Greece – Athens misses the IMF payment with another €3.5bn owed to the ECB and Eurozone national banks on 20 Jul.
• “No” vote in the referendum on proposed bailout reforms is leading in the polls with some 46% of respondents in favour of voting the programme down.
• Although, it is noted the percentage has gone down from nearly 57% since banks closed over the weekend.
o Greece is now a sideshow in our view compared with what is going on in China. The problem is that European leaders have dedicated so much time to resolving the Greek debt crisis that policymakers have not attended to the generation of growth within the European Union.
Iron ore prices fall 11% to US$55.40/t from US$62.50t causing the major iron ore miners, Rio Tinto and BHP to fall
• The government of Western Australia cuts iron ore price forecast by 10% to $54.40/t for 2015 on weakening demand for steel within China
• Capital Economics forecast iron ore prices to fall below $40/t flagging potential for a further ‘sharp move’.
• The Australian state cites that housing construction remains a key area of uncertainty in China.
• MySteel, the China steel specialists, note that some 50 blast furnaces are now shutdown for maintenance this summer and we suspect that some will be on an extended shutdown till demand picks up as the Chinese state moves to rebalance local supply and to remove the least efficient producers.
• We understand from construction machinery suppliers that demand for new kit is dreadful but we also note that the government is enabling local authorities to finance infrastructure projects including suburban rail systems which are generally big consumers of steel, stainless steel and other raw materials.
• Australian supply is expected to continue to rise over the next two to three years potentially creating temporary surpluses in China as higher cost local mines are forced to close
• China might be slowing but it is far from stopped
Steel – China slowing steel production as domestic demand falls
• China is slowing steel output as the number of steel mills shutdown for summer maintenance rises to >50 cutting capacity utilisation to 88% from around 89%
Economic News
US – Property prices growth based on home values in 20 cities slowed slightly in Apr and remain still 8.8% below the peak of the market in Apr/07.
• S&PCS 20 city index: +0.3%mom/+4.9%yoy v +1.0%mom/+5.0%yoy in Mar and +0.8%mom/+5.5%yoy forecast.
• Economic news due today:
o Jun ADP employment change (+218k v 201k in May)
China – Official PMI numbers showed the manufacturing sector expanded for the fourth consecutive month in Jun.
• Estimates were for a slight acceleration in growth from May (50.4 v 50.2 in the previous month).
• Services favoured better posting 53.8 reading, up from 53.2 in May.
• HSBC measure of the manufacturing PMI was less positive: 49.4 v 49.6 in May.
• In a separate report, the World Bank released its latest economic growth forecasts showing Chinese growth to slow down to 7.1% this year and 6.9% by 2017 compared with +7.4% in 2014.
Japan – Business sentiment improves as indicated by the latest Tankan survey of 10,500 Japanese enterprises.
• Capital outlays, an indicator of the businesses’ confidence in the market strength, climbed 9.3% in Q2/CY15, up from +4.0% forecast and -1.2% recorded in Q1/CY15.
South Africa – The government is selling its 13.9% in Vodacom, the nation’s biggest mobile operator, with the proceeds to be invested in Eskom.
• The sale is estimated to generate some R28.7bn (US$1.9bn), according to Bloomberg.
• R23bn of proceeds will contribute to reducing the Eskom’s outstanding R200bn funding gap through 2018.
Macau – Casino revenues are reported to have fallen 36.2%yoy in Jun to US$1.67bn.
• The sector has not favoured well in the last 18 months as mainland China pushed to reduce corruption.
• In 2014, casino revenues recorded the first full year annual decline since records began in 2002.
US$1.1135/eur vs 1.1154/eur yesterday. Yen 122.79/$ vs 122.12/$. SAr 12.193/$ vs 12.241/$. $1.566/gbp vs 1.572/gbp
US$0.771/aud vs0.768/aud
Commodity News
Precious metals:
Gold US$1,173/oz unch vs US$1,177/oz yesterday –
Platinum US$1,085/oz vs US$1,083/oz yesterday –
Palladium US$689/oz vs US$671/oz yesterday –
Silver US$15.62/oz vs US$15.73/oz yesterday
Base metals:
Copper US$ 5,772/t vs US$5,724/t yesterday –
• Copper production in Chile climbed 2.1%yoy to 508.3kt in May on “operational improvement in an important processing plant and to the contribution made by plants that were not operating in May/14”, according to the national statistics institute.
• MoM copper output was up 7.8%.
• YTD copper production climbed 2.3%yoy to 2.43mt.
