Next week is THE big event of the year for traders in speculative mining stocks as the annual Diggers & Dealers gabfest (and combined swim through) hits Kalgoorlie.
For three days from Monday, the news wires will be filled with promises, unbelievably boring geological theories and get-rich-quick schemes – which prompted Briefcase to ponder who is it that really makes money at this remarkable event?
Share traders can, if they’re lucky, make a few bucks.
The organisers, however, do not need the luck.
They own a licence to print money with a system that generates a four-way cash flow, starting at the Palace Hotel, and sucking in cash from delegates, exhibitors and speakers.
No profit figures are ever revealed by the owner of Diggers & Dealers, a business trading as Palace Securities, which is associated with the former owners of the Palace Hotel, a famous watering hole on the corner of Hannan and Maritana streets.
A director of Diggers (the business), John Langford, describes the three-day phenomenon as "a high cost event", because the delegates expect the best and the aim is to create a climate conducive to deal-making.
However, a "back of the envelope" set of estimates reveals a few secrets about Diggers as a goldmine in its own right.
First revenue source is the delegates themselves. At $1,210 a toss, the 1,300 registered attendees will tip about $1.5 million into the pot, perhaps a bit less after allowing for early registrations, discounts, freebies and media blowflies.
Then come the exhibitors who display their wares in the marquee alongside the Goldfields Arts Centre.
They pay about $10,000 a pop and, at last count, there were said to be 46 of them: Ching.
Add $460,000 to the pot.
Sponsors pay an assortment of fees to have their names everywhere, or to underwrite social events.
The stockbroking firm, CIBC World Markets, is the senior sponsor, Placer Dome hosts the Monday night cocktail party, Gold Fields hosts the "traditional bash" held, naturally, at the Palace Hotel, and Kerry Stokes via his Westrac Caterpillar equipment business hosts the gala dinner on the final night. It is impossible to put a dollar figure on what all of these sponsorships and other services are worth, but a reasonable guess would be $250,000.
Ching.
The fourth source of income, and arguably the most interesting, is from the speakers themselves.
While some naive observers may have imagined that the companies making presentations are the best available there is a qualification.
They are the best available prepared to pay the $10,000 fee.
With about 35 speakers on the schedule that rolls out to around $350,000 in speakers fees.
Ching.
Langford declines to talk about profits, or exact costs, but the revenue side of the business seems to be around $2.5 million, before the inclusion of extras such as beer sales at the Palace Hotel.
Given that the highest cost events are sponsored, the next big ticket items are the hire of the Arts Centre and, setting up the exhibitors tent, and manpower to run a day-and-night series of events.
Using the same "envelope" to produce a best guess for costs and a number around $1 million seems reasonable, which leaves somewhere between $1 million and $1.5 million as profit – and a willingness to be corrected in the name of accurate reporting – if Langford would be kind enough to shoot in a copy of the accounts to Briefcase.
CELEBRATIONS in Kalgoorlie about the great mining revival, triggered by higher world commodity prices, are not being shared across the Indian Ocean by many South African miners.
The only sector of the industry which seems to be having a good time is platinum where a sky-high price of more than $US800 an ounce is offsetting the seriously debilitating effect of the world’s best performing currency, the Rand.
Profits are drying up rapidly for all South African exporters with one mining analyst telling a local news service on July 4 that "it’s like going to a funeral every day. It just gets worse and worse".
According to the same news service "most of the country’s gold mines are running at a loss".
Worse still, if the trend continues and gold production continues to decline, South Africa might soon lose its title as the world’s biggest gold producer.
To understand what that means consider a few numbers.
Twenty, or so, years ago South Africa was producing more than 1,000 tonnes of gold a year.
It is currently producing around 340 tonnes, a two-thirds fall. Australia, which barely had a gold sector 20 years ago, is producing 290 tonnes, and trending up as new mines open and old ones (such as Telfer) come back on line.
Next year, if South Africa continues falling and Australia continues rising, the unthinkable may happen with South Africa dropping to second spot on the gold production list and perhaps even third if US production also rises.
Currency is the killer for mining companies but it is also extremely bad news for the estimated 180,000 people (mainly black Africans) who work in the industry which is the country’s biggest single employer.
A Final word on gold. Briefcase wonders whether Troy Resources boss, John Jones, was more embarrassed to announce on July 12 that the company’s Sertao goldmine in Brazil had been the target of a raid by three people masquerading as police, or that the thieves got away almost empty handed because there wasn’t much gold at the mine.
"No scientific theory achieves public acceptance until it has been thoroughly discredited." Douglas Yates.