Since MBIA and Ambac lost their AAA rating, over $1 trillion of insured assets had a rating reduction as a result.  This will cause holders of these assets to take losses on the falsely rated assets.  In this story Merrill Lynch and UBS alone are expected to lose $10 billion.  If you think revenue at Ambac and MBIA is bad now then how can they expect to survive now that their insurance writing abilities are now limited to assets of their rating or lower?  This spells trouble.  Not to mention the coming influx of lawsuits.

          Well the historic day finally happened.  The word quadrillion was implied in this article.  Interest rate derivatives rose 32% year over year to $548 trillion notional value.   If you add the OTC (over the counter) derivative notional value of $596 trillion you get $1.14 quadrillion.  That is simply staggering and another milestone in this fiat world we live in.  If currencies were sound and backed by something this would not have happened for centuries if ever, alas, it was not to be.

          Government officials are reinforcing the issues around Eskom’s power crisis in South Africa this week.  One nice tidbit is that while Eskom is undertaking a $44.5 billion infrastructure expansion their input cost, coal, is rising sharply, not to mention building costs.  Nuclear energy remains, in my eyes, the main viable solution to much of the worlds energy needs in the future.  Eskom’s infrastructure expansion does include numerous nuclear power plants as well as coal fired plants.

          Eskom also said; “We will maintain the status quo until we are guaranteed there is enough supply,"  in reference to keeping power rationed at 95% to some mines unnamed.

          Newcrest Mining in Australia has lost 30,000 ounces of Gold production as a result of the recent gas explosions.  This will impact negatively their forecast production of 1.8 million ounces this year.

          Canada’s Silvercorp Metals who operates in China has posted a record profit and are considering a secondary listing on the NYSE.  China can be risky but it can be done.  There is a great interview here under the May 24th broadcast, part 3.  The interview goes into many of the benefits of operating in China and is highly worth a listen even if for informational purposes on Silvercorp.  The company’s production is growing rapidly, exploration potential is fantastic, costs are low and they are becoming very familiar with the business environment and gaining recognition for it in China.  On top of that the company is planning to buy back 3 million shares this year, a tactic I very much like to see rather than the usual shareholder dilution.

          Ecuador has revoked 2.08 out of 4.5 million hectares of mining concessions.  All Metals Mineria, Atlas Moly, Santa Barbara Copper and Ecuador Gold are companies affected by the revocation.  The concessions were revoked on the basis of illegal titles, no investment spent on the area and speculation.  As well the decree now limits companies to three concessions.

          Centerra Gold is rumoured to be under attack by the Kyrgyz Republic.  Reports of a breach of the previously negotiated contract whereby the government would get a 29.3% stake in the company should be raised to 40% are surfacing.  Also the previously agreed upon tax rate of 11% in 2008, 12% in 2009 and 13% in 2010 will potentially be changed to an 18% flat tax.  The shares issued to accommodate this possibility will be 13.7 million rather than 10 million under the current contract.  Shareholders will be diluted that much more as a result.  Shares were hit as a result.

          The Democratic Republic of Congo (DRC) is planning to begin renegotiation of some 60 mining leases beginning in mid-July.  The long awaited process began last year with an announcement stating they would revoke or renegotiate leases acquired during 1998-2003 war in the DRC.  Mining giants BHP, Freeport McMoran and De Beers will be affected by these negotiations which are under no timeline for completion.

          The labour federation in South Africa is planning a strike next month over the power crisis stemming from lack of infrastructure development over the years.  The National Union of Mineworkers (NUM) represents 320,000 workers has agreed to join the strike.  The power crisis has affected GDP in South Africa and many jobs are on the line as most mines continue to run on 95% power rationing.  New projects are also slowed or on hold from a lack of a secure power source.  It’s still undecided exactly how long or how the strike will be carried out, but the threat alone should be causing prices of Gold and Platinum group metals (PGM) to rise.

          More than 5,000 demonstrated and blocked roads in Peru demanding the president share the benefits of the economic boom there with the populous, more specifically the poor.  Southern Peru Copper was affected as roads to their mine and smelter was blocked.  The strike was widely supported by officials with a dozen provincial mayors going on a hunger strike.  The mining union is also considering going on strike in support.

          Freeport McMoran is also being affected by another protest in Peru at their Cerro Verde mine but says production remains steady.  Protesters are stepping up and blocking access to or from the mine which should begin to cause a problem for the company.

          Similar to Silver Wheaton a new company, Gold Wheaton, has been formed and entered into its first transaction with FNX Mining.  They seem to have a similar business model to the highly successful Silver Wheaton.  Unlike Silver Wheaton who purely earns profits from Silver, Gold Wheaton is not a pure play on Gold since they will be receiving Platinum and Palladium too.  Not that it is a bad thing but I would like to see a pure Gold company with this business model.  In their first contract they purchase Gold for $400 and sell it into the market at the spot price.  Contrast that to Silver Wheaton who has all their contracts at $3.90 per ounce of Silver.  They will only trade in Canada for now but are working on a US listing sometime in the future.

Russian miner Peter Hambro Mining is stepping outside of Russia as lead in an investment consortium investing $80 million in Rusoro mining in the very risky Venezuela.  The investment is in the form of a loan which can be converted into a 14% stake in Rusoro if things go well.  Keep in mind the close ties between Russian and Venezuela may aid the company in not becoming nationalized in the future.

          GLR Resources has received approval  to develop their Goldfields project near the historic Uranium City in Saskatchewan, Canada.  Production is expected to be at 90,000 ounces a year for 10 years with a potential three year extension if the Athona deposit is mined of its roughly 339,000 ounces of Gold.  The plan is for open pit production to begin in 2009 and development costs are projected to be $65 million.

          China’s first quarter Gold production exceeded 84 tonnes.  This marks an 8.08% increase over the same period last year.  This is official so who know knows how much was produced including black market production.

          Tokyo is planning to list a Gold ETF by June 30^th.

Russian Palladium stockpiles are apparently being depleted at a fast rate and could run out in one to five years according to Anton Berlin, head of Norilsk’s analysis and development department.

Iamgold doesn’t foresee any production losses stemming from a 21 hour work stoppage at their Rosebel mine in Surinam this past week.

Excellon Resources has done an efficient and quick job plugging a water inflow which occurred in development at Platosa in Mexico.  Dewatering has begun and it shouldn’t be too long until development can resume as normal.  They did an excellent job to quickly remedy this problem which instils confidence in their operational team.

Anglo Platinum is making a valiant attempt to empower and give incentive to employees by giving shares to workers who have been with the company seven years or more.  Up to 46,000 miners can benefit.  They will receive 500 shares for every year of the seven years and must complete at least seven years.  To date this transaction represents the largest ever attempt in the mining industry.  This program is only available to low-income earners at the company where the most turnover and issues occur.  I hope this works and creates goodwill between the company and its employees.  I think it will really help and provide a model for other companies to follow.

For the conspiracy mined among us, here is a nice story to give you something to think about.

          That’s all the relevant precious metals news from last week.  Have a great week.

Regards,

Warren Bevan

www.preciousmetalstockreview.com

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-- Posted Monday, 16 June 2008 | Digg This Article