Yesterday was the first day of the Hong Kong Mines & Money conference.
After the reports of fairly morose atmospheres at the other two big global mining conferences held round this time of year – the Prospectors and Developers Association of Canada Conference (PDAC) and the South African Indaba conference – I’m happy to say the mood has been bullish.
The turnout has been strong, with about 4,000 here.
The venue is pretty impressive, with sweeping views of the bay. Hong Kong is in full flow too. Rather than get a cab, I walked an hour to dinner with friends earlier to get a view of the bustle on the streets. My limited impression of Hong Kong is one of plenty of economic activity. Property prices have certainly been good round here. One guy I heard about had paid $2 million for a small apartment.
The View from the Gold Miners
Eric Sprott was the big draw card as the keynote speaker today, though the CEO of Newcrest, Greg Robinson, opened up proceedings. His views on gold were bullish, as they would be, and he hit some of the points I made in my speech the day before.
He pulled out a few other cool facts. For instance, I didn’t know that half of the money spent in exploration globally last year was spent looking for gold. And with very little result. No one is finding big deposits any more, no matter what they spend. So future supply will be hamstrung. Much higher gold prices will be needed to stimulate future supply.
As for production costs, they have soared 256% in ten years:
According to Newcrest’s Greg Robinson, the industry is ‘acutely aware of it’. Hopefully they’ll pull their finger out and do something about it.
On that topic, I weighed in on this after a later talk given by ‘mining associates’ who reckoned the reason costs have soared so much for gold is the drastically falling ore grades the gold industry is chasing in the name of bigger production volumes.
Low grade is expensive to mine, to truck, and to treat. He reckoned that’s why the majors steer clear of gold – it’s so hard to control costs.
Eric Sprott drew a decent crowd for his talk, which focused on precious metals of course. He covered a ton of stuff, starting with a look at debt at the sovereign level, and kicked off with a quote from Mark Carney, the Bank of Canada chief:
‘The Global Minsky moment has arrived. Debt tolerance has decisively turned. The initially well-founded optimism that launched the decades-long credit boom has given way to a belated pessimism that seeks to reverse it.’
The shenanigans in the Cypriot banking system are the perfect backdrop to all this. Sprott reckoned the traders with a short position on gold will be in pain given gold has moved $30 against them in the last few weeks.
With bank runs in Europe possible, he emphasised, ‘having money in the banks – a highly leveraged counter-party – is a risk’. The troika (EU, IMF, and ECB) would do all they could as, ‘No one wants the first domino to fall,’ – but options are running out.
By the way, the ECB has pumped $1.2 trillion into the European financial system in the last few weeks via bank swaps apparently. I must have missed the memo on that one. Clearly there is some trouble brewing.
As for Germany repatriating its gold from the US: How can it take seven years to repatriate 350 tonnes, when China can import that much every six months? Just maybe it’s because the US doesn’t have Germany’s gold…
Some Other Investment Angles
As always, Sprott loves silver. The supply of investible silver is three times bigger than gold, but investors are buying 50 times more than gold according to the US Mint website…so at some point this will have to translate into a supply crunch.
In the 1980′s, Volker admitted that in reference to the gold run of the 70′s ‘the biggest mistake we made was not controlling the gold price’. Sprott expects that the gold price is being similarly managed today to create the illusion of recovery, when nothing could be further from the truth. During Barack Obama’s presidency, the number of food stamp users has jumped form 20 million to 47 million, or 15% of the US population.
As for gold stocks, he doesn’t doubt they’re immensely cheap, but thinks we need to see a sustained move in gold for gold stocks to follow suit. Gold above USD$1,700 would be a good start.
A big theme in the conference is the novel ways of financing the mining sector. With equity hard to come by, two new players are moving in: private equity, where private money buys a company lock stock and barrel, finances it, and turns it around; and the other is royalty streaming – where private money finances it in return of a cut of the product for a long period. There’s more talk about this tomorrow, so I’ll hold back on it until them.
There was a great panel debate about China’s economy, mostly held in Cantonese by Chinese bankers, so I listened via translator. It was pretty interesting seeing it from their eyes. This is something I’ll cover in the next issue of Diggers & Drillers.
I’ve spoken to a dozen companies today, and need to run through all their details when I get back. There is plenty of new fodder to run the ruler over.
One seminar that was pretty cool was on Myanmar, formerly Burma, which is taking off now it’s opening up. Apparently if you want to make a quick buck on property, you should go and check it out – its property market grew at 47% in 2012! Not bad for a year’s work!
That’s it for me tonight. I’m stuffed. I’ll check in tomorrow.
Dr Alex Cowie
Editor, Diggers & Drillers
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