#REORIENT: Morning note: #GOLD: CALL FOR YEAR END RALLY IN MINERS, THE TIME TO BE SHORT IS OVER

WE REITERATE OUR CALL FOR YEAR END RALLY IN MINERS, THE TIME TO BE SHORT IS OVER

 

It's a mugs game calling gold and two years of falling prices means that even the diehard bulls have recently warned of another selloff to $1150 per ounce.  For most of 2013 the bears have been out in full and analyst forecasts now range between $1050-$1250 for 2014.  Not that analyst forecasts mean anything anymore as this same group had a mean forecast of $1950 for 2012 when gold peaked on the 6th of September 2011 at $1,895 per ounce.  What is really interesting is that it is now consensus that gold will break below $1200 as the economic news continues to improve in the US and tapering begins.  Weirdly the strong employment numbers last Friday saw gold actually trade up and continue to do so on Monday and aggressively on Tuesday.  Tapering seems well and truly in the price and now somewhat irrelevant.  For equity investors we talk to however it's all 'too hard' to buy the gold miners and with 10 more trading days left in the year it's difficult to find anyone prepared to nibble on the long side.  But the signs are there that we won't retest $1200 and if anything gold could close well above $1300 before New Year's.  A recent broker note on why Newcrest (NCM AU) should do an emergency rights issue before gold truly falls out of bed could be the classic sign that we are going up.  I am not saying make a huge bet on this high cost indebted falling knife (the kind of stock you want to own at turning points) but isn't this 'rights issue' already well and truly in the price.  Reassuringly Goldman's 'slam dunk sell gold' call is also proving elusive and it seems just about every broker has been falling over themselves to be the most bearish on gold - we at Reorient like to take the other side.

 

In short the stars are aligning for a potentially powerful move in gold miners.  Short covering alone should see many of these names move 20% before real money even thinks about this trade in 2014. It could also be a long time before the pension funds come back to gold miners after so much pain has been inflicted during the 26 month selloff.  However, for the early birds perhaps the equity markets are beginning to wake up to the fact that gold is now trading at a 23-25% premium in Indian Jewellery shops.  Or perhaps it's watching Chinese gold imports which are now consuming between 70-100% of annual global mine supply (ex-Chinese output) depending which month you look at.  Or perhaps the market is just bored of being bearish gold - 26 months is a long time.

 

Our bullish call on the miners we initiated on December 2nd has not yet worked but there are certainly more and more signs that it will.  Copper is quietly creeping up and a close above $3.30 will be a strong signal to close your shorts and go long names like KAZ LN, 1208 HK and 805 HK.  The capesize shipping rates were up another 5% today or 107% in the last two weeks. Investors malaise about the jump in Chinese coal prices as just seasonal is also a good sign.  What we like most is that UK fund managers are significantly underweight the miners and are usually the first to react.  The day you walk into the office in Asia and find RIO LN up 4% it's game on and that day is getting closer. 

 

Two gold names that could see significant short covering during a gold move above $1,300 are NCM AU and 1818 HK.  Don't be short the miners - you make 90% of your money in these names in 10% of the time.

 

Thanks, Jeremy Gray

 

From: REORIENT - Research
Subject: Morning note: Brownian Motion and Decoupling

 

#Mining in west #Africa: Where’s our cut? @Economist

Gold has long been west Africa’s dominant mineral, but iron ore is exciting more interest...
Yet foreign companies will not find it easy. Infrastructure is poor, geological information scanty, land ownership often murky and institutions weak...

From this weeks Economist.

Where’s our cut?

