"The best place to be is in commodities"

[tothemax6]

Hi All,

Posted this in the stocks forum, no one really wanted to talk about it there, so I figured I will drop it here too, in case someone misses it:

Spotted this IPO for Potash West. Appears to be a company that is going to engage in glauconite exploration, (glauconite being convertible into potash). Sounds interesting if you are one (like me) who sees there being increasing demand for food (and thus fertilizer).

http://potashwest.com.au/

 

[GumbyLearner]

Hi All,

Posted this in the stocks forum, no one really wanted to talk about it there, so I figured I will drop it here too, in case someone misses it:

Spotted this IPO for Potash West. Appears to be a company that is going to engage in glauconite exploration, (glauconite being convertible into potash). Sounds interesting if you are one (like me) who sees there being increasing demand for food (and thus fertilizer).

http://potashwest.com.au/

I wonder if they can obtain a JORC similar in size to that of MAK. Noticed that Griffin from NTU is on the board. Thanks for the heads up tothemax6.

 

[GumbyLearner]

Agricultural Commodities Are Getting Smashed In The Face Today
By Joe Weisenheimer

http://www.businessinsider.com/agricultural-commodities-february-22-2011-2

We mentioned Friday that signs were building up that the soft commodity bubble was popping.

Today it's vicious.

Corn, soybeans, wheat, and cotton are all getting smashed in the face today.

Here's a look at the Deutsche Bank Multi-Sector Agriculture Fund, which is down over 2.3%. It actually doesn't quite to justice to some of the moves.


******************************************************************************
THE WAY I SEE IT IS

Either 1) tonnes more food production/deflationary QE foodstuffs have come onto the market or
2) Oil is in play now.

Here's an excerpt from an old silver screen classic as noted by a blogger on Joeys site



DYOR

 

[GumbyLearner]

Agricultural Commodities Are Getting Smashed In The Face Today
By Joe Weisenheimer

http://www.businessinsider.com/agricultural-commodities-february-22-2011-2

We mentioned Friday that signs were building up that the soft commodity bubble was popping.

Today it's vicious.

Corn, soybeans, wheat, and cotton are all getting smashed in the face today.

Here's a look at the Deutsche Bank Multi-Sector Agriculture Fund, which is down over 2.3%. It actually doesn't quite to justice to some of the moves.

View attachment 41550
******************************************************************************
THE WAY I SEE IT IS

Either 1) tonnes more food production/deflationary QE foodstuffs have come onto the market or
2) Oil is in play now.

Here's an excerpt from an old silver screen classic as noted by a blogger on Joeys site
Lloyd trades the van for a 70 mile a gallon scooter. It's a gas of a movie.


DYOR

The authors name is Joe Weisenthal not Weisenheimer.

 

[drillinto]

February 21, 2011

"The Pro-Democracy Movements In The Middle East Must Be Food For Thought For The Chinese"
By Rob Davies
www.minesite.com/aus.html [Free Registration]

Stonking results from Anglo American and BHP Billiton last week can be seen as confirmation, if any were needed, of the strength of the commodity boom. A total of US$17 billion in net profits for the pair, over 12 and six months respectively is a handsome number. Some of it will be paid out as dividends, some used in share buybacks, and the rest will go towards the US$81 billion of investment in new projects the two companies are working on.

In the light of past experience, that’s an interesting number. One of the three root causes behind the current boom is the lack of investment in new capacity that took place over much of the previous two decades. The second, linked, root cause is that, over the same period, miners bought each other instead of developing new capacity. Gencor, the predecessor of BHP Billiton, was the prime mover in this development. And a consequence of this rationalisation was the consolidation of the industry, which aimed at removing uneconomic capacity and making profit, not volume, the key driver. It worked.

These were key on the supply side, but it something else really lit the fire. The third root cause behind the current boom is the huge and sustained demand for raw materials that has come out of China over the last decade, giving the industry a huge new outlet for its commodities.

The Chinese authorities have succeeded only too well in mobilising the innate capitalist instincts of 1.3 billion Chinese, in a drive to give them wealth and jobs. And in China the curious mixture of a command economy with free market forces has combined to create a charging juggernaut of an economy that seems, quite frankly, to be out of control.

The timid steps that are being taken to restrain this economic leviathan are having little effect. Last week’s 0.5 per cent increase in the reserve requirements for Chinese banks is a case in point. It was the fifth such move in the last six months, and did cause metal prices on the LME to come off the boil. It brought copper down from US$10,900 a tonne to US$9,799, while the LME Index itself dropped 0.6 per cent to 4,372.1. So it is not as if these measures are not having an effect. They are - growth in Chinese car sales has dropped. It is only 16 per cent now.

The problem the Chinese government has is that it knows this pace of growth is unsustainable, but that it also has to keep its vast population busy and gainfully employed. They, like the rest of us, must be looking at the Arab world and seeing what happens when unemployed and disenfranchised young people refuse to accept their lot. China needs to keep growing to keep its people employed, so that their lack of political power is not an issue. But there’s also an awareness that the country’s policy of unlimited and unregulated lending cannot continue, because inflation is rising.

The point when an economy tips over is different in every country. But we have seen it happen everywhere, from Japan to Ireland. And it is then that the fundamental political structure of the country comes under pressure. Homogenous populations, like Japan and Ireland, seem able to survive this stress quite well. But it’s also noteworthy that the political systems in these two countries are both democracies. The electorate, if dissatisfied, can kick the bums out. That is not the case in the Arab world, or in China. While there is no suggestion just yet that the Chinese locomotive is running out of steam, there is a limit to its endurance somewhere.

