Brazil to invest $2.4 billion in gold production over next 4 years - The Economic Times

Brazil to invest $2.4 billion in gold production over next 4 years - The Economic Times

RIO DE JANEIRO: Private firms that invest in gold mining in Brazil will allocate about $2.4 billion over the next four years to their activities, the O Globo newspaper reported Sunday, citing official figures.

This volume of investments is three times the earlier forecasts for the period and could be a major factor in doubling the country's production of the precious metal, which currently stands at 62 tonnes per year.

The figure places Brazil in 13th place among gold mining countries, a good bit below the top-ranked countries, which are China (341 tonnes per year), Australia (259 tonnes), the US (240 tonnes) and South Africa (192 tonnes).

The National Department of Mineral Production has just granted 1,270 permits to mining companies to prospect for gold and is analyzing another 1,173 applications of this kind, the newspaper said, adding that the increase in permit requests is like "a new gold race".

Brazil currently has 2,819 legal and active gold mines, according to O Globo, although most of the production is concentrated in just a few mines operated by foreign mining firms.

The largest gold mine in the country is located in Paracatu, a town in the central state of Minas Gerais, and it is run by Canada's Kinross.

Over the past five years production at this mine has tripled to 15 tonnes per year, a feat that has demanded a great technological effort because Paracatu is one of the mines with the lowest purity index of the precious metal, just 0.4 grams of gold per tonne of rock.

Brazil is only operating at 12 percent of its gold production capacity, which could reach 503 tonnes per year if the country's proven reserves are taken into account, O Globo said.

Read the whole story here: Brazil to invest $2.4 billion in gold production over next 4 years - The Economic Times

Central bank gold buying at 40-year high - FT.com

Central bank gold buying at 40-year high

FT.com reports

Central banks made their largest purchases of gold in decades in the third quarter, as a sharp drop in prices in September accelerated the shift to bullion as a means of diversification.

The scale of the buying, at 148.4 tonnes on a net basis, was far bigger than previously disclosed, surprising some traders.

The data were published in a quarterly report by the World Gold Council, a lobby group for the gold industry, on Thursday.

The WGC declined to identify of the central banks behind the majority of the buying citing "confidentiality restrictions", saying only that "a slew of new entrants emerged wishing to bolster gold holdings".

Central banks are one of the most important drivers of the gold market but few disclose details about the changes in their bullion reserves.

Central banks became net buyers of gold last year after two decades of heavy selling – a reversal that has helped propel the price of bullion to a high of $1,920.30 a troy ounce, up 600 per cent in a decade.

This year, led by emerging market central banks intent on diversifying their growing foreign exchange reserves, they are set to buy more gold than at any time since the collapse of the Bretton Woods system 40 years ago, the last time the value of the dollar was linked to gold.

The purchase of 148.4 tonnes in July-September is the largest since GFMS, the consultancy which produces the data underlying the WGC reports, began compiling quarterly numbers in 2002. Before then, the last time central banks were net buyers of gold was in 1988 when they bought 180 tonnes.

Marcus Grubb, head of investment at the WGC, said of the buyers: "We believe it's a number of purchasers from different countries."

The majority of the buying took place in September after prices fell sharply from record levels at $1,900 to a low of $1,534.49, he said. It coincided with growing international tensions over the US dollar after a dispute in Washington about raising the US debt ceiling.

However, Mr Grubb said the buyers were probably pursuing longer-term targets: "Central bank buying tends to follow a different heartbeat than pure investment purchases of gold. It's often based on targets set earlier in the year on gold as a proportion of foreign exchange reserves."

He predicted that central bank buying for the full year could be 450 tonnes, implying a further 90 tonnes in the fourth quarter.

GFMS last month said central bank purchases were likely to be in excess of 400 tonnes and could reach 500 tonnes, an upward revision from its forecast in September of 336 tonnes.

Elsewhere, the WGC reported that China overtook India to become the largest consumer of gold jewellery in the third quarter. Chinese jewellery consumption rose 13 per cent from a year earlier to 138.6 tonnes, while buying from India – traditionally the world's top consumer – fell 26 per cent.

