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Floating notes

Therewas a bonanza for commodities last week, with prices being driven higher bysigns of stronger global economic growth. The key commodities of oil and ironore were particular beneficiaries, but both markets are problematic. Analystsexpect the iron ore bounce to be short-lived (and the price retreated thisweek), and the price of oil has been surprisingly resilient given the failureof a meeting in Doha to reach agreement on production control.

In theseuncertain times, you might be relieved to learn that the sales of Superyachts(ocean-going pleasure vessels with a load-line length of over 24 meters) soaredin 2015, according to the latest Wealth Report from London-based Knight Frank. Boat International concurs. The magazineidentified the sale of 392 Superyachts last year and there have been 87 neworders so far this year. The global order book for 2016 demonstrates,apparently, "a strong yachting industry." After a low for the sectorin 2013, the number of new Superyachts on order, or under construction, hasclimbed to 755.

Furtherevidence of this heartening trend comes from Camper & Nicholsons, a leaderin luxury yachting activities, and Wealth-X, an authority on wealthintelligence. The two organizations recently published their annual report onThe State of Wealth, Luxury and Yachting. The report calculates that 166 boatsof greater than 30 meters were ordered in 2015, with a further 20 being orderedin January this year, at an average price of US$10.8 million.

Thebond market has enjoyed a similar resurgence, and debt investment was in thenews this week with Belgium's issue of a rare "centennial" bond.Investors in the offering have accepted a coupon of only 2.3% per year until2116. The €100 million deal echoes a 100-year bond issued by Ireland in Marchand, earlier this year, France took advantage of the falling borrowing rates toissue 50-year debt with a fixed yield of just 1.9%.

Thelarger mining companies are now able to offer debt almost as cheaply, andGlencore Plc thisweek returned to the bond market for the first time in a year. Having delivereda major reduction in debt, Glencore has been able to raise US$257 million fromfive-year bonds with a yield of 2.25%. Yields on the company's bonds had risento over 8% last year.

Nevertheless,credit rating downgrades continue to dominate corporate mining. A report thisweek by SNL Metals & Mining's Carrie MacDonald noted that 57 metals and mining companieshave seen their long-term credit rating downgraded so far this year by Moody's,Standard & Poor's and Fitch Ratings.

In asector that is heavily dependent on Chinese demand, Moody's cited slowinggrowth in China as a key factor behind the higher credit risk surroundingmetals and mining companies. The rating agency noted that although manycommodity prices have strengthened recently, several years of price declinesand oversupply have stressed companies' credit profiles. This has prompted awidespread review by the rating agencies, and both and haverecently lost their "investment grade" status.

AnotherSNL report this week highlighted the impact that the shortage of finance ishaving on mineral exploration. Paul Manalo commented, "a multiyear droughtin financing for explorers has curbed early stage exploration and led todeclining annual totals of both new resource announcements and the in situvalue of metals contained in the new resources."

Initialresource announcements are one of the metrics SNL uses in its monthly Industry Monitor to track explorationactivity. Manalocalculates that over the past five years the number of annualinitial resource announcements has declined 60% — from 111 in 2011 to only 44in 2015. The total in situ value of all metals in these new resources fell over42%, from US$179 billion in 2011 to US$103 billion in 2015.

Thedecline is hardly surprising as over the same five-year period there has been a56% fall in the annual amount budgeted for grassroots exploration expenditure.As Manalo demonstrates, the increases and decreases in exploration budgets overthe period correspond closely with the changes in the number, and in situvalue, of initial resources announcements.

Anestimated US$2.55 billion was spent globally on grassroots base and preciousmetals exploration last year. Depressing. That would get you barely 236 of the30-meter Superyachts.