Gold war in Colombia: traditional miners against the state

October 16, 2017 Posted by admin

Luz Dary has spent more than half of her life in the mine. This 47-year-old Colombian woman is a chatarrera, a scrap collector: she toils away, every day, from six in the morning to six at night, alongside another 50 or so women in Las Brisas, on the outskirts of Segovia (a municipality in northwest Antioquia, in inland Colombia), selecting, washing and sifting the lumps of earth left to them by the miners (all men). She is looking for any valuable mineral remains, which will then have to be extracted in the workshops in the city, where the gold is separated from the scrap.

“It is a hard life, but at least it is a livelihood. What else can we do?” she says. Depending on the price of gold on the international markets, she earns between 150,000 and 280,000 Colombian pesos a month (between €44 and €81). At least 80 per cent of the population in Segovia (over 40,000 people) depend on mining for a living.

This hard life, which has always provided them with a living, at least, is now illegal. “The government calls anyone found with a few nuggets of gold a criminal. They are not able to sell it, because they don’t give licenses for that,” explains Freiman Gómez, a local journalist who is closely following the issue. The people of Segovia are calling for Bill 169 of 2016, which criminalises traditional mining, as well as Law 685 (2001) of the Mines Code, to be amended to include those whose communities have been involved in this activity, passed on from one generation to the next for over a century.

Around 83% of the gold extracted in Colombia is unlicensed, according to a recent book La minería en el posconflicto: un asunto de quilates (Mining in the Post Conflict Era: A Matter of Carats).

The mining sector collected 2.61 billion pesos (approximately €757 million) during the second quarter of this year, which accounts for 1.9 per cent of GDP. In Colombia, the state owns the subsoil and the country’s non-renewable natural resources, in accordance with article 332 of the 1991 constitution.

For President Juan Manuel Santos, mining needs to become one of the “powerhouses” financing post-conflict Colombia, following the signing of the peace agreement with the FARC. The aim is to collect taxes from the big mining companies and attract foreign investment, but Colombia’s artisanal miners have been left out of the plan. The Colombian peace accord covers the need to provide coca growers with economic alternatives, allowing them to turn to legal crops, but offers no alternative to “Illegal” miners.

Social conflict

There are two sounds that never cease in Segovia: the deafening, repetitive sound of the machines crushing the scrap brought from the mine and the swarms of motorbikes driving through its streets. In July and August, they were joined by another sound: that of the clashes between the locals and the members of the antiriot squad, ESMAD. What started out as a peaceful miners’ strike, on 21 July, turned into a battle that ended 44 days later, with three people dead, 25 injured and 32 detained, including 10 minors.

Segovia symbolises the first battle waged by traditional miners (deemed illegal by the state) against the government’s plans.

The Canadian multinational Gran Colombia Gold, which has been operating in the region since 2009 and controls the licenses for extracting and selling gold, is at the centre of the dispute. “The people are demanding solutions. The production chain needs to be guaranteed and the scrap merchants must be allowed to sell gold,” says Elióber Castañeda, president of the Mining Board of Segovia and Remedios, which called the strike.

“What is not fair is that they want to control 80% of the production from a concession that belongs to us,” responds José Ignacio Noguera, vice president of Gran Colombia Gold.

In 2015, the multinational extracted 116,857 ounces of gold (one troy ounce, the international measurement unit for gold, equal to 31.1 grams), from its two plants in Segovia and Marmato (a nearby town, in the department of Caldas). The companies website claims that its success impacts positively on the local communities. It is very difficult, however, to find anyone in Segovia that agrees with it.

Don Jorge is 70 years old and has been a miner since he was 15. Every day, he enters into a narrow and slippery tunnel and descends 120 metres into the bowels of the earth. The atmosphere is stifling. The only air circulating down there passes through a white plastic tube that he inhales when he needs to breathe. He works in a mine controlled by Gran Colombia Gold. “The workers have to put up with extremely poor operating conditions and the multinational collects the profits, without taking any risk,” denounces the journalist Freiman Gómez.

