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    Gfms News Issue 33 Gfms News Issue 33 Document Transcript

    • Quarterly Newsletter September 2009 - Issue 33 Fundamental Shift: Net Official Purchases Support the Price by Philip Klapwijk, Executive Chairman, GFMS Ltd. Junlu Liang, Metals Analyst, GFMS Ltd. In its just released Gold Survey 2009 The shift to the buy-side in the Looking ahead, as indicated above, - Update 1 GFMS suggested that the second quarter owed much to a GFMS expect central banks in official sector in aggregate became sharp fall in sales from the Central aggregate will continue buying gold a net buyer in the second quarter of Bank Gold Agreement (CBGA) on a net basis in the second half. 2009 and forecast that the second signatories, as combined sales from There are two main reasons for this. half of the year would see further the group over the period amounted First, sales from CBGA members are net purchases. This represents a to a mere 14 tonnes, well under the expected to remain at extremely remarkable change of direction for quarterly average of around 100 low levels. The cut in the annual a market that has been used to tonnes that had been sold up to then limit in the third Agreement from absorbing substantial volumes of under the soon-to-expire second 500 to 400 tonnes reflects the fact gold sold by central banks over the Agreement. Modest purchases by that there is a lack of appetite to last decade. others were therefore sufficient to sell among major bullion holders swing the official sector overall onto the buy-side. Fundamental Shift: Net Official Purchases Support the Price 1 (Continued on next page) NEW AT GFMS Gold Mine Economics Production Costs Margins & Cash Flows to 2030 - a New Service from GFMS 3 NEWS FROM THE FIELD Gold Purity Slips Further in Indonesia 5 PUBLICATIONS AND PRODUCTS GFMS Releases Gold Survey 2009 - Update 1 6 The Ages of Gold – “Magisterial Compendium” 7 GFMS Released the 6th Issue of its Precious Metals Forecasting Monthly 8 New Report by GFMS - the Base Metals Forecasting Monthly 8 GFMS Quarterly 3-Year Precious Metals Forecasts 9 GFMS Quarterly 3-Year Base Metals Forecasts 9 GFMS Mailing List: World Gold Analyst Releases its Special Report on Ontario & Quebec 10 The GFMS quarterly newsletter is a free publication distributed by email EVENTS only. If you are not on our mailing list and would like to receive a copy Gold Survey 2009 - Update 1 Launch, 14th September 2009 12 regularly, please contact Forthcoming Gold Survey 2009 - Update 2 Launch, 13th January 2010 13 Elena Patimova at elena.patimova@gfms.co.uk or GFMS is Sponsoring Commodities Week Europe 2009 13 register on line at www.gfms.co.uk MARKET COMMENTARY Published by GFMS Ltd Hedges House Global Gold Mining Revival in H109…but Can it Last? 15 153-155 Regent Street London, W1B 4JE, UK What Kind of Economic Recovery? 16 tel: +44 (0)20 7478 1777 fax: +44 (0)20 7478 1779 The Gold Markets a Year on from Lehman 18 email: info@gfms.co.uk web: www.gfms.co.uk Base Metals: Passing on the Baton 20 Steel Market Jumps on the Bandwagon 21 The GFMS Team 23
    • GFMS Quarterly Newsletter OS Sales within the group. Indeed, as the Net Official Sector Sales new Agreement approaches, none 800 of the signatories have made official statements specifying their future 600 sales’ plans, apart from Switzerland, which confirmed it has no intention 400 to sell any gold over the medium Tonnes term. Although we believe further 200 sales from Europe under the third CBGA are probable, these could be 0 rather more occasional than the regular sales pattern seen under the -200 previous two Agreements. -400 Second, we believe there is some 1980 1985 1990 1995 2000 2005 Source: GFMS scope for more buy-side interest to emerge. Already in the past an important change in trend from Philip Klapwijk is the two years we have seen the world the one prevailing between 1989 and Executive Chairman of outside the CBGA become net 2008 when central banks were major GFMS. In his capacity as purchasers of bullion, with most of net suppliers of gold to the market, an analyst, he continues the metal sourced quietly in local according to our data at an average to cover the official gold markets. Recently, there is annual rate of just under 400 tonnes, sector, investment and evidence that a growing number of equivalent to a hefty 11% of total fabrication demand in official institutions are showing a supply over the twenty year period. North America, Latin America and much of greater interest in gold, mainly for Europe. Philip holds degrees in economics portfolio diversification purposes Over the next year or two this new from the London School of Economics but also as an outright currency trend may be obscured somewhat and a Master’s degree from the College of hedge. No doubt gold’s strong by the planned sales of 403 tonnes Europe in Bruges. Philip was appointed performance over the past few years of IMF gold, assuming, of course, Group Economist at CGF in 1987, where in contrast to (in many cases) losses that there is no off-market transfer he was responsible for developing the on central banks’ US dollar holdings of some or all of this bullion to an group’s economic scenarios as well as have contributed to some degree official sector buyer, something we participating in the work for the annual of rethinking about gold. Such think improbable but by no means Gold Survey. He has worked for GFMS as developments have been given an impossible. Once the IMF sales part of the gold research team since 1989. additional stimulus by the financial programme is completed, however, turmoil experienced over the past we would expect the official sector year and increased concerns over as a whole to have a broadly neutral the long-run stability of the US dollar impact on the market. This would given America’s huge fiscal deficits represent a return to the situation and the willingness of the Federal prevailing in the 1970s and 1980s Junlu Liang, Reserve to monetize a significant when the official sector was a net Junlu joined GFMS in proportion of these. buyer in some years and a net seller October 2008. She in others. Besides the obvious is primarily working We forecast, therefore, that the supply/demand implications for gold, with Philip Klapwik official sector will generate net such a change from net sales to on official sector as demand of more than 20 tonnes in something close to ‘neutrality’ would well as investment the second half, resulting in net sales be highly positive for gold prices, as research. She is also responsible for for the full year of just 16 tonnes, it ought to provide a major boost market research in China. Junlu holds an which would be the lowest annual to sentiment and confidence in the MSc Economics from the London School of total in over two decades. Moreover, yellow metal. Economics. this could represent the beginning of 2 Issue 33 September 2009
    • GFMS Quarterly Newsletter NEW AT GFMS Gold Mine Economics Production Costs Margins & Cash Flows to 2030 - a New Service from GFMS The objective of this new service from GFMS is to deliver high quality insights into the economics of mine production, across a broad range of metals and minerals. The GFMS team working on the project and managed by Mark Fellows is growing rapidly, and already has nearly forty years of combined mine cost analysis experience. This service provides gold miners, financial institutions, governments and other industry stakeholders with detailed forward-looking insights into • What gold prices are needed for Besides an in-depth production cost the underlying drivers of gold mine projects to generate acceptable breakdown, revenues, margins and economics. financial returns? forward-looking cash flows are presented for each operation. The study provides high quality • Which mines and projects independent support to investment/ present the best growth and profit GFMS is undertaking a programme of lending decisions, risk/reward opportunities? global mine visits in order to gather analysis, peer group comparisons the technical and operating data and mine benchmarking. Research based on highly detailed, included in this study. rigorous mine-by-mine analysis of Background production costs, broken down to Main Features Despite high gold prices, the gold $/tonne mining, ore processing and • Global coverage: Analysis of over mining industry still faces very on-site administration costs, plus two hundred operating gold mines, significant challenges. Output benchmarking of fuel, power, labour each with annual gold production continues to stagnate and production productivity and other key inputs. greater than 50,000 oz, plus around costs remain high, as established The study includes forecasts of gold one hundred projects at prefeasibility mines mature and exploration fails to mine production, operating costs and stage or later fill the gap. cash flows to 2030. • Mine-by-mine analysis to 2030: This study clearly identifies and Methodology Detailed reserves/resources, quantifies: Based on a stringent methodology production, operating cost, capital • Which mines are profitable under for analysing mine economics, the cost and cash flow analysis different market outcomes? analysis in this study is derived from “bottom-up” investigation of mine • Global Analysis: Distilling the mine- • What is the impact of different productivity, energy use, mining and by-mine data into analysis of global price outcomes and input cost processing costs, making it ideal for trends; production and industry cost scenarios on the future production asset benchmarking purposes. structure, cost and margin curves, profile? competitive analysis (Continued on next page) 3 Issue 33 September 2009
