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The Price of Lead Hits an
All-time Record

At $1.70 a pound, lead is trading at a level that was undreamed of a couple of years ago, a level that is nearly ten times higher than its low earlier this decade. The soaring price of lead should not have come as such a surprise, in that prices of all the metals have skyrocketed from their lows six years ago.

Lead was different from the other metals in that two of its primary uses were eliminated, leading some analysts to forecast that lead was unlikely to ever enjoy a resurgence. For decades, lead was used as a gasoline additive. Today, it is shocking to think of car exhaust fumes spewing lead into the atmosphere.
For a century or more, lead oxide was a standard ingredient in paint, providing the opaqueness. Nowadays, even trace amounts of lead can generate embarrassing product recalls.

After those two major uses for lead disappeared, the major remaining use for the metal was in automobile batteries. With efficient recycling and declines in the size of batteries, only a modest amount of new lead was required each year.

Much of the production facilities for lead -- mines, smelters, refineries -- became redundant. There was a period when lead miners literally had trouble giving away their concentrates. Lead and zinc almost always occur together. Zinc miners had to struggle to find a smelter to take the lead concentrate that was produced as a byproduct of zinc mines, because it was a toxic material and could not be stored on site. The price of lead fell to less than $.20 a pound, a value that did not even cover the transportation and processing costs.

Lead-dominant mines were shut down in favor of metal deposits with higher zinc content. The smelting and refining side of the business also shifted in favor of zinc. Similarly, silver mines with high lead values were closed, especially during that period when the silver price was also low.

Over the past five years, the explosion in the automobile markets in Asia, along with strong economic growth around the world, saw demand for lead rise sharply while productive capacity was limited. This is a familiar story in metal markets, remarkable only due to how unpopular lead was even a short time ago.

As with all the metals, speculating on the future direction of the commodity price is extremely risky. Other metals provide models of what to expect from lead. Copper and nickel both soared to record levels, then overcorrected before getting back on to uptrends. It is reasonable to expect the same pattern in the lead market.

Rather than trying to guess the future direction of the lead price, investors have a far less risk alternative. Several companies are presently selling lead that is produced as a byproduct of mining other metals. Those revenues are providing a windfall in terms of cash flow.

Of particular interest are those companies that are producing silver and lead at the same time. Many silver miners moved away from the lead-rich areas of mines as the lead market collapsed. Companies working those silver mines are now enjoying a double benefit.

Several companies that are benefiting from the strong silver and lead markets are updated in this issue, with more to come in the next issue.

British Columbia Exploration Update -- October 01, 2007
The largest mine development project in Canadian history is presently underway in British Columbia. Recent drill results confirm that there is a great deal yet to be discovered in this mineral-rich province.

With funding from mining major Teck Cominco, NovaGold's Galore Creek project is now under development. A work force of 600 and a fleet of heavy equipment are presently constructing a road to gain access to the mine site. With an expected start date of 2012, Galore is projected to become one of the larger mines in the world, producing 430 million pounds of copper, 4 million ounces of silver and 340,000 ounces of gold annually. With a capital cost in the order of $2 billion, the Galore project ranks as the most costly mine development project ever undertaken in Canada... and is a big project by any measure.

Development of the Galore Creek deposit is extremely significant from several perspectives. Most importantly, it underlines the geological potential of the province. The deposit was discovered decades ago and was evaluated by two major mining companies. They saw the deposit as being too small to justify development and as a result, the deposit sat idle for years until it was bought by what was then a small exploration company.

NovaGold applied some leading edge geological thinking that led them to see the potential to expand the deposit. Once they had demonstrated the validity of their geological interpretation with a few hundred drill holes, Teck Cominco agreed to provide the next half billion dollars of equity toward mine development.

The Galore Creek development also demonstrates that the provincial regulatory system can work in favor of mining. In a remarkably short period of time, NovaGold completed the environmental assessment and secured all of the permits needed to develop a massive mining operation. NovaGold was also able to secure a cooperation agreement with the local First Nations, a step that some investors see as an impediment.

NovaGold's project has advanced so quickly that few people yet appreciate how real and how significant this project truly is. It was only last month that the two companies concluded their partnership agreement. The project is proceeding at a remarkable pace, with plans to continue work during the winter, with a focus on tunnels and other aspects that can be worked out of the weather.

While mine development at Galore Creek is underway, exploration in the province continues to generate important results that vividly demonstrate that there is a lot more metal yet to be found.

