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January 30, 2012

Forget gold, IRON ORE is the story of the decade - MINING.com


The last comment is the most telling, though...:

It’s not all good news however. New supply coming on stream from 2014 – BHP and Rio’s output plans for Pilbara alone are a staggering 750 million Mtpa and just this week BHP committed another $14 billion to expand its port – must impact prices. Rio’s chief Tom Albanese in December said he sees one more year of $120-plus iron ore – then it’s over.

Forget gold, IRON ORE is the story of the decade

On the last day of Roundup, Vancouver’s mining showcase, Sandy Chim CEO of Canada’s Century Iron Mines, flashed a few slides about China, India and the iron ore market over the last decade that would make gold bugs green with envy.
BHP, Vale and Rio Tinto control nearly 70% of the 1 billion tonne annual iron ore seaborne trade and pretty much all contract pricing depend on their say so. The price of 62% iron ore never strayed from $10 – 14/tonne for more than 20 years (1991 was a banner year – miners got all of $15.03 for their haul). The state of affairs was due to secretive negotiations and annual contracts.
Then at the end of 2004 all hell (for Chinese steelmakers that is) broke loose. The Big 3 decided enough is enough and put up the price 72%, marking the start of a supercycle and the beginning of the end of the old pricing system:

Although October last year constituted a mini-crash with spot declining from a record high of $180 to $116, on Friday it was back up above $140. Reuters reports futures prices of nearby months remained at a premium, “reflecting widespread anticipation of an improvement in spot ore prices once Chinese buyers return from the week-long break,” according to reference price provider Steel Index.
Chim points out that the dramatic rise since the beginning of 2008 were into the teeth of the financial crisis and despite prices that went up four-fold in four years, Chinese steelmakers continued to buy. China now imports 60% – 70% of its needs, up from $35%, because of low grade domestic stock from expensive underground mining. Iron ore producers also benefit from industry concentration and pricing power compared to a highly fragmented steelmaking industry.
Steel production is closely correlated to economic growth and personal incomes. Using that metric China’s citizens have to increase their personal incomes almost 10-fold to catch up with the US where GDP per capita income is $48 000. Given the firepower the Chinese government still has to stimulate the economy – the country’s reserves are more than $3 trillion and 20 times that of the US – and its ambitious infrastructure programs (among others 36 million new housing units), it still has some way to grow:

Chim also provides interesting stats for those who believe the China boom is coming to a close. There is plenty of opportunity left in the region. India is where China was 20 years ago while the other Asian economies that are doing well – Indonesia, Vietnam, Thailand, Philippines and others – constitute a 500 million population pool:

And for those who think iron ore is only an Australian story, Canada’s miners have attracted $10 billion in the past year through acquisitions, investments and expansions:

It’s not all good news however. New supply coming on stream from 2014 – BHP and Rio’s output plans for Pilbara alone are a staggering 750 million Mtpa and just this week BHP committed another $14 billion to expand its port – must impact prices. Rio’s chief Tom Albanese in December said he sees one more year of $120-plus iron ore – then it’s over.
Thanks to their economies of scale the Big 3 have been flooding the market by concentrating on building market share rather than maximizing prices. This way the giants drive high-cost producers out of the business. The Big 3 can handle a price well below $120; smaller players may become collateral damage as peak profitability in the sector passes.
Click here for MINING.com’s dedicated page for popular iron ore pricing posts.

January 21, 2012

The how, when and why of gold confiscation by governments - POLITICAL ECONOMY | Mineweb

The how, when and why of gold confiscation by governments

In another article on gold confiscation, Julian Phillips reckons that this could become a reality as the decline in currency confidence makes such action inevitable.

Author: Julian D. W. Phillips
Posted: Saturday , 21 Jan 2012

BENONI -

Gold and Liquidity

The issues facing the developed world's financial systems are ones of liquidity and solvency, among others. The assumptions of liquidity levels proved horribly incorrect! The request from the IMF to lift its resources from $380 billion to $980 billion and the currency swaps between the U.S. and Eurozone confirm that (these may still prove inadequate).

