Gold US$1,668/oz - Copper US$ 8,185/t
• European finance ministers meeting to sort out deal with Greek creditors
• Germany and France to look at revision of Basil III rules to prevent
• US moves warships into Straights of Hormuz to protect this vital trade route from potential Iranian blockade
• EU to vote on potential block of oil exports from Iran today causing tension in the region
• Spanish government proposes not to push through austerity measures till after the regional elections in March. This may have the unfortunate affect of missing the formerly agreed debt reduction plan.
Chinese new year - Year of the Black Dragon - symbol of royalty, fortune and power
The dragon may bring natural disasters and financial volatility
Despite this, reports suggest that life in HK continues as if there is no recession in the West
• Feng Shui Master, Anbthony Cheng – warns that a scandalous corruption case could rock China in the second half causing high ranking Chinese officials to step down.
Investors continue to prefer asset based investments with a leading contemporary art gallery in NY comments ‘there are a lot of sales going on to new clients with many people are looking at art as an investment now’.
Europe – European Union finance ministers will meet in Brussels today to discuss budget rules and a new financial firewall that will hopefully stop the spread of the debt crisis – How many meetings have come and gone with these expectations?
• Concerns continue to circulate that Greece will fail to reach an agreement with creditors to ease the debt burden.
• The FT is reporting that officials acting on behalf of the country’s creditors have laid out their final offer with regard to the haircut they are willing to take on their holdings.
• Estimates suggest that the limit is between 65-70% on current long term bond value.
• Italy is bracing for more widespread strikes today at the country’s PM presents his latest plan to spur consumption and growth to European leaders today.
• The plan will reportedly attempt to reduce barriers and boost consumption along with including plans to reduce natural gas prices, and lower car insurance.
• Recent estimates suggest that Italy may well be in its 4th recession since 2001.
• Concerns are escalating that should Spain’s recently elected government postpone budget cuts until after a regional election in March, it will miss its deficit reduction goal for a second year in a row.
• Consumer confidence figures for the Eurozone will be released later today. Forecasts are for confidence to have declined by 21.4% in January after a fall of 21.1% in December.
• In an effort to keep capital flowing, France and Germany are expected to call for a relaxation of global bank capital rules – effectively a revision of the Basel III rules.
• European foreign Ministers are expected to announce a phased ban on the purchase of oil from Iran today.
US – Figures released on Friday showed that sales of previously owned homes rose for a third month in December – to the highest level since January 2011.
Japan – Improving data on Friday indicating that US home sales rose last month is boosting demand prospects for Japanese exports.
• Japanese 10 year notes declined with the yield on the securities climbing to the highest level this year according to Bloomberg.
China – The first day of the Chinese New Year today.
• Poor weather is apparently disrupting travel in certain parts of the country.
• Apparently the Chinese ministry of Railways has added 289 more trains today to deal with the effects of the poor weather – In the UK when there is poor weather the railways close - In China they up the capacity. Interesting point of thought.
• Customs data has revealed that China has failed to diversify its spot iron ore buying away from Australia and Brazil having successfully moved to favour South Africa over India.
• In 2011 China imported 645 of its iron ore from Australia in Brazil despite attempts to break the dominance of the companies such as BHP, Rio and Vale.
UK – New estimates suggest that the Government’s plan to help reduce payments for new homes to as low as 5% will provide a much needed boost to the homebuilding industry. We will not hold our breath!
• Ernst & Young has announced that Profit warnings increased by more than 70% in the final quarter – registering the largest quarterly jump since Q1 2001.
• UK listed companies issued 88 profit warnings in the 4th quarter compared with 53 in Q3.
Australia – Prices paid by Australian producers declined for a third month in a row today.
• The producer prices index advanced 0.3% in the October to December period QoQ when it gained 0.6%
India – The country’s rupee strengthened today as speculation increased that investors will accelerate purchases of domestic assets as inflation slows.
• Foreign funds reportedly boosted holdings or Indian debt by $3.2bn this month to $29.3bn.
• On the other side of the coin, Bloomberg is reporting that manufacturing prices rose 7.72% in December from a year earlier.
• Ikea has reportedly backed away from the Indian market.
South Africa – Reports are emerging that South Africa is teaming up with Swaziland in a bid to relieve the pressure growing on the “coal corridor” to Richards Bay.
