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Jan 2010 - Year End & China

  • I must admit that even after all this time, the recent falls (mid/late January 2010) in share prices and commodities on the basis of a China slowdown still comes as a surprise – as if China could suddenly grind to a halt. The market has yet to accept that China has a planned vision of where it wants to be and how it is going to get there for the next 20 years. The main beneficiary should be Australia because of its proximity and relatively high grade orebodies. We re-iterate what we have said before, if anyone gives a China view, ask them when was the last time they were there?
  • The market’s behaviour implies that the share prices are going down because China is slowing, but commodity prices appear to be ignoring LME stockpiles & the major producers are struggling to expand as fast as possible to meet demand that has pushed spot prices of iron ore and coal well above their benchmarks. In September 2009, the brokers were forecasting gold to fall and drop to ~US$900/oz in 2010, whereas instead it rose to ~US$1300/oz on physical (an increasingly wealthy growing middle class in China, plus India and the central banks), and currency demand.
  • As it turns out, the 9.5% expected increase in China’s GDP for 2009 (at the time of the China Mining Conference in Tianjin TEDA in October 2009) was in fact ~10.7% (according to the latest statistics [21 Jan 2010]). In fact the last quarter of 2009 may have been at the blisteringly unsustainable pace of 13%pa (the official figure for the first half of 2009 was 7.1%). So it is no surprise that credit is being reined back, to an expected 7.5trnRMB (US$1.1trn at 6.8RMB to 1US$) compared to 2009’s 9.6trnRMB (US$1.4trn). Has the market already forgotten that in early April 2009 it looked like China was heading for a growth rate of < 6% compared to the long-term target rate of 7%pa to 8%pa?
  • April 2009 was actually the turn, when a number of construction sites in a number of cities in China moved to double-shifting and almost overnight, there was an immediate shortage of copper wire and copper piping. [Note : as per our comment last year, China only produces ~15% to 20% of its annual copper requirements, or 0.9mt with 4.5mt imported in 2008]. ERA business wise, we restarted marketing at the Paydirt Gold Conference at the beginning of April and by the end of April 2009, our forward book was back to normal (ie booked about 1 year ahead, [it had been booked up to 2.5years’ ahead], when the crunch hit we lost everything from Sept08 to Dec08 & other spots).
  • We (ERA) did in fact state on ABC TV [7.30 Report on 12 Dec 2008] that we expected the turn to be about Mar/Apr 2009 (while some thought 2nd half 2009 was a possibility, most appeared to be expecting 2010 or 2011). Our estimate was made on the basis of China slowing down ~6 months ahead of the August 2008 Beijing Olympics and then at least 6 months to recover afterwards, allowing for Chinese New Year and China’s new regulations on emissions), whereas timing wise, kick-starting China’s economy appears to have been the main reason for the recovery.

May 2010 - The RRT or RSPT

  • The Australian Treasury gave their first RSPT (Resource Super Profit Tax) presentation in Sydney on 24 May 2010, as part of a trip until June 11 around the major cities in Australia. The following comment is based on notes I made in the presentation together with the handout, and the responses to various questions. (KG Note : Two of the main presenters stated in the coffee break that they were new or relatively new to the resource industry and all its finer aspects, but welcomed consultation.
  • There were 3 presenters on a panel-type table: the main guy who when the questioning became detailed referred to an older/greyer man, and a lady, together with some other people from the Treasury with roving mikes. I asked the two main presenters if they had a business card for further queries, discussion on royalties & depreciation, but they have no cards as yet as they have only been in this job for ~1month).
  • It was insisted that this is a new tax that replaces and simplifies the State Revenue royalties (typically ~ 2.5% of revenue). Its simplicity is clearly shown in Figure 1 (KG Note: one line in a spreadsheet now may need to have its own spreadsheet). Some more profitable companies will pay more, some will pay less but it is simpler and fairer (KG Note: it sounded like the original GST argument).

