Gold and silver futures made history on Wednesday, with the highest value due to the position of the investors collectively take a safe position on precious metals, in addition to the weakening U.S. dollar will worsen the condition.
Gold notched a settlement and an intraday record high and set its sights on $1,500 an ounce. Silver stopped just pennies short of the psychologically important $40-an-ounce level, hitting a 31-year high on its way.
Gold for June delivery (GCM11 1,457, -1.40, -0.10%) rose $6, or 0.4%, to settle at $1,458.50 an ounce on the Comex division of the New York Mercantile Exchange.
The contract climbed as high as $1,463.70 an ounce earlier, according to a preliminary tally available at the CME Group’s website. CME owns and operates Comex.
The settlement and the intraday nominal records supplanted the previous milestones reached just the previous day.
“The geopolitical situation is going from bad to worse,” said Afshin Nabavi, head of trading at MKS Finance in Geneva. “Everybody is talking about gold at $1,500 [an ounce].
As soon as gold breached through the $1,450-$1,450 mark, fresh money came in as some investors scrambled to be part of the rally, Nabavi added.
Gold at $1,500 is certainly possible in the short term, although a more orderly, slower rise over the next month or two would be more desirable, he said.
The metal hit a record of $875 an ounce in January 1980 — the equivalent of $2,350 an ounce in today’s dollars.
In addition to ongoing fighting in Libya, where rebel forces and government forces continue to vie for the upper hand in a NATO-led military intervention, Europe’s debt crisis came back to the fore this week as Portugal appeared to get closer to asking for a bailout.
“Prices are likely to remain buoyant as risk aversion increased on the back of Moody’s downgrade of Portugal’s credit rating,” analysts at ICICI Bank wrote to clients. Moody’s Investors Service cut Portugal’s rating by one notch to Baa1 from A3 on Tuesday, saying a bailout for Portugal seemed very likely.
The focus on Portugal intensified as the country had to pay hefty yields to sell short-term bonds on Wednesday. Investors are concerned that a rescue for Portugal will also rock Spain, an economy bigger than Portugal, Ireland and Greece combined.
Portugal’s finance minister said his country will need a bailout from the European Union, according to media reports Wednesday. Finance Minister Fernando Teixeira dos Santos reportedly told the Jornal de Negocios that Portugal will need to “resort to the financing mechanisms available within the European framework.”
A finance-ministry spokeswoman confirmed the comments, according to Reuters. European Union officials, however, have yet to receive a formal bailout request from Portugal, according to The Wall Street Journal’s online edition.
Meanwhile, silver for May delivery (SIK11 3,940, +0.80, +0.02%) rose 20 cents, or 0.5%, to $39.39 an ounce — the latest in a string of 31-year highs for the metal.
Investors kept their sights on silver at $40, and some believe it would be only a short time from that to the nominal record above $50 an ounce that spot silver hit in January 1980.
The broader suite of metals were mostly stronger, with copper for May delivery (HGK11 435.70, -1.30, -0.30%) rallying 11 cents, or 2.5%, to $4.37 a pound as miner bellwether Rio Tinto PLC (RIO 72.80, -0.17, -0.23%) predicted an even tighter market for copper than most analysts expected.
Palladium and platinum diverged, however. June palladium (PAM11 787.05, +2.45, +0.31%) declined $8.50, or 1.1%, to settle at $784.60 an ounce. July platinum (PLN11 1,797, -1.30, -0.07%) added $1, or 0.1%, to $1,797.80 an ounce.
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A new record for gold above $ 1,456 per ounce helped along by continued worries about the national debt, concerns are likely to continue to help the yellow metal
A further downgrade to Portugal's credit rating helped boost gold prices to an all time record on Tuesday of $1,456.85 as investors continued to worry about debt problems in the euro zone.
And, if Nicholas Brooks, head of Research and Investment strategy at ETF Securities, is to be believed it is exactly these concerns that are likely to have a growing role to play in the gold market.
Brooks said the growing demand for gold as an alternative currency, which has built up steadily since the financial crisis of 2008 is one of the key factors underlying the current strength in the gold price and, is one that is likely to continue.
