Baltic Dry Index Keeping Iron OreMiners Afloat

AS OF 08:03 EDT

These are nervous times for iron ore producers.

Fortescue Metals, the fourth-largest miner of the steel-making material, starts to lose money if prices at Chinese ports fall below $39 a metric ton. After a 37 percent drop this year, Metal Bulletin’s benchmark is now just 16 cents above its record-low $44.59 a ton.


So it’s no surprise the Australian company’s chief executive officer, Nev Power, is pulling every lever to keep his red dirt in the black. He’s reducing the cost of mining, processing and then hauling the ore to port to $15 a ton from its current $18 a ton, according to a presentation last month. Interest expenses add another $4 a ton, so Fortescue announced Nov. 10 a tender offer aimed at paying back as much as $750 million ofdebt early.  Beyond that, he’s looking at developing a joint venture with Baosteel and Formosa Plastics to produce magnetite, according to Bloomberg’s David Stringer. That variety of iron ore requires costly processing but attracts a higher price and a lower government royalty tax than the hematite Fortescue mines at present.

One unexpected benefit comes from the Baltic Dry index, a benchmark for the cost of hiring freight ships that dipped below 500 on Friday for the first time since it started in 1985. When China’s industrial demand was strong, the cost of both raw materials and the ships used to transport them soared. Now that it’s slumping, commodity prices and ship rates will have to fall to clear supply gluts built up during the boom.

Looking at the cost of hiring a Capesize ore carrier gives you a sense of the benefit:

Flat Iron
The cost of hiring a large ore carrier has been slumping
Source: Baltic Exchange

Fortescue probably pays more than the current spot rate so as to reserve its cargo space and lock in prices for months at a time, but the benchmark is a good guide to the general direction of its expenses. A Capesize vessel carrying up to about 170,000 metric tons of iron ore will spend some 30 days making the round trip to deliver its cargo and get back to port, judging by the last voyage of the Bulk Prosperity, a bulker owned by China Development Bank that anchored off Australia’s Port Hedland on Monday after returning from Qingdao.

At current rates of $4,713 a day, transport on the spot market for the whole voyage would come to about 83 cents a metric ton on a fully laden ship. 12 months earlier, the day rate was $22,192, and transport was $3.92 a ton. When you’re only making $5.75 a ton of profit, as Fortescue is now, that’s a significant difference.

There’s potentially a virtuous circle here for iron ore producers. With operating costs for a capesize vessel averaging about $7,400 a day, according to consultancy Moore Stephens, shipowners are mostly losing money at current rates. But the alternative is less attractive these days, too. Thanks to that glut of iron ore, breaking up a ship and turning it into steel scrap only nets about half what it did a couple of years ago:

Breaking Up Is So Very Hard to Do
Low scrap prices are making it more difficult to remove ships from the market
Source: Metal Bulletin

That may keep more vessels on the market and ensure shipping costs stay lower for longer, helping iron ore miners stay in the black.

Don’t get too comfortable. Companies only book a ship if they have real cargo to move, so there’s no speculative activity in the Baltic Dry to take the edge off price swings. The index almost doubled during June and July and Capesize rates were above $14,000 a day as recently as September. Fortescue’s cushion is thin enough now that even a small spike could leave investors feeling sore.


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Gold Can’t Find A Bid : Barry Ridholtz

This article was published on The Big Picture Blog of Barry Ridholtz -July , 2015

It is well worth reviewing and keeping on hand:


This was the week Greece inched closest to chaos, as a bank holiday and a technical default caused markets around the world to erupt in turmoil. They recovered somewhat Tuesday, and futures looked stronger Wednesday morning, but on Monday, the NASDAQ Composite Index lost 2.4 percent, the Standard & Poor’s 500 Index lost 2.09 percent and the Dow Jones Industrial Average fell 1.95 percent. Volatility exploded, as the Chicago Board Options Exchange Volatility Index surged 35 percent, its biggest increase in two years, to 18.85.

