The outlook for Chinese growth - FactSet Research

“The yuan has appreciated by almost 20% against the dollar since 2006. While this trend initially made little difference to Chinese competitiveness – the dollar depreciated against all other major currencies for five years – it has mattered rather more since the dollar bottomed out this summer. Up until then, reduced Chinese competitiveness against the dollar was offset with depreciation against the euro, and Europe became China’s main trading partner (20.6% of exports, up from 14.8% at end-2002 and compared with 17.8% for the USA). But the yuan has appreciated against the euro since July, recovering its 2003 levels in just three months. Inflation differentials have not helped, and the yuan’s real trade-weighted exchange rate is back to where it was in 1993. Many Chinese firms are now in a delicate position.

The production of low-end goods like textiles, toys, clothes and furniture is slowing, and Chinese firms’ profit margins (already very low) are suffering from softer exports, rising direct and indirect costs plus the yuan’s strength. We have always argued that slower Chinese growth would have microeconomic rather than macroeconomic causes, and we are sticking with that view.” (FactSet Research – The outlook for Chinese growth - October 28, 2008)







Authors of the Factset Research economic strategy paper “The outlook for Chinese growth,” Jean Luc Buchalet and Pierre Sabatier contend that the last 5 consecutive years of double digit GDP growth in China is a result of cheap labour. However, now that wages are rising, at an incredible rate of 14%-20% annually, depending on the region, that period is over. According to official figures, wages climbed from an annual average 700 yuan in 2002 to 1,400 yuan in 2007. On a comparative basis, labour costs on the Fujian and Guangdong coasts are twice as high as they are in Vietnam. Buchalet and Sabatier go on to say that “China’s wage inflation is not only a response to rapid growth. It also has structural causes, such as domestic economic rigidities, and in the next decade or so the single-child policy will mean lower labour force growth. China will become an old country before it becomes a developed one.”

Buchalet and Sabatier also note that issues relating to healthcare, education and pensions are going to become serious priorities for the government in the years to come. The proportion of people aged 60 or more being assisted from some form of pension is only an estimated 30%, and furthermore only 10% of this age group has health insurance. Buchalet and Sabatier contend that the spending required to increase these proportions is substantial and changes in demographics will only complicate matters further. With the proportion of people aged 60 or more forecasted to rise 5x faster than population as a whole between now and 2020, this will result in the dependency ratio dropping from 5 to 1 now to 2 to 1 by 2050. Therefore, from this standpoint, a household savings rate of 25% (of disposable income) is understandable since families still have to provide for much of their own health, retirement and education costs.

In response to economists who believe that China is sufficiently mature to drive its growth with domestic demand rather than exports, Buchalet and Sabatier reply by saying “that domestic consumption had very little to do with China’s recent growth and still accounts for only 36% of GDP, down from 45% in 1998 and compared with 71% in the USA. Moreover, the 70% drop in local share prices since October 2007 (which has cut household wealth by over $2,000bn) and the 25-40% correction in property prices along the Chinese seaboard do not suggest an imminent explosion in household spending.” Buchalet and Sabatier note that despite its population, China’s GDP only accounts for 11.4% of the world total in PPP terms, compared with 20.7% for the USA and 22.2% for the European Union.

Buchalet and Sabatier believe that Chinese growth is highly dependent on foreign direct investment and exports. Furthermore, recent structural changes have actually increased the country’s exposure to recession in developed countries. “95% of exports are manufactured goods, and China is the world’s biggest industrial power, with around 25% of global production (PPP basis). As about 80% of the output of China’s factories is destined for foreign buyers, it is hard to see how export sales will be unaffected by the marked deceleration in OECD countries. The latest figures confirm our fears, with annual industrial production growth slowing from 18% in 2007 to 11.4% in September. Similar reversals are evident in electricity production, construction and cement output.”

Buchalet and Sabatier forecast that in current context of slower international economic activity and local stock market and property market corrections, Chinese GDP should grow at around 7% in 2009, with a probability of 70%. They also note that there is a 30% probability of 6% growth.

Source: FactSet Research

Canada Winter Energy Outlook – National Energy Board

“Markets here cannot help but be affected by the current volatility of world commodity markets," said National Energy Board Chair Gaétan Caron. "What this means for Canadians is that we may see lower heating fuel costs and lower gas prices at the pump. Falling prices could also have a negative impact on the pace of production and energy infrastructure developments. However, thanks to our relatively abundant energy resources, Canada is well positioned to weather the storm much better than other economies.”

Oil



" ...average Canadian heating oil prices this winter are expected to be lower than prices seen last year. Heating oil supplies in Canada will likely be adequate to meet consumer needs this winter. However, U.S. inventories are at the bottom of the five year range, providing some support to prices."

Natural Gas



"Barring any prolonged cold weather, natural gas prices are likely to remain on the lower end between US$6.00-9.00/MMBtu over the course of the winter. Natural gas prices are expected to remain below the price in the rest of the world. In general, Asian and European natural gas prices are more closely tied to oil prices. The impact from the price difference will be lower LNG imports this winter, since it will be shipped to the higher price areas."



"Growth in U.S. gas supply has more than offset any reductions in LNG imports and Canadian production. The Rockies Express pipeline has allowed more production from the western U.S. to enter the market and this, combined with additional production from shale, has meant a significant year over year increase in natural gas production. In addition, with lower U.S. demand due to a slowing economy and mild weather this summer, gas storage is on track to be full for the upcoming winter season. The combination of weaker demand and higher gas availability from production and storage suggests that there will be sufficient gas supplies this winter."

Electricity



Recent additons to eletric generation capacity, particularly in Ontario and east should allow for Canada’s overall supply to be sufficient this winter. As economic activity slows in Ontario and the east as reflected by reduced output from manufacturing and mills, so do the concerns about the adequacy of electricity supply. On the Western Canadian front, however, supply is tighteing as growth in consumption it outpacing growth in generation.

Alternative Sources of Energy

"A growing understanding of, as well as efforts to reduce greenhouse gas emissions, is also influencing electrical energy supply on a number of fronts. In the last few years, wind generated power has grown significantly, and is expected to continue to do so in the years to come.

There is also renewed interest in nuclear power generation. As a result, a number of facilities in the East have been refurbished, rather than decommissioned. These provinces (ON, QC, NB) will be better positioned to handle energy demands."

Source: National Energy Board: 2008-2009 Winter Energy Outlook

Blogging the Sprott Inc. (SII: TSX) Q3/08 Conference Call

Sprott Inc. (SII: TSX) Q3/08 Earnings Summary

For Q3/08, Assets Under Management (AUM) fell by $2.1 billion, or 27%, to $5.6 billion from $7.7 billion as at June 30, 2008. The company reported a 10% drop in AUM since December 31, 2007, reflecting net sales of $680 million and market value depreciation of $1.3 billion. Sprott reported positive net sales for the quarter of $122 million.

For the third quarter, Sprott reported total revenue, which is made up of management fees, crystallized performance fees, gains (losses) from proprietary investments, and interest and other income of $25.4 million, up 18% from $21.6 million in Q3 2007. The company noted that while management fees are earned throughout the year, performance fees (with the exception of one fund and performance fees attributable to redeemed units together termed as crystallized performance fees) are earned on the last day of the fiscal year and therefore are not included in the financial results for the first three quarters of the year.

Management fees rose by 19% to $32.9 million, from $27.7 million in Q3/07, as average AUM increased by 25% over the same period to $6.7 billion from $5.3 billion. Crystallized performance fees were $1.3 million, compared to $1.1 million for the corresponding period in 2007. The Sprott offshore funds were the largest contributors to the increase in 2008.

Unrealized losses from proprietary investments totalled $9.7 million. Net income was $3.7 million ($0.02 per share), compared with $3.5 million in Q3/07.





“… our style is either gonna be a winning or a non-winning style and its very important in these markets that you have the winning style because our results in the future will be very much a function of whether our style is correct or non correct …” - Eric Sprott

“… we have spoken at length about the fact that we think that we are in a systemic financial meltdown. I think it’s hard to dispute that we are in it. We have, however, huge forces between the Federal Reserves of the various countries and the treasuries of various countries fighting that meltdown but to imagine that we aren’t in a meltdown would be not to be aware of what’s happening these days …” - Eric Sprott

“…we also think we are in a secular bear market, we have thought that the bear market started in 2000. Yes, there was cyclical bull starting in 03 because of the ill advised manoeuvres of, I think the U.S. Fed which then caused an even bigger mania that we now have to deal with …” - Eric Sprott

“… it doesn’t bother me that the meltdown has happened. What has bothered me is that having anticipated it, that our Canadian Equity Fund has not done as well as we might have anticipated. I should point out that our hedge funds have done everything that we would have anticipated. For the most part, our just a little below the breakeven line or just a little bit above the breakeven line for the year to date. And in fact, for the month of October they are all showing increases while of course the TSX is down something like 21% …” - Eric Sprott

“… as we look forward here, so far we have been absolutely shocked at the reluctance of the gold price to sort of recognize the financial crisis that we are in and we have every confidence that ultimately it will go. We are still very confident in our energy themes, there’s not a day that goes by that we don’t get a data point that tells us that the world did in fact hit peak oil in oil in 2005 and supply will start to decrease rapidly going forward …” - Eric Sprott

“… we have tremendous confidence in the things that are invested in and the way we’ve positioned ourselves that if certain events unfold as we expect, its not out of the realm for us to imagine that gold could go to $1500 or $2000/oz and we have a very large component of our fund in gold. I might mention that in Canada, the price of gold is up year over year and there only 3 asset categories that have held their value this year in almost all countries and that is cash, government bonds and gold in most countries is at an high. In fact, Gold in Canada, about 4 weeks ago hit an all time high …” - Eric Sprott

“…subsequent to the quarter end, we in our non Canadian hedge funds will be experiencing some redemptions. I think it’s fair to say that most of the owners of offshore hedge funds tend to be financial institutions, international financial institutions – those same institutions that have issues and we will experience some redemptions in this quarter, particularly in our offshore funds. So far the redemptions in our domestic funds have been very modest.” – Eric Sprott

