Survival of the Fittest: Save Haven Investments

Important update [Oct. 23, 08]: The story of Norilsk selling its SWC stake might NOT be true. Please see my latest post that deals with these suspicions, and do your own due diligence.

This is the fourth part of my series articles discussing the true valuation of physical assets, paper assets and currencies, vital knowledge needed to survive the unfolding global financial crisis. If you haven't read the previous articles, you can read them here:  part 1, part 2, and part 3.

I wanted to discuss the valuation of U.S. dollar. Some of the things I wanted to discuss include why it rallied so strongly, why we will see a sudden and abrupt reversal of the dollar rally, and why such a reversal is imminent. I wanted to spend more time giving it more thought. However, some big breaking news happened on Monday, forcing me to discuss the new developments immediately.

In previous articles, I emphasized that physical commodities can serve as reliable safe haven assets because their intrinsic values are decided by the marginal production cost. When something is sold BELOW production cost, the low price cannot last long as no business can operate at loss indefinitely. SUPPLY DESTRUCTION will happen, tilting the supply/demand relationship to a shortage. Price will then be restored to a profitable level to allow producers to resume profitable operation. Therefore, when you see a commodity traded far below its production cost, it is the best investment you can buy. You can just sit back and wait for it to appreciate soon, in inflation-adjusted terms, knowing for certain that the price just has to recover regardless of the demand side.

Looks like the supply destruction is indeed happening at neck-breaking pace, in all commodity sectors, and many analysts have noticed the phenomena and openly discussed the idea of supply destruction. As I am a precious metal investor with particular interest in palladium, there were two news events that happened on Monday caught my attention and made me very happy, as things that I predicted are happening far sooner than I expected. The news involves two of my favorite stocks, North American Palladium (PAL) and Stillwater Mining (SWC).

On Tuesday, PAL announced that it was temporarily suspending the production at the Lac Des Illes mine, and suspending metal sales due to current low metal prices. I am pleasantly surprised that the new CEO, Mr. Bigger, could act so quickly. I openly called for PAL to suspend operation due to current low palladium price. It's not an easy decision to let 350 hard working mining workers go, through no fault of their own, but the company must preserve precious mineral reserves and liquid assets, and ultimately it is also good for the workers themselves.

I believe that PAL, as the only palladium producer who sells to the spot market, has enough leverage power on its own to turn the palladium market around, and major stakeholder George Kaiser has a capacity on his own to move palladium price. Now PAL is not selling, who will sell in the palladium spot market? Who has the metal to sell? Are they going to sell paper palladium now? The market must realize that it must pay a fair price to get the physical metal. Unfair prices can only buy you paper, as producers simply cannot operate at heavy loss to produce metals like a charity organization.

However, the next piece of news shocked me so much that I jumped up, could not believe what I just read! Russia's Norilsk Nickel (NILSY.PK), the world's largest nickel and palladium producer, 55.4% stakeholder of America's Stillwater Mining, is now offering to sell its SWC stake!

This is incredible! This says the Russian Checkmate in palladium, which I discussed before, is playing out, right in front of our eyes. This is incredibly bullish for the price of palladium. Let me explain.

Norilsk Nickel produces 45% of the world's palladium. In 2004, they acquired a majority stake in SWC, America's ONLY mine of palladium and platinum, two strategic metals of critical importance to the security and survival of the United States, through quite some political maneuvers that involved direct negotiations between President Bush and President Putin. Norilsk's strategic acquisition obviously was aimed at achieving a 50% dominance of global palladium supply in order to assert monopoly power. Norilsk never sold a single share of SWC. Such a strategic asset is never to be sold for some cheap money.

Not for sale, UNLESS Norilsk is in a desperate need of cash urgently. Norilsk is huge, producing 20% of the world's nickel, 45% of palladium and 12% of platinum. Last year, Norilsk was on a buying spree, spent $6.3B in CASH to acquire a small nickel player, LionOre, among other purchases. In addition, why does Norilsk need to sell its strategic SWC stake for maybe meager $230 M cash for lunch money, right now?

