By Christopher Briem, on May 18th, 2012
So this is ominous via the Atlanta Journal Constitution today: Delta Cutting Staff.
If you do not read the tea leaves they don’t leave it to the imagination with this quote
“Meanwhile, Delta said it plans to further cut back international flights, just a day after celebrating the opening of Atlanta’s new international terminal with additional gates for growth.”
The new terminal down it Atlanta will of course be serviced by the Pittsburgh-made shuttle that were sold to them by Bombardier. So we are a leader in transit system… just not ones we use ourselves.
Of course it was already a bad news day out at the airport: Frontier Airlines cancels new Pittsburgh-Milwaukee service (after just TWO WEEKS?)
and I swear I was about to post a comment to the effect of.. will we ever see the fountain at the point work again. Apparently hope springs eternal.
Assessments… yeah, assessments. What is there to say? Later.
Since it is soon to be international Facebook day, I thought it might be worth remembering the zenith of Pittsburgh.com. It is a bit scary to think what the Facebook IPO would price at if it were still 1999.
and this sure seems relevant to us. From the Walkonomics Blog: Does hilliness affect walkability?
My inner Libertarian is confused by this subsidy a bit.
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By The Energy Report, on May 18th, 2012
Lithium is lightest of all metallic elements, with low density and high electrochemical potential. These are essential characteristics that make the element especially suitable for use in various power-storage applications, including electric vehicles (EVs). In this exclusive interview with The Energy Report, Equity Research Analyst Mansur Khan of Dundee Capital Markets talks about his favorite junior lithium stocks that he expects to be major beneficiaries of dramatic growth in lithium-ion battery demand over the coming decade.
The Energy Report: EVs don’t burn gas, but power must come from some source of fuel, such as nuclear, coal, hydro, gas, solar, geo or wind. So, what is the value of an electric vehicle (EV)? How does it help?
Mansur Khan: From a societal and governmental point of view, there are a number of benefits. EVs can really help reduce carbon emissions. Their energy efficiency is very high, sometimes over three times that of conventional combustion engines. I think it can be argued that, even assuming an EV uses a power-generating mix that includes carbon-emitting sources such as coal- or gas-fired power plants, its life-cycle net carbon-emission production is significantly less—anywhere from half to one-third of that from comparable combustion vehicles. Reducing our dependence on oil is another concern, although it’s more geopolitical. I think there is a top-down push to essentially steer the automotive industry into adopting electric vehicles.
Finally, from the end-consumer point of view, the operating cost of an EV is expected to be significantly less than an internal combustion vehicle. On average, they are about one-third the cost on a per-mile basis.
TER: In January, General Motors Inc. (GM:NYSE) announced that it would be producing 60,000 (60K) Chevrolet Volts per year, beginning this year. Does this signal a new wave of EV or hybrid development? How positive is this for lithium consumption?
MK: GM’s commitment to the EV model is reflective of what you’re seeing across the board with major auto manufacturers rolling out some form of an EV model in their lineup.
Aside from GM and Toyota Motor Corp. (TM:NYSE), Hyundai Motor Co. Ltd. (HYMLF:OTCPK), Nissan Motor Co. Ltd. (NSANY:OTCPK;7201:TYO), Volkswagen AG (VLKPY:OTCPK)—all the majors have announced their own models. And when you look on the battery side, you’re seeing considerable research and development (R&D) investment going into battery manufacturing and technology development. Majors like Chinese battery and car manufacturer BYD Co. Ltd. (BYDDF:OTCBB), of which Warren Buffett owns approximately 10%, and BASF Corp. (EUR53.17:XETRA) are making inroads into the technology’s development.
To answer your question, this is of course positive for lithium demand and consumption. Industry consultancy SignumBOX put out an estimate that electric and hybrid electric vehicles made up about 5% of total lithium carbonate equivalent (LCE) consumption in 2011, and that’s expected to grow to about 25% by 2020. So there’s quite a bit of room for growth there. The industry still has a long way to go, but in general, it’s absolutely positive.
TER: Mansur, what is the lithium-ion battery industry’s biggest challenge right now?
MK: The industry’s main challenge is really to scale up in size, from the small consumer electronics to the larger batteries required for EVs, and to be able to do this without compromising on cost, safety and longevity. Technological development may not be happening as quickly as people had expected a few years ago, but it is certainly happening, and I think you will see these growing pains addressed over the coming years as other derivative applications are opened up.
As manufacturing capacity continues to expand, the cost of these lithium-ion batteries will come down, and that is already happening. A few weeks ago a Bloomberg report said the cost of lithium-ion batteries fell 14% year over year, and has fallen about 30% since 2009.
TER: Your February 2012 report cited a third-party consultancy firm, Roskill, which found that lithium consumption has outperformed both industrial production and GDP trends since 2002. But I don’t see that reflected in equities. An index of small-cap lithium stocks shows a 40% decline over the last 10 years. A mix of larger- and small-cap companies is down 30% during the same period. Can you talk about the disconnect here?
MK: Without knowing the specifics of this particular index, I think I can make some general comments. Our view on this is that there are two aspects at play here, and both stem from the global recessionary environment that we are in.
Against this backdrop and coupled with slower technology development, we have seen a slower-than-expected uptake of lithium-ion batteries and EVs. The consensus view still holds that you’re likely to see a mass adoption of EVs by about 2015 and thereafter. We argue that the equities are taking a bit of a wait-and-see approach to this, and so that would probably be one aspect of why they have not done so well. EVs currently make up only a small part of the overall lithium market, as just mentioned, but they are expected to really drive the majority of the growth over the coming decade.
The second aspect is more directly linked to equity markets in general. As you know, stock markets dislike uncertainty and volatility, and unfortunately we have plenty of both right now. In this kind of risk-averse environment, small-cap stocks can face the additional challenge of financing their exploration and development projects without causing a lot of dilution. So there’s a bit of an added risk that is reflected in small-cap performance. We think these factors explain why the equity markets have not really kept pace with the underlying growth and demand for lithium that we are seeing.
TER: You’ve written that the lithium market is currently in a tight supply-demand balance, and that this has prompted capacity expansions by three of the four major lithium producers. You also wrote that prices have stabilized in the $5,500–6,500 per ton (/t) LCE. I realize there are different lithium compounds, but do you foresee a futures market for lithium?
