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February 04, 2010

Diary Of A Private Investor At Indaba: Interest Aplenty In Gold, Coal, And Iron Ore

By Susie Boeckmann
www.minesite.com/aus.html

On day one the crowds pouring in and the South African Minister of Mines, Susan Shabangu, opened with a speech saying that mining companies would “not be nationalised in her lifetime”, but said she would not oppose the proposed 35 per cent increase in Eskom’s electricity charges as this is necessary to upgrade and improve power in S.A. over the coming years.
In the exhibition hall it was noted that there were more service companies than mining companies with booths. Many mining companies are holding meetings all around town so they can remain flexible and confidence prevails, with many private service companies commenting that the phones are now ringing regularly and business is moving, in spite of worries about China and America.
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Chalice Goldmines is making good progress in Eritrea and own 80 per cent of operating company Sub Sahara, with Dragon Mining at 20 per cent. They have a 900,000 ounces of JORC compliant orebody, have completed the scoping study and expect feasibility study in June/July. What makes this exciting is that Chalice is on the same ‘Nubian Shield’ as Centamin Egypt. Chalice has A$6 million in the bank.

Agrekko is a worldwide company supplying generators and temporary power increasingly to the mining industry. If there are world disasters they move in with power generators of every size. Unfortunately they are in their closed reporting season and results expected on Monday but with all the power problems increasing especially in South Africa and other remote areas this is a company that can only grow in this part of the world. Power is a worry to all and the comments that Eskom will increase the electricity prices by 35 per cent made one risk management consultant comment that if this was the case every ferro chrome and aluminium producer will be out of business in three years in S.A.

Rangold was a popular stand and it was good to hear that Mark Bristow visits Kinsasha at least every month to brief the government on progress at the recently acquired Moto Mine. This hands-on approach speaks for itself with the success of Randgold to date.

Perseus was another company which created a lot of interest with its two million ounces of reserves and five million ounces of resources, and plan to start producing mid 2011. The mine will be open pit leading onto multiple pits. If the company gets that far – the predators are circling.

On the subject of takeovers, First Quantum has finalised its acquisition of Kiwara. Kiwara was a small copper exploration company in Zambia which had fantastic grades in initial drilling. It will be interesting to see how F.Q. now manages with the takeover of the Ravensthorpe nickel operation that it bought off BHP Billiton. The company has entered into international arbitration against the fine recently levied on it by the DRC government at the Frontier copper mine with a dispute over mining rights. Overall First Quantum produced over 130,000 ounces of gold for nine months of 2009, and over 275 tonnes of copper over the same period.

Rockwell Diamonds (TSX) is very busy showing that it has completed a successful capital raising for between C$13.2 million and C$16 million. The company has reopened two of its diamond mines in the Kimberly region. The view on diamonds is that there will be a shortage of rough stones in a couple years’ time, so that sector is beginning to come to life again.

Coal of Africa is the envy of many, having finally signed and completed on some more coal leases and the company’s share price duly jumped by 17 per cent. London broker Evolution doubled its price target for the company to 220p.

And coal seems to be the place to be right now. One project development director at BHP Billiton said that that if the company could stick to producing just coal and iron it would be great, as the company could make 10 times the amount on iron ore and coal than it can on copper. Whether this was an official BHP Billiton view wasn’t clear.

Another company which is gaining interest is Aim-traded Baobab Resources which is based in Mozambique. The company has a portfolio of mineral projects exploring for iron ore, base and precious metals. The results are beginning to show, with high grades for iron, vanadium and titanium coming through at the company’s Tete magnetite project. Baobab is based near Tete and shares license boundaries with Vale and Riversdale, both of which have mega coal projects on the go out there. Power is abundant and infrastructure refurbishment well on hand. In 2008 Baobab entered into a strategic partnership with the IFC, the corporate arm of the World Bank, giving both corporate and project finance. The IFC has a long view, and believes that Tete will become the industrial hub of Southern Africa, particularly given the local hydro power and coal projects and the rail link from the interior to the coast. Baobab has money in the bank after a couple of London capital raisings and it’s ‘drills away!’ in April after the wet season.

Dinner was held at the Vergelegen Wine Estate owned by Anglo. It was an elegant, invitation only, affair in the most beautiful setting. The gardens and trees are absolutely splendid, full of colour, with huge camphor trees lit up all around. The Dutch style house was really worth a visit and dinner was served for 800 in a huge marquee on the lawn. Cynthia Carol greeted us but as she had been one of Indaba’s early speakers, was welcoming with very little voice left!
 
February 01, 2010

There May Be Wobbles Ahead, But Gold Remains The One Part Of The Equation That Cannot Be Tampered With

By Rob Davies
www.minesite.com/aus.html

Someone once said that there is always a bull market going on somewhere. Well, last week it certainly wasn’t in the metals markets. Bizarrely, the cause of the weakness in metals was the markets finally giving up hope on Greece. That put pressure on the euro, which fell by 1.6 per cent against the dollar. A strong dollar usually means weaker metals prices. At least in dollar terms, as the greenback rises values in other currencies will remain at similar levels.
Metal prices have been heading for a correction for some time. Even the fan club at RBS, under the guidance of Nick Moore, expect prices to consolidate this year, so the near nine per cent drop over the week in copper, to US$6,840 a tonne, should not have been wholly unexpected. Even so, it wasn’t very nice and it did no favours to the miners, until they put on a late rally on Friday.

In percentage terms the drop suffered by lead was similar to that suffered by copper. Lead was off by 9.6 per cent to US$2,055. Zinc did even worse, and dropped by dropped 12.1 per cent to US$2,150 a tonne. Aluminium and nickel escaped relatively lightly, however. Aluminium dropped by 5.9 per cent to US$2,097 per tonne, while nickely fell by 3.5 per cent to US$2,097 a tonne.

What makes these downward moves somewhat odd is that they happened in a week when the US recorded exceptionally strong economic growth. The latest data shows that the US economy grew at a rate of 5.7 per cent over the fourth quarter of 2009. As ever, the trick to understanding the data is to know what the market was expecting in the first place, and what it was not. The US growth figures were expected. What upset the market was that China denied it was going to refinance Greek debt after the Greeks dropped strong hints it was. As a consequence spreads on Greek bonds shot out to 400 basis points and the euro took a hit.

No one expects the euro to collapse because the Greeks have been economical with the actualité – no one’s surprised about that fast and loose approach in any case. But this situation does remind investors that the euro is actually a political fudge masquerading as an economic solution. Europe is saying let’s pretend Greece has a similar democratic and economic system as the rest of developed Europe, and let’s let Greece pretend to agree.

The more that compromise is probed and stretched the more strain it will put on the euro. That can only depress it relative to the dollar, which is anyway looking a lot better than the yen as the credit rating agencies are now starting to put Japan on negative watch.

The weak reaction of gold to all this tension is at first glance a little odd. Is the dollar a much better bet simply because everything else looks a bit worse? Not really. Nothing has actually happened to boost the greenback. It just looks safer in relative terms. Gold, even at US$1,076 an ounce, is the one part of the equation that cannot be tampered with.

So, over the next few months, and more, it would not be a surprise to see some of the recent confidence surrounding the global economic recovery drop away a little. That could put more downward pressure on base metals, due the metals’ economic sensitivity, and because their prices have already discounted a rosy scenario.

It might well be that higher levels of uncertainty could well translate into higher precious metal prices, as some supposed certainties start to unravel. For example, emphatic statements of support for Greece by senior politicians in the Eurozone might be viewed by some as a buy signal for gold.
 
