Aurelian Resources Was Stolen By Kinross and Management But Will Not Be Forgotten
The company whose shareholders were better than its management
Message: Early time ARU Poster Bob Brummel report today. He's good!
September 1st, 2008 Volume 6, Number 9 T TSSXX V Venetnutruer e Spot Prices, August 22nd close.……. (Prices in brackets are as of last issue) URANIUM SPOT PRICE $64.50 ($59.00) Gold - $829.90 ($934) Silver - $13.59 ($18.12) Platinum - $1463.00 ($2001.00) Palladium - $303.00 ($453.00) Metal Prices and Inventories Page 2 Price Price Price Inventory Commodities - getting back to reality. As the CRB commodities index chart below shows, commodities have been in freefall through the month of July and didn’t bottom out until mid-August. Since then they have staged a weak rally which may be ending. We could see another leg downward or at least a double bottom before this negative trend is finished. When it comes to mines and minerals, the situation is even more evident when looking at the charts of various metals on the previous page. With the exception of uranium which moved slightly upward, all other metals moved either sideways or in some cases dramatically downwards. Most notable drops have occurred in platinum and palladium prices which can probably be attributed to increased South African production and the dismal state of the automobile industry. While copper prices also dropped, the consensus of expert opinion is that they can generally be expected to hold at current levels or even possibly rise through 2009. Looking at the LME chart for a nickel inventories, it appears as though inventory levels may have peaked and beheading downward. Despite this, most experts believe nickel prices will sag another 10% through 2009. Some people have wondered why we show LME inventory charts. The answer is quite simple. There is often an inverse relationship between inventory and price. Put another way, as inventories rise, prices tend to fall. If you look at the charts shown on the previous page, you’ll see that happening although there can often be a lag in time before prices respond to inventory levels. At the present time the great speculation is whether or not we are in a recession, about to go into a recession, or for that matter an end of the world depression. Unfortunately yours truly doesn’t know and sincerely doubts that anyone else does. Meanwhile the big financial crisis continues around the world. Until it shows signs of being resolved, speculation on commodities or stocks is roughly equivalent to playing poker outdoors in the middle of a hurricane. With so much debris flying around it’s hard to concentrate on the game. Under the circumstances, why bother. For that reason I’ve been sitting on the sidelines. The Markets Page 3 DJ Industrials TSX Composite DJ Industrials S&P TSX 300 An Update Page 4 A Rotten Summer When it wasn’t raining it was cold. Reading newspapers was a dismal past time. News was always dreary with markets generally easing down. On the few nice evenings, we sat on the back deck and listened to the sound of house prices collapsing. Yep, just a rotten summer. Now we are into September. Wish I could get excited about markets but can’t. There are too many uncertainties over which no one has any control. That means no one can predict when investors may get nailed by a curveball. We can’t even predict where it might come from let alone guess who will be throwing it. The only good bet is that when the world gets shaken-up as it recently has, expect nasty curveballs will come flying at you from any direction and trash your lovely plans. So on this Labor Day holiday, let’s take at brief look at the current situation and some possibilities. Financial Crisis At this point, the financial crisis lingers on. While some experts in this field believe the worst is already over, others are saying exactly the opposite. They believe more bank failures are inevitable and one or more may be major collapse. Obviously this is a highly complex area. Worse, it is a very murky area where much is concealed. Only a few people, if any, know the real extent of the crisis and those most likely to really know remain silent. However, while the real situation remains hidden, we investors do know a few things. For example, we know that financing is becoming increasingly difficult for both people and companies. For mining juniors, raising exploration capital is becoming increasingly difficult and there is no reason to think it will get easier anytime soon. Naturally this has an impact on share prices. As companies burn through their existing capital they will have a harder time replacing it. The easy days are over. The bottom line is that mineral exploration will gradually slow in the coming year. Commodity Prices As is now obvious to all, metal and other commodity prices are in a general freefall. Equally obvious, not all commodities are falling at the same rate or time. For example, uranium started its dive almost 2 years ago. Shortly thereafter, nickel peaked followed by zinc and lead. Of the major base metals, copper has been the one to show the most sustained strength although it too is now showing signs of weakness. While this price action may come as a surprise to those who have been selling the idea of 17 to 20 year cycles, it shouldn’t be any surprise to those not caught up in the hype. All that is really happening is metal prices are returning to levels at or slightly above their historical norms. This is normal and healthy. Companies which can produce profitably at these levels will thrive. Those who’s share prices were based mainly on hype and hope will eventually collapse. China The big story for the last few years has been China’s rapidly growing economy and the emergence