People in the US are angry becuase the bailed-out gang at AIG got a few million dollars in bonuses. At the same time the government has thrown away millions of millions of dollars (trillions, that is), subsidising total incompetence and corruption, without expecting any of that money back.

Now the Obama administration is declaring its intent to buy up all the remaining toxic assets to finally put a stop to the crisis. It's been estimated that this would cost the tax-payers/government another trillion dollars - but this is getting a little old, isn't it? One trillion here, another trillion there, a third trillion, a fourth... and so on. And the message is always the same - we have to bail them out because they're too big to fail, besides, we're the government, we have infinite resources, so why not share it with our buddies at the big banks?

It's no big secret that big banks were among the top of Obama's contributors, besides this is true for most 'major' US-politicians. If the Obama-administration really is serious about buying ALL the toxic assets from the banks, then the dollar really is dead, and the US-government will go bankrupt. The economy of a nation is no different from a personal economy, it's only politicians and a joke of an educational system that makes people think differently (which is true for all western countries).

If you've borrowed so much money that you can't pay the interest, do you keep borrowing more? If you've lent your neighbour a few thousand bucks and then he turns out to be a few million deep in debt from the bank, do you pay his bank-debt in order to get your borrowed money back? If you and your friend are broke, do you take out a loan to have him build you a bridge that you don't need?

You might say I'm presenting a very skewed image here, but if you consider that a personal economy is more short-term and a national economy is more long-term, it actually makes sense. You might argue that a nation can lower interest-rates; yes it can, but only in the short-term! Money wasted, is always money wasted, no matter on what scale. And borrowed money is also always borrowed money, no matter on what scale. The same goes for productivity and consumption. Therefore, if a nation is acting like an insane person, it is going to go broke, probably piss off it's neighbours and eventually end up in the asylum - or the morgue.

A final analogy: If you've made bad decisions in the past, and you stand around chanting "change!" and "hope!" on your front lawn - will your neighbours think "this is change we can beleive in!" or will they call the police?

When I wrote about Dorato Resources I noticed that FNV had a royalty deal with them over a part of their claims; the deal is worth 1-2% of net smelter profit (depending on gold price) and basically for getting this deal FNV has to partake in a lot of equity financings.

The main reason that I choose to write about FNV here is because the company simply represents a great investment if you want to safely invest in gold, PGM's, gas and oil. FNV's whole business-strategy is to acquire royalties on (mainly) gold and PGM-mines (also base-metals to a small degree), as well as gas and oil-wells. Today they have a huge collection of operations and they are constantly picking up royalty money and using a lot of that money to invest in great prospectors like Dorato.

If you are afraid of investing in gold-funds, individual gold-miners and you don't particularly like the idea of having to buy physical gold, then I beleive a company like FNV would be the best choice. Their 2008 results are coming out on March 26 and I think they'll see a ~$40-45M net profit. Their total net assets were valued at $1.57bn in the third quarter (I assume it's gone down a bit by now). The mcap is about $2.5bn today.

On a profit/mcap ratio it's not looking too cheap and the shares have gone up by ~100% since november. The high price may well be related to the large holdings they do have, and the great decisions that management has made in the past when picking out projects to support. As time goes by they'll inevitably see higher and higher amounts of royalty-money coming in and I guess they'll keep investing in great looking companies like Dorato.

I wouldn't personally buy into this company today, but if the SP comes down from 30 today to perhaps 20 then I'd be willing to buy, as this represents a great opportunity to safely collect income from a large number of miners and energy-companies and at the same time get a holding in a lot of very promising projects. If you want to see a list of all their investments they have a very easy-to-use website.

I include this map from Dorato to further show you in just what a great location their concessions are:

Among the junior exploration companies out there, it's hard to find one that looks like it's going to make it through the credit crisis winter alive. Dorato is however one of those few that looks very likely to pull through.

They're part of the Cardero Group which has a great track-record and so far they don't seem to have had a lot of trouble raising money. The company is focused on the highly prospective Cordillera del Condor gold district (located between Ecuador and Peru) on the Peruvian side, and as some may remember, this is the same district where Aurelian Resources made their huge discovery on the Ecuadorian side. Dorato has claims of about 800 square kilometers and has so far made a bunch of very early-stage discoveries. The district has a lot of placer mining, as well.

