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Fool's Gold Miners: A Story Of What Can, And Will, Go Wrong With "Miners" In Ten Pictures

Tyler Durden's picture




 

Several weeks ago, when sharing his latest outlook at the Economist's Buttonwood gathering, Hugh Hendry had this to say about gold miners: "I am long gold and I am short gold mining equities. There is no rationale for owning gold mining equities. It is as close as you get to insanity. The risk premium goes up when the gold price goes up. Societies are more envious of your gold at $3000 than at $300. And there is no valuation argument that protects you against the risk of confiscation.” For those confused, what he means is quite simple: the higher the price of gold goes, the greater the temptation of those extracting it (usually mined in various locales where worker satisfaction with labor conditions is less than stellar - see recent events in South Africa) to strike and demand higher wages (i.e., lower EPS), or of host government to nationalize it. The end outcome is a collapse in the extracting miner's cash flows and profitability, if not outright liquidation. The paradox is that the fewer actual global miners in operation, the better for the price of the actual hard commodity, as less supply means lower price, means greater probability of more miners suffering the same fate, means even higher gold price and so on. But back to the topic of gold miners. Below, for those still confused, is a simple story courtesy of the BBC in 10 pictures, summarizing the bitter dispute over Kyrgyzstan's gold production.

The Bitter Dispute over Kyrgyzstan's Gold... in 10 pictures:

At 4,000m (13,120ft) above sea level, the Kumtor gold mine in Kyrgyzstan is one of the highest in the world, situated in the permafrost of the Tien Shan mountains of Central Asia. But the beauty of the local scenery is in stark contrast to the ugly dispute over the mine's future. (Photos: Kubat Chekirov, BBC)

There were weeks of protests in Kyrgyzstan following a call for the mine to be nationalised in October. The dispute is essentially about access to the country's rich natural resources and has caused turmoil.

Those who support nationalisation argue that because the mine is frequently the subject of environmental scares, it should be run by the government. They say such a move would guarantee a fairer distribution of profits.

Centerra - the Canadian-based company that runs the mine - is adamant that there is no evidence to suggest that it is environmentally unsafe, despite a highly critical report by the Kyrgyz parliament warning of possible toxic spills of waste water.

The economic importance of Kumtor's mines can be seen by the fact that it accounts for 12% of Kyrgyzstan's GDP and more than a half of all its exports in 2011. The stand-off over its future illustrates deep political divisions in one of the region's poorest countries.

Criticisms over the level of safety at the mine have led to calls in parliament to renegotiate Centerra's contract. While the company admitted earlier this year that it had to cut output at the mine because of "ice movements at the site" it is unlikely to relinquish control without a fight.

A Kyrgyz state commission that is continually monitoring activities at Kumtor has criticised environmental management at the mine, as has the country's parliament which has regularly raised concerns over possible toxic spills.

A recently-released report also warned there could be catastrophic consequences if a dam near the mine was to fail because of earth movement, which in turn could lead to flooding from a higher lying glacial lake.

Supporters of the Kyrgyz opposition nationalist Ata Zhurt party recently took to the streets of the capital Bishkek to demand that Kumtor be handed to the state.

The demonstrations ended with an attempt to storm government buildings, leading to the latest bout of instability in a country which has seen two governments replaced in public uprisings and serious inter-ethnic violence

* * *

To summarize, the biggest losers in this latest gold miner saga will soon be Canadian miner Centerra, which will likely see its local production facilities nationalized, and shortly thereafter the government of Kyrgyzstan, which will find itself less than qualified to run a mine and extract gold with the same efficiency as a private firm dedicated to doing just that. And of course, all those who have been long Centerra stock. The biggest winners: holders of physical gold, as few incremental tons of gold are prevented from entering the market due to government inefficiency, stupidity and greed.

 

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Sun, 11/18/2012 - 12:28 | 2993624 killallthefiat
killallthefiat's picture

I almost agree.  I still hold my Krystallex shares.

Sun, 11/18/2012 - 12:40 | 2993646 Urban Redneck
Urban Redneck's picture

It's hard to entirely agree with an over-simplification. Why not be long oil and short the oil producers if it actually were that simple? The concentration of money in ETFs can create significant resistance for the most descriminating equity consumer, but the primary other way to be "long gold" without acquiring and storing the physical variety (which is not necessarily even "investment") is to own a "gold" ETF which introduces "other" risks...

Sun, 11/18/2012 - 13:34 | 2993749 SWRichmond
SWRichmond's picture

Wait...the people demanding the naitonalization of the asset have it all wrong.  there IS no global scramble for real resources, printing money isn't inflationary at all, currency debasement is a good thing, real capital DOES come off the printing press in limitless quantities, and these peope should stop protesting and go back to dollar-standard-land.

What the hell is wrong with them?  Nationalizing a real asset?  It's like they don't trust the money, or something!

