Investment Themes - Precious Metals / Commodities

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January 06 2016

Commentary by Eoin Treacy

Gold Standard Ventures Is Uncovering Bonanza Grade in Nevada's Carlin Trend

Thanks to a subscriber for this interview from The Gold Report which may be of interest. Here is a section:

TGR: You have released test results on Dark Star that Bob Moriarty called "obscene" in a good way. What's your strategy for moving that discovery forward?

JA: The Dark Star project is something that we're very excited about. To hit 150-plus meters of 1.5 grams per ton oxide in the Carlin Trend has historically meant you were in a large, robust system. This is our second blind discovery on the project. This just goes to show that our exploration team is very good. This was a systematic, methodical model-driven exploration process. Our strategy is to hit this whole corridor, which from north to south is about 10 miles long. On the southern end is Dark Star, and on the northern end is Newmont Mining Corp.'s (NEM:NYSE) producing Emigrant mine. We think there is a lot of exploration potential along the structural corridor. A lot of that has been made possible because of the consolidation work that Gold Standard has been able to do.

TGR: As you mentioned, you have some majors as operating neighbors. Are there some models in Nevada that investors are using to compare your possible future prospects?

JA: For Pinion, I think the closest model is Emigrant, a producing mine that belongs to Newmont. It was built in 2012. It's a run-of-mine, heap-leach operation. It has similar grade and characteristics. I think the market wants to see what the metallurgy will look like at Pinion because that is key to the economic model for a heap-leach project. We're doing a lot of that work in that area right now and should have a much better picture in January/February of 2016.

 

Eoin Treacy's view -

Gold shares are trading at their lowest level relative to the gold price in at least 25 years. 

In absolute terms the NYSE Arca Gold Miners Index is not quite as low as it was in 2000 but it has definitely already fallen a long way. 



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January 06 2016

Commentary by Eoin Treacy

January 05 2016

Commentary by Eoin Treacy

How are traditional Safe Haven assets performing?

Eoin Treacy's view -

Following yesterday’s disappointing start to the year and against a background of heightened geopolitical tension, weakening performance in emerging markets and fears about a paucity of earnings growth I thought it would be an interesting time to look at the performance of what have traditionally been viewed as safe haven assets. 



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January 04 2016

Commentary by Eoin Treacy

8 Tech Breakthroughs of 2015 That Could Help Power the World

Thanks to a subscriber for this article by Wendy Koch for National Geographic which may be of interest. Here is a section: 

7. Better Batteries
Solar and wind power have seemingly limitless potential, but since they're intermittent sources of energy, they need to be stored. That’s why there’s a race to build a better battery. The lithium-ion standard bearer, introduced by Sony two-plus decades ago for personal electronics, can be pricey—especially for large uses—and flammable. So every few weeks comes an announcement of a new idea.

Harvard researchers unveiled a flow battery made with cheap, non-toxic, high-performance materials that they say won’t catch fire. “It is a huge step forward. It opens this up for anyone to use,” says Michael Aziz, Harvard University engineering professor and co-author of a study in the journal Science. (Find out how this flow battery works.) Also this year, MIT and DOE announced promising advances that could make batteries better and cheaper.

The battery push has gone beyond the lab. In May, Tesla’s Musk unveiled battery products that he plans to mass-produce in his $5 billion Gigafactory in Nevada. The products include the sleek, mountable Powerwall unit that SolarCity, a company he chairs, is putting in homes. This month, in the first such offering from a U.S. utility, Vermont’s Green Mountain Power began selling or leasing the Powerwall to customers. (Here are five reasons this battery is a big deal.)

Other companies are challenging Musk. Pittsburgh-based Aquion Energy, a spinoff from Carnegie Mellon University, began selling its saltwater battery stacks last year. German storage developer Sonnen said this month that it’s ramping up production of its lithium-ion battery at its facility in San Jose, California, for use in U.S. homes.

 

Eoin Treacy's view -

Symbiosis is popular in nature but it is becoming increasingly clear that it also has a role to play in sustaining the pace of technological innovation. Renewable energy technologies such as wind and solar are progressing rapidly but they will always suffer from intermittency without corresponding innovation in storage for both consumer and industrial uses. This has been painfully slow to follow because it takes time for capital invested in research to deliver results and yet the signs are promising that the next really big enabler with occur among chemical companies. 



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December 31 2015

Commentary by Eoin Treacy

Forget El Nini: La Nina Poised to Storm the Markets

This article by Lucy Cramer for the Wall Street Journal on the 23rd may be of interest to subscribers. Here is a section: 

“The likelihood that the current El Niño peaks soon and turns into a potentially strong La Niña by late 2016 or early 2017 is something that participants in agricultural markets should track closely,” Mr. Norland said.  

And

“El Niño gets all the buzz, but La Niña does not get enough credit,” said David Ubilava, a lecturer at the University of Sydney’s School of Economics, who has written on the correlation between climate anomalies and commodity prices. For example, Canada and the U.S. are more likely to get more droughts in La Niña years than during an El Niño year, which can tighten food supplies and push up prices, Mr. Ubilava said.  

 

Eoin Treacy's view -

With floods across much of the Mid West USA and Europe snowless talk of climate change and its effects on weather is widespread. Crops don’t care if the extremity of the current El Nino is influenced by climate change but we do know that volatile weather makes for volatile pricing. 



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December 24 2015

Commentary by Eoin Treacy

Thin markets

Eoin Treacy's view -

Over the period between Christmas Eve and New Year a lot of people take some time off with the result there are fewer traders around to execute orders. Market liquidity tends to dry up. We occasionally see enterprising traders take this as an opportunity to pressure stops in an attempt to reverse short-term overbought or oversold conditions. 



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December 23 2015

Commentary by Eoin Treacy

Who's on Board?

Thanks to a subscriber for this interesting report from Deutsche Bank focusing on insider sales and purchases at the largest US listed mining companies. Here is a section: 

As an end of year wrap, we have collated data for the miners under our coverage to track when directors and management bought and sold their companies’ shares voluntarily throughout 2015. We have not included transactions involving (i) vesting of shares or options, (ii) sales to cover tax obligations linked to share/option vesting, (iii) purchases under monthly share schemes, (iv) shares issued in lieu of director fees.

Kaz Minerals most frequent buyer, Randgold most frequent seller
Kaz Minerals tops the leader board for the highest number of discretionary purchases, net of sales, with nine throughout 2015. The top three buyers were Kaz (9), South32 (8) and Anglo American (7). The top three sellers were Randgold (-2), Ferrexpo (-1) and Rio Tinto (-1). Of the big four miners, Anglo’s directors made the most net purchases (7), followed by Glencore (5), BHP (1) and Rio was a net seller (-1). There were no insider transactions at Acacia Mining, Antofagasta, Fresnillo, Lonmin and Nyrstar

 

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area. 

2015 has been a trying period for mining executives as they have dealt with shuttering expansion plans, reducing headcount amid low prices for their products and shares prices that have, in many cases, accelerated lower. Against that background it is perhaps understandable that some might wish to diversify their holdings. Yet it is interesting that the selling is not universal and that some companies’ board members increased their stakes on a buy-low-sell-high basis. 



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December 23 2015

Commentary by Eoin Treacy

U.S. Calls for 256% Tariff on Imports of Steel From China

This article by Sonja Elmquist for Bloomberg may be of interest to subscribers. Here is a section:

Corrosion-resistant steel imports from China were sold at unfairly low prices and will be taxed at 256 percent, according to a preliminary finding of the U.S. Department of Commerce.

Imports from India, South Korea and Italy will be taxed at lower rates, the agency said Tuesday in a statement. Imports from Taiwan and Italy’s Marcegaglia SpA will not face anti-dumping tariffs. The government found dumping margins of 3.25 percent for most South Korean steel imports, with Hyundai Steel Co.’s shipments subject to duties of 3.5 percent. Imports from Italian companies excluding Marcegaglia will be taxed at 3.1 percent. Indian imports are subject to duties from 6.6 percent to 6.9 percent.

“We’re concerned that the dumping that’s occurring is at higher levels than these determinations reflect,” Tim Brightbill, a partner at Wiley Rein LLP, a law firm representing U.S. steelmaker Nucor Corp., said Tuesday in an interview. “We have serious concerns that these preliminary duties are not enough at a time when unfairly priced imports continue to surge into the U.S. market at unprecedented rates.”

 

Eoin Treacy's view -

With enormous overcapacity in basic resources China has little choice but to sell its production on the global market at a significant discount. This has represented a significant headwind for the global steel sector and today’s news may prove a catalyst to stem short-term selling pressure. 



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December 21 2015

Commentary by Eoin Treacy

Incrementum AG Investors Letter

Thanks to a subscriber for this letter by Ronald Peter Stoferle and Mark Valek which may be of interest. Here is a section:

That the Fed is walking on eggshells has become obvious from the complications related to hike rates for the first time in 10 years. This impressively demonstrates that the market is highly dependent on low interest rates. It seems as if the market participants would be conditioned on ever increasing money stimuli like Pavlovian dogs.

Regarding commodities, the fear of the first rate hike could turn out to be a huge “buy the rumor, sell the fact”. Contrary to the common assessment, commodities are the best performers after historical rate hikes of the Fed when comparing different asset classes.

On the other hand, the US dollar tends significantly lower after the first 100 days after the first rate hike. 

Even though confidence in the equity markets continues to be exceptionally high, the actual performance is anything but formidable. While European stock indices were outperforming American titles, this primarily results from a significantly weaker euro. The term “devaluation boom” hits the bull’s-eye in this context.

With regard to the broad stock market, we think the party is pretty nearly over.

Eoin Treacy's view -

A link to the full letter is posted in the Subscriber's Area. 

A point made earlier by Allen Brooks’ is that the US Dollar does not tend to do well in the first three months following the first hike after an easing cycle. This is an important consideration because the majority of investors now seem to adhere to the medium-term Dollar bull story. We were early in identifying the relative strength of the Dollar and continue to believe that its secular decline is over not least because of widening interest rate differentials. However it is also worth considering the US administration does not want to have a currency which is appreciating against its international competitors in a linear fashion. 



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December 18 2015

Commentary by Eoin Treacy

Wheat Set for Third Weekly Gain on Signs of Higher World Demand

This note by Megan Durisin for Bloomberg may be of interest to subscribers. Here it is in full: 

Prices head for third straight weekly gain, longest rally since Oct. 2

NOTE: Argentina Devalues Peso With Grain Exporters’ Backing “Argentina is not going to be a heavy exporter of wheat in the short term, like they are for corn and beans,” Terry Reilly, senior commodity analyst at Futures International in Chicago, says in telephone interview.

NOTE: Morocco Issues Tender for 360,000 Tons of U.S. Soft Wheat: ONICL

NOTE: Jordan Buys 50k MT of Wheat at $229/MT From Ukraine

Jordan tender bolsters global market and “Morocco coming in for U.S. wheat is supportive,” Reilly says

Some traders are re-entering market following U.S. interest-rate increase and Argentina devaluation, Reilly says

Corn futures for March delivery climb 1.1% to $3.78 1/2 a bushel

 

Eoin Treacy's view -

This is an El Nino year so we can expect volatility in agricultural commodity prices and this is particularly true considering how powerful this event is and how volatile recent weather patterns have been. 



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December 16 2015

Commentary by Eoin Treacy

Email of the day on the impact of currency market volatility on returns

In your piece today [Ed. Yesterday] on bonds the foreign exchange rate aspect was not mentioned. Several years ago many international investors were tempted by the relatively high yields on Australian bonds. Non-Australian investors have lost out on the fall in the value of the Australian dollar.

Eoin Treacy's view -

Thank you for highlighting this issue which has been a topic covered in the Friday audio commentaries for at least the last 18 months. While the Dollar was trending lower, investors in emerging markets and commodity producers had the luxury of capital and currency market appreciation as well as being able to pick up a competitive yield. 

With a resurgent Dollar the status quo has been shaken up and that is creating both risks and opportunities across a number of assets. Since foreign issuers of US Dollar debt represent significant weightings in bond indices, the strength of the Dollar is a potential headache for investors in bond ETFs. 

 



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December 16 2015

Commentary by Eoin Treacy

Global Metals Playbook: 1Q 2016

Thanks to a subscriber for this report from Morgan Stanley which may be of interest. Here is a section: 

Back to fundamentals: We continue to see only a modest abatement in China-led commodity demand growth, not the capitulation that year-to-date price performances imply. The fact that economic activity everywhere remains buoyant, commodity trade flows are intact, and that producers are rapidly rebalancing their trades in reply to shock-low prices – tells us that downside price risk is limited. Historical benchmarks confirm this view. So after the investor exodus and speculative selling is done, robust fundamentals of Commodity World will again matter to its prices.

Likely catalysts for price recovery: Q1’s typically reliable seasonal restock alone has the capacity to terminate ongoing short-selling strategies. Other potential price supports include a demand-led recovery in the oil price (inflationary); resolution over the scale/duration of the US rate hike cycle (generally supportive within 12 months of the cycle’s start); and government backing for industrial activity in China (project approvals, funding, macro).

 

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.

The Continuous Commodity Index, which is unweighted, remains in a consistent, albeit short-term overextended downtrend. However since this has been ongoing for nearly 4 years it tells us a good deal of the bad news has already been priced in. That does not mean the downtrend has ended but suggests the news will need to get progressively worse to expect the decline to persist.  



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December 08 2015

Commentary by Eoin Treacy

JAB Trio Creates Global Coffee Empire for Billionaire Backers

This article by David de Jong for Bloomberg may be of interest to subscribers. Here is a section:

The Luxembourg-based group, known as JAB, has spent more than $30 billion in the past four years acquiring coffee companies in the U.S. and Europe to challenge global leader Nestle SA. Run by a trio of well-connected executives with decades of experience in food and beverage, JAB has bought assets including D.E Master Blenders 1753 NV, Mondelez International Inc.’s coffee unit and high-end chain Peet’s Coffee & Tea.

“This is part of a much, much bigger strategy. JAB wants to be the Budweiser of the coffee space,” Pablo Zuanic, a Susquehanna Financial Group analyst, said, referring to Anheuser-Busch InBev NV, the world’s biggest brewer. “Just as you’ve seen Bud consolidate beer, they want to consolidate coffee.”

 

Eoin Treacy's view -

Coffee is big business and with approximately 20-25 espressos from a pound of beans it is a high margin business. Little wonder then that the bulk of spending from coffee companies goes in the form of marketing and physical locations. Coffee also represents a growth market since it is considered a bourgeois drink in China and for many exemplifies modern living.  

Another way of thinking about coffee is that consumption tends to trend higher as the pace of everyday life increases. People with busy work, family and social commitments tend to get less sleep either because of time or worry and need a pick-me-up in the morning. As the pace of economic development continues to trend towards urbanisation the pace of life inevitably picks up. That’s good news for coffee producers and helps to explain the race to dominate the market.

 



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December 04 2015

Commentary by Eoin Treacy

Australia Materials - The Big Golden Book

Thanks to a subscriber for this report from Morgan Stanley which may be of interest. Here is a section:

The 6th Edition of our Big Golden Book, covering a suite of 25 ASX listed gold producers and developers, with 7 stocks under MS coverage (AQG, EVN, MML, NCM, PRU, RRL, RSG) and broad detail on another 18 mid small cap gold miners, provides a sector snapshot in which to identify relative strengths and weaknesses amongst the ASX gold space. Our 6th Edition arrives at a time of relatively buoyant AUD gold price - a key beneficiary of the weakened Aussie dollar.

