Glencore (LON:GLEN) 126 pence, Mkt Cap £16.5 bn – S&P cuts rating outlook to negative from stable
• S&P have cut the rating for Glencore based on a lowering of their prices assumptions for copper, aluminium and other metals.
• The share price continues to suffer from concerns about its debt level and potential for a rights issue to recapitalise.
• Glencore has been the worst performer of the diversifieds year to date down 55.6% against BHP Billiton at down 16.6%, Rio Tinto down 23.3% and Anglo American down 42.2%.
• Glencore’s share price underperformance is worst than Antofagasta a pure copper play – Antofagasta is down 21.6% year to date.
• Glencore falls in the same camp as First Quantum which is down 65.4%.
• The market appears to be penalising Glencore for its geared balance sheet – the prospect of a significant recapitalisation will weigh down on the share price and the sector.
Metal prices stabilise and recover after sell off last week
• Industrial metals such as copper and aluminium recovering by 6% with palladium up 9.5% from its lows last week.
• Copper has arguably been hit more by negative Chinese sentiment while aluminium has more fundamental supply/demand dynamics with excess supply likely to impact prices.
Bulks – Iron ore remained relatively resilient last week during the market rout at US$55/t.
• Iron ore led price falls earlier in the year and has remained relatively resilient during recent concerns of a Chinese hard landing.
• Meanwhile supply from the Australian miners Rio Tinto and BHP continue to rise.
• Both companies seem determined to keep up supply arguably so that they can drive out competition.
• Iron Ore shipments to China from Australia rose to a record last month to 33.9 mt for August against 29.5 Mt in July – this compares with 32 Mt the same time last year.
Economic News
US – Manufacturing sector expanded at the slowest rate since May/13 last month with new orders, production and employment posting weaker growth.
• A number of manufacturers complained about the strength of the US dollar weighing on their business overseas.
• ISM manufacturing PMI: 51.1 v 52.7 in Jul and 52.5 forecast.
• On a more positive note, auto sales hit the highest level since Jul/05 last month led by lower petrol prices and improving labour market.
• Sales climbed to 17.8m units (annualised), up from 17.3m last year. Aug numbers mark the fourth consecutive monthly >17m reading.
• Ford reported strong trucks and sport utilities vehicles sales during the month with orders for F-150 model increasing.
• Economic news due today:
o Wednesday: Jul factory orders (+0.9% v +1.8% in Jun), Aug ADP employment change (+200k v +185k in Jul), Fed Beige Book release
Eurozone – Purchasing Managers Index across the Eurozone rose unexpectedly
• The manufacturing and services index rose to 54.3 from 53.9.
• This is against expectations of 54.1.
• This is the highest level achieved since May 2011.
• Based on this index, France is the only company which appears to be struggling.
India – Services Sector grows in August
• The Markit’s purchasing manager’s index was 51.8 for August against a reading of 50.8 for July.
• The composite PMI was 52.6 against 52 in July.
Australia – The currency briefly slips below the 0.70 level against the US dollar on weak economic Chinese numbers and lower than estimated Q2/15 GDP data.
• The economy expanded 0.2%qoq through Q2/15, down from 0.9%qoq recorded in Q1/15 and below forecast +0.4%qoq.
• YoY GDP change Totalled 2.0%, the weakest since late 2013.
• The slowdown was driven by “reduced mining and construction activity, coupled with a decline in exports”, according to the Australian Bureau of Statistics.
Currencies
US$1.1237/eur vs 1.1257/eur yesterday. Yen 120.25/$ vs 120.05/$. SAr 13.4650/$ vs 13.440/$. $1.5277/gbp vs 1.531/gbp 0.7014/aud vs 0.703/aud
Commodity News
Precious metals:
Gold US$1,132/oz vs US$1,141/oz yesterday
Platinum US$1,012/oz vs US$1,009/oz yesterday
Palladium US$584/oz vs US$575/oz yesterday
Silver US$14.74/oz vs US$14.61/oz yesterday
Base metals:
Copper US$ 5,171/t vs US$5,088/t yesterday
Aluminium US$ 1,610/t vs US$1,608/t yesterday
Nickel US$ 9,940/t vs US$9,855/t yesterday
Zinc US$ 1,837/t vs US$1,819/t yesterday
Lead US$ 1,731/t vs US$1,738/t yesterday
Tin US$ 15,200/t vs US$14,895/t yesterday
Energy:
Oil US$50.23/bbl vs US$49.0/bbl yesterday
Natural Gas US$2.647/mmbtu vs US$2.672/mmbtu yesterday
Uranium US$36.95/lb vs US$36.95/lb yesterday
Bulk commodities:
Iron ore 62% Fe spot (cfr Tianjin) US$54.93/t vs US$55.0/t
• Iron Ore shipments to China from Australia rose to a record last month to 33.9 mt for August against 29.5 Mt in July – this compares with 32 Mt the same time last year.
Thermal coal (1st year forward cif ARA) US$52.93/t vs US$52.5/t yesterday
Other:
Tungsten - APT European prices $190/mtu (range $190-200/mtu) unchanged from Friday last week
Company News
Amur Minerals (LON:AMC) 16.75p, Mkt Cap £73.3m – Potential to expand the resource at Flangovy
• Preliminary infill and step out drilling results at Flangovy, a part of the Maly Kurumkon/Flangovy deposit at Kun Manie project, have been released this morning.
• C306 drill hole completed 400m east of the easternmost ore intercept at the Maly Kurmukon/Flanvogvy deposit hit three sulphide horizons for a Total of 46.6m of mineralisation at an average grade 0.8% Ni and 0.2% Cu.
