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July 27, 2011

Canada makes a deal a day as mining M&A head towards $200 billion |

Canada makes a deal a day as mining M&A head towards $200 billion

Frik Els | July 25, 2011

The value of mergers and acquisitions in the mining sector more than doubled to $96.3 billion in the first six months of the year and could top $200 billion for the whole of 2011 says a new research report.

Canadian companies – both as acquirers and as the targets of buyers – dominated corporate finance activity in the first half shaking on more than a deal a day and at 325 deals accounting for almost two-thirds of all the metals and minerals transactions carried out around the world.

According the Ernst & Young report released on Monday top acquiring country by volume was Canada (196 deals), followed by Australia (83) deals and the top target destination by volume was Canada (129 deals), followed by Australia (72 deals).

Canada’s total mineral production for last year was valued at $41.3 billion, which is $11 billion more than 2009’s production according to government statistics from Natural Resources Canada (NRCan).

In 2010, Canada ranked first globally for the production of potash; second for uranium production; third for aluminium and titanium concentrate production; fourth for elemental sulphur and nickel production; and fifth for platinum-group metals, chrysotile, molyb- denum, salt and cadmium production.

Ernst & Young says thirst for natural resources from rapidly developing economies continues to drive M&A in the mining sector, but the pace of growth in deal-making is being tempered by uncertainty around global macroeconomic issues and resource nationalism concerns around the world.

Total deal value for January—June 2011 doubled compared to January—June 2010, up from US$47.9b to US$96.3b.

There were slightly fewer deals in the same period, with 573 for the H1 2010 compared to 511 to 30 June this year, reinforcing the view that while larger deals are being executed there is still a level of uncertainty around doing M&A given the current macro-economic backdrop.

The number of mining & metals sector IPOs globally was up 30% from 56 in H1 2010 to 73 in H1 2011. Total proceeds from IPOs were up 107% from US$6.3b to US$13.0b, although this is dominated by the US$10 billion Glencore listing.

Ernst & Young’s Global Mining & Metals Transaction Advisory Leader, Lee Downham, says a strong transaction pipeline, the availability of capital and historically low debt levels across the sector suggests M&A values and volume will increase for the remainder of 2011 and into 2012.

Downham says while deal activity is stronger than last year, given the strong environment for M&A not as many deals had been done in H1 2011 as could have been expected. However the pace of deal making has increased in recent months.

“Average mining company debt is at an all time low while cash flow and profitability is at an all time high. With capital increasingly available to the sector, mining and metals companies are in a very good position to do deals,” says Downham.

“However, ongoing Eurozone credit issues, stagnating growth in America, uncertainty around the pace of China’s growth, combined with uncertainty around the spread of resource nationalism is making management wary and it is holding some deals back.”

Downham says while there are signs IPO activity in the sector is also starting to be impacted by the uncertainty and stock market volatility, with some delays in listings due to valuation challenges, the IPO pipeline remains very strong.

“We expect to see a significant number of mining and metals IPOs during the second half of 2011 and beyond.”

Downham says despite the ongoing uncertainties the pace of deal making in the sector is likely to pick up through the rest of 2011.

“The thirst for natural resources in the emerging markets means deals will be done.”

M&A in the mining and metals sector, January—June 2011 also shows more than US$17b in share buybacks on the back of strong cash flows and increased demand from shareholders for returns.

Canada makes a deal a day as mining M&A head towards $200 billion |

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Copper Falls From One-Week High as Orders for Durable Goods Drop - Bloomberg

Copper futures for September delivery dropped 2.3 cents, or 0.5 percent, to $4.455 a pound at 10:43 a.m. on the Comex in New York. Earlier, the price reached $4.4885, the highest for a most-active contract since July 19.