Regarding Sprott Moly and Sprott Consulting

“ ...it’s been quite unexciting in Sprott Moly, cause needless to say that all these stocks in the moly space have been severely under pressure here. The stock is trading at roughly half its NAV, half of the investment is in cash these days and that’s something that we will make some effort to diminish the discount between the real value and the stock value …” – Eric Sprott

" ...Sprott consulting, which consults to Sprott Resources has concluded the sale of PBS Coals to Severstal. That transaction is expected to close mid next week. We are still very optimistic about things that they might do going forward because they will end up with a fair balance sheet after the transaction …” – Eric Sprott

“...I still hold out to hope and I’m not gonna say that it’ll be at year end but our hope is that if things evolve the way we’ve anticipated them and most things that we’ve anticipated have evolved and one major thing that hasn’t evolved is the negative performance of the gold fund in the midst of a financial crisis and I’m absolutely convinced as I see the demand for gold in every country, physical gold, not gold on the commodity exchange which is a paper market but the physical gold demand has been absolutely immense and I think someday we are going to break the dam on gold and silver prices and perhaps maybe it even started recently.. you might have been aware that the silver price was up over 10% yesterday that we will ultimately win that game but we cant make the market do what we want it to do, we just have to wait for it all to play out …” – Eric Sprott

“…we feel reasonably good about the outlook going forward, we feel miserable about the performance of some of our long only funds and I can speak to the Canadian Equity Fund and the Energy Fund – it’s been a very, very difficult time but we’re optimistic that in the long run we’ll be correct …” – Eric Sprott

Regarding the potential for institutional redemptions in the offshore funds

“… as we get to November and December we may see some bigger redemptions (in the offshore funds). …we have people indicating to us that they may redeem at the end of November and at the end of December and it could ultimately be significant …” - Eric Sprott

Market Musings ...

“Chart 2 highlights the impact of the Fed’s recent policy actions have had on liquidity. The Fed’s balance sheet has exploded in size, resulting in a massive build up in liquidity. One way to measure this is with the monetary base (currency plus commercial bank deposits at the Fed), which has increased by an unprecedented magnitude since the beginning of December. At some point, all of this money is going to work its way through the financial system into the economy.”

“Bottom line: Global policymakers have declared war on the credit crisis to limit its fallout for their economies. Collapsing commodity prices and the downside risks to most economies has eliminated inflation as a concern for at least the next 1-2 years, giving policymakers everywhere unlimited scope to take additional actions. This implies ultra low central bank policy rates everywhere for a considerable time to come. Today's action and comments from the Fed are completely consistent with this assessment. Alongside other policy actions directed at the financial system, this creates a strong case for short-term market yields to fall considerably. In Canada, this implies much lower yields on commercial paper and bankers' acceptances in coming months. In fact, we should see a 15-20 basis point drop next week as year-end pressures in Canadian money markets dissipate. For investors this means increasingly meagre returns on cash holdings. In coming months investors and banks will tire of the low returns associated with the safety of liquid cash holdings and will begin to ponder much more attractive returns in riskier assets like lending, corporate bonds, preferred shares and common equity.”

Comments made by John Johnston on October 29, 2008, Chief Strategist of The Harbour Group, part of RBC Dominion Securities Inc. in response to the US Federal Reserve’s 50 basis points cut, dropping the Fed funds rate to 1.00%.

Precious Metals Earnings Preview For Q3/08

“…North American Gold Producer earnings season kicks off on Oct. 29. Gold price average 3% lower than Q2/08, but up 28% over Q3/07 Gold equities poised to disappoint in an unforgiving market environment: We expect earnings, production or cost misses will be viewed unforgivingly in the current environment of extreme aversion to operational risk. While the smaller producers are more susceptible to such operating fluctuations, we do expect Alamos to benefit given operating guidance of 40kozs at quarter-end, compared to 32kozs guidance issued just weeks earlier. We also expect that Agnico-Eagle is most likely to miss on EPS given the negative pricing adjustments resulting primarily from the 16% drop in zinc price. Additionally, Yamana stated during its analyst day on October 15th that production in Q3/08 was similar to Q2/08 and costs have hit the "high water mark' in Q3/08.”

Comments made by Scotia Capital analyst Anita Soni on October 29, 2008





To add to Ms. Soni’s analysis, I would say that while Q3/08 earnings might be positively affected by lower capital costs in the form of fuel and weaker local currencies, if operations are based outside the United States, those operations that are heavily reliant on base metal credits are probably going to report higher average cash costs.



Note: On October 29, 2008, Agnico-Eagle reported quarterly net income of $14.0 million, or $0.10 per share for the Q3/08. In comparison, in Q3/07, the company reported net income of $11.5 million, or $0.08 per share. The company said that “The increase in net income, when compared to the third quarter of 2007, was due to higher gold production and prices and the foreign currency translation gain, partly offset by the net loss on investments and substantially lower by-product zinc and copper prices.”

Cash flow from operating activities for Q3/08 was was $17.9 million, compared with $54.9 million in the third quarter of 2007, as “higher gold production and prices were more than offset by lower by-product zinc and copper prices.” Payable gold production in Q3/08 was 68,753 ounces at weighted average total cash costs per ounce of $240. This compares with payable gold production of 55,830 ounces, at total cash costs per ounce of minus $307, in Q3/07 when only LaRonde was operating, and zinc prices were much higher. For the full year, Agnico-Eagle forecasted gold production from LaRonde, Goldex and Kittila to be approximately 300,000 ounces.

Agnico-Eagle will host its quarterly conference call on Thursday, October 30, 2008 at 11:00 a.m. (E.D.T.). A live audio webcast of the meeting will be available on the Company's website homepage at http://www.agnico-eagle.com/

For those preferring to listen by telephone, dial 416-644-3414 or Toll-free 800-733-7571.

Is Value Investing Back In Vogue ?

In a Russell Investments’ most recent Active Manager Report, it was found that amidst the severe market turmoil evidenced in the third quarter of 2008, 65% of large cap Canadian equity active managers beat their benchmark. This is comparable to 41% of large cap Canadian equity active managers beating their benchmark in the second quarter, 20% in the first quarter, and the highest since the first quarter of 2007. While the S&P/TSX Composite Index was down -18.2% in Q3/08, the median large cap manager returned -17.2%.

"Active managers on average were underweight Energy and Materials and slightly overweight Financials, helping them beat the benchmark after lagging for four consecutive quarters. Managers benefited from more breadth in terms of sector performance with 7 out of 10 sectors beating the benchmark. Most investment managers struggle during extreme narrow markets which are dominated by 1 or 2 sectors, so that made it challenging for active managers in the last year but there was a notable improvement during the third quarter," says Kathleen Wylie, Senior Research Analyst at Russell Investments Canada Limited. Of importance is the finding that Financials were the only sector to show a positive return for the third quarter after having lagged the overall composite return for five consecutive quarters prior to this quarter.

The Active Manager Report also found that after battling for much of the last 3 years, an amazing 93% of value managers in Canada beat the benchmark in the third quarter compared to just 27% of growth managers. That compares to just 12% of value managers and 81% of growth managers in the second quarter. The median large cap value manager return was -12.9% compared to the median growth manager return of -20.9%.

Sector weighting was a major factor for value managers outperforming growth managers. “On average, value managers were roughly 5% overweight the Financial sector compared to growth managers who were 6% underweight. Also helping value managers were their underweights to the three worst performing sectors, Information Technology, Materials and Energy, whereas growth managers were, on average, overweight those sectors. In terms of overall sector positioning, value managers were more favourably positioned in 9 of 10 sectors compared to growth managers, resulting in a significant factor in value manager outperformance.”

Source: Russell Investments

A Conversation with George Soros - October 28, 2008

On October 28, 2008, George Soros, Chairman of Soros Fund Management sat down for a conversation with Ricardo Caballero, Ford International Professor of Economics and Head of the MIT Department of Economics. The webcast entitled "The New Paradigm for Financial Markets" was held at the MITès Kresge Auditorium and can be viewed by clicking here (Requires Windows Media Player and Opens in a New Window)

Link To MIT Event Site: http://web.mit.edu/events/soros/

Analyst Comments Regarding Agrium (AGU: TSX)

“To be consistent with Potash Corp. and lower fertilizer price deck used last Friday after POT's results, we are updating our AGU EPS estimates. AGU reports Q3/08 EPS November 5/08. We dropped 2009E-10E AGU EPS estimates by $0.75/AGU share to be consistent with a lower fertilizer price deck used last Friday for POT's lower EPS. We (1) dropped DAP/sulphur/urea/ammonia 2009E-10E prices, (2) dropped oil to $80/bbl and 3) dropped the C$ one year out to $0.90. Also consistent with POT, we lowered our Q4/08 wholesale EPS estimate, leaving our retail EPS estimate unchanged. AGU's revised EPS drops our one-year target price by 10% (same treatment as POT) in USD terms to US$72/share, but our Canadian oneyear target remains unchanged due to our lower C$ assumption (C$0.90). We raised AGU to 1-SO on October 3/08 due to its far more stable U.S. retail business (#1 in U.S. by a factor of three) which has been tarnished with the same wholesale commodity brush. This is fundamentally incorrect, in our opinion.”

Analyst Sam Kanes of Scotia Capital (October 28, 2008)

Metals Market Musings ...

On October 27, 2008 BHP Biliton (BHP: NYSE) hosted an analysts' tour of operations in Western Australia and South Australia and also gave a series of presentations with reagrds to their major operations in the country.