One would imagine that such a scenario might be constructive for gold. It has been called the best measure of fear, the only real currency, a refuge for those who plan for panic. So how is it doing these days? Spot prices were soft on Monday, despite the wild volatility in equities, drifting down a few bucks from about $1,180 an ounce to about $1,176. They fell a few dollars more yesterday, and are soft Wednesday.

I thought gold was an investor’s best friend during Armageddon.

I have kidded the goldbugs over the years, but the muted response to the latest crisis is surprising, even to a precious metal skeptic. Gold simply can’t find a bid.

This isn’t the sort of response we have come to expect from the “catastrophe metal.” Earlier this month, gold spiked to $1,202, from $1,172, raising hopes of a turnaround. The gold mavens began to dream of a new technical setup, perhaps even a resurrection of the currently deceased trend. There were renewed whispers about $5,000 price targets.

And then … nothing.

I have been writing critically about gold since it peaked in 2011. Its story has become an object lesson in how to manage your positions without letting emotion get the better of you.

Why is gold no longer responding to global catastrophes? Nobody knows for sure, but a few different theories might help to explain its behavior in the most recent crisis:

1) The old narrative has failed. Without a new and improved rationale, buyers aren’t motivated to accumulate more gold.

2) The U.S. economy has slowly improved, and much of the rest of the world is healing, too.

3) Other asset classes have been far more productive and rewarding investments in the last five years.

The failure of the classic gold narrative, recounted in great detail last year, is one explanation. The storyline was essentially a clever sales pitch filled with specific frightening details — the Fed was going to cause hyperinflation, the dollar would collapse, and so on. All of this proved to be false.

Further reducing enthusiasm for gold is the gradual improvement of the U.S. economy. Despite forecasts of imminent collapse, the major economic data — including employment, wages, spending, housing, autos and consumer sentiment — have all trended higher over the last five years. Tales of an impending depression were greatly exaggerated.

Then there are other asset classes. U.S stocks are up 167 percent over the last 5 years. China’s stock market, despite the recent 20 percent drop, is still up almost 10 percent for the year, and it has been on fire the last 2 years.

Each of these is a possible explanation for the lack of response to the Greek crisis. Perhaps a default to the International Monetary Fund is no big deal, and gold has no reason to rally.

Regardless, gold seems to going nowhere fast. Feel free to send me an e-mail explaining how wrong and stupid I am. I have an archive of all the messages warning me that gold would teach me a lesson in humility. “You’ll see” these e-mails smugly assure me, “your comeuppance will be here any day now.” My plan was to respond to each on its fifth-year anniversary with a chart showing the performance of gold versus all other asset classes and the details of how much money has been lost.

What once seemed like a snarky and amusing idea just looks cruel today.

Gold teaches the careful observer many lessons — about narratives, emotion, managing positions, leverage, one-way, can’t miss trades, the efficiency of markets, and story-tellers with product for sale. This is why you should never ever drink the Kool-Aid.

Astute traders ignore these lessons at their own risk.


Originally published as: Gold Shrugs Off Armageddon

“ The Gold Investor’s Handbook “ by Jack A. Bass, B.A. LL.B. ( available from Amazon)



Gold miners on ‘knife edge’ : “Gold is on the ropes”

Gold miners on ‘knife edge’ as slump wipes out $19-billion

Gold’s slump to a five-year low this month is squeezing the world’s biggest producers of the precious metal, already struggling to rein in costs and pay down debt.

A rout in bullion has sapped investor confidence in gold miners, sending the benchmark 30-member Philadelphia Stock Exchange Gold and Silver Index of the largest producers to its lowest since 2001. A five-day losing streak through Monday wiped $19-billion off the index, which includes Barrick Gold Corp. and Newmont Mining Corp.

Reuters Jul. 22 2015, 6:27 AM EDT

 India goes cold on gold

The metal’s plunge is eroding profits at mines across the globe and stressing balance sheets in an industry where the biggest producers are weighed down by a record debt load of $31.5-billion. Gold futures in New York are heading for their longest losing streak since 1996 amid increasing speculation U.S. interest rates will climb this year, weakening the appeal of bullion.

