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The RenĂŠ Carayol column What Botswana can teach the mining industry | Page 2

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June 2014

Leader of the fashion stakes

Gold will always be number one, says Roberta Benteler | Page 7

PRECIOUS METALS

Back to the future

Exclusive interview with Russell Clark, the man behind the first mine to be opened in Britain for 45 years | Pages 8 and 9

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Opening shots René Carayol

HE WORLD of precious metals will never be the same again after the recent retirement of 86- year-old Canadian mining colossus Peter Munk, the founder of Barrick Gold. He leaves behind a legacy of making billions from extracting gold at a time when his key Canadian rivals went spectacularly bankrupt. He was not a miner by background but, as he would have liked to claim, he was a true businessman. This meant he saw opportunities and threats that perhaps miners never saw, or admitted to seeing. He never put all his eggs in one basket of gold, but always hedged his investments. This practice of hedging against gold was previously unheard of, and consequently he thrived in the good times but never lost his shirt in the bad times. In mining for precious metals, it’s never about focusing on the short term “quarter culture”, it’s much more about thinking five, 10, even 15 years ahead. This was relatively straightforward when mining in the likes of h i s home cou nt r y of C a n ada. Unfortunately, most of the major gold deposits in stable countries have largely been extracted, leading to an inevitable

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What the lessons from Debswana can teach the modern mining industry move into more unsettled regions. In recent times, alongside political instability, environmental issues have added to the turbulence for the industry. Indigenous groups have huge clout, especially when supported by NGOs and aggressive lawyers. Opening up a mine requires a huge amount of painstaking investment and it may take a few years before any form of return is realised. Munk would provocatively claim that tiny minorities can and do ensure that mines that would employ thousands, and create significant wealth for the nation, are prevented from operating. “It doesn’t matter how much you deal with the majority of indigenous people,” he said. “There is always a splinter group that will make legal claim after legal claim.” It doesn’t always have to be this way. A few years ago I visited Debswana, the diamond mining joint venture between

the Botswana government and De Beers of South Africa. This deal was initially and controversially struck during the apartheid years of the early 1960s after the fledgling Botswana government discovered diamonds shortly after independence from the UK. They understood they didn’t have the knowhow and had already learned from the ongoing disasters that ill-equipped but resource-rich new African governments could heap upon their young nations. I was privileged to be invited to visit the magnificent Jwaneng mine in the Kalahari Desert, claimed to be the richest diamond mine in the world, producing some $20million worth of diamonds a week. It employs 2,100 people, 95 per cent of whom are Botswana nationals. The management has, v itally, remained f i xated on maintaining an excellent safety record. The Jwaneng mine has fully embraced its local community, making its own hospital and clinic available free to all-comers. Debswana contributes around 30 per cent of Botswana’s GDP, 50 per cent of government revenues and is the country’s main foreign exchange generator. Munk’s entrepreneurial prowess and thick skin ensure that he leaves a huge legacy. However, if he were to start again tomorrow, with the only significant mining opportunities currently available in the most fraught, unstable and difficultto-access areas, he might just take a leaf out of Debswana’s book. Nothing is best done alone any more, especially mining.

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Optimism grows in Asian and Indian gold and silver markets By Joanne Frearson ANALYSTS are optimistic about the precious metals market and see demand improving in gold, silver and platinum group metals (PGM) in the long-term. David Jollie, strategic analyst at Mitsui Precious Metals, says: “The wider economic investment environment has had quite a major impact on precious metals over the last year or so. We have seen tapering of quantitative easing in the US and we have seen better economic growth in a number of regions. I think that has

Iraq unrest creates spike in gold prices TENSIONS in Iraq are pushing up the price of gold in the short term, as worries about a civil war sees investors pile into the precious metal, seen as a safe haven during time of crisis. Insurgents from the Islamic State of Iraq and Syria (ISIS) have captured several cities in Iraq, and there are concerns that the situation could develop into a full-blown civil war. President Obama has announced that the United States will be sending troops equipped for combat to the region.

taken some of the attention away from gold and precious metals as a low yielding investment and an insurance against risk as well.” Over the past year the price of gold has fallen and demand for the precious metal from larger investors has dropped off, but Jollie reckons there is still a lot of interest from retail investors. A lot of the demand has come from Asia, although curbs by India to reduce the amount of gold imported to the country has had an impact in this region. “Last year was quite unusual because India had a problem with its current account deficit,” says Jollie. “One of the ways it was trying to address that was to limit the amount of gold imported to the country. “What we saw last year was very strong Chinese demand, but in the second half of the year there was quite muted Indian demand. This year, Chinese demand for gold is still quite strong, but it is certainly not at the levels it was last year. This year the election and new government in India has raised the possibility we might see some relaxation in the gold import rules.” Mitsui Precious Metals has a cautiously bullish view on the precious metals market. Other analysts believe that as inflation rises, buyers will return to gold. Dmitry Kalachev, analyst at Canaccord Genuity, says: “I think over the longer term central banks around the world are fighting to ignite inflation. It is just a matter of when this point is coming. “This means real interest rates will remain low for an extended period of time, which will help support gold. Over the longer term I think the inflationary environment will help support the gold price.”

Palladium remains strong despite Ukraine situation GROWTH in the auto market in developing countries will help push up palladium prices over the longer-term. Nikos Kavalis, director at Metals Focus, says: “Palladium is benefiting by the increase in the global population of cars. To a large extent this is underpinned by developing countries’ growth. There are other areas of demand which are very important

– electronics and dentals are still quite significant.” However, Kavalis sees some downside risks due to situations in Russia and South Africa, the two biggest producers of palladium. “For the past couple of months we have had the perfect storm for palladium prices,” he says. “You have had strikes in South Africa. You have had a Ukrainian crisis

creating this fear among investors that perhaps if there are sanctions in Russia there will be restricted flow of the metal out of the country. “We see these factors as being short lived. We think if there are stronger sanctions in Russia there will be exceptions for palladium or there will be another way for the metal to find its way out.” According to Kavalis the palladium market is relatively tight. He says: “Normally palladium used for auto catalysts and electronics needs to be in sponge [powder] form.

