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Gold Effect On Mining & Shale Wasteland

Commodities / Gold and Silver 2015 Mar 27, 2015 - 05:24 AM GMT

By: Jim_Willie_CB



Before diving into the featured topic, let it be known that the USD-based platforms and USGovt-sponsored continental trade unions are a dismal failure, poorly crafted, poorly sold. The effect will be to accelerate the gradually accelerating USDollar rejection on a global scale. The war and sanctions angle continue to support and defend the USD, but it is unsupportable (due to crippling debt) and indefensible (due to QE hyper inflation). The previous week was the most damaging in many years from a psychological standpoint. The Chinese-led Asian Infrastructure Investment Bank (AAIB) won converts recently from Australia and Britain, but last week from Italy, France, Germany, Switzerland, Luxembourg, and seemingly Japan. A noticeable impact was observed on the Kenyan impostor squatter, who works to contain the damage.

This week Turkey joined the AIIBank. Keep in mind that the AIIBank is for development projects. It begs for a more honestly stated function for the New Development Bank also promoted and funded by China. The NDB is the gigantic Trojan Horse. The Jackass has been boldly stating that the NDB is for converting USTreasurys, EuroBonds, UKGilts, and JGBonds into Gold bullion and will form the BRICS Gold Central Bank. The conversion process will send the Gold price toward $10,000 per ounce. It is written, but in secret. It will be done, from expedience. It must be, in order to put the global financial system in sound structure and equitable balance.

With the debt default from Greece and Ukraine lingering, never to go away, the big Western banks are constantly facing a failure event. However, the bigger immediate threat might be the Emerging Market debt. It is fixed in USD terms. So the debt burden has shot up over 20% in almost all such nations due to currency shifts. Therefore with debt failure on one side and banking platform abandonment on the other side, the King Dollar looks legless, castrated, full of acne, with too much evidence of voyeurism in allied bedroom windows, and too much shooting civilians for sport. The King Dollar needs a quick trip to the funeral parlor, then cemetery, in favor of the Gold Standard. The clear path has been laid out. The Gold Standard will arrive from the trade ramps, not the FOREX window. Then later, the global banking systems will discard the USTreasurys held in reserve. The event will trigger QE4, and collapse the Western central bank franchise system. Then comes the New Scheiss Dollar on a contrived platter. Gold will win, just a question of when, how, and the depth of global economic destruction.


Two important economic sectors will have a huge bearing on the gold market and price very soon. The gold mining sector is grinding to a halt, output down, profit gone, sure to affect the supply side of the gold market equation. Refer to the physical gold market, not the paper charade game run by Wall Street and London conmen shaman shills. The marginal energy sector is grinding to a halt, output from shale projects suddenly shut down, profit gone, sure to affect not so much the supply side of the oil market as the financial side. While gold output is on the downslide, the shale sector bonds are set to implode in a new crisis with a Subprime label. The US is deeply devoted to subprime, knows nothing but subprime, depends on subprime, and will choke on subprime. The USDollar is a subprime currency. Both the mining and shale energy wasteland will have an effect on the gold market, but from different powerful angles. Together they will contribute to the inevitable celebrated wreckage and shutdown of the COMEX gold market and LBMA gold market. It should be noted that the COMEX has not delivered on a gold futures contract since June 2012. It should be noted that the London Bullion Market Assn has been kept going by emergency raids of the SPDR Gold Trust (aka GLD Fund), as well as emergency supplies by both Scotia Mocatta and the Vatican-Basel twin hives.

With the mining sector in deep distress and the shale sector in total decimation, the Gold market will be given a special double barreled impetus from reduced gold metal supply, combined with huge USFed monetization possibly of energy firm debt.