Nickel Commentary From BHP Billiton - October 27, 2008

The world’s third largest nickel producer said in a presentation to the Australian Stock Exchange that there might be a 22,700 metric ton nickel surplus this year, building to a 47,400 ton surplus next year. Furthermore, a dearth of equipment and skilled labour has sharply increased capital costs. “All major nickel projects have experienced significant capital cost escalation,” said Stephen Williams, BHP’s marketing director for stainless steel materials. The company also said that the cost of developing its Ravensthorpe nickel mine in Western Australia has doubled to about $40,000 a ton. Meanwhile, other major projects, including Xstrata Plc.'s Koniambo mine in New Caledonia and Cia. Vale do Rio Doce's Goro and Onca Puma mines in New Caledonia and Brazil respectively, may face cost increases of more than 73 percent, Williams said. (Bloomberg)

Iron Ore Commentary From BHP Billiton - October 27, 2008

On a slightly more positive note, BHP stated that demand for iron ore will remain strong on a longer term basis as a consequence of positive fundamentals. The company attributes industrialization in China as a major part of that underlying fundamental demand scenario. The company expects to increase capacity to greater than 350 million tons a year after 2015 and final approval for the next phase of the expansion is expected by year end 2008, which will supplement a further 45 million tons to annual output. The company produced 122 million tons of ore in the last financial year. (Bloomberg)

Breaking News - Northern Financial announces take-over bid for High Desert Gold

Late evening on October 28, 2008 full service investment dealer Northern Financial (NFC: TSX) announced its takeover offer for Canadian explorer High Desert Gold (HDG: TSX) at $0.19 per HDG Share. In the very same statement released today by Northern Financial, the company reported that it had acquired 824,500 common shares of High Desert Gold Corporation, representing approximately 2.05% of the total issued common shares of High Desert Gold on the Toronto Stock Exchange at an average price of $0.177 per share. This brings Northern Financial's ownership stake take in High Desert Gold to 18.09% of the total issued common shares of HDG, or 7,294,900 common shares. As of September 4, 2008, High Desert Gold had 40,318,500 issued and outstanding shares.

The takeover offer represents a premium of approximately 31% to the volume
weighted average trading price of the HDG Shares on the TSX for the 60 day
period ended October 27, 2008. In providing a rationale for the offer, Northern stated that it "believes the common shares of HDG are undervalued and wishes to assist in the enhancement of shareholder value." However, the offer in contingent upon, among other things, "the deposit of that number of HDG Shares which, when taken together with the HDG Shares already owned by Northern, constitutes at least 50% of the HDG Shares plus one HDG Share. The Offer is also conditional on, among other matters, Northern determining in its sole judgment that there are minimum cash resources in HDG satisfactory to Northern at the expiry of the Offer. Northern has obtained a firm commitment to provide a credit facility in the amount of $6.4 million
that will be relied upon to take up and pay for HDG Shares deposited and not
withdrawn under the Offer."

Northern Financial expects to commence the bid on Thursday, October 30, 2008.

Click Here To Read The Related News Release

Q3/08 Earnings Preview For Hudbay Minerals (HBM: TSX) and Thompson Creek Metals Company (TCM: TSX)

Hudbay Minerals (HBM: TSX)



Previewing Hudbays’s Q3/08 results, which is expected before market open on November 5th, 2008, Blackmont Capital analyst George Topping writes that given average zinc prices of $0.81/lb for Q3/08 and copper prices of $3.49/lb and the US$/C$ exchange rate averaging 0.96 he expects Hudbay to report Q3/08 Zinc production of 73 million pounds and copper production of 26 million pounds for the quarter. Topping expects Q3/08E cash costs of negative $0.46/lb for zinc (versus negative $0.54/lb in Q2/08) and CFPS of $0.35 vs. $0.55 in Q2/08. He estimates cash flow to be breakeven at $0.80/C$, $0.50/lb Zinc, and $1.00/lb Copper.

Topping further says “We believe most shareholders would be much happier were management to suspend development of the $1.2Bln Fenix nickel project. While a recession is the best time to build a mine, risk appetite among investors has collapsed. Although we expect further near-term copper price weakness, zinc/nickel must surely be near the bottom. With over $5/share in cash, overall low cost production for the 777 mine and favourable C$ currency, the risk/reward is compelling. Maintain BUY with $12.60 12-month target, based on 0.8x our NAV8%.”

Thompson Creek Metals Company (TCM: TSX)



Previewing Thompson Creek’s Q3/08 results, which is expected after the market closes on November 6th, 2008, Blackmont Capital analyst George Topping writes that given average molybdenum prices of $32.25/lb for Q3/08 (Note: molybdenum prices have declined to $26/lb recently), he expects Thompson Creek Metals to report production of 6.1million pounds (versus 6.3 million pounds in Q2/08), with cash costs of $6.57/lb versus $7.50/lb in Q2/08. Topping estimates CFPS of $0.67 versus $0.61 in Q2/08.

Topping further says “Given the current markets, we would expect the Davidson expansion to be put on hold. The $280mm Endako expansion may also be reviewed, although a recession is often the best time to build. We expect moly prices to weaken much further in Q4/08 to the low twenties or less, and this will weigh on the stock. The market has already priced in a $12/lb moly price for TCM. With a longer-term 12 month view, we maintain our BUY recommendation with $13.30 target price, based on 0.8x our NAV8%.”

Metals Market Musings ...

"The resource sector has demonstrated above-average prospects and the potential for above-average returns. Hedge funds have wanted to be long some of this too. Many of the stocks that investors have good reason to own for the long term are precisely the ones that are being hit most in the short term. This is why we suspect that short-term money got too long late spring, and is now being forced to wind down positions. We are hopeful that further flushing will be measured in weeks, not months. Of course not all resource companies will come through this without a ding, but we believe the super-cyclical treatment of global resource leaders with assets that are virtually impossible to replace are gapping down to silly levels. In the summer some stocks were getting closer to fully valuing sustained good times; now we believe that many are simply over-discounting the future. U.S. based master limited partnerships have seen interest rate differentials blow out to yield 8 – 12 percent and offer what appears to be meaningful dividend growth. Companies that provide carbon fibre today for electrodes and windfarm blades for tomorrow are at flea market pricing. The list goes on. The market is giving us a chance to focus on higher quality assets with strong free cash generation."

Comments made by Fred Sturm, portfolio manager of the Ivy Global Natural Resources Fund, Mackenzie Universal World Resource Class, Mackenzie Universal World Precious Metals Class, Mackenzie Universal Precious Metals Fund, Mackenzie Universal Canadian Resource Fund, Mackenzie Growth Fund, Mackenzie Founders Income and Growth Fund and the Mackenzie Founders Fund in his October letter to investors.

Natural Gas

“Since September 1, the Henry Hub spot price has declined by only 24% (to US$6.29/mmbtu from US$8.24/mmbtu) whereas the WTI crude oil spot price has fallen 45% during the same time period (to US$63.15/bbl from US$115.46/bbl). On a year over-year comparison, Henry Hub prices are actually up 3%. Of interest for Canadian gas producers, however, is that with the depreciation of the Canadian dollar and a narrowing of the basis differential, we have actually seen AECO spot prices increase by 1% since the beginning of September as they closed Friday at C$6.61/Gj and they are up 21% compared to the same time last year …"

Comment made by Energy Analyst Peter Doig of Scotia Capital (October 27, 2008) in a research report entitled "Oil & Gas - Junior E&P: Commodity Prices Lowered – NAV Discount Rates Raised"

Buy, Sell or Hold Teck Cominco (TCK.B: TSX, TCK: NYSE)

Earnings Summary

Teck reported adjusted fully diluted Q3/08 earnings per share of $1.19, compared to $1.15 in Q2/08 and $1.34 in Q3/07. Net earnings from continuing operations were $432 million ($0.97/sh) and cash flow from operations was $873 million. Earnings before interest, taxes, depreciation and amortization (EBITDA) were $808 million in the third quarter compared with $834 million in the same period a year ago.

The company also said that it has sold forward 55% of its copper production for the next six months at $2.43 per pound (maturing a various dates in March 2009). Additionally, in July 2008, Teck entered into US$811 million of forward sales contracts to fix their US dollar exchange rate for a portion of their coal sales. These contracts are to be settled at an average price of C$1.02 per US$1.00 and mature at varying dates to April, 2009. In essence, Teck has locked in 73% of its expected revenue over the next 6 months.

Analyst Comments

H. Fraser Phillips of RBC Capital Markets

“At the Fort Hills oil sands project in Alberta, work continues with the Front End Engineering and Design (FEED) stage of project development. The Partnership’s investment decision on whether to proceed with the project is expected in December of 2008 after completion of the cost estimate review and an assessment of the regulatory requirements of the project. Given managements comments on the conference call, the economics of the projects, and Teck’s debt burden, we believe the project may be deferred or scaled back, possibly to simply mine bitumen which would be sold to third parties for further upgrading. The outcome of the investment decision will likely have significant implications, given obligations Teck may have to incur as part of their involvement in this project. We continue to assign no value to this project in our model.

We estimate that Teck's coal operations will generate 84% of its total operating profit in 2009.

Teck’s leverage has increased dramatically since the end of Q3 due to the acquisition of Fording Canadian Coal Trust. As of September 30, 2008, the company had $2.8 billion of debt plus an unused line of credit of $1.0 billion. Since that time Teck has arranged debt funding totalling US$9.8 billion to be provided by a consortium of 25 banks to satisfy the cash portion of the Fording acquisition. This includes a US$4 billion three-year amortizing senior term loan facility, which is payable in 11 equal quarterly instalments beginning in April 2009, and a US$5.81 billion senior bridge loan facility, which matures 364 days from drawdown, which is expected to occur on October 29, 2008. Current net debt/ total capitalization is 54.4% versus 2.7% as of September 30, 2008. Cash on the balance sheet current stands at $143 million. Management has highlighted debt repayment as a top priority.”

Phillips has a $21.00 target price (Outperform with above average risk rating) based on 8.7x normal EPS of $2.40. Phillips ‘8.7x’ figure is reflective of “trough multiples of normal earnings based on mining share performance in past recessions.”

Lawrence Smith of Scotia Capital

“Teck management noted that its priority is to reduce the US$9.8 billion debt from its acquisition of Fording. The debt facilities consist of a US$4.0 billion term loan (repayable in 11 equal instalments commencing on April 30, 2009) and a 364 day bridge loan of US$5.8 billion. Both loans are attractively prices at LIBOR + 1.5%.