The concessions of Dorato have seen very little exploration because of previous political problems in the region as well as a now partly removed natural reserve status. The purchases of the concessions require about $9.2M in payments and an issuance of 10.15M shares, which would give Dorato a 100% interest.

Dorato today has an mcap of ~CDN$17M (0.50/share). And by judging from the last financial statement they have perhaps $1-3M cash and basically no debt. There is an ongoing private placement of $5M, which I judge very likely to succeed based on the great prospects of the company.

If one is well acquainted with the work of Aurelian Resources then you already know just how interesting the Cordillera del Condor district really is. The Aurelian discovery was about +15M Oz of an average ~7g/t gold. There are a number of other very good (mostly recent) discoveries on the Ecuadorian side, and as I already mentioned, the Peruvian side has seen very little exploration.

The results that Dorato has produced so far are indeed impressive; if you want the whole story of the geological settings, I suggest you go to their website and read it; I will only present the just recently released (and most interesting) sampling results from the Taricori zone. This zone has shown average grades of 11g/t gold and 131g/t silver (from 168 samples) in vein material. Further results from sampling in the area is incoming. The Taricori zone is located just 1km from the Jerusalem deposit in Ecuador (probably containing over 1.3M Oz gold) which is considered to be just a continuation of the Taricori discoveries - which is based partly on the old small-scale mining but mostly on the magnetic mapping of the area which shows some large anomalies - these anomalies will hopefully be strengthened by the coming sample-results.

Dorato has some extremely promising projects and I would be very suprised if they don't end up finding at least one world class deposit like the one Aurelian Resources found. In comparison with other junior exploration companies, Dorato's CDN$17M mcap does not look too pricey considering the remarkable concessions they've been able to acquire. Although things are looking extremely good, there have been many cases in the past where a junior explorer has had great prospects and failed miserably ... but I would still maintain that this is an extraordinary situation and I think it's reflected in the share-price; no other juniors that I know of come even close to a similar valutation. Investing in junior explorers is the riskiest of risky businesses - but the most rewarding if you nail it.

This press-release covers a lot of exploration results that I haven't.

When comparing gold to other metals that are considered precious, there does seem to be a pretty large discrepancy. Silver would be in a pretty fair relation to gold in terms of its price-'preciousness' ratio (somewhat undervalued), but when you look at the PGMs (platinum group metals) the picture is different.

In 2007 the world produced 78.7M Oz gold compared to only 7.1M Oz palladium, 6.6M Oz platinum and 824,000 Oz rhodium. Price per Oz in same order (approx.): 930 - 200 - 1000 - 1000. Obviously there is a huge price difference here in relation to production, and these are all considered precious metals, which means that they all are very similar - for example they don't oxidize particularly easily.

So why the big differences? All of the PGM's had about 50% of their demand coming from the auto-industry for catalysts (in 2007), and we all know what's been happening there lately. In the summer of 2008, rhodium was priced at ~$10,000, while the price-changes for palladium and platinum were not as dramatic, but still a lot larger than for gold or silver.

It's generally considered to be because of the (previously) growing auto-industry that the prices of PGM's went up so much, for example rhodium was at only $200 in 2001. It wasn't the only reason however, the other thing that made prices rise was the trouble of power-generation in South Africa. Today South Africa has ~70% of world production of PGM's. The electrical power shortage in the country is a long term problem, because the country has a monopoly that opposes private initiatives and then there's also the black empowerment laws that sometimes puts poorly qualified people in charge (which is clearly related to an otherwise large shortage of skilled labor in the country).

Apart from the auto-industry there is a pretty large portion of demand coming from other industrial demand, as well as jewellery (less than 20% on average); the demand for PGM's as investments are, although clearly existing, very small.
If the PGM's really are precious, shouldn't they be just as interesting for crisis-investment as gold or silver? I think that the main reason for the firmer position of gold and silver would be the fact that they've been used as money in the past, and might be so again, and also the much more easy accessibility of gold and silver. And by the looks of it today, much of the PGM-prices are ruled by the assumption that there will be a large shift toward electric cars in the coming years and that the problems in South Africa will not be large enough to work against the fall in demand.

