"The best place to be is in commodities"

Just getting through the yellow dust cack here on the Korean Peninsula. Usually a good sign of production out of China.

It would great to see what this commod will do when things "pick up". *cough*

Record demand for platinum in 2009

http://www.shanghaidaily.com/sp/article/2010/201005/20100518/article_437354.htm

May 17, 2010

Metals Soar As The Euro Goes Soft
www.minesite.com/aus.html <<< Free registration

Until last week the euro and the European Central Bank (ECB) had stood apart from the quantative easing programmes carried out by the US and the UK. That all changed on Monday 10th May when between them the ECB, 16 Eurozone governments, and the IMF all came up with a mind-bendingly complex refinancing package totalling €720 billion.

The full intricacies of that package are beyond the pay grade of this commentator, and are, anyway, less important than the principle. Ever since the euro was formed the default assumption has been that it would inherit the rock solid record of the deutschmark as a sound currency incapable of being debased.

But this year, as the northern hemisphere winter turned to spring, that assumption was increasingly challenged by the insurrection in Greece, and by growing concerns over Portugal and Spain.

Rather than take the simple, but humiliating, decision to admit that the euro is fundamentally flawed and break it up, politicians have taken the easier, but probably ultimately disastrous, decision to bail it out.

At a stroke the decision destroys the status of the euro as a bulwark against inflation. It transfers it to the category of currencies controlled by leaders would rather debase them than accept the electorally unpopular consequences of making difficult decisions.

The realisation that the euro had gone soft was the main reason commodity prices enjoyed a bounce last week. The bounce took gold to a new high of US$1,232 an ounce, while the LME base metals index rose by 3.2 per cent to 3,339.

It is now clear that all the major governments and monetary authorities have voted for inflation over deflation, and will do what it takes to keep economies growing in nominal if not in real terms.

All the base metals are well placed to benefit from monetary stimulus, but nickel made the biggest progress, as it jumped 4.7 per cent to US$22,675 a tonne. Copper moved slightly less, but did recover to close the week over the US$7,000 a tonne mark at US$7,010.

In the real economy most companies updating shareholders took pains to stress that what recovery existed was patchy and that current conditions remain challenging. It would not take much reduction of government spending to tip a number of economies into a double dip recession, or just one very long one.

Gold, with its financial connections, is probably better placed than base metals right now to make advances in price. The advent of ATMs in the Gulf dispensing gold at the touch of a button rather than cash is surely the best example of the diminution of faith in paper currency.

Even so, governments will want their voters to be employed in some activity rather than creating mayhem on the streets of Europe. That suggests that make-work schemes like great national projects, or even just subsidies to make more cars, will find favour in the corridors of power. Such plans must be good for metal consumption.

But having said that, the rows of newly built but unoccupied houses in Ireland are testament to the follies of bad capital allocation. So, if politicians and central bankers, or even commercial bankers, cannot make rational decisions on where to allocate capital it falls to the investing public to make doubly sure their decisions are even more rational.

To the list of currencies that cannot be trusted we must now include the euro. No wonder the Germans held onto their gold when the euro was created.

Commodity ETFs: A word of caution

http://opinion.financialpost.com/2010/05/18/the-commodities-con/

May 29, 2010

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


Minews. Good morning Australia. It seems some sanity returned to your market last week.

Oz. It did, if you look only at the pleasing recovery in share-prices. But, a curious event late on Friday added to fears that Australia’s Great Tax Crisis (henceforth known as the GTC) is far from over. In a truly astonishing demonstration of panic, or determination, depending on your point of view, the national government invoked emergency powers to launch an advertising campaign designed to counter comments being made by miners about the proposed 40 per cent super tax on resource profits.

Minews. Could you say that again, a little more slowly, it sounded like you said emergency powers.

Oz. I did. I’m sure your government in the UK has them for when the Taliban comes to town, or when Mr Hitler takes up position in Calais. Well, in this case it appears that Australia’s mining industry is seen in a similar light, perhaps not as bright, but the principle is the same. In this case normal laws controlling government-funded advertising have been suspended so a spare A$38 million can be spent telling Australia that its mining industry is run by a pack of liars.

Minews. Remarkable. How on earth could a government spend taxpayers money to attack its own major industry?

Oz. I’d like to say it’s because the loonies have taken charge of the asylum, although that’s probably not politically correct in these enlightened days.

Minews. Never mind the political correctness. But anyhow, let’s leave the politicians in the asylum and concentrate on the market.

Oz. As you started saying, it was a better week on the market, though probably only thanks to bargain hunters moving among the wreckage of a rather gloomy May. In fact, if we had not staged a recovery over the past five trading days it would have been a very bad May indeed. A few numbers illustrate what happened. Last week the metals and mining index on the ASX rose by 6.4 per cent, cancelling out much of May’s overall loss, though the index still ended down 6.2 per cent on the month. Without last week, the metals index would have been down more than 12 per cent. It was the same story with the all ordinaries which added 3.5 per cent last week, a rise which limited the May fall to 7.3 per cent. The strong man among the indices was gold, which rose 4.6 per cent last week, to end May up, but only just. The gold index gain for May was 0.3 per cent.

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

Oz. Gold was where we had a few stand-out performers, and the upswing was led by one of the local favourites, Silver Lake (SLR). Silver Lake reported excellent assays from its Magic deposit, which lies within what should become the company’s second mining centre at Mt Monger. Best intersections were 11 metres at 59.4 grams of gold per tonne from a depth of 251 metres, and 10 metres at 19.1 grams per tonne from 52 metres. Those results propelled Silver Lake up by A26 cents to A$1.42.

But it’s equally interesting to look at Silver Lake as a proxy for the turbulence in the market as Australian investors battle the GTC (remember that, the Great Tax Crisis). Over the past two weeks the stock has been all over the shop. On May 17th it hit a 12-month high of A$1.44. Four trading days later it plunged to A$1.11. Five trading days after that low it was back to A$1.42.

Minews. Fun for traders, but unsettling if you’re a long-term investor. Let’s get our skates on and call the card across the sectors, first of all by finishing up with gold.

Oz. Most companies ended up on the week, although a few lost ground. Best of the risers included Andean (AND), up A18 cents to A$3.24, Medusa (MML), up A21 cents to A$4.61, and Kingsrose (KRM), up A10 cents to A86 cents. Also better off was Castle (CDT), one of the new Aussies in West Africa, which was up A6 cents to A46 cents. Meanwhile, Azumah (AZM) rose A3 cents to A43 cents, Ampella (AMX) rose A5 cents to A$1.45, and Golden Rim (GMR), also a new entrant in West Africa, rose A2 cents to A10.5 cents.

Minews. Iron ore and base metals next, please.

Oz. Most of the iron ore stocks rose, but not by much. Iron ore remains a sector very much in the sights of the tax-mad mandarins of Canberra, who continue to claim that their computer models show that their new big new tax would have a neutral effect on mine investment. That claim was countered during the week by Citi Group, which estimated the potential value of lost iron ore production at A$27 billion.

On the market, the best rises came from Mt Gibson (MGX), which recouped ground lost during the big May sell-off, by rising A16 cents to A$1.50, and Fortescue Metals (FMG) which shot up an eye-catching A47 cents to A$4.19. Other upward iron ore moves included Atlas (AGO), up A13 cents to A$2.08, Brockman (BRM), up a very sharp A54 cents to A$3.15, Iron Ore Holdings (IOH), up A25 cents to A$2.01, Batavia (BTV), up A1.5 cents to A19.5 cents, Gindalbie (GBG), up A10.5 cents to A$1.08, and Grange (GRR), up A9 cents to A55 cents. There were also a few losers over the week, including Giralia (GIR), which slipped A7 cents lower to A$2.13, and Sphere (SPH), which fell by A4.5 cents to A$1.60.

