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David Fuller and Eoin Treacy's Comment of the Day
Category - Precious Metals / Commodities

Rio Tinto investors partying like it's 2014

This article by Cecilia Jamasmie for Mining.com may be of interest to subscribers. Here is a section:

Rio Tinto’s (ASX, LON:RIO) investors will be celebrating Christmas in February, as the miner is giving them a $4 billion special dividend, or $2.43 cent a share, after posting its highest annual underlying earnings since 2014.

The world’s second largest miner reported Wednesday a 2% increase in underlying profit, up to $8.8 billion, beating market forecasts of $8.5 billion on the back of rising revenue of $40.5 billion. The special dividend also came after a string of asset divestments, including Rio’s entire interest in Indonesia’s Grasberg mine for $3.9 billion.

Since Jean-Sébastien Jacques took the helm in July 2016, Rio has focused on cutting costs, generating cash and returning as much of it as possible to investors through dividends and share buybacks.

Last year, the company waved all its coal assets goodbye and is now the only major miner with a fossil-fuel-free portfolio. In total, Rio has sold $12 billion worth of unwanted assets since 2015.



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Barrick-Newmont merger would leave up to $7B of assets up for grabs

This article by Cecilia Jamasmie for Mining.com may be of interest to subscribers. Here is a section:

Canada’s Barrick Gold's (TSX:ABX)(NYSE:GOLD) hostile $17.8 billion bid for rival Newmont Mining (NYSE:NEM) could free up a group of assets the combined company would no longer consider key, such as their Kalgoorlie super pit 50/50 joint-venture in Western Australia.

After launching the offer on Monday, Barrick chief executive officer Mark Bristow said he had already been contacted by parties that have expressed interest in the company’s Australian assets.

The divestment goals announced by the Newmont-Goldcorp tie-up and the recent Barrick-Randgold merger provide “a significant opportunity” for ASX-listed names to acquire assets, according to UBS analysts.

“Australian gold producers have stronger balance sheets than their North American peers. We think Evolution and Northern Star are best placed to make accretive acquisitions given their strong track records in this area,” said UBS in a note last month.

Market rumours indicate that one of the potential buyers could be Melbourne-based Newcrest Mining (ASX:NCM), especially after Bristow said there was “a very good chance” of some Australian operators becoming involved.



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U.S. Bets on China's Special Envoy in Trade Talks

This article by Lingling Wei and Bob Davis for the Wall Street journal may be of interest to subscribers. Here is a section:

While Chinese negotiators offered to stop providing government subsidies that distort prices and put Western rivals at a disadvantage, they haven’t so far produced a list of subsidies they would be willing to eliminate, the people said.

Instead, the Chinese side so far has focused its offer on greater purchases of U.S. agricultural and energy products such as soybeans, crude oil and liquefied natural gas, they said.

Whatever deal is struck, the U.S. is also seeking guarantees it will be enforced and a means to resolve disputes.

“It’s one thing to write something on a piece of paper,” said Secretary of State Mike Pompeo on Fox Business Network on Thursday. “It’s another thing to have enforcement mechanisms. And I know our trade team is hard at work, making sure that the American people get that.”



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South Africa Mining Industry Warns on Week-Long Strike Threat

This article by Paul Burkhardt and Renee Bonorchis for Bloomberg may be of interest to subscribers. Here is a section:

South Africa’s precious-metals mines are among the world’s deepest and most labor intensive and companies are under constant pressure to contain costs. Yet high unemployment and inequality mean labor relations are inevitably fraught.

AMCU’s plans for an industry-wide strike marks a return to escalated conflict between South African mining companies and workers. In 2014, the union held the longest-ever strike in the world’s largest platinum industry. Wage negotiations for producers of the metal are expected this year.

“It is unfathomable that AMCU would willingly call for secondary strikes in an industry that is already in jeopardy,” Minerals Council Chief Executive Officer Roger Baxter said in an emailed statement on Friday. “This would undermine employment and the livelihoods of millions of dependents.”

 



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On Target February 23rd 2019

Thanks to a Martin Spring for this edition of his letter which may be of interest to subscribers. Here is a section:

Central banks seem to reckon that the yellow metal is a good investment. They’re buying it for their reserves at the highest rate for almost half a century. Last year their net purchases reached $27 billion – 74 per cent more than in 2017.

