Posts Tagged ‘commodities’

More pressure on copper as commodities start to fade

FCXFollowing on from my post last week “What goes up  must come down” , where I looked at the two largest producers of copper, Chile‘s Codelco & also the American firm Freeport McMoRan, I have spent some time over the weekend researching the copper market & looking to see if I could find anymore signals that would show market direction.

Re-capping on the trade, FCX so some very significant selling volumes from the open on Friday &  the trade triggered as FCX fell through the 65 mark, where I commited to 50% of my planned exposure, the remaning 50% was then entered at 64.25 & I rode this down to 63.06.  I am looking to repeat this trade as a swing this week & here are some of the reasons why.

As previously stated on Freeport McMoRan, the company has scaled back copper production & has increased gold production to an all time high. Freeport is making some serious cutbacks & cost management is a major theme, as with many other major stocks, so I am still bearish on FCX as a whole from a fundamental standpoint.

Whats more interesting, is looking at some other factors that help bear out (nice pun) my thesis that we are looking at short term oversupply of copper. First let’s have a look at the copper Exchange Traded Fund : JJC, it has seen a strong uptrend  since early this year, returning a tad over 100% year to date, however looking at this technical chart, it would seem to be overbought & is signalling this.

JJC

Turning to a shorter term chart & looking at volumes on JJC, we can see that it hit & refused it’s upper Bollinger on Thursday 13th & saw some very aggressive selling in high volumes on Friday. If we then look closer at the history of the ticker, it has a habit of withdrawing back to it’s 20 Day Moving Average, which would give a reasonable bottom at 36.90 on any significant breakdown. So, I am looking to take another short position in JJC (if I can, it’s pretty illiquid) & see if I can’t double up on my FCX trade.

JJC 3 month

Another indicator that all may not be well is the performance of the Base Metals ETF : DBB, which holds an equal 33.33% in copper, aluminium & zinc. DBB has also had quite a years so far, with a return rate of 53%, on Friday this started to look fragile & there was fairly spikey activity in the ticker all through the day, finally closing 3.8% down, so not a bright day for metals at all. Again looking at a 3 month chart, we can see that DBB has been hitting it’s head against the upper Bollinger since mid July & at the latter end of last week also refused. Needless to say that Friday saw some volumes selling off, although not as heavily as FCX & JJC. The reasoning behind this is that DBB is held by select financial institutions & they are unable to un-reel their positions very quickly.

DBB

So to summarise, FCX still looks weak, JJC in my opinion is looking to implode & the major ETF in this sector is on the retreat. Again, I’ll be looking at shorting Freeport down, as per the tactics from my last post & if I can get in on JJC, I’ll be tapping into a short there too, looking for an exit at around 38.50. If the sell off continues, next stop for me is the 34.20 mark, so I’ll look to drop the short at 34.50. Add to all this the negative sentiment on China  & commodities right now, I think these swings could be real earners for this week.

Author has no current holdings in any stock mentioned

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Vale to sweep up as Rio “fails” in Chinese espionage fiasco

bulk ore carrierThis post from China News Wrap is significant, as it’s sourced locally from International Financial News, which is a Peoples Party owned newspaper. China informs Australia that proof is irrefutable (sic) Basically the Chinese authorities are not going to back off, having been snubbed over the Chinalco deal. I reckon this will run & be very detrimental for both Rio & BHP Billiton. Anyyone else noted that both firms have been talking up inventories being built up elsewhere ? The real deal is in the 2nd last paragraph of the story :

“At the same time, although Rio Tinto had made statements last week emphasizing that it would ‘continue its iron-ore operations in China’, the actual situation does not seem to reflect this. The overseas media yesterday reported that shipments of spot market iron-ore from Brazil to China soared to record highs in July, which could be related to the Rio Tinto case. Australia seems to have temporarily suspended its exports of spot market iron-ore to China. Data from the shipping company AXSMarine indicates that orders for shipments to China from Australia’s main iron-ore port fell to 12 this month, while orders for shipments from Brazil reached the record high of 31. This means that China’s demand for iron ore is still strong.”

so basically VALE is picking up the slack & would also seem to be enjoying it too, if this piece from Reuters is anything to go by :

Vale Resists China Price Cut Request on Demand Gain

“Politically Vale has done well with its customers by letting the Australians settle first,” Cliff said. In the first quarter, China took 66.5 percent of Vale’s total iron-ore sales of 52.1 million metric tons, up from 32 percent a year earlier.”