Australian gold miners are up ~15% YTD, as represented by the S&P ASX All Ords Gold Index, significantly outperforming US$ spot gold (down ~9% YTD), the ASX 300 Resources Index (-26% YTD), the ASX Small Resources Index (-20% YTD) and the ASX All Ordinaries (-2% YTD). Currency has been a key driver, pushing AUD Spot gold ~2% higher against the backdrop of a falling USD gold price (down ~9% YTD).

 

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area. 

At The Chart Seminar in Sydney in 2010 a delegate asked what all the fuss was about in the gold market because prices had not moved for more than a year when redenominated to Australian Dollars. I was reminded of that today because prices today are no different from where they were in 2010 and are about 23% of the 2011 peak which represents significant outperformance relative to the US Dollar quoted price. 

As the above report highlights, Australian gold miners have benefitted from the relative weakness of the currency. This also speaks to the broader point that gold is a monetary metal and tends to hold its value better than fiat alternatives in a depreciating currency environment. As a result it outperformed spectacularly while the US Dollar was in a decade long downtrend and is likely to remain a relatively sound store of value for other countries when their respective currencies fall. 

 



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December 04 2015

Commentary by Eoin Treacy

December 03 2015

Commentary by Eoin Treacy

Draghi Braves QE Hype With Boost That Leaves ECB Room to Do More

This article by Jeff Black and Maria Tadeo may be of interest to subscribers. Here is a section: 

The fresh stimulus coincides with a shift in global monetary policy, with the ECB adding stimulus as the U.S. Federal Reserve prepares to start its process of normalization. Even so, financial markets reacted with skepticism, sending the euro up as much as 2.6 percent and equities and government bonds down in a sign that Draghi’s measures fell short of expectations.

“The expectations were too high, and this was the minimum he could do,” said Marco Valli, chief euro-area economist at UniCredit SpA in Milan. “I think this was a mix of Draghi being held back by the conservatives, but also him wanting to keep some powder dry in case more is needed.”

 

Eoin Treacy's view -

The ECB’s balance sheet is currently in the region of €2.7 trillion. At €60 billion a month until March 2017 they will add an additional €960 billion which will take the total to well in excess of the previous peak in largesse; reached during its previous expansionary program. With the announcement that they will continue to reinvest maturing issues the prospect of the balance sheet contracting is almost zero. Meanwhile they leave the door open to additional easing should the need arise.   



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December 03 2015

Commentary by Eoin Treacy

Brazil Assets Surge as Impeachment Move Brings Resolution Closer

This article by Denyse Godoy and Paula Sambo for Bloomberg may be of interest to subscribers. Here is a section: 

While investors in the past have been split about whether impeachment would be positive for Brazil, some now say that the decision could finally lead to a resolution of a months-long political stalemate. Rousseff’s administration has struggled to push through fiscal changes she says are needed to reverse the biggest budget deficit in more than two decades and ward off further credit-rating cuts for Latin America’s largest economy.

"This euphoric reaction of the stock market today shows how much investors are eager for some kind of solution that ends this turmoil and paves the way for the country to get back on track," Alvaro Bandeira, an economist at Banco Modal, said from Rio de Janeiro. "There’s still a lot to happen before a final settling, so we should be prepared for more volatility in the coming weeks."

The president, who started her second term in January, has been fighting for her political survival for months, leaving Congress in disarray, rattling financial markets and deepening an economic slump poised to be the worst since the Great Depression. The political crisis has made the real the worst-performing major currency in the world this year, and set stocks on pace for a third year of losses.

Eoin Treacy's view -

At first blush the surge in Brazil’s stock market today could have been related to the Dollar’s weakness against the Euro or the fact that oil prices steadied. However if one looks at the performance of a range of other Latin American commodity exporters there is no confirming evidence for this contention. 

The impeachment of Dilma Rousseff on the other hand is a decidedly Brazilian affair and has been overhanging the market since she won the election last year. Since she was a senior executive at Petrobras during a time when avarice was consuming revenues at a depressing rate and is now the President, the obvious conflict of interest represented by her administration represents a major headwind to governance improving.

 



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December 01 2015

Commentary by Eoin Treacy

Stevens Rate 'Chill Out' Rattled as Australia Easing Case Builds

This article by Michael Heath for Bloomberg may be of interest to subscribers. Here is a section: 

Yet the economy and wages are in the weakest stretch of growth since the country’s last recession in 1991. The Treasury last week bowed to reality and lowered the economy’s speed limit -- the level at which it begins to generate inflation -- to 2.75 percent from 3 percent estimated in its May budget.

Deloitte Access Economics forecast in a report Monday, ahead of the government’s mid-year budget update due next month, that fiscal deficits over the next four years will be A$38 billion worse than predicted in May.

“What the Deloitte report shows today is the stresses and the pressures on the budget,” Treasurer Scott Morrison said Monday. “They note particularly in terms of the global situation commodity prices, changes in China.”

Indeed, only a surge in the volume of resource exports is likely to cover the drag on growth from weak investment by companies last quarter. Economists are predicting ahead of data due Wednesday the economy grew 0.7 percent in the three months through September from the prior quarter and 2.3 percent from a year earlier.

 

Eoin Treacy's view -

With Sydney and Melbourne housing prices off their highs there is no prospect of the RBA raising rates and with resources’ sector capex close to an all-time low, the prospect of an interest rate cut next year is looking more likely than not. Australia successfully avoided the majority of the ill effects of the credit crisis not least because it was such a beneficiary of China’s stimulus program, through commodity exports. China’s moderating consumption rate for Australia’s exports represents a headwind and suggests the outlook for inflation will be closely tied to what happens in the commodity sector. 



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November 24 2015

Commentary by Eoin Treacy

Global Insight: Stability opens a window of opportunity

Thanks to a subscriber for this report from Morgan Stanley which may be of interest to subscribers. Here is a section: 

Lessons from history: The 'size at all costs' strategy, as gold prices lifted to unprecedented levels between 2000-2012 (real), left the Gold industry ill prepared for the sharp pullback, limiting the post-capex 'harvest' period and almost complete capital destruction for the global seniors. Understandably, gold equity values pulled back sharply – Morgan Stanley Global coverage down ~35% 2014 to-date, while the bullion price fell 10%. Our coverage now trades on 20yr low trailing P/CF and EBITDA multiples, creating a window of opportunity for select gold exposures – those finally moving to 'harvest' and those exposed to industry cost tail winds.

Capital allocation discipline emerging – who is moving to 'harvest': A shift in focus from adding ounces to financial returns has driven reductions in capital spending. Global capex is declining about 6%-10% p.a. on aggregate, allowing miners to focus on cash flow and enter the 'harvest' phase.

 

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.

A great deal of bad news has already been priced into gold equities but with capex budgets virtually eliminated from balance sheets there is potential for profit growth as some of the investment in new supply pays off. 

It is worth considering that while the NYSE Arca Gold BUGS Index underperformed the gold price by a wide margin from 2011 that has not been the case more recently. Gold hit a new reaction low a week ago but golds shares have mostly held within their ranges. This is particularly noteworthy since gold shares have already fallen so much versus the metal price and are at historic relative lows. 

 



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November 23 2015

Commentary by Eoin Treacy

Argentina Macri Said to Consider Suspending Soybean Tax

This article by Pablo Gonzalez for Bloomberg may be of interest to subscribers. Here is a section: 

The policy will be decided on Dec. 10, as only on that day will Macri know with certainty how much money the Central Bank has, the second person said. If approved, the window would close once the new soybean crop arrives in March. That crop would pay exports taxes of 30 percent.

“The plan will be successful if farmers are allowed to buy dollars after selling their crops.” Gabriel De Raedemaker, vice president of the Argentine Rural Confederation, said from the town of Oliva in Cordoba province. “A few will feel tempted to sell just to get pesos under a threat of devaluation.”

Macri has also vowed to lift currency controls as soon as he takes office Dec. 10, a move that investors see leading to a devaluation of as much as 35 percent for the peso, which would further help farmers trying to sell abroad.

Eoin Treacy's view -

The Kircheners are out and a new potentially reform minded administration is in. Macri will face a great deal of opposition in attempting to upset the status quo so it is too early to speculate on how successful he will be. Some early milestones which may offer an indication of how serious he is about reform will be whether he follows through on floating the currency, how he deals with the nation’s creditors and how successfully he can reignite the export sector not least agriculture. 



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November 17 2015

Commentary by Eoin Treacy

Copper Tumbles to Six-Year Low as Industrial Metals Extend Slump

This article by Martin Ritchie may be of interest to subscribers. Here is a section: 

“There is a sense that this move is a little bit China-related,” Ric Spooner, a chief market strategist at CMC Markets Asia Pacific Pty, said from Sydney. “There has been a trend towards destocking of inventory in recent times and that appears to be creating downward momentum, particularly in copper.”

Metals are being battered by a stronger dollar. The greenback is buoyed by expectations for the first U.S. interest-rate increase since 2006 in December and by heightened geopolitical risk after the terror attacks in Paris. The Bloomberg Dollar Spot Index rose 0.2 percent on Tuesday, making assets denominated in the currency more expensive.

Eoin Treacy's view -

We saw a lot of evidence of businesses under pressure when in China earlier this month. The low oil price is a benefit for China’s energy consumers but for its exporters the loss of Russian and Middle Eastern customers is a headache and is contributing to the economic slowdown. The domestic market continues to transition from an infrastructure investment led model to consumerism. This means the while demand is likely to continue to trend higher it will do so at a considerably slower pace. This is weighing on resources companies. 



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November 12 2015

Commentary by Eoin Treacy

Which currencies have made new lows?

Eoin Treacy's view -

The Dollar has been firm, that’s not news, but it experienced a sharp pullback against most currencies following the market low in risk assets from early September. This rebound has not influenced every currency equally and while most have held their gains, a number posted new lows.  These are the Philippine Peso, South African Rand, Norwegian Krone, Peruvian Sol and the Canadian Dollar is testing its low. 



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November 12 2015

Commentary by Eoin Treacy

BHP, Vale CEOs Committed to Restoring Brazil Iron-Ore Mine

This article by Yasmine Batista, Andrew Willis and David Stringer for Bloomberg may be of interest to subscribers. Here is a section: 

A 2013 report by the Minas Gerais University-linked Instituto Pristino, commissioned by the state environment ministry, warned about the risk of dams bursting and recommended putting in place a plan to monitor the structural integrity more closely and frequently.

“As you will appreciate, an issue like this will be relevant to any investigations that follow this tragic incident,” BHP said in an e-mailed response to questions. “In those circumstances we need to let those investigations take their course. So it’s just not appropriate to comment any further.”

Samarco said it’s too early to say what caused the accident and that the dams were deemed to be in compliance with safety standards in a July inspection.

Samarco’s insurance coverage totaled more than $1 billion as of mid-2014. A large-scale disaster such as the one it experienced last week is likely to lead to lawsuits and other actions that may take years to resolve, according to Bloomberg Intelligence analyst Kenneth Hoffman. Its structure as a stand- alone company may shield joint owners BHP and Vale from deep losses related to the dam collapse, Hoffman said.

 

Eoin Treacy's view -

The BRL250 million ($66million) initial fine announced by Dilma Rousseff today is quite a bit larger than what was expected but for companies like BHP Billiton and Vale this is not the same kind of fine that has rocked Volkswagen. The weak oil price and moribund market for iron-ore are more important influences. 



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November 11 2015

Commentary by Eoin Treacy

Hedge Funds Load Up on Sugar

This article by Christian Berthelsen and Carolyn Cui for the Wall Street Journal may be of interest to subscribers. Here is a section: 

“We have seen the longest bear market in sugar for quite some time,” said Michael McDougall, director of commodities for Société Générale in New York. “It’s like a large ship that takes a lot to turn. But it looks like it’s finally beginning to turn.”

Sugar mills in Brazil are directing more cane production to ethanol for fuel blending, thanks to government incentives that make prices more attractive compared with sugar.

After a weak domestic crop season, import demand from China has been strong, jumping 55% to 3.75 million tons in the first nine months of the year.

Singapore-based trading house Wilmar International Ltd. took physical delivery of $1 billion worth of sugar through the financial market so far this year, fanning speculation about increased Asian appetite for the sweetener.

But in a sign that gives some investors pause, sugar producers and processors are placing the largest bets in two years that prices will fall.

“Demand is just not there,” said Bruno Lima, head of sugar and ethanol at brokerage INTL FCStone in Brazil, who found raw sugar offered at a deep discount to the futures prices traded in New York during a recent tour of mills in Santos.

 

Eoin Treacy's view -

Commodities don’t go to zero but sugar prices trended consistently lower for 5 years, dropping over 60% in the process. That is ample time to create a supply response and Brazil’s decision to mandate greater ethanol production is a sign low prices are also creating a demand response. 



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October 26 2015

Commentary by Eoin Treacy

Africa: The next frontier

Thanks to a subscriber for this report from Deutsche Bank focusing on Africa’s potential as a commodity exporter and consumer. Here is a section focusing on copper:

The world will need an estimated 5mt of additional mined copper by 2025

Copper demand has grown 3.2% each year since the end of WWII. However, we estimate that this growth rate will drop over the next 15 years to be below trend at 3%. This takes into account our GDP expectations, ongoing industrialisation of the emerging market economies and further substitution.

Despite the strong growth in copper demand in China over the past decade (2000-2010, near 15% CAGR), global copper demand was a more muted 2.4% The high price environment of 2005-2008 led to demand destruction of around 2.2mtpa, with widespread substitution.

Taking into account increased secondary supply (+3% pa), mine depletion from falling grades (see Figure 29) and supply additions already underway, we estimate the world will need an additional 5Mtpa of mined copper by 2025, or around 500kt each year. This is more than a Collahuasi-sized mine each year (445kt in 2014) or two Andina-sized mines (232kt in 2014).

Time to first production is now at least 12 years
As shown here, for a typical Greenfield copper mine, the time to first production is at least 12 years. For diamond mines, the time frame has extended to an average of 22 years. For gold mines, the average time frame for the mines currently producing in Cote d’Ivoire was 15 years to get to first production (see Figure 32).

And 

Most major known deposits are currently exploited across Chile, Australia, North American, Russia and China. As shown earlier (in Figure 1 on page 4), Africa has a wealth of mineral resources, hosting 95% of the world’s known platinum, 65% of its manganese, 50% of its diamonds and cobalt, 40% of its gold, 30% of the world’s bauxite, and approximately 10% of the world’s known copper sits in the Central African Copperbelt. Yet today, Africa supplies only 11% and 12% of the world’s copper and gold respectively, plus just 9% of its thermal coal.

 

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area. 

This report carries a very interesting graphic illustrating the number of conflicts that occurred in the 1990s compared with the last decade. Relative peace has broken out across the continent despite some high profile trouble spots grabbing attention. The question then is to what extent higher commodity prices contributed to this easing of tensions? 

In an environment characterised by a dearth of capital, the potential for armed conflict increases as access to basic resources such as food, energy and shelter is inhibited. The commodity bull market meant revenues increased and reduced the incentive for conflict. The question now is how many of the gains achieved in the last decade can be held onto and improved upon. Standards of governance are integral to this question because without improvement the potential for a number of major African countries to miss out on development over the next decade increases. 

 



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October 19 2015

Commentary by Eoin Treacy

Sugar Bulls Rewarded With Best Rally Since 2013 on Tight Supply

This article by Marvin G. Perez for Bloomberg may be of interest to subscribers. Here is a section:

“Much of this move has come on the back of a tightening market,” said Harish Sundaresh, a portfolio manager and commodities analyst in Boston for the Loomis Sayles Alpha Strategies team, which oversees $5 billion. “There seems to be weather problems in Brazil, in certain parts of the country’s Center South region, and India is also worried about the monsoon effect on crops.”

