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April, 2009

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BHP Billiton and Rio Tinto rebound into green territory, despite IMF predicting bleak economic times.

Thursday, April 23rd, 2009

In its latest World Economic Outlook, the IMF has forecast the global economy would shrink by 1.3% in 2009 ? the weakest performance by far in the entire post-World War II period ? while Australia?s economy would shrink 1.4% this year.

To the mining sector and the world?s largest miner BHP Billiton closed the day 3% higher at $A32.48.

Rival Rio Tinto surged to an intraday high of $58.74, up almost 9%, after a report on the *Age* website noted that Rio?s new chairman Jan du Plessis caught up with BHP chairman Don Argus following Rio?s annual general meeting in Sydney on Monday.

Rio cooled in afternoon trade to close the session at $58.60, up 6%.

On the London Metal Exchange overnight, three-month copper rebounded 0.7% to $US4540 per tonne, nickel gained 0.2% to $11,525/t while zinc fell 0.3% to $1470/t.

Spot gold gained 0.2% to $890.90 an ounce at 4:17pm AEST. Newcrest Mining gained 1.7% to close at $A28.89, Lihir Gold added 1.8% to $2.89 while Sino Gold fell 1.5% to $5.16.

Newcrest Mining today reported a 5% on-quarter drop in third quarter gold output as a result of production declines from the Gosowong and Cadia Valley operations.

The company also maintained full-year production guidance at 1.63-1.70 million ounces of gold and 85,000-88,000 tonnes of copper.

Paladin Energy closed today?s session 8.4% higher at $4.39. The uranium miner said it would reduce its annual production guidance on the back of project development delays at its Langer Heinrich and Kayelekera uranium projects.

Paladin said it was now likely to produce 3.0-3.1 million pounds of uranium oxide in the year to June 30, down from previous guidance of 3.5Mlb.

Fortescue Metals Group ended the session 2% higher at $2.62, OZ Minerals gained 1.6% to 63c, while Aquarius Platinum added 4.4% to $5.28.

A big mover by percentage on the bourse today was uranium play Deep Yellow which jumped 12.5c, or 81%, to close the session at 28c after announcing the discovery of substantial uranium mineralisation at depth at the INCA project in Namibia.

Harry Winston struggles with diamond oversupply

Wednesday, April 22nd, 2009

2009-04-20 17:35 ET – Street Wire

by Will Purcell

Harry Winston Diamond Corp. will mine up to six million carats from the Diavik diamond mine this year, down from eight million in 2008, after having sold barely 60 per cent of last fall’s production.

Harry and majority partner Rio Tinto expect the drop in production of at least two million carats — 25 per cent — thanks to two six-week production halts at the Northwest Territories mine. If both shutdowns go ahead as planned, Diavik will have its lowest carat crop since serious production began in 2004.

Diavik produced well over eight million carats in 2008 and Harry Winston sold its 40-per-cent share of the gems for record prices through the first nine months of the year.

This year, however, Diavik has been busy churning out diamonds into a falling market. Harry Winston sold barely 60 per cent of its share of the diamonds recovered in the fall of 2008, and the lower winter crop this year will help keep its mounting inventory of unsold rough under control.

During the first quarter of 2009, Diavik recovered 1.79 million carats from 427,000 tonnes of kimberlite — about the same as a year earlier, but 30 per cent lower than the final quarter of 2008.

Besides plummeting prices, the decline in production was not helped by one of the harshest winters in years.

Harry Winston’s chief executive officer, Bob Gannicott, says his company is financially prepared for a long slump, although he adds there have been some encouraging signs recently. (Of course Mr. Gannicott, who held all his 750,000 Harry Winston shares through the company’s big stumble from $50, is hardly a natural pessimest.)

Thanks to major production cuts around the world, rough diamond prices have bounced back a bit after falling nearly 50 per cent from last summer. Although Harry’s share of fourth quarter production was one million carats and the company sold $50-million (U.S.) worth of gems, its average price was significantly better than what arithmetic suggests.

Harry Winston sold barely 600,000 of those carats, and long division based on that number yields a much rosier result. That value may be equally unrealistic, as many of the unsold diamonds would logically be the smaller stones less in demand. The best guess is that Harry’s diamond values, which dropped from just over $100 (U.S.) per carat to about $65 (U.S.) per carat, are now fetching something around $75 (U.S.) per carat.

During the first quarter of 2009, Diavik’s production grade averaged 4.18 carats per tonne. The mine is still scraping kimberlite off the bottom of the A-154 South open pit, which is already well beyond its originally planned depth. Through much of 2008, the A-154 South rock was barely averaging four carats per tonne, but the grade suddenly bounced back last fall and now averages over six carats per tonne. A majority of the Diavik diamonds are now coming from the new A-418 open pit, which averages about 3.5 carats per tonne.

With A-418 able to meet production targets on its own and A-154 South likely to provide kimberlite for at least a few more months, the Diavik partners are putting off the start of underground mining until at least some time in 2010.

