Bloomberg reported that Output at Collahuasi mine in Chile, the world’s largest producer, will likely be cut following an “incident” that involved electrical equipment, according to a union leader. This comes at a time when China’s imports of the metal surged to record levels for a fifth month in June.

“A lot of fund money has been flowing into the copper market in China,” Wang Zhouyi, analyst at China International Futures (Shanghai) Co., said yesterday. “Many investors are very optimistic about economic recovery and so any news about potential output shortfall is good news for the market.”

The damage at Collahuasi, which is controlled by Xstrata Plc (LON:XTA) and Anglo American Plc (NASDAQ:AAUK), is being assessed, a Xstrata spokeswoman said yesterday. The mine produced 415,000 tons of copper last year.

In company specific news, Reuters reported that a Chinese firm plans to invest about $3.6 billion in copper exploration and mining in Zambia, reflecting growing Chinese interest in the country’s mineral wealth, a senior investment official said yesterday.

Zambia Development Agency (ZDA) Spokeswoman Margaret Chimanse said Zambia and Zhonghui Mining Group signed an investment agreement on Tuesday.

“The $3.6 billion will be invested by Zhonghui in the first five years (from 2009) and it is likely to be increased depending on economic factors affecting the copper industry,” Chimanse told Reuters.

Source: Copper Hits New High for Year

Fresnillo PLC has withdrawn its offer to buy Mag Silver. Fresnillo has not been able to conclude the independent valuation of Mag required under applicable Canadian securities laws in order to permit the offer to proceed and it is not clear to Fresnillo when or if this will happen. Mag ended the day down C$0.23 at C$5.32.

Victoria Gold bucked the downward trend after reporting a drill intercept of 2.5 grams gold per tonne over 274.3 metres at is Helen zone on the Cove project in north-central Nevada. Victoria added C$0.01 to close at C$0.39.

Shares of Andean American Mining fell C$0.055 to C$0.235 after the company reported that its Invicta project has a projected capital cost of $65.3 million with a net present value at an 11 per cent discount rate of the five-year free cash flow net of debt amortization of $159-million. All this using a gold price of $900 per ounce and copper price of $2 per pound.

Worries that the global economic recovery will be slower than some had been anticipating put pressure on resource stocks. Will we get the usual rebound on Tuesday or will the selling continue? We will see.

Source: Resource Stock Roundup: Tuesday, June 23rd, 2009

In 2008, his fund returned 37%  – in a year where the typical hedge fund lost 19%.

Since last September, Paulson earned nearly $420 million shorting the stocks of some U.K.-based bank stocks – specifically Lloyds Banking Group PLC (ADR: LYG), and the former HBOS PLC (which Lloyds absorbed in January).

Paulson clearly does his homework, and now he’s turned his attention to gold.

In a recent move that garnered much industry attention, Paulson acquired an 11.3% stake in AngloGold Ashanti Ltd. (ADR: AU). At $32 per share, that acquisition set him back a cool $1.28 billion. British mining giant Anglo American PLC (ADR: AAUK) was the beneficiary of Paulson’s acquisitiveness, for it sold Paulson the AngloGold shares from its own stake in that company.

So let’s think about this for a moment. A single transaction shifted a significant portion of ownership, and more than $1 billion in cash, strictly between two parties:  No banks and no stock markets took part in the deal.

Besides his 11.3% stake in AngloGold (the world’s fifth-largest gold miner by market cap), Paulson also owns 4.1% of Kinross Gold Corp. (KGC), making him that gold company’s fourth-largest shareholder.

It seems this prescient investor is in good company, too.  David Einhorn, founder of Greenlight Capital Inc., with $5 billion in assets, also began buying gold earlier this year – for the very first time.

Noted value investor Jean-Marie Eveillard holds $1 billion in a vault near Times Square as “calamity insurance.” What’s more, as much as 8% of his First Eagle Global Fund is comprised of bullion and gold miners’ shares.

In the case of Paulson, the billionaire hedge-fund investor, his exceptional skill lies in his ability to foresee extreme financial episodes. From there, he decides how to position his funds to benefit from a likely outcome.

And that’s why we should all pay close attention to his most recent actions.

The very day after Paulson’s acquisition of AngloGold, the U.S. Federal Reserve announced that it would buy back a total $1.25 trillion of long-term Treasury bonds and Fannie Mae (FNM) and Freddie Mac (FRE) mortgage junk. That is essentially a monetization of the debt.  And that’s a red-carpet invitation for inflationary times (which is also the best time to play gold).

Pure coincidence? Maybe. But it’s a lot more likely that one of the savviest investors of our recent era is really onto something.