Historically one of the world’s biggest gold importers, India introduced restrictions last year to curb its deficit

Jollie believes the market has overlooked silver. He says: “Silver in price terms often follows gold, and is described typically as a high beta version of gold. What we have generally seen in the past two years is price weakness in dollar terms in gold and we have seen that echoed in silver. On the demand side for silver, it does not look too bad. Industrial growth is generally supportive of silver demand.” In the PGM sector, metals such as palladium, platinum and rhodium are facing supply-side risks, however. Jollie sees these factors as bullish for the market. “We have seen a very extensive broad-base strike in the platinum To get an understanding of how strong the market fundamentals are you can look at the price difference between sponge and ingot, which is basically just a bar. At the moment the market is tight.” The palladium forward curve shows an upward slope, says Kavalis, which means people are willing to pay more for it in the future than the actual expected price. “We see prices breaching the $1,000 mark in the next couple of years,” he says. “The fundamentals continue to be extremely positive.”

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industry in South Africa which started in January this year and this has taken out a substantial amount of production. “I think it will take a period of time to realise both the medium term and longer term impact of what happened to see how the industry changes and see how much of the metal is lost and how quickly mines can get back into full production. “On the other side, PGMs are quite exposed to industrial demand and a return to some economic growth in Europe and North America combined with reasonable levels of economic growth in China tends to be positive for demand.”

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Silver: the golden investment? As the recovery takes hold, the value of precious metals has peaked – except one. Joanne Frearson reports on how silver could be the next big thing

ILVER has not been on the top of fund managers lists when investing in precious metals. But this unloved metal could be the one to watch out for. The volatile nature of silver could make investing in the companies that extract it remarkably profitable. One fund manager who has bucked the trend to slant his portfolio towards silver is Ian Williams, CEO at Charteris Treasury Portfolio Managers. The WAY Charteris Gold & Precious Metals fund is the only portfolio in the UK which has the majority of its investments in silver. Around 70 per cent of the portfolio is weighted towards silver, while 30 per cent is in gold. Williams says: “Out of all the potential asset classes available for investors to buy, silver is the one that has the most profit potential of any asset class in the world. Silver is very bombed out at the moment. The silver asset class is out of favour. “If you want to buy things in favour then you will buy them at the top of the market – if you want to buy things that are cheap, it involves buying things at the bottom.” Williams believes silver is at a low point in a bull market. “Every 10 years or so you get a major low in the price of silver,” he says – and these have occurred in 1972, 1982, 1993, 2002 and 2013. Williams explains that there is usually a bounce from this low point, pointing out that the average bounce is 700 per cent for silver. “This does not come very often, and when it does you should take advantage.” Although Williams also thinks gold will go up in value, he believes it is better to be positioned

Above: Fortuna Silver’s operations in Calleyoma, Peru; below, inset: Ian Williams, CEO of Charteris Treasury Portfolio Managers

in silver as it is more volatile and will go up much more than gold. Williams says: “If you are going to have a two-to-three year period where precious metals are starting to go up, then you might as well be in the one that goes up the most. Silver is $20 an ounce and gold is $1,300 an ounce. It is a lot easier for silver to go from $20 to $40 than it is for gold to go from $1,250 to $2,500. “Although silver will be more volatile as well on the way down, if you think you are in an up part of the cycle you would want to be in silver.” Williams’s prediction is that the price of silver will go up sevenfold, to about $140 an ounce, while gold prices will only triple, to perhaps $3,500 an ounce. Another sign that precious metals are in a bull market is because the Gold Forward Offered Rate (GOFO) has turned negative, meaning there is a shortage of supply and prices will rise. “Every so often the gold market goes negative,” Williams explains. “The only way it can is if some big buyers come in and are prepared to pay a premium. Every time this has happened, it has been a signal for a huge uplift in gold price. It is a signal that there is massive pent-up demand for the immediate delivery of gold. “Why people want it, no one knows exactly. Maybe Indian jewellers are prepared to pay a premium because the gold in three months’ time is no use to them. They have customers who want jewellery and they have not got any gold to make the rings. They do not want to turn the customers away as they do not want them to go to another shop and buy the rings. They are desperate to get their hands on gold.”

Out of the different asset classes you can invest in regarding precious metals, he believes shares offer better value than investing directly in the metal. Companies in his top 10 positions include Fortuna Silver, Tahoe Resources, Fresnillo and Silver Wheaton. “I would recommend gold shares over gold metal and silver shares over gold shares,” Williams says. “Gold shares will go up tenfold,

“Silver is the only sector of the equity market you can buy at post-2008 crash levels. We think it is absolutely unique” – Ian Williams, Charteris Treasury and maybe some of the silver shares will go up twentyfold. That is a magnitude of how bombed out it is. It is the only sector of the equity market which you can buy at 2008 post-crash levels. Every other sector has gone back up and is hitting new highs. We think it is absolutely unique.” Williams also believes silver producers have the edge over gold because there is more of the metal in the Earth’s crust. They have also been hitting their production targets, whereas some targets at gold companies have been falling short of expectations. Now could be the time to buy silver. If there is a bull market in precious metals, the share price of silver firms could soar, and the metal that’s out of favour could soon be loved again.

