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September 03, 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 Friday’s sell-down took the gloss off your market.



Oz. It did, though the gold price was certainly becoming a factor as we headed into the weekend. On Monday most gold companies should get a significant boost. When the ASX closed on Friday gold was priced at US$1,829 an ounce. But after the latest disappointing employment news from the US, gold shot up to around US$1,883 per ounce, a price which should add to interest in all forms of gold next week.


But overall, as you suggested, Friday brought the undoing of what had been a reasonably good week up to then. Before the sell-off the all ordinaries index was up by 2.5 per cent, the metals and minerals index up by 3.3 per cent, and the gold index up by 1.3 per cent. By the time we downed tools on Friday the gains had been reduced to 1.1 per cent for the overall market, 1.6 per cent for mining and 0.5 per cent for gold.



Minews. Okay, down to the detail.



Oz. First, three items of good news to brighten the day for readers. Firstly, the iron ore market was boosted by reports that the spot price is back into record territory, and that some trades have been booked at up to US$190 a tonne. That’s a level which confounds critics who have been predicting a price slide. The slight caveat is that the issue with iron ore has been supply disappointments rather than rampant demand. The second item of good news was the success of the Africa Down Under conference, which we reported on during the week. It gave the small end of the mining sector a boost. Third, there was a burst of discovery news which caused a number of companies to rise sharply.



Minews. There’s nothing like discovery news, so let’s go there first.



Oz. Two copper companies have been capturing the headlines with drilling success near historic copper workings about 70 kilometres east of Sandfire’s rich Doolgunna mine in Western Australia. Ventnor (VRX) starred last week, putting in a 164 per cent rise to A59.5 cents. Also on the march was and Sipa (SRI), which took its rise over two weeks of trading to 151 per cent, or A10 cents, closing on Friday at A16.5 cents. Ventnor’s best drill hits so far include five metres at 4.21% copper. Sipa’s best include 3.7% copper over eight metres by Sipa. What’s not widely understood is that proximity to both operations of historic copper workings. Ventnor is drilling under and around the old Thaduna and Green Dragon copper mines, so its discoveries are effectively a brownfield extension of a known copper deposit. And Sipa has made a greenfield discovery at its Enigma anomaly a few kilometres north of Thaduna. Both are worth watching, and both add substance to the theory that the Doolgunna region will throw up more than one new copper mine.



Another discovery company which caught the eyes of local investors this week was Investigator Resources (IVR), which reported encouraging silver intersections at its Paris project in South Australia. The best drill intercept was four metres at 913 grams a tonne from a depth of 72 metres. On the market Investigator rose 125 per cent to A18 cents. Elsewhere, Coventry Resources (CVY) reported high-grade gold results from its Cameron project in Canada. Best hit was 3.4 metres at 58.73 grams a tonne from a shallow depth of 5.4 metres. Coventry added A5.5 cents to A22 cents as a result. Azimuth Resources (AZH) also caught the eye of speculators after publishing an updated report on its gold exploration projects in South America. Azimuth rose by 25 per cent to A46.5 cents.



Minews. Now for prices from the gold sector, please.



Oz. Most gold companies gained ground, but a handful slipped. Among the better risers were CGA Mining (CGX), up A50 cents to A$2.81 after reporting a 307 per cent profit increase, and Dragon Mining (DRA), up A24 cents to A$1.58 after reporting a spectacular drill it at its Kuusamo gold project in Finland, with a best hit of 45.67 grams over 31.9 metres. Perseus (PRU) rose strongly after a well received presentation at the Africa conference, closing up A16 cents to A$3.61, a fresh 12-month high. Other movers included: Kingsrose (KRM), up A9 cents to A$1.45, Resolute (RSG), up A6 cents to A$1.56, Troy (TRY), up A9 cents to A$4.45, and Medusa (MML), up 43 cents to A$7.92. Kingsgate (KCN), however, fell A46 cents to A$8.75 after a disappointing profit result.



Minews. Base metals next please, to see if those copper drill results lifted the sector.



Oz. Not really. There was a modestly firmer tone among the copper, nickel and zinc companies. The better copper movers included: Metminco (MNC) up A4 cents to A25.5 cents, Hot Chili (HCH), up A7 cents to A63 cents, Discovery (DML), up A7 cents to A$1.42, and Marengo (MGO), up A2 cents to A24.5 cents. Talisman (TLM) rose A5.5 cents to A53 cents as it picked up support from being close to Ventnor and Sipa. Sandfire (SFR), however, the original player in that district, could only manage a rise of A2 cents to A$7.23.



Nickel companies were mixed. Mincor (MCR) did best, putting in a rise of A11.5 cents to A93 cents, its best rise for months. Mirabela (MBN) also recovered some recently lost ground with a rise of A20 cents to A$1.70. Offsetting those rises were falls from Western Areas (WSA), down A12 cents to A$5.50, and Independence (IGO), down A29 cents to A$5.21.



Ironbark (IBG) was the pick of the zinc companies, putting in a strong rise of A5.5 cents to A27.5 cents after it announced a construction deal with a Chinese company relating to development of the Citronen project in Greenland. A bit of that news rubbed off on other zinc companies. Perilya (PEM) added A1 cent to A59.5 cents. Kagara (KZL) rose A3 cents to A59 cents, and Terramin (TZN) gained A1 cent to A24 cents.



Minews. Iron ore, to test what those higher iron ore prices did to the market,



Oz. There were a few handy individual rises, although the strength didn’t run across the board. The best upward move came from Fortescue Metals (FMG), which added A37 cents to A$6.12. Mt Gibson (MGX) put on A9 cents to A$1.61. Iron Ore Holdings (IOH) was A6 cents stronger at A$1.25. Atlas (AGO) rose by A4 cents to A$3.79. Sundance (SDL) gained A1.5 cents to A47.5 cents, and Grange (GRR) shook off the losses of several bad weeks with a rise of A11.5 cents to A56 cents.



Minews. Coal, uranium and minor metals to close, please.



Oz. Coal was mixed. Uranium was down, and most of the minor metals gained ground. Best of the coal companies was Carabella (CLR), which rose A14 cents to A$2.05 on news that Australia’s richest person, the iron ore heiress, Gina Rinehart, had snapped up a stake in the company after the surprise resignation of founding chief executive, Mitch Jakeman. Other coal movers included: Metro (MTE), up A7.5 cents to A82 cents, Bathurst (BTU), down A9.5 cents to A91.5 cents, New Hope (NHC), up A3 cents to A$5.15, and Coal of Africa (CZA), up A3 cents to A$1.03.



A lower uranium spot price took the gloss of that sector, though most falls were small. Extract (EXT) slipped A12 cents lower to A$7.90. Paladin (PDN) lost A6 cents to A$2.00, and Berkeley (BKY) was A3.5 cents weaker at A36.5 cents. Rises came from Manhattan (MHC), up A6.5 cents to A40 cents in very thin trade, Uranex (UNX), which crept half a cent higher to A42.5 cents, and Toro (TOE), which rose A0.2 of a cent to A8.3 cents.



Rare earth companies led the minor metals higher. Alkane (ALK) added A22 cents to A$1.88. Lynas (LYC) followed with a rise of A6 cents to A$1.76. Titanium mineral companies were led up by Base Resources (BSE), which rose A4 cents to A54 cents. South Boulder (STB) was the best of the potash companies, up A24 cents to A$2.41, and Venture (VMS) was the best of the tin companies, up A6 cents to A42 cents.