• Transnet and Swaziland Railways have confirmed that they plan to move ahead with a 146km single non electrified line by 2016 with an initial capacity of 15 million tons.
Mexico – The country’s central bank has stated that the outlook in 2012 for inflation is favourable after economic growth began to slow.
• The overnight lending rate was held at a record low of 4.5% today.
Nigeria – Reports emerged over the weekend that indicated that the blasts that killed 176 people on Friday were orchestrated by the Militant Muslim Group Boko Harmam, who are fighting for Islamic law in the North of the country.
Syria – It appears that there will be no immediate change of power in Syria despite increasing pressure from the International community.
• Syrian officials have rejected a call from the Arab League for President Bashar al-Assad to hand power to a deputy and form a national unity government.
Gold US$1,668/oz vs US$1,657/oz yesterday – Gold hit a US$1,673/oz in early trading, the highest level since mid-Dec last year, before falling off a little on stronger dollar as Greece and bondholders failed to agree on terms of debt restructuring.
• Belarus central bank raised its gold reserves by 180koz in Nov to 1.21moz as of Dec last year, IMF said.
• Holdings in gold backed ETPs were little changed on Friday and stood at 2,355.3t compared to a record 2,392.9 on Dec 13.
• SPDR gold trust holdings remained at 1,256t (40.371moz) value US$66.716bn.
Platinum US$1,526/oz vs US$1,522/oz yesterday
• Half the miners at Zaimplats Ngezi mine in Zimbabwe is reported to have gone on strike asking the company to pay their personal power bills, local news reporters said.
Palladium US$678/oz vs US$675/oz yesterday
Silver US$32.17/oz vs US$30.75/oz yesterday – Silver is up to its highest level since Dec last year as holdings in ETFs advanced to the highest since Oct.
• ETF holdings stood at 17,552.9t as of Jan 20.
• Silver is up 16% so far this year after a 9.9% drop in 2011.
• Market commentators say that a firm wedding demand for gold has been supportive of silver physical demand.
Rhodium US$1,325/oz vs US$1,325/oz yesterday
Copper US$ 8,185/t vs US$8,377/t yesterday – Copper is up this morning on record Chinese imports following a series of profit taking on Friday dropped prices to an intraday low of US$8,206/t.
• Chinese copper imports surged to a record of 406,937t in Dec, up 78% from previous year, the General Administration of Customs on Jan 21.
• Japanese copper wire and cable shipments, including exports and domestic market sales, increased 2.9% yoy to 58,400t in Dec last year on a stronger demand from the automotive and construction industries, up 21% and 4.3%, respectively.
• Total shipments in 2011 were 680,600t compared to 680,941t in 2010, the Japanese Electric Wire and Cable Makers’ Association said.
• Total production of copper and copper-alloy fabricated products dropped 4.9% to 824,500t in 2011.
• In Dec output for local consumption declined by 8.2% to 52,038t and supply for exports fell by 30.% to 8,492t.
Aluminium US$ 2,205/t vs US$2,227/t yesterday
Nickel US$ 20,415/t vs US$20,390/t yesterday
Zinc US$ 2,006/t vs US$2,033/t yesterday
• Chinese zinc imports increased by 53% yoy to 54,118t in Dec, the strongest reading since Jul 2009. Imports in Nov were 25,649t.
Lead US$ 2,172/t vs US$2,186/t yesterday
Tin US$ 21,850/t vs US$21,815/t yesterday
Oil US$109.84/bbl vs US$111.93/bbl last week – Oil dives this morning over EU debt crisis talks with private bondholders not having reached an agreement coupled with EU foreign ministers expected to announce a phased ban on oil procurement from Iran in Brussels today.
• The U.S. and other nations are trying to persuade Asian countries to support the ban as China, Japan and India are the largest buyers of Iranian oil.
• U.S. crude tumbles at $97.67 on the New York Mercantile exchange with WTI down at $97.86 on the London-based ICE futures exchange.
Natural Gas US$2.2324/mmbtu vs US$2.375/mmbtu last week – Algeria could see a spate of investment should the government go-ahead and reform licensing and sweeten the terms offered to foreign investors as the country heads for a supply crunch.
• The countries failure to entice greater international interest means that by 2013 – 2014 it could struggle to meet domestic demand and gas export commitments.
• Algeria’s Energy Minister Youcef Yousfi has announced the government plans to reform the countries hydrocarbons law.
