Charts of the day are....

...a couple that track the traded base metals copper, zinc, lead and nickel. Because when you take a five year view on the prices.....

.....headline maker copper has done the best (no surprises for market watchers there), but zoom in a bit....

...and you notice that in the last couple of years there's been very little percentage change difference between any of them. Then go to the last month's trading and Dr. Copper, even with all the "broke $4" headlines, has lagged Pb by quite some measure and lies joint third.

Which then makes you think why Cu juniors and stocks should get all the limelight and Zn, Pb and Ni plays get treated like the ugly sisters at the ball.

Peru's metals production numbers for September 2010 are poor

Here are the latest Peruvian production numbers for its five main metals, with the September 2010 numbers just published by the Ministry of Energy and Mines (MEM). All the charts run from January 2009 to Sept 2010 for a bit of context and please note that the Y axes don't start at zero. Not trying to fool you into thinking something different, just moving the baselines up to allow the month-on-month contrasts to show up better.

The two biggest money-earners in Peru are (by quite some way) copper and gold. Here we see how gold production has evolved and we see that things are still depressed.

Copper is a little better, but at under 100,000mt last month (98,182mt to be exact) they're not setting any production records, either.

Zinc is at the low end of its normal fluctuations.

Lead continues to drop away quite sharply.

Silver numbers aren't that great, either.

Overall, Peru's September numbers for metals production were pretty poor, but you won't get to hear about that....what you'll get pushed at you is the rise in export revenues in gold, copper etc. This is because Peru is getting really, really lucky at the world market level and the rises in metals prices are covering the production shortfalls (for example, this.....

....is how IKN calculates Peru's gold production by value, factoring in the LME average fix for each month to the production levels reported.....U$1,300/oz+ gold papers over a lot of cracks, doesn't it?)

So remember the metals slump when you hear about the GDP growth slowdown for September that will come out in a couple of weeks time, or while reading how the country ran a fiscal deficit of U$233.3m in the same month.

More Peru mining production stats

So I put up the post just an hour ago that clearly shows how Peru's exports are riding their luck and immediately (and I mean within half an hour) the "you're just cherrypicking" mail arrives from one the sillypeople that is ignorant to stick up for the corruptos running Peru. So let's first point out this:

Ahhhh I feel better now. Let's plough straight on with the monthly metals production figures for Peru in the period 2006 to date. Starting with copper, the only one that has made some sort of significant move (and I betcha that you can guess when the Cerro Verde expansion came online):

Next gold:

Here's silver:

Here's zinc:

Here's lead:

Here's iron ore:

Here's tin

Here's molybdenum:

All data from Peru's Ministry of Energy and Mining. You see that amazing production expansion? You don't? Oh wow, there's one for owly to comment upon:

Peru's metals production in the first quarter of 2010 sucked

Here are the charts for Peru's five major metals exports:

Yup, 2010 royally sucks so far, dudes. Just the YoY drop in copper alone is U$97m in lost revenues (assuming an average of U$7,000/MT for the stuff).

The thing about economic growth is that it doesn't come along automatically. Despite what Peru's mining industry obviously believes, you tend to need to produce more over a certain time period if you want to grow.

What's going on with Lead (Pb)?

Lead (Pb) has really been on a tear recently, as this chart clearly shows.

Yet another sharp jump on the LME this morning moved it up to U$1.12 and bits per pound, this despite inventory levels that are now touching five year highs.

So what's going on? Well, basically there's plenty of concentrate being mined but the problem for manufacturers that use the metal is getting pure metal, especially battery-grade lead, as there's a smelter supply squeeze happening. The combination of the smelter shutdown in China due to environmental pollution (the recent case of hundreds of children with lead poisoning has closed down a large smelting zone) and the ongoing strike at Peru's Doe Run (DRP) complex at La Oroya mean there's less lead out there, right at a time when real, end-user demand seems to be picking up.

The absolute amount of outage in China is difficult to gauge (and if the local China experts are guessing , that means your humble correspondent has zipsquat idea) but it's clearly larger than DRP, which in itself produces 3.1% of world mined lead per annum (using 2008 figures) and around 1.4% of total world supply (the big difference explained by the fact that a lot of lead is recycled).

So moving forward, word of smelters reopening in either place will move the market more than end demand numbers, at least in the short term. DYODD.

Peru's metal mining industry: An overview of the year so far

To take my mind off the gawdawfulness of the Argentine soccer team last night I started playing with some Peru ministry figures for the country's mining sector (yes, I know I'm sad...no need to write in on that score). Those numbers became charts and although there is not great insight or revelation here, I think they're pretty useful as a snapshot of the country's industry right now so here we go. All numbers used are either from the Peru Central Bank or its Ministry of Energy and Mines.

