www.petroleumnewsalaska.com Alaska's Source for Oil and Gas News February 2003

Vol. 8, No. 5 Week of February 02, 2003

Global mining survey indicates downslide in industry’s view of Alaska for exploration investment, despite anticipated increase in 2003 work

Patricia Jones PNA Contributing Writer

Attitudes about Alaska’s mining opportunities took a downturn in the latest survey of worldwide mining companies, although the actual industry environment has improved in the last year.

That’s according to Curt Freeman, president and CEO of Avalon Development Corp., a Fairbanks-based consulting geological firm that conducts mineral exploratory work throughout the state.

He presented an analysis of the state’s mining industry and expectations for 2003 to the Fairbanks branch of the Alaska Miners Association Jan. 24.

In his presentation, he discussed discouraging results from an annual survey of mining companies conducted by the Fraser Institute, an economic think tank based in Vancouver, B.C.

“The attitude about Alaska slid significantly,” Freeman said. “Places like Russia, Bolivia, Brazil, Chile and Peru are perceived to be better places to work than Alaska.”

Alaska’s ranking in the 2002 survey of investment attractiveness was 15th out of 47 states, Canadian provinces and countries included in the study. In 2001, Alaska ranked seventh in the survey, Freeman said.

“Now we are competing worldwide for investment dollars, whether we like it or not,” Freeman said.

The survey represents responses from 158 junior and senior exploration and mining companies, responsible for $738 million in global exploration expenditures in 2001, according to the Fraser Institute. Those companies rated the policy attractiveness and mineral attractiveness of mining jurisdictions in North America and internationally.

Freeman said the downturn in Alaska’s ranking should concern the state’s mining industry and also politicians, who can affect policies governing the industry.

“Perception is reality,” he said. “But nothing changed in the last year.”

In fact, he anticipates an increase in exploratory work throughout Alaska in 2003, thanks to an increase in metal prices, last year’s successful exploration work at the Donlin Creek deposit in southwest Alaska and a pro-development administration both on a state and federal level.

“The planets are aligned in a way we couldn’t have even dreamed of two years ago,” he said. “It’s time our industry gets to address these concerns with the new administration.”

Poor policy perceptions In the Fraser Institute’s survey, Alaska’s ranking dropped in 2002 because of a lower evaluation regarding the state’s policy potential index.

It measures the effects on exploration from taxation, environmental regulations, administration and duplication of regulations, uncertainty concerning Native land claims and protected areas, labor issues, infrastructure, socioeconomic agreements and political stability.

In the 2002 survey, Alaska’s policy potential scored 50 points out of a possible 100, for a ranking of 23rd out of the 47 mining jurisdictions.

“It’s the regulatory and land use policy perceptions that are killing us,” Freeman said. “Alaska would be ranked number three out of 47 if land use and regulatory policies are ignored.

“This is the reality for people who put money into the state.”

He noted that four out of 10 companies surveyed said that they are strongly deterred from investing in Alaska’s mineral industry because of the state’s environmental policies, the state’s land status and the lack of infrastructure.

Furthermore, one-quarter of the survey respondents said regulatory uncertainty and regulatory duplication were strong deterrents to mining exploration investment in Alaska.

“Policies do need improvement — streamlining and brought up to the 21st century,” Freeman said. “Everyone knows they have to live with regulations, but they could be more efficient.”

Alaska’s mineral potential great Alaska is proven elephant country, Freeman said, meaning that mineral prospectors can realistically hope to discover large deposits in the highly under-explored state.

“The gold discovery rate in Alaska is phenomenal,” he said.

Currently, exploration companies have identified in Alaska 77.7 million ounces of gold located in underground deposits.

“Twenty years ago, that number was almost zero,” Freeman said. “We reached critical mass in 1996.”

An industry benchmark for discovery costs by mining companies is about $20 per ounce of gold, Freeman said. “Alaska’s average is $4.55 … the cost per ounce is very favorable.”

That average was greatly improved thanks to successful exploration work at the Donlin Creek deposit in southwest Alaska. After two years of exploration at Donlin Creek and roughly $10 million in exploration spending, NovaGold Resources Inc. identified 27.8 million ounces of gold in the host rock.

“There’s a lot more acres around Donlin Creek, and more ounces to be found,” Freeman said.

In the survey’s mineral potential index, which rates a region’s attractiveness based on mining company executives’ perceptions of geology, Alaska’s ranking improved to 15th out of 47. But that ranking is lower than the prior year’s, Freeman said. “Even though we’ve created more potential here, the changed perception is that you can’t do business here.”

Case study in progress Alaska has an opportunity to prove to the mining industry that it is open for business, Freeman said, with the Pogo gold project that is currently in the permitting stage.

