Silver Prices - Megaphone Patterns

President Nixon closed the "gold window" in August 1971. That decision enabled the exponential growth of debt, paper currencies, and prices. A few examples:

Item	1971	2014
US National Debt	$398 Billion	$17,500 billion ($17.5 Trillion)
Dow Index	900	16,900
Gold Price	$41	$1300
Silver Price	$1.39	$21
Crude Oil	$2.20	$102
New Automobile	$2,700	$32,000

The process is simple and clear. Remove the gold backing from the dollar, enable the creation of nearly unlimited dollars and debt, many more dollars chase somewhat more goods, prices increase, proclaim it is "all good" and then create even more dollars and debt.

So what about silver?

Silver prices have increased but in a disorderly manner. Rather than focus on details, examine the big picture - 43 years of monthly price data in one chart - and divide that 43 year period into four "megaphone" shaped patterns on a log-scale chart. See below:

Zone 1: Silver accelerated higher from $1.39 in 1971 to about $50.00 in January 1980 - a massive bubble.

Zone 2: Silver crashed (bubbles always crash) down to $3.50 in 1991. In nominal dollars, this was a loss of about 93%. Adjusting for inflation it was even larger.

Zone 3: Silver "flatlined" for a decade and moved from about $3.50 in 1991 to about $4.00 in 2001.

Zone 4: Silver rallied post 9-11 in a new bull market from about $4.00 in 2001 to nearly $50 in 2011.

How will silver prices change in the next five years?

Door # 1: The upward slanting megaphone pattern continues and silver surges to $100 or more by 2016 - 2019.

or

Door # 2: A new megaphone pattern slanting downward (shown in red as # 5) has begun and will terminate at perhaps $6 in the 2016 - 2019 time period.

There are other choices than these two options, but it seems likely (to me) that silver prices will move much higher, while it is remotely possible that silver prices will continue their downward collapse, as represented by the above options.

The Bullish Choice - Door # 1:

1. Prices have been increasing since 1913 and rising more strongly since 1971. I see little to change this, short of a nuclear winter.
2. Global debt exceeds $200,000,000,000,000 ($200 Trillion) and is rapidly rising. We should plan on more crashes and bubbles in stocks, bonds, and currencies. Fear and a desire for safety will drive more investors into silver and gold at much higher prices.
3. The Stochastic and MACD indicators shown at the bottom of the graph show low readings that have consistently indicated bottoms in prices. Other technical indicators show similar "over-sold" conditions.
4. Silver prices are currently more than 55% off their highs. They have considerable room to accelerate higher.
5. The cost of silver production has been reported at about $20 per ounce. With energy prices increasing, that cost of production will also increase. I see little chance that silver prices will drop below $10 as the cost of production increases to $30 or considerably more.
6. Most government stockpiles of silver in the western world are gone.
7. New industrial uses for silver are discovered every day. Solar panel uses for silver will increase.
8. Many more not listed here.

The Bearish Choice - Door # 2:

(Sarcasm alert! I do not take the bearish view as a serious alternative.)

1. The governments of the US, UK, Europe, and Japan will become efficient, will wisely manage their resources and will no longer need to borrow massive quantities of their currencies in order to pay their bills. Consequently we should expect price stability or mild deflation in food, energy, and silver prices. Okay, just kidding...
2. Central banks have chosen to wisely manage their currencies for the benefit of the citizens and are "printing" in moderation because they wish to avoid dangerous increases in prices, debt, and the money supply. Okay, just kidding again.
3. "Silver-Bugs" are likely to sell their stacks of silver and buy call options on the S&P because they feel the S&P is a safer and better investment. Sorry, getting ridiculous now...
4. Too-Big-To-Fail banks and bullion banks are forecasting flat to lower gold prices through the end of the decade. Many individuals and money-managers still trust these banks and actually believe their self-serving propaganda. This misinformation negatively affects the prices for paper silver.
5. Even though silver has been money for thousands of years, it has been replaced by a superior alternative - pieces of colored paper. Back to just kidding...

Conclusions:

Over 40 years of silver prices can be represented by four zones of megaphone shaped price patterns. My interpretation is that zone 4 - a long and aggressive move upward - is still in progress. My round number target is $100 or more in 2016 - 2019. Although I hope that the powers-that-be will not choose to create hyperinflation in the US, if hyperinflation does occur, the $100 target will be easily bypassed and much higher prices will be "in play."