One of the most spectacular drill holes seen in many years was reported recently from an exploration project in British Columbia. The implications of that drill hole are far-reaching. However, with the news coming as it did on August 14, the importance was completely lost in the turmoil of the debt crisis that totally dominated business news at that time.

Imperial Metals (III-TSX) reported an intersection of 822 meters, starting near surface, grading 1.07% copper plus 1.27 grams per tonne gold. Either one of those metals over that interval would have made a great hole. The two metals together have important implications for exploration in British Columbia.

Imperial Metals is producing copper, molybdenum and gold from two mines in central B.C. The recent drill hole came from the Red Chris development-stage project, which the company recently acquired.

Red Chris is a classic B.C. porphyry copper-gold deposit. It is located in northwestern British Columbia, east of NovaGold's Galore Creek deposit and Copper Fox' Schaft Creek deposit. Red Chris is road accessible, just east of the Stewart-Cassiar highway.

Mineralization was first discovered in the Red Chris area in 1956. The property was extensively explored from 1968 to 1981. In 1994, a junior company consolidated the ownership, which by then was held by three larger companies. The junior kicked off a new exploration era for the project, leading to an expanded resource and a comprehensive evaluation in 1998. The downturn in the industry saw the project put on hold until 2004.

Higher metal prices and improving infrastructure in that corner of the province led Imperial Metals into a bidding war with another intermediate producer. After their winning bid, Imperial carried out a modest summer exploration program as they awaited progress on development of a power line into the area.

The Imperial program included drilling beneath the near surface material that had been the focus of decades of work. A study completed last year estimated a proven and probable reserve for Red Chris of 276 million tonnes grading 0.35% copper and 0.27 grams per tonne gold. Most of that material was to be mined from a depth of less than about 200 meters.

The recent hole opens the possibility that a larger and higher grade portion of the deposit is waiting to be delineated beneath the zone that has been examined over a period of half a century. By the way, the 822 meters of favorable grade material encountered by Imperial is only a part of the story. Assays are still awaited from a further 200-plus meters of the hole that extended to 1,029 meters.

A great deal more drilling is needed to properly assess the deeper zone. Nevertheless, the deep hole announced in August shows that mineralization extends to much greater depths than was envisioned in the mining plan. Equally important, that hole suggests that at least some of the deeper material may carry grades substantially higher than the near-surface material in the mine plan.

The results reported by Imperial open the possibility for other B.C. porphyry copper-gold deposits to have deeper portions that were not drilled by earlier operators. Remember, much of the work in the province was done decades ago, extending back to the 1950s, '60s and '70s. At that time, the focus was on the near surface zones. Also, gold was much less important than it is today, leading to a focus on copper rather than gold.

The development of Galore and the Red Chris results further support the premise held by Resource Opportunities that some of the juniors that are building on earlier work by major mining companies have enormous upside potential.

As detailed in the British Columbia exploration issue last May 2007, there was an enormous amount of work conducted by majors in B.C. in past decades. This issue focuses on the exploration companies operating in B.C. and highlights several that are poised to benefit in a big way from the reemergence of Canada's western province as a favored locale for mine development.

Metal Markets Update -- September 07, 2007
A look at the metal markets in the aftermath of the debt crisis.

The gold price has rebounded strongly in reaction to the crisis in confidence suffered by the financial markets. The base metal prices are also recovering after a reassuringly modest reaction to the financial turmoil. Share prices in the mining sector have already begun to recover their recent losses. It is only a matter of time until mining shares resume their upward trajectory.

This situation was anticipated in the August 17th, 2007 Interim Update issued immediately after the markets went into turmoil. That outlook acknowledged that the turmoil arose from a crisis of confidence -- not a fundamental change, and therefore a fairly quick rebound was expected.

There remains serious problems with the U. S. economy. The dollar continues to be under long term pressure as economic growth remains sluggish. The high level of debt throughout the economy and the eroding trust around the world of U.S. financial institutions makes it clear that the dollar will have a great deal of difficulty in mounting a big recovery in the near term.

That bearish outlook for the dollar makes the outlook for gold fairly straightforward. Gold will continue to hold its value as the dollar depreciates. The six year bull market for gold has gained even more momentum as investors grow ever more wary of paper assets -- whether currencies or other forms of government or corporate IOUs. It is only natural that investors -- both institutional and individual -- are increasing the amount of bullion they hold. That growing demand is increasing the value of gold in real terms.

