Month: July 2013

By Profit Confidential

It’s impossible to get more basic or old economy than Chef Boyardee.

The brand is owned by ConAgra Foods, Inc. (CAG), which is one of North America’s largest packaged-food enterprises. The company’s brands are found in 97% of American households, and it has a large commercial foods segment.

ConAgra just reported a very good quarter, especially considering how mature and competitive the food business is. Frankly, the company’s sales and earnings were quite impressive.

Total revenues for the 13 weeks ended May 26, 2013 grew to $4.59 billion, up 33.7% over the comparable quarter. The company’s consumer foods division grew 7.3% to 2.3 billion, while commercial foods grew 3.5% to $1.33 billion. The rest of the revenue gain came from the acquisition of Ralcorp Holdings, Inc., which added $962 million to revenues and $108 million in operating earnings.

In its fiscal fourth quarter of 2013, ConAgra’s earnings were a solid $192 million, compared to a loss of $86.2 million in the same quarter last year.

For its full fiscal year (ended May 26, 2013), ConAgra’s total sales grew 15.9% to $15.5 billion. Earnings grew an impressive 65.4% to $774 million.

The company’s cash balance also grew significantly to $184 million, and shareholders’ equity jumped to $5.4 billion, up from $4.5 billion.

ConAgra’s 20-year stock chart is featured below:

Chart courtesy of www.StockCharts.com

The company’s share price recently crossed below its 50-day simple moving average, but as the above chart illustrates, the shares have clearly broken out after a long consolidation.

Currently yielding three percent on the stock market, this position looks to be fully priced with a price-to-earnings ratio of around 29.

But what the Street likes about the company’s return to profitability was its solid forecast for the future.

This fiscal year, the company expects its adjusted earnings per share (for comparability purposes) to be $2.40, representing 11% comparable growth.

Management cited a strong earnings contribution from its Ralcorp acquisition and continued growth in its consumer foods division as reasons for the solid forecast.

The company expects some $300 million in annual pre-tax cost synergies from the Ralcorp business by the end of fiscal 2017.

Because of this, annual adjusted diluted earnings per share between fiscal 2015 and 2017 are targeted at a minimum of 10%.

The company forecasts annual adjusted earnings-per-share growth of between seven and nine percent for the long term, with annual sales growth expected to be between three and four percent.

This is an improvement over ConAgra’s previous expectations, and while the earnings forecast might not seem that robust, they are very solid for such a large and mature enterprise. Institutional investors want certainty, and that’s exactly what ConAgra delivered in its latest quarter. They bid the shares significantly on the company’s earnings results.

The numbers so far are modest, but generally holding up much like in the first quarter. There have been some earnings surprises, both up and down. (See “Stock Market Fake-Out: Where Is the Retrenchment?”)

Big investors are still nibbling away at positions, and as earnings season gets into full swing, this will be the biggest trading catalyst.

From my perspective, the stock market remains a big hold. Interest rates are going up as they should be. They’ve been held down for far too long. Large-cap balance sheets remain excellent.

Article by profitconfidential.com

By Profit Confidential

Someone asked me the other day to recommend a diversified exchange-traded fund (ETF).

I thought about it and really couldn’t think of one. There are some good diversified ETFs out there, but why only limit yourself to an ETF and not a stock?

Now as many of you know, I focus primarily on small-cap stocks (read “Small-Cap Stocks the Place to Be—If Economic Growth Is Real”) and contrarian plays. Seldom do I venture into the big-cap stocks and blue chips, but that’s not to say these are not important to the overall success of a diversified portfolio.

So when I was asked the original ETF question, I was initially thinking of what diversified ETF I could recommend—but I quickly realized that the best answer was not an ETF.

I suggested General Electric Company (NYSE/GE), a company that is well diversified across many industries and geographical areas around the world.

First established in 1892 and with over 305,000 employees worldwide, General Electric (GE) is widely known as a huge company. When you think corporate America, you think GE.

GE has long been known as a “widow” stock, something that you buy and leave in your holdings for decades until retirement and then live off the strong dividends.

GE builds products and solutions for anyone from consumers to commercial enterprises. Providing kitchen appliances, aviation engines and systems, medical imaging solutions, healthcare products, advanced power systems, and energy management, the company has interests in many areas.

But the best thing about GE is that it’s strong in all of its areas and is a world-class company.

Just take a look at the price chart of GE from 1964 to today. It has been an impressive and steady ride overall; though there have been some hurdles since 2000.

Chart courtesy of www.StockCharts.com

In 2012, GE reported revenues of $147 billion and earned over $13.6 billion in profits.

At first glance, the growth may not look that great, with revenues estimated by Thomson Financial to grow at a rate of just 0.2% this year and 2.0% in 2014; but for GE, it’s all about long-term performance.

While you can certainly get a lot more growth from the technology companies, you have to question whether they will still be around in 50 years.

I know GE will be here for another 50 years, and that’s why, in my opinion, the company makes perfect sense as a comparable to a diversified ETF.

Article by profitconfidential.com

By The Sizemore Letter

“Recognizing that the stock market is a difficult game to play and admitting that investing in securities is an art, we can only preface this book by saying, ‘Good luck.’”

So writes Michael E.S. Gayed in the forward to Intermarket Analysis and Investing, originally published in 1990 and republished in 2013.

Outside of politics, few areas of life are in greater need of fresh thinking than the investment profession.    Like students of political ideologies or religious cults, investors often fall into dogmatic camps.  There are chartists, who view stock patterns as if they are prophetic views of the future.  There are value investors who view the utterances of Warren Buffett and Benjamin graham like divine revelations.  There are trend followers…and contrarians who actively bet against the prevailing trend.

There is a dedicated core of followers for virtually any investing style you can imagine (and plenty that you can’t).  But the problem with rigid schools of thought is that what works in one market does not necessarily work in another.

This is the basis of Gayed’s book.  Rather than lean too heavily on one particular method, with all of its inherent flaws, Gayed attempted to meld the various schools of thought into a unified process.  He’s not the first analyst to do so, and he certainly wasn’t the last.  But his attempt is one of the most comprehensive I’ve seen, and it was made over 20 years ago.

