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The losers and the biggest losers – Surveying the Latin American Mining Massacre

The losers and the biggest losers – Recognition the carnage miners in Latin America

Christopher Ecclestone last analysis of the impact of falling metals prices in the mining sectors and economies of the great nations of Latin America.

The dramatic drop in base metals can be one of two things. The first would be the end of the revival that has reigned since 2002. The second would be a temporary reaction to the liquidity crisis with some semblance of normal restoration of some, but not all base metals shine have enjoyed in recent years. We consider that recent years have been "only an economic Upcycle "in the commodities space, but the Upcycle finally exposed the years of underinvestment in the mining area is has translated into a source of serious imbalance between the demand.

Metals are going to age before 1973 when they had real value. They are not relatives poor economic rights of the system. They are finite resources in a world with limited resources.

On the second point of agreement that caused the liquidity crisis mass panic that went to the base even groupies commodity more convinced. When push came to shove, the baby came out with the bath water (if we can mix our metaphors).

While it is understood in the Baltic Dry Goods Index as an indicator of impending doom, you can not do much better in base metals like seeing LME, however imperfect, and those numbers are manipulated. The key to remember is that stocks have not really gone ballistic as in the past when there has been a drop in demand. While they have risen, and significant percentages of their minimum zinc notice that going from a reserve of three days and global use through four days of global usage, hardly ranks as a flood of supply. Supplies are minimal compared with the "old days." Some metals such as zinc and nickel was trading at "bad old days" "The levels of the stock without reflecting any proportion" collapse " demand.

Call us conspiracy theorists, but the commodity space has been one of the spaces easy platform to send price signals the market. If you have a goal of pumping the dollar to produce a false sense of security when it should be sinking, then it is easier to use massive gold short CB in gold as the backstop of shorts or spend hundreds of billions buying Treasuries? In this case, seemed to do both and it worked … during the time it works. It is a Sisyphean task, but in fact indicative of the despair PTBs.

On the other hand we have our old friends the Chinese working of metals prices for everything that is worthwhile. To buy cheap metal (as they have in unloading rapidly in recent years)? No, buy cheap miners .. is even better. Kill the metals and the owners of the mines will accrue to the minimum level of pressure when the Chinese ( cnmining ) Are waving a checkbook (and a much finer that stirred in Peru copper and copper in northern Peru).

Believe current out bad vibes China's production is declining dramatically also means that one must cut China's growth expectations of a "modest" 10% of territory negative. Nobody is doing that, at least for all Chinese, so someone is speaking with a forked tongue here.

Therefore prices metals have been ground between two millstones of two different sets of preterm delivery.

LATIN AMERICA MINING SECTOR

· Some countries are relatively unaffected by the removal of metals prices. The largely immune or indifferent, are Argentina, Venezuela and Paraguay

· Brazil will be greatly missed their chances of nickel and faces an uphill battle of wills with China on mineral iron pricing. Gold prices are pretty good (and the fall of the currency in really large enough) that this activity should be sustainable.

· Bolivia, Mexico and Peru will find social pressures because of the

important role that mining has in job creation and sustenance of isolated communities.

· Mexico could do with more monetary easing to help miners their average production costs in dollars.

Ecuador · the slowness in approving the legislation means that the train has not come without it but has been permanently canceled

· Peru will face big decisions once the Chinese are a'hunting after distressed assets Canadian-owned. You better get some quick lessons on how to say "no" in Mandarin.

· Colombia is actually fairly well. Coal prices remain firm and the internal dynamics means better margins in this business only worsen the margins. The gold is still in its formative stages and not so little was happening that the economic effect of decreased activity barely be noticeable

· Continuing upward pressure on metals prices. The waste of liquidity to solve the financial crisis is here to stay and has been a wave of money that has not beaten the coast. Precious metals, in particular, should benefit from this waste of monetary resources without the creation proportion of assets to support the extra money supply.

· Base metals are subjected to brutal handling the current time combined with a liquidity crisis. Basically, once the players are eliminated non-commercial (Already achieved in our opinion), then the eternal supply / demand factors will come into play. The remaining capacity is left and right with reduction supply line. This paves the way for price increases and, further down the track, derailing means many projects in the offer two years even closer for almost all metals we could imagine.

Argentina

Argentina frankly could not give a damn about the prices of metals. Neither Bajo de la Alumbrera, Cerro Castillo not rank high in the minds of officials of the Ministry of Economy of Argentina. The new mines coming in the last year (Hochschild / MAI 's San Jose and Marta Coeur mine, among others) have added some extra income small and start-ups have been graced with enthusiasm, by Kirchner (Any farmer worth his salt has a perception of the importance of gold).

