A Melman Minute
By: Leonard Melman
Here we are at the beginning of a new month, with
one-third of 2008 already in the books, and for mining share investors and
mining companies as well, on balance it has not been a particularly joyous one
despite early significant rallies. Precious metals have recently encountered
substantial selling and the mining share indexes have been relatively weak as
well.
Early trading this morning has offered little comfort, as gold is down about
twenty dollars in the first hour of trading to near (all prices US$) the $850
level, the lowest quote for the yellow metal in almost two months. Other
precious metals are also sharply lower with silver down about 60 cents to just
above $16.00 per ounce while platinum has fallen below $1,900. Base metals are
also being sold down with lead and zinc being particularly hard hit. Securities
markets are about unchanged and crude oil is about one dollar lower, having
fallen to near $112 per barrel.
There is a very interesting ‘battle’ going on in the currency markets between
the U.S. Dollar and the Canadian currency. Following several years of strong
rallies, the C$ peaked in the area of US$1.10 and then began to correct, falling
quickly to near parity - and it has remained in that area for several months,
trading in a range between 96.5 cents US to $1.03. As can be seen on the
long-term chart, there have been several sharp swings, but the range has held
for some time.
We consider the Canadian Dollar to be a proxy for the resource industry. As
demand increases for raw materials of all sorts, Canadian resource enterprises
have a tendency to profit and the currency usually does well. In fact, the great
rally in the Canadian Dollar began with the dramatic improvement in metals
quotes and has been benefiting from higher oil and agricultural prices as well.
Therefore, if the C$ were to undergo serious waves of selling, we would
interpret that as being a negative indicator for the metals. Therefore, the
recent trading range takes on some important significance to us and we will keep
our eyes on the northern currency.
Unfortunately, this morning’s effort will have to be a somewhat abbreviated
“Melman Minute” as we will be en route to Downtown Vancouver for some important
meetings, but there is one additional article we should take note of.
The Globe and Mail’s “Report on Business” section just carried a story entitled,
“Miners feel pinch from producing countries” which reviews some of the national
decisions which have taken a toll on some mining shares and on the psychological
background for mining investments as well. The list of countries which have
inflicted harm on the industry - intentional or otherwise - continues to grow
and the story pinpoints troubles in Ecuador, Argentina, Zambia, Mongolia,
Venezuela, Turkey and the Democratic Republic of Congo, among others.
These interferences have taken the form of increased taxation, violation of
previously negotiated agreements, restrictive regulatory enactments and delaying
judicial procedures.
However, one positive note is that all of these negative actions will reduce the
flow of new mineral supplies available to the world’s markets, which we believe
should put upward pressure on prices. Therefore, we would offer the suggestion
that projects in politically friendly jurisdictions could have the opportunity
to take advantage of those higher prices, should they eventuate.
Until tomorrow morning…
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