The Mining Report: Copper has fallen about 12% in 2015 and other base metals are seeing significantly weaker support after the World Bank said it expects the global economy to slow by as much as 1% this year. Is the bull market for commodities over or is this a pause in an otherwise bullish cycle?
Stefan Ioannou: Looking at this market as bullish over the past couple of years may be a bit aggressive. There has been a cautious tone since 2012. Metal prices relative to historic prices are definitely higher, but so are operating costs. The margins haven’t changed much. Depending on the metal you’re talking about, there are also concerns about large surpluses and global economies possibly slowing down.
TMR: Would it be fair to say that while base metal prices may be under pressure in a broad sense, specific equities may have catalysts or other news that could offset commodity price weakness?
SI: Well-run companies tend to do well, assuming they have a project that can demonstrate reasonable economics in a given pricing environment. However, in mid-January we witnessed a massive correction in the copper price—a lot of value has been taken off the table. When there are rapid drops like that it almost doesn’t matter how great a project is. In the short term those companies will face general market sentiment, which tends to hit the panic button and exit the resource sector en masse. That reaction was probably overdone in terms of the response of the equities and their valuations. There is a bottom-fishing opportunity there.
TMR: What was the general sense at Haywood when you watched those corrections occurring?
SI: We tried to determine …read more