For the time being the Chinese growth story is dragging commodities along nicely in its wake, and the mining companies are enjoying the ride - as we have seen from last week’s results. The question for them, and for the Chinese, is: what happens when the brakes do actually start to work? After the restructuring of the last few years the mining industry is leaner and meaner and well placed to cope with lower demand growth. But what happens in China if the populace starts to want a say in how the country is run is a much more open question.

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

 

[drillinto]

"Oil Hits Most Overbought Level Since 1999"
Friday, February 25, 2011

Following its monster surge earlier in the week, the price of oil closed more than three standard deviations above its 50-day moving average on Wednesday. This is a feat that hasn't been accomplished in more than ten years, and going back to 1983, it has only occurred in eight other periods. In the table below, we highlight the first day in each period where this occurred as well as the commodity's performance over the next week and month. In more than half of the prior periods, crude continued to rise, averaging gains of 1.07% over the next week and 4.03% over the next month. These gains are somewhat skewed by the spike in August 1990, but even if we use median returns the results are still positive, albeit less so.


>>> To see the table, please click the link below:
http://www.bespokeinvest.com/thinkbig/2011/2/25/oil-hits-most-overbought-level-since-1999.html

 

[drillinto]

February 26, 2011

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. You probably don’t have much good news to share after a bumpy week.

Oz. Not a lot. Our market was about as exciting as watching Canada and Kenya play cricket in India, in a competition which some wag reckons ought to called the World Cup. I reckon the third eleven from my old school would give some of those teams a run for their money.

Minews. Doesn’t sound like there’s much of interest to report at all?

Oz. I wouldn’t say that. Three men and a dog watched the Canada-Kenya game in a stadium built to hold a crowd of 100,000, but the action on the ASX was at least well-followed by investors all round world, even if they weren’t exactly riveted by what the traders got up to. With that in mind, we’ll ferret out the more interesting movements in the Aussie market to brighten things up. But before we do that, let’s just set the scene. The all ordinaries index lost two per cent last week. The metals and minerals index lost 2.2 per cent, and the gold index eased by one per cent. One major event that affected the Australian market was, naturally, Libya’s growing civil war. But there was also concern about China’s continued tightening of its red-hot economy, and about yet another grand tax plan from the Australian Government.

Minews. You’re not serious? Another new tax on top of the mining tax?

Oz. Yep. The latest is a proposed carbon tax. Not a carbon trading scheme, just a flat tax, which we are told will become a trading scheme sometime in the future, maybe. Mining and oil will be hit hard by the new tax, which could harvest around A$3.5 billion a year. Perhaps unsurprisingly, it’s the creation of the Green Party, which is having an increasing say in how the country is being run. All of which means is that we’ve had three new taxes proposed in less than 12-months: the mining tax, a flood levy, and now the carbon tax.

Minews. Sounds like the current government might have a death wish.

Oz. No doubt about that, especially as the Prime Minister, Julia Gillard, said several times in the campaign before the August election that she would not introduce a carbon tax. Her exact words, on August 16th were: “There will be no carbon tax under the government I lead”. The critics have been merciless over that clear breaking of a promise, referring to her as “Ju-Liar” Gillard, a tag which seems to be catching.

Minews. Enough of the background. Time for prices, starting with the exceptional performers, followed by a call of the card.

Oz. Trawling through companies you’ve probably never heard of is always fun, and is often a way to discover or rediscover one or two fresh investment ideas. One bright light last week was Aguia Resources (AGR), which rose by A29 cents to A$1.20 in early Friday trade, as in interest in its plans for potash production in Brazil grew. The shares then eased somewhat to close at A$1.07, an overall gain for the week of A16 cents. Another company attracting interest was Alcyone (AYN), which rose A1.4 cents to A6.3 cents in response to the ongoing strength in the silver price. Meanwhile, another silver player, Cobar Consolidated (CCU), continued to move up, adding A5 cents to A93 cents. And Corazon Mining (CZN) caught the eyes of a few traders, on the strength of its exposure to Colombian platinum, and because it’s the latest plaything of Ed Nealon, the man who helped create Aquarius Platinum. Corazon’s shares rose A1 cent to A11.5 cents. In percentage terms the best of the new names was Metaliko (MKO), which reported encouraging gold assays from its Anthill prospect in Western Australia. Among the best was 44 metres at 2.4 grams of gold a tonne from a depth of 56 metres. That result helped Metaliko add A7 cents to A21.5 cents, though the shares did get as high as A24 cents on Friday.

Minews. Interesting. But now let’s switch across to the sectors, starting with gold.

Oz. Good choice because gold was the only sector that produced more than a couple of risers, though even here most gains were modest. Among the notable performers, Allied (ALD) added A4.5 cents to A65 cents, Crusader (CAS) put on A5 cents to A$1.14, and Kingsrose (KRM) gained A4.5 cents to A$1.37. Silver Lake (SLR) was also better off, up A14 cents to A$2.05 after a positive presentation by its chief executive, Les Davis, at an explorer’s conference in Fremantle. After that it was all down. Among the fallers, Troy (TRY) fell A9 cents to A$3.73, Kingsgate (KCN) fell A31 cents to A$9.35, Mt Isa Metals (MET) fell A6 cents to A62 cents, Ausgold (AUC) fell A15 cents to A$1.40, and Resolute (RSG) fell A7 cents to A$1.32.

