(BN) Most-Accurate #Gold Forecasters Splitting After Rout: #Commodities

Most-Accurate Gold Forecasters Splitting After Rout: Commodities

Bloomberg News, 

The only three analysts to correctly predict gold's biggest quarterly slump in four years are now split, reflecting investors' diverging views on the probability of central banks doing more to shore up growth.

Justin Smirk of Westpac Banking Corp., the most accurate of 20 analysts tracked by Bloomberg in the second quarter, says prices will keep dropping. Eugen Weinberg of Commerzbank AG and Nick Trevethan at ANZ Banking Group Ltd. predict a record within a year. Hedge funds and other speculators are the least bullish since 2008, even with investor holdings of physical bullion in exchange-traded products close to an all-time high, government data and figures compiled by Bloomberg show.

While gold has rallied since tumbling to within 1 percent of a bear market in May, it's still 16 percent below the record $1,923.70 an ounce reached on Sept. 6. Investors have favored sovereign debt and the dollar to protect their wealth as economic growth slows, driving yields to record lows and the U.S. currency to a two-year high. Central banks from Europe to China cut interest rates this month, and the Federal Reserve said it was prepared to act to boost the recovery.

"There is not much interest in gold right now given the fears of economic slowdown globally," said Michael Cuggino, who manages $17 billion of assets at Permanent Portfolio Funds in San Francisco, with about 20 percent of his investments in gold. "The velocity of the money has not yet entered the system, but one has to buy gold as it is a long-term play and will keep rising as you need insurance against future inflation."

Broad Market

Futures fell 4 percent from April to June on the Comex in New York, the most since the third quarter of 2008. The U.S. Dollar Index advanced 3.3 percent and bonds of all types returned an average of 1.6 percent, according to Bank of America Merrill Lynch's Global Broad Market Index.

Gold is now 3.7 percent higher for the year at $1,624. The Standard & Poor's GSCI Spot Index of 24 commodities fell 0.05 percent, the MSCI All-Country World Index of equities added 5.7 percent, and the Dollar Index, a measure against six trading partners, advanced 3.3 percent. Treasuries returned 2.4 percent, a Bank of America gauge shows. The yield on the benchmark 10- year security fell to a record low of 1.379 percent on July 25, Bloomberg Trader data show.

Bullion has appreciated for 11 consecutive years, with prices surging sevenfold as investors sought a hedge against everything from accelerating inflation to Europe's debt crisis to slumping equities. The metal rose about 70 percent as the Federal Reserve bought $2.3 trillion of debt in two rounds of so-called quantitative easing from December 2008 through June 2011. Gold's year-to-date gain is the smallest for the period since 2005, a sign that investor demand may be waning.

Quantitative Easing

"It is not the ultimate safe-haven, and the steep fall last year and the performance this year showed that people preferred the dollar," said Smirk, a Sydney-based commodity analyst with Westpac. "While quantitative easing may bring in some buying, it's unlikely to go back to earlier highs."

Hedge funds cut their net-long position, or bets on higher prices, by 72 percent from a record in August. Their holdings fell to a 43-month low of 71,129 futures and options on July 24, according to the U.S. Commodity Futures Trading Commission. The number of outstanding contracts on the Comex slumped 18 percent in the past year, exchange data show.

While holdings in ETPs rose fourfold in the past five years and now exceed the reserves of all but four of the world's central banks, they have gained just 1.4 percent to 2,390.6 metric tons this year, data compiled by Bloomberg show.

Trade Federation

Demand in India, the biggest buyer, is poised to contract for a second year, the World Gold Council said July 16. The All India Gems & Jewellery Trade Federation predicted in May that purchases will drop 30 percent this year, in part because of a strike by jewelers in March and April. The London-based council cut its 2012 forecast for Chinese demand this month to 870 tons from a May estimate of as much as 1,000 tons. The difference is equal to more than two weeks of global mine production.

Treasuries held in custody by the Federal Reserve for other central banks rose $138.5 billion to a record $2.83 trillion this year, government data show. The increase of 5.1 percent compares with a 2.8 percent expansion in 2011. Germany, the U.K. and France sold debt at the lowest yields ever in July.

Global Growth

Some investors are still betting on a gold rally because central banks will have to do more to bolster growth, increasing the threat of inflation. The International Monetary Fund cut its 2013 global growth forecast to 3.9 percent from 4.1 percent on July 16, saying that Europe's debt crisis is slowing emerging markets from China to India. It also predicted that consumer prices in advanced economies would increase by 1.65 percent next year, from 1.81 percent in 2012.

