Bullish on gold

Resources and mining companies dominating the headlines this past week include ArcelorMittal's surprise withdrawal of its bid for Macarthur Coal, Fortescue's  $US1.5 billionbond issue, AGL's purchase of land in the Hunter Valley and Newcrest Mining's expectation for gold prices to remain strong.

We speak exclusively with Canadian billionaire, CEO and portfolio manager Eric Sprott, about why he is bullish on gold and silver.

ArcelorMittal pulls out of Macarthur takeover
In a surprise move one of Macarthur Coal Limited's (ASX:MCC) joint bidders, ArcelorMittal, has announced it's abandoning the $4.9 billion takeover, leaving Peabody Energy Corporation as the sole buyer. The steelmaker, which has a 40 per cent stake in PEAMCoal, backed out because citing it was no longer appropriate to allocate such a substantial amount of capital to the acquisition of a non-controlling interest. Peabody has taken full control of the bid vehicle, PEAMCoal, gaining control of Macarthur and moving quickly to install its own board and management team. Peabody will set about conducting a full review of Macarthur's expansion projects.

Eastern Star backs Santos takeover amid opposition
Eastern Star Gas Limited (ASX:ESG) shareholders last week voted in favour of Santos Limited's (ASX:STO) proposal to acquire the 80 per cent of Eastern Star Gas that it does not already own. When Santos launched the $924 million bid in July, CEO David Knox said the acquisition would position Santos to meet the expected increase in demand for natural gas.  The vote was taken amid increasing opposition from minority shareholders, relating to the offer price and concerns that recent upgrades have not been sufficiently considered in the bid. The Federal Court is expected to approve the scheme, scheduled on November 2, after Eastern Star will cease to trade on the ASX.

Fortescue raises $US1.5B for expansion
Fortescue Metals Group Limited (ASX:FMG) has raised $US1.5 billion in bonds to fully-fund its iron ore expansion plans. The iron ore miner intends to triple production to 155 million tonnes a year in 2013. Fortescue received $US3.5 billion of offers for the high-yield debt raising and increased the deal from the initial $US 1 billion. Around 200 investors participated in the raising. Meanwhile, Fortescue chief executive Nev Power said there's some short term volatility in global iron ore prices due to steel mills destocking in China. Prices have fallen in recent months, and could take a matter of weeks to months to recover.

AGL eyes Hunter Valley
Energy producer and retailer, AGL Energy Limited (ASX:AGK), has bought land in New South Wales' Hunter Valley and is on the hunt for more to secure potential coal seam gas projects. The Australian Financial Review says in recent years AGL has bought six properties in the wine-growing region and has just settled on two more properties, one fetching a price of $2.85 million. According to the report, the Hunter Valley Protection Alliance is lobbying the state government to ban gas extraction from certain parts of the region. AGL has reportedly said that it hopes to demonstrate to the community that the coal seam gas industry is low-impact, safe, clean and can co-exist alongside farming, wine-making and other agricultural industries.

Newcrest expects gold to stay strong
Newcrest Mining Limited (ASX:NCM) expects gold prices to remain strong in the short to medium term. In an address at the company's AGM, chairman Don Mercer said the current state of global economic uncertainty supported a strong gold price. Over the next year and a half the miner will expand its Cadia East project in Orange, NSW and the Lihir plant in Papua New Guinea. Mr Mercer said Newcrest was in a healthy financial position with low debt and strong profit margins.

Commodities
Finance News Network spoke exclusively with Canadian billionaire, CEO and portfolio manager Eric Sprott about why he is bullish on gold and silver.

With over 35 years' experience in the investment industry Mr Sprott stresses the importance of investing in the physical commodity, rather than the paper market.

"The beauty of physical is you don't have a counter party, you own it ... I think owning the physical is much more important than owning a piece of paper where the counter party may or may not have that physical bullion," explains Mr Sprott.

Going forward, Mr Sprott expects silver to outperform gold, mainly due to supply constraints.

"I would guess the amount of silver one could buy might cost less than $30 billion, but the amount of gold that is around is probably something like $2 trillion. There's not much silver and that's why we can see the price going higher".

Due to the comparative scarcity of silver, Mr Sprott believes, "Silver is likely to be the investment of this decade".

"Historically it [silver] has traded at a 16:1 ratio with gold when they were both currencies ... when I look at the demand for silver these days and all the uses for silver I think it might go back to 16:1. Today it's probably trading at 50:1," Mr Sprott adds.


Melissa Beaumont Lee