Gold prices rise as investors see greater risk in Chinese currency move
• The US has warned China over the risks of a currency war
• China’s ‘one-time’ currency rate cut yesterday, then followed today by another currency rate cut, goes to prove the saying, “watch what they do not what they say”
• The
China cuts currency rate again this time by 1.6% – maybe this is a ‘one-time’ per day move
China – The PBoC cut the daily reference exchange rate fix today by 1.6% to 6.33 USDCNY after taking it down by 1.9% yesterday.
• Markets are growing concerned that two changes in reference rate in quick succession suggest that Beijing is worried over the slowing pace of economic growth.
• A separate set of reports showed retail sales , industrial production and fixed investments growth slowed in Jul compared to the previous month:
• Retail sales: +10.5%yoy v +10.6%yoy in Jun and forecast.
• Industrial production: +6.0%yoy v +6.8%yoy in Jun and +6.6%yoy forecast.
• Fixed investments: +11.2%yoy v 11.4%yoy in Jun and +11.5%yoy forecast.
• Equity prices of companies doing business with China are in retreat while the US dollar continues to gain strength weighing on dollar denominated commodities.
• On the other hand, gold is seen benefiting from the “risk off” mood in the market trading at US$1,117/oz and on its way for a fifth consecutive session of gains.
China – Drinking water from Sha Tin estate in Hong Kong found to contain 3x WHO limits for lead and nickel
• The South China Post today report that tests on the quality of drinking water for a new major housing estate in China showed significantly higher levels of lead and nickel in drinking water than the recommended limits as set by the World Health Organisation.
Economic News
US – Productivity rebounded in Q2/15 from a sharp decline in the first three months of the year, but the increase came short of market estimates.
• Nonfarm productivity: +1.3% v -1.1% in Q1/15 and +1.6% forecast.
• Productivity is still just 0.3% higher in the 12 months to the end of Jun.
• Economic news due today:
• JOLTS job openings (5,350k in Jun v 5,363k in May)
Brazil – Moody’s cut the sovereign credit rating of Brazil to Baa3, one notch above junk, on a deterioration in the economic outlook.
• “Weaker-than expected economic performance, the related upward trend in government expenditures and lack of political consensus on fiscal reforms” are cited as factors to drive an increase in public debt in coming years.
• The agency expects “the rising debt burden to stabilize only towards the end of this administration (2018)”.
Australia – Consumer confidence rebounded from the lowest YTD reading but remained a notch below the level where optimists outnumber pessimists.
• Consumer confidence: 99.5 in Aug v 92.2 in Jul, the lowest level in 2015.
• This compares to the business confidence report released earlier this week showing the sentiment fell to the lowest level since Apr.
US$1.1129/eur vs 1.1031/eur last week. Yen 124.67/$ vs 124.88/$. SAr 12.829/$ vs 12.723/$. $1.557/gbp vs 1.559/gbp
US$0.729/aud vs0.733/aud.
• US dollar strengthens as China cuts currency rate again and money flows into the US dollar.
• US bond yields are falling as funds flow into US Treasuries
• South African rand weakening is useful for local exporters
Commodity News
Precious metals:
Gold US$1,117/oz vs US$1,113/oz yesterday
Platinum US$991/oz vs US$994/oz
Palladium US$606/oz vs US$618/oz
Silver US$15.35/oz vs US$15.36/oz
Base metals:
Copper US$ 5,137/t vs US$5,230/t yesterday - Freeport McMoRan temporarily stopped copper concentrate shipments from its Indonesian operations since the end of Jul.
• The Company is trying to get an exemption from a regulation on letters of credit.
• Under current ruling, miners should receive payments for exports via letters of credit issued by a domestic foreign-exchange bank.
• The latest permit issued to Freeport expired on Jul 25.
Aluminium US$ 1,583/t vs US$1,585/t last week
Nickel US$ 10,515/t unch vs US$10,835/t last week
Zinc US$ 1,800/t vs US$1,845/t last week
Lead US$ 1,720/t vs US$1,735/t last week
Tin US$ 15,100/t vs US$15,500/t last week
Energy:
Oil US$49.30/bbl vs US$50.32/bbl
Natural Gas US$2.863/mmbtu vs US$2.824/mmbtu
Uranium US$36.00/lb unch vs US$36.00/lb – prices continue to rise as Japan restarts first nuclear reactors following a two year shutdown
Bulk commodities:
Iron ore 62% Fe spot (cfr Tianjin) US$54.00/t unch vs US$54.30t –
Thermal Coal $54.4 vs $55.4 cif ARA Europe –
Tungsten - APT European prices price $215.0/mtu unch vs $220/mtu – we expect prices to track sideways this week
Company News
Amara Mining (LON:AMA) 10.25 pence, Mkt Cap £43.1m – Half Year results and status of the Yaoure project
• Amara Mining reports an operating loss for the six-months to 30th June 2015 of US$3.4m (2014 US$4.0m) resulting a loss of 0.76 cents per share (3.75 cents per share). The results for 2014 were impacted by a US$7.6m loss from discontinued operations.
