Commodity Blog

Archive for January, 2008

Petro-Canada, prominent in global oil and gas production and gasoline retailing in Canada, says its fourth-quarter profit jumped 36 per cent to $522-million, from a year-earlier $384-million.
Net earnings in the quarter ended Dec. 31 amounted to $1.08 a share, compared with 77 cents per share a year ago, the Calgary-based company reported Thursday.
Analysts’ consensus forecast was for earnings of $1.32 a share, before one-time items, according to Thomson Financial.
“The fourth quarter was a solid quarter, capping off an excellent year,” CEO Ron Brenneman said in a release. “We successfully followed through on our two business priorities; exceeding our upstream production targets and not only advancing five major projects, but adding two more.
“In 2008, we will bring on the Edmonton refinery conversion project — a significant contributor to future cash flows. We will also advance our six other growth projects, making final investment decisions on Fort Hills, the Syria Ebla gas and Montreal coker projects.”
The company credited higher operating earnings and gains on foreign currency translation of long-term debt, partly offset by a change in the value of the Buzzard derivative contracts in the North Sea.
Net earnings from continuing operations for the full year totalled $2.7-billion or $5.59 a share, compared with $1.6-billion or $3.15 per share in 2006.
During the fourth quarter, the company entered into derivative contracts to close out the hedged portion of its Buzzard production from Jan. 1, 2008, to Dec. 31, 2010, resulting in an after-tax charge of $120-million.
The North American natural gas business unit recorded a charge of $97 million after tax for the impairment of coal-bed methane assets in the U.S. Rockies “due to probable reserves reductions, combined with lower prices.”
In 2008, the firm plans to drill up to 17 wells focused in the North Sea, offshore Trinidad and Tobago, Libya and in the Northwest Territories and Alaska.
Work is under way for the drilling of the three North of 60 wells in the first quarter of 2008. In the North Sea, Petro-Canada and its partners plan to drill up to six wells.

Gold N.Y. Spot $ 922.40
Silver N.Y. Spot $ 16.75
Lead LME Cash $ 1.2433
Copper LME Cash $ 3.2521
Zinc LME Cash $ 1.0846
Nickel LME Spot $ 12.47
Aluminum LME Spot $ 1.1984
Platinum N.Y. Spot $ 1727.00
Palladium N.Y Spot $ 387.50
Oil WTI Cushing $ 90.10
Natural Gas (Henry Hub)($/MMBtu) $ 8.16
Mid-Columbia (US$/MWh) $ 89.18
CAD/USD (current) $ 1.0050
AUD/USD $ 1.1210
USD/AUD $ 0.8921
USD/CAD $ 1.0063
CAD/USD $ 0.9937
EUR/USD $ 1.4802
Nasdaq 2340.57
DJI 12396.17
S&P/TSX 12951.83
Lead LME Stocks 48,700
Zinc LME Stocks 111,325
Copper LME Stocks 178,775
Nickel LME Stocks 47,214
Copper COMEX Stocks 13,978

