Miners Right: Juniors back in the hunt Improved fortunes for base metals have created new life at the bottom end of the market Base metals, the complex which includes copper, nickel, zinc and lead, have been playing second fiddle to high-profile minerals for so long that not everyone can see the change underway, even though it represents good news for explorers and smaller mining companies. Unlike bulk commodities such as iron ore and coal, production of which is dominated by the big miners such as Rio Tinto and BHP Billiton, the base metals are a perfect asset for smaller producers, much like gold. Copper is an exception to that general observation thanks to the size of its market and the ability of big miners with their financial firepower and organisational skills to fund and operate big mines that are actually bulk operations with a processing circuit attached. Opinion Publishing Date 11 Jul 2014 GMT Issue/Supplement MJ 11/07/14 Author Tim Treadgold Miners Right But, nickel, lead and zinc are generaly not favoured by the big boys of mining. Glencore plc is the only major resource house seemingly prepared to back a sustainable recovery in lead and zinc, and possibly nickel if it bids for BHP Billiton’s Nickel West assets, which are currently being offered for sale. Two trends underline the point about a base metal recovery. The first is obvious to anyone who follows prices on the London Metal Exchange, where nickel has been leading an upward price move since late last year, with zinc joining in a few weeks ago, and copper delivering a surprise upward price move last week. The second development can be seen on the Canadian and Australian stock markets, where companies once treated as penny dreadfuls are outperforming all other assets classes with “double-your-money-in-a-day” price rises, and with fresh capital starting to make its way to explorers with a sniff of a base metal discovery or investment. On the LME, nickel has risen by 45% from around US$6 a pound late last year to sell this week for around US$8.70/lb. Zinc is up by 16% over the same time, while copper has been the surprise packet, rising by 7% over the past few weeks to reach US$3.22/lb, its highest since late February. Those rises indicate that a pattern is forming, though precisely why is uncertain and probably not due to a single factor. Forces at work in the base metals include government interference in the nickel market (Indonesia’s ban on the export of unprocessed ore), the zinc market flipping from supply surplus to deficit, and the steady though unspectacular recovery underway in the Chinese and US economies, which means increased use of industrial metals. On the stock markets, which are laden with almost forgotten base-metal hopefuls, there have been a number of spectacular price moves, admittedly from starting points of one cent (or less), but the sort of moves among cellar dwellers that are essential in the repair process that will allow recapitalisation to start. Last week, on the Australian stock market there were a fistful of outstanding (on a percentage basis) share-price moves by stocks exposed to base metals, including Mungana Goldfields, which rose by 76% thanks to a deal to buy mothballed zinc mining assets from the failed Kagara Zinc, a business that collapsed when the zinc price dropped below US$0.50/lb a few years ago. Looked at over a two-week period and Mungana’s rise, courtesy of its shift from gold to zinc, amounts to 194%, thanks to the stock storming up from A$0.051 to A$0.15 over 10 trading days. Red River Resources is another beneficiary of the carve-up of Kagara’s zinc assets. It has raised fresh capital and is also acquiring a parcel of base-metal tenements from the administrators of Kagara. Those moves have helped the stock rise by 170% over the past week, jumping from a pre-deal A$0.048 to a 12-month high of A$0.13 on Monday. Red River management said in a note to shareholders when launching its revival strategy “the price outlook for lead, zinc and tin is positive with structural supply/demand imbalances resulting from global market deficits in the short to medium term”. Positive developments in the base metal markets have been apparent for some time, and reported regularly by Mining Journal. The difference today is that those developments are being reflected in share prices, and that means the creation of an escape route for the hundreds of small exploration and mining companies that have become trapped in no-man’s land, unable to break into the bulk commodity space because of the capital cost, and unwilling to join the gold hunt because the outlook for that metal is being dictated by global currency forces that are predominantly negative. The base-metal rebound, while seeming to have dropped out of the blue, has probably been a factor in the background since the start of the year, but clouded over by events in China, which uses around 40% of the world’s copper, zinc and lead, but where “shadow banking” deals have distorted both the metal and financial markets. Questionable financing arrangements are being unwound. China’s economy has stabilised. The US economy is growing steadily and even Europe seems to have avoided diving back into recession, for now. All of those signs are good for base metals, which are often found in small, rich, deposits, and are perfect for small companies to get a start, or a re-start.
Posted on: Wed, 23 Jul 2014 17:17:49 +0000
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