"Going back to the first euro crisis in early 2010 there were very substantial inflows into gold of all kinds with gold ETPs seeing very substantial in flows during that period."
He said , both conservative long-term investors as well as the man on the street are looking more and more closely at gold as an investment
But ,added "It doesn't mean that they are selling all their paper currencies or assets," he says, but rather that they are "putting a larger proportion of their assets in gold."
The main reason for this he says, has been the tendency of governments to continue running extremely large debt burdens. And, the concern is always, he says, that these governments will be tempted to inflate their way out of the problems such deficits cause.
And, when this factor is added to the shift in attitude by Central Banks who have once more become net buyers of gold and the continued demand for gold from areas like China and India and the structural picture for the yellow metal looks sound.
Brooks does caution however, that there could be some shorter-term, more tactical factors that could alter gold's performance in the near term.
"Generally, when interest rates are rising - certainly if they are rising at a rapid pace - gold underperforms and now with inflation rising in many economies across the world there is a rising belief that the ECB, possibly eventually the Federal Reserve, Bank of England may start to raise rates and that may take some of the steam out of the gold market rally."
But, he adds, the ability of Central Banks to raise interest rates will be somewhat hobbled by the banking and real estate issues that remain prevalent in many of these regions. He also says that there is a strong possibility that the very large debt burdens tied to the necks of many of these countries are likely to be a drag on growth.
Thus, he says, "The interest rate headwind to the gold price is likely to be somewhat temporary and also ultimately not prove to be all that strong."
He adds, "As long as the environment remains risky, as long as the peripheral European sovereign risk remains an issue, as long as the Middle East remains in turmoil, there is always going to be a demand for an asset like gold."
"The key risk to the gold flows this year would be a substantial and sustained rise in global interest rates but again my own view is based on the need for fiscal tightening that is unlikely - ultimately if they look out through the year investors will probably continue to take a bar-bell approach to investing hedging out sovereign risk through gold and other instruments, hedging out Middle East risks through oil and other instruments like that and remain long risky assets until there are signs that global is slowing. So ultimately the trends that we have seen in the first quarter of this year are likely to continue through 2011."
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From the destruction argument, which shows the gold is in a bubble and a reaffirmation of some of the factors driving gold higher and higher, Frank Holmes observed twice the price of gold in 5 years.
Last week Frank Holmes had participating in a webcast for Bloomberg Markets Magazine regarding gold investing. It was a very insightful presentation and Frank Holmes suggest you view the replay at www.bloombergmarkets.com. What struck me on the call was the negativity surrounding the gold market. Call it a bubble, a frenzy or mania, there seems to be a large number of voices in the marketplace who just are not fans of gold, whether prices are moving up, down or sideways.
Naysayers started calling gold a bubble back when prices hit $250 an ounce and though gold's bull market has tossed and flung the bubble callers around for almost a decade now, their voices have only gotten increasingly louder as prices broke through $1,000, $1,200 and now $1,400 an ounce
However, gold prices appear asymptomatic of the signs generally associated with financial bubbles.
For instance, we haven't seen price spikes. Despite rising from under $1,000 an ounce to over $1,420 over the past six months, that represents only a 0.7 standard deviation move for gold prices, according to Credit Suisse (CS). The average standard deviation move of other bubbles-Japanese equities in 1986, the tech boom in 1999, the GSCI in 2005 and gold in 1979-is 5.3. Gold's 180 percent move in 1979 represented a 10.3 standard deviation move, more than 14 times the magnitude we see today.
The reality is that gold doesn't possess the traits necessary for a financial bubble to form. Rodney Sullivan, co-editor of the CFA Digest, has done some great research on the history of markets and bubbles going all the way back to the 1600s. He discovered three key patterns in the 47 major financial bubbles that occurred over that time period.
These three ingredients of asset bubbles are financial innovation, investor exuberance and speculative leverage. The process begins with financial innovation, which initially benefits society as a whole. In the exuberance stage, usage of these innovations broadens; they become mainstream and attract speculation. The third step, the tipping point for a bubble to form, is when these speculators pile on massive leverage hoping to achieve greater success. This excessive leverage adds increased complexity, which mixes with irrational exuberance to create an imbalance in the marketplace. Eventually, the party comes to an end and the bubble bursts.
