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Give it up for the Peru analyst dudes

Well, good news for you all you overworked investors out there. You can stop worrying about keeping up to date with analysts' views on the Peruvian economy, cos after several months of suspiciously bad forecasts, we can now confirm that THESE FOOLS DON'T KNOW JACK ABOUT PERU.

All week we were fed the line that the Peru central bank wouldn't raise interest rates cos "they have it under control" and "they have other ways of reigning in inflation" and all sorts of fruitfly analysis, so thanks to the good coverage at bloomberg this week ( out Reuters, bloomie's getting sharper on the country) we can see how it played out:

April 10 (Bloomberg)
".......The bank's board today will leave the reference rate at 5.25 percent, the highest since 2001, according to 10 of 12 analysts surveyed by Bloomberg. Two analysts expect the rate to increase by a quarter-point for a second time this year......"

Looking good, and the Peruvian Nuevo Sol (PEN) had just got stronger and stronger those last few days.

Then suddenly:

April 10 (Bloomberg)
".....Peru's central bank unexpectedly raised its benchmark lending rate to 5.50 percent in a bid to control the steepest inflation since 1999...."

Which knocked the PEN back at bit. But then the real fun started and the PEN made the move you can see at the end of that chart, cos Velarde and his suits at the Peru central came out with a real doozy, tripling retentions on foreign capital inflow. He raised the reserve requirement on foreign accounts from 40% to 120%. Strangely enough, not a single interviewed analyst saw that one coming...........

A quick explanation: Y'see, before a foreigner could send U$100 over and put it all in PEN or Peru bonds or time deposit accounts or whatever she or he fancied. They'd make interest on the deposit, then also make money on when he changed his cash back to dollars cos the Sol was rising fast (check that currency chart again). But then in Feb 2008 central the bank slapped a 40% reserve requirement on non-Peruvians, meaning that if you wanted to invest U$100 in soles, you'd have to send U$140 over and the U$40 would just sit there in dollars doing nothing. And now, that requirement is U$120 sitting there doing nothing if you want to invest U$100 in the Peru system.

Bye bye hot money, hello sexyworld of capital controls.

But those know-nothing analysts earning their salaries for getting calls 100% wrong can take solace in the fact that the gov't doesn't really have a clue what it's doing, either. In a classic "left leg doesn't know what the right leg is doing", finance minister Luis Carranza's view on capital controls;

" a world with capital mobility and development of financial systems, it is not prudent to place any type of control on (short term) capital flows...”

is turning out to be somewhat different to that of the men-in-suits at Peru's central bank

April 11 (Bloomberg)
".....It's important that we gradually limit capital inflows,'' central bank General Manager Renzo Rossini said in a conference call from Lima today....."

We gonna get a fight? Will young pretender Carranza be able to recover from this uppercut to his economic policy from the bankers? Only time will tell, but it's going to be fun finding out what the Ministry of the Economy thinks about the latest central bank move. So far it's been "no comment"....strange that, innit?

sneakydeaky quiztime (V)

click to enlarge (worth the trouble)

Just when you thought it was safe to go back in the water......



So for any newbies joining us this week, let's do a quick recap of the rules:

a) read the ten (YES TEN!) questions
b) pop your answers down in an e-mail and send them over
c) once i stop laughing, your answered are marked
d) answers are published Wednesday morning and winner declared.

And of course, you wanna know what prize is on offer this week. Well, thanks to last week's winner and her sparkling suggestion, we've arranged A ROMANTIC EVENING FOR TWO WITH RAFAEL "STUDMUFFIN" CORREA*. First you dine with him in a secluded and intimate restaurant** then all being well you get to walk hand in hand down the moonlit beaches of Quito*** with the world's sexiest male head of state****.

The coolest of cool prizes, and waiting for the big winnah. It's a beaut we know, so the questions are a ratchet tougher this week. Bring 'em on!

1) When asked about the difference between the price of milk in March and the official inflation numbers for said product, what was the reason given by Argentina's cabinet chief A. Fernandez?

a) "Milk was freely available at various prices."
b) "The agro strike doesn't count."
c) "Maybe people buy a different kind of milk."
d) "The gov't is not lying. Why do I have to keep repeating that?"

2) Here's a part of Latin America, according to Google Earth. Why is it covered with water?

a) It rained a lot
b) Typical for the time of year
c) Somebody plugged up the river
d) It's always like that round here

3) Which country's government decreed a 10% rise for all workers in private companies this week?

a) Paraguay
b) Dominican Republic
c) Bolivia
d) Uruguay

4) Due to inflationary pressures, both Chile and Peru recently announced direct aid programs for its low-income citizens. How much more has Chile set aside for its program than Peru?

a) Twice as much money
b) Three times as much money
c) Five times as much money
d) Ten times as much money

5) The average Latin American is responsible for what quantity of greenhouse gas per year?

a) 3.8 tonnes
b) 7.5 tonnes
c) 12.3 tonnes
d) 23.4 tonnes

6) What percentage of Honduras' GDP is made up of remittances from abroad?

a) 7%
b) 13%
c) 19%
d) 25%

7) Which stock lost 4.6% after Otto recommended it as a buy this week?

b) ECH
c) PCU

8) Who is still the worst Finance Minister in Latin America?

a) Martin Lousteau
b) Martin Lousteau
c) Martin Lousteau
d) Martin Lousteau

9) Which of these was the best performing stock market index this week (Mon 7th to Fri 11th)?

a) The S&P 500
b) The Argentine Merval
c) The Nasdaq Composite
d) The Brazilian Bovespa

10) Which Latin American president asked their defence minister to resign this week?

a) Klishtina
b) Lula
c) Evo
d) Studmuffin


I know you can do it! Be brave! Write to otto.rock1(AT)gmail(DOT)com with your answers, and snag that big night with Rafa. The answers will be published here on Wednesday 16th April.

Toodle pip!