• Amara holds cash of $13.6m following the completion of a $21m placing in January.
• Operationally, the company continues to focus on the Yaoure gold project in Cote d’Ivoire where it has a 2.7m oz gold reserve at an average grade of 1.18g/t, underpinning a preliminary economic assessment indicating that a 6.5mtpa open pit mine could produce an average of 279,000 oz of gold per year over a 10 year mine life at all-in-sustaining costs of $624/oz. Capital costs of $357m are estimated to generate an NPV of US$513m at a gold price of US$1250/oz and payback in 2.6 years.
• The overall resource at Yaoure amounts to 6.8m oz and a 12,000 metres drilling programme is underway to upgrade the inferred portion of the resource (2.4m oz) to the more robust “indicated” category.
• The company has applied for an exploitation permit to develop Yaoure and has also obtained an additional 206 sq km exploration licence at Yaoure East.
Conclusion: The company is continuing to optimise the development plan for Yaoure and we look forward to further news which the company expects “to strengthen the overall economics of the project”.
Aquarius Platinum (LON:AQP) 6.6 pence, Mkt Cap £99.4m – Results for year ending 30th June 2015
• Aquarius Platinum reports an accounting loss of US$98m (2014 US$13m) after recognising US$29m of impairment charges (US$3m).
• Mining operations generated operating cash flow of $18m (2014 $21m) leaving the company with net cash balances of US$196m, including a $20m dividend from the Mimosa JV in Zimbabwe.
• The company motes that the operating mines at Kroondal and Mimosa both delivered record production and both mines contained unit costs increases to well below inflation.Cash costs at Kroondal rose by 1% to R9,168/oz while cash costs at Mimosa declined by9% to $802/oz.
• Attributable production rose by 5% to 314,426 PGM oz (2014 331,643 oz)
• The company was, however adversely impacted by weaker PGM prices which declined by 7% in US$ terms compared to H2 2014.
Centamin (LON:CEY) 56 pence, Mkt Cap £638m – Second quarter and Half Year Results
• EBITDA for the period was US$37.3m mainly as a 9% fall in revenues which was partially offset by a 2% decrease in mine production costs and a decrease in inventories.
• Gold production for the full year was 107,781 oz in line with the first quarter and up 33% of the same quarter last year.
• Cash cost of production was US$706/oz with all in sustaining costs of US$853/oz in line with the previous quarter.
• Cash costs were down 1.6% on the previous quarter and 5.4% on the same time last year.
• Average realised gold prices were US$1,188/oz down 2.3% from the previous quarter and down 9% from the same time last year.
• Process plant throughput at 2.67 Mt was 7% above name plate capacity.
• Recoveries of 90.3% were above expectations of 88% due to greater efficiencies in the fine grinding circuit and reconfiguration of the final leaching stages.
• Open pit material fell for the quarter by 15% to 13,617 kt due to lower fleet utilisation and productivity with mined ore grades of 0.76 g/t being in line.
• Underground material was up 7% to 282 kt with an average grade of 6.3 g/t in line with mine plans.
• Cash at the end of the period stood at US$175m with gold sales receivables at US$24.2m and bullion on hand at US$13.1m.
• An interim dividend of 0.97 cents up 15% on the previous year.
• Production guidance is for between 430-440,000 oz with cash cost expected to be around US$700/oz and all in sustaining costs of US$950/oz.
• The target of 450-500,000 oz on an annualised basis is to be achieved in H2.
Conclusion: EBITDA was hit mainly by fall in prices while costs are being contained. With an AISC cost below US$1,000/oz the company should still be generating cash at these gold prices and with cash on the balance sheet, no debt and a growing production profile, this is one of the better producers to hold.
Exxaro ZAR68, mkt cap ZAR24bn – Exxaro re-negotiates deal to buy Total Coal of South Africa ‘TCSA’ from the South African Government
• Exxaro are paying $382m or 19% less for TCSA in a re-negotiated deal with the South African government.
• A new condition for the re-negotiated deal appears to be the insertion of yet another BEE partner into the business as part of the deal.
