POSITIONS. WILL THE XAU GO ALONG FOR THE RIDE UP WITH THE DOW? STOCK

PRICES ARE SET TO BOUNCE FROM HERE ( 8200-8400 ) UNTILL SOUTH AMERICA

THROWS WATER ON THE PARTY. IF THE DOLLAR INDEX RISES WITH THE DOW,

GOLD COULD RUN INTO RESISTANCE OR RETREAT FROM THE CURRENT LEVEL.

ANY STOCK MARKET RALLIES FROM THIS POINT SHOULD BE CONSIDERED TO BE

OF THE DEAD CAT VARIETY. THE DOW BULL IS DEAD BUT HAS THE GOLD BULL

BEEN BORN? IMVHO

Mine developer trumpets its inside experience in Russia

By PAUL BAGNELL

Mining Reporter The Financial Post

 Others may choose to write off Russia and its brief, thus far spectacularly unsuccessful romp, into free market economics, but Ian McColl is going to stay the course.

 McColl, an executive vice-president at one of the world's major mining engineering firms, says Russia's untapped mineral wealth is too impressive to ignore.

 The country's economic chaos and political instability will eventually pass, he believes, and lessons learned by western mining companies over the past few years will make Russian projects easier in future.

 McColl's company, Kvaerner Metals, has more experience in Russian mining projects than any engineering firm in the world, a competitive advantage it intends to keep.

 Kvaerner Metals is a Toronto-based subsidiary of Kvaerner PLC of London. The Toronto office co-ordinates the mine design activities of 22 other Kvaerner locations around the world.

 Before being bought and renamed by Kvaerner in 1996, Kvaerner Metals was Davy International Canada Ltd., a subsidiary of the 140-year-old British engineering company that had operated in Canada for 50 years.

 Over the past four years, Kvaerner has worked on 14 projects in Russia and the nearby republics of Kazakhstan and Uzbekistan. Usually the work has consisted of performing bankable feasibility studies -- a detailed study of a mining project's prospects, intended to help raise financing -- for North American companies.

 Kvaerner was the first western company to design and build a gold processing plant in Russia. The firm's engineers consider the project, at the Kubaka gold mine in far eastern Russia, the most difficult mining job the company has done.

 It's a good market, McColl says calmly, just days after a sharp devaluation of the Russian ruble has pitched the country into economic crisis yet again.

 If you look at the size and [mineral] resource base of this region, sooner or later it's going to be developed. It must be.

 Not only will Kvaerner continuing pursuing jobs in Russia, but the company is considering taking on jobs on a fixed-price basis -- where the engineering firm, not the client, swallows cost overruns.

 So far, Kvaerner has designed and built two mine-related projects in Russia, both on a cost-reimbursable basis. If costs flew beyond Kvaerner's stated estimate to its client, the client paid up. We are prepared to do it, given the right project, McColl says of a fixed-price deal.

 It's expected most Russian mining projects over the next several years will be owned by small mining companies and that will create pressure for fixed-price contracts, he says. Since those juniors can't assure lenders they will be able to handle cost overruns, engineering firms will be expected to offer guaranteed prices.

 Kvaerner is fully aware of the risks and pitfalls of taking on big, costly projects in Russia. Related stories:

• Friedland's Siberian adventure

• Mine developer trumpets its inside experience in Russia

 The country's tax system, McColl says, threatens to stifle mineral development. On a gold mining project, he reckons, taxes add at least US$60 an ounce to a company's costs.

 Mining companies need to understand that only high-grade ore bodies are likely to become economic projects in Russia, he argues. The company's own recent experience has made it clear how expensive it is to work there.

 In early 1995, Kvaerner began work on the Kubaka gold mine in the Magadan province, east of Siberia. The project was then owned jointly by Cyprus Amax Minerals Co., of Denver, and a group of Russian investors. Toronto-based Kinross Gold Corp. became the operator in June when it merged with Amax Gold Inc., previously a 59%-owned subsidiary of Cyprus Amax.

