Economic News
Greece – Collapsed bailout talks on Sunday see equity markets lower this morning.
• Creditors are reported to have rejected the latest Greek economic reform proposal.
• Athens are running out of time as the government faces a €1.5bn debt amortisation payment to the IMF in two weeks times.
• Greece owes France and Germany a total of €160bn – indicating why Mrs Merkel has spent so much time negotiating with the Greek government
US – Economic news due this week:
• Monday: Jun New York manufacturing 6.0 v 3.1 in May (the highest level hit in LTM was 27.5 in Sep/14), May industrial production (+0.2%mom, v -0.3%mom in Apr), May capacity utilization (78.3% v 78.2% in Apr)
• Tuesday: May housing starts (-3.3%mom v +20.2%mom in Apr), May building permits (-3.5%mom v +9.8%mom in Apr)
• Wednesday: FOMC rate decision (no change forecast)
• Thursday: May CPI (+0.5%mom/+0.0%yoy v +0.1%mom/-0.2%yoy in Apr), May core CPI (+0.2%mom/+1.8%yoy v +0.3%mom/+1.8%yoy in Apr), weekly jobless claims (278k v 279k in the previous week)
• Friday: May existing home sales (+3.8%mom v -3.3%mom in Apr)
UK – S&P cut the UK sovereign credit rating outlook to ‘negative’ as a promised EU-membership referendum may see the UK exit the union.
• “A possible UK departure from the EU also raises questions about the financing of the UK’s large twin deficits and its high private short term external debt,” the agency wrote.
Switzerland – The Swiss National Bank announces its interest-rate decision along with new growth and inflation estimates this Thursday.
• Estimates for the SNB to leave the benchmark deposit rate at a record low of -0.75%.
• Previous SNB forecasts were for a 0.9% growth GDP and a 1.1% decline in consumer prices this year. Inflation rate to turn positive again online in 2017, according to current estimates.
• The economy recorded a 0.2%qoq decline in Q1/15, the first quarterly fall in 13 quarters, on the back of weaker exporters hurt by strong franc.
India – Wholesale price index recorded a 7th consecutive yoy decline in May (-2.36%yoy v -2.65%yoy in Apr).
• This marks a sharp contrast to last year’s pace of inflation as the rate run at +6%.
• The report highlights fuel and power prices declined 10.5%yoy more than offsetting a 3.8%yoy increase in food inflation.
• Low inflation pressure helps the central bank to continue easing its monetary policy with three cuts completed through the year so far.
US$1.1243/eur vs 1.1164/eur yesterday. Yen 123.51/$ vs 123.77/$. SAr 12.398/$ vs 12.439/$. $1.553/gbp vs 1.549/gbp
US$0.772/aud vs0.769/aud
Commodity News
Precious metals:
Gold US$1,179/oz unch vs US$1,179/oz yesterday
Platinum US$1,085/oz vs US$1,099/oz yesterday
Palladium US$734/oz vs US$742/oz yesterday – prices continue to fall
Silver US$15.94/oz vs US$15.92/oz yesterday
Base metals:
Copper US$ 5,812/t vs US$5,883/t yesterday –
Aluminium US$ 1,716/t vs US$1,740/t yesterday
Nickel US$ 12,925/t vs US$13,045/t yesterday
Zinc US$ 2,099/t vs US$2,101/t yesterday
Lead US$ 1,823/t vs US$1,841/t yesterday –
Tin US$ 14,550/t vs US$14,940/t yesterday
Energy:
Oil US$63.6/bbl vs US$64.3/bbl yesterday
Natural Gas US$2.827/mmbtu vs US$2.791/mmbtu yesterday
Uranium US$36.25/lb unch vs US$36.25/lb yesterday
Bulk commodities:
Iron ore 62% Fe spot (cfr Tianjin) US$63.7/t unch vs US$64.2/t -
Thermal Coal $58.6 vs $58.0 cif ARA Europe – Strong demand from India for cleaner coals driving Australian thermal coal production
Tungsten - APT price in China at $232.5/mtu vs $230-240/t now running ahead of European prices of $230-235/t
Company News
BHP (LON:BLT) – looking to double size of Olympic Dam mine
• BHP is getting more bullish on copper as it plans to double the size of its giant Olympic Dam mine on the back of a better outlook for copper
• BHP ceo comments its ‘game on’ for expansion at Olympic Dam
• BHP may be keen to raise its copper production to >2mtpa to make it the world’s largest copper producer of which Olympic Dam would be a key part
• The company hope to use heap-leach copper production to expand production at Olympic Dam to 450,000tpa from 180,000tpa by 2024 though the technology needed to run the copper heap-leach still needs perfecting according to The Australian newspaper.
International Mining & Infrastructure (LON:IMIC) 12.25 pence, Mkt Cap £24.1m – Bond Restructuring
• The company are in discussions with bond holders on the restructuring of the US$30m 9% bond due on 20th Dec 2017.
