Thursday, February 28, 2013

Study Shows Gas Production to Grow for Decades

A study by Alfred P. Sloan Foundation found that natural gas in the United States will increase in growth for the next 30 years before leveling off.

Even after that, according to the study, natural gas will only slightly taper off.

The data was not only talking about volumes of natural gas, but the cost of production as well.

For example, a million British thermal units at this time costs approximately $3.43 to produce, with estimates are future production will only rise to about $4 per million British thermal units.

Data were drawn from 15,000 wells drilled in the Barnett Shale formation in northern Texas by the University of Texas under the auspices of the Alfred P. Sloan Foundation. It is one of the first comprehensive studies performed to measure the economics of fracking in shale formations.

"We are looking at multi, multi decades of growth," said Scott Tinker, director of the Bureau of Economic Geology at the university and who headed up the study.

As for investment implications, the Barnett shale is complicated when broken down from well to well. There are some that do very well and others that have little natural gas in them. That means some companies will profit and others could be dragged down by the variable quantities scattered throughout the basin and over the numerous wells already dug.

Overall, the study concludes there is about 44 trillion cubic feet of natural gas that can be recovered in Barnett alone.

Tinker said to get the gas there is a need and room for about 13,000 more wells in the Barnett area.

As for other shale resources across America, which are undergoing similar studies, it is estimated there will be tens of thousands more natural gas wells drilled to access the huge resource.

Preliminary estimates of these other shale formations are what the growth projections through 2040 are based on.

U.S. Economic Growth Stalls in Fourth Quarter

The anemic economic growth in the U.S. for the fourth quarter of 0.1 percent underscores the fact there is little or no momentum going forward, in spite of the media outlets already trying to spin it as a positive move forward.

Taking into account the gross domestic product data point to no real growth, missing the estimated 0.5 percent growth analysts had been looking for, again, confirms we are a long way from a healthy economy; both in the U.S. and the world.

Every time these types of numbers come out and explode the recovery myth, there are always those that say if it wasn't for this factor or that factor things would be healthier economically. You don't say. They're right. If report after report shows there are specific, but different factors hampering the economy, that means there are multiple reasons for slow or little growth, not alleged unique factors that are only a temporary drag on the economy.

Juggling few numbers actually made the 0.1 percent growth data happen, as the original numbers revealed there was a contraction. The government changed the export and import numbers to get the positive, albeit irrelevant growth. It's been two years since growth was this slow in the U.S.

The spin this time around is the slowdown came from inventory accumulation and a big cut in military spending. Presumably all that is going to go away in the first quarter of 2013.

Even the idea that terminology in the mainstream media say that optimism may be down some because of the slow pace of the recovery. Recovery? GDP of 0.1 percent isn't a recovery. And when you include the fact that the government massaged the numbers in order to ensure there wouldn't be a contraction reported, it is even worse than is being reported.

Original estimates were the economy had contracted by 0.1 percent. Those are probably the more accurate numbers, and should be assumed to be so by investors.

Even the employment numbers are being spun as positive, even though the jobless claims are just about the same as in 2007-2009 recession. How can that be construed as a recovery in any way? It can't. It's a lie, and we need to take that into consideration in our decision-making.

Wednesday, February 27, 2013

Financial Armageddon is Coming Says Jim Rogers

Commodities expert Jim Rogers recently said in an interview that there is nothing to stop financial Armageddon from happening. Even if governments do something now, according to Rogers, it is too late to stop the coming disaster.

Of course governments and central banks aren't doing anything to deal with the mounting, unsustainable debt loads, and that ensures there will be a day of reckoning, one that is rapidly approaching.

Rogers commented on the recent announcement by EU leaders concerning empowering banks to have access to bailout funds to recapitalize.

"Just because now you have a way to get them (banks) to borrow even more money, this is not solving the problem, this is making the problem worse,” Rogers said CNBC.

Instead, what Rogers rightly looks for is for there to be some bankruptcies, which would point to debt being lowered.

“What would make me very excited is if a few people went bankrupt or a few people started paying off their debt. We are going to have financial Armageddon anyways, when the rest of the world is not going to give these people any more money,” Rogers said.

Since the economic system is doing nothing to cleanse itself, there will be a financial Armageddon as Rogers points out. It's too late for anything to be done to stop it.

