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December 03, 2013

Sunday Canada/Oz day, Mines & Money London 2013
>>>>> Laurence Read

Nigel Gordon, head of the natural resources sector at Faskin Martineau, opened Sunday’s Canada-Australia day at Mines and Money London with a quote from Adam Smith. Smith was a Scottish moral philosopher and unsurprisingly the quote wasn't all that positive about resources and capitalism.

Gordon cites three major risks for the mining community across the globe:

- Resource nationalization

- Shortage of skills

- Access to infrastructure

With commodities prices dropping and host nations wanting increased benefit from projects in their countries, Gordon points out that an imperative for resources companies is to clearly align themselves with governments in terms of benefits. Protection against the sliding scale of various legislative issues ranging from indigenization to nationalization is the order of the day. Gordon wasn’t specific on how companies might do that, but considering his other two points were related to skills training and infrastructure, perhaps a good first pathway is working to address these concerns for the good of all: jobs and roads/power/rail that can be used by the populace in addition to benefitting a project.
...

Source >>>>> www.minesite.com
*****
 
>>> December 04, 2013

Mines And Money Wraps Up For Another Year, With Controversy Thin On The Ground And Optimism About 2014 Just About Trumping This Year’s Misery
>>> Alastair Ford

There were no fights at this year’s RFC Ambrian party, the organisers of which, having learned the lessons of previous years, restricted access to invitation only.

Nonetheless, Tuesday evening’s Mines & Money was not without conflict as police were called and set up sentry duty outside the Islington Business Design Centre, chatting to activists who somewhat bizarrely had come to picket the Women in Mining Event.

They say there’s no such thing as bad publicity, and with certain long-standing PR professionals on the WIM team, the temptation was to think that it was all some sort of stunt.

But stunts weren’t necessary.

The WIM event went off in style, with several hundred attendees packing into the mezzanine-level conference hall to quoff champagne and beer at the expense of WIM’s generous sponsors, perusing all the while the latest WIM publication, the 100 most influential women in mining.

With the proviso that the women included in the list had to be nominated by someone else, it made for pretty interesting reading.

Some of the names were fairly predictable, like Cynthia Carroll. But also included were our very own jobs4mining star Janet Bewsey, who has helped place hundreds of mining people in influential positions around the world.

Inside the event there was some awareness of the protestors outside, but precisely what point they were trying to make remained unclear. Were they against women in mining, or just mining? Or were they women against mining?

No one seemed to care really. With Laurence Read’s CSR 21 taking an ever-more prominent role in the City, providing coverage and promotion of corporate and social responsibility, this isn’t an industry that feels – certainly at the respectable end at which London finance is involved – that it has any particular case to answer in terms of the ethics of mining.

If the protestors would care to dispense with their mobile phones, fridges, public transport, electrical wiring in their houses, and all the other essentials of every day life that carry metals, then maybe, just maybe they might deserve a hearing. On the other hand, they might then be dismissed as simple Luddites, or some sort of crazy Amish sect.

Not that there aren’t issues. It’s widely acknowledged that the Kimberley Process is flawed for example, and the connections between armed conflict and resources in the Democratic Republic of Congo remain one of the great open sores of the African continent.

On the whole though, this is an industry that’s prepared to pay its environmental and social dues, and which is very keen, in the face of a really lacklustre market, to try and get on and do some deals.

To that end, the feeling on the conference floor was that the best day was Tuesday. Monday was good as momentum built, but as mid-day wore on on Wednesday the feeling grew that the energy was spent.

Shutting the conference floor half an hour before Robert Friedland was due to speak was an interesting exercise in scheduling, since although Friedland remains undisputed as the leading draw in the mining world, many tired delegates with a half-hour void in front of them simply opted for departure.

But overall the feeling was that this year’s Mines & Money was better than last year, and if the money element wasn’t truly out in force, there were some useful investors walking the floor, and some useful people looking to do deals.

