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August 25, 2012
That Was The Week That Was ... In Australia
By Our Man in Oz

Minews. Good morning Australia. Did your mining boom really come to an abrupt end last week, as has been reported?

Oz. It certainly took a heavy blow when BHP Billiton canned plans to spend US$30 billion digging the biggest man-made hole in the world at its Olympic Dam copper and uranium mine. But looking past the headlines, it’d be more accurate to say that the boom has ended its first phase, because the underlying driver, demand for minerals, energy and food in heavily-populated Asian countries, has not suddenly stopped.

Minews. How did the market react to the Olympic Dam news?

Oz. Now that’s the more interesting question. The reaction from investors was quite different to news media reports. Immediately after BHP Billiton confirmed the mothballing of its Olympic Dam expansion, which had been widely-expected, its shares rose, as did the rest of the Australian market.

However that upward move was then followed by a sell-off on Friday, which also occurred in China and Japan. As a result most indices ended the week virtually where they started, except gold which had its best five days of trading in months.

Minews. We’ll get to gold later, but first a bit more on the mood in your market, which you say seems to be taking the end-of-boom reports in its stride.

Oz. The thing is, the Australian economy has become over-heated, with too many resource projects chasing scarce services and too few skilled workers. The result has been an explosion in costs. For example, developing a gas export project costs three-times as much in Australia as it does in the US, and double the amount it does in Asia location.

Minews. In effect, Australia has been pricing itself out of the market.

Oz. That’s probably a fair comment, but it only applies to projects with less robust profit margins like Olympic Dam, which has uranium in its copper ore and hence needs additional processing.

But meanwhile, in the iron ore space, BHP Billiton shelved a US$20 billion plan for a new harbour. It will now implement a less costly alternative, which will involve building two new export berths the existing Port Hedland harbour. The grand plan has been mothballed for now, but expansion continues nevertheless.

Minews. So, the boom continues but at a slower pace.

Oz. A more manageable pace, yes. We will see more projects mothballed, especially in coal, where prices have fallen sharply. But there will be plenty to get on with in iron ore, copper, gold, and the latest hot sector, oil and gas, which is becoming rather exciting down this way thanks to the discovery of thick beds of gas-rich shales, which look strikingly similar to the structures which have revolutionised the US energy sector.
...

Source >>> www.minesite.com
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August 27, 2012
Lack Of Liquidity Has Exaggerated Market Volatility In Metals And Equities This Summer
By Rob Davies

One of the lasting consequences of the GFC, as Australians have labelled the Global Financial Crisis, has been the withdrawal of hedge funds from many areas of the capital markets. While this may have removed some unwanted volatility it has also dramatically reduced liquidity.

This was most obvious in the recent bear raid on Standard Chartered Bank when trading volumes suddenly increased twenty-fold as the stock dropped 25 per cent in a day.

Something similar is occurring in other markets as well. There was no particular news flow last week but base metals, as measured by the LME index, gained four per cent to 3,257.8.

Part of this strength was due to a decline in the dollar, which fell 3.3 per cent against gold.

But the weakness in the dollar was more a result of the bounce in the euro as Mr Samaras of Greece decided to spend money on airfares visiting his lenders rather than paying them back.

No one pretends that the euro is without problems but vague talk of the US returning to the gold standard reminded everyone how bad the problems in the US are too.

The six per cent bounce in the platinum market was another demonstration of how news can move prices in thin markets, as participants reacted to the strife at Marikana.

Maybe it was this irrefutable demonstration that many commodities come from troubled parts of the world, combined with an awareness that inventories are still low, that was, at least in part, responsible for the general rise in metal prices last week.

Because even though the European auto-catalyst market is weak now, it won’t always be weak. And there is no indication that South Africa is going to be surpassed as the source of 80 per cent of world supply of PGMs.

The same logic applies to other metals. Copper is increasingly reliant on fewer countries, some of which are very new and have yet to settle down into democracies.

In the future any hint of disruption in the Democratic Republic of Congo will have a significant impact on the copper price, as long as inventories stay tight.

Despite a poor set of figures from BHP Billiton last week it was encouraging that the company is taking a sensible approach to the expansion plans at Olympic Dam.