Sugar futures in New York climbed 16 percent over the past three months, the biggest such gain since 2013. Prices are rebounding after reaching a seven-year low in August, spurred by declines for Brazil’s real that encourage exporters to increase shipments that fetch dollars in return. Since then, declines for the South American currency have eased, while dry weather is posing risks to the nation’s crop.

 

Eoin Treacy's view -

White Sugar trended lower for five years which has had an effect on supply as other cash commodity prices held up better. The question for bulls is now how much remains in Brazilian and Indian reserves that were built over the course of record crops of the last few years. 



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October 16 2015

Commentary by Eoin Treacy

Rare Platinum Discount to Gold Inspires Bulls Seeing Slump End

This article by Ranjeetha Pakiam and Eddie van der Walt for Bloomberg may be of interest to subscribers. Here is a section:

“It all depends upon whether one believes that the VW scandal marks the beginning of the death of diesel or if the eventual outcome will be a lot less radical for platinum autocatalyst demand,” Philip Klapwijk, managing director of Precious Metals Insights Ltd., said by e-mail. “Arguably the bad news is already in the platinum price.”

Platinum slumped as low as $892.50 an ounce on Oct. 2, only enough to buy 0.7924 of an ounce of gold, data compiled by Bloomberg show. That day, the ratio of gold to platinum reached a record 1.26. The drop in platinum will attract interest from financial traders and spur jewelry demand, Ole Hansen, an analyst at Saxo Bank, said by phone.

Gold may stay weak into next year as economic prospects improve and the Federal Reserve increases interest rates from near zero, dulling bullion’s appeal as a safe haven, according to Singapore-based Oversea-Chinese Banking Corp. The yellow metal will average $950 an ounce in the fourth quarter of 2016 while platinum is seen at $905, said Barnabas Gan, the most accurate gold forecaster based on data compiled by Bloomberg.

The estimates are subject to revision if the Fed doesn’t raise rates this year, he said.

Platinum has been rallying the past two weeks, trading Thursday at $1,004.80. In a Bloomberg survey of analysts, platinum was forecast to reach $1,150 next year, and will extend that gain over the following three years to $1,400 in 2019.

"Platinum is at unsustainable low levels relative to gold, relative to vehicle sales in Europe and relative to the trends we’re seeing in jewelry demand in China," Mike McGlone, director of research at ETF Securities LLC, said by phone from New York.

“We’re getting all the signals you would expect to see from a market putting in a bottom.” 

Eoin Treacy's view -

The Volkswagen scandal represents a significant blow for diesel as a fuel in passenger vehicles but there is little chance of it being displaced in the haulage sector any time soon. Pulling heavy loads requires torque and diesel engines provide it cheaply. Electric vehicles have the capacity to displace diesel over the medium-term but costs will have to come down substantially first. In the meantime auto-catalyst demand in unlikely to disappear but it will decrease.   



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October 15 2015

Commentary by Eoin Treacy

Zinc turning bull?

This article by Kip Keen for Bloomberg may be of interest to subscribers. Here is a section: 

She responds, “Glencore’s cuts do matter.”

To give perspective, she puts the zinc cut in copper terms. “Another way I have been explaining the impact of these cuts is that if this were announced in the copper market, it would be equivalent to 1 million tonnes of mine supply, which would be a very big cut from a copper miner.”

So, with a sizeable cut to zinc output in mind, Fung now forecasts a market that looks set to get tight – finally some might add.

“We were forecasting a 74kt surplus next year (pre-Glencore cuts) assuming 2.8% demand growth,” she writes in an email. “If we assume zero growth, it’s about 400kt that we remove from the demand side of the equation. But Glencore’s cuts more than offset this assumption, so at worst (assuming zero-growth is worst case) we still have a tight market next year, which should be positive for prices, given how far they’ve fallen in response to demand concerns this year.”

Already near-delivery prices have jumped from the mid-70 cent range to over 80 cents.

 

Eoin Treacy's view -

There has been a lot of loose talk about the inevitability of a deflationary outcome which the falling price of oil has contributed to. However we have been at pains to point out in the audio commentaries that there is the world of difference between deflation and disinflation. After all commodity prices went up a lot and have subsequently come done a lot not least due to supply factors. 



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October 15 2015

Commentary by Eoin Treacy

Gemfields recalibrating supply for a softer market

This article by Warren Dick may be of interest to subscribers. Here is a section: 

Production at the company’s 75% owned Montepuez ruby mine rose by 29% to 8.4m carats of ruby and corundum. A maiden JORC statement for Montepuez was published in July 2015 indicating probable ore reserves of 432m carats with an NPV of $996m.

Further steps were taken post reporting period, with the company entering into two transactions to source supply of gemstones in Colombia – a country with a 500-year history of producing world renowned emeralds. “The results speak for themselves – I am extremely proud of what we have been able to do,” says Harebottle.

But it’s the work on the demand side that really sets Gemfields apart from its competitors and other mining companies. “Gemfields is the only company taking a leadership role [in this regard] – so we are price makers, not price takers. We the have potential to ramp up production, but we prefer to do so slowly and steadily, and in conjunction with the needs of our sightholders,” says Harebottle.

Faberge’ produced a “Pearl Egg,” the first such created in the Imperial Class since 1917. The egg was sold within hours of unveiling at the Doha Jewellery and Watches expo. Faberge’ also launched four new timepiece collections during the year, something that will be supported by the addition of eight more retail outlets.

 

Eoin Treacy's view -

The diamond market has become a lot more efficient with the introduction of Rapaport pricing models for both rough and polished stones. This has for the first time allowed consumers to price check on a carat for carat basis between suppliers and the jewellery sector has been rocked as a result. Prices for 1 carat stones are now back at lows not seen since 2009. 



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October 13 2015

Commentary by Eoin Treacy

Weaker USD, Commodity Rally A Mar/Apr Redux?

Thanks to a subscriber for this report from Morgan Stanley which may be of interest. Here is a section on sugar: 

Investment Thesis 
After more than a year of low prices, a shrinking global surplus, coupled with limited reinvestment in cane plantings, should conspire to lift prices YoY in 15/16.

Supply
In Brazil, above-normal rain and limited reinvestment in cane fields have lowered the cumulative ATR, the amount of sugar produced per unit of cane crushed, to the lowest in at least 10 years.

Demand
Falling sugar prices and increased gasoline taxes have lifted Brazilian hydrous demand to record levels, pulling more of the cane crush away from sugar and toward ethanol production. The sugar mix should fall to the lowest since 2008.

Chinese import demand has exceeded expectations over the past year, as falling prices have led to sharp production declines. China’s internal debate on the future of its minimum support price policies should shape import demand in the long term.

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.

The removal of subsidies for European sugar production, concurrent demand growth for ethanol in gasoline production and demand for sweet treats among the global middle class created the conditions for sugar prices to rally impressively in the last decade. The ensuing boom in planting, particularly in Brazil and India resulted in supply overwhelming even the most ambitious demand forecasts and prices have trended lower for nearly 5 years. 



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October 07 2015

Commentary by Eoin Treacy

Sibanye brisk march

This article by Warren Dick for Mineweb may be of interest to subscribers. Here is a section:

“It’s similar to the removal of mine boundaries in the gold industry 10-15 years ago,” says Froneman. “There are things like concentrators, surface infrastructure, and surface tailings that are not being optimised. Group overhead can be shared. So there are numerous ways to achieve economies of scale in terms of being able to reach the R800m a year in savings.”

Stakeholders will be pleased to hear that this will not involve cutting jobs. “Where we find ourselves today [in South Africa] it is all about saving jobs. No jobs will be lost at the lower end of the organisation. So it’s important in terms of what’s right for South Africa,” says Froneman.

Nor does it deviate or affect Sibanye’s declared strategy of paying returns to investors via dividends. “This deal is synergistic, it is value accretive, and it is consistent with our dividend strategy,” says Froneman, who was very complementary of the Aquarius management team led by CEO Jean Nel. “All-in-all it’s an attractive, cash generative business, and Jean and his team have been ahead of the game.”

 

Eoin Treacy's view -

Buy low and sell high is easy in theory and difficult in practice. The siren call to pay record high prices for assets when prices are surging often leaves companies unable to make the same purchases when prices are depressed. In fact many find themselves in the opposite situation and end up selling once expensive assets at deep discounts. The Chinese were highly active in 2009 and were major contributors in the subsequent recovery but on this occasion have been largely absent as domestic factors have led to a change of emphasis. 



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September 24 2015

Commentary by Eoin Treacy

Interesting charts September 24th 2015

Eoin Treacy's view -

Gold has held a short-term progression of higher reaction lows since its July low and is now closing in on the region of the 200-day MA as some safe haven buying lifts prices. A sustained move above 1175 will be required to break the medium-term progression of lower rally highs and signal a return to demand dominance beyond some steadying. 



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September 18 2015

Commentary by Eoin Treacy

Quartermain gets it done

This article by Kip Keen for Mineweb may be of interest to subscribers. Here is a section:

In this, it may be Pretium will go back to the market in the coming year or so, if that capital cost figure proves close to reality. Or, maybe Pretium closes the gap between what it has raised and spent to what it needs in full. Either way it wouldn’t be surprising to see it go back to markets for more cash or seek additional debt resources to give it a bit more breathing room.

In production, Pretium plans Brucejack as one of the more important gold mines – certainly one of its highest grade gold mines – to come online in recent years in Canada and beyond.

Pretium targets 2017 for first production from a deposit that contains swarms of very narrow veins with extremely high-grade (and difficult to model) gold often counted in the kilogram/tonne range over sub-meter intervals. In all, Pretium estimates 13.6 million tonnes proven and probable resources at a whopping 15.7 g/t Au for just under 7 million ounces gold.

That gives the project a mine life near two decades with annual production around 500,000 ounces gold a year for most of the first decade of production. It is, if it all goes according to plan and bulk underground mining captures that gold at forecast costs and values, the kind of mine majors will want to buy. Notably, Zijin Mining, is already a key Pretium shareholder through recent private placements.

 

Eoin Treacy's view -

A veteran subscriber has been to the Pretium claim and testifies that it is the real deal. Against a background where mining ore grades have been declining for years the prospect of bringing a high grade project on stream has insulated the share price from the selling pressure that has prevailed across the majority of the gold mining sector. 



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September 17 2015

Commentary by Eoin Treacy

Iron Ore Seen at $50 in Last Quarter as Majors Gain Control

This article by Jasmine Ng for Bloomberg may be of interest to subscribers. Here is a section: 

Iron ore may average about $50 a metric ton in the final quarter of the year after low prices forced many high-cost producers to quit the market and the world’s biggest mining companies completed a round of expansions, according to UBS Group AG.

The supply surge from the largest producers has been delivered, with output stable for several months now, and there’s been a widespread exit of smaller players, Daniel Morgan, an analyst in Sydney, said in an e-mailed response to questions. Benchmark prices in Qingdao were at $57.37 a dry ton on Thursday, and averaged $54.69 so far this quarter.

Expansions by BHP Billiton Ltd. and Rio Tinto Group in Australia and Brazil’s Vale SA helped to drag prices to the lowest level in at least six years in July, prompting the closure of less efficient miners while increasing the clout of the largest producers. Brazil and Australia were gaining market share in China, the world’s biggest consumer, Vale Chief Executive Officer Murilo Ferreira told reporters this week.

“The majors have just regained control of the iron ore market and can, if they wish, curtail supply to support the price,” said Morgan. “Under $50, we look for supply factors to support the price.”

 

Eoin Treacy's view -

The iron-ore oligarchy have been flexing their muscles over the last couple of years by increasing supply into a falling market. More than a few UK and Australian listed juniors have gone to the wall and Chinese domestic supply has been heavily impacted. 

Iron-ore prices have stabilised following an accelerated decline and are currently testing the region of the 200-day MA. A sustained move above $60 would begin to suggest a return to demand dominance beyond short-term steadying. 

 



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September 17 2015

Commentary by Eoin Treacy

Pure Energy Minerals drops the next lithium bombshell As Tesla seeks supply for its Gigafactory

This article by Peter Epstein for Mineweb may be of interest to subscribers. Here is a section: 

Stepping back for a moment, on September 3rd, Tesla’s Founder Elon Musk reiterated his commitment to source materials from Nevada. However, that pledge did not necessarily mean another sourcing deal, announced so soon, or that it would be for lithium. Other materials besides lithium will be required. Cobalt and graphite, (among others), will also be needed to feed Tesla’s massive giga-factory in Nevada. I find this agreement to be highly noteworthy in the sense that Tesla’s growing need for lithium, perhaps more so than that for cobalt and graphite, represents the single most important raw material need. I imagine that other lithium agreements will be signed in coming months. Without question, Nevada wants further lithium deals to come from Nevada.

Eoin Treacy's view -

The fall in oil prices has had a knock-on effect on most energy related sectors as the relative economics of various alternatives have changed. Lithium miners have been no exception and this has been despite the fact lithium prices have not fallen. Demand for lithium-ion batteries in everything from consumer goods to cars and planes has helped fuel major investment and a large number of explorers are now listed. However securing an agreement to supply Tesla’s factory is a major coup for Pure Energy.



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September 14 2015

Commentary by Eoin Treacy

Brazil Downgrade Leaves Firms With $270 Billion Debt Hangover

This article by Cristiane Lucchesi and Filipe Pacheco for Bloomberg may be of interest to subscribers. Here is a section: 

Brazilian companies that piled on $270 billion in international debt during the boom years are seeing their funding costs rise after the nation’s credit rating was cut to junk.
     
The spread for five-year credit-default swaps to protect against a government default, one benchmark for setting what Brazilian companies must pay for external funding, has jumped 7.5 percent to 400 basis points since the downgrade, the highest since 2009. Adding to the pain, the dollar surged to a 13-year high, making principal and interest on international borrowing more costly for local firms.

“Even very small, unknown companies issued international bonds when Brazil was considered one of the most promising economies after the 2008 financial crisis,” Salvatore Milanese, a partner at debt-restructuring adviser firm Pantalica Partners, said in an interview in Sao Paulo. “Now many of them are facing the consequences.”

Standard & Poor’s last week lowered Brazil’s sovereign credit rating one level to BB+ and said it might cut it further in response to the administration’s inability to shore up fiscal accounts as the economy falters. President Dilma Rousseff has failed to win support for her initiatives amid an investigation into corruption at the state-controlled oil company, some of which allegedly occurred while she was its chairwoman, sending her popularity to a record low and generating calls for her impeachment.

Eoin Treacy's view -

Dilma Rousseff rode to power on the coattails of President Lula’s endorsement but she was never the best candidate from a governance perspective and the currency has collapsed under her watch. An ability to ignore contradiction is characteristic of every crowd. It is not until the cohesion of the crowd deteriorates that these contradictions regain their importance for participants. 



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September 10 2015

Commentary by Eoin Treacy

Interesting charts September 10th 2015

Eoin Treacy's view -

Onshore/Offshore Renminbi – Today’s announcement that the Chinese government is going to permit foreign central banks greater access to the Yuan market, so they can hold the Chinese currency as part of their reserves had a marked effect on the offshore renminbi. The ratio between the onshore and offshore versions of the currency compressed sharply and helps put a lid on fears that capital flight was fuelling the arbitrage. 



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September 10 2015

Commentary by Eoin Treacy

Welcome to Rustenburg, Mr. Froneman

This article by Warren Dick for Mineweb may be of interest to subscribers. Here is a section: 

Speaking at the announcement of the deal yesterday, Froneman said, “we were very disciplined and structured. We had to make sure our first entry into platinum was significant, but we haven’t rushed into it.” Froneman demonstrated that discipline when he walked away from a deal with Amplats in October last year with those immortal words, “Well if they [the assets up for sale] are so good, they should keep them.”

