The $140bn BHP Billiton move on Rio Tinto first appeared on the boards back in February. “Await documents” has been flashing ever since. There is absolutely no hope of BHP’s offer for Rio even reaching official posting stage for months.

Like any frustrated traveller, investors need some idea of what is happening. Actually there is more hope here than with BAA. At last there has been one decisive step. Being loudly broadcast is the fact that a vital regulatory stage has been reached. Permission is being applied to remove a major block from the wheels.

BHP Billiton, the world’s biggest mining group, has at last formally filed with the European Commission for clearance to take over rival Rio Tinto. This showed up in a Commission list of M&A cases last Friday.

The Commission, the European Union’s executive arm and also its antitrust regulator, set a deadline of July 4 for consideration of the deal. By that date the Commission must either approve the deal on competition grounds, open an in-depth investigation, or permit a short extension.

All sorts of points could give the Commission problems. Combining a number of BHP and Rio’s businesses would bring market dominance. So, Competition Commissioner Neelie Kroes is expected to be brought in.

Rio Tinto spurned BHP’s all-share offer very shortly after BHP announced it. The Rio line has consistently been that the bid is “ballparks” away from a fair offer.

The two companies have sparred over who had the better growth rate. Rio maintained that it expected to grow at a compound annual growth rate of 8.6% for the next seven years. BHP countered that it did not believe those numbers. In its view Rio would growth by 6% a year for the next five years. BHP, on the other hand, says it will grow at 6.9%.

Lots of people are unhappy – mainly customers

This, for sure, is no friendly takeover – the atmosphere is strongly hostile. And not just from Rio. All sorts of interested parties are doing their best to block the bid, too.

Major objectors are customers. The fear is that without competition, BHP will be able to charge whatever prices it likes. It would become a super mining major with sway over the global supply of a large number of minerals and metals.

The Chinese have taken their concern as far as buying a chunk of Rio to protect it. Earlier this year Chinalco and the US aluminium giant Alcoa bought 9 per cent of Rio in a $14bn raid. This is the largest single shareholding.

Recommended

Robin Tracey is one of the most successful private traders in the country. Amazingly he only trades one day every month.

The rest of his time is devoted to making sure that this one move is an unmitigated success.

He’s giving a select number of investors the chance to copy exactly what he does. In fact… he does all the hard work, all the graft, all the planning, all the preparation…

You spend five minutes a month doing exactly what he tells you… and you both make the same gains…

Learn more about this service now….

Spread betting is not suitable for everyone – ensure you fully understand the risks involved. Trades recommended carry a high level of risk to your capital. Prices can move rapidly against you and resulting losses may be more than your original stake or deposit. Fleet Street Publications Limited 020 7633 3600

Things had gone quiet for weeks before the EU story broke. Having started the bid with some pretty public rows, both companies went behind the scenes for the various talks that have been going on non-stop.

Informal talks have been held with regulators, and these had begun to leak out. The EU, for instance, is said to believe that the market strength of the combined company would inevitably lead to price hikes. This would slow economic growth even further. The Wall Street Journal put the cat among the pigeons by saying that the EU was really unhappy.

Both companies have also been going the round of shareholders, putting their cases directly. Some shareholders had been thinking the offer would be increased before now. No sign of any hike yet, however.

A case for asset upgrades here?

The battle moved back into the open last week. Rio held a marathon seminar in London. The aim was to show BHP’s bid as far, far too cheap. Rio wants the market to revalue its assets too, in the light of a forecast that world demand for its metals will double by 2022. Chinese growth is major factor in its new predictions.

Managing director Tom Albanese said that with each passing year “people have been taking what we believe is a more realistic view of the total China story”.

“In that environment, greenfield projects are becoming more valuable. And I think they will continue to be more valuable in the future,” he said.

Rio has been trading at a discount to the bid

His comments come as Rio’s share price traded at a discount of over 8% discount to the implied value of BHP’s offer. Mr Albanese blamed this on uncertainty about when the bid would proceed. But he stopped well short of saying that BHP’s 3.4-for-1 offer was nearing the ballpark in terms of value.

“We’ve said in the past that the board has reviewed the BHP Billiton pre-conditional takeover offer,” he said. “We took it seriously. We rejected it. We rejected it on the basis of value. Rio Tinto as a stand-alone company is worth much, much more than anything that we’ve seen presented to us.”

But he did not succeed last week in propelling the Rio share price to above the bid level.

BHP will probably wait until the regulatory processes are all finished before adding any sweeteners. Anyway, the current view is, it won’t put up its offer until posting formal offer document.

Timing? Probably late 2008 at best!

Keep mining.

