American Hard Assets - The Silver Issue by Magazines

Surging Silver

Discover the potential silver holds in the coming years with an epic prediction.

SILVER ASSETS

10 Silver Likely to Surge 18 Art of Silver NUMISMATICS

24 Urban Mining 28 Commercialization of Space

Urban Mining

36 Collector Cars WATCHES AND GEMS

Find out how companies take your old everyday electronics and turn them into bullion.

World News

42 The Iconic Power Watch 48 Diamonds as Bullion LUXURY AND LIFESTYLE

54 The Dalmore Patterson Collection 58 Private Jet Tour

Investment Autos

ASSET INVESTMENT

John Gilbert reviews yesterdayâ&#x20AC;&#x2122;s classics that now fetch a fortune.

60 Dollars & Sense 66 International Bullion Storage 72 Silver Deja Vu

Rolex: The Iconic Power Watch

79 Mormon Gold 80 Massandra Magic MINING & MINERALS

Ed Estlow defines the allure of the aspirational Rolex brand for leaders, celebrities and executives around the world.

84 Mining News HARD ASSETS INFORMATION

90 Preferred Dealers

Around the World for $100K

AUCTIONS, COLLECTIONS AND DIVERSIFICATION

Explore in the lap of luxury with this planned 25-day trip around the globe.

94 Events 96 Hindsight

EDITOR’S NOTE

Silver’s Shining Moment SIlver’s place in the Olympics tells you everything that you need to know about their public perception of one of the most useful metals in the world. Whenever an average person is talking about a precious metal, the conversations can range from gold bling to platinum records before any mention of silver is made. Well this issue of American Hard Assets is here to challenge that. Silver is standing front and center to be anazlyzed by the best. Mark O’Byrne kicks things off with a long term analyzation of silver including a staggering price that could be in the metal’s future. We then leave the planet in search of the next mining opportunties in Asteroids before crashing back down into suburban America and learn to mine old electronics the urban way. John Gilbert runs through several pristine collectible car collections that will make any car guy drool. A stop in the watch category features the iconic power watch, Rolex, before jumping into using a ‘girl’s best friend’ as a bullion investment.

PRESENTED BY: AHA Metals, LLC MANAGING EDITOR: Ryan Kasmiersky EDITORIAL SUPPORT: Aaron Solomon ADVERTISING SALES: Sarah Kaiser SUBSCRIPTIONS: Leigh Chamberlain CIRCULATION MANAGER: Jennifer Cunningham GRAPHIC DESIGN: Jericho Monte de Ramos, Noel Macasero GENERAL MANAGER: Josh Eells DIRECTOR OF OPERATIONS: Mike Boniol CUSTOMER SERVICE: Sandi Heuerman FRONT COVER: Bill Bridgeforth FEATURE WRITERS: Fred Reed, Nic Forrest, Ed Estlow, Mark O’Byrne, Michael Haynes, Gabriel Benson, Eavan Moore, Michael Kosares CONTRIBUTORS: Grierson, Greg Canavan, The Bullion Baron, Hector Cantu, Alistair Bailey, Mike Woodcock, Daryl Middleton, Michael Moore, Christy Stewart, Jonathan Kosares, Tom Genot

DISCLAIMER: American Hard Assets is 100% American owned. All contents of American Hard Assets (AHA) are for information purposes only. AHA does not guarantee the accuracy, completeness or timeliness

The rest of the magazine won’t disappoint, with topics ranging from million dollar whiskey to storing your bullion and even touching on a little guilty pleasure in the wine crate. Don’t forget to take a look at the new and improved American Hard Assets website for your up-to-the-minute news, price charts, market updates and daily “Market Minute” with leaders from around the industry. Good Investing! Ryan Kasmiersky Managing Editor American Hard Assets

of the contents. None of the information contained herein constitutes a solicitation, offer, opinion, or reccomendation by AHA to buy or sell any security or commodity, nor legal, tax, accounting, or investment advice or services regarding the profitability or suitability of any security, commodity or investment. All commentary and advice in this publication is of a general nature only, and doesn’t consider your individual circumstances or financial objectives. You should always consult a licensed financial advisor for your personal investment advice. Please do your own research.

SUBSCRIPTIONS www.ahametals.com 1.877.695.1258 P.O. Box 835433 Richardson, Texas 75083-5433 American Hard Assets is a bi-monthly publication and subscriptions are available for one year at $29.99.

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H A R D A S S E T U P D A T E S | World News

WORLD NEWS UPDATES

Gold Ranks as Highest Smuggled Item in India The recent series of actions by the Indian government, including a new tax hike on bullion imports has created an acute shortage for gold in the Indian markets. Estimates released by the countryâ&#x20AC;&#x2122;s Finance Ministry in early August signaled an alarming rise in illegal gold imports to the country.

Indian Revenue authorities seized gold worth more than $9.7 million during the April-June quarter in 2013, an increase of almost 365% in comparison with the same quarter the previous year. A much more alarming number to Indian authorities is that roughly 5 to 10% of smuggled gold is detected.

The Bombay Bullion Association stated that the tighter import regulations by the government have resulted in a huge gap between supply and demand for the precious metal. This gap is now being partly filled by illegal traffickers who buy gold overseas at a cheaper rate, smuggle it into the country and sell it to domestic jewelers and bullion agents while evading taxes.

The countryâ&#x20AC;&#x2122;s Finance Ministry has asked the airport customs officials to beef up the security at airports. However, the customs officials have sought more powers and stricter punishment for offenders in order to rein in gold trafficking, which has overtaken narcotics as the most smuggled item in value.

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World News | H A R D A S S E T U P D A T E S

WORLD NEWS UPDATES 2013 AMERICAN EAGLE SILVER BULLION SALES CONTINUE TO SHATTER RECORDS Sales of the U.S. Mint’s American Eagle Silver Bullion coins experienced their best July ever with a whopping 93.4% increase over the previous year’s sales, scoring 4,406,500 one-ounce coins sold this July. For the first seven months of the year, Silver Eagle bullion coins sales grew at the fastest pace ever as 2013 appears to be well on its way to setting a new annual record for the coins even though a system of coin rationing is still in place. During the January through July period of this year, total American Silver Eagle sales hit 29,450,000 ounces, a threshold not accomplished until November 5th of last year. The current annual sales record is 39,868,500 American Silver Eagle Bullion coins sold in 2011 when the 29.45 million silver ounce mark was not achieved until September 2011. Meanwhile, American Eagle Gold Bullion coin sales were reported at 50,500 ounces sold in July of this year, up nearly 66%

from 30,500 ounces sold during July 2012. Year-to-date sales from January to July totaled 679,500 gold ounces, ranking sixth overall in sales for the first seven months of the year since the coins debuted in 1986.

Mexico Silver Production Down a Stunning 10% The largest silver-producing country in the world has seen its production decline substantially in the first five months of the year. Mexico was forecasted to increase its silver production this year, however if present trends continue, total output could fall nearly 10% in 2013. In April, overall silver production in Mexico was down 10.3%, whereas output from Zacatecas fell 21.6%. Even though the drop in production in May was not as severe as in April, total silver production declined 9.1%.

Total silver production in Mexico from Jan-May was 2,062 tonnes down from 2,288 tonnes in 2012 — a difference of 226 tonnes or 9.7%. Again, the majority of the declines in silver production came from the state of Zacatecas in Mexico where Fresnillo and Goldcorp’s Penasquito mines are located. These two mines accounted for 50 million oz. of silver production in 2012. According to their 2013 half-year reports, silver production at Fresnillo was down 2.2 million ounces and Penasquito declined 2.5 million oz. compared to the same period last year. Thus, approximately 55% of the total decline in Mexico’s silver production so far this year has come from these two mines.

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H A R D A S S E T U P D A T E S | World News

WORLD NEWS UPDATES China’s Gold Imports from Hong Kong Down China’s net gold imports from Hong Kong fell 4.8 percent in June as a slump in prices damped demand and the government curbed the use of bullion in financing deals. Mainland buyers purchased 101 metric tonnes, after deducting flows from China into Hong Kong, compared with 106 tonnes a month earlier, according to calculations on data from the Hong Kong statistics department yesterday. Inbound shipments including scrap were 113 tonnes, from 127 tonnes in May. Gold is heading for its first annual decline in 13 years as investors lose faith in the metal as a store of value and amid speculation the U.S. Federal Reserve will curb debt-buying. The metal dropped to a 34-month low in June, after tumbling 13 percent in April and May. That discouraged bargain hunters, said Wang Weimin, an analyst at Dalian Fortune Futures Co. China is the world’s second-largest bullion user after India. “Gold’s been part of the commodity-finance trade, which was a popular way of taking advantage of the higher interest rates on the

mainland,” Wang said before yesterday’s data was released. Some traders used gold to back foreign-currency loans from banks in Hong Kong, then repatriated cash to the mainland and converted it into yuan, before the crackdown reduced the practice trade, he said. Investors refrained from bullion investments in June after they rushed to buy in mid-April, only to find that prices dropped further, Wang said.

US Continues to Lead Official Gold Holdings USA continues to lead the world in official gold reserves at 8,144.5 tonnes or 69.8% of total reserves while Germany is second with 3,390 tonnes accounting for 66.3% of total reserves. Greece has 112 tonnes which constitutes 76.3% while Italy has 2,451.8 tonnes at 64.9%, France has 64.5% at 2,434.4 tonnes and China has 1.2% of its reserves in Gold at 1,054.1 tonnes. Switzerland has 1040.1 (7.8%), Russia 996.4 (7.4%), Japan has 765.2 tonnes accounting for 2.4%, Netherlands has 612.5 tonnes accounting for 52% and India has 7.5% of total reserves in gold assets at 557.7 tonnes. Total official gold reserves are at 31,909.7 tonnes and Eurozone including ECB account for 10,782.56 tonnes.

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World News | H A R D A S S E T U P D A T E S

WORLD NEWS UPDATES ROYAL CANADIAN MINT OPENS ORDERS FOR NEW COINS The Royal Canadian Mint has started accepting orders from the general public for another group of new product releases. This includes a wide array of new gold and silver coins to mark the Year of the Horse, the latest releases in the O Canada series featuring the Caribou, contemporary art coins and a maple tree from a unique perspective. The Year of the Horse coins start with a 1/2 oz. 99.99% silver coin with a specimen finish. The design features a close-up image of a horse with the Chinese character for horse. The coins have a diameter of 34 mm and a maximum mintage of 58,888 pieces. A 1 oz. 99.99% silver coin is also offered which contains an alternate design featuring a galloping horse with the Chinese character for horse. With a proof quality finish, the coins have a diameter of 38 mm and maximum mintage of 28,888 pieces. A lotus-shaped silver coin offers another option for Year of the Horse Silver Coins. The proof quality coins are struck in 99.99% silver with a weight of 26.7 grams and diameter of 38 mm. The maximum mintage is 28,888 pieces. At the high end is a 99.99% silver kilo-sized coin featuring a more dramatic portrayal of a horse within a decorative border. The proof quality coin carries a mintage limit of 388 pieces. The Year of the Horse Gold Coin products begin with an 18 karat (75% gold, 25% silver) coin struck in proof quality. The design is the same that appears on the 1 oz. silver coin. The gold coins have a weight of 11.84 grams and diameter of 28 mm. The maximum mintage is 2,500 pieces. At the extreme high end is a 99.99% gold kilo-sized coin featuring the same design as the kilo-sized silver coin. The proof quality coin carries a mintage limit of only 18 pieces. The latest releases within the ongoing O Canada series feature the Caribou. Representing the eighth coin in the 1/2 oz. silver coin series, the reverse design features a male caribou set against the rugged terrain of the Canadian North. Each coin is struck in 99.99% silver to proof quality with a maximum mintage of 40,000 pieces. The fourth coin in the O Canada 1 oz. silver coin series features an alternate design featuring a caribou cow and calf. These coins are struck

in 99.99% silver to proof quality with a maximum mintage of 8,500 pieces. The fourth release within the O Canada 1/10 oz. gold coin series features a close-up portrait of a male caribou. These coins are struck in 99.99% gold to proof quality with a weight of 3.13 grams, diameter of 16 mm, and maximum mintage of 4,000 pieces. The second release within the new series featuring maple trees from unique perspectives features a view from beneath the canopy looking upwards during autumn. Two colored leaves are seen drifting gently towards the ground. Each coin is struck in 99.99% silver to proof quality, with a weight of 31.39 grams, diameter of 38 mm, and mintage of 7,500 pieces. A new 1 oz. 99.99% silver coin features contemporary artwork by Canadian artist Carlito Dalceggio. The art depicts tribal symbols in a contemporary way. Their arrangement on the coin creates a circular narrative composition with no starting point. The coin utilizes different coin finishes, each with a separate degree of luster for a striking appearance. The maximum mintage for this coin is 7,500 pieces. The twelfth release within the Birds of Canada series features the Barn Owl on a 25-cent colored coin. This release is limited to a mintage of 17,500 pieces.

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S I LV E R A S S E T S | Silver Likely to Surge

Silver Surge Likely to

More Than $100/oz. In Coming Years By Mark Oâ&#x20AC;&#x2122;Byrne

ilver has been the worst performing commodity so far in 2013 after slumping by more than 30% from just over $30/oz. at the start of the year to below $20/oz. recently. Contrarian buyers who understand silverâ&#x20AC;&#x2122;s strong fundamentals are licking their lips at this renewed opportunity. Silver is undervalued today, has been extremely undervalued on a historical basisÂ and is undervalued against gold. While gold has begun to receive some interest from retail investors and buyers, silver remains the preserve of relatively few contrarian investors and the media and financial press rarely cover silver.

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Silver Likely to Surge | S I LV E R A S S E T S

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S I LV E R A S S E T S | Silver Likely to Surge

Silver in US Dollars/oz. (Monthly Nominal - 1971-June 2013) Source: Bloomberg

And yet silver is quite likely in the intermediate stage of a bull market that will rival or surpass that of the 1970s. We continue to be bullish on gold and particularly silver and believe that silver will likely surpass its non-inflation adjusted or nominal high of $48.70/oz. and its inflation adjusted high of some $130/oz. in the coming years.

Why Silver is in a Bull Market and How High could it Go? Precious metals have been the best performing asset classes in recent years with gold and silver outperforming equities, property and most asset classes over a 5 and 10 year period. This outperformance looks set to continue in the coming months once the current selloff has come to a close. The primary reason for our bullish outlook on silver is due to the continuing and increasing global macroeconomic, currency

and geopolitical risks; silver’s historic role as money and a store of value; the declining and very small supply of silver; significant industrial demand and perhaps most importantly significant and increasing investment demand. Gold, oil and nearly every major commodity, stock indices and property market surpassed their record highs in recent years. Favorable supply and demand factors, continuing global macroeconomic and geopolitical risk and concerns regarding the emergence of inflation and stagflation, as the massive global monetary and fiscal reflation affects the value of fiat currencies, all point to higher silver prices in the long term. In the 1970’s, silver rose from under $1.50/oz. in 1970 to nearly $50/oz. by the end of the decade. Thus, silver rose by more than 25 times or more than 2,400%. Were silver to replicate its performance in the 1970s, it would have to rise by more than 25 times again. The average price of silver in 2001 was $4.37/oz. and a 25-fold increase would result in silver rising to over $110/ oz. While this price target may seem outlandish to some, it is worth remembering that silver’s record high in 1980 was $50/

Silver remains the preserve of relatively few contrarian investors and the media and financial press rarely cover silver.

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S I LV E R A S S E T S | Silver Likely to Surge

oz. in nominal terms but adjusted for inflation (according to the CPI or US government official inflation figures) the record high was over $130/oz. Admittedly, the final phase of the silver blow-off was a speculative bubble as the billionaire Hunt brothers attempted to corner the silver market. Unlike 1979, today there are hundreds of billionaires, some multi-billionaires, thousands of millionaires, hedge funds and many sovereign wealth funds today. Small allocations by any of these to silver will see sharp moves up in the price. Indeed, the physical silver market is so small that it could very easily be cornered again.

