The week ended Aug. 16, the 33rd trading week of 2008, was a rotten one for metal prices and metal stocks, with a softening global economic outlook translating into reduced metals demand, lower metals prices, and bombed-out mining stocks.
• The breadth of the carnage in mining stocks can be seen in our latest “New 52-week highs and lows” table on page 10: out of the 1,760 North American mining equities listed in our main tables, just three reached new 52-week highs and 685 hit new 52-week lows. We haven’t seen those kinds of gloomy ratios since the days after 9-11.
In retrospect, the good times really peaked in March of this year during the Prospectors and Developers Association of Canada convention.
• The woes now hitting the mining sector are perfectly encapsulated in zinc’s rise and fall, which is putting a severe strain on more than a few zinc miners. After wallowing below US40 per lb. earlier this decade, spot zinc prices peaked above US$2 per lb. in early 2007 before steadily marching downward to the US75 mark at presstime.
It’s a classic supply-and-demand story. The International Lead- Zinc Study Group has calculated that global zinc-mine output rose by 9.2% over the first five months of 2008, compared to the same period of 2007, with the most notable increases from Australia, Bolivia, Kazakhstan, Peru, Portugal and the U. S. At the same time, global usage of refined zinc metal increased by just 1%, with strong growth in China offsetting an 8% drop in Europe. In fact, China now consumes slightly more zinc than the U. S. and Europe combined.
Meanwhile, some new zinc mines that looked like a good idea a year or two ago, such as Strategic Resource Acquisition’s Mid- Tennessee mine, are now facing the cold, hard reality of bankruptcy. Strategic Resource’s share price has dropped 98% in less than a year and management is under intense pressure to salvage something.
The ILZSG’s picture for lead looks just as bad for price support: global lead mine production soared 8.4% over the first five months of 2008 compared to the same period in 2007, owing to a big jump in output from Bolivia and China. At the same time, there was only a 3.2% increase in global usage of refined lead metal, driven primarily by higher demand in China and the U. S., which more than balanced falls in Europe, South Korea, Taiwan and Turkey.
• On the positve side, there’s still quite a bit of action in the mergers and acquisition scene among the juniors. Petaquilla Copper is advising its shareholders to sit tight and do nothing in response to Inmet Mining’s hostile bid, though Petaquilla’s shares have plateaued near the offer price. The current offer expires Sept. 3, 2008.
• Another one set to expire Sept. 3 is Kinross Gold’s bid for Aurelian Resources and its spectacular Fruta del Norte gold discovery in Ecuador. To stoke the fire, Aurelian has released a set of infill drilling results that confirm the presence of long intervals of high-grade gold, such as 95.6 metres grading 38.18 grams gold and 23.9 grams silver in hole CP-08-198.
We’ve received plenty of e-mails from retail Aurelian shareholders who are furious with management for, in their eyes, selling out at too-low a price, but we don’t see a groundswell big enough to scupper the deal.
• QGX is moving to nail down the friendly, $5-per-share cash offer from privately held Kerry Holdings, first announced on July 22. The offer is a 32% premium to QGX’s share price over the 20 trading days prior to the bid, and values the Mongolia-focused explorer at C$259 million.
• At presstime in Canada’s small-but-vital nickel space, Victory Nickel had launched a hostile, all-share bid for Sudbury-based Independent Nickel, hoping to expand its nickel holdings in Manitoba by getting Independent’s past-producing Lynn Lake nickel mine. Victory is offering one share for every Independent Nickel share, or a 32% premium over Independent’s last closing price.
• Another late-breaker is Victoria Gold’s all-share friendly bid for fellow Nevada-focused gold junior Gateway Gold. Gateway would receive one Victoria share for every two Gateway shares held, or a 20% premium. Victoria is currently held 27% by Kinross Gold and is headed up by former gold analyst Chad Williams. Former De Beers Canada public relations specialist Linda Dorrington is Victoria’s new director of public & corporate affairs.