MK: I think it’s too early for that. You would need a market sizeable enough to maintain a spot supply inventory. Right now, what we are seeing is that most of the supply and demand is on a contract-by-contract basis, and these are typically one-year contracts. There isn’t much of a spot market to speak of, and until you have a secondary market open up, you are unlikely to see a futures derivatives market develop.
TER: Looking at the lithium equities market today, do you see it as a deep-value market? Or do you see it as a growth market? Are we at the foot of a growth curve?
MK: Going to the question of growth, I think that’s definitely there in our view. The majors have been reflecting that, not just in what they’ve reported, but also in their outlooks. If you peruse through some of the recent commentary by the majors, they are all reporting strong growth in volume and prices, and in general they expect real growth in lithium demand to continue—anywhere from 6–11% by 2020. So that’s a fairly healthy growth in demand. If you look at Talison Lithium Ltd. (TLH:TSX; Not Rated), for example, it is saying that the lithium market will almost double by 2020, and that’s even excluding the EV component that you hear so much about. So that’s definitely positive, and there’s growth absolutely happening there.
TER: What lithium equities are you recommending to investors?
MK: When you’re looking at the juniors, we believe that only companies with quality assets that are in advanced stages or have strategic backing will have a reasonable chance of making it to production.
I would highlight Nemaska Lithium Inc. (NMX:TSX.V; NMKEF:OTCQX). We have it rated Buy, Speculative Risk with a $1 target price. Unlike the brine developers in Argentina and Chile, this is a hard-rock developer based in Québec. Its Whabouchi property project has a Measured and Indicated resource estimate of 25 million (M) tonnes (metric ton or mt) grading at 1.54% lithium oxide. It also has an Inferred resource of 4.4Mmt grading at 1.51% lithium oxide.
The company is envisioning a two-phase strategy. Phase one will see production of 200K tonnes per year (tpa) of lithium concentrate. This is concentrate, not carbonate, at about a 6% Li2O grade. The operating cost is about $138/t of concentrate. And the preliminary economic assessment (PEA) from last year had an initial capex of $86M for the project.
Phase two essentially envisions a chemical conversion plant that would produce higher-value downstream chemicals, and in particular they’re looking at lithium hydroxide. The PEA on this option was just commissioned. It has also done some pilot-level testing that shows some innovative departures from the conventional process used to produce lithium hydroxide, and the company is going to be filing for a patent on this pretty soon. This could be an interesting development.
Both the definitive feasibility study (DFS) of the concentrate production and the PEA are expected to be out in Q3/12. The company has a strategic partner behind it, Chengdu Tianqi Industry Group Co., the largest lithium battery material supplier in China, which owns 20% of Nemaska. Tianqi recently entered into an agreement with Targray Technology for international distribution of lithium compounds in North America and Europe. We see Nemaska fitting in quite well with this strategy.
Another thing we like about Nemaska is that it’s located in a mining-friendly jurisdiction of Québec, which is trying to build a world-class EV industry by supporting R&D and bringing mining companies and strategic partners together. And of course you could argue that the open-pit conventional mining process has less mining and processing risk. Also, there are a couple of upcoming milestones, the DFS and the PEA. So we like that name.
TER: Another company?
MK: Going over to the brine-developer world, I would highlight Rodinia Lithium Inc. (RM:TSX.V; RDNAF:OTCQX). We have it rated Buy, Speculative Risk, with a target price of $0.80. This is a lithium brine developer with its flagship 100%-owned Diablillos project in the province of Salta in Argentina, which hosts resources of about 5 Mmt of LCE and is adjacent to one of the largest lithium producers in the world, FMC Lithium Corp.’s (FMC:NYSE; Not Rated) Hombre Muerto project, which has been producing for decades.
Diablillos is also adjacent to Lithium One Inc.’s (LI:TSX.V) Sal de Vida project. As you know, Lithium One is currently in the process of being acquired by Galaxy Resources Ltd. (GXY:ASX; Not Rated), which has a wholly owned lithium carbonate plant in China. So that’s definitely an interesting development in the area. Diablillos has high lithium and potassium grades and low impurities that could enable economic extraction, and the PEA put out last year suggests robust economics. With cash costs coming in at a bit over $1,500/t of LCE, along with a strong potash byproduct credit potential, the company is envisioning production of 15K tpa of LCE. Aside from the flagship project, Rodinia also has a brine project in Nevada adjacent to Chemetall Foote’s [subsidiary of Rockwood Holdings Inc. (ROC:NYSE)] existing project there.
But despite all this, the company trades at a large discount to its brine-base developer peers. We estimate an enterprise value of about $3/t, compared to the average of about $10/t. We would say that part of this has to do with Rodinia’s relatively early-stage project and tight cash position. That’s a risk, given the nature of current markets. Management is being prudent with cash, but it is steadily moving the project forward. Also, it does have the Chinese company Ningbo Shanshan Co. at its side.
TER: You said your target on Rodinia was $0.80. You have just taken that down from $0.90, is that right?
MK: That’s correct. We put out a commodity update at the end of every quarter where we go back to the drawing board and look at foreign exchange (FX) rates and commodity assumptions. So part of the discount was about the FX, and the other part is that we are applying a slightly higher discount to the brine developers in Argentina due to the investment climate resulting from expropriation of Argentina’s largest energy company, YPF from Spain’s Reposol.
TER: You mentioned Rodinia’s neighbor producers. You must be implying potential M&A.
MK: Yes, and overall, what we like about this story is that the company has a salar that it is not sharing with anyone else, and it will potentially have two large lithium producers right in its backyard, FMC and potentially Galaxy, both of which have talked about expansion. The company has a strong management team, and both CEO Will Randall and head of exploration Ray Spanjers have extensive experience in managing projects. And Ray actually was previously with FMC’s lithium division.
TER: Another company?
MK: The second brine company that I would highlight is Lithium Americas Corp. (LAC:TSX; LHMAF:OTCQX). We are rating it a Buy, High Risk with a target price of $2.60. Now this is a more advanced brine developer, located in the province of Jujuy. Its Cauchari project hosts a high-grade resource of 8Mmt LCE. It’s had extensive pump tests, pond- and pilot-level tests, as well as hydrological work done, and the company is currently on the verge of putting out a DFS on the project. It’s also interesting to note that the DFS will trigger a decision by its strategic partners, Mitsubishi Corp (8058:TYO) and Magna International Inc. (MG:TSX, Not Rated), who have the option to secure 37.5% of lithium production in exchange for financing up to 37.5% of capital costs. So that’s definitely a good arrangement to have in this kind of market.
