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Today's Market View Including Metals Exploration, Copper Development Corporation and Tri-Star Resources


Equity markets fall on Fed comments indicating start of QE tapering

US dollar rally on suggestion that US long bond rate should start to rise 

Metals prices fall as dollar climbs.

Miners are having a bad day as Fed comments take their toll.

Fundamental investors might look to buy the dip as the Fed move indicates improving economic outlook

Australian dollar – we reckon the Australian dollar is too strong and should fall.  The strength of the currency appears to be having a significant detrimental effect on the nation with mines and other industry closing due to high production costs.

Mozambique – Renamo, a former guerrilla group, threaten to paralyse rail links in Mozambique

Renamo chief states that disruption of the Sena rail line would take as ‘long as it takes’ and the group would paralyse the movement of trains

This is not a good statement for coal and other miners in the region

Maybe Rio Tinto’s $3bn writedown on its $4.2bn acquisition has not gone far enough

Pigs might fly but pig iron projects are likely to remain firmly on the ground in Mozambique

Australian tax year ends 30 June - 

Aussie stocks tend to suffer in the run-up to the end of the Australian tax year.

This year investors are more likely to be reporting losses and the Australian revenue service will be missing gains in previous years.

Singapore – smog persists as fires burn in Indonesia 

Indonesian officials suggest that foreign companies are to blame in burning forests for new palm oil plantations 

Economic View

US - The pace of monthly bond purchases may start to go down later this year and possibly be stopped altogether by mid-2014 should the economy perform in line with the Fed estimates, Ben Bernanke said yesterday.

“If the incoming data are broadly consistent with this forecast, the committee currently anticipates that it would be appropriate to moderate the monthly pace of purchases later this year,” Bernanke said.

“The downside risks to the outlook for the economy and the labour market have diminished.”

Equities and commodities were sold off following the announcement.

Interest rates may start to go up once the unemployment rate is below 6.5%.

The Fed began its third assets purchasing programme in Sep last year by buying US$40bn/month. The bank than added US$45bn/month of Treasury purchases in Dec.

New Fed estimates suggested unemployment rate to total 7.2-7.3% this year, 6.5-6.8% in 2014 and 5.8-6.2% in the last quarter in 2015.

The economy is set to grow 2.3-2.6% this year, 3-3.5% in 2014 and 2.9-3.6% in 2015.

On a separate note, manufacturing and housing numbers due later today may support the case for reduced monetary stimulus.

Existing home sales are forecast to climb to 5.0m in May, the highest since Nov 209,, up from 4.97 in Apr.

Philadelphia manufacturing index is expected to come in at -2.0  in Jun compared to -5.2 in May. 


China  - Manufacturing sector contracted at a faster rate in Jun the preliminary PMI reading showed.

The gauge came in at 48.3 compared with the 49.1 forecast and 49.2 recorded in May.

Separate reports suggest the central bank has temporarily cut interbank funding available which in turn raised to benchmark seven day repurchase rate to 12%, the highest in data going back to May 2006.

The bank aims to cut excessive lending in the financial system which coupled with a slowing economic growth some analysts suggest may lead to a hard landing of the economy.


UK - Retail sales excluding auto fuel climbed 2.1%mom in May beating expectations driven by food and internet sales. Estimates were for a 1.0%mom increase. The gauge fell 1.2%mom in Apr.


Euro zone - manufacturing and services sectors contracted in Jun but at a slower pace compared to the previous month according to PMI estimates.

Manufacturing PMI totalled 48.76, compared to 48.3 in May and 48.6 forecast.

Services PMI came in at 48.6, compared to 47.2 in May and 47.5 estimated.


Zambia  - State is expecting to double its power generation capacity to 2,800MW in 5-6 years to guarantee adequate supply to mining operations.

US$5.3bn will be spent on generation and transmission projects.

Nation’s peak electricity demand came in at 1,650MW exceeding generation capacities by around 250MW. Demand is forecast to grow by 34% per annum, state owned Zesco said.

The company plans to finance it s capex programme with a combination of deb and equity. “"We have an idea to visit all the big names like Tokyo, Shanghai, Beijing, New Delhi, Mumbai, London and New York and that will happen over the next six months."


US$1.3251/eur vs 1.3391/eur yesterday. Yen 97.65/$ vs 95.08/$. SAr     10.225/$ vs 9.998/$. $1.545/gbp vs 1.565/gbp

Commodity News


Gold US$1,311/oz vs US$1,369/oz yesterday - Prices fell to the level last seen in H1 2011 after the Fed said it may slow down asset purchases later this year and possibly end QE by mid-2014.

