Interview: Commodity 'Super-cycle' Suspended, Not Ending: Head Of Global Mining Group Fasken Martineau

By Alex Létourneau of Kitco News
Wednesday June 26, 2013 12:35 PM

(Kitco News) - Another tough day at the office for metals continues to fuel questions about whether or not the “commodity super-cycle” over the last decade is coming to an end.

Driven largely by Chinese appetite for commodities, the 2000s saw a commodities boom with both precious and base metals prices rising to record highs.

With sharp drops across the metals board in the last three months, some analysts have begun to believe this commodities boom, dubbed the “commodities super-cycle,” is at an end.

John Turner, partner and head of Global Mining Group with international business law firm Fasken Martineau, does not believe the super-cycle is over, but simply stalled.

“I don’t think it’s come to an end -- there’s obviously a big suspension but China’s still buying,” Turner said to Kitco News in a telephone interview. “In a sense you’re taking a view on China and a lot of the commodities, maybe slightly less so on the gold side, but I do think there’s still a lot of demand in China, India and other places.

“I think it definitely will come back. I just wouldn’t want to be on record saying when and I don’t think it’ll necessarily be a comeback in a way where the tide raises all ships, I think it may be kind of selected,” he said.
A suspension in this super-cycle would severely affect the mining sector, which is currently navigating its way through choppy waters.

After Wednesday’s sharp gold drop, spot gold was at $1,231 at press time, many gold miners will be wondering where this bottom is and can they stay afloat.

“A few weeks ago, people were saying in the gold industry that you better have cash costs below $1,250 and now you see this morning that it’s gone below that,” Turner said. “That may be temporary, but at some point the marginal costs of production probably stops at going too much lower, although, I could certainly see it spike down for a period of time but I don’t think it’s sustainable below $1,250.”

This puts gold miners in a tough spot. The companies that are producing gold and generating cash flow don’t have to ring the alarm bells just yet, but if these current prices are here to stay for a period of time, miners will need to make big decisions.

“I think you’ll see a combination of some (juniors) folding and some distressed mergers and acquisition, as well as some (seniors and intermediates) that do have cash will be at a premium and do some sort of M&A deals with some of the juniors that they like the assets who are virtually out of cash,” Turner said. “It’s an industry where people are kind of expert, the ones that have been around for a while anyway, at conserving things, stop doing work and wait for a better day.”

Turner pointed to New Gold Inc.’s recent acquisition of Rainy River Resources Ltd. in late May. He doesn’t believe M&A in earnest will really get going until the fall of 2013.

“On the other side we’ve seen those that have track records have been able to raise a bit of cash for private companies,” he added. “I think people are happier to invest in a private company and wait it out and not have to watch your share price get beaten up every day.”

As far as this being the much searched-for bottom in the market, Turner thinks if this isn’t it, it’s close.

“It’s starting to look more and more like a bottom; I’m optimistic that if this isn’t the bottom, it’s very near it.” Turner said. “In my view, I don’t think the market is fundamentally more secure, the financial markets generally, than they were six months ago.

“I assume there will be some other trigger, whether it’s another country close to default or some major financial institution in difficulty and I think one of the other factors is people, based on the Fed announcement, are thinking that buying’s going to slow down, the interest rates might start going up and that’ll be bad for gold,” he said.

“What we have seen is kind of anecdotal that when the price drops, we’ve seen more and more retail buyers so that suggests to me that people are still worried, and, I think it’s pretty fragile.”

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