Economic News
US – The US dollar was sold off yesterday as Apr factory orders came in lower than forecast while the Fed board member acknowledged first rate hike may be delayed.
• Factory orders: -0.4% in Apr versus 2.2% in Mar and -0.1% forecast.
• “The underlying momentum of the recovery has proven relatively susceptible to successive headwinds,” Lael Brainard said.
• “There is value to watchful waiting while additional data help to clarify the economy’s underlying momentum.”
• On a positive note, US auto sales hit 17.8m units annual pace in May, up from 16.5m in Apr and beating forecasts for 17.3m.
• Sales are driven by strong availability of credit as well as lower gasoline prices whit national average at S$2.75/gal, down nearly a dollar compared to this time last year.
o Economic news due today: May ADP employment change (200k v 169k in Apr)
Australia – Q1 GDP climbed 0.9%qoq/2.3%yoy ahead of market estimates for 0.7%qoq growth.
• An increase was driven by net exports and inventories.
• On the downside, consumer spending weakened despite a decline in petrol prices and two cuts in benchmark rates.
• Nevertheless, the currency jumped 0.6% against the US dollar following the announcement touching 0.7815.
Greece – Creditors are reported to have agreed a set of proposals planned to be presented to Athens today in a push to agree the deal this week.
• A number of Eurozone officials remained concerned that the plan will be rejected by Greece.
• One of the requirements of the plan is for Greece to achieve primary budget surpluses of as much as 3.5% of GDP in the medium term.
• The target compares to 0.3% primary surplus recorded in 2014.
• €7.2bn tied in negotiations will help the government to meet its Jun and part of Jul repayments; however, the balance of debt and interest payments due through the rest of the year amounts to €13.1bn, on FT estimates.
• It is possible lenders would agree to “repurpose” €10.9bn in bailout funds set aside for Greek banks recapitalisation towards partial refinancing of outstanding government debt.
o Greece may reintroduce currency in parallel to the Euro
US$1.138/eur vs 1.0974eur yesterday. Yen 124.34/$ vs 124.54/$. SAr 12.255/$ vs 12.272/$. $1.528/gbp vs 1.524/gbp
A$0.778/aud unch vs 0.768/aud
Commodity News
Precious metals:
Gold US$1,189/oz unch vs US$1,187/oz last week
• Investors are cutting gold holdings in precious metal’s ETFs on speculation the Fed is planning to raise rates this year.
• Gold holdings declines 4.8% since late Feb and at the lowest since Jan 14.
• Gold ETFs currently stand at 51.3moz, little changed from Jan-month and c.2.7moz off this year’s high of 54moz recorded in Feb.
Platinum US$1,112/oz vs US$1,106/oz last week
Palladium US$762/oz vs US$773/oz last week
Silver US$16.68/oz unch vs US$16.70/oz last week
Base metals:
Copper US$ 6,017/t vs US$6,028/t last week -
• Production disruptions through the first four months of the year were higher than previously forecast, Aurubis estimates suggest.
• Macquarie estimates the loss at 6.6% of annual production, the highest since 2008.
• Weaker supply together short covering by Chinese fund contributed to stronger copper prices through May, Aurubis reports.
• China - New nationwide industrial standards for the use of low-voltage aluminium alloy cables in China are estimated to cost 100-250kt in copper demand per annum, on Goldman Sachs numbers.
• The National Energy Administration has recently approved minimum quality standards for low voltage cables used primarily to connect buildings with substations.
Aluminium US$ 1,746/t vs US$1,751/t last week
Nickel US$ 12,950/t vs US$12,955/t last week
Zinc US$ 2,156/t vs US$2,148/t last week
Lead US$ 1,923/t vs US$1,940/t last week
Tin US$ 15,415/t vs US$15,455/t last week
Energy:
Oil US$64.9/bbl vs US$65.6/bbl last week
Natural Gas US$2.689/mmbtu vs US$2.654/mmbtu last week -
Uranium US$35.55/lb sharply unch vs US$35.40/lb last week
Bulk commodities:
Iron ore 62% Fe spot (cfr Tianjin) US$62.2/t unch vs US$59.5/t – Surprise big increase for iron ore considering recent trading, maybe the Chinese are buying stock again
Thermal coal (1st year forward cif ARA) US$58.1/t unch vs US$57.5/t last week
Seaborne hard coking coal index (quarterly) US$109.5/t unch vs US$109.5/t
Other:
Tungsten
• North American Tungsten is cutting its mining staff at the Cantung mine amid weak APT pricing and production issues.
