Thursday, July 30, 2009

Global Financial Crisis “Killed” by Unbridled Optimism


Is that like “irrational exuberance”?

The Sydney Daily Telegraph ran the 98pt font headline “IT’S OVER” this morning followed by the tagline about the crisis being killed by optimism. As Australians awoke to this news, I was struck with the irony that there were two “truths” in this hype (I’ll save my review of the falsehoods for another day).

First, for the banks who swindled American and European governments in getting dollar for dollar insurance for derivative disasters – now topped up with taxpayer funds – their crisis is over. Once again management and well informed investors have walked away with more cash leaving the gap between monetary riches even greater between the haves and have nots. Second, IT really is OVER. So there you have it. The tyranny of the past – architected by closely held interests since Bretton Woods – have satisfied themselves that they’re on sure footing… for now.

However, on this day, let me tell you about another “IT’S OVER” that’s worth celebrating. On this day, an unprecedented thing happened which will genuinely change the face of the future. Ignorance arbitrage and information asymmetry were dealt a fatal blow with the stroke of three pens today.

In a long forgotten corner of the world in East New Britain, Papua New Guinea, the three Chachet (Baining) presidents – from the Inland, Lassul and Sinivit Local Level governments – signed the first ever letter outlining grievances against the Toronto Stock Exchange listed New Guinea Gold Corporation (TSX-V: NGG) – and sent it to the head of compliance at the Exchange. People who have lived for generations without a voice and without access to justice took a stand and began a journey to bring transparency into one of the most hideous abuses humanity has tolerated – namely, the irrational lust for gold at all costs. Led by the courage of the President of the Sinivit Local Level government, the Hon. Boniface Setavo, these presidents stood for their people and their land and have moved Archimedes’ fulcrum.

Should you be interested in a copy of the letter – see the following and I encourage you and all your friends to write to the Toronto Stock Exchange and help call for accountability for those who have lived without justice. Together, we can let that which is “over” be replaced with something which honors transparency, ethical behavior, benefit sharing, and ecological harmony.


Phone +675 983 9011 P.O. Box 1974
Fax: +675 983 9012 Rabaul, ENBP

24 July 2009

Joanne Butz
Compliance and Disclosure - Office of Enforcement
Toronto Stock Exchange
Fax: 403 234 4305

Office of Complaints or Concerns
Fax: 604 688 6051

Dear Ms. Butz,

In my capacity as the President of the Sinivit Local Level Government (LLG) and in joint partnership with two Chachet (Baining) Presidents of Inland and Lassul LLG’s of the Province of East New Britain, Papua New Guinea, we are kindly requesting your consideration of a matter regarding a corporation operating within our province and listed on the Toronto Stock Exchange, namely, New Guinea Gold Corporation (TSX-V: NGG). NGG commenced production of gold from its Sinivit mine – operating in my jurisdiction – without the appropriate agreements mandated by the National Government of the Independent State of Papua New Guinea and without consummating a binding agreement with the landowners of the Sinivit Local Level Government for which I am the President. This operating condition is in violation of the Mining Act of 1992, as amended, of the Independent State of Papua New Guinea.

While this dereliction of compliance with our laws is a matter for our law enforcement to manage, my correspondence with you regards matters that relate to your own oversight and enforcement considerations. At the end of 2008, our respective LLG offices requested the services of M•CAM Inc. to assist us in the investigation of the financial reporting of the NGG operations. As we were unable to gain a clear picture of their operations directly, we asked M•CAM’s financial investigations unit to compile all of the financial statements, press releases and corporate communications of NGG for our own internal investigation. What we found was informative and presents both you and us with significant cause for concern.

First, we found that NGG has been selling gold (outside of compliance with the laws of the Independent State of Papua New Guinea) since May 2008. The company’s statements about commencing production are inconsistent in their published reports to shareholders, along with their report of sales, and may represent misleading statements under your regulations.

Second, in a report issued by NGG on May 20, 2009, the company reported that it had sold CAD$6,185,000 in gold sales to date. In the same report, they state that they have between CAD$7-8 million in recoverable gold in leaching vats as of March 2009. In their most recent audited financial statement, the company makes a reference to royalty payments obligated to undisclosed interests along with other net operating loss items including refining costs but at no point does the company make reference to, nor itemize, any of their obligations to the National or Provincial Government or the local landowners with whom they should have, but have not concluded, an operating agreement – none of which have been paid. Under their “Legal Proceedings” section of their report, the company states that they have “no contingent liabilities”.

Regrettably, one of the most troubling pieces of information from the Company’s 2008 statement to shareholders was the fact that Gold Mines of Niugini Holdings (the shell corporation owning 10% of NGG and the counter-party to the draft Memorandum of Agreement with the Uramot local landowner group) had been assessed over CAD$1,800,000 in debt for operations. So not only have the landowners and the Province received no financial benefit for this operation but rather, they are beset with the environmental damage and massive debt as a result of the “shareholder” status in a shell corporation which is assessed debt but does not currently report any intent to pay out dividends. Under the breached 1996 Memorandum of Agreement, no understanding was made between the parties to authorize the assumption of debt or the accrual of interest charges by, or obligated to, the Uramot Company Limited or any other entity associated with the mine.

