A Melman Minute — March 4, 2008

Live from PDAC in Toronto

Greetings once again from the massive PDAC Convention where almost 1,000 companies are exhibiting to an audience estimated at 20,000 - one of the largest gatherings of miners, investors and the interested public on record.

Form our point of view at TMR, the convention also has given us an opportunity to compare our point of view to those of other prominent mining analysts. Here is a composite of some of the opinions offered during the “Investor’s Forum” held Sunday, March 2.

In responding to an attendee's query, Greg McCoach noted that China remains a powerful and growing force for expanding commodities demand. He recalled a conversation during his most recent trip to China when he asked a young woman regarding the most prominent religious direction in that most-populous nation. The girl unhesitatingly replied, "capitalism!" Economic growth is the new religion in China and they are pursuing it with abandon.

During his presentation entitled "Missed the Bull, Now's Your Chance", Kaiser detailed a list of at least thirty potentially difficult problems now facing the United States government, calling the situation 'unprecedented'. Among the problems he noted were the subprime difficulties, rising foreclosures, falling home prices, rising energy costs, the collapse of many derivative vehicles and a potential stock market collapse.

He opined that the metal commodities had yet to peak - by a long shot. In addition, he discussed one of his primary concerns, which was the gradual diminishment of the American Worldwide Hegemony. Kaiser stated that a new tri-partite situation is now developing where America, China and Europe will be the primary players.

He summarized by saying, "the best is yet to come" and indicated that the parade of severely negative American economic news was not yet finished, predicting that in the near future, we would see the release of new information which could drive the Dow Industrials down by an additional two or three thousand points.

David Coffin also spoke about the impressive growth brought about by capitalism in China which was fueling industrial demand and creating a thirst for all natural resources, also pointing out that both China and India had a tradition of free markets and the latest developments meant that they were simply returning to the culture which had dominated for so many past centuries.

Coffin also wondered, given the lack of new, major ore body discoveries in recent years, just where the required metals were going to come from. One potential solution is for metals prices to soar so high that even today's most uneconomic marginal ore bodies might then become economic and undergo development.

In a separate seminar on commodity futures, Allan Williamson of HSBC Bank declared that several forces were converging to create higher base metals prices in particular. These included growth in presently-emerging markets; a declining U.S. Dollar and falling reserves in several important commodities as measured by the London Metals Exchange warehouse stock numbers.

He also stated that many important financial indicators have turned solidly negative in recent months, including mortgage defaults, rising price inflation, poor financial market performance, new credit approval restrictions and growing bank losses. Combined with falling house values, this has caused many consumers to diminish their residential borrowing, creating a cumulatively negative impact on overall economic activity.

Like several other speakers, Williamson noted that debt figures at all levels are up. Combined with declining savings, he opined that an important crisis might lay ahead where massive amounts of debt, even that of higher quality, will not be able to be serviced properly.

One of the most consistent topics emphasized by many of the speakers at both the financial and commodity seminars was the relentless growth of the "BRIC" countries, namely Brazil, Russia, India and China. China's economy is currently expanding at a rate approximating 11% while the other three are moving ahead at about 8% per year. Each of these growing economies will require ever-larger quantities of metals for housing, infrastructure, transportation and industrial production. As several speakers pointed out, declining inventories of many base metals in the past few years has put upward pressure on the supply/demand equation in favor of higher prices.

Yesterday, Jim Steele of major banking firm HSBC gave an important speech in which he listed several factors working to support the gold price, specifically including weakness of the U.S. Dollar, failures in the credit markets in general and growing failures in the municipal bond markets.

As can be observed, many of these themes are consistent with our outlook at “The Melman Report.”

We will be heading back to the paradise of Vancouver Island tomorrow which will make it difficult to prepare a Melman Minute on Tuesday, March 5, but they will resume on schedule on the 6th.

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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