Silver: Declining Supply In 1900 there were 12 billion ounces of silver in the world. By 1990, the internationally respected commodities research firm CPM Group says that figure had been reduced to around 2.2 billion ounces of silver. Today, that figure has fallen to less than 1 billion ounces in above ground refined silver. It is estimated that more than 90% of all the silver that has ever been mined has been consumed by the global photography, technology, medical, defense and electronics industries. On current supply/demand trends, the amount of above ground refined silver is projected to shrink to even lower levels in the coming years. Industrial demand has been outstripping mining supply for most of the last 20 years, driving above

Silver vs. Consumer Price Index

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ground supply to historically low levels. Few in the investment world seem to be aware of this important fact. Silver production has increased in recent years but demand has been increasing at a faster rate. Very importantly, silver is unusual as its supply is inelastic. This means that silver production will not ramp up significantly if silver starts moving up again. Supply didn’t increase significantly in the 1970s when silver rose more than 35-fold in price - from $1.40/oz. in 1971 to a high of nearly $50/oz. in 1980. Importantly, silver is a byproduct metal and some 80% of mined silver is a byproduct of base metals. Higher prices for silver will not cause copper, nickel, zinc, lead or other base metal miners to increase their production. In the event of a global stagflationary or deflationary slowdown, demand for base metals would likely fall thus further decreasing the supply of mined silver. There are only a handful of pure silver mines remaining many with depleting reserves. This inflexible supply means that we cannot expect significant mine supply to depress the price in response to a rise in silver’s price. It is extremely rare to find a good, service, commodity or investment that is price inelastic in both supply and demand. This is another powerfully bullish aspect unique to silver. Industrial applications for silver have always been significant, but they have increased significantly in recent years. Silver is

S I LV E R A S S E T S | Silver Likely to Surge

used in film, mirrors, batteries, medical devices and electrical appliances such as fridges, toasters and washing machines. Silver uses have expanded to include cell phones, flat-screen televisions and many other modern high-tech devices. Increasing industrial demand for silver is forecast due to economic growth in China, India, Vietnam, Russia, Brazil and other emerging economies in South America, the Middle East and Asia. Growing middle classes are now demanding the quality of life and standard of living enjoyed by many in the West and thus the demand for silver will likely increase. Silver is known as the ‘healthy metal’ and has many and increasing medical applications. In a world that is showing growing concern about the spread of diseases and pandemics such as swine flu, silver is being increasingly tapped for its biocidal properties. Research is ongoing on the use of silver and its compounds for therapeutic uses and on its potential use as a disinfectant in hospitals and other medical facilities. Increasingly, silver’s antimicrobial and antibacterial qualities

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have led to it being used in all sorts of medical applications and this looks set to become a very significant source of demand in the coming years. Silver has many unique properties which make it ideal and indeed essential in global industry - especially in the global photography, technology, medical, defense and electronic industries. Yet, silver is a finite resource and the supply of silver is only increasing incrementally. It is important to note that silver, unlike gold, is heavily used in industry and because of gold’s much higher value, it gets recycled and all the gold mined in the world ever is still with us but a huge amount of silver has been used in photography, mirrors and other industrial uses in the last 200 years. The low price of silver currently makes recovery and recycling uneconomic. Unlike gold, silver is like oil - as it is consumed in these many industrial applications it is gone forever.

Silver: Increasing Investment Demand

Silver Likely to Surge | S I LV E R A S S E T S

Total Known ETF Holdings of Silver

Source: Bloomberg

rising inflation, possible currency devaluations and still very prevalent geopolitical and macroeconomic and systemic risks such those posed by the colossal global derivatives market.

Investment demand for silver has risen in recent years as investors concerned about the value and safety of property, equities and deposits allocated funds to diversify their finite commodities and silver and gold currencies. More recently, there have been increasing concerns about the value of paper currencies themselves (voiced by many including Alan Greenspan, John Paulson and George Soros) which is leading to further diversification into hard assets and precious metals. There has been a marked increase in investment demand for silver in recent years. Some of the reasons why this trend is likely to continue are the introduction of ETFs that track the price of silver, a new global liquidity bubble, the significant growth in the global money supply, the proliferation of millionaires, ultra-highnet-worth individuals and billionaires, the proliferation of hedge funds and the exponential growth in derivatives. The Bank for International Settlements has estimated that the total value of derivatives contracts was $633 trillion at the end of 2012 (up significantly from $260 trillion in June 2006) which dwarves the GDP of the entire world, estimated to be around $60 trillion today. There is still a debate as to whether derivatives are a good or a bad thing. Alan Greenspan warned they could lead to “cascading cross defaults.” Warren Buffett is similarly concerned and has warned that they could trigger “serious systemic problems.” Buffet said that “the derivatives genie is now well out of the bottle, and these instruments will almost certainly multiply in variety and number until some event makes their toxicity clear.” For this reason Buffett presciently called derivatives “financial weapons of mass destruction” in 2003. Investors in silver bullion coins and bars are hedging themselves against further deflation and declines in property and equity markets. They are further protecting themselves against

Poor Man’s Gold – Silver – To Make Owners Rich Silver is unique in terms of being both a monetary and an industrial metal. Silver is a hedge against macroeconomic, systemic and inflationary risk with the attractive added potential for significant capital gains. Real asset allocation and prudent diversification would be an important reason to have a portfolio allocation to silver. Silver is highly correlated to the safe haven of gold and is in effect a leveraged sister of the precious yellow metal. Thus, informed buyers use gold for wealth preservation purposes and silver in order to also make a return. Silver is priced at less than $20/oz. today. The average nominal price of silver in 1979 and 1980 was $21.80/oz. and $16.39/oz. respectively. In today’s dollars and adjusted for inflation that would equate to an inflation adjusted average price in 1979 and 1980 of some $64/oz. and $48/oz. It is for this reason that we believe silver will be valued at well over $50/oz. and will likely surpass its inflation-adjusted high of $130/oz. in the coming years. Despite speculators selling paper futures contracts aggressively on the COMEX in recent weeks, nothing has changed regarding the bullish fundamentals in the silver bullion market. Those who own physical silver bullion, either in their possession or in allocated accounts in safe international jurisdictions will be handsomely rewarded.

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S I LV E R A S S E T S | The Art of Silver

Silver THE ART OF

By Nicholas Forrest

terling silver is usually associated with the work of silversmiths and craftsman who produced functional yet often decorative objects such as candelabras, trays, plates, vases and centerpieces. Usually classified as decorative arts, many of the most highly regarded objects of silverware were produced during the 18th and 19th century by famous craftsmen such as American silversmith Paul Revere and British silversmith Paul Storr.

â&#x20AC;&#x153;Silver seems to magically throw out more light than it absorbsâ&#x20AC;? - Damien Hirst

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The Art of Silver | S I LV E R A S S E T S

he aesthetic beauty of silver, as well as its ductility and malleability, make it a popular metal with craftsmen and designers. However, perhaps because of the high cost of the metal, sterling silver has not been utilized in the fine arts anywhere near as much as it has in the decorative arts. But that doesn’t mean that it has been totally ignored as a fine art medium. In fact, some of the world’s most well-known contemporary and modern artists have produced works in silver including Picasso, Alexander Calder and Damien Hirst.

It is a symbol of value and preciousness loaded with association even before you make it into anything.

ost people know British artist Damien Hirst as the crazy guy who exhibited a dead shark in a tank of formaldehyde, but few people are aware that Hirst is also a strong advocate for the utilization of silver as an artistic medium. Commenting on the virtues of silver in connection with an exhibition of silver sculptures titled “Sterling Stuff” at London’s Gallery Pangolin in 2002, Hirst said:

“Silver is one of the elements, one of the building blocks of our material world. It is a symbol of value and preciousness loaded with association even before you make it into anything ... In ancient times artists drew with a stick of silver – it has a slightly graphic feel. Textures and edges feel crisper than bronze. It’s dreamy, other-worldly but also sensuous and sexy – natural to make sculpture with. I think I may have just begun to tap into its potential. Silver seems to magically throw out more light than it absorbs.”

“...sterling silver has not been utilized in the fine arts anywhere near as much as it has in the decorative arts. But that doesn’t mean that it has been totally ignored as a fine art medium.”

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S I LV E R A S S E T S | The Art of Silver

or the 2002 Pangolin “Sterling Stuff” exhibition, Hirst, along with 49 other sculptors including Antony Gormley and Lynn Chadwick, was invited to produce a work in silver no bigger than 15 cm. The work Hirst produced for the exhibition, titled “Sadness,” consists of an upturned hand offering pills that were spilling out of a pill bottle. It was his first ever silver sculpture.

“I Once Was What You Are, You Will Be What I Am” by Daniel Hirst

For the second iteration of the “Sterling Stuff” exhibition held in 2009, Hirst produced two additional silver sculptures including the epic 252 cm tall “Grotesque Unicorn - The Dream is Dead.” Featuring a bull’s head with a swordfish bill protruding from its forehead, the sculpture was priced at a heady £500,000 when it went on sale. In addition to his “Sterling Stuff” sculptures, Hirst has created a number of sterling silver works of art in recent years including the infamous “Purity - The Dream is Dead, 2007,” a highly detailed sculpture of a pregnant woman produced in an edition of 25. Number 2 of the 5.12 X 23.62 (Depth: 11.25) inch sculpture sold for £55,250 at a Sotheby’s London sale in October 2011.

Photo: Paul Grover

Hirst also dabbled in the art of jewelry design, producing a number of pieces of wearable art including an £11,000 sterling silver charm bracelet which carries 16 different casts of pills. The pill motif appeared once again for his sterling silver “Pill” cufflinks which were derived from his famed “Pharmacy” body of work.

“Grotesque Unicorn” By Daniel Hirst

nother artist who recognized the allure of Silver was the great Picasso. Most art lovers will be familiar with Picasso’s ceramic works, but few are likely to be aware that he also designed a series of 19 sterling silver plates in conjunction with celebrated French silversmith Francois Hugo. Taking inspiration from designs he produced for his ceramic works, the series of silver plates was conceived in 1956, but not produced until 1967. Another artist who recognized the allure of Silver was the great Picasso. Most art lovers will be familiar with Picasso’s ceramic works, but few are likely to be aware that he also designed a series of 19 sterling silver plates in conjunction with celebrated French silversmith Francois Hugo. Taking inspiration from designs he produced for his ceramic works, the series of silver plates was conceived in 1956, but not produced until 1967. A new auction record for a complete set of Picasso’s plates was set by Sotheby’s London during their June 20, 2013 Impressionist and Modern Day Sale. The 19 plates sold for £1,314,500 ($2,030,508) against an estimate of £300,000 - 500,000. Single plates have sold for upwards of £50,000, but the rare opportunity to purchase a set in its entirety was reflected in the sale price. Photo: Paul Grover

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The Art of Silver | S I LV E R A S S E T S

merican sculptor Alexander Calder is best known for his mobiles, but he also produced more than 1,800 jewelry works of art of which many were fashioned out of sterling silver. One such piece, a wonderful sterling silver brooch featuring the initials CB, was sold by Los Angeles Modern Auctions on May 2013 for $40,625 against an estimate of $30,000 - $50,000. The brooch was made by Calder for Connie Breuer, the wife of architect Marcel Breuer. One of the most incredible silver works made by Calder is the sterling silver bedhead that was commissioned by Peggy Guggenheim in 1945. Measuring 63 × 51 9/16 inches, the twisting and spiraling composition of the spectacular sculptural creation mirrors the wirework forms that were a feature of many of the artist’s jewelry designs. In an entry on the bedhead for the “Handbook to the Peggy Guggenheim Collection,” author and art historian Elizabeth C. Childs wrote: “His design combines fish, insect, and plant motifs in an exuberant conflation of the worlds of sea and garden. The outer curve of a large spiral comprises the basic circular structure of the bedhead, which is elaborated with decorations of hammered and cut silver ... The compressed, shallow relief of this piece answers neatly the practical demands of Peggy’s commission for a bedhead” “Sadness” by Daniel Hirst

Photo: Paul Grover

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S I LV E R A S S E T S | The Art of Silver

ne of the most intriguing works of art produced in sterling silver is the cast sterling silver multiple “Bouche-Evier (sink stopper), 1967” by renowned French-American conceptual artist Marcel Duchamp. Described by Phillips auction house as “jewel-like and ever so clever,” the small 6 cm x 1 cm silver multiple of a sink stopper was issued by the International Collectors Society, New York, in an edition of 100. Number 33 of the edition was sold by Phillips in New York in 2010 for $8,12. Because silver is still very much a material of the decorative and applied arts, as it has been for centuries, those works of fine art produced in silver by renowned artists such as Damien Hirst and Marcel Duchamp have a particular allure. As well as being highly desirable because of their rarity, works of art produced in silver seem to have the same beauty and presence that make functional items produced in silver so attractive. If only more artists made the effort to explore the possibilities of the metal as an artistic medium.

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“Bouche-Evier” (sink stopper) by Marcel Duchamp

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S P E C I A L F E A T U R E | Urban Mining

URBAN MINING By Tate Williams

he average consumer is carrying around a secret little stash of gold and silver at any given moment, and there’s a good chance that, with every new smartphone, tablet or laptop release, some of it is going right in the trash. While billions of dollars in precious metals—gold, silver, platinum, copper and palladium—go into electronic devices every year, these materials are largely swept away in the evergrowing churn of technology turnover. Electronic waste, or e-waste, is the fastest growing component

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of the solid waste stream, and most of the metals inside that waste go unclaimed, either in landfills, storage facilities, or shipped overseas to uncertain ends. But things are changing, as rapidly developing technology, massive environmental and security concerns and emerging state and federal regulations are all driving the booming business of e-waste recycling and urban mining. The term “urban mining” may conjure the image of a mountain of junked computers waiting to be cracked open for their shiny pieces, but the reality is quite a bit more complicated. While

Urban Mining | S P E C I A L F E A T U R E

Electronic waste, or e-waste, is the fastest growing component of the solid waste stream, and most of the metals inside that waste go unclaimed, either in landfills, storage facilities, or shipped overseas to uncertain ends. growing rapidly, the business is currently a tangle of rules and complicated procedures carried out in widely varying levels of rigor, responsibility and efficiency. That mountain of junked computers, however? It’s not too far off. In 2010, Americans threw out 52 million computers, 28 million televisions and an incredible 152 million mobile devices, according to the EPA. This number continues to climb as devices become obsolete more quickly, and handheld devices like tablets and smartphones become more widespread commodities. And at the core of these devices are metals, particularly gold and silver, that make up circuit boards and the microchips that attach to them. This means that telecommunications equipment, PCs and cell phones are particularly laced with these materials. It may seem like small amounts, but it adds up. According to estimates provided in 2012 by Solving the E-Waste Problem (StEP), a partnership formed out of United Nations University, $21 billion in gold and silver go into the production of high-tech products annually. Electronic products consumed 7.7% of gold supplies in 2011. And only an estimated 10-15% of gold in e-waste is recovered once the products go to the graveyard. The EPA figures cited above show that only 19% of those devices were recycled. large part to try to get a grasp on just how much of a problem and opportunity exists in electronic waste.

Those low numbers are due to the fact that the precious metals are such a small part of the overall devices, and are baked in with other plastics, metals and potentially hazardous chemicals like lead, mercury and arsenic. This means the process of extracting the gold and silver properly can be expensive, inefficient and even dangerous.

Just how much e-waste is out there globally is very hard to say, Kuehr said, because we don’t even have compatible definitions from one country to

“...foreign salvage operations often involve dangerous methods like burning away plastic or using acid baths, and often have lax environmental or labor rules.”

“It appears very attractive, but gold is only one aspect,” said Ruediger Kuehr, political and social scientist with the United Nations University, and head of its operating unit that deals with e-waste. Kuehr is executive secretary of the StEP Initiative, which formed 10 years ago in

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S P E C I A L F E A T U R E | Urban Mining

“The biggest distribution channel for end-of-life electronics, up until now, has been the landfill, and that’s going away rapidly... So people are scrambling to find channels for this product that is piling up in the warehouses.”

safe disposal of the waste. Most companies specialize in one to a few steps in the process. What happens along that chain varies, and can contribute to a massive environmental problem if not done properly. the next. The scope of the e-waste industry is even more difficult to pin down, because it’s made up of a complicated set of steps that are performed in different ways by different companies. But the industry is most certainly growing, if for no other reason than to keep up with the huge growth of the waste stream. Figures vary depending on who you ask, but one report from GBI Research projected the industry to hit $44.3 billion by 2020. One of the largest case studies of that growth is Electronic Recyclers International, Inc., which has expanded significantly since it started, according to CEO John Shegerian. In its first month in 2005, the company recycled 10,000 pounds of e-waste, and in July 2013 it recycled 21 million pounds. The company’s website cites 170 million pounds recycled annually. “My partners and I think we’re in the second inning of this thing, top of the second inning,” he said. “There’s so much further to go here.” Some of that room for growth has to do with the complexity of the process. It begins with an attempt to refurbish and resell anything which offers the biggest return, then goes on to dismantling and separation to rip apart the device and separate value from the junk, with different levels of sophistication. The final step is reselling of precious metals and 26 | American Hard Assets www.ahametals.com

For years, and still to a large extent today, a common practice has been dumping e-waste in landfills or cramming it into shipping containers and sending it overseas to countries like China, India or Africa. Although how much e-waste America exports is debated, foreign salvage operations often involve dangerous methods like burning away plastic or using acid baths, and often have lax environmental or labor rules. Many domestic recycling programs use shortcuts as well, cherry-picking valuable parts and dumping or exporting the rest. And some companies will even claim to recycle the materials, but actually just ship overseas. There are a number of factors, however, that are clamping down on e-waste recycling procedures and driving the industry growth stateside. “Environmental concerns…are increasing, not abating,” said Robert Houghton, who ran e-waste recycling company Redemtech for 15 years. He’s co-founder of the Coalition for American Electronics Recycling, an industry alliance of more than 100 members that is pushing for federal regulation on e-waste.