By: GE Christenson

European Stocks Plunge Into Red For 2014, Portugal Down 10% This Week As Espirito Santo Stock Suspended After 40% Crash.

But but but... the crisis is over and Europe is recovering? European stocks dropped 3.2% in the last 2 days - the most in 7 months - taking the broad index into the red for 2014. Portugal (remember how BES was contained) collapsed 10.3% this week (down 26% from its highs in April) to one-year lows.Europe's VIX spiked over 20 today - its highest in over 4 months.

 European stocks are red for 2014

Portugal led the decline...

• BANCO ESPIRITO SANTO SHARES SUSPENDED PENDING INFORMATION, CMVM SAYS

With Goldman bailing and the sovereign suggesting it is not willing to bailout, it appears - based on Sub debt's collapse - that a bail-in burden-sharing solution is coming. 

The Illustrated Guide To 20 Years Of Latin American Debt Crises

As the Argentina farce rolls on, it is worth noting that this is nothing new. As Bloomberg Briefs shows below,Latin American nations have been serial defaulters for the last 20 years.

Source: Bloomberg Briefs

Rising Dollar Pushes Commodities Down While China Drives Industrial Metals Up

The US dollar rose 2.20% in July, primarily due to the Euro’s decline. A combination of weak economic news and falling Eurozone assets are having a negative impact on its common currency as well as European stocks. 

US Dollar ETF rising in July

After a few months of flatness, the dollar made a big move, hitting a 6-month high. This surge had a negative impact on commodities. The CRB commodity index experienced a 5% decline in July, losing part of the ground gained this year.

CRB Commodities Index declining in July

A rising dollar has historically been bad for commodities and therefore this is also negative for industrial metals. However, industrial metals kept gaining ground this month thanks to stronger demand coming from China.

While global tensions (especially in Europe) made developed markets struggle, emerging markets had a very good month. Chinese stocks rose 10% in July, breaking out to the highest level in three years. The good news for China is very good for industrial metals as China is the biggest user of these commodities.

China iShares (FXI) hitting 3-year high

What This Means For Metal Buyers 

Industrial metals performed well in July thanks to positive news from China. However, commodities lost some ground to a rising dollar. A stronger dollar could have a depressing effect on industrial metal prices. The performance of industrial metals through the rest of the year will strongly depend on these two factors.

Source : Agmetalminer.com

The Best And Worst Performing Assets In July 2014 And YTD

Up until the last day of July, everything was going great: stocks were solidly up for the month, the DJIA was on the verge of 17,000, and the wealth effect was flourishing, if not the economy. Then yesterday happened, and everything changed: not only did the S&P turn red for the month, but the DJIA slid to red for 2014. So what is the best performing asset class in July? With the PBOC now openly unleashing QE in its economy, no surprise that it was the Shanghai Composite, which returned over 8%, if virtually nothing since 2009. However, don't expect this to last: for China real estate is orders of magnitude more important than the stock market to boost the wealth effect.

As for the best returning assets class in 2014 YTD: don't laugh - it's still Spain and Italy. Expect the day of reckoning for Europe's periphery to be fast, unexpected and very brutal.

From Deutsche Bank:

The last 48 hours have made a big difference to returns in July with a sell-off in rates, credit, equities and commodities changing the month dramatically over this period and leaving a few more markets down for 2014 now.

DM equities were tipped into negative territory for July while EM stocks had enough outperformance through the rest of the month to largely stay in positive territory despite the weakness in Russian equity markets. China was the key outperformer with the Shanghai Composite (+8.8%) posting its best monthly total return performance since December 2012. The rally in China also benefitted Hong Kong equities with the Hang Seng (+7.3%) recording its biggest monthly gain in two and a half years. Back to the DM world, the Stoxx 600 and S&P 500 were -1.6% and -1.4% respectively – with the former probably negative impacted by the BES-driven weakness in Portugal (-10.5%).

