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October Updates

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There is no end yet in sight for mining’s capital drought, according to international consultants E&Y. In its Q3 report it says capital raised was down three per cent to $117 billion in the first nine months of 2016 compared to the same period last year. However, the decline, which has been steady since 2013, is worsening as the total capital raised in Q3, at $49.9 billion, was down 17 per cent on Q2.

GOLD: Gold closed the month inching better, on pre-US-election jitters. It was just about hanging on to its bull market status and showing a 20% over 2016 so far. The resilience of gold EFTs attracted attention and the improvement in physical demand, albeit at lower volumes than in previous years, was seen as encouraging. However, with US election upheavals, and an expected US Fed funds hike in December, price action is expected to continue to be choppy.

BASE METALS: These saw a broadly-based recovery over the last two weeks after US, European and Asian manufacturing figures bettered expectations. Chinese Purchasing Managers Index data showed the manufacturing sector was expanding at the fastest pace in two years. Yet with the US election imminent, and most market participants in London for LME Week, trading was shallow.

“Stronger data from China has given copper a significant boost,” Metal Bulletin’s James Moore said. “But whether the momentum is sustainable or is merely an LME Week-related boost remains to be seen, particularly with wider risk markets under pressure.”

Zinc prices rose to a five-year high on news that Glencore had closed a mine, and tin set its best level for 25 months. Aluminium held around 15-month peaks on news that China’s largest producer, Hongqiao, had been ordered by the local environmental bureau to suspend over half its smelting capacity.

PLATINIUM:  Wage hike deals in South Africa sent prices up. Major top supplier Anglo American Platinum, second-ranked Impala Platinum and others have agreed pay rises of about 10%. Anglo CEO Chris Griffith told Reuters this was fair “while still ensuring our business remains viable for the long-term.” Unions had wanted increases of 50 per cent, but tough market and local South African economic conditions created pressure for a compromise.

NICKEL: Prices have seen a resurgence as ore supply from Indonesia has been shut permanently, Philippines high grade material is running out and big projects are being delayed. “There are signs that this year could be finally the turning point for nickel, with many expecting the market to be in deficit and so starting the much needed re-balancing process,” Eduard Haegel, asset president of BHP’s Nickel West unit, said to Reuters.

COAL: No one believed that China’s coal industry would be able to curtail production in line with central government directives, comments Barclays in a market report, but it has!  Inventories at China’s six largest power producers are now extremely low, reports international investment bankers Macquarie. Coking coal prices were up 163 per cent on the year and thermal coal up 65%. Analysts say these prices are unsustainable and currently forecast a fall in H1 2017.  Views that the industry is due for consolidation are widespread.

MANGANESE: Ore markets continued to trade extremely strongly, thanks to higher than expected steel production in China, global capacity cuts and destocking, according to Graham Kerr, CEO of South32, quoted on Bloomberg. The company, with mines in South Africa, has warned that its new prices will be the highest since 2010.

IRON ORE: It was one-way traffic for iron ore prices, the benchmark spot price rising 15% in the month, 50% in 2016 so far. Reasons given ranged from rising Chinese steel production to buying as a hedge against the lower yuan. For the latter reason, Goldman Sachs’ analysts see the price staying above a level dictated by fundamentals.

CORPORATE NEWS

China’s Chinalco is taking over the world’s largest iron ore mine – Guinea’s Simandou iron ore project – from Rio Tinto. The deal is worth around $1.1-1.3 billion, according to the announcement, and potentially opens up the path to development of the $20 billion project which Rio had shelved on lack of funding. Rio owns 46.6% of the project and Chinalco 41.3%.

Anglo American major’s largest shareholder, the South African government-owned Public Investment Corporation (PIC), is pressurising it to restructure its South Africa assets into a separate vehicle. PIC wants to increase local investment, particularly in the company’s prized platinum assets. However, Anglo which plans to focus on diamonds, platinum and copper, is looking at packaging for sale its ‘non-core’ thermal coal and iron ore assets in South Africa. The spin-off announced by CEO Mark Cutifani would, he said to Reuters, include Anglo’s 70pc stake in Kumba Iron Ore plus a string of mines providing thermal coal for export and the domestic market. He is determined to hold on to platinum and become world leader.

Lonmin was the first of the South African platinum producers to announce it would seek new ways to reduce costs after signing a three-year wage deal. It would, it said, raise labour costs by an average of 380 million rand ($28 million) annually.

GOVERNMENT:

SOUTH AFRICA: Less favourable capital expenditure allowances could result from a South African appeals court backing of a Supreme Court decision. It agreed with a Supreme Court ruling against Impala Platinum that the company’s processing of mineral ore into mineral-bearing concentrate was a process of manufacturing and, as such, the ore and concentrate produced was trading stock, as defined in the Income Tax Act. Thus the manufacturing process is subject to the tax regulations. 

CONGO: Activists in the Democratic Republic of Congo are pressing for mining code changes on the grounds that this could produce badly needed higher revenues. Congo last year proposed hiking profit taxes to 35% from 30%, raising the state’s free share of new mining projects to 10 per cent from 5 per cent and royalties on copper and cobalt revenue to 3.5% from 2%. Then, in February, government changed its mind as this could have driven away investors at a time when output is depressed by energy shortages and world markets. Randgold Resources CEO, Mark Bristow, was quoted by Reuters as saying that the planned changes risked destroying the industry in Congo.

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