Many markets, which reserve managers had considered to be deep and liquid, proved to be the exact opposite with assets-selling only at a large discount. This was even true of some AAA-rated assets, showing that credit ratings offered no effective guide to liquidity. Many central banks had to rely on bi-lateral currency agreements with other central banks, principally the US Federal Reserve.

The situation is heading for even stormier waters on both sides of the Atlantic. But true to history, the gold market remained liquid throughout the financial crisis. This was the case even at the height of liquidity strains in other markets -a reflection of the size, low market concentration, and flight to quality tendencies of gold. As we said earlier: the Swedish Riksbank used its gold reserves at the height of the crisis to finance temporary liquidity assistance.

A look at what we have said so far in a number of articles answers the question that gold confiscation can really happen, but the question of when and under what specific conditions remain. We look at this now...

CONFISCATION OF CITIZEN'S GOLD

To get the issue in perspective, gold as a financial asset -providing liquidity as cash should do but doing so globally-is strongly on the rise, irrespective of its price. A look forward into 2012 points to deeper and more confidence-destructive financial crises, if not worse than we have seen in 2011.

With the problems being structural and so far inadequately addressed, expect to see some deep damage done to the developed world's financial system and most likely its banking system. Gold as a financial asset may provide a safety net as well as the means to repair national currencies.

All the world's currencies are interlinked, and banking systems are telling us that gold has already swung into action to provide financial relief. But it will need to see a very large expansion of this role if it is to defer or rectify these crises.

In a crisis the price of gold becomes irrelevant, it is the number of ounces you have that counts!

That's why the surplus earning world's central banks are buying gold at the expense of currencies, particularly the U.S. dollar. We would go so far as to say that all the world's central banks are very aware of the need to continue to use gold in the monetary system and more pertinently, that that role is growing, much as they hate that prospect.

Should the crises continue to grow this way, we have no doubt whatsoever that governments will consider confiscating their citizen's gold. There's a point in a decline in currency confidence where this is inevitable! Expect that developed world, central bankers have laid down contingency plans for just such an event.

Should they do so, it will likely be done at a weekend when markets are closed and when their citizens will not have time to take action to prevent such a confiscation. It will be overnight, and gold will be gone. As in 1933, the penalties for not handing over personally owned gold will be draconian. Gold held within a nation confiscating their citizen's gold in the country's banks will be handed over without reference to the clients themselves first.

Julian Phillips for the Gold and Silver Forecasters - www.goldforecaster.com and www.silverforecaster.com

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Sprott bearish on base metals, positive on gold, oil

Sprott bearish on base metals, positive on gold, oil

Prominent Canadian fund manager Eric Sprott said this week he was bearish on cyclical commodities such as industrial metals because of the economic slowdown, though he remained positive on gold and crude oil.

Sprott, a long-time gold bull who last week filed to launch a platinum and palladium product allowing investors to redeem the physical metals, said he expects that business to grow in the wake of MF Global's collapse.

"I am not bullish on cyclical commodities such as iron ore, coal, steel, lead and zinc because I am worried about this economic contraction that everybody is talking about," Sprott told Reuters in a phone interview from his Toronto office.

He expects gold to hit a record above $2 000/oz this year, with silver also rallying to an all-time high at more than $50/oz. On Wednesday, gold traded at $1 660/oz and silver at $30.50.

Sprott, whose parent company Sprott Inc manages around C$9-billion in assets, has been bearish on cyclical commodities since the 2008 global economic crisis, and has maintained the gold and silver forecasts throughout last year.

"I think there is more upside to the gold-mining stocks. Last year, the stocks were absolutely crushed when the price of gold went down. But when gold goes back up, the stocks will provide a better return."

Bullion lost 10% in December and briefly entered a bear market, as it struggled to regain its safe-haven appeal even though investors questioned the viability of the euro.

Year to date, spot gold was up 6 percent, largely tracking equity markets' gains. It posted a 10% gain in 2011 that sealed its 11th consecutive year of gains.

Sprott cited strong physical gold demand, indicated by encouraging imports by China and Turkey late last year.

In addition, he was positive on the outlook of the energy market because of relatively inelastic demand and depleting output.

"It's getting tougher and more expensive all the time to produce energy. I think that's a pretty good foundation for the oil prices hanging in there."

