Author Archive for InvestMacro – Page 34

18 Dec

Investors are expecting a Santa Claus rally. The Eurozone economy is close to a recession

By JustMarkets

At Friday’s stock market close, the Dow Jones Index (US30) was up by 0.15% (+2.90% for the week), while the S&P 500 Index (US500) closed at its opening price (+2.74% for the week). The NASDAQ Technology Index (US100) closed positive by 0.35% (+3.30% for the week). The Dow Jones Industrials Index (US30) set a new record, and the Nasdaq 100 (US100) climbed to a 2-year high.

Hawkish comments from the Fed on Friday lent support to the dollar. New York Fed President Williams said the question now is whether the bank has sufficiently constrained the economy. That said, talk of a rate cut in March is now premature. Also, Atlanta Fed President Bostic said that policymakers still need a few more months to see enough data to gain confidence that inflation will continue to decline, and he expects the Fed to start cutting interest rates in the third quarter of 2024 if inflation declines as expected.

The US economic reports on Friday dampened hopes that the Fed could provide a soft landing for the economy. Empire’s index of overall business conditions in the US manufacturing sector for December fell by 23.6 to a 4-month low of 14.5, weaker than expected. US manufacturing output for November rose by 0.3% m/m, weaker than expectations of 0.5% m/m. The S&P US Manufacturing PMI for December unexpectedly declined by 1.2 to 48.2, weaker than expected to 49.5 and the weakest reading in 4 months.

The US equity funds stepped up their buying of stocks. Bank of America (BoA) reported that according to EPFR Global, US equity funds received $25.9 billion in the week ended December 13, marking the ninth week of inflows and the longest streak in two years. This indicates that investors continue to invest in the stock market in anticipation of the holiday rally (Santa Claus Rally). Market volatility on Friday was higher than usual due to the expiration of monthly and quarterly options and futures contracts, which is known as the “triple witching.” In addition, many indices rebalanced on Friday. According to Tier1Alpha, about $3.1 trillion in contingent open interest is scheduled to expire or roll over into the new year.

Equity markets in Europe were mostly down on Friday. Germany’s DAX (DE40) decreased by 0.01% (-0.05% for the week), France’s CAC 40 (FR 40) added 0.28% (+0.83% for the week), Spain’s IBEX 35 (ES35) lost 0.75% (-1.18% for the week), and the UK’s FTSE 100 (UK100) closed negative by 0.95% (+0.29% for the week).

The S&P Eurozone Manufacturing PMI for the decade was unchanged at 44.2, weaker than expectations of a rise to 44.6. The S&P Manufacturing PMI for December unexpectedly declined, falling by 0.6 to 47.0, weaker than expectations of a rise to 48.0. The Eurozone economy continues to struggle and could enter a technical recession in the coming weeks. According to the HCOB, the Eurozone economy is not showing any clear signs of recovery. On the contrary, it has been contracting for six consecutive months. The probability that the Eurozone has been in recession since the third quarter remains very high. If the Eurozone falls into recession and inflation continues to fall, the ECB may have to change course on interest rates and start preparing the market for a series of cuts next year. Swaps tied to ECB meeting dates are predicting a 25 bps probability of an 8% rate cut for the ECB’s January 25 meeting and 57% for the March 7 meeting.

UK inflation data will be released tomorrow. If inflation comes in below forecast, the Bank of England (BoE) will be pressured to consider an earlier rate cut, and this will put pressure on the British Pound in the coming weeks.

Silver prices came under pressure on Friday on concerns over demand for industrial metals after US manufacturing output data for November, S&P’s US manufacturing PMI for December, and Jibun Bank’s Japanese manufacturing PMI for December were weaker than expected.

Asian markets were mostly up last week. Japan’s Nikkei 225 (JP225) gained 0.94% for the week, China’s FTSE China A50 (CHA50) declined 2.01% over five trading days, Hong Kong’s Hang Seng (HK50) jumped by 3.98% for the week, and Australia’s ASX 200 (AU200) added 3.44% for the week.

The Bank of Japan’s (BoJ) monetary policy meeting will take place as early as tomorrow. The Bank of Japan has held the benchmark rate at 0.1% for a decade now, hoping to stimulate investment and borrowing to promote sustainable growth. One goal is to bring inflation to the 2% target. But while inflation is rising, wages have not kept pace, and central bank governor Kazuo Ueda remains cautious about taking major steps at a time of deep uncertainty about the global economic outlook.

S&P 500 (US500) 4,719.19 −0.36 (−0.01%))

Dow Jones (US30) 37,305.16 +56.81 (+0.15%)

DAX (DE40)  16,751.44 −0.79 (−0.01%)

FTSE 100 (UK100) 7,576.36 −72.62 (−0.95%)

USD Index  102.59 +0.64 (+0.63%)

News feed for 2023.12.18:
  • – Germany Ifo Business Climate (m/m) at 11:00 (GMT+2);
  • – New Zealand Trade Balance (q/q) at 23:45 (GMT+2).

By JustMarkets

 

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.

Economics & Fundamentals Financial News
18 Dec

Trade of the Week: GBPUSD in for an early-Christmas cracker?

By ForexTime

  • GBPUSD has climbed about 4.9% so far in 2023
  • UK, US economic data to offer clues on BOE vs. Fed’s 2024 rates plan
  • Forecasted trading range: 1.2528 – 1.2788

Sterling is the second-best performing G10 currency against the US dollar so far in 2023.

At the time of writing, GBPUSD has about 4.9% in year-to-date gains, albeit with a couple of weeks left to go in the year.

The fact that Sterling is stronger against the US dollar so far this year is somewhat remarkable, in light of the UK’s ongoing economic woes.

Still, amid thinning market activity in this year-end period, traders are set to determine whether the year-to-date gains for “cable” (nickname for GBPUSD) will be extended, or thinned out, before 2023 officially comes to a close.

 

Events Watchlist

GBPUSD traders are set to react to these UK and US economic data to be released later this week:

  1. Wednesday, Dec 20th: UK November consumer price index (CPI) – which measures inflation
  2. Thursday, Dec 21st: US 3Q GDP (final print)
  3. Friday, Dec 22nd: UK November retail sales and 3Q GDP (final print)
  4. Friday, Dec 22nd: US PCE Deflator – the Federal Reserve’s preferred way of measuring inflation

For the market’s forecasts for each of the above data points, please refer to the FXTM Economic Calendar.

