Silver Wheaton posted a 5% jump in third-quarter profit to $20.2 million, or $0.08 per share. Silver sales tallied 2.7 million ounces at cash costs of $3.93 per ounce, down from 3.1 million in the same period a year earlier. The company lowered its 2008 sales projections to 11.4 million ounces, from 13-15 million ounces previously envisioned. Silver Wheaton ended the day up C$0.13 at C$4.33.

Rockwell Diamonds got its wish with Pala Investments Holdings pulling its hostile takeover offer for the diamond miner. Rockwell ended the day down C$0.075 at C$0.13.

Shares of GobiMin got a pop after the company announced the sale of three nickel-copper projects in China to Xinjiang Xinxin Mining Industry for a cool $87.5 million. GobiMin ended the day up C$0.24 at C$0.68.

Shares of Hathor Exploration continued to bounce off its recent lows by adding C$0.44 to close at C$2.24. The junior is outlining the MidWest NorthEast uranium deposit in Saskatchewan.

Goldsource Mines added C$0.45 to close at C$2.14 on no new developments. The company is working the Border coal property in Saskatchewan. High River Gold Mines continued to fall into the abyss. The financially plagued miner ended the day down C$0.04 at C$0.07.

The first trading day of November brought no surprises with traders awaiting the outcome of the United States Presidential election before placing big bets. We will see what Tuesday trading has in store.

Source: Resource Stock Roundup Tuesday, November 4, 2008

Right now some metals are poised to reach new all-time highs because of production deficits (aka lack of supply), while other metals still remain hostage to an onslaught of new supplies – so their prices are dropping.

Silver falls in that “too much supply” camp. More than any other precious metal this year, silver’s prices will be put to the test. We’re all waiting to see if silver’s price can hold up under the growing bombardment of new production.

Over the last five years, silver prices have surged more than 250% to just under US$17 an ounce at the moment. On May 20th, my Commodity Trend Alert (CTA) service, turned “neutral” on silver, after my CTA subscribers earned big profits on several existing open silver positions since 2003.

But the tides have turned. And now rising supplies are forecasting a sizable silver correction.

Meanwhile, gold is still soaring. Gold production peaked in 2001 and continues to decline this year, which is VERY bullish for gold prices. But that’s certainly not the case for silver and to a lesser extent, palladium.

Could Silver Break Away from Gold?

Gold and silver generally track each other in a bull or bear market. When gold goes up, silver goes up and vice versa. But in this case, a divergence might be possible, if only temporarily.

In the base metals arena, a similar price divergence has already happened after seven years of generally spectacular gains for the complex. These include namely copper, lead, tin, nickel, iron-ore (steel), aluminum and zinc. Over the last 18 months, nickel and zinc prices have crashed while tin, lead and copper prices have posted gains. It’s not impossible for metals to break away from the primary uptrend if supplies begin to saturate individual fundamentals.

Over the last 12 months, gold prices have risen 37% while silver has gained 31%. Both metals continue to track each other on a total return basis.

But thus far in 2008, gold prices have risen just 8% while silver has rallied 15%. The fundamentals, however, don’t support silver’s higher returns this year.

Will Investor Demand Support Silver?

Gold is rapidly approaching its first year of net supply deficit while silver is increasingly becoming a net surplus commodity. And according to textbook economics, rising supplies eventually dilute a rising price trend and drag prices back down.

Considering the demand for both silver jewelry and silver industrial supplies is waning, the bulk of global demand for silver will have to come from investors going forward. This will come mainly from exchange traded funds like SLV or the iShares Silver Trust in the United States and other silver ETFs traded in London and Zurich.

I have serious doubts investor demand will continue to support silver at these levels without suffering a major correction first.

The iShares Silver Trust has already seen a massive increase of silver accumulation since 2006 – over 180 million ounces. Silver supply has surged since 2001, according to GFMS, a precious metals consultancy firm, rising to 670.6 million ounces. Unless investor demand consumes this rising supply – and more is projected in 2008, then prices will decline. That’s because industrial demand has probably peaked.

Last year, industrial demand for silver increased 7.2% to a record 455.3 million ounces, according to the 2008 World Silver Survey. That offset the long-term decline in demand for traditional usage, mainly in photography, jewelry and silverware.

