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Fairfax Marketing Report including Rambler Metals and Mining, Patagonia Gold, Eurasian Natural Resources plus others
Morning View:
2012 outlook looks positive despite Eurozone issues
We see 2012 as a year in which global growth leads markets better
· The ECB is now taking action to restore Europe to a better economic footing
· US economic activity is improving on low interest rates, better jobs figures, housing starts, consumer confidence
· China remains a wild card but is still likely to see significant growth this year
Expect ongoing global economic growth to give some upward direction to commodity demand and prices this year
· Metals production may struggle to keep pace on delays to new mines and on lower production ageing producers
The year of the ‘Chinese’ Dragon -
· A clearer picture for metals demand should emerge when Chinese buyers return following the Chinese New Year break which starts on the 23 January this year.
The mining sector is trading on historically low multiples and could do well this year once the market’s bear market mentality wears off
Italian government starts to get tough on tax evasion
· Reports show that Italian tax authorities are starting to get serious about tax evasion in Italy
· In Cortina, the luxury ski resort – 80 tax inspectors targeted bars, hotels and luxury shops and expensive cars.
· Of the 251 supercars checked 41 were found to be registered to people with incomes of less than Eur30,000 while 19 were registered to loss making companies.
· Italians are thought to evade taxes to Eur120bn pa according to ISTAT, the national statistics agency
· Italy’s debt mountain is Eur1,900 billion so if Italians pay their tax then the interest on the national debt is a manageable sum.
· A surge is capital flight out of Italy to Switzerland is seen with Italian tax authorities seizing some Eur41,000 per day – representing just the tip of the iceberg according to Italian media.
Economic News:
World AutoExpo started in Delhi on Saturday and should see the launch of more than 50 new models
· The Indian Auto exhibition is now seen as more significant than Detroit for new model launches
US – Treasury secretary Tim Geithner arrives in Beijing today for the latest round of trade talks.
· Non farm payroll figures released on Friday surprised on the upside.
· The figures showed that payrolls rose by 200,000 in December beating estimates of 155,000 and significantly more than 120,000 in November.
· The unemployment rate fell to 8.5% - the lowest level in almost 3 years.
· Within the figures manufacturing payrolls increased by 23,000 beating estimates of an increase of 6,000. The figures indicate that the manufacturing sector is continuing to recover – a positive for the global economy with the US accounting for roughly 18% of the world’s manufacturing output.
· On the 3rd of January ISM figures showed that manufacturing expanded in December at the fastest pace in six months.
· Total job gains for 2011 hit 1.64m the best annual total since 2006 – a small dent on the 9m jobs lost since 2006.
· In contrast new analyst estimates compiled by Bloomberg suggest that US corporations ended 2011 with the slowest profit growth in two years.
GM auto sales in China rise by 8.3% to hit new record last year
· The news comes amid a broader slowdown in global sales through 2011
China – Stocks were up this morning, rising the most in 3 weeks.
· The move comes on the back of the announcement that new lending and money supply exceeded estimates in December, increasing speculation that the government is speeding up measures to ease the cash crunch.
· New forecasts suggest that China’s trade surplus may narrow to an 8 year low in 2012 on the back of a fall in global demand for the countries exports. The most recent figures will be released tomorrow.
· UBS has broken silence over the Chinese property market, stating that China’s property market may collapse if the government maintains its tightening policies.
· Speculation over the state of the country’s property market has been rife for years with economists at odds with much of the data that emerges from the country.
· Ford has announced that 2011 vehicle sales in the country rose 7% to 519,390.
Europe – German exports jumped 2.5% in November, unexpectedly widening the trade surplus suggesting that Germany is still outpacing its peers. The trade surplus widened to 15.1bn euros from a revised 12.5bn in October. Imports fell 0.4% missing expectations for a 1.1% increase.
· German industrial production figures will be released later today. Forecasts are for a 0.5% decline last month from a 0.8% increase in October.
· The dynamic duo – Merkel and Sarkozy meet today for the first time in 2012 as they continue to push for the creation of a master plan for Europe.
· They will likely be discussing how they go about creating the “fiscal compact” initiated at the end of last year along with how to tackle rising unemployment and stagnant growth.
· The meeting will be followed by a round of talks among euro-area leaders before the next meeting on the 30th of Jan.
· New forecasts suggest that the Euro will depreciate against the dollar for a third straight year, equalling the longest slump since its creation in 1999.
