Higher US long bond rates due to QE Tapering comments are causing fund flows to shift around the world
• US 10-year bond set for biggest weekly gain in two years, yield is now at 2.4% on US 10-year Treasuries
• The two currencies which fell the most yesterday in emerging markets were the Indian Rupee and the Turkish Lira
Indian Rupee weakness causing pressure on current account will impact Indian gold demand and halt the rise in rough diamond prices
• The Indian Rupee has been one of the worst affected emerging market currencies where concerns of current account outflows so the rupee coming close to 60 INR/US$.
• The finance minister Chidambran is doing his level best to stop Indians buying gold by introducing taxes and urging Indians to stop buying gold.
• This may not be that easy to achieve as buying gold jewellery is entrenched in the culture.
• Rupee weakness is also impacting the recent rise in the rough diamond market where prices have recovered by at least 10% so far this year.
Tungsten and iron ore prices rise
• Fed reports on QE Tapering caused gold, copper and other metals to fall but don’t seem to hold back iron ore and tungsten
• Mysteriously some metals were already pulling back ahead of the Fed comments as investors looked for news on Fed tapering
• Platinum and palladium prices fell through the week in anticipation despite forecasts for a significant shortfall of palladium supply and ongoing disruption to platinum mining in South Africa.
• The base metals recovered some losses yesterday as many metals are seen as trading at low levels with new demand picking up prices in the market
• We expect base metals to continue to recover despite US dollar strength on restocking and a pickup in industrial activity
IMF may freeze funding to Greece as Eur3.4bn shortfall is discovered (see below)
• Just when you thought the Eurozone banking crisis had gone away, the Greeks are bringing it back again
Its charity mate!
• Brad Sampson, ceo, Discovery Metals has been sleeping rough for charity in Brisbane.
• But with the share price of his company slipping from A$170c to A$19c Brad may be thinking about sleeping rough more often
• ASX miners have fallen so hard in recent months that Brad may not be only one sleeping rough in mining towns this year
• Well done to Brad!
US - More good news in the world’s largest economy.
• Existing house sales climbed 4.2%mom to 5.18m units (annualised) in May, the highest level in more than three years.
• Philadelphia manufacturing index beat analysts’ expectations and advanced to 12.5 in Jun, the highest level since Apr 2011. Estimates were for a 2.0 fall.
China - Intra-bank interest rates are reported to have declined from recent highs as the central bank eased liquidity in the system.
• The one-day repurchase rate fell 422bp to 8.43% and seven-day rates declined 227bp to 8.50%.
• HSBC's flash China PMI survey revealed the contraction in Chinese manufacturing accelerated in June. The index fell to 48.3, a new 9-month low, from 49.2 in May.
China – are the new leaders brave enough to kitchen sink the Chinese economy
• Former chess grandmaster and now fund manager of ‘Grandmaster Capital’ Patrick Wolff reckons there will be a market crash in China
• Corruption and bad debts have spiralled to dangerous levels according to Wolff.
• Note Wolff does not like stocks in the energy, materials, mining and the industrials sector which have outperformed on the back of Chinese growth.
Euro zone - The €500bn European Stability Mechanism will now be used to recapitalise troubled financial institutions directly.
• The sovereign will have to chip in 20% of the recapitalisation cash.
• Previously, the agreement was that the ESM lends money to the government which then used the cash to bail out local banks on their own.
• Effectively, loans will now be a part of ESM’s assets rather than sitting on sovereigns’ balance sheets.
• The Eurozone committee of finance ministers who brokered the agreement said any retroactive applications will be dealt on “a case-by-case basis”.
• On a separate note, the IMF said it will stop aid payments to Greece by the end of Jul if Eurozone ministers close a €3-4bn funding gap in the nation’s €172bn rescue programme.
• Allegedly, the gap emerged after area’s central banks did not roll over bonds they held.
• IMF rules say sovereigns should have at least 12 months worth of funding before the IMF releases its financial aid. The shortfall indicates Greece has got money to cover itself up to the end of Jul 2014.
Brazil - Protests continue with an estimated million people out on the streets criticizing everything from corruption to poor healthcare.
Mongolia - The government asked Rio Tinto to delay shipments of copper without revealing the reasons behind the request.
• "Oyu Tolgoi is ready to start its first shipments of copper concentrate from its Mongolian mine and all necessary permits to do so have been received from relevant authorities," Rio said.
• The nation will hold presidential elections on Jun 26. Tsakhia Elbegdorj who is said to be friendly to foreign investors is expected to win re-election.
US$1.3216/eur vs 1.3251/eur yesterday. Yen 97.97/$ vs 97.65/$. SAr 10.240/$ vs 10.225/$. $1.548/gbp vs 1.545/gbp
Gold US$1,296/oz vs US$1,329/oz yesterday - Prices fell to US$1,269/oz, the lowest level since Sep 16 2010, yesterday.
• CME raised margins for gold for the second time since Apr as volatility picked up and prices fell to the lowest since Sep 2010.
• Minimum cash deposits per a 100oz contract will be increased 25% to S$8,800/oz.