Aluminium US$ 1,697/t vs US$1,685/t yesterday
Nickel US$ 12,020/t unch vs US$11,625/t yesterday – Avebury nickel mine sale in Tasmania fails as NMG fails to raise funds for the purchase
• The Tasmanian government have offered up to $3.5m in payroll tax and stamp duty relief if the purchase goes through
• Nickel prices briefly touched the lowest level in more than five years this week as the Shanghai Futures Exchange approved Norilsk Nickel metal for delivery against futures contracts.
• The metal price fell to US$10,795/t this morning.
Zinc US$ 2,006/t vs US$1,973/t yesterday –
Lead US$ 1,765/t vs US$1,758/t yesterday
Tin US$ 14,140/t vs US$14,100/t yesterday
Energy:
Oil US$62.9/bbl vs US$62.4/bbl yesterday
Natural Gas US$2.803/mmbtu vs US$2.794/mmbtu yesterday
Uranium US$35.75/lb vs US$36.75/lb yesterday –
Bulk commodities:
Iron ore 62% Fe spot (cfr Tianjin) US$55.40/t unch vs US$62.50t –
Thermal Coal $60.5 unch vs $59.8 cif ARA Europe – Chinese demand for thermal coal shipments from Asia falls 31% yoy to 157mt est. for the fiscal year to end June ’15.
• Australian shipments are impacted by the relative strength of the Australian dollar while the US dollar is seen as weak compared with other major thermal coal producers
• Japanese thermal coal imports are reported to be steady at around 148mt for the fiscal year.
Tungsten - APT European prices price $217.5/mtu vs $225/mtu last week
Ferrochrome - Eskom application for a second power tariff increase for the Apr15/16 year has been refused.
• The application demanded a revision to granted 12.7% tariff increase to 25.3%.
• The national regulator, Ersa, said Eskom failed to support its case and explain delays in the commissioning of its latest power stations (Medup, Kusile and Ingula).
• Also, Eskom is reported to have not accounted for the effect of the latest government R23bn cash injection on its financial position. The investment will come once the government receives proceeds for its share sale in Vodacom (see Economics section).
Lithium – Duke Energy is converting its massive lead-acid battery storage facility in Texas to lithium
• The 36MW energy storage facility was originally planned to store energy from wind farms but has been mainly used by the local energy supply company to balance its grid operations.
• The facility demonstrates the value of using batteries for balancing grid systems and the fast charging characteristics of lithium is seen as better than using slower lead-acid systems
Company News
EMED Mining (LON:EMED) 4.375 pence, Mkt Cap £153m – Quarterly Statement
• There was little new news in this update with the quarterly focussed on achievements to date to re-start the project.
• The Rio Tinto project is now fully funded and permitted not only for the 5 mtpa initial production but to an expanded production of 7.5 mtpa.
• For the quarter the company reported a loss of €10.6m with cash and cash equivalents of €4.3m.
• Post period the company completed a capital raise of £64.9m at 4.75 pence – £54.7m through a subscription with investors, £6.8m through a placing and £3.4m through an open offer.
• Funding will be used to finish the Phase 1 development to 5 mtpa and for expansion to 7.5 mtpa as well as working capital and a contingency budget.
• US$38m will be used to complete Phase 1 with US$58m earmarked for Phase 1 expansion.
• The US$11m Environmental Bonding has been replaced with an insurance bond with no cash backing and no longer needs to be funded.
• The project has achieved US$62m of cost reductions with US$24m saved through revised exchange rates from €/$ of 1.25 in the technical report rebased to 1.10.
• Post the placing Trafigura will own 22.01% of shares, XGC 21.93%, Orion 14.56% and Liberty 13.98%.
Conclusion: The company is now all set to continue work towards first phase delivery of 5 mtpa around 22 kt in Q1 2016 of payable copper concentrate rising to around 28 kt of payable copper concentrate with an all in cash cost of $1.73/lb or US$3,812/t. This should enable the company to generate cash flows at the current copper price of US$5,764/t. With the deal now equity funded, there is currently no legal obligation to pay the deferred consideration of €53m due to MRI as previously expected. A lower €/$ exchange rate has also been helpful to capex and opex. The requirement for environmental bonding is now replaced with an insurance bond which does not require cash backing.
A number of steps have been taken to improve the cash flows of this project which should be helpful to the base case against a lower copper price environment with upside to come from the potential to expand reserves and/or higher copper prices.
IronRidge Resources (LON:IRR) 4.125 pence, Mkt Cap £9.8m – Appointment of Country Manager for Gabon
• Len Kolff joins IronRidge to work as a Country Manager for Gabon.
• Len previously worked as Technical Director at the Mofe Creek Iron Ore project in Liberia owned by Tawana Resources.
• Prior to that Len worked at Rio Tinto where he worked on the Simandou iron ore project and the NorthParkes copper/gold mine.