“This is a barometer for what you can do in Alaska,” Freeman said. “With the access road and permitting an underground mine, people within the mining industry are watching this very closely.”

Teck Resources is developing the 5.5 million ounce gold deposit about 35 miles northeast of Delta Junction. The company is still waiting for a draft environmental impact statement from regulators, which was expected to be released in January.

“The perceived opinion is that the regulatory process is slowing this down, a purposeful roadblock by state and federal agencies,” Freeman said. “I don’t think it’s true, but it’s difficult to get that across to other mining companies looking at Alaska.”

www.nytimes.com By TONY SMITH

ÃO PAULO, Brazil, Jan. 31 — Declaring a war "not to kill, but to save lives," President Luiz Inácio Lula da Silva has outlined details of his first major policy initiative, an ambitious program to fight Brazil's enormous social inequalities by ensuring that even the neediest have enough to eat.

The showcase campaign, called Zero Hunger, was initially intended to cost nearly $1.5 billion over the four years of Mr. da Silva's term to give 46 million people help of various kinds, including $14 a month for an average family to spend on food.

But what the president — himself from a poor rural family — presented to the nation on Thursday was an incomplete package that critics say may prove ineffective and eventually run out of money. In addition, the campaign has failed to win consensus even within the governing Workers' Party.

Nevertheless, Mr. da Silva, who says his dream is to guarantee three meals a day for every Brazilian, has created a new ministry and a 62-member council to oversee the campaign and to coordinate the collection and distribution of food.

"Starting up a food collection campaign in a country the size of Brazil is like a veritable military operation," he said, adding, "Our war is not to kill, but to save lives."

Mr. da Silva acknowledged that simply handing out food would not be enough. "We need to give people fish and teach them to fish," he said.

Since Mr. da Silva's inauguration on Jan. 1, the Ministry of Agriculture has received 4,000 calls from Brazil's agricultural businesses wanting to take part. Gisele Bündchen, the Brazilian supermodel, donated part of her fee at São Paulo Fashion Week to the campaign.

The program is more than an ideological showcase. It is intended to help keep public opinion on Mr. da Silva's side when he tackles pension and tax reforms later this year.

So far, the plan has drawn fire mainly from government critics, but dissenters within Mr. da Silva's party have also voiced doubts.

"Brazil does not have 46 million people without enough to eat," said José Márcio Camargo, analyst for Tendências, a São Paulo consulting firm. "The country has 44 million people on or below the poverty line, which is totally different."

Several studies have shown that hunger affects from 5 percent to 9 percent of Brazil's 175 million people, or around 15 million at most, Mr. Camargo said. He also said families, churches and other charities already provided a network to help the needy.

That does not mean poor Brazilians need no assistance. But conflicting data have been released by various officials involved in the program, and there is confusion over which regions are to be helped.

The choice by José Graziano, the minister overseeing the campaign, to begin the program in Guaribas and Acauã in Piauí state was also problematic. The towns already receive substantially more money — which will continue — from six social programs set up by Mr. da Silva's predecessor, Fernando Henrique Cardoso, than they will from the new plan.

Only 10 of the program's 60 projects are ready and there are fears that the $510 million for the current year might be cut as the government tightens its belt to please international markets.

Mr. Graziano has even been criticized by a leading Workers' Party senator, Eduardo Suplicy, for insisting that beneficiaries produce receipts to prove that they have used the cash to buy food.

Mr. Camargo agreed. "The black market for fake receipts will soar," he said.

www.miami.com Posted on Sun, Feb. 02, 2003

BRASILIA - If one had to measure the degree of support for a possible U.S.-led attack on Iraq in this part of the world, it could be summed it up in one word: zero.

Opposition to the war goes far beyond old-guard leftists and young marchers at anti-globalization rallies. In fact, in interviews with Cabinet ministers, business executives and people on the street in recent visits to Brazil, Mexico and Argentina, I couldn't find one single person who showed sympathy for President Bush's threat to go to war with Iraq without United Nations support.

It's not that Latin Americans are disinterested, or that they see the war preparations as a far-off affair. Newspapers are full of war-related stories, and radio talk shows feature long debates on Bush's possible motivations for attacking Iraq.

On the contrary, they see it as a real economic threat to their own countries, and as a dangerous political precedent that could incite other nations to undertake unilateral attacks on other countries.

In Brazil, South America's biggest country, U.S. war plans have sparked a strong reaction from new leftist President Luiz Inácio Lula da Silva, who said during a trip to Europe last week that Bush is ''obsessed'' with Iraq.

