London Irvine Report May 18, 2007

In the Red Corner,…..

The secret of politics? Make a good treaty with Russia.
Otto von Bismarck

Whether you like it or not, history is on our side. We will bury you.
Nikita Khrushchev

Today Russia and the EU meet for vodka and caviar and the “unfriendly summit” in Samara. A resurgent Russia meets an enfeebled if enlarged EU, with the Russian bear very much willing to let the EU know of their energy strength, and unhappiness with the EU’s Baltic members and Poland. Not that Russia has only the EU in its sights.

Below, the FT reports on Russia getting ready to reopen an old US can of worms. I suspect that this FT story will expand from just being limited to the Bank of New York, although they are a easy target given their criminal admissions to a US court. During the Yeltsin years, I suspect few of the giant western banks that operated there, will welcome an investigation into their activities. However, that’s what’s coming next in the year ahead, I suspect. Shredder time? Were the “profits” “earned” back then real, or merely a loan? The next 2 years will tell.

Russia claim ratchets tensions with west
By Isabel Gorst in Moscow, Stefan Wagstyl in Chisinau and David Wighton in
New York
Published: May 17 2007 19:20 | Last updated: May 17 2007 19:20
Russia on Wednesday launched a $22.5bn claim against a US bank for alleged collaboration in tax evasion, opening a new front in a widening political conflict with the west.

The claim against the Bank of New York by the Russian federal customs service (FCS) relates to a money-laundering case more than a decade old and which appeared to have been resolved

The move comes on the eve of a Russia-European summit which itself has been overshadowed by bitter arguments between Moscow and Brussels on issues ranging from energy security to alleged Kremlin-inspired electronic attacks on official Estonian websites.

Friday’s summit follows an unsuccessful bid this week by Condoleezza Rice, US secretary of state, to reassure Russia over American plans for missile defence bases in eastern Europe.

While Russian, US and European diplomats deny the current chill heralds the start of a new cold war, many concede relations between Russia and the west have hit their lowest point since the collapse of the Soviet Union in 1991

—- A US investigation into the BoNY’s involvement in the scandal ended in 2005 after the bank admitted criminal conduct and reached a $14m settlement with federal prosecutors. Two Russian émigrés – one of whom was a BoNY vice president – admitted laundering at least $7bn through the bank, using accounts at the bank to channel funds from Moscow to parties all around the
world. There were sentenced last year.

—– Andrei Piontovsky, a political analyst, said, “Moscow did everything to silence this scandal in the Yeltsin era. The timing of the customs service announcement may be connected to the recent death of Yeltsin. Putin may feel free of any obligations to protect the former ruling family”.
http://www.ft.com/cms/s/d29c52d4-04a0-11dc-80ed-000b5df10621.html

Below, Russia let’s the EU know it’s not Yeltsin’s pushover Russia anymore.
After the shock of losing the Ukraine in the Orange revolution, Russia reacted swiftly with a de facto alliance with China. Both are now starting to fully assert themselves in the world. Like it or not, and western politicians definitely don’t like it, the G-7 countries are going to have to adapt to the new economic and energy reality posed by Russia and China.
(Next week’s US – China economic summit promises to be equally contentious, albeit probably in a less public way.)

Russian Chess Great Stopped at Airport
Police on Friday prevented Russian chess great and opposition leader Garry Kasparov from boarding a flight to the city of Samara, where he planned to take part in a protest march coinciding with a Russia-EU summit, an aide said.
Police at Moscow’s Sheremetyevo airport took Kasparov’s passport and ticket, preventing him from boarding a plane and from leaving the airport, Marina Litvinovich told The Associated Press. She said another opposition leader, Eduard Limonov, also had been barred from the flight.
http://interestalert.com/story/05170002aaa06e14.ap/rmmiller/WORLDNEW/world.html

Russian-Lithuanian pipeline repairs could take two years
AFP MOSCOW
Petroleumworld.com 05 18 07
Repairs to a ruptured Russian oil pipeline to Lithuania could drag on for two years, a Russian parliament deputy said Tuesday as Vilnius pressed for discussion of the problem at an EU-Russia summit.