“The whole industry is on a bit of a knife-edge,” said James Sutton, a portfolio manager at JPMorgan Chase & Co.’s $2-billion Natural Resources Fund who is underweight gold stocks. “They are making very, very small margins. Really everybody in the industry needs higher prices. You’re going to see some companies run into trouble.”

The industry, on average, needs about $1,200 an ounce to break even when all costs are considered, according to Sutton. Bullion for immediate delivery declined to $1,086.18 an ounce on Monday, the lowest since March 2010. It fell 0.9 per cent to $1,091.20 an ounce at 2:56 p.m. in London.

Wood Mackenzie Ltd. said Wednesday that about 10 per cent of gold miners would be loss-making with bullion at $1,100 an ounce.

Investors Souring

Investors have soured on gold miners as they battled to contain ballooning costs and the outlook for prices dimmed. Some producers have been obliged to enact bailout plans. Petropavlovsk Plc, a Russian miner once valued at more than $3-billion, was forced to tap shareholders for emergency funds earlier this year after its stock slid 99 per cent in five years.

“There’s a lot of pain to be taken in this sector,” Clive Burstow, who helps manage $44-billion at Baring Asset Management in London, said by phone. “Everyone has had to rationalize balance sheets, you’ve seen management turnover, you’ve seen dividends being either pared back or cut.”

Companies like Randgold Resources Ltd., a producer in West Africa, and Vancouver-based Goldcorp Inc. are best-positioned to weather the price slump, Burstow said.

Randgold, which built its business making its own discoveries in Mali, Senegal and Ivory Coast, has a war chest of at least $500-million to buy assets from distressed rivals.

“Another $50 off the gold price and this industry is toast,” Randgold Chief Executive Officer Mark Bristow said July 15, when bullion traded at about $1,150 an ounce.

1986 Low

The Philadelphia Stock Exchange Gold and Silver Index posted its biggest one-day fall in seven years on Monday, with Toronto-based Barrick declining to the lowest since 1986. The benchmark has tumbled 29 per cent in 2015, led by North American miners, with IAMGold Corp. down 51 per cent, Yamana Gold Inc. 48 per cent and Kinross Gold Corp. 41 per cent.

“This is a correction that has to take its course,” Markus Bachmann, CEO of resources-focused investor Craton Capital, said in a phone interview from Johannesburg. “Corrections do not stop halfway. Fundamentals do not matter. A lot of it is sentiment driven.”

Prices could fall below $1,000 an ounce for the first time since 2009, Jeffrey Currie, Goldman Sachs Group Inc.’s New York– based head of commodities research, told Bloomberg in an interview Tuesday.

“Gold is on the ropes,” Ross Norman, CEO of dealer Sharps Pixley, said in an interview with Bloomberg Television. “I suspect we’ll have another bear raid before long. I don’t think the bears have finished their game, they’ll keep punching it until it stops moving.

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Precious Metals Routed as Gold Extends Decline

Gold Extends Decline to Five-Year Low

Precious metals were routed as gold sank to the lowest in more than five years on prospects for higher U.S. rates and after China said it held less metal in reserves than some analysts expected. Platinum plunged to the lowest since 2009, while silver and palladium lost more than 2 percent.

Bullion for immediate delivery tumbled as much as 4.2 percent to $1,086.18 an ounce, the lowest price since March 2010, and traded at $1,106.90 at 10:54 a.m. in Singapore. Miners’ equities fell as prices extended a fourth weekly loss.

Gold has fallen out of favor with investors as Federal Reserve Chair Janet Yellen prepares to raise rates this year, boosting the dollar. While China updated its bullion reserves on Friday for the first time since 2009, the 57 percent increase to 1,658 metric tons was smaller than had been estimated. Gold’s plunge raises the prospect of third straight annual drop.

