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Today's Market View - Anglo American, Asiamet Resources, Ortac Resources, West Cumbria Mining

Published: 15:12 21 Feb 2017 GMT

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FTSE 350 Mining Index is up slightly this morning on the back of better than expected results by BHP with precious and base metals slightly off.
• Chinese iron ore futures hit CNY742/t ($108/t) climbing 3.9% today ont eh Dalian Commodity Exchange taking YTD gains to 33%.
• Steel rebar futures surged 2.4% on the Shnaghai Futures Exchange to the highest level since Dec/13 supported by the news of temporarily closing steel mills in the Hebei region on state orders.
• The US$ index is up this morning with the € sliding on the back of France’s presidential race poll results showing Ms Le Pen is taking the lead with 27% versus 20% scored by two other contenders Francois Fillon and Emmanuel Macron, according to OpinionLab data.
• Investors are selling French sovereign bonds with trading volumes at its highest level since the Eurozone crisis and the spread with German 10-year yields reaching 0.8pp for the first time since Aug/12.
• Additionally, Philadelphia Fed President Patrick Harker, a voting FOMC member, said Mar hike should not be discounted completely.
• Eurozone private sector growth strengthened in Feb to the highest since 2011 led by increases in major economies of the single currency block including Germany and France, slash Markit PMI numbers showed.
• Markit Composite PMI: 56.0 v 54.4 in Jan and 54.3 forecast.

Dow Jones Industrials     20,624 Markets were closed on Monday
Nikkei 225   +0.68% at 19,381 
HK Hang Seng   -0.76% at 23,964 
Shanghai Composite    +0.41% at 3,253 
FTSE 350 Mining   +0.90% at 17,238
AIM Basic Resources   -0.59% at 2,747 

Economic News
Japan – Manufacturing sector growth continued to strengthen in Feb reaching the highest level in 35 months with positive dynamics recorded on a number fronts.
• Markit report showed stronger new orders at both domestic and export markets, increases in backlogs of works as well as an improvement in a the business outlook.
• Stronger business sentiment translated into increases in employment levels.
• Markit Manufacturing PMI: 53.5 in Feb v 52.7 in Jan.

Germany – Manufacturing growth accelerated to the  strongest pace in over three years while services sector has also strengthened in Feb.
• Manufacturing sector growth  climbed for the third consecutive month on the back on increases in domestic and export new orders.
• Stronger growth translated into an increase in employment in both manufacturing and services.
• Input costs continued to increase with manufacturers citing higher prices for metals and oil-based products as well as the weak euro; services providers linked higher input costs to salaries and fuel.
• Final goods inflation climbed to a 68-month high as stronger demand allowed firms to pass higher costs onto consumers.
• Private sector outlook hit a new record high since the data on a combined sub-index was first calculated in Jul/12.
• Given strong start to the year “economic growth will strengthen in Q1/17 to around 0.6%qoq (up from 0.4%qoq in Q4/16 and 0.5%qoq forecast for the last quarter)”, Markit said.
• “German GDP to rise 1.9%... this year, which would be the strongest growth since 2011.”
• “Official annual rates of producers and consumer price inflation will continue to trend upwards from 2.4% and 1.9%, respectively, in Jan”.
• Markit Manufacturing PMI: 57.0 v 56.4 in Jan and 56.0 forecast.
• Markit Services PMI: 54.4 v 53.4 in Jan and 53.6  forecast.
• Makrit Composite PMI: 56.1 v 54.8 in Jan and 54.8 forecast.

France – Composite private sector growth index climbed to the highest level in 69 months led by increases in services segment.
• While new business continued to grow for eight consecutive months the rate of expansion at service companies far outweighed the one for manufacturing which posted only a marginal increase.
• Producer prices inflation continued to increase; although, strong competition and weaker end markets saw final goods prices declining for the 58th consecutive month.
• Business outlook strengthened from Jan and reached the strongest level in four-and-a-half years.
• Markit Manufacturing PMI: 52.3 v 53.6 in Jan and 53.5 forecast.
• Markit Services PMI: 56.7 v 54.1 in Jan and 53.9  forecast.
• Makrit Composite PMI: 56.2 v 54.1 in Jan and 53.8 forecast.

Ecuador election – Lenin Moreno faces runoff as he fails to reach 40% needed for outright victory over Guillermo Lasso
Ecuador waits for knife edge election results (BBC)
• Moreno received 39.09% of the vote but needed over 40% and a 10pt lead over his nearest rival.  Moreno was a former vice-president under Rafael Correa.
• Guillermo Lasso is the right wing candidate and has a better chance of success in the next round as he may gain from groups against Moreno.
• Lasso is a former banker.  He has pledged to cut taxes and government spending, to boost employment and evict Julian Assange from the Ecuadorean Embassy in London.  Now that gets our vote anyday.

