W Resources confirm Funding Package

Great news for W Resources shareholders. It’s been a longtime coming but at last Mr Masterman has delivered. It’s quite a feat to discuss a $35m funding package (nevermind secure one) when your company market cap is less than $30m. It could have been another painful dilutive ‘AIM’ story for investors. Hence today’s confirmation should not be underestimated. The terms look a little hefty in interest rate terms and the 5% warrants have not been disclosed as yet but my guess is that BlackRock will have wanted these sub 0.5p which might explain the small drop pre initial funding news RNS in January 2018. That all said, I would take this deal over equity dilution everytime. Today… the market cap is almost double the pre-funding discussion level at $57m. Roll on production in 2019!

W Resources is currently the best performer across TheShareHub top ten picks with a near 70% increase in just 6 weeks. It looks odds to be the first multibagger of the hotlist picks and needs a test of 0.77p to get a mutibagger trophy.

Current Share Price 0.64p

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RNS Number : 0734F
16 February 2018
W Resources Plc

US$35m Loan Facility Finalised with BlackRock to Fund La Parrilla

W Resources Plc (AIM:WRES), the tungsten, copper and gold exploration and development company with assets in Spain and Portugal, is delighted to announce that the Company has signed a Credit and Guaranty Agreement (the “Agreement”) with the lenders thereunder (the “Lenders”), including one or more funds managed by BlackRock Financial Management Inc. (“BlackRock”) to provide a US$35 million secured term loan facility to W Resources to fund the La Parrilla mine development (the “Loan”).

The first US$13.125 million is expected to be drawn this week after satisfaction of the conditions precedent applicable to such funding, with the balance of US$21.875 million expected to be committed and funded in Q2 2018, after the satisfaction of a number of conditions precedent, including those typical for this type of term loan.

The key terms of the Loan are as follows:

— The Loan is for a scheduled term of five years, with a two year non call period. The Company has the right to repay the Loan after two years for a premium of 5%, after three years for a premium of 3%, and after four years for no premium;

— Subject to any early repayment permitted or required under the Agreement, repayment will made by way of a cash flow sweep, utilising free cash to repay the loan;

— The Loan is subject to an average 5 year interest rate of 12.6%, being 14% in the first year, 13% in the second year and 12% thereafter;

— First year interest is Payable in Kind (“PIK”) and added to the principal, while 50% of the second year interest is PIK and 50% is payable in cash;

— Lenders will receive a non-refundable upfront fee of 3% of the face value of each of the respective Loan disbursements;

— Lenders will receive warrants totalling 5% of W’s fully diluted equity.

Michael Masterman, Chairman of W Resources commented: “We are delighted to have partnered with BlackRock to obtain this US$35 million secured term loan facility. The Loan provides full funding for La Parrilla and now it is full steam ahead.

“Engineering and planning at La Parrilla is advanced and the three primary construction contracts have been awarded. As outlined, the timetable to deliver the project is 12 months from the close of financing which moves the Company into production in Q1 2019.”

David Trucano, Portfolio Manager, BlackRock Global Credit team commented: “We are pleased to provide funding on behalf of our clients to restart operations at La Parrilla, one of the most efficient mines in Europe. We believe the current dynamics of the tungsten market present a unique opportunity for W and our clients.”

Short Term Loans

In order to provide interim funding, each of, Beronia Investments Pty Ltd ATF Duke Trust, of which Dr Byron Pirola (a director of the Company) is both a beneficiary and trustee and Symmall Pty Limited, of which Mr Michael Masterman (a director of the Company) is both a beneficiary and trustee, have lent the Company short term loans of EUR100,000 each. The loans are unsecured and carry an interest rate of 10% per annum. Each of the loans will be repaid using the first draw down of US$13.125 million under the Agreement.

By virtue of their size, the loans constitute related party transactions under Rule 13 of the AIM Rules for Companies. The independent director of W, having consulted with the Company’s nominated adviser, considers that the terms of the transactions are fair and reasonable insofar as the Company’s shareholders are concerned.