A poor month for the DAX (-4.3%) and CAC (-4.0%) has pushed them both into negative total return territory for the year at -1.5% and -1.2%, respectively. The FTSE was down -0.1% on the month keeping it in slightly negative territory for the year (-0.3%) although dividends have helped YTD total returns stay in the green. The DOW is also down YTD now.

Moving on to Fixed Income, it was a mixed month for core rates with Europe outperforming Treasuries. This is perhaps not surprising with core European rates flirting around their all time lows whilst USTs suffered a dip following the strong GDP print just a day before month end thus giving up about half of all of the month's earlier strong gains. Turning to Credit, it was modest month for IG total returns but nevertheless IG still did better than HY with US HY (-1.7%) underperforming on the ETF outflow story. Staying in fixed income but moving to EM, the overall benchmark was down 0.6% with strength in Asia (+1.3%) neutralising the weakness in Latam (-0.7%) and EEMEA (-1.3%).

The commodity complex had a very weak month with Corn, Wheat, and Brent all down -16%, -6%, and -5% respectively. Incidentally this also came during a fairly encouraging month for the Dollar bulls with the Greenback appreciating about 2% against a basket of major currencies.

To sum up the year to date performance so far, the European peripheral complex is still the key winner with the IBEX (+12%), FTSEMIB (+11%), Spanish Bonds (+10%) and BTPs (+10%) topping our performance ranking chart and returning about twice as much as the S&P 500 (+6%). EM equities have also done surprisingly well this year with a +8% gain to date. The latest July performance in China has also bumped both the Shanghai Composite (+7%) and the Hang Seng (+9%) into our top 10 list. Core DM rates are still in positive territory, though not surprisingly with Bunds (+6%) outpacing Treasuries (+3%). On the other end of the spectrum, the Nikkei (-3%) remains a key laggard while Russia (-5%) is feeling the heat from the ongoing geopolitical volatility. Generally commodities are amongst the worst performers this year largely led by softs.

Visually, the month of July

And YTD:

Aluminium to swing to deficit in 2015 after output cuts, ban

* Strong demand seen from U.S. auto industry

* Stock overhang expected to weigh on prices

* Premiums remain at record highs around $450/T duty-paid

LONDON, July 31 (Reuters) - The aluminium market outside China is set to record its first deficit in nine years in 2015 following production cuts and an Indonesian ore export ban, a turning point that could be the start of a prolonged shortfall as demand recovers.

After years of chronic oversupply, the market is beginning to tighten as producers cut production to battle rising costs, Indonesia bans bauxite ore exports and demand for aluminium rises, particularly from U.S. auto makers.

Analysts say the market could remain in deficit beyond 2015 but that historically high global aluminium inventories are likely to prevent much of a rise in prices.

The consensus forecast in a July Reuters poll was for a 444,000 tonne deficit in 2015, which would be the first market deficit since 2006, according to Thomson Reuters GFMS. 

"This is a market in massive structural surplus, though the physical market has moved into deficit," said Stephen Briggs, senior metals strategist at BNP Paribas.

"The deficit could be quite prolonged, but it needs to be. There's an awful lot of hidden inventory, not just in China but in the West, in financing deals and in warehouses."

Estimates of aluminium inventory outside China are at around 12 million tonnes. In LME-registered warehouses alone, stocks amount to nearly 5 million tonnes, although they have fallen by around 9 percent since the beginning of the year.

In China, the market is still in surplus, but that is expected to shrink due to the closure of some 2 million tonnes of aluminium capacity at high-cost smelters.

Outside China, producers have cut back as low prices and high costs erode margins. Daily average aluminium output fell to 67,000 tonnes in June from 67,500 tonnes in May, according to the latest data from the International Aluminium Institute.

Highlighting reduced output, Russia's United Company Rusal <0486.HK>, the world's largest producer, said in May its first-quarter primary aluminium production declined by 2.3 percent. 

Benchmark London Metal Exchange (LME) aluminium prices hit a 17-month high of $2,054.75 a tonne last week and have gained nearly 12 percent in the year to date. But the metal is still down around 30 percent from a May 2011 peak of almost $3,000.

"We think an all-in price of around $2,500/T will be needed to incentivise restarts of high-cost smelters in Europe and Brazil, and thus current curtailed capacity of around 1 million tonnes per annum there is unlikely to come back anytime soon," Macquarie analysts said in a note.