Investment books tend to have a somewhat finite shelf life.   Stories and anecdotes can look somewhat dated with the passing of time.  But as with Graham and Dodd’s Security Analysis, first published during the pits of the Great Depression, there is value in studying historical anecdotes and in reading a contemporary account of the times.  History tends to get “scrubbed” with the passing of time, which makes learning its lessons more abstract and difficult.  Gayed’s book fits a particular time period—the late 1980s and very early 1990s—making it an effective time capsule of the era immediately preceding the Internet Revolution.

One of the aspects I most respect about Gayed’s work is that he is intellectually honest.  Investing isn’t easy, and no “how to” book is a guarantee of success.   You will make mistakes along the way, but those mistakes make you a better investor if you make analyzing them part of your process.

And this is really the key word: process.  All 484 pages of the book can essentially be boiled down to one critical point: you must have a rigorous investment process in place.  The process can take different forms, but a regular assessment of the results should be a key part of it.  Process brings order from the chaos and prevents your investment decisions from being “a random walk of trial and error.”  And if it is failing to deliver results, “perhaps the whole process should be examined to uncover where things went wrong.”

Well said, Mr. Gayed.

Gayed addresses the strengths and weaknesses of each of the major schools of investing thought.  For example, of fundamental analysis he writes that it is “more reliable than any other approach…tangible and logical.”  But also acknowledging its shortcomings, he notes that “fundamentals tend to lag behind the price action.  The discounting mechanism of the market often senses evolving financial problems before the company actually discloses them.”

Similarly, Gayed notes that quantitative market timing approaches are “most helpful in allowing investors to buy or sell a security at the most opportune price.”  But they can also let you “get carried away in a frenzy of speculation and overtrading, eventually becoming a gambler.”  And remember, Gayed wrote this in the days before discounted internet trading and algorithmic bots!

I liked Gayed’s comments on contrarian investing because I see some of my own psychological shortcomings in his words.  While betting against the crowd at key moments can by wildly profitable, “The crowd is not wrong at all market junctures… The only correct application of the contrarian approach occurs when market psychology reaches unanimity in either direction.  Beware of being a contrarian all the time, since this attitude violates the well-established norms of trend following.”

Given my experience of working with Harry Dent for the better part of a decade, I found Gayed’s comments on demographics to be particularly interesting.  Dent made several bold predictions that proved to be correct and became a very successful New York Times bestselling author in the early 1990s by using demographics as a forecasting tool.  I still consider his first bestseller—1993’s The Great Boom Ahead—to be his best.

Dent is widely considered to be the first analyst to effectively use demographics in the investment process.  But Gayed appears to have independently reached many of the same conclusions at around the same time:

All industry groups are affected in varying degrees by demographics.  Beginning in the 1970s, the economy has felt the impact of the baby boomers—those born between 1945 and 1960… The influence of demographics is likely to continue into the first quarter of the next century as the baby boomers grow older.  There might be increased demand for such services as health care, banking, investments, insurance, nursing homes, leisure, travel, etc… Demographics should be factored into the overall investment strategy.

This could have been written today, but Gayed wrote it in 1990.  The prescience is impressive.

Gayed saves some of his best insights for last in the section on intermarket relationships.  The capital markets are a complex organism.  “Market links are interrelated, and they tend to feed on each other… The commodities market, for example, influences the trend of interest rates, which affect the bond market.  This, in turn, impacts securities prices.”

In this era of central bank intervention, it’s important to remember not to view each segment of the market in isolation.  Intermarket analysis is complicated…and messy…and you won’t always put the pieces together.  But it should be part of the thought process that goes into your asset allocation.  Gayed notes that an astute investor would have seen that the accelerating inflation of the 1970s would have been great for commodities but terrible for bonds.  But when the Fed’s high interest rates in the 1980s halted inflation, the high real interest rates in place set the stage for a long-term bull market in bonds…which in turn led to a long-term bull market in stocks.

I would add that more recently, investors with a deeper understanding of intermarket dynamics would have known that the Fed’s explosive growth in its balance sheet would not be inflationary given the debt deflation going on in the private sector. First order thinking would tell you to expect inflation.  Second order thinking would tell you to expect flat or even falling prices.

Oh, and remember “TED spreads”?  These are the spreads between Treasury bills and Eurodollar rates that become front-page news during the 2008 meltdown when the capital markets ceased to function.  Few people had ever heard of TED spreads prior to 2008.  Gayed was writing about them in 1990.

I recommend you pick up a copy of Intermarket Analysis.  Gayed’s magnum opus is an exhaustive collection of investment insights that he has done a remarkable job of funneling into a cohesive framework for analysis.   The sheer scope of material covered would put most MBA programs to shame.

SUBSCRIBE to Sizemore Insights via e-mail today.

EURUSD – The EURUSD Trading Between 1.3014 and 1.3071

The EURUSD has failed to advance in any of the directions, and now it is consolidating in a narrow range limited by 1.3014 and 1.3071. The pair on the 4 hour timeframe left the oversold zone due to the consolidation phase, thus it has no technical “barriers” to resume its reduction, at the same time the Parabolic SAR is still above the price chart. Nevertheless, the longer the single currency remains above 1.3020 support area, the more likely the basis formation at this level becomes followed along with the following resistance breakdown and the increase towards the 32nd figure.

It goes without saying, it is not necessary to rush into long positions until the pair forms the basis, since it is premature to talk about the end of the downtrend.

GBPUSD – The GBPUSD Trying to Hold Above 1.5200

The GBPUSD dropped below the 52nd figure, but after testing 1.5183 it increased to the level of 1.5247, which became the yesterday’s high. The bulls failed to breakthrough higher, and the pound returned to the 52nd figure. The pair also failed to develop a downward trend, consequently it spent the whole day in a narrow range yesterday. The pair remains under pressure, which also put by the risks of breakdown of the support with a further decrease towards the 51st figure. However, the inability to overcome the support would cause the basis formation, as well as the increase to the resistance at 1.5290.

