Zinc Is Falling Hard-BWR 4th Q In Question

Houses Today

Post says Breakwater takes zinc's plunge on the chin

2007-11-21 09:07 ET - In the News

The Financial Post reports in its Wednesday edition that investors have been frantically selling shares of Breakwater Resources in the last five weeks, slicing the share price by nearly half.

The Post's Peter Koven, writing in Trading Desk, says Canaccord Adams analyst Orest Wowkodaw said that part of the reason for the sell-off is the company's operational difficulties, including a water discharge problem at its Mochito mine and a road closure at its Myra Falls mine.

The bigger issue, says Mr. Wowkadaw, is the zinc market, which is looking like it could be very oversupplied "and Breakwater is just feeling the brunt of that." Spot zinc prices are down about 20 per cent in the last 30 days. Others have speculated that Breakwater could also be feeling the affects of the potential sale of DundeeWealth. Dundee Corp., the parent, holds a 24-per-cent share of Breakwater, and there is some talk the controlling Goodman family could sell that interest. Mr. Wowkodaw does not believe that is an issue. "Now that Scotiabank has come in (buying a minority share of Dundee), I see the risk of a distressed sale as relatively low. So I don't think the Goodmans are sellers at anything close to this current price."

Insiders Activity

Playing Markets Lately Is Like Dodging Bullets
Click Pics Bigger

Copper, zinc futures plummet in Shanghai

By Wang Lan (China Daily)
Updated: 2007-11-21 10:41

On the heels of the crash in international markets, Shanghai copper and zinc futures yesterday dropped to the daily allowable limits, reaching the lowest levels since early this year.

The most actively traded copper futures contracts for January delivery on Shanghai Futures Exchange (SHFE) slumped 4.01 percent to 55,780 yuan per ton, the lowest price level since February. The most actively traded zinc futures contracts for delivery in January on SHFE plummeted 6.01 percent to close at 18,205 yuan per ton, the lowest since zinc futures started trading in SHFE this April.

Last Friday, copper and zinc futures on the London Metals Exchange (LME) saw the biggest single-day drop yet. Copper futures contracts tumbled 5.11 percent to close at $6,690 per ton, while zinc futures contracts plunged 8.79 percent to close at $2,310 per ton.

Analysts said a combination of factors, including rising crude oil prices worldwide, shrinking US property sales figures and rocketing farm product prices, could signal the beginning of a US-led global economic down-cycle.

"Investors are beginning to take a more cautious attitude toward the market trend, as the US property market is showing no sign of recovery after being hit by the subprime mortgage crisis," said Zhou Jie, a non-ferrous metals analyst at China International (Shanghai) Futures Co. "The latest figures show that the even lower confidence in US home builders intensifies investors' concerns about the US property market," Zhou added.

According to the US National Association of Home Builders (NAHB), the November housing market index held even with October's 19 reading, its lowest point since the series began in January of 1985.

"Builder confidence in the market for new, single-family homes remained unchanged in November due to continuing mortgage market problems," said the NAHB report released on Monday.

Industrial experts and analysts said the continuous inventory rises of non-ferrous metals has also contributed to the price slump over the past several weeks.

The latest figures show that the LME copper inventory last week reached 180,000 tons, up 50 percent form the previous month, close to the record high of 200,000 tons recorded early this year.

The copper inventory in SHFE also rose 18 percent from September to 57,000 tons last Friday.

Copper, Zinc Fall Limit on Stockpile Gains, U.S. Demand Concern

By Li Xiaowei

Nov. 20 (Bloomberg) -- Copper futures in Shanghai fell the maximum daily limit to the lowest in more than eight months as an increase in global inventories of the metal signaled weaker demand. Zinc also dropped the exchange-imposed limit.

Copper stockpiles monitored by the London Metal Exchange rose yesterday to the highest since April 2, with most increases in warehouses located in the U.S., the world's second-biggest user of the metal after China. U.S. demand has been reduced by a housing slump and speculation economic growth will slow.

``If the Fed makes no further rate cuts, the U.S. economy is bound to be hurt, reducing demand for metals,'' Cai Jinrong, an analyst at metals trader Wanxiang Resources Co., said by phone from Shanghai today.