• Exxaro has agreed to make an $262m up-front payment plus a maximum additional payment of $120m in a deferred payments in relation to export coal prices.
• Exxaro is going to struggle to pay a dividend this year due to no dividends from its 19% stake in Kumba Iron Ore.
• The South African Minister of Mines has finally agreed to issue a section 11 permit to allow the change of control of the TCSA coal assets. Had the minister issued the permit a year earlier the deal would have gone through at a higher price in better coal price conditions.
• The minister appears to have held up the deal due to a lack of participation by the ‘community’ despite Exxaro is 52% BEE owned
• TCSA holds a 74% stake in the Dorstfontein and Forzando coal mines which produce 4.5mtpa of coal of which around 4mtpa is exported through Richards Bay.
• TCSA also hold a 49% stake in the now closed Tumelo coal mine, with Mmakau Mining holding the majority stake, and a greenfields project in Mpumalanga called Eloff
• A local, expert, source reckoned Exxaro has agreed to pay too much for the assets given conditions in global coal markets.
• It is tough to see value in this deal given the lack of profitability and need for sustaining capital of potentially US$80-100m over the next 12-24 months.
• We see value in the Richards Bay Coal Terminal allocation but with international coal prices at low levels the entitlement must be worth significantly less.
• ESKOM are also offering derisory prices for coal within South Africa, though this may change going forward if more coal mines close
• Exxarro have a tier 1 asset in Grootegeluk, which is a substantial cash generator but Kumba’s Iron Ore dividends are over for a while and collieries with tied-pricing to Eskom are struggling.
• We wonder if Exxarro might need to raise further funds from investors to cover the cost of funding the sustaining capital requirement at TCSA going forward in what looks initially like an overpriced transaction. If Eskom raises its domestic coal prices and international prices also recover then this might seem a better deal.
Gemfields (LON:GEM) 65 pence, Mkt Cap £352m – Update for the June quarter and FY 2015
• The company updated for the June quarter which is the final quarter of their financial year.
• At Kagem - production for the quarter of 8.1m carats of emerald and beryl giving annual gemstone production of 30.1m carats.
• Quarterly production is up 31% on the same time last year and for the full year production is up 49%.
• The increased scale of production has resulted in a fall in unit operating costs by 13% from US$1.79/carat to US$1.58/carat for the quarter.
• For the full year unit operating costs are down 7% at US$1.48/carat for US$1.58/carat.
• Cash rock handling costs were also down 28% for the year to US$2.9/t reflecting the larger scale of operations.
• Capex for the quarter was US$1.8m and US$14m for the full year with capitalised costs of US$4.7m and US$20.8m respectively.
• The fourth phase of the high wall pushback programme continues to be carried out with 3.6 Mt of waste moved during the quarter.
• The next high quality auction of emeralds is to be take place from 31 August to 4th September.
• For the full year, the company has had three rough auctions – one high quality and two lower quality netting US$64.9m.
• At Montepuez for the quarter 0.7m carats of ruby and corundum was extracted with an average grade of 9 carats per tonne.
• For the full year this gave production of 8.4m carats up 30% on the year.
• Unit operating cost for the quarter was up sharply by 250% to US$10/carat and for the full year costs were up 229% to US$2.57/carats.
• This reflects the increase in exploration, mining and processing costs.
• The increased work culminated in a maiden JORC resource and reserve with an probable ore reserve of 432m carats at a diluted ore grade of 15.7 carats per tonne.
• Over the year the company held two auctions of higher quality stones and 1 of lower quality stones netting US$88.5m.
• The next ruby auction is to be held in Dec 2015.
• Faberge saw value of sales for the quarter fall by 14% while for the full year sales were up 31% on the same period last year.
• Operating csots for the quarter increased by 6% over the quarter as a result of the cost of development of a new watch line while for the full year costs fell by 5%.
• At the end of the period the company had cash and cash equivalents of US$28m with total debt outstanding of US$45m.
Conclusion: This quarter completes a successful year for Gemfields as they see production up and costs down at Kagem their more established emerald business while at the same time establishing a resource and reserve which gives much more visibility to their ruby business at Montepuez. The company has set a good base to grow their coloured gemstones business. With diamond pricing being impacted by consumer concerns in China, the market will be watching with interest pricing at the forthcoming auctions for emeralds set for the end of August.
Lucara Diamond Corp (CVE:LUC) C$1.93, Mkt Cap C$733m – Q2 and update on plant
• The company achieved revenues of US$38.1m for the quarter giving revenues for six months of US$67.8m.
