On Patent Reform

By Simon Grey, on September 21st, 2011
The Smith Patent Reform Bill has become law:

President Obama today signed into law the Leahy-Smith America Invents Act (H.R. 1249) a bipartisan, bicameral bill that updates our patent system to encourage innovation, job creation and economic growth. Both Houses of Congress overwhelmingly supported the proposal, which was sponsored by House Judiciary Committee Chairman Lamar Smith (R-Texas). The House of Representatives passed H.R. 1249 by a vote of 304-117 earlier this year. The Senate passed the bill by a vote of 89-9. Senator Patrick Leahy (D-Vermont) partnered with Chairman Smith on the legislation. Congressman Smith led the House efforts on patent reform for more than six years.

Much-needed reforms to our patent system are long overdue. The last major patent reform was nearly 60 years ago. The House patent reform bill implements a first-inventor-to-file standard for patent approval, creates a post-grant review system to weed out bad patents, and helps the Patent and Trademark Office (PTO) address the backlog of patent applications. This bill is supported by local companies as well as many national organizations and businesses.

I’m not sure what to think of this.
On the one hand, this streamlines the patent system, which I begrudgingly support. The first-to-file standard makes resolving multiple claims dead simple: Who got to the patent office first. And weeding out bad patents is also good, especially in light of the standards (distinct, non-obvious, etc.).However, this legislation could very well increase the occurrences of patent-trolling. This would actually discourage invention and innovation in the long run because inventors would more than likely seek to avoid paying royalties to produce their own inventions, so they would have to create modifications to their own product in order to sell them. I imagine this effect would be more prominent among large corporations than among individual inventors because corporations tend to be more susceptible to industrial/commercial espionage.

At the end of the day, though, the simplest and most effective reform is to simply abolish the patent system altogether.There’s little evidence that the costs of the patent system outweigh the benefits thereof.



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Economic Events on September 21, 2011

By B.P.T., on September 21st, 2011

The Mortgage Bankers’ Association purchase index will be released at 7:00 AM EDT, providing an update on the quantity of new mortgages and refinancings closed in the last week.

At 10:00 AM EDT, the Existing Home Sales report for August will be released.  The consensus is that existing homes were sold at an annual rate of 4.75 million last month, which would be an increase of 80,000 from the previous month.

At 10:30 AM EDT, the weekly Energy Information Administration Petroleum Status Report will be released, giving investors an update on oil inventories in the United States.

At 2:15 PM EDT, the FOMC Meeting Announcement will be made, which will provide insight into how long the Federal Reserve plans to keep their rates target at 0% to 0.25%.  It is assumed that there will be no immediate change in the Fed funds target rate, but any hint that rates could rise in the future could have an impact on the bond market and stock market.



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Gold And Silver Continue Consolidating Before The Next Upleg

By Trace Mayer, on September 20th, 2011

The balance sheets of banks have derivative singularities sucking in any equity that passes near the event horizon.

The world is in commotion but the precious metals markets are in forward motion like never before. Both the Eurocrat’s totalitarian dream and Euro are evaporating while the Damocles sword of credit default swaps hang over the countries’ heads.

The next round of The Great Credit Contraction has started in Europe with Greece in the target sight. While the world scrambles for liquidity capital is burrowing into and oscillating between FRN$ and gold. This consolidation in the gold price and silver price is laying the foundation for the next major up leg.

200 DAY MOVING AVERAGES ARE RISING

The 200 DMA acts like gravity on the price of assets allowing for the relative comparison over time which helps to filter out the daily trading noise. The recent melt-up in the gold price since July has added nearly FRN$300 or  €300 that needs to be digested into the 200 day moving average. Keep in mind that 200 days ago was the beginning of March and the gold price was a mere $1,420 per ounce. The 200 day moving average for gold is now at FRN$1,511.69 and increasing at approximately FRN$1.85 per day.

The silver price is also consolidating its recent gains. With a current silver price around FRN$40 and a 200 day moving average around FRN$35.76 and adding about four cents per day. So, two more months of consolidation and then the next move up.

