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Gfms News Issue 33
1. Quarterly Newsletter September 2009 - Issue 33
Fundamental Shift: Net Official Purchases Support the Price
by Philip Klapwijk, Executive Chairman, GFMS Ltd.
Junlu Liang, Metals Analyst, GFMS Ltd.
In its just released Gold Survey 2009 The shift to the buy-side in the Looking ahead, as indicated above,
- Update 1 GFMS suggested that the second quarter owed much to a GFMS expect central banks in
official sector in aggregate became sharp fall in sales from the Central aggregate will continue buying gold
a net buyer in the second quarter of Bank Gold Agreement (CBGA) on a net basis in the second half.
2009 and forecast that the second signatories, as combined sales from There are two main reasons for this.
half of the year would see further the group over the period amounted First, sales from CBGA members are
net purchases. This represents a to a mere 14 tonnes, well under the expected to remain at extremely
remarkable change of direction for quarterly average of around 100 low levels. The cut in the annual
a market that has been used to tonnes that had been sold up to then limit in the third Agreement from
absorbing substantial volumes of under the soon-to-expire second 500 to 400 tonnes reflects the fact
gold sold by central banks over the Agreement. Modest purchases by that there is a lack of appetite to
last decade. others were therefore sufficient to sell among major bullion holders
swing the official sector overall onto
the buy-side.
Fundamental Shift: Net Official Purchases Support the Price 1 (Continued on next page)
NEW AT GFMS
Gold Mine Economics Production Costs Margins & Cash Flows to 2030
- a New Service from GFMS 3
NEWS FROM THE FIELD
Gold Purity Slips Further in Indonesia 5
PUBLICATIONS AND PRODUCTS
GFMS Releases Gold Survey 2009 - Update 1 6
The Ages of Gold – “Magisterial Compendium” 7
GFMS Released the 6th Issue of its
Precious Metals Forecasting Monthly 8
New Report by GFMS - the Base Metals Forecasting Monthly 8
GFMS Quarterly 3-Year Precious Metals Forecasts 9
GFMS Quarterly 3-Year Base Metals Forecasts 9 GFMS Mailing List:
World Gold Analyst Releases its Special Report on Ontario & Quebec 10 The GFMS quarterly newsletter is a
free publication distributed by email
EVENTS only. If you are not on our mailing list
and would like to receive a copy
Gold Survey 2009 - Update 1 Launch, 14th September 2009 12
regularly, please contact
Forthcoming Gold Survey 2009 - Update 2 Launch, 13th January 2010 13 Elena Patimova at
elena.patimova@gfms.co.uk or
GFMS is Sponsoring Commodities Week Europe 2009 13 register on line at www.gfms.co.uk
MARKET COMMENTARY Published by GFMS Ltd
Hedges House
Global Gold Mining Revival in H109…but Can it Last? 15 153-155 Regent Street
London, W1B 4JE, UK
What Kind of Economic Recovery? 16 tel: +44 (0)20 7478 1777
fax: +44 (0)20 7478 1779
The Gold Markets a Year on from Lehman 18 email: info@gfms.co.uk
web: www.gfms.co.uk
Base Metals: Passing on the Baton 20
Steel Market Jumps on the Bandwagon 21
The GFMS Team 23
2. GFMS Quarterly Newsletter
OS Sales
within the group. Indeed, as the Net Official Sector Sales
new Agreement approaches, none
800
of the signatories have made official
statements specifying their future 600
sales’ plans, apart from Switzerland,
which confirmed it has no intention 400
to sell any gold over the medium
Tonnes
term. Although we believe further 200
sales from Europe under the third
CBGA are probable, these could be 0
rather more occasional than the
regular sales pattern seen under the -200
previous two Agreements.
-400
Second, we believe there is some 1980 1985 1990 1995 2000 2005
Source: GFMS
scope for more buy-side interest
to emerge. Already in the past an important change in trend from Philip Klapwijk is the
two years we have seen the world the one prevailing between 1989 and Executive Chairman of
outside the CBGA become net 2008 when central banks were major GFMS. In his capacity as
purchasers of bullion, with most of net suppliers of gold to the market, an analyst, he continues
the metal sourced quietly in local according to our data at an average to cover the official
gold markets. Recently, there is annual rate of just under 400 tonnes, sector, investment and
evidence that a growing number of equivalent to a hefty 11% of total fabrication demand in
official institutions are showing a supply over the twenty year period. North America, Latin America and much of
greater interest in gold, mainly for Europe. Philip holds degrees in economics
portfolio diversification purposes Over the next year or two this new from the London School of Economics
but also as an outright currency trend may be obscured somewhat and a Master’s degree from the College of
hedge. No doubt gold’s strong by the planned sales of 403 tonnes Europe in Bruges. Philip was appointed
performance over the past few years of IMF gold, assuming, of course, Group Economist at CGF in 1987, where
in contrast to (in many cases) losses that there is no off-market transfer he was responsible for developing the
on central banks’ US dollar holdings of some or all of this bullion to an group’s economic scenarios as well as
have contributed to some degree official sector buyer, something we participating in the work for the annual
of rethinking about gold. Such think improbable but by no means Gold Survey. He has worked for GFMS as
developments have been given an impossible. Once the IMF sales part of the gold research team since 1989.
