Bank on gold as still being a safe bet ~
By Gregory Reynolds
Many investors lost sight of gold during the past year as base metals put on a dazzling display.
Yet, gold hit a high of $732US an ounce on May 12 on the spot market and while it backed up during the following months, it has lots of room for another run at the record $850US an ounce set in 1980.
The mineral exploration industry still loves gold and this means good news for the numerous Canadian communities dependent on it.
The rebirth of Kirkland Lake is a direct result of gold's high price in comparison with four years ago.
Trying to guess where any commodity is going in the short term is a good way to lose your house but long term trends are a different matter.
It is generally agreed gold will continue to move upwards.
One man who has proven in the past that he can read a trend is Pierre Lassonde, who retired as president of Newmont Mining Corp. in November.
He told Report on Business Magazine that he sees gold topping the $1,000US an ounce mark.
"We're five years into a bull market that will last 12 or 15 years. So within the next seven to 10 years, you will definitely see gold well above $1,000US."
Lassonde and his partner Seymour Schulich built Franco-Nevada Mining Corp into a world class gold company.
When the largest gold mining company in the world, Newmont Mining Corp., acquired it in 2001, he became Newmont's president.
The Ontario Ministry of Northern Development and Mines reports for 2006 that "gold, diamonds, copper, nickel, platinum, palladium and zinc are the primary focus of the exploration industry in Ontario. Gold remains the leading mineral sought but base metals are approaching the levels of gold as higher prices for base metals have spurred exploration across the province and are advancing projects in the Sudbury area.
"Diamond exploration continues to grow in Ontario as the search for diamonds widens across much of Northern Ontario."
In its November 2006 Global Gold Outlook, RBC Capital Markets said "gold is expected to remain in a bullish cycle for the remainder of the decade, and possibly even longer.
"Our constructive long term outlook is based on the importance of gold as an alternative investment, the trend of increased investor risk aversion, the decline in confidence in the fiat money system and a positive fundamental supply-demand balance in response to Asia's growing middle class.
"In our view, fundamental and macro-economic factors continue to anchor a long term gold bull market. We expect positive gold supply-demand balance, strong investor sentiment and a weaker U.S. dollar to support gold and gold equity strength."
The Timmins area has the province's newest gold mine as St Andrew Goldfields Ltd. got its Stock Gold Complex into production in early 2006.
The problems associated with putting gold deposits into production are many but the main one is finding the money to build a mill (St Andrew has one) or to acquire a used one that can handle the ore at a profit.
There are many known gold occurrences in the Timmins-Matheson-Kirkland Lake corridor but junior mining companies just can't raise the many millions needed to take a discovery from advanced exploration to operational status.
Robert Calhoun, manager of the Discover Abitibi Initiative, reports from his Timmins office that provincial data shows in 2002 there were 50 exploration companies active in the Timmins-Kirkland Lake area.
In 2005-06, that number had increased to 91. More importantly, 30 of those companies were new to the area.
Discover Abitibi is a multi-million dollar regional economic development program aimed at stimulating mineral exploration and mining.
Created by Timmins and Kirkland Lake and funded through FedNor, the Northern Ontario Heritage Fund Corporation, municipalities in the region and the private sector, the initiative has generated a wealth of technical data to assist the mineral exploration sector.
The philosophy behind the initiative is that you hunt for minerals where minerals have been found. Timmins and Kirkland Lake are certainly among the most mature gold camps in Canada.
Gold was first discovered in current-day Timmins in 1907 and there have been more than 60 producing mines over the decades.
With historic gold production of more than 70 million ounces, Timmins is the largest single gold producing area in North America. It also ranks in the top five areas in the world.
Despite that hunt where minerals have been found in the past‚ axiom that has guided mineral exploration since humankind first attached a piece of flint to a stick, the Mining Association of Canada (MAC) finds it necessary to hammer the point home in briefs to the federal government.
In a pre-budget submission to Finance Minister James Flaherty, MAC president and CEO Gordon Peeling said "In terms of tax treatment, there is presently a bias within the Canadian system toward encouraging green-field exploration and discouraging exploration in proximity of existing mines.
"These tax signals discourage exploration in the exact areas where prospectivity is greatest.
"One could argue that this tax treatment is appropriate based on the assumption that a company’s natural inclination will be to explore in its own backyard‚ rather than in green-field locations.
"We believe this assessment misses a key consideration — namely that it is far more expensive to explore at depth than to explore in surface green-field sites.
"In this regard, geological experts in our member companies suggest that it is approximately three-times more expensive to explore at depth based on cost-per-drill metre methodology and seven-times more expensive based on cost-per-target methodology.
"To address this situation, we ask the federal government to broaden the definition of the Canadian Exploration Expense (CEE) category with the aim of encouraging effective exploration, especially in and around existing mines and available infrastructure. These expenditures should be rightly viewed as exploration‚ and hence accorded a tax treatment of 100 per cent deductibility per year."
MAC has been arguing for some time that there is a crisis in Canadian levels of mineral reserves.
It further argues the "reserve crisis is such that the federal government should do all it can to encourage exploration in all respects."
MAC knows the industry is booming and black ink is being used everywhere but it has a responsibility to look down the road (past the short shelf life of any government) and worry out loud.
It told Flaherty, "We believe it is critical that the federal government do everything it can to support the continued prosperity and investment of the Canadian mining industry."
The residents of over 100 mining communities |