Gold is currently consolidating its price 10% faster than silver and is confirmed with the relative price at 1.1133 for silver as compared to gold’s relative price of 1.1771. Of all the precious metals gold appears to be the most expensive. The real value seems to be in palladium which is trading at an extreme discount of 0.9224x its 200 day moving average.

Gold has likely seen a great increase in monetary demand from Europeans who do not want exposure to counter-party risk from bankrupt and insolvent. The banking crisis is far from over and for holders of capital that is at risk it must be extremely scary. Sitting in allocated gold or other precious metals held in segregated, audited, secure and insured storage, like with GoldMoney, would be a much more comforting position than in Societe Generala, UBS, Unicredit, etc. As Bloomberg reported on 19 Sep 2011, “A gauge of banks’ reluctance to lend to each other in Europe rose for the first time in a week amid renewed concern Greece is headed for a default.”

This is likely one of the reasons platinum and palladium are priced so cheaply. Monetary demand has flowed into gold and somewhat into silver. Forecasted industrial demand is anemic. Less cars and other goods will be demanded and produced. So the price of inputs, like platinum and palladium, fall. Or so the argument goes.

The specter of price inflation should begin an increasingly aggressive haunting of savers and holders of capital.

PLATINUM AND PALLADIUM ARE CHEAP

Platinum and palladium are a great deal right now. Like gold and silver they can never become worthless and, if held correctly, are not subject to counter-party risk. The supply is much smaller and if there is a significant increase in demand, perhaps from investors looking to preserve capital, then their price can increase significantly. Additionally, although platinum is significantly more rare than gold it is, unusually, cheaper in FRN$ terms and palladium is currently an even better deal!

The platinum to gold 200 day moving is currently 1.19 compared to the current price of 1.00. The price of platinum in terms of gold has not been this cheap since shortly after the first round of the credit crisis when Lehman Brothers collapsed.

Palladium is a little more difficult to discern through the golden lens. Like platinum it has not been cheaper since the Lehman collapse. Currently its 200 day moving average is 0.51 compared to the current palladium price in gold of 0.40. This makes palladium slightly cheaper than platinum with the current price in gold about 78% its 200 day moving average compared to platinum’s 84%. Palladium also has a significantly cheaper relative price in FRN$.

THE SPECTRE OF PRICE INFLATION

Central banks the world over have followed the Federal Reserve and created tremendous amounts of liquidity in an attempt to stave off the first round of The Great Credit Contraction. Round two is beginning to materialize and they are continuing.

In an 18 Sep 2011 NYT editorial Paul Volcker sent a warning shot to Ben Bernanke about inflation and how once inflation becomes anticipated and ingrained its stimulating effects are lost. Consider that over the past three months the Federal Reserve has increased M1 by 36.7% and M2 by 23.3%. The specter of price inflation should begin an increasingly aggressive haunting of savers and holders of capital. One place they can seek refuge is gold and silver. Another place to go is platinum, palladium or oil.

CONCLUSION

The Great Credit Contraction is destroying wealth, both real and illusory, at a tremendous rate. The balance sheets of banks have derivative singularities sucking in any equity that passes near the event horizon. This should be the real driver for precious metal demand like gold, silver, platinum and palladium; the lack of counter-party risk.

To make matters worse the stewards of fiat currencies have infected the printing presses with their incontinence. When it comes to safeguarding price stability of fiat currencies those like Ben Bernanke who have succeeded bulldogs like Paul Volcker are lesser men of greater sires.

DISCLOSURES: Long physical gold, silver and platinum with no interest in DOW, S&P 500, the problematic SLV ETF, gold ETF or the platinum ETFs.



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When Actuaries Failed

By Christopher Briem, on September 20th, 2011
Things that confuse me.

Well, there you have it. The go away and come back later answer on the City of Pittsburgh’s pension ‘solution’ of the day. (Trib, PG).  As a commenter here pointed out in the immediately previous post, the first payment from parking revenue into the pension fund is due a week from this Friday.  Does the city even have that much free cash to ship over?

On to other things I guess. More confusing things:  Increasing property tax to send $3.25 million a year over to the Carnegie Library necessitates a city-wide referendum, but sending $14-$26 million (‘irrevocably’ no less) a year to the pension fund is a simple vote of council in December?

