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David Urban
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A true investing contrarian with more than a decade's experience in the financial markets. I review a variety of sectors with both long and short ideas. @dcurban1 Blog address: http://www.atruecontrarian.com/ The top gold and silver analyst on Seeking Alpha. One of the few that does the hard... More
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A contrarian investor with a global macro view.
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The 2012 Investment Forecast
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  • Banro Corporation (BAA) – The Newest Mid-Tier Gold Producer in Gold’s Final Frontier

    While most investors chase mid to large cap names in the Americas, Africa remains the final frontier for gold mining stocks based on a number of factors.  Political risk in North Africa, rumblings about nationalization in South Africa, and the stability or lack thereof in Zimbabwe and Somalia can be enough to give many investors pause.

    But for those who take a look closer they will find compelling stories and valuations in Central Africa and with one of those companies being Banro  Corporation (NYSEMKT:BAA).

    Banro has 13 Exploitation Permits along the Twangiza-Namoya gold belt in the Democratic Republic of the Congo which is similar in size and geology to the famous Ashanti Gold Belt in Ghana.  

    Within the 13 permits four deposits have been discovered.  The first deposit, Twangiza, is on schedule for completion in the fourth quarter of 2011.  The mill, located on top of a mountain, will process 1.7 million tonnes per year with an annual production of 120,000 ounces of gold for the first 5 years at cash cost of $356 per ounce.  According to Michael Cooper at CFMonitor.com cash costs could rise to $450 per ounce with the effects of oil price increases, still at the low end of the cost spectrum.

    The latest 43-101 for Twangiza shows Measured and Indicated Resources of 5.6 million ounces of gold of which will be upgraded to Proven and Probable in the third quarter to this year.  

    Cash flow from Twangiza will go towards the build-out of the Namoya project in the southwestern part of the gold belt.  Namoya is expected to cost $118 million to build and produce an estimated 124,000 ounces of gold per year when completed at a total cash cost of $400 per ounce.  Project capex would be paid back in one year’s time at current gold prices.

    Upon completion of Namoya cash flows will be directed towards the creation of a hydroelectric plant 25 km from Twangiza which could be built without a dam and provide enough power to reduce production cash costs at Twangiza Phase 1 and 2 by $100 per ounce.  

    Twangiza Phase 2 will access the ore at the bottom of the mountain using a new processing facility with an estimated capex of less than $400 million.  

    The final two deposits, Lugushwa and Kamituga, are still in the exploration phase and show strong upside potential.

    Once the first three projects are complete Banro will have an estimated annual gold production of almost 500,000 ounces by 2016.

    Banro has been active in the local communities as well building schools through the Banro Foundation building two high schools, two primary schools, a health care center, and the rehabilitation of local infrastructure.  

    Investors have spent the final few years racing towards the low hanging fruit in the mining sector grabbing companies with properties in the Americas.  While many have done well Africa has been largely ignored but that may be changing soon.  

    Despite swimming in cash from high gold prices mining companies are finding that excess cash gets eaten away by inflation for large scale projects.  

    Inflation is beginning to rear its ugly head in Brazil and Argentina where they are fighting inflationary forces for different reasons.  Already we have seen capex numbers increase by more than 25% for projects like Cerro Casale or be scaled back as is the case with Galore Creek in Canada.  

    The threat of nationalization in Bolivia and higher taxes in Peru has been giving companies consternation as project costs rise and margins fall.

    In the Congo, inflation risk is stabilizing as the inflation rate trends lower and economic growth moves forward.  

    In a sign of increasing faith in the long-term future of the Congo, Newmont Mining (NYSE:NEM) recently took a 16.8% stake in Loncor Resources (NYSEMKT:LON) which holds rights to more than 21,000 square kilometers in the Congo.  

    While Newmont’s production profile has been flat for the last few years Africa is the only area showing growth.  The investment in Loncor is not just an investment in an exploration company with strong potential but a stamp of approval for the Congo.

    While investors are rushing into gold and silver stocks located in the Americas Africa remains overlooked.  Instead of chasing returns investors should look for value in African mining stocks like Banro who will enter into production later this year and rising to almost 500,000 ounces per year by 2015.  

     
    I am long BAA and NEM



    Disclaimer
    Communications are intended solely for informational purposes. Statements made should not be construed as an endorsement, either expressed or implied. This article and the author is not responsible for typographic errors or other inaccuracies in the content. This article may not be reproduced without credit or permission from the author. We believe the information contained herein to be accurate and reliable. However, errors may occasionally occur. Therefore, all information and materials are provided “AS IS” without any warranty of any kind. Past results are not indicative of future results.
    PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN THE STOCK, BOND, AND DERIVATIVE MARKETS. WHEN CONSIDERING ANY TYPE OF INVESTMENT, INCLUDING HEDGE FUNDS, YOU SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS: OFTEN ENGAGE IN LEVERAGING AND OTHER SPECULATIVE INVESTMENT PRACTICES THAT MAY INCREASE THE RISK OF INVESTMENT LOSS, CAN BE ILLIQUID, ARE NOT REQUIRED TO PROVIDE PERIODIC PRICING OR VALUATION INFORMATION TO INVESTORS, MAY INVOLVE COMPLEX TAX STRUCTURES AND DELAYS IN DISTRIBUTING IMPORTANT TAX INFORMATION, ARE NOT SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.
    Before making any type of investment, one should consult with an investment professional to consider whether the investment is appropriate for the individuals risk profile. This is not intended to be investment advice or a solicitation to purchase any of the securities listed here. I will not be held liable or responsible for any losses or damages, monetary or otherwise that result from the content of this article.