Erin and Isabel

Source: Rio Investors Should Continue Waiting in the Hall

Of course, once explained the answers are obvious. The planes we see flying above us, whether military or commercial, are pretty old and inefficient. New fuel-efficient and eco-friendly ones are badly needed. And that is why we’ve noted this in our diary, because new planes use a lot of titanium… and this commodity is becoming increasingly more valuable.

US giant Boeing is pretty optimistic in its current market outlook. It sees new planes making up 80 percent of the 36,400 airplanes that will be in service in 2026.

Both Boeing and Europe’s giant, Airbus, see huge demand for planes coming from Asia-Pacific. The market is described as dividing up on the lines of 31% Asia-Pacific, 27% North America and 24% Europe. Then by 2026 the emerging countries of Argentina, Brazil, South Africa, with around 3bn people, will also want more planes.

Titanium is magic for aircraft manufacturers. It is corrosion resistant and has the highest strength to weight ratio of any metal. It is as strong as steel but 45% lighter. It occurs in the earth with a number of mineral deposits, principally rutile and ilmenite.

It was discovered in Cornwall in 1791 by amateur geologist and pastor William Gregor, then vicar of Creed parish. Uses have been found for it at a slowly increasing rate. Now it is more fully appreciated, supply is forecast to stay steady (or fall) but demand is expected to rise sharply.

As usual China’s position is key

The titanium minerals market was in deficit last year. As usual with metals and minerals, China’s position is key. It is no longer an exporter. Plus energy shortages in South Africa, producer of 27% of the market, are cutting supplies from there.

While the US has been using less, China has been using more. And whilst titanium’s toughness makes it such a popular alloy for metals, it also goes into paints, coatings and plastics – where its anti-corrosive properties are a winner.

Asia is the fastest growing market with projections of future growth rates of 6-7% a year. China, which has a demand of 650,000 tonnes per year, is seeing growth rates of 10% a year and above – according to producers. The largest amount of titanium consumption is in paints and coatings, followed by plastics. Analysts forecast that China will represent 17% of global consumption by 2010-2011.

India is the next power house with growth rates of 8-10% per year while demand in southeast Asia is growing at a healthy 4-6% per year. Vietnam also has strong growth but from a small base.

Prices of Chinese imports of ilmenite, the main feedstock for titanium, have risen by around 50% so far this year. With global demand for titanium minerals expected to rise by 3.6% this year on average, more price rises seem on the cards. Apparently, a lift of 1% in Chinese GDP results in a 2.2% lift in titanium consumption.

A little Irish one to watch

A little producer that we’ve been watching, although it is still very early days, is actually an Irish company, quoted in Dublin and on AIM. This is Kenmare Resources. Last year it produced 86,000 tonnes of ilmenite, but this is forecast by broker Canaccord to leap to 541,000 tonnes this year and 747,000 next.

So that means, says Canaccord, that it should soon be making reasonable profits — from losses of nearly US$10m last year – to break even this year, and then on to profits of US$19m in 2009, with US$79m in 2010.

By Erin Hamilton and Isabel Turner

Source: Titanium Is Flying High

Who stated last Sunday that Tony Blair is convinced that Brown can’t possibly beat David Cameron in a General Election.

Or maybe he’s put out by the fact that he’s having to promise concessions to all the people who are going to suffer from the abolition of the 10p tax.

Either way… as Brown staggers around the country putting all his efforts into convincing us he’s not a wounded animal… who’s looking into fixing the crippled economy?

Alistair Darling? He doesn’t operate without Brown standing right behind him… does he?

It’s all very well for Brown to come out and say he’s not going to concentrate on: “gossip and rumour.” But it seems to me that this is all he has been doing lately.

What is the point of all these publicity stunts and safe facing exercises when we have real problems to solve? A cynic might say it’s to detract attention from what you’re actually doing… i.e. NOTHING…

Well I think that fixing our problems is a better avenue to attempt to win a General Election on… as opposed to publicity and spin.

The finance sector makes up one third of our economic output, contributes £20 billion to the trade balance… and accounted for nearly HALF of UK GDP growth in 2007.

There are now more finance sector workers in Britain than there are construction workers, farmers and factory workers combined.

And they are in trouble!

What’s being done to fix our problems – other than our Leader touring the country to let people know he’s still got a job? Nothing that’s what!

And before anyone points to a £50 billion bail-out…

WE’RE THE ONE’S PAYING FOR THAT BAIL-OUT… YOU AND I… OUT OF OUR OWN POCKETS…

It’s not a bail-out… it’s us shoring up things that are failing – so they fail a bit more slowly…

Even the City is saying that this won’t solve a thing. One investment banker we know said:

“The terms of the Bank of England facility are pretty rubbish, I doubt many banks will use it, you can get better terms privately through the Repo market. I think it’s just a fig leaf to cover the Bank’s total inaction on the sub-prime crisis.”

