Short selling ban expires...now what happens?

Investors will also be watching to see what kind of an effect short selling will have on the market now that a three-week ban imposed by regulators has expired. Some analysts believe the unprecedented ban on short selling – an effort to bolster investor confidence amid the worst financial crisis since the stock market crash of 1929 – did more harm than good at a time of historic market volatility.

Wall Street set for higher open TheStar.com - Business - Wall Street set for higher open
October 09, 2008
JOE BEL BRUNO
The Associated Press

NEW YORK–Wall Street appeared headed for a strong open Thursday after IBM Corp. reaffirmed its profit outlook and investors hoped that the panic selling that cascaded through global markets a day earlier was overdone.

Stock markets around the world moved mostly higher one day after the Federal Reserve and other leading central banks cut interest rates to help fight the credit crisis and stimulate the global economy.

Asian and European markets moved higher on Thursday, and the Dow Jones industrial average futures was up 136 points ahead of the opening bell in New York.

There was hope by investors that perhaps Wall Street is getting closer to finding a bottom after the worst five-day rout since 1987. On Wednesday, the Dow gave up 189 points to close at – and is now down about 35 per cent from its high of 14,164.53 reached exactly one year ago.

While rate cuts can take up to a year to work its way through the economy, there was some positive signs Thursday that corporate earnings might come in better than expected. IBM, a Dow component, posted third-quarter results that beat forecasts and reaffirmed its full-year earnings guidance.

There might also be a bit more hope in the market on a report that the Bush administration is mulling a plan to stabilize hobbled U.S. banks. The government is considering taking ownership stakes in certain U.S. banks as an option for dealing with a severe global credit crisis.

That certainly could help motivate investors on Thursday, though early signs that the market will move higher has often been erased with trading extremely volatile during the past few weeks. Ahead of the bell, Dow futures rose 136, or 1.46 per cent, to 9,327. Standard & Poor's 500 composite futures added 17.70, or 1.80 percent, to 998.40, and Nasdaq-100 futures added 33.75, or 2.56 per cent, to 1,353.75.

Investors will also be watching to see what kind of an effect short selling will have on the market now that a three-week ban imposed by regulators has expired. Some analysts believe the unprecedented ban on short selling – an effort to bolster investor confidence amid the worst financial crisis since the stock market crash of 1929 – did more harm than good at a time of historic market volatility.

Ivanhoe signs new oil deal with Ecuador Capped at $37.00.barrel

Ivanhoe signs new oil deal with Ecuador

Wednesday, October 08, 2008
QUITO — — Ecuador on Wednesday signed a service deal with Canada's Ivanhoe Energy Inc. to exploit an oil field, marking a victory for the leftist government in its drive to boost control over the crucial sector.


Ivanhoe plans to invest up to $5-billion (U.S.) over 30 years to extract oil from the Pungarayacu field in Ecuador's Amazon jungle. Ecuadorean oil officials have said the company could produce up to 120,000 barrels a day within five years.

Payments to Ivanhoe: To recover its investments, costs and expenses, and to provide for a profit, Ivanhoe Energy Ecuador will receive from Petroproduccion a payment of US$37.00 per barrel of oil produced and delivered to Petroproduccion. The payment will be indexed (adjusted) quarterly for inflation, starting from the contract date, using the weighted average of a basket of three US Government-published producer price indices relating to steel products, refinery products and upstream oil and gas equipment. Type: The contract is a Specific Services Contract under which Ivanhoe Energy Ecuador will use its unique and patented HTL technology, as well as provide advanced oil-field technology, expertise and capital to develop, produce and upgrade heavy crude oil from Block 20, which contains the Pungarayacu field. In addition, Ivanhoe Energy Ecuador has the right to conduct exploration for light oil in the contract area and to use any light oil that it discovers to blend with the heavy oil for delivery to Petroproduccion.

Term: The 30-year term may be extended by mutual agreement for two additional five-year periods. The contract has three phases. The first two phases are for evaluation of the field's production capability and the crude-oil characteristics, as well as for the construction of the first HTL plant. The third phase is for full field development and will include drilling additional exploration and development wells. Additional HTL capacity will be added as necessary for expected production. HTL is a field-located upgrading process that converts heavy oil to a transportable, upgraded liquid product. The upgrading process generates by-products that can be used on site to create steam for injection into the reservoir, thereby improving recovery, or alternatively, to generate electricity. The processed oil can be transported by pipeline without the need to add diluent and the upgraded product has a significantly higher market value than raw heavy crude.

