Economic News
China devaluation and explosion at Tianjin has potential to cause further depreciation across Asia
• There is increased threat of economic collapse and contagion across Asia following China’s devaluation and the Tianjin port destruction.
• The Malaysian Ringgit fell by around 3.8% vs the US dollar last week mainly due to a local corruption scandal though the move may have wider impact
• Other ports along China’s Eastern coast will take in shipments destined for Tianjin but new regulations on the storage of chemicals will need to come in fast.
• The Tianjin port destruction will come at a heavy cost to insurers and manufacturers and will result in inflation in insurance premiums going forward
• Disruption to shipments of chemicals, cars and another goods will create problems for manufacturers like Toyota which has closed a factory nearby and suppliers and will have some impact on economic activity
• We believe the use of water on calcium carbide created acetylene gas causing a first explosion which then set off a much bigger explosion of ammonium nitrate.
• Ammonium nitrate is commonly used for fertilizer production but is also used in the production of anfo which is used as an explosive in many mines when mixed with diesel.
• This is not the first time ammonium nitrate has levelled port facilities and the hazards should be well known. The worst was the Texas City disaster in 1947 which killed 581.
US – Minutes of the July Fed Meeting will be published on Wednesday
• Markets will be looking to at commentary from the committee with a focus on the health of the labour market and US inflation.
Japan – Second quarter GDP falls by 1.6%
• Japanese second quarter saw the economy shrink by 1.6% in line or better than market expectations of 1.8%.
• Demand continues to be weak with private consumption, business investment and net exports all falling.
• The slowing Chinese economy is also thought to be a drag on the Japanese economy.
• The Bank of Japan has downgraded full year forecasts to 1.7% from 2%.
UK – BoE MPC member reckons low interest rates could damage the UK economy
• Ms Forbes reckons interest rates should start to rise well before inflation hits the BoE’s 2% target rate.
• Sterling strength and lower energy and commodity prices are likely to keep inflation low for longer and to give the BoE MPC more time to consider adjusting rates
• BoE governor previously commented that when interest rates start to rise they will do so only gradually
India – the BBC report today that around 2,000 people lose their lives in building collapses each year
• The problem of unstable and slum building means that India has every reason to stimulate a renewed building boom to ensure better quality housing for all
US$1.1089/eur vs 1.1137/eur last week. Yen 124.45/$ vs 124.31/$. SAr 12.876/$ vs 12.827/$. $1.565/gbp vs 1.561/gbp
US$0.736/aud vs0.739/aud.
Commodity News
Precious metals:
Gold US$1,117/oz unch vs US$1,117/oz Friday –
Platinum US$996/oz vs US$995/oz
Palladium US$619/oz vs US$622/oz
Silver US$15.28/oz vs US$15.46/oz
Base metals:
Copper US$ 5,130/t vs US$5,179/t
Aluminium US$ 1,566/t vs US$1,574/t
Nickel US$ 10,655/t unch vs US$10,520/t
Zinc US$ 1,822/t vs US$1,834/t
Lead US$ 1,734/t vs US$1,742/t
Tin US$ 15,400/t vs US$14,995/t – Tin prices went mad on Friday with two NY based hedge funds slugging it out over the metal
• Speculation over tin metal / concentrates in containers at Tianjin may be unfounded though ore shipments are definitely disrupted by the explosion
• It is possible that one or more tin smelters in Indonesia might be in trouble due to a credit squeeze on lending banks, though this is not new news
Energy:
Oil US$48.60/bbl vs US$50.30/bbl
Natural Gas US$2.781/mmbtu vs US$2.913/mmbtu
Uranium US$36.40/lb unch vs US$36.40/lb –
Bulk commodities:
Iron ore 62% Fe spot (cfr Tianjin) US$55.06/t unch vs US$55.30t –
Thermal Coal $53.8 vs $53.9 cif ARA Europe – Indonesia HBA thermal coal price falls to $59.1/t FOB its lowest level since prices started to be recorded as the HBA index which is composed of four other coal prices.
Tungsten - APT European prices price $205.0/mtu unch vs $215/mtu – tungsten prices slipped again on Friday probably something to do with Chinese devaluation
Company News
AngloGold Ashanti Zar8327, Mkt Cap Zar 33.5bn – Second Quarter Results shows continuing cost improvement
• The company produced 1.007m oz for the quarter at a total cash cost of US$718/oz against guidance of 960 koz to 1m ozz at between US$770-820/oz.
• Overhead costs continue to be cut.
• AISC cost at international mines are 17% lower than the same period last year.
• AISC cost for the quarter fell 12% to US$928/oz from USD$1,052/oz.
