Economic News
US – The weakest growth in labour costs through Q2 in 33 years took the US dollar lower and gold prices off five-and-a-half years lows on Friday.
• Employment cost index: +0.2% in Q2/15 v +0.7% in Q1/15 and +0.6% forecast.
• The Fed is closely watching labour earnings numbers in an effort to assess the strength of the economic recovery ahead of the rate hike widely expected to happen this year.
• Economic news due this week:
o Monday: Jun PCE deflator, Fed preferred measure of inflation (+0.2%yoy v +0.2%yoy in May)
o Tuesday: Jun factory orders (+1.7% v -1.0% in May)
o Wednesday: Jul ADP employment data (+210k v +237k in Jun), Jun trade balance (-US$42.9bn v –US$41.9bn)
o Thursday: Weekly jobless claims (273k v 267k in the previous week)
o Friday: Jul NFP (+225k v 223k), unemployment rate (5.3%, unchanged), weekly earnings (+0.2%mom/+2.3%yoy v +0.0%mom/+2.0%yoy in May)
China – Manufacturing fell more than forecast after having been revised downwards from initial estimates and hit the lowest level since Aug/12.
• Markit manufacturing PMI came in at 47.8 in Jul, down from 49.4 in Jun and 48.3 forecast.
• The final reading marks a revision of preliminary estimates released previously (48.2).
• “Staff numbers at Chinese manufacturers declined for the 21st consecutive month.”
• “Renewed fall in both total new work and new export orders led manufacturers to cut production.”
Germany – Manufacturing recorded a marginal slow-down in the rate of expansion in Jul but remained “broadly in line with the long-run series average”.
• Markit manufacturing PMI: 51.8 in Jul v 51.9 in Jun and
• Regarding new orders, the domestic economy was the main driver of new order growth with foreign demand reporting the first decline since Jan/15. Although the contraction in new export orders was marginal overall.
France – Manufacturing slipped back sub-50 mark implying production contracted through Jul, though a marginal pace.
• Markit manufacturing PMI: 49.6 in Jul and 50.7 in Jun and
• Both domestic and export new orders remained subdued.
• Unlike in Germany where output prices increased, prices charged by producers recorded a 17th consecutive monthly decline in France.
Italy – Manufacturing posted the best results among major Eurozone economies in Jul as stronger demand drove employment, capital investment and output prices up.
• Markit manufacturing PMI: 55.3, the highest in 55 months, in Jul v 54.1 in Jun.
• New orders climbed both in domestic and export markets.
• Employment growth pace was among the fastest over the past 15 years.
Russia – Manufacturing remained in a contractionary mode through Jul marking a third consecutive monthly <50 reading based on Markit PMI data.
• Manufacturing PMI: 48.3 in Jul from 38.7 in Jun.
• “Operating conditions in Russia’s manufacturing sector continued to deteriorate during July, reflective of soft demand which undermined production and new order intakes. Jobs continued to be lost, while firms reduced their inventories at a market and accelerated pace,” the report read.
US$1.0982/eur vs 1.0954/eur last week. Yen 124.08/$ vs 124.21/$. SAr 12.684/$ vs 12.744/$. $1.564/gbp vs 1.558/gbp
US$0.729/aud unch vs0.728/aud.
