Richard Karn: Strange Bedfellows-Australia's Labour Party & the Big 3 Miners

Source: The Gold Report 7/8/10

The Gold Report's boots-on-the-ground correspondent in Australia, Richard Karn (managing editor, The Emerging Trends Report), updates us on the death of the Resource Super Profits Tax (RSPT) proposal and the birth of a new tax, the Mineral Resources Rent Tax (MRRT). Supposedly a "fair share" for all, but Karn is not convinced. Read on for his take on the new tax's implications for Australian mining.

http://www.theaureport.com/pub/na/6743

Post from: Gold News from Gold Editor

Richard Karn: Strange Bedfellows-Australia’s Labour Party & the Big 3 Miners

A picture is worth 1,000 words.  Gold Editor believes the mining industry doesn't get credit for the work it does in helping the economies of the developing world.  A recent TV report shows how successful one group of miners has been in changing this view.  Led by Frank Giustra, the mining industry launched the Clinton Giustra Sustainable Growth Initiative (CGSGI).  We can see the results in a recent TV broadcast in the link below.

Global BC News: Making a Difference in Peru

Mon, Jun 14 - BC business magnate Frank Giustra is working with Bill Clinton in what they call a "Sustainable Growth Initiative." They are financing eye clinics for the poor- promoting better nutrition for children- and helping local farmers grow organic and sell internationally.

The Clinton Giustra Sustainable Growth Initiative (CGSGI) is an innovative partnership between the William J. Clinton Foundation, the private sector, governments and local communities to increase the scope, scale, impact, and sustainability of economic and social development efforts in areas where poverty is widespread.

Established in June 2007 by President Bill Clinton and Frank Giustra, Exclusive Advisor to Endeavour Financial, CGSGI focuses on alleviating poverty in the developing world through market-driven development that creates jobs and increases incomes, and by strengthening factors that enable economic growth such as health and education.

This week, CGSGI has received the attention of Global TV BC for its positive impact in Colombia and Peru to strengthen child nutrition, expand access to health care in remote areas, and support entrepreneurship.

SOURCE: Global BC News

Post from: Gold News from Gold Editor

BC billionaire and former US President help close the gap between rich and poor in Colombia

Gold buying frenzy grips China

By David Lew
BEIJING: The Chinese people are increasingly getting entangled in the luster for gold. The Chinese families are on a buying spree of gold ornaments, gold bars, gold coins and gold ETFs. But they are not alone. Chinese mining companies, bullion dealers, gold associations, jewelers and traders are all in the grip of the 'yellow' fever with one aim: buy and trade gold. China, indeed, is in the grip of a gold buying frenzy.

In fact, everything about gold is booming across China. 2009 was a test case for China as far as gold trading was concerned. China is today the largest producer of gold in the world. China is all set to overtake India as the largest consumer of the yellow metal. China is also set to outshine several other countries including India and the Middle East to become the largest trading ground for gold in the world.

A gold buying frenzy is spreading across the Chinese landscape--from cities to rural towns--as you can make out from the words of Xiam Zang, a bullion dealer in Beijing: “Chinese people are buying more gold these days. There are increased sales in jewellery shops for gold ornaments, coins and bars. In fact, many people are now convinced that gold is the best investment asset.”

Zang says as gold sales are rising, “there are increased requests from jewellery shops for supplying them with gold.” “Everyone is doing good business in gold in China. The gold buying spree is not just limited to Beijing or big cities. Even in rural areas, people are simply buying gold despite the high prices,” he added.

Post from: Gold News from Gold Editor

Gold buying frenzy grips China

Germans lead gold rush frenzy

By Jack Farchy in London, Financial Times, 14 May 2010

The telephone has not stopped ringing at the Rand refinery in South Africa this week.

Panicking German dealers and banks have been desperate to get their hands on krugerrands, the world's most popular gold coin.

Post from: Gold News from Gold Editor

Germans lead gold rush frenzy

www.geovic.net

Cobalt and nickel are two commodities which are currently trading at record high prices.

Combine that fact with the world�s largest primary cobalt deposit which just happens to be the most easily and economically mineable cobalt/nickel project on the planet - and you�ve got yourself an easy double for investors with Geovic Mining as they gear up for production in 2009.

In fact, Geovic is positioned to become the world�s largest producer of cobalt going forward with their projects in Cameroon.

About Cameroon

Cameroon is one of those countries most people couldn�t identify on the map and that�s because nothing bad ever happens there to warrant our attention. Located in West Africa, the country is politically and economically stable. They are also receptive to foreign investment. Aside from this cobalt deal, Exxon Mobil built a 3.5 billion-dollar pipeline in Cameroon which is a testament to the confidence in the government and the stability of the country.

The Properties

Geovic has a 60% interest in a 1,631 square km property that encompasses seven deposits.

The first one in development is called the Nkamouna. Its surface area is quite small, encompassing about 10 square kms. However, its internal rate of return (IRR) is quite big.

A prefeasibility and 43-101 study were done on the Nkamouna project which showed the property could produce with an IRR of 78%. That was based on a three year average price for the metals. It has proven and probable reserves of 53 million tonnes at an ore grade of .24% cobalt and .72% nickel. This deposit is 35 meters thick and is only 15 meters deep.

The payback on the Nkamouna mine alone is only 1.2 years and would be producing 4,000 tonnes per year of cobalt. The net present value using a 10% discount and after tax would be US $317 million for Geovic�s 60% share. With the stock price at $2.90, the fully diluted market cap is $250 million. The mine life of Nkamouna is estimated to be 21 years.

The capital cost on this project is the lowest in the industry at $129 million. One of the reasons for this is that all the deposits occur near surface so extraction is easy. Thus, operating costs are only 42 cents per pound, pre-tax and including nickel credits. Using three years of nickel prices in the model, nickel will be providing about 20% of the revenues.

Pre-Feasibility Numbers

� Internal Rate of Return - 78% - 3-year average metal prices

� Payback - 1.2 Years - produce 4,000 tonnes per year cobalt

� NPV 10% Discount - $317M US - this is Geovic�s after tax share)

� Capex - $129M - An Industry Low

� Operating Expenses - $0.42 Cobalt - pre-tax and net of nickel credits

� Current Mine Life -21 years - 1st of seven deposits

� Projected Cash Flow per Year - $US100M (100%)

The final feasibility and permits are expected to be completed by mid 2007.

Immediately north of the Nkamouna deposit is the Mada deposit which has a 43-101 inferred resource of 145 million tons with a grade of .21% cobalt and .48% nickel. This area has not been fully drilled in strike length or to depth. Geovic�s management believe they could triple the resource on this deposit.

In addition there are five other deposits, so this project will be around for a long time � beyond anyone�s lifetime!

The unique characteristics of the cobalt make this project a world class deposit:

The cobalt mineralization in Cameroon is higher grade then any other laterite cobalt deposit in the world. The cobalt itself has large grains which are unusual. Given the unique structure of the cobalt and the ease of mining it, the ore is upgraded by a factor of 3 by using low cost concentration methods which triples the rate of return for the company and the net present value.

This is what makes this project such a good investment and that�s why the economic performance of these deposits will be so strong.

Because of the simplicity of this project and given the low capital costs, production can be doubled on the first project at 8,000 tonnes of cobalt for less then $60 million.

The open pit will be less then 16 meters deep and is easily dug out with front end loaders and bulldozers.

After processing the course concentrate on site, the end product would be pure enough to send directly to a battery manufacturer or other industrial user.

The Supply and Demand of Cobalt

The supply side of cobalt is extremely tight right now. All the production now mined is immediately bought up in the market which has left inventories empty. Not surprisingly, the price of cobalt has recently doubled to $30.

Though market watchers don�t expect these heady prices to last, demand will stay strong for years to come.

In my mind, the biggest reason for this revolves around our favorite mode of transportation, the car.

Today the world produces 60 million cars and light trucks per year. In 25 years that will number will grow to over 90 million.

Now with oil and gas prices at much higher levels and with air pollution creating health concerns in major cities around the world, the auto industry and governments alike are pushing toward hybrid vehicles.

With global warming becoming such a HUGE disaster in the making as well, I can see this transition occurring very quickly over the coming years.

Cobalt is a key ingredient needed to make the batteries in hybrid cars.

When you consider today�s already tight cobalt market, there won�t be enough supply to handle those projected demands except Geovic has deposits which could double, triple or quadruple production very quickly going forward.

Cameroon and Geovic could very well become the world�s �swing producer� of cobalt in the same way that Saudi Arabia turns on the oil taps when global supplies get tight.

Cobalt is also used in the construction of jet engines, batteries for cell phones, laptops and other battery devices.

