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SP Angel Morning Oil & Gas Sirius Minerals, Wolf Minerals Limited, Gem Diamonds and Ferrum Crescent

Published: 10:26 30 Jul 2015 BST

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US – The Fed kept timing of the 2015 rate increase open.
• The economy is said to have been growing stronger since last meeting in Jun with firmhiring and improved husing market activity.
• “The labour market continued to improve, with solid job gains and declining unemployment. On balance, a range of labour market indicators suggests that underutilization of labour resources has diminished since early this year,” the Fed said.
• Regarding the pace of future rate increases the Fed said it needs to see “some further improvement in the labour market” with signs that inflation is moving back to its two percent objective over the medium term.
• There are two job reports scheduled to come out before the next Sep FOMC meeting.
• Should employment post strong results there is an increasing chance the Fed will move with the first rate hike in Sep.
• US equity markets closed higher on the back of the Fed announcement.
• Economic news due today:
o Q2 GDP (+2.5%qoq v -0.2%qoq in Q1/15), Q2 core PCE (+1.6%qoq v +0.8%qoq in Q1/15)

Japan – Industrial production expanded at the fastest rate in the last year rebounding from a decline posted in May.
• Industrial output: +2.0%yoy in Jun v -3.9%yoy in May and +1.3%yoy forecast.
• On a less positive note, most of the increase was led by a build-up in inventories.

Germany – Inflation accelerates in major regions with the country-wide estimate due later today.
• Prices in Saxony, Brandenburg, Hesse and Bavaria climbed 0.2%mom in Jul, up from no change and up to -0.2%mom recorded in Jun.
• Inflation: +0.3%mom/+0.1%yoy v -0.2%mom/+0.1%yoy in Jun.

Spain – GDP growth accelerated to the strongest reading since Q4/07
• The economy registered the eighth consecutive quarterly increase.
• GDP: +1.0%qoq/+3.1%yoy v +0.9%qoq/+2.7%yoy in Q1/15 and +1.0%qoq/+3.2%yoy forecast.
• A separate report showed the economy slipped deep into deflation (-1.6%mom/-0.1%yoy v +0.2%mom/+0.0%yoy in Jun and -1.5%mom/+0.1%yoy forecast).

Brazil – The central bank raised the benchmark rate 50bp to 14.25pp, the highest level in nine years.
• The move marks the seventh consecutive hike in the latest monetary tightening cycle amid strong inflation running at an 11year high.
• Inflation currently stand at 9.25%, more than twice the government’s target of 4.5%.

Kenya passes Mining Law
• The senate has passed a new mining bill which was long awaited.
• The government is to be a given a free carry of 10%.
• Firms will also be required to sell 20% of their shares on the Nairobi Bourse to raise capital.
• Royalty rates of 6%.

US$1.0967/eur vs 1.1039/eur yesterday.   Yen 124.18/$ vs 123.70/$.   SAr 12.624/$ vs 12.590/$.   $1.561/gbp vs 1.559/gbp
US$0.730/aud unch vs0.731/aud. 

Commodity News
Precious metals:

Gold US$1,086/oz vs US$1,097/oz yesterday –
Platinum US$986/oz vs US$987/oz –
Palladium US$620/oz vs US$622/oz  – 
Silver US$14.68/oz vs US$14.67/oz  –

Base metals:
Copper US$ 5,265/t vs  US$5,313/t –
Aluminium US$ 1,653/t vs US$1,657/t –
Nickel US$ 11,100/t unch vs US$11,330/t –
Zinc US$ 1,942/t vs US$1,978/t –
Lead US$ 1,710/t vs US$1,732/t  –
Tin US$ 16,000/t vs US$16,300/t   –

Energy:
Oil US$53.80/bbl vs US$52.70/bbl
Natural Gas US$2.847/mmbtu vs US$2.844/mmbtu
Uranium US$36.00/lb unch vs US$36.00/lb – Japan to restart two reactors in the next two weeks.  It might take a while for uranium stocks to come down but uranium might prove to be one of the better commodities to invest in going forward.  China is also due to commission a number of new reactors.

Bulk commodities:
Iron ore 62% Fe spot (cfr Tianjin) US$51.40/t unch vs US$51.20t –
Thermal Coal $56.4 vs $56.7 cif ARA Europe –
Tungsten - APT European prices price $220.0/mtu unch vs $225/mtu – No change to tungsten this week, prices still skewed by the sale of poor quality material.
• Wolf Minerals reckon some material is coming off the market which might lead to slightly tighter supply, though this may be wishful thinking

Company News
Ferrum Crescent (LON:FCR) 0.475 pence, Mkt Cap £2.9m – Quarterly focussed on activities at the Moonlight Project
• As previously reported the company is working on its BFS for the iron ore deposit at Moonlight.
• The company are looking into developing a high grade pellet product for the local market.
• Further work includes: Infill drilling is to be undertaken to establish a JORC Reserve, decision on whether bulk sampling is required, final beneficiation and pellet design and discussions with infrastructure providers.
• The company completed a private placement to raise £0.5m and a MOU in place with Principle Monarchy Investments to acquire up to 39% of the project.

