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Where have all the projects gone!
by Professor von Braun

January 8th, 2006

Recent acquisition and merger activity among the larger mining companies highlights the often-referenced shortage of additional gold reserves and resources. The price paid by Goldcorp for Virginia Gold (estimated to be between $140 to $200 per ounce), does set a new benchmark for the acquisition price of these reserves, considerably higher than the $35 - $40 figure recognized as the average cost per ounce during the mid 1990's.

Adding Placer Dome to a list of mining companies that no longer exist, such as Sante Fe Gold, Homestake, Getchell Gold, Echo Bay, Pegasus, Normandy, Franco Nevada, Amax Gold, Cyprus, St Joe Gold, Lac Minerals -- to name a few, highlights another aspect of the gold mining industry which is a shortage of players.

What with declining annual production, several years of low gold prices, diminishing exploration budgets, the laying off of exploration geologists, and little incentive during the price decline into 2001 to do other than maintain their quarterly forecast, mining companies have not had it easy.

The associated support industries did not have a cause for celebration during these years either. Whether it was mining analysts, gold fund managers, technical consultants, retail investors, or exploration companies, all had a difficult row to hoe during that time.

The exploration boom of the early 1980's followed the run up in the gold price that peaked in 1980, essentially a nine-year rally, followed by a 21-year decline. However the landscape was a lot different in the 1980's when compared to now. Mining companies were actively looking for projects, geologists were fully employed and some companies such as Sante Fe Gold and St. Joe Gold had very good exploration teams, Homestake was active, and spending money on exploration was considered to be a priority. If one company lost interest in a project, the project owner only had to pick up the phone and another would be knocking on his door.

So where are we now when it comes to investor interest, exploration activity, more viable support industries, and a general awareness of what this industry is and how it works?

What has changed between 1981 and 2006? Well for starters all of us are 25 years older and exploration geologists then in their forties are now in their sixties, many having retired. I recall one major mining company in 2001 that laid off any geologist over the age of fifty -- I kid you not, that was the 'official' policy at the time. Every merger and outright acquisition by the remaining players in the ever shrinking mining industry that has occurred has shrunk the exploration teams, the databases and the actual activity of feet on the ground looking at rocks, which is of course where exploration starts. Databases and the people who put them together were trashed, literally, in many cases turned into pink slips and trash cans. Records of the results of substantial amounts of money spent on field work, sampling, mapping and drilling were in many cases disposed of via the company dumpster, in some cases later rescued by geologists who understood the value of it; in other cases it simply disappeared.

The idea that there is a shortage of mining projects is more the result of the short-sightedness of the industry itself over several years. There is rather both a shortage of exploration expertise and of the corporate and investor culture that supports them. In addition there is little retail investor interest and stock market support for junior mining companies when compared with the boom period of the early 1980's.

In recent conversations I have had with people knowledgeable about the industry, several things have been highlighted. The current mindset of the majors is institutional investor orientated. The criteria that the mutual fund managers have, when it comes to gold stock ownership is such that in many cases it precludes ownership of both junior and mid size companies thereby depriving these companies of funding. Having such requirements as 'x' amount of production and 'y' amount of market capitalization may seem to make sense to these managers of other peoples money (which is of course a far larger industry and subsequently a source of funding, than it was in the mid-eighties,) but it also demonstrates a lack of understanding of how the mining industry works. No doubt much of their decision making is computer-assisted with cash-flow models and projections, but when it comes to reserve replacement I suspect their computers fall short.

A mining analyst who covers several of the mid-sized companies told me of a conversation he had with a fund manager who was looking to invest his client's funds in gold mining companies (where was he in 2001?). This gentleman then went on to outline his criteria which excluded most of the companies this analyst covered.

In a recent discussion with a geologist friend of mine, one who has a couple of good discoveries to his name, he mentioned that this was the strangest looking bull market he had ever seen, and wanted to know if I could help him out on this observation of his. Actual on the ground activity was at no higher level now that it had been for several years yet he had received a couple of calls from brokers wanting to know who was up to what when it came to drilling and current exploration. He also made the same observation, that there is not a shortage of projects, but there is a shortage of both funding for exploration development as well as a shortage of experienced personal.

The Goldcorp website is a useful source of some rather surprising information. Under the section entitled analyst coverage there is a list of 25 financial institutions and the respective analysts that cover the company. Of the 25 analysts, 18 are based in Toronto and 4 in New York. What does that tell you about the level of interest from the US-based investor community, both institutional and retail when it comes to the gold mining industry? Apart from JP Morgan, most of the US based investment houses are conspicuous by their absence from this list.

In another discussion with a Canadian mining consultant, one familiar with this industry over many years, he agreed that both mining and investor expertise were in short supply on the US side of the border. While the US is still touted as a substantial gold producer most of that production is either Canadian owned or Canadian financed. Much of the gold production coming out of South America is also Canadian owned.

Recent comments by people such as Richard Russell ( that the general investing public are clueless when it comes to the gold market, or by Bill Murphy (at www.lemetropolecafé.com) that the Wall Street crowd are brain dead when it comes to investing in gold and gold mining are obviously on the mark. These comments also bode well for an ongoing increase in both the price of the metal and the price of gold stocks. While I see reports by US based commentators of the bullish consensus on gold being at record levels (90%+) it is not showing up in the areas where one would expect it. This is a bullmarket that's over-bought??? Over-bought by whom?!

While good money will be made in gold stocks in the years to come as the gold price readjusts itself to levels that reflect the debasing of paper currencies, the degree to which the currencies have been debased is far from being reflected at current gold price levels.