Management cited reduced exploration expenses, sustaining capital expenditures cuts and sale of non-core assets as potential incremental sources of cash for debt reduction. Specifically it was noted that sustaining capital could be reduced by up to 50% over the 2008 levels, which would imply incremental cash available of approximately $300 million. We assume the reference to noncore assets implies that Teck's gold assets will likely be sold in the near future. Company CEO Don Lindsay did indicate that the Board would continue to review the company's dividend, but added that no change was currently contemplated.

The ability to repay debt over the next 12 months will be largely determined by commodity prices. We assume that cash available for debt repayment includes all free cash from operations, less project development capex, sustaining capex, and cash required to maintain Teck's common dividend. It is our view that if the 2009 benchmark coal price is much below US$175/tonne, in conjunction with a copper market in line with or below our forecast (US$2.25/ lb) in 2009, Teck will likely take more draconian steps to reduce debt, for example cutting the dividend.”

Smith has a C$26.00 target price (Sector Outperform with high risk rating).

Excerpts from Teck Cominco’s earnings release

Regarding Outlook

“Current problems in credit markets and deteriorating global economic conditions have lead to a significant weakening of exchange traded commodity prices in recent weeks, including base metal prices. Volatility in these markets has also been unusually high. It is difficult in these conditions to forecast metal prices and customer demand for our products. Credit market conditions have also increased the cost of obtaining capital and limited the availability of funds. Accordingly, management is reviewing the effects of the current conditions on our business. Our fourth quarter earnings are expected to be impacted by significant negative pricing adjustments, if base metal prices remain at current levels, and an increase in our financing costs assuming our acquisition of Fording’s assets closes on October 30 as expected and, because of the application of accounting rules related to the valuation of inventories from acquisitions, our earnings are expected to include only one month of operating profit from the assets acquired from Fording. This last item has no impact on our cash flow.”

Regarding Acquisition of Fording Canadian Coal Trust

“The cash portion of the consideration will be funded primarily from a US$9.81 billion fully underwritten bridge and term loan facility with a syndicate of banks and approximately US$2.4 billion of proceeds from the sale of 29.5 million Fording units held by Teck. The bridge loan is US$5.81 billion bears interest at LIBOR plus 1.5% and is due 364 days after it is drawn. The term loan of US$4 billion bears interest at LIBOR plus 1.5% (subject to adjustments based on changes in our credit rating) and is repayable in 11 equal quarterly instalments beginning on April 30, 2009. Our primary objective is to reduce these debt balances include a cash tax refund of approximately $1 billion expected in the first half of 2009, potential asset sales and cash on hand at the time of the transaction. We also intend to access longer term debt financing as bond market conditions permit. As a result, we expect to pay down a substantial portion of the acquisition debt in the near term. This expectation is based primarily on our belief that Elk Valley’s projected revenues and cash flows through March, 2009 are dependable based on existing sales volumes and prices, the combination of normal carry-over volumes into the April-June quarter of 2009 and current price forecasts for the 2009 coal year. Before tax operating cash flow from our coal business unit over a one year period would be in the range of $3 billion dollars if the average realized price were to be US$200 per tonne, and close to $6 billion if the average realized price were US$300 per tonne. This assumes that we produce and sell 25 million tonnes per year, total cash costs of approximately C$96 per tonne, slightly higher than our current guidance, an exchange rate of C$1.10 to US$1 and does not take into account sustaining capital spending.

As a result of the Fording transaction our earnings will be more sensitive to changes in the coal price and changes in the Canadian/US dollar exchange rate. Based on 2008 calendar year average coal prices, post-acquisition rates of production, current coal prices and current exchange rates, a 1% increase/decrease in the coal price would increase/decrease our 2009 earnings by approximately $42 million. Based on prices and the exchange rate prevailing at September 30, 2008 and our current rate of production, post-Fording acquisition, a 1% weakening/strengthening of the Canadian dollar against the US dollar would increase/decrease 2009 earnings by approximately $50 million, after taking into account our US$ forward sales contracts.

Elk Valley Coal’s sales contracts have been settled for the 2008 coal year, which is from April 1, 2008 to March 31, 2009, and are recorded at an average price of US$275 per tonne. This is a weighted average price for all ranges of coal products including metallurgical, thermal and PCI coal and the impact of certain multi-year contracts. With carry over tonnage from the 2007 coal year, the average coal price for the 2008 calendar year is expected to remain in the range of US$195 to US$205 per tonne.

Fourth quarter production and sales for Elk Valley Coal will be impacted by the ongoing production problems at the Elkview mine, which are expected to be resolved by the end of October 2008. In the absence of any further significant disruptions of production or rail transportation problems, Elk Valley Coal still expects its sales volumes to be within its previous guidance range of 23 to 25 million tonnes for calendar 2008. Inventories of clean coal at the mine sites and the Vancouver ports were low at quarter end and Elk Valley Coal is dependent on rail service in order to deliver its product. The low inventory levels increase Elk Valley Coal’s exposure to possible rail transportation problems or further disruptions of production during the fourth quarter.”

Regarding Miscellaneous Stuff

“The government of British Columbia introduced legislation to implement a carbon tax on virtually all fossil fuels effective July 1, 2008. The tax is imposed on fossil fuels used in BC and is based on a $10 per tonne of CO2-emission equivalent, increasing by $5 per tonne each year until it reaches $30 per tonne in 2012. Based on our recent historical fuel use figures, we expect to pay carbon tax of approximately $5 million for 2008, increasing to approximately $26 million per year by 2012.”

Fertilizers - Insights from Potash Corp.'s Earnings Release on October 23, 2008

Earnings Summary

Potash Corporation of Saskatchewan Inc. reported Q3/08 earnings per share of $3.93 ($1.24 billion), a five-fold increase over the $0.75 per share earned in the same period last year. Gross margin for the third quarter grew to a record $1.7 billion, up from $475.1 million in the Q3/07. Cash flow from operating activities prior to working capital changes was $1.3 billion, almost 4x the $336.7 million generated in the same period last year. Third-quarter earnings before interest, taxes, depreciation and amortization (EBITDA) reached $1.8 billion, compared to $475.7 million in Q3/07.

Of note however, is that for 2008 Potash Corporation of Saskatchewan expects its EPS to now come in at the lower end of its guidance of $12/share-$13/share (Note: thus at todays price of $66 and change, Potash is trading at 5.5x forward earnings multiple - cheap or not, you decide?) due to the ongoing labor strike at Allen, Cory and Patience Lake.

The following are a few excerpts from its earnings statement:

Comments Regarding Potash

“The upward trend for potash pricing continued in the third quarter, with the average realized price for offshore sales reaching $601 per tonne, a 262-percent increase from last year’s third quarter. Incremental spot market prices to Brazil and Southeast Asia each increased by approximately $700 per tonne since last year’s third quarter, while China paid an additional $400 per tonne and India $355 per tonne on their contracts with Canpotex Limited, the offshore marketing company for Saskatchewan potash producers. In North America, realized prices of $563 per tonne were 189 percent higher than in the same quarter last year, as we continued to recognize the benefit of approximately $370 per tonne of previously announced price increases since last year’s third quarter. By the end of this year’s third quarter, we began to realize an additional $275 per tonne increase introduced September 1, 2008.

Third-quarter sales volumes of 1.9 million tonnes were 14 percent below the same period last year, as potash availability was limited and our quarter-end inventories were reduced to 212,000 tonnes, the lowest in our history. Year-to-date total volumes of 7.1 million tonnes were flat compared to the same period last year. Our third-quarter offshore shipments of 1.3 million tonnes were 8 percent lower than the same quarter last year, primarily because of tight supply, but were flat on a year-to-date basis. The pattern of this year’s offshore shipments was altered by the late contract settlement between Canpotex and China. Canpotex shipped 585,000 tonnes to China in third quarter 2008, reflecting more traditional levels, although year-to-date volumes to that country (China) were down 50 percent. India continued to benefit from China’s late entry to the market, receiving 336,000 tonnes from Canpotex in the quarter, an increase of 23 percent from the same period last year. For the first nine months of 2008, Canpotex shipments to India topped 1.0 million tonnes and were 43 percent higher than in the same period in 2007. Canpotex’s third-quarter shipments to Brazil (575,000 tonnes) were up 6 percent quarter over quarter and were 25 percent higher year to date. The 448,000 tonnes sent to Southeast Asian countries in third quarter 2008 were 16 percent below last year’s third quarter, as countries in that region bought earlier in the year while China was on the sidelines. For the first nine months of 2008, Canpotex shipped 2.1 million tonnes to Southeast Asia, an increase of 25 percent over the same period in 2007. North American potash volumes were down 25 percent quarter over quarter due to tight supply, while year-to-date figures were virtually flat.

Potash per-tonne cost of goods sold was approximately $28 per tonne higher quarter over quarter. This was the result of a stronger average Canadian/US dollar exchange rate compared to last year’s third quarter, increased royalties due to higher potash prices, increased brine inflow costs at New Brunswick and lower sales because of ongoing strikes at our Allan, Cory and Patience Lake potash facilities. The labor dispute at these three facilities led to 16 additional mine shutdown weeks compared to last year’s third quarter.”

Comments Regarding Nitrogen

“Ammonia realized prices reached record levels, increasing 147 percent from the third quarter last year, mainly because of strong demand and disruptions in the global supply of traded ammonia in major producing regions. China’s efforts to limit fertilizer exports contributed to realized urea prices rising 134 percent from last year’s third quarter and 46 percent from the robust second quarter of 2008. The higher value of upgraded ammonia pushed nitrogen solution prices 80 percent higher than those realized in the third quarter last year and 19 percent above the trailing quarter.

Ammonia sales volumes were down 6 percent quarter over quarter due to reduced availability of product caused by production issues at our Trinidad operations. A scheduled 28-day turnaround at our Trinidad urea plant contributed to a 21-percent reduction in urea sales volumes from last year’s third quarter, while nitrogen solutions sales volumes were 36 percent higher on strong demand and favorable production economics.

Our total average natural gas cost for the third quarter, including our hedge, was $9.36 per MMBtu, 138 percent higher than in the same quarter last year. This average was pushed higher because our Trinidad gas cost is indexed to Tampa ammonia prices, which ranged between $585-$931 per tonne in third quarter 2008 as compared to $295-$303 per tonne in the same quarter of 2007.”