ECB's Praet Says Stimulus Losing Effectiveness

It has never been a question of whether or not the stimulus from the ECB has ever been effective, because it hasn't been.

ECB Executive Board member Peter Praet confirms this over the long term, as he said the longer the European Central Bank attempts to stimulate by throwing money at banks, and keeps interest rates at below-market levels, the less effective the measures become.
The longer we carry on with a highly accommodative monetary policy, characterized by extremely low interest rates and excess liquidity in the banking system, the more we will see a phenomenon manifesting itself with greater and greater evidence.
I am referring to what used to be known as 'instrument instability' in policymaking: the need to apply larger and larger doses of the same policy interventions only to see their macroeconomic influence becoming more and more tenuous.

Praet added the low interest rates also removes the incentive of governments to lower their deficits.

It's interesting to see Praet take on the role of the minutes read from the latest Federal Reserve meeting, where the markets were rocked after it was revealed that some of those in attendance questioned the stimulus policy of the Federal Reserve, just as Praet appears to be in Europe.

That was undoubtedly orchestrated, as are these statements by Praet. What appears to be happening is the central banks of the U.S. and Europe are using the media to manage the movement of various markets in response to the unrestricted quantitative easing.

More than likely it's an attempt to keep commodity prices in line, and inflation down. This is why the illusion of economic recovery and reporting continues to be asserted, even though there is almost nothing to reinforce the wishful thinking of those trying to blur the terrible global economy we still face.

Bernanke Confirms Fed Stimulus Concerns Hot Air

About a week ago I wrote that there was absolutely no doubt the quantitative easing of the Federal Reserve would continue. That was in response to the nonsensical idea that because of the minutes of the latest meeting a couple of officials expressed concern over continuing to stimulate the U.S. economy.

Anybody that understands a modicum of economics knew this was all smoke and mirrors, as since the last introduction of stimulus, the unemployment figures have gone nowhere; even going slightly higher.

Bernanke's defense before Congress of his continuing to print money and throw it into the economy ensures there is never going to be some type of premature and surprising exit from that plan.

Other than a little strength in housing, there's nothing to suggest Bernanke would even think of starting to wind down the process.

So as far as stimulus has an impact on commodities, that part of the puzzle will remain in play, and anyone making investing decisions based upon rumors to the contrary will be making a big mistake, unless they understand the temporary effects the news will bring for short-term moves.

Monday, February 25, 2013

Fortunes will be Made in Arckaringa Basin

The energy world has been turned on its head, as the announcement by a comparatively small energy company named Linc Energy Ltd. (AXS: LNC) that it holds the leases to a gigantic new shale oil field in southern Australia named the Arckaringa Basin, near the tiny town of Coober Pedy, that contains an estimated 233 billion barrels of oil, with the possibility it could be as high as 400 billion barrels, based upon low initial estimates in other shale fields.

As to the 233 billion barrels of oil estimated to be in the Arckaringa Basin, those figures come from Gustavson Associates, an independent petroleum industry consulting firm.

While investors could make a lot of money from investing in Linc Energy Ltd. and holding it for the long term, there are other plays in the sector that will prove to be even more profitable.

Since the huge amount of oil would be impossible for Linc to produce on its own, it means there will be some partners in the operators and service providers side of the energy industry to help them tap into the huge reserves.

Even though some names have been floated around as the most likely to be included in the process, they haven't been confirmed as being locked in at this time.

With that in mind, we all know it'll have to be some big players, and almost certainly they'll already have a presence in Australia, along with the needed connections that accompany it.

Those knowing the fairly short list of companies that fit that description, they will be the first to comfortably invest in them, and among those making the most money. 

Well production is scheduled to being in the early part of 2014, so the time for preparing to invest in the short list of companies that could be partners in the venture is now.

Thursday, February 21, 2013

No Doubt Fed Stimulus will Continue

The temporary negative response to the content of the Fed minutes from its last meeting has proven to be nonsensical, as there is no doubt, and hasn't been any doubt, the global and American economy have really never exited the recession, and that bodes well for those investing in commodities, and specifically gold and silver.

It's probable that the major reason for the Federal Reserve acting like it's in conflict and confusion is for the purpose of keeping the U.S. dollar shored up, as the dollar weakening from the trillions in stimulus caused other currencies to rise against it, affecting their exports. The greenback climbed to a 5-1/2 month high against a basket of currencies on Thursday.

