Here is our weekly feature covering the gold and copper sectors with an editorial written by an executive of Century Global Commodities Corporation.
TOP GOLD AND COPPER PERFORMERS
|Company Name||Ticker||Share Price
(closed as of Mar 17, 2017)
|1 week price
|Top 5 Gold Stock|
|Eco Oro Minerals Corp||TSX:EOM||CAD$0.77||61.06||40.00|
|Doray Minerals Limited||ASX:DRM||AUD$0.39||107.08||32.20|
|Gabriel Resources Ltd.||TSX:GBU||CAD$0.43||121.93||25.00|
|Macphersons Resources Ltd||ASX:MRP||AUD$0.27||64.65||23.26|
|Golden Queen Mining Co. Ltd.||TSX:GQM||CAD$1.01||83.70||20.24|
|Top 5 Copper Stock|
|Jinchuan Group Co. Ltd||HKEX:2362||HKD$1.17||655.64||25.81|
|Amerigo Resources Ltd.||TSX:ARG||CAD$0.74||96.47||21.31|
|Capstone Mining Corp.||TSX:CS||CAD$1.56||454.61||15.56|
|Cordoba Minerals Corp||TSXV:CDB||CAD$1.36||90.12||15.25|
|KAZ Minerals PLC||LSE:KAZ||GBP$5.18||2851.85||13.81|
Copper Forecasts Turn Bullish
Peter R. Jones, Executive Vice President, Century Global Commodities Corporation
London Metal Exchange Cu prices 2010 through 2017
After hitting US$4.50/lb. in early 2011, copper was one of the worst-performing commodities over the last 5 years – until the Trump bump in November 2016 lifted it from around the US$2.0/lb. mark to the US$2.70/ lb. range today. The red metal has only climbed a modest 6% in 2017, however.
The November 2016 rally was triggered by Donald Trump’s victory in the US presidential election, campaigning on a promise to spend $500 billion on infrastructure.
On reflection, the impact of US infrastructure spending would be minimal, as US copper demand is normally less than 10% of total world demand. In reality, rising Chinese copper imports, responsible for about 50% of global demand, are the key driver of its price.
Goldman Sachs (GS) — usually among the most pessimistic of copper price forecasters – now believes that increased demand from China will leave the market tighter than previously expected, which will support a more bullish environment for the metal, at least to mid-2017.
GS predicts prices will hit US$6,200 (US$2.81/lb.) a tonne in the first half of 2017 and has lifted half-year and full-year forecasts to US$6,200 and US$5,600 a tonne, respectively.
Commerzbank has a similar outlook position: “The copper price should settle down above the US$5,000 per tonne mark (US$2.50/lb.) and climb to US$5,600 a tonne (US$2.80/lb.) by the end of 2017.” Scotiabank, however, is less optimistic and predicts an average of US$2.52/lb. for 2017.
In the longer term, BHP, already the world’s second-biggest listed copper miner, wants to increase its exposure to the red metal and hiked its annual exploration spending by 29% this year, allocating nearly all of its US$900 million exploration budget to finding new copper and oil deposits.
Mining conglomerate Rio Tinto plc. predicts that copper supply could fall well short of demand by 2020, while Freeport-McMoRan Inc. says the same may happen as soon as this year. Freeport-McMoRan should know: it is the largest publicly traded copper producer in the world.
Market balances for the red metal are already starting to move into moderate deficit territory, driven in part by strikes and other curtailments at major producers although metal warehouse inventory levels have been fluctuating over a wide range.
The largest demand changes are in China, where the government’s credit stimulus and infrastructure push have moderately bolstered the near-term outlook for Chinese copper consumption.
Chile-focused copper miner Antofagasta Plc. believes a tightening global supply of copper will keep prices on the high end of the spectrum this year. “In the medium term the group expects to see a steady shift from a market in balance to a slight deficit, leading to a further improvement in prices,” it said in the statement.
The copper market is at a turning point, with the global concentrate supply shortage expected to hit 200,000 tonnes this year, according to Jiangxi Copper’s chairman Li Baomin, who attributed his forecast to expanding smelting capacities stimulated by higher copper prices. However, the head of China’s second-largest copper refiner is sounding a bearish note on the red metal, citing concerns about increasing interest rates in the US, even as China is targeting higher economic growth.
On the brighter side, he said in a Bloomberg interview that global copper demand is set to exceed production, noting China is predicted to grow at 6% this year versus 5.8% last year, along with greater demand for copper, particularly for use in power grids and electric vehicles. For its part, Jiangxi Copper is planning on cranking up the tonnage, from 1.2 MT last year to its maximum capacity of 1.36 MT, said Li.
Southern Copper Corp, the world’s fifth-largest copper producer in terms of output, has plans to increase copper production by two-thirds in just six years thanks to a raft of projects coming on stream in Peru and Mexico towards the latter part of the decade.
Chile-based Codelco, the world’s largest copper producer, also has an aggressive $18 billion reinvestment plan underway. However, financial performance in 2016, essentially from a lower copper price, prompted a $2.2 billion funding pullback.
Even so, initiation of new copper projects at today’s prices are not appealing. Based on predictions by Citigroup, the metal needs to rise to about US$6,700 (US$3.03/lb.) a tonne before mining companies commit to new greenfield projects. That means the industry is unlikely to boost new project capital spending substantially before 2019.
In the shorter term, talks between Freeport-McMoRan and striking workers at its Cerro Verde copper mine in Peru have broken down, with miners announcing their plan for an indefinite work stoppage beginning March 24.
The announcement adds pressure to an already stressed copper market, hit by a one-month- long strike at BHP’s Escondida mine in Chile, the world’s biggest copper operation.
It also coincides with Freeport’s decision in January to halt production at its Indonesian Grasberg mine, the world’s fourth-largest copper operation. The Phoenix, Arizona-based firm took the measure after a concentrate export ban came into effect, and it is currently negotiating a new operating licence and ownership agreements with Indonesia.
The current strikes and production curtailments will likely boost short-term price gains, underpinning China’s growing consumer market.
CHART OF THE WEEK
Pantoro Limited (ASX: PNR) is an Australian gold mining and exploration company operating in Western Australia and Papua New Guinea. The company wholly owns the Nicolson’s Find gold mine in Western Australia, an underground and open-pit operation. The company continues to ramp up production towards a nominal 50,000 ounces of gold per year for the expected 4 years of remaining mine life. The mine produced 16,398 ounces of gold in 2016 at an all-in sustaining cost of A$1,191 per ounce.
GOLD AND COPPER SPOT PRICE
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