Minews. Base metals next, please.

Oz. There was weakness right across the copper, nickel and zinc sectors, barring a handful of minor upward moves. The best performances in copper came from Hot Chili (HCH) which put on A2.5 cents to A66 cents, and Sumatra Copper (SUM), which rose half a cent to A28.5 cents. Best of the zinc companies was Overland (OVR), which announced an expanded resource at its Darcy project in Canada. In response, shares in Overland rose by A1.5 cents to A26 cents, but did get as high as A30 cents on Friday. No nickel company rose.

Elsewhere in the copper space, it was all down. Equinox (EQN) fell A21 cents to A$6.22. Exco (EXS) fell A5 cents to A58 cents. Marengo (MGO) fell A2.5 cents to A30 cents. Sandfire (SFR) fell A2 cents to A$7.24. OZ (OZL) fell A7 cents to A$1.64. Discovery (DML) fell A11 cents to A$1.26. In nickel, it was no better. Independence (IGO) fell A16 cents to A$6.82. Mincor (MCR) fell A5 cents to A$1.69. Panoramic (PAN) fell A20 cents to A$2.27. Finally, Western Areas (WSA) fell A22 cents to A$6.68.

In zinc, Perilya (PEM) fell A5 cents to A62 cents, Prairie Downs (PDZ) fell A4 cents to A20.5 cents, and Terramin (TZN) fell A3 cents to A39.5 cents.

Minews. Across to iron ore and coal.

Oz. It was a similar picture in both iron ore and coal: most down, a few up. The only rise of real interest among the iron ore companies came from Brockman (BRM) which added A39 cents to A$5.49, as it continues to resist the curious takeover bid from Hong Kong’s Wah Nam taxi-hire firm. The only rise of interest among the coal companies came from the coking coal explorer, Carabella (CLR) which added a sharp A35 cents to A$2.25.

Elsewhere in iron ore it was all down. BC Iron (BCI) fell A7 cents to A$3.04, even though it loaded its first shipload of ore this week. Fortescue (FMG) fell A38 cents to A$6.50, despite reporting a major new discovery. Also weaker were Atlas (AGO), down A7 cents to A$3.90, Gindalbie (GBG), down A4 cents to A$1.14, and Iron Ore Holdings (IOH), down A10 cents to A$1.70.

In coal, Aston (AZT) fell A39 cents to A$8.82, Coal of Africa (CZA) fell A7 cents to A$1.39, Riversdale (RIV) fell A52 cents to A$15.18, and Stanmore (SMR) fell A3 cents to A$1.22.

Minews. Uranium and the minor metals to close, please.

Oz. Uranium companies were hammered by the sharp fall in the uranium price following reports that a Chinese utility was selling part of its stockpile. Manhattan (MHC) fell A18 cents to A98 cents. Berkeley (BKY) fell A10 cents to A$1.49. Bannerman (BMN) fell A5.5 cents to A76.5 cents. Extract (EXT) fell A41 cents to A$9.15, and Paladin (PDN) fell A16 cents to A$4.98.

In potash, the best performer was South Boulder (STB), which managed to rise by A40 cents to a fresh all-time high of A$5.13, before easing to end the week at A$5.00.

The minor metal companies were mostly weaker too. In tin, Venture (VMS) dropped A2 cents to A53 cents, and Kasbah (KAS) dropped A2 cents to A33.5 cents. The rare earth companies, Lynas (LYC), Arafura (ARU) and Alkane (ALK) lost ground too. Lynas fell A3 cents to A41.90, Arafura fell A4 cents to A$1.22, while Alkane fell A8 cents to A$1.16. Lithium companies were also weaker. Galaxy (GXY) lost A9 cents to A$1.44, and Orocobre (ORE) slipped A15 cents lower to A$3.05. Reed Resources (RDR) also fell, A5 cents weaker at A65 cents after it announced a big capital raising to pay for its acquisition of the Meekatharra gold assets of Mercator Gold.

Minews. Thanks Oz.

 

[drillinto]

"If the Saudis revolt, the world’s in trouble"
The fate of the global recovery rests on events in Riyadh , says Jeremy Warner.
The Telegraph(UK), 24.02.2011

http://www.telegraph.co.uk/finance/...-the-Saudis-revolt-the-worlds-in-trouble.html

[The article has already more than 200 comments from readers]

 

[drillinto]

February 28, 2011

China’s Per Capita Use Of Copper Is Still Ten Years Behind That Of Its Asian Peers
By Rob Davies
www.minesite.com/aus.html [FREE REGISTRATION]


Every year since 1956 Barclays Bank has released a report called The Equity Gilt Study which details the returns of the major asset classes - equities and bonds - and which has formed the backbone of many investment policies. Over time, the report has expanded to include other asset classes, and now includes commodities. This year’s report takes a long term view of the sector, and gives due consideration to the prediction made by Malthus back in 1798 that rising populations would lead to an exhaustion of natural resources and thus limit growth.

As he was writing at the dawn of the steam age, Malthus failed to appreciate the impact technology would have in discovering and exploiting new resources. Indeed, Barclays makes the point that technology has been a consistent deflationary force on commodities for most of the intervening 200 years.

However, the last decade has seen the rise of a massive new source of consumption in China, and the potential for even more from places like India and, who knows, perhaps even in the Arabian world, after these new Jasmine Revolutions.