*not included in prize: air flight, accommodation, price of meal (cos Rafa is broke and you gotta stump the bill, I'm afraid)
**just you, him, and 58 bodyguards (and yes, you gotta feed them from your credit card, too)
***just to prove how serious this prize really is
****Sarkozy? Not even close


small note for e-mail subscribers

After receiving a comment from an e-mail subscriber today, I've enlarged the font size on the mails to 14pt from 12pt. If this is too big (or even still too small) for your taste, please mail me. I've also changed the headline and link colours back to blue. Thanks in advance for any feedback. Otto

understanding the stock market: lesson IV

A Wall St. banker lost everything, even the shoes on his feet.

This made him feel sad.

Until one day, he met a man with no feet.

This made him think.

He said to the man, "Got any shoes you're not using?"

An occasional series. Lesson I, lesson II and lesson III available at these links.

snippets and

  • Have a good weekend. 'Sneakdeaky Quiz V' hits the airwaves tomorrow. Be there or be square.

*Turkey Monetary Fund (the only guys left who want to borrow from them)
**No shit Sherlock

ECH is a real nailed-on short now

ECH is the Chilean ETF that I analysed here recently. It has rallied on the strength in the Chilean Peso, which has done this recently:
Last night Chile's central bank announced it would start buying dollars in order to weaken the Peso and allow breathing room for its hard-pressed non-commodities export sector. The bankers say they will buy around U$8Bn this year, which will add to the U$18Bn already in central bank reserves. The buying starts Monday 14th April.

So with the Peso very likely to fall to at least 475 to the dollar, and quite possibly having 500 as a target, I expect ECH to drop in the next few days. Already today it has come off the recent peak, trading down 2.2% at U$52.88 as I write. Volumes are still quite low, but these are likely to accelerate as the arbitrage begins to show itself.

Bottom line: ECH was a good short opportunity. It is now a GREAT shorting opportunity, especially if one considers that copper cannot break through the U$4/lb barrier and is heading for a short-term correction (maybe to U$3.70 or so?). If copper puts in the short-term adjustment I expect, there will be even more weakening pressure on the Peso.

UPDATE 12:30pm: Well this is rather cool. Gary from just saw this post and sent along his sharp-eyed Technical Analysis view of ECH and possible downside targets. He also said I could peg it up here to show you guys. This is very good of you, dude...thanks. Here's his chart (click to enlarge, as always) with his comments.
He must be feeling all touchy-feely for me after I gave his site a well-deserved shoutout yesterday.

six years on

"Those who cannot remember the past are condemned to repeat it."
George Santayana, Reason in Common Sense, 1905

"History: Gossip, well told."
Elbert Hubbard, The Roycroft Dictionary, 1923 (post.)

The events of 11th April 2002 are still mixed and muddied and used for all kinds of political ends in Venezuela. However it is one of the defining events of 21st century Latin America (so far). There are, of course, a thousand sites better than this one to get a handle on what happened during the failed coup d'etat attempt, and you can get your dose from pro or anti Chávez perspectives... your choice, and I'm not going to link any sites here. However I'll mention two things on the subject:

1) "The Revolution Will Not Be Televised" (that's the youtube link to the full 74 minutes of it) is not just the best documentary made on the affair, it's one of the best documentaries ever made. Period. If you haven't watched it and you think you know your LatAm, think again.

2) Today, the 'No More Chávez' student movements are holding marches in Venezuela (and from what I've heard, there will be gatherings in some US cities too), asking for "justice for the victims of 11th April" and "freedom for the political prisoners" as well as peace, democracy, reconciliation and other good things. Now I may be wrong, and I'm certainly oversimplifying a long story with many twists and turns, but:
  • Chávez, like him or not, was freely and fairly elected by the Venezuelan people.
  • April 11th 2002 a coup was staged against him.
  • 48 hours later, the grassroots reaction of Venezuelan citizens stopped the attempted coup in its tracks and restored Chávez as President.
By cutting the story to its essence, we see that the aggressors were the losers. And yes, they were then thrown in jail for juicy stuff like treason, sedition, insurgency etc. And yes, some of them (not all of them) are still in jail. They went up against a democratically elected president. Errr......jailtime is normal after a stunt like that, no?

Are these the 'victims' of 11th April that the students support? If so, you may as well call their marches today the "justice for the aggressors of 11th April" protests, and be done with it. Somebody ought to take these students to one side and explain to them that protest may (or not) be newsworthy and energetic and they have every right to protest peacefully in a democracy (no doubts there), but if they go about their business like this they'll never make it to any serious level of politicking. Right now they look like hyperactive members of a large university debating society, and if the message they promote has no more depth than slogans, T-shirts and "it's not fair" whining, it's not going to get anywhere.


the age of the computer is dead

you have to think about this one

Seems like the in FARC/laptop/terrorism links case, Venezuela has found an ally in José Miguel Insulza, head of the Organization of American States (OAS).

This is not surprising, because;

1) the charges thrown at Venezuela (may as well say Chávez here, yeah?) by the Colombian and US dudes so far have been full of "FARC dudes say this to Venezuela and FARC dudes want that from Venezuela", and extremely thin (like 0%) on the "Venezuela says this to FARC dudes and Venezuela wants that from FARC dudes."

2) Insulza is nobody's patsy. Nicknamed "El Panzer" in his native Chile (cos he emerges undamaged from any arena), he's known as the best President Chile (has) never had, and owns a roll call of qualifications so long i can't even point at the end of it. This guy doesn't take no caca from anybody, especially not from a US House of Representatives sub-committee run by a guy with a serious serious chip on his shoulder about VZ and HC.

However, it's slightly surprising because this is the same guy that Chávez called a "pendejo" in 2007 when Insulza said that Chávez's move to close down the RCTV telly channel wasn't such a good idea. Pendejo literally means "pubic hair", but in Spanish slang you can translate it as "asshole" just fine.

So it looks like Insulza doesn't hold a grudge against Hugo for that little episode cos he had a real go at the US dudes in their own patch today, defending Venezuela at the same time. Check out what happened at this link, but also make sure you go across to the always fabulously fun-filled for its snarky take on the story, too. That dude always makes me laugh.

Cook the books

Buenos Aires woke this morning to a strong burning stench around the city centre. Officials said it was due a waste disposal plant on the outskirts of the city burning a heap of something or other, combined with "a climate factor" (whatever that means).