From successful explorer to strategic player INDUSTRY VIEW Stratex International, quoted on AIM (STI), is focused on the exploration and development of gold and high-value base metal deposits in Turkey and East and West Africa and, in the eight years since listing, has discovered more than 2.2 million ounces of gold and 7.9 million ounces of silver. The firm has a successful record in forming jointventure partnerships with both local private and major international mining companies, including Antofagasta, Centerra and Teck in Turkey, and Thani Emirates in East Africa, and has attracted an impressive line-up of cornerstone investors such as AngloGold Ashanti, Teck BlackRock Investment Management and Sprott. Although viewed as a junior exploration company, Stratex has a diversified portfolio of multi-stage gold and copper projects, with the bonus of near-term exposure to gold production. Development of projects in 2012/13 alone yielded the company more than US$26million, with a further US$20million in royalties anticipated from 2016. This, together with funding through jointventure partnerships, has enabled the company to develop significantly over the last four years, and operating cash flow anticipated from Q4 2014 will add a layer of sustainability to this growth. Stratex is able to offer investors an impressive spread of assets with real potential for substantial value creation. Using its significant cash balance and cash flow from operations, the board will continue to develop Stratex’s portfolio, as well as assessing projects where there is a chance to accelerate progress through investment or acquisition. Stratex is well-placed to move from an explorer to a gold producing strategic player. +44 (0)20 7 830 9650 info@stratexplc.com

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BASF recycling drive in face of surging PGM markets

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CHEMICAL giant BASF is focusing its long-term strategy towards the fast-growing auto catalyst recycling market, thanks to growing demand in platinum group metals such as palladium, rhodium and platinum. BASF is planning to consolidate its UK precious metals recycling plant manufacturing operations at Cinderford, Gloucestershire, and will exit its non-strategic electronic scrap, gold and silver recycling business. Over the next several months, production at the Cinderford site will be shifted from a twoplant operation to a single production site dedicated to automotive catalysts recycling. BASF’s electronic scrap materials plant will be closed, and by the end of 2014 operations at that portion of the site will be discontinued. An on-site

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assay laboratory will also close by the end of the year. David Freidinger, vice president of precious metals recycling and refining at BASF, says: “The measures we are planning will make us more responsive to market and customer needs. We will continue to make significant improvements to our manufacturing infrastructure for automotive catalysts recycling in Cinderford to optimise our production efficiencies, and position BASF to cost-effectively meet growing demand for our high-quality precious metals products.” BASF is a global manufacturer of precious metals products which are used in a variety of industrial applications, including automotive emissions control catalysts.

Silver demand rises to all-time high, claims report By Joanne Frearson TOTAL physical silver demand rose by 13 per cent in 2013 to an all-time high, according to the World Silver Survey 2014 report. The report, released by the Silver Institute, showed this was primarily driven by a 76 per cent increase in retail investment in bars and coins coupled with a sturdy recovery in jewellery and silverware fabrication. Last year demand in jewellery rose by 10 per cent. The recovery in jewellery fabrication was a reflection of the improved economic outlook in the industrialised world, which lifted consumer confidence and retail sales. Global silverware fabrication rose 12 per cent to a three-year high. This was due to strong gains in India and China, while photography demand slipped by 7 per cent in 2013, posting the slowest percentage decline in nine years. Asia experienced a 3 per cent increase in silver industrial demand, led by China, where a continued recovery

in the electrical and electronics sector, along with gains in the Chinese ethylene oxide industry, took total Asian industrial uptake to a new high. Japan also experienced gains in demand. Silver mine production grew by 3.4 per cent. A large portion of the growth was attributable to the primary silver mining sector, which experienced strong growth from the start, along with the ramp-up of operations that entered production in recent years. Primary silver mine production grew 6 per cent, and accounted for 29 per cent of global silver mine supply. Mexico was the world’s leading silver producer, followed by Peru, China, Australia and Russia. On the supply side, silver scrap fell by 24 per cent, experiencing the largest drop on record to reach its lowest level since 2001. The price of silver averaged $23.79 in 2013, the third highest nominal average price on record, in a particularly volatile year for the entire precious metals complex.

Ireland set to enjoy a new golden age Emerald Isle likely to benefit from fresh discoveries

INDUSTRY VIEW

he rocks underlying the rounded drumlins of the border counties of Ireland and Northern Ireland bear testimony to a long history of mining. Old lead and zinc mines are common in the region, but the more recent discovery is that the gold mineralisation is also extensive throughout the 60-mile length of the district. Indeed, it is thought that some of Ireland’s Bronze Age gold artifacts may have been made with gold mined from these rocks. Dublin-based exploration company Conroy Gold and

Natural Resources plc is at the forefront of these new discoveries, and has 400 square miles of the most prospective ground under licence. The company first focused on the Clontibret area in County Monaghan, where an old antimony mine had been re-evaluated and found to contain significant grades of gold. The company established that this old mining area contains in excess of one million ounces of gold, and is currently planning its first gold mine in the area. Conroy’s exploration philosophy was that the Clontibret deposit was unlikely to be the only gold occurrence in the region. An important piece of evidence to support this was the discovery of the Clay Lake Nugget (now in the Ulster Museum) by an amateur gold prospector. The nugget weighs one ounce and in pure gold terms is worth more than £700

but its scientific value in providing clues to the nature of gold occurrences is immeasurable. The company sampled around Clay Lake in County Armagh and found that the signs for gold mineralisation were stronger and more widespread than at Clontibret. Indeed, at this gold target, Conroy has drilled one of the longest mineralised zones of gold in the British Isles at just short of 100 metres. The significance of these results is that gold occurring over wide zones can be economically mined at relatively low grades. The deposit at Clontibret and the newly discovered Clay Lake gold target both display the widths and grades that represent attractive mining possibilities. Although Conroy Gold and Natural Resources blazed a trail in the reassessment of the gold potential of the border counties, since 2004 the governments in the north and south have collaborated in a series of geological and environmental surveys that have confirmed and supported Conroy’s belief that other substantial gold deposits are present. The “Tellus”

surveys not only confirmed Conroy’s original work, but have have expanded the gold potential of the region into several new areas. Conroy Gold and Natural Resources’ management has a track record of discovering mines. It may be that the sources of gold mined by our forefathers in the border counties of Ireland and fabricated into Bronze Age gold artifacts will be rediscovered and help create wealth and artifacts of modern design in the golden Emerald Isle. Professor Richard Conroy (left), chairman of Conroy Gold and Natural Resources, said: “The strategic regional studies the company has conducted have been very important in the discovery of new areas of gold mineralisation. I am confident that there are many millions of ounces that will be discovered by our exploration team in our licence areas.” www.conroygold.com

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Joanne Frearson talks to Roberta Benteler, founder of online boutique Avenue 32, about the enduring appeal of gold as an investment

