{"id":58985,"date":"2011-10-13T11:08:17","date_gmt":"2011-10-13T00:08:17","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2011\/10\/13\/material-matters-gold-miners-nickel-and-oil\/"},"modified":"2011-10-13T11:08:17","modified_gmt":"2011-10-13T00:08:17","slug":"material-matters-gold-miners-nickel-and-oil","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2011\/10\/13\/material-matters-gold-miners-nickel-and-oil\/","title":{"rendered":"Material Matters: Gold Miners, Nickel And Oil"},"content":{"rendered":"

\n\t– Australian gold producers relative to global peers
\n\t– Credit Suisse lifts nickel price forecasts
\n\t– Oil price estimates from Macquarie and JP Morgan revised lower<\/strong><\/p>\n

\n\t
\n\tBy Chris Shaw<\/p>\n

\n\tGiven recent volatility in gold prices, UBS has attempted to assess where Australian gold producers sit relative to global peers based on expectations for production, growth and costs. The analysis centres<\/span> on producers with annual output of more than 250,000 ounces.<\/p>\n

\n\tIn terms of current year production Newcrest<\/span> ((NCM<\/span>)) is the Australian standout as the world's fifth largest producer, while the remaining Australian producers such as Alacer<\/span> Gold ((AQG<\/span>)) and St Barbara ((SBM<\/span>)) make up a large portion of the tail.<\/p>\n

\n\tThe situation changes a little when production growth profiles are assessed, as Alacer<\/span> jumps to near the head of the pack. This reflects an expected growth profile of 19% based on expectations of annual output of 800,000 ounces by 2015.<\/p>\n

\n\tIn contrast Newcrest's<\/span> production should grow by around 9% annually through the next four years, which UBS notes is a little above the 7% average of the top-5 global producers by volume. UBS points out the risk is Newcrest<\/span> delivers stronger growth than this estimate implies, as no potential production from the Wafi-Golpu<\/span> project has been factored into assumptions.<\/p>\n

\n\tLooking at costs, UBS notes Newcrest<\/span> is on the right side of the ledger given it is one of the world's lower cost producers. UBS estimates cash costs for Newcrest<\/span> of US$375-$425 per ounce in coming years, well below the average of US$575 per ounce. The other Australian producers in this analysis sit above this average.<\/p>\n

\n\tFrom a capex<\/span> perspective the bulk of the producers in this group are spending between US$60-$80 per ounce on exploration. Among the Australian plays, Alacer<\/span> is above this at US$88 per ounce on UBS's numbers, while Resolute Mining ((RSG<\/span>)) is below the range at US$50 per ounce.<\/p>\n

\n\tTo compare the global producers UBS has assumed flat pricing of US$1,900 per ounce for gold and US$40 per ounce for silver. Under such a scenario Newcrest<\/span> comes in slightly above average, Alacer<\/span> and Adamus<\/span> Resources ((ADU<\/span>) are trading broadly in line and Perseus<\/span> Mining ((PRU<\/span>)) and Beadell<\/span> Resources ((BDR<\/span>)) are trading below average. UBS notes this is due to the fact they are yet to commence commercial production.<\/p>\n

\n\tFrom a global viewpoint UBS suggests that with Newcrest<\/span> priced in-line with key global peers at present despite some ramp-up risks at projects such as Hidden Valley, Cadia<\/span> East and Lihir<\/span> Island, there is little scope for outperformance<\/span> in the short to medium-term. This leads UBS to conclude Alacer<\/span> should outperform Newcrest<\/span> across such a timeframe, though both stocks are given Buy ratings.<\/p>\n

\n\tIn the nickel market, Credit Suisse is now more positive on the likelihood of a price recovery from early in 2012 given rising Chinese nickel pig iron costs and expansion projects outside of China falling short of original targets. As well, excessive production of stainless steel in China has now been redressed, so current consumption better reflects actual demand.<\/p>\n

\n\tNickel pig iron production in China is the key swing factor according to Credit Suisse, as this sector of the market is most affected by recent price falls. At the same time costs are rising, which could impact on production levels going forward.<\/p>\n

\n\tFrom the perspective of market dynamics, Credit Suisse expects a modest nickel market surplus in 2012. Indonesia's decision to ban ore shipments from 2014 supports a more positive long-term view on the nickel price.<\/p>\n

\n\tTo reflect this, Credit Suisse has adjusted both shorter-term and long-term nickel price estimates. Forecasts for 2012 increase by 5% to US$9.75 per pound, for 2013 by 18% to US$10.60 per pound and for 2014 by 28% to US$10.90 per pound. The broker's long-term price forecast has increased to US$9.00 per pound from US$7.50 per pound previously.<\/p>\n

\n\tThe changes to nickel price estimates impact on earnings for Australian nickel producers, Credit Suisse lifting earnings estimates by an average of 50% in FY13-FY14<\/span> for Western Areas ((WSA<\/span>)), PanAust<\/span> ((PNA<\/span>)), Mirabela<\/span> Nickel ((MBN<\/span>)) and Independence Group ((IGO<\/span>)). Estimates for FY12<\/span> have fallen by an average of 14% as very short-term estimates for nickel prices have been lowered given current weak market sentiment.<\/p>\n