Russian pipeline monopoly Transneft “is working on a plan to repair the pipeline, which could take one to two years,” said Valery Yazev, chairman of the lower house of parliament’s energy, transport and communications committee.

“Of course the economic expediency of the repairs is in question,” Yazev was quoted by ITAR-TASS news agency as saying.

“A lot of leaks have been located on this branch of the pipeline so it is dangerous to use it until they’ve been repaired.”

Lithuania, which joined the European Union in 2004, wants the issue of the pipeline discussed at an EU-Russia summit in the city of Samara that was to open late Thursday.

As long as the issue is unresolved, Lithuania has said it will stand by Poland in blocking the start of talks on forming an over-arching EU-Russian cooperation agreement.

Lithuania is suspicious of the reasons for the pipeline shut-down, pointing to the fact that it occurred just after Vilnius spurned a Russian bid to buy the Mazeikiu refinery, in favour of a Polish bid.

The issue is one of a number that have threatened to wreck this week’s summit in southern Russia.
http://www.petroleumworld.com/story07051806.htm

Below, Russia’s FX and gold reserves, just like China’s, go from new high, to new high, to new high. Sadly, compare and contrast with the west.

The Central Bank of the Russian Federation (Bank of Russia)
External and Public Relations Department
12 Neglinnaya Street, Moscow, 107016 Russia; tel: (495) 771 4417, 771 4669;
fax: (495) 924 9216; http://www.cbr.ru

Information Notice
The External and Public Relations Department of the Bank of Russia announces that the Russia’s international reserves equalled $386.3 bn. as of May 11, 2007, against $372.1 bn. as of May 4, 2007.

17.05.2007
http://www.cbr.ru/eng/

Meanwhile back in the sclerotic EU, all is muddle and dither. The UK is caught between two Prime Ministers, with neither really in charge, France has a new President itching for a fight with the European Central Bank. Club Med are all going bust with the Euro straight jacket, and are all to eager to ally with France. In the new member states along the Baltic, it’s pay back time against Russia. Midget countries emboldened by membership in the EU and NATO, they’re all too quick to bait the bear. (I doubt Washington is really prepared to swap NY for Tallinn, nor Atlanta for Riga if push came to shove.)

Below, the internal EU strains break out into public view.

France and Germany clash over inflation as north-south divide widens
By Ambrose Evans-Pritchard Last Updated: 1:48am BST 18/05/2007
France and Germany have begun to clash openly over control of monetary policy in the eurozone, taking starkly different views about the rising threat of inflation.

In an unprecedented rift, the heads of the Bundesbank and the Banque of France have contradicted each other in public, exposing an emerging rift between Europe’s north and south.
The dispute comes as President Nicolas Sarkozy takes charge in France with a pledge to clip the wings of the European Central Bank and forge an alliance of like-minded eurozone leaders to take charge of exchange rate policy – with the aim of halting the euro’s rise against the yen, yuan, and dollar.

The ECB is almost certain to raise interest rates to 4pc in June. The tug of war is over what should happen after that.

“It is too early to signal an end to our withdrawal of monetary stimulus.
Domestic inflation pressures have clearly risen,” said Axel Weber, the hawkish head of the Bundesbank.

Mr Weber is alarmed by a 10.9pc surge in the M3 money supply in March, the highest growth rate for the region in almost a quarter of a century. The less-watched M2-M3 gauge rose 19.8pc – anathema to monetary hawks in Frankfurt.

The comments were flatly contradicted hours later by Christian Noyer, France’s bank chief. “There is no concern that inflation will get out of hand. The risk has not increased,” he said, showing his irritation.

—- The north-south clash reflects the yawning gap between a resurgent “Teutonic Tiger” conquering markets in Asia and Eastern Europe, and a sickly France being left behind. The strong euro is slowly asphyxiating French exporters. Renault reported a 10.5pc fall in sales in April.

