by Matthew Kennard – FT ALPHAVILLE – Published: Feb 2, 2010
He may have been robbed but that hasn’t stopped FT Alphaville’s man on the ground at the Indaba mining conference in Cape Town from filing his thoughts on the opening day of the industry’s annual South African jamboree.
By Matthew Kennard:
The conference started in fitting fashion with a World Bank special event on “sustainable mining”. It’s an obsession of the industry and has since become an obsession of miners solely because no-one seems to know what it is. Extraordinary amounts of time and effort is put into spreading the word about this mystical paradigm. One PR told me: “If an alien came to the convention center they would think that the big mining companies ran social services companies, it would be very hard to work out they were miners.”
Well, unfortunately I missed the first session because the administrative staff lost my press credentials and took the allotted hour to find them. But I did some investigating after. There was a mini protest outside the Indaba by a combination of 35 women’s groups. “Sustainable mining is a bad joke,” said one of the disgruntled. I asked a few chief executives what they thought of sustainable mining and waited for the best reply. “I wouldn’t actually know how to define it; it’s very ill-defined and got such a broad spectrum,” said Dr Bernard Olivier, executive director of TanzaniteOne, thereby winning his company the hallowed Featured Company Of The Day slot (more to come).
Anyway, sustainable mining aside, Monday was a serious metal fest. The conference organisers called it “commodity day” and got a host of experts to expatiate on a rich spectrum of metals, outlining their performance over the past year and the prospects for the future. A lot of wisdom was expelled over a lot of hours. I will give you a flavor below. To cut a long story short, I can sum it up in three words: China, China, China.
Rare Metals: Apocalyptic soothsayer Jack Lifton called the misunderstanding over the concept of rare metals “the biggest confusion in the world” which might be a slight overstatement. But his definition was any metal which produces 25,000 tonnes per annum or less, everything from lithium down basically. He struck his dystopian prognosis on the fact that rare earths are vital to technology and the demand can’t even be met now. “We’re living in the technological West, the rest of the world is still using steel.” But add in the rapidly modernising China and India and you have a demand crisis that can’t be met. “And I wouldn’t be surprised if levels of production stayed static,” he said.
Copper: Kevin Norrish, from BarCap, was optimistic about copper. “It’s had a strong recovery and we’re looking at further increases in prices,” he said. Copper was second only to lead as the second largest increase in commodity prices from Jan 2009 to Jan 2010. What did he put this down to? You guessed it. The not-so-sleepy giant in the East. Chinese demand was increasing, but he pointed to increased OECD demand too as a driver. He predicted that copper would move from surplus to deficit in the not-too-distance future.
Uranium: Dr Gene Clark, chief executive of TradeTech, lamented the lack of an open uranium exchange before casting a cautionary tone on the mineral. He pointed to a serious production problem, slightly remedied by resurgent Kazakh production which increased by 41 per cent last year. But the demand was there as nuclear energy was a growth industry, especially as, yes, the Chinese moved into it (it only comprises 2 per cent of their energy now). So Mr Clark predicted a looming supply tightness in 2014-17 with price staying between $40-60 for the next two years.
Iron Ore: “China is the key to understanding the future of iron ore,” said Magnus Eriksson, chairman of the Raw Materials Group, unsurprisingly. Chinese production of iron ore has been constant for the past two or three year, and the country cannot cope, he said. “It might lead to a shake out among producers there, merging mines, mechanisation,” he said. But as it stands Australia is leading and corporate concentration is “excessively high” especially with the prospective Rio-BHP joint venture in Western Australia. “That could be bad for those purchasing iron ore,” he concluded.
Platinum: This all comes down to Young Financially Independent Women In China, or YFIWIC (yes, I coined the acronym) according to Tony Kendall, of Mitsubishi. “There are 60 million of them in China and they are the target for platinum,” he said. The Chinese cultural shift towards buying two wedding rings was also a driver of growth in demand, with the possibility that it could rise to three. Apparently a platinum ring in China costs as little as 1,500 yuan ($220). He was bullish about prices predicting prices would reach the dizzy heights of $1,720 an ounce this year.
Gold: Three speakers were dispatched to talk about this one. China didn’t figure too much either. It was basically a debate about when the fourth gold cycle this century (which we’re at the top of now) would start to fall off. There were fears about the lack of new greenfield sites and the deteriorating grade of the deposits. David Davis, a mining investment analyst at Credit Suisse, predicted that the decline in production would be halted until 2013-14, but would resume after that. Paul Walker, chief executive of GFMS, said the kernel of the debate, or the elephant in the room, was the swelling of the investment share in gold purchasing. It now comprises 44 per cent, on parity with jewellery. “Is that a reason to be concerned?” he asked. “I think it is.” Hope that helps.
Back to the Featured Company Of The Day quickly: TanzaniteOne works in Tanzania on the only known deposit of this luxury sapphire-like stone, Tanzanite, and their story is a parabola for the Aim-listed miner over the past couple of years.
It listed in 2004 and paid out a dividend for the first three years, but the financial crisis devastated the market for luxury products (and their share price).
“We rebounded this year but it’s been a bumpy ride,” said Dr Olivier. “We have trimmed down costs by about half in 2009.”
Demand for Tanzanite, which I’d never heard of before, has apparently increased, but it’s hard to know how sustainable that is, as macroeconomic uncertainty still talks these plains.
At flotation in 2004 shares were 35p, they’re now down to 14p, which could be worse. There’s a mine life of 12 years and the company is producing 50-60 per cent of the deposit (the rest is artisanal miners).
Their hope for 2010 is a simple one: become profitable. “We’ve got to drive the price up,” said Dr Olivier.
Frank Timis Watch: As I mentioned, his PR said he wasn’t going to make it to Indaba this year. But hope isn’t dead: I got an email from someone in the know who is confident he took a private jet down here. I’ll follow that lead tomorrow. Is he planning a spectacular surprise?
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