China – further evidence of economic slowing showing in reduction in iron ore stocks
• Chinese port iron ore stocks fall 20mt to 79mt in mid June despite relatively consistent daily offtake volumes.
• The implication is that either liquidity has tightened or traders fear a sharp slowdown in demand for steel products
• We assume anticipation of a pullback in steel production and tightening liquidity to have led traders to a more conservative approach to stockholdings.
• We are used to watching China shake the tree to dislodge loose holders of commodities and reduce prices.
• This time it looks and feels different with greater anecdotal evidence pointing towards a more fundamental slowdown in Chinese construction growth.
• The combination of a marked slowdown in China and the potential impact of a near-inevitable Greek debt default could have a significant impact on metals as well as all other markets
Economic News
US – Investors’ attention is on the FOMC monetary policy statement today.
• Expectations are for rates to remain unchanged at 0.0-0.25%, while the announcement may give a clue to when the first rate hike to be expected.
• Housing starts fell 11.1%mom in May, although, the fall comes following strong Apr month when starts climbed 22.1%mom.
• Building permits: +11.8%mom in May v +9.8%mom in Apr and -3.5%mom forecast.
Japan – Trade data come in worse than forecast despite a support from the depreciating currency.
• Exports climbed 2.4%yoy, marking the slowest pace in the last nine consecutive increases, in May. Market estimates were for a 3% increase.
• Imports fell 8.7%yoy, more than double the 4.2%yoy decline recorded in Apr. This marks the fifth consecutive decline driven by lower oil prices as well as weaker consumption.
Germany – Zew economic sentiment index comes down in Jun reflecting the uncertainty over the Greek sovereign crisis.
• Zew survey current situation index: 62.9 v 65.7 in May and 63.0 forecast.
• Zew survey expectations index: 31.5 v 41.9 in May and 37.3 forecast.
UK – Consumer prices climbed 0.1%yoy in May ending a brief period of deflation the previous month.
• CPI: +0.1%yoy v -0.1%yoy in Apr and +0.1%yoy forecast.
• Core CPI: +0.9%yoy v +0.8%yoy in Apr and +1.0%yoy forecast.
• Market estimates are for the index to remain close to 0 for the next few months as the effect of lower oil prices falls out of the calculation and begin to pick up during winter months.
Brazil – Consumers continue to cut spending amid growing unemployment, rising inflation and a series of tax hikes implemented by the government to help its fiscal deficit.
• Retail sales fell 0.4%mom in Apr following a 0.9%mom decline in Mar.
• Household consumption has been going down in the last three months.
Greece – Mr Varoufakis said there are no plans to bring new reform proposals to the finance ministers’ meeting this Thursday.
• Given the fact that the latest one had little success in persuading Eurozone members to release bailout funds, there is an increasing risk Greece will fail to secure funding ahead of the €1.5bn loan repayment due in less than two weeks.
A Greek proverb
• A train might be late into a station
• The train might be slow coming
• But when the train of Greek default crashes through Western markets, the wait might not lessen its impact
US$1.1267/eur vs 1.1292/eur yesterday. Yen 123.84/$ vs 123.55/$. SAr 12.436/$ vs 12.443/$. $1.573/gbp vs 1.561/gbp
US$0.769/aud vs0.773/aud
Commodity News
Precious metals:
Gold US$1,180/oz unch vs US$1,182/oz yesterday
Platinum US$1,076/oz vs US$1,089/oz yesterday
Palladium US$732/oz vs US$736/oz yesterday
Silver US$16.00/oz vs US$16.05/oz yesterday
Base metals:
Copper US$ 5,777/t vs US$5,784/t yesterday – Weak supply of clean copper concentrate push smelters’ TC/RCs to lowest levels since Sep/13, according to MetalBulletin.
• The MB copper concentrates index dropped to US$86.8/8.68c this week, down from US$91.2/9.12c at the end of May.
• Lower quality and blended cargoes supply remained sufficient and continued to trade between US$110/11.0c and US$130/13.0c, depending on specification.
• Collahuasi workers end a 24-hour strike over issues such as lunch breaks and health coverage.
Aluminium US$ 1,714/t vs US$1,710/t yesterday
Nickel US$ 12,795/t vs US$12,750/t yesterday
Zinc US$ 2,090/t vs US$2,091/t yesterday
Lead US$ 1,810/t vs US$1,815/t yesterday –
Tin US$ 14,620/t vs US$14,610/t yesterday
Energy:
Oil US$64.4/bbl vs US$64.1/bbl yesterday
Natural Gas US$2.892/mmbtu vs US$2.914/mmbtu yesterday
Uranium US$36.50/lb vs US$36.50/lb yesterday
Bulk commodities:
Iron ore 62% Fe spot (cfr Tianjin) US$62.90/t unch vs US$64.25t –
• Chinese port iron ore stocks fall 20mt to 79mt in mid June despite relatively consistent daily offtake volumes.
