• 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.

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).

• Reading our introduction to last years’ comment dated 29 January 2010, little appears to have changed one year later, apart from the fall in share prices occurring earlier in January 2011, viz :
• “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?”
• In November 2010, after visiting Gryphon’s prospects in Mauritania and Burkina Faso we flew to the China Mining conference in Tianjin, and then saw some friends in Kunming (to get a greater feel for what is going on in China). After all, China is still the engine of growth for the commodity sector.
• At China Mining, sessions are held covering the different commodities. Originally rare earths were planned to be covered, but then dropped and coal was excluded too. Perhaps China thinks it has or thought it had enough under control (which in the case of coking coal, it may have done as this was well before the QLD floods of January 2011).
• Although China is trying to find ways of reducing the costs of various ores (possibly it will acquire its own shipping fleet), it felt that due to supply/demand gaps and hence shortages, the pricing pressures remained as scrap quantities reduce and India possibly reduces its exports (for its own domestic consumption) especially for copper (due to the emerging ETFs), and iron ore/steel due to the 3 majors (BHP, RIO & CVRD).
• What was noticeable this year was the size of the booths at the conference and even Jinchuan manufacturing its own mining equipment as shown in Figure 1a. There is now a significant choice of mining equipment manufactured in China. China is also building self sufficient Circular Economic Parks centred on producing mines such as either coal or oil (there were nodding donkeys on the hills of the model) as shown schematically in Figure 1b. Datong (coal) has already built an operating one.
• It was stated that China invested $301bn (2trn Yuan) during the 11th 5-year plan (2006 to 2010) to save energy and reduce emissions (hence the sudden slowdown at the end of 2010 in order for companies to try and meet their expected targets). In the 11th plan, more than 70% of coal-fired power stations installed the flue gas desulphurization (FGD) system. Greater reductions and energy savings targets are planned to occur in the current 12th 5-year plan from 2011 to 2015.

• As the Wall Street Journal commented on 6 March 2011, "Canadian stocks posted a sharp loss on Tuesday as concerns over the global economic outlook weighed down markets, and worries about resources demand from China pushed down prices of commodities producers....index slumped 4% (-4.3%)...copper producers fell amid concerns about demand from China after it lowered its growth projection to 7.5% from 8% on Monday 5 March 2011" (China's Premier Wen Jiabao stated that a level of 7.5% was more sustainable and efficient). And again on the morning of 21 March 2012,"....stocks decline on China growth concerns...".
• The economists must be cheering "at last !, China is (appears to be) showing signs of slowing down". After they first predicted it to occur in April 2004, following China's reduced target of 7%pa in mid-March 2004, resulting in commodity prices falling - whereas the growth rate has often been ~10%pa since then.
• So it should be recognised that 7.5% is still a target, and hence may not be achieved. The reality is that China is being rebuilt, and a vast number of its citizens are becoming increasingly wealthy. At the China Mining Conference in November 2011, it was very clear that China appears likely to continue to fuel the commodities boom for at least the next 10 years, but does not want to pay high commodity prices, and will try and pay lower prices any way it can. We (ERA) thought that it may take ~2 years before the market begins to gloss over possible "sabre-rattling" by China trying to reduce commodity prices (it took ~2 years for the market to realise that there were no significant Russian gold or platinum stockpiles).
• In the Equatorial Resources presentation that was made to the Sydney Mining Club on 1 March 2012, an ambitious quote was given by Wu Xichun of the China Iron & Steel Association that "By 2015, China wants to import 50% of its iron ore from Chinese owned mines elsewhere in the world".

