In July 1944, delegates from 44 nations met at Bretton Woods, New Hampshire – the United Nations Monetary and Financial Conference – and agreed to “peg” their currencies to the U.S. dollar, the only currency strong enough to meet the rising demands for international currency transactions.

Member nations were required to establish a parity of their national currencies in terms of the US dollar, the "peg", and to maintain exchange rates within plus or minus one percent of parity, the "band."

What made the dollar so attractive to use as an international currency was each US dollar was based on 1/35th of an ounce of gold, and the gold was to held in the US Treasury. The value of gold being fixed by law at 35 US dollars an ounce made the value of each dollar very stable.

The US dollar, at the time, was considered better then gold for many reasons:

• The strength of the U.S. economy
• The fixed relationship of the dollar to gold at $35 an ounce
• The commitment of the U.S. government to convert dollars into gold at that price
• The dollar earned interest
• The dollar was more flexible than gold

There’s a lesson not learned that reverberates throughout monetary history; when government, any government, comes under financial pressure they cannot resist printing money and debasing their currency to pay for debts.

Lets fast forward a few years…

The Vietnam War was going to cost the US $500 Billion. The stark reality was the US simply could not print enough money to cover its war costs, it’s gold reserve had only $30 billion, most of its reserve was already backing existing US dollars, and the government refused to raise taxes.

In the 1960s President Lyndon B. Johnson's administration declared war on poverty and put in place its Great Society programs:

• Head Start
• Job Corps
• Food stamps
• Medicaid
• Funded education
• Job training
• Direct food assistance
• Direct medical assistance

More than four million new recipients signed up for welfare.

During the Nixon administration welfare programs underwent major expansions. States were required to provide food stamps. Supplemental Security Income (SSI) consolidated aid for aged, blind, and disabled persons. The Earned Income Credit provided the working poor with direct cash assistance in the form of tax credits and welfare rolls kept growing

Bretton Woods collapsed in 1971 when Nixon severed (known as the Nixon Shock because the decision was made without consulting the other signatories of Bretton Woods, even his own State Department wasn’t consulted or forewarned) the link between the dollar and gold – the US dollar was now a fully floating fiat currency and the government had no problem printing more money. With gold finally demonetized the US Federal Reserve (Fed) and the world’s central banks were now free from having to defend their gold reserves and a fixed dollar price of gold.

The Fed could finally concentrate on achieving its mandate – full employment with stable prices – by employing targeted levels of inflation. The Fed’s  ‘Great Experiment’ had begun – the objective being a leveling out of the business cycle by keeping the economy in a state of permanent boom – gold's "chains of fiscal discipline" had been removed.

But there was a problem – because of the massive printing of the US dollar to cover war and welfare reform costs Nixon worried about the strength of his country’s currency – how do you keep the U.S. dollar as the world’s reserve currency, how do you keep demand strong, if one you remove gold’s backing and two print it into oblivion?

Recognizing that the US, and the rest of the world, was going to need and use more oil, a lot more oil, and that Saudi Arabia wanted to sell the world’s largest economy (by far the US) more oil, Nixon and Saudi Arabia came to an agreement in 1973 whereby Saudi oil could only be purchased in US dollars.  In exchange for Saudi Arabia's willingness to denominate their oil sales exclusively in U.S. dollars, the United States offered weapons and protection of their oil fields from neighboring nations.

Nixon also abolished the International Monetary Fund’s (IMF) international capital constraints on American domestic banks. This allowed Saudi Arabia and other Arab producers to recycle their petrodollars into New York banks.

Global oil sales in U.S. dollars caused an immediate and strong global demand for US dollars – the ‘Petrodollar’ was born.

By 1975 all OPEC members had agreed to sell their oil only in US dollars in exchange for weapons and military protection.

“In a nutshell, any country that wants to purchase oil from an oil producing country has to do so in U.S. dollars. This is a long standing agreement within all oil exporting nations, aka OPEC, the Organization of Petroleum Exporting Countries. The UK for example, cannot simply buy oil from Saudi Arabia by exchanging British pounds. Instead, the UK must exchange its pounds for U.S. dollars…

This means that every country in the world that imports oil—which is the vast majority of the world's nations—has to have immense quantities of dollars in reserve. These dollars of course are not hidden under the proverbial national mattress. They are invested. And because they are U.S. dollars, they are invested in U.S. Treasury bills and other interest bearing securities that can be easily converted to purchase dollar-priced commodities like oil. This is what has allowed the U.S. to run up trillions of dollars of debt: the rest of the world simply buys up that debt in the form of U.S. interest bearing securities.” Christopher Doran, Iran and the Petrodollar Threat to U.S. Empire

 As developed economies grew and prospered, as developing economies took center stage with their massive urbanization and infrastructure development plans their need for oil grew, and so too did the need for new U.S. dollars, as demand grew the currency strengthened.  The U.S. Dollar quickly became the currency for global trades in almost every commodity and most consumer goods, it wasn’t used just for oil purchases anymore. Countries all over the world bought, had to buy, more and more dollars to have a reserve of currency with which to buy oil and ‘things.’ Countries began storing their excess US dollar capacity in US Treasury Bonds, giving the US a massive amount of credit from which they could draw.

There’s no disputing the U.S. greenback is the world's currency – the dollar is the currency of denomination of half of all international debt securities and makes up 60 percent of countries foreign reserves.

The Petrodollar replaced the Gold Standard

Currently the only source of backing for the U.S. dollar is the fact that oil is priced in only U.S. dollars and the world must use the Petrodollar to make their nation’s oil purchases or face the weight of the U.S. military and economic sanctions. Many countries also use their Petrodollar surplus for international trade – most international trade is conducted in U.S. dollars.

It’s very obvious that the United States economy, and the global economy, are both intimately tied to the dollar's dual role as the world’s reserve currency and as the Petrodollar.

“Trade between nations has become a cycle in which the U.S. produces dollars and the rest of the world produces things that dollars can buy; most notably oil. Nations no longer trade to capture comparative advantage but to capture needed dollar reserves in order to sustain the exchange value of their domestic currencies or to buy oil. In order to prevent speculative attacks on their currencies, those nations’ central banks must acquire and hold dollar reserves in amounts corresponding to their own currencies in circulation. This creates a built-in support for a strong dollar that in turn forces the world’s central banks to acquire and hold even more dollar reserves, making the dollar stronger still.” Harvey Gold, Iran’s Threat to the U.S. – Nuclear or the Demise of the Petrodollar?

It’s also very obvious that if global Petrodollar demand were ever to crumble the use of the U.S. dollar as the world’s reserve currency would abruptly end.

The consequences:

• Energy costs would rise substantially. American’s, because their dollar is the world’s reserve currency and they control it, have been buying oil and gasoline for a fraction of what the rest of the world pays.

• There would be substantially less demand for dollars and U.S. government debt. All nations that buy oil and hold U.S. dollars in their reserves would have to replace them with whatever currency oil is going to be priced in – the resulting sell-off would weaken the U.S. currency dramatically.

• Interest rates will rise. The Federal Reserve would have to increase interest rates to reduce the dollar supply.

• Foreign funds would literally run from U.S. stock markets and all dollar denominated assets.

• Military establishment collapses.

• There would be a 1930s like bank run.

• Dollar exchange rate falls. The current-account trade deficit would become unserviceable.

• The U.S. budget deficit would go into default. This would create a severe global depression because the U.S. would not be able to pay its debts.

Why some might think the Petro dollar is history, consider:

•  Several countries have attempted to, or have already moved away from the petrodollar system – Iraq, Iran, Libya, Syria, Venezuela, and North Korea.
•  Other nations are choosing to use their own currencies for inter country trade; China/Russia; China/Brazil; China/Australia; China/Japan; India/Japan; Iran/Russia; China/Chile; China/The United Arab Emirates (UAE); China/Africa Brazil/Russia/India/China/South Africa (the new BRICS are plus S.A.).
•  Countries began storing their excess US dollar capacity in US Treasury Bonds, giving the US a massive amount of credit from which they could draw. But by keeping interest rates excessively low for so long a period of time, and with no relief in sight, the rate of return on U.S. interest bearing securities has been so low it’s not worth holding them to generate any kind of return for your U.S. foreign reserves, the very same reserves you want to hold to buy oil.
•  The U.S. does not need its Arab Petrodollar partners as much since the invasion of Iraq with its immense oil resources (second largest in the world) and discovery of how to obtain oil from unconventional sources – shale oil, oil sands etc. Saudi Arabia and other OPEC countries in the region might be less needy for U.S. protection now that Iraq has been neutralized and Iran is in the crosshairs.
•  Russia is the number one oil exporter, China is the number two consumer of oil and imports more oil from the Saudis then the U.S. does. Chinese and Russian trade is currently around US$80 billion per year. China has agreed to lend the world’s largest oil company, Russia’s Rosneft, two billion dollars to be repaid in oil.
•  U.S. federal debt is close to 17 trillion dollars and is 90 percent of GDP. The deficit is a horrendous 7 percent of GDP. Political infighting and bickering has made cooperation nearly impossible and effective measures just aren’t being taken. The Federal Reserve is increasing its reserves by over a trillion dollars a year, the Fed is out of tools, its measures are not working. The ‘recovery’ is false, jobs are scarce and 6.2 million Americans have dropped out of the workforce.
•  The Bank of England to set up a reciprocal three-year yuan-sterling swap line with China and France intends to set up a currency swap line with China.

Exorbitant Privilege

Valéry Giscard d'Estaing referred to the benefits the United States has due its own currency being the international reserve currency as an "exorbitant privilege."

“Reserve currency status has two benefits. The first benefit is seigniorage revenue—the effective interest-free loan generated by issuing additional currency to nonresidents that hold US notes and coins… The second benefit is that the United States can raise capital more cheaply due to large purchases of US Treasury securities by foreign governments and government agencies…The major cost is that the dollar exchange rate is an estimated 5 to 10 percent higher than it would otherwise be because the reserve currency is a magnet to the world's official reserves and liquid assets. This harms the competitiveness of US exporting companies and companies that compete with imports…

There is no realistic prospect of a near-term successor to the dollar. Although the euro is already a secondary reserve currency, MGI finds that the eurozone has little incentive to push for the euro to become a more prominent reserve currency over the next decade. The small benefit to the eurozone of slightly cheaper borrowing and the cost of an elevated exchange rate today broadly cancel each other. The renminbi may be a contender in the longer term—but today China’s currency is not even fully convertible.” McKinsey Global Institute, An exorbitant privilege? Implications of reserve currencies for competitiveness

The Alternatives

There has lately been a lot of talk about the demise of the Petrodollar. Fortunately, or unfortunately (depends what side of the debate your on) there exists no viable alternative to the U.S. dollar, not today, not tomorrow, not for a very long time.

The EU is a waste land, will the deeply flawed Euro even survive?

“The euro’s major weakness comes from its political base. If the entire 27-country strong European Union (EU) were backing the euro, its long-term international standing would be considerably enhanced. With only half of the E.U countries backing it, the euro zone is vulnerable in the future to a possible dissolution under the pressures of economic hardships. This is more so since the statutes of the European Central Bank are unduly rigid, not only freezing exchange rates between member states, which is OK, but also de facto freezing their fiscal policies, while the central bank itself has the goal of fighting inflation as its only objective. It seems that the objective of supporting economic growth was left out of its statutes, with the consequence that it may be unable to ride successfully future serious economic disturbances.” Prof Rodrigue Tremblay, Nothing in Sight to Replace the US Dollar as an International Reserve Currency

What about China?

One of the preconditions of reserve currency status is relaxing capital controls so foreigners can reinvest their accumulated yuan back into a countries markets. China has strict capital controls in place. If they were to be relaxed to the level needed then market driven money flows, not China’s Communist leaders, would drive exchange and interest rates. Communist leaders would be facing the thing they fear the most –  instability because they lose control over two of their main economic levers.

Capital controls and trade restrictions have been absolutely necessary for China to reach this stage in its economic development. The country's economic development is largely driven by fixed asset investments (FAI – fixed assets include items such as land and buildings, motor vehicles, and plant and machinery).

China is able to invest so much into FAI because, in addition to the inflow of foreign direct investment (FDI is a measure of foreign ownership of productive assets, such as factories, mines and land) its citizens have a very high savings rate as a percentage of income. Because of controls on how and where they can invest that money, Chinese savers have little choice but to invest at home.

If China were to lift its capital controls the resulting outward savings flow seeking higher and safer returns overseas would cause China's economic growth to stall because, the largest by far, of its two major engines of growth, FAI, would simply run out of money.

“Export industries employ so many people, and a drop in exports would mean a rise in unemployment which could cause very serious social unrest. Social stability is Chinese leaders’ top priority, and the way to achieve it is fast economic growth to keep people working.” Xiang Songzuo, deputy head of the International Monetary Institute at Beijing’s Renmin University

The Chinese Communist leaders have to feed, clothe and house untold millions of urban residents and hundreds of millions more rural residents moving to urban areas over the next couple of decades. Their biggest fear is social unrest leading to an overthrow of their communist regime.

China has well over US$3.2 trillion in its foreign reserves. They’ve  accumulated this massive amount of money over the years by maintaining the yaun’s semi fixed peg to the dollar.

Think about it; the euro-crisis, any crisis for that matter, makes the US dollar the preferred safe-haven, this lowers US borrowing costs. This in turn means China has to continue to lend to the US in order to hold-up the value of its current reserves, pushing down US borrowing costs. A massive shift as many envision – China out of the U.S. dollar – might destroy the dollar, would destroy much of China’s sovereign wealth and cause the instability the Communist Party fears so much. Why would China deliberately destroy its own wealth and why would Chinese communist leaders set themselves up for discord among its citizens?

“China, itself as a country, has a very limited moral international stance. It is still a totalitarian, authoritarian and repressive state regime that does not recognize basic human rights, such as freedom of expression and freedom of religion, and which crushes its linguistic and religious “minority nationalities. It is a country that imposes the death penalty, even for economic or political crimes…Only a fundamental political revolution in China could raise this country to a world political and monetary status. This is most unlikely to happen in the foreseeable future and, therefore, no Chinese currency is likely to play a central role in financing international trade and investment.” Prof Rodrigue Tremblay, Nothing in Sight to Replace the US Dollar as an International Reserve Currency

“European and U.S. officials have for years been pressing China to do more to open up the yuan to international markets, saying its artificial weakness was one of the key imbalances of the global economy…Beijing is gradually allowing a degree of flexibility in the yuan's value, though it still keeps a tight rein on gains in the currency for fear it will weaken its export-powerhouse economy, which has been the biggest engine of global growth for a decade.” Reuters, France plans currency swap line with China

Conclusion

U.S. assets are free from default risk, free from political risk, the U.S. has never imposed capital controls and has only frozen funds once – Iran’s in 1978.

Fact; the United States of America, and only the United States of America, controls the fate of the Petrodollar. Not communist China, not Russia or Saudi Arabia or the EU.

The questionable ‘exorbitant’ privilege (the interest-free loans, U.S. Treasury purchases by foreign governments versus the loss of business competitiveness and all that entails) bestowed upon America for having the world’s reserve currency is going continue for the for-seeable future. This fact, and what it means to the U.S. and the world, should be on all our radar screens. Is it on yours?

If not, maybe it should be.

Richard (Rick) Mills

rick@aheadoftheherd.com

www.aheadoftheherd.com

Richard is the owner of Aheadoftheherd.com and invests in the junior resource/bio-tech sectors. His articles have been published on over 400 websites, including:

WallStreetJournal, USAToday, NationalPost, Lewrockwell, MontrealGazette, VancouverSun, CBSnews, HuffingtonPost, Londonthenews, Wealthwire, CalgaryHerald, Forbes, Dallasnews, SGTreport, Vantagewire, Indiatimes, ninemsn, ibtimes, businessweek.com and the Association of Mining Analysts.

If you're interested in learning more about the junior resource and bio-med sectors, and quality individual company’s within these sectors, please come and visit us at www.aheadoftheherd.com

The post America's exhorbitant privilege will continue appeared first on MINING.com.

“The liberty of a democracy is not safe if the people tolerate the growth of private power to a point where it comes stronger than their democratic state itself. That, in its essence, is fascism – ownership of government by an individual, by a group.” Franklin D. Roosevelt

Consider the following, all are characteristics of fascism:

• A dictatorial ruling cabal runs the country
• The military is increasingly being used to control the civilian population
• The government repeatedly violates the U.S. Constitution
• Government informants are spying on their fellow citizens
• Controlled mass media
• Fraudulent elections
• Powerful and continuing nationalism, calls for national unity
• Militaristic values are spreading in society and the power of the military is increasing, glorification of war
• Obsession with national security
• Disdain for the recognition of human rights, racism
• Radical opposition to Communism/Socialism, Modernism and attacks on Liberals
• Identification of enemies as a unifying cause
• Corporate power is protected while labors power is suppressed – Fascism and capitalism are inseparable because the corporate power structure is authoritarian, and is geared to reward the elite owners, but not the workers. Few would argue against the fact that corporations control our government and have the dominant role in our society
• Obsession with crime and punishment
• Militarization of the police – Since the terrorist attacks in 2011 the US has spent close to $700 billion to militarize its police forces
• A trend toward corporatism and systematic destruction of the middle class
• Rampant cronyism and corruption
• Intertwining of government and religion
• A cult like leader

Consequences of fascism to the governed are the loss of rights and the enhancement of the elitists.

“We have had a decade of highly visible evidence of the construction of a police state: the PATRIOT Act, illegal spying on Americans in violation of the Foreign Intelligence Surveillance Act, the initiation of wars of aggression–war crimes under the Nuremberg Standard–based on intentional lies, the Justice Department's concocted legal memos justifying the executive branch's violation of domestic and international laws against torture, the indefinite detention of US citizens in violation of the constitutionally protected rights of habeas corpus and due process, the use of secret evidence and secret "expert witnesses" who cannot be cross-examined against defendants in trials, the creation of military tribunals in order to evade federal courts, secret legal memos giving the president authority to launch preemptive cyber attacks on any country without providing evidence that the country constitutes a threat, and the Obama regime's murder of US citizens without evidence or due process.”

Paul Craig Roberts, It Has Happened Here

The price of gold has doubled since the election of Barack Obama as U.S. President in November 2008.

Precious metals sales, in the form of bullion, has continually increased since Obama was reelected for a second term.