On top of the growing investor demand for gold, jewelry sales are being spurred by the unprecedented level of wealth creation around the world. India, which for years has been the largest consumer of gold, is experiencing spectacular economic growth. It is only natural that gold consumption has been growing in India, with forecasts for growth to further accelerate.

Even in the face of rising demand, production of gold remains flat. New mines are not even offsetting mines that are being shut down as they run out of ore. Producers continue to reduce total hedge positions, with shareholders insisting that management minimize or avoid new hedges.

Some central banks are still selling their gold reserves, but those sales are being offset by other nations that are expanding their bullion holdings.
Add it all up and the outlook for gold is even more bullish than it was during six year period that saw the gold price soar from $252 to the current $731 an ounce.

While the gold price will undoubtedly continue to climb, it is unlikely to do so in a straight line. I continue to urge caution against an expectation of a rapid and sustained rise in the gold price. We have seen too many spurts that suddenly reverse course, leading investors to watch as the gold price pulls back. The trend is clearly upward, but in a similar manner to the past six years.

The story for silver is also extremely bullish. A more comprehensive update will be presented in an upcoming issue.

The uranium price has settled back to $85 a pound from a high in excess of $130. That correction brings the market back to a more sustainable level with room for growth over time.

The long term outlook for uranium remains extremely positive. World-wide economic growth is driving the need for more energy. The oil price at nearly $83 vividly demonstrates the limits to the ability of the oil industry to find and develop new supplies. On top of all that, the environmental movement has, albeit grudgingly, lessened their opposition to uranium as new reactors provide an alternative to burning more fossil fuels.

There are still far too many uranium exploration companies. The good news is that the valuations of many of those companies are now more rational than they were earlier this year.

The base metal story is more complex... and far more controversial. A few commentators in the United States hold that the debt crisis will trigger a recession in the U.S. With American consumers unable to shop, the world will fall into a deep economic funk, according to those commentators. To them, it follows that base metal prices will plummet and the mining industry will suddenly no longer need to build new mines.

To a person whose feet remain firmly planted on U.S. soil, and whose information sources consist of headlines from select American publications, that scenario may seem credible. To those with a more global perspective and who draw on a wider range of opinion, an entirely different story emerges.
The media is full of talk of recession, but short on any sort of real evidence to back up their gloomy forecasts.

To those who have hard data and are in a position to make objective evaluations, the outlook is for a slowdown in the U. S. economy, but for growth to remain positive. For example, the National Association for Business Economics, a highly regarded group of professional economists, lowered their growth forecast for the U. S. economy for next year. In May, they expected growth next year at a level of 3.1% above the level of the current year. Their revised forecast, released in early September, shows a consensus outlook of 2.8% growth in the U.S. economy for next year.

That 3/10% reduction in the expected rate of growth might have an impact on the share price of Ford or General Motors. A slowdown of that magnitude will have no impact on the rest of the world and will certainly not impact base metal prices.

Economic growth around the world is stronger at this time than it has been at any time in history. The United States remains the single largest economy in the world, but is far less important as a driver of the world economy than it was in years gone by.

China is now the world's largest consumer of metals. A few people cling to the out-of-date notion that the U. S. consumer powers the Chinese economy. Hard figures and/or even a brief first-hand look at China will make it clear that the majority of metals imported into that country remain within the country. Infrastructure is being built throughout the country at a pace that is impossible for people to comprehend without seeing it first-hand.

In addition to the infrastructure development, hundreds of millions of consumers are just beginning the life-long process of accumulating consumer goods. They are also discovering leisure travel. An example of that trend is that the Chinese city of Macau has now replaced Las Vegas as the world's largest gambling center.

A similar growth story holds throughout much of Asia. Growth is also strong in Brazil and other parts of Latin America. European growth remains robust. Oil exporting nations in the Middle East are awash in profits, with some areas competing with China in terms of their pace of economic development.

I want to be absolutely clear with my message on this topic. The debt crisis is a symptom of a very serious structural problem in the United States financial system. The fallout and the subsequent adjustments in the economy will undoubtedly slow economic growth. In fact, it is entirely possible that the pace of growth may be even slower than the recent consensus outlook. Growth in other parts of the world may also slow a little, but overall growth throughout the world will remain positive.