    • GFMS Quarterly Newsletter • Electronic Product: Web-based, Mine-by-Mine Profiles Highly detailed analysis Forecasts to 2030 mine and project profiles and notes available to download. Flexing model allowing clients to assess the impact of different exchange rate, input cost and gold price scenarios on mine economics. All analysis delivered via website For further information please contact Mark Fellows at mark.fellows@gfms.co.uk or Charles de Meester at charles.demeester@gfms.co.uk Cost curves and cost leagues • Benchmarking (SWOT) analysis • Flexing models • Global trend analysis and commentary Analysis updated quarterly, or when significant events occur GFMS willLaunches a New Website to Provide an Industry Forum GFMS believe that a renewed industry debate into mine production cost reporting is now vital. Main Features The former Gold Institute last revised its cost standard in early 2002. GFMS is embarking upon a high profile initiative to engage gold miners and financial analysts in a dialogue about cost reporting, with a view to creating a widely accepted, credible gold industry cost standard which is actively promoted and maintained. The website will be available for the discussions in the middle of October 2009. Please log on to www.minecoststandard.org to participate in this dialogue. >> If you would like to participate in this dialogue, please log on to www.minecoststandard.org or contact Elena Patimova at elena.patimova@gfms.co.uk for further information 4 Issue 33 September 2009
    • GFMS Quarterly Newsletter NEWS FROM THE FIELD GFMS are unique in terms of time and effort spent on research worldwide. This section “News From the Field” has been included in the Newsletter in order to provide you with the latest updates and news from GFMS’ research trips. Gold Purity Slips Further in Indonesia by Cameron Alexander, Senior Metals Analyst, GFMS Ltd. Australia A recent research visit to Indonesia to sell it back as funds are required. funds to be channelled into other by Australian based GFMS analyst However, this year with domestic consumer items. Cameron Alexander provided a prices so high many felt the risk clearer perspective of the hardships of downwards price movement Interestingly, demand for low carat being experienced by the jewellery outweighed potential gains, and were jewellery has yet to penetrate industry in the South East Asian therefore reluctant to “invest” in gold Indonesia’s larger cities where nation and outlined current and jewellery at the perceived top of the traditional plain 17-carat and stone future consumption trends. market. set 18-carat jewellery remain the preferred styles. Demand in Indonesian jewellery consumption In perhaps the most interesting Jakarta and Surabaya is dominated is estimated to have declined by development in recent years, and by fashion driven designs with more than 20% in the first half one that has had a considerable little regard for the perceived poor of 2009 as higher gold prices and impact on Indonesia’s annual fine quality of low purity gold jewellery. rising economic uncertainty has led gold consumption, has been the However, several traders who met to a major slow down in domestic migration to low carat plain jewellery. with GFMS believe that this trend retail sales. A weaker currency, This segment, once only accepted will likely change over time and particularly in the first quarter, in some parts of the country, is even these key urban markets will saw the average local gold price today considered mainstream across slowly shift to low purity jewellery for the period surge 20% year-on- much of east and central Java, with especially should higher gold prices year compared to the 0.5% dollar fabrication of low purity jewellery prevail. gold price gain. This price related now topping 50% of total Indonesian pressure, coupled with rising anxiety jewellery production for the domestic over the global financial crisis and market. Initially it was 9 and 10- Cameron Alexander is the potential domestic ramifications carat jewellery that dominated retail an Australian based saw many urban consumers rein in sales but price pressures and greater Analyst with GFMS discretionary spending, with gold acceptance of this jewellery style and is responsible for jewellery often regarded as a luxury had led to demand for even lower research in South-east or an unnecessary expenditure item. purity, with Indonesia’s three largest Asia, Australasia and fabricators now adding 7 and 8-carat the Gulf States in the As is the case in many developing products to their range of jewellery. Middle East. Prior to his joining GFMS in countries, gold jewellery in Indonesia In addition, gold plated costume December 2005, Cameron worked for over is regularly regarded as a quasi jewellery is beginning to gain in seven years with precious metals refiner investment tool, with consumers popularity as this low-end product AGR Matthey. (particularly in rural areas) often offers the end-user the “look” of a purchasing the precious metal after more elaborate gold designs without the annual harvest, with the intent the associated cost, and allows their 5 Issue 33 September 2009
    • GFMS Quarterly Newsletter PUBLICATIONS AND PRODUCTS GFMS Releases Gold Survey 2009 - Update 1 GFMS released Gold Survey 2009 Supply Highlights © Image copyright GFMS £250 - Update 1, their latest report on Mine supply in the first half of US$460 Gold Survey 2009 €350 the gold market, at a launch in 2009 increased by 7% year-on- London on the 14th September and, year. Producer cash costs remained U pd at e 1 simultaneously and in association almost flat in the first half, halting the with the Denver Gold Group, at an trend of strong cost inflation of recent event in that US city. years. About Gold Survey 2009 - Update 1 Net official sector sales in the first Gold Survey 2009 - Update 1 provides half contracted sharply, by almost a comprehensive interim analysis 75% year-on-year to total around 40 of the most recent economic, socio- tonnes. political and market-specific issues Implied net investment rose facing the gold market. Global scrap supply surged to a markedly in the first half to reach record high of almost 900 tonnes in over 990 tonnes, an increase of more The report considers the main supply/ the first half of 2009. The majority than five times over the first half of demand fundamentals for the first half of the action took place in the first 2008. Most of the inflows occurred of 2009 as well as the outlook for the quarter of the year, in reaction to high in the first quarter, as investors second half of 2009. gold prices which reached record local sought refuge in gold when fears levels in several instances. over counterparty risk and the global Main Features economy remained rampant. • Supply and demand statistics for the Demand Highlights first half of the year and second half Jewellery offtake fell by almost 25% Net de-hedging slumped in the first forecasts. in the first half of 2009 to around 760 half to around 30 tonnes, leaving the tonnes. Losses were recorded across book at end-June standing at just • Review of main developments in the board of key jewellery fabricators, below 460 tonnes. mine production, costs, hedging, with India and Turkey registering fabrication, investment and central the sharpest falls. China proved the bank activities. exception, as its fabrication rose by >> For further information, 7%. Industrial fabrication slumped multiple copy discounts, multi- • Commentary on price movements by a similar extent to jewellery user network licences, electronic and indications on what to expect consumption. versions, or back copies please looking forward. contact Elena Patimova at elena.patimova@gfms.co.uk GFMS’ SURVEYS 2009-2010 RELEASED: COMING SOON: PRE-ORDER YOUR COPIES Gold Survey 2009 - Update 1 Gold Survey 2009 - Update 2 Online: Gold Survey 2009 Hindi / Chinese / Gold Survey 2010 http://shop.gfms.co.uk Arabic / Russian World Silver Survey 2010 Platinum & Palladium Survey 2009 Platinum & Palladium Survey 2010 By Fax: World Silver Survey 2009 Click here to download Gold Survey 2009 (English) the order form 6 Issue 33 September 2009