FIRST CRITICISM

It was da Silva's first open criticism of Bush after a successful visit to Washington prior to his Jan. 1 inauguration, which had been described by both countries as the beginning of an unexpected Bush-da Silva honeymoon. U.S. officials had earlier suggested to da Silva that, if he wanted to forge good relations with Washington, he was welcome to criticize U.S. policies, but should abstain from personal attacks on the U.S. president.

''The war on Iraq could bring the honeymoon to an early conclusion,'' said William Barr, a private consultant who until late 2002 served as a senior political officer at the U.S. Embassy. ``Both sides will have to be especially careful not to go back to the old days of mutual recriminations and distrust.''

In an interview at his office, Brazil's foreign minister, Celso Amorim, told me that, in addition to being a strong defender of multilateralism in international affairs, Brazil is worried about a possible war's economic impact on Latin America.

''We have great concerns,'' Amorim said. ``For a country like Brazil, whose position is slowly improving after all the [negative] speculation during the election campaign last year, the risk of rising oil prices -- and a world recession -- may affect us. So we must be concerned.''

ECONOMIC FEAR

Brazil's industry and foreign trade minister, Luiz Fernando Furlan, said in a separate interview that a war could also dry up foreign investment in Latin America. ''When there is war, when there is economic turbulence, there is a flight to quality: investors go to the safest ports,'' he said.

Newspapers here are full of speculation about U.S. motives for going to war with Iraq. In most cases, columnists and readers refer to an alleged Bush desire to grab Iraq's oil fields, get a firmer hold on the Middle East, or finish the job his father didn't complete in 1991.

Virtually no one takes seriously Bush's assertion that Iraq is violating United Nations disarmament resolutions because it is amassing weapons of mass destruction that it may hand over to terrorists, or use directly against the United States, Europe or Israel.

`REAL MOTIVES'

In a typical editorial, Brazil's daily Folha de Sao Paulo said Friday that ''unless the [U.S.] president demonstrates that Baghdad is an imminent threat, it seems more reasonable to believe that the real motives for the war are oil, and U.S. hegemony.'' Even the more pro-American daily O Estado de Sao Paulo said in an editorial the same day that Bush's war could ``open the doors to hell.''

In neighboring Argentina, even the influential daily La Nacion ran an editorial last week cautioning against Washington's ''confusing notion'' of its ''alleged right'' to launch preventive attacks ``and proceed, without hesitation, to summary executions whose motives nobody could dare explain.''

Former President Carlos Menem of Argentina was a lone exception to the rule, saying Friday in Miami that ''it is an error for us not to send troops to the Gulf.'' But Menem, who has been the focus of several corruption inquiries, is trying to win Argentina's upcoming presidential elections on the claim that he is a friend of the Bush family, and would thus receive extra U.S. help for his country.

The bottom line: The Bush administration has done a terrible job in explaining its motives to the rest of the world, and -- as far as I'm concerned -- to the American people.

Unless Secretary of State Colin Powell comes up with hard evidence of Iraq's transgressions when the U.N. Security Council meets to hear his speech on Wednesday, there will be an even greater anti-American backlash in this part of the world, no matter how hard U.S. officials try to play it down.

news.ft.com By Jonathan Wheatley Published: February 2 2003 20:03 | Last Updated: February 2 2003 20:03

A few months ago, Brazilian bankers were speaking darkly of the dangers the country faced if Luiz Inácio Lula da Silva of the leftwing Workers' party (PT) were elected president.

One month after Mr Lula da Silva took office, the sector could hardly be more ebullient.

Bradesco, Brazil's biggest private-sector bank by assets, is expected to announce healthy fourth-quarter profits today after starting the year in a mood of aggressive expansion.

On January 2, it became one of the first Brazilian companies to return to the capital markets, launching a nine-month international bond, raising US$250m - five times its initial offer - priced to yield 6.375 per cent.

On January 13, it surprised the markets by announcing that it would pay R$2.65bn (US$804m at the time) in cash and shares for the local operations of Spanish bank BBVA.

The acquisition helped it to defend its position as the largest private-sector bank against Itaú, its nearest rival.

It completed the month on January 28 by taking more than R$7bn in funds under management from US bank JP Morgan.

"The Lula government is putting its more liberal talk into practice and the banks like it," says Erivelto Rodrigo of Austin Asis, a Sa~o Paulo firm of banking analysts. "They're back in the market to buy scale."

Consolidation of the sector started in the mid-1990s, but the pace of change slowed last year. There was fear among investors, provoked by Lula's consistent lead in opinion polls before October's general elections, that a PT government might indulge in irresponsible spending and provoke a default on government debt.

So far, however, the PT seems committed to even more conservative economic policies than the previous centrist administration of president Fernando Henrique Cardoso.