\n\tThe changes to earnings have impacted on valuations, which have risen on average for the four companies by 24%. Price targets have also been adjusted accordingly. With nickel equities having sold off heavily in the past few months Credit Suisse sees value in the sector, rating all four stocks as Outperform. <\/p>\n

\n\tThese ratings are unchanged with the exception of Western Areas, which Credit Suisse has upgraded from Neutral previously given the new earnings assumptions imply valuation upside of around 30% from current levels. <\/p>\n

\n\tBy way of comparison, the FNArena<\/span> database shows Sentiment Indicator readings for the four stocks of 0.8 for Independence, PanAust<\/span> and Mirabela<\/span> and 0.5 for Western Areas. <\/p>\n

\n\tTurning to energy, both JP Morgan and Macquarie have lowered price forecasts in the sector to reflect both short-term market headwinds<\/span> and changes to foreign exchange assumptions. For JP Morgan, short-term assumptions for the Australian dollar against the US dollar have been trimmed to US$1.07 for 4Q11<\/span> from US$1.09 previously and to an average of US$1.08 through 2012 from US$1.10 previously.<\/p>\n

\n\tFrom the final quarter of next year the revisions have been in favour<\/span> of a stronger Australian dollar, such that the average exchange rate forecast for 2013 has increased to US$1.05 from US$1.03.<\/p>\n

\n\tIn terms of changes to oil price assumptions, JP Morgan now expects Brent crude will trade in a range of US$100-$120 per barrel from the final quarter of this year through 2012. This sees the broker's forecast for 2012 fall to an average of US$115 per barrel, down from US$124 per barrel previously.<\/p>\n

\n\tThe change reflects weaker projections for economic activity levels and some positive political developments in Libya in coming months. In 2013 JP Morgan has lowered its Brent crude forecast to US$121 per barrel from US$130 per barrel previously. <\/p>\n

\n\tThe changes to its oil price numbers has seen JP Morgan adjust earnings estimates across the energy sector, with appropriate changes to price targets. There are no changes in ratings, JP Morgan retaining Overweight recommendations on Santos ((STO<\/span>)) and Australian Worldwide Exploration ((AWE)), Neutral recommendations on Oil Search ((OSH<\/span>)) and Beach ((BPT<\/span>)) and Underweight recommendations on Woodside ((WPL<\/span>)) and Roc Oil ((ROC)).<\/p>\n

\n\tFor Macquarie, Brent crude estimates have been cut by 18% in 2012 to US$98 per barrel and in 2013 by 20% to U$95 per barrel. Forecasts for West Texas Intermediate have been adjusted lower by similar percentages.<\/p>\n

\n\tThe changes reflect Macquarie's view the global economic outlook has become more clouded in recent weeks, which is causing a flight to the US dollar. Oil demand growth should remain solid, but Macquarie now doesn't see a need for scarcity pricing to bring the oil market into balance.<\/p>\n

\n\tLonger-term Macquarie expects the oil market will remain reasonably tight, with spare capacity at around 5% of demand. This is enough to see the broker maintain a long-term oil price forecast of US$88 per barrel for Brent crude.<\/p>\n

\n\tAs with JP Morgan, the changes by Macquarie mean adjustments to earnings estimates across the Australian energy sector. The changes have ranged from modest for the likes of BHP Billiton and Origin Energy ((ORG)) to more significant for the higher cost producers such as Roc Oil. <\/p>\n

\n\tIn most cases target prices have been retained, though Macquarie has trimmed targets for the likes of Beach, Molopo ((MPO)) and Woodside. Ratings are unchanged with Nexus ((NXS)) scoring a Neutral recommendation and all other stocks under coverage being ascribed Outperform recommendations. <\/p>\n

\n\tSantos and Oil Search are Macquarie's preferred exposures among the large cap Australian energy plays. Among mid-cap plays Macquarie continues to see relative value in Horizon Oil ((HZN)), Carnarvon Petroleum ((CVN)) and Tap Oil ((TAP)). All three stocks are rated as Outperform. <\/p>\n

\n\t
\n\tFind out why FNArena<\/span> subscribers like the service so much: "Your Feedback (Thank You)<\/a>" – Warning this story contains unashamedly positive feedback on the service provided.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

A glance through the latest expert views and predictions about commodities with increases to nickel price forecasts but cuts to oil estimates and a review of Australian gold plays and global peers.<\/p>\n","protected":false},"author":9,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[23,24,22],"acf":[],"_links":{"self":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/58985"}],"collection":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/users\/9"}],"replies":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/comments?post=58985"}],"version-history":[{"count":0,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/58985\/revisions"}],"wp:attachment":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/media?parent=58985"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/categories?post=58985"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/tags?post=58985"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}