With unemployment jumping 20,000 last week and the Philadelphia Fed's business activity index plummeting to minus 12.5 in February, it shows factory activity has really slowed down. A reading of zero points to contraction. Last month it has plunged by minus 5.8.

Europe is another major problems the mainstream media seems to only occasionally bring up to keep the recovery narrative going, but economic conditions there continue to worsen, and there is little positive in that region in the world to look forward to in the near or medium term.

Food and energy has been rising in price, and even consumer prices outside of those soared by 0.3 percent, the largest gains since May 2011.

Some point to existing home sales as a positive, which rose 0.4 percent in January. The average price of a home has climbed 12.3 percent from a year ago.

The supposition is consumers will spend as a result, but I don't think that's really likely, other than a slight few who may do some refinancing.

A strong economy needs to be in place, or at least perceived to be in place in order for that to happen, and that bubble has burst for most consumers, and it's unlikely we'll see anything in homes that will make a significant impact on the U.S. economy.

In other words, the quantitative easing will continue from the central bank no matter what a couple of the directions may say.

Time to Get into Silver Wheaton (SLW)?

The manipulative actions of the Federal Reserve through the release of the minutes of the last meeting, where some strategically placed comments about the possibility of pulling back on the latest QE round whether or not they reach the asserted goal in relationship to unemployment, caused a ruckus in the markets yesterday, with almost all asset classes falling.

That has provided some terrific buying opportunities today, and as far as commodities go, Silver Wheaton (SLW) is one that should be taken a close look at. It jumped quick at the opening, but has pulled back pretty quickly.

With the economic outlook being fairly decent, and silver demand sure to continue on, these are pretty good levels to enter into Silver Wheaton, after it took a pounding yesterday, dropping $2.43, or 7.02 percent.

I've been in and out of Silver Wheaton for some time, and it's hard to pinpoint when the absolute best time to enter is, but that's true of all equities. I think the mid-$32 range is a pretty good bet for both short and long term investors, who should be rewarded at this price.

Wednesday, February 20, 2013

Commodities Plunge on Concerns of Demand, Fed Comments, and Hedge Fund Rumors

Several elements on Wednesday fueled a plunge in prices of many commodities, as the perfect storm of information resulted in big sell offs.

Among the major concerns was the release of the minutes from the latest meeting of the U.S. Federal Reserve, which hinted at the possibility of it slowing down its latest QE or stimulus program before the hiring numbers it was targeting are even close to being met.

It sounds like a deliberate attempt by the Fed to influence the market, as the chances of it stopping its stimulus any time soon is very unlikely at best. Hiring really hasn't moved at all since the introduction of the latest round of QE, so the idea the central bank is going to just slow down or close up shop is pretty ludicrous.

Nonetheless, a somewhat spooked market over responded by punishing commodities across the board. Gold and silver were hit particularly hard by the news, with gold settling down 2.6 percent and silver 2.7 percent. That brought gold to 7-month lows, while silver experienced its sharpest decline in 2 months.

The other ambiguous news was a rumor a commodity hedge fund had to liquidate positions in oil and metals, putting more downward pressure on commodities. As of this writing there is no proof this has even happened. Most of the sell-off in commodities happened between 10 am and 11 am, the time the rumor of the hedge fund sell off was at its peak.

Some analysts look at it all as speculative trading more than anything else. The fact that the majority of the commodities fell on average about 2 percent points to a blip more than a rush out of the sector.

Finally, what has some potential legs one way or the other for commodities is the demand factor, in that regard there continues to be mixed data and outlook concerning the growth rate of the U.S. and global economy, causing ongoing uncertainty in the commodity markets

There is no doubt though that this was a news-related downward push on commodity prices, and shouldn't continue on until there is more clarity over the issues, which outside of the rumored hedge fund, will take time to reveal itself.

Commodity demand and the presumptions the Fed may end easing sometime soon, are things that won't be known for some time, with the ending of stimulus assuredly not going to happen any time soon. Once that's realized, things will level off again until commodity demand is better understood.

Tuesday, February 19, 2013

Eric Sprott on Why Silver will Outperform Gold

In this video money manager Eric Sprott talks about the reason he believes the price of gold and silver is being suppressed, showing how the supply and demand data don't line up with the current prices of both precious metals.

