Comments on: A Worst-Case Commodity Scenario http://www.dailyreckoning.com.au/a-worst-case-commodity-scenario/2009/01/15/ An independent perspective on the Australian and global investment markets Sat, 21 Nov 2009 17:27:32 -0600 http://wordpress.org/?v=2.8 hourly 1 By: DrumBeat: January 15, 2009 | EcoSilly http://www.dailyreckoning.com.au/a-worst-case-commodity-scenario/2009/01/15/comment-page-1/#comment-61704 DrumBeat: January 15, 2009 | EcoSilly Mon, 19 Jan 2009 00:05:54 +0000 http://www.dailyreckoning.com.au/?p=4782#comment-61704 [...] A Worst-Case Commodity Scenario Even though commodity prices are already down by large amounts, we now have the possibility of an ugly earnings shock for Aussie resource producers in the first and second quarters of this year. Whether this is already priced into resource shares is a question we’ll deal with in a moment. But it would be wise to not underestimate the possibility of a massive, earnings-crushing double whammy for resources. First, is rapidly contracting global industrial production. This could lead to an unpleasant (and not priced-in) decline in Australia’s export earnings. Financial earnings have already been decimated by the credit crisis. Now that the crisis is storming into the real economy, are resource earnings next? [...] [...] A Worst-Case Commodity Scenario Even though commodity prices are already down by large amounts, we now have the possibility of an ugly earnings shock for Aussie resource producers in the first and second quarters of this year. Whether this is already priced into resource shares is a question we’ll deal with in a moment. But it would be wise to not underestimate the possibility of a massive, earnings-crushing double whammy for resources. First, is rapidly contracting global industrial production. This could lead to an unpleasant (and not priced-in) decline in Australia’s export earnings. Financial earnings have already been decimated by the credit crisis. Now that the crisis is storming into the real economy, are resource earnings next? [...]

]]> By: Bill Foord http://www.dailyreckoning.com.au/a-worst-case-commodity-scenario/2009/01/15/comment-page-1/#comment-61687 Bill Foord Sun, 18 Jan 2009 19:07:47 +0000 http://www.dailyreckoning.com.au/?p=4782#comment-61687 Dear Dan, After doing a google search, i found that about 25% of gold is owned by central banks and about 75% is owned privately. I believe that with a recesssion/depression that we may see a huge influx of gold from this privately held source onto the market. Just to survive a lot of people will liquidate their gold positions to get cash. Just a couple of weeks ago i was checking to see if AGR Matthey was still in existence in melbourne (it is not - it has been taken over by Australian Gold Bullion company) and saw an indian woman at the counter having a pile of jewelery analysed for gold content. Have you considered this source of supply, the 75% of privately held gold? Dear Dan,
After doing a google search, i found that about 25% of gold is owned by central banks and about 75% is owned privately. I believe that with a recesssion/depression that we may see a huge influx of gold from this privately held source onto the market. Just to survive a lot of people will liquidate their gold positions to get cash. Just a couple of weeks ago i was checking to see if AGR Matthey was still in existence in melbourne (it is not - it has been taken over by Australian Gold Bullion company) and saw an indian woman at the counter having a pile of jewelery analysed for gold content. Have you considered this source of supply, the 75% of privately held gold?

]]> By: DrumBeat: January 15, 2009 | Bear Market Investments http://www.dailyreckoning.com.au/a-worst-case-commodity-scenario/2009/01/15/comment-page-1/#comment-61685 DrumBeat: January 15, 2009 | Bear Market Investments Sun, 18 Jan 2009 18:35:02 +0000 http://www.dailyreckoning.com.au/?p=4782#comment-61685 [...] A Worst-Case Commodity Scenario Even though commodity prices are already down by large amounts, we now have the possibility of an ugly earnings shock for Aussie resource producers in the first and second quarters of this year. Whether this is already priced into resource shares is a question we’ll deal with in a moment. [...] [...] A Worst-Case Commodity Scenario Even though commodity prices are already down by large amounts, we now have the possibility of an ugly earnings shock for Aussie resource producers in the first and second quarters of this year. Whether this is already priced into resource shares is a question we’ll deal with in a moment. [...]

]]> By: Greg Atkinson http://www.dailyreckoning.com.au/a-worst-case-commodity-scenario/2009/01/15/comment-page-1/#comment-61311 Greg Atkinson Fri, 16 Jan 2009 04:26:45 +0000 http://www.dailyreckoning.com.au/?p=4782#comment-61311 Of course the big assumption here is that the market has not already factored in a major global recession. I would suggest that a 50% or so correction in the ASX All Ords since the peak in 2007 pretty much takes into account a pretty bleak outlook for 2009. As for LNG. I see Woodside are stopping work on the LNG project off the coast of California...so maybe that tells us something? Of course the big assumption here is that the market has not already factored in a major global recession. I would suggest that a 50% or so correction in the ASX All Ords since the peak in 2007 pretty much takes into account a pretty bleak outlook for 2009. As for LNG. I see Woodside are stopping work on the LNG project off the coast of California...so maybe that tells us something?