February 05, 2010

Treasure Hunting At Indaba: Diary Of A Private Investor, Day Two

By Susie Boeckmann
www.minesite.com/aus.html

With over 4,000 delegates converging on Cape Town for Indaba and many having gone on to Livingstone for the All Africa Conference it seems suddenly much quieter in the aftermath. But deals and announcements are coming thick and fast. Sylvania and Jubilee have signed an agreement regarding the Conroast technology. Jubilee chief Colin Bird was conspicuous by his absence this week, so rumours circulated that something was afoot. He also signed off Kiwara to First Quantum. FQ is a growing mining and metals company engaged in mineral exploration, development and mining. The company currently produces copper, gold and sulphuric acid and expects to become a significant nickel producer by 2012. It operates in Zambia, DRC and Mauritania, with additional projects to be added in Finland, DRC, and Zambia. The company has a market cap of around C$7.6 billion and is quoted in Canada and London.

A preponderance of different corporate and project risk assessment companies and law firms were busily writing notes and huddled in meetings throughout this year’s Indaba. One example was law firm White and Case, a company which specialises in representing people coming into Africa with money to buy resource projects, and which has offices in Russia, Shanghai, Paris, London, and Johannesburg. A very global industry!

There were hardly any Chinese at the conference this year. One that was spotted was representing the Anhui Uni-pacific Nmetal and Minerals Import & Export Company Limited which is an iron ore trading company. He was handing around a leaflet amongst a group that included Doug Willock, the chief executive of Polar Star Mining Corporation and who talked to him in fluent Chinese. This was a little surprising as Polar Star is a Canadian company with what has been described as an ‘elephant’ copper discovery in Chile, positioned between high producing mines owned by Antofagasta and Codelco.

There were a lot of Canadians around which seemed a bit surprising as they have PDAC, in a couple of weeks but also many British, Australian, and of course African corporate and investment people with clients to service. Only the one Chinese gentleman was spotted in person.

A person well known in London, Jamie Strauss, is about to start raising money for a company called Kameni which has PGM prospects in South Africa and Zimbabwe. It was put together by an experienced management team led by the very canny Loucas Pouroulis, whose son, Adonis, heads Petra Diamonds.

Extract Resources confidently presented their latest update on the 100 per cent owned Husab Uranium Project which contains two known uranium deposit areas, the famous Rossing South, and the Ida Dome, both in Namibia. The former has to be the most important uranium discovery of recent years. Extract’s project is complicated by the fact that Kalahari Minerals, Rio Tinto, Polo Resources, and others, all have hefty stakes in the company. Extract has a market cap of over A$2 billion, after the share price increased ten-fold in value during 2009.

The Tenke Fungurume Project in the DRC is 57.75 per cent owned by Freeport-McMoRan Copper and Gold, 24 per cent owned by Lundin Mining/Tenke Mining Corp., and 17 per cent owned by Gécamines. This vast copper/cobolt venture has already had an investment of over US$1.75 billion and produced its first copper in March 2009, ramping up to 115,000 tonnes per year with an additional 8,000 tonnes of cobalt. At present there is an estimated 40-plus years of production. This is giving several thousand jobs of varying skills to the local community with many training and development programs in progress. Infrastructure is being improved, with the recent completion of a 175 kilometre highway between towns of Fungurume and Likasi. The way to benefit from this interesting story is through Freeport-McMoRan.

Another interesting story is African Rainbow Minerals, a leading South African diversified mining and minerals company which has long-life, low cost, assets in commodities such as coal, manganese ferrous metals and platinum. It has forged partnerships with major companies in the resource sector such as Xstrata Coal and Vale. Platinum Australia has an agreement to earn in up to 49 per cent of ARM Platinum’s Bushveld project on completion of a bankable feasibility study.

Mantra Resources, listed on the JSE and Australian stock exchanges, and which has been a favourite amongst uranium investors, is a rapidly developing a uranium company in Tanzania with strong potential, confirmed by scoping studies. Mantra has A$67.5 million in the bank and a proven and experienced board. It also boasts a 84.3 million pounds U308, 34 per cent of which is indicated, 66 per cent inferred). The projects benefits from soft, shallow open pittable mineralisation. First production is targeted for 2012.

There was a lot of interest shown in a brownfields potash exploration project owned by Elemental Minerals Ltd. Several nosey brokers and analysts were circling this booth. Headed by Iain Macpherson and with a very strong experienced board the company is targeting potash at its’ 93 per cent owned Sintoukola Potash project in the Democratic Republic of the Congo. Historic data collected by a French oil company in the 1960s and 70s suggest that this could be a low cost fast track project. The potential export markets would be Brazil, India and China. Infrastructure is good, as the property is 55 kilometres from Pointe Noire which is the largest port in West Africa. The ROC government is building a 400MW power station, telecommunications there are good, gas is cheap and being flared off at present. Elemental is at present listed on the ASX (ELM) and Frankfurt exchanges, with a listing planned possibly on the TSX at the end of this year. Market cap is A$43 million and the company has A$31 million in the bank.
 
Just looked up ELM as the figures sounded good. They had $2.8M in the bank according to the quarterly and now have another $8.75M which makes $11.55M in my book. Can't seem to see the $31M quoted in the article. Either poor source or I cant see $20M staring me in the face.
 
February 06, 2010

That Was The Week That Was ... In Australia

By Our Man in Oz
www.minesite.com/aus.html

Minews. Good morning Australia, or should we say South Africa, as you’ve been at the Indaba talking shop all week?

Oz. Still here actually. Just finishing up before heading home, so this week’s market report is a long distance look, and might have to be a bit shorter than usual.

Minews. Before getting to the market, then, perhaps a final word on Indaba, and how you read the mood of the mining industry.

Oz. Healthy is the one-word answer, but not yet robust. It seemed that the conference itself was dominated by suppliers and service providers trying to sell their assorted wares. Genuine miners and bankers were perhaps a little thin on the ground, which was to be expected after such a tricky time over the past 18 months. Australian miners were well represented, and the London banking crowd was here at about 75 per cent strength. There were plenty of bow ties and pinstripe suits on display, a look which is so totally out of place on the Cape Town waterfront, but at least Jeremy Dowler from Baobab Resources had the good sense to look much more relaxed, complete with a long fruity drink, when he hosted a very pleasant farewell lunch at Camps Bay on Friday.

Minews. And with your binoculars on at Camps Bay how did the Australian stock market perform last week.

Oz. If you ignore Friday’s sell off, not badly. The last day of the week was the bad one, with the all ordinaries index on the ASX diving by 2.4 per cent and the metals and mining index plunging by 3.9 per cent after the sharp fall on Wall Street. But, if you take a longer view, the picture wasn’t quite so bad. There were two up days last week and three down. That averaged out as a pretty modest decline in the metals index of just 0.7 per cent. The gold index was down two per cent, and the all ordinaries 1.4 per cent. BHP Billiton, the local market leader, actually ended the week up A15 cents, a good sign that even in a sell-off there are buyers hunting out quality stocks.

Minews. Time for prices, and since you’re in South Africa let’s start with gold.

Oz. Falls across the sector, as expected, but most by modest amounts. If you look really hard you can even find a couple of stocks which rose. Ramelius (RMS), which released a statement outlining the likelihood of good profits on Friday, added A2.5 cents to A56 cents. And Emmerson Resources (ERM), one of the Tennant Creek crowd, crept half a cent higher to A20 cents. After that it’s all down. The biggest fall was a drop of A22 cents to A77.5 cents suffered by Carrick Gold (CRK). Other movers included Kingsgate (KCN), down A67 cents to A$8.51, Resolute (RSG), down A4 cents to A94.5 cents, Gryphon (GRY), down A3.5 cents to A40 cents, Chalice (CHN), down A7.5 cents to A35.5 cents, and Troy (TRY), down A6 cents and A$2.10.

