Metals Focus
Precious Metals Weekly
Issue 264
31 July 2018
st
Gold
Held steady ahead of the
FMOC meeting this week.
Silver
Silver Eagle sales more than
doubled m/m in July, with the
total likely to exceed 900koz
for the first time in 3 months.
Platinum
Workers at some of South
African state-owned utility
Eskom’s power stations
have downed tools after an
impasse over wages, but
energy supplies has not been
disrupted,
Palladium
The Chinese government will
halve the vehicle and vessel
tax on small engine passenger
cars and scrap this tax on new
energy vehicles and ships.
Can informal production help avoid peak
gold?
The outlook for gold mine supply remains finely balanced, with
global production forecast to increase slightly in 2018 to 3,339t
(+35.6t, 1% y/y), with an additional 17.8t increase expected in
2019. In evidence as to how finely balanced the situation is, a
single operation, Grasberg, is expected to contribute the majority
of the 2018 increase, with an additional 26t of gold of gold output
versus 2017, produced from the final open-pit cutback.
Annual average growth in mine production of 3% over the current
decade has been supported by increases from nearly all of the
major producing countries, the exceptions being structural
declines from South Africa and Peru. These losses were offset
by increases from China, the largest producing country and main
growth driver of the past eight years, which added 88.3t from
2010-17, as a handful of large indigenous mining companies
consolidated and expanded.
The outlook for the next three years presents a more complicated
picture to interpret, with contrasting fortunes ahead for large
components of the global mine supply mix. Since mid-2016
China has entered a period of production decline, as stricter
environmental regulation takes effect. Likewise production from
the United States and Indonesia is set to decrease as operations
age and grades continue to fall. On the upside, growth will
continue from Canada, Russia and Australia, primarily from
greenfield project development. Much also depends
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 Precious Metals Weekly, Issue 264 - 31st July 2018

on developments in smaller producing countries in Africa, the CIS

Gold production: sector and South America. These regions are characterised by higher risk of
growth disruption from community opposition, conflict or political intervention.
Tonnes

3,500
The major gold miners are currently constrained by shareholders’
3,000
insistence that they reduce debt burdens and do not commit to large
2,500 project developments, so little or no growth is expected from the larger
2,000 players over the next three years. In fact, declining production and
1,500 loss of market share has been an ongoing theme for the top ten major
producers over the last decade; in 2010 34% of global supply came
from the top ten; producers in 2017 this had fallen to 28%. This trend is
set to continue with many of the top 10 miners prioritising shareholder
return over production growth, resulting in little prospect of increased
Dummy Rise Fall Mine Supply output over the next two to three years. Barrick and Newmont, the
two largest producers, are currently budgeting for a 28.7t and 12.9t
Source: Metals Focus, Gold Focus 2018
respective decrease in annual output by 2020. Polyus is expecting the
greatest increase, guiding for an additional 19.9t/y by 2019, driven by
brownfield expansion and the ramp-up of Natalka.

Despite this, counter intuitively, the global gold mine project pipeline
is healthy, as smaller mining companies with the high quality projects
have been able to secure financing and progress project development
over the last few years, despite the difficulties faced by their larger
peers. Although still well below the 2012 peak, the PDAC State of
Mineral Finance 2018 report estimates that global mining finance
Gold mine production activity was up 61% y/y in 2017. Notably, of the 40-odd greenfield
outlook projects currently under construction/commissioning in our global
3,600 mines database, only one, Goldfields’ Gruyere JV belongs to a top
3,400 ten miner. The population includes four other >6 t/y projects due to
3,200
enter production this year or next; Lundin Gold’s Fruta del Norte (11.0
3,000
t/y), Agnico Eagle’s Meliadine (9.7 t/y), Lydian’s Amuslar (7.0 t/y) and
2,800
2,600
Nordgold’s Gross (6.2 t/y).
2,400
2,200 Another major contributing factor in gold mine supply growth has
2,000 been increased production from the artisanal/small scale mining (ASM)
2010 2012 2014 2016 2018 2020
sector. ASM production has grown as a result of increased gold prices
Scoping Pre Feasibility
Feasibility Construction and the hardships faced by rural economies in developing countries.
Commissioning Operating & Historic
The Intergovernmental Forum (IGF) reports an estimated 40.5m people
Global Mine Supply
directly engaged in ASM mining up from 13m in 1999. As developing
Source: Metals Focus country populations continue to grow and subsistence farming remains
economically marginal, gold production from ASM is likely to become
more significant over the longer term.
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 Precious Metals Weekly, Issue 264 - 31st July 2018