Delegates were unanimous that if London looks a bit lacklustre in its own terms right now, it is positively heaven compared to Toronto, which is still completely dead, a long way better than the ASX, which is flailing around especially as the gold price continues weak.

Rick Rule continued his relentless drumbeat that now is the time to go shopping, and plenty of investors and company directors agreed with him. Two questions followed, though.

One, having been heavily wiped out by all the value destruction that’s gone on over the past four years or so, where exactly are people supposed to summon up the appetite for more risk from?

And two, just because we may have bumped a little bit off the bottom in the final quarter of this year, doesn’t mean that a major upswing is at all imminent. Talk was that commodities are unlikely to perform particularly well next year, so that even if the equity markets do thaw and new money and new enthusiasm comes in, the gains are unlikely – with a few exceptions – to be spectacular.

After all, there are always one or two. It was notable that the team from Fission Uranium was keen to hit the town on Monday night – Monday! – but it takes a discovery of the scale of theirs to generate that kind of enthusiasm.

As for the rest, the networking was good, some useful conduits to finance were either opened or kept open, but the overall feeling was one of relief that the year is nearly over, and mild anticipation that next year could be a modicum better.

Source >>> www.minesite.com
*****
 
December 06, 2013

That Was The Week That Was … In Australia
>>>>> By Our Man in Oz

Minews. Good morning Australia. Or should that be good morning to an Australian in London?

Oz. The latter, because the place to be last week was at the annual Mines and Money gabfest in Islington, an event which has become an essential part of the annual cycle of conventions, thanks to its close links to the money men of the City.

Minews. Did you take away a positive image of the outlook for mining?

Oz. Very much so. We seem to have reached a point where the pieces of the jigsaw made up of mining interests and money interests are starting to form a cohesive picture.

Essentially, prices of most mining stocks, good and bad, have hit the bottom, as have most commodity prices. At the same time it seems there is a wall of money sitting on the sidelines looking for a new home, largely because negative interest rates are burning holes in the pockets of its owners.

Minews. Which leads to the obvious question: when will we see better conditions, and what will start the ball rolling?

Oz. Oddly, I think the ball has started rolling in a few places, although the overall market might not get its skates on until mid-next year, perhaps sooner, but probably around June.
...

Source >>>>> www.minesite.com
*****
 
>>>>> December 09, 2013

Will The Fed Move The Goal Posts On Quantitative Easing?
>>>>> By Rob Davies

Nothing much happens in global capital markets without some nod to the US Federal Reserve.

Effectively it is the central bank to the world and it sets the price for short term money.

So any hint or suggestion that it might change that price is taken very seriously by all sorts of traders in all sorts of markets in all sorts of places.

One way they react is through the US Treasury market, and the default benchmark for that is the yield on the 10 year bond.

Last week that bond fell 3.5 per cent taking its yield back up over 2.9 per cent, although it dipped slightly to finish at 2.853 per cent.

That was where it was a few months ago when the Americans had a domestic tiff on whether to pay their bills or not.

Although that argument has gone into hibernation for a few months the US economy continues to exhibit positive momentum which is why bond prices are weakening.

The evidence for that has come in several ways.

One was an upward revision to third quarter US GDP growth to 3.6 per cent from 2.8 per cent.

Another was a better than expected increase in payrolls to 203,000. Another was the best car and light truck sales - at an annualised rate of 16.3 million - since 2007.

Finally, and most importantly, was the fall in unemployment to seven per cent.

This is important because it is getting close to the rate of 6.5 per cent which the Fed has set as the level at which it will start to review its monthly US$85 billion cash injection to the economy.

Despite the strong US growth numbers the fact remains that the world’s largest economy (though not the world’s largest commodity consumer) still needs life support through the continuing QE programme.

The question on the minds of investors is whether the Fed will review that 6.5 per cent unemployment level as the threshold for gradually removing QE as it approaches it.

