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The state-owned oil and gas producer made two big deals this week, while talks to resolve the fiscal cliff stalled in the US.
The week ended mixed for major commodities, with oil up, copper flat and gold lower, after hints of progress on talks to avoid the fiscal cliff evaporated. If a deal isn’t reached by January 1, a set of sharp tax increases and large spending cuts will kick in. Many analysts fear these measures will push the country into a recession.
The president and Republicans, who control the House of Representatives, remain deadlocked over the tax increases that will be imposed as part of any deal. Obama wishes to generate $1.4 trillion of additional revenue through new and higher taxes, while Republicans have proposed $800 billion. The parties also disagree on cuts to social programs like Medicaid and Medicare.
“It’s clear the president is just not serious about cutting spending,” said House Speaker John Boehner. “But spending is the problem. The president wants to pretend spending isn’t the problem. That’s why we don’t have an agreement.”
The drama surrounding the talks continued to distract investor attention from other economic indicators. On Thursday, the Department of Commerce reported that US retail sales rebounded in November, rising 0.3 percent. That fell short of the 0.5-percent rise that analysts were expecting, but it’s up from a 0.3-percent decline in October.
In addition, American jobless claims dropped last week. The Department of Labor said that initial claims for unemployment benefits fell by 29,000 to a seasonally adjusted 343,000. That marked the fourth straight week of declines.
Overseas, China’s purchasing managers’ index came in at 50.9 on Friday morning. That’s its highest level in over a year and indicates that the country, which is the world’s largest resource consumer, continues to recover from its recent economic slowdown.
In morning trade Friday, Brent crude is up 1.05 percent at $109.04 a barrel, while copper is up 0.53 percent at $3.68 a pound. Gold is up 0.04 percent at $1,697.50 an ounce.
Gold
Kirkland Lake Gold (TSX:KGI) saw its share price plunge 15.1 percent on Thursday after it reported disappointing quarterly results and cut its production forecast for its 2013 fiscal year, which ends April 30, 2013.
In its second quarter, which ended October 31, the company produced and sold 22,345 ounces of gold from its project in the Kirkland Lake Gold Camp in Ontario, Canada. That’s down from 24,762 ounces a year earlier. Revenue and cash flow also declined.
The company aims to increase its output to 2,200 tons of ore a day, but its expansion has been held back by technical problems. As a result, it slashed its production forecast for fiscal 2013 to 90,000 ounces to 110,000 ounces from its earlier estimate of 180,000 to 200,000 ounces.
Fire River Gold (TSXV:FAU,OTCQX:FVGCF) announced results from its drilling program at its Nixon Fork Gold project in Alaska. The program, which aimed to expand the resource at the Mystery mine, consisted of 38 holes totaling 2,976 meters. The company said that 20 of these holes intercepted significant gold, silver and copper mineralization. Highlights include hole N12-014, which intercepted 7.6 meters grading 50.26 g/t gold; hole N12-001 (8.3 meters grading 36.75 g/t gold); and hole N12-012 (6.1 meters grading 31.83 g/t gold).
Oil and gas
Encana (TSX:ECA,NYSE:ECA) announced on Thursday that it has agreed to form a joint venture with a subsidiary of state-owned PetroChina Company (HKEX:0857,NYSE:PTR), China’s largest oil producer.
Under the deal, the partners will explore and develop Encana’s 450,000-acre Duvernay property in Alberta, Canada. PetroChina will invest C$2.18 billion for 49.9 percent of Duvernay, which Encana estimates has reserves of 9 billion barrels of oil equivalent, mostly natural gas liquids. The deal comes in the wake of the Canadian government’s approval of Chinese state-owned oil producer CNOOC’s (HKEX:0083,NYSE:CEO) $15.1-billion takeover of Alberta-based Nexen (TSX:NXY,NYSE:NXY).
Duvernay was the second major purchase made by PetroChina this week. On Wednesday, the company agreed to buy BHP Billiton’s (NYSE:BHP,ASX:BHP,LSE:BLT) 8.33-percent stake in the East Browse joint venture and its 20-percent share of the West Browse joint venture, both located off the coast of Australia. The total resource consists of an estimated 15.5 trillion cubic feet of recoverable gas that the partners plan to convert to liquefied natural gas (LNG) for shipping.
Regulators must still approve the deal, and BHP’s partners in the joint ventures have the right to match PetroChina’s offer. Analysts expect the project to cost roughly $30 billion to build.
Copper
Nevada Copper (TSX:NCU) filed a positive feasibility study on its 100-percent-owned Pumpkin Hollow project in Nevada. The report is available on Sedar.
The report confirms that an underground mine at the site’s East deposit is financially and technically viable. First production at the East deposit is expected in 2015. The report forecasts total output of 759 million pounds of copper, 167,439 ounces of gold and 2.7 million ounces of silver over the mine’s 12-year life.
Kazakhmys (LSE:KAZ,HKEX:0847), the world’s 10th-largest copper producer, said it plans to increase its copper cathode output to 500,000 metric tons per year by 2017, up from a 2012 forecast of 285,000 to 295,000 MT.
The Kazakhstan-based miner said it will spend around $600 million to develop the country’s Bozshakol and Aktogay projects next year. Bozshakol is expected to start production in 2015, with Aktogay following in 2016. Combined, Kazakhmys expects them to boost its output by 180,000 MT.
Securities Disclosure: I, Chad Fraser, hold no positions in any of the companies mentioned in this article.