A Melman Minute — February 4, 2008

NOTES RE: “GLOBAL WARMING”

There are many important news events related to our world of precious and base metals, but one paradox which indirectly affects our industry is beginning to stand out. As many observers have noted, the recent hysteria - and I use that word in its deliberate meaning - over man-made ‘Global Warming’ has created a fear that the mining world is going to be inundated with additional rules and regulations which could truly adversely affect the industry’s efficiency.

If it turned out that man-made Global Warming was indeed an accurate description of coming events, then the regulations might make some sense. But what if the hysteria turns out to be nothing but a collection of ‘hot air’?

Just for the record, here in British Columbia we are undergoing a severe winter, with below normal temperatures and heavy snows in southern BC and mind-numbing cold in the northern part of the province. The western U.S. has been staggered by some of the heaviest historic mountain snowstorms ever recorded and the cold even reached into major California metropolitan areas where snow reached ground levels. And just recently, we are hearing about snowstorms and cold waves in China that are virtually unprecedented and which have crippled industry, endangering the lives and well-being of literal multitudes.

To top it off, for each of the past two years, we were told to watch out for a parade of the worst hurricanes on record. In fact, the last two hurricane seasons in America and Canada were almost total non-events as red-faced forecasters scrambled to explain away their dismally inaccurate prognostications.

Does all of this sound like rampant, out-of-control Global Warming? Not to your editor - and I would ask that everyone connected with mining begin to spread the word that politicians should tread slowly before they inundate our industry with ill-thought and scientifically unsound new regulations which represent nothing but pandering to the media and masses.

President George W. Bush, once thought to be a rigid ‘conservative’, has just brought forward a budget for the next two years that would make the most rabid fiscal liberal turn red with embarrassment. Here are some of the details.

During the present fiscal year, American governmental expenditures are expected to top $3.1 trillion, making it the first time spending has ever breached the three-trillion-dollar level. This represents an increase in expenditures of six percent over the past year and, at the same time that spending is rising vertically, tax revenues will be diminished by extending the Bush tax cuts - with the net result being a prediction of $400,000,000,000+ budgetary deficits both this year and in the coming fiscal year of 2009 (all prices US$).

(We have no argument with tax cuts of virtually any sort, but it is our opinion that they should be accompanied by similar reductions in spending in order to maintain fiscal integrity. Politicians seem to love the ‘tax cut’ portion of the argument, but are habitually averse to the ‘spending cut’ side of things.)

Given that “Dubya” is near the end of his last term and is therefore a ‘lame-duck’ President with no concerns about re-election, it seems somewhat amazing that he would bring forth a budget which is likely to be ill-received by the Republican Party’s conservative base.

The gold market encountered a new round of selling this morning which dropped prices to below the $900 level for the first time in several trading sessions. After rising to above $910 in overnight Asian market action, gold encountered new rounds of selling in Europe and North America and, after one hour of North American market action, the yellow metal sits near $895. Silver is also down sharply, selling near $16.50 and down over thirty cents on the day, but both platinum and palladium continue to move higher, the former up about $20 to near $1,780 and the latter up $8 to near $416.

Platinum and palladium, which are both in short current supply with minimal surplus warehouse stocks on hand, continue to benefit from fears of shortages in South Africa which produces about 80% of both metals’ supplies.

Financial markets turned weak early in the session with the TSX down about 20 points and the Dow Industrials off by 70 points at 7:30 AM PST.

The chart on the Exchange Traded Fund (ETF) for gold shows that, so far, this decline in gold is of a similar nature to other previous sell-offs and does not yet alter the strong long-term uptrend of the gold chart. It should be noted also that the ETF trades at about a 1.25 percent discount to the spot price of gold, so a reading of 88.6 on the ETF, indicating a price of about $886 per ounce, actually represents a spot price of about $897.

In other markets, base metals, petroleum and the currency markets are all relatively unchanged.

DISCLAIMER

The information presented above is based on data which we believe to be from reliable sources, but the accuracy of which cannot be guaranteed. Any opinions or predictions contained herein are those of the editor and are likewise offered also for information purposes only.

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