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Commodities Week in a Minute: 'tis the season to plead for votes*

Commodities Week in a Minute: 'tis the season to plead for votes*

Diamonds and precious stones
Bit of a round-up of events this week,

Overall, sentiment seems ok and the flow of finished goods coming into inventories, originating from purchases made in early 2017, have not caused any significant concerns, unlike in previous years. We continue to see gently improving sales numbers from the large Chinese retailers, Chow Tai Fook and Luk Fook both feel like they have bottomed out.

Alrosa Q1 production +9% to 8.9Mcts, but more importantly, sales were +17% to 14.1Mcts. Global inventories are certainly reducing, another positive in my view.

After all of that hullabaloo a couple of weeks ago, it seems the Dominion saga has gone a bit cold. Operationally, things are picking up but the value of the company’s lower value production continues to send shudders down the backs of shareholders with average production values declining to $87/ct from $177/ct in the previous year, albeit when sales were rather more selective… Remember this isn’t the only time DDC has been on the block, we did this this dance back in 2015, and 2013…

Precious metals

Not much to say regarding bullion this week to be frightfully honest.

Given the scale of the upward revision to date in 2017 (+11.2%) a $15/oz retrace can seem a lot if you are a day trader, but seeing as we are still broadly $150/oz above where we were in mid-December, I am still pretty relaxed with a long position here.

Once again we had the IMF dusting off their crystal ball and helpfully telling us what we already knew, that in the event of sharply higher interest rates, US corporates would struggle to cover interest payments. Thanks for that lads.

All eyes on Round one in France this weekend…

Keep an eye on the impact of the changes to the VanEck Vectors Junior Gold fund.


There is a little treat for you on that link as well.

Base metals:

So we started the week with the news that a surge in industrial activity pushed up China’s annual economic growth rate to 6.9% in the first quarter. Growth for Q1 was comfortably ahead of the Chinese premier Li Keqiang’s prediction that full year growth would be “around 6.5%”.
I note that Freeport are again facing some operational problems at their vast Grasberg operations (One of the largest copper/gold mines in the world) the company notes “high absenteeism” as a result of their latest round of layoffs.
It’s called a “strike” chaps!

Company announcements/news/meetings:

Acacia Mining (Under Review): What do you call a deer with no eyes and legs? Still no-eye deer
That I am afraid sums up Acacia for me right now. With Brad on a plane to hopefully meet the President (Still not done so yet) the company has no idea how the concentrate ban will play out but as we head towards the August deadline for 30% of the operating assets to be “locally owned”. One seriously hopes the deadline for the financial committee, estimated to be mid-May, does not start to impede the publication of the prospectus.
I genuinely feel for the company right now, especially if it comes to the nuclear option of closing both Buly and Buzwagi in the next few months which would seriously impact the shares further.
For info, I value N Mara at around 275p so in the worst case scenario, at least we have a base to work from.
Anglo Pacific (N/c): Catch up meeting
Mr Treger popped into ONC this week to update us on all events APF.
I don’t think I need to dwell too much on the valuation, but it does seem as though there is certainly an overhang of some description limiting what I had expected an upwards pop given the c50% exposure to coking coal through Kestrel.
On that, the Rio statement this week all but confirmed sales would not be impacted as there were sufficient stockpiles at the port to manage the disruption. From a financial perspective, assuming APF budget $150/t average for production in 2017, should Q2 coking coal settle anywhere close to the current price, I would estimate an additional $10-$15m of revenue in H1 alone… Hmm
Certainly pays for that dividend…
Gem Diamonds (Buy): New chairman announced
Gem announced the appointment of Harry Kenyon-Slaney as an independent Non-Executive Director and Chairman of the Company to succeed Roger Davis. Mr Kenyon-Slaney’s appointment will take effect after the AGM on the 6 June 2017.
With the shares now drifting around the 90p level, concerns over cash generation due to the lack of large diamond recoveries are understandable. I still stand by my view that recoveries will pick up as operations migrate into more prospective areas of the Letšeng pipe.
Highland Gold (N/C): Meeting at ONC
The team came to see us last Friday and I have to say I was genuinely impressed. In extending the life of the MNV operations out to at least 2022, it has removed the niggling concerns over a production shortfall ahead of the key Kekura project commences production in 2020.
Elsewhere in the portfolio, sensible valuation accretive steps are being taken such as increasing throughput and unlocking the value of nearby deposits such as Blagodatnoye that will also serve to reduce grade volatility and enhance recovery rates. Novo, which is the largest contributor to EBITDA (55%) is expected to increase production rates from 700ktpa to 1.3mtpa ensuring the impact of the anticipated grade reduction is mitigated by more efficient operations and output increasing by 20%-30%
With average an AISC, I suspect, remaining below $700/oz ($652/oz in 2016), the total distribution to shareholders of 10.4p/share (about 6% yield cum-div) will remain a key factor to consider. I do concede that there is not really a clearly defined pay-out policy at HGM, yet!
So in summation, production set to almost double by 2020, production costs well below $700/oz, a solid history of dividend growth and catalysts in the form of updated resource and reserve estimates due later in the year, I would say HGM is certainly one to put on your list for consideration.
Polymetal (Buy): Q1 production update
“Polymetal's Q1 FY2017 production results are in line with our assumptions with production increasing 8% to 280Koz GE. Production growth at Omolon along with the addition of Komar (Varvara) and Kapan more than offset the planned reduction in silver production at Dukat. Full year production guidance of 1.4Moz, gold equivalent, cash costs of $600-650/GEoz and AISC of $775-825/GEoz have been reiterated. We thereby reaffirm our positive stance and 1192p target price”.
Happy here, interestingly the company noted that there is c100koz of Au in inventory worth >$100m that will be sold in Q2 due to the normal seasonal impacts of Q1. 
Randgold Resources (Buy): Kibali update and secret message
On Tuesday Mr B informed us that everything was going very well at Kibali. Production is forecasted at 610koz this year, from 585koz with annual production rising to 750koz pa from 2018. Which was fine, but
In the small print they mentioned that the 2002 Mining code was to be reviewed with the clear intention to increase state revenues and that there is now more than $200m in unpaid TVA and duty refunds… hmmm.

Companies reporting next week include: Petra Diamonds, Anglo American, Antofagasta, Fresnillo, Hochschild and Kaz there should be plenty to keep us entertained.
Upcoming company meetings with PG: Gemfields, Ariana.

If you have a company or investment opportunity that you feel we should explore or simply revisit, please do get in touch.


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