Globalfinancial markets were impacted last week by a change in sentiment at the FederalReserve. The Fed's chair, Janet Yellen, said she now expects a shallow, more modest,pace of increase in U.S. interest rates. The Fed's Open Market Committee holds eightscheduled meetings annually, and futures markets are factoring a zero probabilityof an increase in U.S. short-term interest rates at the next meeting, on April 26-27,and only a 24% chance of a move at the meeting on June 14-15.
Yellen'sdovish remarks last week left U.S. stocks at a new high for the year and the dollarat its lowest level since October 2015 against a basket of currencies. The mainbeneficiaries of the weaker dollar have been the emerging market currencies, whichin March enjoyed their best month for six years. Among the major currencies, Brazil'sreal is the leading gainer this year, up 12% against the U.S. dollar. The real wasthe second-worst performing major currency last year after Argentina's peso.
The pastweek ended a volatile three months. It was a quarter of two halves, a classic V-shapedmarket. The first six weeks were tumultuous, leaving many markets at multiyear lows,followed by an impressive recovery over the second half of the quarter with marketsbuoyed by supportive monetary policy in Europe and Asia.
Nevertheless,investors remain cautious, with markets still heavily influenced by subdued inflation,negative interest rates and low yields. The latter has increased investors' appetitefor dividend-paying equities. The average dividend yield for S&P 500 stockswas 2.2% in the three months to end-March, and dividend payments in the quarterwere 4.6% higher than in the first three months of 2015. Although a year-on-yearimprovement, the dividend payments grew at a slower rate than hitherto, and so broughtto an end a run of seven consecutive record quarters.
The finalweek of March saw investors pull US$2.6 billion from U.S. equity funds, and 21 initialpublic offerings were abandoned in the U.S. during the March quarter. Only nineU.S. companies succeeded in listing during the past three months, making it thefirst quarter since mid-2009 that canceled listings have outnumbered successfuldeals. The value raised from IPOs was also the lowest in the U.S. for seven years.
Manyinvestors are switching to emerging markets, where foreign portfolio flows reacheda 21-month high of US$36.8 billion in March, according to estimates from the Instituteof International Finance. Nevertheless, the best financial performance so far thisyear has come from long-dated government debt. German long bonds, for example, havereturned more than 10%.
In theU.K., a survey of purchasing managers by Markit and the Chartered Institute of Procurement& Supply suggested that manufacturing activity has stalled. The mood was madeworse by an announcement from the Office for National Statistics that the U.K.'scurrent account deficit — which measures trade and investment flows — was a record£32.7 billion, representing 7% of GDP. Investor sentiment is not helped by uncertaintycaused by the June 23 vote on continued membership of the European Union, and thesterling last week fell to a 16-month low against the euro.
In aresearch note last week, Barclays Plc said the price of commodities may fall steeplyas investors "rush to liquidate" due to the absence of any "concertedfundamental improvements."
Certainly,the recovery in metals prices seen in February has stalled in recent weeks. Iron ore has seen the greatest price improvementthis year, but the price of Chinese imports of iron ore (62% Fe) slipped back 2.7%last week to close at US$54.0 per tonne. Nevertheless, the price is still 23.9%higher for the year-to-date.
The LondonMetal Exchange's three-month contract for copperwas 2.3% lower last week at US$4,832 per tonne, having fallen 2.0% the previousweek. Despite this reverse, the red metal is trading 2.8% higher for the year.
The priceof two of the major metals strengthened last week. Aluminum jumped 3.8% to US$1,535 per tonne — leaving it up 1.5% forthe quarter — and the three-month zincprice strengthened 3.0% to US$1,846 per tonne, up a creditable 15.9% for the quarter.
Nickel is the only major metal to haveunderperformed in 2016 so far. The three-month LME contract fell 3.0% last weekto US$8,405 per tonne, which is 4.3% below its starting price this year.
Despiterenewed weakness in the value of the dollar, gold was 0.6% lower last week at US$1,214 per ounce. Nevertheless, theprecious metal is up 14.5% for the quarter, which is its best three-month performancesince 1986. A report by GFMS noted that net purchases of gold by central banks reached483 tonnes in 2015, the second-highest annual total since the end of the gold standard.Russia was the top national buyer of the precious metal for the fourth consecutiveyear, raising its holdings by 206 tonnes.
The priceof thermal coal — 6,000 kilocalories per kilogram, FOB Richards Bay — dropped analarming 8.3% last week to close at US$52.8 per tonne on April 1. Nevertheless,the price is still 8.2% higher for the year-to-date.
The fallingcoal price over the past few years has been felt sharply at the corporate level.S&P Global Market Intelligence estimates that U.S. coal producers have writtenoff nearly US$20 billion in asset value since 2010.
, whichfiled for bankruptcy last year, purchased Central Appalachian producer Massey Energyfor US$8.5 billion in 2011 but has written-off US$9.4 billion over the past fiveyears. Arch Coal Inc.,which made a similar bet on metallurgical coal markets, wrote off US$4.0 billionbetween 2010 and 2015, and PeabodyEnergy Corp., the nation's largest producer, has written off almostUS$2.9 billion.
