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May 31, 2010 Dear Friend,
Over the weekend Vale
proposed a 35% iron ore price hike for July 1st, and Vale's
shares rose 2% in Brazil on Monday. BHP Billiton and Rio
Tinto declined, however, perhaps following aluminum,
nickel, lead and zinc selloffs today. We estimated as of
May 21st closing prices that the six major diversified mines
traded at 10.9 times our 2010 and 8.8 times our 2011
earnings estimates. Our iron ore, coking coal, nickel,
aluminum, gold and silver price assumptions all appear
conservative as well. We believe these fine companies
represent excellent values. Further, we expect the 40%
Australian resource tax to be defeated entirely because the
Labor Party lacks Senate seats to vote it in, and appears to
be rapidly losing support.
Investors may be
skeptical of the announced iron ore and met coal price
hikes, but we note that global steel output made records in
April with global output beating 4 mmt per day for the first
time and China's record was 1.847 mmt per day. Further, a
fourth underground coal mine failed over the weekend,
killing 17 in China, and bringing the death toll from four
disasters in < 90 days to about 181.
On May 29th Greystar
Resources reported its Environmental Impact Assessment has
been reinstated, and its Definitive Final Feasibility study,
$650 mm financing and reserve definition of the Angostura
high grade, Mongaro and La Plata zones will continue in the
2010 second-half for completion prior to year-end. On May
31st Greystar gained C$1.67 to C$5.43 in Toronto, up 44%.
We continue to estimate a US $17 price target WITHOUT giving
effect to further likely reserve extensions and upgrades as
the prior reserves and recoveries were based on $650 gold
price economics.
We have attached our
weekly Spot Markets report, with a focus on May 26th World
Gold Council data, falling lumber prices, and other global
developments. We repeated our basic November 2009 Greystar
Buy Recommendation report, our comparison of the six major
diversified mine valuations WITHOUT incorporating Vale's 35%
price hike announced this weekend and our analysis of the
lack of Labor Party Senate votes for its tax proposal
written four weeks ago.
Faithfully,
John C. Tumazos, CFA
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Copyright © 2008 John Tumazos Very Independent Research,
LLC
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