     
     
     
    Aug 11 9:57 PM | Link | Comment!
  • Washington DC has become a Significant Risk to Investors’ Portfolios.

     

    S&P’s warning on the US credit rating and the subsequent refusal to acknowledge the problem should give investors pause.

     

    The inability to tackle the budget deficit and debt problem is causing the Dollar to selloff and head towards levels not seen since late 2009. 

     

    The US government continues to follow the thesis posited in my 2011 commentary. Instead of cutting spending, both parties in Congress are fighting to see how little they can cut. 

     

    As the debt ceiling deadline approaches, Republicans are being backed into a corner with media outlets calling for doom if the debt ceiling is not lifted and constituents screaming for spending cuts.

     

    The recent FOMC statement highlights the problems coming out of Washington DC as Federal Reserve governors Charles Plosser and Richard Fisher made the following comments in recent speeches:

     

    Richard Fisher’s comments from a speech on April 8th, 2011: http://www.dallasfed.org/news/speeches/fisher/2011/fs110408.cfm

     

    Personally, I felt the liquidity needed to propel our economy forward was sufficient even before the FOMC opted last November to buy $600 billion in additional Treasuries on top of the committee’s pledge to replace the runoff of our $1.25 trillion mortgage-backed securities portfolio. I argued as much at the FOMC table. I considered the risk of deflation and of a double-dip recession to have receded into the rearview mirror.

     

    Charles Plosser’s comments from a speech in Harrisburg, PA on April 1, 2011: http://www.philadelphiafed.org/publications/speeches/plosser/2011/04-01-11_harrisburg-regional-chamber.cfm

     

    Some fear that the strong rise in commodity and energy prices will lead to a more general sustained inflation. Yet, at the end of the day, such price shocks don’t create sustained inflation, monetary policy does. If we look back to the lessons of the 1970s, we see that it is not the price of oil that caused the Great Inflation, but a monetary policy stance that was too accommodative. In an attempt to cushion the economy from the effects of higher oil prices, accommodative policy allowed the large increase in oil prices to be passed along in the form of general increases in prices, or greater inflation. As people and firms lost confidence that the central bank would keep inflation low, they began to expect higher inflation and those expectations influenced their decisions, making it that much harder to reverse the rise. Thus, it was accommodative monetary policy in response to high oil prices that caused the rise in general inflation, not the high oil prices per se. As much as we may wish it to be so, easing monetary policy cannot eliminate the real adjustments that businesses and households must make in the face of rising oil or commodity prices. These are lessons that we cannot forget.

     

    Yet when it came time they voted to continue the same policies they spoke out against exposing them as doves rather than hawks.  In contrast, Thomas Hoenig who spoke out against accommodative monetary policy not just in speeches but in FOMC statements as well.

     

    We have the Democrats spending like drunken sailors, the Republicans paying lip service to the reason they were elected to Congress, and a Federal Reserve that cannot define how inflation is created. 

    At this time one should be reducing the leverage in their portfolios until the investment landscape becomes clear.

     

     

     

     

    Disclaimer
    Communications are intended solely for informational purposes. Statements made should not be construed as an endorsement, either expressed or implied. This article and the author is not responsible for typographic errors or other inaccuracies in the content. This article may not be reproduced without credit or permission from the author. We believe the information contained herein to be accurate and reliable. However, errors may occasionally occur. Therefore, all information and materials are provided “AS IS” without any warranty of any kind. Past results are not indicative of future results.
    PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN THE STOCK, BOND, AND DERIVATIVE MARKETS. WHEN CONSIDERING ANY TYPE OF INVESTMENT, INCLUDING HEDGE FUNDS, YOU SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS: OFTEN ENGAGE IN LEVERAGING AND OTHER SPECULATIVE INVESTMENT PRACTICES THAT MAY INCREASE THE RISK OF INVESTMENT LOSS, CAN BE ILLIQUID, ARE NOT REQUIRED TO PROVIDE PERIODIC PRICING OR VALUATION INFORMATION TO INVESTORS, MAY INVOLVE COMPLEX TAX STRUCTURES AND DELAYS IN DISTRIBUTING IMPORTANT TAX INFORMATION, ARE NOT SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.

    Before making any type of investment, one should consult with an investment professional to consider whether the investment is appropriate for the individuals risk profile. This is not intended to be investment advice or a solicitation to purchase any of the securities listed here. I will not be held liable or responsible for any losses or damages, monetary or otherwise that result from the content of this article.