• “While our operational issues are substantially behind us (power supply issues), the depressed tungsten prices continue to negatively impact our results,” the Company said.
• “We fully expect (prices) to increase from their current level over time, but in the meantime we will continue to reduce our operating expenses at Cantung.”
• The management said there is enough tungsten ore stockpiled to continue operating the mill and deliver the product to customers for now.
• Tungsten APT prices have been falling through the year and currently trade at US$239/mtu, down from US$305/mtu as of Jan/15. (MetalBulletin)
FeCr lumpy Charge 52% Cr US$1.08/lb vs US$1.08/lb last week – Chinese stainless steel mills will be releasing their monthly offer prices this week.
• Estimates are for mills to announce a CNY 50 per tonne cut, equivalent to a reduction made in early May, MetalBulletin reports.
Molybdenum
• The International Molybdenum Association (IMOA) released its 2014 supply/demand numbers:
• Global: Supply climbed 7.5%yoy to 583.7mlbs with demand up 4.0%yoy at 559mlbs.
• Market remained in a supply surplus of 24.7mlbs versus 5.5mlbs in 2013.
• China: The biggest producer and consumer of the metal recorded a 2.9%yoy increase (200.6mlbs) in supply and a 3.0% growth (202mlbs) jn demand.
• Prices finished the year lower at US$20,300/t with the latest LME quote currently standing at US$17,100/t, close to 11 years low.
• Thompson Creek said it is placing its JV Endako molybdenum mine in British Columbia n care maintenance since Jul 1 on the back of the “continued weakness in the molybdenum market”.
Company News
Ariana Resources (LON:AAU) – Results statement, Forestry permit approval
• Ariana Resources have received confirmation through its jv subsidiary of approval for its application for a forestry permit subject to payment of the relevant fees.
• Permit Fees were estimated at US$4.2m over the life of the mine in a statement on 6 May this year.
• Ariana’s annual report, just out shows it finished the year with just £44,000 of cash and total current assets of £1,155m. So it is difficult to know how the company will fund its share of the permit fees which are coming due.
• The report shows the company suffered a loss of £1m through 2014 despite exploration costs of just £76,000 - not bad for a poorly funded explorer through some companies target 90% of expenditure to go into the ground but Ariana appears to be working the formula the other way round.
• The annual report also shows that Kerim Sener has been based in Perth, Australia since 2012 and we have to wonder if the company’s slow development is in some way related to Mr Sener’s decision to relocate to a city just 12,000km away or if he decided to wait out the slow Turkish permitting process in a warmer environment while enjoying his £109,000pa salary plus expenses. Having said that, the company is not particularly expensively run with the chairman on a more modest £94,000pa.
• Forestry permit: We have lost track of how many years Ariana has had to wait for its forestry permit and we wonder if any further permits might be required.
• The statement implies the jv partner, Proccea Construction can now press ahead with the development of the Kiziltepe gold mine which is good news.
• A US$33m construction finance facility is reported to be secured with Turkiye Finans Katilim Bankasi A.S.
• The Kiziltepe gold mine is planned to produce 21,000ozpa.
• Cash costs of US$678 and $693/oz were estimated back in January 2013 along with a relatively modest capex of US$29.5m at the time. The 2014 annual report quotes expected cash costs of just US$600/oz in the Chairman’s statement though no All In Sustaining Cost is given.
• Funding: Ariana has been largely funded by Lanstead in recent years who now hold 14.08 of the company acquired through their drawdown facility with the company. Lanstead are good investors in our view and are a world apart from some other drawdown facilitators. But even Lanstead will have a limit on how much stock they will want to hold. Ariana recently issued 11,111,111 new shares to Metal Tiger at 0.9p/s bringing in a much needed £100,000. The company also issued a further 10,333,333 shares in lieu of fees to its advisors at a price of 0.9p/s indicating the company is painfully short of cash.
• Recommendation: We are changing our recommendation to Hold from Sell on the permit approval as reported.
Conclusion: It is great to see a company moving closer to production, albeit through a Turkish joint venture partner. But we wonder how the company is going to support the cost of the new permits and other expenses.
