Gold and Copper Market and Industry Overview

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Table of Contents

Overview of the world Copper market and industry
Overview of the Africa’s Gold industry
Overview of Africa’s copper industry
Gold and Copper industry in Eritrea and Northeast Africa
References

Since the late nineteenth century, South Africa has been the main producer of gold in the world market, representing about twenty percent of the world’s total production (Tcha, 2003). The U.S. is the second largest producer of bullion (another name for refined gold), representing approximately twelve and a half percent of the world’s supply of the precious commodity. The gold reserves in Australia are the third largest in the world. It is estimated that the production of gold in the top three producing countries accounted for forty-five percent of the world’s gold supply in 2001. Other main producers of gold include China, which was the largest producer in 2007, and Russia, which has a large reservoir of untapped reserves of the ore. It is important to note that the countries in Latin America such as Mexico, Peru, Chille, and Brazil, and in the Far East are growing in importance as major producers. This is because low labor costs and increased exploration efforts have resulted in the discovery of other several mines.

The total supply of gold in the world market is not easy to estimate. This is because of mine production that fluctuates with price and recycling that is commonly being done in various places in the world. More so, gold found in coin form, or in central bank holdings are not easy to measure. Mine production also obeys the law of supply; that is, as prices become higher, more supply are usually available in the world gold market. For instance, if a mine operates at a fixed production cost of $290 per troy ounce (the amount it costs to extract one ounce of the ore from the ground), then, the mine will continue producing as long as the prices stay above the cost of production. Because it is possible to recycle old gold scrap, such as older jewelry and old electronic components, more of this supply usually gets into the market when the price of gold has escalated. Therefore, the laws of supply and demand dictate the price of gold in the world market.

Changes in exchange rate also affect the price of gold. When the United States dollar becomes weak, the gold prices will usually escalate as traders make decisions to sell their dollar and then purchase the gold in anticipation that the gold would safeguard the value of their assets. For instance, when the value of the U.S. dollar exchange rate compared to other currencies keep on going down, the price of gold will keep on escalating. Escalating interest rates always make individuals to store cash on deposit better than gold since it does not earn interest, which ultimately causes pressure on the price of the yellow metal. On the other hand, if interest rate reduces, the price of gold would escalate. During periods of national disasters such as wars, invasion, or looting, individuals usually fear that they may lose their money; therefore, they see gold as a solid asset, which can be of benefit in the future. As a result, in such times of great uncertainty, the price of the precious commodity usually rises. Finally, the fluctuating price of gold in the world market is also determined by inflation rates. Since most prefer to use gold as the eventual hedge against inflation, the rise in demand in such occasions leads to the rise in the price of the commodity.

The sub-continent of India is the biggest purchaser of gold in the globe. It consumes approximately twenty-five percent of the world’s gold on a yearly basis. This equals to an estimated amount of eight hundred tonnes of gold yearly. India is also the biggest importer of the commodity that is the most preferred and allured by people of all ages. For example, in 2008, the country imported about four hundred tonnes of gold from different areas around the world. Other major world consumers include China and Saudi Arabia.

Currently, the trend in investing in gold is by use of various investment vehicles. These may include, but not limited to, bars, coins, exchange-traded instruments, gold certificates, having gold “accounts,” derivatives, or holding shares in mining companies. The use of bars, which are usually purchased or sold at major banks or from bullion dealers, is the most conventional method of investing in gold. They are available in various sizes and are sold based on their weights. Gold coins or bullion coins are a common way of possessing gold and they are more advantageous since they carry a higher price premium than the bars. Exchange-traded instruments are normally traded like shares and the traders are charged commission and yearly storage fees. The advantage of this investment vehicle is that it offers someone the opportunity of being exposed to the gold price, devoid of the difficulty of having to keep physical bars. Gold certificates offer one the convenience of evading risks and costs related with the transfer of physical bullions. This is achieved through taking different lower level of risks and costs related to the document itself. Currently, gold pool programs in various countries around the world issue gold certificates, which are exchanged for gold. Various types of derivatives, for example, gold forwards, futures, and options are traded on the New York Commodities Exchange (COMEX), NCDDEX in India and various stock exchanges around the globe. Finally, an investor can also own shares in a gold mining company and reap the benefits, especially when the prices go up.