Minews. Thanks Oz.
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September 05, 2011

Miners Continue To Deliver Big Profits, Even Though Only One Of The Four Engines Of The Global Economy Is Really Firing Properly
By Rob Davies
www.minesite.com/aus.html -- The registration is free --

Reading the financial press, it is easy to get the impression that the world is about to fall off an economic cliff. Sure, the US economy is stuck in a long and deep recession, but that is not news. Still, it’s turned out that anyone who was expecting a sudden recovery was being overly optimistic about the inclination of consumers to take on more debt and the ability of banks to provide more credit. Banks operating in the US will be looking at the US$169 billion they are being sued for by the Federal Housing Finance Agency (FHFA) and will probably decide that now is not the right time to expand the balance sheet. That will constrain growth from the consumer.

In the same way, the US administration is very constrained in its actions, caught as it is in a three way tussle between ratings agencies, an impending election and an opposition in the thrall of some characters that have been described as “nutters”. In that context, it is not about to start opening its chequebook to stimulate the economy.



Japan, with an eye-popping debt to GDP ratio of 200 per cent has eye-catchingly been described as a bug in search of a windshield, and is unlikely to help out and make much of a positive contribute to global growth. And then there is Europe. The 26 per cent decline in the DAX equity index since the recent peak in July tells us that whatever solution is adopted, it looks as though it will be bad for Germany. Either Hans pays more tax to guarantee Theo’s pension in Athens, or a relative revaluation of the German currency relative to the Latin states destroys the competitive position of the metal bashers in the Mittlestand. The depressed cost base Germany has enjoyed as part of its membership of the euro is coming to an end. The bill for the euro party that was so beneficial for Germany is now being delivered.



China, of course, remains the beacon of hope. But it is already growing at the best part of 10 per cent, funded by a banking system that probably would not survive close scrutiny. It is unrealistic to expect it to grow any faster. The best we can hope for is that is carries on growing.



In this context, you could be forgiven for thinking that capital values had vaporised. That, though, is not the case. Metal prices, as measured by the LME base metals index, rose 2.2 per cent over the week, mostly driven by a surge in copper to US$9,100 a tonne, which came in the wake of concerns about supply from Chile. That price rise serves as a potent reminder, if one is needed, of how tight supply is even in these dire economic conditions. Mining and commodity companies, such as BHP Billiton, Xstrata and Glencore continue to report stonking results, even after three years of the “new normal” economy of much slower growth than the world was previously used to.



If these companies can deliver good earnings when only one of the four engines of the global economy is running properly, it makes you wonder what might happen if the other three finally get their acts together. However bad things are in the US, Japan and Europe - and they aren’t good - there remains a huge resource of entrepreneurs, managers and consumers who are determined to improve the lot of their businesses and their lives.



This human ingenuity will drive growth, and that will take demand for metals from current levels to new heights. We just don’t know when. But what we do know is that most companies, apart from banks, are delivering good profits. Maybe that means the recovery will eventually be driven by good old profits growth and not by grandiose schemes dreamed up by politicians and central bankers. In fact, all the businessmen need to do is get out of the way and let businessmen get on with the job.

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September 10, 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 the gold sector on the ASX has finally responded to the price of gold.



Oz. That is an interesting observation, and largely correct. A significant number of gold companies rose quite pleasingly last week, although the rest of the market drifted lower. What sparked the revival in gold equities is anybody’s guess, but it was probably a result of investors discovering the value gap which has opened between the price of bullion and gold shares.


Overall, the gold index on the ASX rose 3.3 per cent, during a week when the gold price opened and closed during our trading hours at around US$1,875 an ounce, and the Australian dollar was steady at around US$1.06. Gold, after we closed, slipped back to around US$1,855 per ounce, but the Aussie dollar went with it, sliding to US$1.04, a dip which negates that small US dollar gold price decline.



We’ll get to prices in a tick but first let’s finish painting the big picture. It was a topsy-turvy market last week, up one day, down the next, and overall the ASX all ordinaries shed a relatively painless one per cent. One reason for the overall weakness was news that Australia’s economy, as measured by the latest GDP numbers, grew by 1.2 per cent in the June quarter – that looks like an annualised 4.8 per cent to five per cent, but in fact largely reflects recovery from the Queensland floods in March. The metals and mining index lost 1.3 per cent as investors shunned the base metals sector.



Minews. Over to prices, starting with the good news from gold.



Oz. Star of the week was a Minesite regular, Perseus Mining (PRU) which we covered in some depth on Wednesday. It added A29 cents to close the week at A$4.00, but did trade up to a 12 month high of A$4.03 during Friday trade. Silver Lake (SLR), another Minesite member, performed almost as well, putting in a rise of A20 cents to close at A$2.79 after hitting a 12 month high of A$2.85 on Wednesday and Thursday. A third Minesite regular, Resolute Resources (RSG), set a new high of A$1.79, but closed out the week at A$1.77, up A22 cents. Regis Resources (RRL), which operates the Duketon goldmine in Western Australia, also reached a fresh peak, adding A16 cents to close at A$3.00, after a new high of A$3.05 was reached during early Friday trade.



Red 5 (RED), which is developing the Siana mine in the Philippines, was another company to hit a 12 month high. It added A3.5 cents to close the week at A23.5 cents, slightly down from a peak price of A24 cents. Azimuth Resources (AZH), which has hot exploration targets in the South American country of Guyana, added A2 cents to close at a peak price of A48.5 cents. ABM Resources (ABU), which is exploring in the Northern Territory, also did well, hitting a peak of A6.5 cents on Friday, before closing at A6.3 cents, up A0.9 of a cent. And Alacer Gold (AQG), which incorporated the old Avoca Resources, hit a peak price of A$11.28 on Friday, but closed at A$11.25 for a gain of A89 cents.



Minews. Solid rises, indeed! Perhaps a few more gold prices before calling the card of the other sectors?



Oz. In no particular order, the movers included Adamus (ADU), up A13 cents to A80 cents, Gryphon (GRY), up A12 cents to A$1.76, Medusa (MML), up A46 cents to A$8.35, Troy (TRY), up A18 cents to A$4.65, Chalice (CHN), up A4 cents to A39 cents, Allied (ALD), up A20 cents to A$2.80, Kingsrose (KRM), up A3 cents to A$1.50, St Barbara (SBM), up A18 cents to A$2.33, and Beadell (BDR), up A3.5 cents to A86.5 cents.



Minews. After so much good news, time for a wake-up call and a look at base metals.



Oz. There were a handful of rises but it was mainly down in the copper and nickel sectors. Zinc did a little better. Discovery (DML) rose A3 cents to A$1.45, and Talisman (TLM) rose A2 cents to A55 cents, two of the better-known copper regulars to rise. And there were two other interesting copper-related companies that gained ground. Dart Mining (DML) said it was getting close to a maiden resource estimate on its Unicorn project in Victoria, news which lifted shares in this small and thinly-traded company to a 12-month high of A15 cents, although they later settled lower at A12.5 cents, up A4.5 cents on the week. And Kentor Gold (KGL) attracted interest in drill results from its Jervois project in the Northern Territory, rising A1.2 cents to A11 cents. The best drill hit was 72 metres at 3.27% copper, plus 51.33 grams of silver and 1.16 grams per tonne gold, but from deep down, at 414 metres. Among the fallers in the copper space were Hot Chili (HCH), down A6.5 cents to A56.5 cents, OZ Minerals (OZL), down A27 cents to A$11.61, Sandfire (SFR), down A18 cents to A$7.05, Rex (RXM), down A5.5 cents to A$1.71, and PanAust (PNA), down A23 cents to A$3.37.



