Resource World Magazine

70 www.resourceworld.com O C T O B E R / N O V E M B E R 2 0 1 7 Epilogue by David Duval I nvestors fixated on gold and silver markets – which at long last appear to have turned a corner – might well have missed the huge gains attained in recent months by key industrial commodi- ties such as copper and zinc. The former is called Dr. Copper for a good reason: increased consumption and higher prices are closely correlated with improved eco- nomic conditions which mean higher Chinese demand. Since the end of May, the price of copper has jumped 20%, boosted by encouraging economic data out of China, a weak US dollar, and regulatory moves by Beijing to ban scrap imports. The Financial Times notes that analysts were blindsided by the sudden rise and many now believe that plentiful supply will put pressure on prices, along with a stronger US dollar. (But you would expect analysts to suggest just that when their metal forecasts miss the mark by such a wide margin). Nonetheless, Chinese manufacturing accelerated in August and growth is pre- dicted to remain strong until year end. Meanwhile, new orders for US-made goods saw their biggest drop in nearly three years in July which one would assume is negative demand for copper. However, US copper demand has for years been second- ary to China in terms of impacting prices. Commerzbank analyst Daniel Briesemann recently warned that copper prices had detached from supply and demand funda- mentals and he predicted a correction could take copper below US $6,000 ($2.72/lb) a tonne. On the supply side, Indonesia's deal to allow Freeport McMoRan to continue operating its huge Grasberg copper mine improves the supply outlook and could help push prices lower. "The new agreement should end the periodic bans on concentrate exports that have resulted in an average of 240,000 tonnes/year of lost production since 2014," according to Standard Chartered analysts. In early September copper touched US $6,970 per tonne ($3.16/lb), the highest since September 2014 and near the key psychological level of $7,000. Also trading at multi-year highs is zinc which is largely used for galvanizing steel and the manufacturing of automobiles. In August, zinc traded at its highest price (US $1.36/lb) in almost a decade on the back of robust global demand, shrinking stock- piles, and shortage of the metal in China which is responsible for more than 40% of world consumption. Other key industrial commodities including aluminum and iron ore have traded at their highest levels in years, with China cutting outdated and polluting alu- minum production capacity in favour of output from modernized facilities, albeit with an uncertain timeline. Chinese iron ore imports moved higher in August as steel prices soared, driving demand for high-grade foreign ore in the world's biggest steel producer. Imports were up nearly 7% over the first eight months as Chinese mills sought to increase output to take advantage of improved mar- gins amid a government crackdown on low-tech steel products. The end result was bigger orders for raw materials, especially high-grade iron ore. A five-month-peak in iron ore prices of US $94.46/tonne was reached in late August as stockpiles at port facilities reached their lowest levels in three months. Beijing appears committed to meeting its politically crucial air quality targets by shutting as much as half of the steel capac- ity in some northern cities this winter including the top steel producing city of Tangshang. Precious metals including gold and sil- ver lagged the recovery in base metals but when they did finally start to gain traction the moves were impressive. The strength in precious metals mostly reflected tensions between the US and North Korea and a weaker US dollar, the latter echoing grow- ing concerns over a faltering economic recovery in the US and dovish comments from Federal Reserve officials concerning the prospects for a rise in interest rates. Nonetheless, gold's trading pattern – and silver too – remains volatile, subject to the whims of Donald Trump's twitter feed not to mention his political agenda which thus far has encountered stiff resistance in the US Congress and Senate. The long predicted consolidation in the gold industry appears to be under way with Alamos Gold announcing a friendly takeover of Richmont Mines in an all share deal valued at US $770 million. Leading the list of reasons for the acquisition Alamos cited Richmont's assets in a "world class jurisdiction" (i.e. Canada) which is increasingly becoming a major consideration for acquisitors given the problems many have been having in for- eign jurisdictions. In September, Eldorado Gold announced plans to suspend investment in Greece over a permitting dispute with the government. Then, on September 13, the company reported suddenly receiving two permits – the Olympias operating permit and the modified electromechanical installation permit for the tailings management facil- ity at Kokkinolakkas from the Ministry of Energy and Environment. Several other permits have not been received as of this writing. n Recovery in base metals blindsides precious metals investors

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