In contrast to cutbacks in the West, smelters in the Middle East and India are expected to ramp up production, in a move that could help ease some of the tightness in the market.

The United Arab Emirate's Emirates Aluminium is expected to add production of 449,000 tonnes this year and the Saudi Arabian Mining Co <1211.SE> 330,000 tonnes, according to Macquarie.

STRONG SHAPE

A major factor driving the deficit view is a bullish outlook for the demand, particularly from the automobile industry as it moves to produce lighter, more energy-efficient vehicles.

Ford Motor plans to launch a new aluminium-intensive truck this year, and aluminium firms have announced plans to build plants to fabricate sheet for automakers, whose names have mostly not been disclosed.

"In the automotive sector you see a clear advantage for light metal," said Svein Richard Brandtzaeg, chief executive of aluminium producer Norsk Hydro , adding that the aluminium market was in its strongest shape since 2008/09.

"There are new efficiency rules in the U.S market and EU regulation on carbon emissions. We see that U.S. (demand) is growing faster than Europe."

European aluminium traders said they are seeing a rise in enquiries for material at a time of year that is usually quiet as the western hemisphere traditionally winds down for summer.

The stronger demand, combined with restricted access to the metal, has helped keep European aluminium premiums, or costs to obtain physical metal, at record highs of around $450 a tonne for duty-paid material.

Financing deals and logjams in accessing metal from LME-registered warehouses have helped underpin premiums, with wait times to get metal backlogged by two years at warehouses in the Dutch port of Vlissingen, which holds more than 2 million tonnes.

"The rise in premiums has helped the all-in price improve from the first to second quarter. That's a big plus to the producers," an aluminium trader said.

"There's scope for premiums to rise. Material is still stuck in queues, and demand is pretty strong at the moment."

USD-INR Breakout

USD-INR Breakout, Resistance at 61.02, 61.52, 61.80, 62.50. Support 60.50, 60.70.

Nifty Futures Could Top Around 7910 And Fall To 7600

Nifty Futures Could Top Around 7910 (1st August) And Fall To 7600 (6th August)

Every 18th Day Nifty Is Topping Out (BLUE LINES)
Since Election Day
Every 16th Day Nifty Is Bottoming (RED LINES)

Dow Breaks 6 Months Trendline

Dow Targets 16250, With Stop Loss Of 17000

Robust copper price prompts switch to aluminum

In New York trade on Wednesday copper rallied after much stronger than anticipated US GDP figures, reaching a high of $3.2625.

Defying market expectations, the copper price dug itself out of a near four-year low struck mid-March of $2.92 a pound and has gained more than 7% since early June. The metal is now down only 4% in 2014.

The copper price is highly correlated with economic growth thanks to the widespread use of the metal in the construction, transport and power industries, and the robustness of the red metal is prompting industry to switch to much cheaper aluminum for some applications.

Primarily recovered from bauxite ore, aluminum was trading on par with copper in 2002, but while copper has quadrupled since then, the aluminum price has gone nowhere.

FT.com reports "demand for aluminium cable, especially in the power industry, is already rising at the expense of copper":

Even though aluminium cables require a thicker core of metal – and thus more insulation – the weak LME price means that the overall cost is still around 40 per cent lower than for copper cables, according to the French company Nexans, a leading cable producer.

It's a trend already established in China and Gulf states where only 25% of insulated and overhead cables use copper versus 60% in developed economies.

US growth, inflation numbers drop gold price through $1,300

The gold price fell below the psychologically important $1,300 an ounce level on Wednesday after strong economic data outweighed safe haven buying on geopolitical concerns.

On the Comex division of the New York Mercantile Exchange, gold futures for August delivery in early morning trade exchanged hands for $1,294.60 an ounce, down $5.60 from Tuesday's trading session.

US gross domestic product grew at a 4% annual pace in the second quarter, according to government data released Wednesday. First quarter number were also adjusted, showing a smaller contraction.

The much better than expected numbers – led by robust consumer spending and a pickup in construction and business investment – boosted the dollar which usually move in the opposite direction of the gold price.

The data also strengthens the case for an accelerated winding down of the US Federal Reserve's economic stimulus program and a sooner than anticipated rise in US interest rates.