“The market is in one of its bear phases, where any news is bearish news,” said Jack A. Bass Vancouver-based managing partner at Jack A. Bass and Associates, predicting that gold may drop as low as $1,050 an ounce. “People had expected China’s holdings to be higher,” said Bass , author of The Gold Investors Handbook. His managed accounts hold no gold or gold miners.

Newcrest Mining Ltd., Australia’s largest producer, lost 7.1 percent to A$12.26 in Sydney, while Evolution Mining Ltd. slumped 13 percent and Saracen Mineral Holdings Ltd. tumbled 13 percent. In Hong Kong, Zijin Mining Group Co. lost 3.8 percent.

“Gold has generally been suppressed by the ongoing expectation that the dollar may get stronger should the U.S. Fed raise interest rates,” Wallace Ng, a trader at Gemsha Metals Co., said from Shanghai. “But this sudden drop during Asian trading seemed to have been triggered by some stop-loss selloffs that have nothing to do with fundamentals.”

Commodity Losses

Some investors are turning away from precious metals amid a wider retreat in raw materials. The Bloomberg Commodity Index dropped for a fifth day on Monday to as low as 96.6395, heading for the longest run of declines since March.

China bought about 604 tons of gold since 2009, second only to Russia, according to data from the central bank and International Monetary Fund. The total holdings make China, the world’s biggest producer, the world’s fifth-biggest gold owner.

Prospects for a U.S. rate increase strengthened the dollar, hurting the allure of gold, which generally offers returns only through price gains. The Bloomberg Dollar Spot Index rose as much as 0.1 percent to the highest level since April 13.

‘Still Bearish’

“I’m still bearish on gold,” said Barnabas Gan, an economist at Singapore-based Oversea-Chinese Banking Corp., the most accurate precious metals forecaster in the eight quarters to March, according to Bloomberg rankings. “For the year-end, I’m still looking at $1,050 an ounce. The bearish outlook is underpinned by the likelihood of the U.S. Fed rate hike.”

Holdings in gold-backed exchange-traded products have shrunk as U.S. equities rallied and the dollar climbed. Global holdings were at 1,585.96 tons on Thursday, down from a record 2,632.5 tons in December 2012.

Gold futures retreated as much as 4.6 percent to $1,080 an ounce and traded at $1,109.50 on the Comex in New York. Money managers are holding the smallest net-bullish bet on gold since the U.S. government data begins in 2006.

Platinum for immediate delivery dropped as much as 4.7 percent to $947.38 an ounce, the lowest since January 2009, and traded at $962.90. The metal is 20 percent lower this year.

Spot silver lost as much as 2.3 percent to $14.5449 an ounce, the lowest since December 2014, and was at $14.6678. Palladium fell as much as 3 percent to $596.75 an ounce, the lowest since October 2012.

Miners Sector 2015 Forecast :Dumping Assets At Fire-sale Prices

Senior mining companies are still holding many unnecessary and troubled assets on their books. So it would not be a surprise to see a few more dirt-cheap deals in 2015.

Scott Douglas/Riversdale Mining Ltd.Senior mining companies are still holding many unnecessary and troubled assets .

The junior mining sector is in such brutal shape right now that most companies are unwilling to even pay for booths at conferences that are geared to them.


Mr. Dethlefsen’s firm, Corsa Coal Corp., was approached this year about buying coal assets in Pennsylvania from Russian steel giant OAO Severstal, which was bailing out of the United States.

Severstal had bought these operations for $900 million in 2008, when steelmaking coal prices were hitting all-time highs. Mr. Dethlefsen would not pay anything close to that in today’s awful coal market, but he didn’t have to. Corsa bought the operations for a grand total of US$60 million, or less than 8% of what Severstal paid.

“It’s a tough market. We have our work cut out for us with this business and it’s not going to be easy,” said Mr. Dethlefsen, Corsa’s chief executive.

“But we’d rather start by paying US$60 million than US$500 million.”