Hummingbird is buzzin

Friday morning RNS’s (or late afternoon) are normally deployed by companies to tuck away ugly news in hope the weekend’s activities and 2 days away from market will cleanse the mind. Equally, there is an argument to say that a ‘good news’ story can travel further when there is an entire weekend to discuss and absorb it.

Hummingbird have decided on the latter and delivered a very bullish RNS this morning. Often after a period of excitement and anticipation as development projects finally hit commercial phase, investors are hit with a period of news voids as companies get their heads down and deliver on Sales. Well, Hummingbird are not content with just knocking out Gold Sales… they want more. Exploration has kicked off already and any success should be seen in the share price swiftly. Unlike other small Gold explorers, Hummingbird already have a fully operational mine which to date has a 6 to 7 year mine life. The key objective now is to discover more resources to feed the mine for more years to come – extending to 10 years or 12 years in effect extends the p/e ratios potential. If Hummingbird can get Yanfolila to 10 year mine life minimum, then a p/e of 8 to 9 is more than fair. At that level and based on circa $70m net cash flow to the business per year, a market cap of circa $500m should be doable with ease assuming Gold is above $1300oz.

That’s not far off £1 a share. At current price of 34.5p, that’s almost 3 bagger territory.

Long way to go of course and no guarantees, but Hummingbird are buzzing and thus far they haven’t put a wing wrong.

Hummingbird Resources is part of TheShareHub’s top ten picks for 2018.

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RNS: 16/02/2018

Hummingbird Resources plc (“Hummingbird” or “the Company”) 

Ramp-up On Track and Exploration Programme Commenced At
Yanfolila Gold Mine, Mali

Hummingbird Resources (AIM: HUM) is pleased to announce an update on operations at the Yanfolila Gold Mine in Mali (“Yanfolila”), which commenced gold production in December 2017.

Production Update

Since first gold was poured on 19 December 2017, Yanfolila has steadily been ramping up towards full production in line with the Company’s planned schedule.  Over the past ten days the plant has been operating at an average of ~90% of design throughput capacity.  The plant has been achieving ~96% gold recoveries1, higher than design specification, consistently since the start of operations.

Total gold recovered to date is 10,737 ounces of which 5,483 ounces has been shipped to refiners.

In this first period of operations the plant was processing ore from the lower-grade stockpiles, in order to ensure plant performance and gold recovery were satisfactory before increasing the head grade.  Now that the plant is running close to name-plate capacity and recoveries remain consistently high; higher-grade ore is increasingly being introduced to the plant.

Exploration Update

The 2018 exploration programme at Yanfolila has commenced with the focus being on the conversion of indicated and inferred resources to mineable reserves.  The Company has over 1 million ounces of resources outside the mine plan which the Company is targeting for conversion into reserves.  It is the Company’s intention to spend in the region of US$8-10 million on exploration this year, but not more than 15% of Hummingbird’s operating cashflows from Yanfolila.  The Company aims to pursue an aggressive exploration strategy to extend the mine life, which will be controlled by strict financial discipline.

His Excellency Mr. Ibrahim Boubacar Keita, the President of the Republic of Mali, has postponed his visit to Yanfolila due to other business, however, the official opening ceremony is expected to take place with the President in attendance at a later date in 2018.

Dan Betts, CEO of Hummingbird, commented:

“I am pleased that activity on site is steadily progressing as per the ramp-up schedule and we are on track to achieve name plate capacity from the plant by the end of Q1 2018.

“I am particularly happy to report on the technical performance of the plant, with recoveries over 95% already and a solid performance of the milling circuit. This stands us in good stead as we continue to ramp up the performance of the operation.”

**ENDS** 

Petra Diamonds – A Rough diamond that should polish up well

Petra Diamonds (PDL) has certainly been in the wars of late. Issues with ‘Sales Parcels’ being held up, tough challenges from labour strikes and the strengthening Rand are the main points of concern. Oh… and that $650m debt pile of course! But even taking the above into consideration, does a near 100p knocked off the share price over the last 12 months justify the fears? PDL’s core businesses/mines are performing very well. Record volumes and lower capex are hardly good news stories to ignore. The business and sales throughput is strong. Which just leaves the other niggles to worry about. Assuming the Rand begins to work in PDL’s favour (even marginally) and the ‘Sales Parcel’ issue gets resolved amicably – the debt situation should sort itself out. The company is expected to reduced debt to a range of $560 to $600m by end of H1. Further details on 2018 capex plans and potential operational savings are expected to be revealed when the company issues interims on Feb 19th. That’s just 5 days away, so not long to wait.