Higher rates increases the opportunity costs of holding gold because the metal is not income producing.

Clouding the picture further was a 2% annualized rise in US inflation at its strongest rate in three years, which could also prompt a hike in rates.

Though off its highs for the year gold is still up some 9% in 2014.

The key US employment report on Friday will give further direction for US monetary policy and the gold price.

"Gold Could Go To Infinity" - Ron Paul

“I Still Believe In Gold” - Ron Paul
Dr Ron Paul, the popular Presidential candidate and America and the world's most popular libertarian voice, told CNBC yesterday that he “still believes in gold” and that “gold could go to infinity.”

Former U.S. Representative Dr Ron Paul told CNBC's Jackie DeAngelis and the Futures Now Traders that the long-term case for gold remains firmly intact.

Dr Ron Paul:

“Timing is the only thing. I remember watching gold when it was 35 dollars an ounce and we thought if it ever hit a hundred dollars, the world would come to an end. And then a thousand dollars, so; no, it's good as long as we continues to do this <print money> , you know, it could go to infinity because when people just leave the dollar, who knows what …”

“But that won't happen if we finally wake up and do something.  But if we can keep this together, if the money managers can keep it together and it doesn't collapse, yes, gold is gonna keep creeping up, but, you know, as weak as gold looks right now, it's up a hundred dollars for this year so…”

Jackie DeAngelis:

“It's roughly I think up 8% year-to-date. It's not a horrible move for gold but I think a lot of people were expecting to see a little bit more, especially with the instability that we're seeing in terms of the geopolitical situation. A lot of conflict around the world -- you'd expect gold to be higher right now.”

Ron Paul:

“Yeah, but if you understand the subjective theory of value, you don't get too concerned about that because, yes, increasing the money supply weakens the dollar and a weaker dollar raises the price of gold and it's a long term measurement. But you can't measure, you can't say that the money supply went up a certain amount, and gold is going to go up, so there's a subjective element in that.”

“But long term...and economic law says, if you keep printing a lot of paper money, the value of that dollar and currency will go down, and things and most prices will go up and indeed gold always goes up against that currency.”

“But you don't, I don't get in the business of saying in a year or two or three it's going to be two or three or four thousand dollars because it really challenges the basic fundamental beliefs of the Austrian school, to make these kinds of predictions.”

The interview about gold can be watched here

In another interview with CNBC, Dr Paul reaffirmed his view that the nation's monetary and fiscal policies would result in massive inflation. He warned of a stock market crash and of the risk that currency debasement will lead to the continuing devaluation of the dollar.

Ron Paul has long said America should "end the Fed," and he made that case once again on Tuesday.
 

** Record Low Gold Bar (1 oz) Premiums **

"One thing you have to do is get rid of the Fed, because of the Fed “spin” that leads to volatility in markets. Referring to the statements and spin by Federal Reserve governors, now Janet Yellen, he said that in fact  it is a “very inefficient way to operate a market, to have one individual make one statement, and put so much weight on it.”

“In short term, it's very, very real, because people are going to make it or break it, you know, on this interpretation. But that has nothing to do with the free market, nothing to do with building capitalism, and savings, and the things necessary to have a growing economy."

Aluminum Set for Longest Gain in a Decade as Demand Rises

Aluminum was poised for a sixth monthly advance, the longest rally in a decade, on speculation of growing demand from improving economies in China and the U.S., the two biggest consumers of industrial metals.

The contract for delivery in three months on the London Metal Exchange slid 0.3 percent to $2,016 a metric ton at 11:10 a.m. in Tokyo. The metal rose 2 percent yesterday, the most since July 2. Prices are up 6.6 percent this month, the biggest gain since November 2012.

The U.S. economy rebounded more than analysts estimated in the second quarter, growing by an annualized 4 percent. An official gauge of China’s factory output due tomorrow is forecast to show the highest reading this year at 51.4, up from 51 in June. A separate measure from HSBC Holdings Plc and Markit Economics is expected to come in at 52. Numbers above 50 indicate expansion.

“There’s no doubt that sentiment in the metals space is improving,” said Gavin Wendt, founder and senior resource analyst at Sydney-based Mine Life Pty. “The only issue is ensuring that markets don’t get too carried away in the near-term, which means that we will see short-term corrections in price.”

