The crude oil (Nymex) which traded at $81/barrel last week dropped to $79/barrel on Tuesday. Copper which traded earlier last week at $2.95/lb. rose to $3.05/lb. last week before dropping $0.05/lb. on Tuesday to $3.00/lb.

 

Shares of Freeport McMoRan Copper and Gold (FCX), one of the world's largest copper producers, with a large copper-gold mine in Indonesia set a new year high for a second day in a row Friday (October 23) after the FCX reinstated its dividend and announced plans to restart a U.S. operation. The company on Wednesday said its quarterly earnings rose for the first time this year as it cut costs, developing countries bought copper and investors nervous about the economy purchased gold. FCX reinstated an annual dividend of $0.60 per share because of improved prices for metals and its strong third-quarter performance. The company's stock rose from $80/share to $84/share on its news, and then declined Tuesday to $77.50.

 

The strong urge for company's to acquire commodities was reflected by the action taken by Rio Tinto Plc. to raise its stake in Ivanhoe Mines, which has a controlling interest in the Oyu Tolgol deposits in Mongolia. Oyu Tolgol is one of the world's largest undeveloped copper-gold deposits. Rio will raise its stake in Ivanhoe Mines from 9.9% to 19.7%. Rio will invest approximately $390 million to acquire this additional position in Ivanhoe following the government's removal of an onerous windfall tax.

 

Commodity prices have been ticking upward as a result of a reported September pickup in Chinese imports. Copper prices rose 1.3% after the September import report, as well as shares of mining companies, and the rise in the value of the currency of Australia, a major commodity exporter. 

The drop in commodity prices and the stock value of mining companies this week was attributed to dollar-carry trade where investors would borrow low-yielding U.S. dollars (short selling) and buy assets in a higher-yielding currency. With the 10 year U.S. Treasury yield at 3.81% and the Australian 10-year at 6.43%, there is more than a 2.5% difference. For these trades to remain profitable, the dollar has to remain weak. The sudden increase in the value of the dollar Monday affected investors shorting the dollar.

 

The impact on commodity prices this week is more a reflection of being on the wrong side of a trade rather then a sudden resolution of a commodity shortage.

October 12, 2009: DRDGOLD Ltd. (DROOY) reported that revenue increased from R420.7 million to R445.2 million in 2009, an 8% increase that offset the impact of a 2% drop in the average rand gold price received which was R239.098/kg. Total gold production for the quarter was 57,290 ounces, which reflected a 1% decline from the year earlier quarter. Underground production declined 14%. Surface production increased 10% to 38,870 ounces. The cash operating cost for the quarter was $968 per ounce compared to a cash operating cost of $755 for the year earlier quarter. The strength of the rand will continue to impact revenues. Increases in proposed Eskom power costs of 45% per year over the three years will affect margins as electricity as a percentage of total costs will increase from approximately 19% to over 30% by 2012. Refer to the press release for details regarding finances and operations.

 

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