Precious metals

Gold

Mining

Opinion

Collecting

Believe in it

Global perspective

End of the rainbow

Bling is king

It’s rare, it’s tangible, and it looks good

Where in the world is all that ore? | Page 8

Superwoman Nicola Horlick on the myth

Everything you need to know about

of precious metals | Page 15

investing in jewellery | Page 22

in your portfolio | Page 7

business-reporter.co.uk

November 2011

Distributed within The Sunday Telegraph, produced and published by Lyonsdown which takes sole responsibility for the contents

Business Reporter · November 2011

an independent report from lyonsdown, distributed with the sunday telegraph

Precious metals – in this issue

It’s a mad world

£1,034

Precious metals have hit record prices this year, and more and more people are clamouring for a share of the riches – almost to the point of obsession

By Andrew Rosenbaum

Publisher Bradley Scheffer brad@lyonsdown.co.uk Managing Editor Lucie Carrington lucie@lyonsdown.co.uk Editor Andrew Rosenbaum Creative Director Martin Nolan studio@lyonsdown.co.uk Sub Editor Amy Dickson amy@lyonsdown.co.uk Journal Assistant Natalie Luketic natalie@lyonsdown.co.uk Project Manager Matthew Hill matthew@lyonsdown.co.uk Cover Lucy Ward For more information on any of our supplements please contact us: Telephone 020 8349 4363 Email info@lyonsdown.co.uk Online www.lyonsdown.co.uk

business-reporter.co.uk

In 2013, the Indian Space Research Organisation is planning its second moon mission, called Chandrayaan-2. One of its principal mandates is to find indications that mining the moon for precious metals will be worthwhile.

It is known that there is platinum and gold on the moon – the platinum comes from impacts from asteroids, but where the gold is from is not yet understood.

A number of well-heeled investors are experimenting with ways to make mining precious metals on the moon profitable.

It should seem clear that, if we are to go searching for gold and platinum on the moon, there is considerable demand and value in the precious metals right here on earth. In recent years, investors have increasingly indicated their interest in gold, silver and platinum by driving the prices of these precious metals up considerably. All three metals have hit record prices in this year alone, driven by demand for a ‘hard asset’ in what investors see as a world gone mad.

Hedge fund manager John A Paulson, who bet heavily on gold in 2010 and earned about $5 billion (£3.09 billion) in the process, thinks that the price of gold will rise to $4,000 per ounce from its current position at about $1,700 (£1,053).

Another fund manager who does not hold as much gold as Paulson, Sebastian Lyon of the Edinburgh-based Personal Assets Trust fund, switched a large investment in a gold ETF (exchange-traded fund) into physical gold recently, insisting that it would hold its value while

paper currencies like the dollar and the pound plunged due to quantitative easing. It is true that we live in a time of unprecedented currency and stock market volatility, so the search for a new ‘hard asset’ is becoming obsessive.

Silver and platinum are receiving their due as potential ‘hard assets’ as well. But the value of each of these metals depends largely on industry demand for them, as they are used heavily in making electronics, medicine and many other useful things.

The problem with making a precious metal your ‘hard asset’ of choice is that precious metals don’t perform. They go up and down according to market sentiment.

Your investment in gold will never add value in the way that your investment in a small company will give it the opportunity to grow. Charlie Munger, Warren Buffet’s co-manager at Berkshire Hathaway, puts it this way: “You can polish your gold. You can look at it. But it will never do anything.”

Many investors take the different view that precious metals are a relatively safe option in an unstable world.

The space required by London banks for storing precious metals in safe deposit boxes has doubled in the past two years. You can now buy gold at vending machines at the airport, or even at some supermarkets.

Of course, one isn’t required to actually own the stuff in order to invest in gold, silver or platinum.

Funds and mining stocks provide alternatives that, some analysts say, are a cheaper and safer investment.

Of course, these investments are exposed to currency risk, but not everyone believes that the world has gone mad.

Contributors Andrew Rosenbaum has been a London and Paris-based financial journalist for 15 years. He has contributed to Time magazine, Euromoney, The Daily Telegraph, and Financial News, and been a corporate writer for several Fortune 500 companies.

Kathleen Kiley is a financial journalist based in New York City. Along with finance, she writes about B2C business, and sustainability.

3

Cora de Jong is a professional goldsmith. She received a diploma in the trade at the Vakschool Schoonhoven in the Netherlands in 1987, and has since worked at repairing antique jewellery, as well as designing her own pieces, in London and Paris.

The value of an ounce of gold – double what it traded at in 2006 p5

$150bn

The sum wiped off the value of equities in June/July this year p7

1803

William Hyde Wollaston discovers Rhodium p17

120%

The rise in the value of gold over the past three years p19

3.83g

The amount of platinum that can be extracted from a tonne of rock p21

Sponsors

Business Reporter · November 2011

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an independent report from lyonsdown, distributed with the sunday telegraph

Industry view

A golden opportunity In just over a decade, a leading role has been carved out in South America with three separate gold strikes Most of us would think ourselves fortunate if we struck gold once in our lifetimes, but Courtney Chamberlain has done it three times in a decade.

Minera IRL, the company he founded in 2000 and floated in 2007, operates the Corihuarmi mine in Peru’s central Andes, which produces just over 30,000 ounces of gold a year, worth about $45m (£28.7m).

Corihuarmi pays all the firm’s running and exploration costs, and has enabled Minera IRL to establish itself in Peru as a highly successful gold mining company with about 500 staff and a market capitalisation of $150m (£95.8m).

But what really puts the spring in Chamberlain’s step is the potential from Minera IRL’s next two mining projects. “Our gold reserves have increased dramatically in the past three years, from 100,000 ounces to 3.2m ounces,” he says.

“More than half of this is ‘measured’ or ‘indicated’, meaning that it’s been verified by independent experts and we have high confidence that we can successfully extract it.”

In late 2008, the company’s geologists made a major discovery at Ollachea in southern Peru, on the eastern escarpment of the Andes. The reserves discovered so far are estimated at 2.6m ounces (worth around $4 billion, or £2.5 billion, at current prices), but there could be much more.

“Currently the deposits are completely

open-ended,” says Chamberlain. “They’re deepseated, ‘orogenic’ deposits, so we may be just at the beginning in terms of discovery. There will be more gold, but how much we don’t yet know.”

The company is now conducting a full feasibility study for the first one million ounces of gold. “When that’s finished we’ll be ready to go to the market and say, ‘We need $170m (£108m) to build this thing,’” says Chamberlain.

“We aim to start production in late 2014 and extract 120,000 ounces a year for at least nine years. Gold has been mined in the area since before the Spanish came, and Ollachea will be one of the biggest gold mines in Peru.”

Ollachea will use conventional mining techniques, and the cost of extraction is estimated at around $400 (£255) per ounce: less than the industry average of $600 (£383) and just a quarter of the value of the gold itself.

Chamberlain is particularly proud of the relationship Minera IRL has established with the local people of Ollachea, who still own the land on which the mine will be built.

“We’ve won them over by working closely with them and making them our partners for the future. This is really important in Peru and it’s not the kind of thing all mining companies do well, so we’ve put a lot of emphasis on it. We’re also trying hard to improve their standard of

living, lifestyle and health.”

Around 200 of the mine’s total workforce of 500 will probably come from Ollachea, and Minera IRL has set up a scholarship programme for the area’s young people to study relevant subjects at university.

No such initiatives will be required at Minera IRL’s other major prospect, Don Nicolas in Patagonia, Argentina. “The nearest village is 100km away, and only cougars and geologists live down there,” says Chamberlain.

“But the main highway from Buenos Aires to the Straits of Magellan crosses the property so logistics are good, and the provincial government is very mining-friendly.”

Minera IRL owns 2,700 sq kilometres of derelict former ranching land in Patagonia. The company published a resource study in August which found 380,000 ounces of measured and indicated reserves plus another 145,000 ounces of inferred reserves.

A feasibility study will be complete by early next year and, if all goes well, the mine should be in production by 2013, initially producing 50,000 ounces of gold a year for four years.

Like Ollachea, Don Nicolas may still have a lot of undiscovered potential, says Chamberlain.

Drill rig in operation at Ollachea Project

“Many of the veins are still untested, and after a little bit more work we expect to extend the life of the mine.”

Minera IRL expects to be producing about 200,000 ounces of gold a year by 2015, but the company is looking to establish a “third generation” of mines by the end of the decade.

“Our objective is to create a pipeline of mines and build ourselves into a sizeable mid-tier gold producer,” says Chamberlain. “That will be a great achievement for a company that’s come from nothing in 11 years.” www.minera-irl.com

Business Reporter · November 2011

an independent report from lyonsdown, distributed with the sunday telegraph

Precious metals

5

Are you banking on a bull market?

Serious investors no longer ignore precious metals, but there’s no guarantee they will remain recession proof

800 – 400 – 0–

Q2’08

Q4’08

Jewellery

Q2’09

Technology

Q4’09 Investment

Q2’10

Q4’10

Q2’11

London PM fix (US$/oz)

Source: GFMS, LBMA, World Gold Council

$1,800 – $1,600 – $1,400 – $1,200 –

50.00 –

Price of an ounce of gold, 1871 – 2010

40.00 –

$1,000 –

35.00 –

$800 – $600 –

30.00 –

$400 –

25.00 – 1871 – 1881 – 1891 – 1901 – 1911 – 1921 – 1931 – 1941 – 1951 – 1961 – 1971 – 1981 – 1991 – 2001 – 2010 –

$200 – $0 –

Price of silver

45.00 –

(2010 dollars, adjusted for inflation)

20.00 –

2010

2011

Source: Silver Monthly

Source: World Gold Council

2,400 –

5 year platinum

2,200 – 2,000 – 1,800 – 1,600 – 1,400 – 1,200 – 1,000 – 800 –

Oct 11

Apr 11

Oct 10

Apr 10

Oct 09

Apr 09

Oct 08

400 –

Apr 08

600 – Oct 07

Lust not for silver The market for silver is complex, and not easy to predict, as the number of factors that affect its value are considerable.