Overview of the world Copper market and industry

The world’s supply of copper is adequate since many countries around the world produce it. The major producers of copper in the world are Chile, United States, Peru, China, and Australia. As the leading producer, Chile’s output account for about twenty percent of the total world production. The U.S. is the highest consumer of copper and copper products in the globe. In terms of geographical distribution, America produces 41%, Asia 31%, Europe 21%, Oceania 4%, and Africa 3% of the world’s copper. Currently, the supply of copper mainly comes from two main sources: primary and secondary sources. Primary production that is mined directly from the ground account for eighty-eight percent while the rest comes from recycling copper scrap.

Because of its wide range of characteristics, copper is used extensively in making a wide variety of products. This has made it to be an invaluable product in our present society. In the U.S., the electrical and the electronics industries are the main consumers of copper in the country. The industries account for close to seventy percent of the total usage of the metal on a yearly basis. The construction industry uses about fifteen percent while the rest is consumed by other related industries such as engineering and transport.

From the beginning to the end of the twentieth century, the demand for copper increased from about a half a million tonnes to over thirteen million tonnes. The increase was more prevalent during the second half of the century. And now, as the world gets deeper into the twenty-first century, the demand for copper is still increasing, instead of reducing. Countries like China and India have increased their need for the metal because of the increasing number of their industries that depend on the metal. More so, as several other developing nations are beginning to industrialize and urbanize, its need will continue to grow just as it was at the dawn of civilization. The per capita demand for the metal increases as the GDP per capita of a country increases, for example, Japan uses about twelve kilograms per capita, North America about ten kilograms per capita, and Europe about nine kilograms per capita. Since the population of the world is also increasing, this is a huge indication that the demand for copper will inevitably rise.

Copper is a commodity that is traded in many places around the globe since it is possible to trade almost every stage in its production process. For instance, a miner may extract the ore and generate copper concentrate, which then a smelter may be interested in purchasing. After purchasing, he may then make copper ingots of approximately ninety-eight percent purity before subjecting them to more purification processes. It is important to note that the current market is very sensitive and need virtually pure copper, that is, of 99.95% purity; therefore, in most cases, smelted copper must undergo more refining processes.

Copper prices are usually high during the months of June through September due to the strong demand experienced in the market ahead the consumer electronics-buying period. The brisk demand from the housing industry also usually contributes to this increased demand. Copper is usually very sensitive to slight changes in the economy since a weak economy implies reduction in its consumption and vice versa (Barrie, 2002). Because copper is produced in various places around the world, this implies that there are many factors that can influence its production and hence its price in the world market. In North and South America, the extraction process is usually impaired by labor unrests. In some places in Asia and Africa, extraction is sometimes hindered by political unrests. For instance, some mines were closed in Papua New Guinea and Zambia recently due to this. Additionally, the weather is an essential factor that can either enhance or hinder the production process. For example, the occurrence of floods makes the extraction process to be difficult and even impair the transportation of raw materials. To start mining takes a lot of time to commission from the relevant authorities and needs a significant amount of financial investment.

The above dynamic aspects are what determine the price of the copper in the market as it tries to balance supply and demand. Because of the diversity of the extensive market, copper’s fundamentals are constantly transforming at any given time. This makes the price of the commodity to change as the market tries to reach equilibrium between supply and demand thereby generating risk and opportunity possibilities to various traders in the market around the globe. The price fluctuations enable the metal traders to take on risk as speculators or hedge against the risk.

