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Site Visit in Spain

Due to a seminar in Geneva mid week followed with a site visit at Orvana’s EVBC mine in Spain, the O B Research web site will not be updated regularly this week. The Weekly Update Newsletter is also cancelled this weekend.

Team O B Research

Alaska’s New Gold Rush

by Louis James, Senior Editor,  Casey’s International Speculator

Alaska is one of the most prospective and yet most underexplored areas in the world. There are good reasons for the neglect, most notably the long, cold winters and the lack of infrastructure. Whether the latter is a result of, or a cause of, there being few people in the state is an open question.

One clear result, however, is a rather small economy: Alaska’s 2009 GDP was US$47.3 billion, comparable to that of the Dominican Republic or Bulgaria. The state is ranked 44th by GDP among its U.S. peers.

In terms of metals, Alaska produces gold, silver, copper, lead, and zinc. Being well endowed with natural resources, Alaska’s mining history dates back to the early 1800s, when Russian explorers prospected the region, looking for placer gold. But not until after Russia sold Alaska to the United States did exploration activities start to develop rapidly, both on placer and hard rock deposits.

Alaska has undergone not one but a series of gold rushes, the most famous being the 1890s Klondike Gold Rush, which actually centered on gold found just over the border in the Yukon Territory. That event drew many immigrants and spawned numerous settlements on the way to the Klondike, one of the principal routes having been through Alaska. Almost 13 million ounces of gold were produced by placer miners in the area. Since the end of the 19th century, mining has become an integral part of the state’s economy.

The following chart shows Alaska increased its gold production to 800,000 oz in 2008 (most recent data available), up 10% from 2007. That’s also about a 10% share of total U.S. gold production. Alaska is the second largest gold-producing state behind Nevada. It is remarkable to see production in Alaska rise while total U.S. production has been in decline for more than a decade.

Yet, most Alaskan gold comes from only a handful of mines – and that tells you something about the size of the deposits being worked. The two largest mines, Fort Knox and Pogo, account for more than 80% of 2008 total gold production, or 640,000 ounces. The Kensington project, which started producing gold just a month ago, is set to become the third largest. Perhaps. But these mines are small potatoes compared to some of the current projects being advanced toward production. Given that a million ounces of contained gold is considered a large gold mine, Alaska’s major deposits are genuine monsters: Pebble has 107.3 million ounces of gold, Donlin Creek has 42.3 million, and Livengood has 19.7 million. If these go into production, Alaska will rank as one of the world’s top gold producers.

Alaskan Moose vs. African Elephant

I like Alaska. I like the fact that many, if not most, Alaskans own guns – it’s one of the last remnants of American “rugged individualism” (though sometimes it seems that more Alaskans take pride in the rugged part than in the individualism part).

But in my professional capacity as Doug Casey’s rock-kicker, it’s not Alaskan culture that I like the most. It’s the almost unique combination of being a huge, highly prospective mineral district in a stable, pro-mining jurisdiction. Many people argue that all the big deposits in safer jurisdictions have been found – but you don’t have to go to Africa and put up with corrupt, kleptocratic regimes to hunt big game.

Alaska is unquestionably elephant country (well, moose country, and moose are almost as big as elephants and much more foul-tempered) with work done this cycle identifying genuine monster deposits. And there is plenty of room in that great empty place to find more.

The Pebble Controversy

What about Pebble – doesn’t that cast doubt on Alaska as a mining jurisdiction?

No.

The fight over Pebble does not stem from a groundswell of anti-mining sentiment among Alaskans, but from objections by specific interests to the potential mine’s proximity to salmon spawning grounds. Alaska’s economy has been dependent on resource extraction from the get-go, and remains so. Fish are an important resource, but mining has also long been a part of local culture and is no more horrifying to most Alaskans than guns are. In contrast to the views of the parasitical class that inhabits Washington DC, guns are simply necessary and useful things to most Alaskans. Similarly with mining.

Culture aside, the basic fact of life in Alaska is that the economy has always been driven by natural resources, and for Alaskans, this is not just an abstract theory. The State of Alaska cuts a check to each resident every year, paying them a dividend on the royalties the state has collected from the oil industry. Most of the money in the state Permanent Fund that pays these dividends came from the North Slope oil fields – and those are in decline. The Alaska Pipeline is operating at half capacity now, and if it drops below 30% or so, they’ll have to shut it down. That opens up some interesting conjectures about the future, but the point at the moment is that individual Alaskans get a substantial check in the mail every year ($1,305 in 2009) that reminds them of the importance of the resource industry.