Investors stayed away from nickel companies in general, amidst gloom about over-supply. Western Areas (WSA) was the sole nickel company to rise, adding A7 cents to A$5.62. Mincor (MCR) slipped back to A89.5 cents, with a fall of A4.5 cents. Independence (IGO) lost A11 cents to A$5.09. Mirabela (MBN) slipped A7 cents lower to A$1.63, and Poseidon (POS) shed half a cent to A19 cents.



Perilya (PEM) was the best of the zinc companies, adding A2.5 cents to A62 cents. Ironbark (IBG) wasn’t too far behind, putting in a rise of A1.5 cents to A29 cents. Modest as these rises are, the zinc sector does appear to finally be attracting some investor attention. Terramin (TZN) and Meridian (MII) were steady, at A24 cents and A12.5 cents respectively.



Minews. Iron ore and coal next, please.



Oz. The picture was mixed in both sectors, but trending down. Among the better performers in iron ore were Brockman (BRM), up A13 cents to A$2.98, and Latin Resources (LRS), up A4 cents to A26 cents. South American Ferro Metals (SFZ) also did well, up A4.5 cents to A23 cents, on news that its Ponto Verde project in Brazil has reached nameplate capacity of 1.5 million tonnes a year. Falls were posted by Atlas (AGO), down A12 cents to A$3.69, Sundance (SDL), down A2 cents to A45.5 cents, Mt Gibson (MGX), down A7 cents to A$1.54, Murchison (MMX), down A1.5 cents to A58 cents, and Grange (GRR), down A2 cents to A54 cents.



Risers among the coal companies were equally rare. Bathurst (BTU) added A2 cents to A93 cents, Coal of Africa (CZA) rose by A1 cent to A$1.04, and newly-floated Tigers Realm (TIG) crept half a cent higher to A43.5 cents. Falls were posted by Whitehaven (WHC), down A10 cents to A$5.89, Carabella (CLR), down A10 cents to A$1.96, Coalspur (CPL) down A1 cent to A$1.57, and Continental (CCC), down A1.5 cents to A28 cents.



Minews. Uranium and minor metals to close.



Oz. There were some interesting upward moves in both of those areas. Havilah (HAV) had its best week in more than a year, after it announced an exploration funding deal with a Chinese partner. That lifted the South Australian-based company’s shares by A8.5 cents to a closing price of A63.5 cents, after a mid-week high of A76 cents. Extract (EXT) continued to draw in speculators waiting for a fresh Chinese takeover bid, rising by A37 cents to A$8.25. Berkeley (BKY) added A1 cent to A36.5 cents. However, falls from Paladin (PDN), down A17 cents to A$1.82, and Bannerman (BMN), down A2 cents to A$1.82, offset the rises.



Among the minor metals there were two new names atop of the list of the risers. Hastings Rare Metals (HAS) reported a resource upgrade at its Hastings project in Western Australia, adding A3.5 cents to A22 cents. And Planet Platinum (PPN) rose by A8 cents to A27 cents, but in ridiculously thin trading in which just 10,000 shares traded across the week, and even then on a single day, Friday. Other rare earth companies were mixed. Lynas (LYC) slipped A2 cents lower to A$1.73. Alkane (ALK) added A8 cents to A$1.96. Lithium leader, Galaxy (GXY) rose A10 cents to A87 cents. Potash leader, South Boulder (STB) added A9 cents to A$2.50. Tin companies barely moved. Venture (VMS) and Kasbah (KAS) were both down half a cent, to A41.5 cents and A18.5 cents respectively.



Minews. Thanks Oz.

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September 12, 2011

"What Impact Will The Impending Collapse Of The Euro Have On Metals Prices ?"
By Rob Davies
www.minesite.com/aus.html

There is a strong sense pervading the markets that 60 years of economic make-believe in Europe will reach its denouement in the next few months, or even weeks. While the ultimate economic form of the new Europe is becoming clearer the route it will take to get there is still as unclear as ever. And what concerns the capital markets is the collateral damage that will be incurred in the process. So far the markets have been fairly insouciant but that seems unlikely to continue given recent events.

Late on Friday 9th, Jűrgen Stark, a German board member of the ECB, resigned from the European Central Bank, citing personal reasons. However his unease at the recent policy of the ECB in buying bonds of the Latin countries to support them was well known. His move follows the departure in February of Axel Webber, the Bundesbank president. These moves demonstrate the governance of the ECB is becoming more Latin and less Teutonic.



Unfortunately, that conflicts with the funding which remains largely German. It’s a state of affairs that cannot continue and it surely is only a matter of time before the euro breaks up - when the Germans say to the Latins either we leave or you leave.



The break up itself will doubtless be traumatic. But the uncertainty that precedes it could be even worse as countries twist and turn to do everything possible to maintain the fiction that one interest rate is applicable to so many different economies. The effects can already be seen in an overvalued Swiss Franc, a high price for gold and, last week, a 3.4 per cent drop in the euro against the dollar. Such a gain for the US currency might normally be bad news for metal prices but the 0.4 per cent fall in base metal prices, as measured by the LME index, to 3,975, is clear testimony as to the underlying strength in this section of the commodity markets.



Among the other distortions caused by the current economic crisis are the low level of interest rates and the flatness of the yield curve. This is just another way of saying that long term interest rates are not much higher than those for the short term. A demonstration of that fact is the 1.96 per cent yield now offered by 10 year US Treasuries. And a major reason for the flat curve is the quantitative easing programme in the US which reduced long term interest rates because the buying of bond was what the new money was spent on.



Reducing interest rates is a good idea in circumstances such as these. But it also has the perverse effect of making life more difficult for the banks that typically fund long-term loans with short-terms deposit. As there’s so little difference between long-term and short-term rates, banks find it hard to make a return on traditional lending. So they have cut back on lending, and the consequent lack of bank finance is another factor working to constrain growth.



Low interest rates, for the short term and long term, also has an impact on metals prices by reducing the contango - the premium of future prices to current prices - to very low levels. At the moment, only aluminium and zinc offer anything reasonable in terms of higher forward prices, at five per cent and four per cent respectively for 15 month metal. Copper, lead and nickel prices that far out are only quoted at between 0.2 per cent and 0.7 per cent higher than spot prices. This is partly a function of the tightness of these markets, as well as of the current macro-economic conditions, but it does also demonstrate just how interconnected modern capital markets are. Exactly how commodity markets will react to the death throes of the euro will be a vital factor in determining metal prices in the weeks and months ahead.

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September 12, 2011

"Resolute Mining Heads For The Big Time, At Last"
By Our Man in Oz >> www.minesite.com/aus.html

Anyone who bumps into Resolute Mining[ASX-RSG] chief Peter Sullivan any time soon shouldn’t be surprised if he is humming a tune from an old Australian beer advertisement. The television commercial for Swan Lager ran in the 1980s and 90s and was based on Australia winning the America’s Cup, a trophy then considered the ultimate prize in yacht racing. The lyrics to the ad start with the words: “they said you’d never make, we’ve seen you guys before. No-one’s ever gonna take it, it stays bolted to the floor.” Peter’s win has not attracted the same attention as the defeat of an American 12-metre yacht off the coast of Newport, Rhode Island did in 1983, but his success at the Syama gold mine in the land-locked African country of Mali is the mining world’s equivalent of winning the America’s Cup.

