Commodity Super-Cycle and Decline – Page 21

Freeport mulls selling minority stake in copper mine portfolio – by Rachelle Younglai (Globe and Mail – April 25, 2016)

April 25, 2016

http://www.theglobeandmail.com/

Freeport McMoRan Inc. is considering selling a minority stake in its portfolio of copper mines, one of the options on the table as the company scrambles to slash its $20-billion (U.S.) debt load, sources familiar with the matter said.

Freeport had initially planned to take part of its energy business public to raise cash. But with oil prices in the dumps and scant investor interest, the company put those plans on the back burner, the sources said.

Now, Arizona-based Freeport is mulling selling a stake of up to 20 per cent in its suite of mining assets in the Americas and maybe Africa, the sources said. It is unknown how much Freeport is expecting to get or whether the company can find investors willing to buy a stake. One name that has been floated has been China’s Citic, a government-owned investment firm, sources said.

Goldman Says Iron Ore’s Going `Back to $35′ as Glut Returns – by Jasmine Ng (Bloomberg News – April 22, 2016)

April 25, 2016

http://www.bloomberg.com/

Goldman Sachs Group Inc. has one piece of advice after this year’s dramatic iron ore rally: go short.

“We think this market will go back to $35 during the fourth quarter,” analyst Christian Lelong said in an interview. That’s 50 percent below Thursday’s close of $70.46 a dry metric ton, the highest level since January 2015. “Our expectation is the oversupply in the iron ore market will return.”

Iron ore has surged in 2016, in contrast to the previous three years when a slowing Chinese economy hurt steel demand and supplies increased. This year, policy makers in China have added stimulus, presiding over a revival in the property market that’s boosted the outlook for steel consumption and prices. Still, burgeoning output and stalling demand growth may drag prices down once again, according to Lelong.

“Going into the second half of the year, what are you going to need to absorb all that iron ore supply?”

Fallen angels: Downgrades surge amid commodities rout – by Ian McGugan (Globe and Mail – April 22, 2016)

April 22, 2016

http://www.theglobeandmail.com/

More companies were tossed into the investment junkyard during the first three months of this year than in all of 2015, as weak commodity prices helped to undermine once-solid corporate balance sheets.

Moody’s Investors Service, one of the world’s largest credit raters, said in a report that it pushed 51 companies out of its investment-grade category during the first quarter of 2016, a reflection of their increasing risk of default.

By comparison, Moody’s downgraded only 45 companies to below investment-grade status during all of last year. The surge in downgrades is a worrisome sign for a global economy that is still finding it difficult to generate robust growth seven years after the financial crisis ended.

Easy on the soap: mining firms pinch pennies as downturn bites – by James Regan (Reuters U.S. – April 20, 2016)

April 21, 2016

http://www.reuters.com/

SYDNEY – From trimming menus in staff canteens to cutting back on soap and washing detergent at worker camps, the global mining industry that once lavished perks on employees is scrimping like never before as a brutal downturn engulfs minerals markets.

After frantically cutting costs by slashing jobs, freezing salaries and squeezing more from suppliers, mining companies are now scrambling to unearth savings in even the most mundane parts of their businesses.

“It’s not to the point yet where employees are being asked to grow their own vegetables or stay in farmhouses, but if you’re not seen attacking costs at any level, no matter how small, it’s not a good look,” said Kevin Kartun, a geologist and principal of Karmar Mining Services in Sydney.

COLUMN-Mining M&A still waiting for the good times to roll – by Clyde Russell (Reuters Africa – April 19, 2016)

April 19, 2016

http://af.reuters.com/

LAUNCESTON, Australia, April 19 (Reuters) – Wanted: One mine, just started or close to production, preferably gold, must be in secure country with high-quality ore body and low costs. Also, must be cheap.

The above shopping list was the most common response from investors when quizzed as to what they are looking for in the commodity sphere during last week’s Mining Investment Asia conference in Singapore. The near impossibility of satisfying the requirements probably explains why there aren’t that many mining deals actually being done, despite the low prices for many commodities.