Some might argue that the market will simply absorb the debt default on the shale energy front. Doubtful! The energy firms are deeply connected to Wall Street, and to the USGovt offices. They had managed the Petro-Dollar root system in Arab oil meshed with USGovt foreign policy for four decades. They still have considerable sway in the USGovt, to the point of winning waiver passes on Russian sanctions. With reduced gold supply and additional USFed debt monetization, the USDollar is truly doomed, while the COMEX is equally doomed. The world will celebrate the COMEX shutdown like the doors closing on a vast criminal enterprise. Be sure to know, that the covered subprime energy sector debt will be monetized at the same time as the foreign banking systems dump their USTreasury Bonds, an event that surely will require QE4 from the hapless USFed. They have no more credibility. Yellen's voice does not carry like Bernanke's, just like Jacob Lew's voice does not carry like Geithner's. Moreover, Bernanke and Geithner were midgets compared to Greenspan and Paulson. The diminutive cast are in place to preside over failure.


The collapse of South African gold mine output has become glaring and stunning. Output is down 5.9% in the last three reported months, down 50% in the last 3-4 years, down 75% in the last 11-12 years, and down 87% in the last 25 years. The gravity of the situation is glaring, once considering that SAfrica just 12-14 years ago had produced one third of all the gold on earth sitting above ground in vaults. The nation has been reduced to mothballs, if not secured as a future source. Its remaining mines are very deep, very thin, and require huge labor efforts both to reduce water levels and heat levels in addition to assure worker safety. A colleague added from personal connections, "Since many of the mines are 2 to 3 miles in depth, and still working a one meter thickness, with declining grades, with jack legs (i.e. hand drills, with hand labor), they really should be shuttered now to stop the bleeding. It is impossible to pump cold air that deep, so they started dropping ice."

The latest production data for gold production in South Africa further confirms the continued staggering decline in the South Africa gold industry. Statistics South Africa newly released data on gold production during the last three months from November 2014 to January 2015, reported the seasonally adjusted base was 74.4 metric tons compared to 79.1 metric tons that was produced from Aug 2014 to Oct 2014. The plunge is not a blip but part of a larger trend that goes back several decades. Historical charts display the powerful decline. In January 1980, the index was 359.0 while the volume of gold produced was far lower in January 2015, resulting in the low 48.4 index reading. In other words, South Africa has produced 87% less gold in January 2015 compared with the same month in 1980. The fall in production has reduced gold’s contribution to the South African economy. The metal contributed 3.8% to gross domestic product in 1993, falling to 1.7% of GDP in 2013. The descent is precipitous, and is due to many factors. The clownish Marxist leaders had their electricity bungle in 2007 with low quality coal used. Then the same oafish lords imposed steep mining sector taxes. At the same time, the mining grade challenges worked against output. The mines are old, the veins deeper and thinner. Worker strikes and safety concerns have been evident. At one point around the turn of the millennium, one third of all global gold above ground in vaults had originated from South Africa, an astonishing figure. The Kruggerand was the benchmark global standard coin. The marginal increases are no longer dominated by the once powerful supplier.

The Jackass suspects some of their projects are taken off-line in order to supply the BRICS consortium at a later date, as in their upcoming central bank. The story of labor strife and deep yield challenges might serve as cover, but with some legitimacy. However, an asterisk on the story bears mention. The stunning fact is that the famous South African Rand Refinery has been increasing output on a large scale. It is owned by Anglo-American. It begs the question on where is all the gold comes from that arrives. It comes out of the many Africa conflict areas, laundered at the Rand Refinery. Congo is primary but not alone. The Rand output probably meets Asian and Middle Eastern investor demand leaps and bounds more than London and New York market requirements. Refer to Hong Kong, Shanghai, and Dubai. Reports from Australia indicate that the situation is turning desperate Down Under also. They are hoping and praying for a price restoration, as numerous projects are at risk of shutdown. The problem is global.


