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October 25, 2010 Dear Friend,
This Spot Markets
discussion includes the September global steel output
data, the September global aluminum output data, the
August data from the World Bureau of Metal Statistics
and the September production reports of Vale, BHP
Billiton, Xstrata and Anglo American. Very strong
German, European and Chinese demand benefited metals
markets in August. China absorbs more nonferrous metals
in 2010 even though it over-bought from April to October
last year. Chinese energy conservation measures reduced
steel output 14% and aluminum output almost 10% from
peaks earlier this year. This report contains several
pages of analysis on each major metal, and some analyses
we need to complete to stay curren.t
Temple-Inland's
containerboard paper earnings are greater than
expected, and building products losses are larger
than expected. It is a good company that we seek to
re-enter if a market selloff creates a good opportunity.
Earlier today we
downgraded Rio Tinto to Neutral owing to price
appreciation, cost escalation from the stronger A$,
higher capital spending, concern of iron ore prices and
the 13.5% drop in Chinese steel output since April.
We want to stress
this is a serious news item, not a Saturday Night Live
satire, and that it illustrates the relative scarcity of
good quality copper projects. We know Peter Tomsett,
the Equinox Minerals chairman, from his days in the
1990s as IR contact of Placer Dome and later as the
Placer Dome CEO from September 15, 2004 until January
2006 when he sold the company to Barrick Gold. Today
Equinox Minerals, which commercialized the Lumwana large
copper mine slated to produce 140,000 tonnes in 2010 at
a $1.35 per lb direct cash production cost with
ambitions to reach 200,000 tonnes with expansions.
Equinox will acquire Citadel Resources, whose Jabal
Sayid copper-gold project in Saudi Arabia, which has 66
mmt of 2.3% copper ores with a minor gold
content. Citadel has other mineral projects in Saudi
Arabia. Thus, a company with an industrially sound
project in Zambia diversifies and reduces risk by
entering Saudi Arabia. It is tough to find good copper
projects.
Faithfully,
John C. Tumazos, CFA
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Copyright © 2008 John Tumazos Very Independent Research,
LLC
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