For the tale of the tape, the TSX Exchange rallied 1.15%, while the TSX Gold Index added 0.5% and the TSX Venture Exchange, Canada’s largest junior exploration bourse, lost 0.08% with the declining issuers inching past the advancers by a 533 to 497 margin on volume of 182 million shares traded.

It was a good session for shareholders of VMS Ventures. The company recently announced another hot drill hole at its Reed Lake base metal project in Manitoba and adopted a shareholder rights plan. VMS ended the day up C$0.12 at C$0.85.

B2Gold tabled some nice numbers from its Quebradona joint venture property in Colombia. Highlights included hole 2, which returned 52.7 metres grading 1.36 grams gold per tonne, 2.1 grams silver and 0.144% copper. By funding the 5,000-metre drill program, B2Gold will earn a 51% stake in the property from AngloGold Ashanti. B2Gold closed unchanged at C$1.40.

High Desert Gold, which is trading at a value of around half its cash in the bank, fought off the sellers by announcing a normal course issuer bid paving the way for the company to buy back up to 10% of its public float or about 3.4 million shares. High Desert ended the day up C$0.035 at C$0.185, which is still well off its C$0.30 cash value.

As we wind down the month of May, knowledge once again looks key to making money on the Canadian markets as only select issues are moving higher. We will see what Thursday trading has in store.

Source: Resource Stock Roundup: Thursday, May 29th, 2008

In the U.S., gold majors like Newmont and AngloGold are widely held and fully valued. Australian mining giant BHP Billiton is now a regular holding of big mutual funds. Most people can look at their electric bill and realize the prices of coal and natural gas have soared in recent years. Share prices of the big coal and natural gas producers have climbed in response.

In other words, after years of commodities climbing in price, everyone wants to own them. That’s what makes the story of the Pilbara so amazing…

The Pilbara region of western Australia looks a lot like stretches of Utah… burnt oranges and reds highlighted by spinifex, a bushy grass unique to Australia. But the special thing about this place from an investor’s perspective is this: The Pilbara is home to the world’s single largest deposit of high-grade iron ore… more than 34,000 million tonnes of it. It’s enough to supply the entire world, at current rates of demand, for the next 300 years… and it’s enough to turn the Pilbara into ground zero in the world’s commodity boom.

For years, big mining companies like BHP and Rio Tinto had a lock on the Pilbara’s richest deposits. But not all of them.

The slightly lower-grade ores elsewhere in the Pilbara, or the ones that were simply too far away from BHP’s and Rio’s existing rail and port networks, were left untouched. Now, though, with contract iron ore prices up 320% since 2003 (by comparison, gold is up “just” 147%), it’s a whole different story in the Pilbara.

These days we focus a lot on the importance of energy to our comfortable way of life. But the industrial skeleton on which the infrastructure of a modern economy rests is made of iron and steel. Nations that have it become great. Nations that don’t have it will do just about anything to get it.

Right now, China is doing anything to get it.

China has gone from being a net importer of steel to a net exporter in the last six years. According to the China Iron and Steel Association, China produced 151 million tonnes of steel in 2001. This year, China is on track to produce nearly 540 million tonnes of steel, a 205% increase in six years. China is now the world’s largest steel producer… with an output over three times larger than No. 2, Japan.

To produce steel, you need iron ore. Australia is home to 16% of the world’s iron ore reserves.

China imported 115 million tonnes of Australian iron ore in 2002, 148 million in 2003, and 208 million in 2004. It imported more than 240 million tonnes in 2005, 326 million in 2006, 384 million in 2007, and is on pace to import nearly 453 million tonnes this year. Those imports amount to more than 42% of global iron ore exports.

China needs all that ore to make all that steel because its economy is still rocketing along at 11% growth, according to the latest figures. You can never quite trust government figures, of course. It could be more. It could be less. But either way, it’s a lot… and it’s making Australian miners a fortune right now.

As we enter 2008, Australia is exporting iron ore, coal, gold, and other commodities to the tune of A$117 billion in earnings, according to the Australian Bureau of Agriculture and Resource Economics (ABARE). ABARE projects export earnings of A$20.2 billion for iron ore producers alone.

Just how big those earnings will actually be depends on the new contract price for iron ore in 2008. Right now, there isn’t a new contract price between Aussie ore companies and Chinese steel makers. In late February, China’s biggest producer, Baosteel, agreed to a 71% increase with Brazilian ore giant Vale.

But Chinese steel producers are stubbornly holding out against the even bigger increase Aussie producers are asking for. The Australians want at least an 85% increase and want to include a “freight premium” that reflects the lower cost of shipping Aussie ore to China.

The clock is ticking… An 85% increase over last year’s contract price of $83.40 a tonne would put the 2008 price at $154.29, about 14% higher than the $132.20 Baosteel agreed to pay Vale. If no agreement is reached by the end of June, Aussie firms are free to sell iron ore in the spot market, where Indian ore has traded between $120 and $150 over the last six months.