"Physical demand for gold is out of line with supply. How can all these new people come into this market when there has been no increase in supply . . . for the last 12 years? I would hate to think what happens when we all find out there is no gold in the Treasury."

In other words, central banks around the world appear to be selling gold specifically in order to make up for the shortfalls so the price does't soar.

He also notes that China's gold imports have soared, while the official data show only a four percent increase in the country.

Sprott also tells the reasons he sees silver outperforming gold going forward.

Go here for  video interview with Greg Hunter

Monday, February 18, 2013

G-20: No Currency War, Just More Stimulus

I don't know if I've ever heard such a blatant contradiction as the response of G-20 finance ministers to the idea of there being a currency war going on.

The silly comment by the managing director of the International Monetary Fund, Christine Lagarde, where she said this: "There's been lots of talk of currency wars, and we have not seen any such thing as a currency war," underscores the lack of respect for those who understand what's going on with money policy around the world and the results the stimulus actions produce.

Even the idea of saying nothing to or about Japan's money policy, where the yen has plunged against the U.S. dollar by 21 percent since the middle of November, 2012, reinforces the fact there is a currency war going on.

After all, if the G-20 publicly spanked Japan, they would have to answer as to why they're encouraging more stimulus at this time.

Lagarde all but said there is sure to be more monetary easing in the euro zone, based upon the interest rates in the region are higher than those of competitors like Japan, U.K., and the United States. But there is no currency war going on. No sir.

There have been references to the dishonest statement from the G-7 last week where it attempted to make a difference between a country specifically focusing on a specific currency level and monetary easing in order to boost domestic economies.

Why is that a difference? It isn't. It's saying the same thing using different terminology.

How come they're attempting to make this type of murky but dishonest comparison? You can be sure more stimulus is on the way in response to the ongoing stimulus or money printing, and that means there is a currency war between countries attempting to be sure their exports are competitive with other countries.

If you were to believe the official explanations, the results as to the behavior of the currencies against one another will be the same, but we just aren't going to call it a currency war because it would make the central banks appear to be what they are - government tools being used as economic weapons of mass destruction.

And if you're wondering which country it is that instigated this war, it's the United States as it continues to create money out of thin air at unprecedented rates.

Saturday, February 16, 2013

Shorting Yen Making Millions for Investors

Investors shorting the yen since November when the Bank of Japan was pressured to debase the currency, have made millions on the move, with currency expert George Soros generating a cool $1 billion from the play.

Other major players generating big gains from the debasing of the yer were David Einhorn's Greenlight Capital, Daniel Loeb's Third Point LLC and Kyle Bass's Hayman Capital Management LP.

Since the announcement in November of retaliation against the U.S. dollar by the Japanese for the ongoing policy of the Federal Reserve of endless quantitative easing, the yen has dropped 20 percent. Expectations are it still has room to fall.

U.S. Will Win Currency War, Rest of Us will Suffer

In a currency war that is escalating, over time there is no doubt the U.S. will eventually come out the winner, in the sense that it will lose more of its value than competing currencies, which will devastate the economy.

Peter Schiff, CEO of Euro Pacific Capital, said this:

"There is a currency war going on," Schiff said at the Inside ETFs conference. "The irony of a currency war which makes it different from other wars is the object is to kill itself. Unfortunately, I think the U.S. is going to win the currency war."

"We're broke. We owe trillions. Look at our budget deficit, look at the debt to GDP (ratio), the unfunded liabilities," Schiff added. "If we were in the euro zone they would kick us out."

Since the Federal Reserve is artificially propping up the U.S. economy, it's only a matter of time before the negative consequences kick in, led by the ongoing debasement of the U.S. dollar.

Schiff also rightly notes the consumer price index isn't made to measure inflation, but rather to hide it through manipulation. He calls the CPI a "total fraud." Schiff says other similar indexes are just as fraudulent as the CPI.

Recommendations from Schiff are to continue to hedge inflation and global uncertainty and unrest with precious metals, especially gold.

Friday, February 15, 2013

Why Coal Demand is Falling in America

Besides the obvious attack by the government on the coal industry, with regulations resulting in high operational cost designed to cripple coal in America, there are some other reasons why coal has been diminishing in the midst of a surge in coal demand outside of America.

