REQUEST BROCHURE

6
Mar

February Updates

February 2017: the tide is turning

For the first time in years the world’s largest miners are swimming in cash, following cost cuts and rises in mineral prices, reported Reuters, putting a figure of over $20 billion in free cash flow at the top four miners. However, cash seems to be going to maintenance, paying dividends and cutting debt rather than acquisitions or new mines. Reporting from a US mining conference Reuters said companies were saying that spending on growth projects was “a third priority”, and pointed to a 52% dividend rise at Randgold Resources.

Commodity markets will probably stay in a “holding pattern” until there is hard data showing real demand and shrinking stockpiles, according to Goldman Sachs. It expects such evidence “to emerge in the second quarter”.

Scotia Bank’s analysts are equally positive, saying “the worst is likely behind us”. They added concern, however, that as yet much of the drive had come from “short-term government policy rather than organic industrial fundamentals”.

While banks had retreated from mining investment, Martin McCann of lawyers Norton Rose said at the African Mining Indaba conference, new forms of financing were being found: “It has become eclectic, liquidity is being plugged by development finance institutions, but we are also seeing a huge influx of debt funds – even Chinese debt structures.” 

GOLD: Scotiabank sees gold “trending sideways” for most of 2017 and 2018, “as rising rates, a stronger dollar” and investor caution “all pose headwinds”.

COPPER: Global copper mine production growth is expected to slow to 2.5% a year through 2020, down from an average growth rate of almost 4% a year in the last five years, forecast the International Copper Study Group (ICSG). It said this was due to project delays. Demand, however, is rising with a global copper market deficit of about 90 000 t in November, up from the 64 000 t in October: Chinese demand apparently rose by 3.5 per cent rise in the first 11 months of 2016. Scotia Bank expects deficits to support a price of $2.40/lb in 2017 and $2.50/lb in 2018.

NICKEL: A rebalancing of the nickel market has been cast into doubt. Divergent strategies at major producers Indonesia and the Philippines muddle the outlook, a report by Bank of America Merrill Lynch has found, according to Reuters. 

IRON:  Ore prices are expected to fall as the tail-winds of Chinese stimulus begin fade. Forecasts of $55/t in 2017 and $50/t in 2018 were quoted by Bloomberg.  South African production is set to stagnate, said BMI Research.

ZINC: While zinc out-performed other base metals last year and should do so in 2017, its price was unlikely to rise beyond $3,000/t before mid-year, according to Bank of American Merrill Lynch.

COBALT: This was the commodity of the month, rising to new records as markets awoke to shortages on increasing use in lithium ion batteries for electric vehicles, laptops and smartphones. Mining companies are now re-examining their resources. Glencore, which currently obtains $1.5 billion of its revenue from cobalt, sees deficits continuing. It plans to more than double its production when its unit comes on stream at Katanga in the Democratic Republic of Congo, (which produces half the current world supply). Cobalt is often a by-product of copper, but is found as a minor element with platinum, according to the South African Chamber of Mines.

CORPORATES:

Royal Bafoken Platinum CEO Steve Phiri drew attention at the African Mining Indaba conference to the “need for producers to invest in the marketing of platinum” as governments were regulating diesel-fuelled vehicles out of the market.  He congratulated Anglo American Platinum for the leadership it was showing in marketing platinum-catalysed hydrogen fuel cells.

Glencore has increased its holding in copper and cobalt assets in the Democratic Republic of Congo, spending $960 million to buy a 31 per cent interest in Mutanda Mining from billionaire mining tycoon Dan Gertler’s Fleurette Group and a 10.25 per cent stake in Katanga Mining. 

SOUTH AFRICA: The Chamber of Mines is unhappy with the appointment of the new director-general of the Department of Mineral Resources. It voiced concern at his lack of mining experience at a time when vital issues such as the country’s diminishing attraction to investors, falling employment and, its view, a prospective Mining Charter that had many unworkable targets.  At Indaba, says news agency AFP, “industry representatives repeatedly said they had not been adequately consulted.”

ZAMBIA:   The Zambia Chamber of Mines (ZCM) has welcomed the removal of 7.5% import duty on copper concentrates following a recent statement by Finance Minister Felix Mutati. This came after months of lobbying by mining companies who voiced concern about the impact duty on prices.   

Canada’s First Quantum Minerals plans to invest over $1 billion in a new smelter and modernisation of one of its copper mines, a senior Zambian official announced. However, the company said the investment was “very conditional”.  Earlier in the month First Quantum Minerals asked a Zambian court to dismiss a $1.4 billion claim by state-owned Zambia Consolidated Copper Mines, which accused the Canadian company of irregular transactions with its local subsidiary.

DEMOCRATIC REPUBLIC OF CONGO (DRC):  The DRC’s state mining company, Gécamines, received $100 million as part of a settlement to drop its objections to the sale of the country’s biggest copper mine to Chinese buyers, according to people with knowledge of the agreement, said Bloomberg. Gécamines agreed to abandon legal cases to block the sale of Freeport-McMoRan and Lundin Mining’s interests in the Tenke Fungurume mine. Bloomberg reported that China Molybdenum and Chinese private-equity group BHR Partners bought the stakes for a combined $3.8billion.

The Bisie tin project’s Mpama North prospect in North Kivu province in the eastern region is one of the most significant undeveloped tin deposits in the world, Alphamin Resources CEO Boris Kamstra announced.

ANGOLA: The State-owned Empresa Nacional de Diamantes de Angola  will not need additional investors to develop its Luaxe project, assured company President António Carlos Sumbula at the Angola Business Forum during the African Mining Indaba conference.   

TANZANIA: Acacia Mining said it had ceased exports of gold and copper extracts following a directive from the Ministry of Energy and Minerals that such exports were banned. The Ministry says this is a move to ensure that “mineral value-addition activities are carried out within the country”.

Leave a Reply