Indeed. It used to be that when mining companies put assets up for auction, they wouldn’t actually sell them unless they got a very full price. That could be because their commodity price assumptions were too optimistic, or they were just too attached to them and convinced they could extract more value. Dozens of interesting projects were put up for auction in recent years and never changed hands because sellers demanded too much money.

We have our work cut out for us with this business and it’s not going to be easy

That changed in 2014, especially at the low end. This will go down as the year when miners were happy to dump their troubled assets. They just wanted to get them off the books and make them someone else’s problem.

The Corsa-Severstal deal was one such example. Rio Tinto Ltd., another, sold coal assets in Mozambique for US$50 million, just three years after paying US$3.7 billion for them. Kinross Gold Corp. dumped Fruta del Norte, possibly the world’s richest undeveloped gold project, for US$240 million, or less than a quarter of what it paid six years ago.

A Billion Dollar Loss – and more of these stories to be written in 2015

And then there was the unfortunate tale of Alberta coal miner Grande Cache Coal Corp. A pair of Asian commodity traders (Marubeni Corp. and Winsway Enterprises Holdings) paid $1 billion for the company in 2011. But coal prices turned dramatically against them. So in October, they agreed to sell their Grand Cache stakes for a buck. Each.

These fire-sale prices generated some laughs across the industry. Yet the deals have an undeniable logic in the current volatile market conditions.

Handout/Grande Cache Coal

Handout/Grande Cache CoalA pair of Asian commodity traders (Marubeni Corp. and Winsway Enterprises Holdings) paid $1 billion for Grande Cache Coal in 2011. But coal prices turned dramatically against them. So in October, they agreed to sell their Grand Cache stakes for a buck. Each.

During the mining bull market (roughly 2002 to 2011), the industry was undergoing massive consolidation as miners rode the wave of rising metal prices. Senior mining companies like Rio Tinto and Vale SA snapped up almost everything in sight, piling up a lot of debt and unnecessary assets in the process. As long as commodity prices were high, who cared? They were just happy to get bigger.

It took a steep drop in prices — and an embarrassing wave of writedowns — to force them to reconsider their strategy. They realized too much management time was being wasted on non-core assets that deliver minimal or no return. They also recognized that low commodity prices may last for a while and that they needed to shed these assets to get as lean as possible.

It has helped that almost every major mining company replaced its CEO over the last couple of years. These guys have no emotional attachment to the assets their predecessors overpaid for, and are happy to do whatever it takes to get value out of them.

“Everyone is looking at rationalizing their portfolios to their best core assets,” said Melanie Shishler, a partner and mining specialist at Davies Ward Phillips & Vineberg LLP. “In furtherance of that, I think people are being quite unrelenting in what they’re prepared to do to reach that goal.”

And there was nothing CEOs wanted to divest more than their problem assets. These assets were unloaded for bargain-basement prices after they backfired in spectacular ways.

For Severstal, it was a combination of a deteriorating coal market and Vladimir Putin. When Severstal bought the U.S. assets in 2008, coking coal prices were soaring above US$300 a tonne. Supply was so tight that steelmakers were terrified they would not be able to source product, so they started snapping up coal mining operations.

Today, that strategy seems absurd. Benchmark prices have plunged to US$117 a tonne, due to soaring supply and uncertain Chinese demand. Steelmakers no longer see any need to be vertically integrated.


Kinross – Poster Child For Mining Sector Errors

For Toronto-based Kinross, the central issue was also politics. The problem with the Fruta del Norte (FDN) project is that it is in Ecuador, a country with no history of large-scale gold mining. Kinross paid $1.2 billion for FDN in 2008 even though Ecuador did not have a firm mining law at the time. It was a reckless gamble, and it backfired after the government demanded outrageous windfall profits taxes. (Kinross owns equity in FDN’s new owner, so it could still benefit if the mine is built.)

Rio Tinto fell victim to a lack of good due diligence. It paid billions for the Mozambique coal assets without having a firm transportation plan in place. The transportation constraints were far bigger than anticipated, making the coal assets almost worthless in Rio’s eyes.