Before today, the metal dropped 3.9 percent since reaching a record $4.6575 on Feb. 15 amid weak Chinese demand.

read the rest on Bloomberg

Copper Falls From One-Week High as Orders for Durable Goods Drop - Bloomberg

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Gold Futures Rise to Record Amid Impasse on U.S. Debt Accord, Dollar Slump - Bloomberg

Gold futures for December delivery rose $8.90, or 0.5 percent, to $1,628 at 10:33 a.m. on the Comex in New York. In July, the price has climbed 8.3 percent, heading for the biggest gain since November 2009.

Holdings of gold in exchange-traded products rose 0.3 percent to a record 2,128.229 metric tons yesterday, data compiled by Bloomberg show.

Silver futures for September delivery rose 57.7 cents, or 1.4 percent, to $41.275 an ounce on the Comex.

Gold Futures Rise to Record Amid Impasse on U.S. Debt Accord, Dollar Slump - Bloomberg

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Jim Rogers: I’m Short United States Government Bonds

I’m short United States government bonds, long term bonds. I wouldn’t lend money to the United States in US dollars for 30 years at three or four or five, or you name the interest rate. - in WSJ

Jim Rogers Blog: I’m Short United States Government Bonds

July 20, 2011

OPEC: Venezuela Now OPEC's Largest Oil Reserves Holder - CNBC

Reserves now supposedly stand at 296 billion barrels of oil. Venezuela's new deposits were booked in the South American country's Orinoco extra heavy crude belt.

OPEC: Venezuela Now OPEC's Largest Oil Reserves Holder - CNBC

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Australia left exposed by its mining boom

After the boom does come the bust.  The question is how bad it will be, and when...  Not just yet, but sooner than you may wish

Australia left exposed by its mining boom


Australia has become a barometer for China's economy. While China was booming, investors piled in, turning Australia's credit markets into a proxy for its biggest trade partner. But the mining boom created by Chinese demand has taken a toll on the larger, nonmining sector. Now markets are flashing red on China, and Australia's 20-year run of economic expansion is at risk.

Government bond yields everywhere tend to move according to economic expectations. In Australia, they tend to move with those of China. Exports are equivalent to about a fifth of Australian gross domestic product; exports to China account for about a fifth of that. Nevertheless, the combination of nearly 5 percent yields and a rising currency is like catnip to foreigners, who pile in to Australian bonds at any sign of rising Chinese growth.

As a result, foreigners hold roughly 76 percent of Australian government bonds, making them a lightning rod for trends in global trade and investment. And Australia's $205 billion government bond market is tiny — only 5.5 percent of G.D.P., compared with 65 percent in the United States. So it does not take much speculation to have a big effect.

The mining boom has forced policy makers to choose one policy for two economies. The Reserve Bank of Australia has been slowly raising rates since late 2009 to curb inflation even as other developed economies keep their rates near zero. As a result, while soaring prices of coal and iron ore have helped keep overall unemployment low and stoked inflation in mining regions, manufacturers and retailers are hurting. The risk is that if China slows, Australia will go from standing on one leg to standing on none.

Markets worry. Since May, the price of insuring Australian bonds has risen and the Australian dollar has stalled.

In theory, a cooler China would be a relief to Australia's forlorn nonmining sector if it means policy makers can cut rates. But reality is rarely so neat. Even if China averts a dreaded hard landing, Australia may not.

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Interpreting rises in gold and copper

All confused at Reuters...

Inflation is not even considered...

From The International Herald Tribune:

Interpreting rises in gold and copper


It seems incongruous that gold and copper can be both rallying at the same time.

Buying gold is a bet that the world economy is in deep trouble and the debt problems in Europe and the United States will not be solved any time soon.

Buying copper is a bet that the Chinese economy will achieve a soft landing and continue to expand, driving demand for base metals.

Can both views be right?

On the surface, the answer has to be no. At some point, either Europe and the United States will sort out their problems, or they won't and the world will tip back into a recession that even China will feel.

If Europe and the United States can resolve their problems to the market's satisfaction, a major leg of the bullish gold story is removed.

Taking away demand for safer investments does not necessarily mean gold will lose its appeal, but it does mean any price gains will be more dependent on demand from central banks and for jewelry fabrication.