Oct 2010 - DnD - CAH, SLR, MPR

Buy CAH ; Buy SLR ; Spec Buy MPR

  • Our DnD Review is somewhat belated this year, as we completed our report on Focus (FML) first, (which slumped to ~3.8c post Dnd as the market focused on its ~200,000oz in reserves compared to the ~2moz resources), and quite a few of the gold stocks have run / increased significantly since then, spurred on by the Andean takeover.
  • Around Diggers we attended Catalpa’s Edna May mine opening, revisited Silver Lake’s : Daisy East progress underground at Daisy Milano, saw further intersections at Magic and walked over the new Wombola (North Monger) acquisition. We also visited the planned MacPhersons Reward Gold Ltd IPO (which is currently waiting for its ASX code which may perhaps be MPR or MRG) property, and spent 6 days with Focus (FML).
  • Focus Minerals is the subject of a separately released report (16 September 2010) that expected FML’s share price to double from ~5.4c per share, especially when the sensitivity to grade is considered (increase grades by 5%, add 1.4c to FML’s value),
  • Aside from the visits, the standouts at DnD were Silver Lake’s 1000oz (solid) Gold Miner in their booth as shown in Figure 1a, and Sandfire’s copper mineralised drill cores as shown in Figure 1b (showing how realistic their discovery is).

Nov 2010 - Sth American Review

Buy Extorre (XG) & Exeter (XRC)

  • In the two weeks after we emailed our Post DnD Review on 8 October 2010 we visited Argentina and Chile, spending almost a week visiting Mariana (MARL.L, an AIM listed company that expects to list on the TSX in Dec 2010/Jan 2011, & the subject of a separate report), and the following week participating in an ~40 strong analysts visit for what we thought were only the epithermal operations of Extorre (XG.TO) and Exeter (XRA, XRC.TO), which we attended to enhance our knowledge of epithermals. Mariana’s operations are in Argentina’s Patagonia and Chile, as were Exeter’s before it split under a plan of arrangement earlier this year (Mar 2010) into Extorre in Argentina (mostly Patagonia) and Exeter in Chile. The codes in brackets are Reuters codes (we use yahoo finance to freely access such prices, eg : http://finance.yahoo.com/q/cq?d=v1&s=marl.l+xg.to+xra+xrc.to).
  • WELL WHAT A SURPRISE !!. Both Extorre and Exeter appear capable of at least doubling their ~$6 share prices (Extorre based on potentially higher grades [– they are the highest we have ever seen in an epithermal], greater life, and possibly later greater throughput; and Exeter based mostly on market cap comparison, but also the possibility of occasionally better grades, and possibly better recoveries – especially in the oxide).
  • However, they are TSX or AIM listed companies and not listed on the ASX. So how do you buy them if you reside in Australia?. Well you should contact your own brokers. However, if you trade through Taylor Collison (TCL, the broker we are associated with and are a qualified Corporate Authorised Representative of) then : you place the order with your advisor, who can forward the order to the broker TCL are associated with in Canada.
  • That broker then (say) buys the stock and it is placed in a holding account, which is settled between TCL’s bank in Australia and the associate’s bank in Canada. TCL will raise a trade confirmation on your account which you will receive in the usual way (ie via email or post). For example: An order placed for ~$10,000 XG on 26 Oct, was transacted in Canada overnight, with the contract note received on 28 Oct, for settlement by 29 Oct (basically for TCL clients, the order is executed in Canada, and Canadian brokerage incurred, the whole converted into A$, and then Australian brokerage incurred on the converted A$ total, plus the usual GST on the Australian brokerage).
  • All the information in this comment is public. The visit included a number of broker analysts, fund managers, & media/investor groups like Mineweb and the Midas Newsletter (using video recordings and skype links to Reuters), (and a separate London broker led fund manager group, that appeared to try and avoid our group, arriving on mine sites at times like 3pm and 5pm – so they obviously missed the spectacular Andes flyover of Exeter’s Caspiche mine, east of Copiapo in Northern Chile)
  • It was the first time we have visited Argentina and Chile (well we have passed through Santiago on the way to Brazil and back from Peru when visiting Mundo’s operations). Both countries appeared to be relatively well developed (compared to what we have seen of Brazil and Peru) with Santiago apparently little affected by the earthquake earlier this year (as in its spaghetti junctions of freeways appeared to be intact including the ~11km long freeway tunnel that passes under the city).