Reducing risk in junior gold stock investment - Brent Cook - JUNIOR MINING | Mineweb

Reducing risk in junior gold stock investment - Cook

Mineweb.com

In the high-risk junior gold sector, 95% of the companies investors might choose will fail to hit paydirt. But, Exploration Insights Editor Brent Cook has some advice - Gold Report interview

Author: Karen Roche
Posted: Thursday , 17 Nov 2011

NEW ORLEANS -

The Gold Report: Could you tell us the premise behind your statement at the New Orleans Investment Conference about why so many exploration and mining companies fail?

Brent Cook: Mining is a tough business-a very tough business. So many things can go wrong even if the company did everything right. On the exploration side, probably 95% of the junior companies whose share prices start moving up the discovery curve finish down at the bottom of that chart. Very few actually end up with something of any real economic significance.

The main reason is that exploration is a very inexact science. In geology and exploration, we deal with a limited amount of data at the earth's surface and then use geologic models to try and understand what is happening at depth. So we are doing a lot of guessing and projecting based on a very limited data set. In fact, exploration geology is as much art as science because so much of what a geologist thinks is subjective and based on experience.

So, in the end, that fuzzy science is being applied to test some sort of geochemical or geophysical anomaly near the earth's surface. It could be slightly elevated gold or arsenic in the soil or a magnetic body of rock at depth. You have to bear in mind that an anomaly is really little more than a difference in the background values of something like soil or rock or density or magnetism. Whatever it is, the world is full of anomalies and they are not all deposits. Nature has scattered billions of geochemical anomalies all around the world, so chasing anomalies is just the nature of the game; that's what keeps us all employed in the exploration business. And failure has to be the overwhelming result when you are looking for that rare place in the earth that everything came together to form an economic deposit.

Still, all of that chasing has been very profitable to the Vancouver stock market scene; a lot of money is raised and made chasing anomalies.

TGR: So even for trained geologists like you, geology is an inexact science and you cannot know what you have until you start drilling.

BC: Basically, that's right. Drilling is a scientific tool. That's when you test your hypothesis. You hypothesize that a vein of gold, for instance, formed at 200 meters of depth under the right circumstances. More often than not, you test your thesis, get your data back, reassess the data and adjust your thesis to fit the data. That's another reason it takes so long to actually make a discovery. Putting widely scattered pieces of data together takes time.

TGR: If 95% of what appear to be good geographic anomalies fail the drill test, why does so much money chase the junior mining sector?

BC: Because if you are successful, your stock goes from $0.25 to $2.50, $10, $20. And even without an economic discovery the rewards can be enormous if you know when to get out. As I say, a lot of these stocks start up that price-appreciation curve. At some point, an investor who is well-enough informed and understands the drill results can sell that stock at a profit before the rest of the world realizes that this is a bust. So a lot of money is made on that upcurve.

TGR: That sounds like making money based on hype and not on value.

BC: A lot of hype goes on in this sector for sure, which is facilitated by the inexact nature of the science, but savvy investors really base decisions on interpreting the results as they come in. When the data start indicating that the hypothesis was wrong, they probably decide it is time to start thinking about getting out. To make money, speculators just have to recognize it before the crowd does.

TGR: Few investors really know how to interpret the data and test the thesis, as you say. How can they realistically play in that junior mining game?

BC: My honest answer is to get good advice. Rick Rule, who emceed the mining panel at the conference, runs Global Resource Investments, a brokerage firm that actually employs geologists and mining engineers as brokers. That's one good place to get advice. A good investment newsletter is another; I like mine.

Of course, a good adviser has to interpret the data correctly and say, "Look, the results from this drilling program from this project up in the Yukon aren't looking so good right now. The results are telling me we have less chance of finding something, so it's probably time to sell." Or it could be the opposite: "This is really looking interesting. Let's buy some more."

TGR: In your New Orleans presentation, you advised junior exploration sector investors to know their exit strategy. Can you expand on that in light of what you've just explained?