Sun, 11/18/2012 - 15:09 | 2993797 SafelyGraze
SafelyGraze's picture

"Money and the Limbic System's Need for Neurotransmitters: A central banker talks with a director of the IMF about how to go a-moneying"

it's a 6 minute xtranormal dialog about money

Sun, 11/18/2012 - 16:34 | 2994223 James_Cole
James_Cole's picture

There are many many safe / stable districts for Gold & Silver miners. This piece by Hendry is bizarre. I mean he cites Kyrgyzstan & Centerra?? 

Miners are extremely volatile but seasonally you can bank on them pretty well. I like juniors and mid-tier and there are many having record production and lowering their costs. Read their financials, study their projects and invest seasonally. 

Paint a whole industry through the lens of Centerra? Total nonsense.

Mon, 11/19/2012 - 07:05 | 2995395 GetZeeGold
GetZeeGold's picture

 

 

It's sorta hard to pin down the actual Mark Twain quote...but the variants go something like this..

 

A gold mine is a hole in the ground with a liar standing by it.

 

or.....

 

A gold mine is a hole in the ground with a liar on top

 

and....

 

A gold mine is nothing more than a liar standing next to a hole in the ground.

 

I'm sure you get the idea. If you'd like to invest in my gold mine I'll be happy to take your money. We'd prefer payment in gold.

Sun, 11/18/2012 - 14:07 | 2993850 vast-dom
vast-dom's picture

if miners go bust, then gold supply shrinks, and miner stocks go up in scramble to extract more gold. but that's in a FREE market, not the one we find ourselves in today. Thank the Fed and ECB et. al. for stealing liberty and freedom of capital flow. Gov is out of control.

Sun, 11/18/2012 - 23:21 | 2994991 Spitzer
Spitzer's picture

hugh hendry doesnt  know wtf he is talking about. The average person doesnt know or care what the fuck the price of gold is. Oil and wheat however, they do care about

They even had oil company CEOs infront of congress when oil was one forty a barrell. The oil producers did not fall because of it.

Mining is not that risky of business. You dont have to market gold.

Mon, 11/19/2012 - 01:28 | 2995189 JOYFUL
JOYFUL's picture

You've lost the thread ol' sock....

regardless of what HH knows or doesn't know, [gold] mining is risk incarnated...

imagine if the world's biggest oil producer was a rogue agent of the moneypower dedicated to artificially reducing the market price of petroleum products via a system of interlocking political and market manipulations that served an agenda hidden to the public gaze.

That's the real situation in the gold industry, with the largest player by far(Barrick Gold) an entity set up to operate as a laundry and gold miners' chopshop...nationalization, falling ore grades, rising energy costs????...that's nothin a'tall compared to living in a fish bowl with a shark as neighbor.

Sun, 11/18/2012 - 14:33 | 2993911 JPM Hater001
JPM Hater001's picture

"It's hard to entirely agree with an over-simplification."

Agreed but what is true at the extremes will also be true at the mean.

Nationalization and greed in the mines is to be feared.

If you cant touch it you dont own it.

Sun, 11/18/2012 - 14:00 | 2993831 Urban Redneck
Urban Redneck's picture

I'll take Sinclair over Hendry any day, when it comes to gold and the non-financial political risks of running a gold mining operation.

However, there is a confiscation risk that exists outside the limited confines of the Sinclair-Hendry debate.

http://www.zerohedge.com/news/2012-11-08/guest-post-what-do-when-youve-h...

4 Any gold confiscation/prohibition actions commenced by the US:

- This risk issue is complicated. Most people frame the discussion in the context of FDR's Executive Order 6102, which basically prohibited private ownership of gold in the US while the US was on a gold monetary standard. The risks associated with a reintroduction of EO 6102 are largely and relatively negligible. The most significant and relevant risk is actually a reintroduction of JFK's Executive Order 11037 (which you should read- it's not the silver one). In the context of the collapsing Bretton Woods monetary system, the rising price of gold, the failure of the London Gold Pool (price suppression scheme), et al., Kennedy dictated, "no person subject to the jurisdiction of the United States shall, after the effective date of this section, acquire, hold in his possession, earmark, or retain any interest, legal or equitable, in any gold coin, gold certificates, or gold bullion, situated outside of the United States" Some contemporary issues which could be viewed as parallels to the previous episode include the decline of USD reserve currency monetary paradigm, the rising price of gold, or even the use of "monetary instruments" such as gold to bypass the Central Bank controlled financial and monetary systems by such “terrorists” as Iran (or that gazillionaire with the Swiss bank account who isn’t paying his fair share- Mitt Romney).

Sun, 11/18/2012 - 18:10 | 2994450 SafelyGraze
SafelyGraze's picture

other executive orders not to worry about:

9201 war relocation authority
http://en.wikipedia.org/wiki/Executive_Order_9102

9066 war relocation to detention camps based on ethnicity
http://en.wikipedia.org/wiki/Executive_Order_9066

the director of the war relocation authority was the younger brother of .. you've got to be kidding me .. 