additional stimulus by the financial programme is completed, however,
turmoil experienced over the past we would expect the official sector
year and increased concerns over as a whole to have a broadly neutral
the long-run stability of the US dollar impact on the market. This would
given America’s huge fiscal deficits represent a return to the situation
and the willingness of the Federal prevailing in the 1970s and 1980s Junlu Liang,
Reserve to monetize a significant when the official sector was a net Junlu joined GFMS in
proportion of these. buyer in some years and a net seller October 2008. She
in others. Besides the obvious is primarily working
We forecast, therefore, that the supply/demand implications for gold, with Philip Klapwik
official sector will generate net such a change from net sales to on official sector as
demand of more than 20 tonnes in something close to ‘neutrality’ would well as investment
the second half, resulting in net sales be highly positive for gold prices, as research. She is also responsible for
for the full year of just 16 tonnes, it ought to provide a major boost market research in China. Junlu holds an
which would be the lowest annual to sentiment and confidence in the MSc Economics from the London School of
total in over two decades. Moreover, yellow metal. Economics.
this could represent the beginning of
2 Issue 33 September 2009
3. GFMS Quarterly Newsletter
NEW AT GFMS
Gold Mine Economics Production Costs Margins & Cash Flows to 2030
- a New Service from GFMS
The objective of this new
service from GFMS is to deliver
high quality insights into the
economics of mine production,
across a broad range of metals
and minerals.
The GFMS team working on the
project and managed by Mark
Fellows is growing rapidly, and
already has nearly forty years
of combined mine cost analysis
experience.
This service provides gold miners,
financial institutions, governments
and other industry stakeholders with
detailed forward-looking insights into • What gold prices are needed for Besides an in-depth production cost
the underlying drivers of gold mine projects to generate acceptable breakdown, revenues, margins and
economics. financial returns? forward-looking cash flows are
presented for each operation.
The study provides high quality • Which mines and projects
independent support to investment/ present the best growth and profit GFMS is undertaking a programme of
lending decisions, risk/reward opportunities? global mine visits in order to gather
analysis, peer group comparisons the technical and operating data
and mine benchmarking. Research based on highly detailed, included in this study.
rigorous mine-by-mine analysis of
Background production costs, broken down to Main Features
Despite high gold prices, the gold $/tonne mining, ore processing and • Global coverage: Analysis of over
mining industry still faces very on-site administration costs, plus two hundred operating gold mines,
significant challenges. Output benchmarking of fuel, power, labour each with annual gold production
continues to stagnate and production productivity and other key inputs. greater than 50,000 oz, plus around
costs remain high, as established The study includes forecasts of gold one hundred projects at prefeasibility
mines mature and exploration fails to mine production, operating costs and stage or later
fill the gap. cash flows to 2030.
• Mine-by-mine analysis to 2030:
This study clearly identifies and Methodology Detailed reserves/resources,
quantifies: Based on a stringent methodology production, operating cost, capital
• Which mines are profitable under for analysing mine economics, the cost and cash flow analysis
different market outcomes? analysis in this study is derived from
“bottom-up” investigation of mine • Global Analysis: Distilling the mine-
• What is the impact of different productivity, energy use, mining and by-mine data into analysis of global
price outcomes and input cost processing costs, making it ideal for trends; production and industry cost
scenarios on the future production asset benchmarking purposes. structure, cost and margin curves,
profile? competitive analysis
(Continued on next page)
3 Issue 33 September 2009
4. GFMS Quarterly Newsletter
• Electronic Product: Web-based,
Mine-by-Mine Profiles
Highly detailed analysis
Forecasts to 2030
mine and project profiles and notes
available to download. Flexing
model allowing clients to assess the
impact of different exchange rate,
input cost and gold price scenarios
on mine economics.
All analysis delivered via website
For further information please
contact Mark Fellows at
mark.fellows@gfms.co.uk or
Charles de Meester at
charles.demeester@gfms.co.uk
Cost curves and cost leagues
• Benchmarking (SWOT) analysis
• Flexing models
• Global trend analysis and commentary
Analysis updated quarterly, or
when significant events occur
GFMS willLaunches a New Website to Provide an Industry
Forum
GFMS believe that a renewed industry debate into mine production
cost reporting is now vital.
Main Features
The former Gold Institute last revised its cost standard in early 2002. GFMS
is embarking upon a high profile initiative to engage gold miners and financial
analysts in a dialogue about cost reporting, with a view to creating a widely
accepted, credible gold industry cost standard which is actively promoted and
maintained.
The website will be available for the discussions in the middle of October
2009. Please log on to www.minecoststandard.org to participate in this
dialogue.
>> If you would like to participate in this dialogue, please log on to
www.minecoststandard.org or contact Elena Patimova at
elena.patimova@gfms.co.uk for further information
4 Issue 33 September 2009
5. GFMS Quarterly Newsletter
NEWS FROM THE FIELD
GFMS are unique in terms of time and effort spent on research worldwide. This section “News From the
Field” has been included in the Newsletter in order to provide you with the latest updates and news from
GFMS’ research trips.
Gold Purity Slips Further in Indonesia
by Cameron Alexander, Senior Metals Analyst, GFMS Ltd. Australia
A recent research visit to Indonesia to sell it back as funds are required. funds to be channelled into other
by Australian based GFMS analyst However, this year with domestic consumer items.
Cameron Alexander provided a prices so high many felt the risk
clearer perspective of the hardships of downwards price movement Interestingly, demand for low carat
being experienced by the jewellery outweighed potential gains, and were jewellery has yet to penetrate
industry in the South East Asian therefore reluctant to “invest” in gold Indonesia’s larger cities where
nation and outlined current and jewellery at the perceived top of the traditional plain 17-carat and stone
future consumption trends. market. set 18-carat jewellery remain
the preferred styles. Demand in
Indonesian jewellery consumption In perhaps the most interesting Jakarta and Surabaya is dominated
is estimated to have declined by development in recent years, and by fashion driven designs with
more than 20% in the first half one that has had a considerable little regard for the perceived poor
of 2009 as higher gold prices and impact on Indonesia’s annual fine quality of low purity gold jewellery.
