Month: July 2013

By www.CentralBankNews.info Here’s today’s Central Bank News’ link list, click through if you missed the previous link list. The list comprises news about central banks that is not covered by Central Bank News. The list is updated during the day with the latest developments so readers don’t miss any important news.

By The Sizemore Letter

3M ($MMM) is a homely company.  There is nothing sexy about scotch tape or Post-It notes.  Or Ace bandages or Scotch Bright for that matter.  We’re talking about adhesives and cleaning supplies, for crying out loud.  No matter how hard you try, there is no way to make these items anything other than boring.

And as an investor, I’m ok with that.

Men are notorious for letting a beautiful woman impair their judgment.  But the same is true of beautiful stocks.  Think of recent “attractive” stocks that have led many an investor to ruin: Apple ($AAPL) and Facebook ($FB) are two that come to mind.  Like a glamorous date, it’s nice to be seen in public with an “it” stock.  But chances are good it won’t be good for your wallet or for your long-term peace of mind.

This is not a stock you will ever brag about owning at a cocktail party.  But frankly, you should.  The stock has quietly pushed to new all-time highs, and it is beating the S&P 500 by a wide margin year to date.

But while 3M’s stock price performance has been spectacular, I’m more interested in the business and its consistency.   3M does quite a bit more than tape and sticky notes.  They make everything from the reflective films that cover traffic signs to insulation for airplanes.  But all of their products have a couple things in common:

1. They perform their functions behind the scenes and are hardly ever noticed by anyone except the user. (Last time you were on your friend’s boat at the lake, did you ever stop to wonder what brand of sealant they used?  Yeah, me neither.)
2. They are the sorts of products that tend to get used up and need to be frequently replaced.
3. When you need them, you need them.  Whether it’s an ankle brace or flame-retardant film, demand for 3M’s products is generally pretty inflexible.

Like all companies, 3M has some amount of sensitivity to the business cycle. If a company is shedding headcount in a bad economy, it’s probably not stocking up on office supplies.  But 3M’s revenues are remarkably consistent, and other than a brief blip in 2009, the company sailed through the crisis and its aftermath with barely a scratch.

3M’s consistency is also shown in its dividend payments.  The company has continuously paid a dividend for 97 years, and it has increased its dividend every year since 1959.  Its current dividend yield of 2.3% may not be extraordinary, but the dividend has doubled since 2002.  Had you bought 3M in 2002, you’d be enjoying a yield on your original investment of about 5%.  Again, not extraordinary, but not half bad either.

3M will never double your money in a year, and you’re certainly not going to get rich quick owning it.  But it’s one of those stable, consistent holdings that will quietly chug along, throwing off dividends, and never give you trouble.

If bought at a reasonable price, it’s also a stock that would be difficult to lose money owning over any reasonable time horizon.  And at 15 times expected earnings, I would say its pricing is anything if not reasonable.

Disclosures: Sizemore Capital has no positions in any stocks mentioned.

By WallStreetDaily.com

Family Dollar Stores (FDO) is seeing profits dwindle.

The discount chain’s earnings shrank in the third quarter, but they beat Wall Street’s forecasts – topping $120 million.

Overall sales did increase 9%. But looking further into the company’s financials reveals that revenue of discretionary items took a hit.

While sales of consumables (such as food and health goods) grew nearly 15%, clothing sales dropped almost 9%.

According to the company’s Chief Executive, Howard Levine, Family Dollar is struggling to get shoppers to buy things that they don’t deem necessary – something that’s bound to cut into its profitability.

“Our discretionary sales remained challenged as our customers have been forced to make spending choices between basic needs and wants. Consistent with market trends, we expect that our customers will continue to face financial headwinds,” says Levine.

Or could it be that consumers are becoming more confident – and, as a result, are moving away from discount stores in general? After all, first quarter underlying retail revenue at Burberry jumped 18%, as the British luxury brand made more than $500 million and maintained its full-year guidance.

Either way, Family Dollar expects slower sales growth this quarter at stores open at least a year, and it narrowed its profit forecast for the full year.

The stock, which had been an investor favorite during the Great Recession, has fallen roughly 8% in the last 12 months. But beware. As BMO Capital Markets analyst Wayne Hood says, “We would not use the weakness in Family Dollar as a buying opportunity, as confidence in our earnings-per-share estimates is lower.”

There is something that should put investors at ease, however. Inventory at its stores shrank a bit. Wall Street was worried that the chain had too much merchandise on hand, which could push it to further cut prices.

The post Do Lower Sales At Family Dollar Point to Tougher Times Ahead? appeared first on  | Wall Street Daily.

Article By WallStreetDaily.com

Original Article: Do Lower Sales At Family Dollar Point to Tougher Times Ahead?

By www.CentralBankNews.info    Kenya’s central bank held its Central Bank Rate steady at 8.50 percent, saying last year’s rate cuts still need time to work their way through the economy and first quarter growth was strong while inflation remains within the government’s target and the exchange rate has remained stable.
    But the Central Bank of Kenya (CBK), which cut its rate by 700 basis points in 2012, said the high current account deficit and instability in the Middle East could threaten price stability by affecting the price of oil and tea exports, with implications from Kenya’s balance of payments and inflation.
    Kenya’s Gross Domestic Product expanded by 0.5 percent in the first quarter from the previous quarter for annual growth of 5.2 percent, helped by a 8.3 percent rise in agricultural output.
    The inflation rate rose slightly to 4.91 percent in June from 4.05 percent in May, within the government’s medium-term target of 5.0 percent, plus/minus 2.5 percentage points, and the CBK said there were no suggestions of “immediate underlying inflation pressure” and the decline in oil prices and non-inflationary credit growth supported the short-term outlook for inflation.

    www.CentralBankNews.info
   

Source: Zig Lambo of The Energy Report (7/9/13)

http://www.theenergyreport.com/pub/na/15429

The “Bernanke Put,” or promises of quantitative easing, has become the standard government response to economic uncertainty. But while the powers that be insist everything’s fine, Sprott Resource Corp. Founder Kevin Bambrough and COO Paul Dimitriadis see financial deterioration around the globe. Only one thing is for certain: Taking the contrarian view provides the best opportunities to buy low and sell high. In this interview with The Energy Report, they explain why they expect energy assets to perform better in the long haul, cluing us in on a few names they are considering for big returns.