UK – The House of Lords are starting a review of the draft Brexit law today ahead of the planned Article 50 trigger date next month.

UK – London property prices hit by lack of new money flowing into the capital
• Central London property prices are pulling back due to a lack of new money from foreign buyers.
• It is our view that central London property prices have been unfeasibly high for some time with prices inflated by sovereign wealth funds, money from wealthy Russian and Middle Eastern buyers and buy-to-let landlords providing a perfect storm for the property market.
• But all good things come to an end and property is no exception.
• Buying for short-term rentals through Airbnb continued to support the market for a while but has since been curtailed as new rules for short-term hotel style lets in London prohibit more than 90 days of this type of letting.  The rules were no-doubt lobbied by the protective hotel industry no doubt supported by security and safety issues.
• The collapse of Sterling has rendered sales by many overseas investors unattractive reducing transactions in the market, while transaction taxes have put off some new overseas buying.  This has served to stall the market to some degree.
• The potential for further falls in sterling devaluing UK property for existing investors may also be having some impact as is the prospect for Brexit to cause multinationals to relocate employees to properties elsewhere in Europe post-Brexit.
• Normally one might expect local buying to support the London property market but prices are way too high for most employees and even for city bankers who are suffering a certain amount of anxiety over job cuts at present.
• More stringent criteria for new and for extending existing mortgages also appears to be holding back the market and even the government’s help-to-buy scheme is being mainly applied outside London, removing this small pillar of support.
• Government support for the property market appears to have lessened with the resignations of Cameron and Osborne following the Brexit vote.
• An expected rise in US interest rates to 1.35% by the year end and a collapse in the bond market late last year is further persuading investors to seek, easier to manage, yield in more liquid assets.
• It is our view that London property prices remain vulnerable till looser lending practices return and London salaries recover alongside confidence in job security.  For the time being it’s going to be a buyers’ market.

Zimbabwe – Grace Mugabe reckons Robert Mugabe is so popular he could still run as a corpse in the 2018 election
• We suspect Grace is looking for a position in Mr Mugabe’s corpse cabinet if re-elected.
• We also suspect voting may yet again bring a surprisingly large turnout by already dead people as seen in the last election.

Currencies
US$1.0564/eur vs 1.0620/eur yesterday.   Yen 113.50/$ vs 113.05/$.   SAr 13.129/$ vs 13.168/$.   $1.243/gbp vs $1.245/gbp.  
0.766/aud vs 0.767/aud.   CNY 6.883/$ vs 6.878/$.

Commodity News
Precious metals:         
Gold US$1,234/oz vs US$1,236/oz yesterday
   Gold ETFs 58.5moz vs US$58.5moz yesterday
Platinum US$999/oz vs US$1,003/oz yesterday
Palladium US$768/oz vs US$777/oz yesterday
Silver US$17.97/oz vs US$18.00/oz yesterday
           
Base metals:   
Copper US$ 6,042/t vs US$6,012/t yesterday
Aluminium US$ 1,889/t vs US$1,891/t yesterday
Nickel US$ 11,090/t vs US$11,105/t yesterday
Zinc US$ 2,887/t vs US$2,819/t yesterday
Lead US$ 2,315/t vs US$2,271/t yesterday
Tin US$ 19,900/t vs US$19,600/t yesterday
           
Energy:           
Oil US$56.5/bbl vs US$56.1/bbl yesterday
Natural Gas US$2.767/mmbtu vs US$2.759/mmbtu yesterday
Uranium US$25.00/lb vs US$25.00/lb yesterday
           
Bulk:   
Iron ore 62% Fe spot (cfr Tianjin) US$91.1/t vs US$87.5/t
Chinese steel rebar 25mm US$565.6/t vs US$555.5/t
Thermal coal (1st year forward cif ARA) US$69.0/t vs US$66.9/t yesterday
Premium hard coking coal Aus fob US$153.6/t vs US$150.0/t

