Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
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30 year <2%
TREASURIES EXTEND ADVANCE; 10-YEAR YIELD FALLS TO 1.355%
Got yield?
ISM Services dropped to 60.1 in June, way below expectations. Employment and inventories dipped below 50.
#StagFlation baby
Make that 1.385
1.3783%
Aye - so only about a 3% loss on your money at that rate (which is more like 8% in the real world).
Shaken not stirred MrBond?
U.S. TREASURY 10-YEAR YIELD FALLS TO SESSION LOW 1.395%
It will be interesting to watch AU price in one hour when Wall St opens, possibly more tricks left .
https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm
Fed Borrowing now doubled since 2016, 8 Trillion total, up up and away
Morning.
Looking good here and very good for Gold.
Yes we just missed the death cross in gold, however as Uncertain, who I very much miss, would have said is this a dead cat bounce or the real thing and how can we know as we cannot see inside Shrodinger's box. Will we see the golden cross or the death cross next? What a funny time in gold but I thoroughly agree with InstantExpert's article and have kept posting that gold should be the inverse of the real interest rate (ie TIPS) not the nominal interest rate it is inversely tracking, and at some point this must come right; I only see real rates falling - the true result of the much higher inflation we are seeing with only slightly rising rates. Along with our recovery we should be in clover in later 2022/2023. Anyway to some good news for another I have hung on to, at least my tiddler Omi is more cheerful this am up 40% so far, though overslept and missed nabbing more at 8.01 as still too sleepy!
And Golden Cross Due 1830-40 depending on speed of movement.
Link to full article:
https://www.sharpspixley.com/articles/lawrie-williams-gold-and-10-year-tips-inverse-diverge160;-buying-signal_8591.htm
Major stock exchanges in Europe were mostly lower in premarket trade on Tuesday as traders awaited economic data reports from Germany, the Eurozone and the United Kingdom, due to be published later in the day.
The DAX decreased 0.07% and London's FTSE 100 declined 0.20% at 7:45 am CET. The CAC 40 was flat at 7:39 am CET.
The euro was 0.14% higher compared to the dollar at 7:47 am CET, trading at 1.18795. The British pound gained 0.33% against the American currency, going for 1.38890 concurrently.
Breaking the News / MS
Gold currently + .65% @ $1803.31
Writes yesterday
"
For some years now, specialist Vancouver Island-based economic consultancy, Murenbeeld & Co, which publishes its weekly Gold Monitor newsletter, has been pointing to a remarkably close relationship between movements in the gold price and in the inverse of the 10-year USA Treasury Inflation Protected Securities (TIPS) yield. For the past couple of weeks, coinciding with the latest, perhaps engineered, weakness in the gold price, following the latest FOMC meeting, and its perceived hawkish deliberations, this correlation has widened very significantly. This suggests either irrational gold price weakness, or an undue change in the TIPS yield. We strongly assume that the former is the most likely consequence and the gold price may catch up accordingly. Where gold goes the other precious metals, particularly silver, tend to follow.
In the event, the FOMC meeting, and its ensuing statements, suggested little change in the way the U.S. Federal Reserve was planning to react – it did not foresee any change in its ultra-low interest rate and bond buying programme until well into 2022, if then. Indeed some analysts feel the Fed may need to continue its low interest rate and easing programme until 2023, and perhaps beyond, to counter the economic challenges brought about by the COVID-19 pandemic and the recovery therefrom.
The above could well account for the apparently stronger gold price immediately ahead of the American Independence Day holiday. It still has a bit of a way to go before the apparent imbalance with the TIPS yield might be redressed. This, along with some other positive factors, could well suggest a gold undervaluation with the yellow metal due for further price recovery – in other words a strong buying signal leading into July and August – months that have sometimes seen huge precious metals price rises."
Nice start to the day!
$1790 was the. 100 day moving average, next stop $1820 say the charting wizards.
CONTINUED...Tthe third largest copper deposit and the largest uranium deposit in the world! and obviously not too shabby on the gold side !!!
There is a lot more but I wont bore you. BUT....discovered in 1975, started mining in the 1980's and still has not recovered its cost of discovery, development and otherwise cost of capital! This is a very salient story, not too well understood by the Analysts of the world.
If you think mining deep low grade orebodies is easy talk to Rio about their debacle in Mongolia. Latest of s tring of disaterous announcments...Jan 2021...
