Randomly Noted

There’s an interesting story playing out near the southern tip of Argentina that people who play the gold market should watch closely.

Andean Resources, a mining exploration company whose principal assets are gold and silver deposits in the Santa Cruz region of Argentina, had two gold companies offer to buy the company – Goldcorp, which made a $C3.6 billion bid, and Eldorado Gold, which offered $C3.4 billion. Andean accepted the higher offer but the market thinks another one could be coming.

The accepted offer translates into about $3.4 million. The value of the gold and silver reserves is about $3.6 billion. Now we all know there is a cost involved in extracting the gold from the ground, thus a bid should be at a discount. But this one seems very close to the reserves value. Which could mean a couple of things – Goldcorp and Eldorado are making a statement about gold and silver prices and that statement is they think prices will go higher. It could speak to the rarity of such desposits being available for sale. Or it could mean Goldcorp thniks there’s more gold in them hills. Likely a combination of the three.

And that could mean the bidding for Andean has only just begun.

A mutiny in Australian politics is not unheard of, but certainly this one has caught many people by surprise.
Kevin Rudd was increasingly unpopular as prime minister in voter opinion polls for a number of reasons—his rollback of a pledge on a carbon emissions scheme and a plan to levy a new tax on profits in the mining sector–but to remove him so close to an election, with one expected within a matter of months, is a high-stakes gamble.

The anecdotal feedback among voters so far is that the manner in which the centre-left Labor party leadership has ousted Rudd, and installed Julia Gillard as the country’s first female prime minister, was all a bit unpleasant.

The move came swiftly, and most probably in response to internal party polling that would have shown Rudd–who came to power on a wave of optimism and popularity in late 2007–would struggle to win a federal election against his Liberal party counterpart, Tony Abbott. The government was in danger of becoming the first since before World War II not to secure a second term.

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BP PLC has reached the point in the Gulf oil spill crisis in which its responsibility for the environmental disaster permits outsiders to feel entitled to comment on every aspect of the oil giant’s business.

So a public debate ensues about whether BP should continue to pay a dividend to investors when the oil is still leaking and the eventual level of BP’s liability and costs can’t yet be known.

And, as cited in an article by Suzanne Vranica in today’s Wall Street Journal, a debate ensues about whether the company should have spent a reported $50 million for image-improvement advertising on television.

On that latter point, whether you think the spending ethically justified or not, it certainly is premature.

Despite the image experts Vranica lists as being hired by BP, the final line of the article to me is the most telling.

“Until the leak is stopped, no amount of advertising or PR will help,” said Chris Gidez, U.S. director of crisis communications at Hill & Knowlton NY, as quoted by the Journal.

For BP that stop has to happen before any image repair work can be successfully undertaken.

Nothing can compete with the images of the continually spewing oil from the ocean floor and the oil-drenched birds.

China has posted reassuringly-solid gross domestic product figures for the first quarter, but the more interesting read comes from inflation.

GDP grew 11.9% on the year, a little higher than economists had expected but largely in line with the view the country’s impressive recovery has legs.

Indeed, the focus of late has turned more to potential bubbles and associated risks as growth picks up. That’s where Thursday’s inflation data for March come in.

The consumer price index rose 2.4%, slower than February’s 2.7% rise and below market expectations for a 2.6% increase. 

To some extent that’s a bit of a blip, and prices should remain pressured up by higher food and fuel costs. Authorities continue to warn about the need to be on guard against imported inflation pressures from rising commodity prices.

But the data may also give Beijing a bit more space to stick to targeted steps to curb liquidity and limit bubbles in sectors like real estate (which admittedly is a worry, with urban property prices growing at the fastest pace in close to five years in March and the State Council saying Thursday it will “resolutely curb” excessive property price rises), rather than doing something more broad and aggressive like raise interest rates.

Rates are a pretty blunt tool for a country needing to pull on the reins in some areas, while continuing to give other sectors a helping hand.

Indeed, Li Xiaochao, spokesman for the National Bureau of Statistics, said Thursday the CPI is basically stable. Economic growth that hasn’t yet ignited a major inflation fire is a good outcome for the first quarter.

It could be the People’s Bank of China can hold off on monetary tightening until the second half of the year.

The key question is how pre-emptive authorities want to be.

Hike rates in the next few months to keep inflation at bay, and it could slow the economy more than Beijing wants. Leave rates alone until late this year, in order to support the recovery, and inflation could become a real problem.

The solution probably lies somewhere in the middle.

The number of automobiles on the planet will double by 2050 to two billion and 40% of those cars at mid-century will be electric cars.