However, Argentina is not going to live or die (or arm or by default) in the back of the lower or higher metals prices. In fact, a break (strike?) For the mining companies in their investment programs can serve to focus minds of some of the provincial government, which tried to play the role of dog in the manger or overnight transformations to green. Signs have been shown to yield … our words to you .. too late!

Let's put this in perspective. Argentina's mineral production has been head of gold and copper so far with a little money. The biggest project is nearing completion silver standard in Las Pirquitas Jujuy. Silver is creeping upward. Perceive their problems were dangerously incestuous dependence by the time the silver ETF (SLW). The panic selling cleared most of these people and we feel out a new relationship with gold is in the making. While the price has returned more than $ 10, we could see a firm gold price (tendency towards $ 800 but not above) pulling the money back to U.S. $ 13, when many players are making money very very well. The addition of Jujuy SSAM mines add to the rows of the provinces are doing a good side in royalties and economic trickledown. This reinforces the sentiment in favor of mining in the province while some of the provinces most stretched even more angry because he can not have your cake and eat it too.

While SSAM and forward those in trouble is promising Aquiline Exeter and two projects. The latter should have done more hay while the sun shone capitalization kicker market to win the lawsuit gave them Christmas.

Having said all that, we repeat that Argentina that the country should weather any storm with little impact metals (Although other storms could sink the ship of state.)

Bolivia

The American leader has expressed more openly concerns about the price of metals has been Evo Morales, supposedly the enemy of the miners in the popular contempt. Tumbling zinc was its main objective but may well concern himself with any number of metals that Bolivia produces. Mining is an important source of jobs (30,000) in the highlands of country from which he draws most of its support.

As we noted in our recent discussion of Bolivia, the Morales government has not proven to be aggressive with foreign miners and indeed is seen as pro-mining by those who know him. The country still has its natgas exports to them, but obviously there will be lower income for individuals and the state of the main export categories (silver, zinc, led, tin and antimony). The iron ore mountain Mutún might have provided some comfort if it was in the hands of the slowest package indigenous movement on the planet.

Bolivia knows how tighten the belt but the adjustment does not come easy when the metals boom was beginning to come through (Apex etc) and so few had yet to climb in the gravy train before it derailed.

Brazil

There is more to the economy Brazilian iron ore although one had not known this from the fury of recent years. The Brazilian real increase during the boom is having a detrimental effect on just about all sectors exception of Brazilian exports of iron ore and soybeans, which could run faster than the currency, due to huge price increases. The Most categories of exports went to hell. The footwear industry was pushed out of the global store shelves for Chinese products in each field battle. little concern was raised due to the booming domestic economy, fueled by massive cash inflows, taking up the slack. The retreat in the world real and gives industry the opportunity to start exporting again, and will have to consider now that the national economy will have to be fed by its own resources no = financial and the yen carry trade fleeting. mining sector of Brazil consist of three elements with the substance: iron ore, gold and nickel. Starting with gold to note that while there are some big names producers (Yamana, Jaguar and Eldorado come to mind) most of the players in Brazilian gold recent years remain in the category of browser and do not know are in the category of production is imminent. In any case, gold is not as bad as current price range and all existing producers are still viable with the added kicker of lower costs due to the real immersion and retreat of prices oil (though the latter benefit was mitigated in part by currency exchange).

Nickel and aspiring miners did not receive so much joy. As we noted in our piece on nickel in Brazil earlier this year there are not many players, but that is no sign of emergence of Brazil as a province major new nickel. However, the catastrophic fall in the price of nickel is not a good omen for the candidates or the producers. Mirabela Nickel, the company Australia was the most likely to add to production in the very near future. I'd been looking for a U.S. $ 280mn debt financing (Being underwritten by Credit Suisse and Barclays), but recently announced an extension of two months of the initial term of this syndication December. We are ominous rumors therein unless the rise in nickel prices from the dead in the very fast time. The company however has an agreement with Norilsk mining can still lead to the fall Mirabela in the arms of the bear.

Bears have done enough damage already 12mth discharge is $ 8 and the current price is $ 1.60. Be in the most slippery of the browser to the continuity of time producing only Mirabela has taught a lesson on Newton's Law of Gravity.

The gravity has removed an even heavier in the applicant, the International Nickel Company. The stock has melted from $ 1.20 when he wrote it happened to about 17 cents at present. That's not likely to do much for the near future.

