Major miners set to rally as iron ore sales grow
Iron ore prices continue to rise to $141.8/t on China restocking
• Benchmark iron ore prices for 62% fe rose 28% through June to $141.80/t according to Steel Index.
• The Baltic index up more than 1% on capesize orders for dry bulk
• China saw an extended period of destocking of commodity inventory through the first half as new policy makers slowed the economy.
• Chinese restocking is now a feature of many commodities as Chinese imports rise and economic activity recovers.
• Chinese demand accounts for some 60% of global seaborne iron ore trade.
• Rio Tinto is well positioned with ongoing production growth from its iron ore business.
• The company is essentially an iron ore producer from a earnings perspective with other divisions reporting negligible net earnings compared with the iron ore division.
• BHP and Vale are the other major iron ore players with Anglo American struggling to catch up.
• West Africa offers potential for new growth in iron ore production with Rio Tinto and Chinalco working towards iron ore production in Guinea, Arcelor Mittal in Liberia and Sino Steel in Cameroon. Cameroon, Gabon and Republic of the Congo offering potential to become significant producers for seaborne iron ore.
Beards – note to Jeremy Paxman, presenter Newsnight – please shave it off!
• How can we trust the presenter of the UK’s leading economic and current affairs new program if he is sporting a beard?
• Beards have been virtually outlawed in the city since the creation of the Bank of England with few daring to go unshaven even these days
• Geologists are tolerated with beards due to their working conditions in the field though they do attract a beard discount in the market
• A CIA plot, operation Mongoose, in the 1960s apparently planned to put thallium salts into Fidel Castro’s shoes in an effort to make his beard fall out! This must be true story as its on Wikipedia.
UK house price stats show prices rose by 3.1% for the year to June
• Government schemes are being blamed for UK house prices rising strongly for the year to June
• The Telegraph reports economists reckon house price growth could soon reach 7% for the year across the UK
• The figures are heavily skewed by London where growth is running at 8.1% for the year to June leaving just 1% for the rest of the UK through the same period.
• The problem with the figures that they do not account for the massive investment in renovation and refurbishment particularly in London where prices are led by overseas buyers.
• London has become the acceptable destination for the super rich and for wealthy families looking to escape the heat of the Middle East.
• These buyers demand top quality refurbishment fuelling the market for property development and refurbishment, eg more than just a coat of new paint.
• None of this comes cheap, so when we see statistics on London price rises just remember the investment and hard work that goes into the preparation of properties to ‘American’ standard to match the aspiration and expectations of these new buyers. If London did not have high quality designers and developers then the city would struggle to attract the buyers who drive prices in this way.
Egypt – Cairo camps cleared by Egyptian security forces
Eurozone – economic growth rises strongly
• German GDP grew 0.7% through Q2 slightly ahead of forecasts and showing a marked recovery from their poor Q1 performance
• Germany’s biggest challenge remains investment a feature which is likely to be repeated around the Eurozone states as the union recovers from the banking crisis
• Forecasts are for growth to slow through H2 as state support subsides
• France grew by 0.5% in Q2 a vast improvement on the 0.2% contraction seen in Q3 and Q4 2012.
• Other Eurozone state GDP figures are expected later today.
• Italy and Germany remain areas of concern with both nations though to be in perilous financial positions.
London is very quiet this morning, virtually no traffic on the roads and
England vs Scotland football match this evening at Wembeley
• The Tartan army appears to have taken over Trafalgar square.
• The Jocks have taken Nelson’s column and wrapped their flag around the column.
• We suspect the Scottish crowd will be well lashed up by the time the match starts.
