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Mixed metals performance flags that volatility remains a risk

Concerns over the health of the global economy were growing again last week as a new report by American think tank Brookings Institute warned that "global growth is sliding back into the morass," just days before the International Monetary Fund and World Bank are set to come together and debate about the matter.

In the U.S., the presidential debate in the run-up to next month's elections dominated the news on the political front, while Europe saw a deepening of its banking sector crisis as troubled Deutsche Bank was hit by a US$14 billion fine by the U.S. Department of Justice.

On a global level, it emerged that dealmaking shrunk to its lowest level in three years as a result of a record level of withdrawn bids. At US$692 billion having been pulled so far this year, global dealmaking is now down 31% to some US$1.0 trillion. Merger and acquisition activity reached only US$2.37 trillion in the first nine months, a 22% fall compared with the record-breaking activity for the equivalent period last year.

Price ring

Commodities last week booked a mixed performance, with zinc and lead gaining further ground and copper widely flat at US$4,817 per tonne, while iron ore and nickel lost some pace.

Iron ore 62% China Imp CFR fell 1.6% to US$55.90 per tonne by the end of the week, and nickel saw a 2.1% drop to US$10,391 per tonne despite further mine suspension plans in the Philippines.

Zinc and lead both saw some strong gains, with zinc climbing 3.8% to US$2,354 per tonne and lead even jumping 6.5% to US$2,036 per tonne.

Major precious metals declined in value over the same time, booking declines between 1.2% and 1.7%, with gold settling at US$1,321 an ounce, silver at US$19.4 an ounce and platinum at US$1,036 an ounce.

Mining stocks had another week of strong performances, with the vast majority ending the week in the green. Interestingly, Vale SA and BHP Billiton Group both barely took a hit from Samarco Mineração SA's missed interest payment last week.

Talking points

Last week's mixed performance of mining stocks and metals prices underpinned that the industry continues to be shuffled by volatility.

This, in turn, means "cash is king" for most miners as cost-control and efficient management are key factors to offset the impact of volatile swings in the market.

According to new research by EY, capital considerations dominate the top three business risks in the mining and metals sector in the year 2016-2017, as companies who proactively mitigate risks with a well-managed and cost-effective end-to-end value chain are set to be best positioned for growth.

As compared to the previous year, cash optimization now replaces the aim of switching to growth, the report found. In light of tightening lending markets and stricter funding environments, higher cash levels and strong balance sheets are increasingly forming the base for longer-term profitability.

Equally, innovation has become central to stay afloat and resolve issues around productivity. Companies are increasingly engaging in digital tools and finding efficient ways to do everyday tasks, EY stated.

According to General Electronics, taking a different approach to operations and utilizing new technology could help mining companies to handle these challenges.

"[M]ethods of working need to advance and evolve to meet these [challenges]," the firm said in a Sept. 26 note.

"Across the world, regional energy shortages have also compelled some mines to sharply curtail their power consumption. This comes as no surprise as mining involves a diverse range of energy intensive processes such as excavation, material transfer, mineral preparation and separation."

"Mining companies must therefore look at cutting these costs by, among other things, using more efficient electrical equipment to ease this energy demand—and to meet the industry energy reduction targets made by many governments globally."

According to GE, global mining sites are as much as 28% less productive than a decade ago, largely due to the fact that easy-to-access commodities have already been mined and new deposits need to be tackled deeper underground, passing harder rocks of unpredictable size.Resulting in operational disruptions, this threatens productivity, and hence margins.

"While this unplanned downtime can cost mining operators serious money, there are ways that operators can avoid this. Using digital industrial technologies, which can monitor the state and performance of mining hardware in real time, means operators can diagnose and fix impending equipment failures before they happen, leading to significant cost savings and boosting productivity and efficiencies in the future," GE argued.

"While the outlook is currently looking a little murky, mining is a cyclical market. and attention must turn to the next wave of electrical and digital initiatives, which will not only improve operations today, but lead to longer-term benefits."

Executive exchange

Senior management changes last week included the appointment of Larry Yau as CEO of Spanish Mountain Gold Ltd. after Yau served as interim CEO since June last year. He will also serve as interim CFO and is expected to join the company's board in due course.

Asa Resource Group Plc named its executive chairman Yat Hoi Ning as group CEO, while making David Murangari the new nonexecutive chairman. Both changes are with immediate effect.

Meanwhile, Alchemy Resources Ltd. CEO Kevin Cassidy resigned from his post, effective Dec. 22. The company is searching for a replacement.

Financings

Among the major financing deals last week, Yunnan Tin Co. Ltd. approved a plan to apply for up to 3.1 billion Chinese yuan in credit lines from commercial banks.

Dundee Precious Metals Inc. secured a US$50 million prepaid forward gold transaction for the sale of about 18,000 ounces of gold in 2019 and 28,000 ounces of gold in 2020. The company will receive an average price of US$1,367 per ounce, with monthly deliveries starting in May 2019.

Compass Minerals International Inc. issued a new US$450 million senior secured term loan, with proceeds earmarked for the purchase of the remaining 65% stake in Produquímica Indústria e Comércio SA and to retire a portion of the debt Compass Minerals expects to assume from Produquímica at closing.

Resolute Mining Ltd. seeks raise at least 76.5 million new ordinary shares as it is seeking to raise up to A$150 million to advance the development of Ravenswood extension project in Queensland, Australia, and for exploration at the Bibiani gold mine in Ghana.

Lowell Copper Ltd., Gold Mountain Mining Corp. and Anthem United Inc. have increased a private placement related to their proposed business combination to create JDL Gold Corp on or about Oct. 6. The companies now aim to raise up to C$55 million, as compared to C$40 million previously targeted.