Acquired in early 2003, Syama was regarded by a series of owners, including BHP Billiton and Randgold Resources, as a mine which could not be tamed. Complex metallurgy made Syama’s ore difficult to treat, as it required expensive roasting to overcome high levels of sulphur. No prizes for guessing that roasting ore using diesel for fuel in the middle of Africa is an expensive business. But then, that’s why Resolute was able to buy the mine and its surrounding exploration tenements at a discounted price.



Resolute wanted to get its hands on Syama to see if it could apply a metallurgical theory that would flip the sulphur from being a liability into an asset. Rather than a full roast, the plan was to produce a concentrate. Eight years later, and after a tortuous process of trial and error, Resolute has cracked the Syama code, turning a once unloved gold deposit into a profitable gold mine, and entitling Peter to break into a rendition of the Swan Lager “they said you’d never make it” tune anytime he likes. Because he really has made it.



Investors, perhaps after waiting the best part of a decade for good news from Syama, have been slow to recognise the change in Resolute. Having said that, they have now started, boosting Resolute’s shares price to a 12 month high of A$1.79 in the last few weeks, close to double where it was a year ago. The high gold price certainly helps but what’s really been driving the shares is a series of good newsflow, which started in February with the closure of the company’s hedge book, and a culminated with a presentation by Peter at the Africa Down Under conference in Perth. That presentation involved Peter ticking off six good reasons to buy the company’s shares. Resolute is, he said: “Australia’s second biggest listed gold miner, producing 330,000 ounces of gold a year, and rising to 400,000 ounces, has 5.2 million ounces in reserves to back more than 10 years of mine life, is 100 per cent unhedged, has been paying down debt, and expects to be debt free by the end of 2011, and is looking at capital management initiatives, including share buybacks and/or the payment of dividends”.



Just before the Africa Down Under presentation, Resolute had quietly slipped into the market an update on its financial operations which attracted little mainstream media interest in Australia, but which can now be seen as company’s “eureka moment”. Not only did it contain news that Resolute had turned a 2010 loss of A$37.2 million into a profit of A$61.4 million, but it confirmed that production was rising, costs falling, and reserves growing. Forecast gold production for the group for the year to June 30th 2012 is now 410,000 ounces, up from 330,859 ounces during the year to June 2011. Cash costs should drop next year too, to approximately A$730 an ounce, against the A$908 per ounce reported in the year just gone. Peter said that cash flow would significantly strengthen the company’s balance sheet. “In the early part of the year this will involve the aggressive pay down of secured debt. Depending on market conditions, further de-gearing of the balance sheet could occur through the early redemption/conversion of convertible notes representing approximately A$68 million of unsecured debt.”



Much of what is being achieved at Resolute is a result of its mastering of Syama, although a useful contribution also comes from the company’s other African mine, Golden Pride in Tanzania, and from Ravenswood in the Australian state of Queensland, which has been processing stockpiled ore since 2009. Looking forward, there will be expansion across the company’s portfolio. Syama is being expanded via an additional cutback to the open pit which will extend mine life from six to 13 years. That will delay the transition to underground mining, but the switch underground that will eventually take place has been aided by recent drilling success below the planned deeper pit, including drill hits of 140 metres at 3.43 grams of gold a tonne, and 105 metres at 3.65 grams per tonne. An oxide ore-processing circuit might further boost Syama gold production, and a switch from diesel to grid electricity could lower production costs, given that the diesel bill currently represents about a third of Syama’s costs.



Exploration, a factor few investors consider, is also becoming a key ingredient in the Resolute mix, and the annual budget has now been boosted to A$20 million a year, mainly on near-mine targets. A hint that the Ravenswood mine could make a return as a major profit generator can be found in the latest drilling results, as the Welcome Breccia prospect has returned a spectacular 113 metres at 7.7 grams per tonne from a depth of 316 metres, and a more recent seven metres at 7.84 grams per tonne from 76 metres. “Welcome Breccia is the first of five Mt Wright-style targets to be tested in the district”, Peter told Africa Down Under.



Separate from Resolute’s news of rising gold production and reserves, falling costs and the closure of the hedge book, there is also the story of the “three tables”, contained in Peter’s latest presentation. The tables in question show gold production across the Resolute peer group, gold reserves across the same, and relative market capitalisation. In terms of production, Resolute is Australia’s top mid-tier miner. It’s second in terms of reserves, after Alacer, but only eighth in terms of market capitalisation. That lowly No.8 ranking is unlikely to stick, though, as investors digest the changing picture, and rising share price, of Resolute.



They said you’d never make it, Peter, and they were wrong.

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September 14, 2011

"Continental Coal Is Now Just Days Away From An AIM Listing"
By Our Man in Oz
www.minesite.com/aus.html

Anyone who has experienced electricity cuts in southern Africa will appreciate the business plan of Continental Coal [ASX-CCC], an ambitious South African coal producer with both domestic and export operations. The simple proposition of selling coal to a power-hungry region is one of the company’s greatest strengths, especially as it also has a long pipeline of development projects and plans to export from one of the world’s great coalfields. But, if it was as simple as digging and delivering, Continental’s share price would be a lot higher than it is today.

South Africa is never simple, especially when it comes to mining, the country’s most important industry, and the one subjected to the greatest level of political interference. Repeated references to the worst of all investment words - “nationalisation” - don’t help. As the Financial Times said in a headline last week, South Africa suffers from “undermined potential”, and that dynamic has been no help to Continental at all. If the company could simply get on with the business of mining it would not be trading at a lowly A27.5 cents on its home stock exchange in Australia, where deep, and understandable doubts, are entrenched about the investment credentials of Africa.



Next week, however, could see a change of fortune for Continental as it achieves a long-planned objective of listing in London. With the delightful London stock market code of COOL, Continental will open for trading on the Aim market on Monday September 19th, providing British investors with a closer look at a business which has been posting some useful numbers since making the transition from explorer to producer, and which now has plans to grow quickly. Continental’s chief executive Don Turvey and executive director Jason Brewer are currently in London to spread the word about their business. What they will be saying is essentially the same as what Don said at the annual Africa Down Under conference in Perth two weeks ago, when Minesite’s Man in Oz had a chance to listen and dissect his message.



Continental is currently a two-mine business. Both mines are small, although there’s a third under construction, also small. In the pipeline are at least seven new mines, which will also be relatively small, but with the potential to grow. The mines in production are Vlakvarfontein and Ferreira. The new mine is Penumbra. All are located on the coalfields to the east of Johannesburg, and all are close to excellent rail and port infrastructure, and coal-hungry power stations.



For some reason, though, South African mining executives like to wrap a good story in unnecessary packaging, clouding what’s happening on the ground with what might, or might not, happen in the future. In the case of Continental, the opacity creeps in in relation to the possible futures around mines at Vaalbank, Project X, De Wittekrans, Knapdaar, Wesselton, and Leiden. Those projects might, one day, be important sources of coal for Continental, but while it is understandable that Don wants to display his pipeline, today his company is simply a two-mine business producing two million tonnes of thermal coal. Continental might well be, as Don said, a company that has ambitions to become “a major mid-tier southern African-focused thermal coal mining business”, but even that point is strangely convoluted. You are either major, or you are mid-tier.