Base metals were stronger, though zinc was lacklustre. Best of the copper stocks were Equinox (EQN), which rose by A41 cents to A$4.15, Sandfire (SFR) which added A26 cents to A$3.31, and Resource and Investment (RNI), which gained A3.5 cents to A22 cents. Also better off was Citadel (CGG), which put on A3 cents to A34 cents, after reporting more encouraging exploration results from its Jabal Sayid project in Saudi Arabia, where it has just been granted a mining licence.

The nickel sector produced a few surprises. Mincor (MCR) stormed up after a few bad weeks, adding A30 cents to A$1.73, and Independence (IGO) followed suit with a gain of A36 cents to A$4.59. Other upward nickel movers included Western Areas (WSA), up A16 cents to A$4.00, and Panoramic (PAN), up A36 cents to A$2.16. Also better off was Poseidon (POS), which rose A2.5 cents to A24.5 cents after announcing that it might seek up to A$100 million from Chinese investors to finance the re-opening of the historic Mt Windara mine. On the flipside of that good news, Mirabela (MBN) slipped A5 cents to A$2.17. Zinc stocks did nothing to write home about. Only Blackthorn (BTR) caught the eye of investors, putting in a rise of A6 cents to A68 cents.

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

Oz. Most coal stocks rose, except Coal of Africa (CZA) which lost A4 cents to A$1.87, perhaps in the aftermath of a major management change. Coal companies on the rise included Macarthur (MCC), up A83 cents to A$11.48, Whitehaven (WHC), up A40 cent to A$4.85, Centennial (CEY), up A21 cents to A$4.00, and Gloucester (GCL), up A23 cents to A$11.98.

Uranium stocks were flat, remarkably flat. Manhattan (MHC), Uranex (UNX), Bannerman (BMN), Toro (TOE), and Deep Yellow (DYC), all failed to move over the week. Extract (EXT) was the best upward mover, putting in a gain of A44 cents to A$7.29. Paladin (PDN), added A12 cents to A$3.87.

Minews. Any specials?

Oz. Nothing of note. The lithium crew crept a few cents higher. Galaxy (GXY) added A10 cents to A$1.10, and Orocobre (ORE) rose by A6 cents to A$2.18.

Minews. Thanks Oz. Enjoy those advertisements criticising your mining industry which you’re helping pay for.

May 28, 2010

The Chinese Gold Rush
By Chris Mayer of Daily Reckoning
www.minesite.com/aus.html [FREE REGISTRATION]

While in Beijing last week, I visited the Cai Bai gold market. China is the largest buyer of gold in the world... and becoming larger by the day.
Anecdotally, I can tell you the Cai Bai gold market was bustling with people. I wish I could show you, but a guard promptly stopped me when I pulled out my video camera. I was there in the middle of the day, and there was a good crowd of people buying gold in all its forms - from jewellery to bars.

The numbers coming out of China back that street-level view. May is a peak gold-buying season in China, as it is a popular time for weddings. Even so, gold sales are up over 70 per cent year-over-year, and the sale of gold bars has doubled from a year ago, according to CCTV, the large state Chinese television station.

The surging demand may be the result of Chinese investors shifting their focus from real estate to gold. This is a snippet from CCTV's report, which gives you a peek into what is starting to happen:

“Housing speculators from Wenzhou City in southeastern China are switching their money from property into gold, following government restrictions on the real estate market. Tao Xingyi, president of Beijing-based Jinding Group, a company specializing in high-end gold trading and investment, said the company's customers have increased by 300 to 400 per cent recently... Tao said that within one month, three groups of Wenzhou investors made purchases of gold from his company worth more than 10 million yuan (about US$1.5 million)."

We often heard on our trip that the Chinese buy empty apartments and just sit on them, treating the investment as a store of value. Their other favorite place to park cash is gold.

So this transition from real estate to gold is potentially a very big story, if such actions become common across China. That's a lot of buyers coming to the market. It's a story we heard more than once on our trip.

While in China, I met with Patrick Chovanec, a professor at Tsinghua University in Beijing. We dined one night at a 500-year-old restaurant in town, amid a striking interior made up of thick wood beams and traditional Chinese woodwork.

In addition to his professorial duties, Chovanec advises hedge funds and investors in China. He is an expat and writes a blog called An American Perspective From China. Commenting on CCTV's gold story, he wrote:

"I find it very interesting given the analogy I've always drawn between the way Chinese invest in empty apartments as a 'store of value' and investment in nonproductive assets like gold.

So it might very well make sense that, if they are no longer so certain stockpiled real estate will act as a reliable store of value, they would opt for gold as an attractive alternative."

This dramatic surge in Chinese gold demand is just one more trend in the yellow metal's favour. When you consider that robust Chinese gold- buying is occurring in the context of volatile currency markets and the deteriorating government finances in the developed world, it is easy to imagine a much higher gold price.

Sector Performance Year to Date and % From 200-DMA
Thursday, June 3, 2010

The S&P 500 is still down 1.2% year to date, and four of the ten S&P 500 sectors are outperforming the overall index so far in 2010. Consumer Discretionary continues to show the most strength of any sector. It is up 9.34% on the year and remains 8.68% above its 200-day moving average. The Industrial sector is up the second most year to date at 6.23%, followed by Financials at 2.34%. Telecom, Materials, Utilities, Energy, and Health Care have held the market back year to date. Telecom is down 9.44%, while Materials isn't far behind at -8.70%. The Energy sector is currently the farthest below its 200-day moving average at -6.21%. Along with Industrials and Consumer Discretionary, the Technology sector is the only other sector currently above its 200-DMA.


Source >>> http://www.bespokeinvest.com/thinkbig/2010/6/3/sector-performance-year-to-date-and-from-200-dma.html

World Economy in Chaos
Roubini and Bremmer debate the real meaning of political and economic problems throughout the world””and whether the U.S. still has power.

To read the conversation, please click the link below:
http://www.thedailybeast.com/blogs-...el-roubini-and-bremmer-on-world-economy/full/

*********************

June 05, 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, your mining-tax debate seems to be building a rather explosive head of steam.

Oz. It is, and in more ways than one. It has obviously damaged investor confidence with the overall mining sector down by an estimated 12 per cent since the Australian Government said a month ago that it wanted to impose a 40 per cent super-tax on mining profits. But it is also starting to damage the re-election prospects of the man who masterminded the daft idea, the Prime Minister, Kevin Rudd. Over the past week a whiff of panic has been wafting off the government with two of its principal non-political advisers calling for an immediate halt to the open warfare that has broken out with the miners who hit back this week with a series of stinging anti-government television advertisements, and an announcement from Xstrata that it was shelving a series of coalmine expansion projects.

Minews. It sounds like common sense might be breaking through.

Oz. Perhaps, though it is also likely that neither side will back down without a fight, and that means weeks, and possibly months, of uncertainty. On the market last week we saw glimmers of hope with the slide in prices slowing. The metals a mining index lost a relatively painless 1.8 per cent with most of the damage done by BHP Billiton and Rio Tinto, the primary targets of the super tax. The all ordinaries was steady, and the gold index crept up by three-quarters of a percentage point. There were a few stand-out rises. No dramatic falls, and with most share price movements quite modest.

Minews. Before going through the prices just a bit more detail on the latest developments in your mining tax because if it is going to be dropped, or significantly altered, then a few buying opportunities might emerge.

Oz. It’s far too early to be confident of the tax proposal being dropped, but a compromise is on the cards. Last week we saw the head of Australia’s sovereign wealth fund, also known as The Future Fund, David Murray, call for a re-think. Murray is the retired head of Australia’s biggest bank, the Commonwealth, and the fund he now runs has A$60 billion under management for the government. His remarks followed a similar call from Rod Eddington, the former chief executive of British Airways and now a director of Rio Tinto. But the greatest damage to the Prime Minister’s case came in the form of a Minerals Council advertising campaign which savagely lampoons the PM. If there is one thing a politician cannot tolerate its being laughed at, and that’s starting to happen with several prominent newspapers suggesting that Rudd will have to go with the only question being whether it is before or after the election expected in August.