• We assume anticipation of a pullback in steel production and tightening liquidity to have led traders to a more conservative approach to stockholdings.
Thermal Coal $58.2 vs $58.6 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
DiamondCorp (LON:DCP) 11.375 pence, Mkt Cap £40.4m – Open offer
• The company have launched their previously announced open offer of 20.894m shares at 10 pence.
• The open offer is not being underwritten but will raise £2m if fully subscribed.
• Funds raised are to be used to purchase two dump trucks to improve operational flexibility and as a deposit towards a Tomra sorting machine.
Conclusion: The open offer gives shareholders the opportunity to buy shares at the same level as the recent £3.18m placement to institutions. The previous fund raise replaced a proposed royalty arrangement with Acrux which removed uncertainty on the impact on future revenues.
A further £2m will enable the company to improve operations – the deposit on a Tomra machine should be helpful in the future. These machines which have a 15 month waiting list will reduce the waste going into the process plant which should increase operating capacity and also importantly reduce the use of water. We remain buyers as the company moves closer to commercial production.
*An SP Angel Analyst has recently visited the Lace mine
FinnAust Mining* (LON:FAM) 1.6p, mkt Cap £4.8m – Operations update
• FinnAust Mining report the company has now drilled 15,000m since its listing on AIM in December 2013 and has identified a series of new mineralised zones near a number of past producing mines.
• “At Hammaslahti FinnAust discovered new lodes and extensions to the previously mined zones.” According to the company’s statement.
• Management are analysing the drill results along with geophysical data for further exploration with the support of Western Areas, the successful Australian nickel producer and explorer.
• Western Areas have made significant resources, and expertise available to FinnAust and have providing extensive technical assistance throughout the exploration programme to date, significantly reducing exploration costs.
• Best results from each project to date include:
o Hammaslahti Copper Project: 5.6m @ 3.2% copper ('Cu'), 2.7% zinc ('Zn'), 0.7% lead ('Pb'), 71gpt silver ('Ag') and 0.76 gpt gold ('Au') from 196.80m and 20.45m @ 1.12 % Cu and 5.5gpt Ag from 166.55m
o Kelkka Nickel-Copper Project: 1.5m @ 0.68% Ni, 0.31% Cu from 61.50m
o The FinnAust Chairman Dan Lougher comments that "The 15,000 metres of drilling undertaken to date has proven the existence of undiscovered mineralised zones within two of our licence areas. We are focused on translating these discoveries into development opportunities and with our understanding of the licence areas now refined, our near term priority is to concentrate on future drill targets. The Company will continue to benefit from Western Area's ongoing support, exploration experience and resources as we conduct this analysis and I look forward to updating shareholders on these developments in due course."
* SP Angel acts as nomad and broker to the company
Goldplat*(LON:GDP) 2 pence, Mkt Cap £3.3m – Trading Update
• The company have updated on trading specifically with respect to the treatment of material through Rand Refinery.
• Goldplat has not been able to process materials through Rand Refinery for some time.
• This has created a backlog of material and has impacted the profits and cash flows of the company.
• Alternative routes were identified and Aurubis Refinery in Germany has been treating some of this material.
• The company is to benefit from 5 months worth of material in terms of cash.
• The company are also increasing their elution capacity which has gone from 2 tpd to 3 tpd.
• Other initiatives are being pursued to improve operational efficiency.
Conclusion: Goldplat appear to be returning to business as usual. There is still little clarity on what the impact of the inability to process material through Rand Refinery has had on profitability and cash flows. We look forward to hearing further news flow on this front.
*SP Angel act as Nomad & Broker to Goldplat
Leed Resources* (LON:LDP) 0.05p, mkt cap £1.6m - Corporate Update - High Mannor
• Leed Resources, which recently invested into the building block business ‘Clutural Limestone’ business in Western Australia through its investment in the controlling shareholder of High Mannor.
• The company reports the arrival of the first batch of moulds and bases for making ‘outdoor’ wall panels by reconstituting limestone from it’s the ‘Cultural Limestone’ quarry
• Five moulds and twenty bases for making wall panels has been delivered to the High Mannor quarry north of Perth. The moulds create 40 block equivalent panels.
• The first new generation wall panels will be produced over the next few weeks and deliveries to customers should begin shortly thereafter.
• The second batch of moulds and bases should be delivered in July.
• An important design change made to the moulds earlier this year means that each mould has four bases thereby increasing the output per mould and the capacity for wall panel production at the quarry. The design change delayed the mould delivery but should enable the company to better meet anticipated strong demand.
• One of High Mannor’s largest customers recently extended its contract with High Mannor for a further two years highlighting the pre-approval of the use of the new wall panels.
• High Mannor management reckon there should be strong demand for the new wall panels due to the time saving and lower cost of laying the panels compared with the process of laying individual blocks.
• Management reckon the market is good for these sorts of wall panels with ongoing construction of new housing for first time buyers in the Perth area.
• “The use of wall panels is particularly well suited to these types of new housing developments and High Mannor will be the only producer offering reconstituted limestone wall panels in Western Australia.”