It will be more high-tech than this

THE mining town of Yekepa in Liberia’s Nimba County has all the hallmarks of a boom: an Olympic-sized swimming pool, world-class tennis courts, a cinema and a golf course. But the boom took place two decades ago, when Yekepa was known to Liberians as Little New York, a town where many prospered until the civil war that broke out in 1989 tore their country apart and spread its poison across the region. Now there is new hope, albeit mixed with cynicism, that its wealth will trickle down to the people as the mine is exploited again. The Nimba mountains, straddling the borders of Liberia, Guinea and Ivory Coast, hold one of the world’s richest deposits of iron ore.
The Yekepa mine, opened in the 1950s by a Liberian-American-Swedish company, was the country’s first large-scale one. But it remained dormant throughout the civil war. In 2006, to much fanfare, it was restarted by a multinational steel company, ArcelorMittal, which has been exporting iron ore for the past two years. Other companies, such as BHP Billiton and China Union, are now active too. China Union says it expects to start shipping ore soon. Aureus Mining, a Canadian company, hopes to start producing gold in 2015. Sable Mining Africa, a British company, is the first to have secured permission from Guinea’s government to transport iron ore direct to the Liberian port at Buchanan, which is closer to Nimba than Conakry, Guinea’s capital. The company expects to begin production and start transporting iron ore in 2015.
Gold has long been west Africa’s dominant mineral, but iron ore is exciting more interest, says Rolake Akinola of Ecobank, a pan-African firm founded in Nigeria. The region is undeveloped and mining firms are busy exploring and discovering potential sites even as they develop new mines, he says. Yet foreign companies will not find it easy. Infrastructure is poor, geological information scanty, land ownership often murky and institutions weak, especially in countries like Liberia and Sierra Leone that have been ravaged by civil war and dictatorship. Commodity prices have wobbled and some big companies will be wary of investing until the legal framework is more robust.

The Revenue Watch Institute, a New York-based lobby promoting better management of natural resources in the poor world, has helped Guinea’s government to draw up a new mining code, which requires the government to hold at least 15% of the equity in new mines. The code also sets a new tax regime and a higher threshold for foreign investors. This, says the institute’s Patrick Heller, could offer a model for other countries in the region.

Let’s talk again

Guinea’s government is reviewing all existing concessions, as is Sierra Leone’s. Mali’s new government is expected to follow suit, and may renegotiate some contracts. Liberia is also drafting a new mining code. Ghana’s government has raised taxes on gold-mining companies, which say their operating costs will rise sharply.
Michael Keating of the University of Massachusetts, Boston, says that these reviews of mining codes and contracts have been instigated by Western donors who do not want local people or their governments to be ripped off. But investors may be deterred. “It’s one thing to conduct an inventory and another to go back to concessionaires and attempt to renegotiate signed contracts,” he says. “Nothing will scare investors away faster than the notion that legally signed deals can be nullified at the whim of a government agency.”
Most west African governments have signed—or pledged to sign—the Extractive Industries Transparency Initiative (EITI). The EITI tries to ensure that contracts and accounts of taxes and revenue generated by concessions are open to public scrutiny. But that is easier said than done. Last year Liberia’s government asked a British accounting firm, Moore Stephens, to carry out an audit of Liberian mining contracts signed between the middle of 2009 and the end of 2011. The audit, published last May, found that 62 of the 68 concessions ratified by Liberia’s parliament had not complied with laws and regulations. The government has yet to take action after a string of recommendations emerged from an EITI retreat in July.
Regional governments also fret over a practice known as “concession flipping”, whereby foreign mining companies that do not have the capacity to exploit sites sell their concessions to larger companies for windfall profits. “Every flip is essentially a heist on the government exchequer, with anonymous offshore firms as the getaway car,” says Leigh Baldwin of Global Witness, a London-based lobby that fights for fairer deals for local people and their governments from mining and other resources. Concession flipping, he adds, is widespread in Africa. The Africa Progress Panel, headed by Kofi Annan, a Ghanaian who once led the UN, has put out a report called “Equity in Extractives”. This, too, stresses a need for more openness in mining contracts. As people in the region demand more democracy, better deals from mining are a new priority.

Mining in west Africa: Where’s our cut? | The Economist

The #Corruption Perception Index 2013 - or where not to invest your money...

70% of countries scored below 50/100, 
The #Corruption Perception Index 2013 - or where not to invest your money...