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March 02, 2013
That Was The Week That Was ... In Australia
By Our Man in Oz

Minews. Good morning Australia. Another unusual week for you, with the overall market up but mining down. What does that tell us about Australia?

Oz. It tells you that a change is underway as the non-mining sectors of the economy pick up the slack created by the end of a resources boom which has been such a loud event over the past decade that it drowned out everything else.

Last week was an interesting example of the change underway with the all ordinaries index up 1.3 per cent while the mining and metals index lost 0.7 per cent. Gold slipped lower by 0.4 per cent.

Minews. Hardly big moves, but it seems to have become a trend.

Oz. It has, driven by developments such as a sharp fall in local interest rates which were kept higher here for longer during the boom, but which are now down to a level which has made property an attractive investment for the first time in years, and a competitor for funds which were previously directed into mining.

Minews. If the boom is over, what next?

Oz. Normality, or as close to it as possible, because what’s meant by the boom ending is that the capital investment phase is coming to an end and now we move into the production phase, as new and expanded projects are switched on or cranked up. The net result will be higher rates of mineral production but reduced rates of investment.

Minews. Sounds like it could be good news for some investors and bad for others.

Oz. Miners in production could do quite well, if not from commodity prices which remain subdued but from an overdue fall in the value of the Australian dollar which is struggling to stay above parity with its US cousin, and which could quite easily drop to US90 cents, or lower, very quickly.

Minews. Enough big picture stuff, time for prices, starting with any good news to brighten our day.

Oz. There’s not a lot of good news but we did see a number of stocks outperform for a variety of reasons. Nickel star Sirius (SIR) thrilled its followers when it briefly moved back above the A$3.00 mark after reporting what seems to be a fresh discovery to the east of its original Nova strike. Assays are yet to be reported but the thickness of the sulphide mineralisation, 125 metres so far and still drilling, helped lift Sirius to a Friday high of A$3.09 before it eased to end the week at A$2.85 for a gain of A75 cents.

Another eye-catcher was BC Iron (BCI) which has emerged a stronger company after securing a bigger share of the Nullagine iron ore joint venture. Investors boosting the stock to a 12 month high of A$4.18 on Friday before it too slipped before the closing bell to end at A$4.03, a rise of A17 cents for the week.

Iron Ore Holdings (IOH) was another company in demand after announcing a deal to bring its Iron Valley project into production through a joint venture with Mineral Resources (MIN). Iron Ore Holdings shot up to A$1.26 on Friday, before closing at A$1.24, a gain of A27 cents. Mineral Resources went the other way, shedding A23 cents to A$11.11.

Minews. Let’s continue with iron ore and then go through the rest of the market.

Oz. Two other iron ore stocks did quite well last week, both relative newcomers. Nevada Iron (NVI) which has made an interesting discovery in the US put on A2.5 cents to A17 cents. And Mamba Minerals (MAB), which is drilling at its Snelgrove Lake project in Canada, rose by A14 cents to A54 cents.

The rest of the iron ore sector was more subdued with most stocks losing ground. Falls included: Fortescue Metals (FMG), down A30 cents to A$4.53, Atlas (AGO), down A19 cents to A$1.41, Gindalbie (GBG), down A2 cents to A24 cents, Mt Gibson (MGX), down A9 cents to A71 cents, and Kogi Iron (KFE), down A1.5 cents to A16 cents.

...

Source >>> www.minesite.com
*****
 
March 04, 2013
The Voters Are Revolting, But Warren Buffett Remains Upbeat
By Rob Davies

It doesn’t take a psephological genius to join the dots between the Tea Party in the US, UKIP in the UK and Beppe Grillo in Italy.

In those three countries, and many others, the anti-politician vote is rising and getting more strident as austerity grinds on into its fifth year following the global financial crash.

Politicians say the voters don’t like austerity.

But that is the point, they are not supposed to.

Markets are not that enamoured of austerity either because it depresses economic growth which is the key to global prosperity.

But in theory bond investors at least should appreciate this hair shirt approach as it increases the chances of them getting their money back.

However, as the UK has now been expelled from the shrinking club of AAA rated borrowers to join the US, France and others in the ranks of the fallen angels, even bond investors can see the risk that low growth brings to their capital.