    • GFMS Quarterly Newsletter The Ages of Gold – “Magisterial Compendium” “Timothy Green, author of the Emperor Nero for a record gold re- three decades, focusing on the magisterial compendium The Ages coinage in AD 64, the Venice Mint, Middle East, India and the Far East. of Gold, has spent a lifetime on whose high quality ducat endured for the trail of gold,” said BBC World 500 years, Sir Isaac Newton for the Service presenter Nick Rankin, gold standard of 1717, which lasted introducing him in a three-part radio two hundred years, and the Central documentary “Gold” in August. Bank Gold Agreement of 1999 which limited their gold sales to usher in Highlighting themes in gold’s history, the higher prices of the last decade. Tim described how early gold coins underpinned the empires of Overall, The Ages of Gold is earning Alexander the Great and Rome. In its BBC World Service accolade as a contrast, the Incas in Peru perceived “magisterial compendium”. it as a beautiful metal, symbolising the sun, which goldsmiths crafted About the author Specifications into magnificent ornaments. Their Tim Green is a well known author in > Index Spanish conquerors, however, saw the gold market, having written The > 12 maps gold as monetary wealth, and melted World of Gold, The Gold Companion > 32 pages of illustrations vast quantities down. The metal and The Millennium in Gold. Tim > ISBN 978-0-9555411-1-7 was shipped to Europe, where it also worked as a consultant on the > 480 pages sustained the Spanish empire as annual Gold Surveys of Consolidated > Hardback coin, and was soon also dispatched Gold Fields and Gold Fields Mineral > Price £33 (+ postage) to India to pay for diamonds, silk Services (now GFMS) for almost > Published 14th November 2007 and spices, fuelling the historic To purchase this book or for further information please contact Elena Indian love affair with gold that Patimova at elena.patimova@gfms.co.uk continues to this day. Others About The Ages of Gold The Ages of Gold is also featured in the new edition of Roy Jastram’s Timothy Green, author of the magisterial compendium, The Ages of Gold, has spent a lifetime on the trail of gold. – Nick Rankin, BBC World Services classic book, The Golden Constant, revised by Jill Leyland for the World The most comprehensive book ever written on mines and markets. – World Gold Gold Council. She wrote, “I am Analyst indebted to Tim Green for pointing An automatic ‘buy’ for anyone with a touch of gold fever. – Northern Miner out that just five gold coins: the An encyclopaedic book on gold. – Metal Bulletin aureus, the solidus/nomisma, the dinar, the ducat and finally the For anyone with an interest in gold and its evolution as a storehouse of beauty British sovereign between them span and value over the millennia, Timothy Green’s The Ages of Gold is a must read. … His carefully crafted tome has masterfully linked the modern world of gold with two milllennia from the first century the ancient one which is no small feat. – David Duval, Jim Sinclair’s MineSet BC to almost the present day”. Very readable … written in Tim Green’s inimitable style. Anyone with an interest in gold will find much to learn. It … brings all of man’s history relating to gold together The scope of The Ages of Gold, from in one unique resource. It is amply illustrated in colour and the pictures alone will ancient to modern times, was also provide much enjoyment and technical curiosity. I commend it to all. – Chris Corti, Gold Bulletin underlined in a presentation, “Ten heroes of monetary gold”, which Timothy Green is arguably the man with more knowledge about the whereabouts of more ounces of gold in the world than any of the rest of us .… This fascinating book Tim made to a Central Banking covers more than gold’s role in coinage and government … celebrating the mining Publications seminar in May attended industry and gold craftsmanship through the ages. – Rhona O’Connell, MineWeb by central bankers from across the Few people … are better qualified to have written this book than Timothy Green globe. His heroes ranged from … (it) is undoubtedly a terrifically useful introduction to the metal for anyone Croesus of Lydia, who issued the first wanting a reliable, expert and highly detailed ‘encyclopaedia’ of gold. – Jo Young, gold coinage in 550 BC, the Roman The Jeweller 7 Issue 33 September 2009
    • GFMS Quarterly Newsletter GFMS Released the 6th Issue of its Precious Metals Forecasting Monthly GFMS’ Precious Metals • Major FX rates and world stock Forecasting Monthly (PMFM) indices report provides regularly updated • Price volatility over the last 12 Precious Metals Forecasting three-month forecasts, supply/ months Monthly demand statistics, news and • Combined daily ETF holdings August 2009 commentary on the precious metals. The PMFM gives a three Metals Covered Date of release: 5th August 2009 month forecast for gold, silver, - Gold © Copyright GFMS Ltd - August 2009 All rights reserved. This report serves as a single user licence. No part of this publication may be reproduced, platinum and palladium. - Silver stored in a retrieval system or transmitted in any form or by any means without the prior written permission of the copyright owner. This data is released for general informational purposes only, and is not for use in documents with an explicit commercial purpose such as Initial Public Offerings (IPOs), offers to conduct business, background briefings on the precious metals markets associated with marketing a particular business or business offering, or - Platinum similar such documents without prior written agreement of GFMS. GFMS retains all intellectual and commercial property rights associated with the data contained herein and any unauthorised use of this data is a violation of applicable international laws and agreements. By continuing to read this document, you agree to the above terms and conditions in their entirety. Main Features - Palladium Published by GFMS Limited Hedges House 153-155 Regent Street Base Metals London, W1B 4JE tel: +44 (0)20 7478 1777 fax: +44 (0)20 7478 1779 email: info@gfms.co.uk • Review of key market developments Forecasting web: www.gfms.co.uk Monthly and a three month price outlook Annual Fees for the gold, silver, platinum and The Precious Metals Forecasting August 2009 palladium markets Monthly, available for an annual fee Date of release: 6th August 2009 • Forecast trading ranges for prices of £2,950. This service can also © Copyright GFMS Ltd - August 2009 All rights reserved. This report serves as a single user licence. No part of this publication may be reproduced, be bought in a discounted package stored in a retrieval system or transmitted in any form or by any means without the prior written permission of the • Major news stories on the precious copyright owner. This data is released for general informational purposes only, and is not for use in documents with an explicit commercial purpose such as Initial Public Offerings (IPOs), offers to conduct business, background briefings on the precious metals markets associated with marketing a particular business or business offering, or combining any of GFMS’ other similar such documents without prior written agreement of GFMS. GFMS retains all intellectual and commercial metals property rights associated with the data contained herein and any unauthorised use of this data is a violation of applicable international laws and agreements. By continuing to read this document, you agree to the above terms and conditions in their entirety. • Supply and demand forecasts for research products. Published by GFMS Limited Hedges House 153-155 Regent Street London, W1B 4JE tel: +44 (0)20 7478 1777 fax: +44 (0)20 7478 1779 the current year email: info@gfms.co.uk web: www.gfms.co.uk • Leasing rates • Prices in all major currencies New Report by GFMS - the Base Metals Forecasting Monthly GFMS has developed a monthly Main Features Metals Covered reporting service that leverages • Review of key market developments - Copper off our unparalleled market and a three month price outlook for - Aluminium knowledge and provides timely the copper, aluminium, nickel, lead, - Nickel monthly fundamental research zinc and tin markets - Lead and analysis of the sector to • Forecast trading ranges for prices - Zinc support your monitoring of the • Major news stories on each metal - Tin base metals commodity markets. • Supply and demand forecasts for the current year Annual Fees • Premiums Combining market summary The Base Metals Forecasting • Prices in all major currencies information and insightful Monthly, available for an annual fee • Major FX rates and world stock analysis, the GFMS Base Metals of £3,950. This service can also indices Forecasting Monthly look out be bought in a discounted package • Price volatility over a three month time frame, combining any of GFMS’ other • Open interest offering a trading range for each research products. • Crucial Chinese trade data metal along with an insider’s perspective on the trends and numbers that drive the base metals markets. >> If you are interested in taking up a subscription to these new monthly forecast reports, please contact Charles de Meester at charles.demeester@gfms.co.uk or tel. +44 (0)20 7478 1763 8 Issue 33 September 2009
    • GFMS Quarterly Newsletter GFMS Quarterly 3-Year Precious & Base Metals Forecasts GFMS Quarterly 3-Year Precious Metals Forecasts GFMS have launched a series Features recessions across the industrialised of quarterly reports on the Building on our proprietary analysis world - and back each up with individual precious and base of the precious metals markets, detailed analysis. metals. So far we have that forms the basis of our flagship published services covering annual Gold, Silver and Platinum Sample Table of Contents (for the gold, silver, platinum & & Palladium Survey publications, Gold Forecast) palladium, aluminium, copper, these reports provide projections 1/ Executive Summary nickel and zinc markets. on all the key supply and demand 2/ Macroeconomic Outlooks components, focusing on the various 3/ Mine Production endogenous and exogenous factors 4/ Producer Hedging Published four times a year, GFMS expect will drive these metals 5/ Scrap these reports give GFMS’ over the next three years. Particular 6/ Official Sector Sales independent insight into the emphasis is placed on the extent to 7/ Investment latest developments and trends which variations in precious metals 8/ Jewellery Consumption and offer 3-year forecasts prices will influence the various 9/ Other Fabrication covering supply, demand and components and vice versa. prices for particular precious and Annual Fees base metals. The reports set out what could The Gold Quarterly, the Silver happen to gold, silver and