Urban Mining | S P E C I A L F E A T U R E

“I think there will be an increasing demand on the part of more and more businesses for service providers that they can count on, for lack of a better way to put it, to do things the right way.”

Precious Metals to create Elemetal LLC. Elemetal’s subsidiary Echo Environmental, a metals and e-waste recycling company, recently expanded with a new 1 million-square-foot production facility in Ohio.

For one, Houghton said, there’s increasing concern—and regulation—over data privacy and companies feeling confident that their electronic records are being disposed of properly. And depending on the state, improper disposal may be in violation of environmental laws.

Another big opportunity for growth in the industry will be improvement in the processes themselves. According to StEP, the cruder and cheaper operations are also inefficient and lose a great deal of the core materials. As Kuehr of United Nations University points out, the big opportunity

Today, 25 states have regulations in some way mandating e-waste recycling. For perspective, when Shegerian started in 2005 only three states had such laws.

“Proponents say it will stabilize and boost the industry and create recycling jobs in the United States.”

“The biggest distribution channel for end-of-life electronics, up until now, has been the landfill, and that’s going away rapidly,” Houghton said. “So people are scrambling to find channels for this product that is piling up in the warehouses.”

for profit in the field is an operation that can handle materials on a large scale with the highest efficiency. Not only that, businesses will continue to realize the importance of salvaging as much of this source material as possible, he said, “closing the loop.”

Emerging steps to improve the process involve certification programs like e-Stewards.org and R2 Solutions. And CAER is backing the Responsible Electronics Recycling Act of 2013, which was introduced in July, and would ban exporting nonfunctioning e-waste overseas. Proponents say it will stabilize and boost the industry and create recycling jobs in the United States.

Houghton had similar prediction. “As the industry matures, the efficiency of precious metals recovery is absolutely going to rise, and these are significant sources of these metals.”

Any one piece of legislation aside, all of these developments mean big business for companies equipped to handle the flood of expiring products, and likely also mean a boost in the reclamation of metals involved. As one indicator, Aluminum giant Alcoa in 2011 took a $10 million stake in Environmental Recyclers International. Mining companies like Alcoa and Xstrata are also members of CAER and supporters of the federal e-waste legislation. Other indicators of growth in the secondary market for metals are mergers and expansions, like last year’s merger of NTR and Ohio

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S E C T I O N N A M E | Story Name

THE COMMERCIALIZATION OF SPACE THE FINAL FRONTIER IS WIDE OPEN By Gabriel Benson

View from the International Space Station of the SpaceX Dragon spacecraft as the stationâ&#x20AC;&#x2122;s robotic arm moves Dragon into place for attachment to the station.

Photo: NASA

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Story Name | S E C T I O N N A M E

THE GIANT LEAP FOR MANKIND

ith more and more of worldwide governmental budgets focusing on domestic issues, including deep cuts to internal NASA initiatives, the time is ripe for private enterprise to take over in the exploration and exploitation of space. NASA and other space agencies are leaning more and more on private companies to carry on the missions that were once deemed too expensive and impossible for private enterprise to accomplish on their own. Today, companies such as SpaceX, Planetary Resources, Deep Space Industries, Virgin Galactic and Bigelow Aerospace and many others are leading the charge and oftentimes doing it cheaper and faster. And what we are talking about goes beyond space tourism pioneered by Richard Bransonâ&#x20AC;&#x2122;s Virgin Galactic. We are talking about private companies launching, repairing and resupplying the numerous satellites orbiting the Earth, restocking the International Space Station, mining asteroids and eventually exploring and inhabiting deep space. With companies and governments expected to spend upwards of $50,000,000 on space-based products in 2013 the room for growth over the next decade seems wide open.

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S P E C I A L F E A T U R E | The Commercialization of Space

WHAT WAS ONCE IMPOSSIBLE… In 2010, SpaceX became the first private company to successfully launch a spacecraft into orbit and successfully recover it. Two years later, SpaceX’s Dragon Spacecraft successfully landed at the International Space Station carrying over 1,000 pounds of food, water and parts. Funded by investors and receiving development money from NASA, SpaceX has just over 2,000 employees (with an average age of 30) and is poised to rocket towards its goal of sending a manned rocket into to space by 2015. SpaceX’s current schedule has fifty missions planned and over $4,000,000 in contracts. Part of those contracts comes from SpaceX’s “Falcon Heavy” scheduled for a demonstration launch in 2014. The Falcon Heavy is expected to rival the space shuttle in capacity and is capable of launching and placing commercial satellites in orbit. Space is available and pricing starts at just $83,000,000 for 6.4 tons per Geosynchronous Transfer Orbit. Prices go up from there.

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SpaceXs Chairman Elon Musk, who is also behind the successful launch of Tesla Motor Cars, proclaims that the company has been cash flow positive for over six years, and with the future looking bright speculation has begun as to when to expect an IPO. However, hot off the success of both Tesla and the solar panel company SolarCity, Musk remains coy as to when we can expect the offering. In the meantime, several other companies in the same arena are available for stock purchases today including Aliant and Boeing, who both have plans to launch a manned space mission by the end of 2015.

One of the hurdles in space travel beyond our current capabilities is the amount of energy needed just to break our atmosphere.

Story Name | S E C T I O N N A M E

ECHO AD

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S P E C I A L F E A T U R E | The Commercialization of Space

Virgin Galactic team and the VSS Enterprise

SPACE MINING – THE NEXT GREAT GOLD RUSH? For thousands of years, adventurers and prospectors have searched and mined every last bit of the planet from the highest mountains to deep undersea looking for precious minerals and other natural resources for consumption. Now, as we go deeper into the new millennium the future of resource exploitation may not be on Earth, but rather in space. Companies such as Planetary Resources and Deep Space Industries are private corporations using long term, but profitbased business plans to further the trend of commercializing space. These companies are filled with a new generation of hungry engineers and well financed with big name backers such as Avatar filmmaker James Cameron, billionaire adventurer and businessman Richard Branson, and Google’s Eric Schmidt. Scientists believe based on studying meteorites and other “space rocks” that have been found on Earth that asteroids contain high levels of gold, silver, platinum, iron, nickel and massive amounts of ice that can be turned into water. All these riches are there for the taking. But the taking (and more importantly getting it home) is the tricky part.

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And it is a good thing that they are well financed with a long term strategic vision because while there are potentially unlimited riches in outer space, the job of finding, mining and delivering these materials is Herculean to say the least. The first step is to categorize as many of the 9,000 asteroids that are near Earth as possible, with approximately 1,500 of those asteroids easier to reach than landing on the moon. Planetary Resources recently completed funding of just over $1,500,000 from Kick Starter on an ask of $1,000,000 to build the Arkyd-100 space telescope, a fifteen kilogram space telescope expected to launch in 2015 capable of finding and categorizing asteroids for future exploitation. The next and more complicated step will be to create small unmanned ships capable of traveling to the asteroid and eventually capable of harvesting the raw material on-site or developing capabilities to move the asteroids into a position where they can be harvested at a space station. And this type of research and development in a brand new field is costly and without a solid timeframe for investment return. Even when those walls are breached, the path to profitability will be difficult. The main issue is that even if they can find and harvest the abundance of gold, silver, platinum and other

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S P E C I A L F E A T U R E | The Commercialization of Space

precious materials prevalent on these asteroids, the high cost of delivering them to Earth is not expected to be cost efficient until the mining and recovery costs can be brought under control. So, the trick is determining how these companies can survive the short term. The first step is the tried and true method of patenting their discoveries during the research and development stage. The second is developing a platform for future space exploration. One of the hurdles in space travel beyond our current capabilities is the amount of energy needed just to break our atmosphere. The weight (and space needed) to carry that much fuel makes going deeper into space difficult and cost prohibitive. Deep Space Industries believes that asteroid mining is the key to changing the paradigm. DSI believes that they can create a space station, or perhaps it is easier to imagine a truck stop in space capable of delivering fuel, water and other resources needed to restock exploration missions in space. Per DSI, the resources on these asteroids are capable of creating and supplying â&#x20AC;&#x153;air, water, propellant and other structures needed to supply and grow a new space based industrial economy.â&#x20AC;?

Credit: SpaceX The Dragon spacecraft is secured before being transported back to a SpaceX facility in May 2012.

With companies and governments expected to spend upwards of $50,000,000 on space-based products in 2013 the room for growth over the next decade seems wide open.

The ARKYD 100, a commercial space telescope within reach of the private citizen

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The Commercialization of Space | S P E C I A L F E A T U R E

LIVING AND WORKING SPACE In the future with space mining supplying the necessary materials, perhaps further manned space missions are possible. In the meantime, how about living and working in space right now? Bigelow Aerospace believe they have the answer with the BEAM (Bigelow Expandable Activity Module) project. The BEAM is designed like a large balloon to expand once in orbit allowing for a low cost microgravity environment. The BEAM system currently being tested would offer a lighter and easier to launch habitat perfect for crew quarters or as research and development in low gravity situations. Bigelowâ&#x20AC;&#x2122;s business model is simple. As food and drug companies and other cutting edge industries continue to fight for space in microgravity environments, the relatively low cost BEAM habitats can be leased out for approximately $25,000,000 for a two-month stay.

THE NEXT GREAT LEAP With the doors to space wide open and with cutting edge companies leading the way, the future of space travel is as healthy as it has been since the early days of NASA. With the goal of staying affordable and on budget forcing companies to find ways to do things cheaper, faster and safer, who knows what will be the impetus for the next great space race?

Credit: SpaceX In 2011 SpaceX announced plans for the Falcon Heavy rocket. Capable of carrying 53 tons to low-Earth orbit, Falcon Heavy will be the most powerful rocket in the world, second only to the Apollo-era Saturn V.

Credit: SpaceX Artistâ&#x20AC;&#x2122;s rendition of a Dragon spacecraft using its SuperDraco thrusters to land on Mars.

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S E C T I O N N A M E | Story Name

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Collector Cars | S P E C I A L F E A T U R E

Collector C ars By John Gilbert

Rarified Air Breeds Investment Automobiles T

he end of World War II marked the beginning of California cornering the world’s output of special interest automobiles. Of all the intriguing makes and models manufactured, over eighty-percent of global production shipped directly to California. The onslaught of sports cars from foreign shores motivated US manufacturers into producing limited number special editions to curb the tide. The results were an international mix of classic, sports and muscle cars heavily concentrated on California real estate. In the 21st Century, California has become a hostile environment for the automobile, yet the passion of its car culture is as strong as ever. Seven days a week there’s a disproportionately high number of old cars spotted on the streets of Newport Beach, California. Does this mean times are tough behind the Orange Curtain, or is there a movement brewing against the accelerated obsolescence one inherits with buying a new car? The correct answer is “neither” as these old cars are rolling investments. Art history, the fountain of youth and gold bullion all wrapped into one.

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S P E C I A L F E A T U R E | Collector Cars

James Coburn

Trust Your Instincts The memoirs of my life as a classic car collector wouldn’t be a Horatio Alger success story, rather a guide for others how to avoid a bad decision when they meet with a fork in the road. At almost every crossroads I’ve made the wrong choice, and consequently have had to sublimate the outcome from memory. When it comes to collecting cars, the first and most important rule is to trust your first instincts. I can recount numerous times when I didn’t, but the most painful recollection is of not one, but two rare vintage Ferraris I allowed to slip away. The year was 1985, and I owned Auto Exotics, a full service restoration shop located in Westminster, California. One morning while having breakfast at Café Westminster, my coffee drinking buddy Duane told me about an odd character that had some kind of old Ferrari stored in his garage. Duane was a car guy with a ’63½ R-code 427 Galaxie parked in his garage, but had no real interest in Ferraris. He only mentioned the thing because I had several 246 Dino Spyders in my shop at the time. Getting the Ferrari’s location out of Duane took several weeks, and just as I was starting to chalk it up as BS, Duane drove me over to the guy’s house. No one would have ever guessed there was a rare, 1961 Ferrari Spyder in this garage. The house was a dilapidated mid-modern tract home not far from Anaheim’s barrio. The unmolested ‘61 Ferrari was the only vestige of the owner having ever met with success. At point blank I asked the guy if he wanted to sell the Ferrari, but he avoided the question with drooling babble, and wandered back into his dwelling. 38 | American Hard Assets www.ahametals.com

I couldn’t get the hardtop-equipped black ’61 PF Spyder out of my mind. I returned numerous times trying to get the guy to name his price. The fifth time was a charm, in a rare moment of conversational clarity the man told me I could have the car for $9,000. I knew other running examples were selling for much

In the 21st Century, California has become a hostile environment for the automobile, yet the passion of its car culture is as strong as ever. more, but I didn’t trust my gut. I asked my friend Terry, owner of a nearby tool and die shop if he thought I should buy the car for nine grand. Terry owned a LWB ’59 Ferrari 250 Pininfarina coupe he said I could buy for $5,000 instead. The coupe was apart with a freshly blueprinted V-12 Colombo motor poised adjacent on an engine stand. I had the five grand, but was fixated on acquiring the ’61 PF Spyder. It was time to jettison my old Martin guitar to generate some of the extra dough I needed. In retrospect I should have immediately dumped my ’60 Austin-Healy Bugeye Sprite, a pack of ’67 Austin Mini Cooper S’s, three Jensen-Healy roadsters, an XKE, plus some old Harley-Davidsons for whatever I could get. I looked to a good friend for help. Herman a fellow British car collector and vintage guitar aficionado

Collector Cars | S P E C I A L F E A T U R E

Steve McQueen

had been through escapades of this sort with me in the past. Herman set me up with his friend Howie Hubberman at Guitars R Us in Hollywood. Howie brokered the deal, and I sold my 1917 Martin 042 to Bob Dylan for a thousand bucks. Second guessing my instincts, I asked Herman what he thought about the Ferrari 250 PF Spyder . Herman told me he didn’t think it was a model that would ever amount to much. Regrettably that was enough to discourage me from pursuing either car any further. In a way Herman was right. In the last 28 years a Ferrari 250 PF Spyder hasn’t appreciated nearly as much as a Ferrari 250 California Spyder. It’s not hard to get an online appraisal for just about any collector car ever made. I checked with Hagerty’s reference chart and in April 2013 they valued the ’61 PF Spyder at $1.1-million and the ’59 PF coupe at $365,000. A ’61 Ferrari 250 California Spyder in number one condition was valued at $8.8-million. In retrospect, my feeling about the pair of Ferrari 250 PF’s appreciating from $14,000 to $1.4-million? If I didn’t have to finish this story, I’d seriously consider sticking a screwdriver in my throat. As a sidebar, Colombo V-12 powered Ferraris have continued to skyrocket in value since April, 2013. Additionally it should be mentioned vintage Ferraris weathered from 2008 onward significantly better than other marques, declining in value only momentarily during the recession’s lowest ebb, and then rebounding higher than ever.

Establish Provenance Let’s discuss concerns that apply to any collector automobile to be considered as an investment. Provenance is a term thrown about frequently at collector car auctions, but why is it important? Provenance is a documented history of the car’s origins to establish the car is genuine, and is exactly what the seller claims it to be. In my opinion the most important document necessary to authenticate a vehicle is having the build sheet in hand. Unfortunately the possibility of a build sheet existing varies from manufacturer to manufacturer. Old Chevrolets make it pretty easy if the build sheet is still located under the back seat. If not, the next place to look is in between the trunk floor and the top of the gas tank. That requires removing the gas tank, and the odds are good if the car is unmolested, a build sheet will be found. The build sheet for a classic Chevrolet truck if undisturbed will be located trapped under the front seat in between the springs and foam seat cushion. Alas, the seat springs act like a guillotine, and the brittle document is very difficult to remove intact. Not all manufacturers called the document a build sheet. In 2007 I spoke with Dean Weber, archivist for the Ford Motor Company in Dearborn, Michigan. Dean told me Ford called build sheets the “traveler” and explained that a traveler was taped to the windshield, and then at the end of the production line - depending on the assembly plant - was plucked off and thrown into a trash barrel. Mopar lingo for a build sheet is “the broadcast”. In addition to a broadcast sheet, it’s not unusual to find IBM cards while digging through a 50s or 60s Chrysler product’s interior.