Source: If You Follow the (Smart) Money, Gold is Clearly the Smart Play

The U.S. Federal Reserve had been expanding the money supply more rapidly than output for more than a decade, since a policy change in early 1995. That’s why the U.S. economy underwent a series of bubbles, from stocks in 1996-2000 to housing in 2002-2007 to commodities in 2006-2008. Then, when the inevitable crisis hit in September 2008, the Fed began expanding the money supply even more rapidly.

In the six months to March 2, the St. Louis Fed’s measure the St. Louis Fed’s Money of Zero Maturity (MZM), the nearest we can get to the old M3, rose at an annual rate of 16.2%, while the M2 money supply rose at an annual rate of 15.9% (the Fed has stopped reporting the old M3, the best measure of broad money growth). Since price inflation was low during that period and the economy was contracting, almost all that extra money has been pumped straight into the economy.

While the global economy is collapsing, all the extra money will have little inflationary effect. In the United States, however, evidence is building that the economy is approaching the bottom. Consider, for instance, that:

• After several months of decline, the Institute for Supply Management indices were more or less flat in the current month;

• February retail sales – excluding automobiles – were up 0.7%; January non-auto retail sales also being revised upwards to plus 1.6%. We may still have a few months of decline to go, but it seems increasingly likely that the U.S. economy will bottom out around the middle of the year – although the ongoing banking problems and huge budget deficits are virtually certain to prevent a rapid economic rebound. As we’ve said repeatedly, once the economy bottoms out, however, the additional infused capital is likely to serve as a serious inflationary catalyst.

Since September, U.S. Federal Reserve Chairman Ben S. Bernanke has repeatedly warned of the dangers of sustained deflation – and not just a few months of falling prices (which we got in the latter part of last year, thanks chiefly to declining commodity prices), but overall price declines over a prolonged period.

What’s the Market Telling Us?

Recent price statistics make it abundantly clear that deflationary dangers just don’t exist. Both the core consumer price index and the core producer price index were up 0.2% in February, and are well above their levels of February 2008. Notably, one of the major factors was a 1.3% jump in the price of apparel, one import that has been holding prices down for the last decade. In other words, rather than the sustained deflation Bernanke warned about, the latest price figures suggest that we should actually be concerned about inflation, which is clearly starting to accelerate.

Indeed, both the unprecedented budget deficits and the very rapid money supply growth point to an inflation rate of perhaps 10% per annum by the middle of 2010. The latest price-and-output figures suggest that any contrary tendency has disappeared. And that points to a strong likelihood that gold may be due for an additional upward run, which may be quite sharp and happen quite quickly.

The gold market underscored the veracity of my scenario in a very clear fashion yesterday (Thursday): Gold posted its biggest gain in six months after the Fed’s plan to buy debt hammered the U.S. dollar and reignited inflationary fears. Gold futures for April delivery actually jumped $69.70 an ounce, or 7.8%, to reach $958.80.

The yellow metal reached a record high of $1,033.90 an ounce on March 17, 2008 – a year ago this week – when U.S. rate cuts sent the greenback to an all-time low against the euro. Gold prices subsequently declined in concert with most other commodities. It’s up 8.4% so far this year, according to Bloomberg News.

If the hedge funds pile into gold, they will overwhelm the physical gold market, in which 2008’s mine output of 2,407 tons and other supply of 1,061 tons had a value of only about $98 billion at recent prices of approximately $900 per ounce. Gold’s peak price in 1980 of $875 was equivalent to $2,300 in today’s money; it is by no means impossible that the price of gold could soar well beyond that level.

Hedge fund interest in gold was demonstrated Tuesday by the hedge-fund billionaire John A. Paulson, who was probably 2007-2008’s most successful investor, thanks to a strategy to short housing assets that generated profits of more than $10 billion. Now Paulson has gone and bought 11.3% of gold miner AngloGold Ashanti Ltd. (ADR: AU) for $1.28 billion. Paulson’s on a hot streak, so there must be a good chance some of his rich buddies will follow him into the sector; that will inevitably shift the market considerably.

The Yellow Metal Hat Trick: Three Ways to Score From Gold’s Gains

There are three ways to play gold, and you should look at all of them:

• Go for the Gold: Of the three ways to play gold, the first is to buy gold outright, either in bars, or though the gold-linked, exchange-traded fund (ETF) SPDR Gold Shares (GLD). Today, GLD itself holds more than 1,000 ounces of gold, and has a market capitalization of $31 billion. The fund’s price fluctuates in concert with the price of gold, which adds a small mount of risk. On the other hand, however, buying this ETF is more convenient than buying gold bars directly, because the fund dispenses with the accompanying storage problems that comes with actually owning physical gold.