“The price of silver now seems relatively cheap compared with the recent past,” said David Wilson, an analyst at bank Société Generale in London. “But heavy investment in gold has created a positive environment for silver.” Many analysts cite rising demand for industrial uses in emerging markets as an important factor as well.

Look at what’s happened in the past year: silver fell 48 per cent in September after reaching a 31-year high of $49.84 per ounce in April. Silver fell on the broader economic issues that also hurt the price of gold and platinum for a brief time.

But demand for silver remains constant, because of its use in both silverware and photography, just to name a couple of applications.

According to Peter Krauth, global resources analyst at Money Morning, silver is expected to average about $38 an ounce this quarter, and then to rise to $42 by the end of 2012. In the medium term, Krauth sees silver rising to $250 an ounce. China’s industrial usage and investment demand are the reasons, Krauth says, to be bullish on silver.

But some analysts say that rising mine production will cause supply to outstrip demand putting downward pressure on prices. Morgan Stanley predicts output from mines will rise 1.4 per cent this year, and then jump 4.5 per cent in 2012. This means, according to the report, that global oversupply of silver will persist until at least 2016.

Gold demand by category in tonnes and the gold price (US$/oz)

1,200 –

Apr 07

Gold seems unstoppable The seemingly irresistible rise in the price of gold continues to charm the gold bugs and to amaze other analysts. Recently George Soros, who had ridiculed increasing levels of investment in gold as a “typical bubble”, reinvested heavily in the yellow metal.

Top hedge fund manager John Paulson is also betting heavily on gold. “We expect it to reach the $4,000-an-ounce level in the coming two years,” he enthuses. (At the time of writing, an ounce of gold is worth about £1,034 or $1,653.

It’s up 8.44 per cent in the past six months, and about double what it was trading at in 2006).

But it could be a rough ride. “Nothing goes up in a straight line, and a gold correction from current levels is actually quite healthy as the short-term rise was technically overextended.

We remain in a gold bull market and we would be aggressive buyers in and around the $1,600 range,” says Scott Gardner, chief investment officer at the Panama-based investment firm Verdmont Capital.

Fear is driving the demand for gold as well.

Not only are investors buying via the markets; an increasing number are investing in gold bullion and jewellery and filling up their safes with it, according to the London Bullion Market Association. In South Africa, Johan Botha, a spokesman for the Rand Refinery, which manufactures the world’s most popular gold coin, the Krugerand, said the plant was now running at full capacity, seven days a week.

“Even so, we have shortages,” he adds.

In London, you can now buy gold in shopping centres such as Westfield and you can even buy it from Gold to Go vending machines, which have been installed at Heathrow and Gatwick. (For obvious reasons, these machines are armourplated and surrounded by CCTV cameras.)

Platinum can make a mint If the demand for gold seems to defy logic, then the demand for platinum is at the other end of the rational spectrum.

Known as “high-octane gold”, platinum is essential to a number of industries, as the chart below shows. But about 10 per cent of it goes to investment, and it is easily obtainable in physical form. Pure platinum coins provide a liquid, convenient and reliable way to buy the metal: the Platinum American Eagle, Australian Koala, Canadian Maple Leaf, Isle of Man Noble and Chinese Panda are a few examples. According to Australia’s Northwest Territorial Mint, which issues the coins, demand has risen sharply in the past two years.

This is not surprising. An Australian 1992 2oz platinum Koala $200 AUD coin, in absolute mint condition with the original packaging, could be worth about £2,500 today.

Tonnes, US$/oz 1,600 –

Oct 06

For a long time, serious investors ignored precious metals – influential economist John Maynard Keynes called gold and silver “relics of our barbarous past”. They did seem like superstitious talismans, valued by tradition, compared with the rocket science that was going on in banking.

Then all hell broke loose in banking and a vast number of investors went running back to simpler, safer values. Gold was the first, most traditional choice and, apart from a blip last month, it didn’t stop appreciating and proving them right. Gold has, in fact, always been the first stop for frantic investors in recession, as the charts show. During periods of extreme inflationary or broader economic distress, gold prices have increased sharply only to recede back to lower levels as things return to normal. For example, from a peak of $563 in 1934 to a low of $201 in 1970, the inflation-adjusted value of gold declined by 64.4 per cent. Then the oil crisis of the early 1970s sent it shooting back to the stratosphere.

Silver and platinum were also pressured higher in price. But silver and platinum have also been in greater demand for industrial uses as development booms in Asia.

Nicholas Brookes, of London-based ETF Securities, which runs a gold exchange-traded fund, says: “The strong performance of gold, despite the value of the US dollar, indicates that investors are increasingly viewing it as an alternative store of value to paper currencies more broadly, as sovereign risks continue to rise.” Traditionally, investors concerned about the value of the US dollar would buy euros, British pounds or yen. However, with policy and debt risks rising in Europe, the UK and Japan, investors are increasingly putting their funds into gold as an alternative.

USD per ounce

By Andrew Rosenbaum

Based on New York close Source: Johnson Matthey

‘000 oz – 9,000 – 8,000 –

Global platinum demand 01/01/2000 – 12/31/2010

7,000 – 6,000 – 5,000 – 4,000 – 3,000 – 2,000 – 1,000 – 0

2000

2001

Jewellery

2002

2003

Other industrial

Source: Johnson Matthey

2004

2005 Investment

2006

2007

2008

Autocatalyst

2009

2010

Business Reporter · November 2011

6

an independent report from lyonsdown, distributed with the sunday telegraph

Industry view

Is the future of mining golden?

The biggest challenge facing the South Africa precious metal mining industry is not product price or political and legislative issues, but the availability of the high-level skills Gold mining in South Africa enjoyed its peak in the early 1970s with more than 1,000 tonnes mined per annum, or about 80 per cent of world total. Its slow but inexorable decline, caused by increasing depths and lower grades, has resulted in gold mining recently being referred to as a sunset industry.

While it is true that ultra-deep level mining (beyond 3,500 meters below surface) is now confined to the Gold Fields and AngloGold Ashanti group mines, there is somewhat of a revival of interest in shallower deposits based on the Witwatersrand Basin. Gold One’s flagship mine, Modder East, Great Basin Gold’s Burnstone Mine and Wits Gold’s projects in the southern Free State are examples of the new breed of gold mines in South Africa. All of these mines are categorised by the adoption, to a greater or lesser degree, of technologies developed for deep-level mining (for example, hydropower) and the application of long-established mining techniques – such as trackless mining for rapid access – previously ignored by labour-intensive, deep-level mining.

Not to be outdone, South Africa’s greenstone belt, based around Barberton, is enjoying a revival.

Pan African Resource’s Barberton Mine is going from strength to strength and Vantage’s Eastern Goldfields mines are acquiring new properties and expanding production.

Gold production in South Africa will never recover to the levels of the past but this new

entrepreneurial spirit and a readiness to seek change and adopt new technology means that gold mining in South Africa is far from being a sunset industry.

The platinum industry or, more correctly, the platinum group metals (PGM) industry, continues to expand and South African production currently represents, coincidentally, about 80 per cent of world production. It is now probably close to its peak with the current rush to fill in the gaps in the resource, especially on the Eastern Limb of the Bushveld Igneous Complex, close to saturation.

What can the PGM industry learn from the history of the gold industry? With Northam mining b e y ond 2 ,0 0 0 m e t e r s b e low surface and Anglo Platinum, Impala and Lonmin all planning to mine to similar depths in the not-too-distant future, the industry is getting inextricably deeper. The platinum industr y has the added disadvantage of higher geothermal

gradients (about 22˚C per 1,000 m) and more complex geotechnical stress regimes. Fortunately, many of the technologies developed and perfected for the gold industry are applicable to the platinum industry. These include refrigeration, backfill, hydropower and deep-level rock mechanic design, to name a few.

To maintain current production at appropriate levels of safety and profit will require access to high-level skills to design, implement and manage the operations, and the adoption of the appropriate tec h nolog ies in bot h equipment and mine design.

The biggest threat to the precious metal mining industry in South Africa is not the price of the product or the political and legislative environment, b ut r at h e r t h e availability of the high-level sk ills required. South African Hydropower: high pressure water pump station

trained and experienced engineers and mining entrepreneurs now pop up in every corner of the world. This is one of the causes of the ongoing skills shortage. This shortage extends from mine design and planning engineers to project managers, operations managers and maintenance engineers, who are vital to keeping existing operations running efficiently.

What is encouraging is the efforts of the Southern African Institute of Mining and Metallurgy to promote the industry at schoollevel and to provide a mentoring service to young professionals. Fortunately, the number of mining graduates is at an all-time high. The challenge is to find these young graduates meaningful employment and retain them in the industry.

Turgis Consulting is proud to have been associated with the precious metals industry for the past 21 years. From its base in South Africa and its office in the UK, Turgis now offers a worldwide comprehensive service encompassing all minerals. Turgis’ engineers and scientists have the expertise and experience to assist mining entrepreneurs in improving existing operations and developing new projects.

Patrick Willis is the managing director of Turgis Consulting. Email Patrick Willis at pat@turgisconsulting.co.uk www.turgisconsulting.co.uk

Drilling for Jurassic gold and silver One company is leading the way in exploration by focusing on striking gold and silver in Argentina and targeting sites in Chile Mariana Resources is drilling its way to success. This AIM (MARL) and TSX (MRY)-quoted exploration and development company is active in Argentina and Chile, and is focused on creating shareholder value through the discovery-to-resource cycle.

Since beginning grassroots exploration in the prospective Deseado Massif gold district in the Santa Cruz province in southern Argentina in 2007, Mariana has made two epithermal gold-silver discoveries at its 100 per cent-owned Las Calandrias and the 70 per cent-owned Sierra Blanca projects.

It is now a leading junior explorer in what has become a highly sought-after gold-silver region for both majors and mid-tier companies. Las Calandrias is an epithermal gold-silver system with both bulk tonnage and high-grade potential related to an extensive rhyolite dome complex, while Sierra Blanca is a classic vein-style project typical of the Santa Cruz region.

