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Gold Fields gives up on merger with Franco-Nevada

Section: Daily Dispatches

By Bill Murphy
February 18, 2001

Spot Gold $258 up $2.70
Spot Silver $4.47 down 5 cents

I had to go see quot;Hannibal,quot; the sequel to quot;Silence of the Lambs.quot;
Anthony Hopkins as Dr. Hannibal Lecter was marvelous once
again, yet the movie was gruesome, just like the Gold Cartel.

Might as well swing right into action. What the Gold Cartel is doing
by holding down the gold price is indirectly causing a holocaust of
sorts. The orchestrators of the low gold price are somewhat
responsible for tens of thousands of deaths in southern Africa. If
the gold price were allowed to rise to its proper equilibrium level,
many millions of dollars would flow into government coffers and
they could be directed to treat the terrible cholera and AIDS
epidemic.Aboutn 170,000 miners are out of work in South Africa,
most as a result of the low gold price. According to Bheki Sibiya,
chairman of South African Airlines and the Black Management
Forum, each miner supports 11 to 12 other people with his
income. That is only quot;jacks for openers.quot; Hundreds of other
industries and thousands of other people are also harmed by the
orchestration of a low gold price by misguided politicians and evil
bankers. It has a spiraling, negative multiplier effect.

The good news is that these bums are being found out and it is
going to come back and bite them. Bill Buckler's weekly Privateer
column (a href=http://www.the-privateer.com gets right to the heart of
the matter:

quot;The usual piquant nature of what passes for market commentary
re-asserts itself here. quot;Regarding the Producer Price Index, the
almost universal assessment is that the number was an `aberration.'
It won't be repeated next month. Having said that, there was the
additional task of reassuring everyone that since the PPI was an
aberration, the Fed will not be derailed from plans to keep on
cutting U.S. rates. Finally, that hoary old chestnut Stagflation
prices with falling growth) raised its head again. Don't worry, say
the pundits, prices can't rise even though business input costs are
rising, and businesses can't pass on their increased costs to
consumers. The moral of the story. No inflation, no matter what.
Of course, what had to be at least mentioned in passing was the
fact that if businesses are facing higher input costs and can't recoup
them by raising the prices of what they produce, then business
profits are likely to keep falling. Oh well, that just means that the
Fed will have to lower rates a bit harder than would otherwise be
the case.

quot;But the best `proof' that this PPI number was indeed an
aberration was the gold price. We find it interesting that gold
gave up its struggle to stay in contact with the $US260 level on the
day before the PPI was announced. We also find it interesting that
gold broke down on that day in New York, after the London
market had closed. Finally, we find it interesting that according to
reliable reporting, it was not just the `funds' that piled into the
selling in afternoon trading on Feb. 15; U.S. banks joined in the

quot;Does anyone out there think than no one in the U.S. knew about
this PPI number before it was released on Feb. 16? We don't. All
that's necessary to reach that conclusion is to contemplate what
happened to gold -- and the U.S. dollar -- on the previous day.quot;

This is the inflation report Buckler is referring to:

quot;Washington, Feb. 16 (Bloomberg) -- The U.S. producer price
index rose in January at the fastest rate in more than a decade, led
by record increases for natural gas used to heat homes, power
factories and make electricity. The index of prices paid to
factories, farmers and other producers rose 1.1 percent last month
after rising 0.2 percent in December, the Labor Department said.
Last month's increase was the largest since the index rose 1.3
percent in September 1990, when the Persian Gulf crisis drove up
oil prices. Food costs surged last month, led by increases for fruits
and vegetables. The core index, which excludes energy and food,
rose 0.7 percent last month after a 0.1 percent rise in December.
Higher costs for paper, passenger cars and cigarettes paced the
increase, the largest since a gain of 1 percent in December 1998.quot;

There are two ironies here. One is that the new Republican
administration allowed the real inflation number to be published in
their first month in office. The other is that a part of the U.S.
government is still in cahoots with the bullion banks and trying to
play it down when it comes to gold. The new Republican
administration may be trying to decide what to do with the gold
mess that the Democrats have handed them. Perhaps we can
nudge them to do the right thing. I will get into that in the days to

For a long time the gold bears have been telling us that the gold
price is going down because gold demand stinks. Huh? This comes
from about the World Gold Council's latest
gold report:

* * *

Gold demand report has intriguing evidence for a rally

New York -- The World Gold Council, a marketing organization
funded by miners, says in its latest report that gold demand has set
new records. The increase was achieved despite a steeply
declining dollar price for the yellow metal.

