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Fairfax Market Report including: Firestone Diamonds, Medusa Mining and others
Morning View
Miners and metals should lead markets higher as global economy avoids slide into recession
• Far eastern markets were up 1-1.5% overnight.
• US dollar weakening versus the Euro, Yuan and Yen.
• Momentum traders and market followers may continue to push metals higher as generally positive manufacturing, industrial production and retail news this week appears to reduce the risk of a relapse into global and US recession. The market awaits US non-farm payrolls and earnings data tomorrow before making its next major move.
• Chinese auto sales jumped by over 50% yoy in August indicating strong consumption as dealers discounted heavily to reduce stock levels. While reducing dealer inventory levels indicates a level of caution going forward the success of these sales may inspire a level of restocking and consumer confidence in China.
• US Auto sales figures released yesterday showed that the industry had endured a tough month with sales falling 21% during the last month compared to this time last year. The depressed figures showed a 5% decline mom.
Global risks may prompt gold prices to rise further as political tensions rise
• North Korea may be the least of our problems
• The Yemen seems to be sliding further into the hands of Al Queda and Somalia is not safe just yet
• Western governments may be reluctant to sort out rogue regimes
• Iran is to start its new nuclear reactor shortly.
• Uranium processing may hand potential for nuclear option to Iranian regime.
• Israel may be tempted to pre-empt the issue by bombing nuclear facilities.
• Bombing of an operating nuclear facility could cause uncontained spread of nuclear material.
• Israeli premier, Netanyahu, is in the US for talks with Obama aimed at resolving the Israel-Palestinian issue.
• Tony Blair refers to potential for conflict with Iraq neighbours eg Iran.
Economic News
US – Manufacturing data released yesterday showed that the sector expanded at a faster pace than forecast in August. The Institute for Supply Management’s factory index rose to 56.3 from 55.5 in July
• Construction spending in July fell twice as much as forecast, led by a slump in homebuilding
• Companies in the U.S. unexpectedly cut employment in August, data from a private report based on payrolls showed. Employment fell by 10,000, according to figures yesterday from ADP Employer Services.
• The Labor Department is scheduled to release monthly jobs data tomorrow with unemployment expected to climb to 9.6% from 9.5% in July
China – PMI data released yesterday rose to 51.7 in August from 51.2 in July.
• China’s passenger-car sales grew 59% in August, more than three times July’s pace, as higher incentives by dealers took hold and offset government measures to cool the economy according to the China Automotive Technology and Research Centre.
Europe - European Central Bank President Jean-Claude Trichet is likely to announce that the ECB will extend emergency lending measures for banks into 2011 after policy makers meet in Frankfurt later today.
• Interest rate decision for the Euro zone will be announced later today.
Australia – The economy grew at the fastest pace in 3 years last quarter. Government data showed GDP climbed 1.2% in the second quarter compared with the first when it rose 0.7%.
• Trade surplus narrowed by more than forecast in July as exports of coal and iron ore fell, while imports rose. Shipments of coal dropped 16% and iron ore declined 7%.
• A key independent MP has announced backing for PM Julia Gillard to form a government after the election returned a deadlock result last month. Gillard is now just 2 seats short of a parliamentary majority. Gillard now can count on 74 seats in the 150-member lower house, just shy of an absolute majority of 76. However, Tony Abbott's opposition coalition remains in the hunt with 73 seats and three independents still undecided.
Botswana – The Minerals, Energy and Water Resources department has stated that the country is planning to revive its resources sector through the introduction of new legislative measures. Permanent secretary Gabaake stated that “The new minerals policy objectives will ensure that economic benefits for Botswana are maximised from the resources recovery, while enabling private investors to earn competitive returns.
Germany – Retail sales unexpectedly fell last month data released yesterday showed. The Federal Statistics Office said that adjusted for inflation and seasonal effects, sales fell by 0.3% from June, and were up 0.8% from a year earlier.
UK – The IMF has warned that the UK should expect fiscal reforms and austerity measures to be necessities for the long term as it estimates that gross debt in relation to GDP will rise to 90.6% in 2015.
• The nationwide building society said that House prices fell 0.9% last month following a 0.5% decline in July.
India – Similar to China, Auto sales in India enjoyed a good August defying the usual seasonal slump brought on by the monsoon season. Global manufacturers GM and Hyundai along with Indian manufacturer Tata Motors posted an average sales increase of 32% last month.