Overview of the Africa’s Gold industry

The continent of Africa is a major producer of gold in the global market. Its production accounts for thirty percent of the world’s total production. Even though South Africa is one of the significant contributors of the commodity to the world market, it has been experiencing labour problems and a steady decline in its production. This makes it to have one of the highest production costs in the globe. The country holds about thirty-five percent of the world’s gold reserves and exports up to ninety-nine percent of its production. With an output of about twenty-seven percent in mineral revenues, the mineral is of essence in the growth of the South African economy. With an annual decline in production of four percent from 1990, the country has embarked on some restructuring efforts aimed at boosting its gold production. Ghana, producing about one tenth of the world’s gold, is second to South Africa in the production of the commodity in the continent.

Even though Zimbabwe has historically been one of the major exporters of gold in the continent, ongoing decline in output has been witnessed since 2001. This has been caused by political and social unrest that it has been having. Local producers have therefore been unable to produce effectively the precious metal. Gold is the country’s main mined export and most of its mines are based on the central Zimbabwean Achaean greenstone terrenes. Tanzania and Mali have been increasing their production of gold to the world market since 2001 after the commissioning of various mines in various places across the countries. Guinea is another significant contributor producing about ten tonnes of gold annually to the world market. To increase the continent’s gold production, a number of exploration efforts are currently being carried out in the Western and in the North Eastern part of the continent, which may be having mineable gold reserves. Some of the world’s largest mining companies that are active in the African gold mining industry include the newly merged gold producer Barrick (active in Tanzania), AngloGold (active in South Africa, Namibia, Tanzania, Mali, and Zimbabwe), and Gold Fields (active in South Africa and Ghana). Others are Harmony Gold Mining Company, Avgold, and Ashanti.

Overview of Africa’s copper industry

Copper is one of the invaluable metals in the globe and Africa produces a significant amount to the global market. Zambia, South Africa, and DRC Congo are the traditional producers of the mineral in the continent. In addition, other African countries such as Botswana, Namibia, and Uganda also contribute to copper production. It is also worth noting that a number of countries in the continent have not fully commercially exploited their copper reserves. Some countries in the continent produce copper ore of very high concentrations when rated against other copper mines around the globe. This merit coupled with the low costs of labour in the continent makes the African environment good for doing the mining business.

In some countries in Africa, strict government controls have influenced the supply and demand of the world’s important industrial mineral. Lengthy and prevalent strikes by workers protesting against poor working conditions normally disrupt normal copper production. In addition, political unrests that are common in key copper production areas also interrupt the supply of the mineral. Recently, South Africa has recorded a drop in its level of production. The largest copper producer in South Africa, which accounts for 2.4% percent of the country’s total mineral production and for seventy-five percent of the country’s total copper production, is known as Palabora mine, and it is located 360Km north east of Pretoria.

In Zambia, copper and cobalt are the main foreign exchange earners and they contribute to over twenty percent of the country’s GDP, accounting for eighty percent of its export earnings. The copper is exported as copper bars to various destinations around the world. In 1969, the country had peak production of copper, which made it to be the fourth largest producer; however, since the mid 1970s, it has declined its production to the current world’s eleventh largest producer due to reduced copper prices and inadequate investment in the sector. Before the civil war in DRC Congo, the country was one of Africa’s major producers of copper. Unfortunately, political unrests have led to the decline of copper production in the country. The Katanga province in the country is one of the biggest metallogenic regions in the globe. It has about thirty-four percent and ten percent of the world’s cobalt and copper reserves respectively.

Some of the world’s renowned mining companies are active in the production of copper in Africa. Some of these are Rio Tinto (owns 48% of Palaborwa), Anglo American (owns 28% of Palaborwa), Metorex, First Quantum Minerals, and Anglovaal minerals.

Gold and Copper industry in Eritrea and Northeast Africa

Countries in the Northeast Africa include Eritrea, Chad, Djibouti, Egypt, Ethiopia, Libya, Somalia, and Sudan. Chad has had little improvement of its mining industry; however, investigations that have been done by the United Nations Development program and the DRGM have revealed possible deposits of various minerals such as gold and silver. In 1995, the country passed the Mining Code that was aimed at encouraging foreign mining companies in the area. The mining industry contributes to about two percent of Djibouti’s GDP. The country produces various minerals in small amounts. Some of these are clays, granite, limestone, diatomite, and gravel. The mining industry in Djibouti is being hampered by inadequate exploration of the country’s natural resources and slow GDP growth.

