The richness of Nevada gold mines, coupled with soaring record gold prices, have placed international gold companies firmly in the crosshairs of social service advocates seeking additional revenue to staunch the hemorrhaging of deficit government spending.
For the past few years, the Nevada Mining Association has produced an annual economic overview aimed at educating state and local government officials on the world’s fourth largest gold producer in order to show how important a role gold production plays in the Nevada economy.
The latest version of the report highlights increasing production costs, higher state and local taxes paid by the industry, and the impact of permitting delays in retaining a viable Nevada mining workforce.
Report author Dr. John Dobra, an economics professor at the University of Nevada Reno, estimated the state’s gold reserves at year end 2008 were an estimated 70.4 million, almost identical to the previous year. The state continues to have enough reserves to maintain production at current levels for an additional 12 years…read more at the Mineweb
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(DX) is a tracking ETF to (GDM) index, a mining index determined by Nyse. The component weighting cannot be determined by Van Eck. Unfortunately, the top holding (ABX) at 14.5% is probably one of the worst choice. ABX recently announced to dehedge its gold forward sale, which was costing ABX some 4 billion dollars. ABX is also rumored to be the accomplice of gold suppression scheme together with JPM & Fed. The other components in GDX that I don’t like are AU at 5.62%, GFI at 4.25%, HMY at 3.24%, all are deriving 100% or significant gold productions in Africa. As the gold prices zoom upward, mining gold in an impoverished (relatively speaking) continent will tend to be problematic. I expect more labor and theft and political problems. Also gold production from Africa is declining as a whole. With the exception of GFI, which has expanded its production to other continents, the other two companies are definitely not my preferred choice (especially HMY). GFI is probably the “cheapest” company among major gold producers that one can buy, since its mine life is still quite long. HMY may have the highest leverage to gold price, due to its very high cost basis. At later stages of gold bull market, HMY could easily come back with a vengeance despite the terrible management. Although one may consider shorting out those components when owning GDX, I hesitate to do that. The other company that derive its production from Africa is RangGold (GOLD) at 4.72%. This has been one of the company that has baffled me, easily outperforming all other components, without me owning it. Definitely one should not short this component out.
Onto the new (GDXJ), top components (CDE), (SSRI), (HL), (SVM) are taken by all silver mining companies instead of gold mining companies. That’s 21% of the GDXJ. My ongoing concern about investing in silver companies is that they will couple to the general stock market a lot more than gold mining companies (at least initially). In a deflation, gold/silver ratio will zoom upward, relatively depressing the price of silver. I would have hoped to have less silver components. By the way, junior companies or small-cap stocks also tend to get depressed more in a downwave. Regardless, CDE and HL (and MFN) don’t seem to have good management in shareholders’ interests, raising big amount of capital at the recent zenith of 2008/2009, diluting a big percentage of their stockholders. I suspect that the deals were hammered out with hedge funds in the Wallstreet who have shorted all these companies in the backroom. With a big short ratio, it was simply not possible to cover those short position via open market purchases without driving up the stock prices. And what is the chance of having so many companies silmultaneously raising capital all the the absolute zenith of the stock market?
Most of the rest of the GDXJ components beyond top ten are not familiar to me. And that is the beauty of investing in an ETF, not needing to know every individual company. Assuming that gold bull market continues, GDXJ will eventually outperform GDX, with much higher volatility. I expect the rallies in both will be kind of in stages, with GDX the big cap leading the way.
Both gold & mining companies are short-term overbought, and had a tremendous recovery since 2008 crash. Based on Elliot wave reading, I’m fairly certain that we are looking at major wave 3. It is hard to tell whether wave 2 of 3 has happened or not. Regardless, if you have the nerves to buy and the stomach to ride out the tremendous volatility (20% to 50% up and down probably for more than 4 times per year), I think the reward may be good.
Granted, I’m still holding back due to my expectation of a significant general stock market correction in Q1/Q2 next year. But no one can predict the stock market with certainty. The best thing to do is to pick and weigh each of your portfolio position carefully, and stand firmly to ride out the combined volatility.
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Introduction to the Gold Mining Process for Tabular Ore Bodies
There are a number of different methodologies used to conduct mining operations. One of these methods are discussed in this article.
The gold bearing ore is in situ in the reef band where it was deposited millions of years ago. It requiers drilled and blasted to free it from the country rock. According to Nell (1984:95) this process is called stoping. He defines stoping as:
the actual mining of ore by means of breaking ground in stopes to a size suitable for handling and processing for the recovery of the mineral content.
The breaking of the country rock includes drilling blast holes and blasting it. This is followed by cleaning, supporting and the providing of the infrastructure to the stope faces.
The provision of infrastructure includes the maintenance and managing of:
• in stope water and air services that is necessary for the drilling and dust allaying process
• travelling ways to and from the stope necessary for creating access ways for people and material
• scatter walls to contain the blast rock in a conveniently concentrated muck pile for the cleaning crew,
• material and people handling appliances including monorail, mono rope and chairlift devises
• double drum winches and scraper scoops for the moving of blasted rock
• pumping and pump installations to ensure sufficient water pressure and or clear out the accumulation of excess water from low lying areas.
• rail tracks for the locomotives and trains that transports workers, material and broken rock pover long horizontal distances underground.
• Safety devices that include tips and grizzlies to prevent inadvertent access of people down these near vertical excavations.
• Blasting equipment that includes remote blasting system cables and ventilation sensor equipment in the intake and return air passages.
• Ventilation systems that consists of various sizes of columns, temporary and permanent ventilation brattices, -walls, -holings and fans.
• Electricity and electric equipment required for the use during the mining process.
With reference to figure 1 a three dimensional mining layout of a typical gold mine can be viewed here. The figuredepicts the basic components, in three dimensions, used to explain the mining layout of a typical gold mine.
The broken ore is typically scraped on dip, down a 30 meter stope face into a strike gully, by means of a double drum winch and scraper scoop once it is blasted from the country rock.
Another double drum winch and scraper scoop is used to scrape the broken rock on strike to an orepass or boxhole, situated in the original raise. This boxhole can be situated up to 90 meters from the face where the blasting took place. The broken rock now cascades down this steeply inclined excavation (boxhole or orepass) to a crosscut on a lower level.
In the crosscut a train, normally with ten eight ton hoppers are used to transport the broken rock to the shaft. The shaft can be kilometres away from the point of mining. At the shaft the train tips it's cargo down the shaft orepass system, where it again cascades down to the shaft loading station near the bottom of the shaft. The broken rock are hoisted up a 2000 meter vertical shaft in rock skips with a typical capacity of 12 tons by means of a rock hoist to surface, in the case of a surface shaft, or to just above the loading station of the surface shaft in the case of a sub – shaft.
On surface the broken ore is transported to the metallurgy plant by means of a conveyor belt. In the metallurgy plant the ore is milled, screened, and chemically treated in order to allow separation of the gold from the gold bearing ore. The slime residue is pumped to a tailing dam and the gold concentrate is further treated. The gold concentrate is smelted and the 89% pure gold is poured into gold bars weighing about 31 kilograms each.
These gold bars are then transported to a Refinery where the silver is removed and the gold refined to 99.99% purity. It is this pure gold that is sold on the world gold markets.
© 2009 Carl Marx
Francis Cantrell