"The best place to be is in commodities"

Three Reasons Why The Copper ETF (JJC) Is Soaring
by Eric Dutram on February 19, 2010 | ETFs Mentioned: JJC

Copper prices have continued their impressive rally this week, as the widely-used industrial metal finished higher on Thursday up for the seventh time in eight trading sessions, bringing its return over that period above 15%. The recent surge in copper prices has been driven by a number of factors, and many investors believe that the metal still has room to climb. Copper’s recent run-up is attributable to three primary factors:

[To read the full article and see the chart, please click the link below]


http://etfdb.com/2010/three-reasons...ed:+etfdb+(ETF+Database)&utm_content=My+Yahoo

I have scanned a lot of the previous threads and can't find any mention of NKP.
Why is it so?
Anybody out there have anything for me on this one?
I purchased recently.

February 22, 2010

Metals And The Dollar Go The Same Way, As The Fed Raises Rates
By Rob Davies
www.minesite.com/aus.html

It is one of the unwritten rules of the market that when the dollar goes up metal prices go down. But last week markets witnessed a clear demonstrated the maxim that rules are made to be broken, as the US currency rose 0.9 per cent against the euro, taking it to a nine month high, and two per cent against the yen. Concurrently, metals prices on the LME, as measured by the LME Index collectively rose by six per cent.

Taken together the two moves are great news for miners mining anywhere outside the US, and London-listed mining stocks duly rose on the market by some considerable margin. That increase was all the more surprising given that, in the same week, Anglo American confirmed the gravity of its own situation by passing up the opportunity of paying a dividend, again.

Most financial commentary aims to explain the reasons behind events rather than trying to predict them. But in fact the event that triggered this particular rally should have been totally predictable. All that happened was that the US Fed raised the rate it charges for emergency loans to banks by 0.75 per cent. Since these are not being utilised there is no impact. What the move does do, though, is offer evidence that the Fed is starting to envisage a return to “normal” economic conditions.

And that in turn means that it is no longer fanciful to imagine higher US interest rates, which would be good for the dollar. More importantly, higher rates are only needed if growth takes off, and renewed growth will be good for metal prices. And a higher dollar and higher metal prices are just what the doctor orders for mining investors.

That said, the results from the mining companies over the last few weeks have underlined the full extent of the damage done by the collapse in commodity prices a year ago. Overall, industry profits have probably halved. While the recent strength in metals is to be welcomed it only goes part of the way to getting the industry back on a stable financial footing.

There is little point in established, mature mining companies digging vast holes in the ground, and shipping commodities all round the world, only to find that they have no cash left for shareholders, having paid off suppliers and invested enough to ensure their futures.

It may well be that miners are building up cash reserves in anticipation of a very slow recovery, or even in anticipation of a double dip recession. Certainly, the economic news in Europe does not offer much in the way of encouragement, and situation in the US is not much better, notwithstanding last week’s news.

Once again it seems that all the bullishness is contained in the Middle Kingdom. Whether that actually justifies the gains seen on the markets last week is perhaps more questionable. After all, a 12.8 per cent rise in nickel to US$20,230 a tonne is not to be sneezed at. Especially as it is one of the metals with the greatest overhang of mothballed capacity.

Copper’s 6.2 per cent jump to US$7,085 a tonne is a little more understandable, as it has stronger fundamentals - and a 1.8 per cent rise in LME inventories to 555,075 tonnes still leaves copper inventories at abnormally low levels.

Zinc was more subdued. It gained 4.6 per cent to US$2,250 a tonne. Lead did rather better, shooting up 15.7 per cent to US$2,238 a tonne. Finally, aluminium brought up the rear with a 3.2 per cent increase to US$2,076 a tonne. The coincident rise of the dollar and metals might not make a lot of sense as far as the unwritten rules of the market are concerned. But it sure is nice.

February 22, 2010

The Balance Of Power In the World’s Gold Markets Is Swinging From West To East
By Charles Wyatt
www.minesite.com/aus.html


The sun rises in the east and sets in the west. It is certainly setting in the west now, as China has won a huge economic battle with the US without firing a shot. It has over US$3 trillion in the kitty at the moment and is really the only source for further borrowings by Obama’s government as it seeks to get its economy back on track. It will be a huge lesson for the US Government to learn to live with a country whose views may conflict with its own, but China is simply too big and powerful to be ignored. It is also conscious of the power of its position as demonstrated when Major General Luo Yuan of the People’s Liberation Army told a Chinese magazine, “We could sanction them using economic means, such as dumping some US Government bonds”.

China and other countries in the Middle and Far East also distrust the US dollar, and that is something else which Americans simply cannot understand. That is why some of the old men of the US investment world such as Buffett and Soros see a bubble growing in gold. If you look for a bubble you will always find one in the end, even if you have to blow it yourself. But these men do not speak with the wisdom of the ages, they simply talk their own book. If they want to buy gold, what better than to talk it down first and then buy it cheaper?

The plain facts about gold demand are there for all to see in the figures issued by the World Gold Council last week. In 2009, dollar demand for gold remained above the US$100 billion mark for the second year in succession, against the backdrop of continued turbulence in financial and commodities markets. This resilience in demand was achieved in the context of average gold prices 12 per cent higher than in 2008, at US$972.35 per ounce, and even though total tonnage sold was down.

From all this the World Gold Council draws the conclusion that diversity in the gold market both on the supply and the demand side, as well as geographically, has provided significant price support for gold over the course of the year. Aram Shishmarian, the chief executive, tries to explain what this means, “2009 was a year which provided a clear illustration of the diversity inherent in the global gold market. As the year progressed a rebalancing of gold market fundamentals occurred, ensuring that as investment demand came off from the exceptional levels seen in the first quarter, total demand for the year remained robust thanks to a rebound in jewellery and industrial demand”.

The 2009 figures show that the 49 per cent recovery in jewellery demand from a very weak first quarter was largely driven by a rebound in the Indian market, a rebound which enabled it to maintain its position as the world’s largest gold consumer. China, however, was the only gold jewellery market actually to grow in 2009. While total jewellery demand was eight per cent lower in the final quarter of 2009 when compared with the same period last year, it showed clear signs of a rebound in the last quarter of 2009 when compared to earlier quarters in the year. Demand recovered to 500.4 tonnes, up from 336.3 tonnes in the first three months of the year, suggesting increasing consumer confidence within the context of a higher gold price.

On this note it is worth considering a comment by Justin Tooth of Ocean Equities who noticed the ratchet effect on commodity prices whilst he was at Indaba. The constraint factors highlighted by pundits on commodity prices were the same as the previous year, but are now at a higher pitch of intensity. The obvious one, says Justin, is the perennial concern about the price elasticity of Indian demand for gold. The argument goes that Indian jewellery demand will falter when gold reaches a certain level. Last year that level was US$1000 per ounce. This year it was US$1,200 per ounce.

The point he is making is that Indian jewellery is actually just a part of the investment sector, not an alternative sector as many analysts seem to think, and the same probably applies to China as well. As prosperity creeps up in these huge countries, a little more jewellery gets purchased by households as much as an investment as for decoration. A simple sum is in order at this time. Let us just suppose that every single person in India and China bought one gramme of gold a year (one gramme NOT one ounce) at the current price of US$35.2 per gramme (Rupees 1632.37, Yuan 240.4). Demand for gold from these two countries alone would rise by 45.5 million ounces a year. Set that figure against world annual gold production of 86 million ounces, and it makes quite an impact.