So investors need to shift Continental’s blue-sky hyperbole to one side, and concentrate on what’s in hand. And what’s in hand is a business operating the Vlakvarkfontein mine, about 100 kilometres east of Johannesburg, and the Ferreira mine, about 200 kilometres south-east of Jo’burg. Both mines, as well as the company’s future potential developments, are in the heart of South Africa’s coalfields and in amongst an impressive array of coal-fired power stations, and in the neighbourhood of the famous Sasol coal to liquids plant.



Vlakvarfontein is ticking over at a rate of around 100,000 tonnes of coal a month from a conventional open cut operating. Sales are being booked at between US$20 and US$22 a tonne, leaving a margin of between US$5.00 and US$7.00 after total costs of around US$15 per tonne. Two coal seams, each about five metres thick, are being mined, in close proximity to potential customers at the nearby Kendal power station.



Ferreira is a similar business, but with a shorter life expectancy of just three years. It is producing small quantities (40,000 tonnes a month) of export-quality coal, and 15,000 tonnes a month for domestic power production. Coming up quickly, is the third relatively small mine, Penumbra, located three kilometres from Ferreira, and which is expected to produce its first coal within the next nine to 12 months.



If all goes to plan, Continental will then be on track to become a producer of seven million tonnes of coal a year from a series of mines. Most production will be consumed in domestic power production, but there will also be a small but growing export operation. By 2015, production could rise as far as 10 million tonnes a year, from a resource base which could grow to 500 million tonnes of coal. There’s also the possibility of future production from exploration projects underway in neighbouring Botswana.



Continental is pleased with progress over the past 12-months, and Don has a solid check list of achievements, which he ticked off in Perth. “We’ve managed to get to full production at Vlakvarkfontein, and we’ve completed the acquisition of an unlisted South African coal company”, he said. “Our Ferreira mine is operating at improved levels. We’ve started export sales from Richards Bay. We’ve seen successive quarterly increases in production, and announced JORC-compliant reserves and resources.” For the next 18 months Don is optimistic that Continental can deliver more growth. “We’re confident of a continued strong performance at Vlakvarkfontein and Ferreira”, he said. “We’ll see the start of production at Penumbra and a development decision in the next months on De Wittekrans. We’ll get the pre-feasibility underway on Vaalbank and Vlakplaats. We should be in that time period getting production up to around five million tonnes with export sales up to 1.5 million tonnes.”



Continental is a company with great potential. It is producing a simple product from a world-class mineral field. It has strong domestic demand, and excellent export potential. But, it is also a company with South African roots. For investors who understand what that means, and the risks thus encapsulated, Continental is a company to watch. And it will be much easier to watch it in London from Monday.

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September 17, 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. Another confused week?



Oz. You could call it that - up one day, down the next. If it goes on like this we’ll soon know how a yo-yo feels. Last week, the metals and mining index on the ASX had three up days, and two down, and finished in the red with a decline of 1.2 per cent. It was the same with the all ordinaries index, down 1.1 per cent overall. Gold was hit hardest, four days down, one up, with the an overall result being a 3.8 per cent fall in the index, largely because when we closed on Friday the gold price had slipped to around US$1,765 an ounce. By Saturday morning Australian time gold was back up to around US$1,812 an ounce, as it, too, gave a yo-yo impersonation.


Minews. Were the any outstanding share-price moves, either way?



Oz. One on the upside, thanks to an interesting takeover bid. Nothing dramatic on the downside, but the overall tone was negative, as we’ll see when we go through the prices. The best performing company was Hunnu Coal, a Mongolian-focussed explorer which has only been listed on the ASX for 20 months. It added A32 cents to A$1.70 last week after management recommended a takeover offer from Banpu Minerals of Thailand. The deal looks fairly straight forward, but has three interesting points to it.



Firstly, Hunnu’s float price in February last year was A20 cents, which means anyone selling into the market at A$1.70 will book a 750 per cent gain in less than two years. Secondly, that A$1.70 is A10 cents less than the recommended Banpu all-cash offer of A$1.80, meaning either that no-one expects a counter bid, or that investors are wary that the full A$1.80 might not be paid quickly. Thirdly, and it’s a more general point, the Hunnu situation reflects the growing strength of the coal-sector on the ASX.



Minews. So now you have a coal boom?



Oz. It’s not a true boom, yet, but the portents are there. Investment banks, such as Citigroup, have produced reports naming thermal coal as their preferred mineral exposure over the next few years, based on an assessment of the likely electricity demand in China and India tied in with a fresh spell in the sin bin for nuclear power. A second clue to the growing interest in coal is contained in the latest Australian exploration expenditure data. Coal is the fastest-growing sector, as the spend was up 85 per cent in the June quarter, to A$202.7 million, putting it just behind the hunt for iron ore, which sucked in A$214.7 million.



Minews. It seems a bit ironic that coal exploration is booming at the same time the Australian government gets ready to introduce a carbon tax.



Oz. That point is not lost on anyone in the mining game.



Minews. Okay, time for prices. We’ll start with gold. Even if the trend is down it remains the metal of choice in this part of the world.



Oz. Only one of the gold-sector leaders managed to end the week in the black. Gryphon Minerals (GRY) reported a fresh discovery at its flagship Banfora project in Burkina Faso, and closed the week up A3 cents at A$1.79 after touching A$1.85 on Wednesday. The downbeat mood was better reflected in the movement of shares in another company, Resolute Mining (RSG). It traded on Monday at a 12 month high of A$1.79, but then drifted as low as A$1.58 on Friday before rebounding to close at A$1.67, down A10 cents for the week, but up A5.5 per cent on Friday.



Other notable movers included: Kingsgate (KCN), down A70 cents to A$8.05, Kingsrose (KRM), down A13 cents to A$1.37, Silver Lake (SLR), down A29 cents to A$2.50, Medusa (MML), down A29 cents to A$8.06, Ampella (AMX), down A4 cents to A50 cents, Adamus (ADU), down A4 cents to A76 cents, and Alacer (AQG), down A45 cents to A$10.80. Perseus (PRU) was also weaker, down A30 cents to A$3.70, despite touching a 12 month high of A$4.05 on Monday.



Minews. Let’s do something different this week and cover the coal sector next. It might be useful to mention a few names if a coal boom is really gathering pace.



Oz. Names is about as good as it gets at this particular point, because barring the rise from Hunnu the rest of the sector drifted lower, bar one. Whitehaven (WHC), which is also a regular on takeover tip lists, closed the week steady at A$5.89, but did trade quite heavily. On Friday alone 7.7 million shares went through the market, producing a rise on the day of A20 cents. Other notable coal movers included: Carabella (CLR), down A15 cents to A$1.81, Stanmore (SMR), down A7 cents to A82 cents, Aston (AZT), down A53 cents to A$11.10, Metro (MTE), down A9.5 cents to A73 cents, Bathurst (BTU), down A4 cents to A89 cents, Continental (CCC), down A3 cents to A25 cents, and Coal of Africa (CZA), down A12 cents to A92 cents.