SELL SHARES, REDEEM METAL

On Friday, Sprott filed regulatory papers for a planned launch of a physical platinum and palladium trust initially worth $115-million on the New York Stock Exchange and the Toronto Stock Exchange. The firm already runs two physical gold and silver trusts.

Investors in Sprott's funds have the option to redeem physical metals, something that not all ETFs offer.

"A lot of people thought they owned gold and silver before MF Global went bankrupt. And all of a sudden they found out that they didn't own anything at all," he said.

"We like people who own the units to know that they have the ability of getting the physical gold and silver."

Sprott said investors rarely redeem physical metals, but that could change if economic conditions worsen.

"In certain circumstances, we could see a lot of redemption. I am talking about financial meltdown circumstances. So, hypothetically it could happen," he said.

Edited by: Reuters


The MasterMetals Blog

January 20, 2012

Virgin Islands refinery shutdown to hit Venezuela hard - Americas - MiamiHerald.com

Virgin Islands refinery shutdown to hit Venezuela hard

This week’s announced shutdown of a major oil refinery in the Virgin Islands could have major ramifications for the Venezuelan oil company, PDVSA.

adelgado@elnuevoherald.com

The announced shutdown of an oil refinery in the Virgin Islands will hit hard the state-run Petróleos de Venezuela, S.A. (PDVSA), a company that loses a major customer for its hard-to-place heavy crude and a major supplier of components for the gasoline consumed in the country, analysts said.

The experts added that the closing of the refinery — one of the world’s 10 largest — could also impact the cash flow of the state-owned company, as the complex, where PDVSA has a 50 percent share, is one of the clients that best pays for Venezuelan crude.

“It’s a very important customer for Venezuela,” said former state oil company manager Horacio Medina. “It is one of the places where they were sending large amounts [of crude] every month.”

The refinery, operated by the joint venture Hovensa has the capacity to process 495,000 barrels a day, 248,000 of which are supplied by PDVSA.

Hovensa, which belongs to PDVSA and the U.S. company Hess Corp., announced this week it will close the refinery in a month after accumulating losses totaling $1.3 billion in the last three years.

Hovensa said the company had lost its profitability due to the global economic downturn and strong competition from a number of new facilities built in emerging markets.

Jorge Piñón, an oil market analyst, said in Miami that the St. Croix refinery also faced difficulties in competing with U.S. refineries because it uses the oil itself as fuel for its facilities.

“U.S. refineries use natural gas, which is selling at one of the lowest prices in its history,” Piñón said.

So the closure makes sense for Hess, a company that was bleeding from the sustained losses.

But the situation is different for PDVSA, said analysts, describing the shutdown of the refinery as a strategic mistake.

“If I see myself only as a refiner, then obviously the decision is correct; the refinery has to be closed. But if I see myself as a producer, you’re depriving me of 300,000 barrels of production that now I have to place somewhere else,” said Juan Fernández, former PDVSA planning manager.

The problem is that the heavy Venezuelan crude is difficult to place in a global network of refineries designed primarily to process light crude. For Venezuela, it would have been more convenient to reach a financial settlement with the refinery so it could stop operating at a deficit.

The cost of such an arrangement, which could be below $4 a barrel, a small fraction of the more than the $100 per barrel it currently charges, would be far below the cost of losing access to a market that generated revenues of over $9 billion a year.

It was the difficulties in placing its heavy and extra-heavy crude oil in international markets that led PDVSA to invest aggressively in the refining industry, buying stakes in refineries and modifying them so they could process the thick Venezuelan oil.

But that strategy, which had provided Venezuelan industry with an enviable vertical integration, was abandoned during the presidency of Hugo Chávez.

“The Venezuelan government has been destroying its refining capacity abroad. It had about 2 million barrels, with the sales of the refineries it owned in Europe and the U.S., and now comes Hovensa, which, along with Citgo, was one of the few customers that pays it correctly,” said Fernández.

The rest of Venezuela’s customers, like China, Cuba and other ALBA countries, receive oil under economic terms that are unfavorable for the nation, he said.

And the shutdown also could cause problems for the supply of gasoline in the country, because the Virgin Islands refinery had begun to supply components used in the production of gasoline that were no longer produced in Venezuela due to problems in domestic installations.