But hey – slip a sly supposed bail-out in to the mix, whilst getting publicity with one of the world’s most beautiful people – AND MAYBE NOBODY WILL NOTICE THAT THIS £50 BILLION SOLUTION IS A LOAD OF RUBBISH.

WELL GUESS WHAT… WE’VE NOTICED… AND WE’RE PRETTY DARN RILED AT THE CHEEK OF IT ALL.

Let me ask you something dear reader…

What do you think’s going to happen to the domestic economy… and to YOUR savings and investments… if Britain’s ‘Miracle Money Machine’ has its output slashed by one tenth… one third… or even half?

Well – as the pound sinks to a record low against the Euro and investment banks brace themselves for further fallout… it’s time to batten down the hatches, because you’re about to find out.

Below you’ll find the link to a brand new Crisis Report published by The Fleet Street Letter. They’ve also identified three stocks poised to benefit from the finance sector-led recession they believe has to kick off in 2008.

Click here to find out more.

Not only is the most dramatic asset bubble of modern times clearly over… not only are the recent falls in real estate and equities just a taste of what’s to come… but a sector that accounts for nearly one third of Britain’s entire economy is about to get hammered!

If City activity dries up, so does growth, says Damian Reece in The Daily Telegraph. “The entire southeast, from house prices to employment, is a geared play on global financial markets.”

According to its analysts this could be one of the biggest challenges to face the British economy in The Fleet Street Letter’s entire 70-year history.

And it’s hurtling towards your savings and investments like a freight train even as you read this.

And if you’re not ready yet, you’ll want to be soon.

The Fleet Street Letter has been helping its readers prepare their portfolios for the coming crisis since October 2005.

With the situation deteriorating daily, they’ve decided to issue some advice to you today.

Specifically, the team have identified three “gloom loving” stocks they believe will thrive during the finance sector-led recession.

This could be the most important investment advice you read this year.

For the full briefing, click here.

Erin and Isabel
Editors
The Miner Diaries

PS: The Fleet Street Letter says: “If you want to keep your hand in the stock market, these are the simplest ways I know to position yourself to potentially grow wealthier from a likely recession in 2008 and 2009. One 5 minute call to your broker and you’re done.”

Go here for the full report.

Investors are key at the moment, because of the unhappiness with the gold price in Asian jewellery markets. Normally the main supporters of gold, jewellery customers in Dubai or Mumbai do not like its current volatility. When you buy your earrings or bracelets by weight, you want have confidence that you are getting the right number of ounces for your money!

Not that this has made GFMS, or other forecasters, pessimistic. GFMS is confident that the price could easily reach $1,100 this year. If not then, certainly next year!

The reasoning? What this amounts to, at core, is that there is too much bad news around financial markets for investors to go off gold. World credit markets are in a worsening state. But GFMS does warn that the trend lines on the charts will not going straight upwards. And, indeed, they are not. Having broken up into new high ground to reach $1,030 in mid-March, the price has slid back towards $900.

Most of the drivers behind investing are still there

“We were not at all surprised that the market saw a hefty correction in the last few weeks, as the speed of the earlier gains looked a little unsustainable,” said Philip Klapwijk, GFMS’ executive chairman in the report. “However, we do not think current hesitancy means it’s game over for the rally.”

And he added: “Many of the drivers behind this investor push after all – dollar weakness, skeletons in banks’ closets – are still very much with us,” said Klapwijk. “But quite where it will top out is a difficult call – maybe $1,100 is achievable this year, but $1,200 plus could be going a bit far”.

The demand / supply balance is currently put at about even by GFMS. While it expects jewellery buying to fall by 200 tons, it believes investors will compensate. This is based on the interplay between investors and the jewellery sector in 2007.

Investors replaced jewellery in the second half of 2007

During the first half of last year, western investment fell but gold remained supported mainly by jewellery demand, GFMS said. Then investment was the key driver for prices from September onwards, as the credit crisis flared up globally.

—————————————————————————-

Highly Recommended

‘City under Siege’

The UK economy relies on the finance sector for one third of its output. But let me ask you this…

What do YOU think would happen to the domestic economy – and to YOUR savings and investments – if Britain’s ‘Miracle Money Machine’ has its output slashed by one tenth… one third… or even half?

Get ready, because you’re about to find out. Below you’ll find the link to a new Crisis Report published by The Fleet Street Letter.

They’ve also identified three stocks poised to benefit from the finance sector-led recession. Go here for the full report.

