Friday 18th October 2019

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Posts tagged ‘united states’

Infographic: The world’s most powerful reserve currencies

October 8th, 2019

by Jeff Desjardins | posted with permission of Visual Capitalist | October 8, 2019

Visual Capitalist The world’s most powerful reserve currencies

 

When we think of network effects, we’re usually thinking of them in the context of technology and Metcalfe’s Law.

Metcalfe’s Law states that the more users a network has, the more valuable it is to those users. It’s a powerful idea that is exploited by companies like LinkedIn, Airbnb or Uber—all companies that provide a more beneficial service as their networks gain more nodes.

But network effects don’t apply just to technology and related fields.

In the financial sector, for example, stock exchanges grow in utility when they have more buyers, sellers and volume. Likewise, in international finance, a currency can become increasingly entrenched when it’s accepted, used and trusted all over the world.

What’s a reserve currency?

This visualization comes to us from HowMuch.net, and it breaks down foreign reserves held by countries—but what is a reserve currency, anyway?

In essence, reserve currencies (i.e. U.S. dollar, pound sterling, euro, etc.) are held by central banks for the following major reasons:

  • To maintain a stable exchange rate for the domestic currency

  • To ensure liquidity in the case of an economic or political crisis

  • To provide confidence to international buyers and foreign investors

  • To fulfill international obligations, such as paying down debt

  • To diversify central bank portfolios, reducing overall risk

Not surprisingly, central banks benefit the most from stockpiling widely held reserve currencies such as the U.S. dollar or the euro.

Because these currencies are accepted almost everywhere, they provide third parties with extra confidence and perceived liquidity. This is a network effect that snowballs from the growing use of a particular reserve currency over others.

Reserve currencies over time

Here is how the usage of reserve currencies has evolved over the last 15 years:

Currency composition of official foreign exchange reserves (2004-2019)
U.S. dollar Euro Japanese yen Pound sterling Other
2004 65.5% 24.7% 4.3% 3.5% 2.0%
2009 62.1% 27.7% 2.9% 4.3% 3.0%
2014 65.1% 21.2% 3.5% 3.7% 6.5%
2019 61.8% 20.2% 5.3% 4.5% 8.2%

Over this timeframe, there have been small ups and downs in most reserve currencies.

Today, the U.S. dollar is the world’s most powerful reserve currency, making up over 61% of foreign reserves. The dollar gets an extensive network effect from its use abroad, and this translates into several advantages for the multi-trillion-dollar U.S. economy.

The euro, yen and pound sterling are the other mainstay reserve currencies, adding up to roughly 30% of foreign reserves.

Finally, the most peculiar data series above is “Other,” which grew from 2% to 8.4% of worldwide foreign reserves over the last 15 years. This bucket includes the Canadian dollar, the Australian dollar, the Swiss franc and the Chinese renminbi.

Accepted everywhere?

There have been rumblings in the media for decades now about the rise of the Chinese renminbi as a potential new challenger on the reserve currency front.

While there are still big structural problems that will prevent this from happening as fast as some may expect, the currency is still on the rise internationally.

What will the composition of global foreign reserves look like in another 15 years?

Posted with permission of Visual Capitalist.

James Rickards says China might have imposed a gold standard on the IMF’s special drawing right

October 7th, 2019

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Donald Trump employs the U.S. Defense Production Act to support reliable supplies of rare earth elements

September 12th, 2019

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Uranium: A 2040 prognosis

September 5th, 2019

Growing energy needs, emissions reduction look positive for the other yellow metal

by Greg Klein

Oversupplied and under-priced for years, uranium’s forecast now looks good up to 2040, according to a new study. In its latest Nuclear Fuel Report, a study released at roughly two-year intervals, the World Nuclear Association has revised its projections upwards for the first time in eight years. Demand will come from a growing reliance on nuclear energy thanks mainly to China, India and other Asian countries, said the industry organization. Global warming concerns also play a role.