I suppose in the end, if you want to somehow invest in PGM's, it would be on a more ideologically motivated basis - because they are more precious than gold or silver, no doubt about it - but if only a very small portion of humanity actually sees them as truly precious, then they will be ruled by industrial demand. I guess the most important lesson to take home from this comparison of gold-silver/PGM's is that gold could be considered high priced on a preciousness/price ratio, but considered as a potential future currency it would have to be compared to the preciousness of pieces of paper, which would be about infinite to zero. If gold will be used as a currency, then there could be a slight chance that someone would want to use the PGM's as well... which would mean humongous price-appreciation - I wouldn't bet on it, but the prospect would definitely represent one of the largest gains ever - if it were realized.

Very often when I read about the prospects of the US economy, it seems to be from the perspective of a debtor that can't repay his debts, and therefore must fail. Otherwise the perspective is one where the analyst pretends that the debt-situation is not that bad. Well, the debt-levels are bad (just look at these graphs!) and the derivatives market with its huge uncertainties along with constant government bailouts is not exactly making things better. I've heard estimates for total derivatives losses from only a few billion (in the very beginning) up to over hundreds of trillions of dollars. Whatever the total losses will be, we basically have two scenarios of how it will end; either the losses stop coming fairly soon or the government is going to keep bailing out the banks and eventually the bailouts will have become so many that everyone is going to start asking questions and then we'll have a great public indignation which would force the government to declare an end to bailouts and let the banks and the financial system finally crash, or the government will have to somehow quench the uproar. The bailout and stimulus-packages already in place and the potential coming ones are going to be funded by monetization, cause there's no way that the rest of the world will lend those kind of sums of money; this will inevitably devalue the dollar, which brings us to the lenders...
For the last couple of years (decades really) all they've done is to accumulate IOU's like crazy, when the reasonable thing would have been to spend those IOU's in exchange for things from the US. Now they're sitting on these huge mountains of IOU's and they're getting worried because of the bail-outs and the possible devaluation of the IOU's (or: the dollar). What would be the reasonable thing to do here? Would you throw the dollars away, keep sitting on them or would you start giving them back to the debtor in exchange for something useful?
I think the answer is pretty obvious. The countries that have huge holdings of dollars will have to start spending them, and this can only mean that a lot of business is coming to American companies. If you look at the trend, it tells you that more and more dollars are pouring back into American companies. Take GE for example, they're sucking up five billion dollars a year from China today and that number is growing. It's all very simple: If the foreigners don't spend these dollars, they're just getting into more trouble - as will the American people because they will have to default, and/or inflate away parts of the debt.

So, does this all mean that things will be honky dory? Well, one should definitely not disregard the huge importance that the US consumers have for American companies, and to rebuild wealth will take some time. It really depends on how stupid the lenders and the US government are, if the lenders start spending dollars then the rebuilding of wealth (or destruction of debt) will go a lot faster and things may well stabilize (stop going down) within two years - this assuming that the derivatives market will have stopped imploding (!) - and that really is the huge wild card here, in fact the very thing that will determine the future of the global economy. Again, if you look at the trend, the derivatives losses are not slowing down and nobody knows where it will end. But when these losses stop coming or when the government stops paying for this garbage, then I beleive it will be a good time to invest in America. But beware, not until the black hole of derivatives has gone away completely is it safe to really invest in anything related - and by related I mean economies with financial sectors exposed to these instruments. Even a company like GE, mentioned just above, has taken credit losses although they may see great growth in places like China. So, until the green light comes up... let's focus on precious metals, perhaps energy and perhaps some more independent economies.

From the viewpoint just expressed I think it looks reasonable that things may well not go so bad as some have predicted; government can really only put the people in so much debt. I doubt that we really will see more than, at the most, another five trillion of bailout or stimulus money (which in itself is obviously a humongous lot of money). But then the US government has to cut down on a lot of other spending as well, which may prove difficult - but they would not be the first country in history to have run up a huge public debt, and others in that position have prevailed. Big problems are on the horizon and the government of the US really has to do things right in order for this crisis to be resolved (globally, as well) - so far they haven't. Hopefully even they may start to see that the bailouts are not sustainable and that the spending has got to be cut. I may seem naive to say that politicians like the Obama-gang might actually learn something, but stranger things have happened, and we should all hope that they do learn... unless you happen to really like things post-apocalyptic?

China's worried...