is, at best, premature.

Lawrence Williams

Peak gold according to Ian (Telfer)

17 May 2018 – Goldcorp chairman and industry doyen, Ian Telfer, reckons we are at peak gold – or thereabouts – a view with which we would agree, but also says allthe mega gold deposites to be found already have been – with which we would take issue.

Lawrence Williams

Mixed forecasts on platinum

16 May 2018 – Two detailed reports on platinum at the start of London Platinum Week come up with differing opinions on some aspects of the market, although have broadly similar conclusions overall.

Lawrence Williams

Gold ETF inflows up sharply in April – WGC

14 May 2018 – While equity markets and the gold price have remained flat so far this year one area of encouragement for gold investors may be a reportedly high level of gold inflows into gold ETFs in April.

Lawrence Williams

China’s official gold reserves unchanged – again

08 May 2018 – The Chinese central bank has yet again released an unchanged gold reserve tonnage for the end of April, while its overall forex reserves have hit a five-month low, due – so officials say – to dollar strength against other leading currencies.

Lawrence Williams

Chinese gold demand way up in April

05 May 2018 – Using the latest Shanghai Gold Exchange gold withdrawal figures as a guide to demand, the latter is picking up nicely with April withdrawals well up on those of the past few years.

Lawrence Williams

Q1 gold demand lowest for 10 years

03 May 2018 – The latest Gold Demand Trends report from the World Gold Council sees Q1 gold demand at its lowest for 10 years due almost entirely to a fall in investment demand in key markets. Other demand sectors are somewhat similar or up on a year ago.

Lawrence Williams

Chinese gold demand looks to have risen sharply in April

An edited version of an article first written for the Sharps Pixley website – to see original click here

Despite the latest analysis from the World Gold Council (WGC) which suggested a poorish start to the year for gold demand (See:  Q1 gold demand lowest for 10 years), Chinese demand as represented by gold withdrawals out of the Shanghai Gold Exchange (SGE) appears to have picked up well in April coming out at 28% higher than in 2017 and 24% higher than in 2016 (see table below).  They are still around 9% down on the record 2015 figure for the first four months of the year, but at least the trend appears positive when some other demand statistics appear to be slipping.

Indeed April 2018 gold withdrawals were actually comfortably higher than those in April 2015 too, but in the latter year gold withdrawals out of the SGE were particularly strong in the second half and totalled almost 2,600 tonnes for the full year – around 80% of total global new mined production.  We don’t expect this figure to be matched in the current year, but the latest Chinese figures look to be off to a good start and we could be heading for the best demand figures since 2015.

Table: SGE Monthly Gold Withdrawals (Tonnes)

Month   2018 2017 2016 % change 2017-2018 % change 2016-2018
January   223.58 184.41 225.08 +21.2%  -0.7%
February*   118.42 148.24 107.60 -20.1% +10.7%
March  192.61  192.25 183.24  +0.2%  +5.1%
April  212.65  165.78 171.40  +28.3% +24.07%
May  138.08 147.28
June  155.51 138.51
July  144.71 117.58
August  161.41 144.44
September  214.24 170.90
October*  151.54  153.25
November  189.10  214.72
December  185.21  196.37
Year to date   749.07 690.68 687.32 +  8.45% +8.98%
Full Year  2,030.48  1,970.37

Source: Shanghai Gold Exchange.  Lawrieongold.com

*February and October tend to be anomalous months because of week long holidays when the SGE is closed

Of course, as we have pointed out here previously it is a contentious issue as to whether SGE withdrawal figures are truly an accurate indicator of total Chinese gold demand.  The major precious metals consultancies come up with all kinds of differing reasons why this is not the case.  But in support of our views on this we should point out that SGE gold withdrawal figures seem to relate far better to the sum of China’s own gold production plus known gold imports, plus a reasonable figure for scrap supply and unquantified imports, than these same consultancies’ rather narrower estimates of Chinese annual gold demand.