Growing energy needs, emissions reduction look positive for the other yellow metal

The report presents different data for each of three case studies, explained World Nuclear News, a WNA publication. The Reference scenario reflects official targets and plans announced by states and companies, and also considers how nuclear can help address climate change. The Upper scenario anticipates more favourable economics, greater public acceptance and increased dependency to offset climate change. The Lower scenario considers the possibility of negative public sentiment, a lack of political support and more challenging economics.

Even at the Lower scenario, the study foresees nuclear capacity remaining at its current level of 402 gigawatt electrical to 2040. The Reference scenario sees moderate growth to 569 GWe, while the Upper scenario predicts capacity almost doubling to 776 GWe.

The Upper and Reference scenarios show faster growth than at any time since 1990.

Even greater expansion would be required should countries adopt the WNA’s Harmony climate change strategy, which calls for nuclear to supply 25% of the world’s electricity by 2050.

The need for new primary uranium supply becomes even more pressing as a number of older mines are projected to be depleted in the second decade.—World Nuclear Association

The three scenarios “show that the capacity of all presently known mining projects (current and idled mines, projects under development, planned or prospective) should be at least doubled by the end of the forecast period, and the need for new primary uranium supply becomes even more pressing as a number of older mines are projected to be depleted in the second decade,” the WNA emphasized. 

“There are more than adequate uranium resources to meet future needs. However, oversupply and associated low uranium prices are preventing the investment needed to convert these resources into production. Uranium resources would be unlikely to be a limiting factor for the expansion of nuclear programs in order to meet the Harmony goal.”

As for uranium production, the report sees “fairly stable” volume until the late 2020s, but a sharp decrease from 2035 to 2040 “as a quarter of all mines listed in the model reach the end of their production lives,” the WNN stated. “Global output of 66,400 tonnes uranium in 2030 declines to 48,100 tU under the Reference scenario. For the Upper scenario the figures are 71,500 tU (2030) and 49,400 tU (2040). The partial return of currently idled mines to production is expected to begin in 2023 in the Reference case, 2022 in the Upper scenario and 2026 in the Lower scenario.”

In addition to Asia’s growing nuclear reliance, the report bases its positive forecasts on improved government sentiment in France, and in the U.S. at the federal and state level. Countries like Bangladesh, Egypt and Turkey will become significant producers of nuclear energy.

In our models, we don’t get excited on the demand side.—Kazatomprom CEO
Galymzhan Pirmatov,
as quoted by Bloomberg

The study crunched data from questionnaires sent to WNA members and non-members, publicly available info and “the judgement and experience of the members of the association’s working group.” Among the considerations were nuclear economics, government policies, public acceptance, climate change, electricity market structure and regulatory standards.

Co-chairing the working group was Riaz Rizvi, chief strategy and marketing officer for Kazatomprom, the world’s top uranium miner. But the positive forecasts seem to contradict his boss. Last June Bloomberg quoted CEO Galymzhan Pirmatovas saying, “In our models, we don’t get excited on the demand side.”

Using data from other sources, Cameco Corp TSX:CCO estimated an August 31 U3O8 spot price of $25.30 per pound and long-term price of $31.00, down from $26.30 spot and $31.25 long-term a year earlier. The company gives numbers of $60.50 spot and $70.00 long-term for March 1, 2011, 10 days before a tsunami hit Japan’s Fukushima Daiichi complex. As Japan shut down other reactors one by one, followed by a few other countries like Germany, the mining industry faced oversupply. Uranium prices fell steadily, sometimes dramatically.

Make no mistake, there is still a long way to go before we decide to restart McArthur River-Key Lake.—Cameco CEO Tim Gitzel

By January 2018 Cameco suspended its McArthur River mining and Key Lake milling operations, despite having put Cigar Lake into production less than four years earlier. Expressing cautious optimism last July, CEO Tim Gitzel added: “However, make no mistake, there is still a long way to go before we decide to restart McArthur River-Key Lake.”