Handout/KinrossKinross paid $1.2 billion for the Fruta del Norte mine in 2008 even though Ecuador did not have a firm mining law at the time. It was a reckless gamble, and it backfired after the government demanded outrageous windfall profits taxes.


In the two-dollar Grande Cache deal, the Asian sellers decided the assets definitely worthless to them at these prices. Experts said the sellers were facing potential cash outflows in the short term, something they clearly wanted to avoid.

Senior mining companies are still holding many unnecessary and troubled assets on their books. So it would not be a surprise to see a few more dirt-cheap deals in 2015.

One notable thing about these transactions is they usually involved a large company selling to a very small one. Sometimes it takes a small company to give a problem asset the attention it needs to create value. If they can’t get the assets turned around, then these deals are not such a great bargain.

“I’ve always said one company’s non-core asset is the cornerstone asset of another one,” said Jack A. Bass, managing partner at Jack A. Bass and Associates.

That is certainly the case with Corsa, which transformed into a serious player overnight with the Severstal deal. But now that the excitement has worn off, the company has to prove it can generate actual value out of these operations in a miserable coal market. If Corsa pulls that off and prices rebound, it could turn out to be one of the best mining deals in decades.

“We took the opportunity to come in and buy at what we think is the trough,” Mr. Dethlefsen said.

“To do that, you’ve got to have a pretty strong stomach. Over the next 12 months, it’s going to be a knife fight.”

You Have Options:

What To Do ?

Here is our recent letter:

Managed Accounts Year End Review and Forecast

November 2014 – 40 % cash position
Gold and Precious MetalsThe largest gains for our clients came from the exit from the gold producers at $18oo an ounce and continuing until we hold no gold and no gold miners . This from the author of The Gold Investors Handbook.2015 – We continue to be on the sidelines for this sector – regardless of the gnomes of Switzerland . As a safe haven gold simply wasnot there for investors despite turmoil in the Middle East, Africa and Ukraine.How much more frightening can the prospect for peace be than to have wars in multiple locations? Secondly the spectre of inflation – on which I have given numerous talks – simply failed to materialize. In fact economists and portfolio managers such as myself are now more concerned about deflation – and the spectre is a Japanese style decades long slide in the world economy.
Shipping Sector / Bulk ShippersYou can review our stock market letter at to follow our profits in the shipping sector before our retreat as overcapacity has yet to effect continued overbuiding. In 2008-9 rates-  illustrated by the Baltic Dry Index – were at their peak. The BDI hit over 10,000. Today it is roughly 10 % of that benchmark and the sector slide continues. We have an impressive watchlist of former ” darlings” – but we are content to watch and wait.
Oil/ Energy I am very happy for the call in natural gas prices – out at $12 and into oil. When oil was above $100 we lessened positions and that is our saving grace in the past two weeks. We are not bottom feeders and will wait for a turn in the market before reentering drillers or producers.On Friday November 27th, crude oil prices dropped to below $72 and the slide has continued into the weekend, with Brent crude oil at $70.15 as I write this post. Shares of major oil companies traded down on Friday. Our former energy sector holdings are down another between 4% and 11%, including SDRL, which dropped another 8% following Wednesday’s 23% plunge…

Have you avoided these sectors – you would have been better off to follow our advice in 2014 and now you have to decide for 2015.
No one – and I am not being humble here – can project the future with great accuracy but our clients continue to do very well and we offer that experience to you.

Fees : 1 % annual set up and a performance bonus of 20 % – only if we perform.

You can withdraw your funds monthly if you require an income stream.

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Our client is seeking funds to expand their tanker fleet .

Interest 12 % compounded – paid 1% per month

Floating charge of the full $500,000 against the fleet – valued at  more than $ 1 M


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Similar to wise buying decisions, exiting certain underperformers at the right time helps maximize portfolio returns. Selling off losers can be difficult, but if both the share price and estimates are falling, it could be time to get rid of the security before more losses hit your portfolio.