The latest SGE figures thus do suggest that Chinese investment demand for gold bars and coins may be picking up – particularly as the gold price will have appeared weak at times which could have appealed to bargain hunters.  The prospects of a trade tariff war developing with the USA may also be driving Chinese citizens with disposable income (a part of the populace which is increasing all the time) to safe haven investment.  Furthermore,the huge falls in the value of cryptocurrencies will also have diminished interest in these as a safe investment asset which again may have turned the gold-loving Chinese back to the yellow metal.

The WGC Q1 report noted above does suggest that gold jewellery demand in China is picking up too and points to a continuing sharp global growth in technological demand – and China is at the forefront of the latter in that its high tech industries are becoming world dominant.

Randgold still investing in Malian gold

As noted earlier this week,Randgold Resources CEO, Mark Bristow, has been on a tour of the company’s operations – all in West and Central Africa – ahead of the release of the company’s Q1 2018 results announcement in just under a week’s time.  The latest visit was to its Loulo-Gounkoto complex in Mali, which in combination is currently the largest gold producer in Africa, although this position may soon be usurped by the Randgold-operated, and 45%-owned, Kibali gold mine in the DRC.

In an announcement Randgold confirmed that it continued to see Mali as having potential for further growth and is continuing to invest there – Loulo-Gounkoto is already the single biggest foreign investment in the country.  The compzny says Q1 output will fall back from Q4 2017 levels due to scheduling production from lower grade areas – although we will have to wait for the quarterly announcement to find out by how much.

Randgold (LSE: RRS and NASDAQ: GOLD) has arguably been the No.1 global gold growth stock over the past several years, despite all its operations being in what the investment community sees as difficult investment environments.  It has been particularly adept in continuing to grow its gold output while maintaining mostly good relationships with its host governments, which is presumably why the much larger Anglogold Ashanti, which also owns 45% of Kibali, ceded construction and operational management of the DRC’s largest gold mine to Randgold.

A lightly edited version of Randgold’s statement on its Malian operations is set out below:

Randgold’s Loulo-Gounkoto gold mining complex in Mali, already one of the largest of its kind in the world, is still expanding, with the Gounkoto super pit and the new Baboto satellite pit joining its Yalea and Gara underground mines.

Speaking at a site visit for local media, chief executive Mark Bristow said the complex’s all-Malian management team, which steered it to a record performance in 2017, had made a good start to this year, although production was expected to be lower than the previous quarter on the back of forecast lower grades, reflecting the sequencing of mining lower grade blocks at both Loulo and Gounkoto.  Although slightly delayed, mining of the Baboto satellite pit was now well on track to support the complex with softer oxide ore feed.

“We expect grades to pick up and production to increase through the rest of the year to deliver our production guidance of 690,000 ounces for 2018,” said Tahirou Ballo, the GM of the complex.  Mr Ballo noted that production from the underground mines continued to show a steady improvement since Loulo took over the mining from contractors in 2016.

Chiaka Berthe, the West African GM of operations, said the Loulo-Gounkoto complex represented the largest foreign investment to date in the Malian economy.  After all these years it was still investing in new mining projects like the Gounkoto pushback and the new Baboto satellite pit he said.  The country is rich in other gold opportunities, and Randgold continues to search for extensions to the known orebodies as well as new discoveries in its extensive Malian landholdings.

On its sustainable development policy in the areas around its mining operations, Randgold also continues to invest substantially in its host communities.  Some 5,000 students are enrolled at 17 schools built by the company, and last year 52 of them were awarded bursaries for further study.  Randgold is also advancing the development of commercially viable agribusiness enterprises, to mitigate the socio-economic impact of the complex’s eventual closure.  The project already includes five incubation farms and an agricultural college with 70 students.

WGC: Q1 gold demand lowest for 10 years

On a day with gold trading around $1,310 and stock markets almost universally in the red, the World Gold Council (WGC) issued its latest Gold Demand Trends quarterly report and it doesn’t make for great reading for gold investors.  According to the WGC’s latest figures Q1 gold demand was the lowest for 10 years, primarily due to a fall in gold investment demand led by China, Germany and the USA – usually the principal investment demand centres.  Altogether the WGC reckons that global bar and coin demand fell by 15% quarter on quarter and ETF inflows were softer too, although still positive at 32.4 tonnes.