Russia’s metals billionaires are moving into gold, attracted by record prices and the prospect of carving a share of production that is forecast to rise 40 percent by 2015.
Six of the 10 richest Russians ranked by Forbes magazine own gold assets in a country with reserves second only to South Africa’s. The wealthiest of all, Chelsea soccer club owner Roman Abramovich, is among the latest to join the gold rush.
“There’s definitely a move, both internally and externally, to become involved in gold in Russia. The price is one of the things driving the frenzy,” said Peter Hambro, whose eponymous company
When Hambro, a London-based bullion trader, set up his Russian mining firm in 2004, gold was trading below $400 an ounce. Today’s prices above $920 have never before been seen.
Average gold prices are set to rise another 20 percent in value this year and retain most gains in 2009 as U.S. dollar weakness, market turmoil and inflation fears stoke investor interest, a Reuters poll of 50 analysts and traders showed.
“Everyone is extremely buoyant about the gold price. They are seeing this as an industry they want to be in,” said Henry Horne, managing director of Highland Gold Mining Ltd.
But why Russia? Most of its lucrative gold deposits are in remote parts of Siberia and the Far East, where distances are vast, temperatures can plunge 40 degrees Celsius below zero and millions of dollars must be spent on building infrastructure.
“Russian businessmen are moving into gold because they are bullish on the commodity itself, and bullish on Russia’s potential as a place with an extensive but underexplored mineral base,” Troika Dialog metals analyst Mikhail Stiskin said.
‘BREAKTHROUGH YEAR’
Russia is the world’s fifth-largest gold miner, accounting for about 6.6 percent of world production. Output last year is believed to have been about 161 tonnes (5.2 million ounces).
Valery Braiko, who heads the Russian Gold Industrialists Union, says 2008 will be a ”breakthrough year” — the first year of rising gold output after five consecutive years of decline, as the cost of developing remote alluvial deposits has risen.
Canada’s Kinross Gold Corp, due to launch its Kupol mine in the Chukotka region, will make up much of the increase.
Russia’s fragmented gold-mining sector accommodates around 600 companies, many of them tiny in scale. The largest miner, Polyus Gold, mined nearly a quarter of Russia’s gold in 2006 while its nearest competitor produced under 5 percent.
“In Russia, gold remains one of the least consolidated sectors,” said Vladimir Zhukov, senior mining analyst with Lehman Brothers in Moscow.
Polyus, which plans to triple output by 2015, has a market capitalisation of $9.9 billion. Though worth only a quarter of world leader Barrick Gold Corp, this still values Polyus at four times its nearest domestic rival.
This makes acquisitions realistic.
“A few hundred million dollars can get you full control or a decent-sized stake. In steel or base metals, the cost of entry is much higher,” said Zhukov.
Roman Abramovich’s investment vehicle, Millhouse LLC, paid $400 million to acquire 40 percent of Highland Gold this month.
SUKHOI LOG
Braiko forecasts gold output will reach 225 tonnes by 2015.
Russia’s top gold miners are each developing a series of projects that will allow them to expand production. Yet much of the country’s potential lies in fields yet to be fully explored.
Such deposits form the backbone of the gold firm being built by Severstal’s owner Alexei Mordashov, a billionaire better known for his background in steel.
Russia’s richest men also have an eye on a looming showdown for control of the huge Sukhoi Log field, the only gold deposit big enough to be declared strategic by the government and thus off limits to foreign control when sold, possibly this year.
Russia’s top miners all have declared an interest. Analysts say the likely winner will combine mining expertise with the financial and political clout of a Kremlin-backed businessman.
Until recently, Polyus was the clear front-runner. Abramovich, Mordashov and others may yet provide competition.
Zhukov said: “The ultimate goal for both is to say, ‘Look: here’s a Russian company willing to participate in the future of the country’s gold sector’.”

Grupo Mexico said on Wednesday its Southern Copper mining division would produce 635,000 tonnes of copper in 2008, 7.3 percent more than in 2007, as the giant Cananea mine recovers from a long strike.
The company (GMEXICOB.MX), which has mining operations in Mexico and Peru, said it would also produce just under 15,000 tonnes of molybdenum this year.
A drawn-out strike last year, declared illegal by a government labor board earlier this month, cut off production at the Cananea pit for five months. The mine is now slowly reopening with a skeleton staff.
“Considering the expected ramping up of operations, Cananea copper production is estimated at around 136,000 tonnes in 2008, 38 percent higher than the 99,000 tonnes produced in 2007,” Grupo Mexico Chief Financial Officer Daniel Muniz told a conference call with investors.
At those levels, the mine would account for about one-fifth of the company’s total copper output this year.
“We are aiming to have full production from May this year,” said Muniz of its Cananea operations.
The mining group said overall copper production in 2007 was 592,000 tonnes, 2 percent lower than in 2006, a year also affected by strikes.
On Monday, the company posted a 54 percent slump in fourth-quarter net profit to $207 million compared to $453 million a year earlier.
Grupo Mexico’s revenue in the October-to-December period was $1.558 billion, down 17 percent from a year earlier, largely due to the protracted work stoppage.
The company has “a positive copper price outlook for 2008,” as increased supply from new copper projects will offset lower production at existing plants due to technical and labor problems, said Muniz.
Shares of Grupo Mexico, which have been volatile this year due to higher copper prices and the Cananea strike, were down 0.06 percent to 62.27 pesos in mid-day trading.