USDCHF – Downside Risks to the USDCHF Increase

The USDCHF was drifted near the support at 0.9440. At one point, the pair bulls made their mind to test the strength of the 95th figure. Having verified it, the dollar returned to its initial position. The longer the bulls manage to overcome 0.9500, the higher the risks of the renewed pair’s decrease are. The next support is located at the 94th figure, where the 50 day MA is running.

USDJPY – The USDJPY Slowly but Surely Increasing

The USDJPY dynamics has also left much to be desired, though the bulls clearly feel confident in their further actions and are still focused on the 100th figure. The pair’s increase is limited by the 99.86 level so far, but the Parabolic SAR is still below the price chart and moving averages are pointing upwards, consequently the likelihood of the level’s breakdown is very high. It is wise to remember about the upcoming publication of the U.S. macroeconomic statistics – it might completely change the situation.

provided by IAFT

London Gold Market Report
from Adrian Ash
BullionVault
Tuesday, 2 July 08:10 EST

The PRICE of GOLD rose in Asia and jumped at the start of London trade Tuesday, hitting $1267 per ounce to recover 40% of last month’s crash before easing back.

Prices for silver bullion also rose, but lagged gold’s rate of gain, before slipping back below last week’s finish at $19.69 per ounce.

European stock markets meantime fell, as did the Euro – down 0.5¢ against the Dollar – after Eurozone and IMF officials said Greece has just three days to prove its commitment to fresh budget cuts.

 Prices to buy gold with Euros touched €970 per ounce, a near 1-week high more than 7% above last week’s 34-month low.

 “We expect gold to trade with a positive bias going ahead,” says a technical analysis of the gold chart from Sharekhan, India’s second largest stock broker.

 “The crucial support is placed at $1180,” says Sharekhan, “which is the low it touched” at the end of June.

 “Friday’s multi-year low of $1180 looks like a bad quarter-end liquidation memory,” agrees Canadian bank and London bullion market-maker ScotiaMocatta.

 On a technical analysis, “[Monday’s] higher close confirms Friday’s bullish hammer reversal warning on the daily chart,” says Scotia.

Last week’s record-large number of bearish contracts held by speculative traders in US gold futures also “leaves gold open to a more sustained short covering” as they scramble to close their positions at rising prices, says fellow London market-maker HSBC.

“[This Thursday’s] 4th of July holidays in the US also make it likely the gold markets will be relatively thin,” HSBC adds. “This could all contribute to a rally.”

After advising clients to sell gold in January, “At this time we believe gold and gold miners represent good risk/reward,” says Carter Worth, managing director and chief market technician at Oppenheimer Asset Management Inc., which currently runs some $9 billion in client money.

“Indeed, the recent extreme weakness is judged to be the reciprocal…of the extreme strength witnessed in the summer of 2011. The ‘despair’ relating to gold now is as palpable as ‘euphoria’ then.”

Urging “immediate action” on Monday, investment and bullion bank J.P.Morgan told clients to “go overweight” on commodities – a call last made in October 2010 – because “consumers are likely already starting to act on the 20%+ swoon” in natural resources prices.

“Price-driven involuntary production cuts in crude oil, copper, and gold” should also help buoy prices, says J.P.Morgan.

Bank of America agrees, noting today that “Around one-third of the gold mining industry does not cover ‘all-in’ cash production costs.”

But while “in the long term [mining problems] will provide big support,” says $2.2 billion fund manager Charlie Morris at HSBC Global Asset Management in London, “in the short term it won’t really make any difference at all.

“I’m still bullish [on gold prices] long term, but I just think we’ve got a big nasty bear market in the meantime.”

“Even if gold were to bottom off its current lows,” adds a note from brokers Jefferies Bache, “we believe gold equities face further downside.

 “Gold mining is a very challenging and high risk business.”

Looking at the classical commodity-price cycle, falling prices to buy gold mean “New mines will be put on hold, old mines closed, some permanently, exploration will dwindle,” writes Lawrie Williams at MineWeb.

“Global gold production will fall, shortages will develop and then prices will be ultimately forced up dramatically…Such is the cyclical nature of the global mining sector.”

Western households choosing to buy investment gold in June again outnumbered sellers, according to BullionVault‘s latest Gold Investor Index, and also by the same proportion as in May.

Over in Asia today, gold demand was “strong” amongst wholesale dealers said traders on Tuesday morning. But the pace of purchasing “is not on the scale we saw in April,” Bloomberg quotes Citics Futures Co. analyst Huang Fulong.

“The recent short-covering rally [in US gold futures] is expected to continue,” says Huang, “before the US holiday and payrolls data later this week.”

After Thursday’s Independence Day holiday, Friday will bring US jobs data for June.

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.

Source: Brian Sylvester of The Gold Report (7/1/13)

http://www.theaureport.com/pub/na/15413

Industrial metal prices have struggled to find firm footing. Stefan Ioannou of Haywood Securities tees up near-, medium- and long-term scenarios for three industrial metals—copper, zinc and nickel—and explains why he is most enthusiastic about zinc. In this interview with The Gold Report, Ioannou discusses companies that stand to benefit from the coming supply squeezes and China’s role as both supplier and consumer of all three metals.

The Gold Report: In January, Haywood Securities forecast a copper price above $3.60/pound ($3.60/lb) for the remainder of 2013. Six months later, copper is struggling to remain above $3/lb. What is causing the weakness?

Stefan Ioannou: A lot of it relates to uncertainty regarding the global economic situation. Early in the year, the price hovered around $3.25–3.50/lb and recently nosedived to $3/lb. That happened on the back of Federal Reserve Chairman Ben Bernanke’s hints that quantitative easing in the United States may end in mid-2014, raising concerns that U.S. demand for raw goods will decline. Because copper goes into a lot of raw goods, that supposes less demand. In addition, copper inventories are well over 600,000 tons (600 Kt), which is high on a historic basis.

