Economic News
US – House prices growth slowed in May despite some regions registering double digit increase.
• S&P CS 20 city index: -0.18%mom/+4.94%yoy v -0.03%mom/+4.95%yoy in Apr and +0.30%mom/+5.60%yoy forecast.
• Despite continuing recovery in the housing sector prices the proportion home ownership in the US has continued to decline and is now at the lowest level since 1967.
• Market commentators point to the tight supply of new homes driving up prices.
• On a separate note, consumer confidence fell sharply in Jul with the CB sentiment index at the lowest since Sep/14.
• The Conference Board consumer confidence: 90.9 v 99.8 (revised from 101.4) in Jun and 100.0 forecast.
• “A less optimistic outlook for the labour market, and perhaps the uncertainty and volatility in financial markets prompted by the situation in Greece and China, appears to have shaken consumers’ confidence,” the CB said.
China – A little of positive news in a raft of soft data released recently.
• Consumer sentiment improved in Jul with the Westpac MNI China Consumer Sentiment Indicator climbing to 114.5 in Jul from 112.3 in Jun.
Germany – Consumer confidence stabilised in Aug following softer set of data in Jul driven by concerns over a potential Grexit.
• GfK consumer confidence index: 10.1, unchanged from Jul and forecasts.
• The index hit a record high of 10.2 in Jun this year.
UK – GDP growth accelerated in Q2/15 driven by gains in services and manufacturing sectors.
• Numbers were in line with estimates coming in at +0.7%qoq/+2.6%yoy v +0.4%qoq/+2.9%yoy in Q1/15.
• Services and industrial production were up 0.7% and 1.0%, respectively.
• Construction growth was flat while agriculture fell by 0.7%.
• In addition, net trade weighed on growth numbers falling by 0.6% amid a 5.9% of GDP current account deficit.
• “Clearly the economy remains worryingly imbalanced, with domestic consumers providing the main driver of growth and exports once again acting as a drag,” Markit said.
• A separate report showed London property prices together with rents went up in Jun.
• Prices climbed 9.2%yoy while rents averaged £699, up 13.3%qoq.
South Africa – haemorrhaging mining jobs as producers cut back shafts and production at major mines
• South Africa is heading for tough times as producers move to cut production, shafts and jobs.
• Many of these jobs are destines never to return as producers move to focus on core production and effectively abandon old workings.
• The capital cost and safety issues in reopening deep level underground operations means these shafts when shut are not likely to reopen.
• Around 10,000 jobs are to be lost in the short term but we would not be surprised to see 20-30% out of a total workforce of 440,000 at risk over the next 12 months.
Zambia - Power restrictions to the mining industry in North Western Province of Zambia
First Quantum Minerals notices of ‘force majeure’ on Kansanshi and Sentinel operations
• Zesco, the Zambian state-run power company has imposed restrictions on power supply to mines in the North West Province.
• As a result, First Quantum Minerals has received notices of ‘force majeure’ on its operations at Kansanshi and Sentinel operations.
• Power allocations to Kansanshi have been reduced by around 24% to 117 megawatts from 153 megawatts while supply to Sentinel has been cut to 42 megawatts from 55 megawatts.
• Both operations are now operating at reduced capacities and First Quantum Minerals comments that it “is unable to provide estimates on the length of the supply reduction or its impact on production.”
• The power disruption, which had been on the cards since early July, stems from reduced hydroelectric power generation as a result of low water levels during the current drought.
• So far, there do not appear to be comments on the power supply situation from other operators in Zambia including Glencore, Barrick and Vedanta.
US$1.1039/eur vs 1.1064/eur yesterday. Yen 123.70/$ vs 123.65/$. SAr 12.590/$ vs 12.587/$. $1.559/gbp vs 1.557/gbp
US$0.731/aud unch vs0.731/aud. US dollar strengthens vs the Euro but falls vs sterling. Currency traders are waiting on Fed comments due later today.
• Emerging market currencies send at least one currency index to its lowest level since 1999
• We are surprised the South African rand has not yet fallen further. The currency looks due to fall further as production cuts and job losses hit the economy
Commodity News
Precious metals:
Gold US$1,097/oz vs US$1,096/oz on Friday – We expect some Chinese investors to sell gold to cover margin calls and stock loans.
• China’s determination to protect its public markets has been a saviour for many investors who overleveraged at higher equity price levels.
• Chinese net imports via Hong Kong dropped 48%mom and 8%yoy to the lowest levelsince Aug/14 according to the latest HK customs.
Platinum US$987/oz vs US$983/oz –
Palladium US$622/oz vs US$619/oz –
Silver US$14.67/oz vs US$14.62/oz –
Base metals:
Copper US$ 5,313/t vs US$5,225/t – Week long strike at Chuquicamata continues to affect Codelco’s operations.
• Chuiquicamata, the largest division in the Codelco portfolio (340kt produced in 2014), is reported to have halted operations after protested blocked road access to the mine yesterday.