November 2012 sales of 136,500 ounces of gold coins were more than double October’s tally and the most in more than two years.

December sales of 76,000 ounces was the third strongest month of 2012.

U.S. Mint gold-coin sales had their strongest January in 14 years.

According to the US Mint, gold bullion coin sales totaled 150,000 ounces, up 97.4 percent from December. Sales for the month were up 18.1 percent from comparable sales of 127,000 ounces year over year.

January sales of 150,000 ounces of American Eagle gold bullion coins was the sixth largest on record and represents a multi-year high in sales since July 2010 when 152,000 ounces were sold.

The previous record months were:

• June 2010 with 151,500 ounces
• December 2009 with 231,500 ounces
• April 2009 with 157,500 ounces
• December 2008 with 176,000 ounces

While gold coin sales were at a multiyear high *American Silver Eagle sales soared to an all time high in January 2013 reaching total sales of 7,498,000.

This exceeds the previous monthly sales record of 6,422,000 achieved in January 2011 – prior to 2008, total annual sales of the silver bullion coin were 9.5 million coins – opening day sales for the 2013 Silver Eagle were the largest on record with total sales of 3,937,000 coins.

*Considering purchasers were only able to place orders from the launch of the 2013 dated coins – January 7 – until the mint was temporarily sold out on January 17 and that sales were not resumed till January 28, and have since continued on a rationed basis, this is a pretty impressive feat.

But precious metals are not the only thing enjoying improved popularity during Obama’s presidency.

In the first four years of Barack Obama’s Presidency an estimated 67 million firearms were purchased in the United States. That’s more than were sold in the seven years preceding his first election in November of 2008. The F.B.I. conducted nearly 156 million background checks for gun purchases from November 1998 to October 2012 and a full 40 percent of those checks occurred in Obama’s first term.

Since 1998, anyone wanting to buy a firearm from a licensed dealer must undergo a federal background check to ensure that they are not a criminal, mentally ill or otherwise disqualified from ownership. The check is carried out by referencing a national database, the FBI’s National Instant Criminal Background Check System (NICS).

In 2005 there were 8,952,945 NICS checks. In 2006 the number topped 10 million. In 2007 NICS checks passed 11 million.

In 2008 NICS checks passed 12 million, they hit the 14 million mark in 2009 and had increased another four percent by the end of 2011. There were over 1.5 million NICS checks in November of 2011. The only other November to break 1.5 million NICS checks was November of 2008 – when President Obama first won the presidency.

“After the surprisingly comfortable win by Barack Obama last month, the election of more women and wins in state referenda for issues like gay marriage and legalising dope smoking (including for medical use), you’d have thought the Land of the Free had relaxed a little.

Not so on the Right: applications for gun purchases soared in November to an all-time high of more than two million, as records from the FBI reveal.

That’s the first time in the 14-year history of FBI background checks on prospective gun buyers that the number of applications had topped 2 million in a month. This year looks likely to see more than 18 million background checks for firearms, well up on 2011’s 16.5 million.”  Glenn Dyer and Bernard Keane, Guns’n'gold on the up as Right takes fright from Obama

The FBI reported the number of background checks for firearms shot up 18.4 percent in October, 2012. According to FBI stats gun sales really began to soar after Obama was reelected. More than a quarter of all background checks in 2012 occurred in November and December, December alone having 2.7m.

The background checks carried on into the new year with more than 2.4m checks initiated in January, 2013 (8,980 of the checks resulted in gun purchase denials), that’s a million more checks than January 2012. The data does not indicate exactly how many weapons might have been purchased – some customers buy more than one gun at a time and no one tracks the real  numbers.

According to a recent Gallup poll, 47 percent of Americans own a gun — the highest percentage share since 1993.

Obama, Bush and Clinton are not personally responsible for the increased popularity of gold and guns during their presidencies – they simply represent failure and fear. Their parties failed policies, a failed republic and increasing fascism, the failure of human integrity – pork barrel politics and corporate greed run amuck – and the unwillingness, the absolutely disgusting failure of politicians of all stripes to work together to lift the U.S. out of its current morass.

Americans are jumping off the mainstream media headline train, they want to understand what’s happening around them so they dig a little deeper than three second sound bites.

“A democratic government isn't based on trust. It's based on skepticism—thus the system of checks and balances—and the ability of people to remain informed about the workings of their government. A trusting populace is likely to feel secure in its own ignorance; an ignorant populace is unlikely to remain free.” Wendy Kaminer, Fear of Freedom

What they discover is deeply disturbing – the methods used to bypass the concept of limited government and forcing collective rights over individual rights scares them.

Each and every day, the U.S. police state grows larger and more powerful. With the increasing militarization of ever more of the population – state and local police, TSA, Homeland Security and with the increasing rhetoric on civilian gun control – gun sales soar.

"Every tyrant in the 20th century began his tyranny by confiscating guns and gold from the people over whom he ruled." Judge Andrew Napolitano

The twin policies of zero interest rates and the continual creation of money and credit being enacted today, by all governments and central banks, means that the purchase of precious metals is the only way to protect the value of your assets. Precious metals also act as trusted assets in times of political turmoil.

Consider

Gold no longer has a legal role in the world's monetary system, but gold, throughout the centuries, has performed two jobs that today's fiat, paper money, or any other financial innovation, cannot do;

• Gold acts as a safe haven in times of turmoil – to escape Nazi Germany, or buy food and water in a crisis
• Gold preserves your purchasing power – in 1913 (the year the US Federal Reserve was born) the US dollar was, well, a dollar, gold was US$20 an ounce. Today, at almost the 100 year anniversary of the Fed the dollar has lost 95 percent of its purchasing power and gold is almost $1700 an ounce

Conclusion

“…our experiment in democracy could be closed down by a process of erosion…Early on, as WH Auden put it, the horror is always elsewhere – while someone is being tortured, children are skating, ships are sailing: "dogs go on with their doggy life … How everything turns away/ Quite leisurely from the disaster."

As Americans turn away quite leisurely, keeping tuned to internet shopping and American Idol, the foundations of democracy are being fatally corroded. Something has changed profoundly that weakens us unprecedentedly: our democratic traditions, independent judiciary and free press do their work today in a context in which we are "at war" in a "long war" – a war without end, on a battlefield described as the globe, in a context that gives the president – without US citizens realising it yet – the power over US citizens of freedom or long solitary incarceration, on his say-so alone.

That means a hollowness has been expanding under the foundation of all these still- free-looking institutions – and this foundation can give way under certain kinds of pressure.” Naomi Wolf, Fascist America, in 10 easy steps

 

“It is a universal truth that the loss of liberty at home is to be charged to the provisions against danger, real or pretended, from abroad.” James Madison, Father of the U.S. Constitution

Is Joe & Suzie America buying precious metal coins and guns? Sales for both are soaring. Are wealthier Americans stashing gold offshore? U.S. gold exports are at a record, yes a lot went to Hong Kong for perhaps entry into China/Asia but a considerable amount also went to Switzerland and London.

Global investments in gold ETFs in 2012 was up by 51 percent yoy.

Ironic isn’t it? There’s a creeping Fascism in the U.S., and the U.S., which stored a lot of the world’s gold during WWII (to keep it safe from an invading fascist Germany), is now seeing huge outflows of gold with Germany even wanting a significant part of its stored gold (stored in the U.S. because of the Cold War) audited, sent home, melted down and tested for purity.

The world's governments and central banks (central bank purchasing was up 29 percent over Q4 2011 marking the eighth consecutive quarter of official sector net purchasing, 2012 saw the highest levels of central bank purchasing since 1964 rising 17 percent over 2011) are not only bringing home their gold but buying gold, a lot of gold. Perhaps they already know what Joe and Suzie are just starting to figure out – the supply of fiat paper money is infinite while the supply of gold is finite.

In troubled times we should all have buying some gold and silver on our radar screens. Are precious metals on yours?

If not, maybe they should be.

***

Contact Richard (Rick) Mills via rick@aheadoftheherd.com

Richard is the owner of Aheadoftheherd.com and invests in the junior resource/bio-tech sectors. Get in touch with him if you're  interested in learning more about the junior resource and bio-med sectors, and quality individual company’s within these sectors.

His articles have been published on more than 400 websites, like the Wall Street Journal, USA Today, National Post, Montreal Gazette, Vancouver Sun, CBS news, Calgary Herald, Forbes and Financial Sense.

For Richard Mills' legal notice/disclaimer, see Aheadoftheherd.com

The post A universal truth appeared first on MINING.com.

On January 14th 2013, Alamos Gold Inc. announced it had acquired 23,507,283 Aurizon shares as a result of share purchase agreements between Alamos and certain shareholders of Aurizon. The 23,507,283 shares acquired represent approximately 14.3% of the issued and outstanding Aurizon shares.

The post Alamos-Aurizon opportunity lies in the details appeared first on MINING.com.

Gus Gunn, of the British Geological Survey, has identified three main factors behind the steep rise in commodity demand and prices:

•  Urbanization that is accompanied by a rise in the standard of living. By 2025, nearly 2.5 billion Asians will live in cities, accounting for almost 54 per cent of the world’s urban population. India and China alone will account for more than 62 per cent of Asian urban population growth and 40 per cent of global urban population growth from 2005 to 2025
• Population increase, since 1950, the world’s population has gone from 2.5 billion people to seven billion. No less than 75 million people a year are added to this number, the world’s population is expected to exceed nine billion by 2050 and reach 10.1 billion by the end of the century – according to the United Nations
• Development of new technologies whose components and gadgets are based on an ever broader base of elements. Your television contains 35 different minerals, your computer 30, your cellphone contains 42, more silver is used in electronics manufacturing than in making jewelry

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Minerals unique properties contribute to supplying us with food, shelter, infrastructure, transportation, communications, health care, manufacturing, new technologies and defense.

Import reliance of minerals is of particular relevance to the United States and serious concerns have been raised, since at least the early 1980’s, that the necessary critical and strategic mineral resources will not be available to meet soaring demand for current and emerging products and technologies.

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“Our enormously productive economy… demands that we make consumption our way of life, that we convert the buying and use of goods into rituals, that we seek our spiritual satisfaction, our ego satisfaction, in consumption… We need things consumed, burned up, worn out, replaced, and discarded at an ever increasing rate.” Victor Lebow, 1955

America depends upon overseas suppliers for over 80 per cent of its most important critical minerals.

“The United States is the world’s third largest Copper producer, yet a 2010 MIT study by Elisa Alonso notes that the risk of Copper disruption is significantly greater than for other major metals, and is at or near an historical high. The Office of the Secretary of Defense lists Copper as a metal that has, “[Already] caused some kind of weapon production delay for the DoD.” *Copper is also the primary metal for other strategic and critical metals highlighted in this report. Significant amounts of Molybdenum, Rhenium (nearly 75% of world’s production), Tellurium and Selenium (95% of world’s production) come from Copper mining and refining. Copper shortages will trigger companion shortages in these metals as well. We highlight this to further demonstrate the shortsightedness of targeting metals based entirely on stand-alone percentages.” The American Resources Policy Network report, “Assessing Risk: Critical Metals and National Security

*Researchers have concluded that the U.N.’s estimated global population of 10 billion people (by the end of this century) could consume 1.7 trillion kilograms of copper, total global in-ground stocks of copper are estimated at 1.6 trillion kilograms.

The American Resources Policy Network report notes that:

**China supplies more than one in five of the minerals that are vital to the America’s commercial and defense sectors despite the fact that proven U.S. resources exist for 40 of the 46 minerals reviewed, or 87 per cent of these minerals.

**China is the leading producer of the following commodities:

Cement 50%, coal 40%, iron ore 39%, phosphate rock 35%, gypsum 28%, zinc 25%, barite 55%, lead 43%, manganese 25%, rare earths 97%, molybdenum 39%, tungsten 81%, arsenic 47%, vanadium 37%, cadmium 23%, gold 13%, mercury 63%, indium 50%, germanium

The 1981 report “A Congressional Handbook on U.S. Minerals Dependency/Vulnerability” singled out eight materials "for which the industrial health and defense of the United States is most vulnerable to potential supply disruptions" - the first five have been called ‘the metallurgical Achilles heel of our civilization.’

In 1984 U.S. Marine Corps Major R.A. Hagerman wrote:

“Since World War ll, the United States has become increasingly dependent on foreign sources for almost all non-fuel minerals. The availability of these minerals have an extremely important impact on American industry and, in turn, on U.S. defense capabilities. Without just a few critical minerals, such as cobalt, manganese, chromium and platinum, it would be virtually impossible to produce many defense products such as jet engine, missile components, electronic components, iron, steel, etc. This places the U.S. in a vulnerable position with a direct threat to our defense production capability if the supply of strategic minerals is disrupted by foreign powers.”

In 2011 Daniel McGroarty, President of the American Resources Policy Network had this to say:

"The U.S. government desperately needs a coherent national mineral access strategy. We are acutely dependent on foreign supplies of non-fuel minerals and metals that are vital to commercial manufacturing and advanced weapons systems. Our exposure to potential supply disruptions is a profound national security threat."

(click image for larger view)

According to the U.S. Geological Survey (USGS) the value of raw, nonfuel minerals mined in the United States was $74 billion in 2011, up from $66 billion in 2010, domestic raw materials and domestically recycled materials were used to process and produce mineral materials worth $633 billion. Final products, such as cars and houses, produced by major U.S. industries using mineral materials made up about 15 per cent (more than $2.2 trillion) of the 2011 gross domestic product.

“Without increased domestic exploration, significant declines in U.S. mineral production are unavoidable as present reserves are exhausted. We will continue to ship American jobs overseas and forfeit our economic competitiveness unless we take steps to develop our own mineral resources.” Subcommittee on Energy and Mineral Resources Chairman Doug Lamborn

(click image for larger view)

It’s obvious minerals are part of virtually every product we use and that mineral production is a key economic activity that creates jobs and improves any countries national security.

Yet…

In 1978 the United States was 100 per cent import dependent for seven mineral commodities, and more than 50 per cent import dependent for 25 mineral commodities.

In 2011, the United States was 100 per cent reliant on imports for 19 mineral commodities and relied on foreign sources to supply more than 50 per cent of 43 mineral commodities.

2011 U.S. Net Import Reliance for Selected Non-fuel Minerals

The irony is that the U.S. contains 15 per cent of available global resources yet barely contributes one per cent of global supply.

Perhaps that’s because America is one of the toughest places in the world to bring a new mine online. It  takes up to ten years, on average, to obtain all the necessary permits.

In May 2011, the U.S. House Subcommittee on Energy and Mineral Resources held a hearing titled “Strategic and Critical Minerals Policy: Domestic Minerals Supplies and Demands in a time of Foreign Supply Disruptions.”

 Here’s a bit of what Hal Quinn, CEO of the National Mining Association said in his testimony:

"America's drift away from greater self-sufficiency for the basic building blocks of our economy compromises our economic and national security and ignores this country's rich reserves of metals and minerals. It is time for policymakers to meet head-on the larger issue of how our country can produce more domestic minerals to meet a greater share of our needs…the U.S. has one of the world's greater mineral repositories, our ability to get these minerals into the supply chain to help meet more of America's needs is threatened. Numerous public policies have placed high hurdles in our lane of the global race to remain competitive. If commodity cycles are historically 20 years in duration, the 10 years it takes to obtain permits leaves U.S. mining still in the starting blocks with the race half way over."

The high hurdles Quinn is referring to are :

• Restrictions on federal land access, approximately three-fourths of the 750 million acres of public land has been closed to exploitation, and closure continues
• The U.S. has world's highest statutory taxation rate
• Regulatory hurdles, restrictive environmental regulations make mining and processing more difficult and costly and has increased lead times for new mine development – the nonfuel minerals industry is impeded by 80 different laws administered by 20 different agencies

It should not come as a surprise to anyone that the U.S. share of investment in mining is at an all-time low dropping from 21 per cent of the world's mining investment in the early 1990's to ten per cent in 2000 and eight per cent today.

There are only two remedies available that would effectively reduce the U.S.’s dependence on mineral imports: open up presently off limit federal land and secondly, the mine permitting process needs to be streamlined by Congress so that it can meet the nation's advanced manufacturing and defense needs.

"When it comes to strategic metals and minerals, we need government agencies like the EPA to proactively work with industry to effectively develop America's natural resources, rather than expand its regulatory authority in an effort to shut projects down.” Lisa Reisman, Executive Editor of Metal Miner."

Now i think i'm going down to the well tonight
And i'm going to drink till i get my fill
And i hope when i get old i don't sit around thinking about it
But i probably will
Yeah, just sitting back trying to recapture
A little of the glory of, well time slips away
And leaves you with nothing mister but
Boring stories of glory days

Glory Days, Bruce Springsteen

Conclusion

“Maintaining the American standard of living required 7.1 billion tons of rocks and minerals last year to make the things we use and depend upon every day. Every year, nearly 48,000 pounds of new minerals must be provided for every person in the United States to make the products we buy and the various things we use and with 300 million people in the U.S. expecting to live comfortably and affordably, mining has to occur somewhere.” Nelson Fugate, president of the Denver-based Mineral Information Institute (MII).

"NOT MADE IN AMERICA" stickers are now found on nearly every item for sale in America. In 1985, the US imported less than $4 billion worth of goods from China, and the country had just a small trade deficit. Today, the US spends almost $400 billion per year just on Chinese goods and has a massive trade deficit with the world.

Real new wealth, and an economic superpower, are only created when a countries resources are used to manufacture goods to sell at home and abroad – when a countries natural resources are used to provide solid long term high paying jobs. When people are working, and have discretionary income, economic stimulus results. The United States of America was an economic superpower for these very reasons. The US needs to regenerate and re-grow its economy – restart the process of generating new wealth – this creates jobs and brings national prosperity.

Resource extraction and agriculture are the primary sources of wealth.

Exploitation of the United States own natural resources, combined with a solid manufacturing sector could be the economic drivers of a resurgent US economy. ‘Made Again In America’ and a return to ‘Glory Days’ should be on everyone’s radar screen.

***

Contact Richard (Rick) Mills via rick@aheadoftheherd.com

Richard is the owner of Aheadoftheherd.com and invests in the junior resource/bio-tech sectors. Get in touch with him if you're  interested in learning more about the junior resource and bio-med sectors, and quality individual company’s within these sectors.