Lower metal prices have reduced the likely returns from this project and the company is reviewing ways of proceeding at a lower capital cost. Such tight capital discipline will ensure that metal prices stay firm and give efficient miners good returns.

Last year BHP Billiton earned 23 per cent on its invested capital. For a commodity business still in the middle of the GFC that has to be good going, and makes you wonder what it could do if economies everywhere were growing, and not just in China.

What is, perhaps, more indicative of the power BHP Billiton now has is that 50 per cent of its earnings before tax and interest come from iron ore. This is one of a few global commodities that has does not have a vibrant terminal market so it is effectively one of the least liquid as well.

Anyone prepared to take the risk on long term projects in iron ore knows that while the rewards are potentially very high, there is little scope to hedge prices.

And it’s far too illiquid for any hedge fund - as iron ore prices drop below US$100 a tonne for the first time in three years that deficiency is all too obvious.

On the other hand Chinese steel consumption in July was a record at 61.7 million tonnes. No summer lull there in what is still a very buoyant business.

Source >> www.minesite.com
*****
 
September 02, 2012
That Was The Week That Was … In Australia
By Our Man in Oz

Minews. Good morning Australia. You seem to have had a dreadful week.

Oz. In parts it was pretty dreadful. The collapsing iron ore price knocked the stuffing out of that sector. But the most damage seems to have come from a belief that the value of the Australian dollar will follow the iron ore sector down, causing a stampede of foreign investors out of the Australian market.

Minews. And did the dollar collapse as predicted?

Oz. No, or to be more cautious, not yet. Despite forecasts that the dollar would fall below parity with its US cousin it remained firmly rooted at US$1.03 all week, even as the iron ore price plunged below US$100 a tonne, and appeared to be heading for US$80 a tonne, or less.

Minews. Is iron ore really a proxy for the Aussie dollar?

Oz. Of course not, but that seems to be the way some investment bankers in London and New York see Australia - as a large iron ore pit with Chinese demand dictating the price of the commodity and hence the value of the dollar.

There is, obviously, a lot more to the Australian economy than a single commodity, and while the dollar is overdue for a correction there are three factors keeping it up.

The first is that liquefied natural gas (LNG) exports are fast challenging iron ore and coal as the most valuable commodity export. Another is that people outside this country forget the existence of the agricultural sector and other aspects to a fundamentally solid economy. The third is that every other country in the world is trying to depreciate its currency in a bizarre race to the bottom, as a means of aiding exports.

Minews. You’re saying the sell-off last week was overdone.

Oz. Probably not. There’s no doubt flows of hot money - even from the Swiss National Bank looking for a safe haven for its cash - have keep the Australian dollar higher for longer. But there’s also no doubt that a lot of Australian industry would benefit from a major currency correction.

Farmers, manufacturers, tourism operators and education “exporters” are desperate for a more competitive dollar. So, while the metals and mining index, led by iron ore stocks, fell by 5.4 per cent, the all ordinaries index, which incorporates the entire market, slipped by just 0.8 per cent. When you take the mining shares out of the equation, the market actually rose.
...
Source >> www.minesite.com
 
8/31/2012 | "Water: Good as gold for investors" | The world's most critical commodity is getting harder to find, which makes it an attractive investment | By Jim Jubak
 
September 03, 2012
Information Overload Leads To Indecision On The Markets, As The World’s Central Bankers Gather In Jackson Hole
By Rob Davies

In the final few seconds before Neil Armstrong landed Apollo 11 on the moon he was distracted by signals warning that that the onboard computer was overloaded - there was much more information coming to the machine than it had the capacity to deal with.

Fortunately Armstrong was able to complete the maiden landing by taking manual control.

In some ways prevailing conditions in the global capital markets are reminiscent of that old overloaded computer from the 1960s. As the northern hemisphere summer winds down there is sense that a lot of information is being generated and distributed, much of it quite significant.

But there is no general consensus as to what all this data means. Consequently markets have carried on going nowhere.

The mining industry is a classic case in point. Even though the LME base metal index drifted off 1.6 per cent over the week to close at 3204.5, and is 20 per cent lower than this time last year, the real driver of sentiment has been the steady continuing fall in the price of iron ore.

