Marine Diamond Mining

By Leia Michele Toovey
Pioneered by Sam Collins, marine diamond mining began in the 1960s off the coast of southern Namibia. The first marine diamond mining technique was an archaic dredging system; however, despite the simplicity of this original technique, Mr. Collins was able to recover around 788,000 carats of diamonds. In the years since, a handful of players, particularly De Beers, have sunk money and research into marine diamond mining. The result was a new exploration method that produced 1 million carats of diamonds in 2009.

Marine diamond mining takes place primarily along the 1,400 km stretch of coastline of southern Namibia and northwestern South Africa. Namibia has the richest known marine diamond deposits in the world, estimated at over 100 million carats. The marine diamonds were transported to the coastline over a roughly 100 million year time period. All of the diamond deposits in Namibia originate from kimberlites in South Africa. These diamonds were washed down the Orange River, and deposited at the river mouth as well as along the coastlines of Namibia and South Africa.

Despite the early successes of Mr. Collins and other entrepreneurial explorers, marine diamond mining has only gathered major interest over the last 15 years due to the unavailability of proper technology that would enable the miners to embark upon the large-scale mining operations necessary to turn a profit in this expensive endeavor. Also, the relatively low prices of diamonds at that time made the undertaking economically unfeasible.

Things started to change in 1970 when De Beers bought out existing marine operations along the Namibian/South African Coast and embarked upon a widespread exploration program. De Beers did not get immediate gratification;wasn't until the late 1980s that they were able to commission mining vessels and commence offshore diamond mining.

The two primary marine mining methods used by De Beers are the horizontal system, and the vertical system. In the horizontal system a seabed crawler brings diamond-bearing gravels to the vessel through flexible slurry hoses. In the vertical system, a large-diameter drilling device mounted on a compensated steel pipe drill string recovers diamond-bearing gravels from the seabed following a systematic pattern over the mining block. The De Beers Marine fleet consists of five mining vessels and one evaluation sampling and mining vessel. Mining takes place on the ocean floor at water depths ranging from 90 to 140 meters.  The rehabilitation of marine mining environments occur naturally, once the mining has been completed in a particular area.

Marine diamond mining has overtaken land mining in terms of carats produced, as land-based mines have seen a recent decline.  De Beers reported that in 2009, marine-mined diamonds accounted for around 60 percent of total diamond output from all their Namibia based mines.

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How John Paulson Made $5 Billion Last Year

by Robert Lenzner

The secret to the spectacular returns  Paulson  and his employees  reported for 2010 is due to their keeping  much of their money- $14.9 billion or 42% of the total assets under management($35 billion)– in the funds. That’s called putting your money to work alongside your clients. That $14.9 billion commitment is revealed in Paulson’s yearend letter to investors.
Some of Paulson’s personal share  in his funds must come from the $4 billion he made going short against the subprime mortgage bubble in 2007.
The Paulson funds  made gross gains in 2010 of $8.4 billion before fees.  So, 42% (their share)  of  the $8.4 billion meant $3.5 billion in gains for Paulson and his employees.
Add to that a 2% fee on $35 billion of capital– $700 million– and then the 20% fee on the total profits made adds another $1.7 billion to the pot shared by Paulson and his team.
By my figuring then, the total take comes to roughly $6 billion before  taxes.
Overall, the fund’s strategy made a transition during the year from a short equity bias  with a focus on being long distressed securities to a long equity event focus, according to Paulson’s yearend letter.
This growing  bullishness on the stock market  is due to  Paulson’s careful  tracking of  the equity risk premium measured by J.P. Morgan; the difference between the yield on equities and the yield on bonds. Paulson  is a buyer of stocks because he sees the equity risk premium in the market as “the highest it has been in over 50 years., indicating to us that equities are due to rise as the current economic environment is by no means the most challenging it has been in 50 years,” he wrote in his yearend letter which was posted Friday on the internet.
Last year, for example, Paulson made a 43% return  or over $1 billion on Citigroup– buying shares at $3.20 a share and selling them for $4.60 a share later in the year.
The Paulson Gold Fund was up over 35% on the year, as positions in Anglo Gold, Osisko and GLD, the giant gold ETF all paid off bigtime. Paulson is optimistic that gold will outperform for the next 5 years and is “the ideal vehicle to hedge against the risk of the U.S. dollar.”
The funds held $20 billion in 40 different distressed situations where most of the companies have “repaired their capital structures.”
He also sold off positions in major banks like Bank of America, and went long Anadarko, the oil and natural gas producer.
Paulson’s hedge fund has piled up gains of 26 billion since inception in 1994– 3rd biggest killing of all hedge funds. Quantum Endowment Fund, begun by George Soros in 1973,  has racked up $32 billion in net gains. Renaissance Medallion Fund, founded in 1982 by James Simons, has delivered net gains of $28 billion.
He  expects all his funds “to outperform in 2011.”