First, here's Peru's total exports for the period in question, January 2009 to April 2009. As we can see, metals make up the majority of everything exported by Peru.

Here are some quick stats on the above:

• Total exports Jan-Apr 2009: U$7.09Bn
• Percentage metals in exports: 59.5%
• Percentage gold in exports*: 28.1%

Yep that's right; due to the sinking of copper compared to last year and the value held onto by gold in the period, Au is now Peru's biggest export by far. Also, did you know that nearly all of Peru's production is shipped to Switzerland? I did.

On to the next chart that compares 2008 to 2009. Yep, that's over $2.2Bn in lost exports you're looking at there. but of course, Peru's GDP is growing...............


Next is the breakdown of metals exported in the four months of 2009 and you can see that for all the talk about Peru being the world's biggest silver producer, the third biggest zinc producer and its polymetallic production nature, there are only two metals that really matter; gold and copper. As far as the country's economy goes, the rest are just noise.


Finally, this chart shows just how much metals values have dropped since 2008. The recovery in March/April 2009 compared to January/February is directly related to the recovery in spot copper, of course.

Now we move away from dollar values and look at volumes. The following charts show just how much of each metal has been mined in Peru per month since January 2008. Firstly gold, benefitting from recent production hikes at Yanacocha and Alto Chicama (the two big gold mines in the country):

Now that Cerro Verde is running at full tilt, copper production has been pretty steady.

Zinc production has dropped, probably due to the layoffs and mothballing of smaller mines:

Silver has stayed fairly steady. Buenaventura (BVN), PAAS and other large dedicated silver miners give Ag more stability, even though it's often a by-product more than a product.

Pb production has dropped for the same reasons as zinc; closures and layoffs, with 10,000 miners having been laid off in 2009 (which doesn't affect GDP growth either...oh no)

Tin numbers drooped a little but have remained largely steady:

In iron ore, nearly all the ballgame is Shougang at Marcona in South coastal Peru, so whatever happens there is the country results.

Moly has been hit very hard. Roasting circuits have been turned off and value of Moly sold has dropped by 88% YoY.

So all in all, if it weren't for Switzerland Peru would be in the doo-doo right now. Actually that's a little cynical, because if you're going to be a metals nation and export the stuff to progress and grow, then you couldn't really choose better than to have copper and gold as your big products. Gold has supported the drop in copper all this time, and if the Hoped™ for recovery does indeed happen quickly and world financial winds turn against gold and its safe haven reputation, copper is likely to take up the slack for Peru.

*thanks for the typo pickup, anon

Anyone for a base metals supply squeeze?

More on Doe Run. There are a lot of unconfirmed and unconfirmable rumours going around about Doe Run, so let's just start at the beginning with two basic facts.

• Doe Run Peru (DRP) is currently shut for all operations except its copper smelter supplied by its own 'Cobriza' mine

• DRP is the hub for dozens of small and medium sized Peruvian mining companies. With DRP shut down, a potential supply bottleneck is already forming, especially for lead. DRP processes around 120,000MT of Pb per annum which is around 3% of world supply, as well as zinc, silver, etc.

Now the rumoury stuff that needs serious DD on your own part. UNCONFIRMABLE word is that DRP's owner, Ira Rennert, cannot get the extended credit lines needed to keep DRP running because he's up to his eyes in toxic paper and the banks that normally service both him and his debt lines are turning their backs. The parent company of DRP is junk bond traders Renco, which also controls the separate Doe Run company of the USA. If Doe Run USA gets closed down by the credit crunch, around 11.5% of world Pb (as well as the other base metals smelted by Doe Run) is taken off the market. Not only is that a large chunk of world Pb, it's a very large chunk of Pb not smelted inside China's borders. Then there's US Magnesium, the world's third largest Mg producer. That's a Renco company.

This could become an almighty cluster----. Peru's unions have already said that DRP should not be bailed out by Peru's government, but that would only mean standstill in many of the mines that supply DRP, not to mention the export activity, revenues etc that come from the smelter output. If Peru does bail out DRP, how much money would have to be flushed down a toxic black hole to keep the mining sector operational? Away from the possible knock-on effects, the US mining industry could be under the same kosh if the parent company is the source of the financial problems and it is not some isolated Peruvian problem at DRP. Then there's the spot market...is this the reason we've seen a 20% rise in Pb spot these last few days (likely, as LME ringtraders are much sharper than I)? Or just maybe this still a black swan and it hasn't been factored in yet.

The above is just speculation so far, folks, so DYODD. To emphasize the point, those two links provided are to Wikipedia pages, and nobody in their right minds makes a definitive decision based on a wiki. But it's certainly a story worth following.

UPDATE: Reuters has more information on an updated report. Check it out.

UPDATE 2: Bloomie is running its own report now, with useful quotes from Peru union people.

