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Mining recovery continues slowly

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After the encouraging price increases in 2016, there was a mixed performance for mined commodities during the first three months of 2017. The March quarter, overall, saw a healthy increase in the price of aluminum and steady improvements for gold, zinc and copper, but flat performances for nickel and iron ore and a significant price fall for coal. This was one of the conclusions from the recently published State of the Market report by S&P Global Market Intelligence.

After improving in the final quarter of 2016, S&P's measure of the exploration and development sector, the Pipeline Activity Index, or PAI, fell in the first three months of 2017. This decline is largely attributable to seasonal factors, as the index has fallen in the first quarter for each of the past five years. However, three of the four indicators used to measure PAI — drill results, project milestones and significant financings — all fell during the March quarter, offset only by a slight increase in the number of initial resources announced.

This increase in the number of initial resource announcements, which rose by one, to 14, was an area of apparent encouragement in the first quarter. However, the total value of these new resources slumped from US$62.3 billion in the December quarter to an all-time low of US$5.9 billion. Base and other metals bore the brunt of this decline, falling from US$52.1 billion to under US$1.9 billion, with 11 of the new resources being for gold projects.

In the latest quarter, S&P recorded only 29 significant deals (those of at least US$5 million), compared to 31 in the December quarter. The value of these deals fell to US$3.32 billion, compared to US$5.74 billion in the December quarter. Half of the deals in the latest quarter were for gold assets, which accounted for over 40% of the combined total value.

The State of the Market report notes that, according to statements made by mid-April, funds raised in the three months to end-March totaled US$9.57 billion, compared to a restated US$7.14 billion in the December 2016 quarter and only US$5.14 billion (restated) in the first quarter of 2016. A total of 762 financings have been reported to date for the three months to end-March, compared with 894 in the December quarter.

The improved economic environment is reflected in analysts' expectations of higher average annual metals prices this year and next. Indeed, compared to the average prices recorded last year, only gold is expected to average less this year. In 2018, only cobalt, iron ore and tin are expected to average less than in 2017, with the first two of these metals expected to continue falling in 2019.

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