Sun, 11/18/2012 - 13:41 | 2993778 HungryPorkChop
HungryPorkChop's picture

Sure the metals are safer but they don't have the 10:1 or sometimes 50:1 leverage of a mining company.  In the 70's some mining stocks went up 50x to 100x far outpacing the price of gold and silver.. 

Sun, 11/18/2012 - 14:18 | 2993874 Ignatius
Ignatius's picture

True enough what you are saying, but we can't drive well looking in the rear view mirror.

When bonds and promises fail, gold rises.  It will become apparent to the sovereigns that a gold mine is literally pulling money (value) out of the ground.  With great risk comes great reward goes the cliche', but wealth at this time will be marked as it usually is:  by possession.

Sun, 11/18/2012 - 17:16 | 2994334 OpenThePodBayDoorHAL
OpenThePodBayDoorHAL's picture

That's because there was no easy way for retail to own gold. Now there is. At least paper gold, that is. And even real gold is only a few clicks away.

Sun, 11/18/2012 - 22:43 | 2994938 Newager23
Newager23's picture

I like Hugh Hendry a lot. In fact, I think Hugh and Kyle Bass are the two best macro analysts out there today. However, I would like to know how he is shorting the miners. That seems a risky proposition. Why short at a bottom? The HUI is way off its highs. It makes no sense to short at the bottom.

I personally think that GDXJ (Mid Tier Gold Miners ETF) and SIL (Silver Miners ETF) are at fantastic entry points and will likely outperform just about any other investment over the next 3-5 years.

He has a point that there is substantial risk investing in gold & silver miners, but to call it insane is a bit over the top. I think it is perhaps the investment of a lifetime if you pick the right stocks. Many of these stocks (I like Canadian mining stocks the best) will be 10 and 20 baggers. Where else can you get those kind of returns? And once we get into the mania phase of this gold bull market the mining stocks WILL participate.

Ironically, some of the arguments he makes could actually be good for mining stocks. For instance, if mines close due to nationalization or labor problems, this will drive the gold supply down. A lower supply of gold will drive up the price of gold and thus the stock price of the strong mining stocks. Also, the weaker and more risky mining stocks will potentially collapse in price and be easy pickings for the stronger stocks, which will likely explode in value.

So, don't think the entire mining sector is going to languish at higher gold prices. If you think shorting gold & silver mining stocks is the way to go, that is a very risky proposition. We have seen mining stocks struggle since 2010, but I don't think that is going to last much longer. As soon as we get new highs ($1920 in gold and $49 in silver), I expect the mining stocks to do incredibly well.

www.goldsilverdata.com (for gold & silver mining stocks)

Mon, 11/19/2012 - 02:53 | 2995261 archon
archon's picture

First of all, the same argument may be applied to any commodity or physical property.  If food were scarce, would that force farmers out of the market?  Perhaps at some point the government would be tempted to nationalize agriculture, and many (communist) nations have done that, but just how scarce would gold have to be before this happened?  $5k?  $10k?  Secondly, this is happening in Kyrgyzstan because this one mine dominates the national economy, which is not the case for most mines.

Sun, 11/18/2012 - 12:29 | 2993627 achmachat
achmachat's picture

All your base are belong to gov

Sun, 11/18/2012 - 12:32 | 2993633 fonzannoon
fonzannoon's picture

When gold starts going parabolic people who can't afford gold at $3k an ounce or whatever price will probably go scrambling for whatever they believe is the next best thing. For a period of time the miners may seem like a great way to have exposure to gold and they will shoot to the moon. At that point You had probably get the hell out as everything above will probably come true.

 

Sun, 11/18/2012 - 13:10 | 2993695 Bay of Pigs
Bay of Pigs's picture

Yes, once again, half the story. Let's not forget Hendry recommends owning gold ETF's and futures.

 

Sun, 11/18/2012 - 13:13 | 2993703 Oquities
Oquities's picture

this is prolly the best max leverage gold play for the average person. as he says, sell into the big rally when/if it occurs. GDXJ is the play.

Sun, 11/18/2012 - 13:22 | 2993722 Al Huxley
Al Huxley's picture

I agree.  It's happened with every gold bull market in the past, so I don't see why it wouldn't happen now.  There's no reason to expect the market to price mining equities rationally, and at some point (who knows when) the sector will catch the public's imagination again and we'll get another manic spike. 

 

Currently, though, what seems to be a big factor in why that's not happening is the manifest inability of so many of the larger players to make any money at the current prices.  Whether this is just horrible and incompetent management, or really due to the lower grades and more difficult mining conditions, I don't know.  Also like your comment below on the idea of mines withholding supply until pricing is more favorable - os many seem to do the opposite - selling at the worst possible time and price.  The industry as a whole seems more interested in 'finding reserves to replace current depletion' than 'capitalizing on the price of gold to make some money'.

Sun, 11/18/2012 - 14:05 | 2993839 Tirpitz
Tirpitz's picture

"The industry as a whole seems more interested in 'finding reserves to replace current depletion' than 'capitalizing on the price of gold to make some money'."

