What if Britain has a US style budget stalemate
• The US economy has not yet collapsed due to the US budget stalemate
• But, the state plays a far greater role in the workings of the UK economy but also costs a greater proportion of GDP
• More than 7m people are employed by the UK government in one form or another
• “Over two thirds of the 1.2 million net additional jobs created in UK cities between 1998 and 2007 were in public administration, education and health.”
• What would happen if the UK followed the US and failed to agree a budget resulting in the suspension of jobs in the public sector?
• Suddenly public sector jobs and pensions might not look like such a great attraction.
Diamond rain – scientists predict diamond rain on Saturn and Jupiter
• Scientists have worked out that diamonds are likely to be formed in lightening storms on Saturn and Jupiter
• The report suggests that diamond rain might be the most common form of precipitation in the solar system.
• The boffins reckon that lightening turns methane into soot (carbon) which hardens into chinks of graphite and diamonds as it falls.
• We reckon it won’t be long before someone creates a mining company to collect diamonds from lightening rain.
• Diamonds are likely to be preserved in Uranus and Neptune but not on Saturn and Jupiter due to local conditions.
Andrew Forrest – makes single largest charitable donation in Western Australia
• Andrew Forrest is to contribute A$65m to higher education in Western Australia with A$50m of this going to a new scholarship foundation to support Western Australia’s five universities as well as building a new residential college at the University of Western Australia.
US - US lawmakers are reviewing a temporary solution to the debt ceiling and budget issues.
• The proposed deal which is yet to be approved by the Senate and the House of Representatives would increase the debt ceiling until early Feb and allow state employees to return to work until Jan, while US leaders wil proceed with longer-term budget discussions.
• The Treasury reports that US$120bn of bills are maturing on Oct 17 and another US$93bn are due on Oct 24.
• Surprisingly, New York manufacturing index due later to day is forecast to show the sentiment in the sector improved in Oct (7.0 vs 6.3 in Sep).
Japan - Industrial production contracted more than initially forecast in Aug following a hefty gain in the previous month. Revised numbers sowed factory output fell 0.9%mom (-0.4%yoy) in Aug compared to previous estimates for a 0.7%mom (-0.2%yoy) decline.
Euro zone - Industrial production came in better than expected in Aug as the sentiment in the manufacturing sector seems to be improving.
• Factory production in the region climbed 1%mom in Aug compared with a 1.0%mom fall in Jul and a 0.8%mom gain forecast.
• German Zew survey results are due later today and are forecast to show the economic sentiment index remained relatively little changed in Oct.
• Current Situations gauge is expected to climb to 31.3 in Oct from 30.6 and Expectations index to remain level at 49.6. Readings above 0.0 indicate optimism.
Australia - The Reserve Bank of Australia left the door open for more monetary policy easing to boost growth, minutes of the Oct 1 meeting show.
• “The effect of low interest rates was evident across a range of indicators and had further to run. Members agreed that the bank should again neither close off the possibility of reducing rates further nor signal an imminent intention to reduce them,” the Reserve Bank of Australia said.
US$1.3561/eur vs 1.3564/eur yesterday. Yen 98.42/$ vs 98.26/$. SAr 9.912/$ vs 9.915/$. $1.597/gbp vs 1.598/gbp
Gold US$1,272/oz vs US$1,277/oz yesterday - Prices are off this morning as expectations that the US Congress will strike the deal before the government runs out of money increase.
• Romanian government sanctioned a commission report regarding the development of the Rosia Montana gold project in Transylvania. The review is due by Oct 20. The Parliament will then vote in Nov.
• Gabriel Resources (TSX:GBU) owns 80% of the project and has been waiting for an environmental permit to start operations.
• Rosia Montana is estimated to host some 17.1moz of gold and 81.1moz of silver in Measured & Indicated Resources, including 10.1moz of gold and 47.6moz of silver in Proven & Probable Reserves (at 1.46g/t and 6.88g/t, respectively).
• The development will see re-location of three villages of the 16 in the area.
