Only registred members can create thier own customized alerts.
Fairfax Marketing Report including Caledonia Mining, and Uranium Resources
Morning View
Gold and base metals prices holding well considering the financial and economic turmoil seen in the Eurozone
• Oil prices continue to pull back as the US reduces its reliance on imports
• Reports of the Iranian navy helping a US cargo ship in Gulf may also allay some fears
• US durable orders figures are forecast to increase today off a depressed base
Medusa Mining are presenting at an Evening with Medusa Mining at the Chesterfield Hotel, Charles Street, Mayfair tonight - The event starts at 5:40 – there is no charge
Economic News
Europe – At the “informal” European summit yesterday, officials indicated their desire that Greece remain in the shared currency, but that current austerity plans are adhered to.
• The European Council President, Van Rompuy, repeatedly stated Greece must “respect its commitments”
• As expected nothing concrete emerged from the discussion yesterday.
• The idea of Eurobonds was reportedly aired and unsurprisingly rejected by German officials.
• The past few years have taught us one thing that remains abundantly clear – European officials are not likely to take any steps or make any decisions until the market forces them into action.
• They have failed repeatedly to get ahead of the crisis. Any belief that this will change is erroneous.
• National priorities and maintaining domestic political capital appear to be top of the agenda for much of the European community – This is the inherent flaw of the Eurozone.
• This leads us to conclude that the Greek elections and the subsequent official European summit at the end of June will provide nothing to deal with the structural imbalances that remain.
• Talk of “extra steps to support the regions banks” is frankly a sideshow and a weak attempt to divert attention away from the fact that Europe must integrate further or break up.
• Liquidity concerns and bank runs are a short term socio-economic issue. Protecting against them does not cure the ills of the region.
• Region wide Manufacturing figures for May showed further contraction. The figure declined to 45.0 from 45.9 in April.
• Additionally PMI services figures declined more than forecast.
Germany – Figures released this morning emphasis the gulf that remains between Germany and the rest of the Eurozone.
• Export in Q1 rose more than forecast according to official figures.
• GDP quarter on quarter increased by 0.5% in line with expectations.
• Similarly year on year growth came in at 1.2% in Q1 – in line with initial forecasts.
• That having been said – IFO figures on sentiment and the business outlook all failed to hit forecasts, indicating that Germans are worried about the current economic situation.
France – Preliminary figures released today show that manufacturing in the country declined in May,
• PMI services however increased more than forecast.
China – The preliminary HSBC PMI index for May indicates that manufacturing could well decline further this month.
• If accurate the reading will indicate the longest period of contracting data since the start of the financial crisis.
• The contraction is prompting further debate of stimulus in the country.
• Chinese stocks declined today on the back of the announcement on manufacturing.
• The Chinese Securities Journal has stated that the Central Bank should reduce the interest rate it pays on excess reserves.
US – Positive housing figures released yesterday helped the market improve marginally.
• New home sales increased more than forecast in April to 343,000
• The figure is undoubtedly a positive but coming from such a depressed base it is hardly surprising.
• Forecasts ahead of report due for release later today indicate that orders for durable goods probably increased in April.
• It worth noting that the forecast increase is only estimated to be 0.2% and would come on the back of a 4.2% decline in March.
• Initial jobless claims figures will also be released later today. The forecast suggests that claims remained flat from last month at 370K.
• At present we are not overly optimistic for the jobs market in the US and feel that there could still be some pull back over the summer.
UK – GDP revision compounds the pressure on the Government.
• Q1 GDP figures today were revised down. Not Good. GDP in Q1 contracted by 0.3% not the 0.2% contraction expected.
• Government spending increased by 1.6% qoq as the headwinds facing the global economy increased.
• Private consumption increased by less than expected.
• Exports in Q1 beat forecasts increasing by 0.1%
• Imports increased by 0.4%
• On the positive side of the coin - Figures on Total Business Investment indicated growth increasing by 3.6%
• Year on year business investment increased by 14.2% against forecasts of 9.2%
• The Index of services improved month on month rising by 0.5% in March after contracting by 0.4% in February.
• Retail sales figures released yesterday fell the most in more than two years – highlighting the problems facing the consumer in the UK as real incomes continue to stagnate.
New Zealand – The country’s trade surplus grew in April as imports fell.
• Exports exceeded imports by NZ$355m
• Exports make up 30% of the country’s economy.
Vietnam – Figures released today show that inflation fell below 10% for the first time in 19 months in May.
• Consumer prices increased by 8.34% on the back of declining bank earning and moderating food prices.
Baltic Dry Index – From January through to the end of April the Baltic Dry Index increased by 69%. However of late the index has flat lined and since the start of May has declined by 4.5%.
• Chinese demand for coal remains buoyant and has supported the index in general since the start of the year.
• The National Bureau of Statistics shows that China imported 23.9 million tons of coal in April. This is 12% more than was imported in March and 115% more than was imported in April 2011.
• China’s iron ore imports in Q1 totalled 187 million metric tons an increase of 6% yoy.