There are genuine concerns among many experts that the Chinese economy is growing far too fast, fuelled by an easy money policy, and that it will all end in tears. The Chinese economy, the thinking goes, is currently behaving like an exuberant teenager on his first motorbike. Nevertheless, if it can survive its first crash, it should be set for a long and prosperous adult life.

But, assuming that that’s true, and that the Chinese economy matures, what worries Barclays in this year’s report is that technological advance simply won’t be able to cope with the massive additional demand that is still to come from China, let alone from other countries.

Barclays makes the point that China currently accounts for 40 per cent of global copper demand but that its per capita use is still ten years behind that of the average developed Asian economy. If you make the assumption that it will eventually get there, then Chinese copper consumption could rise from the current level of 7.3 million tonnes a year to 20 million tonnes. To put that into perspective, the current annual total worldwide production of copper is only 16 million tonnes.

That’s a lot of copper to find, finance, develop and produce, every year.

Not only is the scale of this task daunting, but the industry is starting on the back foot. The long period of depressed metal prices in the 1980s and 1990s reduced the attraction of finding and developing new deposits, and so the reserve base shrank. Even in the boom years, it’s taking a long time to catch up. The increase in recoverable reserves in the ten years to 2010 was half the increase in the previous decade.

But now that demand has taken off, and production has increased, this lack of reserve can be seen in statistics that show much reduced global average mine lives. In 1980 global copper reserves were sufficient for 36 years. Today that figure is third less, at 24 years.

Having said that, Barclays’ cogitations on the long term outlook didn’t distract metals markets last week overmuch. Base metals, as measured by the LME Index fell 2.1 per cent to 4,280.9, and copper led the way with a drop of 3.7 per cent to US$9,439 a tonne. Malthus might regard as that as a buying opportunity, for the next 200 years.

 

[drillinto]

Must read !

Fraser Institute(Canada)

Survey of Mining Companies: 2010-2011
http://www.fraserinstitute.org/uplo...arch/publications/mining-survey-2010-2011.pdf

[NOTE: This survey includes also Australia]

 

[drillinto]

March 02, 2011

"Equinox’s Offer For Lundin Keeps It One Step Ahead Of Its Predators"
By Our Man in Oz
www.minesite.com/aus.html [The registration is free]


In considering the US$9 billion takeover bid that Australia’s Equinox Minerals has made for Canada’s Lundin Mining it’s necessary to take a look at the bigger picture, which in this case might best be called “the copper pecking order”. A table of just such a pecking order was produced by Equinox when it set about attempting to prove to Lundin shareholders that its cash and share swap offer is superior to the also mooted merger of equals between Lundin and Inmet Mining. Equinox’s table shows how a combination of Equinox and Lundin will create, by 2016, the world’s eighth biggest copper company. It’s an attractive proposition, but such an entity would also make a tasty target for the seven bigger copper businesses, and some of the other companies being used in Equinox/Lundin game of leapfrog.

Ahead of Equinox/Lundin are five aggressively expansionist mining companies keen on copper. All five, Freeport McMoran, BHP Billiton, Xstrata, Anglo American, and Rio Tinto, will have been keeping a close eye on Equinox, with its world-class, stand-alone, Lumwana copper mine in Zambia. Rio Tinto and BHP Billiton are especially keen to boost their copper production. They are less likely to have been looking at Lundin which has a more diverse spread of interests – its best asset is a minority 24.75 per cent stake in the world-class Tenke Fungurume copper and cobalt mine in the Democratic Republic of Congo (DRC), a project controlled by Freeport.

The big five are natural party spoilers in the race up the copper league table, but the same can also be said for some of the companies being left behind. Vale, the big Brazilian, is as keen on copper as everybody else, but will be a distant 15th on the copper league table if it does nothing during the current corporate feeding frenzy. Vedanta, Antofagasta and Teck will also be shoved down the list by a combination of Equinox and Lundin, unless they join the game.

Equinox boss, Craig Williams, knows all of this, and he knows how closely he is being watched. He has probably lost count of the number of times a journalist or analyst has asked whether Equinox will “eat, or be eaten” as the China-driven commodity super-cycle steams ahead. Minesite’s Man in Oz has been one of those who popped that question to Craig, as recently as at a pre-Christmas drinks gathering, receiving in reply a pleasant smile and a comment along the lines of “business is business”.

Two weeks before Equinox moved on Lundin, there were stirrings in Australia that unless Equinox moved quickly it would be a target itself. The local business newspaper, the Australian Financial Review, carried a story suggesting that Rio Tinto was ready to double-up on its African bets, adding Equinox to a bid it already has on the table for the Mozambique coking coal specialist, Riversdale Mining. Key to that February 14th story was a comment from Rio Tinto’s copper boss, Andrew Harding, who was quoted saying: “we are looking at the Copper Belt area, it is unbelievably prospective with what is in the ground”.

That comment was picked up by one investment bank, RBS, which put two and two together to come up with Equinox as the answer, telling clients on the same day that: “Rio may bid for Equinox”. The firm then rattled off a list of reasons why Equinox was a good buy, including its growing copper production profile, and the recent acquisition of Citadel Mining with its attractive portfolio of assets in Saudi Arabia. RBS also highlighted that Equinox is “one of the few pure copper plays” and explained how it would fit with Rio Tinto’s small-to-medium acquisition criteria. “Further, grade declines across Rio Tinto’s existing operations suggest the company needs further projects in order to maintain production”, RBS wrote.