Regular readers of MyStockVoice will know that I’m a big fan of Vale, so, long VALE is a no brainer & I have felt that BHP is a little toppy for a week or so, may instigate a short. RTP I’ll leave for bigger fish to swim with.

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Chile leads the way for South American ETFs

london-metal-exchangeWhilst suffering from shrinking export markets, led by the all important 20% supply of global copper, a shrinking economy & climbing unemployment; Chile continues to buck global trends, with ratings agency, Moody’s Investors Service making it the first investment- grade country to be awarded a higher credit rating this year. The South American country’s $22 billion of savings in wealth funds has put it in a position to recover more quickly from the global credit crisis than other, similarly rated nations, Moody’s said yesterday in raising Chile’s foreign debt to A1 from A2 with a positive outlook.

This has been the result of a canny economic long game by President Michelle Bachelet, while near neighbours have splashed out on the commodities boom over the last decade, Chile has followed a prudent path of pumping  profits from state owned copper giant Codelco into soverign funds, providing the nation with a $22Bn cushion against global turmoil. That cushion is equal to roughly 13% of Chile’s GDP ($154Bn), so Chile looks as thought it should weather the storms of 2009 quite nicely.

“Nobody else compares with Chile,” Moody’s analyst Mauro Leos said in a phone interview from New York. “Like everywhere else, they’re getting hit hard. But because of the work they did ahead of time, they can go from a 5 percent surplus to a 5 percent deficit without any additional borrowing.”

Also helping is the price of copper on global markets, which is on a slow uptick, & an expectation that China’s economic recovery package will drive demand for the metal towards the end of 2009, this is reflected in current long term copper contracts on the London Metal Exchange. Central government has acted promptly, with Bachelet committed to a $19.5Bn package incorporating tax cuts & subsidies that should help stymie economic contraction. Even with copper prices at all time lows, economists think that Chile can still exit the current crisis without hitting recession.

Codelco announced its full year results earlier this month, generating a pre-tax profit of $4.968 Bn to December 2008, it is estimated that Codelco has provided an average of $7.5Bn per annum in revenues for the last 4 years. This follows Fitch rating $600M of the company’s debt as “A” back in January.

According to Fitch : “The company had USD 4.6 billion of total debt, of which USD 1.3 billion was classified as short-term. Codelco has adequate liquidity, backed by a track record of accessing debt in the local and international markets and a well-diversified debt maturity profile. Short-term debt is expected to be refinanced through a combination of the 2019 notes, bank loans from undrawn facilities and cash flow from operations.”

Chile’s banking sector is also helping stem the flow, business loans grew sharply in January, despite a deep economic slowdown amid the financial crisis, the country’s superintendent of banks said on Monday. Gustavo Arriagada told lawmakers that loans continued to grow, though at a slower pace, as Chilean banks, in counterpoint to their Western counterparts pass on a series of aggressive from the central bank to customers

“Although we have seen tighter credit conditions in the last few months and a fall in requests for credit, that is due to factors like an increase in risk and worsening of employment conditions and client income,” Arriagada said in his presentation.

This has led analysts to rethink their strategy regards South America, the single country ETF –  iShares MSCI Chile Investable Index : (NYSE : ECH) has seen some good buying activity of late, even if there is a 15% weighting towards Codelco within this product. ECH managed to add 5% over the last five days, with a huge spike in trading in yesterdays surge on the US markets. Along with Brazil / EWZ & Mexico /EWW, it looks as though Chile could be an interesting mid to long term long within the country specific ETFs.

