Author: Pamela Heaven

 
A senior Colombian minister said Canadian miner Ventana Gold Corp. is not likely to lose its rights to the La Bodega project. That has to rank as extremely good news for the company and its shareholders.

Vancouver-based Ventana was the single hottest gold story of 2009 after the company made a potentially huge discovery on its La Bodega property in Northeast Colombia.

But Ventana ran into a major problem last November, when the company owning the mineral rights to La Bodega reneged on an option agreement to sell it to Ventana and took Ventana to arbitration instead.

At the PDAC conference, Hernan Martinez Torres, Colombia’s minister of mines and energy, said he thinks that Ventana has the legal rights to the project and will not lose it.

“I don’t think they are going to lose their rights,” he said in a meeting with reporters. He added that the dispute will simply take time to resolve, “Like any old legal dispute.”

Mr. Torres declined comment on the proposed sale of Colombia’s Frontino gold mine, which is unpopular with some local people.

Peter Koven

It may be a bit of a cliche, but why mess with a classic? Here's the results of the Financial Post's Annual (sort of) gold price guessing game, conducted Monday.

We asked 14 gold companies at PDAC to give their best guess for the price of gold in a year. The average of all the guesses came in at $1,443.58 (all prices U.S.).

The highest figure came from Capital Gold Corp., which guessed $2,000. The lowest was from Northern Freegold Resources, at $1,100.

The spot price at the time of the quiz was $1,122.

The winner, unfortunately, gets nothing but our admiration. And yes, this reporter was asked more than once how much that was worth on the open market.

Here's the full results:

Tradewinds Venture Inc. $1,250
Brazilian Gold $1,200
Crescent Gold Ltd. $1,550
Vault Minerals $1,327.18
Olympus Pacific Minerals $1,650
Linear Gold Corp. $1,700
Capital Gold Corp. $2,000
Rand Gold Res. $1,500
Wits Gold $1,500
Aurizon Mines Ltd. $1,533
Rainy River Res. $1,200
Northern Freegold Res. $1,100
Golden Band Res. $1,400
Acadian Mining Corp. $1,300

Eric Lam

(Photo by Getty Images)

Canada's mining leadership put up a united front at PDAC Monday to fight a private member's bill they say will "seriously harm" the industry if passed into law.

While most private member's bills fail to pass, the fact that PDAC has gone to considerable effort to hold a press conference, plaster anti-C-300 buttons, signs and assorted literature all over the convention floor shows just how seriously they take this issue.

Tony Andrews, executive director of the Prospectors and Developers Association of Canada (PDAC), took aim at John McKay, the Liberal MP who originated Bill C-300.

"John McKay has never been familiar with the complexity of [corporate social responsibility]," Mr. Andrews said at a press conference. "He's been led along by NGOs."

The bill, which has passed second reading, calls for greater accountability on the part of Canadian mining companies working overseas in areas including environmental and social impact.

Accountability would be enforced through a complaints mechanism that allows the minister of foreign affairs to launch investigations into companies if a complaint is received, a major concern for PDAC and the mining community.

"It's gone this far because of serendipity more than anything else," Mr. Andrews said.

However, the Senate is dominated by Conservatives, so conceivably the bill could die there.

Gordon Peeling, president of the Mining Association of Canada, said this would not be ideal as it would involve an unelected chamber of Parliament.

He also complained that Bill C-300 would be used as a tactic by anti-mining organizations to sully the reputation of Canadian mining companies.

"You'll be guilty until proven innocent," he said.

Robert Wisner, a lawyer with McMillan LLP who specializes in foreign investment protection and testified against the bill in front of a Parliamentary committee, echoed those concerns.

"All it takes is one person writing a letter to initiate a ministerial investigation according to rules that are impossibly vague," he said. "A political official will become police, judge, jury and maybe even executioner."

To show their sincerity, PDAC even trotted out an Ecuadorian shaman who, through a translator, said his country welcomes Canadian miners as long as they are responsible.

"Before Canada, Ecuador was a poor country," Tii Chiriap, who hails from Numpaim, Ecuador, said at the conference.

Eric Lam

One of those free handouts that are all over the place at a conference like PDAC actually put itself to good use Monday.

Intrepid Financial Post reporter Peter Koven suffered a gushing paper cut in the media room, but luckily another reporter had just picked up a mini-first aid kit from the convention floor.

A few wipes, swabs and band-aids later, and Mr. Koven's typing abilities were restored.

Now, if somebody could find a good use for all those extra pens floating around …

Eric Lam

They may be rival neighbours back home, but mining representatives for Finland and Sweden are getting along just fine at PDAC.

