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Feb 2, 2013
That Was The Week That Was … In Australia
By Our Man in Oz

Minews. Good morning Australia, it seems the recovery in equity markets is well underway. How did the ASX perform last week?

Oz. Fairly well, with most sectors up by around 1.5 per cent which, it should be said, is hardly a return to the boom. Gold was the odd man out, again, suffering from the phenomena dubbed the great rotation, as funds flow out of low risk assets into riskier assets.

Overall, the ASX as measured by the all ordinaries added 1.7 per cent, rising on three of the four days that the market was open last week, since Monday was a holiday down this way. The metals and mining index rose by 1.6 per cent, thanks mainly to strength in the major miners, BHP Billiton and Rio Tinto. The gold index slipped 1.4 per cent lower.

Minews. Those index moves seem pretty modest so presumably most share price moves were modest also.

Oz. They were, and there was no discernible trend among the different sectors. What can be said is that most gold stocks lost ground whereas iron ore, base metals, uranium, coal and the minor metals were mixed, some winners and some losers.

But looking at the pattern on the Australian market since the start of 2013, it seems that there’s a reluctance to embrace mining equities with the same enthusiasm as local banks, retail and industrial shares are being embraced.

Since December 31, the all ordinaries index has risen by six per cent, which isn’t bad work for 21 trading days. The metals and mining index, however, is up by just two per cent, and gold is up by 0.6 per cent.

Minews. Interesting indeed. But what’s it telling investors?

Oz. Three things. Firstly, the Australian mining sector remains a prime tax target of the current Australian Government, either through super taxes on profits or the carbon tax. Secondly, foreign investors are loath to buy Australian stocks while the currency is so high and seemingly headed for a correction from its current US$1.05 back to US90 cents, or lower. And thirdly, that political uncertainty is high with the government not only in trouble politically but starting to lash out at its enemies ahead of an election called, prematurely, for September 14.
...

Source >>>>> www.minesite.com
*****
 
Gold Leasing: The Case Of The Disappearing Gold
by Tyler Durden on 02/02/2013


The practice of gold leasing has been endorsed by none other than Alan Greenspan, former Chairman of the Fed. The gold is leased to a bullion bank, which typically pays one percent interest to the Fed, with a promise to return it on a specified date. The bullion bank then sells the gold on the open market and uses the proceeds to buy Treasury bonds, which will net a three to four percent return. The nicest thing about such an arrangement is that the lessor continues to claim it on his balance sheet as a line item: “gold and gold receivables.” After all, an asset that we have leased out is still an asset, even if it has now been sold by the lessee. In effect, this means that, if you bought a gold bar today, it is possible that it is a bar that was shipped from the Bundesbank to the Federal Reserve decades ago and is presently listed by the Fed on its balance sheet as “gold and gold receivables.” Both you and the Fed are claiming to possess the same gold bar. The fly in the ointment, of course, is that only one bar can be the actual bar. The other is a receivable and therefore is an asset on paper only. This, of course, means that there is less gold in the world than has been claimed. How much less? That’s anyone’s guess.

Source >>> www.zerohedge.com
*****
 
February 04, 2013
"Are Low Interest Rates Finally Delivering The Gains Expected Of Them ?"
By Rob Davies

For many decades in the City, Julian Baring was probably the best known commentator on mining, metals and gold.

He went on to found two very successful commodity funds.

He always had a way with words and had a particular phrase he was fond of using to describe something that was bizarre but which had become accepted as “normal”.

“If a financially savvy Man from Mars landed tomorrow”, he used to say, “and saw such and such he would be amazed”.

If Mr Baring were alive today he would undoubtedly apply that phrase to the current interest rate structure in the developed markets.

In Europe, the US and Japan short term money is virtually free and even ten year debt borrowed by governments only costs the borrowers about two per cent.

As the graph in Saturday’s Financial Times showed, these are the lowest rates for 300 years.

Of course Mr Baring would have quickly deduced that while the price of money is low its volume, or availability, is also low.

Money is cheap if you can borrow it but, not surprisingly, not many banks are keen on the trade.

