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Commodities Week in a Minute: The golden throne, Diamond Insights plus ACA, AAU, DCP & LOM

Published: 12:56 16 Sep 2016 BST

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Commodities

Diamonds and precious stones

What to read: The De Beers Diamond Insight Report…

Some fascinating observations were revealed, as well as a tone that I felt was sensible when considering how the industry plans to address many of the concerns we all worry about. Undoubtedly the commentary around the millennial generation will have raised a few eyebrows. $26bn spent in the largest 4 markets combined, with the popularity of brands being a major driver. But the importance of individual or bespoke jewellery should not be underestimated here.

It seems encouraging the next generation to stay at home and buy more jewellery could still be an advertising effort after all…

Commentary surrounding the rough diamond supply changes over the next few years (growth to 2020) is a thesis very much in line with ours as Gaucho Kué, Renard and Liqhobong either continue ramping up or commence production by the end of the year.

Elsewhere, the Hong Kong show has started in positive fashion. As noted last week, there are quite a few positive noises in both Asia and the trading districts at the moment with secondary boxes trading at modest premiums. Positive, but before I get the bunting out, retail demand growth will be needed to avoid another digestion issue early next year in the commercial goods segment.


Precious metals

Much the same as last week, the PGM space continues to look rather devoid of inspiration even after tepid retail and factory output effectively meant that a rate rise next week is unlikely. Admittedly, trading indicators have drifted down and are approaching the levels one could assume a tasty rebound but the longevity of the recovery could be brought into question quite quickly.

I imagine we will see a solid bounce to coincide with the conclusion of meetings next week, providing a chance to recover some of the price drift seen in recent weeks.

You never know, a new toilet could be on order before you know it…

Bulk commodities:

Coking coal… A train derailment and infrastructure damage is added further fuel to the coking coal fire this week with services impacted until next week…

But wait, here comes the cavalry…
Mothballed for two years the Wongawilli coking coal mine (Could feature in the new “Carry on Mining” film), owned by Jindal has “zoomed into action” according to CEO Ravi Uppal. Jindal will also restart operations at another Aussie mine and one in Mozambique by the end of the year… Whilst not likely to massively impact global supplies in the near term, the risks from restarts etc. will ensure this spike will probably unwind sometime in ’17.
In the meantime, enjoy…


Company announcements/news/meetings:
~thought of the month – (a reminder)

The risk to rebasing many equity stories lower, driven by a commodity currency recovery, cannot be ignored. Many companies benefitted from the weakness in ’15 and have been bailed out by rising commodity prices in ’16… 

Acacia Mining, (Downgrade to Hold from Buy): It had been a while…

“Acacia Mining has today made an unplanned update to the market confirming that despite the planned two-week shutdown of Bulyanhulu going to plan, the plant has not been able to run consistently. The company has retained full year production guidance; at this time (I can’t see it being maintained, to be honest). We believe the premium valuation ascribed to Acacia and the share price in excess of our target required more positive newsflow to register further gains. As a result, we move to a Hold recommendation, retaining our 400p target price”.
The company has been on a good run, mostly on the back of optimism that the long-anticipated cost reductions are being delivered. I have been increasingly concerned over how the company would meet wider market expectations. Fingers crossed the delays are not too severe, but for me, I fear the old adage of fingers and knives comes to mind.   
Ariana Resources, (Buy): Drilling update
“Ariana Resources today announced the first of what is expected to be a steady stream of updates from the company's phase one drilling programme, started in early July 2016. Today's results relate to the positive results seen from drilling at the North West end of the Arzu South vein at Kiziltepe. We believe these results will be incrementally positive to the overall economics of the Red Rabbit Project. We reiterate our Recent Buy recommendation and 2.71p target price offering a further 50% upside”.
After initiating coverage last week, we saw the first of what is likely to be quite a few updates from the company following the conclusion of the Phase I drilling programme. The first update certainly underlines our positive view on AAU for the long term.

DiamondCorp, (Under Review from Buy): Interim results

“DiamondCorp today published Interim results and an Operational Review that saw further operational setbacks in the development of the Lace Diamond Mine. We have reduced our provisional production and sales expectations, but given the uncertainty around the terms over the proposed working capital facility and the full impact of the operational difficulties in August, we place our recommendation and target price under review”.
I expect further newsflow in due course. Once published, a full valuation review can then be undertaken.

Lucapa Diamond, (Buy): Positive news continues

Note out this week:
“Lucapa released Interim Results to 30 June 2016 on 13 September that will serve to remind investors of the scale of the opportunity Lucapa offers. Record production and sales volumes act as solid backdrop for a company that has the potential to identify the first major diamond resource in Africa for a generation. We reiterate our Buy recommendation and increase our target price to A$0.44c from A$0.39c”
Doing what it says on the tin…

All morning/flash/company notes available upon request.

 

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