₪ David Pescod's Late Edition June 5, 2006
PERU COPPER (T-PCR) $6.67 +0.87
It’s been a big question for a while that many people have been
wondering….who was going to be the guy running the mineral rich
country of Peru? It’s a very important question to many in the international
mining industry, as mining is the backbone to the ever improving
economy of Peru.
The free market candidate has lost in a close three way race over
a month ago and the two candidates who were squaring off in yesterday’s
election were not the choices that many North Americans
would want to have seen.
On one side you had Ollanta Humala, the ultra-nationalist, who
seemed to want to nationalize a good chunk of the mining industry
and other industries as well for the matter, and his best buddy
seemed to be Hugo Chavez of Venezuela who seems to be developing
an ever bigger sphere of influence in Latin America.
Opposing him was Alan Garcia who has an interesting background
of his own as well. As a former President, he ran the country
into the ground, attempted to nationalize banks, presided over an
era of hyperinflation and economic chaos. Who would have thought
that the international interest would have been cheering for Garcia,
but he did win a narrow 54 to 44% election and obviously some people
approved.
Today the Peruvian exchange lifted 4% and as you can see by the
chart of Peru Copper, there were a lot of mining companies that
heaved a sigh of relief.
Garcia today suggested, that they hope to have more international
agreements, particularly with the United States, and is also
hoping to grow the economy.
CONNACHER OIL & GAS (T-CLL) $3.95 -0.16
I don’t know whether it’s rule number 13 for “Investing In
Speculative Commodities” or rule 17, but it goes something like
this……..nothing on a junior speculative story will ever go according
to schedule.
We have to take our hats off to Connacher management in that
they have lined up such an interesting schedule ahead of themselves.
They have already bought a company, which will supply
them some of the natural gas they need for their Great Divide
story and they have also lined up refining assets in the United
States that might be able to process it.
However, there was the Great Divide story itself, which had
two interested parties that didn’t like the way they were going-
Native/Metis groups intervened and also the company that
owned the natural gas rights over the heavy oil story itself.
There was no news today that we could find on what made Paramount Oil & Gas suddenly quite happy, but it looks like they are
going to withdraw their objections and after previous agreements with native groups, it now looks like the Great Divide story
should be off and running.
We hope to be doing a feature interview with President Dick Gusella shortly with the kind of questions we would rather work on
such as….how many pods are economic and how much production he can see down the road…..stuff that will appeal more to our
greed than to our fear!
Basic Points
We’ve mentioned before that Donald Coxe is one of our favorite
“deep thinkers” and we always look forward to his monthly publication,
Basic Points, which is published courtesy of Harris Investment
Management and the BMO Financial Group.
Considering the recent kerfuffle we’ve had in the commodity markets
and in the mining and oil resource sector, the thoughts he had
this month we found fairly significant and he dwelt on two things.
First what happened with commodity markets and it’s relationship
to inflation in the past, also similarities between now and the seventies,
and where did all this money come from for Hedge Funds?
As far as that question goes, his answer is pretty blunt—it’s Japan
“a central bank that is always open to borrowers and always charges
zero rates. Think how enthusiastically its domestic clients would borrow!
Yet Japanese banks’ loans fell for 94 straight months until August
2005, when they began a slow climb back toward normalcy. For
nearly eight years, all the financial horses were being led to water—
and they never took a drink”.
Instead it was the Hedge Funds that were borrowing the money, he
suggests, and they were using it with gusto in the commodity markets.
And the results of last month’s activity, he suggests, “were
painful for all risky asset classes-including junk bonds, Emerging
markets, small-cap stocks, and, of course, commodities.”
As far as investment recommendations at this time, of which there
are several, he suggests that financial fragility has reappeared, and
the equity bull market is overdue for a correction of at least 10%.
Cash is likely to outperform the S&P 500 in the near term……..He also
writes that value is highlighted in “commodity stocks” by their low
absolute and relative p/es, but their true worth lies in the value of their
unhedged reserves in the ground in politically secure areas of the
world. He also suggests that gold stocks are an excellent portfolio
insurance...
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