American Hard Assets www.ahametals.com | 39

S P E C I A L F E A T U R E | Collector Cars

VIN to Win Be aware of buying a rare car the factory never built. The importance of a build sheet is that every option installed by the factory will be listed, thus making it the absolute final word for confirming a car’s rareness and authenticity. A lack of a build sheet affects ultimate value, but one hasn’t reached a dead end if the build sheet is missing. The next important item to verify is the VIN (vehicle identification number). The exact format varies from make to country of origin, but a vehicle’s pedigree can be authenticated by the VIN. For example early year high-performance Ford Mustangs were coded with a K in the VIN. One has to remove the Shelby VIN tag to reveal it, but the early Shelby 350GTs will have a FOMOCO stamped K-code VIN underneath Shelby American’s aluminum VIN tag. Oh, and if you discover an early Mustang with a K-code VIN, add $10,000 to the car’s total value over a garden variety Mustang. Above and beyond decoding the VIN via an Internet collector forum, there’s a host of experts and market consultants available. For instance the Marti Report covers Ford products from 1967-1993, and thanks to a licensing agreement with Ford goes deep into detail. Galen Govier is the guru for Mopar products, and unearths every intricate detail from NASCAR legal Chrysler letter cars to Street Hemi powered Dodges and Plymouths. General Motors’ Pontiac division did a better job of preserving history than the other divisions, hence a lot of production information is available to authenticate a Pontiac. In England, the Heritage Motor Centre is available for providing certificates and information for numerous British brands including, MG, AustinHealy, Jaguar, Aston Martin and Lagonda. Beyond factory documentation and cars sold new, there’s the value attached to a vehicle that was celebrity-owned, or produced a major milestone in automobile history. An example of what celebrity provenance can add to the bottom line, James Coburn’s 1961 Ferrari 250 Cal Spyder recently sold at auction for $10.9 million. Bear in mind what a vehicle brings at auction isn’t necessarily an indication of what its current value is. At a collector auction, the only sure thing is that there were two bidders ready and willing to pay whatever it took to keep the other guy from buying the car. Great public entertainment with a circus environment, collector car auctions are a rich man’s game where players can win or lose big. … As an 40 | American Hard Assets www.ahametals.com

Ferrari 250 Cal Spyder

Collector Cars | S P E C I A L F E A T U R E

added bonus, the complimentary food in the Skybox is pretty good. Years after an automobile has left the showroom floor it can be difficult to verify its provenance. Keeping historical documents with a car was not something most owners thought about back when the cars were new. One bought a particular car because one desired it, and rarely thought about keeping it as a long term investment. … After all, who in their wildest dreams could have imagined today’s market? That said, there are rare examples to be found of near-zero mileage original cars including dealership owners and speculators who have tucked them away.

Dirt on the Bottle There’s a Century and a quarter’s worth of automobile production available in today’s investor market. I call the highend most desirable of collectible automobiles “wine bottles”. These are survivors that for the most part escaped butchers at body shops, shade-tree mechanics’ lame efforts, and were relegated to hibernate for extended periods indoors. To loosely categorize quality, automobile restorations are grouped by the decade they were restored in. “They’re only original once” describes it to a T. For example, once a car’s original factory-

baked enamel has been stripped bare and recoated with acrylic lacquer in the 60s, or re-sprayed with urethane in the 90s all originality is lost. Some cars came new in heat-cured acrylic lacquer, and often ended up splashed with $29.95 Earl Scheib enamel jobs. Mr. Scheib’s shops were famous for leaving D-A sander marks in the glass, and painting all the rubber in the door jambs. I still have the receipt for paying Uncle Earl to ruin my ’57 Chevy Bel-Air in 1969.

White Shoes, White Belt, Cadillac -Rarities Emerge The used car market has always had a dark underbelly, and in today’s collector car scene things haven’t changed much. I have a friend who’s spent millions at collector auctions, and every car he bought came with its own pack of surprises. It’s a given that brake hydraulics are usually rusty and will need costly repairs. That’s unless the car is to be used as a coffee table, or if “why stop if you’re having fun” is your mantra. There’s a lot to be said for the thrill of the hunt. For whatever reasons, pick out the car you desire and start searching. Remember that these cars are art history, and rare works of art thought to be extinct have been known to resurface.

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W A T C H E S A N D G E M S | The Iconic Power Watch

ROLEX

The Iconic Power Watch

BY ED ESTLOW

BRAND OF CHOICE FOR THE RICH, THE POWERFUL, THE FAMOUS AND THE INFAMOUS

hich watch brand above all others announces to the world that you are a member of the elite in your chosen field? Patek Philippe? Vacheron Constantin? Jaeger LeCoultre? All excellent choices, no doubt. But no. For well over a half century, Rolex has been the brand to wear if you were a world leader, an adventurer, a commando, a rock star, an A-list actor, or a major sports figure.

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JAMES CAMERON FILM DIRECTOR

W A T C H E S A N D G E M S | The Iconic Power Watch

Paul Altieri of Bob’s Watches, a Huntington Beach, CA – based business specializing in pre-owned Rolex watches, says, “Most people wear a watch so they will know the time of day, of course. But wearing a Rolex means more which speaks to why famous people like Brad Pitt, Paul Newman, Steve McQueen, James Bond [in the books and as portrayed by Sean Connery, George Lazenby, Roger Moore and Timothy Dalton], JZ and many other celebrities wear, or wore, a Rolex.

THE WATCHES OF ROLEX Let’s take a step back for some background on the watches themselves. The Rolex models you hear most about are the Day-Date, the Datejust, the Submariner, the GMT, the Cosmograph Daytona, and the Explorer. Others include the Sea-Dweller and Sea-Dweller Deepsea, the Lady Datejust, the Air King, the Yacht-Master and Yacht-Master II, the Milgauss, and the new Sky-Dweller. There’s also the Cellini line, which is a more designer-inspired line of watches.

WHY DO PEOPLE WEAR A ROLEX? Altieri says, “The name is insurmountably fashionable without being ‘trendy’ by any means, which is what the most powerful leaders strive for. It typically symbolizes the hard work that went into achieving success in life or some special occasion like a graduation, a wedding, or election to political office.” To that end, I recently heard an anecdote about a National Geographic photographer. It seems that he and a friend were on a particularly arduous photo shoot in the heart of Africa in the 1960s. When they finished the assignment, they went to the nearest large town with a jeweler and bought themselves matching GMTs (their choice was the version with the blue and red bezel – the ‘Pepsi’ bezel as it’s come to be called). It’s the only watch he’s worn ever since – every day for upwards of 50 years.

MARLON BRANDO ACTOR

44 | American Hard Assets www.ahametals.com

Legend has it that the Rolex Day-Date – the solid gold or platinum timepiece with the day of the week arcing across the dial at 12:00 and the date under the “Cyclops” magnifier window at 3:00 – was nicknamed “The President” precisely because so many Presidents – United States and other countries’ leaders – wore one. The Datejust is Rolex’s workhorse dress watch. Similar to the Day-Date, but date only and a bit more understated. The Submariner of course, is the definitive dive watch. It looks great in the water, with T-shirt and jeans, or with a suit. The GMT is basically a two time zone version of the Submariner, sometimes without quite the same level of water resistance. As international air travel blossomed in the 1950s, Pan American Airlines was instrumental in the development of the GMT for their pilots.

DWIGHT EISENHOWER U.S. PRESIDENT

The Iconic Power Watch | W A T C H E S A N D G E M S

The Cosmograph Daytona is Rolex’s entry in the chronograph arena. Often referred to simply as “the Daytona,” the racinginspired chrono was called the Le Mans before Rolex began sponsoring the 24 hour endurance race held at the Daytona International Speedway each winter. The Explorer will fool you into thinking it’s the understated Plain-Jane of the line, an every day, wear-to-the-grocery-store watch. Nothing could be further from the truth. The roots of its fame are at the pinnacles of the Himalayas. THE RICH, THE POWERFUL, THE FAMOUS, AND THE INFAMOUS

in Ian Fleming’s novels – probably because Fleming himself wore one, an Explorer. Perhaps inspired by Fleming and Bond, Her Majesty, the Queen of England, issued military spec Submariner “Milsubs” to British Navy divers in the 1980s. These days, verified examples fetch six figures in the vintage market. Last year, filmmaker James Cameron wore a Deepsea to the deepest part of the Mariana Trench, the Challenger Deep. Another Deepsea was strapped to the robot manipulator arm of the DEEPSEA CHALLENGER submersible which carried Cameron to the bottom and back. Actor Paul Newman wore several versions of the Daytona. Certain early models became known as “Paul Newman” Daytonas. These days you can see Maroon 5 front man Adam Levine occasionally sporting a stainless steel Paul Newman Daytona while coaching his team on the hit NBC reality show, The Voice. Supermodel Elle MacPherson occasionally sports a yellow gold version.

Golfer Jack Nicklaus has worn his unadorned 18K yellow gold Day-Date for decades. Scottish racer Jackie Stewart bought a similar piece with his share of the purse from the 1966 Indy 500. Novelist Randy Wayne White’s character Doc Ford, a former clandestine services “negotiator” (a euphemism for assassin), wears a beat-up old no-date Submariner. James Bond wore a Submariner in several movies, and favored Rolex exclusively

Sir Edmund Hillary famously wore an Explorer to the top of Mt. Everest in 1953. Reinhold Messner wore an Explorer II while climbing K2 in 1979, as well as during numerous other mountaineering adventures.

Today’s young business leaders still eye Rolex as the brand to wear once they’ve “arrived”.

ROGER FEDERER

JACK NICKLAUS

TENNIS CHAMPION

GOLF ICON

American Hard Assets www.ahametals.com | 45

W A T C H E S A N D G E M S | The Iconic Power Watch

But Paul Altieri notes, “While most people know the famous stars like actors and professional athletes, most are not as aware that people in power, politicians, foreign leaders, Presidents and heads of state also wear Rolex. They wear a Rolex as a mark of power and prestige. “Even Fidel Castro wore a Rolex. In fact, there are photos of him wearing his Rolex the day he took over control of Cuba. Other political leaders include Jacques Chirac and Nicolas Sarkozy (both former French Presidents), Boris Yeltsin, the first President of the Russian Federation, Gerald Ford and John McCain.” U.S. Presidents Dwight Eisenhower, Lyndon Johnson and Gerald Ford wore Day-Dates. Ronald Reagan wore a Datejust. Legend has it that Marilyn Monroe gave a Day-Date to President Kennedy. A watch with an inscription from Monroe to Kennedy exists, but the provenance is in dispute and some experts maintain the watch cannot be as represented because its serial number apparently puts its manufacture in 1964 – after Kennedy and Monroe were both gone. High profile personalities as diverse as Steve McQueen, Pink Floyd founding member Roger Waters, Martin Luther King Jr., the Dalai Lama, Pope John-Paul II, Muammar Gaddafi and pals of The Revolution, Ernesto “Che” Guevara and Fidel Castro, have worn Rolexes. And it’s not just men. Hillary Clinton wears a Rolex Lady Datejust. Ellen DeGeneres, Lindsay Vonn, Madonna and Sheryl Crow each wear Rolex. And women are wearing larger watches now than ever before. One retailer is quoted as saying well over 90% of the Rolexes sold to women in their store are men’s sizes. So you see the likes of Jennifer Aniston smaller models in the lineup as well. And they’re still manufacturing an estimated three quarters of a million timepieces each year, and some estimates put the number at over a million.

“They wear a Rolex as a mark of power and prestige.”

The Iconic Power Watch | W A T C H E S A N D G E M S

Today’s young business leaders still eye Rolex as the brand to wear once they’ve “arrived.” My neighbors, Two young professional men living across the street with young families, profess they will purchase a Rolex when they feel they’ve attained the proper level of career achievement. Current leading sports figures like Roger Federer, Lindsey Vonn and Tiger Woods have recently become brand ambassadors. Late last year, Rolex entered into a multi-year partnership with Formula 1 auto racing. So it seems The Crown is not going away. Quite the opposite. It’s being sought out by, and passed on to, a new generation of world leaders of all stripes.

Ed Estlow is a freelance writer and custom jewelry designer based in Minneapolis, MN.

D iamonds as

BULLION

The New (and Sparkling) Investment Frontier By: Amber Ness

48 | American Hard Assets www.ahametals.com

n the summer of 2011, message boards and celebrity gossip sites all over the world nearly lost their proverbial heads when news broke that Mila Kunis, a twentysomething American actress, dropped $7000 for a diamond facial.

This wasn’t the first time diamonds were associated with foreverness. During the height of the Great Depression, De Beers launched a brilliant, now-famous marketing campaign, aimed at convincing men everywhere that diamonds were the key to a woman’s heart. And by extension, their own status.

In addition to their timeless value as high-end jewelry, the precious stones are supposed to be chock full of antioxidants that keep the rich and beautiful forever young.

By the time copywriter Frances Garety nervously proposed the phrase “diamonds are forever” to executives at De Beers, most of the world had swallowed the idea, hook-line-and-sinker, that to get married meant spending an entire month’s salary on the largest rock you could possibly afford.

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W A T C H E S A N D G E M S | Diamonds as Bullion

For the next 50 years, De Beers maintained its stronghold on the diamond market — selling 85-90 percent of the world’s precious stones — by artificially stabilizing prices and buying every last diamond from any miner with the audacity to dig for themself. Yet by the turn of the twenty-first century, the combination of concern over blood diamonds from Africa, and ever expanding supplies from places like India, South Africa and Canada, had pounded the nails in the coffin of De Beers’ 150-year-old monopoly. 2001 though, marked a new era for diamonds, especially as an alternative tangible asset for individual investment.

Diamonds as Bullion: A New Approach for A New Age When most of us hear the word bullion, we think of shimmering one pound bars of gold and stacks of silver coins like the Canadian Maple or American Eagle. And though bullion has traditionally been defined as precious metal coins and bars minted for investment purposes, bullion is also defined as an investment with the potential to store value and hedge against inflation or economic tumult. As gold and silver prices began to have serious problems earlier this year, investors turned to other safe haven investments — like diamonds — as an insurance policy that would protect and grow their wealth. Some of the world’s most trusted gold and silver bullion dealers, given lemons, have started making diamond-bullion-lemonade. With a few clicks of the mouse, investors can visit their favorite sites to purchase what is now being dubbed “diamond bullion.” And they’re doing so for a number of reasons.

50 | American Hard Assets www.ahametals.com

Why Invest in Diamond Bullion? • Portability Diamonds boast high value per unit, making them incredibly easy to store and transfer. This means they can serve as emergency funds, easy to throw in your suitcase as you make a mad dash for the door. • Dwindling Supply of Fancy Colored Diamonds Rare stones that are blue, green, pink and yellow are a secure asset, thanks in large part to supply and demand economics. As Rio Tinto makes plans to close Western Australia’s Argyle Mine sometime in 2018/2019, supply of the rare stones is expected to dry up. • The New Diamond ETF Last summer, the US Patent and Trademark Office approved a patent that classifies investment-grade diamonds for commercial trading and investing, so diamonds fall into a publicly traded asset class. The physically backed ETF from GemShares is expected to be on the NASDAQ as early as 2014. • Increased World Demand It’s no secret that the United States has the largest diamond market in the world, but thanks to a rising GDP in nations like India and China, many experts believe that Asians will purchase more diamonds than Americans by 2020 — and sales are expected to reach more than $26 billion the same year. In China alone, demand for the precious gem has grown 32 percent a year since 2005. Add that to the addition of Northern Canada’s Ekati mine which opens new doors for the North American market. • Long Term Store of Value De Beers had a point: diamonds really are forever. As a tangible, hard asset like gold and silver heirlooms, you can hold diamonds in your hand and pass them on to your grandchildren.

Diamonds as Bullion | W A T C H E S A N D G E M S

Why Not Invest in Diamonds? Just like everything else, investing in diamonds has its detractors. Here’s why. • No Set Values Despite the existence of the Rapaport Diamond Report at http://www.diamonds.net — which many complain is overly expensive and inaccessible to everyday investors — it is difficult to price different diamond sizes, which impacts liquidity. • A Fungibility Problem Many argue that diamonds are not fungible because they cannot easily be traded, unlike gold or silver, which is always worth the same amount, ounce for ounce. • Sales Tax In the United States and most developed nations, diamonds are subject to a sales tax, which impacts the price for individual buyers. In other parts of the world, like the European Union, diamonds are also subject to value added taxes.