Looted by armed groups

Traditional miners also have to fight against the stigma around the connection made between them and armed criminal bands. The reality is that these mafias have them under a tight grip and demand payments from them in return for protection and permission to work. This link is one of the arguments the Colombian government is using to justify outlawing their work. During the protests, the defence minister, Luis Carlos Villegas, said, “There is evidence indicating that the Clan de Golfo is implicated in the Segovia incidents.”

Since the disappearance of the FARC, which completed the disarming of 7,000 guerrillas in September, the Clan del Golfo (a descendant of the paramilitary forces), has become the most powerful armed band in Colombia. In gold rich areas such as Segovia and Bajo Cauca, in Antioquia, their intimidating presence is visible in the form of the graffiti on houses and their iron grip is ensured by a sophisticated network of accomplices. Gold has become their core business interest, more than drugs, kidnapping and extortion.

Illegal mining, for the first time in recent history, is now generating greater profits than drug trafficking, according to the United Nations 2017 World Drug Report. The earnings derived from gold in Colombia are in excess of €2.4 billion a year, almost double the amount earned from the sale of heroin and cocaine.

Instead of simply attacking the armed mafias, the Colombian state is also targeting small and medium-sized businesses, according to Ramiro Restrepo, the president of the Bajo Cauca branch of the strongest mining trade union in the country, Asomineros. “They make us look like criminals,” he denounces. He explains that Decree 2235 of 2012 authorises state security forces to burn the machinery of miners who do not have a license. “It is sending us into ruin,” he adds.

A powder keg waiting to explode

Bajo Cauca, like the municipality near Segovia, is a powder keg waiting to explode. El Bagre is the operations hub of Mineros SA, a private Colombian company that controls the gold business in the region and plans to expand to the whole country and beyond (it is currently operating in the Bonanza region of Nicaragua).

The Mineros SA base camp, housing around 700 people (some 200 workers and their families), looks like a fort: 400 military reserve units are stationed there. They have suffered attacks and acts of sabotage by illegal groups; in addition to the Clan de Golfo, the ELN, the country’s second largest guerrilla force, with 3,000 armed fighters, is also present in the region. Helicopters are used to transport consignments, to stop them from being stolen. In 2016, the company earned over 407 billion pesos (€118 million), in Colombia alone, from its gold production sales, of which just 26 billion went to the state (7.6 million euros), 6.4 per cent of the total.

All those we spoke to in Bajo Cauca expressed opposition to Mineros SA, with the exception of its employees. One of them was Wuilhmel Andrew, a member of the Green Party in Nechí, another nearby town. “My father was a miner, and his father before him. There is no other way of making a living in this area.” He says that the government is stopping them from working on the pretext that they are damaging the environment. “And Mineros SA isn’t polluting our land?” he asks.

Equal Times visited Mineros SA and spoke with several of its representatives. Carlos Mario Castaño, the environmental director, ensured us that the company complies with the legislation to protect the environment and spoke about a corporate social responsibility project that is having an impact on local communities. He acknowledges that there is a conflict and that they are under “enormous pressure”.

“Gold is giving rise to violence,” warns Julio Sampayo, a young member of the U Party in El Bagre. “The community is not feeling the benefits. These are very poor areas, even though they are rich in gold,” he says.

A succession of illegal dredgers, floating platforms from which miners work 12 hours a day, line the Nechí river. The impact of the mining here is manifest: the murky brown waters carry mercury and other harmful elements such as arsenic, lead or cyanide, and the deforestation on the hillsides is wreaking havoc. Colombia has the world’s highest level of mercury pollution, according to government data, and the worst affected area is Segovia, where mercury amalgamation is widely used to separate gold from waste.

The outlook is gloomy. Traditional miners are being displaced on a massive scale, stripped of their livelihood and their lands, and because the violence spawned by the gold rush has reached unbearable proportions. In regions such as Cajamarca, in Tolima (also in inland Colombia), a popular consultation was held on a mining megaproject and 98 per cent voted against it. In Segovia, an agreement was signed between the parties, but it has not yet translated into changes in the legislation. There is an uneasy calm in the region, as in Bajo Cauca. The gold war in Colombia is looming on the horizon.