 Kvaerner's job was to design and build Kubaka's processing mill, where ore from the mine is crushed, ground and soaked in a cyanide solution to extract gold.

 The project, in an area so remote there is no road access to other parts of the country, posed formidable transportation and cultural challenges. McColl freely admits Kvaerner learned some painful lessons.

 By the time the mill was completed in February 1997, Kvaerner had spent US$178 million, a figure McColl will say only was significantly beyond original estimates.

 Transportation costs, particularly for air freight, were much higher than expected and the project required more skilled expatriate labor than had been budgeted for.

 Everybody learned a lot in the first generation, McColl says. We now know the indirect costs of building in this region are probably twice what they are in North America -- freight costs, transportation costs, fuel costs, housing costs, food costs.

 In the first year of construction, it became clear most of the 600 Russian laborers hired for the project lacked proper experience in pouring concrete and erecting structural steel, particularly in cold weather. Kubaka's owners had encouraged Kvaerner to keep the number of highly paid foreigners to a minimum, which McColl says was a big mistake.

 During the second winter, the number of expatriate tradesmen brought in as supervisors shot up to about 80 from just 20 the year before. These tradesmen, recruited from Canada and the U.S., were paid a premium -- or uplift -- of 35% on top of their usual domestic pay rates. So a tradesman getting $70,000 a year in Toronto was paid a salary of about $94,500 at Kubaka. Expatriates would be flown home for two weeks rest after six weeks of work on the project.

 Russian laborers, meanwhile, were paid about US$6 an hour, with a roughly equivalent amount in taxes being paid to the governments of Russian and Magadan.

 Kubaka's biggest challenge, however, was the task of getting a huge amount of material and equipment to the worksite.

 The closest year-round road to Kubaka stretches from Magadan, the region's main port, to Omsukchan, 600 kilometres to the north. The remaining 300 km from Omsukchan to Kubaka can be travelled only by helicopter, or on an ice road open from early January to late April each year. In warmer seasons, the road becomes an impassible stretch of marsh and muck.

 Kvaerner had to get 50,000 tonnes of material, everything from cement to construction vehicles to the mill itself, up that ice road during the two winter seasons available to them.

 Doing so meant hiring about 400 trucks, most former army vehicles now owned by the men who drove them, to make the three-day round trip between Omsukchan and Kubaka.

 John Hadden, a senior engineer at Kvaerner who headed the Kubaka project, estimates the truckers, hauling loads of about 15 tons, made as many as 3,000 round trips over the two shipping seasons. On one day during the second season, 250 trucks headed north out of Omsukchan. For each trip they made, the truckers insisted on a separate contract.

 We wrote 3,000 contracts with the truckers. That's the Russian way of doing things -- everything requires a contract.

 Most material came from North American suppliers -- North America is much closer to Kubaka than western Russia or Europe -- and was shipped by sea from Seattle to Magadan.

 Other materials came in from Alaska on regular weekly flights between Anchorage and Magadan. During the summer months, helicopters would be used to fly in materials being stored at Omsukchan. Because Kubaka has no airstrip, materials being delivered in warm weather months had to be flown from Anchorage to Magadan, trucked to Omsukchan and then flown by helicopter to Kubaka.

 We underestimated the difficulty of the logistics of getting stuff in time, says McColl. The air freight costs were much higher than anybody had anticipated.

 But McColl and Hadden see those mistakes as lessons learned, and say Kvaerner has no intention of backing away from Russia.

 Kvaerner is in the midst of preparing a bankable feasibility study for a proposed silver mine near Omsukchan, which is 70% owned by Pan American Silver Corp. of Vancouver.

 It recently completed a feasibility study for Armada Gold Corp.'s Baley gold project in southern Siberia.

 And McColl expects to learn soon whether Kvaerner has won the contract to do a feasibility study for the Jerooy gold project in Kyrgyzstan, owned by a joint venture that includes Normandy Mining Corp.

