"The best place to be is in commodities"

[drillinto]

The ratio platinum/gold

http://www.bespokeinvest.com/thinkbig/2011/12/29/platinumgold-ratio-remains-below-one.html

*****

 

[drillinto]

December 31, 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, your market seems to have been suitably flat in a short trading week.

Oz. Not much can be expected in two-and-a-half days of business on the ASX, especially with the beach, and a few cold beers calling. But, having said that, there were a few interesting moves which could be the start of a trend for 2012, with iron ore stocks staging a rally, of sorts, thanks to China’s continued strong demand for steel. A handful of gold stocks also swam against an outgoing tide, and a copper deal with a China investor caused a flurry of activity in one small stock.
Overall, however, there was no denying the subdued level of interest in equities caused by the ongoing global economic uncertainty. Gold staged a late recovery after we had closed on Friday, and it’s worth noting that at US$1,565 an ounce it is US$10/oz more than a week ago. The base metals all slipped a few cents. At the close, the all ordinaries index was down by 1.9 per cent, the metals and mining index lost 3 per cent, and the gold index slumped by 5.2 per cent.

Minews. Given the short week perhaps a short run-down of prices, starting with iron ore as that seems to have attracted most support.

Oz. Pick of the iron ore stocks was Ironclad Mining (IFE) which won government approval for its Wilcherry Hill project, news that initially saw the stock add A17 cents to A80 cents, its highest since May. That sharp rise sparked a spot of profit taking with Ironclad closing at A72 cents for a week’s gain of A9 cents. Sundance (SDL), which is still waiting for a promised takeover bid from Chinese investors to materialise, recovered recently lost ground with a rise of A4 cents to A39.5 cents. BC Iron (BCI) rose A20 cents to A$2.65, and two of the emerging magnetite-ore processing hopefuls, Grange (GRR) and Gindalbie (GBG) attracted fresh interest. Grange popped A6.5 cents higher to A56 cents, and Gindalbie added A1 cent to A52.5 cents. Cape Lambert (CRFE) added A1.5 cents to A47.5 cents, and Latin (LRS) put on A1 cent to A29 cents. Most other iron ore moves were down, but not significantly. Moves included: Fortescue (FMG) down A22 cents to A$4.27. Atlas (AGO) down A13 cents to A$2.70. Mt Gibson (MGX) down A3 cents to A$1.12, and Brockman (BRM), down A15 cents to A$2.04.

Minews. Over to the gold sector, where any good news would be appreciated.

Oz. There was a bit, but not much over a few days when everyone seemed busy talking gold down and calling it a victim of the European financial crisis and related asset sell-off. Two stocks to survive the widespread decline were Kingsrose (KRM) which added A3.5 cents to A$1.41, thanks to its ultra-low cost operations in Indonesia, and CGA (CGX) which added A8 cents to A$1.99 on news of an early re-start of gold production at its Masbate mine in the Philippines. After those two it was a case of widespread declines, but nothing too alarming. Moves included: Silver Lake (SLR), down A26 cents to A$3.01. Perseus (PRU), down A18 cents to A$2.40. Medusa (MML), down A42 cents to A$4.45. Troy (TRY), down A8 cents to A$4.26. Northern Star (NST), down A5.5 cents to A78.5 cents, and Chalice (CHN) down A3.5 cents to A26.5 cents after announcing the sale of its Koka project in Eritrea.

Minews. The base metals next, please.

Oz. Mainly down, with a handful of rises in the copper sector which held up quite well. KBL Mining (KBL), the old Kimberley Mining, added A2.5 cents to A27 cents after announcing the sale of a 25 per cent stake in its Mineral Hill copper project to a Chinese investor for a handsome A$80 million. Talisman (TLM) rose by A1.5 cents to A33.5 cents. Ventnor (VRX) and Rex (RXM) put on A2 cents and A1 cent to A52 cents and A$1.38 respectively. Other copper moves included: OZ Minerals (OZL), down A38 cents to A$10.01. Sandfire (SFR), down A13 cents to A$6.58, and Ivanhoe (IVA), down A10 cents to A$1.42.

All nickel stocks lost ground. Western Areas (WSA) was A20 cents weaker and A$5.09. Mincor (MCR) lost A1.5 cents to A67.5 cents, and Panoramic (PAN) shed A5 cents to A$1.16. Zinc stocks did a little better, but all moves were marginal. Ironbark (IBG) and Terramin (TZN) added half-a-cent each to A20 cents and A13.5 cents respectively. Perilya (PEM) slipped by the same amount, half-a-cent, to A33 cents, while Kagara (KZL) lost A2.5 cents to A25.5 cents.

Minews. Coal and uranium next, please.

Oz. More of the same really. Marginal moves either way. Among the coal stocks, two posted the absolute minimum rise. Zyl (ZYL) and Continental (CCC) added half-a-cent to A16.5 cents and A17 cents respectively. Losing ground were stocks such as Whitehaven (WHC), down A7 cents to A$5.29. Coalspur (CPL), down A9 cents to A$1.53, and Aston (AZT), down A35 cents to A$9.10.

Greenland Minerals (GGG) was the only uranium stock to rise, up half-a-cent to A45.5 cents. Other moves included: Paladin (PDN), down A3.5 cents to A$1.37. Berkeley (BKY), down A3.5 cents to A36 cents, and Manhattan (MHC), down A6 cents to A19 cents.

Minews. Minor metals, and then we can sign off, thanks.

Oz. The tone was a little better among some of the speciality metals, but moves were modest. Phosphate stocks gained a little ground, with South Boulder (SYB) regaining A4 cents to A86 cents after a heavy earlier sell-off, and Minemakers (MAK) added A1.5 cents to A27.5 cents. Tin stocks were steady. Platinum stocks continued to weaken, and rare earth developers lost a little ground with Lynas (LYC), down A12 cents to A$1.04, and Alkane (ALK), down A3 cents to A90.5 cents.

