Gold – prices are falling ahead of expected strong US non-Farm Payrolls due later today
• Bloomberg report that losses at some hedge funds are causing operators to close some funds and sell underlying commodities
• Asian funds are likely to have seen significant redemptions while Cargill and Armajaro are both listed as having closed funds
• But there is news of shortages of physical coins and small bars by mints and bullion demand in China and India is reported to be heading to over 2,000t again
• A weaker Indian Rupee is making gold more expensive in India but does give some hedge against a weakening currency making the metal more attractive locally
Tube strike – those greedy, selfish, scumbag tube drivers crippled the London Underground yesterday
• Our faith in human nature was partially restored yesterday on news that property maintenance company ‘Aspect’ was offering free lifts on its delivery vans to commuters.
• The tube strike gave many an excuse to work from home while others struggled into work.
• Uber, the taxi company, capitalised on the strike again by offering its services
• Tube drivers earn £49.7kpa and have been offered a 2% pay rise and extra £200 per night shift for a limited period as the service moves to 24 hour working. Given there is no inflation at present that does not sound like such a bad deal.
Economic News
US – Weekly jobless claims increased marginally, although, the number of unemployment applications remains at levels consistent with a firming labour market.
• Initial jobless claims: 270k v 267k in the previous week and 272k forecast.
• Economic news due today:
• 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)
Germany – Weak industrial production numbers in Jun surprise markets.
• Industrial output: -1.4%mom/+0.6%yoy v +0.2%mom/+2.4%yoy in May and +0.3%mom/+2.2%yoy forecast.
• Strong factory orders released on Thursday are likely to accelerate growth in the sector in coming months.
UK – The BoE left benchmark rate unchanged at 0.5% with a 8:1 vote count.
• The pound fell against the dollar on the announcements as markets expected more members to support the rate hike.
• Ian MacCafferty who voted for an increase in rates noted a risk of inflation overshooting the two percent target and argued that postponing the hike might lead to more aggressive tightening required in the future.
• Markets current expect rates to rise in Q1/15.
• The Bank expects near-zero inflation rates through the next few months, but “unlikely to endure beyond this year”.
• GDP forecasts have been revised upwards to 2.8%, up from 2.5% in 2015. The economy is seen expanding at 2.6% and 2.5% in the 2016/17 period.
• A separate report showed new car registrations climbed for a 41st consecutive month in Jul.
• Sales were up 3.2%yoy in Jul taking the number sold ytd to 1.6m units, up 6.5%yoy.
• “We anticipate a flatter second half of the year as the market finds its natural running rate,” the Society of Motor Manufacturers and Traders said.
Egypt – The government completed a US$8bn expansion of the Suez Canal currently accounting for c.8% of the world seaborne trade.
• A new 21-mile long bypass along the 120-mile long canal has been added which is expected to double the number of ships that can pass through it each day.
Greece – “Our teams have been on the ground for two weeks now and they are reporting satisfactory progress, “ the EC said regarding negotiations over the third Greek bailout.
• The EC commented on the progress in response to reports in the press that the targeted 20 Aug deadline is likely to be missed quoting unnamed government officials.
US$1.0929/eur vs 1.0891/eur last week. Yen 124.77/$ vs 124.87/$. SAr 12.717/$ vs 12.778/$. $1.551/gbp vs 1.560/gbp
US$0.737/aud unch vs0.731/aud. Euro strengthening despite poor IP numbers in Germany.
Commodity News
Precious metals:
Gold US$1,092/oz vs US$1,085/oz yesterday -
Platinum US$954/oz vs US$953/oz –
Palladium US$603/oz vs US$600/oz –
Silver US$14.80/oz vs US$14.56/oz –
Base metals:
Copper US$ 5,145/t vs US$5,200/t –
Aluminium US$ 1,588/t vs US$1,598/t –
Nickel US$ 10,810/t unch vs US$10,895/t
Zinc US$ 1,860/t vs US$1,894/t –
Lead US$ 1,690/t vs US$1,715/t –
Tin US$ 15,300/t vs US$16,400/t –
Energy:
Oil US$49.90/bbl vs US$49.70/bbl
Natural Gas US$2.809/mmbtu vs US$2.765/mmbtu
Uranium US$35.95/lb vs US$35.95/lb – prices going up as Japan prepares to restart reactors
Bulk commodities:
Iron ore 62% Fe spot (cfr Tianjin) US$54.90/t unch vs US$55.30t –
Thermal Coal $55.4 vs $55.9 cif ARA Europe –
Tungsten - APT European prices price $215.0/mtu unch vs $220/mtu – Price range pulls back to $210-220/mtu vs $210-230/mtu previously
Company News
Paragon Diamonds (LON:PRG) 5.5 pence, Mkt Cap £15.3m – Lesotho Government approval for acquisition of 75% of Mothae
• Paragon Diamonds reports that it has now received the Lesotho Government’s approval to acquire 75% of the Mothae diamond kimberlite from Lucara Diamonds.
• Earlier announcements indicated that Paragon would pay $8.5m for the acquisition. A further US$5m needs to be spent for development capital with an additional US$3m provision for opex.
• Paragon plans to develop the Mothae kimberlite in tandem with its nearby Lemphane kimberlite in order to take advantage of economies of scale.
