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In This List

Metals slide as trade war concerns continue to spook investors

Essential Metals & Mining Insights - August 2020

State of the Market: Mining Q2-2020

Report Outlooks of Lithium and Cobalt

Essential Metals & Mining Insights July 2020


Metals slide as trade war concerns continue to spook investors

Prospects of a looming trade war between the U.S. and other major economies continued to be a concern for global investors last week after President Donald Trump flagged the potential of higher levies on European cars as well as a US$30 billion China import tariff.

The narrative between Trump and those countries targeted by U.S. import tariffs on steel and aluminum sharpened in recent days, fueling fears that the tensions could harm global economic growth prospects.

Domestically, the president ramped up his opposition to the U.S. Department of Justice's Robert Mueller-led investigation into Russian election meddling while also letting go of Secretary of State Rex Tillerson, who had gradually fallen out of favor with Trump.

Price ring

Base metals largely took a hit, recording a slump of between 0.7% and 1.7%.

Aluminum and copper both lost less than 1%, finishing the week at US$2,063/tonne and US$6,888/t, respectively. Nickel and zinc plummeted 1.7% and 1.3%, respectively, to US$13,576/t and US$3,233/t.

Lead was the only base metal that held up, recording a 1.8% gain to US$2,395/t.

Iron ore remained widely flat at US$67.80/t, trailing about 23% behind levels seen 12 months ago.

Precious metals also lost momentum. Gold was down 0.8% to US$1,314/oz over the week, while silver slowed 1.7% to US$16.30/oz by closing March 16.

Talking points

As mining companies gathered in the Democratic Republic of the Congo last week to engage with the government on its new mining code, analysts were still trying to digest what impact the new rules will have on producers.

The new code was signed into law following a March 7 meeting between President Joseph Kabila and representatives from major mining companies operating in the DRC. During the meeting, Kabila assured that the questions raised by the industry "would be resolved through transitional arrangements, mining regulations and agreements and guarantees that need to be considered after the new code was signed into law," according to a statement by major producers including Randgold Resources Ltd., Glencore PLC and Ivanhoe Mines Ltd.

"The potential impact from the Democratic Republic of Congo's recent change in Mining Code is starting to become public in what remains a very unclear situation," RBC Capital Markets analyst Tyler Broda said March 15. "To add to the uncertainty, the mining companies have responded by sending a working group to discuss with the ministry the potential for other royalty or tax changes, but they still expect the application of a 10-year tax stability clause, which was the companies' right prior to the mining code changes. We therefore expect there will be some higher form of taxes, although it is too early to judge precisely."

Additionally, there was confusion around reports that copper will be classified as a strategic mineral and subjected to a higher royalty rate of 10% compared to the current 3.5%. Previously, only cobalt was mentioned in relation to this clause.

"On a longer-term basis, Congo pushing this mining code through, especially if it contravenes stability agreements, is only likely to serve to keep capital away, which could see global copper and cobalt supplies even tighter, leading to higher prices, which in Glencore's situation of circa 1.4 million tonnes of copper production would benefit," Broda said. "This will likely see at least a short-term increase in risk aversion around the shares. We would use any material weakness as a buying opportunity."

Financings

Bigger financing deals last week included the pricing of U.S. Steel Corp.'s US$650 million debt offering. The company priced its US$650 million aggregate principal amount of 6.250% senior notes due 2026 at 100% of their face value. The proceeds will be used to fund a cash tender offer for the redemption of the company's outstanding US$780 million of 8.375% senior secured notes due 2021. The offer is expected to expire March 20.

Teranga Gold Corp. secured a finance facility of up to US$200 million from Taurus Funds Management Pty. Ltd. to develop the Wahgnion gold property in Burkina Faso, repay debt and fund a feasibility study on another project in Burkina Faso. Alongside interest payments, Teranga will, in return, enter into an off-take agreement for 1.1 million ounces of gold from Wahgnion.

Canadian coal miner Riversdale Resources Ltd. is said to be preparing a listing on the ASX that could raise proceeds of up to A$132.7 million. A term sheet sent to investors priced shares at between A$1.60 and A$2.00 apiece, valuing the company at up to A$532.4 million. Resource Capital Fund, one of Riversdale's existing shareholders, committed to take up A$15 million in new shares.