South America : Copper cartel on the horizon ?

blackboard_copper22With global copper prices sinking from a 2008 high of $4 per lb, down to todays miserly, $1.25 per lb, it is hardly surprising that the two major copper producing countries in South America are looking at ways to buoy up their operations. Last week, Peruvian president Alan Garcia dropped some strong hints that Peru & Chile should coordinate on copper production , in order to achieve greater control of prices on international markets.

“I believe that as countries with a strong mining presence in the world we must work in a joint manner, because when brotherly countries produce and compete with the same metal, the only thing we achieve is a fall in the price of copper, and we are both losers”, said Garcia

Demand growth in China, the world’s largest user of the metal used in plumbing and wiring, slowed to an estimated 9.8 percent in 2008 from 26 percent in 2007. Freeport-McMoran amongst others has shelved projects including a $450 million expansion at its Chilean copper mine El Abra. Freeport owns 51 percent of the mine and Codelco the remainder. The decline cut net income at Chile’s state-run Codelco, the world’s top copper miner, by nearly half to $4.5 billion in 2008.

In December, Jose Pablo Arrelano, CEO of Codelco stated copper prices will be “depressed” next year and demand almost “stagnant” as the international economic crisis leads to higher stockpiles of the metal. This will undoubtedly hurt other players in the commodities market, including BHP Billiton (NYSE – BBL) & Freeport McMoran (NYSE – FCX), Freeport McMoran have made some inroads to looking at the problem, the board announced in early December ,a  Revised Operating Plan in Response to Weak Market Conditions. Which is basically a slow down in extraction & refining in both its North & South American operations.

In Chile & Peru, copper extraction looks like a loss leader at the moment, in aggregate across all units, costs in 2009 are predicted to range from between $0.85 – $1.45 per pound. BHP have similarly looked at cutbacks regards copper extraction, the world’s biggest mining company, has delayed plans for an energy plant in Chile that it planned to build to supply two of its existing copper mines.

As discussed in an earlier post, Aussie-Canuck operator Equinox opened the largest copper mine in Africa last year, at Lumwana in Zambia, which when it comes fully online in early 2009, will be churning out 172,000 tonnes of high yield concentrate per year, which can only bring about additional competition for Codelco, BHP & Freeport, especially as Equinox has hedged production at $2.00 for the first three years of operation at Lumwana & have an estimated existing extraction cost of $0.80.

Chile may be able to weather the storm as Otto at Inka Cola puts forth in this article, the country has one of the highest per capita reserves in South America, totalling $26.49Bn, he further argues that Chile has an additional  $23Bn “tucked away in overseas accounts to call on.” Which is a considerable cushion to see out 2009, as Codelco & Arrelano await  global copper demand to turn positive in 2010.

Peru on the other hand does not look as if it will fare so well, although looking at Otto’s chart, they have a reasonable level of foreign reserves, the Andean nation is beset by rising unempolyment & a lack of foreign investment. Peru’s largest miner Southern Copper (NYSE – PCU) posted  a $125 million net loss in the fourth quarter, compared with a $311 million profit in the year-ago period, due to demand destruction. It is estimated that more than 9,000 miners have been laid off in Peru, whilst new projects have been suspended, including Southern Copper‘s plan to invest $1 billion in the Tia Maria mine. These cutbacks have already helped slow Peru’s growth rate to a projected 5% in January.

The question is, will Garcia’s plan, if it comes to fruition be timely enough ? We have seen how long it has taken OPEC production cuts to start to have an effect on the market price of crude. Of more concern for Garcia will be the new productive mines being opened in Zambia by Equinox at Lumwana & also the the Chinese backed Chambishi mine, which is operated by China Non-Ferrous Metals Mining Corporation (CNMC). The expected copper ore output is one million tons per annum, with a projected service life of 25 years. China has also embarked on an acquisition spree of late, which had also brought it interests in Australian miners such as Rio Tinto. Garcia will also have to play a careful game, as China is estimated to have committed to investing over $6 billion in Peru’s mining sector over the next five years. Politics come into play of course & the Chinese are expert in this field, my gut is that production cuts will come, although China will no doubt be exempt from any surging price changes in the near future.