Rather than being eaten, as RBS suggested, Equinox went back to the feeding trough little more than three months after its launched its friendly bid for Citadel, and exactly one month after the Citadel bid has wrapped up. To move so quickly onto the Lundin deal, while still digesting Citadel, is a sign either of extreme confidence at Equinox that the copper boom will continue for some time, or that the comments from Rio Tinto’s Andrew Harding, and RBS’s interpretation of those comments, were on the money.

Whatever triggered Equinox’s second corporate deal in a matter of months, the market is less certain of the move on Lundin than it was about the Citadel acquisition. Since the Lundin bid was announced Equinox shares have fallen by seven per cent to A$5.78, and some investment analysts have expressed surprise at the aggressive timing of the proposed deal, upsetting Lundin’s merger with Inmet, and so soon after the Citadel acquisition.

Cormark Securities is also now thinking along the same lines as RBS, telling clients on 1st March that perhaps it was a case of “eat, or be eaten”. UBS said the “last minute offer comes as a surprise”. RBC Capital Markets said it was not expecting a rival bid from Inmet, but noted that Equinox’s move was “not without risks, principally a US$3.2 billion bridging facility and increased risk in the DRC”. Clarus Securities was more positive, noting that Lundin brought underground expertise which Equinox will need at Citadel’s Saudi assets. Paradigm Capital told clients there was “no harm in thinking big”.

But mixed reviews will not worry Craig who has spent more than decade building Lumwana, sometimes against stiff head winds. The market will now wait to see if he can get the Lundin acquisition across the table before he faces a move by Rio Tinto, or one of the other big boys in copper. Or whether other mining companies he proposes to leapfrog over snap him up after the deal is done. The big Brazilian, Vale, is in particular very keen to not drift too far behind its rivals in the copper club.

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

 

[GumbyLearner]

China wheat crops safe, may ease concerns of further price rise
Published on: March 05, 2011 at 17:00

BEIJING (Commodity Online) : Subsequent to reports that China may face a winter wheat crop failure, the country’s top agricultural official has clarified that the crop situation may not be as bad as anticipated.

This declaration may ease concerns in the global market of a potential wheat price rise that would have occurred had China entered a shopping-spree-mode for wheat.

According to Chen Xiwen, director of the office for the Communist Party of China (CPC) Central Committee's Leading Group on Rural Work, the winter drought hit the crops when they were under hibernation and the subsequent rainfalls coupled with irrigation efforts has improved the crop scenario, reported china.org.cn.

But the official cautioned of a price rise with anti-drought measures raising the price bar of wheat.


READ MORE HERE -> http://www.commodityonline.com/news...concerns-of-further-price-rise-36975-3-1.html

 

[GumbyLearner]

Looks like the spec money from ag to oil had little effect

http://finance.yahoo.com/echarts?s=...=on;ohlcvalues=0;logscale=on;source=undefined

DYOR

 

[Garpal Gumnut]

China wheat crops safe, may ease concerns of further price rise
Published on: March 05, 2011 at 17:00

BEIJING (Commodity Online) : Subsequent to reports that China may face a winter wheat crop failure, the country’s top agricultural official has clarified that the crop situation may not be as bad as anticipated.

This declaration may ease concerns in the global market of a potential wheat price rise that would have occurred had China entered a shopping-spree-mode for wheat.

According to Chen Xiwen, director of the office for the Communist Party of China (CPC) Central Committee's Leading Group on Rural Work, the winter drought hit the crops when they were under hibernation and the subsequent rainfalls coupled with irrigation efforts has improved the crop scenario, reported china.org.cn.

But the official cautioned of a price rise with anti-drought measures raising the price bar of wheat.


READ MORE HERE -> http://www.commodityonline.com/news...concerns-of-further-price-rise-36975-3-1.html

GL can you expand on the cyclical nature of commodities.

gg

 

[drillinto]

March 05, 2011

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


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

Oz. It was, though most of the heavy lifting was done by the gold sector which reacted quickly to the higher gold price which we enjoyed for much of last week, but which will face stiff headwinds on Monday, in light of the sell-off that occurred after we had closed. When the final bell was rung on Friday at the ASX, the gold price was around US$1,434 an ounce. When the final bell was run at the pub later that night gold was back at around US$1,416 an ounce.

Minews. Are you saying that in the interests of the gold price it’s best to not go to the pub on Friday night?

Oz. Now, that would be a tough choice for an Aussie.

Minews. Indeed. Time to end the chit chat, and get back to the markets.

Oz. Good idea. The big picture on the ASX last week involved strength in gold and other resource stocks, weakness in just about everything else. The gold index rose by 2.7 per cent, thanks in large part to a very strong performance by the sector leader, Newcrest (NCM) which rose A$1.39 to A$40.02 after some good discovery news. The metals and minerals index gained 2.2 per cent in the wake of solid rises by Rio Tinto and BHP Billiton, while the all ordinaries only managed a modest rise of 0.7 per cent.

Minews. Let’s go straight to gold, and a break from tradition by looking at that Newcrest discovery news.

