the australian

Got this off the AMX thread by thegooch. Bit of a mention today for PIR by Robin Bromby:

There's a great gold rush happening in China

by: Robin Bromby
From: The Australian
July 16, 2012 12:00AM

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WE'VE always been a bit leery of the conspiracy theories that buzz around gold like a swarm of blowflies.

While conceding the possibility of the various price manipulation scenarios, Pure Speculation has tended to try and stick with the facts, and one fact in particular -- the enormous appetite for gold being shown by China. It's the world's largest producer and is probably the world's biggest importer.

Then during the week came a report from Vienna-based Erste Bank which says this: "We believe that China holds definitely a far higher volume of gold reserves than the officially confirmed 1054 tonnes." That 1054-tonne figure was reported in June 2009.

According to the statistics of the World Gold Council, the Chinese central bank made no gold purchases in 2010 or 2011. Oh, yeah?
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Yet 100 tonnes was imported by China in April alone. As Erste points out, in the year to date 240 tonnes of gold has been shipped through Hong Kong and into China. In the 12 months to April 2011, China bought 66 tonnes; in the 12 months to April 2012, the import figure reached 489 tonnes, an impressive increase.

And none of this is going to the central bank?

Delving back a couple of years, in 2010 a newspaper published by the Ministry of Commerce in Beijing said China should boost its gold reserves to the same level as those of the US (then standing at 8133 tonnes). Erste cites another Chinese official who recently called for reserves of 10,000 tonnes by 2020 -- Chinese officials don't make these sorts of comments off the cuff and without approval -- which the Austrian bank says would involve China buying 40 per cent of global mine production over the next eight years.

Apart from conspiracy theories, we're not usually given to long quotations. But during the week, Richard Russell, the veteran US newsletter writer who has published The Dow Theory Letters since 1958, posed these questions.

"Why is China now the world's leading miner of gold? Why is China literally begging its people to buy and hoard gold? Why has China opened new gold trading facilities? Why is China installing dispensing machines in public places so that people can insert their paper money and buy small quantities of gold? Why is it forbidden to ship or carry gold out of China?"

David Hale, the widely quoted Chicago-based economist, may have provided the answer in an October 2010 article. Arguing that China was the key to the gold price, he pointed out an interesting historical precedent for what we might be about to see.

In 1913, the US held 2293 tonnes of gold against Britain's 248 tonnes.

"The Americans' large gold reserves made the dollar a natural replacement for sterling when the First World War crippled Britain's financial position," he wrote. Now the US is running the same fiscal policy -- that is, going into debt -- as London was forced to do to finance the war.

Washington saw gold as a way to project financial power, and China probably sees it the same way now, Hale says.

Erste is on the same tram. "We think that (China) might be planning a gold backing for the renminbi (yuan). If that were to happen, international acceptance would soar," its report says.

Not to mention the gold price.

Then there's the matter of "peak gold".

As we reported in our Friday online edition, a German modelling exercise quoted by Erste sees global gold production reaching a peak of about 3000 tonnes a year between 2027 and 2044 and then falling away sharply -- very sharply, indeed, so that by the end of this century there will be minimal gold production around the world.

Considering that global consumption last year (including from recycling and sales by central banks) exceeded 4000 tonnes, you can see the problem ahead (especially now that central banks are once again net buyers).

Papillon shines

WHEN it comes to gold, though, it is clear that investors don't seem to be grasping the extent to which China may distort the gold market, and the price implications of that. Instead, they react to the day-to-day financial events -- joy one day, gloom the next.

And there remains the great divide between physical gold and gold stocks. Some of the latter have taken dreadful punishment.

As Cannacord/BGF points out in its Friday client note, two leading West African gold stories in particular have been given a good kicking by the market. Ampella Mining (AMX), at 38c on Thursday, had lost 89 per cent of its value since its $3.42 high (although it was up to 40.5c on Friday). Gryphon Minerals (GRY) -- at its 60c close -- is off 71 per cent from its $2.05 high.

Their enterprise values per ounce stand at $17.50 and $30 respectively, less than 10 per cent of what they stood at in their exploration phases. Yet Ampella has a resource of 3.07 million ounces while Gryphon's sits at 4.5 million ounces. Not to be sneezed at.

"If you believe the gold bull market is only pausing, and it will regain the spotlight, you should be picking up stocks like these," says Warwick Grigor of Canaccord.

One West African stock that has fared better than many is Papillon Resources (PIR), which went from 38c last August to $1.43 in March and sat at a reasonably resilient $1.155 at Friday's close.

Mike Millikan at Hartleys has a value of $1.62 a share on PIR.

He is impressed by the maiden resource estimate at the 80 per cent owned Fekola project in Mali (well away from where the militant terrorists are destroying Timbuktu and whipping people). There's 40.1 million tonnes at 2.4 grams/tonne gold, for 3.14 million contained ounces.

The resource is at shallow depth, so could be mined by open pit, although Millikan does warn of Mali's increased sovereign risk.

And we welcome another gold producer. Cleveland Mining Co (CDG) is about to commission its Premier mine in Brazil.

Graphite play

A NEW graphite play has entered the ring. Craig Rugless picked up the Kimberley property 10 years ago when the flake graphite market was not exactly attractive and has been beavering away quietly ever since.

Now, however, graphite and its derivative graphene have investors swooning.

And so what better time for the property to be backdoor listed through the carcass of biotech company Fluorotechnics, to be now known as Lamboo Resources (LMB)?