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Global growth trend expected to shore up resource industry investments

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Global growth trend expected to shore up resource industry investments

Futures contracts for key commodities plunged March 9 amid weakening sentiment after U.S. President Donald Trump formally signed orders enacting tariffs of 25% on steel imports and 10% on aluminum imports.

Wood Mackenzie analyst Rohan Kendall primarily attributed the drop in iron ore prices to stagnant steel demand in China, where steel prices and margins have been strong since the start of this year, while indicating the tariffs were also having an effect.

"As a result, we've been expecting a downward correction in steel and iron ore prices," Kendall said. "Add to this the U.S. tariff announcement and sentiment towards steel has softened."

While Australia, Canada and Mexico were exempted from the new import tariffs, other U.S. allies such as the EU and Japan came out of March 10 talks in Brussels without a deal More meetings are scheduled for this week.

"If this unilateral action [from the U.S.] cannot be avoided, then we must think about how we can respond in a reciprocal fashion, but I am first of all focusing on talks, and there will be plenty of opportunities for them," German Chancellor Angela Merkel said at a news conference.

The European Commission, meanwhile, indicated that it is ready to bring in safeguards, tariffs or quotas to protect its steel and aluminum sector from products that will be diverted to Europe because of the measures in the U.S.

Price ring

The U.S. tariff plans weighed on sentiment for most metals, with all except gold and silver finishing the week in the red. Gold edged 0.1% higher to US$1,324/oz, while silver increased 0.8% to US$16.70/oz.

Prices for most base metals continued a downward spiral, decreasing 0.9% to 3.9% across the board. Zinc hit US$3,227/tonne, down 3.9% from the previous week's closing, while lead dropped 3.4% to US$2,372/t, and aluminum declined 2.9% to US$2,083/t. Copper decreased 0.9% to US$6,800/t, and nickel fell 1.4% to US$13,214/t.

Chinese iron ore prices took the hardest hit last week as investors pondered the ramifications of the steel tariffs. Spot iron ore prices in China plunged 10.1% to US$67.90/t followed by steel, which fell 3.6% to US$638/t.

Talking points

Although global commodity prices have rallied since reaching very low levels in early 2016, the climb has been gradual when compared with the "super-cycle" upswings seen earlier this century.

"We expect this gradual lift in commodity prices to continue," HSBC analysts said in its global commodities outlook. The research team attributed the gradual upswing to stronger global growth and the absorption of excess capacity that was built during the investment super-cycle of the early 2000s.

"Profitability in the global resources industry has risen due to higher commodity prices as well as the significant effort that has been made to cut costs in recent years," HSBC noted. "The combination of improved profitability, a positive demand outlook and the reduction of the previous excess capacity, mean that the preconditions are coming into place for a pick-up in resources industry investment."

Financings

Cobalt 27 Capital Corp. raised C$200.1 million through an upsized private placement, issuing 17,556,828 common shares priced at C$11.40 apiece. The company will use the proceeds to acquire cobalt-related streams and royalties and for general corporate purposes.

Clean TeQ Holdings Ltd.'s underwritten A$150 million share placement of up to approximately 130 million shares at A$1.15 each closed heavily oversubscribed. The proceeds of the placement will be used to fund early works and long-lead items to accelerate development at the Clean TeQ Sunrise nickel project in New South Wales, Australia.

Victoria Gold Corp. secured a financing package totaling approximately C$505 million to fund the development of the Eagle gold deposit, part of its Dublin Gulch property in Canada's Yukon Territory, through to commercial production.

Jupiter Mines Ltd. is targeting A$200 million with its return to the ASX, with shareholders to sell about 25% of the company. The offering is expected to value the company, which has nearly 2 billion shares on issue, at about A$780 million.

Image Resources NL is looking to raise A$50 million to advance its Boonanarring mineral sands project in Western Australia with the issuance of senior secured loan notes.

China Nonferrous Gold Ltd. signed a financing agreement with an associate of shareholder China Nonferrous Metals International Mining Co. Ltd. for a US$90 million loan facility, which will be used to repay outstanding facilities and fund the restoration of production at the company's Pakrut gold project in Tajikistan.