Base Metals Weekly Round-Up: Zinc, Money, Water Make the News

- September 21st, 2018

In the news this week, the trade war hides a zinc supply crunch, CITIC and Ivanhoe tie the knot, Centerra Gold secures short-term water sources for its parched Mount Milligan mine and more.

Another week, another round of tariffs in what is becoming part of regular programming for 2018.

The number this time: US$200 billion on Chinese goods, with the threat being that US President Donald Trump is willing to tax all imports from the east Asian behemoth.

Pundits and businesspeople are now recommending watchers get comfortable, as the co-founder of Alibaba warned to get used to trade war tit-for-tat between the US and China for the next 20 years.

The ructions are having continued effects on base metals prices, with the commodities markets hammered by the brawling economies.

Despite all base metals being down overall, this week brought relief with copper enjoying a reprieve, edging above US$6,000 a tonne for the first time this month on Wednesday (September 19), though it’s still well down in Q3 so far — having started July at US$6,594.5. By Thursday (September 20) copper was still above US$6,000 a tonne.

Fellow base metal zinc, which was discussed in more detail this week (see below), spent the whole week on the up as well, starting at US$2,285 on Monday (September 17) and racking up constant gains every day to Thursday when it reached US$2,434 a tonne for a total increase of 6.5 percent.

The most resilient base metal for 2018, nickel also posted gains over the week, starting at US$12,230 and reaching US$12,525 a tonne by Thursday.

1. Zinc Supply Crunch Hides in Shadow of Trade War

As China and the US battle it out in a trade war, base metals prices continue to languish on global markets.

But in the case of zinc — the hardest hit of the base metals, smothered prices hide a recipe for a price increase according to Cormarck Securities mining analyst Stefan Ioannou, who spoke with INN this week.

Ioannou said that when it comes to the zinc story and what is affecting the metal’s price besides the trade war, it is really all on the supply side of the equation.

“It’s really a lack of supply thats stands to really bolster prices here in the near to medium term,” he said.

“What we’ve seen in the last number of years is a number of large mines shut down. And they’ve shut down not because they’ve had problems, but just because they’ve run their course and depleted reserves,” Ioannou continued.

“So the writing’s on the wall here: we’re losing supply and there’s no new supply coming in to replace it. That’s really setting up for a supply crunch,” he said.

2. Done Deal: CITIC Becomes Ivanhoe Mines’ Largest Shareholder

Canada’s Ivanhoe Mines (TSX:IVN) and China’s CITIC (HKEX:0267) finally tied the knot on Wednesday, formalizing the latter’s strategic investment in Robert Friedland’s company in a closing ceremony.

All the t’s have been crossed and all the i’s dotted, bringing to a close the three-month process first announced in June.

CITIC is now Ivanhoe Mines’ largest shareholder, having paid C$723 million for 19.5 percent of the company, with founder and executive chairman Friedland bumped to second place with 17-percent ownership.

The funds — along with another C$78 million from Zijin Mining (HKEX:2899) from an anti-dilution move—will go towards the company’s three major projects, which are its Kipushi zinc-copper project in the DRC, the Kamoa-Kakula copper project — also in the DRC — and the Platreef platinum-group metals project in South Africa.

3. Centerra Gold Divines More Water for Mount Milligan

This week, Centerra Gold (TSX:CG) secured short-term water supply for its Mount Milligan copper-gold mine in drought-stricken BC, averting a reduction in production for the very near future.

The company said that negotiations with regulators during Q3 “resulted in earlier than anticipated approval of certain short-term water sources,” allowing Centerra to tap into groundwater wells within the mines tailings storage for the duration of its life.

Through the talks the company has also been able to extend the amount of time it can use water from Philip Lake nearby — but only for an extra two weeks.

The company had warned back in August that production at the central-BC mine was at risk, but it did not indicated any fall in output in its most recent release, saying that the mine had been operating at capacity while negotiations were ongoing.

In other base metals news

Philippine president Rodrigo Duterte delivered his monthly reminder to miners that he wasn’t their biggest fan on Monday, again wheeling out his preference for shutting down mining in the Asia-Pacific country altogether after a series of deadly landslides claimed the lives of at least 24 people in a mining area. As the world’s second-largest nickel miner, the threat may make miners cringe (again), although Duterte – known for colorful opinions – makes the threat every few weeks.

Fresh from a shiny announcement that works would soon be commencing on the mammoth Udokan copper project in Russia, owner Baikal Mining (which is owned by Alisher Usmanov) was revealed by Reuters to be in talks with Russian banks to raise US$1.25 billion for the project, which is Russia’s largest untapped copper deposit with 26.7 million tonnes of copper in reserve.

Speaking of copper, MMG Limited (HKEX:1208) announced that as a result of wall instability at its Las Bambas mine in Peru, it would be trimming its copper production forecast at the mine for 2018 by 30,000 tonnes, from 400,000-430,000 down to 375,000-395,000 tonnes.

Staying with copper still, the Mongolian Copper Corporation can chalk up another moral victory, with a Mongolian court declaring that Ulaanbaatar broke the law in its quest to nationalise the Erdenet copper mine – one of the largest in Asia. The company has been fighting to hold on to its 49 percent share for over a year now as the government keeps coming back for extra cracks at the lucrative operation.

In zinc, Nyrstar (EBR:NYR) announced this week that ‘adverse market conditions’ (read: trade war) meant its Q3 earnings would be taking a hit thanks to precipitous zinc prices in 2018.

Moving among the base metals, Brazilian miner Vale (NYSE:VALE) revealed at a conference in China that it was considering expanding the capacity of its S11D project in order to better supply its customers in China.

Don’t forget to follow us @INN_Resource for real-time updates!

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

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