China is set to replace India as the largest bullion consumer this year following import tax hikes announced in New Delhi while Beijing eases regulations for investing in gold, the China Gold Association said.

Chinese demand totalled 776.1t last year compared to 864.2 recorded in India.

Chinese demand in the first four months climbed more than 36% to 456.2t as prices tumbled in Apr.

Gold imports in India are forecast to fall 40%mom in Jun on the back of higher state duties and seasonally week demand during summer months in the absence of auspicious festivals.

Prices are seen supported in the long term for three reasons: rising operating costs with ore grades falling, excessive liquidity worldwide and more than US$3tn in foreign exchange reserves in China, Zijin Mining said.

SPDR gold holdings slid below the 1,000t level for the first time in four years and came in at 999.6t (32,137koz) valued at US$44.102bn yesterday. Assets are down 26%since the start of the year.

Platinum US$1,409/oz vs US$1,440/oz yesterday

Palladium US$686/oz vs US$723/oz yesterday

Silver US$20.76/oz vs US$21.73/oz yesterday

Base metals:

Copper US$ 6,867/t vs US$7,022/t yesterday - Prices are off today on the back of less-stimulus-possible comments by the Fed and worse than estimated Chinese manufacturing PMI numbers.

Japanese copper wire and cable shipments increased for the first time in six months driven by stronger orders by construction companies.

Deliveries gained 2.1%yoy to 54,200t in May.

Aluminium US$ 1,808/t vs US$1,840/t yesterday

Nickel US$ 13,887/t vs US$14,147/t yesterday

Zinc US$ 1,842/t vs US$1,861/t yesterday

Lead US$ 2,040/t vs US$2,100/t yesterday

Tin US$ 19,800/t vs US$20,150/t yesterday


Oil US$104.6/bbl vs US$106.2/bbl yesterday

Natural Gas US$3.933/mmbtu vs US$3.922/mmbtu yesterday

Uranium US$39.90 (close 19/06/13) unchanged on the previous close


Iron ore 62% Fe spot (cfr Tianjin) US$120.0/t (close 19/06/13) vs US$117.7/t (close 18/06/13)

Company News

10 reasons to buy Glencore / Xstrata

Commodity trading business expanding into new profit areas.

Mixed portfolio of commodities gives good opportunity and diversity.

$17bn raised in a revolving credit facility gives low cost access to massive finance.

Low interest rates and ongoing global growth are a good combination for a trading house like Glencore.

Management are shameless opportunists and we reckon this is a market for taking risk and opportunity.

Merger accounting benefits on the Xstrata deal to give good benefit to results

Close and multitudinous links into China offer benefits in terms of placing commodities and profiting from price differentials.

Blending of concentrates and bulk commodities lift margins and offer potential for further expansion.

Global GDP continues to expand indicating greater consumption of commodities.

Management are well proven and incentivised, driven by a ‘no work-life balance’ culture, but if you live in Zug there’s not much to do anyway!

On the negative side: 

Not every investor is keen on Glencore and many don’t feel they understand the company and how it operates

Investors feel there is a lack of transparency

Falling metals prices also create risk, though Glencore moves to minimise this price risk 

Tri-Star Resources* (LON:TSTR) – Odey backs company with new convertible funding 

Tri-Star Resources has announced the completion of a £4m convertible bond with the Odey European fund (a US$1.4bn fund).

The company also reports its full year results

Tri-Star is to draw down £1.33m on the convertible now with the balance to be drawn  by end January 2014.  The convertibles have a non-cash coupon of 15% and a maturity of 5 years. 

The conversion price of the bonds is to be fixed at the time of conversion at a 10% discount to (i) the lower of any equity placing completed at the time of conversion or (ii) the previous equity conversion. Conversion is at Odey’s option.  If converted today, the bonds would convert at 0.27p (10% discount to the recent placing at 0.3p).  Management aim to complete future funding at higher prices resulting in a higher conversion price of the bonds. 

The fund is seen as supportive of the Tri-Star antimony mine and roaster story and Odey’s commitment is seen as positive endorsement for the company’s strategy for the roaster in the Gulf as well as for the completion of the Portage Minerals acquisition in Canada.

Odey’s backing should be helpful in ongoing negotiations with funding partners in the UAE for the new roaster.

Shareholders should see the funding as significant de-risking the project.