Reducing the threshold would have a significant effect on the cost of capital which would impact markets everywhere.

Equities responded to these data by following the bond market lower.

On the other hand commodities took the news positively and the LME index gained 1.1 per cent over the week.

The commodity asset class was also helped by some specific issues as well.

The suggestion that Indonesia will ban exports of minerals and ores to favour a domestic processing industry was not taken seriously. It was enough, though, to push copper and nickel prices higher.

These two metals are regarded as most at risk and rose 1.2 per cent to US$7,111 and 2.5 per cent to US$13,735 a tonne respectively.

Despite tales of looming overcapacity it is noteworthy that the copper industry is still running at a 85.2 per cent utilisation rate and inventories in LME warehouses dropped again last week to stand at just 408,100 tonnes.

Zinc too saw another decline in its inventory of unsold metal. It might only have been 21,000 tonnes taking the total down to 941,850 tonnes, but it does indicate a market regaining its balance.

The weak gold price - a good measure of worry - and a resurgent dollar all point to recovering confidence about the prospects for the US.

Whether the Fed moves the goal posts is probably less important than the fact that the economy keeps scoring goals with whatever help it can get.

Source >> www.minesite.com
******
 
8 December 2013

Why do we value gold ?
>>> By Justin Rowlatt

Mankind's attitude to gold is bizarre. Chemically, it is uninteresting - it barely reacts with any other element. Yet, of all the 118 elements in the periodic table, gold is the one we humans have always tended to choose to use as currency. Why?
Why not osmium or chromium, or helium, say - or maybe seaborgium?
I'm not the first to ask the question, but I like to think I'm asking it in one of the most compelling locations possible - the extraordinary exhibition of pre-Columbian gold artefacts at the British Museum?
That's where I meet Andrea Sella, a professor of chemistry at University College London, beside an exquisite breastplate of pure beaten gold.
He pulls out a copy of the periodic table.
"Some elements are pretty easy to dismiss," he tells me, gesturing to the right-hand side of the table.
"Here you've got the noble gases and the halogens. A gas is never going to be much good as a currency. It isn't really going to be practical to carry around little phials of gas is it?
"And then there's the fact that they are colourless. How on earth would you know what it is?"
The two liquid elements (at everyday temperature and pressure) - mercury and bromine - would be impractical too. Both are also poisonous - not a good quality in something you plan to use as money. Similarly, we can cross out arsenic and several others.
Sella now turns his attention to the left-hand side of the table.
"We can rule out most of the elements here as well," he says confidently.
"The alkaline metals and earths are just too reactive. Many people will remember from school dropping sodium or potassium into a dish of water. It fizzes around and goes pop - an explosive currency just isn't a good idea."
A similar argument applies to another whole class of elements, the radioactive ones: you don't want your cash to give you cancer.
Out go thorium, uranium and plutonium, along with a whole bestiary of synthetically-created elements - rutherfordium, seaborgium, ununpentium, einsteinium - which only ever exist momentarily as part of a lab experiment, before radioactively decomposing.
Then there's the group called "rare earths", most of which are actually less rare than gold.
Unfortunately, they are chemically hard to distinguish from each other, so you would never know what you had in your pocket.
This leaves us with the middle area of the periodic table, the "transition" and "post-transition" metals.
This group of 49 elements includes some familiar names - iron, aluminium, copper, lead, silver.
But examine them in detail and you realise almost all have serious drawbacks.
We've got some very tough and durable elements on the left-hand side - titanium and zirconium, for example.
The problem is they are very hard to smelt. You need to get your furnace up into the region of 1,000C before you can begin to extract these metals from their ores. That kind of specialist equipment wasn't available to ancient man.
Aluminium is also hard to extract, and it's just too flimsy for coinage. Most of the others in the group aren't stable - they corrode if exposed to water or oxidise in the air.