Gold US$1,325/oz vs US$1,337/oz yesterday –
Platinum US$1,490/oz vs US$1,506/ yesterday -
Palladium US$736/oz vs US$740/oz yesterday -
Silver US$21.51/oz vs US$21.80/oz yesterday -
Copper US$7,315/t vs US$7,305/t yesterday -
Aluminium US$1,879/t vs US$1,892/t yesterday -
Nickel US$14,851/t vs US$14,908/t yesterday -
Zinc US$1,940/t vs US$1,954/t yesterday -
Lead US$2,177/t vs US$2,198/t yesterday -
Tin US$21,790/t vs US$22,145/t yesterday -
Oil US$109.4/bbl vs US$109.6/bbl yesterday -
Natural Gas US$3.038/mmbtu vs US$3.322/mmbtu yesterday -
Uranium US$35.85/lb 13/08/13 vs 35.90 on 09/08/13
Coal – South African coal prices trading at $74.45/t ahead of potential strike in world’s fifth largest coal exporter
• The appointment comes after the resignation of Keith Calder
• The cfo, Miguel Perry has also retired from the board with Matthew Hird taking the position from October 1st this year
• Bernie has significant experience in the iron ore space having led the acquisition of iron ore assets in Brazil for Anglo American.
• Bernie is seen as an experienced mining ceo with large and small company experience.
• The company also appoints Alan Watling as a special advisor to the board. Alan is a specialist in port and rail infrastructure and is ceo of Pan African Minerals a Timis Group Company and was a coo of Fortescue Metals Group. Frank Timis remains as executive chairman of African Minerals.
Conclusion: investors should ask why the ceo, Keith Calder and his cfo have elected to leave the company
Centamin (LON:CEY) – Q2 and Half Yearly Report
• Gold production up 8% quarter on quarter to 93,624 oz and up 39% over same period last year.
• Head grades and recoveries were up marginally at 2.28 g/t gold and 90.2% respectively against 2.03 g/t and 88.4% in the previous quarter.
• Cash cost of $690/oz and gold price of $1,364/oz down 15% over the same period last year.
• EBITDA of $63.7m down 22% from the previous quarter and up 15% from the same period last year.
• At the end of the period cash and cash equivalents stood at US4169.4m.
• The company remains unhedged to the gold price.
• 2013 production guidance remains unchanged at 320,000 oz up 20% from FY 2012 at a cash cost of US$700/oz.
• As a result of the diesel situation with the government the company are having to pre pay for diesel with Chevron.
• A prepayment of US$69.5m has been treated as an exceptional item with US$14.2m attributable to Q2 2013.
Conclusion: This a good performance for Centamin operationally. Numbers should be in line with concensus with 2013 guidance remaining unchanged. Operating in Egypt continues to be challenging as witnessed by the prepayment to Chevron to secure fuel. Political risk remains.
• The half yearly report highlighted progress at the Rio Tinto Project although there was little new news.
• Over the period the company published a new technical report and updated the economic parameters for the project.
• The coming continued to work on progressing the permitting for the project providing new technical information on the tailings requirements.
• The latter is the last stage of the environmental report required to achieve Adminstrative Standing to restart the project.
• While cash balances are low at the end of the period reported the company have since raised around $15m through a convertible bond which will continue to fund the project till approvals are in place,
Conclusion: No news on the report from the permitting which should now be in the last stages with the government confirming that they will approve the administrative standing by the end of 2013. We await further news on the approval of the information provided on the tailings and any public consultation required to progress this
• Copper production up at 1.143 Mt with own sourced copper up 20% at 673.4 kt.
• Copper in concentrate production up 35% in South America to 121.8kt helped by ramp up at Antapaccay.
• Ernest Henry in Australia also added to 71% increase in copper concentrate production in Australia.
• At Katanga copper metal production was up 40% from the same period last year.
• Production at Antamina was down 9% tp 62.2 kt due to lower head grades and recoveries.
• Zinc metal production was down 3% to 1,201.0 kt with production from Kazzinc down 7% from own feed.
• Production from Europe was flat and zinc in concentrate production up 8% from Mount Isa and 4% from McArthur River.
• Alumina production was up 23% to 777,000 tonnes.
• Ferrochrome production was up 22% at 561,000 tonnes with successful commissioning and ramp up of Tswelopele.
• Power agreements with Eskom to curtail volume have now expired and 17 out of 20 furnaces are now operating.