Oz. ‘Bonanza’ is probably not too strong a word for the result that Newcrest reported on Friday morning, although the market has probably still not yet fully appreciated the potential size of what Newcrest has discovered in the Highlands of Papua New Guinea, at a project called Wafi-Golpu. The latest drill hole into the Golpu part of the discovery returned an assay of 883 metres at 2.23 grams of gold a tonne, plus 2.15% copper. Within that massive drill core was an enriched zone covering 628 metres at 3.06 grams gold and 2.82% copper. The exploration target there has now been lifted to 30 million ounces of gold and eight million tonnes of copper. A third porphyry-like structure called Miapilli yet to be included in any estimates. When the dust settles on what Newcrest has hit in the Highlands, and the results are combined with its Lihir, Telfer and Bonikro mines, it seems likely that Newcrest will be sitting on a gold and copper resource base bigger than that of Newmont, Goldcorp or AngloGold, the recognised global gold leaders.

Minews. Sounds exciting, with the potential for rub off on other PNG miners.

Oz. Perhaps in time, because the discovery underlines the enormous mineralised potential of the Pacific Islands, and companies already on the ground there, like Marengo Mining (MGO), which continues to add tonnes to its Yandera copper project. Last week’s development for Marengo was the appointment of Standard Bank as financial adviser to the Yandera development, a move which helped the shares rise A3 cents to A33 cents.

Minews. Time to call the card, starting with gold, please.

Oz. After Newcrest it was a mixed picture in the gold sector. PMI Gold (PVM), which is making good progress with its Obotan project in Ghana, added A15 cents to A83 cents after reporting further encouraging assays, including 80.08 metres at 7.49 grams per tonne of gold. Ausgold (AUC), the company we took a look at a couple of weeks ago because of interest in its grandly-named South Boddington project, added A10 cents to A$1.50. Then came long queues of modestly positive and modestly negative performances. Among them, Mt Isa Metals (MET) rose A5 cents to A67 cents, Silver Lake (SLR) rose A5 cents to A$2.10, Tanami (TAM) rose A3 cents to A97 cents, Beadell (BDR) rose A3.5 cents to A82.5 cents, Gold Road (GOR) rose A5 cents to A35 cents, Medusa (MML) rose A13 cents to A$7.22, and Norton Goldfields (NGF) rose A1.5 cents to A19.5 cents. On the other side of the coin, Troy (TRY) dropped A15 cents to A$3.58, and Kingsgate (KCN) slipped A17 cents lower to A$9.18. Meanwhile, A1 Minerals (AAM) dropped A1.3 cents to A6.6 cents after lodging one of the more interesting reports seen at the ASX, a complaint casting doubt on geological information about gold resources provided by the company’s former managing director. The board has called for an independent review to verify how much gold it really has at its Brightstar project.

Minews. That sounds like a spot of fun. Let us know how it works out.

Oz. It is interesting, and while painful for investors in A1, it’s a useful reminder that housekeeping matters can easily be overlooked in boom market conditions. Gold aside, the rest of the sectors were rather dreary, with iron ore, base metals, coal and uranium all marking time, or slipping lower. Best of the non-gold sectors was what might be called minor metals where rare earths, tin, vanadium, zircon, and potash all attracted interest.

Minews. Okay, let’s cover the minor metals and save the dreary bits for last.

Oz. Lynas (LYC) led the way up among the rare earth companies, adding A30 cents to A$2.20. It was followed by Alkane (ALK), which rose A12 cents to A$1.24, and Arafura (ARU), which rose A2 cents to A$1.20. Interest in the rare earths generally was sparked by news of a big Japanese and Korean investment in a Brazilian project. Potash companies were led higher by South Boulder (STB), which soared to a fresh all-time high of A$6.25 on Tuesday before easing to end the week at A$5.80, a gain of A80 cents. Atlantic (ATI) continues to attract interest, as it undertakes a third attempt at creating a successful operation at the Windimurra vanadium project, and added A22 cents to A$1.93. Mineral Commodities (MRC), a company we haven’t heard much from in a while, rose by A3.5 cents to A12 cents, amid signs that it might be making progress with its southern African ilmenite and zircon projects.

Galaxy (GXY) was the best of the lithium companies, putting in a small rise of A2 cents to A$1.46. That may not look like much, but its rival, Orocobre (ORE), lost A21 cents to A$2.84. Stellar (SRZ) was the pick of the tin companies, and rose A5 cents to A22 cents after reporting high grade assays from its Heemskirk project in Tasmania. Kasbah (KAS) lost A2 cents to A31.5 cents, and Venture (VMS) slipped A1.5 cents lower to A51.5 cents, despite positive development news. Silver companies, which seem to be developing a life separate from gold, all rose. Cobar (CCU) put on A10 cents to A$1.03. Alcyone (AYN) added A1 cent to A7.3 cents, and Silver Mines (SVL) also gained A1 cent to A37.5 cents.

Minews. Quite a mix there. Now for the regular sectors, starting with iron ore, please.

Oz. Flat, as warned. Brockman (BRM) was the pick of the iron ore plays, adding A51 cents to A$6.00, while Iron Ore Holdings (IOH) gained A16 cents to A$1.86. After that it was flat or down. Aquila (AQA), which also has coal interests, added A12 cents to A$8.75. Atlas (AGO) slipped A3 cents lower to A$3.87. Murchison (MMX) was flat at A$1.39, Mt Gibson (MGX) was flat at A$2.02, and Sherwin (SHD) was flat at A19.5 cents.

Minews. Base metals, coal and uranium to close, please.

