Economic News
US – Benchmark rate increase remain on the cards towards the end of the year as the economy is gaining momentum and on stable inflation outlook.
• “Based on my outlook, I expect that it will be appropriate at some point later this year to take the first step to raise the federal funds rate,” Yellen said during her speech in Cleveland last week.
• Factors keeping the rate of inflation at subdued levels such as strong US dollar and weak oil prices remain to be viewed as “transitory” ad are expected to abate “by early next year”.
• Growing employment and potentially faster wage growth are expected to translate into strgoner consumer spending.
• Economic news due this week:
o Tuesday: Jun Core retail sales (+0.5%mom v +1.0%mom in May)
o Wednesday: Jun Industrial production (+0.2%mom v -0.2%mom in May), Jun Capacity utilization (78.1%, unchanged from May), Jul new York manufacturing index (3.25 v -1.98 in Jun), Jun Core PPI (+0.1%mom v +0.1%mom in May)
o Thursday: Weekly Jobless claims (285k v 297k in the previous week), Jul Philly manufacturing index (12.0 v 15.2 in Jun)
o Friday: Jun Core CPI (+0.2%mom v +0.1%mom in May), Jun Housing starts (+7.0%mom v -11.1%mom in May), Jun Building permits (-8.0%mom v +9.6%mom in May)
China – Jun trade data show exports climbed the most since Feb/15 while a decline in imports slowed down compared to May numbers.
• Exports rose 2.1%yoy (CNY terms) following a three-month slide.
• Impors fell 6.7%yoy following a 18.1%yoy decline in May.
Greece – Athens are reported to have agreed to creditors’ terms which should pave the way for an agreement for a third bailout for troubled Eurozone member, according to Bloomberg.
• The financial rescue package will follow the Athens vote on key reforms contained in the draft agreement.
Iran – Senior US and Iranian officials suggest the agreement which would lead to sanctions relief in exchange for curbs on the nation’s atomic programme may be reached as soon as today.
• Current nuclear deal talks are in their 16th day following extensions to negotiations since the first deadline of Jun 30 was missed.
US$1.1059/eur vs 1.1116/eur last Thursday. Yen 123.47/$ vs 122.17/$. SAr 12.473/$ vs 12.395/$. $1.552/gbp vs 1.545/gbp
US$0.742/aud vs0.746/aud
Commodity News
Precious metals:
Gold US$1,155/oz vs US$1,163/oz yesterday –
Platinum US$1,029/oz vs US$1,034/oz –
Palladium US$652/oz vs US$650/oz –
Silver US$15.41/oz vs US$15.44/oz –
Base metals:
Copper US$ 5,572/t vs US$5,571/t –
Aluminium US$ 1,699/t vs US$1,688/t
Nickel US$ 11,380/t unch vs US$11,300/t – Sherritt is considering additional cost-cutting measures at the Ambatovy nickel-cobalt operation amid falling nickel prices.
Zinc US$ 2,013/t vs US$2,002/t –
Lead US$ 1,802/t vs US$1,794/t –
Tin US$ 14,215/t vs US$13,960/t –
Energy:
Oil US$59.3/bbl vs US$59.1/bbl
Natural Gas US$2.792/mmbtu vs US$2.742/mmbtu
Uranium US$36.25/lb unch vs US$36.25/lb –
Bulk commodities:
Iron ore 62% Fe spot (cfr Tianjin) US$50.50/t vs US$49.90t –
Thermal Coal $58.3 unch vs $58.7 cif ARA Europe –
Tungsten - APT European prices price $225.0/mtu unch vs Monday vs $217.5/mtu on Friday
Ferrochrome – Chinese stainless steel mills cut their charge ferrochrome bid prices in Jul on the back of a weak demand for 400 series st steel.
• Prices also reflect lower nickel prices and high level of st steel inventories as producers are looking to accelerate the destocking cycle.
• In addition, market reports suggest local NPI mills transferred to FeCr production amid weak nickel prices Local FeCr smelters are expected to raise operating rates through Jul.
• Bid prices have been cut between 0.8%mom and 3.0%mom to CNY 6,150-6350/t.
