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June Updates

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BREXIT DOMINATED JUNE TRADING

Miners were again buffeted by international developments in capital markets, as in May. This time Britain’s shock decision to exit the European Union dominated trading in the world’s financial centres. Amid the general turmoil, gold was the main gainer as money fled to it as a safe haven.

While overshadowed by gold’s gain, the precious metals held their own in the broad advance which has seen commodity prices break a five-year streak of annual losses. Analysts said the commodities’ climb is likely to continue through to the end of the year, but some do not expect the second-half rally to be quite as impressive as the gains seen over the last six months.

GOLD – THE SAFE HAVEN

Gold closed the month with five weeks of gains and this benefited silver, which breached $19 an ounce for the first time since September 2014. Providing reinforcement for gold was the market reaction to Fed chair Janet Yellen’s latest cautious testimony, Bloomberg saying she has taken the market’s view of the probability of a rate rise down to 10% from 48% in May. International rating agency Fitch and the World Gold Council both issued statements forecasting continued demand for gold.

Sentiment in other metal markets is now cautious. BNP Paribas Securities economist Jeffrey Schultz said the mining sector was still in a recession with production growth already down 10% year-on-year in the first four months of 2016. “The outlook for the industry remains unsettling given a subdued commodity price outlook, wage negotiations in the platinum sector which kick off soon and depressed confidence and investment in the sector as policy uncertainty continues to weigh,” he said.

VIEWS STILL SPLIT ON CHINESE METAL DEMAND

Views on China’s economy, a major determinant of miners’ financial status, were split.

Copper and zinc prices were firmer on views on Chinese demand. Among bullish news, the latest numbers for copper showed that China’s imports in the first five months of 2016 rose 22% compared to 2015, according to Bloomberg. Bonded stockpiles not publicly disclosed rose for a third month in May to the most in nearly a year, said the news agency, and London Metal Exchange tracked stocks in Asia located outside China have more than tripled since bottoming in March. In addition, according to the main source of independent data on the country, the Chinese Beige Book: ‘Residential realty and residential and commercial construction all reported multi-year growth highs and only weaker commercial realty threw a damper on the party.’

However, according to China’s official Xuhau news agency, China’s manufacturing sector posted a slight drop in June, ‘suggesting there remains downward pressure on the economy’.

BHP OPTIMISTIC ON COPPER BUT SEES IRON ORE STABLE

BHP is optimistic about the fundamentals of copper, according to CEO Andrew McKenzie, but thinks it will take a long time for iron ore to rise. He told Bloomberg: “The reality is we’ve settled down now to a price that we would say is more realistic on the basis of fundamentals of supply and demand. We’ve had such a long boom. To walk that through, in my view, may take another 10 years.” However, the latest numbers for China’s steel production show that, contrary to expectations, it is rising again – up 1.7% in May, year-on-year.

DE BEERS CAUTIOUS ON DIAMONDS

Anglo American’s diamond subsidiary De Beers continued to be wary on future trends for the diamond market as sales volumes showed a seasonal dip. While, it said, rough and polished prices, “remain stable, reflecting steady consumer demand”, it maintained its *cautious outlook”.

AMPLATS PUTS MONEY INTO ZIMBABWE

Anglo American Platinum (Amplats) surprised markets with a plan to make a major investment in Zimbabwe and analysts are watching to see if other majors will follow. Amplats officials told local press it had approval from the Zimbabwe government for the first step for a platinum smelting plant. Mining website MiningZimbabwe commented that the government recently threatened to impose high taxes or shut mines if companies did not build smelters. This news, it says, shows that Amplats at least believes Zimbabwe’s platinum is important enough to spend money on

CHINESE GO FOR TIN IN ZIMBABWE

Tin is also attracting investment in Zimbabwe. Mining Zimbabwe said that a Chinese investor is currently planning to spend $100 million to revive the Kamativi Tin Mine. Negotiations, it reported, with the government are on-going. The Zimbabwe mine, which has been closed for 21 years, has around 40 million tonnes of open cast tin reserves and is considered one of the best tin mines in the world.

KENMARE PULLS IN INVESTORS

Proof that a good story can raise money on markets even amid the current funding drought came from Kenmare Resources. The Mozambique, London and Dublin quoted miner has nearly reached a $275 million placing target and sounds confident of a further $368 million via an open offer. Backing has been promised by shareholders and institutions, including the State General Reserve Fund of the Sultanate of Oman and M&G. The attraction is Kenmare’s ilmenite, used for white paint pigment as, according to London broker SP Angel, there are reports that Chinese production was down heavily last year.

INDIA EYES AFRICAN MINERS

ndia plans to counter China’s influence in Africa by offering development assistance, which will include to mining. President Pranab Mukherjee has his eye on Ghana, Cote d’Ivoire and Namibia, with visits there just ten days after visits to Morocco and Tunisia. According to Reuters, uranium supply is reported to be very much on the agenda in Namibia.

NIGERIAN COMPETIVENESS RISES

Nigeria’s currency lost 30% as soon the naira was floated for the first time and it has been highly volatile since. The government is hoping that this will help reduce costs, including in mining, and enhance the country’s competitiveness.

GUINEA WINS $400m FROM ANGLOGOLD ASHANTI

Guinea is the new focus of investment by South Africa’s AngloGold Ashanti, with $400m budgeted for expansion over the next eight years. AngloGold already owns the Siguiri mine, a 300,000 ounces per year producer, in the country. According to Mine.com government official have hinted that some of the investment could go towards underground expansion there. The background briefings also point to attractions of the country’s resources in bauxite and iron ore: Guinea is one of the world’s top bauxite exports and has the capacity of becoming a major iron ore exporter.

 

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