Author Archives: The Economics Club Patron

The role of gold mining in climate change

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Gold production operations are high level energy users. Mining and refining gold processes have high greenhouse emissions per ton of ore compared to other metals. However, the mining processes for coal, steel and aluminium produce more product than gold so newly-mined gold actually produces less emission than most newly mined metals. According to the World Gold Council, gold has the least emission intensity of all mined metals. Gold is also more valuable than most mined metals. When we compare the volume of greenhouse gasses to the spent on gold, it is actually lower than most mined products.


There are a number of gold miners who are actively working towards lowering their carbon emissions and these are some of them:


#1. Borden mine

Borden mine which is owned by Goldcorp has plans to switch from diesel to electricity. Current equipment running on diesel will be replaced Battery Electric Vehicles. Changing to electricity will do more than reduce emissions by at least 7% but it will also improve mine safety and performance. Electricity is three times more efficient than their diesel counterparts. Over a decade, it represents a reduction of almost 70,000 tons of CO2 emission. The decrease in emissions reduces the need for more underground ventilation. Borden in particular, will need 50% less ventilation if the switch from diesel.


#2. Newmont mine

Newmont is another mine making important strides in curbing carbon emissions. The company is looking at increasing renewable energy through self-generation. It has partnered with the Council on Mining & Metals (ICMM) to realise its targets. Newmont’s Boddington’s operation has managed to reduce fuel consumption by 5.2%. Lowering emission by switching fuel is an important component in Newmont’s 2020 coal usage plan at all its plants. Necessity is a great incentive, for example, the company’s Tanami project found itself without critical diesel because it could not be trucked to site because of extreme weather and rain in 2017. As a result, the mine could not produce the expected 8,000 ounces per week and firing production to shut down in February. It became necessary for the mine to find other alternative fuel options that would also reduce the mine’s carbon admissions.


It became necessary an important factor in mitigating the risks that climate change brings. It became necessary for the mine to analyse fuel options whiles reducing carbon emissions. Cost is an important factor. The price of coal is estimated to be $25 at $50 per ton of the carbon dioxide.


Newmont has approved the construction of a 450 km pipeline which will deliver gas to the mine thus ensuring reliable power generation. The switch from diesel fuel to natural gas can reduce carbon emissions by 20%. In addition to reducing diesel usage, Newmont has set a target to reduce its Green House Gases (GHG) emission by 16.5% by the end of 2020.


#3. Barrick Mine

Barrick has a plan to reduce Greenhouse gas emissions by 30% in the next decade. The mine’s current electricity is generated by using renewable energy sources. The gold production company is currently evaluating all their mines and will in future include electric equipment powered by renewable energy sources.


Reducing energy demand might be good for the environment, but it also affects the business side of gold production. Take Barrick’s Hemlo Mine in Canada: The mine developed and installed a ventilation management programme to improve the system and the people within. Optimising underground ventilation systems helped drive energy consumption down. The mine also reduced its heating costs by using the geothermal processes that occur naturally. Energy consumption in terms of ventilation per tonne of ore fell. For this, the Canadian Department awarded the company “The Process and Technology Improvement Award” for 2016.


#4. Kinross

Kinross is constantly reviewing its energy supply matrix in order to identify opportunities to reduce both costs and emissions. Kinross’ Paracatu mining operation in Brazil has acquired two hydroelectric power plants with a capacity to generate 155 MW.


There are lots of things that mining companies can do to reduce fuel consumption and lower emissions. Some include optimising ventilation, optimising haulage, routes as well as retraining truck drivers, reconfiguring piping networks, optimizing the use of compressed air and even plant automation. The main point and driving force is to reduce carbon emissions so the gold industry does not become the largest contributor to Greenhouse gases. So far, everyone is conscious of the role the industry plays in the bigger picture, they just have to find real and sustainable technologies that can be applied successfully.






Lifting the Veil Covering Gold And Central Banks

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The latest edition of LBMA’S Alchemist has been out for some time and it unpacks a lot about what is going on in the gold industry. However, the main focus of this edition is the role of central banks in the gold industry. The first article discusses the Banque de France, its past role in the gold market and the future.