Quarterly and the Platinum & platinum & palladium in three Palladium Quarterly are available distinct scenarios - an inflationary separately for an annual fee of environment, a deflationary slump £5,450 or can be purchased together and a middle ground of only mild at a discounted price of £9,950. GFMS Quarterly 3-Year Base Metals Forecasts Quarterly Three Year Copper Forecast GFMS has launched a series of • Annual consumption forecasts by quarterly reports on the individual key consuming countries including base metals that will analyse the the EU, US, Japan and the BRICs. prospects for the next three years. • Outlook for mine and refined Quarterly 3-Year Base Metals production - including the major ������ ���������� Forecasts give GFMS’ independent new projects that will affect future insight into the latest developments output. Quarterly Three for copper, zinc, lead, nickel • Supply/demand balance and Year Gold Forecast aluminium and tin and offers a three- pricing outlook on both a quarterly year forecast on supply, demand and and annual basis. Prepared by GFMS Ltd the price for these metals. • Scenario planning - three different May 2009 scenarios will be outlined with Main Features ascribed probabilities of particular • GDP forecasts for key economies outcomes. and projections for the US dollar against the yen and euro. Annual Fees • Detailed analysis of historical The 3-Year Base Metals Forecasts consumption trends on both a are available separately for an regional and end-use basis. annual fee of £3,950, or can be >> If you are interested in taking up a subscription to the quarterly purchased together as part of a 3-Year forecasting reports, please contact Charles de Meester at discounted package. charles.demeester@gfms.co.uk or tel. +44 (0)20 7478 1763 9 Issue 33 September 2009
    • GFMS Quarterly Newsletter World Gold Analyst Releases its Special Report on Ontario & Quebec Since the turn of the millennium, World Gold Analyst’s latest Special with rising gold prices stimulating Report on Ontario and Quebec, is exploration and development, thus timeous and will be launched at mining companies have been looking a lunch with an invited audience of around the world for opportunities institutional investors at the Denver to discover and exploit new gold Gold Group Forum on Tuesday 15th deposits. September. Clearly the prime determinate is the This major report presents a geological landscape that a country comprehensive review of the offers and the potential to host current status of gold exploration gold mineralisation, but exploration and development activity in what is companies also have to take the most active area of the world, cognisance of political and legislative and covers the whole spectrum of factors that can either impede or exploration from grassroots work, support a successful exploration through resource definition up to programme. So a region’s policy producing mines. It is packed full climate has become increasingly of information on exploration plans, important in attracting investment. drill programme results and resource is again one dominant producer estimates. The report also highlights - Agnico-Eagle Mines - with an With this in mind, the latest the consolidation and revitalisation estimated 2009 production of almost survey by independent research of historic mining camps, one of the 500 koz as two new mines reach full organisation, The Fraser Institute, main themes within the Provinces. production. reports that out of seventy one jurisdictions worldwide, Ontario is Major Developments Within the provinces there are two the tenth most popular destination In 2008, mining and exploration major projects at the development for exploration and Quebec holds the companies spent C$417 million in stage: Agnico-Eagle Mines’s LaRonde top spot, for the third consecutive Ontario and C$220 million in Quebec Extension and Osisko Mining’s year. with juniors accounting for more Canadian Malartic. Shaft extension than half in each case, according sinking is underway at the LaRonde Canada has always been known for to figures from Natural Resources Extension project and once the its geological prospectivity and, of Canada. This year, as a result of extension comes on line in 2011, course, it has been one of the top the financial market crisis, juniors’ the expanded mine is expected to gold producers for decades with a budgeted expenditure is down 37% produce an average of 310 koz/y. vast heritage of deep-level, hard in Ontario and down 43% in Quebec. rock gold mining in such districts Osisko Mining is developing the as Timmins and Val d’Or. In Nevertheless, there is still an Canadian Malartic deposit as an recent years, scores of exploration appetite for exploration prompted open pit mine with a gold output of companies, many of whom are by some notable success stories in 591 koz/y for ten years at a cost Canadian staffed and Canadian these rich and historic goldfields. of US$789 million, with start up in domiciled, have been flocking home 2011. to Ontario and Quebec; jurisdictions Gold production in Ontario is they consider less risky and fiscally dominated by Goldcorp, with three In the short term, increased more attractive than some far flung mines with a combined production of production will come from a doubling regions of the world. 1.13 Moz in 2008. In Quebec, there of output (to 100 koz/y) at Kirkland (Continued on next page) 10 Issue 33 September 2009
    • GFMS Quarterly Newsletter Lake Mines’ Mine Complex and the • In-depth reports on nine sponsor Paul Burton reopening of the Sleeping Giant and companies, including graduated as a Lamaque mines (by North American - Producers – Agnico-Eagle Mines, mining engineer from Palladium and Century Mining Aurizon Mines, Kirkland Lake Gold the Camborne School respectively). - Mine developers – Detour Gold, of Mines in 1975 and Osisko Mining spent almost twenty Elsewhere evaluations are underway - Explorers – Maudore Minerals, years working in the at Aurizon Mines’ Casa Berardi PC Gold, premier Gold Mines, South African gold mining industry. He and Joanna projects, Northgate Rubicon Minerals. has been editor of World Gold Analyst Exploration’s Young-Davidson since early in 1996. He is an established project, Detour Gold Corp’s proposed In addition, the report describes speaker on the international conference open pit at the historic Detour Lake the geology of the two provinces, scene and is Chairman of the FTSE Gold mine, Brett Resources’ flagship with a focus on the prolific Abitibi Mines Index Committee. He holds an MSc Hammond Reef gold deposit, Rainy Greenstone Belt, and explains the in Mineral Economics and an MBA from the River Resources’ Rainy River project, government investment incentives, University of the Witwatersrand. Recently Iamgold’s Westwood project and including the successful ‘flow through Paul Burton took the position of Managing Goldcorp’s Éléonore project. shares’ scheme. Director of newly established GFMS sister company - GFMS World Gold. The report contains details of: • Approximately 160 companies (79 in Ontario; 58 in Quebec) • Almost 300 individual projects (176 in Ontario; 119 in Quebec) >> Hardcopies of the report are available free to investors by contacting Elena Patimova at elena.patimova@gfmsworldgold.com to arrange to have a copy sent or it can be downloaded from our website at www.gfmsworldgold.com (note that the file is large). The Autumn issue of the World Gold Analyst will be released at the end of September 2009. Subscription and Support Subscribers will not only receive a hardcopy of World Gold Analyst each quarter, but will also have electronic access to the report via the website in advance of receiving it by post. GFMS World Gold’s website www.gfmsworldgold.com, accessible to all subscribers, also has additional and exclusive material unavailable in the hardcopy, as well as an archive of past issues of World Gold Analyst. For access instructions and registration, please email subscriptions@gfmsworldgold.com The Annual Fees The price for full subscription (hardcopy + PDF) is £375 and for PDF only is £245. The subscription period is one year, during which you will receive four issues of the report. 11 Issue 33 September 2009