OLD never goes out of fashion when it comes to fine jewellery. It remains one of the most highly sought after precious metals in the industry, attracting buyers all over the world. Roberta Benteler (right), founder and managing director of luxury fashion online retailer Avenue 32, says: “Gold is always the number one, whether it is yellow or white. It is something that is not going to go out of fashion. I do not think people buy into the new precious metals, like palladium and platinum. I do not think things like that are really on the radar yet. “It is a solid investment. Rose gold is certainly becoming more popular, and is more of a fashion thing that people buy into a lot, but the one that is more in demand is yellow gold.” Coloured gold is the most popular for jewellery as pure gold is generally too soft to be used, so it is mixed with other metals to make it stronger. The colour of gold depends on the alloy mix in the metal. For example, yellow gold is usually combined with copper, zinc and nickel, while white gold is usually combined with just a white metal, such as nickel. While gold jewellery is fashionable, a fall in the price of metal in the past year has also attracted buyers to the market. A report from the World Gold Council says lower gold prices were the most important factor behind the

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Gold is always the number one. It is not going to go out of fashion

growth in Q1 jewellery demand. The average USD price was 21 per cent lower than the same period in the previous year. Retailers have been passing on these lower prices to consumers. “We have seen this new entry price point of fine jewellery become increasingly popular,” says Benteler. “You now have a lot of smaller fine

jewellery pieces that start around maybe £1,000 and upwards. I think the entry level where we see people buy into is around maybe £1,500 to £2,000.” Companies that have priced their fine jewellery at lower levels are seeing an upturn in sales. According to Benteler, precious metal jewellery by Italian company Repossi has become highly popular as the brand has pieces nearer to that entry point. It has silver and gold pieces starting from £800. “In general, there is always good demand for classic fine jewellery pieces,” Benteler says. And the website has seen strong demand f rom t he Middle East. “It is something they really invest i n – c u l t u r a l l y, jewellery is a big part of their day-to-day look.” Indeed, research from the World Gold Council shows demand for jewellery in the Middle East strengthening, with overall investment increased by 13 per

cent in the first quarter of 2014 compared to the same period in 2013. Although demand for gold jewellery is extremely strong in Asian countries, Avenue 32 is not seeing much interest in sales from these areas. In countries such as India, says Benteler, it is cheaper for people there to buy it in their own backyard, and she sees most demand for fine jewellery on Avenue 32 coming from developed markets. In the UK, people are looking to buy more custom pieces. She says: “In London, you have a big trend for chokers. This is something you would not necessarily buy as a fine jewellery item, but as a custom jewellery piece. It is the same with ear cuffs.” Although there will be trends in what type of precious metal jewellery people want, Benteler says there will always be demand for gold. “Historically, it has the better standing. Gold is what people turn to as an investment during times of uncertainty,” she continues. “Investment in jewellery is always something long term and a considered purchase. Relatively speaking, it will be stronger during a time of crisis.”

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The big interview Russell Clark By Joanne Frearson

T’S A BREEZY June morning and, two miles outside the village of Hemerdon, on the edge of Dartmoor National Park, Russell Clark is a happy man. And no wonder. He is on a flying visit to Devon to check on the progress of his new project – the first metal mine to be opened in the UK for 45 years. “It’s an exciting time and everything is going to plan so far,” explains Clark, who is CEO of Wolf Minerals, the Australian company behind the project. “We picked up this mine site in 2007. The project has been known about for a long time and had previously been owned by American mining company AMAX. The planning permission is in place, the environmental permitting is in place and we recently raised about £100million of equity so the project is fully financed through to positive cash flow.” The mine, which houses the third-largest deposit of tungsten in the world, will cost about £130m to dig and is expected to start producing the metal in 2015. Wolf Minerals has a 40-year lease to the mineral rights and rights to mine the deposit. Australia firm GR Engineering Services (GRES) is building the processing plant, while UK-based company Blackwell has been awarded the mining contract. Clark explains: “The main foundations for the building are now being put into place. Mining is expected to be started in July, but the processing plant is not scheduled to be finished until next August. Contractually, we have to deliver our first concentrate in September next year. If we can do it earlier than that we will. “When we come into production, we will produce around 3,500 tons of tungsten a year and 500 tons of tin. Annual world production of tungsten at the moment is around 100,000 tons. We will be looking to produce 3.5 to 4 per cent of global production from this mine. The mine initially will only work for five and a half days a week, but we will be looking to get planning permission to run it seven days a week. The world needs a lot of tungsten, and there is good potential to increase the production here to about 5,000 tons.” The Hemerdon mine also means the UK will be able to meet its entire tungsten needs for many years to come instead of relying on supplies from abroad. n tungste Presently, the US Geological he EU, minerals t o t g in Accord 14 critical raw It is silverSurvey estimates about 60 per he t f o nomy. e is on EU eco hest melting , cent of the world’s known e h t r th hig ial fo essent lour, with the tensile streng tungsten reserves are in o s c l a a ll in e ic y r t w e gr elec al as China, while other deposits ny met esistance and dustries a f o t nr poin have been found in Russia, many in orrosio good c ity. It is used in g cutting Kazakhstan and Canada. b e fore pr o duc t ion din tiv conduc roducts, inclu he aircraft p ,t d Technically, this mine is started, tungsten prices ls an o o t ding g being reopened as it was in fe l l a nd it w a s not and grin try and lightin indus ts. production in the last century, economically viable to work filamen particularly during the two world wars the site. “When AMAX became when demand was high. The revival of the involved in the mine the price fell over, mine will help pump millions of pounds into the primarily because the strategic stockpiles Devon economy, creating around 200 jobs and being held by America and Russia were dumped generating around £10-12million in salaries. onto the market,” explains Clark. In the late 1970s, American company AMAX But tungsten fundamentals have dramatically showed an interest in reopening the mine but, changed since then – there are no longer any