The Energy Report: How would you characterize the current economic background? Are things really looking better in your view?

Kevin Bambrough: Markets typically peak when fear is low and complacency is high, and bottom when fear is rampant and people are extremely worried. The U.S. markets in general have performed quite well this year, but the U.S. bond markets have started to see a lot of hiccups. The European debt market still remains on very shaky ground. The Chinese debt market is now showing major problems in the banking system and the Japanese are still trying to find a solution to their debt woes with increased monetization, and have started an aggressive currency devaluation exercise. Debt levels for governments and individuals around the world are still at unsustainably high levels relative to GDP or individual incomes.

Bankers and governments continually lie to the public and pretend that things are better than they are. If they told the truth, no one would own a bond or keep money idle in cash. These days, the government guarantees and what people have referred to as a “Bernanke put” are the only reason rates are low and the bond market doesn’t crash. The Federal Reserve must talk tough from time to time and pretend it’s going to curtail its quantitative easing. The fact is it can’t.

Curtailing quantitative easing would force interest rates back up significantly, increase the government debt burden and raise the deficit. At the same time, it would crush the housing market and over-levered consumers already struggling to pay off their mortgages. The increased debt burden would bankrupt governments, individuals and the entire financial system.

TER: So realistically we’re stuck with low interest rates for the foreseeable future?

Paul Dimitriadis: There’s no way that rates, in my view, are going to rise anytime soon. The Federal Reserve knows it can’t allow them to rise materially. Americans may have an egocentric view that everything is fine because the S&P 500 is at a new high. Globally, the situation is not that great. The emerging markets have performed terribly this year and we’re starting to see unrest in a number of places around the world as social situations deteriorate rapidly, mainly in Brazil, Turkey, Egypt and such. All is certainly not well and I don’t expect the situation to get better anytime soon.

TER: When will everybody realize this is all a big charade?

KB: I often try to predict the catalyst that breaks the bond bubble. Government bonds are primarily held by mega funds, and sovereign banks. The banks around the world do it because they can lever up and play the carry-trade game. Most governments do it to keep their currencies low and support their export economies.

If interest rates rose, banks would be bankrupt, so they have no interest in seeding their demise. Governments try to pretend that deficits are going to eventually be brought under control, and continually make statements that there is no inflation, so they can prevent their currencies and bond markets from collapsing. Whenever economies slow as a result of higher interest rates, consumer confidence drops and interest rate-sensitive sectors like housing slow. Central bankers, or shall we say central planners, will become more aggressive with quantitative easing and bring the rates down to try to kick-start the economy again. That’s the delicate game they have to continue playing.

I expect this will continue for many years until the systemic U.S. trade deficit stops being funded by foreigners. It could be a few months from now or a few years, but eventually foreigners will come to understand the stupidity of buying U.S. government bonds to try to help their economies. I believe this is the Achilles heel of the system, and the U.S. dollar reserve-based global financial system’s days are numbered. The U.S. dollar will lose its reserve currency status when the Chinese, Japanese, Koreans and other major purchasers of U.S. bonds decide it’s not in their best interest to continue doing so. For the longest time, China and other countries have viewed purchasing U.S. bonds as an effective way to keep their currencies relatively stable. But at some point they’re going to give up on the foolishness of supporting the U.S. trade deficit and focus more on their domestic economy, rather than on competitive devaluation to support exports. The fact is, they collectively have been giving the U.S. over $500 billion worth of goods and services per year for over a decade. They will recoup little from these “loans” in the future. When they try to cash in their bond holdings, they will find there is no buyer other than the Federal Reserve, which will deliver them freshly printed currency that will only be accepted in the U.S.A. because no foreigner will want to accumulate more. When the trillions sent overseas come home to the U.S., inflation will explode and trade restrictions will rise.

TER: So how do we convert this into an investment strategy from a contrarian viewpoint?

KB: It is difficult to try to determine the best asset class to own. You also have to pick a time horizon and focus on what the world is going to look like 10–20 years from now and evaluate the asset classes that could give the best rate of return. Ultimately, we always come back to what we believe—that food, energy and other base and precious metals will do better in the long run. The key to investing in cyclical resource sectors is buying when they’re depressed. Now we’ve got a situation where they’re extremely depressed in many sectors.

TER: What are you doing at Sprott to deal with the current market environment for energy-related investments? Has your approach changed since your last interview?

KB: Precious metal equity values have come down substantially this year and we’re starting to see some very good value and opportunities in that sector. As for base metals, we still think there’s more potential downside.

We’re quite optimistic on developments in the natural gas market. Last year’s injection season marked the smallest inventory increase in the modern history of the natural gas market. The withdrawal season was also the third largest on record, and that was with relatively average winter weather. At around $4 per thousand cubic feet ($4/Mcf), demand is going to continue to grow faster than supply and that price will eventually be pushed higher. That will create value for companies like Long Run Exploration Ltd. (LRE:TSX), which we own, and which has significant natural gas exposure as well as stable profitability from its oil production.

