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Miners finally get Street''s attention

Section: Daily Dispatches

4:23p ET Tuesday, February 5, 2002

Dear Friend of GATA and Gold:

Here's to a wonderful day and the eve of
the demise of the gold cartel. And below
is the quot;Voxquot; column from today's Toronto
Globe amp; Mail, which recognizes the gold
price suppression issue and even mentions
the Internet site of GATA Chairman Bill

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

* * *

From the Toronto Globe amp; Mail
Tuesday, February 05, 2002

Vox: Gold stocks

What is the fast-beating pulse of the
gold-stocks market telling investors?

For conspiracy-minded gold bugs, it announces
the day of reckoning, foretold by countless
exotic theories (ranging from the absurd to
the tantalizing) about how and why gold has
languished in the dank cellar of investors'
affection for two decades.

For more sober-minded enthusiasts, who settle
for railing against hedgers and central
bankers, it's deja vu all over again.
Although the two camps are separated by the
magnitude of their suspicions, they share a
view: Gold prices have been manipulated for
too long and recent trends suggest that
manipulation will come to a quick end.

For the sober camp, the rigging of the
bullion market comes in various forms,
notably forward gold sales by producers and
the efforts of central banks -- the U.S.
Federal Reserve Board mainly -- to
quot;stabilizequot; gold prices, the idea being that
a fast-rising U.S. dollar gold price would
suggest a lack of confidence in a mighty
greenback, which the U.S. economic imperial
engine relies upon.

Years of weak and falling gold prices have
yielded predictable consequences: After
rising almost relentlessly for 25 years, gold
production will drop, slightly this year,
then precipitously.

Gold mining firms, by failing to earn their
costs of capital, have depleted their coffers
and shut themselves off from new money. The
casualty rate is high. Planned production is
being mothballed, and growth now comes mainly
from acquisitions; hence the rapid pace of
consolidation in the industry. Gold mining is
not truly economic at prices below $400
(U.S.) per ounce, so no new production will
be contemplated any time soon. The lag time
between contemplation and production is years

The other side of this hopeful argument is
that confidence in the U.S. dollar will wane
along with a fall in asset prices and a rise
in mistrust in the system.

Confidence in the dollar is easy to foster
with a federal funds rate of, say, 7 percent;
it's a sight more challenging today, after 11
interest rate cuts.

The historic parallel is the 1970s. After a
lengthy period of low gold prices (depressed,
some say, by central bank interference),
production fell, confidence in the U.S.
dollar deteriorated, and gold soared to more
than $600 an ounce from $35

There are variations to these arguments (the
spectrum of which investors can behold at
a href=http://www.lemetropolecafe.com and other

But in general they don't seem easily
dismissible, even after years of unrequited
gold-bug enthusiasm. Investors who like these
arguments, however, should not rush out and
blindly buy gold stocks. TSE-listed gold
companies are hardly bargains, with
enterprise values that, in some cases,exceed
the value of reserves by a factor of two.

This is not to say that they won't rise. A
premium to the undiscounted net asset value
isn't unusual, although it offends the value

Gold Fields a good bet

There are better alternative for gold stock
investors willing to venture offshore. Gold
Fields Ltd., for starters, trades at a
discount to its net asset value. As with all
discounts, this one comes at a price:
political risk. Gold Fields is based in South
Africa (and does most of its digging there).

But given the 80-per-cent rise in the stock
since the fall, in the face of mounting
tensions in Zimbabwe, it appears investors
are becoming more comfortable with that risk.

The real juice on Gold Fields was in evidence
yesterday as it released second quarter
results: earnings rose to $67 million (U.S.)
from $24 million in the previous quarter.
Operating profit rose to $110 million from
$59 million. These added riches were, in
part, derived from higher production, which
rose 11 percent. But they came mostly from
the drop in the South African rand and versus
the U.S. dollar. Since Gold Fields pays its
costs in rand but takes in revenue in
greenbacks, benefits accrue to shareholders.
Mitigating to some extent the political risk,
the company pays out half its earnings in
dividends. The stock, which trades as an
American Depositary Receipt, yields about 2.5

The stock has appreciated lately, which will
make it look expensive. But with rising
production and asset diversification,
investors are getting what they pay for.