Overnight Markets- Leading News -Update 1

Higher gold prices needed to sustain gold-mining industry – Gold Fields

JOHANNESBURG (miningweekly.com) – Gold will need a higher price to sustain mine production, says Gold Fields CEO Nick Holland.

Announcing lower net group March quarter earnings of R2 082-million ($268-million) compared with higher December quarter earnings of R2 605-million ($336-million), Holland puts the all-in cost of producing an ounce of gold at $1 400 and says the gold-mining industry will need prices higher than the current $1 500/oz to maintain output at 70-million to 75-million ounces a year.

“If we’re going to replace the ounces being mined out…we’re going to need higher prices,” he says, adding that analyst forecasts need to be moderated upwards.

Project curtailment, rationalisation and consolidation will follow if the gold price fails to return to at least the $ 1700/oz level at which it was trading prior to US Federal Reserve chairperson Ben Bernanke’s February 29 revelation that there would be no further near-term quantitative easing in the US.

Holland believes that the world is more likely to inflate itself out of debt than attempt to increase taxes and that there will be more quantitative easing.

“I think you’re going to see a lot more bad news coming through across the world and that should bode well for gold,” he says.

China, central banks and exchange-traded fund (ETF) investment is continuing to underpin gold, the World Gold Council (WGC) reports in its latest Gold Demand Trends study.

The WGC expects China to become the world’s largest gold market by the end of the year in terms of annual demand.

Gold is actually in scarce supply. People are struggling to get gold,” says Holland, who adds that Gold Fields is patiently continuing to drive the fundamentals of the business and believes that the company will be rewarded in time.

“We’re not going to be distracted from our strategy by short-term gold-price volatility,” Holland assures.

MARCH QUARTER

The salient features of Gold Fields’ March 2012 quarter were group attributable equivalent gold production of 827 000 oz, total cash cost of $870/oz, an operating margin of 48%, a notional cash expenditure (NCE) margin of 24% and progress on its four growth projects.

Four fatal accidents took place at the South African operations.

Despite the lower production, net earnings remained robust benefiting from a stable gold price combined with continued sound cost control.

Attributable gold production for the year ending December 2012 is expected to be 3.5-million equivalent ounces.

The group NCE increased by 2 % from R313 286/kg ($1 206/oz) in the December quarter to R319 835/kg ($1 280/oz) in the March quarter. This increase was as a result of higher operating costs and lower production, partially offset by lower capital expenditure.

The company now owns 40% of the promising Far Southeast project in the Philippines where it has an option to take up an additional 20% stake from Lepanto Consolidated Mining Company for $110-million.

In Peru, the Chucapaca feasibility study is progressing, with particular emphasis on optimising recoveries, plant design and permitting.

At the Arctic Platinum project in Finland, resource drilling on the Suhanko North prospect added platinum-group element mineralisation to the original Suhanko project of 140 million tons.

At the Damang super-pit project in Ghana, drilling is complete and resource models finalised for the prefeasibility study.

The company’s latest resource and reserve statement indicates 5% higher reserves of 80.6-million ounces.

West African resources are up 46% from 17.3-million ounces to 25.2-million ounces and West Africa reserves are up 21%, from 11.3-million ounces to 13.7-million ounces.

The reserve base of Cerro Corona in South America is up 15%, from 5.3-million ounces to 6.1-million ounces.

At the Australian operations, gold production decreased by 9% from 172 000 ounces to 157 000 oz, owing to lower underground volumes and grades at Agnew.

In South Africa, gold production at the Kloof Driefontein Complex fell 13% from 285 800 oz (8 890 kg) in the December quarter to 249 700 ounces (7 765 kg) in the March quarter.

At Beatrix, production decreased by 12% from 89 700 oz (2 789 kg) to 79 200 ounces (2 462 kg).