With worldwide economic growth remaining positive, metal consumption will continue to grow. Even as demand for metals continues to grow, production remains nearly flat. Metal mines that have seen their lives extended well beyond their projected limits because of the extraordinarily high metal prices will continue to run out of ore.

Metal prices may not rise beyond the current levels, and that will scare off those investors who see profits in this sector related only to rising metal prices. Investors prepared to look a little more closely will see one of the most extraordinary investment opportunities ever presented to them.

Regardless of the level of economic growth, new mines are urgently needed and the exploration and development companies present exceptional profit opportunities.

Quarterly Review -- January 30, 2007
A summary of the companies we are following and some thoughts on what to expect for metals in the new year.

The following is extracted from the January 2007-1 Issue

Metal prices, overall, remain extremely strong. Much has been made in the media of the copper price, which has settled back to around $2.50 after spending seven months above $3. The current price for copper is still four times higher than the 2001 level, and shows promise of rebounding as stocks of the metal remain extremely tight.

Nickel has received less public attention, even though the price hit $17 a pound, an all-time high. Uranium is at $72. The gold and silver prices appear to be back on an uptrend.

Many of the specialty metals are at astonishing price levels. For example, indium, which is used in electronic applications like flat panel TVs, trades at $0.80 a gram -- on a par with the gold price five years ago. This issue introduces a company with a substantial indium deposit.

Many investors continue to focus on moves in the metal prices, going through emotional swings based on short term gyrations in the commodities markets. I continue to urge readers to take a longer term viewpoint, an approach that I believe to be more profitable and certainly less stressful.

A nickel price at $17 is clearly not sustainable in the long-term, just as copper could not hold above $3 forever. Where ever the metal prices go in the short term, the fundamental message remains unchanged. That is, the real play in commodities is on the companies that are finding and developing the new deposits that are so desperately needed by the mining industry.

To me, the metal that the company is involved in is less important than what the company is doing to add value. New mines are required in every metal and therefore exploration companies that prove up attractive new deposits will be rewarded by investors.

The growing geopolitical tensions in many parts of the world are making deposits in politically favorable areas ever more attractive. As a result, I am moving more toward companies with projects in North America, selected portions of Latin America and other areas deemed to be politically favorable.

I believe that there will be a growing value placed on companies that hold deposits on which a resource has been identified. Surprisingly, there are still companies that have recently acquired projects with historic resources. One such company is profiled here.

This issue is primarily taken up a with a summary table of the companies that we are following. The list is quite extensive, as companies are included that encompass the full range of metals. The list also covers companies from early stage explorers through to producers. Investors should pick companies according to their outlook for commodities and their risk tolerance.

A Tale of Two Markets -- October 18, 2006
There is a growing divergence between the physical metal markets and the paper markets for the metals.

www.resourceopportunities.com

The following is extracted from the September 2006-2 Issue

While tens of billions of dollars flits in and out of the commodity markets at the drop of a rumor, the physical markets continue to operate at a steady pace. The volatility occurs in the paper markets, where traders can drive prices up and down while knowing little about the underlying fundamentals of the markets they trade in.

(The paper market refers to the futures contracts and other derivatives that are based on metals. For example, a metal fabricator may enter into a contract to buy copper in the future at a fixed price. This contract gives him the certainty that he needs to set his product selling prices. A copper producer may wish to have price protection on a portion of its future production, for example to satisfy debt obligations, and therefore become a counterparty to a futures contract. The contracts are traded on exchanges, with the prices rising and falling according to expectations with regard to the markets. The price set in the derivatives markets impacts on the spot, or current, price of the metals.)

Rumors of peace suddenly about to break out in the Middle East and the expectation that the U. S. Government will manipulate the dollar ahead of an election are among the latest ideas driving the moods of speculators. The gold price pendulum was already on a downswing after being pushed too high earlier this year by speculators.

The latest news-of-the-moment has resulted in the gold price being pushed too far to the downside: It seems the pendulum swings created by the speculators never come to rest at an equilibrium point that the physical market is comfortable with. There may be a little further downward momentum, and there will undoubtedly be a period of base building before the pendulum begins its return journey.

A few investors in the small metal companies reacted to the latest move in the gold price with panic. Fortunately, most investors are taking a somewhat longer-term perspective. The depressed prices are not so much a function of selling pressure as they are to an absence of buyers. Most investors have simply stepped aside, waiting for a clearer direction. In that situation, the markets can change quickly. If you can find some bargains now, you'll be glad you did when the market starts to perk up.

