Bumpy ride for commodities

17 November 2009

It was a bumpy ride for the commodities sector last week, as the US dollar swung back and forth and buying interest was interspersed with profit taking.

Both precious and base metals made progress throughout the week but hit a wall on Friday when the greenback showed signs of strength after a 15-month low.

Copper prices surged to $6,646 a tonne on the London Metal Exchange on Thursday, marking a high for the month, following strong production results from China and Japan. However, by Friday the US dollar had found its footing leaving the copper industry to take a breather and leading to a drop in price to $6,543 a tonne.

Silver followed much the same pattern, rising steadily throughout the week before slipping back to $17.38 an ounce. Platinum hit a 14-month high as rallying gold prices and a weak US dollar spurred buying interest in the metal. Prices rose to $1,414 an ounce, its highest level since September 2008.

Ending their recent rally, oil prices were also lacking firm direction. After showing marginal gains at the start of the week, prices dropped sharply towards Friday as a US energy department report showed stockpiles rising at a faster rate than expected, implying that fuel demand has not yet recovered.

Commodities' biggest winner, however, was undoubtedly gold which hit a series of consecutive highs. The precious metal achieved fresh highs on Monday, Wednesday and Thursday, reaching $1,123 an ounce, before taking a breather on Friday as focus turned to the US currency's strengthening value.

All that glitters

The week kicked off with gold miner Randgold Resources (RRS) announcing that it would charge ahead with plans to bring its Gountoko project on line after tests revealed better-than-expected results. Randgold said it was determined to accelerate work on the Mali-based project, scheduled to coming on line by the first quarter of 2010.

Diamond exploration company African Diamonds (AFD) was also on a high after being offered the chance to increase its stake in the "world class" AK6 Botswana diamond project following the sales of De Beers' share.

The high-end diamond jeweller sold its entire 71% stake to Toronto-listed diamond company Lucara for $49 million. AIM-listed African Diamonds, who currently owns a 29% stake in the project, has been given a 120-day option to bump up its shares to 40% for £4.8 million.

Also in Botswana, AIM-listed Firestone Diamonds (FDI) ended the week on a high note after revealing that its BK11 mine could come on line as early as next year, sealing its position as the largest holder of diamonds exploration rights in Botswana's kimberlite fields.

The African-focused diamond miner said the mine could produce revenues in excess of $20 million per year after receiving a firm boost in July when the company raised £7.2 million from a share placement to finance its development.

Oiling the wheels

Oil powerhouse Tullow Oil (TLW) gave its investors a reason to celebrate after it revealed on Wednesday that it's set to hit its yearly production target of 58,000 barrels of oil per day after a flurry of oil discoveries across its West African portfolio.

Lifted by a healthy performance between July and November, the FTSE 100 (UKX) player's exploration success rate reached 85% year-to-date spanning following a series of successes spanning Uganda, Ghana and Sierra Leone.

JKX Oil & Gas (JKX) was also revelling in production rates, after posting a 24% increase in output, despite tumbling oil prices. The oil and gas company said it was now facing its largest number of exploration and development opportunities in its history.

Also celebrating was mining minnow Nighthawk Energy (HAWK), which piqued investor interest with plans to ramp up production at its Jolly Ranch project in Colorado. Nighthawk, which owns a 50% interest in the project along with Running Foxes Petroleum, made the decision after tests revealed a potential capacity of 1.462 billion barrels of oil.

Less sterling, however, Dana Petroleum's (DNX) exploration efforts after the company admitted it would plug and abandon its Jetta wildcat well despite discovering oil in its sidetrack.

The FTSE 250 group decided to permanently close work on the 25/8-17 well and the 25/8-17 A sidetrack well, located just off the Norwegian coast, after the reservoir thickness of both wells was deemed to be of a lower standard than anticipated.


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