At South Deep, production was flat at 58 600 oz (1 824 kg).

http://www.miningweekly.com/article/higher-gold-prices-needed-to-sustain-gold-mining-industry-gold-fields-2012-05-17

 Greece on brink of collapse

http://www.telegraph.co.uk/news/worldnews/europe/greece/9268507/Greece-on-brink-of-collapse.html

BOJ Failed to Draw Enough Offers in Debt Purchase

http://www.bloomberg.com/news/2012-05-16/boj-failed-to-draw-enough-offers-in-debt-purchase.html

Europe Must Face Ugly Reality of Greek Exit from Euro

A Greek exit from the euro area has the potential to be the European Union’s most economically and politically destructive event of a generation. Unfortunately, Europe has reached the point where it must prepare for such an outcome.

Whether Greeks want it or not, circumstances could soon force their country to return to the drachma. Europe’s leaders, as Luxembourg Prime Minister Jean-Claude Juncker hinted, might extend Greece’s deadlines to meet the budget targets required for rescue money, but they won’t provide emergency financing to a government that refuses austerity measures. Without Europe’s help, Greece’s government (whoever ends up leading it) faces a dilemma: Cut spending even more than under the austerity program, or default on its debts and print a new currency to pay its bills.

A return to the drachma would be painful. The currency would immediately be worth a fraction of a euro, and would depreciate further if the government printed money to finance deficit spending. Bank depositors would get devalued drachmas, if they got anything at all. Businesses would be starved of credit. Prices and wages would probably rise to compensate for the currency’s loss of value, eroding the benefit of a cheap currency to Greek exporters.

Daunting Challenge

The rest of Europe would face the daunting challenge of containing the fallout. To that end, as Bloomberg View columnist Clive Crook notes today, it must be prepared to do all the same fiscal reforms and take all the same emergency measures needed to keep the euro area intact, and more. Even then, a Greek exit would have unpredictable consequences.

First, Europe would have to absorb immediate losses on money lent to Greece. The country has about 400 billion euros in external debts, which its government, banks and companies would probably pay only in part or in drachmas. European taxpayers would suffer the lion’s share of the losses: Their exposure by way of the European Central Bank, national central banks and EU lending programs amounts to more than 300 billion euros. The rest would fall on private companies and banks, particularly in France, possibly requiring governments to step in and provide capital.

Second, European officials would need a plan to stop bank runs. As soon as Italian, Portuguese, Spanish and maybe even French depositors see footage of Greeks clamoring for their savings, they’ll want to get their euros out of local banks as quickly as possible. Bank holidays and bans on withdrawals would help only temporarily. To prevent a collapse of the banking system, Europe’s leaders would have to guarantee all deposits in euro-area banks, a move that would put Germany and other core countries on the hook for insuring more than 3 trillion euros in Italian and Spanish deposits. Common deposit insurance would also require euro-area governments to achieve in a matter of days a harmonization of banking regulation that has escaped them for more than a decade.

Third, Europe would have to calm market fears that other euro-area countries, such as Portugal and Spain, might follow Greece’s lead. Investors’ worries about such an outcome could become self-fulfilling if they pushed borrowing costs up to levels that the governments can’t bear — a trend already evident in the yield on Spain’s 10-year bond, which stood at 6.3 percent Tuesday, up from less than 5 percent in early March. To keep interest rates down, the ECB could buy even more government bonds than it already has, or lend banks more money to do so. This could eventually leave the ECB holding or financing all the debt of the afflicted governments.

Market Confidence

Alternatively, the ECB could try to restore market confidence with a show of overwhelming force, guaranteeing the repayment of all struggling euro-area governments’ debts for the foreseeable future. But even this course of action, which Bloomberg View has advocated as part of a plan to hold the euro together, might not have the desired healing effect after a Greek exit.

There would be political as well as economic costs. Greece is highly unlikely to leave the EU in a fit of nationalist pique — it doesn’t want to face Turkey alone over Cyprus, or to see Balkan neighbors such as Albania, Macedonia and Serbia join the EU while it seethes outside. But for a European project that has been expanding and integrating ever more deeply since its formation as a six-nation coal and steel production union in 1951, a Greek exit from the euro — especially if followed by other countries — would mark a turning point. For example, if Greece can leave the euro, why not kick it out of the Schengen open-border zone? The majority of illegal immigrants to the EU come through Greece’s border with Turkey. It’s hard to predict what else might unravel.