In response to a question from an analyst on how the two parties came to agree on the price the second time around, Froneman revealed why he has a reputation as a skilled dealmaker. “Initially we had very different ideas of value [for the assets]. But when we took a different view in terms of sharing the risk, it allowed us to come together on getting the deal done.”

That last part of his statement around “sharing the risk” is the nub. By convincing Amplats to share the risk, he turned the haggle over price into a more cordial engagement involving mutual benefit. And by doing so, Froneman could then – with a little more maneuvering – take a potentially large and risk-fraught transaction for Sibanye, and make it congruent with the company’s strategy of delivering returns to shareholders via dividends.

Eoin Treacy's view -

Sibanye announced more than a year ago they were seeking to enter the platinum business and this is the realisation of that goal. In doing so they hope to achieve the efficiency gains with the Rustenburg assets they achieved with the legacy assets at the Beatrix gold mines. They have a solid record but the big question is going to be how they handle relations with the unions they are inheriting. 



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September 04 2015

Commentary by Eoin Treacy

Norilsk raises nickel deficit forecast for 2016 as price slumps

This article by Yuliya Fedorinova appeared in Mineweb and may be of interest. Here is a section: 

China’s nickel pig iron output, a cheaper substitute for refined nickel, should fall as ore supplies from the Philippines are depleted, the Russian company said on Monday. Outside China, “we see an increasing pressure on high cost producers to cut production,” Norilsk said.

The global nickel deficit will be at 60,000 metric tons in 2016 and the market will likely be balanced in 2015, according to Norilsk. In its previous market update in March, the producer saw a deficit of 20,000 tons this year that would widen to 55,000 tons in 2016.

Nickel prices are near a six-year low after China’s economic growth slowed and London Metal Exchange inventories reached an all-time high of 470,000 tons in early June. They have since declined to about 455,000 tons. The chance of nickel prices continuing to fall is small because more than 60 percent of producers are already losing money, according to the company.

“A sizable reduction of LME inventory is widely recognized as a major signal of improved nickel market fundamentals,” Norilsk said.

Eoin Treacy's view -

Sentiment towards the industrial metals market has become increasingly bearish as prices have fallen and commodity led economies have come under pressure. The question then is to what extent this bad news is already in the price. 



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September 02 2015

Commentary by Eoin Treacy

Brazil's Epic Era of Splurging Is Over

This article by Matthew Malinowski Dominic Carey for Bloomberg may be of interest to subscribers. Here is a section:

1. No work
Brazil’s economy bled almost 900,000 jobs over the last year. That's unheard of, even in the aftermath of the 2008 Lehman Brother’s crisis.

2. Less money
For those who still have a job, real wages contracted as much as 5 percent in May from a year ago, before easing to a 2.4 percent annual drop in July. Annual real wages, as well as moving averages for retail sales and formal job creation have all contracted this year, according to government statistics. The declines are all worse than in 2009 when the economy also shrank, as the charts illustrate.

3. No more retail therapy
As the labor market deteriorates, Brazilians have cut back the most on shopping since the start of the century. Retail sales in June dropped for the fifth straight month, the longest declining streak since 2001, data from the national statistics agency show.

Eoin Treacy's view -

During the boom in the balance of payments associated with surging commodity exports, Brazil went from being a serial defaulter to a creditor to the World Bank. However, the economic effect of the collapse in commodity prices has been exacerbated by the failure of successive administrations to improve governance. As a result the boom from massive surpluses has been wasted on corruption, vanity sports projects and inefficiency. 



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September 02 2015

Commentary by Eoin Treacy

September 01 2015

Commentary by Eoin Treacy

Australia as China's Canary Means World Watching RBA's Heartbeat

This article by Michael Heath for Bloomberg may be of interest to subscribers. Here is a section: 

“Of most interest will be any comments regarding recent financial market turbulence in relation to China and emerging-market driven worries and in particular whether this suggests a strengthened easing bias,” said Shane Oliver, head of investment strategy at Sydney-based AMP Capital Investors Ltd. “My view remains that the probabilities are skewed towards the RBA having to cut rates again at some point.”

The stock market rout in China threatens not only Australian exports but also a fresh slump in confidence among consumers and businesses Down Under.

Company profits fell in the second quarter for the fifth time in a row, the longest stretch of declines for at least two decades, according to data released Monday by the Australian Bureau of Statistics. Firms are forecasting a 23 percent drop in investment in the fiscal year that began July 1, little changed from the 25 percent reduction they estimated three months ago, a government report last Thursday showed.

Eoin Treacy's view -

The Australian Dollar is perhaps the greatest arbiter of the effect the decline in commodity prices has had on the economy. The inability of Chinese demand to meet exaggerated expectations has been a headwind for the mining sector as new supply has reached market. So far the major producers have sacrificed profits for market share and there is no sign just yet that this has ended. 



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August 28 2015

Commentary by Eoin Treacy

A Currency Drop is Inflationary, Right?

This article by Jeff Black and Jennifer Ryan for Bloomberg may be of interest to subscribers. Here is a section:

The central banker's task of keeping inflation just right has become a permanent tussle with the global currency markets. Too weak a currency equals too rapid price gains. Too strong, and disinflation looms.

That's the well-worn argument under the microscope Friday at the Jackson Hole Symposium, the U.S. Federal Reserve's annual policy getaway. Gita Gopinath, a scholar at Harvard University, says that it just isn't that simple.

"The greater the fraction of a country's imports invoiced in a foreign currency, the greater its inflation sensitivity to exchange rate fluctuations at both short and long horizons,'' she says. Because the dollar is by far the dominant currency in world trade, "U.S. inflation is consequently more insulated from exchange rate shocks, while other countries are highly sensitive to it.''

Eoin Treacy's view -

The strength of the US Dollar is a much bigger headache for emerging markets that from the USA. There is both a push and pull to this argument with a weak Dollar encouraging capital to migrate and allowing borrowers to increase leverage to lower costs. The reversal of the trend sees capital flight from emerging markets and increases the risk of default among the most leveraged debtors. 



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August 20 2015

Commentary by Eoin Treacy

Gold-gold matters

Thanks to a subscriber for this note by Douglas Pollitt which may be of interest. Here is a section:

If the surface float is less than we think it is, then inground stocks, (otherwise known as reserves), are also showing signs of depletion. On the cusp of the last boom, the reserves of senior producers¡¯, as measured in years of mine life, would be ballpark twice what they are today. And moreover these stocks here have been shown to be highly inelastic ¡°tens upon tens of billions of exogenous capital poured into the sector and very, very little was found. Unlike the frackers or, say, the zinc industry, a rally in gold will not see more metal get coughed up from the primary producers; indeed, gold production will almost certainly fall for the next twenty years no matter what the gold price does.

Investors in gold equities can gnash their teeth at the shenanigans on the Comex, and that¡¯s fair enough. The current price makes no sense at all in terms of gold-gold economics. It should nonetheless be borne in mind that the last boom was largely a paper gold boom, where punters, suffuse with visions of geopolitical and monetary overreach, piled willy-nilly into long positions. The next boom, however, if the float is as thin as we think it is, may well be driven by physical scarcity, something a gold exploration geologist knows something about, be they in the jungle or on the tundra.

 

Eoin Treacy's view -

A link to the full report is posted in the Subscriber''s Area.

Gold ore grades have been deteriorating for some time which has been a contributing factor in the rising marginal cost of production for the mining sector. Rather than classify the bull market in gold prices being solely as a result of a rise in demand for paper gold over physical supply, it is more reasonable to conclude that price represents the point at which the two different portions of the market converge. 



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August 19 2015

Commentary by Eoin Treacy

Gold, Silver Climb as Equity Retreat Spurs Demand for Safe Haven

This article by Eddie van der Walt and Debarati Roy for Bloomberg may be of interest to subscribers. Here is a section:

"The selloff in equity markets reflects economic concern, which is supportive of gold," James Cordier, the founder of Optionsellers.com in Tampa, Florida, said in a telephone interview. "With so many problems globally, people think the Fed will have to wait to raise rates."

Eoin Treacy's view -

It is interesting how the motivations of the Fed can be used to rationalise just about any market move. For example, I have also heard a number of commentators suggest the PBOC devalued the Yuan in anticipation of the Fed hiking rates in September. Leaving the Fed out of the picture for the moment let's look at the precious metals sector with fresh eyes.



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August 14 2015

Commentary by Eoin Treacy

Tin Prices Rise Despite Metals Rout

This article by Ese Erheriene for the Wall Street Journal may be of interest to subscribers. Here is a section: 

More than half of all demand for tin is accounted for by the solder which is used to assemble electronics devices such as smartphones and televisions, according to Fastmarkets, a metal research group.

China’s appetite for tin hasn’t fallen away in the way that it has for other base metals, such as iron ore, and China is tin’s biggest importer. Although this week’s devaluation of the yuan will make the metal more expensive in the Chinese market, electronics manufacturers are likely to be well-hedged and able to absorb price rises, said Ms. Bain.

Analysts see the biggest impact on prices coming from the supply side. Indonesia is the world’s largest tin exporter, with up to 35% of the global trade. New regulation this month bans all but refined products from legal mines leaving the country.

Myanmar, whose exports took off around 2011 after the fall of the ruling military junta led to the lifting of some sanctions, is a recent entrant into the tin market.

Now, though, output from Myanmar’s main tin mine is declining due to falling ore grades, and the challenges posed by the ethnic conflict raging nearby. The recent fall in tin prices also stymied investment in current and prospective tin mines, analysts say.

Eoin Treacy's view -

More than half of all demand for tin is accounted for by the solder which is used to assemble electronics devices such as smartphones and televisions, according to Fastmarkets, a metal research group.

China’s appetite for tin hasn’t fallen away in the way that it has for other base metals, such as iron ore, and China is tin’s biggest importer. Although this week’s devaluation of the yuan will make the metal more expensive in the Chinese market, electronics manufacturers are likely to be well-hedged and able to absorb price rises, said Ms. Bain.

Analysts see the biggest impact on prices coming from the supply side. Indonesia is the world’s largest tin exporter, with up to 35% of the global trade. New regulation this month bans all but refined products from legal mines leaving the country.

Myanmar, whose exports took off around 2011 after the fall of the ruling military junta led to the lifting of some sanctions, is a recent entrant into the tin market.

Now, though, output from Myanmar’s main tin mine is declining due to falling ore grades, and the challenges posed by the ethnic conflict raging nearby. The recent fall in tin prices also stymied investment in current and prospective tin mines, analysts say.



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August 13 2015

Commentary by Eoin Treacy

Cotton Jumps Most in Three Years on Surprise U.S. Crop Estimate

This article by Megan Durisin for Bloomberg may be of interest to subscribers. Here is a section:

Yields will average 795 pounds an acre, down from 819 pounds projected in July, the USDA said. Inventories in the 12 months ending July 31 will be 3.1 million bales, down 26 percent from last month’s forecast and a two-year low.

The USDA cut its estimate for global reserves by 2.7 percent to 105.19 million bales from last month’s forecast.

The report “was quite the surprise,” Keith Brown, president of Keith Brown & Co. in Moultrie, Georgia, said in a telephone interview. “They cut the U.S. crop. The real clincher was lowering the global carryout by 3 million bales, because that had been ascending every month.”

 

Eoin Treacy's view -

Yesterday’s USDA report set off fireworks in the agricultural futures markets. Upgrades to expectations for corn and soy sent prices lower while the downgrade to cotton expectations have resulted in prices leaping higher. This is an El Nino year with extreme weather already recorded with probably more to come, suggesting volatility in agriculture prices is more likely than not. 



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August 10 2015

Commentary by Eoin Treacy

Farm machinery

Eoin Treacy's view -

Against a background where commodity related businesses have been under rather extreme pressure, farm machinery shares have exhibited relative strength. Crops have generally been favourable which has contributed to falling prices and the strength of the US Dollar has contributed to weakness. However as potential that agriculture prices have found at least a near-term low improves, the farm machinery sector may be worth studying in great detail. 



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August 07 2015

Commentary by Eoin Treacy

Randgold riding gold price fall well as it bucks the peer trend

This article by Lawrie Williams for Mineweb may be of interest to subscribers. Here is a section: 

Bristow was preceded at the presentation by Randgold Chairman, Chris Coleman, who reminded those present that Randgold was formed almost exactly 20 years ago when the gold price was at a virtual all-time low. The point here being that the current low gold price is not as bad as it was back then, and Randgold has thrived since its very beginnings, in both lower and higher gold price environments.

Bristow continued on the same theme, saying that in terms of the gold price in real terms, Randgold was nearly back where it started! He re-iterated the company has always followed a basic strategy that allowed it to be able to continue to build, while many of its peers were still trying to figure out how to survive in the current gold price environment. “I’ve always tried to do the opposite to the industry and grow in the troughs,” Bristow said to Richard Quest of CNN. Randgold has not wavered from its strategy of only developing good-sized projects offering strong returns at $1000 gold and this policy has held it in good stead.

As far as the Q2 figures were concerned, not surprisingly, Bristow tended to dwell more on the positive aspects of the results. These included a solid all-round performance from its operations, with improvements in grade, throughput and recovery, leading to a new gold production record and a higher profit compared with Q1 in the face of a declining gold price. 

 

Eoin Treacy's view -

Gold miners are now trading at around the same levels relative to the gold price as they did before the commodity bull market. This highlights just how unsuccessful the sector on aggregate has been in controlling cost inflation. However as energy prices pull back and wage inflation moderates, or even contracts, the ability of miners with reasonable debt loads to prosper should improve. This means we can expect some wide variation in returns between miners. 



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August 06 2015

Commentary by Eoin Treacy

U.S. Wheat Exports Jump to 2-Year High; Soy Cancellations Soar

This article by Jeff Wilson for Bloomberg may be of interest to subscribers. Here it is in full: 

Sales of wheat jumped to highest since July 2013 last week after prices fell to lowest in five weeks, government said Thursday in report.

Sales for delivery by May 31 rose to 838,463 mt in week ended July 30 from 699,418 week earlier, up from 590,871 year ago, USDA reported

Sales last week included 394,600 t purchased for delivery to unknown destinations; other major buyers included Dominican Republic, Japan, Philippines and Yemen

“The sales to unknown are a little surprising, but not a sign of improved demand given the premium U.S. wheat is trading to the rest of the world,” Roy Huckabay, exec. Vp for Linn & Associates in Chicago, says in phone interview.

NOTE: Total sales for delivery before May 31 down 17% from yr ago, USDA data show

NOTE: USDA reported net sales reductions of 447,307 t of soybeans in marketing year that ends Aug. 31; biggest weekly cancellation since government began collecting data in 1990
China canceled 500,000 t, rolling 300,000 for delivery after Sept. 1, start of new marketing year: USDA

“The China bean sales the prior week was an obvious error” of reporting the timing of the delivery, says Huckabay.

 

Eoin Treacy's view -

Soft commodities have been subject to a great deal of volatility over the last few years as commonality in the sector has been squeezed out by record crops. Individual commodities are now trading much more on their individual fundamentals than over the last decade which has led to increased variability in returns. 



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August 05 2015

Commentary by Eoin Treacy

Email of the day on redenominating US Dollar instruments to Australian Dollars

Could you advise me again how to get access to the commodities in AUD? e.g. Copper price CMX in AUD? 

Eoin Treacy's view -

Thank you for this question and you may be interested in this video   explaining how to create your own Preset template which will allow you to redenominate any US Dollar instrument to Australian Dollars.

For example here is copper redenominated to Australian Dollars. 



