-- Posted Monday, 28 April 2008 | Digg This Article
| Source: GoldSeek.com
Metals review
It’s funny how Gold was smashed down so strongly just before options expiry. It seems the shorts lured in as many longs as possible with Gold over $950 and looking strong not too long ago just to be taken down below $890 on expiry day. If Gold had closed above $890 many longs would have made money. If Gold had been above $950 the shorts would have lost a ton but as it was they made some $200 million by bringing the price below $890. It’s not fair and happens on a very regular basis. But if you know its coming you can take advantage of it.
Seasonally a week or less should go by before we see a strong move up in Gold. I fully expect $1,000 to be bested again in the next month and a half. Whether Gold can hold that level, time will tell but that mark will be ground where a battle of titanic proportions is going to take place, so enjoy the show. This is history.
Silver is holding well at support just below $17. Silver did fall below the 100 day MA and that hurts but I suspect it’s just a short term aberration. The physical market for small Silver purchases remains extremely tight. And with the options expiry now over the price should be “allowed” to run up until next month at least.
Platinum broke below its trend line this past week. Watch out for a bear trap! There is support in the region now near $1,950. This is a dangerous market now with the price below the 25 and 50 day MA’s but fundamentally it is still very healthy. We may get a washout down to $900.
Palladium came back to fill its two week old upside gap this week but rests just above strong support at $450. The 100 day MA at $435.16 is rising at about $10 a week and should prove to be the next support. By the end of next week it should be nearing the $450 mark and should provide double support if Palladium can hold near the current area.
This week I have included Bollinger Bands. The price lies right on the lower band which has proved a good point to go higher from. As they say history rhymes so we may see a quick dip below the lower band but not for long. The bands are narrowing also which is indicative of a possible range trade for a while to build more support in this area. That would be a good thing even though it’s not exciting; it indicates a very healthy bull market. I know I am not ready for the blow off stage yet so it provides more time to enter positions on the dime.
Fundametals Review
Ambac lost $11.69 per share this week. Their 52 week high is $96.10 a far and painful cry from the Friday closing price of $3.86. Their market cap of $1.107 billion is smaller than their quarterly loss of $1.66 billion. How can companies survive this type of environment is a question I ask myself nearly every morning these days when I read the news.
If you’ve got a tin foil hat nearby put it on and read this story. Even without the tin foil it’s a good read and actually very credible if you look at the writer’s bio and truly, honestly and unbiasly look at the big picture and how markets are working these days. It’s a sad fact that short term markets are managed. Longer term fundamentals cannot be suppressed to infinity and the longer they are held down the higher they will eventually go.
While clients pulled money from UBS they had no trouble sleeping when leaving money at Credit Suisse. Credit Suisse wrote down $5.26 billion this week of credit-linked assets. The first quarter loss came in at $2.1 billion francs but the shares rallied as the numbers apparently showed no further negative surprises! This was Credit Suisse’s first quarterly loss in five years which makes me suspect they are lagging the US banks who have been writing down assets for quite some time now.
Bank of America profit fell 77%. They are the second largest bank in the US. $1.31 billion in trading losses and $2.72 billion in uncollectable loans does not point to an end for me. The total set aside for bad loans is $6.01 billion. These are all big, big numbers most find hard to comprehend. With over a billion dollars in trading losses on CDO related items I am curious to see how the coming Alt-A crisis will affect the bank.
Ohio’s largest bank and subprime lender, National City Corp. sold a $7 billion stake to investors led by Corsair Capital LLC. The terms were at a 40% discount to last week’s close. Would you sell anything at a 40% discount if you were not desperate? Me neither. To make it worse and more confusing the $7 billion is approaching twice the current market cap of $4.01 billion. If anyone can make sense of the above, please let me know.
UBS is planning to cut jobs to shore up expenses.