Last year the market for cobalt was 55,000 tonnes and this demand is expected to increase to about 95,000 tonnes over the next decade according to the number crunchers who are not projecting the rapid production rise of hybrid cars.

Management

Jack Sherborne � Chairman and CEO � 36 years executive management experience in energy and mineral industry with Unocal.

William Buckovic � President � 32 years of mineral exploration experienced. 20 international laterite nickel cobalt deposits for Unocal and others.

David Beling � Executive VP and C00 � 42 years engineering, management and executive experience having financed, developed, and operated international mines.

Gary Morris � Sr. Vice President � 32 years mineral exploration, land, resource and environment management with Unocal and Western Nuclear.

Greg Hill � CFO � 30 years experience in mineral, energy, and technology finance and strategic planning.

Conclusion

Given projected first year cash flow of $100 Million for the project, I would say those are bonanza type figures. However we are just talking about the first project that has a mine life of 21 years. There are six more deposits just waiting in the wings.

The rest of the district has potential of 1 billion resource tonnes, though not 43-101 compliant numbers, the upside is potentially very blue sky while the downside risk is manageable.

Currently the Net Present Value of Geovic�s share of production are $317 million using a 10% discount. With the price at $2.90, the market cap is $250 million on 86 million shares � leaving 78 cents in valuation. The kicker is that the Nkamouna mine alone can easily double production � and hence it�s NPV � for only US$60 million. Plus there�s ample potential with the other six deposits. Going forward I would expect a big increase in Geovic�s reserve numbers which will also increase the NPV.

Geovic is the type of stock you can buy now while it�s cheap and ride up in the years ahead as the cash flow and production start to build.

Accumulate

This is a great long term buy growth play that you could pass on to your Grandchildren.

DISCLAIMER

Winston�s Growth Stock Report is an independent electronic publication committed to providing our subscribers with factual information on selected publicly traded companies, politics, business, and economics. All companies are chosen on the basis of certain financial analysis, and other pertinent criteria with a view toward maximizing the upside potential for investors while minimizing the downside risk, whenever possible with the added aid of technical analysis.

Winston�s Growth Stock Advisor and its editors do not accept compensation from public companies featured in this publication.

All statements and expressions are the sole opinions of the editors and are subject to change without notice. A profile, description, or other mention of a company in the newsletter is neither an offer nor solicitation to buy or sell any securities mentioned. While we believe all sources of information to be factual and reliable, in no way do we represent or guarantee the accuracy thereof, nor the statements made herein. The staff of Winston�s Growth Stock Report are not registered investment advisors and do not purport to offer personalized investment related advice. The publisher, staff, or anyone associated with, or associated to, the Winston�s Growth Stock Report may own securities mentioned in this newsletter and may buy or sell securities without notice.

The profiles, critiques, and other editorial content of the Winston�s Growth Stock Report may contain forward-looking statements relating to the expected capabilities of the companies mentioned herein. The reader should verify all claims and do their own due diligence before investing in any securities mentioned. Investing in securities is speculative and carries a high degree of risk. The information found in this profile is protected by copyright laws and may not be copied, or reproduced in any way without the expressed, written consent of the editors of Winston�s Growth Stock Advisor. We encourage our readers to invest carefully and read the investor information available at the web sites of the Securities and Exchange Commission ("SEC") at http://www.sec.gov and/or the National Association of Securities Dealers ("NASD") at http://www.nasd.com. We also strongly recommend that you read the SEC advisory to investors concerning Internet Stock Fraud, which can be found at http://www.sec.gov/consumer/cyberfr.htm.

Readers can review all public filings by companies at the SEC's EDGAR page. The NASD has published information on how to invest carefully at its web site.

Post from: Gold News from Gold Editor

James Winston: Geovic Mining A World Class Cobalt-Nickel Play

The Cobalt Market

It isn�t as hot as Uranium or as precious as Gold but cobalt�s profile will continue to grow the coming months and years. The price has almost doubled from US$16 - $30 per pound these past few months due to supply issues and steady buyers. The issue at hand for investors though, is that there are precious few public cobalt companies.

It is becoming apparent that there is huge potential for companies positioned to provide a stable supply of cobalt. Demand is increasing into what is a very tight physical market, and there is real fear that current supply could be constricted.

This is from a recent story from www.metal-pages.com: �"It's just been non-stop," said one London trader.�This January is the busiest in 30 years." He has paid $26.25 for Russian metal, predicting the shortage of stocks will send prices higher still. Consumers are so desperate for metal they are calling him at 11 in the evening, he said. He predicted cobalt prices will rise above $30 before the end of the month.�

The only cobalt-focused companies on my radar screen are Geovic Mining Corp (GMC-TSXv) developing its open pit cobalt-nickel deposits in Cameroon, Africa, and Formation Capital (FCO-TSXv), developing a cobalt deposit in Idaho.

Cobalt inventories are low � one source suggested only a few days� supply. Cobalt is used extensively in batteries for hybrid cars (both nickel and lithium ion) and many electronic devices � cell phones, laptops etc., all of which are experiencing increasing sales. Inventories are low around the world, at a time when demand is picking up.

Since 1993 cobalt prices were held down largely by sales from the U.S. Government stockpile, and lower grade cobalt material coming from the former Soviet Union. With these sources depleting, the market has little inventory to draw from, now relying primarily on new production.

In late 2006 Russia-based Norilsk, already accounting for 20% of the world�s nickel and cobalt production, announced the buyout of U.S.-based OM Group�s (OMG) substantial nickel interests. OMG was the world�s largest producer and manufacturer of cobalt products as a by-product of their nickel production. Now, Norilsk controls a much larger slice of the pie, and the market remembers their recent resolve to withhold supply in an effort to buoy cobalt prices.

As part of their takeover agreement, Norilsk entered into a 5-year supply agreement with OMG to provide them with 6,500 mt/yr of cobalt in various grades, but there is uncertainty about how OMG will distribute these diminished supplies. The cobalt market is increasingly nervous that spot supplies will stall; when the Norilsk-OMA agreement was announced, market-savvy cobalt consumers immediately tried to increase stockpiles.

Then BHP Billiton stopped selling cobalt. Though it only controls two per cent of the market, that move quickly strengthened an already tight physical market. The market�s reaction to these events, coupled with already substantial and further expected increases in demand, drove the cobalt price from US$16 to nearly US$30 per pound during the last four months of 2006.

Although there is no tertiary market for cobalt like the LME or COMEX, price transparency is provided by quotations through sources like Platt�s Metal Week, Metal Bulletin and BHP Billiton�s Cobalt Open Sales Systems at http://cobalt.bhpbilliton.com/. Additional cobalt information is also available from the US Geological Survey (http://minerals.usgs.gov/minerals/pubs/commodity/cobalt/) and The Cobalt Development Institute (http://www.thecdi.com/).

Users obtain cobalt from traders, producers, government stockpiles and private inventories through negotiated agreements, bids and open market purchases.

Cobalt Use

Cobalt is an element that has many diverse applications:

During the last three years, cobalt use in rechargeable batteries grew by 284%. Nickel metal hydride and lithium ion batteries all contain cobalt and are used in hybrid electric vehicles (HEV), electric vehicles, laptop computers, cell phones, portable tools and electronic devices. The fastest growing segment of battery applications is for HEVs since they reduce air pollution and fuel consumption by at least 50% compared to conventional vehicles. The HEV �plug-in� option, which includes an extra battery that may be charged from electrical outlets, would further decrease fuel consumption and be even more environmentally friendly while increasing cobalt demand.

The Toyota Prius HEV was named 2004 Motor Trend Car of the Year and 2005 European Car of the Year. Toyota estimates sales of one million hybrid vehicles per year by 2012, and will offer all Toyota and Lexus models as hybrids. General Motors, Ford, Daimler-Chrysler, Mercedes and others are attempting to catch up with Toyota�s hybrid success. China anticipates that a high percentage of its domestic car market will be HEVs and electric vehicles by 2030.

Nearly all current HEVs use nickel-metal hydride batteries that contain about 22 pounds of nickel and 3 to 5 pounds of cobalt. Lithium-ion batteries containing 5 to 7 pounds of cobalt are expected to dominate future HEV markets because they charge in minutes rather than hours and offer many other economic and technical advantages.

Cobalt Supply and Demand

Cobalt consumption in 1995 was only 24,000 tonnes, but during the past 10 years has grown at an average rate of 12.9% per year, and continues to grow.