• What happened in April 2013 ?
• In what is best described as the "Gold Saga" over a period of almost exactly 2 weeks from 9 April to 23 April (with the market impact from 10 April to 24 April), the gold price fell by more than $200/oz within a week. Goldman Sachs (Goldmans) went from bullish/buy gold up to 9 April at ~$1570/oz through "short" gold on 10 April, only to "change horses" back again on 23 April at ~$1408/oz stating close the gold "short" positions, as the gold price could rise. (It is currently [28 May] finding resistance at ~$1400/oz).
• The gold price coincidentally fell from ~$1565/1575 on 9/11 April to $1380 on 16 April (based on London pm fixes) with a trading low of $1321 and had recovered to $1408 on 23 April amidst unprecedented world-wide demand for delivery and purchase of physical gold, and then increased to resistance about $1470/oz (and sold back down on Friday 10 May to ~$1420/oz & closing ~$1445 [Merrills 9 May forecast: $1200 by June]).
• November 2012: gold futures margins dropped from 15% to 5% by a Nth Am trader, followed by other Nth Am traders & then the Asian traders.
• 10 April 2013: Goldmans switch from bullish gold up to 9Apr, to bearish, reduce y/e gold forecast to $1450/oz, recommend "shorting" gold. Gold price drops from ~1580 to ~$1560 as shown in Figure 1a
• 11 April 2013 (Thursday) : 24-hour Gold trading holds $1550 long-term support (shown in Figure 2a), trading ~$1560 to $1565.
• 12 Apr 2013 (Fri): After Asian market & as London closes (for weekend) $6bn short futures trade (costing $300m [due to 5%margin]) rep 4moz/124t of gold executed on Comex, London screens "freeze" blocking buy orders, & Comex  follows with 35mins of $15bn (cost ~$750m) short trades rep 10moz/300t of gold.
• 12 April 2013: Critical $1550 Gold support level broken, computerised stops begin to occur selling gold positions automatically taking gold to $1500.
• 14 April 2013 (Sunday) : Hong Kong opens Mon 15th, gold drops down to ~$1450/oz.
• 15 April 2013 (Mon) : London opens, gold falls to pm fix at $1380,
• 15 April 2013 : Goldmans re-iterates "short" gold, reduces y/e forecast to $1400. Comex down to 1350, HKong opens, down to 1321, & recovers to 1340.
• World-wide stampede to buy physical gold starts.
• 16 April 2013 : Goldmans states "Gold no longer a safe haven, switch to natural gas" (their author appears to not understand the allure of gold).
• 17 April 2013 : Gold finds resistance at $1400.
• 16/17 April : Asian traders raise futures margins back up from 5% to 15%.
• 17 April 2013: Gold holds around $1380, falls with HK briefly to $1340 before recovering to ~$1360.
• ~17 April 2013 : North American traders raise futures margins back up again to 15%.
• 18/19 April 2013 : Gold encounters resistance at $1400; then $1420 and support at $1400.
• 21 Apr 2013: Rises back through $1420 with Hong Kong opening.
• 22 April 2013 (Monday) : Gold recovers in London to $1440.
• Falls with Comex opening, as Goldmans state that Gold ETF's are a "bubble", ie still negative gold & gold ETF holdings were continuing to fall dramatically (but the gold price held $1420).
• 23 Apr 2013: Goldmans "changes horses" back again, calls off "short" recommendation as gold could now rise.
• (Despite no change in the rationale that Goldmans applied : Cyprus, on-off reduction of $85bn per month injection, Gold ETF's actually falling faster than expected, & leave their y/e $1400 target unchanged).
• 25 April 2013 (Thursday) : Gold recovered to resistance at ~$1470/oz.
• Conclusions / Results :
• Goldmans "calls" may have simply been pure coincidence with what happened. The "short" call was made based on falling ETF holdings, and "comments" such as some IMF notes that suggested Cyprus could sell part of its gold for ~$0.5bn to reduce the ~$40bn debt package being sought; and the Fed in its FOMC minutes were considering slowing the $85bn per month injection down to $50bn, which could strengthen the US$ (less money being printed - even though the monthly printing does not appear to have materially weakened the US$).
• Or Goldmans may have had exposed "short" positions that were at risk of the gold price rising from its $1550 support level shown in Figure 2a, and/or they had a large buy order at lower levels and switched back again when the order had been completed. Apparently it's not the first time Goldmans have been possibly involved in a gold price fall, the prev time (not proven) was ~2008.
• Whatever was the reason, the reality is that the gold price has fallen through its $1550/oz support level, with only the 10-year trend still intact as shown in Figure 2a, and has severely damaged share market confidence in gold and gold shares.
• Pandora's box has been opened, hedge funds found the classic unregulated play, where they could "short" $21bn worth of a "stock", in this case "gold", for an outlay of ~$1bn, and score a "multiple whammy" by shorting the other precious metals (they all followed gold down - regardless of individual fundamentals), & could also short the major gold stocks ahead of the "hit".
• There is no other "stock" that we know of that you can naked "short" $21bn worth at its opening (ie without holding any). Comparatively, it would be like selling ~20% or ~600m BHP on its opening.
• Shorting the major gold stocks has the benefit of extra downside leverage, if you know that your actions should result in the gold price falling and hence gold share prices falling too - and you can't face prosecution for it because gold trading is not regulated.
• The Libor ruling at the end of March 2013 was when a landmark class-action civil lawsuit against some banks for Libor-related offenses was dismissed. In that case, a federal judge accepted the banker-defendants' argument: "If cities and towns and other investors lost money because of Libor manipulation, that was their own fault for ever thinking the banks were competing in the first place" (Source:rollingstone). So if instead "a group" colludes in "shorting" then they may not be liable either (it will be interesting to see if the same excuse holds for BP & Shell over UK fuel prices since ~2001).