“...bullion is also defined as an investment with the potential to store value and hedge against inflation or economic tumult.”

Growth (and the Future) for Diamond Bullion In an interview reported all over the investment world, Matt Manson, president and chief executive officer of Stornoway Diamond Corp said, “the target in the future is to have 1520 percent of world diamond demand be people purchasing diamonds for just this purpose — for physical diamonds as an investment vehicle.” Indeed, according to some experts, demand for diamonds is already growing at an astounding three percent a year. With the growth of Asian and North American diamond markets, and rising prices of diamonds graded three and five carats, it is projected that diamonds are about to enjoy an incredibly bright future.

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W A T C H E S A N D G E M S | Diamonds as Bullion

The Four C’s of Diamond Grading In order to start buying, it’s important to understand the fundamentals of diamond investing. The Four C’s of Diamond Grading, developed by the Gemological Institute of America, is the universal scale for grading diamonds. It is based on four key characteristics and influences the value and price of any given diamond. • Color - In white diamonds, color refers to the lack thereof. Diamonds are graded on a scale from D to Z, or colorless to light yellow/brown. The clearer, the better. • Clarity - Features 11 grades, from flawless to included. The fewer the inclusions the higher the clarity grade. • Cut - A diamond’s cut creates its sparkle, which largely impacts its appearance. • Carat - The word “carat” is linked to the carob seed, the standard for weighing diamonds for generations. One carat is equal to 0.2 grams.

52 | American Hard Assets www.ahametals.com

L U X U R Y A N D L I F E S T Y L E | The Dalmore Paterson Collection

Harrods offers The Dalmore Paterson Collection for

$1.5 Million by Noah Joseph

f the name “Dalmore” rings a bell, there are some good reasons for that. It may be just one of several dozen whisky distilleries in Scotland, but it just so happens to have some of the oldest stocks in the business. And when it bottles some of that stock and makes it available to the public, it’s been known to fetch record prices. In 2003, The Dalmore sold a bottle of 62-year-old whisky for around $38,387, setting a world record in the process. Three years later, another bottle of the same sold for almost $49K. In 2010, the distillery sold three bottles of its 64-year-old Trinitas for a mind-blowing $153K. That was surpassed the following year when another bottle of the 62 sold for just over $192K — five times the price with which a bottle of the same had set the world record less than a decade prior. But now The Dalmore is taking things a step further with its new Paterson Collection. Named after its legendary master distiller, Richard Paterson, the collection consists of 12 bottles ranging in vintage from 1926 through the 1990’s. Paterson diligently selected the casks for the collection over the course of some 1,000 hours of work, logging the process in a hand-crafted, silver-foiled and leather-bound ledger that comes with the collection. Each bottle is a handcrafted crystal decanter from Glencairn, etched in silver and named after a major influence in Paterson’s career,

54 | American Hard Assets www.ahametals.com

VOTED WORLD’S BEST TASTING TEQUILA

t e q u i l a av i o n . c o m

Named after its legendary master distiller, Richard Paterson, the collection consists of 12 bottles ranging in vintage from 1926 through the 1990’s. including his own father, James Whyte and Charles Mackay, founders of the distillery’s parent company. The entire collection comes in a handcrafted wooden cabinet that took 700 hours to design and construct. “We have created a collection of whiskies of the very highest quality that can truly lay claim to be the only one of its kind in the world,” said Paterson. “I personally have invested a huge amount of time ensuring that each of these twelve expressions represent the very best of the incredibly rare and valuable stocks that we nurture up at the distillery in Alness. I’m delighted that we have been able to give this collection the showcase that it deserves, with centre stage in the spirit room of the world’s number one luxury retailer.” The Dalmore Paterson Collection is being offered exclusively through the new Fine Spirits Room at Harrods at the jawdropping price of $1,516,306. 56 | American Hard Assets www.ahametals.com

L U X U R Y A N D L I F E S T Y L E | Around the World in 25 Days

Around the World in

25Days On Intravâ&#x20AC;&#x2122;s $100K Private Jet Tours by Tara Imperatore

ust when you thought there werenâ&#x20AC;&#x2122;t enough lavish ways to travel, another private jet tour company pops up and saves the day. Launched this past April, Intrav is giving just 50 guests at a time (who can take almost a month off from work/ life and spare $100K) the opportunity to go on personalized, once-in-a-lifetime trips around the world.

58 | American Hard Assets www.ahametals.com

Around the World in 25 Days | L U X U R Y A N D L I F E S T Y L E

Because there is so much competition out there for private jet charters, tour companies and now the combination of the two, Intrav is attempting to set themselves apart. They’re doing so by offering a tricked out Boeing 757 that discerning travelers can’t find anywhere else right now. Instead of packing it to capacity (which is normally 233 people), the plane is equipped with only fifty 180-degree flat-bed seats. Flat-bed seats are of course nothing new, but these also feature adjustable headrests, massage capabilities, and pillowtop mattresses. Guests can sprawl out with six-and-a-half feet of leg room and relax comfortably behind privacy screens while using the noise-cancelling headsets and personal iPads (for guests to take home after their journey). Also available on board is Wi-Fi, a fully stocked mini-bar, and a chef to make microwaved airplane food a thing of the past. Currently Intrav has scheduled 12 different itineraries for 2014-2015, with the first one taking place April 7-May 1, 2014 and repeating September 8-October 2, 2014. ‘Timeless Destinations: A Journey Around The World’ will depart from Fort Lauderdale, FL, landing in Rio de Janeiro, Brazil, Easter Island, Chile, Bora Bora, French Polynesia, Sydney, Australia, Yangon & Bagan, Myanmar, Taj Mahal & Jaipur, India, Istanbul, Turkey, and Marrakesh, Morocco before heading back to Florida. Other themed itineraries include ‘Cultural Tapestries’, ‘Orient-Express’, ‘Seven Wonders’, ‘Extraordinary Africa’, and ‘Global Treasures’, all running around 25 days. In each stop, the comfort continues at the finest 5-star accommodations, like Ritz-Carlton, Four Seasons and Taj properties. For $99,950 per person, double occupancy, you can choose the global excursion that suits your personality or piques your interest the most. So grab your wealthiest travel partner and get ready to recline in style on your way to some of the most popular, untouched and exotic locations the world over.

American Hard Assets www.ahametals.com | 59

A S S E T I N V E S T M E N T | Smart Gold Buying - Part 2 of 2

Australia’s latest attempt at competing in the bullion coin market is its .9999 fine gold Kangaroo.

Dollars & Sense

Smart gold bullion coin buying simplified - Part 2 of 2 By Fred Reed, NLG

Fred Reed returns to bring the second part to “Dollars & Sense” Part One can be found in the July/August issue of American Hard Assets magazine.

hina’s 100-yuan Panda coins were introduced in 1982, weighing 31.132 grams, .999 fine and yielding .9999 gold AGW. Fractional and larger Pandas were also minted. Interest in these coins during their first decade peaked during the 1986-1989 period when nearly 300,000 one-ounce coins were minted. There has been a resurgence of interest in the heavily promoted Panda coins since 2006. According to Coin World, citing a report from China Gold Coin Corp., the distributor of the coins in China, mintage last year (2012) was pushed to double previously recorded high figures due to soaring demand in China’s 60 | American Hard Assets www.ahametals.com

super-heated economy. If that is true, mintage of the oneounce gold Panda could conceivably reach the million mark, since its U.S. distributor PandaAmerica pegged the 2011 mintage at a half million pieces. Since 2011, China has become the world’s largest market for gold bullion coins and bars for investment, according to the trade association World Gold Council.

Austria chimed in during 1989 with its .9999 fine 2000-schilling Vienna Philharmonics. These elegant coins were 37mm in diameter, weighed 31.10365 grams and also yielded .9999 oz. gold AGW. With the arrival of the

Smart Gold Buying - Part 2 of 2 | A S S E T I N V E S T M E N T

Knowledgeable investors may note there are other bullion coin offerings in the marketplace not to mention private bars and ingots with long traditions themselves.

Internationally, Canada’s Maple Leaf remains very popular. Mintages from 2008-2011 exceeded 700,000 pieces annually, challenging the American Eagle for supremacy. The Krugerrand, too, has experienced a sales resurgence since about 2007.

European Economic Union, the gold Philharmonic series continued with the stated denomination of 100 Euro, making it the only investment grade coin denominated in Euros. Fractional sizes are also minted. The Philharmonic has enjoyed steady sales since its introduction, with most years recording six-figure quantities sold. A peak of nearly 650,000 pieces was reached in 1995, and another peak of more than 900,000 pieces in 2009. The Austrian coin has reportedly become the most popular choice among European gold bullion coin investors, according to the World Gold Council.

International vs. Domestic Sales

Twenty-four karat gold coins are said to constitute 60% of the gold bullion coin market.

To put sales into perspective, according to the World Gold Council’s 2012 report “Gold Demand Trends,” several countries’ consumers invested in coins and other bullion far in excess of what Americans spent in this marketplace. WGC figures report that U.S. consumers invested in 53.4 tons of gold coins and bullion. By comparison consumers in India purchased 312.2 tons; China, 273.6 tons; Germany, 109.7 tons; Thailand, 78.1 tons, and Vietnam, 65.6 tons. Readers of American Hard Assets are likely familiar with the American Buffalo gold coinage, another .9999 fine bullion “coin.” This piece was authorized by the Presidential Dollar Coin Act of 2005, which inaugurated the series of mini “golden” brass dollars and half eagles honoring U.S. chief executives and their spouses respectively. The Act also mandated redesigning the Lincoln cent in 2009 on the bicentennial of his birth and 100th anniversary of the coin’s introduction in 1909. Twenty-four karat gold coins are said to constitute 60% of the gold bullion coin market. The intent of the coin’s issuance was to steal away investors who preferred the Maple Leaf or one of the other .9999 fine gold coins over the less pure American Eagle.

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A S S E T I N V E S T M E N T | Smart Gold Buying - Part 2 of 2

Once again the U.S. Mint used a popular coin design from our nation’s past. Modeled on the original designs of James Earle Fraser’s classic Indian Head-Bison nickel of 1913-1918, this $50 face value 24-karat bullion coin appeared in 2006. Orders were taken from June 22nd, and the first coins were shipped on July 13th of that year. This 32.7mm, 31.108 gram coin yields 1.0001 troy ounces of gold AGW. Like its counterpart, the 22-karat American Eagle, the gold Buffalo is legal tender in the United States for its $50 face value, another NCLT (Non-circulating legal tender). Mintage that first year was nearly 340,000 pieces, swelled by an additional near-quarter million Proof collector examples. Output since has shrunk as low as 136,000 largely depending on the price and popularity of gold itself. In 2008, the Mint also offered fractional gold Buffaloes. Based on spot price of $1,287.33

Gold Coin

Price

Approx. Premium

$1,355.09

.916 fine 1 oz. American Eagle

$1,355.70 $1,350.31 1 oz. Krugerrand

$1,342.09

$1,345.70 $1,336.56 .9999 fine 1 oz. American Buffalo

$1,357.09

5.10%

$1,355.70 $1,350.31 1 oz. Maple Leaf

$1,335.09

3.50%

$1,335.70 $1,333.12 1 oz. Philharmonic

$1,332.09

3.30%

$1,345.70 $1,350.94 1 oz. Kangaroo

$1,337.09

3.70%

“The reason premiums on U.S. bullion coins can be higher is because the Mint charges distributors a larger percentage over melt than foreign mint products... and so this charge is passed on the consumers...”

$1,340.70

Simplifying a Crowded Field

$1,344.06 1 oz. Panda

N/A

3.60%

$1,365.70 $1,357.82 Individual sales of certain gold coins are required to be reported on the IRS Form 1099-B.

62 | American Hard Assets www.ahametals.com

What coins should be on your wish list then? Knowledgeable investors may note there are other bullion coin offerings in the marketplace not to mention private bars and ingots with long traditions themselves. With all these choices, the savvy bullion coin buyer must determine their goals and obtain the best advice that can be mustered to implement a successful investing strategy. Note we are not talking about collecting coins, so the design is probably only incidentally important here.

Smart Gold Buying - Part 2 of 2 | A S S E T I N V E S T M E N T

Generally speaking, the first choice a buyer should make is whether to buy 22or 24-karat gold bullion coins. A broker will generally advise the preferred choice is what the broker has in abundance at the time, and should we expect differently? One aspect of making this choice should involve examining the premium over spot gold price attached to the various offerings, and to a lesser extent the spread between buy-sell prevailing at the time of the purchase. For comparison’s sake only, the gold offerings of three leading sellers of gold bullion coins in this country were examined. At the time this was being written, gold was quoted at 1,287.10 per troy ounce. As can be seen, prices vary from dealer to dealer. They also vary from day to day and change constantly riding the market during the day. But what is clearly observed is that the investor pays a premium to “buy American,” whether the investor’s coin of choice is the American Eagle or the American Buffalo one ounce gold bullion $50. Does the premium persist because of availability, successful marketing, a sense of nationalism, or the promise of security in relying on United States Mint quality and the U.S. Secret Service to police fakes? Not so much, say the experts. “The reason premiums on U.S. bullion coins can be higher is because the Mint charges distributors a larger percentage over melt than foreign mint products (don’t ask why...I have no idea) and so this charge is passed on the consumers,” California Numismatic Investments president Richard Schwary said.

“The American Gold Eagles are the only ones that do not require the purchaser to fill out a Form 1099-B.”

nobody keeps comparative data. World Gold Council Corporate Communications Director David Schraeder put the matter succinctly, “I wish I had a good resource for you,” he wrote. “We don’t track this level of detail and I’ve not heard of anyone aggregating it.” Please note that mintage and sales figures presented in this article are based on the best available information.

Other Considerations Besides Price One consideration acknowledged by various sources consulted is meeting the IRS reporting regulations on gold bullion coin sales by individuals. “One ounce Gold Eagles are probably the most widely recognized gold bullion coin in the gold market today,” Heritage Numismatics Auctions cofounder Steve Ivy mentioned. They “have a slight premium over their counterpart coins, the Canadian Maple Leaf and the South African Krugerrand.” He continues by noting that “the big difference between these bullion coins other than price is that when quantities are sold back to a dealer, the American Gold Eagles are the only ones that do not require the purchaser to fill out a Form 1099-B.”

Apparently a great many buyers are willing to pay this premium on U.S. gold bullion coins. According to the U.S. Mint, its gold sales in calendar year 2012 were 667,000 one-ounce coins, 71,000 half-ounce coins, 76,000 quarter-ounce coins and 315,000 one-tenth-ounce gold bullion coins, totaling 753,000 troy ounces of gold bullion. Through May 2013, sales are outpacing last year’s figures, including 477,000 one ounce coins, and 547,000 total bullion ounces bought up by eager buyers. The U.S. Mint is good about supplying sales figures for its bullion coin programs. These figures are available on the Mint’s web site usmint.gov and it also publishes its pricing scheme. Other national mints are as reliable in publishing their data. To the best of this writer’s knowledge (and those experts he consulted)

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A S S E T I N V E S T M E N T | Smart Gold Buying - Part 2 of 2

Coin dealer Ivy is not talking about capital gains 1099 reporting, which is mandatory regardless of the coin investment vehicle chosen. Instead he is acknowledging the simple fact that some sales gold bullion coins must be reported by individuals on an IRS form 1099-B. Proceeds from Broker and Barter Exchange Transactions, when sold in minimum quantities of 25 pieces, need to be reported in this manner. Alternatively, other coin investment vehicles he mentioned (and additional bullion coins) are not mandated to be reported in this way. “The U.S. Gold Eagle is one of America’s favorite bullion coins,” commentator Richard Schwary concurred, “and yet it is not reportable but similar bullion coins like the Canadian Maple Leaf or the South African Krugerrand made the hit list,” he continued. When selling 25 coins or more of the Krugerrand, Maple Leaf or Mexican Gold Onza, dealers are also required to report the sale on Form 1099-B. “But let’s not lose faith because there is some joy in that such reporting is not required on transactions involving the U.S. Gold Eagle, the Australian Kangaroo or the Austrian Philharmonic. There is also no reporting on any small gold bullion coins or the popular fractional gold bullion coins which are available in 1/10, 1/4, and 1/2 ounce sizes,” he added. Since privacy is desirable to many investors, reporting may be a factor to consider for some purchasers of gold bullion coins. It seems an archaic regulation requires reporting some but not all gold bullion coins when more than 25 coins are resold to a bullion dealer. However there is no definitive listing

BROKER REPORTING (1099-B)

ITEMS TO BE REPORTED

The basis of ICTA's negotiations with the IRS on Broker Reporting was to achieve a fair, reasonable, and consistent minimum threshold for reporting. The resulting Revenue Procedure (Rev. Proc. 92-103) defines "Excepted Sales." While it may not spell out every specific instance that requires reporting, it is ICTA's understanding and was the spirit of these negotiations that the following are those items to be reported under the new regulation:

Reportable Item ("The Shopping List")

Minimum Fineness*

Minimum Reportable Amount

Gold Bars

.995

Any size bars totaling 1 Kilo (32.15 troy oz.) or more.