BC: Always buy a junior with some idea of who will buy it from you and why. My exit strategy ultimately is to invest in juniors that find deposits good enough to interest the majors. In other words, my exit strategy is to sell to someone somewhat smarter than I am-a major that knows its stuff, does its due diligence and decides to buy one of these companies. I also like to get in early on a project with the idea that as the company derisks it with drilling, metallurgy or whatever, the project fits the profile of a fund manager or someone looking for less risk and more quantifiable upside. But I think the exit strategy for most people who get into this game is to sell to someone dumber than they are, hoping the fools come in and pay more for a stock than they did. That works in a raging bull market, but not in this market. In essence, with a sound exit strategy you know 1) what the deposit the company is looking for actually looks like, 2) what it is going to take in both money and exploration to realize the deposit goal and 3) what it might be worth if all goes well-and then sell when it gets to that point.

TGR: So 95% of the time you sell to someone not so smart, and 5% of the time you hit it and sell to someone smarter.

BC: Theoretically, yes, but that assumes you buy all the stocks that start up the discovery curve and that you are right and that there is an infinite supply of dopes. It's such an inexact science, though, that even expert opinions differ. If you get five geologists in this room with me and we start talking about a property, you will hear six different opinions as to what's going on down at depth or who makes the best beer. I'm certainly not right all the time-no one in this business can be. You have to go with your interpretation of the data at hand and stick with it.

TGR: And the 5% that prove out are fabulous. Does some knowledge base allow a geologist to winnow that 95% down so that geologists have a somewhat lower risk than non-geologists?

BC: I think so, although on the whole geologists are dreamers, so keep that in mind. You can, however, improve the odds quickly by not getting into projects that don't really have a chance of significant success. I would say half the junior companies in this industry are chasing prospects that are not worth very much even if they're successful.

TGR: You are also an investor. Do you prefer prospect generators because, in essence, they have multiple projects and thus spread the risk more than explorers? Or does your knowledge as a geologist enable you to pick and choose on a very educated, selective basis?

BC: I think it's both. The prospect generator model is a very intelligent way to go about investing, and I certainly think that any investors in this sector should have at least some portion of their high-risk investment in some carefully selected prospect generators. With the companies I know that follow this model, the people running them recognize the low odds of success and incorporate that into their business approach. You want intelligent people running the company to begin with-as opposed to those who think they will drill a glory hole, hit it the first time, and strike it rich. That is not a realistic approach to the business.

TGR: Could a lay investor infer that a prospect generator's project has a higher percentage of hitting if it is joint ventured with a major that knows this stuff and has probably done a fair amount of analysis?

BC: That's a good point. It's fantastic when a prospect generator is involved with a major. Its in-house experts are doing the due diligence and selecting the properties the company thinks have a chance of making its hurdle and meeting its big company criteria. A prospect generator in those circumstances has access to the big company's geophysical, geological and engineering experts. There is no way small companies can afford that depth of knowledge on their own.

TGR: Where do you think the next really big precious metals discovery will be?

BC: If I could go anywhere in the world regardless of politics, I'd be in Iran, second is probably Afghanistan. After that it's a tough call.

TGR: Would you like to add anything else, Brent?

BC: I'd like people reading this to come to my website and click on the Discovery Process video link to a property tour I did in the Yukon; it's also on youtube. I think it's worth seeing the reality of a property visit and the sorts of things you can't get reading a press release.

TGR: Thanks for fielding our questions today, Brent. And for the link.

Brent Cook brings more than 30 years of experience in more than 60 countries to bear on his reputation as a world-renowned exploration analyst, geologist, consultant and investment adviser. His knowledge spans all areas of the mining business, from the conceptual stage through detailed technical and financial modeling related to mine development and production. His credentials include service as principal mining and exploration analyst to Global Resource Investments, where he provided analysis to retail brokers and two in-house funds. His weekly Exploration Insights newsletter (www.explorationinsights.com) selectively covers junior mining and exploration investment opportunities.

Article published courtesy of The Gold Report - www.theaureport.com

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