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August 05 2015

Commentary by Eoin Treacy

Citigroup Sounding Alarm on $13 Billion of Bank Bonds in Brazil

This article by Filipe Pacheco for Bloomberg may be of interest to subscribers. Here is a section:

Speculation is mounting that Moody’s will be the second rating company to lower Brazil’s grade to the precipice of junk as the economy suffers its biggest contraction in a quarter century and a bribery scandal frustrates the government’s efforts to restore its finances.

Moody’s, which met with officials in Brazil last month, cited the country’s economic woes and deteriorating finances when it put the Baa2 rating on negative outlook in September.

Things have only gotten worse since then, with Moody’s predicting in a July 16 report that gross domestic product will shrink 1.8 percent this year.

Brazil’s real declined 0.7 percent to 3.4943 per U.S.dollar at 11:51 a.m. in New York. The currency declined 24 percent this year.

Just last week, Standard & Poor’s also revised its outlook on Brazil’s rating to negative. An S&P downgrade would plunge Brazil back into junk since the company rates Brazil BBB-, one level below Moody’s.

“Banks are a leveraged macro play and as such, given the recession, I see the bonds expensive,” Jorge Piedrahita, the chief executive officer of New York-based brokerage Torino Capital LLC, said in an e-mail.

Eoin Treacy's view -

The economic pressure Brazil is experiencing is perhaps most evident in the collapse of the Real which has almost completely unwound the bull market associated with the commodity bull market. The great tragedy is that the country squandered the economic dividend of an almost decade long commodity bull market by failing to introduce regulatory reform, build critical infrastructure and combat corruption. As Warren Buffett says “You don’t know who’s been swimming naked until the tide goes out” On the plus side the Olympics next year and World Cup in 2018 will be fun but are hardly relevant for investors. 



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July 31 2015

Commentary by Eoin Treacy

Diageo Expects Return to Sales Growth After Two-Year Slump

This article by Thomas Buckley for Bloomberg may be of interest to subscribers. Here is a section:

The outlook reflects the prospect of stronger growth in selling volumes in the 12 months through June 2016, Chief Executive Officer Ivan Menezes said in a statement Thursday. He forecast “mid-single-digit” organic sales growth in the following financial years and a 1 percentage-point improvement in the operating margin within three years.

The guidance is “conservative and undemanding,” said Eddy Hargreaves, an analyst at Canaccord Genuity in London. “It’s below what we already have in our model and it’s a positive that they have reinstated guidance.”

As he starts his third year as CEO, Menezes has tried to gain more control over his sprawling liquor empire and restore sales growth after a two-year slump. He’s bought out India’s United Spirits Ltd., taken full ownership of Don Julio tequila and dissolved a South African joint venture. Diageo is also shifting to a model focused on purchases by consumers, rather than the amount of bottles it ships to distributors.

 

Eoin Treacy's view -

Premium distillers such as Diageo trended higher in 2010 and 2011 as Chinese demand surged not least on the back of Communist Party cadre largesse. They have subsequently had a more difficult time repeating those growth figures following Xi Jinping’s anti-corruption drive, contraction of the European economy and stagnant North American sales. Diageo is betting that India and Africa will represent its primary growth engines in future but it will take time to generate results large enough to move the needle in terms of earnings growth. 



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July 31 2015

Commentary by Eoin Treacy

Noble Group Extends Worst Rout Since 1999 Amid SGX Warning

This article by Yuriy Humber and Jonathan Burgos for Bloomberg may be of interest to subscribers. Here is a section:

Noble has bought back its stock at least 11 times since last month and built up a 2.8 percent stake from zero. Companies listed in the city-state aren’t allowed to repurchase their shares two weeks before reporting earnings, according to Singapore trading rules. The company is due to announce its quarterly results on Aug. 13.

“The share buybacks so far have been relatively limited so we don’t expect immediate impact on the company’s liquidity or financial leverage,” Cindy Huang, an analyst at credit-rating agency Standard & Poor’s, said by e-mail.

Noble’s stock declines do not in themselves impact the trading company’s credit position, Huang said.

“The larger issue would be if confidence is affected or lenders’ sentiment is significantly affected,” Huang said.

 

Eoin Treacy's view -

Noble Group is currently trading on a Price to Book of 0.51 not least because its primary business is in coal, coke and petrochemical supply chains which have been under pressure as commodity prices have declined. With a forward P/E of 4 and a yield of 2.12% traders are pricing in either a major write down of their assets or are simply using the share as a vehicle for expressing a bearish view on commodities generally. 



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July 30 2015

Commentary by Eoin Treacy

Pariah status

Eoin Treacy's view -

This has been an extremely difficult period for mining companies, not least as the major iron-ore and diversified mega-cap companies have ramped up supply into a falling market in order recapture market share. From an investor’s perspective, one is left with a dilemma. Many are asking whether it is better to hold on in the hope prices will recover. Others have been disappointed in their attempts to buy only to see prices fall even further. Against a background where technology shares such as Apple, Google, Amazon and Facebook have accounted for the majority of stock market returns this year, underperforming sectors such as commodities have fallen into relative obscurity. 



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July 30 2015

Commentary by Eoin Treacy

Coffee drinkers beware: Brazil coffee harvest set to decline again

This article by Vladimir Pekic for Beverage Daily.com may be of interest to subscribers. Here is a section: 

Brazilian coffee growers will collect just 44.28m sacks (60Kg) of coffer in 2015, the second lacklustre harvest in a row for the world’s largest coffee producer and exporter. 

The result was unveiled this month in the second annual coffee crop forecast for 2015 published by Brazil’s National Supply Company (Conab). The state-run institution warned that the 2015 harvest would be 2.3% lower than the 45.34m sacks harvested in 2014. 

“If the latest forecast announced by Conab proves correct, this will be the third consecutive season in which coffee production in Brazil drops” warned Brazil’s Advanced Research Centre in Applied Economics (CAPEA) in a June 11 release. 

Nonetheless, the international Coffee Organization said that coffee prices continued their decline even after the latest Conab forecast – as speculation over the current 2015/16 Brazilian crop suggests that the market has no immediate supply concerns. Indeed, one major trading house has already forecast a global supply surplus for 2015/16. 

 

Eoin Treacy's view -

This is an El Nino year and it has certainly been hotter and muggier in Los Angeles this year than last as a result of the weather phenomenon. This graphic of Pacific Ocean temperature comparing this year to the strong 1997 event suggest that we can anticipate additional extreme weather events through the end of the year. This has the potential to act as catalyst for agricultural commodity prices so they are worth watching. 



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July 28 2015

Commentary by Eoin Treacy

JPMorgan Just Cornered The Commodity Derivative Market, And This Time There Is Proof

Thanks to a subscriber for this article from Zero Hedge which may be of interest. Here is a section:

So in summary, this is what we do know:

In Q1, JPM cornered the commodity derivative market, with a total derivative exposure of just over of $4 trillion, an increase of 1,691% from just $226 billion in one quarter!

What we don't know is:
why did the OCC decide to effectively eliminate its gold derivative breakdown by lumping it with FX,

why there was a 237% increase in the total amount of precious metals (which include gold) contracts in the quarter, from $22.4 billion to $75.6 billion

We have sent an email requesting much needed clarification from the Office of the Currency Comptroller, although we are not holding our breath.

 

Eoin Treacy's view -

A large number of investment banks have closed or sold their commodity trading operations as prices declined and speculative interest migrated. JPMorgan and Citigroup have stepped into that void and now occupy outsized positions in the commodities derivatives market. 



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July 22 2015

Commentary by Eoin Treacy

NA Gold & Silver Equities: Stress Testing the Balance Sheets

Thanks to a subscriber for this report from RBC Capital Markets focusing on North American gold miners. Here is a section:

Stress test highlights $1,100/oz as a critical level
At $1,100/oz gold and $14.50/oz silver, the North American gold sector remains ex-growth. In addition to the cost-cutting measures that have occurred to date, producers will need to place their higher cost mines in harvest and accelerated closure mode or on care and maintenance. We would expect to see a reduction in management and board compensation and the use of private aircraft travel curtained. And below $1,100/oz, we believe some companies could see their lines of credit reduced or withdrawn, and companies with elevated levels of debt may be forced to hedge revenues, sell streams on mining assets, and/or raise distressed equity. At $1,100/oz, companies that would need to continue making cuts to discretionary and fixed costs to improve their balance sheets include AngloGold, Barrick Gold, Hochschild, IAMGOLD, Kinross, Pan American, Primero, Teranga, and Timmins.

At $1,000/oz gold and $13.25/oz silver, we would expect mine production to begin to contract as mines are placed on care and maintenance or moved into accelerated closure. In addition to the cost-cutting measures mentioned above, we believe a number of the gold producers would need to consider mergers to capture operating synergies or other financial benefits. At $1,000/oz, all of the gold/silver producers in our coverage universe would continue to make cuts to operating and discretionary costs and the most leveraged companies would seek alternative sources of equity.

At $1,200/oz gold and $15.75/oz silver, we believe most of the sector can sustain their current operating mines, but mines with AISC above $1,100/oz would likely go into “harvest mode” with significant development capital spending deferred. In addition, at $1,200/oz the producers can still implement cash-saving measures, with further cuts to G&A, exploration, and sustaining capital.

 

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.

Chinese central bank buying of gold is an important source of demand and has garnered a great deal of attention in the media following last week’s announcement. However that is not the only source of Chinese demand. Domestic Chinese investors are also large consumers of gold and it is plausible that with the volatility on the stock market retail investors have stopped buying or liquidated holdings to meet margin calls. 



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July 17 2015

Commentary by Eoin Treacy

Gold Reaches Lowest Since 2010 as Traders Shrug Off China Hoard

This article by Eddie van der Walt, Joe Deaux and Laura Clarke for Bloomberg may be of interest to subscribers. Here is a section: 

China said it boosted bullion assets to about 1,658 metric tons, less than brokers at GoldCore Ltd and Sharps Pixley Ltd. expected. Futures dropped to the lowest since 2010 on Friday as signs of improving U.S. economic growth further diminished the metal’s appeal as a haven.

With investors in the U.S. scoffing at the precious metal, bulls were holding out hope that buying from China could help to buoy demand. The Asian country vies with India as the world’s top consumer.

“I’m shocked by how small the figure is,” Ross Norman, chief executive officer of dealer Sharps Pixley, said by telephone from London, referring to China’s gold reserves. “I don’t think I was alone in thinking they have accumulated three times as much.”

 

Eoin Treacy's view -

A clue to the fact that the Chinese government has not been accumulating vast quantities of the metal is in the fact that prices have held a sequence of lower highs since 2011. Generally speaking if on aggregate the metal had been under accumulation a progression of higher reaction lows would have been evident within the ranging phase of the last two years. 



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July 16 2015

Commentary by Eoin Treacy

Glasenberg of Glencore to Rio Tinto, other miners: stop digging

This article by Jeremy Khan for Bloomberg may be of interest to subscribers. Here is a section: 

Take iron ore, which is responsible for almost half of Rio Tinto’s revenue and more than two-thirds of its pretax profit. Global yearly output for all miners increased more than 25 percent from 2010 through 2014. Over the same period, the price of Australian iron ore exports to China declined 60 percent. That’s not a coincidence, Glasenberg says.

Yet the world’s miners—including Rio, BHP Billiton, and Vale—plan to increase production by an additional 16 percent by the end of 2018. “That’s what’s killing the supercycle,” Glasenberg said on Glencore’s August 2014 earnings call, referring to the idea that commodities prices had been on a decades-long climb due to surging demand from emerging markets, particularly China.

Glasenberg’s message to the mining industry is simple: You’re in a hole; stop digging. The problem is, mining execs think they’re in the business of digging. “There’s too much focus on big holes in the ground and not enough focus on return for capital,” says Paul Gait, a mining analyst at Sanford C. Bernstein & Co.

 

Eoin Treacy's view -

Iron-ore prices have paused in the region of $45 but will need to continue to hold the recent lows if we are to conclude that more than temporary support has been found.

Despite the fact that industrial metals prices have at least paused in their declines over the last week, the CRB Metals Index shows little evidence that support has been found. A sustained move above the 200-day MA currently near 760 would be required to question the consistency of the medium-term decline. 

 



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July 14 2015

Commentary by Eoin Treacy

Lindt CEO Says Cocoa Prices Should Decline to Reflect Reality

This note by Thomas Mulier for Bloomberg may be of interest to subscribers. Here it is in full:

Ernst Tanner says in phone interview that speculation has driven cocoa prices up too much.

Supply of beans in market is greater than demand, grindings going down, rather than up: Tanner

Arguments about Ebola have been used to justify higher cocoa prices, though outbreak hasn’t affected industry

Easier to raise prices in U.S. than in Europe

Lindt, Ghirardelli brands gaining share in U.S., integration of Russell Stover on track

 

Eoin Treacy's view -

Cocoa is trading in mild backwardation suggesting there is more to the recent run in prices than pure speculation as the above quotes would indicate. US Cocoa prices are currently testing the 2014 peak near 3400¢. On the run up from 2700 reactions have been limited to approximately 100¢ so a pullback larger than that would be required to signal more than temporary resistance in the current area. 



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July 10 2015

Commentary by Eoin Treacy

Email of the day on mining shares:

Anglo-American, BHP and RTZ all seem to be breaking below the bases of their ranging zones. Commonalty. The dividend yields look attractive. Buy or sell?

Eoin Treacy's view -

Thank you for this question which I believe is of general interest to subscribers. Mining shares and metal prices did not respond particularly favourably to the run-up in China’s stock market earlier in the year but have been influenced by its recent decline because of fears the economy is slowing. If there is commonality in the mining shares it is because there has been such commonality in the commodity prices for their major products. Iron-ore, coal, oil, copper and aluminium prices are all at depressed levels. 



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July 07 2015

Commentary by Eoin Treacy

July 03 2015

Commentary by Eoin Treacy

Platinum into the next decade

Thanks to a subscriber for this detailed report offering a nuanced view on the platinum market which may be of interest. Here is a section: 

The world still needs more platinum despite the fall in Autocat loadings
The rise in electric vehicles (EV’s with very low or no PGM’s) will reduce the average vehicle platinum loading and contribute to lower demand growth than we have seen historically. Importantly however, under what we consider reasonable (2.6% CAGR) vehicle demand growth, we still forecast growth in gross Autocat demand. A modest increase in fuel cell vehicles (with high platinum loadings) is likely to offset some of the platinum demand destruction from EV’s. Furthermore a “catch-up” in emission standards in the emerging markets such as India and China should also offset the general trend in declining loadings. We outline our forecasts for platinum. Under our base case, we forecast that an additional 1.5Moz will be required by 2030.

The Auto sector is nearly self sufficient due to recycling.
We forecast a continuation in the trend of the increasing metal units being returned to the market over the next fifteen years. The three major Autocat producers (BASF, Johnson Matthey and Umicore) are all adding recycling refining capacity, specifically targeting recycled material. Furthermore, the tranches of Autocats being returned to the market over the next few years all have higher PGM loadings, especially in platinum. We forecast Autocat platinum volumes to double by 2030, which equates to a CAGR of 4%. 

However, the CAGR between 2014 and 2021 is likely to be closer to 8%.
We estimate that the Autocat industry will be a net supplier to the market up until 2020, whilst the additional new ounces required by 2025 will be negligible. By 2030, the additional requirement should be 300koz, equivalent to a large platinum mine, or a two mid-sized mines. The net result is that Platinum demand (post recycling) growth should be slower over the next fifteen years, compared to the historical trend. We estimate a CAGR of 1.1% versus the trend (1975 – 2014) of 2.2%.