• Despite reports that Radomiro Tomic faced “various difficulties” as 800 contract workers joined protests in the region, the Company said seven of its eight divisions were operative.
• Salvador remains closed as the mine “was taken over by workers of contractors companies”.
• The mine produced 54kt in 2014, accounting for c.3% of total Codelco production.
o Freeport may cut copper production as prices fall. The company is in the process of renewing its export permits in Indonesia after the previous one expired on Jul 25.
Aluminium US$ 1,657/t vs US$1,649/t –
• Rusal, accounting for c.7% of global production, reiterated its plans to cut existing capacity by an additional 200ktpa in the next 12 months while keeping idled smelters offline.
• While ex-China producers have been rationing production for years now in response to weaker commodity prices, China continue to ramp up capacities.
• The world’s largest producer expects to bring 4-4.5mt of new capacity in FY15.
• Alumina prices fell through the US$300/t level for the first time since the start of estimating the Index in Aug/10.
Nickel US$ 11,330/t unch vs US$11,230/t –
Zinc US$ 1,978/t vs US$1,945/t –
Lead US$ 1,732/t vs US$1,712/t –
Tin US$ 16,300/t vs US$15,850/t –
Energy:
Oil US$52.70/bbl vs US$52.80/bbl
Natural Gas US$2.844/mmbtu vs US$2.778/mmbtu
Uranium US$36.00/lb unch vs US$36.15/lb – Japan sue to restart two reactors in the next two weeks. It might take a while for uranium stocks to come down but uranium might prove to be one of the better commodities to invest in going forward. China is also due to commission a number of new reactors.
Bulk commodities:
Iron ore 62% Fe spot (cfr Tianjin) US$51.20/t unch vs US$51.10t –
Thermal Coal $56.4 vs $56.7 cif ARA Europe – China may slap additional restrictions on the quality of coal imports according to Wood Mackenzie.
• Its an easy statement to believe as Chinese power consumption falls away and as China increases domestic gas production
• A move to tighten import quality may not only improve air quality but will serve to help protect China’s struggling coal industry
• Currency weakness in emerging markets is lowering coal production costs versus domestic costs in China as China’s currency has strengthened with the US dollar increasing the price pressure on Chinese commodity producers.
• Chinese coal producers have been slow to close resulting in rising surpluses within China. Wood Mackenzie reckon the market may not return to balance till 2022 for thermal coal and by 2020 for Metallurgical coal.
• Metallurgical coal prices in China are around US$80/t
Tungsten - APT European prices price $220.0/mtu unch vs $225/mtu – Price change expected this afternoon
Company News
Antofagasta (LON:ANTO) 574 pence, Mkt Cap £5.6bn - ~Q2 Production Report and Full year production downgrade
• Copper production for the quarter was up 7.2% to 157 kt giving year to date production of 303.4 kt down 12.9%.
• Copper sales for the quarter were 142.2 kt down 3.9% and down 15.5% year to date at 290.1 kt.
• Gold production was down 4% for the quarter at 55.1 koz and down 9.1% year to date at 112.5 koz.
• Molybdenum production was up 23.8% to 2.6 kt and up 42.4% at 4.7 kt.
• Cash costs for the group before by-product credits was up 5.5% at US$1.93/lb and flat year to date at US$1.88/lb.
• Net cash costs were up 11.9% for the quarter at US$1.6/lb and up 4.8% to US$1.53/lb.
• Los Pelambres produced 90,600 tonnes of copper in Q2 2015 up 15% due to higher throughput up 19.6% at 181.5 kt.
• Year to date production was down 14% to 169.4 kt as a result of lower thoughput and expected lower grades and recoveries.
• At Centinel copper production was 58,000 tonnes 4% lower for the quarter and 7.7% lower year to date as a result of lower throughput and grades.
• At Michilla production was 8,300 tonnes 13.7% higher due to higher grades and 32.8% down to 15,600 tonnes year to date due to lower throughput.
• At Antucoya first production has been delayed due to unexpected levels of dust in the secondary and tertiary crusher circuits and issues related to the tripper in the tertiary circuit.
• First production is now expected to be at towards the end of the third quarter
• Realised prices for copper were up 7.3% for the quarter at US$2.63/lb and down 17.5% year to date at US$2.54/lb.
• The provisional pricing movement for copper, gold and moly for the first half will be a negative US$113.1m, US$2.8m and US$12.1m respectively.
• Production has been guided to 665,000 tonnes from 710,000 tonnes previuously expected as a result of the delay in ramp of Antucoya of around 40,000 tonnes.
Conclusion: The delay in the start of Antucoya is the main reason for the production miss but overall the mines are performing well and recovering from a poorer first quarter. The main driver to performance will be a recovery of copper prices.