Forecasts are not a reliable indicator of future results. Your capital is at risk when you invest in shares, never risk more than you can afford to lose. Please seek independent financial advice if necessary. Fleet Street Publications Ltd. Customer Services: 0207 633 3600.

—————————————————————————–

“Driven by growing risk aversion, a weakening US dollar, a clearly problematic financial services sector and expectations of lower equity prices, investors have increasingly recognized gold’s safe-haven attributes,” Klapwijk said. The consultancy group expects the credit market crisis to persist in the medium term, fuelling continued risk aversion and creating a bearish outlook for the US dollar, the global economy and equity markets.

So, who are these investors, and what sends them to gold? You, me, hedge funds, mutual funds….anyone with savings. The World Gold Council is creating more and more of them by promoting the setting of Exchange Traded Funds around the world. These are currently the top investment medium. They’ve been nick-named the “People’s Central Bank” and are currently make up the 7th largest gold holding.Exchanges are playing their part setting up new futures trading markets – India is the latest.

An important part in investor psychology is local currency. Those currently to watch, to go by the GFMS survey, are the Euro, Australian dollar, Turkish lira and Indian rupee. Price gains in non-dollar terms from these currencies were far more restrained than the previous year – so some investors were in less of a rush to hedge into gold.

Top of those fundamentals he lists, is that there is less and less being produced. Gold production peaked in 2001. It was down by 3% in 2006, by 1% last year. South African production has been falling the fastest. Goodness knows what the regular power outages are going to do to its 2008’s figures!

Mine supply will fall by 10-15%

Letting us in on one of the bits of prime information to which top fund managers are privy, Graham Birch quoted Barrick Gold. Analysis by this top gold producer indicates that “mine supply will fall by 10-15% over the next five years as there is a lack of new production coming on line!”

Exploration spending took off in a big way in 2002 when the miners realised that supplies were running out. Last year the bills ran to over $4bn. Yet the “gold found” line goes remorseless down on the charts. It pitifully only managed to hold around 14m ounces last year. More exploration, the message comes over loud and clear, does not equal more ounces.

Everything is getting more difficult. Not so long ago it might have taken three to four years to get a mine up and going. Now, with global shortages of skilled people and equipment, increasing regulation and environmental obstacles, the whole process is protracted.

Continues below

Recommended

‘“How to legally ‘steal’ £103,000 this year… from the UK’s biggest publishers!”

All you need is a PC, an Internet connection, a few hours after work and you’re all set.

In as little as one month you could see your first money… and once it’s running, the money will just keep going up and up.

All you have to do is read this, then collect the money.

What is NOT getting more difficult is buying into gold! As Graham Birch pointed out, gold Exchange Traded Funds now account for over 800 tonnes. This makes them the 7th largest holder. And you and me and other small investors are big holders of funds like his. Pension funds don’t seem to understand about making money!

So, we all asked the birthday team, what have they been buying? What’s in the fund that’s made it the most successful unit trust since its launch?

As you’d expect, Graham Birch says they work pretty hard and are “active managers.” He points out that while his fund rose by 2,603%, gold’s gain was 95% over those 20 years.

Picking the smaller and frontier miners

ML Gold and General has been moving into smaller miners and those in the “frontier” territories of China and Russia. Declining gold production has hit the Big Four producers most heavily. And it has spread out from gold into other precious metals, particularly platinum.

His top winner, he says, has been Impala – the world’s second largest platinum producer. Then comes Industrias Penoles, the Mexican silver producer. After that comes, one that he is adding to right now, China’s gold miner Zijin. Then there is Peruvian gold and silver producer Minas Buenaventura.

With $3.2 bn under management, the fund has to hold a spread of companies in the 70% that is in gold mining shares. These, he says, are steady holdings. There is not a lot of movement in the fund’s investments as it is happy with is choices.

The largest gold holding is North American gold miner Kinross, then comes another North American, Barrick Gold. Indonesia’s Lihir Gold is next on the list, then there is Australian Newcrest Mining. The rest, apart from those in the “winners” list are South African Gold Fields and North Americans Goldcorp and Agnico Eagle.

Platinum is represented among the top ten in the form of Johnson Matthey, 4.7% of the total. It is the only non-gold there, and is not even a miner, but a highly sophisticated trader and product producer (like catalysts).

He does hold some bullion. ETFs form around 2.5% of the fund.

Investors are giving the gold price momentum

So, what else? At the moment, he acknowledges, it is investment money that is making gold go round. Investment demand is changing the market dynamics. In 2001 it was 9% of demand. Last year investors had soared to 20% of the market.

Jewellery buyers are being put off by the fact that their money is getting them fewer ounces. This is especially the case in Asia, where gold is bought by weight. Yet the rising middle classes of the developing world still like their gold jewellery. There is no reason to think they’ve gone from the market for good. One thing is for sure, he says. The market environment is “still a long way from a price-related response for the producers!”

