The Gold Report: Byron, gold is above $1,300/ounce ($1,300/oz)although not by much and silver topped $20/oz. What was holding their prices down, and what are the fundamentals that will move the prices going forward?
Byron King: The short answer is that, for all its faults, the dollar has strengthened, which holds down gold and silver prices. The longer answer is that gold and silver are manipulated metals. That is, the world's central banks have an aversion to things they can't control, and one of the things that they can't control is elemental metals like gold and silver.
Let's ask why the dollar has strengthened. The U.S. is probably in its weakest geopolitical situation in decades. The Wall Street Journal on July 17 had a front-page story about the confluence of crises across the world Ukraine, Middle East, Southeast Asiaall of which are profound challenges to American power militarily, diplomatically and economically. But the dollar is still holding up. Why?
I believe the dramatic recent increase in U.S. energy production is what's behind the stronger dollar. With more oil and natural gas from fracking, the U.S. is the world's largest energy producer. In addition, we're importing far less oil and exporting a lot more refined product. It helps the dollar.
Still, when I look at the big picture for gold, I see a resource whose production is challenged on the best of days. Output is declining in the major traditional sources: South Africa is in decline; Australia is challenged; some of the big plays in Nevada are getting long in the tooth. Continue reading "Miners Must Control Costs to Improve Share Prices: Byron King"
The Energy Report: Byron, welcome. You recently attended the Platts Conference in London, which addressed shifting energy trade patterns in light of growing U.S. export prospects and dwindling exports from South America and Africa. Has OPEC's role diminished?
Byron King: The short answer is yes. OPEC is struggling right now. The Middle East, the West African producers and Venezuela are struggling. The West African players and Venezuela have seen exports to the U.S. decline dramatically. In countries like Algeria, oil exports to the U.S. are essentially zero, while Nigeria's exports to the U.S. are way down. The oil these countries export tends to be the lighter, sweeter crude, which happens to be the product that is increasing in production in the U.S. through fracking.
The east-to-west trade pattern for oil imports to the U.S. has essentially gone away. This does not mean that the oil goes away. It means these countries have to find new markets for their oil which they are doing, in India and the Far East. But that disrupts trade patterns as well. Imports from the Middle East to the U.S. are falling as well. These barrels tend to be the heavier, sourer crude that U.S. refineries are geared to process. Continue reading "Forget OPEC, North American Energy Plays Bring Profits Home"
The Energy Report: Let's start with a recent takeover deal that's been getting a lot of criticism in recent weeks. Freeport-McMoRan Copper Gold Inc. (FCX:NYSE) made a $9 billion takeover offer for the oil and gas explorer McMoRan Exploration Co. (MMR:NYSE) and Houston-based Plains Exploration Production (PXP:NYSE). Are you happy with this deal?
Byron King: It came as a surprise. I've held McMoRan Exploration in Energy Scarcity for about two years. I like what McMoRan is working to do with deep gas in the Gulf of Mexico. Still, I recommended that readers take their money off the table with this deal. Sell the shares, take the cash and we'll find other opportunities.
McMoRan Exploration nearly doubled after the Freeport announcement, going from $8 to $15 per share. You can't walk away from that kind of potential gain. Take your money, pay your taxes at the lower 2012 rates and do something else with the money next year.
There's another angle to this takeover. Freeport and Plains together already own about 36% of McMoRan. There are a lot of ties here, between key individuals. I think this deal was driven by the impending tax changes next year. Freeport, the copper play, is borrowing a lot of money to fund this whole process. Fortunately, interest rates are very low, so it's borrowing cheap to do a big takeover, which will give a lot of people a really sweet payday, and they'll get to pay capital gains taxes at much lower rates this year than if they wait until January 2013.
TER: James "Jim Bob" Moffett, who founded McMoRan, is also paying himself. He was a significant shareholder in McMoRan Exploration. He's taking from his left pocket to put it in his right pocket. Continue reading "Byron King's Shocking 2013 Predictions"