Economic News
China – Trade data shows better than expected export data with imports falling more
• China’s exports for August fell by 5.5% against median forecasts of down 6.6% and 6.3% for July.
• Imports fell more than expected down 13.8% against 8% expected and 8.1% previously.
• Imports have declined for 10 straight months with commodity imports from Australia and Brazil down 20% in the first 8 months.
• Imports for crude oil and iron ore in volume terms fell in August by 13% and 14% respectively while coper imports were flat.
• Measured in volume terms crude oil imports are up 10% year to date with flat iron ore imports.
Japan – Revised GDP data better than expected
• Revised GDP data for the second quarter was down 1.2% on an annualised basis against the original estimate of 1.6%.
• Capex declines were offset by an upward revision to consumption and inventories.
Currencies
US$1.1180/eur vs 1.1160/eur yesterday. Yen 120.00/$ vs 119.31/$. SAr 13.8915/$ vs 13.9266/$. UK $1.5363/gbp vs 1.5259/gbp
AUD 0.6978/aud vs 0.6935/aud
Commodity News
Precious metals:
Gold US$1,120/oz vs US$1,122/oz yesterday
Platinum US$995/oz vs US$991/oz yesterday
Palladium US$585/oz vs US$580/oz yesterday
Silver US$14.62/oz vs US$14.58/oz yesterday
Base metals:
Copper US$ 5,233/t vs US$5,185/t yesterday
Aluminium US$ 1,613/t vs US$1,615/t yesterday
Nickel US$ 9,890/t vs US$9,890/t yesterday
Zinc US$ 1,795/t vs US$1,795/t yesterday
Lead US$ 1,682/t vs US$1,673/t yesterday
Tin US$ 14,950/t vs US$15,050/t yesterday
Energy:
Oil US$48.13/bbl vs US$49.04/bbl yesterday
Natural Gas US$2.674/mmbtu vs US$2.671/mmbtu yesterday
Uranium US$37.20/lb vs US$37.20/lb yesterday
Bulk commodities:
Iron ore 62% Fe spot (cfr Tianjin) US$54.78/t vs US$55.10/t
Thermal coal (1st year forward cif ARA) US$50.95/t vs US$51.65/t yesterday
Other:
Tungsten - APT European prices $190/mtu (range $185-195/mtu) down $5/mtu on last Wednesday
Company News
Berkeley Energy (LON:BKY) 19.25 pence, Mkt Cap £34.7m – Metallurgical testing on Zona 7
• The company reports that leaching test-work conducted by Mintek of South Africa on 3 composite samples of drill core from the Zona 7 deposit has shown that over 90% of the soluble uranium is recovered after 20 days and “with virtually 100% of the soluble uranium going into solution” in less than thirty days.
• Tests showed that 98% of the soluble uranium can be recovered at a crush size of 12mm and that acid consumption is low.
• The Zona 7 deposit is located within 10km of the approved process plant site and currently contains an inferred resource of 23.2m tonnes at an average grade of 589ppm U3O8.
• Recent drilling has shown that the higher grade of the Zona 7 deposit is more extensive than previously thought and the new drilling results are expected to be incorporated in “an upgraded Mineral Resource Estimate” due to be reported in September.
Conclusion: The metallurgical results suggest that heap leaching of the uranium mineralisation at Zona 7 is likely to be a relatively low cost processing route with high recovery rates and low reagent consumption and energy requirements. The forthcoming resource update seems likely to expand the existing resource base of Zona 7 which appears to be evolving as the focus of the Salamanca Uranium Project.
Glencore (LON:GLEN) 134 pence, Mkt Cap £17.5bn – Rights issue gives good opportunity in Glencore
• Glencore is raising around $2.5bn from issuing new stock this week as part of its new drive to cut its debt levels.
• We are waiting for the rights issue price to confirm our rating on the stock but we feel this rights issue should make a good entry point for investors.
• While the market appears broadly negative on the mining sector, the outlook for commodities and related shares Glencore retains a bullish outlook.
• The balance sheet restructuring is due to concerns expressed by Glencore’s US investors and may be designed to cut the wind from behind the short sellers.
• Glencore’s view on commodities is particularly interesting as the company’s traders have insight into the day-to-day demand of its customers the world over with particular insight into China.
• A number of US hedge funds may have opposing views or are at least sufficiently concerned to persuade Glencore to better protect its debt-laden balance sheet.