So gold will go on getting rarer!

Keep mining.

Erin and Isabel.

But as we know, Asian economies are now booming and they need metals and minerals to fuel that growth. Where better to go for that than Africa, with its vast unexploited mineral resources. China has seen the golden light, but now it seems that India, too, has the continent in frame. Better still, some African governments are actively courting Indian business to invest.

A bid for Indian investment materialised at a recent three-day India-Africa business summit in New Delhi which attracted no less than 500 delegates from 30 African countries! There Tarun Das, chief mentor of the Confederation of Indian industry (CII), said they will open four new offices in different regions of Africa to help.

Since the likes of Namibia, Zambia, Mozambique, Democratic Republic of Congo and Ghana are among the countries trying to lure Indian investment that is no surprise. Even troubled Zimbabwe can see the potential. (The Zimbabwean government, new or old, is hardly in a position to turn down any investment!).

Competition is healthy

Competition for China in Africa has to be a good thing. China now has $10bn invested in Africa. It has been sewing up deals with African governments to secure the continent’s vast mineral wealth. And it has done this by giving loans to cash-strapped governments. Something that hasn’t exactly gone down well with international mining companies, who are worried they are losing their grip on the continent!

But what about India? Is this Africa’s new sleeping dragon? After all, it too has started extending loans to Africa – India now has $1.37bn now invested in the continent.

Continues below

Highly Recommended

—A SPECIAL FLEET STREET LETTER ALERT—

‘Assault on the Square Mile’

The finance sector makes up one third of Britain’s economic output.

It contributes £20 billion to the trade balance… and accounted for nearly HALF of UK GDP growth in 2007.

Let me ask you…

What do you think would happen to the domestic economy – and to YOUR savings and investments – if Britain’s ‘Miracle Money Machine’ had its output slashed by one tenth… one third… or even half?

Batten down the hatches, dear Reader, because you’re about to find out.

Below you’ll find the link to a brand new Crisis Report published by The Fleet Street Letter.

They’ve also identified three stocks poised to benefit from the finance sector-led recession they believe has to kick off in 2008.

Go here for the full report.

Forecasts are not a reliable indicator of future results. Your capital is at risk when you invest in shares, never risk more than you can afford to lose. Please seek independent financial advice if necessary. Fleet Street Publications Ltd. Customer Services: 0207 633 3600.

More transparency please…and less red tape

But Africa wants India to do more than simply exploit mineral resources. India, Mr Mutati said, could speed industrialisation, improve infrastructure and strengthen regional cooperation. The Indians have much sought after and cost-effective technology and could supply equipment to the mining industry to process raw materials.

For example, India and Namibia (which produces 6% of the world’s diamonds) are currently looking at setting up a training facility to polish and cut diamonds. Jewellery designing is also on the cards, said India ’s Minister of State for Commerce, Jairam Ramesh. The objective is to cut out the middle man. You can see why. India is the world’s biggest importer of uncut stones. It is also the biggest exporter of cut and polished diamonds!

The Indians should also continue to invest in training. Africa should take advantage of this, said Bwabwa Wa Keyembe, Congo’s director general of the National Agency for Promotion of Investments.

By playing its Africanisation cards right, India would, in return, have access to the world’s biggest untapped resources. Mussa Uthman, the deputy director of investment promotion centre in Mozambique, promised “big reserves of diamonds, copper and nickel which could be viably exploited”.

That is certainly true! Mozambique has considerable mineral resources including gold, gemstones, titanium, coal and bauxite. And to date these remain buried.

To some extent India is already proving its commitment. India ’s Tata Steel has already made a foray into Mozambique. One of the things it has done is to build a 120 MW plant to supply power to the mining industry in Zambia. Good news for other miners considering a future in Zambia!

So India and Africa – a match made in heaven? Well not quite. Aside from the political risk, there is also plenty of red tape to cut through. Obtaining licences is not exactly easy, nor is getting a visa. Africa needs to be more transparent in this respect but Zambia’s Mr Mutati seems confident that they can and will make things easier! There are already moves to simplify procedures.

The new silk road?

The dean of the African diplomatic corps, for example, is considering a multiple visa system with embassies in New Delhi. And Mozambique is already negotiating a “uni-visa” system. If that materialises, a visa to South Africa could allow an investor to travel elsewhere too.

So how does the private investor gain exposure in Africa? Investing in something like the little-known New Star Hidden Value Fund or the Vanguard Precious Metals and Mining Fund are two lesser known options. Then there are other more popular funds like Merrill Lynch’s Gold & General.