Minews. That’s all very interesting, but it’s also not a pretty outlook for your market, with the tax debate rolling into the uncertainty of a national election. Enough of the chit chat, time for prices.

Oz. In a word, mixed. Try as I might there was no discernable pattern to be detected. Iron ore stocks seem to have performed best. Coal stocks regained lost support. Base metals weakened in line with copper and nickel prices, gold stocks were all over the shop and uranium was flat. Five of the stronger stocks came from three different sectors. Silver Lake (SLR) and Ampella Mining (AMX) starred among the golds. Silver Lake shot up by A29 cents to A$1.71 thanks to discovery news from its Magic project. Ampella added A35 cents to A$1.80 without anything fresh reported. Coal of Africa (CZA) was the star of the coal stocks, rising by A18 cents to A$2.05, and Cazaly (CAZ) and IMX Resources (IXR) were the pick of the iron ore stocks. Cazaly added A8.5 cents to A58 cents after reporting progress at its Parker Range project, and IMX added A5 cents to A48 cents after reporting the first shipment of iron ore from its Cairn Hill mine in South Australia. Of those five stocks the most interesting from an investment perspective was Ampella because of a belief down this way that all Aussie miners with major offshore assets are targets for takeover bids from Australian companies trapped inside our proposed new tax net.

Minews. Now that is a very interesting theory because there is no doubt that your investors have been undervaluing Australian goldminers working in West Africa.

Oz. A correction could be underway with Ampella the first hint of position-taking by an Australian miner plotting an escape route, though it should be quickly added that other West African stocks did not copy Ampella’s rise. Most fell modestly. Perseus (PRU) slipped A3 cents lower to A$1.89. Adamus (ADU) lost A2 cents to A45 cents, and Resolute (RSG) was A6 cents lighter at A$1.03. Azumah (AZM) added A2.5 cents to A45.5 cents and Castle Minerals (CDT) ended the week steady at A46 cents.

Other gold moves included: Allied (ALD), up A2 cents to A39 cents. Kingsgate (KCN), up A13 cents to A$8.61, and Chalice (CHN), up A1 cent to A48 cents. Going down we saw Excalibur (EXM) drop by A0.2 of a cent to A0.5 of a cent after confirming reports of a major downgrade in resources at its Juno project. At one stage the stock was trading as low as A0.3 of a cent, so someone did a lot of buying late on Friday. Troy (TRY) slipped A2 cents lower to A$2.54, and Avoca (AVO) was A3 cents lower at A$2.12.

Minews. Let’s move quickly through the sectors given that most price movements were not significant. The rest of the iron ore news next, then the base metals, please.

Oz. Mixed results, as mentioned earlier. Iron ore stocks going up included Brockman (BRM) which added A5 cents to A$3.22. Mt Gibson (MGX), was up A6 cents to A$1.61. Murchison (MMX), crept A2 cents higher to A$1.98, and Emergent (EMG) put on A6 cents to A49 cents after positive developments at its Beyondie project. The list of stocks to weaken was somewhat longer, but with no major falls. Fortescue (FMG) lost A4 cents to A4.15. Atlas (AGO) was A7 cents weaker at A$2.01. Giralia (GIR) slipped A9 cents lower to A$2.04 and Iron Ore Holdings (IOH) fell by A19 cents to A$1.82.

Copper stocks were generally weaker with Equinox (EQN) the only stand out performer on the positive side of the ledger with a rise of A25 cents to A$4.40. Sandfire managed a rise of A1 cent to A$3.32. After that, it was all downhill. OZ Minerals (OZL) lost A5 cents to A$1.02. Citadel (CGG) eased back by A2 cents to A32 cents. Exco (EXS) was A1.5 cents lighter at A22.5 cents and Sabre (SBR) fell by A4.5 cents to A38.5 cents. Nickel stocks were equally mixed, but with price movements even more muted. Western Areas (WSA) added A8 cents to A$4.08. Mincor (MCR) lost A5 cents to A$1.68, and Independence (IGO) added A1 cent to A$4.60. Zinc stocks were generally weaker, except Blackthorn (BTR) which added A2 cents to A70 cents, though probably due more to its copper and gold interests. Perilya (PEM) posted the biggest loss among the zincs with a fall of A5 cents to A40.5 cents. CBH (CBH) slipped half-a-cent lower to A23 cents.

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

Oz. As mentioned, Coal of Africa was the stand-out coal stock though useful rises were posted by Whitehaven, up A18 cents to A$5.03. Riversdale (RIV), up A54 cents to A$9.87 and Stanmore (SMR), up A5.5 cents to A75.5 cents. Uranium stocks were generally down though Manhattan (MHC) added A2.5 cents to A72.5 cents, and Paladin (PDN) rose by A2 cents to A$3.89. Extract (EXT) fell A31 cents to A$6.98. Mantra (MRU) slipped A3 cents lower to A$4.61, and Uranex lost A2.5 cents to A17.5 cents.

There were no significant specials to mention. The lithium stocks were mixed. Galaxy (GXY) lost A5 cents to A$1.02 while Orocobre (ORE) added A1 cent to A2.19. Manganese stocks also weakened with OM Holdings (OMH) sliding A5 cents lower to A$1.68 and Spitfire (SPI) easy back by half-a-cent to A12 cents.

Minews. Thanks Oz. Enjoy your tax debate.

June 07, 2010

Getting Scary Again
By Rob Davies
www.minesite.com/aus.html


Just when politicians think they can pluck a few more feathers from the tax goose without provoking too much squawking markets have an uncanny ability to remind why they can’t. Last week metals continued to sell-off and took the LME Index down to 2966, 21 per cent below the peak reached in mid April. A 20 per cent fall is usually regarded as a bear market so this certainly falls into that category. It was of course about a month or so ago that the Australian Government decided that the mining industry could withstand a 40 per cent corporate tax rate. If this drop doesn’t persuade it to think again then maybe the news that Xstrata and AngloGold Ashanti are both reviewing their development programmes in that country in the light of these proposed tax changes will do the trick.

Resource stocks are always easy meat for politicians and the popular press. Either they are making too much money and are seen as easy tax targets or they are accused of making a mess of the environment. The Macondo oil disaster in the Gulf of Mexico has generated the unlikely spectacle of a US President trying to influence the dividend policy of a British multi-national. What is slightly bizarre is while the UK economy is one of the more advanced in the world in terms of its use of technology and finance over 30 per cent of the income into its stock market comes from resource stocks. In many ways it is a third world stock market in a first world economy.

Given this sensitivity to global resource consumption it is little surprise that the LSE indices are closely correlated with base metal prices. Last week it was the turn of the US to put the frighteners on capital markets as jobs growth turned out to be lower than hoped for. However, China is a more important metal consumer than the US and the underlying weakness in demand growth there, as expressed through shipping rates, provides a poor backdrop to metal prices.

Add in comments that Hungary has got a massive debt problem and may have to restructure, i.e. default, on some of its loans it is not surprising that markets turned wobbly again at the end of the week. Isn’t it strange how countries only discover how bad their debt really is after an election?

Not only is the demand side of the mining industry starting to look a bit shaky but the cost side isn’t looking so hot either. According to the Gold Mine Cost report global production costs for gold rose by 20% per cent to US$544/oz in the first quarter of 2010 compared to the first quarter of 2009. Although a big chunk of that of that was due to the rise in the rand those cost pressures will be present across the whole industry. And that’s before taxes go up.

The first half of the year has seen a better strength in metal prices than many were expecting. It might be that the second half of 2010 will not be so pleasant.