The company is in a terrible liquidity squeeze if it is so desperate that it needs $230M in cash - now. The currently low nickel price it what really hurts it. My estimate is the company probably loses $1B to $2B per quarter. Therefore, $230M is probably good to last them another two or three weeks. I see that shutting down the Norilsk Mine, is an inevitable decision the company is forced to make urgently, regardless what it says publicly. The company either shuts down, or goes broke and then shuts down. Not to mention the fact that Norilsk Mine is also an environmental catastrophe that needs urgent cleanup.

That would be fantastic news to SWC and PAL, the only primary palladium producers in the world. Shutting down Norilsk would remove 45% of the world's palladium supply. When it comes to PGM metals, look at rhodium! A mere 4% shortage was enough to drive rhodium price from $300 to $10000 per ounce! What will a 45% shortage do to palladium? Would the Russians boost palladium price so they can get a better deal on SWC?

It is outrageous Norilsk is suggesting another foreign buyers to take over its SWC stake. It was heart breaking to see our precious national treasure sold out to the Russians, by our president. Do we want to sell SWC to a foreign country again? If an American billionaire investor reads this, please consider seizing this opportunity to buy up the SWC stake, not just because of patriotism, but also because of the huge profit opportunity. The nation needs our treasure back! Senator McCain: You can demonstrate you are not Bush No. 2. You can take SWC back from the hands of the Russians.

South Africa is another catastrophe waiting to happen, benefiting the two North America based producers. Current platinum and rhodium price is simply too low for any South African PGM mine to make ends meet, not to mention the on going electricity crisis in the country and ongoing limit of only 90% power supply to the mining industry. SA's PGM industry has entered a Survival Dimension, facing a choice of either cut production to boost metal prices, or a certainty of bleeding to death. Many analysts and shareholders have openly called for production cutback. PAL has already made the right move; South Africa should move soon to cut.

That, of course, is a great incentive for investors to buy and hoard physical palladium and platinum. The investment buying will boost prices so buying begets more buying. History has proven in 1980 that when people need to buy safe haven assets during financial crises, they buy every precious metal, not just gold and silver. When there is strong investment buying, weak industry demand becomes irrelevant.

I am not totally dismissing the factor of industry demand of PGM metals, especially in the auto sector. However, the weaker auto sale has been exaggerated. Owning a car is a necessity, not a luxury. How you can walk 30 miles to work or 10 miles to shop? Tight family budget may postpone buying a new car for a while, but only until the old car breaks. You may turn down a customer's request for a car loan but you cannot remove the need for a car. Gasoline consumption in the USA hardly reduced, year over year. From the fundamental point of view of the mobility needs, suppression of auto demand is only temporary, not permanent.

More over, history has shown when the industry demand of PGM metals weaken, the extra supply has always been absorbed by jewelry demand as the metals become more affordable.

Out of all precious metals, gold is the least I like. I have not purchased any Spider Gold Shares (GLD) so far. The current gold price is still well above profitability of most gold mines. Humanity has been digging this almost useless yellow metal for thousands of years until today. There's too much gold sitting there just to collect dusts. If we do need more gold, maybe we can all quit our daytime job and go to the beaches panning for gold, like the people at Jamestown.

Silver is a different story. Today, 70% of silver is produced as a by-product from base metal mining. Even for the 30% silver that's produced as main product, base metal by-products are also important part of the revenue. The whole silver industry is suffering not only from current low silver price, but also from low base metal prices as well. A production cut is expected, reducing supply, at a time when physical silver investment products are in high demand. I believe physical silver price will go up much more than gold. I own iShares Silver Trust (SLV) and recently increased my SLV stake on the dip to the low $9 area. The silver industry has continuously announced news of mine shut downs recently. Even mentor of the most famous silver bug, Israel Friedman, has openly called for Coeur d'Alene Mines Corp. (CDE) to suspend silver sales.