It is becoming more and more obvious that inflation is the only way that massive sovereign debtors will be able to shed their nominal obligations.

Which ought to be good for commodity investors. The commodity asset class is traditionally viewed as a hedge against inflation.

But in that context, it’s perhaps a bit surprising to see the 1.9 per cent fall in the LME index that took place over the week, driven by a 2.6 per cent fall in copper to US$7,620 a tonne and a 5.4 per cent drop in the price of aluminium to US$1,914 a tonne.

The proximate reason was a drop in the Chinese Purchase Managers Index from 50.4 to 50.1 between January and February.

Underlying the move though, was a realisation that growth in the West remains lacklustre.

Moreover, the US sequestration has now cut US$85 billion from government spending between March and September.

While this is excellent news for the long term it is undoubtedly bad news in the short term. Commodities need growth more than they need inflation.

But before anyone gives up on the US economy they should read Warren Buffet’s annual letter to shareholders.

The latest one was released on Friday 1st March and he remains as upbeat as only a mid-western American can.

He doesn’t let trifles like wars, budget deficits and elections get in the way of the serious business of making money - and few people have a better record of putting their money where their mouth is than he has.

Interestingly, he prefers old established businesses like railways and newspapers to new fangled internet “solutions”. It’s an approach which has served him well.

Moreover, with tens of billions of cash available for more acquisitions he is actively looking for yet more cash generative businesses.

But given his penchant for solid, boring businesses it is perhaps surprising that he has not already moved into the mining industry. Maybe the valuations have been too rich in the past.

But there can though be no denying the longevity of the business with its claim to be the world’s second oldest profession.

After all, no matter how revolutionary the voters become they still want the basics of an electricity supply and modern appliances.

None of these are possible without metals. The business of supplying them is about as reliable as any industrial activity could be.

Source >>> www.minesite.com
 
Mining giants accused of iron price manipulation
March 8, 2013

Fat Prophets mining analyst David Lennox discusses Chinese allegations that the three biggest iron ore miners (including Australia's Rio Tinto and BHP Billiton) have delayed shipments to push up prices.

By resources reporter Sue Lannin
Source: ABC News
*****
 
>>> Prospectors and Developers Association of Canada conference (PDAC)

March 08, 2013
The 81st PDAC Conference Wraps Up In Toronto, After Some Deep Soul-Searching About The Potential For M&A Activity This Year
By Ryan Jackson

The first Prospectors and Developers Association of Canada conference (PDAC) took place in 1932 playing host to roughly 150 miners keen to advocate on behalf of Ontario prospectors.

Now, 81 years later, PDAC has evolved to become the world’s foremost mining conference, kicking off the spring marketing season every year.

It is a forum unmatched in North America as far as wooing investors and making deals with others in the industry is concerned.

This year though, there was concern that the weak economic environment for junior miners would put a damper on the 2013 show. But the final attendance numbers were announced at this year’s closing ceremony, and rang in at 30,147.

The figure matches the record set in 2012 and is a testament to the resilience of those in the industry.

Speaking with mining executives on the conference room floor, you get the sense that people in this business are a tough crew and understand, having lived though many downturns in the past, that in commodities there is a cycle of prosperous and lean times that requires different strategies and a fair bit of flexibility.

One such executive, Ingrid Hibbard of Pelangio Exploration, says that in lean times, “the key is really to be setting yourself up for the next turn in the market”.

To that end, Pelangio is planning a small exploration program this year on its properties in Ghana, with a view to keeping the momentum going, while also conserving capital. Target generation will be the order of the day to tee properties up for some serious drilling once the financing taps begin to flow again.

“You want to have tons of targets and really understand everything so you can hit the ground running when the market turns”, says Ingrid.

But Ingrid says that tough capital markets can also provide juniors with remarkable opportunities: “The last one [the 1998 crash] is how we got Detour. That’s how a small company ended up with the Detour project and during this cycle it is being developed to become Canada’s biggest gold producing mine. That’s the kind of opportunity that exists during a downturn.”