• Thousands of people continue to protest in the capital Bucharest and other cities in Romania on the environmental impact of building the open pit mine.
• SPDR gold holdings fell to 889.1t (28,586koz) valued at US$36.7bn from 891.0t (28,646koz) yesterday. This is the lowest level since Feb 2009. Holdings lost nearly a third of the total from the start of the year.
Platinum US$1,376/oz vs US$1,377/oz yesterday
Palladium US$714/oz vs US$716/oz yesterday
Silver US$21.14/oz vs US$21.42/oz yesterday
Copper US$ 7,254/t vs US$7,244/t yesterday - Copper is range bound this morning with investors’ attention now focused on the debt ceiling negotiations in the US.
• Brazilian shipments of copper ore and cathodes picked up in the first nine months of the year as the ramp up at Vale’s Salobo operations help to boost production.
• Salobo produced some 15,300t of copper in Q2 versus no output a year ago.
• Copper ore exports climbed 19.1%yoy to 545,139t in the Jan-Sep period.
• Copper cathode shipments totalled 46,823t during the same period, up from 8,647t in 2012.
• Copper wire exports contracted 15%yoy to 19,455t on a weaker regional trade.
Aluminium US$ 1,873/t vs US$1,882/t yesterday
Nickel US$ 14,055/t vs US$13,960/t yesterday
Zinc US$ 1,926/t vs US$1,932/t yesterday
Lead US$ 2,134/t vs US$2,128/t yesterday – the metal to watch next year according to Standard Bank
• They reckon a pickup in demand for lead acid batteries and a lack of investment in production due to lead’s toxicity could lead to a rise in prices
• We agree, the Chinese are keen to clean up environmentally and a rise in auto production and demand should continue to drive demand higher.
Tin US$ 23,250/t vs US$23,490/t yesterday
Oil US$110.7/bbl vs US$111.3/bbl yesterday
Natural Gas US$3.845/mmbtu vs US$3.832/mmbtu yesterday
Uranium US$35.15/lb (14/10/13) vs US$35.00/lb (11/10/13)
Coal – lenders face potential losses on A$3bn of loans to the Wiggins Island Coal Export Terminal in Queensland, Australia
• The port is apparently designed to be twice the required size and starts shipping in 2015 according to a Bloomberg report.
• Project owners, Glencore Xstrata and Wesfarmers Ltd. and .
Iron Ore - US$133.6/t (14/10/13) vs US$133.0/t (11/10/13) 62% Fe spot (cfr Tianjin)
• China is set to launch its first iron-ore futures for physical delivery trading platform this week in a move to create the iron-ore benchmark.
• Dalian Commodity Exchange located in the northeastern port city will start trading futures on Oct 18.
• The Dalian borse will use warehouses at ports of Tianjin, Lianyungang, Rizhao, Tangshan, Qingdao and Caofeidian, according to the statement.
• Plans to introduce the local price benchmark may related to previously reported local buyers’ concerns regarding the reliability of a price index provided by Platts.
Rio Tinto increases iron ore production by 20% to an annualised 290mt in October
• Rio Tinto has achieved the increase in output due to a combination of rich grades and rising tonnages mined
• Other iron ore miners are expected to follow similarly
• It is interesting to see sufficient demand to soak up the new Australian production.
• We suspect the better quality iron ore out of Australia is also displacing iron ore production from India and other smaller producers.
• Energy prices and environmental issues are considerations for iron ore buyers and may be directing buyers towards better quality and more consistent quality in iron ore supply
Rare earths - The government is drafting rare earth minerals mining rules to cut illegal operations, the Association of China Rare Earth Industry said.
• The status of the suggested reforms is at an initial stage and a long way from becoming laws, according to the Association.
• Production quotas are currently held at 93,800t for 2013, unchanged from 2011.
• Iron Ore: iron ore shipments for the quarter were up 4% from Q3 2012 and up 11% vs Q2 2013 at 68 Mt.
• Production of iron ore was up 2% and 3% respectively on Q3 2012 and Q2 2013.
