The Show of a Lifetime - DOW below 10,000, TSX Down 1175, Asian Markets down 5%/daily, Gold SURGES?

If you have been unfortunate enough to be awake the last few hours, you would have seen the terrible bloodbath that is the markets today.

Seemingly everything is in the red with all the major indexes reaching 5 year lows. (read: since recovery from Dot.com Crash...)

NEW YORK - Wall Street tumbled Monday, joining a selloff around the world as fears grew that the financial crisis will cascade through economies globally despite bailout efforts by the U.S. and other governments. The Dow Jones industrials skidded more than 400 points and fell below 10,000 for the first time in four years, while the credit markets remained under strain.

The markets have come to the sobering realization that the Bush administration's $700 billion rescue plan won't work quickly to unfreeze the credit markets, and that many banks are still having difficulty gaining access to cash. That's caused investors to exit stocks and move money into the relative safety of government debt. 

Over the weekend, governments across Europe rushed to prop up failing banks. The German government and financial industry agreed on a $68 billion bailout for commercial-property lender Hypo Real Estate Holding AG, while France's BNP Paribas agreed to acquire a 75 percent stake in Fortis's Belgium bank after a government rescue failed.

What do you think the smart investors are flocking to?  

That's right, Treasury Bills, GIC's, and hard assets such as Gold, Silver, and commodity producing companies. Treasury Bills are essentially IOU's written by the US Government - and its a great indication of US citizen's sentiments on the market and the economy.... when it drops it typically suggests people rather keep their principle safe than to even receive marginal interest. 

Treasury securities are government bonds issued by the United States Department of the Treasury through theBureau of the Public Debt. They are the debt financing instruments of the U.S. Federal government, and they are often referred to simply as Treasuries or Treasurys. There are four types of marketable treasury securities:Treasury bills, Treasury notes, Treasury bonds, and Treasury Inflation Protected Securities (TIPS). There are several types of non-marketable treasury securities including State and Local Government Series (SLGS), Government Account Series debt issued to government-managed trust funds, and savings bonds. All of the marketable Treasury securities are very liquid and are heavily traded on the secondary market. The non-marketable securities (such as savings bonds) are issued to subscribers and cannot be transferred through market sales.  

Let's take a look at where we sit today. Left shows a table of T-bill Rates, as of Oct/1-3 it's dropped from 0.66% for one-month to 0.15%... suggesting short term volatility has risen dramatically.

Gold is up a nice $25-30, I would think a test of $900/ounce this week is likely. Silver remains a bargain at $11 and can easily test the March 2008 highs of $20+/ounce. 

Here at Mining and Investments 101 we remain very bullish on gold producers such as Kinross, Barrick, Yamana... despite the overall negative sentiments of the market - do the math folks!

Producers have the properties / mines

They made record profits last quarter due to escalating prices

Plenty of cash for producers = buyout opportunities for juniors with known connections to majors

For example let's take a look at Barrick's as of July 2008.

- Barrick reported second quarter net income of $485 million ($0.56 per share) and operating cash flow of $531 million ($0.61 per share) compared to net income of $396 million ($0.46 per share) and operating cash flow of $336 million ($0.39 per share) in the prior year period. Net income rose 22% and operating cash flow increased 58% compared to the prior year period.

- Higher gold prices have significantly outpaced year on year cash cost increases from energy and other inflationary pressures. Revenues expanded 20% from the year ago quarter to $2.0 billion and cash margins have increased 68% to $477 per ounce over the same prior year period.

- Subsequent to quarter end, the Company announced an all cash offer to purchase an oil and gas producer in Western Canada which is expected to provide a long term economic hedge of about one-quarter of Barrick's annual direct oil consumption and is intended to mitigate industry-wide energy cost challenges. Barrick has also agreed to sell certain non-core royalties to Royal Gold Inc., in exchange for $150 million in cash and a reduced royalty structure on the Crossroads deposit contiguous to the Cortez mine in Nevada. (NOTE: 1/3 of costs have been analyzed to be of energy/oil related - Barrick buys own oil producer to cut cost... very smart move)

Volume is rather low considering the rapidness of the decline, I would wager the professionals that can hold against the public tide is still holding onto their primary producers... the quality juniors that have the capital access and solid properties will prevail through this consolidation phase. Small time producers such as Minera Andes will get hit hard (if not harder) due to difficulty of securing equipments / rising costs without the economy of scale for big timers - evident today with drop of Energold (EGD.v) and Minera Andes share prices (MAI.to). Still if the revenue can keep up they should make it out from this trial by fire period with a much lower market cap ready for a huge rebound. 

Our favorite here at Mining 101, TNR Gold Corp (TNR.v) has announced last Friday they have sent in the updated legal amendment (writ) against MIM Argentina (aka. Xstrata mining giant). I have highlighted the key parts for your reference... it's not everyday you have a junior company going up against a mining conglomerate, perhaps that 2 billion pounds of copper at Los Azules is closer than we think eh? 

Do the math - 11.2 billion pounds (likely higher with upgraded resource/drilling) divided by 2 = 5.6 billion pounds x 25% = 1.4 billion pounds.

At today's copper prices of $3/lb that's an easy 4.2 billion$ worth!

Sherwood Copper SWC.to is a leading producer / explorer of copper on the TSX (recent merged with Capstone (CS.to) ... as a comparison they trade at $2.50 to $11. Their upgraded resource meant 400 million tonnes Copper at Kutcho and about 600 Measured and Indicated resource copper at Minto. 

TNR closed at $0.18 on Friday. Do the math. 

TNR GOLD AMENDS LEGAL ACTION TO SEEK RECTIFICATION CONFIRMING 25% BACK-IN RIGHT

On Aug. 8, 2008, TNR Gold Corp. amended its writ of summons in the action commenced on June 30, 2008, in the Supreme Court of British Columbia against MIM Argentina Exploraciones SA, a subsidiary of Xstrata PLC. In the amended action TNR is adding:

"Further, the Exploration and Option Agreement, to the extent that it purports to terminate Solitario's (TNR's Argentina subsidiary) right to buy back equity in mining and exploration tenures acquired by MIM pursuant to the Exploration and Option Agreement if MIM fails to complete a feasibility study on any part of the properties within 36 months of exercising its option does not reflect the true agreement and common intention of the parties and was the result of a mutual mistake of the parties. The true agreement of the parties was reflected in the Letter of Understanding which provided that Solitario's back-in right subsists until 120 days after completion by MIM of a feasibility study on any part of the acquired properties. The plaintiffs therefore seek rectification of the Exploration and Option Agreement to accord with the true intentions of the parties.

"Further, or in the alternative, the 36 month provision in the Exploration and Option Agreement was inserted by MIM without consideration and is unenforceable.

"Further, or in the alternative, Solitario says that MIM is in breach of the Exploration and Option Agreement by entering into an agreement or agreement with a third party to undertake exploration work on the acquired properties without requiring the third party to complete a feasibility study on any of the properties within any time frame."

Los Azules/Escorpio IV update

The following is a summary in chronological order of recent events, news releases and developments from Minera Andes Inc. (MAI) pertinent to the Los Azules property that had not been previously released by TNR.

In Stockwatch on Sept. 25, 2008, MAI announces excellent metallurgical testing results at Los Azules, recovering up to 96 per cent copper. In addition a costing and operational cost scoping study is scheduled for completion in December, 2008.

In Stockwatch on Sept. 8, 2008, MAI announces a mineral resource estimate of 922 million tonnes of 0.55 per cent copper as Los Azules, totalling to approximately 11 billion pounds of copper.

For more information about specific news release details, please refer to MAI's news and investor section directly.