For investors that like a recovery story based on strong fundamentals rather than market casino algo bots… PDL might be your answer. The business looks robust but significant near term risks remain. Resolve those issues and the recovery to 100p+ should be fast. And remember, diamonds are forever.

The ShareHub initiates coverage on PDL (part of the ShareHub ‘Heads up’ calls for 2018) with a share price target of 130p.

Based on current share price of 68.3p, that’s within a hair of multibagger potential with a serious sparkle. No guarantees of course so please read the risk section in the side panel.

Petro Matad excites with high impact 2018 exploration schedule

Each year the small cap minnows take to the stage hoping to strike big. Funding is the first big barrier and with farm outs even eluding the likes of Hurricane Energy after making a number of huge discoveries, it’s not easy getting exploration (let alone development) underway in a market that to date has not needed to take much risk to make alot of money. But signs are there now that after 2 years of OPEC Oil glut management, and 6 years of free QE bluechip injected fluff, institutional investors are begining to look at riskier plays to kick start their high growth plans. PetroMatad’s RNS this morning reveals a fully funded 100% interest owned exploration plan for 2018 which offers investors a front seat at one of the most attractive high impact drilling campaigns on AIM this year. This is not a one drill wonder. There are 4 drills planned. Each one different and offering greater or lower risk/CoS (chance of success).

Investors have had to wait a few years for this campaign and it’s been far from straightforward. BG had initially agreed a farm out deal with MATD but later was forced to pull out after a root and branch cull of exploration by their new owner Shell. This is not uncommon and the likes of Ophir Energy are also feeling the brunt of Shell’s often slow and deliberate progress in Tanzania. BG and Ophir were going great guns until Shell came along. For MATD, it was now all about going it alone. Brave and not without dilution, the company raised $16.8m at 6.5p in January 2018. Funding now secured, it’s full steam ahead on 4 x exploration targets.

Today’s RNS hints that the earliest time any spud will occur on the first prospect ‘Wild Horse 1’ will be mid April 2018 and the latest possible would be circa June 2018. The drilling season closes down in Mongolia around end of November, so MATD will be keen to get on and drill the 4 targets swiftly. A second rig is being sourced for the 2 x drills planned for H2 on Block XX so it’s possible that they could have 2 drills underway at the same time subject to the timelines/drilling durations with the Sinopec Rig 4518.

Key catalysts near term are clearly the Seismics data which is due shortly and the environmental permits with the latter being the last barrier to spudding the first well.

In 2017, TheShareHub picked Providence Resources as a potential summer “heads up’ blockbuster after it revealed 2 x drills back to back in the Celtic basin. The share price was circa 9p and moved up to pre-TD levels of 20p notably some 4 months ahead of the planned Spud date. Unfortunately for PVR, the Seismics were off and nothing of significance was discovered. And that’s exploration for you. Mother nature has never made it easy for explorers. That said, with 4 x drill opportunities in 2018, MATD have essentially given share holders 4 lucky attempts to strike black gold. At today’s price of 7.125p, it might be worth getting the ‘early doors sleeping bag’ and ‘tent’ out if you want to secure a good seat – centre stage. Look out for upcoming Seismics and environmental permit news. Not for the faint hearted and clearly a punt, but at today’s share price levels, one or 2 drills look priced in for free.

The ShareHub initiates coverage on MATD (part of the ShareHub ‘Heads up’ calls for 2018) with a pre-TD share price target of 19p.