It is a different story in Germany where IG Metall, the car workers’ union, has just won a 4.1pc wage rise. “Order books are full, and profits are surging, so they can’t fob off workers with cheap pay,” said IG Metall boss Jürgen Peters, capturing the new mood of militancy as unemployment tumbles.

The rest of the Club Med bloc is lining up behind Paris. Romano Prodi, Italy’s premier, said: “I am worried about the relentless rise of the euro. We have reached a point where it has become truly a burden.”
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/05/18/ccinflation18.xml

We will watch to see if the EU-Russian Federation summit, manages to issue a joint communiqué.

Below, China turning US dollars into friends. Piling up dollars faster than they know what to do with them, China is taking to the international stage.
Buying up Africa by the look of it. Other than France, no one in the G-7 seems to be trying.

China pledges $20bn for Africa
By William Wallis in Shanghai
Published: May 17 2007 22:04 | Last updated: May 18 2007 03:22
China intends to provide about $20bn in infrastructure and trade financing to Africa during the next three years, eclipsing many of the continent’s traditional big donors by a single pledge.

The scale of China’s accelerating financial flows were revealed to the Financial Times on Thursday by Donald Kaberuka, president of the African Development Bank (AfDB).
The sums involved are beginning to outstrip individual contributions from traditional donors, including multilateral development agencies.

Their combined pledges – towards a special fund intended to assist sub-Saharan Africa to tackle shortfalls in electricity supply, roads and other infrastructure – are about $7bn, Mr Kaberuka said in an interview with the FT.

China has hosted the AfDB meeting, which closed in Shanghai on Thursday, in an effort to consolidate ties with Africa, born from the pursuit of oil and mineral resources to fuel its booming domestic economy.

The scale of China’s plans are beginning to assume imperial proportions, some observers contend.

During the course of meetings this week, officials from China’s Exim bank told Mr Kaberuka they were looking to spend “in the neighbourhood of $20bn” over three years. “That is quite something, because it shows you what traditional donors are up against,” he said.

But Africa’s needs were so great, Mr Kaberuka added, the $7bn so far promised still represented only “a drop in the ocean”.

While grants and soft loans to Africa from Europe, the US and Japan still exceed China’s, they come with conditions attached and often fail to materialise when these are not met.
http://www.ft.com/cms/s/a94d5e86-04a1-11dc-80ed-000b5df10621.html

We await next week’s Washington meetings with great interest. Deficits, it seems, might just matter after all to the Chinese.

In other China news, China’s commercial penetration of the world never stops. If the US does eventually drop into a real estate lead, mild recession towards year end, its still iffy but just possibly this time it might be different, the rest of the world might just get away without noticing too much.

China’s Geely motors to make debut in Indonesia
JAKARTA, May 18 (Xinhua) — Aiming at grabbing a slice of Indonesia’s reviving automotive market, Chinese automaker Geely International Corp. is to make presence here with its Geely CK sedan, the local press said Friday.

The new car, to be launched in July, will be assembled here by Malaysian-based firm PT IGC International and PT Gaya Motor, a subsidiary of the country’s largest auto firm PT Astra International, reported English daily The Jakarta Post.

With three engine variants, the sedan will sell for between 80 million rupiah (9,095 U.S. dollars) and 95 million (10,800 dollars).

“Our idea is to supply the market with a quality product at an affordable price,” Geely International president director George Zhao was quoted as saying.

The Geely CK sedan first hit the Chinese markets in 2005, and has been exported to 60 countries and sold more than 80,000 units worldwide.

—- Geely International will become the second Chinese automaker to assemble its products in Indonesia after Chery Automobile entered the market last year in collaboration with the country’s second-largest auto producer and distributor, PT Indomobil Sukses International.

Geely expects to produce 2,000 cars per year and intends to introduce at least five new models over the next two years.

IGC International chief commissioner Suhaelly Kalla said that Indonesia would become the center of production of the Geely CK for the Southeast Asian market. The cars would be exported to Eastand Southeast Asian countries, he said.