This is what happened with the housing bubble in the U.S. as Main Street home buyers leveraged themselves 100-to-1, Fannie Mae leveraged itself 80-to-1 and Wall Street investment firms leveraged themselves over 30-to-1.
Gold as an asset class is far from being overbought by speculators. Eric Sprott recently did a fascinating presentation explaining how underowned gold is as an asset class. Sprott wrote that despite a 30 percent increase in gold holdings during 2010, gold ownership as a percentage of global financial assets has only risen to 0.7 percent. That's a big increase from the 0.2 percent level in 2002, but Sprott points out that it's misleading because the majority of that increase was fueled by gold appreciation, not increased level of investment.
Sprott estimates that the actual amount of new investment into gold since 2000 is about $250 billion. Compare that to the roughly $98 trillion of new capital that flowed into other financial assets over the same time period.
Gold equities have seen even lower levels of investment. From 2000 to 2010, $2.5 trillion flowed into U.S. mutual funds, but only $12 billion of that went into precious metal equity funds. Of course, those figures were significantly impacted by the advent of gold ETFs during the decade. Despite the growth of the SPDR Gold Trust (GLD), which held more 1,200 tons of gold as of March 31, gold remains largely underowned as a portion of global financial assets.
The bar chart from CPM Group shows gold as a percentage of global financial assets over time. In 1968, gold represented nearly 5 percent of financial assets. In 1980, the level had fallen below 3 percent. That figure had shrunk to less than 1 percent by 1990 and has remained there since. Sprott wrote that "it is surprising to note how trivial gold ownership is when compared to the size of global financial assets."
That point is magnified by the pie chart from Casey Research. Dr. Marc Faber included it in his April newsletter to show just how small a portion gold and gold stocks are for large institutional investors like pension funds.
Investors who don't think gold is a bubble but fear they've missed the boat need to look at the short- and long-term factors supporting gold at these historically high price levels. In the near-term, gold prices are being buoyed by continued weakness in the U.S. dollar.
The Trade-Weighted Dollar Index (DXY) is just above the lows experienced during November 2009 and is only 8 percent above the "critical" March 2008 low, according to BCA Research. BCA says the U.S. dollar's weakness is driven by four factors:
* Federal Reserve balance sheet expansion via QE2
* Combination of low real interest rates, steeply upward-sloped yield curve and perky inflation expectations that should continue in the U.S.
* Plans by the European Central Bank to raise rates later this month
* Willingness of Chinese authorities to allow for yuan (RMB) appreciation when the U.S. dollar is weak
This is part of what we call the Fear Trade. This graphic illustrates that the Fear Trade is a function of two separate government policies: monetary and fiscal. Whenever there is a structural imbalance between a country's monetary and fiscal policies, gold tends to perform as a "safe haven" currency. Currently, the quantitative easing measures implemented by the Federal Reserve and the significant size of the deficit spending by the government to increase entitlements to ward off a recession have created a significant imbalance between monetary and fiscal policies. This has devalued the U.S. dollar which, in turn, has boosted gold prices.
We believe that as long as the U.S. government refuses to trim entitlement and welfare programs and continues to keep Treasury bill yields below the inflation rate to battle deflation, gold will remain an attractive asset class.
Longer-term, our experience shows that whenever you have increased deficit spending, rapid money supply growth and negative real interest rates-that's when the inflation rate is higher than the nominal interest rate-gold tends to perform well in that country's currency. So far we have not seen rapid money supply growth here in the U.S., but the other two factors have been the main thrust behind gold's record rise.
GFMS CEO Paul Walker echoed those drivers in an interview with MineWeb this week. Walker said that "ultra-low interest rates, macro-economic dislocation, fears of global imbalances...the wrath of these things still remain solidly in place and that's really the bedrock of the gold bull rally."
CS says the combined $6.3 trillion of excess leverage in the G4 economies (U.S., eurozone, Japan and Great Britain) means that their central banks will be forced to push real interest rates down to abnormally low levels. You can see from the chart that this is quite bullish for gold prices. Any time the real Fed funds rate is below 2 percent, gold tends to rise.