    • GFMS Quarterly Newsletter EVENTS Gold Survey 2009 - Update 1 Launch, 14th September 2009 GFMS Gold Survey 2009 Philip Klapwijk’s Presentation – Update 1 was released on 14 th In his presentation GFMS’ Chairman September 2009 at Grocers’ Hall Philip Klapwijk, gave a review of the in the City of London. There recent developments in key areas of GFMS’ Chairman, Philip Klapwijk, the gold market. The presentation presented the main findings of also looked at future possibilities the report on the gold market. for the various components of the This was accompanied by a supply/demand balance and what simultaneous presentation given this might mean for the price. by GFMS’ CEO, Paul Walker at the Denver Gold Show. A key element of the Update is the consultancy’s forecast for the gold GFMS’ launch of the Gold Survey price in the coming months, which 2009 - Update 1 was very successful, shows that two quite divergent paths The report, however, noted that hosting nearly 100 participants, are possible. Klapwijk commented, it is far from guaranteed that the including high-level industry leaders “on balance, we’re still favourably bull run in gold prices will continue. from many different countries and disposed towards the price in GFMS believe the basis for this still regions. Many local and international the medium term. That’s mainly possible but less likely reversal in media contacts also joined the event. because we see it as highly likely trend would be the various monetary GFMS’ Chairman Philip Klapwijk, that debt monetisation and ultra- and fiscal stimulus programmes gave interviews to globally renowned low interest rates, especially in the failing to rejuvenate the world newswires and newspapers, including US, will at some point feed through economy, feeding through to Thomson Reuters, Bloomberg, the to a build in inflationary pressures. disinflationary conditions. It was Wall Street Journal, the Financial Throw in dollar weakness and expected that its impact on gold Times, Les Echos and Mining Journal. disappointment over conventional would in turn probably be magnified This annual GFMS event provided an assets as the green shoots argument by investors seeking out the security important channel for communication withers, and then gold well over of US Treasuries, which under such and exchanging information among $1,000 becomes perfectly feasible”. circumstances would act to boost the leading industry professionals The Update did warn, however, value of the US dollar. operating in the precious metals that the path to this may not be arena, creating valuable networking smooth as a brief dip could occur The Q&A session proved a lively opportunities for delegates to build in advance of longer term strength, forum for attendees to air a wide and develop relationships. with Klapwijk also adding that the divergence of views. recent spike could readily unwind as its foundations looked shaky. About Gold Survey – Update 1 Gold Survey 2009 - Update 1 provides a thorough and GFMS Gold Survey 2009 - Update 1 can be bought as an individual publication or as comprehensive interim analysis of a part of discounted packages. Please contact Elena Patimova for information on prices the most recent developments in the or you can easily order the publication from the GFMS website - www.gfms.co.uk gold market. GFMS Limited Hedges House, 153-155 Regent Street London W1B 4JE, United Kingdom >> For further information on Switchboard: +44 (0)20 7478 1777, Fax: +44 (0)20 7478 1779 GFMS products and events please Elena Patimova: +44 (0)20 7478 1750 or elena.patimova@gfms.co.uk visit our website www.gfms.co.uk Charles de Meester: +44 (0)20 7478 1763 or charles.demeester@gfms.co.uk or contact Elena Patimova at elena.patimova@gfms.co.uk 12 Issue 33 September 2009
    • GFMS Quarterly Newsletter Forthcoming Gold Survey 2009 - Update 2 Launch, 13th January 2010 Gold Survey 2009 - Update 2 will About the event be launched in Toronto on Thursday As in previous years, the event 13th January 2010. will feature a presentation by GFMS’ Chairman Philip Klapwijk, ABOUT THE EVENT About Gold Survey 2009 - highlighting the main findings of 9.00 - 09.30 Registration Update 2 Gold Survey 2009 - Update 2 and (tea and coffee) Update 2 to the annual Gold Survey presenting GFMS’ forecasts for 2009 will provide fresh estimates supply, demand and the price in the 09:30 - 10:20 “Gold Survey 2009 - of global gold supply and demand first half of 2010. Update 2” presentation by Philip during 2009, with analysis of the Klapwijk, Chairman, GFMS most recent trends in every sector Following this, GFMS’ joint venture of the market. Update 2 will also - GFMS-World Gold will launch its 10:20 - 10:40 Presentation by Paul set out GFMS’ views on the outlook Burton, Managing Director, GFMS- latest World Gold Analyst - Special World Gold for the main supply and demand Report, which will feature a review variables and the price forecast for of gold and silver developments in 10:40 - 11:10 Presentation by TBC the first half of 2010 and identify the key producing regions, with detailed 11:10 - 11:40 Presentation by TBC most important economic, socio- reports on a number of significant 11:40 -12:10 Presentation by TBC political and market-specific issues players. 12:10 - 13:10 Networking lunch facing the industry in the short-term. 13th January 2010 REGISTER NOW St. Andrew’s Club & Please contact Elena Patimova to register for the event Conference Centre at elena.patimova@gfms.co.uk or +44 (0) 20 7478 1750 150 King Street West, 27th Floor Toronto, ON M5H 1J9 GFMS is Sponsoring Commodities Week Europe 2009 Commodities Week Europe is the 5th annual commodities investment conference where the world’s commodity investment and trading industries meet. It’s the biggest and most important event for Europe’s Commodity Investment Community. Over 350 executives from the across the whole Commodity value chain attend the event annually. Key speakers include: • Jim O’Neill, Head of Global Economics, Commodities and Strategy Research, Goldman Sachs • Andrew Spence, Chief Economist and Vice President Asset Mix and Risk, Ontario Teachers’ Pension Plan • Nicholas Koutsoftas, Vice President, Portfolio Manger Energy and Commodities, GE Asset Management • Francisco Blanch, Managing Director and Head of Global Commodity Research, Banc of America Securities-Merrill Lynch • Christophe Cordonnier, Head of Commodity structured products, Societe Generale Corporate and Investment Banking • John Reade, Head of Metals Strategy, UBS • Evy Hambro, Managing Director, Gold and Diversified Mining Team, BlackRock • Pierre Guillemin, Managing Director, Alternative Investments, Swiss Life Asset Management • Christof Rühl, Group Chief Economist & Vice President, BP • Marcus Grubb, Managing Director, Investment Research and Marketing, World Gold Council Please visit the website for full programme and speaker details: http://www.terrapinn.com/2009/ciwuk Venue: The Royal Garden Hotel, 2 - 24 Kensington High St, London, W8 4PT, www.royalgardenhotel.co.uk 13 Issue 33 September 2009
    • GFMS Quarterly Newsletter MARKET COMMENTARY Global Gold Mining Revival in H109…but Can it Last? GFMS’ latest assessment of gold sequencing at Grasberg in Indonesia >> More detail on global mine production points to output resulted in activities being focused mine production and a host of having expanded by 7% in the in higher grade pit areas this year, supporting statistics are contained first half; remarkable in the wider driving a 30 tonne improvement. in Gold Survey 2009 - Update 1, just context of it having declined at an A seven-fold increase at the Kupol released by GFMS. A somewhat annual average rate of 2% between project, which poured its first doré longer term outlook for mine 2005 and 2008. Writing from last May, provided much of Russia’s supply and other gold market Johannesburg, on the day that gold upward momentum, something drivers can also be accessed fixed above $1,000/oz for the first added to by Peter Hambro’s Pioneer by purchasing GFMS’ Quarterly time in more than 18 months, it mine, now operating near design 3-Year Gold Forecast. Please would seem appropriate that this capacity. contact Charles de Meester at event should coincide with the charles.demeester@gfms.co.uk Chamber of Mines’ announcement While these three countries were for more information on both that South African gold mine supply, undoubtedly the key ones, there products. once again, fell by a sizeable was also good depth in the number margin. At peak production the of national improvements. A couple country generated a volume of 1,000 of solid additions by, for example, tonnes per year, accounting for new Agnico Eagle properties led two-thirds of world mine output: a to the revival of Canadian output, William started at dominance that will never be seen albeit at the margin, to buck a GFMS in March 2005. again. Nevertheless, these two multi-year downtrend. Similarly, He works on gold, material outcomes in fact lack any several Australian mines and projects silver and PGM mine direct association. South African delivered growth, including the supply, costs and production fell by almost 10% in the Higginsville, Wiluna and Leonora producer hedging. first half. This is yet more significant projects and the Super Pit, leading Prior to joining GFMS, given last year’s unique challenges, to a six tonne gain in the first he worked for a legal publishing firm, including power rationing, but what half. The next milestone here is having graduated from Durham University is even more notable, is that South the substantial Boddington project, with BSc Natural Sciences. Africa was the only country to record which recently produced it first gold a material drop in mine supply in the concentrate. Another important first half. region was west Africa, where a handful of countries were positively Elsewhere, with a decline of two impacted by project developments: tonnes, Tanzanian output showed Burkina Faso; the Côte d’Ivoire the next greatest weakness, while and Senegal to name the main the vast majority of countries staged highlights. Senegal saw the onset of either neutral results, or in many Mineral Deposits’ Sabodala join the cases, material gains, leading to the country’s otherwise artisanal industry strong 7% increase globally. for the nation’s production to rise Turning to the countries that have from obscurity, as was the case with been in the driving seat for this output from Mauritania a couple of result, Indonesian, Chinese and years prior. Russian production all climbed by comfortably more than 10 tonnes The important question at the year-on-year in the first six months, current juncture is the extent to with the three collectively adding which the first half’s performance a remarkable 62 tonnes. Mine can be sustained. 15 Issue 33 September 2009