"People are waiting for signals for higher inflation," Mihir Worah, who manages Pacific Investment Management Co.'s $22 billion Commodity Real Return Strategy Fund from Newport Beach, California, said on July 23. "There is a decent possibility that some form of easing will be announced in the next few months, and then prices will start rising."

Gold will average $1,669 this quarter, up from $1,612 in the previous three months, according to the median of 20 analysts estimates compiled by Bloomberg. Four now expect prices to keep dropping. Smirk predicts $1,490, Alexandra Knight of National Australia Bank Ltd. $1,550, David Wilson of Citigroup Inc. $1,610 and Arne Lohmann Rasmussen of Danske Bank A/S $1,600.

Central Banks

Bullion rose to a five-week high of $1,633.30 on July 27. European Central Bank President Mario Draghi said a day earlier that policy makers will do whatever is needed to save the euro. There is a 90 percent chance of Greece leaving the euro in the next 12 to 18 months, Citigroup Inc. said on July 25.

"The low interest-rate regime, central-bank demand and further stimulus should create a fertile ground for gold bulls," said ANZ's Trevethan, a Singapore-based senior commodities strategist. Gold generally earns investors returns only through price gains, making it more attractive as borrowing costs decline.

The ECB cut its benchmark interest rate on July 5 to a record 0.75 percent. Fed officials are scheduled to announce an interest-rate decision at the end of a two-day meeting tomorrow. The central bank has kept borrowing costs at the lowest ever since 2008. China reduced interest rates in June and July.

"We will see strong hands entering the market via more central-bank buying, physically-backed exchange-traded products and purchases of bars" of bullion, said Weinberg, the head of commodity research at Commerzbank in Frankfurt.

Bank Reserves

Central banks and the IMF are the largest bullion owners with 29,500 tons at the end of last year, or 17 percent of all mined metal, World Gold Council data show. Central banks have been net buyers for two straight years, the council said. Purchases this year will probably exceed the 456 tons added in 2011, the WGC estimates.

"Gold has been trapped in a range for several months," said Michael Shaoul, the chairman of Marketfield Asset Management in New York, which oversees more than $2 billion of assets. "It has not shown much of a response to the promise of easing by the ECB, but yet you can't call it weak because it finds some support every time there is a huge sell-off."

To contact the reporter on this story: Debarati Roy in New York at droy5@bloomberg.net

To contact the editors responsible for this story: Steve Stroth at sstroth@bloomberg.net

Despite protests and politics, #Peru’s still a great place for #mining investment - INDEPENDENT VIEWPOINT - Mineweb.com

Despite protests and politics, Peru's still a great place for mining investment - INDEPENDENT VIEWPOINT - Mineweb.com

Maria Belen Vega and Ricardo Carrión of Kallpa Securities in Lima, Peru, analyze the Peruvian protest situation and clarify the role of mining as one of the leading sectors of the country's economy. Gold Report interview.

Author: Alec Gimurtu
Posted: Thursday , 26 Jul 2012

LIMA (The Gold Report) - 

The Gold Report: Mining is big business in Peru, but recently there have been a lot of protests. Can you give us an update?

Maria Belen Vega: Regarding the importance of mining in our economy, it's important to highlight that mining is in the interest of government, society and Peru as a whole. Peru is a mining country. To give you some numbers, approximately 5.5% of gross domestic product comes from the mining industry without accounting for the supporting industry. Approximately 30% and 60% of total income tax collection and exports, respectively, come from mining. Also, mining accounts for around 60% of the Lima Stock Exchange's (LSE) main indexes.

Lima Stock Exchange Composition By Sector

 

The protests started because activists understand that mining is a lucrative industry in Peru. Protestors feel that the communities are not getting their fair share of the profits. To give you an idea, the canon minero regulation establishes that 50% of the funds from income tax collection derived from the mining industry is required to return to the region in which the mine operates. If you take a look, most protests originated in the regions that should have received funds from the canon minero. While some local administrators live very well off these incomes, the investment made from these funds was either not yet executed or not profitable. So it makes sense that the communities want to receive some benefit from mining.

Gold Production in Peru

Another important issue regarding mining in Peru is water.

TGR: So that's freshwater supply?

MBV: Yes, water supply is an important issue. Most mining projects in Peru are located in the upper part of the Cordillera de Los Andes, which has a shortage of water. Mines can consume large amounts of water, which often comes from rivers or underground aquifers. The communities are concerned that mining could use too much of a scarce resource because their main activities are livestock and agriculture.

It is interesting to note that the mining protestors don't discuss pollution. Big mines in Peru are strongly regulated and some of them are listed on at least one international exchange. Artisanal miners are mine polluters. There is even a contagion effect where big projects become surrounded by informal miners who create serious pollution problems.