Lithium America’s PEA from last year had estimated low cash costs of about $1,434 per ton, based on 20K tpa of phase one production. And of course one common theme with these brine projects is that, given their low impurities, there’s strong byproduct credit potential. There’s good infrastructure in place. And as I said they’re currently working through the final project approval from the province of Jujuy, which should be another catalyst for the stock. By the way, the province of Jujuy had essentially designated lithium as a strategic metal last year, and both Lithium Americas and Orocobre Ltd. (ORL:TSX; ORE:ASX) are currently working out approvals here.
Orocobre will be the last one I’ll mention today. We have it rated Buy, High Risk with a target price of $2.80. This is the most advanced brine development project in our universe of coverage. Immediately north of Lithium Americas’ Cauchari project is Orocobre’s flagship Olaroz project, which also hosts a high-grade lithium resource of 6.4 Mmt of LCE. The company already has a DFS out on the project, and the cash costs are estimated at $1,512/t of LCE, and once again, given the low impurities, there is potential for byproduct credit.
A production rate of about 16K tpa is expected by the second half of 2013, and at the end of last year Orocobre finalized terms with its strategic partner, Toyota Tsusho Group (TYHOF:OTCPK). This will essentially enable Toyota to take an equity stake of up to 25% based on the project’s net present value (NPV) estimated from the DFS. This also includes debt financing by a Japanese consortium for 60% of the project capex, which is a bit over $200M. So the final sign-off on these financing agreements would occur once the Jujuy provincial approval comes through.
TER: I’ve enjoyed meeting you very much, Mansur.
MK: Thank you very much, George, I really enjoyed the interview as well.
Mining Analyst Mansur Khan joined Dundee Capital Markets in 2007 as an associate covering the industrial, aerospace and special situation sectors. In late 2010, he switched into Dundee’s mining group, where he covers a range of exploration and production companies in the uranium and lithium sectors. Since 2012, he has been providing lead coverage on the lithium sector. Prior to Dundee, Mansur worked for a number of years at a private design engineering company on various information systems and operations projects. He holds an MBA from the Rotman School of Management, University of Toronto and a Bachelor of Commerce in systems development from Ryerson University.
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By Christopher Briem, on May 17th, 2012
So I give them credit for tenacity for sure, but the ghost has abandoned ship. The results of the final auction of assets of Maglev Inc. which took place on March 6th have been filed. By news accounts the total public funding into the local high speed maglev venture amounted to $23 million in federal and $7 million in state funding over the years though I suspect a full accounting has not really ever been completed. (Why not? Oh, nevermind that) There was at its inception there was even private money from Japanese investors. I’ve wondered whether they got any of that back over the years? A bit more surprising if you follow that link was that even back then in 1990 they were really planning to imminently float a larger financial package in the markets. Merely a question of which financial advisor to use. Decisions, decisions.
It was all such a pretty picture.
I digress. Did they make back 10 cents on the dollar? In its final tally the auctioning off of Maglev’s assets brought in a gross total of $549,202.16. Before that money was paid to anyone some auction expenses of $40,059 were due. A buyers premium collected by the auction house amounted to $82,380. So if my math is right is works out to maybe a bit under $427 thousand payable to debtors and debtors in possession. Probably will not cover the unpaid rent.
All that is left to write is the history.
Don’t get me wrong. I love trains and all, but why did anyone ever believe this would happen? It was all such a cognitive dissonance with reality that even when Maryland appeared to drop out, leaving Pittsburgh to ‘win’ the competition for demonstration money for this, the result was to find new regions other than Pittsburgh to consider. It just wasn’t ever going to happen here.
If it ever happened it wasn’t just an incremental technology for us, but akin to Merlin returning the visit to Connecticut. I just looked it up and did the division: Amtrak’s service from Washington, DC to Pittsburgh covers all of 299 miles in just barely under 8 hours. An average of under 38 miles per hour, and that is if it isn’t late. Faster than George made it which is something. On a bad day the train might not be able to keep up with Lance Armstrong.
By The Gold Report, on May 17th, 2012
 Silver has been called the most volatile of metals. But volatility produces opportunity, according to Chris Thompson, a top-ranked StarMine analyst with Haywood Securities. In this exclusive interview with The Gold Report, Thompson forecasts a strong year-end for the devil’s metal, despite price weakness so far in Q2/12, and shares the names of a select group of companies that stand to profit.
The Gold Report: Chris, Haywood Securities’ estimated silver price for 2012 is $36/ounce (oz), but the “devil’s metal” has averaged less so far in 2012, closing above $36/oz only once. Are you expecting a significantly stronger second half for silver?
Chris Thompson: Silver performed relatively well in Q1/12. We hope that the silver price will find support at current levels of ~$28/oz through Q2/12 and Q3/12, with potential for a strong Q4/12.
Looking at the silver price right now, I see that it’s struggling to hold its head above $28/oz. If we do see a significant breakdown from $28/oz, it may somewhat compromise our forecast for this year averaging $36/oz.
TGR: Do you think investors shy away from the silver space given its overall size and susceptibility to manipulation?
CT: Silver is often referred to as the most volatile of all precious metals. In that sense, it’s not for the faint-hearted investor. However, with volatility comes opportunity as long as timing is right. The benefit that silver provides is that it finds value as a store of wealth, as well as an ingredient used in industrial applications, so it offers investors a dual benefit where silver fundamentals benefit from economic growth as well as economic uncertainty.
TGR: In an April 23, 2012, research report, you told investors to “look for quality over quantity” when it comes to silver equities. What makes quality?
CT: A lot of investors look at the size of an in-situ metal resource hosted by a project when looking for a value opportunity presented by exploration and development-stage companies. They tend to ratio that against the enterprise value (EV) of that company to derive a valuation.
Silver is often mined with other metals as by-products. Just recognizing a straight EV dollar/ounces in the ground valuation can be a little misleading. Also, silver is inherently more challenging to recover metallurgically than other precious metals, which influences operating costs and recoveries.
When you layer these peculiarities into the picture, it becomes a complicated story and one that really cannot be valued based on a straight EV dollar/ounce in the ground valuation. We also look at size potential. We look at operating margins on the tonne, as well as jurisdiction. It’s a sector where participants should be evaluated on a number of factors rather than just how much silver they have in the ground.
TGR: What sort of opportunities is the volatility creating?
