Newmont CEO - China Doing Everything It Can to Get Gold

 

Today the CEO of Newmont Mining, one of the largest gold producing companies in the world,  told King World News that China is doing, “everything they can to assemble a bigger gold portfolio.”  Richard O’Brien, the CEO of $24 billion Newmont Mining, also said, “I believe inflation is going to rear its ugly head.”   

But first, when asked about China’s insatiable appetite for gold, O’Brien responded, “Obviously China is now both the world’s largest producer of gold, as well as the largest consumer of gold.  Not one ounce shows up as legally leaving China.  I think that’s a strong statement that the Chinese people and the Chinese government are looking to hold on to and expand their holdings of gold over time.”

“It makes sense.  They have the most exposure to the US dollar.  They know what I know about the US dollar.  So they would like to have gold because it generally trades negatively correlated to the US dollar. 

How they get that exposure is a really interesting question because as soon as they broadcast that they want more gold in their portfolio, gold prices will go up just because they said that because the market is so thin....

“I think they are quietly trying to do everything they can to assemble a bigger gold portfolio.”

When asked if China may eventually come directly to Newmont Mining to obtain gold, O’Brien replied, “Potentially.  Yeah, I think suppliers interacting directly with the Chinese, they take their demand instead of sending it to Switzerland or send it (gold) to Switzerland for the account of China.”

O’Brien had this to say about mining shares:  “A couple of things have kind of crushed mining valuations at the moment.  In particular, some worry about China and how China’s slower growth would impact commodity demand.  But as it affects our business, demand from the growing middle-class of China for luxury goods, like gold.

Secondly, I think equity (markets) have hurt mining shares in addition to that.  So we’ve seen people timid about getting back into equities.  I think you have to be bullish on the world to really want to embrace mining shares, until recently, when I think the valuations have gotten so depressed that in my view everybody should own mining stocks.”

When asked if he had seen mining shares this undervalued at any time in his career, O’Brien said, “Only for a very short period at the end of 2008 when the global crisis came and gold prices really came back.  We had fears about the global economic growth just coming to a complete halt.

And we saw gold for a couple of months come back down.  But early in 2009, that V-shaped recovery hit mining and we were right back at it.  I’ve not seen valuations this depressed since I’ve been in the business.”

O’Brien also added:  “Well, I think the uncertainty in Europe has really led to a number of things which have impacted the world economy.  The impact in Europe is one of contagion.  It’s also one of rick-on/risk-off.  When that kind of appetite for investment is what’s apparent in the world, I think what shows up, initially, is depression in the area that’s most impacted, Europe. 

But the follow-on to the US is actually a bit counterintuitive.  That is, the US becomes a safe haven.  With respect to the economy, the US economy is not all that strong, where it would demand that sort of safe haven.

I think the combination of slower growth in China, a lot of uncertainty in Europe, now brings the US dollar into that place where people focus on the US dollar and say, ‘Hey, everything in the world might come apart, let’s go to the safe haven.  Let’s beat down the dollar in terms of yield, and increase it in terms of its principle valuation.’

As a result of that, it looks like things in the US are pretty secure.  But I have to say, in particular as it affects our business in gold, when I look at TIPS and people say, ‘Well, TIPS surely indicate there is no inflation in the world to come,’ I completely disagree with that. 

I think people’s buying power in the US is already less than it used to be.  More importantly, when you look at the future pressure on the US dollar, from all of the currency that was issued in connection with the global financial crisis, I believe inflation is going to rear its ugly head.  It’s surely out there.

I would suggest that gold, in this environment, should really be outshining all of these other characteristics.  Hopefully people will get that in the next couple of months and we’ll see gold rebound ... Long-term the fundamentals for gold are excellent.  (It’s) still in a forward, upward market I believe.  I think it’s a bull market for the next 3 to 5 years.”