(MENAFN- ProactiveInvestors) Metals price forecasts: 2015 2016 and Long Term:
We have reviewed and are revising our metals price forecasts for this year next year and for the longer term
We are making surprisingly few adjustments considering the volatility of currencies and the start of ECB QE
Gold now looks somewhat better in Euro terms than in US dollars
Our new forecasts are below
Precious metals
• Gold - We are rising our gold price forecast to $1300/oz for 2015 and 2016 rising to $1350/oz for the longer term
We see gold as tracking sideways but with good underlying support from India Russia and China.
• Silver – increasing by product production from copper and other mines looks likely to outstrip demand and weigh on silver prices.
We reckon silver might average $18/oz this year and next down from our previous $20/oz forecast and to rise to $20/oz for the longer term.
• Platinum – we have softened our view for platinum to $1500/oz this year from $1550/oz previously and to $1550/oz for 2016 from $1700/oz.
The South African platinum miners strike had a perversely negative effect on prices as producers sold out of stock and we hope no long damage is done to demand.
Long term we see the potential for platinum prices to rise to an average of $1800/oz from $1700/oz previously.
• Palladium – we are more positive on palladium due to new emphasis on the benefits of petrol engines (Hybrids) and new policies against diesel autos.
We raise our palladium forecasts to $850/oz for 2015 from $800/oz a year ago and to $950/oz next year from $850/oz previously. Longer term we revert to $850/oz as we see engines and their catalysts getting smaller with greater buying of hybrid vehicles.
Base metals
We feel forced to take a slightly more cautious view of copper nickel lead and tin but are more positive on aluminium and zinc
• Copper - $6500/t 2015 $7000/t 2016 $8000/t L-T. Demand was surprisingly good last year for copper and interruption to production caused the market to move into deficit in the second half.
We expect the deficit in copper to continue and for copper prices to rise but we are wary that demand might slow and that the market might be limited to smallish price gains.
• Aluminium - $1900/t 2015 $2250/t 2016 $2250/t L-T. We have increased our forecast for aluminium. We forecast $1800/t a year ago but can see growing aluminium demand.
We hope new Chinese production is balanced by new demand and by the closure of higher cost and polluting production.
• Nickel - $14500/t 2015 $15000/t 2016 $16000/t L-T. we cut this years’ forecast from last years $15500/t estimate despite our forecast deficit in the metal. The price should still perform well from current levels.
• Zinc - $2300/t 2015 $2400/t 2016 $2400/t L-T. A substantial supply demand deficit seems likely as there are very few new mines to replace ageing and failing production.
• Lead - $1900/t 2015 $2000/t 2016 $2200/t L-T. Lithium is preferable to lead and should make see significant substitution. We are not sure how quickly lithium will displace lead in larger batteries but we see new-generation dual batteries eg part lead-acid and part lithium-ion displacing conventional heavy lead acid batteries in increasing numbers.
• Tin - $22000/t 2015 $23000/t 2016 $2200/t L-T. A forecast small surplus in tin may hold prices back this year as production from Myanmar and relatively weak demand from electronics keeps the market in check. Price setting in Jakarta has held prices higher than they might have been with the new Myanmar supply coming into the market.
• Oil - $60/t 2015 $75/t 2016 $90/t L-T. Slower demand growth and greater supply hit prices hard. Saudi Arabia tried to regulate supply and prices last year but gave up when Russia Nigeria and others failed to cut back. Next time other producers are likely to follow Saudi Arabia’s lead now that they see what happens when they don’t
ECB QE Eur60bn per month – The ECB announced last week the start of its QE causing the Euro to fall by around 3.2% against the USD. The Euro has now fallen 7.1% vs the USD since the start of the year
• In Greece the leftist Syriza party won the election giving the new ruling party an effective democratic mandate to renegotiate or potentially default on its government bonds
• Greek debt is nearly 80% held by foreign official banks according to a DB economist highlighting how Greece’s debt has been spread around the Official sector of the Eurozone.
• Acquiring the Greek debt looks like a form of QE in itself and the large proportion of official bank holdings serves to help protect the financial system against the potential for Greek default.
• The Spanish and Italian economies are more vulnerable to default as government debt is >50% held by domestic banks and non-banks
Zambia – Newly inaugurated President the former defence minister from the incumbent Patriotic Front (PF) party pledged to leave higher mineral royalty tax in place.
• The government increased open pit mining royalties to 20% from 6% for open pit operations and to 8% from 6% for underground mines last year.
• The government bet on the continuity of the PFs programme following the death of its previous leader Michael Sata in Oct/14.
• Edgar Lungu will act as head of state until the end of 2016 before next elections are held when Sata’s term had been due to end.