"You know how neighbours are, it's a bit of a love-hate relationship," a Swedish mining official said with a smile.

Next door, the Finnish delegation also chuckled when asked about how their Swedish neighbours were doing.

"We have a rivalry, but only in sports," one of the Finns said, likely gloating about the fact the men's hockey team won a bronze medal at the recent Vancouver WInter Olympics, while Sweden was knocked out in the quarterfinals.

The two Nordic countries have a long and sometimes violent history between them, with Finland once annexed by the Swedish monarchy between the 13th and 19th centuries.

However, relations have warmed since, to the point that they can now co-exist at, say, a mining conference.

Incidentally, the Swedish booth offered this reporter a local chocolate, which does nothing but good for Canada-Swedish relations.

Eric Lam

Overseas transactions played a big role in helping Canadian mining companies recover from their lows "with a vengeance" in 2009, a new study shows.

A report by Ernst & Young, which highlights the top 100 mining companies on the Toronto Stock Exchange, says that their aggregate market capitalization increased a staggering 74% in 2009, from $187-billion in January to $325-billion in December.

One factor behind their success was their ability to do deals overseas. The study shows that a record 442 deals were completed by Canadian mining companies abroad, worth $10.2-billion. While the dollar figure was down from 2008, the number of deals was way up.

“I think it speaks to the international prowess of the Canadian mining industry,” Tom Whelan, head of Ernst & Young’s national mining practice, said in an interview. “It was no small feat.”

Traditional financing became extremely difficult after the credit crisis, but many companies were able to raise capital from state-owned entities overseas. The single biggest deal was the $1.74-billion investment that Teck Resources Ltd. received from China Investment Corp. (CIC). Other notable deals were CIC’s US$500-million investment in SouthGobi Energy Resources Ltd., and the US$240-million that Consolidated Thompson Iron Mines Ltd. received from Wuhan Iron and Steel Group.

Some Canadian companies were active in overseas M&A as well, The biggest deal there was Eldorado Gold Corp.’s takeover of Sino Gold Mining Ltd.
Mr. Whelan said he is a bit surprised that there has not been more deal-making in the current market. Part of the reason is that boards are now much more risk-averse than they used to be.

He also said that he is encouraging companies to be as proactive with host governments as possible. He pointed out that no matter how many jobs companies create, governments will always want to see a fair return.

“It’s a great business to be in because there’s so much to manage and so many risks,” he said.
Peter Koven

It's never too early to plant the mining bug.

Running around the convention halls this year are groups of nine- and 10-year-old kids, part of a youth outreach program by the good folks behind PDAC.

Caitlin Beland, the group leader of a bunch of precocious fourth-graders from Louie Honoree Frechette PS in Thornhill, said the kids are very excited to be at the conference.

"These kids are really actually into it," she said while the kids were looking at an exhibit on diamond drills.

"The point of this trip is to ask industry professionals questions," she said.

This is the second year Ms. Beland has worked with children through PDAC, and said there are also older groups of ninth and eleventh graders floating around the halls.

As for the fourth-graders, each child has a booklet of questions they have to complete, which has been presented as a scavenger hunt, Ms. Beland said.

Ms. Beland, who is studying geology at the University of Toronto, has also been doing experiments and demonstrations with her young charges.

For instance, she's taught them the concept of relative thermal conductivity, which relates to how much heat objects such as wood, plastic or diamonds can transfer in a given period of time.

"We've also done chocolate chip cookie mining, just giving them an idea of how to run a business," she said.

Shelley Stein, a parent who was tagging along with daughter Jamie, said the trip fits well into the class curriculum.

"They just covered rocks and minerals in class," she said, waving to her daughter.

The mining industry has had to grapple with a growing cohort of geologists and specialists retiring in recent years, so perhaps this is a way to get kids hooked early. But Ms. Stein isn't worried there is any conspiracy going on.

"It's more of a general education kind of thing," she said with a chuckle.

Here's some examples of questions the kids have to answer. If you know the answers, write them down in the comments:

— What is an important advantage in using aluminum instead of steel in making drilling rigs?
— What types of careers in geology and mining are there in the Ontario government?
— What is the diameter of a standard VTEM system?

Eric Lam

 You can’t hold Mike Judson down.  In late 2008, his company Blue Note Mining Inc. was forced to shut down its Caribou mining complex in New Brunswick because of low metal prices and go through a major restructuring. But today, the entrepreneur is back with a focus on gold, and has picked up a promising project in Val D’Or, Quebec.