Yes, it’s all very simplistic, but there is no avoiding the fact that the citizens of these two countries may soon be capable of mopping up half the world’s gold production every year. No wonder their governments don’t blink when the IMF announces that it is selling more gold. In fact they probably go in for a quiet bit of celebration, and this in turn must make the clever gold analysts of the western world a bit worried as their minds are still set on the poor old dollar. This time the IMF is selling 191.3 tonnes, and it should be no surprise if it is snaffled up as quickly as the 212 tonnes sold last November, of which 200 tonnes went to India, 10 tonnes to Sri Lanka, and two tonnes to Mauritius.

The lesson is even getting through to the West as the latest Gold Demands Trend for 2009 released by the World Gold Council indicates that Central Banks are continuing to diversify their portfolios with an increased allocation to gold. Last year net official sales amounted to only 44 tonnes, compared to a yearly average of 444 tonnes during the five year period up to 2008. The Gold Demand Trends report revealed a significant reduction in net official sector sales. In fact Central Banks turned buyers in the last three quarters of 2009, but there is still little doubt that the balance of gold demand is tipping to the East.

Must read !

"Mining booms and the Australian economy"
Speech by Ric Battellino, Deputy Governor, Reserve Bank of Australia
Sydney, 23 Feb 2010

http://www.rba.gov.au/speeches/2010/pdf/sp-dg-230210.pdf

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USA - S&P 500 Sector Stats

http://www.bespokeinvest.com/thinkbig/2010/2/24/sp-500-sector-stats.html

February 25, 2010

What’s A Company's Gold Worth?
Louis James & Andrey Dashkov, Casey’s International Speculator
www.minesite.com/aus.html

At any given time, there's a single international spot price for an ounce of refined gold. Gold is priced in US dollars: $1,106.10 per ounce as we go to press. But what about the gold an exploration or mining company has in the ground? How do we value that?
Given sufficient data, you can estimate a reasonable net present value (NPV) for a project and deduce what each of the company's ounces should be worth. To do this, you need to know annual output of the proposed mine, proposed capital expenditures, energy and other costs, and many more things. But for most deposits held by the junior companies we tend to follow, there's just not enough data available. Another approach is to compare the value the market is giving a company per ounce of gold in hand against the average value the market gives companies with similar ounces.

The most obvious way to define “similar” ounces in the ground is to use the three resource and two mining reserve categories defined by Canada's National Instrument NI43-101 regulations – the industry standard. We combine these into three broad groups, as we believe the market tends to do as well. Firstly, inferred: the lowest-confidence category, based on just enough drilling to outline the mineralization. Secondly, Measured & Indicated (M&I): these higher-confidence categories have been drilled enough to establish their geometry and continuity reasonably well. And thirdly, Proven & Probable (P&P): These are bankable mining reserves – basically Measure and Indicated resources with established value. So, what does the market give a company, on average, for an Inferred ounce of gold?

To answer this, we combed through every company listed on the Toronto Stock Exchange (TSX) and the TSX Venture Exchange (TSX-V) and pulled out the ones with 43-101-compliant gold resource estimates (or mostly gold) – no silver, copper, etc. Of these, we kept only those with resources that fall almost entirely into only one of our three broad groups: Inferred, M&I, and P&P. In other words, we did not include companies with half Inferred and half M&I resources (though we did include companies with mostly P&P reserves, because most are producers – or soon will be – and are regarded that way). That left us with about 90 companies to calculate some averages on.

That's not a large sampling universe, and we had to make some judgment calls when it came to defining what companies should fall in each category, but it's what we have. So take these averages with a large grain of rock salt, but here they are: US$20 per ounce inferred, US$30 per ounce for M&I, and US$160 per ounce for P&P.

Armed with this information, if you didn't know anything else about an M&I resource (political risk, type of ore, etc.), but you saw that the company that owned it was trading at US$10 per ounce, whereas its peers are valued at around US$30 an ounce, you can conclude that there must either be something very wrong with the project or the stock is a great speculation. If there's nothing wrong with the project, there's an implied growth potential in the stock price, based on the difference between what the company is getting per ounce and the market average for similar ounces. In this case, it would be: $20 x the number of ounces ÷ the number of shares.

As a matter of perspective, a few years ago the market was giving a company about US$25 per ounce inferred, US$50 for M&I, and about US$100 for P&P. Then, when gold ran up over US$1,000 before the crash of 2008, these valuations went out the window, and some companies were getting over US$100 for merely inferred ounces. Do we have your attention now?

Conversely, just after the crash, there were companies having a hard time getting US$10 for M&I. That was clearly a sign that it was time to buy, and we did, with gusto. It's also why, when the Mania phase gets underway, we'll be selling into it as gold approaches the top; we will not be attempting to time the top. It's far better in this business to be a day early than a day late.

Today, the market is willing to pay more for advanced and producing stories (US$160 P&P) but is discounting earlier-stage stories, hence the lower M&I valuation than in previous years (US$30). These figures will change again as the market's appetite for risk changes.

We often get asked what an Inferred, or M&I, or P&P ounce is worth in the ground. The $20, $30, and $160 figures are only rough guides, and you must consider the reasons why some ounces are given more or less by the market, but they're a good starting point.

February 27, 2010

That Was The Week That Was ... In Australia
By Our Man in Oz
www.minesite.com/aus.html


Minews. Good morning Australia. How was your week?

Oz. In a word, flat. In fact, it was so flat that we probably set some sort of record for the number of stocks which opened the week and then closed at the same price, or at best which shuffled A1 cent either way. A handful of stocks managed to shake off the inertia by presenting better-than-expected profit results or a hint a deal in the wings, but nothing could shake the fact that the metals and mining index slid half a per cent lower, or that the all ordinaries lost one-tenth of a percentage point. If the market was on life support equipment you could barely measure the pulse.

Minews. That bad?

Oz. Well, let’s put it in cricketing terms for any sporting minded readers. Last week’s Australian stock market was about as exciting as watching Geoff Boycott bat for England, or Bill Lawrie for Australia. In fact, if you could picture those two batting together, with nothing happening as they dropped dead bats on even the loosest of deliveries, you will understand how dull things were.

Minews. We get the picture. So, let’s start with the few stocks that did excite, before moving on to a call of the dead-bat card.

Oz. Panoramic (PAN) caused a little excitement when it released a better than expected profit result for the half-year to December 31st. The A$23.1 million earned was about 15 per cent above the company’s own guidance of a A$20 million profit, and confirmation that the nickel price is recovering faster than some naysayers had expected, as we discussed a few weeks ago here. On the market, Panoramic added A13 cents to A$1.87, making it easily the best performer in the nickel sector.

Another upward move which caught the eye was a sharp jump from the transparently-named South Australian uranium explorer, UraniumSA (USA). Shares in UraniumSA shot up by A9 cents to A29 cents after the company reported excellent exploration results from its Blackbush project, near Whyalla in South Australia. Best assays included 13.8 metres at 1392 parts of uranium per million (ppm), and 9.7 metres of 1357 ppm. Uranium assays are always confusing because of the way they are reported in such minute amounts, but as a general rule anything over 1000 parts per million (which equates to 0.1%) is considered to be positive.