In states like Kentucky and West Virginia, for example, easily accessed coal has already been mined, resulting in higher costs to mine the thinner deposits.

The other major challenge is the discovery and supply of natural gas in America, which has resulted in cheaper energy, putting pressure on coal as a fuel source in the United States.

One area that coal should continue to do very well in is high-grade metallurgical coal, which is used to produce steel. This won't save the coal industry in America, but it will keep some regions of the country in good condition.

Another key element is the lack of export terminals to meet the growing demand of coal in every other country in the world outside of the United States. At this time there are projects in the works to build five coal export terminals in Washington and Oregon to help meet that growing need. Most coal companies benefiting from that will be producing in the western part of the U.S. It is uncertain as to how many of those will be built and how long it'll take to bring them to operational status.

Projections by the International Energy Agency show that coal demand will jump by 1.2 billion tons over the next several years, which should make it the No. 1 global fuel source at that time.

So while coal demand is falling in America, every other country on the face of the planet that uses coal has been increasing it as an energy source for their needs.

China is the driving force behind coal demand, with India boosting its coal usage as well. For the United States, at this time Europe is the biggest importer of coal from the country.

If this continues for years into the future, which it undoubtedly will, coal demand in America could rise again, but it'll take many years before that happens. For now, investors should look for coal companies positioned to primarily serve the Chinese market, as Chinese demand accounts for half or more of all coal demand in the world as of this writing.

Thursday, February 14, 2013

Commodity Revenue for Investment Banks Plunges in 2012

Revenue for investment banks from commodities dropped in 2012, with intrusive regulations and increased capital requirements resulting in less interest from clients. Another factor was volatility for the year was relatively low, also affecting interest in the sector.

The drop was a huge 25 percent from 2011, with revenue coming in at $6 billion for 2012, down significantly from the $8 billion in revenue generated the year before.

Ten banks were by consultant Coalition, including Bank of America/Merrill Lynch (BAC), Barclays (BCS), Citigroup (C), Credit Suisse (CS), Deutsche Bank (DB), JP Morgan (JPM), RBS (RBS), Goldman Sachs (GS), Morgan Stanley (MS) and UBS (UBS).

A report released by Coalition said, "Low volatility and reduced client activity led to a 24 per cent drop in revenues. Energy, investor products and precious metals options businesses were notably affected.

"Performance was also subdued by ongoing concerns about increased regulation and capital sensitivity, pushing banks to re-evaluate their commodities strategies."

In its quarterly results last month, Morgan Stanley said the commodity revenue for the fourth quarter was the lowest since 1995.

Wednesday, February 13, 2013

Marc Faber: Invest Where Fed Has Least Impact

Now that the Federal Reserve has painted itself into a counter it will have difficulty getting out of, it's uncertain how long it will continue to stimulate and keep interest rates at artificial lows.

Also part of the larger problem is the decision for other major economies to print money as well, with ECB, Bank of Japan and China all using their central banks as an attempted means to boost their economies. None of it is working, and so the question now is where should investors place their money in a world of economic stimulus.

Marc Faber believes he has the answer, as he says the stimulus party is now over because asset prices will drop if stimulus efforts are stopped, and if the central banks continue stimulating, which they will for some time, the economies of the countries or regions will remain weak.

The problem is these countries refuse to allow the economy to heal itself; attempting to prop them up wit funny money while their respective currencies continue to plunge in value because of the resultant debasement. It's no different than the giant banks being allowed to fail when the opportunity arose for them to do so.

Faber recommends investors to look for areas where the Federal Reserve especially has minimum effect. Interestingly, one suggestion is telecom companies in Europe, and companies residing in places like Vietnam.

One the fallout comes from the stimulus measures, Faber sees nowhere to go for profits except places where there is lower impact from the actions of the central banks.

Tuesday, February 12, 2013

U.S. Started Currency War, Will it Continue it?

Everyone is pointing to Japan as the culprit in the currency wars, but the truth is the U.S. has escalated the war by refusing to rein in spending and continuing to print money at a rate that continues to push the value of the U.S. dollar down, which pressures exports in other countries.

Consequently, other nations, if they don't want their exports and own economies crushed, must respond with their own money-printing scheme in order to keep their currencies from rising too high against the U.S. dollar.

