Economic News
US – Philly manufacturing index disappointed yesterday with the rate of expansion falling to 5.7 from 15.2 in Jun and 12.0 forecast by the market.
• On a more positive note, weekly jobless claims came down to 281k versus 296k in the previous week and 285k forecast.
• Economic news due today:
o Jun Core CPI (+0.2%mom v +0.1%mom in May), Jun Housing starts (+6.7%mom v -11.1%mom in May), Jun Building permits (-8.0%mom v +9.6%mom in May)
ECB – The central bank held rates at record lows and reiterated its commitment to continue with the bon purchasing programme to Sep/16 at least.
• In addition, the ECB decided to extend the ELA to Greece by €900m and indicated that Athens could soon benefit from the inclusion in the Bank’s €1.1tn quantitative easing.
• The announcement may lead to Greek banks reopening following nearly three weeks of enforced closure.
Germany – Ahead of the Bundestag vote on a third proposed bailout deal Wolfgang Schauble argued voluntary Greek exit from the Euro zone “could perhaps be a better way” for the nation.
• Despite the comments, Finance Minister indicated he is formally backing the proposed deal putting the plan to a vote in parliament.
UK – The BoE might join the Fed and begin tightening of its monetary policy as early as the turn of the year, according to Mark Carney.
• The Bank would be looking on three variables to decide on the timing of the rate hike including the pace of economic activity , the outlook for labour costs and core inflation.
• The tightening would be a multi stage process with rates targeted at around 2.25%, below past levels.
• This is in contrast to the ECB, BoJ and PBoC which are currently engaged in the easing policy.
US$1.0887/eur vs 1.1091/eur yesterday. Yen 124.10/$ vs 123.90/$. SAr 12.317/$ vs 12.408/$. $1.565/gbp vs 1.562/gbp
US$0.740/aud vs0.738/aud
Strong dollar and sterling against weak euro backed by Mark Carney’s comments on interest rates and Mario Draghi’s comments on monetary easing
Commodity News
Precious metals:
Gold US$1,144/oz vs US$1,146/oz yesterday – Producers and labour unions remain “far apart” in the latest round of wage negotiations in the gold sector in South Africa, according to the industry lobby.
Platinum US$1,004/oz vs US$1,010/oz – Amplats will be presenting a plan on disposing of four high cost mines when it releases results on Jul/20.
• The Company is considering a sale or a listing of a spin off.
Palladium US$627/oz vs US$641/oz –
Silver US$15.00/oz vs US$15.05/oz –
Base metals:
Copper US$ 5,497/t vs US$5,595/t –
Aluminium US$ 1,706/t vs US$1,722/t -
• New load out rates at LME registered metal warehouses and a cap on the rent charged for metal in a queue will not massively affect US Midwest aluminium premiums, market participants say.
• Current premiums are reported to come short of freight and loadout costs incentivising buyers to source the metal domestically that should see demand for North American metal increase raising Midwest premiums.
• Warehousing policies are named as one of a number of factors influencing premiums along with Chinese imports and investment demand.
• Premiums have come off to 8.5-8.75c/lb (US$190/t) from 19-20c/lb (US$440/t) in mid-2014.
Nickel US$ 11,430/t unch vs US$11,650/t –
Zinc US$ 2,063/t vs US$2,086/t –
Lead US$ 1,827/t vs US$1,869/t –
Tin US$ 15,300/t vs US$14,825/t –
Energy:
Oil US$57.1/bbl vs US$57.2/bbl
Natural Gas US$2.876/mmbtu vs US$2.917/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 unch vs US$50.70t –
Thermal Coal $57.6 vs $57.5 cif ARA Europe –
Tungsten - APT European prices price $225.0/mtu unch vs $217.5/mtu last Friday
Company News
Anglo Pacific (LON:APF) 84 pence, Mkt Cap £142.8m – Royalty Update at Narrabi
• ROM production at Whitehaven coal was up 57% to 1.7 mt for quarter ended June 30th.
• Saleable coal for the quarter was 2.3 Mt with coal sales of 2.2 Mt.
• For the fiscal year ended June 30th ROM and saleable coal was 7.7 Mt and 7.2 Mt respectively.