UK – According to new estimates from the CBI, financial companies in Britain may have shed almost a 1/10 of their jobs by the end of Q1 2012 since the Lehman Brothers crisis.
· As the week of reporting starts for the country’s major grocers, Morrison’s the UK’s 4th largest supermarket said sales growth slowed more than analyst estimated in the six weeks over Christmas.
India – Prime Minister Manmohan Singh has stated that growth will be about 7% in the year ending March 31st.
Canada – New figures indicate that in Q4 Canadians bucked the widespread trend, with consumer confidence rising from a two year low on increased optimism for the country’s real estate market.
Brazil – You might not have noticed over the festive period but on December the 27th the Centre for Economics and Business Research estimated that in 2011 Brazil overtook Britain to become the world’s sixth largest economy. Some facts about the country in 2011.
· GDP for the year is estimated to come in at $2.5trillion, ahead of Britain with $2.48trillion and below France in 5th spot with $2.8trillion.
· However – GDP per Capita paints a different picture with Brazil languishing behind European rivals at a mere $12,916 vs. $39,604 in Britain.
· New estimates suggest that Brazil may well catch up with Britain on a GDP per capita basis by 2028.
· The growth in GDP has primarily been driven by the country’s colossal supply of raw materials and commodities such as iron ore and oil.
· It is worth noting that Consumer prices in Brazil rose 6.5% in 2011 – within the official target range as prices rose less than forecast in December.
· The government has targeted inflation of 4.5% this year – optimistic we feel.
· The country is forecast to grow at 3.3% this year according to a poll conducted by Bloomberg.
Australia – New home sales figures released today show that sales jumped 6.8% in November from a month earlier.
New Zealand – Figures released today show that the country’s trade deficit widened in November as oil and fertilizer purchases bolstered imports.
· Imports exceeded exports by NZ$308m from a revised NZ$228m deficit in October.
Tanzania – Reports are emerging that armed robbers tired to steal a number of gold bars from a plane at an airstrip near a mine owned by AngloGold Ashanti before being thwarted by the police.
· The raid left one of the attackers dead and an expatriate mine worker was injured.
· Such attacks are prompting some mines, in localised trouble spots to build walls around their operations.
Scotland – Last week we noticed an article in the Times that we thought merited a “wee” note.
· John Greenwood from Crieff in Perthshire by all accounts spent every waking minute in 2011 panning for gold on the upper reaches of the Tay and Earn in central Perthshire.
· By the end of the year he had amassed 34g of genuine Scots gold – The vast majority of which he used to make an engagement ring for his Girlfriend.
· His perseverance with only a pan and shovel in the lovely Scottish climate must be commended.
· His efforts would be worth just over $1,616 at today prices.
· For easier ways to find Scots Gold we suggest you look to ScotGold Resources. The AIM listed miner with planning permission to extract 21,000 oz of gold a year from the Cononish gold and silver deposit in central Scotland. http://www.scotgoldresources.com.au/
Currency – The euro is up this morning against the dollar for the first time in four days.
· Sentiment is volatile this morning ahead of the French / German meeting and the German industrial production figures.
Commodity News:
Precious:
Gold US$1,617/oz vs US$1,624/oz last week – Gold is little changed today ahead of Sarkozy and Merkel meeting in Berlin today. Gold declined slightly on Friday as the US released positive Dec employment data.
· Morgan Stanley predicts gold to average US$2,200/oz in 2012 supported by investment demand.
· Gold may rise by 26% in 2012 and average US$1,766/oz according to a London Bullion Market Association survey.
· AngloGold Ashanti plans to restore normal operations at its Savuka mine in South Africa this week following the death of a worker in an accident.
· SPDR gold trust holdings remained at 1,255t (40.336moz) value US$65.173bn.
Platinum US$1,411/oz vs US$1,417/oz last week
Palladium US$614/oz vs US$637/oz last week
Silver US$28.91/oz vs US$29.31/oz last week
Rhodium US$1,325/oz vs US$1,355/oz last week
Base metals:
Copper US$ 7,546/t vs US$7,581/t last week – Copper is slightly off this morning as the market remains wary of risks posed by unfolding European sovereign debt crisis.
· Copper stockpiles monitored by the Shanghai Futures Exchange climbed to 105,258t last week, the highest reading since the week ending Sep 16.
· Deutsche Bank decreased its Copper forecasts for 2012 by 18.8% to US$7,350/t due to weak economic sentiment and expected stronger dollar.