Finally, on June 1, 2009, the company issued a press release stating that, “NEW GUINEA GOLD REPORTS FIRST PROFITABLE QUARTER IN Q1, 2009”. This statement included a report that the net profit was primarily attributable to “$69,162 (quarter ended March 31, 2008: $nil) of interest charges accrued on the long term debtor owed by the Company’s Mt Sinivit mine joint venture partner’s share of capital and operating costs.” Creating a majority held company, charging it interest, and then declaring the interest as income for the sake of profit, appears to be misleading and creates a cause for concern given the questionable legitimacy of the partner/debtor entity.

The company was put on notice of a Breach of the 1996 Memorandum of Agreement between it and the Uramot Company Limited on the 13th of February 2009. We have not seen evidence of this reported to shareholders. A company representative made reference to a payment due to parties in Papua New Guinea in an article in The National (one of our two national papers) and alleged that it had not yet been paid as the company was waiting to have a counter-party to which it is obligated. We have not seen evidence of the amount or the assent to obligation made by the company in any of its reports to shareholders.

While our National and Provincial grievances with New Guinea Gold Corporation are well beyond what are enumerated herein, these matters are materially and adversely impacting our confidence in the operations of New Guinea Gold Corporation and are calling into question our belief that the Toronto Stock Exchange rules on reporting, accountability and transparency are being adequately assessed or enforced. I would welcome your cooperation in an inquiry into the above-referenced matters and trust that we can work together to see stockholders’ in Canada and stakeholders’ in Papua New Guinea interests protected.

I submit for your information and consideration,

Yours Faithfully,

President – Sinivit Baining LLG

President – Lassul Baining LLG

President – Inland Baining LLG

Cc: The Honorable Leo Dion, CMG, QPM, MP
Governor East New Britain Province

The Mine Manager
Sinivit Gold Mine Project
P.O. Box 808
East New Britain Province
Independent State of Papua New Guinea

Provincial Administrator
East New Britain Provincial Government

Mr. Kepas Wali
Chief Executive Officer
Mineral Resources Authority


Friday, July 10, 2009

Death Tax on Stuff

The Obsolescing of Planned Obsolescence Economies

In an effort to stem the frugality of the populace during the Great Depression, Bernard London wrote a compelling piece on “Ending the Depression Through Planned Obsolescence.” His thesis ran something like this… if the public doesn’t spend, the economy can’t recover… therefore, we need the public to spend more… therefore we must punish a person who possesses or uses a product longer than its statistical life and actually begin to tax continued use after depreciation had run its course. This concept and phrase – coined in 1932 – was popularized by the great Industrial Design engineer Brooks Stevens who, in 1954, claimed to have coined the term. A tiny irony captured by the fortunate documentary work of my dear friend Chip Duncan ( who had the foresight to interview Stevens before his death.

Brooks Stevens (and his ignored muse Bernard London) lived in a time when two consequences of his admonitions were either unconsidered or relegated to infinite improbability. Both men failed to realize that, in promoting a public good where consumers seek something “a little newer, a little better, a little sooner than is necessary,” the drain on natural resources and energy must be viewed as relatively infinite and of nominal cost. Further, they failed to acknowledge the axiomatic imperative that consumers actually purchase with wages, not credit. The ignorance of both of these implicit assumptions has portended the end of their reign of indifferent, immoral consumerism. In Duncan’s interview, Stevens makes the statement that no company would be so “diabolical” to actually create cheap or inferior products to pass along to customers so that they would have to constantly buy more stuff. Does anyone see an irony in the fact that Stevens made this assumption around the same time as a little retailer of cheap stuff was getting off the ground in an anonymous corner of America – Bentonville Arkansas?

On July 9, 2009, the last of my Phase I forecasts for the collapse of the current economic system came into sharp focus. The realization that credit card debt – the cloaked specter that has been luring the public and politicians alike to try to solve a faux “real estate” crisis – has finally hit the collective consciousness. Congratulations – it only took a few years from my Arlington Institute “House of Cards” speech to discover what has been known and reported since the late 1990’s. U.S. banks are acknowledging that they stand on the precipice of massive consumer credit default exposures just in time for the summer holidays. And, at the same time, the People’s Bank of China lent almost 25% of the country’s GDP in new credit issuance within China fueling a gross domestic product growth which could top 8 percent this year. The difference between Chinese borrowing and U.S. borrowing is that the U.S. debt was actually being purchased by international interests – the Chinese debt is being recycled into their economy. China, the producer of last resort for the London Stevens Maelstrom of consumption, is now inverting its economy having built manufacturing and energy infrastructure financed by the excesses of the West. They have optioned energy, agriculture, water, and other resources from Tonga to Timbuktu and have out-maneuvered the U.S. and Europe at every turn. And now, they are ready to make their next bold move…

What if their friend and gold miner extraordinaire Robert Friedland suggests that, with China’s abundance of gold reserves and mineral reserves, it adopts an actual or synthetic gold standard to back the Renminbi? Could the Asian Century that Friedland has forecast have it’s auspicious beginning this year and has the Bretton Woods dollar denominated consumerism just met its phantasmal end in accordance with the London Stevens Maelstrom? Watch Ivanhoe Mines and ask yourself, what if….?