"The best place to be is in commodities"

The Twelve Most Overbought ETFs ((USA))
Tuesday, April 6, 2010

Usually, only one or maybe two of the 200+ key ETFs we track are trading more than 10% above their 50-day moving averages, but currently there are twelve. The STEEL stocks ETF (SLX) is trading the farthest above its 50-day of all the ETFs we track (non-leverage) at 16.53%. SLX and the other eleven ETFs trading well into overbought territory are listed below.

Link to see the ETF list:
http://www.bespokeinvest.com/thinkbig/2010/4/6/the-twelve-most-overbought-etfs.html

April 08, 2010

Coal: The Contrarian’s Investment
By Joe Hung, Editor, Casey’s Energy Report
www.minesite.com/aus.html

Imagine the price of gold jumping to US$1,500 overnight... what would that do to the price of junior mining companies? That’s what just happened to the price of coal – it jumped 38 per cent in one day!
Coal is dirty, it’s dusty, and it sends environmentalists into a tizzy. It’s also the most rapidly growing fuel source in the world, it’s broadly distributed with almost 70 countries having economically recoverable resources, and the energy found in it still exceeds that in all other fossil fuels combined.

Whether you love it or hate it, coal will be playing the most important role in global energy supply over the next 50 years – and it is the focused investor who stands to profit from this. As far as energy prices go, coal has historically been lower and less volatile than oil and gas.

For developing nations, this makes coal a first pick as an energy source, and combined with considerable deposits, it is simply the cheapest and most convenient thing around. This isn’t to say it’s not important for the rest of the world: in the United States, almost 50 per cent of all electricity generated and 90 per cent of the steel production is fired by coal.

Where it gets really interesting is when we look at the demand for thermal coal (the coal used to generate electricity) from the emerging Asian markets. With looser environmental concerns, the emissions cap threat that is dogging producers in the United States and, to a lesser extent, Canada, is not quite as real here.

India is seeing rising demand even as coal resources shrink, while China consumes almost half of the world’s production of coal each year. With a rapidly expanding industrial sector that needs constant fueling, and cleaner alternatives still too expensive, China and India are out shopping and undeveloped coal resources from Mozambique to Canada are the hot items. All of which makes the companies holding on to these assets prime targets for takeovers and joint ventures.

Adding the sparkle to this rather lucrative picture is that the European and South American companies that were dependent on Asian coal exports are now looking towards North America for exports.

Then there is metallurgical coal. Known more widely as coking coal, it is essential in refining iron ore and the production of steel, and carries none of the environmental stigma that comes with thermal coal. Nor is it as abundant as thermal coal, since only a relatively narrow range of coal rank and compositions make good coking coals.

It thus demands a much higher price. Any industrialized nation has a high demand for steel, and with housing booms and rapid infrastructure development, Japan, China, India, and Korea (to name a few countries) are desperate seeking to fuel their growing appetite.

With the demand for thermal and coking coals becoming red-hot in the strong Asian markets, the team at Casey’s Energy Report knows coal is the invisible bull market.

In 2009, China’s total coal imports tripled, reaching 125 million tonnes, and last month it signed yet another multi-billion coal supply contract. India’s growing negative coal balance saw a record-breaking 80 million tonnes of coal imported last year – and that number is set to rise for 2010. The global energy market is set, and the profits are there for the taking.

The Eight Ps of Resource Stock Evaluation - Special Report (2009)
by Doug Casey

http://www.caseyresearch.com/pdfs/20090820_0908208PsPROOFED.pdf

April 10, 2010

That Was The Week That Was … In Australia
By Our Man in Oz
Source: www.minesite.com/aus.html [ The registration is FREE, but the quality of the commentary is TOP NOTCH ]

Minews. Good morning Australia. Your market seems to have been a bit flat while you went on your rounds visiting gold projects last week.

Oz. That's an understandable view from London, especially if one only looks at the indices on the ASX. There, the metals and mining index and the all ordinaries added less than one per cent and the gold index added 3.6 per cent. Apart from gold, which is in a world of its own, last week's indices did nothing more than reflect the dominance of BHP Billiton and Rio Tinto on the Australian mining markets. Both of those stocks dropped a few cents over the four-day trading week, and left an incorrect impression of what was actually a fabulous week for small to medium miners and explorers.

Minews. In much the same manner as in previous weeks?

Oz. Exactly. It is a rather interesting phenomenon, and can be interpreted two ways. Either there is a bubble forming in some sectors, such as in our hyper-active West African gold stocks, or the performance of the smaller miners is part of an ongoing rush to make up for the falls over the past two years, when many good companies were sold off too heavily. In truth, it's probably a bit of both, because demand for all sorts of commodities, particularly metals is very strong. Copper at US$3.60 a pound and nickel at US$11.30 per pound are indicative of a market that keeps getting stronger.

Minews. Enough theories. Time for prices, starting with gold, please.

Oz. Good rises across the sector, with the Aussies in West Africa leading the charge. Ampella (AMX), which has attracted a lot of interest in London, rushed up to a fresh 12 month share price high of A$1.53 on Friday, before easing to close the week at A$1.48, for a gain of A18 cents. Azumah (AZM) performed a similar trick, hitting a new high of A50 cents before easing to end at A49.5 cents, up A12.5 cents over the week. Ampella had nothing fresh to report, but Azumah released more assays from recent drilling at its Collette prospect in Ghana, and these included a 20 metre zone grading 7.43 grams a tonne, starting at 76 metres.

Another West African on the move was Carbine (CRB), which is yet to do anything on the ground, but which rose A10 cents to close at A36 cents last week, A1 cent short of its 12 month high of A37 cents also set on Friday. Meanwhile, Castle (CDT) joined the party with a rise of A5 cents to A45 cents, a little short of its high of A47.5 cents set in early Friday trade. Adamus (ADU), one of the players in the region with a well advanced mine plan rather just an exploration plan, rose by A4 cents to A46 cents. Perseus (PRU), meanwhile, officially ended the week at A$2.05, up just A6 cents, but that was after the shares were limited by a trading halt which started early on Friday, following a report of spectacular assays from its Tengrela project in Ivory Coast. One hole produced a stunning 1,216 grams a tonne (39 ounces to the tonne) over a narrow two metre section from 98 metres, contained within a wider zone of 325 grams per tonne (10 ounces) over eight metres.

Minews. Fabulous assays. Little wonder your miners are rushing to the region. How did the rest of the gold sector perform?

Oz. Well, but not in the same league as the West Africans, as this quick call of the card shows. Stocks to rise included: Navigator (NAV), up A4 cents to A21 cents, Saracen (SAR), up A8 cents to A47 cents, Doray (DRM), up A4.5 cents to A80.5 cents, Troy (TRY), up A8 cents to A$2.47, Kingsgate (KCN), up A59 cents to A$9.14, and Alkane (ALK), up A4.5 cents to A34 cents.

Minews. Let's start moving through the other sectors now - perhaps across to coal as that seems to be attracting a lot of attention.

Oz. It certainly is. A myriad of bids drove Macarthur Coal (MCC) as high as A$16.03 on Friday, a 12 month high, before the shares then eased to close at A15.55, up A68 cents on the week overall. The race for Macarthur has started a fire under the entire sector, which is being driven by rising Chinese demand for coal. Other movers included Gloucester (GCL), which rose a spectacular A$2.89 to A$12.20, a closing price which was just short of the stock's all rime high of A$12.36 reached on Friday. Meanwhile, Whitehaven (WHC) added A46 cents to A$5.79, Stanmore (SMR) rose by A4.5 cents to A93 cents, and Centennial (CEY) put on A13 cents to A$4.52. A couple of relative newcomers also did well. NuCoal (NCR),which is exploring in New South Wales, closed at a fresh high of A32.5 cents, up A8 cents, and Aspire Mining (AKM), which has coal assets in Mongolia, rose by A3 cents to A12.5 cents.

Minews. Time left for a quick run-down of the iron ore and base metal sectors, please.

Oz. It was all up in iron ore, as continuing Chinese demand for all forms of bulk commodities underpinned the sector. The sector leaders all did reasonably well, but some of the best results came at the smaller end. Atlas (AGO) added A20 cents to A$2.78, but did trade as high as A$2.93 on Wednesday. BC Iron (BCI) rose by A19 cents to A$1.85. Fortescue (FMG) managed a modest increase of A4 cents to A$5.01. Grange Resources (GRR) was up A6 cents to A65 cents on reports of higher prices for premium quality iron pellets which it proposes to produce at its Southdown mine in Western Australia. Gindalbie (GBG), which is also in the pellet-processing business, rose by A9 cents to A$1.33.

Interesting as those moves are, there was more interest at the smaller end of the sector, as Territory (TTY) made a welcome return as an investment favourite, adding A7 cents to A26 cents. Meanwhile, Midas Resources (MDS) announced plans to drill a target in the iron rich Pilbara region, a seemingly insignificant piece of news which nevertheless triggered a mini-rush into the stock. Midas then scampered up to a 12 month high of A8.8 cents before closing at A8.6 cents, an overall rise of A2.7 cents, or 46 per cent, on the promise of drilling.

