Looking Green

Barrick makes another takeover offer, but the other main mining news last week revolved around green issues; the German government eases the pain in coal-mining areas, and BHP makes the case for Canadian fertilisers.

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Barrick Gold has made an equity offer to buy the remaining shares in its troubled 64%-owned subsidiary Acacia Mining, which is in dispute with the government of Tanzania. London-listed Acacia, which was demerged from Barrick nine years ago, has been prevented from exporting any unprocessed gold production since 2017 when the government claimed US$190 billion in tax. The equity offering is valued at only US$780 million, which is under 60% of the asset's valuation in Barrick's own accounts.

Elsewhere, the main mining news last week revolved around green issues in Canada and Germany. BHP Group's CFO, Peter Beavan, was quoted in the Financial Times as making the case for investing a further US$5 billion on the Jansen potash project in Saskatchewan. Mr Beavan noted that the growing global population will need new, greenfield, deposits of potash (and the company has previously observed that fertiliser prices also have a low correlation with other commodities that the company produces).

The German government has agreed to spend €40 billion to cushion the impact of the impending closure of coal mines and coal-fired power plants. Coal and lignite accounted for 40% of the country's electricity last year but the share is due to be reduced to zero by 2038. The funds will be used for research centres in the affected areas, the expansion of infrastructure (including better internet, roads and railways), the construction of new 'landmark' sites and the move of government jobs into former coal-mining areas.

There were strong performances last week for nickel and iron ore, up 3.4% and 3.2%, respectively, to US$12,410/t and US$103.7/t. All other major metals were lower, with zinc down 1.5% (closing on Friday at US$2,557/t), and aluminium and copper both 1.4% weaker (to US$1,803/t and US$5,972/t, respectively). Although the gold price was under pressure for most of last week, the precious metal soared US$10/oz on Thursday and closed in London on Friday only 0.6% lower overall at US$1,284/oz.

Market Overview

Worrying economic signals last week included reports that manufacturing output in the eurozone will have contracted in May, and newly-built US houses in April had fallen by the most in four months. The OECD last week urged European governments to raise public spending to stop the economic slowdown from turning into long-term stagnation. Global growth remains heavily dependent on monetary support put in place by central banks, and the OECD's chief economist, Laurence Boone, described the world economy as "fragile".

Investors have continued to withdraw money from emerging markets as concern mounts over the trade stand-off between the US and China. Funds that invest in emerging market equities lost US$3.8 billion in the week to Wednesday, May 22, according to EPFR Global. There has now been a net outflow for five consecutive weeks. Investors also pulled US$1.1 billion from emerging market bonds last week.

The Chinese currency has depreciated 8% against the US dollar since President Trump imposed trade tariffs last year, and the renminbi hit a six-month low of 6.92 to the dollar on Thursday. Currency traders are expecting the Beijing government to allow the exchange rate to 'crack seven' to offset the negative impact of the tariffs on export prices.

China's president, Xi Jinping, made a highly publicised visit to a rare-earth magnet maker last week. The visit was seen as highly symbolic, and a reminder to the US that China holds many advantages in any trade war, especially in the supply of rare earths and the associated manufacturing chain.

The Financial Times noted that American companies in China are facing a backlash from the intensifying trade dispute between the two countries. In a survey, 47% of the members of the American Chamber of Commerce in China said they faced measures such as slower customs clearance, more inspections and delayed approval for licences. 

Meanwhile, the Shanghai Gold Exchange has delayed plans for a cash-settled platinum contract, saying it had failed to secure the necessary political clearance. The Financial Times commented that the failure "highlights the difficulties of reforming China's domestic commodity markets where state-owned companies hold sway".

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.