But Otto knows better! The source of the burny stenchy smell was, in fact, the INDEC gov't statistics offices, where gov't lackeys and sycophant dudes have been cooking the books all day. The result of their culinary labours was announced a few minutes ago, when INDEC published its March 2008 CPI figures and said that inflation was 1.1% for March.

I mean, where do you start with this? Talking with porteño friends right now, they don't know whether to laugh or cry about it. It's just insulting.
  • Insulting to every single Argentine who has to suffer an inflation rate running at least 20% and probably more like 25% to 28%, according to noted local economists.
  • Insulting to the plethora of private economy watchdog buffets who all had March headline inflation pegged at double this figure at least.
And the reason for all these lies just wants to make you scream. The asshole logic Kirchner & Co. use is less official inflation = less servicing payments on bonds. However, now that the whole financial world trusts these people as far as they can throw them, country risk has shot through the roof in the last 12 months and wiped out that advantage completely. The morons are now stuck in a lie that is costing them money, and not saving them money.

As for the so-called "canasta basica", literally the basic basket of provisions needed for the typical BsAs family to stay above the poverty line, according to INDEC the price of that rose by 1.2% in March. This in the middle of a farmer's strike that blocked off food supplies to the capital and sent local prices soaring. According to reliable independent surveyors EQUIS, the food element of this basic basket (which is about half the total weight):

rose 8% in the first week of March,
rose 7% in the second week of March,
remained unchanged in the third week of March and then
rose another 9.08% in the fourth week of March

These findings tie in with most people's experiences and represent a total 26% rise in the food cost of living in one single month. EQUIS says that the price spike caused by the strike reversed course in the first few days of April, but the rise was fixed at the end of March. INDEC says 1.2% for the same period. And to cap it all, they actually published that fruit & veg prices dropped by 10.4% in the Month. DROPPED! Laugh or cry.... laugh or cry.....laugh or cry?

Laugh or cry? I cry. It's so frustrating to see a country so rich in natural resources mismanaged by such fools. JUST LET THE CURRENCY FLOAT!!! IT'S NOT DIFFICULT!!! IT'S ECONOMICS 101, DIMWITS!!!!

Rant over. I thank you for your patience.

SHOCKER: Chile rocks Otto's world and forces him to be nice about its gov't

Y'know, it's easy to knock Chile. The arrogant attitude. The poor quality futbol. The second biggest gap between rich and poor sectors in all of Latin America*. The way its nationalized industries ignore the gov't and force its own people into strike action.

And also the inflation. Right now Chile's inflation is doing this.....

...and with it, Chilean pride in its economy is taking a serious dent. Whaddya mean, "It doesn't look that bad, Otto"? Not impressed with the chart? Look more closely, saltamontes. This is an indexed CPI chart, not headline inflation. It starts at 100 for December 1998 (coming up for ten years ago), and look how long it's taken to rise in 5 point ratchets.

100 to 105 = 1 year, 8 months (to August 2000)
105 to 110 = 1 year 2 months (to October 2001)
110 to 115 = 1 year 5 months (to March 2003)
115 to 120 = 2 years 5 months (to August 2005)
120 to 125 = 1 year 8 months (to April 2007)
125 to 130 =......4 months!..... (to August 2007)
130 to 135 = .....7 months!..... (to March 2008)

Are we seeing a teensy-weesy bit of price acceleration here?

But it's not just pride at stake, because the poorer strata of Chilean society has been suffering under this burden for at least a year. So yesterday the Chilean gov't of Michelle Bachelet did something very strange. It admitted it was a problem, and it pledged to hand out the equivalent of U$45.50 as a one-time bonus to 1.4 million families. That's pretty cool it's gotta be said, and the money comes from interest it has made on the revenues from copper mining. This comes on top of a new government credit scheme for low income families which will help people out as well. So credit where credit is due. Good call Chile......nice to see you're helping your own people.

It's certainly a darned site better than the grand plan to help out the poor in Peru at the moment, which was fanfared as a basket of foodstuffs to help low income families, but has pathetically morphed into giving 6,500 families around Lima a handout, and to add to the stigma the gov't hands out the rations at 2 o'clock in the morning, rapping on doors in the middle of the night with a cheery, "Hey! Lady! Open the door!" The result? People who might have benefited were too scared to open their doors, thinking thieves had come knocking.

Observers are calling the operation "improvised". If it were me, I'd use slightly stronger adjectives. And they wonder why Alan's approval rating is so low.......jeesh

*The biggest is in Paraguay, and Paraguay's Paraguay. Go see for yourself.

Gary's Cow

sorry to be so obvious
will try harder next time

Main man Tanashian over at runs this highly cool bespoke technical analysis service. He also offers up a free sample of his wares every week, known as the Chart Of the Week.....the COW........ geddit?*

Here's this week's offering just posted, so have a looksee for yourself dude. He's good at this charting lark, y'know. He just whipped a load of tushes in a stockpicking competition to prove it (just a showoff if you ask me). Anyway, this post is a brief plug for his site. And no, I get nothing back off this...pure public service this one, and I only mess with the best.

* oh never mind.

The population of provincial Peru is a caring bunch.....

Alan in Puno Tuesday: the little waif on seeing that their President, Alan Garcia (above), has been looking a tad undernourished recently they decided to present him with large quantities of fruit, eggs and vegetables during his visit to the Puno region of southern Peru on Tuesday.

Unfortunately, Alan's 30 vehicle motorcade decided not to stop and talk with any of his loyal subjects bearing gifts (and there were many different welcoming committees all anxious to see his face). Why he didn't stop is a mystery, as Alandude is so in touch with his southern brethren that a full 16% of residents approve of his work so far.

So the Puno welcoming committee was forced to gently lob the fruit and vegetables in his direction. Even more unfortunately, some of the residents mistook some stones for the tomatoes, eggs and such they had lovingly gathered together as gifts for His Alan-ness. The result was a mess made of windscreens and side windows in the motorcade.

We are, however, happy to report that the local police along with the armed forces managed to gently explain to the locals about their error.

