Editorial: Gold juniors thwacked

Crumbling faith in U. S. credit markets loomed large over the wider markets during week ended Sept. 13, the 37th trading week of 2008.

• In the wake of the U. S. government’s bailout of Fannie Mae and Freddie Mac, the unfolding financial crisis flared up again on Sept. 14 with the demise of Lehman Brothers and the swift fire sale of Merrill Lynch to Bank of America. At presstime, stock markets were down sharply around the world, and insurer American International Group was cap in hand asking for a taxpayer bailout to stave off insolvency.

Wall Street and its enablers are getting their day of reckoning for going ahead with foolish business plans built around lending money to deadbeats to buy houses and cars they can’t afford. But the mess has put a new focus on the distressed gold sector and its vaunted status as a safe haven.

There was clearly some kind of co-ordinated assault on gold in early September, most noticeably through huge, new short positions on COMEX, which seems to have been part of a larger effort to prop up the U. S. dollar in the lead up to, and during, the current credit crisis. It’s the old trick of bashing gold so it can’t send its signal to the world that anything’s wrong with the greenback — forcing a breathing apparatus onto a canary in a burning coal mine, if you will.

So, rather than basking in the glow of resurgent gold prices, gold miners now find themselves in a nightmare world where their long-hoped- for US$800-per-oz. gold price is generating little, if any, profits, owing to soaring production costs.

In fact, with gold prices slumping well below US$800 in early September, we’re starting to see gold mine closures: Kinross Gold is suspending its Pamour mine in Timmins, Ont.; GBS Gold International is going belly up in Australia; and Campbell Resources is axing its Copper Rand copper-gold mine in Chibougamau, Que.

The share prices of gold miners have been mercilessly hammered, with juniors suffering far worse than the seniors. We’ve even gone back to the late-1990s phenomenon of some juniors trading below their net cash position.

But there’s growing anecdotal evidence of new physical shortages in gold — such as the U. S. Mint’s suspension of Gold Eagle coin production — that may set the stage for gold prices to spring back sharply into the four digits in the coming six to 18 months.

And if you’re in the fortunate position of being able to put new money into quality gold juniors, with such low share prices out there relative to ounces in the ground, this looks like one of the best buying opportunities since early 2001. And, of course, pure bullion looks pretty good as a core holding, too.

• A little bit of history happened in Tanzania, with De Beers selling to Petra Diamonds its 75% interest in the Williamson open-pit diamond mine for US$10 million. Named after its Canadian discover and developer John Williamson, the mine opened in 1940 as the first significant diamond mine outside South Africa, with De Beers buying its stake from Williamson’s heirs in 1958. The mine quietly endured all the political upheavals in East Africa to be a reliable source of 19 million carats, including lovely, rare pink diamonds. At 146 hectares, the mine’s key Mwadui pyroclastic kimberlite is the largest kimberlite pipe ever to be mined, and there’s still potential at depth, as the pits are only 90 metres deep.

• Were you a shareholder of Denver’s Ascendant Copper (now Copper Mesa Mining) when it crashed and burned at its doomed Junin project in Ecuador in 2006? Then you may want to check out the feature-length documentary Under Rich Earth, which debuted at the Toronto Film Festival. Directed and produced by left-leaning, rookie Canadian filmmaker Malcolm Rogge, the film uniquely documents the bickering between the peasants who wanted to keep their farmland as is, and local contractors ineptly trying to advance the Junin porphyry copper deposit, which hosts an inferred 982 million tonnes grading 0.89% copper plus moly and silver credits.

Regrettably, the company didn’t want to participate in the film, and the director fails to put the conflict into the broader context of resource development in Ecuador and the Third World. In this respect, the film likely won’t become a touchstone for anti-mining and anti-capitalist agitators. But it is worthwhile for those with a specific interest in Junin and as a classic example for companies on how not to handle community relations.

Send your Letters-to-the-Editor and other op-ed submissions to the Editor at: tnm@northernminer.com,

fax: (416) 510-5137, or 12 Concorde Pl., Suite 800, Toronto, ON M3C 4J2.