In addition to establishing an assembling facility at a cost of about 6 million dollars, IGC International will also set up spare-parts and after-sales service centers.
http://news.xinhuanet.com/english/2007-05/18/content_6118061.htm

Kent site to be hub for Chinese technology
By Mark Kleinman Last Updated: 1:43am BST 18/05/2007
A small corner of rural Kent is to be transformed into an international hub for the Chinese technology industry under a deal unveiled yesterday by a London-listed property group.
Commercial Group Properties (CGP), which listed on the junior AIM market earlier this year, has struck an agreement with Beijing Association of SME, a Chinese trade body for small and medium-sized companies, to lease up to 1.1m sq ft of office space in a proposed development at Manston International Business Park.

The project is intended to form part of a larger Chinese hi-tech industrial park on the site, and is expected to represent one of the most significant single investments in Britain to date by the Chinese government.

The 10-year property agreement, which sources say is worth more than CGP’s current £27.6m market capitalisation, is being underwritten by Chinamex Middle East Investment and Trade Promotion Centre, a Dubai-registered company backed by the Ministry of Commerce in Beijing.

About 400 Chinese companies have established a base in Britain to date.
These include hi-tech companies such as Huawei Technologies, which failed in a bid to buy Marconi two years ago, and Haier, the white-goods maker, which has an operation in the East Midlands.

The Manston site is one of three development properties owned by CGP, which said yesterday that it believed the rental deal “to be at least in line with the market rate”.
http://www.telegraph.co.uk/money/main.jhtml?view=DETAILS&grid=&xml=/money/2007/05/18/cnkent18.xml

In energy news, are US gasoline prices real or contrived? From London it’s impossible to say, although I have to say I’m highly suspicious. Two years after the 2005 hurricane season greatly impacted the US Gulf of Mexico refineries, why would the industry allow a scarcity to occur directly ahead of the 2007 hurricane season. While another 2005 is highly improbable, sound policy is to err on the side of being over prepared, not on the side of reckless indifference. Contrived or not, a US technical problem is low
driving international prices higher. Petrol at the pump is rising in the UK too, though not a drop is produced in America. To me at least, the Russians aren’t the only ones to fear with a choke hold on supply.

Oil Surges More Than $2 on Below-Normal U.S. Gasoline Stockpile
By Mark Shenk
May 17 (Bloomberg) — Crude oil jumped more than $2 a barrel on speculation that U.S. gasoline supplies won’t be adequate to meet demand this summer because refiners are unexpectedly shutting units.

Gasoline inventories last week were 7.5 percent below their five-year average for the period, the Energy Department said yesterday. Refineries increased operating rates 0.6 percent to 89.5 percent of capacity, the department reported. The summer driving season, when gasoline demand peaks, begins with the Memorial Day holiday at the end of this month.

—– “Refinery runs are up a little bit at 89.5 percent of capacity but should be running at 95 percent right now,” said Nauman Barakat, senior vice president of global energy futures at Macquarie Futures USA Inc. in New York. “The U.S. refining system is very old and antiquated. A lot of the funds expect the system to constantly break down this summer.”

Valero Energy Corp., the largest U.S. refiner, said yesterday that it halted fuel output at its Houston refinery because of steam system and boiler problems. The complex can process 130,000 barrels of oil a day.
ConocoPhillips, the second- largest U.S. refiner, said a unit at its plant in Sweeny, Texas, is undergoing maintenance after a leak yesterday.

ConocoPhillips announced today that it will idle a fluid catalytic cracking unit and a boiler at its refinery in Borger, Texas, for scheduled repairs.
The Borger plant is capable of processing 146,000 barrels of oil a day.

—— The profit margin, or “crack,” for turning crude oil into fuels has more than tripled this year. It rose to $30.4786 today, the highest since at least 1989, based on closing futures prices in New York.

“Refiners are undergoing maintenance and can’t finish fast enough to take advantage of these crack spreads,” Ritterbusch said.
http://www.bloomberg.com/apps/news?pid=20601072&sid=a3GCvWLPOa8c&refer=energy

We end with an item that just might offer some long term energy relief ahead. Though I’m sceptical of the economics or even if the energy-in to energy-out will really work out, I glad to see there’s something in development that isn’t just the usual subsidised ethanol from corn nonsense.