• Despite a 9% fall in the gold price, EBITDA went up to US$391m from US$372m in the same quarter last year.
• Annual guidance is for production of 3.8m to 4.1m oz at a total cash cost of US$770-820/oz and AISC of US$1,000-1,050/0z.
Conclusion: These look like good numbers from AngloGold with an impressive performance on costs.
Condor Gold (LON:CNR) 54.5p, Mkt Cap £25.0m – Soil geochemistry identifies additional exploration targets on the La India project licence
• The company has recently completed phase 1 of a geochemical soil sampling programme on a 55 sq km portion of its 313 sq km La India licence area in Nicaragua. Almost 5,800 samples were taken on a 200m x 50m grid spacing with a closer 100m x 50m sampling pattern over the most promising areas.
• The soil sampling covered 6 areas which had been identified by earlier geophysical, remote sensing and field mapping data and recognised as of potential interest for underground gold mineralisation.
• “Two soil anomalies identified on the La Mojarra area have already been drill tested: El Carrizal and Cerro El Pilon soil anomalies, located approximately 1.7 km to the south and south east respectively of La India open pit Mineral Reserve.” The company indicates that high level epithermal alteration intersected in these holes points to any associated gold mineralisation being at depths in excess of 200 metres and hence beyond the scope of current exploration interest.
• A clear linear anomaly has been identified from the soil geochemical results which “appears to be a southeast strike continuation of the Andrea Vein, extending the Andrea hydrothermal conduit from a 2 km long vein to a 4 to 7 km long corridor.”
• As part of the follow-up work, Condor Gold has commissioned a structural geologist to assist in the compilation of a detailed structural model and help identify further exploration targets.
• Condor Gold is following up on exploration targets in the vicinity of its La India deposit where it has previously published a maiden probable reserve of 6.9m tonnes at an average grade of 3 g/t gold and 5.3 g/t silver.
Conclusion: Initial results from the follow-up exploration work are promising though the first follow up drilling suggests that any additional mineralisation may be deeper than currently of interest. The soil geochemical results, however, suggest that existing mineralisation is more extensive than previously defined and we look forward to further news as exploration proceeds.
Dalradian Resources (LON:DALR) 49.0p, mkt cap £79.9m – moving directly to a feasibility study on Curraghinalt.
• Dalradian Resources, which is working on permitting of the Curraghinalt gold deposit in Northern Ireland, has reported a loss of C$1.2m for the three months to 30th June bringing the loss for the first six months of 2015 to C$2.6m (C$2.9m 2014). Cash resources of C$36.1m at 30th June 2015.
• A Preliminary Economic Assessment (PEA) of the Curraghinalt property released in October 2014 reported a Measured and Indicated Resource of 3mt at average grades of 10.4g/t gold, 3.9 g/t silver representing 1m oz of contained gold. In addition, inferred resources of 8mt at an average grade of 9.7g/t gold and 3.9g/t silver represents an additional 2.5m oz of gold.
• The study envisaged an underground mining operation treating around 620,000 tpa of ore to produce around 162,000oz pa of gold and 50,000 oz pa of silver at a cash cost of US$485/oz. Pre-production capital costs were estimated at C$274m with a further C$179m of sustaining capital over an 18 year mine life.
• Based on a gold price of $1200/oz and silver at $17/oz, the PEA estimated an NPV of C$721.8m (US$656m) discounted at 8% and an after tax IRR of 36.2%. In the light of recent gold price weakness, we note that sensitivity analysis quoted in the PEA indicated that “the project can withstand a gold price of $670/oz before NPV8 falls to zero.”
• The company has completed approximately 11,000m of infill drilling and has decided to expand the programme to a minimum of 30,000 metres as it upgrades its pre-feasibility study to a full feasibility study and Environmental Impact Assessment.
• Initial results from the first 25 drill holes, previously announced, include a high grade intersection of 4.4m at an average grade of 54.84 g/t gold and 5.79m at an average of 7.12 g/t.
• The pre-feasibility work had been expected to be completed in late 2015 but the increased scope of work for a full feasibility study and submission of the planning application is now expected in Q3 2016.
Conclusion: Dalradian Resources’ decision to move directly to a full feasibility study at Curraghinalt may be interpreted as a sign of management confidence in the project’s viability. The increased scope of the infill drilling programme should enable a significant portion of the inferred resource to be upgraded and incorporated in future ore-reserve estimation work.
Glencore (LON:GLEN) 171p, mkt cap £22.4bn – Harris Associates, a US activist hedge fund have built a £250m stake in Glencore
• As yet their motives are unclear and we suspect they will need to buy a much larger state to gain any real say in the way Glencore is run
• News is that Glencore might need to suspend coal production at a number of coal mines to avoid selling at bigger discounts. The company is cutting 15mt of coal exports this year reducing its total coal exports to 90mt for the year and is now likely to cut export production further.