Minews. Thanks Oz.
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[Garpal Gumnut]

Thanks drillinto,

This may be less than useful information mate, available from The Australian, AFR or the Townsville Bulletin, for anyone with a highlighter.

Commentators look back, and the silly bastards get paid between $40 and $50k a year for their copy.

The only one I remember who expanded from such claptrap was Christopher Skase, and he ended up sucking on oxygen in Spain, which must have been as close to hell as one can get.

Commodities are the place to be in, timing is the nuts, as a mate of mine at the AFR tells me.

gg

 

[drillinto]

December 28, 2011
"Manganese Miners Adjust To A New World Of Stagnating Prices"
By John Helmer in Moscow
>> www.minesite.com/aus.html

BHP Billiton (BHP), the world’s dominant producer of manganese, recently slashed the price of manganese for delivery to China, the world’s dominant consumer, by 14 per cent, arousing the suspicion that the Big Australian is aiming to drive rival producers from the business, and when Chinese steelmaking is expected to revive next year, corner a larger share of the market. Ironically, the price action may also accelerate the exit of the Australian independent Consolidated Minerals from Australia, where costs are now close to the break-even level, towards African operations. The writing on the wall for manganese mining has been bad news for weeks. Chinese imports peaked in May and then again in September at almost 1.3 million tonnes per month. But Chinese steelmills, which require manganese to harden steel products, have cut their production in recent weeks.

Imports of manganese held steady at one million tonnes per month until Chinese steelmakers and traders began to lose their nerve. Inventories of manganese at ports, principally in the Qinzhou and Tianjin areas, climbed between September 2010 and May 2011, tailed off a little during the summer, and are now rising again. Even if forecast Chinese steel production goes back up above 700 million tonnes per year by February, there is enough inventory in China and enough supply of manganese ore in global reserve to hold down a recovery in the manganese price, and thus in manganese mininc company earnings and profits.

There is good news, but not much. As the price of manganese has been falling on dwindling Chinese demand, the cost of shipping to deliver the metal from Australia and Africa has also gone down. BHP is the largest producer of manganese in the market turning out just over two million tonnes in the September quarter. That was up 13 per cent on the previous quarter, but down five per cent on the year earlier. Most of the manganese comes from mining in South Africa, with a hefty contribution from a mine in Groote Eylandt in northern Australia. According to BHP’s annual report for the financial year ending June 2011, manganese sales generated US$2.4 billion. That was just three per cent of the company’s total sales figure. Earnings before interest and tax from manganese for the year came to US$712 million, four per cent of BHP’s consolidated total.

The largest of the independent manganese miners globally are Consolidated Minerals (Consmin) and OM Holdings (OMH). Both have ties to African manganese reserves, though for the time being it is Consmin which is already operational in Africa. OMH is a minority stakeholder in Tshipi, a South African mining project which has yet to materialize. Around 55 per cent of Consmin’s total output comes from the Nsuta mine in Ghana, while 45 per cent comes from the Woodie Woodie mine in Australia. For Consmin, total manganese resources in Africa comprise 56 per cent of the company’s total of 68.3 million tonnes. Consmin reports that in the third quarter it managed to lift ore output to 825,000 tonnes. That’s up 23 per cent over same period in the corresponding period a year earlier. Meanwhile, sales doubled to 941,000 tonnes.

Overall, Consmin produced 2.4 million tonnes of manganese ore in the nine months to September 30, an increase of 18 per cent. Sales grew even faster, and despite a shrinking manganese price, revenue for the nine month period came in at US$536.4 million, up 14 per cent. Earnings, however, slipped on the rising Australian dollar and on expanding inventories. Cost data are not available, but it is believed the cash cost of mining in Ghana is well below that of Australia, as are the shipping costs. Consmin was acquired in 2007 in an open bidding contest for shares on the Australian Stock Exchange, by Ukrainian metals magnate Gennady Bogolyubov. It was then delisted, although it continues to issue regular audited financial and production reports. Consmin is now being reorganized to streamline the Australian management and reduce costs. In that process, the Ghanaian operations and projects under consideration elsewhere in Africa, have a cost-effectiveness and profitability lead over the Australian operations.

For its part, OM Holdings (OMH) is listed on the Australian Stock Exchange, but is controlled by investors based in China. Bogolyubov is also an investor, though not a happy one. He recently lost an Australian court bid to sanction the company for attempting to list on the Hong Kong exchange, and also failed to muster enough votes to appoint new independent directors to the OMH board.

OMH has some diversity in its portfolio, which reduces its reliance on manganese. The company has stakes in iron ore projects in Norway, Sweden and Australia, via investments in Northern Iron, in Scandinavian Resources, and in Shaw River. OMH is smaller than Consmin, and may start to come under pressure if the manganese price continues to stagnate. According to a recent report from Macquarie Bank, “OMH's upstream margins will be negative at current cost and January price levels”. It’ll be interesting to see what next year has in store.

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[drillinto]

January 02, 2012
"Our Man In Oz Bids Good Riddance To A Truly Awful Year"
by Our Man in Oz
Free registration >> www.minesite.com/aus.html

Stinker! In a word, that was 2011 on the Australian stock market, a year when picking winners has never been harder, when 70 per cent of new floats sank, all the major indices ended in the red, one metal gained ground, gold, and the Australian dollar closed where it had started the year, $US1.01. Ironically, the $200 an ounce rise posted by gold (in either currency) was not reflected in the price of most goldmining stocks with falls significantly outnumbering rises even as the price of their underlying commodity went up.

Fear of a sudden slowdown in China, the driving force in the Australian mining industry, was what affected most investors, especially as the European financial/political crisis gathered pace, potentially triggering a global recession. But, a close second in the negative-influence stakes, was Australia’s nifty demonstration of shooting itself in both feet thanks to the passing of laws which will impose a super-profits tax on iron ore and coal, and a carbon-emissions tax which will hit every taxpayer.