In this scenario, it is hard to see gold making strong gains above its current level, although valuing the precious metal has always been a little tricky.

Gold hit a new record high just above $1,600 an ounce Monday as investors sought a haven from the European debt crisis and from worries that the U.S. government might default.

However, it is still well below its inflation-adjusted peak of about $2,400 an ounce, according to Capital Economics. That was reached Jan. 18, 1980, at the height of the U.S.-Iran hostage crisis, the Russian invasion of Afghanistan and a slump in output from what was then the top producer, South Africa.

There is no slump in gold output currently; in fact, most forecasts focus on higher production next year.

However, there are heightened geopolitical tensions involving Iran again, this time over its nuclear program, and of course the United States is now the one involved in military action in Afghanistan.

Capital Economics also produces some other correlations on gold, pointing out that the precious metal averages 16 times the price of a barrel of Brent crude, but the current ratio is 13.5. Gold would be $1,870 an ounce if it were priced according to its long-run Brent ratio.

But gold is slightly overpriced against equities, Capital Economics says. The long-run average ratio of the Dow Jones industrial average to gold is 10, but the current ratio is only 8.

As for copper, there is of course more to the current price than just expectations of Chinese demand. Copper is up about 14 percent since its low this year of $8,504.50 a ton, reached in May, and is getting closer to its record high of $10,190, reached in February.

The industrial metal is vulnerable to supply disruptions, as shown by the recent strike at the Grasberg mine in Indonesia, owned by Freeport McMoRan, and rain disruptions in Chile, the world's biggest exporter.

While worries over supplies certainly contribute to constraints on the price of copper, it is the expected seasonal second-half demand from China that is driving bullish expectations.

The forecast is that the Chinese will once again turn to imports, having depleted inventories during the first half of the year, as construction and industrial activity increases.

An early indicator of this was data showing that China's imports in June rose 280,000 tons, up 9.9 percent from the same month a year earlier.

Whether that continues will be seen in the evolution of stocks held in warehouses linked to the London Metal Exchange, especially those in South Korea, from where China typically draws supplies.

It seems there are fairly solid reasons to be bullish on both copper and gold, at least for now. A graph of gold's correlation to copper since 2005 shows that while both can rise at the same time, copper normally outperforms gold unless there is a crisis of sorts.

The price trends of the two metals diverged quite markedly in the second half of 2008 and the first half of 2009 as the global recession struck. And in the good economic times of 2006 and 2007, copper did better than gold.

The current correlation is starting to weaken, but it is too early to tell whether that is because the world is heading for a repeat of the global downturn of 2008 or whether growth is about to accelerate.

Clyde Russell is a Reuters columnist.

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July 18, 2011

Gold`s journey toward $1,600

Gold's journey toward $1,600

The yellow metal briefly touched a record high above $1,600 dollars on Monday as deft fears continued to grow, but there have been other steps in gold's rise toward a new record

Posted: Monday , 18 Jul 2011

Gold prices hit record highs above $1,598 an ounce on  Monday, buoyed by investors seeking a safer place to store their value as the U.S. deficit talks stalled and euro zone debt crisis continued to unfold.

