A Melman Minute
By: Leonard Melman
July 21, 2008
While there are indeed times that the saying, "Don't
just stand there, do something!" may be appropriate, there are also others when
the situation needs to clarify itself and where hasty action may be
inappropriate. This morning appears to be one of the latter times as most
markets of the markets we follow have opened quietly.
As of 8:00 AM PDT, gold was ahead by about (all prices US$) four dollars to near
$962 with silver gaining over 20 cents and platinum also stronger. Base metals
were higher on balance with copper, zinc and lead showing good gains while
nickel was moderately lower. Crude Oil was back above $131 per barrel, financial
markets were close to unchanged in the US but higher in Canada, and the U.S.
Dollar was slightly lower.
It is the last item that we believe is of particular
importance. Please note that the chart for the September contract of the U.S.
Dollar Index is beginning to trend lower. There is support near the previous low
in the vicinity of 71.5 and, if this is broken to the downside, the all-time low
just above 71 would be a next target for dollar weakness. Given the normally
close historic relationship of the price of gold to the Greenback, this chart
bears close watching.
One of the trends which we believe is affecting society at large and the mining
industry in particular is the steady growth in the complexity, time and expense
of following the forest of regulations which has sprung up in recent decades.
Monies which used to be spent on actual mining development - which presumably
would be of the greatest benefit to shareholders and investors - is now being
spent in attempting to satisfy these laws and directives. As a result, mining
companies are forced to return to the money markets with increasing frequency,
often with negative impact on share dilution.
Unfortunately, at least for those companies doing business in Ontario, the
potential difficulties which might be encountered in bringing a mine into final
production appears to have increased. The problem regards a relatively new
creation of the Ontario legislature, the "Ontario Environmental Review
Tribunal."
We might add the thought that as public frenzy over "Global Warming" concerns
increases, so also on the rise is the creation of new environmental regulatory
bodies and agencies.
According to a column authored by Pierre Boucher and published in the National
Post this morning, the potential for delays and additional expenditures has been
increased. As Mr. Boucher puts it, "Imagine being involved in a lengthy and
comprehensive environmental approvals process, meeting all the requirements and
finally getting to the end of the line three years later by obtaining an
environmental certificate of approval, only to find that the line has been moved
significantly. That's what's happened in Ontario..."
Although the actual business Mr. Boucher is describing is related to the
processing of cement, the consequences could just as easily apply to mining
ventures.
In essence, "...the Tribunal granted a small but vocal minority the right to
appeal a stringent certificate of approval issued by the (Ontario) Ministry of
the Environment for an environmentally approved initiative..."
He then goes on to deliver this information which should interest every Ontario
mining executive: "In an amazing and wide-reaching decision, the tribunal ruled
that mere compliance with the government's own environmental laws and
regulations is insufficient for the protection of the environment. This decision
raises serious concerns about whether any industry operating in Ontario can rely
on strict and comprehensive environmental rules..."
In other words, obedience to law is no longer a protection against further legal
actions. Mr. Boucher does note that many industries may be forced to consider
whether they should remain in Ontario, but, unfortunately that choice does not
apply to our mining industry.
Regarding the general markets, our view is that a period of re-evaluation is
taking place. The general optimists believe that it is still possible for
governmental experts to resolve the various serious problems which are
afflicting America's and the world's economies, while those of us who are more
pessimistic believe that those difficulties will not be so easily corrected.
When the former group is in the ascendancy, as they have been in the past
several trading session, financial markets rally, sometimes strongly. When the
latter group dominates trading, those markets have fallen.
What we can factually report is the reality that evidence of further weakening
of the economic news background continues to pour in. For examples, we note
recent reports that American home-building is still in decline with the number
of new residential construction starts falling to a new 17-year low in June;
confidence among Canadian exporters in the U.S. economy has fallen to the lowest
levels recorded in the survey conducted by Canada's federal export agency; and a
report out of England notes that one of the Bank of England's policy-makers,
Andrew Sentance, had just declared that England was suffering through its worst
inflation in more than a decade and interest rates in the U.K. might have to be
raised, and soon.
So, perhaps the wisest strategy, at least for the moment, is simply to adopt a
'stand and wait' concept and let matters sort themselves out over the next few
trading sessions.
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