But without them, Cameco has become more buyer than producer. To meet 2019 supply commitments, the company anticipates purchasing 21 million to 23 million pounds from other sources. That compares with an estimated nine million pounds expected from Cigar Lake this year.

Lower cost, higher grade

August 30th, 2019

Denison Mines considers the Athabasca Basin’s first ISR uranium operation

by Greg Klein

Less than 80 kilometres from the technological marvel of Cigar Lake, another uranium project could introduce an extraction method that’s less innovative but a regional novelty just the same. Denison Mines TSX:DML now has testing underway for in-situ recovery at the Wheeler River project’s Phoenix deposit. Should the studies succeed and the mine become a reality, this would be ISR’s first application in Canadian uranium mining.

Denison Mines considers the Athabasca Basin’s first ISR uranium operation

Denison Mines hopes to apply low-cost extraction
to high-grade resources. (Photo: Denison Mines)

ISR finds common use in Kazakhstan, Uzbekistan, the U.S., Australia and enough other countries to account for 48% of global uranium production in 2016, according to the World Nuclear Association. The lower-cost method has often been associated with lower-grade deposits that have geological conditions making the process viable. With a Phoenix probable reserve averaging 19.1%, Denison was able to consider other options. In fact the company originally planned to use Cigar Lake’s jet-boring technique.

But the experience of Cameco Corp TSX:CCO proved to be a cautionary tale. “Among 
the most technically challenging mining projects in the world” according to the company, Cigar Lake took nine years to build, with setbacks that included two serious floods. Finally opened in 2014, its jet-boring extraction makes the very high-grade operation “one of the technically most sophisticated mines in the world.”

Two years later, when Wheeler River reached PEA, Denison was still considering jet-boring for Phoenix. But capex, opex, length of construction and technical risks similar to Cigar Lake’s “catastrophic events” persuaded the company to pursue other options.

That Denison did, examining some 32 extraction techniques over two years before selecting ISR for Phoenix in the pre-feasibility study released last October. Wheeler’s Gryphon deposit, about three kilometres northwest, has more conventional underground mining proposed.

Both deposits are classified as Athabasca Basin unconformity-related. But Gryphon features basement-hosted mineralization while Phoenix mineralization is unconformity-hosted and also shows ISR potential.

Denison Mines considers the Athabasca Basin’s first ISR uranium operation

With its current drill program, Denison hopes to find
potential satellite ISR deposits. (Photo: Denison Mines)

Put simply, the process involves drilling wells into the deposit, injecting a liquid solution that leaches uranium from ore, then pumping the uranium-bearing liquid to a surface processing facility. No tailings or waste rock come to surface. The solution then gets recharged with fresh reagents for re-use in a closed system.

ISR, also known as ISL or in-situ leaching, can be used for copper and other minerals as well.

However Phoenix differs from many ISR projects by the permeability of the deposit’s sandstone walls, which will require freezing to contain the solution. Ground freezing involves pumping very cold brine into holes outside the deposit’s circumference to extract heat from the surrounding rock. Cigar Lake also uses underground freezing to contain the jet-boring process. One advantage of Phoenix over other ISR projects, however, is the relatively compact size of the high-grade deposit, about one kilometre by 50 metres.

Should geology, engineering, permitting and financing come together, Phoenix would take only about two and a half years to build, according to the PEA. With an estimated 11-year lifespan, production would average six million pounds U3O8 annually for nine of those years.

Hinting at satanic numerology, Gryphon would spend six years in construction and another six in operation, producing six million pounds a year. Processing would take place at the McClean Lake mill, now chewing through Cigar Lake ore. Denison holds 22.5% of the mill, along with Orano Canada (70%) and OURD Canada (7.5%).

As for Wheeler River ownership, Denison maintains a 90% stake, with JCU Canada holding the rest.