• Goldcorp, the biggest gold producer by market value, received a reprieve from a court order to return land at the Penasquito open pit mine to Mexican farmers.
• A federal judge stopped the order from a district court as a second group of farmers argued that the closure of the mine will adversely affect their livelihood.
• A hearing is scheduled for Jun 27 to discuss should temporary suspension become permanent.
• The mine is set to produce 400koz this year. Operations brought US$1.6bn in revenues last year, the largest share of the company’s turnover.
• Shares fell 7.9% at the close in Toronto.
• SPDR gold holdings fell to 995.4t (32,002koz) valued at US$41.348bn from 999.6t (32,137koz) yesterday.
Platinum US$1,370/oz vs US$1,409/oz yesterday
Palladium US$678/oz vs US$686/oz yesterday
Silver US$19.89/oz vs US$20.76/oz yesterday
Copper US$ 6,825/t vs US$6,867/t yesterday - Copper are slightly up this morning after prices fell to US$6,696/t during morning trading, the lowest since Oct 3 2011.
• Chinese copper imports fell 23%yoy (+27%mom) to 232,155t in May, according to the nation’s customs agency.
Aluminium US$ 1,802/t vs US$1,808/t yesterday
Nickel US$ 13,755/t vs US$13,887/t yesterday
Zinc US$ 1,839/t vs US$1,842/t yesterday
• Refined zinc production increased 3.4yoy to 4,325kt in the first four months of the year on gains in China, Italy and the Republic of Korea.
• Zinc demand was up 5.7%yoy to 4,277kt in the Jan-Apr period as increases in Europe (+3.7%yoy), the US (11.9%yoy), India (+10.7%yoy) and China (+7.1%yoy) were partly compensated by declines in Japan and South Korea.
• The market recorded a 48kt surplus in the period.
Lead US$ 2,024/t vs US$2,040/t yesterday
• Refined lead production fell 2.9%mom to 888.2kt in Apr on declines in Australia, Canada, Mexico and Peru. Turkey and India recorded an increase. Chinese Nonferrous Metals Industry Association did not release lead mine production numbers for Mar and Apr. (ILZSG)
• Output in the first four months climbed 5.7%yoy to 3,460kt on stronger production in China and Italy.
• Demand fell 2.8%mom to 908.2kt in Apr. In the first four months global usage gained 7.9%yoy to 3,491kt driven by a 10.8%yoy increase in China and 13.7%yoy rise in the US. European demand gained 3%yoy on increases in the Czech Republic and Poland.
• 31kt market deficit has been recorded during the Jan-Apr period.
Tin US$ 19,431/t vs US$19,800/t yesterday
Oil US$102.7/bbl vs US$104.6/bbl yesterday
Natural Gas US$3.876/mmbtu vs US$3.933/mmbtu yesterday
Uranium US$39.90 (close 20/06/13) unchanged on the previous close
Iron ore 62% Fe spot (cfr Tianjin) US$120.6/t (close 20/06/13) vs US$120.0/t (close 19/06/13)
• Amur Minerals shares rose this morning on new trade and on expectations for a positive field season
• The company is drilling its ‘World Class’ Kun Maine nickel deposit in Russia this summer and expects to increase its nickel resource in terms of grade and tonnage on the results.
• The company has been awarded a new exploration licence covering 52 square km, 8 km from the Rio Tinto project.
• The next step once the project is permitted for restart will be to look for potential to extend the project life and annual production.
• The land surrounding the project is thought to be prospective and could offer potential for more resource.
Conclusion: Once the company gets the permit to restart this project there is potential value in tapping into the resource surrounding the mine. This has been one of the most interesting aspects of this project. Till the permit has been signed off little value will be assigned to this against the current backdrop of risk aversion in the sector and markets.
The recent fund raise gives them the gives them the breathing space they need in terms of funding before permitting is put into place to re-start the Rio Tinto copper mine. The support from existing shareholders such as XGC and Red Kite reinforces the quality of the project.
International Mining Corporation (LON:IMIC) – Raises US$20m via a Bond Instrument
• The company has announced raising $20m through a bond issued.
• The bond has been issued by a newly created Canadian subsidiary Afferro Holding Ltd.
• The unsecured bond carries an interest of 8.75% payable semi-annually maturing on 30 Oct 2016.
Conclusion: The issuing of this bond by a newly created subsidiary Afferro Holdings Ltd would suggest the company are confident they will be successful in acquiring the real Afferro Mining Inc. We remain puzzled on who the buyers have been of the company’s bond and convertible bond offerings given that it is company that is not generating any income at this stage.
• Allmine Group, the parent company of Arccon who are managing the Co-O mine expansion have gone into administration.
• The company are currently trying to assess the implications this may have on the commissioning of its new mill at the Co-O gold mine in the Philippines.
• The company will update the market once they know more of the position with respect to the continuation of commissioning.
Conclusion: Work on the expansion at the mill is close to full commissioning. The progress in terms of day to day activities to finish commissioning will depend on negotiations and payment arrangements with the contractors. The company will update the market once they have had an opportunity to assess this more fully.
*SP Angel acts as UK broker to Medusa
**SP Angel analysts have previously visited the Co-O gold mine in the Philippines.