China is the other big concern. Its manufacturing numbers are weakening. People are worried that China, which really drives a lot of the metal stories, is not growing as fast as expected.

TGR: Have you revised your price deck?

SI: In early June we lowered copper’s average price for 2013 to $3.35/lb. Year to date, the average copper price is $3.43/lb.

TGR: Is that why the landslide in early April at the Bingham Canyon copper mine in Utah, operated by Rio Tinto Plc (RIO:NYSE; RIO:ASX; RIO:LSE; RTPPF:OTCPK) subsidiary Kennecott Utah Copper Corp., has not had more of an impact on the copper price?

SI: It is probably a combination of two things. One, investors are very focused on the global economic data and general market sentiment. Two, there have been a handful of mine-specific issues, Bingham Canyon being an important one.

Bingham Canyon was about a 165 million ton (165 Mt) failure, which is quite large. It will take a long time to dig out and get the mine back up to steady, safe production. There has not been much disclosure into what the impact will be. I anticipate the Q2/13 results will include commentary, now that the company has had time to assess the damage.

There have been two other mine-specific issues in the copper space. Twenty-eight people were killed at Freeport-McMoRan Copper & Gold Inc.’s (FCX:NYSE) Grasberg mine in Indonesia in mid-May. The mine was shut down for several weeks and is just now ramping back up.

The third mine-specific issue happened in China in early June. One of Jinchuan Group Co. Ltd.’s smelters declared force majeure due to a major equipment failure that prevented it from producing enough refined copper for its end users. Again, there is not a lot of information on that.

But, overall, I think most investors are focused on the global macroeconomic issues, not on specific issues at copper projects.

TGR: Some of the world’s biggest miners, like Rio Tinto and BHP Billiton Ltd. (BHP:NYSE; BHPLF:OTCPK), have posted “for sale” signs on noncore assets. Some midtier base metals players have bought what might be considered bargains. Is this an investment thesis worth following?

SI: There is definitely a shift in what the majors are including in their quarterly results, their management discussion and analyses, and the question periods during their conference calls.

They are shifting focus to their existing mines, emphasizing cost-cutting and efficiency measures. There is less talk about pursuing larger, capital-intensive development projects. These are being shelved or put up for sale, creating buying opportunities for midtiers.

A recent example is Capstone Mining Corp.’s (CS:TSX) purchase of the Pinto Valley mine in Arizona from BHP, for about $650 million ($650M). Based on our analysis, Capstone did not overpay, but it definitely was not a bargain.

TGR: Can Pinto Valley be profitable at $3/lb copper?

SI: Yes, I think so. It is a low-grade mine, but with an estimated US$1.80/lb average total copper cash cost over the next five years, it has space.

TGR: What are Capstone’s other producing assets?

SI: The company has two mines in production, Minto in the Yukon and Cozamin in Mexico. Both are high-grade projects with modest capital expenses, each producing about 40 million pounds (40 Mlb) of copper per year. Pinto Valley will be an operating mine on Capstone’s financial statements by year-end.

The real growth step for Capstone is its Santo Domingo project in Chile. It is a game changer for Capstone—a multibillion-dollar project, low grade, very big tonnage. It also has associated byproduct credits: iron ore (magnetite) concentrate.

Our model shows Capstone’s cash cost profile, Minto and Cozamin combined, at $1.90–2/lb for 2013 and 2014. As we add Pinto Valley and Santo Domingo, the company’s long-term average cost decreases below $1/lb net of byproduct credits.

TGR: You calculate that Capstone is trading at roughly 0.4 times net asset value (NAV). Is that a typical multiple for midtier companies in this space?

SI: You have to be careful looking at the metrics on a company like Capstone because it has such a significant growth profile. With most established producers, people look at operating cash flow this year and maybe next year, and put a multiple on that.

This year and next, Capstone is producing 80 Mlb copper. Looking out three to five years, it could be producing up to 400 Mlb/year. Near-term cash flow does not represent the company’s overall potential. You have to look at NAV, which brings in additional value for something like Santo Domingo. Our target price for Capstone is $3.50/share.

TGR: Have other midtier miners bought assets from a major producer lately?

SI: Not among our direct coverage. Usually, it is the opposite way around—the majors buying assets from juniors once the junior has developed as far as possible before hitting that financing wall.

TGR: Southeastern Europe is emerging as a copper district; some are comparing it to the Democratic Republic of the Congo (DRC). One exploration drill returned 7.2% copper. What is happening there?

SI: That was drilled by Reservoir Minerals Inc. (RMC:TSX.V). It was a spectacular drill hole in the Timok magmatic complex in Serbia. This is a joint venture between Reservoir and Freeport-McMoRan. At the end of the day, Freeport stands to own 75% of the project following the completion of a full feasibility study. Freeport is in the driver’s seat, and Reservoir is along for the ride.

This is a historic copper mining district. There are two geologic targets, and each company has an interest that is slanted to one or the other. Reservoir’s intersect is in a high-sulphidation zone, which is usually a complex zone above a larger copper porphyry deposit. The geophysics suggest a significantly larger copper porphyry target beneath the high-sulphidation target. Reservoir is interested in the splashy, high-grade drill results from the upper zone and Freeport is looking at the porphyry potential at depth. We will see how it plays out.

You have to drill through the high-sulphidation zone to get into the copper porphyry, which means you get drill results from both zones. We do not know the size of the high-sulphidation zone, but it could, at the least, be interesting to a midtier producer. If the porphyry target at depth pans out, it would likely interest a major.

TGR: It will require more discoveries to qualify this as an area play.

SI: Yes. There are some juniors poking around nearby Reservoir. The jury is still out on the size and grade potential of the porphyry. In the meantime, the high-grade, high-sulphidation at surface has caught the market’s attention.

TGR: In your last interview with Streetwise Reports, you said that all-in costs for copper miners averaged $2–2.50/lb. What is the average, all-in cost-per-pound among your top three picks in the copper space?

SI: For Capstone, we are modeling $1.90–2/lb for its two combined mines this year and next year. But, once Santo Domingo is in production, its average corporate copper cash cost will be closer to $1/lb net of byproduct credits, making it a fairly low-cost producer.