RBS will attempt to sell $24 billion in shares and cut the dividend as a result of massive write downs of $5.9 billion pounds. Also RBS admitted loan losses increased five-fold in a matter of six weeks to £1.25 billion. Financial companies throughout the world have written down $290 billion of worthless assets over the past year.
Speaking of meltdowns, the melting of ice is causing quite a stir in the far north of Canada as new oil and Gas, and mineral resources are literally uncovered. No wonder Russia is laying claims to the barren landscape and even the US has said that Canada does not necessarily own the land. Nobody wanted the land any time in the past but now that its wealth is slowly being exposed it seems everyone wants a slice of Canada’s pie. The same scenario is unfolding in Antarctica.
"The Arctic is an area of tremendous potential, which is why everybody's interested in it," says Brenda Pierce, who manages the energy resources program of the U.S. Geological Survey. "It's also an area of environmental sensitivity, and there's great risk in terms of developing it."
To put the melting rate in perspective:
“Arctic sea ice shrank to the smallest area on record last year, 1.2 million square kilometres less than the previous minimum in 2005, according to the National Snow and Ice Data Center in Boulder, Colo.
That's an area roughly the size of Texas and California combined”
The Euro passed the important $1.60 mark measured in US dollars. This is almost as significant as Gold above $1,000 and may take a few tries to be bested for good, but there’s no doubt it will happen.
In this story the importance of investing in safe countries is once again highlighted. The disputed recent election in Zimbabwe has prompted President Robert Mugabe to seek more support by nationalizing some mining operations and re-appropriate them to locally funded businessmen. Although, it now looks as if Mugabe has lost the election and may be ousted. But you never can say in Zimbabwe.
The real problem in Zimbabwe is the runaway inflation and the policy of government to fix the currency rate thereby promoting a rampant black market for currencies where the true value is discovered. Zimbabwe notes even have expiry dates!
Miners cannot compete. When they send their product out of country they are hit with a huge and unrealistic currency loss. Some miners have scaled or shut down as a result of the uneconomical environment. They really had no choice but now may face losing their project all together.
Reuters reported an 8% fall in gold hedging from October to December 2007. Hedging stands now at 26.86 million ounces. Through the full year hedging fell 14.34 million ounces. Barrick Gold and AngloGold Ashanti account for 70% of hedges now or 18.8 million ounces. I am not sure of the exact prices the hedges were put on as they vary but a good portion was under $300 an ounce. Even with the “low” price of Gold today around $900 these companies are missing out on $600 per ounce. That is huge and it’s no wonder many companies are bucking up and taking the loss by closing out hedges since they are finally seeing that Gold has a long way to run.
Barrick’s hedge position is another story. A goodly portion is hedged on their controversial, Pascua Lama project and have no date to be delivered, meaning the hedge can literally run to infinity so Barrick may never realize the loss.
Peter Hambro Mining posted a 22% rise in profit from $45 million to $55.2 million and is set to pay out its first dividend. They are one of the relatively few companies with a growing near-term production profile. As we are learning more every week production increases and increases to reserves are getting harder to come by.
Anglo American is set to lose (and here) 150,000 ounces of Platinum production this year as a result of the ongoing power crisis. Anglo forecast 2.4 million ounces of Platinum production for 2008.
"We've said publicly that the first big outage had an impact of about 30,000 ounces of platinum. We are looking at another 120,000 for the rest of the year, so 150,000 (total), and “she told Reuters after a breakfast briefing in Johannesburg.”
Lonmin lowered its expectations 10% to 775,000 ounces of Platinum production in 2008. Lonmin has other problems like labour disputes, safety issues, rising costs and operational setbacks. One analyst noted:
"I think this is aggressive and we are currently forecasting 750,000 FY08 sales, which implies 461,000 in the second half a 60% uplift half-on-half."
This newsletter will believe that when we see it. That is a very optimistic outlook. The effects of the power crisis are just coming to light and will not be fully realised until at least two quarters have passed. This type of news does not look to me like Platinum prices will be heading down much anytime soon.