This is great news for the Pilbara and its junior iron ore stocks. In fact, the anticipation of higher iron ore prices and Chinese demand has already pushed some iron ore juniors up on the year. The third major player in the Pilbara, Fortescue Metals, is up 60% year-to-date and is a prime buyout target for Chinese investors. Midwest Corporation is up 30% and may soon become the first Australian company to fall to a hostile Chinese takeover.

It’s not just big miners like BHP Billiton and Rio Tinto that stand to profit from the bull market in steel. With or without a new contract price by June 30, a whole new gang of junior ore stocks will benefit from a market that just keeps getting bigger… and for investors, better.

Good investing,

Dan Denning

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Source: The Last Secret Left in the Mining Industry 

When the tech funds show up to buy in the Non-Commercial category, then we’ll have a sustainable rally. But without them, it was another light volume day on the Comex yesterday

Open interest on Tuesday was as follows…gold o.i up 1,438 contracts and silver o.i increased by 434 contracts. As you can see here…and as I’ve said before… when volumes are this wafer thin, it doesn’t take much activity to alter the price in either direction. That’s why I’m not prepared to read too much into the price action of either metal right now.

Further to the news about Anglogold reducing their hedge book, the article over at resourceinvestor.com contained this interesting set of figures concerning most of the major outstanding hedge positions and the companies that own them. It’s certainly worth a look. As I’ve said before, the most egregious offenders have always been Barrick and Anglogold. This set of numbers certainly proves that.

In other gold news, I see in a Wall Street Journal story posted at lemetropolecafe.com that Congress is unlikely to take action on IMF gold sales this year. The article also noted “that Congressional reaction to the IMF’s plan to sell gold is ultimately likely to be far less confrontational that in the past.”

In the King Report last night was the following Dow Jones story…” Merrill Lynch reported on Tuesday that its Level 3 assets (mark to myth – Ed) soared almost 70%, to $82.4B from $48.6B at year end…to end Q1. Get this self-incriminating statement from Merrill: “During the first quarter of 2008, there was a decrease in the liquidity for these products, resulting in the increased use of unobservable inputs to derive their fair value.” An ‘unobservable input’…isn’t that nice! I don’t remember ever learning about those sorts of things in my Advanced Managment Accounting class at the University of Alberta way back when.

As per usual, I have a couple of stories today. The first concerns the upcoming IMF gold sales. The Yahoo News story is preceded by an editorial on this issue by the senior editor of the Journal Enquirer out of Manchester, Connecticut…Mr. Chris Powell…who also just happens to be the secretary treasurer of GATA. The dispatch is entitled “Is the IMF trying to recover its gold by pretending to sell it?” and is linked here.

The second story is from Bloomberg and is an update on the “3 Stooges” comedy/tragedy/farce between GMAC, ResCap and Cerberus Capital Mangement. You might need a program to keep up, but I get the impression that unless they’re bloody careful, they could all go down together. The story is entitled “GMAC Buys Time for ResCap Unit as Bankruptcy Looms” and is linked here.

I am a firm believer in the people. If given the truth, they can be depended upon to meet any national crisis. The great point is to bring them the real facts. – Abraham Lincoln

Well, after six months or more of twisting in the wind, the city of Vallejo, California threw in the towel yesterday and voted itself into bankruptcy. It’s the first city to do so in this credit crunch, and it’s a given that it won’t be the last. Then it will be of interest to see which state goes belly up first…and how far after that…the late, great USA herself follows suit. It makes me sad.

See you tomorrow.

Open interest for Monday was, once again, of the rather strange variety. Despite the wonderful gains in both metals on that day, there was a divergence between them. Gold o.i. rose a respectable 3,669 contracts on the back of its $16 gain, but silver o.i. fell 314 contracts…despite the fact that the price rose 35 cents. Don’t ask me what that means, as I’m just the messenger.

A few things of interest in the way of gold and silver news. I see that Anglogold has decided to dilute its current shareholders by issuing more stock to raise $1.6 billion to close out part of its hedge book. Yesterday they announced a reduction in hedges during the last quarter to the tune of about 1.25 million ounces…bringing their hedge book down to about 10 million ounces. That extra $1.6 billion will buy them out of an additional 1.8 million ounces of hedged production. They (and their shareholders) have still got several more years of pain to go before they get their utterly disastrous hedge book paid off.

I also note that the IMF decision to sell 403 tonnes of gold was approved at their meeting in Washington. Let’s see how the U.S. Congress votes on this.

In silver, Ted Butler informed me that the huge buyer(s) of the silver ETF…SLV…were out in force again yesterday, after taking Friday off. Ted figures that the silver ETF is now owed somewhere between 5 and 10 million more ounces to bring the physical inventory into line with the number of shares sold recently. It will be of interest to see how long it takes to find this amount. The other question is…who’s buying?

