среда, 7 февраля 2018 г.
Metals morning view: Precious metals may continue to experience upward pressure
Looking at the precious metals, the complex is slightly bid this morning, posting an average gain of 0.3%. This reflects a friendly macro backdrop in which the dollar and US real rates are moving lower, thereby prompting some speculative buying. Since investors are “risk-off” today, palladium continues to be the laggard of its complex, down by 0.2% and the only precious metal in negative territory. This comes after an overall weak performance on Tuesday when the complex posted an average loss of 0.6%, as the stabilization in the financial markets (lower VIX, stronger equities), dampened any haven bids.
Precious metals may continue to experience upward pressure in the immediate term amid a friendly macro backdrop for the complex. We favor gold due to its higher sensitivity to the fluctuations in the dollar and US real rates. We are the most cautious toward palladium as “risk-off” episodes cannot be ruled out after the panic on Monday.
Base metals traded on the London Metal Exchange are ticking higher this morning, Wednesday February 4, posting an average gain of 0.6%. Nickel (+1.4%) is the strongest, while zinc (+0.2%) and lead (+0.1%) are the laggards of the complex.
Volume has been healthy with 12,543 lots traded as of 07.10 am London time.
The resurgence of upward pressure in industrial metals comes after a stabilization in the financial markets on Tuesday following a panic at the start of the week. The CBOE volatility index (VIX) reached a high of 38.80 on Monday before falling back to around 30, which is still a high level judging by historical measures.
This morning, there is some nervousness in risk assets, with broad equities in Asia under downward pressure. But base metals remain bid, probably thanks to the renewed weakness in the dollar. The dollar index – at 89.54 at the time of writing – is down slightly for the first time in three days. Since yesterday’s weakness in the industrial metals was predominantly driven by fresh selling (judging by the increase in open interest), we are inclined to think that some short-covering is now at play this morning.
On the Shanghai Futures Exchange, however, the base metals complex remain under downward pressure, showing an average loss of 0.7%, reinforcing our view that the strength in the LME base metals complex is driven by the foreign exchange channel. Lead (-1.7%) is the worst performer, while tin (+0.8%) is still the strongest, being the only base metal in positive territory. Copper prices in Changjiang are up by 0.3% at 52,690-52,870 yuan ($8,382-8,411) per tonne and the LME/Shanghai copper arb ratio stands at 7.39, down from 7.47 yesterday.
On the macro front, investors will pay close attention to US Federal Reserve speeches, with William Dudley (New York), Charles Evans (Chicago), and Robert Kaplan (Dallas) due to speak. Any interpretation regarding the recent market turbulence will be scrutinized by market players, which could in turn lead to a change in market expectations about the Fed tightening cycle. Any resulting effect on global risk appetite and the dollar could produce spillover effects on the industrial metals. Today’s macro data releases can be seen in the table at the very end of the report.
Base metals should enjoy some short-covering after the recent market turbulence proved only transitory. We favor zinc and lead because they were hit the most at the start of the year, precisely due to their stretched spec positioning. Their supportive micro dynamics should prompt financial players to buy the dips.
Metal Bulletin publishes live futures reports throughout the day, covering major metals exchanges news and prices.
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Mining Indaba 2018: Miners united in fight against planned DRC mining code, says Randgold CEO
Mining investors in the Democratic Republic of Congo (DRC) are united in their desire to fight the country’s new mining code, and could take legal action if they fail to reach a mutually-agreeable solution, according to the chief executive officer of Randgold Resources.
Speaking during an interview with Metal Bulletin on a panel at the Mining Indaba conference in Cape Town, Bristow said that it was the first time that all parties – both from the western world and China – were united in their opposition to the new law.
“It’s good for Africa to mobilize investors and for us to reflect on how we find a way with the DRC government – and other governments – to plot a route that will benefit everyone, because ultimately that’s got to happen, otherwise the money leaves and the conflict continues,” he said.
“I’ve got no doubt we’ll find a solution – the question is, do we have to go through a lot of anguish and crises to get to that end result, or are we going to sit down like grown-ups and work out a way with some independent facilitation, perhaps?” he added.