PD: Purely gas-focused drilling activity is almost down to zero. We need to see higher prices to generate drilling demand from producers, which I think we will begin to see this year.

KB: Another sector that’s been quite depressed is coal, mostly as a result of low natural gas prices. A lot of mines have had to close or go through a restructuring. It looks like we’re getting closer to a historic bottom in coal equity valuations and so we’re looking around for opportunities to get some long-term exposure to that sector.

PD: As an example, Arch Coal Inc. (ACI:NYSE) is down from $28 to below $4 in the past two years. It was up over $70 around five years ago before the financial crisis.

KB: During a boom in any sector, a lot of the big companies are tempted to take on debt and continue acquisitions. Arch Coal still has a significant amount of debt. There are other coal companies that will certainly survive. We may not be incentivized to bring a new coal mine into production today, but there’sgreat incentive for us to buy coal mines that have long life reserves and wait.

TER: You mentioned Long Run, which we talked about during your last interview. Where do you think that one’s going?

PD: The company merged last fall (Guide Exploration Ltd. and WestFire Energy Ltd. combined to form Long Run) and recently completed its first couple of quarters as a new entity. Production is going well and cash flow is meeting expectations. It’s focusing on oil production exclusively this year due to the oil and gas pricing environment. There’s a lot of room to pay a dividend later this year or next perhaps, which both we and the market would welcome seeing. Long Run’s gas reserves are significant, so there is huge optionality on the gas side. Overall, it’s a solid story and it’s discounted to its peers, probably because it’s a new name and there’s currently a lack of fund flows into the general Canadian energy market.

Looking at the various metrics relative to its peer group, you can safely conclude that it’s trading at a 30–40% discount. If the sector gets revalued because money starts flying back into it, things can go higher from there. The optionality in the gas market could take the stock even higher.

TER: Sprott Resource Corp. completed that nice deal on its Waseca Energy Inc. holdings last year when it sold out to Twin Butte Energy after four years.

KB: We were very pleased with the performance of that company. Again, we stuck with our strategy of investing in a sector while it was depressed. We bought into heavy oil when it was no bid in Canada, formed the company and ultimately were able to monetize it when margins were significant and the company had grown from zero production into a +4,000 barrels per day company. That delivered another big win for our shareholders with a nearly $70 million profit.

PD: Along that same vein, we’ve invested in a drilling company based out of Houston, Texas called Independence Contract Drilling just over a year ago. It drills shale formations and, again, we invested in the sector when it was generally out of favor, and built the company up from book value to probably having above 12 rigs in production by the end of next year. I expect that at that time we will be able to capitalize on its strong cash flow and look for some sort of monetization, whether it’s an IPO or sale of the business.

TER: Another area we haven’t talked about yet is uranium. I know you’re into Virginia Energy Resources Inc. (VUI:TSX.V; VEGYF:OTCQX). What’s the update on that name?

KB: The uranium market is similar to coal. Natural gas has weakened valuations and demand in all energy sectors. Fukushima also really upset the short-term demand and created a very negative sentiment in the nuclear space. But demand for physical uranium for nuclear power production is going to grow over the next decade or two and mine supply will fall short with $40 per pound ($40/lb) uranium. When we look at overall planned, permitted nuclear facility growth and as well as extensions of the existing facilities, we see robust demand and we see very little supply coming on the market.

PD: We will see large supply shortfalls emerging in the next few years. The market’s going to have to catch up on funding mines, because funding has been scarce over the last few years. We believe a uranium price north of $75/lb is going to be required to balance supply. Although the Commonwealth of Virginia has not yet passed legislation that would provide a framework for permitting uranium mining projects, we are hopeful it will in the near future. At that point the company would be greatly positively revalued.

KB: Regardless of the uranium market, Virginia Energy Resources is one of the largest undeveloped uranium projects in the United States, and major producers will likely try to take out Virginia Energy Resources when the permitting framework is in place.

TER: Where you see opportunities in the fertilizer/potash markets?

PD: Potash prices have softened a bit lately. We’ve invested in one potash company that produces SOP potash, called Potash Ridge Corp. (PRK:TSX; POTRF:OTCQX). It is developing a project in Utah, we think has very favorable economics based on the preliminary economic assessment. A prefeasibility study is expected in the next couple of months, which should give greater clarity on that project. The project’s key benefits are the byproducts in the deposit, which lower the production cost dramatically. It should be one of the lowest-cost producers of SOP potash, which is a growing market globally. We’re optimistic that someone is going to have an interest in an offtake agreement and perhaps assist with the financing in the next 12–18 months.

The phosphate market has been more stable than the potash side. In the U.S., there is some risk for domestic producers due to potential shortfalls in their mines over the coming year. The phosphate market could be in very good shape over the next five years as those companies seek to replace their production. We’re quite optimistic about one of our investments in a company called Stonegate Agricom Ltd. (ST:TSX, SNRCF:OTCPK), which is developing its potash project in Idaho. That should come into production in late 2014 or 2015.

TER: Do you have any final thoughts you’d like to leave with us?

PD: The resource sector, generally, is probably the most out-of-favor it has been in a long, long time. If you’re ever going to put money to work in this sector, right around now would probably be an opportune time to do so.

KB: This is the kind of market that really allows those who are willing to step up and invest to make a lot of money.

TER: Thank you gentlemen, for your updates and insights today.

Kevin Bambrough founded Sprott Resource Corp. in September 2007. He is a seasoned financial executive with more than a decade of investment industry experience and is a recognized leader in the commodity investing space. Since 2009, he also has served as president of Sprott Inc., one of Canada’s leading asset managers, which has more than $8 billion in assets under management. Between 2003 and 2009, he held a number of positions with Sprott Asset Management, including market strategist, a role in which he devoted a significant portion of his time to examining global economic activity, geopolitics and commodity markets in order to identify new trends and investment opportunities for Sprott Asset Management’s team of portfolio managers.