Approximately 41 percent of the world�s cobalt produced in 2005 was a by-product of nickel from sulfide and laterite deposits. An additional 53 percent was produced as a by-product of copper, mainly in the Democratic Republic of the Congo (DRC) and Zambia. The remaining 6% of cobalt production comes from small primary producers in Morocco and Uganda. Cobalt prices fluctuate significantly, partly in response to labor and political unrest as experienced recently in New Caledonia and historically in the DRC.

Demand profile:

Potential New Production Coming On-line

One newly-listed primary cobalt producer, Geovic Mining Corp., is developing a major Cobalt/Nickel deposit in Cameroon, Africa. The project is expected to reach an annual production rate of 4,000 tonnes (8.8 million pounds) of cobalt, and 3,000 tonnes (6.6 million pounds) of nickel over a 22-year life from the first of seven deposits located within their mine permit. The Company is poised to expand its cobalt and nickel production as market demand for these metals increases over the coming decades, as the hybrid vehicle market and other cobalt markets expand. Cobalt�s growth rate is expected to not only continue, but even accelerate with the expanding use of cobalt world wide.

The chart below suggests that the market will easily absorb increased cobalt production. The indicated supply deficits in 2007 and 2008 are a result of increasing demand and expected lag in production from projects proposed by other companies.

Source: Actual supply and demand by USGS, The Cobalt Development Institute and other independent research groups.

Projections after 2006 were developed by Geovic.

Summary

In this new wireless and environmentally conscious age, cobalt demand is going to increase as supplies are tightening. We recently witnessed the small universe of publicly traded Uranium producers / developers (4 of them) give investors phenomenal returns. Once the market becomes more educated about cobalt and industry analysts start talking about it, watch a flood of capital flow towards the very few publicly-traded primary cobalt companies available to investors.

Copyright � 2007 by Diversified Financial Solutions, Inc. All Rights Reserved.

DISCLAIMER

The information found in this profile is protected by copyright laws and may not be copied, or reproduced in any way without the expressed, written consent of the editors of Growth Stocks Weekly.

Growth Stocks Weekly is an independent electronic publication committed to providing our subscribers with factual information on selected publicly traded companies, business, and economics. All companies are chosen on the basis of certain financial analysis, and other pertinent criteria with a view toward maximizing the upside potential for investors while minimizing the downside risk, whenever possible with the added aid of technical analysis. Growth Stocks Weekly and its editors do not accept compensation from public companies featured in this publication.

All statements and expressions are the sole opinions of the editors and are subject to change without notice. A profile, description, or other mention of a company in the newsletter is neither an offer nor solicitation to buy or sell any securities mentioned. While we believe all sources of information to be factual and reliable, in no way do we represent or guarantee the accuracy thereof, nor the statements made herein.

The staff of Growth Stocks Weekly are not registered investment advisors and do not purport to offer personalized investment related advice. The publisher, staff, or anyone associated with, or associated to, the Growth Stocks Weekly may own securities mentioned in this newsletter and may buy or sell securities without notice.

The profiles, critiques, and other editorial content of the Growth Stocks Weekly may contain forward-looking statements relating to the expected capabilities of the companies mentioned herein. The reader should verify all claims and do their own due diligence before investing in any securities mentioned. Investing in securities is speculative and carries a high degree of risk.

We encourage our readers to invest carefully and read the investor information available at the web sites of the Securities and Exchange Commission ("SEC") at http://www.sec.gov and/or the National Association of Securities Dealers ("NASD") at http://www.nasd.com. We also strongly recommend that you read the SEC advisory to investors concerning Internet Stock Fraud, which can be found at http://www.sec.gov/consumer/cyberfr.htm.

Readers can review all public filings by companies at the SEC's EDGAR page in the U.S. and SEDAR�s electronic filing of securities information as required by the securities regulatory agencies in Canada at www.sedar.com. The NASD has published information on how to invest carefully at its web site.

Post from: Gold News from Gold Editor

Richard Reinhard: Targeting a Tight Cobalt Market

By: Clyde Harrison

God gave me the ability to recognize the obvious, some common sense and a sense of humor to stand the first two.

The one trend in place is the overall advance of mankind. It began when we emerged from the cave.

The world is going through a dramatic change. The world has discovered capitalism. China and India are transforming their economies from poor agrarian economies to industrial powers. The effect of these changes will be felt for years.

One of my favorite quotes is, �Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for life.� Today in order to teach a man to fish, you need two fishing licenses, a state boat sticker, OSHA approved life jackets, EPA approved weights and hooks, you pay a park fee, obtain a fire permit to cook the fish and an EPA permit to dispose of the waste. Thanks to the government, fish you catch costs 8 times as much as the fish you purchase in the supermarket, caught overseas.

When I started in the investment business 38 years ago, the Golden Rule was �Do unto others as you would have them do unto you.� In a few years it was corrupted to, �He who has the gold makes the rules.� Today it has been totally corrupted to, �He who makes the rules gets the gold.�

Our educational system is failing the students. US high school graduates do not have the knowledge to pay teachers pensions.

In 2005 in the US, 70,000 engineers graduated from college, 30% were foreign students. India graduated 200,000, China 500,000. By 2010, 90% of all PHD engineers and scientists will live in Asia. When US students enter school, they test at #1 in the world for over all knowledge. After 12 years with the NEA, they graduate from high school 24th in the world.

The moral values they are taught are: diversity, tolerance and respect for the environment. Jefferson said �without an educated voter, the republic will not stand.�
What�s the latest suggestion from the national education association? It is to grade papers with purple pencils instead of red because red hurts the students� feelings and to ban the game of tag at recess, because it is too aggressive.

Governments in most cases and most places make things worse. George Washington said �Government is not eloquence, it is not justice; it is force. Like fire, it is a dangerous servant and a fearsome master.�

The definition of politics is the advance auction of goods that have not yet been stolen.

Whenever a government does something for someone, it must do something to someone. If expanding government were the solution, Russia would have been paradise.

In the US, we have a two party system and what a party they are giving themselves. Since 1960 government spending has grown 8 times as fast as the GNP.

Republicrats borrow and spend. Democins tax and spend. From 2000 to 2005, federal spending increased 38.2%. Federal debt increased 40.5%.

The government taxes and regulates success and subsidizes failure. The Government�s motto, �If it ain�t broke, fix it until it is.� Whenever you contact the Government, you are met by one of two groups who work for the government. The first group is just out of college hoping to work in government for three years, learn who to talk to in order to get things done, then get a real job and triple their pay. The second group is much older.

They couldn�t get a real job after 3 years. Government has either no experience or no talent.

If you believe in government, FEMA has 10,000 trailers in Hope, AR they would like you and your friends to move into.

Today lawyers run the government. Seventy-three percent of the cabinet are lawyers. Eighty-five percent of the gang of 535, the Congress are lawyers. Lawyers train on the principle that when there�s a solution to a problem, they stop making money. You know the system is corrupt when Congressmen spend 6 million to get a job that pays $162,000 per year.

In 1987 the US signed a treaty allowing Japanese lawyers to practice in the US and US lawyers to practice in Japan. At the signing there were a total of 14,000 lawyers in Japan and 650,000 in the US. Two years later, Japan entered a depression. It is just starting to recover. Just coincidence? Maybe.

Consider the following:
The Lord�s Prayer: 66 Words;
The 10 Commandments: 179 Words;
The Declaration of Independence: 1300 Words;
U.S. Government Regulations on the Sale of Cabbage: 26,911 Words; and
U.S. Income Tax Code - simplified: 1,607,000 Words.

Last year congress failed to change course on the unsustainable path of Social Security and Medicare. The financial cliff is still out there.

It would be a great improvement if the government respected individual�s rights as much as they respect the rights of the caribous.

If the current congress wrote the bill of rights it would be as follows:

� The right to pay taxes.
� The right to adhere to any and all federal regulations.
� The right to be guilty of any and all IRS accusations until you prove yourself innocent.
� The right to turn your property over to the government if they have a better use for it.

The government is already too large and too expensive.

Bush Sr. simplified taxes. Now we only tax the living and the dead. Clinton promised to tax only the rich. Once in office, he defined rich as, �Those Americans with Indoor Plumbing.� Bush Jr. said he cut taxes but the tremendous increase in spending means W just delayed tax increases.

The dollar bears the legend on it, �In God We Trust.� Placing your faith in the Fed could be a dangerous plan. Someday, the dollar could fall to its intrinsic value. Denial is not just a river in Egypt. Currencies do not float, they sink at different rates. Currencies are abstractions not redeemable in any specific amount of anything, they are an I owe you nothing certificate.

Foreigners currently own 45% of US treasuries. The FED can create $30 billion of paper in a week. They can raise rates, but it won�t create one drop of oil, one pound of copper or one bushel of rice.