His articles have been published on more than 400 websites, like the Wall Street Journal, Market Oracle, USA Today, National Post, Montreal Gazette, Vancouver Sun, CBS news,  Calgary Herald, Resource Investor, Forbes and Financial Sense.

For Richard Mills' legal notice/disclaimer, see Aheadoftheherd.com

The post Glory days, made again in America appeared first on MINING.com.

In September 1906, Hatcher located hard rock gold. The Skyscraper Vein was a quartz gold claim 1,200 feet above the floor of Fishhook Valley and nearly 5,000 feet above sea level. It was on a ridge below Skyscraper Mountain in the southern Talkeetna Mountains.

Robert Lee sold a 25 percent interest in his gold discovery for $1500.00 worth of cash and some food. In 1909 Hatcher and his partner, J.H. Carnegie, sold the remaining 75% of the claims for $6000.00. The $7500.00 received for the claims is worth over a quarter of a million dollars today.

In 1910 Hatcher was back in Alaska prospecting on the Kenai Peninsula with a new partner, C. A. "Scotty" McPherson. The Hatcher-McPherson Groundhog claim was sold for $30,000. The purchaser was Samuel I. Silverman who started, and sold stock in, the Seward Gold Company.

Within a year Silverman had sold the Seward Gold Company for $225,000 to a group of British investors. Unfortunately the ledge pinched out, the gold disappeared and the first payment was never made.

By 1943, Robert Lee Hatcher had been responsible for the discovery of the Independence, Martin, Talkeetna, Jam, Ray Wallace and Gold Mint mines.

At the age of seventy-six he announced what he called the greatest gold discovery of his career. There was no interest from investors even though the grade, at an estimated $7 per ton, was very high. In 1933, US President Franklin D. Roosevelt had increased the price of gold from $20.67 to $35.00 per ounce. The increase in price led to more gold mining in Alaska. This expansion continued until the early years of World War II when federal order E-208 shut down gold mines throughout the United States – the United States War Production Board thought gold mining was not essential to the war effort.

In 1950, Hatcher was found in his cabin on Ptarmigan Creek twenty-three miles north of Seward; he was paralyzed on his left side and unable to speak. Robert Lee Hatcher died in Seward, Alaska, 24th September 1950 and was buried October 1st 1950 in an unmarked grave in the Seward Pioneer Cemetery.

Seekers Of Gold

“You see we prospectors are a dying breed. The world doesn't function around us anymore like it used back in the gold rush. The people who care for you can’t understand. What in the world would make you want to risk your life to look for gold? They don’t understand the dream, but in the old days everybody understood. You didn’t have to worry about your wife leaving ya or your friends scorning you because you wanted to find the gold.

Everyone was doing it. Everyone dreamed of the day when they would be the one to strike it rich. represent freedom for all, but what does it mean to people today? I’ll tell you, a big house and a nice car. People don’t see that it’s so much more than just finding the golden score. It’s not seen as a building block for freedom. It’s been twisted and messed up to the point of being stuck on a scratch and win ticket. That is what is left of the prospector’s dream in today’s world. All the people around you don’t understand, they can’t see the freedom and the hope it brings you when you chase the dream. They just think you’re dreaming, but we know the truth don’t we?

The truth is you’re living and they are the ones that are dreaming. Their search for the big car and the nice house. Ha! Illusions I tell you brought onto their brain less minds by a media machine. How I wish I could chase after it still, but the fight’s over for me lad. I’ve got a bad ticker you see, but you can, can’t you son?" he explained eyeing me almost enviously, there is nothing better than standing high up on a mountain top and gazing down upon the world. It makes you feel like your own man. Free from all prison that the world tries to make of your life. You see the world doesn’t want you to be your own man. If they did, they wouldn’t be trying to make you swallow the lie all the time and you know how they do it. Through that little box over there, he said pointing to the television across the room.

Look at those people over there, he explained pointing to the people staring at the TV. They’re swallowing every word of it and it makes me sick. Our pioneer brothers are rolling in their graves I tell ya. They wouldn’t have wanted it this way, this isn’t freedom. People today don’t know what freedom is. That little box over there tells them that they’re free, but they’re not. You see when somebody tells you something enough times you’ll start to believe it. Tell me you won’t give up, tell me you will follow the dream to the ends of the earth. If not for yourself then do it for your pioneer brothers who help create this world and you become one of them. Remember freedom is worth dying for and I’m not talking about dying in a war fighting for some illusionary freedom that your government tells you have. I’m talking the real stuff that comes from the open spaces and when you spent enough time in the mountains you’ll know what I’m talking about. It will grab your soul and won’t leave you until the day you die. It’s what pushes all great men and once you see it you’ll chase it for the rest of your days.”

Seekers of gold is dedicated to all the prospectors out there who have searched for the dream and all of those who are still out there searching for it. Daryl Friesen author, Seekers Of Gold

Conclusion

Prospectors are today still scouring the bush, in remote, and not so remote places – chasing the rainbow and its pot of gold – looking for the next discovery.  Alaska, Canada’s Yukon Territory and Province of British Columbia are still vast and underexplored places.

Prospecting is of course the integral first step in the process of discovery, walking the bush and hammering rocks means boots on the ground. It's people walking through the bush that have found the worlds mines. Staking claims and making a deal with a junior resource company, a vendor’s agreement, is often the second step – the prospectors claims are turned over to be worked for shares and or cash and a one or two percent net smelter royalty (NSR) from a mine if the showing goes all the way. Most prospectors don’t have the wherewithal, the money raising capabilities or the expertise to develop a showing so this is where a junior would come in. Being publically traded they have access to capital and expertise the prospector most often does not.

Only a few prospectors among the many thousands who search ever find an economic to mine deposit. But prospecting success and drill programs that are targeting these showings should be on every investors radar screen.

Most of us can’t be prospectors, but we can dream of discoveries made and money hard won, we too can chase the rainbow through our publically traded junior resource companies. Have you got an exploration, or drill program, on your radar screen?

If not, maybe you should.

www.aheadoftheherd.com

Richard is the owner of Aheadoftheherd.com and invests in the junior resource/bio-tech sectors. His articles have been published on over 400 websites.

If you're interested in learning more about the junior resource and bio-med sectors, and quality individual company’s within these sectors, please come and visit us at www.aheadoftheherd.com

***

Legal Notice / Disclaimer

This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment.

Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified.

Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission.

Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.

The post Chasing the rainbow appeared first on MINING.com.

Copper is critical for China and the country has imported unbelievable tonnages over the years, but according to the copper bears the story could be coming to an end.

There are several reasons investors might question the longevity of China’s copper story:

• Concerns about weak global growth, investors are worried about China’s exports slowing and its implications for industrial metal demand
• China is thought to have high inventory levels of copper
• China’s economic growth has slowed to a three year low of 7.6 percent
• Surplus capacity
• Extraordinarily tight cash

According to the Beijing Antaike Information Development Co. copper consumption is expected to expand this year at the slowest rate since 1997.

Copper Market

“This lack of inventory growth is the hardest indicator that there has neither been a significant negative shock to demand nor a pronounced destocking cycle.” Andrew Keen, Head of Metals and Mining Equity Research for Europe, the Middle East and Africa, CNBC’s Asia Squawk Box

According to the International Copper Study Group (ICSG):

“The apparent refined copper balance for the first half 2012 indicates a production *deficit of 473,000 t (a seasonally adjusted deficit of 292,000 t)…As of the end of August, copper stocks held at the major metal exchanges (LME, COMEX, SHFE) totaled 434,277 t, a decline of 110,334 t from stocks held at the end of December 2011 and a decrease of 14,520 t from stock levels at the end of July 2012.”

 *In September, the ICSG projected that global refined copper demand in 2011 would exceed refined copper production by about 200,000 tons, continuing the production deficit experienced in 2010.

The World Bureau of Metal Statistics said that from January to June 2012  worldwide copper demand surpassed production by 129,000 tons.

Also, according to ICSG Copper Market Forecast 2012-2013, in 2012, world refined copper production is projected to increase by only about 2.5% to reach 20.15 million metric tonnes (mmt). Global Industry Analysts Inc. forecasts that the global market for copper is projected to reach 27.5 mmt by the year 2017.

The world will need 7.35 million metric tonnes or 1.47 million metric tonnes of new copper production per year for the next five years to meet anticipated demand. How much copper is that? Thanks to about.com let’s look at copper production figures for 2010 from the world’s top copper miners.

Codelco – the Corporación Nacional del Cobre de Chile – controls about 20 percent of the world's reserves of copper. In 2010, Codelco produced approximately 1.76 million metric tons of refined copper, about 11% of total world copper production.

Freeport-McMoRan Copper & Gold Inc. (FCX) is the world's largest publicly traded copper producer. The company's assets include Grasberg, the world’s largest copper and gold mine in terms of recoverable reserves. FCX produced 1.44 million metric tons (mt) of refined copper in 2010, equal to 9% of the world total.

Xstrata Plc’s copper production in 2010 was over 900,000 metric tons, Rio Tinto produced approximately 700,000 t of copper, Anglo American 645,000 t, Groupo Mexico 645,000 t, Glencore 542,000 t, Southern Copper 542,000 t and KGHM Polska Miedz at 425,000 t.

FCX is the world’s largest publicly traded copper producer – 1.44 million metric tonnes of copper per year, the worlds going to need 1.47 million metric tonnes of new copper production per year, is another Freeport out there? Perhaps another Glencore, Southern Copper and KGHM will be built each year?

China’s Copper Market

According to Beijing Antaike, the state run nonferrous metals consultancy, Chinese copper consumption was up 7.8 percent in 2011 to 7.33 mt, is expected to grow 5.9 percent to 7.76 mt in 2012 and to reach 10 mt per year by 2020.

Currently there is an estimated two million metric tons of copper in China’s warehouses.

“That has to be put in context that over the next 5 years, China will probably consume 50 million tons of copper. So there is a major strategic shortfall in the copper market from a Chinese perspective and those warehouses are really part of that longer-term solution…We don’t think it’s a big problem for the copper market going forward.” Andrew Keen

Let’s consider Chinese copper inventories from another perspective – 2011’s 7.33 mt of copper usage works out to 20,082 tonnes a day, so two million tonnes of copper is 99 days of inventory – just three months worth of copper, two million tonnes for a country that, even if copper usage does not grow another tonne, will use 36.65 mt over the next five years, remember no one is forecasting Chinese copper consumption to stop growing, just slowing to between 2-4 percent growth.

At the end of August, copper stocks held at the major metal exchanges (LME, COMEX, SHFE) totaled 434,277 t.

Also consider:

“A market can appear to be in a deficit and a surplus simultaneously because economic forecasts only look at production and demand for the calendar year and exclude excess stocks carried over from the past. The current oversupply – high inventory levels – are a consequence of the economic conditions of the last three years, current and future supply deficits will be strong enough to digest that oversupply.

As much as one million metric tons of surplus isn't available for sale, it has to be part of the ebb and flow of moving copper down the line to the ultimate end product

Up to 600,000 metric tons is kept as China's rainy-day fund.” – Justin Lennon, metals analyst, Mitsui Bussan Commodities

The impact of a build-up of inventory due to Chinese rail delays – there was a build-up of goods in transit due to transport delays on Chinese railways – sales of copper cathode were slowed.

The outgoing Chinese government bosses, while waiting for a leadership change set for November 2012, are trying to prevent expansion from slipping below the 7.5 percent target set in March of this year.

China's powerful economic planning body, The National Development and Reform Commission (NDRC), announced approvals for 60 infrastructure projects worth more than $150 billion.

The new Chinese leaders are expected to introduce more policies to support the economy.

"Losses in base metal prices will be capped despite weak fundamentals and global economic worries, as investors expect Beijing to do the necessary fine-tuning to stabilise the economy before the 18th Communist Party Congress." CIFCO Futures analyst Zhou Jie, referring to China's leadership transition event scheduled on Nov. 8.

Demand/Consumption

Two factors are involved in increasing consumption. One is the growth in population:

2011 7 billion

2020 7.6 billion

2027 8 billion

2030 8.2 billion

2040 8.8 billion

2046 9 billion

2050 9.2 billion

The second factor is the growth in wealth in the major developing countries – China, India, Africa and Indonesia have enormous numbers of people who are already middle class and hundreds of millions still to become middle class.

According to the UN report “RESILIENT PEOPLE RESILIENT PLANET A Future Worth Choosing” the number of middle-class consumers will increase by three billion people over the next 20 years.

Copper consumption in developed countries remains stagnant but the appetite for copper in developing countries is growing at an astonishing pace.

The annual per-capita consumption of copper in India is 0.47 kg., China's is 5.4 kg. and the world average is 2.7 kg.

North American consumers use about 10kg of copper per capita. As China undergoes massive urbanization, builds its infrastructure and becomes more of a consumption orientated society, more like the west, copper consumption will start to approach North American levels. Because of the huge population differences between East and West just a slight increase in Asian and Indian consumption will translate into enormous demand growth.

"From a copper-specific perspective, we believe global copper consumption growth will continue to be underpinned by continued robust growth in completions until at least late 2013. This growth in completions is set to be complemented by a forecast pick up in property sales in 2013; higher property sales are associated with higher consumer appliance related copper demand. Together, these findings represent the backbone of our constructive view on copper over the next 6-12 months. The current wave of construction projects in China originated with the implementation of a stimulus package in 2009. Internal and external copper wiring (connection to grid) tends to be installed around project completion, and can account for as much as 50% of Chinese copper consumption. The construction cycle for the first wave of projects launched in 2009-2010 are now in their late stages, resulting in a sharp fall in new projects and rising building inventories.

A second wave of projects has started to gain momentum; "This second wave has yet to crest, underpinning global growth in 'late-cycle' assets or finishing commodities such as copper and aluminum.” Goldman Sachs analysts

 Supply

The copper market is already in deficit as miners struggle with operational and labor problems and LME copper stocks are strongly held.

Lets state the obvious:

• For over the last ten years supply has struggled to keep pace with demand
• Metal supply is finite and subject to compounding demand from developing nations
• Metal production is highly cyclical, with intermittent peaks and troughs which are closely linked to economic cycles – declining production has historically been driven by falling demand and prices, not by scarcity
• Rates of production and amounts of reserves continually change in response to movements in markets and technological advances
• Most mineral resources will not be exhausted in the near future
• If energy was cheap and unlimited then recoverable resources would be unlimited

But

• Discovery and development is increasingly becoming more challenging and expensive
• Average ore grades are in decline for most minerals, yet production has increased dramatically
• Our most important metals are suffering from declining ore quality and rising extraction (ore is a different and inferior chemical or structural composition) costs
• Our prosperity has always been based on the fact that producing resources yielded more resources than it cost. However the cost of *energy is climbing, the amount used is climbing but the returns from energy expended is declining. Eventually the quantity of resources used in the extraction process will be 100% of what is produced
• Most older existing mines, the foundation of our supply, have increasing costs with production rates stagnating or even declining
• The rate of discovery is not keeping pace with the rate of depletion, let alone being higher

*Energy can be thought of as a proxy for labor, materials, energy and externalities – environmental, community impact etc.

The metal content of copper ore has been falling since the mid 1990s. A miner now has to dig up an extra 50 percent of ore to get the same amount of copper. As grade drops the amount of rock that must be moved and processed per tonne of produced copper rises dramatically – all the while using more energy that costs several times more than it use to. With the lower grades of ores now being mined energy becomes more and more of a factor when considering economics.

“We took the nice, simple, easy stuff first from Australia, we took it from the U.S., we went to South America. Now we have to go to the more remote places.” Glencore CEO, Ivan Glasenberg in the Financial Times describing why his firm operates in the Congo and Zambia

Conclusion

China has recently, and for the first time ever, revealed the size of its *copper inventories – and they **scared the hell out of investors when they did it.

*China's Non-Ferrous Metals Industry Association announced that the country's copper inventories were at about 1.9 million tons at the end of 2010.

**The International Copper Study Group had their published number at up to 1.5 million tons, no one was too worried about 1.5 mmt’s at the time but add another 400,000 t’s today…

If you were a buyer – and at 40% of world usage China is THE big buyer – and you needed stock would you want lower or higher prices?

Remember, a Chinese copper buying spree in early 2009 triggered a price rally from the lows of the financial crisis to new records above $10,000 a tonne.

Do you think China might have an interest in inflating the size of its stockpiles to push prices down? And really, does it matter if they have two million tonnes or three million tonnes today?

“Whatever the Chinese say that stocks are, in the end they still need copper.” George Cheveley, metals and mining portfolio manager at Investec Asset Management

Tomorrow they need more, a whole lot more, even if future economic growth “only” clocks in at an annual 7.5 percent compounded.

“over the next 5 years, China will probably consume 50 million tons of copper. So there is a major strategic shortfall in the copper market from a Chinese perspective”

Are Copper Shenanigans, and the investment opportunities presented, on your radar screen?

If not, maybe they should be.

Richard (Rick) Mills

rick@aheadoftheherd.com

Richard is the owner of Aheadoftheherd.com and invests in the junior resource/bio-tech sectors. His articles have been published on over 400 websites

If you're interested in learning more about the junior resource and bio-med sectors, and quality individual company’s within these sectors, please come and visit us at www.aheadoftheherd.com

***

Legal Notice / Disclaimer

This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment.

Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified; Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission.

Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.

The post Copper shenanigans from Beijing appeared first on MINING.com.

Bernanke Secretly Gives away Sixteen Trillion Dollars

 “The first ever GAO (Government Accountability Office) audit of the US Federal Reserve was recently carried out due to the Ron Paul/Alan Grayson Amendment to the Dodd-Frank bill passed in 2010. Jim DeMint, a Republican Senator, and Bernie Sanders, an independent Senator, while leading the charge for an audit in the Senate, watered down the original language of house bill (HR1207) so that a complete audit would not be carried out. Ben Bernanke, Alan Greenspan, and others, opposed the audit.

What the audit revealed was incredible: between December 2007 and June 2010, the Federal Reserve had secretly bailed out many of the world’s banks, corporations, and governments by giving them US$16,000,000,000,000.00 – that’s 16 TRILLION dollars.” Richard Mills

It gets worse, much worse, in fact it’s downright incestuous. Let’s do a follow up and see who, besides *foreign banks and corporations from Scotland to South Korea, received a large chunk of that money.