Given the potential for unintended and unforeseen consequences, the least bad course for Greece and the EU remains, as Juncker hinted, for deadlines to be waived long enough for Greece to form a government that would recommit to a reform program. To make such an outcome possible, Europe’s leaders should move beyond self-defeating austerity and take immediate steps to support growth in Greece and other struggling countries. Failing that, Europe will have no choice but to prepare for the worst.

http://www.bloomberg.com/news/2012-05-15/europe-must-face-ugly-reality-of-greek-exit-from-euro.html

King Says BOE Braced for Euro Debt Crisis Risks: Economy

Bank of England Governor Mervyn King said officials have prepared for dangers posed by Europe’s debt crisis, after the bank lowered growth forecasts and raised predictions for inflation this year.

“Contingency plans have been discussed and have been for a considerable time,” King said at a press conference to present the bank’s quarterly Inflation Report today in London. “We are navigating through turbulent waters with the risk of a storm heading our way from the continent….

http://www.bloomberg.com/news/2012-05-16/boe-sees-near-term-u-k-inflation-pressure-before-slowing-1-.html

Greek President Told Banks Anxious as Deposits Pulled

Greek President Karolos Papoulias was told by the nation’s central bank chief that financial institutions are worried about their survival as Greeks pull out euros amid a deepening political crisis.

Central bank head George Provopoulos told Papoulias that Greeks have withdrawn as much as 700 million euros ($891 million) and the situation could worsen, according to the transcript of the president’s meeting with party leaders on May 14 that was published yesterday….

http://www.bloomberg.com/news/2012-05-15/greek-president-told-banks-anxious-as-deposits-pulled.html

European Stocks Fluctuate; Richemont Surges on Earnings

European stocks fluctuated near a four-month low as better-than-forecast U.S. home-construction and industrial-production data offset concern that Greece may be forced to leave the euro.

Credit Agricole SA and Societe Generale SA (GLE) gained more than 2.5 percent as banks recouped earlier losses. Cie. Financiere Richemont (CFR) SA surged the most in three years as earnings topped estimates. National Bank of Greece SA tumbled 13 percent as the country’s central bank chief said citizens had withdrawn as much as 700 million euros ($891 million) since the May 6 election.

The Stoxx Europe 600 Index (SXXP) rose less than 0.1 percent to 245.84 at 3:40 p.m. in London, erasing losses of as much as 1.4 percent. The gauge has tumbled 9.7 percent from this year’s peak on March 16 amid continued political uncertainty in Greece and concern about its future in the euro currency union.

“I have felt for quite a long time that Greece’s exit from the euro was a matter of when, not if,” Michael Spencer, chief executive officer of ICAP Plc, said in an interview on Bloomberg Television. “I think it is better for Greece in the the long run and certainly better for the euro zone.”

The country yesterday called a new election after Greek President Karolos Papoulias failed to broker a governing coalition in meetings yesterday with Pasok party head Evangelos Venizelos and other political leaders.

New Elections

Greece’s Democratic Left leader Fotis Kouvelis said a new caretaker government decided by party leaders today would have one task, that of holding elections. He also said elections would most likely be held on June 17.

The deadlock in Greece has also sparked uncertainty over the country’s pledged spending cuts required by the terms of its two bailouts worth 240 billion euros negotiated since May 2010.

German Chancellor Angela Merkel and new French President Francois Hollande said they would consider measures to spur economic growth in Greece as long as voters committed to the austerity demanded to stay in the euro.

Requests for measures to bolster growth will be considered and the European Union may also “approach Greece with proposals,” Merkel said late yesterday at a joint press conference with Hollande during his first official visit to Berlin. “Greece can stay in the euro area.”

Benchmark Indexes

National benchmark indexes advanced in 13 of western Europe’s 18 markets. The U.K.’s FTSE 100 gained 0.1 percent, Germany’s DAX rose 0.4 percent and France’s CAC 40 rallied 1.1 percent. Greece’s ASE Index fell 1.3 percent to its lowest level since February 1990.

A gauge of European banks gained 0.3 percent, erasing losses of as much as 2.3 percent earlier today. The gauge had tumbled 5.3 percent through yesterday to a January low.