Comments Regarding Phosphates

“Liquid fertilizer realized prices reached $1,238 per tonne in third quarter 2008, a 293-percent increase from last year’s third quarter and 82 percent higher than in the trailing quarter. Prices for solid fertilizer ($1,085 per tonne) and feed ($1,040 per tonne) rose 171 percent and 196 percent, respectively, from the same quarter last year. Realized industrial prices of $825 per tonne rose 111 percent over the same quarter last year.

Our North American solid phosphate fertilizer sales volumes declined 38 percent from last year’s third quarter, as the late spring season resulted in higher dealer inventories entering the third quarter and the fall application season was delayed by the late harvest. Accordingly, we directed more phosphoric acid to higher-netback and higher-demand liquid fertilizers in North America, increasing sales volumes for this product 16 percent quarter over quarter. Total feed phosphate sales volumes declined 16 percent quarter over quarter as a result of weakening economics for beef, pork and poultry producers in the US and lower offshore demand. Industrial sales volumes remained strong, up 4 percent over the same quarter last year and 15 percent higher than the trailing quarter.

Quarter over quarter, phosphate cost of goods sold increased substantially in third quarter 2008 as sulfur costs rose 577 percent and ammonia costs were up 94 percent.”

Future Outlook

“Although all sectors, including agriculture, have been impacted by the response to the accelerating global financial crisis and increased selling of liquid assets to attain and hold cash, the most basic drivers of our business remain intact. The growing world needs to produce more food and, to do that, it requires more fertilizer (but at what price?).

Global population is approximately 6.7 billion people and grows by an estimated 80 million each year. Research has estimated that approximately 40 percent of the world’s food could not be produced without the use of fertilizer, so the importance and value of our products increase on a continuing basis. Regardless of economic conditions, world grain consumption rarely declines and has, in fact, increased in 40 of the past 48 years. The most significant drop over this time was 3.7 percent during a year that saw a corresponding 4.6 percent drop in global grain production. In the remaining cases, grain consumption declined less than 1 percent and was typically caused by weather-related production issues constraining grain supplies.

With more people to feed and higher demand for protein from meat sources, which requires even more grain, the world’s farmers are challenged to improve crop yields and maximize production. Grain consumption remains at an all-time high and, despite record crops, global grain stocks-to-use levels are near historic lows. Despite these conditions, the impact of traders selling off crop futures contracts and lowering prices for financial rather than fundamental reasons could impact crop production patterns in the short term. If the world’s farmers choose to cut back on acreage or reduce crop inputs due to current economic uncertainty, we expect this would put substantial pressure on the already-tight global grain supplies and ultimately lead to much higher crop prices. Additionally, this year’s record world production drew an unprecedented amount of crop nutrients from the soil, creating an even greater need for fertilizer to protect and restore soil fertility. Our industry has witnessed many periods of temporary cash conservation in the past, where buyers deferred purchasing inputs and worked from inventories or mined residual nutrients in the soil. As this happens, the need to replace crop nutrient inventories grows, leading to tightened supply/demand fundamentals for fertilizers.

In the interim, potash supply is inherently tight, with limited productive capability supplying the needs of farmers in every country of the world. We expect that the industry will be challenged to meet demand in coming years. Potash production faces a number of constraints and even the most optimistic prospect of significant new greenfield production is at least five to seven years away.

Among the major potash markets, US farmers have enjoyed record farm income in four of the past six years and are operating with very strong balance sheets, averaging a debt-to-equity ratio of 11 percent. Their lenders are typically government-sponsored farm credit agencies or regional banks that understand farmers are among the lowest credit risk of any borrowers in the current environment. After receiving potash on an allocation basis for the past 18 months and functioning on available supply while growing record crops, potassium levels in US farmers’ soils have been reduced and must be restored to protect future fertility. This minimizes the downside risk for potash in North America and, given the late fall season and an expected rebound in crop prices, we anticipate that US demand will be strong in the coming spring season.

In China, the late settlement of 2008 potash contracts and increased demand from other major buying regions reduced imports by more than 3 million tonnes from 2007 levels. Seaborne shipments did not arrive until long after the spring application season, constraining field-level supplies and lowering potash consumption. After higher crop production this year removed large amounts of nutrients from soils, China will need to increase potash applications to restore low soil nutrient levels. Canpotex’s sales to China have not been impacted by the current global financial crisis and we expect Chinese buyers to settle 2009 contracts by the first quarter, with a provision for higher volumes than 2008 to ensure the replenishment of potassium for sufficient grain production next year. The financial crisis has reduced concerns about rapid inflation slowing China’s powerful economy. As has been demonstrated over the past two decades and discussed publicly again by its government officials this week, China continues to emphasize strong industrial and agricultural growth, which gives more people the desire and income necessary to purchase more readily available and nutritious food.

In India, soils are short of all nutrients, particularly potassium, and the historical under-application of potash relative to nitrogen and phosphate is severely limiting yield growth for crops in that country. India’s government is focused on improving yields and we expect solid potash demand growth again there in 2009.

Although Brazil has a great need for potassium in its soil, of all major potash markets its economy has experienced the most sensitivity to global credit issues. Now, as Brazil heads into its primary planting season, it will likely be impacted by the unfortunate timing of negative investor response to this crisis and the resulting decline in crop prices. We believe that crop prices are likely to rebound by harvest time, and that the Brazilian farmer will do well. However, in the current environment, caution may be exercised. This could mean a reduction of Brazil’s potash applications this fall and higher carryover of potash inventories into 2009. This could lower Brazil’s potash imports by as much as 300,000-500,000 tonnes next year as compared to 2008. However, in October, the Brazilian government stepped in to provide more than 10 billion reais (approximately US $5 billion) to Brazilian banks to provide credit for farmers to purchase crop inputs. With rising global consumption of soybeans and corn, the world needs Brazil to increase its crop production. Higher long-term crop prices are required to encourage Brazil to expand its acreage and increase fertilizer consumption to meet this demand.


While much of the attention is focused on other countries, Russia’s agricultural industry is also enjoying a quiet yet rapid resurgence that we expect will have far-reaching effects. The Russian government has indicated it will require its domestic fertilizer producers to direct significant volumes of nitrogen, phosphate and potash to its own farmers. This could remove several hundred thousand tonnes of potash from an already tight international market next year.

In the fourth quarter, we expect previously announced potash price increases to take hold and raise our total realized price by approximately $100 per tonne. Looking ahead, limited new potash capacity is scheduled to come on stream in 2009, even as producers are reporting record-low inventories. With global sales growth estimates ranging from a scenario of flat to a 5-percent increase, we expect potash fundamentals to remain tight. In the event of temporary demand weakness in this current economic environment, we will follow our long-held practice of matching our production to meet market demand, reducing volatility in our financial performance. This could also significantly minimize the downside of production lost during ongoing strikes at our Allan, Cory and Patience Lake potash operations. We expect our full-year 2008 potash gross margin to exceed the 2007 level by approximately 250 percent.

Longer-term, over the next five to seven years we expect demand growth to meet or exceed the availability of new supply. We continue to move forward on announced potash debottlenecking and expansion projects that will raise our operating capability from approximately 10 million tonnes to 18 million tonnes over this time frame.

Among the other nutrients, the fundamentals for nitrogen products face the greatest immediate-term challenge from temporary deferrals of purchases. With major buyers waiting on the sidelines due to delayed application seasons in key areas and lack of confidence from the global financial crisis, urea prices have dropped dramatically. Ammonia prices achieved record levels in September/October, but have come under pressure in the fourth quarter (Note: Ammonia prices have declined significantly this past week from ~$900/t to ~$350/t). Due to these falling prices, we now expect 2008 nitrogen gross margin to be lower than our previous forecast but still exceed 2007 by approximately 60 percent.

Rapidly falling international sulfur costs, which have dropped from a high of approximately $800 per tonne to well below $200 per tonne, are putting downward pressure on phosphate prices. However, we expect minimal impact on phosphate profitability as raw material costs and ocean freight rates decline. Additionally, announced production cutbacks in the phosphate industry should minimize the effect of the current market situation on phosphate gross margins. As a result, 2008 phosphate segment gross margin is now expected to be higher than previously forecasted, exceeding 2007 by over 250 percent.”

Excerpts from the BHP Billiton 2008 Annual General Meeting

On October 23, 2008 both Don Argus, Chairman of BHP Billiton and Marius Kloppers, Chief Executive Officer of BHP Billiton were in London, UK speaking at BHP Billiton’s Annual General Meeting. The following are a few excerpts from their speeches:

Don Argus on growth in China

“There is no doubt that China has been an important driver of growth in resources demand, underpinned by its unprecedented urbanisation push. Urban population has increased by 300 million people since 1990. Macroeconomic indicators now show that Chinese growth has softened recently, albeit from very high levels. We believe that softening is due to both domestic and global factors. With receding inflationary pressures, large financial reserves and a deep desire to grow, the Chinese economy should show some resilience and we note the International Monetary Fund growth forecast of around 9 per cent for 2009. Despite this short-term uncertainty, we remain convinced that the ongoing industrialisation and urbanisation of China and other developing economies is still at a relatively early stage and will continue to drive strong long-term demand for our products. Over the next 20 years, we believe Chinese cities will grow by another 350 million people. We note that the China National Bureau of Statistics has just released the latest gross domestic product data which shows that third quarter growth came in at 9 per cent year on year.”

Marius Kloppers on the BHP Billiton bid for Rio Tinto

“BHP Billiton and Rio Tinto are uniquely complementary in the commodities we produce, in our geographic locations, our cultures and customer bases. A combination of these two companies would unlock synergies and provide greater value than either of the two companies can provide alone. These synergies only exist when the companies are put together. These synergies are particularly valuable in today’s economic environment.

BHP Billiton does not need Rio Tinto to have a great future, but we believe the two companies combined will be better placed to meet the world’s future needs for our products, at lower capital and operating costs, and from a position of combined strength."