* Banks like JP Morgan benefited from the foreign bailouts – they are some of the largest creditors of the bailed out countries. Instead of having to write off their foreign losses the US Federal Reserve bailouts enabled them to be paid in full.

The Government Accountability Office (GAO) investigates potential conflicts of interest. The GAO did investigate the $16 trillion giveaway and laid out the findings but did not name names. Those names have now been released –  here’s three of the more shocking cases…

“In Dimon's (JPMorgan Chase CEO Jamie Dimon) case, JPMorgan received some $391 billion of the $4 trillion in emergency Fed funds at the same time his bank was used by the Fed as a clearinghouse for emergency lending programs. In March of 2008, the Fed provided JPMorgan with $29 billion in financing to acquire Bear Stearns. Dimon also got the Fed to provide JPMorgan Chase with an 18-month exemption from risk-based leverage and capital requirements. And he convinced the Fed to take risky mortgage-related assets off of Bear Stearns balance sheet before JP Morgan Chase acquired the troubled investment bank.

Another high-profile conflict involved Stephen Friedman, the former chairman of the New York Fed's board of directors. Late in 2008, the New York Fed approved an application from Goldman Sachs to become a bank holding company giving it access to cheap loans from the Federal Reserve. During that period, Friedman sat on the Goldman Sachs board. He also owned Goldman stock, something that was prohibited by Federal Reserve conflict of interest regulations. Although it was not publicly disclosed at the time, Friedman received a waiver from the Fed's conflict of interest rules in late 2008. Unbeknownst to the Fed, Friedman continued to purchase shares in Goldman from November 2008 through January of 2009, according to the GAO.

In another case, General Electric CEO Jeffrey Immelt was a New York Fed board member at the same time GE helped create a Commercial Paper Funding Facility during the financial crisis. The Fed later provided $16 billion in financing to GE under this emergency lending program.” Fed Board Member Conflicts Detailed by GAO, http://www.sanders.senate.gov/

Below is the full list of 18 Fed board members who gave their own banks four trillion dollars:

1.Jamie Dimon, the Chairman and CEO of JP Morgan Chase, has served on the Board of Directors at the Federal Reserve Bank of New York since 2007. During the financial crisis, the Fed provided JP Morgan Chase with $391 billion in total financial assistance. JP Morgan Chase was also used by the Fed as a clearinghouse for the Fed's emergency lending programs.

In March of 2008, the Fed provided JP Morgan Chase with $29 billion in financing to acquire Bear Stearns. During the financial crisis, the Fed provided JP Morgan Chase with an 18-month exemption from risk-based leverage and capital requirements. The Fed also agreed to take risky mortgage-related assets off of Bear Stearns balance sheet before JP Morgan Chase acquired this troubled investment bank.

“I just think this constant refrain, ‘bankers, bankers, bankers’ — it’s just a really unproductive and unfair way of treating people. People should just stop doing that.” Jamie Dimon

2. Jeffrey Immelt, the CEO of General Electric, served on the New York Fed's Board of Directors from 2006-2011. General Electric received $16 billion in low-interest financing from the Federal Reserve’s Commercial Paper Funding Facility during this time period.

3. Stephen Friedman. In 2008, the New York Fed approved an application from Goldman Sachs to become a bank holding company giving it access to cheap Fed loans. During the same period, Friedman, who was chairman of the New York Fed at the time, sat on the Goldman Sachs board of directors and owned Goldman stock, something the Fed’s rules prohibited. He received a waiver in late 2008 that was not made public (the Fed provided conflict of interest waivers to employees and private contractors so they could keep investments in the same financial institutions and corporations that were given emergency loans). After Friedman received the waiver, he continued to purchase stock in Goldman from November 2008 through January of 2009 unbeknownst to the Fed, according to the GAO.

During the financial crisis, Goldman Sachs received $814 billion in total financial assistance from the Fed.

4. Sanford Weill, the former CEO of Citigroup, served on the Fed's Board of Directors in New York in 2006. During the financial crisis, Citigroup received over $2.5 trillion in total financial assistance from the Fed.

5. Richard Fuld, Jr, the former CEO of Lehman Brothers, served on the Fed's Board of Directors in New York from 2006 to 2008. During the financial crisis, the Fed provided $183 billion in total financial assistance to Lehman before it collapsed.

6. James M. Wells, the Chairman and CEO of SunTrust Banks, has served on the Board of Directors at the Federal Reserve Bank in Atlanta since 2008. During the financial crisis, SunTrust received $7.5 billion in total financial assistance from the Fed.

7. Richard Carrion, the head of Popular Inc. in Puerto Rico, has served on the Board of Directors of the Federal Reserve Bank of New York since 2008. Popular received $1.2 billion in total financing from the Fed's Term Auction Facility during the financial crisis.

8. James Smith, the Chairman and CEO of Webster Bank, served on the Federal Reserve's Board of Directors in Boston from 2008-2010. Webster Bank received $550 million in total financing from the Federal Reserve's Term Auction Facility during the financial crisis.

9. Ted Cecala, the former Chairman and CEO of Wilmington Trust, served on the Fed's Board of Directors in Philadelphia from 2008-2010. Wilmington Trust received $3.2 billion in total financial assistance from the Federal Reserve during the financial crisis.

10. Robert Jones, the President and CEO of Old National Bancorp, has served on the Fed's Board of Directors in St. Louis since 2008. Old National Bancorp received a total of $550 million in low-interest loans from the Federal Reserve's Term Auction Facility during the financial crisis.

11. James Rohr, the Chairman and CEO of PNC Financial Services Group, served on the Fed's Board of Directors in Cleveland from 2008-2010. PNC received $6.5 billion in low-interest loans from the Federal Reserve during the financial crisis.

12. George Fisk, the CEO of LegacyTexas Group, was a director at the Dallas Federal Reserve in 2009. During the financial crisis, his firm received a $5 million low-interest loan from the Federal Reserve's Term Auction Facility.

13. Dennis Kuester, the former CEO of Marshall & Ilsley, served as a board director on the Chicago Federal Reserve from 2007-2008. During the financial crisis, his bank received over $21 billion in low-interest loans from the Fed.

14. George Jones, Jr., the CEO of Texas Capital Bank, has served as a board director at the Dallas Federal Reserve since 2009. During the financial crisis, his bank received $2.3 billion in total financing from the Fed's Term Auction Facility.

15. Douglas Morrison, was the Chief Financial Officer at CitiBank in Sioux Falls, South Dakota, while he served as a board director at the Minneapolis Federal Reserve Bank in 2006. During the financial crisis, CitiBank in Sioux Falls, South Dakota received over $21 billion in total financing from the Federal Reserve.

16. L. Phillip Humann, the former CEO of SunTrust Banks, served on the Board of Directors at the Federal Reserve Bank in Atlanta from 2006-2008. During the financial crisis, SunTrust received $7.5 billion in total financial assistance from the Fed.

17. Henry Meyer, III, the former CEO of KeyCorp, served on the Board of Directors at the Federal Reserve Bank in Cleveland from 2006-2007. During the financial crisis, KeyBank (owned by KeyCorp) received over $40 billion in total financing from the Federal Reserve.

18. Ronald Logue, the former CEO of State Street Corporation, served as a board member of the Boston Federal Reserve Bank from 2006-2007. During the financial crisis, State Street Corporation received a total of $42 billion in financing from the Federal Reserve.

“The Fed outsourced virtually all of the operations of their emergency lending programs to private contractors like JP Morgan Chase, Morgan Stanley, and Wells Fargo. The same firms also received trillions of dollars in Fed loans at near-zero interest rates. Altogether some two-thirds of the contracts that the Fed awarded to manage its emergency lending programs were no-bid contracts. Morgan Stanley was given the largest no-bid contract worth $108.4 million to help manage the Fed bailout of AIG.”  Mises.ca

Conclusion

The financial sector parasites, the banksters and their political puppets, that have historically fed on our society have never been so brazen. The looting of the public treasury is very much in the open – if anyone cares to look – and done with impunity.

This is all happening because our elected politicians do not work for the people, our elected leaders have stuck their snouts deep in the trough of power and self indulgence, representative democracy has been co-opted by big-moneyed interests and political parties represent their establishment not the people’s interests.

“The lending suites that were set up for months and years, beyond the initial crisis point, were focused on how to keep banks profitable, not just how to keep them alive. The banks were able to access emergency lending facilities, or change themselves into bank holding companies overnight, to borrow at next to nothing, and if they chose, lend back to the government at a tidy profit. You didn’t have to think at all to make money. And you didn’t have to worry about that toxic balance sheet, because the government was going to help you grow your way out of it. They will also facilitate mergers to help decimate your competition. The money that the banks borrowed for nothing could have just as easily gone to underwater homeowners. There’s nothing special about the banks except that they know the Fed policymakers personally.” David Dayen, firedoglake.com

Fed loans at near-zero interest rates, incestuous bailouts, secret waivers, no-bid contracts, and a failed Republic should be on all our radar screens. Are they on yours?

If not, maybe they should be.

rick@aheadoftheherd.com

www.aheadoftheherd.com

Richard is the owner of Aheadoftheherd.com and invests in the junior resource/bio-tech sectors. His articles have been published on over 400 websites.

If you're interested in learning more about the junior resource and bio-med sectors, and quality individual company’s within these sectors, please come and visit us at www.aheadoftheherd.com

***

Legal Notice / Disclaimer

This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment.

Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified; Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission.

Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.

The post Yeah, we got bankers appeared first on MINING.com.

1. How do economists, and Federal Reserve chief Ben Bernanke is an economist, discern whether an economy is growing, is vibrant and healthy? Well, for most economists it’s a simple number, they use a country’s Gross Domestic Product (GDP) to measure the state of the economy.
2. What’s the most important thing for a politician? The answer is getting reelected.

Wikipedia defines GDP as “the market value of all officially recognized final goods and services produced within a country in a given period.”

There are three – product/output, income approach and the expenditure approach – different ways to calculate GDP, all of which should give the same result. The expenditure approach to measuring GDP basically measures the total amount of spending, at market prices, by individuals (end users) for one year, on newly-produced goods and services – GDP measures how much money we spend.

The four major components of the GDP are: consumption, investment, government purchases, and net exports.

Consumption spending: Household buyers and consumers, me, thee and our families and friends, are counted as Consumption Spending and we account for about 70 percent of the expenditure that comprises GDP in the US. Consumption Spending is divided into three categories: durable goods (items expected to last more than three years), nondurable goods (food and clothing), and services.

Investment spending: Investment Spending covers three categories: nonresidential (spending on plants and equipment), residential (single-family and multi-family homes), and the change in business inventories.

Government spending: Governments pay salaries, order supplies, spend on defense, roads, schools, etc.

Net exports: Imports deduct from GDP and exports add to the final tally. In recent years, the U.S. has consistently experienced imports exceeding exports.

The GDP is considered the nation's report card because it provides the broadest measure of economic activity. What does the US’s latest report on the state of the economy, the US’s GDP report card, say in regards to further monetary easing, yes or no? Lets break it down into a pro/con list, the pro’s are actually negative stats but are positive for more quantitative easing (QE).

Second Quarter Report Card, Pro

• The Commerce Department said gross domestic product expanded at a 1.7 percent annual rate. GDP growth is sluggish – the economy's average sustainable growth rate has historically been between 2.5% and 3.0% – a growth rate of between two percent and 2.5 percent is generally seen as needed just to hold the jobless rate steady

• The unemployment rate ticked up to 8.3 percent in July (and has exceeded eight percent for 42 straight months) so despite the Fed’s best efforts the unemployment rate is still climbing, payroll increases averaged 73,000 in the second quarter, down from 226,000 in the prior three months. More disturbing, nearly half of the unemployed people in the US have now been out of work for six months or longer, that’s up from the traditional median unemployment duration of ten weeks
• Consumer spending, which accounts for about 70 percent of U.S. economic activity, was 1.7 percent, down from the first quarter's 2.4 percent pace. A smaller rise is expected for the third quarter with demand for big-ticket items such as automobiles cooling
• Rising fuel costs and the prospect of tax changes and government budget cuts – the so called “fiscal cliff” in the U.S., the $600 billion of tax increases and spending cuts that will take effect automatically at the end of the year are hurting consumer confidence

There was a pull-back in restocking by businesses wary of sluggish domestic demand. Also growth in business investment in equipment and software was lowered to a 4.7 percent pace, the slowest since the third quarter of 2009 and softer export growth is expected. Factory

There are bright spots, Con

• Stronger export growth  Share on Tumblr
• Wages and salaries from April through June rose by $56.1 billion after a revised $133.5 billion first-quarter gain that was bigger than the previous estimate of $123.3 billion
• Disposable income adjusted for inflation rose 3.1 percent from April through June after a 3.7 percent gain in the first quarter
• The saving rate in that same period climbed to four percent from 3.6 percent in January through March
• The index of pending home re-sales climbed 2.4 percent to 101.7, the highest since April 2010

Reason, and Room, to Ease

“We have seen no net improvement in the unemployment rate since January. Unless the economy begins to grow more quickly than it has recently, the unemployment rate is likely to remain far above levels consistent with maximum employment for some time.” Federal Reserve chief Ben Bernanke

Inflation is still near the central bank’s goal of two percent, a measure of prices excluding food and energy costs tied to consumer spending climbed at a 1.8 percent annual pace in the second quarter – the combination of high unemployment and slow GDP growth removes upward pressure on prices.

Growing the Economy

How do you get an increase in economic growth, how do you grow an economy? By increasing the GDP. And how do we do that? By increasing one or some combination of the four components of GDP:

1. Consumption Spending – consumers are retrenching and paying off debt
2. Investment Spending – businesses are sitting on their cash hoards and not reinvesting in inventory, plants, machinery and software
3. Government Spending – they have control of the printing press
4. Net Exports – business cannot be competitive without modern well maintained infrastructure, plants, machinery and software

Without an increase in one (or some combination) of these components of total spending, GDP cannot increase. Who, out of the household sector, the business sector, the government sector (state/local or federal) or the import/export sector is in a position to take the lead on spending?

Answer, Government Sector, Federal

As I said, the most important thing to a politician is getting reelected – most people will vote for the guy who promises they will keep the job they presently have, will improve their prospects for a better job, or simply promises them a job.

What has historically driven the American economy is consumer spending – what drives consumer spending? Consumer confidence, but confidence, and the willingness to spend money, comes from having a secure job, a regular pay cheque you can count on.

“Household buyers and consumers, me, thee and our families and friends, are counted as Consumption Spending and we account for about 70 percent of the expenditure that comprises GDP in the US.”  

Here’s how they put Americans back to work and ramp up consumer confidence levels so they start spending again:

• The “fiscal cliff,” the $600 billion in budget cuts and tax increases slated for the new year, must be eliminated. This would go a long way to restore consumer confidence
• Democrats, Republicans and the Federal Reserve need to stop the petty infighting and bickering and work together to create a plan to put people back to work. If the US could show there was a concrete plan put together, and publically endorsed, by all three interests, and that it was going to be followed, this would go a long way to restore confidence, internally as well as globally
• The Federal Reserve needs to communicate to consumers and business better, for example – interest rates are going to stay at their present low rates until a clearly defined moment occurs – it’s not enough to say rates might stay low till 2014, tell business and borrowers they will be low till “this” happens.
• A third round of asset purchases should be started and not stopped until the employment picture has improved for several straight months

“You know, if you look back in the 1930s, the money went to infrastructure. The bridges, the municipal buildings, the roads, those were all built with stimulus money spent on infrastructure. This stimulus bill has fundamentally gone, started out with a $500 rebate check, remember. That went to buy flat-screen TVs made in China.”  Michael Bloomberg

“Large-scale asset purchases can influence financial conditions and the broader economy through other channels as well. For instance, they can signal that the central bank intends to pursue a persistently more accommodative policy stance than previously thought, thereby lowering investors’ expectations for the future path of the federal funds rate and putting additional downward pressure on long-term interest rates, particularly in real terms. Such signaling can also increase household and business confidence by helping to diminish concerns about “tail” risks such as deflation. During stressful periods, asset purchases may also improve the functioning of financial markets, thereby easing credit conditions in some sectors.” Snippet from Federal Reserve head Ben Bernanke’s recent Jackson Hole speech

An Infrastructure Spending Plan is Key

The American Society of Civil Engineers (ASCE) 2009 Report Card for America’s Infrastructure graded the U.S. infrastructure with a “D.”

The Society has recently published three Failure to Act reports, studies on surface transportation and water were released in 2011, the ASCE report on electricity infrastructure was released in April of 2012.

Deteriorating surface transportation infrastructure will cost the American economy more than 876,000 jobs and suppress the growth of our GDP by $897 billion by the year 2020.

Drinking water and wastewater infrastructure is aging and overburdened. A modest increase in investment will:

• Protect $416B in GDP
• Protect almost 700,000 jobs
• Avoid personal income losses of $541B

Closing the electricity investment gap of $107 billion would lead to fewer brownouts and blackouts and save US businesses $126 billion, prevent the loss of 529,000 jobs and $656 billion in personal income losses for American families.

“A devastating commentary on the war in Iraq is that we have been unable to spend money on infrastructure.” Charles Schumer

Conclusion

Government spending on infrastructure would revive the economy by putting people back to work, consumer confidence would increase, spending would increase.

Inventories would need to be restocked, business would invest in new plants and equipment. American business would become more competitive because of the increased quality of modern infrastructure, exports would increase, imports decrease.

The GDP Report Card would show straight A’s and a note on the bottom would read job well done.

The ASCE’s Failure to Act reports should be on every politicians, and every voters, radar screen. Are they on yours?

If not, maybe they should be.

Richard (Rick) Mills

rick@aheadoftheherd.com

www.aheadoftheherd.com

Richard is the owner of Aheadoftheherd.com and invests in the junior resource/bio-tech sectors. His articles have been published on over 400 websites.

***

Legal Notice / Disclaimer

This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment.

Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified; Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission.

Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.

The post A nation’s report card appeared first on MINING.com.