Denison Mines considers the Athabasca Basin’s first ISR uranium operation

With a deposit lying below Patterson Lake South,
Fission Uranium now has second thoughts
about open pit mining. (Photo: Fission Uranium)

Denison has further ISR tests now underway, part of the project’s feasibility studies. With work conducted by Petrotek Engineering Corp, the program has so far sunk two pump/injection wells and four observation wells along a 34-metre portion of the deposit’s strike. This week president/CEO David Cates described early results as encouraging, “with initial pump and injection tests confirming hydraulic connectivity between all of the test wells within the ore zone.”

The tests also suggest the basement rock beneath the unconformity would contain the solution, unlike the sandstone walls which would require freezing.

Three more test areas will be evaluated up to summer 2020 to compile a hydro-geological model to simulate ground water flow and other factors. The current campaign also includes environmental baseline studies and a 10-hole, 5,000-metre drill program searching for potential satellite ISR operations along the project’s K West trend.

While Wheeler River holds the largest undeveloped deposits in the eastern Basin, the Patterson corridor extending beyond the Basin’s southwestern rim claims fame for two even larger projects.

A pre-feas released by Fission Uranium TSX:FCU in May for Patterson Lake South’s Triple R deposit examined a hybrid open pit and underground mine, but the company was quick to reconsider. An alternative pre-feas began in July to evaluate an underground-only operation. The May pre-feas foresaw four years of construction, six years of open pit operation and two years of underground operation to produce 87.5 million pounds U3O8 over the eight-year span.

The company hopes its new pre-feas, expected in September, will find “further-improved economics, even lower capex and a reduced construction time.” Permitting might also have been a concern, however, for open pit mining on a uranium deposit currently underneath a lake. With the new report using the same resource estimate, Fission plans to compare both scenarios before moving on to feasibility.

Another basement-hosted deposit, NexGen Energy’s (TSX:NXE) Arrow deposit on the Rook 1 project reached pre-feas in December. The proposed underground mine would begin production during the second year of development, ultimately producing 228.4 million pounds U3O8 over a nine-year life, enough to give the company an estimated 21% of global output, just behind first-place Kazatomprom’s 22%, NexGen says.

The company plans full feasibility for Arrow in H1 next year.

Cameco CEO Tim Gitzel remarks on a commitment by Donald Trump and Justin Trudeau to collaborate on critical minerals supply

August 29th, 2019

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The end is still nigh

August 21st, 2019

So James Rickards found time to write another doomsday survival guide

by Greg Klein

So James Rickards found time to write another doomsday survival guide

 

St. John wrote just one Book of the Apocalypse but James Rickards has finished six so far. His most recent, Aftermath: Seven Secrets of Wealth Preservation in the Coming Chaos, offers a warning and advice for the economic end times that he considers imminent. Exactly how and when that’ll happen, he doesn’t say. But this book continues his exposé of the world’s monetary system: “the real system as distinct from the one elites would have you believe exists.”

What Aftermath offers in addition to Rickards’ trademark pitch for gold are some very general tips on investment and asset allocation—so general, however, that they hardly merit a book. This volume’s strength comes in its essays, discussions and digressions on a variety of (usually related) topics.

Among the most important is public debt, primarily that of the U.S. Long unsustainable, the burden groans under a 300% increase over 20 years, currently fuelled by Donald Trump’s revival of trillion-dollar deficits. He gets away with it, though: “Entitlements and defense both get to gorge at the trough, so there’s no dissension in D.C. The only loser is the country.”

So James Rickards found time to write another doomsday survival guide

Among the less-acknowledged causes of American debt are student loans, “now more than 50 percent larger than the junk mortgage pile in the last financial crisis” and growing. Also growing are the default rates, already more than three times that of mortgages at the height of the 2007-to-2008 crisis.

Debt hardly distinguishes the U.S. from other countries, and the entire world remains at risk from contagious sovereign defaults in emerging countries. Rickards’ at-risk list might surprise some readers.