Enough replacement ounces from the existing supply base until 2021
The amount of new platinum ounces required from the Southern African mining industry is limited, especially over the next seven years. The existing fleet of development and replacement projects should be sufficient to offset the endemic grade decline and mine depletion (see Figure 6). Furthermore, these projects have favourable economics relative to the current production base, as most projects have also sunk significant capex, lowering the return requirement as a result.

 

Eoin Treacy's view -

The automotive sector is in a process of evolution with China mandating greater use of electric vehicles and tighter emission control while Tesla represents the cool side of the sector. Toyota, Linde, among others, and the platinum miners are championing the build out of hydrogen fuel cells. Both represent corollaries to innovation of solar and wind technology that is making distributed electricity production possible. Sergio Marchionne at Fiat is arguing for fabless manufacturing in the automotive sector which has the potential to act as an additional catalyst for the sector. 



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July 02 2015

Commentary by Eoin Treacy

Corn Market Seen Tighter as Pigs Erode Reserves at 27-Year High

This article by Jeff Wilson for Bloomberg may be of interest to subscribers. Here is a section: 

“It’s probably a combination of more pigs, chickens and cows eating corn, and USDA overestimating last year’s production,” said Dale Durchholz, the senior market analyst at AgriVisor in Bloomington, Illinois. “Supplies are tighter, and God forbid we have any hot, dry weather in July that damages this year’s crop.”

Feed and residual use for the grain in the three months ended in May climbed 31 percent, according to AgriVisor. The inventory of broilers, dairy cows and hogs suggests that such demand could be as much as 200 million bushels larger than the 5.25 billion bushels projected by the USDA, said Durchholz.

As of Sunday, 68 percent of the corn crop was rated in good or excellent condition in the top 18 producing states, down from 75 percent a year earlier.

Wet fields and declining crop conditions suggest a national yield at 162 bushels an acre, below the USDA’s estimate of 166.8 bushels,  Mark Schultz, the chief analyst for Northstar Commodity Investment Co. in Minneapolis, said Tuesday. That would leave a carryover next year of 1.2 billion bushels, below the 1.771 billion that the USDA forecast on June 10.

“The tightening supply and deteriorating crops in the field are a big change from the outlook a month ago,” Schultz said. “Most livestock producers were waiting for lower prices into the harvest, and now they will be scrambling to extend purchases.”

 

Eoin Treacy's view -

El Nino is a major weather phenomenon and this year’s event is expected to be stronger than normal. With droughts in some parts and floods elsewhere the potential for crop yields to undershoot is being priced into agricultural commodities. There has been a significant rally in corn, wheat and soybean prices which is a little overbought in the short term. There is room for some consolidation but clear downward dynamics would be required to question potential for some additional upside. 



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July 01 2015

Commentary by Eoin Treacy

In Gold we Trust 2015

Thanks to a subscriber for this detailed heavyweight report from Ronald Peter Stoeferle at Incrementum AG which may be of interest. Here is section: 

Let us draw a comparison: if you were sitting in a rowboat in stormy seas, would you say that the lighthouse is moving from side to side and up and down? Or would you employ a rubber band as a tape measure? Certainly not, and for good reasons, as the lighthouse and steel are stable, and waves and rubber bands are not. The relationship between gold and paper currencies is roughly analogous.

This is not to say that the exchange value of gold would be perfectly stable. It would change over time, depending on the growth in the supply of gold, the change in the demand to hold cash balances, and the growth in goods and services on the market. However, given its much lower as well as easily foreseeable annual supply growth rate, it would be far more stable than paper currencies.

Ludwig von Mises always argued that money is a good like any other. It differentiates itself by one important characteristic: Money is the generally accepted medium of exchange, because it is the most marketable good. According to Mises, money's function as a medium of exchange is thus the central one, while its store of value and unit of account functions are merely subordinate functions (they are derived from, or implied by the central function). This also implies that a rising money supply must lower the exchange value of money.35

In 1913, the population of the US was 97 million. The monetary aggregate M3 at the time amounted to approx. USD 20 billion, i.e., USD 210 per capita. Currently the population of the US is 318.9 million, while the monetary aggregate M3 has increased to USD. 17.8 trillion. This translates into a money stock of USD 55,817 per capita.

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area. 

Many of the arguments that speak to gold’s appeal as a financial resource resemble the arguments for the existence of Platonic ideals. Gold will hold its purchasing power over the long haul, gold does not represent a debt or reliance on cash flows, gold is immutable, has historic appeal, was the original money and cannot simply be printed or lent into existence. All of this is true.



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June 29 2015

Commentary by Eoin Treacy

Coal Shares Jump After Supreme Court Strikes Down Mercury Rule

This article by Tim Loh for Bloomberg may be of interest to subscribers. Here it is in full:

U.S. coal shares jumped after the Supreme Court struck down the Obama administration’s mercury and acid gases power plant rule, saying it hadn’t considered the billions of dollars in costs before issuing the rule.

Arch Coal Inc. jumped as much as 19 percent, Peabody Energy Corp. climbed 15 percent and Alpha Natural Resources Inc. was up 14 percent in intraday trading after the ruling was announced Monday.

The court’s decision calls into question an Environmental Protection Agency rule that targets mercury and acid gases. The rule has led to the closing of dozens of coal-fired power plants over the last two years.

 

Eoin Treacy's view -

It’s been a long time since coal caught a break and a great deal of bad news is already in the price. Coal is dirty, antiquarian, low tech and contributes to pollution but is cheap and abundant.  Over the last few years investors and regulators have concentrated on the former points and forgot the latter ones. Coal is the feed stock for a substantial portion of electricity production and today’s decision will mean that fewer power stations in the USA will need to be closed as a result of stringent regulations. 



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June 25 2015

Commentary by Eoin Treacy

Brazil Bank Stock Goes From Worst to First After Investors Bail

This article by Francisco Marcelino and Ney Hayashi for Bloomberg may be of interest to subscribers. Here is a section: 

Among the largest Brazilian banks, Santander is the one with the highest capital ratios, Victor Martins, an analyst at Planner Corretora de Valores, said by phone from Sao Paulo.

“If the economy picks up, they’ll be in a better position to take advantage of that,” Martins said. “It’s all in their hands to do it.”

Santander Brasil’s capital ratio of 16 percent compares with 16.02 percent at Banco do Brasil SA at the end of the first quarter. It exceeded Itau’s 15.3 percent and Banco Bradesco SA’s 15.2 percent.
Santander declined to comment on its performance since the share-swap offer, which began in April 2014. That’s when the bank offered to buy back the 25 percent stake in the Brazil unit it didn’t already own at a price 20 percent above where it was trading at the time. The deal was to exchange shares of the local unit for those of the parent.

The majority of analysts covering the company recommended investors accept the offer, citing what they saw as a fair price and the risk of holding a stock with low liquidity.

“The market doesn’t believe in our franchise, but we do,” Javier Marin, Banco Santander’s chief executive officer when the deal was announced, told reporters at the time. “That’s why we’re carrying out this transaction.”

 

Eoin Treacy's view -

Brazil remains mired in a political scandal which throws light on the inadequate standards of governance that prevailed over the last decade. Now that commodity prices have fallen and excess capital from exports has dried up, the ability of the economy to thrive without reform in how the country is administered is in question. The Real offers a powerful representation of just how much stress the economy is under. It has more than halved since 2011. Some additional evidence of steadying would be a welcome development from the perspective of foreign investors. 



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June 24 2015

Commentary by Eoin Treacy

White-Sugar Premium at Nine-Month High as Demand Advances

The premium for white sugar over the raw variety has climbed 41% this yr, touching the highest since Sept. on Wednesday, as demand for the refined sweetener picks up after an earlier drop in prices.

White-sugar futures on ICE Futures Europe in London  have climbed ~6% since reaching a six-yr low on June 17; Raw-sugar futures also fell to six-yr low in N.Y. last week

 “There is still strong demand from West Africa” for the refined product, Claudiu Covrig, senior agricultural analyst at Platts Kingsman in Lausanne, Switzerland, says by e-mail

Demand associated with Islamic Ramadan holiday that started this mo. also supporting price, he says

Better-than-expected refined imports in China in April and May from Thai and Guatemalan suppliers “have contributed”

Perception in mkt of lower availability of white sugar for Aug. delivery on ICE Futures Europe, he says

NOTE: Brazil’s Center-South produced 6.75m mt of sugar this season, down from 7.76m yr earlier, industry data showed  Tuesday

Eoin Treacy's view -

White sugar has one of the most consistent downtrends in the commodity sector so it will be clear when the supply dominant environment changes. It has stabilised in the region of $350 over the last couple of weeks but a sustained move above $380 will be required to begin to question the consistency of the medium-term decline. 



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June 22 2015

Commentary by Eoin Treacy

Golds (OW): Debunking the Bearish Case for Gold(s)

Thanks to a subscriber for this report from Canaccord Genuity. Here is a section: 

Gold(s) perform poorly before/after the first Fed hike. This was true over the last three tightening cycles of 1994-95, 1999-2000 and 2004-2006 (Figure 1) where rate hikes were ¡§mechanical¡¨ in nature, that is, the Fed raising rates by a 25bp increment at each meeting. But as Fed Chair Yellen repeated yesterday through the Q&A session, contrary to these episodes, the Fed does not intend to follow a pre-determined path to higher interest rates. Rather, a ¡§gradual¡¨ or “wait-and-see” approach was reiterated. Therefore, the next few months may well look like the 1986-87 tightening cycle where golds outperformed before and after the first Fed hike (Figure 1, fourth panel). Interestingly, the 1986-87 experience teaches us that despite a Fed hike in December 1986, gold equities surged until the second Fed hike which occurred in April 1986. So, if the Fed were to pre-emptively hike rates in September, the Fed could take a pass in December and the second hike could only happen next year if a “gradual” approach is implemented. This scenario could maintain or open the door to a cyclical rally in gold and gold equities.

Inflation is low and years away. Inflation went down to a multi-year low of 2.3% in 1993 and the gold sector rose 115%. Back to the 1986-87 episode, who would have said that in December 1986, US headline CPI would bottom at 1.2% and boom to 3.7% four months later? Interestingly, like today, the third panel of Figure 2 shows that wage inflation was running ~2%. The bulk of the inflation increase in 1987 came from the rebound in oil prices. We calculated that if oil prices reach $70/bbl next spring, US headline CPI would be near 2%. But like in early 1987, by moving progressively, the Fed runs the risk of allowing inflation expectations to build as headline CPI catches up to core CPI, hence the “inflation” trade on gold(s). The key points to remember here are the trend in inflation and expectations. Figure 3 shows that no matter the starting point in inflation, gold equities historically are strong outperformers (+18%>TSX over 12 months) from historical bottoms in US headline inflation. Yesterday’s headline CPI suggests the disinflation cycle is over.

 

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.

The range of opinions on the outlook for gold remains varied. The majority of commentary focuses on the “what ifs” of how gold will respond to different stimuli not least the Greek drama and potential Fed tightening, but what it really needs is a good argument for why it should rally independently of other factors. Gold has been ranging with a mild downward bias for nearly two years so it is reasonable that investors are looking for a bullish catalyst to galvinise support beyond short-term steadying. 



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June 18 2015

Commentary by Eoin Treacy

Piercing the gloom

Thanks to a subscriber for this report from Deutsche Bank which may be of interest to subscribers. Here is a section:

China is decelerating – (a fairly consensual view) and this is coinciding with additional production ramp-up as projects started years ago come to fruition. The net outcome is over supply (again, a consensual view) and prices should fall (as they have done). A risk is to use pre China boom commodity prices as a guide to the future, because this is too bearish as many commodity prices hit century lows in the early 2000’s. Iron ore hit an annual low in 2002 for instance at US$36/t (real CIF) – so market fears of sustained iron ore prices of US$30-40/t would require iron ore to retrace to century low levels, into perpetuity. We do not think this is likely. Meanwhile, a number of the miners offer good value on their existing assets alone at normalised prices, the potential growth upside and high yields justify buying them – on top of that, dividends are both attractive and maintainable into the foreseeable future. Now is a good time to selectively pick up some value, in our view.

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area. 

Investment in new green field projects has stopped and is unlikely to become a significant factor until there is evidence metal prices are tending higher. Having embarked on developing new mines, companies have little choice but to complete the projects and these sources of supply continue to come to market. This situation favours lower cost, more established companies. 

There is an important difference between Chinese demand growth and absolute demand. As a major economy, per capita demand has increased substantially over the last decade. A great deal of mine expansion was predicated on the trend of demand growth persisting indefinitely. The pace of growth has moderated considerably but there is no evidence it has reversed. Any major economy has an annual consumption rate for industrial resources. Generally speaking, commodity bull markets don’t end because demand decreases. Rather supply increases to overwhelm demand. This is exactly what we have seen happen and a new demand growth model will have to evolve in order to change the environment. 

 



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June 10 2015

Commentary by Eoin Treacy

Vale Outlook for China Sends Ibovespa to Biggest Gain in World

This article by Julia Leite for Bloomberg may be of interest to subscribers. Here is a section: 

“Several Chinese producers -- a higher number than people realize -- have already left the business,” Vale’s Ferreira, said Wednesday at a Rio de Janeiro conference. “I think we will have a better second half in China than the first half in terms of steel.”

On top of raw-material shares, banks also helped push the Ibovespa higher. Banco Bradesco SA recovered from an 11-month low while Itau Unibanco Holding SA was set for the best day since February. Still, Fides’ Vieira said the advance may not be sustained as Latin America’s largest economy continues to disappoint.

Inflation has accelerated as President Dilma Rousseff increases government controlled prices to shore up public accounts. That has sent annual consumer prices to the fastest pace in more than a decade, and the central bank has responded by boosting borrowing costs six consecutive times.

Bets on a further slowdown at a time when the economy is already forecast to show the worst recession in 25 years have dragged down the Ibovespa from this year’s high. The benchmark gauge had entered a bull market April 24, after rallying more than 20 percent from its 2015 low, on speculation government measures would revive growth and help Brazil keep its investment-grade credit rating.

 

Eoin Treacy's view -

The Brazilian market has been the subject of a number of challenges over the last couple of years not least the collapse in iron-ore and coal prices and the entanglement of the current administration in Petrobras’s corruption scandal. 

The Index has been rangebound, in nominal terms, for much of the last two years and found support today in the region of the 200-day MA. A sustained move below 52.500 would be required to question current scope for some additional upside. 

 



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June 05 2015

Commentary by Eoin Treacy

12 reasons to own gold now: Part 2

This article by Anthony Hart for Mineweb may be of interest. Here is a section: 

Astute readers will notice this was the topic of my first blog post…and it hasn’t lost its relevance in the week since (surprising huh…). Due to some of the reasons contained within the dozen detailed in the last two days…and many more…gold continues to have a legitimate role to play in insuring your overall portfolio for the ongoing systemic risk, and volatility (and potential failure) inherent in the current global financial system.

Eoin Treacy's view -

Gold has always been a long-term store of value whose price has the potential to experience a high degree of volatility over the short term. As such it has some of the characteristics of a currency while also representing a diversifying quality within a portfolio. However gold does best when people lose confidence in the ability of other currencies to hold their value either through deflation and low interest rates or through runaway inflation and high rates. 



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June 02 2015

Commentary by Eoin Treacy

Platinum sector faces Kodak moment in fuel cell technology

This article by Clara Denina & Silvia Antonioli for Mineweb may be of interest to subscribers. Here is a section: 

The world’s three largest platinum producers Anglo American Platinum (Amplats), Impala Platinum and Lonmin are all investing in projects related to fuel cell technologies, which generate electricity that can power vehicles by combining hydrogen and oxygen over a platinum catalyst.