The silly and nonsensical statement coming out of the G7 nations caused even more problems, as it said the monetary policies promoted wouldn't be focused on the debasing of currencies. That's an outright lie, as printing money by definition is the debasing of currencies. Period.

Unless the nations agree to stop printing money and start to really cut back on government spending, the currency wars will continue on, and currencies will continue to fall in value, as the U.S. dollar has to the tune of over 95 percent since the inception of the Federal Reserve 100 years ago.

Counting on most people - including financial and economic writers - to not understand currencies, the G7 made the laughable assertion it was committed to exchange rates driven by market forces. Again, if that was the case, they would stop printing money and shrink the size of government.

Anyone who thinks this is being done allows themselves to be lied to because exchange rates have been manipulated by central banking policies for decades. It's the ramping up of printing to gigantic levels that has forced the issue out into the open; not the decision by Japan to print more yen.

The ECB has been attempting to shrink its balance sheet, with banks paying back cheap money printed by the central bank in 2012. If the U.S. and Japan continue to expand their money supply, the euro will undoubtedly rise against the two currencies, which will result in the region having to respond with an effort to weaken the euro.

It's improbable Japan will stop its strategy (although it may publicly assert it does), so a full-blown currency war involving numerous nations could expand. The question is when will the U.S. stop its part in the wars and cut back on its outrageous printing of money. Until that happens, we'll see this continue to be an issue; one that will worsen before it gets better.

Monday, February 11, 2013

Goldman: Precious Metals, Livestock to Lead Commodities Over Next Year

Goldman Sachs (NYSE: GS) predicts over the next 12 months, livestock and precious metals will lead commodities to about a 1.1 percent jump in prices.

Precious metals will climb the most according to Goldman, estimating a jump of 5 percent, while it sees livestock prices rising 4.5 percent during the same period.

In other commodity sectors, Goldman sees energy increasing 2 percent; industrial metals will drop by 1 percent; and agriculture in general will fall 3.5 percent.

“Renewed optimism has been mostly based on momentum and forward-looking survey data and far less on hard data and physical markets, which remain lackluster,” Goldman analyst Jeffrey Currie wrote in the report. “We are maintaining our price targets and recommendations and will wait for hard data and physical markets to confirm the optimism before raising estimates.”

Citing the Chinese housing completion cycle, Goldman suggest investors acquire copper. The financial giant also sees benefit in taking a position in the Brent GSCI Index in order to take advantage of the low crude inventories which has produced backwardation.

Rolling over nearby contracts to longer contracts will result in profitable returns, said Goldman.

Thursday, February 7, 2013

Silver Wheaton's (SLW) Smallwood Says Vale Deal Not a Strategy Change

Immediately after the announcement by Silver Wheaton (NYSE: SLW) of the gold streaming deal with Vale (NYSE: VALE), questions arose on whether or not the company's focus in the future would migrate more towards gold.

CEO Rand Smallwood quickly put speculation to rest, as he said the deal shouldn't be construed as an attempt to change the priority of silver towards a balance of gold and silver.

“This isn’t a change in focus for us. We’ve always been interested in broader precious metals so I still call us a silver-focused streaming company,” Smallwood said. “We do focus on silver and will still focus on silver but we don’t ignore the broader precious market, mainly because of the same reasons we invest in silver apply to gold.

“We’re not scared to step into the gold space when there’s top-quality assets and top-quality partners,” Smallwood added. “It’s worth stepping into the gold space when there are opportunities like this.”

One of the several aspects the market likes about this deal is who it was done with. Overall, Silver Wheaton has a good track record of putting together deals with larger and safer companies, which have helped build the foundation of its current success.

Production on an annual basis for gold will jump to 110,000 ounces, equal to about 5.9 million ounces silver equivalent.

For that, Silver Wheaton paid $1.9 billion and 10 million company warrants with a strike price of $65 and a 10-year duration.

Silver Wheaton was trading at $37.01, up $0.22, or 0.60 percent, as of 12:16 PM EST.

Tuesday, February 5, 2013

Silver Wheaton (SLW) Acquires Gold Rights to Salobo Mine, Sudbury Mines

Silver Wheaton (NYSE: SLW) announced in a press release that it has acquired 25 percent of the gold production for the life of Salobo Mine and 70 percent of gold production of Sudbury Mines for a 20-year period from Vale S.A. (NYSE: VALE).