Now we have Bernanke as the new head of the FED. Bernanke has studied the depression and deflation at great length. He has stated the FED has many options to avoid deflation including dropping dollars from helicopters if necessary, earning him the nick name �Helicopter Ben.�

The FED is attempting a neutral interest rate policy. Neutral for the FED is like pornography to the Supreme Court. They can�t define it, but they will know it when they see it.

Stagflation is coming. Slow GNP growth, inflation increasing, and net disposable income declining.

Currently the FED is raising the rent on money but you can get all you want. Money is very loose. It just costs more.

We all work for something. Our government manufactures with no sweat, no work, no creativity � just turn on a computer and create more dollars.

Unless you have the ability to chain weight, seasonably adjust, and substitute in your check book. Your dollars probably don�t go as far as the government would like to have you believe.

The Bureau of Labor lies are a bit better than the government�s response to Katrina because the footnotes explain why these reports are worthless.

There is a disconnect between the man on the street and how he feels and how the government tells him he should feel.

The BLS over time has made tiny incremental changes in the way they manipulate the statistics.

In a bipartisan effort, presidents and the FED chairman have tried to make the news just a little better. Over time, these tiny changes have begun to add up.

If we just go back 20 years and remove these changes. Unemployment today would be about 8%, the CPI would be about 7% and the GNP growth would be 0.

On the unemployment front, if you were a discouraged worker, you were counted until the Clinton administration. During Clinton�s reign, workers who were discouraged for over a year were taken out of the number. That knocked 5 million off the broader unemploymentreport. U-3 is now the reported number of 4.7 but if you look in the footnotes, U-6, the old number is over 8%.

The real degeneration over time is the CPI. In the 90�s, Michael Boskin at the council of economic advisors and Greenscam at the FED wanted to fix the CPI simply stating that it was overstating inflation. They created substitution assuming that if the price of steak went up, the public would substitute hamburger. The CPI was originally designed to measure a fixed basket of goods for a constant standard of living. Today it has changed to a basket of survival.

The Clinton administration and the BLS changed the weightings method of the CPI. Arithmetic was changed to Geometric weightings which as the benefit that if something goes up in price it automatically gets a lower weight. If the price goes down, it gets a higher weight. They also try to adjust for product improvements. If they determined the products price increased but it was improved, the price didn�t go up with hedonic adjustments.

Wall Street economists and bank economists don�t adjust for these changes because like politicians, they tend to have an upbeat view.

If inflation is understated then reported real growth (the GNP) will be overstated. Bob Reich, in his memoirs wrote that they found in their polling that if you could overstate economic growth, understate inflation, tell people things were are better than they really are. It could help you win a tight election. That was their conclusion, so of course the numbers were adjusted.

Last year if you didn�t eat, didn�t drive to work, didn�t heat your home, didn�t visit a doctor, didn�t buy a house, didn�t buy insurance of any kind, didn�t have a child in college and didn�t pay state or property taxes, your cost of living agrees with the governments.

If your using government statistics for your investment decisions, you�ll substitute cat food for hamburger when you retire.

Since the Feds creation there has been deflation � deflation of the currency. It shrinks on average 2.5% to 3% per year. In the US, we have voters who are deep in debt. Deflation would crush the voter. Currency deflation will help the debtor. Expect stagflation - the value of the currency goes down while the economy goes no where; an, �L� shaped recession.

Prices will be lower for every thing that can be manufactured in China or serviced in India.

Prices will be much higher for what can only be made in the US; medical care, insurance, plumbers, trash collection, raw materials, real estate, and government.

In the next 10 years, the government will lie about the deflation of the currency so, (when the baby boomers retire) their social security check will be worth half of what they anticipated in real terms.

When the Fed fine-tunes, the orchestra gets fired. All soft landings by the FED have resulted in thousands of casualties. Ever since the earth was cooling the Fed was headed by a banker. Greenscam was the first economist. Carl Marx was an economist!

God, who created everything only wants 10%!

The demands of the majority are always greater than taxation alone can provide and
that�s where the FED comes in.

The following will not be in Allen Greenspan�s book:

Between 1800 and 1913, the value of the dollar was more or less constant.

Since the Feds creation in 1914, the value of the dollar has depreciated 97%.
Since the maestro, Allen Greenspan took over, the dollar has lost 37% of it�s value. Consumers have gone deeper and deeper into debt in order to spend freely out of artificial purchasing power extracted from over valued homes. All that paints a compelling picture of an excess demand driven US economy.

The 1% Fed funds rate moved the savings rate to between zero and zip, while mortgage debt increased 62%.

The last central banker to get it right was Joseph, in the Bible. Seven good years followed by 7 bad years. The Fed is like the Post Office giving out money instead of stamps. Faith in the Fed is based on elaborate mathematical models relying on the breathtakingly faulty assumption that human beings behave rationally.

The FED�s invisible hand of intervention is trying to keep interest rates as low as the world will allow. But the world is becoming a bit nervous. The US has borrowed over $1 trillion from overseas. Some day it will be repatriated. The exchange of paper for wealth will go into reverse. We will get our paper back and have to return real wealth. Recently, the dollar has been rapidly declining against the Euro and gold but at a much slower rate against the Asian Tigers. Our biggest export under Greenspan�s term was paper � the US Dollar.

Japan and China have purchased massive amounts of US treasuries to stem their decline. They loan us money to buy their products because they need the US as a customer. When will this end? It will end when the Asian Tigers develop a consumer credit system and their three billion plus citizens become the customer. At that point we will no longer be able to live beyond our means - the dollar decline will accelerate and interest rates will rise dramatically.

If you believe the Fed guides the economy you must also believe the twelve birds sitting atop the rhinoceros guide him through the jungle.

Currently the government is trying to boost the economy with one of the largest doses of steroids in history.

Today we have over $1 trillion in fiscal stimulus from the budget and trade deficits and the monetary stimulus of tremendous liquidity and some of the lowest interest rates in over 40 years.

The pedal is definitely to the metal. The economies improvement is sluggish considering the massive size of the stimulus because of the size of the debt we�re dragging behind us.

The ocean of liquidity has created a lot of jobs. There just not in this country.

What investments will benefit from this major change? Where should you invest your SEC rebate check, or your own hard earned money?

Long term interest rates are low. The FED is proposing dropping cash from helicopters if necessary. History suggests this might be a good time to be a borrower or at least have a short duration to your interest bearing investments.

The equity market now has 84 million individual investors. Over 50% of these investors liquid assets are in the equities, the historical average is 25%. Using the rules outlined by Graham and Dodd such as dividend yield, PE Ratio, price ratio, price to sales ratio and price to assets, stocks are very expensive. They are over owned and over priced � a dangerous combination.

Who�s recommending increasing equity exposure? Kudlow and Cramer � CN�BS� � which is a marketing program. It should be listed in the TV guide as paid programming like George Forman�s cooker.

Who�s recommending caution and much lower returns from stocks going forward? John Templeton, Carl Icahn, Allen Abelson, Mark Faber, Bill Gross and Warren Buffet to name a few. Buffet currently holds $47 billion in equities and $45 billion in cash. He must be having a tough time finding those bargains from Omaha.

There has never been a ten year period in history when valuations have been as high as they are now and where the broad stock market indexes out performed money market funds � never!

I expect a moose market, not a bull or a bear but a moose, rhyming with the period of �66 to �82 where the market went nowhere.

I believe the paper bill market has ended and the stuff bull market has begun.

Between 1966 and 1982 equities gained nothing while the GNP gained 330%. The DOW went from 1000 to 875. From 1982 to 2000 the GNP gained 170% and the DOW rallied from 875 to 11,700. Currently the DOW is trading over 11,000, about a 25 PE. Between now and 2015 if the GNP gains 100% and earnings gain 100% the DOW could be at 10,000, trading at 10 times earnings. During the past 5 years the S&P is up 5%. And at that rate of compounding, you will have to work till you die.

During the last stuff cycle equity mutual funds were in a dead zone while stuff; raw materials, art and real estate had super returns.

In 1966 oil was $2.90/barrel and rallied to $28/barrel. Gold was at $35/oz and rallied to $850/oz. The average price of a home increased 180%.

In 1982 the stuff cycle ended and the great paper cycle began. In 1982, the public had 14% of their liquid assets in equities. The Business Week Magazine cover reported �The Death of Equities�. The PE ratio was 7. Stocks were dirt-cheap and stuff was very expensive. Brokerage firms were selling real estate and oil and gas partnerships. 1982 was the beginning of a great bull market in paper.

