Posted at 4:24 PM (CST) by & filed under In The News.

Dear CIGAs,

This is only the beginning.

I feel for the money bunnies, some of whom truly believe in the Easter Rabbit and Santa Clause. They don’t have a clue. Green shoots, rear view mirror economic statistics, Goldilocks Economy and all the trite crap run out by the PPT for media consumption to fool the public has fallen on its face.

This is a major wave in which the dollar will trade at least at USDX .7200 with gold at $1224 and $1650 as a minimum.

Sentiment wise, this is the major unwind in which respite will be brief and shallow.

This winter will be cold and hard on the US dollar.

I was invited to speak on Bloomberg today, but see no value in any disturbance to the social order.

It is enough that JSMineset shares it views with you. I am of the mind to do no further public interviews between now and 2012. Any small benefit is overshadowed by the hate it generates among people who do not recognize you have their best interests in mind. Hate is common. There is no need to go looking for these types.

Gold and general equities are not enemies in this period of Currency Event Inflation. At some point, maybe Armstrong’s low, gold and general equities will rise together, just as they did in terms of the Weimar Republic Mark.

Simply stated, dear Family, it has hit the fan.

Dollar stops being Russia’s basic reserve currency

The US dollar is not Russia’s basic reserve currency anymore. The euro-based share of reserve assets of Russia’s Central Bank increased to the level of 47.5 percent as of January 1, 2009 and exceeded the investments in dollar assets, which made up 41.5 percent, The Vedomosti newspaper wrote.

The dollar has thus lost the status of the basic reserve currency for the Russian Central Bank, the annual report, which the bank provided to the State Duma, said.

In accordance with the report, about 47.5 percent of the currency assets of the Russian Central Bank were based on the euro, whereas the dollar-based assets made up 41.5 percent as of the beginning of the current year. The situation was totally different at the beginning of the previous year: 47 percent of investments were made in US dollars, while the euro investments were evaluated at 42 percent.

The dollar share had increased to 49 percent and remained so as of October 1. The euro share made up 40 percent. The rest of investments were based on the British pound, the Japanese yen and the Swiss frank.

The report also said that the reserve currency assets of the Russian Central Bank were cut by $56.6 billion. The losses mostly occurred at the end of the year, when the Central Bank was forced to conduct massive interventions to curb the run of traders who rushed to buy up foreign currencies. The currency assets of the Central Bank had grown to $537.6 billion by October 2008. Therefore, the index dropped by almost $133 billion within the recent three months.

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Jim Sinclair’s Commentary

Swallow is an understatement. Digested and discarded is more like it.

Consumerism is dead for a considerable time to come and with it the Green Shoots nonsense of the past two months.

It is the constant denial that has complicated the problem.

The cheerleaders for equities on financial TV have blood on their hands. Debt will have to be liquidated as their is no other way.

CHART OF THE DAY: Credit Card Debt Swallows American Households
Joe Weisenthal and Kamelia Angelova

Americans built up a lot of spending power over the last three decades, but it wasn’t because they started earning more money. As today’s chart starkly illustrates, credit card debt has exploded, making up for more modest gains in median household income. As you can see, for the very first time in history, credit card debt is creeping down, though it has a long way to go. And of course, this doesn’t even include home all the home equity loans Americans used in place of the ATM. (Both lines are based on non-adjusted numbers)

dailychart

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Jim Sinclair’s Commentary

Get ready, get set, go and soon!

Please consider that the Taliban have similar plans and look a lot more like Pakistan regulars. The Taliban will have the support of the Pakistan intelligence and military, maybe even more.

U.S. Has Plan to Secure Pakistan Nukes if Country Falls to Taliban

The United States has a detailed plan for infiltrating Pakistan and securing its mobile arsenal of nuclear warheads if it appears the country is about to fall under the control of the Taliban, Al Qaeda or other Islamic extremists.

American intelligence sources say the operation would be conducted by Joint Special Operations Command, the super-secret commando unit headquartered at Fort Bragg, N.C.

JSOC is the military’s chief terrorists hunting squad and has units now operating in Afghanistan on Pakistan’s western border. But a secondary mission is to secure foreign nuclear arsenals — a role for which JSOC operatives have trained in Nevada.

The mission has taken on added importance in recent months, as Islamic extremists have taken territory close to the capital of Islamabad and could destabilize Pakistan’s shaky democracy.

“We have plans to secure them ourselves if things get out of hand,” said a U.S. intelligence source who has deployed to Afghanistan. “That is a big secondary mission for JSOC in Afghanistan.”

The source said JSOC has been updating its mission plan for the day President Obama gives the order to infiltrate Pakistan.

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Jim Sinclair’s Commentary

There is no way. There is no chance.

I am getting the feeling that some of the front fellows are chosen because they really might be lightweights on practical versus academic economics.

Federal and state tax revenues are falling backwards off Mt. Everest.

Geithner Vows to Cut U.S. Deficit on Rating Concern (Update2)
By Robert Schmidt

May 22 (Bloomberg) — Treasury Secretary Timothy Geithner committed to cutting the budget deficit as concern about deteriorating U.S. creditworthiness deepened, and ascribed a sell-off in Treasuries to prospects for an economic recovery.