God followers in the USA certainly won’t be too surprised at these figures given the extremely weak reported gold coin sales from the U.S. Mint – see chart from www.goldchartsrus.com below:

Compared with say 2015 and 2016 U.S. Mint coin sales have been pretty subdued for two years now and they won’t have been helped by the lacklustre performance of the gold price over the past month or so.  Gold has remained range-bound mostly in the low $1,300s largely due to a sharp pick up in dollar strength as represented by the dollar index, which has risen around 4.5% from its low point this year – and gold is down a somewhat similar percentage from its high point of around $1,365 at the time of writing.  The gold price is generally inversely related to U.S. dollar strength and this suggests the correlation is holding up well.  The dollar appears to have turned down a little today and if this is the start of another downwards leg then the gold price could benefit accordingly.

The WGC report is not wholly negative for gold.  It does suggest that jewellery demand is holding up reasonably well with strength in China and the U.S. counterbalancing a decline in Indian jewellery demand, while industrial demand for the precious metal in the tech sector has seen six consecutive quarters of growth.

So where does that leave us now?  Equities are still looking nervous with falls almost across the board, bitcoin appears to be picking up a little with BTC back over $9,000 and Ethereum pushing up above 700, although we remain dubious about long term strength in crypto currencies.  One commentator – I forget who – described bitcoin as like Candy Crush vouchers, or in other words has parallels to computer gaming, and we wouldn’t disagree seeing it crashing back to near zero as definitely a possibility – we shall see.

If equities continue their weakness – and even at its current depressed level gold has outperformed th Dow and the S&P 500 so far this year.  All are in negative territory so far but gold is only down around 0.75% whereas the DJIA is down over 4% since the beginning of the year and S&P 500 down over 3%. (By comparison bitcoin is down over 30% since the beginning of the year and over 50% from its heady peak.) In other words, year to date gold has done a better wealth protection job than U.S. equities and way better than bitcoin!

Register at, or log on to, www.gold.org to download the full report.

Above article lightly edited version of one first published on Sharps Pixley website on May 3rd

Randgold’s Tongon to claw back lost Q1 gold production

As followers of the company will be aware Randgold Resources has had to overcome a succession of problems at its big Tongon gold mine in Côte d’Ivoire – initially by technical problems at the mill and most recently by work stoppages by its labour force.  Although a relatively short life operation – it has around three and a half years’ life remaining based on its existing resource, although the company is working to expand this through brownfields exploration around the current operation.

Randgold CEO, Mark Bristow, is a big supporter of new gold mining exploration in Côte d’Ivoire and the country’s government’s attitude towards mining investment and development and is working hard to try and find new projects there which fit in with its new mine development policies.

Bristow tends to visit all the company’s operations each quarter ahead of the quarterly financial announcements – 2018 Q1 figures are due in the next 2 weeks.  On a visit by Bristow to Côte d’Ivoire last week the company made the following statement on the latest situation at Tongon and the intent to make up any lost production stemming from the recent work stoppages.

 Production at Randgold’s Tongon gold mine was impacted during the first quarter of 2018 by a series of work stoppages which started with the employees of the mining contractor and then spread to other operations.

Management said while this would impact on the mine’s production guidance of 290 000 ounces for 2018, it was making a determined effort to recover most of the lost output, with operations now back at full capacity.  To mitigate the downtime effect and lost plant throughput, Tongon processed ore from the run-of-mine and scats stockpiles during the stoppages and also used the opportunity to upgrade parts of the plant to achieve a higher and more consistent throughput going forward.

Chief executive Mark Bristow told a local media briefing that the mine’s management had been supported in resolving the situation by the highest level of the government as well as parliament members and local authorities, and, along with the workers and union leadership, these parties had also agreed on a constructive process to workshop solutions and prevent similar issues in future.  It was encouraging to note, he said, that government fully acknowledges the importance of Randgold and Tongon to the Ivorian economy, and the fact that Tongon represents the single largest investment in the country’s mining industry.

