Good morning investors,
After a dismal year that saw the commodity complex sink more than 30%, Scotiabank is pegging lithium, zinc and construction product oriented strand board to lead the way in 2016.
Those are the top picks of Patricia Mohr, Scotiabank's Vice-President of Economics and Commodity Market Specialist, who also expects tightening supply to boost overall commodity prices by 2017.
On lithium: "Used in lithium-ion batteries for hybrid and electric cars, is of interest to mitigate climate change. Lithium prices have climbed about 15% in 2015 to US$7,500 per tonne, with strong demand in China."
On zinc: "Concentrate supplies will tighten due to mine depletion at Century & Lisheen in the second half of 2015, already announced mine production cuts in 2016 and extremely limited new mine development over the balance of the decade. Zinc is an important commodity in Canada."
As for oriented strand board (OSB), Mohr said the panel board used in residential construction - 2015's top-performing industrial commodity - should see further price strength in the first half of 2016 as U.S. housing starts begin to gradually recover.
Gold has also had a negative year - it's down about 11% so far - but the yellow metal was getting a bid in early trading this morning.
In a Sunday note, market commentator Clive Maund noted that commercial short positions on gold are at their lowest levels in about 14 years, which is very bullish.
"The latest COTs show the Commercials having largely eliminated their short positions, which are at their lowest level for about 14 years," Maund said. "This is construed as being very bullish indeed, and suggests that gold will soon do more than merely embark on an intermediate rally – we may have just seen the final low. If so, it does not bode well for the dollar, which implies that the Fed will soon have its back to the wall after its latest bit of theater."
For the companies that mine gold, unprofitable production has been a major problem in this declining price environment since the heights of US$1,900 an ounce in 2011.
The unwillingness to curtail high-cost production is an issue that Randgold CEO Mark Bristow, for one, has been very vocal about.
And Bristow showed it's more than just an academic topic today when Randgold mothballing Obuasi, a joint-venture option with AngloGold Ashanti on a historic gold mine in Ghana, just three months after declaring its interest in the asset. Randgold has a 20% return investment criteria at US$1,000/oz gold.
"We spent more time on it than most people would do on a normal M&A. But it got to the point where whichever way we cut the cake, we couldn’t get it to pass our criteria," Bristow told The Telegraph.
"Anglo has never made any money out of this asset, ever," he added.
One Ghana gold project that does appear to be making traction is Asanko Gold's Phase 1 mine construction. The company said this morning that commissioning is underway and first gold is expected in January, a month ahead of schedule.
Phase 1 is expected to produce an average of about 190,000 ounces a year for 12 years.
"Commissioning of Phase 1 has now commenced and we expect to start the mill and CIL circuits shortly," said Peter Breese, Asanko's president and CEO. "We continue to track within our capital budget of US$295 million and have strengthened the balance sheet heading into commissioning against a backdrop of uncertainty for the gold price. We remain confident of our ability to reach commercial production and generate positive cash flows by Q2 2016."
Asanko Gold shares are up about 17% year-to-date on the Toronto Stock Exchange.
Join the conversation and tap into crowdsourced market opinions and analysis at CEO Chat, the investment conference in your pocket.