Bears point out this is now below US$90 a tonne and is the main reason the FT Mining index is down 22 per cent on a year ago. Bulls say the price is still twice what it was three years ago.

It is well known that the largest buyer of iron ore is China, so the fact the Shanghai Composite index is down 66 per cent from its high in October 2007 worries some observers.

But those that are worried should remember though that the correlation between economic growth and domestic share prices is one of the lowest there is. Over that period of time the Chinese economy has virtually doubled, even if the index is down.

In the developed world the problem seems to be the reverse, as there has been a strong bounce in stock markets over the last three years, even as the economies of the USA and Europe have gone nowhere.

This background gives added urgency to the annual gathering of members of the US Federal Reserve and other central bankers in Jackson Hole. The Fed seems to be expected to clean up the mess by left politicians who are unwilling to take the tough decisions that are required.

A small sub-plot to this are rumours that Jens Weidmann, President of the Bundesbank, is poised to resign in protest at the policy of the ECB in buying Latin debt.

He has only been there a year, after Axel Weber, the last President, resigned over the same issue in 2011. Were Weidmann to leave it would signal that the anti-inflationary grip of the Bundesbank is being further weakened.

That raises serious questions about the wisdom of holding German debt that only yields 1.3 per cent. No wonder the gold price is holding steady at US$1,661 an ounce.

However, suggestions that the US return to the gold standard can safely be ignored on the basis that the catastrophic collapse in house prices that would ensue is not a vote winner for any President.

It might be encouraging to think that the US election could result in some change. Unfortunately, the system of checks and balances of the US constitution mean that unpopular policies to reduce the deficit are in any case unlikely to see the light of day.

Even if Ben Bernanke, Chairman of the Fed, decided to implement QE3 to do what politicians can’t to revive the economy, its impact is expected to be less than the previous two liquidity injections.

So at this stage market participants need to decide if all this information means the glass is half full or half empty. And no computer can help with that.

Source >>> www.minesite.com
 
September 04, 2012
This Year’s Africa Down Under Conference Threw The Differences Between The Dark Continent And The Lucky Country Into Stark Relief
By Our Man in Oz

Inviting a competitor to take a close look at your business may be a polite thing to do, but don’t be surprised when they recruit your staff, steal your customers and set about driving you out of business. That, in a somewhat exaggerated fashion, is what’s happening in the relationship between the Australian and African mining industries.

While Africa has been playing second fiddle to Australia in the mining business for past few decades the relationship is changing, and nowhere can that be seen more clearly than at the annual Africa Down Conference, which has now grown from an initially modest gathering to rank as Australia’s biggest mining event, and Africa’s second biggest.

Delegate numbers at the ninth edition of ADU held in Perth last week swelled to 2,700, eclipsing by 200 the long-term Australian conference leader, Kalgoorlie’s Diggers & Dealers forum which is tightly restricted by the small city in which it is held, isolation and high costs.

But ADU’s Perth location proved congenial enough for 17 African government delegations to make the trek across the Indian Ocean, though some would have been surprised by the cramped conditions in the two hotels that hosted the talks and exhibitions. Success, it seems, has a price.

Discomfort, and the need to use elbows to fight through the crowd, was a small price to pay for both the Africans and the Australians at the three-day talk-fest. What made it worthwhile was the opportunity for deals to be done with both sides keen to capitalise on their assets, with busy investment bankers acting as marriage brokers.

The Africans made it clear that they want skills and capital. The Australians made it clear that they want a fresh start, far from a home government determined to tax them to death. And what happened at ADU this year could set the tone for the future of the mining industries on both continents. Australia in decline, thanks to sky-high tax policies, higher government approval hurdles, and an appalling, and worsening, industrial relations climate. Africa, on the rise thanks to excellent geology and governments which welcome mining investment.

The man who set the tone at ADU was Andrew Forrest, founder of the iron ore miner, Fortescue Metals Group, and once Australia’s richest man, with a fortune valued at more than A$6 billion. Today, Andrew is a more humble A$2.5 billion-man thanks to the crumbling share price of Fortescue. However, what put Andrew in the spotlight at ADU wasn’t his shrinking fortune, it was his timely warning that Australia should: “watch out for Africa”.

