Tag Archives: Gold

The Swedish Tycoon Hunting for Commodities Says He Makes His Own Luck

Bloomberg, Aug 29, 2016

Lundin Gold Inc. Chairman Lukas Lundin Interview
Lukas Lundin

* Family’s mining companies are looking to bulk up: Lukas Lundin
* ‘Scary’ number of assets may need to be consolidated, he says

If Monopoly were played for natural resources, Lukas Lundin would be the natty gent in the tuxedo — riding a motorcycle.

And like many with a knack for the board game, the Swedish-Canadian tycoon says his victories are as much about guts as a good roll of the dice.

“You make your own luck,” the 58-year-old Lundin said in an interview at his Vancouver offices last week. “If you sit at home, you’re never going to get the luck.”

No one could accuse Lundin of lazing around the house. He and his younger brother, Ian Lundin, oversee a family fortune estimated to be worth at least $2.5 billion, according to the Bloomberg Billionaires Index, a number Lundin said is about right. The Lundins own stakes in companies across the globe, holding commodities from industrial metals, gold and diamonds to oil, uranium and Latin American cattle. And they’re not done yet.

‘Good Time’

“It’s a good time to acquire right now,” Lundin said from his office overlooking the cargo ships and sparkling waters of Burrard Inlet.

The best opportunities are in base metals and he’s keen to see Lundin Mining Corp., of which the family owns about 13 percent, resume its acquisition spree. The company bought a controlling stake in Freeport-McMoRan Inc.’s Candelaria/Ojos del Salado copper operations in Chile in 2014 and the Eagle nickel and copper mine in Michigan from Rio Tinto Group in 2013.

“For Lundin Mining, I think we have to find another large asset so we have a good growth story,” he said. Meanwhile for Lundin Gold Inc., a new addition to the portfolio that has only one asset, “Ideally we’d find another high-grade gold deposit somewhere.”

The company looks to buy assets, preferably developed, in a down cycle and unlock value. A rally in base metals hasn’t really gained traction yet, meaning that’s where the best opportunities lie, Lundin said. By comparison, gold has surged 25 percent this year, making it “harder” to find the ideal asset to buy.

Best Bet

Lundin said zinc could be the best-performing commodity in the next two to five years, while copper and nickel will take a bit longer. The ideal base-metal acquisition would be in Chile, Argentina or Peru, countries in which Lundin is comfortable doing business, he said.

“Bigger is better,” he said, when asked what size asset he’s hunting for. With borrowing costs low, he’d consider taking on more debt for a big purchase.

That, he said, needs to be balanced against the fact that both he and Lundin Mining Chief Executive Officer Paul Conibear are keen to pay shareholders a dividend as soon as cash flow makes that sustainable. “We can pay a small dividend, I think, and at the same time have a fairly good acquisition.”

What Lundin companies won’t do is borrow money to fund dividends. “That’s crazy stuff,” he said.

Issuing equity to fund a base-metals acquisition would be an option, but not until Lundin Mining’s stock price is much higher. Asked if he’d consider a 10 or 20 percent improvement as enough, he scoffed: “One hundred percent! I’m not here for 10 or 20 percent.”

The shares rose 1.2 percent at 12:20 p.m. in Toronto, extending a year-to-date gain to 34 percent.

Extreme Pursuits

“No guts, no glory” is the family motto and it’s clear Lukas Lundin takes it to heart. A four-time motorcycle competitor in the Dakar rally, he’s also climbed Mount Kilimanjaro twice.

He has no plans to retire: “My job and my hobby’s all the same so I don’t really know what retirement means.” It’s possible one of his four sons could helm the empire at some point, he said, but only if he’s the best person for the job.

The family meets once a month to discuss its holdings, which have become so extensive Lundin confesses he doesn’t know their exact number. “It’s a bit scary,” he said. “There are too many companies.” He would like to consolidate them, ideally into six or seven — from 12 now, according to a spokeswoman — either by merging or selling them.

Finding Treasure

It might make sense, for example, to have just one oil company, he said, and at some point the family probably will sell its renewable-energy business. Given that Lundin Petroleum AB, whose board is headed by his brother Ian, expects to double or triple production in the next five or six years, it’s unlikely to do more energy acquisitions, he said.