Randgold is already engaging at the highest level with the government of the DRC to head off the enactment of a new mining code, which the company believes will severely limit the growth of the mining industry as well as the country’s own economic prospects. The new code was passed by both houses of parliament last week but still has to be signed by the president before it becomes law.
Among other things, the new code would scrap the 10-year stability clause enshrined in the 2002 code, which was the basis on which Randgold and other mining companies invested in the DRC. Randgold operates the Kibali gold mine in the DRC, a significant project that produced 596,225 oz in 2017.
“There are very few examples where you’ve seen such a unilateral, aggressive change in the mining legislation as you have seen in the DRC these last few weeks. The only other time we saw it was in South Africa post-apartheid, and that was a unique situation that you could get your head around in some form,” Bristow said.
Bristow has said he is prepared to take legal action if no recourse is found.
Another DRC investor, Ivanhoe Mines chairman Robert Friedland, said this week that the company is also working with the government but that there “remains the distinct possibility of unified, industry-led actions if the proposed changes do become law.”
Other large miners active in the DRC include Glencore and CMOC International.
New mining code
Despite the previous code being the most aggressive fiscal code in Africa, the new one is even more draconian, according to Bristow.
“When you run a model on the code for a new investor and do a comparison with it for a standard copper or gold mine, the old code resulted in 65% of revenues after capital redemption arriving in the state treasury. The new code results in 100%,” he said.
“It’s a strange logic to think people will invest in a country to get no returns,” he added.
A key metric required to return to a more stable situation in the DRC, as well as within the industry in general, is to pace the exploitation of a country’s natural resources so that the entire resource can be delivered profitably, Bristow said.
“A lot of people don’t appreciate that taxes are the key driver – particularly royalties, the ability to do business and the infrastructure cost – that set the hurdle of the grade that makes a profit. So no one ever stops and says, ‘How do we as a nation or industry address that under-riding cost structure that allows us to mine for a longer period of time?’” Bristow said.
“We’re in a cycle that we see evidence particularly of in Africa right now, where everyone is trying to make more – investors want more because they’re so scared of the risk in Africa because everyone changes their mind in an almost fluid way; governments want to make more money because they don’t feel that they’re making enough; and so the net result is that the product is a force of high grading. So you high grade a national asset and then you wonder why suddenly in the future there is nothing there,” he added.
A lot of this is the result of short-termism, he noted, which has created a situation where miners manage a business for the long term, but shareholders and politicians seek instant gratification.
“Politicians are supposed to be managing the national asset for the benefit of generations rather than today or tomorrow or against a particular market cycle,” Bristow said during the interview.
Stability versus short-termism
Stability is essential for investors, Bristow noted, although there are sometimes occasions when private negotiations over specific issues take place.
“Ultimately an investor wants clear legislation that allows it to commit significant amounts of money – in our case $2.5 billion – and be comfortable about being able to perform against the code. When there are any disagreements, you can go and seek internal reflection and find a solution, which we did many times,” he said.
“Again, there are a few other big investors, including Glencore, who are also under the code. But given the history of the DRC there’s a lot of investment that was done before the code or around the code’s negotiation, in a sort of [joint venture] JV agreement, directly between the investor and the state or in a tripartite investment structure with Gecamines, the parastatal and the state,” Bristow told Metal Bulletin during the on-stage interview.
“Those negotiations are not in public documents, and those are the agreements that were revisited a couple of times, twice, and were changed in favor of the government. The industry engaged in that because right in the beginning, the desperation [from the DRC’s government] to attract investment resulted in some overly dovish deals in favor of the investor relative to the state. Those future revisits resulted in a hardening of the state’s benefits,” he added.
Likening the new code to changing the rules in the middle of a world cup football match, Bristow said a set of regulations was critical for all parties.
“Every time we tend to make big strides forward, we then go and get seduced by that temptation to harvest everything today. That is extremely damaging, and comes back to short-termism,” he said.
“It’s a criticism I would levy at the political structures in some countries, but equally at the industry,” he added.
The post Mining Indaba 2018: Miners united in fight against planned DRC mining code, says Randgold CEO appeared first on The Bullion Desk.
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