At the flagship Las Calandrias site, exploration of a 4km x 3km rhyolite domefield has discovered multiple centres of mineralisation, mostly within a 3km x 2km area at the Calandria Sur, Calandria Norte and Nido Norte domes. A maiden NI 43-101 resource estimate of 519,000oz gold equivalent was announced in July over just two prospects (Calandria Sur and La Calandria) and achieved inside of two years of initial discovery.

And so far, only 15 to 20 per cent of the domefield

has been explored by scout and follow-up drilling, with additional prospectivity in untested areas.

Each centre of mineralisation in the greater Las Calandrias project has its own characteristics, ranging from rhyolite breccia-hosted bulk tonnage at Calandria Sur to rhyolite-hosted high-grade vein-breccia style at the Calandria Norte and Nido Norte domes.

The 519,000oz gold equivalent resource comprises 491,000oz Indicated and 28,000oz Inferred gold equivalent for the combined Calandria Sur breccia and La Calandria vein-breccia.

Approximately 30 per cent of the contained gold and silver are in oxide and transition material.

The potential processing options outlined for Calandria Sur following preliminary metallurgical

Emerging Santa Cruz Gold Region, Argentina

test work include heap and/or conventional leaching for oxide and transition and flotation for primary to produce a high-value sulphide concentrate assaying 1.5oz gold and 25oz silver, the economics of which would depend on ultimate bulk tonnage potential.

The Las Calandrias project is now moving into a more expansive exploration phase to assess its wider resource potential. This involves the drilling of several important new target areas including high-grade vein-breccias at La Morena, Tongoril and Nido Norte, and possible high-grade “feeder zones” along the northeastern boundary of the Calandria Sur breccia-hosted deposit.

A recent breakthrough is the identification of new targets in the extensive volcaniclastics that surround the rhyolite domes at Lomo Verde, Picassa, Herradura and El Clavo.

This followed an exploration data review, mapping, trench sampling and some encouraging intersections from previous scout drilling. The fourth drilling programme for a minimum of 5,000m was recently completed, with first results due early in Q4 of this year.

Following Mariana’s Las Calandrias discovery at the end of 2009, other bulk tonnage style discoveries have been made by Minera IRL at the Escondido Project and Extorre at the nearby Falcon Project. These underpin the prospectivity of the region and point to an emerging gold-silver district in which Mariana has the largest land package in

the Las Calandrias region and is seeking to add value with other prospective domefields lined up for exploration by the experienced Mariana team once the field season begins.

Mariana is not a one-project company, however, as demonstrated by drill results from a 31-hole (5,181m) Q3 drilling programme at the Chala-Achen zone at its 70 per cent-owned Sierra Blanca silver-gold project also in Argentina. Best intersections to date include 30.1m @ 2.2 g/t gold and 101 g/t silver and 11.0m @ 3.4 g/t gold 385 g/t silver. Robust multiple epithermal veins have been discovered over the 1.1km trend which lies adjacent to the Argentex Pinguino epithermal gold/silver/polymetallic project. Drilling recommenced at the start of Q4 to further test the economic potential of this classic vein- style project.

Meanwhile, Los Amigos is an advanced exploration drilling project that came out of Mariana’s 130,000ha land package and is being explored in joint venture with Hochschild Mining.

The results are due from recent drilling of several epithermal vein targets.

The company also has a joint venture with USbased international mining and natural resources company Cliffs Natural Resources to seek iron oxide-copper-gold deposits in a 92,000sq km area in north-central Chile along the highly prospective Atacama Fault Zone. This venture is managed by Cliffs, allowing Mariana’s management to focus on its gold-silver exploration portfolio in Argentina while being exposed to upside potential from ongoing exploration in Chile. www.marianaresources.com

Business Reporter · November 2011

an independent report from lyonsdown, distributed with the sunday telegraph

Precious metals

There’s mettle in the yellow ore Nothing has changed in the flight to gold, it has been prized as a currency and investment since the time of the Pharaohs

By Andrew Rosenbaum

Warren Buffett once said of investing in gold: “It gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”

This is not strictly true – gold has a few industrial uses, mostly in making electronics components, but that accounts only for about ten per cent of total demand.

Nonetheless, using gold to make technology is incredibly limited compared with the uses of silver and platinum. So why did gold become money and, now that many fear our paper money will become worthless, why do so many people want to get hold of it?

Gold became money for the first time in 1500 BC. The immense gold-bearing regions of Nubia made Egypt a wealthy nation, and gold became the recognised standard medium of exchange for international trade.

The Egyptians liked gold jewellery very much and so, for them, gold had an intrinsic value which meant others, even those not in the jewellery business, would

“Gold is a tangible asset. Fiat currency is merely printed paper created by government decree” – DeSousa take it in exchange for goods. Gold is also extremely durable, so the Egyptians knew that the money would not corrode or decay.

The Chinese, on the other hand, used shells for money long before they started using gold. They also used pottery, stone, bone, jade and bronze. Getting hold of enough shells, or enough jade, proved to be a problem, so in 1091 BC the emperor limited money to gold and bronze coins.

Fast-forward to 1971 when the US withdrew from the post-war Bretton Woods agreement and ended the convertibility of the paper dollar into gold. Nothing had really changed before then: gold was worth money, and the dollar, along with other paper currencies, was based on gold.

The US decision to come off the gold standard ended all that and, for many investors, created the idea that owning gold could be a better idea than owning paper Flow of liquidity into US-Based Mutual Funds (in $ millions) Date

Total equity

Domestic equity

30/04/2010

10,428

1,971

31/05/2010

-24,244

-18,707

30/06/2010

-4,225

-6,679

31/07/2010

-11,879

-11,521

31/08/2010

-16,770

-15,941

30/09/2010

11,302

-14,656

31/10/2010

-565

-7,179

30/11/2010

-220

-7,325

31/12/2010

704

-13,153

31/01/2011

18,935

10,948

28/02/2011

11,649

7,546

31/03/2011

2,076

-5,846

30/04/2011

6,008

1,657

31/05/2011

-4,677

-6,226

30/06/2011

-22,831

-20,150

31/07/2011

-31,058

-28,049

31/08/2011

-29,293

-25,616

Source: Investment Company Institute

money. “If gold is regarded as a currency, it has been the best performer of its class since the start of the financial crisis,” says Sandy McGregor, an analyst at fund management firm Allan Gray.

“After 25 years of behaving as a normal commodity, gold’s traditional monetary role as a store of value and an inflation hedge has started to re-emerge, boosting its price to record highs.” McGregor says that the world is returning to a situation similar to the 1970s where fears regarding the Bretton Woods-based monetary system determined the price of gold.

Stansberry Research analyst Matt Badiali agrees: “You can’t argue with the long-term trend: the price of gold has gone up every year for the last decade.”

In the past year, with all sorts of meltdown-type fears emerging that are similar to those of the seventies, gold has performed better than ever in its history. Investment strategist Keith Fitzgerald explains the macroeconomic aspect of this: “What is really happening is that the Chinese are buying gold on an institutional level to hedge away from the dollar and build in diversification.

Demand from China and India accounted for a startling 41 per cent of the record total increase in global demand last year.”

Supporting the rising demand for gold is another trend, that of flight from equity markets. Investors, American and foreign, have pulled their money out of the NYSE, Nasdaq and many of the other major equity markets, fearing they no longer have any bottom. There is almost no appetite for risk remaining, as data from the Investment Company Institute below shows. Investors pulled nearly $150 billion off the equity markets in the period from June to July alone. They were concerned, analysts said, not only with the potential losses on the markets, but also with the potential value losses for the currency in which the equities were listed.

Paul DeSousa, Bullion Management Group vice president of business development, sums up this new anti-equity, anti-paper money sentiment succinctly: Gold is money. “Gold is a tangible asset. Fiat currency is merely printed paper created by government decree. It is only the promise written on paper.”

With all this demand, one must not neglect the amazing level of gold consumption in India. The Indian festival of Diwali, held at the end of October, is the traditional time for Indian consumers to buy gold. This year they drove spot gold prices up by more than 5.2 per cent during the holiday period. Spot gold smashed through three critical resistance levels ($1,665, $1,685 and $1,705 per ounce) on 24 October.

But that’s only one good indicator of how much Indians like to buy gold. Total Indian demand topped the rest of the world in the second quarter at 108.5 tonnes, according to the World Gold Council, double the value of demand in the same period of the previous year.

The strong rise in demand in India showed that investors there harbour bullish price expectations, an observation further evidenced by the low level of gold recycling on the Indian market this year. Indian investors also remained keen buyers of gold coins, the council said.

All of this means there is lots of upward pressure on the price of gold, but that could change if the global economy really falls into recession. The recent dip in the price at the end of September shows what can happen when sentiment changes quickly.

7

Business Reporter 路 November 2011

8

an independent report from lyonsdown, distributed with the sunday telegraph

Precious metals

Where does it all come from?

an independent report from lyonsdown, distributed with the sunday telegraph

Business Reporter 路 November 2011

Precious metals

9

Precious metal production 2010

Source: World Gold Council, Silver Monthly, Johnson Matthey

Business Reporter · November 2011

10

an independent report from lyonsdown, distributed with the sunday telegraph

Industry view

Unlocking the potential of Russian precious metals One mining group is consolidating its position as one of Russia’s leading gold miners by moving to pressure oxidation technology London-listed gold miner Petropavlovsk is developing a new processing hub at its Pokrovskiy mine in the far-eastern Amur region – the largest of its kind in Russia. Using pressure oxidation (POX) technology, the new hub will allow Petropavlovsk to extract gold from so-called “refractory” ores: currently, very few places in Russia are able to process these ores, despite the fact that they make up the majority of the Russian reserves and resources base.

“Refractory ore generally contains sulphide minerals, organic carbon or a combination of both which locks in the gold particles, making it difficult or even impossible for more traditional leach solutions to extract the gold,” says technical director Martin Smith. “The POX facility will oxidise this ore using a combination of high pressure oxidation and heat, allowing the gold to be extracted.”

“This is a very exciting step for us,” says Peter Hambro, chairman and co-founder of the group.

