The IMF cut its growth forecasts for the US and warned the Fed to postpone interest rate rises until next year.
• US GDP forecasts have been brought down to +2.5% from +3.1% for 2015 and to 3.0% from 3.1% for 2016.
• While a Q1/15 setback seems to be temporary in nature driven by one-off factors such as bad weather and the West Coast strike, growth is expected to pick up through the rest f the year.
• “There is a strong case for waiting to raise rates until there are more tangible signs of wage or price inflation than are currently evident,” the IMF said.
• The IMF suggests the first rate increase should not take place before H1/16.
Glencore responds to recent anti-coal policy announcements
• Glencore has responded to recent moves by some large institutional investors to divest of thermal coal holdings.
• Peter Freyberg of Glencore Coal is reported to have said that if clean coal technology had been used in power stations between 2000 and 2010, 2bn tonnes of CO2 emissions could have been cut.
• A number of high profile funds such as Norway’s sovereign wealth fund are to take decisions to divest of exposure to coal assets.
• Natural gas is seen as a more efficient alternative to thermal coal for base load generation as the price and cost of extracting gas has come down.
• We can’t help feeling that coal demand could struggle unless there is a willingness to fund the cost of implementing clean coal technology.
• If Glencore want to protect the position of coal, they may need to more proactive in this process.
Economic News
US – Weekly jobless claims dropped more than forecast from the previous week with 4-month rolling average remaining close to multi-year lows.
• Jobless claims: 276k v 284k (revised from 282k) in the previous week and 278k forecast.
• 4-week rolling average: 275k v 272 in the previous week.
• On a less positive note, productivity in the US seen contracting through Q1 (-3.1%qoq, annualised) marking the first back to back quarterly decline in nearly a decade.
• Productivity has been on a declining trend since early 2000s with a sharp contraction decline and a partial recovery around the 2007/08 financial crisis.
• Productivity was up 0.6% over the past five years marking the worst half-decade run since early 1980s.
• Economic news due today:
o May NFP (226k v 223k in Apr), unemployment rate (no change from 5.4% in Apr), average hourly earnings (+0.2%mom/+2.2%yoy v +0.1%mom/+2.2%yoy in Apr)
Germany – The Bundesbank raised German GDP growth forecasts to 1.7% in 2015 and 1.8% in 2016 on the back of the weaker euro.
• This compares to previous estimates for +1.0% and +1.6%, respectively.
• 2015 inflation forecasts has been cut in half to 0.5% from 1.1% for 2015 reflecting lower oil prices. 2016 estimates were left unchanged at 1.8%.
• A separate report showed factory orders climbed strongly in Apr, nearly three times the forecast growth rate.
• Factory orders: +1.4%mom/+0.4%yoy v +1.1%mom/+2.0%yoy in Mar and +0.5%mom/-0.6%yoy forecast.
Spain – Industrial production expanded in Apr but at a slower pace; although Mar reading was the strongest in nearly 12 months.
• Industrial production: +1.8%yoy v +3.2%yoy in Mar and 1.5%yoy forecast.
Greece – The government will be delaying payment of €300m to the IMF till later in the month.
• According to procedure permitted under IMF rules, Greece will add up all the payments for the month together and repay €1.5bn in one tranche at the end of Jun.
• The first Jun repayment was due today.
• The decision comes in contrast to earlier announcement made by Alexis Tsiparis that the government intended to make the payment.
US$1.1259/eur vs 1.1335/eur yesterday. Yen 124.79/$ vs 123.99/$. SAr 12.431/$ vs 12.389/$. $1.532/gbp vs 1.541/gbp
US$0.769/aud vs0.775/aud
Commodity News
Precious metals:
Gold US$1,175/oz vs US$1,183/oz yesterday
Platinum US$1,099/oz vs US$1,106/oz yesterday
Palladium US$757/oz vs US$756/oz yesterday
Silver US$16.15/oz vs US$16.48/oz yesterday
Base metals:
Copper US$ 5,916/t vs US$5,957/t yesterday
• Copper prices are set to record a third weekly decline on the back of growing concerns over global economic outlook and weaker financing demand in China.
Aluminium US$ 1,739/t vs US$1,743/t yesterday
Nickel US$ 12,885/t vs US$12,885/t yesterday
• Sherritt cuts the Ambatovy work force by 12% or 1,100 employees due to soft commodity prices.
Zinc US$ 2,125/t vs US$2,148/t yesterday
Lead US$ 1,912/t vs US$1,943/t yesterday
Tin US$ 15,445/t vs US$15,530/t yesterday
Energy:
Oil US$61.6/bbl vs US$63.5/bbl yesterday
Natural Gas US$2.639/mmbtu vs US$2.642/mmbtu yesterday
Uranium US$35.90/lb vs US$35.65/lb yesterday
Bulk commodities:
Iron ore 62% Fe spot (cfr Tianjin) US$62.1/t vs US$62.0/t
Thermal coal (1st year forward cif ARA) US$57.6/t vs US$57.8/t yesterday
Seaborne hard coking coal index (quarterly) US$109.5/t unch vs US$109.5/t
Company News
DiamondCorp (LON:DCP) 11 pence, Mkt Cap £36.6m – Termination of royalty financing and fund raise in the market
• The company has raised £3.18 m in a placing for a total of 31,837,000 shares at a price of 10 pence.
• In addition the company are planning to offer a further 20m shares at the same price by way of an open offer.
• The company have decided not to proceed on the royalty with Acrux with no additional costs being incurred.
• The company signed a term sheet with Acrux for a 3% net royalty deal for US$7m.
• The royalty was to be payable on the first 12m carats of diamonds recovered from the Lace diamond mine.
