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.
Gold investors love nothing more than a war, economic crisis or any type of geopolitical instability to watch the value of their bullion grow. Heightened global tensions such as terrorist attacks, border skirmishes or civil wars scare investors into putting their funds into safe havens like gold and stable sovereign debt, the most popular being US Treasuries.
For example during the 1970s, which saw a number of upheavals in the Middle East including the Iranian Revolution, the Iran-Iraq War, and the Soviet invasion of Afghanistan, gold rose 23% in 1977, 37% in 1978, and 126% in 1979, the year of the Iranian hostage crisis.
Gold also spiked when the US bombed Libya in 1986, right after the Gulf War in 1990, and when ISIS attacks put oil supplies in the Middle East at risk. More recently, gold reached a record-high $2,034 an ounce in September 2020 on fears of the coronavirus spreading and causing economic devastation.
There are a number of hot spots in the world today that could easily flare up into a conflagration that escalates into a shooting war or even the nightmare scenario of missiles being launched.
They include the ongoing threat of war between North and South Korea that would draw in the United States; tensions between the US, China and its neighbors over Taiwan; and a migrant crisis in Belarus that Ukrainian officials believe is a ruse invented by Russia to stage an invasion of Ukraine, similar to what happened in 2014 when Russian forces annexed Crimea.
If you wanted to cause a war, here’s a formula with high odds of success. Send thousands of migrants to your border, have your border force try to push them into a neighboring country, and fire warning shots when your neighbor’s soldiers try to keep the migrants out. In such a tense situation, the other country’s soldiers might misinterpret the shots and fire back. At Belarus’s border with Poland, such an accidental conflict is now a concrete risk. What will NATO do if it comes to pass? — Defense One, Nov. 12, 2021
The question has perplexed US and other NATO members, as concerns mount that Russia could be preparing to invade Ukraine. Officials say Moscow has kept about 90,000 troops in the area following war games in western Russia earlier this year. Ukraine President Volodymyr Zelensky said his country’s intelligence service has uncovered plans for a Russia-backed coup d’etat, an allegation Moscow denies.
“We are very concerned about the movements we’ve seen along Ukraine’s border. We know that Russia often combines those efforts with internal efforts to destabilize a country. That’s part of the playbook, and we’re looking at it very closely,” US Secretary of State Antony Blinken told ABC News.
Ukraine Prime Minister Denys Shmygal has said a Russian military build-up on Ukraine’s border, the second such surge since May, was part of a wider Russian effort to break Ukrainian momentum towards joining the European Union.
The roots of the crisis go back several weeks, to when Belarus began flying in Middle Eastern migrants to Minsk, the capital, then transported them to the border where they have been trying to enter neighboring countries Latvia, Lithuania and Poland, while living in terrible conditions.
On Nov. 9 Poland’s Ministry of Defense released a video showing between 3,000 and 4,000 migrants camped on the Belarusian side of the border fence waiting to cross into Poland which is part of the EU. Polish police and border guards were equipped with anti-riot gear, after video clips the day earlier showed migrants cutting razor wire and attempting to climb over fences.
Militaries are involved. Belarusian soldiers threatened to fire upon Polish forces and in a subsequent incident they fired blanks. Polish soldiers responded by shooting into the air.
For context, consider that the long-time Belarusian leader, Aleksandr Lukashenko, is a friend of Russia and appears to enjoy provoking NATO. On Nov. 11, Belarus and Russia announced they will start combat alert patrols at the borders with Latvia, Lithuania, Poland and Ukraine. The same day, Russian nuclear bombers conducted a monitoring mission in Belarusian airspace.
Ukraine has reportedly deployed 8,500 troops to the Belarusian border in anticipation of a clash with Russia.
Skirmishes involving troops on the border, skirmishes involving migrants, and now the addition of Russia: the situation at Belarus’s border with its NATO and EU neighbors is an accidental conflict waiting to happen. It would take just one group of Polish or Baltic soldiers responding to Belarusian shots—or shooting at migrants attacking them with clubs, logs, and similar tools—for a dangerous escalation to erupt. The Belarusians, now assisted by Russian forces, would clearly fire back, and the other side would respond to that fire. What’s more, in Poland, Latvia, and Lithuania there are NATO troops stationed there as part of the alliance’s Enhanced Forward Presence, or EFP. “They demonstrate the strength of the transatlantic bond and make clear that an attack on one Ally would be considered an attack on the whole Alliance,” as NATO explains in an EFP factsheet. And on Nov. 12, Poland announced that British troops had been sent to its border—with NATO allies—on a reconnaissance exercise.
While the Russian invasion of Ukraine and the annexation of its Crimea peninsula happened nearly eight years ago, we must remember that this conflict is far from over.