rising economic uncertainty has led gold consumption, has been the However, several traders who met
to a major slow down in domestic migration to low carat plain jewellery. with GFMS believe that this trend
retail sales. A weaker currency, This segment, once only accepted will likely change over time and
particularly in the first quarter, in some parts of the country, is even these key urban markets will
saw the average local gold price today considered mainstream across slowly shift to low purity jewellery
for the period surge 20% year-on- much of east and central Java, with especially should higher gold prices
year compared to the 0.5% dollar fabrication of low purity jewellery prevail.
gold price gain. This price related now topping 50% of total Indonesian
pressure, coupled with rising anxiety jewellery production for the domestic
over the global financial crisis and market. Initially it was 9 and 10- Cameron Alexander is
the potential domestic ramifications carat jewellery that dominated retail an Australian based
saw many urban consumers rein in sales but price pressures and greater Analyst with GFMS
discretionary spending, with gold acceptance of this jewellery style and is responsible for
jewellery often regarded as a luxury had led to demand for even lower research in South-east
or an unnecessary expenditure item. purity, with Indonesia’s three largest Asia, Australasia and
fabricators now adding 7 and 8-carat the Gulf States in the
As is the case in many developing products to their range of jewellery. Middle East. Prior to his joining GFMS in
countries, gold jewellery in Indonesia In addition, gold plated costume December 2005, Cameron worked for over
is regularly regarded as a quasi jewellery is beginning to gain in seven years with precious metals refiner
investment tool, with consumers popularity as this low-end product AGR Matthey.
(particularly in rural areas) often offers the end-user the “look” of a
purchasing the precious metal after more elaborate gold designs without
the annual harvest, with the intent the associated cost, and allows their
5 Issue 33 September 2009
7. GFMS Quarterly Newsletter
The Ages of Gold – “Magisterial Compendium”
“Timothy Green, author of the Emperor Nero for a record gold re- three decades, focusing on the
magisterial compendium The Ages coinage in AD 64, the Venice Mint, Middle East, India and the Far East.
of Gold, has spent a lifetime on whose high quality ducat endured for
the trail of gold,” said BBC World 500 years, Sir Isaac Newton for the
Service presenter Nick Rankin, gold standard of 1717, which lasted
introducing him in a three-part radio two hundred years, and the Central
documentary “Gold” in August. Bank Gold Agreement of 1999 which
limited their gold sales to usher in
Highlighting themes in gold’s history, the higher prices of the last decade.
Tim described how early gold
coins underpinned the empires of Overall, The Ages of Gold is earning
Alexander the Great and Rome. In its BBC World Service accolade as a
contrast, the Incas in Peru perceived “magisterial compendium”.
it as a beautiful metal, symbolising
the sun, which goldsmiths crafted About the author Specifications
into magnificent ornaments. Their Tim Green is a well known author in > Index
Spanish conquerors, however, saw the gold market, having written The > 12 maps
gold as monetary wealth, and melted World of Gold, The Gold Companion > 32 pages of illustrations
vast quantities down. The metal and The Millennium in Gold. Tim > ISBN 978-0-9555411-1-7
was shipped to Europe, where it also worked as a consultant on the > 480 pages
sustained the Spanish empire as annual Gold Surveys of Consolidated > Hardback
coin, and was soon also dispatched Gold Fields and Gold Fields Mineral > Price £33 (+ postage)
to India to pay for diamonds, silk Services (now GFMS) for almost > Published 14th November 2007
and spices, fuelling the historic
To purchase this book or for further information please contact Elena
Indian love affair with gold that
Patimova at elena.patimova@gfms.co.uk
continues to this day.
Others About The Ages of Gold
The Ages of Gold is also featured
in the new edition of Roy Jastram’s Timothy Green, author of the magisterial compendium, The Ages of Gold, has
spent a lifetime on the trail of gold. – Nick Rankin, BBC World Services
classic book, The Golden Constant,
revised by Jill Leyland for the World The most comprehensive book ever written on mines and markets. – World Gold
Gold Council. She wrote, “I am Analyst
indebted to Tim Green for pointing
An automatic ‘buy’ for anyone with a touch of gold fever. – Northern Miner
out that just five gold coins: the
An encyclopaedic book on gold. – Metal Bulletin
aureus, the solidus/nomisma, the
dinar, the ducat and finally the For anyone with an interest in gold and its evolution as a storehouse of beauty
British sovereign between them span and value over the millennia, Timothy Green’s The Ages of Gold is a must read.
… His carefully crafted tome has masterfully linked the modern world of gold with
two milllennia from the first century
the ancient one which is no small feat. – David Duval, Jim Sinclair’s MineSet
BC to almost the present day”.
Very readable … written in Tim Green’s inimitable style. Anyone with an interest in
gold will find much to learn. It … brings all of man’s history relating to gold together
The scope of The Ages of Gold, from in one unique resource. It is amply illustrated in colour and the pictures alone will
ancient to modern times, was also provide much enjoyment and technical curiosity. I commend it to all. – Chris Corti,
Gold Bulletin
underlined in a presentation, “Ten
heroes of monetary gold”, which Timothy Green is arguably the man with more knowledge about the whereabouts of
more ounces of gold in the world than any of the rest of us .… This fascinating book
Tim made to a Central Banking
covers more than gold’s role in coinage and government … celebrating the mining
Publications seminar in May attended industry and gold craftsmanship through the ages. – Rhona O’Connell, MineWeb
by central bankers from across the
Few people … are better qualified to have written this book than Timothy Green
globe. His heroes ranged from
… (it) is undoubtedly a terrifically useful introduction to the metal for anyone
Croesus of Lydia, who issued the first wanting a reliable, expert and highly detailed ‘encyclopaedia’ of gold. – Jo Young,
gold coinage in 550 BC, the Roman The Jeweller
7 Issue 33 September 2009
9. GFMS Quarterly Newsletter
GFMS Quarterly 3-Year Precious & Base Metals Forecasts
GFMS Quarterly 3-Year Precious Metals Forecasts
GFMS have launched a series Features recessions across the industrialised
of quarterly reports on the Building on our proprietary analysis world - and back each up with
individual precious and base of the precious metals markets, detailed analysis.