    • GFMS Quarterly Newsletter What Kind of Economic Recovery? by Rhona O’Connell, Managing Director, GFMS Analytics There is an increasing consensus points towards future expansion. 17.2% increase, the largest increase that the majority of economies Overall factory orders increased for since July 2005. General Motors, are working their way through the the fourth consecutive month. by contrast, dropped by 20.1% worst of the recession, but there is after a 19.4% fall in July, while substantial debate in the markets Durable goods orders increased in Chrysler’s sales fell by 15.4%. Asian as to the nature of the improvement July, the consumer confidence index manufacturers in the US registered - will it be a simple recovery, or rose in August with a particular significant gains. The next set of a double-dip recession? Some improvement in the outlook for the figures will need to be interpreted economists have even suggested next six months, while new home with care, as August heralded the that far from being a “W”, a “U” sales hit a ten-month high in July. start of the heavy downtrend in the or a “V”, we might be looking at Pending home sales also registered industry. an “L”, with economies stabilising, their sixth consecutive increase in but not showing much subsequent July, a record period for growth. The US cash-for-clunkers programme improvement. With the United closed on Monday 24th August. This States in the vanguard, there follows At the start of September came took US sales of light vehicles in a short assessment of the state of sobering employment figures, with a August to an annualised 15 million play in the world’s largest economy. respected independent employment units, compared with an annualised services agency reporting that 9.6 million units in the first half of With the exception of the figures private companies had cut jobs by the year. The monthly sales rate of from the US auto industry 298,000 in August. Although this 1.26 million units was 400,000 units, (considered in more depth below), was just one number following a or 48% higher than the monthly the most recent economic figures stream of encouraging figures it put average for January to July and the from the United States have been the equity markets and the dollar market now has to assess what will disappointing - and have put the under pressure, illustrating that the be the knock-on effect in terms of dollar under some fresh pressure, markets are still uncertain about reduced sales in the coming months. giving extra upward impetus to gold. both the short and the medium term If average sales from August- outlook, what form the recovery will December inclusive were to run at The latter part of August saw a take and how long it will be before the same rate as January-July then string of encouraging figures from sustainable growth is resumed. September-December sales would the US and elsewhere. Probably have to be some 13% below the among the most important was the A further element of uncertainty January-July average, or 35% below result of the latest survey of the stems from the auto sector. The the monthly average in 2008. Institute for Supply Management, cash-for-clunkers programme, the which registered a figure in last day of which was Monday 24th These are stark figures and are likely excess of 50 for the first time in August, boosted new vehicle sales to be the worst case, but they do nineteen months (a figure above 50 by over 690,000 units during August at least give a sense of perspective. suggests expansionary conditions). and resulted in a year-on-year gain They also tie in to some extent with Commerce Department figures - albeit of only 1.0% - in new car a suggestion from the head of sales have shown that both domestic and sales in the US. The month-on- at Volkswagen, who estimated after foreign businesses have increased month gain was dramatic for some the German scrappage programme demand for capital equipment, which companies, with Ford registering a closed that the domestic car market (Continued on next page) 16 Issue 33 September 2009
    • GFMS Quarterly Newsletter could drop to 2.6-2.8 million units There are indications therefore of Rhona O’Connell next year after reaching 3.7 million some “green shoots” of recovery in is a recognised this year. (The German scrappage the United States, with signs that authority in the scheme, which accounted for $7 spending is starting to increase as a metals markets, billion (compared with $3 billion in result of the stimulus programme, with over 20 years’ the US) is estimated to have resulted but the uncertainty in the markets, experience as an in the exchange of almost two million particularly in the light of the simple analyst in the metals vehicles and contributed to a year- auto market analysis above, is likely sector. Rhona is the managing director of on-year boost of 28% in new vehicle to lead to volatile trading in the next GFMS Analytics and ROC Consultancy, an sales in August). few weeks. independent consultancy specialising in metals markets analysis and comment. The specialist areas constitute gold, silver, platinum and palladium, looking at the markets themselves in the context of the economic, political and financial environments while considering also the performance of other asset classes and related mining equities. This commentary is an extract from a recent interim update to GFMS Analytics’ Precious Metals Monthly Briefing, which offers regular market updates and analysis on developments in the gold, silver, platinum and Precious Metals Market Briefing palladium markets, and their economic and financial context. September 2009 Gold has taken the headlines by recapturing $1,000/ounce on the 8th September. The metal’s price range in August was narrow; early in the month it was bounded by $940 and $970, but by the final week this had tightened to $935 - $960 and the general consensus was that the price was building up steam for a “break-out”. The view was that the financial and economic background, coupled with the time of the year, pointed to an upward move. This came about on 3rd September. The Precious Metals Market Briefing complements the in-depth research On a trading basis much came from fund buying that precipitated technically-driven purchases. There were a number of factors that could have prompted it, including uncertainty about the outcome of the G20 financial leaders’ meeting and increasing attention on the prospects for use of the SDR in the international reserve system. The physical market is still slow, but professional sentiment remains positive. Conditions have been relatively illiquid (especially on 7th September with the US generated by GFMS for the gold, silver and platinum group metals surveys, markets closed for Labor Day) and gold looks vulnerable to profit taking before renewed strength in the coming months. The technicalities behind the changes in Barrick Gold’s hedge book (announced late on 8th September), with a sizeable tonnage of fixed price contracts removed in the third quarter and the balance thereof to be eliminated by end-2010, suggests also that some of the “buying on dips” in the past quarter may have been hedge lifting, rather than sustainable demand. but its considerably higher frequency gives market members valuable Silver rallied with gold, narrowing the ratio between the two metals to 60 after 69 as recently as mid-August. Silver’s innate volatility took prices up towards $17 in early September before a slight retreat. Although industrial demand has been sluggish during the summer, market sentiment is responding to the moves in gold and generally feeling buoyant. There is access to the benefits of the GFMS research force and database, in a slightly not much else behind silver’s rally, however and with COMEX speculative positions relatively high we must caution of the possibility of sharp corrections in the short term. Platinum and palladium have moved to the sidelines as the PGM sector has held broadly steady in early September, with different method of presentation and comment. platinum hovering above $1,274 and palladium edging towards $300. The end of the scrappage programmes in the US and Germany have taken some of the bullish mood out of these metals as they have concentrated the markets’ attention on the potential downside as the auto sectors slow down after their surges in sales. Palladium remains buoyed by continued evidence that Russian exports have slowed (for what may be a variety of reasons, discussed within) and, while the South African wage negotiations in the platinum mining sector are making progress, Impala has lost over 50,000 ounces of platinum production through strike action. The US long bond yield, % The Goldman Sachs Commodity Index Specifications: � ���� � ��� • Email delivery � � ��� • One detailed monthly report supplemented by two Briefing Updates (35 � ��� � issues per year) � ��� 2000 2002 2004 2006 2008 Jan-07 Jan-08 Jan-09 • Metals covered: Gold, Silver, Platinum & Palladium • Flexible subscription: you can subscribe just to the metals that affect your business For further information or to purchase the report please contact Charles de Meester at +44 (0) 20 7478 1763 or via email elena.patimova@gfms.co.uk. 17 Issue 33 September 2009
