Base metals face difficult year in 1991, long-term outlook better,

Mining analysts expect 1991 to be a difficult year for base metal producers as the western world enters a period of slower economic growth. “A weakening western world economy will not be good for metal prices in 1991,” warns analyst Oliver Lennox-King in a recent report by Midland Walwyn Capital Inc.

He says declining base metal prices will translate into substantially lower earnings for mining companies like Cominco (TSE), Inco (TSE) and Noranda (TSE). More downside potential remains on those stocks, and he predicts Cominco could slide to $15, while Noranda could fall to $12 and Inco to $25.

But, on the positive side, the longer-term upside (12 months and beyond) is positive. He says Cominco will climb back to $27, while Noranda and Inco will rebound to $28 and $43 respectively.

Although 1991 will be a difficult year, bargains will emerge among the base metal stocks and investors are advised to “buy when they are ugly.”

Without a resolution to the Middle East crisis soon, economic activity and base metal demand will slow, say analysts. Midland recently reduced its 1991 base metal price estimates to $1 per lb. for copper, $3.50 per lb. for nickel and 55 cents per lb. for zinc in light of the Middle East crisis. 0100,0402,0304,0300,0304,0205,0304,0205 Base Metal stocks touch bottom close u131-year 1-year u328/12/90 high low Inco $29.38 $36.88 $26.00 Cominco 21.00 28.00 19.13 Rio Algom 18.00 23.00 16.00 Noranda 16.6324.5014.13 Minnova 14.7519.7514.50 Metall 12.0015.5010.75 Brunswick 8.0011.256.75 Curragh 7.1310.635.63 Hudson Bay 5.008.385.00005

First Marathon Securities also expect a poor year for metal demand in 1991. A major concern is that producers may not react to lower demand by reducing their production.

“What is needed as a market goes into over supply is for some of the producers to cut back, but the problem is — who cuts back?”

Looking into 1991, analysts at First Marathon see strong demand for nickel coming from the Far East and Japan, but the copper market is weakening.

Copper supplies could exceed demand in 1991 with the imminent opening of the huge 300,000-ton- per-year Escondida copper mine in Chile, says First Marathon.

That sentiment is echoed by analysts at Shearson Lehman Brothers who also project a further increase in the copper supply in 1991 as the impact of Escondida and higher from the low-cost solvent extraction-electrowinning (SX-EW) method production are felt. Shearson sees copper moving below $1 per lb. in the first quarter with a downside target of 95 cents per lb. expected in March.

Zinc prices continue to weaken as that market is oversupplied, too. “Spot zinc prices below 55 cents per lb. seem inevitable if oversupply continues into the new year,” says First Marathon.

Meanwhile, the nickel markets and producers like Inco are in good shape to weather a weaker economic period. First Marathon expects that both the nickel price and Inco’s share price will weaken in the months ahead, at which point, there will be good buying opportunities.

Analysts at Barclays de Zoete Wedd are mildly bullish on the gold price outlook as January sees us facing a possible Gulf war and a near depletion of Soviet gold reserves. They think gold could be cleared for a takeoff once the obstacle of producer forward-selling is cleared from the runway.

The Jan. 15 deadline set by the United Nations in the Gulf has “set off one of the most unusual countdowns in history,” says Barclays. This effectively begins a countdown for gold as well and investors are waiting to see what happens. 0006,0208,0004,0204,0004,0204,0004,0202,0006, Price forecast for 1991 u11Estimate Average u3Unit 1991 1990 Copper US cents/lb. 100 119 Lead US cents/lb. 32 37 Nickel US cents/lb. 385 388 Tin US cents/lb. 290 282 Zinc US cents/lb. 55 67 Gold US$/oz. 400 387 Silver US cents/oz. 400 463 Platinum US$/oz. 425 474004 07 09 (Source Barclays de Zoete Wedd)