zfx.mt burgess.drake.oh and aim., page-6

re: walter.is lawrence roulston right. No problem Walter.I think its done more out of a need to support my belief in whats happening with base metals and Aim as some of the feedback makes me think a little more about both the positives and negatives of what can only be termed a risky investment environment.

Here's a case in point.

Lawrence Roulston can be a bit too positive(particularly with gold)at times for my liking,but I think his comments in this extract from one of his articles DOES make a lot of sense considering the strength in the prices of base metals and the fundamentals(predominantly Chinese/India growth)that seem to be continuing to support them.

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http://www.kitco.com/ind/resopp/aug072006.html

Remember the commentators in May who misread the correction in metal prices and argued that it was all over for the metals? Sure enough, the run-up in prices in May was driven by speculators. The present rebound, coming after the speculators were washed out of the market, is part of a long term uptrend that is still at an early stage.

All you have to do is look at the longer-term metal price charts to understand the big picture. Five years ago, copper was $.60 a pound, nickel was $2 a pound, gold was $252 an ounce and silver was $4 an ounce. The stunning gains in metal price reflect fundamental changes in the economic world.

The gold and silver prices will probably continue to ratchet higher over time, in exactly the way they have over the past five years. The gains will be driven by the same factors that have been in place during that period. In the next issue, I will go deeper into the outlook for the gold market.

Nobody expects today's base metal prices to continue rising forever. But, the long-term forecasts that are being used are totally ludicrous. The big brokerage firms, the engineering firms, even the mining companies are showing long term metal prices that start well below the current levels and then drop back to so-called long term averages within about two years.
I keep asking the people who are working with those figures: What are the new mines that will come into production in two years that will bring the prices down?

The answer, from as many knowledgeable mining industry people as I have been able to put the question to its always the same: There are no big new mines that will come into production in that time frame. But, they argue, metal prices have always gone in cycles, and therefore they are imposing the historic cycles on the present situation.

The last cycle ended when economic growth slowed at the same time that several big new mines came into production. At that time, there was not a massive horde of wealth in the hands of oil exporting nations that we have now with $70 oil. China was not a factor. India was not a factor.

While analysts use the so-called long term averages for metal prices, the forecasters insist on using today’s energy price, based on $70 oil, for the life of the projects.

Not too many new mines look attractive with costs at the present level and revenues based on historical figures. We will never see those historical prices again. Those historic figures are measured in dollars that had an entirely different value than today or in the future.

In other words, even if demand for metals suddenly evaporated and an abundance of new mines started producing, the equilibrium in the markets would come at metal prices that reflect the fact that the dollar is worth substantially less now than it was a decade ago or two decades ago.

The handful of smaller mines presently under development won't come near to offsetting the older mines that will be shutting down as they run out of ore. The biggest copper mine in the world, Freeport’s Grasberg mine in Indonesia, has just seen yet another reduction in forecast production.

Instead of building new mines, the mining industry remains totally obsessed with buying, acquiring, merging, consolidating and otherwise shuffling the ownership of existing production. It takes many years to bring new mines into production and there are nowhere near enough new development projects under construction, or anywhere near construction, to come even close to offsetting depleted mines, much less catch up to rising demand.

The demand side of the metals markets is gaining strength. Copper's recent run to $4 was driven by speculators. After many of those speculators were washed out of the market, the current strength is coming from the fundamental demand for metals.
Many investors remain fearful of a sharp decline in the US economy. Certainly, the US economy has serious problems, including consumer debt, government debt, the on-going government budget deficit and the enormous trade deficit.

That situation is clearly unsustainable. There is no question that there must be a readjustment. I dare say that many investors seem to be missing the point that a process of adjustment has been happening for years… and will continue in a way that results in a gradual realignment of the US economy with the rest of the world.

That process of adjustment is based on the fact that the value of the US dollar continues to erode, having already lost 30 or 40% of its value against other major world currencies. The dollar has lost a substantially greater value when measured against hard assets, such as gold.


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