• Bet that Silver Sizzles: The price of silver generally moves in line with gold, but is currently at around $13.50, below its normal historic relationship to the gold price of about 1:30, and therefore possibly offers more upside potential (in 1980, silver peaked at $50 per ounce, equivalent to about $140 in today’s money.) That can be done through the iShares Silver Trust (SLV), which works in a similar manner to GLD, and which has a market capitalization of $3.5 billion.

• Go Deep: Third, you can follow Paulson and buy gold mining shares. I actually don’t like Paulson’s choice much; AngloGold made a loss in 2008 because of inept hedging and is mainly in South Africa, whose political risk I don’t care for. However, your big advantage over Paulson is that you’re presumably not so rich that you have to deploy your money $1.28 billion at a time. Thus, you can buy on the ordinary share market some of the other mines that are cheaper, rather than having to do a special deal with a company like the Anglo American PLC (ADR: AAUK), the British mining giant that sold Paulson the AngloGold shares from its own stake in that company.

A Look at Two Top Miners

Gold mines had a 2008 that was less profitable than you might expect. The price of gold was essentially flat over the year, while the price of oil soared to a peak in July, affecting miners’ costs badly, since fuel represents 25% or more of a mining firm’s total expenses. Only in the fourth quarter, as fuel prices declined and gold prices rose, did mining economics improve – but, even then, many miners were badly affected by write-offs in their copper operations, where prices had collapsed after a long bull market.

However, the good news is that gold prices have risen by almost 10% in the 2009 first quarter from the final quarter of last year, while fuel prices have declined even more; hence, the quarterly results to be announced in April and May could be surprisingly juicy.

So if you’re going to look at actual miners, here are two to consider carefully:

Barrick Gold Corp. (ABX) is the largest and financially strongest gold producer, with a market capitalization of $29 billion, reserves of 124.6 million ounces of gold (plus copper and silver), and operations in North America, South America, Australasia and Africa. It took a fourth-quarter charge of $779 million – because of its copper operations – but was otherwise profitable in 2008, with revenue rising 10%. For 2009, it should benefit from rising gold prices and declining costs; it currently sells on a prospective Price/Earnings ratio of 13.7, but of course as gold prices rise, earnings will rise on a leveraged basis.

Yamana Gold Inc. (AUY) is an expanding gold producer with a $6.8 billion market capitalization that made an unexpectedly good profit in the fourth quarter of 2008, and that is expanding both production and reserves (currently 19.4m ounces) with operations in Canada and Latin America. Its expansion increases its likely benefit from rising gold prices; Yamana’s shares currently trade at a forward P/E of about 12, but earnings should rise sharply if gold prices rise.

Source: Three Ways to Profit as Inflation Causes Gold Prices to Increase

Nickel was down all day long, barely coming off its intraday low to close at $4.2502/lb., down more than 17 cents. Zinc fell in the pre-dawn hours, rallied into the afternoon, but then lost it all and ended at its intraday low of $0.4785/lb., down a penny and a half. Aluminum was also a daylong loser, giving up a penny and a third, to $0.5736/lb., while lead plummeted to $0.4553/lb., down 2½ cents.

Copper posted another weekly decline, as skyrocketing stockpiles served as a stark indicator of global economic weakness.

Inventories monitored by the LME surged 17,350 metric tons yesterday, to 545,600 tons, a more than 5-year high.

The build in inventories “took some support away,” wrote Michael Widmer, an analyst at BNP Paribas in London. “In addition, purchasing managers in Europe were very weak. There are also concerns over economies in Eastern Europe.”

Norddeutsche Affinerie AG, Europe’s largest copper refiner, also alluded to the “unwillingness of investors and copper processors to take risks.” No surprise there, of course.

In Shanghai, copper inventories fell 11% from a week earlier to 30,105 metric tons. This was the first decline since mid-January, but back then stockpiles were just half the current level.

The International Copper Study Group said yesterday that the global copper market showed a supply surplus of 47,000 metric tons in November 2008, compared with a surplus of 38,000 tons in October.

The ICSG also reported that, for the first nine months of 2008, the market saw a production surplus of 147,000 metric tons, only slightly higher than the surplus of 143,000 tons during the same period of 2007. World refined copper usage in the first eleven months of 2008 increased by 2.6%, or 421,000 tons, year-over-year.

In company news, Brazilian mining giant Vale (NYSE:RIO) said on Thursday its net profit more than doubled in the fourth quarter as cost controls, production cuts and a weaker local currency helped it offset weaker demand for metals.