Minews. With assays to come, perhaps.

Oz. That's the point. Rises of 45 per cent on a report of a drilling start are rather silly.

Minews. Or a sign of a boom heading for a peak.

Oz. That's the worry. We do seem to have an awful lot of heat in the market at the moment. To finish with iron ore, other upward moves included Ferrum Crescent (FCR), which rose A4 cents to A21 cents, and Ironclad (IFE), which rose A20 cents to A$1.50. Fallers included Brockman (BRM), off A1 cent to A$3.78, Giralia (GIR), down A8 cents to A$2.21, and DMC Mining (DMM), down A1 cent to A40 cents.

Minews. Base metals now.

Oz. Copper and nickel up, zinc sideways. Best of the coppers stocks were Equinox (EQN), up A30 cents to A$4.57, Discovery (DML), up A9.5 cents to A84.5 cents, Talisman (TLM), up A10.5 cents to A$1.10, and CuDeco (CDU), up A30 cents to A$5.10. Citadel (CGG) was steady at A38.5 cents, and Sabre Resources (SBR) closed as it opened at A45.5 cents.

Mincor (MCR) was the pick of the nickels, up A14 cents to A$2.19. Also better off, Independence (IGO) rose by A20 cents to A$4.98. Falcon Minerals (FCN) made a return with a rise of A6 cents to A30 cents as it gets ready for fresh drilling at its Collurabbie project. Zinc stocks were flat, or moved a few cents either way. Perilya (PEM) added A4 cents to A63.5 cents, while CBH (CBH) was steady at A18 cents, and Terramin (TZN) was also flat, at A74.5 cents.

Minews. Uranium and specials to close, please.

Oz. There was minimal movement among the uranium stocks. Paladin (PDN) continued its recovery after a big sell-off, rising by another A39 cents to A$4.35, but after that it was flat. Manhattan (MHC) was steady at A$1.20. Extract (EXT) added A5 cents to A$7.95.

The only specials of note were Zamia Mines (ZGM) which reported interesting molybdenum assays, news which helped the stock more than double from A4.5 cents to A9.7 cents. Lithium and manganese stocks were quiet, while the titanium revival continued, and sector leader Iluka (ILU) rose another A37 cents to A$4.90.

Minews. Thanks Oz.

Staples and Health Care Stumble: Eight Sectors Still Overbought [USA]
Thursday, April 8, 2010

Link to view the charts:
http://www.bespokeinvest.com/thinkb...are-stumble-eight-sectors-still-overboug.html

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Right on, Mick !
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Commodity demand outlook is strong
Ongoing funding tightness in the mining sector is one of the factors feeding into Xstrata’s belief that the recession was merely a blip on the super cycle in commodity prices and the short- to medium-term outlook is positive albeit fraught with uncertainty said CEO Mick Davis.

Click the link below to read more
http://www.miningmx.com/news/markets/commodity-demand-outlook-is-strong.htm

April 17, 2010

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

Minews. Good morning Australia. You seem to have escaped the Goldman Sachs-inspired sell-off which hit northern markets on Friday.

Oz. We did, but our turn for a touch of panic selling will come on Monday. It will be interesting to see how the ghost of a Goldman deal from two years ago impacts on today’s China-driven boom on the Australian market. The feeling down this way is that alleged naughty behaviour by some of the chaps in New York will have a minimal impact, because of the pace of growth in the Asia Pacific region.

Two numbers released last week show how closely aligned the Australian economy has become with that of China. Housing prices in China rose by an eye-catching 11.7 per cent last year, leading to some speculation that the Chinese economy may be over-heating. Australian house prices were almost a mirror image, rising by 12.7 per cent during the same period.

Minews. Your point being that Australia is riding on China’s coat-tails.

Oz. Precisely. Where China goes, we follow - as a supplier of the raw materials that become the manufactured goods that continue to flood out of China.

Minews. Time for prices, and news from your market.

Oz. Overall, the market last week was flat. Technically, we finished in the black, with the all ordinaries index hanging on grimly to close above 5,000 points, with a gain of less than one per cent. The metals and gold indices fell by similar modest amounts. In fact, wherever you looked movements in share prices and indices were remarkably modest. The Australian dollar opened and closed the week at US93 cents. Gold opened and closed the week with a US$1.00 difference, starting at US$1,152 an ounce at finishing at US$1,151. Base metals held their ground, and uranium slipped slightly.

The only action that stirred investors’ blood was in takeovers where bid and counter-bid for Macarthur Coal (MCC) has sent the company’s shares into the stratosphere. At the close on Friday Macarthur shares stood at A$16.54, double the price they were trading at six months ago. A handsome 22 per cent of that rise has come over the past two weeks. Other coal stocks were mixed, though. Some up, some down.

But before we get to the call of the card, let’s set the context with a few numbers on how the Australian market is becoming takeover driven. According to analysis by the bean-counters at Dealogic, last year saw 566 takeover bids for Australian-based mining companies. The collective value of the bids was US$76 billion. Those numbers represent a 38 per cent increase in the number of bids, and a 4.5 times increase in value, on 2008. So far this year there have been 114 resource-related bids valued at US$17.2 billion.

Minews. Numbers which seem to indicate that if you are to match last year’s totals there needs to be a significant increase in takeover action over the rest of 2010.

Oz. Exactly, which is why we’re starting to see lists of likely targets being published. The most recent, in Saturday’s Financial Review newspaper, had two companies that will be familiar to Minesite readers at the top: Medusa Mining (MML) and Kingsgate Consolidated (KCN). Medusa scored 10 out of 10 as a certainty to cop a bid. Kingsgate was rated seven out of 10. On a score of five were Dominion Gold (DOM), and OceanaGold (OGC).

On the market, bid speculation helped three of that foursome rise last week. Medusa put on A30 cents to A$4.45, OceanaGold added A11 cents to A$2.76, and Dominion rose by A3 cents to A$2.68. Kingsgate, perhaps weighed down by the ongoing political troubles in Thailand, fell by A42 cents
to A$8.72.

Minews. Prices now, continuing with gold.

Oz. Star of the week was Cortona (CRC) which got some air time on Minesite a week ago, after we got an early peek at assays from the company’s Majors Creek project near Canberra. Pleasingly, we were spot on with that story, and the stock duly added A7.5 cents last week to close at A23 cents, although at one stage it did get as high as A28 cents. Other rises were hard to find, and small. Independence (IGO) added A6 cents to A$4.96, on fresh news from drilling at the Tropicana gold project it shares with AngloGold. Troy (TRY) added A13 cents to A$2.60. Silver Lake (SLR) rose A3 cents to A$1.25, and Kingsrose (KRM) put on A3 cents to A83 cents. Gold stocks to fall included Adamus, down A4 cents to A42 cents, Perseus (PRU), down A11 cents to A$1.95, Catalpa (CAH), down A4 cents to A$1.56, and CGA Mining (CGX), down A3 cents to A$2.22.

Minews. Let’s complete the coal story you started with Macarthur, and then move on to iron ore, please.

Oz. After Macarthur it was a mixed bag among the coal stocks. Gloucester (GCL), which is intimately tied to the Macarthur bidding war, slipped A2 cents to A$12.18. Stanmore (SMR) lost A1 cent to A92 cents. Coal of Africa (CZA), however, went the other way, and put on A17 cents to A$2.57. Aside from Macarthur, the star of the coal sector was the recently-listed Hunnu Coal (HUN) which announced more deals in Mongolia, and rocketed up by A34 cents to close at A87 cents, having briefly touched a high of A95 cents on Friday.

Iron ore stocks continued to move higher as investors factored in the latest sharp increase in the iron ore price. Batavia (BTV) has been the speculator’s favourite over the past few weeks, stacking on another A5 cents to close at A28.5 cents last week, just short of the 12-month high of A29.5 cents set on early Friday trade. Other iron ore stocks to set fresh price peaks last week included Giralia (GIR), which got as high as A$2.45 on Friday before closing at A$2.44, for a gain of A23 cents, IMX Resources (IXR) which hit A51 cents before closing at A50 cents, up A5.5 cents, and Sphere Minerals (SPH), which closed at its peak of A$2.10, up A25.5 cents. Other upward movers included Atlas (AGO), up A2 cents to A$2.80, Iron Ore Holdings (IOH), up A7 cents to A$2.51, Fortescue (FMG), up A33 cents to A$5.34, and BC Iron (BCI), up A6 cents to A$1.91. Fallers included Territory (TTY), down A1 cent to A25 cents, FerrAus (FRS), down A5 cents to A$1.05, and Brockman (BRM), down A6 cents to A$3.72.

Minews. Base metals next.