“It’s very important that this Congress and this president put in place policies that will bring those deficits down to a sustainable level over the medium term,” Geithner said in an interview with Bloomberg Television yesterday. He added that the target is reducing the gap to about 3 percent of gross domestic product, from a projected 12.9 percent this year.

The dollar extended declines today after Treasuries and American stocks slumped on concern the U.S. government’s debt rating may at some point be lowered. Bill Gross, the co-chief investment officer of Pacific Investment Management Co., said the U.S. “eventually” will lose its AAA grade.

Geithner, 47, also said that the rise in yields on Treasury securities this year “is a sign that things are improving” and that “there is a little less acute concern about the depth of the recession.”

The benchmark 10-year Treasury yield jumped 17 basis points to 3.36 percent yesterday and was unchanged as of 12:18 p.m. in London. The Standard & Poor’s 500 Stock Index fell 1.7 percent to 888.33 yesterday. The dollar tumbled 0.5 percent today to $1.3957 per euro after a 0.8 percent drop yesterday.

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Jim Sinclair’s Commentary

The foolish paper gold and gold share shorts will play their game but they are toast.

Gold is going to a $1224 and $1650 minimum on this phase move here and now. A ballistic up move for gold is inherent in the developing formation.

The gold share shorts have been GLIB in their selection of targets, focusing on leaders to paint the field. Now they are egotistically tied to their selection without fact checking in an objective mind set.

Dollar hits new multimonth low vs euro, pound, yen
May 22 10:42 AM US/Eastern

NEW YORK (AP) – The dollar kept falling Friday, notching fresh multimonth lows against the euro, pound and yen as a warning that Britain’s debt level may result in its credit rating being cut ricocheted into worries about the massive U.S. deficit.

The 16-nation euro rose to $1.4015 in morning trading from $1.3889 in New York late Thursday—its first time above $1.40 since Jan. 2.

The British pound rose to $1.5916 from $1.5890, peaking at $1.5945 earlier in the session, its highest point since Nov. 6.

Meanwhile, the dollar edged up to 94.51 Japanese yen from 94.23 yen—after earlier falling to 93.82, its lowest point since Feb. 23.

On Thursday, Standard & Poor’s said Britain may have its rating cut because of rising debt levels. Though the ratings agency reaffirmed the country’s actual long-term credit rating at “AAA,” it said the outlook had deteriorated because of massive borrowing to deal with the recession and the banking crisis.

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Jim Sinclair’s Commentary

No increase in charges has a snowball’s chance in hell of providing the funds required now or in the future, without a bailout, to provide the funds the FDIC will need. This is pure spin.

FDIC: new fee system to replenish insurance fund

(AP:WASHINGTON) Federal regulators are adopting a new system of special fees paid by U.S. financial institutions that will shift more of the burden to bigger banks to help replenish the deposit insurance fund.

The Federal Deposit Insurance Corp. is meeting to approve the new fee system. It is intended to raise $5.6 billion in the face of a cascade of bank failures that have depleted the insurance fund.

The FDIC now expects bank failures will cost the fund around $70 billion through 2013, up from a previous assessment of around $65 billion.

FDIC Chairman Sheila Bair says: “There will be some shifting of the burden (to major banks). The shift is not huge to them. We’re asking them to pay more.”

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Jim Sinclair’s Commentary

The troops have been very calm but don’t count of this as a given.

44 states lost jobs in April, led by California
May 22, 1:46 PM (ET)
By JEANNINE AVERSA

WASHINGTON (AP) – Forty-four states lost jobs in April, led by California where employers slashed 63,700 positions, as the recession took a further toll on U.S. workers.

Trailing California in over-the-month job losses were: Texas, which saw 39,500 jobs vanish; Michigan, which lost 38,400 jobs; and Ohio, where payrolls fell 25,200, according to a U.S. Labor Department report issued Friday.

The few winners included Arkansas and Montana, followed by Florida – a dose of good news for a state that’s been battered by the housing collapse.

California’s unemployment rate dipped to 11 percent last month, fifth-highest in the country. Michigan’s jobless rate was the highest at 12.9 percent, followed by Oregon at 12 percent, South Carolina at 11.5 percent and Rhode Island at 11.1 percent.

As the recession eats into sales and profits, companies have laid off workers and turned to other cost-cutting measures, such as holding down hours and freezing or trimming pay.

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Jim Sinclair’s Commentary

The best recruiting plan for insurgency is SURGES that displace 2,000,000 people using US equipment and look alike uniforms.

Think about it.

You are put on the road without food or water with your family. Your wife is afraid for her life and for the little ones. You must carry your five year olds because they simply cannot walk anymore.

You will fight against what you see as causing this.

When will the West learn.

The surge will be a major reason in the end for the loss of Pakistan to the West if in fact it ever was for the West.