Cash was king for most of 2011 with spare money being parked in a robust domestic banking system that has weathered the worst of the troubles since the 2008 sub-prime mortgage crisis in the U.S. started a wave of bank collapses, and near-collapses. For Australia, a banking system that has not required wholesale government support rivals the resources sector as the country’s primary economic asset, a situation which has evolved more by good luck than thoughtful planning. Unlike some other countries, Australia’s banks were banned from entrepreneurial lending by an old-fashioned team of central bankers who enforced strict rules on their commercial cousins.

That’s why when you look back at 2011 it is the domestic banks which have performed best, even if modest losses can be regarded as best, a variation on the old saying about the one-eyed man being king in the land of the blind. While sector leaders such as BHP Billiton and Rio Tinto fell by 22 per cent and 27 per cent respectively, the top two banks, National Australia and Commonwealth, fell by 1 per cent and 3 per cent respectively. For a country where the stock market has been dominated by mining and oil stocks for the past 60 years that “banks beat the miners” result was a sobering reminder that the world has become a very risk-averse place.

Three years ago, in the happy days before the U.S. investment banks Bear Stearns and Lehmann Brothers pulled the rug from under the financial world, Australian banks ranked third, fourth, sixth and seventh in the ASX’s top 10 by market value. Today, only BHP Billiton outranks the four leading banks with Rio Tinto plunging from second to ninth. Two miners in the top 10 is the lowest number since records were kept. In 1948 there were four (BHP, North Broken Hill, Mt Isa Mines and New Broken Hill). In 1968 there were seven in the top 10.

The big mining-related issues in Australia over the past 12 months were a combination of tax, takeovers (especially in the coal sector), fear of China catching an economic cold, and the emerging boom in natural gas production which is driving domestic costs sharply higher. Higher taxes have been labelled by the miners as a measure of increased sovereign risk for foreign investors in Australia, a claim which is only partly true. The real impact is on profits, because while the government is taking a bigger share of profits the risk of losing an asset to a man in a jeep waving a Kalashnikov has not increased – and that’s what sovereign risk really means.

The China factor is an extension of the Europe factor with the jury out on whether internal consumption and construction can offset slower exports. The next three-to-six months will answer that question. Cost inflation is more certain, with miners being hit hard by a stampede to develop liquefied natural gas (LNG) projects around the coast, largely to satisfy Asian demand for a relatively clean-burning fuel, with the LNG rush aided by Japan’s nuclear accident which has set back the uranium industry. Six LNG mega projects are under construction in the north-west and north-east of the country, each with a price tag of between US$20 billion and US$40 billion – and with owners prepared to offer whatever wages are required to attract skilled labour. The end result is truck drivers being paid A$150,000 a year, and shortages emerging for essential construction material such as cement and stainless steel.

Overall, the Australian stock market declined by 14 per cent during 2011, if you use the all ordinaries index as your measuring stick, a result propped up by the relative outperformance by the banks. If you use the metals and mining index as a guide the decline was 25 per cent, while the gold index was down 21 per cent even as the price of gold rose by 14 per cent. As an uncouth American might be say about the gold result: “go figure!” Much of the gold index decline can be sheeted home to Newcrest (NCM), the stock which dominates gold in Australia. It fell by 22.5 per cent, dragging the index down, and masking the performance of three gold stars; Silver Lake (SLR), Regis (RRL) and Northern Star (NST). Silver Lake rose by 42 per cent. Regis rose by 52 per cent, and Northern Star lived up to its name with a 127 per cent increase – with all outperforming the pack thanks to high-grade, low-cost, gold production.

New floats, an almost guaranteed way to make money in the first flush of the resources boom between 2003 and 2008 became an almost guaranteed way to lose money in 2011. Of the 81 new mining floats (yes, on average, more than one a week – a variation on P.T. Barnum’s famous remark about a sucker being born every minute) 57 ended the year at a price less than what initial subscribers paid – a 71 per cent failure rate. Two floats out of the 81 did very well. Copper explorer Ventnor Resources (VRX) saw its A20 cent shares hit a high of A$1.02 in mid-December, before falling off a cliff to a last trade at A50 cents, which is still a very respectable gain of 150 per cent. Western Manganese (WNB) also turned in a 150 per cent performance, rising from a float price of A20 cents to a final price of A50 cents. After those two outstanding performances (less the 3 per cent of the stocks offered) there were a handful of strong results. County Coal (CCJ) returned a 58 per cent gain to early investors, and International Coal (ICX) is up 47 per cent on its original price. Centius Gold (CNS) won the wooden spoon for worst float of the year with its A20 cent share ending at A4.8 cents, a 76 per cent fall since listing on January 28.

On balance, the less said about 2011 the better. The stock market was awful. The Australian Government worse, the foreign financial news grim, and the Australian cricket team appalling. The only good news is that the year is all but over, and we can look forward to 2012, though it would be wise to wish anybody Happy New Year with fingers (and toes) crossed.
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[drillinto]

January 02, 2012
"2011 Base Metals Review: A Slow And Gentle Decline"
Rob Davies
Source >> www.minesite.com/aus.html

There was lots of excitement in 2011 in the realms of politics and economics, but it would be hard to discern that from the Evolution of base metal prices during the year. Metal prices, as captured by the LME index started the year at 4,000 and gradually declined to 3,290 by year end. That 18 per cent fall would have been a lot more severe if it hadn’t been for the resilient performance of copper. Although it too fell, from US$9,500 a tonne in January to US$7,500 by December, its 21 per cent fall was less than many of its peers. Even with that drop, the price of copper is still way ahead of production costs which cannot be said of many of its fellow base metals.

Given the bleakness of the economic background the resilience of base metals is somewhat surprising. In fact, it is a testimony to the strength of the fundamentals underlying the industry. Most obvious are the low inventories of all metals with the possible exception of aluminium.