Tungsten – APT European prices $195-205/mtu

Company News
Anglo American (LON:AAL) 1352 pence, Mkt Cap £17.4bn – 2016 Preliminary results
• Anglo American reports attributable profits of US$1,594m for 2016 reversing a loss of US$5,624m in 2015.
• The company’s cost control and assets disposal initiatives have “enabled us to reduce debt by 34% to $8.5billion, significantly below our $10billion target.”
• Chief Executive, Mark Cutifani, commented “Despite a 3% year-on-year decrease in average prices, we delivered a $3.5billion increase in attributable free cash flow, a 25% increase in underlying EBITDA to $6.1billion and grew our underlying EBITDA margin by five percentage points to 26%.”
• The growth in the underlying EBITDA is dominated by a 57% increase in the contribution of the Group’s coal operations to US$1,646m followed by a healthy 50% rise in the iron ore and manganese business to US$1,536m and a 42% increase from DeBeers to US$1,406,.
• EBITDA growth benefitted from US$1,465m of cost and volume improvements, including US$1,175m of cost improvements, and a further US$694m of foreign exchange benefits, partially offset by lower prices (US$79m) , and inflation effects of US$578m.
• The company reduced overall net debt by US$4,410m to US$8,487m aided by a 38% improvement in cash flow from operations to US$5,853m. Capital expenditure was reduced by 43% to US$2,387m. Overall, a free cash flow deficit of US$982m in 2015 was reversed in 2016 with the Group generating US$2,562m of free cash flow.
• Proceeds of disposals amounted to US$1.8bn, “primarily from the sale of the niobium and phosphates business, which contributed $1.5 billion and the sale of its 9.7% stake in Exxaro Resources, contributing $0.2bn. The post-tax proceeds on disposals was $1.6billion (2015 $1.7 billion.)”
• Mr Cutifani commented that “the focus for the year ahead is on the ongoing implementation of the Operating Model across the portfolio and to continue to leverage the Group’s now significantly enhanced technical and marketing capabilities … In 2017, we are aiming to deliver an incremental $1 billion of net cost and volume improvements, 75% of which has already been identified.”
Conclusion: Anglo American has made significant capital and operating cost savings and strengthened its balance sheet during 2016. The Group is looking to achieve an additional US$1bn of savings in 2017, of which 75% have already been identified.

Asiamet Resources (LON:ARS) 5p, Mkt Cap £36m – Peter Bird strengthens Asiamet board
• Asiamet Resources, reports it has appointed Peter Bird to the board as its new ceo.
• Bird is a good hire for a small company like Asiamet and demonstrates support for Tony Manini who is moving to the role of executive chairman
• Peter Bird was most recently with Heemskirk Consolidated Limited where he worked with our analyst Simon Beardsmore on the construction and commissioning of the Los Santos tungsten mine in Spain as well as projects in Canada.  Bird has also worked with Western Mining Corporation, Merrill Lynch Equities and Newmont Mining. He has held senior executive roles at Newcrest Mining and Normandy Mining, two of Australia's largest gold producers with substantial operations in Indonesia.
• Asiamet are currently drilling the Beruang Kanan Main ("BKM") copper deposit in Central Kalimantan in Indonesia.
• 70 holes for 7,030m of diamond drilling have been done to date with a further 49 holes for another 3,870m planned.  A third drill rig was recently mobalised.
• Recent drill results include:
BKM32600-05   4.8 meters at 1.07% Cu (from 21.3 meters)
                        26.85 meters at 2.34% Cu (from 34.15 meters)
Including 3.0 meters at 3.38% Cu (from 38.0 meters)
                        Including 16.0 meters at 3.02% Cu (from 44.0 meters)
BKM32600-06   14.0 meters at 0.74% Cu (from 34.0 meters)
Including 4.0 meters at 1.53% Cu (from 36.0 meters)
BKM32550-08   4.35 meters at 4.93% Cu (from 3.00 meters
Including 2.0 meters at 8.97% Cu (from 4.0 meters)
33.5 meters at 0.75% Cu (from 34.5 meters)
BKM32100-02   4.0 meters at 1.87% Cu (from 2.00 meters)
2.0 meters at 1.36% Cu (from 17.00 meters)
BKM32150-05   30.0 meters at 0.75% Cu (from 9.00 meters)
Including 5.0 meters at 1.73% Cu (from 24.0 meters)
Including 5.0 meters at 1.03% Cu (from 34.0 meters).
Manini comments “The higher grade BKM044 Zone has demonstrated excellent continuity of copper mineralization over more than 500m of strike length and is up to 325 meters wide and 100 meters thick in parts. This continuity coupled with the consistently shallow nature of the mineralization is expected to have a strong positive impact on project economics as mine engineering studies are completed.”