Light – scientists in Glasgow reckon they have slowed the speed of light by changing the shape of a photon in free space
• Other scientific discoveries in Glasgow include changing the molecular structure of a Deep Fried Mars Bar Deep Fried Pizza McEwans Lager and most narcotic drugs.
• Beam me up Scottie am in need of a Dilithium Crystal!
Economic News
US – Jan manufacturing PMI fell to the lowest in a year (53.7 v 53.9 in Dec and 54.0 forecast) driven by weak factory orders marking less strong than forecast start to the year.
• Economic news due this week:
o Tuesday: Dec core durable goods (+0.6% v -0.7% in Nov) Nov S&P/CS 20 City property index (+0.6%mom/+4.3%yoy v +0.8%mom/4.5%yoy in Oct) Jan Markit services PMI (53.8 v 53.3 in Dec)
o Wendesday: Fed meeting (rates unchanged at 0-0.25%)
o Thursday: Weekly jobless claims (300k v 307k in the previous week)
o Friday: Q4 GDP (+3.1%qoq v +5.0%qoq in Q3/14) Q4 core PCE (+1.1%qoq v +1.4%qoq in Q3/14)
Germany – The IFO Business Confidence index climbed more than forecast in Jan rising for a 3rd consecutive month post an Oct trough.
• Both ‘Current Assessment’ and ‘Expectations’ indices improved over the month ‘Expectations’ gauge slightly underperformed market forecasts.
• Current Assessment: 111.7 v 109.8 in Dec and 110.8 forecast.
• Expectations: 102.0 v 101.3 in Dec and 102.5 forecast.
Greece - The leftist Syriza wins 149 seats 2 short of an absolute majority in the Parliament with nearly all of the votes counted.
• Alexis Tsiparis a leader of Syriza is set to meet with leaders of the Independent Greeks and To Potami parties to form a coalition.
• The anti-austerity programme with a promised revision to loan terms with ‘troika’ and raise government spending won most of the voters’ support.
• "Greece leaves behind catastrophic austerity it leaves behind fear and authoritarianism it leaves behind five years of humiliation and suffering" Tsiparis tol its supporters yesterday.
• Tsiparis to be sworn in as prime minister on Monday and have a government in place by Wednesday at the latest.
• Despite objecting to the agreed bailout terms Tsiparis is determined Greece to remain in the euro area.
DRC – The parliament approved a revised version of an electoral law excluding the requirement for a census to be completed before elections to be held in 2016.
• The change has been enacted after a series of street protests with people concerned the census will delay elections and help President Joseph Kabila stay in power.
• Kabila led the country since 2001 first as a head of the transitional government and then as an elected president since 2006.
• The second presidential term finishes in 2016 with current constitution bans the Kabila from staying in power for 3 terms.
US$1.1251/eur vs 1.1235/eur yesterday. Yen 118.14/$ vs 118.49/$. SAr 11.453$ vs 11.433$ $1.501/gbp unch vs 1.498/gbp
A$0.7923 vs 0.7960
Euro – was US$1.1235/eur on Friday vs 1.1622/eur last Thursday – Euro collapses causing US dollar to strengthen. A$ collapse more driven by China PMI numbers
Commodity News
Precious metals:
Gold US$1283/oz vs US$1294/oz yesterday – We see gold as pretty well balanced at present with prices looking pretty good for Euro based investors
• Gold is attractive as a hedge against inflation and perversely as a hedge against the potential effects of deflation
• Russia India and China are ongoing buyers of physical gold while investors are buyers of ETF gold all serving to support gold prices
• The question going forward is on inflation. Will QE and the impact of low interest rates create the right sort of inflation.
• Did the Fed taper in time Bad inflation eg uncontrolled inflation should also be good for gold.
• Only time will tell but with new volatility in financial markets gold is looking more and more like a default option
Platinum US$1254/oz vs US$1274/oz yesterday
Palladium US$769/oz vs US$774/oz yesterday
Silver US$18.02/oz vs US$18.22/oz yesterday
Base metals:
Copper US$5438/t vs US$5595/t yesterday
Aluminium US$1824/t vs US$1843/t yesterday -
Nickel US$14275/t vs US$14600/t yesterday
Zinc US$2083/t vs US$2119/t yesterday
Lead US$1837/t vs US$1850/t yesterday
Tin US$19400/t vs US$19505/t yesterday
Energy:
Oil US$48.00/bbl unch vs US$49.30/bbl yesterday
Gas US price US$2.850/mmbtu vs US$2.914/mmbtu yesterday
Uranium US$37.00/t unch vs US$36.79/t yesterday
Bulk commodities:
Iron ore spot price index (62% fines Tianjin) $68.5/t unch vs $68.6/t yesterday
Thermal Coal (CFR European ARA price) $55.60/t vs $58.50/t yesterday
Speciality metals and alloys:
Tungsten APT European US$292.5/mtu vs US$292.5/mtu last week – tungsten price fell again last week despite ECB QE
Ferrochrome HC $1.08/lb Cr Q1 vs $1.15/lb Q4 quarterly Benchmark pricing –
Rare Earth Elements (REEs): - China’s new ‘Strict export license’ system looks is likely to continue to restrict exports of REEs and other industrial minerals.
