Stockpile: Miners suffer as gold, copper decline

London’s FTSE mining index fell to its lowest point of the year this week, reflecting declines amongst the commodity markets.
The mining index suffered sharp falls throughout the week and finished the period almost 6% lower overall.

Gold and copper followed a similar path, with the latter dropping to its lowest price in three months after the earthquake in Japan and rising inflation in China. Gold, meanwhile, was showing signs of improvement by the end of the week after falling for three consecutive days.
Since reaching recent records, gold was heading back towards the US$1,400 level. However, demand for the precious metal as an alternative asset had revived bullion’s fortunes by March 11.

Marc Ground, an analyst at Standard Bank plc, said: “It is demand for safety that is driving the buying of precious metals as geopolitical tensions in the Middle East and North Africa region escalate.”

He added that sovereign credit-rating downgrades have “seen market fears surrounding the euro zone debt crisis resurface and the earthquake may also support gold”.

Of the FTSE main market miners, Aquarius Platinum Ltd was the hardest hit, declining 13.5%. Contributing to the company’s drop was news that the Zimbabwean government would nationalise half of the country’s resources sector by establishing a sovereign wealth fund to own 51% of mining firms.

The major miners didn’t escape the damage, with Xstrata coping the best with a fall of just 5%. The Switzerland-based company closed the week by announcing its zinc division was investigating an integrated development plan involving its European and Canadian smelters to increase capacity at the McArthur River mine in Australia.

Anglo American plc was almost 6% lower, while BHP Billiton and Rio Tinto were both about 7.5% down.

Randgold Resources Ltd shed 9.5%, but did well to contain the loss in the light of doubts surrounding its Tongon operation in Ivory Coast because of the political turmoil in the country. The Jersey-based miner reassured shareholders during the week the recently-commissioned mine was still operating despite the conflict.

On AIM, the price of Churchill Mining plc shares gained nearly 25% during the week, after announcing that it has appealed against a recent decision to revoke its mining licences covering the East Kutai Coal project in Indonesia.

On March 3, a State Administrative Tribunal in Samarinda upheld a decision made last September by the Regent of East Kutai to cancel the four mining licences that make up EKCP.

Churchill said the appeal will be heard by the Administrative High Court in Jakarta.

The company added: “It may take several months after the lodgement of the notice of appeal before the Administrative High Court in Jakarta would issue its notification to the parties, which marks the beginning of the formal appeal process.”
The written ruling relating to the revocation is expected in approximately two weeks.

Even after this week’s rise, the company’s share price remains 74% lower that at the start of the year.

Kalahari Minerals Inc was the second best performer after announcing that China Guangdong Nuclear Power Holdings Corp-Uranium Resources Co (CGNPC-URC) may bid £756 million (US$1.2 billion) for it.

Kalahari owns 43% of Extract Resources Ltd, which in turn holds the Husab uranium project, neighbouring Rio Tinto’s large Rössing uranium mine in the southern African country.

The announcement came just weeks after Extract itself announced that it was holding discussions with Rio Tinto regarding the potential combination of Husab and Rössing. Rio Tinto owns nearly 15% of Extract and almost 12% of Kalahari.
Kalahari's board of directors recommended the offer, and CGNPC-URC would pay a break fee of £7.5 million if conditions have not been met and an official offer has not been made by May 3.

Hambledon Mining plc fell the most during the week with a 22.5% drop by Friday afternoon. Reports indicate the company is conducting a £3.5 million placing of shares at £0.04/each. The company operates the Sekisovskoye gold mine in East Kazakhstan.

Cluff Gold plc was next on the list, shedding over a fifth of its share price after announcing that it had placed its Angovia mine in the Ivory Coast on care-and-maintenance.