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Gold/Mining/Energy : Gold Price Monitor -- Ignore unavailable to you. Want to Upgrade?

To: Bobby Yellin who wrote (42523)	10/9/1999 9:22:00 AM
From: Bill Jackson	Respond to of 116762

Bobby, At $200 or less those will be the only mines operating. Since most mines are capitalsed to operate for a 20 year lifespan(more or less) that means they would provide 2 million ounces per year for 20 years. Not enough IMO to keep gold below $200, thus it would rise. Note at $200 they would not rush to empty the mine and so would size the equipment for a 20 year run. If gold was $300 the would size for 10 or so buying larger milling equipment as the extra $ would pay for it being thrown away after the ten years as well as all the other larger sized work being thrown away. Bill

To: Bobby Yellin who wrote (42523)	10/9/1999 11:33:00 PM
From: Alex	Read Replies (1) \| Respond to of 116762

Gold digs its own grave Worried by falling prices, mining companies played the futures market to profit from decline. Then prices rose and the bet backfired By Dan Gledhill It should have been a cause for celebration. Two weeks ago, after an absence of 20 years, the buyers returned to the gold market and the price of an ounce jumped more than $40 to $330 (œ200), a far cry from its all-time high of $850 in 1980 but well above this year's low of $253. The change of heart was prompted by the moratorium on gold sales that was announced a fortnight ago by 15 European central banks. It was a triumph for the gold producers, who have lobbied tirelessly for an end to central bank selling since 1997, when Australia revealed that it had flogged two thirds of its reserves. At least it should have been a triumph. Instead, as gold prices began to recover at the end of last month stories began to circulate that a number of hedge funds - which had bet on further falls - had been caught short. Then came last week's bombshell that the golden recovery may have cost Ashanti upwards of $450m, forcing the Ghanian mining firm into the sanctuary of a merger with Britain's Lonmin, the remnants of Tiny Rowland's Lonrho mining empire. Elsewhere, shares in other big gold producers like the Canadian groups Cambior and Barrick Gold were undermined by fears of similar losses. The reason for these deficits, whether alleged or actual, was that not even gold's staunchest defenders believed the precious metal's value would ever recover. The negative wisdom of industry Cassandras like Ted Arnold of Prubache and Andy Smith of Mitsui Commodities had become conventional. In an era of low inflation and runaway equity markets, holding on to gold was a literal waste of money. The eagerness of central banks to swap their sleepy gold reserves for more energetic assets had created an overhang of supply that seemed to preclude future rallies. The last straw was May's announcement from Chancellor Gordon Brown that Britain would also reduce its reserves. Faced with such an unremittingly negative outlook, gold producers needed a way to make low prices profitable and they found the answer in the murky world of the derivative markets. In the second quarter of this year, with gold prices in freefall, investment banks re-ported a surge of interest from gold producers eager to hedge themselves against the further falls that were thought inevitable. "You have to understand that mining companies have been faced with 20 years of low prices," said a metals specialist at one investment bank. "Even lower prices could have put them out of business." His bank was just one of a number, including UBS and Goldman Sachs, to have sold a variety of complex derivative products to gold producers that insulated them against further falls. Some were so certain of continued weakness that they "over-hedged" themselves in order to profit from lower prices. The last thing they expected was a rally, but last month's announcement of the moratorium on central bank sales has caused just that. When they should have been celebrating the recovery, most gold producers have found themselves nursing whopping losses on the derivative products that were meant to be their salvation. The industry strategists whose wisdom they followed are equally dumbstruck. "I still to this day do not understand why the central banks did what they did," says Mr Arnold. "It was like firing on their own troops. It has taken down Ashanti and Cambior and there could be a lot more. "It is still a very bloody battlefield and no one is quite sure what's going on." The most curious aspect of the recent upheaval is the way that many gold producers were the authors of their own downfall. The moratorium followed an intensification of lobbying led by a group of South African producers. They teamed up with the country's National Union of Mine Workers to convince, among others, Chancellor Gordon Brown that the Bank of England's plan to sell 415 tonnes of its own gold reserves was hurting the Third World economies it was designed to help. But it seems that the gold industry's right hand did not know what its left was doing. "Ashanti had no idea what was going on," says Michael Coulson, head of global mining research at Paribas. "All derivative strategies were carried out in an atmosphere of falling prices. Many gold companies had no idea what was going on. People who'd put complex strategies in place, even though they were lobbying, didn't realise that they were digging their own graves. They could only remain healthy if the gold price did what in fact they didn't want it to do." But not everyone lost, and it will come as no surprise that the winners have been the South African producers that lobbied hardest for the moratorium. AngloGold, a subsidiary of the London-quoted mining group AngloAmerican, is thought to have come out unscathed. Sitting even prettier is Harmony, a South African mining company that is thought never to hedge against price movements. "South African mining companies have always been under-hedged," says Mr Arnold. "They take the view that they can mine gold better than anyone else." AngloGold is understandably proud of its part in persuading the central banks to cease their selling. "It would be arrogant in the extreme to say that we arrived like Moses, read them the tablets and that was it", says an AngloGold spokesman. "It's just that for a long time we, as producers, saw people manipulating our market and had no part in the game. What happened in 1996 was that we and our peers decided that we were abrogating responsibility for our own market. Now this has generated a momentum, and we're cautiously optimistic that the debate is starting to result in a better level of understanding." The market manipulators he describes are probably the hedge funds, which have made hay by selling gold short and watching the price plummet. Rumours abound that the funds have been caught on the hop by gold's recovery. Certainly the suddenness and severity of the rally suggests that many players have had to buy back large short positions. Unfortunately, many of AngloGold's fellow mining companies have also been caught out. Adding insult to injury is the consensus that this rally will be short-lived and gold's slide will soon resume. "Why be bullish?" asks Mr Arnold. "Where's the demand going to come from? The bottom line is that there's too much gold in central bank vaults. Gold is a commodity in over-supply and all they have done is buy themselves a two-year reprieve." If this is a reprieve, companies like Ashanti will be dreading the next relapse. independent.co.uk