How would the new incremental library tax be impacted by new property assessments? Does it get adjusted for anti-windfall legislation, or will it remain an extra 0.25 mills and thus likely wind up being a lot larger revenue stream? I am pretty sure the nominal tax base for the city in aggregate is going up, especially in nominal terms.
If the city decides to alter the millage for the library tax, then does the Carnegie Library have some means to sue the city to get it back. In other words, is it irrevocable in the sense of the parking tax diversion (see first point above).
So now that PPG is being sold according to news accounts… is the City of Pittsburgh again going to be left out in the cold on the potential transfer tax that would bring in. Is anyone working on the issue we brought up in the spring? A rhetorical question I know.
The notional price is only listed as a $214 million investment. So if there is a potential 3% transfer tax (total for city and school district not including additional to state) out there, the ‘lost’ revenue is on the order of $6.5 million.. or nearly 2 years of the new library tax revenues.
And from last week… If you missed the big public finance news out of Jefferson County where they also seem to have conflated all fiscal issues into their water and sewer system. Looks like JP Morgan is willing to take a big haircut and restructure bonds they set up with their county sewer system. Seems like the Pittsburgh Water and Sewer System could have used some similar consideration for their variable rate bonds causing such expense and consternation.  Maybe we didn’t ask nice enough?  or maybe we asked too nicely?  Who knows?
But I confuse easily.   and yeah, I changed the title.   The allusion just kind of punched me in the nose.
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Interesting readings

By Ajay Shah, on September 20th, 2011

A nice story about UIDAI, by Lydia Polgreen, in the New York Times.

A new insight into India’s north-east states: they are part of a region provisionally named Zomia. An interesting article in the Chronicle of Higher Education by Ruth Hammond. The book.

On 21 April 1956, Jawaharlal Nehru did the first convocation address at IIT, Kharagpur. It’s a good read, and it’s surprising how much of it makes sense in 2011. E.g.: in the larger context of history, and looking at it in this way it seems to me that at the present moment there is no more exciting place to live in than India. Mind you, I use the word exciting. I did not use the word comfortable or any other soothing word, because India is going to be a hard place to live in. Let there be no mistake about it; there is no room for soft living in India, not much room for leisure, although leisure, occasional leisure is good. But there is any amount of room in India for living the hard, exciting, creative adventure of life. In case you have not yet seen the Steve Jobs commencement speech, it is worth watching.

How civilised: Literature festivals in India, by Abhilasha Ojha in Mint.

A fascinating story from rural India about the differences between boys and girls on mathematics, by Maia Szalavitz in Time magazine.

Who’s to blame for India’s inflation and India’s Inflation Is a Lesson for Fast-Growing Economies by Alex Frangos in the Wall Street Journal.

When do stock futures dominate price discovery? by Nidhi Aggarwal and Susan Thomas, IGIDR working paper, has some surprising results.

Anupama Chandrasekaran and Vidya Padmanabhan, in Mint, on Indian ventures into farming in Ethiopia.

Raghu Dayal in the Business Standard on the huge opportunities in better India-Bangladesh relations.

Mobis Philipose in Mint, on recent developments in SEBI and on currency derivatives trading.

We need a Hazare in the financial sector by Tamal Bandyopadhyay in Mint. N. Sundaresha Subramanian in the Business Standard. Ex-SEBI member to PM: ID leaked, family at grave risk by P. Vaidyanathan Iyer in the Indian Express. CVC to Fin Min: Probe both sides’ complaints by Ritu Sarin in the Financial Express. And, reportage in India Today. Spat between Abraham, SEBI, finance ministry gets murkier by Appu Esthose Suresh in Mint. Supreme Court wants petition on SEBI refiled by Nikhil Kanekal and Appu Esthose Suresh in Mint. A first and then a second article on these issues, by R. Jagannathan, on FirstPost. An editorial in the Business Standard. Subhomoy Bhattacharjee in the Financial Express.

R. Jagannathan on post offices as banks (on firstpost). And, you might like this related document.

China’s A. Q. Khan problem: an article by Michael Wines in the New York Times.

A great story by Anthony Shadid in the New York Times about being on the run in Syria.

