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Fairfax Market Report including: Goldcorp Inc, Ampellea Mining and Firestone Diamonds
Morning view
Copper prices rising as confidence returns
• We believe copper prices should continue to rise as Chinese manufacturing data leads demand expectations.
• Yesterday’s report of >50% yoy auto sales for August in China may have also helped confidence for metals demand despite some prior caution over consumer and other industrial demand for the autumn.
• US dollar weakness led by expectations for poor US non-farm payroll data due today. The carry trade remains supported by ongoing low US interest rates and higher rates elsewhere in teh world.
• ECB maintained rates yesterday helping the Euro higher while revising Eurozone growth forecasts to 1.4-1.8% for the year.
• Some new money is reported to be flowing into equities and commodities as bond markets start to look relatively less attractive.
Key stocks: Antofagasta, Kazakhmys, First Quantum Minerals, Discovery Metals*
Gold – prices rise to $1,252/oz
• Expectations for ongoing low US interest rates are diverting funds away from the US and into other, developing, markets like China. The flow of funds for investment into China continues and also into other emerging economies.
• New funds continue to flow into Gold ETF funds raising physical and futures demand for gold.
• Political tensions seem sure to rise further with the Israeli pm in Washington for talks on Palestine.
• Rising grain and other food prices are sure to generate social unrest and political disruption. Riots in Mozambique may just be a start as drought is expected to worsen in East Africa and dry heat reduces harvests in the US and Russia. Floods elsewhere are also ruining harvests stretching aid agency resources.
Key stocks: Petropavlovsk, Centamin, Medusa Mining*, Shanta Gold*, Ampella Mining+, Carbine Resources+
Fairfax IS acts as nomad and broker
Economic News
US – The number of contracts to purchase previously owned homes rose unexpectedly last month. The index of pending home re-sales rose 5.2% after a 2.8% drop in June. The figure suggests that the housing market may be stabilizing after the expiration of home buyer tax credits last month.
• President Obama is expected to include an extension to the research tax credit among businesses to spur growth forecasts.
• Forecasts ahead of non farm payroll data released later today suggest that the jobless rate has climbed to 9.6%.
• An explosion has occurred on an off shore oil platform in the Gulf of Mexico, operated by Marine Energy.13 rig workers were rescued from the ocean near the burning platform after evacuated the platform. The explosion is likely to increase pressure on the Obama administration to maintain the drilling ban that has been in place since the BP disaster earlier in the year.
China – The Chinese government has indicated that it wants to see a house price correction throughout the country in order to meet public expectations. Estimates suggest that house prices will decline over the coming months as the government maintains its lending curbs and increases the supply of public housing that will result in the market being forced to lower prices.
Europe – ECB President Jean Claude Trichet has announced that emergency lending measures for banks will remain into 2011. The ECB will keep offering banks unlimited one week and one month’s loans until at least Jan 18th.
• ECB revised the growth forecast for the Euro Zone in the range of 1.4%-1.8% for 2010 from 0.7%-1.3% originally
• ECB maintained the bench mark lending rate at 1% for the 17th month in a row.
• Exports from the Euro Zone jumped 4.4% from the first quarter
• Corporate spending rose 1.8% ending 8 quarters of contraction.
• The European Chamber of Commerce has announced in its annual position paper, that European companies face discriminatory treatment by governments and regulators when trying to operate in China and as a result are losing market share across the majority of industries.
• Estimates suggest that retail data due to be released later today will show that sales rose for a third month in a row in July.
Sweden – Central Bank raised interest rates for the second time in 2 months to 0.75% as the economy maintains its recovery having expanded 3.7% yoy in the second quarter.
South Africa – Nation wide strike that has brought the country’s schools, hospitals and many state services to a halt looks set to continue as the Congress of South African Trade Unions has rejected the Government’s proposed wage and housing benefit increase.
Currency – The dollar headed for a weekly loss against the Euro and the Yen ahead of the employment data due to be released later today.
US$1.282/eur vs $1.279/eur last week. Yen84.28/$ vs 84.16/$ SAr7.21/$ vs 7.28/$ $1.540GBP vs 1.539/GBP
Commodity News
Precious Metals:
Gold US$1,252/oz vs US$1,247/oz yesterday – Expectations of poor US employment data are nudging prices up this morning as investors speculate that the poor data will increase demand for safe haven investments.
• South African miners produced 2% less gold in the second quarter of this year in comparison to a year earlier according to the Chamber of Mines.
SPDR gold holdings rise to 1,304.03t (41.925moz) from 1,302.56t (41.876moz). Current value US$52,240bn.
Platinum US$1,555/oz vs US$1,540/oz yesterday –
Silver US$19.57/oz vs US$19.40/oz yesterday –
Palladium US$525/oz vs US$519/oz yesterday –
Rhodium US$2,125/oz vs US$2,125/oz yesterday
Base metals:
Copper US$7,664/t vs US$7,624/t yesterday – Recent gains are expected to be maintained as demand for copper in China looks likely to be sustained throughout the second half of the year.
Aluminium US$2,166/t vs US$2,109/t yesterday –
Nickel US$21,940/t vsUS$21,315/t yesterday –
Zinc US$2,168/t vs US$2,145/t yesterday –
Lead US$2,164/t vs US$2,129/t yesterday –
Tin US$21,375/t vs US$21,500/t yesterday
Energy:
Oil US$76.63/bbl vs US$74.76/bbl – Expectations are for prices to fall next week as US refineries carry out seasonal maintenance, reducing demand.
• US production increased last week by 1.7% a day, the highest level since May 2004.
Gas US$3.779/MMBTU vs US$3.772/MMBTU yesterday –
Other:
Company News
Mining:
Ampella Mining+ (ASX:AMX) Ampella continues to rise as market digests drill results
http://www.ampella.com.au
• Ampella Mining stock continues to gain as the market begins the understand the significant of recent drill resilts at the Konkera project in Burkina Faso.
• Four rigs are turning out an average of 400m per day with around 2.5km of drilling expected by end October
• The results show a very distinct orebody from surface with good consistency and good widths for mining.
• We expect management to announce the development of a feasibility study early next year for a 200-300,000oz pa gold mine.
• We would be looking for a relatively competitive capital cost and low mining costs for this sort of operation.
• We are looking for Ampella to approximately double its 1.2moz JORC gold resource and to show significant potential for further discovery in the next few months.
Conclusion: We see Ampella stock as rising further towards A$3/s based on the results seen this week.
+Some Fairfax employees own shares in Ampella Mining
Goldcorp Inc, (NYSE:GG,TSE:G )has agreed to buy Andean Resources Limited (AND: TSX + ASX)
• The deal emerged after fellow Canadian miner Eldorado Gold made an offer to buy Andean through a script issue for CND$3.4billion. Eldorado offered 0.310 a share for every one of Perth-based Andean’s stock, valuing each at CND$6.36
• Andean resources main asset is the Cerro Negro Gold project in Santa Cruz, Argentina that is in its feasibility stage with an estimated 2.1m oz of gold and 20.6 m oz of silver.
• Goldcorp will acquire all of the outstanding shares of Andean in a cash and shares deal. The total consideration for the purchase of 100% of the fully diluted shares of Andean for approx CND$3.6billion. The cash offer values the miner at C$6.50 a share, or 2% more than Eldorado’s offer. The Andean board have approved the deal.
Mining this week:
Firestone Diamonds (LSE:FDI) 25p mkt cap £32m – Update shows higher values at BK11 now ahead of target