The terms of the deal per the press release are these:
The Company will pay Vale total cash consideration of US$1.90 billion, plus 10 million Silver Wheaton warrants with a strike price of US$65 and a term of 10 years1. US$1.33 billion will be paid for 25% of the gold production from Salobo, while US$570 million will be paid for 70% of the Sudbury gold production. In addition, Silver Wheaton will make ongoing payments of the lesser of US$400 (subject to a 1% annual inflation adjustment from 2016 for Salobo) and the prevailing market price, for each ounce of gold delivered under the agreement.

Combining the production from both mines, Silver Wheaton will boost its gold production by 100 thousands ounces a year, with about 60,000 ounces from Salobo and around 50,000 ounces annually from Sudbury.

Over the next five years, gold revenue from the deal with brnig the percentage of gold exposure of Silver Wheaton to an average of 12 percent, going as high as 25 percent some years.

Including the new streams, Silver Wheaton revised its production guidance, with 2013 now expected to include 33.5 million ounces of silver equivalent production, along with 145,000 ounces of gold. For 2017, silver equivalent production is estimated to come in at 53 million ounces, and gold at 180,000 ounces.

CEO Randy Smallwood said this in the release:

"Partnering with Vale on two new gold streams represents a significant step forward for Silver Wheaton and for the streaming model as a whole.  Not only does Silver Wheaton gain accretive gold ounces to further grow and diversify our company, but the precious metals streaming model has now been further endorsed by another one of the world's preeminent mining companies."Silver Wheaton is a proud Canadian company, and we are also excited to be adding another asset based here in Canada , our second one in less than a year."

"While we have traditionally focused on silver, we have never been averse to strategically adding 'the right' gold streams to our portfolio. The world-class nature of the Sudbury operations and the Salobo mine, with its exciting expansion and exploration potential, along with the quality of Vale as an operating partner, convinced us that these assets would be ideal additions to Silver Wheaton's portfolio. Consistent with the mines underlying our existing streaming portfolio, the precious metal coming from both of these assets is produced as a byproduct and represents only a small fraction of the overall economics of the mining operations. While we will continue to believe there are a significant number of streaming opportunities in the silver space, we are also open to layering more high-quality gold streams into our portfolio."
"Vale has a history of mining success spanning decades, and we are confident that Salobo and Sudbury will deliver substantial long-term value to both companies' shareholders. These gold streams will significantly increase Silver Wheaton's overall growth profile, which, given our unique dividend policy, should also translate directly into dividend growth."

Silver Wheaton closed Tuesday at $36.24, up $0.24, or 0.67 percent.

Freeport (FCX) Could Soar on Copper Demand

Some analysts have questioned the sustainability of copper prices based upon the existing 82 mines that are scheduled to come online by 2020.

The problem with those assumptions is there are already significant delays of a number of those mines, and over a couple of decades there are sure to be many more. So even though there are in fact plans for 82 mines to be operating by 2020, there is no guarantee it'll come close to those numbers.

And of course that leaves 7 years of uncertainty and no guarantees as to how much copper will be available to the markets.

What also needs to be taken into consideration concerning copper supply is Escondida, the current largest producer of copper, has had production over the last five years plunge by 25 percent.

Together this produces a weak production outlook for copper in the near term, measured by a time period up to seven years, based upon projected copper mines coming online.

We must be careful not to make investment decisions based upon projections as to mine openings, which are very unstable and unreliable, rather we must look at probabilities and realities, which at this time favor growing demand and falling supply for several years.

How that plays in Freeport's favor is in recent history, 2009 - 2010, when copper prices took off, it soared from under $10 a share to almost $60 a share in that short period of time. It's likely to happen again, assuming the copper scenario plays out as expected; meaning supply is more constrained than believed by some analysts.

Another positive factor for Freeport is it is currently trading at only 7.5 times 2014 earnings. There is also the nice 3.5 percent dividend to consider.

There are those that could be rightly concerned over the recent acquisitions of Plain Exploration (PXP) and McMoRan Exploration (MMR), as the move towards diversification could water down the effect of copper prices on Freeport's bottom line. Over the long term that could be true (although the benefits of the assets coming with those acquisition are a positive for the company over time), in the short term it's unlikely to have any significant impact on the share price of Freeport, which should move in unison with the price of copper.

