Industry Trend Analysis - Mining - Weekly Projects Round-Up & Developments - APR 2018

  • Following several upward revisions to our non-ferrous metal price forecasts for 2018, we evaluate the drivers behind our more positive outlook, largely driven by improving demand growth outlooks.
  • Rising political uncertainty in key Latin American countries will pose downside risks to the region's mining investment outlook.
  • Rising metal prices will lead to increasing regulatory pressure on SSA miners, as local governments demand a larger share of mineral resource wealth.
Key Developments: Global

Global: Improving Fundamentals Behind Higher Metal Price Forecasts - In line with our expectations, the metal price rally at the end of 2017 has eased over the first quarter of 2018, as Chinese high frequency indicators and targets announced at the annual National People's Congress pointed to softer metal demand this year, while global trade protectionism dominated headlines. However a less severe pull-back than we expected and an improving fundamental picture prompted upward revisions to most of our 2018 average forecasts. Most notably, we increased our copper price forecast to USD7,000/tonne from USD6,300/tonne and raised our nickel price forecast to USD12,500/tonne from USD10,000/tonne, turning bullish on nickel prices thereafter as well, on the back of an increasingly positive global demand growth picture and ongoing supply restraint. As such, we see significant upside potential from spot prices for most non-ferrous metals this year. Metal inventories have been declining for years, with lead, nickel and zinc in particular showing the largest drawdowns in both LME and Shanghai stocks over the past year. As of March 23, LME lead stocks declined by 31.1% y-o-y to 131kt while Shanghai lead stocks fell by 64.6% y-o-y to 26.3kt. On the contrary, iron ore and steel stocks in China have risen at a fast pace in recent months and we believe Chinese demand will be insufficient to absorb them in 2018.

Falling Inventories Point To Tight Markets
Non-Ferrous Metals - LME Stocks, Rebased
Note: March 2017 = 100. Source: Bloomberg, BMI
Key Developments: Americas

Latin America: Political Uncertainty To Pose Downside Risks - A number of political risks in Latin America, including elections, fallout from corruption scandals and reform agendas, pose downside risks to an otherwise positive outlook for the region, as the uncertainty could weigh on mining investment. The key developments are as follows:

  • On March 21, Peruvian President Pedro Pablo Kuczynski announced his resignation, facing down a second impeachment vote over allegations of improper financial ties to Odebrecht, the scandal-ridden Brazilian building company. While substantial political uncertainly will negatively impact investor sentiment in the near term, Peru's broadly pro-business policy direction is unlikely to change under any probable scenario, given the broad popularity of centre-right policies in the country.

  • On February 4, Ecuador voted 'yes' on seven questions posed in a constitutional referendum held at the behest of President Lenin Moreno, including placing restrictions on mining in protected zones. While the Moreno administration will remain supportive of the mining industry as a key driver of economic growth, the lack of details surrounding the protected areas could result in strengthened opposition to mining and delay projects.

  • Brazil's election campaign season will heat up over the coming months, narrowing the possibility for significant legislation to advance and raising the risk of volatility shifts in investor sentiment.

  • Leftist-populist candidate Andres Manuel Lopez Obrador (AMLO) is likely to win Mexico's July presidential election. AMLO's victory could dampen growth over the near term if private investors pull back, however our Country Risk team views these fears as overblown.

Short Term Political Risk Weighing On Profile
Select Countries - Short Term Political Risk Index
Note: Higher score = lower risk. Source: BMI
Key Developments: Africa

Afrca: Rising Metal Prices Will Lead To Increasing Regulatory Pressure On SSA Miners - A positive metal price outlook will lead to rising regulatory pressure on SSA miners, as local governments claim a larger share of mineral resource wealth. In line with our global themes for the mining industry this year, so far in 2018 a number of governments in the region have either implemented or announced intentions to review their respective mining codes (see 'Key Themes For Mining In 2018', December 12 2017). Particularly noteworthy are changes recently enacted in the DRC, where on March 10 President Kabila signed into law a new mining code that will raise royalties on minerals across the board, as he tries to shore up the support and funding need to retain power. While these changes pose downside risks to the DRC's investment profile, we do not expect them to impact our positive growth outlook for the country's mining industry over the coming quarters (S ee 'Quick View: New Mining Law Will Not Alter Positive Outlook', March 12 2018).