· First Quantum said it lost 1400t of Copper output from its Kasnsashi mine in Zambia after a 2-day strike held by workers. Kansashi mine capacity is around 231kty.
· Zambia’s Copper production in 2011 decreased by 3.5%yoy to around 790kt in 2011due to rains and labour disputes according to central bank data.
· Hedge-funds and other money managers cut their net-short positions in Copper futures in the week ended Jan 3, the US Commodity Futures Trading Commission data.
· Barclays Capital increased a forecasted Copper deicit in 2012 on strong Chinese imports of the material and mining disruptions.
· Two workers at Grasberg mine in Indonesia (Freeport-McMoRan) found dead after a shooting near a site.
Aluminium US$ 2,063/t vs US$2,046/t last week
Nickel US$ 18,638/t vs US$18,580/t last week
Zinc US$ 1,863/t vs US$1,848/t last week
Lead US$ 1,968/t vs US$2,011/t last week
· China’s lead consumption may be strong this year, but weak demand growth from the auto industry and market oversupply may limit prices on the upside.
· Beijing-based Antaike said lead demand in China might rise 6% to 5.25mt in 2012.
Tin US$ 19,770/t vs US$19,800/t last week
· Indonesian tin exports surged 7-fold in Dec and were not far off an expected volume of 16,000t as producers released a 3-month worth of material following a temporary export ban.
· Smelters halted exports in Oct and Nov. A self-imposed ban broke down in late Nov after Koba Tin shipped 400t.
· Exports in Dec were valued at US$290m fob or US$19,189/t on average, which is lower than the LME average of 19,416/t in Dec.
Energy:
Oil US$113.58/bbl vs US$113.27/bbl last week – Brent oil is edging up this morning with Iran still making headlines as the Islamic Republic decide to conduct atomic activities at an atomic underground site.
· U.S. crude was at US$101.68/bbl on the New York Mercantile Exchange mirroring bents volatility over the world headlines on Iran and the Euro debt crisis.
· RBC Capital have an unchanged outlook for Brent in 2012 at US$109/bbl, while Morgan Stanley predict prices to end this year at US$127.50 suggesting world growth will sustain consumption.
· Soc Gen SA say investors should buy Brent August futures predicting an avg. US$110/bbl in 2012.
· Union strikes are causing havoc in Africa’s largest oil exporter Nigeria, as the government cuts fuel subsidy.
· Nationwide strikes have seen fuel and transport costs double.
· Bloomberg reports that, construction for a pipeline that will allow the UAE to bypass the Straits of Hormuz has been delayed because of construction difficulties.
Natural Gas US$3.063/mmbtu vs US$3.015/mmbtu last week – RBC Capital Markets estimates for Henry Hub 2012 have changed from US$4.75mmBtu to US$4.00mmBtu -16% and for 2013 from US$5.00mmBtu to US$4.75mmBtu -5%. Long term unchanged at US$6.00mmBtu.
Uranium US$53.05/lbs vs US$53.05/lbs last week – Plans to Iran’s highest-grade Uranium refinement work to Fordow, close to the Shi’ite city of Qom in central Iran, will be underway in the near future, said the head of Iran’s atomic energy organisation.
Other
Steel – The US Department of Energy cancelled a US$730 loan to Severstal that planned to expand its capacity in Dearborn, Michigan.
Iron Ore – NMDC, the Indian largest iron ore producer, will resume talks with Japanese and South Korean steel mills in regards of iron ore exports and will likely guarantee shipments at least until 2014.
· NMDC iron ore shipments halted in Feb 2011 as the Indian steel ministry opposed exports by NMDC in order to conserve raw materials supplies for local steel producers.
Molybdenum – US molybdic oxide prices are expected to strengthen due to relatively tight market and decent outlook for stainless in Q1, producers say.
· Prices stand at US$13.5-13.8/lb compared to US$13.3-13.8/lb previously.
· “I really wouldn’t be offering until it hits US$14.5/lb and I think it will get there in the next six weeks,” MetalBulletin wrote quoting one producer.
Company News:
Copper Development Corporation (LON:CDC) – Basay Drilling Update
CDC hold 70% of the Basay project
· The company announced results from its Basay project which is 25km southeast of the company’s Hinoba project in the Philippines.
· Results were returned from two drill holes BSM015 and BSM022.
· BSM015 contained the best high grade intersection with 131m of 0.95% Copper with gold, silver and molybdenum credits boosting the grade to 1.11%.