Basically I too agree with you here. Just -- how would they do the latter, without selling a year's productio five or ten times over? Not every enterprise can operate like a bank on the principles of pretend (to have the money, or gold) and extend (repayments, or delivery of bullion).

Sun, 11/18/2012 - 14:30 | 2993900 Al Huxley
Al Huxley's picture

I know, it's a a problem.  I think it comes back to refusing to operate the business at a loss.  Typically, when the price of oil or gas drops below productionc costs, the producers for the most part shut in production and stop exploration until the price rises.  Miners don't seem to do this, just keep issuing shares and debt, and plug along at a loss.  Slightly idealized version of reality, but I think it captures at least part of the issue.

Sun, 11/18/2012 - 14:24 | 2993887 Ignatius
Ignatius's picture

A tendency among corporations of late and those that run them causes one to wonder:  are they mining the metal or is management mining the corporation?

Sun, 11/18/2012 - 15:10 | 2993999 onelight
onelight's picture

Good question...evokes a sense of irony, doesn't it?

Reminds me of Mark Twain's old definition of a gold mine: "a hole in the ground with a bunch of liars standing around it." 

Still, and whatever the difficulty, gold is essential to own, for all the reasons we find here.

Sun, 11/18/2012 - 14:46 | 2993942 Robot Traders Mom
Robot Traders Mom's picture

Kudos on the Caddyshack 2 reference.

I may change my name to Mrs. Estherhouse.

Sun, 11/18/2012 - 12:34 | 2993635 Winston Churchill
Winston Churchill's picture

The Govt. requires fair shares.

Wonder where I heard that recently.......Hmmm,

Sun, 11/18/2012 - 12:34 | 2993636 Conax
Conax's picture

That 'barbarous relic' sure does stir up some trouble. 

The government can't run any business, much less something as demanding as a mine.

The government seized, but couldn't run the Nevada brothel called the "Mustang Ranch". A license to rent, er, women and sell liquor and they still lost money and closed it up.  How are they going to run the mining industry?  Right into the ground.  (pun intended)

Bullish.

Sun, 11/18/2012 - 12:58 | 2993639 JustObserving
JustObserving's picture

Thanks, Tyler.  If you had run this article a year earlier, I would have thanked you more.

Market cap of GLD is $68.8 billion and that of GDX (Gold Miners ETF) is $8.5 billion.   So if you buy GLD and short GDX, that will really kill GDX.

BTW, GDXJ market cap is only $2.81 billion. So it should be hammered even more by buying GLD and shorting it.

That has been the story for the last two years at least with GLD outperforming GDX by more than 40%.

And GLD has outperformed GDXJ by more than 60% in the last two years

http://finance.yahoo.com/q/bc?t=2y&s=GLD&l=on&z=l&q=l&c=GDX+GDXJ&ql=1

 

Sun, 11/18/2012 - 14:14 | 2993865 Nobody For President
Nobody For President's picture

 

And thank YOU, JO. That chart saved me some time.

Sun, 11/18/2012 - 12:37 | 2993640 nscholten
nscholten's picture

and what do you think the chances of open pit mining an area of that size of having an envirmential impact???

and the company mining being objetive?

Sun, 11/18/2012 - 12:38 | 2993644 AgShaman
AgShaman's picture

"Samuel Clemens, please report to the famous quotes designing room"

Sun, 11/18/2012 - 13:19 | 2993712 Boxed Merlot
Boxed Merlot's picture

 “A gold mine is a hole in the ground with a liar on top.”

 

 

If it's productive, it's just a hole, if it's played out, it's for sale.  I expect the federal reserve to be on the block soon.

Sun, 11/18/2012 - 12:41 | 2993647 fonzannoon
fonzannoon's picture

There is a particular silver miner I follow who finally followed Sprotts advice and stopped selling when they felt the price was too low. They just started stockpiling it. They waited until the price rose to a point where it was substantially in their best interests to sell. Expect more and more miners to start doing the same. The physical will control the paper at some point. Also expect them to link their dividends to the price of the metal. I think you will see money pulled away from the ETF as people look for income. But who the hell really knows.

Sun, 11/18/2012 - 12:45 | 2993657 Conax
Conax's picture

+1 fonz.

The miners should create a cartel of their own.  Why they do not is a mystery...

Sun, 11/18/2012 - 12:57 | 2993673 Monedas
Monedas's picture

Cartels need police power of the state(s) to exist .... haven't we learned anything ?  Twinkie cartel wasn't a cartel !

Sun, 11/18/2012 - 13:22 | 2993721 dark pools of soros
dark pools of soros's picture

like Diamonds? or OPEC?  it goes to show you that Gold is Money since it is too easy to exchange hands and not be controlled (except in paper form)

Sun, 11/18/2012 - 13:36 | 2993760 Conax
Conax's picture

I was thinking more like the London Fix. A weekly conference call to come to an agreement about pricing.

Our banking overlords get away with it every day. 

Just a little stealthy cooperation among the producers.  Won't happen, I'm sure they are all beholden to some bank for credit, and dare not interfere with the current status quo.