Tri-Star is looking to start Antimony production this year from the Goynuk mine dumps in Turkey this year and is well advanced in its planning for a new antimony roaster in RAK, UAE.  The mine dumps contain some 350,000t grading 1-3% antimony.

GBM Minerals Engineering recently confirmed the viability of the Gulf roaster project in a cost benefit analysis and engineering report.  GBM calculate an NPV of US$240m and a IRR of >40% for the roaster project highlighting the high margins seen in this business.

The rapid move to early production and then onto more profitable antimony roasting should enable the company to maximise profits from high  antimony prices.  Prices have pulled back to around $9,850/t from around $11,000/t in January still enabling great margins for roasters in China.  Antimony prices rose from $8,200/t in mid 2010 to a high of $16,800/t in March 2011 as Chinese smelters dominated production and commanded global price levels. Prices are generally seen to be around $500-800/t more for European consumers.

Antimony is an EU critical metal with  ongoing demand growth at +6% seen in Asia but is weak in Europe and is closely linked to GDP growth.  The mineral is principally used as a flame retardant and as a chemical additive for printed circuit boards.  

Chinese roasters are seen being shut due to non-environmental compliance as nearly all Chinese roasters are polluting open blast furnaces.

Tri-Star is the only non-Chinese group with a well developed integrated mining and roasting strategy.

Conclusion:  Tri-Star gives investors good value potential.  The backing of Odey, a significant UK fund, helps to de-risk the project and should enable management to better negotiate funding for the larger roaster project in RAK, UAE.  The development of a western antimony roaster is likely to be welcomed by US and European consumers who are forced to pay higher premiums of around 5-8% than their Chinese counterparts and gives better security of supply.  We can see Tri-Star succeeding in its plans to expand European antimony production and for this to lift the shares going forward.

* SP Angel acts as joint broker to the company

Copper Development Corp (LON:CDC) – Results to Dec 2012

The company have put their two copper projects in the Philippines the Hinoba-an and Basay projects on care and maintenance.

The Hinoba-an project has a JORC resource with 1.13mt of contained copper with potential for 47 kt of annual production over 15 years.

The measured and indicated resources stand at 283.1 Mt at 0.37% copper.

At a $3.00/lb copper price the project had an estimated pre tax NPV of $440m using a 10% discount rate, capex of US$480m and average operating cost of US$1.57/lb.

The post tax IRR of the project was estimated at 36%.

The company have been actively been trying to sell this project but cite the territorial dispute in the South China Sea between China and the Philippines as a major hurdle to the sale.

At Basay they have completed 34,000m of drilling across 71 holes and had not uncovered a sufficient resource for economic mining.

An application for the renewal of the exploration permit which expired in Dec 2012 has been lodged but the permit has yet to be granted.

The company’s cash position stands at US$14.4m.

Conclusion: On the face of it the Hinoba-an project looks attractive although the capex of $480m may be a challenge in these markets.  The lack of buyers is surprising – there may be more to this then meets the eye. The company’s cash position enables them to sit it out but the money may be better spent outside the Philippines given the problems encountered on both projects so far.

Metals Exploration* (LON:MTL) – Start of Major Construction at Runruno

Following a meeting of the Board of Directors on 19 June, the company has the go ahead to start full construction of the Runruno Mine.

Construction which will start on 1 July and the mine will take 15 months to production – forecast for Q4 2014.

The contract for the SAG mill, the longest lead time item, has been awarded to Citic Heavy Industries.

The mill will be delivered in May 2014 and commissioned by the end of Q3 2014.

Conclusion: Much of the early stage construction work has been done at the project with the plant pad, development of the site office and main camp, establishing of infrastructure with site power and water, building of access roads, establishing stage one pit and purchase and commissioning of mining fleet.

With the major long lead time being ordered, the mill, the time frame to production can now be set. The commissioning by the end of Q3 2014 and first production in Q4 2014 is in line with our expectations. We assume 12 k oz of gold production with a ore feed of 0.25 mt at head grades of 1.89 g/t in 2014 ramping up to 87 k oz the following year. The majority of the value of the company is being estimated against a long term gold price of $1,250/oz based on current mine plans. 

There is scope once the mine is built to increase the mine life. Total cash costs are estimated to be around $620-$630/oz with connection to the grid providing a material cost advantage with power likely to be available at 10 cents/kwh. Mining costs should also be helped by the small footprint at the mine with the short haul to the pit reducing fuel costs.

* SP Angel acts as broker to the company


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