“Africa will be Australia’s greatest competitor, and let’s celebrate that,” Andrew told a government trade seminar on the sidelines of ADU. “Let’s say what is great for Africa is great for the world and great for Australia.”

Said – undoubtedly - in the spirit of encouraging economic development in a region in dire need of fresh investment, Andrew might have wished he had been a little less enthusiastic four days after his speech welcoming African competition – when he was forced to announce a dramatic cutback in Fortescue’s ambitious Australian iron ore expansion plans.

Officially, Fortescue’s problem is falling Chinese demand for iron ore. In the background is the steady development of new iron ore mines in Africa which will be highly competitive with the best Australia has to offer.

Throughout the event a steady stream of worthy African government ministers strutted up to the podium of an appallingly crowed seminar room to sing the praises of their country. Malawi’s Minister for Energy and Mining, Cassim Chilupha, said he was keen to see more and different mines opened to diversity the industry currently dominated by uranium and coal. Lesotho’s Mines Minister, Tlali Khasu, told his Australian audience that his country actively encouraged investment in its free enterprise market economy, and was home to skilled mine workers who had lost their jobs in South Africa and were keen to work.

One after the other a common sales pitch was heard from spokesmen for countries such as Botswana, Tanzania, Zimbabwe, South Sudan, Zambia, Madagascar, Nigeria, Ethiopia, Niger and even South Africa, home to the continent’s biggest (and most troubled) mining industry.

In a display that was chillingly cool a few days after the Marikana massacre in which 34 striking platinum miners killed by police, the South African Minister for Minerals Resources, Susan Shabangu, shrugged off the crisis while also distancing herself from the event.

Her explanation was that she had been “out of the loop” at conferences when the shooting took place, and that it was now a case of allowing the law to take its course. She could not, however, resist slipping in a reference to the previous regime which ruled her country. “We are only 18 years into democracy”, she said. “Pains and wounds of the past need time to heal.”

Highlights of the 61 small to medium mining companies which presented at ADU included:

• Mark Connelly, chief operating office of ASX-listed Endeavour Mining, who outlined how his company would lift gold production to between 282,000 and 304,000 ounces this year.

• John Welborn, managing director of Equatorial Resource, who forecast that the next major source of iron ore for China would be central and west Africa.

• Len Jubber, chief executive of uranium explorer, Bannerman Resources, who warned that new uranium mines needed a price of between US$75 a pound and US$90/lb to attract investment.

• Jason Brewer, director of Continental Coal, who said his company’s third thermal coal mine, Penumbra, would start production in the current quarter.

• Jeff Williams, former managing director and now adviser to Mineral Deposits, who contradicted a widely-reported view of the titanium and zircon market by saying that the outlook was favourable.

But the final word on ADU belongs to a survey of delegates designed to measure Australian investor sentiment towards Africa. In it 89.5 per cent of respondents said they expect Australian companies to increase their investment in Africa over the next 12 months. Another result of the survey was that two countries were seen as offering the best growth prospects, Ghana and Botswana. They both got 15.3 per cent of votes, with South Africa third with 12.9 per cent.

As for the biggest challenges confronting African mining, the delegates picked poor infrastructure (31.4 per cent), government regulation and nationalisation (23.5 per cent), political instability (11.8 per cent) security (also 11.8 per cent). A continent-wide skills shortage came top of the list of challenges at 35.3 per cent – but that is a problem potentially fixed by attracting Australian miners to follow the ADU delegations back to Africa.

And that’s something which will undoubtedly happen as the Australian Governments works hard at making the country as unattractive as possible for mining or, asone headline in Oz recently read -- “Australia to the world: do not invest here”.

Source >> www.minesite.com
*****
 
September 08, 2012
That Was The Week That Was … In Australia
By Our Man in Oz

Minews. Good morning Australia. It looks from London like another rough week for your market.

Oz. True, in part. Iron ore certainly hit the headlines for the wrong reasons, and coal remains under pressure from falling prices. But when you wrap the many commodities that go into the Australian mix the end result of last week’s stock market trade was rather interesting. We went up, not down. Even the Australian dollar, which is widely seen as being over-valued, crept up marginally.

The score card by commodity looks something like this. Gold stocks led the way up, and should go even further on Monday since the gold price sailed comfortably through the US$1,700 an ounce mark after we had closed.