BP, Rio Tinto to make electricity from hydrogen
By Laura Mandaro, MarketWatch
Last Update: 4:18 PM ET May 17, 2007
SAN FRANCISCO (MarketWatch) — Petroleum giant BP and coal miner Rio Tinto said Thursday they are forming a joint venture to develop low-emissions electric power by converting fossil fuels into hydrogen and then capturing and storing the byproduct carbon dioxide.

The announcement comes as global energy companies try to tap into new technology that minimizes the atmospheric impact of burning fossil fuels ahead of an expected uptick in rules that limit the greenhouse gas carbon dioxide.

BP and Rio Tinto both of London, said the 50-50 joint venture will first focus on turning coal, petroleum coke or natural gas into hydrogen, a combustible gas that can power electric plants.

The new company, Hydrogen Energy, aims to capture 90% carbon dioxide released from the conversion process and then store the CO2 permanently in geological formations “deep beneath the Earth’s surface,” Rio Tinto and BP said in a statement.

Turning hard fossil fuels into gasses and separating their elements has been tried and tested, and such gasification systems are operating in a handful of coal-fired plants around the world. But the process of carbon capture and storage is still largely in development.

In the United States, a consortium of energy companies and mining firms are working with the U.S. Energy Department on building a prototype low emissions coal plant that will capture the carbon dioxide and store it in underground bunkers, a process it hopes to make fully operational early in the next decade. But first it needs to run full-scale tests on carbon capture and storage.

BP has also put in place plans to capture carbon released from fossil fuel burning. Working with power producer Scottish and Southern Energy it has completed engineering designs for a hydrogen power project in Peterhead, Scotland that would generate about 475 megawatts of electricity.

The project plans to pipe in natural gas from the North Sea fields, convert the gas to hydrogen and carbon dioxide and then pipe the CO2 into an oilfield in the North Sea, where it will also help recover inaccessible oil deposits. It hopes the U.K. government will select its project in an upcoming competition of such plans.

BP is also planning a hydrogen power project in Carson, California, near Los Angeles, that would use petroleum coke as the feedstock.
http://www.marketwatch.com/News/Story/Story.aspx?guid=%7B48952524%2D6F91%2D4192%2DB730%2DB010C66C99B5%7D&siteid=nwtpm

Another weekend and I must prepare to swing the LIR over to operate on a new mailing system. Microsoft are closing their small business mailing system on June 1. During next week I will be transferring over the database. If you don’t want to be transferred and want to take the opportunity to unsubscribe, please let me know. I will not take offence and would like to thank you for reading up to now . Not being much of a computer geek, it’s highly likely that some of you may experience being “bounced”. Your existing servers may think this is some new unsolicited email. If that happens, please go to the website for the daily update, where you can either re-subscribe or just send me an email asking to get back on to the LIR list. As always I greatly appreciate your helpful comments, tips, and thoughts. If you know of anyone you think might like the LIR, on the new system you’ll be
able to forward a copy for them to try. Have a great weekend everyone.

At the Comex silver depositories yesterday, 47,582 ozs was withdrawn from Eligible at Brinks. Final figures were Registered 81.87 Moz, Eligible 50.14 Moz, Total 132.01 Moz.

The NYSE WIN system is now flat. The NASDAQ system is also flat. Since playing a black box system in the current geo-pol/economic climate, isn’t the wisest thing to do, we will adjust long positions to carry an offsetting deep-out-of-the-money matching option position to provide an automatic fail safe stop in the event another 1987 like event occurs before the PPT can
step in.

More details on the WIN system are available at link below.
http://website.lineone.net/~audluk/tocframe.htm

The monthly Coppock Indicators finished April:
DJIA: 156 up. NASDAQ: 91 up. SP500: 131 up.
The NASDAQ turned down in February and has now turned back up. The DJIA is now moving higher again from sideways. The S&P continues to move higher.