On the edge of Dartmoor, histo is being remade

CTS THEFA

Australian mining firm Wolf Minerals is opening the first metal mine in the UK for 45 years strategic stockpiles of the metal anywhere, and demand is increasing. “If people need more tungsten they are going to have to fight for it which, in turn, will push the price up,” says Clark. According to Tungsten Market Research, the price of the metal is forecast to increase from about $38,000 a ton to $48,000 a ton in the next year or 18 months. It is possible it could even hit $50,000. What will also keep tungsten in demand, Clark explains, is that the metal cannot be

substituted for other products. The only thing that could be a substitute is diamonds, which is “going to be more expensive”. Wolf Minerals is hoping to extend the life of the mine in order to cater for increasing demand for the metal. The firm has begun a drilling programme to see if this will be possible, but they will not know the results for another three or four months. If results are positive it could increase the life of the mine by 20-30 per cent. Clark says: “We have a 10-year mine life at the

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Find us online: business-reporter.co.uk Wolf Minerals CEO Russell Clark oversees the reopening of Hemerdon tungsten mine after 45 years. Portrait: James Dadzitis

ory e moment. If we have extended it for two years we would have another 7,000 tons, or another two years of life. I think there is easy potential for four years of extra life, and after that the potential for another ground mine, maybe.” His ambition for Hemerdon mine is to develop it, pay back the debt and pay back a dividend to Wolf Mineral’s shareholders. The mine is expected to generate in order of $100million a year in revenue and about $40-$50million in free cash.

“We expect to be cash positive in 2016,” says Clark. “We will be ramping up production in 2015 and 2016 and we should be in a position where we are making more money than we are spending, paying down the debt and ultimately have the first profit.” Around 80 per cent of the offtake of the mine is already tied to companies. Around half of that will go to Austrian refiner Wolfram Bergbau und Hütten, owned by Sandvik, and the other half

will go to US-based Global Tungsten & Powders. The remaining 20 per cent is expected to be bought independently. If Clark’s plans pay off, Hemerdon is set to become one of the most important tungsten mines in the world once again, potentially revitalising the local economy and making the UK a globally significant exporter of a material whose demand is steadily increasing.

Jenk’s eye view WHILE gold and other precious metals have their critical industrial uses, it is psychology – a combination of lust and fear – that drives their value. Gold has always been associated with wealth, beauty and success. Yet it has not necessarily been a source of value. Talking an investor’s perspective, there is little rational and less factual basis for investing in the likes of gold, silver, platinum and palladium. Precious metals are a speculator’s dream but, as with the slot machines in Las Vegas, there are very few punters who beat the house. Gold, and to a lesser extent silver, is a store of value and, in this day and age, not an efficient one. Gold is used as a hedge again inflation as well as a safe haven during periods of volatility. Gold’s value is intimately linked with the gyrations of the US dollar, as well as movements of stock exchanges, tempered with geopolitical developments. The two major gold bull markets have been highly correlated to global contagion fears: 1979-81 and 2007-2011. At present, expert opinion is divided between “buy ”, “hold” and “sell” recommendations. Gold’s return is essentially matched to the rate of inflation. It offers no earnings, no income and no dividends. Its price suffers from high volatility. Gold, as other precious metals, is subject to custodial costs and has, in most jurisdictions, a higher tax charge as an investment. Even for a debased currency, such economies are likely to turn to barter, rather than use of bullion. A recent survey in Forbes revealed an interesting additional dynamic. Wealthier Americans invest in real estate, Gold while lower-income Americans aspire remains a to invest in gold. medium Benjamin Graham never considered of passion; g ol d n o r o t h e r a powerful precious metals as relic part of his portfolio investments. It would seem that gold’s value is largely psychological, even in this age of immediate information. Gold in particular remains a medium of passion; a powerful relic, whether investing in bullion, paper or mines. So for precious metals, as with so many things, don’t be blinded by the lustre and lucre: caveat emptor! Justin Jenk is a business professional with a successful career as a manager, adviser, investor and board member. He can be found at www.justinjenk.se

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Precious metals

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Inspector Dogberry

Inspector Dogberry likes to wear a bit of bling on occasion, so he was delighted to discover Banneya, a 3D printing jewellery firm which allows designers to produce their precious metal designs using this method.

By Natasha Clark, web assistant

To use the system designers Scientists at the

used in direct-drive

risk of domestic supply shortages.

simply upload a model of

US Department

wind turbines or

It is ideal for next-generation

their design, then select a

of Energy’s Ames

electric motors

permanent magnets to rely more

metal as well as the finishing

Laboratory

in hybrid cars.

heavily on iron or other abundant

touches they would like on

have observed

Paul Canfield,

materials. Cranfield is hoping the

the product. The company

magnetic

a physicist at Ames,

research will be used as a model

is registered with the British

properties

says: “This isn’t an

for further theoretical study on

Jewellers’ Association and

typically associated with those

industrial breakthrough at this

these rare earth-like irons. Ames

hallmarks all pieces produced.

observed in rare-earth

point because these magnetic

Laboratory is a US Department

It is hoping to build a network

elements in iron.

properties only reveal themselves

of Energy national laboratory

of community designers

at cryogenic temperatures. But it’s

operated by Iowa State University

interested in creating

possibility of using iron to

a basic science breakthrough that

for DOE’s Office of Science,

business partnerships and

provide both the magnetism and

hopefully will point the way.”

which creates innovative

sharing resources

materials, technologies and

and ideas.

The discovery opens the

permanence in high-strength permanent magnets, like those

According to Ames, rare-earth materials are expensive and at

Scottish gold will play a key part in the Glasgow 2014 Commonwealth Games, with around six grams of rare 18-carat material sourced from the Kildonan Burn area being moulded into the shape of the official Glasgow 2014 logo. The gold was gathered at one of the sites of the original 1868 Scottish gold rush, where a local man first found the precious metal in the water. The gold was donated to the Commonwealth Games Federation (CGF) and will be used to form part of the David Dixon Award trophy, which is given to a single athlete in the games based on their performance, spirit of fair play and overall contribution to their team.

