The Alain Review: Portfolio manager and head of Mining from Finance SA Alain Corbani wraps up a challenging September in the commodities market.
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During the month of September, gold fell 1.26% and closed at US$1187.25 an ounce. Silver declined 2.39% and closed at US$14,305 an ounce. Platinum rose 2.90% and closed at US$815 an ounce. Palladium was up 11.75% and closed at US$1094 an ounce.
The FTSE Gold Mines index was down 0.35% in Euros; the S&P / TSX Gold Index fell 0.97%.
As of September 25, 2018, gold net speculative positions were at minus 17 million ounces, a seventeen-year-low resulting from stable short futures positions against a 7% decline in gold long futures positions. The US Dollar index was stable at 95.13 despite a renewed interest for non-commercial short contracts in the 10-year US treasury notes and higher real interest rates (up 17 basis points).
The month of September was a very active month with two major corporate announcements: Zijin Mining Group Co. Ltd. made a friendly take-over bid to acquire all of the issued and outstanding shares of Nevsun Resources Ltd. for C$6.00 per share in cash valuing the transaction at C$1.86 billion (US$1.41 billion). This cash consideration of C$6.00 per share represented a 26% premium over the C$4.75 per share hostile take-over bid launched by Lundin Mining Corp. on July 26, 2018. On September 24, 2018 Barrick Gold Corporation and Randgold Resources Limited announced a share-for-share merger.
Following its completion, Barrick Shareholders will own approximately 66.6% and Randgold Shareholders will own approximately 33.4% of the New Barrick Group on a fully-diluted basis. John L. Thornton would become Executive Chairman of the New Barrick Group and Mark Bristow its President and Chief Executive Officer. With a market capitalization in excess of US$20 billion, the new company becomes the leader of the gold mining industry.
On the asset rationalization front, Endeavour Mining announced the sale of its interest in the non-core Tabakoto mine (in Mali) to Algom Resources Limited for a total cash consideration of US$60 million allowing the management to continue focusing on high cash generating assets with low AISC and long mine lives.
The closer we get to neutral policy stance (in reference to the wording of the Federal Reserve System), the friendlier the environment for gold becomes, as inflation persists, and growth of the US economy decelerates (FOMC Projections materials). We believe this is the key component that has steadied the price of gold at the current levels even though, yes, one cannot deny the fact that the recent tensions on the Italian debt have also contributed to its support.
Written by Alain Corbani
Head of Mining & Portfolio Manager
Finance SA, Paris, France
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