metals. So far we have that forms the basis of our flagship
published services covering annual Gold, Silver and Platinum Sample Table of Contents (for
the gold, silver, platinum & & Palladium Survey publications, Gold Forecast)
palladium, aluminium, copper, these reports provide projections 1/ Executive Summary
nickel and zinc markets. on all the key supply and demand 2/ Macroeconomic Outlooks
components, focusing on the various 3/ Mine Production
endogenous and exogenous factors 4/ Producer Hedging
Published four times a year,
GFMS expect will drive these metals 5/ Scrap
these reports give GFMS’
over the next three years. Particular 6/ Official Sector Sales
independent insight into the
emphasis is placed on the extent to 7/ Investment
latest developments and trends
which variations in precious metals 8/ Jewellery Consumption
and offer 3-year forecasts
prices will influence the various 9/ Other Fabrication
covering supply, demand and
components and vice versa.
prices for particular precious and
Annual Fees
base metals.
The reports set out what could The Gold Quarterly, the Silver
happen to gold, silver and Quarterly and the Platinum &
platinum & palladium in three Palladium Quarterly are available
distinct scenarios - an inflationary separately for an annual fee of
environment, a deflationary slump £5,450 or can be purchased together
and a middle ground of only mild at a discounted price of £9,950.
GFMS Quarterly 3-Year Base Metals Forecasts
Quarterly Three
Year Copper Forecast GFMS has launched a series of • Annual consumption forecasts by
quarterly reports on the individual key consuming countries including
base metals that will analyse the the EU, US, Japan and the BRICs.
prospects for the next three years. • Outlook for mine and refined
Quarterly 3-Year Base Metals production - including the major
������ ����������
Forecasts give GFMS’ independent new projects that will affect future
insight into the latest developments output.
Quarterly Three for copper, zinc, lead, nickel • Supply/demand balance and
Year Gold Forecast aluminium and tin and offers a three- pricing outlook on both a quarterly
year forecast on supply, demand and and annual basis.
Prepared by GFMS Ltd
the price for these metals. • Scenario planning - three different
May 2009
scenarios will be outlined with
Main Features ascribed probabilities of particular
• GDP forecasts for key economies outcomes.
and projections for the US dollar
against the yen and euro. Annual Fees
• Detailed analysis of historical The 3-Year Base Metals Forecasts
consumption trends on both a are available separately for an
regional and end-use basis. annual fee of £3,950, or can be
>> If you are interested in taking up a subscription to the quarterly purchased together as part of a
3-Year forecasting reports, please contact Charles de Meester at discounted package.
charles.demeester@gfms.co.uk or tel. +44 (0)20 7478 1763
9 Issue 33 September 2009
10. GFMS Quarterly Newsletter
World Gold Analyst Releases its Special Report
on Ontario & Quebec
Since the turn of the millennium, World Gold Analyst’s latest Special
with rising gold prices stimulating Report on Ontario and Quebec, is
exploration and development, thus timeous and will be launched at
mining companies have been looking a lunch with an invited audience of
around the world for opportunities institutional investors at the Denver
to discover and exploit new gold Gold Group Forum on Tuesday 15th
deposits. September.
Clearly the prime determinate is the This major report presents a
geological landscape that a country comprehensive review of the
offers and the potential to host current status of gold exploration
gold mineralisation, but exploration and development activity in what is
companies also have to take the most active area of the world,
cognisance of political and legislative and covers the whole spectrum of
factors that can either impede or exploration from grassroots work,
support a successful exploration through resource definition up to
programme. So a region’s policy producing mines. It is packed full
climate has become increasingly of information on exploration plans,
important in attracting investment. drill programme results and resource is again one dominant producer
estimates. The report also highlights - Agnico-Eagle Mines - with an
With this in mind, the latest the consolidation and revitalisation estimated 2009 production of almost
survey by independent research of historic mining camps, one of the 500 koz as two new mines reach full
organisation, The Fraser Institute, main themes within the Provinces. production.
reports that out of seventy one
jurisdictions worldwide, Ontario is Major Developments Within the provinces there are two
the tenth most popular destination In 2008, mining and exploration major projects at the development
for exploration and Quebec holds the companies spent C$417 million in stage: Agnico-Eagle Mines’s LaRonde
top spot, for the third consecutive Ontario and C$220 million in Quebec Extension and Osisko Mining’s
year. with juniors accounting for more Canadian Malartic. Shaft extension
than half in each case, according sinking is underway at the LaRonde
Canada has always been known for to figures from Natural Resources Extension project and once the
its geological prospectivity and, of Canada. This year, as a result of extension comes on line in 2011,
course, it has been one of the top the financial market crisis, juniors’ the expanded mine is expected to
gold producers for decades with a budgeted expenditure is down 37% produce an average of 310 koz/y.
vast heritage of deep-level, hard in Ontario and down 43% in Quebec.
rock gold mining in such districts Osisko Mining is developing the
as Timmins and Val d’Or. In Nevertheless, there is still an Canadian Malartic deposit as an
recent years, scores of exploration appetite for exploration prompted open pit mine with a gold output of
companies, many of whom are by some notable success stories in 591 koz/y for ten years at a cost
Canadian staffed and Canadian these rich and historic goldfields. of US$789 million, with start up in
domiciled, have been flocking home 2011.
