Weekly Round-Up: Commodities Gain as ECB Eyed

- July 27th, 2012

Commodities traders shrugged off disappointing US GDP data as expectations of central bank intervention increased. Hopes that the European Central Bank will buy bonds are particularly high and speculation that the Fed will provide quantitative easing is on the rise; both could boost longer-term commodities demand.

Weekly Round Up: Commodities Gain as ECB EyedWith expectations that central banks worldwide, including the European Central Bank (ECB), will provide stimulus intervention, commodities across the board are ending the week stronger. The latest weak second quarter US GDP data has only increased hopes that joint central bank intervention efforts will bolster global demand, which in turn could increase demand for energy and base metals in the longer term.

Both the ECB and the Federal Reserve will be holding policy meetings next week, and speculation is growing that the ECB will be resuming its bond purchasing program as central bank chief Mario Draghi recently said that the bank will do whatever it takes to preserve the euro. Some investors are also hoping that the Fed will push ahead with a third round of quantitative easing through large-scale bond purchasing; the fact that GDP in the US increased by only 1.5 percent in the second quarter, compared to a 2 percent rise in the first quarter, has given traction to this speculation.

In early morning trade Friday, Brent crude is up 0.5 percent at $105.82 a barrel, while copper is 1.1 percent higher at $3.43 a pound and gold is up 0.4 percent at $1,625.80 an ounce.

Oil and gas

China National Offshore Oil Company entered into an all-cash bid of $15.1 billion for Calgary-based oil and gas producer Nexen (TSX:NXY). The transaction values Nexen at $27.50 per share.

Lower energy prices have been hurting oil and gas companies both large and small, and the second quarter has been challenging for most. While ExxonMobil (NYSE:XOM) reported a 49 percent surge in profit to $15.91 billion, $7.5 billion came from a one-time sell-off of assets and tax benefits. Oil and gas output dropped 5.6 percent to 4.15 million barrels of oil equivalent a day during the latest three-month period.

Royal Dutch Shell’s (LSE:RDSA) profit fell 13 percent in the second quarter to $5.7 billion, even though oil and gas production volume rose 4 percent on year to 3.1 million barrels a day. CEO Peter Voser said that the energy industry “continues to see significant energy price volatility as a result of economic and political developments.”

ConocoPhillips (NYSE:COP) reported a 33 percent plunge in quarterly profit on year to $2.27 billion, while production dropped 6 percent to 1.54 million barrels a day.

Still, junior companies remain upbeat about the industry’s outlook, with Calgary-based PetroNova (TSXV:PNA) discovering oil at its Pendare 1 exploratory well in Colombia’s Llanos Basin. CEO Antonio Vincentelli stated that the company is “extremely encouraged by the hydrocarbon discovery … the characteristics of this discovery confirm that the highly prospective Quifa-Rubiales/Cano Sur heavy oil trend continues.”

Meanwhile, Enhanced Oil Resources (OTCQX:EORIF) began trading on the OTCQX market this week, as did American Eagle Energy (OTCQX:AMZG).

Copper

The London Metal Exchange approved a $2.2 billion takeover bid from Hong Kong Exchanges & Clearing, which beat out CME Group, Intercontinental Exchange, and NYSE Euronext. The LME handles over 80 percent of global trading in industrial metal futures, including copper, and final approval of the deal is expected in November. The Financial Services Authority will continue to regulate the exchange.

Anglo American (LSE:AAL) reported a 38 percent decline in operating profit to $3.7 billion during the first six months of the year compared to a year ago. Operating profit in copper dropped 30 percent on year, and the company continues to be in dispute with Chile’s Codelco regarding ownership of Chilean unit Anglo American Sur.

In Kazakhstan, the country’s biggest copper producer, Kazakhmys (LSE:KAZ), reported that its output for the first six months of the year fell 11 percent on year to 136,100 metric tons (MT) as the company’s red metal grade fell and output at its Balkhash smelter was put on hold due to repairs. The company expects to meet its production target of producing 285,000 MT to 295,000 MT of copper by the end of this year. CEO Oleg Novachuk stated that “[f]ollowing the severe weather at the start of the year, we are continuing to raise our output and we remain on track to meet our production targets.”

Entrée Gold (AMEX:EGI,TSX:ETG) reported high copper recoveries from its Blue Hill oxide target in Nevada. The company said that the first copper leach results are “very favorable” compared to other Southwestern US copper leaching operations.

Thundermin Resources (TSX:THR) and its joint venture partner Cornerstone Capital Resources (TSXV:CGP) reported sizeable copper resources at their Whaleback copper deposit in Newfoundland. CEO John Heslop stated that the site “is expected to enhance the overall economics of developing a new copper and milling operation at Little Deer.”

Baja Mining (OTCQX:BAJFF,TSX:BAJ) subsidiary Minera y Metalurgica del Boleo secured $90 million in interim financing from a Korean consortium consisting of Korea Resources, LS-Nikko Copper, Hyundai Hysco, SK Networks, and Iljin Material. It will use the funds to develop its Boleo copper, cobalt, and zinc project.

Gold

Australian gold giant Newcrest Mining (ASX:NCM) reported that its output for the year reached 2.29 million ounces, down from the 2.7 million ounces reached in the previous fiscal year and lower than the 2.925 million ounces it had initially expected for the latest 12 months. Newcrest will report its fiscal results for the year next month.

As for Barrick Gold (NYSE:ABX,TSX:ABX), it reported that its second quarter net income fell to $750 million, down from $1.16 billion a year ago. Total cash costs per ounce rose to $613 from $445 during the same period a year ago, and it produced 1.74 million ounces of gold in the latest quarter, down from 1.98 million ounces a year ago. A key factor leading to the profit decline was higher costs for its Pascua-Lama gold mine by the border of Chile and Argentina.

In Colombia, Miranda Gold (TSXV:MAD) will be joining forces with Agnico-Eagle Mines (NYSE:AEM,TSX:AEM) to explore for precious metals in the central part of the country over the next three years. The exploration program budget will be at least $1 million a year.

 

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

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