Most of the gains came from jewellery consumption that showed
strong quarterly sequential growth of 5 per cent with a
year-on-year increase of 4 per cent to 2,902 tonnes. Total
demand in 2000 was 3,281 tonnes. In the fourth quarter, demand
in 27 major markets amounted to 894 tonnes, up an anomalous 11
percent from a year earlier.

Unfortunately, jewellery demand is not a significant price driver,
and much-needed investment demand remains subdued. Y2K
fears spawned considerable private buying in 1999, but that metal,
mostly in new coin form, appears to have made its way back to the
market at second-hand prices. Notwithstanding the Nasdaq
tech-wreck, gold could also not attract investors away from
traditional securities leaving demand muted.

The WGC is betting on further demand improvements next year
after doubling its membership fees to $2 per ounce of production
for a new record budget of $55 million. That money will be spent
on promoting gold, mostly via an extensive rebranding exercise that
will no doubt bear some affinity with the increasingly successful
marketing of platinum and diamonds....

What is not getting much serious attention outside of conspiracy
circles is the short position, said to exceed 10,000 tonnes (four
years of production or a third of all official book holdings) that is
irretrievable. The short position has built up as a result of central
bank gold loans where the metal remains on the books but that has
in reality been consumed and is not readily available to be
returned. This has created an effective quot;double claimquot; on every
ounce lent. Where speculative derivatives are layered on top of this
paper gold, the double claim can multiply logarithmically. This is
the heart of the excess supply problem.

The short position has been easy to manufacture and keep puffing
up, but it cannot be deflated without violence. The central banks
appear, on paper, to be in a position to cover the short position in
an emergency, but a large portion of the holdings are entirely
notional, and paper commitments written over long-exited metal
probably exceeds liquid supplies many, many times over.

WGC spokesman George Milling-Stanley agrees that current gold
reporting is a Sword of Damocles. quot;We would like to see [official]
gold holdings qualitatively separated.quot;

A recent WGC-commissioned study by Jessica Cross concluded
that the central banks have lent at least 5,000 tonnes, which is still
reported as quot;on handquot; when it should be accounted for as gold

* * *

This is really powerful commentary and subtly lays out a good bit
of what GATA has to say about the true supply/demand gold
situation and why the Gold Cartel is afraid to let there ever be any
consistently positive gold price action.

Regarding the Howe/GATA lawsuit against the Bank for
International Settlements, from one of our team: quot;Welcome back.
It seems nobody (shareholders) is getting paid. They seem to be
taking the lawsuit very seriously! They were basically ambushed on
three sides: Societe Generale; Reg Howe; and Deminor in France.
It looks to me like the USA would like to uptake the shares but
are afraid of our case. That is why nobody is being paid.quot;

A comment from's John Brimelow,
who is a specialist on South African gold shares, to GATA's Chris

quot;The Afrikaans newspaper article you circulated in translation
recently had this comment: `Only one out of seven broker's
experts approached by Sake-Rapport firmly believes that the price
of gold is not being manipulated and that it reflects normal supply
and demand.' I am quite astonished by this. South Africa's financial
community (I speak from more than 20 years' experience) is timid,
unimaginative, and intensely conformist. Normally they would fall
over themselves to align with the conventional authorities and
distance themselves from the crazy American goldbugs, whom they
usually affect to despise. That an independent inquiry produced
such a response -- especially when it means contradicting the all-
powerful Anglo-American, as represented by Kelvin Williams'
remarks earlier this week -- is a great tribute to the work Bill and
yourselves have done. It also highlights how objectively anomalous
the situation has become.quot;

On Barrick Gold's involvement in the activity of the Gold Cabal,
from GATA member Ron Lutka: quot;Being as Barrick Gold is a
Canadian company you might want to hire a Canadian lawyer to
look into the Combines Act, which is our competition act. There is
likely room in this act to charge Barrick Gold with predatory
pricing. They were willing to hammer down the price of gold
because they hedged before doing so. Now that the price of gold
is in the cellar, other gold producers who did not know of the scam
are selling gold into today's low gold price environment. Some
have gone under or closed mines. This eliminates competition and
it is this sort of thing that the act was put in place to avoid.
Additionally, Barrick is on the prowl for the carcuses of its victims
to buy dirt-cheap, which is more evidence of predatory pricing.quot;

This is more like it:

* * *

Gold Fields Closes Hedge Position

Johannesburg, South Africa, Feb. 16 (PRNewswire) -- Gold
Fields Limited today announced that it had closed out the last of its
remaining hedge positions.Chris Thompson, chairman and chief
executive officer of Gold Fields, said: quot;Gold Fields is now totally
unhedged, which is an affirmation of our policy in this regard.quot;

Gold Fields bought back 160,000 ounces of gold forward sales at
an average spot price of US$256.10 per ounce, to generate a net
profit of approximately US$4.5 million.The hedge position was
held by Gold Fields Ghana (71-percent owned), and was required
by lenders to the Tarkwa Gold Mine in terms of potential debt
covenant obligations.