to Ontario and Quebec; jurisdictions Gold production in Ontario is
they consider less risky and fiscally dominated by Goldcorp, with three In the short term, increased
more attractive than some far flung mines with a combined production of production will come from a doubling
regions of the world. 1.13 Moz in 2008. In Quebec, there of output (to 100 koz/y) at Kirkland
(Continued on next page)
10 Issue 33 September 2009
11. GFMS Quarterly Newsletter
Lake Mines’ Mine Complex and the • In-depth reports on nine sponsor Paul Burton
reopening of the Sleeping Giant and companies, including graduated as a
Lamaque mines (by North American - Producers – Agnico-Eagle Mines, mining engineer from
Palladium and Century Mining Aurizon Mines, Kirkland Lake Gold the Camborne School
respectively). - Mine developers – Detour Gold, of Mines in 1975 and
Osisko Mining spent almost twenty
Elsewhere evaluations are underway - Explorers – Maudore Minerals, years working in the
at Aurizon Mines’ Casa Berardi PC Gold, premier Gold Mines, South African gold mining industry. He
and Joanna projects, Northgate Rubicon Minerals. has been editor of World Gold Analyst
Exploration’s Young-Davidson since early in 1996. He is an established
project, Detour Gold Corp’s proposed In addition, the report describes speaker on the international conference
open pit at the historic Detour Lake the geology of the two provinces, scene and is Chairman of the FTSE Gold
mine, Brett Resources’ flagship with a focus on the prolific Abitibi Mines Index Committee. He holds an MSc
Hammond Reef gold deposit, Rainy Greenstone Belt, and explains the in Mineral Economics and an MBA from the
River Resources’ Rainy River project, government investment incentives, University of the Witwatersrand. Recently
Iamgold’s Westwood project and including the successful ‘flow through Paul Burton took the position of Managing
Goldcorp’s Éléonore project. shares’ scheme. Director of newly established GFMS sister
company - GFMS World Gold.
The report contains details of:
• Approximately 160 companies (79
in Ontario; 58 in Quebec)
• Almost 300 individual projects (176
in Ontario; 119 in Quebec)
>> Hardcopies of the report are available free to investors by
contacting Elena Patimova at elena.patimova@gfmsworldgold.com to
arrange to have a copy sent or it can be downloaded from our website
at www.gfmsworldgold.com (note that the file is large).
The Autumn issue of the World Gold Analyst will be released at the end of
September 2009.
Subscription and Support
Subscribers will not only receive a hardcopy of World Gold Analyst each
quarter, but will also have electronic access to the report via the website in
advance of receiving it by post.
GFMS World Gold’s website www.gfmsworldgold.com, accessible to all
subscribers, also has additional and exclusive material unavailable in the
hardcopy, as well as an archive of past issues of World Gold Analyst. For
access instructions and registration, please email
subscriptions@gfmsworldgold.com
The Annual Fees
The price for full subscription (hardcopy + PDF) is £375 and for PDF only is
£245. The subscription period is one year, during which you will receive four
issues of the report.
11 Issue 33 September 2009
12. GFMS Quarterly Newsletter
EVENTS
Gold Survey 2009 - Update 1 Launch, 14th September 2009
GFMS Gold Survey 2009 Philip Klapwijk’s Presentation
– Update 1 was released on 14 th In his presentation GFMS’ Chairman
September 2009 at Grocers’ Hall Philip Klapwijk, gave a review of the
in the City of London. There recent developments in key areas of
GFMS’ Chairman, Philip Klapwijk, the gold market. The presentation
presented the main findings of also looked at future possibilities
the report on the gold market. for the various components of the
This was accompanied by a supply/demand balance and what
simultaneous presentation given this might mean for the price.
by GFMS’ CEO, Paul Walker at the
Denver Gold Show. A key element of the Update is the
consultancy’s forecast for the gold
GFMS’ launch of the Gold Survey price in the coming months, which
2009 - Update 1 was very successful, shows that two quite divergent paths The report, however, noted that
hosting nearly 100 participants, are possible. Klapwijk commented, it is far from guaranteed that the
including high-level industry leaders “on balance, we’re still favourably bull run in gold prices will continue.
from many different countries and disposed towards the price in GFMS believe the basis for this still
regions. Many local and international the medium term. That’s mainly possible but less likely reversal in
media contacts also joined the event. because we see it as highly likely trend would be the various monetary
GFMS’ Chairman Philip Klapwijk, that debt monetisation and ultra- and fiscal stimulus programmes
gave interviews to globally renowned low interest rates, especially in the failing to rejuvenate the world
newswires and newspapers, including US, will at some point feed through economy, feeding through to
Thomson Reuters, Bloomberg, the to a build in inflationary pressures. disinflationary conditions. It was
Wall Street Journal, the Financial Throw in dollar weakness and expected that its impact on gold
Times, Les Echos and Mining Journal. disappointment over conventional would in turn probably be magnified
This annual GFMS event provided an assets as the green shoots argument by investors seeking out the security
important channel for communication withers, and then gold well over of US Treasuries, which under such
and exchanging information among $1,000 becomes perfectly feasible”. circumstances would act to boost the
leading industry professionals The Update did warn, however, value of the US dollar.
operating in the precious metals that the path to this may not be
arena, creating valuable networking smooth as a brief dip could occur The Q&A session proved a lively
opportunities for delegates to build in advance of longer term strength, forum for attendees to air a wide
and develop relationships. with Klapwijk also adding that the divergence of views.
recent spike could readily unwind as
its foundations looked shaky. About Gold Survey – Update 1
Gold Survey 2009 - Update
1 provides a thorough and
GFMS Gold Survey 2009 - Update 1 can be bought as an individual publication or as comprehensive interim analysis of
a part of discounted packages. Please contact Elena Patimova for information on prices the most recent developments in the
or you can easily order the publication from the GFMS website - www.gfms.co.uk gold market.
