Today's Market View Including BHP Billiton, Discovery Metals and Discovery MetalsJanuary 18 2013, 10:47am
Glencore – shares suspended in HK today pending release of ‘potential inside information’
• We are waiting for Glencore to overcome regulatory hurdles in its merger with Xstrata.
• The whole deal seems to be dragging on for much longer than anticipated while Chinese and South African regulators examine the deal.
• Eskom, the South African national power utility has raised concerns that the Glenstrata deal could harm coal supplies and want some protection to ensure it gains sufficient and competitively supplied coal while the national union of metalworkers is seeking limits on layoffs. Potential for job losses has attracted attention from South African authorities, not helped by Anglo Platinum’s cutting of 14,000 jobs.
• While many investors would prefer for Xstrata to remain independent.
Rio Tinto – Basic errors on Riversdale lead to exit of Albanese and Ritchie
• The surprise exit of Albanese and Ritchie from Rio Tinto without compensation or deferred options has drawn comment from close observers.
• The pair were seen as responsible for the disastrous acquisition of Riversdale coal in Mozambique for $3.9bn. Albanese also championed the acquisition of Alcan which has seen the writeoff of around half its $38bn cash price.
• The Riversdale acquisition highlights basic failings within the management and a refusal by Albanese to listed to the talented mining engineers around him.
• Many were surprised by the plant to barge coal down the Zambezi and investors assumed Rio’s must have found some innovative solutions But worse was to come with inadequate due diligence on the asset failing to show the poor quality of the coal in an asset which was vastly oversold.
• The acquisition led a rush by other miners into the area, many of which may also fail to find economic reserves.
• But just when you thought you had heard enough bad news about Rio it turns out that not all is going so well elsewhere.
• The company is having problems with the potential for development of the giant Simandou iron ore project which was originally targeted for production in 2015 but there is no agreement on the infrastructure fund and it seems impossible for Rio to meet this target while the Guinean government continues to move its goal posts.
• Worse still Fort Dauphin, the titanium dioxide mining project in Madagascar recently saw its ceo and staff were recently trapped by protestors
• Also Rio Tinto’s entire exploration program is now in question as the strategy to abandon much grass roots exploration in favour for spending profits on more mature acquisitions.
• More will out on Rio Tinto as staff are now better able to air their grievances
Earthquake in Leicestershire records 2.9 on Richter scale focussed on Loughborough
• Just when you thought is was safe to go out Leicestershire is hit by a massive 2.9 Richter scale earthquake.
• Earthquakes are not uncommon in the Leicestershire area and the event is not related to any drilling or fracking.
Wembl’ee’ – Football fans may be interested to know about a proposed name change for our national stadium
• Wembley is to be renamed as part of a sponsorship deal with ‘ee’’ the mobile provider.
• We think they should simply call it Wembl’ee’ for minimum confusion.
UK Space Agency celebrates 10 years of continuous transmission from Titan probe 18.5 million miles away
• So why does my phone battery only last a week and why can I not send a one line text from a UK mainline station?
US - Property market continued to perform strongly in Dec adding to evidence real estate is adding to economic growth.
• Housing starts increased 12.1%mom to a 954k annual rate, beating all forecasts. This is the best reading in 4.5 years. Market commentators suggested construction was supported by the unseasonably mild Dec weather, the second warmest Dec in US records going back to 1958.
• Building permits were up 0.3%mom to 903k, slightly below 905k estimated and up from a revised 900k recorded in Nov. This is still the strongest monthly performance since mid-2008.
• Homebuilders’ confidence was at the highest in Jan since Apr 2006, the National Association of Home Builders/Wells Fargo said.
• Jobless claims dropped more than estimated to the lowest level in five years. Applications for unemployment benefits fell by 37,000 to 335,000 in the week ended Jan 12. Estimates were for 369,000 claims.
• Consumer confidence gauge released the University of Michigan may have picked in Jan after falling to a five year low in Dec. Consumers may revise their outlook supported by improving job market, rising house prices, lower fuel costs and available cheap credit. Higher payroll taxes agreed by the Congress in the beginning of the year will certainly dampen part of the consumer sentiment.
China - Q4 economic growth topped analyst estimates and grew 7.9%yoy, a first increase over previous quarter in two years, on state efforts to boost demand through infrastructure projects and easing monetary policy. (National Bureau of Statistics)
• Analysts estimates were for a 7.8%yoy increase.
• GDP advanced 7.8% in FY2012, the least in 13 years, beating a 7.5% target set in March last year.
• Industrial production rose 10.3%yoy in Dec, up from 10.1% in Nov and 10.2%yoy expected. In FY2012 industrial output increased 10.0%, in line with expectations.
• Retail sales were up 15.2%yoy, up from 15.1%yoy in Nov and 14.9%yoy estimated. In FY2012 retail sales advanced 14.3%, in line with expectations.
• The central bank cut interest rates twice and reduced lenders’ reserve requirements three times last year.
• A separate report showed Chinese new house prices increased in Dec in 54 of 70 cities, the most in 20 months. Should prices begin to climb rapidly the central bank might consider tightening its monetary policy and implement more property curbs.
• Home sales rose 11%yoy to US$869bn worth in 2012.
Europe - IMF Managing Director Christine Lagarde said the ECB may need to cut interest rates more to revive growth in the Euro zone.
