Gold, iron ore to rise; copper to stay steady

Monday, 07 Mar 2011
By Euan Rocha and Julie Gordon (Reuters)

Forecasters addressing the opening day of the PDAC conference said safe haven buying should lift gold through record highs while iron ore is likely to regain momentum on the back of continued demand from Asia

TORONTO (Reuters) -

Gold should push higher from its near-record levels due to its appeal as a safe haven, while iron ore should regain its upward momentum on the back of red-hot industrial demand from Asia, forecasters told the world's larger mining conference on Sunday.

Copper, an economic bellwether due to its industrial versatility, should be well supported at its current lofty levels but may have trouble pushing significantly higher as mine production races to catch up to demand growth, they said.

Addressing the Prospectors and Developers (PDAC) conference in Toronto, forecaster Philip Klapwijk said he saw a "stronger case for investment in precious metals as a safe haven" as demand for base metals declines due to slowing global growth and political turmoil.

Klapwijk, chairman of metals consultancy GFMS, also said he expected global GDP growth to slow slightly this year as compared with last year.

Prices for gold and silver have risen sharply since the outbreak of violence in the Middle East and North Africa earlier this year as buyers turned to precious metals as a haven from risk.

Gold XAU= is holding within $10 of the record above $1,440 an ounce it set on Wednesday, while silver XAG= extended 31-year highs above $35.40 an ounce on Friday.

JPMorgan analyst Michael Jansen told a room packed to overflowing with more than 500 delegates -- from corporate chief executives to geologists to fund managers -- that he expects gold prices to average $1,465 an ounce this year.

His year-end target for gold is $1,500, he said, adding the gold production outlook was strong going forward.

"We think mine supply is easily on track to grow 3 to 4 percent year on year," he said."

His forecast is slightly more subdued other predictions, such as by Barclays Capital, which said in January it expects the metal to average $1,495 an ounce this year, and range as high as $1,620 an ounce.

GFMS said in a January quarterly forecast that gold may top $1,600 an ounce by the end of 2011.

Klapwijk said gold and other precious metals will also get some impetus as investors exit other traditional safe havens.

"We expect the sovereign debt crisis will not be confined to Europe and it will eventually spread to the U.S. and Japan ... It seems to be inconceivable that the U.S will be able to continue on its current path and maintain its 'AAA' rating," Klapwijk added.

More than 20,000 people are in Toronto this week for the annual PDAC conference. Attendance grows every year at the event, a key barometer of mining investment appetite. This year it has also attracted a handful of top government ministers from key mining jurisdictions.

CHINA LEADS DEMAND

As presenters rolled out their outlook from everything from gold to iron ore, and uranium to potash, there was one key word was in almost every presentation -- China.

Demand from the world's most populous country will help underpin demand for iron ore, the main steelmaking ingredient, said Phil Newman, chief operating officer of consultancy group CRU.

He said 95.1 pct of global steel production growth between 2007 and 2021 will be in Asia.

Iron ore spot prices IODBZ00-PLT surged to record highs near $200 a tonne in mid-February, but have since come off their highs to trade around $178 a tonne.

Newman said he expects prices to resume their upward push, but perhaps not until later in the year.

"Certainly in the first half of 2011 we see continued price pressures," he said.

"The good times will continue, but we are approaching an inflection point," he said, referring to in iron ore. ... Over the medium term (around 2015), we see prices drifting lower,"
COPPER DEMAND AND SUPPLY TO GROW

GFMS forecaster Mark Fellows pointed to strong fundamentals underpinning copper prices, but he did not see big near-term gains from a metal that has been on a steady upward churn.

Copper CMCU3 for three-month delivery on the London Metal Exchange has risen by two-thirds since June, hitting an all-time high of $10,190 per tonne in mid-February on concerns that demand for the metal will outstrip miners' ability to produce it.

Fellows said he expects a growing deficit in copper market in the second half of this year, with the market staying in deficit in 2012 and 2013.

He said refined copper consumption should grow 3.8 percent annually between 2011 and 2013, up from 2.6 percent in the past decade. Mined copper production growth of 3.8 percent between 2011 and 2013, well up from 2 percent production growth in the past decade, he said.

