A Melman Minute
By: Leonard Melman
Sometimes it is hard to ‘connect the dots’ between
news stories, but that does not diminish their potential significance. Also, it
is often difficult to make a connection between those stories and how they
affect our primary field of junior mining share information, but in this
particular case, the connection could indeed be important.
The two stories do indeed appear to be unrelated, as one applies to a large
gathering of ducks and the other to the world food crisis. However, we do
believe that they could point the way to higher inflation and, therefore, to
enhanced prospects for precious metals mining shares.
Our first article relates to an estimated 400 to 500 mallard ducks which,
unwisely, chose to alight on Mildred Lake in northern Alberta, a lake which
happened to be contaminated by toxic hydrocarbon tailings deposited there as a
result of oil sands recovery operations conducted by Syncrude Canada Ltd. in the
general vicinity of now-famous Fort McMurray. Unfortunately, virtually all the
birds perished.
The environmental movement immediately swung into action to denounce the tragedy
while, according to a Globe and Mail story, “…provincial and federal governments
have launched investigations under environmental and migratory bird legislation,
which could result in charges and fines of up to C$1 million or prison terms
against the worlds’ largest producer of synthetic crude oil. (Exactly how you
imprison a producing corporation is a matter we will leave to the Globe and
Mail’s reporter.)
One government Minister, Ted Morton of ‘Sustainable Resource Development’,
thundered “We’ll get to the bottom of this. We’ll get the facts and, and, if
there is negligence, negligent parties will pay.”
In fact, this is no laughing matter, far from it. Incidents such as this provide
powerful ammunition for the environmental movement against all resource
development and they will surely use it to attempt to shut down the entire tar
sands recovery of oil - or at least impose huge new and expensive regulatory
requirements on the industry. In either case, the production of petroleum from
that valuable source is likely to become more difficult and expensive.
The second series of articles relates to sudden and powerful actions
contemplated by governments to reduce the amount of food source material being
diverted toward ethanol production. Clearly, the most important such source is
corn. While the logic of re-diverting all that corn back to food appears to be
sound, and it is indeed questionable why the ethanol program was ever attempted
in the first place, given the illogic of creating ethanol-based-energy when more
energy is used in its creation than provided in the resultant product, the fact
is that substantial quantities of ethanol are being created, and this is
reducing the quantity of gasoline which must be refined to satisfy the
marketplace.
If ethanol production is diminished, or ceases altogether, this will put
additional restrictions on already-stressed gasoline supply chains, and could
result in higher gasoline prices over time.
And so, two seemingly unrelated articles indeed could point toward the
exacerbation of the world’s growing energy supply crisis - which should then
redound toward higher energy prices and rising inflation.
If we are able to interpret such stories as having potentially positive
consequences for mining shares, we also must point out that there is a
continuous flow of negative information abounding, particularly as it relates to
the industry’s relations with foreign countries. Two more examples have just
come to light, in addition to the recent negative actions taken by the
Ecuadorian government.
One of the most persistently embattled companies we know of has been Crystallex
International Corporation. First, they had to fight a multi-year battle with
Placer Dome to finally gain control of the giant Las Cristinas Project in
Venezuela, on which resource calculations show 16.9 million ounces of gold as
proven and probable reserves, potentially recoverable in an open-pit operation.
Crystallex then devoted six years to advance the project to the point where the
company believed it had met the government’s permitting requirements.
However, the company’s hopes received a severe setback when Venezuela’s Ministry
of Environment and Natural Resources, as the Financial Post put it yesterday,
“…rejected the company’s request to continue exploration, citing “sensitivities”
with indigenous people and the government.” Given that ruling, it is difficult
to see how the company might proceed any further with the project, particularly
in view of Socialist President Hugo Chavez’ known hostility to outside resource
development in Venezuela.
While no definite reason for the government’s actions was declared, the National
Post article carried suggestions that government insiders have been ‘shorting’
Crustallex stock, presumably knowing in advance that such a ruling could be
forthcoming.
As can be seen from the price chart, the stock, which had already been in
decline for several months, was hammered by the marketplace on the release of
this negative news.
In other foreign-related news, major mining company Inmet Mining Corp. received
a double dose of negative information when it learned that a recent court ruling
in Turkey will force them to temporarily shut down a copper mine in that nation
while Spanish water authority concerns could impede operations and ore shipments
at its Las Cruces copper mine located in the region of the historic city of
Seville.
In an important news release this morning, the U.S. Department of Labor reported
the loss of another 20,000 jobs in the United States during April. While one
might have thoughts that such news would disturb investors, that was not the
case as securities markets in America soared on the news, perhaps rejoicing in
the fact that it could have been worse. Markets in the USA and Canada rallied
strongly at the openings with the Dow Industrials up over 120 points and the TSX
ahead by over 200. The Dow has subsequently retreated to +50 (after two hours)
but the TSX is holding on to its gains, thanks to higher metals and petroleum
prices.
Gold has indeed rallied from its recent lows, moving back to near (all prices
US$) $860 after a morning low of $844, silver and platinum are up this morning
by thirty cents and $32 respectively and the base metals are also stronger.
Crude oil has bounced significantly, up over $3.00 to above $115 per barrel and
the U. S. currency is also moderately stronger. For a welcome change, mining
shares indexes are higher this AM.
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