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"The best place to be is in commodities"

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July 27, 2013

That Was The Week That Was ... In Australia
By Our Man in Oz

Minesite. Good morning Australia. Your market seems to have performed quite well last week.

Oz. It did, with gold leading the way thanks to the stronger bullion price, followed by some reasonable rises in other sectors.

Overall, the metals and mining index added a respectable 2.7 per cent, was double the 1.3 per cent rise posted by the all ordinaries.

Gold, however, had a stellar week with the rise in its ASX index hitting double figures, up an eye-catching 10.7 per cent.

Minews. That seems to be an awfully strong rise for what was a modest rally in the gold price.

Oz. It was, and it is a worry because of what might be called the ‘too-far, too-fast rule’, and a degree of concern that gold stocks are being pushed and pulled by fast moving speculators rather than genuine investors.

Minews. You mustn’t complain, a win is a win.

Oz. I trust that comment about winning isn’t leading this conversation in the direction I think it is, towards a certain cricket competition.

Minews. Wouldn’t dream of it, we’re too well-mannered here in London, but since you mentioned it …

Oz. Right, that’ll do. Let’s shuffle along now and undertake our new quick-fire call of the card, starting with gold, even if there is a degree of concern that what we’ve just seen could be quickly reversed next week.

Stars of the gold sector, and there were quite a few included Resolute (RSG), up A14 cents to A82.5 cents, Endeavour (EVR), up A21 cents to A75 cents, Evolution (EVN), up A13 cents to A83.5 cents, Alacer (AQG), up A23 cents to A$2.75, Norton (NGF), up A3 cents to A14.5 cents, Gryphon (GRY), up A6 cents to A20 cents, and Newcrest (NCM), the stock which really drives the index, up A$1.29 to A$12.41.
...

Source >>> www.minesite.com
*****
 
The commodities are already in transition to move away from its bear market....if you are investing this is probably one of the best opportunities to be in right now....

I believe the S&P 500 is about to make its way lower and into its bear market....take a look at this blog and you will understand better....there is a gd possibilty i might have shorted the S&P right around the top....

S&P 500 1hr.jpg
 
July 29, 2013

Production Cutbacks Will Be Good For Prices In The Long-Term,
But The Likes Of Anglo Will Suffer A Great Deal Along The Way
By Rob Davies

Anglo American is the latest large mining company to announce it is trimming its sails to the wind of change in in the industry.

Anglo has always been the runt of the mining litter.

That was tolerable when there was plenty to feed on from elevated metal prices.

But another one per cent fall last week, as measured by the LME index, is further evidence that conditions are getting tighter.

And a 28 per cent decrease in first half underlying earnings for Anglo to US$1.3 billion is a clear demonstration of its sensitivity to the prevailing economic weather.

Like Rio the week before, Anglo is going to reduce capital expenditure, US$1 billion less in the first half, as the first step to drive return on capital employed up to 15 per cent from the current eight per cent.

In the longer term Anglo said half of the US$17 billion of unapproved projects in its pipeline would be stopped.

This is where the interests of shareholders and managers can sometimes split.

Mining investors want higher commodity prices, more volume and higher profits. That’s fine when prices are rising.

It is when prices start to stagnate, or even worse decline, that the conflict arises.

In that situation investors want loss making mines closed so that cash is conserved for profitable projects and, even more importantly, hard to find reserves of metal are not sold at a loss.

Understandably, managers are reluctant to close mines and lay people off, because it reduces the size of their toy box.

But be that as it may, in practice the easiest way to boost profitability for most companies is simply to close high cost mines.

That has the effect of reducing supply which will, eventually, boost prices.

What Anglo’s figures do demonstrate is the acute sensitivity of marginal producers to commodity prices.

Even though iron ore prices only declined by US$5.00 to US$130 a tonne in the first half of 2013 from 2012 that decline reduced underlying earnings from the iron ore division by US$44 million.

More concerning was the US$48 million switch from profit to loss in the nickel division as a result from just a 12 per cent fall in the average nickel price to US$16,138 a tonne.

Last week nickel fell another one per cent to trade at US$13,825 a tonne, demonstrating the urgency of trying to hit a target that is moving away.

And Anglo is already very sensitive to iron ore prices.

