Economic News
US – Retail sales disappointed yesterday, although mom decline came on strong May numbers.
• Core retail sales: -0.1%mom v +0.8%mom (revised from +1.0%mom), the highest in more than two years, in May and +0.5%mom forecast.
• The decline was broadly spread among different categories.
• Despite a volatile data series, retail sales rate +2.6%yoy in Q2/15 comparing to an average of +2.3% over the current economic expansion.
• Economic news due today:
o 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)
China – The economy expanded at 7.0%yoy in Q2/15, beating market estimates for a 6.8% increase and in line with government set target of “around 7%” for 2015.
• Investment demand slowed down led by challenging conditions in the property market.
• Separate reports showed retail sales and industrial production picked up more than estimated last month as PBoC stimulus efforts seem to have stabilised economic growth.
• Industrial production was up 6.8%yoy, the strongest reading since Dec/14, compared with +6.1% in May and 6.0% expected.
• Retail sales climbed 10.6%yoy, up from +1.01% in May and +10.2% forecast.
Japan – The BoJ revised its inflation and GDP growth forecasts down for 2015 as the inflationary effect of a weaker yen wears off.
• GDP is set to expand 1.7% in FY15, down from +2.0% forecast previously. 2016 and 2017 estimates left unchanged at +1.5% and 0.2% (in real terms), respectively.
• Inflation is forecast to average 0.7% this FY15, down from +0.8% expected in Apr. Prices to climb 1.9% and 1.8% in 2016 and 2017, down from 2.0% and 1.9 forecast previously.
UK – Jobs earnings including bonuses in the three months to May showed the strongest gain in more than five years.
• Earnings climbed 3.2%yoy versus 2.7%yoy recorded in the three months to Apr and +3.3%yoy forecast.
• On a less positive side, unemployment rate picked up during the period as the number of people employed fell by 67k driven by lower number of part-time workers. Estimates were for a 35k increase following a 114k increase in the previous three months.
• The case for raising rates is the strongest than at any time since 2009, according to the BoE’s MPC member David Miles.
• Miles suggest rates should be revised up from record low levels soon ahead of the US Fed move.
• Factors in favour of monetary tightening included low unemployment rate, strong economic growth, upbeat consumer and business confidence and rising wages.
• Combined with comments by Mark Carney that the time of a first rate increase since the financial crisis is getting closer, the rhetoric led sterling higher against the dollar and the euro.
• Miles will be stepping down as a member of the MPC board next month.
US$1.1023/eur vs 1.1030/eur yesterday. Yen 123.58/$ vs 123.36/$. SAr 12.369/$ vs 12.439/$. $1.564/gbp vs 1.548/gbp
US$0.746/aud vs0.743/aud
Commodity News
Precious metals:
Gold US$1,155/oz vs US$1,154/oz yesterday –
Platinum US$1,028/oz vs US$1,028/oz –
Palladium US$657/oz vs US$659/oz –
Silver US$15.32/oz vs US$15.36/oz –
Base metals:
Copper US$ 5,647/t vs US$5,527/t –
Aluminium US$ 1,716/t vs US$1,695/t - The market may be heading into the biggest global surplus since 2009 next year on strong supply from Asia, according to Harbor Aluminum Intelligence.
• Estimates suggest a 2.1mtpa surplus in 2016 with China accounting for 1.8mtpa of the total.
• “Its about widening surplus in China, increasing primary (aluminium) production in Asia and Chinese exports of aluminium displacing primary demand in the rest of the world,” Harbor analyst said.
• “It is not sure bet to say that (the slowdown in Chinese economic growth will cause) more exports, but the trend will not slow down.”
• North American based producers are expected to be hurt the most by the trend.
Nickel US$ 11,780/t unch vs US$11,480/t –
Zinc US$ 2,103/t vs US$2,031/t –
Lead US$ 1,873/t vs US$1,822/t –
Tin US$ 14,725/t vs US$14,630/t –
Energy:
Oil US$58.2/bbl vs US$56.9/bbl
Natural Gas US$2.848/mmbtu vs US$2.864/mmbtu
Uranium US$36.25/lb unch vs US$36.25/lb –
Bulk commodities:
Iron ore 62% Fe spot (cfr Tianjin) US$50.70/t vs US$50.50t – Vale will cut 25mt of higher cost supply from this month in response to iron ore price weakness.