Copper Mountain Mining Corp. (CUM:TSX) is just ramping up production, but as it reaches steady-state production, we anticipate costs over the next year on the order of $1.30–1.50/lb.

Nevsun Resources Ltd. (NSU:TSX; NSU:NYSE.MKT) is just finishing up gold production at its Bisha mine in Eritrea. Looking at 2014 to 2016, it becomes a copper-dominant producer at fairly high grades. Because of that, we see its copper costs below $1.25/lb.

It is fair to say most copper companies, even the higher cost ones, are still producing copper at below $2.50/lb.

TGR: Copper Mountain recently made emergency repairs at its mill. Is that taken care of and is it on track to meet its targets?

SI: It has been a slow and tedious ramp-up. Copper Mountain finished building the mine in 2011 and has struggled with throughput issues ever since. The mine is designed to do 35,000 metric tons per day (35 Kmtpd) throughput. The ore is of variable hardness and is generally harder than expected. The company has tried various solutions and optimizations.

Unfortunately in late May, the transformer in its semi-autogenous grinding (SAG) mill, a key piece of milling equipment, failed. Copper Mountain had to take the SAG mill offline. Luckily, it was able to swap transformers from one of its two ball mills. But this temporary swap meant the SAG mill was running at lower-than-designed capacity for a few weeks. A new transformer has been installed and once the company reaches and maintains 35 Ktpd average throughput, the stock should be off to the races.

TGR: Your target price on Copper Mountain is $3/share. It was an investor darling a couple of years ago. Will it reach those levels again?

SI: Copper Mountain is a low-grade mine, which gives it significant leverage to the copper price. It is certainly an interesting play for copper bulls.

Market sentiment is negative on the copper price. You also have this lingering ramp-up fatigue. Once investors get over those two issues, Copper Mountain is due for a significant correction.

TGR: As you said, Nevsun has almost wrapped up mining the oxide—mostly gold—portion and is getting into the supergene ore, which is mostly copper. There can be hiccups going from oxide to supergene operations. Does Nevsun have a good grip on the geology?

SI: The fundamental difference is in the processing techniques. The upfront milling—making the rock smaller—is pretty much the same. The differences are in the back end.

In the case of the supergene, you float a metal concentrate, which you then truck to a port and ship out on a boat. Oxide gold requires a carbon-in-leach circuit to produce gold dore bars, which you then put on an airplane and send to Europe for sale.

From a geology point of view, in early 2012, the company had a significant reserve reconciliation problem in its oxide zone. A lot of that relates to the fact that oxides are, by their very nature, weathered rock and in some cases are not very competent. When the company drilled the oxide resource and reserve off, it had some core recovery issues in the reserve calculations. Nevsun did not have nearly as much gold as it initially estimated in the mine plan. That had a significant impact on the stock.

When you get into the primary copper and zinc mineralization, that rock is significantly more competent from a geology or a resource/reserve definition point of view. From a statistical point of view, you can deduce a lot more from it without leaving room for a significant error as happened in the oxide.

While there is always some risk in transitioning, it should be significantly less than we saw in the oxide.

TGR: What is your target price on Nevsun?

SI: Nevsun is $4.50/share.

TGR: Zinc is another metal with weak prices, but you believe higher zinc prices are not that far off. Why is that?

SI: Zinc is our choice for a base metal to be bullish on in the medium term. Inventory on the London Metals Exchange has been very high for more than 12 months, topping 1.2 Mt not too long ago. Now, it stands at just over 1 Mt.

The interesting dynamic here is the recent closure of several very large zinc mines. There is nothing fundamentally wrong operationally with these mines; they have simply run their course. In March, Xstrata Plc (XTA:LSE) shut down its Brunswick mine in New Brunswick, which produced almost 2% of the world’s zinc.

The last full year of production for the Century mine in Australia, owned by China Minmetals Corp. (CMIN:CH), is likely to be 2015. That mine accounts for almost 4% of world supply.

When you add up all the mines coming off in the next two to three years, it represents more than 10% of global supply.

The zinc market differs from the copper market in that smaller mines predominate. New advanced-stage zinc projects cannot meet that supply loss, let alone additional demand growth. Despite today’s high inventories, mines closing in 2014 and 2015 and the lack of new projects will squeeze the supply side and drive the price higher.

You can count the number of good zinc mines on one hand. Anyone who has any reasonable exposure to zinc stands to do well when the zinc price runs.

TGR: What are some of those zinc names?

SI: The go-to name will arguably be Trevali Mining Corp. (TV:TSX; TREVF:OTCQX). The company’s Santander mine in Peru is on the verge of commissioning. Its second project, Caribou, is in the Brunswick camp of New Brunswick. It should be in production by early 2014. Trevali will be one of the first junior to midtier zinc-focused companies to hit the ground running as an actual producer. That status alone ensures attention when the zinc price runs.

TMR: Santander is a past-producing mine. It was mothballed for a while due to cost problems. What will make it a profitable operation now?

SI: It is a completely different mine now. Back then it was mining from what it called the Santander pit. Now, it has underground ramp access to operations and a new mill, in which Glencore International Plc (GLEN:LSE; 0805:SEHK) is a significant partner.

This gives it a very different cost structure. The mine should make money at any price north of $0.50/lb.

TGR: Trevali owns 100% of Santander. Is the local community on board?

SI: Trevali has done a good job working with the communities and gaining support for mine redevelopment.

Peru in general is a favorable mining jurisdiction, as is Chile. In Argentina, on the other hand, the government has proposed a significant additional tax and royalty structure that would have a negative impact.

TGR: As you suggested, the Caribou mill and mine are about a year away from production. What is the upside for Trevali?

SI: Looking at Trevali’s two mines together, the company will be producing upward of 200 Mlb/year zinc in three or four years. By then, with a significantly higher zinc price, the company stands to generate significant cash flow and to have a significant treasury.