The HTL process can be used in technically and economically scalable plants - down to as low as 10,000-30,000 barrels per day - in modular form near producing wells. For the Pungarayacu oil field and the balance of Block 20, all of these advantages are expected to come into play.

HTL's environmental advantages ------------------------------
Numerous significant environmental benefits result from using the integrated HTL process for heavy-oil production, compared with the use of conventional production methods. These include a) minimizing surface disturbance by the relatively small scale of the HTL plants; and b) significantly reducing greenhouse gases, on a full life-cycle basis, through the generation of onsite energy from the by-products of HTL processing. : Italics Ours.

President Rafael Correa, a leftist former economy minister, has pushed foreign oil companies already producing to switch to new service deals that would allow the state to keep all the oil they extract in exchange for a fee.

"Today, we have signed a contract that marks the change of times in our country," said Mr. Correa after signing the deal and replacing the country's oil chief to speed up negotiations with other companies.

"We want private companies to have a fair return, but they also have to respect the winnings of the country."

The service deal with Ivanhoe is a win for Mr. Correa's drive to increase the OPEC nation's sway over the sector, but also highlights the U.S.-trained economist's willingness to continue working with foreign oil companies to boost production.

Mr. Correa has so far refrained from oil nationalizations, but threatened to expel foreign oil companies that fail to raise production levels. Most companies have halved investment since new contract negotiations started last year.

Mr. Correa's allies in Venezuela and Bolivia have nationalized key swaths of their economies including oil and gas.

Local oil experts have charged the new deal with Ivanhoe lacks transparency and questioned the company's capacity to meet production targets with experimental technology to upgrade the quality of heavy crude on site.

Ivanhoe has operations in Canada and China, and its working on a technological innovation that potentially makes developing heavy oil fields more economical for smaller producers.
© Copyright The Globe and Mail

Zinc And Base Metal Slump worst in 50 years: Lundin

Slump worst in 50 years: Lundin
ANDY HOFFMAN
Wednesday, October 08, 2008
As the scion of the Lundin family resources empire, Lukas Lundin has both prospered and suffered through plenty of commodity sector booms and busts. Yet in all his years as a mining executive and financier he has never seen anything like this.
"I'm very surprised. This is the worst correction we have had in the last 50 years," Mr. Lundin said in an interview this week.

Just two weeks ago, the chairman of Lundin Mining Corp. and the head of the Lundin Group of Companies, still believed that the commodities boom cycle was intact. Despite a looming recession in the United States he had faith in the theory of "de-coupling," believing that the U.S. was no longer the key to commodities demand and that Europe and Asia would be able to escape the downturn.

That has all changed now as the deepening global financial crisis has led to a savage selloff of mining stocks and nose-diving commodity prices. The S&P TSX Metals and Mining Index has lost a stunning 23 per cent of its value in a week and more than 38 per cent over the past month.
Mr. Lundin is suddenly among the legions of resource investors who have resigned themselves to the notion that America's toxic debt contagion will crimp global economic growth and cut demand for commodities.

"I thought there was a decoupling in the world between us and the U.S., but I think now we've all been dragged in to the same crap," he said.

Born in Sweden and now residing in Vancouver, Mr. Lundin grew up in the commodities business. His late father, Adolf Lundin, compiled a fortune by following his own personal motto, "No guts, no glory," and taking a chance on oil and mining concessions in troubled places such as Sudan, Iran and The Democratic Republic of Congo.

Lukas put his stamp on the family empire recently by pulling off a series of aggressive acquisitions during the height of the commodity boom. But now some of the mining assets that Lundin Mining acquired are proving less profitable than hoped because of operational troubles and falling metal prices.

Lundin Mining shares have lost nearly a third of their value in a week and almost 50 per cent in a month.

Meanwhile, the price of copper plunged as much as 7 per cent Wednesday on the London Metals Exchange, hitting a 20-month low of $5,227 (U.S.) a tonne, or about $2.37 a pound. The metal later recovered slightly to close at $5,240, down from $5,625 on Tuesday. As recently as July, copper was changing hands at an all-time high of more than $4 a pound.
The price of zinc, one of Lundin Mining's key production metals, has skidded to three-year lows of about 65 cents a pound and the company is now considering cutting production from high-cost operations such as its Galmoy mine in Ireland.

"We are okay at this price, but if they go much lower we are going to have to start doing some cuts," he said, adding that the company is reviewing costs at all of its mines.
"We're cutting costs and we are making sure that operations are at least cash flow positive. If not, we will shut them down," he said.