• Looking at the specifics, the Capesize market has traded marginally down of late, with the Handysize market rising slightly and the Panamax market down.
• The market remains in a tight position though with oversupply likely to remain for the rest of the year despite high scrapping rates.
US$1.2590/eur vs 1.2676/eur yesterday. Yen 79.50/$ vs 79.60/$. SAr 8.380/$ vs 8.362/$. $1.569/gBP vs 1.574/gBP
Commodity News
Precious:
Gold US$1,561/oz vs US$1,559/oz yesterday – Gold declined for a third day non rising US dollar as European leaders clashed over the idea of issuing Euro bonds.
• Newmont Mining will cut its spending on the Conga project, Peru, by 2/3s to S$440m maid delays caused by state and environmental reviews.
• Turkey increased its gold holdings by 29.7t in Apr, Ukraine bought 1.4t, Mexico added 2.9t and Kazakhstan purchased 2t, according to the International Monetary Fund data.
• SPDR gold trust holdings dropped the most in nine months to 1,268t (40.772moz) value US$63.138bn on Tuesday amid falling prices.
• SPDR are up 1% since the start of 2012, while gold prices are off 2.8%.
• Global Holdings in ETPs backed by gold are set to decline for a third straight month and stood at 2,367.5t.
Platinum US$1,424/oz vs US$1,426/oz yesterday
• Miners at the Rustenburg mine, South Africa, operated by Impala Platinum have returned to work today following a 2-day stoppage on the back of a clash between two different labour unions.
• Production may have lost at least 6,000oz as result of an unplanned shutdown.
• Aquarius Platinum said it may lose 75,000t of ore at the Mimosa mine, Zimbabwe, due to a fire eruption on a conveyor belt in the main decline. The loss will be compensated with stockpiles.
Palladium US$592/oz vs US$604/oz yesterday
• Prices may grow 24% to US$750/oz by the end of 2012 should concerns with regards to Greece leaving the Euro zone and economic growth in the US subside, according to Stillwater Mining, the sole US producer of PGMs.
• The US economy is doing “far better” than many observers suggest, while Chinese government “made an adjustment they needed” to cool the economy and reign in inflation, Stillwater said.
Silver US$27.94/oz vs US$27.85/oz yesterday
Rhodium US$1,390/oz vs US$1,390/oz last week
Base metals:
Copper US$ 7,609/t vs US$7,640/t yesterday – Prices increased form a 4-month low as Chinese officials pledged to support growth amid high uncertainty over European crisis.
• Codelco, the world’s largest copper producer, recorded a 10% yoy decline to 373,000t in Q1 amid “considerably lower” ore grades.
• Drop at the Chuquicamata, Salvador, El Teniente and Radomiro Tomic mines surpassed an increase at Gabriela Mistral operations.
• The company forecasts production to reach 1.7mt in 2012.
• Prices should not decline “too much” as Europe is struggles with the ongoing sovereign debt crisis and economic growth slows down in China.
• Codelco and Anglo American announced yesterday that both companies agreed to seek out-of-court settlement of the dispute with regards to the copper assets in Chile including the valuable Los Bronces mine. Legal proceedings are decided to be suspended until Jun 22.
Aluminium US$ 2,016/t vs US$2,024/t yesterday
Nickel US$ 16,872/t vs US$16,796/t yesterday
Zinc US$ 1,881/t vs US$1,880/t yesterday
Lead US$ 1,943/t vs US$1,934/t yesterday
Tin US$ 19,425/t vs US$19,430/t yesterday
Energy:
Brent crude US$105.55/bbl vs US$107.80/bbl yesterday
WTI: US$90.16bbl vs US$91.17bbl yesterday
US Crude: US$90.50/bbl vs US$ 91.02/bbl yesterday
• Brent was over a $15 premium to U.S. benchmark for July settlement as WTI dipped below US$90/bbl on Wednesday its lowest in seven months
• The U.S. weekly report showed stockpiles remain at 22-year highs signalling flagging demand.
• A groundbreaking case has been settled forcing BP to spend upward of US$400m to reduce noxious air pollution from its Whiting refinery in Northwest Indiana.
• The result could set a precedent for other oil companies nationwide to reduce their air pollution
• The consent decree requires BP to significantly reduce flaring by capturing pressurized gases and to operate flares more efficiently when they are needed.
• The new cap on emissions is seen as the toughest yet expecting Whiting to reduce flaring by 90%
• Whiting processes heavy-crude oil pulled from tar-soaked clay and sand in Northern Canada.
Natural Gas US$2.793/btu vs US$2.759btu yesterday
• Cove Energy received a hostile bid of 240p per share from Thai oil firm PTT Exploration and Production Public Co. yesterday
• The offer is a 9% premium to Shell Bidco’s 220p offer which is still the only bidder with Mozambique government approval.
• Shell’s offer will remain open for an extended period to 13th June which buy’s them more time to consider their position.