But, surprise, surprise, Erin wants to remind me to be careful with African selection! Famine, disease, war, corruption – some countries are pretty risky. Of course she is right, but consider this. In US dollar terms, over the past three years almost all African indices outperformed the S&P 500. Stars were the Mauritius All Share Index rose 75% and Nigeria’s All Share Index, which doubled. Those are just two examples.

The Chinese have seen the golden light. Now the Indians look set to bask in it too.

So keep mining, but cautiously,

Erin and Isabel

PS Get the day’s big financial news in one easy hit! Fleet Street Daily gives you the financial stories that matter. Every day brings new events, and those events are what move the markets. With Fleet Street Daily you’re one step ahead of the crowd. Because we don’t just tell you what’s happened – we tell you what it means and what you should do about it. Fleet Street Daily is a lively, relevant and entertaining resource designed to help you make smarter investment decisions. Best of all, it’s 100% FREE!
So sign up today!

Dull Chinese gold futures’ trading has come as a bit of a disappointment. On day one the Shanghai contract surged to a premium of nearly $100 over the international spot gold price. It almost touched $1,000, a new record high at that point. The Chinese seem to prefer the real thing to paper – but watch this space!

The Exchange went to a lot of trouble to avoid the tricky issues regarding futures trading in China that would have brought censure from the authorities. It did its best to deter private punters. The size of the contract was upped from the originally planned 300 grams to 1,000 grams – a hefty 32.15 ounces. They may have been overcautious in this; the measures were too effective.

The Chinese regulators are now relenting. A notice has just been published in the China Banking Regulatory Commission website loosening controls on futures trading. From now the nation’s commercial banks (and hence their millions of customers) will be allowed access to gold futures on the domestic market. More details are promised soon.

This is also seen as a move to help the Chinese banks improve their profitability and compete against overseas banks. The Chinese Central Bank has obviously noticed the profits generated from futures by banks abroad. Non-interest income can account for up to 80% of bank revenues, while Chinese banks make much of their money from the margins between interest rates on deposits and loans.

Commercial banks now interested

China’s commercial banks are huge. As a story in the official state news agency, Xinhua, says, they can certainly provide more liquidity and stability to Shanghai’s gold futures. It quotes an expert at Beijing Technology and Business University, Hu Yuyue, as saying it was “great news for the gold futures market, which is not operating that well.”

Meanwhile, physical gold trading is booming. The Shanghai Gold Exchange has two major new international members – Standard Chartered and HSBC. Even without them, business has been brisk on the back of local punters.

Shen Xiangrong, chairman of Shanghai Gold Exchange, expects the number of individual investors to triple this year. Last year around 94,000 investors traded. In 2008 more commercial banks are launching individual gold trading services. The Exchange is hoping they will now also promote its derivatives contracts.

Continues below

Recommended

Make an easy £77 – £119 per hour on the financial markets…

Discover the secret to earning an extra £77 – £119 on the financial markets. This is incredibly straight forward. In fact whatever your education, knowledge or experience – this will work for you…

Former sales representative Janet Fry made £38,000 pure profits. How much will you make?

Further proof that the Chinese prefer to have their gold in hand can be seen in jewellery sales. Chinese love of gold jewellery surpassed the US as the world’s second-biggest retail gold market, after India, last year. Total consumer demand on the Chinese mainland, Hong Kong and Taiwan reached 363.3 tons, 23.5% up on a the previous year, according to the World Gold Council. Demand grew even in the fourth quarter – up 20% – while gold demand elsewhere dropped.

Nor are the Chinese slouches when it comes to production. Chinese miners are expected to increase their output by over 10% in 2008, reaching 300 tonnes. That would see the country overtake South Africa as the world’s largest gold producer.

Some say it was the largest producer in 2007. Dispute arose because of a clash in the experts’ statistics. Gold Fields Mineral Services put production at 276 tonnes, China Goldfields Association counted 270 tonnes.

Mining companies were the first target…

Mining companies were the main target of Shanghai’s futures contracts. The aim was to provide the facility for the gold miners to hedge production. The first deal showed the way – it was between China National Gold Group and Jiangxi Copper.

China Daily quoted the explanation of the rational given by Jiangxi vice president, Wang Chiwei. Time taken to for his company to refine gold from copper concentrates was four months, yet the fee was only $5 an ounce. Even a small gold price movement would wipe it out.

Yet locking out the punters has reduced the depth and scale of the gold futures market. The exchange has not been able to keep up with booming gold production at home and soaring world gold prices.

….now it is the $1.8 trillion savers’ market

At the same time, the commercial banks have wanted to market gold-linked products into the booming retail banking market. The Chinese are famous savers – over a quarter of Chinese hold bank accounts, and they typically put aside 25% of their income. Last year that came to $1.8 trillion!