“Fears of another banking crisis amid a Greek exit from the euro zone are growing. This also raises the likelihood of further central bank action to calm markets and alleviate a possible slump. Money printing, along with the European Central Bank’s large liquidity injections for the banking system, has been good for gold. And real interest rates are negative in much of the developed world, which will also fuel fears of an eventual jump in inflation.” Moneyweek.com

“Gold meanwhile, shall once again slap the overwhelming number of perma-bears in the face again on its way to a new, all-time high.” Peter Grandich

Better than Gold

Gold’s price has risen because of the abuse and mismanagement of our monetary and currency systems – throughout history, gold has always shone the brightest when trust breaks down, confidence falls and fear climbs.

Central banks money printing is out of control – gold’s price will continue, has to continue, too rise in value against all depreciating paper currencies.

Gold is up about seven times from its lows more than a decade ago. What’s the upside from here?

If gold hits $5000.00 an ounce it's a triple from here. What if gold reaches $10,000 an ounce? Well, you’ve got a nice return and it’s this authors belief that gold and silver bullion and coins should be part of every investors portfolio.

But

History shows us, time and again, the greatest leverage to gold’s rising price is owning gold exploration/development junior mining stocks.

Will mainstream investors eventually catch on to the fact they need to own both gold and gold shares?

Investors are catching on to the fact they need to own precious metals and are buying shares in ETF’s and physical gold and silver. The buying of shares in companies involved in the search for and development of gold projects will not be too far behind.

“I am amazed by how nervous more and more Investors or shall I say Gold traders are becoming. Every Bull Market must always climb a wall of worry and this market will be no different. Since so many of you seem to be wavering between whether you should become short term traders or stay as long term investors, perhaps a refresher course in making money and a little bit of hand holding may be the order of the day.

While a few succeeded by trading commodity futures; stock options, day trading or short selling. Jesse Livermore, the most famous of the short sellers who caught the top in 1929, nevertheless died broke. After a great deal of study and research it finally sunk in that most of them that achieved their ultimate goals were those individuals who identified a major Bull Market or an individual stock and RODE it for all it was worth. They bought and held during both the pleasurable upswings as well as through the sharp, terrifying down drafts, during which times they all took advantage of the down drafts to accumulate more stock. Then, when the Bull Market appeared to be in its final, frothy stage, they gradually sold their holdings to the late comers (who Joe Granville named the Bag Holders), who’s blind greed had them clamoring to get in at the top.” Aubie Baltin

Gold juniors are going to be the most rewarding, the most lucrative way to garner the huge rewards from the coming freight train rush to gold. Those golden tracks are being laid today using the world’s currencies as ballast – when your cash is trash your gold is shining.

There will be fierce merger and acquisition (M&A) competition for the juniors with stable safe gold ounces in the ground by producers having to replace their reserves in an extremely competitive environment. There aren’t very many decent sized deposits, ones over two million ounces, left in politically stable countries.

Junior resource companies, not majors, own the worlds future gold and silver mines and juniors are the ones most adept at finding these future mines. They already own, and find more of, what the world’s larger mining companies need to replace reserves and grow their asset base.

If  I was looking for superior investment vehicles to take advantage of what I think I know regarding precious metals I’d be assembling a portfolio of junior producers, near term producers and companies that are in the post discovery resource definition stage with the occasional green field exploration play thrown into the mix.

Company stage – risk v. reward

Only you can decide the level of risk you can tolerate and how much patience you have to sit while developments, the story, plays out.

The most upside (and by far the greatest risk) comes from buying a junior when they are exploring and make an initial discovery. Great drill assay results can send a juniors share price skyrocketing. The reverse can also be true. Junior explorers, the green field plays, are the riskiest plays by far. Strike out on assay results and it could be goodbye to a share price rise for a very long time – till the company finds another project they can work on. If you’re buying into this kind of play make sure the company has another fallback project in its portfolio.

My favorite stage junior is a junior in the post discovery resource definition stage (also known as brown field stage companies). These companies have all ready found something, the share price has settled back after the initial discovery and the company is going in to see what they have and hopefully produce a 43-101 compliant resource estimate and build upon it. The risk has been greatly reduced, the waiting time for a discovery non-existent and the reward very nice considering the much lower amount of risk.

For nearer term producers – for those further down the development path towards a mine – you have:

•  Preliminary Economic Assessment (PEA) or scoping studies are done to examine potential mining scenarios and economic parameters – A PEA or scoping study is an important milestone for a mineral project, it’s the first step in a company’s  economic and technical examination of a proposed mine
•  Preliminary feasibility studies or pre-feasibility studies are more detailed than PEA’s and are used to determine whether or not to proceed with a detailed feasibility study. They are also used as a reality check to determine areas within the project that require more attention
•  Feasibility studies will determine definitively whether or not to proceed with the project. A feasibility study or bankable feasibility provides budget figures for the project and will be the basis for raising capital to build the mine

Remember all these different stage studies are only yes/no decisions on whether to move to the next stage. NONE of them mean you are going mining, there’s no mine till every stage is completed, permits approved and the necessary financing has been arranged.

Because these companies are well advanced along the development path a lot of the guesswork about grade, size, costs and metallurgy have been taken out of the equation for us. They have done sufficient work to give investors a certain level of confidence that their project will successfully move towards being a mine.

The later stage companies (those doing feasibility, permitting and money raising) can have an excellent entry point for investors – they often enter a quiet period when they are doing the advanced studies and raising money to go into production. They often base (a flat share price) for quite a while through this period – possibly a good time for accumulation of their shares if you believe in the story. After the money is raised for production investors can see they are going mining – cash flow is just over the horizon – and the share price will often break out of its trading range.

With producers you have to look at the balance sheet, consider their plans for the future and judge for yourself the ability to meet those plans.

Remember cash flow is king, but can they grow that cash flow? These large well established producers have the least risk and the least upside. But gains could be steady and maybe they pay a dividend.

"As every contrarian speculator knows, no market ever moves straight up or straight down indefinitely…Pullbacks are entirely normal and healthy in major bull markets and should be expected and embraced as wonderful opportunities to “buy the dips”, as our tech friends used to prudently say before their bubble burst.  Short-term pullbacks are necessary to relieve temporary overbought conditions and graciously grant new entry points for fresh capital, as well as lay the foundational groundwork for drawing in ever increasing numbers of investors.

A powerful bull market requires a slow, steady march northwards in spectacular rallies and then sharp pullbacks to ultimately seduce the greatest amount of capital possible to bid on the market and drive up prices.  If gold is indeed to run to the $5000 range as I suspect before all the dust settles on this new gold bull in coming years, it needs to run up as cautiously and methodically as possible at first. Each pullback offers the golden bull a crucial feasting opportunity to gulp down more fresh capital which feeds it the energy necessary to gallop aggressively to new highs in the next major upleg rally." Adam Hamilton

Remember, our junior resource companies, the same ones who today are so oversold and undervalued, are the present owners of the world’s future gold supply.

"Richard Cantillon (died 1734) the Irish economist and financier who wrote one of the earliest treatises on modern economics and whose treatment of the theory of money was of pioneering importance give a pithy description why both these metals posses all the qualities needed in money. Gold and silver, wrote Cantillon, are alone are of small volume, of equal goodness, easy of transport, divisible without loss, easily guarded, beautiful and brilliant and durable almost to eternity. Anne-Robert-Jacques Turgot (1727-81) the French economist was more adamant and asserted that gold and silver became universal money by the nature and force of things, independent of all convention and law; consequently to proscribe either of them by law from being used as money is a violation of the nature of things.

It is because of this almost immutable law of value, recognized by most thinking people, that gold was not only the Ancient Metal of Kings but the future standard currency in a post-fiat money system." overlordsofchaos.com

Junior resource companies, the owners of today’s precious metal deposits, and the worlds next precious metal mines, are soon going to have their turn under the investment spotlight and should be on every investors radar screen.

rick@aheadoftheherd.com

If you're interested in learning more about the junior resource and bio-med sectors please come and visit us at www.aheadoftheherd.com

***

Richards articles have been published on more than 400 websites including:

WallStreetJournal, SafeHaven, MarketOracle, USAToday, NationalPost, Stockhouse, Lewrockwell, Pinnacledigest, UraniumMiner, Beforeitsnews, SeekingAlpha, MontrealGazette, CaseyResearch, 24hgold, VancouverSun, CBSnews, SilverBearCafe, Infomine, HuffingtonPost, Mineweb, 321Gold, Kitco, Gold-Eagle, The Gold/Energy Reports, CalgaryHerald, ResourceInvestor, Mining.com, Forbes, FNArena, Uraniumseek, FinancialSense, Goldseek, Dallasnews, Vantagewire, Resourceclips and the Association of Mining Analysts.

***

Legal Notice / Disclaimer

This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment.

Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified; Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission.

Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.

The post The ancient metal of Kings appeared first on MINING.com.

Helga is the proprietor of a bar. She realizes that virtually all of her customers are unemployed alcoholics and, as such, can no longer afford to patronize her bar. To solve this problem, she comes up with a new marketing plan that allows her customers to drink now, pay later.

Helga keeps track of the drinks consumed on a ledger (thereby granting the customers’ loans).

Word gets around about Helga’s “drink now, pay later” marketing strategy and, as a result, increasing numbers of customers flood into Helga’s bar. Soon she has the largest sales volume for any bar in town.

By providing her customers freedom from immediate payment demands, Helga gets no resistance when, at regular intervals, she substantially increases her prices for wine and beer, the most consumed beverages. Consequently, Helga’s gross sales volume increases massively.

A young and dynamic vice-president at the local bank recognizes that these customer debts constitute valuable future assets and increases Helga’s borrowing limit. He sees no reason for any undue concern, since he has the debts of unemployed alcoholics as collateral!!!

At the bank’s corporate headquarters expert traders figure a way to make huge commissions, and transform these customer loans into DRINKBONDS. These “securities”  then are bundled and traded on international securities markets.

Naive investors don’t really understand that the securities being sold to them as “AA” “Secured Bonds” really are debts of unemployed alcoholics. Nevertheless, the bond prices continuously climb and the securities soon become the hottest-selling items for some of the nation’s leading brokerage houses.

One day, even though the bond prices still are climbing, a risk manager at the original local bank decides that the time has come to demand payment on the debts incurred by the drinkers at Helga’s bar.

He so informs Helga.

Helga then demands payment from her alcoholic patrons, but being unemployed alcoholics they cannot pay back their drinking debts. Since Helga cannot full fill her loan obligations she is forced into bankruptcy.

The bar closes and Helga’s 11 employees lose their jobs.

Overnight, DRINKBOND prices drop by 90%. The collapsed bond asset value destroys the bank’s liquidity and prevents it from issuing new loans, thus freezing credit and economic activity in the community.

The suppliers of Helga’s bar had granted her generous payment extensions and had invested their firms’ pension funds in the BOND securities. They find they are now faced with having to write off her bad debt and with losing over 90% of the presumed value of the bonds.

Her wine supplier also claims bankruptcy, closing the doors on a family business that had endured for three generations, her beer supplier is taken over by a competitor, who immediately closes the local plant and lays off 150 workers.

Fortunately though, the bank, the brokerage houses and their respective executives are saved and bailed out by a multibillion dollar no-strings attached cash infusion from the government.

The funds required for this bailout are obtained by new taxes levied on employed, middle-class, non-drinkers who have never been in Helga’s bar.

The end

The only difference between this tale and the reality of our present circumstance is that the bailout funds are simply created from thin air, the stroke of a keyboard rather than raising taxes.

Richard (Rick) Mills

rick@aheadoftheherd.com

www.aheadoftheherd.com

If you're interested in learning more about the junior resource and bio-med sectors please come and visit us at www.aheadoftheherd.com

Site membership is free. No credit card or personal information is asked for.

***

Richards articles have been published on more than 400 websites including:

WallStreetJournal, SafeHaven, MarketOracle, USAToday, NationalPost, Stockhouse, Lewrockwell, Pinnacledigest, UraniumMiner, Beforeitsnews, SeekingAlpha, MontrealGazette, CaseyResearch, 24hgold, VancouverSun, CBSnews, SilverBearCafe, Infomine, HuffingtonPost, Mineweb, 321Gold, Kitco, Gold-Eagle, The Gold/Energy Reports, CalgaryHerald, ResourceInvestor, Mining.com, Forbes, FNArena, Uraniumseek, FinancialSense, Goldseek, Dallasnews, Vantagewire, Resourceclips and the Association of Mining Analysts.

***

Legal Notice / Disclaimer

This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment.

Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified; Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission.

Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.

The post Our financial predicament explained appeared first on MINING.com.

"Central banks continued to buy gold; net purchases recorded during the first quarter, 2012 amounted to 80.8 tonnes, accounting for around 7% of global gold demand. Central banks from a diverse group of countries added to the overall holdings of the official sector, with a number of banks making sizable purchases. Diversification requirements and growth in foreign exchange reserves of a number of countries point towards a continuation of this trend." World Gold Council (WGC) report

After having already purchased ten tonnes of gold so far, the National Bank of Kazakhstan said it plans to purchase an additional fifteen tonnes this year and as much as seventy tonnes per year in 2013 and beyond.

"World practice shows that holding up to 15% of gold is what should be done, depending on the performance of the dollar and the euro." Bisengali Tadhiyakov, Kazakhstan's central bank deputy chairman

“Central banks are justified in having high gold weightings. They are justified in having a 40-50 percent weighting in gold…It is not only about the dollar, not only about diversification, but also about future inflation.” Marcus Grubb, WGC’s managing director of investment, research and marketing

Bretton Woods

In July 1944, delegates from 44 nations met at Bretton Woods, New Hampshire – the United Nations Monetary and Financial Conference – and agreed to “peg” their currencies to the U.S. dollar, the only currency strong enough to meet the rising demands for international currency transactions.

What made the dollar so attractive to use as an international currency, the world’s reserve currency, was each US dollar was based on 1/35th of an ounce of gold (35.20 US dollars an ounce), and the gold was to held in the US Treasury.

There’s a lesson not learned that reverberates throughout monetary history; when government, any government, comes under financial pressure they cannot resist printing money and debasing their currency to pay for debts.

The Vietnam War was going to cost the US $500 Billion. President Lyndon B. Johnson's administration declared war on poverty and put in place its Great Society programs – more than four million new recipients signed up for welfare.

London Gold Pool

The US began to send larger and larger amounts of dollars overseas to fund their increasing trade deficits. The glut of US dollars held abroad began to threaten U.S. gold reserves – remember US dollars were redeemable for gold – and worldwide demand for gold was soaring. By the late 1950’s US gold reserves had began to dwindle rapidly.

“Nineteen fifty-eight marked the first year in which foreign central banks exercised their convertibility rights in significant amounts and returned their dollars for gold. US gold reserves fell 10% from 20,312 metric tons to 18,290 that year, another 5% in 1959, and 9% in 1960.” John Paul Koning, Mises.org, The Losing Battle to Fix Gold at $35

In October of 1960 panic buying caused gold’s price to rise to over $40 per oz – a night time emergency call was made by the US Federal Reserve, the Bank of England was to immediately flood the gold market with enough supply to reduce and stabilize the price of gold.

The US made it abundantly clear stopping the drain of its gold reserves, and the depreciation of its currency against gold, was a huge priority.

The US, the Bank of England and the central banks of West Germany, France, Switzerland, Italy, Belgium, the Netherlands, and Luxembourg then set up a gold sales consortium to prevent the market price of gold rising above $US 35.20 per oz.

This consortium was known as the London Gold Pool. Member banks were to provide a quota of gold into a central pool, the US Federal Reserve would match their combined contributions ounce to ounce. This meant that the dollar would now be backed not only by the gold in Fort Knox but all the other Pool members gold as well.

By early 1962, the Bank of England, the consortium’s buy/sell agent, through the London Gold Exchange, was buying gold on the dips and selling on the rise to cap its price. Until 1968 nearly 80 percent of newly mined gold passed through the London Gold Exchange, London being the world’s premier gold market. The London Gold Fix had been a daily morning ritual since September 1919 – the 3pm Gold Fix was introduced in 1968 to coincide with the opening of the US markets.

Despite the Cuban Crisis and escalating tensions between Moscow and the US gold prices remained fairly stable, the London Gold Pool was a success.

The Beginning of the End

With the Gulf of Tonkin incident in late 1964 and the acceleration of the Vietnam war in 1965, US military spending exploded. This was compounded by President Lyndon B. Johnson's Great Society project spending and not raising taxes.

By 1965 the London Gold Pool was selling more gold suppressing the rise than it was buying back on the increasingly fewer, and shallower, dips.

Britain devalued the pound sterling in late 1967.

The ramping up, in early 1968, of the Vietnam war – because of the Tet offensive and US President Lyndon B Johnson’s agreeing to General Westmoreland’s proposed troop surge – brought renewed pressure on the dollar.

Since Johnson refused to raise taxes to pay for A. the social welfare reforms undertaken earlier and B. the war in Vietnam, the US was now running massive balance of payment deficits with the world.

In a little over a month London sold close to 20 times its usual amount of gold, over a 1000 tons.

France dropped out of the pool to send it’s dollars back to the US – for gold rather than Treasury debt.

Gold demand was skyrocketing. London sold 100 ton of gold in one day, up 20 times the average.

The consortium said "the London Gold Pool re-affirm their determination to support the pool at a fixed price of $35 per oz".

Fed chairman William McChesney-Martin said the US would defend the $35 per oz gold price "down to the last ingot".

Several planeloads of gold were emergency airlifted from the US to London. Gold demand continued to escalate with the London Gold Pool selling 175 tons one day and the very next day selling an additional 225 tons.

This broke the back of the London Gold Pool, members were tired of draining their countries gold reserves to pay for the US’s Vietnam war and social reform policies.

At the request of London Gold Pool members the Queen of England declared Friday, March the 15th a bank holiday – the London gold market remained closed for two weeks and the London Gold Pool was disbanded.

Johnson was forced to reverse his decision to send hundreds of thousands more U.S. troops to crush the Vietnamese resistance – instead he  opened up peace talks.

An official "two-tiered" price for gold was announced to the world – the official price of $35.20 would remain for central banks dealings, the free market could find its own price.

"…there came the March 1968 run on gold, which led to the collapse of the London Gold Pool. The U.S. government and Federal Reserve System, seeking to stave off the complete collapse of the dollar-gold exchange standard, felt obliged to take deflationary measures. The fed funds rate, which on October 25, 1967, had fallen to as low as 2.00 percent, rose to 5.13 percent on March 15, 1968, the day the gold pool collapsed.

