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The US and Chinese economies continued to show signs of recovery this week, but that wasn’t enough to support resource prices.
Commodities ended the week lower after fresh data pointed to continued improvement in the world’s two biggest economies this week. But investors remain concerned that the global recovery is still weak and uneven.
China’s Purchasing Managers’ Index (PMI) data for October came in at 49.1 on Wednesday, which is an improvement over September’s 47.8 figure. However, the fact that the PMI remains below 50 shows that the country’s economy is still contracting — although at a slower pace.
“The Chinese economy looks set to improve slightly in the fourth quarter, which will also lift copper demand and put a floor on base metal prices,” China Futures Company analyst Yang Jun told Reuters. “But for demand to rise significantly, we need to see a clear and sustained improvement in China’s manufacturing PMI numbers above 50.”
In the US, durable goods orders jumped 9.9 percent in October, their biggest increase since 2009, due to a sharp rise in aircraft sales. The gain comes after a 13.1 percent slump in August. Aircraft sales often skew the indicator due to the volatility of the airline business and the high cost of each plane.
In addition, preliminary government estimates released Friday indicate that US gross domestic product rose at an annualized rate of 2 percent in the third quarter, topping the 1.7 percent that economists were expecting. Higher consumer and government spending, as well as continued increases in home construction, fueled the overall gain.
These improvements have been somewhat tempered by a disappointing US third-quarter earnings season. 186 S&P 500 companies have now reported their quarterly results, according to MarketWatch. On average, their earnings are down 3.9 percent from last year, with revenue up just 0.4 percent.
In morning trade Friday, Brent crude is down 0.6 percent at $110.02 a barrel, while copper is down 0.01 percent at $3.55 a pound. Gold is up 0.15 percent at $1,715.60 an ounce.
Gold
Goldcorp (NYSE:GG,TSX:G), Canada’s second-largest gold miner, reported record revenue of $1.5 billion in the third quarter of 2012, up from $1.3 billion a year ago. Excluding unusual items, Goldcorp earned $441 million, or $0.54 a share, beating the consensus estimate by $0.08.
The company produced 592,500 ounces of gold in the quarter, up slightly from 592,100 last year. Gold sales rose sharply, to 617,800 ounces from 571,500 ounces. Profit margins also remained healthy: Goldcorp’s average selling price for gold was $1,685 an ounce in the quarter on costs of $660 per ounce.
Roxgold (TSXV:ROG) reported positive results from drilling at its Yaramoko gold deposit in Burkina Faso. The latest drilling included diamond drill hole 223, which intersected 233.89 grams per metric ton of gold over 4.5 meters. The company said this is the most significant intercept so far in the deposit’s 55 Zone, and that the findings indicate that the zone remains open at depth. Three drill rigs are now conducting step-out drilling to further define the deposit.
Oil and gas
Canadian oil sands producer Cenovus Energy (NYSE:CVE,TSX:CVE) reported that its net earnings fell 43 percent in the third quarter, to $289 million, or $0.38 a share, from $510 million, or $0.67 a share, a year earlier. That missed consensus estimates.
However, the drop was largely because of foreign exchange fluctuations and hedging contracts the company uses to lock in selling prices for its oil. Cash flow — which gives a clearer picture of Cenovus’ operations — jumped 41 percent, to $1.12 billion, or $1.47 a share, well ahead of the $1.22 a share that analysts were expecting. Cenovus’ average oil sands production was 95,000 barrels a day, up 44 percent from a year ago.
The company’s oil sands projects include Foster Creek and Christina Lake, which it jointly owns with ConocoPhillips (NYSE:COP). It also has interests in two refineries in the US and conventional oil properties in Alberta and Saskatchewan.
Nexen (NYSE:NXY,TSX:NXY), which is the target of a $15.1-billion takeover bid by Chinese state-owned oil producer CNOOC (HKEX:0883), also reported its latest results this week.
In the third quarter, Nexen’s production fell 15 percent, to 181,000 barrels per day from 213,000 during the second quarter of 2012, due to planned maintenance shutdowns at its Long Lake oil sands project and its Buzzard oil field in the North Sea. The lower production, along with higher costs related to these shutdowns, cut Nexen’s cash flow by 45 percent, to $560 million, or $1.06 a share, from $707 million, or $1.34 a share, during the previous quarter. Net income also fell sharply, to $59 million, or $0.11 a share, from $109 million, or $0.20, a year ago.
Nexen also said it still expects the takeover to close in the fourth quarter of 2012. The federal government continues to evaluate whether the bid represents a “net benefit” to Canada under the Investment Canada Act. A decision is expected by mid-November at the earliest. Last week, the government rejected a $5.9-billion bid from Malaysia’s PETRONAS for Progress Energy Resources (TSX:PRQ).
Copper
Vancouver-based Copper Fox Metals (TSXV:CUU) said that it closed a previously-announced $2.5-million financing from an insider. Under the deal, the company sold 2,173,913 units for $1.15 each. Each unit consists of one common share of Copper Fox and a warrant to purchase an additional share for $1.25 before October 24, 2013.
The company will put the funds toward its nearly-finished feasibility study on its Schaft Creek project in British Columbia. According to an estimate released in May, Schaft Creek contains a measured and indicated resource of 1.23 billion MT containing 7.1 billion pounds of copper, 455.3 million pounds of molybdenum, 7.4 million ounces of gold and 66.7 million ounces of silver.
Securities Disclosure: I, Chad Fraser, hold no positions in any of the companies mentioned in this article.