CAPE TOWN (miningweekly.com) – Investors in the mining industry say oversupply has weighed heavily on prices in the iron-ore and coal sectors, while the fall in the oil price is expected to bring relief to several mining projects across Africa.
“With oversupply, the market is not in sync in iron-ore and coal. There’s a lot of chasing volume on price,” said Investec Asset Management head of commodities and resources Bradley George.
Zinc was expected to be a strong commodity in the next 12 months.
Meanwhile, “production is growing in palladium, with the lower oil prices, and Chinese car sales picking up”, he added.
George told delegates at a session at the Investing in African Mining Indaba, in Cape Town, that he believed the copper market was more balanced.
“There’s a bit of short-term oversupply but the inventories are not sufficiently built up. From a longer-term perspective, we’re positive on copper.”
He was also slightly upbeat on gold.
“With good physical buying out of Asia, particularly India, we’re slightly more positive on gold prices currently.”
US Global Investors CEO Frank Holmes expected gold demand to pick up with the traditional Chinese New Year gift-buying season.
“Historically, gold peaks in the Chinese New Year. We can easily expect a modest correction. We’re due for a big surge in the gold price within the next 18 months,” Holmes believed.
Public Investment Corporation (PIC) limited equities GM Fidelis Madavo said the super-cycle of a few years ago was over, while the decline in oil prices were a mixed blessing.
“It will be positive over time, but we are also seeing a big impact where we have investments, especially in Nigeria, with a decline in the oil price and a weaker local currency.
George said certain companies would benefit very strongly from a lower oil price. He singled out companies like Randgold Resources and AngloGold Ashanti, as well as major mining projects in Botswana, which were big importers of energy.
Madavo said careful selection of projects in the mining sector was vital for the PIC.
“The valuation in this market is challenging, so selection becomes important. We have to be very, very careful because we have lost a lot of pension money over the last couple of years…but there is value and there are names that we will continue to pick on.”
Holmes said private equity funding as a model was becoming far more stringent, with a greater demand for high returns on capital.
“Corporate governance is not just about being legal and ethical, but getting the returns on capital. Private equity investors are looking for a 15% return on capital within five years. They will do everything to drive the efficiency of an operation,” he noted.