Archive for February, 2013

The world’s top gold miners are set to do something they’ve never done before

From Bloomberg:
 
The gold-mining industry, which has underperformed the precious metal for each of the past six years, is pledging to report costs more accurately as part of its efforts to win back investor confidence.
 
Barrick Gold Corp. (ABX) and Goldcorp Inc. (G), the two biggest producers by market value, have begun reporting "all-in sustaining costs" for the first time. The new measure averaged $941 an ounce between the two companies in the fourth quarter. That’s 50 percent higher than the $626 average so-called cash cost they disclosed in the preceding three months.
 
The largest gold companies are seeking to lure investors back to the $300 billion industry after a string of money-losing multibillion-dollar takeovers and over-budget projects. Barrick and its competitors are vowing to focus on margins and to get a grip on soaring production costs, rather than boosting output.
 
Gold producers "have really done themselves a huge disservice by effectively walking around for the last 12 years promoting the gross margin as opposed to the net or the operating margin," said Joseph Wickwire, the Boston-based manager of Fidelity Investments’ $2.9 billion Select Gold Portfolio fund. "The managements and the boards of the gold companies really have no one to blame but themselves for some of the negative sentiment and disappointment."
 
Earnings statements had previously carried so-called cash costs, based on a standard developed in the 1990s that excludes expenses such as exploration and waste-rock removal.
 
Margin Compression
 
The 55-member S&P/TSX Global Gold Sector Index (SPTSGD) trailed gold each year in 2007 through 2012. The index declined 6.9 percent during that period while gold futures more than doubled. Gold fell 1.2 percent to $1,596.80 an ounce at 1 p.m. in New York.
 
Gold has advanced for 12 successive years, driven at least in part by demand from investors looking for a store of wealth amid concern about inflation. Despite benefiting from that rally, gold producers’ margins have come under pressure from rising prices for labor, equipment and raw materials.
 
The average cash cost of 10 of the biggest gold miners was $694 an ounce in the third quarter, 49 percent higher than in the same period two years earlier, according to data compiled by Bloomberg. The average gold price rose 35 percent in the same comparison.
 
"Everyone was trying to run through the funnel of building these new projects as big as you can, as fast as you can," Kinross Gold Corp. (K) Chief Executive Officer J. Paul Rollinson said in an interview Feb. 13. "There was huge competition for people, competition for steel, competition for tires and spare parts."
 
Ballooning Budget
 
Barrick’s gross margin, expressed as a proportion of sales, was 47 percent in 2012, while its operating margin was 39 percent, according to data compiled by Bloomberg.
 
"The costs of running this business are higher than it looks and that’s how we need to manage this business going forward," Barrick CEO Jamie Sokalsky said at a Jan. 29 conference in Toronto.
 
Sokalsky has been expounding his strategy since taking charge in June, when Barrick fired his predecessor Aaron Regent, citing a disappointing share-price performance. The Toronto-based company saw the cost estimate for its Pascua-Lama mine balloon to as much as $8.5 billion in 2012, from as much as $3.6 billion in 2011.
 
Fired CEOs
 
Regent was among at least six CEOs of North American gold producers to either announce their departure or be fired in the past year. Kinross, which fired Rollinson’s predecessor Tye Burt in August, has taken more than $5.5 billion of writedowns on Mauritanian assets the Canadian company acquired as part of its C$8 billion ($7.8 billion) takeover of Red Back Mining Inc. in 2010.
 
As gold miners pursued additional ounces at the expense of profit margins, investors instead plowed billions of dollars into gold-backed exchange traded funds. The weight of gold behind those ETFs, which include the $64.9 billion SPDR Gold Trust, has quadrupled to 2,530 tons since the start of 2007, according to data compiled by Bloomberg.
 
The boom in ETFs may now be at an end, with physical holdings poised for the biggest monthly decline since 2008. The gold cycle has probably turned as the recovery in the U.S. economy gathers momentum and investment holdings shrink, Goldman Sachs Group Inc. said in a Feb. 25 report. Still, it’s not yet clear whether gold miners will benefit from the change in sentiment.
 
Predictability, Rigor
 
"I don’t think the industry has done anything to persuade some of those investors that hold, for example, gold ETFs to buy gold shares instead," said Neil Gregson, who manages about $5 billion in natural resources equities at JPMorgan Asset Management in London. "Our allocation to gold equities is now down to 20 percent, which is the lowest we’ve been certainly since I’ve been here in the last 2 1/2 years."
 
To be sure, while the gold industry has traditionally emphasized cash-cost figures, the other components of all-in costs were available in financial reports, Gregson said. Gold companies have diverged since the 1990s in terms of which cost items they included, Goldcorp CEO Chuck Jeannes said in a Feb. 25 interview.
 
"What we are trying to do is bring back some predictability and rigor," he said.
 
There’s still no universal agreement on the new all-in costs. Members of the World Gold Council, a London-based industry group, are working on issues such as how to treat byproduct revenue, interest expenses and profits on energy hedges, said Agnico-Eagle Mines Ltd. (AEM) CEO Sean Boyd.
 