of other dynamic economies in Asia. According to this story, China’s growth would create an insatiable demand for commodities that would last for many years. To some extent that may be true but along the road there will be hiccups and it appears we are in one now. Consider a few facts. China’s gross domestic product peaked at an annualized rate of 12.6% in the second quarter of 2007. Since then it has eased to 10.6% in the first quarter of this year and 10.1% in the second quarter. That’s still incredibly rapid growth but consider inflation. For the past decade, inflation ran at the rate of 1.3% a year. However, earlier this year the rate of inflation escalated to 7.1% and is currently running at about 6.3%. Subtracting the inflation rate from their growth rate, their real rate of Please Note: the first page of this letter were written on August 5th. We have left it basically as written
and changed the chart. Our intention was to complete and issue on August 6th. Due to a family problem, it didn’t happen. But look what’s happened since. We had total carnage in commodities….. and it’s likely not over yet. Can’t fight city hall so we relaxed and tried to enjoy the summer. An Update Page 5 growth is considerably less than most realize. Meanwhile many manufacturers have been having difficulties and their output may actually have contracted in the past couple months. Official bankruptcy statistics, which may well be very conservative, show that over 67,000 small and mid-sized businesses were permanently closed in the first half of this year putting millions of people out of work. Factory closings designed to control pollution during the Olympics may end up depressing economic growth this year, according to Goldman Sachs in a recent report. The Chinese are an amazing people who are incredibly resilient. None of the above is written to indicate their economy is in trouble. What it does indicate is that their past rate of growth is likely slowing and as a result, their need for various commodities may be reduced at least for the short term. Western Europe It appears economies in the euro zone are either in recession or headed for it. Like America, they too experienced a housing boom fueled by easy credit. Adding to their woes, many of Europe’s largest financial institutions were heavy buyers of toxic American financial instruments. The result has been the collapse of several significant financial institutions and a severe tightening of credit. This in turn has led to their current slowdown and a subsequent reduced demand for various commodities. Russia Russia has been acting in mysterious ways. They recently threw the world a curveball with their sudden entrance into Georgia. While it can be argued they were provoked and their counter-attack against Georgia was justified, nonetheless it was surprising. Despite having signed an agreement to pull back, at time of this writing they have still not done so. Urgent meetings are being held by European leaders. There is noise. Coupled with recent Russian threats to Poland, their control over natural gas supplies to Western Europe, and the potential for further Russian interference in the Ukraine, investors can likely expect more curveballs coming out of Russia. The last one regarding Georgia surprisingly had little effect on markets. The next one may not be so tame. Energy Of all the potentially negative factors, this is the biggest. In a nutshell, the industrialized world and in particular, the United States needs more energy. In the past this meant more oil and natural gas but both those commodities are running out while prices skyrocket. Obviously something has to be done. Changes must be made. The question is, what will those changes be and what alternatives are available? The amount of wealth flowing from industrialized nations to major oil producers is unparalleled in world history. To continue what we are doing is plain nuts not to mention financial suicide. Many alternatives are being considered. So too are many scatterbrained schemes. Hopefully industrialized nations will come together and focus their efforts on rational programs to eventually solve the problem. At this point there does not appear to be one single solution on the horizon. Instead, at least for the short term, it appears that a combination of varying technologies including wind, hydro, solar, nuclear, biomass, used in conjunction with conventional coal, oil and gas will be the answer. Adding to the difficulty of finding a solution is the newly found worry about carbon emissions. It’s difficult to know how this story will play out in future years but for now it greatly increases the difficulty in developing energy self-sufficiency. The search for new energy sources promises to be one of the greatest investment stories in this century. I believe it will create some of the biggest profits -and losses - for investors. In the meantime, the world’s need for energy is the root cause of many nasty geopolitical events. Obviously events transpiring in Iran, Iraq and Saudi Arabia are triggered by oil concerns. However, oil’s footprint is much larger than just in the Middle East. For example, it was probably to threaten control of an east-west pipeline that triggered Russia’s entry into Georgia. Similarly, it is the worry about Russia’s control of natural gas to Western Europe which causes concern. And it doesn’t stop there. Consider Venezuela, Colombia, Ecuador, and other countries closer to home. All have the potential to create problems. If Russia has world-class ambitions as some people are starting to wonder, perhaps the next Cuban crisis will be known as the Venezuelan crisis. Yep, that could be a really nasty curveball. GXS have 1,351 sq. kilometres of ground One sq.