GFMS Limited
Hedges House, 153-155 Regent Street
London W1B 4JE, United Kingdom
>> For further information on
Switchboard: +44 (0)20 7478 1777, Fax: +44 (0)20 7478 1779 GFMS products and events please
Elena Patimova: +44 (0)20 7478 1750 or elena.patimova@gfms.co.uk visit our website www.gfms.co.uk
Charles de Meester: +44 (0)20 7478 1763 or charles.demeester@gfms.co.uk or contact Elena Patimova at
elena.patimova@gfms.co.uk
12 Issue 33 September 2009
13. GFMS Quarterly Newsletter
Forthcoming Gold Survey 2009 - Update 2 Launch,
13th January 2010
Gold Survey 2009 - Update 2 will About the event
be launched in Toronto on Thursday As in previous years, the event
13th January 2010. will feature a presentation by
GFMS’ Chairman Philip Klapwijk,
ABOUT THE EVENT
About Gold Survey 2009 - highlighting the main findings of 9.00 - 09.30 Registration
Update 2 Gold Survey 2009 - Update 2 and (tea and coffee)
Update 2 to the annual Gold Survey presenting GFMS’ forecasts for
2009 will provide fresh estimates supply, demand and the price in the 09:30 - 10:20 “Gold Survey 2009 -
of global gold supply and demand first half of 2010. Update 2” presentation by Philip
during 2009, with analysis of the Klapwijk, Chairman, GFMS
most recent trends in every sector Following this, GFMS’ joint venture
of the market. Update 2 will also - GFMS-World Gold will launch its 10:20 - 10:40 Presentation by Paul
set out GFMS’ views on the outlook Burton, Managing Director, GFMS-
latest World Gold Analyst - Special
World Gold
for the main supply and demand Report, which will feature a review
variables and the price forecast for of gold and silver developments in
10:40 - 11:10 Presentation by TBC
the first half of 2010 and identify the key producing regions, with detailed
11:10 - 11:40 Presentation by TBC
most important economic, socio- reports on a number of significant
11:40 -12:10 Presentation by TBC
political and market-specific issues players. 12:10 - 13:10 Networking lunch
facing the industry in the short-term.
13th January 2010
REGISTER NOW St. Andrew’s Club &
Please contact Elena Patimova to register for the event Conference Centre
at elena.patimova@gfms.co.uk or +44 (0) 20 7478 1750 150 King Street West,
27th Floor
Toronto, ON
M5H 1J9
GFMS is Sponsoring Commodities Week Europe 2009
Commodities Week Europe is the 5th annual commodities investment conference where the world’s commodity
investment and trading industries meet. It’s the biggest and most important event for Europe’s Commodity Investment
Community. Over 350 executives from the across the whole Commodity value chain attend the event annually.
Key speakers include:
• Jim O’Neill, Head of Global Economics, Commodities and Strategy Research, Goldman Sachs
• Andrew Spence, Chief Economist and Vice President Asset Mix and Risk, Ontario Teachers’ Pension Plan
• Nicholas Koutsoftas, Vice President, Portfolio Manger Energy and Commodities, GE Asset Management
• Francisco Blanch, Managing Director and Head of Global Commodity Research, Banc of America Securities-Merrill Lynch
• Christophe Cordonnier, Head of Commodity structured products, Societe Generale Corporate and Investment Banking
• John Reade, Head of Metals Strategy, UBS
• Evy Hambro, Managing Director, Gold and Diversified Mining Team, BlackRock
• Pierre Guillemin, Managing Director, Alternative Investments, Swiss Life Asset Management
• Christof Rühl, Group Chief Economist & Vice President, BP
• Marcus Grubb, Managing Director, Investment Research and Marketing, World Gold Council
Please visit the website for full programme and speaker details: http://www.terrapinn.com/2009/ciwuk
Venue: The Royal Garden Hotel, 2 - 24 Kensington High St, London, W8 4PT, www.royalgardenhotel.co.uk
13 Issue 33 September 2009
14.
15. GFMS Quarterly Newsletter
MARKET COMMENTARY
Global Gold Mining Revival in H109…but Can it Last?
GFMS’ latest assessment of gold sequencing at Grasberg in Indonesia
>> More detail on global
mine production points to output resulted in activities being focused
mine production and a host of
having expanded by 7% in the in higher grade pit areas this year,
supporting statistics are contained
first half; remarkable in the wider driving a 30 tonne improvement.
in Gold Survey 2009 - Update 1, just
context of it having declined at an A seven-fold increase at the Kupol
released by GFMS. A somewhat
annual average rate of 2% between project, which poured its first doré
longer term outlook for mine
2005 and 2008. Writing from last May, provided much of Russia’s
supply and other gold market
Johannesburg, on the day that gold upward momentum, something
drivers can also be accessed
fixed above $1,000/oz for the first added to by Peter Hambro’s Pioneer
by purchasing GFMS’ Quarterly
time in more than 18 months, it mine, now operating near design
3-Year Gold Forecast. Please
would seem appropriate that this capacity.
contact Charles de Meester at
event should coincide with the
charles.demeester@gfms.co.uk
Chamber of Mines’ announcement While these three countries were
for more information on both
that South African gold mine supply, undoubtedly the key ones, there
products.
once again, fell by a sizeable was also good depth in the number
margin. At peak production the of national improvements. A couple
country generated a volume of 1,000 of solid additions by, for example,
tonnes per year, accounting for new Agnico Eagle properties led
two-thirds of world mine output: a to the revival of Canadian output, William started at
dominance that will never be seen albeit at the margin, to buck a GFMS in March 2005.
again. Nevertheless, these two multi-year downtrend. Similarly, He works on gold,
material outcomes in fact lack any several Australian mines and projects silver and PGM mine
direct association. South African delivered growth, including the supply, costs and
production fell by almost 10% in the Higginsville, Wiluna and Leonora producer hedging.
first half. This is yet more significant projects and the Super Pit, leading Prior to joining GFMS,
given last year’s unique challenges, to a six tonne gain in the first he worked for a legal publishing firm,
including power rationing, but what half. The next milestone here is having graduated from Durham University
is even more notable, is that South the substantial Boddington project, with BSc Natural Sciences.