"In a fresh setback for Rio's problem-plagued project, the Mongolian government this week warned the Anglo-Australian miner it was dissatisfied with the progress of the Oyu Tolgoi underground mine expansion and was now considering revoking its 2015 mine development and financing plan unless economic returns were improved."
https://www.smh.com.au/business/companies/rio-tinto-s-8b-mongolia-mine-expansion-plan-under-threat-20210112-p56tfe.html
More aout the Olympic Dam Story below....
http://www.australasianscience.com.au/article/issue-september-2011/olympic-dam-story.html
I would not be assuming that finding and developing deeper orebodies is going to be at the same rate and cost as finding them at the surface.
best
the Gnome
Thanks Mr T.
My notes
1. There is a well known trend for discoveries to be of lower grade. Given equal amount of gold ounces, this implies that new deposits will need to be larger volumetrically [this is good for the exploration under cover, as bigger deposits are easier to find than small -albeit high grade ones], which in turn requires more drilling in terms of drill density, and if the deposits are under corver, then each hole will have to drill deeper to define the ore body. Hence it is logical that new discoveries will be far more costly.
2. Given new discoveries will be under cover, that is having little to no surface expression, finding them is going to have a lower probability of success. The industry has appalling discovery rates when the orebodies have some form of surface expression, when this is taken away? I will leave it to your imagination what will happen - in short, exploration will take longer, cost more and have a lower probability of any sort of financial return.
3. If we look at one of the key examples of the above 2 points, the discovery of Olympic Dam, which is an IOCG deposit with no geology or geochemistry expression at the surface, but rather a geophysical expression, it took a very well credenitalled Mining Company (WMC Resources) 10 holes to find the deposit. Here finding means they had a high degree of confidence they had a major mineral deposit (certainly no resources, as the deposit had a foot print of about 7 kms by 4 kms and depth extent still not known). Depth to top of the deposit was 300 meters...so every hole had to be drilled through 300 meters of crud. One of the reasons they thought they were onto something was a gravity anomaly was coincident withthe mineralisation intersected by the "discovery hole". In the hole the mineralisation was denser than the surrounding rock. One calculate the excess mass to cause the positive gravity anomaly and the calculation derived a figure of 10 billion tons.
4. Following the example of Olympic Dam through, drilling started on 400m by 400 m centers and holes down to depths of 800 to 1000 m. Problems correlating between drill holes again! Had to close down to 200 meters. Problems again correlating. Pick a small area where mineralisation was higher grade more consistently. Sink a 500 meter exploratory shaft (think $$$). Make a horizontal exploratory drive (think $$$). Bulk sample, and met test. New shock! Although they had encountered small intersectionsof high grade gold, they did not calculate a gold resource, as nothing correlated between holes [hint all holes were vertical, clue gold was contained in vertical structures]. The bulk sample of the exploratory drive ran of the order of 150 meters + of 6+ gpt Au! There was a high grade gold mineralisation in the vast low grade copper, uranium, REE deposit! WITH TIME AND UNDERGROUND DEVELOPMENT, IT TURNS OUT OLYMPIC DAM CONTAINS 40+ MILLION OUNCES OF GOLD!...now the third largest copper depos
Unfortunately this is the end of the dialogue, although as Kees suggested it may possibly be that other more pressing issues have intervened and Richard has decided his time is better spent on those for now.
I make no assumptions but shall draw my own conclusions and leave everyone else to do likewise.
Whatever thank you to Mr Gnome for helping to bring about a very interesting exercise that we can all learn from.
cont-
The conversion of resources to reserves for underground mines is much more tricky than open pit mining. Isolated blocks often do not warrant the capital cost to access these and the amount of dilution is much higher than for open pit mining. Furthermore mine recovery is usually lower than for open pit mining.
In summary, the resource cut-off grade is not very representative for actually applicable in underground situations compared to open pit situations.
The 2017 presentation is discussing statistics for all commodities using the same approach as above. My comments apply therefore also there.
SUGGESTION
Your suggested exploration expenditure between approx. US$2 billion and US$10 billion per annum over the period 2000 and 2013 looks low when I place it into context of reported expenditure by major producers.
I attach a copy on an analysis I did of the financial performance of the 11 largest gold producers over the 10 year period from 2003 to 2013 covering the period of steadily increasing gold prices until the collapse in 2013. These companies accounted for approx. 1/3 of global gold production. Their investments over the period were almost US$110 billion. Granted, most of this is sustaining capital expenditure, but a substantial proportion will also be for new projects, some for acquisitions rewarding exploration companies for their success. I therefore again suggest to analyse the accuracy of your cost inputs.
You will see from my study how the large producers were very wasteful with investments requiring almost consistently more cash than generated by operations. It was so bad that shareholders had to contribute funding amounting to 7% of total revenue earned over the 10-year period. In other words, even in a good gold price environment, the industry was cash negative.