My feel is that the copper mining stocks will remain low for a good time to come, much has been made of the Chinese stimulus bill, however, there is no guarantee that this will come to fruition any time soon, as & when it does kick in, China will be adequately supplied by its current investments in South America & Africa, as discussed in this piece. I am however, a little more bullish on the mining sector in general & have just initiated a position in the S&P Metals & Mining Index (ETF –  XME ,) which looks as though it may be building momentum for a bullish 2009.

the Bear & the Dragon shake hands on $25Bn energy deal

siberianpipeline1Whilst having previously discussed the Byzantine workings of Russia’s energy players in previous articles & also the direction that China has taken recently in securing strategic reserves, it was only a matter of time befiore the Dragon & the Bear came to an accord together. During a visit to China this week, Russian Deputy Prime Minister Igor Sechin has succeeded in bringing together a massive deal for Russian oil producers in Siberia.

On Tuesday (17/02/09), Russia and China signed  an intergovernmental agreement on the construction of a branch of the East Siberia-Pacific Ocean (ESPO) oil pipeline toward China. Under this agreement, Russia will supply 15 million metric tons (300,000 barrels per day) of crude oil annually for 20 years to China, in return China via state owned China National Petroleum Company (CNPC) will extend a total of $25 billion in loans to Russian state-controlled crude producer Rosneft and pipeline operator Transneft at 6% per annum in exchange for the long-term oil supply. Transneft plans to start building a Chinese leg of the East Siberia-Pacific Ocean later this year and to commission it in 2010, Russia’s monopoly pipeline operator said in a statement on Tuesday.

“The construction of the leg should be synchronized with the construction of the first line of the ESPO pipeline,” the statement quoted the company’s vice president, Mikhail Barkov, as saying. Barkov also said that China’s $10 billion loan to Transeft would primarily be invested in the construction of the Chinese leg. “In addition, there are projects that will contribute to the functioning of the entire eastern pipeline and this leg in particular,” the Transneft official said.

The pipeline’s first leg was launched in October 2008 in the reverse direction, running westwards. The construction of the pipeline, designed to bring Russian oil to the lucrative Asia-Pacific market, is due to be completed later this year, which will enable ESPO to pump its first oil eastwards. The terms of the agreement stipulate that China will extend a $15 billion loan to Russian state-run oil giant Rosneft against the guarantee of oil supplies, while Transneft’s $10 billion would be granted with the infrastructure as collateral. Currently Rosneft, which is expected to be the main oil exporter via the pipeline, supplys around 10 million tonnes of oil a year to China by railway under the terms of a deal signed in 2004.

The ESPO was originally conceived in the mid-90’s by now disgraced Yukos Chairman, Mikhail Khodorkovsky, as a private pipeline. Following the “collapse” of Yukos, state owned Transneft picked up the baton & began construction of the first leg in 2006, which completed last year. The pipeline is supplied via spurs from the Tomsk Oblast & Khanty-Mansi Autonomous Okrug oil fields in Western Siberia, Transneft’s existing Omsk-Irkutsk pipeline has also been connected, allowing Rosneft to pump up to 22 million tons of oil annually into the pipeline, whilst smaller competitor Surgutneftegas will contribute around 8 million tons.

Anglo-Russian or Russo-Anglo (depending on which side of the political fence you sit on) TNK-BP is also involved in this project, having began supplying oil to the pipeline in October 2008. TNK-BP in a joint venture with Rosneft has extensive operations in the Verkhnechonskoye field, which has proven reserves of 409 million barrels of oil equivalent.

“The first shipment of VC crude into the ESPO marks an important event for TNK-BP and for the industry.” commented Chief Operating Officer Tim Summers at the launch. ” We are establishing a major new production center in East Siberia. Application of world—class technology and the timely launch of the ESPO pipeline allowed us to begin commercial development of this project, which has been deemed uneconomic for the past 30 years. The beginning of regular commercial shipments from VC to the ESPO marks the emergence of East Siberia as a new and important oil and gas province in Russia”.