Gold N.Y. Spot $ 921.70
Silver N.Y. Spot $ 16.72
Lead LME Cash $ 1.2431
Copper LME Cash $ 3.2498
Zinc LME Cash $ 1.0487
Nickel LME Spot $ 12.45
Aluminum LME Spot $ 1.1932
Platinum N.Y. Spot $ 1684.50
Palladium N.Y Spot $ 387.00
Oil WTI Cushing $ 92.10
Natural Gas (Henry Hub)($/MMBtu) $ 8.11
Mid-Columbia (US$/MWh) $ 89.90
CAD/USD (current) $ 0.9952
AUD/USD $ 1.1254
USD/AUD $ 0.8886
USD/CAD $ 1.0023
CAD/USD $ 0.9977
EUR/USD $ 1.4786
Nasdaq 2360.87
DJI 12446.97
S&P/TSX 13026.46
Lead LME Stocks 49,100
Zinc LME Stocks 111,250
Copper LME Stocks 170,650
Nickel LME Stocks 47,064
Copper COMEX Stocks 13,978

Gold N.Y. Spot $ 925.30
Silver N.Y. Spot $ 16.74
Lead LME Cash $ 1.2338
Copper LME Cash $ 3.2523
Zinc LME Cash $ 1.0478
Nickel LME Spot $ 12.39
Aluminum LME Spot $ 1.1576
Platinum N.Y. Spot $ 1693.50
Palladium N.Y Spot $ 386.50
Oil WTI Cushing $ 90.70
Natural Gas (Henry Hub)($/MMBtu $ 7.90
Mid-Columbia (US$/MWh) $ 83.78
CAD/USD (current) $ 0.9978
AUD/USD $ 1.1278
USD/AUD $ 0.8867
USD/CAD $ 0.9956
CAD/USD $ 1.0044
EUR/USD $ 1.4766
Nasdaq 2351.01
DJI 12455.35
S&P/TSX 13015.57
Lead LME Stocks 48,900
Zinc LME Stocks 110,425
Copper LME Stocks 171,275
Nickel LME Stocks 46,914
Copper COMEX Stocks 13,978

Gold futures in New York rose to a record high in electronic trading on Tuesday, on the back of a weaker U.S. dollar and expectations of more interest rate cuts in the United States.

The active gold for February delivery GCG8 on the COMEX division of the New York Mercantile Exchange hit a high of $930 an ounce, surpassing Monday’s record high. The contract settled up $16.40 at $927.10 an ounce on Monday.

Gold N.Y. Spot $ 921.50
Silver N.Y. Spot $ 16.51
Lead LME Cash $ 1.1730
Copper LME Cash $ 3.1262
Zinc LME Cash $ 1.0022
Nickel LME Spot $ 12.00
Aluminum LME Spot $ 1.1095
Platinum N.Y. Spot $ 1693.00
Palladium N.Y Spot $ 382.50
Oil WTI Cushing $ 89.20
Natural Gas (Henry Hub)($/MMBtu) $ 7.79
Mid-Columbia (US$/MWh) $ 85.99
CAD/USD (current) $ 1.0033
AUD/USD $ 1.1324
USD/AUD $ 0.8831
USD/CAD $ 0.9956
CAD/USD $ 1.0044
EUR/USD $ 1.4783
Nasdaq 2333.84
DJI 12254.89
S&P/TSX 12839.71
Lead LME Stocks 47,075
Zinc LME Stocks 110,175
Copper LME Stocks 171,675
Nickel LME Stocks 46,806
Copper COMEX Stocks 14,036

Equity investors already know that higher oil prices negatively impact the stock prices of companies that are highly dependent on oil such as airlines, since more expensive oil means higher costs and lower profits for those companies.

In much the same way, a country’s dependency on oil determines how its currency will be impacted by a change in oil prices. The US’s massive foreign dependence on oil makes the US dollar more sensitive to oil prices than other countries. Therefore, any sharp increase in oil prices is typically dollar-negative.

If you believe the price of oil will continue to increase for the near term, you could express that viewpoint in the currency markets by once again favoring commodity-based economies like Australia and Canada or selling other energy-dependent countries like Japan.

It’s not hard to understand why we’ve experienced a run-up in gold prices lately. In the US, we’re dealing with the threat of inflation and a lot of geo-political tension. Historically, gold is a country-neutral alternative to the U.S. dollar. So given the inverse relationship between gold and the U.S. Dollar, currency traders can take advantage of volatility in gold prices in innovative ways.

For example, if gold breaks an important price level, one would expect gold to move higher in coming periods. With this in mind, forex traders would look to sell dollars and buy Euros, for example, as a proxy for higher gold prices. Moreover, higher gold prices frequently have a positive impact on the currencies of major gold producers. For example, Australia is the world’s third largest exporter of gold, and Canada is the world’s third largest producer of gold. Therefore, if you believe the price of gold will continue to rise you could establish long positions in Australian Dollar or the Canadian Dollar — or even position to be long those currencies against other major countries like the UK or Japan.