Gold Threatens Breakout

The price of gold broke through US$1,300/oz last week, and the precious-metals market looks strong despite a subsequent retreat. Other major metals also improved, ignoring economic weak data from China.

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Gold broke through the US$1,300/oz barrier on Wednesday, March 13, before retreating sharply the following day. The precious metal closed the week in London at US$1,296/oz, up only 0.8% on the previous Friday.

Apart from nickel (down 1.1% on the week at US$12,935/t), all the major metals moved higher in the seven days to end-Friday. Zinc improved 2.5% to US$2,783/t, aluminium rose 2.0% to US$1,901/t, iron ore (62% Fe) strengthened 1.6% to US$86.2/t and copper rose 0.7% to US$6,435/t.

The price of oil touched its highest level this year last week, with Brent Crude exceeding US$68/bbl. Traders are betting that US sanctions against Venezuela and Iran would restrict supplies. Prices retreated later in the week following forecasts that Opec would need to maintain its deep cuts in petroleum output to support the market as global economies continued to drift.

The improvement in commodity prices came despite another worrying report from China, with data for the manufacturing sector being at its weakest since records began in 1995. Factory output in January and February (a combined assessment because of the Chinese New Year) rose only 5.3% year on year compared with a 5.7% rise in December.

More bad news for China came in mid-week when Brussels branded the country as a "systemic rival", and threatened tighter rules on its investments in Europe. In a paper on March 12, the European Commission requested China to stop unfair treatment of European companies. The announcement came as some of the largest European Union countries resisted Beijing's Belt and Road initiative, which is perceived as damaging domestic industries.

Last week had started with the news of an end to Barrick Gold Corp.'s short-lived hostile takeover attempt for Newmont Mining Corp. The two companies have agreed a joint venture (long mooted by analysts) that will comprise their core gold-mining assets in Nevada. In a joint March 11 news release, the two companies outlined the combination of their respective Nevada operations into a single unit producing around 4 Moz/y. The venture will be owned 61.5% by Barrick and 38.5% by Newmont.

Barrick and Newmont expect the partnership to yield an average of US$500 million in annual synergies over the first five years of operations, and have estimated the venture's net present value (before tax) at US$5 billion over 20 years. The details of the joint venture have not been announced, however, although it will comprise three Tier 1 assets and include gold reserves totalling 48 Moz. The partnership will also, for the moment at least, exclude Barrick's Fourmile project, which is part of the Goldrush property, as well as Newmont's Fiberline and Mike deposits, "pending the determination of their commercial feasibility".

Goldcorp Inc., an acquisition target of Newmont, has given its support behind the Barrick-Newmont joint venture, and welcomed Barrick's decision to drop its hostile takeover bid for Newmont.

S&P Global Market Intelligence has reported drill results in February from 201 projects, which is the lowest monthly total in 22 months. The most significant month-over-month decline was for gold exploration, with drill announcements at only 47 projects, followed by copper drilling at 11 projects. Drilling announcements during the month increased for nickel, cobalt and lithium.

There was good news in the UK with confirmation that Sirius Minerals had secured a potential financial backer for its US$3 billion polyhalite mine in North Yorkshire. The London-listed company's shares jumped 9% on the announcement, giving Sirius a market capitalisation of US$930 million. The Woodsmith mine will be the largest mine to be built in the UK for a generation and could employ up to 1,000 people. 

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.