Each US$10.00 move in the price changes earnings by US$78 million. That exposure will increase dramatically when the new Minas–Rio mine in Brazil starts up at the end of 2014.

This US$8.8 billion project may come on stream at a very difficult time for the steel business if Chinese growth remains less than stellar.

If prices are low it will be a tough challenge for Anglo to respond to. It can hardly announce a closure when it has US$9.8 billion of debt outstanding that needs to be serviced and eventually repaid.

Perhaps the most irritating fact of all is that it might be shareholders in other miners that could benefit the most from Anglo’s new, tougher capital discipline if it succeeds in tightening the commodity markets.

However, until those difficult decisions are taken commodity markets have probably got tougher times ahead.

Source >> www.minesite.com
*****
 
August 02, 2013

That Was The Week That Was ... In Australia
By Our Man in Oz

Minews. Good morning Australia. It looks like you had another reasonable week, except for in gold.

Oz. It wasn’t a bad week, but it was also a week without a strong direction.

Gold, as mentioned, was the sick man as the gold price fell back through the US$1,300 an ounce mark. Iron companies did quite well but the lion’s share of the 2.5 per cent rise in the metals and mining index was down to the big two, BHP Billiton and Rio Tinto, which both added around 3.5 per cent on the Australian market.

Overall our market added 1.5 per cent, as measured by the all ordinaries, a move which substantially compensated for the five per cent fall in the gold index.

Minews. We’ll get to gold later, but let’s start this week’s call with iron ore because the price seems to moving up again rather than down, as some people have been tipping.

Oz. Not only is the price up in US but it’s up even further in Australia thanks to a fresh slide in the Australian dollar to below the US90 cent mark, its lowest in three years.

The dollar seems to be reflecting a deterioration in Australia’s terms of trade as the resources boom becomes a fading memory with some tips of the next stop being in the US80 cent range.

The other big news in the Australian market last week involved more heavyweight asset-value write-downs, with deep cuts made by Panoramic (PAN), Western Areas (WSA) and Resolute (RSG), and the failure of one-time uranium star, Paladin (PDN) to attract a joint venture partner for its flagship Langer Heinrich project in Namibia, which means it will fall back on a big share issue.

Minews. That sounds painful for Paladin.

Oz. Probably, but the shares were suspended on Friday which means the bad news has been delayed until next week.
...

Source >> www.minesite.com
*****
 
August 05, 2013

Which Way Now For Sentiment In The Mining And Commodities Sectors?
By Rob Davies

Warren Buffet once described the art of investing as being akin to judging the judges at a beauty contest.

Working out the winner was not a question of picking the prettiest girl but working out which one most appealed to the judges.

In no section of the market is that more relevant than in commodities, where sentiment can be so crucially important.

Right now the signals are more confusing than ever.

The dollar is on a rollercoaster ride which directly impacts metals since it the principal unit for measuring value.

Last week the greenback drifted off 0.6 per cent against the major currencies and helped base metals rise two per cent as measured by the LME index.

Other signs are more negative, though. The likely departure of ENRC from the London Stock Exchange is another indication that capital is being withdrawn from the mining industry.

To be fair, that particular story is far more complex than just a simple play on hard commodities but it is indicative of the mood.

On the other hand, David Stevenson of the FT makes a strong argument for committing more capital to the sector.

He cites a paper by a US economist that argues that commodity prices have risen in real terms since 1950 despite enormous levels of volatility.

David’s argument is essentially that it is impossible to get too cute about prices and the best bet is simply to pick up stuff when it is cheap.

There is no doubt that metals are considerably cheaper than they were, even after the bounce in recent weeks. What is harder, indeed impossible, to determine is whether we have seen the lows.

A major complicating factor in this global industry is the role of currencies.

Even though the US dollar weakened, it has strengthened against some currencies that are important to the mining industry.

Last week it hit a four year high against the Brazilian real of R$2.30, and the Aussie dollar has plummeted 15 per cent since early April.

The South African rand is only down 10 per cent over that period, but the decline is 20 per cent if measured from last September.

All these changes will have a dramatic positive effect on production costs for mines located in these countries. This will help to maintain margins from the producers even though quoted metal prices will be lower year on year.

