Behre Dolbear, minerals industry advisors, provide a weekly E-newsletter featuring news and views on global mining issues from a number of industry sources. Here are a few excerpts:
Gold Investment Demand
Has 'Barely Scratched The Surface'
Growing investment demand for gold, combined with declining mine production levels in the longer term, will continue to support strong prices for the "foreseeable future", Barrick Gold CEO Aaron Regent. Although demand for the metal has strengthened significantly, the gold market remains small, and is "dwarfed" by other asset classes, he said at the company's shareholder meeting in Toronto.
As a result, a small transfer of investment dollars to the gold market could have a "substantial" effect on valuations. On the one hand, central banks, which have historically been net gold sellers, appear to be rethinking their portfolio strategies, and are diversifying their holdings into gold, Regent said.
Net officials sales of gold are sharply lower, and net buying in the last few quarters 'would seem to indicate a change in sentiment is clearly under way," he said. Secondly, investment demand for the metal has grown significantly, as investors seek gold's security as a hedge against future inflation or currency debasement.
Worries about unprecedented levels of government debt outstanding, ongoing global imbalances and the concerns countries have over excess US dollar reserves, combined with risk aversion over escalating sovereign credit worries in Europe, "position gold to benefit, as investors and central banks look for alternatives to the major currencies of the world", Regent said.
Venezuela May Nationalize Gold
Mining Concessions, Chavez Says
Venezuelan President Hugo Chavez threatened to nationalize gold mining concessions, adding them to the oil, utility and metal assets he's taken control of in the South American country.
The government may end the grants because of "capitalist mafias" comprising national and multinational companies that destroy the environment and exploit workers, the president said on state television yesterday.
Chavez has nationalized parts of the country's oil, cement, metals and utilities industries as he extends the role of the state in the economy to create what he calls "21st century socialism." U.S. oil companies Exxon Mobil Corp. and ConocoPhillips, whose assets were taken in 2007, are in arbitration proceedings against the South American country.
Gold Reserve Inc., a Washington-based company, in October filed for international arbitration against the government of Venezuela for the alleged expropriation of its gold mining projects. The company had spent $300 million on the projects. Venezuela's central bank is considering selling a bond backed by future gold production, former Mining Minister Rodolfo Sanz said March 31.
The South American country is seeking partners to develop the Las Cristinas gold deposit, one of the world's biggest undeveloped deposit, Sanz said. Toronto-based Crystallex International Corp., which has a license to mine part of the site, may be a potential partner, he said. Chavez said last year a venture between Rusoro Mining Ltd. and the government would develop the site.
The central bank will increase its gold reserves this year and will buy more than half the estimated 20 metric tons of domestic production, former bank director Jose Khan said March 5. Khan is the new mining minister.
Study Group Forecasts 580,000 T
Refined Copper Surplus For 2010
The global market for refined copper will likely show a surplus of some 580,000 t in 2010, compared with 195,000 t last year, the International Copper Study Group said on Friday. The market surplus will widen as growth in copper supply exceeds projected weak growth in industrial copper demand, the group said.
For 2011, it has forecast a smaller surplus of around 240,000 t as increased economic activity is expected to boost demand in copper end-use markets. "While actual industrial demand in 2010 is expected to increase in all of the major consuming regions, copper market off-take is expected to decline slightly from the 2009 level owing to lower apparent Chinese demand," the ICSG said.
In 2009, China's apparent consumption increased by 38%, far outpacing the estimated growth in China's semi-manufacture production. The substituion of refined copper for direct melt scrap and the accumulation of unreported refined copper inventories likely account for the difference in apparent consumption growth and semi-manufacture growth, the group said.
The outlook for the next two years took into account the uncertainty imposed by the rate of economic recovery in many of the major copper consuming regions that experienced a severe recession in the 2008/9 period, the projected copper semi-manufacture growth rate for China, which accounts for more than 30% of global refined copper consumption, and the potential release or further accumulation of inventories in China.
"A shortage of concentrates, based on projected production (adjusted for unanticipated disruptions), is expected to continue to restrain the growth of refined production," the study group commented.
On the demand side, the economic crisis has significantly reduced world refined copper usage, with global apparent usage in 2010 expected to decline by another 1.5% this year, to 17.9 million tons.
"An average increase of 6.9% in three major markets - the US, the European Union, and Japan - is expected to be more than offset by a decline in apparent usage in China of about 13%," the ICSG said. Industrial demand growth for copper in China, however, which is based on anticipated semi-manufacture production, is expected to grow by 7.5% and 5%, respectively, in 2010 and 2011. In 2011, world copper usage is expected to recover, rising by about 5% to 18.9 million tons.
Nickel's Surge Set To Continue
It may not command the attention of oil, gold or even copper but nickel is on a roll: it has outperformed almost every other commodity this year. The metal, used in the production of stainless steel, has jumped 42 per cent since the start of the year compared with gains of less than 5 per cent for aluminum and copper.