A long list is required for documenting the motives to own gold. The collapse of the global monetary system leads the way. The toxic QE monetary policy univerally adopted is the main activity that underscores the ruin of money. Major nations financed over 100% of their debt last year via the monetization route, meaning printed money. The insolvent big banks should frighten any investor, especially with negative interest rates and looming threat of bail-ins. The theft of allocated gold accounts will require their replacement. The advent of price inflation, even if squelched in the news, motivates some hedged protection. The vanishing act of life savings is a real and present danger, as the entire paper wealth system faces a shock wave soon. The Eastern nations, led by the BRICS Alliance, are planning quietly a new gold & silver backed currency. It will arrive on the back of the Gold Trade Note to be used as Letter of Credit, which is in the works. Gold is a monetary metal. It will survive the paper wealth implosion. The return of the Gold Standard will occur through the trade ramps, not the currency windows. More motives surely exist, but the point to be made here is that gold mine output has hindered the gold market supply lines. Balance is urgently needed, via restored price equilibrium.

A new major reason for owning gold is the collapse of the mine sector on production. The return on investment trend dictates a much higher price. The key factor behind the gold mine sector distress, woes, and crisis is the collapse of return on investment. With an obviously suppressed gold price, entire capital budgets are being slashed. Exploration is down. Many visible large mining projects are shutting down, not permanently. Talent is sitting on idle hands. The wasteful depletion of the best quality mines is a tragedy and travesty for the industry. If it were possible, the mining industry for precious metals would go on strike, with demands for higher price paid for metal output. The same would happen if for the car or television or milk market, in response to suppressed prices. Intrepid analyst (and friend) SRS Rocco reports the return on investment per $1 in exploration cost for the gold mining sector was $23 in the 1990 decade. In the 2000 decade, the ROI per $1 cost was down to a mere $11. Bear in mind that some projects are mothballed, put on hold indefinitely, and thus do not require costs. If they had been continuing, the ROI would surely be negative by now, since they are the marginal higher cost projects. The pressures finally slammed Allied Nevada, which filed for bankruptcy protection. They will be the first of many large mid-sized and small, on each continent to go bust. The problem is global. The work by SRS Rocco is top notch, and unequaled, often quoted in the Hat Trick Letter.


The quickly collapsing ROI for the gold mine sector is an enormous reason why to invest in gold. The supply line to the market is withering away, in fast decline. For those minions among the detractors, who point to gold being a dead asset, they forget basic economic principles. An object in short supply, with poor prospects of future supply, is the best investment, provided it is legal. Owning gold might have its obstacles and impediments, but it is still legal to own, Silver too. The Gold & Silver prices will eventually respond to lower supply and mine output with seizures in the market. The Jackass expected 2013 to result in lower mine output. It did not happen, due to continued obligations on debt and existing contracts. The year 2014 finally saw the impact, and 2015 will see more harmful impact on supply. It must be known that when the Gold & Silver markets are finally released from COMEX & LBMA shutdown, and given room to run by the Shanghai market mechanisms, the supply line will not be prepared. The hardships faced by the mining sector will aggravate the problem, resulting in a much faster rise in prices as compensation. The return to market equilibrium, a totally foreign concept, will come slowly and painfully, as price zooms much higher than the minions even think possible. Controlled markets will be kicked aside. When any move toward equilibrium finally occurs, mayhem and chaos will hit screeching levels. There are between 50 and 100 paper claims for each physical gold ounce in existence. The situation is totally out of control and not even remotely fixable. A revolution in money cometh. As footnote, all the silver market deficit estimates are cockeyed and falsified. The deficit is multiples higher in millions of ounces.


In a normal economy lower prices for gasoline, diesel, and home heating fuels would certainly help the households and businesses. But this is not a normal economy. Retail spending continues to fall. For a full generation the distortions have become awkwardly endemic and deeply engrained. Both the White House marxist circus leader and the Dept Treasury fascist monetary clown leader argue the success of a lower oil price and higher USDollar exchange rate. They are both loud wrong. The USEconomy continues in its downward spiral, with the Money Velocity the most stark undisputable evidence. Its graph has been displayed in the past in public articles. It is the regrettable smoking gun of QE failure. The banking syndicate turkey leader at the USFed is strangely quiet on the matter, probably closer to the fires of debt default and USTreasury fabrication rooms. Obama, Lew, and Yellen are by far the least distinguished leaders the nation has ever cast eyes upon in two and a half centuries. They lead the nation into the Third World, without question.