All in all, a fun-packed visit to 'that other Peru' for Alan. On returning to Lima the same day, he celebrated by having a private 40 minute closed door meeting with Banco Santander and the Suez Energy Group at the Presidential Palace, no doubt deciding which way to privatise the nation's energy sector that would best benefit the people of Peru, and definitely not thinking that it might just be a profitable for the banks and energy companies too.

Candente Resources: a good base metals junior

There's a big mining and energy pow-wow going on in Chile this week known as the CRU. One person interviewed at the shindig earlier this week was Joanne Freeze, the Prez and CEO of Candente Resources (, DNT in Lima, on US pinksheets). In the note Ms Freeze mentions that DNT will be updating the resource estimate in May at its Cañariaco flagship project in Peru.

Have a read of the Reuters article linked above for a good idea of what's going on, including important details about the starter-pit project that will make the project profitable in the early stages of operation. Also check out the company website, with all the fun facts & figures you can handle. That's because this post is less on the bones of the company (you can look at all that yourself as part of your own DD*) and more on why DNT stacks up as a great takeover play right now.

Cañariaco is a copper project, 10,000 feet up in the Peruvian Andes, which is a darned good place for miners to be right now all political things considered. The management is a top class team, so no worries there. The project already has a very big copper resource. Up to now the company has defined 820MT of measured indicated and inferred orebody at 0.45% copper content. A quick calculation shows that we're looking at around 8.1Bn lbs of copper under those numbers. It's no secret that DNT want to sell the project on to a bigger producing miner. And the good news is that recently, Peru has been a hot place for greenfield mine purchases. In 2007 the following happened, all in Peru, and all multi-billion LB copper projects:
  • April 2007: Anglo bought the Michiquillay project from the Peru gov't
  • June 2007: Chinalco bought Peru Copper (CUP), then-owners of the Toromocho project concession
  • December 2007: China Minmetals/Jiangxi bought Northern Peru Copper (, then-owners of the Galeno project (as well as a couple of other good looking greenfield sites)
But wait, there's more. There are other projects going on up and down the country, and here's just a few.
  • PCU are ramping up a new bigbigbig mine called Tia Maria, and are also beginning to drill at another promising spot held by another company.
  • Cerro Verde (we mentioned them this week) has just finished a $1Bn upgrade that has doubled production.
  • In 2004 Xstrata bought the very big-looking Las Bambas project from the Peru gov't and will be working on its feasibility study next year,and look to produce in 2011 or so.
  • Milpo opened its new U$110m Cerro Lindo mine June 2007 and has earmarked U$67m for exploration expenses in 2008. Not bad for a medium sized producer. In fact, Milpo has got so good that Brazil's Votorantim want to take a controlling share of the company, and has just upped its bid yesterday.
Just a few examples of many. There is serious money being invested in large copper plays in Peru, and big projects are being snapped up by companies looking to secure supply for homelands (China) or increase production going forward (usual suspects).

Now this is where it gets interesting
Fully diluted**, DNT has 81.5 million shares. Right now the share price is C$1.54. If we assume that the company's test runs on recoveries can be matched on the production scale (between 81% and 89% recovery from flotation method), this means that each Lb of copper it has under the ground is being priced at 1.8c by the market. Doing an in-situ calculation is a good ballpark way of understanding what a project is worth, and the recent done deals suggest DNT is cheap at the moment. Those deals (Michiquillay, Toromocho, Galeno) have been done with a pounds-in-the-ground valuations of between 2.3c and 4.6c (ex byproducts). If we take 3c as our roundabout target figure for Candente, that would price the takeover target price at C$2.55 a share...a nice upside.

But now this is where it gets really interesting.
Remember back at the top of the page, where Ms Freeze said there would be a new resource estimate in May? Well, the current 8.1Bn lbs resource is calculated on the first 82 drill cores from the site done by April 2007. Since then Candente has drilled a further 121 holes (they've been busy people) and the resource estimate in May is expected by most analysts to blow the present estimates away.

Here's a little chart (click to enlarge) that puts it into focus. What we can see here is what the company would be worth per share at 2.5c, 3c or 3.5c/lb copper, depending on how much copper they declare as resource at the project (also assuming the fully diluted share count stays at 81.5m).

My best guess right now is that DNT is going to come in with around 10Bn Lbs copper resource under the revised calculation, but that just a guess. It could be less, but really I'm tipping my hat at 10Bn lbs Cu because I'd rather stay on the conservative side right now. It's no market secret that DNT has not explored the whole of Cañariaco, and the poundage could go to 14Bn or more once the whole thing has been surveyed. That's big copper, dude.

But based on 10Bn lbs copper in situ, if we say that 85% is recoverable that puts our pounds in the ground at 1.47c. If Candente sells out at 3c (my happy medium forecast), that's a C$3.13 target, and that's where I'm setting my bar. I know it's conservative to base the in-situ price on recoverable copper and not contained copper, and I know that was the last deal struck and it was a sexy 4.6c/lb Cu ex-credits, but keeping things low-key also means nicer surprises later.

Bottom line: DNT is a big copper greenfield in Peru, with a management team that have a sale to the highest bidder as its principal objective. This is just the kind of mix that worked in 2007 (even December 2007, when there was no hiding from the subprime slime) and as Votorantim shows, there's plenty of interest in Peru mining 2008 vintage as well. There are plenty of worse places than DNT to put some speculative money.

Disclosure: I don't own personally, but I recommend to clients.

* ALWAYS do your own DD before investing in anything. Remember you got to read this note for free. Think about that.
* *With junior miners, better to run with the FD#


Here we go again, stuck in one country. Ecuador's turn, though.

Last week it was all about Peru, this week it's looking like Ecuador's turn. So as The Ramones so rightly said, "Hey! Ho! Let's Go". This post isn't about boring stuff like money, though. This one is about the cool world of Ecuador politics, which makes the US scene look like paint drying.

Today Ecuador's Defence Minister, Wellington Sandoval, resigned his post suddenly. Well, when i say "resigned", it was probably a case of Eric's Studmuffin phoning him and saying, "Errrr, you are going to immediately resign, aren't you?" He's being replaced by Javier Ponce Cevallos, who was up to now Correa's private secretary and one of his trusted inner circle. Read this Reuters report for some good insight (looks like Reuters scooped the world again...good job guys), and note how Ecuador's military is a significant political force in the country.