· BSM 015 also included 14.3m of 5.47% Copper.
· The company has completed 21,946m of drilling at Basay and are targeting a JORC compliant resource by the end of January 2012.
· A further 44,000m of drilling is planned at Basay for 2012 with five rigs operating on site.
· The company has £17.1m of cash in hand as of 30 Dec 2011 and is well funded to continue its drill programme at Basay.
· The project has a historic resource of 230mt grading 0.44% Copper and produced from 1979 to 1983 producing some 45,500t of Copper in concentrate from open cast and underground mining.
http://www.Copperdevelopmentcorp.com/investors/CDC%20Presentation_Jan%202012%20Final.pdf
Conclusion: These are good results for a Philippine Copper deposit and the identification of higher grade intersections may indicate the financing of a new mine at the site. We include a web-link to the company’s recently updated presentation above.
Paragon Diamonds (LON:PRG) – Further Results from micro-diamond sample at Motete-Dyke Licence (Lesotho, Southern Africa)
· Further to the results announced last week of a 24 kg sample from Motete Dyke, the company announced results to a first 200 kg large sample.
· A total of 485 diamonds including 23 diamonds above 600 microns were recovered with the largest diamond exceeding 850 microns.
· This equates to 2.42 stones per kg or 1.89 carats per tonne.
· The majority (93%) are classified as white and 87% of the total stones are transparent.
· The company is undertaking the initial grade and volumetric modelling.
· A further 900 kg in four samples have been taken at regular intervals along the 1.4 km dyke and are awaiting results.
Rambler Metals and Mining (LON:RMM) – Signs Off-Take Agreement with Transamine for Copper in Concentrate from Ming Mine
· The company has signed its first off-take agreement for the sale of 85,000 tonnes of Copper in concentrate over an initial six year period from the Ming Mine, Newfoundland, Canada.
· This includes a provisional payment for concentrate as it arrives at the Goodyear’s Cove port facility.
· Rambler is expected to start concentrate production from 2Q 2012 from its high grade 1807 zone.
· This zone has a measured and indicated resource of 432,000 tonnes grading 3.86% Copper, 1.75g/t gold and 7.18 g/t silver.
· The Ming Mine is based on underground mining of massive sulphides – the total mineable reserve estimate is of 1.498 mt of ore grading 1.62% Copper, 2.4 g/t gold and 10.9 g/t silver.
· The Ming mine is a VMS, volcanic massive sulphide mining project. VMS projects are generally of smallish size but with high grade mineralised areas. A few VMS mines, like the old Rio Tinto Copper mine in Spain extend to substantial scale when a series of VMS deposits are discovered within a localised area.
Rio Tinto (LON:RIO) – Offer for Hathor Exploration Has 93.76% take up
· Rio Tinto has been successful in its acquisition of Hathor Exploration with a 93.76% take up.
· The offer expired on the 6th January 2012.
· Rio will now make a compulsory acquisition of the balance of the shares.
· The final offer made by C$654m was at 13% premium to its original offer, a 26% premium to the original offer made by Cameco and 75% premium to the Hathor share price when it became a target on August 25th.
· Hathor’s main asset is the Roughrider Uranium Deposit in Northern Saskatchewan in Canada– the total resource base for the company’s West and East Zones shows a NI 43-101 of 57.93 m lbs of contained Uranium
· A scoping study announced by Hathor showed a pre-tax NPV of C$1.0bn based on a US$70/lb using a discount rate of 7% based on an estimated 11 year mine life and mill output of 5 m pounds of U3O6
· The study estimated a low cost of production of $14.44/lb of U3O6 based on a low daily milling rate of 200 tonnes per day as a result of compact and high grade and minimal separation of the West and East zones, high metallurgical recovery (97.7%) and shallow depth.
Conclusion: The bid for Hathor Exploration now close to completion gives Rio an Uranium asset in a country they feel comfortable operating in. This reinforces our view that Rio is unlikely to get involved in the CGNPC bid for Extract Resources.
Mining last week:
ENRC (LON:ENRC) – ENRC agrees deal with First Quantum on Congo Copper assets
First Quantum Minerals (LON:FQM)
Allied Gold Mining (LON:ALD) – Debt Restructuring with RK Mine Finance
Mwana Africa (LON:MWA) – Appointment of Non Executive Director
Patagonia Gold (LON:PGD) – Acquisition of exploration and mining concession
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