The Banquet de France has had a major role in the past when it comes to the gold market. In the 19th century France was at the centre of the gold market. Since its creation in 1800 the central bank of France has held the largest gold reserve in the world.

Even though today France is a member of the European union and has swapped its francs for the Euro, the Banquet de France holds more than 60% of its reserves in physical gold. That translates to about 2,436 tons of pure gold bullion. This places it behind the US, Germany and Italy. 2,436 tons of bullion are valued at $96 billion which is about 4% of France’s GDP. Clearly the French value gold so much so that they store it in an underground vault called the Souterraine. The value is situated 29 meters below the River Seine.

There is another insightful article in the Alchemist that goes into detail about some lesser known central bank gold operations and periods in the history of the gold market. One such period is the Brown Bottom. This happened when the UK auctioned half of its gold reserves. This caused the price of gold to drop quite significantly. This seemingly wholesale auctioning of gold exacerbated the fears that some big gold investors and holders of gold like the European Central Banks had. People also believed that the introduction of the euro would collapse the gold market and bring prices down. To ally those fears and to protect gold the Central Bank Gold Agreement was signed on the 26th September 1999 in Washington DC. It limited the official sale of gold and reduced the level of uncertainty in the gold market. This also sets the psychological stage for the gold bullion market that followed. Gold is a useful asset to central banks even if there is no dividend or high returns.

When it comes to gold, it is important to understand the recession, interest rates and inflation figures. According to economic analysts, the US GDP growth is likely to slow down to 2.6% in 2018 from its previous growth on 2.9%. It is unlikely that we will see a recession in the US in 2019, inflation is expected to stay pretty much close to the Fed’s target, but gold prices aren’t expected to rally as significantly. Gold butis expected to trade towards the $1,300 per ounce mark.

The reason for this bullish forecast for gold is that the US Fed need to hike its rates, but the US Central bank isn’t keen on tightening its monetary policy. Other supportive factors include trade wars and possible geopolitical risks. These might bring some short-term gains. However, these aren’t sure-fire reasons to trigger a rush for gold. Investors who are interested in gold should keep abreast of all the factors that influence the gold market.



The Great Australian Gold Heist

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Gold has been the most coveted precious metal through out history. People would do just about anything to get their hands on gold even if it means stealing it from someone else. There have been robberies where a significant amount of gold was stolen by different kinds of people, rich or poor, young and old. The yellow gold has been held in high esteem firstly because of the value it has. Fiat currency cannot stand up to gold. Kingdoms sanctioned voyages to discover gold, pirates plundered and pillaged for gold and with the evolution of man, a couple of decades later gold is still as important and as coveted as it ever was. Pirates and monarchy’s hoarding gold and criminals are always plotting to steal some. The ingenuity that goes into some of these crimes is outstanding.


The Great Gold Robbery


The most famous gold robbery in the world is probably the Abell and Co. Spielmann, and Built robbery that took place on the 15th of May 1855. 91 kg of gold that came from the three companies were stolen whilst on route between London Bridge and Boulogne France. There were three boxes, each with god estimated at £12,000. The gold was under heavy security. The boxes were checked before being sealed and then secured with iron bars. The boxes could only be opened with two keys that were kept apart. According to the British Transport Police, the safe keys were given to railway staff in London and Folkestone and to the captain of the steamer carrying the safes. The boxes were weighed before being sealed and afterwards. They were then put into the Lord Warden Steamship at Folkstone.


The boxes were reweighed in Boulogne, France and it was found that the Abell box weighed 40 pounds less, the Built box slightly more and the Speilmann box weighed considerably more. However the combined weight was the same as the original. The robbery could only have taken place between London and Boulogne but the train had not made any stops between those two destinations.


When the Built box arrived in Paris on the 16th May and opened, it was discovered that sixteen bags of lead shot hat be substituted for the gold and only thirteen gold ingots remained.


Abell’s box was opened by the bank Pockar, Dufonf and Co. All the gold that has been placed inside had been entirely replaced by lead shots.

There was no damage on any of the boxes. They were opened with the only keys that were meant to open them. The British Police launched an investigation of what happened during the trip from London to Boulogne. Out of the hundred suspects interviewed, four were charged: Edward Agar, William Pierce, James Burgess and Williams Tester. Edward Agar was believed to have been the mastermind behind the robbery. He had met Pierce, who was an experienced forgerer to forge the train tickets. James Burgess was the inside security man who served as a train guard whilst Williams Tester was Station Master at Margate.


