Base Metals Weekly Round-Up: Glencore Powers, Freeport Falters

Base Metals Investing

In the base metals space this week, Glencore posts profits despite all the noise, Freeport warns of downturns in copper from Grasberg, the Century zinc mine is back with a vengeance and more.

Sanctions and tariffs are the flavor of 2018 as it turns out, with each week bringing new rounds and retaliatory strikes between trading partners. This week, the blowtorch was back on Russia, which has threatened “other” means of response, while now Turkish industry is being targeted by the US and China is trucking on with life in a tariff-happy world.

The effect on base metals has been mixed, with copper also experiencing a number of strikes (or potential strikes) at major producing mines.

The copper price trended back upwards over the week, almost scraping the US$6,000-per-tonne mark before gaining 3.43 percent of its value to sit at US$6,246 by Thursday (August 9).

Nickel spent the week headed back upwards. After a sudden downturn over the previous week, the important battery metal regained all its losses and more from Monday (August 6), when it was valued at US$13,200, to Thursday (August 9) when it was valued at US$14,055—a 6.48 percent increase.

The story was similar for zinc, although less dramatic, posting a 3.81 percent increase to reach US$2,683.5 a tonne by Thursday. The same again for lead, which increased in value by 3.08 percent to US$2,136 a tonne over the same period.

Scroll down for the top news stories this week.

Base metals top news stories

1.Freeport: “Significantly Lower” Copper Production from Grasberg

News from Indonesia may well be another factor behind the uptick in the copper price this week, with current majority owner Freeport McMoRan (NYSE:FCX) warning in its quarterly report, released last month, that copper production could fall as much as 300,000 tonnes in 2019, which would drop the huge project well off its spot near the top of the biggest producers list.

While the company expects production to reach the same levels as today in the early years of the next decade, the next two will sting a little as operations shift from the last of the open pit resources to underground.

The company is currently locked in negotiations with Jakarta, with the Indonesian government now insisting all extractive industries be majority Indonesian-owned. Under the current plan going forward, Freeport will remain as operator of the mine but will have to divest some ownership to the government, for a 49-51 split in the government’s favor.

Negotiations are ongoing, and all parties have cautioned investors to be patient.

2. Zinc Production Kicks Off at Queensland’s Century Mine

After plenty of hard work from New Century Resources (ASX:NCZ) blowing the dust off idled infrastructure and waiting from investors, the Century zinc mine in Queensland Australia has kicked off production.

The former MMG (HKEX:1208) operation is now humming again as of Thursday (August 9) and is projected to produce 264,000 tonnes of zinc per year over a six-year period. The company doesn’t think its life will be so short though, as it’s currently engaging in exploration programs around the mines 1,800-square-kilometer tenement package.

With the restart of the mine, which was formerly one of the largest zinc mines in the world, New Century aims to become one of the world’s top 10 zinc producers.

3. Glencore Weathers Congo Woes

With all the commotion this year around Glencore (LSE:GLEN), one would have thought the Anglo-Swiss miner would have flagged it had a tough year in its half-year report. Instead, numbers are up with a 23 percent increase in earnings for the first half of 2018.

A disappointed JV, a jilted partner, the government of Joseph Kabila and the magnifying glasses of the US authorities might weigh on the diversified miner, but it has weathered all of them (so far).

For CEO Ivan Glasenberg, the trick to keeping investors happy is buybacks.

Speaking in a conference call, Glasenberg stressed the value of buybacks, saying that the markets aren’t providing many other opportunities for the company. “Right now, buybacks may be the best returns we can get … we just don’t see anything out in the market. We look opportunistically at [mergers and acquisitions],” he explained.

Scroll down for even more stories in base metals.

In other base metals news

It has been a very busy week in the base metals space—quarterly and half-yearly reports are still trickling out of companies all over the world.

In Brazil, BHP (ASX:BHP,NYSE:BHP,LSE:BLT) and Vale’s (NYSE:VALE) Samarco iron ore mine is looking to restart in 2019 after being shuttered since the environmental disaster of 2015. Staying with Samarco, BHP settled a class action in the US on Thursday (August 9), but still has a number of other legal matters on its plate surrounding the Brazilian mine—including another class action by shareholders in Australia.

Indian-controlled miner Aratirí is suing Uruguay for US$3.5 billion over a development spat, accusing Montevideo of changing rules and regulations on the fly as the company underwent the development process for its Valentines iron ore project, causing major losses to investors.

In China, steel mills are under pressure with Shandong province cutting steel capacity in a move to improve environmental conditions in the eastern province. Pig iron production will be slashed by 600,000 tonnes a year and crude steel by 3.55 million tonnes by the end of 2018. Meanwhile in Hebei, steel mills are cutting output due to power shortages. A heatwave increased demand, prompting the grid company to issue alerts to energy-intensive industries that they restrict their operations during peak hours.

In Australia, OZ Minerals (ASX:OZL) has completed its takeover of Avanco Resources in a AU$418 million transaction. Avanco represents an entry by the Australian miner into the Brazilian market, as Avanco maintained a number of operations in the South American country.

Barrick Gold (TSX:ABX, NYSE:ABX) has assured investors that all is well with its operations in Saudi Arabia despite a war of words (and students and patients and investment and flights) between Riyadh and Ottawa, telling The Globe and Mail that is has a good relationship with Saudi state miner Ma’aden and its Jabal Sayid copper mine in the middle eastern kingdom is unlikely to be affected. Let’s see how that works out.

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Securities Disclosure: I, Scott Tibballs, hold no direct investment interest in any company mentioned in this article.

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