Don Argus on the BHP Billiton bid for Rio Tinto

“From our perspective, this is about maximising value, for both sets of shareholders, for customers and all our stakeholders. We are focused on large, long-life, low-cost, expandable and export-oriented assets diversified by commodity and geography and that are consistently profitable through the commodity cycle.

We believe that BHP Billiton and Rio Tinto are similar companies, with exposure to similar commodities and assets and the value to be extracted is because of this similarity.

We believe the new combined company would have several key features:

• the ability to lower costs by optimising the use of assets and infrastructure, particularly those located close to each other;


• a more diversified asset portfolio creating lower risk for shareholders in the current uncertain economic environment;

• the ability to deliver volume to customers on an accelerated basis to meet their demand for resources;


• a management team drawn from the best of both BHP Billiton and Rio Tinto that will have exceptional experience and depth;


• a commitment to continue with our progressive dividend policy; and

• importantly, strong cash flows and a strong balance sheet that will allow re-investment throughout the economic cycle.

… we continue to engage with the regulators in the various jurisdictions where we operate, and we continue to work towards completing the regulatory review process for the offer by early 2009.

Following satisfaction of the pre-conditions, we will send formal offer documents and acceptance forms to Rio Tinto shareholders. We will also convene an Extraordinary General Meeting at which BHP Billiton’s shareholders will have the opportunity to approve the offer for Rio Tinto.”

Buy, Sell or Hold Suncor Energy (SU: NYSE)

On a technical basis, both the MACD and Slow Stochastics indicators are at crucial points and need confirmation one way or the other – that is, price action over the next few days will likely determine whether Suncor will remain in its current downtrend or break through on the upside.

On a fundamental basis, Suncor is a blue chip, go-to oil sands play that is currently trading very cheaply. At its current price of $21.31, not only is the market not giving the company credit for its 350 mbbls/d of production, which roughly equates to $47.85/sh based on US$70/bbl WTI according to Dundee Securities analyst Menno Hulshof but it is also discounting future production growth from Voyageur, where Suncor is planning the construction of a third oil sands upgrader, west of it’s existing facilities, targeted for completion in 2012 and designed to increase the company’s oil sands production capacity to 550,000 barrels per day. In the near term, the company is expecting a 35% increase in upgrading capacity by year end 2009 and production at Firebag is expected to increase to a peak rate of 90mbbls/d by late 2009.

Strategy: Keep one eye on Suncor’s price action while keeping the other eye on the price of WTI Crude. A bottoming in the price of WTI Crude is likely a bottom for Suncor. Look for a sustained rally over a few days or even weeks in the price of WTI Crude for a confirmation of positive price action as recent bouts of strength were merely opportunities for traders to sell into.

US Dollar Index - Hitting New Highs

As stock prices continue their downward spiral, I should point out that the U.S. Dollar Index is making new highs. In fact, today the index decidedly broke above the crucial 84 level, hitting an intraday high of 85.92 and closing at 85.62. The U.S. Dollar has been maintaining its upward trend irrespective of price fluctuations in riskier assets (demonstrated by the Euro/Swiss Franc cross trade) and this is a bullish sign.

Coal – Insights from the Peabody Energy (BTU: NYSE) Conference Call on October 16, 2008

Peabody (BTU: NYSE) reported third quarter earnings per share from continuing operations of USD 1.38/sh, trouncing consensus of USD 0.87/sh and guidance of between USD 0.80 – 1.05/sh. Operating profit improved 128 percent to $1.01 billion and margin of 25.7% increased 1,600 bp. Even revenue per ton sold increased 114%. Peabody reported a simply phenomenal quarter and added that while spot coal prices have declined, contract prices for coal remain strong.



The following are some excerpts from their conference call:

Highlighting why coal might be different from other commodities, Chairman and CEO Greg Boyce said:

“Coal is far better able to weather the economic downturns than most other commodities for several reasons. Coal is overwhelmingly an electricity fuel. Electricity is a basic staple and in developed nations is far less elastic to GDP and other commodities. For instance, a 1% decline in GDP in the US would only translate into a 0.5% reduction in electricity. And coal fueled electricity is more protected given the around-the-clock baseload nature of the generation.”

We still believe emerging economies will continue to grow, with China leading the pack with 8% to 10% growth. That translates into 11% to 14% electricity demand expansion in the world's largest electricity market. China effectively, a downside case in China is 8% growth which still has 10% plus electricity growth rate in the world's largest market, which is going to require significant volumes of thermal coal. So the thermal market we think is going to continue to have growth through this time period and it is just picking, whether it is good growth or whether it is a medium growth. On a global basis, we still see nearly 300 gigawatts of new coal fuel generation under construction today. These plans will begin operating over the next several years and will annually need some 1 billion tons of additional coal (that is three to four years view of demand). This ensures positive global coal growth irrespective of the exact pace of global economies. Thermal export coal supplies are also in tight supply. Consider that the go to nations of China, Russia, Indonesia, South Africa (exports 6% lower than last year and on pace for their third consecutive yearly decrease) and Columbia, which account for more than two-thirds of thermal seaborne coal supplies have been unable to increase volumes in aggregate this year. Of course the new world of credit, or lack thereof, will only make these supplies tighter.

Let's turn to metallurgical coal, which of course is linked to steal demand. A 3% growth in global steal demand still translates to 25 million tons of additional coking coal needs. And global metallurgical coal remains in very short supply with more than 90% of global seaborne shipments coming from just four countries.

And that’s why pricing during the third quarter was still running ahead of the April benchmarks. It's for these reasons that we believe coal is far better positioned than other commodities for any global economic softness.”

In response to an analyst’s question regarding China’s plans to limit exports on coke, CEO Greg Boyce opines:

“Well the fact is China has continued to limit exports (on coke) and they have just imposed a fairly significant export tax on coke. In terms of even thermal coal, they have yet to release any additional export licenses for this year. So we anticipate that China is going they are energy short.

We were just over there last week as we said. I mean, they are with all of their growth, they were having power brownouts, because of their inability to ultimately meet their existing demand and they are still anticipating 8 to 10% growth in their economy. Much more of it redirected to infrastructure development and internal growth rather than the export growth that they have had in the past. It still remains strong.”

With regards to what Peabody management thinks is the marginal cost of producing thermal coal in Central Appalachia and in the Powder River Basin, President and CCO, Rick Navarre stated:

“Let me start with Appalachia and I can take it from public data and from also personal information from looking at financials of smaller coal companies that get presented to us to look at from acquisition standpoints. And, you can see that you are talking about an $80 to $90 cost for thermal coal, at the marginal level, the highest cost producer, the tail end of the cost curve.

So you are going to need $90 to $100 to clear that market for Appalachia. We have seen thermal and we have seen metallurgical coal from some of the met producers out of Appalachia in the $120 plus range. I would say that is a marginal number.

For the marginal metallurgical coal it is in excess of $100. So that is probably a realistic number to think about from that standpoint.”

Lastly, when asked to comment on Indian thermal coal demand, CEO Greg Boyce said:

“Well we still see strong demand growth out of India. Whatever that level is, it will still be higher than we will see in other locations. We still anticipate that their input or their import growth will be one of the highest growth rates in the world. They are trying to develop additional coal resources.

In our view, they are going to become a significant importer of both thermal and additionally met coal going forward. The view of the government as well as Coal India, which is the big producer there, is expecting to import coal as well. So they definitely are looking at the same way.”

To read the entire conference call transcript, click here to visit Seeking Alpha

Or the listen to the call, head on over to the Peabody Energy website located at http://www.peabodyenergy.com/

Mutual Funds Redemptions In September 2008

Given the backdrop of a 14.7% decline in the S&P/TSX, 9.1% decline in the S&P 500 and 14.7% drop in the NASDAQ for the month of September, the Investment Funds Institute of Canada (IFIC) reported Total mutual fund net redemptions of $4.5 billion in September, down from $799.6 million in net sales in August and $993.8 million in net sales one year ago. To put that in perspective, net redemptions of $4.5 billion in September 2008 represent the largest fund outflows on record. Money Market fund net redemptions were $2.5 billion in September, down from $944.1 million in net sales in August and $328 million in net sales last year at this time and Long-term fund redemptions were $2 billion in September, down from $144.5 million in net redemptions in August and $665.8 million in net sales in September 2007.



Furthermore, industry assets under management were $633.6 billion at the end of September, down 8.9% from August and 9.7% from September 2007. Year over year gains in market share, with respect to assets under management were led by Royal Bank with a 184 basis point gain, followed by TD and MD Management at 56 bp and 48 bp respectively.



Bright spots included International Equity funds, which led the way in sales in September with $120.8 million followed by Canadian Equity funds ($86.2 million), U.S. Equity funds ($78.2 million) and Global Equity Balanced funds ($48.2 million). Manulife spearheaded the mutual fund industry with net sales of $140 million, pursued by Fidelity and Dynamic with net sales of $134 million and $75 million, respectively.

Quadrus Laketon Fixed Income Fund was the industry leader in long term fund asset inflows with net sales of $217 million, flowed by Mackenzie Universal International Stock Fund with net sales of $132 million and the Harbour Growth & Income Fund with net sales of $98 million. Meanwhile, the Signature High Income Fund had the largest outflows this month at $193 million followed by the Mackenzie Maxxum Canadian Balanced Fund at $145 million and the Quotential Balanced Growth Portfolio at $116 million. Lastly, Global equity sales were led by the Mackenzie Universal International Stock Fund with net sales of $132 million followed by the Mackenzie Ivy Foreign Equity Fund at $42 million and the International Equity Alpha Corporate Class at $18 million.

To read the entire report in PDF form, click here

Buy, Sell or Hold Yamana Gold (YRI: TSX)

- Yamana produced 492,718 gold equivalent ounces (GEO) for the six month period ended June 30, 2008, an increase of 108% over the comparative six month period ended June 30, 2007

- Six months adjusted earnings of $237.4 million or $0.35 per share and net earnings of $105.2 million

- Cash flow from operations of $333.7 million for the six month period before changes in non-cash working capital items and $169.7 million after changes in non-cash working capital items. Sales of $693.0 million, an increase of 111% over the comparative six month period ended June 30, 2007.