Following are key dates in gold's trading history since the early 1970s:
* August 1971 - U.S. President Richard Nixon takes the dollar off the gold standard, which had been in place with minor modifications since the Bretton Woods Agreement of 1944 fixed the conversion rate for one Troy ounce of gold at $35.
* August 1972 - The United States devalues the dollar to $38 per ounce of gold.
* March 1973 - Most major countries adopt floating exchange rate system.
* May 1973 - U.S. devalues dollar to $42.22 per ounce.
* January 1980 - Gold hits record high at $850 per ounce. High inflation because of strong oil prices, Soviet intervention in Afghanistan and the impact of the Iranian revolution prompt investors to move into the metal.
* August 1999 - Gold falls to a low at $251.70 on worries about central banks reducing reserves of gold bullion and mining companies selling gold in forward markets to protect against falling prices.
* October 1999 - Gold reaches a two-year high at $338 after agreement to limit gold sales by 15 European central banks. Market sentiment toward gold begins to turn more positive.
* February 2003 - Gold reaches a 4-1/2 year high on safe-haven buying in the run-up to the invasion of Iraq.
* December 2003-January 2004 - Gold breaks above $400, reaching levels last traded in 1988. Investors increasingly buy gold as risk insurance for portfolios.
* November 2005 - Spot gold breaches $500 for the first time since December 1987, when spot hit $502.97.
* April 11, 2006 - Gold prices surpass $600, the highest point since December 1980, with funds and investors pouring money into commodities on a weak dollar, firm oil prices and geopolitical worries.
* May 12, 2006 - Gold prices peak at $730 an ounce with funds and investors pouring money into commodities on a weak dollar, firm oil prices and political tensions over Iran's nuclear ambitions.
* June 14, 2006 - Gold falls 26 percent to $543 from its 26-year peak after investors and speculators sell out of commodity positions.
* November 7, 2007 - Spot gold hits a 28-year high of $845.40 an ounce.
* January 2, 2008 - Spot gold breaks above $850.
* March 13, 2008 - Benchmark gold contract trades over $1,000 for the first time in U.S. futures market.
* March 17, 2008 - Spot gold hits an all-time high of $1,030.80 an ounce. U.S. gold futures touch record peak of $1,033.90.
* September 17, 2008 - Spot gold rises by nearly $90 an ounce, a record one-day gain, as investors seek safety amid turmoil on the equity markets.
* Jan-March 2009 - Gold-backed exchange-traded funds report record inflows in the first quarter as financial sector insecurity spurs safe-haven buying. Holdings of the largest, the SPDR Gold Trust, rise 45 percent to 1,127.44 tonnes.
* February 20, 2009 - Gold rises back above $1,000 an ounce to a peak of $1,005.40 as investors buy bullion as a safe store of value as major economies face recession and equity markets tumble.
* April 24, 2009 - China announces it has raised its gold reserves by three-quarters since 2003 and now holds 1,054 tonnes of the precious metal, boosting expectations it may add further to its reserves.
* August 7, 2009 - European central banks opt to renew their earlier agreement to limit gold sales over a five-year period, setting the sales cap at 400 tonnes a year.
* September 8, 2009 - Gold breaks back through $1,000 an ounce for the first time since February 2009 on dollar weakness and concerns over the sustainability of the economic recovery.
* December 1, 2009 - Gold climbs above $1,200 an ounce for the first time as the dollar drops.
* December 3, 2009 - Gold hits record high at $1,226.10 an ounce, with dollar weakness and expectations for central banks to diversify reserves into gold driving prices higher.
* May 11, 2010 - Gold reaches fresh record high above $1,230 an ounce as fears over the contagion of debt issues in the euro zone fuel safe-haven buying.
* June 21, 2010 - Gold jumps to a new high at $1,264.90 an ounce as underlying fears over financial market stability and sovereign risk combine with dollar weakness to push the metal through resistance at its previous high.
* Sept 14, 2010 - Gold climbs back to record highs, this time at $1,274.75, as global markets reflect renewed uncertainty on the economic outlook.
* Sept 16-22, 2010 - Gold hits record highs for five successive sessions, peaking at $1,296.10, as investors flock to bullion after the Fed signals it may consider further quantitative easing, weakening the dollar and raising fears over future inflation.
* Sept 27 - Spot gold prices touch the $1,300 an ounce mark for the first time.
* Oct 7 - Gold rallies to a record high above $1,360 an ounce as the dollar comes under pressure from building expectations for the U.S. Federal Reserve to take extra measures to keep interest rates low and prop up the economy.
* Oct 13 - Gold jumped to record highs near $1,375 an ounce as the dollar continued to languish, with the U.S. unit coming under pressure after minutes from the Fed's September meeting signaled the U.S. economy may need further stimulus.
* Nov 8 - Gold prices break through the $1,400 an ounce mark for the first time as haven buying prompted by renewed budget problems in Ireland more than offset a sharp dollar bounce.
* Dec 7 - Gold reaches a fresh record high above $1,425 an ounce, driven by fund buying ahead of year-end, jitters over the euro zone debt crisis and speculation for further U.S. monetary easing.
* January 2011 - Gold prices fall more than 6 percent in their worst monthly performance in over a year as a revival in risk appetite diverts investment to higher-yielding assets.
* March 1 - Gold recovers to hit a record high at $1,434.65 an ounce as unrest in Tunisia and Egypt spreads across the Middle East and North Africa, boosting oil prices.
* March 7 - Gold extends record highs to $1,444.40 an ounce as oil prices hit their highest in 2-1/2 years after protests are quashed in Saudi Arabia and as violence in Libya rages.
* March 24 - The resignation of Portuguese prime minister Jose Socrates pushes the euro zone debt crisis back to center stage, lifting gold prices to a record above $1,447 an ounce.
* April 7 - Gold prices extended their record highs toward $1,465 an ounce after the European Central Bank cast doubts over expectations for interest rate rises, while unrest in the Middle East encouraged safe-haven buying.
* July 18 - Gold hit a record of $1,598.41 an ounce, on track for an eleventh straight day of gains, on persistent worries about euro zone debt crisis spreading and a growing threat of a U.S. government default.
(Compiled by Atul Prakash, Jan Harvey, Amanda Cooper and Rujun Shen; Editing by Himani Sarkar)