Paul Dimitriadis is Chief Operating Officer for Sprott Consulting and Sprott Resource Corp., where he evaluates and structures transactions, coordinates and conducts due diligence and is involved in the oversight of subsidiaries and managed companies. He serves on the board of directors of two of Sprott Resource Corp.’s subsidiaries, Stonegate Agricom Ltd. and Long Run Exploration Ltd. Prior to joining the Sprott group of companies, he practiced law at Blake, Cassels & Graydon LLP. Dimitriadis holds a Bachelor of Laws degree from the University of British Columbia and a Bachelor of Arts degree from Concordia University.

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DISCLOSURE:

1) Zig Lambo conducted this interview for The Energy Report and provides services to The Energy Report as an independent contractor. He or his family own shares of the following companies mentioned in this interview: None.

2) The following companies mentioned in the interview are sponsors of The Energy Report: Virginia Energy Resources Inc. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.

3) Kevin Bambrough: I or my family own shares of the following companies mentioned in this interview: Sprott Resource Corp. I personally am or my family is paid by the following companies mentioned in this interview: Sprott Resource Corp. My company has a financial relationship with the following companies mentioned in this interview: Sprott Resource Corp. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.

4) Paul Dimitriadis: I or my family own shares of the following companies mentioned in this interview: Sprott Resource Corp. I personally am or my family is paid by the following companies mentioned in this interview: Sprott Resource Corp. My company has a financial relationship with the following companies mentioned in this interview: Sprott Resource Corp. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.

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Source: Alec Gimurtu of The Metals Report (7/9/13)

http://www.theaureport.com/pub/na/15427

Iron miners don’t make cars, so why should rare earth miners make magnets? According to longtime rare earth expert/consultant Jack Lifton, “mine to magnet” vertical integration strategies are little more than pie in the sky schemes. But Lifton just might have the perfect solution for the world’s rare earth element supply problems. In this interview with The Metals Report, Lifton tells us how a non-Chinese international rare earth toll refinery would get separated rare earths downstream more efficiently, while simplifying miners’ business plans. Find out which companies could be part of the solution.

The Metals Report: Recently, you have written about the strategies junior rare earth element (REE) miners need to follow to survive this tough market. What are the critical attributes of a surviving junior REE miner?

Jack Lifton: Junior REE miners need a well formulated business model. That is critical and often missing. My experience indicates that in the REE industry, many junior miners have not given any thought to their business beyond producing concentrated ores. In this business though, downstream processing is a critical part of the added value. A miner needs to produce something that customers want to buy. This revelation surprised many of the enormous number of juniors that popped up over the last five or six years. Companies that understood the supply chain had a greater chance of surviving. In REEs, profits are not derived directly from mining ore, because the concentrates are heavily discounted by the market due to the current shortage of accessible separation capacity outside of mainland China.

TMR: So greater vertical integration is the key to profitability? Is completely vertically integrated the best?

JL: You can’t be totally vertically integrated. The end-use products that contain REEs are complex. For example, an iron miner with the strategy to make cars would be laughed at. Yet, when a REE miner advocates making REE permanent magnets, everybody applauds. Simplistically, it sounds like a great way to make money. But it is an example of the foolish overreach by almost all of the REE juniors a few years back. And nobody has accomplished it. Interestingly, that type of “mine to magnet” vertical integration does not exist in the Chinese industry for the simple reason that it doesn’t make economic sense.

TMR: Does that mean the differentiator between the survivors and the non-survivors is technology—either proprietary technology or operational use of technology?

JL: I’m calling it “technology awareness.” In other words, company survival is dependent on recognizing limits. Patented processing technology is not necessarily important. But most companies that make REE permanent magnets have quite a bit of proprietary knowledge they don’t disclose. No outside company is going to get that process knowledge for free. When I heard about companies talking about their “mine to magnet” strategy, I realized they really didn’t understand what REE permanent magnets were all about. To me it was Bay Street hype or Wall Street hype. It was obvious promotion. However, I noticed that small investors and even institutional investors, who should know better, were falling for this story.

I have been saying from day one—total vertical integration is not possible. Now that doesn’t mean that there weren’t companies like Great Western Minerals Group Ltd. (GWG:TSX.V; GWMGF:OTCQX) or evenMolycorp Inc. (MCP:NYSE), that weren’t attempting to do this by mergers and acquisitions. Great Western, for example, acquired what was an existing high-technology company, Less Common Metals Ltd. of Great Britain, which was already in the rare earth magnet alloy market making a profit. What Great Western did with Less Common Metals was an example of sensible vertical integration. However, when companies started trying to get into these technology-enabled end products on their own, this was just silly.

Companies should have been looking at each step of the process required to produce a sellable product. They needed to understand a multi-step value chain. For example, if they are able to concentrate the REE ores, what do they do with the ore concentrate? How will the company get from the ore concentrate to some kind of chemical solution or solid form that it can then further process? With the REEs, the first step to create a bulk concentrate is not much of an accomplishment. The real problem in REE processing is separation—and that is the issue that most REE juniors have not solved in a cost effective way.

TMR: Are there technologies that differentiate some juniors in separation?