• Pilbara quarterly production was at record high of 64.3Mt (Rio’s share of 51 Mt) with production for the nine months at 184.1 Mt (Rio’s share 146.8 Mt).
• Expansion projects at Pilbara on track with 290 Mt/a delivered ahead of original schedule and $400m under budget.
• Expansion of the port, rail and power infrastructure to 360 Mt/a is underway.
• Guidance of 2013 remains unchanged to around 265 Mt with 195.5 Mt achieved YTD.
• Copper: Mined copper for the quarter up strongly +23% at 162.3 kt from Q3 2012 and 11% from Q2 2013.
• KUC mined copper up 38% to 59.1 kt and up 51% on Q2 2013 with higher grades being treated.
• Mined copper production was also up at Escondida at 8% over Q3 2012 as result of higher grades from 2012.
• A new desalination plant has been approved of $1.03bn at Escondida to ensure continued water supply.
• Shipment to bonded warehouse continued at Oyu Tolgoi with mined copper of 10.3 kt up 133% from Q2 2013.
• Shipments are not translating to revenues as custom approvals are not yet in place for customers to collect concentrates from the warehouses.
• Guidance for 2013 is for mined and refined copper production of 590,000 t and 270,000 t respectively with 458.7 kt of mined copper achieved YTD.
• Aluminium: Bauxite was up 9% at 11,250 kt, alumina was down 13% at 2,293 kt and aluminium up 9% at 878 kt over Q3 2012.
• Hard coking coal: hard coking coal was down 10% from Q3 2012 in Australia at 2.09 Mt for Q3 2013 as a result of low wall failure at Hail Creek.
• Hard coking coal from Mozambique was up 85% to 162,000 tonnes with improvements in yields.
• Thermal coal was up 15% at 6.195 Mt for the quarter in Australia and up 9% in Mozambique at 122 kt.
• Guidance for 2013 of Australian hard coking, semi soft and thermal coal production is expected to be 8 Mt, 4 Mt and 22 Mt respectively with 5.8 Mt of hard coking coal and 20.2 Mt of semi-soft and thermal coal achieved YTD.
• Diamonds: Carats recovered at Argyle were 3.8m carats up 26% on Q3 2012 with higher tonnes processed and higher grades.
• At Diavik 1m carats were recovered down 13% with lower grades mined.
• In 2013 Rio’s share of production is expected to be 15.7 M carats.
• Titanium dioxide was down 7% due to planned furnace rebuild at 373 kt.
• Challenging conditions remain for high grade titanium dioxide feedstock.
Conclusion: Rio continues to deliver on iron ore targets with the Pilbara expansion coming in under budget at $400m – rail and port expansion also underway to take production up another gear. Copper has also been a strong performer although cash is being tied at bonded warehouses for copper from Oyu Tolgoi while issues are resolved with Chinese custom officials. On Escondida it is also interesting to see that they have to spend $1.03 bn (their share) to build a desalination plant to ensure water supply. This raises a high bar for copper production in that area.
Rio is well set to meet its production guidance with targets achieved year to date. With iron ore prices staying high at $133/t (Tianjin CFR) and Chinese imports of iron ore up 8.1% at 74.58 Mt in September, Rio is well positioned to capitalise on this. Rio is trading on an EV/EBITDA of 6.74x for FY 2013 but there should be scope for earnings upgrades on iron ore bringing this multiple down. Rio remains one of the top picks in the sector.
• Hummingbird Resources update highlights results from 15,802m of drilling.
• SRK are finalising the new resource numbers.
• In the meantime the company has appointed MDM to lead the Detailed Feasibility Study.
• The company continues to work on its regional exploration with a full airborne magnetic and radiometric survey interpretation received for targeting new areas over the Dugbe Shear Zone licences.
Conclusion: We look forward to the new resource estimate from SRK and for the results of the DFS from MDM due Q3 next year. It will be interesting to see what MDM will estimate for the cost of building a new gold mine in Liberia. The results for the environmental study are due in 2015 meaning the project can not start till then. It will be interesting to see the new project economics at today’s reduced gold prices. The last study was done at $1,500/oz.
