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Today's Market View Including Galileo Resources, KEFI Minerals, Richland Resources, Rockwell Diamonds and others

Published: 10:18 19 Oct 2015 BST

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Economic News

US – Economic news due this week:
Date Announcement Period Actual Expected (Bloomberg) Prev month
Tuesday Housing starts Sep   1.9%mom -3.0%mom
Building permits Sep  -0.4%mom 3.5%mom
Thursday Weekly jobless claims weekly   265k 255k
Existing home sales Sep  1.1%mom -4.8%mom
Friday Markit Manufacturing PMI Oct (prelim)   52.9 53.1

China – GDP growth slows in Q3/15 but comes in stronger than forecast.
• Q3/15 GDP: 6.9%yoy v 7.0% in H1/15 and 6.8%yoy forecast.
• Weaker headline number is in line with current official growth rate target of “about 7%” this year, although slowing growth momentum may warrant a step up in official monetary/fiscal stimulus.
• The NBS said the overall performance of the economy was stable while the government needs to “deepen reform and opening up, speed up structure adjustment and upgrading, and build the twin engines by encouraging mass entrepreneurship and innovation and increasing goods and services”.
• Separate reports showed retail sales picked up in Sep while industrial production growth continued to trend lower.
• Retail sales: +10.9%yoy in Sep v 10.8% in Aug and no change in the rate forecast.
• Industrial production: 5.7%yoy, the lowest since Mar, from 6.1%  in Aug and 6.0% expected.

Eurozone – The ECB is meeting this week in Malta as part of its two annual meetings held each year outside its headquarters in Frankfurt with the rate and the pace of QE to be announced on Thursday.
• While estimates are for the Governing Council to resist an acceleration in bond purchases through the QE programme, 81% of 53 respondents surveyed by Bloomberg expect the ECB to step up the pace eventually.
• Of respondents expecting an acceleration in QE, 56% said it would be before year end with 30% expecting the decision in Q1/15.

UK – President Xi is coming to the UK with an official visit this week as nations are prepared to seal a number of deals targeted at increasing the flow of bilateral investments.
• Investment agreements will benefit finance, property, energy, autos and technology sectors.
• Additionally, closer ties with the largest economy in Asia is planned to boost trade flows between countries as the UK is currently running the largest trade deficit with China among biggest EU members with only 5% of exports directed to China.
• Property prices climbed 1.6%mom and 8.3%yoy in Oct in London on the back of a 16%yoy decline in supply, according to Rightmove estimates.

Currencies

US$1.1361/eur vs 1.1360/eur yesterday.    Yen 119.42/$ vs 119.17/$.    SAr 13.061/$ vs 13.139/$.    Sterling $1.547/gbp vs 1.546/gbp
0.729/aud vs 0.728/aud –

Commodity News
Precious metals:

Gold US$1,173/oz vs US$1,177/oz yesterday –
Platinum US$1,013/oz vs US$1,003/oz yesterday
Palladium US$691/oz vs US$700/oz yesterday
Silver US$15.91/oz vs US$16.00/oz yesterday

Base metals:

Copper US$ 5,261/t vs  US$5,285/t yesterday –
• Las Bambas remains on track for commissioning in Q1/16 despite a number of protests recorded in the region last month, Peru’s environment minister said.
Freeport-McMoRan reckons high Tc/Rcs at US$107dmt/10.7clb for 2015 should fall next year.
Aluminium US$ 1,551/t vs US$1,570/t yesterday -
Nickel US$ 10,465/t vs US$10,595/t yesterday – prices pull back on weak demand from alloy makers in the spot market according to India’s Business Standard
Zinc US$ 1,788/t vs US$1,815/t yesterday
Lead US$ 1,798/t vs US$1,811/t yesterday
Tin US$ 15,900/t vs US$16,075/t yesterday

Energy:

Oil US$50.00/bbl vs US$50.30/bbl yesterday
Natural Gas US$2.454/mmbtu vs US$2.438/mmbtu yesterday
Uranium US$37.75/lb unch vs US$37.80/lb yesterday –

Bulk commodities:

Iron ore 62% Fe spot (cfr Tianjin) US$53.0/t vs US$53.0/t –
Steel – Global steel demand is forecast to record a c.2%yoy decline this year on the back of a slowdown in China, according to the WorldSteel estimates.
Thermal coal (1st year forward cif ARA) US$48.10/t vs US$48.20/t
• The LA Times report that CalPERS the $293bn fund is to divest from thermal-coal related companies.  Maybe better to get out now than never.

Other:

Tungsten - APT European prices $175/195 /mtu vs $180/200 /mtu – 1/3rd of Chinese production is thought to have been shut with remaining production around $170/mtu
• The market is still working through tungsten and other minor metal stocks held on the Fanya Exchange and used for financing purposes

Ferrochrome – Benchmark charge chrome price for delivery in Europe at US$1.04/lb its lowest level since Q1/10.