Oz. All over the shop. If pushed to pick a trend - up, but only just. Copper companies on the rise included Exco (EXS), up A4 cents to A33.5 cents, Hillgrove (HGO), up A3 cents to A43 cents, and CuDeco (CDU), up A8 cents to A$5.18. Fallers included Sandfire (SFR), down A14 cents to A$3.79, Rex (RXM), down A8 cents to A$1.71, and Equinox (EQN), down A14 cents to A$4.43. Going nowhere were PanAust (PNA), stuck on A55 cents, Sabre (SBR), steady at A45 cents, and Citadel (CGG), flat at A38 cents.

Nickel and zinc stocks barely moved. Panoramic (PAN) led the nickels with a rise of A10 cents to A$2.68. Mincor (MCR) added A3 cents to A$2.22, while Western Areas (WSA) lost A9 cents to A$5.50, and Minara (MRE) was steady at A97 cents. Zinc movers included CBH (CBH), which added A1.5 cents to A19.5 cents, and Blackthorn (BTR), which rose by A2.5 cents to A91 cents. Meanwhile Kagara (KZL) slipped half a cent lower to A83 cents, despite announcing the details of its gold spin-off, Mungana Goldmines.

Minews. Uranium and any specials to close, please.

Oz. No good news from the uranium sector. Extract (EXT) dropped A55 cents to A$7.40, amid concern that the uranium market will be over-supplied for a few more years. Manhattan (MHC) slipped A3 cents lower to A$1.23, and Paladin (PDN) lost A29 cents to A$4.06.

There are a few specials worth mentioning. One is Alkane (ALK), which is attracting close interest because of its Dubbo zirconium and niobium project. It ended the week at A36.5 cents, a gain of A2.5 cents. The manganese stocks, OM Holdings (OMH), and Spitfire, crept a little higher, while the most popular of the lithium plays, Galaxy (GXY) moved up a sharp A22 cents to A$1.41.

Minews. Thanks Oz.

April 19, 2010

Commodity Prices Drop On Shock News: Not All Investment Bankers Are Saints
By Rob Davies
www.minesite.com/aus.html


Markets were having a good time last week until the SEC decided to ruin things by suing the world’s most prestigious investment bank. Commodity and equity prices fell sharply on Friday when it was announced that Goldman Sachs was to be sued for selling ropey products designed to lose money for some clients and make money for others.

As a news story it must rate as one of the all time least surprising to anyone who has ever dealt with an investment bank. The only thing that is exceptional is that it has taken the authorities this long to get round to doing anything about it.

As with all sell-offs, there were also underlying reasons why traders chose to take money out of the markets. Both aluminium and nickel had reached post crash highs last week. Aluminium hit US$2,494 and nickel hit US$27,544 a tonne, driven by incessant demand from China.

And the strength of the Chinese economy was confirmed by a report stating that it grew by 11.9 per cent in the first quarter of this year. Independent evidence for that came from Macquarie, the Australian investment bank, which reported that the spot price for 62% iron ore delivered in China rose 8.7 per cent over last week alone, to reach US$182 a tonne.

While demand from the middle kingdom remains exceptional, the same cannot be said of other parts of the world. In the US, housing starts only rose by 1.6 per cent, although building permits did increase by 34 per cent to their highest level since October 2008.

But, as we know from the SEC action, the economic environment then was already under huge pressure. It is hard to envisage a return to the pre-crash levels in the foreseeable future.

So, while Chinese growth is better than no growth at all, the conjunction of last week’s different macroeconomic news stories served to remind the market of how dependent it still is on one huge, non-democratic, communist country enjoying its own real estate boom.

The Chinese authorities are aware of the property bubble. How could they not be, with real estate on the island of Hainan up 50 per cent in the last year? Like all bubbles, though, the trick is to deflate them gently without precipitating a dramatic crash.

So far the move to raise mortgage rates and the minimum size requirements for deposits – 50 per cent for second homes - has not worked. Betting against millions of would-be capitalists is going to take a lot more firepower than has been delivered so far.

Meanwhile, the other big story last week was the release of GFMS’s review of the gold market in 2009. Others will dissect it in more detail, but the salient point is that even as gold prices achieved record levels, mine production still did not surpass its previous peak.

In terms of supply, mine production was outstripped by supply from scrap. That fact, combined with the collapse of jewellery consumption, very effectively demonstrates the price sensitivity of two major elements in its market – in a strong price environment jewellery sales fall as buyers feel the pinch, while sales of scrap gold rise.

Fortunately the biggest factor, investment demand, has a strong direct correlation with price, and exceeded jewellery offtake for the first time in thirty years. As long as investment bankers don’t get involved in it, the prospects for gold look better than ever.

April 20, 2010

Strong Leverage To Rising Metals Prices: Mincor Resources And Batavia Mining Ride The Australian Mining Boom
By Our Man in Oz
www.minesite.com/aus.html [Free registration]

You know that the mining boom is back in Western Australia when coffee shops shut at 3pm because the owner can’t find staff for a second shift, the local Porsche and Bentley dealer is expanding his salesroom, car parks are full, and mining company executives present to packed houses. Those were four of the impressions gathered by Minesite’s Man in Oz after he got stuck in traffic and arrived late last Friday to listen to talks by David Moore from Mincor Resources and Greg Bittar from Batavia Mining. The location was Fraser’s restaurant in Kings Park, which overlooks Perth, a city which went into overdrive last week thanks to the remarkable revival of business activity, and the arrival of the Red Bull air race circus which attracted a crowd of 100,000 spectators around the banks of the Swan River and on a flotilla of yachts and launches.

For young stockbrokers, accountants, lawyers, and investors, the mood in Perth today is exhilarating. For older hands it is more a case of welcoming back the boom, an old friend who probably never went away, just paused for breathing space. China is the driver of what’s happening in Australia, especially in the west and the north. Large-scale investment in iron ore, coal, and natural gas projects are the headline grabbers, but the boom is reaching down into every layer of the economy and society, and it’s not all good. The boom has brought the return of ugly Australians: heavy drinking, loud-mouthed yobs known as CUBS, or cashed-up bogans. For anyone that’s uncertain about what “bogan” means, he/she is an unsophisticated, poorly educated, lout – with oodles of cash from high-paying labouring work. And to get an idea of what “oodles” means down here, a good is example is the base rate for a worker on the Gorgon liquefied natural gas (LNG) project, which is A$150,000, or £90,000 in British pesos. Skilled workers get much more.

It was against this background of a boom in its early revival stages that around 200 investors and interested spectators battled through the hardships of heavy traffic, scarce parking space, and a dubious fish lunch, to learn more about two companies that are plugged directly into the Chinese demand for raw materials. Mincor is the better-known story because it has been successfully mining nickel at Kambalda for almost 10 years. Batavia is less well known, but is showing signs of replicating Mincor’s formula by developing a resource which was discovered by a major mining house, and then ignored because of better opportunities elsewhere and the low mineral prices which slowed the Australian resources sector in the 1970s and 80s.

David Moore’s presentation on Mincor ran over-time, not that he bored anyone. But it was while he competed with waiters distributing fish floating on something orange, that careful listeners were able to identify the next events which will drive the Mincor share price higher. First step up will be a decision scheduled for next month regarding the re-opening the company’s mothballed flagship mine, Miitel. Closed in late 2008, when the nickel price crashed, Miitel is described by David as Mincor’s “sleeping giant”. That’s not just because of significant past production, but more because the exploration which continued during the global slowdown has significantly expanded the known amount of nickel in Miitel, where the possibility of a link with the nearby Mariners mine is now realistic, a development which would significantly lower future mining costs.

And even as it cues up Miitel for production, Mincor is also expecting to learn more about its curiously-named US-NOB project, a high-tech search for ultra-sized, nickel orebodies. News from US-NOB will be a longer-term value driver for Mincor’s shares, which have risen from trades at less than A$1.00 this time last year, to recent trades around A$2.17. That’s a solid recovery, but nonetheless one that is actually well behind the upward move in the price of nickel, a point made rather delicately by David. While other company chief executives might have highlighted the gap that has opened between the nickel price and Mincor’s share price, David simply used a graph to show how Mincor tracks the nickel price. Right now there is a fascinatingly large gap, which David describes as: “strong leverage to the nickel price”.

If Mincor is a fairly-well known, if currently undervalued nickel story, Batavia is a stock at the foot of the same escalator. Although it plans to develop a different mineral, iron ore, the parallels with Mincor are nevertheless there for anyone looking closely. Mincor’s claim to fame was its gutsy acquisition in 2001 of nickel mines effectively abandoned by the company which discovered them decades earlier, Western Mining Corporation (now part of BHP Billiton). Batavia is following the same route, having acquired an iron ore deposit discovered by BHP at Roper River in the Northern Territory more than 50 years ago. But, in a similar vein, the Roper River project was never developed because BHP discovered the giant Mt Whaleback iron ore deposit at Newman in Western Australia at about the same time.