 

 

Why is the economic data important to GBPUSD traders?

Note that traders tend to boost the currency of the country that has higher interest rates.

Hence, markets will be using the data to anticipate what the Bank of England and the Federal Reserve might do to their respective interest rates in 2024.

Recall that, just last week, the Bank of England (BOE) threatened to keep its bank rate higher for longer, which is already at a 15-year high of 5.25%, with the UK central bank apparently still not yet done with its fight against inflation.

In contrast, also last week, the Federal Reserve a.k.a the Fed had forecasted that it will be cutting US interest rates in 2024.

Hence, no surprise that the Pound is about 0.9% stronger against the US dollar since this time last week (Dec 11th).

 

 

Potential Scenarios:

GBPUSD could be pushed higher if:

  • the UK inflation data comes in above market forecasts, justifying the BOE’s bias for keeping its bank rate “higher for longer”.
  • post-CPI gains for GBPUSD would have to be sustained by better-than-expected UK retail sales and GDP figures.
  • US 3Q GDP remains resilient while the PCE Deflators continue to ease lower, allowing the Fed to cut rates in 2024

 

However, GBPUSD could be dragged lower by:

  • a surprise uptick in the US PCE Deflators that threatens the Fed’s plans to lower US interest rates next year
  • lower-than-expected UK inflation data, retail sales, and GDP figures that once again highlight the risk of the UK economy falling into a recession.

    The greater the damage to the UK economy, the less likely the BOE can afford to sustain its bank rate at this current 5.25% level.

NOTE: Higher interest rates are intended to cool down inflation by destroying demand in an economy. However, interest rates that are too high for too long risks sending an economy into a recession.​​​​​​​

Key levels

The Bloomberg FX model forecasts a 75% chance that GBPUSD will trade between 1.2528 and 1.2788 this week.

Those levels serve as the general boundaries for GBPUSD’s expected trading range in this week leading up to Christmas.

Within that range, here are some key levels to look out for:

 

POTENTIAL RESISTANCE

  • 1.27335: November 29th intraday high
  • 1.27607: 38.2 Fibonacci level from GBPUSD’s long-term (June 2021 till September 2022) descent
  • 1.27943: Dec 14th intraday high

 

POTENTIAL SUPPORT

  • 21-day simple moving average (SMA)
  • 200-day SMA

Forex-Time-LogoArticle by ForexTime

ForexTime Ltd (FXTM) is an award winning international online forex broker regulated by CySEC 185/12 www.forextime.com

Financial News Forex and Currency News
18 Dec

EUR/USD Finds Stability

By RoboForex Analytical Department

On Monday, the EUR/USD pair is demonstrating stability, trading around the 1.0910 mark.

Last week was notable for the currency markets, as key financial updates were released. The Federal Reserve and the European Central Bank maintained their interest rates at 5.50% and 4.50% per annum, respectively. In the U.S., retail sales in November saw a modest increase of 0.3% month-on-month, following a decline in the previous month. Industrial production also showed growth, albeit slightly below expectations at 0.2%, compared to the anticipated 0.3%. This was a slight rebound from October’s decrease of 0.9%.

A significant development was the decline in the U.S. production PMI for December, which fell to 48.2 points, indicating potential concerns over high inflation levels.

With most critical data released, the currency market is now poised for a period of relative stability as it heads towards the Christmas season.

EUR/USD technical analysis

The EUR/USD H4 chart shows that the pair has established a consolidation range around 1.0888. Following an upward breakout, the price hit a local high of 1.1008 before correcting back to 1.0888 (testing from above). A new upward movement towards 1.1050 could initiate today. Upon reaching this level, a downward trend to 1.0727 may begin. The MACD indicator supports this view, with its signal line positioned above zero and pointing upwards.

On the EUR/USD H1 chart, the pair has finished its correction, bouncing off 1.0888. A rising structure is forming towards 1.0970, which could extend to 1.1050. Once this level is reached, a downward movement towards the first target of 1.0725 might ensue. This technical scenario is backed by the Stochastic oscillator, which shows its signal line above 80 and indicates potential further rises to new highs.

Disclaimer

Any forecasts contained herein are based on the author’s particular opinion. This analysis may not be treated as trading advice. RoboForex bears no responsibility for trading results based on trading recommendations and reviews contained herein.

Financial News Forex and Currency News
13 Dec

Copper Shortages Are Looming and Four Stocks to Benefit

Source: Ron Struthers  (12/12/23)

Investment in copper mining is very low at a time when it should be at record highs to accommodate electrification of world economies. Ron Struthers of Struthers Resource Stock Report looks into three promising copper exploration plays and a pure producer, Capstone. 

For a long time, copper has been described with a PhD in economics. It is tied so much to all industries that its demand cycles can mirror economic cycles.

As most of the world seeks to reach net-zero targets and transition to cleaner, renewable forms of energy, copper is a big requirement. However, the amount of copper needed to successfully facilitate the energy transition is staggering. Nearly 70% of all copper produced is used in electrical applications, which is why it’s so important to the energy transition.

While the average internal combustion engine vehicle contains approximately 48 pounds of copper, a typical EV contains nearly four times that amount. Solar Technology uses about 5.5 tons copper/MW of electricity and wind about 4 tons/MW onshore and 10 tons/MW offshore.

Jerome Leroy, vice president of the Canadian business unit of cable supplier Nexans, worries that copper mines won’t be able to keep up. This concern partly stems from the fact it takes many years to secure regulatory approvals for new mines. Moreover, ore grades at existing mines have long been in decline. (Production is concentrated in Chile, Peru, and China.) Mr. Leroy points to forecasts suggesting production capacity will grow to 27 million tonnes a year by the end of this decade, whereas demand could rise as high as 35 million tonnes. A shortfall could materialize as soon as next year, he warns.