Minews. We get the picture, let’s move through the sectors with iron ore next, please.

Oz. Same story, one up and lots down. The odd man out was FerrAus (FRS), one of the emerging small players in the Pilbara region, which will probably do a deal with a major, eventually. It added A3 cents to A76 cents over the week. Now comes the list of the fallen. Firstly, Fortescue Metals (FMG) dropped just A2 cents to A$4.51, despite the corporate cops announcing that they would appeal the verdict in the case they lost against FMG’s chief executive, Andrew Forrest. Other movers included Atlas (AGO), down A9 cents to A$1.85, Gindalbie (GBG), down A4.5 cents to A90.5 cents, Giralia (GIR), down A2 cents to A$1.52, Brockman (BRM), down A4 cents to A$2.71, and Iron Ore Holdings (IOH), down A5 cents to A$2.13, though that fall needs to be seen in the context of a A16 cents drop on Friday alone.

Minews. In other words, Iron Ore Holdings was well ahead before Friday’s shake out?

Oz. Precisely. It makes the point that it was more a case of one bad day wiping out a reasonably positive trend.

Minews. Let’s move along to the fuel twins, uranium and coal, please.

Oz. All down among the uranium stocks, but it was a surprisingly strong week for coal. Extract (EXT) led the way down among the uranium stocks, despite plenty of Indaba-linked publicity and a good story to tell about the Rossing South project. It fell A60 cents to A$7.30. Manhattan (MHC) lost A16 cents to A$1.37. Mantra (MRU) fell A43 cents to A$5.30. Forte (FTE) lost A1.5 cents to A17.5 cents, and Paladin (PDN), which had been the darling of the Australian uranium pack, fell another A12 cents to A$3.52, a price which is exactly A$2.00 off the peak of A$5.52 reached last June.

Coal was the sector which performed best over the week despite losing ground on Friday. Coal of Africa (CZA) was the star attraction, adding A19 cents to A$2.34, in spite of some heavy selling on Friday. Macarthur Coal (MCC) added A8 cents to A$9.53, an even more impressive result because it dropped A56 cents on Friday. Whitehaven (WHC) rose by A15 cents to A$4.58, while Riversdale (RIV) had a tougher week than most, losing A49 cents over the week to close at A$6.96, with A43 cents of the fall coming on Friday.

Minews. Base metals now, please.

Oz. Not much joy here. The most notable performance came from Sabre Resources (SBR), which appears to have been the only base metal play to gain ground, perhaps courtesy of our mid-week report on its exploration activities near the historic Tsumeb copper mine in Namibia. Sabre added A3 cents to A40 cents. The only other stock to avoid the sector-wide sell-off was zinc hopeful Mt Burgess Mining (MTB), which managed to stand still at A1.4 cents, not a bad effort in a sea of red ink. Other zinc movers included Terramin (TZN), down A6 cents to A70 cents, Perilya (PEM), down A7 cents to A54 cents, and CBH (CBH), down A1.5 cents to A12.5 cents.

Other copper movers included OZ Minerals (OZL), down A9.5 cents to A97.5 cents, Sandfire (SFR) down A28 cents to A$3.42, Equinox (EQN), down A13 cents to A3.60, and Marengo (MGO), down A1 cent to A12.5 cents.

Nickel stocks were led by Mincor (MCR), which slipped A4 cents to A$1.42, and which like so many others, had its worst day of the week on Friday. Other nickel movers included Independence (IGO), down A39 cents to A$3.75, and Panoramic (PAN), down A12 cents to A$1.72.

Minews. Thanks Oz. Travel safely.
 
February 08, 2010

The Trend Is Your Friend Until The Bend At The End: Man Group’s Woes Offer A Cautionary Tale To Commodities Investors

By Rob Davies
www.minesite.com/aus.html

The rout in commodity prices continues, driven by a strong dollar and a general move away from assets deemed too risky. A relatively modest rise of one per cent in the dollar last week was outweighed by a 6.5 per cent fall in the price of copper to US$6,570 a tonne.
So, even though the Aussie dollar fell by 2.5 per cent, producers in that country still saw a real fall in their domestic price. Other metals experienced similar declines. Aluminium dropped 3.5 per cent to US$2,051 a tonne, lead by 4.3 pre cent to US$2,000 a tonne, zinc by 3.4 per cent to US$2,082. Only nickel that managed a gain, and even that was modest, a mere 0.7 per cent increase to US$18,250 a tonne.

These falls gave back a lot of the ground that commodities have gained in recent months. Not only is copper now down 14 per cent on the year, but it is actually back to the level it was at in mid-October. The same argument goes for other asset classes that share the pro-growth attributes that metals do. The most notable downward moves have been visible on the stock markets on the southern fringe of the euro zone. The Athens market was marked down by 8.3 per cent, Spain’s fell by 7.7 per cent, and Portugal’s by 7.2 per cent.

This sudden about turn in the mood of capital markets has had one high profile casualty, so far. Man Group grew out of the ED&F Man sugar trading business to become one of the most powerful hedge funds in the business, with a flagship worth over US$20 billion.

The exact nature of Man’s investment process is a closely guarded secret, but it is known that the strategy is based around the futures markets with a significant exposure to commodities. In essence it seems that the complex algorithms are very good at following and extrapolating trends.

Or at least were. The last financial year, and especially the last few months, have not been kind to Man, which has suffered the double whammy of an underperforming fund and redemptions. Funds under management have now fallen from US$47 billion to US$42 billion, and this poor performance means that the fund cannot charge its lucrative performance fees.

As a consequence its market value has fallen from £5 billion to £3.7 billion, and its current yield is over 12 per cent. For anybody seeking a cheap and highly geared way to play the commodity markets Man Group must be an interesting opportunity. Provided of course it can get its computers to work out which trend it should be following.

That of course is the nub of the problem for everyone following the commodity markets. The trend is your friend until the bend at the end.

Last year was an exceptional period for commodities, and China seemed to be the only game in town. While that story has not gone away, it is being pushed into second place by the other cross currents in world capital markets.

Now, there is real concern over the eurozone, and the dollar, despite all its problems, is deemed to be a much safer place to be. Perhaps the oddest development last week was the weakness in the gold price. Gold’s fall of 2.3 per cent was due to more than the rise in the dollar. If traders buy gold when they are worried about the dollar why do they buy dollars when they are concerned about the euro? Perhaps someone at Man Group is working on that.
 
February 08, 2010

Diary Of A Private Investor In the Aftermath Of Indaba: Treasure Hunting Still...

By Susie Boeckmann
www.minesite.com/aus.html

Lots of impressions are left after my first trip to Cape Town. Everyone is very - friendly even the taxi drivers who managed to charge this visitor varied prices of between 37 and 103 rand (on a meter) for a five minute journey to the colourful Waterfront area from the Conference Centre. One taxi called from the upmarket Mount Nelson Hotel had a DVD screen on his dashboard showing a very racy girly show – this passenger kept telling him to keep his eyes on the road (video was pretty riveting).

The Minesite team was at the Mount Nelson Hotel, firstly for a networking reception organised by Tony Mahalski on behalf of Forbes Manhattan Group from Brazil at the splendidly named ‘Lord Kitchener Fountain’. There was a good mix of over 100 people from many countries, including Dubai. Then it was on to dinner with Polar Star Mining Corporation in a private dining room with an influential group of well known UK and Canadian advisors and brokers.