In addition to the grinding secular deleveraging of the western economies the metal markets had to cope with the dramatic impact of the Japanese tsunami in March. This knockout blow to the world’s third largest economy resulted in a contraction of that economy of 0.7 per cent in its first quarter and continued shrinkage of 0.3 per cent in the second quarter. That had a severe impact on metal consumption, and not just in Japan because of the integrated nature of the modern world economy. Even though Japan grew by 1.5 per cent in the third quarter compared to the second quarter the economy was still 0.2 per cent smaller than a year previously.

In many ways it is the strength of the world economy in 2011 that is striking rather than its weakness. Overall, the countries in the OECD were 1.8 per cent larger in the third quarter than in the same period of 2010. On top of that China and other emergent nations contributed their additional demand.

Even so the outlook for the world economy was a lot brighter at the beginning of 2011 than at the end. Leaving aside the exceptional events in Japan forecasts for world growth gradually shrank as the year progressed. This was partly due to the continued US housing crisis and its associated debt mountain. However, the bulk of the negative sentiment was caused by the gathering crisis in the eurozone. Despite repeated summits and conferences politicians and central bankers have consistently deferred tackling the problem head on and have preferred to announce short-term fixes. While these sometimes have the desired effect of mollifying the markets for a while the underlying problems continue to eat away at confidence.

A good example of the decline can be seen in the fall in aluminium prices. For the first quarter it averaged US$2,499 a tonne but it only averaged US$2,073 a tonne in November. The average for the year is going to be close to US$2,400 a tonne which is still a healthy premium to the US$2,172 achieved in 2010. So far producers have not made any significant production cuts, but they can’t be far away if demand remains weak.

Copper had a good start to the year and averaged US$9,650 a tonne in the first quarter. However, even its strong fundamentals could not stop it drifting down to average US$8,925 in May. A small rally to US$9,618 in July because of supply interruptions was too optimistic and the drift continued over the remainder of the year. By November the average price was down to US$7,551 and the average for 2011 will be US$8,810. Like aluminium this is higher than the 2010 average, which was US$7,537 a tonne. Unlike aluminium, miners are still furiously trying to add capacity.

Nickel will have an average price of close to US$22,900 a tonne in 2011. While this is above the US$21,813 achieved in 2010 it is below the optimistic levels at the start of the year. In February it averaged US$28,246 a tonne but gradually dropped back as the year progressed to average just US$17,877 in November, over US$10,000 a tonne less. So far the nickel industry has remained sanguine and almost all producers will be profitable at these levels, albeit with lower margins.

Lead and zinc are usually mined together but their final markets are very different. Zinc’s use in galvanised steel makes it very sensitive to the construction industry and its price over the year reflected the waning fortunes of that industry. After averaging US$2,158 a tonne in 2010 it started the year with an average of US$2,370 in January and rose to US$2,464 in February. That was the high point though and it lost ground over the year and eventually breached the US$2,000 barrier in the autumn to average US$1,858 in October. Over the year as a whole the price will actually be a respectable US$2,190 a tonne, but the current spot price of US$1,862 will be what producers are focussed on.

Lead has followed a similar trajectory but peaked at US$2,740 a tonne over April. That was a healthy increase to the US$2,146 averaged in 2010. Since then though it has slid back and is on track to average just under US$2,400 for the year. The automotive market has not regained its vigour of a few years ago, even though it has recovered somewhat. Lead’s fortunes are inextricably linked to this business and a smaller global car fleet, with its concomitant reduction in replacement batteries, is not something this metal can escape from.

For much of 2011 base metals formed part of the binary risk-on risk off trade even though its beguiling simplicity hid a multitude of complications. Most obvious was that the traditional safe haven of US debt suffered the ignominy being downgraded from its historic AAA status by the ratings agencies. Perversely, that had no price effect at all on the bonds and left 10 year Treasuries yielding 1.95 per cent at the year end. It is hard to believe they yielded as much as 3.4 per cent in January.

Despite the fact that is has never been cheaper to hold inventory metal prices are now reflecting the all pervading gloom in the marketplace. It is unfortunate that is the memory we have of 2011 when in fact metal prices, and miners, actually had a rather good year.

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[drillinto]

January 04, 2012
2012 Base Metal Outlook: Waiting for Angela
Rob Davies
www.minesite.com/aus.html


Although it only represents about one third of the world economy Europe accounts for far more than that in column inches of financial commentary. About the only thing we can say with certainty for 2012 is that the amount of noise about Europe, and the euro in particular, is going to increase. While that will dominate the headlines, it will be slightly less important than what happens in Asia and North America. Even so it will have a major impact on economic sentiment.

Among all the analysis that has been generated about the problem in the eurozone one fact dominates all others. Since the euro was formed ten years ago, German competitiveness has declined by about 5 per cent while the other countries in the eurozone have seen competitiveness fall by between 20 and 40 per cent. Germany has been the largest beneficiary of the euro by a country mile as it has effectively driven its neighbours out of business. That gives Germany a massive incentive to maintain the status quo and why it will fight to maintain the union. The battle in Europe will be between leaders of other European countries, trying to accommodate German demands for austerity, and their voters who are suffering unemployment and benefit cuts. As with the Arab Spring whenever the wishes of the population cannot be expressed through the ballot box they will surface in the form of civil disorder and riots. Only in that way will the voice of the masses be heard, though whether it has any effect is another matter.

There is no doubt that a break-up of the euro, or even a partial dismantling, would be a huge boost for growth for every country except Germany. In net terms that would probably be a positive for metal demand in Europe, but the process could be deeply unsettling and likely to be more beneficial for precious metals than base metals in the short term.