 We can't afford to back away from Russia, he says. We have a very strong foothold right now -- this operation has done more work there than any other engineering company in the world. We want to keep it that way.

Had you all going, didn’t I? Just my little impression of RJujube going berserk. It gets so slow on K2, I have to do something to keep people reading. I hope you all enjoyed the joke. Congratulations, Tyoung, you were the first to figure it out. A gold coin to you, my friend!

Thanks

F*

By Don Knox

Denver Post Business Columnist

Sept. 6 - LONDON - You'll never guess who they're betting soon will be drawn into the rolling currency crisis.

That's right - the United States.

Sealing our apparent fate is the crisis' recent expansion to Latin and South America, a prominent economist here says. Where effects in the Far East were minimized ( too distant ) and Russia were ignored ( too Don Knox small ) , the sad fact is that fully 40 percent of the world's economies are this week in recession.

The dollar's latest drift lower stems partly from concerns about U.S. loans to Latin America. And nowhere is its decline more apparent than in pricey London, financial capital of western Europe.

Sinking and shrinking

The sinking dollar ( vs. the pound ) is shrinking pocket books in a serious way.

An already high cost of living is made intolerable by a currency rate near its lows of the past half-decade.

In Houston, I had a mortgage. Here, I'm renting a house for twice the cost, and it's half the size,'' says Patton Jones, who runs the Heathrow office of a U.S. aviation-services company, Source One Spares Inc.

The thing that's shocking is the living expenses. A sandwich in the U.S. is $5. Here, it's $11. Now we stay at home almost every night.''

Travelers on the new non-stop Denver-to-London flights, inaugurated last week by British Airways, noted the poor currency prices but generally said it wouldn't markedly influence their vacation plans. In England, dollar costs have bounced around during the past three months but have trended sharply lower since Aug. 15. Since 1992, they have been lower only once before - in fall 1996, and then only briefly.

For the year to date, the dollar also is lower vs. the German deutschemark, the Italian lira and the French franc. It is substantially higher only against the Russian ruble, which was devalued.

The divergence between dollar and pound came after a string of seven interest-rate hikes over 18 months in the United Kingdom that were meant to slow a booming local economy. It seems to have worked; the 3.6 percent growth rate of the year's first half is expected to slow to 1.5 percent growth in the second. It's cyclical rather than structural,'' says Paul Messyessi, oft-quoted senior economist in London for Deutschebank. The sterling follows the fortunes of the U.K. economy.''

The dollar's decline recently - against the pound and other currencies - is directly related to the global crisis, he says. Currency traders are selling to square their positions as they look to cut risk. Most are retrenching to their local markets.The traders are taking the view that the world is a chronically uncertain place today,'' Messyessi says. The dollar was seen as being a safe haven amid market crises in Asia and Russia. But now there is the small question of Latin America.''

Last week's devaluation of the Colombian currency signals that the contagion has increased, compounding pressure on the U.S. A detrimental trade deficit exacerbates the decline.

The dollar's strength in recent years even allowed the Federal Reserve to avoid adopting a tight-money policy to keep growth in check. Now, a slowing economy calls for an easing of credit, Messyessi says.

Ominously, that will further pressure the dollar.

Brazil a worry

Deutschebank's outlook is for more of the same: Continued declines in the dollar against slimmer declines in the pound.

Messyessi's forecast calls for a sixmonth range $1.60 to $1.68 dollars per pound. We're already getting fairly close to the top of the range.''

Don't look for interest-rate cuts in the near future - that's too aggressive, Messyessi says.

Don't expect the Federal Reserve to alter its current strategy of keeping the economy growing without intervention.

But do worry about Brazil.

Do worry about all of South America.

Strong Buy- sell.

downgrade to Buy-- hey, it's 50% off.

Accumulate-- it's still trading.

downgrade to Hold-- sorry, we didn't see it coming.