Company News
() – Chairman buys stock
• Leigh Wilson Chairman of Caledonia has bought 30200 shares in the company at 0.636p/s worth £12821.
• The company has $27.9m of cash held outside Zimbabwe though it is faced with a very heavy new capital program of potentially around $50m over the next two years plus a further $20m between 2018 to 2020
• The major part of the new capital program is $23m for deepening the shaft from 750 metres to 1000 metres at the Blanket Gold mine.
• Blanket’s on-mine costs are quoted as a very respectable $599/oz which rises to $972/oz on an AISC basis.
• The company expects production to stabilise at approximately 42000 oz in 2015. On this basis the company could produce sales of nearly $54m at today’s gold price with operating cash flow of $684/oz or $28.7m. However when the AISC cost is applied the cash flow available for the expansion is approximately halved to $13m leaving a potential hefty shortfall which might need to be made up by using the company’s overseas cash pile.
Conclusion: While the company appears to have sufficient funds for its planned capex program it might be tempted to cut its dividend to ensure sufficient cash is available for the capital program.
() – Start of follow-up drilling programme at La India.
• has announced the start of a 4000m drilling programme at its La India project in Nicaragua.
• The first 2000m of the programme is looking to test depth extensions to the existing open-pit and underground resources beneath the 350m level currently explored and also to explore strike extensions to the south of the known mineralisation which is currently open but beneath cover in this direction.
• The 2nd 2000m of drilling will be used to follow up on any promising results identified earlier in the programme and the results of a soil geochemical survey which is also starting.
• Late last year announced the results of a PFS on the La India project which included a maiden probable reserve of 6.9mt at an average grade of 3.0 g/t for 675000 oz of gold. The base case PFS envisaged an 800ktpa open-pit mine producing around 79000 oz pa at a cost of $690/oz over a period of 7 years.
Conclusion: Testing depth and strike extensions to the existing resource is a logical and comparatively low-risk form of exploration which has the possibility of increasing the scale of La India.
* () – Potential new orebody discovered at Kelkka nickel project
• FinnAust geologists must be holding back on the Finnish wine waiting on more results from Kelkka.
• Drilling has intersected a short interval of remobilised nickel and copper mineralisation.
• The intersection is at 61.5m down hole so is relatively shallow.
o R306: 1.5m @ 0.68% Ni and 0.31% Cu from 61.5m
o The key is in the remobilisation and the hope is that higher grades will be found over bigger intersections within the area.
o Eg this is the right type of mineralisation in approximately the right area.
o Follow-up drilling is to start in the next ten days.
o Kelkka is within 5km of the historic Enonkoski polymetallic mine with the mineralisation discovered in a new mineralised horizon.
o Enonkoski was discovered in 1969. The mine opened in 1984 following the discovery of high grade ore in 1980.
o Enonkoski total production 7.3mt grading Ni 0.83% and Cu 0.23% from 1985 to 1994. The in-situ value of the ore mined would be worth around $100bn at todays prices with around 6mt of contained nickel worth around $90bn at today’s prices and 1.7mt of copper worth around $9.6bn.
Conclusion: The historic average mine grade is not so far different from the intersection at Kelkka suggesting that if enough mineralisation is found at similar grades that reopening the mine or development of a new mine might well be possible
* SP Angel acts as nomad and broker to the company
() – Drilling results from Araguaia nickel project.
• The company has released initial assay results from its first 15 holes of the current drilling programme at the wholly owned Araguaia nickel project in Brazil. A principal objective of the drilling is to obtain a bulk sample for further metallurgical testing.
• Results released today include a number of intersections of over 10 metres and in excess of 2% nickel including 12.47m at an average 2.17% and 12.45m at 2.13%. The current Probable Reserve at Araguaia amounts to 21.2mt at an average nickel grade of 1.66% nickel within an overall indicated resource of 72mt grading 1.33%.
• The company reports that the programme is on schedule with 113 diamond drill holes completed for a total of 2188m. The original target was to complete drilling by the end of March. Additional bulk sampling to obtain a 200 tonne sample is on track to start in February and geotechnical drilling is expected to start in March.
• This detailed work forms part of the feasibility study for project development. Horizonte announced late last year that it was undertaking 13500 metres of additional drilling to upgrade resources obtain material for metallurgical testing and geotechnical information required for pit-design and to establish the ground conditions at the proposed plant site.