Current projections from the Congressional Budget Office (CBO) have the U.S. federal deficit at $1.5 trillion this year. To show the effect this has had on gold prices, we overlaid the rise in U.S. federal debt with the price of gold.
You can see from the chart that gold's bull run began in 2002, about the same time federal debt began to rise significantly. Gold played catch up at first, but the two have tracked each other rather closely. Since 2002, gold prices have risen 308 percent versus a 119 percent increase in federal debt. This means that gold's sensitivity to a rise in federal debt is just over 2-to-1. With lawmakers in Washington, D.C. still squabbling over where and by how much to cut the budget, it's unlikely the federal debt level will recede any time soon.
This is very constructive for long-term gold prices, but just how bullish depends on who you ask. The team at CS sees gold at $1,550 per ounce by year end. BCA estimates gold to remain in the $1,400-$1,600 range in 2011. Walker of GFMS said he believes gold will surpass the $1,500 mark by year end because "all of the structural factors supporting gold are in place." Perhaps the most bullish forecast has come from Rob McEwen, former gold analyst and founder of GoldCorp, who said late last year, and reiterated last week, that he thinks gold could hit $5,000 per ounce in the next three to four years.
It's important to remember the strong cultural attraction that many people in emerging countries have toward gold. It's a much stronger connection than that of the developed world and essential for rising gold demand.
We like to compare the G-7 countries to our E-7-the world's seven most populous nations. Interestingly, the G-7 is 50 percent of global GDP but only 10 percent of the total global population. The E-7, on the other hand, represents roughly 50 percent of global population but only 18 percent of global GDP. We would like to point out that money supply and GDP per capita is rising substantially faster in the E-7 than it is in the G-7, 17.7 percent money supply growth in the E-7 versus 3.7 percent in the G-7. If money supply growth in the E-7 continues at a rate of 15 percent or more for the E-7, it would be a strong catalyst for higher gold prices.
In conclusion, based on the above factors and trends, we believe gold could double over the next five years.
Note: Standard deviation is a measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Standard deviation is also known as historical volatility. M2 Money Supply is a broad measure of money supply that includes M1 in addition to all time-related deposits, savings deposits, and non-institutional money-market funds. The U.S. Trade Weighted Dollar Index provides a general indication of the international value of the U.S. dollar. The S&P GSCI Spot index tracks the price of the nearby futures contracts for a basket of commodities. The following securities mentioned in the article were held by one or more of U.S. Global Investors family of funds as of 12/31/10: Goldcorp, SPDR Gold Trust (GLD).
The author of this information is Frank Holmes, he is CEO and Chief Investment Officer, U.S. Global Investors - www.usfunds.com
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From the GFMS report to Silver Institute published last week, which is used as the basis in this article on supply and demand for silver in the last three years. The purpose of this article is to have a recent history confirms what we expect from the future for silver.
INDUSTRIAL DEMAND
The first fact that jumps off the page is that the future for silver looks remarkable with industrial silver demand predicted as rising nearly 37% from 15,160.19 tonnes [487.4 million ounces] in 2010 to 20,712.29 tonnes [665.9 million ounces] in 2015.
Much of the growth in this global total of industrial silver consumption will be driven by stronger demand for a number of established uses including the manufacture of electrical contacts and the use of silver in the photo voltaic industry.
New uses center on silver's antibacterial qualities, while other new uses tend to make use of its conductive properties, including solid state lighting and Radio Frequency Identification (RFID) tags.
Overall please note that silver's importance in the technology of the day is huge. We go so far as to say that the demand from silver has transformed from a want to a need! Whether we are in a boom or bust silver's demand will remain robust. It is now needed to make all facets of an economy run well and at all levels, even down to individual needs. This secures its future and assures us that silver prices are well supported. Here is the list of the amounts used in different applications that emphasize this point.
- Cell phones used 404.35 tonnes [13 million ounces] of silver last year.
- Computers consumed 684.29 tonnes [22 million ounces].
- Thick film PV consumed 1,461.90 tonnes [47 million ounces] in 2010.
- Automobiles which used 1,119.75 tonnes [36 million ounces] of silver.