For the four years since these low rates began in the West economic growth and the appetite for risk have been subdued. Commodities have enjoyed good returns over this period as the giant sucking sound from Asia has hoovered up metals to feed a massive construction boom.

Equities have staged a good recovery as well since 2009.

However, the start of 2013 has seen the best rise in equities for a over decade as investors have woken up to the fact that equities yielding four per cent in real terms, i.e. after inflation, are a probably better bet than bonds yielding two per cent before inflation.

So far this year commodities have not really participated in this bull run, and have only made a net gain of 0.5 per cent in the LME index to date.

In part this is because the roll yield from metals, the difference between forward prices and cash prices, is a function of the interest rates. However, with bond prices under pressure this year that has depressed returns from this spread, known as the contango.

Last week though, there were signs that this could be changing. A 1.2 per cent rise in the LME index to 3,557.9 was largely a result of a 6.3 per cent increase in nickel prices to US$18,370 a tonne.

Maybe the rise was spurred by news from Vale, the Brazilian miner, that its nickel production declined by 6.6 per cent in 2012 to 69,000 tonnes.

In any event metals were not overly spooked by the surprise 0.1 per cent fall in fourth quarter US GDP.

As in the UK this data seems at odds with better than expected news on employment. US payrolls rose by 157,000 in January, after an upwards revision to 196,000 in December and a respectable 247,000 in November.

More workers means more consumers and better prospects for commodities. And that story was reinforced by good news from the US manufacturing index which rose from 50.2 in December to 53.1

Low, indeed negligible, interest rates are a pretty blunt policy to deal with a financial crisis. They also take a long time to register with consumers.

But the mythical man from Mars might just come away thinking that, eventually, these exceptionally low rates are, finally, delivering the results expected of them.


Source >>> www.minesite.com
 
February 08, 2013
Mining Companies With Women Directors Enjoy Greater Margins, Study Shows
By Alastair Ford

Profit margins are higher for mining companies with women on their boards, according to the preliminary findings of a study compiled by the London-based organisation Women in Mining in conjunction with PriceWaterhouseCoopers.

This, says the report, is consistent with the findings of other studies.

It cites a similar survey undertaken by Catalyst, a Canadian pressure group, which showed that companies with women on their boards also benefited from higher return on sales, higher return on equity, and higher return on invested capital.

Similarly, a study by the Credit Suisse Research Institute found that companies with women on their boards have a higher return on equity, lower gearing, higher price/book value and better than average growth.

What conclusions can be drawn from this? The WIM report is primarily concerned with reporting the facts, rather than to applying particular pressure on specific issues.

Thus it sets out the broad framework first: women occupy eight per cent of the board seats of the top 100 global mining companies, and just four per cent when the net is cast slightly wider to include the top 500 companies.

However just one per cent of the executive directors of the top 100 companies are women, with the rest holding non-executive roles. Among the next 101-500 companies the figure is slightly higher, at three per cent.

Overall, among the top 500 mining companies, women hold just three per cent of the directorships.

And boards which have more members tend to have more women on them, which allows for some nuanced interpretations of the statistics.

“While the exact cause of the correlation between market capitalisation, board size, and the level of women’s participation on boards is not known”, says the WIM report, “this correlation raises the question of whether board seats have been created to accommodate female directors and highlights the fact that expanding board size to accommodate female directors dilutes the influence female directors have on such boards”.

That’s a sentiment which rather echoes the views of female MP Caroline Flint when she wrote her famous letter of resignation to Gordon Brown in 2009. “Several of the women attending Cabinet – myself included – have been treated by you as little more than female window dressing.”

That particular battle in the gender wars got a lot more publicity that the one going on in the mining sector ever will. After all, as the WIM report acknowledges, this is a sector where finding women to undertake senior roles is a “challenge”, partly because women are less likely to stay in mathematics and science education.

Technical industries such as mining, oil and gas, aerospace and construction, are, the report notes as a matter of fact, dominated by men.

But does any of this actually matter? After all, if it’s true that extra board positions are being created for women at the larger company level, does that actually mean that it’s the women themselves who are driving the greater efficiencies that their presence is correlated to?

Or is it in fact the other way round? Are the more financially efficient miners by their very nature more likely to appoint women, whether as “window dressing” or otherwise?