Pink slips have replaced working permits, as 100,000 jobs have been wiped out amidst the oil price collapse. It is spreading like cancer. Taking advantage of the cheap money over the last decade has finally caused some problems to crop up. The new normal means that oil companies and banks leveraged heavily as oil prices rose. The oil speculation is showing the ruinous backside nowadays in a shocking sequence, during the massive price swings. The big oil firms might be big and powerful, but they will fall like sequoias in the forest with a loud bang. In no way are they immune. Over 100 thousand jobs have been lost globally as a result of lower oil prices and more are pink slips are in the works. The USEconomy is to suffer more casualties than Saudi Arabia. The Jackass believes the energy sector will contribute mightily to the final USEconomy breakdown. In January, oilfield services giant Baker Hughes said it will lay off 7000 employees, about 11% of its workforce. Competitor Schlumberger let go 9000 workers. Shell, Apache, Pemex, and Halliburton are follow suit among major oil companies in issuing job cut notices. The center of US pain is Houston. Assuming a 30% to 35% reduction in oil company capital expenditures this year and 5% more in 2016, the capital of the oil world in South Texas could lose 75,000 jobs. Incredibly, the same city added 100,000 new positions every year since 2011. The oil jobs nightmare is spreading like a cancer. According to Swift Worldwide Resources, "the number of energy jobs cut globally has climbed well above 100,000 as once bustling oil hubs in Scotland, Australia, and Brazil, among other countries, empty out."


It has begun, the first of hundreds of oil bond failures. They have earned the name of Subprime Oil Bonds already. The US financial system is a veritable subprime serial violator, the back end of an asset bubble nation. A shale oil company has defaulted on $175 million in bonds without even making the first coupon payment. Hundreds more will surely follow in both the United States and Canada. Enter Quicksilver into the bankruptcy arena. The fracking environment contaminates not only ground water systems, but the financial paper as well. The company has listed $2.35 billion in debts. Their borrowing binge seemed aggressively smart a year or two ago. Now they face negative cash flows, due to the plummet in the oil price. So the USGovt believes they are wounding the Russian Bear, hmmm. Quicksilver boasts only $1.21 billion in assets. The rest has gone up in smoke, its shares worthless. While stockholders were wiped out, the many creditors must fight over the scraps. Its leveraged loan covenants were holding up somewhat better, but its junk bonds were gutted badly and visibly like down to 17 cents and 2 cents per dollar.

Some naive observers believe the damage can be contained. Watch next the creditors, among them the trusts for fallout. These outfits were eschewing the low bond yields, seeking yield and greater pastures. They found toxic paper and whiplash. Among the Quicksilver creditors are the Wilmington Trust National Assn ($361.6 million), Delaware Trust ($332.6mm), US Bank National Assn ($312.7mm), and several pipeline companies, including Oasis Pipeline and Energy Transfer Fuel. The dominoes have begun to fall. Expect dozens more bankruptcies as the clown leaders proclaim a victory for the American proletariat. Even the Bank for Intl Settlements has warned of trouble for the oil bonds. The entire shale boom is likely to be completely terminated by the end of 2015.


ExxonMobil lost a ripe $1 billion due to sanctions against Russia. The powerful and politically connected giant does not take kindly to losses, as result of inept rules and regulations from the selected leadership crew. The loss came from a deferred joint venture with a Russian Oil Company, due the onerous sanctions. The US energy giant attributed the tremendous loss to suspending a joint venture with Russian oil major Rosneft. The new tagteam partners, ExxonMobil and Rosneft established projects to conduct exploration and research activities in 2013 and 2014. The sanctions include a ban on providing various oil equipment and services. Exxon was forced to abandon its joint venture with Rosneft for exploration drilling in the Kara Sea, off Northern Siberia. The area is estimated to hold 87 billion barrels of oil. Exxon will be back. Maybe the stooge puppets in Washington will permit a exception on polar drilling as part of a global warming bill pushed through on the back of a hastily crafted bill to stimulate the economy.