If the underlying assumptions are correct, that should be good news for Freeport investors.

Monday, February 4, 2013

Mohr Sees Strong Commodity Growth, Weaker Gold

In the near term Scotiabank’s commodity market specialist, Patricia Mohr, sees commodities in general doing very well, with gold going through a consolidation period, moving up to $1,725 an ounce in 2013.

Over the longer haul, Mohr sees commodities to continue rising based upon growth in emerging markets. Of particular note for Mohr is the potential growth of automobile ownership in Asia, specifically in China, where only about 80 in 1,000 people own vehicles at this time.

She also like fertilizer companies because of farmers holding back on buying fertilizers recently. With food prices higher and margins widening, farmers should have a positive outlook going forward, which should result in higher demand for potash especially.

Another area that looks promising is uranium, which should enjoy strong growth as demand continues to rise, even though the media reports only part of the story. While there have in fact been some cutbacks in production in some countries for political expediency, they simply make it up by importing uranium for other countries, allowing the illusory policies to stay in place, distorting the fact that uranium demand will continue to grow.

Also of note with uranium is the program instituted by the U.S. and Russia dubbed Megatonnes to Megawatts. That will result in close to 24 million pounds of U308 no longer in the market, affecting supply.

Mohr sees uranium climbing to as high as $65 a pound by the middle of the decade, up from the $40s range it has been in lately.

As for copper, that is seen by Mohr as slowly dropping from the $3.50 she sees in 2013, to about $3 a pound over the longer term. Increased mine capacity is her reasoning there.

Saturday, February 2, 2013

Morningstar Analyst: Dow 14,000 Here to Stay

It'll be interesting to see if Robert Johnson, director of economic analysis for Morningstar, will regret his assertion that it wouldn't be surprising if the Dow were to linger in the 13,500 to 14,500 range for some time.

The few times the Dow has surpassed 14,000 in the past, it wasn't long afterwards that it came plummeting down in a most aggressive manner. Johnson says he doesn't think that will happen this time around based upon his belief the economy is stronger than in the past when it hit those numbers.

He cited a stronger banking system and housing market as the main indicators for his outlook.

Johnson also sees stocks as being valued in line with the reality of the performance of the companies rather than being overvalued.

The major problem is most of the outperformance of publicly traded companies in the earnings season has come from cost cutting, even though revenue is up so far with the companies listed in the S&P 500 by 1.2 percent.

It's hard to understand why the Dow is approaching record territory with the very weak global and U.S. economy. There is no doubt the Dow will come crashing down, but it may have more legs on it than bears are thinking at this time.

Even so, this performance is living on borrowed time, as Spain remains a disaster in Europe, the U.S. economy contracted last quarter, the jobless rate for the week ending January 26 jumped by 38,000, and when including people claiming benefits from all programs at the end of the week on January 12, it soared to 5,914,983, a boost of 255,501 from the prior week.

How that is interpreted as something that has legs and isn't a major challenge has to be related to wishful thinking rather than facing reality.

Dow 14,000 Irrelevant Says Bogle

In an interview with CNBC, Vanguard Group founder John C. "Jack" Bogle, said the Dow hitting 14,000 "doesn't mean very much." He added that it's something "I can contain my enthusiasm about....”

The Dow closed Friday at $14,009.79, jumping 149.21 points. That brings the Dow to only about 155 points from the highest closing it has ever had of 14,164.53.

While retail investors have started to return to the market slowly, the fact that they haven't poured into the market is probably a good sign. Bogle said, “When mutual fund investors pile into equities, it's usually a very negative sign for the market.”

For the first three weeks of January, only $6.8 billion in net inflow came into mutual funds based in the U.S.

Concerning the failed Federal Reserve policy, Bogle said he opposes the idea of the Fed attempting to raise the price of stocks, as even if there is some success in that regard, it actually distorts the discovery of what the market is really saying.

“I don't know if anybody down there knows whether they are low or high at any time. I think the Fed should try to stay out of trying to influence the stock market. I think let the market decide.”

This also could be a reason a lot of businesses continue to hold back on expansion, as when forces like the central banks interfere in the market, it makes it more difficult to make decisions because it's harder to project the future probabilities because of the price distortions.

Bogle sees the U.S. economy growing at from 2 to 2.5 percent in 2013.