By 2000 the DOW was up over 10 fold. The cost of one dollars worth of earnings (the PE ratio) has risen from 7 to 44, and the public had 57% of their liquid assets in equities. The Time Magazine cover featured �The Committee To Save The World: Greenscam, Summers and Ruben�. Brokerage firms were selling tech and dot coms with no earnings. The paper bull market was ending. Paper was very overpriced and over owned. The Dow could be in a trading range of 7,000-11,000 for years.

Stuff, from 1982 to 2000, was in the dead zone. Oil went from $28/barrel to $26/barrel. Gold went from $850/oz to $280/oz. The average price of a house had increased 1.2% per year by �2000. Stuff was a bargain.

In the next 10 years paper could be a trading market while stuff is in a bull or buy and hold market.

Change is a way of life. You either accept changes or make changes.

Capitalism is sweeping the world.

Capitalism is easy to understand. It�s nature with a balance sheet. If you�re wrong, you go broke instead of being eaten.

Three basic things make up an economy; labor, natural resources, and capital. There is a surplus of well educated labor.

30 years of restrained and neglected natural resource supply is being overwhelmed by demand.

The longer things remain stable, the more likely they become unstable.

Peace put 2 � billion people in the world labor market. India and China alone contain over 2 billion consumers. Suppose each of the 2 billion people consumes a mere quart of gasoline per week as their economy booms; that�s an additional 1.7 million barrels a day, new demand that is sure to increase price. Today, China is booming. They have declared the national bird to be the construction crane. Last year China�s factory floor produced 50% of the world�s cameras, 35% of the TV�s and 30% of the refrigerators sold worldwide. In the last five years china went from exporting oil to the second largest importer in the world. The Chinese will go from walking to bikes, to motorcycles and to autos. They will need oil and gas, chemicals, forest products and metals. At 80 cents per hour they are deflating manufacturing costs, but as they become more successful, they will throw away their bicycles and buy motorcycles and eat better, increasing the demand for raw materials.

China and India are transforming their economies from poor agrarian nations to the newest industrial powers, replete with heavy industries, mass transportation and higher education. Rising from these giant new economies will come millions of new consumers, the very people who are already straining the natural resources of the earth.

In 1900, the US started to industrialize. We were using one barrel of oil per person per year. By 1970, we were using 27 barrels per person. In 1950, Japan started to industrialize, they were using 1 barrel per person. By 1970, they were using 17. In 1965, South Korea started to industrialize. They were using one barrel per person per year. By 2000 they were using 17. Today, China uses 1.3 barrel per person per year and India uses .7.

In 1950, Japan per capita income was 18% of the US, today it�s 96%. In 1965, South Korea�s per capita income was 16% of the US, today it�s 56%. India and China have 2.5 billion consumers, 9 times the US. The US uses 25% of the world�s energy, China and India use 2%. India and China have 280 people per car. The US has 2 people per car.

Real incomes are just beginning to rise to levels that create large demands for consumer goods. Between 1950 and 1970, Japan�s urban population increased 70%. Personal consumption increased 600%.

China currently is 40% urban, 60% rural. The US is 97% urban and 3% rural.

China has 20% of the world�s population and 7% of the world�s land. China�s grain imports will grow from 14 million tones today to 57 million tones in 2020.

Today, 1 billion people consume two thirds of the world�s raw materials. 5.6 billion people consume the other third and they are becoming more successful.

There is no need to connect the dots, they over lap.

Lead times to create raw materials are measured in years. In Canada $80 billion in infrastructure has been committed to production of the tar sands. The goal is to produce 3 million barrels a day by 2015. At $60, oil is a bargain liquid. It costs 10% less than bottled water, it�s one third the cost of milk, one fifth the cost of beer and only 2% of the cost of Jack Daniels. Phelps Dodge is planning to open a new copper mine in 2007. It took 12 years of paper work to receive federal approval. Currently oil companies who search for oil at great risk earn 9 cents per gallon. Government, at no risk makes 51 cents per gallon.

In the US, half of our energy problem is government regulations. The only place oil companies are allowed to drill for oil is next to a dry hole. The only place you can build a refinery is no where.

Demand for raw materials has increased. In many cases, the capacity to produce raw materials has declined dramatically in the last 20 years. Tops and bottoms are creatures of extreme. Markets rise above all expectation and then go higher and then fall further than common sense suggests. The most desirable investments for the future might not be in cyber space but back to the basics.

By the end of this bull market, there will be a bounty on caribou, you will be able to see an oil rig from every beach and they will be digging a copper mine in Barbra Streisand�s yard.

As you climb the ladder of financial success, check to make sure it�s leaning on the right wall. I believe raw materials will be one of the best investments for the next 10 to 15 years.

Long-term- the future is very bright because man has been succeeding in bringing about change for the better since he or she first emerged from the cave. Big problems usually disguise big opportunities.

Governments and central banks are completely incapable of keeping tomorrow from coming.

In the next 12 months, let the winds of change fill your sails. Thank you.

Clyde C. Harrison
Brookshire Raw Materials
510 Diamond Lane
Cary, IL 60013 USA
847-516-2826
charrison@brookshirerawmaterials.com

Post from: Gold News from Gold Editor

Clyde Harrison: Governments and Central Banks are Completely Incapable of Keeping Tomorrow from Coming

Special Report on Kazakhstan from www.gsweekly.com

Many subscribers have asked me about Kazakhstan lately, probably because three of my portfolio stocks have their main assets there. They're curious - and cautious - about the political and investment risks in the country. It's an interesting question, as the money being raised for Kazakh projects is huge right now - I can think of three mining companies alone in the last three months that have raised over US$2 billion in the UK and Canada.

So my question is � if big institutional money is willing to put so much capital into that region, why do North American retail investors shy away from it? It was clearly time for me to write a more in-depth report on this fast-growing country that is so strategic to all three major world powers - Russia, China and the United States. Hopefully this will answer some of your questions about Kazakhstan, a very rich and not so different place on the far side of our planet. Please find below my special report on Kazakhstan.

Kazakhstan � Attractive for Investment and Resource Development

Investment Climate

The Republic of Kazakhstan is a stable democratic country and is considered a �model transition economy� after gaining its independence from the Soviet centralized command system in December 1991 to become a free market economy. It�s a leader on such indicators as political stability, currency stability, investment climate, integration with the world economy, development of securities market legislation and price stability. Kazakhstan is the second largest (after Russia) of the former Soviet Republics, and is located in both Europe and Asia, as evidenced by its excellent relations with diverse interests that include Russia, China, Europe, Canada and the U.S.

The country is headed by highly-popular Nursultan Nazarbayev, its first president after gaining independence, re-elected in 1999 and again last week for a further 7-year term. Under Nazarbayev�s presidency, Kazakhstan made substantial progress towards developing a free market economy. The country has a friendly foreign investment climate and is a member of the United Nations, the World Customs Organization the Organization for Security and Cooperation in Europe. Kazakhstan is also an observer at the World Trade Organization and an active participant in the North Atlantic Treaty Organization's (NATO) Partnership for Peace program. Nazarbayev has clearly determined and is successfully executing Kazakhstan's main diplomatic strategy creating and maintaining favourable conditions for the steady development of the country on the basis of political and economic reforms.

The laws of Kazakhstan establish a single investment regime for both domestic and foreign investors. The country guarantees stability of contracts where investors enter into contracts with Kazakh State agencies, with the exception of a change of law intended for national or ecological security, public health or morality, or if it affects the procedure or conditions of import, production and/or sales of excisable goods. In 1994 the Law �Of Foreign Investments� was introduced to attract foreign capital into the country�s economy. In 1997 the Law �Of State Support of Direct Investments� was introduced to attract foreign investment into less attractive sectors of the economy. Continuing the evolution, by 2001 it was determined that there was a further need for amendments to existing laws, resulting in the new draft of the Investment Law which was passed in early 2003. This new law further improves state support for investors and their legal rights.

For five years in a row the country has experienced a significant growth in its GDP: 2000 - 9.8%, 2001 � 13.5%, 2002 � 9.8%, 2003 � 9.3%, 2004 � 9.4%. Economic progress during the first decade of Kazakhstan�s independence was made possible as a result of large-scale political and economic reforms and a healthy investment climate. The first CIS country to reach investment grade status, 2002 saw Kazakhstan's bond rating upgraded by Moody's to Baa3, similar to Saudi Arabia, Bahrain and Mexico. By late 2004 a further Moody�s upgrade was achieved to Ba1/NP (Positive), followed in May 2004 with a Standard & Poor�s upgrading of its long-term local and foreign currency ratings to BBB/BBB- and a short-term foreign currency rating to A-3 (Stable).