Company News

Galileo Resources (LON:GLR) 1.675 pence, Mkt Cap £2.6m – Company Update
• The company has renewed most of its claims in Nevada for a further 12 months.
• Sand Springs was not renewed because of its location near to a town and recreational area.
• The main focus is the Silverton project which is thought to offer potential for gold exploration.
• There has been limited drilling on the property and the company intend to have a more carefully designed drill programme to test the central shear zone.

Griffin Mining (LON:GFM) 29.5 pence, Mkt Cap £50.7m – Voluntary suspension of operations at Caijiaying zinc mine in China
• Griffin Mining have reported the death of an employee of a mining contractor whilst underground at the Caijiaying zinc mine in China.
• The company has voluntarily suspended mining pending the outcome of an internal investigation.
• The company also reported the death of a contractor underground on 16th June causing the operations to be suspended for 11 days due to an investigation by the company and Chinese authorities.
• The mine has more than two months of ore stockpiled so the processing plant can continue to operate and produce zinc at its normal rate of operation
• The Caijiaying zinc mine is in the process of doubling up production towards 1.5mtpa.  We expect the two unfortunate fatalities have delayed the ramp up of mine production though this should not affect the instillation of a new 750,000tpa ball mill.  The interim production of 418,950t fell just short of expectations for the first half though this was still better yoy.
• Mine fatality rates are known to be much worse in China than in the Western world and as a Western company operating in China, Griffin Mining needs to set an example of good practice despite having much lower fatality rates than seen in many other Chinese underground mines.  The authorities are thought to be tightening up on health and safety practices and could well make a public example of Griffin despite both fatalities being with contractor employees.

Highfield Resources (ASX:HFR) A$1.36, Mkt Cap A$422m – Update on Muga Potash Project
• The company has completed its community consultation process as part of progressing the mining concession for the project.
• The company expects a positive environmental declaration by Feb 2016 and a full mining concession by April 2016.
• A DFS was completed on the project in March 2015 and optimised operational efficiencies in October 2015.
Conclusion: Achieving their environmental declaration will be a positive towards getting a full mining concession.

Kefi Minerals* (LON:KEFI) 0.45 pence, Mkt Cap £7.9m – Q3 update
• Kefi Minerals have summarised progress in their Q3 update this morning
• Tulu Kapi gold project (95% Kefi, 5% Ethiopia free carried interest)
• DFS highlights:
• Gold production looks set to average 105,000ozpa in the first five years of the mine life vs an average 75,000ozpa as stated in the DFS without changing the mine plan
• AISC costs estimated to fall to US$760/oz at US$780/oz on contractor improvements
• Sedgman and African Mining Services (Ausdrill Ltd) appointed as contractors for the project
• Capex remains at around US$120 million
• Funding estimated at US$50m of debt + US$50m of gold streaming and another US$20m from the Government of Ethiopia.
• Company estimates:
o Payback estimated at 3-5 years on gold price assumption of US$1,100-1,400/oz,
o EBITDA average: US$35-62 million
o NPV (100% of project): US$106-240 million, on after tax cash flows discounted at 8%
o IRR 33-64% after tax for leveraged cases
o Net cash in the bank at the end of year 4 of US$56-133 million, after full repayment of project debt.
• Saudi Arabia exploration:
• Jibal Qutman progressing towards Mining Licence Application with around 75% (5,415m) of the infill drilling program and metallurgical testing completed.
• Drilling is showing new areas for exploration and a scoping study on a heap leach mine has been completed.
• Hawiah:  53 trenches highlight a large drilling target of 2x3km over a 6 km long target with 300m depth potential
*SP Angel act as Nomad to Kefi Minerals.

Richland Resources (LON:RLD) 3.75 pence, Mkt Cap £8.1m – Quarterly Operational Update
• Richland’s subsidiary Capricorn Sapphire achieved sapphire production of 156,000 carats.
• 21,628 tonnes of sapphire-bearing alluvial gravels were extracted and processed at an average grade of 7 carats per tonne.
• All concentrate smaller than 4mm is currently not economical and is being stockpiled.
• The first parcel mined during the quarter of 1,200 carats was sold at US$14.3/carat.
• A further US$39,828 was generated in sales in the third quarter from its online retail division.
• The average cash cost of the operation is estimated to be US$3/carat.
• The target for Q4 is for production of 250,000 carats.

Rockwell Diamonds (TSE:RDI) C$0.19, Mkt Cap C$10.4m – FY 2016 Q2 Numbers
• The company reported revenues of C$21m comprising of C$12.3m of rough diamond sales and C$8.7m of beneficiation revenues.
• Gross profit before D&A was C$9.2m with a profit for the quarter of C$1.2m against a loss of C$1.4m the same time last year.
• The company had a negative cash balance of C$2.4m.
• The polished market is still overstocked and prices of polished are said to have been reduced by around 5%.
• The company believe despite challenging conditions, the market for rough and polished prices seem to have troughed.
Conclusion: The company has been helped this quarter from its beneficiation revenues. The company is generating cash but this is needed to pay down and service debt. The Christmas season will be a test for the market with the US market, the largest market for diamonds the only one showing strength.

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