• Anglo Pac is entitled to receive royalties over 100% of income.
• Achieved production is above guidance.
Conclusion: This will be helpful with royalty income’s with a steady base now from Kestrel.
Caledonia Mining (LON:CMCL) 51.5 pence, Mkt Cap £26.8m – Revised PEA on portion of Blanket Mine shows IRR of 42%
• Caledonia today report the filing of a revised Preliminary Economic Assessment ‘PEA’ summary covering reserves and resources below the 750m level to 1080m at the Blanket gold mine in Zimbabwe.
• The statement is caveated to warn investors of the risks presented by the use of ‘inferred mineral resources’ in the study which “are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorised as mineral reserves, and there is no certainty that the preliminary economic assessment will be realized.”
• The original PEA, as seen in statements made in 2014 calculated the project economics on the basis of the combined values of the mine plan based on the reserves and resources above the 750 m Level and the extension area below 750 m Level.
• NPV, IRR: The revised PEA shows an estimated NPV for the extension project of US$65m at a real discount rate of 8.36% and an IRR of 42%. (Gold price assumption $1,200/oz). These figures are skewed as the PEA is only allowed on a standalone project and we would hope for a better NPV on a whole mine/project basis.
o Capex: The cost of the whole redevelopment is estimated to be around $70m of which $46m is applied to the development of levels addressed in this PEA.
o Funding: The plan is that all the capital costs should be internally funded through cash flow and current cash resources with the exception of $2m which can be drawn from existing debt facilities.
o Cash costs are running at around $690/oz with the mine said to be performing better than expected.
o Management tell me there was no shareholder revolt involved with the resignation of Richard Patricio but that Mr Patricio was considered to be over-boarded in terms of the number of companies he is involved with in Canada. Despite this Patricio was said to be closely involved and working hard on the Blanket project.
o The PEA is applied to a portion of the mine as Canadian securities regulations do not allow the mixing of mine reserves / production with expansion plans which are based on less certain ‘inferred mineral resources’. Further drilling should give greater certainty and clarity and eventually allow the two plans for the existing mine and for its effective extension to come together. Caledonia management will have a single plan but are not currently allowed to publish this under Canadian regulations.
Conclusion: The Caledonia team are working hard to firm up the longer term future of the Blanket gold mine and we look forward to the announcement of greater and more certain value on better definition of the current inferred resource.
Kefi Minerals* (LON:KEFI) 0.7p, Mkt Cap £12.6m – Final bidding for project contractors
• Kefi Minerals hare running a last round of bidding for the project contractors at the Tula Kapi mine in Ethopia.
• Bids are being evaluated for construction of the process plant and operation of the mine.
• A short-list of bidders will go to site next week with contract being awarded next month.
• “Short-listed contractors comprise leading international firms from several continents, all of whom have been selected based on their representations, experience, commitment to the development of the Ethiopian mining industry and capacity to contribute development funding through their contractual arrangements.”
• The company is pleased with the involvement of a range of high-quality and international firms with expertise in mining, construction and Ethopia.
o This is the first private sector mine to be built in Ethiopia and as such the project is seen as important step towards the development of the nation and its infrastructure.
o We expect a number of multi-lateral agencies and development banks to offer finance as part of the funding package for this landmark project.
*SP Angel act as Nomad to Kefi Minerals. An SP Angel analyst has visited the Tulu Kapi mine site with Kefi Minerals.
Lucara Diamonds (CVE:LUC) C$2.13, Mkt Cap C$808m – Results of special tender
• The company generated US$68.7m of sales from a special tender of Karowe diamonds consisting of 14 single stones.
• The 14 diamonds totalled 1,646 carats at US$68.7m achieved an average per carat value of US$41,028/carat.
• 12 diamonds sold for more than US$1m each including 5 stones in excess of US$4m.
• Two stones a 341.9 carat Type IIa diamond achieved US$20.5m or US$60,114/carat and a 269.7 carat stone sold for US$16.54m or US$61,304/carat.
Conclusion: This is a good result for Lucara where the Karowe mine’s special stones continue to achieve high valuations in the market. This should be a helpful sign for the market where concerns remain on how recent sentiment would impact on prices for special stones.