Kazakhstan is well-placed for a period of solid economic growth, based on foreign direct investment in the energy sector, increased pipeline export capacity, combined with tight fiscal and monetary policy and strong banking system regulation and supervision. The Kazakhstan Government is continually taking steps to improve the domestic investment climate. Over-riding principles include stability and predictability; legal transparency; protection of investors; a level playing field for foreign and local investors; sanctity of contracts. Kazakhstan wants to encourage direct investment into the priority sectors of the economy and initiates full consultations and exchange of views with foreign investors, often within the framework of their Foreign Investors� Council (FIC) set up in June 1998. Investors carrying out projects in the priority sectors enjoy special privileges in taxation and customs tariffs.

With a strong and renewed 7-year mandate following last week�s election, the government is focused on issues to further improve the economy, seeking to further improve the investment climate and business environment in the country. Priority is to ensure effective and level implementation of economic market legislation and investment laws at the local grass-roots level, diversification and modernization, stimulating the growth of the value-added and high-tech components of the economy, and to ensure that economic growth becomes sustainable and non-oil dependent. Over the next 10 years oil output is set to rise to around 3.5 million bpd from just over 1 million bpd, higher than current production levels in Norway and only slightly below output in Iran and Mexico. Natural gas production is also set to rise sharply. Against this background the current account is likely to record rising surpluses from 2008 onwards, the assets of the National Fund should continue to mount and the government's net creditor position should strengthen further.

Vast Resources

Kazakhstan is geographically varied, comprising extensive grassland, semi desert and mountainous regions. It is bordered by Russia, China, Kyrgyzstan, Uzbekistan, Turkmenistan and the Caspian Sea. The population of some 14 million is highly literate and well educated. The country has good infrastructure with a well developed national grid and network of all-year roads, railways and airports.

Kazakhstan possesses significant fossil fuel reserves, along with mineral and metal deposits. Its burgeoning industrial sector is based on the extraction and processing of these natural resources. Since gaining its independence in 1991 after the break up of the Soviet Union, Kazakhstan has experienced rapid economic growth, mostly attributed to its natural resources. According to the EBRD, Kazakhstan�s GDP grew by 9.4% in 2004 and is projected to grow by over 7.0% in 2005. The economic expansion is due to increased production of oil, minerals and other commodities, supported by high oil prices and rising foreign investments.

Kazakhstan's substantial mineral resources include the world's largest chromium, vanadium, bismuth and fluorine reserves. The country is a major producer of iron, coal, uranium, copper, lead, zinc, tungsten, molybdenum, borates, phosphorite, potassium and cadmium. It also ranks third amongst CIS countries in terms of gold reserves. Almost all gold mining companies and properties have been fully privatized in Kazakhstan, the only country within the former Soviet Union to have done so. This allows gold dor� and gold-copper concentrates to be freely exported and sold.

Coal reserves in Kazakhstan are approximately 160Bt from 155 deposits in 10 major coalfields principally comprising energy and coking coal. The country also possesses enormous iron ore resources, containing 50-60% iron. Kazakhstan contains world class phosphorite deposits in terms of thickness and quality. It is the eighth largest copper producing country in the world and is a major producer of alumina (1.55 Mtpa). Kazakhstan occupies a large proportion of the Caspian oil province, where reserves are estimated to contain 20 billion barrels of oil and 700,000,000t of gas condensate, attracting more than US$15 billion in foreign direct investment over the last decade.

Conclusion

Seeking to take advantage of the secular bull market in resource and materials, investors seeking higher returns increasingly look to the countries of the former Soviet Union. Kazakhstan � the first among these countries to receive the investment grade, is currently among top 10 world�s fastest-growing economies (according to The Economist Intelligence Unit) with US$8.4 billion of direct foreign investment in 2004 (82.8 % growth compared to 2003) and real GDP growth of 9.4% in 2004.

Abundance of natural resources, many untapped resource-rich areas, economic and political stability, investor-friendly climate - all attributes that are proving popular with foreign investors, especially those in the extraction-based industries. However, to reduce the country�s dependence on the energy sector through diversification and modernization of the economy, the government of Kazakhstan is keen to attract much needed investment into such sectors as agriculture, food and beverage, transport, communications, financial sector, tourism as well as to encourage the development of SMEs and boost manufacturing. Various incentives are planned for investors ready to develop these markets. With the traditional extraction-based sectors still offering plenty of opportunities and new prospects emerging thanks to the government�s Strategy for Industrial and Innovative Development, Kazakhstan presents tremendous opportunities.

Click here for quick economic statistics on Kazakhstan:

http://www.cia.gov/cia/publications/factbook/geos/kz.html

Additional Sources for this report include: AFX-Asia, Agence France Presse, Associated Press, BBC Monitoring Central Asia Unit, Caspian News Agency, Caspian Business Report, Central Asia & Caucasus Business Report, CIA World Factbook, The Economist, Economist Intelligence Unit ViewsWire, The Financial Times, FSU Oil and Gas Monitor, Global Inisght, Interfax News Agency, ITAR-TASS News Agency, The Moscow Times, Oil and Gas Journal, Petroleum Economist, Platt's Oilgram News, PR Newswire, Radio Free Europe/Radio Liberty, Reuters, Stratfor, The Times of Central Asia, U.S. Department of Commerce's Business Information Service for the Newly Independent States (BISNIS), U.S. Department of State, U.S. Department of Energy, U.S. Energy Information Administration, U.S. Department of State, World Markets Research Centre.

Subscribe to your own timely copy of Richard Reinhard�s Growth Stocks Weekly issues! Go to www.gsweekly.com

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Copyright � 2005 by Diversified Financial Solutions, Inc. All Rights Reserved.

DISCLAIMER

The information found in this profile is protected by copyright laws and may not be copied, or reproduced in any way without the expressed, written consent of the editors of Growth Stocks Weekly.

Growth Stocks Weekly is an independent electronic publication committed to providing our subscribers with factual information on selected publicly traded companies, business, and economics. All companies are chosen on the basis of certain financial analysis, and other pertinent criteria with a view toward maximizing the upside potential for investors while minimizing the downside risk, whenever possible with the added aid of technical analysis. Growth Stocks Weekly and its editors do not accept compensation from public companies featured in this publication.

All statements and expressions are the sole opinions of the editors and are subject to change without notice. A profile, description, or other mention of a company in the newsletter is neither an offer nor solicitation to buy or sell any securities mentioned. While we believe all sources of information to be factual and reliable, in no way do we represent or guarantee the accuracy thereof, nor the statements made herein.

The staff of Growth Stocks Weekly are not registered investment advisors and do not purport to offer personalized investment related advice. The publisher, staff, or anyone associated with, or associated to, the Growth Stocks Weekly may own securities mentioned in this newsletter and may buy or sell securities without notice.

The profiles, critiques, and other editorial content of the Growth Stocks Weekly may contain forward-looking statements relating to the expected capabilities of the companies mentioned herein. The reader should verify all claims and do their own due diligence before investing in any securities mentioned. Investing in securities is speculative and carries a high degree of risk. We encourage our readers to invest carefully and read the investor information available at the web sites of the Securities and Exchange Commission ("SEC") at http://www.sec.gov and/or the National Association of Securities Dealers ("NASD") at http://www.nasd.com. We also strongly recommend that you read the SEC advisory to investors concerning Internet Stock Fraud, which can be found at

http://www.sec.gov/consumer/cyberfr.htm.

Readers can review all public filings by companies at the SEC's EDGAR page in the U.S. and SEDAR�s electronic filing of securities information as required by the securities regulatory agencies in Canada at www.sedar.com. The NASD has published information on how to invest carefully at its web site.

Post from: Gold News from Gold Editor

Special Report on Kazakhstan: Richard Reinhard

Colombia - Attractive for Oil & Gas Exploration & Development

Richard Reinhard
www.gsweekly.com
November 15, 2005

Colombia is a country of significant natural resources, endowed with substantial oil reserves along with major deposits of gold, silver, emeralds, platinum and coal. It has also been ravaged by a decades-long violent conflict, involving guerrilla insurgencies, drug cartels and gross violations of human rights. Needless to say, this has deterred investors and tourists alike.

What may be less known is that the economy has been gradually and relentlessly transformed since 1999 in the aftermath of the country's worst economic crisis in 30 years. The result is real economic growth of 4% per year, unemployment down to 12% from over 20%, the public deficit down to a low 1.3% of GDP, inflation down to 5.5% - the lowest level in decades, a steep decline in the poverty rate, a strengthening peso and recovering banking sector. Recently, the IMF commended the Colombian government's pursuit of sound policies and structural reforms, and the resulting lowered country risk premium. Violence has been dropping significantly due in large part to the "get tough" attitude of the current president.