The criminals found a way to make wax impressions of the keys for duplicates to be made. They stocked up on lead shots and hit bags of it at London Bridge station in custom-made carpet and leather bags. They ensured that the weight of the lead would be the equivalent of £12,000 worth of gold. On the night of the robbery Agar and Pierce purchased first-class tickets for a trip from London to Folkestone. On entering the train, they handed their luggage (bags filled with lead) over to Burgess, who was then a porter and he stored them in his van.


Agar slipped into Burgess’ van whilst Pierce stayed in the carriage. Agar began working on opening the first box using the duplicate keys and used a mallet to simply knock the iron bars. When the train arrived at Redhill, he had emptied the first box and Tester took possession of the gold whilst Agar put the lead shot in the first box.


Between Redhill and Folkestone, Agar had been joined by Pierce in Burgess’ van to assist with the other boxes. The two then got off the train at Folkestone together with the carpet and leather bags they had come with initially. Burgess remained in the train carrying his duties as a porter.


For three days, they melted the gold in a make-shift furnace built at Agar’s West London house. Agar was helped by a barrister by the name of James Townsend Saward, a crooked criminal barrister who helped him sell the gold off.


There were other robberies ranging from the elaborate and sophisticate well thought-out escapades to the ridiculous heists that belong in comic books like the Kanowna Belle mine heist. The criminal masterminds behind Kanowna Belle simply stole a sewerage truck and filled it up withe gold-bearing concentrate. The value of the gold is not known. Now stealing concentrate is different from stealing ingots. Ingots would have gone through some sort of process to remove impurities. Concentrate on the other hand is just gold ore that has just been mined and still needs to go through some purification process. If it is high grade ore then chances are, there will be a reasonably large amount of gold, but the thieves would have to know more about the purification or smelting of gold ore to get what they are really after. Kalgoorlie has its own Gold Stealing Detection Unit who took on the task of investigating where the sewerage truck went, who was behind the operation and what they were going to do with all that gold. The fact that such a unit exists means, gold theft Kalgoorlie is a real issue that requires people with a set of special skills to deal with. People will go to incredible lengths to get their hands on the precious yellow metal.

Western Australia’s Gold Output Affected By Bad Weather

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The weather is an important factor in the mining industry. As much as rain is important for pretty much everything, it affects mining production in a bad way. The weather in Western Australia and Queensland where most of Australia’s gold mining operations are found. According to the latest reports, Australia has managed to produce 74 tonnes of gold in the first quarter. That’s a 7% decrease from the amount produced around the final quarter of 2017.


According to experts, the figures are better than what was anticipated considering the amount of rain that came down in the first quarter of the year. The figure is actually 4% more than what was reported for the first quarter of the previous year. However the wet weather affected production at various mines. Wet weather cause haulage problems and forces operators to use low-grade gold stockpiles just to maintain the mill throughput. In addition to that, wet ore tends to be sticky and when it is, it becomes harder to crush and affects conveyor belts and other equipment designed to deal with mining ore when it is dry. Production plants either run slower or they shut down in parts and stockpile the ore to be run through when the conditions are more favourable. Heavy rains also affect the supply of essential services and consumables like diesel to mines located in remote areas of Australia.


Looking at individual operators: the Tropicana Joint Venture by AngloGold and Independence Group produced 34,000 ounces less gold than the previous quarter; Barrick and Newmont’s Super Pit produced 28,000 ounces less gold; Newcrest and Telfer’s operation production was down 33,000 ounces whilst Newmont’s Boddington and Tanami operation fell by 30,000 ounces. The Tanami desert area needs as much rain as it can get, however the rainfall early this year was particularly high, it caused sustained flooding in most areas. Because of this, diesel, which is Tanami mines’ primary fuel could not be trucked to the mine. As a result production fell by 30,000 ounces. Only a small number of mining operations reported a higher output, these include AngloGold’s Sunrise Dam Mine BHP, Silver Lake’s Olympic Dam operation and Mt Monger mining operation. These mining operations produced more gold than expected under the circumstances of wet weather.