JL: No. At this point, everyone is planning to separate and purify REEs using the same basic technology, called solvent extraction. The differentiator is the ability to cost effectively separate the most valuable heavy rare earths (HREEs). The richest REE mineral concentrate contains little of the desirable HREEs. Most REE ore is 75% to 80% light rare earths (LREEs)—mostly lanthanum, cerium, neodymium and praseodymium. Of the LREEs, the only one that is really critical is neodymium, which is the basis of most of the REE permanent magnets. All of the other critical REEs, the ones that we really need in our modern technology are the HREE category. Altogether, these would not exceed more than 15–20% of the total mass of the best ore. When processing and separating REEs, almost 80% of the material will be lanthanum and cerium with a smaller amount of neodymium,the revenue from which has to pay for the separation of all of the first three elements. After that, the operator needs to calculate if it makes sense to keep running to produce another 5–6% of the HREEs that are valuable. While the richest deposit is up to 20% HREEs, an average deposit is more likely between 1–5% HREEs. As ore is processed to separate the less common HREEs, the cost gets progressively higher. Solvent extraction is a very expensive process such that operational costs of the technology becomes a differentiator. When it comes to survivors, we can discuss a company like Orbite Aluminae Inc. (ORT:TSX; EORBF:OTXQX). Orbite’s success isn’t all about a new technology, it’s about a streamlined technology.

TMR: What is Orbite doing differently than others?

JL: Orbite is starting small. The juniors that I believe will survive have a willingness to cut back on their projections of future production volume. I’m only going to talk about those who are not yet producing. In the United States, for example, there is Ucore Rare Metals Inc. (UCU:TSX.V; UURAF:OTCQX) and Rare Element Resources Ltd. (RES:TSX; REE:NYSE.MKT). In Europe we’re talking about Tasman Metals Ltd. (TSM:TSX.V; TAS:NYSE.MKT; TASXF:OTCPK; T61:FSE). These companies have all developed the same business model independently. The idea is to size mining and refining correctly. The total output of Ucore will be 2,200 tons per year (2,200 tpa) total rare earth oxide (TREO). Rare Element Resources and Tasman are on the order of 5,000 tpa each of TREO, which are skewed in total value toward the HREEs.

A good example of right sizing is Rare Element Resources recent business model showing the majority of its income will come from everything but lanthanum and cerium. Lanthanum and cerium in that plan are around 15% of the total value. To me, this is excellent. Those elements are nearly 80% of the produced volume, but represent only 15% of the revenue. The majority of the revenue comes from neodymium and heavier elements. The plans for Ucore and Tasman are similar. They have refocused their business models to produce less volume and more of the “good stuff.” To do that they had to reconsider their plans for building solvent extraction plants. The new plans are not like Lynas Corp. (LYC:ASX) or Molycorp. The Lynas plant will process 122,000 tpa of ore, to produce 22,000 tpa of concentrate mostly in lanthanum, cerium, neodymium and praseodymium. Approximately 5% of the total is the midrange and HREEs. That is only 1,000 tpa of the best material. But the company has had to construct one of the largest solvent extraction plants in the world to be able to get at that 1,000 tpa.

The current production rate at Molycorp is approximately 19,800 tpa. It is almost entirely LREEs, because the deposits in California do not have significant midrange or HREEs. Unless they bring in new ore sources, they will be producing exclusively LREEs. The publically available numbers indicate the Molycorp plant cost over $1 billion ($1B) and Lynas approximately $800 million ($800M). Those are huge capex numbers for an industry that is under price pressure.

The business models of Rare Element Resource, Ucore and Tasman call for separation plants of 2,200–5,000 tpa. Frontier Rare Earths Ltd. (FRO:TSX) in Africa is approximately the same size. Assuming that costs scale, to estimate the capex of a 5,000 tpa plant, I can divide Lynas’ approximate costs by four. That is about $200M for a plant to produce 5,000 tpa. Ucore’s projected costs are lower according to its plan. These capex figures are numbers that are reasonable if you’re producing HREEs.

Let’s discuss Orbite again, where the situation is a little different. The company’s plan is to establish a 1,200 tpa solvent extraction REE separation plant. It is designed to process the entire spectrum of REEs. Orbite’s REE capex plans amount to $32M based on using byproduct feedstock from a large aluminum oxide plant to be brought into operation on the Gaspé Peninsula of Québec. A 1,200 tpa, total-spectrum REE plant for $32M is much cheaper per-unit capex than either Lynas or Molycorp, both of which have plants that are limited LREE separation. If the Orbite facility can be built according to plan, it will be a benchmark for low-cost REE separation. Keep in mind that Orbite is not a REE company. Orbite is a high-purity alumina oxide company that plans on producing REEs as a byproduct.

I’m very impressed by what I know of Alkane Resources Ltd.’s (ANLKY:OTCQX; ALK:ASX) business model. Alkane is a polymetallic producer and its mix of metals, which includes zirconium, niobium, yttrium, REEs and gold, has allowed it to minimize the risk of depending entirely on REE production. Alkane is making a series of individual off-take agreements with separate vertically integrated refiners who themselves are also downstream end users and marketing experts in the products for which Alkane will provide the feedstock. This is an outstanding 21st-century business model that has allowed Alkane to create a synergistic revenue stream. In a sense, Alkane has become a mini-Glencore International Plc (GLEN:LSE), a vertically integrated trading company. This is a business model that I urge juniors with polymetallic deposits to emulate.

These producers are all pushing the industry toward centralized HREE separation. It would make a lot of sense if individual producers focused on LREE separation and left the heavy concentrates to be toll processed centrally by one company. HREE separation is a capability today of the Rhodia division ofSolvay Group (SOLB:NYX), which has a full-scale separation plant of 9,000 tpa in France that processes the total spectrum of REEs. That plant has been in operation for 45-years and is dedicated to making specialty chemicals for the Solvay Corporation, the current owner of Rhodia. The Rhodia feedstock is mostly sourced from China and production is geared toward internal company needs—at this time it is not a toll separation plant.

TMR: Is there room in the industry for an international toll separation plant to be built?