“I start to see it happening at the power utility level,” he said. “People are requesting more and more cable. The likes of BC Hydro and Hydro-Québec, and others, say that probably they will need at least 5% more cable every year starting from now.”

Blair DeBruyne, the director of operations, inventory, and fleet services at SaskPower, points out that copper is a major ingredient in transformer coils and almost every power line. But he’s worried about all mined materials because order lead times are being pushed out.

Last year, IHS Markit (a market research firm owned by S&P Global) projected that copper demand could double in little more than a decade — from 25 million tonnes today to 50 million by 2035.

“The chronic gap between worldwide copper supply and demand projected to begin in the middle of this decade will have serious consequences across the global economy,” an IHS report warned, “and will affect the timing of net-zero emissions by 2050.”

Demand for copper in energy transition applications is expected to climb about 8.2% over the next decade, outstripping a projected 2.9% increase in copper demand in that period for traditional uses such as construction, infrastructure, machinery, and transportation, said Mohsen Bonakdarpour, executive director of economics & country risk for Market Intelligence.

My take — I am not as bullish as many on the speed to electrification and EVs, but if demand even grows at half of the projections, there will be shortages. You see, the problem is really on the supply side, mainly because of years of underinvestment in mining. The chart below on copper production shows that growth has been flat since 2016.

The global copper industry needs to spend more than $100 billion to build mines able to close what could be an annual supply deficit of 4.7 million tonnes by 2030, Erik Heimlich, head of base metals supply at CRU, said in 2022.

The supply gap for the next decade is estimated at six million tonnes per year as the clean energy and electric vehicles sectors ramp up. This means the world would need to build eight projects the size of BHP’s (ASX: BHP) Escondido in Chile, the world’s largest copper mine, over the next eight years.

Such task, Heimlich said, seems questionable.

“Many of the projects currently developed have been in the making for almost three decades, and with exploration activity relatively limited in recent years, supply increases may fade from 2025,” experts at BoA said.

Global development and expansion capital for primary copper mines peaked in 2013 at $26.13 billion, almost halved in subsequent years, and has not recovered since.

Capital spending on copper projects is estimated to have been only $14.42 billion in 2022, based on Mine Economics’ universe of coverage. A further decrease of 18.7% is projected for 2023. This chart is just the top 10 companies.

Mine expansion activities rose in 2021, with some major announcements in Chile, Indonesia, and Mongolia that will add 3 million tonnes (mt) over the next four years. Most miners continue to allocate a major portion of the budget to the expansion of existing mines, while the root share was 34% in 2021.

Over the last decade, there have been 19 major grass root discoveries, but only three in the past five years, adding just 5.6mt to the total production. Latin America (LatAm) remains the top region in terms of total discoveries; however, over the past decade, new supplies have come more from Africa and Asia. In particular, between 2012 and 2021, around 56% of the top 10 discovered deposits were added by the Kamoa-Kakula deposit in the Democratic Republic of the Congo in 2014 and the Onto deposit in Indonesia in 2013.

Catch 22 — The Climate Activists Want to Electrify and Go Green but Don’t Want New Copper Mines — Dah!

The changes in LatAm royalty taxes add to the regulatory uncertainty prevailing in the region. The Chilean government is considering a modified version of a 2021 bill to impose a 1% sales tax for copper companies producing less than 200 kilotonnes per annum (ktpa) and up to 3% for companies with output exceeding 200ktpa.

However, companies producing under 50ktpa are exempted from this tax. Similarly, tax changes and local community protests in Peru have impacted production from major mines in the region. This is likely to impact the new project pipeline over the coming years.

Freshwater usage is another major concern for copper mines, especially in Chile, Peru, and the southwest United States. Peru has been rocked by protests since former President Pedro Castillo was ousted in December 2022 in an impeachment trial. The South American nation accounts for 10% of the global copper supply.

Shares in First Quantum Minerals Ltd. (FM:TSX; FQM:LSE) have dropped a whopping 2/3rds (66%) since opposition to a mining contract on their massive copper mine went viral in Panama.

The mine is about 1/2 their copper production, so the stock might be getting oversold.

Let’s see where it bottoms.

Their contract deal gave the company the right to mine the site for at least the next two decades in exchange for US$375 million a year to the government. It has become a flashpoint for local protesters. That opposition has escalated into broader anti-government protests that officials say are costing Panama US$80 million a day.

The mine faces legal and constitutional challenges from the country’s top court, and citizens may get a chance to vote on the contract extension in a referendum next month. Because of the blockade, Quantum announced on November 23 that they suspended production at the mine.

No Way Supply Will Meet Demand

There is no way that supply will ramp up enough to meet rising demand, even if demand increases are half of what is expected. Bringing new mines on stream is becoming more difficult with regulation and climate activists.

The major mining companies are mostly focused on expanding and improving profits at their existing mines. The two main results are higher copper prices, which will likely go to new highs, and a huge focus on junior copper explorers. Not by investors yet, but the majors who are watching these like hawks will be jumping on discoveries and promising projects.

First, a long-term chart on copper. Prices have not gone crazy, but the 2011 highs were tested in 2021 and 2022. Since then, a wedge pattern has developed. A breakout will occur, and I would bet to the upside.

Next chart, short term on the next page, the recent move up and then back was a test of resistance and support levels.

There are virtually no pure copper producer plays, but perhaps one and the big copper producers also produce other base metals, so they are nowhere near a pure copper investment. One option is the junior copper explorers, and I will highlight three of my favorites before I touch on the best pure producer play.

Midnight Sun Mining Corp. (MMA:TSX.V; MDNGF:OTCQB)

Recent Price: $0.20

Midnight Sun has done a lot of exploration work on their Solwezi mineral exploration licenses in Zambia that are located directly adjacent to the largest copper mine in Africa — Once again, First Quantum Minerals’ Kansanshi copper/gold mine.

Midnight Sun has a copper discovery there and needs further work to prove it.

With Midnight Sun, it is all about location.

The Zambian-Congo copper belt is host to some of the world’s richest mines, with operators that include Barrick, Rio Tinto, Glencore, Ivanhoe Mines, and First Quantum and a lot of them surround MMA.

This graphic shows a better closeup.