Batavia’s plan is similar to the one developed by Territory Resources when it was briefly an investor’s favourite thanks to the re-opening of another Northern Territory iron ore deposit, Francis Creek. Unlike most of the small iron ore projects across the border in WA the NT deposits have the advantages of a nearby rail system which is open for business, and an open port in Darwin, which will be able to handle two million tonnes of Roper River ore from 2012, and then up to five million tonnes a year as port space becomes available. Further down the track there is the possibility of export via Maria Island in the Gulf of Carpentaria, about 200 kilometres south of BHP Billiton’s big Groote Island manganese operations.

If a common theme can be spotted linking the provenance of Mincor and Batavia a second theme can be found in the way both companies are being followed by Australian investors familiar with resource project development. In both cases there is an underlying commodity enjoying a significant price re-rating as global growth accelerates. There is a link back to discovery by a mining major, and later abandonment in pursuit of bigger targets, and there is the common management heritage - in the hothouse which is Perth at the start of a boom.

April 24, 2010

That Was The Week That Was ... In Australia
By Our Man in Oz
www.minesite.com/aus.html [[ Registration is free ]]

Minews. Good morning Australia. You seem to have suffered a rather bleak week.

Oz. It was, but one tiny crack of light did peek through. The gold sector reacted to the negative publicity surrounding banks, Greece, and other floppy European economies, by posting a very modest rise of 0.5 per cent, as measured by its index on the ASX. However, having pointed that out as one of the few pieces of positive news from last week’s trading, it should also be said that it was awfully hard to find many gold stocks that actually rose by much.

Minews. Perhaps you’re tracking different gold stocks to those in the ASX index.

Oz. You might think that, but a survey of 24 gold companies - not a bad sample - found three which rose last week, three which didn’t move at all, and 18 which fell modestly. Analysis of the iron ore, base metal, and coal sectors delivered much the same result, while uranium was all down, as investors fretted over another flood of de-commissioned weapons-grade nuclear material flooding the uranium market.

Minews. Before we get to prices it might be useful to bring London investors up to speed on some of the political chatter in your part of the world, not that we really need any more politics in this country.

Oz. That’s a good suggestion, because we had a spot of good news last week, and a large dose of potentially very bad news. The good news is that the government of Western Australia has promised to not increase the royalty on gold production - an issue which had bugged the gold boys. The bad news is that the national government is said to be thinking about whacking a monster new tax on the entire resources sector, to help pay for its stimulus spending in the wake of the global financial crisis.

Minews. Now, that is a worry.

Oz. It’s more than that, because media reports are suggesting, perhaps in an exaggerated way, that the new federal resource rent tax might be as high as 40 per cent. Mining lobby groups reacted with horror on Saturday morning when they read that on the front page of a national daily. The Minerals Council of Australia said that a new tax would kill projects, jobs and investment. I suspect that on Monday we might see some fairly substantial falls on the ASX as investors try to factor in the possibility of any such new tax. Even if it is as low as 10 or 20 per cent, it will eat deeply into profits.

Minews. Thanks for that. We might take a closer look later, because a new tax on Australian mining will make your country much less attractive as an investment destination. But let’s change tack now and call last week’s share-price card.

Oz. Well, as I warned earlier there isn’t much to talk about. There were a few stand-out moves but the trend was flat. Overall, the all ordinaries index slipped two per cent lower. The metals and mining index was down 3.2 per cent, and the gold index was up 0.5 per cent, possibly aided by a modest slide in the value of the Australian dollar, given that the US dollar gold price was down slightly.

Sticking with gold, the best upward moves came from Avoca (AVO) which added A6 cents to A$2.23, Allied (ALD) which added A4 cents to A37 cents, and Chalice (CHN) which rose by half a cent to A47.5 cents, a move so small that the fact that a rise of half a cent makes you a winner says all that is required about the activity in the rest of the sector. Falls came from all directions. The Aussies in Africa were marked down, with Perseus (PRU) leading the way as it shed A4 cents to A$1.90. Resolute (RSG) dropped A4 cents to A$1.15. Adamus (ADU) fell by A1.5 cents to A40.5 cents. Other downward movers included Silver Lake (SLR), down A6 cents to A$1.19, Kingsgate (KCN), down A5 cents to A$8.67, Troy (TRY), down A13 cents to A$2.47, and Medusa (MML), down A6 cents to A$4.51. Even the sector leaders dropped marginally. Newcrest (NCM) was off A21 cents to A$34.20, while its potential merger partner, Lihir (LGL) lost A3 cents to A$3.95.

Minews. Not much to write home about in that lot. Iron ore now, please.

Oz. More of the same, I’m sorry to say. The only rises of any consequence came from two explorers that are on the cusp of making the transition to mining. Brockman (BRM) added A10 cents to A$3.82, and BC Iron (BCI) put on A8 cents to A$1.91. After that it was downhill. Fortescue (FMG) fell a fairly sharp A33 cents to A$5.01, after more selling from one-time strong supporter, Harbinger Capital of the US, and even in spite of a bold new expansion plan at its Christmas Creek project.

Minews. Harbinger continuing to sell must be making news down your way.

Oz. It is. The prevailing theory is that Harbinger boss, Phil Falcone, has formed a negative view on China’s growth outlook, and might not be overly impressed with FMG’s complex finances and what seem to be perpetual expansion plans. FMG founder, Andrew Forrest, meanwhile, has been making more noises about heading for the exit to spend more time on charitable work.

Minews. Interesting stuff, but let’s move on and finish the iron ore call and move on to base metals.

Oz. All other iron ore moves were down, or flat. Atlas (AGO) lost A17 cents to A$2.69. Giralia (GIR), fell A13 cents to A$2.31. Iron Ore Holdings (IOH), dropped A16 cents to A$2.25. Gindalbie (GBG) was off A7 cents to A$1.27. Mount Gibson (MGX) shed A4 cents to A$1.90, and Batavia (BTV) was steady at A28.5 cents.

Over among the base metals it was nearly all red ink, although two copper stocks moved against the trend. Equinox (EQN) added A14 cents to A$4.57. And Sabre Resources (SBR) added A5.5 cents to A50.5 cents after it reported an expanded drilling target at its Namibian project. Citadel (CGG) lost A2 cents to A36 cents. Sandfire (SFR) fell A14 cents to A$3.65. Talisman (TLM) dropped a sharp A23 cents to A87 cents, after an inconclusive first-up drilling result from claims adjacent to Sandfire’s Doolgunna discovery. Discovery (DML) slipped A2 cents low to A87 cents.

Nickel stocks were all down, while some zinc stocks managed small rises. Among the nickels, Mincor (MCR) lost A10 cents to A$2.12, Western Areas (WSA) fell by A24 cents to A$5.26, Panoramic (PAN) dropped A11 cents to A$2.57, and Independence (IGO) was A30 cents lighter at A$4.66. Zinc companies on the rise included Kagara (KZL), Terramin (TZN), CBH (CBH) and Mt Burgess (MTB), but by amounts so modest that they varied from just a fraction of a cent to a mere A1.5 cents.

Minews. Coal, uranium and any specials to finish, please.

Oz. Coal continued to attract supporters, but the overall trend was flat. Stand-out performer was the Canadian-focussed Coalspur (CPL), which announced it had attracted the support of the successful investment group, Highland Park. Shares in Coalspur jumped by A29 cents to A84 cents on the news. There were only two other significant upward movers. One was Indonesian-focussed Apac Coal (AAL), which rose by A2.3 cents to A6.2 cents. The other was Continental Coal (CCC), up A0.8 of a cent to A5.6 cents. Also in positive territory, Centennial (CEY) rose a marginal A14 cents to A$4.51. But after that all down, if only fractionally. Takeover target Macarthur (MCC) fell by A39 cents to A$16.15. Stanmore (SMR) fell by A11.5 cents to A80.5 cents, and Coal of Africa (CZA) slipped A7 cents lower to A$2.50.

Uranium stocks all fell. Paladin (PDN), the local sector leader, fell by a very sharp A22 cents to A$3.84. Manhattan (MHC) lost A23 cents to A$1. Extract (EXT) dropped A12 cents to A$7.28, and Bannerman (BMN) lost A2.5 cents to A46.5 cents.

Minews. And specials?

Oz. The lithium stocks rose slightly. Galaxy (GXY) rose A8 cents to A$1.49, and Reed (RDR) added A2 cents to A75.5 cents. Rare earths specialist Lynas (LYC) added A8 cents to A$1.49, perhaps thanks to the highly detailed survey of the arcane rare earths market that we ran at the end of the week. But emerging manganese hopeful Southern Hemisphere Mining (SUH), which we also took a look at late last week slipped A2 cents lower to A49 cents.

Minews. Thanks Oz. Tell us more about your big new tax regime when you find out, and we’ll tell you about ours.