“Russia, like the rest of the world, is running out of easily-processed ore and, although it still has an abundance of untapped reserves, about 80 per cent of these are refractory. However, unlike many of our competitors, we will have the technology to process this ore. We have designed our POX facility in such a way that it can process ores from many different types of gold deposits which we will be able to acquire in the future at competitive prices.”

The location of the POX facility means that the

necessary infrastructure is already in place for the creation of a processing “hub” – Pokrovskiy is the group’s historical home so already has a skilled workforce, suitable roads and a power supply. In addition, it happens to be located just over six miles from the Trans-Siberian Railway – ideal for accessing concentrate from potential, future acquisitions.

The move is the result of five years’ worth of research in Russia. Petropavlovsk has its own state-of-the-art laboratory facilities in St Petersburg, and heading up the POX research is Professor Yakov Schneerson, one of the world’s leading specialists in autoclave technology.

The group has been assisted by Irgiredmet, a leading research institute established in Russia more than 125 years ago. Petropavlovsk also operates a unique metallurgical test plant in Blagoveschensk, the first of its kind in Russia, which allows the group to carry out extensive studies of bulk tonnage samples on pilot lines.

“Outside Russia, very little is known about the research Russian institutions have undertaken in this field,” Hambro adds. “We are fortunate to have one of the leading specialists in this technology in Professor Schneerson, who has more than 40 years’ experience in the field.

“The Soviets understood the importance of this technology and he spent many years as one of their leading researchers. He and his team were then employed by Norilsk Nickel and designed

The main pit at the Pokrovskiy mine, the location of the group’s POX hub project

and commissioned its autoclave processing plant. Because of the success of this project, we saw his potential in applying this knowledge and experience to gold extraction.”

Petropavlovsk is working on this project in close partnership with Outotec, the world-class technology provider of process solutions for the mining industry, which has already delivered more than 5,000 flotation units equating to about 50 per cent of the market share.

The group is on track to have the plant up and running by the end of 2013 and is confident in its ability to deliver against this target.

“The creation of this hub will give Petropavlovsk a strong competitive advantage in a highly prospective field, cementing the group’s position as a leading Russian gold mining company,” says Hambro. www.petropavlovsk.net

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Digging for gold Tapping in to the high gold price

Gold set to soar

Leading sector analyst, Dr Michael Green, says history points to a higher gold price

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The gap between bullion and small-cap gold miners is wider than ever. but with gold far from at its peak, those on the cusp of production will catch up as leading sector analyst, Dr Michael Green, explains

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old has consistently increased in price during the last decade rising 600 per cent from under $275/oz in 2001 to break $1,900/oz in recent months. But the story is not over. Gold futures and the underlying fundamentals both suggest there is more to come.

With gold exploration and mining stocks still lagging bullion, it is not too late to invest.

Since January, the gold price has risen by 15 per cent.

Gold stocks, as represented by the S&P/TSX Global Gold Index, are actually four per cent down. Gold mining shares have been punished for failing to meet self-imposed high production targets while high commodity prices put pressure on margins. But in their flight to safety in uncertain markets, investors have also widened the gap between bullion and gold stocks by dropping those mining the yellow metal and buying the finished product.

This valuation gap offers investors a second bite of the cherry.

History is a great teacher. Since 1983 there have been seven prolonged periods when gold miners have underperformed bullion. Every time the stocks eventually catch up with gold to close the valuation gap.

This time, the bounce back should generate substantial gains as the valuation gap has never been bigger or lasted longer.

So, what to buy? The greatest gains will likely come from smaller stocks. While the major gold miners have also lagged bullion, smaller companies have suffered more harshly as investors rushed to reduce risk, dumping

AIM-listed mining stocks with impunity.

The good have been dragged down with the bad and some solid small-cap gold exploration companies, whose security is backed by assets, are lying at outrageously low prices. The assets in question are resources, still in the ground, but whose value climbs in line with the gold price.

Successful exploratory drilling has allowed those companies to identify substantial resources compliant with well-respected international standards such as JORC or NI43-101. Further drilling activity subsequently improves the level of confidence in these resources, pushing their assets up the value chain from ‘Inferred’ to ‘Indicated’ and then ‘Measured’ categories. For some, the company’s value, as measured by the share price, is yet to reflect the increasing value of those underlying assets.

But even companies that have begun to unlock the value of their resources by moving towards production have proved unloved. The recent wobble in the gold price merely served to push valuations lower still. Some stocks are now trading at outright derisory multiples of their future annual revenue stream.

Gold acts as a barometer of the health of the global economy and, as such, does well in troubled times. As gold climbs, however, other production costs for miners rise more slowly, which increases their profit margin and, therefore, their future annual revenue stream. This is particularly acute for those in the process of moving into or improving current production and those able to increase existing or discover new resources. In turn, that should be reflected in their future stock market value. ▲ www.miningmaven.com, a specialist resources mining and exploration investment website, has ploughed through the sector and presents overleaf a handful of gold stocks which they believe represent best value in the sector. All five stocks are lowly priced but offer considerable upside potential.

ack when the value of the dollar was linked to gold, the official gold price was $35/oz. When tough economic conditions hit in 1971, President Richard Nixon ended the dollar-gold convertibility and four years later the price had climbed to $195/oz. After a brief lull in the late 70s, an almighty scramble into gold sent the price rocketing to hit a record $850/oz in 1980.

Today, a higher gold price seems well supported by supply/demand fundamentals.

World gold production peaked in 2001 and the average grade mined continues to fall as existing high-grade mines become exhausted. South Africa, for example, is producing 80 per cent less gold than 40 years ago. The historically low gold price, coupled with tighter environmental regulations and a lack of exploration success, have limited the number of new gold mines coming into production.

Demand, meanwhile, has renewed momentum as Central Banks have turned from sellers into buyers.

China is in the process of shifting some of its $3 trillion foreign-exchange reserves away from the dollar into gold. Although gold still represents a tiny proportion of those reserves, if China increased gold reserves in line with the global average, it would require two years’ worth of total global annual gold output.

At the same time, the accessibility of gold has increased markedly. The emergence of highly-popular Exchange Traded Commodities has opened up gold investment to everyone and hoovered up a substantial amount of world gold production. The SPDR Gold Trust alone holds 40m ounces worth $66 billion (as of 12/10/11).

Gold futures also point to higher prices in coming years. When adjusted for inflation, the previous high of $850/oz equates to a price today of $2,400/oz, which many commentators see as a target price. Beyond that, we are in unchartered territory.

But consider this: the rise to $850/oz in 1980 was fuelled by a potent cocktail of high oil prices, high inflation, high unemployment and violent uprising in many countries. Sound familiar? Gold is tracking a similar line to that seen from 1977 to 1980. All we are waiting for is high inflation. With the US, UK and other world economies attempting to address their debt problems by printing money and keeping interest rates artificially low, high inflation will come, as night follows day.

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iningMaven was founded by experienced investors Malcolm Palle and Paul Johnson to demystify the world of mining and exploration.

“We invest in the sector ourselves,” Johnson said, “and recognised that the information available to investors is highly technical, which can be off-putting.”

There is a tendency to think of how gold companies operate as a ‘dark art’, “but explaining what they do doesn’t have to be complicated,” Johnson says.

“There are technical aspects to any business and what we try to do at MiningMaven is demystify the terminology.”

As well as writing about the sector and specific companies, MiningMaven conduct regular interviews with management, allowing investors to stay abreast of companies’ progress. MiningMaven also host roadshows, offering investors the opportunity to meet the companies, learn more about the sector and hear from industry experts. These events are free for investors. (Visit: www.miningmaven.com/ events) “Successfully investing in gold exploration is not about pure luck and, when you get it right, the returns can be extremely impressive,” Palle said.

“Doing so requires considerable research, but there is a lot of information out there. We try to collate as much of it as possible to help investors make more informed decisions. We don’t give investment advice though,” Palle adds. “The ultimate decision lies with investors.”

The exploration companies featured here all have defined gold resources with production in sight: Ariana should commence production in Turkey next year; Conroy has made significant discoveries in Ireland and is looking to move into production; Kryso has a large-scale project expected to produce gold from 2013; Goldstone is operating in the prolific Ghanaian Ashanti Gold belt, Senegal and Gabon; and Red Rock is currently rampingup production in Colombia and has another gold project in Kenya.

Full reports for each company can be downloaded at www.miningmaven.com/goldstocks Gold has risen consistently during the last decade.

Much of that rise has been in anticipation of today’s global financial crisis. “Huge debt levels are not simply going to go away,” Johnson said. “We see gold getting stronger. What better way to participate than at the discovery and pre-production stage?”

Mining Maven @theminingmaven www.miningmaven.com

ccording to Chinese proverb: “A clever rabbit has three openings to its den.” Ariana Resources, the next gold producer in Turkey, has three such openings.

The first is its Red Rabbit Project, a 448,000oz gold equivalent (gold and silver) resource at Kiziltepe in western Turkey, where mining operations are scheduled to begin late in 2012 targeting output of 20,000oz of gold equivalent per annum over eight years.

This will be operated through a joint venture (JV) with Turkish construction company, Proccea, who have designed and built plants and components for gold and silver mines in Turkey and abroad, including Europe’s largest gold mine, Kitila.

The estimated cost of bringing Red Rabbit into production is $26m. Proccea’s commitment totals $8m and Ariana is in discussions with Turkish and international sources to raise the remaining $18m through debt.

Cash costs based on the scoping study were estimated to be $441-472/oz and payback was estimated at 1.2 years, based on a gold price of $1,350/oz.

Mining operations will then move to Tavsan, where Ariana expects to produce 30,000oz/year gold-equivalent for five years through shallow pits.

Ariana also has the right to sell additional gold finds into the JV at three times the exploration cost, but can take advantage of any better offers.

The second opening to Ariana’s den is a 49 per cent-stake in a JV with European Goldfields in north-eastern Turkey. Exploration and drilling is underway at two prospects with potential for a discovery of more than one million ounces.

Ariana’s third opening is a 13 per cent-stake in Tigris Resources with exploration prospects in south-eastern Turkey, which Dr Kerim Sener, Ariana’s managing director, called “the next great frontier for gold and copper exploration in Turkey.