TGR: It sounds as if the opposition to mining is more about political issues and wealth sharing and not so much because of environmental issues.

MBV: Exactly. In Peru, the mining industry has done some of the work in infrastructure and healthcare that should have been done by the government (roads, hospitals, bridges, etc.) in the first place. Therefore, communities are not against the mining industry as a whole, they just want to have a bigger piece of the pie.

Geographic Distribution of Main Mining Projects in Peru

TGR: It sounds as if the central government is pro-mining. So are the local citizens, but they want more of the benefits. Where do the foreign investors fit into the picture? Investors need to get a fair return for the risk of investing in a mining project.

RC: Taxes paid by mining companies are one of the largest sources of income for the government. As stated before, 30% of income tax collection derives from mining. The government can't afford to lose that income and it's fully committed to supporting investment in mining. Peru has approximately $50 billion (B) of investments in the mining sector, which is one of the drivers for the country's growth. The $4.8B Conga project is an example. The government has supported the company that owns it while working to improve the project from a social point of view. That is a win-win situation. The result is a better project overall. The government is mediating between companies and communities in a way that supports investment, growth and sustainability.

TGR: That was an example of a large company. Does the government also support smaller mining companies?

RC: Yes, the government understands that without junior explorers, there won't be big mines. It's not that they are pushing exploration companies to make a discovery. We have clear exploration regulations that are friendly for foreign investors. Last year, Peru implemented new regulations aimed at junior companies. The new regulation is called "Prior Consultation." The regulation requires having an agreement with the community before starting exploration. This is not a big change because that is the way most companies have been doing business for the last decade, but now it is formally part of the Peruvian regulation. As before, without a "Prior Consultation" you can't do anything on the ground.

Copper Production in Peru

TGR: To wrap things up, can you summarize the mining investment situation in Peru? There are protests, but also positive developments that aren't widely reported in the North American investment markets. Maybe investors need to look past the sensational news, as there may be opportunities.

MBV: Mining is an important industry for Peru-the government and the people understand this. However, of the $53B in mining investments in Peru, only 3% is local. The other 97% comes mainly from China, U.S., Canada, Australia and Switzerland. Peru has a capital deficit for mining investment. That's why the Peruvian government is committed to mining and foreign investment. In time, the protests will be resolved between the companies, government and communities so that everybody will benefit from the industry. Everyone is aware that we need this capital, investment, jobs and development. Of course, foreign investors will also benefit from playing a part in the mining industry in Peru.

TGR: Thank you for your time.

Maria Belen Vega currently serves as an investment analyst of corporate finance for Kallpa Securities in Lima, Peru. Through pre-professional training, she developed expertise in the area of Peruvian securitization, its structure and risks. She later served as an analyst of transfer pricing at KPMG and provided support to the investment risk unit of AFP Profuturo. She has a Bachelor of Economics degree from Universidad del Pacifico.

Ricardo Carrión is the managing director for capital markets and corporate finance for Kallpa Securities in Lima, Peru. He served as a senior analyst of Banco de Credito in the areas of corporate banking, corporate finance and capital markets and was an adviser to Lima's Stock Exchange. Carrion holds a bachelor's degree in business administration from Universidad de Lima with specialization in finance and capital markets.

Article published courtesy of The Gold Report - www.theaureport.com

Disclaimer

MINEWEB is an interactive publication, with rolling deadlines through each day, commencing in the Sydney morning,  and concluding, 24 hours later,  in the Vancouver evening.  If you believe your side of an issue deserves inclusion, but has failed to meet one of our deadlines, you are invited to notify the Editor in Chief in Johannesburg, and we will include you in our editing and expanding on our stories. Email him at alechogg@gmail.com

Despite protests and politics, #Peru’s still a great place for #mining investment - INDEPENDENT VIEWPOINT - Mineweb.com

Despite protests and politics, Peru's still a great place for mining investment - INDEPENDENT VIEWPOINT - Mineweb.com

Maria Belen Vega and Ricardo Carrión of Kallpa Securities in Lima, Peru, analyze the Peruvian protest situation and clarify the role of mining as one of the leading sectors of the country's economy. Gold Report interview.

Author: Alec Gimurtu
Posted: Thursday , 26 Jul 2012

LIMA (The Gold Report) - 

The Gold Report: Mining is big business in Peru, but recently there have been a lot of protests. Can you give us an update?

Maria Belen Vega: Regarding the importance of mining in our economy, it's important to highlight that mining is in the interest of government, society and Peru as a whole. Peru is a mining country. To give you some numbers, approximately 5.5% of gross domestic product comes from the mining industry without accounting for the supporting industry. Approximately 30% and 60% of total income tax collection and exports, respectively, come from mining. Also, mining accounts for around 60% of the Lima Stock Exchange's (LSE) main indexes.