JL: Yes. Even if Rhodia were to run its current plant only as a toll separation, it wouldn’t produce enough volume both for Rhodia’s internal needs and for the international, non-Chinese consumers.

TMR: In August, you are presenting your case for a new international REE toll refinery to the Chinese Society of Rare Earths. What reaction are you expecting?

JL: My thinking about this has evolved. I think that the Chinese want this to happen. The Chinese are now restructuring their REE production industry and downsizing it to match their internal demand. They will grow the industry in the future, but only to meet their domestic demand. I do not believe that the Chinese are interested in the REE export business. In the last year the Chinese have cut legal, reported production by more than 30%. Originally, Chinese domestic users consumed 60% of their own production. It’s up to more than 80% today. When I proposed an international toll refinery, I was surprised at the positive reaction I got from this in China. I was told by a high-ranking Chinese official in the REE industry that this is an excellent topic. The Chinese really do want to hear outsider views on this. It appears that the Chinese would like the rest of the world to develop enough REE production and refining so that the domestic Chinese REE industry can be left alone. That’s my analysis at this point in time.

TMR: How would new international toll refining change REE pricing? Would there still be a Chinese domestic price and a different international price?

JL: Yes. At the moment the export prices are set by tax. Domestically, Chinese REEs are much cheaper than internationally posted prices because of the large export tax. There’s a cap on volume as well as a large tax. The prices we see for cerium or lanthanum in North America, for example, are Chinese domestic prices plus export duties and transport.

The problem for a new REE producer is—which price is it that you’re going after? For example, say I can buy lanthanum in Chicago for the Chinese export price of $20/kg. Suppose I can produce lanthanum in New Jersey for $10/kg. That looks like a solid profit. The problem is “where is your market?” Yes, $10/kg is great if you’re going to sell this into a North American market and the Chinese maintain their export duties. That is fine, except that there’s no real market for these materials in North America. There’s no total supply chain outside of China. China is the main place where the raw materials get turned into finished product. China is the only location of an existing “mine to magnet” total supply chain. Better than even, “mine to magnet,” China has “mine to vacuum cleaner,” “mine to car,” and “mine to washing machine.” They’ve got everything. As a North American producer of lanthanum, I’m going to have to sell into China at the domestic price, and pay the import duty and cover transport costs. These are all issues that junior miners do not think about. But these issues matter if you are trying to finance a $1B refinery. Is there a market at the price you’re going to produce? It’s not just about your costs per kilogram. When there is an accidental or intentional monopoly player like China, there are substantial additional factors to consider. And we haven’t even mentioned the possibility of import quotas. And then there is the uncertainty. . .everything could change tomorrow.

The Chinese REE market is evolving rapidly. They have dramatic overcapacity in everything: mining, refining, fabrication, you name it. There is a desire to cut back to profitable unit production. As they move in that direction, prices will rise in China. The Chinese goal is to have prices that can sustain the industry. External competition in the commodity markets is not their concern. The model of Rhodia as a toll refinery does not concern China. Solvay is not in the mining business. They don’t make metals. They don’t make magnets. They are a solvent exchange separation and high-purity refining company. Their output goes directly to the chemical, automotive and high-tech industries. Rhodia has a large competitive advantage because of its extant investment and China is not trying to take it away.

However, REE permanent magnets are a different business because the refined elements from a company like Rhodia have to go to metal maker, an alloy maker and then a magnet maker. While they have these industries in Europe, there is not enough capacity to satisfy all European industrial demand. The Chinese dominate the HREEs because there are no sources outside China. There are still no mines outside of China that are producing significant quantities of HREEs. The Chinese still supply 100% of the world production.

The locations of the REE survivors will determine where the toll refining business opportunities will happen. Ucore is in Alaska, Rare Element Resources in Wyoming. The American political climate is such that exporting natural resources to China, especially ones that have been as hyped as REEs, is not very likely to get the support of the government. Therefore, I think there is a strong possibility of a REE toll refinery being built in North America.

Tasman is located in Sweden and does not have to deal with the U.S. political climate. In this case, there is a strong possibility that HREE concentrates will be sold to China, for processing inside China. Other than Rhodia and perhaps two other small facilities in Japan, there’s no HREE processing capability outside of China. While Tasman could ship ore or concentrates to China for the dysprosium content, the company wouldn’t make any money doing it. Tasman is under review by several European companies as a source for potential feedstock into their vertical supply chain. That would be one path to the creation of a central European REE toll separation and refining plant.

The entire HREE industry of the world, which today is 100% in China, produces total of 15,000 tpa of HREEs. Of that, 60% is the element yttrium. Two new toll refining plants outside of China could double the world’s production of the HREEs. In order to do that, we’d have to obtain HREEs ores from outside of China. The surviving juniors will be the companies that supply the midrange and HREEs to these types of refineries.

TMR: Could the Molycorp plant be modified slightly become a toll refinery?

JL: It would be more than a slight modification. It would be very expensive. I wrote earlier this year that if I were Molycorp, I would change the company direction. I would deemphasize mining and expand the Phoenix project to be the Western world’s toll refiner. To me, that would be an ideal solution.

TMR: Does Molycorp agree with you?

JL: Well, I have to admit that statement of mine met with some ridicule from the company, but now I’ve noticed that they’ve gotten very quiet. The company is in the process of restructuring. Theoretically, as a toll refinery, Molycorp would be well positioned. Executing that strategy would be another matter. Financially, it would be tough. However, although the California plant only separates LREEs, Molycorp is in that business of total-spectrum rare earth separation because of its ownership of Neo Materials, which has two small plants in China. Those are relatively small plants, but they are capable of processing and purifying HREEs. Putting that technology into operation in California would be expensive. However, I think that’s a good idea. Because Molycorp has no HREE feedstock, it would become a toll refinery.