As the Federal Reserve System’s deflationary measures took effect, the fed funds rate rose to as high as 10.50 percent during the summer of 1969. Long-term interest rose too, if to a lesser extent. On September 6, 1967, the rate on U.S. government 10-year bonds fell to 5.20, still well above the level of around 4 percent that prevailed during the first half of the 1960s…

On December 29, 1969, the yield on the long-term government bond hit 8.05 percent. With interest rates, both long term and short term, at such high levels, the demand for gold bullion was finally broken, and the dollar price of gold fell to around $35 an ounce by 1970. For the moment, the dollar-gold exchange standard had been saved." The Industrial Cycle and the Collapse of the Gold Pool in March 1968, critiqueofcrisistheory.wordpress.com

In February of 1970 the closing dollar price of gold on the London market averaged $34.99.

On August 15, 1971, U.S. President Nixon ended the convertibility of the dollar into gold. With gold finally demonetized the US Federal Reserve (Fed) and the world’s central banks were now free from having to defend their gold reserves and a fixed dollar price of gold.

The Fed could finally concentrate on achieving its mandate – full employment with stable prices – by employing targeted levels of inflation. The great experiment had begun – the objective being a leveling out of the business cycle by keeping the economy in a state of permanent boom – gold's "chains of fiscal discipline" had been removed.

By the end of August 1971, the dollar price of gold exceeded $42 and was rising.

The effort by the London Gold Pool to cap the price of gold was as unsuccessful as central bank efforts were the years preceding 2009. Why were the world’s most powerful central banks so spectacularly unsuccessful, not once but twice, in capping gold’s price rise? The answer is definitely something you’ll want on your radar.

Real Interest Rates

The demand for gold moves inversely to interest rates – the higher the rate of interest the lower the demand for gold, the lower the rate of interest the higher the demand for gold.

The reason for this is simple, when real interest rates are low, at, or below zero, cash and bonds fall out of favor because the real return is lower than inflation – if your earning 1.6 percent on your money but inflation is running 2.7 percent the real rate you are earning is negative 1.1 percent – an investor is actually losing purchasing power. Gold is the most proven investment to offer a return greater than inflation (by its rising price) or at least not a loss of purchasing power.

Gold's price is tied to low/negative real interest rates which are essentially the by-product of inflation – when real rates are low, the price of gold can/will rise, of course when real rates are rising, gold can fall very quickly.

Dumping gold on the market, like the London Gold Pool, and until very recently modern central banks did, cannot dampen the demand for gold at low/negative real interest rates. They can temporarily be successful at capping or slowing gold’s price rise but as long as interest rates are low to negative the demand for gold will grow and soon strips supply from their vaults.

There’s a saying that “six percent interest can draw gold from the moon,” undoubtedly true, but rates below two percent draw investors to gold.

The Feds interest rate is 0.25 percent.

"the Committee expects to maintain a highly accommodative stance for monetary policy. In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent…at least through late 2014. The Committee also decided to continue through the end of the year its program to extend the average maturity of its holdings of securities…This continuation of the maturity extension program should put downward pressure on longer-term interest rates" U.S. Federal Reserve Reaffirms Low-Rate Policy, June 20^th 2012

The benchmark US 10-year note currently yields 1.62 percent, yields on 30 year bonds are 2.69 percent.

The following is the inflation data for the first five months of 2012, the Inflation rate is calculated from the Consumer Price Index (CPI-U) which is compiled by the Bureau of Labor Statistics (BLS).

Jan 2.93%, Feb 2.87%, Mar 2.65%, Apr 2.30%, May 1.70%.

John Williams, author of the newsletter Shadow Government Statistics, takes issue with the statistical methodology used by the BLS.

Williams says if the BLS hadn't altered its statistical practices over the years, inflation would have been reported about seven percentage points higher each year.

Consider:

• Since 1913 the US dollar has lost over 95% of its purchasing power while gold has gone from US$20 an ounce to currently over US$1600.00 per ounce in the same time frame

• When people catch onto the fact that all government statistics are so massaged as to be useless, and actually start to think about how much more they are paying today over yesterday for the necessary everyday items they need to get by, than they will start to understand why gold is so important to a sound monetary system

• Continuing low interest rates, combined with higher inflation rates will equal low to negative real rates of return causing continued demand for gold

• Consistent, sustained, large-scale bulk gold purchases on the dips by central banks and governments buying a large part of the annual supply of gold will keep a floor under gold’s price

Conclusion

Fact – as long as real interest rates are low gold is in a bull market, there are no plans to raise interest rates for at least two years, indeed the Fed is actively working to lower longer term rates, this should be on everyone’s radar screen. Is it on yours?

If not, maybe it should be.

Richard (Rick) Mills

rick@aheadoftheherd.com

www.aheadoftheherd.com

If you're interested in learning more about the junior resource and bio-med sectors please come and visit us at www.aheadoftheherd.com

Site membership is free. No credit card or personal information is asked for.

***

Richards articles have been published on more than 400 websites including:

Wall Street Journal, SafeHaven, Market Oracle, USAToday, National Post, Stockhouse, Lewrockwell, Pinnacledigest, Uranium Miner, Beforeitsnews, SeekingAlpha, MontrealGazette, Casey Research, 24hgold, Vancouver Sun, CBSnews, SilverBearCafe, Infomine, Huffington Post, Mineweb, 321Gold, Kitco, Gold-Eagle, The Gold/Energy Reports, Calgary Herald, Resource Investor, Mining.com, Forbes, FNArena, Uraniumseek, Financial Sense, Goldseek, Dallasnews, Vantagewire, Resourceclips and the Association of Mining Analysts.

***

Legal Notice / Disclaimer

This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment.

Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified; Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission.

Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.

Image by penguinbush

The post Six percent can draw gold from the moon appeared first on MINING.com.

George Mitchell, as a member of the Board of Governors of the Federal Reserve in 1966, began urging bankers to consider how "the computer can drastically change money and its use."

In the early 1970s a nationwide electronic funds transfer system was envisioned. The system would use individualized electronic identification cards and digitized bank accounts with merchants connected to them by telecommunication links.

But it wasn’t until the 1990s that credit and debit card use really caught fire.

Is going cashless a good thing? Not for most people, we tend to spend more when we buy things with a credit or debit card instead of cash:

“Drazen Prelec and Duncan Simester reported studies on this topic in a 2001 issue of Marketing Letters. In one study, they told that randomly selected participants in the study would be offered the opportunity to purchase tickets to an actual professional basketball game that had just sold out. These tickets were highly desirable. Participants were told either that they would have to pay in cash or that they would have to pay by credit card. They were asked how much they would be willing to pay for these tickets. Those who were told they would have to pay by credit card were willing to pay over twice as much on average as those who were told that they would have to pay by cash.” Art Markman, Ph.D., psychologytoday.com

Paying with cash, actually pulling the money from a wallet or purse is a vivid enough action to elicit a negative, and in some consumers a mildly painful, psychological reaction that’s absent when either a credit or debit card transaction takes place.

“The impulse dances inside the debt.” Jareb Teague

In addition there’s often a sensory glee caused by impulse buying that causes otherwise rational people to buy things they might not buy if they had to pay cash.

"When cash is out of the wallet you physically see it go, whereas with credit cards there's more of a delay between purchase and payment, so cash buyers tend to stick to the essentials." Richard Bialek, a former credit-card firm executive

There are an estimated 46.7% of US households carrying credit card balances, the average household credit card debt was $14,517 for the first quarter of 2012.

That’s down $2,000 from the same period in 2010 – a lot of recent headlines are talking up the “fact” Americans are finally paying down their credit card  debt – are Americans paying down their debt?

No, charge-offs (the percentage of dollars owed that issuers have written off as uncollectable) account for a significant portion of credit card debt reduction. The charge-off rate rose to 10.7% in the second quarter of 2010, an increase of over 300% from the 3.11% in the first quarter of 2006.

Falling indebtedness is largely due to defaults rather than repayment, nerdwallet.com

Moody's Investors Service said the charge-off rate for U.S. credit cards (those 90 days or more behind on payments that are stricken from lenders’ record books) rose in April to 5.21% from 4.92% in March.

The payment rate – which shows the number of credit card users who have the ability to pay off their balance – slipped to 21.49 percent in April from 22.11 percent in March.

The three US credit bureaus maintain over 220 million consumer files – one in five of these consumers has bad credit.

Banks are again starting to ease their lending standards, this makes it easier for consumers to qualify for credit cards and according to Credit Card Select credit use is on the rise. The Federal Reserve reported 17.5 percent of banks said that a moderately larger number of consumers applied for new cards in the first quarter of 2012. Equifax just released consumer credit data indicating that the rate of newly issued bank cards increased by nearly 37 percent in February 2012 over the same time last year.

TransUnion says the average debt per cardholder equaled $4,962 at the end of Q1 2012.

26 percent of U.S. adults now report that they are spending more than they did one year ago.

The national average default rate as January 2012 stood at 28.6 percent, up from 27.9 percent two years earlier. The median rate also jumped, from 28.9 percent to 29.4 percent (Source: CreditCards.com survey of 100 leading credit cards, January 2012)

“Two economists, Annamaria Lusardi and Olivia Mitchell, have been studying financial literacy and the effectiveness of efforts to promote it for many years. The results are not at all encouraging. To take just a few of their examples, they asked the following questions of a representative sample of Americans over the age of fifty:

1. Suppose you had $100 in a savings account and the interest rate was 2% per year. After five years how much do you think you would have in the account if you left the money to grow: more than $102, exactly $102, less than $102?

2. Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After one year would you be able to buy more than, exactly the same as or less than today with the money in this account?

3. Do you think that the following statement is true or false? "Buying a single company stock usually provides a safer return than a stock mutual fund."

Only 50% of respondents were able to answer the first two questions correctly and less than a third were able to answer all three. In a related study less than 18% of people surveyed were able to answer a simple two-period compound interest problem.” America's Financial Illiteracy, Thomas F. Cooley forbes.com

Eighty seven percent of teens report their parents are their main source of financial education. More than 50 percent of adults do not maintain a budget or track their expenditures and nearly three in ten report that the terms of their mortgage differ from their initial expectations.

More than two in five Americans grade themselves as C, D or F in their knowledge of personal finance – an admission they lack the know-how to make sound financial decisions for themselves.

Sallie Mae surveyed undergraduate students in 2009:

• 84% of the student population has credit cards, half had four or more
• 84% of undergraduates indicated they needed more education on financial management topics

The Jump$tart Coalition for Personal Financial Literacy published answers from a 31 question exam given to 12^th graders touching on topics ranging from credit cards, car insurance, the stock market and home ownership.

The average grade on the first exam the Coalition gave was 57.3 percent, 60 percent is a pass. On the second exam, done in 2008, the average grade had dipped to 48.3 percent – three quarters of the 6,856 students failed while fewer than five out of every 100 got 75 percent (a “C” grade) or better.

The very recent Council for Economic Education “Survey of the States” report found that since 2009:

• Three fewer states require schools to test in the area of economics and one fewer state requires schools to offer a personal finance course
• States requiring that students be tested on personal finance concepts fell by almost half
• The number of states that test students on economic concepts fell to 16 from 19. That number stood at 27 in 2002
• The number of states that require a personal finance class fell to 14 from 15
• States that require student testing in personal finance fell to five last year, from nine in 2009
• Only 13 states require that high school students take a personal finance class to graduate

Individuals graduating from high schools in states that require personal finance education have higher savings rates and net worth as a percentage of their earnings than individuals graduating from high schools in states where financial education is not mandated. Integrating Financial Education into School Curricula, The Department of the Treasury

George W. Bush championed the concept of “an ownership society” when he was running for re-election in 2004. Bush extolled the virtues of giving individuals more control over their own financial lives, every family would own its own house and stock portfolio.

“These families were, of course, conservative, or at a minimum traditional and nuclear, consisting of a heterosexual married couple and at least two kids living in a stand-alone home with a yard, a car or two and a multimedia room with a flat-screen television. The latter was a new addition to this 21st-century simulacrum of the 1950s "Leave It to Beaver" idyll. But the dream was the same.

Such a country would be more stable, Bush argued, and more prosperous. "America is a stronger country every single time a family moves into a home of their own," he said in October 2004. To achieve his vision, Bush pushed new policies encouraging homeownership, like the "zero-down-payment initiative," which was much as it sounds—a government-sponsored program that allowed people to get mortgages without a down payment. More exotic mortgages followed, including ones with no monthly payments for the first two years. Other mortgages required no documentation other than the say-so of the borrower. Absurd though these all were, they paled in comparison to the financial innovations that grew out of the mortgages—derivatives built on other derivatives, packaged and repackaged until no one could identify what they contained and how much they were, in fact, worth.

As we know by now, these instruments have brought the global financial system, improbably, to the brink of collapse. And as financial strains drive husbands and wives apart, Bush's ownership ideology may end up having the same effect on the stable nuclear families conservatives so badly wanted to foster.” End of the ‘Ownership Society’, Zachary Karabell thedailybeast.com

“Home life ceases to be free and beautiful as soon as it is founded on borrowing and debt.” Henrik Ibsen

Is financial literacy a threat to politicians?

By Mark C. Schug, Dwight R. Lee and William C. Wood, jsonline.com

"About half of high school students say they've never learned economics in school; those who do often receive no exposure to the subject until their junior or senior years. Even fewer students ever take a course in personal finance.

That's not for a lack of desire on their parents' part: Polling shows that adults think financial education should start in the earliest years of schooling. And virtually all adults believe economics should be included in curricula, according to a poll conducted by the Council on Economic Education.

So what gives? State legislators could, after all, require the study of economics and personal finance at several grade levels. Having spent years studying economic education, though, our theory is that politicians responsible for the curriculum don't see much of an upside in voters who are economically and financially literate.

If large numbers of voters understood basic concepts such as scarcity, opportunity cost and incentives, it would change the way they evaluate political rhetoric. Students should learn that there is an economic role for government to play in a market economy when the benefits of a government policy outweigh its costs; they should also learn that the costs of many government policies exceed the benefits.

If large numbers of voters understood that governments can and do fail – and that they fail more often than markets do – they'd take a much different view of our monetary and budgetary policies. In an era of trillion-dollar deficits, it's an encouraging thought."

Conclusion

Consider the results of a 2008 study of teens participating in the financial education program Money Matters:

• 79 percent of teens who reported learning about goal-setting were significantly more likely to also report that they had saved money for something they wanted and then purchased it
• 72 percent of teens who reported learning about saving money were more likely to save regularly
• 50 percent of teens who learned to track spending were more likely to develop a budget

“Youth is in danger until it learns to look upon debts as furies.” Edward G. Bulwer-Lytton

Ignorance is a temporary condition easily cured by education.

Perhaps a little financial education, starting at a very early age, should be on all our radar screens. It certainly is on mine. Is it on yours?

If not, maybe it should be.

Richard (Rick) Mills

rick@aheadoftheherd.com

www.aheadoftheherd.com

If you're interested in learning more about the junior resource and bio-med sectors please come and visit us at www.aheadoftheherd.com

Site membership is free. No credit card or personal information is asked for.

***

Richards articles have been published on more than 400 websites including:

Wall Street Journal, SafeHaven, Market Oracle, USAToday, National Post, Stockhouse, Lewrockwell, Pinnacledigest, Uranium Miner, Beforeitsnews, SeekingAlpha, MontrealGazette, Casey Research, 24hgold, Vancouver Sun, CBSnews, SilverBearCafe, Infomine, Huffington Post, Mineweb, 321Gold, Kitco, Gold-Eagle, The Gold/Energy Reports, Calgary Herald, Resource Investor, Mining.com, Forbes, FNArena, Uraniumseek, Financial Sense, Goldseek, Dallasnews, Vantagewire, Resourceclips and the Association of Mining Analysts.

***

Legal Notice / Disclaimer

This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment.

Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified; Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission.

Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.

The post Ignorance is a temporary condition appeared first on MINING.com.

In 2004 McWatters went bankrupt – all their land became open for acquisition.

Osisko Mining purchased the Canadian Malartic Project, Wesdome Gold Mines purchased the Kiena Mine Complex, and NioGold Mining Corp. TSX.V – NOX purchased (for $10,000 and right in the heart of the Val-d’Or/Malartic mining camp), three large claim blocks that were relatively underexplored compared to the rest of the area.

Then, in early 2006, NioGold signed a deal with Aur Resources to acquire the other 50% interest in Marban it did not already own, and 100% interest in two other properties (First Canadian and Norlartic). Between these three properties (which include three past producing mines) there was 585,000 ounces of past gold production and a lot of upside according to NOX’s due diligence.

Over a period of several years NioGold has managed to consolidate a large 130 square kilometer land package right in the heart of the Malartic and Val-d’Or gold mining camps – an impressive feat. Since the 1930s the Cadillac, Malartic, and Val d’Or (French for – “valley of gold”) camps have produced upwards of 45 million ounces of gold.

NioGold’s Malartic-Val d’Or properties are divided into six projects: the Marban Block (Aurizon JV), the Malartic Block, the Malartic H, Val-d’Or, Héva and Siscoe East.