Oz. Same story. Not a lot of movement. Best of the copper companies was Rex (RXM), which added A12 cents to A$2.87, Sumatra (SUM) which gained A3 cents to A31.5 cents, and Hot Chili (HCH) which put on A4 cents to A70 cents. Equinox (EQN) fell a sharp A32 cents to A$5.82 as it made its move on Lundin Mining. Sandfire (SFR) failed to move at all, ending the week at A$7.24 despite confirming development plans for its Doolgunna project. Elsewhere, OZ Minerals (OZL) added A1 cent to A$1.65.

Among the nickel companies, only Western Areas (WSA) gained any substantial ground, as it put in a rise of A28 cents to A$6.94. Panoramic (PAN) also rose, adding A2 cents to A$2.29, but Mincor (MCR) slipped A8 cents lower to A$1.61, and Independence (IGO) lost A14 cents to A$6.68.

Most zinc companies were weaker, or unmoved. Overland (OVR) ended its recent upward run with a fall of A6.5 cents to A23.5 cents. Bass (BSM) lost A4 cents to A43.5 cents, and Prairie Downs (PDZ) shed A2 cents to A18.5 cents. Going against that trend was Perilya (PEM) which put on A7 cents to A69 cents.

Coal companies were mixed, but the general trend was up. Aston (AZT) added A17 cents to A$8.99, while Coal of Africa (CZA) gained A4 cents to A$1.43. But Riversdale (RIV) slipped A7 cents lower to A$15.08, and Carabella (CLR) ended its strong upward run with a decline of A21 cents to A$2.04.

Most uranium companies gained a little ground, helped along by the higher uranium price. Extract (EXT) added A31 cents to A$9.46. Paladin (PDN) added A10 cents to A$4.99, and Berkeley (BKY) was up by A1 cent to A$1.48.

Minews. Thanks Oz, especially for not mentioning a certain cricket match against Ireland.

Oz. It was tempting, but manners got the better of me. There has to be a first time for everything – in cricket and manners.

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[GumbyLearner]

GL can you expand on the cyclical nature of commodities.

gg

Weather, Supply/Demand, Scarcity/Gluts etc....

In theory there a plenty of things to consider. The two predominant theories are that of Dewey and Dakin and also Kondratieff. With the former pronounced Dewey as in the system used in the library (refer to clip below) and Kondratieff which many are unwilling to believe even to this day for fear of being sent to the NyetScape (Nyet is no typo that's how its pronounced) Gulag for subversion.



here's a link I just found on the theories.

http://www.safehaven.com/article/1755/are-there-cycles-in-commodity-prices

 

[drillinto]

March 07, 2011

"The Future Value Of The Dollar Is Becoming Harder To Predict Than The Future Value Of Metals"
By Rob Davies
www.minesite.com/aus.html

Many years ago this writer had a proper job working to extract tungsten, to sell to the Russians for use in Afghanistan. The mine was a fascinating geological and operational study, and sat under a large structural fault. It also extended out under the sea, and everyone therefore had a keen interest in ensuring that operations did nothing to disturb the surrounding rock, and allow the Bass Strait to flood the mine. To monitor the situation, the mine surveyors kept a close eye on small ground movements, and that offered them a fair intellectual challenge as they tried to work out what was moving relative to what. Underground, with no external frame of reference, everything is relative.

Metal prices can be viewed in the same way. Conventionally they are measured in the dominant currency of the day. It used to be sterling, but now it’s dollars. The currency is the fixed point of reference and it is the prices of goods and services that move around. In reality of course the value of currencies move around as well, especially after the events of the last few years, making any real analysis of price changes even more complex.

So, on a casual analysis, the 3.6 per cent rise in the LME index over the last week, to 4,436, looks like a powerful gain. In fact, the increase was less dramatic in other currencies, especially the euro, because the euro also rose, by 1.8 per cent over the week. This week’s fall in the dollar was driven in part by a strong hint that the European Central Bank will raise interest rates in April, from their current level of one per cent to 1.25 per cent. Over and above that, though, there is continuing and rising concern over the status of the dollar per se.

In the world of metals it is possible to get a handle, albeit not precise, about future supply from knowledge of existing mines and projects in development. Harder, but still possible, is to estimate what projected demand might look like. That involves some brave estimates of industrial capacity and utilisation rates. Out of the combination of the two comes a net figure of surplus or deficit, and some idea of scale. That then allows analysts to make a prediction on price, after allowing for inventory levels.

All of which tells us what the fundamentals of metals are doing, or are likely to do. However, the unit of measurement, the dollar, is also subject to exactly the same forces of supply and demand. And, at the moment, it seems a lot easier to predict where metals might be going than where the dollar is going. The issue is not just the US$600 billion of new money that the US Federal Reserve is creating through its second round of quantitative easing. That alone adds about four per cent to US dollar money supply.

But a more significant factor is the refinancing problem faced by Uncle Sam. Almost 50 per cent of the US’s US$1.65 trillion debt matures in the next three years. And the average cost of that debt is only 55 basis points.

The size and speed of the recent growth in US debt is staggering. Three years ago the debt was ‘only’ US$1 trillion. At the current levels, and even at the outrageously low interest rates it is currently paying, the US is still spending US$190 billion, or 1.3 per cent of GDP, on debt servicing every year.

Is that sustainable? Who knows. But it’s hard to envisage the US raising interest rates any time soon, while it’s carrying that sort of debt. In which case dollar weakness, and metal price strength, could be prolonged.

Mine surveyors know you have to be sure of the ground you are standing on before you can make an accurate assessment of what’s around you. And maybe these days that is easier for metals than it is for the dollar.