The last time the IMF looked at its dried chicken bones to discern the future it reduced its forecast for global growth in 2012 by 0.5 per cent to 4 per cent. In contrast to the all the doom and gloom that actually is not a bad number and is the same as the expected outturn for 2011. It will surprise few though that the distribution of growth is far from equal. Developed economies are expected to grow at 1.9 per cent, and the eurozone at only 1.1 per cent, while emerging economies are forecast to expand by 6.1 per cent. Within that China again takes the top spot at 9 per cent.

This bias towards emerging markets should be positive for base metal and bulk commodity demand as they benefit more from rising industrial production in developing economies than service activity in developed markets. On that basis all metals should experience higher levels of demand in 2012 than in 2011. Nickel has the highest sensitivity because two thirds of it is consumed in stainless steel production and that alloy has the fastest long term growth rate of any metal. Although nickel starts the year at just under US$19,000 a tonne it is actually well placed to perform well from this base.

Not only is demand expected to grow by 3 per cent the low price is putting pressure on nickel pig iron producers that have been so vital in increasing supply over the last few years. Industry experts estimate that these marginal suppliers need prices of US$19,000 to US$20,000 a tonne to break even. At these price levels these nickel pig iron suppliers face that classic prisoner’s dilemma, do they shut up shop now or continue making small losses and hope their competitors close down and drive up prices to benefit them? How these miners react will be the key to whether nickel’s supply side tightens up and takes prices back over US$20,000 a tonne.

Aluminium has a growth rate almost as high as nickel’s and it too relies primarily on Chinese demand. Unlike nickel though China is also a large producer of aluminium, in fact it is the largest. While there has been some small scale closures of capacity the market won’t tighten up until Chinese capacity is further reduced. That is unlikely to happen until the renminbi is revalued against the dollar, and that could be some way off. On that basis the outlook for aluminium is probably not very exciting.

Copper though is a different story. Despite large green and brown field expansions copper production is unlikely to keep up with growing demand in 2012. If so it will be the third year in a row that the market is in deficit. Not bad considering the gloomy economic environment. Demand growth maybe not spectacular but even an additional 2 per cent is the equivalent of one large new mine coming on stream every year. The persistent deficit is partly due to problems and delay in bringing on new capacity but is also a function of strikes, weather conditions and operational problems at existing mines. One of these factors is the slightly perverse effect that high prices incentivise mines to extract lower grade ore to maximise the net present value of the ore body. While that suits the mine owner it has the effect of actually reducing output unless the mine is able to increase throughput. That is not something that can be easily done while suppliers still have order backlogs.

Lead and zinc, as is often the case, bring up the rear of the group. While demand prospects are lacklustre, consumption typically grows at a small fraction of economic growth in developed economies; the good news is that price weakness in the fourth quarter of 2011 has already brought quotes down to less than US$2,000 a tonne for both metals. That is already putting pressure on producers and may induce some cutbacks. In addition lead, because of its high level of recycling, will find that the secondary market will be slightly less vigorous in supplying scrap.

Overall, the fundamental outlook for base metals in 2012 is probably sound if not exciting. The problem is that the noise of Mrs Merkel fighting the bulk of the European electorate could be a very large distraction for capital markets.

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[drillinto]

January 07, 2012
That Was The Week That Was ... In Australia(GOLD)
By Our Man in Oz
www.minesite.com/aus.html (free registration)



Minews. Prices now, starting with gold, please.

Oz. There were no surprise movements, either way, among the gold companies, but the trend was positive on three of the four trading days. An interesting new name for your readers is Elementos (ELT), a company which has attracted attention thanks to its Argentinean gold prospects. It rose a handsome A3.5 cents to A13.5 cents last week, but it was also interesting that at the close on Friday the spread stretched from buyers offering A10.5 cents and sellers wanting A18 cents, perhaps a hint of more to come.

Among the better-known gold companies there was a generally solid upward trend, and a few surprises too. Among the more interesting positive movers were: Silver Lake (SLR), up A25 cents to A$3.26, Evolution (EVN), up A15 cents to A$1.65, Medusa (MML), up A41 cents to A$4.86, Troy (TRY), up A17 cents to A$4.43, Perseus (PRU), up A16 cents to A$2.56. Kingsgate (KCN), up A24 cents to A$5.94, and Allied (ALD), up A11 cents to A$2.27. Going against the upward trend were falls from Ausgold (AUC), down A3 cents to A87 cents, Kingsrose (KRM), down A6 cents to A$1.35, and CGA (CGX), down A8 cents to A$1.91. Arc Exploration (ARX) lost another A0.1 of a cent to A0.8 cents after it was caught up in an Indonesian army blunder in which protestors near one of its exploration sites were killed in a shooting spree.

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[drillinto]

Aluminium
Alcoa, the first company on the Dow to report earnings, climbed 2.4 percent to $9.65 in early New York trading after Chief Executive Officer Klaus Kleinfeld said global aluminum demand will grow 7 percent this year. That expansion, combined with production cuts, will lead to a market deficit of 600,000 tons in 2012, Alcoa said.(10 JAN, Bloomberg)

 

[drillinto]

January 10, 2012
It’ll Be A Stock-Picker’s Market In Australia This Year, But Visibility Is At Least Better Than It Is Elsewhere In The World
By Our Man in Oz
Source >> www.minesite.com/aus.html

Discovery and takeovers will be the positive factors influencing the small to mid-tier components of the Australian mining industry in 2012. The other potential drivers are largely negative. For one thing, commodity prices, perhaps apart from gold, are unlikely to come to the rescue of investors as China’s growth slows, the U.S. stutters, and Europe throws the gear lever into reverse.

And this outlook means that the days of easy gains, those lazy days of a “rising commodity tide” lifting all boats, are over, at least for now. The wholesale flopping of new listings in 2011 was a taste of things to come, and picking winners will undoubtedly get harder. The year ahead will be one where it will pay to back companies with quality management, quality projects, and with that other critical ingredient, cash in the bank. Because 2012 will certainly not be one of those years of stiff breezes that help even turkeys to fly.