CT: Silver has broken down from its highs in Q1/12. The sector has sold off, which has been exaggerated in some instances. If you’re a believer in silver holding its head above the $28/oz mark, opportunities exist where equities have been beaten up more than they should have been based on weakness in the silver price. When the silver price exhibits volatility, volatility in equities is exaggerated, and that creates opportunity.
TGR: The performance of equities has lagged their underlying commodities in the precious metals space for almost 18 months. Why don’t the equities respond the same way when the commodity goes up?
CT: We’ve definitely seen a dislocation between equity valuations and metal price since late 2010. The Toronto Stock Exchange Venture Index is currently at about the same level it was in in the middle of 2010 when the silver price was $17/oz and gold was $1,200/oz. Equities, whether they’re exploration, development or even cash-flowing equities, haven’t reflected strength in metal prices for some time now.
TGR: They are, but only to the downside.
CT: In the last six months, we have seen a lot of worry and concern about operating costs; capital costs; and jurisdictional, geopolitical and permitting risk. It’s not just a story of metal prices anymore. Performance now relates to a whole host of other factors that determine how quickly and easily development-stage projects can advance to production or exploration-stage projects can advance to development.
TGR: Do you expect more mergers and acquisitions (M&A) in the silver space, perhaps based on this garage sale effect that’s going on right now in the equities space? What market factors prompted that conclusion? Is that conclusion unique to the silver space among precious metals?
CT: We have to look at the industry from two points of view. First, we have to look at it from an acquirer’s perspective. What companies are positioned to purchase assets? What companies are looking to grow their production profiles through making acquisitions? Second, you have to look for prospective acquisition targets. What companies have good-quality assets that are suffering in today’s market because of lack of funding and weak investment sentiment for development- and exploration-focused stories?
What we find in the silver sector is that despite the current soft silver price, operating margins that a lot of silver producers are enjoying are some of the best in the sector. The average industry cash costs for silver producers are less than $10/oz, which implies a healthy operating margin at a silver price of ~$30/oz. A lot of silver producers are generating significant cash flow in this environment.
Realizing that investor sentiment in the mining sector is weak, a lot of companies that are trying to advance exploration projects or development-stage projects are battling to finance the advancement of their development and exploration plans. You coined it—it is pretty much a garage sale out there for exploration and development stories. The acquirers have healthy treasuries and the ability to generate additional cash flow to support larger treasuries and the targets are being starved of funds to develop their project—it’s a buyer’s market.
TGR: Endeavour Silver Corp. (EDR:TSX; EXK:NYSE; EJD:FSE), recently paid AuRico Gold Inc. (AUQ:TSX; AUQ:NYSE) $200 million (M) for AuRico’s El Cubo gold mine and a couple of other smaller exploration projects in Mexico. Do you believe AuRico will use that cash for M&A?
CT: I can’t talk about AuRico, but I can talk about Endeavour. Endeavour is an emerging midtier silver producer. It is currently working toward delivering upward of 5 million ounces (Moz) silver production annually over the next two years. Endeavour and other emerging midtier companies are growing their production base through acquisition. What seems to be a more common acquisition target in the sector right now are not development-stage or exploration-stage projects, but companies with operations. Endeavour’s purchase of the AuRico assets fits very well into this focus and is not a surprise. First Majestic Silver Corp. (AG:NYSE; FR:TSX; FMV:FSE) used the same sort of strategy by acquiring Silvermex Resources Inc. (SLX:TSX; GGCRF:OTC). There is, especially in the emerging midtier subsector, a consolidation of players.
TGR: El Cubo’s total resource is 1.14 Moz gold and 53.5 Moz silver. At $1,600/oz gold, that’s $1.8 billion (B). At $30/oz silver, that’s another $1.6B. That’s a total of $3.4B in all categories. Even just the proven and probable reserves of 322,000 oz (322 Koz) gold and 18.5 Moz silver amounts to more than $1B. It seems like quite a bargain. Why did AuRico do that deal?
CT: I would argue that this is not a core asset for AuRico. AuRico has a relatively aggressive production growth plan. It is guiding toward more than 500 Koz gold production by 2014. Obviously, this comes with significant capital cost commitments. As far as silver valuation is concerned, Endeavour will pay about $250M for the asset and some exploration projects. Layering that into a reserve base of about 38 Moz silver equivalent (Ag eq), it is paying about $6.75/oz Ag eq. This is a little expensive, but understand that it’s a producing asset. The same calculation using the resource base arrives at about $1.70/oz Ag eq, which is fair value for an asset portfolio that includes an operating mine. The value opportunity for Endeavour will be its ability to turn the operation around economically.
TGR: What about the exploration potential of the other two projects that were part of this deal—Quadalupe and Calvo?
CT: They present blue-sky opportunity for Endeavour. More important, Endeavour can generate value for the company by improving the operating efficiency of El Cubo, bringing down cash costs, adding ounces at the operation and developing the exploration assets.
TGR: Did you raise your target on Endeavour after that deal was announced?
CT: No. We still have a target of $10.50/share for Endeavour. We’re waiting for the company to finalize the transaction, as well as provide more details about how it’s going to be financing the $250M acquisition.
TGR: You were recently awarded the 2011 StarMine No. 1 Stock Picker award for the Canadian metals and mining sector. Congratulations. What are some of your favorite picks among the primary silver stories?
CT: I define a primary silver story as one that’s more valuable for its silver metal value than other metals using Haywood’s long-term metal price assumptions. We regard Bear Creek Mining Corp. (BCM:TSX.V) as a company that’s of interest primarily because of the development potential offered by its flagship asset, the Corani deposit in Peru. In time, Corani could offer +10 Moz silver production annually supported by byproduct credits. There are not too many projects at the feasibility stage of development that can offer that sort of annual silver production potential. Bear Creek is our preferred large-project developer.
TGR: It’s a world-class deposit, but Bear Creek is having permitting problems that are preventing its low-cost Santa Ana silver project from moving to production. It can’t bring Corani to production without the cash flow from Santa Ana. What’s the likelihood of Bear Creek finding a joint venture (JV) partner?
CT: There’s concern relating to Bear Creek’s ability to finance Corani. The company is in the throes of applying for permits for Corani. We do regard this asset as being financeable. Also, we do regard Peru as a world-class jurisdiction for exploration and project development in the mining space.
TGR: What are the estimated costs to bring Corani to production?
CT: We’re looking at just under $575M.
TGR: And it could do that without a JV partner?