So win-win all round? Certainly for the Chinese in the long term, as we have argued in previous articles, China is on a spending spree on commodities, particularly in the energy sector where it seems almost desperate to secure strategic reserves. Russia also gains, in that with the recent devaluation of the rouble, access to funding in capital markets has been harder to come by, especially for Russia’s energy firms. Do we in the West gain from this ? That remains to be seen, from a persoanl viewpoint, this may well help to stabilise geo-political issues in the region whilst also contributing to oil price stability in the long run.

Militants in Niger Delta … bad for Nigeria, could be good for Angola & Ghana

oilrig_1515_18918777_0_0_7306_300Like many developing nations with vast natural resources, Nigeria has seen a massive influx in Foreign Direct Investment (FDI), particularly in the energy sector. However, civil unrest, particularly in the Niger Delta, may be a catalyst for potential investors to look to other West African Nations as investment opportunities. Added to this are the ever present problems of ineptitude & “graft” within both state & federal government, which has brought some unwelcome news for Africa’s largest economy.

Last week, Russian giant Gazprom (OTC : OGZPY) announced that it was in discussions to inject up to $2.5 Bn into a joint venture enterprise with state owned Nigerian National Petroleum Corp (NNPC), with a view to developing domestic gas production, processing, and transportation.” Nigeria has an estimated 187 trillion cubic feet of natural gas reserves. Industry experts see the deal as a positive move by the federal government to utilize the country’s huge gas resources that have hitherto been wasted, it is estimated that Nigeria flares off as much as 14% (24 billion cubic feet) of global gas wasteage.

The Russian gas company is attempting to become involved with the Trans-Saharan gas pipeline (TSGP). The pipeline, which would connect the Niger delta in Nigeria and Niger, to existing gas transmission hubs to the European Union at El Kala or Beni Saf in Algeria’s Mediterranean coast, is expected to cost $10 billion, of which Gazprom will initially invest $2.5 billion. The project is due to commence in 2009 and isplanned to complete in 2015, when Nigeria hopes it will become one of the biggest sources of natural gas for continental Europe.

Livi Ajounuma, General Manager at NNPC, confirmed that “we have signed a Memorandum of Understanding [MOU]”. He commented further on the deal saying, “It’s a good thing. It means that a giant company like Gazprom can come to Nigeria.”

All is not as rosy as it may seem however, as the Russian Ambassador to Nigeria, Alexander Polyakov, staged a withering blow at Nigerian confidence this week. Polyakov has called on the Nigerian authorities to create a stable environment for foreign nationals who come to work in the country, to continue the flow of foreign investment and development of the economy. Over 200 foreigners and countless Nigerians have been kidnapped in nearly three years of rising violence across southern Nigeria. Some militants claim to be fighting for greater control over the Niger Delta’s oil wealth, however, other gangs of armed, jobless youths make money from extortion and kidnapping.

Polyakov urged prompt release of all hostages, including some Russians,currently being held by militants in Nigeria’s southeast Niger Delta region.”Everybody in the region and the government should play their role to ensure that all hostages are freed,” he said.

There are strong indications that investment inflow to the upstream sub-sector of the Nigerian oil industry has started dwindling as foreign investors now choose Angola and Ghana as preferred destinations over Nigeria. Which in turn, threatens Nigeria’s capacity to grow its crude oil reserves as planned, it is targeting 40 billion barrels proven reserves by 2010. Analysts have identified insecurity in the Niger Delta and weak fiscal policy as key reasons why investors are beginning to leave for more stable business opportunities in Africa. Recently due to militant activity Royal Dutch Shell (NYSE : RDS:A) has seen its production dropping from one million bpd to about 380,000 bpd at its Bonny terminal in the south of the Delta. Exxon has also experienced increased insurgent activity in its Nigerian operations.Last week, local union officials threatened to call a strike which would shut down crude exports from the River state, until such time as the issues are addressed by State & Federal officials. Nigeria is already suffering from production slow down due to militancy, currently the Niger Delta is only exporting 1.8 million bpd, compared with a targetted 2.2 million bpd.

