Immortalized in film by screen siren Marilyn Monroe, it’s a well known fact that diamonds are a girl’s best friend. But are diamonds an investor’s best friend? In the mid-1990s they certainly were when there was a bona fide “diamond rush” in Canada after diamonds were discovered by Dia Met Minerals in Canada’s north. Dia Met Minerals, and its share in the coveted Ekati diamond mine, were later taken-over by BHP Billiton in 2001 for $21 per share. At the time of the buy-out Dia Met Minerals controlled 28% of the Ekati mine and the deal was valued at $687 million. The Ekati mine became Canada’s first diamond-producing mine when it came into production in 1998.
With the success of Dia Met Minerals in the mid-1990s many junior mining companies were launched on the TSX-V Exchange including none other than Diamond Fields Resources, which, although they never found diamonds in Canada, did manage to discover one of the largest Nickel deposits on the planet while they were prospecting in Labrador, Newfoundland. Diamond Fields’ Voisey’s Bay nickel discovery, although somewhat happenstance, is arguably the most significant mineral discovery in Canada in the past 40 years.
But today, the lustre of diamonds has faded and the mining market is dominated by the resurgence of the precious metals, base metals and tech metals. In memory of what once was, we take a trip down nostalgia lane with Marilyn Monroe.
Thermal coal, which is the cheapest and most common type of coal, is burned to generate steam that powers turbines and produces electricity for either public grids or for large-scale industrial use. Metallurgical coal, on the other hand, is used as a fuel and as a reducing agent (coke) for smelting iron ore in a blast furnace; as such, it is also often referred to as coking coal or steelmaking coal. Metallurgical coal needs to be low in sulphur and phosphorus so these elements do not migrate to the metal during steel making.
Coal is mined in over 100 countries, and on all continents except for Antarctica. The largest reserves are found in the USA, Russia, China, India and Australia. The world’s largest coal producers are China (48%) and the United States (15%) and almost all production is used for domestic needs. On the export side, Australia (26%) is the largest exporter of coal followed by Indonesia (24%). But Indonesia may not be a reliable source of inexpensive coal. Power projects that had planned to get coal from Indonesia are yet to find a solution to a new law that may effectively increase the cost of Indonesian coal. The new regulation says coal sold from the country is to be indexed to the international price and revised annually.
After the earthquake in Japan, some investors are looking towards coal to “pick-up the slack” associated with the possibility of decreased energy output caused by the reduction of nuclear energy programs around the world. But some think this is simply a temporary blip on the energy radar as many countries will reinstate nuclear power as key energy source once the public’s concern subsides.
Gold is making regular headlines these days as global economic uncertainty remains high and the yellow metal recently reached record prices of just over $1,900 per ounce. Since a sharp correct where gold gave back over $200, the price has recovered and gold is currently trading around $1,885 per ounce.
Goldman Sachs said it expects gold prices to continue to climb in 2011. The U.S. based investment bank cited the current low level of U.S. real interest rates, European debt issues, balancing inflation with growth in China, and mixed data from several major economies as drivers for gold’s continued appreciation. “We recommend near-dated consumer hedges in gold,” stated analysts at Goldman Sachs and they expect further price increases later this year and into 2012.
According to Citigroup, a resurgence in investment demand has fueled gold’s rally over the past decade. Investment demand has grown from 4% of total demand for gold in 2000 to over 39% in 2010. “We caution that this very aspect that provided support for gold over this time may result in its downfall going forward,” noted Citigroup. “Even a slowdown, let alone a decline, in net investment flows can have a materially negative impact on the gold price from current levels.” So whether you are a gold bug bull or a gold bubble believer, one thing is for certain, there is no denying gold’s captivating run.
With all the excitement around the price of gold let’s not forget gold equities. Tye Burt, President & CEO of Kinross Gold (TSX:K) may have crystalized the argument for gold equities best when he stated in a recent interview with CNBC, “Gold price is up 25% year-over-year and our earnings effectively doubled. There is a leverage in the gold producers which will play out in their equity prices.”
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