AP Interview: Insurgents crossing into Pakistan
By FISNIK ABRASHI, Associated Press Writer Fisnik Abrashi, Associated Press Writer – 48 mins ago

BAGRAM AIR BASE, Afghanistan – The top U.S. general in eastern Afghanistan said Friday he saw “some very interesting movement” of insurgents across the border into Pakistan this spring, possibly to join Taliban militants battling government troops. Maj. Gen. Jeffrey Schloesser’s comments come amid concern in Washington and Islamabad that the buildup of 21,000 additional U.S. forces in Afghanistan may push Taliban militants into Pakistan, further destabilizing the border region in that country.

The Obama administration has declared eliminating militant havens in Pakistan vital to its goals of defeating al-Qaida and winning the war in Afghanistan.

Fighters have historically moved back and forth across the border to back Taliban insurgencies in both countries.

But Schloesser’s remarks in an interview with The Associated Press suggested a larger transfer into Pakistan than has been seen previously, as the fighting between Pakistan’s troops and the Taliban has intensified.

He suggested that most of the movement in the past has been from Pakistan into Afghanistan, calling the new development “an interesting movement backward.”

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Jim Sinclair’s Commentary

Here comes another round of foreclosures with the debt upside-down to the home value.

Trouble Ahead: Millions of Mortgages Will Ratchet Upward Soon
Thursday, May 21, 2009 3:00 PM
By: Julie Crawshaw and Dan Weil

Zacks Research analyst Dirk van Dijk warns that another major mortgage crisis lies ahead as huge numbers of homeowners who have been making only minimum payments on their “pick a payment” mortgages have to start paying in full.

This can cause huge jumps in the monthly payment, with increases of over 50 percent not uncommon, van Dijk says, making these the ultimate “exploding mortgages.”

The number of these recasts is relatively small right now at $1 billion per month but will grow dramatically over the next few years, exceeding $8 billion per month in the fall of 2011.

“If the equity in your house is gone and your monthly mortgage payment suddenly jumps from $2000 per month to over $3000 per month, what do you think is going to happen?” van Dijk asks.

The next wave of foreclosures is going to have much higher average loan balances, so each foreclosure will hurt banks more than subprime foreclosures did.

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Jim Sinclair’s Commentary

Truth has never found friends at its inception. The messenger gets the blame when the veracity of the message is proven.

I would like to thank the famous blog, the “Motley Fool” for their support, even if some popular media sees it otherwise.

Jim Sinclair 
Take it from a Fool who knows, those proposing exposure to gold as the ultimate safe haven from currency crises are no strangers to vitriolic opposition. Jim Sinclair, a leading precious-metals expert, has been forecasting $1,650 gold since 2001. Sinclair summarized some of the perspective that readers of his blog enjoy in a Bloomberg Radio interview on Feb. 20. The interview is too packed with golden nuggets to capture in selected passages, so instead I recommend a trip to my blog to discover the treasure yourself.

At this particular moment, when sheer human nature leaves investors susceptible to unchallenged optimism, I believe that insights from these straight-talking messengers provide a critical wake-up call. In tumultuous times, the line between hopefulness and denial can grow quite thin, and Fools are reminded to remain alert.

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Jim Sinclair’s Commentary

Somebody noticed.

Gold visits old relationship with the US dollar
Allen Sykora | May 22, 2009
Article from:  Dow Jones Newswires

GOLD and the US dollar have moved back to their traditional inverse relationship lately, although some analysts say it remains to be seen how long this will last and how strong it will be.

A newly cast gold ingot is cooled in a bath of cold water at Metal-Art, in Budapest, Hungary. Picture: Bloomberg

Historically, gold tended to rise when the US dollar fell as investors turn to the metal as an alternative currency, and vice-versa. But that relationship went by the wayside for much of the last half year as both often moved inversely to the stock market, analysts said.

For instance, the US dollar index rose from a low of 77.688 on December 18 to a high of 89.624 on March 4. In the past, that might have pressured gold. But this time, June gold futures on the Comex division of the New York Mercantile Exchange rose from a December 5 low of $US748 an ounce to a February 20 high of $US1009.80.

Analysts said both gold and the US dollar often were bought as a safe haven during a tumble in equities that eventually carried the Dow Jones Industrial Average to a 12-year low in early March.

“People were using both the US dollar and gold as a store of value because they were worried about a market meltdown,” said Sean Brodrick, natural-resources analyst at Weiss Research and moneyandmarkets.com.

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Posted at 4:22 PM (CST) by & filed under Jim's Mailbox.

Dear Jim,

They are finally saying what you have said all along since 2003!

You have my loyalty, gratitude and service.

Best,
CIGA BT

Day of reckoning for the U.S. dollar
Alia McMullen, Financial Post Published: Wednesday, May 20, 2009

The U.S. dollar’s day of reckoning may be inching closer as its status as a safe-haven currency fades with every uptick in stocks and commodities and its potential risks – debt and inflation – are brought under a harsher spotlight.

Ashraf Laidi, chief market strategist at CMC Markets, said Wednesday a "serious case of dollar damage" was underway.

"We long warned about the day of reckoning for the dollar emerging at the next economic recovery," Mr. Laidi said in a note.