There are a number of important facts to understand about NioGold’s projects:

• NioGold has one of the largest land holdings (130 square kilometers) in the Malartic/Val d’Or mining camps. The properties are located along the Trans Canada Highway 117 – a stretch of pavement called the Golden Highway as it links a large number of current and historic gold mines, gold development projects and gold milling facilities. In total 45 million ounces of gold has already been produced along this section of the highway and there are known to be a further 15 million ounces of reserves.
• The Marban block contains 3 previously producing gold mines, and NioGold has delineated 959,000 oz gold as of a 43-101 report in January 2010. Since then, Aurizon Mines is earning-in to a potential joint venture (JV) by spending $20,000,000 on drilling and then is required to make a resource payment estimated at $35,000,000+ to become a 50/50 partner on this 10% part of NioGold’s properties. An additional 84,000 meters have been drilled on these deposits in the past 2 years and an updated 43-101 resource report is pending.
• The contiguous Marban Block, Malartic H and the Malartic Block are on a major gold mineralized structural zone known as the Norbenite-Marbanite. To date NioGold Mining has only explored a small portion of their 20 kilometer piece of the Norbenite-Marbanite fault zone.
• The Malartic Block Property covers a seven kilometer stretch of land that Niogold feels is under-explored plus another five kilometer stretch of unexplored land adjacent to the past producing Camflo Mine. In 2006 NioGold completed geophysical surveys and drilled eleven widely spaced holes testing the sediment/volcanic contact. The drilling uncovered high level intrusives and significant alteration similar to those associated with gold mineralization at the Malartic camp. Recent drilling has discovered the Ludovick zone with 8.16 g/t gold over 3.1 meters and 3.6 g/t gold over 6.5 meters. More assay results are pending.
• Northwest of the Marban Block, Niogold owns the Heva Property. The Heva Property is on trend with the Marban Block
• NOX is in a proven and historic gold camp with existing excellent infrastructure – full service towns, nearby access to road, rail, power, water, telecommunications, gold milling facilities and an experienced labor force.
• The properties are in Quebec and Quebec is consistently rated among the best places in the world for mining investment by the Fraser Institute, an independent research organization.
• NioGold receives up to 35% in tax credits for work performed in the field; this allows the company to use tax credits for refinancing with no dilution to the share structure.
• NioGold has attracted the attention of a deep pocketed partner committed to building shareholder value, for both companies, through the drill bit.
• NOX’s 100% owned Malartic block, which adjoins the Marban Block to the West, is on trend with Marban and is easily three to four times the size of Marban.
• Management is highly skilled, well known and respected industry veterans.

Malartic Block

Niogold has committed $2.5 million to exploring it’s 100% owned Malartic Block. The Malartic is between Osisko Resources 11 million ounce gold resource and NOX’s Marban Block which is host to a NI 43-101 compliant resource estimate of Indicated resources of 598,000 ounces gold in addition to Inferred resources of 361,000 ounces gold.

NioGold started drilling in the southern portion of its Malartic Block (next to the boundary with Osisko) in April 2011 and discovered two major shear zones in the sediments. The Ludovick Zone is 8-10 meters wide with lots of sulfides, is recognized over 200 meters and in some holes has visible gold. One intersection had 3.6 grams gold over 6.5 meters. NioGold has plans to try and extend the Ludovick laterally and at depth because it’s open in all directions.

There are a lot of geophysical anomalies in the southern part of the Malartic Block that NOX has investigated. But with all the work/drilling on the Marban Block they did not have the human resources to complete sampling of what is a substantial amount of core. The plan is for their technicians to switch to the Malartic Block and sample all the core during the break between the Phase ll and Phase lll programs on the Marban Block.

The north-west extensions of the gold mineralized structures that host NioGold’s gold deposits on the Marban Block are the Marbanite and Norbenite faults.

Geophysics shows the two faults extending from the Marban Block onto the northern portion of NioGold’s Malartic Block.

While there is obvious and enormous blue sky exploration potential on the rest of NioGold’s properties, work, for obvious reasons you’ll soon read about, is going to be focused on the Marban Block property in 2012 and early 2013.

NioGold’s Marban Block to July 2010 – Setting the Stage

There is a NI 43-101 compliant resource estimate of Indicated resources of 598,000 ounces gold in addition to Inferred resources of 361,000 ounces gold for the Marban Block:

The gold resources are defined along a three kilometer segment of a regional gold mineralized fault zone

• Known deposits are reasonably close to the surface and can be accessed by a ramp
• The access provided by the old mines drifts and adits means a much lower cost and shorter timeline to production startup
• To date NioGold’s Marban Block Project has been drilled to a maximum depth of 500 meters. Most major deposits on this belt have been mined at 1,000 meters or more
• NOX’s current deposits are open at depth
• NioGold has an existing resource of 960,000 oz’s gold across all categories. This resource includes open pit as well as underground ounces and both have very good potential to expand at depth and near surface
• NioGold’s Marban Block is adjacent to Osisko Mining’s Canadian Malartic project; one of Canada’s largest developing gold projects having eleven million ounces of gold.

The Marban Block contains three past producing gold mines – the former Norlartic, Kierens and Marban mines – and three additional distinct gold deposits – the North-North, North and Gold Hawk Zones. There are also several satellite deposits that have not yet been evaluated and they could be add significant ounces to the total gold count on the Marban Block.

Marban has an indicated resource of 181,000 ozs of gold and an inferred resource of 114,000 ozs of gold.

Kierens has an indicated resource of 101,000 ounces of gold and an inferred resource of 99,000 ounces of gold.

Norlartic has an indicated resource of 316,000 ounces of gold and an inferred resource of 148,000 ounces of gold.

A good portion of the Norlartic and Kierens former mine resources are near surface mineralization potentially amenable to open pit mining down to the 200 meter level with underground mining envisioned after near surface mineralization is exhausted.

In 1989, Aur Resources estimated:

• The North Zone had over 136,000 tonnes of resource grading 6.86g/t gold for 30,000 ounces of gold
• The Gold Hawk Zone veins, one and two, had over 254,000 tonnes of resource grading 8.57g/t for 70,000 ounces of gold
• The North-North Zone had over 754,000 tonnes of resource grading 2.85g/t for 70,000 ounces of gold

The Marban gold system has been traced over 1.4 kilometers and there is substantial lower grade gold mineralization within the upper 250 meters of the gold system.

By 2010 NOX had not done sufficient near surface drilling to put the results into a NI 43-101 compliant in-pit-type of resource – they could only publish underground resources for the Marban deposit. Phase I of the Aurizon (2H/2010, 2011) agreement focused on this shallow drilling and the update NI 43-101 report due in June will include these results.

There has also been no systematic drilling of the Marban deposit to depth yet. NioGold has shown the system continues to depth and is wide open.

Historic drilling data has indicated that the geologic features that were the foundation for the Marban Mine are also present in other areas around the mine.

JV Deal

In July 2010, NioGold negotiated a joint venture (JV) with Aurizon Mines Ltd. (TSX – ARZ) to further develop the Marban Block property gold resources.

Aurizon must incur expenditures of C$20 million over three years, of which C$6 million was spent in the first year and $5,000,000 is budgeted for the second year ending this June. After the third year and the $20,000,000 in drilling are completed, Aurizon must prepare an updated NI 43-101 compliant mineral resource estimate, and make a resource payment equal to the sum of C$30 (or C$40 if the price of gold is then above US$1,560) multiplied by 50% of the number of total gold ounces in the Measured and Indicated resource categories plus C$20 (or C$30 if the price of gold is then above US$1,560) multiplied by 50 percent of the number of total gold ounces in the Inferred resource category.

Aurizon can then increase their stake to 60 percent by delivering a feasibility study, and a further five percent (at NioGold’s option)(cumulative 65 percent stake) by arranging project financing for capital expenditures estimated by the feasibility study to place the project into commercial production.

NioGold will be the operator during the initial earn-in period but Aurizon will become the operator after they earn 50 percent of the project.

The Joint Venture deal between Niogold and Aurizon assures minimal dilution to NioGold for development of the Marban block – they are fully carried to production. All the costs required in delivering an independent feasibility study are paid for by Aurizon and Aurizon also arranges the financing for NOX’s cost of production.

When you consider that the Marban block is only ten percent of NioGold’s holdings, Aurizon’s $20 million in expenditures, all the costs required in delivering an independent feasibility study are paid for by Aurizon, NioGold gets paid on a per oz basis and ARZ is carrying NOX to production to get 65 percent, it seems, to this author, to be a very good deal for NioGold shareholders.

JV First Phase Work Program

The JV’s first phase program commenced on August 30, 2010, and was completed on August 9, 2011. The program consisted of 50,253 meters of diamond drilling (170 holes, eight extensions) at a total cost of six million dollars.

Drilling was distributed between the Marban (41,270m) and Norlartic (4,319m) deposits and exploration ‘fences’ between the two deposits (4,664m).

Highlights include the identification of two new gold zones surrounding the former Marban mine – the High Grade Western Zone and Eastern Down Dip Zone – both well within the Marban mineralized system.

High Grade Western Zone – On surface and to the west side of the old Marban mine shaft there had been very limited mining development. NOX recognized, and drilled, some very high-grade structures – one of the intersections returned 900 grams over 2.9 meters. This kind of near surface high grade mineralization could improve the overall grade of the gold mineralization for an open pit resource.

NOX also recognized mineralization on the north wall of the deposit in another type of rock, granodiorite intrusives in the hanging wall of the deposit. Some of these mineralized zones appear consistent and could add width to the Marban mineralization. This could lower the strip ratio of the near surface mineralization in an open pit mine.

Eastern Down Dip Zone – The Eastern Down Dip Extension is under the old mine workings. Previous mining on the Marban deposit was very shallow, between 150-250 meters vertical depth. NioGold drilled half a dozen very good intersections between the 400 meter level and the 500 meter level vertical below the old mine.

NOX, so far, has defined the Eastern Down Dip Extension over a strike length of 300 meters and to a vertical extent of over 200 meters. It’s wide open to the east as well as to depth and may continue to the west.

These two new discoveries, both within the Marban mineralized system, lead one to believe there could be a lot more to this project than past miners believed.

JV Second Phase Drill Program

A $5 million second phase program commenced in November 2011 and will continue through to the second quarter of 2012. The second phase program includes 34,000 meters of diamond drilling on the Marban deposit, updated resource estimates and basic technical studies.

The objectives of the second phase drilling program are:

• Improving the quality of the Marban near surface resources – The most recent drill results demonstrated that there is a higher grade gold distribution around the Marban deposit in distinct zones. Different areas of the deposit have been identified for delineation above 250 meters vertical depth using a 25 or 50 meter drill hole spacing. The objective is to improve the quality of the known resources and to increase the potential to find more mineralized corridors within a pit shell to help decrease the stripping ratio
• Developing a mineral inventory below 250 meters vertical depth – This objective targets the identification of new gold resources inside the Marban structural zone. Preliminary interpolation on the Eastern Down dip Zone indicates a strong potential to identify gold resources between a vertical depth of 350 to 600 meters. The mineralized structure is considered open laterally and down dip

New holes, and wedging from previous holes, are planned at vertical depths of 300 meters to 1,000 meters to test the consistency and extension of the Eastern Down Dip Zone at an average drill hole spacing of 50 meters.

Technical program

A total of $460,000 in engineering work and updated resource modeling and estimates are planned on the Marban and Norlartic deposits. Engineering studies, which will take into account near surface in-pit mineralization, include preliminary metallurgical tests and a base line environmental study expected to be completed by mid 2012.

Phase lll

Phase lll should begin soon and end in December 2012 – there is still $9 million to be spent on the JV agreement for the last year, so it’s likely the Phase lll program will come in at something like $4.5 million for the rest of the year.

In Phase 1 NOX drilled 4,000 meters on the Norlartic to confirm their geological model and 4,600 meters of exploration holes. This drilling was in three fences 300 meters apart and was done in between the Norlartic and the Marban deposits.

NioGold believes they hit the extension of the Norlartic Zone. They extended the Norlartic system towards the southeast by about 600 meters. It heads closer to Marban and then becomes a parallel structure.

The Kierens-Norlartic trend is a northwest-southeast trend, but when extended it looks to be turning to an east-west trend – there’s a curve in it, and it’s the same for Marban. Marban is on the part of the trend where everything is east-west, and then when you go towards the west, it goes parallel to the Norlartic and Kierens system  – basically two parallel corridors.  One trend has two mines on it, on the northwest-southeast orientation, and the southernmost trend has an east-west deposit on it.

The extension of both these systems is making two parallel trends, and NioGold wants to explore the extensions of those trends in the Phase lll program because they believe the possibility is to have parallel zones for Marban, which means the deposit may get bigger, or perhaps they just reduce the dilution and stripping ratio. it also means the same thing might happen for the Kierens and Norlartic system.

Parallel to the northwest-southeast trending Norlartic and Kierens structures but a little more to the southwest, is yet another trend – the Marban Gold Arc trend.

Gold Arc is a high-grade vein that was mined when the Kierens mine was in operation – they went underground and mined a part of the Gold Arc vein. There are still some historic resources in the extension of the vein.

Metallurgy

NioGold doesn’t see any metallurgical problems on the Marban Block and ore cyanidation testing produced results ranging from 95.4% to 97.6% gold recoveries.

“Two gold-bearing composite samples were examined at the SGS Mineral Services Lakefield site. The #1 composite containing an assay grade of 1.24 g/t gold was designed to study the metallurgical response of a low grade envelope. The #2 composite containing an assay grade of 4.59 g/t gold and was designed to represent the high grade envelope. After 48 hours, gold recoveries ranged from 95.4% to 97.6% for composite #1 and 95.7% to 97.3% for composite #2. Finer grinding typically increased the gold recovery at the cost of higher cyanide consumption. 

Gravity separation testing on the #1 composite showed a 41.3% Gravity Recoverable Gold (GRG). Gravity separation testing on the #2 composite showed a 56.5% GRG. The combination of gravity recovery and cyanidation of the gravity tail did not increase the overall gold recovery. This demonstrates that while this concept could be beneficial from a plant design perspective, gravity recovery is not essential to obtaining good recoveries from these two composites.

Bond ball mill testing indicated that the two composites fell in the medium-soft to medium range of hardness compared to the SGS database (10.1-10.9 kWh/t).” NioGold news release April 24, 2012

There is nothing complex about the ore, it’s basically gold associated with pyrite iron sulfides – no arsenic or antimony and very limited silver, it’s nearly all gold in pretty simple form.

Conclusion

Eventually the Marban Block could have three open pit mines, the Marban, Kierens and Norlartic (with as many satellite zones as possible around those pits) with plans to underground mine all three after open pit resources are exhausted.

When NOX first signed the JV agreement with Aurizon the ounces NOX had in the ground were valued as an $18 million resource payment. There’s no doubt in this authors mind that the first year Phase l program – 50,000 meters drilled – will significantly increase the gold ounces on the Marban Block (in a new 43-101 Resource Estimate expected shortly) and the size of the resource payment. No drill results from the second phase 34,000m program are included in the new resource estimate.

Northern Star Mining Corp. TSX.V – NSM went bankrupt about two years ago – NSM had quite a bit of property right around, and adjacent to, NioGold’s Marban Block.

“Northern Star's Malartic Midway project was to be Quebec's highest grade mine at 7 to 10 grams.  The mine was to be an underground, with a decline and two 3000 foot shafts (inherited from the old Malartic mine). A decline had been started on the western part of the property next door to Osisko's 11 million ounces of gold.

The Malartic Midway project features two different types of gold mineralization: the higher grade gold mineralized gabbros and the larger volume lower grade mineralized porphyries like Osisko. 

Fourteen of these near-surface (containing about 90,000 ounces of gold each) mineralized lenses were drilled off. The lenses have been drilled from surface to 1500 feet. One hole drilled in 2007 intercepted a mineralized lens at 5300 feet; at this depth, the mineralized area has seven zones (several high grade breccias and several porphyry lenses). 

Mining engineers really like Northern Star's near surface mineralized lenses because of their impressive widths and grade (ranging from 12 feet to 77 feet running 8 to 10 grams/ton). In the old Malartic mine, substantial amounts of one ounce plus material was mined at the 2200 foot level – one hole intercepted 16 feet of 2.5 ounces/ton gold. The initial year of production should be in a range of 30,000-50,000 ounces of gold with the goal of achieving 300,000 to 500,000 ounces/year 3-5 years.”  24hnewgold.com, Heather A. Conley, BSc Geo, The Raya Group

NSM’s bankruptcy focused a lot of attention to the camp because a few extremely large funds in the States had their bonds – bankruptcy means the bonds are worthless. Interestingly enough the rumor on the street is some of these funds have been acquiring more of these discounted bonds, and someone is trying to get the company out of bankruptcy.

The funds that have ended up owning the property obviously must be quite keen on the area. They know a lot about the Malartic Midway project and other potential deposits that are on Northern Star’s property, and of course, a lot of that property is adjoining, actually borders all around NioGold’s Marban Block.

Wexford Capital, a five billion dollar fund, recently filed that they own 11,728,379 shares of Niogold – 11.70 percent of the outstanding shares.

Agnico-Eagle is looking to replace lost production and has loads of mill capacity sitting idle nearby, as do other miners in the camp. Agnico-Eagle was forced to shut down production, and write off its investment, at its Goldex mine (Goldex was supposed to account for 17% of the company’s gold output in 2011), in October 2011 due to water inflow and ground stability issues.

Goldex’s sizable 8,000 tpd capacity plant is sitting idle. There is also spare capacity in the camp at plants operated by Wesdome, Richmont, Century and Alexis. In February 2012 Agnico-Eagle booked a partial write down on the value of its Meadowbank mine in the Canadian Arctic after being forced to alter its mine plan due to lower than expected ore grades.

These developments have combined to put NioGold in a very unique position among junior resource companies.

For these reasons, and for the upside of the blue sky exploration potential of the rest of NioGold’s 130 square kilometer land package in the heart of the Malartic and Val-d’Or gold mining camps, NioGold should be on every investors radar screen. Are they on yours?

rick@aheadoftheherd.com

www.aheadoftheherd.com

Richards articles have been published on more than 400 websites.

***

Legal Notice / Disclaimer

This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment.

Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified; Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission.

Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.

Richard does not own shares of NioGold Mining Corp TSX.V – NOX

NioGold Mining Corp TSX.V – NOX is a sponsor of Richard’s website www.aheadoftheherd.com

The post Niogold Mining Corp. appeared first on MINING.com.

Gold performs two jobs that fiat currencies, or any other financial innovation, cannot do; gold acts as a safe haven in times of turmoil – to escape Nazi Germany, or buy food and water in a crisis. Perhaps even more important, gold, for the last couple of thousand years has acted to preserve your purchasing power. In 1913 (the year the US Federal Reserve was born) the US dollar was well a dollar, gold was US$20 an ounce. Today, at almost the 100 year anniversary of the Fed the dollar has lost 95 percent of its purchasing power and gold is $1600 an ounce.

That’s gold, sprout-less yes, but irreplaceable in its functions.

Because of the upcoming massive debt rollover, and a collapse of faith in traditional collateral values, gold is quickly becoming a core banking asset.

Lenders loan money based on the criteria of:

• The borrower’s ability to service the debt – cash flow

• The borrower’s collateral

• A combination of both cash flow and collateral

Debt has a maturity, and when maturity is reached borrowers look to roll it over. Unfortunately for borrowers the value, and high levels of esteem, of what has traditionally been thought of as good collateral (sovereign obligations – currencies) has collapsed.