Lima Stock Exchange Composition By Sector

 

The protests started because activists understand that mining is a lucrative industry in Peru. Protestors feel that the communities are not getting their fair share of the profits. To give you an idea, the canon minero regulation establishes that 50% of the funds from income tax collection derived from the mining industry is required to return to the region in which the mine operates. If you take a look, most protests originated in the regions that should have received funds from the canon minero. While some local administrators live very well off these incomes, the investment made from these funds was either not yet executed or not profitable. So it makes sense that the communities want to receive some benefit from mining.

Gold Production in Peru

Another important issue regarding mining in Peru is water.

TGR: So that's freshwater supply?

MBV: Yes, water supply is an important issue. Most mining projects in Peru are located in the upper part of the Cordillera de Los Andes, which has a shortage of water. Mines can consume large amounts of water, which often comes from rivers or underground aquifers. The communities are concerned that mining could use too much of a scarce resource because their main activities are livestock and agriculture.

It is interesting to note that the mining protestors don't discuss pollution. Big mines in Peru are strongly regulated and some of them are listed on at least one international exchange. Artisanal miners are mine polluters. There is even a contagion effect where big projects become surrounded by informal miners who create serious pollution problems.

TGR: It sounds as if the opposition to mining is more about political issues and wealth sharing and not so much because of environmental issues.

MBV: Exactly. In Peru, the mining industry has done some of the work in infrastructure and healthcare that should have been done by the government (roads, hospitals, bridges, etc.) in the first place. Therefore, communities are not against the mining industry as a whole, they just want to have a bigger piece of the pie.

Geographic Distribution of Main Mining Projects in Peru

TGR: It sounds as if the central government is pro-mining. So are the local citizens, but they want more of the benefits. Where do the foreign investors fit into the picture? Investors need to get a fair return for the risk of investing in a mining project.

RC: Taxes paid by mining companies are one of the largest sources of income for the government. As stated before, 30% of income tax collection derives from mining. The government can't afford to lose that income and it's fully committed to supporting investment in mining. Peru has approximately $50 billion (B) of investments in the mining sector, which is one of the drivers for the country's growth. The $4.8B Conga project is an example. The government has supported the company that owns it while working to improve the project from a social point of view. That is a win-win situation. The result is a better project overall. The government is mediating between companies and communities in a way that supports investment, growth and sustainability.

TGR: That was an example of a large company. Does the government also support smaller mining companies?

RC: Yes, the government understands that without junior explorers, there won't be big mines. It's not that they are pushing exploration companies to make a discovery. We have clear exploration regulations that are friendly for foreign investors. Last year, Peru implemented new regulations aimed at junior companies. The new regulation is called "Prior Consultation." The regulation requires having an agreement with the community before starting exploration. This is not a big change because that is the way most companies have been doing business for the last decade, but now it is formally part of the Peruvian regulation. As before, without a "Prior Consultation" you can't do anything on the ground.

Copper Production in Peru

TGR: To wrap things up, can you summarize the mining investment situation in Peru? There are protests, but also positive developments that aren't widely reported in the North American investment markets. Maybe investors need to look past the sensational news, as there may be opportunities.

MBV: Mining is an important industry for Peru-the government and the people understand this. However, of the $53B in mining investments in Peru, only 3% is local. The other 97% comes mainly from China, U.S., Canada, Australia and Switzerland. Peru has a capital deficit for mining investment. That's why the Peruvian government is committed to mining and foreign investment. In time, the protests will be resolved between the companies, government and communities so that everybody will benefit from the industry. Everyone is aware that we need this capital, investment, jobs and development. Of course, foreign investors will also benefit from playing a part in the mining industry in Peru.

TGR: Thank you for your time.

Maria Belen Vega currently serves as an investment analyst of corporate finance for Kallpa Securities in Lima, Peru. Through pre-professional training, she developed expertise in the area of Peruvian securitization, its structure and risks. She later served as an analyst of transfer pricing at KPMG and provided support to the investment risk unit of AFP Profuturo. She has a Bachelor of Economics degree from Universidad del Pacifico.

Ricardo Carrión is the managing director for capital markets and corporate finance for Kallpa Securities in Lima, Peru. He served as a senior analyst of Banco de Credito in the areas of corporate banking, corporate finance and capital markets and was an adviser to Lima's Stock Exchange. Carrion holds a bachelor's degree in business administration from Universidad de Lima with specialization in finance and capital markets.