- Electrical and electronics demand for silver reached an all-time high of 7,555.21 tonnes [242.9 million ounces].
- Solar Power in 2011 is expected to reach 2,177.29 tonnes [70 million ounces], up 40%.
- RFID tags in 2010 reached between 31 and 62 tonnes with a long way to go before reaching full market.
- Water purification used 62 tonnes [2 million ounces] set to grow to 74.65 tonnes [2.4 million ounces].
- Medical applications may grow strongly to reach 93.3 tonnes [3 million ounces] by 2015.
- The use of nano-silver in goods packaging and hygiene combined would consume 124.4 tonnes [4 million ounces] of silver over the next five years.
SILVER IS CONSUMED
While photographic use of silver allows for a high proportion of re-cycling, reclamation of silver from most of the above uses is difficult to nigh-on-impossible. This in itself assures either a constant or rising demand for these applications.
Of particular note is the growth in Asia where we are watching around half of the globe's population developing at infrastructural level as never before. This growth will continue at double figures, per annum for at least the next decade.
Gold is rarely consumed as it is deemed far too valuable. Reclamation efforts relative to the value of the gold ensures that scrap merchants will go to extraordinary lengths to recover the gold. In silver's case these efforts would cost more than the sale of the silver so used. As the silver price rises further reclamation efforts will become profitable and more silver will be recovered, but we are still a long way off from that day.
INVESTMENT DEMAND
HSBC, the world's largest bullion dealer [in both gold and silver] is confirming that silver's role as a monetary metal is gathering the most momentum, particularly in emerging economies. They say that the macro economic trends from emerging markets are positive for both gold and silver. They put the growing Chinese middle classes [now well over 400 million people of the 1.3 billion Chinese citizens] as fueling an "explosive" growth in demand for silver as a hedge against fast rising inflation.
The Industrial and Commercial Bank of China, the world's largest bank by market value, agrees this. I.C.B.C. sold 13 tonnes [418,000 ounces] of physical silver to Chinese citizens in January, alone, compared with 32.97 tonnes [1.06 million ounces] for the whole of 2010.
We have seen China turn from an exporter of silver to a huge importer in the last three years. And that's just the start! China was a net importer of over 3,110.42 tonnes [100 million ounces] of silver last year, whereas while it was selling ‘official' holdings of silver only a few years ago it was exporting an equal amount annually.
China's ravenous new demand for silver as a store of value in inflationary times is growing exponentially. This is illustrated by the fact that silver imports last year increased four-fold over 2009.
SUPPLY
While we don't yet have the numbers for supply of silver in 2010 we do not expect them to have risen more than 10% over 2009 levels. Once we have these we will pass the information onto you.
With 70% of silver mined as a by-product of base metal mining there is a danger of demand outstripping supply. The present sources of by-product silver are operating at peak capacity. Pure silver producers like Silver Wheaton are growing but unlikely to be able to fill the gap. Mines like Coeur d'Alene which is becoming a 50% gold and 50% silver producer do have a considerable capacity for growth and will do so. But again with demand burgeoning on both the investment and industrial sides supply will find it difficult to meet demand.
Another difficulty for suppliers is that they are inflexible because of their dependence on mining.
We do foresee rising scrap sales from the developed world where the sight of a profit on jewelry etc, can prove too tempting to the individual, but we cannot see this being more than 10 to 20% more than in 2009. In the emerging world such a concept is basically foreign to them because both silver and gold represent financial security to investors there.
If the developed world were stable and if the emerging world was used to their newfound wealth, and were their history not as close to social rupture as it has been and could be, emerging market investors would probably not trust gold and silver as much as they do now. But that is the case now. We believe [if history is to guide us] that it will take at least another generation [25 years] of wealth and stability in the emerging world for this attitude to change. Until then scrap supplies from the emerging world will remain at extremely low levels.
PROSPECTS FOR THE SILVER PRICE
In 2011 we are seeing prices far above those imagined three or four years ago. But then the world is facing far more uncertainty and instability that was ever imagined then too. The decay of currencies' abilities to measure value has been increasing over that time too, making the soaring prices of silver and gold to become more than plausible. Indeed a strange feature of the silver price has been it moves with gold as though tied with a piece of elastic string to the gold price, rising higher and falling lower at each move. So why does it not move more like copper or another base metal used as a simple commodity?