Sun, 11/18/2012 - 18:51 | 2994546 hidingfromhelis
hidingfromhelis's picture

Not allowed for those bucking the ponzi; only those perpetuating it can play those games.

Sun, 11/18/2012 - 12:44 | 2993652 Water Is Wet
Water Is Wet's picture

Clearly the Canadian government should plot to overthrow the Kyrgyzstan government on behalf of Centerra, you know, like the U.S. did to Iran on behalf of BP.

Sun, 11/18/2012 - 13:23 | 2993728 dark pools of soros
dark pools of soros's picture

Canada's CIA is too busy trying to figure out when the NHL will start its season

Sun, 11/18/2012 - 13:26 | 2993735 Enslavethechild...
EnslavethechildrenforBen's picture

Any country that does not freely hand over all of their resources to white people are terrists

Sun, 11/18/2012 - 14:04 | 2993842 Urban Redneck
Urban Redneck's picture

Xi. Obama, Putin- white people you can believe in.  FORWARD!

Sun, 11/18/2012 - 14:15 | 2993868 AgShaman
AgShaman's picture

Bring back Ghengis Khan.....

He will sort them out

Sun, 11/18/2012 - 14:16 | 2993869 stacking12321
stacking12321's picture

or like the US did to the independant nation of hawaii on behalf of the american sugarcane and pineapple producers there?

 

Sun, 11/18/2012 - 12:44 | 2993654 Stoploss
Stoploss's picture

Short gold miners until nationalization.

 

Wheres the duster at, sounds like a new train leaving the station?

After this long?

So, im a dumb ass for shorting miners last year and early this year (when it paid too).

[ " You want to be long gold miners, since the share prices will keep going up along with the metal prices " ]  ( Stoploss laughs, respectfully. ) Responds: Umkay..

 

Sun, 11/18/2012 - 13:21 | 2993720 disabledvet
disabledvet's picture

http://seekingalpha.com/symbol/abx?source=search_general&s=abx definitely well of its highs so you have me on this 30 billion in market cap miner. let's look at one backed by Oil and Gas: http://seekingalpha.com/symbol/nem?source=search_general&s=nem Newmont getting hammered too. How's the English on doing: http://seekingalpha.com/symbol/aauky.pk?source=search_general&s=aauky.pk getting clobbered too. How about this doozy: http://seekingalpha.com/article/856591-90-billion-glencore-xstrata-power...
"yeah, right behind you Kyle Bass and Co." And at lest check "number of prosecutions of Bankers=zero." i'm sure with the imminent bankruptcy of New York City, New Jersey and...well, we'll see about Connecticut and how much exposure it has to Manhattan. "Manhattan on wheels" has done fine thank you very much: http://seekingalpha.com/symbol/unp?source=search_general&s=unp. and how about good old fashioned kiln dried 2x4's: http://seekingalpha.com/symbol/wood?source=search_general&s=wood wow. friggin WOOD is more valuable than gold. no news there of course since "we don't live in golden houses" but "that will still cost you 100,000 to build. to start with." how's this for a pop you lumberless phucks: http://seekingalpha.com/symbol/ll?source=search_general&s=ll plain old 2x4 "upside the head" is all he you need with these clowns. those are lumber LIQUIDATORS that are soaring you idiots. "and of course the means to get it there." http://seekingalpha.com/symbol/usg?source=search_general&s=usg wow, 145% for gypsum board...YEAR TO DATE. shit, from 1980 to now gold is barely up 100 percent! wow..."you guys must really know something." tell me Hugh "dipshit" Hendry..."how long can a debt monetization last?" You can just call it a "house building scheme" if you like. The word "forever" comes to mind...since unless you're on a gold standard...that is all you're doing is it not? And of course...sure, most Americans can support 500,000 homes in California...AS A MEDIAN PRICE. But "most of the planet sure can." American Dream BITCHEZ. "It sells." well apparently. "Long Desperate Housewives" it would appear.

Sun, 11/18/2012 - 13:34 | 2993752 TheCanadianAustrian
TheCanadianAustrian's picture

Not reasonable to expect anyone to read that post.

Sun, 11/18/2012 - 14:47 | 2993947 Robot Traders Mom
Robot Traders Mom's picture

I saw the first "Seeking Alpha" page and moved on. I had no idea there were 37 linked Seeking Alpha articles.

Sun, 11/18/2012 - 19:54 | 2994643 tenpanhandle
tenpanhandle's picture

I am a gold miner!  Don't short me bro.

Sun, 11/18/2012 - 12:52 | 2993667 Monedas
Monedas's picture

Canadian socialist mine operators drank their own Kool-Aid .... they think only Americans are hated ! LOL  Up with domestic producers !  Maybe MGN .... an ore body with no mine ?  Cheap as dirt .... pun ON/off !

Sun, 11/18/2012 - 12:59 | 2993681 Kreditanstalt
Kreditanstalt's picture

Socialism.  It's the BBC...what did you expect?

Eventually, however, ALL governments will abandon the idea of protecting privately-held property altogether.