This iron ore is the great hope. Just last month, Vale was a leader .. comings and goings all charged and ready to share by the Chinese on the strength of price rises. Of course there were Price-wise been maimed, but also happen. No luck. Whether by accident or design was started a rumor that the Chinese not only see large increases inventory of steel, but that buyers were defaulting on renegade contracts. It suddenly went from rooster to feather duster and began to talk about cutting production (Though not prices). All this remains to be seen. We repeat once again that we believe that the Chinese are making a lot of head fakes and several in space commodity at this time to achieve its long-term goals. The financial community believes that the bad environment, some miners do not. It cut production is the right way forward. It is best left in the ground to let the Chinese get away with current manouevre. However scaleback production should reduce income from abroad Brazilian iron ore form, if only temporarily.

In his own head fake MMX announced its delisting from the Toronto Stock Exchange. I could not help suppressing a smile to remember this and 1990s how certain Latin American entrepreneurs to their stocks in the market where you can manipulate it suits them.

Chile

There was more panic in Chile a year ago in the danger of the energy crisis, crisis water and a super expensive sabotage the real economy. Copper is largely unreal economy in Chile and so little of their profits are filtered to 14 million people not on that train sauce. We could muse that pressure on water resources and energy is off (if only temporarily), while the weight is corrected very well by giving exporters really are a source of jobs (mainly agricultural) a little breathing room.

However bad news for copper is bad news for Chile. Codelco announced last week that his production fell 7.83% year on year in January-September period, to 1.12 mn tonnes, mainly due to disputes with contractors, environmental issues in El Teniente and Andina and lower grades.

Meanwhile Minera Escondida, the world's largest copper mine, reported its production in the first nine months of this year fell 10.4% year on year to 997 000 tonnes, due to lower grades, lower availability of ore for the production of cathodes and problems related to SAG mill failure.

In a more dramatic, but the smaller scale, the sign of the times Tamaya Resources ASX listed, a copper miner, went to the administration last week stating he was unable to pay its debts in light of falling copper prices. The company owns Punitaqui mine in Chile. The company reported an AU $ 141.2 million loss the first half of calendar year 2008.

Far from copper, in another announcement in late October, Coeur d'Alene Mines (CDE) said that it had placed mining activities at its Cerro Bayo mine in standby mode, tactfully, that the rationalization of which is due to "immediate attention in the expansion and improvement reserves of the mine and mineral resources and the development of a three-year mining plan sustainable, with lower costs and higher production rates. "CDE said he was in the best interest of the shareholders of the company to preserve the valuable mineral reserves and resources in the Cerro Bayo and not continue selling production silver and gold at a loss. Chile is much more used to the slings and arrows of fortune in the mining space and must overcome the current difficulties well.

This process, however it can cause damage to the hordes of small-scale miners who have been seeking the replacement part (on a smaller scale) for some of the mega mine in Chile that are seeing the grades fall or face the prospect of exhaustion during the next decade. It is unfortunate that Chile never bothered to develop their own mining capital market (as opposed to push Lima), while all was well.

Colombia

Curiously Colombia loses the debacle for two reasons. As regards the gold almost no companies involved in this area in the country. The activity of the rebels kept at bay goldseekers greedy until it was too late for anyone to get really involved. Thus, there are only a handful of Canadian explorers and any producer we know.

Coal however is a different equation. This product has remained immune to commodity meltdown, at least until now. As noted in our recent note Coalcorp the dynamics of Colombian coal is one of the tail winds of headwinds. A major upgrade of the rail system is Fenoco resulting in dramatic improvement of transport margins for miners and therefore a quantum leap in net margins. Coal in Colombia is something that will be achieved one time in the air much more in the next year or two and with good reason.

Otherwise, Colombia, for once, comes to stay out of the line shooting, literally and figuratively.

Ecuador

Better late than never, can never be Correa's government that thought it was keeping his cool on the slow-moving mining legislation. In a cool ice age and now seems to turn into an ice age in which Rafael will be the hunter-gatherers found preserved in permafrost.

We have noted a few months that some countries believe that high oil prices gave them the luxury of avoiding mining or at least as many roadblocks that could have "small but perfectly formed" mining industries. This was shortsighted for us, because it actually made an economy totally dependent on oil and also did not realize that oil has not produced a considerable number of jobs and that oil was invariably the country elsewhere in the mining took place. Thus, in the specific case of Ecuador highland indigenous population would grow yams, while a select group of techies would at oil installations in coastal lowlands and the Amazon.

We have no doubt that the mining legislation will finally get through and still be able to use the mining industry. The key question is how many of the miners, kept in holding pattern for so long burning cash, they will be for a touchdown in their projects when the green light appears. A foolhardy policy projects has meant that the Ecuadoreans are even lower in the exploration / production continuum specimens in Venezuela. This means they are more away from production on average than their peers in other countries which makes them even less attractive.