And where, if it doesn't move like them, is it headed?
Original context of this article was written by Julian Phillips, He is a long term analyst of the global gold and silver markets and is the founder and principal contributor for Global Watch - Gold Forecaster - www.goldforecaster.com and Silver Forecaster - www.silverforecaster.com
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This article was found from miningspot
Gold reached a new height in 2011 little has changed more in the drivers who bring the gold to its current level, according to research analyst at Blanchard and Company.
According to coin and precious metals dealer Blanchard and Company's research arm, the continuation of gold's strong bull run through during Q1 2011, with the metal hitting a new nominal high above $1,440 last week, will see more new record highs likely to be achieved this year despite some analysts' predictions that gold will plateau.
"After the economic implosion in 2008, investors are fatigued by negative indicators that show more financial weakness on the horizon and naturally gravitate toward signs they see as positive, but right now that's just not an accurate reflection of reality," says David Beahm, Blanchard's Vice President of Marketing and Economic Research. "In the first three months of 2011, the Fed has printed about half as much money as it did in all of 2008. That's not a sign that QE2 is coming to a halt sooner rather than later because the chart is parabolic." A graphic of the money supply increase is shown below courtesy of the St. Louis Fed, indicating the huge and steep rise seen in the past two years of ‘Quantitative Easing'
Beahm reckons that much liquidity will continue to dilute the dollar's value, keep interest rates near historic lows, and contribute to a financial mess that has buoyed gold investment demand and prices to levels that have not been realized before. He also says there are other factors that will push gold higher, and most of them are likely not going to change in the foreseeable future.
"When you hear economists say they see European rate hikes on the horizon when three EU countries are on the verge of defaulting on their debt with no lenders in sight, that makes me question the accuracy of those predictions," Beahm says. "The U.S. faces a similar problem, but there's an exception - it just borrows money from itself. This will ultimately create a hyperinflation scenario that is extremely bullish for gold."
The parlous financial situation of some of the U.S.'s largest states and municipalities almost parallels the European situation although little is mentioned about this in the financial press.
Add the expansive and expanding tensions in the Middle East and Northern Africa, and the crisis at Japan's Fukushima Nuclear Plant to the mix, and Beahm sees a scenario where gold's status as the ultimate financial safe haven will be reconfirmed.
"At this point, as in the past, investors will continue to look to gold as one of the best vehicles to both protect and grow their wealth," Beahm says.
Beahm's opinion is shared by some other specialist gold analysts who have been pointing out that the financial and political problems which have brought precious metals to the levels they have reached so far are virtually all still in place. The apparent recovery in the U.S. remains a little precarious and it may only take some other major unforeseen event to give gold another sharp upwards kick.
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Positive value of Randgold Resources, with large increases projected gold production as the West African operations continued to expand despite the unrest in Cote d'Ivoire.
Despite the ‘civil war' in Cote d'Ivoire, Randgold Resources is maintaining its gold production forecasts for the current year and is still operating at its new, and important, Tongon gold mine in the north of the country. In a meeting on the sidelines of the PDAC in Toronto at the beginning of the month, Randgold CEO, Mark Bristow, told Mineweb that operations at the mine has hardly been affected by the unrest in the country and supplies to the mine had faced little disruption as they could be brought in cross-border from Mali in the north, where it has its other major operating mines at the moment, even though the Abidjan route from the south would face much more difficulty. It seems little has changed in this respect.
Randgold's experience to date is contrary to that of Australia's Newcrest whose Bonikro gold mine in the central-southern part of the country, being nearer to the fighting, has been suspended as a precautionary measure, although Newcrest said in a statement today that its staff there had not been threatened..