Sun, 11/18/2012 - 13:12 | 2993701 Long-John-Silver
Long-John-Silver's picture

Eventually, however, ALL governments will abandon the idea of protecting privately-held property altogether.

Then you get Communism like they had in the Soviet Union. We know how that ends.

Sun, 11/18/2012 - 13:25 | 2993729 dark pools of soros
dark pools of soros's picture

it never ends,,  just churns

Sun, 11/18/2012 - 14:04 | 2993841 Kreditanstalt
Kreditanstalt's picture

We're there already...

Sun, 11/18/2012 - 13:06 | 2993690 Blue Vervain
Blue Vervain's picture

the government of Kyrgyzstan, which will find itself less than qualified to run a mine and extract gold with the same efficiency as a private firm dedicated to doing just that.

Reckless behaviour is usually the most efficient, if you don't factor in the long-term consequences.

 

 

Sun, 11/18/2012 - 13:13 | 2993700 Monedas
Monedas's picture

As the Australian PM has discovered .... no need for messy expropriation .... just tax them into the dirt .... pun ON/off .... guys like Chavez have no problem with expropriation .... Comrade Castro Confiscates Canadian Nickel Mine .... Canadians protest .... "We stood with you ? Why us ?" (serving suggestion)     LOL

Sun, 11/18/2012 - 13:07 | 2993692 Monedas
Monedas's picture

When Gold regains it's place in the World's monetary systems - you'll find it is even more coveted than petroleum !  People will kill their partners .... even their brothers for it .... that's the power of real capital .... as it should be !

Sun, 11/18/2012 - 13:28 | 2993737 dark pools of soros
dark pools of soros's picture

it never left... what's in your lake?

Sun, 11/18/2012 - 14:21 | 2993878 Monedas
Monedas's picture

My Nebraska uncle still had his depression gold when he died .... he never turned it in !      I'm afraid US gold has left .... but they won't tell us .... we .... the peeple ?

Sun, 11/18/2012 - 13:09 | 2993694 atlee
atlee's picture

You forgot to add a picture of the Todds on the show Gold Rush drilling test holes on the wrong claim or  disposing of the old tramel before the new is even built!

Sun, 11/18/2012 - 13:23 | 2993726 Long-John-Silver
Long-John-Silver's picture

I remember watching that crap on DirecTV. I finally gave up on DirecTV when my monthly bill exceeded $100. I purchased a ROKU Box where 95% of everything available is free. I do have an $8 a month Netflex subscription and sometimes I'll get something on VuDu or Amazon. It costs so much less and so much more high quality stuff is available. There is no way anyone could ever watch everything available during a lifetime even if limited to the free stuff.

Sun, 11/18/2012 - 13:42 | 2993781 HurricaneSeason
HurricaneSeason's picture

The wrong claim is the one they ended up mining and the new trommel (if it works or gets there) process many more yards per hour and the washplant wasn't catching half their gold. Tony Beets told them to strip in the fall and not wallow around in the mud, but the investors wouldn't have gone for stripping one fall and then coming back the next year to process. They've already broke one dozer. One tenth of an ounce per ton. I think that's what they shoot for. I thought it was more like an ounce a ton.

Sun, 11/18/2012 - 13:14 | 2993706 Conax
Conax's picture

You all should scan SRSrocco's latest article, all about rising costs and ore depletion...

Good stuff- With charts and graphs, nice presentation.

http://www.silverdoctors.com/the-forces-that-will-push-silver-over-100-2/

Sun, 11/18/2012 - 13:22 | 2993713 Monedas
Monedas's picture

Scarce capital is spent more judiciously (Jewdeliciously) !  Fewer flying fuck investments far from home in despotic countries !  ATTE:  Monedas .... the antidote to Keynes !

Sun, 11/18/2012 - 13:26 | 2993731 orangegeek
orangegeek's picture

Gold fell last week, but Gold Bugs Index tanked (index of gold stocks).

 

http://bullandbearmash.com/chart/gold-weekly-1-week/

 

Gold stocks may also be leading gold priced in US Dollars lower - and yes, this is an unpopular comment.

Sun, 11/18/2012 - 13:39 | 2993772 Al Huxley
Al Huxley's picture

I've heard this a few times this week as a reason for the sudden dumpfest in the gold stocks, but I don't see a lot in the way of historical precedent.  Can you provide some backup on when in the past a marjor selloff in the gold stocks preceded a collapse in gold price?  Because normally it seems to be the otheer way around....  Thanks

Sun, 11/18/2012 - 13:46 | 2993794 Monedas
Monedas's picture

Manipulation perhaps ?

Sun, 11/18/2012 - 14:37 | 2993918 HurricaneSeason
HurricaneSeason's picture

Usually, when the stock market takes a dump like it has lately, gold goes down fast to at the start. The story is they sell gold that has perfomed well for the year to cover their leveraged facebook investments and such. That really didn't happen this time. Gold actually increased it's lead over the S&P 500 to a 354 point lead. I don't think the lead has been that high since gold hit it's peak of around $1900.