• Glencore is running almost $50bn in gross debt
• The stock is on a 6% yield but the dividend is seen as under pressure
• Glasenberg is a man who knows how to pull a rabbit out of a hat and we would not want to doubt the company’s ability to trade its way through the current commodity price environment.
• Glencore appears to be one of few mining companies which understands the need to cut production to help stabilise falling prices though cutting production may lead to accounting write downs on a number of its coal assets.
• Glencore report interim earnings on Wednesday.
Kefi Minerals* (LON:KEFI) 0.79 pence, Mkt Cap £13.8m – Update on Tulu Kapi
• The company updated on scheduling for the Tulu Kapi project.
• The revised DFS has now been reviewed by independent technical consultants to the short list of potential financiers.
• The project planning team within Kefi is working on finalising contractor terms including looking at ways to reduce peak capex from US$130m to US$120m.
• Bids have been submitted from potential contractors to the EPCM contract.
• The DFS in its current form is for a conventional open pit 1.2 mtpa operation using a convention CIL processing plant with recoveries of 91.5% .
• Selective mining is to be used to mine above 0.9 g.t gold with an average head grade of 2.5 g/t gold in the initial 10 years of mining.
• This generates cash costs of US$645/oz and all in sustaining cost of US$755/oz for the 10 year plan.
• For the 13 year LOM costs are US$653/oz and US$779/oz respectively.
• Initial capital costs are estimated at US$135.1m including a pre-strip of US$10m with a peak funding requirement of US$129.6m.
• Tulu Kapi has an ore reserve of 15.4 Mt at 2.12 g/t gold containing 1.05m oz.
Conclusion: Kefi continues to work towards funding the Tulu Kapi project with an all in sustaining cost of US$779/oz being helpful against the current gold price environment.
*SP Angel act as Nomad to Kefi Minerals. An SP Angel analyst has visited the Tulu Kapi mine site with Kefi Minerals.
Minera IRL (LON:MIRL) 2.625 pence, Mkt Cap £6.1m – Local community suspends support for Ollachea mine development
• The local community in Peru has suspended its support for the development of the Ollachea gold mine.
• “The Community has raised concerns about the status of the Company's plans to reorganize its management structure to better serve the stakeholders, and the specific role of certain individuals within the Company. This situation was also reported by the Community to the Puno press on 14 August 2015.”
• “Until these Community issues are resolved, the Company cannot advance the project, and therefore the expected August start-up of a 5,000 metre exploration drill program, and final negotiation of the EPCM contract, are on hold. This embargo increases the risk of completing the previously announced project financing.”
o The company continue to mine at Corihuarmi gold mine in Peru with 22,000oz production expected this year at a total cash cost of around $900/oz
o The team are looking to raise finance for the development of the new 1moz Ollachea project
o Mineral IRL has spent over $100m advancing the Ollachea Gold Project, including over $25million within the Ollachea Community.
o Funds have been spent on a substantial 1.2km exploration tunnel as well as extensive drilling and project feasibility work
o The community have a 30-year agreement with Minera IRL which includes a 5% free carried interest in in project as well as offering health, education and sustainable development programs.
§ Ollachea project key stats:
§ 100,000ozpa – total mine production currently estimated at 930,000oz of gold
§ Resource contains 1moz gold within 9.2mt ore grading 3.4g/t of proven and probable and 10.1mt grading 4g/t in measured and indicated
§ Project is on main highway with grid power, water etc...
§ TCC est. $587/oz. Cash costs $646/oz
§ Capex $177m ($240m inc working capital). Minera IRL recently announced a US$70m bridge financing as the first step towards securing project financing (7 June).
§ Payback 3.1 years.
• Financing: Mineral sold $12.6m of mineral properties last year and can claim back some $12m in recoverable VAT on the initial Ollachea project of $165m.
• Eric Olson, formerly at Cerro de Maimon, GlobeStar Mining, was appointed as COO of Minera IRL in July. Olson joined the Minera team in late 2014.
• All major permits for the development of the Ollachea project have been granted but project finance talks appear to be taking a little longer than first anticipated.
Conclusion: It is difficult to know if the community taking advantage of the very sad and unfortunate death of Courtney Chamberlain earlier this year as announced in April.
The timing of these community issues looks opportunistic in terms of negotiations over the bank financing and we would suggest it might be better to negotiate when the gold prices is at higher levels and when there is more gold mining finance available as the banks may now demand yet tougher terms for finance.