Take iron. In theory it looks quite a good prospect for currency. It is attractive and polishes up to a lovely sheen. The problem is rust: unless you keep it completely dry it is liable to corrode away.
"A self-debasing currency is clearly not a good idea," says Sella.
We can rule out lead and copper on the same basis. Both are liable to corrosion. Societies have made both into money but the currencies did not last, literally.
So, what's left?
Of the 118 elements we are now down to just eight contenders: platinum, palladium, rhodium, iridium, osmium and ruthenium, along with the old familiars, gold and silver.
These are known as the noble metals, "noble" because they stand apart, barely reacting with the other elements.
They are also all pretty rare, another important criterion for a currency.
Even if iron didn't rust, it wouldn't make a good basis for money because there's just too much of it around. You would end up having to carry some very big coins about.
With all the noble metals except silver and gold, you have the opposite problem. They are so rare that you would have to cast some very tiny coins, which you might easily lose.
They are also very hard to extract. The melting point of platinum is 1,768 °C.
That leaves just two elements - silver and gold.
Both are scarce but not impossibly rare. Both also have a relatively low melting point, and are therefore easy to turn into coins, ingots or jewellery.
Silver tarnishes - it reacts with minute amounts of sulphur in the air. That's why we place particular value on gold.
It turns out then, that the reason gold is precious is precisely that it is so chemically uninteresting.
Gold's relative inertness means you can create an elaborate golden jaguar and be confident that 1,000 years later it can be found in a museum display case in central London, still in pristine condition.
So what does this process of elemental elimination tell us about what makes a good currency?
First off, it doesn't have to have any intrinsic value. A currency only has value because we, as a society, decide that it does.
As we've seen, it also needs to be stable, portable and non-toxic. And it needs to be fairly rare - you might be surprised just how little gold there is in the world.
If you were to collect together every earring, every gold sovereign, the tiny traces gold in every computer chip, every pre-Columbian statuette, every wedding ring and melt it down, it's guesstimated that you'd be left with just one 20-metre cube, or thereabouts.
But scarcity and stability aren't the whole story. Gold has one other quality that makes it the stand-out contender for currency in the periodic table. Gold is... golden.
All the other metals in the periodic table are silvery-coloured except for copper - and as we've already seen, copper corrodes, turning green when exposed to moist air. That makes gold very distinctive.
"That's the other secret of gold's success as a currency," says Sella. "Gold is unbelievably beautiful."
But how come no-one actually uses gold as a currency any more?
The seminal moment came in 1973, when Richard Nixon decided to sever the US dollar's tie to gold.
Since then, every major currency has been backed by no more than legal "fiat" - the law of the land says you must accept it as payment.
Nixon made his decision for the simple reason that the US was running out of the necessary gold to back all the dollars it had printed.
And here lies the problem with gold. Its supply bears no relation to the needs of the economy. The supply of gold depends on what can be mined.
In the 16th Century, the discovery of South America and its vast gold deposits led to an enormous fall in the value of gold - and therefore an enormous increase in the price of everything else.
Since then, the problem has typically been the opposite - the supply of gold has been too rigid. For example, many countries escaped the Great Depression in the 1930s by unhitching their currencies from the Gold Standard. Doing so freed them up to print more money and reflate their economies.
The demand for gold can vary wildly - and with a fixed supply, that can lead to equally wild swings in its price.
Most recently for example, the price has gone from $260 per troy ounce in 2001, to peak at $1,921.15 in September 2011, before falling back to $1,230 currently.
That is hardly the behaviour of a stable store of value.
So, to paraphrase Churchill, out of all the elements, gold makes the worst possible currency.
Apart from all the others.

Source >>> BBC World Service <<<
*****
 
>>>>> December 13, 2013

That Was The Week That Was … In Australia
>>>>> By Our Man in Oz

Minews. Good morning Australia. Your market seems to have staged a reasonable comeback late in the week, after a few days of heavy losses.