So why the sudden 'resignation'? Well on his regular Saturday radio show to the nation, Correa accused the CIA of having infiltrated his intelligence network. So he must have then put two and two together and heads thus roll. This will cause a ruckus on the US - Ecuador relationship front once again, that's a certainty, and I note that Aurelian is selling off strongly this morning (presumably on this news, but I don't really know. Corriente (ETQ) ( isn't affected so far, though). The bonds market is the best place to be, though. No doubts about that one, but if you do, be nimble.

The most interesting comments so far has come from the ex-commander of Ecuador's naval forces, Homero Arellano, who was interviewed on Ecuador's "Radio Vision" news channel this morning. I've taken time to translate part of the transcript I found here (subscription site though) cos the insight he gives is worth it. Please note that it might sound a bit florid, but that's just to the English-speaker's ear. In Spanish this is pretty normal stuff. Here we go:

Homero Arellano; "The President has taken a forthright attitude in this issue, which unfortunately reminds us of the times that one thought were overcome. We remember that an ex-agent of the CIA, Philip Agee, years ago published a book, "The CIA, Chapter in Ecuador."

"A dark time, and (buying of intelligence) of that agency we thought was now over. But if the maximum authority of the Public (Armed) Forces* says that military intelligence has been infiltrated, then please, I believe that the Ecuadorian public and even the strongest opponent of the government must think that the President would not say such things just for argument's sake. After all, we are talking about the most powerful intelligence agency on the planet."

(Referring to this infiltration): "The responsibility lies between those who infiltrate and those who allow the infiltration. This has nothing to do with the noble actions that the US embassy has made in areas of co-operation, or the nobility of the North American public."

(Referring to Correa's decision): "(it is about) the bad practices of infiltration to make decisions oriented against the national interest, against decisions made in defence policy."

Referring to the recent Colombian attack on the FARC in Ecuador: "I would never have thought this could occur, that foreign planes would bomb Ecuadorian territory. Operations such as this are not improvised, these operations are prepared with anticipation, that is the truth."

Arellano also mentioned that Correa was always respectful of Ecuador's armed forces, and generally he approved of the action Correa has taken today. This is not a side issue, damas y caballeros, as the military in Ecuador hold serious power and topple gov'ts regularly. Nice to see them putting on a united front with their prez.

So with the English-speaking media about to be let loose on the story, sit back, relax and enjoy the show. Don't worry too much about this one, as it's a bit of a storm in a teacup on an international scale and will blow over soon enough. Maybe you'd consider a play to "aprovechar el panico"**, as El Chavo del 8 used to say.

* President Correa
* *take advantage of the panic

sneakydeaky quiztime (IV): the answers

click to enlarge (worth it)

Ladies and gentlemen, boyz and's the moment of truth (SFX drumroll)


Yesssssssssssssssssssssss, it's the moment the tenterhooked world of ciberespacio gets its relief. Well, actually the seven (YES SEVEN!) players this week and maybe the others who were watching the action from the sidelines. So here we jolly well go.....hang on ter yer hatz!

I asked:
1) Peru was awarded investment grade this week, but which ratings agency gave them the prize?

a) Standard & Poors
b) Fitch
c) Moody's
d) Nielsen

The answer was b), Fitch. That was the easy warmer-upper, as I've posted on it at least 4 times this week and it was plastered everywhere else, too.

I asked
2) This week, Iran offered U$230m to build a new hydroelectric dam in the region. In which country?

a) Honduras
b) Venezuela

c) Bolivia
d) Nicaragua

The answer was d), Nicaragua. Beats me why Iran didn't offer the project to Colombia, but there you go............

I asked
3) This week, scientific tests report that Botox may be a health danger, as if injected in the face the toxins may move to the brain. Which Latin American president is the most at risk from this news?

a) Michelle Bachelet
b) Rafael Correa
c) Cristina Fernandez de Kirchner
d) Manuel Noriega

The answer was c), Cristina Fernandez de Kirchner. Please don't take my word for it, though. Compare how Klishtina looks when fully prepared and when not at her best. (or perhaps this one). YOU BE THE JUDGE!

I asked
4) Which of the following countries had the lowest rate of inflation for the month of March?

a) Chile

b) Peru

c) Brazil

d) Colombia

The answer was c), Brazil. Now I'm being a little bit sneakydeaky on this one cos Brazil has only published its Sao Paolo city inflation so far, but as it's 0.31% it's very unlikely to be above the 0.8% of Chile and Colombia and the impressive (??) 1%+ in Peru. So the answer is Brazil, and it's my tough.

I asked
5) In 2007, Mexico's oil production stood at 2.94Mbbl/d. What is the projected production for the year 2021, according to the Mexican gov't?

a) 2.6Mbbl/d
b) 2.2Mbbl/d
c) 1.8Mbbl/d
d) 1.4Mbbl/d

The answer was c), 1.8Mbbl/d, and that's a lot of down from today's level. The reason is the rapidly drying Cantarel production zone combined with the mañana attitude of the locals. They're now waking up to the problem. Time will tell if they actually do something about this (like invading Venezuela, perhaps?)

I asked
6) Due to the agro strike, to which country did Cristina Kirchner cancel her state visit this week?

a) The UK

b) The USA

c) France
d) Brazil

The answer was a), the UK. And myyyyy ooooooooooooooh myyyyyyy, how was she feeling when she saw Michelle Bachelet shaking hands with Queen Liz 2? Y'see, Klishtina was booked on the same package tour. Mind you, she did find time to zip across to la belle France over the weekend to get kozy with Sarkozy. France has a better class of restaurant and duty-free shop, too. Week saved! Phew!

I asked
7) Colombia revealed that it has paid an informant for revealing the exact location of the now bombed out FARC Ecuador camp. How much was the reward payment?

a) U$1m
b) U$1.8m
c) U$2m
d) U$2.7m

The answer was d), U$2.7m, and that's serious moolah. I can only assume it went to one of the FARC rebels (make that ex-FARC rebels) who should be thinking about a new place to live for security reasons, perhaps. Here's my suggestion.