“Turkey has 23m ounces of gold resources with a stable and attractive climate for exploration companies,” Sener continues. “The government has also been very supportive during the past decade.”

With mining projected to last at least ten years across Red Rabbit and the prospect of further finds within Turkey, there is a lot of potential upside in this stock.

@ArianaResources www.arianaresources.com

he dictionary defines potential as: latent qualities that may be developed and lead to future success.

Conroy Gold and Natural Resources holds licenses in Ireland’s Armagh, Monaghan and Cavan counties covering approximately 600 sq miles. Conroy’s exploration programme has led to its discovery and licensing of a 30-mile gold trend with a series of confirmed gold targets.

In order to move into production in the shortterm, Conroy is focusing on Clontibret, where it has a gold resource of more than one million ounces within 20 per cent of the license area, making it an attractive target. Clontibret is also at an advanced stage and a scoping study completed in February showed it to be technically and financially feasible.

“Our priority is getting a mine up and running to establish a cash-flow,” says Professor Richard Conroy, chairman. “Extensive drilling is already underway at Clontibret to further define the resource with a view to bringing it into production, together with other technical and environmental studies required for a planning application and mine licence.”

The remaining 80 per cent of Clontibret has not been fully explored, but soil sampling and initial drilling suggests potential for a world-class, multimillion ounce resource.

Conroy’s Clay Lake license area, meanwhile, covers a greater area and gold-in-soil concentrations higher than those recorded at Clontibret. Drill holes have also returned positive results and early exploration findings suggest lower extraction costs.

According to Prof Conroy: “Although exploration at Clay Lake is still at an early stage, it could prove to be more prospective than Clontibret.

“Ireland has a long-established mining tradition, a favourable business climate and excellent infrastructure. As well as moving into production in the short-term, we will continue exploring Clontibret, Clay Lake and several other areas showing promising mineralisation,” Prof Conroy said.

Conroy is transforming from gold explorer to producer in its drive to realise the potential of a resource in excess of one million ounces. While moving into production will firmly underpin the company’s value, Conroy remains the very definition of potential allowing for significant future upside.

Ticker: CGNR www.conroygold.com

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ccording to folklore: “The diligence of the hive produces the wealth of honey.”

GoldStone Resources is a hive of activity exploring gold prospects in West Africa that are capable of speedy economic exploitation or hold the potential for large gold discoveries.

Its flagship Homase-Akrokerri project is situated in the highly-productive Ashanti Gold Belt in Ghana, a stable democracy, with a favourable regulatory system and knowledgeable local workforce.

GoldStone owns 65 per cent of Homase and has rights to acquire up to 85 per cent once a feasibility study is completed. Between 2002 and 2003 Ashanti Goldfields successfully extracted 40,000oz from Homase when gold was about US$350/oz with operating costs of around US$250/oz.

After conducting exploratory work and acquiring 95.1 per cent of the neighbouring Akrokerri license in 2010, the gold resource of the Homase-Akrokerri project now stands at 405,556oz. Jurie Wessels, CEO, expects this will increase: “We are halfway through an extensive drilling programme, which has already produced some very exciting results by any standards.”

GoldStone’s hive offers further potential.

In April GoldStone acquired 100 per cent of two three-year exploration licenses in Gabon. “The sheer size and linear extent of the gold anomalies and the presence of significant artisanal workings on both licenses suggests potential for a discovery unmatched in Central Africa,” Wessels said.

GoldStone also holds rights to earn into another Ghanaian license, which has shown encouraging soil results. In Senegal, GoldStone identified three large gold anomalies in its 100 per cent-owned Sangola license area. Both licenses are located in prolific gold provinces.

In 2010 GoldStone completed a private placing with Unity Mining, an AUD$66.3m Australian company, who see their 33.5 per cent stake as an opportunity to expand into West Africa. “In Unity we have an experienced miner and credible partner, who not only shares our excitement for our projects, but also considers GoldStone a significant part of building its business,” Wessels said.

The combination of a portfolio of exploration projects across three prolific regions and the potential each project holds of generating significant discoveries, suggest the diligence of the GoldStone hive could produce a wealth of gold.

elivering an end product is the Holy Grail for resources companies. Therein lies the sales revenue and profit generation that underpins their value. The same applies to houses: discounts are available for buying “off-plan”, or on the promise of a home. Once that promise is delivered, the property’s value jumps.

When valuing gold exploration companies, the market should attribute greater value to those with a defined timetable to production. The current high gold price therefore favours those closer to achieving the Holy Grail.

Kryso Resources, a gold exploration and development company, should achieve that goal in 2013 when its Pakrut Gold Deposit in Tajikistan is slated for production. Kryso owns 100 per cent of the 3.58m oz Pakrut resource.

“We expect significant upside,” Kryso’s MD, Craig Brown, says. “Recent drilling has shown potential for a bigger resource and better grades. Further target areas north of the main Pakrut asset have also undergone drilling with strong potential.”

Pakrut is near the Tajik capital, Dushanbe, in the prolific Tien Shan Gold Belt, which contains the world’s second-largest known gold resource.

“Tajikistan is a stable central-Asian republic with excellent prospective geology and a miningfriendly administration that is highly receptive to foreign investment,” Brown said.

A 2010 Bankable Feasibility Study showed Pakrut to be highly cash generative with expected minimum annual production of 82,000oz of gold over the first four years and a 14-year mine life.

Life-of-mine operating costs are estimated at $377/ oz with total development costs of approximately $108m. Kryso will finance this through debt, and has an undertaking from the China Export-Import Bank to provide bank loans covering 70 per cent of the development costs. Kryso is receiving support in this from its largest shareholder, China NonFerrous Metal International Mining (CNMIM).

Assuming a conservative average gold price of $897/oz, the project has a net present value of US$121m with a 40 per cent internal rate of return.

With gold at $1,250/oz, these figures rise to $227m and 58 per cent respectively.

Kryso is well along its transition from explorer to producer, controlling a vast gold deposit with potential for more discoveries and resource expansion.

ariety is the spice of life and, in the case of Red Rock Resources, a diverse mining house with gold projects in Colombia and Kenya, variety is also a source of potential wealth.

Red Rock’s core gold asset is its investment in two Colombian gold mines located in Antioquia, which has a history of gold production. Red Rock holds 51 per cent of Mineras Four Points, the local operating company.

Continuous production started in April and further mine development, planning and mechanisation work is underway to increase production to 150 tonnes per day.

“We are confident this is achievable. We also see potential in other areas which would enable further increases in production,” said Andrew Bell, Chairman.

In Kenya, Red Rock holds a 15 per cent interest (which rises to 60 per cent on completion of a Bankable Feasibility Study) in 63km of the Migori greenstone belt, an extension of the prolific Tanzanian Greenstone Belt.

This has the potential to become a substantial asset. Extensive drilling and exploration work is currently underway to further evaluate the 1.2m ounce resource. Red Rock also owns about 35 per cent of Kansai Mining Corporation, its partner in this project.

A scoping study has also commenced to evaluate Red Rock’s 66,000oz Macalder Tailings gold resource, which has good prospects of being brought into production.

Red Rock also invested £1.5m in 2010 in a 22 per cent stake in Ascot Mining, which owns the Costa Rican Chassoul Gold concession, from which gold has since been produced. “This mine is following a parallel course to our operations in Colombia, though a little behind,” Bell said.

Red Rock also has an active iron ore exploration project in Greenland. “We have found deposits in the first few weeks,” Bell said. A substantial proportion of Red Rock’s market cap is underpinned by its interest in iron-ore and manganese through Jupiter Mines Ltd and through a production royalty on the Mt Ida iron project. These provide additional reserve liquidity and significant capital growth potential.

Red Rock Resources offers a variety of production and exploration prospects with the potential for considerable future growth.

The companies showcased have all contributed towards the cost of producing this MiningMaven Special Feature. All figures quoted have been obtained from the respective company websites and publically available sources. Errors & omissions excepted. The summaries represent the views and opinions of MiningMaven, have been prepared for information and educational purposes only and should not be considered as investment advice or a recommendation to buy shares in the companies featured. All opinions expressed are those of the author/s and unless otherwise stated, should not be construed as being made on behalf of any featured company. From time to time MiningMaven principals may take equity positions in companies. Readers are advised to do their own extensive research before buying shares which, as with all small cap exploration stocks, should be viewed as high risk. Investors should also seek the advice of their investment adviser or stockbroker, as they deem appropriate. MiningMaven is a division of Catalyst Information Services Ltd registered in England: 06537074.

Business Reporter · November 2011

an independent report from lyonsdown, distributed with the sunday telegraph

Precious metals

15

City superwoman spurns silver and gold Not everyone is backing precious metals. Nicola Horlick tells us why they’re not an attractive prospect for her

By Andrew Rosenbaum

Nicola Horlick isn’t bullish on gold and precious metals. “Buy gold, put it in your bank’s safe deposit box.

Now, what’s the yield on that?” she exclaims. “That’s not what investing is about.”

Horlick, who is the founder and CEO of Bramdean Asset Management, an entrepreneurial investment boutique established in 2005, calls that kind of investing the result of an “Armageddon scenario”. Indeed, her view is that if you really think that the entire global economy is about to fall apart, by all means flee into your bunker with your heaps of gold and silver and your tins of green vegetables.

“The fuss over precious metals is just an indicator of how afraid people have become. We don’t think things are getting anywhere near that bad,” Horlick insists. “It would make more sense for investors to consider mining stocks, which at least pay dividends.” Mining companies, of course, should be chosen for good management and long-term prospects, not because they have just found something valuable underground.

Horlick, who first became famous at the age of 38 when she beat down a conspiracy against her by male rivals at Deutsche Morgen Grenfell before turning that company

“The fuss over precious metals is just an indicator of how afraid people have become. It would make more sense for investors to consider mining stocks, which at least pay dividends” around, has most recently moved into funds backing the production of films. Having already launched Derby Street Films – a £2m fund aimed at raising money from private investors to fund as many as 25 films – in October, Horlick is now planning to produce one herself, a British film, made entirely in the UK. Horlick had already backed a successful film music venture called The Cutting Edge.

