Dundee Securities bullish on gold, but so-so on base metals – by Dorothy Kosich (Mineweb.com – March 5, 2012)


Gold will still continue its 11 year bull run in 2012, Dundee Securities forecasts, but the anlysts are “anything but certain” on the outlook for base metals.

RENO (MINEWEB) – Dundee Securities analysts continue to believe that the fundamentals remain in place for higher gold prices.
The outlook for base metals this year, however, is “anything but certain,” the analysts cautioned. In their annual report on junior exploration companies, Dundee views gold demand as strong “and higher prices are needed to encourage new supply.”
“Good fortune has already smiled on gold in 2012, as the U.S. Federal Reserve’s pledge on January 25 to keep interest rates low through at least 2014 has lifted prices of the yellow metal.”
“The prospect of reflation has been, and remains one of our key bullish arguments for commodity prices,” the analysts said.
“The notion of quantitative easing in the U.S. as well as pressure on the ECB (European Central Bank) to provide liquidity to banks continues. Add in rising geopolitical tensions, including Iran’s nuclear ambitions and threats to shipping in the Straits of Hormuz (those of us old enough will remember that the spike in gold prices in 1980 was in large part due to the US hostage crisis in Iran), and we continue to believe the fundamentals remain in place for higher metals prices.”
Nevertheless, Dundee Securities observed that gold and underlying equities moved in opposite directions in 2011 as “gold companies strongly underperform bullion in 2011.”
In their analysis, Dundee Securities observed worldwide stockpiles of copper “have been stable as copper prices traded between $4 and $4.50 for the first eight months of 2011. The latter half of the year was dominated by price volatility and an uncertain future coming from threats of a double dip recession.”
“A longer term theme has seen disappointment in the delivery of new supply into the marketplace,” the analysts noted. “While higher prices are allowing ever lower grades of ore to be mined, and new mega-projects are under development, it remains to be seen how and when this production reaches the market.’
“As capital intensity and operating costs increase, the cost curve reaches new highs on the margin,” they said. “Eventually, with moderating demand growth and increased supply, we see the price of copper at lower levels in the longer term.”
In their analysis, Dundee Securities predicts a 27% increase in copper production over the next few years with nearly 20 new projects come on stream and produce 3.4 million tonnes annually of additional copper. “Higher gold prices are supportive of new copper project development as it is a common by product or co-product,” the analysts suggested.
“Should all these projects remain economically viable, and secure financing, such as an increase in supply would be a moderating influence on copper price increases going forward,” they added. Dundee Capital Markets has forecast a copper price of $3.50 per pound in 2012, 2013, and 2014.
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