• At the same time, the Company said the move will not affect a full-year output target of 340mt, suggesting high cost production will be replaced with more economic tonnages.
• Vale is planning to drive costs of delivering the concentrate to China to US$35/t by 2018 compared with US$40/t at the moment.
Thermal Coal $58.1 vs $58.1 cif ARA Europe –
Tungsten - APT European prices price $225.0/mtu vs $217.5/mtu on Friday
Company News
Bellzone Mining (LON:BZM) 0.78 pence, Mkt Cap £8.7m – Kalia Project Update
• The company are conducting a strategic review on Kalia including looking at nickel potential at the project.
• The review so far has uncovered potential nickel laterite mineralisation at the NW area of Kalia.
• A JORC exploration target for nickel is to be defined.
• A number of options will be looked at for the project including the transport and infrastructure issues.
Conclusion: With a tough iron ore market the company are looking at all options for this project. Too early to say if any of these will be credible.
BHP Billiton (LON:BLT) 1229 pence, Mkt Cap £67.1bn - $2.8bn pre-tax write off on onshore US assets
• The company have taken a write off of US$2.8bn mainly on the Hawkville field, the balance on Petrohawk.
• The write off on Hawkville is said to account for its geological complexity, product mix, acreage relinquishments and amended development plan.
• The company plan to invest US$1.5bn in Onshore US in FY 2016 supporting a development plan operated by 10 rigs.
• At a $60 WTI price and US$3.00 Henry Hub gas price the group expects its onshore businesses to be cash positive.
Hochschild Mining (LON:HOC) 99 pence, Mkt Cap £356m – Six month production report
• Q2 2015 production of 4.8m silver equiValent oz made of 3.4 m oz silver and 23,400 oz of gold.
• H1 2015 production of 9.7m silver equiValent oz made of 6.3m oz of silver and 40,600 oz ofo gold.
• This keeps production in line with guidance for the full year of 24m silver equiValent oz.
• All in sustaining costs of US$15-US$16/oz.
• Total cash of US$84m as of the 30 June 2015.
Kirkland Lake and Gold (LON:KGI) 260 pence, Mkt Cap £209m – Three Year Production Guidance
• The company has provided 3 year production guidance for calendar 2016, 2017 and 2018 as the company move to a Dec year end.
• For 2015 (May to Dec) they guide to 90-100,000 oz of gold production at an average gold grade of 14.7 g/t gold with recovery of 96% through 1,000-1070 tpd.
• For 2016 production is guided at 160-180,000 oz at an average grade of 15.1 g/t with mill recoveries of 95% and throughput of 1,130 tpd.
• For 2017 production is expected to improve to 165-185,000 oz at an average grade of 15.4 g/t gold with recoveries of 95% at a throughput of 1,140 tpd.
• For 2018 production is expected to be 170-190,000 oz at an average grade of 15.8 g/t gold with recoveries of 95% and throughput of 1,145 tpd.
Mariana Resources (LON:MARL) 2.125 pence, Mkt Cap £16.2m – Chile Exploration Update
• The company has received its first round of funding of US$450,000 to start exploration at Dona Ines and Exploration East.
• The work programme in the first phase is expected to consist of an initial programme of IP over the priority geochem anomalies already defined.
• This is to be followed up by drill testing of priority targets.
Noricum Gold* (LON:NMG) 0.2p, Mkt Cap £2.8m – Noricum acquires half share in Bolnisi copper / gold project
• Noricum Gold have moved to acquire a 50% stake in the Bolnisi copper, gold project in Georgia.