Credit Agricole (ACA) climbed 4.2 percent to 3.17 euros, after tumbling 13 percent over the previous three days. Societe Generale upgraded the lender’s shares to buy from sell with a price target of 4 euros.

CA Cheuvreux also said in a note that the impact on French banks from Greece’s exit of the euro would be minimal. Societe Generale gained 3.4 percent to 16.34 euros and Natixis (KN) rose 2.8 percent to 2 euros.

Italian and U.K. lenders also climbed. Intesa Sanpaolo SpA (ISP), Italy’s second-biggest bank, gained 4.3 percent to 1.02 euros and Barclays Plc (BARC) rallied 3.5 percent to 192.55 pence.

Richemont Rises

Richemont climbed 8.6 percent to 57.95 francs, after the second-biggest luxury goods company reported full-year profit of 1.54 billion euros as it sold more Cartier jewelry in Asia, beating analysts’ estimates.

Swatch Group AG (UHR) gained 3.7 percent to 401.5 francs after the watchmaker forecast that the industry will grow at a “high single-digit” or “double-digit” pace in 2012 amid growing demand for luxury goods.

LVMH Moet Hennessy Louis Vuitton SA (MC) also advanced as Bank of America Corp. upgraded the luxury-goods maker to buy. The shares gained 1.6 percent to 124.35 euros.

National Bank of Greece declined 13 percent to 1.22 euros after Papoulias was told by the central bank chief, George Provopoulos, this week that financial institutions are becoming anxious about their prospects as Greeks pull out cash after the inconclusive May 6 elections.

Bankia SA (BKIA) tumbled 9.9 percent to 1.68 euros in Madrid as the extra yield investors demand to hold Spanish 10-year bonds instead of benchmark German debt climbed to a euro-era record.

Construction Companies

European construction companies fell as the the U.S. Architecture Billings Index, an indicator of construction activity, fell to 48.4 in April from 50.4 the previous month, the first time it dipped below 50 since October.

Eiffage dropped 7.7 percent to 24.28 euros, Hochtief AG (HOT) retreated 3.5 percent to 37.66 euros and Vinci SA slid 0.6 percent to 33.18 euros.

A.P. Moeller-Maersk A/S tumbled 5.1 percent to 38,280 kroner after the company said its container line, the world’s largest, will at best break even this year, falling short of analyst estimates for a profit.

Lamprell Plc (LAM) plunged 61 percent to 115.1 pence after the oil and gas rig engineer said it will incur a “small” loss in the first half, citing delays in equipment deliveries.

http://www.bloomberg.com/news/2012-05-16/european-stock-futures-decline-amid-concern-over-greece.html

Merkel-Hollande Meeting Yields Greece Growth Signal

German Chancellor Angela Merkel and French President Francois Hollande said they would consider measures to spur economic growth in Greece as long as voters there committed to the austerity demanded to stay in the euro.

Requests for measures to bolster growth will be “considered” and the European Union may also “approach Greece with proposals,” Merkel said late yesterday at a joint press conference with Hollande during his first official visit to Berlin. “Greece can stay in the euro area,” and “Greek citizens will be voting on exactly that.”

Their encounter, the first meeting between the chiefs of Europe’s two biggest economies, came after Greece announced a return to the ballot box following the collapse of talks on forming a government. The euro and stocks fell as investors speculated that Greece may drop out of the single currency more than two years after its budget-deficit blowout triggered a financial crisis across Europe that continues to rage.

Hollande saw Merkel less than 12 hours after being sworn in as president and an arrival that was delayed by a lighting strike on his plane from Paris. With Greece in its fifth year of recession, the French Socialist returned to a theme he pressed throughout his election campaign, saying policy makers must offer the prospect of something more than austerity.

“I’ll respect the vote of the Greeks whatever it is,” Hollande said. “Yet my responsibility is to give Greece a signal. I see the suffering and challenges that the Greeks feel. The Greeks need to know we’ll come with growth measures that will allow them to stay in the euro zone.”….

http://www.bloomberg.com/news/2012-05-15/merkel-s-first-hollande-meeting-yields-growth-offer-for-greece.html

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