Commodity Blog

Archive for March, 2009

You know the mining industry is prepared for a tough year when it lines up New York University economics professor Nouriel “Dr Doom” Roubini as its featured speaker for the flagship Diggers and Dealers conference in Kalgoorlie in August.
But judging by the stellar turnout at the 20:20 Investor Series Gold Day in Sydney last week — with more than 250 interested investors in attendance — perhaps the Diggers organisers could have instead opted for a gold bug like the former Newmont Mining chairman Pierre Lassonde, the featured speaker in 2007.
So far, it looks like it will be a rather subdued year at Diggers, particularly for the West Australian nickel miners. Their latest financial results show that Mincor Resources, Panoramic Resources, Independence Group and Western Areas have put in the best performance possible in conditions so tough that Consolidated Minerals and Norilsk Nickel have shut up shop.
But if the gold price continues to hover near a record $1500 an ounce in Australian terms — and with costs like fuel, labour and equipment falling — the gold bugs will be out in force.
After his company hosted a mining conference in Florida last week attended by several Australian-listed companies, a BMO Capital Markets analyst, Tony Robson, observed: “There are two markets. It is almost like there is gold and everything else.”
Robson said he expected that would continue to be the case for the next six months, and possibly for 12 months. So while there may be some great bargains in base metals, investors looking for near-term outperformance are likely to give gold a very close look.

Barrick busy
For investors that trust industry leaders, it is worth noting that Canada’s Barrick Gold — the world’s largest goldminer — last week said it wanted to expand through acquisitions and was able to easily access credit and equity markets to fund deals.
Outside of China, there aren’t many miners in other sectors that could make a similar statement. And even inside China there is an interest in investing in the Australian gold sector, in light of recent signals to that effect from Zijin Mining.
Outside of pure acquisitions, Barrick has also demonstrated it is seeking to keep its mills near Kalgoorlie running at full capacity by striking toll treatment deals with Crescent Gold and Cortona Resources.
In Cortona’s case, Barrick will quickly mine out the 80,000 ounce North Monger deposit as early as this year, while covering all the costs. In return, the Australian junior will receive millions of worry free dollars (the higher the gold price, the higher the margin) to help develop its Dargues Reef project near Canberra, where it has so far proven up 286,000 ounces of resources at 6.2 grams per tonne.

Gold spin-offs
Just as miners were keen to spin off uranium properties into new floats a few years back, some base metals miners are now preparing to do the same with their gold projects in order to realise more value for shareholders.
Base metals miner Kagara owns cash positive copper and zinc operations, even at current prices, but it also has $150 million of debt due to be repaid by October. Its market value, once in the $1 billion range, has plunged to just $91 million — less than the amount it has spent on its oft-overlooked gold projects.
Kagara is seeking to capitalise on those gold projects by spinning off its undeveloped Red Dome and Mungana projects in Queensland as Mungana Goldmines. The new company will help Kagara reduce its debt load and will provide investors with a chance to invest in a new goldminer with 1.6 million ounces of resources.
The Drum understands Newcrest Mining has previously expressed interest in the porphyry deposits, which bear some similarities to its Ridgeway operation in NSW’s Cadia Valley and are amenable to sub-level caving. Newcrest recently raised $750 million — mostly to speed up internal projects — but it could again express interest in the Mungana portfolio.

Chasing capital
The word “opportunistic” is starting to grate on the ears of many gold company directors as they seek to raise cash from investors, who have so far proven very willing. After all, in light of the dismal global economic situation, wouldn’t a company lucky enough to have that ability want to raise as much as possible to fund growth when there is a window of opportunity?
The margins can be lucrative at the moment. Intrepid Mines is making a $1000 an ounce margin from its Paulsens high-grade mine in WA due to the high gold price. It expects to produce 20,000 ounces this quarter.
Focus Minerals last week raised $28 million to refurbish its Three Mile Hill mill and to increase the pace at which it is able to bring nearby deposits into production. It wants to produce 100,000 ounces a year and has already proven up 111,000 ounces of reserves and 1.8 million ounces of resources from its Coolgardie project. It expects the mill could be in operation from early next year.
Meanwhile, Allied Gold raised $31 million to help fast-track expansions in Papua New Guinea and to help retire debt early.
No doubt, many other gold companies will follow suit with capital raisings in coming weeks.

Commodity prices are coming back, and it is likely to be sooner rather than later.
That was a key conclusion from a panel of mining industry experts, who spoke yesterday at the annual CEO Outlook conference put on by Ryerson University’s Ted Rogers School of Business.
Bay Street legend Ned Good-man, president and chief executive of Dundee Corp. and chairman of DundeeWealth Inc., along with mining CEOs Bill Biggar ( North American Palladium Ltd.) and David Harquail ( Franco-Nevada Corp.), suggested that the long-term outlook for commodities remains very strong, despite short-term volatility.
Mr. Goodman was particularly bullish, calling commodities “the only area of the market with a chance of a Vshaped recovery.”
He said despite the global economic crisis, the trend of a growing, urbanizing middle class in China and India is still taking hold. And the Chinese have proven they are more than willing to spend their US$2-trillion of reserves on hard assets such as commodities when there are bargains available.
“If Chinese companies want to buy a resource anywhere in the world, the state will fund it,” he said.
His comments come just after a wave of foreign investments by state-owned Chinese companies, including a US$19.5-billion investment in Rio Tinto Ltd. by Chinese firm Chinalco.
Mr. Biggar said he is impressed with the unified global response to the economic crisis, which gives him hope a recovery could happen soon.
When it came to Canada’s position as a current and future global leader in the sector, the panel was more divided.
Mr. Goodman is clearly fed up with both the foreign takeovers of large Canadian companies and the red tape that makes it difficult for junior companies to raise money and make new discoveries.
“We were pre-eminent [in mining] and we’re gradually losing it,” he said.
He is particularly upset that more is not done to promote exploration, noting the Toronto Stock Exchange may be important globally, but the Venture Exchange is definitely not. He blames the foreign takeovers largely on the management of the Canadian companies, suggesting their lack of background in the industry was a major factor.
But Mr. Harquail said there is a whole crop of up-and-coming Canadian companies ready to replace the former heavyweights such as Inco Ltd. and Alcan Inc. He also pointed out that Canadian gold companies are the unquestioned world leaders, and the TSX is still by far the best place for mining companies to be listed.
“The companies that went on [London's] AIM [exchange] regret it,” he said. “They wish they were here.”
To reinvigorate exploration in Canada, he suggested that a major discovery is needed to get investors excited about it again. “We’re overdue for one,” Mr. Harquail said.

Gold N.Y. Spot $ 931.10
Silver N.Y. Spot $ 12.81
Lead LME Cash $ 0.4643
Copper LME Cash $ 1.5103
Zinc LME Cash $ 0.4890
Nickel LME Spot $ 4.35
Aluminum LME Spot $ 0.5761
Platinum N.Y. Spot $ 1077.00
Palladium N.Y Spot $ 196.00
Oil WTI Cushing $ 041.00
Natural Gas (Henry Hub)($/MMBtu) $04.03

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CAD-USD $ 0.7870
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