That is a question that isn’t precisely addressed in the WIM report, although some other benefits are laid out pretty clearly.

For example, it notes that The Conference Board of Canada found that boards with three or more women showed different governance behaviours to those with all male boards. The more gender balanced boards were more likely to ensure better communication, adhere to a code of conduct, identify criteria for measuring strategy and monitor its implementation. They were also more likely to focus on gender diversity, employee satisfaction and corporate social responsibility.

Equally, companies in all sectors with women as directors are 20 per cent less likely to go into liquidation than ones without, according to a study conducted by the University of Leeds.

But if it’s only the more financially robust companies that are appointing women in the first place, that would stand to reason as self-evident.

What’s more, not all women agree that this is a major issue. One female mining company chief executive told Minesite last year that if women want to be treated as equals then it is surely counterproductive for them to set themselves up as a special interest group with their own agenda.

Minesite’s own thoughts? We also need more female mining fund managers. But that’s another story...

Source >> www.minesite.com
*****
 
February 09, 2013
That Was The Week That Was … In Australia
By Our Man in Oz

Minews. Good morning Australia, or should it be good morning South Africa, because it seems you’ve been spending a bit of time in the region after last week’s Mining Indaba conference.

Oz. That’s right, but I’ve been able to keep an eye on the Australian market, and a closer eye on Australian mining stocks active in Africa.

Minews. Was there any rub-off effect from the talkfest in Cape Town?

Oz. Not really, and what there was couldn’t be described as positive. The problem, as with previous Indaba conferences, was that the heavy hand of politics descended on the event.

A range of issues were dredged up that miners, bankers, and investors had rather hoped would not be kept on the sidelines.

Minews. We don’t need to go over that ground again - it’s sufficient to remind readers that the issues are those of rising costs, poor industrial relations, and talk of nationalisation. As time’s short and you’re packing for the return trip to Australia let’s go straight to the performance of the ASX.

Oz. That’s a good idea because I’m certain we’re not going to fix South Africa’s issues in a brief chat. We’re not going to fix Australia’s problems either, though it is interesting to take a look at a divergence between the two countries on the question of hitting miners with higher taxes.

In Australia, the much-criticised super-tax on coal and iron ore appears to be heading for the scrap heap, as the government architects of the impost have confirmed that it is proving to be a very poor revenue raiser. The Opposition has confirmed that it will toss the tax out if elected in the September 14 national poll.

Amusingly - or sadly - just as Australia prepares to ditch its mining super tax, South Africa and other African countries are moving closer to introducing their own extra levies on mining. And ironically the Africans are arguing, in part, that if it’s appropriate for Australia, it’s appropriate for Africa.

Minews. Now that will be worth watching, because Australia removing the tax while rivals introduce it could end up giving Australian miners an edge.

Oz. Precisely, though there is a lot of water to go under those bridges before we get a clear picture of the future tax treatment of mining profits.

...

Source >> www.minesite.com
*****
 
February 11, 2013
The Elephant In The Commodities Room: Chinese-Japanese Friction
By Rob Davies

No amount of paleontological investigation of dinosaurs would have enabled a contemporary observer to have predicted their demise at the end of the Cretaceous.

An external event in the form of large asteroid wiped out all major life forms seventy years million ago.

In the same way detailed analysis of industry and listed corporations in July 1914 would not have helped investors who found the stock exchange closed from 31 July 1914 until the beginning of January 1915.

The London Metal Exchange was closed for the duration of the Second World War.

These large, external, risks pose constant underlying but potentially significant threats to capital markets.

Most of the time they are distant, low level worries that do not impinge on the day to day business of traders and investors.

Just occasionally though they bubble up and become something that changes the nature of the market overnight. Investors at least ought to be aware they exist even if perhaps there is not awful lot that they can sensibly do.

Right now the dispute between China and Japan over the Senkaku islands of the South China Sea is one of those small items that does not make it on to mainstream TV news very much, and is instead generally confined to the inside pages of the broadsheets and international news magazines.

Although it is only one of a myriad of international border disputes it has the potential to trigger a full-blown international crisis, simply because the two adversaries are the second and third largest economies.

