Economic News
US – Economic news due this week:
• Today: May existing home sales (+4.8%mom v -3.3%mom in Apr)
• Tuesday: May durable goods orders/ex transportation (-0.7%/+0.5% v -1.0%/-0.2% in Apr, May capital nondefense orders ex air (+0.5% v -0.3% in Apr), Jun Markit manufacturing PMI (54.1 v 54.0 in May), May new home sales (+1.6%mom v +6.8%mom in Apr)
• Wednesday: 3rd Q1/15 GDP reading (-0.2%qoq v -0.7%qoq, 2nd reading)
• Thursday: May PCE core (+0.1%mom v +0.1%mom in Apr), Weekly jobless claims (273k v 267k in the previous week), Jun Markit services PMI (56.5 v 56.2 in May)
• Friday: May pending home sales (+1.0%mom v +3.4%mom in Apr)
China – Markets in China are closed today as the nation celebrates the Dragon Boat festival.
Brazil – The economy is on course to record another quarterly contraction in Q2/15 based on sub-zero reading of the IBC-Br index, a preliminary indicator of GDP growth.
• Economic activity is reported to have declined 0.8%mom in Apr, marking the sixth negative reading in the past seven months.
• The fall outpaced the -0.4%mom decline forecast driven by weaker than anticipated industrial production and retail sales numbers.
• The economy contracted 01.6%yoy in Q1/15 with market estimates for a 0.7%decline in Q2/15.
Greece – Eurozone leaders meet in Brussels today in an effort to reach a deal with Greece while the ECB last week agreed to extend loans to Greek banks under the ELA programme.
• Athens prepared a new set of economic reform proposals for Monday negotiations.
• The ECB is taking a measured approach in extending the ELA by €1.8bn to €85.9bn late last week despite being asked by the Bank of Greece to provide €3.5bn, originally.
• Bank withdrawals are reported to have accelerated recently with c.€5bn leaving the system last week and €1.5bn withdrawn only in Friday.
• It looks the latest ELA provision will last Greece a little less than two days with the risk of the enactment of capital control as soon as this week increasing.
• Question: if French and German banks hold so much Greek debt then what is it that they know that we we don’t?
Cyprus – The IMF agreed to release €278.4m tranche to Cyprus which is part of a three-year €1bn deal approved in 2013.
• This brings total financial aid from the IMF to the nation to €742m.
• The fund recognised “positive results” of the Cypriot reform programme.
• In particular, “liquidity and solvency in the banking system have improved, allowing the elimination of external payment restrictions,” the IMF said.
US$1.1329/eur vs 1.1384/eur yesterday. Yen 123.09/$ vs 122.75/$. SAr 12.177/$ vs 12.189/$. $1.586/gbp vs 1.589/gbp
US$0.777/aud vs0.779/aud
Commodity News
Precious metals:
Gold US$1,195/oz unch vs US$1,197/oz yesterday
• South African gold miners are still being paid “apartheid” wages, new head of SA NUM labour union said ahead of a series of wage negotiations in the gold mining sector due to start today.
• David Sipunzi is planning to press for c.80% increase in pay for lowest paid members who make c. R5,000-6,000 per month.
• Monday wage talks include AngloGold Ashanti, Sibanye Gold and Harmony Gold.
• On a separate note, Russia is planning to continue purchases of gold as means of diversification its FX reserves, the Central Bank Governor said last week.
• Polyus Gold said the Company is planning to start production at Natalka as the weaker USDRUB exchange rate cut development capex considerably.
• Polyus to deliver a review of the project by the end of this month.
Platinum US$1,074/oz vs US$1,093/oz yesterday
Palladium US$700/oz vs US$725/oz yesterday –
Silver US$16.14/oz vs US$16.31/oz yesterday
Base metals:
Copper US$ 5,671/t vs US$5,591/t yesterday – Naperville, Illinois moves to copper only plumbing for new build houses due to the antimicrobial properties of copper.
Aluminium US$ 1,704/t vs US$1,695/t yesterday
Nickel US$ 12,640/t vs US$12,620/t yesterday
Zinc US$ 2,037/t vs US$2,050/t yesterday –
Lead US$ 1,774/t vs US$1,791/t yesterday
Tin US$ 15,305/t vs US$15,200/t yesterday
Energy:
Oil US$63.3/bbl vs US$64.3/bbl yesterday
Natural Gas US$2.748/mmbtu vs US$2.771/mmbtu yesterday
Uranium US$36.75/lb unch vs US$36.75/lb yesterday – three directors of ERA resign in Australia after Rio Tinto defers the Ranger 3 Deeps project.
• Rio Tinto have offered to cover any shortfall in rehabilitation costs.
• The decision to defer the expansion into Ranger 3 Deeps may cause the mine to close in 2021 due to the expiration of its existing lease.
• The traditional land owners, the Mirarr people, said on 12 June they are unlikely to agree to an extension of this lease.
• Ranger accounts for around 1.7% of global mined uranium supply
Bulk commodities:
Iron ore 62% Fe spot (cfr Tianjin) US$62.60/t unch vs US$62.70t – iron ore prices look to fall further as China exports steel at below cost indicating
Steel – Robots to 3D print steel bridge over canal in Amsterdam
• MDX a Dutch design company is planning on 3D printing a 24ft long bridge for foot traffic by printing lines of steel in mid air without the need for supporting structures
• Construction on the bridge is due to start in 2017
• The technology could mark a new era in the construction and innovation of bridges and other structures
Thermal Coal $58.8 vs $59.0 cif ARA Europe
Tungsten - APT European prices price $225-230/mtu on Friday vs $225.3/mtu
Company News
EMED Mining (LON:EMED) 4.875 pence, Mkt Cap £70.4m – Result of Open Offer
• 63% of the open offer has been subscribed for with a total of 45.494m shares taken up.