• Glencore’s move to cut higher-cost copper production by around 400,000t should swing the copper market into deficit to create a new tone in the market. Copper prices continue to rise on the news and we feel further cuts in the copper are sure to follow.
• Chinese traders may have had their fun forcing copper prices down but Glencore has more a fundamentally driven strategy with which to move the commodity markets in which it is most influential
• Glencore’s poor copper miners who are now out of work in Zambia should focus their blame on the Chinese traders who orchestrated their downward move in copper.
Conclusion: Our view is that Glencore might not determine demand but they can influence the trading and availability of physical metal and this should work to the benefit of Glencore’s traders and its shareholders in the longer term.
Alternatively investors could lock in a combination of Rio Tinto and Antofagasta for their more stable dividends and lower cost base.
Note: Glencore may go for a deep discount to reward loyal investors as was done by Xstrata in past years.
Hochschild Mining (LON:HOC) 73.5 pence, Mkt Cap £270.3m – Commercial production at Inmaculada and new vein discovered at Pallancata
• The company has formally declared commercial production at its new, flagship, Inmaculada mine in south-west Peru. The mine is expected to receive its final mill operating permit from the government later this month.
• First production at the mine was announced in June and since then approximately 25,000 oz of gold and 622,000 ounces of silver have been produced, including production during the commissioning and ramp-up of the mine
• Inmaculada is expected to produce 7-8m oz of silver equivalent oz during 2015 “and between 12 and 13 million equivalent ounces in 2016 at a forecast all-in sustaining cost of approximately $10 per silver equivalent ounce.”
• The mill construction permit was received in September 2013, and completing the project in two years is an important milestone. Chief Executive, Ignacio Bustamante commented “ Inmaculada will be the company’s key mining asset for many years to come. … I congratulate the operations team on completing a quick and efficient ramp-up.”
• The company notes that there is additional geological potential at the deposit and within the surrounding area which “will provide a source of growth to this world class mine.”
• Hochschild also reports the discovery of a new vein, the Pablo Vein, at its Pallancata mine, also located in south west Peru.
• “The exploration team at Pallancata began a 19,100 metre exploration and drilling programme in May 2015 with the aim of focusing on inferred resource exploration at surface. In mid August, whilst pursuing the west extension of the Yurika vein to the north west of the main Pallancata vein, a new blind structure at a depth of 200 metres below surface was discovered.”
• Follow up work has shown that the new vein, which dips at 50-75 degrees towards the south and extends east west for 700 metres and is greater than 10 metres thick. The vein forms part of a major regional structure which is known to extend for at least 2 km providing further exploration potential in the medium term.
• Among the best drilling results on the Pablo Vein are a 31.55m wide intersection (23.54m true width) at an average grade of 1.67 g/t gold and 510 g/t silver in BH DLEP-A01 and a 29.65m wide intersection (15.39m true width) at an average grade of 2.32 g/t gold and 690 g/t silver in hole DLEP-A03.
• The company intends “to conduct a comprehensive exploration and infill drilling programme until the end of the year to better understand the potential of the new discovery and to achieve an initial inferred resource.” We look forward to further news on the Pablo Vein which, in close proximity to the operating Pllancata operating mine, could provide a relatively near term source of additional mill feed.
Lucara Diamonds (CVE:LUC) C$1.57, Mkt Cap C$596m – The second exceptional stone tender targeted for Nov 2 – 11
• The company has set dates for its second exceptional tender for the first week in November.
• The cut off value for the tender has been increased to US$1m which will result in less stones being offered.
Conclusion: Upcoming diamond tenders will be watched closely to see what the spill over effect is on consumer demand on the recent heightened concerns about the Chinese economy.
Rambler Metals (LON:RMM) 8.125 pence, Mkt Cap £11.7m – Operational Update for FY 2015
• For the full year the company produced 17,309t of copper concentrate below market guidance.
• Dry tonnes milled at 215,535t is at the lower end of expectations with grades at 2.63 g/t also at the low end of the range.
• Mill recoveries were better than expected at 96.9% for copper and 69.8% for gold.
• Concentrate production for the final quarter was 10% down from the previous quarter at 3,600 t with head grades average 1.93%.
• For FY 2016 the company are guiding to concentrate production of between 17,000-20,000t.
• FY 2016 will incorporate the first year of the Lower Footwall Zone optimisation strategy.
• This will result in the blending of ore between the LFZ ores with production from the massive sulphides.
Conclusion: Overall these results are at the low end of expectations. The main focus will be how the new mine plan is implemented.