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March 8, 2009 Dear Friend, This past week brought declines in copper, lead and zinc exchange inventories with > 10% spot price rises for each and slower buildups of aluminum and nickel stocks. We believe producer output cuts, lower scrap collections and some Asian stockpiling benefit the markets. While we believe demand has NOT improved, metal prices may have bottomed and could rebound as supply cuts catch up to demand declines. LPX's 19% effective yield note with 18.4 mm share warrants attached, successful despite minus 20% EBITDA margins and 40% volume falls this past quarter, suggests to us that Teck, Xstrata, Rio Tinto, FCX, Alcoa or other large metals companies are financeable. We attended the Prospectors and Developers Assn. Convention in Toronto this past week, attended technical papers on iron-oxide-copper-gold (IOCG) deposits, technical papers on "new discoveries" and visited in their offices Barrick Gold, Kinross Gold, Agnico-Eagle Mines, FNX Mining, Duluth Metals, Western Goldfields/New Gold, Verena Minerals, St. Andrews Goldfields and many smaller firms. Geoscience Australia's technical paper characterized Teck's Carrapateena as among a "herd of elephants" along with BHP's Olympic Dam 8.3 billion metric tonnes and Prominent Hill. Teck has disclosed just a 905 km intercept of 2.1% copper and 1 gram per tonne among 75 km of drilling without quantifying any resource let alone millions or billions of tonnes. Our weekly "Spot Market" report devotes a page or two to each commodity subsector and discusses supply and demand data and events of the past week. We downgraded Barrick Gold to Underweight owing to combined impacts of lower copper prices, debt, gold hedge losses and high capital outlays on its finances. We downgraded Louisiana-Pacific to Underweight as its $4 mm of new monthly cash interest due makes matters even worse. We reiterated Overweight ratings on Vale, despite weak steel and stainless steel markets, and MeadWestvaco. The strong financial position of each permits them to survive or perhaps even make progress in the downturns. Please feel free to book one-on-ones for our metals conference on March 31 in New York whose emphases will be nickel, stainless steel and gold companies in particular. Faithfully, John C. Tumazos |
Copyright © 2008 John Tumazos Very Independent Research,
LLC
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