Near neighbour Angola has now  begun to attract more investments from oil companies as International Oil Companies are making long term expenditure commitments in the African oil ventures. Total (NYSE : TOT) said last week that it would continue with a $9 billion investment to raise production in Angola, despite the huge drop in crude prices since July last year. Total plans to stick to its major investments in Angola, even as it expects crude prices to recover, the company’s top official in Angola said.

“We are living through a crisis that has pushed oil prices to very low levels. Therefore, we are being extremely strict with all our investments,” Olivier Langavant, Director General in Angola, was quoted as saying in an interview with Reuters. “But the big projects (in Angola) like the Pazflor, which is a $9 billion investment, will be maintained.”

Pazflor, Total’s third production hub in Angola’s offshore Bloc 17, is expected to begin pumping oil in 2011 from water depths of up to 1,200 metres, according to the company’s website. Total is the third biggest oil producer in Angola after Exxon Mobil Corp. and Chevron, pumping, on average of over 500,000 barrels per day.

Chevron, Total and Eni are currently developing a $4 to $5 billion liquefied natural gas plant in Soyo, Angola. Whilst in contrast, Nigeria’s flagship Olokola, Brass LNG and NLNG Train 7 projects are yet to take off. Because of the high spend of the oil majors in Angola, oil service companies have begun to win big contracts. BP has awarded Halliburton more than $600 million in contracts for up to four projects in Angola.

Meanwhile, in Ghana, offshore oil finds in 2007 have led analysts to look at the small nation as becoming an “African Tiger”. Three vast blocks off of the West Cape Three Points are believed to hold vast reserves that may well outshine those enjoyed by Nigeria. The Jubilee field, one of West Africa’s biggest oil strikes in years, likely containins recoverable reserves of at least 1.2 billion barrels of oil equivalent, with first output scheduled for the second half of 2010. IOCs are lining up to take advantage, as smaller independent firms such as Kosmos Energy struggle to find capital to devlop proven resources in the area. Kosmos is reputed to have a $3Bn stake in the area up for grabs, according to industry website Rigzone. The current breakdown of partnership/ownership across the three blocs which can be viewed here at AfDevInfo, also includes US independent Anadarko (NYSE : APC)  & the UK’s Tullow (LON : TLW), along with various Ghanaian government run corporations.
This at a time when foreign investors in the Nigerian capital market withdrew some $4 billion from the Nigeria Stock Exchange kick starting a decline of over 50% in three months, according to its Director General, Professor Ndidi Okereke-Onyiuke. Coupled with an ever rising inflation rate, the highest for more than 5 years, is a major setback for Nigeria’s hopes of becoming a local economic giant.

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Bolivia’s Lithium quandary

battery-lithium-cr20321In one of the more remote regions on the planet, high in the Andes, lies the Salar de Uyuni, the famed salt flats stretch across more than 4,000 square miles in Potosi, Bolivia, well known for the fabulous wealth in silver extracted there by the Spanish in colonial times. Now a new age of mining could bring a 21st century El Dorado for the impoverished South American nation, as geologists believe that more than half the world’s reserves of lithium may  lie under the salt pans.

Government officials claim that Bolivia possesses the world’s biggest lithium reserves, and they also believe the country is poised to profit from car manufacturers which are driving to develop electric cars that will run on lithium ion batteries.

“Bolivia will become a big producer in six years of batteries,” Luis Alberto Echazu, the minister of mining and metallurgy, said in an interview. He ticked off three companies that he said have expressed interest in investing in the government’s lithium venture: Sumitomo, Mitsubishi and Bollore, a French company.

Lithium is the lightest metal and the least-dense solid. It’s typically extracted from beneath salt flats, currently about 70% of the world’s supplies come from Chile and Argentina. The U.S. Geological Survey says 5.4 million tons of lithium could potentially be extracted in Bolivia, compared with 3 million in Chile, 1.1 million in China. Independent geologists estimate that Bolivia may have further lithium deposits at Uyuni and its other salt deserts, though high altitudes and the quality of the reserves could make access & extraction difficult.