The problems in the Venezuelan refining system continued during November and December, according to local press reports that highlighted the serious problems faced in the Venezuelan refineries El Palito, Amuay and Cardón.

These problems, coupled with the closure of Hovensa, could exacerbate the problems in fuel supply that have started to become frequent in Venezuela, Fernández said.

“It’s a grim picture, but Venezuela seems to be following in the footsteps of countries like Libya and Iran, which, while big producers of oil, don’t have gasoline,” he said.


Read more here: http://www.miamiherald.com/2012/01/19/2598119/virgin-islands-refinery-shutdown.html#storylink=cpy
Virgin Islands refinery shutdown to hit Venezuela hard - Americas - MiamiHerald.com

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January 5, 2012

Platinum Primer: Fire Sale on the Rich Man's Gold


Platinum Primer
Fire Sale on the Rich Man's Gold 
ResourceInvestor.com
About 2000 years ago, Aristotle explained why gold remained the ideal choice of money throughout major nations and civilizations. In words that are just as relevant today, he said "Gold is durable, not like wheat, divisible, not like diamonds, convenient, not like lead, constant, not like real estate, and best of all, as jewelry, it has intrinsic value".
Among the most rare, valuable and sought after metals on Earth, platinum shares these same characteristics with gold. Platinum Guild International names platinum as the "most precious" of the precious metals based on its relative scarcity as well as for the following reasons:

  1. The annual supply of platinum is only about 6.4 million oz. - which is equivalent to only 7.4% of the annual gold production and 0.87% of silver's annual mine production.
  2. Platinum is exceedingly difficult to mine and extract. For example, rock face temperatures at Northam Platinum's Zondereinde mine in South Africa get as high as 162 degrees Fahrenheit and its shafts extend as far as 1.4 miles below the surface. Overall, the platinum recovery process is very complex and lengthy, in some cases taking as long as six months.
  3. There are over 5 billion oz. of above ground gold ($8 trillion), whereas only an estimated 200 million oz. ($0.3 trillion) of platinum has ever mined....just 3.75% that of gold $ wise.
  4. In addition to its high-conductivity, resistance to corrosion and inertness, platinum is an extraordinarily dense metal. 10% more dense than gold and 20 times the density of water, one cubic foot of platinum weighs more than 1,330 pounds (523 kilograms). As Vronsky notes, "that means a six-inch cube of the white metal weighs about as much as an average man!" This density, along with its other unique chemical properties, makes platinum an invaluable component in a myriad of industrial applications.
  5. Platinum has many more utilities than gold. Unlike gold, more than 50% of the annual production of platinum is consumed (read destroyed) by industrial uses (40% alone go to catalytic converters).
  6. Unlike gold, there are no large stockpiles of platinum (less than 4 million oz.). Therefore, any disruption in supply from the two major sources (South Africa at 80%, Russia at 10%) could propel platinum on a similar trajectory palladium experienced in 2001, when it moved sharply from $350/oz. to $1,100/oz.


Very Limited Supply

While virtually all other metals can be found in deposit the world over, platinum is anomalous in that important deposits are essentially found to occur in just two areas of the world (apart from a small handful of smaller deposits in North America and Zimbabwe), South Africa and Russia. Platinum does get produced as a by-product in some regions, but only in insignificant volumes.
Roughly 80% of the total world's annual mine production comes from South Africa and, with 88% of the world's reserves, it is far and away the most important national player in the platinum market. Another 10% of platinum supply comes from Russia, with bit players responsible for the remainder. As South African politicians have tabled mining nationalization policies in the last two years, any further escalating political instability and/or labor turmoil in South Africa could have a dramatic impact upon platinum prices – and the same holds true for Russia, albeit it to a lesser extent .

Other Regional Platinum Producers

There are but a few publicly-traded mining companies that produce platinum, and, in most of these cases, only as a by-product. An example is the giant nickel producer Vale-Inco in Canada. Total platinum production in North America is estimated to be less than 400,000 oz. per year (5% of world production) according to the British Geological Survey.