The Detour Lake lands were originally owned by Placer Dome, before they were sold to Pelangio in 1998 for only US$2.3 million, as gold prices fell away dramatically. Pelangio sold the property to Detour Gold in 2007 for C$75 million. And this February, six years later, the first gold bars were poured there.

Just as Pelangio was able to take advantage of the situation in 1998, there’s no doubt that opportunities will arise during the current crunch. It’s a topic which John Nyholt of PWC covered during a well-attended lecture addressing M&A activity in 2012 and the outlook for 2013.

“To be upfront with you, we saw a major retreat in M&A activity in the global mining industry in 2012 with the lowest number of deals since 2005”, he said. And he pointed out that a single deal, the US$54 billion Glencore-Xstrata transaction, made up nearly half of the overall value of all deals completed. Including that deal, the total US$110 billion in activity declined by 26 per cent decline. “Without it”, said Mr Nyholt, “deal value would have been in the pre-2005 level, even less than in 2009 when we felt the impact of the 2008 global financial crisis.”

Looking to the future, Nyholt predicts that, “after a dose of reality in 2012, the outlook for 2013 shouldn’t be much of a surprise; deal activity will remain low. There aren’t lots of US$54 billion deals to be done out there.”

Many of the deals which will be done are likely to be majors divesting projects, and by consequence others tucking them in “as they seek to refine their portfolios and trim debt.” But Nyholt does not foresee any large transactions as management are unlikely to take any serious risks.

“The sobering reality is that the fallout from some of the major deals that have taken place over the last few years have cost companies billions in write offs and, in some cases, have cost CEOs their jobs”, he said. That way of thinking provides a strong disincentive towards the signing of any truly bold transactions.

For the juniors, a lack of capital is likely to drive efforts to merge and form joint ventures in order to spread the capital load and de-risk their properties. Meanwhile, those with financial horsepower might be able to assemble a portfolio of highly prospective projects for later investigation.

The wildcard though is China. China as remained conspicuously quiet recently as the ongoing leadership change has given rise to a cautious approach. “That leadership change takes place next month”, says Nyholt, “and the new president, Xi Jinping, has already signalled that revving up the economy is one of his key priorities.”

That’s likely good news, especially for base metal companies, as a boost in infrastructure spending could drive commodity prices up and send Chinese state owned entities on further campaigns of investment and acquisition.

For Basil Botha, chief executive of Northern Iron, China’s interest in expanding steel production has been driving a deal-making process years in the making. After a long process of building trust and signing off-take agreements, in the winter of 2012 the company sold two non-core projects in the vicinity of its flagship Griffith mine near Red Lake, Ontario to Ontario Iron Mining (OIMI).

OIMI is a privately held Canadian company controlled by shareholders of a leading Chinese commodity handler, trading house and asset manager, specialising in the iron ore market and with a focus on developing brownfield iron ore assets for domestic and international sales.

The two companies have signed a MOU to work together by sharing infrastructure, expertise, and resources while advancing their independent projects.

Northern Iron will manage mining, crushing, and beneficiation at all the properties as they come into production effectively taking care of the operational end of the partnership. For its part, OIMI will endeavour to secure funding from Asian investors and will manage the marketing of the product in Asia, where they already supply a number of state owned enterprises in China with iron ore.

“The assets where we have agreed to share costs are the most capital intensive part of bringing this area into production”, said Northern Iron chief Basil Botha. “This MOU is a further step in de-risking the development of the Griffith mine.

Jason Li, chief financial officer of OIMI added: “Our investors appreciate the existing infrastructure and the political stability of Canada. We also believe that there is minimal downside risk as the area is a past producer.”

While it’s still too early to see if the networking done at PDAC will bear fruit in the form of M&A activity, the story of Pelangio demonstrates that tough times can make for unique opportunities. Meanwhile, the latest developments at Northern Iron highlight that China remains hungry for raw materials to fuel its continued economic growth.

The PDAC conference wrapped up on Wednesday night, as it does each year, with a themed gala featuring dinner, drinks, and prizes to be won at the decadent Canadian Room of the Fairmount Royal York Hotel. This year’s theme was Denim and Diamonds, featuring the Union Cowboy Band which pumped out bluegrass and country tunes to a boot-thumping crowd.

