Energy / Resources
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Where is the ‘Fat Controller’?
Roger Montgomery
October 18, 2012
Yesterday Marius Kloppers was reported in the Oz as saying “the record prices we experienced over the past decade, driven by the ‘demand shock’, will not be there to support returns over the next 10 years”
Additionally he revealed that the mining industry collectively has not learned anything from past booms and busts when he explained that to meet the rising demand mining companies had yet again taken a “volume over cost” approach, adding “improving productivity played second fiddle to speed to market for many in the industry”.
While we can give ourselves a little ‘we-said-it-here-first’ pat on the back for spotting the coming slump in iron ore prices a year ago and protecting our investors from it, the bigger picture is more important; Where is the industry’s equivalent of the Thomas the Tank character – the Fat Controller? Why is there no ‘OPEC’ for iron ore and coal producers? Would it help if there was?
The lessons of each boom/bust cycle are lost with each generation’s death and the mistakes repeated again. Only those who study history can hope to beat this cycle because caught in its spotlight are prone to declare this time is different.
An argument we heard this time was “it can’t fall below $100/t because China’s cost of production is higher”. Yet anyone with more than a few minutes experience in commodity markets can tell you that just about every commodity has traded below its cost of production and sometimes for many years.
While we believe we are able to spot these cycles developing, we must ask the question, what will be put in place to ensure that next time billions are again not wasted? Or is this the ugly wart on capitalism’s nose that cannot be removed?
by Roger Montgomery Posted in Energy / Resources, Insightful Insights.
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Is there a ‘floor’ under the gold price?
Tim Kelley
October 11, 2012
Since 2001, the gold price has risen from below $270/oz to almost $1800/oz – a compound growth rate of around 17% p.a. which has made it one of the most rewarding assets to hold over that period. The majority of commentators now seem to be born-again gold bulls, with ever increasing long-term price targets being put forward, justified by gold’s status as an alternative currency in a time of economic uncertainty and unlimited quantitative easing.
While we can’t see a reason for gold’s run of strength to end in the short term, we are mindful of the long-term downside risks that attach to such a strong rise in price for an asset that does not produce income. Following a spectacular run between 1970 and 1980, it is worth noting that gold lost over 80% of its value in real terms during the following 20 years.
by Tim Kelley Posted in Energy / Resources, Insightful Insights.
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Iraq’s news is not all bad
David Buckland
October 11, 2012
According to the International Energy Agency (IEA), Iraq’s oil exports for the month of September 2012 hit 2.6m barrels of oil per day, the highest level in more than thirty years.
The IEA expects Iraq to more than double its oil exports by 2020 to 6m barrels of oil per day. At the current price that is export revenue of US$200 billion per annum.
Iraq’s official target is for exports of 12 million barrels of oil per day. Comments from the contracted producers, Royal Dutch Shell, BP, Exxon Mobil, Lukoil and CNPC from China, in terms of the potential doubling or quadrupling of Iraq’s oil exports over this decade will be worth following.
by David Buckland Posted in Energy / Resources, Insightful Insights.
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MEDIA
Cash in on the Gold Dream
Roger Montgomery
October 1, 2012
Roger provides his insights on gold miner Codan’s shiny prospects in his October 2012 Money Magazine article. Read here.
by Roger Montgomery Posted in Energy / Resources, Intrinsic Value, On the Internet.
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Materials prices to collapse further
Roger Montgomery
September 30, 2012
If you think the declines so far in iron ore are significant, you ain’t seen nothing yet.
I think the declines we have seen in commodity prices still have a long way to go.
We’ve long argued that a classic supply response would follow the massive investment in exploration and production that itself followed a surge in demand from China that caused prices to reach historic highs.
But China’s demand – itself was based on unsustainable growth in fixed investment spending – is now fading. China represents less than 11% of the global economy, but it commanded 30% to 40% of total global demand for copper and 60% of total global demand for cement and iron ore thanks to the massive social modification projects that required bridges, roads, ports, cities, subways and skyscrapers.
This is not sustainable and so demand for the raw ingredients will decline. Additionally, the nature of future growth will change and more consumer driven growth will again demand less materials.
by Roger Montgomery Posted in Energy / Resources, Insightful Insights, Value.able.
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Steel production confirms slowing industrial output
David Buckland
September 26, 2012
Data released yesterday from “worldsteel” on global iron and steel production confirmed slowing output. Global steel production for August 2012 was down 1% year on year. Steel production from the European Union for August was down 15% year on year, taking annual output to 144 million tonnes, or 9.6% of the 1.5 billion tonnes per annum of global production. Chinese steel production has slipped in recent months from an annualised 750 million tonnes to 700 million tonnes, or 47% of global production.
For 2013, Australia’s Bureau of Resources and Energy have recently cut their iron-ore forecast to US$101/ tonne, while many brokers are still assuming a price of at least US130/tonne. We continue to watch the steel numbers closely.by David Buckland Posted in Energy / Resources, Insightful Insights, Manufacturing.
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It’s a Bear Trap! Be fearful when others are greedy
Roger Montgomery
September 17, 2012
Its no news we have been warning investors about the risk of declining iron ore prices since late calendar 2011. Most recently we have been warning of a bear trap – the risk associated with buying stocks when they appear to be ‘cheap’ because they have fallen a long way but poor fundamentals are likely to see prices even lower.
Figure 1 outlines how The Montgomery Funds have been thinking about China, Iron Ore and our big miners.
by Roger Montgomery Posted in Energy / Resources, Insightful Insights, Market Valuation.
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MEDIA
Thinking Of A Gamble? Don’t.
Roger Montgomery
September 15, 2012
Roger Montgomery discusses why investing in heavily leveraged companies is a risky pursuit in this Australian article published 15 September 2012. Read here.
by Roger Montgomery Posted in Energy / Resources, In the Press, Insightful Insights.
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The pebble drops
Roger Montgomery
September 13, 2012
There is an old chinese proverb that says “a pebble cast into a pond causes ripples that spread in all directions” – as Michael’s email over the weekend (below) displays, there’s a shift going on which is rippling its way through the market.by Roger Montgomery Posted in Energy / Resources, Insightful Insights.
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MEDIA
A rocky future for iron ore?
Roger Montgomery
September 10, 2012
Roger Montgomery discusses how the dramatic volatility in the price of iron ore is likely to continue in this discussion on ABC1’s Inside Business broadcast 2 September 2012. Watch here.
by Roger Montgomery Posted in Energy / Resources, TV Appearances.
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