Vast majority of mining projects experience steeper cost over-runs - MINING FINANCE / INVESTMENT | Mineweb

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MINING FINANCE / INVESTMENT

Vast majority of mining projects experience steeper cost over-runs

Mining companies need to admit that a 10% cost overrun for mining projects has become an anachronism as more and more projects are coming in way over budget.

Author: Dorothy Kosich
Posted:  Wednesday , 30 Nov 2011

RENO, NV - 

Mining companies which only factor in a 10% cost over-run for mining projects are asking for trouble, warned experts in mining financing Tuesday during a session at the Northwest Mining Association convention in Reno.

Resource Capital Funds' Jasper Bertisen said the "vast majority" of mining projects have been coming in "way over budget" for the past couple of decades. As a result, RCF now automatically factors in an average cost overrun of 25% when it considers the cost of mining projects.

RMB Resources' Alvaro Belevan said the traditional 10% overrun contingency has been insufficient in recent years. Worse yet, the magnitude of mining project cost overruns are greater nowadays, he added.

"Cost over-runs means the economics of your projects has changed, and changed for the worst," Belevan warned.

Unexpected cost overrun often complicates arranging additional project funding, he observed. Delays in obtaining additional funding may compound the problem in an inflationary cost environment; throw-off procurement schedules causing significant delays; and increase the costs of debt/equity and decrease project returns.

"Management must set up a Cost Overrun Provision (COP) when project development begins," Belevan advised. "These are readily available funds held in reserve specifically available for cost overruns."

A COP may be funded from equity and/or a Cost Overrun Facility (COF). A COF is most advantageous to emerging producers, single-assets companies, and companies with multiple development assets who wish to limit cross-subsidies, he suggested.

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Jim Rogers Says Gold Due for Correction; Owns Dollar

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Jim Rogers Says Gold Due for Correction; Owns Dollar

CNBC.com | November 29, 2011 | 06:13 AM EST

The price of gold is due for a correction and this could be used as an entry point by investors eager to get exposure to the precious metal, while the dollar is likely to strengthen as there has been too much pessimism about it, famous investor Jim Rogers told CNBC Tuesday.

Gold [ XAU= 1712.09  +1.50 (+0.09%) ] hit record after record high this year as investors scared by central banks printing money around the world and by the protracted debt crisis in the euro zone sought refuge in precious metals.

"I own gold and I'm not selling my gold," Rogers said, but pointed out that the price of the commodity has been up for 11 years in a row.

He advised that a drop in price wouldn't be such a bad thing. "Somewhere down the line gold will have a correction. Gold will continue to do what gold does best. Just give it a chance."

If the gold price retreats towards $1,200 per ounce, Rogers said he would get "extremely excited."

"I'd probably get more interested at $1,600. At $1,710 or whatever it is today I'm not buying gold, I'm just watching. And likewise for silver[ XAG= 31.85  -0.22 (-0.69%) ] ," he said.

"If I had to buy one today, I would buy silver just because silver is 40 percent below its all time high, gold is 20 percent near its all time high. But I'm not buying any of the four precious metals today."

On currencies, Rogers explained why he bought the US dollar[ .DXY 78.90  -0.36 (-0.45%) ] .

"I own the dollar, I own some other currencies as well," he said. "A year ago everybody was pessimistic about the dollar, including me…when everybody is on the same side of the boat, you go to the other side of the boat for a while."

Click Here to Watch Part I of Jim Rogers' Interview

But Rogers warned against piling into one currency. "If you have all of your money in anything, be very careful. Some are going to totally disappear."

Rogers said he also owns the Chinese renminbi [ CNY=X 6.3769  -0.007 (-0.11%) ]and the Japanese yen [ JPY=X 77.78  -0.20 (-0.26%) ] and criticized governments for their ongoing drive to print money and inability to cut debt.

"Governments around the world continue to print money. Paper money everywhere is being debased. If the US dollar turns into confetti, there is no high for the price of gold, because the dollar will become worthless," he warned.

Europe Getting 'Out of Control'

Rogers also said that no solution would be found for the ongoing crisis as long as European powers remained so heavily debt burdened.

