China construction may have stalled, till impact of new stimulus kicks in
• Equipment manufacturers are having a tough time in China and the sector needs stimulation to restore demand
• Higher interest rates are coming but when?
• The IMF are warning the US to hold off on rate rises till next year
• China is struggling to maintain growth and the government appears to be retreating back into its communist ideology
Banks have paid out >£200bn in fines and legal costs in total – we wonder where the money has gone
• Some fines go to the State of New York
• Sadly the City of London does not benefit in the same way
Economic News
China – 7% GDP growth target at risk
• Trade surplus hits $59bn (367bn yuan) as imports fall
• Exports fall through May as shipments fall by 2.8% in Yuan value
• However Chinese imports fell by 18.1% causing the trade surplus to grow
o Chinese imports are dominated by the value of raw materials with some impact seen from a falloff in stocks ahead of summer shutdowns for holidays and maintenance
o Eg iron ore imports fell 8.4% month on month in May to 17.8mt
o Reports of a significant decline in Chinese construction and a slump in new investment are of concern.
o The government is seen easing monetary policy to help funding for local infrastructure projects.
US – The US imports from China rise by 7.7% yoy meaning the US buys 18.8% of all Chinese exports
• The EU bought 15.1% of Chinese exports by value
• The rest of Asia bought 11.9% of China’s export value
German industrial production rose 0.9% in April vs median est of 0.6%
• German manufacturing benefiting from strong domestic economiy and Eurozone area
• Manufacturing output rise 0.7% in Gernamy
• Bundesbank revise GDP forecasts to 1.7% for 2015 and 1.8% in 2016 vs 1.0% and 1.6%
Japan – Q1 GDP rose by 3.9% vs 2.8% median forecast and up from prelim est of 2.4%
• A recovery in inventories was the main driver, but could drag on growth if sales do not recover
Turkey – Nation votes against President Erdogan and his AK Party in General Election
• But Erdogan’s autocratic rule has worried voters who have supported Christian and Kurdish MPs
• The Turkish Lira fell by 8.2% on the presidential result as investors saw potential for a less stable government
Indonesia – to review coal mining licenses in a push for consolidation
• The Indonesian government may be about to revoke around 4,000 coal licenses which have been problematic
• The government wants to keep more of its coal exports for domestic consumption
• Indonesia is the world’s largest exporter of thermal coal at around $2bn per month
South Africa – The National Union of Mine workers elects a new general secretary
• The NUM has elected David Sipunzi as the new leader taking over from Frans Baleni.
• The NUM has struggled in its dominance with pressure from the more militant AMCU.
• The NUM are reported to be asking for 80% pay rises with the AMCU asking for over 100%.
• This does not augur well for wage negotiations coming up in the gold sector.
The IMF cut its growth forecasts for the US on Friday 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 of 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.
US$1.1113/eur vs 1.1259/eur yesterday. Yen 125.40/$ vs 124.79/$. SAr 12.577/$ vs 12.431/$. $1.525/gbp vs 1.532/gbp
US$0.762/aud vs0.769/aud
Commodity News
Precious metals:
Gold US$1,174/oz vs US$1,175/oz yesterday
Platinum US$1,099/oz vs US$1,099/oz yesterday
Palladium US$749/oz vs US$757/oz yesterday
Silver US$16.12/oz vs US$16.15/oz yesterday
Base metals:
Copper US$ 5,926/t vs US$5,916/t yesterday
Aluminium US$ 1,740/t vs US$1,739/t yesterday
Nickel US$ 13,120/t vs US$12,885/t yesterday
Zinc US$ 2,129/t vs US$2,125/t yesterday
Lead US$ 1,910/t vs US$1,912/t yesterday
Tin US$ 15,375/t vs US$15,445/t yesterday
Energy:
Oil US$63.0/bbl vs US$61.6/bbl yesterday
Natural Gas US$2.634/mmbtu vs US$2.639/mmbtu yesterday
Uranium US$35.90/lb unch vs US$35.90/lb yesterday
Bulk commodities:
Iron ore 62% Fe spot (cfr Tianjin) US$63.4/t vs US$62.1/t
• Iron ore imports fell 8.4% month on month in May to 17.8mt
Company News
Beowulf Mining (LON:BEM) 2.375 pence, Mkt Cap £8.9m – Results of Met test work
• The company has reported results from the test work on the production of magnetite concentrate from the Kallak North deposit.
• Test work was undertaken using reverse floatation to produce magnetite.
• Work was carried out by three main ore types classified as blue, green and red.
• Blue ore is magnetite rich, green magnetite rich with haematite and red ore which is haematite rich.
• Assay iron grades in this ore are 36.5%, 31.9% and 37.9% respectively.