Regarding the base metal markets: There are still some commentators who believe that metal prices are high for no other reason than the speculators.

That is an extraordinarily naive notion. In an upcoming issue, I will discuss this in more detail. For now, consider this basic point: Speculators do not normally take physical delivery of base metals. The role of the official warehouses is to store the metal behind the futures contracts. The warehouses are nearly empty, implying that the speculative market must be pretty much in balance and is therefore not a driving force in setting metal prices.

Plain and simply: Metal is being mined, refined and sold to fabricators. Those physical users are bidding fiercely against one another in order to get their hands on enough metal to keep their factories operating.

Demand for metal is overwhelming the ability of the mining industry to deliver, yet the new metal production coming on stream, or set to come on stream in the future, is barely adequate to offset older mines that are being shut down as they are depleted.

The message cannot be any more clear: Use this down time in the markets to load up on exploration and development companies that have advanced-stage metal projects.

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Market Update -- August 4th, 2006
Gold, Silver, Metals and Mining Shares
Metal prices have already rebounded strongly from the recent sharp drops. The question now is: When will share prices follow?

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The following is extracted from the July 2006-1 Issue of Resource Opportunities

When gold, silver and some of the base metal prices plummeted in May, shares of mining and exploration companies followed the commodities down. Those big drops in share prices have created a lot of pain for some investors.

The metal prices have already rebounded sharply, reflecting the enormous fundamental strength in the metal markets. Mining and exploration company shares are still languishing, as many investors enjoy a summer vacation.

The big consideration now is, when will the share prices get back onto an uptrend?

The short answer is that some of the companies have already recovered their recent losses and others are beginning to follow. As in the past three years, autumn should see a steady upturn in junior resource stocks.

Its worth a review of the metal markets to appreciate the extent of the upside potential in these markets.

Gold reached $730 in May, the highest level since its run-up to the all-time high of $850 in 1980. By mid-June, the gold price was under $570 -- a gut wrenching $160 freefall. In almost as dramatic a fashion, gold regained $80, before taking another pause. The events in Lebanon are adding to the growing interest in gold among investors as a secure store of wealth. Yet, investor demand is but one aspect in the story of the gold market.

The silver market, as usual, was even more volatile than gold. Silver climbed from under $9 at the start of this year to $15 by mid-May, before plunging to under $10. Copper dropped from $4 to under $3, and then recovered to as high as $3.70 within weeks.

Perhaps the most surprising story was nickel, which dropped from $10.30 in late May to $8. The nickel price since rebounded to $13 a pound. At the current price of $12, that base metal trades at the equivalent of $.75 an ounce.

Remember the commentators in May who misread the correction in metal prices and argued that it was all over for the metals? Sure enough, the run-up in prices in May was driven by speculators. The present rebound, coming after the speculators were washed out of the market, is part of a long term uptrend that is still at an early stage.

All you have to do is look at the longer-term metal price charts to understand the big picture. Five years ago, copper was $.60 a pound, nickel was $2 a pound, gold was $252 an ounce and silver was $4 an ounce. The stunning gains in metal price reflect fundamental changes in the economic world.

The gold and silver prices will probably continue to ratchet higher over time, in exactly the way they have over the past five years. The gains will be driven by the same factors that have been in place during that period. In the next issue, I will go deeper into the outlook for the gold market.

Nobody expects today's base metal prices to continue rising forever. But, the long-term forecasts that are being used are totally ludicrous. The big brokerage firms, the engineering firms, even the mining companies are showing long term metal prices that start well below the current levels and then drop back to so-called long term averages within about two years.

I keep asking the people who are working with those figures: What are the new mines that will come into production in two years that will bring the prices down?

The answer, from as many knowledgeable mining industry people as I have been able to put the question to its always the same: There are no big new mines that will come into production in that time frame. But, they argue, metal prices have always gone in cycles, and therefore they are imposing the historic cycles on the present situation.

The last cycle ended when economic growth slowed at the same time that several big new mines came into production. At that time, there was not a massive horde of wealth in the hands of oil exporting nations that we have now with $70 oil. China was not a factor. India was not a factor.

While analysts use the so-called long term averages for metal prices, the forecasters insist on using today's energy price, based on $70 oil, for the life of the projects.

Not too many new mines look attractive with costs at the present level and revenues based on historical figures. We will never see those historical prices again. Those historic figures are measured in dollars that had an entirely different value than today or in the future.