“The history of Tongon has reflected the occasionally turbulent socio-political nature of its environment and a misunderstanding of the mining business which is a relatively new activity in the country, but management has dealt effectively with the challenges that have come their way.  The mine is managed by a majority Ivorian team and of its 1,700 employees, only 40 are expatriates.  Their record speaks for itself: since it was commissioned in 2010 Tongon has produced 2.7 million ounces of gold and in 2017 it posted record results, despite the slow start to the year,” Bristow said.

“Tongon has three-and-a-half years of life left as things stand but we are actively looking for means to extend this and a number of exciting near-mine opportunities are currently being evaluated by the exploration team.  We’re also exploring for new gold discoveries elsewhere in our large permit portfolio in Côte d’Ivoire, where we intend to retain a long term presence.”

At the same time, however, Tongon is planning for life after its eventual closure by developing an economically viable agribusiness to provide replacement income for former workers and the surrounding communities in line with its sustainable development policy.

We can probably expect a couple of further statements on the company’s other operations ahead of the release of the Q1 figures due on May 10th.  Randgold (LSE: RRS, NASDAQ: GOLD) has been one of the foremost gold mining growth stories with current annual gold production of some 40.9 tonnes putting it in 15th place among the world’s major gold miners, according to precious metals consultancy Metals Focus (See: Top 20 Global Gold Miners – Newmont narrows the No. 1 gap.  

 

 

Polymetal CEO, Vitaly Nesis, very bullish on silver

Slightly expanded version of article first published on the Sharps Pixley website:

Meeting with Vitaly Nesis, CEO of Russia’s second largest precious metals mining company, Polymetal (LSE: POLY), is like a breath of fresh air in relation to talking, if one can get a word in, with the CEOs of many equivalent-sized Western gold miners.  Straight answers to questions seems to be the Nesis mantra!

Polymetal is, according to GFMS, the world’s fifth largest silver miner but it should be ranked primarily as a gold miner, producing last year some 1.433 million gold equivalent ounces (44.6 tonnes) and its gold production by value dwarfs the value of its silver production by around 4:1 at the current gold:silver ratio of around 80:1.  It also produces copper and zinc which also come into the gold equivalent ounce figure at a ratio of 1.5 tonnes of copper equivalent to a gold ounce and 1.2 tonnes of zinc.  Metals Focus ranks it as 18th in its listing of the world’s largest gold mining companies but in terms of gold equivalent ounces it perhaps should be even higher up the listing according to its own latest figures.

The company is in the forefront of Russia’s drive to increase domestic gold output and has what will become its biggest gold mine, Kyzyl in Kazakhstan, due to come on stream in August this year which will add substantially to that country’s gold output too.  This new mine is due to reach full production capacity of around 320,000 gold ounces annually during 2019.

Kyzyl is a world-class asset (high grade by today’s standards with the a reserve grade of over 7 g/tonne gold)  and one of the best development-stage gold projects in the world and was acquired by Polymetal in 2014 for a total of $618.5 million. With its large high-grade reserves and low capital intensity, the asset is set to become the main source of medium-term growth and significant shareholder returns for the company.

Once completed, the project will comprise the Bakyrchik refractory gold deposit and the Bolshevik deposit and a state-of-the-art processing plant that is anticipated to deliver first concentrate production in Q3 this year. Mining has already started in the open pit with the ore being stockpiled ahead of the initiation of the process plant.  The deposits will initially be developed by open pit mining (10 years) and later be substituted by underground mining (a further 12 years). Mined ore will be processed via conventional flotation followed by third party off-take and/or pressure oxidation at Polymetal’s POX facility in Amursk.

The Project is located in north-eastern Kazakhstan in a traditional mining region with good infrastructure and easy access to grid power and the railway. Based in the Auezov Village, the site is approximately 750 km east of the capital city of Astana and 75 km west of the mining and metallurgical industry centre of Ust-Kamenogorsk (or Oskemenpopulation of approximately 300,000). Kyzyl is also in close proximity to the Russian (120 km) and Chinese (330 km) borders. The nearest railway station is 6 km away in the village of Chalobai, connecting Ust-Kamenogorsk to Shar, as well as Russia, China and Europe.