Phosphorus Futures

Peak Phosphorus: the sequel to Peak Oil
by Professor Stuart White1 and Dr Dana Cordell1,2

1 Director, Institute for Sustainable Futures, University of Technology, Sydney (UTS) Australia.
2 Research Principal, Institute for Sustainable Futures, University of Technology, Sydney (UTS) Australia and Department of Water and Environmental Studies, Linköping University (LiU) Sweden.

Read the article here >>> http://phosphorusfutures.net/peak-phosphorus

April 26, 2010

It’s A Crisis, But Don’t Panic, Buy Something
By Rob Davies
www.minesite.com/aus.html [Free Registration]

Capital markets have now regained a sense of order that seemed hard to envisage twelve to eighteen months ago. Someone who had been denied any news for the last two years would look at today’s prices and see them as roughly in line with where they were in early 2008. Well, at any rate, apart from bank shares looking a bit odd.

Whether it is commodities, equities, or bonds, none of the asset classes seem to be pricing in the near death experience that the capitalist countries faced at the end of 2008.

Yet the damage caused by the crisis is not far below the surface, and is most evident in the scale of debt incurred by various countries, most notably the two leading Anglo-Saxon economies of the USA and the UK.

Collateral damage in the euro zone is also obvious in the Greek crisis, which seems certain to get worse before it is resolved. It would also be sensible to remember countries like Ireland, Iceland, Portugal and Spain that all have massive economic problems of varying degrees.

But other than various governments offering to step into the breach and provide the demand stimulus that the private sector is currently unable to deliver, there seem to be few viable solutions to the current crisis.

Sure, governments have rounded on the banks and threatened to sue them, tax them or break them up to get their money back, and/or make sure this never happens again. But that doesn’t solve today’s problems.

Banks are a convenient whipping boy to deflect attention away from the real culprits - politicians who spent more than they raised in taxes for decades. One solution is to change the politicians.

But in a world where popularity is determined by looks and sound-bites, few would-be ministers are going to stand up and say: “Elect me and I will make you poorer by raising taxes and cutting spending to improve your country’s credit rating”. None will say it, even if it is what they are actually planning.

In reality governments will use the legerdemain of devaluation to reduce the real value of sovereign debt, and nominal assets. The only protection for investors will be to hold the hard assets of commodities, and the slightly softer one of equities, to preserve their wealth.

That’s why metals prices and share prices have bounced to current levels. At the beginning of 2009 the LMEX index, reflecting the basket of base metals that are traded on the LME, was trading at about 1,900. It finished the year at 3,500 and has moved even higher since to stand today at 3,637.

Demand for metal outside China remains lacklustre so prices are being maintained by low stock levels, and a lack of new supply.

Many investors will deride commodities by pointing out that they do not generate any income. That is true. If you want income you can buy a two year Greek bond that yields over 10 per cent. While that bond may well be redeemed at par in two years time, it is clear that investors are unsure what its real value will be then.

If, as many suspect, Greece is forced to leave the euro, any company that has a producing metal mine in that country could be about to see its cost base reduced dramatically, and virtually overnight.

MARKET MUSINGS & DATA DECIPHERING
Breakfast with Dave
David A. Rosenberg April 28, 2010
Chief Economist & Strategist Economic Commentary

CHINESE STOCK MARKET LEADS COMMODITY PRICES

To very little fanfare, the Chinese stock market ”” the first index to turn around in late 2008 ”” has slipped into a bear market. It is down 15 % from the nearby high and 20% from last year’s interim peak. Why this is important is because the Shanghai index leads the CRB commodity spot price index by four months with a 72% correlation (and over an 80% correlation with the oil price). Don’t get us wrong ”” we are long-term secular commodity bulls; however, we have been agnostic this year from a tactical standpoint ”” never hurts to take profits after a double!



I also had the same viewpoint with David Rosenberg for a while. Commodities have certainly overran its fundamental over the past few months due to global stimulus effort and unrealistic expectation of a V-shape recovery.

I have been quite defensive in regards to my commodity positions. If the correlation continues to exist (which I believe it will be), expect a drop in commodity prices across the board soon. (maybe including gold too depending on how BAD Greece and others PIIGS euro countries fare out)

May 01, 2010

That Was The Week That Was ... In Australia
By Our Man in Oz
Source >> www.minesite.com/aus.html [Registration is free]


Minews. Good morning Australia. It seems a little fear and loathing is creeping into your market.

Oz. It is, but readers of Minesite might not be as surprised about it as those Australian investors who ignored the warning contained in our chat last week. Back then we was clearly reported that the Australian government was planning to hit the mining sector with a new tax to help recoup its stimulus spending, and to aid the country by building up a layer of financial fat ahead of the next downturn. Despite all the signs, which were being quite well semaphored by government spokesmen, the local market sailed on as if nothing was happening. In fact, on Tuesday, when the market re-opened after the Anzac Day holiday, mining shares actually rose modestly.

Minews. Which caused your blood pressure to rise alarmingly because you were certain this was a case of the market being wrong, not that we can ever really second guess the market.

Oz. Yes, it is a brave man who does that, but to me it was crystal clear that every layer of government in Australia has tax on its collective mind, and that the industries most likely to be whacked are mining and oil. So, when the tom-toms started beating in Canberra that a major report written by Treasury boss, Ken Henry, featured a national Resource Rent Tax (RRT), it was clear that mining stocks were in for a shock.

Minews, When will we know what Mr Henry plans?

Oz. Sunday is release day for the Henry Report, with legions of journalists and analysts already heading to Canberra to be briefed on what promises to be a generational change in the Australian tax system. One of the aims is to smooth out the economic performance of the country as it’s developing a two-speed nature, with the resource-rich states growing and the rust-belt in the south-east struggling to keep up. In theory, and said quickly, Mr Henry’s tax plans sound admirable, but the result could be a one-speed Australia, and that will slow-speed. If there is any good news in what might come out of the Henry Report it’s the possible introduction of a flow-through tax deduction scheme similar to the one which operates in Canada. Fingers crossed because that could provide a significant boost to the small end of mining, especially explorers.

Minews. Even a tax cloud can have a silver lining, but presumably your market started to wake up to the changes ahead as the week progressed.

Oz. It did, but Monday has the potential to be a grim time for resource stocks if the new RRT is as high as some tipsters are suggesting, or if it is introduced too quickly. One suggestion is that the tax will apply from Sunday night to prevent any last minute asset shuffling by miners.

Minews. Interesting times, but we’re here to talk about last week so let’s re-focus on prices.

Oz. The overall tone of the past week was down, after that strange Tuesday start when prices crept up despite the tax threat. Overall the market, as measured by the all ordinaries, fell 1.6 per cent. The gold index lost two per cent and the wider mining and metals index fell three per cent. There were, as ever a few companies which swam against the tide.

Surprise of the week came in the return to the public arena - if in fact he had ever left it - of Miles Kennedy. Regular Minesite readers will remember Miles as a diamond hunter and, more recently, as chairman of the tear-away copper stock Sandfire Resources (SFR). Unfortunately for Miles he had a vigorous disagreement with Sandfire’s chief executive, Karl Simich, and they parted company. Last week, the business now being run by Miles, Resource & Industry (RNI) was the star performer among the miners, more than doubling to A16 cents, after it announced the acquisition of a package of copper exploration tenements alongside Sandfire’s Doolgunna project.

Minews. Which means Miles and Karl are now neighbours, if not partners.

Oz. Precisely. Let’s continue with copper and the other base metals before calling the card of the other sectors, not that there’s a lot to talk about. Apart from Resource & Industry’s sharp rise, the only other copper stock in the black was Rex (RXM) which added A5 cents to A$1.69. Sandfire, which was in the news courtesy of interest in its new neighbour, held up well but still ended the week down A5 cents at A$3.60. Other copper movers included Oz Minerals (OZL), down A4 cents to A$1.15, Equinox (EQN), down A40 cents to A$4.35, Exco (EXS), down A2 cents to A29 cents, and Discovery (DML), down A1.5 cents to A85.5 cents.

Nickel stocks were all down, bar Minara (MRE) which was steady at A88 cents. Mincor (MCR) fell A21 cents to A$1.91. Mirabela (MBN) lost A35 cents to A$2.40. Western Areas (WSA) dropped A43 cents to A$4.83, while Independence (IGO) dropped a modest A2 cents to A$4.64, supported as it is by gold assets. Zinc stocks, somewhat curiously, were the best of the base metals. CBH (CBH) added A2.5 cents to A23 cents, as interest grows in assorted bids for control of the company. Prairie Downs (PDN), which rarely gets a look-in these days, put on A1 cent to A17.5 cents. Perilya (PEM), fell A4 cents to A56 cents and Blackthorn (BTR) lost A2 cents to A82 cents.

Minews. Back to a normal flow now, with a switch to gold and iron ore please.