After Indaba your diarist took a trip to the Cape of Good Hope with Our Man in Oz, who was reluctantly dragged along by his better half – he only cheered up after a few beers at the Radisson Hotel terrace, near the Waterfront, watching a large pod of whales frolicking and blowing in Table Bay. On the tour trip, Table Mountain was in cloud, the penguins at Boulder Beach were lying down so that the wind could pass over them and massive traffic jams had built up in Cape Town as it was the first major rugby ‘friendly’ at the new stadium, and this had attracted thousands of fans.

The internet connection at Indaba was a nightmare, frequently cutting out even if connection is initially possible. Even nifty modems were causing trouble. Also not working: the ferry to Robben Island, though they have a temporary one running occasionally. Last week the cable car to Table Mountain was closed. In light of all this, a long-time resident of Johannesburg voiced concern that although lots of new towns are being set up to accommodate the burgeoning population these lacked infrastructure, water and power. However the new football stadium looks splendid and the impressive newly built airport is facilitating travel enormously. Football fans coming to Cape Town will be very happy.

There are many and varied restaurants serving delicious food and wine and all good restaurants are booked days in advance. A trip to the nearby wineries is a must. This trip ended with a visit to the Steenberg Estate, which was one of the first farms, built in 1682, and is now a ultra luxury vineyard, with golf course, hotel, and spa thrown in, all surrounded by acres of green vines with views of the sea in the distance and imposing granite hills behind. This is the oldest vineyard on record in the area known as Constantia, and only 20 minutes from central Cape Town.

Back to companies.

Amongst the companies exploring in Ghana, which is the 2nd biggest gold producer in Africa, is ASX-listed Azumah Resources. This company aims to build the first commercial scale gold mine North West Ghana. It has an inferred and indicated resource of 754,000 ounces, following a recent successful scoping study, has had a recent capital raising and currently enjoys a market cap of around A$46m. Macquarie bank holds 15 per cent of the equity. Infrastructure, water and telecommunications are good.

Across the border in Burkina Faso Ampella Resources’ licences are in the same Birimian greenstone belt. That geological good fortune has resulted in healthy grades for Ampella’s maiden inferred resource at the Konkera deposit where the company has announced 1.2m ounces of gold inferred at a grade of two grammes per tonne, with potential to double this resource in next 12 months. Ampella has recently acquired two new permits over four kilometres of old artisanal workings, with very high grades reported at relatively shallow depths, and visible gold seen.

Artisanal gold mining in Burkina Faso is apparently organised and less troublesome than it is in some other parts of Africa. When leases are granted and mining companies start working on a site, the government will help move the camps and artisanal workers to new locations as they are pretty transient anyway. Ampella expects to have a drill on one of its new leases shortly. The word is that a 2 ½ kilo nugget was found recently on its site by artisanal workers. This company seems to have several promising projects at various stages of exploration.

Still on the gold track, Great Basin Gold has quite a following amongst the South Africans. It has a market cap of US$630 million and is listed on TSX, JSE and NYSE Amex. It is fully funded and has been producing at its Hollister project in Nevada since 2008, aiming to have annual production of 120,000 ounces per year, with a current mine life of 10 years. Great Basin Gold is also developing the first new mine in the Witwatersrand Basin in 30 years. It is a shallow, open pit, low cost, low risk, long-life mine that should produce over 250,000 ounces per year at a cash cost of US$319 per ounce. Both projects have potential for exploration growth, and the company also has early projects in Mozambique and Tanzania.

Now to a company that pays a dividend! IAMGOLD is a leading mid-tier gold mining company that produces nearly 1,000,000 ounces per year from seven mines on three continents and which is aiming for a production rate of 1.8 million ounces. The company’s projects are primarily located in West Africa, on the Guiana Shield of South America and in Quebec, Canada. IAMGOLD has a market cap of US$6.6 billion is listed on the TSX and NYSE.

But enough about pure gold plays, and on instead to a higher risk but very rewarding project portfolio, if, that is, Zimbabwe continues to make progress opening up its mining prospects. African Consolidated Resources, listed on Aim, has identified and purchased over a dozen extraordinarily rich deposits with prospects for diamonds, nickel, gold, copper, platinum, and rock phosphate. Most of these potential projects already have extensive databases proving up their estimated reserves. This company is run from UK and has quite a following in London where its management is well known and respected.

Mount Burgess, by contrast is listed on the other side of the world, in Australia, but it also has its assets in Africa. The company is operating in Botswana, and its two leading, but early stage projects exploring for zinc, lead and silver have made good progress. Lead and zinc recoveries have come in at greater than 90 per cent, and the company is taking steps to enable the production of metal cathode which will eliminate fees paid to external smelters and boost the project margins. These could well turn out to be viable operations if the zinc and lead prices stay at current levels.

On the rare earth front Avalon Rare Metals Inc. is mineral exploration and development company focussed on rare metal deposits in Canada. Its flagship project, the 100 per cent owned Nechalach Deposit, near Thor Lake, NWT, is emerging as one of the largest undeveloped rare earth elements resources in the world. Avalon is well funded, has no debt and is listed on the TSX. The company’s Indaba stand was manned by enthusiastic young people who seemed well qualified and knew what they were talking about. Sadly, this is not always the case with the people manning the booths. As China has to date most of the rare earth elements market it is worth following projects outside this region.

It has been a fascinating week with many insights for this investor on this first trip to the Indaba, and it will be interesting to watch the various companies developing in the future.
 
Yale professor sees commodities decoupling

* Sees long term benefits to commodity exposure
* Research helped spark commodities investing boom

By David Sheppard
www.guardian.co.uk

LONDON, Feb 8 (Reuters) - Commodity prices will decouple from equity markets in the near future, providing investors with more diversification, Yale University professor K. Geert Rouwenhorst told Reuters.
The academic, whose 2004 paper was instrumental in convincing institutional investors that commodities could be a new asset class, said he stood by his findings from six years ago, despite huge volatility in most commodity markets over the last 36 months and rising correlations with equities.
"The correlations between commodities and equities that we've seen since the start of the crisis are unlikely to continue. If the oil price was to soar again it's unlikely that's going to be accompanied by a sharp increase in equities," Rouwenhorst said by telephone from New Haven in the U.S.
"The long side of commodity future contracts continues to provide diversification to traditional portfolios of stocks and bonds and unlike some other asset classes commodities have been shown to be positively correlated with inflation."
Rouwenhorst's 2004 paper, 'Facts and Fantasies about Commodity Futures' with now fellow Yale professor Gary Gorton argued that commodities provided attractive long-run returns similar to equities, but crucially, the correlation between the two markets was weak, providing a useful hedge for investors.
In the six years since the paper's publication, institutional investors have allocated an increasingly large amount of their portfolios to commodities. The value of commodity funds looks set to grow by one third in 2010, leaping by a further $100 billion, with many funds considering allocations of up to 10 percent.

UNUSUAL SHOCK
While some analysts have argued new participants have changed the way commodity markets operate, with many investors now taking bullish or bearish views on both equities and commodities at the same time based on the macroeconomic outlook, Rouwenhorst said the impact had been overstated.
"When investors started taking larger exposure to the future markets, it was also at a time when these markets themselves grew," Rouwenhorst said.
"At the peak the notional size of commodity derivative markets was in excess of $10 trillion. Investments in commodity indices are generally estimated at just $200-$300 billion -- it sounds a lot but it's not when compared with the overall size of the market."
Commodity and equity markets have often moved in tandem since the peak of the economic crisis in the Autumn of 2008. After both crashed in the wake of Lehman Brother's demise, the two markets both rallied by more than 70 percent in 2009.
"We saw a very unusual shock last year which was not unique to commodities - investors were simply pulling risk off the table across all classes at this time," Rouwenhorst said.
Rouwenhorst is also a partner in SummerHaven Investment Management, a fund specialising in commodities and indices which takes an active approach to managing positions in the market. The fund launched last year.
"I think people should look both at outright returns and diversification when investing in commodities," he said.
"Investors will receive higher compensation in periods of scarcity. In the emerging markets we will continue to see increased demand for resources which will likely be paired with the view of long periods of scarcity."
 
