A Melman Minute — October 10, 2012

NOTE: Mr. Melman will be appearing at the upcoming "Silver Summit" in Spokane, WA scheduled for October 25-26. He will be appearing in an industry panel on the 25th and offering a presentation entitled "Silver - and gold - forecasts for late 2012 through mid-2013." Cambridge House has assembled a fine array of speakers and many mining companies - with an emphasis on silver exploration and development - will be maintaining exhibition booths at the conference. Mining enthusiasts in the Pacific Northwest are urged to attend.

For want of a better expression, I happen to believe that the Obama campaign may have just stepped into a pile of "Big Bird" poop. In an apparent attempt to gain political favour from Moms and youngsters, Obama has lit upon a remark made by Romney during the initial debate that he would end the subsidy to PBS as one means of reducing government expenditures. Obama morphed that remark into a specific attack against "Big Bird" of the popular "Sesame Street" program.

Romney immediately responded with the comment that while America was confronted with massive problems on many fronts, the President appeared to be doing nothing other than attempting to focus on gaining political advantage via "Big Bird" than addressing those problems. In my opinion, the criticism is valid - and it illustrates, again in my opinion, a vast difference between the approaches of the two candidates.

Romney's remark was a serious statement aimed at determining whether government could continue spending to support almost uncountable agencies or whether it was time to cut back where possible and PBS was a valid potential candidate for cutbacks. During the debate, he also mentioned others.

President Obama's statements offered nothing in the way of solutions to the problems. While giving 'the bird' to Romney for his presumed attack on an icon of children's TV programming, he failed to address the most important subjects of just how much money the US government should spend, how it should raise revenues and how it was to meet the requirements of the legislation which will take effect on January 1, 2013, legislation whose cumulative effects have been labelled the 'fiscal cliff'.

One campaign offered some substance, the other offered cute slogans and undefined actions. However, there may perhaps be some valid reason for the President to stress such a throwaway remark and make it part of this campaign. After all, in one of his most famous quotes, the noted author H. L. Menken wrote, "No one in this world has ever lost money by underestimating the intelligence of the great masses of the plain people. Nor has anyone ever lost public office thereby."

There is a reason why I have written with some frequency on the choices in this forthcoming American election and why I will be writing more and more about the upcoming Province of British Columbia election slated for this coming spring. The reason is that in each contest, there is a direct contrast between the approaches of both candidates and political parties, contrast that have serious implications for our world of precious and base metals mining.

On one side, that of reasonable and rational development of natural resources, we have the majority of Republicans in America and the provincial Liberal and Conservative parties in British Columbia. On the other side, one that we might label "fanatical environmentalism at any cost", we have elements of the Democratic Party in America and both the New Democratic Party (NDP) and the Green Party in Canada.

If Romney and the Republicans win in November and the Liberals and Conservatives combine to win in British Columbia in May, then that world would likely continue roughly along its present pathway.

However, I believe it is a valid fear that if Obama and the Democrats win in November and the NDP wins a strong triumph in BC (which now appears to be a sound bet) then the forces of environmentalism may indeed gain a powerful stronghold within the respective regulatory systems as they apply to mining exploration and development, thereby adding additional increments of regulations, complexity and expenditures to an already highly-burdened mining community.

Politics is important, particularly when opposing concepts stand in such vivid clarity.

From an investment point of view, I believe that triumphs of the Left would make it more difficult and chancy to gain ultimate approval for mining ventures, adding some new elements of risk to such investments - but at the same time, at The Melman Report we opine that if new ventures are discouraged and present reserves of economic ore are depleted, the net result could be upward pressure on the commodity prices for both precious and base metals.

Within the context of that last sentence, another area of great discontent has emerged which could threaten supplies of several metals, particularly including gold, platinum and palladium. We are referring to massive unrest and instability now evident within the Republic of South Africa.

Labour troubles within the South African mining industry continue to spread and mining operation closures have been following in their wake. To date, mining operations have been crippled at platinum producers Atlatsa Resources and Anglo American Platinum Ltd. as well as gold producers Goldfields Ltd., AngloGold Ashanti, Gold One International Ltd. and Harmony Gold Mining. Thousands of workers have been fired.

The South African Chamber of Mines stepped in and offered the largest union a package of raises and the unions are to reply by Thursday. In the meantime, South Africa's general reputation as a peaceful, secure nation has taken a big hit and the value of their home currency, the Rand, has fallen to the lowest level in three years in international currency trading and bond rating agency Moody's has just lowered the rating on South African government bonds.

As miners demands for higher wages appear to be gaining traction, workers in other industries such as truckers, police officers, garbage collectors and municipal workers are now demanding higher wages and are threatening new waves of strikes on Thursday unless their demands are met.

From our point of view, unless the situation is brought under quick control, supply shortages in the above mentioned metals could develop and we offer the chart on platinum as evidence that there has been a clear connection between recent labour unrest and strong gains in the white metal.

One last word this morning about a subject which I believe is gaining real 'traction' during the American presidential campaign. The "Institute for Science and International Security" just reported that they expect Iran to be in a position to manufacture their initial nuclear weapon within two to four months! This is the swiftest time line proffered to date regarding Iran's nuclear progress.

This is also a matter of contention between the Presidential candidates with Romney willing to draw 'a line in the sand' which Iran must not cross while Obama has been maintaining a comparatively softer tone in his comments.

It is difficult to imagine the specific consequences which might ensue if nuclear weapons were used in the region - or if Israel pre-emptively struck out against Iran in order to destroy their nuclear capability. However, they would likely be of the direct nature and would likely accrue to the benefit of the precious metals prices.

We will follow this story closely and report as needed.

As of 8:45 AM PDT, financial markets are quiet but lower with the Dow Industrials now down by about 70 points while Canada's TSX Index has lost around 25. Precious metals are little changed with gold holding near $1,765 and silver close to $34 per ounce. Base metals are trading to the downside by more than one percent and mining share indexes are little changed.

In other markets, Crude Oil is ahead by nearly one dollar to above $93; the US Dollar Index is down by nine basis points to near 79.90 and long term interest rates have moved moderately higher with 30-year US Treasury bonds now yielding close to three percent.

All quotes US$ unless otherwise noted.

As previously mentioned, I will be traveling all day Friday so there will be no Melman Minute that date. They are scheduled to resume Monday, October 15

← All A Melman Minute