While the big companies often grab the headlines with large acquisitions (think Rio Tinto buying Alcan, BHP merging with Billiton and later spinning most of it off in South 32), the engine room of the mining sector tends to be among the juniors.

Don’t ride this mining stock rebound, Citigroup warns – by Ian McGugan (Globe and Mail – April 19, 2016)

April 19, 2016

http://www.theglobeandmail.com/

The great rout in raw materials prices is over, according to Citigroup analysts, but anyone who hopes to ride the spectacular rebound in mining stocks should think again.

Most commodities have now “stared at a price bottom and are groping for a return to normal,” Ed Morse and other Citi analysts write in a report released Monday.

However, investors should be wary because the huge rally in mining stocks during February and March has already pushed prices far above fundamental values. “We think that the stocks have run too hard, too fast and valuations look stretched,” an accompanying note from the metals and mining team says.

Private Equity Eyes Base-Metal Deals as Rally Buoys Gold Miners – by Danielle Bochove (Bloomberg News – April 15, 2016)

April 15, 2016

http://www.bloomberg.com/

Private equity firm Waterton Global Resource Management is finding the best investment opportunities are in industrial metals as surging gold prices give precious metal companies some “breathing room.”

The Canadian firm, whose billion-dollar investment fund focuses on North American mines, expects to do half a dozen base-metal deals this year as producers continue debt-reduction efforts after prices slumped, Chief Investment Officer Isser Elishis said. In contrast, gold’s 16 percent rally this year is taking pressure off miners to sell assets, at least for now.

“The opportunity set looks better at the base-metal side at this point, but that could change on a dime,” Elishis said in an interview at his Toronto office on Wednesday. “In the precious space, in North America especially, there are a few things that are actionable, but not as many as I would like.”

Commodity slump pushes Africa back into IMF’s embrace – by Ed Stoddard (Reuters Africa – April 15, 2016)

April 15, 2016

http://af.reuters.com/

JOHANNESBURG, April 15 (Reuters) – Falling commodity prices have pushed several African countries back into the embrace of the International Monetary Fund, which has an opportunity to push for reforms and inject transparency into opaque economies.

Top of the list is Angola, Africa’s second biggest crude producer and third largest economy, which has not borrowed from the IMF since 2009 and just a few years ago had the Fund all but turning a blind eye to missing billions.

It is hardly alone, with depressed prices for commodities ranging from oil to copper sapping the budgets of African governments and sending them to the IMF, the “lender of last resort” which typically imposes tough conditions for assistance.

Copper Collapses As China Prepares To Dump Surplus Metal In A Repeat Of Its Steel Export Flood – by Tim Treadgold (Forbes Magazine – April 8, 2016)

April 12, 2016

http://www.forbes.com/

Dr Copper is ill, again.

The metal which acts as a barometer of global industrial production thanks to its use in everything from household appliances to cars, power generation and construction has hit another speed bump on what was thought to be at the start of a long-term price recovery.

From a multi-year price low of around $1.97 a pound in late January copper rose by 16% to $2.30/lb on March 21. Since then it’s been one-way traffic with the price dipping to $2.11 and looking weak.

Whether copper, which earned its Dr Copper nickname because of its celebrated ability to reflect the underlying health of the economy, will re-test the $2/lb mark is a question worrying producers of the red metal.

You can now be positive on commodities, and that’s a big change – by Clyde Russell (Reuters U.S. – April 12, 2016)

April 12, 2016

http://www.reuters.com/

SINGAPORE – – It would be easy to dismiss the assertion by BHP Billiton Chief Executive Andrew Mackenzie that commodity prices have bottomed as the wishful thinking of a mining executive keen to see some improvement in profit margins.

While it’s likely that the boss of the world’s biggest mining company is hoping for an end to five years of a declining price trend for many of the commodities his company produces, there is enough price evidence to suggest he may be right.

It’s probably a little too early to call for a rebound in commodity prices, and Mackenzie was suitably cautious in his comments published last weekend in The Australian newspaper. But the fact that it is now possible to construct a narrative, with supporting price data, for even a mild recovery in commodities is something of a sea change.