Recent Country Stock Market Performance
Wednesday, June 9, 2010

Below we highlight the performance of major equity market indices in 81 countries around the world. While most of the world is struggling, there are 8 countries that are within 1.7% of 52-week highs. Sri Lanka, Chile, Bangladesh, and Venezuela are all basically at 52-week highs. Of the G-7 countries, Germany and Canada are closest to their 52-week highs at about -6%. The US ranks third out of seven at -12.74%, followed by Britain (-13.41%), France (-16.41%), Japan (-17.26%), and Italy (-23.63%). It's not surprising to see Greece the farthest from its 52-week high at -50.15%. Other key countries that are more than 20% away from their 52-week highs include Russia, China, and Spain.

In terms of year to date performance (local currency), Bangladesh ranks first at +36.59%, followed by Estonia (32.86%) and Sri Lanka (31.87%). Of the G-7, Germany is doing the best with a decline of just -0.05%, followed by Canada at -1.74% and the US at -4.49%. Of the BRIC (Brazil, Russia, India, China) countries, India is holding up the best so far in 2010 with a decline of 4.62%. Brazil ranks second at -6.67%, followed by Russia at -7.54% and then China at -21.15%. Greece (-33.44%), Bermuda (-28.33%), and Spain (-26.55%) are down the most of any countries year to date. [AUSTRALIA is down: -9.96%]

To see the table please click the link below:
http://www.bespokeinvest.com/thinkbig/2010/6/9/recent-country-stock-market-performance.html

Any thoughts on where "Dr." Copper is headed to year's end? I'm leaning towards the bear side because of the amount of speculative interest and the rise from the lows to this year's highs.

Not very intersted in the soft commodities... I play gold, have dropped niobium, tantalum, moly, silver, platinum, but continue to hold REEs. Currently scratching my head over met and thermal coal, and have an iron ore exploreco.

SX

June 11, 2010

What Will Happen To Gold Supply If Demand Remains Very High?
By Julian Phillips
www.minesite.com/aus.html [The registration is free]

Investment demand for gold has never been so high, and it is likely to rise still further. Normally when a commodity is in high demand supply is accelerated and holders of that commodity often take profits, thereby increasing supply. Economic history tells us the same, "rising prices and high demand should result in rising supply." When it comes to gold all rules have to be re-written. That's because gold is only part commodity.

From the exploration to the start of gold production takes at least five years, probably nearer ten. That's assuming there is a gold resource available to mine in a gold mining-supportive country of sufficient size to make the mine worthwhile. During the last 15 years of last century, support to such ventures from central banks through bullion banks was so strong that the mines would be loaned the gold they were going to produce. They then sold it forward to the time when the mine would produce and often even further out. This allowed the mine to earn a relatively high gold price, as long as the price was dropping. Then, from production, they repaid the Bullion bank/Central bank the amount of gold they had borrowed.

While wise at the time, it did quickly exhaust the easily mined deposits of gold leaving us with a situation today, where good gold deposits are getting increasingly rare and difficult to mine. Add to this the propensity of governments to wait until the mines do really well then hit them with heavy taxation. This is deterring new investment in gold mining. That's where we are now. The result is that from now on, gold mining companies are hard-pressed to replace the resources they have exhausted. Consequently, newly mined gold production is set to decline from 2010 onwards, irrespective of what the gold price is.

From 1985 until 1999, the gold markets sat under the cloud of potential central banks sales. Central banks across the globe encouraged an atmosphere that expected unrestrained gold sales. Naturally the gold price fell from its US$850 high down to US$275 during that time. Then the "Washington Agreement" was signed which capped European Bank sales at 400 tons a year. The gold market breathed a sigh of relief and the gold price turned to the upside. Sales under this agreement and the next (that terminated on September 26th 2009) at first, did reach the ceilings levels that were set, right up until the last two years of the second agreement (where a target of 500 tons a year had been set). Then they petered out with hardly any sales in the last half of the last year of the Agreement. Since then no significant European central bank sales have taken place. In fact only a total of 1 ton of gold has been sold to date from the inception of the Third Agreement. It can then reasonably be concluded that central banks sales have dried up. In their place have come central bank purchases of 400 tons a year.

As we said at the beginning of this article, demand is very high, primarily from investment demand. Both western jewellery and Indian demand have been low until recently. Both of these markets have eventually accepted the current record price levels as being sustainable. Demand from these two sources has now begun to rise again. It's clear that demand is at a high, without the usual froth that accompanies peak demand. So a combination of peak demand and restricted supply leaves only one potential source of supply and a capricious one at that.

With no other source of supply markets usually take prices to a level where holders of a commodity sell and take profits, in the belief that such prices are not sustainable and will soon fall. Since gold hit the high of $1,215 for the first time, prices did fall, with many forecasting a low price of $850. This didn't happen. Instead a low of $1,050 was seen, before the gold price began to climb again. During that time and until recently 'weak holders' of gold in India did sell and were the main suppliers of that market, in particular. Now they too have accepted current prices as a new 'floor.'

Most of you will have seen adverts for 'gold parties', rather like the old Tupperware parties, where housewives get together and sell old gold that's lain in the attic for years. This has largely run its course now and such supplies are drying out. Once these sellers have sold out, that supply too will dry up too. This source of scrap is not important to the supply side of the gold market.

The next potential source of scrap gold is from the current holders of gold, who bought solely to make an eventual profit. Once they believe prices are as high as they will go, they will sell. These can be termed 'weak holders' in the gold market for long-term investors from central banks, to institutions, to individuals hold gold to preserve wealth, in a world where it is threatened. Such investors hold gold simply to be prudent in the face of uncertainty and instability in the financial world. They may only hold a small proportion of their portfolios in gold. But be sure that they won't sell until certainty and stability are likely to return to the financial world. A look at what's going on now in that world tells us that we may see a squadron of pigs circling the White House at the same time.

June 12, 2010

The Was The Week That Was … In Australia
By Our Man In Oz
www.minesite.com/aus.html [FREE REGISTRATION]

Minews. Good morning Australia, was anybody watching your market last week or was it all about the great mining-tax debate?

Oz. It was actually more than that because the super-tax proposed by our Prime Minister, Kevin Rudd, looks like it might be about to claim its first victim – Rudd himself. All through the week there was a fascinating equal-but-opposite event taking place. Mining company share prices crept higher, in inverse proportion to the sagging popularity of Rudd and his tax. Headline writers have even started using his initial and surname without the full stop with the resulting name, KRudd, pretty much spelling out how he is being referred to, even within his own Labor Party.

Minews. Remarkable. Are you saying the super-tax is dead and now’s a time to start looking at oversold Aussie mining stocks.

Oz. Perhaps, is the best answer to that question, but there’s no need to rush. We have the tax debate to run its course, and there is still a chance that the miners will undo the good work done so far. An example of what might go wrong could be seen in the over-kill category last week when two of the country’s richest people, the mining billionaires Andrew Forrest and Gina Rinehart, mounted flatbed trucks to lead a rent-a-crowd anti-tax demonstration. Given that most Australians dislike the rich as much as they dislike politicians it’s a fair bet that more harm than good was done by Twiggy and Gina pretending to be two of the oppressed masses given that both are down to their last three or four billion dollars.

Minews. So, what next?

Oz. Well, we have Parliament to meet next week in what should be the last time before the election expected sometime between August and October. Then there is the election itself. Each of those steps is destabilising, though right now it’s a 50/50 bet that KRudd gets dumped by his own party before the election, which might restore Labor as a winning force and see the tax return under a new leader, after the election of course.

Minews. Very sneaky. Let’s get back to what we’re supposed to be talking about, your stock market.