February 13, 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 your return from the Indaba mining conference in South Africa has had a positive effect on the ASX.

Oz. It'd be nice to think so, but the real reason for last week’s recovery was a sharp upward revision in price forecasts for iron ore. Rather than talking about a 30 or 40 per cent rise, there is now open discussion about a 90 per cent increase. What’s driving speculation of this near-doubling in the price is demand in the spot market, where prices currently sit at around US$125 a tonne. And that compares very favourably indeed with the benchmark (long-term) price of around US$60 a tonne.

Minews. And the miners, presumably, are arguing that all sales should be at the spot price?

Oz. It’s a little more subtle than that, but it appears the Chinese steel mills might have last year kicked the world’s most expensive own goal when they initially refused to sign a new benchmark price agreement. That move forced more iron ore onto the spot market, and triggered a series of events which appears to have desTroyed a pricing system the Japanese invented in the 1960s to ensure annual price stability.

Minews. Which means that your market was led last week by iron ore stocks?

Oz. Yes, with gold miners also making a solid contribution. The overall effect of iron ore and gold could be seen in the indices. The all ordinaries, held down by European sovereign debt concerns and the flow-on effect on global borrowing costs for banks, managed a modest rise of 1.2 per cent last week, whereas the metals and mining index added 4.4 per cent whilethe gold index was up by 5.6 per cent.

Minews. Time for prices,then. Let’s start with iron ore as that seems to be the news-making sector.

Oz. It was, but before we drill into the detail a small heads-up warning for investors. The promise of higher prices has put the government on full alert, especially as the global trade is dominated by the three big boys of mining, BHP Billiton, Rio Tinto and Vale. They’re leading the push for the spot price to become the standard market price, while at the same time BHP and Rio are also trying to get European Union agreement on the merging of their Australian mining operations. To add to that heady mix, the state government of Western Australia is also demanding higher royalty payments. All of which means that the fatter profits that might be expected from current market conditions could in fact be trimmed, while at the same time, it might also create an opening for smaller miners to lever themselves into business.

Minews. Interesting stuff, but let’s stick to prices for the time being.

Oz. One of the best upward moves among the iron ore stocks came from Giralia (GIR), which has a series of iron ore projects under investigation. The latest to attract interest is the Yerecoin magnetite property, located in the wheatbelt of south-west Western Australia. Like some other explorers, Giralia has recognised that iron ore is all about rail and port access, which is precisely what Yerecoin has. On the market, Giralia rose by A18 cents to A$1.70 last week. Also on the move, Mt Gibson (MGX), rose A26 cents to A$1.60 after filing a strong first half profit result, and Iron ore Holdings (IOH) rose by A27 cents to A$2.40 after reporting an increase in its resource base. Other strong performers included Atlas (AGO), up A24 cents to A$2.09, Fortescue (FMG) up A42 cents to A$4.93, Brockman (BRM) up A25 cents to A$2.96, and Gindalbie (GBG) up A6 cents at A96.5 cents. Territory (TTY) was also better off, continuing its slow but steady recovery with a half cent rise to A15.5 cents.

Minews. Gold next, please.

Oz. Stronger across the board, and with a few stand out movers. Barra (BAR) was the star, after it reported bonanza drill hits at its Phillips Find project near Coolgardie. Best assays included three metres at 70.78 grams a tonne (or more than two ounces to the tonne) and a skinny 0.7 metres intersection grading 299 grammes per tonne, which probably means the drill-bit hit a nugget. On the market, Barra’s share price shot up from A7.6 cents to close the week at A9.1 cents. At one point on Friday it was trading as high as A10.5 cents. Meanwhile, CGA Mining (CGX) completed a major capital raising for its gold projects, and delivered a share price rise of A28 cents to A$2.28. Chalice (CHN) regained lost ground with an eye-catching gain of A9.5 cents to A43 cents. Kingsgate (KCN) added A48 cents to A$8.99. Andean (AND) continued to build on its reputation as an emerging South American gold specialist, and put in a rise of A27 cents to A$2.55. Catalpa (CAH) rose by A15 cents to A$1.40, and Troy (TRY) ended the week at A$2.28, a rise of A18 cents.

Minews. Base metals, which should have done well with the copper price rising strongly towards the end of the week.

Oz. There was a welcome return of interest in the copper and nickel sectors, but a more modest performance from zinc stocks. Copper led the way, as the price firmed above the US$3.00 a pound level. The best of the Australian copper stocks was Sandfire (SFR) which charged back after a post-Christmas sell-off, adding a very strong A98 cents to A$4.20, helped along by the release of fresh drill results from its Doolgunna project. Talisman (TLM), which has adjacent tenements, rose by a sympathetic A15 cents to A$1.02, but is yet to report any drilling results. Other copper moves included Equinox (EQN), up A22 cents to A$3.81, Citadel (CGG), up A1.5 cents to A35 cents, and OZ Minerals (OZL), up A5 cents to A$1.02. Jabiru (JML) rose A4 cents to A40 cents after acquiring the mining finance house, MetalsX, as a major shareholder, while Hillgrove (HGO) was also better off, up A4.5 cents to A39.5 cents, although that was mainly thanks to positive news from its gold exploration program in Indonesia.

Minews. We might take a closer look soon at that Hillgrove work. Meanwhile let’s finish the base metals call and move along to uranium, coal and any specials, please.

Oz. Nickel stocks were stronger, but not to the same extent as copper. Mincor (MCR) added A5 cents to A$1.47. Minara crept up by A1 cent to A63.5 cents. Western Areas (WSA) rose by A22 cents to A$4.28. Independence (IGO) gained A26 cents to A$4.01, though that rise could be more to do with its gold projects than its nickel ones.

Perilya (PEM) was the best of a lacklustre zinc sector, putting in a rise of A4 cents to A58.5 cents. CBH (CBH) added A1 cent to A13.5 cents. Terramin (TZN) put on A3 cents to A73 cents, and Mt Burgess (MTB) slipped to A1.1 cent, down A0.3 of a cent.

Uranium stocks were mixed, with one stand-out winner in Manhattan Corporation (MHC), which added A29 cents to A$1.66. Paladin (PDN) crept up by A2 cents to A$3.54 after an uninspiring profit report. After that it was generally weaker. Extract (EXT) slipped backwards by A15 cents to A$7.15, and Bannerman (BMN) lost A2.5 cents to A59.5 cents.

The coal sector produced more winners, including an excellent debut by a new float. Hunnu Coal (HUN) which is exploring in Mongolia and planning to cash in on Chinese electricity demand. Hunnu’s A20 cent shares started trading on Friday at a very strong A36.5 cents, before they eased slightly, to end day one at A33.5 cents. All of which made the stags very happy. The best of the established coal stocks was Macarthur (MCC) which gained A$1.32 to A$10.85. Riversdale (RIV) added A$1.04 to A$8, and Coal of Africa (CZA) crept A1 cent higher to A$2.34.

Minews. Any specials?

Oz. Lithium stocks continued to suck in the speculators, as Galaxy (GXY) added A17 cents to A$1.23, while a new player in the game, Black Fire Minerals (BFE), reported encouraging rock chip samples from its Karibib project in Namibia, news which helped lift the stock by A4.5 cents to A15.5 cents.

Minews. Thanks Oz.
 