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"Pressing" Need to Reform the Gold-Trade in India – WGC | Kitco News

October 15, 2017 Posted by admin

(Kitco News) – The World Gold Council Thursday proposed a spot gold exchange for India and offered to play a lead role in establishing a committee to provide guidance.

The country is the world’s second-largest gold market behind China, with annual demand of between 800 and 900 tonnes, the WGC said. Still, the Indian market faces challenges that could be diminished with an exchange, officials said.

“These challenges include lack of quality assurance, weak price transparency and fragmented liquidity and regulatory issues,” the WGC said. “There is a pressing need to reform the gold-trading market in India.”

The Indian government previously raised the idea of a national exchange two years ago, according to news reports.

The WGC listed several ways an exchange would help transform the Indian market, starting with standardization of bullion by setting delivery standards, thereby improving “trust” in gold. An exchange would mean increased price transparency, and could even lead to an “India reference” price that strengthens the country’s position in the global market, the WGC said. An exchange could also better organize what is an otherwise “fragmented” market in India, the WGC said.

“The spot exchange will enable players across the value chain to source physical gold without going through several layers of intermediaries,” the WGC said. “The exchange will enable financial institutions to launch gold-backed products more effectively, thereby providing a strong impetus to government initiatives for monetization of household gold.”

Development of an exchange would require close coordination among all of the participants in the market, the WGC said. The first step includes securing a commitment from key market participants.

Given the magnitude of work that needs to be done in setting up the exchange, the World Gold Council said it is willing to play a key role in this entire process. Officials added that the WGC played a similar role in the establishment of the Shanghai Gold Exchange and a kilobar contract in Singapore.

India has several commodity exchanges, although they are futures exchanges primarily used to hedge against gold-price risk and to take proprietary positions, the WGC said. A spot exchange would focus on price discovery and provide physical deliveries.

An exchange would need to disseminate prices with the best possible sell orders in order to minimize bid-ask spreads, the WGC said. A small number of specified contracts should be established, as well as delivery locations. Vaults would be established for safe storage. A “clearly defined regulatory architecture” would also be required, the WGC added.

 “While bullion market participants will benefit directly, scrap dealers, gold doré importers and end consumers will receive indirect benefits,” the WGC said. “However, the exchange may also create some short-term challenges for those participants who currently do not adhere to delivery and compliance standards. “

By Allen Sykora

For Kitco News

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Four Major Catalysts for Gold – The Daily Reckoning

October 14, 2017 Posted by admin

The Federal Reserve would like to continue “normalizing” interest rates. But the most recent economic data simply does not justify it.

On Sept. 29, the August core PCE year-over-year (YoY) inflation figure was released. And the data came in exactly as I expected. YoY inflation for August was just 1.3%, down 0.6% from the January reading of 1.9%. That marked eight consecutive months of flat or lower readings.

Needless to say, the Fed is miles away from their 2.0% target. They’re actually moving consistently in the wrong direction.

Second, the September employment report came out the Friday before last. A Reuters survey of economists had expected the economy to add 90,000 jobs in September.

How many did it really add?

Not zero, but less than zero. The economy shed 33,000 jobs last month. This was the first time in seven years that the U.S. economy lost jobs.

Now, that may be partly due to the recent hurricanes that struck Texas and Florida. But coming on top of the weak inflation data that also came out, it will certainly give the Fed more than enough reason to hit the “pause” button on a December rate hike.

But incredibly, right now markets are giving a nearly 90% chance of a rate hike in December based on CME Fed Funds futures. That rate will drop significantly by December 13 when the FOMC meets again with a press conference. (There’s another meeting on November 1, but no one expects any policy changes then).

Once the market wakes up to the real state of play, probably in late November or early December, the current trends will suddenly reverse. You’ll see the dollar down and gold, euros and bond prices up.

On that score, one of the largest and most conservative wealth managers in the world, Pictet Group, based in Geneva, Switzerland, offers a very constructive view on gold.