kilometre with a coal bed 25 metres thick would contain 33,750,000 tonnes of coal. So lets imagine just 1% of their ground has 25 metre thick coal-filled basins. That would approximate 13.5 sq. kilometres or 455 million tonnes of coal. That's big! Now lets imagine just 3% of their ground has coalfilled basins. That would approximate 40.5 sq. kilometres or 1.36 billion tonnes of coal. That's huge! And lets add a couple other points. In drilling those mag anomalies, they were hitting coal 2 for 2. Another of their holes which was not a mag anomaly was reported as follows: Hole BD08-05 was drilled approximately three
kilometres to the northeast of BD08-02, and approximately 4.5 kilometres to the northwest of initial discovery hole BD08-03. The hole was drilled to a depth of 133.5 metres and intercepted a 36.8-metre coal seam from 78.2 to 115 metres. Bottom line, considering the above numbers, I believe the potential for a major discovery is good. Those who expected one massive continuous coal bed over all their ground have been disappointed. But when you consider results to date and likely nature of basins, if coal filled basins cover just 3 - 5% of their land holdings, the deposit will be truly vast. Going further, from drill results to date, 3 - 5% seems quite possible…. or even probable. But the big question is targeting so like Joe I wondered about their geophysics. Coal is not my bag. Perhaps exploration will boil down to a massive drilling program this winter. Fortunately, holes are shallow and perhaps they'll find a way to correlate good holes with certain geological or geophysical features. Either way, I think after freeze-up this play will develop nicely once again. Stakes are high. And despite the naysayers, I think there's a big future for Saskatchewan coal...... a large deposit is discovered. Companies and Projects Page 6 Saskatchewan Coal Play Gold Source (GXS:TSXV) . What a chart - from just a few pennies to almost $20 before a big let down to the $4 range….. not to mention the volatility which saw it crater from $14 range to $4 before rallying all the way back up to $14 again before sagging through August back to the current $4 level. Most of what follows was also posted on the website forum. As noted by “Joe”, the 2 discovery holes were drilled into mag anomalies while looking for kimberlites. He wondered what geophysical tools they were now using to find coal. I’ve been wondering too. The company has mentioned their theory about coal forming in basins which they think lead to a larger basin. I found that hard to visualize until driving along south shore of Georgian Bay recently towards Owen Sound in Ontario and seeing deep basins (valleys) several kms across in sedimentary rock. Then I could visualize what they were theorizing. When I got home, I looked at the Saskatchewan coal maps and re-read past reports. Many investors assumed the 25 plus metre thick coal bed would be continuous despite GXS management stating their theory of a major basin with smaller sub-basins. So I did a little figuring as follows. Beware of Gold. Gold closed the week at $829. It’s not trading well. Considering all the bad and potentially bad news, it should be responding and trading better. Reading Kitco and related gold sites, enthusiasm still abounds for the metal. Many believe it’s a bargain and at present prices, a gift. They may be correct but I don’t agree with them. Barring some natural disaster or unfortunate geopolitical event, I see gold as trading poorly and likely to experience another downward leg. Gold bugs live in their own world. Mainstream investors don’t share their views about the demise of the world’s economy, etc. Similarly, most mainstream investors don't see gold as being money. I don’t either. To me, gold is Geoshares Newsletter is published bi-weekly and sent by e-mail to subscribers as a PDF attachment. Additional “Alerts” and “Updates” are issued as necessary. Subscription rates, terms, conditions and disclaimer, are as posted on our website at www.Geoshares.com. Copyright by Geoshares 2008 Geoshares 44 Oakridge Drive Barrie, Ontario L4N-5N8 Canada FAX : 705-722-7363 E-Mail : Office@geoshares.com just another commodity with it’s own unique attributes….. but it’s not money. Going further, should I choose to invest in gold, I will be spending real money (in my case called the dollar) to purchase it. All this is dead wrong according to gold bugs. They insist gold is money and the dollar just a fiat currency. Most believe the world’s financial system is headed for ruin at which time, gold will once again be realized as the only real money. Consequently, reading gold bug articles and posts is a dismal past-time. Their repetition becomes monotonous but they must keep it up. Their story is really about selling fear. Their only solution is buying gold. Without fear, gold’s investment potential is diminished. Arguing about this with gold bugs is futile. What can be argued are future price trends. I see them as negative for gold in the short term.
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