Article published courtesy of The Gold Report - www.theaureport.com

Disclaimer

MINEWEB is an interactive publication, with rolling deadlines through each day, commencing in the Sydney morning,  and concluding, 24 hours later,  in the Vancouver evening.  If you believe your side of an issue deserves inclusion, but has failed to meet one of our deadlines, you are invited to notify the Editor in Chief in Johannesburg, and we will include you in our editing and expanding on our stories. Email him at alechogg@gmail.com

WEST AFRICA - Timis and CNPC as bedfellows - Africa Energy Intelligence

Timis and CNPC as bedfellows

     African Petroleum’s quick and bountiful harvest of acreage in West Africa means it will have to look for key partners with deep pockets. State-run Chinese companies fit the bill.
PetroChina, the subsidiary of China National Petroleum Corp. (CNPC), has until Aug. 31 to decide on the outcome of the memorandum of understanding it signed in early July with the managing director of African Petroleum, Karl Thompson, and its president, Frank Timis.

CNPC, which hasn’t picked up acreage in Africa for a number of years and whose main assets in South Sudan are completely frozen because of the political standoff between Juba and Khartoum, wants to invest in new frontiers. So the company is looking fondly at teaming up with a junior which managed in the space of two years to buy numerous permits in Liberia, Sierra Leone, Senegal, Gambia, Ivory Coast and - most recently - Niger and Sudan (AEI 679).

In addition, CNPC can benefit from Timis’ strong connections in presidential circles in a number of countries.

Read the rest of the article online here: WEST AFRICA - Timis and CNPC as bedfellows - Africa Energy Intelligence

The MasterMetals Blog

Vale the latest victim of China`s economic slowdown - #IRON AND STEEL - Mineweb

The iron ore miner's net income hit its lowest level in more than two years, underscoring its dependence on Chinese purchases of its flagship product

IRON AND STEEL


Vale the latest victim of China's economic slowdown

The iron ore miner's net income hit its lowest level in more than two years, underscoring its dependence on Chinese purchases of its flagship product

Author: Guillermo Parra-Bernal and Reese Ewing and Sabrina Lorenzi
Posted: Thursday , 26 Jul 2012
SAO PAULO (Reuters) - 

Brazil's Vale became on Wednesday the latest victim of China's economic slowdown after second-quarter profit tumbled because of slowing demand for iron ore that will spill over into the coming quarters.

Net income at the world's largest producer of the mineral hit its lowest level in more than two years, underscoring its dependence on Chinese purchases of its flagship product. Profit also plummeted after a weakening Brazilian currency lifted debt-servicing and the use of derivatives for hedging.

Vale earned $2.662 billion in the quarter, down 58.7 percent from a year earlier, according to a securities filing on Wednesday. The result, the lowest since the first quarter of 2010, missed the average $2.998 billion estimate of 10 analysts in a Reuters poll.

"I'm struggling to find anything good coming out of this earnings report," said a New York-based mining analyst who declined to be quoted by name before his views were sent to clients. "Most of this is probably related to the China problems and their impact on pricing."

Vale's disappointing earnings performance may continue into next year as the global economy stagnates and demand for metals loses traction. Slowing growth in China, which fueled a commodity market rally for a decade and created a bonanza for Vale, is already weighing on iron ore prices and may create a global surplus of the mineral next year.

Vale charged $103.3 per tonne of ore sold, 29 percent less than a year earlier and 5.5 percent below prices in the first quarter. The analyst said that, at such level, the company is likely selling ore at below-market prices to some customers.

The results pose a challenge to Chief Executive Murilo Ferreira, who, with a little more than a year on the job, has struggled to allay investor concerns that Vale is prepared to weather slower growth in Chine, restore good relations with the government and improve project execution.

Vale's cost of doing business may also climb in coming years as Brazil's government, seeking to assert more control of the nation's natural resources, exacts a greater toll from the country's biggest exporter through taxes and royalties.

Preferred shares of Vale, the company's most widely traded class of stock, have sunk 14 percent over the past 12 months. Concern that second-quarter earnings would be worse than analysts' predictions also fueled a 4.9 percent decline in the stock over the past month.

COOLING MARKET

China's share of Vale's iron ore and pellets sales fell to 43.7 percent in the second quarter from 47.2 percent in the prior quarter, while volumes shipped rose.

In spite of that, company's net revenue rose 7.2 percent to $12.150 billion from the first quarter, when heavy rains dampened production and shipments. The result, however, missed analysts' estimates of $12.596 billion in sales.

Sales growth of the company's main products appear to be cooling, and may cool further. Prices for Brazilian iron ore shipments to China are roughly between 15 and 21 percent lower than a year ago, even though volumes were up from a year ago, according to Chinese customs figures.