The Lundins have a reputation for finding treasure where others have passed it by, including billions of barrels of oil in Norway, at an area that had been drilled without success, and golf-ball sized diamonds at a mine in Botswana sold by De Beers.

In the case of Fruta del Norte, Lundin Gold’s sole asset, he said the company was able to forge inroads with the Ecuadorean government where the asset’s previous owner, Kinross Gold Corp., had been stymied.

Peaks and Valleys

The Lundin companies also have had some success selling assets near their cycle peak. The family owned a small stake in Red Back Mining Inc. in 2010 when it was sold for about $8 billion to Kinross, which later booked billions of dollars in writedowns.

It could seem like a Midas touch, if not for mistakes. Lundin admits his worst was in 1995 following the sale of mining company International Musto Explorations Ltd., which netted a 1,757 percent return to investors, according to the Lundin Group’s website. Flush from that victory, he bought assets in Mexico and tried to apply the same blueprint — but overspent and then failed to find a buyer as the project looked less and less feasible. The stock fell from C$16 ($12.30) to 20 cents, he said. It was a hard lesson on assessing each deal on its own merits.

Today, Lundin Mining executives are considering what to do with the company’s 24 percent stake in the Tenke Fungurume mine in the Democratic Republic of Congo. The issue has arisen because its partner on the copper-cobalt operation, Freeport, struck a deal to sell its 56 percent share to China Molybdenum Co. in May.

Tenke Decision

Lundin executives are in discussions with Freeport and the Chinese to decide whether to sell or keep their stake, or to exercise a right of first offer, allowing it to match the Luoyang-based company’s bid.

China Molybdenum would likely be “OK” as a partner “but it’s a different culture and they’re not very experienced miners so I’m sure it’s going to be more work for us,” Lundin said. If Lundin Mining exercises the right, which would give it 80 percent of the mine, it could also decide to sell its entire stake, pending approval from the government, he said.

The mine has a long connection to the family and was important to his father Adolf, who purchased a 55 percent stake in 1996 after convincing then-President Mobutu Sese Seko to do the deal. But if Lukas Lundin gives short shrift to the notion of luck, he’s equally dismissive of nostalgia, saying there isn’t a single asset the company would not consider selling for the right price.

Family Legacy

Adolf Lundin died in 2006 but his influence is ever-present in the family business. Last Thursday, a crew was in house to film a documentary for the family about his achievements. It’s a legacy not without controversy. Lundin Petroleum has come under criticism over allegations that its presence in Sudan — begun under Adolf’s watch but continued under his sons — contributed to human-rights violations during decades of conflict.

The brothers have maintained that their business in Sudan offered economic and social benefits to the local population, and deny the allegations. Lundin Petroleum has had no financial presence in Sudan since 2009. “It’s pretty tough to have the prosecutor general in Sweden chasing us for the last seven years,” Lundin said. “They want to prove we’ve committed war crimes. Of course it’s quite unpleasant.”

Empire Builder

Photographs of Adolf, and other family members, are found throughout the office, along with the mementos of more than four decades of global deal making. “Tombstones” — the mark of a successful close — hang on the walls and sit on shelves. It’s the office of an empire builder: There’s a massive globe on the floor and a huge world map mounted behind Lundin’s desk.

“Ninety percent of our assets are still in resources but I think, over time, we’ll probably divest a bit,” he said. “We’ll probably become bigger in commercial real estate in Switzerland, which is very profitable.”

Shades of Monopoly again — and the game’s board keeps getting bigger. “We’ve changed a lot in 10 years,” Lundin said. “Hopefully 10 years from now we’re three to four times the size we are today.”

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Goldcorp struggles with leak at Mexican mine

Reuters, Aug 24, 2016

GOLDCORP-LEAK

Mexican regulators said they are examining whether mining company Goldcorp Inc broke any regulations in its handling of a long-running leak of contaminated water at Mexico’s biggest gold mine.

The move follows questions from Reuters about the leak, which until now has not been disclosed to the public.

Levels of the mineral selenium rose in one groundwater monitoring well near Goldcorp’s Penasquito mine as early as October 2013, Goldcorp data reviewed by Reuters shows.

The Canadian company reported a rise in selenium levels in groundwater to the Mexican government in October 2014, after which the contamination near its mine waste facility intensified, according to internal company documents seen by Reuters, and interviews with government officials. Two weeks ago, the company told Mexican regulators that contaminated water had also been found in other areas of its property.

