The Mission Report

The MissionIR Report - Mid-April 2011

In-depth analysis, timely updates, latest market news


Market News

Company Updates


Crude Oil Prices Resume Climb

Gasoline futures neared fresh multi-year highs and pulled oil higher on concerns that falling fuel stockpiles reported by the Department of Energy since the beginning of the year are set to continue.

"It's all about gasoline," said Jim Ritterbusch, head of oil-trading adviser Ritterbusch & Associates. "Until we get some reversal in the stock draws, you're going to see some upside in gasoline dragging crude higher."

Oil prices are trying to stage a rebound from a sharp decline earlier in the week, when prices dropped more than $6.60 a barrel in two trading sessions. Investors are attempting to gauge how the high cost of oil and other raw materials is affecting the economy and whether businesses and consumers will start cutting their fuel usage.

Earlier this week, the Paris-based International Energy Agency warned of weakening fuel usage, and the Organization of Petroleum Exporting Countries cut its demand-growth estimates for this year.

U.S. jobless claims rose to the highest level in two months last week, the Labor Department said Thursday, adding to some concerns that hiccups in the economic recovery would pressure fuel demand. New claims increased 27,000 to 412,000.

Regular gasoline is selling for $3.81 a gallon on average in the U.S., according to the American Automobile Association, inching close to the $4 a gallon level economists say will change people's driving habits and lower fuel usage.

But supplies of gasoline are still falling—U.S. inventories dropped by seven million barrels last week, according to the Department of Energy.

Supplies "are on the low side heading into the [summer-driving] season," said Andy Lebow, a trader with MF Global, based on the government's reports.

Meanwhile, continued unrest in the Middle East is keeping the oil market on edge. In Libya, fighting between rebels and pro-regime forces has reached a stalemate, with neither side appearing able to gain the upper hand.

It remained unclear whether conditions in the North African nation will indefinitely keep the bulk of Libyan oil from the international market.

Rebel forces have announced that they are producing hundreds of thousands of barrels of oil a day and are able to export limited amounts. On Tuesday, Qatar said it had helped the rebels market one million barrels of crude.

But this is still a far cry from the 1.3 million barrels of oil a day that Libya was exporting prior to the outbreak of violence in the country.

Gold Prices Hits New Record, Silver Passes $40 Mark

Gold prices hit a new record this month and silver prices touched $41 an ounce as the precious metal bulls came out in full force.

"Silver over 40 dollars now and gold over 1475 are in new technical territory," commented George Gero, senior vice president at RBC Capital Markets.

"These levels [for silver] are going to be a spring board to $50," says Anthony Neglia of Tower Trading, "maybe sooner than I think." Neglia sees $37 as the new support area for silver whereas a few weeks ago it was $30.50. "My buy recommendation [is] the July 50/55 call spread which is up 50% in a week."

As silver looks to $50, gold is looking to $1,500, which seemed like a far-fetched dream for a few weeks as the metal could not conquer the $1,450 level. Now it has and many experts think the $1,500 level will be reached in days or, at the most, weeks.

When will gold hit $1,500 "is a good question," says Will Rhind, head of U.S. operations for ETF Securities, "I think that right now with the market the way it is, who knows, it could be a matter of days."

Pat Heller, general manager at Liberty Coin Service, has noted that "the 'general public' is coming to the realization that the U.S. dollar is falling in value and contributing to noticeably higher consumer prices," which is making hard assets very appealing as a whole new portion of the population gets interested. "I think the price increases over the past two weeks are partly a reaction to this."

The rise in precious metal prices has been primarily driven by the Fed's unprecedented easy-money policies, first, following the popping of the NASDAQ bubble in 2000, then again, much higher in price following the collapse of the financial system, starting in March 2008, with the fall of Wall Street broker-deal/investment banking firm Bear Stearns.

Not unlike most global pricing, the world's traditional monetary metals are denominated in U.S. dollars, so a decline in the dollar's relative value to world supply of precious metals lifts the price of gold and silver in dollar terms.

Even if the Fed followed last week's European Central Bank's (ECB) quarter-point interest rate hike, the competition for dollars between paper assets and tangible assets won't tip the tide among investors in favor of paper assets, according to publisher and editor of the Gloom Boom Doom Report, Marc Faber.

Treasuries, Stocks, Dollar Gain on Plan to Reduce U.S. Deficit

U.S. Treasuries headed higher as Obama outlined plans to cut government spending and increase taxes, setting the stage for a fight with congressional Republicans over the nation's priorities. The gain in bonds also came as the U.S. sold $21 billion of 10-year notes. Stocks retreated as details of the plan emerged, before heading higher as the Federal Reserve's Beige Book survey bolstered optimism that the economy can weather the proposal.

"Obama's budget-cut story gave the Treasury market a bid going into the auction, with talk that was very aggressive," said Carl Lantz, head of interest-rate strategy in New York at Credit Suisse Group AG, one of 20 primary dealers that trade with the Fed. "The market remains a bit dubious of the politics, but the feeling is that there is a sign that politicians sense public frustration and have learned a lesson from Europe."

The Fed said the economy expanded at a "moderate" pace across much of the U.S. in February and March, led by manufacturing, with labor markets showing improvements in most regions.

"While many districts described the improvements as only moderate, most districts stated that gains were widespread across sectors," the Fed said today in its Beige Book report. While higher commodity costs compelled sellers to try to raise prices, pressures to increase wages were "weak or subdued."