I asked
8) According to this week's gov't figures, what percentage of GDP is Argentina's foreign debt?

a) 67%
b) 20%
c) 42%
d) 49%

The answer was a), 67%. Crazy innit? This is the country that proudly boasts of having paid off the IMF, but while nobody's looking wants another U$8Bn on the books to keep things ticking over nicely. For spanish speakers, check out the post dated 7th April at this excellent Argentina economics blog that shows what kind of obligations Argentina is facing in the immediate future. No wonder they want to squeeze the soybean farmers for all they can.

I asked
9) According to the latest approval ratings which of these four presidents is most popular with their own citizens?

a) Evo Morales
b) Michelle Bachelet
c) Lula da Silva
d) Alan Garcia

The answer was a), Evo Morales. Most of you went for Lula, but his 55% recent rating was pipped at the post by Evo's very handy 56% result (reliable survey company, too). Michelle has improved a bit recently, but still scores mid 40s. Alan? Oh dear.

I asked
10) According to a report recently published by the Cuban gov't, what is the annual consumer inflation rate in the country?

a) 4%
b) 6.5%
c) 7%
d) 11%

The answer was a), 4%, and although it was quite limited in its scope the Survey of Prices in the Informal Sector was a bit of a landmark disclosure, as it's the first time in ages we've had a stat like this published by Cuba. The Raul revolution continues. Hasta la victoria siempre.


And there you have it. And the winner is the glamorous and wise and witty and generally super-duper IFI FROM GREECE, who scored an extremely impressive 9/10 (and will probably have a go at me about the inflation question too). Ifi, you totally totally rule and you've given me the greatest idea for next week's top prize. She knows and I know...the rest of you stay tuned.

Special mention goes to my brother, who scored a highly respectable 7/10 (esp if you consider how his school leaving exam results totally sucked at the time) rule bro!

So watch out for the next sneakydeaky quiz, coming to a screen near you this Saturday. Enjoy Paraguay, Ifi.

Toodle pip!


Why I believe Aurelian ( is about to be sold

The news from Aurelian ( yesterday was that Keith Barron, co-founder and company Director, was resigning. It didn't take long for the announcement to come that Barron would be taking up and advisory role at Avalanche Minerals (AVH.v) a small exploration-stage junior operating in Ecuador and Colombia (which promptly zoomed 62% on that tidbit of news yesterday).

Some background on Aurelian. As everyone who follows gold stocks knows, the ARU Fruta del Norte discovery is the biggest gold thing since sliced bread, with 13.7m oz gold and impressive grades already on the 43-101 books and probably more to come. It is a truly mouthwatering prospect for even the biggest of the big global gold miners. But Aurelian's "El Condor" concession is more than just one single FDN deposit. In fact it's about 95km long and 30km wide at its widest point, and holds 39 separate targets that ARU thinks worthy of further exploration.

Which brings me to Barron. He's a real life, died-in-the-wool geologist. A pure rockman. I mean, he sits on various boards as the geology man, 29 years of geology under his belt in countries far and wide, award-winning, respected by his peers and deep enough love for his chosen line to have run a website called "straight talk about mining" for a number of years to share knowledge with others freely. If you've spent time around the breed, you'll know that business affairs bore geologists silly and all the true fanatic geo wants to do is go out poking around rocks with hammers and magnifying glasses to see what they can find. Barron in the Aurelian press release of yesterday said (and I quote);

"....Now we are at a juncture where the mining engineers, geo-statisticians, hydrologists, and an army of technicians take over to transform the Fruta del Norte deposit into a producing world-class gold-silver mine and make Ecuadorian history. It is normal in the course of evolution of a successful junior company for exploration to eventually yield the torch to development; most juniors never get the chance and I feel privileged and blessed. I will be most keenly following the progress of Aurelian and wish to thank the staff in Canada and Ecuador, my fellow directors, the analysts who have followed our progress, and most of all the shareholders who have supported the company and shared in its success...."

But what about the rest of El Condor, Keith? If, as you rightly say, the FDN property is now moving to its next chapter, surely there's enough of interest around the dozens of other target sites to keep you occupied? Doesn't any one of the other thirty-odd targets interest you? You can surely leave FDN to COO George Bee and the top class team ARU has assembled to do the development, but there is plenty more for you to do on a 95km by 30km patch of world class 'elephant-hunting' terrain that you already control.......isn't there?

Barron's resignation also comes at a time when Ecuador's national assembly is about to deliver its draft constitution, due May. It also come at a time when Ecuador's President Correa* has been making more and more pro-mining noises, calling anti-mine protesters irresponsible and saying that responsible foreign direct investment (fiscally, socially and environmentally speaking) is welcome in Ecuador. It also comes when assembly spokespersons are making more miner-friendly noises about the new tax regime on mining, allaying fears that the dreaded windfall tax will nip mining development in the bud (as mentioned yesterday).

Take these three points together.

1) Barron's resignation, basically saying there's "nothing left for a pure geologist like me to do" when there are plenty of other undeveloped target sites worthy of exploration at El Condor.

2) Barron's new job as consultant at the young and developing Avalanche, showing he's still into grassroots geology despite having made his fortune at ARU.

3) The new mining law about to be published as part of Ecuador's draft constitution, and things suddenly looking brighter on the political will for mining and the tax burden proposals

In my personal opinion, all this points to one thing. Aurelian has already been made a serious, confidential, conditional offer by a major mining company, the condition being whether the new laws are workable and amenable to large-scale mining. If the laws prove to be workable (and signs are ever more positive at the moment), then ARU will be bought out at the earliest opportunity.

Who would buy them? My best guess would be Newmont (NEM), but that's just a guess. Any of the big gold miners (ABX) (GG) (GFI) etc would be a candidate, and maybe the second rung miners would be interested, too (AUY) (BVN) etc. But whoever buys out Aurelian and its Fruta del Norte project, they will surely have to pay a lot more than today's closing price of C$8.75 a share. Today's share price implies an in-situ value of around U$91/oz gold, and that's not even close to what FDN and ARU will sell for to the highest bidder.

