‘Porkulus’ To Stoke Inflation

The financial world during the fifth trading week of the year was dominated by the haggling in Washington, D. C., over the size and content of the federal government’s unprecedentedly large stimulus bill. Dubbed the “porkulus bill” by its detractors who see in it too many irrelevant Democratic Party pet projects and far too much government intrusion into business, the US$838-billion bill was passed easily by the U. S. Senate on Feb. 10. The Senate bill was somewhat different than the version passed earlier by the House of Representatives, setting the stage for a new round of intense negotiations between legislators.

The mega-funds add to the US$700-billion bank bailout program started last fall under former president George W. Bush.

In a related move, the U. S. Federal Reserve boosted a program for consumer credit and small business loans to up to US$1 trillion from US$200 billion.

Any way you look at it, these political decisions south of the border are ineluctably building up momentum for a huge wave of inflation in the U. S. in coming years.

• The gold markets certainly saw the implications of the massive spending bill, with gold popping up again above US$900 per oz. for most of late January and early February, and most gold watchers speaking confidently of a return to the US$1,000-mark this year.

With average total costs for gold miners in the US$700-to US$800-per-oz. range, that means gold mining is one of the few businesses making good profits in the current environment. Oilguzzling open-pit gold miners should especially benefit with oil prices looking to stay well below US$50 per barrel for the foreseeable future.

• A new trend among gold miners — and another sign of their profitability at these gold price levels — is the return of gold hedging programs. La Mancha Resources signed up for one that guarantees a minimum selling price of A$1,210 and 580 euros per oz. for about half of its 2009 attributable production from the Frog’s Leg and Ity mines in Australia and Cte d’Ivoire, respectively. Peggy Kent’s Century Mining incorporated a substantial gold loan into its $66-million financing to restart its Lamaque mine in Quebec.

• The internal tensions within the upper echelons of debt-laden Rio Tinto spilled out into the open, with chairman-elect Jim Leng tendering his resignation just a few weeks after his appointment. His departure is reportedly due to his opposition to Chinese state-owned Chinalco substantially upping its shareholding in Rio Tinto and/or buying substantial portions of Rio Tinto’s assets. Chinalco may soon provide upwards of US$10 billion in debt relief that would go towards paying down Rio Tinto’s US$37-billion debt load. Leng reportedly favoured a rights offering instead, in opposition to a board that has been widely preferring the Chinalco route.

• Idled lead miner Ivernia’s near two-year nightmare is coming to an end, with the Western Australian Environment Ministry giving approval for the company’s lead carbonate concentrate to be shipped with kid gloves through the port of Fremantle.

Ivernia had to suspend operations at its Magellan lead mine in Western Australia in March 2007 after birds in the port town of Esperance were poisoned by lead leaking from shipping containers.

Ivernia will start shipping stockpiled ore, and then move to restart mining at Magellan, conceivably accounting for 2% of global lead mine production at full capacity. And talk about your bottom fishing: if you were brave enough to buy Ivernia stock in December, you would have tripled your money by now.

• But the world’s eyes were focused on eastern Australia’s Victoria state, which has been ravaged by intense brush fires that may have killed more than 200 in rural areas around Melbourne. Included in the scorched area is the historic Bendigo gold district, from which more than 22 million oz. of gold have been extracted, and where Bendigo Mining is trying to delineate an unpredictable and nuggety deposit deep beneath the current town.

• In late-breaking news, Gold Reserve has been granted an injunction halting Rusoro Mining’s hostile, all-share bid for the company, after an Ontario Superior Court judge ruled that Rusoro had improper access to Gold Reserve’s confidential information. The dispute stems from Rusoro’s adviser on the deal, Endeavour Financial, doing double duty, having previously acted as an adviser to Gold Reserve.

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