MMA has four main targets: Dumbwa, Kazhiba Dome, Mitu Trend, and Crunch Zone.

Dumbwa is a continuous high-grade copper-in-soil anomaly for over 20 km along strike and about 1 km wide with peak values up to 0.728% copper.

Kazhiba Dome has multiple high-grade hits in the 22 zones, with the discovery hole running 11.3 meters and grading 5.71% copper. Other intercepts include 21 meters of 3.26% copper and 6.4 meters of 5.08% copper.

The Mitu Trend shows a similar style of mineralization as the Sentinel Mine with associated cobalt and nickel. Drill hits include 11.6 meters of 3.44% copper and 11.5 meters of 1.41% copper.

The Crunch Zone has a newly identified structural target with a largely untested VTEM conductive anomaly. It occurs on the same stratigraphy as First Quanum’s Kanasanshi Mine.

MMA has a large 506 sq km property and already has two high grade discoveries. They are in the right place and have caught the attention of the major miners. I expect we will see some type of JV deal on one or more of their target areas and/or some more great results in the next drill program.

They have 118 million shares out, and at $0.20, the market cap is just around CA$24 million, which is quite cheap for their location and discovery. The company is run by CEO Al Fabbro, whom I have known for many years and who made good returns on his last deal, RoxGold.

The stock bottomed in 2022 with the correction in copper prices. Since then, it recovered but has been stuck in a range between $0.20 and $0.32. It is a good buy here at the bottom of this range.

Zonte Metals Inc. (ZON:TSX.V)

Recent Price: $0.08

Zonte is in a great location as well, miner-friendly NFLD Canada. Year-round road access, high voltage power at the one end of the property, and near tidewater at the other end.

There has been a gold rush there with New Found Gold Corp.’s (NFG:TSX.V; NFGC:NYSE.American) high-grade discovery at their Queensway project.

There has not been much copper exploration, although NFLD was the world’s 4th largest copper producer back in the WW2 era. However, I think this will soon change as Zonte has discovered a grassroots new copper district, an Iron Oxide Copper Gold (IOCG) system.

These can produce huge mines, and Zonte has done a lot of tedious work over the past several years and has discovered 12 priority targets so far. I expect multiple mines could be discovered.

Zonte did some drilling, testing magnetic and gravity highs, and from this, learned that potential deposits are likely adjacent to these anomaly highs. Their soil sampling and rock sampling in the last two years appear to confirm this.

They did make one high-grade hit at their Dunns Mountain target, but it was narrow. It was 0.43 meters with 14% copper, 15 g/t gold and 352 g/t silver. With their new exploration approach, they are currently drilling the K6 target.

In the graphic, you can see that the copper soil anomaly sits adjacent to the gravity and magnetic highs. It is also proven with copper in rocks. Zonte has drilled four holes there so far, and I expect results in the New Year.

The stock just bottomed at historic lows in October but needs to break the downtrend channel. There is only mild resistance, around $0.08, with stronger resistance, around $0.13.

I did an 18-minute interview with CEO Terry Christopher, and we went over, in detail, the exploration of the K6 target. It is well worth watching at this YouTube link.

Zonte also has a gold project in the Yukon that is adjacent to Victoria Gold’s mine. Victoria Gold has been advancing a second discovery there and has been conducting sampling and drilling right up to Zonte’s property boundary. I have little doubt that it extends onto Zonte’s property. Zonte also had a drill discovery on this property in 2015 that is on trend. Zonte has about 70 M shares outstanding and, at current prices, has a market cap of just over $5 million.

Element 29 Resources Inc. (ECU:TSX.V; EMTRF:OTC)

Recent Price: $0.15

Element 29 is advancing two new, high-quality copper projects in Peru — Flor de Cobre & Elida — each with excellent potential for resource growth and development.

They have 100% ownership in these projects and are at a favorable lower elevation < 2,700 meters and with good infrastructure.

ECU’s Elida project is in an advanced stage, but things have been quiet with the company. However, they just closed a $2.8 million financing in the middle of September, so I expect they will soon announce a new exploration and drill program. ECU has 106 M shares outstanding, so at $0.16, it has a market cap of about $16 million.

Explorers Ripe for Deals and Buyouts

All three of these junior explorers are ripe for either a JV deal or a buyout from a major. Of the three juniors, Zonte is the cheapest with a market cap of $5 million compared to the $16M (ECU) and $24M (MMA ) of the other two and has an active drill program, so additional catalysts to move the stock.

I suggest owning all three stocks with a focus first on Zonte if you don’t own any because they will have drill results in early 2024. For a copper producer, I think the best play is:

Capstone Copper Mining Corp. (CS:TSX)

Recent Price: $6.05

52-week trading range: $4.40 to $7.25

Shares outstanding: 695 million

Capstone is a pure copper producer with four producing mines: one in Arizona, one in Mexico, and two in Chile. And 97% of its revenues are derived from copper sales.

An expansion of their Mantoverde Mine in Chile is going to significantly increase copper production in 2024 and lower costs. Here are the operating results of the four mines in Q3 2023.

All operations performed a bit lower in Q3 and are temporary in nature.

Pinto Valley Mine, Arizona U.S.A.

Copper production of 13,600 tonnes in Q3 2023 was 3% lower than in Q3 2022, mainly on lower mill throughput during the quarter (Q3 2023 — 47,426 tonnes per day (tpd) versus Q3 2022 — 48,143 tpd), resulting from unplanned eight-day downtime related to the secondary crusher jack shaft replacement and counter shaft repairs. The grade was consistent quarter-over-quarter (Q3 2023 — 0.34% versus Q3 2022 — 0.34%). Recoveries were lower compared with the same period last year (Q3 2023 — 87.4% versus Q3 2022 — 89.1%).

Mantos Blancos Mine, Chile

Q3 2023 production was 12,200 tonnes, composed of 9,100 tonnes from sulfide operations and 3,000 tonnes of cathode from oxide operations, 11% lower than the 13,600 tonnes produced in Q3 2022. The lower production was driven primarily by lower dump throughput, grade, and recoveries impacting cathode production. The mill throughput of 14,176 tpd in Q3 2023 was impacted by mill downtime caused by planned repair and maintenance of the concentrator plant that lasted six days (liners and major components change). Recoveries were lower in Q3 2023 compared with the same period last year (76.3% in Q3 2023 versus 79.3 % in Q3 2022), mainly driven by ore characteristics in the upper areas of the mine. A plan to address the plant stability during the second half of 2023 is underway which includes improved maintenance and optimization of the concentrator and the tailings system.

