US – The nation celebrated Thanksgiving yesterday with markets being closed.
• Shopping season kicked off yesterday in the US as retailers rolled out pre-Black Friday deals with discounts of up to 60% off some items.
• The National Retail Federation estimates sales will be strongest in 3 years this season.
• The NRF expects around 140m people to shop yesterday through Sunday.
• Upbeat numbers are forecast on the back of falling gas prices, lower unemployment and rising wages.
Japan – Core inflation slowed further in Oct when the effect of the Apr sales tax increase is eliminated.
• This puts more pressure on the central bank which has been easing monetary policy lately in an effort to drive inflation towards its 2% target.
• The gauge fell to 0.9%yoy last month, down from 1.0%yoy in Sep.
• A separate report showed households cut their spending in Oct (-4.0%yoy v -5.6%yoy in Sep and -5.0%yoy forecast). This marked the seventh consecutive decline post the sales tax revision.
• Retail sales growth slowed (+1.4%yoy v +2.3%yoy in Sep and 1.4%yoy forecast) and industrial production contracted (-1.0%yoy v +0.8%yoy and -1.7%yoy).
Eurozone – The ECB may add government bonds to the list of securities eligible for the quantitative easing programme purchases, Mario Draghi said yesterday.
• Senior officials indicated the bank is currently putting the programme together closely watching incoming economic data to decide on the timing of the stimulus.
• Meanwhile, Germany reported its inflation numbers yesterday showing prices climbed at the slowest pace in more than 4 years in |Nov (+0.6%yoy v +0.8%yoy in Sep and +0.6%yoy forecast).
• Eurozone wide inflation rate will be released later this morning with expectations for the gauge to slow by 0.1pp and match levels seen in Augusta and September (+0.3%yoy).
• That would suggest the weakest rate at least since Oct/09.
UK – Consumer confidence stalled in Nov as headwinds in the Eurozone crag the outlook for UK growth.
• The GfK sentiment index held at -2.
• At the same time, expectations index hit the weakest since 2013 suggesting deteriorating economic (0 v 2 in Oct) and personal finance (2 v 4 in Oct) outlook.
US$1.2453/eur vs 1.2469/eur yesterday. Yen 118.12/$ vs 117.52/$. SAr11.028/$ vs 10.959/$. $1.572/gbp vs 1.576/gbp
A$0.8525 vs 0.8573 yesterday – US dollar strengthens as yen sells off
Gold US$1,185/oz vs US$1,195/oz yesterday –
Platinum US$1,216/oz vs US$1,222/oz yesterday –
Palladium US$804/oz vs US$800/oz yesterday
Silver US$16.10/oz vs US$16.40/oz yesterday
Copper US$6,472/t vs US$6,6587/t yesterday –
Aluminium US$2,027/t vs US$2,067/t yesterday –
Nickel US$16,172/t vs US$16,450/t yesterday –
Zinc US$2,221/t vs US$2,278/t yesterday -
Lead US$2,033/t vs US$2,066/t yesterday –
Tin US$20,275/t vs US$20,312/t yesterday
Oil US$72.20/bbl vs US$76.10/bbl yesterday –
Natural Gas US price US$4.201/mmbtu vs US$4.322/mmbtu yesterday –
Thermal Coal $72.1/t vs $72.8/t
Uranium US$40.00/t unch vs US$40.00/t -
Iron ore spot price index (62% fines) $73.4 unch vs $73.4/t –
Seabourne Coking coal (quarterly) – US$119/t unch vs US$119/t
Tungsten APT European US$320.0/mtu vs US$320.0/mtu – Tungsten prices now showing some recovery
Ferrochrome $1.15/lb Cr Q4 vs $1.19/lb Q4 quarterly Benchmark pricing – HC Ferrochrome prices rise to 80c/lb in China
• Chinese high-carbon ferrochrome prices continue to rebound with prices rising now to 80c/lb from 75c/lb last week.
• Prices rose to 78-79.5c/lb equivalent yesterday in China as stainless steel mills raised purchase prices
Ferrochrome producers in Inner Mongolia are reported to have cut production in October as prices fell to probably uneconomic levels
• Chinese stainless steel mills may be looking to lock in supply ahead of the Chinese new year as costs rise for domestic producers
• The ceo of Albanian Minerals recently highlighted global chrome ore production to be at its lowest level in 10 years
• Ferrochrome demand and the prices to increase 10% in 2015 with global stainless steel production to reach an all-time high of 41mt this year and 43mt in 2015. China consumed 5.7mt of ferrochrome last year which is expected to rise to around 6mt this year
• China is expected to only produce around 4mt of high-carbon ferrochrome 2014 requiring the import of around 10mt of chrome ore to feed local furnaces. We expect chrome ore prices to rise as export supply out of South Africa and other regions falls partly due to lower high-grade ore production and partly due to better local consumption.
• Amur Minerals holds licenses over the world class Kun-Manie nickel sulphide project in the Amur region of Russia.
• The company’s shares have risen 90% since the beginning of November.
• Amur reported on the process of its mining license application with the Russian authorities.
• On 11th November the Russian Ministry of Economic Development approved Amur’s application.
• On 20th November Amur announced the mining license application had been forwarded to the Russian Ministry of Natural Resources.
• Post the MNR the application will be handed to the Russian government for final signoff as the Kun-Manie nickel project is classified as a Russian strategic asset due to its nickel content.
• The Kun-Manie project is a rare asset in the world of nickel sulphide projects with very few economically extractable nickel sulphide projects discovered over the past 20 years.
* SP Angel act as Nomad and broker to Amur Minerals
* An SP Angel analyst has visited the Kun Maine licenses in Russia
Goldstone Resources (LON:GRL) – Interim Results
• Goldstone Resources has reported a loss of US$459,000 for the six month period ending 31st August.