Disclosure: long ARU, and not selling until they make me

WEDNESDAY MORNING UPDATE: After receiving a couple of...errr...interesting mails, i think it's worth saying that yes I'm long ARU, but I don't trade the stock ST, it's a long-term holding and I'm not planning on selling a single share until the company is taken over. Your mails are still welcome though, even if the contents are....errrr...interesting. Have a good one.

* aka Eric's studmuffin

In-house update (happy time)

I'm happy (happeeeeeeeee) to say we had our 50th person signing up for the e-mail sub service today. As the blog turns a mere one month old mañana, I'm really happy (happeeeeeeee) and zippily surprised that so many of you cool dudes and dudettes have signed on.

Just a word on that e-mail service for others; you can access the e-mail subscription service from the box on the top right of the page (yeah...that one up there dude..correcto). It's run by Feedburner, which is a subsidiary of Google. The reason for mentioning this is to say the Google don't farm out your e-mail to third parties ever ever, and neither do I. So if you want to sign on for the daily inbox version of the blog, do so with a light heart. You ain't gonna get spammed afterwards, scout's honour.

There's also the RSS feed system you can use, which will plonk the posts into your feed reader (example Google reader) as they are published. That's cool too and just as secure to use (also run by feedburner).

This whole blog started cos I was finally talked into it by a couple of friends. So far it's been a real gas and I'm enjoying it more than I thought I would, so I'm now committed to making it a regular part of my daily life. Hope you're enjoying it too and can get something useful out of the content. I particularly like getting feedback via mails*, and have had some really cool people writing in unexpected bonus. All mails very welcome.

PS: quiz answers tomorrow


Nailed PCU

To recap:

1) sold a little Friday
2) sold more yesterday at $120+, leaving just the LT core position
3) Reasoning for both sales was that although PCU rocks as a company, copper has reached $4 again and would likely fall, pulling down Southern with it (and the other copper plays, most likely, but I tend to stick with each his own, no?)

The above is documented in previous posts here, of course. So PCU wilted yesterday to finish at $116 or so, and overnight copper did this:
It's now not a case of whether PCU goes lower, but how low it will go. I'll try to short a small chunk at the bell. The general target is $105 buyback, but a lot depends on market conditions going forward. That target is NOT set in stone. Have a good day.

UPDATE: Waited an hour and shorted a smallish chunk at 116.5

UPDATING THE UPDATE: I've covered at a loss. Copper has done what I thought it would so far, but a larger story is making the airwaves now. In Chile, the Codelco non-contracted workers look close to going on strike. I'm trying to find an English version of the story to peg up here, but for now will leave you with a link to my post on this subject from a few days ago.

As for the serious damage. It does me good as a reminder not to get too cute with the market. I'm better at long term positions, and trading isn't my forte (though it is fun, and i like to dabble with a small % of the port).

Here's one story that links to the proposed Codelco strike, but it's from the Guardian and doesn't really explain it well.


Breaking: Otto Saves Ecuador Mining Sector

Yes indeed, dudes and dudettes.

If you remember:
1) Ecuador wanted to slap a 70% windfall tax on metals mining. The only thing left to decide was the reference base price for the metals.
2) Otto said "NOOOOOOOOOO!!! DON'T DO IT!!!", and wrote a special little piece* that was presented to the gov't dudes, explaining why it was such a bogus move.

So after getting to explain to the assembled masses of Ecuador government and mining-ment (?) how crappy a windfall tax would be for the sector and how much of a downer it would be for future investment, the Ecuador National Assembly dudes, currently thrashing out the details of the new constitution that includes how mining will be legislated, have today said they're going to be more flexible on the subject. Here's how Reuters reported it today (and sorry, no link yet as this is off the wire service).


14:25 07Apr2008 RTRS-Ecuador plans flexible mining windfall tax

By Alonso Soto

QUITO, April 7 (Reuters) - Ecuador could be flexible when charging mining companies a new windfall tax that has investors worried over the future of the country's nascent sector, a top government official said on Monday.

Ecuador recently approved a windfall tax to force mining companies to share 70 percent of their revenues above a set base price for the mineral extracted. The tax could hamper the country's mining industry, which remains largely only exploring for metals, experts say.

Deputy Mining Minister Jose Serrano said a planned new mining law could set a flexible base price that would change depending on global market conditions.

"Right now we have a price for the ounce of gold of around $1,000 and in the next three months that price could be $700 or $3,000," Serrano told reporters. "That's when we have to set a price and make periodical revisions to that base price."

The new mining law, which would set stricter environmental controls and royalties on mining firms once they start producing, is expected to be introduced in late May, government officials said.

"A fixed (base price) level was a danger, but the fact that it could be variable to the market is a very positive development... sounds like a breakthrough," said Eric Zaunscherb, a mining analyst with Haywood Securities Inc in Vancouver .

Ecuador lacks significant output of precious metals, but Canadian firms such as Corriente Resources , Aurelian Resources and Iamgold Corp. have found large deposits of gold, copper and silver in southern Ecuador . More than a dozen other junior firms continue to explore for metals.

The stock of many mining companies operating in Ecuador have been volatile recently due that the leftist government's internal debate over mining policy, which could hurt their construction plans.

A popular assembly controlled by the government and rewriting the country's constitution is working on a special decree to revoke concessions held by companies that have not invested on exploration, and limit the size of mining properties.

The assembly's head Alberto Acosta has said mining could have devastating effects on the country's pristine environment, and large projects should be banned in naturally protected areas.

While President Rafael Correa, a leftist former economy minister and ally of Acosta, has said he backs large mining projects if it bring billions of dollars in needed revenue for the poor nation.

(Reporting by Alonso Soto; editing by Marguerita Choy)

((; Tel: 593-22523560 ext 102)) Keywords: ECUADOR MINING/TAX

For Related News, Double Click on one of these codes:


For Relevant Price Information, Double Click on one of these codes:

Monday, 07 April 2008 14:25:31RTRS [nN07211413] {EN}ENDS


So this can only mean one thing: OTTO ROCK HAS SAVED THE MINING SECTOR OF ECUADOR SINGLE-HANDEDLY! Any other logical conclusion is just wild speculation on your part....ok? Got it? Stop imagining things.