Silver mining companies are different stories. I have purchased a few silver stocks like Apex Silver Mines Inc. (SIL), Pan American Silver Corp. (PAAS), Silver Standard Resources Inc. (SSRI), Hecla Mining Co. (HL), and CDE. However, after carefully examining them, one by one, I find that all of them are hurt by low base metal prices, and not just the low silver price. None of them is a pure silver play. Therefore, instead of providing a leveraged gain over silver, these mining companies provided a leveraged loss over silver. If I am already invested in silver itself, why do I need to buy any silver mining share? I wish there were pure silver players around.

Silver Wheaton (SLW) claims to be a pure silver play. I bought SLW a couple of years ago before I knew better. However, once I figured out SLW's business model, I never touched it again. It's a holdings company basing its value purely on some contracts. They borrow a ton of money from banks to pay to the mining companies in exchange for the mining companies to sell the by-product silver to SLW for only $3.90 per ounce. SLW will pocket the difference. Sounds good, but I don't see how physical fortune can be made in playing paper contracts, instead of digging real mines. Now the danger of SLW, a danger not unlike sub-prime loans, has been exposed: What prevents these contracted mining companies from shutting down their un-profitable base metal operations, hence cut off SLW's silver supply?

In current turbulent commodity market, the mining world is a world of survival of the fittest. Who has the richest mineral reserves, the most cash and the least debt, will survive and prosper. The long-term bullish cycle of commodities will continue, as Jim Rogers pointed out, due to the damage of producers thanks to the credit crunch. A whole bunch of unfit commodity producers will probably be eliminated. However, the survivors will get to enjoy the next wave of commodities rally, which I believe is not too far away, despite of a weakening global economy, because the damage to supply is much worse than the damage to demand.

The fundamental bullishness of commodities attribute in large part to the fundamental bearishness of the world's fiat currencies, notably the U.S. dollar, but not just the U.S. dollar.

The dollar staged the strongest rally in recent years, just as the global credit crisis deepens, and the Fed is printing money like crazy to inject huge liquidity into the market. Every bit of liquidity the Fed injects simply disappeared once it's absorbed by the market. It totally defies logic and stunned many market observers. Is it manipulation? Conspiracy theory is always an easy answer. However, we must look for the real reason behind the logic-defying dollar rally, to make correct investment decision.

The real reason is that the global credit crunch creates such panic that most people retreat to the basic instinct of "Cash Is King." Liquidity is being hoarded away, instead of circulating in the market. The velocity of money approaches zero, making the dollar seem more valuable relative to surplus goods squeezed out of supply chains. This is a temporary aberration and cannot be allowed to last. When the velocity of money approaches zero, so does the velocity of the goods’ movement. If goods are not moving, then the society will collapse. The money printed will get both money and goods to move again. Once that happens, the dollars will suddenly flood the market while the supply of goods will dry up, leading to the sudden collapse of the U.S. dollar.

Let me use an analogy. We are riding on a car rushing up a high cliff overseeing the ocean underneath. You will panic and your intuitive response is buckle up your safety belt to strip yourself in. You think you are safe in your safety belt. Well at impact point, you go from no liquidity to hitting an ocean of liquidity in a split second. There is absolutely no time for you to untie your safety belt before you are drowned. The safety belt is the U.S. treasury bonds. Warren Buffet recently sees danger in treasury bonds and he is all out spending cash to load up equities. Follow the Oracle of Omaha, as he is the one with market wisdom!

Full Disclosure: The author is fully invested in SWC, PAL, and OMG. I am also loaded in SLV and traded in and out in a few selected silver stocks like SSRI, HL, PAAS and SIL.

Comments

[JBP:]

Mark,

Do you not see the Norilsk mine opening back up once the price increases bringing on more supply? Also, what is the play on physical palladium? Any ETF like SLV of GLD?

2008 Oct 22 11:19 AM

[H.J. Huneycutt:]

Mark,

Why do you think PAL decided to suspend operations at the Lac des Iles mine rather as opposed to refusing to sell off their production and stockpiling palladium? They are in great financial shape so theoretically, it shouldn't be that difficult to continue operating, even if at a loss.