While estimates vary widely, some geologists say electric-car manufacturers could draw on Bolivia’s lithium deposits for decades. More importantly, the US is estimated to have less than 400,000 metric tonnes available for expoloitation within its borders. While lithium batteries don’t currently power hybrid vehicles, analysts think that the fuel-efficient electric cars of the future likely will use them. With an estimated 20,000 tons of lithium carbonate expected yearly from the salt flats, a rising demand for lithium for electric car batteries, and with the price of a ton of lithium up from $350 in 2003 to $3,000 this year, a potential bonanza beckons for socialist President Evo Morales. 

“There are salt lakes in Chile and Argentina, and a promising lithium deposit in Tibet, but the prize is clearly in Bolivia,” Oji Baba, an executive in Mitsubishi’s Base Metals Unit, said in La Paz. “If we want to be a force in the next wave of automobiles and the batteries that power them, then we must be here.”

Mitsubishi is not alone in planning to produce cars using lithium-ion batteries. Ailing car manufacturers in the United States are pinning their hopes on lithium. General Motors (NYSE – GM)  plans to roll out its Volt in 2010,  pairing a lithium-ion battery along with a petrol engine. Nissan, Ford and BMW, among other carmakers, have similar projects.

Demand for lithium, has climbed as makers of batteries for BlackBerrys, iPhones, laptops & other electronic devices use the mineral. But the automotive industry holds the biggest untapped potential for lithium, analysts say. Since it weighs less than nickel, which is also used in batteries, it would allow electric cars to store more energy and be driven longer distances.

However, President Evo Morales & Bolivias powerful popular movement are suspicious of foreign companies & have a track record of arbritary dealings with foreign concerns, as Brazil found out in 2006, when Morales nationalised all natural gas concerns in Bolivia, including operations by UK producer BP (NYSE – BP). The end result being that foreign companies have halted all investment in Bolivian opportunities.

“There are fairly significant barriers to developing the resource in Bolivia,” said Timothy McKenna, vice president of investor relations at Rockwood Holdings, one of the three major lithium producers in Latin America.

At the La Paz headquarters of Comibol, the state agency that oversees mining projects, Mr. Morales’s vision of combining socialism with advocacy for Bolivia’s Indians is prominently on display. Copies of Cambio, a new state-controlled daily newspaper, are available in the lobby, while posters of Che Guevara, the leftist icon killed in Bolivia in 1967, appear at the entrance to Comibol’s offices.

“The previous imperialist model of exploitation of our natural resources will never be repeated in Bolivia,” said Saúl Villegas, head of a division in Comibol that oversees lithium extraction. “Maybe there could be the possibility of foreigners accepted as minority partners, or better yet, as our clients.”

A potential model may already be in place, India’s Jindal Steel & Power signed a $2.1 billion deal in 2008 for the exploitation of iron reserves in south-eastern Bolivia, near the border with Brazil. This will allow Jindal, India’s leading steel producer, to develop 50% of El Mutun, widely believed to be the biggest untapped iron ore deposit in the world, along with steel making facilities. With an estimated 40 billion tons of iron ore reserve, El Mutun is expected to generate $200 million a year for Bolivia, plus up to 21,000 jobs when the commercial production of steel begins in 2010. It is heavily rumoured that Jindal won the concession due to its environmental track record. In 2007, Jindal was awarded India’s National Energy Conservation Award in the Integrated Steel Plants Sector for its success in protecting the environment by adopting eco-friendly processes and activities.

The opportunity to enrich the nation is there & a careful balance between foreign technological & financial assistance in developing the deposits, whilst providing an economical & ecological bias for Bolivia is obviously required. The real question is can Morales walk the tight rope between populist politics & reality ? My opinion, he will get there, as has recently been seen, collapsing oil prices have had a major negative effect on Venezuela  & Hugo Chavez influence in the region & beyond. So one route for Foreign Direct Investment looks to be closed. Morales is a sharp operator & I can see him letting foreign firms into partnership with Comibol, but definitely on Bolivian terms.