Fortuna Silver (FVI.v): An interesting snippet

Here's a short'n'sweet post with new news about Fortuna Silver (FVI.v).

The Ottoscope™ reports that Fortuna (FVI.v) has hedged around 65% of its zinc (Zn) and lead (Pb) production. The Zn is hedged at around U$1,200/MT (that's U$0.544/lb) and the Pb is around $1,100/MT (that's U$0.499/lb). This means that with the bias toward Zn over Pb at its Caylloma mine, the global average hedge price is a touch under U$0.53/lb. This hedge is for the first six months of 2009 (i.e. it started in January and finishes June '09).

All silver production remains unhedged.

Those who bought the NOBS report will be able to factor in the change to the presumed metals revenues mix. Those who haven't bought the $10 report yet and are interested can find out more here.

Aquiline Resources (AQI.to): Southern scuttlebutt

First the facts: Aquiline (AQI.to) came out with this PR today that sets the company up nicely for its new 43-101 resource due out next month (according to the PR at least). The drilling campaign has clearly been a good one and the company conveys the feeling that the resource is very close to full definition now. The Navidad project is undoubtedly very rich, very big and altogether tasty. It's also got important support from the governor of the Chubut region, Mario Das Neves. backing worth its own weight. Anyway, next month we get to see some hard 43-101 numbers.

Now the gossip, rumours and general "don't bet on this stuff" talk. Otto was talking yesterday with a long-time friend in Argentina. Word up from the bowels of BsAs tends to confirm the talk that swirled around a few weeks ago, namely that Aquiline is the target for a large silver player in the immediate future. I want to stress that this is an unconfirmed, anecdotal rumour and so take it as you will, but I'm passing this one on today (instead of leaving the rumour on my desk, as happens with the great majority) as it passes personal tests:

1) The source is one I consider very reliable.
2) It's unlikely to be duplicity from last month's scuttlebutt. Sorry and all that but can't really say why. Suffice to say that the person in question doesn't move in the same circles as the Canadian investment world.
3) It makes sense. The timing before the 43-101 resource is good, and as seen in recent days there are large players looking to buy up the beaten-down juniors in all sectors from copper to gold.
4) I do not own any Aquiline, nor does anyody I know directly. (There's one guy I mail with in Canada that owns heaps of the thing but we haven't spoke since I got back from the beach).

Here's the 12 month chart of Aquiline FYI:


Now listen very carefully: DO YOUR OWN DUE DILIGENCE, DUDE. What I'm passing here is a rumour, no more and no less. I have my opinion about the integrity of the person involved and this post wouldn't exist if I had the slightest doubt on that score. But it's still a rumour. Got it? And as for future positioning, I'm not planning to take a piece of AQI.to personally, either. I'm quite happy with my trading portfolio right now and don't want to move much further out of cash. I'd also feel cheesy after posting like this. Nuff said. Have a nice day.

Volcan closes open pit operations

This is a great hi-res shot of the town of Cerro de Pasco. Click to enlarge (it gets big).
I think we can say "dominated by mining", no?

Big news for zinc supply. Volcan (VOLCABC1, Lima) is one of the the world's top five zinc producers. It operates in Peru, itself the third biggest zinc producing country in the world.

Peru's El Comercio today reports that Volcan has shut down its open pit mining operations at its Cerro de Pasco mines (note that underground mining continues at its mines) and has also cancelled 32 of its 64 service contracts with third party companies (many workers are contracted this way, for example). According to the report, 302 workers have been laid off, a number that may be greater due to the service contract cancellations.

Volcan, owned by the Letts family, is one of the longest-standing mining companies in Peru. It's also a rather secretive company about its workings. Although (true to form) the company has made no official announcement, El Comercio did well to get a quote out of an un-named company spokesperson who said that many workers had decided to volunarily resign from the company "as they reached an economically favourable agreement with the company, but these are not sackings."

Whatever. What this means is that the low world prices for zinc and lead (Volcan's main production along with silver) have claimed another victim. In 2007, full year production at Volcan was 335,926MT...that's a lot of Zn, people. The metal that came from the open pit won't be reaching the market any more.

It remains to be seen whether this news gets a greater audience in the mining sphere. Volcan is a big player, but as it only trades on the Lima bourse it tends to get ignored by the retail chat-o-sphere.

Base metals rallying again

On the subject of rallies, the Dakar Rally (ex-Paris/Dakar) starts tomorrow.
This edition is being held in Argentina and Chile.
Above is a cool hi-res photo to click on

"I've been down so long, being down don't bother me."

(trad. Blues standard)

Maybe it's just because they were so low they couldn't go no mo' low, but the base metals complex is starting 2009 in fine style. Charts please, maestro!