“The cinema is actually a unique experience totally different from that of television, and the rising popularity of 3D has given it a moment of opportunity that is not likely to come again soon,” Horlick explains.

One does not, logically, produce entertainment just ahead of Armageddon, but that doesn’t mean that Horlick expects the near future to be bright with promise. “There are a lot of things wrong with the world. The population’s growing too fast, and we’re plundering the world’s resources.”

Horlick got tagged with the “Superwoman” label as the mother of five children. She was known for taking a taxi home from the office at lunch to provide breastfeeding, and her proud boast is that she’s never missed a sports day or a school speech day. Naturally, like any other mother today, she’s concerned about the prospects for her children.

Flight to Frankfurt

Horlick: investing in metal could be riskier than the film industry

“But life goes on. There is plenty of money to be made, and plenty of business to be done,” Horlick points out.

“Some say the price of gold will keep going up. Others say it’s already reached its peak. But why take the chance?”

Why, in other words, lock up your savings in an asset that could, at any time, stop rising in value just because the market changes? For Horlick, money is to be made by people who go out, make deals, and add value. Why not put your money where you can evaluate performance, not where you could be a lucky winner, but where you could also lose out to market sentiment that is anything but rational?

In investment choices, Horlick seems most interested in the large global macroeconomic trends, such as the jump in commodity prices or the demand rising in emerging markets. As she’s said in a past interview: “I was always taught that you should not buy into a falling market until a recovery has been clearly established. The problem is that nothing goes up in a straight line and nothing goes down in a straight line either, so the trick is to try to identify when the turn is for real.” Figuring out when the equity markets will recover, and when gold or platinum will decline in value is a conundrum; it makes investing in these metals quite scary and frustrating, Horlick says.

For Horlick, business is all about people, particularly about people doing their job well. “Whatever business you are in, you must focus on actively managing your staff. Give your people clear guidance, so that they are all on the same page, they can all perform with the understanding that their actions are leading to the success of the company and to their own personal success. Give them a clear career path, and make it work in terms of the performance of the entire team.” This warm, human approach to business is at the antipodes from buying cold metal and burying it in a safe.

So it’s not surprising that Horlick feels the same way about collecting jewellery made from precious metals.

“The markets for expensive jewellery aren’t likely to be promising in the middle of a recession,” she says. “Nor are collectors expected to make record bids at auctions.”

It must be said that Horlick herself is rarely seen wearing jewellery. Some photos show her with a locket, but even those are rare. She seems to be much more interested in people than in clothing or art objects.

One of her next lines of business is to be a series of private clubs, presumably for like-minded people, around the London area. The venues are to be called Georgina’s Restaurants, named after her child who died of leukaemia after a ten-year battle with the disease. The first one is to open shortly in Barnes.

But Horlick is more interested in investment opportunities than in photo opps. Her analysis seems to focus on the most basic trends in the global economy, taking in land in Brazil at a moment when food prices are rising faster than the price of oil. Still, markets driven by fear – on this point Horlick agrees with Warren Buffett – are more likely to value oil and soybeans rather than antique earrings.

Nicola Horlick – in brief Born 1960 Educated at Oxford University Joins SG Warburg as graduate trainee in 1983 Becomes part of Mercury Asset Management in 1984 Joins Morgan Grenfell in 1991 Starts up SG Asset Management in 1997 Set up Bramdean Asset Management 2005

Business Reporter · November 2011

16

an independent report from lyonsdown, distributed with the sunday telegraph

Industry view

Real wealth in your hands Protecting your portfolio with physical gold could be the ultimate insurance for turbulent times “Six weeks to save the world!” screamed the headlines in September, as the economic meltdown in the eurozone showed no sign of resolution and global markets plummeted again.

The expectation of an imminent world banking collapse may be a minority view, but it is increasingly held. On a national scale it has happened many times before, for example, in Germany, Russia and Argentina.

For private investors it poses the oldest question in the world – where is their money really safe?

And growing numbers are choosing the oldest answer: physical gold.

“In Germany and Austria, where economic collapse and hyperinflation happened within living memory, holding gold bars and coins is fairly common, and it’s always been seen as a safe haven for wealth in India,” says Rob Halliday-Stein, managing director of Bullion by Post, the UK’s market leading supplier of physical gold.

“We’re offering investors the ultimate insurance. It gives people physical control and ownership over part of their wealth. It’s quite different from handing over money to a fund manager – or even, these days, leaving it all in a bank account.”

The price of gold tends to rise as investors in other markets get the jitters, says Halliday-Stein.

“If you visit the Bullion by Post website – www.bullionbypost.co.uk – you can see that the gold price began rising sharply in August 2007, just as news of the banking crisis started to break.

It’s more than doubled in the last three years,

Safe investment: physical gold bullion

and more than trebled in the last five.”

As the buying power of savings is eroded by low interest rates and high inflation, and currencies are devalued by repeated rounds of quantitative easing, owning physical gold may be a way of preserving the value of your money, says Halliday-Stein.

However, as he is careful to point out, this does not necessarily mean that physical gold is a good speculative investment. The gold price tends to fall back as economic conditions improve, and can even do so as they worsen – as happened in September this year.

Anyone wishing to speculate short-term on the gold price can consider exchange-traded funds (ETFs) or contracts for difference (CFDs)

which track the price of gold. But this kind of ‘paper gold’ is of no value if the fund-owner goes bust or the banking system fails, says Halliday-Stein. Ultimate security comes from having a bar or two, or a purse of sovereigns, in your bank deposit box or under the bed.

“It makes sense to hold at least five to ten per cent of your liquid wealth in physical gold for the long term,” says Halliday-Stein. “It performs a very useful function as an asset of last resort as part of a balanced portfolio.”

Bullion by Post’s typical customers are not billionaires, but small to medium investors. They have savings – Halliday-Stein does not advise borrowing to buy gold – but can range from owners

of businesses to modestly wealthy retirees.

“For most people 100g gold bars – costing around £3,600 – are the best investment,” says Halliday-Stein. “Even if you wanted to buy several kilos we would recommend 100g bars. The price is slightly higher than kilo bars but it’s much more flexible when you sell them.”

For smaller units, coins are very popular, with a sovereign (containing 7.3g of gold) costing about £270. The premium – the price you pay above the global spot price of gold – is a few per cent higher, but because they are British legal tender, sovereigns and the larger Britannia coins are exempt from capital gains tax, making them very attractive to wealthy investors.

Bullion by Post will buy the gold back at 98 per cent of the global spot price but, of course, buyers are free to sell it anywhere. Movement of gold is unrestricted in the EU and to many other countries.

Despite being about 50 times cheaper than gold, silver is less suitable for this kind of insurance investment, says Halliday-Stein. It attracts VAT – unlike gold, which is exempt – is much bulkier to store, and the volatile price makes it a more speculative buy.

“Don’t think, ‘I’m not rich enough to buy gold so I’ll buy silver’,” says Halliday-Stein. “In uncertain times, gold offers about as much certainty as you can get.” www.bullionbypost.co.uk Call 0121 554 9914

Business Reporter · November 2011

an independent report from lyonsdown, distributed with the sunday telegraph

Precious metals

17

In good health Whether we know it or not, silver is an everyday commodity used across industries from medicine to energy. But can it be trusted to continue to perform for investors?

By Kathleen Kiley

Ever heard of nanosilver? Magnetised silver? Silver as a preservative for wood?

From x-rays to solar panels, silver has more industrial uses than gold – and the list is growing. According to the Silver Institute in Vancouver, Canada, 487.4m ounces of silver were used for industrial applications in 2010, compared with 167m ounces used in the jewellery market. Beyond these applications, Jeff Nielsen, founder of research website Bullion Bulls Canada, says silver’s emerging uses are “certain to deplete tiny stockpiles and send prices surging higher”.

Nielsen points to silver’s new application in medicine: Through magnetisation, silver develops greater antibacterial properties. Silver has such properties without magnetisation, but they are mightily increased with it. Magnetised silver is currently being studied by big pharma, according to Nielsen, to see what products it can be immediately integrated in (the company would not be more specific, Nielsen says, due to competition issues).

Paramount Discoveries, a southern California scientific technology company, has announced it can magnetise

Eleven new industrial uses for silver have been found in recent years, and the use of silver in long-established technologies is increasing common elements, including silver, through electromagnetic frequency technology (EMFT). This technology can stimulate magnetism in a number of elements besides iron, increasing the permeability of that element or its ability to attract a magnet. Carbon was the first element that Paramount made magnetic, and then found the right frequency to do the same for silver.

Based on its analysis of the macroeconomic context, the Silver Institute has made the forecast for rising industrial demand for silver, as shown in the chart (right). While the analysis is admittedly bullish on global economic growth, the fact is that 11 new industrial uses for silver have been found in recent years. And the use of silver in long-established technologies is increasing.

For example, electrical contacts in automobiles are now generally made with silver, according to the Silver Institute. It used to be that only high-end cars used silver for wiring, but now stricter legislation is forcing almost all manufacturers to use the metal.

Fingers in every pie: x-rays are just one of the many uses for silver

The photovoltaics industry is using more and more silver every day. Demand for these applications has risen from 4m ounces per year in 2004, to 50m ounces per year in 2010. The institute expects that amount to double by 2015.

But these ‘established’ uses of silver are being complemented by new silver applications. In the clothing market, silver use is increasing dramatically in the ethylene oxide (polyester) industry. Demand from emerging markets is driving this trend for growth in textiles sales. A wide range of nano-applications require nanosilver – everything from medicine to filters and catalysts. The traditional preservatives for wood have been found to be environmentally unfriendly, and most have been withdrawn from the market. Silver can play this role, and new products with the metal are emerging.

All of the institute’s analysis of future silver trends, however, does depend on GDP growth. Even the institute admits that a macroeconomic event like the ones we’ve had in the recent past will deal a crushing blow to silver demand. Investors should be aware of silver’s increasing number of applications, but also that demand for those products depends largely on whether the industries that use them are seeing sufficient demand as well.