ExpertInsight

u Editor’s pick TF Metals Report www.tfmetalsreport.com This precious metals blog has its own unique personality as well as a lively community and its very own podcast. Posts range from summaries of recent activity in the gold and silver markets to interviews with industry experts. You can also subscribe with a gold account for access to extra content.

Investing in Precious Metals www.investing-in-precious-metals. com/precious-metals-blog.html

energy solutions.

Ounce for ounce

This blog serves as a regularly updated collection of the most interesting precious metals news on the web. Check through recent posts to discover the potential conspiracies behind the gold market, why Oklahoma accepts gold and silver as legal tender, and why current prices are “absurd”.

There is a new meaning behind having a gold card. IMGold is set to launch a Bullion Card which is made of solid gold. It might be a little beyond Dogberry’s spending limit, but the Inspector has been known to enjoy participating in the chasing

Peter Schiff’s Official Gold Blog http://blog.europacmetals.com Euro Pacific CEO and chief global strategist Peter Schiff offers his insight into the world of precious metals on this blog, which focuses specifically on gold. The regular posts include roundups of the latest gold headlines, audio clips and videos from Schiff himself and beyond.

of shiny objects. According to IMGold, the

USA Gold Blog

underlying value of gold never

www.usagold.com/cpmforum

actually changes – its price is, apparently, just a reflection of the underlying economy. In 1970, for example, an ounce of gold was £30, which would pay for a hand-made suit. This has been the case in each decade since, and today one ounce of gold will

Twitter: @dogberryTweets

still pay for a hand-finished suit.

Precious Metals Price Widget (FREE, Android)

Gold Live! (FREE, Android)

Keep track of the price of metals using this widget, which sits on your device’s home screen.

This app enables you to set target values and receive notifications when they are reached.

The USA Gold blog provides an American perspective on the international market for gold and other precious metals. Typically, several posts are published each day and goings-on are summed up in daily market reports. Quotes and warnings are clearly highlighted so you don’t miss any important news.

Double delight for gold exploration firm Projects in the Philippines and Argentina hit the mark INDUSTRY VIEW

CR Minerals is an AIM-listed (ticker: ECR) mineral exploration and development company focused on gold projects in the Philippines and Argentina. ECR has a production-centric approach, and the company’s two projects complement each other in this regard. At the Sierra de las Minas (SLM) gold project in Argentina, ECR’s exploration strategy is to identify multiple high-grade, low-tonnage deposits suitable for advancement to production on a relatively low capital, near-term basis. At the Itogon project in the Philippines the company hopes to realise a larger-scale, longer-term opportunity. ECR has a 100 per cent interest in SLM, and the right to earn a 50 per cent interest in Itogon. CEO Stephen Clayson sums up the current mission

of ECR as “to use the results generated from exploration operations to create value for shareholders”. Clayson went on to explain ECR’s rationale in choosing to focus on the Itogon and SLM projects. “Both projects benefit from historical data, which has given us a head start with our work. In addition, the Itogon project is within

a significant gold mining district, with several producing mines nearby. Just as importantly, we are comfortable with both the Philippines and Argentina as countries in which to operate, and we are confident ECR can bring to bear the financial and management resources needed to successfully add value to our projects.” This process looks to be off to a good start. Last month ECR announced positive results of its first drilling programme at the Itogon project, which included an intercept of two metres at a grade of 119.53 grams per ton gold within 10 metres of the surface, as well as numerous other intercepts of high and very high grade mineralisation. Earlier in the year ECR reported grades from surface sampling at SLM of up to 272.9 grams per tonne gold. Work on the ground is continuing at both projects. +44 20 7929 1010 www.ecrminerals.com

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The rare earth metals market is in flux thanks to emerging markets and green technology – in good and bad ways. Joanne Frearson reports HE DEMAND for heavy rare earth elements is likely to rise as the use of green energy technologies increases and supply remains tight – while some light rare earths are moving to a position of oversupply. According to a report by research firm MarketsandMarkets, the demand for rare earth metals is estimated to reach 192,000 tons by 2018. Demand is strongest in the Asia-Pacific region, with China accounting for 60 per cent of global rare earth consumption. Although light rare earths such as lanthanum (used to make nickel metal hydride batteries for electric and hybrid vehicles) and cerium (used to polish glass, metal and gemstones) capture around 62 per cent of the market share, they are more abundant in the earth’s surface, and it is the heavier rare earths which will see their value increase. Rarer heavier earths which will be in demand include yttrium, europium and terbium used in energy efficient fluorescent lamps and bulbs, erbium which is used in lasers

Rare earth metals (clockwise from above: dysprosium, neodymium and erbium) are used in a variety of products, such as hybrid cars and wind turbines (right and opposite page)

for medical a nd de nt a l use, and dysprosium, used in the manufacture of neodymium-iron-boron high-strength permanent magnets. Paul Lusty, team leader of Ore Deposits and Commodities at the British Geological Survey, says: “Heavy rare earth elements are more expensive than the light rare earths because of their geological availability and market demand for them, which is generally expanding because of specialist applications in new technologies. “There is limited scope for rare earths to be substituted for other materials in these applications and the heavy rare earth elements are essential for their performance. Projections suggest supply will be problematic for yttrium, europium and terbium and may be challenging for other important elements such as erbium and dysprosium. They are more likely to sustain higher prices or see some price increase going forward. “For elements like terbium the supply situation is going to continue to be quite tight over the next few years, probably at least up to 2016 or the end of the decade until we see some significant heavy rare earth producing

operations outside China actually coming online. The real major growth areas are associated with green or clean energy technologies. Many of the rare earths have important magnetic characteristics. They are used in industrial motors, hard disk drives, hybrid electric vehicles and wind turbines. Analysts are predicting increased demand for magnets which use rare earths.” At the moment, China has the monopoly in the rare earth market, but the emergence of new players in the industry is likely to have an impact on prices. China accounts for 85 per cent plus of global rare earth production, though Lusty says that new operations in the US and Australia are starting to make an impact on China’s share of the market for some elements. Companies such as US-based Molycorp and

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Australian firm Lynas have both started operating their rare earth mines which will see production of rare earth metals increase substantially. But Lusty says such changes will take some time to affect the industry’s strategy. “In terms of the future it takes a long time for the mining industry to respond to changes in demand,” he says. “It is probably going to be at least another 10 years before we see a diverse supply base outside China. The processing of rare earth is complex. It is unlikely that more than a handful of those projects that are currently being explored will reach the commercialisation stage and become producing mines.” Countries such as the US are also looking at recycling to improve the supply base of rare earth metals. According to MarketsandMarkets, the existing recycling rate for the rare earth metals is 1 per cent, which presents a significant opportunity for important recycling efforts. Rare earth metals are a crucial part of the production of green technology, and it will be the heavier kind used in these devices where supply is tight which will likely see prices rise the most.