One only has to look at how few precious metal companies are currently dividend payers (and those which do, often absorbing all and more with the occasional subsequent share placement), and all the funding going to exploration companies, to realise the precious metal industry is a bottomless cash pit.
The implication is that the industry does not earn a return, let alone a real return and definitely not a return of >8%, a number generally applied to assess the economic viability of new projects. It means the consumers are getting their gold at a lower price that they should pay with investors in the mining sector subsidising consumers.
Why does the industry attract so many investors given that the industry over the long term is a terrible destructor of value? The only explanation I have is, that the participants are hopeful scoring the next “ten-bagger” something that does occur at regular intervals. The participants just do not realise in the long term they lose it on other bets, just like casino-goers.
Thank you again for all the reports and presentations.
Comments/Queries:
1) Stripping out the impact of a dropping cut-off grade seems to rely on one case study only (Shahuindo, a project for which the conversion ratio to reserves was only 43% as planned by Sulliden after which Rio Alto changed the plan to Run-of-Mine leaching, possibly improving conversion but negatively affecting metallurgical recovery). I would think it risky to hang too much on this case.
1) It is not clear to me how you can strip out the effect of a drop in cut-off grade from the numbers declared by companies for their portfolio of projects.
COMMENTARY
A) Methodology
Why do you not take the simpler route of referring to the declared mineral resources which companies declare at regular intervals and major producers (with the larger deposits) usually declare annually? You then do not have to deduce a relationship that may or may not be representative. The change in resources in a particular year are exactly as per your definition: change in ounces in all resource categories + mined in the period.
B) Industry performance with respect to discovery cost.
I think your statement that “actual discovery cost are likely to be less than half that indicated above” is very speculative and probably wrong. The cost of exploring a deposit rises exponentially over time with first expanding the number of exploration holes after the discovery hole, followed by in-fill drilling to bring these resources to a higher level of confidence WITHOUT materially adding ounces.
C) Decline in exploration productivity
It may be so that the input cost for exploration cost has risen in particular as the period considered (2000 - 2012) coincided with a gold price “super cycle” with companies increasingly less cost conscious, but I would think that another, more important factor is the increasing difficulty finding deposits. The easier and more obvious deposits have been found and companies are increasingly forced to take longer shots. As MinEx points out, this is not necessarily due to a dramatic increase in depth, but companies having to test hidden targets identified by often ambiguous geophysical anomalies.
D) Preferred Target Types.
I think you are getting on thin ice here to suggest that orogenic style deposits are the preferred type based on your analysis of grade-tonnage curves. The reasons are:
- Orogenic style deposits are usually high-grade, narrow deposits that need to be mined by underground means, in terms of mining cost at best by long-hole open stoping. Porphyry type deposits are bulk mineable usually by open pit mining.
- The cut-off grades used for resource definition usually ignore mine development and sustaining capital expenditure, whereas in the case of conceptual pits for resource estimation these are considered, and are a much lower proportion of total cash cost than for underground mining. In other words, the cut-off grade for resources for open pit mines are more represen
cont-
Comments/Queries:
1) I do not understand the reference to “on a head-grade basis” for production. What does it mean and why not using declared production?
METHODOLOGY
- Having chosen the criteria for discoveries, which put a peg in the ground, MinEx has to take account of the growth in resources after the discovery hole. It has used for this the resource history of 60 major discoveries (defined as exceeding 1 Moz {I presume ultimate size}) found in the period 1980-1996, covering a range of deposit types.
Comments/Queries:
1) Given your definition of discovery date how can you have resources as from year 0? After a discovery holes substantial additional drilling is required to be in a position to define mineral resources even at only an inferred category.
2) Figure 14 does not make sense with the independent axis being “years after discovery”, but the legend showing “year that a resource was first published”. The two time frames do not reconcile with the graph implying a resource published at discovery.
3) The diagram assumes that deposit type has no impact on growth in resources, lumping all together. This ignores the fact that for open pit mines a company attempts to define all resources up-front to facilitate optimal pit design, whereas for underground deposits this is impractical and expensive with the objective being to define enough high-confidence resources for a planning horizon of 3-5 years with sufficient indication of continuity to have confidence this portion of the deposit will be drilled out during operations. It would be interesting to draw up the same graph for orogenic deposits (mined underground) and porphyry deposits (mined by open pit).
- An algorithm has been derived which forecast the growth in resources of new discoveries over 15 years with the effect of a drop in cut-off grade over time stripped out (estimated to be responsible for half the growth in resource ounces). The results is implying that at ‘discovery date” 40% of the mineral resources proven up by year 15 from further exploration have been found.