Oz. Gold was a mixed bag with rises and falls in roughly equal proportion. Pick of the gold sector was Ampella (AMX) which hit a 12 month high of A$1.55 on Friday, but slipped marginally to end the week at A$1.52 for an overall gain of A18 cents. Other Aussies in Africa did well, as speculation about Australia’s new tax regime attracted increased attention in offshore opportunities. Perseus (PRU) rose A3 cents to A$1.93. Adamus (ADU) rose A2 cents to A42 cents, and Resolute (RSG) put on A2.5 cents to A$1.17. Another mover of note was Goldminex (GMX), a Papua New Guinea explorer with some hot tenements. Goldminex shot up an eye-catching A8 cents to A30 cents. Catalpa (CAH) reported a maiden gold pour at its Edna May project, an event which helped the company’s shares rise by A9 cents to A$1.64. Kingsrose (KRM) gained A3 cents to A83 cents, and Medusa (MML) hit a 12 month high of A$4.73 on Friday, before closing at A$4.72 for gain over the week of A21 cents.

Also on the rise, Thor (THR) added one-tenth of a cent to A1.9 cents after our midweek report. Meanwhile, Silver Lake (SLR) remains a market favourite down this way and put in a gain of A3 cents to A$1.22. Stocks to fall in a week dominated by quarterly reports included Troy (TRY), off A2 cents to A$2.45, Kingsgate (KCN), down A18 cents to A$8.59, and Dominion (DOM), which lost a sharp A26 cents to A$2.90.

Iron stocks were hit harder than gold, perhaps because of profit-taking after a few excellent weeks and also because of the looming tax hit. Batavia (BTV) ran out of puff, shedding A4.5 cents to A24 cents. Fortescue (FMG), which is leading what will become a pointless anti-tax campaign, fell A43 cents to A$4.58. Giralia (GIR) lost A22 cents to A$2.09. Gindalbie (GBG) fell A9 cents to A$1.18. Also worse off, Atlas (AGO) lost A17 cents to A$2.52 despite winning approval to develop its Wodgina project. The only iron ore stock to rise was DMC Mining (DMM). DMC added A2 cents to A48 cents thanks to being on the receiving end of a takeover bid and after being rated as a very under-valued stock by your friends at Ambrian Capital.

Minews. Time’s short, uranium and coal and any specials to finish please.

Oz. Uranium was interesting for corporate reasons, and for a small rise in the price of the metal. Paladin (PDN), the local star, “outed” a raiding party organised by Uranium One which snapped up a parcel of around two per cent of the stock, generating a bit of heat in Paladin’s share price. Paladin added A16 cents to A$4.00. Manhattan (MHC) also clawed back some lost ground with a rise of A5 cents to A$1.05. Meanwhile, the oddly-named Pepinnini (PNN) shot up to a calendar year high of A29.5 cents on Thursday on news of success at an iron ore exploration project. It then announced a downgrading of its Crocker Well uranium project and ended the week even at A22 cents.

Most coal stocks retreated after a few brilliant weeks. Takeover target Macarthur (MCC) dropped A68 cents to A$15.47. Riversdale (RIV) fell A20 cents to A$9.20. Whitehaven (WHC) lost A29 cents to A$5.32. Coal of Africa (CZA) slipped A14 cents lower to A$2.36. Centennial (CEY) lost A22 cents to A$4.30. Lonely with the only rise of the week was Stanmore Coal (SMR), which added A4.5 cents to A85 cents.

No specials of note. The lithium twins Galaxy (GXY) and Reed (RDR) fell marginally, while the local manganese explorer, Spitfire (SPI) added A1 cent to A14.5 cents.

Minews. Thanks Oz. Have fun with your great tax overhaul.

May 04, 2010

The Australian Tax Man Cometh, Guided By A Long-Shining Light Of Arrogance From BHP Billiton And Rio Tinto
By Our Man in Oz
Source >>> www.minesite.com/aus.html [Free Registration]

If you’re an investor feeling a little peeved with the Australian Government for ruining the mining boom with a monster tax hike, then you might be pointing your finger in the wrong direction. Yes, there is no doubt that it is the increasingly unpopular Labor government of Prime Minister, Kevin Rudd, which pulled the tax trigger.

But since Rudd and his comrades have spent the past 12 months loading the gun as a means of recouping post-GFC stimulus spending you might care to ask why it came as such a surprise to investment banks, stockbrokers and others further down the pecking order? The answer is that those in the mining industry, particularly the companies at the top end of town, have no friends in Australia. In fact, BHP Billiton and Rio Tinto are not even seen by the locals as being Australian.

Rudd played the “foreign investor” card yesterday, as a chorus of protests rang around the mining sector about the new 40 per cent blanket resource rent tax (RRT), and while what he said is partly true, given that the share registers of both companies are dominated by offshore interests, it was a line swallowed all too willingly by the Australian media. The problem for BHP Billiton and Rio Tinto, which will be forced to pay about 75 per cent of the RRT, is not their multiple stock exchange listings or head offices tucked away in discrete corners of London. It is that they have done nothing to keep lines of communication open with the Australia media or wider community.

Minesite’s senior man, Charles Wyatt, has played the “open communications tune” on his time-worn keyboard for eons. His target has been smaller miners which overlook the importance of talking to the wider market and the media. But what Charles has written about the lower levels of the mining sector applies in spades at the top end, where people like BHP Billiton’s South African-born boss, Marius Kloppers, and Rio Tinto’s American boss, Tom Albanese, are playing dual roles as the mining world’s equivalent of Tom Wolfe’s infamous “masters of the universe” and H.G. Wells’ “ Invisible man”.

If, for example Minesite’s Man in Oz was to seek comment, or an interview with Kloppers and/or Albanese they would not be available. Nor would their second ranking executive, or their No. 3, 4, 5, 6 or 7. No need to go on. You get the picture. These are executives, and companies, which have outgrown the Australia mass media, and now move in international circles, available only to the cream of the global print and television world. The other possibility, which Minesite’s sometimes scruffy Man in Oz acknowledges, is that we are simply small fry and not worth the time.

But, that attitude of flitting around the world in corporate business jets, chatting to government heads in Canada, South Africa, Chile, Peru and goodness knows where else, is that none of those countries make the rules (especially the tax rules) under which BHP Billiton and Rio Tinto operate. Just as the two big boys became too important (or, perhaps just too busy) to talk to the local media, so too they became too busy to talk to local politicians, the very people who make the laws under which about half their assets operate.

In fact, it goes a step further. Neither master of the mining universe actually seems to understand how Australian government works. When they started talking last year about merging their iron ore operations, the two companies dashed off to Canberra to brief the national government, only getting around to the Western Australian state government as an afterthought, despite the fact that mining law is state law, and both companies operate under state agreements. Talking to WA Premier, Colin Barnett, after talking to his rivals in Canberra was a big-time blooper, as Barnett willing says publicly.

So, what’s the result of this collective arrogance of the masters of the mining universe? Tax trouble, with two capital Ts, for everyone in mining. Neither company has friends in places where it matters. Governments dislike like them. The media has lost touch with them. Their doors are closed to the public, and their executives seem to believe that they are global citizens answerable to no-one. Perhaps their next career moves will be to join Goldman Sachs. They certainly have the credentials.

May 04, 2010

In Terms Of Environmental Risk, Mining Will Always Be A Better Bet Than Oil
By Rob Davies
Source >>> www.minesite.com/aus.html

Investors often lump mining companies into the same natural resource bucket as oil and gas companies. In fact BHP Billiton does indeed cover both bases. However, that behemoth aside, there are two huge factors that separate the mining industry and the oil and gas industries and impact on valuations.
The first is that unlike in metals, there is no secondary market in oil. Once it is burned or turned into a plastic bag oil never returns to the supply chain. In contrast recycled metal accounts for over a third of most metal consumption, and in lead as much as 60 per cent.

That means for every unit of demand growth, primary output only need increase by 70 per cent for the major metals. So metals have a lower correlation to positive economic growth than oil does. This goes some way to reducing their appeal, and hence the pricing power and the valuation of the companies that produce them.

On the other hand metals have only a limited capacity to damage the environment, and the corporate wallet, in the way that a large oil spill can, and does. The impact on BP’s share price of the blowout in the Gulf of Mexico has been dramatic, although arguably overdone.

According to the Financial Times, in an analysis which chimed well with research on the same subject issued by stockbroker Evolution last week, BP’s value has fallen by US$23 billion since the explosion, but the cost of the clean-up is estimated at “only” US$12.5 billion.

To be fair that is cash cost and will make a big dent in the company’s cash flow. That said, as BP pays the largest dividend of any company in the world it is better placed than most to cope with the problem.

Nevertheless, the incident reminds investors that extracting natural resources comes with other risks, in addition to those of price volatility. At least for mining companies the costs of any such an environmental disaster are likely to be a lot less than those for an oil spill.

Oil might be 100 per cent organic, but in the public eye it is still pretty nasty stuff. That fact should provide a justification for the market to give higher valuations to miners than oil stocks and give them a lower cost of capital.