Minews, Iron ore next, and then over to the base metals, please



Oz. The iron companies did a little better than gold the gold ones, not that anything rose by much. Sundance (SDL) was the company which attracted most interest thanks to allegations of insider trading by an executive of a Chinese company which has launched a takeover bid. On the market, Sundance dropped as low as A35.5 cents on Tuesday, a country mile below the A50 cents on offer from Hanlong Mining. But by the end of the week the shares had recovered to A46 cents, a rise on the week overall of half a cent. South American Ferro Metals (SFZ) was the only other iron ore company to rise, by half a cent to A23.5 cents. A few companies held their ground, such as Gindalbie (GBG), which opened and closed at A66 cents. But after that comes a long list of fallers, including: Fortescue (FMG), down A28 cents to A$6.09, Murchison (MMX), down A2 cents to A56 cents, and Grange (GRR), down A3 cents to A51 cents. Iron Ore Holdings (IOH) was also weaker, down A1.5 cents to A$1.16, despite announcing an expanded resource position.



Over among the base metals it was a mixed bag, but there was a distinctly weaker tone. Among the notable copper movers Anvil (AVM) stood out, up A26 cents to A$6.30 on speculation of a takeover. Also on the move was Sandfire (SFR), up A10 cents to A$7.15, and Exco (EXS), up A1 cent to A64 cents. After that, it was all down. Ivanhoe (IVA) fell A10 cents to A$1.49. Metminco (MNC) fell A4 cents to A21.5 cents. Rex (RXM) fell A15 cents to A$1.56, and Talisman (TLM) fell A5 cents to A50 cents.



Nickel had one up and the rest down. Mirabela (MBN) crept A2 cents higher to A$1.65. Among the fallers, Mincor (MCR) lost A10.5 cents to A79 cents, Western Areas (WSA) fell A32 cents to A$5.30, and Poseidon (POS) slipped A1 cent lower to A18 cents. Independence (IGO) shed A8 cents to A$5.01, but would have ended the week much lower but for a A25 cent, or 5.3 per cent, rise in heavy trade on Friday.



Zinc companies did little. Ironbark (IBG) added A2 cents to A31 cents. After that, it was all down, or flat. Perilya (PEM) lost A3 cents to A59 cents. Terramin (TZN) was A1 cent weaker at A23 cents. Meridian (MII) and Blackthorn (BTR) were steady at A12.5 cents and A48 cents respectively.



Minews. Uranium and minor metals to close, please.



Oz. More of the same, really. One up, the rest down, or flat. Greenland Minerals (GGG), which is as much a rare earth as a uranium company, added A10 cents to A72 cents in heavy trade on Friday. On the day, eight million shares changed hands, the heaviest trading the company has seen in the past 12-months. Extract (EXT) and Manhattan (MHC) held their ground at A$8.25 and A37 cents respectively. Toro (TOE) held steady at A8.6 cents. After that, all weaker. Paladin (PDN) made a comeback on Friday, but it wasn’t enough to wipe out a mid-week fall, and the shares closed down A17.5 cents at A$1.65. At one stage on Thursday, Paladin was at a 12 month low of A$1.53. Bannerman (BMN), which might get caught up in the Hanlong situation, fell A3.5 cents to A32.5 cents. Berkeley (BKY) slid A4 cents lower to A32.5 cents.



Lithium companies weakened. Galaxy (GXY) fell by A10 cents to A77 cents, and Orocobre (ORE) lost A27 cents to A$2.50. Potash companies rose. South Boulder (STB) put on A28 cents to A$2.78, and Potash West (PWN) gained A1.5 cents to A19.5 cents. Rare earth companies, Greenland Minerals aside, lost ground. Alkane (ALK) was A16 cents weaker at A$1.80, and Lynas (LYC) lost A15 cents to A$1.58. Tin companies were mixed. Venture (VMS) was down A2 cents to A39.5 cents. Kasbah (KAS) was up A2 cents at A20.5 cents.



Minews. Thanks Oz.

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September 19, 2011

Contrary To What Certain Analysts Believe, Gold Is A Currency, Not A Commodity
By Rob Davies
www.minesite.com/aus.html ((Free registration))

Commodity analysts follow the gold market because it is mined in much the same way as the base metals are. Once such is Nick Moore, the ebullient Head of Commodity Research at RBS, who spoke to Minesite following of the publication of the Thomson Reuters GFMS Gold Survey Update 1 last week.

Nick argues that gold is overpriced because it is way above the marginal cost of production and is expensive in relation to other commodities, like platinum. As RBS and GFMS both point out, investment demand now accounts for half the demand for gold and both think this makes gold vulnerable to correction. Yet both organisations point to the importance of ETFs now in the gold market. The amount of gold tied up in ETF now amounts to 2,200 tonnes. That might not sound a lot, but it represents about 1.4 per cent of the total amount of gold ever mined. Contrast that with the 3,000 tonnes that sits in copper ETFs. The copper ETF market has simply has not taken off.



The reason for the difference was succinctly summarized by the response Ben Bernanke, Chairman of the US Federal Response, gave when he was asked by US Congressman Ron Paul why the Fed holds so much gold when Mr Bernanke had declared that gold was not money. Bernanke replied by saying: “it’s tradition”.



Despite the advent of modern economics central banks have displayed an endearing affection for gold. Indeed, the official sector is now a net buyer, having added 200 tonnes in the first half of 2011 according to GFMS. Like individuals, central banks seem to prefer buying when others do.



Traditional commodity analysis tells us that when prices increase a response from the supply side is triggered until the marginal cost of production rises to the prevailing price. That partly explains the 4.9 per cent increase in gold production during the first half of this year. But the story over the longer term is very different. Since its low in 2001 the gold price has risen seven fold, yet production remains hardly changed at 2,200 tonnes. The reasons for this dismal response to the rising demand can be summarised quite simply.



The price of gold is still not high enough to cover the full cost of exploration, development and production. Many commentators still focus on cash costs of production to make the point that margins are high. Yet this totally misses the most expensive part of the process which is finding more gold to replace what is mined each year. Unless a mine can find enough gold to keep a steady inventory it is like a widget maker that is selling widgets from inventory and not making any more. No wonder miners are profitable on that basis.



This lack of supply means the gold market remains small in global terms. This fact was highlighted by Neil Meader from GFMS when he was asked if gold could play a bigger role in the global financial system. The gold market, he says, simply isn’t large enough.



But this is to confuse volume with price. No one asked if there were enough gilts or US Treasuries to bail out the banks three years ago when the global financial crash burst on the scene. Bond prices rose to meet the demand. The same will ultimately apply to the gold market - its size will expand by price rather than volume.



The irony of the gold market being analysed by employees of RBS, a bank that was bailed out by a government that deliberately engaged on a policy of printing money to inflate its way out of the crisis, is not lost on RBS’s Nick Moore. He announced on Facebook that he had downgraded his airline ticket from Business to Economy when he travelled to a precious metals conference in Montreal, to save taxpayer’s money. Well done Nick, let’s hope others follow your example. But not your gold price forecast. Gold is a currency, not a commodity.