Current price 7.125p

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RNS Number : 6423E
Petro Matad Limited
13 February 2018

Operational Update

Petro Matad, the AIM quoted Mongolian oil explorer, is pleased to provide an operational update for its planned 2018 work programme:

Highlights

  • Completed a US$16.8 million fundraising to execute a four well drilling programme on the Company’s acreage in 2018, with the first well, Wild Horse-1, planned to spud in Q2 2018 using the previously contracted and fully certified Sinopec Rig 4518
  • Making progress to source a rig to drill the two well programme in Block XX in H2 2018
  • Processing of the 2D and 3D seismic surveys acquired in Blocks IV and V respectively is ongoing. Data quality is very good and the work is progressing on schedule with final processed products expected by the end of Q1 2018

Blocks IV and V

The Company’s planned two well, back to back, exploration drilling programme will commence with the spudding of a well on the Wild Horse prospect in Block IV in the Baatsagaan Basin. The Wild Horse prospect is a prominent structural high well positioned to receive oil charge from two of the largest and deepest potential source kitchen areas in the Company’s western Mongolian acreage. The planned total depth (“TD”) of the well is 1,850 metres, penetrating a significant thickness of stratigraphy within closure. The Company’s mid-case estimate of prospective resources in the Wild Horse structure is 290MMbo recoverable, with significant upside potential (c.750MMbo recoverable) identified in 13 further prospects and leads in the same basin that would be partially de-risked by success in Wild Horse-1. The well is expected to take approximately 30-45 days to drill and log at a cost of approximately US$4 million.

Following Wild Horse-1, the rig will move to Block V and drill the Falcon prospect in the Tugrug Basin. The primary objective of the recently acquired 3D survey was to accurately delineate the cluster of prospects in the Falcon area to ensure the well is optimally located to penetrate the primary reservoir targets. Falcon-1 is planned to be drilled to a TD of circa 3,000 metres and it is expected that the well will take approximately 60 days to drill and log at a cost of approximately US$7 million. The Company’s mid-case prospective resource estimate for the Falcon prospect is 100MMbo recoverable with 180MMbo of follow up potential identified nearby.

The Falcon area has been high graded for early drilling as there is very good evidence, including live oil staining in reservoirs penetrated in a nearby deep core hole, that the petroleum system is working in the Tugrug Basin.  As a result of this high grading, Falcon has moved ahead of the Snow Leopard prospect in the Company’s preferred drilling order. The Snow Leopard prospect remains an attractive target for exploration in the Taats Basin of Block V and the Company looks forward to drilling the feature with the results from the 2018 drilling campaign in hand.

Efforts are now focused on securing the necessary environmental, chemical and land use permits that are required prior to the commencement of drilling. The Company is targeting the spud of the Wild Horse-1 well as early in the Mongolian drilling season (mid-April to mid-November) as possible to provide sufficient time to fully complete operations and evaluate the results of the 2018 drilling programme. The exact timing of the first well spud is dependent upon securing the necessary permits.  As a result of the ongoing engagement with the Ministry of Mining, the Ministry of Environment and the industry regulator MRPAM, the Company expects that Wild Horse-1 will spud in Q2 2018.

Sinopec Rig 4518, contracted for the 2018 drilling campaign in Blocks IV and V, has been stored for the winter in a Sinopec facility in southern Mongolia. Mobilisation will commence once the Company has secured the necessary drilling permits from the Mongolian authorities.

Block XX

The Company is in active discussions with drilling contractors operating in Mongolia to secure a rig for its 2018 work programme in Block XX, and the Company is confident that a suitable rig will be contracted to enable drilling in 2018, as planned. The Company’s current intention is to spud the Gazelle prospect in Q3 2018, with a second well to follow on immediately afterwards at a location still to be determined, based on ongoing technical work.

The prospectivity in the northern part of Block XX, neighbouring the producing fields in Block XIX, offers a good chance of success with the potential to put commercial discoveries on-stream quickly, utilising spare capacity in nearby facilities. The recently approved two-year extension to the exploration term of Block XX allows the Company sufficient time to explore these near field opportunities, with the 2018 two well programme being the first step in that campaign.