I’m not worried about Alaska turning anti-mine; Pebble’s problems are specific to that project.

Real Obstacles

The main problems for resource industries in Alaska boil down to two things: it’s expensive, and much of the place is remote. Actually, the fact that everything costs more in Alaska also has a lot to do with how remote the whole place is from the rest of the U.S., adding substantial shipping costs for many goods. It’s also more expensive to deal with winter up there, due to various factors ranging from heavy snow removal costs to extra insulation costs, etc. For a mining project, a simple rule of thumb I’ve heard some old-timers use is that everything costs twice as much in Alaska.

Within Alaska, the remoteness itself is a major hurdle. The place is huge, twice as large as Texas, four times as large as California or Montana. The state capital of Juno has only about 30,000 inhabitants – and you need a boat or a plane to get there. Anchorage, the only larger city, has only about a quarter of a million (Fairbanks, the next largest city, has about the same size population as Juno). There are very few roads connecting this scarce and scattered population, with small aircraft being a common and critical part of the transportation and supply web that connects them.

NovaGold’s (T.NG) Donlin Creek project, huge as it is, faces serious logistical challenges, with neither roads nor power for literally hundreds of miles in any direction. Normally, you’d ship diesel fuel into a remote location and run generators. I haven’t done the math myself, but the amount of fuel needed is so great, I’ve heard that it’s physically impossible to barge it in. Maybe they could build an airstrip for some of those C-5 Galaxy cargo whales. What they are currently working on is a feasibility study to see if they can build a gas pipeline that would stretch over 300 miles from Anchorage – but for that to work, Anchorage needs to find a new gas supply itself.

This may be why we seldom hear of small deposits in Alaska; it’s not that there aren’t any but that a deposit is not worth bothering with unless it is rich enough to pay for whatever infrastructure needs building.

Real Opportunities

On the other hand, this very issue of remoteness is also an advantage – at least for speculators in this metals cycle. Because the place is so huge and so much of it so far from … well, from everything, there are vast stretches of land that have seen little exploration. The fact that everything costs more in Alaska has also kept a lot of exploration dollars away, in spite of how prospective the ground is – basically the same geology we love in BC and the Yukon. For well-funded and well-run companies, this is a true “land of opportunity.”

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One of Louis’ favorite Alaskan companies has done a terrific job drilling off a monster gold deposit relatively close to the producing Fort Knox gold mine – and with a road onto the project. Louis thinks it has excellent chances of becoming a mine, particularly since the state of Alaska wants the project to go forward so it can collect its royalty. Sign up for a risk-free trial with 3-month money-back guarantee today. More here

Avion Gold Corporation: Tabakoto South Intercepts Expand Extent of Higher Grade Gold Zones

Avion Gold Corporation is pleased to announce new drill results for the area just south of the Tabakoto Pit. This area hosts the Tabakoto South Trend northeast-trending cross structures that combined have been traced for 450 metres along strike and to 250 metres depth

Intercept highlights include the following:

  • 9.09 g/t Au over 8.0 metres
  • 17.86 g/t Au over 2.4 metres
  • 21.4 g/t Au over 6.2 metres
  • 16.86 g/t Au over 5.7 metres
  • 80.86 g/t Au over 2.3 metres

The Tabakoto South Trend lies approximately 260 metres southeast, and is parallel to the NE1 zone described in Avion’s News release dated September 9th, 2010. Within this trend, two coherent, partially overlapping zones of higher grade mineralization have been identified: the Tabakoto South and Dabo zones (see figures). A summary of drill hole intercepts are presented in a table at the end of this release.

The Tabakoto South zone, was tested with fourteen holes in 2010 and has been traced for approximately 300 metres along strike, to 275 metres below surface and is open to depth (see Figure). This year’s program has demonstrated that higher grade portions of the zone are predictable along a moderate to steep east plunge and that the zone is open down plunge. Two of the deepest holes returned intercepts of 16.86 g/t Au over 5.7 metres and 5.06 g/t Au over 5.6 metres. 

The Dabo zone has been traced for approximately 250 metres along strike, to 250 metres depth and is open down plunge below the deepest hole which returned 11.83 g/t Au over 9.2 metres. Drilling to extend this zone down dip and along strike to the west did not extend the zone.

The Tabakoto South and Dabo zones lie along a four kilometre long northerly trend that is cut by both northeast- and northwest-trending cross structures that often host high grade gold mineralization. These structures are the focus of Avion’s Tabakoto pit area exploration plans and underground mine development at Tabakoto. Exploration in 2010 has focused drilling on seven of these cross-structures, in the immediate Tabakoto pit area. Two additional cross structures are highlighted in this release.