Its proposals for a long-awaited overhaul of pensions, for example, go further than the reforms it obstructed in opposition.

Last month, the central bank raised its basic interest rate from 25 per cent to 25.5 per cent to combat the threat of inflation - a policy that the PT was calling disastrous as recently as December.

Surprised by the new government's orthodoxy, analysts have rushed to revise forecasts. Bear Stearns, a New York brokerage, upset many in Brazil last year by saying the country was "on the path to default". It now expects no credit event (default or restructuring) during 2003. Jason Mollin, Brazilian banking analyst, has upgraded Bradesco, along with Itaú and Unibanco, the other two big private-sector banks.

"The outlook is clear," he says. "Interest rates will remain high and that will enable banks to continue to achieve strong margins."

Mr Mollin expects Bradesco to report fourth-quarter profits of R$509m, up from R$420m in the third quarter, but down from R$610m a year earlier.

Sluggish growth, caused by currency devaluation and the general uncertainty, accounts for the year-on-year fall; growing optimism after the election, as the new government sets out its stall, accounts for the late surge.

Banks will continue to make much of their earnings this year from high returns on government debt. At the end of September 2002, exposure to government securities among the leading three private-sector banks was equal to 2.2 times shareholders' equity.

But the sector also faces restraints on growth in 2003. Interest rate spreads - the difference between borrowing and lending rates - remain among the highest in the world. While high spreads create big returns, they are also a brake on growth of lending and of the wider economy.

Among other things, a reduction in spreads requires a fall in delinquency rates - currently as high as 15 per cent. To achieve this, bankers hope the government will make progress on reforming bankruptcy laws that make foreclosure almost impossible.

Despite such restraints, optimism surrounding the new government has revitalised the sector.

"Bradesco and the other banks will certainly want to make more acquisitions," says Bruno Pereira, banking analyst at UBS Warburg in Rio de Janeiro. "The problem will be finding sellers."

One obvious target is Sudameris, owned by Intesa of Italy. Itaú was expected to buy it, but talks broke down after 11 months in November, when Itaú instead snapped up local bank BBA.

Unibanco could be next to make a bid. It was in talks to buy BBVA's operation when Bradesco made a bigger offer in December, in what was seen as a reaction to Itaú's purchase of BBA.

Unibanco seemed to have lost Sudameris to Itaú in similar circumstances a year earlier.

With foreign banks reducing their exposure to Brazil during the past year, there has been speculation that ABN Amro, the Dutch bank, could be next to leave.

However, Brazil still offers the prospect of much faster growth than developed markets. BBVA, in selling out, took a 4.5 per cent stake in Bradesco and a seat on its board. The foreigners could yet make a comeback.

www.puertoricowow.com Sunday, February 2nd, 2003.  

RIO DE JANEIRO, Brazil (AP) - A possible U.S. attack on Iraq could choke off a moderate recovery of South America's biggest economy, analysts said Sunday.

High petroleum prices on international markets that led to several gasoline price hikes in Brazil in recent months have already contributed to an acceleration of Brazil's inflation rate from 5.6 percent in September to 12.5 percent in December, according to the official statistics institute.

"The longer the current impasse on a possible war continues, with a consequence of even higher oil prices, the greater the damage for Brazil's economy," Hugo Penteado, chief economist at ABN Amro in Sao Paulo, told The Associated Press over the telephone.

To reign in inflation, Brazil's central bank in January hiked benchmark interest rates to 25.5 percent from 25 percent, slowing economic growth. Yet, Brazil's economy could still expand 1.5 percent this year, if a quick decision on whether to attack Iraq would be made, Penteado added. If there is a short war or with a peaceful solution, oil prices should stabilize little later, and the effect on Brazil's economy would be moderate.

But in the case of a conflict lasting four months or more, Brazil's economy could suffer both from higher oil prices pressuring inflation and from a drying up of investment flows to emerging economies due to a slowdown or recession in the U.S. economy, Penteado said. In that case, economic growth in Brazil could be close to zero, he added.

The current atmosphere of uncertainty about a war, has also harmed the value of Brazil's currency, the real, making imports more expensive, which again pressures consumer prices.

After Brazil's new President Luiz Inacio Lula da Silva took over on Jan. 1 and started to signal a continuation of moderate economic policies, the real initially gained ground, strengthening to 3.33 to the dollar by mid-January. But as war fears heightened, the real fell back again, closing at 3.515 to the dollar on Friday.

"The exchange rate stability depends on whether a U.S.-Iraq war will be quick (or not)," said Odair Abate, chief economist at Lloyds Bank in Sao Paulo.