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February 15, 2010 Dear Friend,
Aluminum, nickel and tin
inventories fell last week, and copper, lead and zinc
inventories rose at slower rates in a sort of "anemic" seasonal
demand rebound.
Five of the six large
diversified mines now have reported earnings, and we are
encouraged that earnings reports are better than expected and
discouraged that capital spending in 2010 and 2011 will be
aggregate records led by BHP and Vale.
BHP Billiton sold
46% of iron ore and 27% of coking coal on spot, quarterly or
“non-benchmark” sales in the December half year, and expects to
increase those ratios in the Asian financial year to begin April
1, 2010. BHP realized 8% more than the benchmark iron ore price
in the December half.
Our use of prior
estimated long-term contract iron ore prices near $80 beginning
April 1, 2011 and long-term met coal prices near $175 per tonne
beginning April 1, 2010 both appear too conservative.
One-by-one we will increase our earnings estimates and revise
price targets for each of the six major diversified mines as we
update our detailed models. Our prior targets are US $115 for
BHP Billiton, $44 for Vale, $295 for Rio Tinto, $28 for Xstrata,
and $28 for Anglo-American and $95 for Teck for each NYSE ADS or
common stock.
We will use $80 per tonne (up 50%) for
April 1, 2010 iron ore financial year and $100 (up 25%) for 2011
onwards for iron ore up from $80 and $200 (up 56%) for April 1,
2010 for met coal and $230 (up 15%) for April 1, 2011 onwards up
from $175. We will increase cap ex forecasts and may reduce our
prior “terminal growth rate” estimates of 3% to 5% for each
large diversified mine, which are conservative.
Two of the eight major gold
mines, FCX and Gold Fields Ltd., have reported reserve
declines. We await AngloGold, Barrick, Newmont, Agnico-Eagle,
and Goldcorp. We had estimated a 2% aggregate reserve gain
after just a 1% gain in 2008 with the 2009 reserve economics
based on $875 gold up from $575 two years ago. We are
disappointed that the large companies have not converted record
exploration spending into larger resource gains at improving
gold prices in a deflationary world economy.
John C. Tumazos
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Copyright © 2008 John Tumazos Very Independent Research,
LLC
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