But miner Anglo American (NASDAQ:AAUK) suspended its dividend for the first time since World War II and announced job cuts, saying it expects weakness in commodity prices to continue.

Source: Base Metals Bleed

Over the past few months, China has capitalized on the financial turmoil that has paralyzed the world’s “developed” economies by stocking up on cheap commodities, weeding out competition to its largest state-run companies, and acquiring even more foreign assets.

Indeed, with China’s economic growth projected at an enviable 8% for this year, that country’s government has been able to spend less time promoting immediate growth and liquidity, and more time preparing for the economic renaissance that almost certainly seems to be the Asian giant’s destiny.

By exposing Western free-market capitalism, undermining the United States economic clout, and eviscerating commodities prices, China is using the financial crisis as the perfect opportunity to advance its domestic agenda.

That agenda begins with the recently unveiled $586 billion stimulus plan – a plan primarily focused on infrastructure.

China’s financial institutions have little or no exposure to the toxic subprime assets that spawned this current global crisis. Thus, instead of having to spend hundreds of billions of dollars to bail out its banks, China can choose develop the stage on which it will display its future economic might.

And the first phase of that plan is key: Before its plans for a massive infrastructure overhaul can be realized, China must first load up on the raw materials crucial to its execution.

With Prices Down, China’s Stocking Up

Prices for commodities like aluminum, copper, iron ore and oil are all down substantially from last year as the global financial crisis has torpedoed demand. And now that prices have gone down, China’s commodities stockpiles are going up.

Imports of copper, iron ore, and oil all rose in December, as China took advantage of low commodities prices:

• Iron ore imports were up 6.2% in December, on a year-over-year basis.
• Copper imports were up 19.3%.
• And imports of crude oil climbed 11.6%.

“The authorities are thinking about the issue from a strategic point of view,” a senior researcher at China’s State Reserve Bureau (SRB) told Reuters. “As almost all raw material prices went sky-high in the last few years, China has not built up some of the key state reserves. Now is a much better time to stock up.”

The government announced last month that it would purchase of 290,000 metric tons of aluminum from eight of the nation’s largest smelters at about $1,806 a ton. And on Jan. 13, representatives from the SRB again met with domestic smelters, this time to discuss plans to build a stockpile of up to 300,000 tons of zinc – a metal used in galvanized steel.

A 300,000-ton zinc reserve could cost about $494 million (3.36 billion yuan), based on recent spot prices of $1,630-$1,640 a metric ton, as quoted on the Shanghai Nonferrous Metals Market.

Market participants speculate that the government is also mulling a 200,000-ton copper reserve, now that prices for that metal have tumbled more than 50% from a record $8,940 a metric ton last year.

“China will buy copper for its reserves,” SRB Executive Director and Vice President Wang Chiwei said at a conference in Shanghai.

Prices right now are “attractive,” Wang added, noting that purchases would “suit national interests.”

Chinese copper demand is expected to grow moderately in 2009, despite the global downturn.  Officials expect growth of just over 2% next year, but Barclays Capital (ADR: BCS) analyst Yingxi Yu told Forbes that demand growth could be closer to 3.5%.

The SRB may increase stockpiles of copper by as much as 74% in the next two years, Scotia Capital Inc. predicted in October.

China Digs for Bargains Down Under

Of course, China’s recent drive for raw materials is only half the story.

China is already home to the world’s largest population; now it is on the fast track to passing Japan as the world’s second-largest economy. Access to resources will continue to be a priority in Beijing for decades to come, even long after the $586 billion stimulus plan is forgotten.

That’s why China isn’t just using the global financial crisis as an opportunity to stock up on raw materials, it’s also loading up on foreign companies and assets while it is flush with foreign reserves. And while prices are cheap.

As they struggle with sluggish demand and falling commodities prices, many distressed foreign mining companies and materials suppliers have suddenly found themselves with a generous foreign backer.

In December, China’s third-largest zinc producer, Zhongjin, bought a 50.1% stake in Australian zinc miner Perilya Ltd. for $32 million.

Perilya has found “a strong and well-funded strategic partner committed to the long-term development of Perilya’s assets,” the Perth-based miner said in a statement. The deal included an initial cash deposit of $6.5 million.

Perilya’s deal followed that of Albidon Ltd., which started producing nickel in Zambia just as nickel prices crashed. Albidon raised $5 million from China’s Jinchuan Group, Asia’s largest nickel producer and a shareholder that now owns 18% of the West Perth-based Albidon. But more importantly, Jinchuan will take 100% of the nickel the Zambian mine produces over the rest of its life.