A great article by Paul Berman, in the New Republic, about Islamism.

Why is it so hard to find a suicide bomber these days by Charles Kurzman, in Foreign Policy.

Love and war, by Janine di Giovanni, in the New York Times.

What’s next for the dollar? by Martin Feldstein.

Sussane Craig has a great profile, in the New York Times, of how Howard W. Lutnick brought Cantor Fitzgerald back to life after the
firm was savaged in the 9/11 attacks.



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Economic Events on September 20, 2011

By B.P.T., on September 20th, 2011

At 7:45 AM EDT, the weekly ICSC-Goldman Store Sales report will be released, giving an update on the health of the consumer through this analysis of retail sales.

At 8:30 AM EDT, the Housing Starts report for August will be released.  The consensus is that construction on 592,000 new homes were started last month, which would be a decrease of 12,000 from the previous month.

At 8:55 AM EDT, the weekly Redbook report will be released, giving us more information about consumer spending.



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Dale Mah: Gold Companies to Watch from the Yukon to Colombia

By The Gold Report, on September 19th, 2011

From the Yukon to Colombia, with stops in Nevada and Mexico, Dale Mah, an equity research analyst with Mackie Research, covers the map looking for exciting exploration plays. Mah, a trained geologist with 14 years of experience, shares his calculations and insights into how early-stage exploration plays can be safe and satisfying in this exclusive Gold Report interview.

The Gold Report: Your recent description of Atacama Pacific Gold Corp. (ATM:TSX.V) paints a picture of what every major producer is seeking: a large oxide resource with simple metallurgy in a mining-friendly jurisdiction with other operating mines. Are brokerages taking a pass on covering vein-hosted gold deposits in favor of lower-grade bulk-tonnage gold projects?
Dale Mah: Analysts have their own criteria for what’s worthy of coverage and there are many variables for evaluating a project. The major difference between bulk-tonnage, low-grade versus low-tonnage, high-grade projects is that the former are generally cheaper to exploit, easier to build a resource and, in some cases, easier to market.

Atacama Pacific has a 3.6 million ounce (Moz.) resource. In our model, a 44,000-tons-per-day (tpd) operation could produce more than 200,000 oz. of gold for 14 years. Those numbers make it easier to finance or to find a partner, because you know it has long-term potential.

TGR: Are the large-tonnage bulk operations easier to market on the sell-side?

DM: In my experience, yes. A project with 510 Moz. and a 10-to-20-year mine life is a long-term investment. You know what is going to happen in the next 10 to 20 years. You can build your mine plan from a textbook, whereas underground, you have to follow the structure and work off a mine plan that needs to be updated on a regular basis and hope it doesn’t disappear or get faulted off.

TGR: High-grade underground veins are rare. There are many more average-grade veins—say in the 4–6 grams per ton (g/t) range. Are those projects being developed less often, given the lack of financing?

DM: The terminology of high-grade and low-grade is all relative. What used to be high-grade can be considered very high-grade nowadays, conversely, what used to be low-grade can now be high-grade. For example, 1 g/t is low-grade for a decent open pit. Underground, anything high-grade is 4–5 g/t. Double digits, like 9–10 g/t overall, is very high-grade.

As far as operating costs go, you can’t beat an open-pit mine for processing thousands of tons per day. We are seeing a shift toward feasibility projects looking at bulk tonnage underground situations. You have a tonnage that doesn’t quite support a massive open pit or the grades aren’t high enough to support conventional underground mining. So, a lot are considering alternative underground methods such as block caving or sublevel caving to mine bulk tonnage underground.

TGR: Agnico-Eagle Mines Ltd. (AEM:TSX; AEM:NYSE) specializes in that.

DM: Yes.

TGR: For geologists in your line of work, drill intercepts are like movie trailers: if they are interesting enough, they make you want to see the bigger picture. When you get a drill intercept release, what do you do?

DM: First, I look at the available public information: the company’s website, PowerPoint presentations and technical reports. I look at previous news releases to see if there is a track record or if it’s a one-shot wonder. I look at the stock chart to see if there is anything unusual happening. I look to see if good people are involved, a good technical team and strong backers. I look closely at the plan maps and at the intercepts to see the size potential.