Other factors will still be important, such as the currency of any debt, but investors need not be too downhearted that their mining investments will suffer, just because metal prices are weak in dollar terms.

And it is intriguing, but probably just coincidence, that three base metals are all trading at similar prices.

At Friday’s close aluminium was quoted at US$1,769 a tonne, lead at US$2,111 and zinc at US$1,834. It is true of course that lead and zinc are commonly found and mined together, but the extraction process for aluminium is very different indeed.

Is it just happenstance that the marginal costs of production of three quite different metals incorporate roughly the same labour, fuel and capital inputs?

The closeness is even more perplexing when the geographic dispersion, and hence currency exposure, of the three metals is considered.

To judge the evolution of metal prices over the short to medium term investors are going to have form opinions not just on the other players in this market, but on the judges of the currency market as well.

But, hey, no one said it was easy.

Source >>> www.minesite.com
*****
 
Strength in commodity markets will be something we should see generally over the next 10 to 20 years. Because emerging world, USA, Europe even frontier worlds are not dead. They will need more things in the future.

At different times different commodities will outperform others. I believe we will have some of the greatest returns from out of favor commodity stocks. It is time to identify future winners in the commodity sector. It is also time to identify emerging commodities with demand and supply mismatch.

We will see great commodity bear market when we see slow down in global population after 20 years.
 
MARKETWINNER said:
Strength in commodity markets will be something we should see generally over the next 10 to 20 years. Because emerging world, USA, Europe even frontier worlds are not dead. They will need more things in the future.

At different times different commodities will outperform others. I believe we will have some of the greatest returns from out of favor commodity stocks. It is time to identify future winners in the commodity sector. It is also time to identify emerging commodities with demand and supply mismatch.

We will see great commodity bear market when we see slow down in global population after 20 years.
Click to expand...

The PC16: Identifying China's Successors

http://www.stratfor.com/weekly/pc16-identifying-chinas-successors
 
August 10, 2013

That Was The Week That Was ... In Australia
By Our Man in Oz

Minews. Good morning Australia. Your market seems to have had a slow start and a reasonable finish to the week.

Oz. That’s pretty much how it unfolded, with the stronger China trade data on Friday re-booting interest in resources stocks, while the banking and industrial sectors drifted lower as a consequence of the uncertain pre-election mood of the country.

Minews. So the trend improved after the annual Diggers & Dealers forum?

Oz. Interestingly, it did. Cramming 2,000 miners, resource analysts and investors into a relatively small, outback mining town had a somewhat depressing effect on all involved, perhaps because there wasn’t much anyone there could do to influence events.

And the uplift which helped the ASX metals and mining index shake off a downward spiral only came when the China trade data brought international investors back into the Australian market.

Between Monday and Wednesday, the period which coincides with Diggers, the mining index actually lost 2.5 per cent. It then stacked on three per cent on Thursday and Friday to close the week up 0.5 per cent.
...

Source >>> www.minesite.com
 
August 12, 2013

Cash Will Be Trashed By Low Interest Rates And Inflation, So The Case For Risk Assets Like Commodities And Equities Is Still Strong
By Rob Davies

Central banks now think they should tell us what interest rates are likely to do for the next few years.

In short, they will be lower for longer than many previously thought.

In the past guessing where interest rates were going kept whole flocks of economists pointlessly employed by banks and fund managers.

But even though their primary function is now surplus to requirements it is unlikely that the cost base of financial institutions will decline as result of economists being made redundant.

Surprisingly, capital markets ignored this invitation to speculate wildly without the risk that the cost of money might suddenly increase.

Although equity markets were subdued, metal prices rose, but that was because better guidance from central banks spurred them on.

Instead, it was the siren call from the east.

Chinese factory production reportedly rose 9.7 per cent in the year to July.

In addition copper imports were 27 per cent higher than the average for the first quarter.

These data triggered a 3.8 per cent increase in base metal prices as measured by the LME index.

Some base metals reacted better than others. Lead was the most lethargic, rising just 1.8 per cent to US$2,150 a tonne.

Tin was far more sprightly. It recorded a 5.9 per cent jump to US$22,100 a tonne.

As in many areas of the market these days this disparity in the varying prices of base metals probably tells us more about liquidity, or lack of it, than the underlying fundamentals for the individual metals.