February 15, 2010

Overcapacity Everywhere, Except In Mining
By Rob Davies
www.minesite.com/aus.html


2009 was the year when capital markets realised that capitalism still worked. This year seems to be turning out to be the year when the same people are deciding that although it’s good that it works, it is not quite as exciting as they would like it to be.

Bizarrely, overcapacity exists in almost every industry in every country, with only one glaring exception. Car manufacturers still have heaps of under-utilised plants, despite the environmentally ludicrous incentives from governments encouraging consumers to scrap perfectly good cars.

Toyota has so little to do it is going to rebuild several million cars it has already made.

The only industry that is struggling to meet demand is mining, and even there the picture is mixed. The obvious exception is nickel. But every copper mine is going flat out, and so are coal and iron ore mines. Aluminium does have a bit of spare capacity, as do zinc and lead mines. And platinum operators are struggling a bit. But gold production has not risen in ten years, even though prices have quadrupled and demand is at a record.

The answer to this conundrum is that while the developed world has invested squillions of dollars, euros, yen, and renimbi to make things like cars and fridges there has been a famine of investment in mining.

Often regarded as low tech and embarrassing in today’s digital world, too many people overlook the fact that on the London Stock Exchange, the third biggest exchange in the world, 30 per cent of the distributable profits come from companies that extract resources from the ground. Virtually nothing comes from businesses making cars, fridge or “clean technologies”, whatever they are.

Despite this simple demonstration of what makes money, and what does not, no government ever wants close a car plant, or indeed any industrial facility that employs voters. As a consequence there is a massive surplus of car plants and other factories.

That suits miners. As long as General Motors and Toyota keep building cars demand for metals will hold up, irrespective of the capital structure of the owners.

It is this strong underlying demand that drove metals back up last week so that, before Friday’s sell off, they had recovered much of the ground that was lost the previous week. In the end copper closed 1.5 per cent ahead at US$6,672 a tonne, and the other metals made similar recoveries. However, nickel, as is often the case, went its own way and fell by 1.7 per cent to US$17,940 a tonne.

The undercurrent to this renewed demand is China, and it was worries about the impact of efforts to slow the economy there that caused the setback on Friday. Whether the increase in the reserve ratio for Chinese banks by 50 basis points will have the desired effect is unknown. But, for the moment, all commodity producers are grateful for the pull from China, as the economic data from Europe stays unrelentingly grim.

Growth of 0.1 per cent from the eurozone in the fourth quarter hardly merits the name. At some point politicians will accept the inevitable and invite Greece to leave the euro for its own good. But that is probably many months away and the intervening period will do nothing to encourage investor confidence in the euro.

In the meantime, commodity investors just have to hope that the Chinese authorities slow the Chinese economy by just enough, but not by too much - a tricky balancing act indeed.
 
The Boom Is Nigh
Why the coming recovery will hurt like hell.
By Gregg Easterbrook | NEWSWEEK

Published Feb 12, 2010
From the magazine issue dated Feb 22, 2010


Excerpted from SONIC BOOM: Globalization at Mach Speed
Copyright 2009 by Gregg Easterbrook, Published by Random House

Home prices keep falling, but productivity is rising fast. GDP grew 5.6 percent in the fourth quarter, yet unemployment remains stubbornly high. Inflation is nonexistent, while the consumer confidence index just rose to 55.9 from 53.6””whatever that means. Can't make sense of these economic indicators? Don't worry, because nobody else can, either.

Here is what you really need to know: a Sonic Boom is coming. It will be caused by globalization. And while globalization may be driving you crazy, it's just getting started. Thirty years ago, Shenzhen, China, did not exist; today, it has nearly 9 million residents, roughly the same as New York City. In a single generation, it has grown from a village of tar-paper shacks into an important urban center. It has become the world's fourth-busiest port, busier than Los Angeles and Long Beach combined. Never before has a great city been built so fast, nor a productive economy established from so little.


The international recession that began in 2008 has made the Sonic Boom quieter, but history shows that when a crisis ends, the larger trends in place before the crisis usually resume. Shenzhen represents the larger trend of growth, change, and transformation at unprecedented velocity. Thanks to vast increases in productivity, worldwide economic growth soon will pick up, creating rising prosperity and higher living standards for most people in most nations. The world will be far more interconnected, leading to better and more affordable products, as well as ever better communication among nations.

But there's a big catch: just as favorable economic and social trends are likely to resume, many problems that have characterized recent decades are likely to get worse, too. Job instability, economic insecurity, a sense of turmoil, the fear that even when things seem good a hammer is about to fall””these are also part of the larger trend. As world economies become ever more linked by computers, job stress will become a 24/7 affair. Frequent shakeups in industries will cause increasing uncertainty. The horizon has never been brighter, but we may not feel particularly happy about it. Here are five things to keep in mind during these dizzying times:

CLIMATE CHANGE WILL CHANGE EVERYTHING
Dramatic economic change will happen at the same time as climate change. Either one would be a challenge in itself. Now, they're going to occur simultaneously, which will cause economic convulsions unparalleled by any event other than World War II. Winners are likely to be those in high-latitude regions. Yakutsk, Russia, located in Siberia just below the Arctic Circle, is currently home to the world's leading museum of woolly-mammoth fossils. But what if Siberia were to become a temperate expanse? The minerals and oil thought to lie beneath the permafrost could boost the global supply of commodities, not to mention Russia's national wealth.

MANUFACTURING WILL BE OBSOLETE
The factory-based economy is nearly over, because of technological improvements. Fifteen years ago, Boeing took 22 days to build a 737 airliner; today, it takes 12 days. Such changes mean fewer factory jobs, even as production rises. China is losing factory jobs much faster than the United States, as efficiency improves. Soon there won't be any nation with a factory-based economy, and that would have happened regardless of whether there was trade liberalization. Higher productivity, in turn, generates the social wealth that creates more jobs for teachers, health-care providers, and other essential needs. The world is actually better off with declining factory employment, which is no consolation if you lost a job.

COLLEGE IS OUR SECRET WEAPON
College is more valuable to the future economy than petroleum. America leads the world in many areas””economics, military power, loud music””but nowhere is the lead more important than higher education. The United States has more great colleges than the rest of the world combined. Yet California, Texas, and other states are cutting back their public-university systems. This is a terrible mistake. In the long run, extra college may even cost society less, because people with college educations are better suited to look after themselves in a turbulent economy, rather than asking the government to subsidize them.

WOMEN WILL DOUBLE THE WORLD'S SUPPLY OF IDEAS
In Western nations, women's education levels and personal freedom already are on track to equal men's; in much of the developing world, this could happen in the next two generations. Throughout history, most women have been denied a fair shot at contributing to research, engineering, business-management, and leadership roles. Asthis changes, there will be twice as many people applying their brainpower to the world's problems.

MILITARISM WILL DECLINE
Iraq, Afghanistan, and Darfur are awful exceptions to a two-decade trend of fewer wars and less combat in the world. Right now a person's chance of dying because of war (via combat or through indirect causes) is the lowest it has been in human history; nuclear warheads are being disassembled instead of built; per capita global arms spending has declined 40 percent in the last quarter century. Some of the reason is economic: nations are more interested in acquiring market share than in acquiring territory. But that's good! And there has never been a superpower relationship like the one evolving between the United States and China. The world's two leading powers are not arming against each other; rather, they're cooperating on economic production.