    • GFMS Quarterly Newsletter The Gold Markets a Year on from Lehman by Paul Burton, Managing Director, GFMS World Gold A year ago, almost to the day, the US$980/oz and then setting a new Company %, increase gold equity markets were hit by year high of 166 as the gold price since the staggering news that Lehman reached US$989/oz on its way to October Brothers had collapsed and that the US$1,000 oz mark in last week’s 2008 low Merrill Lynch had been acquired. sharp rally. AngloGold 199% I remember the occasion vividly Ashanti as I was in Denver for the annual Since the October 2008 low, the XAU Randgold gathering of the world’s top gold has grown by 159% against a 35% Gold Fields companies and the most influential increase in the gold price. I don’t institutional investors globally. Fund necessarily think we have seen a managers and mining executives full return of gold stocks’ historical Agnico-Eagle alike were in a daze after witnessing leverage to the gold price, but the Yamana Gold a massive sell off in gold equities, impressive performance of the index Kinross Gold seemingly shell-shocked by the does demonstrate quite dramatically extent and depth of market how oversold the gold stocks were. reversals. And there should be further gains Harmony 83% ahead as the index is still someway But, after a short term recovery, shy of the 206 that it peaked at in the markets were hit even harder March 2008. in October as the scramble on the The table above shows how the top part of investors to be liquid and the Moving away from the performance gold producers have fared in the last need of many hedge funds to cover of a the market index, and ten months. redemptions caused even further sell breaking it down to some of the offs and the XAU plunged from 150 component stocks, an analysis Although all the gold companies to 64, a fall of 57% in less than a of the performance of the most increased in value, the relatively month. The gold price at that time prominent gold producers since the poor performance of the world’s was US$730/oz. October 2008 lows to the end of last largest gold producer, Barrick Gold, week, shows that they all posted is striking. This situation, no doubt, For much of this year we have seen impressive gains. Again, these was one of the main drivers behind a gradual recovery in the market, as figures should be read in the context the company’s decision last week the graph of the XAU precious metal of a huge oversell to levels not to dispense with its gold hedging index shows, with a peak at 161 in representative of the intrinsic value programme. June when the gold price rose to of the companies by all measures! XAU Precious Metal Index Another way of looking at performance is the assessment of, and trend in, value of a company’s gold in the ground, as expressed by its adjusted market capitalisation per ounce of resource (M&I). The table below highlights the extent of the decline in market values late last year from the heady days of early Q2. (Continued on next page) 18 Issue 33 September 2009
    • GFMS Quarterly Newsletter Looking at current values, it also Paul Burton shows that most of the majors have graduated as a recouped lost ground, so to speak, or mining engineer from have in fact now exceeded last year’s the Camborne School valuations. The one glaring exception of Mines in 1975 and again is Barrick Gold. spent almost twenty years working in the Adjusted Market Capitalisation per oz (US$) South African gold mining industry. He has been editor of World Gold Analyst Company Apr 08 Dec 08 Sep 09 since early in 1996. He is an established Barrick 235 141 194 speaker on the international conference Goldcorp 441 256 507 scene and is Chairman of the FTSE Gold Kinross 236 168 302 Mines Index Committee. He holds an MSc Newmont 233 131 237 in Mineral Economics and an MBA from the AngloGold Ashanti 64 54 92 Gold Fields 48 27 45 University of the Witwatersrand. Recently Harmony 30 27 26 Paul Burton took the position of Managing Director of newly established GFMS sister company - GFMS World Gold. Junior Explorers by comparative statistics issued by the TSX Venture exchange on trading But if the drop in the market last activity. In the eight months to end year was dramatic for the majors at August 2009, the value of deals on least it wasn’t near terminal. The the exchange fell by 64% compared flight from risk was particularly hard with the corresponding period of on the junior exploration stocks, the 2008. The total market value of the riskiest sub-sector of the resources companies on the exchange declined sector. by 33%. Furthermore, transactions were down 41% and the number of The TSX Venture index (used here as new listings fell by 68% to just fifty a proxy for the exploration sector) nine. Perhaps most telling, however, halved (from 1,608 to 809) from the is the statistic that new equity time of last year’s Denver Forum to financing was more than halved to the end of October when the majors C$2.1 billion. tanked, but that wasn’t the limit of the losses. The junior sector In conclusion, it seems that the continued to fall until 5th December, large gold producers have recovered when the index reached a nadir of much of their lost value and with the 684. gold price around US$1,000/oz and threatening to go higher, they should Highlighting the particular problems continue to grow. of a sector that relies on equity risk capital, the recovery of the index has The junior sector has yet to been much more muted than that for fully recover, with only the most the companies that actually produce promising projects finding adequate gold and are receiving high prices for support in the market. Many their product. The index has risen companies are still cash-strapped 81%, against a gold price rise of and in survival mode. The impact 33% since 5th December. on an industry short of exploration success will be profound as at least As another illustration of how the one full season of drilling has been junior market has changed since the lost in many cases. financial crisis of last year is given 19 Issue 33 September 2009
    • GFMS Quarterly Newsletter Base Metals: Passing on the Baton by Neil Buxton, Managing Director, GFMS Metals Consulting In early August GFMS had noted and the exceptionally low interest On the basis of the above, GFMS’ that the strength of base metal rate environment makes the fixed projections see base metal prices prices defied the sector’s generally income market less attractive). managing to retain the bulk of their lacklustre fundamentals and seemed recent gains for the very near term, to relate more to expectations for Prices in mid-September are with only limited retracements a noteworthy improvement in the generally down from the recent suffered. Looking further ahead, fundamentals later in the year and, highs; this partially reflects natural we continue to expect a strong importantly, in 2010. At the time, profit-taking after the recent final quarter boosting this year’s base metals seemed somewhat strength, but also the decline averages. overbought and a correction before in Chinese imports over recent the end of the summer season, months. In our regular research triggered perhaps by the seasonal contained in the Base Metals Market >> To receive our detailed lull investment (and physical) Briefing, we have highlighted how forecasts on the base metals markets often experienced in this Chinese apparent consumption contained in the Base Metals period, had seemed likely. However, of base metals in the first half Market Briefing (the next twelve prices continued to trend higher. of the year was far in excess of months) and in the 3-year For instance, at end-month, GFMS’ industrial production growth, and the Quarterly Forecasts (out to 2012), Base Metals index was up 8% on expansion of key metal consuming please contact Charles de Meester: the end-July level, at 257.4, and sectors – autos, white goods etc. charles.demeester@gfms.co.uk 80% higher than the year-to-date The implication is that inventories low. Once again, investment-type (over and above the build of the purchases, be that by speculators or strategic stockpile by the SRB) have consumers trying to secure material increased. As expected there has in expectation of prices increasing been a reaction to the earlier record as conditions tighten, rather than import levels, with imports falling improved end-use demand were sharply month-on-month in both July the principal drivers of the boost to and August. prices. However, GFMS expects that reduced Although the potential remains for purchasing from this source will a correction, it is our view that the be offset by a strong demand extent of any such decline would be performance outside of China in limited, as investors or users that the final quarter of this year. One missed the recent leg of the rally are key feature of this cycle is that likely to perceive the lower prices as despite the extreme downturn in an opportunity to buy metal (again, inventories, downstream companies in anticipation of a widespread have been quick to slash production GFMS Metals Consulting has launched recovery in consumption later in the thereby keeping pipeline stocks a series of Quarterly 3-Year Forecasts year), thus providing support for low. There base metal demand will on each of the base metals, which prices. On the investment front in benefit from both the rebound in analyse their prospects over the next particular, this could also be helped economic activity and a restocking three years. by the relative lack of alternative phase. From a demand perspective, markets for liquidated base metals’ we believe that the baton of strong Please contact Charles de Meester positions to be shifted to in the growth held firmly by China so far at charles.demeester@gfms.co.uk current environment (equities are at this year has been passed on to for further information. least as overbought as commodities other regions. 20 Issue 33 September 2009