Aluminum, used in everything from aircraft to beer cans, entered a bull market last week. Global demand will exceed supply by 579,000 tons this year, swinging into a deficit after sevens years of surplus, Goldman Sachs Group Inc. said in a report on July 23.

Copper in London fell 0.2 percent to $7,113.50 a ton. The metal is up 1.4 percent this month, a third monthly increase. In New York, futures for September dropped 0.3 percent to $3.2335 a pound, while copper for the same month on the Shanghai Futures Exchange climbed 0.5 percent to 50,560 yuan ($8,190) a ton.

On the LME, zinc fell, while lead, nickel and tin were little changed.

50 Years Old Point Henry Aluminium Smelter to Shutdown Tomorrow

The Point Henry Smelter will close its operation tomorrow after functioning for more than 50 years as an aluminium smelter. The smelter is located near Geelong, Victoria, in the suburb of Moolap.

It is a joint venture between Alcoa World Alumina and Chemicals Australia.

Alcoa has already announced the decision to close the smelter and two rolling mills at Geelong and Yennora due to the pressure caused by the increased Chinese aluminium production and the high value for Australian dollar. As they found it to be economically unviable, Alcoa decided to take the decision of plant closure.

The smelter closure will cause job loss to about 500 employees and 480 employees in the rolling mills. Geelong region is now facing some economies hard times. Ford’s car making center of Geelong will also close down its operations in 2016. The aluminium plant is powered by Anglesea coal mine and power station. 

How to succeed in your new business ventures? Always remember to have rich mentality .

Freeport’s Deal to Resume Indonesian Exports: What Investors Can Learn

Last Friday, Freeport-McMoRan (NYSE:FCX) saw the light at the end of the tunnel for its Indonesian copper woes. Following a six-month export halt due to strict rules implemented in January, the company struck a deal with the Indonesian government to resume shipments of copper concentrate.

The agreement is big news for Freeport and the copper market, and there are several key takeaways for resource investors.

The deal

Reuters reported last Thursday that Indonesia had put out an offer to reduce taxes on concentrate exports in a bid to end a six-month halt of concentrate exports. In line with expectations, Freeport was the first to sign the deal, and with its export permit in place, the company plans to resume operations immediately.

In January, Indonesia set a new 25-percent tax on copper concentrate exports; the percentage was to rise to 60 by 2017 as part of a plan to ban concentrate exports that year and pressure miners to refine concentrate domestically. That tax has now been reduced to just 7.5 percent for Freeport, and will drop further as the company invests in a domestic smelter — the more Freeport spends, the more the tax will be reduced, hitting zero once Freeport invests 30 percent of the smelter cost.

The company will also pay higher royalties for its copper and gold , but Reuters states that Freeport’s deal with the Indonesian government has certainly paved the way for other miners to follow suit.

Freeport Indonesia CEO Rozik Soetjipto told Reuters, “[i]n terms of permitting, everything is OK. We still have to load the ship, and this may take a few days.” Freeport will export 756,000 tonnes of copper concentrate in the second half of 2014.

The company’s shares jumped 1.79 percent on the news on Friday.

The market

It is always wise for investors to keep an eye on what larger miners are up to in commodities spaces. In this case, the news that Freeport is now planning to export roughly three-quarters of a million tonnes of copper concentrate in the second half of 2014 is bound to have some effect on the red metal.

Copper prices have gained in recent weeks, but according to Reuters Africa, prices opened steady on Monday following news of Freeport’s deal with Indonesia.

Prior to Friday’s deal, a North America-based concentrate trader told the news outlet that a restart of exports from Indonesia wouldn’t cause a dramatic increase in global supply. However, he also stated that the news would renew fears of a surplus as “[a] lot of people expected the market to be over-supplied.”

Politics

Also important for investors to note is the fact that the resolution roughly correlates with elections in Indonesia this month. The Associated Press reported last Tuesday that Jakarta Governor Joko Widodo will replace the current president, Susilo Bambang Yudhoyono, in October.

In a Wall Street Journal article from June 5, Ignace Proot, an analyst with Sanford C. Bernstein & Co., notes how important it is for investors to keep track of political changes. 