TGR: Once you determine size, do you try to calculate a rough net present value?

DM: Not right away. If there has been enough drilling, I’ll do a back-of the-envelope estimate to see if it’s cut off or if there is room for expansion and growth.

TGR: What are three drill intercepts published in 2011 that got your attention?

DM: On May 17, ICN Resources Ltd. (ICN:TSX.V) hit a 2.9 meter (m) intercept of 1,454 g/t gold on their Goldfield Bonanza Project in western Nevada and they are earning into 80% of the project. That intercept hit over 1 kg. of gold over 3m. This is also within a broader low-grade envelope of 45.6m at grades of 96.3 grams. On August 15, the company followed up with 14.9m of 164.5 grams and 12m of 222.6 grams. Both of those intercepts contained extremely high-grade assays of 900-1,700 g/t gold.

Another is Newstrike Capital Inc. (NES:TSX.V), which announced 230.95m of 7.5 g/t gold from its Ana Paula Project in Mexico on April 20. Newstrike acquired 100% of this project from Goldcorp Inc. (G:TSX; GG:NYSE) in 2010. The mineralization style is typical of nearby deposits in the Guerrero Gold Belt, which includes Torex Gold Resources Inc.’s (TXG:TSX) Morelos Project and Goldcorp’s Los Filos Project.

TGR: Why would Goldcorp give up a property like that?

DM: Goldcorp drilled it and knew it had gold, but they were focused on Los Filos. Ana Paula sat in the background as a side project. A lot of people at Newstrike came from Teck who historically explored the area, so they decided to pick up Ana Paula.

TGR: And the third name?

DM: Southern Arc Minerals Inc. (SA:TSX.V), which I cover, announced a 39.7m intercept, grading 9.4 g/t gold from the West Lombok Project in Indonesia on May 25. It’s the best hole the company has drilled to date.

TGR: Do ICN, Newstrike and Southern Arc all have bulk tonnage potential or are they underground operations?

DM: Newstrike would be a bulk tonnage at surface scenario. Southern Arc has structures that are probably more typical of underground operations, unless it finds a nice surface envelope with decent grade on it. Then it could start with a small open pit.

ICN has been hitting some extremely high grades, but has also shown potential for a broad, low-grade envelope with internal high-grades. It could be a combination and start with a small, open-pit mine and go underground once the strip ratio gets out of hand.

TGR: You recently returned from Colombia, where you visited Sunward Resources Ltd.’s (SWD:TSX.V) Titiribi copper-gold project, where one hole hit 458m of .46 g/t gold and .11% copper. Tell us about your firsthand reactions.

DM: The main Cerro Vetas zone, where Titiribi is located, had an inferred resource of 3.7 Moz. gold and almost 1 billion pounds of copper, with overall grades comparable to other worldwide porphyry deposits (0.5 g/t gold and .2% copper). It contains porphyry and epithermal targets at or near the surface. It has good alteration and geophysical signature, which are helpful in exploration. I like the cluster of targets that all occur within 5 km. of the main Cerro Vetas zone; several are untested and could increase the resource significantly. I could see growth to the 56 Moz. range after incorporating some of the new discoveries and on September 8, 2011, the company announced an 8.28 Moz. gold resource (2.20 Moz. indicated, 6.08 Moz. inferred) that exceeded my expectations by about 35%.

TGR: If the copper there did get developed, would it be a combination underground and open-pit operation?

DM: All things being equal, it would be a perfect example of an open-pit mine. But Colombia’s booming mineral exploration industry is having some growing pains now. AngloGold Ashanti Ltd.’s (AU:NYSE; ANG:JSE; AGG:ASX; AGD:LSE) La Colosa and Eco Oro Minerals Corp.’s (EOM:TSX.V) (formerly Greystar Resources Ltd.) projects are having to reevaluate their feasibility studies.

TGR: But Greystar is near the top of a mountain.

DM: Greystar is at elevation, but the underlying issue is about wetlands preservation that is considered crucial to water supply. Basically, a lot of people live downstream from that project and use that water. They don’t want a big open-pit mine using a lot of water and cyanide. Greystar had to convert a 9 Moz., open-pit mine to a high-grade underground project that will be just over 2 Moz. It will have a much smaller footprint, use much less water and have less significant environmental impact.