 Blue Note is now on the hunt for $15-million of financing to restart the Croinor project, which could be in production as soon as July if everything goes as planned. It is expected to produce 40,000 ounces of gold a year at cash costs of around US$550 an ounce. It acquired the project by buying X-Ore Resources Inc.

“The guy running X-Ore had taken it as far as he could. He needed help, and we saw a cultural fit,” Mr. Judson said.
Blue Note has a number of other irons in the fire as well, including a recent oil discovery in Utah. And Mr. Judson said it is studying a number of other M&A opportunities as well.

“There’s two in particular we like. One is cash with no project, the other is a project with no cash,” he said.

Mr. Judson also brings a rare musical component to PDAC — he is performing in the Royal York hotel with his band “Mike and the Miners.”

Peter Koven

 You can’t go anywhere at the conference this year without finding signs or pins condemning Bill C-300, a federal private member’s bill that proposes to regulate Canadian mining companies overseas.

It may be worth reminding everyone that private member bills almost never become law. And this one in particular has little chance, given that the Conservative government opposes it and Prime Minister Stephen Harper has stacked the Senate in his favour.

Peter Koven

 It’s nice to see some things don’t change. While the sentiment at this years PDAC conference is generally much more bullish than last year, at least one guy refuses to join the party.

Ian Gordon, publisher of the Long Wave Analyst report, maintained his long-running view that the Dow Jones Industrial Average is going to crash all the way down to just 1,000 points. In other words, he remains the ultimate bear.

There were audible gasps last April when Mr. Gordon offered this forecast at Eric Sprott’s “Night With the Bears” in Toronto.

Markets have obviously improved a lot since then, but Mr. Gordon maintained that a “cataclysmic” drop in the stock market will be needed.

“We are in deep doo-doo. Because the debt has to be flushed out of the system. That’s what’s going to happen now,” he said.

Mr. Gordon bases his research on the Kondratieff cycle, which evaluates the economy in multi-decade cycles.

Peter Koven

 It would be hard to find a junior mining company that has navigated the market meltdown more effectively than Stornoway Diamond Corp.

The diamond sector was hit particularly hard when commodities crashed in 2008, and Stornoway’s Renard project in Quebec vanished off the radar.

But the company, led by famed diamond explorer Eira Thomas, decided to maintain a drill program at Renard, even though it was obviously being very prudent with its cash.

“Thank God for flow-through,” Ms. Thomas said. “It enabled us to raise just enough capital to do a drill program and get in there.”

The results were spectacular, and transformed Renard from a marginal project into a much more robust one. Ms. Thomas said that the modest drilling program added about US$3-billion of value to the deposit. The potential mine life essentially doubled.

An economic assessment of the Renard project is due out at the end of March, and then on to feasibility. The company is hoping to reach production by the end of 2013. It would be Quebec’s first diamond mine.

“We’re sitting at 36.3 million carats now, which makes it one of the largest undeveloped diamond projects in the world,” she said.

Peter Koven

 
The conference floor at PDAC is covered with junior lithium companies this year. While that is not a surprise given the growing demand from hybrid vehicles, it does raise an obvious red flag for anyone thinking of investing in the stuff.

But Peter Secker, president and chief executive of Canada Lithium Corp., is not worried about it.
“Ultimately, it will come down to quality,” he said in an interview.

He said that Canada Lithium can produce 99.6% pure lithium carbonate. Other companies will not be able to match that purity level, and thus their product will not be in demand by auto companies.

Canada Lithium controls a project in Quebec that was producing back in the 1950s and 1960s. The company plans to get it back into production in 2012. It recently released a report showing the project holds 31.6 million tonnes of measured and indicated resources, and another 39 million tonnes in the inferred category. A pre-feasibility study is expected by the end of the month.

“As the electric vehicle market takes off, the lithium market gets interesting,” Mr. Secker said.

Peter Koven

Interest rates may be headed up more quickly than you think. The Bank of Canada’s key overnight rate, which sets the tone for other interest rates throughout the economy, is now at a record low 0.25%. In little more than a year it could be as much as three percentage points higher, which would mean much increased lending rates for consumers.

If that strikes you as too much of a shock to the system, you’re not alone. Larry MacDonald, the excellent economics commentator, points to an interesting discrepancy between the latest pronouncement from the Monetary Policy Council of the C.D. Howe Institute and a C.D. Howe brief released just two days earlier.

Michael Parkin, the University of Western Ontario economics professor who wrote the brief, is in favour of abrupt action. He would like to see the overnight rate jump in 50-basis-point increments starting this summer. That would mean the rate would hit 3.25% in March 2011.