ExpertInsight

www.images-of-elements.com

Coin market defying gloomy gold sales trend THE GOLD coin market in the UK is bucking a worldwide trend of falling sales to make a comeback in the UK, with demand for products rising. According to figures from The Royal Mint, in the first quarter of this financial year overall worldwide sales of gold coins dipped 24 per cent, but increased at the mint by 13 per cent. Meanwhile, silver coins have remained buoyant, with worldwide sales increasing by five per cent year-on-year, while they increased by 43 per cent at The Royal Mint. Research from The Royal Mint shows demand has been strong for gold and silver coins in North America and Germany. Shane Bissett, director of commemorative coin and bullion at the mint, says: “Consumers in North America and Germany have traditionally purchased gold and silver for many generations. “Germany has previously experienced hyperinflation, which has influenced the views of German consumers. American consumers are able to add gold and silver coins to their Individual Retirement Account funds, which helps to drive a lot of activity. In the UK, the VAT-free status of gold coins has attracted buyers to the market, while both gold and silver coins are also capital gains tax-free for residents.” According to Michael Cooper, bullion executive at ATS Bullion, the drop in price in

gold has made it “a bit more affordable to people – we are beginning to see a lot of our clients come back from the early 2005 to 2008 period to purchase again. “Britannias and sovereigns are very popular because they are British CGT free. CGT is something a lot of our investors are very concerned with so we have to factor that in. The British stuff is very useful for them.” In silver, Cooper sees investors more willing to invest in coins from different countries. “Silver is a bit more varied, people are quite happy to go for the Canadian maples and the US eagles,” he explains.

How the story of Blondel and Richard the Lionheart Klimt’s 150th anniversary lives on Gustav celebrated in fine style INDUSTRY VIEW

he fact is that today, the Austrian Mint is a global player in the production and supply of coins and precious metals. However, the history of the mint’s origin and establishment could be the material of fairytales. Having made a truce with Saladin at the end of the Third Crusade, King Richard I “The Lionheart” headed home to England from the Holy Land by sea. When bad weather forced him to travel overland from Italy he was later captured near Vienna by Duke Leopold VI of Austria, whom Richard had previously insulted. Legend has it that Richard’s loyal minstrel Blondel searched for his master from castle to castle by singing a song known only to him and the King. Held in the castle of Dürnstein in the Danube

valley for the best part of a year, Richard was eventually located by Blondel after he was heard singing the song back to his minstrel. The King’s release was secured in 1194, though not until Duke Leopold was paid a ransom of some 15 tons of silver. The Duke used his booty to strike coins, which led to the establishment of the Vienna Mint at the Badenburg Court. Right from the outset, the expert craftsmanship of the Vienna Mint played a vital role in the production of prestigious and timeless coins of the very highest standard. An engraving academy has been in existence in Vienna since 1733, and numismatic masterpieces are still being created there today. A case in point is the Austrian Mint’s current Klimt and his Women five-coin gold series in proof quality. From classical and allegorical to erotic and

mythological, Gustav Klimt succeeded in portraying female beauty like few other painters, to the extent that his name is synonymous with the representation of the female form. To celebrate the 150th anniversary of the Viennese master’s birth in 1862, each year from 2012 to 2016 the Austrian Mint is issuing a €50 gold coin, each featuring a woman who moved Klimt. Klimt was the pivotal figure in the Viennese Jugendstil movement and the paintings featured on the coins in this series are undoubtedly some of the movement’s most iconic. Sensual and fresh as well as natural and deeply emotional, their highly decorative modernist ornamentation has been expertly captured on these coins by the Austrian Mint’s gifted and experienced designers. Committed to creating coins

that are both worthy of the great artist and do justice to his artistic vision, they have devoted themselves to the subject with passion, vigour and creativity. As well as striking an impressive range of collector coins and some of the world’s bestselling bullion coins, the Austrian Mint supplies circulation coins and blanks to many countries worldwide. But, first and foremost, its duty is to produce the Republic of Austria’s Euro circulation coins. The tale of Blondel and Richard the Lionheart is one of Europe’s most abiding legends, but the rest, as they say, is history. www.muenzeoesterreich.at/eng

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Precious metals don’t have to be taxing

The future

Silver is shining brightly

Bob Marley

“

Precious metals Industry view

Business Zone

Don’t gain the world and lose your soul; wisdom is better than silver or gold

Why the best time to invest is now

ilver supply has had its fair share of artificial stimulus over recent years. With central banks dumping the metal and ETF speculators bailing out of positions, the market hasn’t always been sympathetic towards the world’s silver miners. But things are changing. On the supply side, the ETFs have probably now seen the top of silver outflows and the central banks are practically out of silver to sell, so they can’t dump any more into the market, demonstrating an availability shortage. Further compelling news in this market is the fundamentals of demand.