At 200 Mlb/year, Trevali becomes a target. Nyrstar NV (NYR:BR) took out Breakwater Resources Ltd. at roughly a 40% premium to market. It also took out Farallon Mining Ltd. at roughly a 30% premium to market in early 2011. The junior’s G9 mine in Mexico was ramping up to about 120 Mlb of zinc production per annum at the time.

In the zinc space, we would not be surprised to see the majors come down the food chain, given there isn’t much any bigger than what you see in a company like Trevali.

TGR: What is your price target on Trevali?

SI: My target is $1.35/share.

TGR: What other development-stage targets or companies are you following?

SI: Foran Mining Corp. (FOM:TSX.V) is a copper-zinc or zinc-copper story, depending on how you slice and dice it. Its primary project is McIlvenna Bay, located in Saskatchewan. It shares the geology of the Flin Flon greenstone belt that extends over into Manitoba. That is significant, in that the Flin Flon belt is where HudBay Minerals Inc.’s (HBM:TSX; HBM:NYSE) 777 and Lalor mines are. As a result, the regional infrastructure is outstanding: paved highways, power, etc. HudBay even has a zinc refinery there.

McIlvenna Bay is a very large deposit, a little over 25 Mt in total resources. It is the third largest zinc deposit discovered in this world-class mining camp.

Of the other juniors working in the Flin Flon greenstone belt, no other project is as large, and most are involved in joint ventures with HudBay, which would take the lion’s share of those projects for next to nothing. Foran, however, owns 100%.

TGR: A couple of years ago, HudBay Minerals bought the Lalor gold-copper-zinc mine near Snow Lake, Manitoba. That provides ore for HudBay’s mill. Is HudBay a realistic suitor in the near term?

SI: In the coming year or so, Lalor is the obvious focus. But HudBay has a huge investment in infrastructure up there. The last thing it wants to do is shut down the Flin Flon camp. The longer HudBay can keep it producing, the better. I view McIlvenna Bay as the next Lalor-type of transaction for HudBay. And HudBay would want to make that move before Lalor actually runs out of reserves because it will have to go through prefeasibility, feasibility study, permitting, design and construction.

Obviously, McIlvenna Bay is years out, but these projects take years to develop.

TGR: How is Foran’s development coming along?

SI: Foran’s most recent technical milestone is an integrated resource estimate. Previously, there were two resources, one for the zinc-rich, massive sulphide portion of the deposit and another for the footwall stringer zone, which is generally copper rich.

By combining the two and doing some additional drilling, it has a very solid resource model in hand now: more than 25 Mt on a total resource basis.

This summer, it is advancing additional technical and metallurgical work. That will feed into a preliminary feasibility study and set the stage for a full feasibility study.

TGR: What is your price target on Foran?

SI: It is $0.65/share.

TGR: Do you have one more development-stage zinc play?

SI: Donner Metals Ltd. (DON:TSX.V) is already in production, in a joint venture with Xstrata, on a mine called Bracemac-McLeod in a historic mining camp called Matagami in Québec. Donner owns 35% of the mine; Xstrata owns 65% and is the operator. Xstrata has been operating in the region for years and has an established mill. That limits the execution risk.

Donner started producing concentrate from Bracemac-McLeod ore in mid-May. With the way the payment schedules work in the joint venture, Donner will not receive any revenue on the zinc concentrate until 30 days after shipment. For the copper, the revenue will not come in until 90 days after shipment. As a result, even though Donner is generating revenue, it has has monthly cash calls from Xstrata for its share of operating costs and the capital costs of underground development. Donner just announced a deal to raise an additional $4.5M. I think the market in general was under the impression that it was already fully financed. This suggests otherwise. If Donner cannot get this deal done, it may have financial trouble ahead.

To be fair, a lot of that comes on the back of the zinc price. Donner’s previous financings were done when zinc was $0.95/lb. Since then, zinc has fallen toward $0.80/lb. That affects Donner’s ability to generate near-term cash and meet the payment schedule on Xstrata’s cash calls.

TGR: Donner has a royalty deal in place with Sandstorm Metals & Energy Ltd. (SND:TSX.V). Is that not sufficient to cover this shortfall?

SI: The deal with Sandstorm gave Donner $25M up front to pay for its share of capital costs at Bracemac-McLeod. In return, Sandstorm got a metal streaming agreement on Bracemac-McLeod’s copper, gold and silver production. As development went on, Sandstorm invested another $10M in exchange for additional streaming.

From Donner’s point of view, its key revenue driver now is zinc, because Sandstorm takes a lot of the value that comes out of the copper, gold and silver.

TGR: Finally, let’s touch on nickel. Nickel prices peaked near $50,000 per metric ton ($50K/Mt) in 2007 and are hovering at around $14K/Mt today. That is mostly due to nickel pig iron, a crude substitute for refined nickel, made from low-grade nickel laterite ore. Is there any relief in sight for nickel investors?

SI: Obviously, people are focused on the current spot price, which is $6.15/lb and dropping daily.

Pig iron has put a cap on the upside to the nickel price. The high prices in 2007 prompted a flood of nickel pig iron onto the market. At the time, a lot of the laterite ores being mined for pig iron were relatively high grade: 3–4+% nickel. Since then, that ore has been displaced by lower-grade ore: below 2% nickel, even below 1%. That increases the intrinsic cost of producing nickel from that ore.

Producing pig iron from laterite ore is energy intensive. Much of the processing happens in China, where power costs have gone up. When you couple lower-grade input feed with higher energy costs, the result is a higher cost base for pig iron production. Companies—and they are mostly small, mom-and-pop operations—whose start-up and capital costs are sunk, continue to make money at $6–7/lb nickel. But we do not expect to see any significant new nickel pig iron producers come onstream until nickel gets up to $10+/lb.

TGR: Yet, according to the International Nickel Study Group, the surplus of refined nickel at the end of April was close to 33 Kt and it forecasts a 90 Kt surplus this year. Do institutional investors have any appetite to bring more nickel projects into production?

SI: In the near term, there is a lack of interest in the nickel space. It is probably the longest term base metal to get excited about.