Parkin argues the increases are necessary to keep inflation under control. That may be so, but, among other things, such a rapid increase in rates could mean trouble for Canada’s red-hot housing market.

That may be why the monetary policy council is in favour of much more gentle increases. The median recommendation of the nine-member council calls for gradual hikes beginning this summer to bring the overnight rate to 2% by March 2011.  

Freelance business journalist Ian McGugan blogs for the Financial Post.

How do know you when an emerging market can no longer be considered emerging? When even a major earthquake doesn’t put cracks in its stock market. Chile’s main stock market index wavered no more than 3.5% in the aftermath of this past weekend’s disaster before quickly recovering, says Brent Arends of the Wall Street Journal. “If you blinked on Monday morning, you missed the ‘buying opportunity’ in Chilean stocks.”

As Arends points out, the resilience of the market is proof of the high regard in which Chile is held. Physical disasters usually devastate an emerging market as overseas investors rush to get their money out. But most investors seem quite content to leave their money in Chile.

The real risk to Chilean investors may not be the earthquake, but frothy stock prices. The index has boomed 60% over the past year and has nearly quadrupled over the past seven years. While the index trades at only 16 times forecast earnings, Arends points out that it is changing hands for 1.6 times sales and 2.5 times book value, both of which are rather rich valuations.

Freelance business journalist Ian McGugan blogs for the Financial Post.
 

 Don’t count on a new aid package to solve Greece’s financial woes. While the European Union appears to have cobbled together a short-term financing package for the debt-ridden country, the assistance looks more like an effort to buy time than to solve the country’s fundamental problems, say Peter Boone of the London School of Economics and Simon Johnson of MIT.

Boone and Johnson estimate that if things remain on their current course Greece’s debt will hit 150% of GDP within the next few years, a level that is not sustainable. But the alternatives look ugly.

To stabilize its debt-to-GDP ratio, Greece would have to move from last year’s primary deficit of 7.7% of GDP to around a 6% surplus. (A country’s primary deficit is its government budget balance excluding interest payments.) That would involve huge cuts to government spending.

So far, Greece appears unwilling to contemplate such drastic action. In fact, the Greek government is counting on a slight increase in wages and pensions for this year. As Boone and Johnson say, “Where is the austerity?”
 
The two economists believe the financing package is intended to give European banks a chance to get out of Greek debt, before watching as the whole cycle repeats next year when the financing expires and the government in Athens will be forced to take harsh measures.

Freelance business journalist Ian McGugan blogs for the Financial Post.

The U.S. recovery is losing momentum, according to a new index that tracks truckers as they crisscross the country.

The Ceridian-UCLA Pulse of Commerce index measures diesel fill-ups at more than 7,000 U.S. gas stations. Since trucking activity tends to rise or fall in line with the overall economy, the index is intended to provide a nearly instantaneous look at the pace of economic growth.

The most recent news isn’t good. The index fell at a 37% annual rate in January after soaring nearly 61% in December. Its three-month moving average slowed to 3.3% annual growth.

All of this suggests that the U.S. economy is nowhere near as hot as recent government figures might suggest. Washington says the economy grew at a 5.7% annual rate in the fourth quarter, but the trucking index indicates that January, in particular, was a weak month. “Don’t put your party hats on yet,” says Edward Leamer, the UCLA economist who helped create the index.

Freelance business journalist Ian McGugan blogs for the Financial Post.

Why are so many companies sitting on cash? Apple Inc., Google Inc., Cisco Systems Inc., eBay Inc., Dell Inc. and DirectTV Group Inc. are all tightwads that can and should be paying a dividend, says Andrew Bary of Barron’s.  

The cash hoard is particularly large at Apple, which has almost US$40-billion of cash in the bank and no debt. There is also lots of spare change jingling in the pockets of Google (US$24.5-billion) and Cisco (US$25.1-billion). But the problem extends far beyond those firms, Bary says. Fifteen of the top 100 members of the S&P 500, ranked by stock-market value, pay no dividend.

The mountains of cash might be understandable if the firms that owned them were gearing up for acquisitions, but many are firms that pride themselves on growing through internal innovation, rather than by buying others.

Bary suggests one explanation of their hoarding tendencies is perception. Tech investors especially have been brought up to believe that growth companies don’t pay dividends.

Another explanation is that managers don’t want to commit themselves to paying a regular dividend. They would prefer to reward shareholders through stock buybacks, which can be increased or decreased as circumstances require.

Bary urges management to reconsider. He argues that the neglect of dividends punishes ordinary shareholders who would like a steady stream of cash from their holdings. There is no reason that companies can’t both buy back stock and pay a dividend.

