Tweet

 

Email

Email to a friend:

To:

Separate multiple addresses with commas.

From:

Name: Please send me a copy Message:

Verification code

Enter the code from aboveRequired

Send

Morning View:

Newsflow from the European financial/banking sector highlights uncertainties in the sector:

· UniCredit, the Italian bank, is first in line to raise €7.5bn of capital with its deeply discounted (43%) rights issue to meet its capital shortfall.

· This is likely to be followed by other banks looking to meet the European Banking Authority’s minimum core tier one ratio of 9% by June this year.

· Meanwhile demand for ECB lending remains high – a total of €15bn was drawn from the ECB’s “marginal lending facility” on Tuesday following similar levels on the previous two banking days.

· Market participants appear to be citing a number of reasons for this from benign technical reasons to more ominous signs of liquidity concerns.

· Banks are also choosing to deposit more funds than ever with the ECB potentially signalling lack of trust in placing funds with other banks.

· RBS is rumoured to be preparing the path to exit from its investment banking businesses.

Economic News:

US – Forecasts ahead of a report due for release later today suggest that service industries in the US grew in December at the fastest pace in 3 months. 

· The ISM index of non manufacturing industries, which account for about 90% of the economy rose to 53 from 52 in November. 

· Total vehicle sales figures for 2011 were released this morning. Total sales came in at 13.52m beating estimates of 13.50 but down on the 2010 figure of 13.59m 

· Domestic vehicle sales similarly beat estimate coming in at 10.45m but down from the 2010 figure of 10.53m. 

· For those following the Republican nomination – Mitt Romney has received the endorsement of John McCain as the candidates move to New Hampshire. 

China – As the Chinese New Year holiday approaches, the Central Bank again refrained from selling 3 month bills helping to reduce the increases in money market rates as banks accumulate cash in preparation for the holiday. 

· Expectations are that the PBOC will boost the availability of cash by cutting lenders’ reserve requirements before the week long holiday. 

· The country’s Audit Office has stated that a number of local governments have been actively engaged in cleaning up almost half a billion yuan worth of debt on their books that an investigation found to have certain irregularities. 

· Last year Premier Wen Jiabao pledged to clean up the surge in debt by local governments after it emerged that they had amassed 10.7trillion yuan of debt. 

· Plans to boost emergency fuel stockpiles in China are leading to forecasts that the nation may buy 9% more petroleum from overseas in 2012. 

· Yesterday it emerged that China is aiming to produce 30bn cubic metres of coalbed methane gas by 2015 more than triple the 9bcm produced in 2010 

Europe – The European Union has reportedly agreed, in principle, to cut off oil imports from Iran as a result of the ongoing sabre rattling and increased tensions over the country’s nuclear program.  

· France is planning to sell as much as €8bn of debt today in the country’s first test this year of investor appetite. 

· In November the extra yield investors demand to hold French bonds instead of benchmark German bunds rose to 204 basis points. 

· The Greek PM yesterday stated that further cuts in come were required if the country was to remain in the Euro zone, stating “we have to give up a little so we don’t lose a lot”   

· The € is off this morning against the majority of its counterparts ahead of the French bond sale. 

· German retail sales fell by 0.9% in November mom but rose 0.8% yoy. 

Japan – Efforts by Japan’s government to support the country’s export market and weaken the yen could well be in vain this year as the differences between government bond yields around the world evaporate. 

· The yen gained 5.5% against the dollar last year despite the government intervention in March, August and October. 

· Sales of Toyota rose 0.4% from a year earlier in December beating analyst’s estimates of a 1% drop. 

· Asian stocks retreated this morning as concerns re-emerge over the Euro crisis 

Australia - The country’s trade surplus unexpectedly narrowed in November as exports of resources slowed.

· Exports exceeded imports by A$1.38bn. 

· The report showed a stable demand for exports. 

· The service industry shrank for a third straight month as consumer spending weakened amid global financial turmoil. 

· The index rose 1.3 points to 49 but was unable to climb over 50, which signals expansion. 

· Fresh warnings have been voiced by accountants BDO that the country’s mining profits tax could raise less that then initial A$11bn the government is seeking is iron ore prices return to November levels. 

Philippines – The National Statistics Office has reported that consumer prices rose 4.2% in December – an 11 month low as gains in food and utility costs slowed. 