Berkeley Resources (LON:BKY) 17.5pence, Mkt Cap £31.6m – Quarterly update focuses on activities at Zona 7
• The company has provided an update on the activities at its Salamanca Uranium Project in western Spain where an infill drilling programme is underway on the Zona 7 resource.
• The 101 hole programme totalling 6,500 metres is aimed at upgrading the existing higher grade resource at Zona 7, which currently has an inferred estimate of 23.2m tonnes at an average grade of 589pm (approximately 0.06%), to the indicated level, and at investigating possible extensions of the mineralisation along strike towards the southwest and along the western boundary.
• Initial results of the Zona 7 drill programme are scheduled to be reported in mid-August and the new resource estimate including the balance of the results are expected to be reported in September.
• Zona 7 lies around 10km from the proposed processing plant, where the company recently cleared the first stage of the permitting process when it secured a favourable report from the Nuclear Safety Council. The company is well advanced in the preparation of the documents required to apply for the Authorisation for Construction of the process plant.
• The Zona 7 resource is higher grade than other deposits within the project area and Berkeley Resources is re-shaping its development strategy for the Salamanca Uranium Project to bring Zona 7 to the fore. Documents for the application to permit Zona 7 are being prepared and will be submitted in Q4 2015.
• Salamanca Province is mining-friendly jurisdiction which has an existing tungsten mine in operation at Los Santos and recently approved the development of a second mine at Barruecopardo and as a result of these and other projects, the local regulatory authorities are familiar with, and well versed in, the process required to approve mining activities. Although Berkeley Resources is addressing a different commodity, this local expertise with the Mines Department should stand the company in good stead as the permitting process progresses.
Conclusion: The recent appointment of a new MD at Berkeley Resources, the pending resource upgrade at Zona 7 and the advancement of permitting applications all show an increase in the momentum of activity at Berkeley Resources - we look forward to the upgraded resource estimate in September.
Eurasia Mining (LON:EUA) 0.9p, mkt cap £11.2m – Restarting drilling at Monchetundra copper- PGM project
• Eurasia Mining reports plans to restart drilling at its Monchetundra copper PGM project in Russia’s Kola Peninsula. A drilling programme focussed on the West Nittis area in 2013, identified a zone of PGM mineralisation with associated copper over an area of approximately 1100m by 700m.
• The previous drilling work showed copper grades up to over 2% and gold grades ranging up to 2g/t in addition to platinum and palladium. The intersections reported from the historic drilling were at depths shallower than 100 metres, typically less than 3metres wide, but ranged as high as 18.4m.
• Eurasia Mining now plans additional drilling “to allow the calculation of resources and sufficient core samples for metallurgical testwork. Additional drilling for hydrogeological tests will be carried out, as well as well as for base-line environmental sampling.”
• This additional work is intended to allow Eurasia Mining to prepare a feasibility study which can be submitted to “the government agency Rosnedra in order to seek the award of a Discovery Certificate. It is expected that the submission will happen late this year or early 2016.”
Conclusion: In May this year, the company announced plans to undertake further drilling and prepare a Competent Persons Report on its West Kytlim project in the Urals. We noted at the time that this might require further funding, despite the exercise of warrants earlier this month raising approximately £375,000, today’s announcement of plans to drill at Monchetundra must further increase the pressure on the company’s financial resources.
Sable Mining (LON:SBLM) 0.5 pence, Mkt Cap £5.5m – Met Test work at Nimba
• The company has results from metallurgical test work for two premium grade products being investigated for the project.
• The two potential products from Nimba are a lump product of 63.33% Fe and fines product of 62.11% Fe.
• The high quality product is said to be sustainable for a 10 year mine life exclusively from Plateau 2.
• Tests have been completed to determine the mechanical and thermal properties of the proposed lump product benchmarked against the BHP specification for their Newman High Grade (NHG) and MAC products.
• The TI (Tumble Index at 81.4 versus NHG at 85) and AI (Abrasion Index at 11.5 versus NHG at 10) show greater susceptibility to disintegration during handling than BHP products.
• The product compares well on the RI (Reductibility Index at 71 versus 56 for NHG) which measures the rate of reduction from iron oxide to iron.
• The overall value in use is expected to achieve a premium for the product.
Conclusion: Against a weak iron ore price environment doing work that is not too expensive to establish better scope for the product makes sense. However, getting this to development continues to present a challenge unless the company can make a significant improvement to the operating costs reported in the PFS of US$44/t FOB.
SolGold* (LON:SOLG) 2.3 pence, Mkt Cap £17.5m – Conference presentation highlights progress at Cascabel
• SolGold has posted a new video conference presentation onto its website
• The link can be found at https://www.SolGold.com.au/
• https://www.SolGold.com.au/page/investor-centre/presentations/
• Given recent developments at the Cascabel project and the identification of additional mineralisation relatively close to surface in Hole 12 as well as Hole 1 the presentation should be all the more interesting
*SP Angel acts as Nomad and Broker to SolGold. An SP Angel analyst has visited the Cascabel project.