Also, out of curiosity, what do you think about CDE right now? The company looks to be in poor shape and the stock is selling for next to nothing, but the equity interest in their assets is worth over $3 per share. Do you think one of the larger mining outfits might try to buy them out?

2008 Oct 22 11:25 AM

[Zooka:]

Mark, you might look at First Majestic as a pure silver play. They seem to be doing things right, as far as that goes in ntodays market situation (ie not very far).
I am also amazed at what has happened to CDE's share price. Not to mention almost every other miner out there; in CDE's case, what can you say when stocks with a forward p/e of 2.9 and ongoing production is dropping 8% a day and selling for pennies on its equity value? I am waiting for the first major with cash (barrick had 2 billion in cash) to make a move on a crippled junior. That will let us know that the bottom is here, when the big boys start their feeding frenzy..

2008 Oct 22 11:50 AM

[H.J. Huneycutt:]

Another question:

Why do you think Norilsk is in desperate need for cash? Their most recent financial statement does not seem to suggest that:

www.nornik.ru/_upload/...

Debt-to-value ratio is around 36%. They made about $4 billion in cash flows from operations for their most recent reported quarter (ending June 30). They also had about $5 billion in cash on their balance sheet.

I'm sure they are hurting right now as prices have plunged, but they wouldn't necessarily appear to be in any worser shape than anyone else from a shallow glance at their financial statements.

2008 Oct 22 11:59 AM

[Mark Anthony:]

Jake:

I don't necessarily believe the official book of the Russians. They are all crooks. Their actions speaks louder. Why are they so desperate to sell their SWC stake for a mere $200M. It's a very small amount of cash. Last year they spend $6.3B cash to acquire something much smaller than SWC.

I believe a Norilsk shut down is imminent. It won't come back even palladium price goes up, because palladium is only a minor percentage of the revenue. They are hurting on low nickel price.

2008 Oct 22 01:39 PM

[SeeTheLight:]

This article is just scary, it pays lip services to all the cons while pumping all the pros. This is article is a prime example of the fallacy of slippery slope:

en.wikipedia.org/wiki/...

Here's a consideration from a link in your rant.

"Stillwater Mining has always been a marginally profitable asset due to its environmental sensitivity and the cost of labor," said Michael Kavanagh, a metals and mining analyst at UralSib. He said Switzerland-based metals giant Xstrata and South Africa's Empala Palladium were potential buyers of Norilsk's stake.

Perhaps the Russian's are trying to sell their stake in SWC because they think it is no longer economically feasible at the current palladium prices. Let's face it, its cheaper to produce the palladium at Norilsk than with SWC. Your article only postulates on a single possibility.

A second issue. They are not going to shutdown Norilsk. To do so would effectively shutdown the company. Despite producing 45% of the worlds Palladium, the revenue derived from Palladium only makes up 10% of Norilsk's overall revenue. The majority comes ... surprise surprise from nickel. So they are not going to shutdown the mine to corner the palladium market. To do so would mean shutting down the company. Kind of hard to corner the market if you are not operating.

Third: the article then states that owning a car is a necessity. Perhaps, although many New Yorkers might disagree. Anyways assuming it is true, does your 16 year old kid require a car? Do you need to buy a new car every 2 years or can you use the car you have for longer periods.
The fact that Chevy and GM are talking merger speaks volumes to the demand destruction in the automotive industry. Arguing that a car is a necessity is like arguing that people need to wear shoes. Yes they do, but they could get by with one pair if they had to, rather than owning many pairs. The demand destruction is occurring in the discretionary car purchases, not the necessity purchases.

Look, I actually believe at some point that PGM, base metals and commodities will turn around and recover some ground (but not right away, as the deflationary pressures still outweigh the inflationary ones right now), but anyone thinking we are going to reach the bubble levels of the past year needs to take off their rose colored glasses.

This author's glasses are more red than pink.