• The Government’s approval requires “the funding of both mines promptly” and Paragon Diamonds states that it is in discussion with several potential sources of finance as it seeks to identify the “optimal funding partner”.
• Mothae, which has an indicated and inferred resource of 39m tonnes at an average grade of 2.7 cpht with reported diamond values of $1,060/ct, is one of a cluster of high grade diamond bearing kimberlite pipes in Lesotho which includes the 5.7mtpa Letseng mine located just 5km from Mothae.
• Although Mothae will be a much smaller mine and may not prove to be as prolific, Letseng has produced a number of large high value stones including the “Letseng Legacy” and “Letseng Star” around 500 carats in size in recent years and this part of north-east Lesotho is now producing some of the world’s largest and most valuable rough diamonds.
Conclusion: Government approval for the Mothae acquisition puts the onus on Paragon Diamonds to secure development funding. We look forward to further news on funding and plans for mine development.
Premier African Minerals (LON:PREM) 2.5p, Mkt Cap £17.2m – RHA update and Circum Minerals, Danakali project DFS stats
RHA tungsten plant progress (Zimbabwe)
• Premier African Minerals updated the market on its RHA tungsten project in Zimbabwe in which the company holds a 49% interest.
• The company report the shipment of first concentrated from the RHA mine which are now on route to Durban, South Africa
• The team are also are busy installing ‘plant modifications’ which should help the mine to progress to steady state production.
• The shipment shows the plant is able to produce a container of wolframite concentrate of up to 70% - note this does not tell us what the tonnage or the grade of the shipment is.
• It is not easy commissioning a tungsten plant or any plant for that matter and its location in Zimbabwe might not help. Shipping one container is a good start but it tells us that the company is still a little way off steady state production. We wish the company well and we hope for better tungsten prices soon.
Curcum Minerals project Danakil (Ethiopia ) PREM own around 2% of Circum
• Premier African Minerals today report an update on the Circum Minerals which holds a potash project in the Danakil depression on the Ethiopian side of the boarder.
• The project should not be confused with Danakil Minerals, the ASX company which also holds a potash project in the Danakil depression though this is located in Eritrea.
• The DFS is reported to give a project NPV of $2.1bn and is said to be in the process of engaging a major investment bank (not SP Angel as yet) to advise the company
• Stephen Dattels is chairman and co-founder of Circum. Dattels was formerly involved with Euromin, the Uranium company which sold the Trekkopje project to Areva for $2.5bn.
Highlights
• Production of 2mtpa of MOP and 750,000t of SOP for Phase I
• Measured, Indicated and Inferred Resources of 4.9bnt at 18.1% KCl
• Proven and Probable Reserves of 107.8mt of KCl equivalent
• Reserves support 26 year mine life for Phase I, with three year ramp-up period
• Capex Phase I of US$2.58bn (including contingency)
• Cash costs of US$39/t of MOP and US$114/t of SOP
• Total Op costs (FOB Djibouti) of US$83.89/t of MOP and US$ 158.95/t of SOP
• After-tax Net Present Value of US$ 2.1bn, at a 10% discount rate
• IRR post tax 22.4%.
• Assumed prices of US$350/t of MOP and US$580/t of SOP
• Circum has raised some $50m to date for their Danakil project with Plinian Capita (Brad Mills & Anton Mauve) and the AMED fund as major shareholders. Plinian manage the project.
• Circum reckon the project has the potential to become the biggest project in the region and are looking to complete a mine development agreement with the Ethopian Government. Let’s hope they have remembered to pay Ethiopian VAT which caught Nyota out on the Tulu Kapi gold project.
• The DFS works off Production of 2mtpa of MOP and 0.75mtpa of SOP targeted from mid-2018 with shipments from the Tadjoura Port of Djibouti.
• NI 43-101 measured and indicated resource of 2.8bnt of potash salts down to 500m + 2.1bnt inferred.
o Average thickness of the Upper Sylvinite layer is 6.2 meters at a grade of 27.5% KCl in the western deposit.
o Average thickness of the Lower Kainitite layer is 8.8 meters with a grade of 19% KCl (as K2SO4) in the western deposit.
o Process: in-situ leaching extraction method
MOP ex-mine cash costs are expected to be US$39/tonne and FOB at Djibouti of US$83.89/tonne.
SOP ex-mine cash costs are expected to be US$114/tonne and FOB at Djibouti of US$158.95/tonne
CAPEX Phase I: US$940/t of annual production versus US$2,000/t for recently completed or planned projects in Canada and Belarus.
Ethiopian tax incentives:
25% corporation tax for large-scale mining projects vs 30%
Losses can be carried forward for 10 years
25%pa depreciation on assets for tax purposes
The DFS assumes a nine year tax holiday – still subject to negotiation
Royalties MOP and SOP are classified as industrial minerals and carry a royalty of 4% on sales
Talvivaara directors to go on trial charges with aggravated environmental damage in Finland
• The charge relates to the contamination of lakes with uranium, cadmium and other toxic elements.
• Toxic levels of nickel, cadmium, uranium, aluminium and zinc were detected in nearby lakes and rivers in 2012, and again in 2013 after waste water began to leak from the mine. The company later filed for bankruptcy at the end of 2014..
• Prosecutors are seeking suspended sentences and fines for the company's former chief executive, Pekka Pera, and three former colleagues.