Silver Bars

.999

Any size bars totaling 1000 troy oz. or more.

Platinum Bars

.9995

Any size bars totaling 25 troy oz. or more.

Palladium Bars

.9995

Any size bars totaling 100 troy oz. or more.

Gold 1 oz. Maple Leaf

as minted

25 1-oz. coins

Gold 1 oz. Krugerrand

as minted

25 1 oz. coins

Gold 1 oz. Mexican Onza

as minted

25 1-oz. coins

U.S. 90% Silver Coins

as minted

Any combination of dimes, quarters, or half-dollars totaling $1,000 face value or more.

* For bars, any hallmark regardless of whether that hallmark is accepted as "good delivery" on any of the commodity exchanges.

CAUTION: While a stricter interpretation of the regulations is possible, ICTA believes the above guidelines to be those which fulfill the spirit of ICTA’s negotiations with the IRS. Though the information provided herein is based on ICTA's discussions with the Internal Revenue Service, others may differ with ICTA's interpretations of these regulations. ICTA strongly cautions that alternative interpretations may not fulfill the requirements. This information is provided to assist you and is not intended to be used by you as the sole guidance for complying with these regulations. You should consult with your tax professional. For the last two decades this negotiated agreement between the ICTA and the IRS has governed reporting of gold bullion coin sales by individuals.

of which coins are which, and the feds have refused all requests to supply one. I approached dealers, lawyers and the Industry Council on Tangible Assets (ICTA), a trade group representing many bullion and coin dealers, on this point. I achieved some headway with ICTA. According to an agreement negotiated between the Industry Council on Tangible Assets and the IRS over twenty years ago only bullion coins represented by then-existing commodity contracts (some of which never actively traded) needed to be reported, and then only in quantities exceeding minimum commodity contract quantities, i.e. 25 coins. ICTA Executive Director Eloise A. Ullman supplied this author with “what we affectionately call the ‘shopping list,’” representing that agreement. It is titled “Broker Reporting (1099-B) Items to be Reported.” The basis of ICTA’s negotiations with the IRS on Broker Reporting “was to achieve a fair, reasonable, and consistent minimum threshold for reporting.” 64 | American Hard Assets www.ahametals.com

Smart Gold Buying - Part 2 of 2 | A S S E T I N V E S T M E N T

Many analysts predict gold bullion coin sales will continue to skyrocket as paper currencies are further devalued, and many countries dig themselves further into economic holes.

holes. Gold may be an attractive recourse for individual investors, and knowing what’s what should prove a fruitful step toward the financial independence they seek.

The resulting Revenue Procedure (Rev. Proc. 92103) defines the ‘Excepted Sales’. “While it may not spell out every specific instance that requires reporting,” the memorandum states, “it is ICTA’s understanding and was the spirit of these negotiations that the following are those items to be reported under the new regulation.” Sure enough, the reportable gold bullion coins listed are the Maple Leaf, Krugerrand and Mexican Onza. Sales of the U.S. Eagle, also available at the time, were excluded from the reporting requirement because no commodity contracts existed for Eagles, according to Ullman. Also apparently excluded from reporting are all other gold bullion coins introduced since that time for which no CFTC contracts exist. Another consideration for purchasers may be determining which bullion coins can be placed inside an IRA. Items that qualify include American Gold Eagles and Buffalos, Australian gold Kangaroos and Nuggets, Canadian gold Maple Leafs and Austrian gold Philharmonics. Gold has already increased more than five and a half times its 2001 price, market watchers point out. Many analysts predict gold bullion coin sales will continue to skyrocket as paper currencies are further devalued, and many countries dig themselves further into economic

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S E C T I O N N A M E | Story Name

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Story Name | S E C T I O N N A M E

Protect Your Wealth

with INTERNATIONAL BULLION STORAGE By Mark O’Byrne

“Tis the part of the wise man to keep himself today for tomorrow, and not venture all his eggs in one basket.”

he wise old proverb used by Cervantes in Don Quixote in 1605 has never been more apt or important.

TAKING POSSESSION OF BULLION AND STORING BULLION INTERNATIONALLY

The fundamental tenet of investment theory and of wealth growth and preservation is diversification. In layman’s terms one should not have all their proverbial eggs in the one basket. This concept is crucial both in terms of an entire investment and savings portfolio and also in terms of the precious metals component of a properly diversified portfolio. Unfortunately, in recent years the majority of investors and savers were not diversified – with most being very overweight in equities and property. Now many are overweight in cash and bonds. Very few have any allocation to physical bullion whatsoever.

Diversification of assets and diversification amongst assets is important. Thus, it is also important that the precious metals (gold, silver, platinum and palladium) component of a portfolio is diversified. Bullion owners should not allow themselves to be dependent on any one investment provider, digital gold platform or institution. This is why a combination of precious metal certificates, gold or silver bullion coins and bars and semi-numismatics in your possession and storage of bullion internationally with a secure and specialist third party should all be considered.

This is not a prudent strategy especially as in the coming years we are likely to see sovereign, monetary and systemic risk remaining elevated. Exchange controls, capital controls, asset and pension confiscation and “bail-ins” are very likely.

Companies, insurance companies, trusts, banks and nations can and do go bankrupt. The great advantage of physical bullion is that it has no third party risk. Bullion cannot go bust. Thus, when owning physical bullion, one of the most important things to consider is

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S E C T I O N N A M E | Story Name

“...when owning physical bullion, one of the most important things to consider is where to store your bullion and what are the legal conditions under which it is stored.” where to store your bullion and what are the legal conditions under which it is stored. Many would rather have their bullion closer to home. This may suit those with smaller amounts of bullion or for those who hope for the best but are prepared for worst case scenarios. It is prudent to be at least partially prepared for a meltdown scenario of a currency collapse and hyperinflation by owning real money, gold and silver, which will help preserve wealth. It is important to have at least some bullion in one’s possession – in a residence or office. Only do so if you feel it is secure there and make sure you have insurance (home or office) that covers the bullion and other contents. Some fear that in the event of a systemic crisis then there could be enforced bank closures or extended bank holidays. In this 68 | American Hard Assets www.ahametals.com

scenario, deposit boxes in banks and financial institutions could be sealed and the bullion confiscated. Under the Gold Confiscation Act of 1933 at the height of the Great Depression, Roosevelt ordered all gold be handed to the authorities at $20.67/oz. (prior to devaluing the dollar and revaluing gold from $20.67/oz. to $35/oz.). It is possible that in the event of such a crisis many pool accounts, digital gold providers and depositories in the UK and the US might have their gold confiscated and the clients might have their assets nationalized. In the light of these risks, one should take possession of some of your bullion. But for security reasons, generally larger amounts would be safer being stored with a secure third party. What type of facility or institution should it be stored with and

Protect your Wealth with International Bullion Storage | A S S E T I N V E S T M E N T should it be stored locally, nationally or internationally? The short answer is to store your bullion with the safest and securest facilities or institutions locally, nationally and internationally and to be sure that you are the outright legal owner of the gold. Also be sure that the storage company or investment provider can and will ensure delivery of your bullion in a format that you require should you need it, to the destination of your choosing and in a timely manner.

US AND GLOBAL SYSTEMIC AND SYSTEMATIC RISK Investors buy bullion primarily to insure and hedge against macroeconomic, geopolitical, monetary and systemic risk. Systemic risk includes the collapse of a financial system as a result of events such as a general stock market crash, fiat currency crash and or a breakdown of our modern day fractional reserve and derivative-laden banking system. Any of these would have serious ramifications and could lead to “bailins”, deflation, stagflation or hyperinflation in various jurisdictions and the collapse of the current global monetary and financial system. It is important to remember that the modern global financial and monetary system is only a few decades old. As seen in recent years, it is by no means stable and the coming months and years may test it as never before. Systematic risk describes risks which the global economy faces such as business cycles, pandemics, dependence on oil and gas, extreme natural phenomenon (such as earthquakes, floods, tsunamis and hurricanes), climate change and geopolitical risks such as terrorism and wars (including cyber warfare).

“The great advantage of physical bullion is that it has no third party risk. Bullion cannot go bust.” These systemic and systematic financial and economic risks create political risks. Increasing diminution of civil rights in even the most liberal western countries must give pause for thought. These authoritarian trends generally become more pronounced in times of recession or depression. Historically protectionism, trade frictions, capital controls, gold confiscation, currency devaluation, extended “bank holidays” or bank closures (when safety deposit boxes and cash deposits cannot be accessed), nationalization, nationalism, radicalism, communism, fascism and militarism can result.

Today in our globalized and massively interconnected financial world, a systemic or systematic financial crisis could result in a chain reaction involving waves of individual and corporate bankruptcies and large financial institutions and even sovereign governments could be at risk. In this environment, all the conventional investments – paper assets such as stocks and bonds, derivatives such as exchange traded funds (including the precious metal ETFs) and property – would likely be seriously affected and be marked down severely. This is not alarmist doom and gloom mongering. Many societies have experienced brutal economic conditions such as the hyperinflation in Germany in the early 1920s, the Great Depression in the US in the 1930s and the stagflation of the 1970s. In recent years, people in Italy, Israel, Thailand, Yugoslavia, Belarus, Russia, Peru, Ecuador, Angola, Mexico, Argentina, Iraq, Iran, Syria, Belarus, Iceland, and more recently in Zimbabwe (to name a few) have experienced currency crisis and hyperinflation.

These factors mean that having one’s bullion outside of the financial system is important, if not imperative. This can be either through personal possession or storage with a secure third party who can deliver the bullion upon demand. However, these factors also mean that besides having one’s bullion outside of the financial system it may be prudent to have some of one’s bullion outside of the jurisdiction in which one is domiciled or is a citizen. This lessens geographic risk. For these reasons it is important that investors consider ‘internationalizing their bullion to safe haven jurisdictions.”

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A S S E T I N V E S T M E N T | Protect your Wealth with International Bullion Storage

SAFETY DEPOSIT BOXES VERSUS DEPOSITORIES

A BETTER WAY TO STORE BULLION

Safety deposit boxes in banks and specialist depositories can be used but allocated accounts in specialist depositories are less risky and superior.

Ultimately, the need to reduce counterparty risk and intermediation means that risk conscious people require proximity (nearness in place and time) to their bullion. This need for proximity to gold, silver, platinum or palladium coins and bars means that most should take personal physical possession of at least some of their precious metals. Due to the many of the reasons outlined in this article many also choose to store their bullion in our vaults internationally. Safety, security and confidentiality are of paramount when entrusted with the storage of people’s precious metals.

A safe deposit box or safety deposit box is a type of safe usually located in groups inside a bank vault, in a secure room of a bank or post office or in a specialist depository. It usually holds important and valuable possessions such as important documents (wills, property deeds), family heirlooms, and cash or precious metals that a person might be reluctant to leave at home due to fear of tampering, fire, flood and theft. In recent months, safety deposit boxes have been targeted by authorities in some countries. In the UK, authorities said that one private deposit box company was facilitating money laundering and police raided the company and the 7,000 individual safety deposit boxes confiscating assets with an estimated value of $3.34 billion. In the U.S., family heirlooms, cash and bullion held in safety deposit boxes have been raided, appropriated and sold off at auction. Some state governments claim the contents are “unclaimed property” (a safety deposit box is considered “abandoned” after just 3 years) in order to raise funds for government states in grave financial difficulty. Safety deposit boxes in financial institutions that are close to insolvent or may become insolvent are high risk, as are safety deposit boxes in states or countries that are close to bankruptcy. A depository is a place where valuable objects are kept or deposited for safekeeping or storage, e.g. a high security warehouse or vault for important documents, precious works of art, valuables, heirlooms, cash and bullion. Depositories are normally private companies that are not owned by banks and thus less exposed to economic cycles or to a collapse of the financial system. They are independently insured. They make no claim over assets stored and their sole purpose is to provide the safest environment for valuable possessions. Storage is not a secondary function as it is in a bank; rather it is a primary defining function and one which is carried out to the highest standards with far less risk. 70 | American Hard Assets www.ahametals.com

Most importantly, precious metals remain the property of the individual or company. This eliminates counterparty and intermediation risk posed by business failure and company insolvency.

Protect your Wealth with International Bullion Storage | A S S E T I N V E S T M E N T

PERSONAL ALLOCATED STORAGE WITH BAILMENT Owning bullion in this way gives you the soundest protection from company insolvency – broker, digital gold dealer, bank, etc.). When businesses fail, liquidators are appointed and take control of the company’s assets, sell them and arrange a fair distribution of the assets to creditors of various classes including themselves. Liquidators generally claim ownership of every asset on a failed company’s balance sheet (including bullion). However they cannot lawfully treat bailments as the property of the company available for creditors’ benefit. Bailment is the legal action of a client entrusting their bullion to another party for safekeeping, and paying for the service with annual storage fees. Bailment describes a legal relationship in common law where physical possession of personal property such as bullion is transferred from one person or entity (the ‘bailor’ or client) to another person or entity (the ‘bailee’ or company) who subsequently holds possession of the bullion.

also offer domicile-to-domicile solutions to all important financial centers and locations internationally, insured storage for valuable goods in customs-free warehouse, customs clearance of shipments including neutralizing, dividing and repacking, and monitoring of transit mailings.

SUMMARY Don’t delay in deciding what the optimal storage solution is for your bullion. Decide on a storage plan and location and order your bullion coins and or bars or move your existing bullion as soon as you have done your due diligence. It’s important to be sure that you can ship your bullion in a format of your choosing, to a destination of your choosing at the time of your choosing. Gold and silver bullion are the ultimate form of financial insurance and in these uncertain times all investors and savers should have an allocation and own this essential insurance in the safest ways possible.

Through bailment, an individual gives up possession of their bullion but remains the outright legal owner of their bullion, with the provider acting simply as a custodian. Over the centuries there has been much less case law on the subject of custody bailments than on the subject of trusts. This is because the legal standing of custody bailments is welldefined and confers on the owners more security than if their bullion is held in a trust. This is unlike trusts, where the legal owners of a trust asset are the trustees, which can lead to litigation and potential loss of the underlying asset.

“Owning bullion in this way gives you the soundest protection from company insolvency ...” Besides insured storage of bullion, a bullion specialist should be able to provide worldwide transportation of bullion. It is best to deal with companies that do not report your purchases or stored items to domestic governments and reassuringly, operate to the highest knowyour-customer and anti-money laundering requirements. They should

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A S S E T I N V E S T M E N T | Silver Déjà Vu

SILVER DÉJÀ VU: Are We Ready for Rebound?

By Michael Haynes

rom the turn of the century in 2000 through 2010, Silver increased in value by 306%, from $5 to $20.31 per ounce. On June 30, 2013, Silver was valued at $18.86 per ounce. Is Silver positioned for Déjà Vu, a rebound from these levels to higher valuations?

Chart 1. Silver Price per Ounce, 2000-2013.

s shown in Chart 1, Silver began the century at $5 per ounce and, due to the market forces of supply and demand at work, held relatively steady until 2003. Then, with a determined climb, Silver reached approximately $15 per ounce in 2008, the year of the Great Recession. With a pause for 2008, Silver broke through $20 per ounce in 2010, moving quickly to approximately $35 in 2011, and then retreating to approximately $20 as of June 2013. Since market forces were at work all the way up from $5 through the $20mark and back down to the $20 mark, it would be useful to review the markets in 2010 (when Silver pierced $20 per ounce) so that we might understand the supply/demand relationships at that time and interpret those relationships in today’s market.

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Silver DĂŠjĂ Vu | A S S E T I N V E S T M E N T

Chart 2. Supply of Silver, 2000-2012.

