March 2017: Market Jitters

While money is flowing back into miners’ budgets, markets continue to be nervous, concerned at the lack of predictability on events in the US, Europe and China. President Donald Trump’s questionable ability to enact tax cuts and progress his investment and spending agenda, uncertainty about election outcomes in Europe and the government’s management of China’s economy all worried traders in March, and look likely to continue to do so.

An indication that some confidence is returning comes from the improvement in deal value in the metals and mining sector in March. This rose by 11% on the previous month, although still 6% lower year-on-year, GFMS analysts said.

Gold is benefitting from its haven status amidst the uncertainty, reaching a five-month high following the US military action in Syria and dismal US jobs data. “The fear trade has driven the market so far this year,” David Govett at Marex Spectron told Reuters.

In their 2017 Gold Survey, GFMS analysts are suggesting that the gold price will average around $1.259 this year, not much above Friday’s (7.04) closing $1,254. However, dealers remain cautious, especially since the Fed has been reinforcing expectations of US interest rate hikes to come, and profit-taking quickly follows market peaks.

Aluminium continues to be a stronger market than most other base metals, holding a near 28-month high on worries about supply as the Chinese economy continues to expand, albeit more slowly than last year. (Activity at China’s factories rose for a ninth successive month in March.) The Chinese government has ordered steel and aluminium producers in 28 cities to cut output in order to curb the country’s noxious smog.

Most base metal prices were vulnerable to market fears, falling on investor flights to safe-havens. While copper has being supported by forecasts of a small shortage early this year, because of lack of new supply and on mine closures, it remains vulnerable. The US military action in Syria brought de-risking moves across many metal markets, including copper, lead, zinc and iron, even though expectations of increased Chinese demand had been supporting prices.

Exceptions have the rare metals – these, including lithium and cobalt are being chased by investors because of their use as a component in batteries for electrical vehicles. Cobalt is up 120% and lithium 77% since early last year.

Belatedly, markets have realised that manganese is also a battery component, as well as being essential for steel production, mining.com points out. Demand for steel is forecast to rise on the increase in infrastructure projects, particularly in the US. Nearly 90% of global manganese reserves are in South Africa, according to Reuters.

SOUTH AFRICA

JUNK STATUS: The rand and bond markets fell as rating agency S&P downgraded South Africa to ‘junk’ status after the dismissal of the South African finance minister, Pravin Gordhan. The Chamber of Mines added its voice to the chorus of parties worried about the consequences of President Jacob Zuma’s decision to reshuffle his Cabinet.

MINING PROFITABILITY IMPROVING: Meanwhile, although the country’s mining production fell by 4.5% over the last 12 months, according to the Chamber of Mines, the sector’s profitability has been improving. The level is “now virtually on a par with its position in 2014,” the chief economist at the Chamber, Henk Langenhoven, told Fin24.com.

MINING CHARTER: The Department of Mineral Resources (DMR) indicated the long-expected new Mining Charter’s gazetting failed to meet its self-imposed March deadline. A major industry objection to the new charter is that the South African mining sector would face additional levies and taxes of R2billion to R3billion a year whilst R2billion already contributed by it for human resource development will be diverted into a new tax collection entity. Miningmx.com reported that the chamber would turn to the courts again should the DMR record the current draft of the mining charter in the government gazette.

ZAMBIA

FOREIGN WORKERS: A month-long government review of foreign labour quotas in the mining sector is to be undertaken following strong local lobbying against the perceived influx of foreign workers, says africapractice.com. However, it adds that it does not expect that this will “result in sweeping policy changes or a major crackdown”.

TANZANIA

LSE-listed Acacia Mining is trying to have an export ban directive published in March lifted. It prevents the export of gold and copper. However, BMI Research told Reuters that in its view the ban will not be implemented. According to Mining Review, BMI (a unit of the Fitch Group) says that with Acacia in a $41million tax dispute with the government, it is “likely that the recent export bank is actually a means for the government to gain leverage…”

MOROCO

Morocco is ranked as the top attractive African country in the Fraser Institute survey of global mining companies. Just published, though conducted in 2015, the survey listed the country as No.24. Only Kenya and Guinea feature in the bottom 10 for their overall investment attractiveness among the 109 countries surveyed.

CORPORATE

ANIL AGARWAL: Indian billionaire Anil Agarwal stunned markets with what London’s Daily Telegraph called a “dawn raid” on Anglo American, buying a £2billion stake. The “opportunist” move started speculation that he will push for a reorganisation of the FTSE 100 miner. He announced that his Volcan Investments holding company hopes to buy nearly 13% of the miner, which would make him its second largest shareholder after the South African government. Dealers read the move as a signal that mining could be re-entering a bull market.

CENTRAL AFRICA

In a separate move Agarwal’s LSE-listed Vedanta Resources outlined a ‘50-year vision’ for mining in Central Africa’s Copper Belt. As reported by Mining Review, Vedanta plans to invest $1 billion for the next growth stage at Konkola Copper Mines in Zambia. Agarwal, Vedanta’s chairman, is reported as saying he wanted Konkola to be “the largest integrated copper producer in Africa”.

EAST AFRICA

ASX-listed Syrah Resources has signed a Memorandum of Understanding with China-based BTR Energy Materials. BTR is the world’s largest manufacturer of battery anode materials for lithium ion batteries. Syrah’s Mozambique project hosts the world’s largest graphite ore reserve and is rapidly advancing to production. According to benchmarkminerals.com demand for graphite as anode material in lithium ion batteries is set to increase by over 200% in the next four years.