]]> By: Pete http://www.dailyreckoning.com.au/a-worst-case-commodity-scenario/2009/01/15/comment-page-1/#comment-61201 Pete Thu, 15 Jan 2009 05:21:39 +0000 http://www.dailyreckoning.com.au/?p=4782#comment-61201 CA: I like your observations. I was quite surprised when CGT didn't drop below the 3c level after the share redist. And it is nice to see people holding on to the shares. I am expecting that sooner or later (if the companies have any means to) some of the larger companies may consider buying out the juniors. Perhaps even the likes of Rio or BHP as they attempt to hedge themselves for the future? A thought occurred to me the other night...was BHP's 07/08 Rio takeover partially deliberate to set Rio up for a fall? I very much doubt they had that foresight, but consider: - BHP launches takeover bid - Rio has to invest further to bolster its companies 'value' (reckless debt?) - Rio seeks to increase production hastily (reckless debt?) - BHP can consider its future options with less debt - BHP cancels bid, kills Rio share price - Rio suffers, has too much debt - Rio cuts back big time, has to sell assets, sack workers - BHP considers buying old Rio assets if it wants - Rio is weak for a considerable time - BHP waits for recovery of resource prices, considers another takeover bid whilst Rio is very weak Okay, so I strongly doubt it, but maybe by change BHP gets Rio after all? Probably should have posted this on another page... CA: I like your observations. I was quite surprised when CGT didn't drop below the 3c level after the share redist. And it is nice to see people holding on to the shares.

I am expecting that sooner or later (if the companies have any means to) some of the larger companies may consider buying out the juniors. Perhaps even the likes of Rio or BHP as they attempt to hedge themselves for the future?

A thought occurred to me the other night...was BHP's 07/08 Rio takeover partially deliberate to set Rio up for a fall?

I very much doubt they had that foresight, but consider:
- BHP launches takeover bid
- Rio has to invest further to bolster its companies 'value' (reckless debt?)
- Rio seeks to increase production hastily (reckless debt?)
- BHP can consider its future options with less debt
- BHP cancels bid, kills Rio share price
- Rio suffers, has too much debt
- Rio cuts back big time, has to sell assets, sack workers
- BHP considers buying old Rio assets if it wants
- Rio is weak for a considerable time
- BHP waits for recovery of resource prices, considers another takeover bid whilst Rio is very weak

Okay, so I strongly doubt it, but maybe by change BHP gets Rio after all?

Probably should have posted this on another page...

]]> By: Tea Addict http://www.dailyreckoning.com.au/a-worst-case-commodity-scenario/2009/01/15/comment-page-1/#comment-61199 Tea Addict Thu, 15 Jan 2009 05:12:01 +0000 http://www.dailyreckoning.com.au/?p=4782#comment-61199 What does any of this mean for the Aussie dollar????? What does any of this mean for the Aussie dollar?????

]]> By: Coffee Addict http://www.dailyreckoning.com.au/a-worst-case-commodity-scenario/2009/01/15/comment-page-1/#comment-61193 Coffee Addict Thu, 15 Jan 2009 03:57:29 +0000 http://www.dailyreckoning.com.au/?p=4782#comment-61193 Dan. Concerning gold juniors with a clear production pathway, my limited and anecdotal observation is that shareholder consolidations are now underway. Every time there is a share issue, the underwriter (along with other major shareholders who oversubscibe) take a firmer grip. Major shareholders who can't hold on are jumping off but they are being replaced. The "listed" nature of these companies is becomes a burden to major holders who just want to get on with it but can't easily do so while stock is being sold for pennies in $400 trades. OK there is money coming in via new and existing major shareholders. There seems to be taking 5%-10 incremental consolidation with each round. One key question (and risk) is the depth of their pockets. They won't tell me so I don't know. Another key question is whether the standard industry 25% residual share deal (eg. ALK's arrangemnt with Newmont on one prospect) will provide sufficient cash flow to see through some other prospects. The wiser debt free companies are also slashing their costs with the view to holding on for a very long time. Dan. Concerning gold juniors with a clear production pathway, my limited and anecdotal observation is that shareholder consolidations are now underway. Every time there is a share issue, the underwriter (along with other major shareholders who oversubscibe) take a firmer grip. Major shareholders who can't hold on are jumping off but they are being replaced. The "listed" nature of these companies is becomes a burden to major holders who just want to get on with it but can't easily do so while stock is being sold for pennies in $400 trades.

OK there is money coming in via new and existing major shareholders. There seems to be taking 5%-10 incremental consolidation with each round. One key question (and risk) is the depth of their pockets. They won't tell me so I don't know. Another key question is whether the standard industry 25% residual share deal (eg. ALK's arrangemnt with Newmont on one prospect) will provide sufficient cash flow to see through some other prospects. The wiser debt free companies are also slashing their costs with the view to holding on for a very long time.

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