When Harry Met Tye

Kinross Gold served up the biggest surprise of the eleventh trading week of the year, with its first-ever foray into the diamond business in the form of a US$150-million investment in Harry Winston and its Diavik diamond mine in the Northwest Territories.

• In a matter of weeks, Kinross will own 19.9% of Harry Winston and a 9% stake in the Diavik mine operated by Rio Tinto.

Kinross CEO Tye Burt calls Diavik “truly one of the world’s best mines” and comments that the company is always looking at opportunities in the gold, silver and diamond subsectors, as these commodities tend to translate into premium stock valuations.

It’s another savvy move on Kinross’s part, using cash earned while gold is riding high to buy a stake in a superb diamond asset when diamond prices are at a cyclical low. Those Kinross shareholders grumbling about an unwanted diversion can draw comfort that the US$150 million represents only 1.2% of Kinross’s market capitalization.

For Harry Winston, the quick cash infusion lets it retire its remaining US$50 million in debt and gives it much more flexibility to respond to any more delays or cost overruns as mining heads underground at Diavik.

Harry Winston’s quarterly results come out on April 2, but shareholders will be relieved to hear that president and CEO Bob Gannicott describes the company as “still significantly cash profitable” despite the downturn in global diamond demand and prices.

• On the macro-scale, it was a very good week for commodity prices, though not for the best of reasons: the U. S. dollar tanked on March 21, falling the most against the currencies of six major U. S. trading partners since the Plaza Accord almost 25 years ago. Meanwhile, the yield on the benchmark 10-year U. S. Treasury note dropped the most since January 1962.

The plummets were in response to the U. S. Federal Reserve’s desperate announcement that it would buy up to US$300 billion of Treasuries that can no longer attract foreign holders and boost its purchase of agency mortgage-backed securities.

Combined with the ultra-low overnight interest rates in the U. S., this massive quantitative easing can only result in an unprecedented devaluation of the U. S. dollar, short-lived stock market rallies and a soaring gold price in the coming years. Frankly, it’s quite disturbing to watch a neighbour make such a mess of things and we’re glad we’re not U. S. taxpayers or wage earners, who are going to be walloped from every direction in the years ahead.

The week was also punctuated by the growing realization in America and around the world that the new administration of Barrack Obama is in way over its head and that Congress is shockingly dysfunctional even as its ramps up spending to levels that could create in the range of US$10 trillion in new U. S. debt over the next 10 years.

In particular, the new U. S. Secretary of the Treasury, Tim Geithner, is proving to be weak, unsupported and unable to shake his tax-cheat past.

• Whatever the merits of actually living in a high-tax jurisdiction like Quebec, there’s no doubt mineral explorers love to work there given the geological bounty and the provincial government’s strong support of mineral and infrastructure development at its northern frontiers.

The latest example is seen in the budget tabled by Premier Jean Charest’s Liberal party on March 19, which has set aside $804 million for three northern infrastructure projects: improvements to existing northern airports; a major upgrade of the dilapidated route 389, which connects Baie-Comeau on the North Shore to the iron ore ranges around Fermont; and a northern extension of highway 167 from Temiscamie up through the proposed Albanel-Temiscamie-Otish provincial park towards such prospects as Strateco’s Matoush uranium deposit, Western Troy’s MacLeod Lake moly-copper deposit, gold showings related to the old Eastmain mine, and the Renard diamond pipes even farther north.

• IntheSigno’theTimesdepartment, therewasarevealing moment in South Africa that shows the growing political clout of the Chinese government in the powerhouse mining nation: under pressure from the Chinese, the South African government refused a travel visa to the Tibetan leader-in-exile, the Dalai Lama. He had hoped to attend a peace conference after an invitation was extended by the old lions Desmond Tutu, F.W.De Klerk and Nelson Mandela, who are clearly losing their pull in the country. So much for the “Rainbow Nation.”

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