Oz. It did look a little sick until Friday when we clawed back about half-a-percentage point, though even that small win saw the all ordinaries end the week down 1.6 per cent, with the metals and mining index shedding a slightly heftier 2.2 per cent.

The winner, and about time you might say, was the gold sector which added 2.2 per cent, perhaps because of a feeling that gold itself has been over-sold and the prospect of an end to the U.S. money printing exercise could see investors shift back to gold.

Minews. It will be interesting to see if gold can recover, but let’s stick with your market and the events which drove it last week.

Oz. The big story of the week, and one which will have interesting political ramifications, was a decision of the Australian Government to withdraw support for the car manufacturing sector. While not directly linked to mining it will throw a cog in the wheels of the wider economy and could signal the end of the honeymoon period for the pro-mining government elected as recently as September.

Minews. Meaning that the dreaded mining super-tax and the equally unpopular carbon tax could make a return sooner than expected.

Oz. More to the point neither tax has actually been killed, yet, because the new government doesn’t have the numbers in the Senate, and the car-support decision will hurt electorally, no matter whether it makes economic sense, or not.
...

Source >>>>> www.minesite.com
*****
 
"His [J. M. Keynes] commodities trading seemed to go well for some time, but then came the stock market crash of 1929 and the attendant collapse in demand for commodities. He lost some 80 percent of his net worth."

3 Dec 2013

Book Review: Wasik, Keynes's Way To Wealth
>>>>> By Brenda Jubin

John Maynard Keynes was not only a renowned economist, he was an investor. He managed his own money as well as that of King's College, his friends and family, and insurance companies. As John C. Bogle writes in his introduction to the book, "His spectacular success showed not only his passion for making money, but his growing aversion to losing it. As someone who had gained two fortunes through his trading prowess and lost them through his hubris, Keynes is a stellar example of how an investor can learn, fall on his face more than once, and still come out ahead." (p. xxxiv)

John S. Wasik explores this investing journey in Keynes's "Way to Wealth: Timeless Investment Lessons from the Great Economist" (McGraw-Hill, 2014). Let me start with the rewards of the journey: what Keynes did with his wealth. He bought art as well as rare books and manuscripts. The Keynes collection of rare books, bequeathed to King's College in 1946, is, according to the college's web site, "especially strong in editions of Hume, Newton and Locke, and in sixteenth and seventeenth century literature. About 1300 books in this collection have been catalogued on the online catalogue. … Keynes's collection of manuscripts by Newton, Bentham, John Stuart Mill, etc., is housed in the Modern Archive Centre." A man after my own heart, but with a bigger budget.

Keynes was a speculator. According to his own definition, "The essential characteristic of speculation … is superior knowledge. We do not mean by this the investment's actual future yield … we mean the expected probability of the yield. The probability depends upon the degree of knowledge in a sense, therefore it's subjective. If we regard speculation as a reasoned effort to gauge the future from present known data, it may be said to form the reins of all intelligent investing." (p. 8)

In 1920 he set up an investing syndicate to trade currencies, both long and short. Initially, he was successful, but then in the space of four weeks the syndicate's entire capital was wiped out. With the help of a "birthday present" from his father and a loan from a financier, Keynes got back in the game and by the end of 1922 was able to repay all of his investors and then some. At that point he decided to add even more volatile commodities to his trading portfolio. "When it came to commodities, Keynes was an absolute data wonk. His documenting of commodity price supplies and fluctuations fills nearly 400 pages of Volume 12 of his collected writings." (p. 26)

His commodities trading seemed to go well for some time, but then came the stock market crash of 1929 and the attendant collapse in demand for commodities. He lost some 80 percent of his net worth.