Freelance business journalist Ian McGugan blogs for the Financial Post.

Brokers like to play the game of “beat ratios” in which they talk about how many companies are beating the estimates for earnings this quarter, and hence why now is a good time to buy stocks.

Oddly enough, the beat ratio appears never to have a negative implication. This rather amazing tendency to optimism reflects in part the Street’s constant adjustment of expectations. Typically the beat ratio is calculated on the basis of the estimates that are available immediately before earnings are announced and these estimates are almost always below the ones made a few months earlier.

Investors who want to understand how the game is played should read John Hussman’s piece on reported earnings vs owner earnings. The founder of Hussman Funds has a nifty chart going back to 1973 that demonstrates how one-year-forward expectations for S&P 500 operating earnings compare with actual reported net earnings.
 
There is a rather large gap between the two. Actual net earnings have averaged only about 72% of what the pros had estimated for operating earnings a year ahead of time.

But wait — there’s more. Or less, as it turns out. Actual net earnings are further diluted by events such as stock options granted to employees.

The money that actually winds up in shareholders’ pockets, either through dividends or through changes in book value, is less than either expected earnings or actual earnings. In fact, these “owner earnings,” as Warren Buffett likes to call them, average only 60% of forward estimates of earnings.

Hussman’s conclusion is that investors should take a close look at how much companies generate in owner earnings because that is the only cash that will actually be delivered to shareholders over time. “Everything else is hype, smoke and mirrors,” he says.

Freelance business journalist Ian McGugan blogs for the Financial Post.
 

Many commentators deplore the imbalances that are distorting the global economy. The crucial imbalance is China’s tendency to save too much and the U.S. penchant for spending too much. Economists usually blame this imbalance on China’s policy of pegging the renminbi to the U.S. dollar. But the real culprit may be something far more human — the desire of Chinese families to attract a bride for their sons.

Shang-Jin Wei, a professor of economics at Columbia University, has co-authored a fascinating paper, Why Do the Chinese Save So Much? He points out that the Chinese have not always been such ardent savers. The household savings rate in China was 16% of disposable income in 1990; today it is more than 30%.
 
What is to account for the rise? Wei and his co-author, Xiaobo Zhang of the International Food Policy Research Institute, point to the growing disparity between the sexes. China’s policy of allowing families to have only one child, and the preference of many families for boys, has led to a situation in which 122 boys are being born for every 100 girls. The surplus of Chinese boys means that one fifth of men will not be able to find a wife in China when they grow up.

Wei and Zhang speculate that families are trying to increase their sons’ chances in the marriage market by saving large amounts of money. To test their theory, they compared savings rates among regions and between families with daughters and families with sons. Just as they expected, they found that families with sons tended to save more than families with daughters. Families in regions with the most skewed sex ratios tended to save more than families in regions with a smaller preponderance of boys.

Wei and Zhang believe that about half the growth in the Chinese savings rate over the past 25 years can be attributed to the growing imbalance between the sexes. That suggests that trying to reduce the Chinese savings glut is going to be a longer and harder process than most people think. It’s not just a matter of changing an exchange rate. It’s a matter of changing a society.

Freelance business journalist Ian McGugan blogs for the Financial Post.
 

U.S. equity index futures are lower this morning despite encouraging fourth-quarter earnings news released overnight. S&P 500 futures slipped 4 points in pre-opening trade.

The S&P/Case Shiller Home Price Index for November showed slight deterioration on a month to month basis but an improvement on a year over year basis. Prices on a month to month basis for the 20 largest U.S. cities slipped 0.2%. Five of the 20 cities recorded a gain. On a year over year basis home prices were down only 5.3%.

The U.S. Dollar is slightly stronger this morning. Commodities priced in U.S. dollars including gold, silver, copper and crude oil are trading lower.

Most fourth-quarter earnings reports released overnight exceeded consensus estimates. Companies reporting better than expected earnings included Apple, Amgen, Dupont, Corning, Texas Instruments, Zions Bancorporation, Nucor and Johnson & Johnson.

Celestica added 1% after Credit Suisse raised its rating from Neutral to Outperform. Target was raised from $9.50 to $11.50 U.S.

The two-day Federal Open Market Committee meeting to determine U.S. administered interest rates starts today. Results of the meeting are expected to be released Wednesday at 2:15 p.m. EST. No change in the Fed Fund rate is anticipated.

 Don Vialoux, chartered market technician, is the author of a free daily report on equity markets, sectors, commodities, equities and Exchange-Traded Funds. For more visit Don Vialoux's Web site