Gem Diamonds (LON:GEMD) 135 pence, Mkt Cap £186m – H1 2015 Trading Update
• Letseng; The company recovered 50,019 carats over the first half with Q2 seeing improvement in recovered grades of 1.64 cpht against 1.57 cpth in Q1.
• Production is down 7% from the same period last year.
• Ore treated was down 3% to 3.1Mt with waste stripped up 15% to 11.4 Mt.
• Higher waste stripped is expected to realise in higher grade ore being mined in the Satellite pipe.
• Plant 2 Phase 1 upgrade was completed on schedule but resulted in shutdown of 19 days reflected in the lower ore treated.
• Plant 2 is said to be operating well and on track to meet improved head grades.
• 67% of the ore treated came from the Main pipe and 33% from the Satellite pipe.
• Carats sold over the period were down 15% to 46,961 carats.
• As previously reported, the number and composition of the Letseng tenders have been change with 8 tenders being held instead of 10.
• Four tenders were held during the period with an average price of US$2,264/carat down 3% on the same period last year.
• 237 carats were put into the manufacturing at a rough value of US$3m with US$6.9m in polished inventory at the end of the period.
• Ghaghoo: 132,125 tonnes were treated from Level 0 as work continued to establish production in Level 1.
• Once tonnage can be recovered the plant can achieve its capacity of 60,000 tonnes a month.
• A total of 32,283 carats have been recovered with 8 diamonds larger than 10.8 carats including a 41 and 35 carat diamond.
• In July a 48 carat blue diamond was found.
• Sales from Ghaghoo in July achieved US$4.9m or US$165 per carat.
• At the end of the period, the Group had US$83.8m cash on hand with US$75m attributable to Gem Diamonds.
• The Group has drawn down US$34.2m of available facilities.
• The overall diamond market continues to remain challenging with high inventory levels and continued liquidity concerns.
Conclusion: Operations are in line with expectations. Letseng stones continue to perform with the average carat value only down 3% against 10% for companies such as Petra Diamonds which have a broader distribution of stones across their mines. The overall diamond market remains difficult with most diamond producers continuing to cite high polished inventory levels and continued liquidity concerns. Production from Ghaghoo remains slow but it is good to see scope for bigger stones and particularly the scarcer coloured stones.

Wolf Minerals (LON:WLFE) 15.75 pence, Mkt Cap £127.5m – Quarterly update shows Drakelands mine commissioning on track
• Wolf Minerals reports that commissioning of the Drakelands tungsten mine in Devon is progressing well, is on track, “the flow sheet is working as envisaged” and that the contractor is to hand over the plant to the company following a Performance test in August.
• This puts Wolf Minerals on course to make initial deliveries of tungsten concentrates to its customers in September and ramp-up the operation to full capacity by early next year.
• Operations are currently permitted to operate a 7 day week schedule as a test to determine whether the 5.5 day per week conditions included in the permits can be relaxed on a permanent basis. If this can be achieved, the company would effectively gain around a 25% increase in the capacity, currently 345,000 mtus of tungsten trioxide per year, without meaningful additional capital expenditure.
• Grade control drilling of the upper 20m of the deposit, which will supply the first 18 months of production feed, has shown a “close alignment to the ore reserve model used in the feasibility study.” This should provide confidence that there will be few unforeseen surprises in the ore feed during the initial period of production.
• Commenting on the state of the market for the benchmark intermediate product, ammonium paratungstate (APT), the company points out that “The average APT Price published by Metal Bulletin for the quarter was US$242/mtu (FOB Europe), a 14% reduction from the average price for the previous quarter, and some $118/mtu lower than when construction commenced in March 2014”.
• The company goes on to note that some supply has left the market and “New supply from projects outside of China is expected to be limited for the next few years which may result in a tighter supply scenario.”
• Cash at 30th June amounted to A$34.4m.
Conclusion: Wolf Minerals is reaching the end of the construction and commissioning of the UK’s first new major metal mine in over forty years. The whole 16 months process appears to have gone smoothly and although tungsten prices are under significant pressure, the low cost nature of the Drakelands mine at Hemerdon should insulate the company to some extent and leave Wolf Minerals well placed to benefit from any future upturn in prices.

Sirius Minerals (LON:SXX) - 17 pence, Mkt Cap £370m – Results for year to 31st March
Sirius Minerals reports a loss of £9.6m (0.5p/sh) for the year to 31st March. The company ended the year with cash of £26.6m (net £24.7m).
• Post year end events focus on the receipt of the landmark planning permission to develop the mine, mineral transport system and materials handling facility which should allow the development to proceed and should require the focus to shift away from permitting to project engineering and financing.
• The final decision for the development of the Harbour Facilities at Teeside is due from the Secretary of State by the summer of 2016.
• The company has made substantial progress on a number of marketing initiatives and crop trials to demonstrate the effectiveness of the polyhalite product for a number of crops including tomatoes and potatoes.
• The company has secured “take-or pay” agreements with a number of entities including fertiliser distributors in South and Central America and has agreed on research initiatives with the Tanzanian Ministry of Agriculture for the use of polyhalite in Tanzania.
Conclusion: Sirius Minerals has now achieved most of its permitting and only the port development  permit remains outstanding. The focus has now to move onto development  and in particular to financing the £1.7bn project.

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