Many of these developments will have far-reaching positive consequences. But they will all add to our uncertainty. One reason our economic anxiety soared during the recent crisis is that it seems like no one is in charge of the U.S. economy. In fact, there is no one in charge. The president doesn't "run" the economy””no one does. In a way, this is a source of stability. There is no one person who can make a fatal economic blunder. Think of all the crazed, conflicting statements about the economy that were made by government officials, Democratic and Republican alike, in the fall of 2008, as economic grand plans and emergency theories changed daily. Imagine if any one of them had actually been in charge of the economy””surely he or she would have made the situation considerably worse.

Because no one runs the economy, no one knows where the economy is headed. And that means that even when most things are OK for most people, the sense that everything is about to fall apart is palpable. Americans have had this sense before. At many points in our history, it was commonly felt the nation was about to enter a cycle of sharp decline. Probably this won't happen, but we can't know that for sure. Today, this fear manifests as collapse anxiety: the worry that resource exhaustion, or international chaos, or something we haven't even thought of will bring down the Western way of life.

Bear in mind the seemingly iron law of human events””new problems always arise to replace the old. Suppose the economic downturn ends, and what comes next is a flowering of productive efficiency and higher material well-being. The same forces likely to bring about these desirable ends also will cause economic tumult to grow more frequent. Job anxiety will be endless. Celebrity inanity, political blather, targeted advertising, scream-and-shout discourse, the paving over of nature””they're going to get worse. Winner-take-all wealth accumulation at the top, already the worst fault of capitalism and among the least-attractive aspects of American society, may worsen in the West while infecting newly free nations.

Plus, every little thing that goes wrong anywhere in the world will scare us. Now if something explodes in Pakistan or a new product from Malaysia challenges a Midwestern product, we have live television images within minutes. The terrific aspects and the anxiety-inducing aspects will be intertwined, and we're just going to have to live with this. No matter how crazy and chaotic events become, with each passing year, the world likely will be a better place than at any point in the past. A chaotic, raucous, unpredictable, stress-inducing, free, prosperous, well-informed future is coming. It will be a Sonic Boom. Just remember to cover your ears.

Find this article at
http://www.newsweek.com/id/233528
 
drillinto said:
The Boom Is Nigh
Why the coming recovery will hurt like hell.
By Gregg Easterbrook | NEWSWEEK

Published Feb 12, 2010
From the magazine issue dated Feb 22, 2010


Excerpted from SONIC BOOM: Globalization at Mach Speed
Copyright 2009 by Gregg Easterbrook, Published by Random House

Home prices keep falling, but productivity is rising fast. GDP grew 5.6 percent in the fourth quarter, yet unemployment remains stubbornly high. Inflation is nonexistent, while the consumer confidence index just rose to 55.9 from 53.6—whatever that means. Can't make sense of these economic indicators? Don't worry, because nobody else can, either.

Here is what you really need to know: a Sonic Boom is coming. It will be caused by globalization. And while globalization may be driving you crazy, it's just getting started. Thirty years ago, Shenzhen, China, did not exist; today, it has nearly 9 million residents, roughly the same as New York City. In a single generation, it has grown from a village of tar-paper shacks into an important urban center. It has become the world's fourth-busiest port, busier than Los Angeles and Long Beach combined. Never before has a great city been built so fast, nor a productive economy established from so little.


The international recession that began in 2008 has made the Sonic Boom quieter, but history shows that when a crisis ends, the larger trends in place before the crisis usually resume. Shenzhen represents the larger trend of growth, change, and transformation at unprecedented velocity. Thanks to vast increases in productivity, worldwide economic growth soon will pick up, creating rising prosperity and higher living standards for most people in most nations.

And it doesn't pay one cent of tax.

Go commods! :D
Click to expand...
 
February 17, 2010

Private Equity, State Owned Entities, And Sovereign Wealth Funds: The New Arbiters Of Power In The Post Credit Crunch World
By Alastair Ford
www.minesite.com/aus.html

Over the last five or six years stock markets, and mining markets in particular, have managed to confound both bears and bulls in almost equal measure. No sooner had analysts caught up to the idea that the Supercycle wasn’t just a promoter’s daydream but a hard economic reality, and updated all their financial models accordingly, when all of a sudden the global financial crisis smashed into everything and sent the whole world into a tailspin. Given that rollercoaster, it’s perhaps understandable that lots of research these days seems to have more than one heading. In many cases the shell-shocked analysts involved can’t decide what they really want to say. There was certainly plenty of that kind of research around at the back end of 2008 and in the early part of 2009, when a read-through of much of what was written could simply have been rendered as: Life is terrible, things can only get better. Another way of putting it might have been: You can now make a killing, provided you haven’t already been killed.

So it was nice to see that the commentary accompanying the latest research from Ernst & Young Global Mining and Metals team doesn’t mince words. And neither does it hedge its bets. “Longer term fundamentals look compelling for miners”, blasts out from the top line. The secondary heading follows up with an equally bullish: “Confidence in super cycle returning to drive mining deals”. Interesting too, to note that “A new era of financing has dawned that will forever be changed”. The precise meaning of that statement may not be entirely clear, but the sentiment certainly is: it’s a brave new world.

At the beginning of the actual Ernst & Young document, which runs to a choice 132 pages, the initial tone seems to be backward-looking. “2009: The Year of Survival and Revival”, reads the first major heading, ahead of the photo parade of the report’s myriad authors, principal among them Mike Elliot and Michael Lynch-Bell. “2009 Was An Extraordinary Year For Mining And Metals Companies, With Changes That Will Resonate Through The Industry For Years To Come”, reads a further heading. So rather than looking back, what it’s actually doing is setting the scene for the future. 2009 was the year all the clocks were reset to zero.

Looking ahead, says Ernst & Young, China remains a key driver for markets and the major companies have now all been recapitalized and are reasonably well positioned to take advantage. But in spite of that restored equilibrium, certain dynamics have changed for ever. The disappearance of the availability of debt financing in 2009 meant that Asian buyers with cash emerged as an even greater force in the market, while follow-on equity and bond raisings hit record levels. Good news for certain sections of the markets, though one can’t help wondering whether, with metals prices delivering a strong recovery during last year, the debt boys didn’t miss a trick.

Too late: the world’s moved on. Ernst & Young’s headings are once again all that’s needed for guidance: “Flight To Equity”, “Resurgence In Corporate Bonds”, “Demise Of The Bank Loan” tell you almost all you need to know about how money’s being raised in the post credit crunch world. Project finance was on a real downer last year. Only one project with a value of over US$1 billion made it through to the home stretch: Antofagasta’s Minera Esperanza project.

But, as many of the attendees at our 65th Minesite forum - packed to the rafters on Tuesday 16th February – will attest, there’s plenty of positive sentiment around as far as mining in general goes. And Ernst & Young would heartily agree. “Continued demand from China and India to fuel rapid economic development means the mining and metals sector’s longer-term fundamentals remain compelling”, says Ernst & Young. “2010 has begun strongly, continuing the momentum that built up at the end of 2009. We expect the number and size of deals to increase, although megadeals are likely to remain scarce. Many mining and metals companies that are pre-occupied with debt reduction are looking to organize growth and strategic bolt-on acquisitions before valuations become too expensive. Even the most cautious players are looking at how to prosper from economic recovery. And competition from cash-rich Chinese companies and increasingly resource hungry Indian investors will promote a strong seller’s market.”

That can only be good news for the juniors, many of whom showed commendable resilience during the tough times over the last couple of years. For the survivors it could all be about to come good again. One thing’s for sure at any rate – the era of cheap debt is over. Look now to sovereign wealth funds, state-owned entities, henceforth to be abbreviated as SOEs, and private capital to make much of the running as far as financing is concerned. Equity funding will assume an even greater prominence, and the IPO market should recover strongly. And we’ll continue to bring you the best of those stories here on Minesite.
 