The International Development Strategies

Across China’s Gold Market
Last week Metals Focus visited Beijing, attending the biennial China
Gold Congress, where, among others, our Chinese language annual
Silver Focus and Platinum and Palladium Focus reports where
launched. Across the various sessions, a key theme was the continued
progress made towards the Chinese gold market’s internationalisation.
Commodities and futures exchanges, commercial banks, gold mining
companies and gold jewellery companies have all been developing
links with international gold markets in recent years.

Starting with exchanges, since its launch in 2014, the Shanghai Gold
Exchange International Board (SGE I) has attracted 70 international
members. In 2017, gold trading volumes on the SGE I stood at 4,777t,
up 20% y/y. Moreover, SGE I has played a growing part in the gold
import system, through physical deliveries from vaults within the
FTZ. The framework provides overseas institutions with physical gold
deposits, withdrawal and account transfer services, and domestic
banks with gold registration, storage and logistic services. In 2017,
imports via the international board accounted for over one third of total
gold imports into China.

In addition the SGE has developed the world’s first gold price
benchmark dominated in renminbi. In 2017, SGE partnered with the
Dubai Gold & Commodities Exchange, authoring it to use the Shanghai
gold benchmark price as the basis for cash-settling an offshore CNH-
dominated gold futures contract the latter exchange developed.
Elsewhere, Chinese commercial banks have been developing
their global precious metals business. In particular, Bank of China,
China Construction Bank, ICBC and Bank of Communications, have
participated in the LBMA’s gold pricing auction.

Meanwhile, leading companies in the domestic supply chain have been

relatively active in international M&A activities. To-date, Chinese mining
companies have invested some US$4bn overseas, in the process
acquiring over 1,500t of gold reserves. Zijin Mining Group reported just
under 20t gold output in 2017 from overseas projects, making up 52%
of their annual production. Last year, Shandong Gold Group invested
around $1bn to acquire a 50% interest of Valedero Mine from Barrick.
The president of Zhaojin Mining Group noted in his speech that the
company’s overseas expansion strategy aims to contribute 50% to the
company’s total gold production in the future.

Finally, on the jewellery side, Lao Feng Xiang, a popular local retail
brand, opened its second New York shop this June, taking its overseas
total to 14, covering the US, Canada, Australia and Hong Kong.
 Precious Metals Weekly, Issue 264 - 31st July 2018

