Gold, oil hit record highs

More records were set for commodity prices during the week ended Feb. 23, the eighth trading period of 2008, as both oil and gold prices rose to new, all-time nominal highs as the U.S. dollar suffered another bout of weakness.

• After closing above US$100 per barrel for the first time ever on Feb. 19, West Texas Intermediate crude oil futures spiked to another all-time nominal high of US$101.27 per barrel on Feb. 20, in response to the release of minutes from the Federal Reserve’s last meeting that confirmed concerns over U.S. economic growth and inflation. Oil first started charging towards the US$100 barrier on growing speculation that the Organization of Petroleum Exporting Countries would soon cut production and after an explosion at a Texas oil refinery. The Turkish army’s latest major offensive into northern Iraq to attack Kurdish paramilitaries has also stoked oil prices.

• Gold’s London PM fix of US$945 per oz. on Feb. 21 was another all-time record high in nominal terms. (At presstime, the yellow metal was trading at a spot price of US$950 per oz., up US$40 in the last month.) The rest of the precious metals subsector followed suit with strong gains on Feb. 21, as silver closed at US$17.98 per oz. (a 27-year high); platinum at US$2,180 per oz. (an all-time nominal high) and palladium at US$519 per oz. (a 7-year high).

• The relentless rise of oil and gold prices showed its effects in the newly reported quarterly results from the world’s biggest gold miners, many of whom saw profit growth trailing revenue growth. The worst case was a floundering Newmont Mining, which actually lost US$1.9 billion last year (or US$4.17 per share) compared with a year-ago profit of US$791 million (US$1.75), even as revenue rose to US$5.53 billion in 2007 from US$4.9 billion in 2006.

• The most significant M&A activity of the week was Barrick Gold’s US$1.7-billion cash purchase from Rio Tinto of the 40% of the Cortez joint venture in Nevada that it didn’t already own. This is a superb asset for Barrick’s portfolio, and the company has shown its shrewdness here two ways: in its original audacity in carrying out a hostile takeover of Placer Dome to acquire the first 60%, and then in its patience in waiting almost two years before the time was right to scoop up the final 40% stake from a suddenly cash-hungry Rio Tinto.

• Foreign base metal miners and developers in the Democratic Republic of the Congo released a string of terse press releases noting that they had each received letters from the DRC’s Mines Ministry regarding the fundamental status of their assets in the country. These letters tended to follow a pattern: a demand for copies of the relevant project’s most recent feasibility studies; a requirement to describe any positive social impacts the project has created in the local community; and a strong hint that there would be increased participation by the state-owned mining company Gcamines, both in terms of percentage ownership and at an operational level.

• As the world turns a little darker politically, one more country for miners to write off is Gambia, inside Senegal on Africa’s West Coast. This month, a 48-year-old British mining engineer, Charles Northfield, was arrested and faces charges of “economic crimes” before the High Court in Gambia, along with his employer, the AIM-listed British mining company Carnegie Minerals, which had its offices in the country seized.

Carnegie had been mining titanium sands in Gambia for several years, but apparently the export of trace amounts of uranium in the sands caused the government to cancel Carnegie’s mining licence and detain Northfield with intent to carry out a swift trial.

• Our favourite grassroots exploration story of the week was Vancouver-based International Tower Hill’s tabling of an initial 3.1- million-oz. gold resource at its Livengood gold project in Alaska, where there are 181 million inferred tonnes grading 0.54 gram gold per tonne. While much work lies ahead, the deposit is well located by Alaskan standards, and is a lookalike to Kinross Gold’s nearby Fort Knox mine. The project is also free of much of the environmental baggage dogging other Alaskan resource deposits, particularly the Pebble copper-gold deposit and oil in the Artic National Wildlife Refuge.

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