Weather isn’t the only thing creating difficulties for the mining industry. There is talk that the Australian government is contemplating increasing the royalties of gold mined in Western Australia. This would be a disaster for the mining industry. Although the sector works hard to keep costs low, some gold producers have been unable to control costs and have All In Sustaining Costs (AISCs) that are above the gold price. Imposing a higher royalty would be a peculiar way for the government to retain jobs in an industry that is already struggling. It will also reduce the earnings that the government will make with gold exports. The situation is still being closely monitored and mining companies will soon meet with government to discuss the royalties and the taxes that they are already paying especially at this crucial point in time when the industry isn’t doing as good as it.



The West Buys Fewer Investment Grade Gold Coins And Bars In The First Quarter Of 2018

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According to the World Gold Council, Europe’s demand for freshly minted coins and bullion bars is at its lowest. The drop is significant. It is at levels that have not been seen in a while. Jewellery owners, on the other hand, have reduced the selling of their gold jewellery despite the high price of gold. Recycling is an important cog in the gold production cycle and with talk of mines reaching peak gold, the trend is worrying. It means that there is less ready to sell gold on the market or that bullion dealers are sitting with inventory for longer periods than they should.


The levels of recyclable gold for the first quarter of 2007 and of 2018 reached the low levels that they were on in 2007. The high price of gold should have translated to more people selling their scrap gold, but it would seem there are less cash-strapped people. This might have to do with the strong economic growth in most Western Countries. Brexit has the UK worried, the U.S Trade war, The U.S withdrawing from the Paris Climate Accord spells impending disaster, but that trouble hasn’t been evident yet and maybe people aren’t worried about buying gold to store their wealth.

Europe and America might have gotten used to the story of gold being near depletion which would have made scrap gold dealers less sensitive to the gold price. For dealers, the spot price of gold might be too high for launching a concerted effort to get as much gold as they can. The decline in demand for new bullion coins in the U.S has given rise to the secondary market where coins are being circulated amongst collectors. This trend has continued on to the second quarter of 2018 despite the rising gold price. More gold coins are sold at auction or traded amongst collectors. This is the gold that mostly goes unaccounted for. Gold that is sold by gold dealers, refineries and mints is easy to account for but the amount of gold that has been moved around from dealers to dealer and then to investors is based on speculation. Is it that the industry has enough mined gold to fulfil all that is required and there is supplementary gold needed in the form of recycled gold to meet demand?. Maybe the demand for investment bars and coins has declined but the demand for gold in industrial use has not subsided.


The US Mint has reported sales levels they have not seen since 2007. Germany, on the other hand, has increased its gold consumption. It has managed to move from 12th place to 4th place in the table of gold consuming nations. Germany’s household demand for investment gold has risen to 92% between 2013 and 2017. The global average during this period was close to 33%. However, in the first quarter of 2018, it too experienced a dip in demand. The gold market is holding out for this to change but there are so many factors that play into this, it’s hard to determine when everyone will reach a tipping point for things to start changing.




The Perth Mint Unveils New Chinese Lunar Coin

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Perth Mint has an impressive coin edition commemorating the Chinese Zodiac Calendar and this year, they have unveiled their latest coin. According to the ancient 12 year Chinese lunar cycle 2019 is the Year of the Pig. The pig is also the last sign of the Chinese lunar calendar. However, it is not only honoured by the Chinese. The pig is also significant in other cultures around the world.


Pigs have been depicted in various forms ranging from the docile domesticated pigs to the fearsome wild boar. Regardless of the form that pigs are depicted in various cultures they all symbolise power, wealth and abundance.


To the Ancient Egyptians, the pig was the great mother. It was associated with Isis, the goddess of fertility and agriculture. Pigs were slaughtered and offered to the gods for an increase of the harvest and by childless women who wanted to children.


The Greeks also slaughtered pigs and offered them to Gaia who was the equivalent of Isis. They were also offered to Deter and Ares to increase the harvest. To the Greeks pigs were thought to have the intellect that is closest to humans.


