Investment banks revised forecasts worry precious metals producers


Precious metals producers review expenditure, assess future exploration projects

Gold mining stocks were under heavy selling pressure last Monday, while gold prices remain in the beginning of a recovery mode until this moment. The metal’s previous close of $1382.70 is a current buying opportunity for some, but apparently not that many heavyweight investors. In electronic trading, the yellow metal advances at present and trades around $1,386.60 per ounce at this time (1 pm Dubai time).
In the beginning of the week, comments from US investment bank Citigroup were weighing on share prices across the sector, as analysts revised gold price forecasts on the downside. These latest downgrades add to the growing list of money managers who have cut their estimates for precious metals over the last few weeks, including Goldman Sachs and Credit Suisse.

‘Lower Chinese Fixed Asset Investment, a reduction in energy subsidies and rising domestic commodity production could reduce commodity imports,’ said Citi in a research report on Monday. ‘The current stock building at intermediate levels along the manufacturing supply chain may not be supported, in our view, given lackluster PMI figures and other industrial production figures.’

Analysts at the bank see price declines looming in: all base metals except for nickel; all precious and platinum group metals except for palladium; and all thermal coal and iron ore. However, it is gold that has seen the biggest estimate change, with prices cut by around 13% for the next three years.

The Citi commodity team has slashed its gold-price forecast for 2013 from $1,675 an ounce to $1,555 an ounce, a reduction of 7.2%. Still this revised prices are way above the current levels. The 2014 forecast was cut from $1,653/oz to $1,435/oz and the 2015 estimate was cut from $1,540/oz to $1,340/oz.

As for gold producers, the broker raised concerns with declining margins, as higher costs (whilst sustaining capital expenditure) and lower prices take their toll.

Citi has downgraded its rating for London-listed producers Polymetal and Petropavlovsk from ‘neutral’ to ‘sell’, and now has seven ‘sell’ ratings across the UK precious metals sector.

Elsewhere, Mexican precious metals producer Fresnillo PLC said today that it would review all capital expenditure and assess future exploration projects in the wake of the recent sharp fall in gold and silver prices but said it remains committed to meeting its silver and gold production growth targets by 2018. Fresnillo’s shares are down 42% since the beginning of the year, closing at 1074 pence a share on Wednesday.


Please enter your comment!
Please enter your name here