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July Updates

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Mining wrap for July 2016 

The big picture

Metal prices have continued to outperform other commodities, much to the surprise of many. Metals trading volume in July jumped 32% on a year ago, according to CME Group. Whether, as the Financial Times says, this is being steered by fundamental demand or Beijing’s credit stimulus is a matter on which analysts are divided. However, the improved sentiment is helping capital raising.

Meanwhile precious metal prices, especially gold, continue to reflect macro-economic issues (including Brexit), interest rate speculation and terrorism-driven flights to investment havens. The gold price rose to a two-year high and silver followed, with a 32% rise in the month. The silver market attracted record new long interest.

Hedge funds have been cutting their overall gold exposure, helping keep the price in a narrow range, according to the latest data from the US Commodity Futures Trading Commission. Major banking groups Citigroup and Commerzbank both said, according to Reuters, that interest in gold remains at high levels. While physical gold demand hit a seven-year low, according to the latest update from consultants Gold Fields Mineral Service, ETF inflows reached their highest half-year total ever.

Miners’ capital raising in the first half, according to international investment bankers UBS, was 18 per cent ahead of last year at $8.8 billion. The second half has made “a strong start”, confirming to UBS that “a number of indicators have turned positive for the Metals & Mining sector”. It lists its China Construction index, the CRB Raw Index, the sector’s corporate activity and the volume of equity financing.

Palladium and platinum: prices outshone gold’s last month reflecting speculative interest in these two price-laggards as South African platinum miners remain locked in collective wage negotiations. The Association of Mineworkers and Construction Union is demanding a pay rise of 56%, according to Reuters, while its declining rival, the National Union of Mineworkers, is asking for 20%.

Copper: Given the current excess supply it has done less well than other metals, up only 4% on the year and currently below its 2016 peak. The 2017 planned restart for Glencore’s mines in Zambia and the Democratic Republic of Congo will bring more copper on to the market, according to consultants Wood Mackenzie.  Further bearish points include a note from bankers Goldman Sachs forecasting less copper use in China’s electric grid as it moves away from urban distribution to ultra-high voltage transmission lines.    

Nickel: A combination of doubled Chinese imports for stainless steel and an environmental crack-down on mines in the Philippines has driven 2016 prices up 22%.

Zinc: China’s investment bank, BOCI, expects the price to rise to $2,500 (from the current $2,273) this year. Up 40% already, it has been driven by strong Chinese steel demand and Glencore mine closures.

Aluminium: Prices are up over 8% this year after mine shutdowns in China and the US. However, international investment giant Citi predicts higher Chinese production to follow the price rises. 

Iron ore: Prices in China jumped at the month’s close, reflecting news that it is to create two giant steel producers.

CORPORATE BUSINESS

China’s M&A: Chinese-backed funds and companies have bought around $4.5 billion of foreign mining assets so far this year, with copper and gold the most import of its African acquisitions, says consultants Baker & McKenzie.

Vedanta is reported to be looking to partner its way into South African gold mining, according the country’s Business Standard newspaper. Vedanta’s founder has said he intends to invest $1 billion in Africa. Bloomberg said that Anglo American was reported to have brushed off several approaches.

Barrick Gold was reported by Reuters to be considering selling its African subsidiary Acacia Mining to cut  debt and has already talking to several South African companies. Reuters suggested that it had approached Gold Fields, Sibanye, AngloGold and Harmony to gauge interest.

Coal of Africa’s offer for Universal Coal lapsed even as world thermal coal prices rose sharply on global supply disruptions and a demand surge from some large importers, especially South Korea.

Randgold announced it was near to completing a ‘once impossible feat of developing and running a major gold mine in Eastern DRC’, said brokers SP Angel. Randgold’s contractors are also completing their third hydro power station to supply the site. 

Gem Diamonds reported a rise in half-year production and said “it is anticipated that the modest recovery in rough prices will be maintained at least in H2.”

Rio Tinto has shelved its $20 billion Simandou iron ore project in Guinea because of “a sustained slump in prices”, it told The Times newspaper.

Amplats, one of the miners facing challenges this year to settle South African wage negotiations, announced it would be selling and winding down mines to cut costs.

Petra Diamonds, which has attracted media attention with finds of three mega-rocks, announced a one per cent rise in H1 revenues and said a new pit is to be built at Cullinan, east of Pretoria.

GOVERNMENT MATTERS

South Africa -Leave to appeal against part of the silicosis and TB judgement delivered in South Africa in May has been granted in response to petitions from six major mining companies. The High Court, in its judgement, certified the establishment of two separate classes for silicosis and tuberculosis and also changed the common law in respect of general damages claims. The court granted leave to appeal only in respect of the latter point.

Zimbabwe -President Robert Mugabe is seeking to compulsorily purchase 28,000 hectares of land from Zimplats on the grounds that it is underutilised. The government states that it will re-allocate the licence to prospective platinum miners, but Zimplats has said it wants a constructive dialogue. Meanwhile, online news site News24 reports that the country’s platinum miners have ‘ignored policy uncertainty’, the first quarter of 2016 showing a rise of 43% in platinum output.  

Democratic Republic of Congo – VAT on imports for mining companies is being suspended to ease operating conditions for struggling miners, Finance Minister Henri Yav Mulang said, according to Reuters.