2008 Oct 22 03:32 PM

[Mark Anthony:]

SeeTheLight:

If Norilsk is running out of cash, they have to SHUT DOWN Norilsk mine immediately. This is NOT something they have a choice. If your business is losing money and you rou out of cash, then the business is closed.

Norilsk is hurting from current low nickel price and is suffering from heavy loss of $1B to $2B per quarter, based on my estimate based on current metal prices.

They spent $6.3B in CASH last year to purchase a very marginal small nickel player LionOre. And now they need to sell SWC for less than $200M in cash? The only reason they would do this, selling SWC at the low, is they desperately need even just $200M in cash.

How long can $200M cash last them if they are losing $1B to $2B per quarter? Again, when you run out of cash, the business MUST be shut down until it can be profitable again. And that removes 45% of the world's palladium supply instantly, benefitting SWC.

2008 Oct 22 04:44 PM

[phdinsuntan...:]

Mark:

how many catalitic converters and fuel cells
do we need with the oil barrel @ $50?

have a nice evening

2008 Oct 22 05:14 PM

[phdinsuntan...:]

I agree with you and Warren
about the danger of USTB,
but SWC PE: 42.80 !!
"when you see a commodity traded far
below its production cost, it is the
best investment you can buy"?
it means nobody wants the commodity,
and it can be this way for many years.
Hopes are that low oil prices can revive the
China US manufacture/debt carry trade
and more energy be burned. But you
must realize that the toxic AAA CDO waste
has polluted credit trust worldwide and
there will be no credit for any dream for a while.
Sorry for that, but is not my fault, I trust
you will be right and recover your money
thanks to the magic of inflation, some day
but not very soon. Also the central banks
can quickly recover the liquidity via interest
rates or repos if trust returns, good luck!

2008 Oct 22 05:27 PM

[Mark Anthony:]

Extremely important update. I now suspect the news that Norilsk is selling its SWC stake could be a false rumor. I still do not have confirmation whether it is false or true. But read my latest comment:

stockology.blogspot.co...

2008 Oct 23 09:13 AM

[SeeTheLight:]

Yes I agree, companies that are "running out of money" do have to shutdown. But a quick look at Norilsk's income statement and balance sheet as of June 30th shows the following:

Profit 6 months 2008: $2.68 Billion (US Dollars)
EPS: $14.2

Current Assets: $12 Billion (4.9B in Cash and Cash Equivalents)
Total Assets: $36 Billion (US)

Current Liabilities: $3.8 Billion (US)
Total Liabilities: $12.7 Billion (US)

Shareholder Equity: $23.8 Billion (US)

Source: www.nornik.ru/en/inves.../

Looks pretty rock solid to me. How many companies you know that can pay all their liabilities with their CURRENT assets.The $230 million in SWC represents only 1% of the total shareholder equity.

I expect that their income will fall, but 2.68B profit is a pretty good buffer before they start seeing red.

On top of their financial statements, in August the company declared a buy back of shares:

www.nornik.ru/en/inves.../

And they are paying a dividend on their shares.

Now I am no financial expert, but usually cash strapped companies do not pay dividends nor do they announce share buy backs two months earlier. Assuming they were in cash trouble, I think they might cancel those two items before fire selling assets.

I note in your update that now you are suspicious of the sale. I wouldn't be that suspicious, its a major dumping a less valuable junior. They made an investment in SWC and now they think its not going to pay off. It's called a stop loss, in all your articles and posts you say the Russians are not stupid, are they stupid enough to hold onto an asset that is rapidly losing value? Seems like they've done their DD and think its viability isn't what it was when they bought it.

That's the difference between "smart" investors and the rest. Smart investors know when to walk away from a bad investment and not be left holding the bag. I think this is the most likely scenario as oppose to the slippery slope theories you are presenting. Usually the simplest answer is the correct one.

You seem to be looking for conspiracy theories as opposed to looking at the simple facts that are omnipresent. Did you even look at the balance sheet or income statement? Anyhow, if Norilsk starts to get into financial trouble the first indicators will likely be stopping the buy back and/or cutting or suspending the dividend. Not selling assets.