Competition to manage that money is fierce. Sophisticated international banks offer services that enable them to pick off the wealthiest individuals (the number of Chinese with investable assets of $100,000 or more now exceeds 4.5 million households). Domestic banks are telling their regulator, as gold’s new high price levels win the headlines, that gold products will do very nicely, thank you!

Shanghai is really going for it in 2008. The hundreds of local gold miners, refiners and fabricators are begging for more volume, and the investment market is there to oblige. The exchange has approved 65 new companies as futures members.

Trading gold futures in China may have started off modestly, but so did it in the US in the 1970s and Japan in the 1980s. Now China seems all set to build up force! Another driver for gold to hit $1,500!

Keep buying!

Erin and Isabel

PS Now you can stay one step ahead of the markets and get all the latest industry news in one hit – every day. Fleet Street Daily is an entertaining mix of leading industry experts who bring you the top financial picks of the day. If there’s a news story that could affect your investments, you’re going to enjoy reading it here first! Each day you will receive a lively, relevant and interesting resource designed to make your investment decisions more informed and more profitable. This is a compulsory read if you’re looking for fresh, insightful opinions to make you the smarter investor and it’s 100% FREE.

Start receiving Fleet Street Daily by joining today

For sure it persuaded all of us (with a little help from Marilyn Monroe) that love, courtship and weddings mean diamonds. From being a loss-making over-supplied product, diamonds were transformed into a product that brought in billions of dollars. So could this be done with other gemstones? Miners have at least 130 more to choose from.

There is a lot of money riding on that question. Diamonds, emeralds, rubies and sapphires are “precious” – they are the pricey classics. Few doubt that. They have “lasting appeal and distinguished history”, says the International Colored Gemstone Association in the US.

Prices give the rankings. Diamonds generally come top. Ruby and emerald are also priced higher than a top quality sapphire, due to their rarity. For a one-carat ruby stone the bill is likely to be between $250 and $10,000 per carat. Truly quality gems will cost more.

De Beers knew all the tricks

What hope of using De Beers’ tricks for any of those other 130? Miners are always on the look-out for new money raisers. Plus, given quantities are often too small for the mega miners this can be rewarding territory for the minnows.

Rising stars of gemstone jewellery are, apparently, tanzanite, tourmaline, aquamarine, imperial topaz, and tsavorite garnet. Gems in this category sell at between $50 and $1,000 per carat for an average-to-good quality one-carat stone. Larger stones go for more. For example, large examples of tsavorite – can easily reach $3,000 per carat.

There is another category – connoisseur gems. These have a more specialized market because they are rarer. Here are all sorts of marvellous names – black opal, jadeite, pink topaz, chrysoberyl cat’s-eye, fancy coloured sapphires, and even rarer stones like demantoid garnet and alexandrite. The lists give prices ranging from $250 to $5,000 per carat. Yet top quality alexandrite with a good color change regularly command at least $10,000, even in a one-carat size.

Collector’s gems include spinel, zircon, moonstone, morganite and other beryls, and many even rarer ones. They are little-hyped as they are not many around to make marketing worthwhile. Red and hot pink spinels can command a few thousand per carat, but most of the gems in this category will sell for hundreds, not thousands.

Continues below

Recommended

Better Than Forex? You Bet!

Louise Woof, creator of the Foolproof Forex Trading System is back – with a major new breakthrough in spread betting… Now, you can enjoy all the thrills and profits of Forex trading – without any of the HASSLES.

So, if you can spare 10 minutes each morning – you can discover a new way to turn £160 into £13,165 or more in 60 days. Anthony made £200 while making a cup of tea… Liz made £1,025 this week…

How much will you make?

…yet diamonds may not be best

Of course, it’s questionable whether risking money on an obscure mineral as recession looms is a good idea. Better go for diamonds? Not necessarily! The trade fears a collapse after sharp rises in prices of large stones. Fuelling the market are stock-piling insiders. To them it seems the best haven, as the financial news grows ever more dire, are diamonds.

A warning has come from right at the centre of the trade – from America’s maverick diamond trader Martin Rapaport. “Higher prices brought about by internal diamond industry speculation are not sustainable and may result in significant financial loss,” he says.

And added: “If a significant component of the price level is based upon internal diamond industry speculation that prices will continue to rise, then even a slight short-term decline could cause a collapse.”

So, there is nothing wrong with checking for winners among the lesser gems. That is certainly the view of one of London’s most successful investors – Dr. Graham Birch who heads BlackRock’s Merrill Lynch natural resources team.

