Columnist image
Andrew Bell

Anchor, Reporter


ANALYSIS: This year’s swings in base metals – which have helped push the battered shares of Teck Resources (TCKb.TO) almost 60% higher, for example – have little to do with fundamentals, but are the result of investors wagering on China’s growth, according to Greg Taylor, portfolio manager at Aurion Capital Management. He told us that he prefers precious metal stocks, favouring Franco-Nevada, (FNV.TO), Tahoe Resources (THO.TO) and B2Gold (BTO.TO).

Zinc prices gave up some of their gains Tuesday after cresting on Monday to four-month highs of more than US$1,718 a ton. Base metals were hurt Tuesday by a selloff in Chinese shares.

Production cuts and shutdowns at zinc mines by major players such as Nyrstar and Glencore have driven prices higher. But Anthony Poole, editor-in-chief at Platts Metals Daily, said on our Commodities show that the real impact of lower output may take months to work its way through the system because concentrates pile up at mines and the metal has to be transported around the world for processing.

“You can’t mine zinc today and get metal tomorrow… We’re being told by analysts this week in particular that it may not be until the latter part of this year or even into next year that we see some appreciable reductions in supply of metal.”

Before you mine metals, you have to get permits - and Ontario is apparently getting bad marks for dragging out the process of approvals. According to a survey of mining executives by the Fraser Institute, “respondents indicated that not only were they waiting longer to receive their permits there than in competing provinces such as British Columbia and Quebec, but Ontario also offered less transparency and certainty throughout the permitting process. Northwest Territories and Nunavut also need to improve."

We were joined by Kenneth Green, senior director at the institute, who said uncertainty as to the rules and whether a project will even be approved can be a deterrent to mining investment.

Bargain hunters in energy service stocks should check out our interview with BMO analyst Mike Mazar, who warned Feb 11 that “while just one year ago services names appeared to be in for a bumpy yet manageable ride, the quarters ahead look to be considerably more challenging.”

One thing we’ll bring up with the BMO analyst: Alberta’s reform of its royalty system may hold a fresh threat for the service sector. On Market Call Tuesday, Eric Nuttall of Sprott Asset Management warned that “the government of Alberta fired a giant cannon ball right between the eyes of all the service companies.” He said it looks likely that when calculating a well’s profitability, the province is likely to keep allowable cost increases to 5% per cent. “The ability of these businesses to ramp up pricing has been impaired by the government.”

You can find Nuttall’s remarks at about 3:30 in this clip.