Back to Randgold Resources. The company is going through a bit of a transition phase at the moment as operations are being wound down at its old flagship operation, Morila, in Mali, but these are being replaced by its Loulo area mines and new developments (also in Mali), of which Gounkoto is the most exciting. And then it is busy bringing into full production and developing major gold mines in the Cote d'Ivoire (Tongon) and in the Democratic Republic of Congo (Kibali - potentially its biggest mine of all and where developments are proceeding ahead of schedule.) It also has a significant exploration project on the go in Senegal (Massawa) as well as some exciting exploration targets in the region of its existing mines in Mali. Its exploration activities in Tanzania, at one time another target area for the company, have been put on the back burner in favour of what it sees as better prospects in West Africa, while its Kibali project in the DRC is thought to have the potential to become one of the world's great gold mines.
The broadening of the company's activities in West and Central Africa is, of course, not without its risks - and Kibali in particular, is viewed with a certain amount of apprehension by some analysts and investors - as is Tongon at the moment. However it should be noted that Randgold has had great success to date in negotiating the sometimes difficult path of dealing with African political factions - which is probably in part why AngloGold Ashanti has agreed to let Randgold have operating control of Kibali.
Overall, Randgold has thus just reported a 5% increase in its attributable mineral resources and reserves after mining depletion and adjustments based on ongoing exploration and evaluation programmes.
This has proved to be the eighth successive annual increase in the company's attributable resources and reserves and Bristow commented that this escalation had again underlined the effectiveness of the company's key strategy of achieving organic growth through exploration success and creating value through the development of profitable mining projects. He cited the recent discovery of Gounkoto and the continued expansion of mineral reserves at its Kibali joint venture project with AngloGold Ashanti as major contributors to the increased size and enhanced quality of the company's asset base.
Thus Randgold's annual mineral resource and reserve declaration, published as part of its 2010 annual report, shows that at the attributable level, measured and indicated mineral resources rose from 20.64 million ounces to 21.77 million ounces over the year, while inferred mineral resources increased from 6.69 to 7.00 million ounces. In the higher reserve category, attributable proven and probable reserves grew from 15.56 million ounces to 16.39 million ounces without reducing the overall mineral reserve grade year on year.
"Excluding Morila, which is now only processing stockpiles and Massawa which is still at feasibility study stage, the average grade of our reserves remained above 4g/t, with Loulo, Gounkoto and Kibali all comfortably above that mark. This means that we not only managed to increase the size of our reserve and resource base during a challenging phase in the company's development, but were able to maintain and enhance the quality of our mineral assets. This is real growth, framed within realistic parameters and based on viable business plans," said Bristow.
What this increase in resources and reserves does not show, however, is the massive potential for substantial further resource expansion in breadth and depth at and around existing operations - notably the Malian mines and Kibali in the DRC. Assuming Randgold can stay on the right side of the various African administrations in which its projects are located, then its future growth potential looks pretty assured bar domestic unrest in any of the countries in which it operates impacting directly on its operations..
FINANCIALS AND FORECASTS
2010 was not an easy year for Randgold. Despite an increase in headline profits of 43% the true figure was not quite as rosy as this might suggest with the increase achieved due to higher gold prices and despite a worrying rise in unit costs. Net cash also diminished, but the company is anticipating strong gold production growth in the current year.
The anticipated good production increases, and corresponding reductions in unit costs are due to come about through its expanding mining developments in Mali - and assuming Tongon in Cote d'Ivoire continues without serious interruption. Indeed Bristow reckons that group production for 2011 will increase by more than 70% over that of 2010 to between 750,000 and 790,000 ounces of gold, and management is targeting total cash costs, after royalties and taxes, of less than US$600/oz.
Tongon, in particular, is scheduled to produce 260,000 to 270,000 ounces against only around 28,000 in the 2010 start-up year while the Loulo complex's production is expected to be 420,000 to 440,000 ounces, of which some 120,000 ounces will be contributed by the new Gounkoto mine development in the latter half of the year. Last year Loulo production totalled some 316,500 ounces. The Morila joint venture, which is now only processing stockpile and dump material should produce 200,000 to 210,000 ounces down from 238,000 ounces in 2010.
Bristow cautioned, however, that this forecast was subject to exchange rates and input costs remaining at last year's levels, and to the political impasse in Côte d'Ivoire not impacting to a greater extent on the Tongon mine. He also said that the company's focus on efficiencies and costs would have to be even tighter than usual, particularly in the first half of the year.
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