Conroy Gold & Natural Resources (LON:CGNR) 0.8p, mkt cap £3.5m – Infill drilling at Clontibret
• The company has announced results from its infill drilling programme at its Clontibret gold/antimony prospect in County Monaghan.
• The results include the deepest drill intersection yet reported from Clontibret where “The results within the stockwork zone included a series of five, one metre intersections of gold at a grade of approximately 1g/t gold or over, down to a depth of 340.5 metres.”
• Although it is interesting to have confirmed geological continuity of mineralisation to this depth, narrow intersections of these grades at this depth are unlikely to have a short term bearing on the project economics.
• Conroy also reports a number of shallower intersections of up to 1 metre at 20.5 g/t gold from a depth of 94.5 metres, 1.5 meters grading 3.5 g/t from 40.5 metres depth and 1.5 metres averaging 2.16 g/t gold from 27 metres depth.
Conclusion: The company has demonstrated considerable persistence with Clontibret and has previously indicated that it is considering a relatively modest development of an 800,000tpa open pit mine producing around 50,000 oz pa of gold. Deep, narrow drilling intersections may point to a long term deeper target but in our opinion, the priority for the company is in delivering a coherent development plan for the Clontibret starter pit and we hope that Conroy Gold will not be diverted from this task.
Ferrex (LON:FRX) 0.65 pence, Mkt Cap £7.2m – Interims focus on Nayega Manganese project
• The company focussed on progress at Nayega where a DFS is being completed.
• The DFS is looking at the feasibility of a 250,000 tpa 38% manganese product.
• Negotiations have been concluded on the Mining convention which forms the basis to obtain a mining permit.
• Funding discussions are underway.
• The company has a cash position of £835,000.
Horizonte Minerals (LON:HZM) 2.875 pence, Mkt Cap £14.2m – Phase 4 infill drilling programme at Araguaia nickel project
• The company has announced the remaining results from its recently completed Phase 4 infill resource drilling programme at its wholly owned Araguaia nickel project in north central Brazil.
• The programme of 10,255 metres of drilling included 261 holes (8,764 m) at the Pequizeiro prospect and 49 holes (1491m) at the Jacutinga prospect completed infill drilling on 50x50 metres grids over selected parts of the two deposits.
• The company website reports that Araguaia currently contains a probable reserve of 21.2m tonnes at an average grade of 1.66% nickel. The recent drilling programme appears to have produced results consistent with these grades and we imagine that these results will be incorporated in an updated reserve estimate which may perhaps upgrade a portion of the current probable reserve to proven.
• The company CEO, Jeremy Martin said “It is encouraging to report a significant number of high grade drill results (greater than 2% nickel) from our phase 4 mineral resource drilling programme at Araguaia. … We are making good progress on other areas of the Feasibility work at Araguaia. The full scale Rotary Kiln Electric Furnace pilot campaign is progressing to schedule and we look forward to providing updates on this work in due course.”
Conclusion: The additional drilling should give increased confidence in the orebody and assist in the Feasibility stage mine planning for Aruaguia; an updated reserve estimate may be in the pipeline and the company is indicating that it will be providing updates on the progress of pilot testing of the Rotary Kiln Furnace.
Savannah Resources (LON:SAV) 2.125pence, mkt Cap £4.8m – Early stage gold prospect identified in Block 4 licence area in Oman
• Savannah Resources has announced the discovery of gold mineralisation at the Salahi 1 prospect in the Block 4 licence area in Oman where Savannah is earning a 65% interest in the Omani company, Al Thuraya.
• The discovery comes as a result of a review of historic information on the area and a follow up programme of geological mapping, rock chip sampling and trenching.
• Sampling of the Main Gossan zone shows gold mineralisation extending over a strike length of 180 metres ( remaining open to both the north and south) and widths of between 1 and 12 metres. Forty-five of the forty-nine samples taken contained gold values in excess of 0.1 g/t with 20 samples assaying over 1 g/t and a peak value of 6.52 g/t.
• A further seventeen samples were taken on the North Gossan prospect and 14 of these assayed over 1 g/t gold. Additional trenching work is planned to assess the possible continuation of this zone beneath wadi gravel cover.
Conclusion: The discovery of near surface gold mineralisation adds to the copper potential of the Block 4 area, however, although they are encouraging, these are still early stage results which will require more detailed follow up. The company raised approximately £1.3m in November and will need to be rigorous in allocation of resources between a number of highly promising early stage exploration projects in Oman.