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May 16, 2011 Dear Friend,
We made various changes to raise the
prices estimated in our BHP Billiton model, including raising crude oil to
$100 from $90 per barrel long-term, calendar 2012 and 2013 met coal to $300
from $250 and 2011 nickel to $12 and 2012 nickel prices to $11 from $9 per
pound. We made many offsetting increases to our cost estimates due to higher
crude oil and other input costs, a stronger A$ and strengthening in some
other resource currencies versus the US $. We do not have confidence in some
of our cost estimates due to harsh March 2011 quarter operating conditions,
especially concerning Pilbara iron ore and Queensland coal district
floodings. We raised our earnings estimates by 1% to 5%, but held our price
target at $113 per ADS and Overweight price target.
We cut our price target for International Paper to $27 from $31 per share, even though we raised earnings estimates slightly, because a greater portion of the earnings mix comes from Russia where risks should be discounted, depreciation rates fell and cost-price pressures pose increasing risks. We believe the terrible recent selloff in both base metals and precious metals commodities prices and shares stems from U.S. dollar strength and speculator exits, most obvious in the 1/3 drop in silver prices and silver shares. Lead, zinc and silver dis-hoarding is measurable near $0.5 billion in recent weeks in addition to the near $9 billion in gold, aluminum, copper, lead and zinc dis-hoarding we measured in the months leading up to February 28th. China enjoyed record April daily steel and aluminum outputs. We do not see early signs of a global recession, and U.S. employment data slowly is encouraging. We assign no significance to Greek financial distress, impacting 11 million people, and to us the farcical situation is that the northern Europeans are so eager to bail out Greek corruption and generous government early pensions. The Greeks take siestas in midday and in the rural areas celebrate saints day holidays for 2/3 of the work calendar. My cousins in Greece always look at my travel itinerary, and ask me why we work so hard. Faithfully,
John C. Tumazos, CFA
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Copyright © 2008 John Tumazos Very Independent Research,
LLC
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