State-owned companies like Zhongjin and Jinchuan have access to China’s massive cache of foreign exchange reserves, which allows them to make acquisitions at a time when few other companies have the resources to facilitate a merger. And while China has focused much of its attention on undeveloped mining assets in Africa, the current financial crisis has opened the door to a wider range of takeover possibilities.

“The Chinese realize there are massive opportunities in the market,” Keith Spence, president of Global Mining Corp. (OTC: GBGD), told The Financial Times. “A year ago, they were going to Africa to acquire early-stage development assets. But now they are looking for larger tonnage, longer life, later-stage assets. There is less of an emphasis on emerging markets, because now there is choice.”

So far, Australia has been the country most often targeted by China for strategic investments.

Australia’s Centrex Metals Ltd., Mount Gibson Iron Ltd., Gindalbie Metals, and Grange Resources Ltd. have all struck deals with Chinese companies in the past year, The Australian reported.

• Centrex Metals sold a 50% interest in two magnetite deposits to Wuhan Iron & Steel Co. Ltd., China’s third-largest steelmaker for $180 million.
• Mount Gibson Iron brokered a rights issue and share placement to Chinese interests, with two major companies taking a stake of as much as 40% in the miner, while also securing discounted off-take agreements.
• Angang Steel Co. Ltd., also known as AnSteel, China’s second-largest steelmaker, paid $162.1 million to boost its stake in Gindalbie Metals from 12.6% to 36.28%.
• And Grange Resources is currently set to merge with Australian Bulk Minerals, which is majority-owned by a Chinese steelmaker.

Peter Vaughan, a partner at Blake Dawson, a Melbourne-based law firm, told The Australian that major Chinese steel mills kicked off a “wave of investment” in Australia from early 2000 – when China’s global economic clout began first started to build. Vaughan said this trend will continue deep into the current year as depressed asset valuations stack the deck in China’s favor.

“China is now in a much stronger bargaining position than they have been in the last few years,” Vaughan said. “Conditions have previously been in the producer’s favor, but demand drops and the tables turn. The Australian resources sector is now a lot cheaper to place an investment in.”

Denis Gately, head of the resources and energy industry group at Minter Ellison, one of the largest law firms in the Asia-Pacific region, agreed that Chinese enterprises are among the few that have the wherewithal to acquire prized foreign assets.

“They have recognized they are the only people in that position and will likely wait until prices fall further south,” Gately said. “The Chinese have an enormous amount of clout as the only potential buyers.”

In addition to building stakes in smaller miners, Chinese companies will be using that clout to build upon stakes in larger mining giants, which every bit as desperate for cash as their smaller counterparts.

Aluminum Corp. of China (ADR: ACH), or Chinalco, for instance has authorized a special team of analysts to watch for an opportunity to increase its stake in Rio Tinto PLC (ADR: RTP) to the maximum 14.99% allowed by the Australian government.

“We have a special team monitoring Rio Tinto’s performance and market movements in real time and will evaluate the best timing to do the stake increase,” Youqing Lu, the vice president of Chinalco, told dealReporter. Chinalco teamed with Alco last year to acquire a 12% stake in the mining company.

Chinalco is one of ten Chinese companies considering further overseas mergers and acquisitions, Xinhua, China’s official news agency reported.

“The crisis presents a rare opportunity for our domestic companies to initiate cooperation with foreign enterprises,” Xiao Yaqing, Chinalco general manager told Xinhua. “When the time is ripe, overseas acquisitions, strategic investments and joint development could all be considered.”

Canada to Profit From ‘China’s New Deal’

There is no question that, given its proximity to the Chinese mainland, Australia will continue to play a vital role in quenching China’s thirst for commodities. But on the other side of the globe, junior mining companies and exploration firms in Canada are hoping to attract prized Chinese investors.

In fact, the Canada China Business Council (CCBC), Canada’s most influential organization in terms of influencing Canada-China trade relations, recently released a report detailing ways Canadian businesses can profit from China’s recent infrastructure initiatives.

The report, entitled “China’s New Deal: Will Canada Benefit From China’s RMB 14 Trillion Stimulus Package,” was released earlier this month. The study details China’s stimulus-spending plan, and outlines areas in which Canadian companies can support Chinese development by providing resources and technology.

“As one of the world’s leading resource exporters, Canada will definitely benefit indirectly from the Chinese stimulus plan,” the Jan. 9 report said. “As well as energy, other resources such as wood, steel, nickel, copper and aluminum will be in demand. There also will be collateral benefit for Canadian transportation companies and the ports authorities.”