When President Alvaro Uribe came to power in May 2002, he was the first candidate ever to win a first-round political victory. He continues to enjoy high approval ratings. A Harvard and Oxford-educated lawyer and staunch Roman Catholic, he is considered hard-line and right-leaning, a workaholic and a disciplined scholar. He is a survivor, having been elected mayor of Medellin in 1982 and governor of Antioquia 1995-97. His father was a wealthy landowner, killed when FARC rebels tried to kidnap him. Mr. Uribe himself has survived a handful of assassination attempts.

Mr. Uribe has had much success in stemming the murder and kidnappings, simultaneously engaging in formal peace talks with far-right warlords, seeking international mediation, courting U.S. military and financial assistance, boosting the military and police presence, and launching major offensives against the various violent elements.

The U.S., a key market for Colombian cocaine, has increasingly bankrolled the fight against the drug cartels in particular, with billions of dollars, equipment, manpower and expertise. Colombia is the third-largest recipient of U.S. foreign aid, after Israel and Egypt, dispensed through the world's largest U.S. Embassy (at least until the new Iraq one is built).

Colombia is proof that having vast natural resources does not necessarily determine how wealthy that country is. In fact, it is often those very same natural resources that motivate the theft and larceny that ultimately impoverish a country's institutions and culture. With a renewed emphasis on property rights, transparency, personal security and freedom, Colombia is attracting significant new foreign investment capital.

One of Colombia's largest relatively untapped assets is hydrocarbons (oil and gas). Colombia produced over 800K boe/d at its peak, but currently produces only about 550K boe/d. Meanwhile, domestic consumption has grown from under 200K boe/d to nearly 400K boe/d. If Colombia does not start to grow production they will soon become an importing nation, along with the associated negative balance of payments pressures. For this reason extensive fiscal changes were made that encourage exploration in the country.

The county is vastly under-explored relative to the U.S. and Canada and yet has extensive infrastructure in place. Discoveries can be brought on line quickly. The producing basins are connected to refineries and ports by an ample oil and gas pipeline system. Colombia has enacted new legislation to encourage drilling in the country. With success in limiting terrorism, the upside for companies in the country is significant. The key for companies considering doing business in Colombia is to have the expertise and local relationships in place. There are relatively few foreign operators, and so there exists much opportunity for those able to bring expertise and technology to the table. The national oil company Ecopetrol usually retains the right to back in for a 30% interest.

Colombia has put in a very attractive new fiscal regime that several Canadian companies are taking advantage of. The one caveat is that while Colombia's government has had success in restraining terrorism, if a new government is elected in 2006 and changes policy (unlikely, but this is South America!) this could be negative for the oil industry. However, historically no existing contracts have ever been modified. Getting access to drilling rigs in Colombia is fairly difficult at this time.

Gross Domestic Product (GDP) Growing

Unemployment still high but dropping

Inflation below 6%, the lowest in 30 years and among the lowest in Latin America

• International Debt Rating (S&P) increased from negative to stable in 2003

• The Colombian stock market rose 120% in $US terms in 2004 - the highest in the world
• Military personnel increased from 273,000 to 370,000 in 2 years
• U.S. assistance now approximately $US600 million per year
• Most assaults on the military now reduced to land mines versus previous direct attacks by groups of 30 to 100 guerrillas

Summary

Between 1990 and 2004, Colombia was among the top destinations for investment capital in Latin America, with foreign direct investment reaching a yearly average of about US$2.0 billion. Within the Andean Community, Colombia and Venezuela were the preferred destinations.

This positive performance is the result of macroeconomic and democratic stability, a successful defense policy and a favorable foreign investment framework.

Controls have been lifted on remittance of profits and capital, with foreign investors now being given the same treatment as national investors. Foreign capital is allowed to enter the country in most sectors, in particular for hydrocarbon and mining exploration and development.

Colombia also has attractive incentives designed to promote foreign and local investment such as tax benefits, special trade regimes and the export incentives. Foreign investment is protected by various international agreements like the Overseas Private Investment Corporation - OPIC, the Multilateral Investment Guarantee Agency - MIGA and the International Center for the Settlement of Investment Disputes - ICSID.

Colombia offers many attractions to foreign investors:

• Located at the midway point between North and South America.

• The only country in South America with Atlantic and Caribbean coasts.
• Easy access to North American, European, Asian and Latin American markets.
• One of the most stable economies in Latin America.
• Steady economic growth, above the Latin American average.
• Growth rate of 4.10% in 2004.
• Declining inflation over the past few years, reaching 5.5% in 2004.
• Declining foreign debt.
• Uninterrupted democracy except for a four-year period in the 1950s.
• The work force is considered the best in the Andean Community and is among the most qualified in Latin America for managerial, operational and technical positions.
• The adult literacy rate in Colombia is one of the highest in Latin America.
• The work force is competitive in terms of labor costs, with services salaries and hourly manufacturing wages highly competitive compared to other developing and developed countries.
• Human capital development in Colombia, particularly at the professional level, does not discriminate against women.
• Working shifts are between 6 a.m. and 10 p.m. for a regular 48-hour work week, reducing overtime and extra night time pay for companies needing to employ workers for two shifts.
• Companies can reduce labor costs by hiring apprentices under service contracts, and there are reduced compensation levels for dismissal without just cause.
• There is a defined export platform and privileged access to world markets through various trade agreements and tariff preferences.
• 10 Duty Free Zones offering a number of tax and procedural incentives, as well as foreign exchange benefits.
• 5 Special Economic Export Zones offering a special regime for new export-oriented businesses.
• Incentives for large exporters
  Special import - export systems.

• Colombia has the third largest population in Latin America (45 million inhabitants), after Brazil and Mexico.
• Modern communications infrastructure.
• Increasing investment in transport infrastructure.
• Over 400 multinational companies are doing business in Colombia, successfully growing their businesses and expressing confidence in the country's potential.

Richard Reinhard

Richard Reinhard's Growth Stocks Weekly

Your Source for High-Potential Early-Stage Growth Stocks Since 1995

Copyright �2005 by Diversified Financial Solutions. All Rights Reserved.

DISCLAIMER
The information found in this profile is protected by copyright laws and may not be copied, or reproduced in any way without the expressed, written consent of the editors of Growth Stocks Weekly.

Growth Stocks Weekly is an independent electronic publication committed to providing our subscribers with factual information on selected publicly traded companies, business, and economics. All companies are chosen on the basis of certain financial analysis, and other pertinent criteria with a view toward maximizing the upside potential for investors while minimizing the downside risk, whenever possible with the added aid of technical analysis. Growth Stocks Weekly and its editors do not accept compensation from public companies featured in this publication.

All statements and expressions are the sole opinions of the editors and are subject to change without notice. A profile, description, or other mention of a company in the newsletter is neither an offer nor solicitation to buy or sell any securities mentioned. While we believe all sources of information to be factual and reliable, in no way do we represent or guarantee the accuracy thereof, nor the statements made herein.

The staff of Growth Stocks Weekly are not registered investment advisors and do not purport to offer personalized investment related advice. The publisher, staff, or anyone associated with, or associated to, the Growth Stocks Weekly may own securities mentioned in this newsletter and may buy or sell securities without notice.

The profiles, critiques, and other editorial content of the Growth Stocks Weekly may contain forward-looking statements relating to the expected capabilities of the companies mentioned herein. The reader should verify all claims and do their own due diligence before investing in any securities mentioned. Investing in securities is speculative and carries a high degree of risk.

We encourage our readers to invest carefully and read the investor information available at the web sites of the Securities and Exchange Commission ("SEC") at http://www.sec.gov and/or the National Association of Securities Dealers ("NASD") at http://www.nasd.com. We also strongly recommend that you read the SEC advisory to investors concerning Internet Stock Fraud, which can be found at http://www.sec.gov/consumer/cyberfraud.htm.

Readers can review all public filings by companies at the SEC's EDGAR page in the U.S. and SEDAR's electronic filing of securities information as required by the securities regulatory agencies in Canada at SEDAR. The NASD has published information on how to invest carefully at its web site.

Post from: Gold News from Gold Editor

Richard Reinhard: Colombia – Attractive for Oil & Gas Exploration & Development

Silver Users Fear Silver Shortage.

By Jason Hommel

October 18, 2005

Grass Valley, CA (silverstockreport.com) -- The Silver Users Association (SUA), a group devoted to the conflicting goals of keeping silver prices low and keeping silver available for users, stunned the silver investing community last month by repeating the claims made by silver investors and analysts that the silver market is very tight and that any significant investor demand will create a shortage of silver.

