Signs of economic recovery and consumer confidence have helped to boost commodity prices and generated interest in global copper and diamond miners, with a growing interest for uranium displayed by India and China.
By Dave Brown – Exclusive to Resource Investing News
Easing concerns over the state of the global economy sent copper on its first winning streak in months. Copper closed last week marking the biggest weekly gain in over four months and Monday followed up with the fourth straight day that the metal was in positive territory.
Consumer spending figures for the United States in May rose more than forecast; a sign households are gaining confidence in the recovery and the job market despite previous data suggesting a recovery in the US has lagged behind. According to the Commerce Department’s figures, purchases rose 0.2 percent after little change the prior month while incomes climbed 0.4 and the savings rate increased to the highest level in eight months. Despite the US economy displaying signs of growth, the Greenback is depreciating compared to the Yuan; a situation that will boost Chinese consumption and ease inflation.
After the controversial announcement that countries will be allowed to bid for the development of mines in Afghanistan, Indian state-owned Hindustan Copper Ltd has expressed interest in bidding. A recent study by US geologists found Afghanistan had reserves of valuable minerals, including lithium, iron, gold, niobium, mercury and cobalt, on a larger scale than previously believed, worth about a trillion dollars. The Afghan government said this was a “very conservative estimate” and put the number at up to three trillion dollars. Afghanistan is likely to invite bids to develop mines in the country. “We are keen on the opportunity. We would like to bid for mines in the country, particularly copper,” Hindustan Copper Ltd (HCL) Chairman and Managing Director Shakeel Ahmed said.
Polished and rough diamond prices have steadily improved in 2010, generating signals that the global economy is making a recovery. A global resurgence of mining production is mounting for most companies across almost all regions. Diamond production in Namibia is up 102 percent year over year, reporting the production of 580,000 carats compared with the 929,000 carats for all of 2009. Russian giant Alrosa also improved its sales forecast for the year. The company expects rough diamond sales to jump to $3.28 billion, with a net profit for the company of $191.5 million.
Lucara Diamonds Corp. (CVE:LUC) has started producing stones from its Mothae mine in Lesotho. In the initial days of mining the company reported a gem recovery of a 53.5 carat stone which was more than twice the size of any previous diamond recovered from Mothae. Lucara is also working on its AK6 project in Botswana, a joint venture with African Diamonds PLC (LON:AFD). The project has an estimated resource of 11.2 million carats, and was initially developed by De Beers and sold to Lucara in Nov. 2009.
De Beers is the only major diamond mining company that announced publicly it would slowdown operations, demonstrating concern that the increase in production could cause prices to stagnate as demand for polished stones has still not recovered to pre-crash levels. The industry giant has said it will decrease production by 5 per cent for the next five years, citing a depletion of resources. De Beers is looking to increase the life of their mines as well as control the price of rough stones by curtailing production.
The Energy Information Administration (EIA) forecasts the Henry Hub natural gas spot price to average $4.49 per million Btu this year, a $0.54 increase over the 2009 average. EIA expects the Henry Hub spot price to average $5.06 in 2011, which is down $0.28 from last month’s outlook. The Administration is expecting natural gas production to increase by 1.2 percent this year; however, this may be offset by the most recent hurricane and storm activity forecasts from National Oceanic and Atmospheric Administration (NOAA). With many meteorologists forecasting a considerable increase in storm activity within the Atlantic region this year, production outages will have a strong marginal effect on gas prices.
On the supply side of the equation the storage volumes remain abundant, placing downward pressure on prices. Gas drilling activity in onshore shale-rock formations has led to large injections of the fuel into underground storage facilities. Total gas in U.S. storage as of June 18 was 2.624 trillion cubic feet, about 13.3 percent above the five-year moving average for the same week and 0.5 percent below last year’s level for that week.
On June 27, The Prime Ministers of Canada and India signed a civil nuclear cooperation agreement. The deal provides for cooperation in civil nuclear energy including import of uranium and equipment from Canada, underscoring cooperation in the fields of nuclear waste management and radiation safety. India expects its civilian nuclear sector to be worth $25-billion to $50-billion over the next 20 years with 12 new reactors running by 2020.
Cameco (TSX:CCO) signed an agreement on June 24 with China Nuclear Energy Industry Corporation (CNEIC), a subsidiary of China National Nuclear Corporation (CNNC), to supply China’s largest nuclear generator with uranium concentrate under a long-term agreement through 2020. The deal would see Cameco supplying approximately 23 million pounds over the next 10 years to CNNC, which currently operates seven reactors with a total capacity of 5,100 MW. Cameco has also agreed to pursue long-term non binding co-operation opportunities with China Guangdong Nuclear Power Holding Co., Ltd. (CGNPC), China’s largest clean-energy enterprise with the largest number of nuclear power plants under construction in the world. CGNPC needs uranium to fuel its four existing reactors and indicates that it has about 20,000 MW of nuclear capacity under construction with expectations of over 50,000 MW on line by 2020.
Fears surrounding security of supply, fossil fuel price volatility and increasingly tighter climate change goals at the international level are being manifested in a global resurgence of nuclear power. If aging infrastructure remains neglected, it is widely predicted that demand will outstrip supply long-term. The ability to create a stable and significant clean energy has firmly placed nuclear power back on the table for policy makers and utilities alike. For uranium investors these developments could inspire actions and intentions which can have direct implications on uranium price targets and supply demand fundamentals.