The numbers to support nickel on a long-term basis start with China, which continues to build out infrastructure. Historically speaking, the initial infrastructure in emerging economies is built on low-grade iron work. As a country’s infrastructure and general wealth increase on a per-capita basis, the amount of high-grade steel consumption increases on a per-capita basis. China is still building out. As it moves into higher standards of living, coupled with the size of the population, you can make a bullish case for significantly higher nickel demand. The same will happen in India a decade or two later.

TGR: Do you follow any nickel stories?

SI: The only name on our coverage list is Royal Nickel Corp. (RNX:TSX), a story that fits that long-term thesis. It is a very large sulphide deposit in Québec’s Abitibi greenstone belt, directly adjacent to the key infrastructure. This is the kind of asset that would attract a major player looking to secure a long-term nickel supply spanning multiple commodity price cycles.

There are three basic sources of nickel globally. Sulphide is the most traditional, and is our favorite. A nickel concentrate is made and shipped to a smelter to produce finished nickel. The second is laterite ore. Here, weathered sulphide material is mined, essentially in the form of semi-consolidated dirt. There are a lot of processing challenges, capital costs and risks associated with these projects. Most laterite deposits in the last 20 years have had high capital cost escalations and technical problems. We see these as high risk and generally avoid them. The third one is pig iron, which we already talked about.

TGR: The Chinese are mining nickel in Québec. Are they a potential suitor for Royal Nickel?

SI: Royal Nickel has a memorandum of understanding in place with Tsingshan Holding Group Co. Ltd.

Royal Nickel can produce very high-grade nickel concentrate, on the order of 29%, compared to less than 20% at most other nickel sulphide projects. Technical work shows that you can feed that concentrate directly into the steel mill without a refining process, which has caught the Chinese group’s interest.

In addition, Royal Nickel just finished a feasibility study. It will be the foundation for discussing the economics and how to move forward. Management has made clear its interest in selling a 30+% project interest to a strategic partner to help finance the project.

TGR: What is your target on Royal Nickel?

SI: It is $0.75/share.

TGR: Any parting thoughts, Stefan?

SI: We think zinc is a very interesting thesis in the next 12 months.

It is important to do your homework. Look for good projects in safe jurisdictions, led by good management teams. All three of these ingredients are essential, especially given the market’s negative sentiment right now. Companies that require near-term financing will be challenged.

TGR: Stefan, we appreciate your insights.

Stefan Ioannou has spent the last seven years as a mining analyst covering mid-cap base metal companies at Haywood Securities. Prior to joining Haywood, he worked with a number of exploration and mining companies, as well as government agencies as a field geologist in Nevada and throughout the Canadian Shield in both the gold and base metal sectors.

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DISCLOSURE:

1) Brian Sylvester conducted this interview for The Gold Report and provides services to The Gold Reportas 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 Gold Report: Trevali Mining Corp., Foran Mining Corp. and Royal Nickel Corp. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.

3) Stefan Ioannou: I or my family own shares of the following companies mentioned in this interview: None. I personally am or my family is paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: Donner Metals Ltd. and Trevali Resources 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) As of the end of the month immediately preceding this publication either Haywood Securities, Inc., one of its subsidiaries, its officers or directors beneficially owned 1% or more of Donner Metals Ltd.

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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 WallStreetDaily.com

The end is nigh for America!

Blame it on runaway debt and deficits, or a reckless Fed. It doesn’t matter – our country is doomed!

At least, that’s what we’ve been hearing for years. Yet here we are, still chugging right along.

So is our country truly on the precipice of another historic meltdown? Or could we actually be poised for a rebirth?

Well, you can find out by spending the next eight minutes or so listening to my exclusive interview with Ruchir Sharma, Morgan Stanley’s (MS) Head of Emerging Markets and author of the international bestseller, Breakout Nations.

He oversees more than $25 billion in investments and spends at least one week out of every month evaluating opportunities in a foreign country. In turn, it’s fair to say that he’s uniquely qualified to assess how America stacks up with the rest of the world.

I promise, his assessment will shock many of you. But that’s not the only reason to listen in.

During our conversation, Sharma also reveals…

• Another economic powerhouse that’s teetering on the brink of a credit crisis. He says that it’s “really the big story in the marketplace these days.”
• The single most important thing to remember when investing in emerging markets.
• Whether or not the Chinese consumer can reenergize the country’s decelerating GDP growth rate.
• And, last but not least, we discuss the nasty correction underway in the commodity sector. Is it just a momentary hiccup in the highly touted “Commodity Supercycle”? Or is it a precursor of worse times ahead?

To find out, all you have to do is click on the image below. Or you can read the transcript here.

Ahead of the tape,

Louis Basenese

P.S. Stay tuned for next Tuesday, when we’ll continue this debate with an exclusive interview with a Wall Street and Washington, D.C. insider. He’s the former Director of the Office of Management and Budget under President Reagan, and one of the early partners of The Blackstone Group (BX).

The post The Great “End of America” Debate (Part 1) appeared first on  | Wall Street Daily.

Article By WallStreetDaily.com

Original Article: The Great “End of America” Debate (Part 1)

By www.CentralBankNews.info     Australia’s central bank held its cash rate steady at 2.75 percent but said the outlook for inflation “may provide some scope for further easing, should that be required to support demand.”
    The rate guidance by The Reserve Bank of Australia (RBA) compares with its statement from June when it saw “scope for further easing,” indicating that it sees slightly less room to cut rates further as it omitted the word “some.”
    The RBA, which has cut its policy rate by 25 basis points this year and by a total of 200 points since October 2011, noted that the Australian dollar had depreciated by around 10 percent since early April, but added that it remains “at a high level” and it is “possible that the exchange rate will depreciate further over time, which would help to foster a rebalancing of growth in the economy.”
    The Australian dollar rose above parity to the U.S. dollar at the start of 2011 and remained there most of the time until the RBA’s rate cut in early May when it started dropping. Since the start of this year the Australian dollar has depreciated by some 11 percent to the U.S. dollar, trading at 0.92 today.
    The RBA said the easier financial conditions that are now in place “will contribute to a strengthening of growth over time,” with signs of increased demand for finance by households though the pace of borrowing had remained relatively subdued.
    Economic growth in Australia has been below trend and the RBA expects this to continue in the near term as the economy adjusts to lower levels of mining investment.
    Australia’s Gross Domestic Product rose by 0.6 percent in the first quarter from the previous quarter, for a 2.5 percent annual rise, down from 3.1 percent in the fourth quarter.
    The inflation rate rose slightly to 2.5 percent in the first quarter from 2.2 percent in the previous quarter but the RBA said it was still consistent with its 2-3 percent target “an is expected to remain so over the next one to two years, notwithstanding the effects of the recent depreciation of the exchange rate.”
    The RBA added that financial conditions remain very accommodative globally but the “reassessment by the market of the outlook for monetary policy in the United States has seen a noticeable rise in sovereign bond yields from exceptionally low levels.”