Copper companies also firmed. Iron ore, coal and uranium weakened, but the base metals held their ground, and exploration news kept speculators interested, particularly in the favourite of the month, Sirius (SIR) which reported fresh nickel and copper assays from its Fraser Range drilling, and rose A50 cents to A$1.91. That’s not bad for a company that was at A5 cents two months ago.

Minews. We’ll get to more prices later, but first it would be interesting to hear why your market rose when many reports about the Australian economy over here are negative.

Oz. There are good reasons to be wary about Australia over the next 12 months. Our terms of trade have undoubtedly turned for the worse, thanks to the slowdown in Chinese manufacturing and energy demand. But offsetting that is optimism that the world’s major economies of Europe, China and the US will continue creating money to stimulate growth and jobs. And that will mean more consumption of basic raw materials, an Australian speciality.

But another reason to be wary, and perhaps to get ready for a rocky ride, is that we are now in the final 12-months of a deeply unpopular government which is starting to panic. Botched tax and environmental policies are weighing heavily on confidence. And the dour mood is being exacerbated by reports of the resources boom ending abruptly, which might throw thousands of workers out of their jobs.

Minews. It doesn’t sound like a happy outlook. So why is your market rising and not falling?

Oz. Because the gloom has been overdone, and the outlook is not as bad as is being portrayed. Companies that are in trouble are those that are carrying too much debt. Fortescue Metals (FMG) is a prime example, and in response it has slashed its expansion plans and sacked 1,000 workers. Other iron ore miners with far less debt are riding out the downturn, and hoping that the next round of international economic stimulus boosts demand for minerals.
...

Source >>> www.minesite.com
*****
 
September 10, 2012
Commodities Rise, As Bad US Data Combines With Further Intervention From Super Mario
Rob Davies

Anyone seeking to understand the 2.6 per cent rise in base metal prices last week as a consequence of industry fundamentals would have been wide of the mark.

The fact that Chinese consumption of tin is forecast to fall 3.8 per cent this year to 147,900 tonnes, 47 per cent of the world demand, is overwhelmed by a bigger story.

Instead it was all to do with a group of 23 people sat around a table in Frankfurt on Thursday 6th September. Twenty-two of them voted for a new policy, devised by European Central Bank chief Mario Draghi, which has been dubbed Outright Monetary Transactions or OMT.

Doubtless traders will soon invent a new interpretation of this TLA (three letter acronym). The details are complex and way above the heads of simple commodity writers. It is clear though, that the 22 who voted for it expect the tab to be picked up by the guy who didn’t.

No names, no pack drill but the chance of that dissenting vote belonging to Jens Weidmann of Germany look pretty good.

The issue the meeting wanted to deal with was that while Germany can borrow ten year money at 1.5 per cent, Spain gets charged six per cent. While that alone demonstrates that the euro is not a single currency any longer, the politicians do not want to tell their voters that.

In their view it is far better for them to outvote Germany and tell it to underwrite all sovereign debt in the eurozone. The gamble is that firepower of this size will outgun the markets and will never need to be used. The Germans are not so sure.

In the short term, the markets say this is good for European growth. All the eurozone equity markets shot up, and that encouraged commodities to rise in tandem.

This boost to the euro was further augmented by weak US jobs figures which depressed the dollar. And a weak dollar is always good for commodities, especially gold which shot up 4.4 per cent to US$1,734 an ounce.

How long other European countries will be able to exploit their democratic majority over the Germans is the tricky part. Everyone knows there are more poor people than rich people and that is why electorates around the world consistently elect governments that promise to tax somebody else for their benefit.

The psephology of the Euro works the same way. Most member states are poor compared to Germany and they will always vote for Germany to pick up the tab.

Change will only happen when either German voters or capital markets realise that the arrangement cannot work if put to the test.

What happens when that point is reached will be the crucial event for investors. Either way German debt looks expensive. The obvious destinations for capital currently invested in it are risk assets like equities or commodities.

However, there are lots and lots of people who have a vested interest in maintaining the status quo, so don’t expect a change any time soon.

On a different tack it is good news to hear that Royal Bank of Scotland has called time on commodity trading and research. While sad for the individuals concerned, this is just another step in shrinking an over-ambitious retail bank out of high risk markets into its core activities.