Sun, 11/18/2012 - 13:44 | 2993755 Monedas
Monedas's picture

I live for the day when Chicom foreign investments are expropriated by the Kircheners and Chavez' and Mugabes !  Imagine the stoic, expressionless, inscrutable (inscrewedable) faces of the Peoples representatives ?

Sun, 11/18/2012 - 13:45 | 2993792 The Duke of New...
The Duke of New York A No.1's picture

The best part of Gold Bullion vs Gold Stocks;

 

Gold Bullion = No Counterparty Risk.

 

Gold Stocks = Dozens and Dozens of Layers of risk, IE: Permitting, Cave-ins, Landslides, Weather, Theft, Title Dusputes, Cost Overuns, Incompetant CEO's, Striking Wortkers, Pollution Risks, Sediment Run-Offs, Cost Inflation, Resource Depletion, Lack of Skilled Labour... just to name a few.  

Sun, 11/18/2012 - 14:17 | 2993861 augustusgloop
augustusgloop's picture

orthographically challenged, 

hendry is THB--if you're short miners, why tout their upside?

not all miners are created equal. so one could mitigate risk by owning miners in fairer juristictions (Canada), offer govs/locals JVs + C level, managerial + tech positions so they would be disincented to nationalize (though not totally), disperse risk by not owning a single mine, deep/complex mines (SLED vs. RAID in way back computing terms), owning low cost / high grade mines, miners very high insider / CEO ownership - skin-in-the-game CEOS (not just option granted hacks). 

By now, the meme is miner risk rather than miner leverage, everyone knows the long the metal (well, futures) / short the miner trade. HUI to Gold ratio is at very low level. so well placed investments after EOY tax loss selling wraps up would seem to be an OK contrarian play.

Sun, 11/18/2012 - 14:35 | 2993916 Al Huxley
Al Huxley's picture

Yes, miner risk is the meme, rather than miner leverage, and has been for several years, now, but really, based on the recent results of some of the producers, where, on the whole is the leverage?  As long as the industry can't figure out how to make money with $1700 gold, they're going to have a problem convincing potential buyers with the leverage argument.  Early 2000's people took it more on faith, there's justified doubt now.  Maybe the grades just don't support profitable mining at this price, I don't know...

Sun, 11/18/2012 - 13:46 | 2993795 earleflorida
earleflorida's picture

'they still love their mothers' tongue [ussr], and never too forget her aurora's mysterious bond via masochistic top-down ambivalence,... this 'sixth-sense-of-security' that only a mother grizzly can show its brood's club of 'nursing-chuckling-cubs'- fraternal`eternity's mystical closure that only 'putin's motherland' can provide ?'

Sun, 11/18/2012 - 13:48 | 2993798 Bastiat
Bastiat's picture

 

"There is no rationale for owning gold mining equities. It is as close as you get to insanity."

Short miners at historic lows to gold price and book value? 

Repeating what I said the other day on this topic: the biggest risk to miners is funds shorting them.  The market cap of the whole sector is small enough that this has an outsized effect.  From 2003 to 2008 what happened to the miners as the price gold took off?  How many were nationalized? 

Every company is different, every mine is different and every country is different in its dealings with resource extraction. 

What will really be insane is watching the shorts try to cover in a tight market when gold explodes out of this very long consolidation. The last two like this ended with a doubling of price for gold.

Someone's talking their book.   We'll know who's right on this play in the next 6 months.

Sun, 11/18/2012 - 14:28 | 2993896 Obnoxio
Obnoxio's picture

I agree Bastiat. Miners with mines in safer areas like North America will be worth more than riskier mining areas. I usually like Hugh Hendry but this is one of the stupidest things he has said in my opinion. Gold in the ground has value and with funds like his shorting gold shares they have become a good investment in my opinion.

Sun, 11/18/2012 - 13:51 | 2993805 prodigious_idea
prodigious_idea's picture

Sell Puts, buy Calls at zero net cost.

Sun, 11/18/2012 - 13:56 | 2993819 DUNTHAT
Sun, 11/18/2012 - 13:56 | 2993822 Monedas
Monedas's picture

Computers are like methamphetamines .... they don't make you smarter .... just stupid faster ?  Evil is empowered since it has to propagate it's lies .... the socialist death spiral is accelerating downward .... only an all nuclear holocaust can slow it down .... I'm old .... give me a thrill before I die !

Sun, 11/18/2012 - 13:57 | 2993824 AndrewJackson
AndrewJackson's picture

I have been trying to drive this into people's brains for years. Physical gold bullion has vastly outperformed gold equities. Physical bullion has had much lower volatility and better returns. What more reason could one need to own physical gold over stocks? That being said, if you are a very good analyst and can recognize an opportunity when it is given, by all means go for it. Other than that, get the physical.