It hasn’t taken Canadian companies long to heed the report’s message, or its wisdom.

Earlier this week, for instance, China’s Tongling Nonferrous Metals Group took a 13% stake in Canada Zinc Metals Corp.

Prior to that, China Mining Resources Group Ltd. announced that it would increase its stake in Canada’s Quadra Mining Ltd. from the current 4.02% to a maximum of 19.9%.

D’Arianne Resources Inc. (PINK: DARUF), a Canadian exploration company, could be next to announce a deal with Chinese partners, as it recently reported strong results from its Lac a Paul phosphorous-titanium property.

“As of today, the very encouraging results coming from this first serious exploration campaign on the Lac a Paul project combined with the interest showed by foreign companies during our visit in China, undeniably confirm the potential of our phosphorous project,” D’Arianne Resources said in a statement.

Finally, Canada has the largest-and highest-quality uranium reserves in the world, making it the ideal partner in China’s quest to develop clean reliable energy.

Delta Uranium Inc. (PINK: DLTUF), engaged in the acquisition, evaluation and exploration of uranium in Ontario and Newfoundland, could also be high on Beijing’s target list.

More than 40 developing countries have recently approached United Nations officials to express interest in starting nuclear power programs. And China alone is planning to build 30 new plants in the next 15 years – a venture that will consume an estimated $50 billion in capital. All told, the country may require as many as 200 plants by 2050.

As with Australia, depressed commodities prices have opened the door to investment in major mining corporations, as well as in juniors in the Canadian market. That means the Saskatoon-based Cameco Corp. (CCJ), the world’s largest uranium producer, could also be in line for a large capital infusion.

“If I’m China Inc., and I have $10 billion, would I buy 60% of Xstrata (PINK: XSRAF), or a lot of reserves out in the middle of nowhere?” Kalaa Mpinga, chief executive of Mwana Africa PLC, a London-listed junior, told The Financial Times. “If I had all these billions, I would do this: Buy 15% of Anglo-American PLC (ADR: AAUK) and get a seat on the board.”

Source: What Companies Are Profiting From China’s Commodities Crusade?

Nickel advanced from the pre-dawn hours to noon, then fell off into a close at $4.3643/lb., up 11 1/3 cents. Zinc had a steep drop into the New York open, followed by an equally steep uptrend, ending at $0.4841/lb., up a half-cent. Aluminum had an up day, adding a penny, to $0.6641/lb., while lead was also in positive territory, gaining a half-cent, to $0.4427/lb.

Copper languished near a four-year low in scanty trading, as new data reinforced perception of a global slowdown. Copper supplies outpaced demand by 30,600 metric tons in the first 10 months of the year, the World Bureau of Metal Statistics said yesterday.

“There is no doubt that the outlook for metals demand over the next few quarters is grim,” wrote analysts at Barclays Capital. “Copper is the metal we would identify as having the furthest downside potential from current levels.”

Considering that copper is already down 55% on the year, that’s a mighty grim forecast indeed.

Compounding the gloom is the ongoing stockpile glut. Inventories monitored by the LME shot up by another 3,275 metric tons yesterday, to 321,900 tons, and are now up by 63% in 2008.

And it will only get worse in 2009, the Barclays analysts wrote. They projected that copper demand will lag behind production next year to the tune of a surplus of 144,000 tons of metal. That’s in stark contrast to this year’s estimated shortfall of 60,000 tons.

In company news, Anglo American (NASDAQ:AAUK) announced it is cutting planned investment by more than half as lower prices won’t support its $45 billion expansion program. Anglo joins Rio Tinto (NYSE:RTP) and Freeport-McMoRan (NYSE:FCX), in taking steps to reduce output and trim expansion..

Yet not everyone sees only dark clouds. Bernd Drouven, CEO of Norddeutsche Affinerie, Europe’s largest copper refinery, said yesterday that he expects relatively stable 2009 copper demand, although it will be lower overall than in 2008. He expressed optimism about China, as well as Eastern Europe, where large infrastructure improvement programs are underway.

Source: Base Metals Little Changed

This from Taipan Daily’s Emerging Markets blog:

Right now, copper spot prices are an anemic $1.65 per pound. That’s an amazing drop from above $4 back in June.

And yet, one Chilean copper mine is actually expanding.

The mine is called Dona Ines de Collahuasi. It’s Chile’s third largest copper mine and is located in an historical copper mining area. Back in 1880, a large, high-grade copper and silver vein was found. It’s one of the world’s largest copper resources.

Right now, the mine produces roughly 440,000 tons of copper a year.