Among the iron ore stocks the only rise of note came from FerrAus (FRS). FerrAus delivered a positive feasibility study for a 15 million tonne-a-year project at its Pilbara prospect, not far from the Jimbelbar mine of BHP Billiton. On the market, FerrAus added A4 cents to A77.5 cents, but did trade as high as A80 cents on Friday.

Minews. Pretty tame stuff. Time for a call of the card, but keep it short if the market was so flat. And start with gold.

Oz. Like all sectors last week, in the gold space a handful of stocks managed to add a few cents, while the rest were flat-to-negative performers. Two of the best were stocks we featured during the week, Medusa (MML) and Andean (AND). Medusa added A11 cents to A$3.70, as investors began to appreciate the value contained in its Co-O mine in the Philippines. Andean reported more discoveries at its Cerro Negro project in Argentina, and rose A4 cents to A$2.57.

Other upward moves came from OceanaGold (OGC), which reported excellent production figures and a strong profit for the year to December 31. The company also plans to wipe out its hedge book. OceanaGold rose by A18 cent to A$2.20. More modest upward moves came from Kingsrose (KRM), which put on A1cent to A65 cents, and Kingsgate (KCN) which added A3 cents to A$8.81.

After that it was flat, or down. Cortona (CRC) had good news to reporte from its Dargues Reef project in New South Wales, but remained stuck at A14 cents. Chalice (CHN) continues to add ounces to its Eritrean project, but slipped half a cent to A40.5 cents. Alkane (ALK) delivered more positive news about its emerging Tomingley mine, but opened and closed the week at A31 cents. St Barbara (SBM) returned to profits, only to see its shares shed A1.5 cents to A22 cents. Finally, Tianshan (TGF) dropped A1 cent to A10.5 cents despite reporting the completion of a merger with Corvette Resources (CVX) and a name change which will see the merged companies trade as Corvette, under the new code of CVX, from Monday.

Mines. Iron ore and base metals next, please.

Oz. Apart from FerrAus there wasn’t much that was positive to report. Two of the emerging producers of heavily-processed magnetite ore, Grange (GRR), and Gindalbie (GBG), crept higher, Grange by half a cent to A36 cents, and Gindalbie by half a cent to A$1.00. Magnetic (MAU), one of the stocks following railway lines rather than remote rock outcrops, also added a very unexciting half a cent to close at A49 cents. Brockman (BRM) ran out of puff after a few strong weeks, losing A5 cents to A$3.11. BC Iron (BCI) lost A9 cents to A$1.14. Atlas (AGO) was also A9 cent lower at A$2.02, and Fortescue Metals (FMG) fell A24 cents to A$4.65.

The base metals were led by copper, again, though OZ Minerals (OZL) was the only producer to finish the week in the black after it reported a strong profit of A$203 million for 2009. On the market, OZ added A6 cents to A$1.04. After that it was all down. Fallers included PanAust (PNA), which said it was engaged in merger talks, and promptly dropped A2.5 cents to A46.5 cents. Sandfire (SFR), meanwhile, completed a fresh capital raising, and dropped A20 cents to A$3.60 in the process. Not to be outdone, Talisman (TLM), which is exploring alongside Sandfire, fell further proportionately speaking, with a drop of A17 cents to A90 cents. Citadel (CGG) was A4 cents weaker at A30 cents. Marengo (MGO) lost A1 cent to A11 cents. Hillgrove (HGO) fell A3 cents to A36 cents, while Equinox (EQN) held its ground, ending steady at A$3.51.

The only nickel stock, apart from Panoramic, to rise, was Poseidon (POS), which popped up by a surprise A2.5 cents to A27.5 cents. Mincor (MCR) and Independence (IGO) shed A2 cents each to A$1.50 and A$4.05 respectively. Zinc was all in the red. Perilya (PEM) fell A4.5 cents to A54 cents. CBH (CBH) lost A1 cent to A11.5 cents, and Kagara (KZL) lost A5.5 cents to A83 cents.

Minews. Let’s wrap up a lacklustre week with uranium, coal and any specials, please.

Oz. UraniumSA, as mentioned, was the stand-out uranium stock. The only other explorer to rise was Bannerman (BMN) which ended a few bad weeks by adding A3 cents to A53.5 cents. After that it was all down. Extract (EXT) fell A15 cents to A$7.25. Manhattan (MHC) also lost A15 cents to A$1.30. Forte (FTE) shed A2 cents to A15.5 cents, and Paladin (PDN) continued to lose supporters as it struggles to post profits, falling another A23 cents to A$3.61.

Coal stocks were all weaker, in line with the lower oil price. Macarthur (MCC) fell A60 cents to A$10.20. Whitehaven (WHC) lost A40 cents to A$4.65. Coal of Africa (CZA) was A12 cents weaker at A$2.40, while Riversdale (RIV) was the week’s heaviest coal loser, shedding A83 cents to A$7.36.

There are no specials worth reporting in what was a remarkably dull week.

Minews. Thanks Oz.

March 01, 2010

As Metals Track Sideways In A Finely Balanced Market, What Happens Next In Terms Of Demand Will Be Crucial
By Rob Davies
www.minesite.com/aus.html

The New Year is no longer quite so new, and some of the optimism that surrounded markets at the start of 2010 has started to look a little frost damaged. It is now clear that the major developed economies are recovering, but that they are recovering more slowly than they have done from past recessions. On the other hand, the economic powerhouses of China and India are still advancing rapidly, despite some timid attempts to check the headlong rush in China.

It’s in that context that capital markets have now gone into a state of limbo, uncertain whether to power ahead in anticipation of further good news or consolidate to lock in the gains already secured.

The LME Index gives as good a guide as any as to what’s been going on in the base meatls space since the start of the year. The Index began January at 3,450, and then drifted down to 2,900. A strong rally took it back up to 3,400, but a lack of direction has seen it drift it back to 3,200.

And the ups and downs in the LME Index are not too out of sync with what’s been going on in equities markets, a similarity that’s down to the remarkable nature of the economic position last year.

Metals and equities spent most of 2009 repricing from a position that discounted financial Armageddon, to one that was back to business as usual. The rise in these asset prices was not driven by rising profits or demand but by the anticipation of them returning. And a classic case in point is the mining sector.

Even though metal prices rose strongly throughout the year, the starting point was very depressed. Profits for the sector overall were about half that of the previous year. That though, did not stop many major miners from tripling in price.

A similar argument applies to the underlying metals. Prices rose strongly over the previous twelve months, yet inventories of some metals have increased on a reported basis. Given that we know some entities, like China, have been stockpiling metals such as copper, the real situation is probably even worse.

That is not a problem if demand eventually comes through and starts to erode inventories. That’s what the bulls expect will happen. But the bears fear that demand growth will be anaemic, and won’t be strong enough to match the increased supply that has been reactivated by higher prices.

Thus it seems markets are pretty much evenly balanced, as of course they should be. Some commentators prefer to describe this as an uncertain market. In the experience of some market observers the time to get worried is when the markets are certain about what is about to happen. Because such certainty is usually misplaced.