Africa was the only country to record which recently produced it first gold
a material drop in mine supply in the concentrate. Another important
first half. region was west Africa, where a
handful of countries were positively
Elsewhere, with a decline of two impacted by project developments:
tonnes, Tanzanian output showed Burkina Faso; the Côte d’Ivoire
the next greatest weakness, while and Senegal to name the main
the vast majority of countries staged highlights. Senegal saw the onset of
either neutral results, or in many Mineral Deposits’ Sabodala join the
cases, material gains, leading to the country’s otherwise artisanal industry
strong 7% increase globally. for the nation’s production to rise
Turning to the countries that have from obscurity, as was the case with
been in the driving seat for this output from Mauritania a couple of
result, Indonesian, Chinese and years prior.
Russian production all climbed by
comfortably more than 10 tonnes The important question at the
year-on-year in the first six months, current juncture is the extent to
with the three collectively adding which the first half’s performance
a remarkable 62 tonnes. Mine can be sustained.
15 Issue 33 September 2009
16. GFMS Quarterly Newsletter
What Kind of Economic Recovery?
by Rhona O’Connell, Managing Director, GFMS Analytics
There is an increasing consensus points towards future expansion. 17.2% increase, the largest increase
that the majority of economies Overall factory orders increased for since July 2005. General Motors,
are working their way through the the fourth consecutive month. by contrast, dropped by 20.1%
worst of the recession, but there is after a 19.4% fall in July, while
substantial debate in the markets Durable goods orders increased in Chrysler’s sales fell by 15.4%. Asian
as to the nature of the improvement July, the consumer confidence index manufacturers in the US registered
- will it be a simple recovery, or rose in August with a particular significant gains. The next set of
a double-dip recession? Some improvement in the outlook for the figures will need to be interpreted
economists have even suggested next six months, while new home with care, as August heralded the
that far from being a “W”, a “U” sales hit a ten-month high in July. start of the heavy downtrend in the
or a “V”, we might be looking at Pending home sales also registered industry.
an “L”, with economies stabilising, their sixth consecutive increase in
but not showing much subsequent July, a record period for growth. The US cash-for-clunkers programme
improvement. With the United closed on Monday 24th August. This
States in the vanguard, there follows At the start of September came took US sales of light vehicles in
a short assessment of the state of sobering employment figures, with a August to an annualised 15 million
play in the world’s largest economy. respected independent employment units, compared with an annualised
services agency reporting that 9.6 million units in the first half of
With the exception of the figures private companies had cut jobs by the year. The monthly sales rate of
from the US auto industry 298,000 in August. Although this 1.26 million units was 400,000 units,
(considered in more depth below), was just one number following a or 48% higher than the monthly
the most recent economic figures stream of encouraging figures it put average for January to July and the
from the United States have been the equity markets and the dollar market now has to assess what will
disappointing - and have put the under pressure, illustrating that the be the knock-on effect in terms of
dollar under some fresh pressure, markets are still uncertain about reduced sales in the coming months.
giving extra upward impetus to gold. both the short and the medium term If average sales from August-
outlook, what form the recovery will December inclusive were to run at
The latter part of August saw a take and how long it will be before the same rate as January-July then
string of encouraging figures from sustainable growth is resumed. September-December sales would
the US and elsewhere. Probably have to be some 13% below the
among the most important was the A further element of uncertainty January-July average, or 35% below
result of the latest survey of the stems from the auto sector. The the monthly average in 2008.
Institute for Supply Management, cash-for-clunkers programme, the
which registered a figure in last day of which was Monday 24th These are stark figures and are likely
excess of 50 for the first time in August, boosted new vehicle sales to be the worst case, but they do
nineteen months (a figure above 50 by over 690,000 units during August at least give a sense of perspective.
suggests expansionary conditions). and resulted in a year-on-year gain They also tie in to some extent with
Commerce Department figures - albeit of only 1.0% - in new car a suggestion from the head of sales
have shown that both domestic and sales in the US. The month-on- at Volkswagen, who estimated after
foreign businesses have increased month gain was dramatic for some the German scrappage programme
demand for capital equipment, which companies, with Ford registering a closed that the domestic car market
(Continued on next page)
16 Issue 33 September 2009
17. GFMS Quarterly Newsletter
could drop to 2.6-2.8 million units There are indications therefore of Rhona O’Connell
next year after reaching 3.7 million some “green shoots” of recovery in is a recognised
this year. (The German scrappage the United States, with signs that authority in the
scheme, which accounted for $7 spending is starting to increase as a metals markets,
billion (compared with $3 billion in result of the stimulus programme, with over 20 years’
the US) is estimated to have resulted but the uncertainty in the markets, experience as an
in the exchange of almost two million particularly in the light of the simple analyst in the metals
vehicles and contributed to a year- auto market analysis above, is likely sector. Rhona is the managing director of
on-year boost of 28% in new vehicle to lead to volatile trading in the next GFMS Analytics and ROC Consultancy, an
sales in August). few weeks. independent consultancy specialising in
metals markets analysis and comment.
The specialist areas constitute gold,
silver, platinum and palladium, looking
at the markets themselves in the context
of the economic, political and financial
environments while considering also the
performance of other asset classes and
related mining equities.