China is a Ponzi like Madoff. China has trillions of dollars in external dollar-denominated debt, wealth management products, bank loans, intercompany loans, and other financially engineered arrangements that can never be repaid. If everyone with a claim on China wanted her money back, China couldn’t come close to satisfying even a small portion of those seeking liquidity.

…. Apart from borrowed money, wasted infrastructure investment, and fictitious accounting, there is no Chinese economic growth miracle.

While the U.S. denominates its debt in U.S.-printable U.S. dollars, money-creation won’t work forever. The only thing supporting fiat currency is confidence, and that can’t last, Rickards argues. History, psychology and common sense demonstrate that “confidence in money is fragile, easily lost, and impossible to regain.”

Spreading to all reserve currencies, “this loss of confidence will be exacerbated by malicious efforts on the part of Russia, China, Turkey, Iran, and others to abandon dollars entirely and to bypass the U.S.-dollar payments system.”

This accumulation of risk factors is entirely new, and outside the experience of any trader or quant.

Contagion demonstrates one danger of interconnected systems, but exceedingly complex technology and financial instruments intensify the peril. Flash crashes only hint at the possibilities, Rickards suggests. “Markets now confront a lethal brew of passivity, product proliferation, automation, and hypersynchronous behavioral responses. This accumulation of risk factors is entirely new, and outside the experience of any trader or quant.”

Getting back to currencies, the author presents intriguing evidence that a gold standard is actually in place. Using research from D.H. Bauer, Rickards says that special drawing rights, the International Monetary Fund reserve asset that’s speculated to replace the U.S. dollar as the world currency, have been pegged to gold. Bauer’s data shows yellow metal hovering around SDR900, fluctuating no more than SDR50 in either direction.

 An important pillar of a global monetary reset seems already in place.

Rickards blames China. “Even if the peg is nonsustainable in the long run, it’s a clear short-run signal that China is betting on the SDR and gold, not the yuan or the dollar. An important pillar of a global monetary reset seems already in place.”

Sometimes digressive in his subject matter, Rickards’ other topics include an interesting perspective on the Uranium One purchase. He served on a CIA advisory board as manoeuvres by Frank Giustra and Bill and Hillary Clinton led to the company’s takeover by Rosatom. “It’s as if the deal were being handled inside the intelligence community on a special track, precisely to avoid the analysis our group was formed to provide.”

Another digression looks at the disturbing prevalence of surveillance, data mining and choice architecture to monitor and manipulate citizens. “Neofascist” China plans 600 million surveillance cameras, digital facial and gait recognition software and internet monitoring to reward its people for good deeds or penalize them for offences ranging from smoking in public to tweeting verboten thoughts.

Most plans for catastrophe will fall apart in the first five minutes of being needed.

He also criticizes some alternative end time strategies. “Most plans for catastrophe will fall apart in the first five minutes of being needed.” Survivalists holed up in bunkers will face “pop-up militias,” he warns. The ultra-rich, with plans to flee to their luxurious New Zealand estates, haven’t considered how they’ll get to the airport, how they’ll refuel their private planes en route, whether they’ll get past the NZ military on arrival, or how they’ll ensure the loyalty of their private security guards. The catastrophe will be worse than they imagine.

Even so, too many of his digressions are unnecessary, such as his tedious account of being locked out of his car, an unnecessarily long rebuttal of behavioural psychology and the rather weird discussion of finite size involving King Kong, Godzilla, skyscrapers and whales.

“Investors should not focus on the cause of the collapse (it’s a long list and the timing is uncertain),” he notes. Certainly the book’s rambling nature belies any sense of urgency. He even hopes to finish another volume before the catastrophe finally hits. That would be his seventh on the subject since 2012.

