Check your optimism at the door – by Robin Bromby (The Australian – August 11, 2014)

WALL Street finished the week on a surge of optimism that Ukraine was looking more benign.

Yeah, sure. But, even in the unlikely event that Vladimir Putin will now pull back, there are the small matters of Gaza, Iraq and, for our miners in West Africa, the Ebola breakout. Add to that headlines wondering whether the bull run is exhausted and signs of increasing volatility among mineral commodities, and perhaps we might conclude that Wall St is clutching at straws.

Deutsche Bank doesn’t see Russia backing down, noting that even with sanctions Moscow continued to build troop numbers near the border, has signed a big oil co-operation deal with Iran and has ordered retaliatory measures against the West.

In addition, says Deutsche, there has been excessive leverage during the recent equities run-up. Weak hands have been driving prices, and now these have been forced to sell.

Zinc, the supposed star at present, has shed 5 per cent since late July and copper is down 4.9 per cent on the year. BNP Paribas reports that mine capacity growth for copper is expected to rise by 31 per cent by 2017.

Goldman Sachs weighed in with a forecast of iron ore averaging $US80 a tonne in 2015, Bloomberg describing it as a potential “rout”. Iron ore has fallen 29 per cent so far this year. Commonwealth Bank sees a “long run” ex-Pilbara price of $US73/tonne.

Coal continues to look bleak. ANZ Research sees coal markets being “awash” with that commodity. No surprise, then, that prices are at multi-year lows, with major suppliers showing no supply discipline. China has increased its coal output by 400 per cent since 2000. To put it more dramatically, ANZ notes China has added the capacity of the entire Australian coal industry to its production base every year between 2000 and 2012.

Those who are sanguine now may need a little sangfroid in the months ahead.

No silver bullet

ONE more throw of the dice for Silver Mines (SVL). The company is planning to take a 50 per cent stake in an operating silver mine in Mexico. The terms of the farm-in include SVL spending $US2 million over three years. As at June 30 the junior had $195,000.

Not only is Mexico the most prolific silver area in the world, SVL thinks this move increases its prospects of becoming a producer in the short term. No doubt shareholders would welcome that: the company has spent seven years since listing exploring in NSW, has at its Webbs project what it claims to be the highest-grading undeveloped silver deposit in Australia (with measured and indicated resource of 8.37 million tonnes at 269 grams/tonne) yet a share price of 0.4c and still no whiff of bringing Webbs into production.

SVL has also picked up projects in Nevada and Arizona and in last week’s announcement bemoans a minerals sector in Australia that “continues to face headwinds, particularly with ever increasing costs and regulatory burdens”. And juniors that can’t get mines into production.

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