Over the last few months metals and mining have been largely written-off by the financial chateratti.

These sages seem to think that the lacklustre recovery in the Western World, which many initially denied was even happening, was a reason to ignore commodities.

Their argument was that if the recovery is weak enough for central banks to keep interest rates low for several years ahead, then there is precious little to suggest that there will be a strong cyclical bounce in commodities.

That may be true in the West but does not apply to the East where nothing seems to stop China’s inexorable advance.

What might concern economists dreading the imminent arrival of their P45s is the small print in the message from the Bank of England and other central banks.

The authorities are saying they do not care about inflation.

There are two reasons for such a statement. First, that inflation simply devalues the outstanding stock of debt and thus helps borrowers.

Since governments are the biggest borrowers of all the incentive is pretty strong.

The second reason is that governments are more concerned about getting re-elected than anything else and employed voters are more likely to bring that about than unemployed ones.

So the message is clear.

Cash will be trashed by low interest rates and inflation. Bonds will be little better.

The only way savers will be able to defend their purchasing power is by investing in risk assets like equities and commodities.

The authorities have set out quite clearly that they want voters to go out and dispose of cash either by spending it or investing it.

That can only be good for capital markets and suggests that the prevailing upward trend is set to continue.

The only risk is that it may happen sooner, and be more vigorous, than many expect.

Source >>> www.minesite.com
*****
 
As I expected there were some rebound in commodity and in commodity stocks.

Copper and aluminium touched two-month peaks on Monday. From Canada to New Zeeland prices of some commodity stocks went up sharply. On Thursday natural gas, corn, and gold went up over 2 percent, silver went up more than 5 percent and oil hitting a four-month high. Coffee prices in Vietnam climbed to a three-week top on Tuesday. Both Coco and tea market also warmed up. In the mean time Cattle prices spiked on supply fears.

At the moment there is some short term support for some commodities including gold and for currencies such as AUD and NZD. Despite interest rate cut AUD went up. Despite earthquakes NZD had a strong base. Still some money out there. Next 12 months is very crucial for Gold, AUD and NZD.

In short at different times different stocks including commodity stocks and commodities will out perform other stocks and commodities.

My ideas are not a recommendation to either buy or sell any security, commodity or currency. Please do your own research prior to making any investment decisions.
 
August 17, 2013

That Was The Week That Was ... In Australia
By Our Man in Oz

Minews. Good morning Australia. Your beleaguered gold stocks seem to have had a good week.

Oz. Very much so. The higher gold price flowed directly into most explorers and producers with the gold index on the ASX adding a very impressive 14 per cent over the week, four-times better than the overall mining index which gained three per cent, and 14-times better than the all ordinaries which was up one per cent.

Minews. In other words, a big week of recovery for mining stocks, led by gold.

Oz. That’s one way of describing it. The twin driving forces were stronger Chinese trade data for the base metals and iron ore, and a shift back to gold because of concern about over the end of paper-money printing by the US central bank.

The China factor pushed the iron ore price back over the US$140 a tonne mark, copper rose to US$3.34 a pound, and nickel reached US$6.76 per pound.

The US paper-money factor drove gold to US$1,377 an ounce, with US$1,400 in sight, according to some gold bugs.

A third factor, but one much harder to measure, was a discernible shift in the political pendulum back to the conservative parties, as our election campaign heats up ahead of the September 7th poll.

Betting now is firmly in favour of a change of government, the end of the deeply-disliked super tax on mining, and the end of the even more disliked carbon tax.

Minews. Sounds like an interesting few weeks ahead, but let’s stick with last week’s events, starting our call of the card with gold stocks to see the effect of the higher price.

Oz. All up, is the two word description of the gold market, most substantially and some modestly. Falls were hard to find.

Better moves included Kingsgate (KCN), up A40 cents to A$1.97, Endeavour (EVR), up A19 cents to A85 cents, Silver Lake (SLR), up A22 cents to A92 cents, Troy (TRY), up A35 cents to A$1.69, Orbis (OBS), up A6 cents to A36 cents, St Barbara (SBM), up A19 cents to A66.5 cents, Kingsrose (KRM), up A6 cents to A41.5 cents, and Regis (RRL), up A44 cents to A$3.95.
...

Source >> www.minesiste.com
*****
 

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