• The bonds were issued by Afferro Holdings on 26 Nov 2013 as an unsecured bond with a drawable value of US$100m of which US$30m was drawn.
• The interest payment due of US$1.35m due on 20 June 2015 will be delayed until 20 Dec 2015.
• This is the last of the bonds on the balance sheet which is to be restructured.
• On the 17th April the company extended the maturity of its 8.125% Oct 2015 bond (US$10m drawn out of US$50m) by 5 years to Oct 2020 and reduced the coupon to 5%.
• On the 28th April the company extended the maturity of its 8.875% Oct 2016 US$20m bond by 5 years to Oct 2021 and reduced the coupon to 5%.
• On the 28th April the US$30m 8.75% due in Oct 2016 had the maturity extended by 5 years to Oct 2021 and the coupon reduced to 5%.
Conclusion: It is not clear who the holders of these bonds are. Given the current state of the company which is dependent on revenues and/or crystallisation of value from early stage iron ore assets, the balance sheet with such a high level of debt with around US$49.5m of convertible bonds on top is hard to justify.
Kefi Minerals* (LON:KEFI) 0.9p, Mkt Cap £12.4m – AGM project update
• Kefi Minerals has availed itself of the Chairman’s AGM Statement to summarise progress on its projects in Ethiopia and in Saudi Arabia.
• At its 95% owned Tulu Kapi project in Ethiopia, Kefi Minerals has secured full regulatory approval for mine development and re-engineered the development plan of the previous owners to reduce capital costs to approximately $120m from $290m while increasing overall gold output by around 100,000 oz to approximately 1 million ounces.
• Mine development contractors and potential project financiers for the Tulu Kapi development have been shortlisted and selection of the approved partners is expected within the next quarter. “We have also started focussing on the longer-term potential to double the 1 million ounce Ore Reserve by addressing the p[rospects identified under, and around, Tulu Kapi.”
• In Saudi Arabia, acting with a 60% local partner, ARTAR, Kefi Minerals’ Gold and Minerals joint-venture has already identified resources of 733,000 oz of gold at Jibal Outman since it acquired the licence in 2012. Jibal Outman “is shaping up to be a viable cash flow producer with a low capex requirement and with a capacity to generate the net cash flows for financing, in due course, the prospecting of our very large pipeline of exploration licence applications.”
• Elsewhere in Saudi Arabia, the recently acquired Hawiah licence, which Kefi Minerals secured in December 2014, has been shown to contain a six-kilometre long mineralised gossan. Surface sampling and geophysical surveying has been undertaken already and Kefi Minerals plans to start drilling during the second half of the year.
Conclusion: Kefi Minerals has found the Ethiopian Government highly supportive of the development of the Tulu Kapi project and with the completion of the latest iteration of the Definitive Feasibility Study last week, the company is working towards the start of construction later this year. The Saudi Arabian projects have the benefit of a strong and supportive local partner and the possibility of generating cashflow from Jibal Outman could help in the exploration of other projects in the pipeline in the country.
*SP Angel act as Nomad to Kefi Minerals. An SP Angel analyst has visited the Tulu Kapi mine site with Kefi Minerals.
Orosur Mining (LON:OMI) 9 pence, Mkt Cap £8.7m – FY to May 2015 production and cost guidance achieved
• The company reports that following Q4 gold output of 13,187 oz it produced a total of 53,485 oz of gold during the year ending 31st May 2015. This is in line with the company’s production guidance of 50-55,000oz.
• Costs of $912/oz were also in line with guidance for the year of $850-950/oz with Q4 costs coming in at $848/oz.
• Orosur’s guidance for the year to May 2016 is for 50-55,000 oz at operating cash costs of US$850-950/oz suggesting little change in overall production and cost is expected in the coming year.
• During FY 2015, approximately 45% of the ore was sources from open-pit mining with the balance generated by underground operations at the Arenal mine.
• The company is proceeding with additional underground operations at the SG Deeps project and is evaluating “non-dilutive project funding”. Detailed engineering and design work for the west area has been completed and “Decisions to develop further extensions to mine the central and eastern areas of the deposit are expected to be considered at a later stage once the SG Deeps project in the west area has been advanced sufficiently. SG Deeps remain open at depth.”
• The new underground operation at SG West is planned to produce approximately 30-35,000 oz of gold during a 15-18 month period. “Applications are underway for the approval of the development of an underground mine by the relevant environmental and mining authorities in Uruguay.”
Conclusion: Orosur is looking to deliver a similar cost and production profile in FY 2016 as it achieved in 2015. We look forward to news of the mining approvals for additional underground mining at the SG Deeps project.
Vedanta Resources (LON:VED) 613 pence, Mkt Cap £1.65bn – Merger of Vedanta and Cairn India
• The company are consolidating their position with Vedanta and Cairn India.
• Cairn India shareholders will receive 1 Vedanta share and 1 redeemable pref share in Vedanta with a face value of INR 10.
• This gives and implied premium of 7.3%.
Conclusion: This has been in the cards for a while and should not be a surprise to the market.