Although prices for Brazilian ore have slightly improved sequentially, the outlook going forward looks bleak for Vale's sales. Spot iron ore prices extended their losing streak to touch an eight-month low on Wednesday, and are down by more than a third since a record peak in mid-February.

CURRENCY FLUCTUATIONS

The dismal performance was also affected by the rising cost of goods sold, a jump in general and administrative expenses and a surge in the cost of hedging - a strategy used by Vale to protect its balance sheet against swings in the currency or in prices of the products it sells or buys as raw materials.

Limiting the decline in profit, the company booked a $377 million one-off gain stemming from the sale of coal assets in Colombia and had to pay lower income taxes in Brazil during the quarter, the filing added.

The Brazilian real's 11 percent drop helped boost Vale's debt-servicing costs and charges related to fluctuations in currency and derivatives prices, but failed to generate significant revenue gains or cost savings.

An account measuring the impact of currency and monetary fluctuations on Vale's balance sheet reached $1.693 billion, the highest level for the item since the third quarter of last year, reflecting a jump in the cost of interest-rate and currency derivatives contracts, the filing showed.

Earnings before interest, tax, depreciation, amortization and other items, a measure of operational profitability known as adjusted EBITDA, came in at $5.119 billion, below an estimate of $6.265 billion in the poll.

Investors tend to follow Vale's quarterly data more closely than year-on-year numbers because the former helps them visualize operational and sales performance trends.

© Thomson Reuters 2012 All rights reservedVale the latest victim of China`s economic slowdown - IRON AND STEEL - Mineweb.com Mineweb

The MasterMetals Blog

Mongolia's Treasure Trove

#Mongolia's Big riches for tose who can stomach the volatility. $$IVN

Mongolia's Treasure Trove
- Forbes.com

When I was invited as a U.S. representative to the Asian Development Bank to speak at the 1991 opening of the Mongolian Stock Exchange, I expected a frontier adventure, as the country had just broken free from Russia to form a fledgling democracy. I got more than I bargained for and, in retrospect, was lucky to get out of there alive.

The first challenge was vodka. Mongolians are the highest per capita imbibers of vodka in the world. I nearly drowned in the stuff as dozens of toasts and calls of “bottoms up” went on late into the evening of my arrival in the capital of Ulan Bator.

The second day I was a bit wobbly but went with my hosts deep into the rugged steppe for a traditional barbecue capped by races to the top of mountains and a clifftop midnight wrestling match. I held my own but a slip would have led to my demise.

Two decades later global investors, especially China and Russia, are eyeing its huge untapped natural resources. Mongolia, three times the size of France with a population of only 2.7 million, is a relatively poor country with a per capita income of about $3,000. But it is sitting on a treasure trove. The country’s top ten mines are estimated to be worth $2.75 trillion in coal, copper, gold, uranium and rare earths.

This makes every Mongolian a millionaire--if they can get this stuff out of the ground and to global markets. Unfortunately, corruption is a rising issue, and inflation tops 20% as a gold rush mentality takes hold.

Still, willing buyers are certainly there, with $5 billion pumped into the economy in 2011 fueling a stunning 17% increase in the country’s GDP.

The Mongolian Stock Exchange is not for the fainthearted, but the brave have been rewarded with returns of 121% in 2010 and 58% in 2011, although the index made up of the largest 20 companies has cooled 10% so far in 2012. There are 332 companies listed on the exchange, with a total market value of $3.2 billion.

There is political risk. Mongolia’s former president is facing corruption charges that he insists were engineered by the current president to keep him from participating in the recent parliamentary elections.

If you’re gun-shy about investing directly in the Mongolian market but want a piece of the action, go with Vancouver-based Ivanhoe Mines (NYSE, IVN, 8), which has a 66% share of Mongolia’s Oyu Tolgoi gold and copper mine, which is on the Mongolia-China border. Temasek, Singapore’s investment arm, recently put up $420 million for a 5.5% stake in Ivanhoe; Australia’s Rio Tinto has a controlling interest in it. Ivanhoe’s stock has lost 64% of its value in the past 12 months as copper and gold prices have pulled back.

The Oyu Tolgoi deposits reportedly contain 79 billion pounds of copper and 45 million ounces of gold. Rio Tinto has already spent $7 billion to prepare the mine for operation. It is expected to begin production in August.

For stocks listed on the Mongolian Stock Exchange, my favorite is APU JSC (APU, 3), the country’s largest beverage company. The company was founded in 1924 and privatized in the 1990s. It has the dominant market share of--you guessed it--vodka and beer while also producing milk and juices.