Warnings aside - if anyone needed them after last year’s precipitous plunge, when the ASX metals and mining index lost 25 per cent, double the rate of the 14 per cent loss posted by the all ordinaries - there is already a mood of caution evident among Australian investors. Since the trading year started a few days ago the ASX trend has been evenly split: up 50 per cent of the time, down 50 per cent. It is almost as if the animal spirits which underpin all markets are waiting for a sign, or an event, to demonstrate a definite trend. Whether that trend was up, or down, probably wouldn’t matter just so long as market participants knew where they were going. Right now, it’s a case of flat-lining, and the only time a hospital patient flat-lines is when he is dead.

It is the uncertainty of the outlook in China and Europe which has led to the nervous start to the year on the ASX, and which is pointing to a period when investors need to make their own luck. That means hunting out companies which will outperform thanks to discovery news, or through merger and acquisition activity. Northern Star (NST), one of the top ASX performers of 2011 with a share price that rose from A28 cents to A$1.00, and which has traded recently at around A92 cents, is an example of a company determined to make its own luck, either through exploration or acquisition. Not only did it beat its own forecasts by generating A$46 million in cash from its Paulsens mine in Western Australia in 2011, but it has extended its exploration footprint to a second likely mine development. It’s also said it is planning to use its growing balance sheet firepower to buy gold assets being offered by companies confronting cash shortfalls.

Newsflow from the field will be important in the first six months of 2012, which means that it will be necessary to understand exactly what a company is up to when masking its statements in the mumbo-jumbo of a geologist’s report. An example is the latest report from Syndicated Metals (SMD), a Queensland copper explorer which some investors might be tempted to think from its vast tenement package has bitten off more than it can chew. Last week, however, its first drill hole into the Andy’s Hill prospect returned a core of intensely altered copper sulphide (chalcopyrite) down to a depth of 494 metres with initial assays of 1.3% copper, 0.5 grams of gold a tonne, and a surprise assay of 0.21 per cent lanthanum, one of the rare earths. Investor reaction was barely measurable with the shares stuck at A7 cents despite making what appears to be a significant iron oxide, copper-gold (IOCG) discovery in the world-class Mt Isa copper belt. It’ll be interesting to see how long it’ll be before the market wakes up to the news.

Meanwhile, Perseus Mining’s shares were also trading in what was effectively a holding pattern until skittish investors were able to see precisely what it is capable of delivering at its newly-completed Edikan goldmine in Ghana. This week, Perseus made a formal declaration of commercial production, following on from a big resource upgrade just before Christmas, and significant drill intercepts from its Tengrela project in neighbouring Ivory Coast a few days before that. On a stock market heavily influenced by events in Europe, and on the edgy gold market, the Perseus share price sagged in an “equal-but-opposite” trend. From A$3.09 on the day of the Tengrela results, which included 37 metres at 5.5 grams of gold a tonne, the shares then sagged to A$2.33 in the final days of 2011. But over the past few days they have once again popped higher, adding A22 cents, or 8.6 per cent, to A$2.77 on January 10th as sleepy investors suddenly realised there was a red-hot production and exploration success story starring them in the face.

Expect a slow realisation of more missed opportunities in the early months of 2012 as the ASX reacts sluggishly to good news, and instantaneously to bad news. Apart from macro-events happening far from Australia, especially the Euro-crisis, there will be a long list of other factors weighing on the market. Resource nationalism, traditionally an Africa and South American phenomena, has raised its head in Oz through the double-tax slug being introduced via the super-tax on iron ore and coal profits, and via a carbon tax on everything. A chronic skills shortage is also making it hard to design and complete projects, and costs have exploded across the resources sector, as the activities of the iron ore mega-miners (BHP Billiton and Rio Tinto) have bumped head-first into the natural gas mega-producers launching their multi-billion dollar projects.

And money, whether in its paper or gold form, will re-assert its position on the throne in 2012, as investors keep a close eye on cash balances held by small explorers, and the capital requirement of would-be developers. Late last year a warning bell rang in the development space when a series of would-be projects were shelved, and cost blow-outs became the order of the day. Moly Mines was forced to postpone work on its Spinifex Ridge copper and molybdenum development for a second time when a Chinese bank got cold feet. Sino Iron, the first of a series of planned magnetite iron ore processing developments, added another six months to its completion schedule, which is already two years overdue and A$3 billion over an initial A$3 billion budget – yes, it has doubled in cost since work started.

For most international investors Australia is a place far from home, a factor at work in the wholesale sell-off of Australian equities by shell-shocked European fund managers who have been ordered to retreat to their head office castles and prepare for trouble. The irony, from the perspective of someone outside the walls of the castle, is that economic conditions are much more pleasant here than for those stuck inside.

Australia remains one of just 14 countries with a triple-A credit rating, and will keep it given that government debt stands at 20 per cent of gross domestic product, the second best in the world. The consensus view of economists is that the local economy will grow at 3.2 per cent this financial year, and 3.35 per cent next year. Unemployment will remain around five per cent, and less in the resource-rich states, and the ASX will creep higher, perhaps by around seven per cent over the next six months.

By the standards of the boom years of 2003 to 2008 the trends are not what could be called exhilarating. But, compared with much of the rest of the world they’re not bad. Perhaps a good example that in the land of the blind, the one-eyed man is king.
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[drillinto]

Natural Gas

http://www.bespokeinvest.com/thinkbig/2012/1/11/the-bottom-continues-to-fall-out-of-natural-gas.html

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[drillinto]

Australia: top exporter of liquefied gas

January 15, 2012
That Was The Week That Was … In Australia
By Our Man in Oz >> www.minesite.com/aus.html

Minews. Good morning Australia. You seem to have had quite a good week, with the double-header of a rising market and an improving cricket team.

Oz. Neither was a particularly notable event though, given that both had sunk rather low. The question now is whether the improvement can continue - and while the cricket team probably will, there’s less confidence in the stock market.

