Gold

By Kishori Krishnan Exclusive To Gold Investing News

A deal was approved on Thursday by Kyrgyzstan’s lawmakers to double the government’s stake in a gold mine that is one of the impoverished Central Asian country’s biggest sources of revenue. The settlement will raise the state’s share in Canada-based Centerra Gold Inc. (CG.TO), which owns the lucrative Kumtor mine, to 33 per cent from 15.7 per cent previously.

In addition to increasing Kyrgyzstan’s role in the Kumtor project, the $100 million deal will also see the government take joint ownership of gold deposits in Mongolia and an exploration site in northern Nevada. Kyrgyz authorities have hailed the decision as a victory for the ex-Soviet nation’s efforts to assert its rights over the country’s mineral resources, but government critics say the dispute with Centerra has scared away foreign investors.

Centerra has been subjected to tax evasion probes and a tax audit by Kyrgyz authorities over the past two years. Some lawmakers have lobbied to have Kumtor nationalized altogether. It may be recalled that the company was stripped of its license to exploit Kumtor last year after a court ruled ex-President Askar Akayev’s government had illegitimately extended Centerra’s rights to the mine in the 1990s. Operations at Kumtor continued as normal, however.

Under the new arrangement, Kyrgyzstan could boost see its tax revenues from the project boosted by up to $40 million per year, Kyrgyz Prime Minister Igor Chudinov told reporters. Kyrgyzstan received about $50 million in tax revenues from the mine in 2008.

Centerra’s majority owner, uranium miner Cameco Corp. (CCO.TO), is to retain a 37.8 per cent stake in the company. Authorities hope the deal, which still requires presidential approval before it can enter into force, will assuage investors’ fears that the government plans to embark on a campaign to nationalize key industries.

Centerra says Kumtor, one of the largest gold mines in Central Asia, produced more than 556,000 ounces of gold last year. According to Kyrgyz government figures, it accounted for just over 5 per cent of the economy.

Hurt by reduced gold production and sales volumes and higher operating expenses, Centerra Gold posted a first-quarter loss. The company posted a loss of $20.3 million, or 9 cents a share, in the quarter ended March 31. That was down from a profit of $23.7 million, or 11 cents a share, before unusual items, in the year-before quarter. Revenue fell about 12 per cent to $98.4 million.

Gold down

On the COMEX division of the New York Mercantile Exchange, gold for June delivery GCM9 was down $16.40, or 1.8 per cent, at $884.10 an ounce. Throughout the day, it ranged between $880.10 to $900.80.

U.S. gold futures dropped nearly 2 per cent on Thursday as a Wall Street rally prompted profit taking, while an imminent bankruptcy filing by U.S. automaker Chrysler should not affect platinum group metals demand, traders said. A second-day equities rally also dented safe-haven demand for gold, after the Federal Reserve on Wednesday said the U.S. recession appeared to be easing, traders said.

Since there was market talk of selling pressure from gold-backed exchange-traded fund, traders said it weighed on gold futures. Bullion holdings of the largest gold ETF, the SPDR Gold Trust, were unchanged for a fourth session on Wednesday. The trust’s gold assets have fallen 23 tonnes month-on-month after rising more than 98 tonnes in the preceding four weeks.

In other news, Newmont Mining Corp (NEM.N), the No. 2 gold producer, said its quarterly profit fell 48 per cent, citing weaker copper prices. U.S. Rep. Barney Frank on Wednesday supported Congressional authorisation of planned gold sales by the International Monetary Fund with proceeds going to loans for poor countries. The market took the comments in its stride.

“Lower commodity prices relative to last year both hurt and helped our performance in the first quarter,” said President and Chief Executive Officer Richard O’Brien. “Lower copper prices, in particular, negatively impacted our earnings and cash flow. On the positive side, lower than expected diesel costs and Australian dollar exchange rates resulted in lower than expected costs applicable to sales,” he said.

Earlier in the week, analysts had forecast that gold miners would see Q1 cost fall between $5 and $15 an ounce on lower oil and strong dollar. RBC Capital Markets said, the first-quarter production costs of gold miners would be surprisingly low, in its preview of quarterly gold-miner results.

Analysts Stephen Walker and Michael Curran said average oil prices of $43 a barrel during the quarter were well below the $70 to $75 that most companies have used to forecast their costs. As well, the U.S. dollar’s strength versus currencies in Canada, Australia and other mining regions should lower costs for miners with unhedged costs, they said.

“We expect nearly every company in our universe of coverage to report operating costs near the lower end of their 2009 guidance with improved operating margins,” the analysts said in a note. The lower oil prices should primarily benefit companies that are unhedged and operate open pit mines, which use more energy than underground mines. The analysts pointed to Iamgold (IMG.TO), Kinross Gold (K.TO), Newmont Mining (NEM.N) and Yamana Gold (YRI.TO).

They added that Agnico-Eagle Mines (AEM.TO), Newmont, and Goldcorp (G.TO) should benefit in particular from the U.S. dollar’s strength. The analysts also noted that gold and silver companies raised about $5.5 billion in new equity during the quarter, which could factor into spending for capital projects and corporate acquisitions.

Company news

Lihir Gold Ltd (ASX:LGL) reported a sharp rise in first-quarter gold production to 317,998 ounces, more than double the 139,188 ounces it mined in the same period a year ago. It was also up from production of 315,484 ounces in the previous quarter. Full-year production from its mines in Papua New Guinea, Ivory Coast and Australia was likely to be in a range of 1.04-1.2 million ounces, in line with previous guidance.

Total cash costs were reduced to $329 per ounce. Lihir in March raised $325 million by selling new shares to institutions to fund an expansion of its Lihir mine in Papua New Guinea’s New Ireland province.

Polyus Gold, Russia’s largest gold miner, said on Thursday its net profit fell 40 percent to $51.5 million in 2008, due to worsening global financial conditions and an impairment on securities investments.

Polyus said in a statement earnings before interest, taxation, depreciation and amortisation (EBITDA) rose 32 per cent last year to $436.5 million. The company said 2008 financial results had also been influenced by a significant rouble depreciation and an increase in the cost of materials and fuel.