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September 20, 2011

How Much Is Atlas Iron Really Worth?
By Our Man in Oz
www.minesite.com/aus.html (( Free registration ))

Atlas Iron’s chief executive, David Flanagan, has never been lacking in confidence, though even his best friends might have been surprised at his most recent outbreak of optimism. Speaking at a mining conference last week David predicted that the rise of Atlas had just begun. “We reckon we’re a A$30 stock”, he was quoted as saying by the Bloomberg news service. Given that Atlas was trading on the Australian stock market at around A$3.50 at the time David’s comment indicates a value gap amounting to about 8.5 times the current share price. Time is, of course, the missing factor in the predicted 750 per cent rise in the Atlas share price. But before we dismiss David’s forecast as an exercise in balloon-flying, it’s worth looking at what Atlas has managed to achieve in less than seven years on the ASX.

Back in late 2004 Atlas started life as Atlas Gold, hence its ASX code of AGO, which, David confessed in a chat which took place outside the Port Hedland airport, should have been changed when iron ore entered the picture and the name switch was made. Back in the early days, six months into its life, an investor could have snapped up a pile of Atlas shares for around A19 cents. Just over a year later, as the iron ore boom gathered pace, Atlas cracked the A$1.00 mark, and a year after that, in mid 2008, it was a A$4.00 company, meaning it had risen by 2,000 per cent in less than four years. In that context David’s seemingly excessive claim that Atlas is a A$30 company suddenly doesn’t seem so outlandish.



If the first six years were interesting for Atlas, then the past year has been extraordinary, in every sense of the word. The company has completed a blizzard to corporate deals, including a merger with Giralia Resources, the takeover of Warwick Resources and Aurox. Most recently it’s undertaken the now nearly-complete acquisition of FerrAus, and has bought a 20 per cent stake in Brazilian-focussed iron ore explorer, Centaurus. Complementing the furious pace of the corporate deal making has been the admission of Atlas into the ASX’s list of 100 biggest companies - 63rd at last reckoning - and the reporting of a spectacular rise in the operational and financial performance of the business. Along with a seven-fold increase in revenue has come a flip from loss to profit and the declaration of a maiden dividend.



“The record result highlights the strength of the company’s achievements in what has been a relatively short time”, David said in a management commentary attached to the results for the year to June 30th. “The rapid transition from a small ASX listing in 2004 to our position as one of Australia’s top 100 public companies is a tribute to the company’s staff, contractors and shareholders. Despite this success, the Atlas story is just beginning. We now have the foundations on which to build a significant mining company. This will involve further substantial expansion in the Pilbara, ultimately taking iron ore production over 40 million tonnes a year.”



So, how good was the latest result, and what does the future look like? In dollar terms, Atlas achieved a A$210 million turnaround, converting a loss in 2010 of A$41 million into a profit of A$169 million. Out of that, shareholders will get their maiden A3 cents a share payout, and a management commitment to maintaining “stable and growing dividends”. In production terms, and this is where the Atlas story gets rather interesting, the company exported 4.6 million tonnes of iron ore, thereby generating revenue of A$585 million, which indicates an average selling price of A$127 a tonne.



This year, Atlas expects exports to total six million tonnes, which, if it gets the same price, will generate revenue of around A$760 million. By the end of next year, David expects sales to have reached an annualised 12 million tonnes, taking the notional revenue up to A$1.5 billion. There are plenty of assumptions built into those dollar estimates, to be sure, though surprisingly some of them are actually on the prudent side, given that investment banks such as Citigroup are forecasting a strong iron ore price for several years. And Citigroup isn’t an unbridled bull. In fact it’s only bullish on three minerals: iron ore, thermal coal and palladium.



Now for a bit of crystal ball gazing from Minesite’s Man in Oz with a view to adding even more meat to David’s A$30 price tip. If Atlas is to become a 40 million tonne a year iron ore exporter, and if Citigroup’s long-term price forecast of US$135 a tonne is correct, and if Atlas maintains its cash cost per tonne somewhere between A$40 and A$43 then revenue might well amount to US$5.4 billion, gross profits to US$3.8 billion, and earnings per share to US$4.40. It’s not appropriate for Minesite’s Man to go any further with that back-of-the-envelope ball-park best-guess, but it does lead a simple-minded scribbler down a pathway which suggests that Atlas at A$30 a share might not be quite as silly as it first sounds.

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Commodities face slowdown. In a turnaround from just weeks ago, the commodities market appears poised for a slowdown. Rio Tinto (RIO) CEO Tom Albanese said markets are "somewhat weaker" and some customers are asking to delay shipments of metals as uncertainty elicits a wait-and-see approach. The IMF echoed Albanese's sentiment, downgrading its outlook for commodity prices from earlier this year. [20.09.2011]
 
September 24, 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. Should we talk about the market or switch immediately to sport?



Oz. An interesting suggestion, but considering the way Australia has been playing at the rugby world cup in New Zealand it might be safer to stick with financial markets. Last week - not that any of our readers need reminding - was horrible. All sectors of the Australian market were clobbered, stretchered off, and dumped in the intensive care ward. The market indices tell the story, along with sharply lower metal prices. The all ordinaries on the ASX lost six per cent over the week. The gold index was down 6.6 per cent, and the metals and mining index was hammered lower by a whopping 10.7 per cent, a reflection of concern about the outlook for China’s economy. In response, market participants are now asking: is this as low as it can go? And is now the time to look for bargains? Or is this entirely a political event and will investors be on the sidelines until governments make the hard decisions they have been putting off for three years?


Minews. The great intangibles. Let’s stick to markets where we do at least know where we are from one week to the next.



Oz. Agreed. And worth noting at the outset that there were some shares which managed to post modest gains. Three gold companies added a few cents, along with one copper, one coal, one uranium, one zinc, and one of the minor metal players.



Minews. Any good news is gratefully received, so let’s start the call of the card with the handful of rises before switching to the fallers.



Oz. Good decision. The gold risers were led by Silver Lake (SLR), which rose A4 cents to A$2.54, though that’s allowing for a heavy sell-off on Friday when the shares fell A16 cents. To put Silver Lake in perspective, on Wednesday it traded up to a 12 month high of A$2.89, before succumbing to selling pressure. Ampella (AMX), one the Aussies in Africa, managed a rise of A5 cents to A$1.90. Crusader (CAS) added A3 cents to A$1.19.



Berkeley (BKY) was the sole uranium company that rose, up A1.5 cents to A34 cents, and perhaps reflecting a surprise improvement in the uranium price. Ventnor (VRX), one of the more aggressive copper explorers in the Doolgunna area of Western Australia, crept A1 cent higher to A47 cents. New Hope (NHC) was the only coal miner to rise, adding A13 cents to A$5.18 after an excellent profit report. Atlantic (ATI) was the minor metal company that rose, and Prairie Downs (PDZ) the solitary zinc, but we’ll get to them later.



Minews. Thanks for the glimmer of good news, now for the list of companies that lost ground, starting in the gold space.



Oz. After the three that swam against the tide, the list looks like this: Resolute (RSG), down A15 cents to A$1.52, Perseus (PRU), down A39 cents to A$3.31, Adamus (ADU, down A7 cents to A69 cents, Kingsgate (KCN), down A56 cents to A$7.50, Medusa (MML), down A57 cents to A$7.54, Newcrest (NCM) down A$2.10 to A$36.01, PVI (PVM), down A6 cents to A49 cents, and St Barbara (SBM), down A11 cents to A$2.09.



Minews. Next, over to iron ore, because that seems to have been where a lot of the damage was done last week.



