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PERU GOLD "40% of gold supply is recycled. 10 years ago it was about 15% or even less. I can easily see a situation where recycled gold exceeds new production. This is going to change the mining industry. The ques- tion is, how do we navigate this uncertain- ty?" he asked. Silver Minister of Energy and Mines Jorge Merino said there would be no retreat in the fight against illegal mining. aging mines and a weak pipeline of new gold projects. Vilcas also pointed out the alarming fact that Peru already receives less gold exploration expenditures than Colombia. He anticipated that if the situa- tion is not reversed, production ("and hence taxes") will drop steadily in the next decade. Finally, with regard to the general com- petitiveness of Latin America, Vilcas noted that while Chile is the most attractive country in the region, some of the best investment incentives are already in place in North America. He specifically men- tioned Nevada's fast-track procedure to develop projects, Canada's flow-through system and Québec's tax rebates. He also emphasized that Canadians have been smart to create a mining-related capital markets system that probably represents a tax revenue greater than mining itself. McEwen: We'll See $5,000 Gold The matter of where gold prices are headed was also at the core of the discussions at the symposium. Although he does not have assets in Peru, Rob McEwen, chairman and CEO, McEwen Mining, was invited to give his views on the global gold market. Describing gold as "the ultimate currency," McEwen compared the performance of gold against the world's main currencies since 2001. Results show that gold has outperformed the U.S. dollar by 541%, the euro by 332% and the Australian dollar by 203% (See chart at bottom of p. 93). McEwen showed the extremely close correlation between the U.S. level of debt and the price of gold since the beginning of the century. He suggested that with $15.7 trillion of deficit and a gold price of $1,600/oz today, we could see gold at $2,600/oz in 10 years, when the U.S. 98 E&MJ; • JUNE 2012 deficit is expected to reach $26 trillion. "This is just the start. We are going to see a much higher price of gold. I'm looking at a price of $5,000/oz," he said. With that in mind, how can people invest in "the ultimate currency"? McEwen went through the three options: the cum- bersome process of buying physical gold, the ease of investing in gold exchange trad- ed funds (ETFs), or the confusion of decid- ing which gold stock to buy. He noted that the ETF market is valued today at $122 billion, which is equal to the market capitalization of the four largest gold producers worldwide. McEwen said that gold stocks have not followed the increase in the price of gold in the last years, which he attributes to the fact that CEOs have very limited ownership in the companies they run ("close to zero") and that with 2,800 public exploration/ development/mining companies world- wide, investor confusion is widespread. Aram Shishmanian, CEO, World Gold Council, further illustrated the importance of the ETFs market. "ETFs have re-ignited the role of gold in the financial system. Gold is now a financial asset," he said. According to his statistics, gold de- mand reached a peak in 2011, in both ton- nage and value ($200 billion). Some fac- tors that explain this figure are the actions of central banks, which reversed their decade-long tendency of being sellers in the market to become important buyers, and the "breathtaking" growth in demand from the East (China and India alone rep- resent 55% of the global demand). As the leader of an organization that aims at the long-term sustainability of the gold business, Shishmanian warned that the mining industry will have to adapt to a whole new scenario. As part of the Second Silver Forum, a num- ber of speakers, including Jaime Lomelín of Fresnillo, Jorge Ugarte of Pan American Silver, Eduardo Hochschild of Hochschild Mining and Juan José Herrera of Volcan, discussed the latest trends in the silver market and gave an update about their respective companies' production data. Here is a summary of silver's facts and figures: the silver market was valued at $32.1 billion in 2011, which means it is the fifth largest non-ferrous metal in terms of market value (it was seventh one year before). The total silver offer in the market decreased to 1.04 billion oz in 2011, even though silver production from mines in- creased for the ninth year in a row, reaching a record 761.2 million oz. Of this, only 29% came from primary silver operations, while the rest (71%) was extracted as a byproduct of other minerals such as copper and gold. In 2011, Poland's KGHM Polska Miedz became the world's largest producer (ahead of BHP Billiton and Fresnillo) with more than 40 million oz. Country-wise, Mexico strengthened its leadership, as it increased production by 8% last year (totaling 153 million oz) while Peru's decreased by 6% and went under 110 million oz. China, 11% up with 104 million oz, already threatens Peru's second spot in the ranking. Total silver demand contracted in 2011 but going forward, the use of silver in industrial applications is expected to con- tinue compensating the unstoppable decrease of the photography industry as a source of consumption. The arrival of silver ETFs a few years ago and the significant increase in the demand for coins and medals reflect the growing appetite of investors for safe haven assets. Moving forward, the price of silver should be less volatile and more pre- dictable, said Herrera of Volcan. Finally, as in gold, production costs increased in the silver business from an average $5.47/oz in 2010 to $7.25/oz in 2011. Herrera outlined four reasons for this: pricier labor costs, lower grades processed, higher energy prices and a weak U.S. dollar. www.e-mj.com