- Average cash costs of $(133) per GEO after by-product credits

- Copper production of 85.7 million pounds consisting of 67.6 million pounds from Chapada and 18.1 million pounds from Alumbrera (12.5% interest)

- Copper contained in concentrate sales of 68.4 million pounds



Yamana is targeting production of 1.1 to 1.2 million GEO for the current year and progressing towards sustainable production levels of 1.95 to 2.5 million GEO in 2012 based on existing reserves and resources (aiming at 2.2 million GEO of production in 2012 based on existing reserves and resources and proposed increases at projects now being evaluated). The company expects capital investments over the next three years to be approximately $1.3 billion. Yamana’s June 30, 2008 balance sheet indicated cash and cash equivalents of $238 million, working capital of $267 million and total debt of $847 million. The company also has access to 2 credit facilities, amounting to $650 million (a $400 million non-revolving facility and a $250 million revolving facility).

With production forecasted by Ron Coll of Jennings Capital to grow to 1.08 million ounces of gold in 2009 (33%) and to 1.24 million ounces in 2010 (a further 15%), at a cost of approximately $380/oz, Yamana should cash flow US$0.94 in 2008 (EPS of US$0.67), growing to cash flow of US$1.32 in 2009 (EPS of US$0.75) at gold prices in the mid $800’s/oz (US$868/oz for 2008; US$837/oz for 2009, $900/oz for 2010 and thereafter) and copper prices of $2.85/lb in 2009, $2.45/lb in 2010 and $2.00/lb thereafter. Coll also adds that “A US$50/oz change in gold price results in a US$0.05/share change in annual earnings and an US$0.08/share change in annual cash flow. A US$0.10/lb change in copper price results in a US$0.02/share change in earnings and a US$0.05/share change in annual cash flow (full year 2009).”

Yamana pays a monthly dividend (($0.12/share/year), representing a current yield of 1.2%. Based on Cash flow and EPS multiples the stock is historically cheap and Coll pegs a C$17.75/share target on Yamana on the basis of an equal weighting to NAV, CFPS, and EPS valutions.

BTW, last week Scotia Capital came out with a revised target on Yamana of $13.00/sh based on 2.0x our NAV (which they peg at $6.63/sh) discounted at 5% and 10x 2009E CFPS.

Do Your Own Due Diligence !

Don Coxe Basic Points October 2008

Don Coxe Basic Points October 2008 - "HOMEICIDE: THE CRIME OF THE CENTURY"

To download Mr. Don Coxe's October 2008 Edition of Basic Points Click Here

Link Courtesy: http://incakolanews.blogspot.com/

IncakolaNews is a one stop blog for news and analysis on Latin American stocks, economics, politics and stuff like that - I highly recommend it.

**Hearty Thanks: Reader Bill S.**

Noront Resources (NOT: TSX) and Hedge Fund Rosseau Asset Management

On October, 8 2008 Noront Resources (NOT: TSX-V) announced that it had received a dissident proxy circular from hedge fund Rosseau Asset Management asking Noront shareholders to vote against the re-election of the Company's current Board of Directors and instead vote to elect a new slate of directors at the upcoming annual and special meeting of Noront shareholders scheduled to be held on October 28, 2008.



Noront Resources was just another junior mining explorer until news of its nickel-copper-platinum-palladium-chrome discovery at the Double Eagle project in the ‘Ring Of Fire’ area in the James Bay Lowlands of Ontario, Canada thrust this company into the forefront of investors’ watchlists. With drill highlights including up to 117.4 metres grading 4.1% Ni, 2.2% Cu, 2.1 g/t Pt and 7.1 g/t Pd, investors quickly bid up Noront shares from below $1.00 to a high of $7.42. During Noront’s share price ascent from the sub $1.00 level, the company closed a financing for proceeds of $26,000,000 by closing a private placement of 6,500,000 units of Noront priced at $4.00. Each unit was priced at $4.00 and consisted of one common share and one-half of one common share purchase warrant. Among the participants of the private placement were some high profile investors including Robert McEwen, ex-CEO and Chairman of Goldcorp, Pierre Lassonde, Chairman of royalty company Franco-Nevada Corporation, Sprott Asset Management and Rosseau Asset Management.

Warren Irwin, President and Chief Investment Officer of Rosseau Asset Management outlines 5 points of contention against the Noront management team in his proxy filing, which can be found at SEDAR.com. The points include Noront allocating a significant portion of the private placement (referred to in the above paragraph) proceeds and resources to advancing its Windfall Lake gold project, located in northern Quebec. Irwin writes “In Rosseau’s view, it is not appropriate for Noront to have unduly promoted the McFaulds Lake discovery, raised funds in February 2008 on the basis of that promotion, and then spent a substantial portion of its cash resources to advance its Windfall Lake project.” Irwin opines that by spreading themselves too thin over a number of less advanced projects (which include the Burnt Hill Tungsten properties in Stanley Parish, York County, New Brunswick, Noront’s projects in Mexico and Noront’s project on the Tie Jiang Ying Zi Property in Inner Mongolia, China) than the core McFaulds Lake discovery, management has lost its focus and ‘appears disorganized.’ Irwin’s solution to this malfeasance would be for Noront to focus all its resources (financial and non financial) on its core McFaulds Lake discovery.

Irwin’s second point is that Noront has and is continuing to dilute its Mcfaulds Lake land claims position by signing upto 11 different options agreements. These options agreements call for Noront to act as operator in developing these properties thereby extracting precious manpower and scant drills from Noront’s 100%-owned high priority prospects. Irwin writes “this complicated web of option agreements and associated requirements also reduces the attractiveness of Noront to major mining companies, which we believe prefer large tracts of land without complicated option agreements and service obligations to junior resource companies. Despite the negative consequences associated with these arrangements, Noront appears to be continuing to negotiate and enter into new option agreements.”

Irwin’s third point of contention relates to Noront squandering its first mover advantage in the Mcfaulds Lake area by optioning out a significant portion of its land claims. Irwin believes that Noront should instead use its dominant position in the Mcfaulds area to “consolidate key players as ore bodies are delineated to reach a critical mass for mine development.”

Irwin’s next point is that the management team at Noront have failed to deliver on several different fronts. Irwin believes that Noront should have pursued the appointment of a more experienced and qualified President and CEO in light of the Noront’s Eagle One discovery. With no progress on the lookout for a new President and CEO, Irwin adds that Noront should have also pursued a listing on the more prominent Toronto Stock Exchange, given its new capital requirements and much larger market capitalization but once again there have been few steps in this direction. Furthermore, Irwin writes that he has on few occasions spoken to the management of Noront regarding the spinning-off non-core assets to shareholders through a new company so as to focus solely on the McFaulds Lake property and to unlock value for shareholders. Once again, Irwin says no progress has been made on this front.

Irwin’s last point is that Noront’s management is prone to exaggeration and undue promotion thereby tarnishing the company’s credibility. Case in point, Irwin points to a comment made by Noront CEO Richard Nemis on April 14, 2008 in the Financial Post whereby Nemis compared the (McFaulds Lake) geology to the giant Voisey’s Bay deposit in Labrador, and suggested it could even be bigger. Irwin writes “In August 2008, Noront released its Technical Report and Resource Estimate under National Instrument 43-101 related to the Eagle One discovery, which indicated it had approximately 3 million tonnes of ore. The June-July 2000 Issue of Economic Geology states that Voisey’s Bay is host to 137 million tonnes of ore. At this stage of Noront’s development, there is hardly a comparison between the two deposits and to imply that Noront could have a deposit larger than Voisey’s Bay was reckless and undermined Noront’s credibility.”

Given’s Irwin’s dissatisfaction with Noront’s management team he proposes a new slate of nominees to replace the company’s incumbent board of directors. The new nominees include Patrick F.N. Anderson, President and CEO of Aurelian Resources which was recently sold to Kinross Gold, Bruce Durham, Chairman of Temex Resources, Joseph A. Hamilton, President of Pickax International Corporation, a private company providing services to the mineral industry, Warren B. Irwin, President and Chief Investment Officer of Rosseau Asset Management, Keith McKay, Chief Financial Officer of Aurelian Resources, Thomas Obradovich, Chairman of Independent Nickel Corp. and a director of Aurelian Resources and lastly, Michael D. Woollcombe, Partner with Voorheis & Co. LLP.

Rosseau Asset Management Ltd. is a money management firm based in Toronto, Ontario. As of the date hereof (and as of the September 22, 2008 record date for the Meeting), Rosseau Asset Management Ltd. and its officers and employees beneficially owned, directly or indirectly, or exercised control or direction over an aggregate of 11,912,901 common shares of Noront, representing approximately 9.2% of the common shares that are entitled to vote at the Meeting. Of these 11,912,901 common shares of Noront, (i) an aggregate of 11,186,901 common shares are controlled or directed by Irwin B. Warren through Rosseau Asset Management Ltd. as manager or investment manager of Rosseau Limited Partnership (6,580,242 common shares), G-10 – Rosseau Special Situations Master Fund (4,539,159 common shares) and G10 Global Asset Management Ltd. (67,500 common shares), (ii) 40,000 common shares are owned by Mr. Irwin personally, (iii) an aggregate of 646,000 common shares are held by certain managed accounts in which members of Mr. Irwin’s family have an interest and in respect of which Mr. Irwin exercises control and direction, (iv) 8,000 common shares are owned personally by Daniel Fong, an employee of Rosseau Asset Management Ltd., (v) an aggregate of 12,000 common shares are owned by Mr. Fong’s spouse, Sarah Wong, and held in managed accounts over which Mr. Fong exercises control and direction, and (vi) an aggregate of 20,000 common shares are owned by another employee of Rosseau Asset Management Ltd.