The 800-pound gorilla in this sector is now Kinross after your purchase of Aureliano to get their hands on Fruit of the Northern mining company. Aurelian has established an inferred resource of 13.7 million ounces of gold and 22.4 million ounces of silver in the FDN. Based on the initial work scope and mine planning that the project could cost about $ 500 million. This is not small change even by the standards Kinross. They luck

fact that gold is still in the range where the project is viable. Ironically, despite all the hardships of Ecuador interested in this project, although training is still more likely to give impetus to many other projects in many other countries, including more advanced in the front of the studies.

The other interesting project in Ecuador that "make a difference" is the global copper-gold prospect Stream (CTQ.to, ETQ) in the copper belt of the same name. This has passed the feasibility phase and starting a project at the Mirador is in the planning table. This could be a project with no intention of starting until copper picks up momentum again.

At least the government of Correa may assume a mine after have effectively sabotaged all "that could have ended the game," for his lateness.

Mexico

prophets of doom have a field day with antics of Argentina and Venezuela and Bolivia are on the list of the denigration of those who oppose his policies, but when it comes to this, Mexico is actually the current "country most likely to …" in Latin America. What is more likely that he is in the eye of the beholder.

Our macro risk analyst Armen Kouyoumdjian, who has covered the country since the late 1970s used the words "failed state", the other day to give an idea the direction in which Mexico is drifting. The collapse of the metal has come at a particularly bad for Mexico. It has seen its oil prices more than half at a time of declining production, as Mexican immigrants send home remittances slashed U.S. (If not are packing their bags and return home because of lack of work or tightened persecution). The maquiladora industry is joined at the hip with the U.S. auto industry and is in free fall.

One week recently, Mexico spent 10 billion U.S. dollars defend the peso. Why bother? It's better than are dedicated to making infrastructure projects to fight against reality. In any case, a weaker currency could help local miners and is producing by reducing their comparative costs. We note that this is large Mexican companies, and Vitro controller that have affected the rocks before companies in other parts of Latin America.

Mining could have been (and perhaps still is) a great job creator. It has the advantage of carrying out work for the way places nothing happens. Speaking to a Canadian mining company this week, we talk about the local village of 250 and asked "what has been done with them?" and the answer was "that hired them all and this is only in the exploratory phase. It is conceivable that the mine operation would transform the district and support a village of 1,000 or more.

The story is repeated all over northern Mexico and down to a few areas further south as Oaxaca.

Mexico was also the country with the most most young Canadians at large. This was the result of government's attitude towards foreign mining and large steep prospectivity of the major mineral provinces in the world. The government was correct not to pursue a nationalist course once in the recognition that few national miners facing the country range from awkward to unpleasant blatant promotion of the improvement of local communities and relationships of workers. Of course, most young people have more looms inactivity since this group short-term cash.

Major League Baseball in Mexico consists of three large rooms (four if Fresnillo is counted as a real entity Peñoles independent) and now a handful of foreign mines to make a good contribution to the creation of jobs, royalties and the balance of trade in mines global. These people are somewhat muted by silver staging and a rebound in gold have found some conditions in the mid-$ 700 range.

A Once we repeat that a weaker currency against the dollar would help. Those with an excessive dependence on zinc and lead are more of a barrel at present The highly prospective and Lower Boleo Mining has been the victim of low copper prices and the freezing of funding, despite having a truckload of money in the bank that the agreement with Kores.

Freezing can reach easily, but the sheer size of this (and a few other projects to be debated San Geologix as Anton) can make it bigger not beautiful compared to small and feasible (as San José Fortuna project in Oaxaca).

So Mexico can not be a disaster if the unalloyed silver to slide back to $ 12 range in the short term, gold is based and copper is over U.S. $ 2 again. Again, we could zinc peaked at more than 80 cents of mass production closures currently in the works. That should at least bring comfort to those who depend on credit derivatives, although new projects are trapped in the exit doors.

Peru

The Member of the Peruvian government better start learning Chinese or at least arrive at a very fast China policy, and that is about to become a major problem for them. The conquerors were not confuse Peru is a treasure trove of minerals. Peru has the highest prospectivity for large scale mining in a wide range of metals than any except Australia. The Australians have already made it clear to the Chinese that can sting, but can not bite. The Peruvians are apparently blithely unaware of the attention focus your treasure. The mere fact that the assets are largely in the hands of Canada (With Brazil's Votorantim serious attention) does not make him a case of six half-dozen the other when the Chinese come calling. Its very nice to have customers of output, but when one considers a "sphere of influence" should know. The Republic Congo is a sphere of influence of China these days and it is not pretty.