• The balance of the open offer is to be placed with institutional and other investors.
Conclusion: The 63% take up for the open offer reflects the core support from EMED’s shareholders and we look forward to hearing results on the balance of the take up.
Gemfields (LON:GEM) 60 pence, Mkt Cap £324m – Results of Ruby Auction
• The auction of predominantly high quality rubies netted US$29.3m.
• 72,208 carats were offered in 46 lots with 28 lots sold totalling 47,451 carats.
• Percentage of lots sold was 66% this compared with 85% at the last higher quality auction in Dec 2014.
• Lots sold by weight totalled 66% against 74% in the last comparable auction.
• Average value per carat was US$617.42 against US$688.64 achieved in Dec 2014.
• The auction included a pair of matching rough rubies with a combined weight of 45 carats.
• The pair of rubies was sold to Veerasak Gems of Thailand, a well-known dealer in rubies.
• The next auction of higher quality emeralds from Kagem are due in August 2015.
Conclusion: Prices are around 10% lower than the previous high quality auction in December although absolute prices still being achieved are still high. The company say there has been some softening of demand for stones with darker tones and lower grade. Prices for coloured stones have held up well particularly for high quality stones – against a softening in prices for diamonds, we are not surprised to hear that there is a similar impact on the lower grade lots in rubies.
*Two SP Angel Analysts have visited both Kagem and Montepuez last year and on the recent site visit in April 2015
Ormonde Mining (LON:ORM) 1.775 pence, Mkt Cap £8.4m – Closes on financing for Barruecopardo
• The company have received an initial equity funding of US$25m from Oaktree.
• Receipt of funds enables the JV to start detailed engineering work ahead of plant construction.
• The final negotiations are also being made on the construction management contract.
• Barruecopardo is being targeted for commissioning at the end of 2016.
Conclusion: This is good news for the company – with initial funds in place, the time line for construction can start. The backdrop for tungsten prices has been weak but is expected to improve in the medium term with 18 months to construction, there is scope for tungsten prices to improve from here. 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
Rambler Metals (LON:RMM) 11.5 pence, Mkt Cap £16.6m – Results for the third quarter
• The company made a net profit of $1.32m against a loss for the second quarter of $4.34m and a profit of $2.3m the same time last year.
• EBITDA was $3.67m against a loss for the previous quarter and $6.24m in Q3 2014.
• Cash at the end of the quarter (April 2015) stood at $4.1m.
• The company continue to work towards improving profitability and establishing a new mineral reserve.
Savannah Resources (LON:SAV) 3.75 pence, mkt Cap £8.5m – Conditional agreement with Rio Tinto for mineral sands JV in Mozambique
• Savannah Resources has announced a conditional deal with Rio Tinto’s subsidiary. Rio Tinto International Holdings Limited (RTI), to combine their respective minerals sands interests in Mozambique.
• Savannah’s subsidiary, AME East Africa Limited will combine the Mutamba, Dongane and Jangamo prospects and RTI’s adjacent Chilubane heavy minerals sands projects located 300-450 kms north east of the capital, Maputo.
• Savannah’s CEO, David Archer, said “The amalgamation of the Mutamba, Dongane and Jangamo Projects makes enormous sense as it combines three areas which are effectively part of the same, continuous mineralisation trend.”
• Savannah can earn up to 51% of the combined Mutamba/Jangamo Project in three stages. Savannah will also be the operator of the proposed unincorporated JV.
• The first phase will comprise reconnaissance, drilling and resources definition of high grade heavy minerals sands leading to a scoping study. Successful delivery of the Scoping Study, which is expected to take around six months will earn Savannah an initial 20% interest.
• Phase 2, comprising additional exploration, drilling, resources definition and metallurgical testing, initial baseline environmental studies and flowsheet design leading to a pre-feasibility study will increase Savannah’s interest to 35%.
• The final phase 3 work leading to delivery of a feasibility study will give Savannah Resources its 51% share in the projects.
• Rio Tinto has undertaken to provide offtake agreements, on commercial terms, for the full production of any mine that may be developed in the Mutambo / Jangamo area. The underpinning of a major off-taker could be an important factor in mitigating the risks of a future mine development.
• The recent improvements by Kenmare Resources at its Moma minerals sands operation may provide useful lessons for the future development of mineral sands operations in Mozambique.
• Savannah has also entered a conditional agreement with 80% owned Matilda Minerals Limitada, the holder of the Jangamo licence, to acquire the 20% interest it does not currently own for a consideration of A$100,000 payable in either Savannah shares or in cash.
Conclusion: The opportunity to consolidate a large and contiguous area of heavy mineral sands makes considerable sense in operating and commercial terms and could signal a major shift in focus for Savannah Resources. In order to fulfil its obligations under this agreement, Savannah Resources may need to divert some of its financial and technical resources away from its promising copper and gold exploration in Oman. The support of Rio Tinto, and access to its substantial technical database on the project areas should provide a solid basis for the future exploration work.