To all the other people reading this article. Take this author's advice at your own peril.

Disclosure: I do not own Norilsk, SWC, or any PM stocks. I am cash heavy, but I will start a PM (likely silver) position as an inflation hedge when I start buying equities again.

2008 Oct 23 11:57 AM

[NOWHEREMAN:]

Norilsk needs to raise cash to the tune of $2 Billion by the end of this month to pay down debt due. It defaults, its gone and Putin owns it. Big Surprise.

2008 Oct 23 11:59 AM

[SeeTheLight:]

Also one more comment on your supposition that Norilsk might not actually be considering selling their stake.

Let's assume your supposition is true, that this is a fake report (despite being reported in the Moscow Times, and picked up by the UK Guardian among other reputable newspapers).

Assuming it is fake and its someone trying to manipulate the price of SWC downward (it lost ~20% value yesterday), wouldn't Norilsk come out immediately with a press release saying that they EMPHATICALLY did not make such a statement? Most companies that just took a 25% haircut on their investment due to a false rumor would (See Apple and the Steve Jobs heart attack rumor).

No such press release has been issued, almost a full day after the "rumor" was spread.

Look, I'm not against you, in fact I am trying to help you. You are chasing after fantasies and conspiracies when the blatant facts are staring you in the face. I know you have some holy grail quest that Norilsk will go out of business and palladium will soar, but it flies in the face of the facts that are readily available.

Junior minors in this recessionary environment are risky investments. They are like the long shot horse at the race track paying 50-1. They can pay out big, but only once in a blue moon.

Good Luck. I for one am hoping that soon you will...

SeeTheLight

2008 Oct 23 12:17 PM

[NOWHEREMAN:]

More companies than you can imagine are shutting down mines or suspending operations because the operational costs exceed returns. If cash flow is negative and financing no longer available, quick and decisive halts are the right response to preserve cash on hand. Best to run away and fight another day.

The trick is to find the low cost producers with low short term liabilities, Norilsk isn't one of them.

2008 Oct 23 12:51 PM

[SeeTheLight:]

@ paultaut

I agree that in this environment companies will be cutting back and shutting down mines. Furthermore, many smaller companies will get swallowed up by the bigger companies, especially ones in the development stage.

I don't own Norilsk, but based on its financial statements it seems to have enough to weather a significant downturn. Do you have any supported facts (i.e. links) to support your claim that Norilsk isn't one of them. I'd be interested in reading them, not that I plan to put any money into Norilsk.

Also, I did a search for the 2B in debt you say is owed at the end of the month. I couldn't find anything except this, which is about a Russian Billionaire who has 2B in debt owing at the end of the month and owns a 25% stake in Norilsk:

www.russia-ic.com/news.../

2008 Oct 23 01:13 PM

[NOWHEREMAN:]

Remember how Putin deals with Russian Billionaires in general who own large stakes in Natural Resource stocks.

Most Debt is financed via credit and tied to performance or put another way, to the price of the stock. If the Billionaire is forced to sell 25% on the open market within the next week, it will cause the same sort of implosion that brought down BS, LEH, IndyMac, etc..

Do they have enough cash on hand to withstand the termination of Credit lines and redemption of Bonds if there is a run on assets? Perception is the Key here. A punch to the downside would, IMHO, bring the Russian Government into play with my expected results.

It doesn't really matter whether the Debt is Norilsk's or not, the Billionaire IS Norilsk currently.

2008 Oct 23 01:44 PM

[NOWHEREMAN:]

This is a personal opinion based on the Russian Gov's response to these types of situations in the past. I don't think they will forgo the opportunity presented.

Granted Norilsk appears to be able to weather the short term storm. But I have heard that story before and would rather wait til November before venturing into this particular stock.

Have you seen Nickel prices today?