Cont-
Subsequent to that presentation SNL/MEG now incorporate their own estimates of the unreported discoveries in their analyses.
That’s plenty of reading material to start you off. I will answer your other questions & concerns once I get your feedback on the above.
Reply-
Having carefully gone through your presentations and reports. All very interesting with some great pearls of information (e.g. 2% of gold deposits contain more than half the gold ounces in resources; relationship between exploration spent and commodity prices).
I now understand from your 2011 and 2013 notes the methodology and sources of data. I will summarise this for you to determine if I did not get my wires crossed and follow this with comments and queries:
DATABASE
- exploration expenditure come from a number of agencies, but mostly from Metal Economic Group’s (“MEG”) annual survey, which started in 1992.
Comments/Queries:
1) having to rely on data from others without exactly understanding how these were compiled always carries some risk. For example, are only outlays included that have been booked as “capital expenditure” or does it also include outlays that have been expensed?
2) if this relies on response to a “survey” it carries even more risk and one should be knowledgeable how this survey is conducted, the response rate, etc. Why are the audited annual financial statements not the best source for this information?
- all expenditure was adjusted for inflation using the US CPI index.
Comments/Queries:
1) how do you treat expenditure numbers provided in currencies different from the US$?
- the deposit database has been generated by MinEx Consulting itself. The included deposit sizes go down to containing only 10,000 ozs. From the first sentence on page 123 of the 2013 report it appears that deposits above 0.1 million ounces (“Moz”) are used for the analyses. The database had in 2013 information on 4,206 such deposits with discovery dates for 3,153 deposits.
- the discovery date is defined as the date at which the deposit has been recognised as having significant value.
Comments/Queries:
1) the criterion is rather vague and ambiguous, also evident from the phrasing “usually set as the date of the first economic drill intersection", which itself is a very subjective measure depending on the prospective mining methods and process routes, which should in many cases be uncertain. And if the “usual” does not apply, what other criterion has been used? Does this refer to "the step change in known endowment”?
2) the fact that the same deposit can have several “discovery” dates points to the number of discovery numbers exceeding discovered deposits.
- Ounces discovered refer to pre-mine resources, being ounces in all resource categories + historical production.
Cont-
Cont-
Most companies have modest exploration budgets (of ~$3 to 5 m pa) the odds of a company finding a significant new gold deposit in a given year are very low/modest. In summary, to be a successful gold explorer you need to be much better than average!
Peters initial reply
Thanks for your interest in my 2021 gold presentation to PDAC.
There are a LOT of questions there to unpack! The most central one is the logic & methodology used to estimate the number of unreported discovered deposits and the amount of metal contained in them.
The driver for factoring in my estimates of the these undiscovered deposits comes from work that I had done over several years – when looking back at my old analyses I noticed that the identified reported resource (found in a given year) had grown … which led to the observation that it takes time for companies to report their discoveries. This was especially so for the Majors (a couple of which I used to work for at the time) . Furthermore, the published maiden resource often grew over time as companies did more drilling / developed a better understanding of the structural controls.
Back in 201 I did a study for a private client to quantify the typical “blue sky potential” of a recent discovery (it varies by deposit type, whether it is open pit or underground and geological complexity). Some of the key results were written up and published in a presentation I gave at the 2011 NewGenGold Conference. You can download the slides and supporting text from my website at ….
https://minexconsulting.com/recent-trends-in-gold-discovery/
The key charts to look at are slides 39 and 43. Which show how the reported ounces “grew” over time. From this I came up with an algorithm to adjust the current reported number of deposits / ounces to capture the (as yet) unreported deposits. The multiplier starts off large in the most recent years and tapers off over time ….. I have arbitrarily stopped it at 10 years.
The above analysis also takes into account changes in cut-off grade (generally brought about by changes in assumptions over the gold price) .. which can grow the overall notional size of the deposit. This can be seen in Slide 40.
This gets discussed in further detail in a follow-up presentation I gave at the 2013 NewGenGold Conference. You can download the slides and supporting text from my website at ….
https://minexconsulting.com/the-impact-of-changes-in-the-gold-price-on-exploration-activities-and-strategies/
The strategic error of leaving out the unreported discoveries (and only counting those discoveries with a published tonnes & grade resource .. which what MEG was doing at the time) is highlighted in slides 14 to 17 the following presentation I gave at PDAC in 2017
https://minexconsulting.com/recent-trends-and-outlook-for-global-exploration/
Cont-