But another survey by Barclays Capital points to alarm bells for the silver market. The survey shows new supplies just hit the market this year. Barclays believes mine production will grow by 6.5% in 2008 and faster than last year’s increase of 3.6%. That could create possibly the largest surplus of silver in over 20 years.

A disappointing initial public offering (IPO) in London is another bearish signal for silver bulls.

Mexican silver company, Fresnillo PLC, went public in London earlier this month and declined 7.5% on its debut – that’s a bad sign. Despite stronger silver prices this year, the IPO was not received well in the markets.

Gold and Platinum: Precious Metal Kings

Though I’m not predicting a long-term silver decline, I think it’s time to reduce your exposure during current price strength. The big picture for sister metals, gold and platinum, however, remains incredibly bullish because supplies continue to tighten.

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

P.S. You don’t get many chances in life to participate in a full-blown mining boom… where the gains regularly reach hundreds of percent. It’s especially rare to participate in one that’s totally unknown by the majority of American investors. Right now, one is taking place in Australia. Click here to learn more about the best way to participate.

Source: The Last Secret Left in the Mining Industry 

A: This is the billon-dollar question when it comes to commodities. The United States is far and away the largest economy in the world, so of course, a severe recession would dampen demand for oil and other raw materials.

On the other hand, China and India are cramming decades of industrial revolution and massive infrastructure expansion into the next five to 10 years. From what we’ve seen so far, this build-out (which requires awesome amounts of raw materials) is offsetting the decline in U.S. demand.

However, speculating on demand is more like gambling than investing. We’ve got to consider supply constraints…The mining industry survived on such low prices for so long that now very few new projects are in the pipeline. In addition, some of the industry giants are in decline. For example, metal production from Chile’s Codelco, the world’s largest copper miner, has fallen for three straight years… and 2008 doesn’t look any better.

And new giant projects are suffering from the same higher costs hitting everyone…

The construction estimate to build the Galore Creek mine (NovaGold and Teck Cominco’s giant copper and gold project in British Columbia) escalated from $2.5 billion in 2006 to over $5 billion in late 2007. Most of that increase came from the rising price of basic materials like fuel and steel. Also, the cost of Canadian labor rose dramatically on the strength of the Canadian dollar.

However, I think the market is giving us an opportunity. I think we should own the companies that own the best new projects – ones that won’t produce anything for the next year or two. Those projects, because of the risk of development and the state of the market, are essentially free right now. (You can read about one of my favorite projects here.)

Q: What is the deal with the “Toronto” and “Venture” stock exchanges? I don’t know how to buy stocks on those things. – B.W.

A: I get this question a lot, because many of the world’s top mining companies are listed on foreign exchanges. Resource investors who limit themselves to the NYSE, Nasdaq, and AMEX are putting large shackles around their ankles. I often recommend stocks on the Toronto (TSX), Toronto Venture (TSX-V), London Aim (AIM), and Australian (ASX) exchanges.

But few discount brokers will buy these stocks directly on the exchange. While you can work your way through the deal, you often wind up paying huge fees for the service. Starting a position down 25% because of fees is a lousy way to speculate.

If you want to buy stocks on these exchanges, you’ve got to be prepared to elevate your game. If your regular broker can’t execute the trade without gouging you, I know of three brokers who can buy and sell international stocks with ease:

Global Resource Investments Ltd.
(800) 477-7853
www.globalresourceinvestments.com

Jeff Winn – International Assets
(800) 432-4402
jwinn@iaac.com

Dave Sjuggerud – Key Investment Group
(877) 539-1004
dsjuggerud@lasallest.com   

These brokers have provided honest, solid service to many of our readers in the past. They have excellent reputations for a reason. Neither Stansberry Research (publishers of Growth Stock Wire) nor I receive any kind of compensation for mentioning these guys. This is simply a short list of reputable brokerages that can buy these stocks.

If you want to use an online broker, I believe E*Trade and Interactive Brokers both trade stocks on foreign exchanges. But I’ve never tried either one myself.

And if you want to trade these stocks online, I recommend doing some research into the rules, tax laws, and currencies of each country. A good place to start on the currency research is EverBank’s currency research portal.

There are pitfalls out there for the unwary international investor. I actually found a company that U.S. investors were not legally allowed to own. It was a Canadian Trust that had my mouth watering… but it was for Canadians only. That’s why I recommend using a qualified broker to buy foreign stocks.

Good investing,

Matt Badiali