THE SILVER SUPPLY HISTORY, 2000-2012

he supply of Silver is more than 95% reliant on mining and secondary (or scrap) sources, with mining providing 68% to 71% of the supply. The secondary market, Silver presented for recycling, has been relatively stable as a percentage of the supply since 2000, although the market has not experienced price reductions of the magnitude recently demonstrated in 2013. Since a portion of the secondary market may be price sensitive, it is difficult to predict how much scrap may be submitted for recycling should the lower price levels of recent weeks continue into the future. As shown in Chart 2, mining provided 689 million ounces of Silver in 2010 and 698 million ounces of Silver in 2012, an increase of only 1%, while secondary sources provided 279 million ounces in 2010 and 282 million ounces in 2012, also an increase of only 1%. From a supply perspective, 2010 and 2012 look very similar, except that with lower prices of Silver in 2013, it may be reasonable to assume that the secondary sources may not provide the same number of ounces, which may create a bias to the downside on secondary sourced ounces. On closer examination of mining sources seen in Chart 3, every source provided only 1% growth or declined in ounces from 2010 to 2013 except for two: (a) Mexico, which provided a 6% increase in ounces; and (b) China, which provided a 9% increase. Overall, mining output increased by only 9.5 million ounces, or 1% in total, including the increase of China of 9.7 million ounces. It is unclear which of the mining sources could not produce the 2012 levels of ounces economically at the lower prices in 2013. If any of Mexico, Peru or China reduces production of 5% or more in 2013 (despite the greater than 30% price correction in Silver from 2012 levels), coupled with hindrances in other mining sources, the overall mining supply could stall at 2012 levels or even decrease. In summary, supply of Silver in 2013 could be restricted in both the mining sources and secondary sources as Silver prices return to 2010 levels.

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A S S E T I N V E S T M E N T | Silver DĂŠjĂ Vu

THE SILVER DEMAND HISTORY, 2000-2012 Chart 3. Mining Sources of Silver, 2000-2012.

ith the Silver supply at levels that may stabilize or even fall due to lower Silver prices, Silver demand from Fabrication and coinage may fluctuate. Fabrication from 2010 through 2012 fulfilled 86%, 90% and 88%, respectively, of the aggregate demand for Silver each year. As shown in Chart 4, fabrication demand exceeded mining supply in every year. Accordingly, secondary sources are critical in the supply/demand balance for Silver, and with the price correction in 2013, it is unclear how Silver supply will provide sufficiently for fabrication demand. When adding the coinage demand to the fabrication demand and then comparing the aggregate demand with the aggregate supply in 2010, the margin for error was small, as the difference between supply and demand was barely 4%. The balance continued with very slim differences in supply and demand in 2011 and 2012 with a 2% shortage in supply in 2011 and a 3% excess in 2012. Upon closer examination of fabrication demand for 2010-2012 in Chart 5, only the photography segment had lower Silver fabrication demand, with a decrease of approximately 17 million ounces.

Chart 4. Silver Supply and Demand, 2000-2012.

Each of the remaining Silver fabrication demand segments increased their requirements from 2010 to 2012 and in the aggregate by 31 million ounces, which was substantially supported by the increase of approximately 12 million ounces of Silver for fabrication in electronics (which includes batteries) for 2012 over 2010. The fastest growing segment of fabrication demand is from the photovoltaic segment, with an increase of 25%, or approximately 9 million ounces of Silver from 2010 to 2012. Between the hot expansion areas of electronics (including batteries) and photovoltaics, more than 60% of the increase in Silver fabrication from 2010 to 2012 is represented.

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A S S E T I N V E S T M E N T | Silver Déjà Vu Chart 5. Fabrication Demand for Silver, 2000-2012.

The largest segment of Silver demand is from jewelry/ silverware, which increased in demand by approximately 10 million ounces from 2010 to approximately 300 million ounces, or 35% of the aggregate fabrication demand, in 2012. Of all of the segments of fabrication demand, perhaps jewelry/silverware is the most price sensitive, with rising prices restricting demand while decreasing prices fuel demand. In 2013, with the price corrections in Silver, jewelry/silverware demand may experience a material increase.

DÉJÀ VU IN SILVER POSSIBILITIES

hile it may be challenging to predict Silver prices, it is reasonable to examine the supply and demand components using historical data at similar price points to the current market and perhaps draw directional conclusions in the major segments. Supply: Silver mining in 2010 and 2012 has not grown, and with the Silver price correction in 2013, it is possible that some of the mining operations will slow due to a more unfavorable economic result. Silver Secondary sources in 2010 and 2012 have not grown and with the Silver price correction in 2013, it

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is possible that inflows of Secondary sources (or Scrap) may be sluggish. Demand: Aggregate fabrication demand in 2010 as compared to 2012 has increased very modestly. The fastest growing areas of electronics (including batteries) and photovoltaics do not seem to be restricted and in the aggregate, provide sufficient demand to more than offset the gradual decline of demand in photography. Lower prices from the recent price correction may increase demand in the jewelry/silverware segment, the largest of fabrication demand. Fueled by the lower prices in 2013, Silver may see a more rapid increase in demand. Conversely, the same lower prices create economic hurdles for any increase in supply, either from mining or secondary sources. The balance between supply and demand in 2010, 2011 and 2012 was very finely tuned, and any changes in supply or demand could create a more significant imbalance. Is it possible to see another Silver run like the 2000 to 2010 cycle? The historical data is here, and the only ingredient needed is your forecast for supply and demand.

HOWARD A. TERPNING Plunder from Sonora, 1982 Oil on canvas 30 x 48 inches

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Mormon Gold | A U C T I O N S , C O L L E C T I B L E S A N D D I V E R S I F I C A T I O N

MORMON GOLD

VETERANS OF MEXICAN-AMERICAN WAR A R R I V E D I N G R E A T S A LT L A K E V A L L E Y WITH FAITH, FORTUNE.

By John Dale Beety

PPORTUNITIES FOR FREEDOM or fortune have driven exploration all around the world, and many famous pioneers of America’s past were visionaries driven by wealth or worship. Rare gold coins struck at the Latter-day Saints – popularly “Mormon” – settlement in (Great) Salt Lake City between 1849 and 1860 are tangible reminders of a time when the two impulses collided. The first Mormon pioneers, fleeing the persecution that had followed their faith from Ohio to Illinois, arrived in the Great Salt Lake Valley in July 1847. The same month, the Mormon Battalion, an all-Mormon U.S. Army unit that served in the Mexican-American War, was discharged in California after a year’s service. Veterans working their way toward the Valley were at Sutter’s Mill in January 1848 when gold was discovered and were among the first to “strike it rich” in what became the California Gold Rush. The Mormon pioneers had brought few coins with them to the Great Salt Lake Valley, as most of their funds had gone to supplies. When the newly wealthy veterans traveled east to the settlement, they brought hundreds of ounces of gold dust with them. While valuable, the dust was inconvenient for trade and for tithing. Church leaders regulated gold dust, starting with pre-measured pouches and regular-sized small ingots. The next step was making coins that could be spent within the community and in trade with fortune-seekers traveling west to California. English-born metalworker John Moburn Kay, a September 1848 arrival in the Valley, coined the first series of Mormon gold. The coins were dated 1849 and made in four denominations: two-and-a-half dollars, five dollars, 10 dollars, and 20 dollars. Their designs featured clasped hands, a crowned Eye of Jehovah, and the motto “Holiness To The Lord,” reflecting the settlement’s religious character. Each coin also bore the denomination and the abbreviation G.S.L.C.P.G. for “Great Salt Lake City Pure Gold.” Without a steady supply of gold and with non-Mormons questioning the coins’ weight and fineness – the settlement did not have a credentialed assayer, and naturally occurring copper and silver alloy meant that California gold dust was not chemically pure – production slowed. Only five dollar coins were made dated 1850. Much of the minting equipment was auctioned in August 1850, but not the

This 1860 Mormon five dollar gold coin, which bears the religious motto “Holiness To The Lord” in the Deseret alphabet, brought $155,200 in a February 2012 Heritage auction.

coining press, which saw intermittent use thereafter. A last Mormon coin issue, valued five dollars and dated 1860, was made of Colorado gold in jeweler James Madison Barlow’s shop. These pieces have unique designs featuring the Lion of Judah and an eagle behind a beehive. The motto “Holiness To The Lord” is written in the Deseret phonetic alphabet, a language experiment supported by LDS President Brigham Young. By 1860, though, circumstances had changed. The United States had organized the Utah Territory, and its first non-Mormon governor, Alfred Cumming, saw the new Mormon gold coinage as usurping federal authority. He ordered it stopped, closing a unique chapter in the history of American money. JOHN DALE BEETY is a numismatic cataloger for Heritage Auctions. This story originally appeared in The Intelligent Collector magazine (IntelligentCollector.com). ©2013 Heritage Auctioneers & Galleries Inc.

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A U C T I O N S , C O L L E C T I B L E S A N D D I V E R S I F I C A T I O N | Massandra Magic

MASSANDRA MAGIC LEGENDARY WINERY GIVING BIDDERS A CHANCE TO CELEBRATE A MILESTONE BIRTHDAY OR ANNIVERSARY By Frank Martell

The vineyards of the Massandra winemaking estate slope toward the Black Sea.

N DECEMBER, I made a top-secret, three-day visit to Tsar Nicholas IIâ&#x20AC;&#x2122;s legendary Massandra Winery, where I tasted more than 100 samples. It was no surprise, this being my second visit to Massandra, that every wine showed in exemplary fashion. They simply do not keep any second-rate wine in the collection, nor are they under pressure to produce in volume or to produce a particular label every year. This means that those wines that are produced in a given vintage that are selected for the wineryâ&#x20AC;&#x2122;s collection invariably meet a highly discriminating measure of quality. What makes these wines so amazing is the incredible individuality that each variety of Massandra exhibits, not only from one another but from anything else in the world. Almost all the wines are sweet and fortified, but this is where most similarities to other dessert wines end. The wines of Massandra build much higher levels of complexity at an earlier age than the great wines of Sauternes or Porto. Oftentimes, the wines are more delineated and, incredibly, much more balanced for longer periods of life. Part of this is due to the fact that the wines strike a very unusual balance. Both Sauternes and Ports require a certain degree of natural acidity to balance out the sweetness, which would otherwise be overbearing.

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Many of the Massandra wines are almost completely lacking in conventional acidity, however the spirit with which the wines are fortified keeps them from being cloying or overbearing. There is a refined and fresh character that I do not believe is achieved anyplace else in the world. It truly is one of those things that needs to be tasted to be believed.

CONVERSATION STARTERS

ndeed, there is a Massandra out there for everyone. The power of the Kagor wines is spread across a lush, rich profile of jammy raspberries with a gorgeous tea note. The incredibly rich, sweet Pinot Gris are born of orange peel, exotic fruits and a little caramel. My personal favorite, the Massandra Red Ports, are reminiscent of spectacular aged red burgundy with a heart-of-liqueur/ porty richness. The Rose and White Muscats stretch the imagination with extraordinary levels of complexity and delineation as to make tasting the wine almost a secondary treat to the simple act of breathing in the intoxicating bouquet. For those who do not like rich, sweet or dense wines, Massandra also boasts some of the most intricately balanced Sherries in the world that have incredibly floral characteristics on the nose, rich in chocolate, toffee, peaches and smoked nuts, while delivering a highly sophisticated and refined palate that invites the taster to relax and indulge. I’m not going to lie to you – I love them all.

HIGHLIGHTS FROM THE MASSANDRA AUCTION 1936 Kagor Ayu Dag

Its cellars were built in 1894 as tunnels bored deep into the mountainside, with temperatures keeping the wines in perfect condition.

And, as though it wasn’t enough to revel in the hedonistic value of these wines, there is one last thing that makes these rare bottles a must-own for wine lovers and non-wine lovers alike – the historical value and cool factor! There is something incredibly thought-provoking about these wines. When you put a bottle of Massandra on the table, you instantly create something in common, no matter how diverse the guest list. “This is Russian?” “What was going on in Russia in 1944 when this wine was produced?” “Hey! I was born in 1943! To think this bottle has been waiting for me!” This stuff is as intellectually satisfying as it is delicious. The opportunity to savor these wines doesn’t happen often, but when it does – it can be magic.

“Reddish mahogany color. Dynamite aromatics explode from the glass. Beautiful sweet red and black fruits are framed by highly delineated and complex spices. As sexy as the nose is with its cassis, cherry and menthol core, the palate is a staggering expression of these same flavors and more. Good acid, bright fruit, classic poise and balance in a tightly knit drink that goes on and on through a slow decrescendo of alternating strengths.” (97 points, Frank Martell)

1973 Kagor South Coast “40th birthdays and anniversaries be advised: Your ship has come in. The nose by itself is compelling with dynamite characteristics of lush, sweet red fruit, current and black raspberry and tea-like spice. The palate pours out gobs of jammy raspberry fruit that is again bolstered by that beautiful tea and spice complexity. This is quite pure and very well balanced with a good bit of natural acidity adding to the freshness of the spirit. The finish is long and refined. This is just fantastic.” (96 points, )

1940 Pinot Gris Ai Danil “Rock ’n’ roll, this has the same profile as its stable mates but it’s wrapped up in a much prettier package. The nose is hugely aromatic and layered, making a

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A U C T I O N S , C O L L E C T I B L E S A N D D I V E R S I F I C A T I O N | Massandra Magic sheer joy out of picking out the zillions of flavor components. It’s all very harmoniously tied together and the palate is better still. The wine begins with a bit of acid and spirit then unfolds layer after layer on the tongue beginning with sweet tea, peach and berry, pineapple, citrus, caramel and walnut, and culminating in a perfectly balanced finish that is a long slow decrescendo. Excellent.” (94 points)

1944 Red Port Crimea “Orangey rose color. Knockout aromatics. Tea, honey, ripe peaches and plums jump out of the glass. The palate opens with a fresh crescendo that is super complex, super refined and remarkably balanced. Too beautiful to spit, this wine is a delight of sweet dried fruits and balancing tones that grows through the long, timeless finish. This is awesome stuff.” (96+ points)

1972 Red Port Massandra “Strawberry juice color with just a trace of brick, looks younger than the 1990. Highly complex 1970’s Chambertin nose is just awesome, rich if a touch alcoholic. Palate translates from the nose perfectly. This is a fortified wine for burgundy lovers. Excellent poise and balance through the rich, long finish that leans more towards the olive and sous bois side.” (94+ points)

2002 Seventh Heaven “Orangey amber color. Huge nose of orange candy, brandy, honey and flowers is very primary but fantastic! The palate explodes with the very same in an expressive but primary way. The wine is not heavy at all and the balance, though sweet, tends to neutral. There is remarkable intensity here though the wine is just a baby. The finish is pure and crisp thanks to the spirit, but never cloying. Without the spirit this would push the wrong buttons, but knowing the fruit is going to evolve and delineate while the spirit remains constant means the future for this drink is highly promising.” (94-96 points)

1946 Tokay South Coast “Amber color. Herbal tea is prevalent but not quite dominant in the refined and quite stereotypical character of the South Coast Tokays. The palate opens with a fresh dose of the tea flavors that take on a somewhat flowery personality before the lush, sweet peach fruit spills over the tongue. Again we see very little acid but the spirit provides a backbone and some clarity. This is not the best or the most impressive of the South Coast Tokay tasted on this visit, but it is most certainly the most typical and seemingly the most mature, though this has many, many years of development ahead of it.” (95 points)

1923 White Muscat Massandra “Very complex nose that is again largely comprised of minty flowers, lilac, jasmine and marzipan, but there is a lot more going on than in the ’31. As excellent as that other vintage was, this boasts a ton more layering in the nose which includes petrol, vanilla and warm caramel. The palate is equally improved with greater acid, more open texture and a higher degree of complexity running the gamut from peaches and pears through marzipan, pineapple, citrus, honey, raisins and who knows what else. Very sweet without being cloying or overbearing, the spirit is a little more obvious in a positive way, providing freshness and balance to what was already a super clean drink. Awesome!” (98 points)

All wine ratings are done by Frank Martell FRANK MARTELL is director of fine and rare wine at Heritage Auctions, and has appeared on CBS News, CNN, and CNBC’s “Squawk Box” as a wine expert. This story originally appeared in The Intelligent Collector magazine (IntelligentCollector.com). ©2013 Heritage Auctioneers & Galleries Inc.