There is no evidence that the leaks at the mine have endangered public health or caused environmental damage, Goldcorp and regulators say.

Goldcorp said it has not informed villagers living near the mine because its tests showed the leak had not affected groundwater beyond its property line or contaminated the local drinking water.

The company was not legally required to tell the community, Mexican regulators said. The head of the industrial inspection unit at Mexico’s environmental prosecutor Profepa, Arturo Rodriguez Abitia, said it would have been preferable for Goldcorp to inform the local community about the leaks, but that it was not obliged to do so if the problem had not spread beyond its boundaries.

The company said its monitoring program worked as intended and helped quickly identify the problem at the mine, which lies in a semi-desert region of the northern state of Zacatecas and which in 2015 produced 860,300 ounces of gold, a quarter of Goldcorp’s total production.

“We have managed the issue within the confines of our property and continue to monitor and operate our tailings management system to prevent any external impacts,” Goldcorp said when asked when the leak was discovered and whether it was ongoing.

Selenium is sometimes released into the environment by mining and can be present in waste stored in what are known as tailings ponds. High concentrations in water can damage human health and cause deformities in wildlife. In recent years its effect on fish and waterbirds has led to successful lawsuits against North American miners including U.S.-based Patriot Coal, which filed for bankruptcy in 2012 under $443 million of selenium water treatment liabilities.

Vancouver-based Goldcorp declined to disclose how much it was spending to monitor and fix the leak, saying only that there was a “sufficient allocation of resources.”

“This issue is one that we have taken seriously and we are taking the necessary measures to resolve,” said Michael Harvey, the miner’s Latin America director for corporate affairs and security.

Two weeks ago, after receiving questions from Reuters, Goldcorp met with Mexican regulators in Zacatecas. A presentation dated March 2016 but delivered at that meeting said one of the steps the company was taking to address the leak was to relocate a pond that reclaims water from the tailings. The company told Reuters that project should be completed next year.

HIGH SELENIUM LEVELS

Selenium levels in the well rose for months after the miner alerted authorities in October 2014, the company data seen by Reuters shows. The concentration began falling in April 2015 and from September at least through January it was steady at 0.01 mg/liter.

Canadian province British Columbia, where Goldcorp is headquartered, and Mexico both establish maximum selenium concentrations of 0.01 mg per liter in drinking water. Mexico sets maximum concentrations of 0.008 mg/l in fresh water bodies and 0.02 mg/l in water for agricultural use.

Levels in the groundwater at Penasquito rose to more than five times that level, the data shows.

A September 2015 internal Goldcorp presentation — which was released onto the Internet by unidentified hackers earlier this year — laid out “key risks and opportunities” associated with the spill. One risk, according to the presentation, was that “community knowledge and understanding of potential groundwater contamination may raise national and international attention.”

The presentation also warned of the risk of “long term impacts to human health and the environment if the plume is not adequately mitigated.”

Profepa’s Rodriguez told Reuters his unit was examining the case to see whether Goldcorp had downplayed or not fully disclosed relevant information. He did not specify which regulations Goldcorp could have violated.

Goldcorp says it has complied with all Mexican requirements for notifying regulatory authorities.

Mexico’s Conagua water regulator did not conduct its own tests of water quality around the mine in response to the leak, but said its regular monitoring of the aquifer through its own network of pumping stations had not shown a change in water quality. After receiving questions from Reuters, the regulator said at least two new wells would be built near the mine to monitor water quality.

Villagers in the area around the mine have previously made at least two complaints to environmental authorities about alleged seepage from the wall of the tailings dam. Inspectors from the state unit of Profepa reported that there was nothing out of the ordinary in both cases.

At the meeting with Profepa two weeks ago, Goldcorp described leaks in three other areas to the west and south of the facility, in addition to the original well. The company’s presentation, seen by Reuters, showed that two of the leaks were just to the north of Las Mesas, a community of about 90 families who mostly raise cattle or grow corn and beans. Authorities in Las Mesas could not be reached for comment.

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Gold’s Rally Means Old Rings Are Headed to the Melting Pot

Bloomberg, Aug 23, 2016

Pieces of gold jewelry that will be melted down and refined.

* Refineries get busy melting metal sold for cash as prices rise
* A third of annual bullion supply comes from unwanted jewelry

The surprising rebound in gold prices this year has given new life to unwanted jewelry, coins and trinkets — in the melting pot.