Uranium US$53.45/lbs vs US$53.45/lbs last week – Newly appointed West Australia labour leader Mark McGowan has said their policy on Urani9um mining is changing.
Coal- ASX-listed Universal Coal today reports that it could start looking for a strategic investor to help develop its coking coal projects.
• The company’s Berenice-Cygnus coking coal project is attracting investor interest with its gross resource of circa 1.3bn/t and a second phase of drilling scheduled to commence in early 2012.
• Universal aims to become a mid-tier coal producer by 2015.
Stainless Steel – ThyssenKrupp is in talks with Outokumpu Oyj, the biggest stainless steel manufacturer in Finland, in regards of its stainless steel unit Inoxum.
• The company currently considers 3 options in relation of Inoxum: an initial public offering, a spin off or a sale to another investor.
• The statement comes in line with company’s strategy to separate stainless steel unit within 12-18 months starting from May 2011.
Steel – Global steel demand may pick up by the end of Q1 on a seasonal growth in construction sector and orders from China and Japan, JPMorgan Chase said.
Iron ore – BHP Billiton received a conditional approval for a US$14.7bn expansion of Port Hedland harbour in Western Australia that will increase capacity by 240m tons per annum ad boost shipments to China.
• The project may take up to 8 years.
• BHP shipped 192.5mt in total in 2011 and plans to increase capacity to 350mt by 2020.
The African Development Bank said a proposed increase in gold royalties from 4.5% to 7% and Platinum royalties from 5% to 10% in Zimbabwe starting 2012 may seriously undermine production in the country that currently process low-grade ores.
• The shares are up strongly today on rumours of a bid from Oz Minerals.
• Discovery is one of the few junior copper listed companies.
• The company is just about to go into production with its Boseto with commission remaining on target for the first half of 2012.
• Meanwhile exploration continues to expand the resource base in and around the new mine.
• There has been positive news flow from drill results at prospects close to the planned Boseto copper concentrator from Zeta, Selene and Plutus prospects.
• The resource potential at these prospects would enable the company to increase the mine life of the project as well as look at the option to increase production.
• M&G Investment Funds, based in London, and their associated entities hold approximately 9% of the issued share capital of the company.
Conclusion: On successful commissioning of the Boseto project the valuation of the company has upside from here – an NPV based on existing project cash flows gives a valuation of 115 pence on a discount rate of 7%.
We have included $20m for exploration value which equates to 3 pence a share bringing the target value to 118 pence. Given the increased resource potential at Boseto based on the ongoing exploration work and the potential to increase the life of the mine, the NPV has upside from here.
*Fairfax acts as Nomad and broker to Discovery Metals
• The company has completed the acquisition of the South Benkala copper project announced in May 2011.
• The South Benka project is located approximately south of Frontier’s existing Benkala licence area.
• The company will either incorporate the resources at South Benkala to extend the life of the SX-EW plant from 7 to 11 years or expand the production capacity of the plant from 20,000 to 30,000 tonnes of copper cathode per year.
• Previous estimates by Soviet geologists of the resource base at South Benkala are for a total ore reserve of 175,120 Mt with 609,600 t of contained copper using a 0.25% copper grade.
• KzaCopper LLP has started an infill drilling programme with two drills being mobilised to further define the oxide resource at the deposit.
Estimated elements C2 category balance sheet reserves
Secondary Primary Total
Ore reserves: 23,620mt 151,500mt 175,120mt
Contained Copper 94,500t 515,100t 609,600t
Conclusion: This is a significant addition to the Benkala copper project and should add meaningful value to the mine and to the company. The company recently agreed a financing package for the expansion of the Benkala mine to 20,000tpa of copper two weeks ago. The mine started commissioning in mid December and news of new production is expected shortly following the official opening of the mine last week at the 7,000tpa.
Goldplat (LON:GDP) – Good Progress on Gold Production and Exploration Projects
• Goldplat reported on good progress across their portfolio of gold recovery operations and gold production and exploration assets.
• Gold Recovery Operations: Goldplat has two gold recovery operations – the South African operation is performing strongly and is in line with management expectations.
• The Ghanaian gold recovery operation which performed well in the last financial year is continuing to perform ahead of expectations in terms of gold recovery and profitability in H1 2012.
• They expect this trend to continue in the second half of 2012.
• Gold Production at Kilimapesa: The company announced their first gold pour at the Kilimapesa Gold operating mine in Kenya.
