Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
At the start of golden ages golden stories should be told.
The Incas believed gold was the “Sweat of the Sun” and silver was “Tears of the Moon,” gold represented the glory of their sun god, Inti.
Early Greeks thought gold was a combination of water and sunlight.
Turkey’s “Gold of Troy” treasure trove was dated to between 2450 -2600 B.C. It contained gold works ranging from delicate jewelry to a one troy pound (12 troy ounces) gravy boat.
The graves of nobles at the ancient Citadel of Mycenae near Nauplion, Greece, contained elegant works of art created by skilled craftsmen more than 3,500 years ago – gold figurines, masks, cups, diadems, and jewelry, plus hundreds of decorated beads and buttons.
In ancient Egypt, gold was considered the skin or flesh of gods, in particular the Egyptian sun god Ra. Gold was unavailable to anyone but the pharaohs. The Egyptian word for gold was “nub,” taken from gold-rich Nubia – shown on the Turin Papyrus as a major gold producer in antiquity.
The first true coins in Western civilization were issued, about 640 B.C., by King Ardys of Sardis. They were small round lumps comprised of electrum (a naturally occurring amalgam of silver & gold) – they were not of any standard weight & purity of metal or size.
The Greeks would not accept the electrum coins in trade so the coins were outlawed by King Croesus (560-546 B.C.) and gold or silver coins were issued. When the Lydians were captured by the Persians in 546 B.C., the use of gold coins began to spread.
“Gold, measured out, became money. Gold’s beauty, scarcity, unique density and the ease by which it could be melted, formed, and measured made it a natural trading medium. Gold gave rise to the concept of money itself: portable, private, and permanent. Gold (and silver) in standardized coins came to replace barter arrangements, and made trade in the Classic period much easier…
A monetary standard made the world economy possible. The concept of money, (i.e., gold and silver in standard weight and fineness coins) allowed the World’s economies to expand and prosper.
Money had been invented. Its name was gold.” A brief History of Gold, onlygold.com
There are more than 400 references to gold in the Bible, including specific instructions from God to cover furniture in the tabernacle with “pure gold.”
“By the late 13th century it was the city state of Venice that controlled trade throughout the Mediterranean. And the Venetians knew that if they wanted to consolidate and further increase their power and influence that they needed a coin that would be accepted by all nations. For such a coin would allow trade to flow freely and easily and greatly facilitate payment for goods.
Many references list Giovanni Dandolo as the originator of the Venetian ducat in 1284. But it was actually in 1274 when the Doge of Venice, Lorenzo Tiepolo, began minting a gold coin with the image of the Doge kneeling before St. Mark on the obverse and the figure of Christ on the reverse – and thus the gold ducat was born. It was a coin weighing 3.5 grams and struck in .986 gold. These specifications for the ducat would remain the same for the next 700 plus years. It continues to be struck even today. Not since the Roman Empire, had a coin of gold been struck that would capture 
the trust of all nations and be as enduring as the ducat.
The popularity of this coin quickly spread throughout Europe and even beyond to most areas of the Middle East and including India, Egypt and Africa. For here, at last, was a coin that allowed any nation of the world to trade with another and have a uniform method of payment. In all cases, the specifications of the coin were the same – 3.5 grams of .986 gold. In later years, the ducat was also struck in fractions and multiples – from as small as 1/32 ducat to as large as the extremely rare 100 ducats…
Today, the US dollar is the currency that is accepted worldwide; and before the dollar it was the British pound. But the gold ducat stands out above all other coins as having achieved acceptability over the known world based on its reputation and specifications. For centuries the ducat held the position of being the world’s currency. No other coin can make that claim.” The Ducat, Doug Prather winsociety.org
The world’s first hallmarking system, scrutinizing and guaranteeing the quality of precious metal, was established in 1300 at Goldsmith’s Hall in London – where London’s Assay Office is still located today.
In 1422 the Venice Mint struck a record 1.2 million gold ducats using 4.26 tonnes of gold from Africa and Central Asia.
Gold was one of the gifts of the Magi.
Gold
Almost all of the gold that has ever been mined still exists.
Gold is called a “noble” metal because it does not oxidize under ordinary conditions. Its chemical symbol Au is derived from the Latin word “aurum.”
Gold is bright yellow and has a high luster. Apart from copper and caesium it is the only non-white colored metal – the arrangement of outer electrons around the gold nucleus is the reason for the yellow color. Copper creates pink and rose tones in gold. The more the copper, the deeper the effect.
Gold can mixed with other metals to give it different colors.
White gold can be 18-karat or 14-karat. There are two basic types of white gold alloys: gold mixed with nickel and gold mixed with palladium. To enhance the whiteness, almost all white gold is plated with rhodium, a shiny, white metal which is extremely hard.
Of the 92 natural elements in the earth’s crust, Gold ranks 58th in rarity – occurrence of gold in the earth’s crust = .005 parts per million. The largest gold nugget ever found is the “Welcome Stranger” discovered by John Deason and Richard Oates in Australia on February 5, 1869. The nugget is 10 by 25 inches and yielded 2,248 ounces of pure gold. A one ounce nugget of gold is a rarer find than a five carat diamond.
Estimates suggest that the total volume of gold ever mined is approximately 170,000 tonnes or 5,465,670,000 ounces. To visualize, imagine a single solid gold cube with edges of about 20 meters. The population of the world was 7,000,000,000 in October of 2011 so there were .78 ounces or 24.88 grams of gold per person on the planet – that’s $1,240 worth of gold for each person.