U.S. retail sales advanced for a ninth month in March, according to the Commerce Department, increasing 0.4 percent following a 1.1 percent February gain that was larger than previously estimated.

"Consumers have a lot more energy than people thought," said David Kelly, who helps oversee $405 billion as chief market strategist at JPMorgan Funds in New York. "The tide is still a tide towards normalcy as far as the economy goes. We're going to see more positive than negative surprises. Same goes for a steady improvement in corporate profits."

JPMorgan Chase & Co. (JPM) led the U.S. market's early advance after reporting profit grew 67 percent to a second straight record as provisions for bad mortgages and credit-card loans tumbled. The stock rose as much as 1.6 percent before erasing gains and dropping 0.8 percent as Chief Executive Officer Jamie Dimon told investors not to expect dividend increases in the next couple of quarters.

Denison Mines Corp. (DNN)

Denison Mines Corp. announced it is expecting 2011 uranium production to total 1.2 million pounds of U3O8 from ore in stockpile and from the Beaver, Pandora and Arizona 1 mines and production from the alternate feed circuit at the White Mesa Mill in the United States. Vanadium production is projected to total approximately 2.2 million pounds of V2O5. A budget of $6.4 million has been set aside for development stage projects in 2011.

About Denison Mines Corp. (DNN)

Denison Mines Corp. is an intermediate uranium producer with production in the U.S., combined with a diversified development portfolio of projects in the U.S., Canada, Zambia and Mongolia. The company also offers mine decommissioning and environmental services through its Denison Environmental Services (DES) division and is the manager of Uranium Participation Corporation (TSX:U).

The company's assets include its 100% ownership of the White Mesa mill in Utah and its 22.5% ownership of the McClean Lake mill in Saskatchewan. The Company also produces vanadium as a co-product from some of its mines in Colorado and Utah. Denison owns interests in world-class exploration projects in the Athabasca Basin in Saskatchewan, including its 60% owned flagship project at Wheeler River, and in the southwestern United States, Mongolia and Zambia.

In 2010, the Company completed initial mineral resource estimates for Wheeler River's Phoenix deposit with indicated mineral resources at Zone A of approximately 35 million pounds at an average grade of 18.0% U3O8 and with inferred mineral resources at Zone B of approximately 3.8 million pounds at an average grade of 7.3%. This year Denison is commencing its most ambitious exploration program to-date at Wheeler to further uncover this project's potential.

Northgate Minerals Corp. (NXG)

Northgate Minerals Corp. provided an update on construction activities for its 100% owned Young-Davidson project located beside the town of Matachewan, Ontario. With current proven and probable gold reserves of more than 2.8 million ounces, the Young-Davidson mine is targeting start-up of production in late Q1 2012. The mine is expected to generate an average of 180,000 ounces of gold annually over an initial 15-year mine life.

Follow-up drilling on the YD West zone continues to return positive results. The project remains on schedule with 80% of the contracts awarded (approximately $170 million), 90% of equipment purchase orders placed and 66% of the engineering completed. It is also within budget; the company has invested approximately $130 million towards construction of the Young-Davidson mine.

About Northgate Minerals Corp. (NXG)

Northgate Minerals Corp. is an international gold and copper producer with mining operations, development projects and exploration properties in Canada and Australia. Forecasting production between 195,000 – 205,000 ounces of gold in 2011, the company anticipates producing approximately 300,000 and 350,000 ounces in 2012 and 2013, respectively. The company is looking to further accelerate growth through acquisitions in stable mining jurisdictions around the world.

Northgate is well regarded for its strong operating abilities and has gained reputation as one of the finest operators in the business by consistently delivering on its promises. In addition to providing significant socio-economic benefits to local communities, Northgate is committed to following sustainable mining practices at all times. The company has been the recipient of numerous awards, including the Metal Mining Reclamation Citation from the BC Technical and Research Committee.

Record high gold and silver prices are providing precious metal producers with significant leverage to fund growth initiatives. With a robust three-year growth profile, operations and projects in mining-friendly jurisdictions and an experienced management team capitalizing on the company's organic growth and exploration potential, Northgate Minerals is well on its way to meeting and possibly exceeding its business objectives.


Vantage Drilling Company (VTG)

Vantage Drilling Company recently completed construction and deployment of the final unit of its initial five-rig owned fleet. Since the start up of the company's initial rig operations over two years ago, it has experienced operational excellence across the fleet, providing safe and efficient drilling services to customers. Today, Vantage rigs are employed on some of the industry's most challenging projects.

About Vantage Drilling Company (VTG)

Vantage Drilling Company, an offshore drilling contractor, provides drilling services internationally with a focus on deep water and other high-specification drilling solutions. The company has built one of the most dynamic teams in the industry with an unsurpassed safety program, premier offshore drilling performance, and a track record of outstanding results achieved by exceeding expectations.

The company's fleet of high specification state-of-the-art drilling units are well suited to meet the requirements of customers for efficiently drilling through deep and complex geological formations. Vantage's high specification drilling units generally provide faster drilling and moving times and are generally preferred by customers for their improved safety features and less frequent downtime for maintenance.

In recent years, there has been increased emphasis on exploration in deeper waters as technological developments have made such exploration more feasible and cost-effective. Vantage Drilling is using this headwind to expand relationships with major, national and independent oil and natural gas companies for the purpose of obtaining longer-term contracts and building a growing backlog of business.


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