Mr. Laidi said economic recovery would weigh on the greenback as real demand for commodities, coupled with improved risk appetite, caused investors to seek higher yields in emerging markets and commodity currencies. This would draw investment away from the U.S. dollar, which was dragged down by growing debt and the risk quantitative easing would eventually spark a surge in inflation.

The U.S. dollar slid against most major currencies Wednesday, hitting a five-month low of US$1.3775 against the euro and pushing the Canadian dollar up US1.21¢ to a seven-month high of US87.69¢.

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Dear Jim,

These guys honestly get paid for doing this. Who was watching when the OTC crap was being rated?

CIGA BT

Pound plunges on threat of rating downgrade by S&P
Hugo Duncan
21.05.09

Sterling fell sharply today after credit ratings agency Standard & Poor’s cut its outlook for the UK on fears over ballooning levels of Government debt.

The world’s biggest ratings agency declared that there is a one in three chance of Britain losing its coveted AAA status.

The pound crashed to as low as $1.5514 against the US dollar in the minutes after S&P’s shock declaration at 9.30am, having earlier traded at a six-month high of $1.5817.

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Dear Big Tatanka,

Nobody was listening because the then Chairman of the Federal Reserve testified that OTC derivatives transferred risk from the few to the many. When the truth was told, OTC derivatives transferred risk from the few undercapitalized to the less capitalized.

Regards,
Jim

Posted at 1:51 PM (CST) by & filed under Jim's Mailbox.

Dear CIGAs,

While we are primarily a gold-oriented web site, I cannot omit from today’s commentary some remarks concerning the collapse in the long bond. Quite frankly, its weekly price chart has become a technical train wreck. It is less than a full point away from the 100 week moving average. Please note that I wrote, “100 week” and not “100 day”. The weekly chart provides us with the long term trend of a market and I must say, that this market’s price action terrifies me. Since October of 2007, the US long bond has traded just below the 100 week moving average only for a brief period during two separate months before finding buying support and rallying upward. On both occasions we did not get TWO CONSECUTIVE WEEKLY CLOSES BELOW THAT LEVEL. While the technical indicators indicate a market that is severely oversold, its downside momentum looks to be accelerating. This market bears very close scrutiny as a breakdown below this level that is unable to recapture support would indicate that the market has now finished completely with the deflation scenario and is  focused on the upcoming and anticipated wave of inflation unleashed by the mass creation of nearly unlimited amounts of paper US Dollars. In such an environment, gold’s rise will be unstoppable, bullion banks’ selling notwithstanding.

I should also note that while come of the immediate demand/supply fundamentals of various commodity markets are not particularly bullish, the fact is that the big funds are looking past all of that and are rushing in to buy across the board based on inflation expectations. The grains in particular are attracting huge money flows from the investment funds with wheat now trading above $6.00 a bushel. Perhaps I am dating myself, but I am accustomed to seeing soft red wheat trading closer to $3.50 – $4.00. Then again, soybeans above $10.00 used to be considered expensive. They are trading closing to $12.00 with corn back above $4.00 once again. The laggard is natural gas which continues to be overwhelmed by its massive supply glut but one has to wonder how much longer that market is going to trade so cheaply with all the money flowing into the commodity sector. Simply put – our monetary authorities and the present Administration have unleashed the forces that will usher in the downfall of the US Dollar and set in motion the advent of a severe hyperinflationary event. I keep waiting for some sort of official sector gimmickry to attempt to stem the freefall in the US Dollar but it would seem by their absence that they have no problems with the weaker Dollar. As a matter of fact, they are probably secretly welcoming it in the hopes of gaining some competitive advantage on the export market front.

The commodity currencies are on a tear north as is the Euro, the rise of which must no doubt be attracting the attention of the European monetary and business leaders who cannot be especially pleased seeing this once again. With the Euro back above 1.40, I suspect we are going to be hearing some noise from that sector soon. Then again, with traders focused on the plethora of dollars being printed into existence to fund the US bailout of everything and anything that moved, or no longer moves, what price level on the Euro/Dollar is appropriate? Who knows – maybe at some point, Euro/Dollar at 1.60 will look cheap… As it is, the Dollar is trading less than 80 points above its 100 week moving average. If that gives way, it is going to 76 for starters.

While as a long time holder of gold, I am of course pleased to see the price of the precious metal moving higher, I am also deeply disgusted by those charged with the stewardship of our national currency have done to it. This is our nation’s future we are talking about here and our very quality of life that is being ruined by these short sighted parasites.

Back to gold – looking at the price chart you can see that it knifed through the light resistance level shown there and now has a clear shot at the last line of defense for the bears near the $970 level. Should that level give way on a pit session closing basis, look for the upside move in gold to accelerate as funds will pile in and attempt to shove price back to the $1,000 level. Keep in mind what I have been saying for some time now, the inexorable and relentless rise in the Continuous Commodity Index (CCI) presents the gold bears with a formidable problem. It is difficult to shove the price of gold down for long when the entire commodity world is rising. When you throw in the fact that the Dollar has broken down technically as well as the long bond, it makes the gold price suppressors’ work even more difficult. My guess is that were it not for the holiday weekend and the bout of profit taking from shorter-term longs that surfaced in gold today, it would have made a run to $970. You can see the profit taking in the mining shares occurring judging by the move off their session peaks in both the HUI and the XAU.