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Gold-Mining Industry Mostly ‘Under Water,’ Gold Fields

Gold miners’ costs are mostly higher than current spot prices, increasing the likelihood of writedowns next year, according to Nick Holland, chief executive officer of Gold Fields Ltd. (GFI)

Across the industry, costs are about $1,300 an ounce including debt repayments, Holland said by phone from Johannesburg today, citing analysts’ research. Gold dropped 0.1 percent to $1,182 an ounce, bringing the decline since the beginning of 2013 to 29 percent.

“The industry by and large is under water,” Holland said. “I would expect further writedowns. Production I think will be curtailed but it will take some time to filter through the system.”

Gold producers are struggling to adapt to a lower bullion price after a decade of debt-fueled expansion, acquisitions and cost inflation during the boom years that saw bullion peak at $1,921.17 an ounce in September 2011. The spot price has tumbled in the past 18 months as investors speculate the Federal Reserve will raise interest rates due to an improving U.S. economy, lowering demand for the safe-haven metal.

Gold Fields is able to “ride this through” as it has a break-even price of about $1,050 an ounce, or $1,090 an ounce including debt repayments, Holland said. While the company calculates its reserves at $1,300 an ounce, that number includes a 15 percent profit margin, he said.

“Everything is fine for now, obviously the margin won’t be 15 percent at the current price, it will be less than that,” Holland said. “That said, the business continues to be run the same as before.”

Profit Drop

Gold Fields dropped 4.8 percent at 9:16 a.m. today in Johannesburg after the precious metal fell 1.2 percent yesterday, largely after South African trading hours. The FTSE/JSE Africa Gold Mining Index decreased 5.1 percent to 1,091.8.

Headline earnings for the South African producer with mines from Peru to Australia were $14 million in the three months to Sept. 30, compared with $18 million the previous quarter, it said in a statement today.

The Johannesburg-based company, which spun off three of its cash-generative but old South African mines to create Sibanye Gold Ltd. last year, is seeking to “aggressively” pay down debt over the next three years as it adjusts to the lower gold price, Holland said. The company is also on the lookout for cheap, in-production acquisitions that more troubled miners are offloading.

Gold Fields reduced net debt in the quarter by $137 million to $1.5 billion. All-in sustaining costs for the year are expected to be 3 percent lower than previous forecast at $1,090 an ounce, it said.

Gold production rose 2 percent to 559,000 ounces in the quarter compared with the previous three months, the company said.

HudBay Minerals

HBM : TSX : C$10.87

Target: C$13.50
HudBay Minerals is an integrated Canadian zinc and
copper producer with operating assets in Manitoba,
and development or exploration properties elsewhere
in Canada, in the U.S., and in Peru.

All amounts in C$ unless otherwise noted.

Metals and Mining — Base Metals and Minerals
GROWTH TO 2019; 
We have incorporated the Augusta Resources/Rosemont copper project
into our HBM full valuation model, and incorporated our new
commodity price forecasts throughout the model.
Action and valuation
We are maintaining our BUY recommendation and raising our 12-
month target price to C$13.50 (from C$11.00). Our C$13.50 target price
is based on the average of: i) 7x 2015E EV/EBITDA, which would imply
a share price of C$12.81, and ii) our NPV10 estimate of C$14.12.
We see the potential for upside to our target price as Constancia and
Rosemont progress. 6x 2016E EBITDA (with Constancia in production)
equates to a share price of C$14.89, and 5x 2019E EBITDA (with
Rosemont in production) equates to a share price of C$30.51.
Our NPV10 estimate of C$14.12 includes C$7.50 for Constancia and
C$4.89 for Rosemont (treating AZC acquisition costs as sunk costs).
We are forecasting low-point cash balances of C$213 million mid-2015
during Constancia start-up, and then C$166 million mid-2018 during
Rosemont start-up.
Next potential catalysts and investment risks
We believe Constancia commissioning and Rosemont permitting are key
catalysts and key valuation risks for HBM over the next 12 months