Duncan Hughes: The Weak Aussie Dollar Means Strong Aussie Miners

The Gold Report: Where do you see the price of gold going this year?

Duncan Hughes: Gold should remain fairly flat, probably around US$1,225 per ounce (US$1,225/oz), due to the strength of the U.S. dollar. In U.S. dollar terms, gold has underperformed, but when valued in other currencies, gold has actually performed pretty well.

TGR: How about nickel and copper?

DH: Current spot prices just don’t look sustainable to us. The price of nickel is depressed now because there are 400,000 tons stockpiled in the London Metal Exchange (LME), and the global market is about 2 million tons (2 Mt). The expected increase in the price of nickel following Indonesia’s ban on the export of unprocessed ore has been delayed because of ore coming from the Philippines. But this substitute ore is a lower-quality product, and stockpiles will eventually fall in China. So the supply crunch that was forecast for early 2015 will now occur later in the year.

At the current price of around US$2.75/pound (US$2.75/lb), a fair amount of the copper industry is underwater. So we expect price increases beginning in the second half of 2015.

TGR: Canadian mining companies have benefited greatly from the strength of the U.S. dollar. How great has the benefit been to Australian miners?

DH: It’s huge. The Aussie dollar has fallen from parity last year to US$0.76 today. So, for example, gold at US$1,200/oz translates to AU$1,570/oz, and nickel at US$5.70/lb means AU$7.50/lb. Without this currency premium, we’d see many Australian mine closures.

TGR: So are Australian miners now dependent on this currency premium in order to maintain margins?

DH: There are some high-cost assets that are producing only because of the Aussie gold price. This effect is even greater with nickel miners, as the price of nickel has really surprised to the downside. A number of …read more

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