In other words, even if demand for metals suddenly evaporated and an abundance of new mines started producing, the equilibrium in the markets would come at metal prices that reflect the fact that the dollar is worth substantially less now than it was a decade ago or two decades ago.

The handful of smaller mines presently under development won't come near to offsetting the older mines that will be shutting down as they run out of ore. The biggest copper mine in the world, Freeport's Grasberg mine in Indonesia, has just seen yet another reduction in forecast production.

Instead of building new mines, the mining industry remains totally obsessed with buying, acquiring, merging, consolidating and otherwise shuffling the ownership of existing production. It takes many years to bring new mines into production and there are nowhere near enough new development projects under construction, or anywhere near construction, to come even close to offsetting depleted mines, much less catch up to rising demand.

The demand side of the metals markets is gaining strength. Copper's recent run to $4 was driven by speculators. After many of those speculators were washed out of the market, the current strength is coming from the fundamental demand for metals.

Many investors remain fearful of a sharp decline in the US economy. Certainly, the US economy has serious problems, including consumer debt, government debt, the on-going government budget deficit and the enormous trade deficit.

That situation is clearly unsustainable. There is no question that there must be a readjustment. I dare say that many investors seem to be missing the point that a process of adjustment has been happening for years... and will continue in a way that results in a gradual realignment of the US economy with the rest of the world.

That process of adjustment is based on the fact that the value of the US dollar continues to erode, having already lost 30 or 40% of its value against other major world currencies. The dollar has lost a substantially greater value when measured against hard assets, such as gold.

Many Americans, who are living comfortably within their own borders, are not even aware of how much of their wealth they have already given away. Those people will have a rude awakening if they ever venture abroad. Many places in the world now have a level of wealth and grandeur that makes American cities look old and tired -- and comparatively cheap.

Nevertheless, the US remains a great country. Brilliant business minds and innovators and entrepreneurs will continue to overcome the best efforts of the government to wreck what remains the most powerful nation in the world.

In spite of years of forecasts by economists and would be economists about the imminent demise of the US economy, the country continues to enjoy strong growth. The economy will likely slow from this level, yet only a handful are predicting a situation as bad as zero economic growth. Those dire predictions, for the most part, are coming from the same commentators who have been making the same predictions for at least as long as the nine years that I have been following the markets as a newsletter writer. (Those predictions of doom and gloom likely go back even further, but in my previous life as an exploration company president, I wasn't following the market commentators.)

In short, even if a disaster case were to unfold, and the US economy were to plunge to zero economic growth, then America would merely consume the same amount of metals as in the previous year.

There are still some people who hold the naïve notion that Asian economic growth is a function of American consumer demand. Nothing could be further from the truth. Consider:

• The Chinese economy is already larger than that of the United Kingdom and is still growing at nearly 10% a year.

• Consumers in China are becoming as frantic in their quest to accumulate consumer goods as Americans. That reality is borne out by statistics. Anybody who has seen China firsthand will tell you that the statistics are most likely understating the reality of the consumer market in China.

• China is only half of the story: India and the other Southeast Asian nations have the same population as China and are moving in the same direction, albeit at a somewhat slower pace.

• Worldwide demand for metals has grown to such an extent that prices have exploded. If Chinese production was simply replacing other production for the benefit of US consumers, we would not be looking at $3.30 for copper and $12 for nickel. Simply put, total consumption has grown very strongly as Chinese and other Asian consumers buy up all the consumer goods that we buy in the West.

• A serious slowdown in the American economy, if it comes, would have an impact on the metals markets, but would not alter the fundamental story that demand will continue to exceed the ability of the mining industry to deliver metal.

There is absolutely no question that demand for metals is strong and will continue to grow. Think about this: the biggest uses of copper are in the wiring for cars and plumbing and wiring in construction. As with most uses for base metals, the value of the metal used is inconsequential in relation to the value of the final product.

My apologies to long-term readers of Resource Opportunities who have heard all of this before, but it is vital to understand that demand for metals is continuing to grow and the mining industry is not doing nearly enough to expand production.

The investment approach that falls out of all this is: Look at the exploration and development companies that are in a position to come up with the new mines that are desperately needed by the mining industry.

Just yesterday, another bid came from a major for a junior company, this one valued at $1.3 billion. (Full details are in the Company Updates section of this issue.) The price offered for that junior works out to 51 times the price at which the company traded when it was introduced to Resource Opportunities readers five years ago.