    • GFMS Quarterly Newsletter Steel Market Jumps on the Bandwagon by Neil Buxton, Managing Director, GFMS Metals Consulting In our analysis on the base metals, They have pushed rebar prices to prices rose to around $470-480/ GFMS has highlighted the amazing above $500/tonne fob as scrap tonne fob Black Sea – around $30/ gains seen in base metal prices prices continue to rise, while wire tonne below comparative Turkish which has seen a number of metals rod is around $520/tonne fob. While offers. more than double from the lows Turkish output and consequently seen in the first quarter. Gains seen scrap buying has been relatively Egyptian demand weak, but in the LME steel billet contract have restrained, Turkish mills have to pay should pick up been less extreme. However, we the higher prices for scrap, which Inventories are still being worked off are starting to see a rally in steel is being driven by Asian purchasing in Egypt, with mills now struggling prices based primarily on higher and the upturn in global steel output. to fill their order books. Aggressive raw material prices but also on a As we noted last month, the pick-up Turkish offers in late July forced reduction in inventories and a pick in global steel output is pushing up Ezz and Beshay to drop prices up in demand. CIS billet prices raw material prices, but construction to E£2,800/tonne ($505/tonne) jumped to $440/tonne fob in early demand remains weak. Current and E£2,700/tonne ($485/tonne) September, compared to $400/tonne prices are around $325/tonne cif for respectively for August sales in order at the end of July. Asian buying scrap. With rebar export volumes to preserve market share. Rising was the primary reason, but we also still under pressure, they have only scrap and billet prices and Turkish believe that speculative purchasing been able to pass on this increase offers have led Beshay to push prices by traders looking to sell onto the and have again been unable to pass back up again to E£2,925/tonne Middle East later in the year was through margins improvements. ($530/tonne), and further growth another factor – we have previously in billet and scrap market pricing noted that we expect Middle East CIS finished products up too in September may push them up mills will come back for billet in CIS wire rod and rebar prices have further. The most hopeful market September, while new mills such picked up slightly – mainly as participants point to October and as Ynna Steel in Morocco start up Turkish mills have been forced to the end of Ramadan as consumers (400,000 tpy of rebar). increase prices. However, demand review their requirements. is somewhat limited and supply Turkish rebar still weak is fairly plentiful as a number of Gulf prices stable to up Export sales of Turkish rebar remain producers are offering e.g. Moldovan Gulf mills have sought to keep prices weak – some sales to Egypt were Steel is back for the first time in flat and below Turkish levels in order made at low prices, while there three-four months. Rebar is around to maintain market share through was a window of sales to Asia, and $440/tonne, while wire rod is closer the slower summer and Ramadan some deals to the USA for wire rod. to $460/tonne fob Black Sea during season. Ex-works prices are around However, Turkish mills are being early August. Dhms1,850-1,950/tonne ($500- hampered by rising scrap prices, and 530/tonne), while Turkish import is a being undercut by CIS mills with a As we forecast, the rise in billet minimum of $525/tonne cif. lower integrated cost structure or prices had brought them almost internal sources of low-priced scrap, in line with finished CIS prices. Prices for September in the UAE although fundamentally, there is not As these were below comparative domestic market are set to rise, as the demand for product from the big Turkish prices, the obvious move they follow higher billet import and buyers. was to raise them and by the end Turkish rebar import prices higher. of August, this did indeed occur as They are likely to be in the region of (Continued on next page) 21 Issue 33 September 2009
    • GFMS Quarterly Newsletter Dirhams2,000/tonne ($545/tonne) India expected to turn up after ex-works. With billet at $480/tonne monsoon GFMS Metals Consulting analyses cif arriving in September, re-rollers As the monsoon finishes, Indian the global flat products market will look to push prices even higher construction activity is expected to in The Steel Market Forecast for September and October sales, improve, although there are lingering Briefing. Analysis of the long aiming to keep a margin of $100/ concerns that the poor monsoon will products market is contained tonne over the cif price. limit activity. Our view is that the in The Steel Market Futures majority of investment is coming Briefing. To receive our latest Conares Metal Supply has pushed from local or central governments report please contact back the start-up of its 400,000 that are less impacted by poor charles.demeester@gfms.co.uk tpy rebar facility until late 2009/ agricultural prices. Billet is already early 2010 as it struggles to secure coming off lows of around $500- power – an issue that has delayed 520/tonne ex-works, and we expect a number of energy-intensive further upward movement in the steelmaking projects in the UAE next few weeks. This will facilitate that are not affiliated with the India returning to purchase scrap government (Qasco Dubai has and DRI, and may reduce billet been waiting a couple of years for export availability. example). It may start purchasing billet in Q4, with Mechel likely to be the primary (but not sole) supplier. Aggressive Turkish prices have limited price gains for Syrian producers of rebar. Current prices are around $550-560/tonne ex- works. In Yemen, high stocks of rebar secured at low prices are keeping domestic prices low. Ex- warehouse stock is available for less than $500/tonne, while local re-roller Arab Iron & Steel is trying to sell for $460/tonne ex-works. This makes Turkish offers unattractive. However, as the stocks run down over the next 4-8 weeks, prices should move up and facilitate further imports. 22 Issue 33 September 2009
    • The GFMS Team Precious Metals Philip Klapwijk Paul Walker Peter Ryan Official Sector, Investment & Demand Supply and Demand Senior Consultant Americas and Europe East Asia and Indian Sub-continent PGMs philip.klapwijk@gfms.co.uk paul.walker@gfms.co.uk peter.ryan@gfms.co.uk Philip Newman William Tankard Matthew Piggott Supply and Demand Mine Production & Hedging Mine Production & Hedging USA, Middle East, UK Worldwide Worldwide philip.newman@gfms.co.uk william.tankard@gfms.co.uk matthew.piggott@gfms.co.uk Neil Meader Cameron Alexander Ayako Furuno Demand Supply and Demand Supply & Demand Europe East Asia, Australia, Middle East Worldwide neil.meader@gfms.co.uk cameron.alexander@gfms.co.uk ayako.furuno@gfms.co.uk Gargi Shah Junlu Liang Ross Strachan Supply & Demand, India Official Sector, China Economic & Market Modelling gargi.shah@gfms.co.uk junlu.liang@gfms.co.uk ross.strachan@gfms.co.uk Base Metals & Steel Immediate Company Mine Cost Studies & Neil Buxton Analysis Benchmarking Managing Director Paul Burton Mark Fellows neil.buxton@gfms.co.uk Managing Director Managing Director Shairaz Ahmed paul.burton@gfmsworldgold.com mark.fellows@gfms.co.uk Metals Analyst Paul Wheeler shairaz.ahmed@gfms.co.uk Immediate Market Analysis Mining Analyst Robert Smith Rhona O’Connell paul.wheeler@gfms.co.uk Metals Analyst Managing Director robert.smith@gfms.co.uk rhona.oconnell@gfms.co.uk Nick Pickens Nikos Kavalis Mining Analyst Metals Analyst nick.pickens@gfms.co.uk nikos.kavalis@gfms.co.uk George Coles Mining & Exploration Mining Analyst Richard Napier george.coles@gfms.co.uk Managing Director richard.napier@gfmsmining.com Elena Patimova Other Contacts Consultant: Sales & Marketing Manager Carmen Eleta Vitaly Borisovich, Russia elena.patimova@gfms.co.uk Sales Director, Latin America, Spain & Jacky Foster Charles de Meester Portugal Accounts Sales Director carmen.eleta@gfms.co.uk jacky.foster@gfms.co.uk charles.demeester@gfms.co.uk The GFMS Group: Precious Metals Base Metals & Steel Mining & Exploration www.gfms.co.uk www.gfms-metalsconsulting.com www.gfmsmining.com Immediate Market Analysis Company Analysis GFMS Online Store www.gfmsanalytics.com www.gfmsworldgold.com http://shop.gfms.co.uk Mine Economics www.gfmsmine-ec.com ©Copyright, September 2009. GFMS Limited, GFMS Metals Consulting, GFMS Mining & Exploration Consulting, GFMS Analytics, GFMS World Gold and GFMS Mine Economics. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means without the prior written permission of the copyright owner. Brief extracts may be reproduced only for the purpose of criticism or review and provided that they are accompanied by a clear acknowledgement as to their source and the name of the copyright owner. Disclaimer Whilst every effort has been made to ensure the accuracy of the information in this document, GFMS Ltd cannot guarantee such accuracy. Furthermore, the material contained herewith has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient or organisation. It is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any commodities, securities or related financial instruments. No representation or warranty, either express or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein. GFMS Ltd do not accept responsibility for any losses or damages arising directly, or indirectly, from the use of this document.