"The solution to too much spending and too much debt is not more spending and more debt. Nobody shows debt going down," he said.

"This situation in Europe is getting out of control. It already is out of control in the US. You're going to have to take your pain sometime. If you did it now, you could ring-fence everybody; the system would survive. Right now governments have some credibility left…if you wait a year or two or five, when the market forces you to deal with reality, then the markets and the banks have no credibility."

"I'd rather take the pain now, rather than the markets force us to take the pain. And that could be the end of the system," he said.

Rogers pointed to the Scandinavian banking crisis of the early 1990s, saying that difficult policies enacted at the time to allow some banks to fail went on to save the long-term future of the region.

"It was a horrible two or three years, but since then Scandinavia – especially Sweden - has had a wonderful rise for the last 15 years or so. And Sweden is one of the most stable and solvent countries in the world."

"The world is full of risk right now. I own Scandinavian currencies because they are probably less risky," he said.

Click Here to Watch Part II of Jim Rogers' Interview

Rogers is still optimistic on commodities and said it was understandable that in the wake of major financial derivatives broker MF Global's recent bankruptcy there would be some uncertainty.

"When a huge player goes bankrupt, it has a lot of ramifications. Once this is past, I would suspect that commodities would continue to go higher and that you would continue to see more inflation. I own all commodities; I especially own food and precious metals," he said.

What is Rogers' tip for a high performing asset class over the next three to six months?

"I am wildly bullish on Myanmar, if I could find a way to put all of my money into Myanmar, I probably would. It is at the place where China was in late 1978; they are opening up, they've changed. They've got 60 million people, they are right there between China and India," he explained.

"I cannot think of anything in the world about which I'm more bullish than Myanmar."

Venezuela Repatriates ‘People’s Gold’ Due to Gold’s ‘Historic’, ‘Symbolic’ & ‘Financial’ Value

Do NOT follow this link or you will be banned from the site!

Populism at its best!!!

… but then again, Chavez may prefer to have the gold closer to home before some court puts its eyes/hands on it, in order to guarantee payment for one of the many suits Chavez's Bolivarian Kleptocracy faces overseas (Exxon, Conoco, etc.)

Venezuela Repatriates 'People's Gold' Due to Gold's 'Historic', 'Symbolic' & 'Financial' Value