Commenting on Newmont Mining’s (NYSE:NEM) decision to declare force majeure last month, the analyst stated that the company’s timing made sense as “[there would] be a new president in the fall” who might be more mining friendly.

Furthermore, the Indonesian export story represents the importance of paying attention to resource nationalism. The Journal stated on Friday that Freeport’s deal “represents a victory for Indonesia, which has tried to gain greater control of its vast natural resources and milk more in taxes and royalty payments from foreign miners and investors.” As Copper Investing News has previously explored, there are always multiple stakeholders involved, and it is important for investors to keep track of how government interests might affect mining projects.

Honey vs. vinegar

In terms of important factors to look for when investing in a company, management is always a key sticking point. Freeport-McMoRan and Newmont Mining have taken differing approaches to the Indonesian export ban, and their strategies are interesting for investors to note.

Writing for The Motley Fool earlier this month, Rich Duprey referenced the saying that one can “attract more flies with honey than with vinegar” to explain how Freeport and Newmont have approached the issue. While at that point Freeport had managed to reach a memorandum of understanding with the government, Newmont had filed an international arbitration case and was facing an “escalating war of words” with the government.
Duprey favors Freeport’s approach. However, he also said that “there are reasons why the two miners have likely chosen different courses of action.”A mere 6 percent of Newmont’s annual production comes from Indonesia, while Freeport depends on the island nation for 20 percent — a much more substantial consideration.

In any case, the Indonesian export ban story certainly illustrates the importance of gaining an understanding of multiple stakeholder interests when investing in the resource sector.

At close of day on Friday, Freeport’s stock was slightly up, having gained 1.23 percent to trade at $37.99.

By Teresa Matich+ - Exclusive to Copper Investing News

LME, Rusal spar at appeal hearing over warehouse reform

* Ruling could come as early as Wednesday after hearing ends
* Appeal hearing is over consultation, not warehouse reform
* Rusal says market conditions mean rules to have little impact

The London Metal Exchange (LME) and Russian aluminium giant Rusal (0486.HK) sparred in court on Tuesday as the LME sought to overturn a court ruling and allow it to implement tough warehousing rules to cut backlogs.

The dispute is over whether the LME, the world's oldest and biggest market for industrial metals, should have to launch a fresh consultation after a March court ruling labelled its original process as "unfair and unlawful".

The proposed warehouse rules - designed to speed up deliveries of metal from depots in the LME's global network - were not at issue in the original ruling.

"The LME makes great play of the fact that the judge did not hold that the proposal in itself was irrational," Rusal's legal team led by Monica Carss-Frisk said in written arguments on the first of two days of hearings before a panel of three Appeal Court judges.

"That is not, however, the test. The test is one of fairness."

Rusal argued that the original judge was right to say that the LME was unfair by excluding the option of capping warehouse rents in its consultation. Tuesday's arguments were heavy with legal precedents about the duties of public organisations.

The LME reforms, originally due to take force in April, aimed to make owners of warehouses deliver out at least as much metal as they take in.

Industrial buyers of aluminium, used in transport and to make beverage cans, have to wait up to two years to get delivery of metal from some LME warehouses and the new rules aimed to cut the queues down to a maximum of 50 days.

The exchange, owned by Hong Kong Exchanges and Clearing Ltd (0388.HK), told Tuesday's hearing that Rusal had not brought up the issue of rental caps at warehouses during the consultation process.

Michael Beloff, acting for the LME, said that the Russian company was using that issue to stop the reforms because it was worried that they would depress prices.

Benchmark aluminium prices CMAL3 on the LME have slid 30 percent since touching a peak in May 2011 due to overproduction and surpluses.

Rusal said in a separate briefing document that due to changes in the supply-demand balance, the LME's proposed changes would have scant impact on warehouse queues.

"Such market conditions demonstrate that the rule would have little or no impact at all, rendering the rule largely irrelevant and ineffective in the current circumstances," the Rusal document said.

Rusal says the aluminium market has moved into a substantial deficit due to cutbacks by producers after years of surpluses.

A ruling in the Appeal Court could come as early as the conclusion of the hearing on Wednesday, but the panel could also decide to reserve judgment to take time to consider the arguments, according to the court's website.

(Reuters)