Some Miner & Not-So-Minor Issues

On a related topic, the President of Peru, Mr. Ollanta Humala, said on Friday that if Newmont Mining hopes to get going again with its $4.8 billion Minas Conga gold and copper mine project, it will need to show more in the way of plans to comply with objectives on the social, environmental, and labor fronts. Newmont was the subject of not-so-peaceful protests late in 2011 when locals in the Cajamarca region of Peru showed their displeasure with the firm’s plans to construct the most expensive mine ever in that country. Newmont now faces a new set of conditions (among them the creation of some 10,000 local jobs and expanded regional water reservoir capacities) before it can resume work on its suspended project. About $800 million have already been spent on the project up to this point. To be continued…

Well, with the stroke(s) of several members’ pens, the lending capacity of the IMF was virtually doubled this weekend in the wake of official commitments by various nations totaling more than $430 billion. The funds that were pledged by nations ranging from the Czech Republic to Singapore are intended to bolster the institution’s ability to address problems such as global financial instability and economic risks. However, the IMF’s largest shareholder, the USA, has opted to hold off on providing additional funding for the time being.

As for the swaggering Brics we alluded to in Friday’s piece, it turns out that they flexed a lot less muscle at this meeting that we would have expected them to. Indian Finance Minister Pranab Mukherjee said that “it would be wrong to conclude that Brics economies have set up conditions for their financial contributions to the IMF, but pointed out that a number of countries were yet to approve the quota reform being demanded by the grouping.” Pretty clear, right?

In any case, the IMF needs to be practicing the art of fundraising as readies itself for the estimated $1 trillion it will require in coming years in order to fulfill its mandates. The verbiage of the announcement tried to make it clear that the additional funding has nothing to do with Europe or its current difficulties, and that the funds are being set aside for “all members of the IMF.” Whether or not the money ends up being used by someone other than an EU nation in trouble remains to be seen. There is however, no doubt that $430 billion bought a pretty substantial “firewall” for someone.

The markets are all set for tomorrow’s and Wednesday’s FOMC policy-setting meeting and for the subsequent official announcement regarding monetary strategy. The Fed is still seen as grappling with the twin issues of recently decent US economic growth and a still-sluggish US labor market. At the same time, inflation has been running slightly above Fed targets. Thus, the Fed is mindful of not making a meaningful departure in either direction (tightening or accommodation) at this juncture. As to what might be said and how it will be framed, for the moment, what we have on offer is educated…speculation.

The same speculative tone applies to the latest observations coming from US dollar traders. Opinion is split, the charts wound-up, and conflicting currents aplenty: “Disappointments in recent US economic data set the stage for a more dovish FOMC through Wednesday’s rate decision and leave risks to the downside for the dollar. But economists predict late-week US gross domestic product growth data will show robust US growth through Q1 and may offer some support for the dollar. Yet it feels like we’ve been here before: big economic data on the docket, and any surprises could theoretically force a US dollar breakout or breakdown. Time will tell whether or not we actually see those big breaks.” – Daily FX.

Other surveyed parties in a Bloomberg News-conducted poll are less equivocal about the greenback and its prospects. The findings are that “there’s at least one thing that bulls and bears on the US economy agree on: the dollar, the most undervalued major currency in the world, is due to rise as Europe’s sovereign debt crisis threatens the global recovery. Strategists who as recently as November were predicting the dollar would depreciate against currencies of the Group of 10 nations, now say it will climb by year-end. After weakening against all but the Mexican peso among its 16 most actively traded peers over the past decade, it has gained against 13 of them since February.” In a quasi-cliché we told Bloomberg’s Tom Keene earlier this year that “gold will go where the dollar does not in 2012.”

And now, back to the Fed. It still dominates the week, despite China’s and Europe’s woes. A Reuters News poll conducted last week indicates that the odds of the US central bank launching another round of bond purchases at this week’s meeting have declined significantly. Famed Bay Area money manager Kenneth Fisher (under whose stewardship there are more than $43 billion in investor assets) opines that the US economic conditions he is observing are the best in quite a while. To be sure, the current year certainly has not had to contend with the after-effects of a huge quake in Japan, nor with an S&P credit rating downgrade of the USA.

About 18 out of the 23 S&P 500 firms which have reported earnings thus far this season have achieved better-than-forecasted (by an average of 8.8% at that) results. Apple Inc. will be the earnings’ headliner this week as about 180 more US firms report their results. Market pundits are betting that this week’s slew corporate earnings and the Fed’s words of wisdom will jointly prove that the recent stock market jitters may have been misguided and perhaps too European or Chinese-flavored. For the moment, the pundits have their work cut out for them; this morning’s stock index futures were pointing…lower. Languishing Chinese factories were being blamed, in part.

Until Wednesday,

About the Author
Jon Nadler

Jon Nadler is senior metals analyst with Kitco Metals Inc. in Montreal.

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