Only registred members can create thier own customized alerts.
Fairfax Market Report including Hambledon Mining, Vatakoula Gold and Allied Gold
Economic News
China – The Chinese trade surplus for December was less than forecast supporting the Government’s argument that the country is taking steps to move towards a more balanced contribution to global trade.
• The surplus for December was US$13.1bn significantly below forecasts of US20.8bn and November’s US$22.9bn. That having been said, the figures indicated that both domestic and foreign demand remain strong.
• Expectations ahead of a report later this week suggest that China’s forex reserves rose by around 4% in Q4 2010.
• It has been reported that China has suspended a regional environmental protection official after it was found that lead fumes from a battery factory had caused the hospitalisation of 23 children. The Chinese government is continuing to crack down on environmental lapses in an attempt to improve general perceptions.
• Auto-manufacturers shipped a record 13.8m passenger cars last year, up 33.2% yoy according to China Association of Automobile Manufacturers.
• Sales in December alone jumped 18.6% to 1.3m units as people rushed to showrooms to take advantage of stimulus measures that expired at the end of the year. Therefore sales are likely to fall in the first few months of this year.
US – Non farm payroll data last week showed that the US added fewer jobs in December than previously forecast, although the unemployment rate fell to the lowest level since May 2009.
• New Statistics published over the weekend by the Federal Reserve appear to suggest that the program of quantitative easing is working. The stats show that inflation next year may be a percentage point higher than current levels but the economy will have added close to 3 million more jobs. Furthermore the report suggests that had it not been for the program of asset purchases the economy would be staring deflation in the face by now. Officials also stated that the second round of QE2 would not damage overseas economies.
India – State Owned MMTC has announced that India as a whole is in the process of trying to increase its exposure to mineral rich South Africa; specifically the country’s resources of Coal and Gold as the country struggles satisfy its increasing demand for power generation.
• India is expected to face a coal shortfall of circa 189mt by 2015. Increasing demand from other Asian countries has been increasing pressure on traditional supplies from Indonesia forcing India to seek alternative sources to safeguard future supply.
Australia – As the economic impact of the recent flooding starts to be digested, authorities in Queensland are reporting the coal industry in the country may face years not months of disruptions as key infrastructure links have been washed away.
• The US$50bn industry has been brought to an effective standstill as floods destroy roads and rail links throughout the territory. Fresh estimates suggest that damage to the state’s transport network currently stands at around A$1.5 billion ($1.49 billion).
• Figure released today showed that retail sales rose 0.3% in November month on month.
UK – David Cameron has warned that the UK faces a serious problem as recent levels of inflation remain “concerning” and that the BOE faces a significant challenge to rein in price increases.
Currency – The euro traded significantly lower against the dollar this morning on the back of increasing speculation that the Eurozone nations will struggle to raise new funds this year through planned sales later this week.
US$1.289/eur vs $1.298eur yesterday. Yen83.23/$ vs 83.56/$ SAr6.83/$ vs 6.82/$ $1.548/GBP vs 1.544/GBP
Commodity News
Precious Metals:
Gold US$1,373/oz vs US$1,358/oz yesterday – Prices are up this morning on the back of the re-emergence of concerns over the Euro zone’s ability to handle its sovereign debt problems.
• The London Bullion Market Association has announced that it expects gold to average US$1,457/oz this year as recent optimism surrounding the sustainability of the global economic recovery and specifically the US recovery will not alter investor’s overall appeal for gold.
• The Chinese Ministry of Industry and Information Technology has announced that China’s gold output is expected to exceeded 340t in 2010 confirming that the new figures would be a record. The country has successfully raised production every year since 2004.
• SPDR gold remains flat at 1,272.68tonnes (41.039moz). Current value US$55,992bn
Platinum US$1,739/oz vs US$1,717/oz yesterday – LBMA forecasts suggest prices will average US$1,813 in 2011.