Oz. It was, largely because it is the sector tied directly into the Chinese steel industry. Fortescue (FMG), the most ambitious of the new generation of iron ore miners, was flattened by a wave of sell orders, closing the week at A$4.95, down A$1.14. It could have been worse. At one stage on Friday Fortescue shares touched A$4.87, a 12 month low. Those focussed on magnetite – a lower grade of iron ore - were also hit hard. Gindalbie (GBG) dropped A15.5 cents to a close at a fresh 12 month low of A$50.5 cents. Grange (GRR) sold down to A40.5 cents, before adding A1.5 cents late on Friday to trim its loss for the week to A9 cents. Murchison Metals (MMX) collapsed by a painful A15 cents to A41 cents, and after having hit a 12 month low on Friday of A39 cents. After that, the movers included Atlas (AGO), down A74 cents to A$3.04, Iron Ore Holdings (IOH), down A9.5 cents to A96.5 cents, and Brockman (BRM), down A48 cents to A$2.30. Takeover target Sundance Resources (SRL) lost A5.5 cents to A40.5 cents, despite having a bid of A50 cents on the table.



Minews. Base metals next, please.



Oz. Apart from Ventnor there were no other risers in the copper or nickel sectors. There was the one zinc riser. Copper fallers included: PanAust (PNA) down A75 cents to A$2.48, Marengo (MGO), down A3 cents to A18.5 cents, Sandfire (SFR), down A$1.22 to A$5.93, Rex (RXM), down A31 cents to A$1.25, Hot Chili (HCH), down A3 cents to A50 cents, and Sumatra Copper & Gold, down just half a cent to A15.5 cents.



Nickel companies were led lower by Western Areas (WSA), which shed A85 cents to A4.45. Mincor (MCR) fell A8 cents to A71 cents despite reporting continued strong cash flow from its small but high-grade mines. Mirabela (MBN) lost A17 cents to A$1.42, and Independence (IGO) fell by A59 cents to A$4.26.



Prairie Downs, a zinc hopeful that we rarely hear from, was the solitary zinc company to rise, just. It added half a cent to A15 cents. Falls were posted by Perilya (PEM), down A9.5 cents to A49.5 cents, and Terramin (TZN), down A4 cents to A19 cents. Kagara (KZL) lost A16.5 cents to A42.5 cents, despite the announcement of plans to sell a nickel project, and the launch of a fresh marketing campaign to showcase its new chief executive.



Minews. Unfortunate timing, to say the least, for the new man at Kagara. Let’s get a move on, because the final sectors don’t look much better. Time for coal, uranium and minor metals, before closing.



Oz. It was all red in the coal sector, apart from New Hope. Among the more notable movers were Tigers Realm (TIG), down A4 cents to A35 cents, Carabella (CLR), down A19 cents to A$1.62, Aston (AZT), down A$1.10 to A$10, Stanmore (SMR), down A3.5 cents to A81 cents, and Coal of Africa (CZA), down A8.5 cents to A84 cents.



After Berkeley it was a similar story among the uranium companies. Paladin (PDN) was down A21.5 cents to A$1.43, Extract (EXT) fell by A59 cents to A$7.66, Manhattan (MHC) lost A3 cents to A34 cents, and Bannerman (BMN) fell by A6.5 cents to A26 cents.



Atlantic was the only company among the minor metals to rise, adding A8 cents to A$1.68, despite announcing a delay in the re-start of the famous Windimurra vanadium plant. Rare earth companies came back to earth with a bump after negative reports on the sector in the US. Lynas (LYC) fell A53 cents to A$1.05, but did trade down to a 12 month low of A$1.02 on Friday. Alkane (ALK) lost A63 cents to A$1.17, and Arafura (ARU) shed A13 cents to A55 cents. All lithium companies fell. Galaxy (GXY) was off A11.5 cents to A66 cents. Orocobre (ORE) fell by A30 cents to A$1.20. Tin companies joined in the selloff. Venture (VMS) fell A5.5 cents to A34 cents, and Kasbah (KAS) lost A2.5 cents to A17 cents.



Minews. Thanks Oz. Enjoy the rugby, and keep your fingers crossed for next week’s market.

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September 26, 2011

"The Market’s Message To Politicians: Get A Grip"
Rob Davies >> www.minesite.com/aus.html

The turmoil in capital markets finally reached base metals last week. As measured by the LME index, base metals dropped 10.8 per cent to 3,424.2. But some experienced steeper falls. Tin dropped 14.8 per cent. Copper, as the bellwether of the sector, attracted most attention as it dropped 10.6 per cent, to close below US$8,000 a tonne at US$7,790. Zinc, although it fell proportionately less, also attracted attention, as its 8.3 per cent drop to US$1,981 made it the only one of the group to trade below US$2,000 a tonne.

In a week dominated by the high drama of international monetary diplomacy, and with the apparent lack of progress in negotiations continuing to inject real fear into capital markets, any positive news was going to struggle to make itself heard. Yet there are underlying forces at work that are constructive for the sector. Although the IMF attracted much attention after it reduced its forecasts for global growth, the actual numbers themselves are in fact quite robust. The cut is not large and still leaves the global economy with an expected growth rate of four per cent this year and next. That is not bad in anyone’s language and, depending where it comes from, should translate into an additional two or three per cent demand in metal consumption. Far from being a recession or a depression this is growth, and not bad growth at that.



That is not to say of course that there is nothing to worry about. On the contrary. Even aside from the shambles that is Europe and the euro, there is plenty of evidence that overcapacity in some areas is depressing prices. One example is tanker rates. According to Bloomberg, some tanker rates have dropped to US$1,000 a day, a price level that is forcing some ship owners to put newly built ships straight onto care and maintenance, as that works out considerably cheaper than the US$10,645 a day running costs. With breakeven costs running at US$55,000 a day there, is some way to go before this market gets back into balance. The cause for this glut lies in the rates of up to US$229,000 a day that were achieved in 2007. Unsurprisingly this encouraged lots of new capacity to be ordered, and that capacity is now arriving on the waterfront. It is a classic capital market price cycle. High prices trigger new capacity that then depresses prices when it arrives.



The same logic applies to new mine development - except that the time scale for new mines is decades not years. Moreover, mines cannot be moved like ships. That is why the news last week that Michael Sata was elected President of Zambia is significant. He is on record as saying he wants to nationalise mines in his resource-rich country. And statements like that certainly do not encourage the construction of new capacity in any of the regions under his jurisdiction.



Despite these favourable signs for metals, all eyes remain on the global financial crises and on Europe in particular. A simple way of measuring the scale of the problem is the increase in the rates customers pay for Credit Default Swap (CDS) on the bonds of major European banks. This is a basic indication of riskiness, and those for Societe General now stand at 413 basis points, Credit Agricole at 322 and even the mighty Deutsche Bank at 225 basis points. The concern is exactly how much of the €353 billion of outstanding Greek debt these banks actually own. A write-down or, even a partial write-down, of that debt would deal a huge blow to many European financial institutions. As it is, the amount is an order of magnitude higher than the US$40 billion Russian default in that occurred 1998 and seven times that of Argentina’s when it defaulted.



Politicians and central bankers cannot create growth. That is for businessman and entrepreneurs to do. But what they can do is sort out the affairs of nations so that wealth creators know what the rules are, and are able easily to see how healthy, or otherwise an investment environment really is. It is time for the besuited bigwigs to get a grip and tell us what the new structures are.

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