Copper for January delivery fell 4 percent from the previous settlement price to close at 55,780 yuan ($7,513) a metric ton, the lowest close since March 5. Shanghai zinc for January delivery fell 6 percent from the previous settlement to 18,205 yuan a ton, the lowest since the contract was introduced in March.

The metal for immediate delivery in Changjiang, Shanghai's biggest cash market, lost as much as 4.3 percent to 56,450 yuan a ton today.

London Metal Exchange copper for delivery in three months fell 1.7 percent $6,680 a ton at 3:36 p.m. in Shanghai, after falling as much as 5.3 percent yesterday. LME zinc for delivery in three months lost 2 percent to $2,307 a ton.

Stockpiles of copper gained 1,275 tons, or 0.7 percent, to 180,925 tons yesterday, the 10th straight daily gain, according to exchange data. Supplies have increased 8.4 percent this month.

Recession Forecasts

The number of economists forecasting the U.S. will slip into recession almost doubled over the last two months, a survey by the National Association for Business Economics showed. Housing starts in the U.S. probably fell to a 14-year low in October, signaling a real-estate slump will continue to weigh on growth, economists said before a report today.

Zinc fell to a 20-month low in London yesterday as shipments from China, the world's largest producer of the metal, may have accelerated on speculation the government will end a 5 percent tax rebate on exports next year.

Holders of stockpiled zinc may have sought ``to liquidate'' before the change, Michael Jansen, an analyst at JPMorgan Securities Ltd., said in a report yesterday. Exports from China jumped 21 percent in the first 10 months of this year, helping send zinc prices down 45 percent.

Exports were 8,964 tons in October compared with 12,325 tons in the previous month and the record high of 81,905 tons in December 2006, according to customs data.

Zinc Exports

``We expect zinc exports to rebound in the remainder of this year from the October low as an oversupply in the domestic market pushes down local prices,'' Xuan Long, an analyst at Huawen Futures Brokerage Co., said by phone from Shanghai today,

``Speculation about the cancellation of tax benefits may be another incentive to export more,'' Xuan said.

Shanghai aluminum for January delivery lost 0.9 percent to 17,860 yuan a ton, and LME aluminum was 0.4 percent higher at $2,520 a ton at 3:45 p.m.

Among other LME-traded metals, lead was 0.5 percent down at $3,035 a ton, nickel added 0.2 percent to $30,250 a ton, and tin was 0.2 percent higher at $16,800 a ton.

PDP Staying In Argentina+Insiders+Analyst Targets

Globe says Petrolifera, Petro Andina douse exit rumours

2007-11-21 07:14 ET - In the News

Also In the News (C-PAR) Petro Andina Resources Inc

The Globe and Mail reports in its Wednesday edition that Canadian oil companies operating in Argentina have no plans to pull out of the country, despite an export tax regime that will cut into what they receive for crude production there. The Globe's Norval Scott writes that Calgary's Petrolifera Petroleum said Monday the decision effectively sets a ceiling of $42 (U.S.) on the price of a barrel of light crude oil produced in the country.

This, it said, would likely result in an 8-per-cent reduction in the company's cash flow from operations, and cause it to re-examine its capital budget in Argentina. After the release, Petrolifera's stock fell more than 18 per cent. Petrolifera issued another statement Tuesday saying it is not withdrawing from Argentina, contrary to some news reports.

Petro Andina Resources produces around 7,400 barrels a day of oil in Argentina, said that the changes would likely set a ceiling for the amount it realizes from production of around $38 (U.S.) a barrel when the index price exceeds $60.90 (U.S.). That's a small drop from the $38.32 (U.S.) it realized for the first nine months of 2007. Petrolifera rose 15 cents to $10.75 in Toronto, while Petro Andina rose 66 cents to $14.20.

David Pescod Reports On PDP This Evening
Revised Analyst Reports Today
Scotia Target To $16.50
GMP To $15.00

Click Pic

Petrolifera says re-examining not leaving Argentina

2007-11-20 10:34 ET - News Release

Mr. R.A. Gusella reports

PETROLIFERA PETROLEUM SEEKS TO CLARIFY PRESS REPORTS ABOUT PLANNED ACTIVITY IN ARGENTINA

Petrolifera Petroleum Ltd. wishes to clarify its position with respect to its continuing activity in the provinces of Rio Negro and La Pampa, in Argentina. There have been erroneous reports in the media that the company is withdrawing from Argentina. These reports are not correct.