     

    May 02 2:28 PM | Link | Comment!
  • Currency Risk in South America – Brazil and Argentina

     

     

    Inflation is beginning to rear its head globally.  Demand for commodities worldwide is on the rise causing shortages and riots as countries attempt to deal with the problems associated with population growth and a rising, educated middle class.  Regime changes across the MENA region are adding additional risk factors to the equation. 

     

    Central banks around the world, with the exception of the US, Japan, and Turkey are have entered the rate rising cycle with the ECB expected to join the crowd shortly. 

     

    In South America, Brazil and Argentina are on two different paths with respect to their economies yet fighting the same inflation risks. 

     

    Brazil’s economy has been on a tear for the past decade.  Once known as a basket case and a huge investment risk, Brazil undertook difficult reforms and renewed an agreement with the IMF in 2001.  Within two years Brazil achieved a primary budget surplus and paid off the IMF 2 years ahead of schedule. 

     

    During this period, Brazilian companies have grown into global leaders and were recently awarded the 2016 Summer Olympics. 

     

    The growth does not come without a price.  Currently, Brazil is in a very touchy situation with respect to their economy.  IPCA inflation rose to 6% in January and economic growth looks to continue its strong pace coming in around 7.5% for 2011.  This has forced the central bank to increase the SELIC rate by 50 basis points to 11.75%.

     

    Brazil’s problem is that it needs FDI ahead of the Rio Olympics and has been trying to stem the hot money inflows with a combination of capital controls, FX intervention, and interest rate increases. 

     

    The problem with increasing interest rates is that it attracts even more hot money in the global fixed income area as investors chase yield.  Capital controls are difficult to implement and not looked upon well by international investors.  FX intervention can be very dangerous as it often backfires.

     

    In Argentina they are having the opposite inflationary problem.  The Kirchner government has embarked on a program creating hyperinflation across the country. 

     

    While issues related to the Argentina’s IMF default in 2001 lie unresolved, Argentina has been cutoff of international capital markets and CDS spreads on Argentine debt are in default territory. 

     

    The government has been raiding Central Bank reserves since former Central Bank President Martin Redrado was let go for not backing a plan that would allow the Argentine government to tap central bank reserves in order to pay debtors.  

     

    The Kirchner government has been giving employees generous raises to the tune of 25% in order to combat inflation and a loss of purchasing power.  The additional salaries then flow back into the consumer markets as consumers look to spend their cash as prices continue to rise further eroding their purchasing power and any gains they have made.  This creates a hyperinflationary cycle which continues to feed upon itself ultimately ending in a government default and economic collapse.

     

    In addition, private sector economists in Argentina are being pressured by the government to stop publishing data regarding inflation under threat of heavy fines if they continue publishing.

     

    Compounding the problems in Argentina are provincial and national elections scheduled for later this year.  As the government tries to maintain its hold on power the promises will become greater as they promise everything to everybody. 

     

    Investors looking at mining companies in Brazil and Argentina need to be aware of the risks forming in South America.  It was only a few short years ago that investors woke up to Bolivian President Evo Morales attempt at nationalization for the mining industry which caused immediate haircuts in those stocks with operations in Bolivia. 

     

    This is not to say that you should avoid every stock with Brazilian and Argentine operations but investors need to be aware of the potential risks.  There is a risk of overheating in Brazil and hyperinflation in Argentina while both countries attempt to deal with inflation attacking their economies in very different ways.

     

     

     

    Disclaimer
    Communications are intended solely for informational purposes. Statements made should not be construed as an endorsement, either expressed or implied. This article and the author is not responsible for typographic errors or other inaccuracies in the content. This article may not be reproduced without credit or permission from the author. We believe the information contained herein to be accurate and reliable. However, errors may occasionally occur. Therefore, all information and materials are provided “AS IS” without any warranty of any kind. Past results are not indicative of future results.
    PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN THE STOCK, BOND, AND DERIVATIVE MARKETS. WHEN CONSIDERING ANY TYPE OF INVESTMENT, INCLUDING HEDGE FUNDS, YOU SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS: OFTEN ENGAGE IN LEVERAGING AND OTHER SPECULATIVE INVESTMENT PRACTICES THAT MAY INCREASE THE RISK OF INVESTMENT LOSS, CAN BE ILLIQUID, ARE NOT REQUIRED TO PROVIDE PERIODIC PRICING OR VALUATION INFORMATION TO INVESTORS, MAY INVOLVE COMPLEX TAX STRUCTURES AND DELAYS IN DISTRIBUTING IMPORTANT TAX INFORMATION, ARE NOT SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.

    Before making any type of investment, one should consult with an investment professional to consider whether the investment is appropriate for the individuals risk profile. This is not intended to be investment advice or a solicitation to purchase any of the securities listed here. I will not be held liable or responsible for any losses or damages, monetary or otherwise that result from the content of this article.

     

     

    Mar 08 11:39 AM | Link | Comment!
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