After a busy week, the miners were ready to hit the dusty trail and leave the conference behind them until we do it all again in 2014.

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

Minews. Good morning Australia. It seems you had another odd week, when the miners dipped out on the continued recovery in global markets.

Oz. That’s true overall, but as with previous weeks in the phase we’re passing through there were reasonable performers scattered across the sectors, although this time iron ore was the odd man out. Even gold, which has been in the doghouse since the price slipped below US$1,600 an ounce, produced a few stars.

Minews. Iron ore seems to be suffering in the wake of forecasts of a sharp price fall by Christmas.

Oz. There is certainly pressure in the iron ore market, with Chinese steel mills alleging price manipulation by the miners and even the top economist at Rio Tinto tipping a price drop from US$150 a tonne to US$100 a tonne over the course of 2013.

The effect of the iron ore price warnings could be seen in the major producers.

Rio Tinto fell by A$1.72 to A$64.30. BHP (BHP) lost A75 cents to A$36.09, and Fortescue Metals (FMG) eased back by A11 cents to A$4.42. It was those falls by big miners, which can have an unduly heavy influence on an index, which caused the metals and mining index to fall by 1.5 per cent in a week when the overall market, as measured by the all ordinaries, added 0.7 per cent, and the gold index rose by the same amount, 0.7 per cent.
...

Source >> www.minesite.com
*****
 
March 11, 2013
Equities Have Outperformed Gilts Over The Past Hundred Years, But Not For The Reasons You Think
By Rob Davies

Commodities have been touted as a new asset class at various times over the last decade.

Indeed, the venerable Barclays Equity Gilt Study for 2013 includes a table that shows that ‘Hedge Funds’ and ‘Other Assets’ now account for 8.3 per cent of average UK defined benefit pension schemes.

These two classifications are where commodities sit, and their percentage of pensions has risen considerably. The number in 2006 was 4.3 per cent.

Equities now only account for 38.5 per cent of the average pension fund. Most of their money, 43.2 per cent, is in bonds.

Few people look to Consulting Actuaries for investment advice. Apart, that is, from pension fund trustees. Their preference for minimising career risk over best advice for aspiring pensioners is well understood by practitioners.

So when a trend starts to develop, such as incorporating commodities into pensions, no self respecting adviser would dare to buck the trend.

It is of course fashionable to advocate commodities as an asset class that will preserve wealth in the face of the threat of inflation created by quantitative easing.

Unfortunately the truth is a little different, as the Barclays study demonstrates in exquisite detail. It is called the Equity Gilt Study because it deals with those two asset classes.

Nevertheless, the conclusions it generate can be applied more widely.

The data it analyses extends back to 1899, when the Gold Standard prevailed and economic crises never really got out of hand because of the constraints imposed by this financial straight jacket.

So it encompasses a period of very great social, military, economic, political and financial change. Whatever this data tells us should be applicable in most circumstances.

What it says is that equities have outperformed gilts (UK bonds) in real terms by an average of 3.7 per cent a year over 113 years.

That may come as no surprise to mining investors who have a preference for equities over bonds. However, what may be a surprise is why.

The research demonstrates quite clearly that it is not the capital growth of equities that has delivered this superior return over bonds.

Instead what it shows is that it is the dividends paid out by shares that are reinvested and then grow again through the alchemy of compound interest that delivers this outperformance.

Because dividends, on the whole, largely keep pace with inflation it provides the inflation proofed returns that are so sought after.

And here of course is the big difference with commodities. Lumps of metal do not, on their own, generate any income.

Unlike bonds which pay interest or shares that pay dividends or property that generates rent metal does not exude cash.

It is of course possible to sell metal forward to generate a return but that is essentially a function of current interest rates, and that return will depend on prevailing markets.

The Barclays study demonstrates quite convincingly that cash is the worst asset class of all so that does not constitute a valid investment premise.

The best, and effectively the only, way to generate long term returns from metals is to invest in the mining companies that find them, develop them and extract them at a profit.

And right now those companies are doing that exceedingly well and paying out huge amounts in dividends.

But don’t expect consulting actuaries to start suggesting mining shares should be treated as a distinct asset class. That would be far too original.

Source >> www.minesite.com
*****
 

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