• Leed Resources invested A$1.2m (£850k) by way of a convertible note with a 12%pa interest rate rising to 14% after two years if not converted. Leed Resources received its first £15k coupon from its investment in April and expects the second in July.
* SP Angel acts as nomad and broker to Leed Resources
Hummingbird Resources (LON:HUM) 34.5 pence, Mkt Cap £32m – Update on Technical Studies at Yanfolila
• Technical studies on the Yanfolila project has yielded better recoveries on the Komana East and West pits totalling 401,000 oz or up 38%.
• This is a result of improved pit designs and mine scheduling.
• Improvements have been based on grade control drilling at both deposits.
• Based on the success of this drilling, the mine plan will be based on a two pit mine plan in the early years of the mine life.
• In later years, 3 other prits are planned to be brought on line.
• The company has raised £3.5m to advance the Yanfolila project
Medusa Mining (ASX:MML) A$0.84, Mkt Cap A$208m – Production guidance for FY 2015-2016
• The company which has a June year end has provided guidance for the FY 2015/2016 financial year.
• The company are guiding to 120-130,000 oz at a cash cost of between US$380-430/oz.
• An all in sustaining cost is estimated at US$960-US$1,060/oz with development expenditure of US$40m and sustaining capex of US$10m
• As previously guided the company plan capex of US$10m for a service shaft.
• Production for 2016-2017 is currently estimated at 135-145,000 oz.
Conclusion: A 20-30% increase in production in the next financial year gives scope for the top line to grow and for costs to improve against a side-ways move in gold prices. The company are slowly re-building their production targets and hopefully credibility in the markets. The shares have recovered from their lows but continue to be a recovery play.
Ormonde Mining* (LON:ORM) 1.8 pence, Mkt Cap £8.15m – Annual Results
• The annual results from Ormonde highlighted progress on the Barruecopardo project.
• The project has now been permitted with funding secured from Oaktree Capital.
• The funding package is for US$99.7m and is a combination of project equity of US$44.2m and project debt of US$55.5m.
• The funding structure gives Oaktree 70% ownership of the JV company which will own the Barruecopardo project.
• A loss of €1.63m was reported for the year and cash at the end of the year stood at €511,000.
Conclusion: Despite the securing of permitting and funding for Barruecopardo the share price remains under pressure. The backdrop for tungsten prices has been weak – however, the medium term fundamentals continue to be positive for tungsten prices as supply outside China remains constrained in the medium term with new supply from Wolf’s Hemerdon mine and Barruecopardo replacing production from bigger mines such as Cantung that are coming to the end of their mine life.
The Oaktree deal has resulted in Ormonde becoming a minority owner of the Barruecopardo project with 30% ownership of the project. We are currently reviewing our valuation for the company based on lower tungsten price assumptions and a changed funding structure. While the valuation is sensitive to lower tungsten price assumptions this is partially mitigated by the fall in the Euro. Even with reduced ownership of the project, the inherent value of Barruecopardo provides scope for upside from current prices. The market may not however re-rate the shares till tungsten prices start moving from here and the project moves into the execution phase.
*SP Angel act as broker to Ormonde Mining
Tertiary Minerals* (LON:TYM) 2.875p, Mkt £5.4m – Resource increase for the MB Project, Nevada
• Tertiary Minerals report that, following completion of the Phase 3 drilling programme at its MB Fluorspar Project in Nevada, the consultants, Wardell Armstrong have updated the resource estimate to 86.4m tonnes at an average grade of 10.7% fluorite.
• The new estimate represents a 125% increase on the previous estimate of 38.4m tonnes averaging 10.4% which was released in April 2014.
• The estimate, which uses a 9% cut-off-grade includes 6.1m tonnes (7.1%) grading 10.8% classified as “indicated” under the JORC Code (2012); the balance is “inferred”. The overall resource estimate is contained within an optimised pit shell extending to maximum depth of 300 metres below surface.
• The “indicated” part of the resource lies in the southern part of the resource area where drilling density on an approximately 80 metres grid pattern and geological continuity provide “a reasonable level of confidence” in the estimate.
• The MB fluorspar deposit remains open both laterally and at depth leading the company to “believe that, eventually, the deposit size will far exceed the current estimates.”
• “Higher fluorspar grades and thick intersections, which have been encountered in the western area during Phase 3 lead the company to believe that this area is closer to the core of the mineralising system where the Directors believe that higher grade fluorspar may be found.” Follow up geophysical surveying is now planned to assist in identifying sites for the next phase of drilling.
• Conclusion: Tertiary Minerals has delivered a very substantial resource upgrade from its Phase 3 drilling work on the MB Project and the deposit remains open both laterally and at depth providing the potential to generate further resource increases in the future. Much of the resource remains in the “inferred” category and further infill drilling will eventually be required to bring a higher proportion up to the “indicated” or “measured” status which will be required for more detailed mine planning and economic evaluations.