• Coal production was up 4% to 67.8 Mt due to expansion in Australia and at Prodeco.
• Thermal coal production from Prodeco was up 22% at 6.6 Mt.
• Australian coking coal was up 21% at 4.0 Mt.
Conclusion: The integration with Xstrata has significantly boosted metals production from own sources as expected with copper production coming through from previous Xstrata projects and also from Katanga.
Coal production is also up with production from Prodeco up 22%. Australian coking coal production is also up 21% into a currently oversupplied market.
Overall as with the other diversifieds looks like volume growth is coming though on copper on the metals side and both thermal and coking coal on the bulk side. On the latter this will not help and already oversupplied market.
• Guadolupito Iron Sands Project - this is Latin's flagship project where the company is evaluating financial models to take it to Stage 2 mining.
• As announced over the quarter, the company have relinquished some of the concessions at the project.
• The concessions included "Heldmaier" which contained 9% of the JORC resource at the project of 135.6 Mt at 5.5% HM.
• The decision to give up the concession was based on evaluating the cost effectiveness of paying US$3.34m to exercise an option over the concession due in August 2013.
• The project still retains the bulk of the resource with 22,000 hectares containing 1,329 Mt at 5.7% HM.
• The most valuabale part of the project is the significant resource at Los Conchales with 1,072 at 6.1% HM with significant resource above the water table which would provide a lower cost start up operation than dredging.
• Ilo Norte copper project - Permits are in place to start drilling at this project where soil sampling and aeromags have proved promising.
• Corporate Developments - The company have cut back on head office costs with directors and senior management taking a 20% cut in salary.
• The company is in discussions with JV partners to progress projects and will limit exploration work till new partners are found.
Conclusion: Latin Resources has two potentially good projects with the iron sands at Guadolupito the most advanced with scope for a small start up mining operation based on the above water table resource at Los Conchales. This project is particularly well positioned being closes to infrastructure, road and port and within economic truckable distance to a local steel mill.
Ilo Norte is a copper project where early work is promising. Drilling this to prove a resource will be expensive and the company is wisely seeking a partner to help them fund them through this process. The terrain for copper projects in Peru while highly prospective requires deep drilling and it makes sense to involve a partner at an early stage to take on the cost of drilling to prove a resource.
• Serabi Gold have published their interim figures.
• The statement is more important for its confirmation of gold production by the year end than for its figures.
• The team raised £16.2m in January to fund further exploration around the Palito gold mine and its restart.
• Substantial funding had been spent mechanising and updating the mine and plant in the past.
• A return to more traditional mining methods should restore profitability in this high-grade vein system.
• The statement highlights the key milestones achieved and equipment ordered for the restart of production.
• A new gravity concentrator has been ordered and the flotation cells are being refurbished.
• The mine will produce gold dore and a copper / gold concentrate.
• Sao Chico: Serabi completed the acquisition of Kenai Resources in July for its Sao Chico high-grade gold project, just 25km away from Palito.
• Cash: the company has $14m of cash at end June.
• The gold mine should produce some 24,000oz pa from 9.98g/t ore running at 90,000tpa with an estimated cash cost $739/oz.
• Past plant recoveries of >90% were achieved. The mine has produced some 110,097oz prior to its closure at end 2008.
Conclusion: Palito is a tough gold mine to run but the team have bags of experience and important lessons have been learned. The mine and its new sister project at Sao Chico should have a better future from here.
*this analyst has previously visited the Palito gold mine. It takes five flights to get there and five flights to get out. The last leg of the journey is in a small single engine plane over the rain forest. Single engine planes are used in preference to twin engines because it is allegedly safer to crash land a light weight single engine plane into the forest canopy, should such an event occur. The runway is marked with oil drums to stop bandits from landing on the air strip which runs over the top of the gold mine. If you want to visit the mine, be warned it really is a long way from anywhere! Management should be congratulated for their work running the Palito gold mine in this location though we believe the road into the mine site is improved.