If silver can trade in the after hours above $14.80, it stands a good chance of making a run at $16.00 It is fading a bit off its best levels during the pit session trade but is still above $14.60 which is a plus.

Click chart to enlarge today’s hourly action in Gold in PDF format with commentary from Trader Dan Norcini

clip_image001

Posted at 12:35 PM (CST) by & filed under General Editorial.

To all CIGAs,

This is a true miracle as Bina’s condition, in normal medical terms, offered little if any solace.

I respectfully request the continued prayers of all persuasions and sincere positive thoughts of all our readers for Bina’s continued and total recovery as Joseph is my son in our extended and blood family. Bina therefore is my granddaughter with all its meaning, responsibilities and honors.

Thank you,
Jim

Dear Chairman Jim and the whole entire team,

I am writing this email on behalf of my wife Nancy and the family, to thank you all for your great support, encouragement and prayers during our daughter’s hospitalization.

Bina was admitted at the Aga Khan Hospital in Dar Es Salaam on May 15th, 2009, whilst I was on an official trip to Kigosi to meet with the Project Manager and his Assistant. I had to stop my trip short and fly back to Dar Es Salaam to be with my daughter who was taken to ICU on the 16th.

Bina was diagnosed with over +1,000 parasites of malaria which had by then spread in her bone marrow, kidney and liver as well as the head. It was the most painful period of my life. My daughter, who was lying in front of me, could not talk, could not recognize anyone, could not eat and had quinine drip and other medicine on IV going into her small body at almost all points. She also had a catheter on. I seemingly could not do anything to help her, but hold her hands and pray with and for her.

I spent the entire days and nights next to the ICU door. It being the ICU, I was only allowed to see her for between 10-15 minutes every 40 minutes or so. Bina was discharged from the ICU on 19th May and on 20th May, she was allowed to come back home.

We now have her back home and she just goes to Hospitals for medical tests and returns home. If all goes well, we shall try and have her return to school sometime next week.

Again, Thank you all so much and God Bless You. The emails from Chairman, Anna, Victoria and Helen, as well as physical visits and telephone calls from Miriam, the calls and messages from Kennedy, Philip Sango, Marco and Peter Madoza were a great source of encouragement and comfort.

Love,
Joseph

Posted at 10:29 PM (CST) by & filed under General Editorial.

Dear Friends,

I am sending this to both my newsletter and corporate readers in order to clear up recent errors in the media that reflect on me negatively despite my unblemished fifty year history in the global financial industry.

In the process of addressing a misunderstanding in the media regarding the business plan of my public company, I asked my Special Advisor, David Duval, to utilize his vast experience to discuss in very general terms the old fashioned method of bringing a gold deposit into commercial production, assuming the economic and related considerations were comparable to those in the past

It is my respect for those time-tested ways that has always guided my business judgments. Since 1999, I have taken a very public position that gold companies should not consider themselves banks, OTC derivative issuers or trading companies, all with mines in their backyards. I believe I have been vindicated in that opinion, given the huge losses that many companies have reported and the fact losses are still accruing because my counsel was not always accepted.

Even today, short of gold OTC derivatives are a primary criterion for large development loans of the modern day gold mining finance model. They are no longer on the books of the producer but rather contained in the indenture of the note. It is a misassumption to feel that we all need massive funds to accomplish our goals even if they are sizeable in the end.

If the present gravel testing at my company’s Kigosi/Ushirombo project allows it, we will approach development much the same way Homestake Mining did at the beginning, moving from surface deposit mining to financing part or all of underground exploration and development with cash flow from initial surface production.

In addition, it’s worth noting that 84% of my company’s current property holdings are designated for royalty option arrangements. Sixty percent of these are subject to royalty agreements and the remaining properties are being reviewed under confidentiality agreements that could see them become royalty transactions.

Please review David’s editorial piece so you can be assured that those pundits who mistakenly said we will need vast amounts of money to accomplish our goals have not done their homework or fact checking as thoroughly as they might have.

Respectfully submitted,
Jim

With Commodity Prices Trending Upward, Near-Surface Mine Development and Royalty Model Become Options for Junior Explorers

By David Duval

The contemporary wisdom that “bigger is better” has taken a well-deserved beating since the credit crisis unfolded and destroyed some of the world’s largest financial institutions in its wake.

With large-scale project financing options limited or non-existent because of the credit crisis, many of the smaller players in the global mining industry have been forced to review their growth strategies, a trend that could see historic mine development practices making a comeback and less mainstream business models adopted.

Perhaps not since the turn of the 19th century has the appeal of “small” become so attractive. Indeed, today’s examples encompass a broad range of industries including power generation (wind turbines, small hydro, solar etc.) and small mining operations that provide feedstock to portable or centrally located process plants and refineries, a practice that is relatively common in Asia and Africa.

Not being major enterprises with large industrial footprints, long permitting periods, and high capital costs, these businesses can be developed incrementally from ongoing cash flows, substantially reducing the risk to investors. In the “good old days” this scale of development was the rule rather than the exception and most of the world’s major gold camps were discovered and developed on this basis over a century ago.