Of all the metallic elements, silver has the highest electrical and thermal conductivity; it is strong, malleable, ductile, and can endure extreme temperature ranges. Almost half of current industrial silver use is in the circuitry of electronic goods such as laptops, tablets and mobile phones, for which global consumer demand continues to surge. According to the World Silver Survey 2014, the supply of scrap silver fell by 24 per cent in 2013, experiencing the largest drop since records began, and was at the lowest level for well over a decade since 2001. The best time to

invest is when supply is dwindling, demand is rocketing, and the market has not cottoned on. There are very few pure silver companies on London’s AIM market to provide opportunities to access leveraged benefit from all these growing demands for silver. However, Arian Silver Corporation (AGQ) is one such company, with no silver price hedges in place. It is an emerging producer committed to building a significant silver mining business capable of sustaining a minimum of two million ounces of silver per annum, plus lead and zinc. Arian Silver has a strong track record in achieving a significant mineral resource estimate at one of the lowest costs per ounce in the ground, in the market, and has a proven production record making it a significantly more attractive investment than a company with no production history. This is an excellent opportunity to invest in a growing business in a market full of opportunity. 020 7887 6599 www.ariansilver.com

In focus: Establishing a multi-project gold company

Gold Fields’ acquisition transforms Hummingbird into a six million ounce multi-asset gold company

ummingbird listed on the London Stock Exchange in 2010 with a resource of just 812,000 ounces of gold in Liberia. In the intervening years the company has undertaken significant exploration activity and has a gold resource in Liberia of 4.2 million ounces. With the recently announced proposed

acquisition of Gold Fields gold assets in Mali, Hummingbird will be transformed into a multiproject, near-term producer with six million ounces of gold and 5,000 km2 of exploration ground. Hummingbird’s strategy has always been to create a gold company with a portfolio of assets that encompasses exploration, development

and production, and this is a major step to fulfilling that ambition. Gold Fields’ decision to accept Hummingbird shares as consideration for the acquisition underlines the potential of the Yanfolila Project, its portfolio in Liberia and its confidence in Hummingbird’s ability to bring projects into production. The Yanfolila Project provides Hummingbird with a fast, simple and low-cost route to production, and the company expects to commence production by the end of 2015 at an initial gold

production rate of 80,000 ounces per annum. The difficult market for the mining sector has allowed Hummingbird to acquire an attractive and highly profitable project which can be brought into production within 18 months. The project has excellent grade, with low capex and opex, and has been acquired at an attractive valuation of $11 per managed ounce of resource, which compares favourably with recent transactions. www.hummingbird resources.co.uk

magine an island, not so very far away, where gold, silver, platinum and palladium could be bought cost-effectively and stored securely without the imposition of any form of value-added tax (VAT) or goods and sales tax (GST), and where investment in bullion may also be exempt from UK capital gains tax (CGT). Surrounded by water and hewn from granite, the 25-square-mile island enjoys political independence from both the EU and the UK, is widely recognised as one of the world’s premier international finance centres and boasts a unique mix of advantages over the competition when investing in precious metals. Guernsey, in the Channel Islands, is host to a burgeoning, and well-regulated, bullion industry that takes full advantage of the island’s physical location, natural security, low crime rate and financial services know-how, as well as its own tax system. For those lucky enough to live on the rock, there are no inheritance taxes, CGT or VAT, but even those who are not Guernsey residents can enjoy the benefits of the latter when investing. Investors who choose to buy and store their physical bullion in Guernsey suffer no VAT on their purchases. Furthermore, UK tax-payers can take advantage of UK CGT exempt gold and silver bullion coins that each enjoys a UK government assurance of weight and purity. Fully insured storage on the island costs about the same as the management expense ratio of a typical investment collective scheme and investors should sleep easily knowing that their physical bullion, in the exact form, is held just a short flight from the mainland. Robin Newbould is MD of BullionRock 01481 706767 invest.bullionrock.com

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The debate What are the pros and cons of investing in precious metals?

Pawan Kumar

Mark Bristow

Christopher Hall

Stephen Clayson

There are many pros and cons for investing in gold. One pro is that physical stock can be secured in private safe deposit lockers. The fact that you are holding the tangible asset in your personal portfolio is a plus as it can be sold at any point during its price cycle, with no middleman. Recently, however, there has been a trend to invest in ETFs in gold and gold mining stocks which are much more volatile and risky. ETFs and gold shares are the most costeffective way to invest in the commodity but many external factors affect gold shares that wouldn’t necessarily affect the price of gold itself. Gold is generally seen as a medium to long-term investment, hence, in my opinion, physical gold investment wins due to actual value held with no middlemen.

Over the past two decades the gold mining industry has undergone a paradigm shift. As ore and opportunities are exhausted, miners have been forced into regions where costs and risks are greater. There’s also been a tendency for quick returns, to market prospects rather than to develop sustainably profitable mines. This rewards the investors but does nothing for the host country or those who come later. In Africa, it is especially important that firms recognise they need a social licence to operate, which requires that they engage the host government and the local community as genuine stakeholders in the business. Prudent investors should look for companies with a record of successful operation, demonstrable commitment to profitable businesses and a good relationship with their host countries.

Investment in precious metals, in particular gold, has historically been viewed as a store of value and a hedge against inflation and instability. The last six years have seen little inflation and despite widespread political turmoil, precious metal prices fell sharply in 2011/12. They have stabilised over the past 12 months as central banks and investors start to rebuild their reserves. Demand in emerging economies, and a lack of new discoveries, is expected to drive prices higher. In contrast, gold exploration and production firms in this space have suffered badly. Despite unresponsive equity markets, companies like Stratex have found alternative funding options such as joint ventures and project sell-offs. There is a huge opportunity for quality investments and savvy investors are already buying at bargain prices.

The surge of enthusiasm for precious metals, especially gold, as an investment since the early years of the last decade is a phenomenon ultimately driven by ongoing seismic changes in the global financial landscape. Investments in the gold mining and exploration sector can combine exposure to the gold price as well as the returns that may be expected from a well-run business, namely dividends from more established miners, and potential for significant capital appreciation, particularly among smaller companies. The latter are often focused on exploration or on bringing mines into production and will always be a relatively high-risk asset class. Stock picking is of key importance, and factors such as management, geology and jurisdiction of projects as well as market timing and liquidity all need to be considered carefully.

020 8574 5009 www.heathrowsafedeposit.com

01534 735333 www.randgoldresources.com

+44 (0)20 7830 9650 info@stratexplc.com

Director Heathrow Safe Deposit

CEO Randgold

Chairman Stratex International

Director & CEO ECR Minerals