Surprising Gold Market Boosts Mining Stocks

They expected its price to continue drifting lower because of the mild inflation outlook and growing bullion production.

``Everybody assumed it would just keep going down and down and down. But it didn't,'' said Frederic S. Bogart, head of precious metals for the Republic National Bank of New York.

Instead, gold bullion has rallied strongly since bottoming out at $360 an ounce in September, sending volatile mining stocks soaring.

The group is up about 35 percent since this summer and should advance further, according to Vahid Fathi, an analyst with Prescott, Ball & Turben Inc.

``If gold is in a bull market, as we believe it is for the first time in several years, the reward in these stocks could be subtantially higher,'' he said.

Market participants sa a key test of the rally's strength began last week as gold passed $400 an ounce, a level it previously saw in January on the way down from its recent high of just over $500 in 1987.

If the rally propels gold well above $400, buyers' enthusiasm is expected to swell.

``There are a lot of people who invest in this area who are still on the sidelines,'' said Marc J. Loew, manager of Shearson Lehman Hutton Inc.'s SLH Precious Metals Portfolio. ``Breaking the psychological barrier of $400 gold is what's going to bring them in.''

What is the best way to participate in the rally?

For investors who can tolerate risk, mining stocks carry the biggest potential gains. Their earnings and share prices are highly sensitive to gold prices.

``For example,'' said Fathi, ``if bullion goes up 10 percent, you shouldn't be surprised to see a 20 percent move in the price of gold mining shares.''

Fathi recommends shares in large, efficient mining companies with high production growth. One of his favorites, the American Barrick Resources Corp., has expanded production by about 40 percent this year.

The company's bottom line has also benefited from forward sales of gold that locked in an average price of more than $400 an ounce for its 1989 production.

But Fathi still questions whether the gains in gold shares have been sufficient to compensate for the volatility and risks.

To reduce risks, mutual funds provide diversification. Laurie Kaplan, an analyst for Morningstar Inc., a mutual fund rating service, said the three dozen gold-oriented funds offer a wide range of risk levels.

``The first thing the investors have to figure out is what kind of exposure they want, how aggressive they want to be,'' Kaplan said.

Most volatile, she said, are the ``pure play'' funds that stay fully invested in gold shares whatever the outlook for bullion prices.

The higher their concentration in small mining company stocks, the greater their volatility, Kaplan said.

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Gold Mining Loses Its Shine on Rising Costs Zz Gold Fields Chief Calls for Collective Efforts to Save Industry

THE GOLD mining sector was "under water" and its troubles, with so many factors weighing against it, were just beginning, Gold Fields chief executive Nick Holland said last week.

"As of today, gold is at $1 300 [R13 000] an ounce and the gold industry is under water. The global gold industry is under water. The platinum group metals industry in this country is under water."

According to Holland, the HSBC global mining index has lost 29 percent since the beginning of 2010, while the Dow Jones industrial average is up 47 percent and the FTSE 100 index has risen 22 percent. Gold rose 3 percent to fix at $1 369.25 in London on Friday.

Mining investments were under threat as costs rose and the industry was in crisis in South Africa and other mining jurisdictions, Holland added.

"It doesn't end there either, because existing operations are also being cut back. I think every week now you're reading about a mine that has cut back jobs, rationalised its operations, or shrunk it. And you're going to see more. We're not at the end of it. I think we're at the end of the beginning."

Earlier this month, AngloGold Ashanti, the third-biggest gold producer, said it would cut 40 percent of its 2 000 senior managers worldwide.

Sibanye Gold, the company which was spun off from Gold Fields in January, has plans to cut jobs at its Beatrix West section following a fire and subsequent shaft closures.

Village Main Reef retrenched staff at Buffelsfontein and subsequently pulled the plug on the mine, and took a R469 million write-down on the Blyvooruitzicht mine, to which it halted funding.

Gold producers have reduced capital expenditure, restructured their operations and cut thousands of jobs.

Holland added that costs had increased by 12 percent a year as mines were getting deeper, while at the same time yields had decreased.

"That means you double your costs every four years. That's what you're looking at over here. At the same time yields are going down.

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Mining Battle Lines Drawn Zz Gold Mines Set for Strike after Talks Fail

Rumblings of lockouts by gold sector employers and resolutions to strike by trade unions culminated in a firm commitment to do battle by both parties as the deadline for a wage deal expired at noon yesterday.

"This is it. This is our final offer, we cannot afford an increase," Harmony Gold chief executive Graham Briggs told a press conference hosted by the Chamber of Mines yesterday.

The industry's final stand includes insisting on a collective bargaining forum and not negotiating or settling with unions at either company or mine level.

Briggs said reaching different settlements would probably fuel inter-union rivalry and incite violence.

Across the divide, the National Union of Mineworkers (NUM) said it rejected "with contempt" the final pay offer of a 6.5 percent wage increase linked to a profit share scheme as part of a two-year wage agreement.

NUM tabled demands for 60 percent wage increments at entry-level while the Association of Mineworkers and Construction Union (Amcu) asked for a 120 percent increment. They have not budged, while employers started at 5.5 percent.

"Unions that are expecting these settlements will be disappointed," Briggs added, referring to the fact that there would not be different settlement for bitter rivals NUM and Amcu.

The chamber represents seven gold mining companies in the negotiations: Sibanye Gold, Harmony Gold, Gold Fields, AngloGold Ashanti, Evander Gold, Village Main Reef and Rand Uranium.

"By tomorrow [today] we should know what the consensus is from our members," NUM spokesman Lesiba Seshoka said. "If they want to strike, we will send a notice of strike action to the Chamber of Mines, but we have to look at other avenues of engagement."

Amcu treasurer Jimmy Gama said the union would stick to its demand and consult members on whether to strike. "We cannot be told by the employers, we need to settle on the same settlement. The final offer is a joke. I don't know what they are trying to achieve by being stubborn. They can't blame workers for not accepting the offer, they need to blame themselves for being stubborn".

The parties have exhausted all avenues as the mediation process, led by the Commission for Conciliation, Mediation and Arbitration, failed in the third round of talks.

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