In his book titled, "History of Dakota Territory" George W. Kingsbury describes the development of the Homestake Mine in these words:

“When the claim was purchased by the Homestake Mining Company the exploration consisted of small surface pits only and some mining men considered its value as doubtful although there were a number of favorable surface indications. The company immediately began the further exploitation of the property and two shafts equipped with hoisting engines were sunk and various drifts were soon under way.

By July, 1878, or the year after the purchase of the claim, the first mill of eighty stamps was constructed and in commission. With the first dropping of stamps it was proved that the mine was a producer and from that small beginning the mine has steadily expanded, breaking all records and setting a new pace in the world of gold mining. Although it is a very low ore, illimitable tonnage is at the disposal of the company and large mills, the most improved mining machinery and great mechanical power enable the mine to pay large dividends.”

It’s worth noting that Homestake was listed on the New York Stock Exchange in 1876 and its now dormant South Dakota mine produced approximately 40 million ounces of gold over a 120 year period before the mine’s economic reserves were exhausted in late 2001.

Mimicking the discovery of other major gold finds at the time, Homestake began as a surface showing with gold values occurring in vein material that was easily distinguishable from adjoining wall rock. Pick and shovel mining provided a bulk sample for metallurgical test work and grade estimation.

First off, however, the miners recovered gold from alluvial gravels that were eroded from the hard rock vein material. Exploration shafts were then sunk to evaluate the vein material at depth, producing gold in the process to offset exploration costs.

In many parts of the world (including Africa and Latin America) artisanal miners have already gained access to sub-surface vein material by hand sinking small shafts and mining along the vein structures. In fact, you would be hard pressed to find a major mine in Africa that didn’t have such workings within its property boundaries. These old workings facilitate target selection and the development of a resource base for production purposes.

Because of its high specific gravity (gold’s relative weight to that of water) gold concentrates in stream beds within alluvial gravels and it can be extracted by mechanical methods that take advantage of the fact it is 19.3 times as heavy as water.

Gold occurs in many different geologic settings but two basic types of occurrences or deposits are recognized: primary and secondary. Both rely on similar chemical and physical processes to produce economic concentrations of gold ore.

The Homestake discovery didn’t have the advantage of present day drilling technology to confirm the existence of an orebody whose life would extend for more than 100 years. Instead, the economic viability of the mine was established by mining and processing the easily extractable surface material with equipment that used gold’s specific gravity to produce a saleable concentrate. In the late 1890s, cyanide was employed to recover fine gold from rocks and is still used under carefully controlled conditions.

Even today, gravity separation is the best proven and accepted technique of concentrating minerals due to its high efficiency and low cost. In addition to gold, gravity separation remains a primary means of concentrating iron, tungsten, tin and coal ores.

Process plants (mills) for gold need not be large and in fact they are often manufactured and assembled in large industrial centers where skilled trades people are readily available. By employing modular construction techniques, equipment can be brought into a mine site by truck, air transport and in the case of tidewater locations, by sea barge. The various modular sections are simply joined together like a kid’s Lego set on the mine site. As the operation expands, new modules can be shipped to the site and added to the existing plant facility.

In order to reduce capital requirements, companies often employ contractors to mine their mineral deposits at a fixed price, locking in costs for the term of the contract. With contract mining, a company need not acquire in-house mining expertise or equipment that would only be utilized on a seasonal basis in any event. For smaller operations, contractors can provide services for a sufficient length of time to develop a stockpile for year round milling operations.

What’s surprising about today is the reluctance of many companies to consider the small scale, staged development of mineral deposits which is much less risky from both a financial and technical standpoint. In gold’s case, some of that reluctance no doubt relates to the belief by analysts that any company producing less than 100,000 ounces won’t get adequate market recognition. But as we’ve seen during the global financial crisis, analysts sometimes make a habit of being just plain wrong.

Nonetheless, in an escalating commodity price environment, the appeal of these modest-sized operations is certain to increase, especially where possibilities exist for multi-sourced production that will boost consolidated output to even more attractive levels. This has been a feature of China’s mining industry for generations and is certain to catch on in the West before too long.

Physical gold output – even on a small scale basis – provides price leverage to companies in the marketplace, especially for situations where the exploration potential leaves room for future production growth.

The Royalty Model

Less mainstream perhaps but even more attractive to the market are royalty companies who either purchase royalty interests (and gold production) in producing mines or seek to acquire royalty production through exploration successes.

Companies bringing new mines into production are sometimes willing to sell Net Smelter Royalty (NSR) interests in their operations to offset some of the capital costs. But these royalties are prohibitively expensive for junior companies with limited access to such capital.

This is not an issue for royalty companies that employ an exploration model, however. In these situations, companies with strategic land positions in established gold belts deal off their holdings to third parties in exchange for a royalty interest should the property achieve commercial production. In the interim period, the royalty partner agrees to make staged exploration expenditures and property rental payments (usually escalating) until commercial production is achieved.