Of course you can always let the Chinese (through breaking up bargain basement stocks of Canada) and then later expropriate. This is the traditional treatment for arrogant foreigners. But perhaps I should throw in the 1950-1970 editions of this book and go back and check the 1880s when the British wanted to nitrates and Bolivia and Peru was carried out through vomiting the factotum of Chile.

Back to our conspiracy theory. If you feel that manipulating the flow of news relating to metals "Demand" is designed to lower prices and better grip of the copper mines, not only for a few shipments count in the short term after mines found in the reference interval are largely in Peru and it is projects like Hot and Chariot Resources.

It is clear that Tired of negotiating for the best price in Peru Copper and northern Peru, with Canadian hard copper nose as global copper equipment that China must be rubbing their hands at the prospect of devastation in some of the mine owners who have seen their prices in turn turtle. As any owner knows the Chinese market as the best way to gut your turtle is when your back on his legs in the air. There is a possibility very Hot or Chariot (or their look-alike).

No skin is Peruvians nose at this time to see a change in ownership (in fact may even accelerate the development), but is a serious mistake for not valuing institutional holders successful long-term values of these projects.

Just last week the first shot Cardero announcing the sale of one of its magnetite "mountains with a private Chinese company. This may be his head, pretending that the Chinese and yet not surprised to see this settlement, but stressed that only the Chinese are trying to ensure their upstream supply and intimidate Vale and Rio Tinto on the acquiescence on the prices of iron ore.

In the longer term can Peruvians rue the day that the camps surrounded by razor wire display safety equipment the PLA-mailed roaming around with guns. Does not occur here? Happened Africa … We are not Africans! For a Chinese mining executive all Chinese laborers did not look the same! Keep digging and shut your mouth ..

If the system wakes Garcia or not is unclear. Some say it's a big fan of Ping Deng Xaio … hmmmm .. These quasi-American leftists are nothing if not is retro. Peru has become one of the worst jobs in trickledown help achieve development of mining to the masses. lock and personal communities local like around the mine or prospect Fortuna vein Caylloma Macusani have been well treated, but others (like those of La Oroya in the area of the aftermath of the Doe Run smelter) have received only lead poisoning problems. inflation became Mining

general inflation and high resolution was denial Jiggery-Pokery some of the statistics with a different flavor of Argentina in the maneuver. Garcia's government must be hoping that a second chance to get this right by the prices of mining rides again. In the meantime, I had better starting learning the Chinese word for "no" and be ready for use.

Venezuela

Like Ecuador, this country has the irony that could see a major project has stagnated, while moving around him are in stasis. That said, the two mines (Brisas and Las Cristinas) could have been in production last year and enjoy peak price of gold in place of Johnny-come-latelys to the scene. Meanwhile, Hugo Chavez, has given himself the reputation of being fickle and radioactive towards miners. His latest romance is the quasi-Russian Rusoro. Bear hug if you dare …

Chávez may yet come to regret his latest infatuation. These two mines (extracted from the Gold Reserve and Crystallex another) could be developed as a complex because of its proximity, but frankly who cares? Venezuela has shown his disinterest in mining, except as a political football. No one who appears on the scene and what might have been will not be. The oil in the mid $ 60

the level is good for Venezuela, but not as good as $ 150.

As long as the bread and circuses to keep the mob of revolutions, everything is fine, but when I really needed some gainful employment, that mining could have provided, they will need to tone up their basketry skills because mining is not an option in the creation of jobs, or perish the thought, a diversified source of income from abroad.

CONCLUSION

One imagines from the ravages caused in local currencies to the decline in prices of metals (and some beans) will devastate the economies of countries like Brazil and Argentina. Indeed, profits and exports of these activities will be smaller, but just a bloodbath. Not there have been suggestions that we have heard that there is a decreased demand for agricultural production of any of these places. As for Brazil for iron ore will lower volumes but appear determined to maintain the price level.

Precious metals are battered but unbowed and constitute a large part of production export sectors of mining in many countries.

Chile is the first patient of lower copper prices, but are not receiving no great suffering in the flow of news, because the domestic Chilean economy has apparently been isolated by distance and the design of the mood swings of copper. Yet there will be a negative effect of employment throughout the region are closing marginal mines and exploration investment flow drying.

Confidence-wise some of the plans of governments in the side has mining infrastructure in the background as the final payer or indirectly. Those plans will now have to adapt to lower quality and quantity of material.

Governments and businesses need to keep calm at the moment and look back to the fundamentals of the metals, which are almost always good. Meanwhile, beware of taking Chinese checkbooks, it is a mutually beneficial trade.

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