“Given the regulatory pressure to collateralize exposures, regardless of transaction type, there is a greater need for collateral. But going forward, there may be a risk of a shortage of good-quality collateral.” Olivier de Schaetzen, director, Euroclear

The following list, compiled by Bloomberg, shows the amount of debt that various nations must roll over in 2012:

Japan – 3 trillion, U.S. – 2.783 trillion, Italy – 428 billion, France – 367 billion, Germany – 285 billion, Canada – 221 billion, Brazil – 169 billion, U.K. – 165 billion, China – 121 billion, India – 57 billion, Russia – 13 billion

According to Bloomberg borrowing costs for G-7 nations in 2012 will rise as much as 39 percent from 2011.

“The great corollary of over indebtedness is the relative scarcity of good collateral to support the debt load outstanding. This imbalance of debt to collateral is impacting the ability of banks to make loans to their customers, for central banks to make loans to commercial banks, and for shadow banks to be funded by the overnight Repo market. Hence the growth of gold as a collateral asset to debt heavy markets is inevitably in the cards and is de facto occurring. Gold is stepping up to the plate as “good” collateral in a world of bad collateral.” Professor Lew Spellman, former economist at the Federal Reserve and former assistant to the chairman of the President’s Council of Advisors

In February 2011, J.P. Morgan Chase & Co. said gold is at least as good an investment as triple-A rated Treasuries.  J.P. Morgan started allowing clients to use gold as collateral in some transactions where traditionally only Treasury bonds and stocks have been accepted.

On May 25, 2011, the European Parliament's Committee on Economic and Monetary Affairs (ECON) agreed to accept gold as collateral.

John Exter’s Inverted Pyramid

 John Exter is known for creating Exter's Pyramid – useful for visualizing the organization of asset classes in terms of risk and size.

When the credit system is expanding most money flows to the top of the pyramid – the increasingly speculative and illiquid investments. When the credit system comes under pressure and debt cannot be repaid, the items at the top of the pyramid get sold and money flows to the bottom items.

“Tier 1 capital is the core measure of a bank's financial strength from a regulator's point of view. It is composed of core capital which consists primarily of common stock and disclosed reserves (or retained earnings) but may also include non-redeemable non-cumulative preferred stock. Banks have also used innovative instruments over the years to generate Tier 1 capital; these are subject to stringent conditions and are limited to a maximum of 15% of total Tier 1 capital." Wikipedia

The Basel Committee for Bank Supervision (BCBS), the maker of global capital requirements and whose Basel III rules form the basis for global bank regulation, is studying making gold a bank capital Tier 1 asset.

“Gold has historically been classified as a Tier 3 asset. When determining how much money a bank can loan, the bank's gold holdings have traditionally been discounted 50 percent of the current market value. With value cut in half, banks have little incentive to hold gold as an asset.” Frank Holmes, usfunds.com

The BCBS is a committee of banking supervisory authorities established by the central bank governors of the Group of Ten countries in 1974. The Committee's members currently come from Argentina, Australia, Belgium, Brazil, Canada, China, France, Germany, Hong Kong SAR, India, Indonesia, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, Russia, Saudi Arabia, Singapore, South Africa, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States.

If gold is made a Tier 1 Capital asset banks could operate with far less equity capital than is normally required. Gold would be the new backstop for debt, currencies and bank equity capital.

"Anyone who understands gold’s historic role will grasp the importance of the argument behind extra bank leverage. Direct ownership of bullion by a bank is superior to holding the fiat money issued by a central bank. It should increase confidence in any bank and the system as a whole. Given relative values, bank purchases of bullion will drive the value of gold as Tier 1 capital up relative to other qualifying assets, increasing its desirability for regulatory purposes further without a gold-owning bank doing anything." Alasdair Macleod, resourceinvestor.com

Conclusion

If the Basel Committee agrees to banks using gold as Tier 1 Capital it would create substantial demand for physical bullion and be an important step toward gold’s re-monetization.

Consider:

Gold, if moved from a Tier 3 to Tier 1 asset would be competing as a safe haven investment against un-backed bonds yielding less than zero in inflation adjusted terms and issued by over indebted governments.

Gold is set to become the new “good collateral.”

Gold is unique, it is the only non-Tier 1 asset to be universally regarded by investors the world over as a flight to safety asset.

rick@aheadoftheherd.com

www.aheadoftheherd.com

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Richards articles have been published on more than 400 websites.

***

Legal Notice / Disclaimer

This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment.

Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified;

Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission.

Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.

The post Sprout-less gold Tier 1 capital? appeared first on MINING.com.

Renewable and Non-renewable Resources 

We have crossed a critical threshold. The demand we are now placing on our planets resources appears to have begun to outpace the rate at which they can be supplied.

The gap between human demand on our planet’s renewable resources and the supply of those resources is known as ecological overshoot. To better understand the concept think of your bank account – in it you have $5000.00 paying monthly interest. Month after month you take the interest plus $100. That $100 is your financial, or for our purposes, your ecological overshoot and its withdrawal is obviously unsustainable.

The human enterprise now consumes nearly 60 billion metric tons of the world's four key resources – minerals, ores, fossil fuels and biomass (plant materials) – per year.

Developed countries citizens consume an average of 16 tons of those four key resources per capita (ranging up to 40 or more tons per person in some developed countries).

According to a report from the U.N., by 2050, humanity could devour an estimated 140 billion tons of minerals, ores, fossil fuels and biomass per year.

Total global resource use soared from six billion tonnes in 1900 (1.6 billion people) to 49 billion tonnes in 2000 (just over 6 billion people)  and is now running at close to 60 billion tonnes (just over 7 billion people).

Demand/Consumption

Two factors are involved in increasing consumption. One is the growth in population:

2011 7 billion

2020 7.6 billion

2027 8 billion

2030 8.2 billion

2040 8.8 billion

2046 9 billion

2050 9.2 billion

The second factor is the growth in wealth in the major developing countries – China, India, Africa* and Indonesia have enormous numbers of people who are already middle class and hundreds of millions still to become middle class.

*Africans, on a per capita basis, are richer than Indians and a full dozen African states have higher gross national income per capita than China.

Today Africa has 14% of the world’s population and by 2050 one in every four people on the planet will be African. The rapidly emerging African middle class could today number almost 300 million people – that’s out of a total population of one billion.

The Organization for Economic Co-operation and Development says the global middle class numbers 1.8 billon, or 28% of the world’s population.

According to the UN report “RESILIENT PEOPLE RESILIENT PLANET A Future Worth Choosing” the number of middle-class consumers will increase by three billion people over the next 20 years.

The president of the Center for Global Development, Nancy Birdsall, calculates that India has no middle class. The McKinsey Global Institute projects that India’s middle class of 50 million – less than 5% of the country’s population – will explode to 583 million by 2030.

McKinsey Global puts China’s middle class at 43% of its population today, on its way to 76% in 2025.

Economic studies suggest that industrial metals and minerals consumption depends on the stage of development, the stages are normally divided in four, and are said to be dominated by 1) infrastructure development, defined by high use of cement and construction materials; 2) light manufacture, defined by high use of copper; 3) heavy manufacture, defined by high use of aluminum and steel; and 4) Consumer goods, defined by high use of aluminum, energy minerals and specialty steels (Source: USGS).

The stages are expected to take about 20 years each and begin at 5 year intervals, lasting for a total of 30 – 40 years, depending on political and macroeconomic conditions. China for instance, appears to have entered the heavy manufacture stage based on steel consumption, while India may be well into the light manufacturing stage.” Luisa Moreno Investingthesis.com

Of course many other factors are at play and will, going forward, contribute to a “perfect storm” in the commodity markets.

Inflation

Because central banks can increase the supply of money virtually at will, and do so, the value of all existing money decreases.

The amount of goods and services remains the same, but now the amount of money chasing them has increased, this increased competition – more money (inflation) for the same amount of goods and services – causes prices to rise.

Governments and Central Banks want slowly rising prices. They pour money into the market to encourage growth so prices increase rather than decrease. Price decreases, or deflation (less money growth), slows economic activity – if people think prices are going to be lower next week they will not buy today, they will wait, this leads to a contraction in economic activity, something all governments fear.

Nations in Europe, and the U.S., will inflate (print more of) their currencies rather than cutting back spending or raising taxes. In a global race to worthless Asian economies will also have to print massive amounts of their currencies so they stay weaker then the US dollar. Asian exports have to be cheap for American consumers and American exports have to be more expensive than locally produced goods.

Many have called for very high levels of inflation possibly leading to hyperinflation. Their reasoning is that over printing of the US dollar will cause the dollar to weaken and inflation to set in – more money chasing the same amount, or less, of goods causes prices to rise. A rise in gold, silver and commodities prices in would be the result.

The precious metals and commodities have gone up, substantially – prices reacted to the increase in the monetary base and the corresponding increase in the velocity of money caused by financial innovations such as mortgage-backed securities (MBS), collateralized debt obligations (CDO), derivatives and credit default swaps etc.

The monetary base was expanding and there was an orgy of money spending fueling expectations of inflation.

As soon as the QE program, part’s 1 & 2, ended in June of 2011 the markets had to get by on a lot less money and liquidity. Austerity has temporarily replaced prolific spending – the monetary base is not expanding, money is not circulating and this is fueling deflationary fears.

Today the dollar is strong because the EU, and the world, have an acute shortage of dollars for the necessary bailouts and needed liquidity. A rising dollar is noninflationary so the rising dollar produces lower commodity prices.

It’s this author’s belief the US, and the world, will return to Quantitative Easing (QE) and will flood the world with liquidity. A falling weaker dollar pushes up the price of commodities.

Single minded money printing has to be the next stage. Politicians, governments and central banks will abandon the restraints they have been operating under and do whatever they think it will take to pacify voters, save their re-election chances, “right” their economies and salvage the fiat monetary system. Tax cuts, more and bigger deficits, continued low interest rates into the forseeable future and aggressive asset purchase programs, steroidal quantitative easing, are all going to achieve previously unimaginable levels.

The monetary base will explode, and if the money velocity chart reverses – if small businesses and consumers actually get their hands on some of this money – precious metals and commodities prices will soar.

Supply

Supply shortages always lead to high enough metal prices for further increases in production, thus supply will eventually exceed demand and prices will drop…right? Well maybe, maybe not. Margins (not price) motivates investment and if the cost of metal production is increasing margins might not be sustainable.

Lets state the obvious:

• For over the last ten years supply has struggled to keep pace with demand
• Metal supply is finite and subject to compounding demand from developing nations
• Metal production is highly cyclical, with intermittent peaks and troughs which are closely linked to economic cycles – declining production has historically been driven by falling demand and prices, not by scarcity
• Rates of production and amounts of reserves continually change in response to movements in markets and technological advances
• Most mineral resources will not be exhausted in the near future
• If energy was cheap and unlimited then recoverable resources would be unlimited

But

• Discovery and development is increasingly becoming more challenging and expensive
• Average ore grades are in decline for most minerals, yet production has increased dramatically
• Our most important metals are suffering from declining ore quality and rising extraction (ore is a different and inferior chemical or structural composition) costs
• Our prosperity has always been based on the fact that producing resources yielded more resources than it cost. However the cost of *energy is climbing, the amount used is climbing but the returns from energy expended is declining. Eventually the quantity of resources used in the extraction process will be 100% of what is produced
• Most older existing mines, the foundation of our supply, have increasing costs with production rates stagnating or even declining
• The rate of discovery is not keeping pace with the rate of depletion, let alone being higher

*Energy can be thought of as a proxy for labor, materials, energy and externalities – environmental, community impact etc.

The metal content of copper ore has been falling since the mid 1990s. A miner now has to dig up an extra 50 percent of ore to get the same amount of copper. As grade drops the amount of rock that must be moved and processed per tonne of produced copper rises dramatically – all the while using more energy that costs several times more than it use to. With the lower grades of ores now being mined energy becomes more and more of a factor when considering economics.

The average grade of gold deposits has been dropping as well.

“We took the nice, simple, easy stuff first from Australia, we took it from the U.S., we went to South America. Now we have to go to the more remote places.” Glencore CEO, Ivan Glasenberg in the Financial Times describing why his firm operates in the Congo and Zambia

We are experiencing a paradigm shift. If nothing else, right now at this point in history, we all have to realize that the mining industry is exiting “easy & cheap” and is starting the upward slope of chronic lower supply, permanently higher prices and higher risk.

Increasingly we will see falling average grades being mined, mines becoming deeper, more remote and come with increased political risk. Extraction of metals from the mined ore will is becoming more complex and expensive.

Resource Nationalism

Country Risk - Where the political and economic stability of the host country is questionable, and abrupt changes in the business environment could adversely affect profits or the value of the company’s assets.

Resource nationalism – The tendency of people and governments to assert control, for strategic and economic reasons, over natural resources located on their territory.

Every country needs to secure supplies of needed commodities at competitive prices yet supply is increasingly constrained and demand is growing. Barring a total global economic collapse or a dramatic reduction in the world’s human population it doesn’t seem to this author demand is going to collapse anytime soon.

Access to raw materials at competitive prices has become essential to the functioning of all industrialized economies. As we move forward developing and developed countries will, with their:

• Massive population booms
• Infrastructure build out and urbanization plans
• Modernization programs for existing, tired and worn out infrastructure

Continue to place extraordinary demands on our ability to access and distribute the planets natural resources.

Threats to access and distribution of these commodities could include:

• Political instability of supplier countries
• The manipulation of supplies
• The competition over supplies
• Attacks on supply infrastructure
• Accidents and natural disasters
• Climate change

Accessing a sustainable, and secure, supply of raw materials is going to become the number one priority for all countries. Increasingly we are going to see countries ensuring their own industries have first rights of access to internally produced commodities and they will look for such privileged access from other countries.

Numerous countries are taking steps to safeguard their own supply by:

• Stopping or slowing the export of natural resources
• Shutting down traditional supply markets
• Buying companies for their deposits
• Project finance tied to off take agreements

“Resource nationalism is taking other forms as well, including greater controls on foreign participation, mandated beneficiation, use it or lose it demands and mandated government participation.” Ernst & Young Global Mining & Metals Leader Mike Elliott

The PricewaterhouseCoopers Mine 2011 survey highlights what governments across the globe are looking at in regards to the world’s top 40 miners:

• Achieved net profits of $110b last year
• Halved their debt
• Built cash reserves of $105bn
• Announced capital programs of $300b for 2011

Today many governments are looking at ways to get more money from miners as companies report record profits – the higher the returns and the higher the profits, the greedier governments become. As commodity prices rise governments try to boost their share of the proceeds from their countries energy and mining sectors.

Miners are an easy target as mining is a long term investment and one that is especially capital intensive – mines are also immobile, so miners are at the mercy of the countries in which they operate. Outright seizure of assets happens using the twin excuses of historical injustice and environmental/contractual misdeeds. There is no compensation offered and no recourse.

All of this means increasingly scarce, and accessible resources, are going to become much harder to find and develop – meaning companies with projects in politically stable environments are that much more valuable.

Skills and Labor Shortage

A combination of mass retirements and increasing natural resource demand from emerging economies has created a crisis in the resource extraction sector – one which is definitely not on investor’s radar screens.

Currently there is a “massive talent gap” that is going to get worse because the global mining industry is experiencing the biggest wave of workforce retirements in 70 years – the oldest baby boomers turned 65 years old in 2011.

The Mining Industry Human Resources Council (MIHRC) has recently said that about 40% of the resource extraction industry’s workforce is at least 50 years old and one third of them are expected to retire by 2022.

The organization also forecasts that the Canadian mining industry will face a shortage of 140,000 workers by 2021 – this number of workers being needed just to maintain current levels of production.

The Petroleum Human Resources Council of Canada warned a severe oil patch labor shortage is looming and that the “patch” will need to hire 24,000 new employees by 2014.

Increased resource demand is driving demand for skilled workers. A shortage of skilled workers was the second biggest business risk for mining in 2011 (as it was in 2010) and is forecast to be the number two risk (resource nationalism/country risk is the number one risk) for miners again in 2012. In the coming years a lack of skilled workers is going to be the major cause for concern in the resource extraction industry.

“Government or industry reports in the past few years in Australia, the U.S. and South Africa all highlight growing skills shortages in the mining industry.”  Recent HSBC commodities report

The skills shortages are global, shortages are happening in South Africa, Australia, Canada and South America. Costs are increasing, projects are being deferred or perhaps even cancelled outright due to the inability to staff operations – tighter labor markets also provide unions with greater bargaining powers when dealing with companies over wage settlements and other disputes.

“Given the ageing profile of the current workforce and a lack of engineers and geologists with enough experience, the labour resourcing requirements for new mining projects at various stages of development across the globe are simply not going to be met. Production targets and project deadlines are inevitably going to slip. The time taken to train a mining professional can be up to five years, but it is the candidate with around ten years experience who is in particularly short supply. A failure by the mining industry to recruit and train during the tough times in the 1990s, when the price of metals plummeted, has led to particular shortages of mid-career professionals.” Mining Global Employment Review 2011, Faststream Recruitment

Analysts say attracting and retaining increasingly scarce skills will:

• Accelerate cost increases
• Squeeze profit margins
• Threaten the viability of some marginal projects

Conclusion – Junior’s, An Argument for a Contrarian Investment

Our reality – we’re living on a relatively small planet with a finite amount of reserves and a growing human population.

The world’s major miners are making immense profits but they are having an extremely difficult time replacing reserves let alone growing them. Mining is the story of depleting assets, that asset must be constantly replenished, miners that want to stay in business must replace every pound, oz and gram taken out of the ground.

Juniors, not majors, own the worlds future mines and juniors are the ones most adept at finding these future mines – majors do not make discoveries, juniors do, that’s their function in the resource food chain. Junior resource companies already own, and find more of, what the world’s larger mining companies need to replace reserves and grow their asset base.

Junior resource companies – the same ones who today are so oversold and undervalued – are the present owners of the world’s future commodities supply and, most important for investors seeking outsized returns, they act like leveraged exposure (with price gains many times that of the underlying commodity) to the specific commodity(s) investors want exposure to.

Are there a few junior resource companies, with exceptional management teams operating in politically safe jurisdictions, on your radar screen?

rick@aheadoftheherd.com

www.aheadoftheherd.com

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This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment.

Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified; Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission.

Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.

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