All is not lost, just deferred perhaps. ExxonMobil has boosted its Russian oil assets by 450% in 2015, despite the sanctions. So direct participation and execution is forbidden, but not investment. Sounds like the Iran sanctions stupidity all over again. ExxonMobil Corp has continued to purchase rights to develop Russian oil deposits despite sanctions. The company actually increased the area of purchased energy rights from 11.4 million acres to 63.7 million acres in 2014, which happens to be larger than the entire United Kingdom land mass. Last year the company added projects in the Laptev and the Chukchi Seas to ones in the Kara and Black Seas, which it owns jointly with Russia's Rosneft. The East Siberian Sea is adjacent to the Laptev Sea, which itself is adjacent to the Kara Sea. By contrast, the Chukchi Sea divides Siberia from Alaska in the Arctic region north of the Bering Strait. In 2012, the Russian officials argued the potential to be so high that their regional development will require new airports capable of handling thousands of drillers, as well as the arrival of scores of offshore platforms. Back then, Rosneft CEO Igor Sechin esimated the development costs in the Kara and Black Seas alone will be around $350 billion. A lot of future oil output is required to offset that enormous cost, which is on par with the entire Russia-China energy pact called the Holy Grail announced last year.

Put into perspective the expanded reach of XOM into Russia. In the United States, the oil major owns the rights to develop 14.6 million acres, and until last year was the company’s biggest single asset. No longer. ExxonMobil has bigger Russian investment than US investment now, amazingly. Although suspended in operations, it continued to stake rights to areas of Russia toward tens of billions of barrels in future production. One might wonder if the rights were obtained on the cheap, which would indicate the sanctions might be a ruse of sorts. Expect the anti-Russian sanctions to be short-lived, since clearly Exxon does. The company is thinking longer term in their strategy, like when the clowns have come and gone, maybe even the USDollar has been turned into confetti paper.


The USDollar is soon to fade into oblivion. Its rise signals its demise. The hidden dismantle of the Petro-Dollar mechanism has been full of intrigue. The Gold Standard will return, but through the trade window. The solution to the untreated Global Financial Crisis is the gold device. The Eurasian Trade Zone will be built upon the gold route. The nascent trade zone will soon include Germany and whatever nation follows its prudent lead. The Teutonic shift is more clear with each passing month. The movement cannot be stopped, not by war, not by sanctions. The global rejection of the USDollar continues, far above the din of Washington and Wall Street propaganda. Events of early 2015 proceed in the nasty sequence to isolate the US and its monopolist money mavens. The King Dollar is dying a horrible death, as Gold will return to its rightful throne. The toxic USD will be chucked into the dustbin of history. Bond fraud, bubble devotion, and QE will be the captions read in the annals of this chapter of ruin. Next stop is the New American Third World. It is a lock, with 17 of 20 requirements met.


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by Jim Willie CB
Editor of the “HAT TRICK LETTER”
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Use the above link to subscribe to the paid research reports, which include coverage of several smallcap companies positioned to rise during the ongoing panicky attempt to sustain an unsustainable system burdened by numerous imbalances aggravated by global village forces. An historically unprecedented mess has been created by compromised central bankers and inept economic advisors, whose interference has irreversibly altered and damaged the world financial system, urgently pushed after the removed anchor of money to gold. Analysis features Gold, Crude Oil, USDollar, Treasury bonds, and inter-market dynamics with the US Economy and US Federal Reserve monetary policy.

Jim Willie CB is a statistical analyst in marketing research and retail forecasting. He holds a PhD in Statistics. His career has stretched over 25 years. He aspires to thrive in the financial editor world, unencumbered by the limitations of economic credentials. Visit his free website to find articles from topflight authors at, which includes a Squirrel Mail public email facility.

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