The premise behind this royalty strategy is that companies can discover gold at a much lower cost by utilizing their exploration expertise and core assets as opposed to purchasing production on the open market. Clearly, it’s a strategy whose time has come!

Posted at 4:28 PM (CST) by & filed under General Editorial.

Dear CIGAs,

I bring to you the following with the specific permission of Alf Fields.

I have suggested to you often in the past that once the price of gold reaches into its maximum potential it will not repeat the fall of the 1980s.

I foresee gold re-entering the system in a new and unique form that does not include convertibility. It will not be tied to interest rates as it once was in its previous form.

I have written to you various times about the Federal Reserve Gold Certificate ratio, modernized and revitalized, which now may well be associated with an SDR form of an International Central Bank. The tie between the ratio and gold would be a measure of international liquidity considered zero or 100 on the day of adoption.

The following is Alf’s statement yesterday, with his permission to post:

“Gold cannot decline from its highs as it will be incorporated into the national and international monetary systems at that time.”
–Alf Fields, May 20, 2009

Now do you have any questions why Fund Wizard Paulson just got long a few billion dollars worth of Gold ETFs and a few major gold producers?

Finally a major event has taken place that is a US dollar milestone.

The financing and extremely important event is the arrangement between China and Brazil displaces the dollar as China becomes the major trading partner with Brazil. Since then the Rial has been celebrating and the dollar has been depressed.

This is a once in approximately a century replacement of a trading currency that has always meant a dethronement of the deposed and coronation of a new currency king.

The last time this happened was when the US dollar supplanted the British Pound as the major trading currency and entity with Brazil 79 years ago.

It took the Brits 300 years to supplant the Portuguese Escudo with the British Pound.

Only twice has this occurred in 379 years. This is obscure to most but not to Mr. Paulson the hedge wizard. Obscure to most, but not to our gang at JSMineset.

The dollar died in Rio and that means everywhere.\

The dollar is in for a very cold winter.

There is one thing that is absolutely certain and that is Gold is now headed to at least $1650 and in all probability much higher. This is happening NOW!

What more do you need to know?

Posted at 3:45 PM (CST) by & filed under Uncategorized.

Dear CIGAs,

The following is an important website you should check often.

http://www.usdebtclock.org/

Jim Sinclair’s Commentary

Alf’s 3rd wave is beginning.

Gold refiner responds to demand for gold bars
The news feeds on this site are independently provided by Adfero Limited © and do not represent the views or opinions of the World Gold Council.
Tuesday, 19th May 2009 (87 views)

Gold refiner and producer Argor-Heraeus has switched its focus to gold bars in order to meet rising demand.

The company, based in Ticino, Switzerland, is responding to increased investment in solid gold as a result of the global economic crisis by manufacturing a larger number of bars, AFP reports.

Argor-Heraeus chief executive Erhard Oberli told the news source that he had "never seen anything like" the current levels of demand since he started working in Ticino around 20 years ago.

He added that gold has been "out of fashion in Europe" in recent years, but that has "changed totally", with bars seen as a "safe haven" by investors who have lost confidence in financial markets.

Delivery times for gold bars have risen from ten days to around two months and the firm is moving production activity from its semi-finished products arm to increase supply.

Speaking to Reuters recently, president of the RPG Foundation DH Pai Panandiker predicted that gold supplies will "shrink" as mines mature, making the precious metal an ideal choice for long-term investment.

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Jim Sinclair’s Commentary

In terms of disturbance to the social order, there is no more serious a problem than the brushed aside, aided in avoidance, increasingly default prone pension programs in terms of what they are worth versus the normal climbing commitments to pay out.

Bailouts are sure to come as it is quite evident, assuming you can add one and one with the result of two, that the agency has no financial capacity to cover the problem even though they make bald faced claims otherwise.

A guaranty is only worth what the guarantor is worth. Should that lesson not be evident now?

You have to love this entity taking the 5th.

I wager you I could give them better advice then what they got from the Wall Street firms at 1/10th of what they paid.

Shortfall Triples at U.S. Pension Guaranty Agency
By DARRELL A. HUGHES and JOHN D. MCKINNON
MAY 21, 2009

The federal agency that backstops corporate pension plans reported that its deficit tripled in the last six months, to $33.5 billion. Despite the shortfall, the agency said it has enough assets to pay benefits for many years, even if the holder of one of the largest retirement programs, General Motors Corp., were to file for bankruptcy.

The news came as the Pension Benefit Guaranty Corp.’s former director invoked the Fifth Amendment in response to lawmakers’ questions about possible mismanagement under the Bush administration. The PBGC’s inspector general last week issued a report saying that the former director had violated prohibitions on contacting bidders that were seeking investment contracts.

The former director, Charles Millard, has denied allegations that he had inappropriate contacts with several Wall Street firms that won contracts to advise the agency, and said his actions were approved by agency counsel. But his attorney, Stanley Brand, said in a statement that it was best if Mr. Millard didn’t testify at a Senate hearing Wednesday, in what he described as a "biased and hostile environment."