It is certainly true that the major miners currently enjoy higher ratings than the large oils. The reasons for that are many and complex and it would be a brave analyst who argued that it was because they might do less harm to the environment.

But away from the theoretical side, metal prices continued to slide last week, along with other pro-risk capital markets. It is not difficult to find reasons, sorting the valid from the spurious isn’t always an easy exercise. Is it Greece, Goldman Sachs, the UK election or something else more important?

Are we surprised that the Greeks cheated, Goldman Sachs legged over its clients or that the last British Government spent more than it earned? Actually, none of these things should surprise us, but the market has decided now is the time to worry about them.

Overall, the LMEX index declined by 4.9 per cent over the week, led by falls in copper and nickel, but the other metals were all weaker too. After the spectacular gains of the last year it is easy to see the appeal of taking some risk off the table. Having said that though, working out which asset class is risk free these days is no easy task.

May 08, 2010

That Was The Week That Was ... In Australia
By Our Man in Oz
Source >> www.minesite.com/aus.html [Free Registration]

Minews. Good morning Australia, how does it feel to have been spot on with your tax warnings over the past two weeks?

Oz. Cold comfort, really. The slump was always going to come, and hopefully that’s as far as we go. Since the warning signs emerged, the overall market has retreated by around 10 per cent, including 7.5 per cent last week among the base metal, iron ore and coal miners, with a much more tolerable 2.5 per cent retreat from the goldminers. That’s the statistical extent of the damage. It’s likely that more harm was done to Australia’s reputation. Not because of the tax hit itself, and we really don’t quite know how it will work out yet, but because of the rather sneaky way in which the government behaved.

Minews. You are feeling delicate. Since when have governments not been sneaky?

Oz. Point taken, but in this case we spent much of the past year hearing how the resources sector had saved Australia from the full effects of the global financial crisis, and yet the reward for that was whopping new tax.

Minews. Presumably there wasn’t much call for black ink when recording price movements last week.

Oz. Very little, but before we get to those - and it really is a case of ticking off a long list of falls, with just half-a-dozen rises - it’s worth reflecting on what happened down here, and on how you’re about to get the same sort of treatment in the UK, in reverse. We have had two big tax hits in a week here, because before the miners received their so-called super-profits tax, which looks like pulling in an extra A$9 billion from 2013, assuming prices stay high, Australian smokers were stung with a A$2.5 billion rise in the tax on their fags. Next week, if the chit-chat is correct, it will be the turn of Australia’s banks to cough up, perhaps by the same amount as the miners.

Minews. In other words the Australian government is rushing to recoup its stimulus spending as fast as possible.

Oz. Precisely, and if the banks get hit as hard as the miners you can already see an extra A$20 billion lined up, which is roughly half what was spent stimulating the economy. Now, the question moves over to the UK, and the timing of any move in taxes there, because without extra revenue you might be in for a rough ride. In our case we got taxes first, with an election expected sometime later this year. You got the election, with taxes to come, if you can form a government with the stomach to do what happened here last week.

Minews. Enough philosophising, let’s call the card, starting with the easy sector, gold.

Oz. Two stocks rose. The rest fell. Lihir (LGL), which has changed its tune and now welcomes takeover approaches, added A9 cents to A$3.90. And Adamus (ADU) performed a minor miracle with a rise of A2 cents to A44.5 cents. However, Lihir’s suitor, Newcrest (NCM) was hammered for pitching a bid onto troubled waters, dropping A$1.60 to A$31.49. Meanwhile, the other Aussies working alongside Adamus in West Africa all sank lower, despite being relatively immune from Australia’s new tax regime.

Minews. Interesting that the African stocks fell. Is that a tell-tale blowing in the wind which might indicate that you’re exporting a new tax system?

Oz. Could be. Australia’s mining industry has successfully exported its mines reporting code, the so-called JORC-code, so why not export the tax act? On the other hand, we have had a few governments, such as the Canadian, commenting that mining is welcome in their countries, away from those high-taxing Aussies. But, wait until the Canuks see how much cash is being peeled off our industry. It would be hard for any government to resist, so perhaps there could be an outbreak of tax contagion.

Minews. Let’s finish gold and move along.

Oz. From here on it’s all down, so let’s ease our way in and start with some of the smaller falls. Silver Lake (SLR) fell A5 cents to A$1.17. Avoca (AVO) fell A16 cents to A$2.06. Troy (TRY) fell A5 cents to A$2.40. Perseus (PRU) fell A9 cents to A$1.84. Chalice (CHN) fell A7.5 cents to A42.5 cents. Kingsgate (KCN) fell A14 cents to A$8.45. Finally, Resolute (RSG) fell A3 cents to A$1.17.

Minews. Iron ore next, please.

Oz. There were a few heavy falls among the iron ore stocks, perhaps because they were very much in the news in light of the focus by the government’s tax team on the massive profits flowing in from the recent 100 per cent iron ore price hike agreed by China. Fortescue Metals boss, Andrew Forrest, led the protests, which is understandable given his personal pain. Fortescue (FMG) fell by A41 cents to A$4.17, taking its drop over the past three weeks to A$1.24, meaning that Forrest, with his billion FMG shares, has lost more than A$1.2 billion personally.

Other iron ore movers included Giralia (GIR), down A21 cents to A$1.88, Atlas (AGO), down A29 cents to A$2.23, and Batavia (BTV), down A5.5 cents to A18.5 cents. Iron Ore Holdings (IOH) fell a very heavy A61 cents to A$1.61 on reports that a deal to sell a discovery to Rio Tinto might now fall through. Gindalbie (GBG) fell A9 cents to A$1.09. BC Iron (BCI) lost A23 cents to A$1.58, and Mt Gibson (MGX) shed A18 cents to A$1.53.

Minews. Base metals next.

Oz. One up, two held their ground, and the rest fell. Swimming upstream was the new exploration vehicle of Miles Kennedy, Resource & Industry (RNI). It remained a favourite of the day traders, adding A8.5 cents to A24.5 cents. The two which were flat were Saudi copper developer, Citadel Resources (CGG), which was steady at A34 cents, and zinc producer, CBH (CBH) which held on to A23 cents. Then comes a long list of falls. In copper, OZ Minerals (OZL) fell A11 cents to A$1.04, Equinox (EQN) fell A42 cents to A$3.93, Sabre (SBR) fell A8.5 cents to A42 cents, Sandfire (SFR) fell A16 cents to A$3.44, Rex (RXM) fell A32 cents to A$1.37, and Hillgrove (HGO) fell A7 cents to A30 cents.

Among the nickel stocks it was all red ink, as a sharp fall in the price of nickel did as much damage as the tax rise. Mincor (MCR) was hit hard, despite having the courage late on Friday to announce the re-opening of its mothballed Miitel mine, a decision which might have cut the ground out from under the anti-tax lobby. Mincor fell A31 cents to A$1.60. Other movers included Western Areas (WSA), down A63 cents to A$4.20, Panoramic (PAN), down A51 cents to A$2, and Mirabela (MBN), down A16 cents to A$2.24. Among the zinc stocks only CBH held its ground. Otherwise it was all down. Perilya (PEM) dropped by A7.5 cents to A48.5 cents, Kagara (KZL) by A11 cents to A64 cents, and Terramin (TZN) by A5 cents to A75.5 cents.

Minews. Uranium, coal and any specials to finish.

Oz. There was one bright light among the uranium stocks. Mantra (MRU) popped up by an eye-catching A44 cents to A$5.00 in what was probably the biggest rise in any section of the market. All other U-stocks were down. Paladin (PDN) fell A30 cents to A$3.70. Manhattan (MHC) lost A21 cents to A84 cents. Extract (EXT) shed A31 cents to A$6.99, and Uranex (UNX) dropped A4.5 cents to A21 cents.

Among the other classes of stocks the lithium players weakened quite sharply, as did the manganese companies. Orocobre (ORE), one of the leading lithiums, lost A35 cents to A$2.03. Galaxy (GXY) fell A20 cents to A$1.07, and Reed (RDR) was A13 cents weaker at A55 cents. OM Holdings (OMH) led the way down for the manganese stocks, with a fall of A17 cents to A$1.82.

Minews. Thanks Oz.

May 10, 2010

Metals Prices Will Strengthen As A Result Of The Australian Tax Hike
By Rob Davies
www.minesite.com/aus.html [The registration is free]

Companies don’t vote, so they always present an easy target for governments looking to raise additional revenue. And governments always want to raise more money, even if only to give back to the population. The population, after all, is more important since it has the votes that sustain the politicians that constitute the government. So it is perhaps not surprising that the Australian Government in its mammoth Henry Tax Review has decided that it makes sense - to it - to increase taxes on mining companies and reduce taxes on voters.
But although companies can’t vote, shareholders in them can, both literally and with their wallets. That was why the big Aussie miners started the week with sharp falls in their share prices. The tax review proposes that the resource taxation rises to a flat 40 per cent, which compares badly to the current industry level of about 20 per cent.