Since its nadir in late 2008, the price of nickel has more than trebled to $27,500 a tonne on the back of strong demand from the stainless steel industry and supply disruptions.
The price increase will also have a significant impact on miners such as Norilsk Nickel of Russia and Brazil's Vale, the two largest producers that together account for about a third of the market, as well as on stainless steel producers such as ThyssenKrupp and ArcelorMittal, for whom the cost of the metal makes up as much as 60 per cent of the final cost of stainless steel.
Nickel's sharp rise has also sparked the interest of speculators, inspiring comparisons with 2007 when prices rose above $50,000 amid allegations of market manipulation. But most traders, analysts and brokers believe that nickel prices are being propelled by supply and demand fundamentals. The industry consensus is that prices could easily surpass $30,000 in the near future as many believe that demand will outstrip supply this year.
Traders and brokers are nervously watching a large position in the nickel market that many believe is held by a leading New York-based commodities hedge fund. Data from the London Metal Exchange show that one company recently acquired more than 50 per cent of nickel warrants - a measure of control over warehoused stocks of the metal. But analysts warn that current prices are unlikely to be sustained beyond the end of the year.
China Steel Demand To Surge In Next Decade
Chinese steel demand will surge over the next decade as infrastructure and property development continue to drive economic growth, according to a researcher from the country's top economic planner.
Hu Chunli from the National Development and Reform Commission's Institute of Industrial Development said efforts to adopt a less resource-intensive pattern of growth were unlikely to have an impact on steel consumption for at least a decade.
"As the pressure to maintain economic growth is maintained, the structure of growth is unlikely to change dramatically during the Twelfth Five-Year plan (2011-2015) and even the Thirteenth Five-Year plan (2016-2020) - basically for the next ten years," Hu told a Steel Business Briefing conference. Construction accounts for more than 60 percent of total investments and more than half of steel demand in China, Hu said.
The lack of innovation in research and development means that it will be a long way before China can develop its own knowledge-based, high value-added industries, such as telecommunications, information technology, and pharmaceuticals.
He added that the steel sector had grown rapidly in the past few years due to robust demand, despite government efforts to curb oveheating in the industry.
Miners Face Billions in New Taxes - Australia
Australian mining companies face a massive new tax of at least $5 billion a year as the federal government plans to stack a resources rent tax on top of the $7bn miners pay in state royalties. The plan to impose the new national resource rent tax, to be collected by the commonwealth, is expected to be disclosed next Sunday with the release of the Henry review into the tax system.
With the release of the long-awaited Henry report, the government will detail its plans to allow resources states such as Western Australia and Queensland to continue to collect mining royalties.
The proposal to have to separate mining taxes will affect the Rudd government's negotiations with Western Australia to hand over one-third of its GST revenues for the national health and hospital plan. West Australian Premier Colin Barnett is the only state leader holding out against Kevin Rudd's national health plan, and is opposing any federal takeover of state taxes or new taxes on West Australian minerals.
Mining company executives, who have been expecting a new tax, told The Weekend Australian yesterday the federal resources rent tax on top of state royalties was the "worst case scenario" and a "thermo-nuclear option" that could stop projects going ahead or limit expansion. The federal resources tax is one of the main recommendations of the tax review conducted by Treasury secretary Ken Henry aimed at offsetting the rising cost of public health.
The review is believed to recommend the rate be set at 40 per cent of mining industry profits and replace state royalties, which vary around the country depending on the industry and project. One of the reasons Mr. Barnett has refused to sign over a third of his state's GST revenue to the Rudd government for health is that he fears losing mining royalties after the Henry review.
Federal government sources said Mr. Barnett and other premiers had nothing to fear from the Rudd response to the review, and would keep their royalties. Canberra sources told the Weekend Australian the federal government's response included a resources rent tax on top of the state royalties and said all states would be treated the same.
It is possible the government will lower the tax rate from the expected 40 per cent to compensate for the retention of the state royalties, although the double collection is a less efficient tax method.
The new resources rent tax would be applied on all mineral and onshore gas projects, such as the new wave of coal-seam gas developments in Queensland. Financial market analysts estimate it would cost BHP Billiton and Rio Tinto - the nation's two biggest miners - $5bn. The existing petroleum resource rent tax on offshore oil and gas projects raises more than $4bn a year for the commonwealth.
It is understood the government has considered the possibility of returning some of the new federal tax to the major resources states, which are suffering a big loss in GST revenue via the Commonwealth Grants Commission.
This week the Prime Minister said he was confident the federal government could finalise a deal with Western Australia over its funding for the new health proposal, and conceded that the large resources states, such as Western Australia and Queensland, had particular funding difficulties.
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