* Cost pressures likely to threaten new metal supply
* Strong outlook for gold, nickel and zinc
* Market surplus expected for copper, hurting prices
By Euan Rocha and Julie Gordon
TORONTO, March 5 Rising costs may prove a
blessing, not a curse, for the global mining industry,
threatening fresh supply and all but assuring that metal prices
will keep climbing even as companies scramble to protect profit
While supply-demand fundamentals vary widely across various
metals, experts speaking at the PDAC mining convention see the
rise in both production and construction costs pushing strong
metal prices ever higher. The prohibitive costs could crimp new
mines from coming on stream.
"We're entering a period whereby things are going to get
more expensive and the price of commodities has to reflect
that," Terence Ortslan an analyst with TSO & Associates said on
Sunday. Ortslan chaired a discussion on the outlook for metals
on the opening day of PDAC in Toronto.
The outlook is particularly strong for gold, nickel and
zinc, said experts at the four-day event organized by the
Prospectors and Developers Association of Canada. Copper is a
notable exception to the trend, they said.
PDAC, the industry's largest annual gathering, brings
together thousands of executives, geologists, engineers,
drillers, consultants and others with ties to the sector. It
attracted more than 26,000 delegates last year, and organizers
expect an even bigger turnout this year.
Rising costs was a dominant theme this year. In part, that
reflects higher taxes and royalties as well as tougher
environmental regulation across the world. Both could limit
growth in metal supplies, which will in turn also support higher
metal prices over the long term.
"The mining industry is exposed to regressive mineral policy
regimes, in addition to higher costs, which they don't control,"
said Ortslan, referring to increased royalties, taxes and duties
in Africa, Latin America and other regions.
The outlook for gold prices is especially rosy this year,
said DundeeWealth economist Martin Murenbeeld. Ultra-low
interest rates in North America, along with strong investment
demand for gold and inflationary pressures in emerging
economies, are bound to keep bullion prices strong, he said.
Murenbeeld said the huge sovereign debt burdens in the
developed world have left governments with a scant list of
"The choices governments have are pretty straightforward -
renege on promises, cut services or raise taxes - these are all
real vote-getters, as you can," he said facetiously, arguing the
only other option left on the table was for governments and
central banks is to print money and inflate their way out of a
structural deficit. That prospect should help gold, the
traditional inflation hedge.
He sees gold prices averaging $1,825 an ounce in 2012, with
bullion potentially ending the year around $1,950 an ounce and
breaking the $2,000-an-ounce barrier in 2013.
The outlook for nickel and zinc is also positive, said Mark
Selby, head of business development at Royal Nickel,
and Andy Roebuck, market research manager at Teck Resources
, as cost pressures in nickel and declining mine output
for zinc bolster both base metals over the next few years.
Copper, an investor darling for much of the last decade, is
now moving against the grain.
With large new mines coming into production soon, the market
for the industrial metal is poised to go into a surplus over the
medium term, said Glen Jones, executive director of Intierra
"Given the excess of copper supply over demand, we forecast
a growing market surplus in refined copper between 2013 and
2016. The market is expected to rebalance toward the end of the
decade, but only if there is a sharp fall in incremental mine
output," said Jones.
Still, Jones sees copper prices holding steady in 2012, with
prices ranging from $8,000 to $9,000 per tonne, or $3.65 to
$4.05 a pound.
"We forecast the average (2012) price to be around $8,550 a
tonne or $3.80 to $3.90 per pound," he said.