Weekly Round-Up: Commodity “Renaissance” in 2013?

Gold and oil are ending the week lower, while copper is up as talks to avert the fiscal cliff — a set of tax increases and spending cuts set to kick in January 1 — continue in Washington.

President Obama insists that any deal with Congress must include tax hikes on the wealthiest Americans, while Republicans favor cuts to social programs, including Medicare and Medicaid.

Both sides held firm to those positions this week, but there were signs that some Republicans are beginning to accept that tax hikes on the wealthy are inevitable. Ohio Republican Representative Steve LaTourette outlined the shift to CNN, commenting, “[t]he sense was that there’s a growing number of folks in our party that are saying, ‘You know what, the president has won this round relative to the rates, but we need you to sit down and get the second half of the deal and that’s the spending.’”

Commodity and stock markets were also buoyed by a stronger-than-expected jobs report out of the US on Friday morning, according to an article in The Globe and Mail. The Labor Department reported that the country added 146,000 jobs in November, far above the consensus estimate of 93,000. The unemployment rate declined to 7.7 percent, its lowest level since December 2008.

Meanwhile, a new report from Goldman Sachs (NYSE:GSpredicts a commodity “renaissance” in 2013. The bank said it doesn’t expect prices to move much higher during the year, but feels that improvements in the global economy will lead to short-term shortages of certain raw materials, creating opportunities for investors. Goldman continues to recommend that investors remain overweight in commodities and pointed to oil, copper and corn as bright spots due to their tighter supplies.

In morning trade Friday, Brent crude is down 0.07 percent, at $106.96 a barrel, while copper is up 0.63 percent, at $3.67 a pound. Gold is down 0.18 percent, at $1,704.80 an ounce.

Gold

Shareholders of Argonaut Gold (TSX:AR) and Prodigy Gold (TSXV:PDG) approved Argonaut’s $341-million all-stock takeover of Prodigy this week. Prodigy owns the Magino gold property in Ontario, Canada, which contains an indicated resource of 6,250,990 ounces of gold. Argonaut owns a number of projects in Mexico.

The deal is part of Argonaut’s plan to become a mid-tier producer with output of over 500,000 ounces of gold a year. The companies expect the deal to close on or about December 11, 2012.

PMI Gold (TSXV:PMV,ASX:PVM) has now moved up to the TSX from the TSX Venture Exchange. PMI recently completed an NI 43-101 compliant feasibility study on its Obotan gold project in Ghana. The company expects a mine on the site to produce 2.26 million ounces over its estimated 11.5-year mine life, for total revenue of $2.9 billion.

Oil and gas

Ratings agency Standard & Poor’s said it expects natural gas prices to remain below $4 per thousand cubic feet in 2013. The forecast comes despite the fact that gas has rallied 88 percent since April, to about $3.45. “Although prices have gained some lost ground, they remain substantially lower than before the economic crisis of 2008. Gas is now more abundant and industrial and commercial demand is stagnant,” said S&P credit analyst Ben Tsocanos.

In response to lower gas prices, many explorers and producers are switching to oil and natural gas liquids. The agency also noted that there are now 413 rigs drilling for gas, down from 877 a year ago.

Freeport McMoRan Copper & Gold (NYSE:FCX) is buying Plains Exploration & Production (NYSE:PXP) and McMoRan Exploration (NYSE:MMR) as it makes a major move into oil and gas. Freeport is paying $6.9 billion in cash and stock for Plains and $3.4 billion in cash for McMoRan Exploration — or $2.1 billion when you account for the 36 percent of MMR that Freeport already owns. Freeport will also assume $11 billion in debt.

Regulators and Plains and McMoRan Exploration shareholders must still approve the deal. As a result of the purchase, Freeport said mining will supply 74 percent of its earnings before taxes, interest, depreciation and amortization (EBITDA) in 2013, while oil and gas will account for the remaining 26 percent.

Freeport investors panned the move, sending the stock down 16 percent in the wake of the announcement. Plains jumped 23.4 percent and McMoRan Exploration surged 87 percent.

Suncor Energy (TSX:SU,NYSE:SU) expects its full-year production from its operations in the Canadian oil sands to come in at the lower end of its guidance range of 325,000 to 340,000 barrels of oil per day (bopd). To put that in context, these assets produced an average of 326,500 bopd in 2011. Unplanned maintenance at one of its facilities in Alberta pushed down Suncor’s oil sands production to an average of 318,000 bopd in November from 336,000 in October. These assets have now been repaired, and output rose to 380,000 bopd by the end of the month.

As well, earlier this week Suncor announced that it planned to spend $7.3 billion on capital expenditures in 2013. In all, it expects to produce 570,000 to 620,000 bopd during the year. That amounts to an 8 percent increase in overall output and a 12 percent jump in oil sands production.

Copper

Candente Copper (TSX:DNT) is developing the Canariaco Norte property in Peru, which contains a measured and indicated 7.533 billion pounds of copper, 1.7 million ounces of gold and 45.2 million ounces of silver. The company is currently waiting for a water permit to carry out a feasibility study on the site. It has said that one of the three deposits is feasible at a copper price of $2.25 a pound.

This week, CEO Joanne Freeze said Candente aims to expand its exploration efforts at the site. “We also plan to be drilling at Canariaco Sur and Quebrada Verde, where we could be making new discoveries,” she told Bloomberg. “We believe we should get these permits fairly soon, as I have no reason to think it would be another three months.”

Revett Minerals (TSX:RVM,AMEX:RVM) continues to experience production difficulties at its Troy mine in Montana. This week, it said that its operations have been hampered by difficult ground conditions, as well as a power outage in November. The company said it has produced 1,115,000 ounces of silver and 7,550,000 pounds of copper for the year through November 30. It now forecasts full-year production of between 1.2 and 1.25 million ounces of silver and 8 to 8.5 million pounds of copper.

“We continue to operate on a positive cash flow basis, but not to the extent as planned,” said Revett president and CEO, John Shanahan.

 

Securities Disclosure: I, Chad Fraser, hold no positions in any of the companies mentioned in this article.