• An offer of 240p per share values each barrel of oil equivalent on the high side of US$3.4.
• Between US$2.5/boe US$3.00/boe would be more a more realistic valuation figure on these assets.
• U.S. and China credit agencies and other banks have joined to offer US8.5bn for an Australian JV LNGto liquefy unconventional gas for Asia export.
Uranium US$51.50/lbs vs US$51.60/lbs yesterday-
• UX consulting weekly spot as of 21st May 2012 was at US$52.00/lb (Unch)
Coal- China’s government are urging companies to explore for greater foreign recourses as it expects to consume 5.5bn/mt of standard coal by 2020, officials at the National Energy Administration said on Thursday.
Richards Bay $88.55/t vs 89.55/t yesterday,
Newcastle $91.90/t vs $93.55/t yesterday
Rotterdam $87.25/t vs $87.65 yesterday
Other:
Steel – Chinese stainless steel demand may slow down to 3-5% growth, the lowest pace since 2001, and total 10m, Baosteel Stainless Steel said. Production is forecast to grow 3-5% as well to 12-12.5mt.
• Severstal, the second biggest producer in Russia, announced a 18% yoy (-7.8% qoq) drop earnings in Q1 to US$427m on the back of declining prices.
Iron Ore – Rio Tinto comment that they do not see signs of slowdown in the Chinese iron ore market
• We have been concerned about iron ore prices in the short term but information today from Beijing suggests that the Chinese should stimulate demand for steel to maintain price levels.
• There is some softening of iron ore prices but there is also a realisation that when the price softened last October, it only reached the level of marginal suppliers (i.e. 120/t).
• This could keep prices at around this level for some years with limited periods at lower prices when the Chinese shake the price tree.
• Xstrata produced a chart below which points to a marginal cost heading upwards although it is demand which is normally more of a price driver.
• In the medium term the Chinese may increase spending on internal projects to resolve over capacity in steel production and other industries. Am told this may be vital to peace and tranquillity ahead of the upcoming elections in Q3 2012.
• Further a withdrawal of funding into many new projects and expansions should also help to maintain a tighter supply demand balance in future years with many projects likely to be delayed and higher cost projects canned.
Company News
Mali (coup update)- President Dioncounda Traore was attacked on Monday as the presidential palace was stormed by hundreds of angry protestors.
• The Interim President was taken to hospital while his close-protection guards killed three of the protesters.
• ECOWAS mediators left Mali hours before a deal was struck with coup leader Capt Amadou Sanogo to accept a Traore-led twelve month transition back to a democratic rule.
• The deal he accepted included all the benefits a former president would get, including housing, transport, security and an allowance… a cynic might say that appears more like a bribe!
• A 3,000-strong military force from the West African region is on stand-by to deploy if Mali the interim government requests it.
Caledonia Mining (LON:CMCL) Transfer of 20% of Blanket Mine to Indigenous Parties
• The company is fulfilling its obligation under the Zimbabwean indigenisation policy by transferring 20% of the Blanket Mine to two indigenous Zimbabwean Trusts.
• This is part of the agreement to transfer 51% of the mine for US$30.09m.
• 10% has been sold for US$7.339m to the Blanket Mine Employee Trust that has been established for the employees.
• 10% has been donated to the Gwanda Community Share Ownership Trust for the benefit of the local community.
• 15% was already sold to a consortium of indigenous Zimbabweans for a consideration of US$11m.
• The company will facilitate the vendor funding for all sale transactions which will be repaid by way of future dividends from Blanket with loans attracting a rate of 10% over the 12 month LIBOR.
• Repayments will be dependent on the future performance of the mine
• The Blanket gold mine is an underground gold mine with a production capacity of 40,000 oz a year with total proven and probable reserves as at 31 Dec 2010 of 3.8Mt at 3.78 g/t giving 467,200 oz.
• The cash cost for the $581/oz with high recoveries of around 93% making this an extremely profitable mine generating operating profits of around $34m after deducting 7% for royalties.
Conclusion: The payment for the mine of $30m implies an EV/oz of $125/oz assuming no cash at the mine level. Based on an assumption of FCF of around $23m a year for the mine post tax and expenses, the NPV for a 9 year mine at 12% is around $114m. The current value being paid for the mine would provide returns of close to 30%.
Uranium Resources (LON:URA) Update on Mtonya Uranium Exploration Programme
• The company reported results from a 20,000 m drilling programme at the Mtonya project in southwest Tanzania.
• 18 DC holes have been completed for a total of 5,400m.
• 3 holes have intercepted previously unknown roll fronts in Tier 1 at depths of 150 to 220m.
• Significant intercepts include:
o 397 ppm U308 over 1 m at 170.4 m
o 460 ppm eU308 over 4m at 170.4m
o 329 ppm eU308 over 3.8m at 73.7m
• The drilling is targeted to both deep mineralisation to in-situ recovery and near-surface mineralisation which would lend itself to more conventional mining.
• Three drill rigs are currently operating at the project and a fourth rig will be used by the end of June.