I have another couple of stories today. The first is from Michael Kosares over at USAGold.com. In his commentary, he speculates that the European central Bank has begun to intervene surreptitiously in the currency markets to halt the Euro’s rise, and that gold’s recent fall can be largely attributed to this. The essay is entitled “Has Europe Declared War on the Weak Dollar?” and it’s linked here.

The second story comes from “Sin City” itself…Las Vegas. This story gives you some idea how fast and how hard this recession is hitting the US…and how quickly discretionary spending is evaporating as the consumer gets squeezed. The story is out of Newsweek and is entitled “Down on Its Luck” and is linked here.

As a sidebar to this story, there was a report in The Wall Street Journal yesterday that the famed Tropicana Resort & Casino in Las Vegas has sought Chapter 11 bankruptcy after missing an interest payment on a $1.32 billion loan to Credit Suisse Group last Friday.

Reason obeys itself. Ignorance submits to what is dictated to it. – Thomas Paine

Another day of worse than awful news…and another up day for the Dow. Up is down and black is white…and there are so many pigs with lipstick. So don’t worry… and be happy…because everything is fine.

See you tomorrow.

Costs, in general, have been hard to contain. Understandably, given the power cuts and safety issues, South African stocks have performed particularly badly. But in general gold shares have underperformed.

So is this now a buying opportunity? Investec Asset Management seems to think so – but with some reservations.

For once Erin and I agree. Small to medium sized gold producers (not explorers or developers!) with rising unhedged output that have a tight rein on costs are the ones to watch. If all goes well these are the ones whose earnings should rise more than gold, says Investec’s Daniel Sacks. And it’s these players, too, that could well be bid targets for the sector’s heavyweights.

Majors eye junior producers

Take AngloGold Ashanti. It might do well if it bought out an unhedged smaller producer. In a preliminary results presentation AngloGold’s Aussie chief, Mark Cutifani, admitted that, if the gold price hung around $900, this miner would receive “significantly lower than the spot price” in 2008.

AngloGold has sold up to 60% of its future output at well below the current spot price for gold. As much as 20% lower! And that is based on a gold price of around $900. This gold major has a hedge book of some 10.4million ounces at the end of 2007, the largest among gold producers.

It couldn’t be much worse, say analysts. To buy out the hedge book, AngloGold would need a staggering share issue of roughly a third of its equity. Worse still, if mines continue operating at 90% power, 400,000 of AngloGold’s glittering ounces will remain buried. So getting rid of the hedge book sooner rather than later seems unlikely.

Unless, of course, it takes out a smaller producer!

The world’s number one, Newmont, is another that might do well to look for juniors. Here is a company that has struggled to top up its already mined reserves. So, small-fry producers and explorers have been in frame. And why not! Why reinvent the wheel? If somebody else is further down the track and doing it better, that seems the obvious thing to do.

Tight on the purse strings

So which of these small to medium companies might be good bid targets for the big boys? Could it be London-listed Randgold Resources? Or perhaps one of Canada’s juniors, Kinross Gold or Great Basin Gold.

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Ferdi Dippenaar, president and CEO, reckons that come 2008 Great Basin will start delivering golden ounces from the Hollister site in Nevada. “This is our year of delivery,” he has been quoted saying. In the first year 80,000oz are expected, with 160,000oz expected for the next six years at a cash cost of US$214/oz. But rumour has it that Barrick and Newmont are in talks with Great Basin. Apparently, they want to acquire Hollister to boost their reserves.

Given the estimated resource at its Burnstone property in South Africa, perhaps this is where the focus should be. After drilling 245 holes in 2007, measured and indicated resources are said to be 11m ounces. Roughly 2m ounces have been added to inferred resources category. So no reserves yet! But the company has completed a feasibility study which estimates and average of 254,000 oz of gold for 19 years! And it could be made a much bigger project. Mr Dippenaar has said Burnstone 2 and Burnstone 3 are certainly an option!

The good thing about Great Basin is that its balance sheet is strong – it has no debt and has funding to the tune of US$57m. That means it is able to finance both of the above projects and also continue exploring. It recently entered into a joint venture with a private Mozambican company to explore a 12 square kilometre property in this former Portuguese colony. Better still, it is unhedged, so able to take advantage of a strong gold price.

Management talks the talk

Mr Dippenaar has certainly used his marketing acumen to raise the profile of this company! Last year Great Basin was one of the world’s best performing gold stocks. Marketing training also means he knows what to say on issues like safety. Because Burnstone is a new mine “actually designed for safety” he said in an interview. He also said “we will not kill anybody”.

What is clear is that Mr Dippenaar, a Namibian-born accountant and former marketing manager at Harmony Gold, has his eyes firmly on containing costs. He is even willing to share infrastructure and resources, like energy, with neighbouring mines.

Now we usually favour companies run by miners, but having an eye for numbers in these times can’t be a bad thing.

So keep mining,

Erin and Isabel

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