That kind of success requires some patience. You need to own a few companies with the best prospects of achieving big success, then hold on for a while. Understand that the metal markets will remain strong for some years and that many new mines are required. Stand back from the short-term volatility in the market, other than to go against the trends to get the best pricing.

In summary, earlier this year speculators pushed metal prices too far, too fast. The markets over-corrected, and are now returning to levels supported by fundamentals. When the metals corrected, some equity investors panicked and pulled out of the market.

General nervousness about the equity markets, exacerbated by the situation in Lebanon, is keeping many people out of the stock markets. There is a mind-set among many that the markets will remain quiet until September.

Trading volumes are presently half of the level at the top of the market in May. Activity is dominated by a modest amount of selling into a market with only a few buyers. The shares that are being traded now are being bought by people closest to the industry.

The story in the junior mining sector cannot be any more clear: The long-term fundamentals are stronger than at any time in decades. Equity prices will rebound. Take advantage of the present situation and a load up now, because the rush will start before September.

Price gains in exploration companies in the near term will be driven by results. Several companies have already rebounded to their highs of earlier this year, driven by news from ongoing projects.

Never before has so much money been available to carry out exploration and development work by junior mining companies. And, never before has the exploration market been poised to deliver such enormous payoffs to investors.
Market Update -- June 15th, 2006
The following is the text of a speech delivered at the World Gold, Diamond, and PGM Conference on June 12th, 2006

The gold price is down. The copper price is down. The shares of all the mining and exploration companies are down. People are depressed now. Some people actually think its over for the metals.

People who look at the market that way are missing the greatest investment opportunity that most of us will see in our lifetimes!

Let's take a moment and look a little beyond the short term moves in the metal prices; let's look beyond the superficial analysis.

Let's start by looking at the gold price over the past five years.

Sure, gold is down over the past month. But, it is far more meaningful to recognize that gold is way UP since the end of last year. A year ago, the gold price was $420.

Gold is following the exact same pattern that it has followed for five years -- it is trending higher, with frequent spikes and pullbacks. The froth on the surface of that long term uptrend is becoming more pronounced as gold is starting to become an "in" thing among investors.

Gold is becoming more popular because investors are seeking protection from the long-term decline in the value of the U. S. dollar, as well as currencies in general. Many investors are adding some gold into their portfolios as they recognize the importance of owning hard assets.

Overall, demand for gold is increasing, and that is contributing to a gain in the gold price that goes beyond a reflection of declining currency values. But, that's a story for another day.

There is a whole a generation of traders and speculators who have never been through a commodity cycle. Some of them have no clue what they are doing. They simply jumped onto the momentum in the gold market. They pushed the gold price too far, too fast.

Not surprisingly, the price corrected. I expect it will consolidate further before the next leg up.

That same speculator-driven frenzy also happened in the base metals, followed by a similar correction.

The fundamentals, right across the metals markets, are stronger now than they have ever been.

As with gold, traders and speculators who simply jumped onto the momentum pushed the prices out of balance. The metal prices have now come back to more realistic levels relative to the supply and demand fundamentals.

Fundamentally, nothing has changed in the metal markets over the past couple of months.

Let's ignore the noise in the markets created by the speculators. Let's focus on a copper price, which even after the recent correction, is five times higher than its low in 2001.

It is not just the copper price: zinc, nickel, molybdenum, tungsten, uranium -- all the metals -- are up several times from their lows.

If we step back from the short term moves in the metal prices, and focus on the reasons that all of the metals have had such enormous gains in prices, we get a whole different perspective.

Most importantly, it gives us, as investors, the basis to realize several-fold returns on our investments.

We can make enormous profits in the commodities markets if we invest on the basis of the same long-term fundamentals that have driven the metal prices to these levels.

The metal prices are up so strongly for the simple reason that the mining industry can not deliver enough metal to meet demand.

Therefore, the way to make big profits in metals is to invest in companies that are finding and developing new metal deposits.

It doesn't matter in the least if the metal prices rise further or not -- there is a pressing need for new mines. The companies that find and develop new metal deposits will make a lot of money for investors, regardless of what happens to metal prices.

Let's look for a moment at the demand and supply situation for metals.
China is generally credited with driving demand for commodities. It is not hard for anyone who has been to China to understand that this pace of growth will continue for a long time.