So, in the context of that even balance, last week copper fell 0.6 per cent to US$7,045 a tonne, a fall which was pretty representative of all the base metals. Only nickel made any upward progress, but a 0.2 per cent gain to US$20,270 hardly merits the award. Lead fell by four per cent to US$2,148 a tonne, thereby giving up some of the steep gains made in the previous week. Its sister metal zinc kept it company with a fall of 4.5 per cent.

Overall, it was a pretty lacklustre week. After the gyrations of the last few years, not everyone will be too upset about that.

The last time we posted our table of sovereign debt default risk was on February 5th, when worries about Greece and Europe were pretty much at their peaks. The S&P 500 ended up making a short-term low on the following trading day, and since then, sovereign default risk has eased substantially around the world. Below we highlight the change in credit default swap prices (default risk) for various countries both year to date and since February 5th. The table is sorted by change since February 5th. As shown, default risk has fallen for all but three countries since 2/5. It has fallen the most for Portugal, Austria, Spain, AUSTRALIA, and the US. If you look back at the table from 2/5, you'll see that the countries that had spiked the most year to date at that point are the ones that have fallen the most since then.


The link to view the tables:
http://www.bespokeinvest.com/thinkb...debt-default-risk-declines-significantly.html

drillinto said:

The link to view the tables:
http://www.bespokeinvest.com/thinkb...debt-default-risk-declines-significantly.html

Click to expand...

The last chart appears the clearest. The prices on the bar graph represent the cost per year to insure $10,000 worth of sovereign debt for five years per country in USD's.

With thanks drillinto for the various articles.

March 06, 2010

That Was The Week That Was ... In Australia
By Our Man in Oz
www.minesitz.com/aus.html

Minews. Good morning Australia. It looks like you had a much happier week.

Oz. The stock market was certainly better. The cricket wasn’t. New Zealand gave us a lesson in how to win, and how to behave properly on the field, in the first of our one-day series. You had a much easier time of it against Bangladesh. So, sticking to financial matters, the best results last week came from three sectors: gold, iron ore and nickel. Mining stocks overall comfortably outperformed the wider market. The gold index was up an eye-catching 7.4 per cent, the metals and mining index added 4.9 per cent, while the all ordinaries could manage a rise of just 2.6 per cent.

Minews. Movements which seem to underline the importance of mining in the Australian economy.

Oz. Correct, but we also had another interesting measure of the importance of mining, in the form of the annual list of Australia’s richest people, as compiled by Forbes magazine. Seven of Australia’s 40 richest people are classified as miners, with Andrew Forrest, the founder and major shareholder of Fortescue Metals Group, reclaiming his title as Australia’s richest person. Gina Rinehart, who also who owes her fortune to iron ore, came in seventh, and ranks as Australia’s richest woman.

Minews. Interesting, but let’s get down to prices, starting with gold.

Oz. Mostly up. The challenge this week was to find a stock that fell, given that the gold price rose modestly and the Australian dollar kept its head above the US90 cent mark. One of the best performers was Silver Lake (SLR) which added A8 cents to A$1.12, after it reported the completion of a significant upgrade of its Lakewood processing plant. Production has been expanded by roughly one-third, and that rise should ensure that output comfortably meets the 2010 target of between 60,000 and 70,000 ounces. And just to underline the growing stature of Silver Lake, it’s worth noting that it has just been added to the S&P 300 index, after its market capitalisation eased past the A$200 million mark.

Minews. Quite a success story. We might take a close look in the next few days.

Oz. Other noteworthy gold movers included Catalpa (CAH) which added A12 cents to A$1.47, Kingsgate (KCN), which rose A30 cents to A$9.15, Resolute (RSG), which rose A7.5 cents to A$1.00, and Perseus (PRU), which rose A12 cents to A$1.93. Alkane (ALK) was also a notable riser, up A2 cents to A33 cents after the big American goldminer, Newmont, exercised an option to take 75 per cent of the company’s promising McPhillamys project in New South Wales. Even though Alkane is watered down to 25 per cent, that’s still a valuable stake to have in a discovery which promises to be world class. The conceptual target of up to four million ounces gives Alkane a million ounces on an attributable basis.

In other news, Focus (FML) Minerals reported a pleasing half-year profit of A$4.9 million, confirming the success its Coolgardie re-development strategy. Much of that good news must already have been priced in, as the market rewarded the stock with only a modest rise of A0.2 of a cent to A5.9 cents. Elsewhere, Citigold CTO) said it would spin out its Charters Towers project into a new company, a move which lifted the stock by A0.9 of cent to A9.9 cents. And Norton Gold Fields (NGF) received a A$20 million cash injection from a Chinese partner, ending a period of considerable instability. Shares in Norton rose A4.5 cents to A21 cents.

Meanwhile, one of our entrepreneurs who’s been missing in action for a few months, Michael Kiernan, made a return splash as he announced the completion of the recapitalisation of Monarch Gold. It’s now been renamed Swan Gold Mining, and has been set a production target of 100,000 ounces within the next 12 months.

Minews. Ambitious, but good luck to him. Let’s quickly finish with gold and shuffle along to other sectors.

Oz. Lihir (LGL), a troubled gold major, finally rid itself of its failed Ballarat project. Htat pleased investors who lifted the stock by A17 cents to A$2.91. Troy added A14 cents to A$2.20. Andean (AND) hit a 12 month high of A$2.74, up A15 cents. And the Tennant Creek twins, Westgold Resources (WGR) and Excalibur (EXM) were also on the rise. Westgold added a modest half a cent to close at A9 cents, while Excalibur rose A0.1 cents to A34.5 cents.

Minews. Iron ore next, please.

Oz. Strong performances all round, thanks to continued speculation that the long term iron ore price will rise by up to 80 per cent when contracts are negotiated later in the year. Star of the week was Brockman Iron (BRM) which rose to a 12 month high of A$3.55 on Thursday, before dropping back to end the week at A$3.53, an overall rise of A41 cents. Territory (TTY) had its best week in a long time, as it booked a profit of A$13.7 million for the December half. Territory’s shares rose A3 cents to A18 cents. FerrAus (FRS) revised its exploration target upwards such that it now stands at 300 million tonnes of ore. This optimism encouraged investors to lift the stock by A16.5 cents to A97 cents. BC Iron (BCI) put on A8 cents to A$1.12, while Mt Gibson (MGX) rose by A11 cents to A$1.69. Fortescue (FMG) added A8 cents to A$4.78, despite confirmation that American hedge funds, which had been long-term supporters of FMG had been sellers recently. Other iron ore movers included Giralia (GIR), up A25 cents to A$1.87, Atlas (AGO), up 6 cents to A$2.12, Grange (GRR), up A7 cents to A44 cents. Batavia (BTV), which we took a look at last week, slipped half a cent lower to A17.5 cents.

Minews. Nickel, and the other metals now.

Oz. All the nickel stocks were up, as nickel powered back through the US$10 a pound mark. Mincor (MCR) added A12 cents to A$1.67, Western Areas (WSA) rose by A42 cents to A$4.85, Minara (MRE) gained A5.5 cents to A79 cents, and Poseidon (POS) moved A1.5 cents higher to A29 cents. Also moving strongly was Panoramic, after it reported additional ore lenses deep beneath its Savannah mine in the Kimberley region. That news boosted the stock by a very impressive A44 cents to A2.41.