• There were 100,177 carats sold in the quarter with 206,954 carats sold year to date giving an average price per carat for the quarter of US$340/carat.
• Carats recovered during the quarter was 85,714 at an average grade of 16.9 cpht with year to date carats recovered of 175,791 carats at 15.8 cpht.
• The first exceptional stone tender was held after the end of the second quarter and netted US$68.7m from the sale of 1,674 carats.
• Including the exceptional tender, revenues for the year are US$74m against US$82.1m in the previous year.
• Operating cost for the quarter was US$160/carat up 21% on the same period last year.
• For the full year costs are US$132/carat.
• Cash and receivables at the end of the quarter stood at US$130.2m.
• Mining of ore is in line with forecasts with waste mining ahead of schedule.
• Plant optimisation circuits have now been commissioned with the XRT machines are said to have performed well recovering more larger higher value stones.
• The capex for plant optimisation over the quarter was US$2.2m with a year to date spend of US$11.6m with guidance for US$55m remaining in line.
• Capitalised waste costs were US$4.2m for the quarter in line with the same time last year with full year costs of US$9.3m.
• For the full year the company is guiding down on production to 2.2 to 2.3 mt of ore from 2.2-2.4 Mt giving carats of 350 - 400,000 carats in 2015 down from 400-420,000 carats.
• Revenue forecasts have been reduced to US$200-220m from US$230-US$240m reflecting lower volumes and a weaker diamond market.
• Operating costs are still in the range of guidance of between US$33 to US$36/t.
Conclusion: Guidance for revenues are down 9-15% reflecting lower production as well as a weaker market. Overall though Karowe continues to produce exceptional stones with plant optimisation going well with more larger high value stones being recovered.
Shanta Gold* (LON:SHG) 5.125p, Mkt Cap £23.8m – Drilling results from New Luika satellite deposit at Elizabeth Hill
• Shanta Gold reports the results of a 3,784m programme of reverse-circulation drilling at its Elizabeth Hill prospect locates approximately 4 km east of the treatment plant at its New Luika gold mine in Tanzania.
• All of the holes drilled encountered mineralisation at shallow depths (less than 70m), including a 4m wide intersection averaging 14.5 g/t gold from a depth of 61m in hole CSR 434; 10m averaging 3.53 g/t from 54m in hole CSR 435 and 15m averaging 2.26 g/t from 25m in hole CSR 418.
• The drilling, which was closely spaced on a 25mx25m grid, has identified a 400m long section “characterised by encouraging gold mineralisation” within two distinct zones along the southeast trending ridge at Elizabeth Hill. Drilling at this spacing should be adequate to develop new resources estimates and reasonably precise block models.
• Previous, deeper, drilling at Elizabeth Hill was more widely spaced and the recent campaign will have improved understanding of the continuity and geometry of the mineralised structures. The company expects to integrate these results into an updated resources assessment for the Elizabeth Hill mineralisation and commence pit optimisation studies for a potentially, low stripping ratio pit within close proximity to the treatment plant at New Luika.
• Shanta Gold points out that recent expansions to the process plant should facilitate a lower cut-off grade for resource estimates which open up the possibility of blending lower grade mineralisation from satellite deposits such as Elizabeth Hill with higher grade material from the Bauhinia Creek pit. Other potential satellite deposits at Black Tree Hill, Ilunga and Luika South are candidates for additional work similar to the Elizabeth Hill drilling to expand overall resources.
Conclusion: the identification of additional areas to potentially expand the near-surface resource base at New Luika is encouraging for Shanta Goldand may reflect, in part, the recent return to the company of Peet Prinsloo as Head of Exploration. From previous work on the site, he has detailed geological knowledge of the mineralisation at New Luika and should be able to fast-track exploration of the most promising targets.
*SP Angel’s analyst has visited New Luika
5N Plus (CVE:VNP) C$1.1, mkt cap C$89.9m – reports net loss on lower speciality metals prices
• 5N Plus a specialty metals firm, reports a net loss of US$22.4m in H1/15, down from a profit of US$9m in H1/14 on the back of falling commodities prices.
• For instance, bismuth prices currently stand at US$5.10-5.80/lb versus US$10.2-10.9/lb at the start of the year.
• Selenium prices currently trade at US$9.15-12.5/lb, down from US$22-26/lb at the start of the year.
• 5N Plus specializes in the production and purification of minor metals including bismuth, gallium, germanium, indium, selenium and tellurium oeraitng manufacturing and sales facilities across Europe, the America’s and Asia.