Despitethe global oversupply of mined coal, CoalIndia Ltd. increased its production 8.5% to a record 536 million tonnesin the year to end-March. The state-owned company was still short of its 550 milliontonnes target, which is expected to be lifted to 610 million tonnes this year. Thegovernment is aiming to achieve output of 1 billion tonnes by 2020 to serve thecountry's electricity needs.
In positivedevelopments for the sector, YanzhouCoal Mining Co. Ltd. last week closed a US$950 million debt fundingby issuing nine-year secured debt bonds, and the Queensland, Australia, governmenthas granted a mining lease for AdaniEnterprises Ltd.'s Carmichael coal, rail and port project. The threeQueensland leases contain an estimated 11,000 million tonnes of thermal coal, andthe project will cost up to A$21.7 billion with a capability to produce an eventual60 million tonnes per year.
In asign of the times, there is pressure on tax rates in Australia and Ghana.
In Australia,a report commissioned by the Minerals Council, "Growing the Australian Economywith a Competitive Company Tax," suggests that a reduction in the country'scompany tax rate will stimulate foreign investment. According to the report, Australiahas the fourth-highest effective tax rate among the 34 countries studied (all membersof the Organisation for Economic Co-operation and Development).
In Ghana,Gold Fields Ltd. concludeda tax and royalties deal for its Tarkwaand Damang mines,reducing the company's corporate tax rate from 35% to 32.5%, and revising the mines'royalty rate from a flat 5% of revenue to a sliding scale royalty based on the goldprice.
Financingin the past week included a non-brokered private placement by IEMR Resources Inc. to raise C$2.8 million. The company isowned 50% by Hong Kong's IEMR Group Ltd., which is wholly owned by Zheng Fu.
closed a C$3.5million private placement of 28.8 million units. Lowell will use the proceeds forits projects in Ecuador and in Chile. Investor Clare Loudon now holds 11.4% of thecompany on a partially diluted basis.
increasedits C$2.2 million private placement to C$3.0 million due to strong institutionaldemand. The funds are intended for the upcoming exploration program at Goldstrike'smineral properties in the Yukon.
EricSprott is to invest C$3.0 million in ExcellonResources Inc. through a nonbrokered equity placement of 6.67 millionunits. Excellon plans to use the proceeds for optimization of its Platosa silvermine in Mexico.
In Australia,Western Areas Ltd. islooking to raise A$60 million from a fully underwritten placement of up to 30.8million shares. The ASX-listed company will also carry out a share-purchase planto raise up to A$10 million for general working capital purposes. Macquarie Capital(Australia) Ltd. and Morgan Stanley Australia Securities Ltd. will be acting asjoint lead managers, underwriters and book runners for the placement.
In otherfinancing last week, Silver WheatonCorp. increased the size of its recently announced underwritten publicoffering to US$550 million. The company will now offer 33.1 million shares on abought-deal basis, with the underwriters having an option to purchase almost 5.0million additional shares, which could lift total proceeds to US$633 million.
closed a privateplacement of 1.85 million units with Donald Smith Value Fund LP for US$6 million.The proceeds will be used on the ReliefCanyon gold project in Nevada.
In theU.S., Comstock Mining Inc.expects to raise US$3.5 million from an underwritten public offering of 10.0 millionshares.
executed a US$120 millioncredit facility with Macquarie Bank Ltd. The facility, which will be used for theNatougou project in Burkina Faso, bears interest at LIBOR plus 4.75%, and replacesSEMAFO's previous US$90 million credit facility.
Changesin senior management announced during the past week include the appointment of BrianHinchcliffe as the president and CEO of RupertResources Ltd. Hinchcliffe, who replaces Martin Kostuik, co-foundedKirkland Lake Gold Inc.and Rambler Metals & Mining Plc.
appointed PeterClausi as interim CEO to replace Paul Zyla, who will continue to serve as a directorin the company. The company is being sued by a shareholder who is seeking to stopthe company undertaking share and asset transactions.
VincentQin resigned as managing director of ASX-listed RMA Energy Ltd., effective immediately, but will remain withthe company as a nonexecutive director.
appointedDavid Shaddrick, a company director since 2011, as its acting president and CEO.This follows the sudden death of Ian McAvity in March.
GordonBarnes stepped down as managing director of ClancyExploration Ltd., effective immediately. Clancy, which is moving itsadministrative office to Perth in Western Australia from Orange in New South Wales,has appointed David Scoggin, who specializes in risk assessment and M&A analysis,as a nonexecutive director.
The chairmanof Heatherdale Resources Ltd.,Scott Cousens, is to assume the role of interim president and CEO to replace PatrickSmith.
appointed Vance Loeberas president and CEO to replace Michael Collins, who resigned from the posts. Loeber,who specializes in resource funding, was one of the founders of , Sandspring Resources Ltd. and Carlisle Goldfields Ltd.