Some readers may have seen an April 19 segment on NBC Nightly News that reported that $50-billion (U.S.) worth of supply is waiting to come on a recessionary market, and some unnamed dealers figure prices could fall 60 per cent this year. Of course, the network was talking about polished gems: $50-billion worth of rough diamonds would represent nearly five years of production, based on rosier days in 2008. Worse, a further 60-per-cent drop in rough diamond prices would kill all operating diamond mines — which would of course solve any oversupply.

Harry Winston lost $1.14 to close at $4.72 Monday on 1.25 million shares.

UP AND DOWN WALL STREET Don’t Bank on It

Monday, April 20th, 2009

By *ALAN ABELSON* The banks have been the spark plug of this powerful stock-market rally, but past may not be prologue. Goldman’s missing month.

*THE AMAZING RANDI. WE’D NEVER HEARD OF THE CHAP UNTIL* last week, when we were indulging in an old habit that began way back when we were a copy boy (the journalistic equivalent of a galley slave) and took to passing some of the grudgingly little downtime allotted to us poring over the obituaries. Our interest was not born solely of innate ghoulishness, but nurtured also by the fact that an obit provides a highly compressed and often fascinating biography of those noteworthy souls who have recently departed from the ranks of the quick.

In this instance, the subject was not the Amazing Randi, but John Maddox, a British editor of considerable renown who transfigured a stuffy magazine named Nature into a scintillating science journal. Mr. Maddox, by all description an unflaggingly imaginative and energetic editor broadly versed in the sciences, was graced with a flair for the unorthodox and a sharp nose for bamboozle.

Back in the late 1980s, he published a piece by a French doctor claiming remarkable qualities for an antibody he had studied, but only on the condition that an independent group of investigators chosen by Mr. Maddox monitor the doctor’s experiments. Among the investigators he chose was the Amazing Randi (nĂ© James Randi), a professional magician whose knowledge of science may have been limited but whose knowledge of hocus-pocus was peerless. The poor doctor’s goose was cooked.

Mr. Maddox’s engaging inspiration got us to thinking, gee, wouldn’t it be great to have an Amazing Randi handy to help uncover the voodoo that has caused investors virtually en masse to suspend disbelief. We’re referring, of course, to their marvelously revived tendency to slip on their rose-colored glasses, which for so long had been gathering dust on the shelf, when viewing corporate fortunes or the economy at large.

Take for example, dear old Goldman Sachs, which has enjoyed a mighty burst of enthusiasm among Street folk that has sent its shares sprinting to the vanguard of this smashing stock-market rally; an enthusiasm, moreover, that has spilled over to other banks and their financial kin. No argument, the firm has handsomely outperformed its few surviving rivals, none of which is blessed with Goldman’s deft trading skills or tight Washington connections.

Goldie reported earnings of $1.8 billion for the first quarter. In doing so, it got a lucky boost from its switch from a fiscal year ending November to a calendar year. The shift came in response to statutory fiat, as part of Goldman’s change to a commercial bank, a prerequisite to gaining eligibility for all those lovely billions in loans and guarantees the government has been showering on banks.

That $1.8 billion in March-quarter profits was a heap more than its analytical followers expected, and, as intimated, a sparkling demonstration of Goldman’s vaunted trading agility (from what we can gather, it made a bundle in part by timely shorting bonds). The switch in its fiscal year took December out of the first quarter and made it an isolated, stand-alone month, relegated to an inconspicuous assemblage of bleak figures far in the rear of the company’s 12-page earnings release.

As it happens, Goldman lost some $780 million in December, a tidy sum that obviously would have taken a lot of the gloss off its reported first-quarter performance. And, who knows, it might have even drained some of the zing that the surprisingly good results lent the stock.

But, in any case, the very next day, the spoilsport credit watchers at Standard & Poor’s threw a bit of cold water on the shares by venturing that, in light of the soggy economy and unsettled capital markets, it would be “premature to conclude that a sustained turnaround” by Goldman was necessarily in the cards.

The financial sector, as even the most cursory spectator of the investment scene doubtless is aware, has provided the crucial spark to this powerful bear-market rally. And, in particular, the return from the very edge of the abyss by the banks in the opening months of this year has revived fast-swelling bullish sentiment.

The question naturally arises: How did the banks, so many of which seemed to be slouching toward extinction, get their act together to the point where they were in the black in January and February?

In search of an answer, we turned up an intriguing explanation for this magical metamorphosis by Zero Hedge, a savvy and punchy blog focusing on things financial. Not to keep you in suspense, Zero Hedge fingers AIG, that repository of financial ills and insatiable consumer of taxpayer pittances, as the agent of the banks’ miraculous recovery.

But not quite the way you might think. As Zero Hedge explains, AIG, desperate to hit up the Treasury for more moola, decided to throw in the towel and unwind its considerable portfolio of default-credit protection. In the process, the badly impaired insurer, unwittingly or not, “gifted the major bank counterparties with trades which were egregiously profitable to the banks.”