February 20, 2010

That Was The Week That Was ... In Australia
By Our Man in Oz
www.minesite.com/aus.html < < Registration to this site is free

Minews. Good morning Australia. It looks like it was a flat week on your market.

Oz. It certainly was. Share price movements across all sectors were negligible, with only a few exceptions. Top sector of the week was nickel, as the nickel price moved back through US$9 a pound. Gold stocks were mixed in the wake of the uncertainty stirred up by the midweek announcement of a big bullion sale by the International Monetary Fund. Iron ore strengthened marginally, but received a setback on Friday when Fortescue Metals Group (FMG) announced disappointing financial results and a slowdown in its expansion plans. The other sectors all had their handful of interesting performers, but the overall tone was definitely lacklustre.

To colour in the picture of a market which really went nowhere over the course of the week, the all ordinaries index rose by 1.5 per cent, the metals index slipped 0.5 per cent lower, and the gold index lost 2.7 per cent. That in a week when the gold price rose by about US$30 an ounce and the Australian dollar fell about US2 cents to US89 cents.

Minews. Not much to write home about, then. Let’s move through the sectors, picking out any highlights, please.

Oz. We’ll start with nickel for a change as it can often be the first mover among the base metals if there is a trend developing. And, if you look at the 30-day level of nickel in the warehouses of the London Metal Exchange, and the corresponding price reaction, it is possible to discern a trend. Stockpiles have declined by about 2,000 tonnes after a steady rise over the past year, and the price of nickel has risen from US$7.70 a pound to US$9.30 per pound. We’ll need to see a further continuation of that trend before we can suggest that nickel is making a full-blown return, but the direction is encouraging.

On the market, Western Areas (WSA) delivered one of the better performances among the nickel miners, adding A21 cents to A$4.49 after reporting a solid increase in revenue for the half-year to December 31st. Mincor (MCR) rose by A4.5 cents to A$1.52, but did trade up to A$1.60 on Wednesday after reporting a return to profits for the December half. Although modest by past standards, Mincor’s A$14.2 million profit represented the sort of turnaround which nickel investors have been waiting for. Elsewhere, Minara (MRE), which will be a major beneficiary of a higher nickel price, put on A11.5 cents to A75 cents, and Independence (IGO) rose a modest A6 cents to A$4.07. However, Panoramic (PAN) surprised by shedding A2.5 cents to A$1.74, a decline which looks even worse when you consider the stock traded as high as A$1.93 on Wednesday. There’s no fresh news from Panoramic, but a fall of that suddenness would normally justify a query from the ASX.

Minews. Interesting on two counts: that nickel is on the march, and that there was a sharp fall from Panoramic, especially given that the company reported a return to profit in early February.

Oz. Indeed. Moving on, let’s wrap up the base metals before switching to iron ore, which is newsworthy, and gold, which isn’t.

Minews. And coal, which seems to be producing a few star performances recently.

Oz. Indeed. After nickel, the other base metals were flat, in the case of the zinc companies, and mainly down in the case of the copper miners. Zinc stocks moved no more than one or two cents either way. Terramin (TZN) added A2 cents to A75 cents, while Ironbark (IBG) crept up by half a cent to A15.5 cents. Perilya (PEM) was steady at A58.5 cents, and Zinc Company (ZNC) slipped half a cent lower to A19.5 cents, despite reporting an interesting manganese discovery.

Copper had one star, Exco (EXS) which is attracting support again after a long break on the sidelines. It has gold and copper projects moving forward, twin attractions which should generate even more interest as the year progresses. On the market, Exco rose by A5 cents over the week to close at A24 cents, but did trade as high as A26.5 cents on Wednesday. The only other copper stock in the black was Talisman (TLM), which added A5 cents to A$1.07. Then comes a long list of fallers which included Sandfire (SFR), down A40 cents to A$3.80, Equinox (EQN), down A31 cents to A$3.51, CuDeco (CDU), down A35 cents to A$3.63, Citadel (CGG), down A1 cent to A34 cents, and Hillgrove (HGO), down half a cent to A39 cents.

Minews. Iron ore next, please.

Oz. Fortescue (FMG) was the big surprise, and disappointment, for the week. Overall, the company’s shares slipped by a seemingly insignificant A4 cents to A$4.89, but that closing price needs to be seen against the A$5.20 reached on Wednesday and Thursday, two days before Fortescue reported a disappointing set of financials, and delayed its expansion plans. Most other iron ore stocks managed modest gains, with one stand-out performer, Brockman Resources (BRM). Brockman hit a fresh 12 month high of A$3.29 during Friday trade, before ending the week at A$3.16 for a gain of A20 cents. Magnetic (MAU), which has triggered interest with its “follow the railway lines” exploration technique, put on A9.5 cents to A48.5 cents, while Giralia (GIR), which is applying the same concept, was steady at A$1.70. The difference can possibly be explained by heavy-duty day-trader speculation, as Magnetic is the talk of the chattering class. Other iron ore moves included Atlas (AGO), which rose A2 cents to A$2.11, and BC Iron (BCI), also up by A2cents to A$1.23. On the downside, Iron Ore Holdings (IOH) dropped by A11 cents to A$2.29.

Minews. And gold?

Oz. Surprisingly boring, given that there was some good exploration and production news. Focus (FML) reported more high-grade assays from its Tindals and Empress mines, but the market gave that news a very modest reward, and only lifted the stock by A0.1 cents to A6.1 cents. Cortona (CRC) got similar treatment after delivering good drilling results, initially adding A1.5 cents to A15.5 cents, but ending the week steady at A14 cents. The rest of the sector was fairly flat, moving a few cents either way here and there. Going up, Kingsrose (KRM) rose by A4 cents to A64 cents, Troy (TRY) rose by A2 cents to A$2.20, and Perseus (PRU) put on A4 cents to A$1.72. Going down, OceanaGold (OGC) lost A23 cents to A$2.11, Andean (AND) slipped A2 cents lower to A$2.53, and Kingsgate (KCN) slid A21 cents lower to A$8.78.

Minews. Time for the energy twins, coal and uranium, and any specials to finish, please.

Oz. Coal first, because Coal of Africa (CZA) moved in response to our midweek story, adding A17 cents to A$2.52, with trades on Friday up as high as A$2.58, A1 cent short of the stock’s 12-month high. Other coal moves included Riversdale (RIV), up A19 cents to A$8.19, and Centennial (CEY), up A6 cents to A$3.82.

Uranium stocks were all over the shop. Bannerman (BMN) which has been trying hard to cash in on the success of its near-neighbour in Namibia, Extract Resources (EXT), was marked down sharply to A50.5 cents, a fall of A9 cents, but was sold off to as low as A48 cents on Friday, a 12 month low. Extract, however, reported more promising results from its Rossing South project, and added A25 cents to A$7.40. Paladin (PDN) recovered lost ground thanks to a bit of buying by the company’s chief executive, John Borshoff. It added A30 cents to A$3.84. Manhattan (MHC) lost A21 cents to A$1.45 and Forte (FTE) added half a cent to A17.5 cents.

Minews. And specials?

Oz. Nothing of note, except to report that the slow-moving float of Scandinavian Resources has been given a boost after the manganese miner, OM Holdings (OMH), ensured that the offer will close successfully by taking a cornerstone 19.9 per cent stake in the company. That makes it the second adventure by OM into Nordic mining, as it splashed out a few weeks ago with a A$61 million investment in the Norwegian iron ore producer, Northern Iron.

Minews. Which means either that OM loves cold-climate investing, or that it’s making itself less palatable to its would be suitor, the Ukrainian oligarch, Gennadiy Bogolyubov.

Oz. Precisely.

Minews. Thanks Oz.
 

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