The Leopard Asia Frontier Fund likes and holds concrete producer Remikon JSC (RMC, 0.14), also traded on the Mongolian Stock Exchange. Right now 80% of the cement supporting Mongolia’s construction boom is imported from China, but Remikon is planning to build an $8 million cement plant near its limestone deposit.

For speculators I’m going with ­Sydney-traded Aspire Mining (AKM, 0.15). While the company has exploration licenses for five projects, a lot is riding on its Avoot coking coal project, potentially the country’s third largest. Mining is not expected on any scale until 2016. The company has about $28 million in cash with no debt, and the stock price is tempting after falling 77% over the last 12 months.

Mongolia is a frontier market with huge potential. Steel your nerves and take a small stake.

Read the article online here: Mongolia's Treasure Trove - Forbes.com

(BN) Cnooc Buys Nexen for in China’s Top Overseas Acquisition

Bloomberg News reports: 

Cnooc Buys Nexen for in China's Top Overseas Acquisition

Cnooc Ltd. (883) agreed to pay $15.1 billion in cash to acquire Canada's Nexen Inc. (NXY) in the biggest overseas takeover by a Chinese company.

China's largest offshore oil and gas explorer is paying $27.50 for each common share, a premium of 61 percent to Calgary-based Nexen's closing price on July 20, according to its statement to the Hong Kong stock exchange today. Nexen's board recommended the deal to its shareholders.

Nexen will give Cnooc assets in Canada, the U.K., West Africa and the Gulf of Mexico that produced 207,000 barrels a day in the second quarter, boosting the Chinese company's output by about 20 percent. The deal is a second attempt to buy a North American oil and gas producer after political opposition blocked Cnooc's $19 billion for bid Unocal Corp. in 2005.

"Cnooc did a nice job in adding oil reserves at less than $20 a barrel," said Shi Yan, a Shanghai-based energy analyst at UOB-Kay Hian Ltd. "It's really a good time to buy assets while crude prices are low and energy firms shed values in stock markets."

Cnooc will offer to buy Nexen's preferred shares and the Canadian company's debt of $4.3 billion will remain in place, the statment said. Beijing-based Cnooc will pay for the acquisition using existing cash funds and external financing. The agreement includes a breakup fee of $425 million if the deal is terminated under certain circumstances.

Sustainable Growth

"The acquisition of Nexen will expand the group's overseas business and resource base in order to deliver long-term sustainable growth," Cnooc said in the statement. "Nexen will complement the group's large offshore production footprint in China."

Nexen's market value has plunged 60 percent from a high of C$43.45 in June 2008 as its prices fell for natural gas, which accounts for about 20 percent of output. Production growth has also been slower than the company expected because of setbacks at projects in Canada's oil sands and North Sea.

Cnooc will add 900 million barrels of oil equivalent reserves at $19.94 per barrel through the deal, according to a document posted to the company's website. Cnooc plans to boost output by as much as 2.7 percent this year to the equivalent of as much as 930,000 barrels of oil a day.

In a separate deal, China Petrochemical Corp., or Sinopec Group, will acquire a 49 percent stake in the U.K. unit of Canada's Talisman Energy Inc. (TLM) for $1.5 billion, the Beijing based company said in a statement today.

Fertile Area

Canada has become a fertile area for Chinese oil producers seeking to add oil and gas reserves to meet demand in the world's largest energy-consuming country. After today's deal, Chinese companies will have spent $49 billion on buying Canadian fields and oil companies, according to Bloomberg data. In contrast, they've laid down just $3.5 billion in U.S. acquisitions.

Today's deal will cement Cnooc's position in Canada's oil sands after last year's $2.4 purchase of OPTI Canada Inc., Nexen's partner in Alberta's Long Lake project. After today's deal, Cnooc will own all of Long Lake, which aims to produce 72,000 barrels a day using steam to heat the tar-like oil out of the sands.

The Canadian government reviews any foreign takeover worth more than C$330 million ($325 million) and is in the process of raising that threshold to an enterprise value of at least C$1 billion over the next four years, Industry Minister Christian Paradis said in May.

Stephen Harper

Prime Minister Stephen Harper is seeking to assure foreign companies the country is open to investment amid criticism the takeover review system is unpredictable. Harper in 2010 rejected a $40 billion hostile takeover bid for Potash Corp. of Saskatchewan Inc. by BHP Billiton Ltd., saying it didn't provide a net benefit to the country. It was only the second rejection of a foreign takeover in Canada in 25 years.

Margaux Stastny, director of communications for Canadian Industry Minister Paradis, couldn't be reached for comment before regular business hours.