Most copper stocks rose, but not as strongly as the nickels. Equinox (EQN) added A14 cents to A$3.80. Citadel (CGG) put on A3 cents to A33.5 cents. CuDeco (CDU) rose by A22 cents to A$4.18. Talisman (TLM) gained A6 cents to A$1, and Exco (EXS) added A1.5 cents to A25.5 cents. Syndicated (SMD) gained A1 cent to A16 cents after our midweek report, but Sandfire (SFR), which has just completed a big capital raising lost A14 cents to A$3.63.

Zinc stocks were mixed. Perilya (PEM) put on A6 cents to A59.5 cents, and CBH (CBH) added A1 cent to A12 cents, but TNG (TNG) slipped half a cent lower to A7 cents, and Terramin (TZN) lost half-a-cent to A73.5 cents.

Minews. Time for the two energy minerals, coal and uranium, and then specials to close.

Oz. It a nutshell, coal up, uranium down. Gloucester Coal (GCL) added A95 cents to A$9.75 after its directors recommended a takeover bid from Macarthur Coal (MCC). In turn, Macarthur rose A15 cents to A$11.69. Riversdale (RIV) put on A74 cents to A$8.33, but recently-floated Stanmore Coal (SMR) lost A10 cent to A69 cents. Among the uranium stocks Mantra (MRU) swam against the tide with a rise of A50 cents to A$5.70. But elsewhere there were fallers. Manhattan (MHC) fell A29 cents to A$1.16. Bannerman (BMN) fell A2 cents to A49.5 cents, and Paladin (PDN) fell A13 cents to A$3.56.

Minews. And specials?

Oz. Lithium stocks, which have been the darlings of the day traders, went quiet, putting in moves of just a few cents either way. Manganese stocks attracted a bit of support, as OM Holdings (OMH) rose A7 cents to A$1.76, and Spitfire (SPI) rose A1.5 cents to A10.5 cents. That strength was perhaps in sympathy with the nickel sector, as both metals are used in making speciality steels.

March 07, 2010

Look To The Australian Economy For A Guide To Sentiment, As Coal And Metals Power Ahead
By Rob Davies
www.minesite.com/aus.html [Free registration]

Cobalt and molybdenum trading has been underway on the LME for two weeks now and by all accounts has made a good start. These minor metals have high values and both are vital constituents for making steels, and especially the high quality special steels. Some measure of their importance can be gleaned from the prices they trade at. Cobalt is priced at around US$39,950 a tonne, while molybdenum is a tad cheaper at US$37,500 a tonne, although most mining hands tend to think of prices for these metals in pounds rather than tonnes.
Despite their speciality nature the total annual value traded in these two metals now amounts to about US$7.5 billion a year.

The great advantage of trading metals through the LME is that all participants know exactly what they are getting in terms of the quality and purity of the commodity. There is no subjectivity, and hence no room for debate on the price, relative to the constituents of the metal.

And of course, that’s also one of the reasons why the largest commodities by volume are not traded on the LME. Which is a shame because that is where the really big bucks lie.

Last week Japanese steel makers agreed to a 55 per cent increase in the price of the coking coal that they will buy from BHP Billiton. That takes prices up to US$200 a tonne, albeit only for one quarter. Which is why, from the perspective of the LME it is unfortunate that the great many variables in the different types of coal make it unsuitable for trading through a terminal market like the LME – because at these sorts of prices the seaborne coking coal market alone is worth over US$40 billion a year.

Underlying these price increases are the constant rises in Chinese steel production, an inability of Chinese miners to meet demand, and heavy rain in Queensland that has curtailed output there. It is not surprising that the producers like BHP Billiton are keen to move from annual to quarterly pricing to capture this bull market as best they can.

But it was not just coal that had a good week. The earthquake in Chile had a dramatic effect on the copper market, and pushed the price of the red metal up by 6.25 per cent to US$7,485 a tonne, even though the actual impact on production seems limited.

Nevertheless, the earthquake and the consequent increase in the copper price was a good enough catalyst to stimulate price rises across the board. Aluminium rose by 6.8 per cent to US$2,202 a tonne, and nickel jumped by 12.7 per cent to US$22,850. Lead rose by 2.3 per cent to US$2,196 per tonne, and zinc rose by 6.6 per cent to US$2,289 per tonne.

Overall, there is no denying the bullish tone to the markets, even though a huge number of problems remain. Greece is still a concern, but ultimately only accounts for two per cent of the Eurozone. Its problems are its own, not the Euro’s.

Perhaps the best indicator of market sentiment is provided by Australia, the ultimate commodity country. Things are going so well down there that the Reserve Bank of Australia feels able to increase interest rates by 25 basis points to four per cent. That may not please Aussie miners, but it does show that not all countries have made a complete Horlicks of their economies in recent years, and that at least some of them are well placed to benefit from the upturn.

March 09, 2010

Party Like It’s 2007: At The 2010 PDAC
By Our Canadian Correspondent
www.minesite.com

Individuals that make their living in the mineral resource sector are well aware of the dramatic volatility that comes with the run-of-the-mill commodity cycle. So, in theory the quick bounce back from the 2008-2009 commodity meltdown was predictable. It’s not always easy when times are tough, though, to keep the faith, which is why, now that the upswing is in sight, most of the expected 18,000 plus attendees at the 78th annual Prospectors and Developers Association of Canada Conference in Toronto are in a jubilant mood.

Canada’s biggest mining show started things off on Sunday with a bevy of upbeat commodity analysts touting a positive outlook for commodities. Those projections were almost a 180 degree transformation from the subdued outlook statements presented by analysts in 2009. Leading the charge was Andrew Keen of HSBC Securities in London. He started out by stating what everybody in the audience already knew……that the doubling of the metal prices has been largely driven by the demand from China. While positive in the medium term on most of the commodities, he tends toward favouring iron ore, coking coal and platinum versus copper. Donald Drummond from TD Bank financial Group concurred with these general sentiments, adding that a global economic recovery would spur the currencies of commodity-rich nations like Canada to higher ground.

Meanwhile, Alan Galley of the Geological Survey of Canada stated that the metal market has hit a plateau, with supply now just keeping up with growing demand. In the future, explorationists will need to explore deeper to find the required supply. Interestingly, he points out that nickel currently has the largest global reserves, while silver has the lowest.

The difference between copper and gold mineral exploration success was also well documented on Sunday. Michael Doggett of HanOcci Mining Advisors stated that in 1979 copper reserves totaled 350 million tonnes and over the following 30 years the mineral industry produced 322 million tonnes of copper. That said, by 2008, copper reserves still stood at around 550 million tonnes. In other words, the copper explorationists and engineers have done a decent job in replenishing supplies.

The replenishment of gold reserves has not been quite so efficient, according to Stephen Enders of Renaissance Resource Partners. The median gold deposit is 350,000 ounces, while the mean deposit size is between one million and two million ounces. Gold reserves are being depleted at a much faster rate than exploration is replenishing them. The net effect of that dynamic is that the major gold companies are now moving into the mega copper-gold porphyry deposits to boost reserves. This analysis was well received by the gold bugs, who have had plenty to cheer about in the early days of PDAC.