Palladium US$749/oz vs US$741/oz yesterday -
Silver US$28.88/oz vs US$28.42/oz yesterday -
Rhodium US$/2425/oz vs US$2,425/oz yesterday -
Base metals:
Copper US$9,376/t vs US$9,361/t yesterday – Prices have been volatile this morning as the market digests the Chinese trade surplus figures and the impact that potential monetary tightening in the country will have on demand.
• Imports by China declined in December as lower domestic prices deterred purchases. According to the General Administration of Customs, shipments of copper fell 2% to 344,558t from 351,597 in November. China also imported 430,000t of scrap copper last month.
• The National Bureau of Statistics showed that China produced 4.37million tons of refined copper in the period of January through November an increase of 13% yoy.
• Stockpiles in Shanghai have climbed for the second consecutive week to the highest level in 6 months.
Aluminium US$2,503/t vs US$2,499/t yesterday – Stockpiles monitored by the Shanghai futures exchange show an increase for the first time in 4 weeks up 1,432 tons to 442,601t.
Nickel US$24,029/t vs US$24,304/t yesterday – TSX listed Royal Nickel is reported to be intending to raise up to C$120m by the end of the year on a feasibility study and equipment orders at its Quebec project
• The Dumont project is scheduled to come into production in 2015 and will require around C$2.3bn to build a 100ktpd mine. The operation would mine at a grade of 0.27% Ni and produce around 64.5ktpa of nickel in concentrate for a cash cost of US$3.87/lb. The company is expected to bring in a partner to help develop the asset.
Zinc US$2,402/t vs US$2,449/t yesterday -
Lead US$2,622/t vs US$2,397/t yesterday –
Tin US$26,350/t vs US$26,150/t yesterday
Energy:
Oil US$93.76/bbl vs US$93.76/bbl yesterday- Prices today slip back in morning trading.
• An Alaskan pipeline carrying around 15% of US crude output was shut following a leak although the outage is not expected to last long.
Gas US$4.385/MMBTU vs US$4.385/MMBTU yesterday –
Uranium US$62.50/lb vs US $63/lb last week –
Coal – Prices at main Chinese terminal Qinhuangdao slip 0.6% to Rmb780/t as supplies remain above normal and the government caps prices. Stockpiles at the port at the end of last week were down 1% to 6.98mt.
• Last month China’s government ordered a freeze on 2011 prices for thermal coal supplies to power stations at 2010 levels. Despite this, the Australian floods have driven up the Asian benchmark price to US$126.1/t at the end of last year.
• Coking coal prices in the US are reported to have surged following the Australian disruptions with spot prices reported up 11% on Friday to US$280/t according to a Bloomberg article.
• Eskom is calling for urgent coal restrictions and regulations as it suffers supplies of poor quality coal according to an article by Mining MX
• The power generator is losing 500-1000MW/day as a consequence, particularly at two power stations Duvha and Matla where operations are forced to mix waste coal with higher quality material.
• Flooding in Australia is impacting the global coal supply/demand balance pushing up prices and leading to greater exports at the expense of domestic requirements.
Other:
Rare Earths – It has emerged that last week the German Economy Minster asked Chinese Vice Premier Li, Keqiang to re-think rare earth access and export quotas during the Vice Premier’s three day visit to the country last week.
• The Minister, according to local media, requested the Vice Premier to facilitate open and fair access and to reconsider possible restrictions.
Iron Ore – Prices hit 8 month highs on Friday with various indexes reporting prices in the range of US$171-176/t.
• Chinese imports hit a 9 month high in December at 58.08mt up 1.2% from November. However, the full year figure was down 1.4% yoy at 619mt, although this is expected to be reversed this year with a possible 70mt of additional demand anticipated of which 50mt will be met with imported supplies according to a Metal Bulletin article.
Compnay News
Mining
Allied Gold (LON:AGLD)– December quarter exceeds budget
• Allied Gold produce 18,921oz in the December quarter, its third consecutive quarter in excess of 18,000oz with the mine producing its 200,000th ounce. Cash costs for the quarter stood at US$650-675/oz
• The mill at Simberi is running at 2.3mtpa following the completion of an optimisation programme last year. The planned oxide expansion is underway and due to raise throughput to 3.5mtpa and take output to 100,000ozpa by late 2011.