TGR: What is the situation with Sunward’s project?

DM: It’s very close to the town of Titiribi. Standing on the ridge, you can see Titiribi on one side and the other side is developed for farming and ranching. The region is equatorial, so it gets a lot of rainfall. There is good infrastructure; you can drive to it. It’s well below the limits of the no-go zone established by the Colombian government.

TGR: Is there political support for a mine there?

DM: Yes. It’s in the Department of Antioquia, which is a pro-mining district. The town of Titiribi is pro-mining and it has good community relations. But, Colombia has no track record of putting large scale mines into production the way Peru and Chile have done.

TGR: Let’s look at some other early-stage projects in the Americas that are on your radar and might also have a bulk tonnage appeal.

DM: We have been watching GMV Minerals Inc. (GMV:TSX.V) in Guyana. The company has been plagued by technical drill issues, but is on track to complete its 10,000m drill program this year, drilling in areas with known gold occurrences. It is following the Sandspring Resources Ltd. (SSP:TSX.V) and Guyana Goldfields Inc. (GUY:TSX) model of exploration. If the results we see from GMV are anything like what we see from Sandspring and Guyana Goldfields, it will potentially be a good bulk tonnage scenario.

TGR: Could GMV get as big as Sandspring, which is about 8 Moz. gold plus copper?

DM: It’s too early to tell. We haven’t seen any drill results, but the potential is there geologically. They are working a land package that came from the same vendor that provided Sandspring and Guyana Goldfields their properties. GMV’s property borders one of Guyana Goldfields’ projects.

TGR: You have written that GMV has alluvial gold. What does that mean in terms of its metallurgy and its mineability?

DM: Alluvial gold has come out of bedrock, been moved around by water, and deposited in sand and gravel, or old stream beds. It is easily recoverable. You can process river gravel or river sands over giant shaker tables or sluice boxes and recover gold using gravity methods. You don’t have to process rock by using cyanide.

GMV uses local miners as their exploration tool, people who are already finding gold in the area. It is likely to set up a drill very close to some of the pits because the gold has been weathered out of the bedrock source. The company will conduct geochemical and geophysical surveys to test for potential bedrock sources.

TGR: In a recent research report you wrote about Smash Minerals Corp. (SSH:TSX.V), which holds over 4,100 claims and is one of the largest landholders in the Yukon, covering 846 sq. km. Smash planned to drill 3,000m this summer on several targets. Is there bulk tonnage potential in this area of the Yukon?

DM: Again, it’s too early to tell. From what I read about Smash’s targets, the company is focusing on structural zones. That would imply low to moderate tonnage with moderate to high grades. If Smash succeeds in hitting mineralization, I would look for a zone of approximately 30m, grading 3 g/t before labeling it as having bulk tonnage potential.

TGR: Has there been any news out of Smash Minerals’ summer exploration program?

DM: No, we are eagerly awaiting news. The company received assays from more than 11,000 surface soil and channel rock samples. It prioritized at least five zones for drill testing and started drilling about three weeks ago. It will likely continue drilling as late as it can, but will probably be finished by October. I would look for news in November, maybe earlier.

TGR: When did you last travel to the Yukon?

DM: I visited Smash Minerals two months ago. It has geography on its side. The property adjoins the former Underworld project, now owned by Kinross.

Smash has a very good exploration program underway. It is trying to accomplish two or three seasons worth of exploration in two or three months. This year, the company did a massive grid geochemical survey and some tested a few trenches. It collected some rock channel samples and started to drill shortly after that. It is being very aggressive. Now, we will just hope for the best.

TGR: Has Smash assembled a good exploration team?

DM: That’s one of the things that impressed me the most. Smash uses a world-renowned geochemist named Dennis Arne. He set up a top notch procedure for sample collection. Everything—from the assay procedure, how many grams will be assayed, to where the sample comes from and where it is collected—has been extremely well designed and executed.

TGR: Are there any other exploration stories you want to share with our readers?

