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| June 28, 2010 Dear Friend, · All six major nonferrous inventories series declined for the second straight week, with declines of 30,890 tonnes for aluminum, 15,180 tonnes for copper and 3,486 tonnes for nickel particularly encouraging. February peak nickel stocks have fallen by 1/4th and February peak copper stocks by 15%.· All six four week moving averages of commodity exchange inventories are negative for the first time we can identify since July 2006. This signifies little seasonal slowdown nor “double dip,” and could be a huge bull indicator of (a) continued global economic growth, (b) production restraint among producers owing to healthy skepticism about the world economy and (c) capital project deferrals such as the Resource Super Profits Tax motivated. We do not dismiss the inventory declines solely as Chinese buying at low prices as, after all, $3 copper and $9 nickel are not historic bargains. The "Big Six" multinational mining firms, which also benefit from 23+% iron ore and 12.5% met coal price hikes on July 1st from elevated levels already, are fine plays on these dynamics.
· The June 25th press release of PolyMet Mining, the June 24th press release of the Minnesota Dept. of Natural Resources (DNR) and the June 24th press release of the U.S. Army Corps of Engineers, St. Paul District, each described the preparation if a Supplemental Draft EIS and the inclusion of the U.S. Forest Service as “co-lead federal agency” and U.S. EPA as a “cooperating agency” within the process. We expect the Feds to cite these “jurisdictional precedents” in future permits in other states, such as Northern Dynasty’s large Pebble cu-au-mo deposit in Alaska or Appalachian coal mines. · No technical issue or substance has arisen since Polymet Mining disclosed on February 23rd that the U.S. EPA made critical comments. The Minnesota DNR raised three notable project modifications in the October 2009 draft EIS, including capping of category 2, 3 and 4 sulphides in the East Pit, two tailings monitoring wells, pumps and water treatment and a 5% mine redesign to reduce its footprint to save 40 or 45 virgin acres. The perhaps 1,000 acre land exchange between PolyMet and the USFS could have involved a second separate EIS process, and the creation of a “Supplemental Draft EIS” to incorporate the land exchange actually is the most expedient tact. Bill Brice, a former Minnesota DNR director now working for Franconia Minerals, estimated to us that the “Supplemental Draft EIS” for PolyMet already is 90% done and could be completed in September or October. · It appears to us that two separate turf battles have surfaced in PolyMet’s process, “among” federal agencies and the “states rights” process between the Obama feds and the Minnesota DNR. It is possible no changes in PolyMet’s eventual permit evolve as little “substance” exists among these “turf wars.” The true impact certainly includes a faster step in process, the “Supplemental Draft EIS,” and a greater data presentation to suit the Feds. The Minnesota DNR is highly professional, and does not want Federal help. In the end, we expect no major changes in the businesses of PolyMet Mining, Duluth Metals or Franconia Minerals other than delays.
Our weekly "Spot Market Reviews" each incorporate about ten major data tables, and a couple pages individually discussing the outlooks for particular commodities such as aluminum, precious metals, copper, lead, zinc, steel, steel scrap, uranium and wood products. It focuses more on specific industry fundamentals, and not so much particular companies.
Faithfully,
John C. Tumazos, CFA
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Copyright © 2008 John Tumazos Very Independent Research,
LLC
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