"Gold's journey toward $1,600
The yellow metal briefly touched a record high above $1,600 dollars on Monday as deft fears continued to grow, but there have been other steps in gold's rise toward a new record" - The world's premier mining and mining investment website Gold`s journey toward $1,600 - FAST NEWS | Mineweb:

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July 1, 2011

Ivanhoe Mines seen trying for stake sale before Rio standstill expiration, bankers say 

An interesting article for all Ivanhoe Aficionados....

Ivanhoe Mines seen trying for stake sale before Rio standstill expiration, bankers say 

- Rio Tinto may still end up with controlling stake
- Could be put off by 30% to 40% premium needed
- Chinese, other major miners would be interested

Ivanhoe Mines (NYSE:IVN) may want to try to sell a majority stake within the next six months to a company other than Rio Tinto (NYSE:RIO), said a handful of industry bankers.

Several of these industry bankers, however, said third parties could be daunted by Rio's substantial ownership in Vancouver-based Ivanhoe, the Mongolian miner. With a standstill agreement between Rio and Ivanhoe set to expire on 18 January 2012, the Anglo-Australian mining giant may ultimately end up with a controlling stake in Ivanhoe, these bankers said.

The upcoming expiration of the agreement has sparked renewed industry chatter about what may happen to Ivanhoe's majority stake. Early last year, the company hired Citigroup and Hatch Corporate Finance to assess strategic options. Its shares have increased more than 225% since they began trading in New York in 2003, with CEO Robert Friedland's 15.47% stake now worth USD 2.8bn.

"I think Ivanhoe is playing every card they've got to boost what they get out of Rio Tinto, but I'd be surprised if anybody else would arrive at the table," an industry banker said.

Another of the bankers said Friedland's desire to cash out his Ivanhoe holdings could be behind speculation about a deal. "Maybe Friedland wants to get liquid," this banker said.

Last week, Rio Tinto increased its stake in Ivanhoe to 46.5% by exercising all remaining share-purchase warrants it owns in the company. Ivanhoe expects to use the USD 502m in proceeds from the exercise of the warrants to continue construction on its flagship Oyu Tolgoi copper-gold-silver mining complex in southern Mongolia, which is forecast to produce one billion pounds of the red metal and 500,000 ounces of gold. The maximum level of ownership interest Rio can achieve in Ivanhoe is capped at 49% until the current standstill limitation expires.