• After 8 years Lace Diamond Mines had the right to repurchase the royalty based on an independent valuation.
Conclusion: Raising fund raise through shareholders replaces the proposed royalty arrangement with Acrux. This increases dilution in the short term but does not change the fundamentals for the stock. We have reduced our target price to reflect the potential dilution from new shares. While the royalty would have been non-dilutive the right to repurchase the arrangement after 8 years would have been subject to a valuation at that time and this uncertainty has now been removed.
Hochschild Mining (LON:HOC) 104 pence, Mkt Cap £382m – Inmaculada delivers first production
• The company announced first dore production from the Inmaculada project in southern Peru.
• The plant is operating at an 80% capacity in line with the company’s commissioning schedule.
Tri-Star Resources* (LON:TSTR) 0.14 pence, Mkt Cap £9.7m – Sale of IP on clean roasting technology
• Tri-Star has announced the conditional sale of intellectual property rights relating to clean environmental technology for the roasting of antimony concentrates and roasting of refractory gold for up to $6m spread over 3 staged payments.
• The sale of the rights to the Omani registered company, Strategic & Precious Metals Processing (SPMP), in which Tri-Star has a 40% holding alongside the Oman Investment Fund and the Dutco Group (a major Dubai based infrastructure company), will generate proceeds of $3.6m for TriStar.
• Tri-Star has expensed the costs of developing this technology and hence, “a book value of £nil is attributed in the accounts of Tri-Star.”
• SPMP is developing a 20,000 tpa antimony roasting facility in Sohar, Oman and the staged payment schedule on the sale of the IP comprises $2m on financial close of the Oman Antimony Roaster Project (OAR), defined as SPMP’s entry into “a definitive facility agreement with respect to the debt financing of the project and other closing funding conditions”. A second $2m tranche is payable “on receipt of certain third party reports delivered to SPMP relating to the commercial and technical viability of the technology as it relates to refractory gold processing” and a final $2m payable on the commissioning of the antimony roaster.
• Tri-Star’s move to crystallise value from its IP should assist in funding its share of the capital expenditure for the plant in Sohar.
• In our view, the 3rd party endorsement of the application of Tri-Star’s technology for treatment of refractory gold ores will be a particularly important milestone for the company as it would have the potential to open up a stream of business with the gold mining industry which has up to now used various forms of pressure leaching or bacterial leaching to process refractory gold ores.
• SP Angel recently published a detailed research report on Tri-Star Resources (12th May) and we reiterate our BUY recommendation.
Conclusion: The sale of the IP is good news for Tri-Star as it will help fund its equity funding commitments to the Sohar plant and triggers a validation of the technology’s use in treatment of refractory gold ores.
*SP Angel acts as Nomad and Broker to Tri-Star Resources
SolGold* (LOON:SOLG) 2.875 pence, Mkt Cap £21.9m – Assays from the upper part of Hole 11 at Alpala
• SolGold reports assay results from the upper part of the current hole CSD-15-011 at its Alpala prospect in Ecuador. The results show an intersection of 740m from 320m hole depth at an overall average grade of 0.24% copper and 0.16 g/t gold.
• Included within this intersection is a 58 metres wide section averaging 1.45% copper and 1.44 g/t gold between 996m and 1,054m depth in the hole. Hole 11 is currently at a depth of 1,380m and is planned to extend to 1,600m.
• The company comments that “The occurrence of bornite and molybdenite mineralisation in portions of the hole to date is interpreted to indicate increasing proximity to the primary source of copper-gold porphyry mineralisation at Cascabel.”
• After completion of hole 11, the company expects to move the rig to “the southeast side of the central part of Alpala to test extensions of the strongly mineralised zone to the southeast”. A second rig is due on site by the end of July.
• The company also comments that its efforts at present are “targeting the definition of a high grade core in the central part of Alpala, characterised by an internal Company estimate of approximately 80Mt at a grade of above 2.5% Cu equivalent”.
Conclusion: The current drilling continues to identify wide zones of mineralisation within the central part of Alpala. The addition of a 2nd drill rig by the end of July, plus the implementation of drilling “daughter holes” from existing boreholes should speed up the information flow and provide the additional drilling and assay data to move the company towards validating its internal resource estimates
*SP Angel act as Nomad and broker to SolGold. An SP Angel analyst has visited the Cascabel project
W Resources (LON:WRES) 0.31 pence, Mkt Cap £9.8m – Infill drilling for the fast-track development at La Parilla
• W Resources reports that it has completed 950 metres of a 1,500 metres infill drilling programme at its La Parilla property approximately 250 km north of Seville in Spain. Assay results are not yet available but “will be progressively released to the market as they become available”
• The programme, which comprises a series of holes ranging between 90-120 metres deep, is aimed at increasing the size and upgrading the quality of the existing 46.9m tonnes resource at an average grade of 0.09% tungsten trioxide.
• The current resource at La Parilla is classified as inferred and the additional drilling information should facilitate an upgrade of all or part of the historic resource at least to “indicated” or better.
• The company indicates that resource and reserve information resulting from this drilling are to be incorporated in the September quarter.
• W Resources has a fast-track mine development plan at the former La Parilla tungsten mine and has already shipped tungsten concentrates derived from retreatment of old tailings material. Environmental approvals to restart mining are expected in Q4 2015 and the company is looking for production in 2017.
Conclusion: Drilling to upgrade the resources and generate reserve estimates at La Parilla is a key part of the fast track mine development programme. The resource is relatively shallow and with the Los Santos tungsten mine in production and approvals and financing already in place for the development of Ormonde Mining’s Barruecopardo project, La Parilla is on course to join the resurgence of the Spanish tungsten industry.