The PBGC deficit stood at $11 billion, compared with its long-term obligations, as of Sept. 30. The agency attributed the deterioration of its finances since then to the assumption of pension-plan obligations from insolvent companies, as well as investment losses and the current low interest-rate environment.

The PBGC also warned that distressed companies are likely to terminate more pension plans, leading the agency to take on more of those obligations.

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Jim Sinclair’s Commentary

If S&P lowers their "make believe" credit rating on Great Britain’s debt, the S&P will have to do likewise on US debt in time.

I am sure that Gitmo will still be there so these executives of S&P will have a fine view of the Caribbean from their new airy chicken coup homes. Swimming lessons will be provided on a water board. The group will be lead nude by dog collar and leashed to the swim lessons by that nice lady in all those old pictures.

Who knows, they might like it.

Britain’s debt outlook lowered to negative
Britain’s debt outlook lowered to negative from stable by Standard & Poor’s

LONDON (AP) — Britain faces the unsettling possibility of seeing its debt rating downgraded, after credit ratings firm Standard & Poor’s said Thursday it has revised the country’s outlook to negative from stable.

Though the ratings agency reaffirmed the country’s long-term triple-A credit rating — reserved for the least risky bond issuers — it said the outlook had deteriorated because of massive borrowing to deal with the recession and the banking crisis.

The outlook revision does not trigger a formal re-evaluation of Britain’s rating — unlike being put on credit watch — but does mean that policy makers have to be aware that a downgrade may happen if public finances do not improve.

The pound slumped by over 2 U.S. cents to just below $1.56 after the news, but recovered most of its ground to trade around $1.57.

Meanwhile the FTSE share index fell nearly 140 points, or around 2.8 percent, though like other markets around the world it was facing selling pressure after the U.S. Federal Reserve warned that the U.S. economy would shrink by more than anticipated this year.

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Jim Sinclair’s Commentary

Sorry, he is wrong. The day of reckoning for the US dollar has already come and gone.

I promise you an arctic freeze for the dollar this winter. It will be cold and ugly!

Day of reckoning looms for the U.S. dollar
Alia McMullen, Financial Post  Published: Wednesday, May 20, 2009

The U.S. dollar’s day of reckoning may be inching closer as its status as a safe-haven currency fades with every uptick in stocks and commodities and its potential risks – debt and inflation – are brought under a harsher spotlight.

Ashraf Laidi, chief market strategist at CMC Markets, said Wednesday a "serious case of dollar damage" was underway.

"We long warned about the day of reckoning for the dollar emerging at the next economic recovery," Mr. Laidi said in a note.

Mr. Laidi said economic recovery would weigh on the greenback as real demand for commodities, coupled with improved risk appetite, caused investors to seek higher yields in emerging markets and commodity currencies. This would draw investment away from the U.S. dollar, which was dragged down by growing debt and the risk quantitative easing would eventually spark a surge in inflation.

The U.S. dollar slid against most major currencies Wednesday, hitting a five-month low of US$1.3775 against the euro and pushing the Canadian dollar up US1.21¢ to a seven-month high of US87.69¢.

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Jim Sinclair’s Commentary

Goodbye Standard and Poors.

UK JOINS THE PIGS – GOLD IS YOUR ONLY PROTECTION
May 21st, 2009 by Egon von Greyerz

We have told investors that the rating of US and UK sovereign debt is a farce and that they both will be downgraded.

Today the UK is on its way to joining the PIGS countries as Standard and Poor’s lower the UK’s AAA outlook from “stable to negative”. The PIGS countries are the hopelessly weak European countries (Portugal, Ireland, Greece and Spain) which have all been downgraded this year. The UK government deficit is estimated to reach £175 billion in 2009 (it will probably be a lot higher). This represents 12.4% of GDP.  Total UK government debt is forecast to reach £800 billion or 57% of GDP.

In our February Newsletter, “The Bankrupt saving the Bankrupt”, we took the UK economy as an example of the bankrupt state of the world economy. Therefore, it should be no surprise to our readers that the UK will be the next country to be downgraded.  So it is not the slightest bit unexpected that the UK is joining the poorest of the major European countries.

The implications of the UK downgrade are much more serious than that. In our May newsletter, “It ain’t over ’til the fat lady sings”, we stated that the US AAA rating is a farce. The US government deficit is forecast at $1.8 trillion for 2009. That is 13% of GDP. US government debt will reach at least $13 trillion, and probably a lot more, this year. That is almost 100% of GDP! So the US figures are much worse than the UK figures. It is only a mater of time before US debt is downgraded. But downgrading it to AA is just the beginning since US government paper is junk and the US government bankrupt.

Take our word, US government debt will be downgraded very soon. Either the market will force the downgrade by dumping the US dollar and US government debt or Standard and Poor’s will wake up do the inevitable deed. But a downgrade of the debt of the  world’s reserve currency has such serious ramifications for the world economy that S&P’s will drag their heels and probably wait until the market forces them.

We have forewarned  our investors and readers about these events for quite some time.  In our Commentary last week, “Goodbye Dollar – Hello Gold“, we stated “….that the era of the dollar as a reserve currency is coming to an end soon and that the strongest and safest currency is gold”.

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