Mike Buck, CEO of Petro Matad said:

“This is a very exciting time for Petro Matad as we head into one of the highest impact drilling campaigns any independent has undertaken in Mongolia. We are now deep into the preparation phase to spud our first well at Wild Horse-1 in Q2 2018. We are pleased to see that rig availability for our planned drilling in Block XX looks good. I look forward to updating the market on our progress as our preparations for this highly active year continue”.

ShareHub Hotlist 2018 Review – Week 6

Careless talk is indeed a very dangerous tool. The last two weeks of volatility have seen the very worst of press reporting via the usual media channels. Whilst there have been some calming voices, the majority have been too happy to jump on the sensationalists bandwagon. The same happened back in 2017 when the Oil price dipped back to retest support at $42pb after spending some weeks looking strong in the low $50’s. Suddenly all the market Guru’s were calling a ‘bear market’ for Oil and commodities in general. Oil surged to $70 a few months later. The BBC is often the worst. Reporters with little understanding discussing the markets with some kind of self assigned intellectual credibility only then to follow it up with a weather report or traffic update. As mentioned last week, the market is a casino. Volatility is good for the ‘house’. Panic is good. Panic is exactly what generates the extremes. Sentiment can be just as strong a tool as US job data or GDP rates. Sentiment can be affected through media channels. None of this is new. Most investors are fully aware of the machinations of the market or casino as it’s now fast becoming known. But the key difference today compared to a decade ago (Lehman’s / Credit bubble) is that there is no obvious economic dangers. It’s been steady eddy stuff for the last 2 years+ across the major indices. Some would say 6 years+. The opposite could be said of Commodities which have bounced back of late from historic lows and still have a long way to go before they align themselves with the surge in broader markets. This time around there is no sub-prime issue to be wary of. No ‘Greece’ black hole and so on. Of course there are concerns over consumer debt levels, when isn’t there such concerns? So where is the danger this time around. Well, you guessed it. The danger has been manufactured from nothing. It’s as if the Casino got bored and decided on creating the next bubble just for the hell of it. This new bubble is based entirely around the ‘VIX’. This volatility index and other associated products are now unwinding. When will the market learn? Why invent financial products from thin air and then sell them on 4 or 10 x over? Has nothing been learned from the past? When will the market clean up its act? Whilst some will say that the investments in these products are small circa $8bln, it’s the knock on effects from sentiment and related or hinged products that follows that become the real danger. Something as simple as this could eventually return the markets to early QE levels just at a time when Governments are unwinding the free money deals. When a black box in a cabinet starts selling a particular stock which then goes through support levels which then triggers other events such as falls in ETF’s, ETN’s, Spread bets, CFD’s the list goes on… it has no end. The Algo’s just keep selling as each level breaks. Meanwhile, the media channels run around spouting utter nonsense as they try and pin a genuine reason which makes a decent headline, afterall – citing a black algo box or fat finger is becoming abit old hat these days.

The question everyone should be asking now is where were the headlines or panic when the market was rising like a balloon on hot air? The irony is had the DOW not risen to 26700 and instead took some minor corrections over a period of 2 or 3 months from levels of 23500 down to 21500 – most would not have raised an eyebrow. The difference of late is that 3000pts were knocked off in the space of just a few days. After a steady eddy incremental rise of 3000pts over the last 5 months+, the DOW shed some serious weight in a small amount of time. Overdue or not, losing that kind of weight is not healthy. It shows just how over leveraged and complacent the market has become. Perhaps the short sharp correction (assuming it is a correction) is what the market needed, dare I say it… designed specifically to wake a few complacent investors up. Stop the rise to 30k on the DOW now before the likely event? The adage that nothing goes up in a straight line is certainly worth noting. The DOW proved that wrong for many months in 2017… too many months. A reminder of the markets fragility and tendancy to spiral often uncontrollably is perhaps a welcome warning and a long time coming. It’s going to take a few weeks yet before the Algo’s find a new programme or tune to dance along too. So don’t expect calm just yet. There’s more to come simply because the market has to find out for itself what is lurking deeper. A self destructive curiosity act that will ultimately determine the bottom, but one that needs to be done. 21500 looks fine to me. A rough halfway house between 16.5k and 26.5k. Once reached, the upside opportunity to bounce back to 23500 or 24500 becomes rather attractive for all involved. Often, if a ceiling has been reached, then there’s more money to be made on a move down and then a return move back up than just treading water or flat trading. Timing is everything of course, but just reflect on this fact for one moment… Over the last week to 10 days, the DOW has swung around by over 4000pts through several dips and bounces. As a comparable, it took the DOW 4 years to rise from 15k to 19k. And just over 6 months to rise from 19k to 26.5k. Hence, a drop to 19k levels would not be the end of the world by any means, but technically that would be called a bear market and the Algo’s would eat themselves in a way that could send the market much much lower. So the next crisis is indeed around the corner, but it’s easily preventable. Why not bring some bans in on Algo’s? Why not put a brake system in place which takes into consideration ‘now’ the likely impact of Algo and HF trading? It’s about time the ‘Casino’ started to look closely at the animal it has become and do something positive about it. It’s not fair for Governments / Banks to ridicule Bitcoin and try and close it down simply because they feel it’s out of their control. Something that they cannot dictate. Something that really messes with the products that are in their control. In reality, governments should look at the market regulation that exists today and do it a lot better because at the moment, products created around low Volatility are no more credible than Bitcoin. They should be closed down and banned.