More damaging will be the Tanzanian government's announcement on February 20 2018 to restrict foreign banks, insurance companies and law firms working or financing the mining sector. The new restrictions follow on from laws passed last year that ban the exports of gold/copper concentrate and allow the renegotiation of contracts with mining companies and will likely lead to asset sales or a reconsideration of planned investments into the country's mining sector in the coming quarters (See 'Growing Regulatory Pressure To Weight On Mining Sector Outlook', March 26 2018). Similarly, Zambia announced in January that it will force miners to transport 30% of their cargo for export by rail as the government looks to revive local rail services. Other countries in SSA could enact similar regulatory changes that would increase costs for miners in the coming months and we highlight Mali as a particular risk following declarations by the government in March that it intends to draft a new mining code this year.

SSA The Global Laggard
Global - Mining Regulation Scores
Scores out of 100, higher score = More attractive market. Source: BMI Mining Risk/Reward Index
Project Development - Weekly Project Round Up
Source: Company announcements, BMI
Country Company Mine Commodity Update
Australia Legacy Iron Ore Mt Celia Gold Has reported a 157% increase in the inferred resource at Blue Peter deposit of the project
Australia Rio Tinto, Whitehaven Coal Winchester South Coal - Coking Rio Tinto has signed a binding agreement with Whitehaven Coal to divest of its 75% interest in the project for USD154.2mn
Australia Carbine Resources, Raging Bull Mining Mount Morgan Copper, Gold Carbine Resources has pulled the plug on the project after failing in its attempt to generate adequate returns
Australia Coronado Coal, Wesfarmers Curragh Coal - Thermal Wesfarmers has reported that all conditions precedent for the sale of the mine to Coronado Coal have been met, clearing the way for the transaction to be completed in March 2018
Australia BHP Billiton, Cimic Group Mount Arthur Coal - Thermal Cimic Group's mining services arm, Thiess, has been awarded a mining services contract from BHP Billiton at the project
Australia Intermin Resources Teal Gold Has lifted the production target for the mine to 22koz of gold
Australia Japan Oil, Gas and Metals National Corporation, Marindi Metals Caranbirini Lead, Zinc Marindi Metals has struck an agreement with Japan Oil, Gas and Metals National Corporation, enabling the latter to earn up to 70% interest in the project
Australia EMR Capital, Mitsui & Co, PT Adaro Energy, Rio Tinto Kestrel Coal - Coking Rio Tinto has agreed to sell its 80% stake in the mine to a consortium of EMR Capital and PT Adaro Energy for USD2.25bn
Botswana Metal Tiger, MOD Resources T3 Copper Metal Tiger has reported that the latest assay and drill hole intersection results for the project indicate an open pit expansion potential
Canada Atrum Coal Elan South Coal - Coking Has been granted an exploration permit for the project from the Alberta Energy Regulator
Canada Impala Platinum Holdings, North American Palladium, Transition Metals Corp Sunday Lake Gold, Palladium, Platinum North American Palladium has announced the results from its winter exploration program on the project
Canada Champion Iron, Government of Canada Bloom Lake Iron Ore Champion Iron has announced that preparations for the first 200,000wmt shipment of high-grade iron ore from the mine are under way
Canada Sayona Mining Tansim Lithium An airborne geophysics survey has confirmed target areas at the project
India Adani Enterprises, NLC India Talabira Coal - Thermal NLC India has signed up Adani Enterprises as the mine developer and operator for the Talabira II and Talabira III coal blocks
Indonesia Asiamet Resources Beruang Kanan Main (BKM) Copper Has concluded negotiations with the Government of Indonesia to amend its existing KSK contract of work in order to secure a long-term mining tenure over the project for up to 50 years
Mongolia Turquoise Hill Resources, Government of Mongolia Oyu Tolgoi Copper, Gold Turquoise Hill Resources has announced the completion of sinking of the new Shaft 5 at the mine
Romania Vast Resources Manaila Copper, Gold, Lead, Zinc Has reported an updated JORC compliant mineral resource estimate for the mine, following the completion of 19 surface diamond drill holes in 2017
Senegal Iamgold, Stratex International Dalafin Gold Stratex International has received governmental approval for its option agreement with Iamgold, in respect of the project
Spain Apollo Minerals, NeoMetal Spania SL Aurenere Gold Apollo Minerals has entered into an agreement to acquire a 75% stake in the project from NeoMetal Spania SL
Sweden Centerra Gold, Erris Resources Karingberget Gold Erris Resources has started a 20km electromagnetic ground geophysical survey at the project
United States Emgold Mining, Mine Development Associates, Nevada Sunrise Gold Golden Arrow Gold A technical report on the project has outlined compliant indicated and measured resources of 0.3Moz of gold