Gold came first, many years ago as the preferred medium of exchange, paper followed and gold does tend to play the catch up game, evidence President Roosevelt's revaluation of the 'official' price of gold in 1934, or the increase in price through the 1970's from $35 to $850. For those readers interested in the astrological significance of this period in relation to past events that relate to gold I recommend the 2006 preview by noted astrologer Richard Nolle available online at in the futures section.

As the gold price rises the price paid by mining companies for in-ground reserves will also continue to rise and for those astute investors now is the time to be looking at companies that have sizable land positions with excellent potential to prove up additional reserves. They are out there, in some cases hold overs from the nineties, companies that had their exploration and development activities curtailed as the market dried up and yet have kept their property position intact. It is likely, given where we are at, very early days in a bullmarket in all commodities with gold being one of the slow movers to date, that the real money will be made in reserve acquisitions by the additional reserve short miners under pressure from institutional shareholders who understand little about the industry they are investing in. Finding gold ounces at a cost of $20 per ounce or less and selling for $200 per ounce is after all a good return but with gold at even higher levels what will the purchase price of this rather crucial ingredient then be?

The Prof can be contacted by email at

Copyright by Professor von Braun. All Rights Reserved. Reprinted at USAGOLD by permission.

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The Rocket School of Economics -- The Lecture Series Index

  • 22 May 2009 -- An Often Overlooked Issue!
  • 28 Mar 2009 -- Problematic Banking Systems!
  • 14 Nov 2008 -- What Exactly is an Asset?
  • 23 Aug 2008 -- Through the Looking Glass?
  • 02 Aug 2008 -- Compounding to the Downside!
  • 26 May 2008 -- Back to Basics Again!
  • 31 Mar 2008 -- The Broken Watch -- Part 2.
  • 27 Mar 2008 -- The Broken Watch -- Part 1.
  • 06 Feb 2008 -- The Financial Equivalent of Faulty Towers.
  • 10 Dec 2007 -- Monetary Systems & Productive Assets.
  • 14 Feb 2007 -- Divorced from Reality
  • 06 Sep 2006 -- Gold, Bankers, the Trade Deficit and Unsettled Transactions
  • 19 Jun 2006 -- When is a Reserve Not a Reserve?
  • 31 May 2006 -- The significance of August 15, 1971.
  • 08 Apr 2006 -- Keep Your Eye on the Ball!
  • 30 Mar 2006 -- What came first?
  • 11 Mar 2006 -- An Unanswered Question.
  • 08 Jan 2006 -- Where have all the projects gone!
  • 11 Dec 2005 -- Gorillas, Rising Gold Prices and Depreciating Paper Currencies!
  • 23 Oct 2005 -- Custodial Risk.
  • 16 Sep 2005 -- An Inherent Flaw.
  • 08 Aug 2005 -- Central Banks and 'Reserves'.
  • 31 Jul 2005 -- Central Bankers, Actors and 'We'.
  • 17 Jul 2005 -- Unintended Consequences! -- Part 3.
  • 07 Jul 2005 -- Unintended Consequences! -- Part 2.
  • 25 Jun 2005 -- Unintended Consequences! -- Part 1.
  • 14 Jun 2005 -- The Two Greater Fools Theory.
  • 03 Jun 2005 -- Real Money, Funny Money and YOU -- Part 4.
  • 30 May 2005 -- Real Money, Funny Money and YOU -- Part 3.
  • 26 May 2005 -- Real Money, Funny Money and YOU -- Part 2.
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  • 09 Nov 2002 -- Carrying a Big Stick.
  • 17 Sep 2002 -- Wishful Thinking!
  • 27 Jul 2002 -- Gold Bugs Beware -- part 2.
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  • 06 Apr 2002 -- Currencies versus Gold.
  • 26 Jan 2002 -- Bear Market Strategies.
  • 01 Jan 2002 -- 2002 -- A Perspective.
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  • 14 May 2001 -- The Coming Bull Market in Gold Stocks?
  • 24 Feb 2001 -- High Hopes, Wishful Thinking & The Absurd
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  • 16 Jan 2001 -- Dear George W.
  • 24 Nov 2000 -- The Bubble Has Burst
  • 11 Nov 2000 -- The Media, Bull Markets & the Gold Price
  • 02 Nov 2000 -- Gold Stocks
  • 29 Oct 2000 -- Oh The Tangled Web We Weave ...When We Set Out to Deceive
  • 24 Oct 2000 -- A Mystery!
  • 16 Oct 2000 -- A Peso Here ...and a Few Thousand Pesos There
  • 10 Oct 2000 -- The Unfolding
  • 30 Sep 2000 -- What's Wrong with THIS Picture?
  • 25 Sep 2000 -- Buy Gold Now!!
  • 23 Sep 2000 -- The Times, They Are a' Changing
  • 15 Sep 2000 -- Time WILL Tell!
  • 27 Aug 2000 -- SS "Paper Assets" Begins to Take on Water
  • 06 Aug 2000 -- The Indian Summer
  • 26 Jun 2000 -- A Yellow Brick Wall
  • 22 May 2000 -- The King IS Naked
  • 30 Apr 2000 -- Goodbye Yellow Brick Road
  • 18 Apr 2000 -- Beware the Ides of March, April and May
  • 08 Apr 2000 -- Really, Sir Aldot!
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  • 12 Mar 2000 -- The "New" Economy??
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  • 15 Jan 2000 -- Comments on the Gold Market
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