So what have we learned from the last few weeks? Well, one thing is becoming clear, the go-to safety of Gold has not yet been fully utilised. At $1310oz, the metal is trading at levels last seen when the DOW had zero volatility. That’s odd. And it should change. A move to safety throughout 2018 could see Gold into the $1400’s with ease. Bodes well for low cost producers like Hummingbird Resources (HUM) as well as those more established players in Highland Gold (HGM) and Centamin (CEY).

Oil is also in demand and whilst the recent US rig count rise suggests more drilling has returned, it is still some 200rigs+ away from where it should be. US shale may well prove to be a short lived issue for the Oil Market. The next 2 to 3 years could see production start falling fast as resources become harder and harder to extract. The permian can only take so much frac fluid before something pops. A testing period which is exactly where OPEC want to be. It might take another year or two, but by 2020, OPEC and all involved should have a much better idea of US shales capabilities and longevity.

Notable observations across equities involved heavy weights like BP and Tullow alongside mid tier players like Premier Oil and Enquest. The latter two certainly took the brunt of the sell off while the bigger players looked relatively unscathed. Selective trading or a sign that the investment banks are happier ploughing money into the Blue chip players rather than the mid caps? That said, Institutional investments across some smaller cap players has been increasing of late suggesting that the move away from Blue chips to higher growth / higher risk prospects might be underway. Certainly one to watch over the coming months across the commodity sector. Should bode well for some explorers seeking farm outs/funding too.

Stocks that look good value due to recent market ‘over-reactions’ include Hummingbird, SolGold, Columbus, Petrofac to name a few. Whilst it feels like a year has already been traded, we are just 6 weeks in. Plenty of weeks to go yet.

Week 6 positions below:

Commodities Escape Worst of Market Rout on Robust Demand Outlook – Bloomberg

As per article below, the recent sell off in the major indices is affecting all equities but some are faring better than others. You can learn quite a bit from watching the sectors (individally) when a rout of this kind is underway. There were signs yesterday of some ‘selective’ selling when 29 of the DOW 30 got hammered leaving one stock with just a few scratches on the day. That stock was Apple. Not commodity focused by any means but clearly a stock that ‘many’ are not willing to dump regardless of the sentiment. This is interesting and could suggest that the market rout is a ‘corrective phase’ rather than a heavy broad brush sell everything approach.

In early trading on the FTSE100 today, BP took a hit faling to 452p before miraculously bouncing back to end up a few pennies at 483p. The stock has slipped back again but the trend of buying the ‘dips’ on selective stocks is clear to see if you keep an eye on sectors.