So said Peter Voser, the chief executive of Royal Dutch Shell, at the Wall Street Journal’s ECO:nomics conference in Santa Barbara, Calif.

Along the way there will be room for all sorts of alternatives, he said.

As we contemplate China’s continued economic ascent this New Year, let’s not forget what it means to do business in China. In July, four Rio Tinto employees were detained. The three Chinese citizens and one Australian, Stern Hu, remain in prison on vague charges of bribery and theft of commercial secrets. Life goes on for their colleagues; Rio Tinto and other international miners have begun a fresh round of iron ore price negotiations with China Inc. – while the four languish. One trusts Rio and the Australian government are still doing what they can, behind the scenes, to secure for the detainees a modicum of legal and procedural transparency – if not their complete release. The lesson of the Rio Tinto four is simple: If you do business in China and vex someone in power, your employees may be in jeopardy. It’s not unlike Russia, except, as I’ve blogged in the past, China is essential to many Western companies’ growth plans whereas the Economy of Putin can be avoided. As the 2010 iron ore talks heat up in coming weeks, we’ll keep an eye on how China comports itself and how the four Rio Tinto detainees – victims of last year’s aborted round – fare.

When most of your business is sitting under the ground we walk on, and it fluctuates in value literally every minute of the day, you try to find create ways to minimize those potential price swings. And sometimes if you think the value is headed lower, you try to lock in what you believe might be a higher price.

Thus the $5.6 billion little headache Barrick Gold revealed late yesterday when it said it planned sell stock and use the proceeds to effectively cancel out some hedges that, well, didn’t exactly hedge the way they thought they would.

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Paul Vigna and Madeleine Lim discuss General Motor’s and its rethinking of what to do with Opel and they take a look at Barrick’s Golds costly hedging program.

Paul Vigna and Madeleine Lim discuss trading in the dollar and gold on Tuesday and look a little more deeply at Kraft’s unsolicited bid for Cadbury.

What do Disney’s bid for Marvel Entertainment and Baker Hughes’ bid for BJ Services have in common? Disney-Marvel is all about cartoon content; Baker Hughes-BJ is about oil services. Two very different worlds, the one fun, the other gritty – although Marvel will introduce grit to Disney’s Magic Kingdom. More on this below. There are some parallels in the two deals. In each case, a bigger company is filling a glaring gap, and is doing so at a crucial inflection point in the economy: assets in theory remain fairly cheap but possibly not for much longer as consumer confidence improves, manufacturing output increases and the price of oil gets support. First, let’s tackle Baker Hughes’s $5.5 billion acquisition of BJ Services. The cost savings should be fairly easy to pull off, assuming the merger is managed well: Baker Hughes estimates cutting overlapping corporate overhead costs will help achieve $75 million in savings in the first year, with more savings thereafter as other parts of the combined company come together. The goal is to create a more comprehensive one-stop provider of services to oil companies, especially those tackling major projects in far-flung locales where dealing with a single service provider is far easier than juggling several. Baker Hughes-BJ creates a formidable competitor to the likes of Halliburton and Schlumberger, as DJN colleague Angel Gonzalez notes. In the $4 billion Disney-Marvel pact, we have the owner of cuddly cartoon characters adding a world-class stash of edgy cartoon heroes.  So, Disney aims to become a one-stop cartoon shop for the tender 3-year-old and tough pre-teen, male and female alike. (Disney tends to skew female at present.) There are differences in price. Disney is forced to pay a fat premium for Marvel because the latter has so brilliantly preserved its characters’ edge and freshness. At first blush Baker Hughes/BJ seems priced more reasonably – a reflection of the economy’s remaining vulnerability: manufacturing is improving but very slowly, so prices of commodities such as crude oil are still on the soft side. That said, the market thinks Baker Hughes may be overpaying and its shares are down today. Disney shares are down a bit, too, as people worry about its credit rating, among other things. Certainly, Baker Hughes and BJ are two peas in a pod compared with Disney and Marvel – two very different media firms. As my DJ Market Talk colleague Max Murphy points out, Disney’s traditional constituents may be in for a shock once Marvel is absorbed into Walt’s culture: In Marvel’s universe, they write, “people die, sometimes use drugs and occasionally reveal themselves as homosexual, among other scenarios meant to create a gritty true-to-life world for its heroes and villains to inhabit. Will topics like genocide and racism prove taboo for the Mouse House, and will DIS sanitize comicdom to the horror of legions of devoted readers?” I would guess Disney’s bosses are too smart to harm Marvel. Disney will change.