But analysts doubt fuel cell vehicles will rival the growth of their electric counterparts, mostly because battery recharging stations are less costly and already more widespread than hydrogen refuelling stations.

“As out of the two new technologies only fuel cells use platinum, I guess the miners think they have no choice,” Macquarie analyst Matthew Turner said. “But people are buying electric cars…and that’s not the case for fuel cells.”

Amplats, which has invested about $35 million in the last five years in companies developing new uses for platinum, mostly through fuel cell technology, is mindful of the stakes.

“I don’t want Anglo American Platinum, or any of our partners or customers to be a Kodak,” Amplats Chief Executive Chris Griffith said last week, referring to the once mighty photography pioneer that was slow to transition to digital photography.

 

Eoin Treacy's view -

Platinum miners are not the only companies making big bets on hydrogen fuel cells. Toyota’s decision to release its Mirai fuel cell vehicle later this year and to open its patents to developers highlights their efforts to pioneer new technologies. After all it was Toyota’s Prius that was the first mass market hybrid vehicle. 

Nevertheless, electric cars are gaining increasing traction as solar cell efficiency increases. There is also the potential for wind turbines to be smaller and less noisy. With the advent of home batteries the outlook for electric vehicles is looking even more promising. 



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June 02 2015

Commentary by Eoin Treacy

Seven diamond miners form group to fight synthetics

This article by Cecilia Jamasmie for mining.com may be of interest to subscribers. Here is a section: 

The group, called the Diamond Producers Association (DPA), will promote diamonds as a luxury item for high-end consumers and highlight the attraction of natural diamonds amid concerns that some consumers may soon begin favouring cheaper synthetic rocks.

The association, which counts with a $6 million yearly budget, claims to be “the first-ever international representative organization to be formed by some of the leading diamond producers,” DPA said in an e-mailed statement.

The freshly formed entity will step into a role once filled by De Beers, which at one point controlled over 80% of the world’s mined diamonds

The freshly formed entity will step into a role once filled by De Beers, which at one point controlled over 80% of the world’s mined diamonds and pioneered the use of diamonds in engagement rings.

Eoin Treacy's view -

The price of rough diamonds has little to no correlation with the price of polished/ cut stones. However, despite the fact that cut diamond prices have fluctuated considerably over the last year, rough stone prices have been very stable. This is cutting into the margins of intermediaries such as diamond dealers and jewellers. The Diamond Producers Association stated aim may be to counteract a nascent threat from lab grown diamonds but will probably also succeed in ensuring that miners continue to get an attractive price for their rough stones. 



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May 29 2015

Commentary by Eoin Treacy

5 Junior Gold Miners Trading at Less Than $110 Per Ounce

This article from SmallCapPower.com may be of interest to subscribers. Here is a section: 

A gold producer is often valued based on the Net Asset Value of its operations. In other words, an investor needs to value the company’s assets (reserves) and subtract its liabilities. Its future resource production is estimated based on current reserve levels, and it is used in accordance with projected gold prices to calculate future cash flows. With the current price of gold trading at the US$1,200 an ounce level, it is relatively hard to understand why certain companies trade at $100/ounce. Regardless, the five gold juniors on this list are being valued by the market at a substantial discount to its ounces in ground.
 

Eoin Treacy's view -

Gold miners are back trading at their lowest level relative to the gold price since 2001 which is an interesting situation. Looking at the above title one could be tempted to see value which is a view I am sympathetic with. However for this ratio to reverse what has been a major downtrend investors will need to see evidence that gold is going to hold the current range. Only then will they conclude gold miners represent a high beta play. In other words just because the above miners are trading at $110 per ounce does not mean that number won’t rise if gold prices fall. 



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May 27 2015

Commentary by Eoin Treacy

Barrick deal fulfills Thornton aim of forging China link

This article by Simon Casey for Bloomberg may be of interest to subscribers. Here is a section

Barrick said Tuesday that Zijin will buy 50 percent of its interest in a Papua New Guinea mine for $298 million. Looking ahead, Toronto-based Barrick and Zijin will evaluate opportunities for future cooperation, including the potential to jointly construct mines. Barrick said it may take advantage of Zijin’s access to “low-cost capital from Chinese institutions.”

“A twenty-first century mining company with global reach and the intention to become an industry leader must, by definition, have a distinctive relationship with China,” Thornton said Tuesday in a statement.

Even before Thornton took over as chairman last year, succeeding Barrick founder Peter Munk, he was looking to build links with China. That’s a recognition of the nation’s growing importance not just as a user of key commodities but also as a producer. While Barrick has long been the world’s largest gold producer ranked by sales, Zijin is catching up fast and is now the second-biggest, according to data compiled by Bloomberg.

Eoin Treacy's view -

China is among both the largest consumers and producers of gold so it makes sense for Western companies to wish to gain access. They have an added incentive as access to additional capital for either acquisitions or expansion dwindles. Meanwhile Chinese companies are well capitalised and have access to attractive borrowing terms.

Barrick Gold needed this deal more than Zijin and the response of the respective share prices bears this out. Barrick has been ranging between $10 and $13.30 since November and pulled back from the region of the 200-day MA last week. It will need to sustain a move above that level in order to signal a return to demand dominance beyond the short-term  



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May 19 2015

Commentary by Eoin Treacy

BHP left with $2.8bn of reject assets after spinoff

This article by David Stringer for Bloomberg may be of interest to subscribers. Here is a section: 

Despite BHP Billiton’s spin off and sale of about $15 billion of unwanted assets over the last three years, the biggest miner remains saddled with a portfolio of even harder-to-shift rejects.

A total of nine assets — from a US thermal coal mine to UK oil and gas platforms — haven’t made the cut for a new slimmed-down parent or the demerger company South32.

The unloved operations, valued at more than $2.8 billion according to RBC Capital Markets, are hampering Chief Executive Officer Andrew Mackenzie’s quest to halve the size of BHP’s core portfolio to focus on big ticket earners including crude oil, iron ore and copper.

“They did the big clean up with South32 and these are what are left,” said Michelle Lopez, a Sydney-based investment manager at Aberdeen Asset Management Ltd., which holds BHP shares. “I’m sure they’ve been on the sale slate for a long time. It’s a disappointment.”

Global mining companies are trimming portfolios to focus more closely on their most profitable operations as commodity prices have tumbled and amid a drive to reduce costs.

BHP, Rio Tinto Group and Glencore Plc have agreed the sales of $14.3 billion of assets since 2012, according to data compiled by Bloomberg.

An attempt to sell one of BHP’s reject assets, the Nickel West unit of mines and facilities in Australia, ended in November after it failed to attract a suitable bid. BHP has taken $1.8 billion in writedowns on the operation since 2012.

 

Eoin Treacy's view -

BHP Billiton has a market cap of approximately £78 billion. South32, which represents the spin-off of industrial metal businesses not least alumina, has a market cap of over £6 billion so the additional assets the company could neither sell nor spin-off represent a comparatively small proportion of the overall business. I have added both the UK and Australian listings of South32 to the Chart Library. 



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May 18 2015

Commentary by Eoin Treacy

The Big Golden Book 26 Gold Stocks in the One Report

Thanks to a subscriber for this report from Morgan Stanley focusing on the Australian gold mining sector. Here is a section: 

Our gold price outlook remains relatively subdued:
A strengthening USD, rising US interest rates and a muted inflation outlook are all headwinds to gold prices, though geopolitical tensions (such as rising concerns around Greece’s debt position) and extensions to consensus views on timing of US rate tightening have added volatility. Under this backdrop, equity selection is critical.

Reduced capital spend has been the collective approach: 
Within the ASX gold miners discussed in the Big Golden Book, total cash costs have declined ~7% since the last Golden Book six months ago, while production is up 4%, implying relatively flat absolute operating costs over the period. The “cost-out” trend continued to include some capital spend reductions, particularly from Newcrest following completion of Cadia East and Lihir investments, but capex reduction trend looks to have slowed, with improved sector free cash generation appearing to now include real cost reductions at the operating level.

 

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.

Australian gold miners have faced a number of the same issues as their counterparts elsewhere but have been insulated somewhat by the weakness of the Australian Dollar. The price of gold in Australian Dollars dropped from A$1800 to A$1400 between 2011 and early 2013. It broke out of a yearlong range in January and has returned to test the upper side of the underlying base near $1500. A sustained move below that level would be required to question medium-term scope for additional upside. 



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May 18 2015

Commentary by Eoin Treacy

Ivanhoe, First Quantum lead the pack

This article by Kip Keen for Mineweb may be of interest to subscribers. Here is a section: 

Leading the pack is, hands down, First Quantum: up 50%. It had pretty close company, however. Copper Mountain Mining, Imperial Metals, Lundin Mining, and Turquoise Hill all zoomed ahead between 30-40%. Not far behind with 20-30% gains were Sherritt, Capstone, Freeport, Hudbay, and Southern Copper. Thereafter came Antofagasta, Trevali, Taseko and Nevsun between 10% and 20%. Then in the single digits, were BHP Billiton, Rio Tinto and Vedanta. Among a selection of leading base metal resource developers – 19 of the larger cap juniors on the TSX or TSX-V – the impact was more muted but still positive (see chart below). There were three heavy losers during the period: Highland Copper (-33%), Pilot Gold (-32%) and Panoro (-25%). Continuing up the ladder, but still in negative territory, were Rathdowney (-9%), North American Nickel (-8%), NGEx (-2%). Drawing more or less even was Western Copper and Gold.

Eoin Treacy's view -

Mining companies have been among the most unloved of any sector over the last few years as major declines in iron-ore and coal contributed to investor malaise while other sectors such as biotech took off. This forced them into major periods of consolidation where costs were cut, expansion cancelled and cashflow optimised. A number are now completing medium-term bases. 



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May 18 2015

Commentary by Eoin Treacy

May 14 2015

Commentary by Eoin Treacy

DoubleLine Presentation: Summer insects

Thanks to a subscriber for inviting me to Jeff Gundlach’s presentation yesterday down the street in Beverly Hills. The presentation was an updated version of the talk he gave in May with a number of additional slides on debt issuance. I posted that presentation in Comment of the Day on May 7th

Eoin Treacy's view -

The title of yesterday’s talk “summer Insects” is in reference to a quote from the Chinese philosopher  Zhuangzi “You can’t discuss ice with a summer insect” This is in reference to the fact that almost everyone active in the bond market today has no experience of trading in a secular bear market. This is a point I have made repeatedly over the last few years not least at The Chart Seminar. If you started out in your career in 1980 and bought the dips in Treasuries for the next thirty five years you would be a wealthy person today and will have cruised into late middle age without experience of a secular bear market. 



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May 14 2015

Commentary by Eoin Treacy

Solar and Silver

Eoin Treacy's view -

David posted an article from the Telegraph on Monday highlighting the role silver plays as a conductor in solar cells. Considering the fact that silver suffered from a loss of demand with the demise of photographic film, the potential for growth in another industrial sector is a potentially important bullish catalyst. In order to gain some additional perspective on just how much of a growth sector this might represent for sliver there are two key considerations. The first is demand growth projections which are bullish and second the capacity for technological innovation which is potentially bearish.



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May 13 2015

Commentary by Eoin Treacy

Pareto Securities on Pretium Resources

Thanks to a subscriber for this report which may be of interest to subscribers. Here is a section

We expect Brucejack to have sizeable production and free cash flow
Based on Pretium Resources' June 2014 feasibility study and starting from 2018, we believe the Brucejack deposit has the ability to produce average annual life-of-mine (LOM) gold production of 404.1koz at an all-in sustaining cost (AISC) of CAD 500/oz for 18 years, post an initial capital cost of CAD 811.9m.

We initiate with a BUY rating and a target price of CAD 10.88/share.
Our target price is based on a sum-of-the-parts valuation composed of the following: 1.0x NPV9% of our LOM assumptions for the Brucejack project, balance sheet items, the after-tax PV9% of general and administration and exploration costs, PV7% of the after-tax interest costs, financing assumptions and in-the-money (ITM) instruments.

Eoin Treacy's view -

A link to the full report is posted in the Subscriber;s Area.

The post credit crisis environment has been difficult for explorers as energy prices surged, access to credit was restricted and gold prices fell from their 2011 peak. More recently the outlook has improved not least because energy prices no longer represent so much of a headwind and gold prices have stabilised. The rationalisation that has purged the sector of wildcat investors has resulted in leaner, more disciplined and cheaper operations. This is reflected in the valuation of the Gold BUGS Index relative to the bullion price. 



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May 12 2015

Commentary by Eoin Treacy

Continuous Commodity Index and related shares

Eoin Treacy's view -

The CCI which is the unweighted Old CRB, fell from 700 in 2011 to a recent low above 400. It has at least steadied, not least because energy markets have stabilised and industrial metals have been exhibiting relative strength. The consistency of the fall from above 550 has now been broken, but a sustained move above the 200-day MA will be required to confirm more than temporary steadying. 



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May 11 2015

Commentary by Eoin Treacy

Miners balance out rough day for banks on ASX

This article by Max Mason for the Sydney Morning Herald may be of interest to subscribers. Here is a section: 

The bad performance of the banks on Monday was more or less balanced by a strong day for the big miners.

BHP Billiton lifted 1.7 per cent to $31.82 and Rio Tinto pushed 0.3 per cent higher to $58.62, while iron ore miner Fortescue Metals Group gained 2.8 per cent to $2.57.

Miners were enjoying a strong run, thanks to a 30 per cent jump in the price of iron ore over the past weeks to $US61.40 ($77.76) a tonne, Metal Bulletin said.

However, UBS was forecasting iron ore to fall back to $US45 a tonne in the second half, thanks to increasing supply and China's economy continuing to soften.

This is more likely to affect the smaller miners, who have higher costs and lower-quality ore.

"We have back-calculated our company net present values to the current share price in order to determine what iron ore price the equity market is currently factoring in," UBS analyst Glyn Lawcock said.

"Our analysis suggests an average implied price of $US51.50 per tonne, which suggests the market is still implying discount to spot."

 

Eoin Treacy's view -

At The Chart Seminar in Sydney last year delegates were at pains to highlight that fact that just about all of them had positions in Australian banks because it had been the go-to sector since the resources sector peaked not least because the banks continue to have full franking on top of attractive dividends. 

The sector has outperformed since 2009 but has pulled back sharply over the last month and is now testing the relative uptrend and the upper side of the underlying congestion area. This is now an important point for Australia¡¯s banks since they are approaching potential areas of support. Westpac is representative and will need to find support within the next $1 if the medium-term progression of higher reaction lows is to hold. 



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April 27 2015

Commentary by Eoin Treacy

April 24 2015

Commentary by Eoin Treacy

Iron Ore Rallies Into Bull Market After BHP Billiton Shift

This article by Jasmine Ng for Bloomberg may be of interest to subscribers. Here is a section: 

Iron ore advanced into a bull market after BHP Billiton Ltd. curbed expansion plans and supplies from higher-cost mines dropped, easing concern global output will outpace demand and feed a global glut. Miners’ shares jumped.

Ore with 62 percent content at Qingdao rose 5.5 percent to $57.81 a dry metric ton on Friday, the highest since March 16, according to Metal Bulletin Ltd data on its website. The benchmark is still 60 percent below the peak of $144.18 reached in August 2013.

Iron ore has jumped 14 percent this week after BHP said it was curbing the pace of its expansion by deferring port works in Australia. A floor in prices may now be forming, according to Australia & New Zealand Banking Group Ltd. and Pacific Investment Management Co. There’ll be no net growth in supply in 2015 as new low-cost output is offset by mine closures, CLSA Ltd. said Tuesday.

