Weekly Round-Up: Oil, Copper Drop, but Gold Shines Amid RisksEurope’s woes and signs of weakness in China’s manufacturing sector continued to weigh down on commodities across the board this week. Lack of strength in the US economy, particularly in the labor market, is putting a damper on market sentiment as well, but gold is gaining ground as investors seek out safe haven assets.

There may, however, be a silver lining in China’s slump in manufacturing. The country’s Purchasing Managers’ Index dropped to 50.4 in May from 53.3 in April. Yet many analysts believe that because Chinese businesses are facing downward pressure, Beijing will step in to jumpstart the economy with a stimulus package, including easier monetary policy and increased public sector investments. So far there is no sign that Chinese policymakers will do so, and some analysts believe that it will not happen, at least to the extent seen in 2008.

The US Department of Labor reported payrolls rising by 69,000 in May, the lowest number of jobs added since May 2011, and considerably below market expectations. The jobless rate inched up to 8.2 percent from 8.1 percent in April.

While Greece remains on the minds of many analysts as the country’s June 17 election approaches, possibly resulting in Athens’ exit from the Eurozone, other European issues continue to worry investors. Unemployment in the Eurozone reached a record high in April at 11 percent, according to the European Union’s statistics office. Meanwhile, there is growing pressure from European Central Bank President Mario Draghi and Italian Prime Minister Mario Monti for Germany to abandon its opposition to direct aid for banks facing financial constraints.

The fall in base metals and energy prices has already hurt traders’ bottom line. According to London-based research group Coalition, revenue from commodities investments at the ten largest banks in the world, including Citigroup, Deutsche Bank, and Goldman Sachs, fell to around $2 billion from $3 billion a year ago, due to a fall in metals and energy prices.

In midday trade on Friday, Brent crude is 3.22 percent weaker at $98.55 a barrel, while copper is down 0.2 percent at $3.33 a pound. Gold, on the other hand, is up 3.62 percent at $1,623.95 an ounce.

Oil

Oil fell below its psychologically critical $100 per barrel threshold as global supply continued to rise even as demand fell. Iraq is finding it difficult to attract broad investor interest in its energy projects. While Baghdad offered twelve oil and natural gas exploration licenses this week, only three blocks were awarded by the Iraqi Oil Ministry. The licenses were awarded to Russia’s LUKOIL (LSE:LKOH) and Japan’s Inpex (TSE:1605), which will jointly explore for crude in Southern Iraq, Pakistan Petroleum, which will be developing a gas block, and Kuwait Energy, which will be developing oil.

BP (LSE:BP) is selling off its half of Russian joint venture TNK-BP. The company is Russia’s third-largest oil producer, and the sell-off is likely to lead to a reorganization of the country’s energy sector. BP said that it has already received “unsolicited approaches,” but details on which companies may be particularly interested in acquiring shares remain undisclosed.

Chevron (NYSE:CVX) is being sued by residents of the Amazon rainforest, who filed a lawsuit in Canada this week for environmental damages caused by Texaco in the 1970s. Chevron acquired Texaco in 2001, and recently residents were awarded $18.2 million when an Ecuadorian court found Chevron liable for poor waste management. The Canadian lawsuit is an attempt to collect that money, which Chevron contests was based on unreliable expert witnesses.

Peter Voser, Royal Dutch Shell‘s (LSE:RDSA) CEO, said the company is looking to begin drilling for oil in Alaska’s Beaufort Sea by this summer, despite opposition from environmental groups.

Vancouver-based New Zealand Energy (OTCQX:NZERF,TSXV:NZ), together with Origin Energy Resources NZ, will acquire four petroleum mining licenses in New Zealand’s Taranaki Basin as well as other assets. Origin Energy Resources NZ is a wholly-owned subsidiary of Origin Energy (ASX:ORG).

Copper

Copper has hit its lowest level so far this year amid worries about a global economic slowdown hurting demand. On the supply side, however, red metal output in Chile rose 1.6 percent in April from a year ago to 445,378 metric tons. During the first four months of the year, output increased by 1.3 percent from the same period a year ago to 1.73 million tons.

BHP Billiton (ASX:BHP) won government approval to expand its Outer Harbour iron ore project in Western Australia, but that is likely to mean BHP’s Olympic Dam copper and uranium mine expansion in South Australia will be put on the back burner, according to a Credit Suisse forecast.

Vale (NYSE:VALE) is being investigated on allegations that it abused Indian lands at its two copper mines in the Amazon. The Brazilian company is also facing a civil suit as Indian tribes seek to suspend activities at its Onca Puma nickel mine.

Freeport-McMoran (NYSE:FCX) could be facing further labor unrest as miners at Indonesia’s Grasberg mine plan to protest against worker layoffs.

In Peru, a 30-day state of emergency was declared after two people were killed during anti-mining protests at Xstrata‘s Tinaya copper mine.

Alder Resources (TSXV:ALR) will be able to earn a 65 percent interest in the Rosita D concession located within Calibre Mining’s (TSXV:CXB) wholly-owned Borosi concessions in Northeast Nicaragua by investing C$4 million on exploration. In addition, Alder will be required to issue one million common shares to Calibre over a four-year period. Once Alder obtains its 65 percent stake, a joint venture will be formed and both companies will be responsible for their pro-rata share of all subsequent project expenditures.

Gold

Gold is regaining its sheen once again, having taken a back seat to US government bonds as investors seeking safety flocked to the bond market. According to some analysts, that trend is waning and gold is once again attracting those looking for safe haven assets amid global turmoil.

As for mining in Australia, Newcrest Mining (ASX:NCM) CEO Greg Robinson said high labor, as well as energy and taxation costs, are making it more difficult to consider developing new projects. The company will soon be completing the expansion of its Cadia project in New South Wales, but future projects will focus more on regions such as Papua New Guinea.

Highland Gold Mining (LSE:HGM) will acquire Russia’s LLC Klen for $69 million, which will give Highland mining and exploration rights to the Klen gold deposit in Northeast Russia.

“The Klen addition is an important extension of Highland’s asset base and will have an immediate impact on the Company’s resources. Production is scheduled to commence in 2015 and will benefit prospective output. We believe that the Klen operation could benefit significantly from the exploration potential of the Verkhne-Krichalskaya area,” stated Eugene Shvidler, Highland’s chairman.

Santa Fe Gold (OTCBB:SFEG) ended its proposed agreement to acquire Columbus Silver (TSXV:CSC) for $10 million due “in part to difficult market conditions.”

“Although we are disappointed in the Columbus Silver acquisition not going ahead, our focus and resources must be directed to bringing the Summit silver-gold mine into full production,” said Pierce Carson, Santa Fe’s CEO. “However, certain of Columbus Silver’s properties would be a good strategic fit for Santa Fe and we are exploring the possibility of directly purchasing those properties.”

 

Securities Disclosure: I, Shihoko Goto, hold no direct investment interest in any company mentioned in this article.