Oz. As mentioned, prices moved higher when looked at week-on-week with all of the gains posted after solid falls on Monday. The metals and mining index on the ASX added 1.7 per cent, just ahead of the all ordinaries which rose by 1 per cent, and well behind the star of the week, the gold sector, where the index added 5 per cent. Iron ore stocks trended down. Copper, nickel and uranium stocks were mixed. Coal producers eased, and a handful of new floats actually performed quite well.

Minews. You mean there are still floats moving through the market despite the proposed super-tax?

Oz. There are, at last count there was a queue of 12 miners waiting to start trading on the ASX, adding to the three which listed last week, Renaissance Minerals (RNS) opened and closed at A25 cents, a useful A5 cent (25 per cent) pay day for stags. Renaissance raised A$7 million to help restore production at the mothballed old Radio goldmine near Southern Cross. West African Resources (WAF) played to the crowd with its name given that West African gold is very much in favour down this way. Its A20 cent shares opened at A22 cents and clicked a little higher to close at A24 cents. Mungana Goldmines (MUX), a spin-off by Kagara (KZL), did less well with its A95 cent shares ending the week slightly underwater at A92 cents.


Minews. We’ll keep an eye on your floats, they’re always interesting. For now let’s call the price card of last week, starting with gold.

Oz. There were a few stand-out winners among the gold stocks, led by Kingsgate (KCN) which shot sharply higher after announcing receipt of a Thai government go-ahead for expansion of its Chatree mine. Over the week Kingsgate added an eye-catching A$1.36 to close the week at A$9.97 after briefly scaling the A$10 mark. Avoca (AVO) was another star, adding A23 cents to A$2.35 on news that it is on track to hit its target of 400,000 ounces of annual gold production. Other noteworthy gold moves included: Perseus (PRU) up A21 cents to A$2.10. Adamus (ADU), up A6 cents to A51 cents, and Integra (IGR) which reported high-grade drilling results from its Maxwell project and rose by A1.5 cents to A26 cents. Going down we saw Robust Resources (ROL) drop A17 cents after announcing a plan to buy a bigger share in its Romang Island project. Medusa (MML) lost A29 cents to A$4.30 as doubts creep in regarding its expansion plans, and Ampella (AMX) dropped a surprising A18 cents to A$1.62 after a few very strong weeks. Other downward moves included: Catalpa (CAH), down A10 cents to A$1.37, Troy (TRY) down A4 cents to A$2.50 and Carrick Gold (CRK), down A1 cent, a modest loss after the company announced the death of its founder and guiding force, Frank Carr who, at 62, lost a two year fight with cancer.

Minews. Iron and base metals next, please.

Oz. One iron ore stock rose, a handful held their ground, but the trend was down, though not strongly. Gindalbie (GBG) was the odd stock out, adding A1 cent to A$1.07. Batavia (BTV) and Northern Iron (NFE) opened and closed at A18 cents and A$1.44 respectively. After that it was one-way traffic, including: Fortescue (FMG), down A4 cents to A$4.11. Atlas (AGO), down A9 cents to A$1.92. Brockman (BRM), down A2 cents to A$3.20. Iron Ore Holdings (IOH), down A9 cents to A$1.73, and BC Iron (BCI), down A5 cents to A$1.53.

Copper stocks were mixed, but the sector was the pick of the base metals with the price of the metal seeming to have turned a corner, perhaps getting ready to challenge the US$3 per pound barrier. Pick of the Australian copper stocks was CuDeco (CDU) which added A44 cents to A$4.43. Exco (EXS), which has a mix of assets including the recently opened White Dam goldmine in South Australia, rose by A2.5 cents to A28 cents. Discovery (DML) added A1.5 cents to A75 cents, and Rex (RXM) reported more positive drilling news from its South Australia copper exploration projects, rising by A4 cents to A$1.26. Going down we saw Equinox (EQN) slip A3 cents lower to A$4.37. Sandfire (SFR) lost A7 cents to A$3.25. Citadel (CGG) eased by back by A1.5 cents to A30.5 cents, and OZ Minerals (OZL), shed A2 cents to A$1.02.

Nickel and zinc stocks were as equally mixed as their copper cousins. Western Areas (WSA) lost A11 cents to A$3.95 despite opening a new mine. The problem seems to have been that all the talk at the opening was about the proposed super-tax on profits. Mincor (MCR), which kept its corporate head down last week, added A3 cents to A$1.71. Minara (MRE) also added A3 cents to A$1.71 and Panoramic (PAN) rose by A2 cents to A$2.15. Zinc moves were minor either way. Perilya (PEM) lost A1 cent to A39.5 cents, and CBH (CBH) added half-a-cent to A23.5 cents. Best of the zinc, though it is also very much a copper and gold story, was Blackthorn (BTR) which added A3.5 cents to A73.5 cents.

Minews. Coal, uranium, specials and close, please.

Oz. Apart from Riversdale (RIV) adding A40 cents to A$10.27 and Centennial (CEY) which gained A7 cents to A$4.43 all coal stocks lost ground. Coal of Africa (CZA) dropped A25 cents to A$1.80. Macarthur (MCC) fell A24 cents to A$11.60, and Whitehaven (WHC) lost A32 cents to A$4.61. Uranium stocks were all over the shop. Manhattan (MHC) lost A4 cents to A68 cents. Paladin (PDN), added A6 cents to A$3.95, and Extract (EXT) crawled A2 cents higher to A$7.

There were no specials worth mentioning but for followers of the lithium plays Orocobre (ORE) added A6 cents to A$2.25, and Galaxy (GXY) lost A4 cents to A98 cents.

Minews. Thanks Oz. Enjoy your tax war.

June 14, 2010

The Search For Safety: Gold Continues To Strengthen, But The Outlook For Base Metals Is More Uncertain
By Rob Davies
Source >> www.minesite.com/aus.html

Trust, or the lack of it, seems to be the defining feature of capital markets these days. BP’s novel approach to uncertainty, admitting it does not have all the answers yet, has not played well. President Obama just want to kick someone’s ass, though he didn’t specify if that was that was before or after the buck had stopped with him. In most cases lack of trust is reflected in price, and that is certainly the case with BP. But it is also the case with many other securities.

Top of the list of securities with a lack of trust priced in are those for the European banks. Unlike US and UK banks, this group has never been stress tested. Despite, or perhaps because of that, the market is increasingly coming to the conclusion that many of them have far too many Greek bonds for their own good, and that their property portfolios probably would not want to be seen in daylight.

But in spite of all the uncertainty, according to the Financial Times there is one activity that is booming, and that is the storage of gold bullion. The FT reports that vaults are bulging, not least with the 42 million ounces now owned by the SPDR Gold trust. Such demand helped push gold to a new high of US$1,251 an ounce last week, and, given the nervousness in the market, there seems to be no reason to think the strength in the gold price will dissipate any time soon.

Quite what happens to the gold sitting in the vault of a failed bank is unclear. Would owners be asked to form an orderly queue behind the receiver, as creditors of Lehman are still doing?

While the current environment favours precious metals, it is not a good one for base metals. The LME index fell a further two per cent last week, leaving copper trading at US$6,290 a tonne. It was only a few months ago that copper was flirting with US$8,000.

Meanwhile the 20 per cent decline in the aluminium price from US$2,400 a tonne in mid April to the current US$1,905 has provoked Mr Deripaska of Rusal, the world’s biggest producer, to threaten the shutdown of two to three million tonnes of capacity in the next two quarters. That sort of response is exactly what the industry needs and will, if enacted, keep the market tight.

In the longer-term, the dearth of project finance for new mines will undoubtedly act to limit new capacity. So far, equity markets have done the job of stumping up the cash. But this is high cost money and not all promoters will go down that route.

Right now banks are not in the business of financing risky things like new mines. And even when funding is forthcoming, endless due diligence and requests for all price risks to be hedged drags out the process. Maybe the banks would just prefer to wait for their Greek bond portfolio to come back into the black before doing anything scary, like lending money for new businesses?