 

Eoin Treacy's view -

It’s a little hasty to declare iron-ore is in a bull market. However the decline from $140 accelerated to recent low and a mean reversion rally may now be underway. The iron-ore oligarchy of BHP Billiton, Rio Tinto and VALE pursued a deliberate policy to drive prices lower more than a year ago and have succeeded in driving higher cost producers out of the market. 

There have been a number of bankruptcies not least African Minerals and London Mining. Additionally the decline in prices has necessitated emergency measures among a number of miners to contain costs which has reduced potential for supply to increase further. With iron-ore prices down significantly over the last year, the decision of major producers to restrict investing in additional supply may be the catalyst the market has required. 

 



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April 20 2015

Commentary by Eoin Treacy

Report from The Chart Seminar in Singapore

Eoin Treacy's view -

Last week’s event was another enjoyable visit to Singapore and was an apt time to ruminate on Lee Kwan Yew’s legacy of turning a tropical backwater into a first world private banking and high end manufacturing centre. Delegates came in from Argentina, Australia, Japan and of course Singapore which led to some interesting and varied discussions.

Singapore’s stock market is being led higher by the banking sector and shares a high degree of commonality with Taiwan and South Korea. The Index is somewhat overbought in the short-term and some consolidation of recent gains in looking likely. However a sustained move below the 200-day MA, currently near 3400, would be required to question medium-term scope for additional upside.

As one might imagine the main topic of conversation was on the outlook for the Asian region not least following China’s explosive breakout over the preceding three weeks.  Delegates were also interested in the outlook for the European region and we also looked at the S&P 500. We looked at the oil price and a number of related instruments. We also looked at gold prices and a number of miners, select Singapore shares as well as a wide range of international bank shares. We also had a wide ranging discussion on currencies. 



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March 31 2015

Commentary by Eoin Treacy

Randgold: Ups reserves, raises dividend, seeks more growth

This article by Lawrence Williams for Mineweb may be of interest to subscribers. Here is a section: 

Bristow commented, “We have looked closely at all our mines to ensure that they will still be profitable at $1,000 per ounce and we’ll continue to review our operations against a range of gold price scenarios. With the inclusion of Gounkoto underground we are now able to demonstrate a 10 year plan of plus 1 million ounce production per year and all our operations will be profitable at a $1,000/ounce gold price which is unique in the industry.”

In the event, despite mining 1.15 million ounces thereby effectively ‘depleting’ its reserves by this amount, the company managed overall to actually increase its total ore reserves by 1% mainly through ongoing brownfields exploration and drilling programmes. It would seem there is plenty of scope around its existing operations, to continue to do so in the future, even though it is mining at a plus 1 million gold ounces/year rate.

But looking ahead, Bristow notes that there is great potential in the existing low price environment for additional growth opportunities resulting from the squeeze on developers and explorers resulting from this. “Organic growth will remain our core driver but, as we look ahead from this position of strength, we will consider opportunities that are often generated by stressed markets and may well elect to play a part in the likely restructuring of the gold mining industry,” he says.

 

Eoin Treacy's view -

Randgold Resources is in an enviable position within a benighted sector. By concentrating on an all-in cost of production metric that is well below current prices the company has the wherewithal to engage in M&A activity. However while this is likely to create shareholder value over the medium-term the share is still subject to short-term swings in sentiment. 



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March 20 2015

Commentary by Eoin Treacy

Golden dragon

This article by Kip Keen for Mineweb may be of interest to subscribers. Here is a section: 

By 2020 Barclays sees China surpassing its banner year for gold consumption (based on somewhat contested statistics, a matter it acknowledges) in 2013 by 150 tonnes. Simply put, it bases its vision on increasing personal incomes in China amid ongoing urbanisation and with gold’s dual attraction as jewellery and store of value for investment. It notes China’s saving rates were as high as 42% a few years ago with gold benefitting as a result.

Price wise Barclays sees some, albeit moderated, bargain hunting. “We believe longer term, this year and next are likely to offer sound buying opportunities with (gold) prices approaching their nadir,” writes Barclays. “It is not our base case that we will see triple digit gold prices, but in turn we are not likely to see a repeat of 2013’s buying frenzy.”

 

Eoin Treacy's view -

There has been a great deal of commentary centring on the ability of gold to find support at the lower side of its range, not least as the Dollar has rallied. However as the Dollar unwinds its short-term overbought condition, it is lending a tailwind to commodities generally, not least the precious metals. This pump piece, kindly forwarded by a subscriber, from Malaysia’s The Star highlights the fact Asian buyers are being encouraged into the market. 



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March 04 2015

Commentary by Eoin Treacy

Glencore profit tops estimates

This article by Jesse Riseborough for Bloomberg appeared in Mineweb and may be of interest to subscribers. Here is a section: 

To combat falling prices and waning demand, investors have demanded the world’s biggest mining companies slash spending on new mines and return more cash to shareholders.

Producers will cut spending on projects and exploration by $20 billion this year, according to estimates from Macquarie Group Ltd., as they rein in growth plans amid waning prices. Last month, Glencore trimmed its spending for 2015 to a range of $6.5 billion to $6.8 billion from an earlier target of $7.9 billion.

Net debt dropped 15 percent to $30.5 billion, Glencore said. The company booked $847 million of impairment charges on platinum, iron ore and oil assets for the year.

Glencore completed the $29 billion acquisition of Xstrata Plc in 2013 to add coal, copper, zinc and nickel mines to its trading empire.

Its approach to Rio Tinto about a possible merger was rebuffed by its larger rival in October. That effectively barred it from bidding for six months under U.K. takeover rules. Rio last month reported a 9 percent decline in underlying profit for 2014 and announced a plan to buy back $2 billion of shares.

Eoin Treacy's view -

Miners have spent a great deal of money developing new supply which is increasingly reaching market. Unfortunately the demand growth forecasts this investment was made under are not panning out. 



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February 23 2015

Commentary by Eoin Treacy

Interesting charts

February 13 2015

Commentary by Eoin Treacy

A Cynical Ukraine Deal That Just Might Work

This article from Bloomberg may be of interest to subscribers. Here is a section: 

The more important ambiguity, however, concerns sealing the border between Russia and the separatist-held areas of Donetsk and Luhansk. Thursday's agreement says that Ukrainian border guards should resume control of the frontier. This is a rare win for the Ukrainian side, and vital, because as long as there is no functioning Russian-rebel border, the separatist-held areas are in effect a frozen conflict zone. Only with Ukraine's border sealed can there be any hope for stability in the country.

Unfortunately, though, in a clear concession to Putin, the agreement turns re-establishing the border into a process that will take at least until the end of the year, after the separatists have consented, the two regions have held elections, and Ukraine has adopted a new constitution. Until then, Russia may continue to supply the rebels with weapons and troops as needed, until it gets what it wants from the government in Kiev.

As frustrating as this loaded process must be to Poroshenko, he and his European supporters must press ahead in the hope that Ukraine’s border can be resurrected. Whether Ukrainian forces keep or lose control of Debaltseve in the coming days won’t determine the success or failure of the agreement. But if Ukraine can ultimately control its eastern border and regain stability, it will have a chance -- with help from the International Monetary Fund's new $17.5 billion support program -- to restore its wrecked and bankrupt economy.

 

Eoin Treacy's view -

Just how Ukraine can secure a border with Russia when it will lack a clear supply line across separatist-held territory remains a question that has not been answered. The result is that this agreement gives Russia most of what it was looking for without any clear indication that discipline can be enforced on separatists. 

The Russian stock market retested its 2008 low late last year and a reversionary rally is currently underway. Despite the reasonably favourable technical picture this remains a high risk environment subject to political whim. 

 



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January 28 2015

Commentary by Eoin Treacy

Email of the day on Caterpillar earnings

I've attached below the transcript of CAT's conference call following its latest earnings report-I believe the company is a good bellwether for the global economy. A bit depressing, but does give you a good picture of slow growth worldwide.  Note how Chairman expects stronger dollar & how that will hurt US manufacturing.  Also note how CAT expects that there might be a quarter or 2 delay in a slowdown of their sales (they'll work off their inventory first which will hit profits right away).  Company has cautious view on mining and expects flat oil & gas prices for 2015.

Eoin Treacy's view -

As a globally diversified company with operations in power systems, construction and resources Caterpillar is heavily influenced by both the extraction and construction sectors. The sharp declines in oil, iron-ore and copper represent significant headwinds for the company’s customers who have been cutting back on spending plans. Since investment in energy projects in particular represents a significant source of income for the company the outlook is likely to remain uncertain for the foreseeable future as spending on new projects is cancelled. 



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January 23 2015

Commentary by Eoin Treacy

Review of the FTSE 350

Eoin Treacy's view -

The ECB’s massive QE program will put pressure on the BoE to delay any plans it may have had to raise short term interest rates. Along with its own easy monetary policy, the prospect of recovering demand on mainland Europe should be a positive for the UK’s economy and it may also be subject to additional capital flows since not all the money created by the ECB will stay inside the Eurozone. 

I thought it might be an opportune time to look at the FTSE 350 since its constituents may be among the beneficiaries of ECB largesse. The Index has surged over the last two weeks to retest its peak and a while some consolidation is possible in the current area a sustained move below 3500 would be required to question medium-term scope for additional upside. 

I clicked through the constituents of the FTSE 350 this morning and also created a section for the FTSE All Share REIT Index in the Chart Library. Here is a link to an Excel sheet of the FTSE350’s constituents ranked by sector then by market cap. 
Among Autonomies:

In the banking sector HSBC (Est P/E 10.65, DY 5.27%) has firmed in the region of 600p. It is now testing the 200-day MA and a sustained move below 600p would be required to question potential for additional upside.  

 



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January 21 2015

Commentary by Eoin Treacy

BHP Billiton cuts US shale oil rigs by 40% amid sliding price

Thanks to a subscriber for this article from The Guardian which may be of interest. Here is a section: 

BHP said on Wednesday it would reduce the number of rigs from 26 to 16 by the end of the June in response to weaker oil prices. However, shale volumes were still forecast to grow by approximately 50 percent during the period.

“In petroleum, we have moved quickly in response to lower prices and will reduce the number of rigs we operate in our onshore US business by approximately 40% by the end of this financial year,” chief executive Andrew Mackenzie said.

“The revised drilling programme will benefit from significant improvements in drilling and completions efficiency.”

Mackenzie said while the firm’s drilling operations would focus on its Black Hawk field in Texas, “we will keep this activity under review and make further changes if we believe deferring development will create more value than near-term production”.

 

Eoin Treacy's view -

Energy companies are aggressively cutting back on investments in additional supply as prices fall but production from existing wells continues to flow. The constant need for new drilling, associated with the swift peaking of unconventional wells, means that the supply response of related drillers is likely to be swifter than might have otherwise been the case. This may bring forward the point at which the market returns to balance but some evidence of short covering will be required before we can conclude that demand is returning to dominance. 



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January 19 2015

Commentary by Eoin Treacy

Email of the day on total ETF holdings of gold

I remember seeing a chart in a comment of the day of total gold holdings in GLD (or maybe it was all physical Gold ETFs combined)

Eoin Treacy's view -

Thank you for this question. Considering how much of an influence ETFs have on the gold market it is reasonable to monitor their holdings as a barometer of investment demand. You can find the chart for the Total Known ETF Holdings of hold in the Chart Library by using a keyword in the search such as “holdings” or with the ticker ETFGTOTL. It can also be found in Commodity Indices section 

Gold has now posted a failed downside break from its $1200 - $1400 trading range and is currently rallying towards the upper boundary. ETF holdings increased last week but more will be needed to signal renewed investment demand beyond the short term. 

 



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January 14 2015

Commentary by Eoin Treacy

Copper breakdown

This article by Kip Keen for Mineweb may be of interest to subscribers. Here is a section: 

As the price falls, miners are now coming under greater scrutiny. It’s not yet a panic. By and large copper miners have enjoyed a healthy profit margin with copper over $3/lb and around $2.70/lb – if quite a bit lower – few market observers see massive issues for miners at this point. That would require a much deeper and persistent decline in the copper price.

But the falling price is starting to bite, at least a little, and there is smoke on the horizon. As others, BMO Research notes in a recent commodities overview that at $2.80/lb copper, more than 90% of miners have lesser basic cash costs (BMO’s C1). Yet add more expenses and consider miners according to BMO’s C3 cash costs and the field shrinks to 75%. The C1 midpoint, for reference, is about $1.50/lb.

So for now the copper miners are relatively safe. The spectre of widespread mine shutdowns and project delays or cancellations along with painful writedowns is not yet clearly on the horizon at recent sub-$3/lb copper prices. That would take much lower prices.

Speaking with Reuters Robert Edwards, CRU consultant on mining costs, pegged $5,000/tonne (or about $2.30/lb) as being very uncomfortable for miners. At that point pressure to close down money-losing mines and delay projects would mount.

Likewise, copper prices would have to persist in the mid-$2/lb range for several years to force major writedowns, BMO Research says. “Unlike the precious metals sector, most of the copper producers’ reserves are calculated at prices at or below spot (averaging US$2.65/lb, ranging from US$1.60/lb to US$3.30/lb), so copper prices would have to remain below US$2.65/lb for three years to warrant a notable revision.”

 

Eoin Treacy's view -

The above section throws into sharp relief just how much of a decline in prices would be necessary to force mines to shut down. The low price of oil may reduce production costs even further. A meeting I had with a Beijing based project manager at the International Copper Association Asia in December highlighted the fact that the Chinese government considers aluminium a more important industry than copper. 

The number of people employed in aluminium production far outweighs that of copper and is one of the reasons aluminium is still used as a conductor in China.  Chinese copper demand will increase as copper prices decline but as building permits slow, demand growth forecasts for the metal may have to be revised downwards  

 



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January 14 2015

Commentary by Eoin Treacy

2014 in the Rearview Mirror; 2015 as Cool as the Other Side of the Pillow

Thanks to a subscriber for this report from H.C.Wainwright & Co focusing on emerging gold miners. Here is a section: 

Highlights: We anticipate a number of coverage companies with a focus on gold to continue forward in 2015 irrespective of volatility in the gold markets. Of note, we anticipate Pretivm Resources to be in a position to make a construction decision at the high-grade Brucejack project in 2H15. Looking into Nevada, Gold Standard is striving to further expand the Railroad-Pinion project as well as upgrade components of the deposit to higher resource categories. Allied Nevada Gold is striving to improve operations at the Hycroft Mine which has the potential to improve cash flow in 2015. Pershing Gold has a goal of completing a Preliminary Economic Assessment (PEA) at the Relief Canyon project, which could allow the company to make a production decision shortly afterwards. Brazil Resources continues working not only on its multiple gold projects in central Brazil but also is making plans to pursue a spin-out of the Rea uranium project into a separate public company. Vista Gold plans on a number of optimization studies at the Mount Todd project in Australia with an eye on final environmental permits in hand by the end of 2015.

In our opinion, the key to success in 2015 is fairly basic for each company although dissimilar goals have been set forth. Each management team should not over promise either on the timeline or scope of what can be accomplished in 2015. While we have seen a modest rebound in the gold market since fall 2014, the overall climate does not warrant nor reward overreaching endeavors. Our advice to any gold company is to dedicate time and efforts toward more efficient and long-term enhancements to individual projects while keeping a tight budget. The companies which can deliver better operating results in a cost effective manner could see a positive reception from the market.

 

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.

The falling price of oil in tandem with the relatively steady performance of gold is generally positive for gold miners provided they can control costs in other parts of their businesses. The sector was one of the worst performers for two consecutive years with the result that individual miners are now being judged on their individual merits. 

There is considerable variation in the performance gold miners and those that pay a dividend have tended to outperform.



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