The company is also considering revamping its troubled Aljustrel zinc mine in Portugal as a copper-focused operation. A decision could come within two weeks.
As for the Lundin Group's stable of junior exploration firms, access to outside sources of capital has all but dried up. A Lundin family trust recently had to lend one of the companies, Africa Oil Corp., $6-million to help fund day to day operations.

"The smaller companies, they are finished right now," Mr. Lundin said, adding that "the exploration game is going to be the last one to come back. That's a very tough business."
Bay Street analysts have also begun slashing commodity price assumptions and stock price targets to reflect the mining sector's new reality.

On Monday, UBS Securities analysts Brian MacArthur and Onno Rutten cut 2009 metal price assumptions by an average of 30 per cent. The target price for Lundin's shares was reduced by 59 per cent to $3.50 (Canadian).

Scotia Capital followed suit Wednesday, sharply cutting 2009 metal price assumptions and stock targets.
The new forecasts "reflect our view that the global credit crisis is likely to result in a more severe cyclical downturn than we were already forecasting," analysts Lawrence Smith and Alex Terentiew said in a report.

Scotia cut 2009 copper price assumptions by 31 per cent to $2.25 (U.S.) a pound from $3.25.
The Lundin share target price was cut to $2.75 from $6 (Canadian), a reduction of 54 per cent.
When commodities do come back, they will "come back strong," Mr. Lundin said. But he was hard pressed to predict when the recovery will take hold.

"I don't know if it's six months, two years or 21/2 years, but we are definitely not out of the woods," he said.

© Copyright The Globe and Mail

Gold Is Gold And Going Higher

Debt unwinding propels gold higher

Wednesday, October 08, 2008
Here's Allan Robinson's At The Bell which you'll find in Thursday's newspaper:Deflation is in the air, yet gold rose yesterday to more than $900 (U.S.) an ounce.The S[amp]amp;P/TSX global gold index, which has been lagging bullion, soared 19 per cent yesterday to 267.35 points.Gold bullion, like the world's currencies and bond markets, is caught up in the massive unwinding of debt by speculative hedge funds, said Bill Belovay, a portfolio manager for BMO Precious Metals Fund, which has about $60-million (Canadian) under management.

“The gold price has risen due to the increase in the lease rates by the central banks,” said Mr. Belovay, who is both a geologist and a mineral economist.WHAT ARE LEASE RATES?Speculative hedge funds were borrowing gold at rates of interest below 1 per cent and the five-year average rate was 0.12 per cent, he said.

The funds would turn around and sell the gold and reinvest the proceeds in higher yielding securities such as European bonds. It was a part of what was known as the carry trade.However, the one-month gold lease rate has increased to 2.65 per cent as banks worry about the creditworthiness of the borrowers.

“Now comes the time that [the funds] have to repay the gold,” Mr. Belovay said. Gold is rising as funds have to buy the gold they need to return to the banks.Carry trades are no longer lucrative for hedge funds and the banks are clearly saying the gold lending window is closed. “It's a slow painful way of giving a message to the system.”But from the perspective of a long-term investing strategy, the changes under way are positive for bullion, Mr. Belovay said. The withdrawal of banks from the gold lending business to funds should result in less gold coming on the market, he said. “In looking further out, the credit crunch should eventually cause the gold price to rise because there is no capital available to start new mines, so the supply should diminish.

”The BMO Precious Metals Fund has good exposure to senior gold mining companies and potential merger and acquisition candidates sitting on gold deposits once the credit crunch eases, Mr. Belovay said. “But in the short term everything is high risk,” he said.

“The game is changing every hour, basically.”A PERFECT MARKETBut right now it looks like a perfect market for bullion. The fear over the financial crisis is enhancing it as a safe haven, the demand for gold coins by the general public is so strong it is outstripping the ability of various mints to produce them and there are even indications that central banks may be reconsidering their gold-selling strategies with an eye on increasing their exposure to gold, according to Dundee Wealth Management Inc.Strategists are also looking for the possible decoupling of gold from the U.S. dollar.

Traditionally, U.S.-dollar strength tends to correlate with weaker bullion prices.“Indeed, one day the gold market will be less slavishly tied to the dollar/euro rate, but I don't know when that day will come,” said Martin Murenbeeld, chief economist at Dundee Wealth.

“Both Europe and the U.S. are moving rapidly toward significant fiscal and monetary reflation, meaning gold should rise against both currencies, regardless of whether the dollar is up or down against the euro.”And there are signs that may be happening. “On Monday, the euro dropped against the dollar and gold rose $30 (U.S.),” he said. “We are starting to see some signs of the break. That is the key.”
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