DM: I would mention Lupaka Gold Corp. (LPK:TSX), which started trading in June 2011. Crucero is their flagship, a 1.25 Moz. project in Peru. Those resources are in a target called A-1. There are 10 other targets defined by geology, geochemistry and geophysics that all occur within a 4–5 km. area. The company has an 11,000m drill program underway.

Another is Kootenay Gold Inc. (KTN:TSX.V). Despite the name, their main project is the Promontorio silver-lead-zinc deposit in Mexico. It has an NI 43-101 compliant resource of about 10 Moz. silver, 110 million pounds (Mlb.) of lead and 125 Mlb. of zinc. It also has an extension to the southwest that could double the resource. One of the holes, DH58, was announced earlier this year. It was drilled outside resource and hit a 205m intercept of 49 g/t of silver, .76% lead and 23% zinc.

TGR: Any other thoughts on your coverage sector?

DM: I cover two companies in Brazil. The first is Magellan Minerals Ltd. (MNM:TSX.V) Magellan’s main project is Cuiú Cuiú, a 1.3 Moz. resource, located 25 km. northwest of El Dorado Gold Corp.’s (ELD:TSX; EGO:NYSE) 2.5 Moz. Tocantinzinho deposit. Magellan recently discovered a new zone that could represent near-surface resources.

The other is Amarillo Gold Corp. (AGC:TSX.V). It recently announced a resource update where it converted almost all of its inferred resource to the measured and indicated category. It now stands at 1.33 Moz., an increase of 11% overall, with 1.17 Moz. measured and inferred that is 88% of the total. Amarillo Gold also improved the overall grade as well, going from 1.51 g/t to 1.72 g/t. The Mara Rosa Project is in the prefeasibility stage, has good infrastructure and could be built for just over US$110M. In my model, this would be paid back in year 1 of a 12-year mine life. The company has good exploration potential along trend and at the Lavras do Sul Project in southern Brazil.

TGR: Now that we’re nearing the end of Q3, do you think the junior gold sector will outperform gold in the last three months of 2011?

DM: I would like to think so, but I’m not sure of the timeframe. A lot of situations in the world right now are holding things back. If you look at the seasonality of the exploration cycle, the fall is typically the strongest part of the year. A lot of the results that companies have spent the last three or four months collecting should be coming out in Q4. It will take a few good, significant discoveries and some good drill intercepts to get the excitement back. I hope that once that happens, we will start building some momentum.

TGR: Dale, thank you for your time and your insights.

Dale Mah is an Equity Research Analyst based in Mackie Research Capital’s Vancouver office. Dale joined Mackie Research Capital in June 2010 after working in mining and mineral exploration industries for over 14 years and has experience in base metals, diamonds and gold in all stages of mineral exploration and mining, including grassroots exploration, advanced projects, production geology, mineral processing and resource estimation. He focuses on junior and developing exploration companies in the mining sector operating worldwide. Dale graduated with a Bachelor of Science with a specialization in geology from the University of Alberta in 1996, and has worked with both junior exploration companies and major mining companies.



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Constant Bearing, Decreasing Range

By Christopher Briem, on September 19th, 2011

One headline says: Judge says no more delay in county reassessment with this explanation:

Common Pleas Court Judge R. Stanton Wettick Jr. also ordered Wesley Graham, the acting chief assessment officer, to report weekly to him on the number of properties his employees handled each day.
County officials appeared to lack “a sense of urgency” about completing the reassessment effort, Judge Wettick said earlier Thursday.

From just two days ago there was this snippet in the paper as well:

New property tax bills are due to be issued early next year and Mr. Fitzgerald has said if elected he would refuse to mail them, even at risk of going to jail.

Pattern and practice?  You decide. It all must all be Ed’s fault. Going to be an interesting spring in Judge Wettick’s courtroom.

and like those animals that sense earthquakes before they arrive….  don’t you just feel news on the city pension front is inbound?



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Paying for liquidity provision on exchanges

By Ajay Shah, on September 19th, 2011

Market making versus the electronic limit order book

Exchanges in India all operate as electronic limit order book markets. There are no `market makers’; there is just a publicly visible limit order book. Anyone is free to supply liquidity, by placing limit orders. The person who places market orders is the consumer of liquidity: he pays market impact cost. [A guide to the jargon].