UPDATE: There's now this link to the Reuters report in Spanish on the open web. It says the same thing.

*presented under Otto's other secret codename

The Peru stock market (BVL): an overview

By public demand*, here's an overview of the Bolsa de Valores de Lima, known as the BVL around town and the Peru stock market to the wider world. There are three charts to start this post, one showing the companies and weighting of the IGBVL index (the "general", with the 38 most commonly traded companies), one showing the same for the ISBVL index (the "selective", with 15 top companies), and one showing the weighting per sector in the two indices, to give a broader idea of the compositions involved. As always, click to enlarge.

So let's make some comments on sectors and stocks in bullet point style.

1) Miners. The big sector (not a big surprise, I'd imagine). The top weighted stock is local zinc/lead/silver miner Volcan with 11.36% of the general index (and 18.75% of the selective index).

Next up is the interesting Cerro Verde, the big-and-just-got-bigger copper mine near Arequipa that is a JV between Freeport-McMoRan (53.5%), Sumitomo (21%), Buenaventura (BVN) (18.5%) and the openly traded 7% approx that is found in the BVL. Buying Cerro Verde stock is a bit like buying the newest, shiniest and fastest growing bit of FCX's base metals operations. At $28 right now, Cerro Verde offers good value if you believe (as I do) that copper isn't going to drop much further than U$3.50/lb and will move higher in 2009 and onwards.

Then comes a whole bunch of miners and mine service plays that all together make up 55.07% of index weight. This bias gets even worse in the ISBVL index, with a 62.37% weighting to miners. These miners include Buenaventura (BVN) and Southern Copper (PCU) which are well-known to overseas investors but don't take up that much space on the local indices (basically because the heavy market action is in the USA). In the general index, the miners even include Canadian juniors floated in Lima such as Vena Resources (VEM,, US pinksheet and Candente Resources (DNT,, US pinksheet

2) Other larger weightings include the steel sector plays Siderperu and Aceros Arequipa, with a combined 7.49% of the IGBVL and 12.37% of the ISBVL. Also with a relatively high weighting is the Austral Group (3.5% of IGBVL, 5.78% of ISBVL), which makes nearly all its money from Peru's fishery trade. Austral is an interesting stock, as the foods sector is going through a sustained revaluation and Peru's fishing waters are well managed and unlikely to be overfished under the present system.

3) There are five financial stocks that make up 10.64% of the IGBVL index weighting. Of these, we like Credicorp (BAP), which is also available as an ADR on the NYSE. BAP has recently seen a bit of a pump'n'dump move, but should become a strong stock thanks to the recent Fitch "investment grade" country upgrading (that we've talked about already, here are the links to prove it). BAP is also the only financial on the ISBVL list. The current ADR price of U$77 or so might not be the best entry point, as there's a lot of hype going round about the investment grade news. I'd look for something in the low $70's as a place to buy in for the long term hold play, and here's a simple 3 month chart of BAP to show the recent action.
Also worth noting is the dividend paid out annually in April. FY06 paid U$1.10, and FY07 paid U$1.30. Another good reason to hold long term. All in all a very likeable bank stock.

4) Sugar. The other large sector in the index is sugar refiners, with five companies in the General index holding 10.72% (in order of weighting importance, Casagrande, Pomalca, Andahuasi, Cartavio and Tuman). Of these Casagrande and Pomalca make it to the ISBVL, holding 9.93% of the index. The Peru sugar plays have all enjoyed recent upside due to the promise of ethanol becoming a greater part of the production mix. However to date the Peruvian sugar industry has been heavy on the plans and light on the execution, and so caution is advised with these companies. Any solid news can be acted upon, but following the rumourmill here is an easy way to lose money. Pomalca strikes me as the best speculative play at this point, but frankly other non-Peru companies in the same sector appeal more (e.g. Ledesma in Argentina or Cosan in Brazil).

5) Other. Other sectors with minor presence include cement (Cementos Lima, Pacasmayo, 3.39% weighting) oil refinery (via Relapasa, majority owned by Repsol, 2.63% IGBVL weighting), power generation (EDEGEL and EDENOR, 2.86% weighting), foodstuffs (via Alicorp, 1.32% weighting) and drinks bottlers JR Lindley, with 2.36% of the IGBVL. Amongst other lines, Lindley handles all the Coca-Cola group soft drinks in Peru.

If you believe the rating agencies, the all-knowing analysts and the Peru gov't, Peru isn't just a land of mining these days. They'll tell you all about the spread of the industrial base, the growth in construction overtaking that of mining, the agro sector (eg asparagus and grapes export), and that 66% of GDP comes from the service sector. However, anyone buying into an index-wide Peru stock fund would have a bit of a shock if metals prices suddenly dropped, no matter how many bags of cement they keep selling in Lima. The BVL is four basic things; mining, mining, mining and then not-mining. No matter what yarn the Peru dudes give you, anyone buying the BVL indices has to be crystal clear on that. Just check the five year chart and how it compares to the GFMS base metals index....see any similarity?

Or if you like, remember that the BVL itself describes the ISBVL index (62% miners) as "the 15 shares that best represent the Lima stock exchange (translated)". The bottom line here is that you either want mining exposure or you want Peru general economy exposure. If you want mining exposure just buy the index blindly, but those looking for exposure to the wider Peruvian economy should either make selective purchases of individual stocks or buy bonds (or perhaps both).

Finally, here's the link to the BVL website, but be warned now that the site absolutely SUCKS. There are no historical charts available, navigation is difficult and there are about 1000 side roads you'll come across that are normally useless. And believe it or not, the site was 'upgraded' a few short months ago. It's worse than the Mexico stock market site, and that really is saying something.**

So that's it for this little overview of the Peru stock exchange. As mentioned in the first of the series on the Argentine Merval index, this type of post really does skim the surface and there's a mountain more to say about the subject. Any questions, feel free to fire away.***

* one person...hey, we aim to please, dude....
** On the other hand, Argentina and Colombia both have good sites
***otto.rock1 (AT) gmail (DOT) com