Subsequent exploration updates on the remaining two major cross-structures are planned once the drilling is completed and the results are available. Future Tabakoto area exploration will continue to focus on systematically defining the known cross structures and tracing them along strike and down plunge.

Drilling also intersected several other cross structures with an intercept of 6.8 g/t Au over 4.0 metres in hole T-10-36 and a fourth zone near the top of the hole T-10-47 where an intercept of 1.89 g/t Au over 5.7 metres was returned. Drilling will be required in order to determine the strike extent of these mineralized intercepts.

John Begeman, Avion’s President and CEO, stated: “As expected, the cross structures continue to return exceptional drill results and demonstrate that the mineralized system is still open to depth and that the potential for the discovery of new zones is high. Avion’s management believes that continued exploration will continue to turn up new structures that can potentially add to our ability to increase our overall resources.”

In 2010 Avion has completed over 440 core and reverse circulation drill holes totaling approximately 53,300 metres of drilling, at its Tabakoto and Hounde properties. This work has focused predominantly on the Dioulafoundou, Tabakoto, Djambaye II, Ségala and Vindaloo areas. Drilling will recommence on the Houndé property, Burkina Faso, which Avion is in the process of acquiring (See News Release dated July 5, 2010), in October, 2010 with approximately 4,000 metres of drilling planned. Drilling is planned for the Kofi property, Mali, once the concession permits are transferred to Avion (See News Release dated March 31, 2010).

Full release

They Are Printing Too Much Money

By James Turk, on September 20th, 2010

There is too much money being printed.  No rocket science is needed to reach that conclusion. The markets are giving us a clear message.

For example, gold is trading at a record high, while silver has reached a 30-year high.  Those new high prices are happening for a reason.  The precious metals are sensitive to changes in inflation, both actual as well as future expectations.

Rising precious metal prices tell us that there is a lot of inflation in the pipeline, but they are not alone in giving us this message. More generally, look at the trend in commodity prices over the past few months in the following chart of the CRB Continuing Commodity Index, which is based on the price of 19 different commodities.

On June 4th the CRB Index closed at 450.24.  Here we are just 3-1/2 months later, and the CRB Index closed Friday at 530.24, up 17.7%.  That is a HUGE jump in prices in such a short period of time.  To put this price rise into perspective, it is a 61.8% annual rate of “appreciation” – though we should call it by what it really is, namely, “price inflation”.

Commodity prices are not rising because of good economic activity, which remains in the doldrums with high unemployment throughout most of the world.  Commodity prices are rising because too much money is being printed.  But the Federal Reserve reports that M1, a narrow measure of the total quantity of dollars in circulation, rose only by a 9.1% annualized rate in the three months from May 2010 to August 2010, and M2 rose by even less.  So why are commodity prices rising by an even faster rate than money growth?  There are two reasons.

1) Because too much money has been printed for years, not just over the past three months, which can be illustrated by comparing M3 to the total US population.  In 2000 there were $26,977 in circulation, as measured by M3, for every man, woman and child in the United States.  That amount has ballooned to $46,538, a 7.1% annual rate of growth, which is more than 7-times the 0.9% annual rate of population growth during this period.

2) Demand for money is usually ignored, but it is an important part of the equation.  Unfortunately, demand cannot be measured, so we again need to rely on observations of market prices to determine the prevailing trend in the demand for dollars at any moment.

So, for example, let’s look at the US Dollar Index, which measures the dollar’s rate of exchange against a basket of currencies. While commodities have been rising since June 4th, the Dollar Index has been falling.  It is down 7.9% over this period, a 27.6% annualized rate of decline.  Given that people are opting to hold other currencies in preference to the dollar, as evidenced by the dollar’s falling exchange rate, it is clear that the demand for the dollar is falling.

Thus, the dollar is being hit by both rising supply and falling demand.  We know from Economics 101 that this condition results in falling prices, which when applied to money means declining purchasing power, or what today is usually called “inflation”.  If monetary policy is not corrected and inflation is not reversed, in time hyperinflation will be the inevitable result.

I have been warning about hyperinflation since March 2, 2009 when I wrote that the dollar was on the cusp of hyperinflation.  I noted that “the federal government has embarked on a course of runaway spending, and it is runaway government spending that causes runaway inflation”, which if left uncontrolled leads to hyperinflation.  The trend has not changed for the better.