Cumulative losses of £31 billion since 2008 demonstrate how out of its depth the bank was. It does mean there will be a little less risk capital in commodities and a reduction in the number of forecasts. But it also means there are fewer intermediaries between consumer and supplier, and that must be good news for both ends of the trade.

Source >>>>> www.minesite.com
*****
 
http://www.reuters.com/article/2012/09/12/australia-mining-idUSL3E8JR08T20120912

Australia miners slam brakes on huge pipeline of projectsWed Sep 12, 2012 6:50pm EDT

excerpt
The $246 billion of planned projects is based on government data on projects under study or awaiting approval and mining expenditure estimated by bankers and lenders. It also includes $40 billion of projects already halted by BHP.

According to project finance lenders, lawyers and analysts, some of the major projects at risk include the $10 billion Roy Hill iron ore mine, Xstrata's $6 billion Wandoan mine and GVK Power & Infrastructure's $10 billion Alpha Coal mine. They are in new mining areas, requiring huge investment on railways and ports, which makes them tougher to fund.
Click to expand...
 
September 17, 2012

US Money Managers Dance To Ben Bernanke’s Tune, As QE3 Gets Underway

By Rob Davies


It was only a 565 word statement, but it was enough to whack up equity markets by a couple of per cent and enough to add 5.2 per cent to base metal prices as measured by the LME index.


Ben Bernanke’s statement that US Federal Reserve will buy up mortgage-backed securities to the tune of US$40 billion per month was bold, and certainly caught the market’s attention.



On the debit side there was some collateral damage to the dollar. It fell 2.2 per cent against gold. US Treasuries fell 15 per cent to offer a yield of 1.9 per cent on the 10 year.



These sorts of actions only happen when an important person stands up and commits to spend an awful lot of other people’s money.



Mr Bernanke put a theoretical time limit on the Fed’s asset purchase programme, saying it will last until the end of the year.



But if it doesn’t work, he said the Fed will keep on buying until it does. A blank cheque of that size is enough to get most money managers off their gluteus maximuses and doing something.



They have to do two things. One is to buy something with a depreciating dollar that will hold its value; and secondly to buy something that will generate an income that will maintain its worth after inflation in the future.



Metals, as any miner will tell you, fit the first category exceptionally well, even if it is hard work and expensive to find new deposits, raise the finance to exploit them, build a mine and then manage it profitably throughout its life.



And while the metals per se don’t generate any income, the mining companies that extract them do, and therefore are ideally suited for the second category of inflation-proofed income.



It was therefore not surprising that the mining sector was one of the best performing sectors the day after the statement from the Fed.



As is often the case when an asset class experiences a sharp increase it was the most oversold commodities that provided the largest gains. Aluminium jumped six per cent to US$2,081 per tonne, while zinc both six per cent to US$1,984 a tonne.



But while the stimulation from the US Federal Reserve is a welcome development, it is worth bearing in mind that the US economy now only accounts for nine per cent of global aluminium demand, according to Bloomberg.



It is a measure of the totemic power of Mr Bernanke that his words last week had a bigger impact on markets than a similar commitment made by Mario Draghi, President of the ECB, the week before.



In a way, Mr Draghi’s statements should be more influential on some commodities. After all, Europe makes up 15 per cent of world aluminium demand.



Recent data show that demand for heavy commercial vehicles in Europe has slumped and turned negative on a year on basis, after enjoying strong growth in 2010 and early 2011.



In theory then, the European stimulus should have more impact on the prospects for metal demand.



But in practice it is US money managers that call the shots, even though they are more focussed on domestic politics as a guide to their investment strategies.



They can see that the US Federal Reserve will do whatever it takes to reduce US unemployment.



If that means commodity prices rise as an indirect consequence they will go with the flow. After all, one thing all of them have learned is: never to fight the Fed.


Source >> www.minesite.com
************************
 
September 22, 2012
That Was The Week That Was … In Australia
By Our Man in Oz

Minews. Good morning Australia. You seem to have had an interesting week, with a mix of positive and negative news.

Oz. It was a bit of everything, ranging from the debt crisis at Fortescue Metals (FMG) to a burst of exploration and discovery news that excited the small end of the base metals sector.

