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Nickel gains nearly 10% amid mine closures in volatile week for metals

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Nickel gains nearly 10% amid mine closures in volatile week for metals

As expected, the January meeting of the U.S. Federal Open Market Committee last week did not result in any changes to its assessment of risks to the economy, and rates were kept at a range of 50 to 75 basis points.

However, the committee's language on the outlook for growth and inflation was a little more upbeat. The FOMC noted that it expects labor market conditions to strengthen somewhat further and inflation to rise to 2% over the medium term. But there were no signals of another rate hike in the near future, in line with market expectations, which is pricing in an interest rate hike in March at 20%.

"In our view, the Fed implicitly indicated it is comfortable with the current extent of market pricing for the March meeting. [W]e continue to believe that there are upside risks to the market's expectations of hikes over this year and next," economists from Bank of America Merrill Lynch said Feb. 1. "[M]arket expectations for only four hikes priced over the next two years have not accounted for risks of a more active Fed. The Fed's communication would have to change to signal a faster hiking cycle to the market since the Fed have demonstrated in the past that they do not like to surprise the market with rate hikes and have typically only tightened if the market was priced at least 60% of such a move."

Alongside growing uncertainty over the policies of the new U.S. administration, the softening U.S. dollar as a result of the FOMC's meeting gave additional support for gold. Against this backdrop, RBC Capital Markets continued to be favorable toward gold, noting that the yellow metal is "likely best bought as a risk overlay this year."

The bank's Feb. 3 Commodity Surveyor showed commodity investor assets under management increased by US$4.1 billion in January, pushing the total to US$271.9 billion. Despite volatility in the gold price, gold remained "the king" of commodity exchange-traded products flows in last month.

Meanwhile, a new report by S&P Global Fixed Income Research found that the environment for corporate credit is becoming more challenging as geopolitical concerns, growing populism, rising interest rates and volatile currencies are increasingly posing headwinds. A total of US$9.6 trillion in rated corporate debt is estimated to mature globally through 2021, according to the Feb. 2 report, up 1% from US$9.5 trillion due in 2020. The annual amount of maturing rated corporate debt reaches its peak in 2021 when US$2.02 trillion comes due.

Price ring

Major mined commodities had a rather mixed performance last week. While iron ore and some base metals finished the week in the red, precious metals and nickel delivered a solid run.

Precious metals throughout had a good week, with gold and silver both reversing the declining trend in previous weeks. Gold gained 2.4% to US$1,220 an ounce, and silver was up 2.1% at US$17.5 an ounce.

Nickel was the biggest gainer last week, jumping 9.8% to US$10,341 per tonne on the back of mine closures in the Philippines. Zinc still managed to gain 3.6% to US$2,841 per tonne, and copper was up 1% at US$5,903 per tonne.

Aluminum and lead both booked losses near the 1% mark, and iron ore lost 1.4% to finish the week at US$82.2 per tonne.

Talking points

Regardless of the current price volatility, the gold sector is tipped to see increased M&A activity this year. RBC Capital Markets forecast that declining reserves and improved balance sheets could lead to increased appetite for M&A.

In what the team described as a "stirring of the sleeping giants," larger producers, in particular, are well positioned to go on a spending spree, while juniors have more cash on hand to advance projects.

"If the senior gold producers return to the table, as they have suggested they might, 2017 could become a very interesting year for M&A," RBC noted Feb. 2.

For now, a lack of good assets keeps activity subdued as limited availability of projects means that those assets remain fairly priced.

Executive exchange

Major management changes last week included the appointment of Julius Matthys as nonexecutive chairman of Doray Minerals Ltd., replacing Peter Lester, who retired in January.

ASX-listed Elementos Ltd. promoted its operations manager, Chris Creagh, to CEO, who most recently oversaw the expansion and development of the Cleveland tin-tungsten project in Tasmania, Australia.

Meanwhile, Dominion Diamond Corp. is on the lookout for a new chief, after CEO Brendan Bell announced he will step down in June. Recruiting firm Korn Ferry has been mandated to find a successor.

Financings

Bigger financing deals included the closing of a US$28.8 million bought-deal financing by Platinum Group Metals Ltd., which offered 19,693,750 common shares at US$1.46 each to a syndicate of underwriters led by BMO Capital Markets.

Polyus Gold International Ltd. priced an US$800 million notes offer with a coupon of 5.250% per annum, due Feb. 7, 2023. The offering is due to close Feb. 7, and the proceeds are earmarked for debt refinancing and general corporate purposes.

Denison Mines Corp. landed a deal with Anglo Pacific Group Plc that will provide the company with gross proceeds of C$43.5 million. The financing comprises a 13-year limited recourse lending arrangement involving two loans from Anglo Pacific to Denison units.

Neo Lithium Corp. has increased its bought-deal offering to C$25 million from the initial C$20 million. The transaction will now comprise 22,731,819 units priced at C$1.10 apiece, with closing still scheduled to occur on or around Feb. 22.