More Realism
 
Mining companies are hoping that it’s governments and not just investors who pay attention to the new all-in costs, Gold Fields Ltd. (GFI) CEO Nick Holland said in a Feb. 4 interview. Gold more than quadrupled in the last 10 years and reached a record $1,923.70 an ounce in September 2011, encouraging some countries to seek a greater share of profits.
 
Dominican Republic President Danilo Medina said today that a contract for Barrick to develop a $4 billion mine is unacceptable and must be revised to provide more benefit to the country. Burkina Faso is among countries that have amended royalty and tax regimes.
 
"It could be positive for getting more realism into governments about how much tax they really should be levying on us," Holland said. "There’s not the super profits that you’d have them believe you’re making."
 
To contact the reporter on this story: Liezel Hill in Toronto at lhill30@bloomberg.net.
 
To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net.
 
More on gold miners:
 
 
 

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Ben Bernanke says QE is here to stay

From The Big Picture:
 
Yesterday’s testimony by Fed chair Ben Bernanke makes it clear that QE is here to stay for the foreseeable future. Rather than tilt at windmills, you need to accept this fact, and adjust accordingly.
 
Here are a few of the things that you should be doing in response to zero interest rate policy:
 
•   Refinance your home, locking in a 30 year fixed rate (if you can afford a 15 year fixed, do that). This is a no-brainer and the best way to take advantage of zero rates for most families. 
•   Shorten the duration of your bond holdings. Rates will go up eventually, so those 10 year durations and longer should be 7 years max.
•   Buy or lease a new car (Ben wants you to) assuming you can afford to.
•   Evaluate your risk assets: Since the March 2009 lows, stocks are up over 100%. If you…
 
 
More on the Federal Reserve:
 
 
 

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This could be the most important chart in the world for traders now

From All Star Charts:
 
With the recent selloffs in U.S. markets, let’s keep in mind that some other areas of the world have been doing just that for over a month now. It started with Europe and some of the emerging markets the day after the Super Bowl. And since then, some of the economically sensitive commodities have joined in. Most importantly, in my opinion, is what we’re seeing from copper – one of my favorite tells out there.
 
Here is a weekly chart of copper futures. The highs in the chart came back in February of 2011, just a couple months before U.S. stocks peaked and lost over 20% over the next two quarters. Copper continued its decline along with stocks and they both bottomed out together that October.
 
Since then, U.S. stocks have gone on to hit higher highs, and even all-time highs in some cases like the small caps, mid caps and Dow Transports. Copper, on the other hand, has…
 
 
More on technical analysis:
 
 
 

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What Goldman Sachs’ latest forecast could mean for gold

From Global Economic Trend Analysis:
 
In the less-than-useless category, Goldman Sachs lowered its gold price targets by over $200 an ounce following the recent plunge. Goldman now says gold’s cycle has been turned: 
 

The cycle for gold prices, which climbed for 12 straight years, has probably turned as the recovery in the U.S. economy gathers momentum and investment holdings collapse, according to Goldman Sachs Group Inc., which reduced forecasts for the metal.

 

The bank cut its three-month target to $1,615 an ounce from $1,825 and lowered the six- and 12-month forecasts to $1,600 and $1,550 from $1,805 and $1,800. Goldman reversed an assumption exchange-traded products holdings will expand in 2013, analysts Damien Courvalin and Jeffrey Currie wrote in a Feb. 25 report…

 

Billionaire investors George Soros and Louis Moore Bacon cut their stakes in gold ETPs last quarter, while John Paulson maintained his share, government filings showed this month. Global holdings reached a record 2,632 tons on Dec. 20.

 

Gold futures fell to $1,554.30 on Feb. 21, the lowest since June 29, after minutes from the U.S. Federal Reserve’s January meeting showed debate over the pace of asset purchases.

 

"Our economists believe that the downside risks to their forecasts have diminished while the uncertainty about the size of QE3 is high," the Goldman report said. "We believe that a shift has occurred over the past few months with conviction in holding gold waning quickly."

 
In contrast to the opinion of Goldman, I would like to note there is little uncertainty about QE. Bernanke is insanely committed to the idea.
 
In regards to downside risks to the economy, I will also take the other side…
 
 
More on gold:
 
 
 

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Report shows gasoline prices could be approaching the "danger zone"

From PragCap:
 
… Watching the Daytona 500 from the "danger zone," where cars whip by at high speeds of around 175 mph to 200 mph — but can also burst through the walls in a crash — can be a thrill.
 
But gasoline’s "danger zone" may be just plain scary.
 
At $3.75, retail gasoline prices are nearly back in the "danger zone" marked by the highs of around $3.85 to $4.10 per gallon seen over the past five years, as you can see in Figure 1. This range has marked a "danger zone" for market participants.
 