• The first pour was a milestone for the company with a 399 oz gold dore produced.
• The plant capacity will initially increase to 3,000 tonnes per month – the company is expecting to raise this to a production level of 10,000 oz by the end of 2012.
• Resource Development at Kilimapesa: The company have an ongoing drill programme to expand the resource base at Kilimapesa from the current maiden JORC of 1.65 Mt at 2.44 g/t giving 129,000 oz to a resource in excess of 500,000 oz.
• The exploration programme at Vim/Rutha and Red Ray target areas which are 2 km south of the existing JORC resource at Kilimapesa Hill have been completed and assay results to date have been encouraging – the company will announce all the drill results by Q1 2012.
• An additional 5 hole drill programme has commenced at Kilimapesa Hill target with 170 metre drilled to date – the programme is designed to expand the resource to 650 metres of strike and to a depth of 140 metres beyond the current underground development.
• Underground resource development is progressing well with an exposed and sampled strike length of 425 metres over two main auriferous quartz veins.
• Selected rock chip sampling show 13.55 g/t over 1.27 m across 54 m strike and 8.65 g/t with a width of 1.5 m over 57 m strike.
• Gold Exploration in Ghana at Anumso (previously known as Banka): The company has started a 4,800 metre drill programme at Anumso in Ghana.
• 19 holes have been completed for a total of 2,900 metres and Tarkwaian conglomerates (quartz-pebbles of early Porterozoic Gold bearing inclusions) have been confirmed.
• Nymieme Project in Burkina Faso: Following the completion of 3,1000 m of drilling at this licence in 2011, the company established a maiden JORC resource of 1.395 mt at 2.06 g/t gold for 92,589 oz.
• The company are planning a work programme to target additional prospects at the project.
• The company is also in discussions with other licence holders within the Nyieme vicinity regarding JVs and consolidation opportunities to increase the company’s geographic footprint in the country.
• The company had cash of £4.59m as at the end of Dec 2011.
This is a very positive update for Goldplat – the company are guiding to good performance in their gold recovery operations with South Africa performing in line with management guidance and Ghana exceeding expectations. Both operations generated PBT of £3.1m in 2011 – the doubling of production from gold recovery from the Ghanaian operation helped to boost FY2011 operating profits by 40%.
Profits for this year FY 2012 (June year end) will be boosted by the continuing performance of the gold recovery business (particularly Ghana) as well as the gold production coming through from Kilimanpesa. Based on the current run rate of 3,000 tons a month, the company could generate revenues of at least $2.5m with profits of around $1.5m or £1m. Operating profits for FY 2012 could go up by 32% just from inclusion of gold production from Kilimanpesa without taking into consideration the increase from the gold recovery business being indicated by the company. The company’s cash position of £4.59 m and internally generated cash flow should place the company well to exploit is current projects.
At 11.5 pence a share the company is trading on historic EV/EBITDA multiple of 5.9x, PE of 7x. Based on the potential for profits to increase from here, the current share price is too low and has significant scope for upside from current levels.
• The company announced coring results from drilling at SM2 which commenced in September 2011.
• Two distinct massive high grade polyhalite seams have been successfully cored.
• The first in the upper near-shore facies and the second 82 m below.
• The intervening strata consists of mainly low grade polyhalite mineralisation containing occasional bands of massive polyhalite with individual thicknesses of 1.5 metres.
• Stephen Dattels has become part-time CEO effective immediately.
• Mr Dattels retains his role as executive co-chairman.
• Jim Mellon remains joint co-chairman but becomes a non-executive.
• WAFM’s wholly owned subsidiary Ferrum Resources have increased their shareholding in CMC Guernsey to 65.49% from 63.53% following a share buy-back.
• CMC owns the group’s exploration permits in the Cameroon.
• The company have six 3 year exploration permits in the Cameroon covering an aggregate of 6.000 sq km – two of these permits Minko and Sanaga are close to the coast.
• The Dja and Djadom permits lie near Sundance’s Mbalam project.
• The Lele permit lies west of Mbalam.
• An airborne and radiometric survey is currently underway at the CMC permits and the company has a fully funded three year exploration programme focussing on identification and delineation of DSO.
Conclusion: We like WAFM’s strategy of focussing on DSO and the more active involvement of Stephen Dattels should be viewed as a positive given his history of success in the industry.
* Fairfax staff hold shares in West African Minerals Corporation