Despite Egypt’s rich history in ancient mining, modern exploration efforts have not really been carried out in large scale. Therefore, the country has a very good potential for the unearthing of minerals, especially gold. EGMSA (Egyptian Geological Mining and Survey Authority) and Australian firm Centamin Egypt are spearheading the exploration efforts. Gold exploration efforts have been centred in the Southeastern part of the country. This is because of possible existence of ancient gold workings in banded iron formations. The mining industry in Ethiopia is very small since most of its GDP is based on agricultural production. The country has only one gold mine, Lega Dembi. The mine was privatised and later Minroc Gold commenced commercial production in late 1998. Exploration efforts in search for gold are continuing in various parts of the country. The mining industry in Libya is largely dominated by oil production. Its oil industry contributes a third of its GDP. Until now, minimal efforts have been done to explore other commercial mining ventures because the country’s geology is exposed in some isolated regions. Access to these regions is not easy due to the ruggedness of the terrain.

Despite having deposits of minerals such as copper, gypsum, and manganese, Somalia has been having civil unrests, which have seriously hampered exploration efforts. No commercially exploitable traces of gold have been reported to be present in the country. Sudan has been experiencing civil war for close to twenty years now. Therefore, despite having gold, iron ore and base metals potential, mineral exploration and development have been seriously hindered. Nonetheless, the country’s government has started to privatise some of its assets to foreign mining companies such as the Arab Mining Company (AMC), which is increasing the country’s production of mineral resources.

Eritrea, which lies to the north of Ethiopia, is Africa’s newest independent republic. It gained its independence from Ethiopia in 1993, and covering an area of 121,320 km², it has a population of about five million people (Nevsun Resources Limited, 2010). The country has been experiencing sporadic border conflicts with Ethiopia since the turn of the century. This has resulted in widespread destruction of its infrastructure and has also hampered mineral exploitation efforts. However, the country’s government, together with other regional leaders, are engaged in efforts to build a peacetime economy. The country embraces a free-market economic system, which has mainly benefitted its agriculture-based economy. Even though the country is boasting of rich mineral deposits, little has been done to fully exploit this potential. The government has reduced its holdings of some of the public enterprises and has also adopted beneficial policies that are aimed at encouraging development initiatives in the mining industry.

Recently, many international mining companies have expressed interest in exploring the country’s rich mineral resources. This is because of a number of reasons. First, the country has a unique geological setting that is appropriate for the mining of both precious metals and base metals. Moreover, recent investigations have revealed that the country has extensive reserves of gold and base metals. Second, through the adoption of appropriate initiatives, the government has created a good working environment for foreign private investors to do business in the country. The social and economic progress evident in the country has attracted a significant number of international mining companies. Currently, about twelve foreign mining companies are active in the country. Most of them are traversing the country in search of gold and other base metal deposits.

One of these mining companies is the Canadian miner Nevsun Resources Limited. The company is exploring rich deposits of base metals consisting of gold, copper, zinc, and silver on its Bisha project. The project, which started in September 2008, is intended to be Eritrea’s first modern day mine. As commercial gold production is expected to commence by early 2011, relatively liberal mining terms set by the government has made this to be possible. The project is expected to be a low-cost gold producer for the first twenty-four months of its operation. For the remaining period of its mine life, it is expected to produce high-grade copper concentrate. The Eritrea’s leading regional surge in mineral exploration will put pressure on its neighbours to relax their rules so that foreign companies can explore their rich mineral reserves.

References

Barrie, S., 2002. The complete idiot’s guide to options and futures. Indianapolis, Ind.: Alpha Publishing.

Nevsun Resources Limited, 2010. About Eritrea. Nevsun Resources Limited. Web.

Tcha, M. J., 2003. Gold and the modern world economy. New York: Routledge.

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