Risk aversion does carry its own risks though. President Obama’s moratorium on new drilling to protect him from anymore oil slicks is surely creating the potential for a significant rise in the oil price.

If one twentieth of the world’s population insist on consuming one quarter of its oil then it will become increasingly dependent on oil from places like Russia, Iran and that other Gulf. And that will carry a very high price indeed, and perhaps isn’t really what the President wants after all.

Bespoke's Commodity Snapshot
Tuesday, June 15, 2010

Below we highlight our trading range charts for ten major commodities. For each chart, the green shading represents between two standard deviations above and below the commodity's 50-day moving average. Moves above or below the green shading are considered overbought or oversold.

Oil has bounced off of oversold levels in recent days, but it is still closer to the bottom of its trading range than the top. Natural gas, on the other hand, continues to surge higher, and it is now trading well into overbought territory. Gold remains in a strong uptrend, and it is pretty close to the top of its range. Platinum really sold off sharply when equity markets took their dive, and it is just now starting to recover. Silver is just about in the middle of its range.

Corn, copper, and wheat are currently in downtrends and have just bounced slightly in recent days. Finally, coffee has made a huge move higher this week and is trading at a fresh 52-week high.

To view the charts, please click the link below:
http://www.bespokeinvest.com/thinkbig/2010/6/15/bespokes-commodity-snapshot.html

Gold vs Dollar Correlation
Friday, June 18, 2010

With gold trading at a record high, we wanted to highlight the shifting correlation between it and the US Dollar. Normally, when gold rallies, the dollar declines and vice versa. However, as the chart below illustrates, gold and the dollar have become increasingly unlinked. In the chart, positive readings close to one indicate a strong positive correlation, while readings closer to negative one indicate a strong inverse correlation. The current level of -0.18 indicates a very weak inverse correlation.


To view the chart, please click the link below:
http://www.bespokeinvest.com/thinkbig/2010/6/18/gold-vs-dollar-correlation.html

June 19, 2010

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

Minews. Good morning Australia. Sanity seems to be returning to your market.

Oz. Up to a point it does, yes. The great mining tax debate remains unresolved, though both sides are now showing a bit of give. The government has been offering special deals to a handful of miners, although not the big three, BHP Billiton, Rio Tinto and Xstrata. Next week could see some of the other miners break ranks and side with the government. And, a general hope that we might see a touch of stability was reflected in share prices, as there was a general uplift across all sectors, with gold, coal, and iron ore leading the way.

Minews. Surely splitting the small miners from the big three might not be such a bad thing?

Oz. You would think so. The two groups have little in common. But there is something grubby about the way the big miners are effectively being hit with a retrospective tax on investments made over the past 20 years. However, when you're as big and ugly as BHP Billiton, Rio or Xstrata, you should be able to look after yourself. At the other end of the market, for investors in small to medium stocks, the revised tax structure could represent a rather positive signal, and it wouldn't be at all surprising to discover that some of the buying we saw last week was by early-bird speculators taking positions in stocks that they deem likely to emerge as winners.

Minews. All of which is roughly in line with what you were saying last week was likely to happen.

Oz. No prize for that observation – the government was being hit so hard in opinion polls that it had to deal or risk a backbench revolt. And on the market last week we might have seen the first financial impact of the government splitting off the big miners from their smaller cousins. Overall, the metals and mining index rose by a pleasing 2.4 per cent, which was roughly in line with the performance of the biggest miners. Much better rises came in the second and third tier stocks, and several gold explorers/miners actually reached new 12 month share price highs as gold hit a record in both US and Australian dollar terms. At Friday's closing price of US$1,258 an ounce, gold in Australian dollars was selling for A$1,445, with the Aussie dollar itself playing its old trick of tracking the gold price. Over the week our dollar added US2 cents to reclaim a rate above US87 cents, and 58 British pence.
Minews. Which makes gold the obvious starting point for this week's call of the card.

Oz. No argument there. Among the gold companies that hit share price highs last week were Avoca (AVO), which rose to A$2.59 before easing to close the week at A$2.56, a gain of A21 cents, Kingsgate (KCN), which added A53 cents to close at a new peak of A$10.50, and Perseus (PRU), which closed at its new high of A$2.35, a gain of A20 cents for the week. Elsewhere, Kingsrose (KRM) hit a peak of A98 cents on Friday before slipping back to end the week at A95 cents for a gain of A13 cents. Silver Lake (SLR) did much the same, peaking at A$2, but closing at A$1.97, up A24 cents. St Barbara (SBM) was back in the winner's circle with a modest rise for the week of A1 cent to A38 cents, but did set a fresh 12 month high of A39 cents during Friday trade. And Sihayo Gold (SIH), which hasn't been mentioned here before, added A3.5 cents to close at its new peak price of A14 cents as interest grows in its gold projects in Indonesia.

Minews. Strong stuff. Apart from stocks setting new share price highs it's fair to assume that the rest of the sector headed upwards as well, I presume?

Oz. Pretty much so. There was the odd decline, but nothing significant. First among the other stand-out movers wase Catalpa (CAH), up a very strong A24 cents to A$1.61, after a management tour of potential investors in Singapore and Hong Kong. It was followed by Adamus (ADU) up A2.5 cents to A54 cents, Ramelius (RMS), up A1.5 cents to A47 cents, and Chesser Resources (CHZ), another stock we haven't heard much about, which rose A7 cents to A39 cents thanks to interest in its gold projects in Turkey. Going down, there were a handful of stocks which shed a cent or two. Chalice (CHN) dropped A2 cents to A43 cents, and Troy (TRY) slipped A2 cents to A$2.48.

Minews. Across to iron ore, please.

Oz. Shares in iron ore companies were mostly up, perhaps because there’s a feeling that while the big boys of iron get whacked with a super tax, the small fry slip may away with a special deal. Atlas (AGO) and Gindalbie (GBG) were among the stronger movers. Atlas rose A23 cents to A$2.15 and Gindalbie rose A9 cents to A$1.16, both better off in anticipation of positive media coverage following planned site visits.

Fortescue Metals (FMG) was also back in the news for a slightly tricky reason, persevering with its expansion projects having previously said they were on hold because of the tax threat. That news lifted Fortescue shares by A26 cents to A$4.37. Other iron movers included Giralia (GIR), up A11 cents to A$1.98, BC Iron (BCI), up A7 cent to A$1.60, Murchison (MMX), up A20 cents to A$2.15, Mt Gibson (MGX), up A10 cents to A$1.63, and Brockman (BRM), up A7 cents to A$3.27. The only iron ore companies that were weaker were Iron Ore Holdings (IOH), down A4 cents to A$1.69, and Ironclad (IFE), down A1 cent to A98 cents.

Minews. The base metals next, please.

Oz. Nickel companies led the base metals complex higher, but copper and zinc stocks were also stronger. Among the nickels, Mincor (MCR) led the way after reporting fresh exploration success at its Kambalda mines. Its shares rose by A18 cents to A$1.89. Western Areas (WSA) was also strongly supported, putting in a rise of A31 cents to A$4.26. Elsewhere, Minara (MRE) added A8 cents to A70.5 cents, and Mirabela (MBN) gained A21 cents to A$2.32. Good as those moves were, the real surprise among the nickel stocks was that Independence (IGO) added A20 cents to close at A$4.82, despite negative comments about the Tropicana gold project from partner Anglo American, which reckons the threatened super-tax will push Tropicana down its list of preferred developments.

Copper stocks were all up, apart from Resource and Investment (RNI), the small explorer which has acquired a tenement adjacent to the rich Doolgunna project owned by Sandfire Resources (SFR). Resource and Investment slipped A2.5 cents to A19.5 cents, although Sandfire itself added A17 cents to close at A$3.42. Other movers among the copper stocks included Citadel (CGG), up A2 cents to A32.5 cents, Sabre (SBR), up A7 cents to A42 cents, Discovery (DML), up A3 cents to A78 cents, OZ Minerals (OZL), up A3 cents to A$1.05, and Equinox (EQN), up A3 cents to A$4.40.