82 | American Hard Assets www.ahametals.com

M I N I N G & M I N E R A L S | Mining News

MINING NEWS

Junior Miners Hang On Junior and intermediate mining companies have not fared well this year. SNL Metals Economics Group (MEG) reported its Pipeline Activity Index for May and June had dropped to its lowest level since 2008, with only 49 financings of $2 million or more. MEG also found a 30 percent year-on-year drop in significant drill results. Junior-focused research firm ORENinc, which reports Canadian resource financing through a weekly index, tallied almost no healthy financing levels between January and July. But the first half of 2013 did not see the mass cull of juniors that some market observers had called for. John Kaiser, proprietor of Kaiser Research, was one of the most vocal proponents of attrition for the sake of the wider industry. In December 2012, he counted 632 juniors on the TSX Venture Exchange (TSX-V) with less than $200,000 in working capital. Kaiser suggested many of them would be forced to disappear, leaving more valuable projects more visible. In the months of May and June, only six resource companies were delisted from the TSX-V. This might have been thanks in part to the exchange’s April decision to provide financing help to its issuers by changing its arms-length requirements and extending a temporary relief policy that lowered the $.05 per share minimums for private placement prices. More importantly, it speaks to the ability of cash-strapped junior companies to find ways to survive. At the start of 2013, SNL Metals Economics Group’s Director, Metals and Mining, Jason Goulden, predicted that most juniors would be able to slow their burn rates and find smaller, subsistence financings. “You know, back in early 2009, people were calling for an attrition rate of 50 percent in the junior pool of explorers,” he remarked in a January interview. “In our review of active explorers that we track, we showed about six or seven percent attrition.” In July, while noting it was too early to count up this year’s disappearing juniors, Goulden continued to believe that 50 percent attrition was unlikely in the near-term. “Junior companies are generally fairly good at cutting spending and shuttering activities to weather the storm,” he said. “Though we’ve seen significant erosion in the industry’s market value, and have and will continue to see attrition among the juniors, my feeling is that it will take a fairly long, protracted downturn to see a major cull in the junior sector on the scale that some analysts were calling for earlier this year.”

84 | American Hard Assets www.ahametals.com

By Eavan Moore

RIO TINTO’S DIAMONDS STAYS IN THE FAMILY Rio Tinto plc (TSX: RIO) will not sell its diamonds business, the company announced in June after concluding a yearlong strategic review. Rio Tinto Diamonds & Minerals chief executive Alan Davies said, “The medium to long-term market fundamentals for diamonds remain robust, fuelled by growing demand for luxury goods in Asia and continuing strong demand in North America. We have valuable, high-quality diamonds businesses that are well positioned to capitalize on the positive market outlook. After considering a number of alternative strategic ownership options it is clear the best path to generate maximum value for our shareholders is to retain these businesses.” Rio Tinto’s integrated diamond business includes sales and marketing of the output from its 100% owned Argyle mine, 60% owned Diavik mine and 78% owned Murowa mine. It also has an advanced project, Bunder, in India. The unit lost $43 million in 2012, but CEO Sam Walsh had stated he would not sell it at bargain rates. Deutsche Bank has valued the diamond assets at $2.2 billion. Rio Tinto’s is also in the process of selling its 59% stake in Iron Ore Company of Canada, its Northparkes copper-gold mine and several Australian coal mines. Its Pacific Aluminium

business could be sold as well in Rio Tinto’s effort to focus on more lucrative projects. In other news, Rio Tinto’s majority-owned Oyu Tolgoi copper-gold mine made its first shipment of copper concentrate to China in June. Although the dust has not settled around the much-debated operation, its first shipment was an important milestone.

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M I N I N G & M I N E R A L S | Mining News

Pascua Lama Delay Barrick Gold Corporation pushed back the timeline on its massive Pascua Lama gold project following legal challenges to its environmental management. The company now plans to construct a revised water management system by the end of 2014 and begin mining ore by mid-2016. This year, it faces a writedown in the billions.

billion in 2013. As of July, Barrick had announced new capital spending estimates of $1.8 to $2.0 billion in 2013 and $1.0 to $1.2 billion in 2014. An updated total capital cost estimate was planned for the third quarter. The total cost of the project could be up to $8.5 billion.

Pascua Lama straddles the border between Chile and Argentina. Its world-class deposits contain nearly 18 million ounces of proven and probable gold reserves, as well as 676 million ounces of silver. Barrick’s mine plan has the site producing 800,000 to 850,000 gold ounces and 35 million silver ounces a year for the first five years of a 25-year mine life. Environmental issues in Chile put a wrench in Barrick’s plans. The chief source of its troubles, a suit representing the indigenous Diaguita people and led by attorney Lorenzo Soto, accused the construction site of destroying three nearby glaciers and polluting water with arsenic, aluminum and copper. Multiple Chilean agencies have fined Barrick, including $16 million in sanctions by the Chilean environmental regulator SMA (Superintendencia del Medio Ambiente) based on 23 separate infractions.

Streaming company Silver Wheaton (TSX:SLW), which has an offtake agreement at Pascua Lama, issued positive statements. “As long as Barrick is still advancing construction of Pascua-Lama at the end of 2015, Silver Wheaton does not intend to cancel the silver stream,” said Randy Smallwood, President and CEO. “We are in regular contact with Barrick, and are confident that all the right measures are being taken to achieve production at this mine. Pascua-Lama is a world class gold and silver deposit and will be a world class mine once it begins production.”

A three-judge appeals panel formally ruled in July that Barrick must halt construction work until a new water management plan is approved. One of the judges took the unprecedented step of visiting the mine site before ruling. According to the Argentina Independent, current evidence of contamination was not found, but the judges agree that “imminent danger” faces the water supply without stronger protections. Construction of the water management system is underway. “We submitted a detailed plan in June that outlines the works we will complete,” said Andy Lloyd, Vice President, Communications at Barrick. “Essentially we are completing the system in accordance with the original permit requirements, plus implementing some enhancements to strengthen the system in key areas.” Barrick said it would also have to resequence its construction activities in Argentina, where the processing plant is to be located. The news outlet El Inversor Online reported that Barrick, its construction contractor Fluor and the local government of San Juan had created a committee to analyze the consequences of this development amid concern about layoffs. Barrick has stated that it will employ fewer people, helping to reduce its 2013 capital expenditures by an estimated $1.5 to $1.8

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An early estimate put Barrick’s second-quarter impairment charge at Pascua Lama at $5.5 billion.

Silver Wheaton’s revised contract with Barrick now states that it may terminate its offtake agreement if Pascua Lama is not at 75% of design capacity by December 31, 2016. The deal has relatively low risk for Silver Wheaton. If the contract were terminated, it would get back the $625 million prepaid to Barrick. In the meantime, Silver Wheaton is entitled to draw from three other mines in 2014 and 2015 to make up for the production shortfall from Pascua Lama. However, it has dialed down its 2017 production forecast from 53 million silver equivalent ounces to 49 million to reflect the delay. Analysts have responded with pessimism to Barrick’s travails. In July, Credit Suisse analyst Anita Soni downgraded its rating from Outperform to Neutral until the company could “provide some clarity” on Pascua Lama. She noted that the combination of gold price, debt, and other potential write-downs had contributed to the downgrade. Barrick’s other writedown risks include the aftermath of its 2011 acquisition of Equinox Minerals. Pascua Lama’s ballooning cost and timeline also provoked a class action lawsuit filed on behalf of Barrick shareholders who purchased stock between May 7, 2009, and May 23, 2013. The suit accused Barrick executives of making “false and misleading statements and conceal[ing] material information relating to the cost of and time-to-production projections for the company’s Pascua-Lama Project.” The suit alleged that false statements about the project artificially inflated Barrick’s share price, resulting in a sharp drop when the news of Barrick’s $16 million fine came out May 24. The class action period dates back to May 7, 2009, when a Barrick press release announced Pascua Lama would cost $2.8 to $3 billion and be commissioned in late 2012. The timeline has since been pushed back repeatedly. As recently as early June, Barrick put its planned production start at late 2015.

Mining News | M I N I N G & M I N E R A L S

Alamos Buys Esperanza Alamos Gold Inc. (TSX: AGI) has agreed to acquire Esperanza Resources Corp. (TSX-V: EPZ) for C$0.85 per share, representing a premium of 38%. Esperanza shareholders will be issued approximately five million Alamos warrants in aggregate and existing Esperanza warrant holders will be issued approximately two million Alamos warrants in aggregate. “Alamos is very pleased to announce this transaction with Esperanza,” commented John A. McCluskey, President and CEO of Alamos. “Esperanza is an excellent strategic fit within our existing portfolio and in our view, is one of the best undeveloped opportunities and significant open pit targets in Mexico. We have followed Esperanza’s progress for some time and see this as a truly compelling opportunity for our shareholders. While the transaction represents less than 5% of our market capitalization, it has the potential to grow our production in Mexico by more than 50%, or nearly 30% on a consolidated basis.” Canada-based mid-tier producer Alamos owns and operates the Mulatos gold mine in Mexico. It has approximately $490 million in cash and cash equivalents and is debt-free. Earlier this year, it mounted a failed takeover bid for Aurizon Mines Ltd (TSX: ARZ). Esperanza is a precious metals exploration and development company focused on advancing the open-pit, heap leach Esperanza project in Morelos State, Mexico, which has measured and indicated resources of 1.5 million ounces of gold and 16 million ounces of silver. A 2011 preliminary economic assessment gave it at least a six-year mine life and a NPV of $122 million at conservative metal prices. Esperanza had previously planned to buy three gold projects from Pan American Silver Corp. (NASDAQ: PAAS) and has now terminated those agreements. The deal with Alamos “provides an attractive and immediate premium to our shareholders,” said Greg Smith, President and CEO of Esperanza.

WORLD GOLD COUNCIL SETS NEW COST STANDARD The World Gold Council (WGC), a market development organization for the gold industry, has released standardized non-GAAP metrics for “all-in” cost reporting by gold mining companies. Key producers such as Barrick Gold, Goldcorp and Gold Fields are expected to adopt the new metrics. The WGC worked with member companies to develop the measures, which are intended to be helpful to investors, governments, local communities and other stakeholders by providing transparency into the economics of gold mining. There are two new cost metrics. “All-in sustaining costs” take the existing standards for calculating cash costs and add expenses related to sustaining production at existing operations, including exploration and corporate general and administrative costs. The “all-in costs” add in other factors, such as community outreach, permitting and capital costs related to existing operations. They exclude income tax, working capital, and the costs of deal making. Terry Heymann, Director Responsible Gold, World Gold Council, said: “All companies involved in gold-mining, including those which are not members of the World Gold Council, will be free to use these metrics. Individual companies have responsibility for their own reporting, but we expect that many will use these new metrics, providing further consistency for investors and other stakeholders.” The WGC predicted that many companies would begin using the new calculations in January 2014. A spokesperson for one of its member companies, Golden Star Resources (TSX:GSC), said: “At present, we have not implemented the WGC metric. However, we are looking to provide this but no definite timeline is available.”

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M I N I N G & M I N E R A L S | Mining News

Good News from Lake Shore Gold Lake Shore Gold (TSX: LSG) reported record second-quarter production from its three Timmins, Ontario gold mines. The company produced 30,800 ounces of gold in its second quarter and expects to produce 120,000 to 135,000 ounces of gold in 2013 with $800 to $875 per ounce operating costs. Its cash operating costs for the fourth quarter of 2012 were $124 per tonne. Lake Shore is one of the many small miners struggling to win investor support for previously promising projects. Its share price had been slipping steadily since a January high of C$0.91, trading around C$.27 in the days before the announcement. Following weeks saw trading up to C$.36. The company issued an initial press release in June, more than a month before its August reporting date, to encourage investor interest. Makuch explained: “We decided to update the market at this time, given that we are seeing a disconnect between the excellent progress we are making with our operations and projects and recent movements in our share price. Looking at our performance, our grades are coming up, our costs are coming down, our mill is operating extremely well and, over the next couple of months, our capital investments will drop dramatically. By September, our mill expansion will be complete and we will be operating at 3,000 tonnes per day. At that time, Lake Shore Gold will make the jump from being a net investor of capital to being a company that generates net free cash flow at the current gold price.” Asked in mid-July whether the stock price was commensurate with the project’s value, VP of Investor Relations Mark Utting said he would let the market decide that, adding: “The stock had dipped down [to C$.16 shortly before the announcement]. We’ve seen some recovery from that level, certainly. I think everyone in our sector would say there’s still quite a ways to go.” Lake Shore’s capital investments have led up to what President and CEO Tony Makuch called “a major turning point.” The mill expansion is expected to increase production to 140,000 ounces or more a year, improve cash operating costs to about $700 per ounce, and allow Lake Shore to begin generating net free cash flow for the rest of 2013, although not without pain: the Timmins Press reported 35 layoffs in May. Lake Shore’s properties contain measured and indicated resources of 3.4 million ounces. The mine planned for steadily improving grades throughout the year. Its grades averaged 3.9 grams per ton in April, 4.5 in May, and 4.6 in June. The company still has $150 million in outstanding debt, which it hopes to pay off by 2015.

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Stornoway Environmental Assessment Approved Stornoway Diamond Corporation (TSX: SWY) has received all major authorizations required to commence construction at its Renard diamond project in northern Quebec, only 18 months after filing its federal Environmental and Social Impact Assessment. The project will be Quebec’s first diamond mine. Stornoway’s President and CEO, Matt Manson, noted that Stornoway would also become the first fully-permitted diamond project in Canada with a permanent road by the end of 2013. More remote projects like Ekati, Victor Lake and Diavik rely on winter roads and air transport. He attributed the speed of his project’s approval to community engagement, citing “close cooperation and support [from] the Crees of Eeyou Itschee and the communities of Chibougamau and Chapais.” The Renard project has probable reserves of 17.9 million carats and inferred resources of 17.5 million carats. Stornoway estimated its preproduction capital requirements at C$752 million in preproduction capital. As of June, it had secured half of what it needed. The project’s timeline has it coming into commercial production in 2016. News of its approval briefly spiked Stornoway shares from C$0.51 to C$0.52.

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HindSight By John W. Garibald

hat’s the matter with Silver? Since its late April 2011 highs of around $49 per ounce, silver has given back nearly 60% of its value. Why? It does seem strange in hindsight that silver’s top occurred before the second dosage of QE was withdrawn. There is a phrase I am fond of in trading, “The market can remain irrational longer than you can remain solvent.” It’s attributed to John Maynard Keynes in Roger Lowenstein’s classic When Genius Failed about the LTCM crisis and I think it is in many ways applicable to the trading we have seen over the last cycle. The fervor with which many individuals assumed silver would head to $100 per ounce was classic indication of an asset that had departed all price and valuation rationale, as well as sense and yet it drove ever higher, far surpassing even the most bullish bank analyst’s estimates. Though not one to usually get caught up in crowded trades, even I was surprised with the velocity of the drop lower to just $35 a few days later. So what happened? The immediate culprit is the CME group, which raised margins on silver futures five times in two weeks, increasing the cost of trading silver on the exchange by 84%. When traders buy a contract of silver on the exchange, they place money with their broker that represents a portion of the value of the contract. On April 25, the margin stood at $8,700 per 5,000 ounces of silver. By May 9, traders had to put down $16,000 for the same number of ounces. Short term speculators fled the market in droves and no more buyers stepped in. In the following months, silver went back to being gold‘s little brother and behaved for the most part, trading in lock-step with the yellow metal. Even the announcements of Operation Twist and QEIII (which should have been QEIV, but who’s counting?) could not shake silver from its tailspin back towards its marginal cost of production, anywhere from $8-$18, depending on who you ask.

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These days, we instead trade in what I refer to as ‘Taper-On, Taper-Off’ trading. It seems to almost everyone that the only thing that matters is when Mr. Bernanke turns off the QE drug. The dialogue goes something like this: Chicago Fed President Charles Evans is speaking? Buy bonds, buy stocks, buy metals, sell USD. But wait! Richard Fisher! Sell rates, or better yet, just sell it all back and buy dollars. And though the US economy is not the only one driving global markets, it does usually carry a bit of outsized influence, punching above its weight so to speak. Globally, though, the story is not all that much different. The economies of our other trade partners are facing headwinds all on their own. Why does that matter for metals? Quantitative Easing has the convenient consequence of devaluing the currency since it makes more dollars available in the system. This would tend to bring the dollar down against its trade partners, except that we aren’t the only ones doing extraordinary market measures. As a result of the improving economic data in the US and weakening data abroad combined with the looming specter of an inevitable taper, the dollar has been strengthening. And since most commodities are US Dollar denominated, this creates serious resistance for their advancement. And yet, after all of this stimulus growth is tepid, inflation (by most measures) is nonexistent and well below Fed targets and unemployment still remains high. Many Fed apologists insist that we just need more time. Folks it has been four years since we were in a recession. Historically, we see mild recessions every seven years. What happens if we run out of steam on our own and the Fed is out of creative measures to shock the markets into submission? I am not leveraged long, but I will tell you one thing, friends, I am definitely not selling my physical.