Charts - Precious Metal Prices, US$/oz

Gold, US$/oz Silver, US$/oz

US$/oz US$/oz
1,250 16.0

15.8
1,240

15.6
1,230
15.4

1,220
15.2

1,210 15.0
17-Jul 19-Jul 24-Jul 26-Jul 31-Jul 17-Jul 19-Jul 24-Jul 26-Jul 31-Jul

Source: Bloomberg Source: Bloomberg

Platinum, US$/oz Palladium, US$/oz

US$/oz US$/oz
850 960

840 940

830
920
820
900
810

880
800

790 860
17-Jul 19-Jul 24-Jul 26-Jul 31-Jul 17-Jul 19-Jul 24-Jul 26-Jul 31-Jul

Source: Bloomberg Source: Bloomberg

 Precious Metals Weekly, Issue 264 - 31st July 2018

Charts - Ratios & Spreads

Gold:Silver Ratio Gold:Oil

Ratio (Brent) Ratio
Ratio
80.5 17.5

80.0 17.2

79.5 16.9

79.0 16.6

78.5 16.3

78.0 16.0
17-Jul 19-Jul 24-Jul 26-Jul 31-Jul 17-Jul 19-Jul 24-Jul 26-Jul 31-Jul

Source: Bloomberg Source: Bloomberg

Platinum-Gold Discount, US$/oz Platinum:Palladium Ratio

US$/oz Ratio
-380 0.94

-390
0.92

-400
0.90
-410

0.88
-420

-430 0.86
17-Jul 19-Jul 24-Jul 26-Jul 31-Jul 17-Jul 19-Jul 24-Jul 26-Jul 31-Jul

Source: Bloomberg Source: Bloomberg

 Precious Metals Weekly, Issue 264 - 31st July 2018

Charts - Futures Positions

Gold Silver
Tonnes US$/oz Tonnes
US$/oz
1,500 1,400 25,000 21

20,000
1,350
1,000 15,000
19
1,300
10,000
500
1,250 5,000
17
1,200 0
0
-5,000
1,150 15
-10,000
-500
1,100 -15,000
Gold Price (RHS) Silver Price (RHS)
-1,000 1,050 -20,000 13
Jul-15 Jul-16 Jul-17 Jul-18 Jul-15 Jul-16 Jul-17 Jul-18

Total Long Total Short Net Total Long Total Short Net

Source: CFTC Source: CFTC

Platinum Palladium
Tonnes US$/oz Tonnes US$/oz

120 1,200 120 1150

1050
70 80
1,100
950

20 40
850
1,000
750
-30 0

650
900
-80 -40
550
Platinum Price (RHS)
Palladium Price (RHS)
-130 800 -80 450
Jul-15 Jul-16 Jul-17 Jul-18 Jul-15 Jul-16 Jul-17 Jul-18

Total Long Total Short Net

Total Long Total Short Net

Source: CFTC Source: CFTC

 Precious Metals Weekly, Issue 264 - 31st July 2018

Charts - ETP Holdings

Gold Silver
Moz US$/oz Moz US$/oz
90 2,000 700 60
80
600 50
70 1,600
500
60 40
1,200
50 400
30
40 300
800
30 20
200
20 400
100 10
10
0 0 0 0
2008 2010 2012 2014 2016 2018 2008 2010 2012 2014 2016 2018

Gold Holdings (LHS) Price (RHS) Silver Holdings (LHS) Price (RHS)

Source: Bloomberg Source: Bloomberg

Platinum Palladium
Moz US$/oz Moz US$/oz

3.0 2,500 3.5 1,200

2.5 3.0 1,000

2,000
2.5
2.0 800
1,500 2.0
1.5 600
1,000 1.5
1.0 400
1.0
500
0.5 0.5 200

0.0 0 0.0 0
2008 2010 2012 2014 2016 2018 2008 2010 2012 2014 2016 2018

Platinum Holdings (LHS) Price (RHS) Palladium Holdings (LHS) Price (RHS)
Source: Bloomberg Source: Bloomberg
 Precious Metals Weekly, Issue 263 - 24th July 2018

The Metals Focus Team

Philip Newman, Director Nikos Kavalis, Director
philip.newman@metalsfocus.com nikos.kavalis@metalsfocus.com

Charles de Meester, Director Mark Fellows, Head of Mine Supply

charles.demeester@metalsfocus.com mark.fellows@metalsfocus.com

Charles Cooper, Head of Mine Economics Neil Meader, Research & Consultancy Manager
charles.cooper@metalsfocus.com neil.meader@metalsfocus.com

Junlu Liang, Senior Analyst Çagdas D. Küçükemiroglu, Consultant, Istanbul

junlu.liang@metalsfocus.com cagdas@metalsfocus.com

Simon Yau, Senior Consultant, Hong Kong Yiyi Gao, Senior Analyst, Shanghai
simon.yau@metalsfocus.com yiyi.gao@metalsfocus.com

Peter Ryan, Consultant Chirag Sheth, Senior Consultant, Mumbai

peter.ryan@metalsfocus.com chirag.sheth@metalsfocus.com

Elvis Chou, Consultant, Taipei Harshal Barot, Consultant, Mumbai

elvis.chou@metalsfocus.com harshal.barot@metalsfocus.com

Dale Munro, Senior Analyst Francesca Rey, Consultant, Manilla

dale.munro@metalsfocus.com francesca.rey@metalsfocus.com

Daniel Macfarlane, Analyst Jie Gao, Research Analyst, Shanghai

daniel.macfarlane@metalsfocus.com jie.gao@metalsfocus.com

Carmen Eleta, Regional Sales Director Neelan Patel, Commercial Manager

carmen.eleta@metalsfocus.com neelan.patel@metalsfocus.com

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