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IS CHINA DIFFERENT? A FLAWED ECONOMIC MODEL VERSUS TIGER MOTHERS

By Guest Author

“We do not believe in Chinese exceptionalism. China’s economy is no different from any other, in spite of the inevitable Chinese characteristics. If there are such things as economic laws, they work just as well in China and for Chinese businesses as they do in other markets.”
From Red Capitalism, The Fragile Financial Foundation of China’s Extraordinary Rise, p ix
~~~
“What Chinese parents understand is that nothing is fun until you’re good at it. To get good at anything you have to work.”
From “Why Chinese Mothers Are Superior” by Amy Chua, Wall Street Journal, January 8, 2011

In the long run the laws of economics apply everywhere and there is no escaping the dismal science’s somber logic. But our knowledge about economic laws is incomplete. Economics – believe it or not – is really about people and the decisions they make about work and money. What traditional economic models don’t factor in – perhaps because it can’t be quantified and it’s politically incorrect in academic circles to even talk about it – is the character of a people.

From the viewpoint of a free market economist China is following the wrong economic model. Of course anything would be better than the1949-1978 Chinese “model” of continuing chaos and suppression of private enterprise. But today China is following its own version of the mercantilist East Asian model, which involves predominantly state rather than market-directed investment, over-reliance on exports (largely at the expense of the United States), undervalued exchange rates and excess reliance on investment vs. consumption. The model is deeply flawed and unless modified sooner or later will reach a dead-end as Japan has discovered. But “sooner or later” is not a useful concept for investors for whom timing is everything.

As I have previously argued, East Asia is populated by disciplined, hard working, well educated people obsessed with material improvement and conditioned by the obedience/work-oriented Confucian ethic. This type of people can take even a flawed economic model a long way. Read Amy Chua whose Wall Street Journal article about Chinese tough love and “tiger mothers” has caused an international uproar. Chinese mothers program their children to work and achieve. The bottom line for economic forecasters: from an economic perspective all those tiger mothers turn out hard-working model ..........

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(Reuters) Egypt riots knock Wall St to biggest drop in 6 months

By Angela Moon

(Reuters) - Stocks suffered their biggest one-day loss in nearly six months on Friday as anti-government rioting in Egypt prompted investors to flee to less risky assets to ride out the turmoil.

Increased instability in the Middle East drove up the CBOE Volatility Index .VIX, the stock market's fear gauge, as investors scrambled for protective positions.

"The market hates uncertainties, especially geopolitical ones, and based on how that shapes up throughout the weekend (in Egypt), next week's trading will be impacted," said Thomas Nyheim, portfolio manager for Christiana Bank & Trust Co in Greenville, Delaware.

Trading volume was the highest of the year at 9.97 billion shares on the New York Stock Exchange, the American Stock Exchange and Nasdaq, compared to last year's estimated daily average of 8.47 billion shares.

The market drop ended the Dow's eight-week winning streak and pushed the S&P 500 below its 14-day moving average for the first time in two months. Disappointing results from Amazon.com (AMZN.O) and Ford (F.N) further added to the gloom.

Developments in the Middle East could be a trigger for investors to sell at a time when many expected a correction after a market rally of about 18 percent since September.

"I think the next two to three weeks, the crisis in Egypt and potentially across the Middle East, might be an excuse for a big selloff of 5 to 10 percent," said Keith Wirtz, president and chief investment officer at Fifth Third Asset Management in Cincinnati, Ohio.

Nasdaq quotations for its main stock indexes suffered an outage of nearly one hour at the open, causing confusion among traders. Nasdaq OMX Group (NDAQ.O) blamed a glitch with its global index data service.

The Dow Jones industrial average .DJI ended down 166.13 points, or 1.39 percent, at 11,823.70. The Standard & Poor's 500 Index .SPX was down 23.20 points, or 1.79 percent, at 1,276.34. The Nasdaq Composite Index .IXIC fell 68.39 points, or 2.48 percent, at 2,686.89.

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PUTTING THE GOLD DECLINE IN PERSPECTIVE

By Chart of the day

Today’s chart provides a long-term view of the gold market. As today’s chart illustrates, gold has been in a strong bull market since 2001. Today’s chart illustrates that the pace of that upward trend increased beginning in mid-2005. Following the financial crisis of late 2008, gold surged once again. More recently, gold has pulled back from resistance (red line) of its accelerated trend channel. However, gold has pulled back to and is currently testing what is two-year, intermediate support (see green dashed line) for the eighth time.

Notes:
- Does the gold rally continue or is the party over? The answer may surprise you. Find out now with the exclusive & highly regarded charts of Chart of the Day Plus.

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