EDITOR: | March 4th, 2013

The Pulse: Gold buyers getting cold feet; Zirconium rethink at Alkane; Spanish potash

| March 04, 2013 | No Comments

Pulse-Robin-BrombyHere’s the question that some nervous gold bugs might be asking: is the yellow one facing its last hurrah? This is the very question posed by analyst Anne-Laure Tremblay at BNP Paribas in the London commodities office of the French bank.

In her latest gold report, Tremblay said the metal’s performance has been lacklustre. (As this was written – as afternoon trading kicked off Tuesday in Asia – gold still had a pulse, up a little to around $1,579/oz.)

But BNP has lowered its forecasts – they see it averaging $1,670/oz in 2013 and $1,595/oz in 2014. Tremblay is expecting the metal to rebound from present levels later in the year but, in BNP’s view, it will fail to move durably above $1,800/oz. Until the last quarter, then, it should track sideways.

What seems to have sent everyone down-in-the-dumps is the falling level of demand in both China and India. In 2010 and 2011, Chinese buying grew at more than 20% a year, but levelled off in 2012. This is seen as due to enthusiasm waning in the absence of any substantial jumps in the metal’s price and also China’s economic growth slowed in 2012.

There was also a decline in gold jewellery demand in Thailand, South Korea and Vietnam. Poor consumer demand and high prices hit demand in Western countries, too. Only Russia, Egypt and Japan bucked the trend.

In India, gold purchases last year were down for the third year in a row. The main culprit was the decline of the rupee against the US dollar, sending Indian gold prices up 21% in 2012.

But there is good news on India front. According to The Financial Times, finance minister Palaniappan Chidambaram decided not to enforce the new increase in import taxes on gold. Instead, he went on television to appeal to Indians to stop buying gold. It was the huge influx of gold for investment purposes (even after the reductions in jewellery buying) that has been blowing out India’s current account deficit. If the Indians want to buy gold, then one suggests that a TV appeal is very unlikely to dissuade them.

CRITICAL METALS: When it comes to Australia’s Alkane Resources (ASX:ALK) and its Dubbo zirconia project we seem always to focus on the rare earths. However, a report on the company from London-based Edison Investment Research brings us up to date on the zirconium part of the project. The report breaks up the revenue split for the group as a whole as of 2018: heavy rare earths are projected to account for 27%, light rare earths 18%, ferro-niobium 16% and zirconium 24% – with the remaining 15% being accounted for by Alkane’s Tomingley gold project.

This would correlate to production that year of 15,700 tonnes of high purity zirconia products, 3,772 of LREE concentrates, 3,005 tonnes of ferro-niobium and 1,120 tonnes of HREE concentrates (along with 50,400oz from the gold mine).

The analysts show that developments within China – and specifically with regards to the modernisation and substitution of zircon within the ceramic tile manufacturing sector – has led to persistent downward pressure on zircon prices. There has been especially pressure on zirconium oxychloride (ZOC), the use of which has fallen to such an extent that its market price is seen as converging with zircon of 65% purity.

As a consequence of this – and the general gloomy global outlook – Edison says the production of ZOC as the main zirconium product at Dubbo is now considered unlikely. Alkane management has concluded that zirconium basic sulphate (ZBS) and zirconium hydroxide (ZOH) are the best zirconium base products for use in downstream manufacture of powders and oxides, ceramics and other industrial applications.

This means that Alkane is now addressing at its design stage a a plan for a more market-resilient end-product.

POTASH: Spain may be only 11th on the global potash producer league table, but there’s plenty left in the story.

A dominant producer there is Iberpotash, a subsidiary of Israel’s ICL Fertilizers. The Spanish subsidiary produces more than 1 million tonnes a year of red potash from two mines in Catalonia which, the company says, are conveniently located to the major potash consuming nations of Europe. Iberpotash can trace its history back more than 90 years; it was in 1912 that potash was first discovered in Suria and the mining concession was granted to a Spanish company in 1920. The Israelis acquired the various potash players in 1998.

Now an Australian company Highfield Resources (ASX:HFR) is looking to get into the Spanish potash business. It has three projects in northern Spain; one of them is Sierra del Perdon, which includes the historic mine of that name. It operated for 25 years, only closing in 1997 when the potash price was at $US110/tonne. Over its life it produced 9.5 million tonnes from sylvinite and carnallite beds. The other two projects are Pintano and Javier. All three are located in the Navarra sub-basin of the Ebro producing region.

Highfield, in its most recent announcement, said it is targeting up to 338 million tonnes of sylvinite at Pintano, which would be approximately 76 million tonnes of contained KCI.



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