Prior to the rise of the anonymous limit order book, there used to be a great deal of effort on thinking about the market maker. Market makers played a big role in many old markets. E.g. at the NYSE, the `specialist’ was obliged to provide liquidity. RBI established `primary dealers’ thinking that they would provide liquidity.

These market structures involved complicated problems of measuring the liquidity provision by market makers, correctly compensating them, avoiding monopoly power in the hands of the market market, and enforcing against market manipulation by the market maker. The rise of the open electronic order book cut through this Gordian knot.

For many years, there used to be a debate about whether the anonymous open limit order book market (where anyone can provide liquidity) is better or worse than a market maker market (where limit orders can only be placed by one or more market makers). That debate died down in the 1990s with the success of the electronic limit order book. Market making on the electronic limit order book

But even on a limit order book, does it make sense to pay one or more market makers to provide liquidity? The public would be free to place limit orders, but one or more market makers would be paid to place limit orders.

The positive argument runs like this. In the life of every contract, at first there is a lack of liquidity as various market participants are reluctant to take the plunge and trade on an illiquid contract. This leads to a chicken and egg problem. Illiquidity inhibits participation, and the lack of participation is illiquidity.

From a regulatory perspectives, exchanges might try to make payments for liquidity provision (or outright turnover) by various underhand means. If that is going to happen, then it is better to have this come out into the open.

But there are also important problems that can come out by going down this route. The resources that an exchange puts into portraying tight spreads or high turnover could potentially be used to improve services for customers. Market participants would make wrong decisions about an investment decision when they see a product as looking liquid on screen, whereas this liquidity is actually artificial: the screen would be falsely portraying liquidity. When exchanges compete on payments to market makers, this can degenerate into a slugfest where the deepest pockets win.

The artificial liquidity pushed by mercenary market makers would tend to lull the exchange into complacence. In the absence of market making, the exchange would run harder to solve problems of market mechanisms and contract design, and to get the word out about the contract.

Recent developments in India

On 2 June 2011, SEBI chose to move ahead with the specification of a `Liquidity Enhancement Scheme’ (LES).

By these rules, LES is applicable for individual stocks where the trading volume on the last 60 days is below 0.1 per cent of the market capitalisation. (How would this be scaled to derivatives such as currency futures, where market capitalisation cannot be defined?) I think this makes sense. The LES would be used to kickstart liquidity when it is abysmal. The moment a small amount of liquidity comes about, the LES would step aside.

Based on these rules, NSE announced a program for market making on the derivatives products recently launched at the exchange: on the S&P 500 and the Dow Jones Industrial Average (launched in partnership with the Chicago Mercantile Exchange). These incentives are over and above the absence of charges by the exchange. I was disappointed to see a payment based on mere turnover. This would give the market maker an incentive to do circular trading and thus show a lot of trades. But turnover is not liquidity.

This program came into effect on 15 September. It may matter more in the coming week, given that new contract series start trading from tomorrow. Will it matter? How will we know that it mattered?

Derivatives on the S&P 500 and the Dow Jones indexes have gotten off to a surprisingly good start, even though there was no such program. This has perhaps been helped by unusual levels of volatility in the US after the launch of these contracts.

The early days of a contract can be a rollicking ride and even after these time-series fall into place, it will not be easy to tell whether LES was useful in the history of these contracts or not.

Similar thinking is taking place at BSE also: See Will BSE’s biggest initiative work? by Mobis Philipose in Mint. The text there — obligations such as providing two-way continuous quotes within specified parameters for quote size and spread — sounds good, but here also there are payments per crore of turnover. By and large, the payments being made at BSE look much bigger than those at NSE.

In the case of BSE, if LES is able to lift BSE out of zero market share in derivatives trading, even after the six month period has expired, then it would be a clear proof that the LES helped. So this experiment is unlike that of NSE where it will be hard to evaluate whether or not the LES mattered.



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Economic Events on September 19, 2011

By B.P.T., on September 19th, 2011

At 10:00 AM EDT, the Housing Market Index for August will be announced.  This index is created from a survey of home builders, so it shows the confidence that the sector has in the overall economy and their business.



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