• Since then, there has been an injection of £1.25m into the company by Stratex International which now owns approximately 33% of the company.
• Prior to Stratex’s investment “operational activities remained restricted to keeping the licences in good standing”.
• A review of Goldstone’s project portfolio is underway following the restructuring of the company but at present the primary focus is being directed at the Homase / Akrokerri project in Ghana.
• The company has also announced that the recently appointed independent non-executive director, Emma Priestly, has resigned following her appointment as an executive director of Stratex. A search is underway for a replacement.
Conclusion: Stratex’s investment in Goldstone has provided an opportunity to reinvigorate exploration and review the project portfolio. We look forward to future updates on the progress of these endeavours.
*SP Angel acts as broker to Stratex
Hothschild Mining (LON:HOC) – Operational update on cost-cutting
• Hothschild Mining reports that it has revised its operational plans to “deliver profitable ounces in lower precious metal price environment”
• The company confirms that it expects to exceed production of 21m oz of silver equivalent in 2014 and is looking to produce 24m attributable oz of silver equivalent in 2015 at all in sustainable costs of $15-16/oz as the start of production at the new $373m Inmaculada project offsets lower output from the existing operations.
• Cost efficiency measures are being implemented across all its mines and they will all be producing profitable ounces in 2015.
• Cuts in capital spending are being introduced in order to improve cashflow and the company is budgeting $45m in 2015.
Conclusion: As recently as September, the company was projecting 28m oz of attributable silver production in 2015 which suggests that the reduction in output as a result of the cost-cutting measures at the existing 3 mines is around 4m oz.
• Rio held its regular investor seminar for investors in Sydney.
• Despite the crashing of iron ore prices to US$70/t, the company has maintained its high supply target of 330 mt in 2015 and 350 mt by 2017.
• The expansion to 360 mt is expected to deliver an IRR of 40% with a 5 year payback according to the company.
• EBITDA margins at Pilbara are said to be at over 50% based on concensus prices for 2014-2019.
• Margins are based on a CFR (delivered cost into China) of US$47/t in 2012 to US$35/t in 2020.
• The company believe this is the best strategy to deliver value to shareholders generating earnings to support a progressive dividend policy.
• Dividend growth increased in FY 2012 and FY 2013 by 15%.
• Key themes in terms of cash remain a cut in capex to US$8.5bn for 2014 down 34 year on year.
• Operating and exploration costs are to be reduced by US$5.4bn by the end of 2015.
• Divestments totalling US$3.5bn are to be completed by 2013.
• Copper assets are generating an EBITDA of 40% and they see this area as benefitting from constrained supply.
• As well as their low cost position in iron ore, thermal coal and copper, Rio point to their exposure to late cycle commodities such as diamonds.
• Diamonds are said to be geologically scarce and have potential for strong cash flow generation against growing demand.
• The pipeline shows delivery of a number of projects outside iron ore with Zulti South expected in Titanium in 2017 and Diavik Diamonds A21 pipe in 2018.
• 2019 is expected to see the second phase of Oyu Tolgoi.
Conclusion: At an all in delivered cost into China of somewhere between US$47/t and US$35/t, concensus prices being assumed by Rio Tinto to get an average 56% margin between 2015 and 2019 would suggest iron prices lower than spot at around US$ 63-65/t. Rio’s driverless train is going to carrying on mowing down the higher costs iron ore producers with no reprieve in site
• The maiden JORC resource for Dyke 1 at Tongo has been upgraded based on recently completed bulk sampling.
• The volume remains the same at 321,000 m3 and 895,000 tonnes to a depth of 300m.
• New bulk sampling and valuation data was used to re-calculate the grade.
• 2014 bulk sampling of 645 tonnes of kimberlite yielded 1,182 carats at a 1mm cut off.
• Four independent valuations were sought for a package of 1,182 carats exported to Amsterdam for the revised model.
• The original 2012 distribution graph using microdiamond and bulk sampling data at that time derived a grade of 120 cpht in undiluted kimberlite.
• The combined data from 2012 and 2014 increases the grade to 165 cpht in undiluted kimberlite.
• The main difference between the two models is the lower than expected stones between 2 and 10 carats based in the combined study versus the original model.
• This could be a result of the original sample size being too small.
• On the revised valuations, most of the valuations per sieve size came in at a higher level in 2014 estimates versus 2012.
• In addition, diamond values of up to US$3,200 per carat were given for a single stone of 6.7 carats in size.
• One group undervalued the smaller stones in the parcel.
• Two price sized models were compiled with two size distribution grade models – a lower and higher grade model.
• The lower grade model at 120 cpht based on a diamond value of US$270/carat generated a contained value of US$290m.
• The higher grade model at 165 cpht used a diamond value of US$145/carat resulting in a lower contained value of US$214m.
• The company plan to do deeper drilling to 700m at Dyke-1 and drilling of the 1km long Dyke-4.
• Previous drilling from Dyke-4 only yielded a parcel of 91 carats which was not sufficient to establish a valuation.
• Resource drilling from Dykes 2 and 3 provided samples of kimberlite of 200 kg each which yielded +1mm diamond grades of 140 cpht and 185 cpht.
• On Ebola there have been no new cases in the Kenema and Tongo areas for over a month.
Conclusion: This is a positive step forward for the company with more data on valuation and size distribution helpful in setting the higher value for the maiden resource at Dyke-1. Diamond valuation is the key to driving the value of the in-situ resource with the lower grade model yielding a higher value based on a diamond value of US$270/carat versus the higher grade model at US$145/carat ie the lower grade model generates more value.
We look forward to further news flow from drilling and bulk sampling to support grades which are much higher than for most diamond deposits with valuations even at the low end being relatively high.