BHP Billiton (LON:BLT) 1,403p, Mkt Cap £82.5bn – Half year results to December 2016
• BHP Billiton reports a reversal of the US$7.030 bn half year loss in 2015 to report US$3.204 bn of attributable profits in the six month period to December 2016.
• At the underlying EBITDA level, BHP Billiton reports a 65% year-on-year improvement to US$9.896bn (2015 US$5.994bn).
• The EBITDA performance is dominated by the contributions from the iron ore business - US$4.16bn (2015 US$2.82bn); coal - US$2.01bn (2015 US$ 155m) and; petroleum – US$2.00bn (2015 US$2.22bn). Copper contributed a further US$1.74bn (2015 US$829m) to EBITDA.
• Net Debt has been reduced by 23% to US$20.057 bn reducing gearing to 24% from the US$25.921bn (30%) reported at 30th June 2016.
• The Group reduced its capital and exploration expenditure by 38% to US$2.7 billion and the company reports that “We now expect to invest US$6.5billion in the 2017 financial year and US$6.3 billion in the 2018 financial year.”
• Group Chief Executive, Andrew Mackenzie, commented that “Greater productivity and increased capital efficiency supported strong free cash flow generation of US$5.8 billion. … As we further strengthen the balance sheet our ability to invest counter cyclically will only be enhanced.”
• The company has also announced this morning that it has approved a bond repurchase plan of US$2.5 billion which will “target 2018,2019, 2021, 2022 and 2023 US dollar denominated notes and be funded by BHP Billiton’s strong US$14 billion cash position.”
• The Company notes that it expects world economic growth in the range 3-3.5% in 2017 and that it expects “China’s economic growth to moderate in the coming year … [as] … China’s policymakers … seek a balance between the pursuit of reform and the maintenance of macroeconomic and financial stability”.
Conclusion: BHP Billiton has achieved a strengthening of its balance sheet and the plan to repurchase US$2.5bn of debt should help position the company to take advantage of opportunities to “invest counter cyclically” should they present themselves in the future.

Ortac Resources* (LON:OTC) 0.03p, mkt cap £2.1m – Andiamo fundraising
• Ortac Resources reports that its associate company, Andiamo Exploration has raised US$0.5m through a placement of 5m new shares to Emerald Ex at a price of 10 cents.
• Emerald Ex is reported to be a subsidiary of NutureEx BV, “which is funded by African Mineral Exploration and Development (AMED) which is a private equity group investing in mineral exploration and development projects predominately in sub-Saharan Africa.”
• The company has also announced that “Andiamo intends to offer new shares under the same terms as the Emerald placement, US$10 cents per share, to raise up to US$1.0 million”.
• The placing and new offering will reduce Ortac’s current 26.99% interest in Andiamo to 18.48%.
• The new funds, if the offering is adequately  subscribed will enable Andiamo to “extend its exploration efforts to other parts of the Haykota licence, including the Frtaka VMS target, the substantial Shambotei gold showings around the hundreds of local artisans working to recover gold in the area, and to progress the development of the Yacob Dewar oxide gold deposit.”
• Andiamo and Environminerals East Africa Limited (EEAL) have now “terminated the Joint Venture arrangement over a part of the Haykota licence for consideration of 13,140,365 shares of Andiamo issued to EEAL at an implied value of approximately US$17cents per share.”
Conclusion: Additional funding should enable Andiamo to further its exploration efforts in Eritrea while the backing of AMED brings an investor with an established history in African exploration projects to Andiamo’s register.
*SP Angel acts as Nomad and broker to Ortac Resources

West Cumbria Mining (Private) - Potential resurrection of Haig Pit and Whitehaven coal mine in Cumbria, UK
• The Mail online reports that Mark Kirkbride and his partner are planning on reopening the Whitehaven coal mine in Cumbria, UK
• The mine is currently a museum with Kirkbride using part of the museum facilities as his offices
• The company plan to restart mining somewhere near the site of the Haig Pit on the cliffs of Whitehaven
o The Haig Pit closed in 1986, in the aftermath of the miners’ strike.
o The press report indicates that the company are preparing to start digging for coal a few hundred yards down the road in a muddy field surrounded by rows of modest houses, close to The Stump pub.
o The first coal from Kirkbride’s mine is expected by the end of 2019 – just over 100 years since the Haig Pit opened first time around.
o Kirkbride expects to create 500 direct jobs with around 1,000-2,000 indirect jobs supported in the area with full-time jobs paying between £40,000-£60,000 in the area.
o There is no mention of licenses, permits or environmental reviews for the new coal mine.  Minor details perhaps?

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