This week’s featured links:
Tungsten, molybdenum and uranium.

Oriental Minerals TSX.V: OTL
The Company’s current projects include the Sangdong tungsten-molybdenum mine, historically, one of the largest tungsten mines in the world; the Muguk gold-silver mine, formerly South Korea’s largest gold producing mine, as well as a number of other properties with significant known mineralization and excellent regional potential.
http://www.orientalminerals.com/s/Home.asp

Trigon Uranium Corp. TSX.V: TEL
Trigon Uranium Corp. is an aggressive Uranium exploration and development company. We focus on advanced exploration properties and development properties. This provides for faster time lines to production compared to grass roots exploration. The properties are located in jurisdictions which are mining friendly, politically stable, and have predictable legal systems.
Our two major Uranium properties, the Marysvale and Henry Mountains properties are located in the US South West, a region which has produced over one billion pounds of Uranium. Trigon has a highly qualified team of uranium exploration experts with uranium experience in the US South West, Canada, and internationally
http://www.trigonuraniumcorp.com/

My thanks to readers Vance and Dale for suggesting the links.

A Personal Disclosure.
Over the last few months, many of the stocks we’ve linked to have made some interesting moves. Possibly because of the LIR link, more likely because of the underlying companies and good management. Going forwards, I expect the commodities demand cycle to last another couple of decades. I expect the pace of interest in natural resource stocks to quicken. I also expect many
junior resource stocks will become takeover or consolidation targets. I expect NAFTA based resource stocks to be especially prominent.

Where I hold a position prior to a company being featured as a link, this will be disclosed. Where I will be investing during the week of linking, this too will be disclosed.

In no event should my investing or not investing substitute for doing your own due diligence, if you are considering an investment in the stock.

My circumstances and resources are probably very different to other potential investors. All stocks linked in LIR, I consider to merit the link, whether or not I invest in the company. As before, neither LIR, Global Profiles nor myself get paid for featuring a link. Lastly, because I invest in a stock it does not necessarily turn it into a sure thing winner. Happily though, neither will my investing turn it into an automatic loser.

Below is the list of natural resource stocks I hold an interest in. In no particular order, they are:
Birch Mountain Resources Ltd. BMD. http://www.birchmountain.com/
Canadian Royalties Inc CZZ. http://www.canadianroyalties.com/en/
MacMillan Gold MMG. http://www.macmillangold.com/
Quaterra Resources Inc QTA. http://www.quaterraresources.com/
MBMI Resources Inc MBR. http://www.mbmiresources.com/
Candax Energy Inc CAX. http://www.candax.com/
Derek Oil & Gas Corp DRK. http://www.derekoilandgas.com/s/Home.asp
Consolidated Spire Ventures CZS. http://www.spireventures.com/pmt.php/index
Cornerstone Capital Resources Inc
http://www.cornerstoneresources.com
Pacific Asia China Energy Inc.
http://www.pace-energy.com

If you have a junior resource company you think has merit and don’t mind sharing it with others, feel free to send it along. If space permits and they have no objections, we’ll try to put up a link.

Junior resource companies are not suitable for everyone, but for those who are interested in that sector, we aim to provide companies of merit. As the new century unfolds and natural resource demand soars, I think, that there will be big money to be made from prudent investment in the sector. As always, it’s important to do one’s own due diligence if thinking about
making an investment. No one has more at risk in an investment than you do yourself.

If you like this report, feel free to share it with others. It is not copyrighted but open sourced. If you have comments, witty remarks, or information to share, please send them along as well. If permission is granted, we may use them in this report.

Sometimes the daily LIR gets “bounced” out of the receiver’s server. When this happens it sometimes bounces you out of the LIR database as well. If you suddenly stop receiving the daily update but didn’t actually want a break from my daily insanity, just email me at the link below to get back onto the daily list.

Graeme Irvine

Global Profiles LLC
girvine@globalprofiles.net
http://www.globalprofiles.net

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