Tucked away in his World Mining Trust portfolio is a little £50m AIM stock – Noventa. It makes up just 0.2% of his £1.2bn portfolio. It’s worth looking further into, though, when it’s been picked by a manager whose fund’s share price has risen by 421% over the last five years, 185% in the last two.

One gem Noventa produces from its Mozambique mines is morganite. This is a rare pink beryl gemstone. It’s from the same family as emerald and aquamarine. There is an exclusive joint venture with NASDAQ-quoted jewellery manufacturer LJI, whose retail jewellery chains span across China. Noventa sells its rough morganite at $1,670 a kilo to LJI, and gets 49% of any jewellery sales profits on top of that.

And as a hedge for its jewellery business Noventa also mines tantalite. Key use of this rare stone is in capacitors for electronics and mobiles. Supply/demand balance is forecast to slip into deficit. Top of the pops rating comes from the fact that the US Defence National Stockpile Centre exhausted its inventories in 2006.

Tiffany’s made tanzanite a winner

Another little AIM gemstone miner is TanzaniteOne. This one mines the gloriously blue tanzanite in, of course, Tanzania, but also mines tsavorite. Fascinating company this but, by the way, the share price is heading south; it seems investors don’t like the latest news. It cannot be the figures – they show some good rises. One can only deduce that perhaps they don’t like the latest change to local management. A bit of resource nationalism going on here?

TanzaniteOne practically invented tanzanite. Discovered only forty or so years ago, it was not really marketed until the 1990s. The amazing thing about gemstones is that a number of others have equally short histories. Seems we are all suckers for a new pretty face – though the face of this brilliant blue stone has to be heated to 450 degrees to develop its colour.

The disadvantage to these new stones is that they carry no myths or magic. Key to their success is the way De Beers played diamonds – marketing. It can be done! Tanzanite became popular following marketing by legendry New York jeweller Tiffany. In 2002 the stone was added to its lists by Jewelers of America as one of the December birthstones.

So, keep searching!

Erin and Isabel

P.S. We’ve just heard the first excited whisperings of a new daily email that will pool Fleet Street’s collective genius, keeping you up to date with the sharpest opinions on the very latest financial news. Stay tuned, there’ll be more on this soon!

Seasoned professionals and mainstream financial hacks alike have been baffled by the sheer scale of the market gyrations. They haven’t a clue which way to turn.

But there’s one team of cool-headed profit hunters who are sitting, carefully biding their time, ready to pick up great investments at distressed, knocked-down prices.

All this talk of recession in Western economies doesn’t worry this group. They’re not concerned about US and European stock market weakness – indeed they’ve been predicting it for months.

Right now, they’re leading their small, private circle of investors to position themselves to profit from a global power shift.

Just weeks ago they explained to their members:

“A recession in America will inevitably see a slowdown in the developing economies as well, but the chances of a global recession are low. Instead, we see this as part of the ongoing shift in economic and financial power from West to East as the global financial system adapts to new economic realities…

“…the current sell-off in global markets may well provide one of the greatest profit opportunities of your lifetime – a chance to buy into emerging companies… with enormous long-term growth potential… on the cheap.”

Today you can discover how to get into this team’s latest recommendations “on the cheap” – and how you could make four times your money by the end of 2009. [Forecasts are not a reliable indicator of future performance.]

Find out how by reading what our colleague has to say right now in his research note: “The moments no investor wants to miss”…

Click here to read it.

Not only does this report explain how to spot up-and-coming investment opportunities while mainstream investor focus is elsewhere, it also suggests where the next such opening is emerging right now…

Let us give you a taster before you click through:

This place has the SAME level of foreign direct investment as China… a CHEAPER workforce… and dirt-cheap industrial land…

Merrill Lynch is calling this place a “ten year buy”… Industry Week describes it as being “where China was 10-12 years ago”…

All the things that should excite every bullish investor on the planet… And yet, here we are preoccupied with last year’s stock market disasters!

At a time when everyone’s talking about LOSING money, the chance to make a bit – potentially double your cash inside of 12 months… and even make up to FOUR times your money by 2009 – is, we guess, worth a look.

But what do you think? Read “The moments no investor wants to miss” by clicking here.

One last thing:

It might be worth mentioning that the team behind this report were amongst the first in the UK to champion the investment potential of China AND Russia.

And though hindsight is a wonderful thing (we all know how both these economies have surged) back then investor feedback was generally NEGATIVE!

But then, so is the reaction to the so-called “crisis” at the moment! Don’t you just love herd mentality?

If it’s not in your nature to be downbeat, or you quite like the idea of using this distraction to capitalise on a little known breaking opportunity, you should have a read of “The moments no investor wants to miss”.

Click here to read it.

Kind regards,

Erin and Isabel
Editors
The Miner Diaries