Sixty-five percent of all gold in circulation has been extracted since 1950. Seventy-five percent of all gold in circulation has been extracted since 1910. Over 90 percent of the world’s gold has been mined since the California Gold Rush.
The annual worldwide production of gold is approximately 2,810 metric tons or 90 million troy ounces per year – the world pours more steel in an hour than it has poured gold since the beginning of recorded history.
The basic unit of weight used in dealing with gold is the troy ounce, the “troy ounce” comes from the French town of Troyes, which created a system of weights in the Middle Ages used for precious metals and gems:
Standard Bar Sizes:
The world’s largest gold bar weighs 200 kg (440 lb).
Karat Gold Conversions:
“Fineness” defines gold content in parts per thousand ie a gold nugget containing 900 parts of pure gold and 100 parts of silver and copper, would be considered 900 fine.
Karat indicates the proportion of solid gold in an alloy based on a total of 24 parts – 14-karat (14K) gold (commonly used in jewelry manufacture) indicates a composition of 14 parts of gold and 10 parts of other metals.
Consider
Gold no longer has a legal role in the world’s monetary system, but gold, throughout the centuries, has performed two jobs that today’s fiat, paper money, or any other financial innovation, cannot do;
Because of a collapse of faith in sovereign obligations – fiat currencies/paper money – gold is going to quickly become a core banking asset.
Following many years of net annual sales in the 400 to 500 tonne range, central banks, underweighted in gold and overweight in dollars and euro’s, became net buyers of gold in 2009.
In March of 2012 countries continued the trend of gold buying reducing the “free-float” available to meet future demand. According to the International Monetary Fund (IMF) at least 12 countries increased their gold reserves in March by buying a total of 58 tonnes.
Significant purchases include:
Other names on the list of recent central bank buyers include Colombia, Venezuela, Thailand, Turkey, Belarus, Sri Lanka, Mauritius and Bangladesh.
In 2009 China purchased four tonnes of gold bullion from Hong Kong. In 2011 China purchased 46 tonnes of gold bullion.
“In the first two months of 2012, Hong Kong is reporting that China’s purchase of gold bullion has jumped 600% from last year. At this pace, China will easily surpass the 46 tonnes of gold bullion it purchased from Hong Kong in 2011.” Michael Lombardi, contributor Profit Confidential
China is also buying up the production from its own gold mines, as is Russia.
“The dollar might be king today but only against the faltering euro. But what happens when we are reminded that US debts are running at levels comparable with Greece?
As the largest holder of foreign dollar reserves the Chinese are only too painfully aware of how exposed this leaves their savings in a slump.” Peter Cooper, Fear of a dollar collapse will make the Chinese the biggest buyers of gold this year goldseek.com
The IMF also said that central bank demand in 2012 may be even higher than the 456.4 tons they bought last year – the most in almost fifty years.
“The International Monetary Fund (IMF) is planning to purchase more than $2 billion worth of gold on account of rising global risks. The IMF currently holds around 2800 tonnes of gold at various depositories.
The Fund is facing increased credit risk in light of a surge in program lending in the context of the global crisis. While the Fund has a multi-layered framework for managing credit risks, including the strength of its lending policies and its preferred creditor status, there is a need to increase the Fund’s reserves in order to help mitigate the elevated credit risks. Bloomberg quotes a report by an IMF staff while also adding that a $2.3 billion gold purchase is in the planning.” IMF to buy Gold worth $2.3 billion as credit risk increases, inverlochycapital.com
The World Gold Council estimates that central banks will buy as much as 400 tons this year.
The deputy chairman of Russia’s central bank, Sergey Shvetsov, said that the Bank of Russia plans to keep buying gold on the domestic market; “Last year we bought about 100 tonnes. This year it will be less but still a considerable figure.”
Conclusion
Central banks continue to buy up, and hold in their vaults, the world’s gold, countries are buying up their domestic gold production, even the IMF is buying gold to reduce their risk exposure, all of this gold buying is drastically reducing the number of gold ounces/grams available to the world’s citizens.
The World Gold Council has recently released their 2012 Q1 Gold Demand report. Gold demand grew 16 percent over the past 12 months to 1,098 tons. Global demand was boosted by China posting a quarterly record of 98.6 tons of investment demand, up 13 percent from Q1 2011.
Total inflows, over the past 12 months, into exchange traded gold products (*ETPs) have been close to €6.3 billion – year to date, precious metals gathered the largest net new inflows of all commodities at $3.4 billion globally.
*Exchange Traded Products are exchange traded funds (ETFs), closed end funds (CEFs), and exchange traded notes (ETNs – usually derivative backed), that aim to track the price of gold. Some such instruments do not necessarily hold physical gold, the physically backed ones do.
Consider these two facts:
These facts should be on all our radar screens. Are they on yours?
If not, maybe they should be.
Let’s leave the last words to King Ferdinand of Spain who said, in 1511; “Get gold, humanely if possible—but at all hazards, get gold.”
Richard (Rick) Mills
If you’re interested in learning more about the junior resource and bio-med sectors please come and visit us at www.aheadoftheherd.com
Legal Notice / Disclaimer
This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment.
Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified; Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission.
Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.