Overall group gold production is scheduled to increase to 1.8 million ounces by 2020 and further to over 1.9 million ounces by 2023 assuming the projects in its proposed forward pipeline go ahead as planned – but some of these do not yet have Board approval.

When questioned on what he felt were the prospects for precious metals going forward Nesis was fairly non-committal on the prospects for an increasing gold price, but admitted to being a strong bull on silver.  He pointed out, as we have also done in these columns, to the high level of the gold:silver ratio (GSR) which is currently at close to 80 (and has been as high as 81.5 recently) and is firmly of the opinion that a GSR of around 60 would be far more appropriate.  Even at what some regard as a particularly low current gold price level of around $1,320, a GSR of 60 would put silver at $22 an ounce – some 33% higher than it is today.  In our view, though, it would probably take a decently rising gold price to stimulate a re-rating of the GSR, in which case the gain in silver would be even higher.

Polymetal currently operates eight producing mines – six in Russia and one each in Kazakhstan and Armenia and has other development projects in the pipeline as well as Kyzyl.  However it has a policy of only managing two new projects at any given time and the current concentration is on Kyzyl and on de-bottlenecking its state-of-the-art pressure oxidation (POX) facility at Amursk in Russia’s Far East.  It won’t take a decision on building what is potentially its next new mine – Nezhda – until Kyzyl is up and running successfully.  Likewise it has a second POX line in prospect at Amursk, but won’t take the decision on that until the current POX debottlenecking programme is also seen to be successfully implemented – due to be in early 2019.

Further down the road will be the Prognoz new mine development in Russia but a go-ahead decision on this would not be made until Nezhda is up and running in 2021, assuming there’s a positive Board decision to go ahead with this.  Prognoz is the largest undeveloped silver project in Russia and one of the largest in the world.  The property comprises a very large high-grade resource of 292 million ounces oof silver at 586 g/t with excellent exploration upside estimated at 119 — 273 million ounces of silver contained at 469 g/t. Polymetal envisions a relatively low-capital and fast development approach for the asset that is based on open-pit mining and conventional processing. Production from the property is estimated at 20 million ounces of silver per annum should the project proceed, but go-ahead is only likely to be given in late 2021 with possible first production in 2024.

There is also a possible pgm project at Viksha as a potential long term prospect, but Nesis obviously thinks this is perhaps non-core and may be sold off,  as may be the barely profitable Maminskoye mine.  The currently unprofitable Kapan mine in Armenia is also under review.

Polymetal’s current priority is, like its Western counterparts, balance sheet improvement and cost control.  The new operations coming on stream will cut capital outlays and should reduce overall group costs.  Current AISC comes in at $893 an ounce putting Polymetal firmly in the mid tier among major gold  producers globally.

The current dividend policy might be seen as generous in comparison with most western gold miners and is to pay out 50% of underlying net income.  Current dividend yield is around 3.8% at the current share price of a little over £7 (its primary listing is on the London Stock Exchange).  It likes to compare its dividend policy positively against other key London-listed precious metals miners Randgold and Fresnillo!

Nesis confirmed that the company’s gold production is nearly all sold to Russian banks, which in turn sell it on the the central bank.  Last year the Russian central bank expanded its gold reserves by well over 200 tonnes and national domestic production was around 270 tonnes according to Metals Focus in its Gold Focus 2018 report, although the country’s Finance Ministry put the level a little higher at just over 300 tonnes.

Maybe because it is a Russian miner with its principal operations in Russia and Kazakhstan, Polymetal has to try that much harder to generate Western investment, but interestingly it has now exceeded its production guidance for six successive years and its current dividend policy, noted above, puts all the major western gold miners to shame. Nesis is of the opinion that investment in mining in Russia is probably less risky than investing in mining in Africa, pointing out that government is stable, there have been no property nationalisations or drastic changes in royalty and taxation policies – and in any case Polymetal is a Russian company working in an environment it understands in its home and allied countries.  It has no desire or intention of spreading its wings outside the areas it knows.