But the mine has just approved a $64 million project that will increase annual output by 30,000 tons. And that’s just the first expansion.

At the end of the first quarter of 2009, a $750 million expansion plan will boost production to 650,000 tons a year. After that expansion is complete, the mine intends to increase production to a full one million tons of copper a year by 2014.

That’s an astounding move.

And one that will need some major financial backers, particularly if copper prices don’t recover. It’s a good thing some big companies own this mine.

I’m talking about Anglo American (Nasdaq:AAUK) and Xstrata (LON:XTA), each with a 44% stake. There’s also a Japan’s Mitsui (Nasdaq:MITSY), owning 12%.

The CEO of the mine, Jon Evans, told the newspaper Diario Financiero, “The mid and long-term plans are the same, therefore our expansion plans are also the same.” Which may pay off in the long run… If it can survive depressed copper prices.

And copper prices have continued to fall, despite a huge cash injection by China to its economy. China is the largest user of many of the industrial metals, like iron ore, aluminum, zinc, and, of course, copper.

So with China’s economy slowing (albeit to 7.5%), the country will use less of those materials.

Now, China’s been part of the reason why copper prices had more than doubled since 2002. If Chinese demand continues to slow, that could mean a long time before we see copper prices begining to climb again.

Which would mean that Anglo American, Xstrata and Mitsui will have to wait for the returns on these major expansion.

But it would also mean that they’d be ahead of the game once things begin to turn around… If they can afford it.

Source:Copper: Chilean Investment Still Expanding

It’s just a matter of time before core inflation starts rising alongside corn, wheat, beef and prices at the pump.

Ordinarily, the Fed would start raising rates to stave off higher prices.

But Bernanke really doesn’t want to be an inflation hawk right now. Raising rates would only make the already weakening economy weaker still. (Never good in an election year).

If Bernanke has to choose between a weaker economy and moderately higher inflation, I believe he will choose higher inflation, hoping that he can put the genie back in the bottle once the economy is growing again.

Since gold traditionally rises with inflation, that means now is probably a good time to add to your holdings.

Here are the essential facts:

At one time the world’s monetary system was based on gold. It is a universally recognized store of value. It can be bought and sold in any country.

And it is scarce. There are 4 billion ounces of gold in people’s hands, enough to fill a cube 60 feet on a side. Of this, investors own 1 billion ounces, and central banks another billion, with the remaining 2 billion ounces accounted for by jewelry and other baubles.

Last year, more than 80 million ounces were extracted worldwide. Two-thirds went to jewelry makers and the rest to bullion.

If you want to own gold that you can touch, you can buy bullion. But there will be a markup when you buy it or unload it – and fees to store and insure it. The same is true of coins, especially with numismatics.

Understand, too, that while gold has been in a major uptrend over the past few years – hitting an all-time high of $1,030.80 on March 17 – shares of the natural-resource companies that bring the gold to market have performed considerably better. That isn’t likely to change.

Over the past 50 years, major gold mining companies have risen at an annual rate of approximately 12%. That’s better than the return of the Standard & Poor’s 500 Index, although the trade-off has been head-snapping volatility along the way.

Perhaps the most conservative way to buy blue chip mining companies is to plunk for a few shares of Market Vectors Gold Miners (GDX) Exchange Traded Fund.

An ETF, Market Vectors is linked to the AMEX Gold Miners Index and owns all of the world’s leading gold and silver mining companies. That means you can capture the performance of the entire sector in a single, well-diversified investment.

The annual expense ratio is one half of 1%. The shares can be margined or sold short – and there are options available for traders.

Here are some of the stocks among the Top 10 holdings:

• Newmont Mining Corp. (NEM).
• Freeport McMoRan Copper & Gold Inc. (FCX).
• Barrick Gold Corp. (ABX).
• Anglo American PLC (ADR: AAUK).
• Harmony Gold Mining Co. (ADR: HMY).
• Kinross Gold Corp. (KGC).
• Yamana Gold Inc. (AUY).
• Gold Fields Ltd. (ADR: GFI).
• Agnico-Eagle Mines Ltd. (AEM).

Right now the economy is weak – and the outlook for inflation is poor. But this is creating plenty of profit opportunities – if you know where to look.

So pick up a few shares of Market Vectors Gold Miners ETF – or talk to a resource broker.