(Initiation note published 9/10/13)
• Noricum Gold Limited have published high gold grades of up to 24.95g/t from on-going channel sampling.
• The channel samples are re-testing historic samples – viewed in the recent analyst / investor site visit.
• Freidrichstollen adit and Chalcopyrite cavern show the following grades in channel sampling:
Sample Au g/t Ag g/t
o ORF5 0.87 8
o ORF6 1.17 7
o ORF7 0.91 17.5
o ORF8 24.95 29
o ORF13 0.84 7.5
o ORF14 0.73 7
o ORC57 3.12 68
o ORC60 4.46 20
o ORC65 7.73 23
o ORC67 5.58 17
• Fire Assays: a more rigorous method of gold assaying, shows 16% higher gold grades than corresponding samples from the same sample batch, though they are not directly comparable as highlighted in the press release.
• Ore Microscopy: The press release also shows a picture of a sample of ore as examined under a suitable microscope. The ‘Ore Microscopy’ highlights the discrete nature of the gold from other minerals indicating potential for a significant proportion of the gold to liberate by crushing and grinding and then gravity separation. Remaining gold in ore should then be recovered through flotation which should separate more impurities before it is smelted into crude gold / silver Dore bars..
• Funding: Noricum recently raised £2m through the issue of 200m new shares on 3 October 2013 at a price of 1 pence per share.
Conclusion: The Rotgulden gold mine appears to carry high grade gold in its ore. The company are drilling and sampling to determine average grades and widths to evaluate the potential of the mine. Ores from the mine have been previously smelted and metallurgical work should hopefully improve on recovery rates and the eventual value of the mine. The ability to drill and sample from within the mine is a huge advantage and effectively accelerates the evaluation program. We should gain a much more accurate view of the economic potential over the next few months.
*SP Angel acts as Nomad and Broker to Noricum
** SP Angel analyst has visited the Rotgulden gold mine this week.
*** SP Angel recently raised £2m for Noricum Gold
Wolf Minerals (LON:WLFE) – Todd Corporation (NZ) buys 19.9%
• Todd Corporation a diversified business based in New Zealand has picked up 19.9% of Wolf Minerals
• Wolf is looking to build the Hemerdon tungsten project near Plymouth in Devon.
• The project is essentially financed save for the refinancing of a loan due to RCF by the end of this year.
• Todd now has a board position at Wolf.
• Todd Corporation are also reported to be buying into Northcliffe Resources’ Sisson tungsten-molybdenum project in New Brunswick, Canada for $34m
Peabody shuts down coal mine in Australia on union dispute
Rambler Metals (LON:RMM) – Completes purchase of 50% interest in Little Deer
• The company confirmed the offer made to Cornerstone of C$550,000 with all conditions satisfied.
• The purchase price consisted of C$200,000 in cash, C$350,000 in shares of Rambler and a 0.75% smelter return.
• The Little Deer project is Newfoundland is a 50/50 JV with Thundermin.
• The project includes brownfield projects at Little Deer and Whalesback underground copper mines operated in 1960s and 1970s.
• Planned programmes are for an infill drilling programme to upgrade the NI-43 101 resource at Little Deer and Whaleback.
• Resources at Little Deer stand at 1.9 Mt at 2.37% copper for indicated resource and 3.7 Mt at 2.13% copper for inferred resources.
• Resources at Whaleback stands at 0.8 Mt at 1.67% copper and 0.4 Mt at 1.57% copper for inferred resources.
• A pre-tax NPV has been generated for Little Deer only for $130m based on capital cost of $110m and LOM of 9.5 years.
Conclusion: This is a good acquisition for Rambler who are well positioned to fund the work programme to take this project forward. The ore body at Little Deer is said to be similar to the Lower footwall zone and amenable to pre-concentrating and could be treated through their existing facility. This is exactly the sort of brownfield project the company are looking to grow production to use the proposed second crushing and grinding circuit at the current facility.