December 29, 2010

Dear Friend,

Our email host, enomcentral.com, recently installed a new server that did not support encryption functions, including the b.c.c. function on our bulk emails and our return receipt function.   We know that three large Boston firms, an old mentor of mine and my son Charles received “garbled” messages from our last four bulk emails.  Our “solution” is to send conventional over firm-by-firm individual emails to our entire distribution.  We have resent those four prior mailings at least once.  Please remember that your email address serves as "user name" and your 2 initials + "1VIR" = six character password to download any reports from our web site.  We apologize for any inconvenience.  

Our upgrade of our price target for Anglo American to $37 from $30 per ADS largely incorporates the now permitted Minas Rio iron ore project in Brazil gradually scaled to 80 mmt by 2017 with a $22 per tonne cost structure delivered to water and an $80 per tonne long-term price.  We applied various conservatisms,  including a more than 1/3 drop in current iron ore transaction prices to $80 long-term, a $4 per tonne or 30% increase in Anglo American's Brazilian operating costs to $17 from $13 per tonne (excludes $5.15 per tonne port, depreciation and interest expense), a $3 per ADS penalty from a 0.5% higher discount rate at 8% and a 1% lower terminal growth rate at 1.1% and we ignored until consummated the next seven attempted asset sales likely worth a minimum of $2 to $3 billion.  We believe Anglo American's Brazilian project is far better than the iron ore projects in Guinea and has a "first mover" advantage worldwide in adopting "almost zero cost" slurry pipelines in lieu of railroads.

We made a thorough Spanish language literature search concerning the opposition to Greystar Resources' gold mine in Colombia, and determined that opponents determined no "fatal flaw" or new scientific data.  Instead, they contend Greystar will "poison the water supply of Bucaramanga" with arsenic and cyanide and generally consist of a Green Party coalition defeated in by over a 2:1 margin in the June 2010 presidential election.  We believe Greystar commands the support of President Santos and its surrounding local communities, but lacks the support of the "out of power" vocal political opposition.  We did not revise or reduce our models owing to these "hysterical" claims.  However, we are concerned that Greystar has not gotten a fair press in either the Bucaramanga or Bogota newspapers, and many Colombians might accept the hysterical claims of the environmental opponents until President Santos or Greystar itself refute them in national communications.

We have not raised our $17 per share November 2009 price target to reflect higher gold and silver prices, stock market appreciation, over $100 per oz appreciation in large gold mine valuations or favorable early stage drilling results of satellite deposits that have not been engineered yet.

Best wishes in the New Year.