Investors Whipsawed By Dollar Rally

The fifth trading week of the year saw a convulsion in the global stock markets, once again showing that even if the overall trend of North American stock markets has been flat this past decade, the amplitude of the swings is getting wider.

• The driver behind the market anxiety in the first week of February was new concern over the Greek government’s possible default on its sovereign debt, with the debt situations of Spain and Portugal not looking so hot either.

That drove traders out of the euro and into a soaring U.S. dollar, which flattened metals and minerals prices. Gold, for instance, plummeted US$50 in a couple of hours on the morning of Feb. 4, New York time. Most of the actively traded metals and minerals have since recovered about 50% of their short-term losses.

• The spectre of nationalization appeared again in South Africa, as the Youth League of the ruling African National Congress party once more pushed for nationalizing at least 60% of the country’s mining sector, and making use of “expropriation with or without compensation.”

As before, miners active in the country have downplayed the latest nationalization talk, characterizing it as having more to do with political posturing within the ANC’s power structure than substantive policy debate.

The Black Economic Empowerment program that was initiated in 2004 and demanded the transfer of 26% of mining assets in the country to historically disadvantaged groups, has generally been considered a success by participants.

But the entire program was due for review in 2009, and the results of that review are expected soon. Major unresolved issues include the sustainability of the BEE program, the equitable distribution of its benefits, and the possibility of BEE shares being acquired by front groups for the wealthy and powerful.

• Aussie billionaire Clive Palmer and his coal vehicle, Brisbanebased Resourcehouse Ltd., executed a perfect belly flop on the world stage, as the company announced the wrong Chinese company as its partner in what had been touted as the largest-ever export agreement signed by an Australian company: a promise to deliver, over 20 years, 30 million tonnes of coal per year worth a total US$60 billion.

Resourcehouse first named the Hong Kong-listed company China Power International Development Ltd. as its new customer, instead of the actual partner, state-owned China Power International Holding Ltd. (The latter owns 69% of the Hong Kong-listed unit.)

It gets worse: while Resourcehouse called the blockbuster sales agreement a binding one, the real Chinese partner later issued a release stating that the two had only reached a non-binding framework agreement for now.

And lastly: Resourcehouse’s claim that Export-Import Bank of China was contributing US$5.6 billion in financing hadn’t been confirmed by the bank, according to The Wall Street Journal.

Resourcehouse envisages spending US$8 billion to build a huge, new open-pit and underground coal-mining complex to be named “China First” in Australia’s northeastern state of Queensland, plus a 500-km rail line from the inland deposits to the coast. By the company’s estimation, the complex could be churning out 40 million tonnes of coal per year as early as 2013.

The company is planning an initial public offering in Hong Kong soon, but it’s still unclear what effect all this latest confusion will have on the IPO’s timing.

• The International Copper Study Group unveiled its latest estimate that, based on existing facilities and announced project developments, annual copper-mine production capacity in the 2009-2013 period will grow at an average rate of 4.3% per year to reach 23.1 million tonnes in 2013, up by 3.6 million tonnes, or 19%, from 2009.

Of the total increase, the ICSG expects copper-in-concentrate capacity to grow by 2.7 million tonnes to 17.9 million tonnes while solvent extraction-electrowinning production will jump 820,000 tonnes to 5.2 million tonnes. The ICSG notes that 2.6 million tonnes, or 73%, of the projected mine-capacity increase during this period will come from new mines in Brazil, Chile, the Democratic Republic of the Congo, Mongolia, Peru, the U.S. and Zambia.

Annual smelter capacity, meanwhile, is projected by the ICSG to rise 2.6% per year to 20.2 million tonnes in 2013, up 2 million tonnes from 2009.

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