Stockpile: Bullion back on the rise as resource stocks struggle

Finance

Gold stocks were amongst the winners this week as the precious metal headed for a four-week high in London on August 13 in response to increased demand.

Bullion has gone off the boil in recent months but the price has picked up recently, with the metal jumping 1.3% on August 12, the highest rise since June 17.

Gold is being viewed as a store of wealth following news from the Federal Reserve that economic growth has slowed, and on negative global production data.

Accordingly, four of the top performers this week on the FTSE index were gold stocks, with very few companies finishing the trading period in positive territory.
Centamin Egypt Ltd was the best of the gold miners, gaining 4%, while Randgold Resources Ltd added more than 2% and Central Rand Gold Ltd remained steady.

Away from gold, the top rise for the week was UK Coal with a 9% gain. The company is gradually recovering from a period of poor news and recently announced a corporate shake-up, which included the departure of its chief executive.

The remainder of the main board resources stocks finished down. Indian company Vedanta Resources plc was again hit hard over the environmental dispute regarding its plans to develop a bauxite mine in the Niyamgiri Hills region of India eastern Orissa state. The company's share price fell more than 19% for the week.

Of the major miners, Xstrata was the most notable faller, closing the week almost 9% lower. Anglo American was 7% down, Rio Tinto shed over 4% and BHP Billiton almost as much.
Not all of the gold-related companies fared well either, with Kazakhmys plc and Petropavlovsk plc dropping 10% and 7%, respectively.

In the news this week was Lonmin plc, which (along with Coal of Africa Ltd, see below) has been issued with a notice to stop selling certain commodities, and to halt development activities on some projects. The platinum miner finished 5% down.

African Diamonds plc, which is participating in the development of the AK6 kimberlite mine in Botswana, gained 22% in the week after announcing potential corporate activity with an unnamed party.
Last November, the company orchestrated a change of partners at the project from De Beers to the Lundin group’s Lucara Mining Corp. The deal involved Lucara buying De Beers’ 71% stake and African Diamonds getting an option to increase its on stake to 40% from 29%.

In Friday’s statement the company said it had received an “unsolicited proposal regarding a potential offer”. It added that it did “not consider the proposal, as currently constituted, to be one it would recommend to shareholders.” The company added that discussions with a potential investor (over the financing of capital expenditure at the project) "are progressing".

Angel Mining plc, with base metals and gold assets in Greenland, was up 21% over the week. The company announced on Monday that Cyrus Capital Partners, a lending agent, has agreed to postpone the repayment of a US$4.5 million bridging loan to August 31, after Angel said it would miss the August 9 deadline.

The company said negotiations with another company for a US$100 million debt facility are “nearing completion”.

Of the fallers, shares in Coal of Africa Ltd slumped 22% after the company was ordered to halt certain development activities at its Vele coking coal project in South Africa’s Limpopo province.

The project has received a new order mining right by the Department of Mineral Resources but is still to receive an integrated water-use licence, for which it applied last year. The Department of Environmental Affairs (DEA) called the halt after describing certain work as “illegal”.

Coal of Africa’s management met with representatives of the DEA on Tuesday stating that “both parties are continuing to work together in good faith” and that the company was confident of a satisfactory outcome.

The share price of Scotgold Resources Ltd fell 16% in the week after the Scottish National Park’s planning department recommended refusal of the company’s application for development of the Cononish gold project. The authority cited “concerns over significant landscape, visual and recreation impacts,” amongst the reasons for its decision.
The National Park Authority’s board will meet on August 18 to make a decision on the project and the company is confident that local support from the community will be taken into account.