• Thickness of individual zones ranged from 12.7m to 17.5m with average grades between 0.7% and 1.0% Ni.
• Total C306 depth was 374.8m with the first mineralised horizon intersected at 316m.
• Step out C306 hole extended delineated Maly Kurumkon/Flangovy mineralisation by another 400m eastwardly to c. 2,150m in Total length (1,250m of which covered by Flangovy).
• Mineralisation is contained within the periodite sill dipping from 20 to 40 degrees to the northeast with thickness ranging from 20m to more than 100m
• A potential to expand the resource in both directions (east/west) and at depth remains.
• Two other drill holes completed to depths of 150m (C300) and 31m (C301 located at the western end of Flangovy and defined the upper/lower boundaries of the mineralised zone.
• The Company plans to complete 5,000m of drilling through 2015 field season (normally runs through May-Oct) focusing on the Flangovy area and increasing the density grid with a view to upgrade existing resource to the indicated category.
• Maly Kurumkon/Flangovy mineral resource currently stands at 52.9mt at 0.56% Ni and 0.16% Cu including 21.8mt in Indicated resource which is predominantly contained within the Maly Kurumkon area.
o Preliminary results are based on in-house X-Ray Fluorescence unit (RFA) reports with final assays from Alex Stewart Laboratories in Moscow are due shortly.
Conclusion: Step out drill hole at Flangovy demonstrates better grades than an average over the Kurumkon/Flangovy deposit and the entire Kun Manie project (0.8% v 0.56% and 0.54% Ni, respectively). While the management is planning to focus on infill drilling to increase confidence in the resource in the area, the mineralised sill stretching along the Maly Kurumkon/Flangovy deposit remains open in east/west directions as well as at depth offering a potential to expand existing mineral inventory at the site.
The Company remains well funded to complete the drilling programme (SPA estimates US$3.5m with most of it having been spent as of H1/15) following a significant cash inflow from the outstanding Lanstead facility earlier this year. Cash balances stood at US$6.0m as of 17 Jun/15.
*SP Angel act as Nomad and Broker to Amur Minerals
African Potash (AFPO LN) 1p, Mkt Cap £3m – MoU to supply potash fertiliser to Zimbabwe
• The company has announced that it has secured an MoU with a Zimbabwean fertiliser company for the possible supply of 150,000 tonnes of fertiliser over an unspecified period of time.
• The agreement is conditional on reaching a definitive agreement and sounds to us as if this is an expression of interest by the Zimbabwean company.
• This is the third such announcement in the last month representing a Total of 250,000 tonnes of fertiliser material to be supplied to customers in Zimbabwe, Zambia and Malawi.
• African Potash holds a 70% interest in the Lac Dinga potash project in Republic of Congo where limited drilling has intersected potash grades of up to 25% potassium chloride. At this stage, however, there is no indication of a resource estimate or development plan to bring Lac Dinga to production and we assume that the supply arrangements announced recently relate to trading of potash fertiliser sourced from third parties, though this is not explicitly stated in the announcement.
Medusa Mining (ASX:MML) A$0.41, A$85.2m – Asset Impairment of US$260m
• As the carrying value of the assets within the company were considerably higher than their market value, the company had to perform an impairment test.
• This has resulted in an impairment charge of US$260m to FY 2015 year accounts in accordance with AASB 136.
• The impairment is based on changes in the economic assumptions for the assets with the main changes related to gold price and discount rate assumptions.
• The gold price assumption has fallen to US$1,200/oz for the period 2016-2020 from US$1,300/oz for the period 2015-2019.
• The post-tax discount rate used is now 11.1% against 10% used previously.
• The probable reserves fall from 820,000 oz to 590,000 oz.
• Production capacity increases from 120,000 per annum to 135,000-150,000 per annum.
• The break down for the impairment charge is broken down as follows:
Development carrying amount of US$274,386 is written down by US$187,339
Plant & Equipment of US$113,148 by US$68,126
Mineral Properties of US$15,156 by US$4,130
• The key sensitivity to impairment charges is the gold price with a US$100/oz move resulting in a US$54,200 charge.
• A 1% move in discount rate impacts by US$4.780 and a 5% increase in operating costs by US$36,700.
• The cash profit for the group is not impacted achieving US$41.5m against US$30.9m last year.
Conclusion: The impairment charge was inevitable given the current market cap of the company. Medusa remains profitable even under current gold prices with an AISC of around US$1,000/oz with scope for this to come down as operational improvements are put into place to improve mining throughput to match plant capacity. Continued generation of cash and return of management credibility will be key to re-rating the shares as well as a stable gold price.
Rambler Metals & Mining (LON:RMM) 8,375 pence, Mkt Cap £12.1m – Proposed Merger with Thundermin Resources
• The company has signed a Letter of Intent with Thundermin on proposed terms of a merger.
• The merger is proposed on the basis of each Thundermin share receiving 0.0613 Rambler share (116,598,059 Thundermin Shares for 7,142,857 Rambler shares).
• This valued Thundermin at around C$0.013 a share or C$1.52m against closing price of C$0.005 or C$0.583m.
• This will result in assets currently owned on a 50/50 basis by the two groups coming under one group with Rambler the dominant partner with 95.3% of the merged entity.
• Assets under joint ownership include the Little Deer and Whalesback copper deposit.
Conclusion: The timing of this transaction makes sense for Rambler giving them full ownership of currently owned on a 50/50 basis and strengthens the potential resource base for the company.