Cozamin Mine, Mexico

Q3 2023 copper production of 5,900 tonnes was lower than the same period the prior year, mainly due to lower mill throughput (3,567 tpd in Q3 2023 versus 3,829 tpd in Q3 2022). Recoveries and grades were consistent quarter-over-quarter.

Mantoverde Mine, Chile

Q3 2023 copper production of 8,600 tonnes was 26 % lower compared with 11,600 tonnes in Q3 2022. Heap operations grade was lower as a result of mine sequence (0.32 % in Q3 2023 versus 0.45 % in Q3 2022), and recoveries were lower (66.5 % in Q3 2023 versus 86.7 % in Q3 2022) due to lower solubility ratio of the processed mineral and lower grades, all of which was partially offset by higher heap throughput (2.7 million tonnes in Q3 2023 versus 2.5 million tonnes in Q3 2022). Throughput from dump operations was lower compared with the same period last year due to a temporary sulphuric acid supply shortfall in September, and grades were consistent with the same period last year.

Mantoverde development project’s overall progress is at 93 % and remains on schedule. Construction is progressing well in all key areas of the project. Total project spending since inception was $763 million at the end of September 2023, compared with $706 million in June 2023.

The project is on target for construction completion by year-end 2023. As the project nears completion, the updated total project cost is estimated at $870 million, which is a 5% increase and includes approximately $20 million in project improvements.

Financial

Total available liquidity of $424.5 million as of September 30, 2023, composed of $129.5 million of cash and short-term investments, and $295 million of undrawn amounts on the corporate revolving credit facility. Capstone is in strong financial shape to get the Mantoverde on stream, and from that, revenues and cash flows will see significant increases.

Conclusion

Q3 2023 copper production totaled 40,300 tonnes at C1 cash costs of $2.88 per payable pound of copper produced. Copper production in the third quarter was impacted by an unplanned eight days of cumulative downtime at Pinto Valley related to the secondary crusher jack shaft replacement and counter shaft repairs, plus planned maintenance downtime at Mantos Blancos. Lower production levels and maintenance expenses were the key drivers related to higher consolidated cash costs in the quarter.

The company reaffirms its H2 copper production guidance of 83,000 tonnes to 93,000 t. C1 cash costs are trending toward the upper end of the H2 guidance range of $2.55/lb to $2.75/lb due to additional unplanned maintenance expenditures noted above.

John MacKenzie, CEO of Capstone, commented in the Q3 results: “I am encouraged by the progress we made during the third quarter in executing on our plan to improve operational reliability and expand margins across our portfolio. As construction at our flagship Mantoverde development project (MVDP) approaches completion by year-end, we look forward to a transformational year in 2024. Our excitement follows many years of dedicated effort by our mine build team in Chile. MVDP will drive a significant reduction in our consolidated unit costs and provide a pathway to record operating cash flow generation for Capstone Copper.”

This graphic is from their presentation and highlights the strong growth in 2024 with the MVDP ramp-up. Future growth is expected with their Santo Domingo project in Chile. It is an IOCG system with a targeted 200,000 tonnes per year of low-cost copper with cobalt. An updated feasibility is planned for 2024.

With Capstone, you get the leverage to copper prices and exposure to strong production growth. The stock dipped with the overall market weakness in September/October and has recovered.

The drop in the stock in 2022 was when copper prices had some substantial weakness, see copper charts above.

The stock has strong resistance above $7.00 and will probably take higher copper prices or when their increased production and revenue come on stream in 2024.

The stock has seen a very good rally, and I would look for some weakness or pull back to around $5.50 to buy.

 

Important Disclosures:

  1. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of [Midnight Sun Mining Corp.].
  2. [Ron Struthers]: I, or members of my immediate household or family, own securities of: [Zonte Metals and Midnight Sun]. I determined which companies would be included in this article based on my research and understanding of the sector.
  3. Statements and opinions expressed are the opinions of the author and not of Streetwise Reports or its officers. The author is wholly responsible for the validity of the statements. The author was not paid by Streetwise Reports for this article. Streetwise Reports was not paid by the author to publish or syndicate this article. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy.
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Metals Opinions
13 Dec

Uganda will soon be exporting oil: an energy economist outlines 3 keys to success

By Micah Lucy Abigaba, Makerere University 

Uganda entered into agreements in 2012 with two foreign oil entities to exploit its oil resources. Total Energies holds 56.67% of the joint venture partnership and China National Oil Offshore Company (CNOOC) has 28.33%. Through Uganda National Oil Company, the government owns the remaining 15%.

Production is due to start in 2025. As part of the production sharing agreement, the production licences are valid for 25 years upon extracting the first oil.

To secure the best possible outcome for Uganda, the government needs to focus on three issues: the production sharing agreement, completion of the development stage, and export timing. My co-authors and I identified these areas of crucial concern in a paper based on my PhD thesis: Four essays on oil price uncertainty, optimal investment strategies and cost transmission of an oil price shock.

The context

Uganda joined the list of prospective oil-producing countries in 2006, with six billion barrels of proven oil reserves in the Albertine Graben, part of the western arm of the east African rift valley. Out of this discovery, 1.4 billion barrels are economically viable for extraction. The peak production is projected to be between 200,000 and 250,000 barrels of oil per day, and the extraction is expected to last 25 years.

The cost of extracting oil over this period will amount to about US$19 billion in capital expenditures and operating expenses. Before this production stage, the development of infrastructure, operation facilities, and production wells will cost around US$12.5 billion to US$15 billion.

The annual revenues from oil production are expected to be US$1.5 billion to US$2 billion. The oil revenues have the potential to stimulate Uganda’s economic growth and real household incomes.

But, like many resource-rich sub-Saharan countries, Uganda has limited capacity to solely finance and operate immense complex oil projects. Hence the current production-sharing agreement.