Weeks after Ukraine’s Moscow-friendly president was driven from power in 2014 by mass protests, Russian backed a separatist insurgency that broke out in Eastern Ukraine.
ABC News reports more than 14,000 people have died in the conflict and that seven years of fighting has devasted Ukraine’s eastern industrial heartland known as Donbas:
A 2015 peace agreement brokered by France and Germany helped end large-scale battles, but efforts to reach a political settlement have failed and sporadic skirmishes have continued along the tense line of contact. Russia has refused recent overtures for talks with France and Germany.
Unsurprisingly, Russia views the conflict from a completely different perspective, accusing NATO of acting aggressively in Moscow’s own back yard.
Putin reportedly spelled out Russia’s “red lines” on Ukraine, saying it would be forced to respond if NATO deployed advanced missile systems on its neighbor’s soil, Reuters said on Tuesday, Nov. 30. Recent NATO drills involving bombers capable of carrying nuclear weapons flew as close as 20 km from the Russian border.
“If some kind of strike systems appear on the territory of Ukraine, the flight time to Moscow will be 7-10 minutes, and five minutes in the case of a hypersonic weapon being deployed. Just imagine,” the Kremlin leader said.
“What are we to do in such a scenario? We will have to then create something similar in relation to those who threaten us in that way. And we can do that now,” he said, pointing to Russia’s recent testing of a hypersonic weapon he said could fly at nine times the speed of sound.
The country defends its right to deploy troops on its own territory as it wishes.
An article by the Council of Foreign Relations notes that Ukraine is integral to Putin’s hopes of reviving the old empire and creating “strategic depth” against invasion from the West.
However, the piece run by Defense One argues it is doubtful that Russia will try to invade and occupy Ukraine, citing the fact that Kiev now has a capable military, and Russia does not want another costly guerilla war like Afghanistan in the 1980s.
(Note: the only countries that Putin has invaded, Georgia and Ukraine, are non-NATO members. Ukraine’s pro-West President Zelensky has been trying to get NATO to let Ukraine in, but he has so far been rebuffed. Most members including the US do not want to expand the alliance into a country that is locked with hostilities with Russia because they could be drawn into the fight.)
The United Kingdom through Foreign Secretary Liz Truss warned against “Russia’s malign activity”, while announcing that the military will re-establish a permanent presence of troops and tanks in Germany one year after drawing down its large Cold War presence there, according to Zero Hedge.
As for what the United States, unofficial NATO leader and a Ukraine ally, can do to help Ukraine without offering it an Article V guarantee, the country continues to provide military aid ($2.5 billion since 2014).
The Council of Foreign Relations argues the US should also try to exert economic leverage and suggests re-imposing sanctions on the nearly completed Nord Stream 2 natural gas pipeline.
The Biden administration earlier this year lifted sanctions on the company building the pipeline that will bring gas to Germany from Russia underneath the Baltic Sea, considering the project a fait accompli.
The most effective way to hurt Putin—and protect Ukraine—could be at the pump, the Council sums up the situation.
Meanwhile tensions between the United States and Russia continue to simmer. In September two dozen Russian diplomats were told to leave the US, and this week, another 27 are due to be expelled come January. The expulsions are said to be retaliation for the Russian government earlier forbidding its citizens from serving as local staff for the US Embassy in Russia, greatly hampering the embassy’s ability to process visas and perform other diplomatic functions.
The Trump administration will be remembered for making diplomatic overtures towards North Korea, with commander in chief Trump becoming the first sitting US president to manage a face-to-face meeting with the hermit kingdom’s leadership, currently Chairman Kim Jong-un.
However, nothing of substance came from the 2018 Singapore Summit and today, the United States and its South Korea ally are reportedly writing a new war plan for North Korea that takes into account Pyongyang’s nuclear and missile launch advances.
Since September, the North has conducted a number of missile tests including a cruise missile, a hypersonic glide missile, a rail-launched short-range ballistic missile and a submarine-launched ballistic missile.
“We’re obviously in a period of somewhat heightened tensions,” an American official told Defense One, ahead of the annual Security Consultative Meeting in Seoul, Thursday, between US Defense Secretary Lloyd Austin and Korean Defense Minister Suh Wook.
“The DPRK has advanced its capabilities. The strategic environment has changed over the past few years,” the official said. “It’s appropriate and necessary that we have an OPLAN that is updated.”
Meanwhile, Defense One states,
[A Global Posture Review] has already resulted in the Pentagon approving permanent stationing of a previously rotational attack helicopter squadron and artillery division headquarters in Korea, in addition to the approximately 28,500 U.S. forces based there. Additional force posture decisions may come from this week’s consult, the officials said.