Bank of Montreal and Citigroup Inc. provided financial advice to Cnooc, while Stikeman Elliott LLP and Davis Polk & Wardwell LLP acted as legal counsel. Nexen's financial advisers are Goldman Sachs Group Inc. and Royal Bank of Canada, while its legal advisers are Blake Cassels & Graydon LLP and Paul Weiss Rifkind Wharton and Garrison LLP. Richard A. Shaw Professional Corp. and Burnet, Duckworth & Palmer LLP also served as legal advisers to Nexen's board.

To contact the reporter on this story: Aibing Guo in Hong Kong at aguo10@bloomberg.net

To contact the editor responsible for this story: Hwee Ann Tan at hatan@bloomberg.net

Gold Investment Statistics and Commentary Q2 2012 World #Gold Council

Gold Investment Statistics and Commentary Q2 2012 World #Gold Council 

Quarterly statistics commentary Q2 2012 We have just published our commentary on gold's price performance in various currencies, its volatility statistics and correlation to other assets in the quarter. It provides macroeconomic context to the investment statistics published at the end of each quarter and highlights emerging themes relevant to gold's future development.   Review: key macroeconomic themes during Q2 2012   Gold prices declined in most currencies during the second quarter with the exception of the euro, Swiss franc and Indian rupee, in part due to a strong US dollar. Despite a 3.8% decline in Q2 to US$1,598.50/oz on the London PM fix, gold was up 4.4% during the first half of the year. Volatility remained elevated amidst a busy event-risk period. However, gold generally outperformed risk assets. Global inflation eases but underlying trends supportive for gold: A substantial drop in energy and some agricultural commodities during the period has eased inflation pressures in many parts of the world and put downward pressure on gold prices. Reassessing "risk-free" assets: Even assets traditionally considered safe are under pressure. German Bunds interest rates climbed in June. The Swiss franc, yen and US Treasuries are also facing issues – challenging their role as assets of last resort. Despite pressures on the price of gold, its lack of credit risk, its liquidity and hedging characteristics has made gold an attractive vehicle for long-term wealth preservation. Correlation between gold and risk assets approaches long-term averages: Gold's correlation to equities and other risk assets fell towards long-run average levels in Q2 helping portfolio diversification. Gold's increased correlation to equities in Q1 was an indirect effect related to a weaker global economy coupled with a stronger US dollar.   Outlook: emerging macroeconomic themes in H2 2012 Deflationary concerns in some countries provide room for further fiscal and monetary stimulus. This may lead to a further debasement of currencies through unconventional monetary policy and an increased risk of future inflation. These factors should provide support for future gold investment. The underlying structural issues that affect the euro zone remain unresolved, despite advances in the formation of more comprehensive burden-sharing mechanisms. In such an environment of uncertainty and higher market volatility, gold will continue to be an asset that investors use to diversify risk and preserve capital. The flight to the US dollar as a safe-haven in the first half of 2012 could be reversed. The US debt ceiling debate in Q3 and federal elections in November, followed by the necessity to confront a US$1.3tn budget deficit will prove challenging to the US dollar. With most currencies under pressure in one form or another, gold is likely to provide a hedging mechanism for investors. MORE...

Mining companies must comply with Glacier Law-Argentine Supreme Court - POLITICAL ECONOMY - Mineweb.com Mineweb

From BMO: More noise out on Argentina overnight, with reports that courts have rejected Barrick’s (ABX CN, Outperform, $65 price target) glacier injunction, which could impact its mine at Pascua-Lama.   ABX has responded saying “Our activities do not take place on glaciers and Barrick remains in full compliance with existing environmental approvals, including provincial glacier protection legislation”.

This document discusses ABX’s requirements with regards to avoiding certain areas of glaciers: http://www.barrick.com/Theme/Barrick/files/responsibility-reports/2010/Pascua-Lama.pdf.

Our analysts view is that Pascua is fully permitted for construction and mining and that the glacial issue was considered in the granting of those permits.   However, these are different times, and Argentinian policy as of late has not exactly been mining friendly.

Pascua-Lama is 11.7% of our NPV.  We have start up mid 2013.  Capex of $3.4B from 2012 going forward (in addition to $2.7B already spent) and sustaining of $2.1B

ABX could be weak on these headlines, and with uncertainty still over the potential for negative cost and guidance revisions and other assets, we would avoid this stock in the near-term.  Silver Wheaton (SLW CN, Outperform, $47.36 target) may also come under pressure, as it has the royalty on the Pascua-Lama, but they are guaranteed payments from ABX regardless of whether or not the mine enters production, so weakness in SLW could present a buying opportunity. 

See the article on Mineweb:  Mining companies must comply with Glacier Law-Argentine Supreme Court - POLITICAL ECONOMY - Mineweb.com Mineweb