Martin Murenbeeld of DundeeWealth Economics sees economic reflation and bad government balance sheets being the drivers for the future price of gold. Given that mine output is not increasing significantly, and that central banks are becoming buyers instead of sellers, that all adds up to a bright future for the price of bullion. As per usual, the demand for bullion is coming from Asia, with China and India alone accounting for more than 25 per cent of the global demand.

For those investors looking for the best of both worlds, the platinum group metals offer the attraction of investment characteristics like gold, with an added industrial use in automobiles. Once again, China and India are projected to carry the demand torch for platinum in 2010.

On the property asset front, this year’s PDAC could yield a number of deals with resource assets in locations ranging from British Columbia to Egypt being discretely shopped around for the right buyers. Unlike 2009, the exploration companies attending in 2010 seem cashed up, and that usually means a number of rather hefty hangovers will be felt in the mornings.

A sign that happy times at the PDAC are here again can be seen in the presence of Teck Resources, which is the biggest sponsor of PDAC 2010. Less than 18 months ago Teck looked to be on the financial ropes after taking on huge debt with its purchase of Fording Coal. With a little help from a major Chinese investment and from rebounding coal prices, Teck is once again Canada’s diversified mining darling. Yes, we in the mineral industry are surely accustomed to the booms and busts that follow economic cycles.

Your correspondent will take to the floor tomorrow to see what’s hot from the investment side of the mineral resource space in a tour of the 400 or so exhibitors at the conference. Early touts from the purely speculative side point to interest in Gold Bullion Development with its Granada gold project in Quebec, and to Tasman Metals with its Norra Karr rare earth element zirconium project in Sweden. Both seem to be churning a lot of stock on very preliminary results, but perhaps more on these and a few others later this week.

March 13, 2010

That Was The Week That Was ... In Australia
By Our Man in Oz
www.minesite.com/aus.html


Minews. Good morning Australia. How did your market perform last week?

Oz. In a word, oddly. If you’d looked only at the major indices you might have suspected that not much happened. The metals index rose by 1.2 per cent, the all ordinaries rose by 1.3 per cent, and gold rose by 1.5 per cent. But, when you try to fit those modest increases into the pictures painted by the moves from individual companies it just won’t go, especially when you rule out the mining majors, BHP Billiton and Rio Tinto. The big boys crept up a per cent or so. But smaller stocks in the iron ore sector rocketed up, gold and copper stocks were stronger, nickel improved, and even zinc delivered a few pleasant surprises.

Minews. A difference which might, perhaps, reflect increasing interest in smaller stocks?

Oz. Precisely. The indices are a useful guide, but there is no doubt they are dominated by big companies and fail to pick up moves like this week’s 187 per cent increase from Aurox (AXO), a small iron ore player which received a takeover bid from Atlas Iron (AGO) during the week. Nor do they reflect the 50 per cent rise by the zinc producer, CBH (CBH), which is back in the takeover sights of the Belgian-based zinc refiner, Nyrstar.

Minews. That iron ore bid is interesting because it seems to have little to do with ore in the ground and more to do with port capacity.

Oz. That’s exactly what Atlas wants, further emphasising what I’ve been rabbiting on about for some time. There’s no shortage of iron ore in Australia, but there is a shortage of railways and ports. That’s why Magnetic Resources (MAU) and Giralia (GIR) are exploring along railway corridors rather than wandering too far into the scrub, and why Atlas becomes a much more interesting stock when it gets Aurox and its space allocation at Port Hedland expands to 33 million tonnes a year, which is more than the company currently plans to produce.

Minews. We might look closer at the port question another time. Let’s push along, though, sticking to the iron ore theme for the moment.

Oz. Quite right. There was a second factor driving iron ore last week. The big Brazilian miner, Vale, tossed another bucket of kero on the iron ore price when it told Asian steel mills that it expected a 90 per cent increase in the long-term contract price this year. That means Christmas could be coming early for everyone in iron ore, including investors.

Minews. Prices now, please.

Oz. Aurox was the star with its stellar A50.5 cent rise to a closing price of A77.5 cents, slightly below its Friday peak of A81 cents. Shares in Atlas also reacted positively to the deal, adding A35 cents to close at A$2.47, also a fraction off the Friday peak of A$2.55. Joining in the upward rush Giralia (GIR) rose A20 cents to close at A$2.07, a shade below the 12 month high of A$2.10 reached in early Friday trade. Meanwhile Sphere (SPH), which hasn’t been heard from since the 2008 meltdown, stormed back courtesy of its Mauritanian iron ore project, adding A40 cents to A$1.67, and also setting a 12 month record of A$1.75 on Friday.

Other iron ore moves included Gindalbie (GBG), up A10 cents to A$1.15, Grange (GRR), up A5 cents to A49 cents, Brockman (BRM), up A23 cents to A$3.76, BC Iron (BCI), up A17 cents to A$1.39, Iron Ore Holdings (IOH), up A17 cents to A$2.57, FerrAus (FRS), up A10 cents to A$1.07, and Fortescue Metals (FMG), up A16 cents to A$4.94. The only iron ore stocks to fall were Territory (TTY), down A1 cent to A17 cents, and Magnetic (MAU), down A3.5 cents to A42.5 cents.

Minews. Strong moves indeed. Now for gold, please.

Oz. Not quite as good as iron ore, but not bad either, in a week when the Australian dollar crept higher and the gold price weakened. Among the best performers was Azumah (AZM), which you reported on mid-week. It added A2.5 cents to A23 cents. Allied (ALD) recovered some of its recently lost ground after reporting a handsome resource increase at its Simberi Island project, rising A4 cents to A31.5 cents. Castle Minerals (CDT) added A6 cents to A34 cents, after a positive report on its exploration assets in Ghana. And St Barbara (SBM) blasted back from the past to announce a new gold mine development and a clean-up of its messy balance sheet, moves which helped the stock put on A2.5 cents to A27.5 cents.

Other gold risers included Silver Lake (SLR), up A4 cents to A$1.16, Resolute (RSG), up A4 cents to A$1.04, OceanaGold (OGC), up A21 cents to A$2.77, and Catalpa (CAH), up A2 cents to A$1.49. Stock in retreat included Excalibur (EXM), down half a cent to A1.2 cents, Chalice (CHN), down A2.5 cents to A37.5 cents, Kingsgate (KCN), down A7 cents to A$9.08, Troy (TRY), down A9 cents to A$2.11. One of the most notable fallers was Norseman Gold (NGX), down a sharp A19 cents to A69 cents, after it encountered similar problems to those which dogged earlier miners of the nuggetty ore at the Norseman mines south of Kalgoorlie.

Minews. Base metals now.

Oz. Mixed, but mainly up. Base metals lately seem to have fallen behind their “bulk” cousins in coal and iron ore which are enjoying stronger demand in China. The best performer was CBH with its A6 cent rise to A18 cents, a rise which came after the company confirmed that Nyrstar had returned with a second takeover proposal. Ironbark (IBC), which has an interesting zinc project in northern Greenland, closed the week steady at A44 cents, but that was only because it requested a trading suspension ahead of an announcement which could affect control of the company. Other zinc stocks were less exciting. Perilya (PEM) added A1 cent to A60 cents. Terramin (TZN) slipped half a cent lower to A73 cents. But Mt Burgess (MTB) won fresh support and managed a rise of A0.4 of a cent to A1.5 cents.