In other words, a big chunk of the Australian mining industry’s cost base has just been doubled and, as Australia is a major producer of some the world’s most important commodities, it effectively means that the global production costs will move up a notch or two.

You might think this would upset the Chinese, as they will have to pay even more now for their iron ore, coal and base metals. If it did, that upset got drowned out by all the other bearish news in the market.

Nevertheless, if implemented this tax change will have two effects. It raises the cost of capital for the industry and it makes Australia a less attractive place for exploration. Fortunately, the country has sufficiently good geology and a sound enough business climate that most miners cannot afford to ignore it. No wonder they call it the Lucky Country.

And having said all that, the effect on metal prices should be beneficial. Last week there was a maelstrom of bad news, so the 6.5 per cent decline in average base metal prices was perhaps not surprising. But in the longer term the increase in Australian taxes must be positive for commodity prices, since it increases the cost of capital to the mining industry.

If the industry cost of capital is going to increase, new projects, or expansions to existing ones, will have to meet higher hurdle rates before being approved. If nothing else changes on a project, those higher hurdle rates will only be achieved by using higher metal prices in any feasibility studies that are undertaken.

At this stage the changes are only proposals, and even on that basis they are a few years away. But if a country like Australia, that is perceived to be mining-friendly, can propose these sorts of increases it sends a strong signal to others that the industry is fair game.

In many countries mining is tolerated rather than encouraged, and those of a more socialist leaning will find this move a good excuse to review their own mining tax regime. If the trend catches on, then we really could see a worldwide shift in the industry cost base.

In the short term that might be bad for miners. But is a very positive development for the underlying commodities over the longer term. In the meantime other forces are at work on global capital markets, and metals will be pushed hither and thither by these. What this news does, though, is to reinforce the strong fundamental position of commodities in diversified portfolios.

The US Shines
Wednesday, May 12, 2010

Below we highlight the year to date performance of the major stock market indices for more than 80 countries around the world. The G-7 countries have black borders while the BRIC countries are shaded in light blue.

After trading mostly higher for the first four months of the year, global markets hit the skids in late April and early May on sovereign debt concerns. China and parts of Europe have gotten hit the hardest, while some emerging markets have done really well in 2010. As shown, Ukraine is up the most year to date with a gain of 52.92%. Estonia ranks second at 46.64%, followed by Nigeria (33.59%) and Kenya (30.61%).

Going down the list from best to worst, the US is the first developed country to show up with a gain of more than 5%. Canada has been the second best performing G-7 country with a gain of 3.83%, followed closely by Germany at 3.79%. Britain, Japan, France, and Italy (the rest of the G-7) are all down year to date. [AUSTRALIA is down -6.11%]

Russia is the only BRIC country up year to date with a gain of 2.71%. India is down 1.54%, Brazil is down 4.91%, and China is down a whopping 18.96%. Only Greece and Bermuda are performing worse than China so far in 2010.

As we've been highlighting for awhile now, the US is currently the place to be when it comes to equities.

To view the stockmarkets performance table, please click the link below:
http://www.bespokeinvest.com/thinkbig/2010/5/12/the-us-shines.html

May 15, 2010

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

Minews. Good morning Australia, or should that be good morning America?

Oz. Bit of both really, as today’s report on the Australian stock market is coming from an Australian visiting America’s oil capital, Houston. Despite being about 20,000 kilometres from home it has been possible to follow the Australian market from here and from other points visited last week, including New York and Chicago, where it was interesting to discover that the new “super tax” on Australia’s mining sector has attracted widespread negative comments.

Minews. You shouldn’t be surprised, because that tax plan is appalling.

Oz. No argument there, but it is interesting to note the development that the proposed new tax on mining has now become a key element in Australian politics with the Opposition promising to abolish the tax if it wins office at the next election, due to be held sometime later this year. While that’s good news in that a change of government could bring an end to the super tax, there is also a real danger that mining in Western Australia, the major mining state, could be headed into double trouble because there are plans afoot to increase the traditional royalty rate.

Minews. You mean that the re-election of your Labor Government at a national level would see the new super-tax introduced, while a conservative state government applies a higher local royalty rate?

Oz. It is that bad - a classic pincer squeeze with higher taxes at a state and national level, a squeeze that will potentially kill off old and new projects.

Minews. Time for prices, and since you’re on the road this week you can keep it short.

Oz. Gold was the story of the week on the Australian market, aided by the rising US dollar gold price and a small decline in the exchange rate which pushed the local gold price up to over A$1,400 an ounce. The net result was positive for almost every gold stock. The only fall was posted by Bendigo Mining (BDG) which slipped half a cent to A24 cents. And after that one discordant note it was all up. The movers included Avoca (AVO), up A23 cents to A$2.29, Silver Lake (SLR), up A21 cents to A$1.38, Troy (TRY), up A46 cents to A$2.86, Perseus (PRU), up A18 cents to A$2.02, and Adamus (ADU), up A10.5 cents to A54.5 cents. Also better off were Kingsgate (KCN), up A50 cents to A$8.95, and Kingsrose (KRM), up A13 cents to A85 cents.

Minews. Presumably the rest of your market did not perform as well.

Oz. You might reasonably think so, but that wasn’t the case. Iron ore stocks staged a pleasing recovery after the sell-off of the past few weeks. Base metals and uranium were mixed, though the trend was positive. A useful snapshot of the Australian market is in the indices, because that’s where you see the effect of the European wobbles showing through in bank shares. The gold index, naturally, led the way up with a rise of 7.2 per cent last week. The overall metals sector added 4.1 per cent, while the all ordinaries managed a modest gain of 2.1 per cent. The test for us will come on Monday, when those heavy European market falls endured on Friday flow through into the Asia-Pacific.

Minews. Iron ore first, please.

Oz. There were solid rises across the board, perhaps partly because one of the implications of the planned tax-grab is that new projects might actually be favoured over old, courtesy of enhanced tax write-off provisions. The call of the card looks like this: Fortescue (FMG), up A14 cents to A$4.31, Atlas (AGO) up A9 cents to A$2.31, BC Iron (BCI) up A33 cents to A$1.91, Batavia (BTV) up A3 cents to A21.5 cents, Iron Ore Holdings (IOH) up a very sharp A48 cents to A$2.08, and Giralia (GIR) up an even sharper A62 cents to A$2.50.

Minews. Some of those rises are really quite remarkable.

Oz. They are, and may be related to those revised tax calculations, but we now have to see whether they can stick. Over in the base metals sector it was also a case of rises outnumbering falls, although activity was by and large more subdued. Copper-focussed risers included Equinox (EQN), up A22 cents to A$4.15, OZ Minerals (OZL), up A4 cents to A$1.08, Sabre (SBR), up A7 cents to A49 cents, Talisman (TLM), up an eye-catching A13.5 cents to A80 cents, and Sandfire (SFR), up A2 cents to A$3.46. Also better off, Hillgrove (HGO) rose A1.5 cents to A32 cents. Marengo (MGO) was steady at A10.5 cents, while Citadel (CGG) lost half a cent to A33.5 cents, and Resource and Investment (RNI) ran out of puff, slipping A2.5 cents to A22 cents.

Nickel stocks rallied after big falls over the past two weeks. Zinc stocks were more subdued. Mincor (MCR) rose A12 cents to A$1.72. Minara (MRE) rose A4 cents to A80 cents. Western Areas (WSA) put on A9 cents to A$4.29, and Panoramic (PAN) recouped A19 cents to close the week at A$2.19. Best of the nickels, but mainly because of its exposure to gold, was Independence (IGO) which put on a sparkling A40 cents to close at A$4.52. Among the zinc stocks most rises modest. Perilya (PEM) rose A1 cent to A49 cents. CBH (CBH) added the same amount to close at A24 cents.

Minews. Coal, uranium, and any specials to close.

Oz. There was a modest upward trend among the coals. Uranium stocks were mixed. Riversdale (RIV) was the pick of the coal companies, putting in a rise of A66 cents to A$9.45. Coal of Africa (CZA) rose A11 cents to A$2.15. Stanmore (SMR) rose A3 cents to A75 cents. Macarthur (MCC), which has been the subject of competing and complicated bids, fell A19 cents to A$13.50.

Paladin (PDN) was the uranium newsmaker as interest grows in the Russian raid on its share register. Paladin shares rose A38 cents to A$4.08. Extract (EXT) was also in demand, rising A52 cents to A$7.51. Other moves were more modest, and on the downside Manhattan (MHC) slipped A4 cents lower to A80 cents.

Minews. And specials?

Oz. Venture Minerals (VMS), the Tasmanian tin and tungsten explorer, released a very optimistic report regarding enhanced mineral recoveries at its Mt Lindsay project. Its shares duly rose A4 cents to A35.5 cents. Orocobre (ORE), one of the lithium hopefuls, delivered a sparkling A55 cent rise to A$2.58.

Minews. Thanks Oz. Enjoy Houston.