• The Volcanogenic massive sulfide ‘VMS’ project contains a total mineral non-JORC resource of:
o (non-JORC, C1, C2 & P1 Soviet Reserves & Resources, where the Prognosticated P1 standard may be quite variable)
§ 980,000t of copper
§ 6.6moz of gold
§ 22moz of silver.
o A higher grade resource is contained within three drill ready targets:
o (This resource is also non-JORC but is to a better quality C1 & C2 Soviet Reserve standard)
§ 450,000t copper average grade 1.31%
§ 835,000oz gold - 1.16 g/t
§ 20moz silver - 23.71 g/t
§ 22,000t lead - 1.23%
§ 52,000t zinc - 2.9%
§ 1.5mt Barite - 27%
o Noricum aims to convert the historic reserves and resources to JORC using existing cash reserves.
o The total acquisition price is £2.6m paid in shares in Noricum at 0.2 pence per share for 1,299,999,980 shares with no cash component.
o Noricum is required to spend US$6m over two years on exploration and development after which the jv partner Caucasian Mining Group ‘CMG’ is required to contribute.
o Martyn Churchouse, who is well known in mining circles, will also join the board.
§ CMG have also been given options over 80,000,000 shares with an exercise price of 0.4p.
§ Noricum get control of the project which surrounds the Madneuli mine which has been developed by Noricum’s jv partner Caucasian Mining Group ‘CMG’ who have invested some $35m to date into the project but require Western expertise. Noricum’s listing should help to recognise value in the joint venture with CMG’s shares locked in for a minimum of 12 months as is the rule with most major transactions on AIM.
§ Noricum will also continue its work on the recently acquired Walchen VMS deposit in Austria.
Conclusion:
*SP Angel acts as Nomad and Broker to Noricum. An SP Angel analyst has visited the Schonberg site in Austria.
Tri-Star Resources* (LON:TSTR) 0.14 pence, Mkt Cap £9.7m – Third party report highlights value on refractory gold processing
• Tri-Star Resources reports results from a third party report on the value and opportunity of processing third party refractory gold concentrates in Oman.
• The proposed ‘clean roasting’ technology is designed for antimony processing but is also good for the liberation of gold from refractory ores.
• “The report’s preliminary economic assessment based on a representative suite of feed-stocks generates an estimated Net Present Value of close to US$1 billion and an Internal Rate of Return of 45%.
• This is based on a nominal 500,000tpa processing facility based in the Middle East producing 500,000 ounces of gold per annum;
• A detailed comparative analysis of 39 selected gold projects either at advanced stages of development or nearing production highlighted major competitive advantages that the Tri-Star technology and facility could offer;
• The clean roasting technology provides a process for refractory gold concentrates treatment which should be highly efficient and cost effective with distinct advantages over competing treatment processes combined with full environmental compliance. “ According to the company statement.
• Emin Eyi, Managing Director of Tri-Star, said: “We are delighted that this new report prepared by an independent third party expert in refractory gold has confirmed materially improved economics for our clean roasting technology compared with earlier assessments announced to the market on 20 December 2013 and also that our technology can be increasingly competitive in this large and important refractory gold market.”
*SP Angel acts as Nomad and Broker to Tri-Star Resources
ZincOx Resources (LON:ZOX) 13.9 pence, Mkt Cap £23.1m – first half production shows significant improvement at Korean Zinc plant
• ZincOx has reported ongoing improvement at its EAFD recycling plant in Korea.
• The plant has posted a significant improvement in EAFD treated and in zinc in concentrate sold
• Higher zinc production, up 30%, more than offset the 7% fall in the average zinc price between H2 2014 and H1 2015
• EBITDA rose to US$3m through the period.
H1 2015 H2 2014
• EAFD treated (tonnes) 77,485 58,569
• Zinc in concentrate sold (t) 18,291 14,103
• Zinc price (US$/t) 2,136 2,278
• Revenue (US$ m) 22.2 20.0
• EBITDA1 (US$ m) 2.9 0.1
o A shortage of feed material in Korea is to be supplemented by imported EAFD.
Conclusion: We believe the plant is now capable of close to its design parameters and given better feedstock could perform well. We believe lower zinc grades within the EAFD material has held back sales while the level of debt and terms offtake agreement with Korea Zinc are holding back the potential of the ZincOx and its plant.