From GoldCore Venezuela Repatriates 'People's Gold' Due to Gold's 'Historic', 'Symbolic' & 'Financial' Value Gold is trading at USD 1,712.30, EUR 1,280.80, GBP 1,100.00, CHF 1,574.70 and JPY 133,080 per ounce.  Gold's London AM fix this morning was USD 1,714.00, GBP 1,100.41, and EUR 1,280.06 per ounce. Friday's AM fix was USD 1,676.00, GBP 1,084.02, and EUR 1,263.86 per ounce. Cross Currency Rates Gold is higher in most currencies today. Gold is higher due to the dollar coming under pressure and oil prices (WTI) have surged over 3%.  Stock markets are also higher on fresh hopes Europe will unveil yet another set of measures to tackle the deepening contagion in the Eurozone.   Monetary and systemic risks remain and should see gold well supported at the $1,700/oz level. Indeed, gold could have bottomed on options expiry last week – as is often the case. Western physical buyers continue to accumulate due to currency concerns. While, demand is robust, there is no panic buying or mass "flocking to gold". Physical buyers of gold in India, the world's biggest consumer of bullion, remain on the sidelines even though traders offered discounts of up to $5 per ounce to global prices, according to Reuters. Chinese New Year buying should commence soon which will be supportive of prices and make up for the expected decline in Indian demand. The currency war meme continues as seen in wild scenes of celebration in Caracas on Friday when Venezuelan citizens partied in the streets as their gold reserves were repatriated. Reuters reports the first shipment of gold bars arrived home in Venezuela on Friday "amid wild celebrations." Excited crowds lined the roadside waving big Venezuelan flags and chanting "It's returned! It's returned!" as a convoy of soldiers and armored cars carried the gold ingots from Maiquetia airport to the central bank in Caracas. The President of the central bank, Nelson Merentes traveled into the city at the head of the convoy. He did not say how much gold bullion was brought back in Friday's shipment but said the bullion came from several European countries. "Our gold is being stored in the vaults," Merentes told the cheering crowds, sporting a baseball cap that read "The Central Bank of Venezuela with the People."  "It has historic value. It has symbolic value. And it has financial value," bank chief Merentes said about the first shipment. "Each box of gold weighs 500 kilograms and is worth about $30 million," Merentes said before cheering crowds. "We'll bring the rest back little by little." Merentes is in favor of the move and said, "The country's finances will be backed by autonomous wealth, so we are not subject to pressure from anyone," UPI reported. "This guarantees that if there are financial problems in the international markets our gold will be safe here at home," Merentes said. Drums and sirens sounded out across the square as many in the crowd sang "Forward comandante!" in support of the president. Some waved homemade signs that said: "The gold has returned thanks to Chavez!" and "Long live our sovereignty!" Chavez addressed the nation on local television last week with the Council of Ministers, the Executive Cabinet and representatives of the Venezuelan Central Bank, including bank chief, Nelson Merentes. Speaking from the Miraflores presidential palace Chavez said the move was giving back the country's, "Body and soul," and went on to say the return of the gold gave Venezuela more independence from what he described as imperialist powers. While brandishing a copy of the constitution he explained that the Central Bank would carry out the repatriation. Chavez said the central bank would now be independent of foreign powers and subject only to the national constitution.  Chavez announced the repatriation in August as a "sovereign" step that would help protect Venezuela's foreign reserves from economic turmoil in the United States and Europe. Most of Venezuela's gold held abroad is in London. "They say Chavez is going to take the gold to Miraflores (presidential palace) and is going to give it to Cuba as a gift," the president chuckled on Friday, mocking political rivals who accuse him of planning to sell the ingots to fill his electoral war chest ahead of next year's election. "The gold is returning to where it was always meant to be: The vaults of the Central Bank of Venezuela." "It's our gold. It's the economic reserve for our kids. It's growing and its going to keep growing, both gold and economic reserves," said Chavez. "Venezuela is going to become an economic power, not for the bourgeois or capitalism, but for the Venezuelan people." A central bank report released in August showed that Venezuela held gold reserves with the Bank of England, JPMorgan Chase & Co., Barclays Plc and Standard Chartered Plc among other banks. Merentes said in August that Venezuela will look to deposit some of its $6.3 billion of cash reserves in emerging-market financial institutions in Russia, China and Brazil. Like most of those gathered outside the bank, 62-year-old university professor Jose Escalona wholeheartedly agreed. "There was no reason for it to be in England," he said. "This gold belongs to all Venezuelans," he told Reuters. A senior government source involved in transporting the bars, which amount to 90% of Venezuela's gold held abroad, has told Reuters they will be shipped in several cargo flights that will be completed before the end of the year. The total cost of the operation will be no more than $9 million, the source said, without elaborating. Chavez often accuses previous presidents of selling off Venezuelans' national assets, including by storing most of the country's gold reserves with Western banks in the mid-1980s. Chavez is worried about Venezuela's foreign reserves being frozen by sanctions. By repatriating the bullion, he also reduces the risk of any seizure of assets related to arbitration cases, including those linked to the nationalization of multibillion-dollar oil projects run by US multinationals. Critics have suggested that Mr Chavez is acting out of fears Venezuela's overseas assets could one day be frozen by sanctions, as happened to his friend and ally, the late Libyan leader Col Muammar Gaddafi. Chavez, the Venezuelan central bank and some of its people clearly understand the value of gold.  This is in marked contrast to the majority of people in the western world who have forgotten gold's 'historic', 'symbolic' & 'financial' value. With increasing systemic and monetary risk, gold is reasserting itself as money and as an important safe haven monetary asset. SILVER  Silver is trading at $32.03/oz, €23.98/oz and £20.58/oz  PLATINUM GROUP METALS  Platinum is trading at $1,551.63/oz, palladium at $590.50/oz and rhodium at $1,575/oz.

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