"Although Keynes was well known for his arrogance and his air of intellectual superiority, the humbling experience of having nearly lost two fortunes changed his thinking on the best way to invest. The macro view of trying to guess where the economy was moving, and to link currency and commodity trades to those hunches, had failed in a big way. His new focus on confidence, sentiment, and psychology made all of his extensive research into prices, supply/demand ratios, and monetary movement seem irrelevant." (pp. 48-49)

Keynes became a bottom-up investor, holding concentrated positions in companies that he was familiar with and in whose management he "thoroughly believe[d]." (p. 116) He used leverage; from 1929 to 1945 it "amplified his winnings" (and of course his losses as well), "multiplying his net wealth by a factor of 52." (p. 118)

As for asset allocation, he was a tactical investor. As he wrote in 1938, "the whole art is to vary the emphasis and the center of gravity of one's portfolio according to circumstances." (p. 115) But for the most part he now focused on the long-term profitability of companies. His investment philosophy rested on three principles: (1) "a careful selection of a few investments (or a few types of investment) having regard to their cheapness in relation to their probable actual and potential intrinsic value over a period of years ahead and in relation to alternative investments at the time; (2) a steadfast holding of these in fairly large units through thick and thin, perhaps for several years, until they have fulfilled their promise or it is evident that they were purchased on a mistake; (3) a balanced investment position, i.e., a variety of risks in spite of individual holdings being large, and if possible opposed risks (e.g., a holding of gold shares amongst other equities, since they are likely to move in the opposite directions when there are general fluctuations)." (pp. 111-12)

His principles have certainly had lasting power; they underlie some of the most successful investment portfolios today.

Source >>>>> Seeking Alpha
 
>>> December 16, 2013

Last Minute Revisions

The behaviour of mining equities and the underlying commodities travelled in different directions last week. Mining shares again drifted down, driven more by worldwide negative sentiment to equities, while the LME Index gained 2% to close at 3,129. A large component of the gain in the index was derived from the 4% increase in the zinc price to $1,958 a tonne and the 1.5% increase in the price of copper to $7,218 a tonne. Indeed, at one point towards the end of the week the copper market went into a $13 backwardation as demand for metal for prompt delivery exceeded that for three months.

Underlying the price move was a further fall in LME inventories. They declined 3.7% to stand at 393,000 tonnes and Bloomberg reported that total copper inventories including those on the New York and Shanghai exchanges stand at just 551,745 tonnes. This tightness was not predicted and Stephen Briggs of BNP Paribas commented that the forecast surplus in copper this year has now disappeared.

A tighter market this year means that the 2014 will start in better shape and Barclays has revised its projected surplus for 2014 down by 34% to just 127,000 tonnes of copper. One reason for this is the admission by Anglo American that its copper production will slide from 755,000 tonnes this year to 690,000 tonnes in 2014.

The industry is doing its best to respond to these good conditions as evidenced by the announcement that Codelco will invest $4 to $5 billion a year over the next five years in new capacity.

The negative sentiment towards the miners as distinct from the metals can be explained to some extent by the perception that while price are steady they are not rising. Rising prices suggest the companies are growing revenue and profits while flat prices indicate flat profits. While true to a degree it does overlook the importance of cash flow and the compound growth that arises from that.

There are also powerful mitigating influences, not the least of which is currency. In the short term the weakness in the Australian dollar depresses the share prices of the big miners with overseas stock market listings. Set against that though is the consequent reduction in operating costs. The 1.8% decline in the Aussie dollar last week to 89 cents will help a lot. If Glenn Stevens, the Governor of the Royal Bank of Australia, gets his wish that it declines even further to 85 cents the positive impact on the bottom line of the local mining stocks will be significant.

Capital markets still remain hugely distorted by the continuing repercussions of the financial crisis of five years ago when interest rates were reduced to virtually zero. Some asset classes, like junk European debt, were thrown a lifeline. Others, like mining, have just soldiered on throwing out prodigious amounts of cash to those savvy enough to hold those equities. The volume of that cash flow has never really been recognised, but it will be eventually. Especially if conditions next year turn out to be less gloomy than some are still expecting. It looks as if analysts will be revising their data right to the very end of the year.

Source >>> www.minesite.com
*****
 

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