Commodities roundup

Vancouver – The final technical session at the Mineral Exploration Roundup in Vancouver took a look at the potential of thermal coal, uranium, vanadium, molybdenum, copper, and of course, gold.

China’s voracious appetite for commodities continues to play a central role in market demand and featured prominently in most talks.

On the energy front, Gene Wusaty, CEO of thermal coal-focused Coalspur Mines (CPT-T), and Amir Adnani, president and CEO of Uranium Energy (UEC-X), were bullish on their respective resources.

Wusaty argued that, despite a perception of reduced dependency, thermal coal is in fact a “pivotal component of tomorrows energy demands” and that “thermal coal has never been stronger.”

The thermal coal story is “all about Asia,” with India and China seeing huge increases in electrification.

While Canada depends on coal for about 17% of electricity production, in China its 80%, India is 71% and even in the United States it is still 50%. With hundreds of millions more people wanting access to steady electricity, Wusaty says demand in that part of the world is only going to go up.

Wusaty didn’t touch on the possible effects of environmental legislation in thermal coal demand, but Adnani argued that a growing desire to address climate change will lead more people instead to nuclear fuel.

Adnani described the bubble created in 2007, when uranium went to around $140 per lb., as “truly driven by speculation,” whereas the current price of around $60 per lb. is more a reflection of near-future supply and demand.

The “globalization of nuclear power” is leading to a whole new wave of demand, said Adnani.

There are currently 442 reactors in 31 countries, with a significant proportion in western Europe and North America. There are also, however, 63 under construction and 156 planned. The bulk of those are being built in China, with 26 under construction, and many others are being built in other emerging markets.

Adnani also noted that the Russian program of turning weapons-grade uranium into nuclear fuel, which has filled a significant portion of the market, runs out in 2013. He said the country does not plan to continue it beyond that.

Turning to industrial metals, molybdenum prices look flat while vanadium could see growth.

Ron Hochstein, president and CEO of Denison Mines (DML-T) explained how the demand for better-quality steel in India and China will mean greater demand for vanadium.

“China is the basis for a future vanadium market,” said Hochstein.

Only about 20% of steel production in those countries use vanadium or niobium (an alternative to vanadium) to strengthen the steel. That number is going up.

The country, however, already dominates supply, with about half of global production.

Still, Hochstein expects a compound growth in demand of 4.8% between 2010 and 2025, which presents opportunities for producers.

The unknown factor, which could transform the vanadium market, is the potential of large-scale vanadium-lithium batteries.

Molybdenum is also dominated by Chinese supply, with about 40% of world reserves, and also driven by the demand for higher grade steel.

But as Mark Selby, senior vp of business development at Royal Nickel (RNX-T) explained, “for the most part prices will be rangebound for the next decade.”

China’s ability to increase its own supply, coupled with a significant amount of molybdenum coming to market from new projects, means that Selby doesn’t expect prices to spike anytime soon.

Looking to copper, Glen Jones of Intierra, backed up by data from Bloomsbury Minerals Economics, argued that copper should see a short-term increase in price but then settle.

The current lack of supply should put the metal in the $3.50 to $6.80 per lb. range for the near term, but with more supply coming on it should drop to the $2.50 to $3.50 per lb. range past 2012.

Finally looking to gold, Dr. Martin Murenbeeld, chief economist at DundeeWealth explained why he is bullish on the price of gold, arguing it is not a bubble.

“Gold is in an upward channel,” said Murenbeeld. In addressing the recent dire declarations in the media of an end to high gold, explained that that channel is $225 wide.

Murenbeeld set out a number of factors that point to a continuing strong gold price including: central banks are buying gold, there is an excess in global foreign exchange reserves, investment demand is up, there has only been a modest supply increase, gold does not look to be in a bubble, fiscal and monetary reflation is happening and general global imbalances and the geopoliticial environment means gold is becoming a haven.


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