It is reported that Australian Mines (ASX: AUZ) has taken a significant step in its strategy to mine gold at Mt Martin mine near Kalgoorlie after successfully completing a capital raising for $910,000.

The funds will supplement further definition and extension drilling of the current resource at the Mt Martin gold mine, which it will regain control and ownership of from Dioro Exploration (ASX: DIO) in January 2010.

The capital raising was over- subscribed and raised $910,000 at 0.1 cent from sophisticated investors including a new cornerstone investor who was issued 45% of the placement.

Placement shares are expected to be allotted on 24th December 2009.

The Mt Martin mine, located 40 km from Kalgoorlie, has historically produced ~200,000 ounces of gold. At present, the mine has some 213,000 ounces of gold resources across two deposits, Mt Martin and the adjacent Swift deposit.

Dioro Exploration currently holds the sublease to Mt Martin, which it acquired when it purchased the South Kalgoorlie Project from Harmony Gold and, during 2009, conducted an open pit operation at Mt Martin, recovering in excess of 15,000 ounces of gold. The sublease is set to expire on 25 January 2010, at which time Australian Mines will resume total control of the mine.

Executive Director Brett Young said Mt Martin would now become the primary focus for the company going forward.

“Mt Martin already has a JORC-compliant gold resource, as well as several ready-to-drill targets which will expedite exploration activities,” Mr Young said.

“The mine is ideally located near to the largest gold mining centre in Australia and toll milling treatment facilities, in a region that we have been operating in for many years now.”

He said the funds raised by the placement would increase the company’s cash position and enable it to commence a drilling programme at Mt Martin and Swift following formal handover of the project in January.

Investors who put their money in gold exchange-traded funds (ETFs) are smiling their way to the bank. Gold ETFs have outperformed physical gold with returns of 30 per cent in a year, while physical gold has so far gone up only about 23 per cent (average on an annualised basis) in the same period.

Though physical gold has gone above Rs 18,000 per 10 grams recently, on average it was at Rs 15,400 per 10 gram in 2009 from Rs 12,500 in 2008. Dhirendra Kumar, CEO, Value Research, said, “Realising better returns, now some of the gold ETFs have attracted investors to invest in ETFs more than any other funds. Recently, some exchange-traded fund companies such as Gold Benchmark, Kotak Gold, Quantum Gold, Reliance Gold, SBI Gold and UTI Gold have shown their performance with a rise of as much as 30 per cent in one year’s time.”

Just more than two-year old gold ETFs — instruments that can be traded like shares — are backed by physical gold holdings. As the country’s gold collection under exchange-traded funds rose 32.9 per cent a year to 7.4 tonnes in November, industry sources said, this new segment would gain more popularity with some more funds planning to enter the market.

“In the mutual fund space, we avail only two distinct kinds of gold-related funds. The first one is gold ETFs, which closely track the price of gold itself and deliver profits and losses that mirror investing in physical gold. The second one consists of a couple of equity funds (one from AIG and the other from DSP BlackRock) that actually invest, not in gold, but in foreign gold-related stocks, like those of gold mining and processing companies,” Kumar said, adding, “Over the last one year, gold has gained 44 per cent (year-on-year basis), but these funds have gained more than twice that.”

Kumar said, “All the ETFs deliver identical returns. Unlike an investor in equity or equity-backed products, there aren’t hundreds of choices.” Jaydeep Bhattacharya, chief marketing officer, UTI Mutual Fund said, “In the long term, bulls think the metal will continue to shine. Gold has been proved to be a historic store of value and an inflation hedge. I think it is an asset class, not just a trade. As far as gold fund is concerned, for last three months and six months we have seen 6.83 per cent and 17.3 per cent rise of returns respectively in absolute term and it may be doubled on an annual basis.”

Hiren Dhakan, mutual fund analyst, Bonanza Portfolio said, “The US dollar and gold share universal correlation with each other. Gold isn’t a bubble. Although it has gained of late, the dollar remains weak, the stock market has run up more than fundamentals support, and a lot of people haven’t invested in gold yet. That suggests gold ETF investors should stand apart.”

It is reported from UK-refiner Johnson Matthey that Chinese jewellery demand has been tremendously strong in 2009. But how long can it keep on growing?

It’s been clear that China’s demand for platinum has been exceptional in the last 12 months. There are two key and relatively timely sources of data about the Chinese market – the country’s imports of platinum, both direct and via Hong Kong, and turnover on the Shanghai Gold Exchange (SGE). Both have been very strong since Q4 2008, and that has continued through most of 2009. The chart below shows net imports of unwrought platinum into China & Hong Kong since the start of 2008.

After a rather subdued first nine months of 2008, on the back of the extremely high platinum price and restricted supply (due to the power crisis in South Africa), China’s demand really took off in September 2009 as the price crashed, and has remained strong ever since. It dipped in June this year but has slowly recovered. October data is only available for direct China imports, and this shows these falling back to 79,048 oz, the lowest since December 2008.

In total, these add up to 1.7 Moz in 2008 (of which nearly 900,000 oz came in the last three months) and 2.3 Moz in 2009, up to the end of September. Even if imports were to slow to a rate of 150,000 oz a month for the last three months of 2009, that would still imply 2.75 Moz for the full year. It’s possible that some of this data is less than totally reliable – Swiss exports to China do not always tally with recorded Chinese imports from Switzerland, for example – but the trends are clear.

A similar tale is shown by the cumulative turnover on the Shanghai Gold Exchange’s platinum contract. By end-November this year the cumulative total traded in ounces (having halved the total to remove double-counting) was 838,299 oz, far in advance of the previous highest level at this stage of 2008, when it was 632, 952 oz.

These volumes are lower than those recorded by imports, as not all platinum that enters China, and even more so Hong Kong, goes through the Shanghai Gold Exchange. Nevertheless, as the following charts show, the trends have been similar.

Both measures suggest that, even allowing for some slowdown in December as higher prices have begun to bite, China’s platinum usage will be much higher in 2009 than in 2008. The data however cannot tell us how much goes into jewellery as opposed to autocatalysts, glass, electronics and chemicals. In November the UK-based refiner Johnson Matthey (JM) suggested that total demand (from all sources) of platinum in China in 2009 would be 2 Moz, 66% higher than 2008. Of this they estimate 1.75 Moz1 will be jewellery, up from 850,000 in 2008. It is interesting to note that JM’s jewellery figures match Hong Kong imports quite closely.

Clearly it is not an exact science as to how much platinum goes to one use or another. However, jewellery manufacturing is going to be the major platinum user in China. Primarily this is because the Chinese automotive industry tends to make gasoline-powered cars, and so the split between platinum (normally found in diesel-engine autocatalysts) and palladium is heavily in favour of the cheaper metal. The next largest use typically is glass manufacturing, followed by the chemical and electronics industries.

These contribute a fair chunk to China’s consumption, but even if they have been underestimated it is still the case that jewellery demand must have increased substantially over 2008. It is possible that the high levels of jewellery demand might to some extent be masking investment in platinum, but it is impossible to know in what quantities this might be happening.