• Preliminary data shows that in the quarter, the mine processed around 580kt of ore at 1.14g/t. 6 month output reached 37,126oz.
Conclusion: Simberi is clearly performing well and we look towards progress with the oxide expansion to get to the 100,000ozpa target. Management is aiming to bring total group production to 220kozpa on an annualised rate this year as its Gold Ridge mine in the Solomon Islands is due to come on stream adding to Simberi’s output. Longer term management aim to produce 300,000ozpa making the company a substantial mid-tier producer.
Vatakoula Gold (LON:VGM)– Quarterly update
• Quarterly output in the period to November 2010 showed 16,565oz gold recovered down 21% qoq as grades were down from 8.81g/t to 6.48g/t due to an increase in development.
• Underground development was up 100% in the quarter to 5,457m, with this accelerated progress due to continue till May to get the company towards the 100,000ozpa target.
• Mine operating earnings during the period stood at £3.2m down from £5.6m the previous period as output was reduced.
• A major surface exploration programme is planned as well as a new underground programme. A new exploration rig has been purchased that could yield some exciting results.
Conclusion: We wait to see the results for the accelerated underground development in the year ahead, since if successfully implemented could see the company re-rate significantly, especially in the current environment of high gold prices.
Hambledon Mining* (LON:HMB) – Quarterly production report
• Hambledon’s quarterly report demonstrates progress year on year, having produced 6,432oz gold over the period up from 5,409oz a year ago. This takes the total for the year to 22,676oz up 13% yoy, although we had previously expected gold output of 24,000oz so will need to update our number accordingly, gold prices have however been strong. We note that grades remain volatile and that output in December was being impacted by colder weather although grades improved in December implying higher grades as the pit deepens.
• Operational performance: Despite volatility in grade and throughput, we note that recoveries continue to steadily rise indicating that the operational performance at the plant is improving. Once underground mining starts we would anticipate recoveries to climb to around 90% as grades rise (85% currently). Management indicates that work is in progress to improve the ore grinding prior to cyanidation and improve dissolved oxygen levels in the cyanide circuit, consultants GBM Minerals Engineering Consultants have been engaged to assist with the plant optimisation programme.
• Winterisation of the crushing and screening plant was completed before winter set in which is helping to mitigate the impact of cold weather. The company plans to continue with continue winterising the operations and upgrade surface infrastructure this year which constructing the underground mine. Despite this we note that temperatures at site have been very low and a harsh winter is predicted that will impact Q1. Winters are typically harsh and although last year was particularly cold, winter will always impact operations and output will be less. We note that temperatures at site are -26OC today and were even colder last week.
• Underground development is progressing well and on schedule for first extraction in December. The tunneling contractor is achieving targets, and considerable infrastructure has already gone in. Once the underground mine is established, winter should not have such an impact on output, therefore from 2012 we should see less disruption from weather.
• Hambledon is planning a 25,000m drill programme to delineate resources for the underground that is due for completion in the second half of this year, and will be used to upgrade resources as well as for mine planning. An updated resource and reserve statement is due for preparation this quarter.
• Capital Programme: A review of the operations has highlighted the need to upgrade surface infrastructure to improve operational efficiencies. This work is to be carried out this year in conjunction with the underground development.
Conclusion: The quarterly update demonstrates significant progress year on year, although there is still plenty of work to do. Until the underground mine is up and running, then the extreme cold winter conditions of the region will impact output, although we would hope that from 2012 this will be mitigated. We expect continued steady improvements at Sekisovskoye as capital programmes are implemented, as well as the potential to process higher grade ore from the pit as it gets deeper. Gold prices continue to perform strongly which will boost cashflows substantially implying that Hambledon remains an undervalued gold producer. We will be updating our numbers in due course.
* Fairfax acts as Nomad & broker to Hambledon Mining
