A Melman Minute — June 8, 2011

PERSONAL NOTE - Many thanks to those attending the just-concluded Cambridge House Resource Conference in Vancouver. Despite excellent weather which might have induced some potential attendees to head for the golf course or the hiking trails and despite the attention given to the Vancouver Canucks Stanley Cup chase, , attendance held up well with an estimated 4,000-5,000 visitors and investor interest appeared to be at a very high level.

Our presentation entitled On the Road to Hyperinflation revised June 2011 was well-received and, judging by the spontaneous 90 minute post-presentation question-and-answer session, we attained our objective of raising interest in the subject matter. A transcript of the presentation is in preparation and should be completed and posted on-site by this weekend.

One story of potential significance to mining companies developing projects in the South American mining nation of Peru was the results of that countrys weekend elections. The winning candidate was Ollanta Humala, Perus new President. The great difficulty for the world of mining is that Humala is widely regarded to be a Leftist within the same mould as Venezuelas Chavez or Bolivias Morales. As a result, when Humalas election became official, shares of mining companies active within Peru were hit hard in trading this past Monday morning.

One of the charts which best illustrates the impact of the election is Southern Copper, a major copper producer active in Peru, which fell by over 11%, from Fridays close at 34 5/8 to Mondays opening at 30 ¾. The great fear is that Peru will soon impose both substantial tax increases plus additional social requirements on the mining industry under Humala. There is also, at the extreme edge of such considerations, the fear that Humalas victory could lead to an increasing possibility of eventual nationalization of Perus mining industry.

In fairness, it must be reported that Humala has recently declared that he has modified some of his earlier, more radical views and that he will be led by the countrys constitution. He also clearly stated that he is well aware of the importance of the mining industry to Perus economy.

(The use of Southern Coppers chart is in no way to be considered a statement either for or against any investment considerations of the company. It is used only for illustration purposes relating to the election since Southern Copper is an important mining company within Peru.)

Another chart of some potential significance is the Dow Jones Industrial Average which has now been in decline for several weeks and looks ready to break through important support levels, particularly those close to the psychologically important round number of 12,000.

As can be observed, the Dow had corrected during September 2010, November 2010, March 2011 and, in a lesser fashion, April 2011 but succeeded in rebounding from each of those selling spells. The important question is whether this correction will be followed by quick recovery or whether it will have a larger and longer-lasting impact.

There are, however, substantial economic reasons why this one might be different from those other selling waves as the background of economic data has turned decisively negative during recent weeks. In fact, even seemingly perpetual optimist Fed Chief Bernanke turned somewhat pessimistic yesterday in an address to the American Bankers Association when he admitted that, ...the recovery looks to be continuing at a moderate pace, albeit at a rate that is both uneven across sectors and frustratingly slow from the perspective of millions of unemployed and under-employed workers

There is also a truly major implication contained within Bernankes comments. Many of the most optimistic predictions for any decline in the size of Americas future debt and deficit numbers have been based on a powerful and sustainable recovery. However, given the tenor of these new comments, that optimism many not be justifiable and those predictions will have to be altered to the negative something we at TMR believe to be the true case.

As of 10:00 AM, most markets are trading within fairly narrow ranges. Financial markets in America and Canada are relatively little changed, precious metals are down moderately, base metals are virtually unchanged on balance but mining share indexes continue to under-perform the metals themselves and are down quite sharply in early trading.

In other markets, Crude Oil is strong and now sits above the $101 per barrel mark, long term interest rates are somewhat lower while the US Dollar is a bit stronger in currency markets.

All quotes US$ unless otherwise indicated.

Next Melman Minute scheduled for Friday, June 10, 2011.

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