Zinc stocks moved modestly. Blackthorn (BTR), which also has copper and gold assets in its portfolio, added A1.5 cents to A74 cents. Perilya (PEM), was up A3.5 cents to A43 cents. Kagara (KZL) gained A3 cents to A55.5 cents, and Terramin (TZN) put on A1.5 cents to A59.5 cents.

Minews. Now for the energy twins, coal and uranium.

Oz. There were strong upward moves from most coal stocks, and a few handy rises from selected uranium explorers. The best of the coal stocks were Centennial (CEY), up A28 cents to A$4.71, Whitehaven (WHC), up A32 cents to A$4.93, Coal and Africa (CZA), up A16 cents to A$1.96, Macarthur (MCC), up A90 cents to A$12.50, Riversdale (RIV), up A53 cents to A$10.80, and Stanmore (SMR), up A8 cent and A81 cents. Manhattan (MHC) was the pick to the uranium companies, rising by A19 cents to A85 cents. Berkeley (BKY) added A5 cents to A$1.20, while Paladin (PDN) crept up by A5 cents to A$4.00. Extract (EXT) added a modest A3 cents to close at A$7.03.

Minews. And specials to close, please.

Oz. Not much there, except a bit of interest among the few platinum stocks that are listed on the ASX. Nkwe (NKP), added A7 cents to A58 cents as the price of platinum rode on the coat-tails of gold, and Platinum Australia (PLA) put on A6 cents to A75 cents.

Minews. Thanks Oz.

June 21, 2010

BP’s Gulf Oil Spill Will Cause Oil Prices To Go Up, And The Attractiveness Of The USA As An Investment Destination To Go Down
By Rob Davies
www.minesite.com/aus.html

Here’s a premise. Companies survive and thrive in democratic capitalist countries by providing goods and services. These are then sold for prices that, all being well, exceed the cost of providing them. If the goods turn out to be faulty, then the supplier can be expected to suffer costs, fines and penalties, as defined in the legal and business code of the given country in which the transaction originally took place. States with a common law legal system generally provide a more benign business environment than those using Roman law, but commerce thrives under both systems.

Go off the beaten track into parts of the third world where the legal code is, shall we say, more flexible, and business practice is more opaque, and the practice of making money is correspondingly harder. A less developed private sector means that generally these countries tend to be poorer, as there is less clarity on the business of commerce. One reason many companies do business in the US is because it is a large market of very rich people with clear rules.

Not any more.

Last week President Obama extorted, persuaded, cajoled or simply bullied a large multi-national company into putting US$20 billion into the hands of a third party. As yet no inquiry has been held into the Macondo oil disaster and certainly no one has admitted liability or even been found guilty of any mistakes in procedures. The precise legal basis for this “transaction” is not at all clear.

In practice everyone could see that the chief executive of BP would be tried in a Kangaroo Court in front of US politicians that manage even to make MPs here in Britain look good. The company was subject to an unprecedented adverse PR campaign with the clear intention of preparing the ground for the deal.

Whether BP is guilty of anything is now almost irrelevant. The US has sent a clear message to oil companies, and others, that it can impose arbitrary penalties at will. Without a doubt that will act as a deterrent to oil exploration in US territory over and above the suspension of deepwater offshore drilling.

In practical terms the sequestration of assets has increased the cost of capital to the oil industry. On top of that the reduction in areas that can be explored for oil will limit the opportunity for new discovery. A higher cost of capital for any commodity will increase its marginal cost. What makes this situation even worse is that even higher prices will not open up fresh exploration acreage.

So oil prices now have two reasons to go up.

Now to mining. Since energy, and oil in particular, accounts for about one third of mine production costs this decision will lead to higher metals prices. However, few mining companies will be encouraged to start spending exploration dollars in the US. All of a sudden, somewhere like Paraguay looks a lot more appealing.

In the short-term, the events of the last few months will not be material. Last week base metals prices rose by a modest 1.5 per cent. In overall terms the weak economic position of many countries, and the ongoing possibility of more currency devaluations, still favours precious metals over base metals.

There is no doubt though that the events of the last week mean that from now on commodity prices will gradually start to include an “environmental” premium. But if politicians want resources to be produced at no ecological risk they need to tell their voters it will cost them money. Don’t expect a rush for the podium.

Must read !

June 24, 2010

Kevin Rudd Is Ousted As Australian Prime Minister, And Compromise Now Looms In The Great Australian Tax Kerfuffle
By Our Man in Oz
www.minesite.com/aus.html [Registration is free]

Mining 1. Rudd 0. In football terms that’s the score in Australia today after the (now former) Prime Minister, Kevin Rudd, was red-carded by own political party after kicking a spectacular own goal in the form of an attempted 40 per cent super tax on mining.
In Rudd’s place enters Australia’s first female PM, Julia Gillard, bearing an olive branch and a plea for a truce with the mining industry, an industry which has clearly won a bruising advertising and public relations war with Rudd.

But, before anyone with an interest in mining cracks the Moet, the detail of what Ms Gillard is offering has yet to be seen, and initial euphoria on the ASX faded as a few harsh realities dawned. For one thing, it’s worth factoring in several statements from Gillard in her acceptance speech that Australians deserved “a fairer share” of the profits made from mining. What’s more, the Treasurer, Wayne Swan, a man with as many fingerprints as Rudd on the original super-tax proposal will lead fresh negotiations with the miners, while there’s always the possibility that Gillard might prove so popular with the electorate that she restores support for a tatty Labor Government and snatches victory from the hands of the pro-mining Liberal Party at an election expected within months.

Those three points explain why shares in some companies like Atlas Iron (AGO) ticked up on the news, rather than soaring. Atlas added a fairly meagre A11 cents to reach A$2.25, a gain of 5.1 per cent. Still, given the turmoil in the Australian mining sector since the super-tax was announced on May 2nd, most reasonable investors would gratefully acknowledge that a one day gain of five per cent is a reasonable win.

Some other Australian-focussed companies did better than Atlas. Some worse. Fortescue Metals (FMG) added A10 cents to A$4.53, Avoca (AVO) gained A3 cents to A$2.58. Mincor (MCR) rose by A4 cents to A$1.86. But Silver Lake (SLR) lost A6.5 cents to A$1.83. The best gains were at the top end of town where BHP Billiton (BHP) added A39 cents to A$39.53 and Rio Tinto (RIO) rose by A96 cents to A$71.50. If speculation proves correct it is the big miners which have most to gain from a watered down super-tax, especially in the application of the tax to existing, largely-depreciated, assets. Overall the metals and mining index added a pleasing 1.6 per cent, especially when measured by the 0.2 per cent rise in the all ordinaries index, on a day that a deeply unpopular PM is replaced by a far more popular leader.

Time is short for Gillard to repair the damage done by Rudd to Australia’s credibility as a mining-friendly country. She has to call an election by early next year, but it is traditional for national elections to be held in the second half of the year. It’s the time factor which will be weighing on the mining lobby as it analyses Gillard’s bouquet olive branches. These include an immediate end to the government’s anti-mining advertising campaign, and an offer of fresh consultation with the miners.

In return she asked that the miners cancel their advertising too. This did more to destabilise Rudd than any other factor, even including his unilateral dumping of a carbon emissions trading scheme, and his astonishingly wasteful economic stimulus spending on household roof insulation and school hall building programmes. In her words, Gillard said: “Today, I will ensure that the mining advertisements paid for by the government are cancelled. In return, I ask the mining industry to cease its advertising campaign as a show of good faith and mutual respect”. She added that: “to reach a consensus we need to do more than consult, we need to negotiate. We must end this uncertainty which is not good for this nation”.