Update: Lynas responds to Malaysia’s six-month extension for rare earths processing plant

August 16th, 2019

by Greg Klein | August 15, 2019, updated August 16, 2019

Lynas gets a six-month reprieve to continue rare earths processing in Malaysia

Lynas expressed confidence in meeting government-imposed conditions
for its rare earths processing facility in Malaysia. (Photo: Lynas Corp)

 

Even a six-month reprieve augers well for Lynas Corp, the company emphasized on August 16. The Malaysian government granted an extension the previous day after threatening to shut down a plant that refines and separates material from Lynas’ Mount Weld rare earths mine in Western Australia.

The government’s original conditions called for Lynas to render the mine’s output non-radioactive before shipping it to Malaysia and to remove the low-level radioactive waste that has accumulated since 2012. The deadline was September 2, the former licence expiry date.

Lynas said yesterday’s decision was consistent with a science-based government report released last December and the company remains confident of meeting conditions.

The decision’s only significant divergence from the report, Lynas stated, was the requirement that cracking and leaching operations be moved out of Malaysia within four years. Earlier this month CEO Amanda Lacaze said the company hopes to have a C&L facility operating in Western Australia by 2022, part of the company’s $500-million expansion planned by 2025. The new facility would allow Lynas to ship non-radioactive material to Malaysia for further processing and separating.

As for the presence in Malaysia of radioactive water leach purification residue—a reported 580,000 tonnes has piled up so far—the company has six months to find a location and obtain consent for a permanent deposit facility.

Although the government rejected Lynas’ proposal to convert WLP residue into soil conditioner for agricultural use, the company vowed to continue R&D into other possible outcomes.

“While we may have preferred a longer licence … the effect is essentially the same because under either structure there will be an administrative application for renewal,” Lacaze told a briefing for analysts and investors.

In a statement issued earlier that morning, she expressed optimism “that this decision will bring an end to the politicization of Lynas over the past year.”

Last May Lacaze emphasized Lynas’ determination to keep its supply chain separate from the involvement of China, which dominates all aspects of global rare earths production and processing. Considered critical elements by the U.S. for several uses including defence, REs figure prominently in the American-Chinese trade disputes. Consequently the U.S. has implemented policies to encourage production from domestic and allied resources and technology.

Read more about Lynas Corp.

Read more about rare earths, critical elements and the U.S.-China trade dispute.

Lynas gets a six-month reprieve to continue rare earths processing in Malaysia

August 15th, 2019

This story has been updated and moved here.

U.S. continues push for domestic rare earths supply

July 23rd, 2019

by Greg Klein | July 23, 2019

Five presidential memos issued July 22 further show American commitment to develop rare earths deposits and supply chains unbeholden to China. Under Section 303 of the U.S. Defense Production Act, Donald Trump formally declared production capability for a number of critical elements to be essential for national defence:

U.S. continues push for domestic rare earths supply

  • separation and processing of heavy rare earth elements

  • separation and processing of light rare earth elements

  • neodymium-iron-boron-rare earth sintered material and permanent magnets

  • samarium-cobalt-rare earth permanent magnets

  • rare earth metals and alloys

Without presidential action under section 303, Trump stated, American industry “cannot reasonably be expected to provide the production capability [for these elements] adequately and in a timely manner. Further, purchases, purchase commitments or other action pursuant to section 303 of the act are the most cost-effective, expedient and practical alternative method for meeting the need for this critical capability.”

One week earlier the U.S. reportedly began an inventory of rare earth deposits and facilities, asking that companies respond to a Request for Information by July 31, “a short time frame that underscores the Pentagon’s urgency,” according to Reuters.

With China supplying 93% of U.S. rare earths supply for these defence necessities, military dependency on a geopolitical rival has given REEs top priority out of an official list of 35 critical minerals. In June, after the U.S. unveiled a new critical minerals strategy calling for closer co-operation with allies, Trump and Prime Minister Justin Trudeau agreed “to develop a joint action plan on critical minerals collaboration,” according to another Reuters report.