2008 Oct 23 01:52 PM

[SeeTheLight:]

Well, I am no bankruptcy expert, but he wouldn't have to sell his stock on the open market. The creditor's he owes would take his assets to cover his debts. Now they might sell those shares taken, but I doubt they would flood the market, usually in situations like this they sell them in private sales (usually under the market price). No creditor would flood the market only to see the company do a "Lehman", it simply is not in their best interests to do so.

I have seen nickel prices, and zinc, aluminum, copper, lead, tin, and all the precious metals. They are all in the toilet. Welcome to a recession, the strong survive, the weak do not.

As I published above from their June 30th financial statements, their current assets cover all of total liabilities as of June 30th, now something may have changed since then, but I haven't seen it. Also I looked at their annual report, they have only 600M in long term debt due in Nov. The rest of their debt is most in late 2009 or 2010. So they actually look to be in strong shape so long as the reports are factual, which I grant you is not a sure thing since it is a Russian company.

If you are simply speculating without any basis that is fine, it's your right to do, but so far your opinion isn't backed by anything substantial. You say the russian government has set a precedent in their handling, provide the example.

2008 Oct 23 02:16 PM

[NOWHEREMAN:]

Lukoil.

You are thinking In terms of our style of doing Business.
I'm trying to think in terms of the bodies of Various companies taken by Putin either through "Back Taxes", money owed through failure to implement
"environmental" conditions or outright nationalization. ( most recently the Agricultural Industry because they were acting in collusion to raise prices, no trials, just thank you maam)

His stated National Goal is the Securitization of National Resources to safeguard Russia's future.

2008 Oct 23 04:25 PM

[notsosmart:]

has anybody figured out how much the russians have defaulted on since ww1?(in todays $s)i would not risk one cent there.they move the goalposts without constraint.is it so hard to make good investments outside of dictatorship govts.?

2008 Oct 24 11:49 AM

[NOWHEREMAN:]

They have built up a reserve of about $500 Billion US, I think they will manage to survive.

2008 Oct 24 01:16 PM

[Mark Anthony:]

SeeTheLight:

It is completely misleading, if you look at Norilsk Nickel's H1, 2008 financial report, without considering how much the metal prices have changed since then. Please study the numbers and do the math with current metal prices:
www.nornik.ru/en/inves.../
I will not list all the math details here. But all things equal, with the new metal prices, if you re-run the H1, 2008 financial result, the sale s revenue should be written down by at least -$4.594B. That's more than enough to bring them from a comfortable $2.68B profit, to a very uncomfortable -$1.914B loss.
The nickel price today is less than 1/6 where it was in May, 2007. So don't even pretend that Norilsk Nickel can make a profit at such low price. They can not.
About the stock buyback, Mr. Mikhail Prokhorov himself openly condemned the stock buyback and said it brings the company to the brink of bankruptcy:
malaysia.news.yahoo.co...

2008 Oct 26 11:46 PM

[Mark Anthony:]

No Norilsk's balance sheet. They had $4.8B at the end of June. That's for the whole Norilsk International Group. Counting just the main Russian mine, they probably have $4B cash.

Stock buyback costs them $1B. Leaving $2B in cash.

Operating loss due to low metal prices probably costed another $1B so far. Leaving $1B.

Debt due in November is another $600M gone. Leaving maybe $400M. They can not afford to let the cash run to zero. They have to have a minimal cash amount for normal operation. I really do not think they can sustain operation loss for long, before they have to shut down.

The nickel price is just too low. They are operating at heavy loss. They have to shut down soome or be forced to do so. Why is it so hard to understand? If a mine is not making money it is shut down. Happens all the time. When Norilsk shuts down, it will send palladium price skyrocketing for sure.

2008 Oct 26 11:55 PM

[QuasiYoda:]

SLW is a Silver Royalty Company which is a fantastic way to expose yourself to the Price of Silver POS. Just as a RGLD is for gold. These royalty companys are an excellent way to play Precious Metals PM's as the dirty work is done as far as the royalty company is concerned. Inflation in Saleries of mine employees, Higher tire prices, igher fuel prices etc have all hurt miners in recent years but not the royalty company. They just collect their royalties. The higher the price goes the more they are leveraged to it and the more the benefitas of their business model works for the them. Mine shut down down due to environmental concerns? Kills the miner but mewrely hurts the Royaltyu Company due to a diversification of assets and metal flows all around the world.