· Last month the central bank held the overnight lending rate at 4.5%. 

India – Indian stocks were up this morning as speculation increased that the central bank may well loosen monetary policy to stimulate growth. 

Currency – The Euro approached an 11 year low against the yen today as concerns grow over the French bond auction. 

· The Aussie dollar is off today on the back of the negative data emerging from the country. 

· The dollar is up today against its most traded counterparts. 

Commodity News:

Precious:

Gold US$1,624/oz vs US$1,603/oz yesterday – Gold is up 4.9% since Dec 30 and continues to rise for a 5th day on strong physical demand in Asia ahead of the Lunar New year.

· Harmony Gold Mining halted operations at its Doornkop mine in South Africa as worker died after a mud slide.

· Gold may average US$2,050/oz this year on a forecasted recession in Europe and low interest rates environment in developed economies according to UBS estimates.

· Vietnam may import US$2.5bn of gold this year according to the Ministry of Industry and Trade.

· Sales of the US Mint gold coins are 45,500oz this month. Total sales in Dec were 65,500oz.

· SPDR gold trust holdings remained at 1,255t (40.336moz) value US$65.034bn.

Platinum US$1,431/oz vs US$1,430/oz yesterday

Palladium US$654/oz vs US$657/oz yesterday

Silver US$29.50/oz vs US$29.43/oz yesterday

· Sales of American Eagle silver coins are 3.372moz so far in Jan, exceeding monthly total since 4.46moz in Sep.

Rhodium US$1,365/oz vs US$1,350/oz yesterday

Base metals:

Copper US$ 7,619/t vs US$7,683/t yesterday – Prices are slightly up this morning following a 3.2% drop yesterday, the biggest slide in 3 weeks.

· First Quantum suspended all operations at its Kansanshi Copper mine in Zambia following a labour strike.

Aluminium US$ 2,065/t vs US$2,056/t yesterday

· Alcoa, the largest aluminum producer in the US, is forecast to post a 94%yoy drop in Q4 EPS to 1 cent from 21 cents in Q4 2010 according to Bloomberg. 

· Aluminum prices were 11% lower in the final quarter in 2011 comapred to 2010, while power and raw material costs grew.

· Alcoa is scheduled to report its results on Jan 09.

· Rusal, the world’s largest aluminum producer, is expected to report a 45% decrease in Q4 earnings according to Bloomberg survey.

· Rio Tinto announced force majeure on its shipments from 2 aluminum smelters in eastern Canada on technical disruptions and labour disputes.

· Output at the Shawinigan plant in Quebec was halved following a circuit-breaker failure. Production at the Alma smelter dropped t 1/3 of capacity after 755 workers were not allowed on the premises as contract talks broke down in Dec.

· Rio relies on aluminum for almost 25% of its annual turnover.

· Japanese aluminum producers should merge as too many suppliers currently operate in the market, Kobe Steel President Hiroshi Sato said.

Nickel US$ 18,671/t vs US$18,695/t yesterday

Zinc US$ 1,873/t vs US$1,865/t yesterday

Lead US$ 2,066/t vs US$2,067/t yesterday

Tin US$ 19,605/t vs US$19,300/t yesterday

Energy: 

Oil US$114.36/bbl vs US$111.91/bbl Yesterday – Brent oil, the European benchmark advances again this morning as concerns over Iran and European debt crisis continue to cause volatility in the oil markets

· U.S. crude and WTI were both at US$103.36/bbl on the New York Mercantile Exchange and the London based- Intercontinental exchange respectively this morning. 

· The American Petroleum Institute (API) is launching a campaign, “Vote 4 Energy”. 

· API represents all leading U.S. oil and gas companies. 

· The campaign is designed to make issues such as Trans Canada’s XL Keystone Pipeline project a key election issue for both democrats and republicans. 

Natural Gas US$3.138/mmbtu vs US$3.2/mmbtu

Uranium US$53.05/lbs vs US$53.30/lbs yesterday – Iran successfully produced and tested their first Uranium rod to fuel for Tehran’s research reactor, FARS news agency reported.

Other

Rare Earth - Clean energy technologies such as solar panels and wind turbines may be in trouble as five rare earth elements crucial for production are becoming even more limited in supply.