Minews. Discovery news is always interesting, but let’s start with the crisis.

Oz. Fortescue’s debt mess forced it into a balance sheet restructuring exercise which involved raising of an extra $A1 billion in debt. Investors were pleased that the company had survived the immediate crisis, and lifted its price by A62 cents to A$3.61.

But fixing a debt crisis with more debt sounds awfully like a Euro solution to a financial crisis, and we all know that’s not working.

Minews. You think there’s more bad news ahead for iron ore, and Fortescue?

Oz. There could be. China is certainly not showing signs of recovery. Steel prices are still falling, and that must eventually be reflected in demand for iron ore, and for another significant Australian export, coal. It is the China factor which lies behind the relatively flat performance of iron ore and coal stocks last week, though that flatness was offset somewhat by rising gold and base metal prices.

Overall, the Australian market ended in positive territory last week, just. The all ordinaries index crept up by 0.5 per cent. The metals and mining index did better, with a rise of 1.8 per cent. Gold did best of all, rising 2.7 per cent. The Australian dollar, which is widely seen as overdue for a sharp correction, slipped US1 cent lower to US$1.04.

However, with pressure building on the government to cut interest rates as a means of stimulating the local manufacturing and retail sectors, we could soon see a move down through parity with the US dollar, which would also benefit mineral exporters.
...

Source >> wwww.minesite.com
 
September 24, 2012
Commodities Offer An Obvious Safe Haven As Governments Continue To Court Inflation With Monetary Easing
By Alastair Ford

The difference between what people want the world to be and what it actually is offers enormous potential for making a buck.

The unrelenting gloom in much of the mainstream media has convinced many investors that the commodity super-cycle is over.

And the resultant battle of opinion is being fought out most savagely on the stock market, as the share prices of the large mining companies bob about depending on which particular opinion is in vogue in any given week.

Maybe the moves are exaggerated by the exceptionally low volumes, given that the FT says equity trading volumes are the lowest for twelve years.

But they are a good measure of sentiment nonetheless.

The problem for the bears is that despite their opinion that things are going to get a lot worse, hard data keeps popping up to confound their views. Last week for example base metal prices gained 2.9 per cent and took the LME index up to 3,559.9.

Two months ago this index was down at 3,100 and its overall rise of 15 per cent since then, is an indication of how strong the fundamentals remain for this industry that is so vital for the modern world.

Another indication of the strong fundamentals backing up the industry comes from the high prices still being achieved for scrap metal.

Although down from £190 a tonne at the start of the year they too have enjoyed a modest bounce to £170 a tonne and are still high enough to attract comment from the mainstream media.

Most investor attention is focussed on equity and commodity prices. However a great deal of the capital used by mining companies is debt.

Fixed income investors are always more worried about the downside than the upside because they have don’t have any upside if things go well but everything to lose if they don’t.

It is interesting then, to see that BHP Billiton raised US$5.4 billion in fresh debt last week and secured that at a spread of only 72 basis points. That compares to an average spread in that section of the market of 136 basis points.

Equity investors might be gloomy but it appears that bond traders don’t see too much downside.

One reason for their complacency is that commodities are natural hedges against inflation. Despite their denials, it is quite clear that the authorities in all the major economies are keen to stoke inflation through monetary policy, i.e. printing money.

While that may have all sorts of unpredictable consequences the chances are that miners will be in better position than most companies if inflation does take off.

What is even more insidious is that governments continually tinker with ways of measuring inflation to try and assuage fears that it is a concern. But of course it is a problem, and everyone knows it.

The latest wheeze comes from the UK Government, which has announced that it is to investigate the causes of the differences between the government-favoured measure, the retail prices index, and the consumer prices index, which is favoured by the Bank of England.

The RPI is typically 0.5 per cent to one per cent higher than the CPI, so any switch that followed on from the consultation could save Her Majesty’s Government £2 billion a year in interest payments.

How is that for a conflict of interest?

Governments want inflation, but are keen to minimise the negative effects to themselves. Investors have to find their own way of dealing with it, and there are few better ways than gaining exposure to commodities. Ask BHP Billiton’s bond holders, or a scrap metal dealer.

Source >> www.minesite.com
*****
 

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