More than a third of the world’s bullion supply usually comes from recycled metal, but purchases at pawn shops and cash-for-gold companies had slowed during a three-year slump in the market. That’s all changed. With prices headed for their biggest annual gain since 2010, more people are unloading old treasures, recyclers are expanding capacity and some jewelers are seeing their businesses transformed.

“We’re buying more gold than we’re selling now,” said Mark Hicks, the owner of Farringdons, a jeweler in the Hatton Gardens gold district of London. “When there is an increase in the gold price, and when that gets reported, people go digging in their cupboards and drawers and bring out all the little items they don’t want, and they bring it to us.”

Almost all the gold ever mined is still around in one form or another, so recycling everything from jewelry to electronic circuit boards has been a key source of supply. Prices remain the biggest influence on the scrap industry. When bullion tumbled as much as 45 percent from a record in 2011, the amount melted at refineries fell, reaching an eight-year low in 2015, World Gold Council data show.

But in the first six months of the year, recycling is up about 10 percent from the same period in 2015, heading for the first annual increase since 2009, Gold Council data show. Prices have jumped 26 percent in 2016, touching a two-year high of $1,375.34 an ounce in July, and had their biggest first-half rally since 1974. Bullion traded at $1,340 on Tuesday.

Unworn Jewelry

That was enough incentive for Soon Beng Gee, a 43-year-old small business owner in Singapore. He gathered up old necklaces and bracelets that had been in his family for two decades but that no one was wearing anymore. He sold them to a local dealer.

The ornaments were “quite bulky, and the designs were old-fashioned,” Soon said. “If the price is good, might as well sell.”

Baird & Co., which buys much of the U.K.’s scrap gold from collectors and pawn shops, is planning a 50 percent expansion at its 20-ton-a-year refining plant, which is near the London 2012 Olympic village.

“We’ve un-mothballed parts of our plant,” Tony Dobra, an executive director at Baird, said as he stood among furnaces, vials of chemicals and shopping trolleys filled with gold at the plant. “When prices were lower, we struggled to get enough material to meet demand. Now we’re seeing double the volume we did a year ago.”

Gold prices have rebounded this year as the Federal Reserve refrained from increasing U.S. borrowing costs, and Japan and Europe embraced negative rates to spur growth. That’s sent more investors to buy bullion as an alternative asset, while geopolitical turmoil and financial market volatility boosted the appeal of the metal as a store of value.

A stronger dollar, used in most bullion transactions, has made selling gold more attractive in countries where currencies have weakened, including the U.K., where voters in June elected to quit the European Union. That referendum pushed locally-priced metal above 1,000 pounds an ounce to the highest level in three years. In South Africa, one of the world’s top producers, prices touched an all-time high in the local currency in June.

Degussa Precious Metals Asia Pte Ltd., a major bar and coin dealer in Singapore, saw a 60 percent increase in scrap purchases from February to July. For European coin dealer CoinInvest.com, buybacks doubled as a share of sales since the so-called Brexit vote on June 23.

Coin Buybacks

“We’ve seen customers taking profits at these higher levels,” said Daniel Marburger, the chief executive officer of CoinInvest. “We’ve seen significant volumes presented for buy-back from the U.K. and Britain.”

There are some places where people are holding onto their old jewelry and trinkets.

In India, the world’s second-largest gold buyer, supply was reported flat as low demand meant there was little old jewelry being exchanged for new. In Turkey, the largest gold recycler last year, sales have slowed after reaching a record in 2015.

“Our business has been very, very slow,” V.K. Agarawal, a director at Shirpur Gold Refinery Ltd., said by phone from Mumbai. “We have not seen any scrap coming in the market.””

However, in Dubai, refiners say scrap material from India has been a lifeline. Their flows were hit last year when India offered tax-breaks for purifying dore, semi-refined material. The tax breaks don’t apply to scrap, meaning it’s profitable to export to the city-state, where premiums are higher.

“The sustained rally in gold has helped scrap volumes immensely,” said Brad Yates, the head of trading for Dallas-based refiner Elemetal, where volumes are up 40 percent compared with a year ago. “The physical game is all about supply right now.”