Iron Ore – NMDC, India’s biggest iron ore producer, seeks to buy 2 coking coal mines in Mozambique’s Tete province (360mt of deposits) and Russia’s Kemerovo region (80mt) in order to feed its steel mill in India.

· The company plans to cut production costs as lack of access to local mines and increasing raw materials costs are eating in profit margins.

· NMDC is currently building a 3mt steel plant in central India and an equal capacity plant together with Russia’s Severstal in the south of the country.

Steel – China’s crude steel production may grow 4% this year, China Iron & Steel Association said. Output may have risen by 9.2% to 683mt in 2011.

· Baoshan Iron & Steel prices for hot and cold-rolled products held unchanged for Feb.

Commodities – Citigroup estimates suggest total retail and institutional funds invested in commodities had US$11.4bn in net outflows last year.

Company News:

Allied Gold Mining (LON:ALD) – Debt Restructuring with RK Mine Finance

· The company has agreed a 3 year loan of US$80m with RK Mine Finance. 

· The loan which is hedge free is being used to repay U$55m of existing corporate debt and provide further liquidity to fund working capital on ongoing projects. 

· The loan will be repayable in physical gold with the number of oz determined by the prevailing gold price. 

· Based on a reference price of US$1500 per oz, the notional repayment obligation is 66,240 oz equivalent to a total capital and interest of $99.36m. 

· The minimum repayable oz which includes the principal and interest is 56,304 oz and the maximum 76,176 oz. 

· This would indicate a gold price range of US$1400 to US$1600 to satisfy the obligation. 

· The effective interest rate used for financial reporting purposes will be 12% applied over the life of the loan. 

· The previous cost of finance over the group’s debt averaged in excess of 15%. 

· The physical gold will be repaid in stages – 20% of the oz to be repaid in 2012, 40% in 2013 and 40% in 2014 payable in monthly tranches. 

· The company anticipates that the repayment in 2012 will be between 12,000 and 16,000 oz which is 10% of the company’s 2012 production. 

· $35m of the corporate debt being retired was with the IFC with the balance of US$20m with PNG Kina for equipment finance facility with the Bank of South Pacific. 

· The gold loan has been fully drawn and the company’s net cash and liquidity position as at Jan 2012 is US$68m. 

Conclusion: Setting a cap and collar structure on this loan using physical gold is a novel structure. The implied range of US$1400 to US$1600 per oz of gold and that the physical requirement starts with 10% of production in 2012 should provide the company with an ample cushion to overcome any production disappointment. This appears to be a clever structure on surface and should be looked at in the context of the alternative of a hedged financing facility.

Mwana Africa (LON:MWA) – Appointment of Non Executive Director

· The company announced the appointment of Johan Botha as a non-executive director to the board with immediate effect. 

· Mr Botho is 62 from South Africa with 40 years experience in the mining industry – 25 years of this was spent at Anglo Gold. 

· He has also had positions at BHP at the Hartley Platinum mine project in Zimbabwe, Randgold Resources in South Africa and Mali and Gold Fields Ghana Ltd. 

· He also led the successful development of the Twangiza gold mine in the DRC during his time at Banro Corporation. 

Conclusion: Mr Botho’s background and experience look impressive and should be helpful as the company builds up production at its Freda Robeco gold operation and works through financing issues for its Trojan Nickel operation.

Patagonia Gold (LON:PGD) – Acquisition of exploration and mining concession

· The company has acquired 20,000 hectares of land covering the remaining land surface rights over the company’s flagship Cap-Oeste gold and silver project. 

· The El Tranquilo block which was purchased for US$2.1m covers the remaining north eastern sector of the Cap-Oeste project and also other prospective areas – Don Pancho, Vetas Norte and Felix areas. 

· With this acquisition, the company now have the land surface rights as well as the mineral rights over the whole Cap-Oeste gold and silver deposit. 

· This will provide the company with the basis to develop this project which has a NI 43-101 compliant gold equivalent resource of 1.23 m oz of gold equivalent. 

Mining this week: 

Bezant Resources (LON:BZT) – Update on Eureka Gold Project

Kefi Minerals (LON:KEFI) – Exploration Licences granted to JV in Saudi Arabia

Paragon Diamonds (LON:PRG) – Results from first micro-diamond sample at Motete Dyke Licence