Haywood confident on gold, bullish on silver, nickel, uranium and lead

In their recent “Mid-Year Update,” Canada’s Haywood Securities said gold ETF holdings will test the 21-million mark during the second half of this year as world gold production declines and gold investment continues to gain momentum.

RENO, NV - 

In their recently released "Mid-Year Update," Canada's Haywood Securities Metals and Mining Team declared, "We remain confident in the outlook for gold with a near-term rebound in the in the price of both gold and gold equities."

Meanwhile, Haywood analysts also remain bullish on silver, nickel, uranium and lead.

PRECIOUS METALS

Haywood analysts Andrew Kaip, Eric Zaunscherb, Nicholas Coutoulakis and Deanna McDonald asserted that "support for gold as an investment continues to gain momentum, with an increasing number of announcements of purchases by non-Western governments. While ETF holdings declined marginally, holdings remain above the 20 million-ounce level, with an H2/07 rebound set to test the 21-million ounce barrier."

"We expect world output to decline marginally from the forecasted 2,500 tonnes of mine production in 2006. With the long-term prospects for gold intact, we forecast gold to sustain US$700 per ounce through 2008, before moderating to US$650 per ounce in 2009 and US$600 per ounce long-term," they predicted.

The analysts also noted that "in the last week of Q2/07, there was a significant withdrawal of funds from silver ETFs, a decrease in the non-commercial (speculative) net position on COMEX, and a coincident break of the 200-day moving average for silver. Despite the apparent short-term ‘loss of interest', historically related to summer, we note that each time silver has approached or gone slightly below its 18-month moving average since mid-2003, it has been a buying opportunity."

"Overall, a positive mix of the main silver price drivers indicates a balance or slight increase in the current silver price, further supporting the view that recent changes in interest may be simply a result of a thin, volatile summer market," Haywood suggested.

BASE METALS OUTLOOK

Haywood's analysis indicated that "the supply-demand fundamentals of the nickel market continue to shine. This 1.3 million-tonne market is at best balanced, and demand is growing at 5% to 7% per year as China and the Western world go on consuming nickel.  At current growth rates, the market needs a new 50,000-to-60,000-tonne-per-uear nickel mine (i.e. a Voisey's Bay) each year to maintain the status quo."

"Over the long term, we expect higher nickel prices will be driven by increasing capital (and operating) costs, in part associated with the industry's move towards large nickel laterite development where capital costs are typically in excess of US$1.5 billion and processing technology is notably more complex. Without a higher nickel price regime, these much needed ‘mega' projects could be shelved owing to a lack of the economic return needed, on the order of at least 10% to 15% to justify development."

Haywood forecasts a global surplus of 275,000 tonnes of refined copper this year in an 18-million tonne annual market. "Hence, we anticipate prices will decline modestly from current levels of US$3.50 per pound through H2/07, but have increased our 2007E copper price forecast to US$3.10 per pound from US$2.75 per pound. ...Our long-term (2011+) outlook remains unchanged with a US$1.50 per pound copper price."

Nevertheless, Haywood admitted that "this arguably bearish outlook is not share by all market participants, noting that Bloomsbury Minerals Economics recently forecast that global copper consumption will exceed output by 237,000 tonnes this year, compared with a 54,000-tonne surplus in 2006."

Meanwhile, Haywood predicted that lead demand in 2007 will grow 4.4% to 8.4 million tonnes, and "the lead market should be balanced or in slight oversupply this year."

"We expect the lead market will remain tight over the next 18 to 24 months, supporting high prices. We have increased our 2007 lead price assumption to US$1.00 per pound from US$0.80 per pound, and our 2008 lead price to IS$0.80 per pound from US$0.65 per pound. Looking further ahead, we have maintained our long-term (2011+) lead price of US$0.50 per pound."

Although Haywood anticipates lower molybdenum prices over the longer term, the analysts do not expect prices to fall back to levels experienced in the 1980s and 1990s. "A preliminary review of Greenfield molybdenum projects currently under consideration suggests that a long-term molybdenum price of approximately US$8 to US$10 per pound is required for most of these projects to achieve an economic return on investment," according to analysts Kerry Smith, Stefan Iaonnou and Josh Clelland.

"Our formal price forecast includes a long-term (2013+) molybdenum price of US$12.50 per pound-in line with the metal's average price of about US$12.40 per pound over the past 25," they concluded.

Analysts Jim Mustard and Chris Thompson said, "Our future outlook for uranium continues to be bullish, as commitments by government around the world to consider, and in many cases commit to, additional generated capacity increase. This unprecedented global interest will clearly entrench demand growth for the next decade as preliminary production struggles to catch up. ...China's growth will be key to increasing demand, as it is not expected to significantly expand domestic production to keep pace with its current or forecasted growth in requirements."

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