Really MArk Anthony do a little research before spread the word that Royalty company's are a weak business model. 1st off they don't borrow a ton of money from banks as they already have it but if they have credit line or have borrowed that is an asset as no one can get financing right now. This dollar rally will be short lived as we have such low rates that money will go seeking a return else where and that right soon. And all these miners whose business models you prefer would waste billions shutting down and later reopening mines while the Royalties company simply wait for their Gold and Silver to start flowing again. Doesn't cost them all that money RGLD has a total of 13 employees I don't know SLW's situation. Your logic here is obviously inverted as to which model is safest and most efficient. I would not doubt if these comnpany are using this difficult environment to add to thier royalty contracts

2008 Oct 27 09:48 AM

[Mark Anthony:]

SLW has counter party risks. Anything that has counter party risk needs to be avoided nowadays. I have already explained what SLW's counter party risks are. No need to repeat here.

Another news from Russia this morning:
www.reuters.com/articl...

Russia's third largest nickel producer, Ufaleynickel, responsible for slightly less than 1% of global supply, now SHUT down production due to low nickel price.

When can we expect the No. 1, Norilsk Nickel, to shut down? It can not be too far away. They are running out of cash fast. That's bullish for palladium and palladium producers.

2008 Oct 27 12:35 PM

[brianzfun:]

The author says there are no pure silver players out there but he is wrong.
CDE is only mining silver and gets only a little gold from a couple mines used to offset some cash costs. They do nothing in the base metals he was referring to, (lead,zinc, etc.)

CDE is the most highly undervalued PM stock right now poised to grow revenues 200%-300% next year at very low cash costs. Pity he doesn't see that, makes me think less of everything else he did say.
-funzout

2008 Nov 11 03:44 PM

[luckyone7:]

Mark Anthony is full of it! Talk about spouting a lot of nonsense. Anyone professing to know about PM's who says: "Out of all precious metals, gold is the least I like" -is seriously deficient. Where does this guy get his information? Gold has recently been as high as A$1400 in Australia -preserving fiat value against an artificially high US $. ( Toilet Paper)

I agree re Silver being a good investment but his comments re CDE were totally inaccurate as already noted by "Brianzfun". In fact CDE's Palmajero Mine which commissions in the first quarter of 2009 will have a Silver Ounce cost of around $1 after taking into account Gold credits!
Listen to Mark at your own risk!

2008 Nov 25 11:47 PM

[jwc:]

Mark Anthony what are you smoking that leads you to hallucinate as such? Very interesting ideas and theories but so out of touch with reality. How much money have you lost with PAL and many of your picks? Obvious is your obliviousness to market realities.

Your analysis are about as inaccurate as the analysts who put a price tag on various companies and give it a "rating" and then after major destruction in share price decide a lowering of rating is justified.

Entertaining read but totally useless. Perhaps you should post your position in the companies you recommend and a date and we'll let the reality of your portfolio determine how credible your picks are. You may ultimately prove to be right, but calling for a future bull market will utimately prove true...but, it many bear markets may occur before this comes to fruition.

jw

2008 Nov 26 03:56 AM

[User 305589:]

mark, you heavily overstate SLW's counterparty risks and totally ignore their huge advantage, what is to not have to deal with the many cumbersome issues of mining metals. slw is a steal here,, much more like cde which has proven in thepast that it cannot execute. CDE's ceo dennis wheeler has managed to let the biggest PM bull in over 20 years go by without the company making a single dime in prfoits and instead has diluted cde to the hilt. chances are, that this will continue ad infinitum.

second, i aggree with your long term bullish argument for Palladium. yet, PAL and SWC have proven in the past that they are poor vehicles for playing the palladium bull. buying palladium futures or options heere might be the simplest and most profitable way to position for the palladium bull.

2008 Nov 27 05:05 AM