Minews. It probably depends on the opposition, and India doesn’t seem to be offering much on the pitch.

Oz. Good point, because it could be the same in the market, where we’ve seen a flow of money back into oversold equities by locals who had been on the sidelines over Christmas, and international investors who have weighed up Australia’s attractions versus other markets. The verdict seems to have been that with Europe stuck in a debt rut there are greater gains to be made through exposure to an economy closely linked to Asian growth. The downgrading of French and Austrian debt came after we had closed for the week, but confirmed the view down this way that the Euro-storm is far from over. Ironically, the French debt downgrade came a few hours after the oil company, Total, made the biggest ever investment by a French business in Australia, by agreeing to partner in the US$34 billion Ichthys liquefied natural gas project which got its formal go ahead on Friday.

Minews. You seem to be having quite a gas boom down your way.

Oz. Gas is certainly the flavour of the decade given problems with nuclear power, a dislike for coal, and the Iranians playing silly buggers in the Persian Gulf. The Ichthys deal takes the value of new LNG developments approved over the past two years to US$175 billion, with Australia on track to overtake Qatar as the world’s biggest exporter of liquefied gas within the next five-to-10 years.

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[drillinto]

January 16, 2012
Metals May Benefit From A Recovery In The US Car Industry This Year, But As Ever, It Will Be China That Really Determines The Direction Of Markets
By Rob Davies
Source >> www.minesite.com/aus.html (free registration)

The first few weeks of January tend to be slow in the capital markets. Many people are away and those that are at their desks don’t really want to do anything too dramatic at the start of the year. Consequently, volumes are low and liquidity is limited, and no one wants to put on a big trade unless they have too. It is also a time for taking stock and trying to gauge what the year will bring.

That’s not easy in these uncertain times. But one or two things seem clear enough. This year will be, initially at least, dominated by the stress in the eurozone. Recent bond auctions for Italian and Spanish debt successfully raised €26 billion, and at lower costs than had been expected.

That, though, is a mere drop in the ocean. There is another €675 billion to be refinanced by March. And in that context, while the downgrading over the weekend of sovereign debt for six countries by S&P was no surprise, it doesn’t help.

But of more direct interest to the metal markets are the early signs of revival in the US car market. According to the Financial Times the average age of a US motor car has risen from eight to eleven years since 1995. That gives hope that car sales in the US could get back to the 16 million level hit in 2007 rather than the dismal 12.6 billion recorded last year.

It may well be that this optimistic tone dominates sentiment in 2012, possibly helped by the election of a business friendly President. Certainly, in the limited trading there has been so far this year, base metals have reflected this more upbeat view.

Overall the complex, as measured by the LME index, has risen from 3385 to 3498 to record a 3.3 per cent improvement over the first week and a bit. Leading the charge was aluminium, which put in a sharp gain of 7.9 per cent to US$2,157 a tonne.

In part this was inspired by upbeat comments made by Alcoa when it reported its fourth quarter and 2011 results. And as the first metals company to announce its profits it gives a good early guide to the industry. Despite recording its first quarterly loss since 2009 in the fourth quarter, overall Alcoa made twice as much money in 2011 as it did the year before.

Alcoa expects aluminium demand to rise by seven per cent in 2012 and for there to be a shortfall in supply, although it must be conceded that it helped create this positive environment by closing 531,000 tonnes of production capacity as a result of low prices.

Although that demand growth looks good, it is actually lower than the 10 per cent increase in demand that was enjoyed by the industry in 2011. And that in turn was less than the 13 per cent increase recorded for 2010.

As was to be expected, it was China that was the dominant factor in 2011. China’s 44 per cent share of demand grew by 15 per cent. In 2012 Alcoa expects China to account for 45 per cent of its off-take, as consumption rises another 12 per cent to 21.3 million tonnes. To put that into perspective Europe, the next biggest market, is forecast to use just 7.7 million tonnes.

China is not only the biggest consumer of aluminium, but also the largest producer. Unfortunately, analysts estimate that a third of its smelters are unprofitable at current prices.

And what it decides it do with those facilities is probably more important than what European finance ministers argue about at the perpetual series of crisis summits that is likely to take place over the coming year.

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[sunnysyd]

Is it just me or is the URL in your 'source' part of your posts returning 404 error's for others as well? Cannot seem to locate your website.

 

[drillinto]

Is it just me or is the URL in your 'source' part of your posts returning 404 error's for others as well? Cannot seem to locate your website.

Please try www.minesite.com and then click on the Australian edition

 

[drillinto]

January 17, 2012
Shares In Atlas Iron Are Much In Demand As It Clears The Decks For Further Growth
By Our Man in Oz
Source >> www.minesite.com >> Free registration

Clearing the decks can be a time consuming business, especially when there are a lot of extra decks to clear. But that’s the process currently underway at Australia’s fast-growing iron ore miner, Atlas Iron, as it mops up after a series of takeovers which have opened multiple expansion options, but also prompted asset disposals ahead of the next big growth spurt. Investors who closely follow Atlas appear to have sensed the game-changing nature of what’s been happening at the company over the past few weeks, and have boosted the company’s share price by 12 per cent since the start of the year, which is more than double the overall improvement of the metals and mining index on the ASX.


But before Atlas reveals the details of its next big expansion, more cleaning up of the sort which saw two iron ore projects sold in the weeks before Christmas can be expected. On December 16th, Atlas offloaded its Balla Balla magnetite iron ore and vanadium project to Forge Resources for A$40 million. Balla Balla was an asset acquired with the takeover of Aurox in 2010. A week after that deal, Atlas said it would sell the Yerecoin magnetite project to the US miners, Cliffs, for A$18 million. Yerecoin was an asset acquired with the takeover of Giralia Resources last year.