This commentary is an extract from a recent interim update to GFMS
Analytics’ Precious Metals Monthly Briefing, which offers regular market
updates and analysis on developments in the gold, silver, platinum and
Precious Metals Market Briefing
palladium markets, and their economic and financial context.
September 2009
Gold has taken the headlines by recapturing $1,000/ounce on the 8th September. The metal’s price range in August was
narrow; early in the month it was bounded by $940 and $970, but by the final week this had tightened to $935 - $960
and the general consensus was that the price was building up steam for a “break-out”. The view was that the financial and
economic background, coupled with the time of the year, pointed to an upward move. This came about on 3rd September.
The Precious Metals Market Briefing complements the in-depth research
On a trading basis much came from fund buying that precipitated technically-driven purchases. There were a number of
factors that could have prompted it, including uncertainty about the outcome of the G20 financial leaders’ meeting and
increasing attention on the prospects for use of the SDR in the international reserve system. The physical market is still slow,
but professional sentiment remains positive. Conditions have been relatively illiquid (especially on 7th September with the US
generated by GFMS for the gold, silver and platinum group metals surveys,
markets closed for Labor Day) and gold looks vulnerable to profit taking before renewed strength in the coming months. The
technicalities behind the changes in Barrick Gold’s hedge book (announced late on 8th September), with a sizeable tonnage
of fixed price contracts removed in the third quarter and the balance thereof to be eliminated by end-2010, suggests also that
some of the “buying on dips” in the past quarter may have been hedge lifting, rather than sustainable demand.
but its considerably higher frequency gives market members valuable Silver rallied with gold, narrowing the ratio between the two metals to 60 after 69 as recently as mid-August. Silver’s innate
volatility took prices up towards $17 in early September before a slight retreat. Although industrial demand has been
sluggish during the summer, market sentiment is responding to the moves in gold and generally feeling buoyant. There is
access to the benefits of the GFMS research force and database, in a slightly
not much else behind silver’s rally, however and with COMEX speculative positions relatively high we must caution of the
possibility of sharp corrections in the short term.
Platinum and palladium have moved to the sidelines as the PGM sector has held broadly steady in early September, with
different method of presentation and comment.
platinum hovering above $1,274 and palladium edging towards $300. The end of the scrappage programmes in the US and
Germany have taken some of the bullish mood out of these metals as they have concentrated the markets’ attention on
the potential downside as the auto sectors slow down after their surges in sales. Palladium remains buoyed by continued
evidence that Russian exports have slowed (for what may be a variety of reasons, discussed within) and, while the South
African wage negotiations in the platinum mining sector are making progress, Impala has lost over 50,000 ounces of platinum
production through strike action.
The US long bond yield, % The Goldman Sachs Commodity Index
Specifications:
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• Email delivery
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• One detailed monthly report supplemented by two Briefing Updates (35
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issues per year)
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2000 2002 2004 2006 2008 Jan-07 Jan-08 Jan-09
• Metals covered: Gold, Silver, Platinum & Palladium
• Flexible subscription: you can subscribe just to the metals that affect your
business
For further information or to purchase the report please contact
Charles de Meester at +44 (0) 20 7478 1763 or via email
elena.patimova@gfms.co.uk.
17 Issue 33 September 2009
18. GFMS Quarterly Newsletter
The Gold Markets a Year on from Lehman
by Paul Burton, Managing Director, GFMS World Gold
A year ago, almost to the day, the US$980/oz and then setting a new
Company %, increase
gold equity markets were hit by year high of 166 as the gold price
since
the staggering news that Lehman reached US$989/oz on its way to
October
Brothers had collapsed and that the US$1,000 oz mark in last week’s
2008 low
Merrill Lynch had been acquired. sharp rally.
AngloGold 199%
I remember the occasion vividly
Ashanti
as I was in Denver for the annual Since the October 2008 low, the XAU
Randgold
gathering of the world’s top gold has grown by 159% against a 35%
Gold Fields
companies and the most influential increase in the gold price. I don’t
institutional investors globally. Fund necessarily think we have seen a
managers and mining executives full return of gold stocks’ historical Agnico-Eagle
alike were in a daze after witnessing leverage to the gold price, but the Yamana Gold
a massive sell off in gold equities, impressive performance of the index Kinross Gold
seemingly shell-shocked by the does demonstrate quite dramatically
extent and depth of market how oversold the gold stocks were.
reversals. And there should be further gains Harmony 83%
ahead as the index is still someway
But, after a short term recovery, shy of the 206 that it peaked at in
the markets were hit even harder March 2008.
in October as the scramble on the The table above shows how the top
part of investors to be liquid and the Moving away from the performance gold producers have fared in the last
need of many hedge funds to cover of a the market index, and ten months.
redemptions caused even further sell breaking it down to some of the
offs and the XAU plunged from 150 component stocks, an analysis Although all the gold companies
to 64, a fall of 57% in less than a of the performance of the most increased in value, the relatively
month. The gold price at that time prominent gold producers since the poor performance of the world’s
was US$730/oz. October 2008 lows to the end of last largest gold producer, Barrick Gold,
week, shows that they all posted is striking. This situation, no doubt,
For much of this year we have seen impressive gains. Again, these was one of the main drivers behind
a gradual recovery in the market, as figures should be read in the context the company’s decision last week
the graph of the XAU precious metal of a huge oversell to levels not to dispense with its gold hedging
index shows, with a peak at 161 in representative of the intrinsic value programme.
June when the gold price rose to of the companies by all measures!
XAU Precious Metal Index Another way of looking at
performance is the assessment of,
and trend in, value of a company’s
gold in the ground, as expressed by
its adjusted market capitalisation
per ounce of resource (M&I). The
table below highlights the extent of
the decline in market values late last
year from the heady days of early
Q2.
(Continued on next page)
18 Issue 33 September 2009