Currency – The Yuan rose today after The Peoples Bank of China set a stronger daily reference rate in answer to a decline in the dollar, as economic sentiment improved surrounding the strength of the global recovery. The US dollar fall may represent a risk on move and fund flows relating to the ‘carry trade’. Further financial investment in growing overseas markets and strong fund flows into China may continue to weaken the US dollar.
US$1.279/eur vs $1.260/eur last week. Yen84.16/$ vs 84.09/$ SAr7.28/$ vs 7.38/$ $1.539GBP vs 1.538/GBP
Commodity News
Precious Metals:
Gold US$1,247/oz vs US$1,249/oz yesterday – Prices advanced slightly today from yesterday’s close as investors appear to be looking past the positive data announced yesterday in the US and China and remaining cautious ahead of the unemployment data due for release tomorrow in the US.
• SPDR gold holdings rise to 1,304.03t (41.925moz) from 1,302.56t (41.876moz). Current value US$52,240bn.
Platinum US$1,540/oz vs US$1,525/oz yesterday –
Silver US$19.40/oz vs US$19.37/oz yesterday –
Palladium US$519/oz vs US$505/oz yesterday –
Rhodium US$2,125/oz vs US$2,125/oz yesterday
Base metals:
Copper US$7,624/t vs US$7,524/t yesterday – Prices are trading close to a 4 month high after better than expected manufacturing data coming out of China and the US. Expectations are that copper will extend its recent success into the Autumn as demand now looks likely to be sustained in China throughout the rest of the year.
Aluminium US$2,109/t vs US$2,073/t yesterday – Prices are up today as sentiment improves surrounding demand in the auto markets of China and India.
Nickel US$21,315/t vsUS$21,120/t yesterday –
Zinc US$2,145/t vs US$2,113/t yesterday –
Lead US$2,129/t vs US$2,099/t yesterday –
Tin US$21,500/t vs US$21,375/t yesterday
Energy:
Oil US$75.98/bbl vs US$74.76/bbl – Government reports in the US showed that inventories of crude oil increased almost 3 times more than forecast last week. Stockpiles jumped by 3.32 million barrels to 361.7 million last week.
Gas US$3.750/MMBTU vs US$3.772/MMBTU yesterday – OAO Gazprom, the world’s biggest natural gas producer announced that it had tripled profits in the first quarter to a record from a year earlier after cold weather in Russia and Europe boosted demand.
Uranium – China and Russia have agreed to expand nuclear power co-operation in a number of areas including mine exploration. China is making a big push for nuclear power and other alternative energy sources to reduce its over-reliance on coal, as the government tries to improve the country’s pollution record.
Other:
Iron Ore – Rio Tinto’s Iron Ore CEO Sam Walsh stated yesterday that the company sees demand growth for steel and as a result expects a “bump” in demand for Iron ore.
Company News
Mining:
Firestone Diamonds (LSE:FDI) Update shows higher values at BK11 now ahead of target
(Firestone is acquiring Liqhobong from Kopane (75% Kopane, 25% Lesotho government))
(Liqhobong is a substantially completed / constructed diamond mine in the highlands of Lesotho)
http://www.firestonediamonds.com
• Firestone diamonds has issued an operational and corporate update.
• Firestone’s new BK11 diamond mine in Botswana is now running ahead of schedule at 23% ahead of its targeted 150tph.
• The recovery of a high value 13.74ct stone estimate value > $5,000/ct is great news for the mine which could now see a substantial uplift in its estimated average recovered value.
• The update also tells us that the Jwaneng tailings project is delayed by Debswana. Debswana has decided to focus resources on other projects at its Orapa and Jwaneng mines and is expected to come back to the tailings project once these other projects have been advanced.
• The update also gives details of progress on the offer for Kopane Diamonds which holds title to the Liqhobong diamond mine in Lesotho. We believe Firestone’s expert team could do well with the completion and development of this project.
• (See previous comment from 23 July 2010)
Conclusion: We are encouraged to see the BK11 pipe showing potential for significantly greater value than currently modelled. We hope to see higher per carat sales to drive revenues and margins at the mine from here.
Mining this week:
Shanta Gold* (LSE:SHG)– Mining license for Chunya project issued
Medusa Mining* (LSE:MML)– Management propose maiden dividend
Ampella Mining + (ASX:AMX )– Brilliant results at Konkera to drive value forwards
Carbine Resources+ (AMX:CRB) 26m – Maiden drilling gives good indication of gold potential