CT: Preferably it would like to sell the project for the right price, but the company isn’t waiting to be acquired. It is aggressively developing the project to production. The company has just under $100M in cash. Santa Ana was the company’s second-tier project. The advantage of Santa Ana was it is a relatively cheap mine to build and bring into production.
TGR: Bear Creek recently hired Renmark Financial to do some investor relations. Will that be enough to change the perception of the company in the marketplace?
CT: We need to see a rebuilding of investor confidence in Peru as a favorable jurisdiction for mine development. The company can’t do much more than what it’s currently doing to develop Corani. The company needs to continue to promote the benefits of Corani, as one of the world’s largest undeveloped and economically viable silver projects, and work with the local communities.
TGR: How about some other primary silver producers? Would you put Kimber Resources Inc. (KBR:TSX; KBX:NYSE.A) in that category?
CT: Kimber, with its Monterde project in Mexico, is a very interesting company. Monterde is a development-stage gold-silver deposit. Based on the company’s current stock price, and what the project can offer, it is cheap. We know the company is in the throes of putting together another resource update for Monterde. We see Monterde as being a very attractive potential acquisition target for a midtier silver or gold producer. There’s a large gold silver resource with a high-grade core, which has been the focus of the company’s current deep drilling program. It’s a neat little project from an acquisition perspective.
TGR: Who are the would-be suitors?
CT: There is a small group of companies: Endeavour Silver, Fortuna Silver Mines Inc. (FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE) or First Majestic Silver Corp. (FR:TSX; AG:NYSE; FMV:FSE), a company with operations in Mexico that knows the jurisdiction. It’s an asset that would look good in the portfolio of a midtier producer—a company that is aiming to tag on 2 Moz silver production annually with a good gold credit. The challenge is that this group hasn’t yet showed any interest in buying projects—just operating mines.
TGR: Kimber has had some good drilling results at depth at Monterde. Could those results change the picture for a potential suitor?
CT: They support the high-grade potential offered by Monterde at depth. Monterde has been mistakenly perceived by the marketplace as being a low-grade project. The drill results that the company has released over the last six to eight months suggest there is a high-grade core at depth. It’s going to be very interesting to see what comes out when the company releases its revised resource estimate, which is anticipated in the next month or two.
TGR: We’ve seen some recent examples of nationalization, most notably in Argentina. The Argentinian government recently expropriated the assets of Yacimientos Petrolíferos Fiscales (YPF:NYSE), which is a Spanish oil company. Could there be ripple effects felt in the mining industry?
CT: It paints Argentina in a poor light as a prospective jurisdiction for mining and exploration. It’s very unfortunate this has happened. It creates a lot of uncertainty, worry and fear over development of any resource-based asset in the country. We do like the exploration potential that the country offers. We follow a number of companies in Argentina, one of which has a very substantial land position in the Santa Cruz province.
TGR: Which one?
CT: Mirasol Resources Ltd. (MRZ:TSX.V). It’s unfortunate. It’s these issues that really are beginning to have an overriding influence on the sector and, in many senses, taking away some of perceived opportunity that higher metal prices offer.
TGR: Do you see that having a direct effect on the share price of companies like Mirasol?
CT: It creates uncertainty with regard to how easy it would be for Mirasol, or any company in a similar position, to advance the development of an asset in Argentina. I do see this development as being damaging to the share prices of companies active in Argentina based purely on the uncertainty that comes with this sort of geopolitical risk.
TGR: Tell us about Mirasol’s flagship project and why the company merited coverage.
CT: When we look at an exploration-focused company, we have to be satisfied with the team and the property portfolio that the company offers. Mirasol has a very well qualified, experienced exploration-oriented team and a very attractive property portfolio.
In addition to that, the company has a JV with a major silver producer, Coeur d’Alene Mines Corp. (CDM:TSX; CDE:NYSE). Coeur d’Alene is earning a 61% interest in the Joaquin project, with Mirasol being the JV partner. The Joaquin project is arguably the most important development-stage asset that Coeur d’Alene Mines has, something that is needed to grow its production profile.
TGR: Do you believe that Mirasol is a potential acquisition target given the size and scope of Joaquin and Coeur d’Alene’s majority interest?
CT: I think so. We’ve always looked at Mirasol as being a potential acquisition target. We know Coeur d’Alene’s interest in Joaquin and see that as potentially being a trigger for an acquisition based on consolidation of ownership. We also recognize that the company has a very attractive land position, which ranks as one of the most prospective jurisdictions for precious metals exploration today.
TGR: There are a number of interesting silver explorers, even some developers, on Haywood Capital’s Watch List. Which ones are you following most closely?
CT: Exploration company Soltoro Ltd. (SOL:TSX.V) could potentially deliver a significant resource base at its El Rayo project in Mexico.
International Northair Mines (INM:TSX.V) may deliver a maiden silver resource at its La Cigarra project in Mexico in mid-year.
Developers Kimber, Bear Creek, South American Silver Corp. (SAC:TSX; SOHAF:OTCBB), MAG Silver Corp. (MAG:TSX; MVG:NYSE), Extorre Gold Mines Ltd. (XG:TSX; XG:NYSE.A; E1R:FSE) and Tahoe Resources Inc. (THO:TSX; TAHO:NYSE) may offer development opportunities in the space, as well as producers Endeavour Silver, Fortuna Silver and Aurcana Corporation (AUN:TSX.V; AUNFF:OTCQX) may offer growing production growth profiles.
TGR: How far away is Aurcana from being an American silver producer?
CT: Aurcana is in production. It has two assets, the La Negra asset in Mexico and the development-stage Shafter project in Texas. Our understanding is that it’s in the process of commissioning Shafter right now. We’re also anticipating a revised resource estimate on La Negra. We’re looking at a company that can deliver just over 4 Moz/year silver production at a little north of $8/oz cash costs.
TGR: Tahoe Resources is a very big resource at this stage.
CT: Tahoe is a very interesting company. It’s a development-stage story at the moment, but it offers potential to be a near-term producer. The company recently announced a revised resource estimate that showed a 50% increase in Indicated silver resource to 367.5 Moz.
But it comes at a price. The market cap for Tahoe is ~$2.6B. That’s what you pay right now for one asset that can deliver $20M silver/year and a potentially higher production rate with further development. Escobal also offers potential to achieve good operating margins.
It’s a company we’re watching very closely. We want to see the company get its permits. The permit is a very important milestone because it will remove a level of jurisdictional risk.
TGR: What approach to silver equities, especially those in the exploration and development phases, will best serve the average retail investor?