Global Platinum Consumption

Platinum consumption is typically divided into three categories: 50% industrial uses (auto catalysts account for majority), 40% jewelry manufacturing and 10% for investment purposes. With a rapidly emerging middle class, and dramatic economic growth, China is expected to increase both automobile and luxury jewelry purchases as citizens continue to accumulate wealth. China has eclipsed the United States as the largest consumers of cars and is projected by the IMF to be the world's largest economy by 2016. In 2011, about 3.82 million ounces of platinum will go into auto catalysts, 17% more than this year and the most since 2007.
Investment Prospects for the Rich Man's Gold

Since 1970, platinum has on average commanded a 30% premium over gold. As the following chart from www.infomine.com demonstrates, from 2000 to 2008, platinum spent much time trading over 1.8 times gold price.

Historically, the price of platinum runs in tandem with the precious metals group (gold, silver, platinum and palladium). However, as platinum is less liquid and has a smaller investor set, it is much more volatile both on the upside and downside compared to gold.
Platinum price appreciation has outpaced gold since 2001, right up until the US financial crisis in 2008. While gold has recovered from losses and is trading within 15% of its all-time high, platinum price is trading at two-year low and has yet to recover.

While there is mounting concern about global economic growth, automakers are still expected to sell a record 79.5 million cars and light commercial vehicles in 2012, according to LMC Automotive Ltd., a research company based in Oxford, England.
Demand for platinum is also coming from investors, as holdings in exchange-traded products collectively surpassed 1.5 million oz. in 2011 since the first platinum ETF was launched in 2007. Therefore, going forward, investment demand could be a significant surprise factor in driving platinum prices higher.
In 2012, we can expect to see:
  • Persistent high gold price
  • Global recovery of auto sector
  • Platinum investment demand through ETF and physical possession
  • Ongoing limitations and potential disruptions to supply
All in all, the current situation bodes well for platinum.  Look for it to trade substantially higher and back at a premium over gold, once the bull market in precious metals begins its cycle anew. With the current crisis in the euro currency and run-away US deficits, platinum might just regain its reign as the rich man's gold in 2012.
John Lee, CFA
jlee@prophecyplat.com
John Lee is a private investor in metals and mining stocks. He has authored numerous articles and been a featured speaker at international conferences on precious metals and global economies. Currently Mr. Lee is the Chairman of Prophecy Platinum (TSX-V: NKL), an explorer with a significant platinum resource in Canada's Yukon Territory.
Click here to download full article in Word format.
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Prophecy Platinum Corp. Neither Prophecy Platinum Corp. nor the author can guarantee accuracy of all information provided. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Prophecy Platinum Corp. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

Chevron’s Ecuador case takes new twist - FT.com

A deal seems likely in the end- but for what amount??

"When the dog keeps on barking and barking, eventually you have to throw it a bone," 

Chevron's Ecuador case takes new twist - FT.com

Lawyers acting for plaintiffs suing Chevron, the US oil group, over pollution in Ecuador plan to pursue the American company with legal actions in other countries after an Ecuadorean court upheld an $18bn damages award.

Pablo Fajardo, an Ecuador-based lawyer representing the 30,000 plaintiffs suing over environmental damage in the Amazon region, said: "It's not going to be easy to enforce this judgment, but even if hell freezes over we're going to do it."

Chevron, which denounced the judgment as "procured through a corrupt and fraudulent scheme" has no assets in Ecuador, so the plaintiffs will be forced to bring actions in other countries.

Mr Fajardo said: "This judgment gives us the ability to go ahead and enforce the ruling in any part of the world where we see fit."

The legal saga, which has had plenty of twists and turns since the first action was launched back in 1993, appears to have still more to come.

The fight has dragged on thanks in large part to the dogged persistence of Steven Donziger, the plaintiffs' controversial US-based lawyer. While Chevron remains adamant in its rejection of the case against it, the company could yet end up having to pay a multi-billion dollar settlement to resolve the issue.

Fadel Gheit, an analyst at Oppenheimer in New York, says: "At the very beginning, it didn't look as though the case was going anywhere. Oil companies get sued every day by everyone, everywhere, and most of the cases we never hear about."

Now he expects Chevron to agree to pay $2bn-$3bn to bring the dispute to an end.

For Chevron, the second-biggest US oil and gas group by market capitalisation, the battle has been infuriating, not least because it has never operated in Ecuador.