(sourced:Thomson Reuters )

PDAC-Bull market for metals signals a spate of mining deals

Fri Mar 4, 2011 11:44pm GMT

* World's largest annual mining convention set to kick off
* Miners ebullient with metal prices near record highs
* M&A activity in sector expected to gather pace in 2011
By Euan Rocha

TORONTO, March 4 (Reuters) - This year the world's biggest mining convention could turn into a bonanza for deal makers as eager mining companies look for ways to take advantage of a raging bull market for metals.

The event, organized by the Prospectors and Developers Association of Canada (PDAC), brings together nearly everyone who is anyone in the world of mining -- and it gives miners an unparalleled opportunity to talk shop and strike deals.

The dealmaking that PDAC could stir up this year may very well shift into overdrive, according to many of those who will attend, as the industry responds to a number of powerful, intersecting trends.

Prices of base metals are near record highs, while surging demand is only expected to accelerate, fueled by the building booms of China, India and Latin America. At the same time, major producers are expecting their production to contract unless replacements can be found.

Gold and silver miners are benefiting from one of the biggest sustained rallies in modern history, driven by inflation concerns, political turmoil, an uneven U.S. economic recovery and the European sovereign debt crisis.

That means junior miners and explorers -- those with assets that are close to going into production -- have never had it so good. Established miners are motivated buyers willing to pay top dollar for high-quality properties that can be developed quickly.

"I think deal activity is going to intensify, because companies' cash flows are enormous and lots of companies aren't replacing their production," said Donald Coxe one of Canada's most influential money managers.

The solution for many is to find attractive junior miners and explorers with projects that require little lead time before they can begin producing. For a major producer shopping around or a junior looking to sell, the PDAC convention in Toronto is a must-attend showcase.

"There are a lot of deals done during the convention. If you have a property you want to get rid of, or put into a company, or if you are a company looking for properties it is the best place you can go," said Terry Schorn an adviser to exploration company Eagle Hill (EAG.V: Quote).

"For me the best part of it is meeting people, it's a great place for contacts ... Quite often a deal does not happen at the convention, but you meet somebody and follow up and deals get done later," said Schorn, a veteran geologist who has attended the PDAC event since 1953.

With record cash flows, many miners have opted to initiate or raise dividends, while others are opting to use their new wealth to buy assets and secure long-term supplies. Exploration companies at the event are eager to show off their wares.

"We'll be looking at other opportunities, other companies that are (at PDAC)," said Chief Executive Robert Quartermain of gold explorer Pretium (PVG.TO: Quote). "We'll be meeting with majors so they fully understand the opportunity that we have."

The annual PDAC event attracted more than 22,000 attendees last year, and with metal prices soaring, an even larger audience is expected this year.

Canada is a natural home for the event, as the Toronto Stock Exchange and the small-cap TSX Venture Exchange are home to close to 60 percent of the world's publicly listed mining companies. In fact, miners and exploration companies account for more than 40 percent of the roughly 3,700 companies listed on both exchanges. John Nyholt, who heads PwC's M&A services team, notes that the conference started off with miners coming out of the bush looking to raise finances and show off their finds. "They still have all these booths and tables, where you can go and invest in a small mining deal..

Today there is a strong technical aspect to the program, but the fund-raising stuff, it still happens," said Nyholt. In a report published on the eve of the convention, PwC predicts that deal activity is only expected to gather pace this year, as the prices of metals rise even further. "We are definitely going to see a strong pace in 2011 in terms of volume and we also believe we will see more mega deals," said John Nyholt, who co-authored the PwC report. With the ongoing political turmoil in the Middle East and North Africa, Donald Coxe argues that gold prices are likely to rise even further. Gold rose above $1,430 an ounce on Friday, while silver surged 3 percent to 31-year highs, as soaring oil prices fueled by widening unrest in Libya prompted investors to pile into safe havens.

Bullion already hit a record high of $1,440.10 an ounce on Wednesday and is on track to rise further on fears that Libya's escalating violence could spread across the Arab world. Coxe believes these record prices are only going to fuel further M&A activity among precious metals miners. "Mining companies have a choice between paying out more money in dividends, or expanding their ore reserves and I think we are going to have more M&A," said Coxe, a former Bank of Montreal strategist who now heads Chicago-based Coxe Advisors.

"The greatest amount of activity is going to be in the precious metals group, because the companies having gotten out of their hedging programs a couple of years ago are now making a lot of money, so I think there's going to be lots of takeovers of gold companies," he said. (Reporting by Euan Rocha, Pav Jordan, Julie Gordon and Cameron French; Editing by Frank McGurty and Rob Wilson, sourced:Thomson Reuters)