TMR: Is there anything you want to summarize before we sign off?

JL: The “good stuff” the industry needs is the HREEs. I still hear to this day, “Rare earths are like gold.” No they’re not. Not all of them. The juniors that have worked out solid business models to produce HREEs will be the survivors. One or two international toll refineries would further enable the development of any and all of these deposits. If there was a toll refinery that could process midrange and HREEs concentrates, this would make ventures in Australia, like Hastings Rare Metals Ltd. (HAS:ASX) and Northern Minerals Ltd. (NTU:ASX), extremely interesting while simplifying the business models for the junior miners we discussed. Otherwise, we’re going to wind up with a monopolized Chinese REE industry and the rest of us will be looking at it from the sidelines.

TMR: It has been great to talk to you again.

JL: Glad to speak with you.

Jack Lifton is an independent consultant and commentator, focusing on market fundamentals and future end-use trends of the rare metals. He specializes in sourcing nonferrous strategic metals and due diligence studies of businesses in that space. He has more than 50 years of experience in the global OEM automotive, heavy equipment, electrical and electronic, mining, smelting and refining industries.

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DISCLOSURE:

1) J. Alec Gimurtu conducted this interview for The Metals Report and provides services to The Metals Report as an independent contractor. He or his family own shares of the following companies mentioned in this interview: None.

2) The following companies mentioned in the interview are sponsors of The Metals Report: Great Western Minerals Group Ltd., Orbite Aluminae Inc. and Tasman Metals Ltd. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.

3) Jack Lifton: I or my family own shares of the following companies mentioned in this interview: None I personally, as an operations consultant, am paid by the following companies mentioned in this interview: Ucore Rare Metals Inc., Rare Element Resources Ltd. and Tasman Metals Ltd. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.

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By www.CentralBankNews.info     Thailand’s central bank unanimously voted to maintain its policy rate at 2.50 percent, saying the pace of economic growth was slowing to a more normal pace and it was closely monitoring the “rapidly changing global economic and financial conditions, as well as risks to domestic financial stability.”
    The Bank of Thailand (BOT), which cut its rate by 25 basis points at its previous meeting in May due to an rise in downside economic risks, said the domestic environment with high employment and private spending was supporting the recovery, which was also helped by accommodative monetary and fiscal policies that were reflected in continued growth of private credit and fiscal deficits.
    Thailand’s Gross Domestic Product contracted by 2.2 percent in the first quarter compared with a quarterly expansion of 2.8 percent in the fourth quarter. On an annual basis the economy grew by 5.3 percent, down from 19.1 percent in the fourth quarter when growth was boosted by government stimulus measures following extensive flooding in 2011.
    But Thailand’s economy has been hit by a slowdown in China along with a softening of domestic consumption “as consumers exercise more caution partly as a result of rising debt burden, coupled with waning government consumption stimulus measures,” the BOT said, adding weak domestic and external demand had caused delays in private investment.

    “The global economy expanded less than previously assessed due to China’s economic slowdown, which weighed on Asian exports, despite some improvement in the U.S. economy from better housing and labour market conditions,” the BOT said.
    The BOT is expected to revise downward its economic growth forecasts and last week a member of the BOT’s policy committee said growth could ease to 4.5 percent this year from a forecast 4.9 percent, with the country facing the risks of capital outflows.
    In June the IMF forecast Thai growth of 4.75 percent this year and 5.25 percent in 2014 compared with growth of 6.4 percent in 2012.
    Earlier this year Thailand found itself on the front lines of the currency wars as Japan’s launch of aggressive monetary easing from April lead to a rise in the baht, triggering fears of large capital inflows into such countries as Thailand.
    Thai authorities prepared measures to combat a rise in the baht whose strength threatened to make Thai exports uncompetitive at a time of slowing exports due to slower growth in China.
    Fears of intervention in foreign exchange markets by Thai authorities helped take the pressure off the baht in late April and then in May the currency weakened further, along with many other emerging market currencies, as capital flowed out of these riskier markets as major investors responded to an earlier-than-expected pullback in the U.S. Federal Reserve’s asset purchases.
    In today’s statement, the BOT did not make any reference to the Thai baht apart from the reference to “rapidly changing global economic and financial conditions.”
    From the start of the year to late April, the Thai bath rose by almost 6 percent, hitting a high of 28.6 baht to the U.S. dollar, but since then it has dropped by almost 10 percent, quoted at 31.36 to the U.S. dollar today.
    Thailand’s headline inflation rate eased marginally to 2.25 percent in June from 2.27 percent in May with the BOT saying inflationary pressures had eased from softer demand and lower production costs.
    Last year Thailand’s headline inflation rate was 3.0 percent with core inflation of 2.1 percent and the BOT has forecast headline inflation this year of 2.8 percent and core inflation of 1.7 percent.
   
     www.CentralBankNews.info

London Gold Market Report
from Adrian Ash
BullionVault
Wednesday, 10 July 08:20 EST

WHOLESALE prices for gold rose 1.1% in Asian and London trade Wednesday morning, nearing yesterday’s 1-week highs at $1260 per ounce as the rate for leasing and borrowing gold rose further.

Silver prices rose 1.8% from an overnight low at $19.05 per ounce.

 Equity markets slipped while commodities rose with major government bond prices, nudging 10-year US Treasury yields further back from Monday’s 2.73% – their highest level since August 2011.

 Interest rates on weaker Eurozone debt rose, however, after ratings agency S&P cut Italy’s long-term credit to BBB, just two notches above “junk” status.

 “There has been some [gold] borrowing interest recently,” the FT quotes Swiss bank UBS’s precious metals strategist Joni Teves.

