January 2017: Markets still upbeat
As yet nothing, in January at least, has happened to negate the mood of cautious optimism which is prevailing in mining for 2017. Growth, if shallow, is returning to end-markets, says international consultancy Deloitte. Reuters latest look at the industry notes that, according to industry analysts, this year will see “…..the first increase in spending on exploration in five years”. It adds that after years of cutting budgets and squeezing existing mines, global mining giants are again scouting for new deposits.
Investment bankers UBS say the key question, as far as the European-quoted companies are concerned, is that they will do with the “$55 billion of excess cashflow over the next three years”.
Deloitte does qualify its optimism: “… the mining industry is still at a pivotal point as it faces challenges from cyber security threats, technological disruption and environmental issues. Mining companies now face key choices about where to invest and how to position themselves in the coming years.”
The consultants echoed the call made by De Beers for the diamond market. This was the need for a shared vision. “… companies and governments could benefit from finding a middle ground that aligns interests and enhances co-operation…” Deloitte advocated.
As an indication of improving sentiment, this year’s investment centric Mining Inaba has pulled considerably more investor and company interest in Africa than seen historically.
Meanwhile, markets largely ignored the show unfolding in Washington and kept their eyes on the main game in commodities – Chinese consumption and the economic indicators at the start of the country’s New Year. President Trump was seen as so unpredictable and short of specifics in his spending plans that there was nothing to encourage a flight to the haven of gold.
GOLD: Gold has been one of the worst-performing assets since the election as the Federal Reserve has indicated that it could increase interest rates by 0.75% in 2017. However, some fund managers see potential inflation as a catalyst for gold, and additional support comes from the World Gold Council. It predicts a reverse of last year’s 9% fall in physical demand for jewellery, coins and bar.
SILVER: Prices rose 10% in the month on investor demand, but the market is volatile and weakening gold prices brought profit-taking.
DIAMONDS: The market took heart when De Beers announced the most successful sale in a year as buyers returned, pushing proceeds up 30%. Dealers took this as a sign that trade buyers in India, who handle as much as 90% of the world’s rough diamonds, are recovering from wide-ranging currency reforms in November that destroyed the country’s liquidity.
PLATINUM: Developments in Zimbabwe could support platinum prices, according to HSBC. Its analysts cite reports from Zimplats that the government has made a new attempt to appropriate more than half of the company’s land. This is the third such attempt since 2012, says HSBC, adding: ““Zimbabwe has the second-richest PGM (platinum-group-metals) reserves after South Africa, and any development likely to interfere with production may be construed as bullish.”
BASE METALS: Weaker Chinese data put pressure on base metals prices at the close of the month. The slowdown came as output and new orders increased at a slower pace. In addition, the People’s Bank of China tightened monetary policy to cool inflation. The bank wants to stop asset bubbles building in commodities, and has triggered a wave of aggressive selling across the commodities sector, according to Marex Spectron.
COPPER: Copper’s fundamentals continued to improve, the price flirting with recent highs. Stronger global demand is forecast to run up against lowered production guidance through 2017–18 – especially if President Trump makes good his promised mega-investment in infrastructure. The market is expected to record a moderate deficit this year and next following six consecutive years of surplus.
ALUMINIUM: investor buying seen last year has continued. Although net long positions have been trimmed back following some recent significant deliveries into LME warehouses, the consensus remains positive.
NICKEL: Markets continue to be bullish, Scotia Bank now forecasting prices to average $5.20/lb in 2017 as China’s ramp-up of its stainless steel capacity continues and the Philippines closes more polluting mines. Chinese ore stocks—accumulated ahead of the seasonal monsoon-driven— are forecast to be depleted by the beginning of 2Q17. Global nickel supply could be hard hit if these smelters are unable to access fresh feedstock.
COAL: The speculative bubble in world coal markets has burst, prices falling 40% and more from last year’s record levels. Speculators unravelled their positions after Beijing stepped in to ease the curbs on domestic production. However, this is predicted to be just temporary. Production of thermal coal, which rose in price by two-thirds last year, has fallen at both Anglo American and BHP Billiton, reducing global supplies Analysts expect China to continue to cut production, and point to Chinese miners’ purchases of Australian production.
ZINC: The market remains acutely starved of concentrate following significant mine closures and price-prompted idling over the past two years, with inventories at critically-low levels. The key uncertainty remains how quickly Glencore can restart the 500kt worth of mine capacity that was strategically idled in 2015–16.
EGYPT: The country re-opened its doors, offering gold mining tenders to international companies for the first time since 2009. The Egyptian Mineral Resources Authority, according to Ahram Online agency, said bidding would open for five designated exploration areas in Sinai and the Eastern Mediterranean The tender process is expected to close in mid-April. Egypt has long benefitted from a profit-share deal with the country’s only gold-exporting mine, Centamin’s Sukari.
BARRICK GOLD could further reduce its exposure to Africa by merging its 64% owned Acacia Mining with Endeavour Mining, according to Bloomberg. This would, says brokers Jefferies, create one of the largest African gold miners.
SIBANYE GOLD is bracing for a face-off with South African unions, having announced 330 job cuts after buying Rustenburg and Aquarius PGM operations. Meanwhile, it is rumoured to be planning a $750 million rights issue for a $2.2 billion take-over of Stillwater Mining, the only US miner of platinum and palladium.
FREEPORT-MCMORAN’s $2.65 billion sale of its stake in the Tenke Fungurume copper-cobalt mine in the Democratic Republic of Congo is going ahead, according to Bloomberg. It says that increased compensation was paid to 20% shareholder, the state mining company, Geomines.