RE: Califdreaming -- Red"A falling US dollar should be offset to _some_ extent by higher base metal prices especially if one makes the glib assumption that a slowing US economy will not affect total demand for base metals.
World metal demand is up yoy, despite a modestly slowing US economy. Now that Bernanke has stepped on the gas, the US will re-accelerate. A stronger US economy will push metal demand (although it is far less important to world demand than China is). A weak greenback and growing demand are both supportive of commodity prices. Eventually, the greenback will regain some strength and price pressures will alleviate.
"But I wouldn't count on it going forward for two reasons. One, commodity prices are forward looking and the relative weakness of the US dollar has likely already been priced in. Two, the two largest consumers of base metals are China and the USA. In both economies, domestic costs are measured in US dollars or a currency pegged to the US dollar."
If the market was omniscient as you seem to imply, why did Gold prices jump, along with every bm after Helicopter Ben cut rates?
"Yukon Zinc, for one, released its feasibility study in early 2007. (Are you implying that Yukon Zinc management should have forecast the climb of the Canadian dollar above above nominal parity?)"
Absolutely. It's hardly been a secret that the C$ was headed to parity, has it?
If the assumed fx rate wasn't favorable, you can be sure YZC would have run economics using US$ and let the reader adjust for fx.
If you think otherwise, go check the con job that Taseko tried to fob off on the market two weeks ago with the FS on their so-called Prosperity project. They used ~$0.80 fx to run the economics even when the Looney was at parity. At current fx, all scenarios would have shown negative IRR. But perhaps Taseko, a profitable producer, had more at stake than a wannabe like YZC. Maybe TKO felt more pressure to put out a favorable FS for a play that wouldn't get into production for 5-10 years even if positive?
If you adjust YZC's FS numbers to current ~$1.03 fx (about ~18% swing from the ~$0.85 used), they don't look so hot. In all but their "current price" scenario, IRR would be in the single digits.
"Is TAM that shaky a deal that you feel obliged to cast spurious aspersions on other outfits?"
If pointing out the fact that the "other outfits" juiced their FS by assuming rosy fx is a "spurious aspersion", so be it. To me, running long term analysis based on unsustainable and unrealistic fx is nothing more than a con game. FS are supposed to be serious, relatively reliable numbers (-5% to +15%). Anyone who fails to see ~20% currency change in 9 months in a place like Canada has completely screwed up and it calls into question their other assumptions. YZC originally said they needed $155MM in '06. Then, the "optimised FS" jumped to $207MM in Jan '07 and to $250MM now. That's ~60% capex increase in 18 months for goodness sakes, even with the Looney appreciating ~>20%...
TAM didn't play those games. It already had superior economics and goosing their numbers simply wasn't necessary.