• He brings experience of running mining projects from design of drilling and feasibility studies to mine planning and development functions.
• He holds a BSC from the Royal School of Mines and a Masters of Economic Geology from CODES.
• Barry Stoffell and Amanda Geard who were key in establishing the iron ore projects in Gabon, are to leave the company.
• Barry and Amanda were also responsible for the initial exploration initiatives which will be taken forward by a team from SRK.
Conclusion: Len Kolff takes over country responsibility with a formal work programme to be run by SRK in place. An exploration budget of US$12.8m has been set to conduct exploration at both the Tchibanga and Belinga projects with a 10,000m drilling programme planned at Tchibanga. The exploration programmes are based on geophysics, mapping and sampling to date. Geophysics data is mainly from previous airborne surveys over the licences by BHP Billiton
We look forward to news flow from these projects as the work programme is implemented.
*SP Angel act as Nomad and Broker to the IronRidge Resources and a SP Angel Analyst has visited the Tchibanga Project.
Kefi Minerals* (LON:KEFI) 0.85p, Mkt Cap £14.8m – Q2 Update highlights Tulu Kapi development to produce gold by 2017
• Kefi has issued an update on its operational activities in the months to 30th June.
• At the flagship, Tulu Kapi gold project in Ethiopia, the Government has signed a Mining Agreement for a 20 year licence and has delivered an updated ore reserve estimate of 15.4m tonnes at 2.12 g/t gold (1.05m oz of contained gold).
• The Definitive Feasibility Study for Tulu Kapi indicates 960,000 oz of gold over 13 years at an all in sustaining cost of $780/oz.
• The company is in discussions with contractors and financiers to “optimise development funding on schedule in Q3 2015.”
• At the Jibal Qutman project in Saudi Arabia, the company has delivered an updated resource estimate of 28.4m tonnes at an average grade of 0.8 g/t gold ((733,000 oz).
• Preliminary economic assessment suggests that a heap leach operation ant Jibal Qutman could produce around 139,000 oz of gold over an initial 4.5 year life at a cash cost in the region of $600/oz.
• 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 at Hawiah has highlighted a large drilling target over 2 km of lateral extent and up to 300 metres vertically which is thought to overlie volcanic hosted massive sulphide mineralisation. Kefi Minerals plans to start drilling during the second half of the year.
Conclusion: The development financing for Tulu Kapi is expected to be finalised during the current quarter and the company intends to start construction of the mine before the end of 2015 with a view to commissioning the mine late in 2016 and producing its first gold in 2017.
*SP Angel act as Nomad to Kefi Minerals. An SP Angel analyst has visited the Tulu Kapi mine site with Kefi Minerals.
Ortac Resources* (LON:OTC) 0.09p, Mkt Cap £2.5m – Funding and directors subscription
• Ortac Resources have raised £600,000 through the placing of 706m new shares to investors at a price of 0.085 pence per share.
• Three directors also subscribed for some £50,000 worth of news shares
• The funding should enable the company to exercise a call option to acquire a total of 19.35% of Zamsort in Zambia.
• Zamsort holds license over a small, alluvial style, copper mining operation where drilling and mining to date suggests potential for a significantly larger mining operation.
• Zamsort also hold substantial exploration tenements in a region which appears to be of interest to other copper mining companies.
• It is worth noting that Kirawa, which held similar tenements within the region was sold to First Quantum Minerals for $260m in late 2009.
• First Quantum have since started development of the Trident project, consisting of Sentinel which is targeting 270-300,000tpa of copper and Enterprise which is planned to produce 38,000tpa of nickel in concentrate rising to 60,000tpa
*SP Angel acts as broker to Ortac Resources
Sirius Minerals (LON:SXX) 23.5p, Mkt Cap £503.2m – Planning Approval for the York Potash Project
• Sirius Minerals has received approval from the North York Moors National Park Authority for the development of the York Potash Project.
• The approval of such a major underground mining project within a National Park may come to be seen as a landmark decision by both pro and anti-mining groups and is a credit to Sirius Minerals which has worked patiently and in great detail to address the real issues and mitigate the concerns of local communities, local governments, and local and national special interest groups.
• The company will now need to proceed with a complex financing and mine development project involving a mine-shaft to a depth of 1500 metres and an underground conveyor tunnel to the coast at Teesside.
• This decision comes as an Australian company, Wolf Minerals, is in the process of commissioning a new tungsten mine at Hemerdon in Devon on time and within budget. With its own Australian connections, we hope that drawing on international project development expertise will produce a similar beneficial outcome for the York Potash Project.
Conclusion: Sirius Minerals has achieved a major milestone and the receipt of Planning Approval initiates a £1.7bn development project for a major, long life mine.