• Concentrate grades from this programme were 71.5% Fe with lower silicate and aluminium content than from previous test work.
• This concentrate grade is much higher than previously achieved at around 68-69%.
Conclusion: These concentrate grades are high although we note that the grades of the samples used are well above the indicated resource grade at Kallak North at 27.9%.
Minera IRL (LON:MIRL) 5.75 pence, Mkt Cap £13.3m – US$70m Bridge Loan secured
• The company has secured a bridge loan for US$70m structured by the Peruvian state-owned development bank (Confide).
• The loan is expected to be a precursor to US$240m of senior project financing.
• Confide is expected to help the company to put into place the senior financing required to build the Ollacheo gold project.
• The bridge loan is to be priced at Libor plus 6.174% payable quarterly in arrears with a term of 24 months.
• There is a structuring fee of 2.25% and an upfront fee of US$300,000.
• The bridge loan is expected to be paid through the senior debt package once in place but can be repayable at any time with a break fee of 0.75%.
• Funds from the loan will be used to pay off the US$30m Macquarie Bank debt and make a final property payment US$12.9m of the US$15.1m due to Rio Tinto.
• The balance has been converted into an unsecured promissory note accruing interest at 7% per annum payable by 31 Dec 2015.
• Development work will also start at the project with detailed engineering work on the plant and further resource drilling to extend the Minapampa Far East Zone.
• The company is looking to raise equity to reduce the amount of senior debt financing.
• Goldman Sachs US is syndicated the bridge loan.
Conclusion: This is good news for Minera who have been targeting the development of the 100,000 oz pa Ollachea project. The company is targeting bringing on the project in the second half of 2017. Further drilling should help establish scope for further resource and longer Life of Mine currently estimated at 9 years. Should the company be successful in securing further funding for Ollachea this would bring a third gold producer listed on AIM producing around 100,000 oz after Aureus and Metals Exploration offering investors further choice in the producing sector.
Nord Gold US$3.08, mkt cap US$1157m – Progress of buy-back programme
• Nord Gold has issued an update on the progress of its share/GDR buy-back programme originally announced on 24th February.
• So far, the company has purchased a total of 5,270,785 GDRs for an aggregate sum of US$14,460,554 equivalent to an average price of $2.74/GDR.
• Purchases during the period 1st-5th June inclusive amounted to 234,990 at an average price of $3.03 ($712,962).
• The underlying shares are to be cancelled.
Orosur Mining (LON:OMI) 9 pence, Mkt Cap £8.7m – Option agreement on the Anillo prospect in Chile
• Orosur has announced that it has signed a definitive option agreement with the Chilean company Asset Chile Exploracion Minera Fondo de Inversion Privado (AC) for AC to acquire a 40% interest in Orosur’s share of the Anillo exploration project in northern Chile.
• AC “is a Chilean investment bank, market leader in mergers and acquisitions, financing and asset management group”. The group has established a $25m fund to finance exploration work in Chile under a programme sponsored by the Chilean Ministry of Mines and the Chilean Government Industrial Promotion Corporation.
• AC will pay a total of $300,000 and complete $3,475,000 of work over 3 phases in order to acquire its option.
• Phase 1, earns a 16% interest upon payment of $100,000 and $200,000 of funding; Phase 2 ($200,000 plus $1.25m of funded exploration) brings the AC interest to 32.5% and the final 7.5% interest requires a further $1.375m of funding from AAC.
• Orosur has an agreement with Codelco to acquire a 65% interest in Anillo by spending in excess of US$3m (now completed) and completion of a Feasibility Study by January 2020 (now extended until January 2020). On this basis, we estimate that in the event AC exercises its option and Orosur completes its obligations to Codelco, the ultimate beneficial ownership of Anillo will be Orosur 39%, Codelco 35% and AC 26%.
Trans-Siberian Gold (LON:TSG) 11.75 pence, Mkt Cap £12.9m – Improved operations at Asacha cuts losses in 2014
• Trans Siberian Gold reports an operating profit of $4.4m in 2014 reversing an operating loss of $13.3m in 2013 and a substantially reduced loss of $127,000 in 2014 compared to a loss of $15.66m in 2013.
• The financial result reflects a marked improvement in operating performance at the Asacha mine during the year with gold and silver production increasing by 21.6% to 36,089 oz of gold and by 14.3% to 44,610 oz of silver.
• The improvements stem from improvements in grades and a 42.4% reduction in cash costs. Gold grades increased to 7.68g/t from 6.29g/t and silver grades rose to 13.46g/t from 10.45g/t.
• The company finished the year with net cash of $4.7m compared with net debt of $1.2m in 2013.