Copper stocks were led up by CuDeco (CDU), a speculator’s favourite thanks to the sometimes ultra-optimistic statements by its chief executive, Wayne McRae. Last week, the stock hit the headlines after reports of a deal with a Chinese investor. That caused shares in CuDeco to run up by A56 cents to A$4.74. Equinox (EQN) attracted increased support after raising fresh debt and reporting a maiden profit, news which lifted the stock by A16 cents to A$3.96. Other copper stocks to rise included OZ Minerals (OZL), up A6 cents to A$1.18, Sandfire (SFR), up A11 cents to A$3.72, and Hillgrove (HGO), up A1.5 cents to A38.5 cents. Also on the move, AussieQ Resources (AQR) reported rich copper and molybdenum assays from its Whitewash South project, news which drove the stock up by A16.5 cents to A70.5 cents. Stocks to lose ground included Talisman (TLM), down A6 cents to A94 cents, Rex (RXM), down A9 cents to A$1.59, Syndicated (SMD) down A1 cent to A15 cents, and Sabre (SBR) down A1.5 cents to A46 cents.

Nickel stocks were marginally stronger. Mincor (MCR) put on A10 cents to A77 cents. Poseidon (POS) added A2 cents to A31 cents, and Minara rose A2 cents to A81 cents. Pick of the pack was a relative unknown called South Boulder (STB). South Boulder is in a joint venture with Independence at the Duketon nickel exploration project, where encouraging assays have been reported, included 4.55 metres at 4.05% nickel. South Boulder popped A6 cents higher to A32 cents. Independence was steady at A$4.19.

Minews. The energy twins coal and uranium, with specials to finish.

Oz. Uranium stocks were mixed. Manhattan (MHC) was the strongest performer, putting in a rise of A14 cents to A$1.30. Paladin (PDN) also added A14 cents to close at A$3.70. Extract (EXT) slid A22 cents lower to A$7.18, while Bannerman (BMN) touched a 12 month low of A46.5 cents, down A3 cents over the week. Best of the coal stocks was freshly-listed Hunnu (HUN) which has assets in Mongolia. It rose by A9 cents to A54 cents. Elsewhere, Gloucester (GCL) added A3 cents to A$9.78, while Coal of Africa (CZA) slipped A4 cents lower to A$2.36.

Lithium stocks were the best of the specials, with Orocobre (ORE) continuing to build support on the back of its joint venture with an associate of Toyota in Argentina. It put on another A40 cents last week to close at A$2.35. Galaxy (GXY) added A5 cents to A1.21, and Reed Resources (RDR) rose A1.5 cents to A73 cents.

Minews. Thanks Oz.

StreetTalk With Bob Lenzner

Gold Is The Ultimate Asset Bubble
Robert Lenzner - March 12, 2010
www.Forbes.com

It must still be early in the gold bubble. Two masters of the hedge fund universe, George Soros and John Paulson, have vastly increased their bets on gold.

Both men have substantially raised their holdings in a Canadian mining enterprise, NovaGold Resources. Precious metals entrepreneur Tom Kaplan, through his private family concern, New York-based Electrum Strategic Resources, holds about 40% of NovaGold shares. Kaplan also has a large position in Gabriel, a Toronto-listed gold miner with an operation in Romania that the company boasts is one of the largest gold mines in the world.

Then there's Frank Giustra, a close friend of former President Bill Clinton, who is waging a takeover battle to gain control of a Guinean gold company named Crew. Crew is also a target of Russian business mogul Alexey Mordashov, who controls Severstal, a large Russian steel concern.

Here's a compelling factoid in support of the early bubble thesis. Gold ETFs, led by SPDR Gold Shares, hold assets equal to only 1.5% of all the assets of money market funds. That indicates the public and the mutual fund industry, except in their precious metals funds, are still very small participants in gold.

I've met privately with veteran investment managers like Morris Offit of Offit Capital Advisers and learned that gold is fast becoming a more highly weighted asset in portfolios.

The gold bubble is a function of the growing unrest about the debasement of currencies, not only the dollar, but also the euro and other European currencies whose nations have too great a debt load and must raise gobs of money or risk default.

Gold's investment glimmer is also a function of growing unease, specifically about the ability of the Obama Administration to reduce the budget deficit and finance extending health care. The rising interest in gold reflects a concern about America's place in the world, an expectation of slower growth in comparison with more dynamic economies in China, India and other developing nations.

In the spirit of the Greek historian and chronicler of the rise of Rome, Polybius, Kaplan, a 47-year-old precious metals entrepreneur with a Ph.D. from Oxford, tries to understand the life cycle of nations in terms of stages: first growth, then stagnation and finally decline. "Globalization," he says, "has accelerated this cycle for the U.S."

The attributes of gold are that it is a precious metal without a counterparty or credit risk. It should not trade in as volatile a fashion as oil, copper or other commodities dependent on the health of the economic cycle, suggests Kaplan.

The enigmatic Chinese should be considered a positive factor for the gold price, too. China, however, wants to avoid buying vast amounts of gold on the open market, and becoming the cause of the bubble is becoming dangerous. Yi Gang, vice governor of the People's Bank of China and director of China's State Administration of Foreign Exchange, indicated recently that China would face serious constraints if it wanted to increase its gold holdings. Supply is limited and aggressive Chinese buying would push up the price. China has indicated it can acquire gold more cheaply from domestic production and doesn't want to push the price up in a way that will "hurt Chinese gold consumers."

There is a good deal of misunderstanding in the gold market, because many financial experts don't believe gold is anything more than a volatile fad. They thought Soros was dissing gold when he called it some weeks ago "the ultimate bubble."

Bubbles are thought to pop sooner or later, so timing is everything. In this instance, Soros' point is that we are not at the "ultimate" stage yet, and buying gold early in the stage of a bubble is eminently rational.

March 15, 2010

Are Commodities Just A Binary Play On China?
By Rob Davies
www.minesite.com/aus.html

Any assessment of commodities as an asset class doesn’t get far before China comes into the discussion. Although most people know that China is important, it is difficult to overstate just how vital it is to today’s commodity market.

But the following data from the RBS Commodity Report of December 2009 makes it fairly plain. The report detailed what percentage of the world’s consumption of each of the base metals is accounted for by China. The numbers make for staggering reading: China currently consumes 38 per cent of the world’s aluminium output, 35 per cent of the world’s copper, 36 per cent of its nickel, 40 per cent of its lead, and 40 per cent of its zinc.

No other single country comes close to the Middle Kingdom in its importance to base metals consumption. Just to ram the point home the report also includes a graph depicting the evolution of industrial production, which is an
excellent proxy for metals demand. It runs from the year 2000, and contains two lines. One shows that industrial production in the advanced economies since the start of the millennium has been essentially flat. The other line shows that Asian demand ex Japan has increased by 240 per cent over the same period. In other words virtually all of the additional global demand for metals has come from China.

That sounds great, and is in accord with conventional wisdom, even if the dependence of a major global industry on one single non-democratic country with its own unique version of capitalism is a little scary. Any industry that finds it is relying on one customer for nearly half its business is naturally going to take a keen interest in the well being of that client.

