Ken:
I doubt we'll ever agree on all the factors of how we got here, but we definitely agree this is now a long term hold and not likely to reach anywhere near old highs until gold recovers substantially.
I agree there are holders out there that would have preferred Bema sit on Casale until gold recovered and a better deal could be had. One of the reasons is that they do not find it out of the realm of reason that Placer could find another large deposit on Aldebaran comparable to Casale. I doen't believe this was a plausible course of action, though, because Bema and Star were so cheap when the standstill agreements began to expire they would have been had for peanuts. Even an auction would not have gotton us back to the $5-6 level, I don't think. The Placer JV gave them 49% ownership, $20 million in cash, no financial commitments, and all the heavy lifting must be done by Placer. That is not a shabby deal in this market. Lots of juniors would love that kind of deal right now.
I also agree that economics will drive the development of the entire Aldebaran property. I don't think Placer's feasibility study will be done with only Casale in mind. If gold stays in the tank, the odds of development are obviously worse; however, I think the POG picture would have to look extremely bleak at the end of 1999 and into the forseeable future from there before Placer would walk away from the Aldebaran property.
I agree in spades with your comment that exploration is all but extinct. For companies not JV'd with a deep pockets major it is extinct. PGU is all but worthless and ECO is not far behind. Royal Oak is very shaky, all the South Africans are way under water and I look for them to be closing in 1998, and new reserves are not being found at anywhere near the rate at which the majors are depleting there reserves. Drastically falling production must eventually raise gold prices.
My broker tells me the South African majors (Anglo, Ranggold, Ashanti, etc.) are seriously looking at spinning their gold mining operations off their individual companies into one large JV which will hold all the SA gold mines in order to achieve whatever economies of scale can be achieved. They can then look at shutting down those that can't be saved and salvaging those they can. Such a restructuring would give them some economies of scale and the financial hit would be less than if they continue to operate independently, which will mean shutting them all down at some point. Their cost of production is closer to $500/oz than $400 on an individual mine basis. Shutting down the majority of SA production would make one hell of a psychological point to the market even though their % of world production is not that great any more. For marginal mines, the next 6 months don't look good. I expect to see a lot of closings.
Terry |