Sell-- does not exist.

The more things change, the more things stay the same.

Guns, WJC, Conspiracies.......ohmy!

The Swiss-Air flight was a conspiracy? Sheesh. How could I be sooooo gullible to think that it was just an accident of sort. It couldn't be so because Swiss-Air is soooo safe and one of their planes would NEVER crash. ( unless shot down by a CIA supplied stinger missile ) . I should have known that this was all tied to GOLD GOLD GOLD.

Talk about spinning stories............

Paranoia will destroy ya.............. ( the Kinks? ) ...

I prefer living in ignorant bliss.........my life and Blood Pressure are normal because of it..........well, mostly normal anyway....I still read kitco ;- )

away.......to look over my shoulder

Éßheardfromafriendwhoheardfromafriendwhoheardfromareliablescourceetcetc

Time Quote Hong Kong Gold 20:03 0.4750 Loco London Gold 06:21 286.60/10 Loco London Silver 06:24 5.0200

http://www.hkabc.net/cgi-bin/mtl-cgi

Am quietly accumulating a little cash too -- no harm done in being prepared. Spouse is now beginning to think I am not nuts when I show her news of the average Russian growing crops to keep body and soul together. In the story I read to her, someone stole the 16 chickens, so no eggs -- just crops and goatmilk.

Come to think of it -- there was a day when horsethieves and chickenthieves were dealt with fairly harshly in the good ol' USA.

I think we all need to remember that if hard times do come, the ones that willsurvive will not be the single families in the middle of nowhere, unless that nowhere is practically at the end of the world. For most of us, secirity will come from banding together in small towns all accross the country. So -- stock up on books on how to, get a small supplly of seeds -- but most importantly develop a skill that makes you a worthwhile member of whatever group you might join.

I hope I am wrong, and this prosperous country blithely passes without incident into year 2000, but I am not optimistic. Too must history indicates otherwise. And -- if we do not have a financial collapse by y2k, it will just be later.

One thing is very clear from watching our world-wide problems. And -- that is that the 'powers that be' will not give up until they have thrown everything into the fire ( pyre? ) . Look at Japan and Russia as examples -- how will they extract themselves from the clutches of the Gangsters, except by cleansing with fire.

Russia only knows totalitarianism. And -- for the second time they are getting a bad taste in their mouths regarding free enterprise and democracy. So -- revolution is very likely. And -- a return to the cold war -- either with lots of little nuclear Russias, or one big one.

What we have going for us is the information revolution. That advantage may go away during y2k.

I think it will be worthwhile to have a 5-10% holding in gold equities right now, despite the possibility of a market meltdown. And that is -- if WJC really is toast, gold will go up even if the markets go down.

I would still not bet the farm on gold equities, as paper can burn rather easily. Too many matches out there -- still little news on the credit/debt crisis bombshell in South America.

I hope to add to my currently small precious metals position early next week. Perhaps a small fixed monthly amount until it is clear that the equity markets and precious metals are decoupled.

mozel: I liked your comment about whether the Government controls markets. We say that we like regulation of markets to prevent one party from unfairly taking advantage of another -- and we do need that.

But -- your point is very well taken. Once the government realizes that is has control of a market -- via regulation -- it is tempting to take advantage of it too. So -- we avoid one evil -- private market manipulators -- and create another one. Government market manipulators.

I guess the most important point is that if you give the power of something to an entity -- be that entity an individual, a corporation, or a government -- eventually that entity will figure out how to manipulate that something to its advantage.

'Absolute power corrupts absolutely -- or something to that effect'.

After a couple of hours of surprises -- had to reload software several times -- I am up and running. Amazing! I even got 56k on the new Prodigy 56k internet link. Did finally get a call from ATT ISP server -- guess they got my angry message about being cut off for son logging on when I was on, unbenownst to me.

Just so you know -- 56k is not just talk, it actually works, and this software upgrade to the most advanced 3com has to offer is well worth it!