Moody’s base metals optimism rises despite seeing price fall back this year

TORONTO (miningweekly.com) – Market analyst and ratings agency Moody’s Investors Service has adjusted upwards its pricing sensitivities for base metals in 2017, but says despite the recent run-up in base metal prices not being sustainable, some of the positive sentiment will remain.

Moody’s said Wednesday it expected the market to be more volatile than usual, based on continued high trading activity, as traders and investors responded to changing market sentiment on growth expectations.

Metal prices have risen in response to stimulus spending in China and expectations that the incoming US Presidential administration under Donald Trump will increase infrastructure spending.

"We believe the run-up in base metal prices, particularly since the US Presidential election, will fall back over the course of the year. With the exception of zinc, the higher prices do not stem from meaningful improvement in supply/demand fundamentals. Nonetheless, we anticipate political issues and speculation will continue to drive shorter-term market activity and high volatility," stated Moody's senior VP Carol Cowan.

However, Moody's said higher metal prices would not be the sole driver of any rating upgrades in the metals industry.

The agency does not rate to spot prices, but instead uses base prices and a range of prices for sensitivity purposes. Companies will continue to be evaluated on a case-by-case basis, while non-quantitative factors, such as capital investment spending levels and financial discipline will remain important considerations.

According to Moody’s, companies are now in a stronger position than they were this time last year, when metal prices were in a freefall. Economic indicators are also better entering the new year, but are still not indicative of solid, sustainable growth.

To consider revising its base metals industry outlook to positive, Moody’s global gross domestic product growth forecast would need to be higher than 4% and purchasing managers' indices (PMI) for the US, Europe and China would need to exceed 55 for at least three consecutive months. But while its global macro outlook for 2017/18 predicts economic growth of about 3% for the Group of Twenty and the three major PMI indexes are all above the breakeven growth point of 50, none has yet reached the 55 mark.

BASE METALS PRODUCTION
Notable Canadian base metals miners also reported production results and updated outlooks, expecting to take advantage of the rising tide in particularly zinc.

Vancouver-based Trevali Mining reported significant fourth-quarter production growth as it ramps up production at the Caribou mine, in New Brunswick, lifting payable zinc output 166% to 36.8-million payable pounds zinc, doubling lead output to 11.3-million pounds and silver output to 409 654 oz.

For 2016, zinc output rose 80% year-on-year to 98-million pounds, while lead output grew 9.3% to 33.05-million pounds and silver grew 15% to 1.2-million ounces.

The Santander mine, in Peru, continued its strong performance to deliver 15.8-million pounds of zinc, 3.1-million payable pounds of lead and 177 931 oz silver. Santander mill throughput for 2016 was 863 307 t, about 18% above the nameplate design of 2 000 t/d, or about 730 000 t/y. The fourth quarter marked the Caribou mine’s second quarter of commercial production and saw significant improvements in throughput and lead recovery following completion of semiautogenous grinding mill modifications. Caribou produced a record 20.9-million pounds of payable zinc, 8.2-million pounds of lead and 231 722 oz silver in the period.

Trevali plans for 2017 guidance at the Caribou mine to range between 90-million and 93-million pounds of payable zinc in concentrate, 30-million to 32-million pounds of lead in concentrate, and 800 000 oz to 900 000 oz of silver. Cash costs for 2017 are estimated at about $55/t to $60/t milled.

Toronto-based Hudbay Minerals also reported that zinc and precious metals output in 2016 met or exceeded guidance in its Manitoba and Peru operations, and increased over 2015 levels by 18%, 7% and 20%, respectively. This was the result of the ongoing ramp up at Lalor and the first full year of commercial production at the Constancia mine.

Full-year production came it at 174 491 t copper, 110 582 t zinc and 167 951 oz precious metals, and all commodity streams was in line with 2016 guidance that called for between 150 000 t to 180 000 t copper, 100 000 t to 125 000 t zinc and 145 000 oz to 180 000 oz precious metals.

The dual-listed miner expects zinc-in-concentrate output for 2017 to increase by about 25% over 2016, primarily owing to the ongoing ramp-up of the Lalor mine and the re-sequencing of the mine plan at 777 to mine stopes containing higher zinc grades. Copper and precious metals contained in concentrate are forecast to fall by 17% and 5%, respectively, compared with 2016 production, mainly on the back of lower grades at Constancia, and lower ore volumes and copper grades at the 777 mine, owing to the age of the mine and the emphasis on higher-value zinc ore output in the new mine plan, the company said.

The full-year 2017 guidance calls for copper output of 132 500 t to 157 000 t, zinc production of 125 000 t to 150 000 t and lifting precious metals output to between 145 000 oz and 175 000 oz.