Production sharing agreement

The interests and strategic investment decisions of foreign companies are bound to be in conflict with Uganda’s. That’s why they need an effective agreement.

Uganda’s final investment decision was initially expected in 2015, but was delayed for another seven years. The reasons included tax disputes, negotiations among contract partners, the compensation and relocation of communities affected by the oil project, and oil price volatility.

An effective production sharing agreement is one that maximises returns for both the government and the companies. In my PhD thesis, I examined the implications of the agreement, given the risk factors that influence the project.

The agreement sets out how the government and the foreign companies will share risks and revenues throughout the project’s lifespan.

  • The foreign companies carry the cost of exploration, development of the oil fields and crude oil pipeline, and oil production.
  • The government supplies other infrastructure for the oil project, including roads and the Hoima International Airport.
  • The foreign companies are allowed to claim up to 60% of their net field revenues as cost. Whatever remains after royalties and cost recovery is the “profit oil” shared between the foreign companies and the government.
  • The foreign companies pay royalties to the government based on the daily production. They also pay corporate income tax on their share of the profit oil. So Uganda earns revenues from royalties, profit oil and income tax.

The roadmap to the first oil production

Being a landlocked country, Uganda has to get its crude oil to a regional seaport. It needs a pipeline through Tanzania or Kenya.

In February 2022, Total Energies and CNOOC signed the decision to develop the oil fields and construct the East Africa crude oil export pipeline. The pipeline, costing an estimated US$3.5 billion to US$5 billion, is scheduled to be completed in time for oil production in 2025. It will take the oil to the port of Tanga in Tanzania.

A pipeline company with shareholding from the Uganda National Oil Company (15%), the Tanzania Petroleum Development Corporation (15%), Total Energies (62%) and CNOOC (8%) operates the East African pipeline project.

Exports timing

It is important that Uganda’s oil gets to the global market at profitable terms. The slump in oil prices between 2014 and 2016 resulted in the foreign companies drastically trimming their local workforce and cutting their investment budgets by 20% to 30%. The drop in oil prices due to the COVID-19 pandemic and the ensuing lock-downs in Uganda also created uncertainty about when the oil would be ready to sell.

The uncertainties about the completion of the development stage and crude oil price volatility still prevail. This has raised concerns about whether the project can generate returns for the government and foreign companies.

In my PhD thesis, I focused on estimating the influence of these uncertainties on the value of Uganda’s oil project, taking into account the design of the production sharing agreement. I found that:

  • For the development stage to start, the global crude oil price must be equal to or higher than US$63 a barrel. The crude prices, which fell below US$25 per barrel in 2020, have recovered to sell above US$80 now.
  • The required prices to start oil production differed among the parties. It was US$18 for the government and US$42 for the foreign companies. This suggests conflicting interests. I further found that when crude oil prices are highly volatile, the government prefers to delay production. The foreign companies prefer the opposite.
  • I found that as the oil price rises and the project becomes profitable, the government’s revenue share rises faster than that of the foreign companies. But the oil price volatility exposes the government to revenue losses when the prices fall.

What next

The development of the oil fields and pipeline has resumed in Uganda after the COVID period lull. The government needs to design production sharing agreements to allow for options that encourage investments by foreign companies while stabilising government revenues from the oil sector. One option could be delaying investment until oil prices are favourable.

My results indicate that the government’s revenue share is more sensitive to oil price shocks than the foreign companies’ share. These shocks may translate into fluctuations in government oil revenues and, ultimately, macroeconomic instability. The government must consider these shocks when designing and negotiating oil agreements.

Uganda also needs to manage its petroleum fund effectively. It could learn a lesson from how Norway manages its oil fund. Some share of its oil revenues should be put aside for the period when oil earnings begin to decline. This would counteract the macroeconomic instability arising from sudden government oil revenue changes.The Conversation

About the Author:

Micah Lucy Abigaba, Energy Economics Lecturer, Makerere University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

 

Energy Opinions
13 Dec

Mid-Week Technical Outlook: NQ100_m waits on Fed rate decision

By ForexTime 

  • NQ100_m hits fresh 2023 high yesterday
  • Index could be rocked by looming Fed decision
  • Bulls in control but RSI overbought on D1 chart
  • Levels of interest at 16770.6, 16100 & 15800

The NQ100_m jumped to a fresh 2023 high in the previous session after signs of slowing inflation supported hopes around the Fed cutting interest rates next year.

November’s inflation report painted a mixed picture with annual consumer prices slipping to 3.1%, down from 3.2% in October. The annual core figure, which strips out volatile energy and food prices rose by 4% in line with the prior month. However, the monthly core figure rose 0.3%, slightly faster than 0.2% in the previous month.

While traders are still pricing in a 25-basis point cut by May 2024, this could be influenced by the Fed decision later today.

As highlighted in our week ahead report, the central bank is widely expected to leave rates unchanged, so focus will be on the updated economic projections, “dot plot” and Powell’s press conference.

Whatever the outcome of the Fed meeting, it could rock the NQ100_m which is filled with tech stocks that remain sensitive to interest rates.

Redirecting our attention back to the technicals…

The NQ100_m is respecting a bullish channel on the weekly charts with the next key level at the all-time high of 16770.6 created back in November 2021.

It is a similar story on the daily charts with bulls clearly in a position of power. There have been consistently higher highs and higher lows while prices are trading well above the 50, 100, and 200-day SMA. However, the Relative Strength Index (RSI) is trading above 70, signalling that prices are heavily overbought, suggesting a potential throwback down the road.

  • Should 16100 prove to be reliable support, this may provide a foundation for bulls to charge towards 16770.6

  • A move back below 16100 could trigger a selloff towards 15800 and 15540.

Forex-Time-LogoArticle by ForexTime

ForexTime Ltd (FXTM) is an award winning international online forex broker regulated by CySEC 185/12 www.forextime.com

Opinions Stock Market News
12 Dec

US CPI: markets are overly confident of Fed pivot

By George Prior 

Markets appear to be overly confident of a policy pivot by the Federal Reserve, warns the CEO of one of the world’s largest independent financial advisory, asset management and fintech organizations.