Conclusion: The company is providing reassurance that previously announced work is on schedule and that it continues to intersect high grade nickel. “The next major step will be the running of the pilot programme with the aim of confirming the detailed design parameters around the Rotary Kiln Electric Arc Furnace process and the production of nickel”.
() – Trading Update shows weakness in diamond prices
Buy on weakness– Target Price 240 pence
• H1 2015 production decreased 2% to 1601069 carats down 2% from 1634576 carats for H1 2014.
• Revenues were up 16% to US$241.8m with carats sold down 1% to 1401575 carats.
• Total diamonds produced was 1601069 carats down 2% but guidance for the FY is up from 3.2m carats to 3.3m carats.
• Eskom power constraints has lowered tailings production but power use has been optimised to manage better production from underground.
• ROM production was up overall at 1167982 carats up 3% with tailings production was down 13% to 433087 carats.
• Finsch performed well with overall carat production up by 4% to 1013117 carats H1 2015 against 974431 carats for H1 2014.
• Finsch guidance up 200000 carats for FY 2015 with ROM guidance for Finsch upgraded.
• As a result of increased throughputs and grades guidance for H2 ROM tonnes increased to 1.5 Mt ROM grade at 42.5 cpht and tailings grade of 29 cpht.
• At Cullinan diamond production was down 15% to 391398 carats compared to H1 2014 of 461338 carts due to lower ROM grade of 25.8 cpht than 27.4 cpht.
• Grades were depressed by development waste being run through the main mine.
• Guidance for Cullinan for the full year down by 100000 carats as a result of grade downgrade.
• ROM grade for H2 is guided to 27.2 cpht previously 29.4 cpht with H2 tailings guided to 1.3 Mt at 5 cpht.
• At Koffiefontein ROM production increased by 6% to 9709 for H1 2015 with H2 ROM production expected to be higher at 45000 carats.
• Kimberley Underground production increased by 14% to 720172 carats compared to 63435 carats due to increase in ROM tonnes treated offset by lower grades.
• Williamon’s production increased by 15% to 98949 carats compared to H1 2014 of 86309 carats with increased throughput of 2 Mt treated offsetting lower ROM grades.
• The diamond market has softened more than seasonally expected with average prices down 8 to 9% in H1.
• The impact for Petra was mitigated by rand weakness down 9% for the period and helped by exceptionals.
• Guidance for pricing is down across all their mines except Williamson with Finsch down 17% at US$90/carat for FY 2015 Cullinan down 14.4% at 130 cpht (excluding exceptionals).
• Koffiefontein has been guided down by 15% to US$556/cpht Kimberley Underground down 3% to US$320/cpht and Williamson guided up 10% to US$325/cpht.
• Capex for the period was US$118.6m with US$93.9m on expansion capex and US$24.7m on sustaining capex.
• The company has announced a maiden dividend with a full year maiden dividend of 2 pence a share for FY 2015.
Conclusion: Production for the first half is less than guided but is being guided up for the full year. The disappoint has come from pricing with guidance for the full year down across most mines bar Williamson. Our pricing assumption was lower at Finsch then guided at US$85 cpht (guidance US4108 cpht). At Cullinan we were at US$140 cpht (before exceptionals) against US$152 cpht and new guidance of US$130 cpht. We were higher on Koffiefontein at US$706 cpht against guidance of US$706 cpht and guidance now of US$556/cpht. Our forecasts revenues for the FY 2015 was US$554m 3% ahead of concensus. With US$241.8m achieved for the first half second half performance needs to come in at US$312m to achieve full year revenue expectations up 30% on the first half.
With second half guidance for pricing at the two biggest contributors expected to be up around 9% and volumes expected to be better for the full year by 3% it could be that our revenue numbers for the full year do not need to come down.
With a maiden dividend being announced and growth opportunities for the company we would look at this price set back as a buying opportunity.
Sable Mining () – IDA signed to be able to use rail corridor in Liberia to Buchanan Port
• The government of Liberia has signed an agreement with WAE Sable’s 80% owned subsidiary to allow the transport of iron ore concentrate through the rail corridor in Liberia.
• This will enable the company to progress development of its high grade resource at Nimba.
• A 30 km existing rail line needs to be upgraded to use the existing working railway corridor to the port of Buchanan.
Conclusion: This is good news for the company and removes a key hurdle in terms of route to market. We look forward to the feasibility study.
() – Asacha reports record quarterly gold production
• Trans Siberian Gold reports the highest ever quarterly gold production from its Asacha gold mine. Production during the December 2014 quarter amounted to 10310 oz of gold and 11939 oz of silver in dore. At this stage production costs have not been disclosed.
• During the quarter the company processed almost 39000 tonnes of or at an average grade of 8.74 g/t which is reported to be “ the highest grade achieved in any quarter in 2012 2013 and 2014.”
• Gold production for 2014 amounted to 36513oz an increase of 23% on the 29666 oz produced in 2013.