For the metals industry China’s role as the single largest consumer of commodities makes this a knife–edge situation.

No one is suggesting that these two countries are about to go to war over five islands and three reefs.

But in a highly charged situation it only takes a few missteps and some mutual misunderstandings for things to escalate rapidly out of control.

If that happened the consequences for the regional economies, and the global economy would be catastrophic in the extreme.

The two countries have many features in common, which can often make rivalries worse. A particularly sensitive issue for Japan is the speed at which China has industrialised and then overtaken Japan in economic terms.

There are of course parallels here with Germany and the UK 100 years ago. Interbreeding between the royal families was not enough to prevent a territorial dispute in the Balkans snowballing into a one of the worst conflicts ever known, and one that had debilitating economic consequences for decades to come.

At the moment the global economy, and especially the metals and mining business, is hugely reliant on the demand from China.

Any businessman knows that such a huge concentration is tolerable when things are going well. But it is massive headache when your largest client takes big knock.

There is nothing that miners can do about the politics of the South China Sea. What they can do is continue to expand in order to serve their largest and most important customer at the same time as ensuring they are not overly committed to projects that might be vulnerable if things go wrong.

It is a tricky balancing act, and not made any easier to assess by the democratic deficit in China.

Focussing on the intricacies of demand and supply, cost curves and new projects should not dull the minds of investors to the potential for larger political risks in the wider world.

Source >>>>> www.minesite.com
*****
 
Chinese investments abroad (2012)

Canada $22.9 billions
USA $10.7 billions
Australia $8.6 billions

Source: WSJ
**********
 
February 17, 2013
That Was The Week That Was ... In Australia
By Our Man in Oz

Minews. Good morning Australia. It seems that your market is in full recovery mode.

Oz. More than that. The steady rise over the past few months has prompted comments that we have entered a bull market, following the best start to a year since 1980. The ASX200 index, which measures the leading 200 stocks on the Australian market, is up by 26 per cent since mid-2012, a dramatic increase that largely reflects a stampede into high-yielding Australian banks.

Minews. Which is pleasing for bank investors. Bu what about mining shares?

Oz. Not quite as good, but impressive nevertheless. The mining and metals index is up by 16 per cent since June. The odd man out in this significant change of sentiment is gold. The gold index has reflected concern about the outlook for the price of gold itself by sliding 1.6 per cent lower since the middle of last year.

Minews. And that slide in gold will not yet reflect the dip in the price below US$1,600 an ounce that took place after your market closed on Friday.

Oz. No, which means our gold stocks could be in for a torrid Monday.

Minews. What’s driving the big Aussie revival?

Oz. It’s hard to pin it down to a single event, and not many observers have made this suggestion – yet - but there’s a fair chance that the strength of the past week or so is linked to a growing belief that Australia is in for a big political shift at the election set for September 14.

Over the past few weeks the government has lurched from crisis to crisis. The latest has been a recognition that the much-maligned super-tax on iron ore and coal has been a complete failure, as it has raised just one-tenth of its forecast revenue and is probably costing as much to administer as it has raised.

The resurrection of the mining tax as a prime political issue has put the spotlight on poor economic management and the failure to deliver a promised government budget surplus. In fact, the latest forecasts point to a deficit of A$10 billion.

Minews. And will a change of government kill the mining tax?

Oz. Almost certainly, though we need to wait and see if the Opposition will keep its word if elected.
...

Source >>> www.minesite.com
******
 
February 23, 2013
That Was The Week That Was ... In Australia
By Our Man in Oz

Minews. Good morning Australia. It looks like you had a tough week at the office.

Oz. Dreadful is not too strong a word for the sell-off which hit all parts of the resources sector on Thursday, following a fresh outbreak of global uncertainty and concern about the strength of the U.S. and Chinese economic recovery.

Curiously, however, the wider market which incorporates classic defensive stocks in the healthcare and retail industries did quite well. That combination produced a very lopsided picture of the market with the ASX metals and mining index falling by five per cent while the all ordinaries index slipped by just 0.4 per cent.

Minews. A result which indicates that the damage was confined to mining?