This would largely explain, according to Zero Hedge, why a number of major banks actually, as they claimed, were profitable in January and February. But the profits, it is quick to point out, are of the one-shot variety, and, ultimately, they entailed a transfer of money from taxpayers to banks, with AIG acting as intermediary.

Lacking any deep familiarity with the arcana of credit swaps and the like, we can’t swear to the accuracy of this analysis. But shy of conjuring up the Amazing Randi and have him unveil the truth, it strikes us as plausible — and easily as persuasive as many of the various explanations we have come across for the surprising and rather mysterious turn for the better by the banks.

If by chance it proves out, it just might act as a sobering influence, and not just on the financial sector.

*FRANKLY, WE’RE AS BORED WITH THIS BEAR* market as anyone. And we fully understand, after a year of brutal pummeling, the frantic hopefulness with which investors respond to the inevitable bounce, especially when it’s as robust as this one has been.

And we understand, too, their eagerness to grasp at the flimsiest hint of recovery and to strain to put a good face on every twist and turn of the economy, no matter how ugly. But we fear — as some tunesmith crooned long ago — wishing won’t make it so.

There’s nothing obviously wrong when investors, confronted by what seems to be a sold-out market and tired of sitting on their hands, decide to take a fling on a bear-market rally. And it certainly has been rewarding for virtually anyone who a month or so ago did just that. But an awful lot of folks don’t have the time, the discipline, the nimbleness or the spare cash for that sort of hit-and-run investing.

And the danger resides in being carried away by a momentary spate of quick gains and turning a blind eye to the riskiness of the market, which now is a heck of a lot greater, if only because the advance has carried price/earnings ratios to elevated levels — something above 20 on the Standard & Poor’s 500 — or to the critical negatives in the economy.

David Rosenberg of Bank of America/Merrill Lynch (we can’t believe we said the whole thing) last week offered some worthwhile observations on the stock market and the economic landscape that just happen to buttress our own reservations.

He points out that the two groups that paced the sharp upswing were financials and consumer cyclicals, in which there are, respectively, net short positions of 5 billion and 2.7 billion shares. Which strongly suggests that not an insignificant part of the rally has been provided by shorts running for cover.

He also points out that the Russell 2000 small-cap index is up 36% since the March low, and has outperformed the S&P by some 980 basis points. As David says, “the last time it pulled such a massive rabbit out of the hat” was in the stretch from late November to early January, and the major averages proceeded to make new lows two months later.

Another amber light he spots is investor confidence. Over the past five weeks, he reports, Rasmussen, which takes a daily reading, has seen its investor-confidence index surge 32 points, an unprecedented climb in so short a span. This could be, he suspects, a “fly in the ointment for a sustained equity-market rally.”

David has four markers that will signal to him that the economy is finally making the turn and starting an extended expansion. The first is home prices. The second is the personal-savings rate. Marker No. 3 is the debt-service ratio, and No. 4 is the ratio of the coincident-to-lagging indicators of the Conference Board.

Aggregating those four markers, he calculates that we are roughly 44% of the way through the adjustment process. That is a tick up from where we were last month. However, the improvement, he laments, has been very modest and very slow.

We should add that he also stresses that it’s critical for both the economy and the market that payrolls stop shrinking. All the talk about jobless claims “stabilizing” is so much poppycock, he snorts. That number of claims, he notes, is still consistent with monthly payroll losses of around 700,000. As with industrial production, which is also in a vicious slump, employment must stop falling before a recession typically ends.

“Call us when claims fall below 400,000,” he says, which is his estimate of “the cut-off for payroll expansion/contraction.”

Until then, he warns, “the recession will remain a reality. Rallies will be brief, no matter how violent, and green shoots are a forecast with a very wide error term attached to it.”

Why Cuba Matters

Saturday, April 18th, 2009

WhyCubaMatters.jpg

Fri. Apr. 17 2009

Walter Berukoff, one of the few foreigners who have made a fortune in Cuba, tells CNBC why Cuba matters.

Walter is the President of Leisure Canada which owns one of the largest portfolio’s of beach front property in Cuba, this is a publicly traded company that trades on the TSX.v under the symbol of LCN.

I am a share holder, and plan on picking up more, I think that this stock will have a significant move above what it already has had, in the very near term. Just for clairity, I am not being compensated in any way by the cmpany for my statements. If you are planning on making an investment you should not rely on anything stated here, please do your own due dilligence

Dennis Gartman Live on BNN – Good reason to look at base metals

Friday, April 17th, 2009

marketcall - April 16 2009.jpg

Market Call : April 16, 2009 *…* Play Add To My Lineup; April 1, 2009 Play. Play Add To My Lineup. [04-16-09 12:30PM] BNN speaks with Dennis *Gartman*, editor and publisher, The *Gartman*Letter. *…* watch.bnn.ca/market-call/april-2009/market-call-april-16-2009/ – 52k