Oil Prices Reaching New High

Capturing the "highs" and lows of a very active week in the general market, while US interest rise and Brent crude oil prices at 4-year high amidst concerns of debt servicing levels in China and Trump's open complaint on trade.

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The mining sector was buoyed at the start of last week by the announcement that Barrick Gold and Randgold were to merge, with a combined enterprise value of US$22 billion. It had all the hallmarks of a reverse takeover, with the highly regarded the CEO of the smaller company, Randgold's Mark Bristow, taking over the combined group.

Outside of the U.K., where investors are concerned about the plans to quit the London Stock Exchange, the deal was well received. Randgold's shareholders, who will emerge with one-third of the combined group, might also feel hard done by as the deal is a "nil-premium merger", and they might have expected compensation for the dilution of Mr Bristow's attentions.

Moreover, Barrick Gold still has net debt of US$4.3 billion, compared with Randgold's relatively modest US$600 million. Both companies have trailed their peers over the past year, and it is likely that Mr. Bristow will turn his attention rather quickly to Barrick Gold's lower-value investments. 

It was also an active week on the general markets, with oil prices reaching a four-year high. On Tuesday, with Brent crude trading above US$82/bbl, President Trump accused the oil-producers of "ripping off the rest of the world". President Trump told the UN General Assembly that "we defend many of these nations, and then they take advantage of us", adding "we are not going to put up with it".

Neither was President Trump pleased on Wednesday, September 26, when the Federal Reserve raised short-term interest rates for the third time this year. The Federal Open Market Committee boosted the key rate by one-quarter of a percentage point to a target range of 2.00-2.25%. Median forecasts released by the Fed's policymakers suggested one more rate rise this year, followed by three in 2019.

The tighter monetary policy follows confirmation that U.S. unemployment is heading for a multi-decade low, and wage growth has accelerated to its quickest pace for nine years.

Fears for global economic growth rose on Thursday following the announcement that household debt in China had reached a record level. There is concern that the burden of servicing this debt will weigh on consumer spending. German insurer Allianz said in its latest global wealth report that China's ratio of household debt to gross domestic product had risen 30% in the past ten years. 

Chris Hinde

Chief Commentator, Mining Beacon

Previously editorial director of Mining Journal, and more recently head of S&P Global Market Intelligence's metals and mining team, Chris is now Mining Beacon's editor-in-chief and lead commentator. He posts two blogs every week, one on Monday reviewing market conditions over the prior week, and a second on Thursday looking at issues on the global mining scene. There is also a quarterly blog on business opportunities in the sector.