The pollution that is the subject of the case is alleged to have been caused by Texaco, which Chevron bought in 2001. By then, Texaco had been out of the Amazon region for almost a decade, having pulled out of its joint venture with Petroecuador, the state-run oil company, in 1992.

Ecuador's government signed an agreement saying that Texaco had cleaned up the area as required, but that did not prevent civil claims. In and around Lago Agrio, the rough and tumble oil town where Texaco helped found Ecuador's oil industry, locals have come forward alleging damage to the land and their health. In the jungle, deep pits as big as swimming pools filled with crude oil are testament to the scars that the oil industry has left on the region. However, Chevron argues that it is Petroecuador, which was sole owner of the oilfields after 1992, that is responsible for the pollution.

The US company was confident enough in the strength of its argument that it sought to have the case heard in Ecuador. Its reaction to Tuesday's decision, which upheld a ruling from another court last year, was furious.

"Today's decision is another glaring example of the politicisation and corruption of Ecuador's judiciary that has plagued this fraudulent case from the start," it said in a statement.

"Chevron does not believe that the Ecuador ruling is enforceable in any court that observes the rule of law."

So far, investors have shared that view. Chevron's shares closed just 0.1 per cent lower on Wednesday.

That move followed an excellent 2011 for Chevron's investors: over the past 12 months, their shares have risen 20 per cent, compared with 14 per cent for the larger ExxonMobil and just 8 per cent for smaller ConocoPhillips.

Even for a company of Chevron's size, $18bn would be a significant hit: about 8 per cent of its market capitalisation. But investors seem not to believe that the award, the second-largest environmental damages award ever imposed on an oil company, after the $20bn compensation for victims of the Gulf of Mexico spill agreed by BP, will be paid.

For now, that assessment looks justified. There are further legal contests to come in US courts and at the international court of arbitration in The Hague.

Kevin Koenig, a Quito-based spokesman for Amazon Watch, a campaign group, argues that it is time for Chevron to "do the right thing and respect the judgment", but concedes that it is unlikely the case will be resolved soon.

However, he said Chevron had made a "serious miscalculation" in forcing the plaintiffs to pursue the company in foreign courts.

Chevron has significant assets in other Latin American countries, including Argentina, Venezuela and Brazil, where the US group has been targeted by regulators over an oil spill and faces a damages claim for $10.6bn. Mr Donziger's team is reluctant to say exactly where it will take the action next, but moves in one or more of those countries, or in Europe, are possible.

"Chevron has to win every one of those cases. The plaintiffs will only need to win one," Mr Koenig says. John Watson, Chevron's chief executive, is adamant that the company should not pay anything for what it regards as a fraudulent case, Mr Gheit says. However, as the dispute heats up, the argument for reaching a deal grows stronger.

"When the dog keeps on barking and barking, eventually you have to throw it a bone," says Mr Gheit.

http://www.ft.com/intl/cms/s/0/86d1169c-36ef-11e1-b741-00144feabdc0.html#axzz1iZBeORof

January 4, 2012

Venezuela to Leave 15 Tons of its #Gold Reserves in Foreign Banks - Bloomberg


Venezuela to Leave 15 Tons of its Gold Reserves in Foreign Banks

Venezuela will leave 15 tons of gold reserves in banks outside the country, Central Bank president Nelson Merentes said today.

Venezuela held about 211 tons of its gold in Europe, Canada and Switzerland before it started repatriating the reserves last year, Merentes said on national radio.

"It wasn't necessary to have that much gold abroad for financial transactions," Merentes said. "We're going to keep bringing it back. Soon we will have the majority of our reserves in the Central Bank vault."

President Hugo Chavez ordered the Central Bank to repatriate $11 billion of gold in August as a safeguard against instability in financial markets. The country received the first shipment of repatriated gold on Nov. 25.

The country has a total of 365 tons of gold reserves, Merentes said.

To contact the reporters on this story: Nathan Crooks in Caracas at ncrooks@bloomberg.net; Corina Pons in Caracas at crpons@bloomberg.net

To contact the editor responsible for this story: Carlos Caminada at ccaminada1@bloomberg.net

see the whole story here: http://www.bloomberg.com/news/2012-01-03/venezuela-to-leave-15-tons-of-its-gold-reserves-in-foreign-banks.html