CT: Looking at silver equities is no different from looking at equities focused on developing, advancing and exploring for other metals. One of the most important attributes of any company is management. You need a good team that can deliver efficiencies in what is a relatively challenging time for mining based on a lot of cost creep and margin squeeze. It’s all about the team. In silver we look for quality over quantity. Look at the ounces in the ground that will work from an operating perspective rather than just the size of the inventory.
TGR: High grade, too?
CT: Grade, good metallurgy, safe jurisdiction. As I’ve said before, people throw out silver projects in many senses as offering size potential, but there is no value in having hundreds of million ounces silver in situ in the ground if you can’t mine them profitably. Also, be wary and recognize that silver is arguably the most volatile of all precious metals and equities, by extension, are also volatile.
TGR: Thanks for your time and insight.
Chris Thompson was trained in South Africa and has over 20 years of industry experience working as a geologist for major through to junior mining/exploration companies, in addition to a stint working as a mineral economist for the South African state. He has a bachelor’s degree from the University of the Witwatersrand, a graduate degree in engineering, a master’s in mineral economics and a PGeo designation. Thompson has been with Haywood Securities for over six years and specializes in junior exploration and the silver and PGM sectors. Thompson was recently awarded the 2011 StarMine No. 1 Stock Picker award for the Canadian metals and mining sector.
By B.P.T., on May 17th, 2012
At 8:30 AM Eastern time, the U.S. government will release its weekly Jobless Claims report. The consensus is that there were 365,000 new jobless claims last week, which would would be 2,000 less than the previous week.
At 9:45 AM Eastern time, the weekly Bloomberg Consumer Comfort Index will be released, providing an update on Americans’ views of the U.S. economy, their personal finances and the buying climate.
At 10:00 AM Eastern time, the Philadelphia Fed Survey report for May will be released. The consensus is that the index will be at 10, which would be an increase of 1.5 points from the previous month.
Also at 10:00 AM Eastern time, the Leading Indicators for April will be released, and the consensus is that there was an increase of 0.1% from the previous month.
At 10:30 AM Eastern time, the weekly Energy Information Administration Natural Gas Report will be released, giving an update on natural gas inventories in the United States.
At 4:30 PM Eastern time, the Federal Reserve will release its Money Supply report, showing the amount of liquidity available in the U.S. economy.
Also at 4:30 PM Eastern time, the Federal Reserve will release its Balance Sheet report, showing the amount of liquidity the Fed has injected into the economy by adding or removing reserves.
By Christopher Briem, on May 16th, 2012
So most skipped over the story of how Neil Bluhm may be buying out the remnant of the late Don Barden’s ownership group down at the Rivers Casino.
Don Barden had a diverse mix of equity ownership, but it was still highly leveraged and in the end the collapse of some Lehman Brothers financing undid his ownership of the enterprise.* At its nadir Neil Bluhm came into the picture provided the capital to keep the enterprise going, but with Barden and his ownership group becoming a very minority owner.
Who had Don Barden recruited into the original mix? One of the more interesting players was the Retirement System for the City of Detroit. They originally were not directly equity owners but had this loan guarantee which made them some $$ if their backing was never needed. Of course it didn’t work out that way. When all imploded, their loan guarantee cost them money and in return they got a small bit of the equity already well diluted in Don Barden’s shell. Just last year the ownership of that group was restructured and the Detroit pension system had to put up $54 million in cash. See: Investor’s Double Down on Rivers Casino.
I can’t tell from the reporting if the latest machination includes Bluhm buying out the equity of the pension system or not. Below is the picture of how the refinancing/recapitalization worked out. Only a dotted line out to the Detroit Pension folks. Beware the dotted line may be one lesson. Who knows what the Detroit pension funds are holding the remaining casino investment for on their books. If the pension system’s equity does get bought out, one thing that likely will result is that they will have to reconcile the value of the asset on their books; likely a small fraction of what they put in at any point. It is a loss that has already not gone unnoticed in Detroit.
Given that it the pension system’s investment started as a loan guarantee, it was in a sense a highly leveraged derivative not all that much dissimilar to what has put JP Morgan the news of late. Sort of like they sold a put they never expected to be in the money. They could pocket the up front premia and walk away. As much as I can tell from the superficial reporting on the JPMorgan fiasco, I think they were selling selling credit default swaps with a presumption they would not be needed and in a nearly idential way the bet turned sour.
The result is that the pension system’s IRR must be a big negative percentage of their original ‘investment’ at this point. Will we ever know what their potential % loss was? Even though the Detroit Pension system has a lot more openness than say the City of Pittsburgh’s pension system.. probably not. Speaking of openness, note that the city of Pittsburgh has not put out for public consumption any investment info since 2010. In Detroit at leastyou can read their monthly or more frequent board minutes.
So what eh? The City of Pittsburgh isn’t actually violating any law or regulation in putting out so little information. Pennsylvania has literally over 3200 individual pension funds out there. … It remains a big mystery not only why the public knows so little about what the specific investments are in all of them… but why nobody ever cares to ask. I have to bet that if there was a comprehensive look at all the specific investments made by all those plans there may be a few surprises in the details.
* as disclosure I once worked at Lehman Brothers, though I couldnt begin to tell you who put money into casinos. Straight LIBOR derivatives is all I got close to.
By The Energy Report, on May 16th, 2012
 The landscape of the junior oil and gas industry has changed significantly over the last five years. What will the playing field look like five years from now? These are the questions that ATB Financial’s Bruce Edgelow will discuss at his upcoming SEPAC Oil & Gas Investor Showcase keynote address, but in this exclusive interview with The Energy Report, Edgelow gives us a sneak preview. Read on as Edgelow examines which industry trends are likely to continue, and what it will take for juniors to attract investment capital in an increasingly competitive market. The only constant investors can expect, Edgelow argues, is change.
The Energy Report: Bruce, what major changes do you see under way for junior explorers and producers (E&Ps)?
Bruce Edgelow: Juniors have begun to transition from drilling moderately priced individual vertical wells to drilling much more capital-intensive resource plays. For example, in 2000 the cost to drill and complete one well in Pembina was ~$330,000. By 2010, the cost had ballooned to ~$2.75 million (M) due to horizontal drilling and more complex completion techniques. This trend is expected to continue as resource plays become increasingly dominant and as larger budgets, bigger capital bases and higher production become more commonplace. As such, access to capital will be more vital for juniors than it has been in the past.
