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Tin purchases in China may be early signs of a turn around

By Kishori Krishnan Exclusive to Tin Investing News

Stockpiling of metals in China is set to raise the bar. The central China city of Chenzhou in Hunan province plans to buy a selection of industrial metals to soak up surplus stock as commodity prices continue to slip, an official with the Chenzhou City Economic Committee said. He said the city authorities are to stockpile tin, silver, lead, zinc, tungsten, and bismuth.

Chenzhou authorities were planning to buy 2,000 tons of silver, 50,000 tons of lead, 5,000 tons of tin, 50,000 tons of zinc, 5,000 tons of tungsten and 3,000 tons of bismuth this year. Chenzhou is known to be rich in nonferrous metals, with more than 70 kinds of mineral resources, and reportedly has among the largest reserves of tungsten, bismuth, molybdenum, tin and zinc in China.

A powerful rally in Chinese stocks Wednesday, led by big mining names has spreads West, ahead of China’s new stimulus package, due on Thursday. Wednesday’s rally in Chinese stocks was led by names from the mining sector, with gains of 10 per cent and more for Shanxi Xishan, Jiangxi Copper, Pingdingshan Tianan, Shanxi Guoyang, Yunnan Tin, and Yunnan Chihong. Chinalco, which is busy forging further links with Anglo Australian miner Rio Tinto, rose by 9 per cent, while Zijin, China’s biggest listed gold stock, was up by 4.3 per cent.

What also buoyed sentiment was that China’s biggest tin producer Yunnan Tin Co said it was selling 6,000 tonnes of tin to the Yunnan provincial government. The provincial government said last month that it could buy up to 30,000 tonnes of tin from the producer.

Point to be noted: One swallow does not a summer make.

Reuters reported that the Canadian government issued a warning Wednesday to foreign companies considering massive layoffs to think twice before backing out of investment agreements made with Ottawa during better economic times. Tony Clement, Canadian industry minister said that the government is investigating to see if US SteelCorp was sticking to commitments it made to Ottawa in 2007 when it bought Stelco, one of Canada’s biggest steelmakers.

Clement told reporters, “I am trying to send a signal out through you to every other company out there. We take these undertakings seriously and we expect every company that has made an undertaking to the people of Canada, through the government of Canada, to live up to those undertakings.”

He said that “Ottawa will conduct a quick review of the undertakings the company made under the Investment Canada law when it bought Stelco before determining the government’s final position.”

This clarion warning was issued following US Steel’s announcement to temporarily shut down most of its operations at two big former Stelco plants in Ontario, affecting up to 1,500 jobs. US Steel said it was temporarily shutting down most of its operations at the plants in Hamilton and Nanticoke. It blamed worsening market conditions.

The fact of the matter is that the past 12-month performance of 947 listed resources stocks around the world has shown unequivocally that gold and silver stocks not only dominate relative outperformance within the broader resources sector, but that these stocks also qualify to rank as the top outperformers across all equity subsectors. The global sector is led by the SPDR Gold Shares ETF, which currently trades – like dollar gold bullion – just 10 per cent below its highs, and now holds $30.3 billion worth of the yellow metal.

Analysts expect that zinc, tin, copper, uranium and potash miners follow next on the list. Over the past six months in particular, miners have taken all kinds of drastic action, followed by some equity investors with a taste for risk who appear to be taking early bets on the possible payback for miners, that have had the wherewithal to remain in business.

In tin, a small global sector representing the smallest of the base metals, performance has been hugely dominated by Yunnan Tin, which has seen its stock price bounce nearly 100% from the bottom.

Reuters has reported that Indonesia expects production of tin to rise by 47 per cent in 2009 to 105,000 tonnes despite a plan by authorities to cap output below 100,000 tonnes. In January 2009, a mining and energy ministry official said that the government aimed to cut the target cap on tin output in 2009 due to slowing global demand that has triggered falling prices.

Bambang Gatot Ariyono director of mineral and coal enterprises at the energy ministry said that “These are production proposals from tin producing regions. But we will see the progress. If production falls, we will review the target after the first quarter.”

Indonesia produced 71,610 tonnes of refined tin in 2008. The price of tin has fallen around 58 per cent from an all time high of US $25,500 per tonne in May 2008 as global economic crisis continues to bite.

Peru, the world’s largest producer of silver, the third- largest miner of copper, zinc and tin and number five for gold, is having a crisis on its hands. Peruvian miners may go on strike on March 15 for more than a month to protest “unjustified” job cuts as companies say the global financial crisis lowered metal prices, said Luis Castillo, head of the Mining Federation. Exports from the Andean country fell 33.6 per cent in December from a year earlier, prompting the trade surplus to shrink to $42 million from $1.1 billion a year earlier.

Meantime, the Queensland Small Miners Council says there were thousands of alluvial gold, tin, sapphire and opal miners across the state 10 years ago, but numbers have now dwindled to about 200 professional teams. Opal miner Kev Phillips says it is not the global economic downturn affecting small miners but native title delays, new environmental fees and a lack of government support for the sector. “It’s not a formal policy of the state but it is certainly an underlying agenda to get rid of small scale miners,” he said.

“We’d rather have big companies that we can easily extract royalties and what not from – it shouldn’t be the way, we’ve been here for hundreds of years supporting this state and country so let us survive, it’s a unique way of life.”

For Lara Exploration Ltd. (TSX:LRA), further progress has been announced on its Sao Lourenco tin project in northwest Brazil. The company has now outlined a significant body of exposed primary tin mineralization on the adjacent Isaac and Irene targets, with an average grade of 0.61 per cent tin. An agreement has also been reached with the underlying owners of the Sao Lourenco mining rights to extend the company’s purchase option through until 2012.

The company has been sampling two granite stocks, Irene and Isaac, that stand out as hills within a wide area of past placer tin mining. Artisanal workings have exposed a wide area of fresh and weathered (saprolite) granite that has now been grid sampled with channel samples. Coarse-grained tin mineralization in the form of cassiterite (tin oxide) is hosted by vein-like zones of alteration known as “greisens” that form a dense stock-working over most of the exposed area and extend into the metasedimentary country rocks. The exposed area represents only 40 per cent of the granite hills and the known mineralization is open in all directions.

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