Editorial: Girding up for an uncertain 2012

The final week of 2011 was a time to celebrate making it through another year, tally wins and losses and look to the market uncertainty that will most likely be our fate in the year ahead.

A vicious bear market for precious metals in December 2011 took a big bite out of the year-end tallies for price performance (gold bugs: add your favourite conspiracy theory here).

The spot price for gold in London closed out the year at US$1,574.50 per oz., up US$164.25, or 11.6%, from year-end 2010, and off 17% from the all-time nominal high hit in early September 2011. As we all know, gold mining stocks performed terribly in 2011 despite the strength of the gold price. The NYSE Arca Gold Bugs Index fell 13% over the year to 498.73, with year-over-year share price retreats of 50% or more being common in the junior gold sector.

The spot silver price closed out 2011 at US$28.18 per oz., down US$2.45, or 8%, from year-end 2010. However that overall decline misses the incredible excitement in the first four months of 2011, when spot silver prices relentlessly marched upwards, finally peaking above US$48 per oz. in late April amid chronic physical silver shortages. A lot of people stopped casually calling gold the “poor man’s gold” in 2011. 

The shares of silver miners and explorers suffered similar fates as their golden brethren. For example, a high-quality pure silver play like Pan American Silver saw its shares slide a shocking $18.65, or 46%, year-over-year to $22.28, despite gushing cash flow from the high silver prices.

The niche platinum group metals subsector saw a more pronounced drop-off, with trendsetting platinum seeing its spot price tumble from US$1,731 per oz. at the end of 2010 to US$1,381 per oz. at 2011’s year-end. 

If 2011’s trend of high profits and depressed shares for precious metal miners continues into 2012, one of the easiest predictions to make is that it will be a year filled with mergers and acquisitions at all scales, as the biggest bargains are found in the stock markets rather than in the ground.

The uranium market was in a hell all its own in 2011 after the Fukushima nuclear disaster in Japan in March, with countries such as Germany and Switzerland deciding more firmly to phase out nuclear power, and companies such as German engineering giant Siemens saying it would exit the nuclear-power business. After peaking above US$70 per lb. in early 2011, uranium oxide spot prices have settled just above US$50 per lb., or around a break-even point for many uranium producers. 

Shares of bellwether uranium major Cameco got a doozy of a haircut year-over-year, tumbling $21.89, or 54%, to $18.41. Looking back today at so much of the silly boosterism being written about the uranium market in the month or two after Fukushima makes for entertaining reading today, though if you actually invested money in uranium stocks based on such misguided or fake optimism, you’re licking your wounds now. 

The base metals market continues to be on edge, reacting one day to the next to the rapid fluctuations between optimism and pessimism over the progress of the global economic recovery from the darkest days of late 2008.

The nickel game once again showed its cyclical nature, with particularly bruising low points. Spot nickel on the London Metal Exchange fell US$6,665 per tonne, or 27%, to US$18,275 per tonne, definitively putting an end to the rally begun in late 2008.

Nickel’s frailty left more than a few junior nickel miners around the world scrambling to deal with shrinking cash flow and rising mining costs, and Xstrata and Vale wondering why they ever paid so much for Falconbridge and Inco mid-decade.

Relative to many other commodities, the copper market showed some surprising resilience as global mine production looks to have reached a historic peak. Spot copper prices indeed declined, but not drastically, falling US$2,185.50 per tonne, or 22%, to US$7,553.50 per tonne, and that was off the wildly unsustainable highs seen in late 2010.

London Metal Exchange copper stocks have declined sharply in recent weeks, and many copper miners are enjoying substantial profits at today’s prices, leading many to expect continued mergers and acquisitions in the red-hot copper sector, even after so many grassroots copper plays were scooped up by majors in recent years.

Export-oriented coal and iron miners in Canada and abroad also have a swing in their step these days, as coal and iron ore prices stabilize at profitable price points.