The Best of Times

Posted by David & Eric Coffin - Hard Rock Analyst Journal

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Copper has now traded to at all-time highs in notional terms. On an inflation adjusted basis that puts red metal pricing at the level of a century ago in US Dollar terms. That helps support our take that 20th century pricing was more of an anachronism than the past decade of gains. Some are now suggesting the big gap in copper supply could come sooner than we had assumed. That has helped recent gains, but we are still cautious about the near term as high prices bring more inventories to the system.

Gold and silver are also being well supported at these higher levels. They will be more influenced by US$ moves than copper, and at this point it appears the US Dollar should hold its own against the Euro. Another area of support for metals has been coming from inflation concerns in the growth economies. That may increasingly become the best gauge for metal price direction in 2011, so it will be important to keep an eye on tightening measures such as higher interest rates in those economies.

China in particular has focused on increased bank reserve requirements rather than interest rates to cool its economy, but did increase its bank rate by 25 basis points on Christmas day. More near rate hikes may still be in the offing for China, and for other Asian economies with rising rates of consumer inflation.

We would also note that a fair number of early placements by miners into more junior companies have been rolled over for strong gains during December. Gains taking on this sort of placement have rarely been an issue during warehousing cycles since this sort of placement was usually followed by either a take-over or loss-taking the bear had arrived. We don’t view this profits-taking as proof that an intermediate top is at hand, but it confirms others who know the sector are feeling more cautious. However, finding buyers for these positions hasn’t been an issue.

Capital is still plentiful for juniors who seem to be lagging sector valuation gains that come with high metal pricing. Juniors who are advanced enough are taking cash injections in $100s of millions that will go towards creating cash flow. In short, an orderly process of gains taking and reassessment is still the order of the day. The big change is that companies that would have needed big costs to get debt funding a decade ago are now funding mine development with well priced equity placements.

We reiterate that some consolidation in the sector seems likely after such a strong run, but not that we are suggesting a major correction. Along with early year gains-taking we do expect a rotation into newer deals, and are looking at the potential of a number of these. This year has garnered the shift to a perception we had looked for of mining as a market mainstay rather than a cyclical sector. That shift has actually been stronger than we could have asked for, and busier.

After a long year we have taken some family time through Christmas, but will be back early in the 2011 with some thoughts on how the rotation within the mining sector is likely to play out. We hope that you participation in the sector has added some cheer for your holiday season this year, but more importantly that regardless of how you celebrate year end that has been in the embrace of family and friends.


It’s a secular bull market for metals and resources. We’ve been saying that for nine years. And we’ve been right. Another thing we’ve been right about is the growing importance of the Yukon as an exploration destination and, more recently, Area Play. HRA was there early and continues to follow several of the biggest winners in the play and is tracking dozens of others for potential inclusion in HRA publications.

CLICK HERE to access your FREE Yukon Report from HRA now! HRA initiated coverage on 19 companies since early 2009 – the average gain to December 1, 2010 is 288%!

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