Politically, all good stuff. The devil will be in the detail, and Gillard’s first big mistake could be that she has asked Treasurer Swan, who has added the title of Deputy PM to his CV, to handle the fresh talks with miners, alongside the Resources Minister, Martin Ferguson. Minesite’s Man in Oz has been around long enough to know that most people find it difficult to turn the other cheek on a man who has just spent the past month slapping your face with a gauntlet, in this particular case a gauntlet holding a copy of the Tax Act. Widely seen as a bit of a goose, Swan is a career Labor politician, a species well-known in Britain. Ferguson is different, and almost certainly more pro-mining, which does offer some hope for a breakthrough.

So, what we appear to have is a government which has panicked in the face of a blistering attack from the miners, and been shocked by the collapse of its electoral support. The full horror of the 40 per cent super-tax has faded, but the principal of the tax has not gone away. Talk among miners is that they can live with a “resource rent tax” of between 20 and 30 per cent, so long as they win offsetting rebates for mineral exploration costs, and that the tax only applies after a fair return is earned on capital.

The original plan defined a fair return as the long-term government bond rate of 5.75 per cent, which was clearly a ridiculous academic concept. The new “starting” return is likely to be a return of between 12 and 15 per cent on capital, before the resource tax cuts in. That, however, is pure guesswork by Minesite’s Man in Oz. He, like you, now waits to see the next act in a fabulous story of money, power, betrayal and tax. All that’s needed to round the story off is for a Welsh-born girl to migrate to Australia where she rises to become the country’s 27th PM – oh, sorry, we’ve got that too.

June 26, 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. What a week you’ve had, with a new Prime Minister, the promise of a truce in the mining tax wars, and the loss of the entire board of Sundance Resources in a plane crash.

Oz. It has been an interesting time, in the true sense of that famous Chinese curse. The Sundance crash in Cameroon was a shocker, and a reminder of the risks miners take every day when working in remote locations such as central Africa. Sundance (SDL), naturally, remained suspended from trading at its own request all week.

As for the political execution of former prime minister Kevin Rudd by his own party, well, that really was a remarkable act of political brutality and electoral expediency. The sacking of Rudd was very much the result of a personality clash. One man, universally disliked by a nation. No-one is mourning his departure, which means investors ought to be on full alert as his successor, our first female PM, Julia Gillard, takes the reins. Her early comments about the deeply-disliked mining tax have been positive, but there seems no chance that it will disappear off the policy agenda altogether. Mining is seen as an easy target by voters in Australia’s biggest cities, and the government needs cash from the miners to get its budget back into surplus after two years of anti-recession spending.

Minews. How did your market react to all the political games?

Oz. Initially with a sense of relief, but by Friday there was a cooler mood, as investors realised that much of what happened mid-week was a deck-chair re-arranging job ahead of the national election. The real fear is that Gillard will lull the miners into a false of security. Make all the right noises about consultation and negotiation which will eliminate the mining tax as an election issue, and then call a snap poll. Early newspaper sampling of the electorate’s mood indicates that Gillard could be the winner the Labor Party is looking for, which means tough times remain ahead for the miners.

Minews. Okay, enough politics. Time to look at the market.

Oz. For such a tumultuous week there is really very little to talk about in terms of market news, largely because the political shenanigans took all the limelight, but also because we’re close to the end of the financial year. Overall, the ASX, as measured by the all ordinaries, ended down about three per cent, but that was largely down to the banks continuing to react to global factors. The mining index slipped one per cent lower, held up by the gold index, which added one per cent. Most gold moves were modest, either way, but a strong opening can be expected on Monday because the gold price rose sharply after we had closed. As Australian investors were toddling off to the pub on Friday evening gold was around US$1,238 an ounce. When they woke up on Saturday morning it was back up to US$1,258 per ounce.

The pick of the gold stocks last week was a Minesite member, Troy Resources (TRY), which as we noted during the week, was flying under investor radar screens. Someone must have read our positive report because Troy added A14 cents to close at A$2.62. Kingsrose (KRM) was another favourite, adding A10 cents to A$1.05 as it moves to with a few weeks of the first gold pour at its Indonesian mine. After those two the moves become rather boring, as quite a few gold companies ended the week where they had started. Gains were posted by Perseus (PRU), up A6 cents to A$2.41, Newcrest (NCM), up A66 cents to A$36, Ampella (AMX), up A6 cents to A$1.74, and Catalpa (CAH), up A2 cents to A$1.63. Also on the up Focus (FML) rose half a cent to A5.3 cents, and Resolute (RSG) rose A9 cents to A$1.12. Losses were posted by Allied (ALD), down A2.5 cents to A34.5 cents, Silver Lake (SLR), down a sharp A18 cents to A$1.79, Medusa (MML), down A5 cents to A$4.40, and Azumah (AZM), down A1.5 cents to A44.5 cents.

Minews. Not much to get excited about there. Let’s move through the sectors quickly. Iron ore first and then the base metals, please.

Oz. Iron ore produced a similar picture to gold. Some up, some down, but nothing extraordinary. On the plus side we had Iron Ore Holdings (IOH), up A8 cents to A$1.77, BC Iron (BCI), up A8 cents to A$1.68, FerrAus (FRS), up A5 cents to A83 cents, Atlas (AGO), up A3 cents to A$2.18, and Gindalbie (GBG), up A4 cents to A$1.20. On the negative side we had Brockman (BRM), down A12 cents to A$3.15, Giralia (GIR), down A7 cents to A$1.91 and Fortescue (FMG), down A1 cent to A$4.36.

The movement in the Fortescue share price was probably the best measure of what a strange time we experienced last week. While the shares ended down by just A1 cent it was actually up by A28 cents at A$4.63 on Thursday as investors greeted the departure of Rudd. On Friday, as concerns grew about the “deck chair syndrome”, and Gillard even made noises about keeping Rudd in her Ministry, Fortescue then went into a sharp retreat which wiped out all of the gain.

Over among the base metals it was slightly worse. A trawl through the copper, nickel and zinc stocks shows only one winner, and then only by the smallest margin possible. CBH (CBH), the oft-troubled zinc producer added half-a-cent to close at A24 cents. After that it was all down, or steady. Staying with zinc, Terramin (TZN) dropped A1 cent to A58 cents, Ironbark (IBG) fell A3 cents to A16 cents, and Kagara (KZL) slipped A2 cents lower to A53 cents.

Copper and nickel stocks were all weaker. Citadel (CGG) lost A4.5 cents to A28 cents after raising A$250 million for its Saudi copper and gold projects at A29 cents a share. Equinox (EQN) slipped A10 cents lower to A$4.30. Sabre (SBR) fell a sharp A10 cents to A32 cents, despite reporting positive news on the exploration front. Sandfire (SFR) was A22 cents weaker at A$3.20, and OZ Minerals (OZL), eased by A5 cents to A$1.00. Among the nickels, Mincor (MCR) fell A9 cents to A$1.80, Independence (IGO) fell A15 cents to A$4.70, and Western Areas (WSA) dropped A22 cents to A$4.02.

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

Oz. Coal stocks were mixed, uranium stocks were all down. Riversdale (RIV) rose A41 cents to A$11.21 to top the coal sector. Whitehaven (WHC) rose A9 cents to A$5.02. Among the losers were Stanmore (SMR), down A9 cents to A72 cents, Macarthur (MCC), down A41 cents to A$12.09, and Coal of Africa (CZA), down A11 cents to A$1.85.

Extract (EXT) posted the heaviest fall among the uranium stocks, dropping by A35 cents to A$6.68. Manhattan (MHC) lost A9.5 cents to A76.5 cents. Paladin (PDN) fell by A24 cents to A$3.76, and Uranex (UNX) lost A1.5 cents to A15.5 cents. There were no specials of note.

Minews. Thanks Oz.