A Melman Minute By: Leonard Melman   August 29, 2008 One of the difficulties facing companies who choose to partake in mineral exploration and development in foreign nations, particularly those located in undeveloped nations without a lengthy history of reliable contract law enforcement, is the uncertainty of the actions of those governments.  We have just received yet another example of the risks involved. In a press release issued yesterday, Axmin Inc. announced that they had just received word, via a local radio announcement, that the government of the Central African Republic had, without prior explanation or hearings, amended the details of their Bambari 1 and Bambari 2 mining permits.  The permits, valid through June 29, 2010, had approved developments related to gold, silver, copper, nickel, lead, zinc and iron.  The sudden change restricted the permits to gold only. According to Axmin President and CEO, Mario Caron, "...The government of CAR has not explained to us why the Amending Decree, revoking our rights to minerals other than gold on the Bambari 1 and 2 permits, was necessary.  We are extremely disappointed that the impact of the Amending Decree will be to delay our lawful access to the iron belt contained in the Topa Iron discovery..." We cannot help but wonder whether these undeveloped or under-developed nations truly understand the potential impact of such arbitrary and sudden changing of the rules under which foreign companies operate.  There are already sufficient risks in mining and if these countries hope to encourage foreign capital to invest in their nations' undeveloped resources, they should know that nothing is more discouraging to the investment of capital than a situation where there is no certainty regarding the honoring and enforcement of legal contracts.  Clearly, foreign governmental risk assessment should be an important area of concern to both mining companies and the investing public. Yesterday we noted that there was a seeming disconnect between recently-announced upward revisions of America's economic performance and the stream of data from both governmental and private economists that indicates worsening background conditions.  More such contradictory reports surfaced this morning with the release by the U.S. Commerce Department that both Personal Income and real economic spending both fell last month. According to government figures, real spending, after adjustment for the government's (understated?) inflation figures, fell by 0.4% in July.  At the same time, they reported that Personal Income fell by 0.7% in July and Real Disposable Income fell the same month by a large 1.7%.  Both of the latter figures represent the second consecutive month of declining earnings and spending. So, let's see.  On top of all the contractions in the construction world, on top of all the worsening employment numbers, on top of the ramifications of the spreading credit and banking crisis, the government now reports that personal earnings are down and real spending is down - and yet the same government reports that economic performance in terms of GDP figures for the Second Quarter 2008 is rapidly improving.  Please accept our apologies, but we remain skeptical that something just doesn't add up! Adding to the concerns noted above, we have just read a report by the Associated Press, carrying a Washington, DC deadline, that America's banking industry is still facing a mountain of woes.  To quote the report, "U.S. banking industry profits plunged 86 percent in the second quarter and the number of troubled banks jumped to the highest level in about five years, as slumps in the credit markets continued."  We are then offered comparative figures which show that federally insured banks earned (all prices US$) $36.8 billion in the second quarter 2007, but only $5 billion in the same quarter this year.  The report also informs us that 117 banks and thrifts were considered to be in trouble this year, up from 90 in the prior quarter and the largest number in any quarterly report since 2003.  FDIC chairwoman Sheila Bair summed things up by noting, "Quite frankly the results were pretty dismal."  There is yet another area of concern the article noted.  Many of the banks in the FDIC-insured system are holders of Fannie Mae and Freddie Mac preferred stock.  Given the fact that the market quote on those shares has recently plummeted, the article states that such a situation, "...could be costly for scores of banks that hold billions in their preferred shares." Once again, let's take a good look.  Bank earnings are falling sharply; the number of banks potentially in trouble is rising; banks holdings of government-backed assets are falling dramatically in value - and, yet again, the government tells us that the economy is expanding at a robust rate. Well, perhaps we can all scratch our heads during the upcoming Labor Day long weekend to try to make sense out of all that contradictory information. Markets this morning have shown widely varied directions.  As of 8:00 AM PDT, gold and the other precious metals are close to unchanged, base metals are sharply lower, petroleum is higher and the U.S. Dollar is close to unchanged.  Securities markets in both Canada and the USA are lower with the Dow Industrials off by over 100 points while the TSX Index is down about 60. One other note, which actually benefits Canadian mining companies, is the sharp drop in the Canadian Dollar this morning, down by almost 100 basis points to about 94.30 cents versus the US Dollar.  Since prices for most metals are denominated in Greenbacks, any fall in the Canadian currency provides greater revenue in terms of the C$ for Canadian miners. Have a happy long weekend.   ◄  Previous Minute                                                                                                         Next Minute  ►
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