 “It’s related to the demand for physical,” with premiums in Shanghai continuing to hold $40 per ounce above London’s benchmark.

 “As wholesalers, refiners and retailers of investment products are scouring for the metal to make physical products,” agrees consultancy CPM Group’s head Jeffrey Christian, speaking to Reuters, “some of them are actually borrowing the gold in advance.”

 After falling into negative territory for the first time in 5 years on Monday, the forward rate offered by London bullion banks fell further to -0.12% on 1-month swaps today.

 The offered rate is paid to borrowers who are willing to swap cash for gold bullion, and so bear the cost of storage and lost interest payments for the period of the swap.

 Data from trade association the London Bullion Market Association show gold offered rates were last negative – meaning that gold owners are demanding payment, rather than offering it – in November 2008, after the collapse of Lehman Brothers.

 One-month rates have only been negative on 12 trading days in the LBMA’s twenty-four year records.

 The most negative rate – meaning the highest rate demanded by large gold owners – came at -4.53% in September 1999, when European central banks agreed to cap their annual gold sales. A sharp jump in gold prices forced a scramble amongst gold mining companies who, after a near two-decade bear market, had borrowed and sold gold for fear of further price drops.

 The rising price and cost of borrowing gold led to the near-bankruptcy of Ghana miner Ashanti.

 “[The negative rate] is important news,” says refining and finance group MKS’s daily note.

 “It has piqued people’s interest” in buying gold to profit from a squeeze on bearish traders, the FT quotes a senior bullion banker, with the turnaround in the gold borrowing rate helping support prices after the worst quarterly drop in three decades.

 Barring a spike in May this year, the overall return to large gold owners for offering metal for a 1-month swap and earning the interbank interest rate on the cash received hit its best level since February 2009 at 0.30% annualized.

 Meantime in Asia on Wednesday, gold retailers in India – the world’s No.1 consumer market – agreed Wednesday to suspend further sales of gold coins and investment bars, meeting a government plea for help in reducing gold bullion imports.

 The All India Gems & Jewellery Trade Federation, which this week proposed a gold-deposit banking scheme to “mobilize” existing households stockpiles and so reduce gold imports, said more than two-in-three of its 40,000 members have agreed to the ban.

 Physical gold demand from wholesalers in China, the world’s No.2 consumer, was strong overnight according to dealers.

 Looking at recent weak economic data from China, “A hard landing could shake faith in the government,” says a note on gold investing from Barclays Research, and lead to a big fall in Yuan-denominated assets.

 “[That] could mean gold becomes important for domestic investors to hedge what they may view as a greater set of risks than previously,” reckons Barclays commodities analyst Sudakshina Unnikrishnan.

Adrian Ash

BullionVault

Gold price chart, no delay | Buy gold online

Adrian Ash is head of research at BullionVault, the secure, low-cost gold and silver market for private investors online, where you can buy gold and silver in Zurich, Switzerland for just 0.5% commission.

(c) BullionVault 2013

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

EURUSD – The EURUSD Trying to Develop a Correction

The EURUSD keeps trying to form the basis near the 28th figure, and there has already been seen some progress in this regard. Despite the negative weekly close with a further decrease, the pair managed to stay above the current support and increased to the resistance of 1.2880 which was broken through during the Asian session, having allowed the euro to test the 1.2894 level. There is no doubt that the matter in hand is about the recovery after a large-scale reduction, contributed by the pair’s state of being oversold on the 4 hour chart. The single currency remains negative, but it may recover to the 30th figure, and only the growth and ability to consolidate higher would signal a possible trend reversal. Until then, the pair is at the continuous risks of resuming its decrease.

GBPUSD – The GBPUSD May Increase to 1.5000 — 1.5040

As expected, the pair’s state of being oversold, as well as the rate’s nearing to the strong support levels caused profit-taking by the short-term players, due to which the pound found the support at 1.4858 with its following recovery and increase to 1.4971. Similar to the EURUSD, there is a clear correction after the pair’s plummeting. The immediate target of the correction can be the 1.5000 – 1.5040 levels’ proximity – the increase up to 1.5175 is wise to be taken into account as well. Only if the pair increases above 1.5200, it will be advisable to anticipate the downtrend completion, as well as development of the upward movement.

USDCHF – The USDCHF Remains Positive

The dollar is rather confident being in pair with the Swiss franc. The bears managed to break below the support at 0.9624, but the USDCHF is testing the current highs around 0.9666 due to the Swiss franc’s weakness in the EURCHFcross-rate. The USDCHF remains positive, but its state of being overbought on the 4 hour chart could trigger profit-taking, as well as development of a downward correction with the immediate target at the level of 0.9555. The drop below would weaken the bullish momentum.

USDJPY – The USDJPY Finds Support at 100.80

The USDJPY was gradually moving away from the 101.53 high reached yesterday, but the decrease was limited by the support near 100.80. The rebound from this level allows the dollar to demonstrate a positive trend again. Consequently, it has already tested the 101.29 level. As long as the pair is trading above the ascending support line, the bulls can count on the continued increase, but the breakdown of the resistance will increase the upward momentum with a subsequent increase to 102. If the dollar decreases below the 99th figure, this will mean the trend reversal, as well as the downward correction in USDJPY.

provided by IAFT

USDCAD is facing the support of the upward trend line on 4-hour chart. As long as the trend line support holds, the fall from 1.0608 could be treated as consolidation of the uptrend from 1.0137, one more rise to 1.0700 area to complete the upward movement is still possible. On the downside, a clear break below the trend line support will indicate that the uptrend from 1.0137 had completed at 1.0608 already, then the following downward movement could bring price back to 1.0300 zone.

Provided by ForexCycle.com