California Gold step closer to production

Pegasus Gold has completed an initial evaluation of the Zaca property in California, currently held by California Gold Mines of Vancouver.

Under the terms of a memorandum of understanding with California Gold, signed last August, Pegasus can earn a 50% interest in the property by bringing it into production. Geological reserves stand at 13.5 million tons grading 0.025 oz gold and 0.55 oz silver per ton.

Pegasus has significantly reduced the estimated capital costs of the project, according to California Gold executive vice-president Richard Ketchen.

Pegasus is now compiling a detailed estimate of capital and operating costs. Northumberland has cash for exploration

Toronto-listed Northumberland Mines has completed a $1.6-million financing for underground exploration on the Cochrane Hill property in Guysborough Cty., N.S.

Two flow-through private placements were completed this week with two limited partnerships: Mintax Mineral and 1987 tap.

As reported (N.M., Dec 28/87) the underground program will consist of a decline and crosscuts at regular intervals. Samples will be crushed to — 1/2-inch and ground to –20 mesh in a rod mill. Gold and heavy minerals will be recovered in jigs and flotation cells.

In India gold hoarding is an ancient custom; in Japan it is brand new. In today’s gold market Japan has emerged as a towering force during the last few years. One great question for gold traders is how strong is this new Japanese habit? How long will it last? The important point about the Japanese is that thaey are just in the earliest stages of building up a private investment stock in their country; by contrast the French, the Indians or the overseas Chinese (that is, those living and working outside mainland China in Hong Kong or Southeast Asia) already have their gold holdings. The Japanese are beginners. But they seem to be going about it with their usual diligence.

In Japan gold investment is not an integral part of social customs. The key factor is that the Japanese have not only a highly prosperous nation with a high standard of living, but they have a very high savings rate (17% of disposable income in recent years). Private investors alone (as distinct from institutional) had over $3 trillion at their disposal by the end of 1986, but scarcely any of that was in gold. So far most Japanese investment has been in the stock market, real estate (or buying golf club memberships, which are traded as negotiatble certificates on a secondary market). But gold is starting to attract their attention.

Last year, to commemorate the 60th anniversary of their Emperor, Hirohito, the Japanese government issued 10 million gold coins; and although they charged a premium of over 100% on the gold price, most of the coins were snapped up. This event alone put gold in the hands of millions of Japanese families for the first time. A first step on the gold investment ladder.

Today the Japanese people are becoming aware of their wealth and are eager for investment diversification to spread risks. Personal financial management is suddenly the topic of discussion among office workers, housewives, even students. The Japanese even have a word for it — zaiteku — which really means financial technology. Zaiteku is becoming a household world. The Japanese, so it seems, intend to apply to personal money management the same skills they have shown in creating their wizardry in electronics and technology. Great implications

This initiative has great implications for gold. Not only has the Hirohito coin put gold in the hands of many Japanesea for the first time, but as they practise their zaiteku, their financial technology, they realize interest on bank deposits in Tokyo is low — less than 4% on 1-year deposits — and is liable to tax. Gold, on the other hand, can be bought (and sold) anonymously. Consequently, during the last few years, Japanese investors have slowly been buying more gold. Last year, for instance, they acquired almost six million oz (virtually the combined production of the United States and Canda) in gold bars. quite apart from the Hirohito coin, and jewelry and industrial use.

And inMay this year, wqhen the Tokyo stock market dipped, over $300 million was switched into physical gold to protect stock market profits in just a matter of days.

Looking ahead, bullion dealers in Tokyo reckon that over the next few years the Japanese will continue building up their basic private gold holdings to bring them up to par with the more traditional stocks of the French or the Indians or the overseas Chinese. That underlying Japanese demand is one of the most bullish long-term factors in today’s gold market. And what interests me particularly is that this is physical gold holding; it is not trading paper gold on an exchange. Spreading the risk

The Japnese investment is motivated by the desire to spread risks, and is aimed more at preserving assets rather than making money. Precisely the classic reason for gold holding. Gold’s best credential, as I stressed at the beginning, is the maintenance of purchasing power over long periods. Many people have their favorite examples to illustrate this.

In closing, I’d like to share with you one that I heard in Europe this past summer. A London gold analyst, Julian Baring, charts his “gourmet’s guide” to the gold price by the number of people who can dine at London’s Savoy Hotel for a gold sovereign. He starts in 1914 when one sovereign was enough to pay for three dinners at the Savoy. This summer, dinner at the Savoy cost L22 per person (up over 70 timnes) but * * * you’ve guessed it * * * one sovereign at the market price still bought precisely three hot dinners.

That is what gold has going for it. If you buy one U.S. Eagle (or a British sovereign) today, you can feel confident that it will buy you just as many meals in, say, the year 2000, as today. Can you say the same of a 1-dollar bill?