One of the primary reasons that the US $ has declined in a relatively orderly manner over the last three years has been the support provided to it by the Japanese and Chinese central banks. As the US dollar falls, it strengthens the Yen and other currencies like the Euro, making exports from those countries more expensive, which is why they have tried to slow the decline of the US dollar.

China’s currency, like the GCC currencies, is pegged to the US$, so while it does not rise against the US $, it loses purchasing power against other currencies.

Jiang Ruiping wrote an opinion piece in the China Daily times (“Crisis looms due to weak dollar”, September 28, 2004), which I found very interesting and which I have summarized below. Mr. Ruiping is a director of the Department of International Economics within the China Foreign Affairs University, which is affiliated with the Chinese Foreign Affairs Ministry (all highlights are mine – Ed.):

He writes that many international institutions and renowned scholars have recently warned that the possibility of a US dollar slump is increasing and may even lead to a new round of a US dollar crisis. He cites that it has dropped 40% against the Euro since its peak, and 20% in the last year alone. While he says it is still too early to conclude if the US$ is headed for a crisis, he states reasons for its likely decline:

• Fiscal Deficits: Mr. Ruiping states that in 2001 the United States enjoyed a US$127.3 billion surplus, which has now turned into a US$459 billion deficit, which accounts for 3.8 per cent of the US gross domestic product (GDP).
  
  
• Federal Debt: US Government's outstanding debt stood at US$7.586 trillion, accounting for 67.3 per cent of its GDP, which exceeds the internationally accepted warning limit, according to Mr. Ruiping.
  
  
• Current Account Deficit: During the 1992-2001 period, the average US current account deficit was US$189.9 billion. In 2002 and 2003, however, the figure soared to US$473.9 billion and US$530.7 billion respectively.
  
  
• Foreign Direct Investment (FDI): In 1998, 1999 and 2000, FDI that flowed into the United States was US$174.4 billion, US$283.4 billion and US$314 billion respectively. Starting from 2001, however, global direct investment began to shrink and US-oriented direct investment also decreased. In 2003, FDI into the United States was 44.9 per cent less than that in the previous year.
  
  
• Japanese Intervention: To deter the Japanese yen's appreciation and promote exports, the Japanese Government used to intervene in the foreign exchange market to keep the yen at a relatively low level. In 2003 alone, it put in 32.9 trillion yen (US$298.76 billion) to purchase the US dollar. The intervention constituted a major deterrent to US dollar devaluation. Since April, it has not taken any steps to swing its foreign exchange market.
  
  
• “Oil Euro”: Given the deteriorating relations between the United States and the Arab world, quite a few Middle Eastern oil-exporting countries have begun to increase the proportion of the euro used in international settlement. Reportedly Russia is also going to follow suit. If an "oil euro" is to play an ever increasing role in international trade, the US dollar will suffer.

Mr. Ruiping major concern is that “In China's case, its rapidly increasing foreign exchange reserve will incur substantial losses if the US dollar continues to weaken. At the end of 2000, China's foreign exchange reserve was US$165.6 billion. By the end of 2002, it rocketed to US$286.4 billion before it soared to US$403.3 billion by the end of 2003. By the end of June this year, the reserve was registered at a staggering US$470.6 billion. About two thirds of the reserve is dominated by the US dollar. As the dollar goes down, China will suffer great financial losses.”

His suggested remedies:

• Increase proportion of euro and yen in the foreign currency reserves
• Chinese enterprises to go global to weaken dependency on US Treasury bonds
• Using US assets to increase the strategic resource reserves, such as oil reserves

And, as if prompted by Mr. Ruiping’s suggestion, China’s MinMetals has just announced a takeover bid to acquire Canada’s largest mining company, Noranda (a copper, zinc and nickel producer), in a C$ 6.7 billion offer. That leaves them only US$ 465 billion to buy more things with!!!

ENDEAVOUR MINING CAPITAL

www.endeavourminingcapital.com

(Symbol: EDV on the Toronto Stock Exchange)

With offices in Vancouver, London and Georgetown, Endeavour Mining is registered as a Cayman Island company that is listed on the Toronto Stock Exchange.

It identifies growth opportunities in, and provides capital to, the mining sector. This is done by means of equity financings (or debt financing with equity rights) through its merchant banking and corporate finance activities. It is primarily involved with Canadian Junior Producers and Junior Exploration companies.

Endeavour Financial is Endeavour Mining’s Investment Advisor. Endeavour Financial is a privately owned investment banking company focused on the global mining industry over the last sixteen years.

Endeavour Financial has raised over US$ 1 billion in equity and US$ 400 million in debt. It has also advised on over US$ 2 billion of mergers and acquisitions in the last two years. These numbers are significant due to the relatively small size of the global mining sector.

• Endeavour Mining had net assets of US$ 80 million as of May 31, 2004, its last quarterly reporting period.
• Net earnings per share were US$ 0.88 for the three quarters, to May 31.
• Revenues for the nine months of 2004 were US$ 23.5 million.
• Net asset value (NAV) at Aug 31 was C$ 4.17 per share, while the share price on Sept 28 was C$ 2.83. The company announced a semi-annual cash dividend of C$ 0.035 per share on Aug 17.

The Company is highly leveraged to its core merchant banking investments and therefore experiences earnings volatility. Offsetting this to some extent is the deal flow from its corporate finance activities, which provides a regular stream of income. It trades at a very low P/E ratio and at a discount to NAV due to this volatility.

Endeavour is managed by a team of industry professionals. The Company’s Chairman is Michael Beckett, formerly MD of Consolidated Goldfields. The CEO is Neil Woodyer, formerly CEO of Lloyds International Trading, a subsidiary of Lloyds Bank. The Directors of the Investment Committee are Frank Guistra, formerly head of Yorkton Securities and Jorge Gamarci, former MD of UBS Securities and North American GM for Lloyds Bank.

Endeavour’s most successful deal in recent times has been Wheaton River Minerals. Endeavour guided Wheaton through a series of high profile acquisitions, raised substantial sums of money in Canada and the US to finance the acquisitions and helped take Wheaton from a market capitalisation of $ 20 million at the start of 2001 to a peak value of $ 2 billion within three years, making it the fifth largest gold mining company in Canada.