Oz. Yes. Gold was hit hardest as the price of the metal tumbled, taking the ASX gold index down by seven per cent. And as is often the case, the bulk of that damage was linked to a single stock, Newcrest (NCM) which dominates the Australian gold sector. Newcrest’s fall of A$1.42 to A$21.68 had a major effect on the index.

Somewhat surprisingly amongst the all the red ink it was possible to find smatterings of black ink too, with the uranium sector appearing to do best and with a modest recovery on Friday restoring some faith in the market.

Minews. We might shuffle on quickly to prices unless there’s anything else worth discussing.

Oz. Not a lot that you aren’t already aware of. The BHP Billiton management shake-up will have been well reported in the U.K. The appointment of Andrew Mackenzie completes the changing of the guard at the world’s major miners and, somewhat interestingly, adds a Scot to the list of sector leaders alongside three Australians, if you count Glencore’s Ivan Glasenberg as an Aussie - which is feasible given he took our citizenship in the 1990s, lives in Switzerland, did part of his education in the US, and still speaks with a South African accent.

If there is an unfolding theme for UK investors to keep an eye on it is the Australian political scene, where a change of government in September, or sooner, is looking increasingly likely. The current mob running the place have spent the past week lurching from crisis to crisis and while that might not mean much to anyone overseas it is a pointer to the likelihood of a more pro-business and pro-mining government taking the reins in about seven months.
...

Source >> www.minesite.com
*****
 
February 25, 2013
All Change At The Top: The Departure Of Key Executives At The Majors Is Not Necessarily A Bearish Signal
By Rob Davies

Some elements of the media are making brave efforts to interpret recent management retirements and promotions at the major mining companies as a portent of great sea change in the industry.

It is certainly unusual for four chief executives of the five largest mining companies to be stepping down at the same time.

However, it is only in recent years that the industry has been so consolidated.

And some of the men that have been key figures in that process are the ones now standing aside, most notably Mick Davis of Xstrata.

This cohort of executives have made a huge difference to the structure of the industry and have created far more stable businesses along the way.

In contrast to some observers who see this mass retirement as a portent of bad times to come it is more likely simply due to age, tiredness and a recognition that this stage is over.

Doomsters have been encouraged in their warnings by the 4.5 per cent drop in metal prices over the last two weeks, taking the LME index down to 3,406.

More ammunition has been provided by gold dipping below US$1,600 an ounce to US$1,575.

But both these measures tell us more about the dollar, which is trading at a five month high, than the fundamentals for the underlying metals.

Currency wars have broken out again, and these have had the effect of pushing the dollar up against most of its major competitors.

In the UK there are increasing expectations that the incoming Canadian Governor of The Bank of England will pursue a more inflationary stance that will further weaken sterling.

Growth forecasts in Europe have been revised down to a contraction of 0.3 per cent for 2013, as opposed to the previously forecast anaemic 0.1 per cent increase.

Finally there are high expectations that the policy of “Abenomics” promoted by new Japanese Prime Minister Shinzo Abe will restore growth to Japan through a programme of more public spending and looser monetary policy which will lead to a lower yen.

What this means in practice is that in most local currencies metal prices are unchanged. Good for miners, but not so good for inflation.

Besides, none of this addresses the deep seated problems in the US economy which will undoubtedly reappear at some point and manifest themselves as a weaker dollar, weaker against gold if nothing else.

Nickel recorded one of the biggest falls in recent weeks with its 8.2 per cent slide to US$16,735 a tonne.

As the most volatile of all the base metals it is often the canary that signals impending increases in activity. Copper wasn’t far behind with its drop of 4.8 per cent.

No one of course supposes that the mining bosses triggered these declines, or are responsible for them.

It is, though, reasonable to assume that some investors have interpreted this mass exodus as “ a sign” that things are about to change in the world of commodities and that prices will migrate to lower levels.

While that is a possibility, it seems more likely that metal prices will hover around the full marginal cost of production for some time to come.

That means prices will reflect not just cash production costs but also the costs in finding and developing new resources.

The legacy this group of executive’s leaves the industry is that is now strong enough to close capacity if prices do not cover the full costs of extraction.

The old days of carry on digging just because cash costs are covered, which so damaged mining, are now behind us; thankfully.

Source >> www.minesite.com
*****
 

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