The warning from Nigel Green of deVere Group comes as the inflation in the US is published by the US Bureau of Labor Statistics.

He says: “Inflation remains sticky. The Fed will not want to take the risk of pivoting on policy too soon by cutting rates.

“We believe that the data is still not strong enough for the central bank of the world’s largest economy to commit to reversing its most aggressive tightening campaign in decades – yet the markets seem read to confidently and heavily price-in rate cuts.

“Therefore, we could see a market rally as the year ends, but we think this could be overly optimistic.

“It can be expected that the Fed will leave the US interest rate unchanged at the 5.25%-5.5% range tomorrow (Wednesday) following the last monetary policy meeting of the year.

“But, so far, there’s no pivot in sight.”

The deVere CEO continues: “Inflation is still turning out to be stickier than expected. We expect that markets are pricing-in cuts too quickly. It will be next year before we really know.

“Certainly, some stock surges – such as those which are AI-orientated – are reasonable. Yet many others are getting ahead of themselves.”

The deVere CEO goes on to add that investors should diversify across asset classes to spread risk and capture opportunities arising from different market conditions; and to consider alternative investments that may provide returns less correlated with traditional asset classes.

He concludes: “Will the Fed really pivot with inflation stubborn? We think not.

“Yet markets seem to be getting carried away that the Fed and its peers of major central banks are ready to pivot.

“Significant opportunities remain, but investors should avoid complacency.”

About:

deVere Group is one of the world’s largest independent advisors of specialist global financial solutions to international, local mass affluent, and high-net-worth clients.  It has a network of more than 70 offices across the world, over 80,000 clients and $12bn under advisement.

Economics & Fundamentals Opinions
12 Dec

Bank of Japan’s statements mislead investors. Oil is expected to see a rise in fuel demand ahead of the holidays

By JustMarkets

As of Monday’s stock market close, the Dow Jones Index (US30) was up by 0.43%, while the S&P 500 Index (US500) added 0.39%. The NASDAQ Technology Index (US100) closed positive by 0.20% yesterday. Stocks found support on Monday on expectations that US consumer prices will continue to decline. Today, the CPI report for November will be released. US CPI is expected to decline to 3.1% y/y from 3.2% y/y in October, while CPI excluding food and energy is expected to remain unchanged at 4.0% y/y.

This week, markets will also keep a close eye on the results of the central bank meetings of the Fed, ECB, SNB, and Bank of England to see if policymakers support the suspension of the interest rate hike campaign and when they might start to shift to a softer policy.

According to Bloomberg Intelligence, 2024 will be a year of strong fundamental growth for stocks of companies that make chips for generative artificial intelligence.

According to the latest polls, Mexico’s central bank (Banxico) is likely to keep its benchmark interest rate unchanged this Friday for the sixth consecutive time at 11.25%, with discussions of a rate cut not starting until next year. Minutes from the bank’s last monetary policy meeting showed the idea of discussing a key interest rate cut in the first quarter of 2024.

Equity markets in Europe traded on Monday without a single dynamic. German DAX (DE40) rose by 0.21%, French CAC 40 (FR40) gained 0.33% yesterday, Spanish IBEX 35 (ES35) declined by 0.25%, and British FTSE 100 (UK100) closed negative by 0.13%. Goldman Sachs raised its 12-month forecast for the STOXX 600 index to 500, implying a nearly 6% gain through the end of 2024 on expectations of lower interest rates. The broker previously expected the index to end 2024 at 480 points. Meanwhile, GS downgraded its recommendation on European banks to “neutral” as it expects the European Central Bank to cut interest rates next year.

Swap prices show that the chances of an ECB rate cut in Q1 2024 have decreased. In swaps tied to ECB meeting dates, the probability that the ECB will cut the benchmark rate by 25 bps at its March 7 meeting is 58%, down from 67% recorded last Friday.

Crude oil prices recovered from early losses on Monday and posted a slight gain after the American Automobile Association (AAA) predicted a record number of air travelers during the Christmas week, which will have a positive impact on fuel demand. AAA predicted that a record 7.5 million people will use air transportation services between December 23 and January 2.

Asian markets were predominantly up yesterday. Japan’s Nikkei 225 (JP225) gained 1.5%, China’s FTSE China A50 (CHA50) added 0.13% on Monday, Hong Kong’s Hang Seng (HK50) fell by 0.81% on the day, and Australia’s ASX 200 (AU200) was positive 0.06%.

Even late last week, the market was dominated by rumors that the Bank of Japan was planning an exit from negative interest rates. But yesterday, BoJ officials said that they see no need to rush to abandon the negative interest rate policy as there is insufficient evidence of wage growth to support sustainable inflation. Such an approach could undermine investor confidence in the yen and the JP225, so the Bank of Japan should be more consistent.

Japan’s BSI Large Manufacturing Business Conditions Index rose from 5.4 to 5.7 in Q3, the highest reading in 2 years.

Australia’s updated mid-year budget will include about A$10 billion ($6.56 billion) in savings as the government seeks to cut spending in an attempt to contain high inflation. Australian households are under financial pressure from high inflation and rising interest rates, but the vast majority of borrowers can service their loans. That means the RBA has room to keep rates high for longer.

S&P 500 (US500) 4,622.44 +18.07 (+0.39%)

Dow Jones (US30) 36,404.93 +157.06 (+0.43%)

DAX (DE40)  16,794.43 +35.21 (+0.21%)

FTSE 100 (UK100) 7,544.89 −9.58 (−0.13%)

USD Index  103.97 -0.01 (-0.01%)

News feed for 2023.12.12:
  • – Australia RBA Gov Bullock Speaks at 00:20 (GMT+2);
  • – Japan Producer Price Index (m/m) at 01:50 (GMT+2);
  • – Australia NAB Business Confidence (m/m) at 02:30 (GMT+2);
  • – UK Average Earnings Index (m/m) at 09:00 (GMT+2);
  • – UK Claimant Count Change (m/m) at 09:00 (GMT+2);
  • – UK Unemployment Rate (m/m) at 09:00 (GMT+2);
  • – German ZEW Economic Sentiment (m/m) at 12:00 (GMT+2);
  • – Eurozone ZEW Economic Sentiment (m/m) at 12:00 (GMT+2);
  • – US Consumer Price Index (m/m) at 15:30 (GMT+2).