So, recent press reports that China is taking steps to curtail its surging growth should merit the close attention of miners everywhere. Some observers even describe the Chinese economy as a bubble, citing parallels with the Japanese economy in the 1980s.

The Financial Times reports that per capita spending on real estate in China has grown by 27 per cent a year for the last decade. Even so, a price/earnings ratio of 16.9 for the Shanghai Composite Index doesn’t look too demanding for an economy growing at close to 10 per cent a year.

The reality is that no one will know if China is a bubble economy until it isn’t. And that may never happen. And investors in metals and the mining space can only act on the best information available at the current time.

So far, all the evidence suggests that the growth is sustainable. It’s on that basis that metals prices are continuing to trade strongly, against a background of tight supplies. At current levels, overall price levels are pretty satisfactory for the majority of the mining industry, even though prices drifted slightly over the past week.

On spot markets aluminium eased by 0.4 per cent to US$2,194, copper dropped by 1.3 per cent to US$7,384, and nickel dropped 6.8 per cent to US$21,300. Lead, however, firmed by a modest two per cent to US$2,240, and zinc drifted up by 0.7 per cent to US$2,305 a tonne.

China is the 800 pound gorilla in the mining industry and any move it makes could have dramatic implications for metal prices and mining stocks. Investors in both would do well to keep an eye on the level of the Shanghai Composite Index as a leading indicator of where metal prices might go next. Because where they go, mining shares will be sure to follow.

Trading range charts for 20 major country indices around the world

http://www.bespokeinvest.com/thinkbig/2010/3/11/bespokes-international-snapshot.html

March 17, 2010

West Africa Elbows Its Way Into The Spotlight At The Paydirt 2010 Australian Gold Conference
By Our Man in Oz
www.minesite.com/aus.html

Being a prophet in your own country has always been a bit of a burden, a fact that was first mentioned in The Bible, and which has been illustrated most recently by the swathe of Australian gold miners trying to convince investors that they were on to something good in West Africa. For the past 20 years small Aussie exploration companies have been making excellent discoveries in countries such as Ghana, Ivory Coast, Mali and Burkina Faso, only to be ignored back home and eventually forced to shift their stock exchange listing to Canada, or London, or simply to take the easy option, accept a handsome takeover bid, trouser the proceeds, muttering “I told you so”. That very point was made, somewhat more diplomatically, by one of Australia’s most skilled mining experts, Rick Yeates, when he gave a short West African history lesson at the Paydirt 2010 Gold Conference in Perth this week. He went on to explain why the future looks very different.

“Traditionally, gold companies have had to go to extraordinary lengths to convince the Australian market that West Africa is a great place to invest,” Rick told Minesite’s Man in Oz after delivering his formal talk. “But, if you look at what’s been happening with companies such as Perseus, Adamus, Gryphon, Ampella, Azumah, Resolute, and Castle, to name just a few, you start to appreciate that West Africa has arrived in the eyes of Australian investors.”

Not before time, is the retort from Minesite’s Man who has himself battled for years to get recalcitrant editors to open their eyes (and pages) to the stories of discovery, and low-cost gold production, coming out of West Africa. Fear of foreign places is one reason why the editors of Australia’s frontline newspapers, such as the Australian Financial Review and the Sydney Morning Herald, give most Aussies in Africa only a brief mention, if any at all. It’s all too clear that they have a preference for miners working closer to home.

Rick, best known for his time as chief executive of the mineral consulting business, RSG Global, reckons that “this time it is different”, and for several reasons. Firstly, because there are now too many Aussies in the region to be ignored. Secondly, even the dopiest editor can see that Australian companies, unable to tell their story at home, have flocked to London and Toronto where (a) stockbrokers listen, (b) investors reach into their pockets, and (c) publishers with a nose for good stories (such as Minesite) find the space to spread the word. That all adds up to classic win-win-win for all concerned.

“The turnaround has taken a long time to happen, but there is no doubt that it’s happening now”, Rick said. “Ghana has been the centre of a lot of action for Australian mining companies in the region, and they’re being followed by drillers and other service companies. More importantly, they have introduced Australian geological standards, as well as Australian occupational health and safety standards. There has been none of the rape and pillage associated with some other countries which have marched across Africa over the centuries. The Australian miners have gone in with high standards and introduced those standards to local employees. In fact, Ghanaian workers and service companies have learned so well that they are now exporting those skills across the African resources sector.”

Rick said Australian companies had been able to acquire extensive ground positions, and drill up large resource bases, because of the skills brought with them, and because of the similarities between West African geology and that of in Australia. “There has also been a notable lack of competition from other countries which you might have expected to be active in the region”, Rick said. “The Canadians are there in force, but the South Africans are absent, perhaps because they have never developed a junior market to fund grass roots exploration, and because of capital outflow controls in their country.”

“The risk element in West Africa today is relatively low”, Rick said. “What pops up from time-to-time are historic issues of instability which people remember, without fully understanding that those issues have been resolved and the country has moved on. Australia, for the reasons mentioned, has been slow to recognise the changes, whereas UK and Canadian investors have been more receptive. As far as the UK is concerned the area is a British backyard and has been for centuries. The Brits are perfectly comfortable with West Africa.” Rick said a number of major mining houses had been burned by the early involvement in West Africa. “Newmont was one of those which bailed out, vowing never to return to Africa”, he said. “Look today, and it’s back in force.”

Of the Australians in West Africa with a story to tell Yeates rattles off a long list of companies with excellent mining projects under construction, or exploration assets likely to be developed. “My current list of favourites are Ampella, Gryphon and Perseus”, Rick said. “They’re the three I would pick out. Azumah, Castle and Resolute are also making the right moves in terms of exploration and development targets.” Resolute in particular stands out, as it has managed to bring the Syama gold mine in Mali into production and that is what Randgold Resources failed to do.

Rick’s list is more than just the casual thoughts of a mining professional. He’s a man being sought out by American investment funds for guidance. “Some of the big US funds are developing greater interest in African gold opportunities”, he said. “I’ve been approached by a number of funds saying they’re looking to increase their exposure to West African gold. Which companies should we be loking at? Fifteen years ago you would never have heard anything like that. Today, West Africa is almost the flavour of the month”

Bespoke's Sector Trading Range Charts - S&P 500
Thursday, March 18, 2010

Below we highlight 6-month trading range charts for the S&P 500 and its ten sectors. For each chart, the light blue shading represents between one standard deviation above and below the 50-day moving average. The red zone is between one and two standard deviations above the 50-DMA, and vice versa for the green zone. Moves into or above the red zone are considered overbought. In each chart, we've also included a line to show if the sector has broken out to new bull market highs yet on this most recent rally.

As shown, the S&P 500 has indeed taken out its prior highs, but it is now near the top of the red zone, which has typically been met with pullbacks (or at least sideways trading) over the last six months. Of the ten sectors, only Industrials, Consumer Discretionary, and Consumer Staples have blown through their prior highs. The Financial sector just made a new high yesterday, but it hasn't yet broken out convincingly. The Technology sector is the next closest to its prior highs. ENERGY, MATERIALS, Health Care, Utilities, and Telecom still remain below their prior bull market highs.


This is the link to view the charts:
http://www.bespokeinvest.com/thinkbig/2010/3/18/bespokes-sector-trading-range-charts.html