The SUA made the bullish case for silver when asking the Securities and Exchange Commission (SEC) to deny Barclay's petition for a Silver Exchange Traded Fund (ETF). Barclay's Silver ETF will require Barclays Global Investors to buy up to 130 million ounces of silver prior to the approval of a silver ETF, in anticipation of investor demand for the silver ETF. But the COMEX division of NYMEX only has 117 million oz. of silver in all wearhouse stock categories combined. Furthermore, COMEX market participants, through approximately 140,000 silver futures contracts at 5000 ounces each, already have claims of up to 700 million ounces of silver--silver that may not exist.

The SUA's position: "The Silver Users Association opposes the creation of a silver ETF because of the concerns that doing so will require the holding of physical silver be held in allocated accounts, thus removing large amounts of silver from the market. By doing so, the ETF will cause a shortage of silver in the marketplace."

The SUA is literally asking the SEC to limit investors' ability to buy silver through an ETF. A silver ETF, which would wearhouse silver for investors, and be easier for investors to buy and sell, makes more sense for silver than gold, because of silver's weight. At $6.80/oz., every $1,000,000 of silver weighs about 10,000 pounds. But there are already limits on silver purchases. At the COMEX, there is a position limit of 1500 contracts per person or entity per month (which is a limit of 7.5 million oz. of silver), and total silver deliveries to all market participants may be limited to 1.5 million ounces in any given delivery month.

Back in May, 2004, the U.S. Commodity Futures Trading Commission (CFTC), which is supposed to oversee and prevent market manipulation and defaults, issued a 9-page report on silver that acknowledged many of the bullish fundamentals for silver, yet went on to say that a short side price manipulation could not exist because there is "unrestricted access to the market, [because] many knowledgeable and well-capitalized traders would readily buy any silver offered at artificially low prices." Michael Gorham, director of the CFTC, in the same report, then contradicted his earlier statement by acknowledging and defending the current position limits that prevent unrestricted access to the silver market. Michael Gorham then resigned from the CFTC about 3 weeks later.

I maintain that limits are evidence of shortages, manipulation, and price fixing that is too low. In free markets with free prices, there are no limits and no shortages, because in case of an impending shortage, supplies are rationed not by limits, but rather, by higher prices. Obviously, those who would advocate limits on purchases, would rather not see higher prices. Today, it appears as if the SUA is more concerned with keeping silver available to its members than keeping silver prices low, since they can no longer continue to do both. The SUA is risking endorsing the bullish story for silver, in an attempt to keep silver available to users, and away from highly capitalized investors who may want to buy silver through a silver ETF.

So, what exactly are the bullish fundamentals for silver? The current bullish supply and demand fundamentals as published (but not well publicized) by the silverinstitute.org and cpmgroup.com are that about 600 million ounces of silver are mined each year, while about 870 million ounces of silver are consumed by industry, jewelry, and photography. The difference is largely met by recycling, and investor selling. In 2004, investor selling ended as 40 million ounces of silver was purchased by investors throughout the year, which drove silver prices up from a low of $4.15 to a high of $8.40/oz.

Historically, the silver to gold ratio was that 15 ounces of silver would be worth 1 oz. of gold. Today, with silver at $7.76/oz. and gold at $472, it takes just over 60 oz. of silver to buy one ounce of gold, thus, silver is much cheaper than gold when compared to historic norms.

Have we hit "peak silver", like "peak oil"? Peak oil proponants maintain that there is about a 40-year supply of oil in reserves. However, according to Ted Butler, (butlerresearch.com), there are only about 16 years of silver in in-ground reserves, worldwide. The silver to oil ratio hit a high of over 1, as $50/oz. of silver could buy more than a barrel of oil at $43/barrel in 1980. Today, with oil prices hitting $70/barrel, silver prices are again at historic lows as compared to oil, as an ounce of silver recently was 1/10th the price of a barrel of oil.

How important is above ground supply? In the copper market, the world is down to a 2-day supply of inventory at the LME: 64,000 metric tonnes. And in copper, since demand is expected to continue to exceed supply over the next year, then copper prices are poised to move up substantially.

But what about the existing above ground supply of silver? Precious metals are held privately, and are not able to be tracked or traced, so nobody truly knows what the above ground supply of silver of might be. However, experts maintain that about 40 billion ounces of silver has been mined throughout all of human history, and that about 90% of that has been irretrevably consumed by industry, jewelry, and photography. Most of the approximately 3-5 billion ounces of silver left is in the form of jewelry, mostly held in India. Silver that is in the form of above-ground, refined, deliverable, identifiable silver is about 150 million ounces, mostly held at COMEX. The U.S. government once held up to 6 billion ounces of silver, but around 2002, the U.S. ran out, and had to buy silver on the open market for its Silver Eagle coin program. The COMEX once had up to 1.5 billion ounces of silver about 10-15 years ago, but today has less than 1/10th of that: 117 million ounces.

Warren Buffet bought 129.7 million ounces of silver in 1997, and "concluded that equilibrium between supply and demand was only likely to be established by a somewhat higher price." Since then, numerous investment analysts and newsletter writers have grown increasingly bullish on silver prices, including: Ted Butler, David Morgan, Jim Puplava, Harry Schultz, Doug Casey, Richard Russell, and many others, including myself. With the addition of the CFTC and the SUA making the bullish case for silver, what knowledgeable silver analyst or commentator remains left to maintain a bearish outlook for silver prices?

So, if there is an impending shortage of silver, how have prices remained low? Well, there is no shortage of silver for industrial users (commercials) who have unrestricted access to silver; there is only a shortage of silver for very large investors (speculators), who are restricted by position limits. Silver prices are also low due to lack of monetary demand, and a general lack of interest or knowledge by most investors. Demonitization of silver started in the 1870's with Germany abandoning silver coinage to move to a gold standard. The last time 90% silver coins were minted in the U.S. for everyday monetary transactions was 1964.

So, how high will silver prices go? Conceivably, if investor and monetary demand continues to increase, silver may not be able to be priced in dollars if the dollar collapses completely. But how would silver be valued if not in terms of dollars? Well, about 100 years ago, when silver was used as money nearly worldwide, a day's wage varied between a silver dime to a silver dollar. A return of monetary demand worldwide, in conjunction with a silver shortage, could conceivably drive silver prices higher than historic norms.

Will higher silver prices hurt the economy? The SUA also says: "This removal of large quantities of physical silver [through a silver ETF] could have a negative impact on silver-industry specific employment as well as the overall economy, both through job losses and inflation." However, higher silver prices will also create jobs in the silver mining industry, which has been devastated by low silver prices. In fact, currently, there are no profitable public silver mining companies in the U.S. And of about 80 silver companies that I follow, there are only about 2 or 3 that are making any profits in 2005 so far, because oil and energy prices (which are a large part of mining costs) have risen faster than silver prices. Thus, once again, if silver prices are below the cost to mine, silver price remain at historic lows.

Whether a silver ETF or whether the growing sense of a silver shortage will drive investor demand for silver remains to be seen.

Interestingly, one way to get around current position limits on silver purchases is to become a "commercial" trader, such as by petitioning the SEC to open a silver ETF. If the Barclays Silver EFT is approved by the SEC, it will trade on the AMEX under the symbol SVL sometime in 2006.

Currently, the world's only ETF that contains silver is the Central Fund of Canada (CEF), (Ticker: CEF), which holds 50 ounces of silver for every 1 oz. of gold, and holds over 90% of assets in precious metals. At a 60 to 1 ratio for silver to gold prices today, about 44% of the assets of CEF are invested in silver. CEF holds about 32 million ounces of physical silver.

Conclusion? If there really remains less than 150 million ounces of silver in above ground refined form, then there is about half of an ounce of silver per person in the U.S., which means that if you have a single ounce of silver, the SUA might say that you have "more than your fair share".

More:

Background:

BERKSHIRE HATHAWAY INC. PRESS RELEASE (Feb. 1998)

U.S. Commodity Futures Trading Commission silver letter(May 2004)

Barclays iShares Silver Trust SEC Application (June 2005)Nymex Silver Wearhouse Stocks

Barclays Global Investors Press Release on Silver ETF

Occasion for story:

Silver User's Association Policy Position on Silver ETF (Septermber)

Recent comments on SUA Policy Position:

A Surprise Silver Endorsement (by Ted Butler) (Oct. 10)US silver nonprofit opposes new silver-backed ETF (Oct. 12)SUA: BLOCK SILVER PRICE EXPLOSION (Oct. 14)Is the Day Nigh for Silver Bulls? (Oct. 17)

Related story:

Copper rises to record in London as inventory drops for 5th day (Oct. 18th)
Jason Hommel

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Jason Hommel: Silver Users Fear Silver Shortage