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Investors Bill Gross and Jeffrey Gundlach say to sell stocks, bonds, and almost everything else except gold

Quartz, Aug 3, 2016

Two of the financial world’s most high-profile, outspoken investors, Bill Gross and Jeffrey Gundlach, have some eye-catching advice for investors.

“I don’t like bonds; I don’t like most stocks; I don’t like private equity,” Gross, a fund manager at Janus Capital once known as the “bond king” of Pimco, wrote in his monthly investment outlook for August.

Gundlach, who manages more than $100 billion in assets at DoubleLine Capital, was even more direct in an interview with Reuters at the end of last week: “Sell everything.”

Both investors say that gold, the traditional safe haven that investors turn to when anxiety is high, is a better bet these days, even as prices are currently at their highest levels in more than two years:

pog

Slow global economic growth, low and negative interest rates, and the economic shock of the Brexit vote have combined to unsettle investors. And so they are looking further afield to identify assets that might make money.

Gross suggests buying “real assets” such as gold and land. Gundlach is also a fan of gold, and the stocks of gold-mining companies, especially as an alternative to the “horrific” risk-return prospects for US government bonds.

Although stocks have been soaring of late, with the S&P 500 recently reaching an all-time record high, Gundlach thinks equity investors are deluded. Economic growth is weak and corporate earnings are stagnant, he noted. “The stock markets should be down massively but investors seem to have been hypnotized that nothing can go wrong,” he told Reuters.

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Japan Set to Give Details of $273 Billion Stimulus Package

Bloomberg, Aug 1, 2016

10-yr_japan_bond

* Abe seeks to prop up economy after BOJ keeps action minimal
* Economy minister to keep job in cabinet reshuffle: NHK

Japan’s government is set to announce details Tuesday of a 28 trillion yen ($273 billion) stimulus package, as it seeks to bolster an economy threatened by a strengthening yen and weak consumer spending.

Prime Minister Shinzo Abe flagged the size of the package in a speech last week, saying more investment was needed to expand the world’s third-largest economy. He said funds would be used to provide better port facilities for cruise ships and accelerate the construction of a high-speed maglev train line.

Actual spending will only make up about 7 trillion yen, according to a person familiar with the matter, with the rest consisting of loans and other financing, probably spread over several years. The package is the latest in a long series that have had limited impact on the economy, while Abe’s promise to make structural reforms — tackling areas like immigration and employment regulation — has fallen short of expectations.

The cabinet’s expected approval of the package comes as exporters grapple with the yen’s rise, Britain’s vote to leave the European Union and a slowdown in emerging economies. At the same time, concern is growing that the Bank of Japan is running out of options for further easing, after it made only minor policy adjustments at a meeting last week.

“The fiscal spending will probably include public works spending, so we can expect something of an economic boost,” said Masaki Kuwahara, an economist at Nomura Securities Co. in Tokyo. But such growth may not be sustainable. “What Japan needs to do is to spur more demand and increase productivity by pushing through deregulation, increasing the nation’s potential growth rate.”

Abe is seeking to expand the economy by 20 percent by 2020. To do so, he’s pledged measures to bolster household incomes, increase the birth rate and provide more care facilities for children and the elderly.

After announcing in June he would put off an increase in the sales tax, he promised last week to tap reserves in the unemployment insurance fund to lower premiums and increase payouts.

Cash Handouts

Natsuo Yamaguchi, leader of Abe’s junior coalition partner Komeito, told reporters on Tuesday after a meeting with Abe that the budget measures in the package would amount to 13.5 trillion yen and the stimulus would boost gross domestic product by about 1.3 percent.

NHK reported last week the package — the second to be compiled in the current fiscal year — would include cash handouts of 15,000 yen for those on low incomes, with 10.7 trillion yen set aside for infrastructure spending and 10.9 trillion yen to help smaller companies weather the impact of Brexit.

Exporters have suffered as the yen soared over the past six months from more than 120 yen to the dollar to about 103. Panasonic Corp. last week partly blamed the strong yen for a fall in quarterly profit. Household spending has dropped in 10 of the past 12 months.

The package comes the day before a minor cabinet reshuffle in which most senior ministers are expected to keep their posts. Economy Minister Nobuteru Ishihara will stay on, NHK reported, after speculation he might be replaced following the defeat of Abe’s candidate in the weekend election for Tokyo governor. Finance Minister Taro Aso and Chief Cabinet Secretary Yoshihide Suga will keep their jobs, according to local media.

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