Sun, 11/18/2012 - 13:59 | 2993830 strannick
strannick's picture

Let the government run it. Theres the solution to banish corruption and increase efficiency

Sun, 11/18/2012 - 14:36 | 2993895 Monedas
Monedas's picture

The Chinese economic model .... no corruption ?  Chinese coal mines average .... 3,000 (?) deaths per year .... what price efficiency !  Communists treat people like dirt .... Henry Ford paid his workers $5 a day (4 trounces of silver) ! Only government employees make that and more today ?

Sun, 11/18/2012 - 14:04 | 2993840 SilverDoctors
SilverDoctors's picture

SRSrocco has been all over the gold and silver miners' issues- as ore grades for both silver and gold have plummeted over the past 1-2 years.  Plummeting ore ratios as well as skyrocketing US silver exports to London (likely to put out fires at the LBMA) are the basis for SRS' latest article discussing the supply/demand fundamentals that will push silver prices well north of $100/oz.

http://www.silverdoctors.com/the-forces-that-will-push-silver-over-100-2/

Sun, 11/18/2012 - 14:26 | 2993891 Monedas
Monedas's picture

Maybe some miners are reverse window dressing to confuse the taxers and takers ?

Sun, 11/18/2012 - 14:06 | 2993847 jonjon831983
jonjon831983's picture

I keep recalling a story about some contractor who built a patio, but tore it up afterwards because they never got paid for it.  Or of a tombstone maker who took back a fancy tombstone because the family never paid for it.

Sun, 11/18/2012 - 15:11 | 2994005 Segestan
Segestan's picture

The authors opinion is just that.

Sun, 11/18/2012 - 15:17 | 2994016 tradewithdave
tradewithdave's picture

Vector Gold

www.tradewithdave.com

Sun, 11/18/2012 - 15:23 | 2994029 q99x2
q99x2's picture

Thanks for explaining Hendry's message.

Sun, 11/18/2012 - 16:00 | 2994159 dolph9
dolph9's picture

There will be a mania in gold companies eventually, because the physical metal market is not large enough to absorb the trillions in fiat capital that is floating around the world.

I am leaning more and more to not participating in it even though there's money to be made.  I've seen too many manias now, and they don't end well and they're difficult to time.

I think I'm just going to sit back with my metals and watch the folly of humanity from a distance.

Sun, 11/18/2012 - 17:05 | 2994310 Divine Wind
Divine Wind's picture

 

 

Manias end badly for those who enter late in the game.

Get in early (like now), move them into direct registration or to certificate form and file them away.

You will be rewarded.

Sun, 11/18/2012 - 18:36 | 2994516 Bastiat
Bastiat's picture

The crunch at the exits for the short trade could be epic.

Sun, 11/18/2012 - 18:52 | 2994547 mt paul
mt paul's picture

great

another freakin reason

to buy more gold ..

Sun, 11/18/2012 - 19:30 | 2994607 Stuck on Zero
Stuck on Zero's picture

Miners are not the only targets.  Anyone or anything that produces anything is a target today. 

 

Sun, 11/18/2012 - 19:36 | 2994613 hungrydweller
hungrydweller's picture

Agreed.  "shares" of anything are just a financial derivative even if some claim that they are representative of undrlying assets.  Shares in mining companies should be traded just as you would an ETF.  The only buy and hold item there is is something you can buy and hold.

Sun, 11/18/2012 - 22:59 | 2994960 Douglasnew
Douglasnew's picture

THE AGE OLD ADAGE OF "WHAT IS A GOLD MINE"? --ANSWER- "A HOLE IN THE GROUND WITH A LIAR AT THE TOP". HOW ABOUT ALL THOSE NUGGETS LOST TO LEAKAGE THROUGH EMPLOYEES AND OWNER/MANAGEMENT ON SITE? YOU REALLY THINK THEY ARE MORE CONCERNED WITH PASSING THE SPOILS THROUGH TO SHAREHOLDERS? LOL.......AND THEN YOU HAVE CONFISCATION BY THE NATIONALS TO CONTEND WITH AFTER THAT. GREAT TRADING VEHICLES IF YOU THINK YOU ARE SMART ENOUGH TO KNOW WHEN.

Mon, 11/19/2012 - 00:21 | 2995080 Bastiat
Bastiat's picture

THOSE NUGGETS LOST TO LEAKAGE THROUGH EMPLOYEES AND OWNER/MANAGEMENT ON SITE?

Nuggets?  Are you kidding me?

Sat, 11/24/2012 - 01:33 | 3008118 MeelionDollerBogus
MeelionDollerBogus's picture

The concerns are valid.

Many gold miners overseas from North America don't really care about preventing / compensating for cyanide & other spills.

The best solution is to make the mine pay enough to afford the people can relocate to safety. In the case of the higher up glacial lake the mine should be forced to pay for a ton of things, lake included, to 'own' the space. No need to nationalize when it's only really a matter of price. People moving to where it's safe is a matter of price. Let the mine pay. Any profits made from non-consenting harm to the property & food/water safety of others is strictly anti-market protected activity from non-market intervention.

One's right to produce & profit is not a right to attack, harm or poison others.

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