Copper

Zinc

Lead

Nickel

Again, my eye is caught by Zn. While copper dropped from above $3 to under $1.30, zinc has stuck around all this time at $0.50/lb or so. To me, this points to the "well, it can't go any lower than this, can it?" line of thinking. The rebound in BMs over the last couple of days may well be monetary in its nature and less to do with actual demand (though that Chinese stockpiling news does suddenly spring to mind). Whatever it is, it's welcome.

Now to watch and wait and see if it holds. Betcha the Peru stock market makes headlines this afternoon.

Fortuna Silver provides an update

At Caylloma, underground extraction caught on camera

Here's the link to the full PR. Go read it for yourself.

But I'm sure you'll like:

• improved production tonnage
  
• more silver from the mine
• even more coming in 2009 (1.4m ounces will be 70% more than this year)
• recovery rates for all metals are improving (now over 80% recovery for silver)
• new copper circuit that adds easy money by-product cashflow
• strong cash position Mr Taylor
• etc etc

This company is the real deal, people. Read that PR for yourself, but I'd like to point out just one small thing here. FVI announced it had started developing the Soledad vein (the bonanza-grade vein mentioned in the PR) on September 23rd and just six weeks later the ore is being processed and those big silver grades are being turned into saleable ounces. This is the difference between an explorer company and a junior actually in production and is something many junior investors don't appreciate. Far too often a PR announcing high grades hits the airwaves as part of an ongoing drill campaign but nothing ever comes of it, or if something does we have to wait months or even years for a solid result. Not true when you can throw the ore into the processor in a matter of days.

All junior miners are not the same. DYODD. Here's a link to the Fortuna website to help you.

Message to Jay Taylor: Enrol for 'Financials 101'

Yes girls, you KNOW he's cute

I found out yesterday that newsletter writer and sheep-herder Jay Taylor told his flock to sell Fortuna Silver (FVI.v) on October 16th. Well that's fair enough, I have no problem with that, we all make our own value decisions. But when I saw why he'd called sell on the stock I just burst out laughing. Here's the full alert sent to me yesterday by a kind reader:

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Taylor says sell Fortuna Silver

Fortuna Silver Mines Inc (C:FVI)
Shares Issued 85,331,659
Last Close 10/29/2008 $0.48
Thursday October 30 2008 - In the News

Jay Taylor in the Oct. 16, 2008, edition of Gold, Energy & Tech Stocks tells readers to sell their Fortuna Silver Mines Inc., recently 61 cents. Mr. Taylor said buy three times between August, 2005, and August, 2006, at prices ranging from 61 cents to $1.35. He said sell half on April 16, 2007, at $3.25. Assuming a $1,000 investment for each of the three buys, selling half of the $3,000 investment at $3.25 would have yielded a profit of $3,620. Mr. Taylor upgraded Fortuna to a buy on June 12, 2008, at $1.96. Assuming a $1,000 investment at $1.96, and taking into accounting the remaining $1,500 investment after the April, 2007, sale, selling the total $2,500 investment at 61 cents would yield a loss of $1,229. Mr. Taylor says he is selling this stock because of a rapidly deteriorating global economic environment, and not because of a loss of interest in the company. The newsletter writer has decided to sell those companies in his portfolio which do not have a considerable amount of cash on their balance sheets. By doing so, he hopes to turn these negative markets to his favour or at least avoid further losses. He plans to keep an eye on Fortuna for a possible repurchase when there are signs that the current global decline has abated.

© 2008 Canjex Publishing Ltd.

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So, Mr. Taylor is selling FVI.v because it doesn't have a considerable amount of cash on its balance sheet. IS HE TOTALLY MAD? Right now FVI.v has around C$50m in cash, which is more than the company is worth according to market cap (about C$41m). I'm not talking about working capital either (that's much higher), I'm talking about cold, hard cash that FVI.v has tucked away in deposit accounts collecting a useful slice of interest. Not only that, but FVI.v is the owner of a mine that actually makes money...y'know..positive free cash flow. It's not some explorer with no income stream that will continue to fracture cash while it waits for the market to turn again.

If, as is truly the case, FVI.v has more cash than market cap this can only mean one of two things about Jay Taylor:

1) He doesn't have a clue about Fortuna Silver
2) He doesn't have a clue about how to read a balance sheet or financial reports.

And as Taylor did an extensive interview with FVI.v this year (you can see the video at the company website), it seems clear that the guy must know about the company. So therefore the only possible conclusion is that he's a zero when it comes to reading financial reports.

A little knowledge is a dangerous thing, and those that pay Taylor healthy monthly subscriptions for newsletters that contain badly researched and patently false information should muse on that old saw. Call sell on FVI.v if you want, Taylor, but don't write factually incorrect and misleading statements to back up your erroneous analysis. Jeesh, what a dumbass.........