Near term, it will take some time to see the dust settle and as I suggested yesterday, a trip back to 23500 or 21800 (Sept month low) might help set the year up for a range bound level of 21500 to 24500. My hunch thus far is that 26500 on the DOW will not be seen again anytime soon. Write that one down to some post festive cheer and focus on the Q3 2017 levels as being a better metric of the markets genuine health. With Trumps Tax benefis to follow, the US economy should be doing fine and interest rate worries look overdone based on that mix.

For the moment, equities will bob about in ways that you may not understand. There may be no fundamental reason for one equity taking a harder hit than another and the reason may have more to do with margin traders and the over leveraged. If there are forced sellers due to excitable CFD’s or spread bets, then they will effect the price. That said, this usually sorts itself out pretty quickly.

Gold has yet to make a ‘nonsense’ move. We’ve had Crypto’s trading nonsense. We’ve had the broader Indices in la la land too. But Gold has yet to dazzle and thus it might not be too long before that go-to safety metal is trading in the 1400’s. The only ‘nonsense’ trading at the moment is that it’s still in the 1300’s.

Please follow the link below to give Bloomberg the hits they deserve.

https://www.bloomberg.com/news/articles/2018-02-06/commodities-tumble-as-oil-to-copper-dragged-into-global-sell-off

Updated on
By Jake Lloyd-Smith and Heesu Lee

  • Bloomberg Commodity Index pares losses by end of Asian day
  • Banks say bullish case for raw materials remains intact

Commodities are escaping the worst of the global market rout as losses in raw materials are capped by speculation that the bullish outlook for demand remains intact.

The Bloomberg Commodity Index pared its decline to only 0.1 percent by the end of the Asian day as gains in precious metals and U.S. natural gas helped offset lower oil and industrial metals. While some raw materials were dragged lower as investors eschew risk, the reaction was muted compared with other assets. Stock markets from Hong Kong to Tokyo tumbled more than 4 percent following Monday’s collapse in U.S. equities and bond yields.

 

Commodities surged in January to the highest level since 2015 amid projections for the strongest global growth since 2011. Goldman Sachs Group Inc. last week said it’s the most bullish on raw materials since the end of the supercycle in 2008 as growing demand eats into stockpiles. The global equity rout doesn’t change the market fundamentals, according to banks including Australia & New Zealand Banking Group.

 “Clearly there is a risk off tone in the markets that will weigh on the sector,” said Daniel Hynes, a senior commodities strategist at ANZ. “But there is no fundamental reason for this selloff to change our view of commodity markets.”
The Bloomberg Commodity Index, which measures returns on 22 basic resources from crude to copper, was little changed as of 5:50 p.m. in Singapore after earlier falling 0.4 percent. The gauge was buoyed by natural gas and agricultural commodities as well as a jump in gold futures as investors sought havens from the global stock rout. By contrast, the MSCI All Country World Index of stocks lost 1.2 percent.

Oil Slips

Brent crude was 0.8 percent lower after earlier dropping as much as 1.2 percent. On the London Metal Exchange, copper sank 0.8 percent as aluminum, zinc, lead and nickel all declined.

Miners and energy companies were pulled lower by the broader selloff in equities. In Sydney, BHP Billiton Ltd., the world’s largest mining company, dropped 2.7 percent as Rio Tinto Group slid 1.4 percent. Oil producer PetroChina Co. lost as much as 7.3 percent in Hong Kong.

For Citigroup Inc., the collapse in stock markets represents a buying opportunity.

“We recommend asset managers raise their exposure to industrial metals over the coming month, particularly at the expense of bonds and other fixed income,” the bank said in a Feb. 5 report. Citi’s case for metals rested on its analysis they do better than other assets during periods of solid growth when inflation is picking up.

The view that the broader outlook for commodities remains positive echoes remarks from billionaire bond manager Jeffrey Gundlach in January that raw materials may be one of this year’s best investments as they surge during the late phase of the economic cycle.

“The drop in U.S. equities market is currently dragging prices of commodities down,” said Will Yun, a Seoul-based commodities analyst at Hyundai Futures Corp. “However, it’d be too early to say commodities have joined the global selloff because the fundamental picture is still looking positive.”

— With assistance by Tsuyoshi Inajima, Jasmine Ng, Javier Blas, and Manus Cranny