• In the post Diggers weekend AFR, page 40 had an article titled "Currency - Spike in Aussie will be short-lived"..............in our/ERA experience "will" is a dangerous word, as it gives no "lee-way" - "expected to be" may have been safer.
• The AFR article focuses on the realisation that China is slowing down (a different opinion to our Purple Patch July Resource Roundup emailed on 26 July 2013, and also in complete conflict with page 12 of the same 10/11 August edition of the AFR that China's growth was on-track to meet its 7.5% target, especially after China's industrial production jumped from 8.9% in June 2013 to 9.7% in July). The article also expected that (on the basis of a China slowdown) the RBA would have to consider rate cuts.
• The IP jump should not really have been a surprise, iron ore prices have remained strong, and the iron ore producers at Diggers ([in no particular order]: Fortescue, BCI, Mt Gibson & Atlas) all made comments along the lines of being unable to meet demand for their iron ore products/deliveries, and consequently still expanding where possible.
• In the AFR article, CBA were quoted as stating that they envisioned the A$ as heading for their forecast of 85c by the end of 2014, and sub-80c over the longer term. The recent strength to 91c was due to the Fed to-ing and fro-ing about when the QE taper is going to start (as in Sept or Dec) and hence resulting in minor weakness in the A$. The A$ was expected to be depressed because rate cuts by the RBA and closing bond yields between Australia and the recovering world would have to depress it.
• But let's face it, most A$ forecasts for a weak A$ were wrong last year, because they did not factor in a weak US$ and a weak Euro. As the keynote (ex-IMF) speaker in the Diggers 2012 Q & A session after his speech stated last year, the A$ could be relatively strong because it was a safer alternative to the US$ and the Euro, and offered a higher interest rate. The "hot money" was hence probably temporarily parked in the A$, and has weakened with a stronger US$. Last years' Diggers' speaker made no mention of China in regards to the strength of the A$.
• The post Diggers keynote speech Q & A sessions are usually when the "gems" come out over what may have an impact in the world and hence affect Australia, and sometimes the speaker links the "gems" to their speech. This year (2013) was no exception.
• This years' 2013 Diggers' keynote speaker was Austan Goolsbee (a former Obama economic adviser), who stated in the Q & A that he thought that QE would historically be viewed as an essential event. The fact is that QE is a combination of monetary x volatility/velocity of money. But the volatility is down, so hence there is no inflation. QE is printing money to avoid deflation, and create growth and hence he thought that it has to continue until the US turns around and its growth exceeds 3%, ideally back to its previous levels of 3.5%pa. (Note : it would appear that the rising debt is not an issue, because the US has to print money in order to grow).
• However, the US is currently mired with 2% growth and 2% inflation, the growth for the 2nd Qtr of 2013 was 1.7%. In the US, if growth stays ~2%, then that is regarded as "the steady state", and no one really needs to be hired. The US has not had its usual "V" shaped recovery, so far, it has an "L" shaped one.  It could become a "U" shape if the US has a "housing bubble" because the US turns on housing, but that seems unlikely, so that means probably little change for the next 6 months as the growth rate is expected to remain below 3% for the remainder of 2013.
• At least 70% of the US agree that Govt spending is out of control, but no lobby group wants to have a cutback, as in reduction of its benefits. So the US is grid-locked and can't agree on a solution. Austan drew an analogy of unblocking an apartment's kitchen sink drain full of lasagne with a shotgun and due to a u-bend the lasagne ends up splattered in another apartments kitchen. Clearing the lasagne was resulting in dumping the problem onto someone else - and apparently that is what Washington DC is currently doing.
• Austan thought that although the new Fed governor (replacing Bernanke) may or may not have differing views, it probably mattered little, because they would be "locked in" to the existing processes.
• Fortunately for the US, the EC appears to be in a worse state, with its banking system currently perceived as not solvable and its govt bonds similar to the US mortgage backed securities debacle. Ideally the Euro needs to devalue, but Germany having bailed out East Germany appears unlikely to accept bailing out the rest of Europe too. W Germany solved its crisis through labour mobility from E Germany to W Germany and a US$1.3trn subsidy to E Germany - that solution is not available for the EC. Austan envisaged a probable financial crisis in Europe every 6 months or so until they solve it.
• The US has so far been the only country to print money and avoid inflation and a weaker currency, because it is printing a recognised reserve currency, namely US$. Other countries have printed currencies that have been based relative to the US$. As the President of Argentina commented a month or so ago, what she needed was a printing press that could churn out US$, not Argentinian currency or a substitute currency.
• A drifting US, may result in a drifting to lower US$. As far as Austan was concerned, the key to a US recovery without housing construction was when the 25-year olds have to move out and buy poor quality pots and pans, and pay rent. However, Austan also thought that the Shale gas revolution would reduce US energy costs with a resulting impact on manufacturing, combined with selective growth city areas in the US (such as Seattle, San Francisco and Silicon Valley) also gradually resulting in a US recovery. 
• Austan thought that Australia would feed off the growth of others, such as Asia/China and the US, while the EC faced greater issues.
• So yes, it's great to have a weak A$, gold at A$1450/oz and 91c looks a lot better than gold at US$1320/oz and a 1:1 exchange rate. It may be on a wish list for a number of companies and industries for the A$ to fall to 85c or lower, but as they say "don't count your chickens before they have hatched".

Understanding & Analysing PGEs. (like Gonneville in the Julimar Province etc)

This report has been based on my knowledge, without consulting Chalice or any of the other PGE coys – while my knowledge is dated, having mined these types of orebody underground with Implats in 1976/7, visiting/analysed them in Union Corp/Implats & Gencor Head Office & for brokers in South Africa, producing a ~100p guide to Sth Africa’s Platinum Sector in 1985, & a rating in PGE analysis to 1988, and again visiting and analysing in the early 2000s under Eagle Research/ERA in South Africa and Zimbabwe.