We expect consolidation to occur as a result of the critical mass needed to meet these increased capital requirements. Liquidity-challenged small producers may be attractive targets for larger, well capitalized companies looking to expand their asset bases. In this landscape, juniors will need to be nimble early movers. Those that can jump on a niche emerging resource play and pioneer economic extraction techniques will have an advantage.
TER: Which resource plays will remain hot spots for junior E&Ps?
BE: Development plays such as the Cardium, Viking and Bakken shales should continue to dominate the oil and gas landscape. These repeatable development-style plays require ample land inventory to provide sufficient drilling opportunities. Given increasing operating prices, juniors will need enough capital to fund full-cycle economics. Moreover, drilling and completion costs are likely to further increase as even more advanced technology will be required to unlock the full resource potential.
On the other hand, demand for conventional plays with smaller pools bearing exploration risk is reducing. The appetite to fund natural gas activity is virtually non existent unless the producer is in a niche play that can still be economic at current depressed prices. Investors and capital providers will need to develop an increasingly keen eye toward overall corporate economics in order to determine if a company has the scale, talent and asset profile to exploit the opportunities available.
TER: You’ve addressed the higher costs associated with horizontal drilling. How are revolutionized extraction techniques benefiting juniors?
BE: The industry is reporting fewer dry holes. Technological innovation has made previously uneconomic plays much more viable. Five years from now, one can expect significant advances in fracturing technology to have further increased economies of scale. It is expected that there will be a significant uptick in the number of plays that are not even on the radar screen at this time. Going forward, the industry will likely find that larger pools are repeatable and that the technology being deployed is increasingly efficient.
TER: Can you tell us more about full-cycle economics and why they matter?
BE: The full cycle growth story will be the preeminent method whereby juniors thrive in a changing marketplace. This includes organic growth, acquisitions, farm-ins and joint ventures. As in the past, juniors will continue to drill using cash flow, available debt and equity to grow with the end goal being a corporate sale to a larger company with excess capital looking to diversify. Full-cycle economics refers to this entire trajectory from small- to mid- or large-cap companies. Investors will have to assess a junior’s ability to progress to the next few stages.
TER: What kinds of business strategies will boost a junior’s odds of making the leap to the next market-cap level?
BE: A land accumulation strategy could be a viable and successful method for a junior company over the coming years. For instance, with the Duvernay in its infancy and largely unproven at this time, a junior might choose to assemble a strong land base and sit on it without expending the large capital requirements to drill. It may be able to wait for better-capitalized players to prove up the regional play with the exit strategy to sell their land at higher values.
TER: You’ve placed a lot of emphasis on organic growth and scalability. Are the days numbered for small companies out there?
BE: Junior oil and gas companies will still be very active in this space in five years. However, there will likely be fewer of them as a result of consolidation and incrementally higher entry costs. We expect that the overall environment for juniors will be made more difficult as significant equity support will be imperative for juniors. We expect a $10M starter kit will not meet the capital needs of a junior going forward. To have a greater probability of success, a junior may require $100M or more to sustain an adequate capital program for one to two years. To receive this backing from investors, juniors will need to deliver top-quartile reserves, production and cash flow growth on a per share basis. If they don’t perform at these levels, investors will be much more likely to deploy their capital to more stable mid-cap companies that yield a higher risk-adjusted return, including dividend income.
The number of juniors in the defined universe has increased nominally in recent years in comparison to significant growth in revenue and capital spending [see table below]. As I alluded to earlier, we expect this number to reduce due to consolidation and further increased capital requirements.
TER: So what will it take for an undercapitalized junior E&P to attract investment?
BE: For a junior oil and gas company to thrive in an increasingly competitive market, numerous attributes will be critical. A quality, experienced management team will be more important than ever before. It is crucial that management maintains a strong balance sheet and keeps capital spending within board-approved budgets. Furthermore, maintaining an optimal capital structure with reasonable and serviceable debt levels will be of the utmost importance. We expect to see a greater number of juniors succumb to high debt, while others will risk the company on the success of a few high-risk wells. Executives will need to manage risk appropriately in terms of effective deployment of capital as well as hedging commodity price fluctuations. They will also need to plan for potential higher-interest costs on debt and manage those costs through a stand-alone interest-rate hedging program.
TER: Currently, natural gas prices are lagging far behind oil prices. Do you think this trend will continue?
BE: The commodity pricing environment will likely dictate that plays be oil focused with strong netbacks. Notwithstanding, juniors will likely require multiple core areas of strong assets that each add economic value and the ability to increase reserves, production and cash flow on a per share basis. Finally, a company must not fall in love with their assets, but be willing to adapt quickly to changing market conditions. But who knows? With all the conversion to oil activity and some recent positive signs for natural gas demand, it may not be too soon before there is a swing back into the currently abandoned natural gas space. Time will tell.
TER: Thank you for sharing your thoughts on what’s to come in this space.
BE: Thank you for having me.
Bruce Edgelow is responsible for helping to build ATB Financial’s energy business and capabilities. His team consists of industry specialists in all aspects of the energy industry, including drilling and service, pipelines, utilities, midstream, exploration and production. Before joining ATB, Edgelow was a senior Royal banker and has more than 39 years of experience with a focus on the oil and gas industry. He is a Fellow of the Institute of Canadian Bankers, has attained the ICD.D designation, and is a very active participant in community and church activities. He also serves as a director for the Calgary Counselling Centre and sits on SAIT’s Board Advisory Council. Edgelow has also been a speaker at numerous oil and gas industry seminars on finance.
By Simon Grey, on May 16th, 2012
Here’s another sign that the United States are toast:
Mr. Saverin, who now lives in Singapore, decided last year to renounce his U.S. citizenship, a decision that was made public a few days ago. The move sparked an outcry among some tax experts who suspect he’s aiming to save on taxes. [Ya think?] Although Mr. Saverin will have to pay a hefty exit tax for renouncing his citizenship, based on some calculation of his assets, Singapore is a relatively low-tax jurisdiction, particularly for foreign investors, and does not levy capital gains tax. Thus he could save in the longer term.
Here’s a hint: it’s no longer the “land of the free” when citizens find it less taxing to live somewhere else.
By B.P.T., on May 16th, 2012
The Mortgage Bankers’ Association purchase index will be released at 7:00 AM Eastern time, providing an update on the quantity of new mortgages and refinancings closed in the last week.
At 8:30 AM Eastern time, the Housing Starts report for April will be released. The consensus is that construction on 690,000 new homes were started last month, which would be an increase of 36,000 from the previous month.
