DENVER, Colorado (miningweekly.com) – The most critical challenge miners needed to deal with during the next 12 months was to deliver on their promises of cost savings and regain the confidence of the capital markets, professional services firm KPMG Canada’s mining industry leader Lee Hodgkinson said on Thursday.
Speaking to Mining Weekly Online on the sidelines of KPMG’s tenth yearly Mining Executive Forum, in Denver, he also stressed that those miners that were building projects had to deliver their projects on time and within budget.
“The market had lost patience with project overruns. They have to keep that sharp focus on the bottom line, while simultaneously maintaining that social licence to operate,” he said, noting that the consistent message and focus of gold miners during the recent Denver Gold Forum was exactly that – to generate free cash flow and maintain balance sheet strength.
Hodgkinson stated that the mining industry had worked very hard in recent years to reposition itself away from the thesis of ‘production at all costs’ to that of ‘profitable returns’. “It has come a long way, but needs to continue along this path, especially in the gold industry, which could certainly do with a bit of help from higher gold prices,” he noted.
Gold was certainly different from other commodities in terms of the complexity of its demand and supply, he said, explaining that while trade in so many of the other commodities was a product of gross domestic product (GDP) and economic growth – and that the higher the activity in the economy was, the higher the demand for those products were – history would suggest that gold was both a commodity and a currency.
“Gold is influenced by many other factors,” he said.
BMO Financial Group chief economist and MD Douglas Porter gave delegates a snapshot of the near-term global economic outlook, saying that despite the global market sending mixed signals, he believed the US economy was on a positive, yet erratic trajectory to recovery, which could potentially place a floor under sagging commodity prices, which was mainly the result of slower growth in developing jurisdictions.
He noted that while several stock exchanges were at all-time highs, stocks and bonds diverged, with the US treasury yields being down, which probably did not bode well for gold prices.
In his keynote address at the same forum, Gold Fields CEO Nick Holland pointed out that gold was a good proxy to measure the price performance of a basket of several other commodities.
He ironically noted that while gold industry executives were this week engaged in marketing their gold operations and projects at an invitation-only industry event, the spot gold price was, in fact, declining to a six-month low of around $1 223/oz on Wednesday.
Porter said the most significant current influences on commodity prices were the fact that the European Union (EU) economy appears to have stagnated; China was possibly headed for a ‘soft landing’, with eventual long-term gross domestic product growth to remain at about 5%; and that the global economy could expect continued quantitative easing from several jurisdictions including Japan, China and the EU, while the US was tapering stimulus.
He noted that 2014 was probably going to be another year of sub-par growth, with the global economy expected to grow by about 3% for the next year-and-a-half. He noted that, as a general rule of thumb, when global economic growth fell to below 4%, it usually meant that commodity prices were unlikely to rise.
However several other “wild-card” factors could upset the global economy, including the geopolitical tension between Russian and Ukraine and in Iraq and Syria; the outcome of the Scotland independence referendum and the eventual cumulative impact that the Ebola outbreak in West Africa would have.
Emerging markets, which included countries such as China and India, would continue to be the world’s growth engine, albeit at a slower rate. The developed countries were also expected to grow at increasing tempos, regaining traction from a low base.
The Canadian dollar was likely to trail the US dollar in the next one-and-a-half years, as the strengthening US economy was expected to pull its northern neighbour along. He believed the US economy had achieved “escape velocity” and was unlikely to return to a recession, although geopolitical risks could frustrate the process.
Martin Murenbeeld, chief economist at Dundee Capital Markets said the US federal balance sheet would have to come down at some point, which did not augur well for rising gold prices.
He noted that China was on track for one of the biggest gold importing years on record, but that the largely sideways global economy did not provide the impetus for rising gold prices.
Murenbeeld said that, according to his firm’s models, he felt comfortable that a gold price of around $1 335/oz was possible by this time next year.