Interestingly, both assets involved an ore type, magnetite, which requires processing to upgrade its relatively low iron content, a sign that Atlas is only interested in higher margin direct-shipping ores (DSOs) such as haematite - classic dig and deliver material. If that assumption on the part of Minesite’s Man in Oz is correct that it would be fair to assume that a third magnetite project, Ridley, will be the next deposit disposed of, if talks being held with potential buyers, or partners, are successful.

Other assets could also go the way of the magnetite projects as Atlas re-invents itself as company focussed primarily on DSO and other steel-industry materials like manganese. It doesn’t take a masters degree in business to suspect that a 15 per cent stake in uranium explorer U308 (an old Giralia asset) is available to the highest bidder, or that 10.8 per cent of copper and gold explorer, Zenith Minerals, could go quickly. Not to mention 9.1 per cent of Carpentaria Exploration, six per cent of Lawson Gold and 3.5 per cent of Gascoyne Resources.

The key point about the assets sales that have already been completed, as well as the asset sales likely to come, is that they’re not about the cash, given that Atlas had a spare A$390 million in the bank as at October 21st, just before it filed its most recent quarterly report for the three months to September 30th. It was in that document, perhaps more so than any recent full-blown presentations, that Atlas chief executive, David Flanagan, spelled out the ambitious growth plans he’s hatching inside Atlas, and the hurdles he needs to clear.

Marketed as a “three horizon” program, Atlas is essentially seeking to arrange all of its assets in an orderly fashion to maximise profits. That’s not an easy task when you’re still juggling three major takeovers in less than a year – Giralia, Aurox, and FerrAus – and you’re in a part of Australia that’s suffering from an acute skilled-labour shortage and sharply-rising prices.

But in his recent outings in front of investors and the news media David Flanagan has been hinting at the need for a very careful look at what’s next for the company. One clue that he will not be rushing was a comment he made in an interview with local media in Perth this week when he said Atlas would need an extra 1,000 workers achieve its goal of more than doubling iron ore production from six million tonnes a year to 15 million tonnes over the next three years. And while David is confident that the immediate goal is achievable, the real challenge is to drive Atlas to its stretch target of 46 million tonnes a year by 2017. To do that he will need to find a railway solution to supersede road haulage, and to secure additional port access at existing and new ports.

David’s explanation of the “three horizons” future for Atlas runs as follows. Horizon One will be an expansion of the existing annual output of six million tonnes of iron ore a year to 12 million tonnes during the 2013 financial year, and then up to 15 million tonnes. Related changes to the mine, transport and port operations of the company will include expanding the Wodgina mine with a crushing hub to handle Wodgina ore and material from the new Abydos mine, development of the Mt Dove and Mt Webber mines, and development of an off highway private haul road.

Horizon Two is the expansion from 15 million tonnes a year to 46 million tonnes a year through the expansion of the company’s North Pilbara hub and the development of resources in south east Pilbara. However, the biggest steps in H2 will be finding a railway solution, a step which has dogged all iron ore producers in Australia, and finding additional port capacity. Horizon Three is the true stretch target for Atlas, though, because it involves possibly stepping outside Australia in search of iron ore mining opportunities, and the addition of other steel-making commodities to the inventory. An early example of H3 in action can be found in the 19.85 per cent stake that Atlas acquired last year in Brazilian iron ore hopeful, Centaurus, and in the 45.4 per cent stake it holds in manganese explorer Shaw River Resources.

But to shift Atlas through its three horizons and to maximise profits, David has recognised the benefits of not rushing, especially after last year’s flurry of corporate activity. That’s why the company is in a deck-clearing phase, and why expansion plans are moving slower than originally reported. A September deadline for engineering studies has stretched out, as management studies a North Pilbara rail network, and to allow it “to further define rail solutions”. That could be code either for negotiating access to an unused BHP Billiton railway that runs between Port Hedland and the mothballed Goldsworthy mines, or for gaining possible access to other railways in the area, or for Atlas building a railway of its own.

Whatever the outcome of the many studies underway inside Atlas, it is a company which has reached an interesting phase in its Evolution. High-speed corporate deal-making appears to have ended for now. An asset sales phase is underway to help focus management and get rid of surplus projects. After that comes the mechanics of the plan to make the important bits acquired in last year’s takeovers perform as a single entity. And if Atlas can do that it should have a clear run at delivering on David’s optimistic promise âœto double the value of the business every 12 months”.
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[drillinto]

Baltic Dry Index

http://www.bespokeinvest.com/thinkbig/2012/1/15/baltic-dry-index-collapses.html
*****

 

[drillinto]

Natural Gas

http://www.bespokeinvest.com/thinkbig/2012/1/19/natural-gas-continues-its-epic-fail.html
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[drillinto]

BP Energy Outlook 2030

http://www.bp.com/liveassets/bp_int...nloads/O/2012_2030_energy_outlook_booklet.pdf

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[drillinto]

January 21, 2012
That Was The Week That Was ... In Australia
By Our Man in Oz

Minews. Good morning Australia. You seem to be enjoying a modest mining rally.

Oz. It certainly looks that way. Iron ore shares in particular are performing strongly, supported by a belief that China is heading for a soft economic landing. Last week there were wholesale rises among the iron ore companies, a more subdued bounce in base metals, and a relatively flat gold sector. Overall, the metals and mining index on the ASX rose a respectable four per cent. The gold index crept up by 0.6 per cent, and the overall market as measured by the all ordinaries managed a rise of 1.1 per cent.
Minews. Are you disconnecting from the old world of Europe and the US and getting even closer to Asia?

Oz. That seems to be the case. And we had a couple of examples of that drift during the week, one positive and the other negative. On the positive side there was a report from HSBC which said that growth is verging on the “unstoppable” because most of the big mining and energy projects are “baked in”, meaning they take years to build and are designed to operate for decades. “While we think it is hard to say anything is truly unstoppable, we think the mining investment boom comes pretty close”, HSBC said.
...

((Source >> Minesite.com))
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