Nicola Horlick – in brief Born 1960 Educated at Oxford University Joins SG Warburg as graduate trainee in 1983 Becomes part of Mercury Asset Management in 1984

The rarest of them all For those keen to impress, rhodium could be the answer

By Andrew Rosenbaum If you are desperate to show off how much you’re worth or looking for something for the person who has everything, like the wife of the US president, there is rhodium jewellery.

It’s the relative scarcity of gold that helps make it attractive to investors. Using this logic, there should be vast investor interest in rhodium, the rarest and most expensive metal in the world.

Rhodium is 100 times rarer than gold, and five times as expensive at current prices. In fact, it’s the most

expensive of all precious metals. It is used extensively in making jewellery and in the automobile industry. So why not put your money on rhodium?

Rhodium was discovered in 1803 by William Hyde Wollaston who, being English, was also a gardener, and named it after the Greek word for rose. This turned out to be a misnomer – the ore that contained the rhodium Wollaston was examining happened to be pink in colour. But rhodium is not; the precious metal is bright white, almost shining when polished.

In jewellery, rhodium is used mostly to produce “bling”. It is plated on gold and produces the colour

known as white gold – a popular finish for rings and chains with lots of bling – which is very shiny. Rapper 50 Cent, for example, wears a big shiny white-gold crucifix that is plated with rhodium. The news that Barack Obama was to buy a pricey rhodium ring for Michelle turned out to be false – Obama ordered the ring, but cancelled Rhodium: adorned by 50 Cent

before it could be filled. The ring itself is real, though, and can be found on the website of Italian designer Giovanni Bosco, one of the rare smiths who work in rhodium. There are several rhodium rings, studded with diamonds, visible on his website, including the big thick one supposedly intended for Michelle that costs about £25,000. Bosco comments that a special rhodium ring says “I love you” like nothing else.

Rhodium is used extensively in industry to make mirrors and optical instruments, in electrical connections and aircraft turbine engines and, most of all, to make catalytic converters for

automobiles. Nearly 80 per cent of the annual supply of rhodium goes into cleaning up exhaust gases.

In diesel engines there is no other metal that can be used.

One would expect investors to see all this as a, er, goldmine, but they don’t seem to look at it that way. The problem is volatility: rhodium prices have been all over the place in recent years. In 2003, rhodium averaged $530 an ounce, but a rapid increase in demand over the next five years forced prices up to more than $10,000 an ounce.

Then the financial crisis sent them tumbling again.

The volatility comes largely from

the challenge of rhodium supply.

There are no rhodium mines. The metal is only produced as a side product of platinum or palladium mining. It’s expensive, and difficult to process, so supply doesn’t change much from year to year. If investors think demand is about to change, they dump the stuff as fast as they can.

This is why there are no ETFs (exchange-traded funds) specialising in rhodium. If you want to invest in it, you have to just buy some, either as jewellery or in powder form. On the other hand, profits could be handsome if sentiment jumps the right way.

Business Reporter · November 2011

an independent report from lyonsdown, distributed with the sunday telegraph

Precious metals

19

Ore or nothing?

Our global panel of private investors give their opinion on whether to splash out on gold, silver or platinum

By Kathleen Kiley

All around the world, investors are trying to figure out whether or not to plunge into precious metals. When it comes to gold, they seem to be finding lots of good reasons.

Start in the UK, with staunch gold supporter Adrian Ash, head of research at internet gold bullion exchange BullionVault. “Yes, gold got hurt badly during the past month. But, like good insurance, gold’s defensive value pays out over time, not day-to-day – provided you remember to pay your premiums in good time.” Ash points out that, through all the mayhem last summer,

“Gold is easy to buy and relatively easy to transport. I can put it in my safe, and move with it if necessary” – Mela gold beat every other asset class hands down on returns.

“This latest phase of the crisis, however, guarantees volatility in all markets, and anyone considering gold today must understand that it’s physically secure but financially exposed to very sharp price swings. No one can (or should) promise new buyers that gold will now repeat its 120 per cent gains of the past three years. But the long-term case for owning gold only looks stronger, as this crisis becomes worse and worse.”

Dr Giuseppe Sandro Mela, an internist at the University of Genoa, is equally pessimistic about the global economy, but also bullish on gold. He points out that buying and selling physical gold in Italy is not subject to VAT. “This

makes it even more attractive,” Mela says, “because the world economy is in bad shape. I like gold because it’s easy to buy and relatively easy to transport. I can put it in my safe, and move with it if necessary. It’s also pretty unlikely that the Italian State, which likes to interfere with people’s private savings, will be able to interfere with my gold holdings.”

But Michael Arold, a private investor based in Germany, isn’t as categorically bullish. Arold watches interest rates closely because, he says, they are an important indication of where gold prices are headed. “From a technical standpoint, the long-term trend is upward and so I would buy gold in every price dip. But you have to watch interest rates, because investors will flee gold if they feel secure enough investing in bonds again,” he says. “On the other hand, negative interest rates will push gold prices higher. There’s a correlation of when interest rates are negative, gold prices rise.”

Some of the same economic factors that affect gold are also affecting other precious metals, including platinum and silver, Arold says. “I would be very careful, however, with silver and platinum because these metals have industrial applications and are much more sensitive to the economy and deteriorating growth.”

Over in the US, however, New York lawyer Avery Goodman strongly disagrees about platinum. He points out that a number of major banks are also buying physical platinum and taking delivery. In October, the Merrill Lynch division of Bank of America took delivery of 4,350 ounces, worth about $6.5m, for its house account. Deutsche Bank,

in the US, took delivery of 750 more ounces this month, after already taking 11,650 ounces in July.

“Platinum is a sharply under-priced asset, and market forces will eventually force platinum prices back up,” says Goodman. Quantitative easing is forcing a move to so-called hard assets, he insists. The price of platinum will be supported further by burgeoning automobile sales, which many analysts expect to improve sharply in Europe, the US and China in the coming year. Sales of diesel cars in particular, which use eight times as much platinum as petrol-engine cars, are improving even faster, Goodman says. “This means that there is a good chance of another price rise for the precious metal,” he adds.

Some investors hate gold. There is Bruce Barren, CEO of EMCO/Hanover, a merchant banker in California. “Right now, I don’t have gold holdings, and unloaded them in the $1,800 range. I don’t think gold will go up the way people think it will go up. We’ve had a substantial ride and it’s over. Gold typically goes up dramatically when inflation is high. We are in a period of disinflation and so I think we are in a limbo period,” he says.

As for silver, Barren believes it has a lot more application and appeal than gold. “Silver is used in various industrial applications, while gold is used to offset inflation,” he says.

London-based investor Ian Wyatt agrees: “There may be a short-term decline in silver. But industrial demand will remain strong. There is no doubt that the current price action in silver is bullish and the sentiment indicators are overwhelmingly supportive of a bullish move.”

Going underground Rather than buying physical gold, you could opt for mining stocks, which are less risky than they were

By Kathleen Kiley Gold mining stocks used to be considered tough, scary bets for investors. They could go through the roof when they hit a gold vein in a mine, but wind up back on the floor again through poor financial management.

Today, though, an increasing

number of analysts are bullish on gold mining stocks or gold funds.

Janet Yang, a fund analyst with Morningstar, says: “Gold mining is selling at a huge discount in price compared with the price of physical gold. For instance, fund returns, based on year-to-date share prices, have increased by 15 per cent. The price of gold has increased only ten per cent

year-to-date, to over £1,034.9 per ounce. If investors were to buy their gold in stocks or funds, they could be paying up to 25 per cent less than they would have if they’d bought physical gold.”

Yang points out that miners sell their gold for less than the London market price, and she thinks gold will come down to a lower price level soon. “Fear is

leading the markets, and all the frightening unresolved issues in Europe, along with concern about low interest rates, are all driving gold prices higher.” Funds and mining stocks, some of which include actual possession of gold (by the funds or mining companies), do offer good value, and performance by funds and companies has improved overall,

according to Yang.

“In the mining fund category are large cap miners and some exploration companies. Some can be volatile, but there are some conservative investments, such as First Eagle Gold, a large cap fund that has 15 per cent of its fund in gold bullion. The remainder of the fund is mining stocks, and is carefully managed,” Yang explains.

Mining stocks have started to produce dividends. The gold prices have been so high that companies can return capital to investors. “In the past, mining companies used to be clumsy at capital allocation, but because they are generating so much cash, they can self-finance their operations. This means they manage risks better,” Yang says.

Business Reporter · November 2011

an independent report from lyonsdown, distributed with the sunday telegraph

Are gold sovereigns a good investment?

Most coin collectors today are buying gold sovereigns as an investment and there are some very attractive reasons as to why.

Something to consider when investing in gold sovereigns is the scrap value of these coins. Regardless of condition, dates or monarchs, the scrap value of the gold sovereign over recent weeks has reached a high of £280.00 Gold sovereigns are exempt from capital gains tax.

Any gold sovereigns since the first modern day sovereign in 1817 to present date are tax free, as the VAT has been lifted.

Gold sovereigns also offer the chance for collectors to invest in physical gold and, in today’s market, offer the chance to successfully invest in rarer coins, improving your investment based on the rarity and collectability value of the coin(s).

Making a good investment Here at Hallmark Coins we are giving you the chance to make a good investment. The Queen Victorian “Young Head” Shield Reverse Sovereign continues to be one of the most favoured sovereigns among our collectors as Queen Victorian sovereigns are one of the best-known and most popular coins in the world.

We are offering these “Young Head” sovereigns not only at an incredibly low price of £299.99 each, but we thought we would offer some of the most attractive dates of her reign dated from 1842 to 1862 (we have always found the first twenty years to be most popular, fetching higher prices).

Most of these dates also continue to increase in value yearly in the annual SPINKS Coins of England catalogue – a guide most collectors use.

To add to this fantastic opportunity we are offering the new 2012 Queen Elizabeth II Gold Sovereign, featuring the new illustration of St George slaying the dragon, designed by competition winner Paul Day at the one-off price of £295.00.

This is £84 cheaper than the price currently offered by the Mint.

How do I apply?