Petrolifera has a significant asset base in Argentina, primarily associated with its Puesto Morales/Rinconada concession in Rio Negro province, Argentina. The company also owns extensive acreage under its Vaca Mahuida concession and is scheduled to be awarded the Puesto Guevara concession in Rio Negro province. In La Pampa, Petrolifera holds the Governador Ayala II concession.

During the first nine months of 2007, Petrolifera produced an average of approximately 8,400 barrels per day of crude oil and over two million cubic feet per day of natural gas. This was in increase of 90 per cent over 2006 levels. During this period, Petrolifera invested approximately $47.4-million in Argentina, primarily in Rio Negro province and has budgeted to drill 25 new wells in the fourth quarter of 2007. It has four rigs and four service rigs currently working on its Puesto Morales/Rinconada acreage. Total capital investment for the fourth quarter of 2007, including drilling and facilities which are under construction or being completed, has been established at $45.5-million. This would bring the company's total investment for calendar 2007 to approximately $92.9-million, considerably in excess of anticipated cash flow from operations before working capital changes for the period. The company's capital budget for Argentina, in 2008, was recently established at $76-million, with 69 wells and extensive seismic programs scheduled. The decline from anticipated 2007 levels primarily relates to the pending completion of the company's permanent production facilities.

Since it embarked on its original drilling program at Puesto Morales in late 2005, Petrolifera has made a number of significant new discoveries. The company has, since its formation, drilled approximately 60 wells in Argentina, with only one dry hole and one suspended well. Several new pool discoveries have been made and the company has produced over four million barrels of crude oil, all found through the drill bit. Capital investment in Argentina, since 2005, has thus far totalled $90-million through Sept. 30, 2007, and as indicated, planned fourth quarter 2007 expenditures are $45.5-million with an announced 2008 budget of $76-million. In addition to this capital investment, Petrolifera has paid almost $30-million of royalties to the province of La Pampa and has paid over $40-million of cash income and other taxes to the government of Argentina.

As reported in Stockwatch on Nov. 19, 2007, in announcing two new discoveries and a new zone completion on its Puesto Morales concession, Petrolifera commented that in light of the recent proposed increase in Argentina's export tax on crude oil, which could adversely but minimally impact the company's anticipated 2008 cash flow, it would be re-examining its previously announced capital budget to determine which, if any, of its anticipated 2008 Argentinean projects will have to be deferred or eliminated, due to the lower level of anticipated cash flow relative to its actual and forecast sales levels anticipated to be achievable during the year.

It should be noted that in 2007 year to date, the average price received by Petrolifera for its oil production was under $46.00 per barrel, already constrained by the impact of the prevailing export tax. The new indicated ceiling of $42.00 (U.S.), when adjusted for tax and royalty effects, gives rise to the previously forecast reduction in cash flow, for an assumed 10,000-barrel-per-day sales level, and the investment community seems concerned that the new level of export tax does appear to limit the potential for realizing a portion of increases to the world price for crude oil sales, during a time when cost pressures could emerge in conducting field and other business activities.

Petrolifera wishes to clarify that a re-examination of spending plans should be considered to be in the ordinary course of business, as policy changes, such as the proposed increase in the export tax in Argentina's impact on available cash flow and also on prospective returns from reinvestment activity; however, such a re-examination does not infer withdrawal or in fact a cancellation or reduction in planned activity.

While the company does also have cash balances and an essentially unused $60-million (U.S.) available credit facility, to supplement cash flow in its operations in financing its capital programs, cash flow from operations remains the principal source of financing for new investment activity for most oil companies.

To reiterate, Petrolifera in no way stated that it was withdrawing from Argentina or was otherwise curtailing its planned activity, but merely stated that it would be re-examining its budgeted activity in light of the announced policy changes. With four rigs and four service rigs currently active in Rio Negro province and a 3-D seismic program under way in La Pampa province, Petrolifera is among the most active operators in Argentina, has become one of the largest landholders, and is among the 10 largest producers and operators in Argentina, all achieved during the past two years. Such a level of commitment and achievement is hardly reflective of an intention to withdraw from the country and Petrolifera's position has been miscast in the media and popular press.

We seek Safe Harbor.