Pictet’s strategist, Luc Luyet, says that the Fed will be on hold for the rest of 2017 and most of 2018 because of U.S. disinflation and the failure of President Trump to deliver on his growth agenda. I agree.

With the Fed in easing mode, the dollar will weaken and the dollar price of gold will remain strong. This is a fundamental case for gold that does not take into account other positive vectors such as geopolitical shocks from North Korea or outright assaults on the dollar from Russia and China (see below for more on these).

When a conservative institution like Pictet Group has a kind word for gold, you know the rest of the institutional world will not be far behind.

This all makes the next few weeks an excellent entry point for gold and gold mining stocks. You have a chance to take advantage of weakness and position ahead of the rally to come when reality sets in.

Another tailwind for gold is the continuing nuclear standoff with North Korea, as I hinted at above.

There is no doubt that North Korea and the U.S. are on a collision course and headed for war unless North Korea relents, which seems unlikely, or the U.S. acquiesces to North Korean possession of nuclear weapons, which is also unlikely.

At this point, it’s almost certainly too late for negotiation or diplomacy.

The U.S. only has two choices now. The first is to do nothing and learn to live with nuclear blackmail from North Korea. As I said, that is unlikely. The second option is to attack, probably within the next six months, to destroy the Kim regime and its weapons programs.

Trump will go for the attack option.

You don’t even need to ask what will happen to gold prices in that scenario. They’ll skyrocket and then much higher from there as the repercussions begin.

This is just another reason to acquire physical gold and gold mining stocks if you don’t already have them is now.

Another key gold story last week was a report that China has upped its estimate of proven gold reserves to 12,100 tonnes. This report was the source of a lot of confusion among those who follow China, Russia, gold and the status of the U.S. dollar.

Some readers took the word “reserves” to refer to China’s official gold reserves held by the People’s Bank of China and its off-the-books sister entity, the State Administration of Foreign Exchange (SAFE). That’s incorrect.

China’s official gold reserves are about 1,800 tonnes, but may be as high as 5,000 tonnes once off-the-books gold is counted. Some think it’s even higher.

But the report refers to “proven reserves,” which is a geologic (and engineering) concept familiar to the mining community. Basically, it’s an estimate of how much gold is buried in the ground in China and could feasibly be mined at current prices with current technology.

12,000 tonnes is still a lot of gold, but it will take 10 years or more and billions of dollars to dig it up and refine it. Even at 1,000 tonnes per year (double China’s current rate of production), this only increases gold supply about 0.5% per year. That would happen in conjunction with a diminution of gold output from traditional sources such as South Africa.

So increased Chinese gold production may replace diminished South African production, but it does not signify a major increase in global production. It’s worth noting, but not a game changer.

Still, the timing is curious because it comes just two weeks after China launched its oil-for-yuan attack on the petrodollar, with the yuan backed up by gold available from the Shanghai Gold Exchange.

In order for the oil-yuan-gold deal to be credible, China needs to show that it could deliver physical gold to the exchange without touching official reserves. This report makes it clear that China will have ample internal gold supplies for years to come. This adds credibility to its plan to price oil in yuan convertible to gold.

If China relied exclusively on gold imports, it could be strangled by gold sanctions aimed at China by the U.S. and its allies such as Canada and Australia. Instead, China looks ready to go it alone with its own gold. That’s a very big deal and one more nail in the petrodollar’s coffin.

It’s also extremely bullish for gold. Any effort to monetize gold implies much higher gold prices in order to avoid deflation given current gold-to-money ratios.

This is just one more reason to position in gold before this horse leaves the barn.

Finally, we need to consider the difficulty of physical gold supplies to keep up with increasing demand. The global gold supply increases only about 1.6% per year, and the floating supply of gold has been disappearing into private vaults from Zurich to Shanghai.

Refiners cannot find enough “scrap” gold (your discarded jewelry) to produce fine gold to meet demand. If demand increases appreciably from here, and there’s excellent reason to believe it will, there’s only one solution to the shortage of gold supply. And that’s much higher prices.

There, four catalysts waiting to send gold much higher. The time to move into gold is now before it resumes its upward climb.


Jim Rickards
for The Daily Reckoning

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