To apply for this offer, call our sales line: 020 7481 0125 now (Mon – Sun | lines open 10am – 5pm) Alternatively, send payment by cheque along with your name, address, contact number and the number of coins you would like to order to Hallmark Coins, 4-5 Queen Victoria Terrace, Sovereign Court, London, E1W 3HA

Business Reporter · November 2011

an independent report from lyonsdown, distributed with the sunday telegraph

Precious metals

21

Fortune favours the brave From strikes in South Africa to a volatile car market in China, investing in platinum is a huge risk. But there’s money to be made by those up for the challenge

By Andrew Rosenbaum

PLATINUM IS RARE, and much in demand from both industry and investors, but you have to keep a close eye on the factors that affect its value. Unfortunately, there are a lot of these.

Almost anything could happen. A strike in South Africa; depressed car sales in China; changes in the value of the dollar.

Any one of these events, and there are lots more, could trigger a drop in the price of platinum. The number of potential factors is staggering. Nonetheless, a truly global investor – as, surely, we are all on the way to becoming – could make a fine profit on platinum investing, keeping an eye on all the necessary trends.

Look at the recent precious metal’s trajectory. After the sell-off in gold and platinum in 2008, both precious metals rebounded strongly from the October 2008 low by about 100 per cent, with platinum leading the way until early August 2011 when gold overtook the price of platinum.

Whither platinum?

Up until 26 October, platinum underperformed gold by about 17 per cent. Standard Bank analysts wonder if platinum might not be falling out of favour as the net speculative position in platinum, viewed as a percentage

The fears provoked by the sovereign debt crisis in Europe hit platinum hard while having the opposite effect on gold of open interest, has declined from about 38 per cent in January to about 20 per cent in October this year.

Bullion broker Sharps Pixley insists this was clearly due to an increase in short positions – that sounds as though investors don’t like platinum as much, certainly.

Another such suggestion is that ETF (exchange-traded fund) positions have also been flat this year compared with rising positions in the past few years.

Add to all this that platinum supply may rise in 2011 and 2012, as well as the uncertainty about the global economy. The fears provoked by the sovereign debt crisis in Europe hit platinum hard while having the opposite effect on gold. The price of platinum, of which about half goes to make automobile converters and about 20 per cent goes to make jewellery, is heavily dependent on consumer spending.

Around the world China is the place where car sales are growing fast: As of the end of August, Chinese auto sales had reached nearly 12m units, a 3.3 per cent year-on-year increase, and production was also near 12m units, resulting in three per cent year-on-year growth, according to statistics from the China Association of Automobile Manufacturers.

So the price of platinum should find support in this.

Not so fast: the car buyers in China want small, petrolpowered vehicles, and these cars use less platinum in the catalytic converter, as a report from Platinum Investing News explains. In addition, growth of sales is starting from a very low base. “In 2009, Chinese auto sales increased by 46 per cent. While that is an astonishing figure, it resulted in just over 3m more vehicles being sold there than in the US, the second largest auto market in the world after China,” the report says.

Large-car sales, like those of SUVs in Europe, are far more important to platinum demand than those of small cars – some big cars even have two catalytic converters.

The biggest platinum consumers of all are big diesel vehicles, and sales of these declined in China this year, the report says.

There is also the US Department of Defence (DoD) energy policy to consider. Last month, the DoD put out a report saying it would start powering its operations using fuel cells. Fuel cells consume a great deal of platinum, and the DoD consumes 80 per cent of the total energy used by the US government (that a lot of it goes off as hot air, we will not deny). As a result, the DoD is likely to buy a lot more fuel cells next year, which should mean a big rise in platinum demand.

As if that were not enough, there is South America for investors to worry about. A good bit of platinum demand is expected to come from emerging markets like Brazil, which are supposed to be translating their commodity riches into infrastructure improvements

– meaning trucks are needed for construction and so on. While it is not clear how quickly this infrastructure improvement will take place, it could keep platinum demand lower than expected.

Supply and demand So, let’s compound all our worries with the question of supply and production in the coming year.

On the supply side, some analysts express fears of shortages for the rest of the year. Platinum miners are digging deeper than ever to reach the reserves, according to Platinum Investor Daily. Research firm GFMS, which specialises in precious metals, estimates that companies are able to extract 3.83g of the metal from every tonne of rock. Production in South Africa is expected to decrease 8.4 per cent from its peak in 2006, and catalytic converter demand is projected, by bullish analysts, to increase by 64 per cent this year. Labour disturbances in South Africa, by far the world’s greatest producer, may cut supplies even further.

There’s more. Chemicals specialist Johnson Matthey points out that, in the past few years, platinum supply has not met demand, with 20-25 per cent of demand satisfied by recycling used platinum. Last year, for the first time, mining output and recycling fell short of demand.

Indeed, for anyone planning to invest in platinum the development of recycling is yet another worry. The re-users of platinum are growing ever-more skilled at getting it out of waste and back into catalytic converters.

Got all that under control? Here’s the last one: the valuation of platinum versus gold. From 2000 to 2008, the price of platinum ranged between 1.5 and 2.4 times that of gold. Currently, platinum trades at about 93 per cent of the gold price, indicating some undervaluation.

Obviously, there is no logical relationship between the two prices, it’s just that the coefficient had remained the same for a long time.

David Brown, the CEO of Impala Platinum, which mines the stuff, recently commented that the price for platinum could reach $2,000 by the end of 2012 as he sees a very positive order book for 2012 and describes “a disconnect between the financial world and real economy”. Certainly, it’s not easy to remain connected with all this data overload. But, if you have a flair for challenges, invest in platinum.

Business Reporter · November 2011

22

an independent report from lyonsdown, distributed with the sunday telegraph

Precious metals

All that glitters...

From flea markets to top jewellery houses, collectible bling can be found in any number of places. But knowing what to buy requires experience and a good eye

By Cora de Jong

Gwyneth Paltrow seems to like platinum. At the recent Emmy Awards, she was wearing Neil Lanedesigned platinum earrings with seven carats of black and white diamonds, two platinum and diamond bracelets with a total of 100 carats and a platinum ring with five carats of diamonds and black onyx (right).

The work of celebrated American designer Lane is greatly admired, not just by Paltrow, for its mix of vintage delicacy and sparkling Hollywood bling. Much of the jewellery that today’s stars wear seems to have been chosen for size, not for workmanship, but Lane’s has both impact and fine craftsmanship.

Will Lane’s jewellery become collectible? I personally think so (and I don’t mean because Gwyneth Paltrow

The most certain judgment comes from your eye: Is the piece nicely made? Are the stones placed evenly and carefully?

Classical: a late 19th century peridot, enamel and diamond pendant

by Carlo Giuliano

and Elizabeth Hurley wear it). Jewellery that gains value over time is based on workmanship, by the quality of the design, and the skill with which the stones and settings have been combined.

This explains the importance of hallmarks on most vintage jewellery. Hallmarks go back to the time of the guilds in medieval Europe, and the rules that govern them depend on the country the jewellery was made in. But the presence of any hallmark, even just the date of manufacture, is a sign of authenticity both for the precious metals and the craftsmanship. Jewellery with the hallmark of a famous house or metalsmith is fairly certain to gain value across the decades.

However, hallmarks are a complex area. For example, the UK did not accept any foreign hallmarks on imported jewellery until 1999, and it had to be retested and re-hallmarked. An indication that antique jewellery had undergone that process would be strong proof of authenticity. But you find plenty of really good foreign jewellery in the UK that somehow never got re-hallmarked, and so you have to track the hallmarks back to where they came from. (You should be aware that many UK antique jewellery shops still look sceptically at objects that have not been re-hallmarked. This could affect your ability to resell them later.)

Most of the vintage and antique jewellery we see today dates from between the middleVictorian era up to the 1970s, so these are the most important hallmarks to be acquainted with. The hallmarks are often accompanied by other markings, some of which are specific to particular metalsmiths.

But hallmarks are only one guide to judging collectible jewellery. The most certain judgment comes from your eye: Is the piece nicely made?

By nicely made, we mean is it put together with proper proportions? Are the stones placed evenly and carefully, and, if the jewellery includes small pictures, are these done well?

You don’t have to be an expert to judge this kind of thing. You do have to be an expert to know, for example, that certain vintage brooches were assembled

from separate pieces, and that the way they hold together matters. So learn as much as you can about an appealing piece, but if it’s grubby or seems shoddy, don’t let anyone tell you that this is “typical of antiques of that time”, or something similar.

I collect pendants and rings in gold and platinum, but am not such a fan of silver. I like pendants and rings, generically, as you can probably guess, because they’re all about workmanship and less about big stones. Carlo Giuliano, a Neapolitan whose work dates from the end of the 19th century, is one of my favourites – don’t bother, jewellery thieves, I can’t afford any of his stuff. Giuliano, who lived in London for quite some time, modelled his work after the Romans and the Etruscans. The proportions are always classical, the fine work extremely delicate.

You can similarly find classic, and more affordable, work at Tiffany’s today.

The premier jewellery house has just come out with a ‘key’ pendant – it looks like a key, but the handle of the key is a kind of classic spheres design. This is strikingly original, especially given the high quality of the gold or silver smithing. I’ll buy one to keep because I believe it’s really collectible, but that’s just a guess – you can never tell how tastes will change.

Furthest from my personal taste is the big, thick jewellery of the sixties and seventies. Those thick gold bracelets, studded with stones, seem crude to me, yet many collectors see more in it than I do. If the stones are good, and the workmanship is careful, there are probably good opportunities in price to be had with this kind of jewellery.

If you like finding your antique jewellery in brocantes (French flea markets), as I do, you do have to be careful about fakery. Pay no attention to certificates of authenticity and so on, unless they come from a recognised authority you can verify them with. One sure sign of a fake is messy craft.

If you see a piece with poor finishing, or where there is irregularity in the way the stones are set, just walk on by. It ’s unlikely that a craftsperson would have been able to sel l such a thing in the 19th century, nor would one be likely to produce it. This may seem obvious, but I’ve been shocked by what people have tried to sell me.

One last word: Don’t make price your criterion.

There are really great pieces to be found in car boot sales; you just have to be a good judge of what you’re looking for.

Certainly the great jewellery houses make fantastically collectible stuff, but that’s not the whole universe of collecting.