By JustMarkets

 

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.

Economics & Fundamentals Financial News
12 Dec

Gold bears eye weekly support ahead of US CPI

By ForexTime 

  • Gold bearish on daily timeframe
  • 4 potential targets identified on H4 chart.
  • Bearish scenario invalidated above 2039.91
  • Watch out for US CPI report this afternoon

After the spectacular bearish move on Monday 4th December, gold is back in bearish territory.

This is reflected in the daily timeframe where prices are busy with an impulse in the current downtrend. Bears seem to be aiming for the next weekly support level around 1931.35 with the negative momentum increasing after the solid daily close below the psychological $2000 level. Nevertheless, looking at the 4-hour timeframe might give more insight into what to expect from the precious metal over the next few sessions.

Before we take a deeper dive into the technicals, it is worth keeping in mind that fundamental forces could impact the precious metals’ outlook this week.

The incoming US CPI report released this afternoon could impact expectations around what actions the Fed will take in 2024, ultimately influencing gold.

A softer-than-expected inflation figure may support gold, while a higher-than-expected figure has the potential to drag the precious metal lower.

Shifting our focus back to technicals…

The 4-hour chart validates the daily scenario with a downtrend in progress. The bearish impetus is further confirmed by the price being below the 50 Exponential Moving Average. Both the Momentum Oscillator and the Moving Average Convergence Divergence (MACD) are also beneath their respective base lines.

Attaching a modified Fibonacci tool to the trigger level below the last lower bottom at 1975.75 and dragging it above the 50 Exponential Moving Average at 2039.91, four possible targets can be determined:

  • The first potential target is at 1950.09 (Target 1).

  • The second price target is likely at 1937.25 (Target 2).

  • The third price target is possible at 1911.59 (Target 3) if the price has enough momentum to break through the weekly support level.

  • The fourth and last price target is feasible at 1879.51 (Target 4) if the bears can continue their rule for long enough.

If the price at 2039.91 is broken, this scenario is no longer valid.

Forex-Time-LogoArticle by ForexTime

ForexTime Ltd (FXTM) is an award winning international online forex broker regulated by CySEC 185/12 www.forextime.com

Economics & Fundamentals Financial News
12 Dec

AI’s impact on 3 key industries will pique investors’ interest in 2024

By George Prior 

Investors should strategically position their portfolios in 2024 to capitalize on the opportunities offered by AI for certain sectors, says the CEO and founder of one of the world’s largest financial advisory and asset management organizations.

deVere Group’s Nigel Green is speaking out after what has been a pivotal year in the AI space, characterized by major company moves from tech titans, pioneering initiatives, groundbreaking product launches, huge investments and strategic acquisitions.

He says: “AI stands at the forefront of technological innovation, poised to catalyze a profound transformation across industries. The potential for a significant boost in productivity is particularly evident in sectors such as financials, airlines, and healthcare.

“The financial industry is experiencing a paradigm shift with the integration of AI technologies. Machine learning algorithms, natural language processing, and predictive analytics are revolutionising processes, from risk management to customer service.

“AI-driven insights enable financial institutions to make data-driven decisions, enhance fraud detection, and streamline operations. Investors should consider seizing potential opportunities in this sector by looking at investments in fintech companies and financial institutions embracing AI to gain a competitive edge.

He continues: “AI-powered algorithms can analyze vast datasets and execute trades with speed and precision, providing a potential boost to investment returns – as such, investors could consider exposure to funds or companies specializing in algorithmic trading strategies.

“Also, as AI enhances risk assessment by analyzing complex patterns and identifying potential threats, investors may find opportunities in companies developing innovative risk management solutions for financial institutions.”

The aviation industry is ripe for AI-driven productivity enhancements, from optimizing flight routes to enhancing customer experience. AI’s potential impact on airlines extends to fuel efficiency, predictive maintenance, and personalised services.

Algorithms can analyse historical data, weather patterns, and other variables to optimize flight routes, reducing fuel consumption and operational costs. In addition, chatbots and virtual assistants powered by AI can streamline customer interactions, providing real-time support and personalized services.

“Savvy investors are likely to explore opportunities in airlines adopting AI for route optimization; and companies investing in AI-driven customer service solutions may present attractive investment opportunities.”

Moving onto healthcare, AI is becoming a transformative force, contributing to improved diagnostics, personalized treatment plans, and operational efficiencies. As the industry embraces AI-driven innovations, investors can position their portfolios to benefit from the growth potential.

AI algorithms can analyze medical images and data to enhance diagnostic accuracy. It can also accelerate the drug discovery process by studying biological data and identifying potential drug candidates.

“Companies developing AI-powered diagnostic tools and technologies may present investment opportunities in the healthcare sector, and investors may consider pharma companies leveraging AI for drug development.”

The deVere CEO says there are three main reasons why investors should position their portfolios accordingly.

First, innovation potential. “Industries integrating AI are likely to experience unprecedented innovation, creating opportunities for investors to capitalise on the growth of forward-thinking companies at the forefront of technological advancement.

Second, competitive advantage: “Companies embracing AI technologies gain a competitive edge by improving efficiency, reducing costs, and enhancing decision-making processes. Investors positioning their portfolios in such companies could benefit from their ability to outperform industry peers.”

Third long-term growth: “AI’s transformative impact is not a fleeting trend; it represents a long-term paradigm shift. As such, investors with a strategic focus on AI-driven sectors could position their portfolios for sustained growth over the coming years.

Nigel Green concludes: “Artificial Intelligence’s potential to boost productivity in industries like financials, airlines, and healthcare is a compelling narrative for investors.

“By strategically positioning portfolios to capture opportunities in companies at the forefront of AI adoption, investors can align themselves with the transformative forces shaping the future of these industries.”

About:

deVere Group is one of the world’s largest independent advisors of specialist global financial solutions to international, local mass affluent, and high-net-worth clients.  It has a network of more than 70 offices across the world, over 80,000 clients and $12bn under advisement.

 

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