Company News
Anglo Asian Mining* (LON:AAZ) 7.5p, Mkt Cap £6.7m - Record H1 gold production; on track to hit 70,000 to 75,000ozpa in CY15
• Gold production totalled 18.7oz in Q2/15 (Q1/15: 17.2oz; Q2/14: 15.7oz) helped by stronger recoveries at the agitation leaching plant and higher throughput at the heap leaching operations.
• Gold production by plant unit:
o Agitation Leaching ‘AL’ plant yielded 12.2koz (Q1/15: 11.2koz; Q2/14: 10.8koz) as improved recoveries (79% (excl. gold in circuit) v 71% in Q1/15) compensated for a decline in processed grades (3.38g/t v 3.61g/t in Q1/15);
o Heap leaching operations contributed 6.5koz (Q1/15: 6.0koz; Q2/14: 4.9koz) with 371kt of ore stacked at 1.07g/t.
o SART plant copper production was 236t (Q1/15: 182t; Q2/14: 228t).
o H1/15 gold production hit a new high of 35.9koz with nearly 65% of output accounted for by the AL circuit. This includes 2.2koz produced from ore mined at Gosha.
o CY15 production guidance reiterated at 70-75koz, including 5koz from the flotation plant to be commissioned in Q3/15.
o Gold sales (ex 12.8% PSA royalty) amounted to 16.1koz (Q1/15: 17.2koz; Q2/14: 13.142koz) at an average gold price of US$1,193/oz (Q1/15:US$1,214/oz; Q2/14: 1,291/oz). This brings H1/15 sales to 33.3koz at US$1,204/oz (H1/14: 23.5koz at US$1,297/oz).
o Copper concentrate shipments totalled 420dmt (253t Cu) taking total for H1/15 to 692dmt (415t Cu).
o Development of the adit into the Gadir orebody (part of the Gedabek ore zone) is progressing as planned with 3kt of ore extracted sent to Gedabek processing plant so far and plans to start main mining next month.
o Net debt came down to US$48.9m with US$1.8m cash in the bank compared with US$50.7m net debt and US$0.5m in cash as of Q1/15.
Conclusion: This quarter’s solid gold production was helped by improving gold recoveries at the AL plant and >3g/t processed ores. This quarter should see the commissioning of the Gadir underground mine at Gedebek and the flotation plant, which should support the 70-75koz production guidance.
Gadir is nearing commissioning with estimated Inferred resource of 800kt at 6g/t for c.150koz gold contained. The satellite deposit should provide a valuable high grade blend for the material currently mined at the Gedabek pit.
The start-up of a small scale flotation plant should raise overall recoveries to around 90% gold from ore and 80% from the re-treatment of the ‘AL’ tailings. The plant will also be configured for direct flotation of mined primary sulphide ores for the greater recovery of copper.
The announcement does not contain information on operating costs, but a decline in net debt through H1/15 (-US$3.5m) suggest operations have been net cash positive during the period.
*SP Angel acts as Nomad & Broker to Anglo Asian Mining. SP Angel analysts have visited the Gedabek and Gosha mine sites
Avalon Minerals (ASX:AVI) A$0.03, Mkt Cap A$7.2m – Quarterly Report highlights progress at Visacria
• The quarterly highlighted recent activity at the Viscaria D zone where drill results from three holes have returned promising results which extend the known mineralisation at depth.
• Further results have also be been returned on one diamond drill hole at the Nihka iron oxide copper prospect nearby with a further anomaly identified at West Nukutus.
• The company has strengthened its management team with a General Manager of Geology, CFO and company secretary.
• At the end of the period the company had A$3.2m of cash.
Conclusion: The quarterly summarises recent announcements on success with drilling results at Viscaria D zone where we look forward to extension of the known mineralisation.
Elemental Minerals (ASX:ELM) A$0.19, Mkt Cap A$72.6m – Raises funds for feasibility study
• The company has raised A$4.98m through a private placement to fund a BFS at Kola and a PFS at Dougou.
• The Kola project which is the company’s lead project is a sylvinite project where a BFS is planned for completion in Q3 2016.
• A PFS was done on Kola based on proven and probable reserves at 152 Mt with an average graDE OF 31.7% kci.
• A mining licence and ESIA approval for Kola was granted in 2013.