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

 

[GumbyLearner]

GL can you expand on the cyclical nature of commodities.

gg

Here is a well constructed blog piece from March 7, 2011 by Michael Ferrari and the slide he presented at the FAO.

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In a Bloomberg TV report from Thursday morning, the current food supply and price situation was aptly described as "Kitchen Table Economics." With uncertainty over the direction of food costs, underscored by a recent UN statement showing prices at new highs, where do we go from here?

In any given year, commodity researchers at Weather Trends spend a great deal time analyzing the global weather pattern in the context of a variety of commercial interests which span the agricultural and energy supply chain, from grower, to producer, to investor. While the general relationships between weather and food supply are obvious, our analyses go further than just projecting potential production and yield ranges, by discussing the supply implications in a holistic global macro perspective. This includes viewing global commodity balance sheets for the world’s major raw materials through the lens of anticipated production/consumption/export patterns, foreign exchange, and potential weather risk, while placing geography (and geopolitics) at the center of our discussion.

As the food supply chain has evolved into a truly global interconnected system, disruptions in one origin can trigger effects, both physical and financial, which ripple through the markets in real time. In 2007/08, a fairly rapid price spike caught many off guard, but the market seemingly "corrected" (it actually did not), and many prices were back to their previous range by the end of 2008. In contrast, the recent rise in food prices which commenced around the middle of 2010 is accompanied by a much higher level of uncertainty, as well as the increased risk for civil unrest. To be sure, there were plenty of food-related riots in 2008, however, they were largely short-lived and less violent. However, in recent months, nearly every demonstration from MENA to SE Asia, includes some component frustration and anger over the costs of domestic food staples, and If the recent UN note is a sign of what to expect, things will only get worse in the months to come.

The U.N. Food and Agriculture Organization (FAO) stated that food prices rose 2.2% in January. The FAO food price index is comprised of a basket 55 agricultural commodities, and the January index value demonstrated a gain for the eighth consecutive month, climbing to a value of 236, which is the index record since it was created two decades ago. To add to this, even though crude oil futures are down today after a series of session net-gains, most outlooks are supportive of higher oil prices, which will only add to the uncertainty on the agri side. Index gains were largely attributable to the rising cost of cereals, meat & dairy. They noted that sugar was the only monitored commodity that did not exhibit a monthly rise; however, the world is still suffering from a sugar high. According to FAO economist Abdolreza Abbassian, the chief causes of the price increases are tied to weather impacts and supply disruption. That is not to say that the seemingly insatiable demand for nearly all raw materials and high oil prices do not help support prices at these levels, but the primary causes of the rise are being blamed primarily on the supply side. Abbassian went on to say that the "only commodity" that is keeping the world out of a full blown food crisis is rice.

In a talk that I gave at the American Meteorological Society meeting last month, I showed the following slide. The mid year spike in wheat futures was the result of the market absorbing information surrounding the drought/export embargo from Russia. A dry La Nina influenced Argentina limited soybean yields. Lower than expected sugar numbers (India) coupled with flood related losses in Queensland has pushed, and is sustaining, sugar futures above the 30 cent barrier. And there are numerous others. With the well documented cotton shortage, do growers now plant more cotton collecting the cotton premium which is likely to be priced into that market for much of the year, or do they shift acreage to corn where demand from the food and fuel side remain strong. As the 2011 weather/crop relationship takes on heightened importance ahead of the Northern Hemisphere summer planting season, agriculture will likely remain among the largest drivers of global economic activity throughout 2011.



read more here

http://seekingalpha.com/article/256...her-prices-in-agriculture-sector?source=yahoo

 

[GumbyLearner]

Soaring commodity prices at mercy of demand – from speculators

Japan’s devastating earthquake and tsunami barely caused a ripple in North American equity markets. In fact, stocks rose in anticipation of all the lucrative reconstruction activity that will follow in the wake of the cleanup. But the same could not be said for grain prices.

Wheat ZW-FT, corn ZC-FT, soybean ZS-FT and rice ZR-FT futures all plunged, as the bad news from Japan piled on top of a revised forecast from the U.S. Department of Agriculture calling for bigger harvests and higher global stockpiles than previously expected. These and other soft commodities, as the market labels them, have been on a tear for months, fuelled by soaring consumption, a raft of weather-related woes and no small amount of investor demand.

http://www.theglobeandmail.com/glob...cy-of-demand-from-speculators/article1940329/

 

[GumbyLearner]

Wheat, Corn, Soybeans Tumble as Japan Disaster Reduces Demand

March 15, 2011, 11:28 AM EDT

By Jeff Wilson and Whitney McFerron

March 15 (Bloomberg) -- Wheat fell to a four-month low, and corn and soybeans tumbled on concern that the earthquake and nuclear crisis in Japan will reduce raw-material demand.

Equities in Japan had the biggest two-day drop since the 1987 crash as the risk of radiation leaks north of Tokyo escalated. U.S. Treasuries surged. Japan is the world’s leading buyer of corn, the third-largest importer of soybeans and the fifth-biggest purchaser of wheat.

“Increasing levels of radiation have people dumping positions in stocks and commodities and piling assets into cash,” said Alan Brugler, the president of Brugler Marketing & Management LLC in Omaha, Nebraska. “There’s increased risk aversion until the situation stabilizes in Japan.”

http://www.businessweek.com/news/20...-tumble-as-japan-disaster-reduces-demand.html