At 9:15 AM Eastern time, the Industrial Production report for April will be released. The consensus is that there will be an increase 0f 0.5% in production and an increase 0f 0.4% in industrial capacity utilization.
At 10:30 AM Eastern time, the weekly Energy Information Administration Petroleum Status Report will be released, giving investors an update on oil inventories in the United States.
At 2:00 PM Eastern time, the FOMC Meeting Minutes will be released, which will provide insight into how the Federal Reserve board governors and bank presidents view the economy.
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By Simon Grey, on May 15th, 2012
“A cynic is a man who knows the price of everything and the value of nothing.”
—Oscar Wilde
I had no idea that in 2001 an elementary school in New Jersey became America’s first public school “to sell naming rights to a corporate sponsor,” Sandel writes. “In exchange for a $100,000 donation from a local supermarket, it renamed its gym ‘ShopRite of Brooklawn Center.’ … A high school in Newburyport, Mass., offered naming rights to the principal’s office for $10,000. … By 2011, seven states had approved advertising on the sides of school buses.”
Seen in isolation, these commercial encroachments seem innocuous enough. But Sandel sees them as signs of a bad trend: “Over the last three decades,” he states, “we have drifted from having a market economy to becoming a market society. A market economy is a tool — a valuable and effective tool — for organizing productive activity. But a ‘market society’ is a place where everything is up for sale. It is a way of life where market values govern every sphere of life.”
Why worry about this trend? Because, Sandel argues, market values are crowding out civic practices. When public schools are plastered with commercial advertising, they teach students to be consumers rather than citizens. When we outsource war to private military contractors, and when we have separate, shorter lines for airport security for those who can afford them, the result is that the affluent and those of modest means live increasingly separate lives, and the class-mixing institutions and public spaces that forge a sense of common experience and shared citizenship get eroded. [Emphasis added.]
In a post on the autism of economics, I theorized that economics had lost its way by basically trying to put a price on everything. I now think that this mindset has already made its way into the broader culture. I’m not sure why this is the case, but I think that this tendency to put a price on everything is indicative of a social disease. As Friedman notes, the message is that everything is for sale. In a sense, this is true. But that should not necessarily mean that everything can be purchased with money.
Getting back to the disease, I think the biggest problem society faces is that of materialism. Everyone is focused on getting things and having stuff. As with above, schools want money, presumably to buy things for students and teachers. The idea is that having more pay for teachers, or having smartboards, or having more ergonomically-designed desks, or having whatever else is theorized to improve students’ scores will lead to a better educational process. In each case, though, the root assumption is that things lead to better results, not people. Ultimately, this mindset is one that is predicated on denying people’s humanity. Students are not individuals with their own personalities, quirks, strengths, weaknesses, and interests. They are merely throughputs in the industrial machine of public education. Thus, if there is a problem with students, it is not because the system is flawed, but because the system doesn’t have the right blend of educational components. The solution, then, is to buy more components, even if that means raising money by selling naming rights to the school.
Now, my lament is not that the state should “do something” about this problem—from what I can tell, the state is actually at fault for a good portion of the problem—nor do I actually care what a school is named after. In fact, the problem of selling naming rights of schools is not actually of much interest to me, since school names tend to be arbitrary anyway. No, what concerns me is that everything is being reduced to a number.
This is, I suppose, an extension of the science fetishist mindset, wherein everything has to be made into objective, sortable, analyzable data. The science fetishism of modern society pervades every aspect of society, as everything and everyone has to be broken down into their base elements and converted to an equation. Students cease to be humans and instead become numbers: test scores, subject grades, and desk rows. Teachers are also turned into numbers: salaries, average student test scores, and so on. Likewise with principals, schools, districts, administrators, and so on. People—human beings—are reduced to easily digested statistics, which are then bandied about by the politicians and talking heads, as if simple numbers adequately represent hundreds of thousands of human beings, their drive, their ambitions, their talents, their abilities, their strengths, and their weaknesses. When people become mere numbers, it should come as no surprise that everything else is reduced to numbers as well.
Thus, the fact that schools are turning their schools into giant billboards indicates not only has the world gone mad with materialism, it has gone so completely mad with it that even students and teachers are reduced to mere objects—throughputs and inputs for the assembly line of modern education. Everything has a price, but nothing has value. Everything is reduced to a number, to a statistic.
I suppose that this is the inevitable result of a society where everything is increasingly centralized. Small business is hampered by federal laws, which are often enacted at the behest of major corporations. (Incidentally, small business owners are far more personal and personable than CEOs of giant corporations, probably because they interact with their employees and customers on a daily business, and get to know them as humans and not mere numbers.) The role of educator has been mostly stripped from parents and given first to state governments and, increasingly of late, to the federal government. Even the religious world emphasizes centralization, embracing mega-churches and extremely hierarchical organization: those who make the rules and those who have to live by them often do not know each other personally, at least in churchianity.
Quite simply, the personal is frowned upon. The large-scale, central organization is worshipped. Leftists worship big government (who else can so efficiently save people from their humanity?); the right worships big-business (because economies of scale are so efficient, which is why the government has to subsidize them with regulations and special market protections). Everything must be big, which means the end of the personal.
I suspect that we would not suffer all that much if we scaled back everything. Government would be more accountable if those who ruled lived next door to their subjects (imagine suggesting this to Obama or Romney). Businesses would be more concerned about quality of products and services if owners lived next door to their customers* (having worked for a Fortune 100 company and a couple of small business owners, I can testify that this is indeed the case). Education would be more effective if parents and administrators lived next door to each other.
Actually, education would be more effective if parents and administrators were the same people. The reason why homeschooling is so effective is simply due to the fact that most parents who homeschool do so because they care about their children as fellow human beings. Personally, I can testify that while my parents were concerned about me mastering, say, long division and spelling, I could always rest assured that at the end of the day, my teacher (mom) and principal (dad) would still love me and take care of me regardless of what I scored on my math test. Quite simply, I mattered to them. I was not merely a number to them, but an actual human for whose intellectual, social, moral, emotional, and spiritual development they were responsible. Try getting that from a public school teacher who spends as much time attending worthless seminars and filling out trivial paperwork as she does actually interacting with two dozen students.
At the end of the day, society is built on personal relationships. When those relationships erode, so does society. And when everything becomes reduced to a number, it is safe to say that society has become increasingly impersonal, and is thus in the beginning stage of decline.
* I will have more to say on this in a future post.
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