Over the last few months, the U.S. and South Korea have also settled a cost-sharing special measures agreement that was stalled under the Trump administration….
Large-scale joint exercises such as Foal Eagle and Ulchi Freedom Guardian were cancelled by former President Donald Trump as he pursued denuclearization talks with North Korea. Some lower-level exercises have resumed…
Whether the large-scale exercises will return is unclear. Korea is keen to make gains in peace talks with North Korea and is hopeful it will obtain an official declaration of the end of the Korean War which is still being negotiated with Pyongyang.
North Korea sees the large-scale exercises as a provocation and has often responded militarily, such as by missile test.
Tensions between the United States and China over Taiwan are also ratcheting up, after five US lawmakers last week arrived in Taiwan to meet with government officials. Beijing considers the island to be a renegade province and has made re-unification with the Motherland a top priority.
Regional rival Japan rarely misses an opportunity to bash China, and it did so again via remarks by Japanese Prime Minister Shinzo Abe who warned that “Military adventure would lead to economic suicide,” referring to the serious security and economic consequences of any Chinese military action against self-ruled Taiwan.
Meanwhile a new report by a human rights group found that more than 600 Taiwanese arrested overseas were deported to China. Taiwan has long insisted that its citizens detained abroad should be sent back to the island, however Safeguard Defenders says the practice was being “used as a tool to undermine Taiwan’s sovereignty.” The Spain-based group also
pointed out that the Taiwanese sent to China “have no roots and no families”, and warned they were at risk of persecution and severe human rights abuses, according to the BBC.
The United States’ relationship to Taiwan is complicated.
In 1979 under President Carter, the US recognized the People’s Republic of China as its legal government, while cutting off formal relations with Taipei. However, the Taiwan Relations Act enshrined as US policy the promotion of informal relations with Taiwan, established an American embassy in Taipei, and declared that diplomatic recognition of Beijing “rests on the expectation that the future of Taiwan will be determined by peaceful means.” Critically, the act also states “The United States will make available to Taiwan such defense articles and defense services in such quantity as may be necessary to enable Taiwan to maintain a sufficient self-defense capability.”
The latter was re-affirmed in October, when President Biden stated unequivocally that America would leap into action if China attacked Taiwan, NPR reported on Oct. 28.
Biden’s administration came under criticism earlier this year for pulling US troops out of Afghanistan and leaving the country at the mercy of the Taliban. A double suicide bombing at Kabul airport in August, carried out by Islamic State, claimed dozens of lives including 13 US service members, proving that Afghanistan remains a staging ground for attacks against the United States and its allies. In the months before the US withdrawal, between 8,000 and 10,000 jihadi fighters, mostly associated with the Taliban or Al Qaeda, poured into Afghanistan, a UN report concluded in June.
This week the Taliban and Iranian soldiers clashed along the country’s western border. According to local news sources, Iranian patrols crossed into Afghan territory resulting in an armed confrontation and a firefight without casualties.
The United States accuses both countries of harboring terrorists: The Taliban that held power in Afghanistan during the 9/11 attack on America; and the Islamic Revolutionary Guard Corps (IRGC) which the US officially declared a terrorist organization in 2019, claiming the group trains and funds terrorist organizations such as Hezbollah in Iran and Hamas in Gaza.
Afghanistan, Taiwan, North Korea and Belarus are just some of the geopolitical hot zones making headlines in the world today, all of which have the potential of driving investment out of risk-on assets like stocks and cryptocurrencies into safe havens such as US Treasuries, the Swiss franc, the Japanese yen and the grand-daddy of them all, gold.
The world is clearly getting more dangerous and when combined with the resurgent threat of a covid variant that may be resistant to current vaccines, investors should be looking at safe investments that won’t be diminished by inflation yet offer solid growth potential. Junior gold (and silver) stocks are an excellent choice in this type of environment, especially since we see both metals heading higher.
The US Congress just passed $2.85 trillion in new spending. The way we’re going, interest payments on the nearly US$29 trillion national debt will almost certainly top $1 trillion by the end of the decade if not before. The people supposedly represented by the government can’t afford that level of interest.
We can’t forget how vulnerable the US government is to China, by far the largest owner of US Treasuries. How long will it be before Beijing, which is working hard to reduce its trade dependence on the United States and particularly the US dollar, refuses to keep financing America’s debt?
Excessive money-printing not only in the United States, but Britain and the EU, is continuing to devalue currencies at an alarming rate (this, by definition, is inflation, because it takes more units of currency to buy the same amount of goods as before) — for which precious metals, namely gold and silver, are the best defence.
(By Richard Mills)
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