    www.CentralBankNews.info
 

By MoneyMorning.com.au

Australia’s Aaa ratings are based on the country’s very high economic resiliency, very high government financial strength, and very low susceptibility to event risk.
 – Moody’s Investors Services

Our old pal, Sound Money, Sound Investments editor, Greg Canavan might have something to say about ‘event risk.‘

Arguably Australia has one of the biggest potential ‘event risks‘ on its doorstep – China.

And yet China barely warrants a mention in Moody’s report on the Australian economy. In fact, Moody’s mentions China just three times in the 16-page, 6,444 word report.

Of course, as history tells you, you can take anything the credit agencies say on risk with a pinch of salt, as we’ll show you today…

Let’s step back in time to 21 September 2006, in New York. We can picture it; a warm but crisp early autumn day.

We can picture bright sunshine with barely a cloud in the sky. We can see the warm breath seeping out into the cold air as Manhattanites march single-mindedly to their sky-high office buildings.

On this particular morning we imagine the Moodys analyst sat at a desk thumbing through a file. The file has the following note on the cover: ‘IndyMac INABS 2006-D’.

The analyst reviews the file. This would be easy. He or she has reviewed and rated hundreds, perhaps thousands of these securities investments.

Barely audibly the analyst mumbles ‘Aaa’ and casts the file into the out tray.

Mixing the Good with the Bad

It’s hard to blame the analyst. All these securities are the same. Each one comprises a number of different assets.

The best quality assets get an Aaa rating. So do the next four assets – these are the cream of the crop.

The next asset gets a slightly lower credit rating – Aa1. The next slightly lower than that – Aa2. This goes on until the analyst reaches the lowest quality asset in the security. It gets a Ba2 rating.

But all up, the security is rated Aaa – Moodys’ top rating.

The investment banks structure securities like this for a number of reasons. The main reason is that on their own there would be little demand for the higher risk loans in the investment markets.

Or if there were demand investors would want a higher interest rate that the borrower may not be willing or able to pay.

The second reason is that the banks can write a bunch of junk loans knowing that as long as they package it with ‘good’ stuff they can flog it to investors. The more loans, the more deals…and more commissions.

So, what was or is ‘IndyMac INABS 2006-D’?

You’ve probably guessed. But if you haven’t, what we’ve just described is a collateralised subprime mortgage deal.

The way these securities worked is that the banks figured only a small percentage of the higher risk assets would default and would be more than offset by the loan interest charged on all the other loan assets in the security.

That’s the theory anyway. That’s how things worked in September 2006…that was just about the time the US housing market began to crumble.

They Didn’t Bank on This ‘Event Risk’

But as Moodys noted in its original rating decision on 21 September 2006:

‘The ratings are based primarily on the credit quality of the loans, and on the protection from subordination, overcollateralization, excess spread and an interest rate swap agreement provided by Bear Stearns Financial Products Inc. Moodys expects collateral losses to range from 5.35% to 5.85%.‘

If the reference to subprime loans doesn’t give the game away to how things turned out, then the reference to Bear Stearns should. Bear Stearns went bust in 2007.

So how did things turn out? Moodys gave this security (along with thousands of others) a top rating because, well, things couldn’t possibly go wrong. There was no ‘event risk’ on the horizon.

To cut a long story short, as you know, there was an ‘event risk’. It began with the collapse of Bear Stearns in 2007 and reached a climax in late 2008 when the entire global financial system looked set to fail.

As a result, the securities top-rated by Moodys with forecast losses of only 5.35% to 5.85%, suddenly became untradeable. Nobody wanted them.

And it turns out the ‘event risk’ that Moodys had missed resulted in much bigger than expected losses for the IndyMac INABS 2006-D.

The Australian Economy’s Biggest Danger

According to the latest statement, of the original USD$928 million face value, the security has realised losses of USD$171 million. Ouch! You do the maths on that.

Of course, it’s not all over for investors in this security. It still holds about one-third of its original assets, on which it’s still earning interest from mortgage repayments.

But even so, investors still won’t get back the original face value of the security. And most likely the original investors sold out long ago for even bigger losses.

In short, as confident as we are of the stock market grinding higher over the next two years, don’t fall for the idea that everything is fine for the world economy.

When Moodys tells you they don’t see any ‘event risk’ for Australia, don’t trust them. Australia has one of the biggest ‘event risks’ of all time on our doorstep – China.

If you want to successfully make (and save) money over the next two years, you need to understand the risks before you make educated bets on the market.

You need to punt on stocks (we like dividend payers and speculative growth stocks) but you also need a strategy to protect your wealth if things don’t go to plan.

Where do you start? We suggest checking out Greg Canavan’s latest timely analysis here.

Cheers,
Kris

From the Port Phillip Publishing Library

Special Report: Just What are ‘Turbo Cap’ Stocks?

Daily Reckoning: How the Power of Tweets Saved Tesla Motors

Money Morning: Don’t Get Caught in the Market Crossfire

Pursuit of Happiness: Is Technology the Most Exciting Industry in the World?

Australian Small-Cap Investigator:
How to Make Big Money from Small-Cap Stocks