• Capex for the project has halved from US$1.85 bn to US$908m based on phased development with Phase 1 of 1 mtpa increasing to 2 mtpa in Phase 2.
• The Dougou project which is less advanced is within 20 km of the Kola deposit.
• Studies on both these projects will look at reducing capex by looking at build-own-operate-maintain infrastructure partners.
Conclusion: It is good to see the company has funds in place to look at solutions to advance their projects with Kola stalling on the high capex required. While capex has been halved since the original PFS study, further infrastructure solutions to bring this down further would be helpful.
Hummingbird Resources (LON:HUM) 33.5 pence, Mkt Cap £36.1m – Grade control at Yanfolila
• The company update on the grade control drilling at the Komana East Pit, the first area to be targeted for mining.
• Grade control drilling was completed over a 40m long panel at 5x5m intervals which covers the 1st year of mining.
• Higher grade potential has been found at 5.24 g/t gold compared to an average of 3.12 g/t for the whole pit.
• A high grade zone confirms 12,200 tonnes at 7.7 g/t gold.
Conclusion: Grade control drilling appears to have helped with the first year mine plan and if this can be continued throughout the pit, the economics of the project should improve.
North River Resources (LON:NRRP) 0.35 pence, Mkt Cap £6.8m – Board changes
• Ms Ding Chan (Tina), aged 28, has been appointed to the North River Resources ‘NRR’ board as a non-exec director to represent the interests of China General Nuclear Power Company's (CGNPC)
• Tina Chan replaces non-executive chairman Mr. Zuayuan leaving this position free
• China General Nuclear Power Company's (CGNPC) hold 13.9% of NRR having acquired a 38% stake on their acquisition of Kahalari Minerals for £632m in December 2011 and having been diluted down in successive share issues. We expect CGNPC’s stake to be diluted further as the company finances further exploration, mine planning and the eventual development of the Namib lead / zinc mine.
• It is our view that CGNPC is more focussed on its nuclear business and has paid little attention to North River. While it is possible that CGNPC’s level of interest might change the level of their stake and relative small scale of the mine leads us to believe that the CGNPC is unlikely to participate meaningfully in its future development.
• Brett Richards is taking up the role of interim Chairman in the short term till a replacement is found.
Polymetal (LON:POLY) 490 pence, Mkt Cap £2,075m – Acquisition of Primorskoye
• The company has bought the licence on Primorskoye in the Magadan region, 215 km from Polymetal’s Omsukchan concentrator and 15km form the Sea of Okhotsk.
• The initial consideration is for US$4.5m payable with shares and a deferred consideration equal to the US$13,333 per tonne of contained silver equivalent or US$0.415 per silver equivalent oz.
• There is a Russian resource of 500 kt at an average grade of 987 g/t silver and 5.8 g/t gold for 16 m oz fo silver and 100 koz of gold.
• Mineralisation at a conceptual stage is said to suit underground mining.
• Polymetal intend to do further drilling of at least 15 km for conversion to a JORC resource.
ZincOx Resources (LON:ZOX) 14.25 pence, Mkt Cap £23.7m – loan extension and Sale of US assets
• ZincOx has extended the redemption date on £4.2m of loan notes which are secured over land in Turkey.
• Ongoing uncertainty relating to recent Turkish elections appears to have dampened interest in the sale of this land requiring ZincOx to delay repayment of this note.
• Note holders have agreed to extend the due date on the notes by 12 months in return for the repricing of 9.45m existing warrants to a strike of 25p from 40p previously set.
• Andrew Woollett and Gautam Dalal hold £1.475m worth of loan notes making this a related party transaction.
• Big River Zinc: the sale of the Big River plant in the US is agreed at $750,000 with completion before 31 July this year.
• The site and plant at Big River is not critical to ZincOx as the upgrading of zinc concentrates in the US would now be uneconomic for the company
Conclusion: These are significant but minor issues for ZincOx. Zinc prices have held up well compared with recent setbacks in other commodities though lower zinc prices and harsh offtake terms are unhelpful. Management have made good progress with improving utilisation, production and unit costs but are struggling under the cost of debt as commissioning has taken significantly longer than was first planned. We are hopeful that ZincOx should pull through but at what cost to investors?