We will discuss China further in the next session on the program.

China is not the only reason that the metal prices have increased so dramatically. India and most of Southeast Asia are also enjoying a rapid pace of economic development. Southeast Asia, which represents 3 billion people, half of the world's population, is going through a process of modernization unlike any that has ever been seen before.

The modernization of Japan drove the commodities markets for 15 years in the 60's and 70's. There are 20 times as many people involved this time around.
There is also a lot of growth outside of Asia. For example, Brazil, and Russia and Eastern Europe are also enjoying strong economic growth.

In addition, high oil prices are transferring a massive amount of wealth to the oil exporting countries. That wealth is being converted to infrastructure and consumer products, which is absorbing huge amounts of metals.

Some commentators are concerned that the U.S. economy might slow down and impact metal markets. I discuss that in some detail in the current issue of my newsletter, which is available at my booth as a sample. In short, it is not a concern.

Overall, there is every indication that the world will continue to grow long enough for all of us to make a lot of money from the metal markets.
With demand expected to continue strong, let's look at the supply side of the metal markets. What has the mining industry been doing to increase metal production?

If you look at the annual reports for the major mining companies, you will see that many of them have greatly expanded their production over the past few years.

But, look at how that apparent increase in production came about:
Xstrata is buying the Tintaya mine from BHP Billiton.

BHP merged with Billiton and then took over Western Mining. Barrick and Goldcorp just bought Placer Dome. Falconbridge absorbed Noranda. Now, there is a bidding war for Falconbridge.

Teck Cominco, which is a merger of Teck and Cominco, has announced a bid for Inco.

And on and on, right through the mining industry.

The acquiring companies show a greater level of production than before the merger. But for the mining industry overall, those paper shuffles do not create one additional ounce of gold reserves nor add one new pound of copper production capacity.

The mining industry has spent the last few years shuffling the ownership of existing mines, instead of adding new capacity. That is why metal prices are high. And, with the long lead time to develop new mines, metal prices will stay high for many years to come.

Just to maintain the present production level, the mining industry needs new mines every year, for every metal. Even more new mines are needed each year if the mining industry is ever going to catch up to growing demand.

For the last several years, new mines have barely kept up with depletion so that metal production has been flat. There has been no progress in catching up to the rising demand for metals.

The big mining companies are aggressively looking for other metal deposits that can be developed into new mines. Many of those new mines will come from the small exploration companies.

It is the same in every industry -- whether, high tech or biotech or any other field -- many of the innovations come from the small companies.

The small companies are especially important in the mining industry. The reason is that, during that period when the metal prices were low, the big mining companies almost completely eliminated spending on exploration.
Many of the geologists who were laid off by the larger companies started working for small companies. These people now own a stake in the small companies and therefore they will make a lot of money if they are successful.

They don't want to go back to the large companies to simply earn a salary.

The larger companies also dropped many of their exploration projects when they cut their spending, and those projects were acquired by the small companies.
At this time, the small companies have some of the best exploration people and some of the best prospects for new mine development.

The larger companies recognize that they need help from the small companies to find and develop new mines. Every big mining company has joint ventures or some other form of partnership with the small companies.

In addition to the partnerships, since last fall, there have been at least six deals where larger companies are buying smaller companies. Those deals are worth $4 billion.

There will be many more takeovers in the coming year as the major mining companies strive to build new mines.

Investors can make big profits in exploration and development companies. You don't need a takeover to make money. The share prices of the successful companies will rise as their projects advance.

Some of those small companies will become producers, and that can generate tremendous value for investors.

Here are some of the companies that I have introduced to my subscribers. These charts show the share price over the past year.

Silvercorp, like many of companies, has come down from its recent peak. It is still nearly 10 times higher than it was a year and a half ago. That company, which has just begun to produce silver, has a value of $600 million.

To put that value in perspective, Western Silver was just bought for $1.2 billion and that company's mine is not yet in production.

It is important to realize that finding a new ore body is a process, not an event. Western Silver's share price increased by 30-times over the last four years, from less than $1 to more than $30.

That company systematically, methodically drilled away on a silver deposit -- a deposit, by the way, that had been explored by a larger company and was cast off as having no value.

Here are a few other examples of companies that have generated big returns for the subscribers of my newsletter. If you go back 5 years, to when I first started to cover NovaGold, the gain is 36 times.

And just to get in a little plug,