Further to the announced halting of mining activities in Ecuador last week, the bill was passed on Monday and there seems to be a lack of news from that area. Dynasty Metals & Mining inc. is seeking clarification and stated :
“The Company has been invited to meet with senior government officials, to discuss government policies on mining in Ecuador. We are reviewing the current Mining Mandate and are analyzing the impact it may have on the Company’s future operations, if enforced. We will provide further information after such time.”
Aurelian Resources had a few words on the halt and said they had had reassurances of continued support as recently as early last week, just before the announcement. Aurelian’s assessment of the new law and resulting actions may affect them as follows:
· The new Mining Mandate limits mining companies to holding a maximum of three concessions. Should this apply to Aurelian, the Company will retain title to the single concession containing the Fruta del Norte (FDN) epithermal goldsilver deposit, as well as two others that Aurelian believes contain the most prospective geology for additional epithermal discoveries. Aurelian will seek to protect all investments made to date at its other concessions that it has been actively exploring since 2003.
· The new Mining Mandate invokes an immediate 180-day suspension of activities on virtually all mining concessions in Ecuador while a new Mining Law is drafted and adopted. Aurelian is awaiting formal notification from the Ministry of Mines and Petroleum of the effects of the Mining Mandate on the Company’s operations, as defined in the final provisions of the mandate.
This kind of news and reversal scares the dickens out of me and I can’t stress enough the importance of investing in politically stable jurisdictions with a proven track record for anything other than the short term.
Oromonte comments here on the Ecuador issue. They have not suspended work so far as the new law is unclear and yet to be enforced but they have recently taken actions to lessen the risk in Ecuador by only keeping their most promising concession, cutting employees as well as funding operations on an as-needed basis.
In Suriname the government is trying renegotiate contracts as stated:
“Natural Resources Minister Gregory Rusland said that prices have risen beyond expectations since the government signed a contract with Rosebel Gold Mines NV in 2005.”
I wonder if they are looking for less money. A scary situation but at least they have yet to mention any repercussion if a new contract is not reached. But the fact is that in many countries contracts are actually negotiable after they have been agreed upon, which kind of defeats the purpose and although unlawful, companies must tread very carefully when their operations could potentially be nationalised.
Even in the US the push continues to receive a “fair royalty” on mining in federal lands. This issue seems to pop up this time every year and would be disastrous to many miners if passed. It will be a long, painful process to get this type of legislation passed and I believe it will never come to pass.
Ira investors are turning to metals more and more every day. And although the total is still very small that bodes well as it provides more evidence that we still have a long way to go. The uptrend is good and something to watch as when the ratio gets much higher it should be one of the indications of the blow off top.
Shareholders are becoming greener all the time and are demanding corporate responsibility even at the expense of income. Goldcorp’s shareholders are demanding greater accountability and receiving a response. The statement reads:
"The Public Service Alliance of Canada (PSAC) Staff Pension Fund, The Ethical Funds Company, The First Swedish National Pension Fund and The Fourth Swedish National Pension Fund, have reached an agreement with Goldcorp Inc. and have withdrawn a shareholder resolution submitted to the company in March. Goldcorp Inc. has agreed to commission an independent human rights impact assessment of its operations in Guatemala.”
The South Africa power crisis is said to have undone six years of growth:
“Platinum slipped back into a deficit of over 200 000 oz, after global mine output declined, and with little chance of a material recovery in 2008, global precious metals consultancy GFMS said on Thursday that there was a great risk that this year's output might fail to match even last year's "disappointing result".
Global platinum production dropped by 6%, and palladium output decreased by 4% in 2007. South African production declined sharply by 13% from 2006 levels, while Canadian production fell by 10%.
GFMS said the platinum price could trade between $1 700/oz and $2 400/oz this year, while palladium was expected to remain between $400/oz and $550/oz.”
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-- Posted Monday, 28 April 2008 | Digg This Article | Source: GoldSeek.com