My Take: I’m all for unlocking shareholder value but I’m slightly weary of a few of the newly proposed nominees for Noront’s board, namely Patrick F.N. Anderson, Thomas Obradovich and Keith McKay from Aurelian Resources (a stock that I used to own). Now Mr. Anderson may have had the find of this decade with Aurelian’s Fruta Del Norte discovery in Ecuador but he is also likely to have lost quite a bit of confidence in the eyes of ex-Aurelian shareholder’s, many of whom (including me) believe that Mr. Anderson and his board of Directors at Aurelian sold out to Kinross Gold for a lot lot less than what many people, analysts included perceived to have been Aurelian’s true value. The distaste left in investor's mind's can perhaps better be illustarted by pointing to an example. Mr. Anderson recently joined the Board of Directors of a company called Colossus Minerals (CSI: TSX). At the time of his appointment, Colossus traded at approximately $2.40/sh and it closed today at $1.10/sh. I can acknowledge that the credit crisis has probably had a major hand for the precipitous decline in Colossus’ shares but if one looks carefully at a price chart of Colossus Minerals, one will find that ever since the day of the Patrick Anderson announcement the price has been in a steady downtrend – coincidence? Did investors vote with their pocketbooks in the case of Colossus Minerals? I say yes to new slate of Noront directors but no to Patrick F.N. Anderson, Thomas Obradovich and Keith McKay.

Disclosure: I own shares in Noront Resources

Buying In The Resource Sector

"I will tell you how to become rich. ... Be fearful when others are greedy. Be greedy when others are fearful." -- Warren Buffett

On a day when the both the TSX Composite Index and the Dow Jones Industrial Index closed below $10,000 I figured I should point out some major buying in the resource sector.



Seymour Schulich announced today that he has purchased 1,000,000 common shares of Birchcliff Energy Ltd. (BIR: TSX). As a result of this purchase, Mr. Schulich currently owns or exercises control and direction over 21,000,000 common shares of the Company. Mr. Schulich's current shareholdings represent approximately 19% of the current issued and outstanding common shares of the Company.



The Caisse de dépôt et placement du Québec which had net assets under management totalling $155.4 billion as of December 31, 2007, announced today that it has acquired, on the Toronto Stock Exchange, 659,200 common shares of Iteration Energy Ltd. (ITX: TSX) or 0.4% of such shares outstanding at an average price of $3.05 per share. Following this transaction, the number of common shares of Iteration Energy held by the Caisse is 20,861,552 or 12.56% of such shares outstanding.



Fresnillo plc, the world's largest primary silver producer, announces that on 7 October it acquired a further 2,512,600 common shares of MAG Silver Corp (TSX: MAG, AMEX: MVG) through the facilities of the Toronto Stock Exchange at an average price of approximately CDN$5.00 per share. These shares, together with shares already owned by Fresnillo plc total 9,314,877 or approximately 18.95% of MAG Silver's common shares outstanding, based on MAG Silver's public disclosure.

Macro Market Comment

"My best guess is that the energetic and targeted response by the policymakers this time around should lead to a more optimistic scenario than the Japanese case study (wherein a prolonged period of credit deflation resulted in a 20 year bear market in asset prices), but also a more severe one than the S&L crisis (which evidenced a flattening of the ratio of credit to GDP and years between 1987 and 1993 were characterized by an average GDP growth rate that struggled to poke its head above 2% for any length of time). We just have a lot more leverage in the system today than we had in the early 1990s. How deep will this problem turn out to be? We will only know in hindsight. This is a very low-frequency but high-intensity deleveraging cycle, and the downside risks will remain so long as collateral is losing its value, deleveraging persists and the economic outlook is weakening."



The aforementioned comments and charts were made by Myles Zyblock, Chief Institutional Strategist & Director of Capital Markets Research for RBC Capital Markets on September 17, 2008 in a Weekly Investment Strategy Update.

Macro Market Comment

We're down but we're not out ....

"We are currently maintaining a fairly defensive position for the Fund, with net exposure below 100 to strike a balance between reducing the downside impact on the Fund if the equity markets continue their trend downwards as well as be positioned to capture inevitable upside when the markets start to stabilize."



- The slide and quote above was excerpted from a Salida Capital webcast held on October 3, 2008. The webcast was presided over by Brad White, portfolio manager of the Salida Multi Strategy Fund and Courtenay Wolfe, Managing Director of Salida Capital. While the Salida Multi Strategy Fund was down down 24.74% for the month of September and down -43.56% for the year both Brad White and Courtenay Wolfe kept reiterating throughout the webcast that there are no plans for the closing of any Salida funds. Additonally, investors were informed that 3 of Salida's offshore funds (that dont affect any Canadian investors) are embroiled in a legal battle stemming from the fall of Lehman Brothers, the primary broker for those funds. Investors were told that the primary broker for the Salida Multi Strategy Fund is Scotia Capital.

Macro Market Comment - Thomas J. Barrack, Jr. of Colony Capital

What might help the United States through its financial quandary?

- "Instead of just purchasing troubled assets at artificially high prices and indirectly subsidizing the banks without a corresponding benefit, why are funds not used to recapitalize the banking system, subordinate, dilute or eliminate existing lenders and shareholders who should properly bear that risk, and put the taxpayer in the ownership position, should there be future benefit? Funds injected at the equity level are more highpowered than funds used at the balance sheet level by a minimal factor of twelve (regulatory leverage), effectively giving the power of $9 trillion of capital power to the balance sheets of assisted banks. Those banks that choose not to participate can suffer their own consequences.
---– Where assistance is not feasible, the government could seize them and sell their assets in an orderly way, just as the Resolution Trust Corp. did after the 1980s S&L crisis.

- Any bail-out will only be a first step. As currently envisioned, the bail-out will help liquidity -- not valuations of assets, not capital and not balance sheet cleansing. It may or may not spark re-lending. For the moment, it may be just one more “dead cat bounce.”

- Budget surplus-producing countries will continue to lend to budget deficit countries so that the deficit countries can buy the goods of the surplus countries.

- The real industry trauma will soon be felt as a result of this financial turmoil, sailing us into the cross-winds of a full-blown, systemic US recession.

- Europe will follow suit, in spite of their disclaimers, and will enter a protracted
downward spiral.

- China and Japan will find themselves in the cold winds of winter.

- Only Russia, Brazil and the Middle East will be protected from the harsh climate."

The aformentioned comments were excerpted from an article recently penned by the Chairman and CEO of Colony Capital - Thomas J. Barrack, Jr., a private real estate firm based in Los Angeles, CA.

Coal Outlook and Fundamentals

The following slides are from a presentation made by Stuart Joyner of Credit Suisse Securities during the 2008 Commodities Day Conference held on 23 September, 2008.

Seaborne Thermal Coal - Balanced Mid-Term Outlook But Tight Longer Term Outlook



Global Coal Reserve - Where Is The Long Term Supply Coming From ?



Higher Oil Price Drives Coal Demand



Where Is The Coal-Oil Price Parity?

Natural Gas Outlook and Fundamentals

The following slides are from a presentation made by Stuart Joyner of Credit Suisse Securities during the 2008 Commodities Day Conference held on 23 September, 2008.

Credit Suisse: NYMEX Natural Gas Forecast



Natural Gas Supply And Demand Assumptions



Natural Gas Storage Tracking To 3.34 Tcf On Credit Suisse Forecast



Natural Gas - 3%+ Global Gas Demand Growth Likely

Crude Oil Outlook and Fundamentals

... Continued from previous post, which got posted prematurely by way of a wandering finger.

The following slides are from a presentation made by Stuart Joyner of Credit Suisse Securities during the 2008 Commodities Day Conference held on 23 September, 2008.

Non-Opec: IEA Expectations - IEA Has Consistently Been Too Optimistic With Non-OPEC Supply



Non-OPEC Production Trends



Difficult To See How Non-OPEC Supply Can Grow Convincingly Without A Meaningful Change In Access To Resources Or Much Higher Capital Investment (Or Both)



OPEC Capacity Should Rise Over Time



Oil Demand: Growth Inflected Downward Already



Refining: United States Changing Consumption Patterns - Cumulative 'Miles Driven' Down 2.1% In The Period Jan-April 2008



The Apparent Gross Distillate Deficit Held Relatively Steady At 0.5 MMBD. However, As Asian Capacity Builds Out, It Is Likely To Move From Its Deficit Position Into A Surplus, Probably By 2009

The following slides are from a presentation made by Stuart Joyner of Credit Suisse Securities during the 2008 Commodities Day Conference held on 23 September, 2008.

Credit Suisse: NYMEX WTI Crude Oil Forecast



Base Case Outcome For Spare Capacity : Effective Spare Capacity Less Than 3% Through Forecast Period And Retightens Post 2010



Market Balance: Demand Growth Has Outpaced Changes In Non-OPEC Supply Plus OPEC Capacity Since 2002 But Now Appears To Be Under Control. Non-Opec Growth Recovers In 2007-08, But The Rest Of The Decade Is Not Encouraging

Copper Outlook and Fundamentals

The following slides are from a presentation made by Jeremy Gray of Credit Suisse Research during the 2008 Commodities Day Conference held on 23 September, 2008.

5 Year Copper Price Chart - Making Higher Lows



Average Cash Costs of Copper Majors Have Risen By 21% YoY But Costs Are Expected to Slow Due To A Falling Sulphuric Acid Price



The Largest Copper Mines In The World, BHP Biliton's Escondida and Freeport-McMoRan's Grasberg Mines Have Been Declining In Production and Grade Over The Last Few Years



The Bear Case For Copper Assumes A Big Build In Inventories And Copper Equities Are Pricing In $1.5/lb for Q4'08 and 2009 - Take A Peek At The Various Growth Scenarios Outlined Below And Judge For Yourselves



LME Copper Price Vs. LME Inventory



The 5 Largest Mining Companies In The World Have Plans To Build Iron Ore and Coal Mines In Their Pipeline But No Copper Mines ...



Copper Mines In The Democratic Republic Of Congo Have An Average Ore Grade Of 2% Compared To 0.58% For The Rest Of The World But Supply Keeps Missing



The Average Capital Costs To Build Copper Mines In The Democratic Republic Of Congo is $5,035/t Compared To $8,128/t For Other Projects But The Country Has Infrastructure Issues



So Is The Stage Set For China Restocking It's Copper Inventories ?



5 Reasons Why Copper Can Hit Credit Suisse's Brave New World Target Of $12,000/t (Which Is Approximately A Double From Current Prices)