Railways feel the brunt of commodities slump – by Eric Atkins (Globe and Mail – April 11, 2016)

April 11, 2016

http://www.theglobeandmail.com/

Canada’s two major railways are seeing the plunge in prices and demand for industrial commodities firsthand. The number of carloads hauled by Canadian Pacific Railway Ltd. and Canadian National Railway Co. has fallen more than 9 per cent this year, excluding container traffic.

The decline is led by a 29-per-cent drop in carloads of metallic ores and metals, and a 15-per-cent slump in coal, according to the Association of American Railroads (AAR), which includes U.S. operations of CN and CP. Carloads of oil and other petroleum products are down by 12 per cent.

Despite the declines in traffic, both carriers are expected to post higher profits this month, thanks to tight controls over costs, staffing levels and pricing power.

Commodity Rebound Forecast by Australia as Exports Resume Gains – by David Stringer (Bloomberg News – April 8, 2016)

April 8, 2016

http://www.bloomberg.com/

The global commodity rout looks set to hit a bottom with Australia, a key bellwether for the resources industry, forecasting the value of its commodities exports will resume rising from the second half of 2016.

Export earnings will rise by almost a third to A$208 billion ($157 billion) by fiscal 2021, the government’s Department of Industry, Innovation and Science estimated Friday in a quarterly report, after tumbling to a third straight annual decline in the current fiscal year.

The worst of the commodity price collapse is probably already over for materials including metallurgical coal, aluminum, zinc, lead and gold, Credit Suisse Group AG analysts led by Matthew Hope wrote in note dated Friday. The outlook for steel demand in China is also improving on the prospects for additional government infrastructure spending, the analysts wrote.

Copper miners’ game of chicken continues – by Frik Els (Mining.com – April 6, 2016)

April 6, 2016

http://www.mining.com/

Lowering of cost curve, marginal mines staying open at all costs will see oversupply persist and a fifth year of copper price declines

The latest edition of the closely followed GFMS Annual Copper Survey forecasts primary production to continue to grow over next three years, albeit at a slower pace than in the recent past, as miners deliver on investments made during the boom years.

World mine production was up 3.5% or 652,000 tonnes in 2015 to just over 19 million tonnes, compared with a 2.1% increase in 2014, but down substantially from 2013’s 8.2% clip. Peru led the pack with a 28% rise in production which saw it surpass the US in the global rankings to take third place behind Chile and China.

Coal price hopes fade amid reality of slowing Asia demand – by Clyde Russell (Reuters U.S. – April 4, 2016)

April 4, 2016

http://www.reuters.com/

LAUNCESTON, AUSTRALIA – Coal’s bright start to the year in Asia is fading amid the gloom of weak demand across the region’s top importers and still too much supply from top producers.

The benchmark Newcastle weekly coal index ended at $51.13 a ton on April 1, down from its high so far this year of $52.59, reached on March 11. That peak capped a rally of 11 percent from the almost 10-year low of $47.37 a ton plumbed in the week to Jan. 21, but it now appears it was nothing more than a false dawn.

Coal was most likely the beneficiary of better sentiment towards commodities in general that saw strong rallies in iron ore and crude oil in recent weeks, which have also petered out.

Short sellers have increased bets against big diversified miners recently – by Peter Ker and Thomas Hounslow (Sydney Morning Herald – March 31, 2016)

March 31, 2016

http://www.smh.com.au/

It has been a good few months for the world’s major miners, but not everyone believes the recent commodities rally will last.

The surprise surge in prices for iron ore, copper, manganese and oil since January 21 has boosted mining stocks, but also attracted the type of investors who like to bet that shares will go down.

Short positions in Rio Tinto, BHP Billiton, Glencore and Anglo American surged to their highest levels in several years during the first quarter of 2016, suggesting that a growing number of investors believe the improved commodity prices cannot be sustained.

Take Rio for example; the percentage of Rio’s Australian shares sold short in mid February was the highest since Christmas Eve 2012.