As a consequence of closing out the hedges and given the
substantial cash that has been built up in Gold Fields Ghana, it has
also been decided to retire all or a substantial portion of the
remaining project loan of US$25 million held by Gold Fields

quot;We thought this was an opportune time to close out the last of our
hedges, given the current weakness in the gold price, which we
believe is not sustainable,quot; said Thompson.

Gold Fields Limited is one of the world's largest gold producers
with approximately 4 million ounces of gold production per annum,
145 million ounces of mineral resources, and reserves of 70 million
ounces. Gold Fields is focused on increasing value at its existing
operations and on international growth. In addition to being listed
on the Johannesburg, London, Paris, and Swiss Stock Exchanges,
Gold Fields trades on Nasdaq through an American Depositary
Receipt programme and on the Brussels Stock Exchange through
an International Depositary Receipt programme.

* * *

On the bummer side, this is what this disgraceful Gold Cabal has

quot;Kellogg, Idaho (AP) -- The Sunshine Mine, the nation's largest
and most prolific silver producer and the site of one of the nation's
worst mining disasters, has closed, throwing 130 miners out of
work after years of low metal prices and foreign competition.
General Manager Harry F. Cougher shook hands with the
mechanics and contract miners as they left the mine -- perhaps for
the last time -- after a final fire drill Friday morning.quot;

Remember all the talk by the mainstream gold press about
renewed Aussie producer selling in the final quarter of last year?

quot;Sydney, Feb. 16 (Reuters) -- Of a total of 2.9 million ounces of
additional hedging by the top 23 global gold miners during the
December quarter, Australian miners added just a half million
ounces, a BNP Paribas Equities survey shows.quot;

Gold lease rates have popped up recently, advancing 50 basis
points in the one-month rate and 30 basis points in the six-month

Many Cafe members and GATA supporters might be wondering
how and why Deutsche Bank was the only foreign bullion bank
cited in the GATA/Howe lawsuit. Of course Deutsche Bank has
been cited in Midas commentary for two years now.

From a recent U.S. Treasury Department report about the U.S.
Exchange Stabilization Fund:

quot;Note 2. Cash and Cash Equivalents. The ESF invests a portion of
its foreign currency holdings through repurchase agreements in
securities issued by, and backed by the full faith and credit of, the
Federal Republic of Germany. As of September 30, 1999, and
September 30, 1998, the amounts of repurchase agreements
outstanding were $1.2 billion and $1.1 billion respectively. These
repurchase agreements are considered to be FCDA with original
maturities of three months or less, which are treated as cash
equivalents, as discussed above. Such investments are made by the
Federal Reserve Bank of New York (FRBNY), as fiscal agent of
the Treasury, in connection with the ESF's participation in such
repurchase agreements. In this capacity FRBNY enters into
agreements under which German government securities are
purchased from, and subsequently resold to, private
counterparties. Such transactions are settled through a tri-party
agent, Deutsche Bank. The securities are held by Deutsche Bank
for FRPNY pending resale.quot;

Deutsche Bank is the only foreign bank mentioned in this Treasury
report. Deutsche Bank is the only foreign bullion bank (at least
that I am aware of) whose gold derivatives exploded over the past
two years. According to official statistics, they rose from $15
billion to more than $60 billion. Deutsche sticks out like a sore
thumb everywhere GATA turns.

Here is a sinister chuckle. Peter Fisher, executive vice president of
the New York Fed, was featured in The Wall Street Journal as the
person responsible for structuring the bailout of Long-Term Capital
Management 2 1/2 years ago. LTCM denied to GATA in writing
that it had been bailed out of any gold short position. Since then
GATA has learned from a very reliable source that the denial was
not true, but that the hedge fund was given immunity from
prosecution as long as it denied the bailout. (The LTCM position
was taken over by other bullion dealers backed by the U.S.
government.)Well, lo and behold and lookee here, the peripatetic
Mr. Fisher is also a member of the Bank of International
Settlements' Management Committee and serves on the Gold and
Foreign Exchange Committee of the G-10 central banks.

Another coincidence? Every time there is a fishy gold story going
around, Fisher shows up. This is one man who must be
subpoenaed once we get into the discovery stage.

The scandal continues to build and the poor gold-producing
countries of southern Africa continue to suffer.