Commodity News
Precious metals:
Gold US$1,095/oz vs US$1,082/oz yesterday
Platinum US$982/oz vs US$979/oz –
Palladium US$614/oz vs US$614/oz –
Silver US$14.73/oz vs US$14.60/oz –
Base metals:
Copper US$ 5,173/t vs US$5,244/t –
Aluminium US$ 1,605/t vs US$1,634/t –
Nickel US$ 10,695/t unch vs US$10,990/t
Zinc US$ 1,889/t vs US$1,949/t –
Lead US$ 1,675/t vs US$1,711/t –
Tin US$ 16,185/t vs US$16,030/t –
Energy:
Oil US$51.70/bbl vs US$52.60/bbl
Natural Gas US$2.754/mmbtu vs US$2.783/mmbtu
Uranium US$35.25/lb unch vs US$36.00/lb –
Bulk commodities:
Iron ore 62% Fe spot (cfr Tianjin) US$53.90/t unch vs US$51.50t –
Thermal Coal $55.8 vs $56.5 cif ARA Europe –
Tungsten - APT European prices price $220.0/mtu unch vs $225/mtu
Company News
Herencia Resources (LON:HER) 0.18p, Mkt Cap £6.4m – Discussions to merge Picacchos copper project with existing copper mining assets
• The company has announced that it is in discussion with an established Chilean copper mining company, the Errazuniz Group, with a view to merging Herencia’s Picachos open pit copper project with the nearby underground mining and processing operations of Errazuniz’ Tambillos copper mine.
• The Tambillos operations comprise two underground mines and a 1mtpa capacity processing plant approximately 10km north of Picachos.
• At this stage, the two companies have signed a non-binding memorandum of understanding and although there is no assurance that a deal will be concluded, Herencia’s Managing Director, Graeme Sloan, commented that “both parties clearly see the opportunity for immediate value-add, and if the spirit and co-operation we have seen in recent discussions and due diligence is anything to go by, we are optimistic that an agreement can be achieved prior to the end of 2015.”
• The Picachos project has yielded some high grade near surface intersections of copper and silver and the announcement indicates that the current proposals originated from discussions between the two companies over the possibility of using surplus treatment capacity at Tambillos to treat ore from Pichaos. Herencia announced an MoU for toll treating ore at Tambillos in September 2014.
• Previous reports by Herencia indicated that they were proposing to complete a mining feasibility study in mid 2015 with a view to fast-tracking mine development at Picachos -
• Conclusion: There appears to be a convincing operating logic to a combination of Tambillos with Picachos to create a mid-tier Chilean copper producer, however, at this stage there is no indication of the potential terms though no doubt these matters ure under detailed discussion. We will await further news with interest.
Metminco (LON:MNC) 0.26 pence, Mkt Cap £6.4m – Quarterly Report and revised Los Calatos development strategy
• Metminco’s quarterly report focuses on the changes to the proposed mine development of the Los Calatos deposit in Peru previously announced.
• The decision to move from the earlier plan involving large scale open pit and underground mining to a smaller scale underground mining operation focussed on sub-level caving has substantially reduced capital exposure to develop a mine which was originally expected to cost $1.5bn, later scaled back to $1.32bn.
• Metminco’s new plan, which still requires substantial infill drilling and engineering work, will mine at 25% of the rate originally envisaged (6mtpa vs 24 mtpa) to produce 46% of the copper output (45 ktpa vs 98.4 ktpa) at around half the capital expenditure ($650m vs $1.32bn). Mine life has been reduced from 34 years to 17 years.
• Cash operating costs are reported to be slightly (7%) higher at $1.20/lb after by-product credits.
• The revised plan generates an after tax NPV of $285m at an 8% discount rate and has a 5.3 years payback.
• Metminco shows 30th June cash balances of A$2m (US$1.5m).
Conclusion: Metminco has developed a more robust project at Los Calatos as a result of scaling back the throughput and capital expenditure to mine higher grade ore over a shorter period. This pragmatic approach to optimising project development is welcome.
Ormonde Mining* (LON:ORM) 2.05 pence, Mkt Cap £10.2m – Dr. Kerr Anderson
• It is with great sadness that we learn today of the sad and untimely demise of Ormonde Mining’s Managing Director, Kerr Anderson.
• Kerr Anderson was a highly professional geologist who steered Ormonde Mining from early stage exploration to becoming a mine developer at its Barruecopardo tungsten project in Spain. He will be deeply and sincerely missed by those who knew him throughout the mining industry.
• SP Angel extends its deepest sympathy to Kerr’s family and to his colleagues at Ormonde Mining.
*SP Angel act as broker to Ormonde Mining