When gasoline prices reached this range in the past, it preceded the stock market slides experienced in…
 
 
More on stocks:
 
 
 

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Three surprising dividend growers you’ve probably never considered

From The Dividend Pig:
 
Many investors don’t think of mining stocks as dividend-growth companies because of their lower dividend yields. The sector has largely been overlooked by the Canadian dividend investing crowd.

 
 
Yet these are "dividend growth" companies with strong balance sheets. They have recently raised their dividends, and have more potential for share price increase.
 
Take Potash (POT) as an example, which recently raised its dividend by a whopping 33%. By avoiding the lower-yield mining companies, many investors may be giving up a "golden" opportunity for future growth, when the resource sector rebounds.
 
The Canadian mining sector also has companies which are trading at two and three year lows. In a rising market where many stalwart blue-chips are trading at their 52-week highs, there may indeed be opportunity in this beaten-up sector.
 
This is a sector that has been on my watch list for a few months, and I am ready to make a move. These aren’t penny-stocks, or junior-mining companies, but giant multibillion-dollar companies with global reach. The majority of these Canadian mining companies are also "interlisted" on the NYSE as well as the TSX.
 
Three Canadian mining companies are now on my watch list: Goldcorp (G), Teck Resources (TCK), and…
 
 
More on dividends:
 
 
 

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Must-read: Powerful post explains one of the biggest problems in America today

From Daniel Greenfield:
 
In Year 1 of Obama, two fat cats named Michael Moore and Harvey Weinstein released a movie. Their magnum opus was "Capitalism: A Love Story".
 
The unsubtly sarcastic point after the colon was that capitalism was an unmitigated bag of evil. And to reaffirm the faith of capitalism-haters in the evils of capitalism, here was a movie put out by a bunch of corporations owned by millionaires.
 
The traditional image of the anti-capitalist as a ragamuffin who dies of consumption in his garret has always been at odds with the real image of the anti-capitalist as a rich man or the son of a rich man.
 
When Obama launched his big push for higher taxes, he enlisted as his ally none other than the richest man in the country. And when Occupy Wall Street’s demographics were broken down, the courageous opponents of capitalism turned out to be the sons and daughters of the upper class.
 
This sort of thing isn’t a surprise, it’s history. Lenin’s father was a nobleman. Cuba’s dictator attended Castro’s wedding. The man of the people is rather often stuck at the bottom of the top of the pole. The people who make revolutions are not the dispossessed, but those who are close enough to see what power really looks like, but have no hope of wielding absolute power unless they enlist the mob. They are close enough to see the throne, but not close enough to non-violently sit down in it.
 
That’s not even the case in America…
 
 
More government insanity:
 
 
 

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Disturbing report reveals a fact about Obamacare you probably haven’t heard

From Economic Policy Journal:
 
I have already pointed out how a small businessman in California saw his health insurance premium triple because of Obamacare…
 
A friend familiar with the industry emails and points me to a summary at the NOLO legal encyclopedia that explains how healthcare insurance premiums are going to become income based. NOLO writes:
 
4. You Can Get Health Coverage If You Need It
 
Starting in 2014, U.S. citizens and legal residents will be able to buy health insurance through a new system of exchanges run by state government agencies or nonprofits (these exchange programs are officially called "American Health Benefit Exchanges"). Families and individuals whose income is on the lower end of the scale — up to four times the federal poverty level, or just over $88,000 for a family of four — will be entitled to credits and subsidies to help with some or all of the costs for coverage.
 
The amount that an individual or family will need to pay for health coverage will be based on total income — the more you make, the more you’ll pay for coverage. The CBO estimates that…
 
 
More on Obamacare:
 
 
 

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A letter from a "cyber terrorist" every American should read

From Liberty Blitzkrieg:
 
For those unfamiliar with Jeremy Hammond, he is the 28-year-old web developer accused of hacking Stratfor and subsequently leaking the information to Wikileaks.
 
For this, he faces a 30-years-to-life sentence. Jeremy is currently being held without bail at the Manhattan Correctional Center, a federal jail in lower Manhattan in solitary confinement.
 
Incredibly, the federal judge who is hearing his case, Lorraine Preska, has refused to step aside despite the fact that her husband was a victim in the hack Hammond is accused of. Now that’s a justice system!
 
Hammond recently penned a letter from solitary in which he discusses the rampant corruption in the criminal justice system, the very dangerous Computer Fraud and Abuse Act (CFAA), and the tragic death of Aaron Swartz.
 
His character really comes through in the fact that he barely discusses his own case, despite the awful situation he finds himself in. So without further ado, below is his entire letter…
 
 
More on the government and the Internet:
 
 
 

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Budget 2013: Expect credible & well-defined timeline for GST, says Jahangir … – Economic Times


Economic Times
Budget 2013: Expect credible & well-defined timeline for GST, says Jahangir
Economic Times
Why is gold unproductive? Gold has been the best investment that the households of India have done over the last three years. If you look at the equity performance and look at performance of gold, the people were very astute in actually investing in

Thursday, February 28th, 2013 Invest, News, Wealth Comments Off on Budget 2013: Expect credible & well-defined timeline for GST, says Jahangir … – Economic Times

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