Tell them Ben Bernanke sent you…

Editor’s Note: Alexander Green is Investment Director of The Oxford Club and Chairman of Investment U. To get Green’s actionable investment ideas three times a week – at no charge – sign up for the Investment U e-letter. If you join for free today, they’ll send you their latest special commodities research report: “Five Million Reasons to Load Up On Coal Now – and Three Easy Ways to do it.” You’ll find out why the standardized shipping container is driving coal demand through the roof -and how that’s delivering literal “boatloads” of profits to three companies. Just click here to have your report delivered in less than two minutes. Again, the report, and the service, both are free of charge.

Alexander Green appears as a guest author on today’s Money Morning.

Source: If You’re Prospecting for Gold, Tell Them Ben Bernanke Sent You

FIFA and UEFA (that’s Fédération Internationale de Football Association and Union of European Football Associations to non-football folks) are becoming increasingly vocal about South Africa economic woes.

You see, South Africa’s having a bunch of problems this year, and some authorities are saying the problems aren’t going away anytime soon. Here’s what I mean…

– GDP growth came in a 2.1% (compared to expected growth of 4%) in Q1 2008.
– Inflation hit a five-year high of 10.1% year-on-year in April (interest rates were raised to 11.5%).
– Unemployment is incredibly high (at between 20% and 40% – that’s official vs. unofficial numbers).

But for the soccer organizations perhaps the worst drawback is South Africa’s undependable electricity supply.

In January 2008, Eskom Holdings Limited (ESKAY:OTC), South Africa’s state-owned electricity company, began cutting power exports because of shortages at home. Since then, reports have been flooding in that Eskom is “load shedding” in South Africa’s middle-class suburbs. Load shedding is abruptly cutting power when demand exceeds supply.

Those power problems could persist for the next 10 years, and that’s precisely what FIFA and UEFA are concerned about. Of course, this problem is not strictly isolated to soccer.

It could lead to job cuts at South Africa’s massive mines, and companies like Gold Fields, Inc. (GFI: NYSE) and Anglo American (AAUK:NASDAQ) could be cutting jobs and losing production. And that’s been leading to social shake-ups and as many as 68 people have died in socio-economic violence.

South Africa’s stock market has been riding high. In fact, it has more than tripled over the last few years.

But the bad news out of Cape Town is about to bring it all crashing down… However, as with most crisis situations, there are hidden opportunities. (In fact, savvy investors are already positioning themselves for a quick 129% gain.)

South Africa is fighting to dispel rumors that it could actually lose the 2010 World Cup. Unfortunately, Eskom’s load-shedding incidents are occurring at least four times a week and are starting to decimate South Africa’s economy.

Cape Town had been warned that these power shortages were coming. Eskom had informed President Thabo Mbeki that it needed more investment dollars to increase capacity. But the government didn’t listen. Now, South Africa is sinking… and the problem is getting worse.

Anglo American (LON: AAL), the world’s largest producer of platinum, says prices will soar by 50% due in part to power supply problems in South Africa. Platinum production could fall by 200,000 ounces this year, wiping out $397.4 million in revenue.

Gold Fields (NYSE: GFI) says that South African gold production could fall as much as a staggering 25% drop because of these power cuts. The industry would have to cut nearly 7,000 jobs.

To top it all off, Eskom is trying to increase its tariffs by 53% to help fund massive investment projects to increase its generating capacity. But the government is broke, and the South African Reserve Bank was forced to raise interest rate to 11.5%.

This is just the beginning. Eskom has confessed that South Africa will face power shortages for the next five years.

Bottom line: South Africa’s power problems are crushing the South African economy and the entire country is going to feel the pain.

GDP growth came in at half its expected rate in the first quarter of 2008. At the same time, inflation hit a five-year high. And worst of all, unemployment is at a startling 20%!

With no end in sight, foreign investment is bolting from South Africa… and the stock market gains of the last few years are about to implode.

Take a look at the chart below. It’s from Sara Nunnally, editor of Taipan Trader.

According to Sara’s research, the South African market has crossed into dangerous territory. It will not only likely fall… it will tumble hard!

Now if you’ll recall I mentioned that buried in every crisis is a hidden opportunity. Sara has isolated a safe, simple investment that will soar as South Africa’s market tumbles. In fact, Sara expects it will return a 129% gain.

This investment is easy to buy. In fact, you can own it without sending a single dime overseas.

Now here’s the thing: Sara’s research is spot on. Most every time she makes a prediction about an event happening in a foreign country, it comes true. She is the group’s most knowledgeable source on building wealth through foreign markets.

While Sara has already recommended this investment to her Taipan Trader readers, it’s not too late for you to participate in these gains.

For more details, please visit the Taipan Trader web site.

–Sandy Franks

Source: Upcoming World Cup Reveals That South Africa is in Shambles: 129% Profit Strike on the Horizon!