Wallace Street
Journal
A take on Toronto
David Bond
March 9, 2004
TORONTO, Ontario -Lead,
zinc, copper, silver and gold - the bread and butter of North
Idaho's once-beggered mining industry - are poised on the verge
of a 50-year renaissance in price thanks to insatiable Asian
demand, aging Baby Boomers and an unsteady U.S. dollar, analysts
say.
"We are seeing a strong, cyclical and secular recovery in
metals, particularly base metals," said Patricia M. Mohr
of Scotiabank Group, Toronto. Growth in metal prices (27.8 percent)
far outpaced that of oil and gas (15.3 percent), forest products
(26.6 percent) and agriculture (0.7 percent) in 2003 and will
continue to do so in the future, Mohr said.
Increases in gross domestic product (GDP) in the Asian sector
also will outpace the West this year, she added. China will lead
the way at 8.7 percent in GDP growth, followed by India's 6.5
percent and South Korea's 5.5 percent anticipated growth in GDP.
Europe will be next at 4.9 percent, the U.S. at 3.8 percent and
Japan at 2.8 percent GDP growth for 2004 and 2005.
These growing economies are gobbling up metals at heretofore
unheard-of rates.
"Gold should achieve an average price of $428 per ounce
in 2004, end the year at $445, and come out of 2005 averaging
$460," said Martin Murenbeeld, CEO of Murenbeeld Associates,
Victoria, British Columbia. Exactly one year ago, also in Toronto,
Murenbeeld predicted the 2003 price of gold would average $364
per ounce. He was off by $1; 2003's average gold price was $363.
"I expect to return next year to find out if I was right
again or just lucky last time," he said.
Murenbeeld's 2004 price prediction was more or less shared by
Kamal Naqvi, senior metals analyst for Barclay's Capital of London,
who called for a $450 price average this year.
"Long-term investors are returning to the gold market,"
Naqvi said. "De-hedging (the elimination of short-selling
positions by producers, banks and speculators), falling interest
rates which reduce holding costs for purchase contracts, a soft-money
policy by the U.S. Federal Reserve Bank and the equity markets
all are bullish for gold."
The world's banks are on the verge of renewing a pledge limiting
sales to 500 tonnes per year, he said.
Closer to home, silver should peak at about $8 per ounce during
the first half of this year, then settle back to its new "natural
price" of $6 per ounce or so, said Bruce Alway, senior analyst
for GFMS of London.
"Institutions and funds have returned to the silver market,"
Alway said. Investment funds' net long position on the New York
Commodities Exchange (COMEX) rose from 177 million ounces in
the fourth quarter of 2003 to 260 million ounces thus far in
2004.
While silver and gold both closely track the growing disparity
between the U.S. dollar and the Euro, silver has broken away
from its historic relationship to gold and is being price-driven
by industrial demand and the surge in copper, lead and zinc prices,
Alway said.
Photography now ranks third in worldwide silver consumption at
23 percent, behind industrial use (43 percent) and silverware
and jewelry (30 percent), he said.
Most all of the silver used in medical and consumer photography
is recovered when the film is processed and accounts for more
than 70 percent of the "scrap" supply of silver returned
to market. Scrap, or recycled silver, accounts for 22 percent
of the silver available to the market. Virtually none of the
silver used in industrial applications - ranging from contacts
in a cell phone to reflective window coatings - ever returns
to market, he said.
The remarks of these and other metal experts came before the
72nd annual meeting of the Prospectors and Developers Association
of Canada here - a week-long confab attended by 9,000 delegates
from 70 countries. Some 350 mining companies, mine service companies,
provinces, states and nations rented booth space to advertise
their wares and opportunities in Canada's largest and most cosmopolitan
city on the shores of Lake Ontario.
One of those speakers, Phil Baker, CEO of Coeur d'Alene-based
Hecla Mining Co., said Monday he liked what he heard.
"This is just incredible," Baker said. "This is
the start of the next generation of mining. It means the Lucky
Friday Mine (in Mullan) will continue to be a cornerstone for
Hecla and the Silver Valley for decades to come."
Bunker Hill Mine owner Bob Hopper said China's "insatiable
demand should condition us in the U.S. to appreciate our abundance
of minerals. We must give many thanks to our environmentalist
friends who have impeded mineral development and helped create
these very shortages. We have zinc deposits that run for miles
and look forward to serving this new world demand."
"Regardless of the ups and downs, and the number of companies
that have abandoned us because of U.S. environmental idiocy,
there are actually companies and properties - the Lucky Friday,
the Galena, Sunshine and, yes, Bunker Hill, that are still operating
here. This is one place that is ready to go.
"We're still here, man," Hopper said.
The glowing forecasts are reason for optimism from Sterling Mining
Co. President Ray DeMotte, and auger well for Sterling's idled
Sunshine Mine.
"Silver's strength in staying over $6 is significant for
the Lucky Friday, the Galena and Sunshine," DeMotte said.
"It bodes well for us in our efforts to bring Sunshine back
into production and encourages Sterling to continue its exploration
for new mining opportunities in the Silver Valley."
The base and precious metal bulls will be in town at least for
another half-century, predicted Peter O'Connor of Investment
Management Selection Limited, London.
"While the U.S. is still the locomotive of economic growth,
the boom is going global," O'Connor said. Having undergone
the first phase of its industrial revolution, China is now diverting
more capital into consumer spending.
Real per-capita income in China, now about $5,000 per year, will
double by 2008 as the "world's largest economic, not political,
democracy" seeks to encourage consumer spending. One Chinese
export - tourists - will increase ten-fold by this decade's end,
from 10 million leaving that nation's borders to see the world
to some 100 million, and they'll be buying disposable cameras,
he said.
As Boomers leave the workforce and begin collecting social security,
central and bullion banks will have no choice but to print more
money, attempt a course toward "reflation" in an effort
to bolster commodity and product prices, and stay a course of
soft money.
"In the next 50 years, Brazil, Russia, India and China will
be a larger economy than the G-6. By 2050, only the U.S. and
Japan will rank among the top six economies of the world,"
he said.
"The prospects for metals and mining are exceptional."
David Bond
March 9, 2004
David Bond covers gold
and silver mining equities for a number of national and international
publishers, including Platts Metals Week, a division of McGraw-Hill.
He lives in Wallace, Idaho, heart of the planet's richest silver
fields, the Coeur d'Alene Mining District. He is former editor
of the Wallace Miner, and holds regional and national firsts
in investigative journalism from the Atlantic City Press Club
(National Headliner) and from the Society of Professional Journalists
(SDX/SPJ) and has edited or written for newspapers on both coasts,
Canada and Alaska.
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321gold Inc
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