From February 28, 2009 to August 31, 2010, runaway federal government spending has resulted in a $2.57 trillion increase in the national debt.  But over this period GDP increased by about $0.5 trillion, and the increase in economic activity is even less after adjusting for inflation.  So clearly we need to ask ourselves, what have the bailouts and stimulus programs really accomplished?

The answer is very little in terms of economic activity, but there is an ominous consequence from this foolish binge by policymakers of soaring debt and reckless money creation.  Given that these dollars are not being used to generate economic activity, they are now sloshing around the globe looking for a safe home.  Tangible assets are one of the safest places to be to protect your wealth from a currency whose purchasing power is eroding.

The result is that the commodity markets are on fire.  Prices are not rising because of a shortage of commodities, but rather, there is a surfeit of dollars.  Too much currency has been created, relative to current economic activity.

Without an abrupt about-face to end the wrongheaded policies being followed by policymakers, there can be only one conclusion. The dollar is headed toward hyperinflation.  The new record highs in gold and silver, an across-the-board rise in commodity prices and the renewed downtrend in the dollar’s rate of exchange are the ‘writing on the wall’.

This article is written by James Turk and with his kind permission, O B Research has been privileged to publish his work on our website. To find out more about his work, please visit:


The “Deleveraging” Deception

By Michael Pento, September 20, 2010

There is wide agreement among economists and the financial media that our lackluster economic performance stems from continued “deleveraging” among consumers and businesses. Although it is certainly true that after decades of overly speculative borrowing, individuals and corporations are paying down debt, rebuilding their savings, and generally repairing their respective balance sheets. But these activities cannot be faulted for our economic malaise.  

In fact, as a country, we haven’t deleveraged at ALL. All the moves made by the private sector have been vastly outpaced by the federal government’s efforts to add leverage to the economy. The net result is that we are much more indebted now than we were before the recession began; as a result, we are digging ourselves even faster into debt.

The good news is that households paid down debt for the 9th quarter in a row. In Q2, they deleveraged at a 2.3% annual rate, as their total debt outstanding dropped from $13.52 trillion to $13.45 trillion from Q1. That’s still around 92% of GDP, which is way up from the 48% level in 1980, but the direction is positive. Ultimately, the message here could not be clearer: American households have decided – either voluntarily or involuntarily – that it is in their best interest to quit borrowing money and reduce their debt levels in order to reconcile their balance sheets. The bad news is that most economists view this as a pernicious tendency.

To counter the trend, economists have called for government to provide the spending that others have deferred – and the feds have been thrilled to comply. In fact, during Q2, Washington accumulated debt at a 24.4% annualized rate! So, even though households and state and local governments have begun to learn some valuable lessons, DC still managed to increase the overall level of non-financial debt in the US to a record $35.45 trillion. In an era of supposed deleveraging, the rate of debt accumulation has increased from 4.5% to 4.8% annualized over the past quarter.

By focusing solely on the behavior of the private sector, and ignoring the equally important fiscal habits of government, the financial media and mainstream economists have displayed a dangerous blind spot in their thinking. They fail to understand or acknowledge that borrowing done by a household or a government is virtually the same thing. The US government does have any independent means to generate wealth to pay off debt. It doesn’t own factories or mines, and it does not operate a profitable service-sector business. It does not have an independent store of savings in another dimension, from which it can produce goods outside the bounds of economic law.

In the real world, all government stimulus comes from borrowing, spending, or printing, or to put it another way: deferred taxation, capital redistribution, or inflation. That means all US debt is ultimately backed by the tax base of the country. Therefore, whether the consumer or the government that does the borrowing is really unimportant because, in the end, it is the consumer that will receive the bill.

Meanwhile, government interventions are particularly pernicious because they encourage short-sighted behavior in the private market as well. It was reported today that corporations are using the rock-bottom interest rate environment to execute leveraged buybacks of their shares. While this temporarily increases shareholder value, it ultimately leaves the corporations – and the broader economy – even further in debt.

As of Q2 2010, total non-financial debt is rising at a 4.8% annual rate but GDP is growing at only 1.6% annualized. US debt as a percentage of GDP continues to climb, which should put to bed any talk of a deleveraging or deflating economy. Consumers are clearly only part of the equation – and, for now, the smaller part. The US government, in fighting the claimed deleveraging, is sending the total debt level into the stratosphere. As we watch it soar upward, the dollar steadily drifts downward.

This article is written by Michael Pento of Europac and with their kind permission, O B Research has been privileged to publish their work on our website. To find out more about Europac, please visit: