Weekly Round-Up: Upbeat News from China Lifts Commodities

Commodities are ending the week higher on news that the slide in China’s manufacturing activity appears to have stopped.

That’s according to a preliminary reading of the country’s Purchasing Managers’ Index (PMI) for November. The early data shows the PMI rose to 50.4, up from 49.5 in October and 47.8 in September.

That marks the first time China’s PMI has broken through 50, which separates expansion and contraction, in 13 months. The country is the world’s largest resource consumer.

“The continued improvement in the manufacturing PMI is consistent with our view that the Chinese economy has bottomed out and has started to recover moderately,” wrote analysts at Denmark’s Danske Bank in a note. “Policy-wise, the implication is that we are unlikely to see further substantial monetary and fiscal easing.”

Brent crude prices rose as high as $111.46 on Wednesday on increasing hostilities between Israel and Hamas, but then fell back on news of a ceasefire. However, the positive news out of China helped support prices toward the end of the week.

In morning trade Friday, Brent crude is up 0.76 percent at $111.39 a barrel, while copper is up 0.66 percent at $3.52 a pound. Gold is up 1.05 percent at $1,746.40 an ounce.

Gold

McEwen Mining (NYSE:MUX,TSX:MUX) plans to nearly triple its gold production, from 105,000 ounces in 2012 to 290,000 by 2015. To that end, CEO Rob McEwen said this week that the company may sell its 100-percent-owned Los Azules copper project in Argentina and use the funds to develop its precious metals properties.

Aside from Los Azules, McEwen owns 49 percent of the San Jose gold-silver mine in Argentina, 100 percent of the El Gallo gold-silver project in Mexico and 100 percent of the Gold Bar property in the US. Gold Bar is still in development.

Los Azules contains about 15 billion pounds of copper and is valued at around $535 million. McEwen said the project has attracted interest from “all the big players” in the copper business, including “[a]rms of the Chinese government.”

Pretium Resources (TSX:PVG,NYSE:PVG) filed an updated NI 43-101 compliant technical report on its wholly owned Brucejack project in Northern British Columbia this week.

According to the report, the company’s indicated mineral resource increased by 66 percent. Pretium now estimates 16.1 million metric tons (MT) grading 16.4 g/t gold and 14.2 g/t silver for a total of 8.5 million ounces of gold and 7.3 million ounces of silver. In the inferred category, the report shows 5.4 million MT grading 17 g/t gold and 15.7 g/t silver for a total of 2.9 million ounces of gold and 2.7 million ounces of silver.

The company is now working on a feasibility study for an underground mine at the site. It expects to complete the study in the second quarter of 2013.

Oil and gas

Apache (NYSE:APA) reported drilling success in the Dunvegan oil reservoir in Alberta’s Kaybob development area this week. The company is employing newer techniques, such as horizontal drilling and hydraulic fracturing (which is normally used in shale oil and gas projects), to recover more oil from the area. Dunvegan has been producing for more than 40 years.

The company’s latest development well, which was drilled to a depth of 1,732 meters, tested at a rate of 300 barrels of oil per day (bopd); its first well in the drilling program tested at 280 bopd. Apache said this success has helped it identify over 2,000 potential horizontal drilling locations across its 179,000-acre net leasehold.

Pinecrest Energy (TSXV:PRY) is acquiring Spartan Oil (TSX:STO) in a deal worth about $428 million. Under the terms of the agreement, Spartan shareholders will receive 2.738 shares of Pinecrest for each share they own. That values each Spartan share at $5.12, above its current price of $4.84.

The combined company expects to produce 9,600 bopd in 2013, roughly equal to the total of each firm’s output this year. It will also have proven and probable reserves of 29.8 million barrels of oil equivalent; its properties are in Alberta’s Red Earth and Cardium areas, as well as Saskatchewan’s Bakken region.

Spartan and Pinecrest feel their combined strength will put them in a better position to increase their production. They also plan to pay a quarterly dividend of $0.155 per share, for an 8.3 percent yield.

Copper

Nevada Copper (TSX:NCU) reported positive results from a prefeasibility study at its Pumpkin Hollow property in Nevada. The study confirms that an underground mine at the property’s East deposit is both technically and financially viable. Under Nevada’s plan, the ore will be processed by an on-site facility capable of processing 6,500 tons per day over the mine’s 12-year life. It estimates an initial capital cost of approximately $329 million.

The company expects to receive the remaining permits it requires in early 2013, with first production set for 2015. Nevada then plans to follow the underground operation with an open-pit mine at the North and South deposits. It will release a separate feasibility study on the combined project in early 2013.

Securities Disclosure: I, Chad Fraser, hold no positions in any of the companies mentioned in this article.