The Celtic culture also valued pigs. They symbolised prosperity and strength. The pig appeared on money as far back as the 1st Century BC, when it was inscribed on the Celtic silver coin. Celtic lore associated pigs with fertility and abundance because of the rate they reproduce and the large numbers of their litters. Celts sacrificed pigs to the goddess Phaea and Ceridwen who were associated with fertility. The wild boar was associated with masculine power and it’s bristles were believed to possess magical powers. Wild boars were offered as a sacrifice before soldiers went into battle.


The pig was regarded as the harbinger of rain by Native American tribes. They were important because rain is essential for a good harvest. Like the ancient Egyptians and the Celts native American tribes revered pigs because they were associated with fertility and abundance.


Coming back to the Chinese lunar cycle, the pig is a symbol of prosperity and luck. People born in 1923, 1935, 1947, 1959, 1971, 1983, 1995, 2007 and those who will be born in 2019 are ruled by the pig. The people born under this sign are considered as generous, loyal and honest. This could also mean that 2019 will be an auspicious year, especially for those born in the year of the pig.


The first series of the Chinese lunar calendar coins was launched In 1996 starting with the year of the mouse. Altogether the Chinese Zodiac has 12 animal signs and the pig is the last one. The first 12 years were called the Lunar I series. In 2008, the second series was launched. This 2019 Year of the Pig coin is the last in the Lunar II series. The coin features a domestic pig with beautiful foliage behind it. The Chinese character for pig is inscribed on the coin as well as the traditional ‘P’ for the Perth mint. There is an effigy of Queen Elizabeth II, the year, weight and fineness inscribed on the other side of the coin. The coin is struck from 99.99% gold and is issued as legal tender according to the Australian government’s Currency Act of 1965. The mint plans to make 388 proof coins which means they will be amongst the most sought after coins by coin collectors.




Is Warren Buffett confused about Gold?

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Warren Buffett is a well respected man in the financial world. People generally listen to what he has to say. He is after all the oracle of Omaha and everything he touches turns to gold. However, Buffett is not a fan if the yellow metal and he goes to great lengths to explain to people why he believes investing in gold is not a good idea.

Every year, Buffett sends a letter to his Berkshire Hathaway shareholders to share with them some of his wisdom about investing and financial management. His yearly missive just landed in the mail recently and as expected, he implores investors to put their money in stocks rather than gold.

Buffett started investing in the stock market in 1942. According to him, he started off by buying shares that were $114.75. He says that if those shares had been invested in a no-fee S&P 500 Index fund they would have a value of $606,811 today.

Had he used the amount of money to protect himself financially by buying gold, he would only have been able to get 3 1⁄4 ounces of gold. The gold would only be worth $4,200 which is less than 1% of the money he would have made had he invested in a no-fee fund.

Thee problem with Buffet’s illustration is that there was no S&P 500 index in 1942. The S&P 500 index only began in 1957 and non-fee funds only became available in 1976. In addition to that, Buffett would not have been able to buy gold because Franklin Roosevelt had already declared that private individuals could not own gold.

Buffet’s illustration also neglects to mention that the price of gold was tightly regulated for 30 years after 1942. The price was fixed at $35 an ounce and $42 an ounce between 1934 and 1971. During that time, America was trying to dig itself out of depression and recover from the wars. Public company shares were free to appreciate. However, there were only 60 companies of the 500 that initially made up the S&P Index in 1957. The share price of many of these firms plummeted to Zero dollars. Buffett sidesteps these facts in his comparison and makes it sound like shares of any stock would become more valuable than an ounce of gold sitting in a vault for a couple of years. What he fails to acknowledge is that gold is more reliable than stock in the long run. Another mistake that Buffett has made in his analysis is to think of gold only as an investment asset when it is so much more. Gold is treated as money that is more valuable than any fiat currency by central banks and governments. There are different ways of owning gold. You can buy gold bars or buy gold bullion coins and rounds or even own gold in the form of jewellery.


When you take all of the above into consideration you can see the holes in Buffet’s analogies. It would have been fairer had Buffet compared buying stocks to keeping the dollars in a savings account rather compare it with gold. However, that would make gold look compelling which is not what The Oracle of Omaha wants you to believe.


The reality is that gold has been a better investment that stocks for year. It outperformed the S&P 500 during the 1970s. Gold is money. Currencies can lose their value able but this yellow metal never does .