GFMS says $1 080/oz gold possible this year, Xstrata-Merafe ferrochrome down to 20%

Metals consultancy GFMS expects gold prices to range between $750/oz and $1 080/oz in 2009, executive chairperson Phillip Klapwijk says on page 14 of this edition of Mining Weekly. The consultancy argues in ‘Gold Survey 2008 – Update 2’ that risk aversion and a desire to preserve wealth will be the main forces behind a surge in gold investment demand.

The top end of the forecast range will imply a new high for the metal. Although the global economic downturn will have negative implications for fabrication demand for gold, Klapwijk suggests that gold’s “competition” for investors’ attention – stocks and bonds – will probably have an even worse time in the next few months.

Gold reached an all-time peak price of $1 023,50/oz in March last year, and GFMS is forecasting an average gold price of $915/oz in the first six months of the year, compared with an average price of $871,96 recorded last year.

Demand for ferrochrome has fallen so low that the Xstrata-Merafe chrome venture is producing only 20% of what it is capable of doing.  Read on page 10 of this edition of Mining Weekly that the Xstrata-Merafe venture has decimated its output, but is holding onto its operations personnel in order to be able to snap back into action when the need arises.

The fires at no fewer that 17 of its furnaces have been put out, which means that 80% of its capa- city is not contributing. London analyst John Meyer of Fairfax says the Xstrata-Merafe closure indicates the poor state of the ferrochrome market.

Meyer expects the London-listed International Ferro Metals to remain shut through the first half of this year. Meyer reports that spot prices are around 85c/lb in Europe and 68c/lb in China. He says that Chinese ferrochrome producers are being supported by preferential treatment and believes that substantial tonnages of chrome ore may still exist in China for conversion into ferrochrome.

He advocates that South Africa withhold the export of chrome ore until ferrochrome demand recovers.

He believes that the Chinese government is effectively subsidising local ferrochrome production causing South African producers to remain shut down for longer than previously envisaged.

To see a video on last week’s Pamodzi Gold shareholders’ meeting, go to www.miningweekly.com and click on ‘Multimedia’ and then on ‘Video Clips’.