The two companies were scheduled to resume arbitration in June over a shareholder rights plan adopted by Ivanhoe last year, which restricts Rio Tinto, other shareholders and third parties from acquiring additional Ivanhoe shares in the market beyond the amounts provided for in existing contractual arrangements unless an offer is made to all shareholders.

An Ivanhoe spokesperson did not return phone messages by press time. A Rio Tinto spokesperson did not respond to emailed questions by press time. The companies have not publicly confirmed if they entered the arbitration as planned.

Rio Tinto claims the adoption of the poison pill breaches Rio's contractual rights under the companies' private placement agreement. Ivanhoe has a counter-claim that contends Rio Tinto breached its covenants in the private placement agreement, signed with Ivanhoe in 2006, not to engage in activities that could affect control of Ivanhoe without Ivanhoe's permission.

The arbitration between Rio Tinto and Ivanhoe will probably end in some sort of friendly manner, predicted the first industry banker. Another banker said that Rio's insistence to arbitrate Ivanhoe's shareholder rights plan can be seen as an indication that it wants to increase its position in the company to a controlling stake.

However, another of the industry bankers argued that as long as Rio Tinto has secure offtake agreements with the Oyu Tolgoi project, the company may be content to not increase its stake in Ivanhoe beyond 49%. Rio Tinto might be put off by the 30% to 40% premium it would likely have to pay to acquire more of Ivanhoe's shares beyond that cap, this banker said.

Rio Tinto's expertise as a mine operator would be attractive to a potential acquirer of the remaining stake in Ivanhoe, said one of the bankers. The presence of another partner could also serve to mitigate some of the jurisdictional risk of operating in Mongolia, said the same banker. The second industry banker noted, though, that Mongolia has become more friendly to the mining sector, which is providing much-needed direct investment in the country.

Chinese companies, hungry for copper and geographically adjacent to Mongolia, are likely to show interest in owning the portion of Ivanhoe not in the hands of Rio, three of the industry bankers said. These companies could include Minmetals Resources (1208:HK), which recently attempted to acquire Canadian copper producer Equinox (TSE:EQN), as well as Chinese state-owned metal giant Chinalco, which is the second largest shareholder in Rio Tinto.

Last year, Chinalco and Rio Tinto were rumored to have been preparing a joint takeover bid for Ivanhoe Mines. In addition to the Chinese, Teck Resources (NYSE:TCK), Xstrata (LON:XTA) or BHP Billiton (NYSE:BHP) would be logical suitors for the remaining stake in Ivanhoe not owned by Rio, two of the industry bankers said.

"Certainly the (Oyu Tolgoi) project is large enough that two majors could have a combined interest" in owning Ivanhoe, the second industry banker said. However, bidders would still have to contend with Rio's massive stake as well as Friedland's sizeable holdings in Ivanhoe, he said.

Ownership in Ivanhoe is divided between Rio, Friedland and other shareholders. Ivanhoe owns 66% of the Oyu Tolgoi project and the Mongolian government has rights on the rest of the project.

Ultimately, Rio and a third party could forge a similar partnership to the one Freeport-McMoRan (NYSE:FCX) and Lundin Mining (TSE:LUN) have to operate the Tenke Fungurume cobalt and copper project in Democratic Republic of Congo, said two of the industry bankers. Freeport is the operating partner and owns 56%, while Lundin owns 24%. The Congolese state mining company, Gecamines, holds the remaining 20% as a free carried interest, leaving Freeport to provide 70% of the capital funding and Lundin 30%.

Earlier this week, it was reported by this news service that SouthGobi Resources (CVE:SGQ), which is 57% owned by Ivanhoe, was put up for sale. The company's vice president of investor relations, Dave Bartel, however, said it was not on the block. One of the industry bankers argued that the potential sale of SouthGobi could suggest Ivanhoe may be trying to sell assets to increase the attractiveness of Oyu Tolgoi for a third party bidder.

by Matt Whittaker in New York