Japan - The yen fell to a 2.5 year low after an adviser to Japanese Prime Minister suggested a target for the yen at around 100 per US$.
• “I think 100 yen is a good level for Japan, 110 is too weak but 95 or 100 is no problem. We need to bring the yen back to a level that works well for Japan’s economy.”
• The Bank of Japan will hold its two-day policy meeting starting Jan 21 with expectations for further monetary easing to be announced.
US$1.3378/eur vs 1.3320/eur yesterday. Yen 90.06/$ vs 88.65/$. SAr 8.852/$ vs 8.777/$. $1.598/gbp vs 1.602/gbp
Gold US$1,691/oz vs US$1,682/oz yesterday - Gold prices grew together with equities on good economic data in the US and China.
• SPDR gold holdings fell to 1,333t (42,845koz) valued at US$71.7bn from 1,334t (42,903koz) yesterday.
Platinum US$1,696/oz vs US$1,685/oz yesterday
Palladium US$728/oz vs US$722/oz yesterday
• Holdings in platinum backed ETPs grew for to a record 53t for a second day. (Bloomberg)
Silver US$31.84/oz vs US$31.45/oz yesterday
• Holdings in silver backed ETPs increased to record 19,686t yesterday. (Bloomberg)
• US Mint run out of silver coins on strong demand. Sales will resume once inventories are replenished that will happen come time in the week of Jan 28.
• January silver coins’ sales totalled 6,007,000oz so far, up 74%yoy.
Copper US$ 8,074/t vs US$7,969/t yesterday - Prices picked up today supported by better-than-expected GDP growth in China and strong housing and employment data in the US.
• Codelco will start production at the Ministro Hales copper mine in Chile towards the end of 2013.
Aluminium US$ 2,061/t vs US$2,050/t yesterday
• Chinese aluminium demand is forecast to grow 8.6% in 2013 to 23.35mt, according to Antaike. Production will advance 9.8% to 24mt.
Nickel US$ 17,625/t vs US$17,440/t yesterday
• Refined nickel production increased to 153,100t in Nov, outpacing demand of 142,600t. (INSG)
Zinc US$ 2,034/t vs US$1,984/t yesterday
Lead US$ 2,312/t vs US$2,267/t yesterday
Tin US$ 25,189/t vs US$24,975/t yesterday
Oil US$111.0/bbl vs US$109.6/bbl yesterday
Natural Gas US$3.516/mmbtu vs US$3.402/mmbtu yesterday
Uranium US$42.00 (close 17/01/13) vs US$42.25 (close 16/01/13)
BHP Billiton (LON:BLT) – Blocking of Ekati Diamond Mine Sale
• One of the founder geologists of the Ekati Mine Charles Fipke has blocked the $500m sale of the mine to Harry Winston.
• Charles Fipke who discovered the Ekati Mine jointly with Dr Stewart Blusson in 1961 has rights of first refusal on the sale.
• C Fipke Holdings Ltd holds a 10% stake in the mine.
Conclusion: It will be interesting to see what Charles Fipke intends to gain from blocking this sale. A number of other bidders such as KKR and De Beers whose names were in the frame pulled out of the bidding process. Harry Winston is well placed to take this project with the cash from the recent sale of their retail franchise and already owning a 20% stake in the nearby Diavik mine. If BHP cannot sort out the blocking stake, Harry Winston could buyout Rio’s share in Diavik which has 16.1m carats of proven reserves with potential to extend the mine life to 2022.
Discovery Metals (ASX:DML) – In Fill Drilling at Zeta Pit Shows High Grades
• Infill drilling at the Zeta NE deposit has exceeded expectations showing higher grades and thicknesses ranging from 1.3% to 3.3% with widths of 6.6m to 13.5m.
• Assay results from deeper drilling also show potential for mineralisation down to around 500m with one drill hole showing 10.5m at 1.5% copper and 32 g/t silver.
• The results are from 8 DC holes drilled as part of an infill drilling programme and 1 of 4 planned deeper holes to test underground potential.
• Zeta NE currently has an inferred resource of 12.9 Mt at 1.3% copper and 22 g/t silver.
• Further drilling at NE is planned to continue later in 2013 to establish ore reserves which can be used as part of the Boseto expansion plan.
Conclusion: These drill results will help towards establishing a reserve at Zeta NE which can be used as part of the resource towards ongoing open pit operations. The potential for underground mineralisation at Zeta NE would from a basis of a future underground mine at Zeta NE. The company continue with their exploration programme to establish resources to enable the expansion at Boseto to 50,000 t of copper per year.
Sula Iron & Gold (LON:SULA) – Update on the Sierra Leone Iron Ore and Gold Project
• Iron Ore: The company has completed detailed mapping and reconnaissance work over the strike length of 3.1 km to identify drill targets.
• The work has identified a high priority target in the SW of the project which is 2.7 km long with BIF outcrop.
• A 2000 m DC drill programme has been designed to test the continuity, thickness and iron grade of the BIF.
• Gold Exploration: The company have identified two prospects the Dalakuru and Lagunda targets based on historical drill core.
• Dalakuru target area is a steeply dipping quartz-sulphide breccia and Lagunda is large, active artisanal alluvial gold field.