Russia, Turkey and Kazakhstan were the biggest purchasers as the deteriorating political climate spurred them to convert some of their foreign reserves out of dollars. Hungary increased its bullion holdings tenfold. Even Poland is buying tons of gold.

It’s clear that the down-trend in gold prices since 2011 came to an end last year. The metal’s price has been rising steadily since mid-August. Where is it heading this year?

“The macroeconomic and geopolitical climate is conducive to continued gains in both gold and silver, and the precious metals equities,” says American stockbroker Cantor Fitzgerald, given:

Gold’s recent and historical strong performance in a rising interest-rate environment.

Should inflation expectations rise, this typically is a very bullish leading indicator for gold and silver.

The inflection point where physical gold outflows from ETFs ceases and inflows resumed was reached in the final quarter of last year and inventory holdings have continued to climb.

Uncertainty and volatility in global equity, debt and currency markets draw investors to safe havens. There is considerable upside potential as “precious metals equities are still widely under-owned by sophisticated international investors.”



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Email of the day - don't pay up for commodities

I hope we can continue this discussion if we see further money flows into the gold sector. Taking note of Fullerisms " Never pay up for resources", "the need to be invested in case mania/euphoria occurs" and with reference to speculative investments "buy when sold down & sell when towering high above their EMA." As other subscribers will know, gold bull markets have strong drawing power and many of us need a sign on the wall "what the wise man does in the beginning the fool does in the end" from Howard Marks "Mastering the Market Cycle."



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Global Tin Giant Urges Government to Start Stockpiling Program

This article by Eko Listiyorini and Yoga Rusmana for Bloomberg may be of interest to subscribers. Here is a section:

“Indonesia wants exports to be more properly managed, if there’s an excess supply it’s better to set them aside as state reserves,” Jabin Sufianto, secretary-general of the Association of Indonesian Tin Exporters, said in an interview in Jakarta on Monday. “We currently export 100 percent of production, which means that we accept spot prices even if prices are bad.”

Southeast Asia’s largest economy has tried repeatedly in recent years to shore up prices of the metal used in electronics and tins by curbing production and sales, as well as making it mandatory for exporters to trade the commodity on a local exchange before shipment. Exports must also be inspected by government-appointed surveyors to check the quality and origin of ore used.

The plan from the association for a stockpiling program comes at a time of rising prices and predictions for a run of global deficits. It’s also been made just ahead of a presidential election in which resource nationalism is expected to feature as an issue in the campaigns. The trade minister will review the proposal and “there’s still a lot of discussion,” according to Jabin.

 



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Central Banks and other institutions

This article from the World Gold Council may be of interest to subscribers. Here is a section:

Central bank net purchases reached 651.5t in 2018, 74% higher y-o-y. This is the highest level of annual net purchases since the suspension of dollar convertibility into gold in 1971, and the second highest annual total on record.1 These institutions now hold nearly 34,000t of gold.

Heightened geopolitical and economic uncertainty throughout the year increasingly drove central banks to diversify their reserves and re-focus their attention on the principal objective of investing in safe and liquid assets. 



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China Stock Rally Accelerates as Momentum Hits Three-Year High

This article from Bloomberg news may be of interest to subscribers. Here is a section:

A rally in Chinese equities steepened Monday as bumper credit figures for January added to signs of increased stimulus.

The Shanghai Composite Index jumped 2.7 percent by the close, taking its rebound since a Jan. 3 low to 12 percent, as turnover on mainland exchanges reached a 10-month high. The small cap ChiNext index in Shenzhen, typically the most speculative part of the market, soared more than 4 percent. The surge weighed on government bonds, with the 10-year yield climbing the most in two months.

The nation’s equities, which were the world’s worst performing in 2018, are starting to take off as the new securities regulator eases curbs on trading and an economic slowdown spurs monetary easing. In a sign of how broad the rally has been, the relative strength of four major indexes have all climbed above 70 -- a level that signals to some traders an asset may be overheating. The last time that happened was May 2015, when the equity market was in a bubble.



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Email of the day on gold miner mergers

Thank you for your efforts in providing this valuable information and analysis of the markets to the collective. With the expectation of increasing M&A activities in the gold miners, what would you look for as candidates for take overs can you provide some suggestions.



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