Rising commodity prices bode well for positive 2010

The rapid industrialisation and urbanisation of China and India, rising disposable incomes in western economies, and rising commodity prices will all offer significant growth opportunities for mining companies in 2010, says Wonder Nyanjowa, Frost & Sullivan mining analyst. “There already has been a dramatic improvement in commodity prices from the sharp declines that were experienced in the second half of 2008,” said Nyanjowa. “The gold price currently sits at around $1 150 an ounce from about $600 an ounce in September 2008. Platinum is trading at $1 470 an ounce at the moment compared to the $750 an ounce in September 2008. This recovery and upward growth in commodity prices is likely to continue well into 2010 given that most western economies are now officially out of the recession.” This positive outlook is a much needed answer to many a prayer in the mining industry. In South Africa alone some 100 000 jobs were lost in the sector. “The economic meltdown resulted in a sharp decline in commodity prices which reduced industry profitability levels. Credit dried up and expansion projects were all shelved as companies functioned on operational efficiencies and the preservation of cash,” said Nyanjowa. “Marginal operations were also dropped. For governments the economic meltdown resulted in reduced tax collections from companies, declining export receipts and widening current account deficits, affecting local currencies as investor appetite for the emerging market risk dropped sharply.” According to Nyanjowa, the future seems much brighter at the moment. “It does of course depend on the risk investors are willing to take and the time frames involved. Gold and platinum prices have reached record levels and will be lucrative industries to tap into in the coming months. However precious metals like gold and platinum are generally capital intensive and they have thin margins.”