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Unmitigated Mining Industry Disaster Portends Upcoming Production Plunge


 -- Published: Friday, 14 February 2014 | Print  | Disqus 

By Andrew Hoffman

“No Janet, the economy is not getting better.” This was a Zero Hedge headline this morning, on a day in which yet another historic snowstorm is pounding the Eastern Seaboard. Luckily for “Whirlybird Janet,” it was powerful enough to cancel today’s Senate economic testimony; at which, she’d continue to speak of the economic “recovery” that has been supposedly ongoing for five years – but hasn’t increased anything but unemployment, debt, entitlements, wealth inequality and political infighting. Heck, Rand Paul – who may well be the Republican Presidential candidate in 2016 – actually sued Obama today!

As for the snowstorm, have no worries; as the Senate only required one hour last night to rubber stamp the House’s infamy in passing the debt ceiling “delay” enabling the printing presses to run full steam for another year. And full steam they will, as our “dependency nation” implodes further; potentially to 2008 levels – or worse – in the coming months. To wit, this morning alone, initial jobless claims surged anew; retail sales were reported to have plunged 0.4% in January – i.e., its worst miss versus “expectations” in two years; and my gosh, Cisco’s forward revenue guidance could not have been worse. And lo and behold, the automaker “channel stuffing” we highlighted last week is already yielding the effect we anticipated; i.e., massive, across-the-board price cutting that will further decimate industry earnings – perhaps, yielding widespread layoffs.

Meanwhile, European stocks and bonds are cratering as the Italian government sits at the precipice of collapse, whilst Greece announced a new record high unemployment rate. And oh yeah, not only did a member of the ECB’s Executive Board state that the ECB was “seriously considering” the imposition of negative deposit rates – i.e., the suicidal “NIRP” policy we have written of for some time – but a leaked EU document stated that:

The savings of the European Union’s 500 million citizens could be used to fund long-term investments to boost the economy and help plug the gap left by banks since the financial crisis.

-Reuters, February 12, 2014

In other words, screaming that “bail-ins” is coming soon, to a European bank near you. I mean, what will it take for people to realize that holding money in a bank is tantamount to financial suicide? And better yet, storing the majority of one’s wealth in hyper-inflating fiat currencies?

Of course, today’s primary topic refers to a different topic entirely; i.e., the soon-to-collapse worldwide production of gold – likely, to NEVER return to the peak level reached at the turn of the century. As we have written dozens of times before – including last week – the Cartel’s suicidal, desperation attacks since “dollar-priced gold” peaked in September 2011 have not only accelerated the demise of their fiat Ponzi scheme, but assured PM production would be permanently debilitated.

We have for some time highlighted how the real, sustaining costs of production are closer to $1,500/oz. for gold and $30/oz. for silver; and thus, back in September, forecast massive reserve write-downs given such unsustainable prices. In fact, on Monday we highlighted the below MSM article, regarding expectations for Barrick Gold’s earnings release today. Remember, Barrick is the world’s largest gold producer; and thus, whatever trends it sees are experienced across the entire, global mining industry…

Barrick CEO Jamie Sokalsky told investors the company will use a U.S. $1,100 price to calculate its unmined gold, down sharply from the $1,500 price assumption used to calculate last year’s reserves.

That could slash more than 10% from the miner’s stockpile of 140 million ounces of gold in the ground.

-The Globe and Mail, February 9, 2014

Well, guess what? The “sum of all fears” was what actually occurred; as yes, Barrick lowered its reserve price assumption to $1,100 ounce, but no, reserves were not reduced by just 10%. In fact, they plunged an incredible 26%; and not only that, production fell from 7.4 million ounces in 2012 to a nine-year low of 7.2 million ounces in 2013. Consequently, the company lost $2.8 billion in the fourth quarter alone, and who wants to hear the 2014 outlook? Drumroll please. Not only is gold production expected to plummet to 6.0-6.5 million ounces – i.e., 10%-15% below the 2013 level – but capital expenditures are being reduced 50% and properties sold en masse, to avoid the potential bankruptcy we warned of last year.

Not to be overshadowed, Kinross Gold – the world’s sixth largest gold producer, reported an operating loss for both the fourth quarter and full year; a whopping 11% plunge in full-year 2013 production; and the expectation of, at best, flat production in 2014. Like Barrick, Kinross’s 2014 capex will be reduced by at least 50% from the 2013 level; and now, for Kinross’s big whopper…

Kinross said its gold reserves, its store of unmined gold, stood at 39.7-million ounces of gold at the end of 2013, down 33% from 59.6-million ounce at the end of 2012. Analysts were not expecting the cut, since Kinross used a conservative price to estimate reserves a year ago.

-Reuters, February 12, 2014

Yes, Kinross’s “reserve quality” was vastly lower than anticipated; to the point that even utilizing last year’s conservative price assumptions of $1,200 for gold and $22 for silver, it still needed to write down a third of its entire reserve base. If this doesn’t tell you just how little actual, mineable gold exists – let alone, at today’s unsustainable prices – I don’t know what will.

Whether one chooses to speculate in mining stocks is another story entirely; but keep in mind, industry fundamentals have never been worse. Moreover, we assure you, once prices finally break the Cartel’s shackles – and consequently, PMs are again universally understood to be money – the odds that governments will confiscate and/or windfall tax PM mines will increase exponentially. And given governments destroy whatever they touch – as the Venezuelan government did when it nationalized its oil industry in 2001 – it’s quite likely future gold and silver production will not just flatten, regardless of PM prices, but plunge.

Oil Production Chart

As for the Cartel, it clearly is nearing the end of a vicious, 15-year, world-destroying, “99%” creating reign. Of just 638,000 ounces of registered COMEX gold inventory, nearly 500,000 ounces are “spoken for” via delivery demands from the December, January and February contracts. Clearly, they are using every bit of accounting chicanery imaginable to prevent the inevitable run on their dwindling supplies; but given January’s record Chinese PHYSICAL demand and imminent end of last year’s draconian Indian PM tariffs, the writing is clearly on the wall.

In recent weeks, the Cartel has continued to attack at any and all “key attack times”; as they did yesterday, last night, and this morning. However, on all counts, such raids have been far less successful; particularly in silver, which yet again showed staunch support at $20/oz. after last night’s typical “2:15 AM” PAPER raid. The preponderance of evidence is starting to depict an inevitable PM surge; and with it, a potentially rapid erasure of last year’s nightmarish losses, triggered by “powers-that-be” so desperate to kick the can, they initiated the “unmitigated mining industry disaster” that will all but ensure catastrophic product shortages – likely, in the very near future.

24hr Gold Silver 2-13-2014

And when this occurs, it will likely accompany a lot of very, very bad things, on the political, economic, and social fronts; which most likely, will yield not only a Fed tapering “pause,” but reversal; as well as an outright ECB “QE” announcement; the expansion of “Abenomics”; and other, worldwide money printing insanities, yielding a vicious loop of expanding emerging market currency collapses.

Are you prepared for this carnage, which is just starting? And if not, what are you waiting for?

http://blog.milesfranklin.com/
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 -- Published: Friday, 14 February 2014 | E-Mail  | Print  | Source: GoldSeek.com

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