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Fairfax Market Report including Petropavlovsk and others

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Economic News
 
Metals IMF reports that it sees an era of scarcity and rising prices for base metals that will continue for some time as there are few convincing signs that supplies are able to catch up with demand.
•    A lack of capital investment, declining mining productivity due to technological and geological constraints and the impact of environmental policies is constraining supplies in certain metals. 
•    It takes years to develop a new operation from exploration to production in a business that is highly capital intensive, making it difficult for the industry to respond rapidly to sharp shifts in demand.

Australia – Miners appear resigned to additional resource taxes and are in discussions with ministers over the implementation.
•    A new 30% resource tax is due to take effect from 2012 and raise around A$10.5bn in the first two years.  The tax will affect around 320 iron ore and coal projects.
•    The government intends to finalise the tax structure by year end to introduce the legislation next year, although no law is anticipate before July next year.
•    The tax will drive up the costs for coal and iron ore miners considerably.  These miners will also be suffering from the substantial strengthening of the Australian dollar to the US$.  This could add pressure on commodity prices such as iron ore for which China’s iron and steel institute has stated that it is unwilling to pay higher prices to meet the Australian Government taxes. 
•    Iron ore production is also growing elsewhere round the world so a longer term impact could be to reduce the competitivity of Australian iron ore versus other sources, although the country has high quality resources and is well placed geographically to export to China.

South Africa – Government plans to halve reliance on coal by 2030 as it turns to rely more on nuclear energy.  Coal should provide 48% of output by 2030.

US$1.391/eur vs $1.398eur last week. Yen82.37/$ vs  82.43/$ SAr6.92/$ vs 6.85/$  $1.584GBP vs 1.594/GBP

Commodity News

Precious Metals:
Gold US$1,334/oz vs US$1,364/oz – Sharp correction in yesterday’s trading bringing gold back to around US$1,330/oz
•    Recent rally will have encouraged profit taking.
•    SPDR gold holdings fall to 1,288.54t (41.428moz) from 1,301.91t (41.857moz) yesterday. Current value US$55,716bn.
Platinum US$1,692/oz vs US$1,723/oz yesterday –
Palladium US$586/oz vs US$602/oz yesterday –
Silver US$22.566oz vs US$23.46/oz yesterday –
Rhodium US$2,250/oz vs US$2,250/oz yesterday -

Base metals:
Copper US$8,101/t vs US$8,303/t yesterday – Prices pulled back sharply yesterday on speculation that efforts by the Fed could fail to stimulate the economy.
•    Freeport McMoRan plans to increase output at Tenke Fungurume in the DRC to 290mmlbspa in2011 from 250mmlbspa.  There are considerable concerns over miners operating in the DRC as the government has demonstrated wiliness to seize assets.
Aluminium US$2,350/t vs US$2,384/t yesterday –  Alcoa sees growing Chinese demand boosting consumption of aluminium by 13% this year.
•    The company sees particularly strong demand coming from heavy trucks and trailers as well as the automotive industry particularly in China.
Nickel US$23,775/t vsUS$24,855/t yesterday – The outlook for nickel appears strong as supply growth from HPAL sources such as Goro look increasingly far from development.
•    HPAL operations are difficult and highly capital intensive.  There is scope for nickel laterite heap leach production to offer a cheaper alternative, however, this has yet to be proved up at an industrial scale.
Zinc US$2,254/t vs US$2,341/t yesterday – Bench mark TC/RC’s could be as much as 20% lower according to Macquarie due to competition in the smelting industry particularly in China.
•    The concentrate market for zinc could come under pressure due to too much smelting capacity.
Lead US$2,225/t vs US$2,321/t yesterday –
Tin US$25,410/t vs US$26,650/t yesterday –

Energy:
Oil US$85.25/bbl vs US$85.31/bbl – Prices down yesterday afternoon with speculation that US report will show rising unemployment.  Firming of US$ also undermined prices.  Oil inventories are expected to grow.
Gas US$3.645/MMBTU vs US$3.855/MMBTU yesterday –
Uranium US$46.50/lb vs $46.50/lb last week -

Company News

Mining:
Petropavlovsk (LSE:POG)– Short delay to listing of non previous metals division
•    Petropavlovsk announces a short delay to the Hong Kong listing of its Non-Precious Metals Division as total demand from investors did not meet the company’s expectations despite being exceeding the minimum requirement.  The retail offer was over subscribed but it appears institutional demand was not as strong.
•    News from a current site visit indicates that late deliver of mining equipment is impacting the ability for the company to meet the 2010 production target of 670,000oz target.  Delivery of two new 15m3 excavators at Pioneer is outstanding.
•    Further discoveries of higher grade areas at Pioneer could help raise production, and reduce planned capex.  It may also be possible to postpone by 2 years the processing of higher cost refractory ores.
•    70,000m of drilling is planned for Pioneer on a 20x20 grid to improve mine planning.  The results of this drilling programme should provide positive newsflow.

Mining this week:     
Avocet Mining (LSE:AVM)– Disposal of non-core exploration assets
African Aura+ (LSE:AAAM)– Positive metallurgical results from Putu
ATH Resources (LSE:ATH)– Pre close trading update

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