China – Ministry of Finance signal the government is considering fiscal stimulus step in measures to support economic growth.
• The government issued a brief after markets closed on Tuesday suggesting “fiscal measure to support growth”.
• Asian stock markets are up on the back of positive news of a potential government intervention (Shanghai Stock Index +2.29%, Shenzhen Composite Index +3.29%).
Economic News
US – The World Bank argues the US Fed risks to trigger “panic and turmoil” in emerging economies by raising rates as early as September.
• The statement follows similar comments from the IMF released last week.
• “I don’t think the Fed lift-off itself is going to create a major crisis but it will cause some immediate turbulence. It is compounding effect of the last two weeks of bad news with that (China devaluation)… In the middle of this it is going to cause so panic and turmoil,” Kaushik Basu, chief economist of the World Bank said.
• The FOMC meeting is on 16-17 Sep.
• Economic news due today:
o Jul JOLTS job openings (5,300k v 5,249k in Jun)
Australia – Consumer confidence remains in the red with more pessimists than optimists regarding the economic outlook in Sep, according to Westpac numbers.
• The index declined to 93.9 in Sep from 99.5 in the previous month marking the third weakest reading of the year and the 17th month of the past 19 when it was below the 100 mark.
• The sentiment has been hurt by concerns over risks to global economic growth and their effect of domestic labour market
Currencies
US$1.1183/eur vs 1.1180/eur yesterday. Yen 120.59/$ vs 120.00/$. SAr 13.632/$ vs 13.891/$. UK $1.536/gbp vs 1.536/gbp
AUD 0.705/aud vs 0.698/aud
Commodity News
Precious metals:
Gold US$1,122/oz vs US$1,120/oz yesterday
Platinum US$1,004/oz vs US$995/oz yesterday
– Quarterly Report from World Platinum Investment Council sees stronger investment demand offset by weaker jewellery demand.
• The global platinum market continued to be in deficit in Q2 2015.
• The deficit was smaller than in Q1 2015 as an increase in investment demand was offset by higher SA mining supply and lower jewellery demand.
• SA refined production in Q2 2015 rose to 1,080 koz compared to 890 koz for Q1 2015.
• Platinum jewellery demand for Q2 2015 fell by 11% to around 665 koz on a quarter on quarter basis.
• Demand from China eased in Q2 reflecting sales during Chinese New Year which occurred in Q1 as well as lower footfall.
• Platinum sales are said to have held up better in China than gold sales.
• China represents around two thirds of global jewellery demand and weaker retail sales is forecast to result in a 2% decline in jewellery demand in 2015 from 2014.
• Investment demand from ETFs saw a positive turn around with net purchases of 45 koz against net sale of 50 koz in Q1 2015.
• The market deficit for 2015 is expected to rise to 445 koz from the previous forecast of 190 koz reflecting increased investment demand through ETFs.
• Total supply in 2015 is forecast to increase by 9% to 7,910 koz with higher SA production after a strike ridden 2014.
• Total supply from mines is expected to increase to 5,230 koz in 2014 to 5,845 koz.
• Global supply from recycled platinum increased by 3% to 2,065 koz with platinum recovered from autocatalysts expected to rise by 10% from 2014 to 1,380 koz.
• Total demand is forecast at 8,355 koz based on 4% annual growth.
• Growth from automotive, industrial and investment demand are expected to be offset by a drop in jewellery demand.
Palladium US$588/oz vs US$585/oz yesterday – palladium prices gain on supply threat as protests disrupt South African PGM mines
Silver US$14.78/oz vs US$14.62/oz yesterday
Base metals:
Copper US$ 5,396/t vs US$5,233/t yesterday
Aluminium US$ 1,646/t vs US$1,613/t yesterday
Nickel US$ 10,065/t vs US$9,890/t yesterday
Zinc US$ 1,829/t vs US$1,795/t yesterday
Lead US$ 1,718/t vs US$1,682/t yesterday
Tin US$ 14,900/t vs US$14,950/t yesterday
Energy:
Oil US$49.80/bbl vs US$48.13/bbl yesterday
Natural Gas US$2.688/mmbtu vs US$2.674/mmbtu yesterday
Uranium US$37.20/lb unch vs US$37.20/lb yesterday
Bulk commodities:
Iron ore 62% Fe spot (cfr Tianjin) US$56.60/t vs US$54.78/t
Thermal coal (1st year forward cif ARA) US$51.10/t vs US$50.95/t yesterday
Other:
Tungsten - APT European prices $190/mtu (range $185-195/mtu) down $5/mtu on last Wednesday
Company News
Amur Minerals* (LON:AMC) 15p, Mkt Cap £63.4m – Positive drilling results at Flangovy
• Verification drill hole (C305) located 80m northeast of the step out hole (C306) at the Flangovy deposit confirmed the presence of the mineralisation in the area announced in the latest set of preliminary drilling results (03 Sep1/5).
• Drilling results provide evidence the Flangovy stretches for at least 1,250m, up 40% from previous estimates.
• Hole C305 drilled to a depth of 388m intersecting the ore bearing peridotite sill at depth of 355m confirming the orientation and presence of the host zone.
• Mineralisation contained within two horizons having a Total thickness of 11.3m with an average grade of 0.7% Ni and 0.2% Cu.
• This compares to 46.6m at 0.8% Ni and 0.2% Cu seen at C306.
• The Company has reportedly tested only 35m of the planned 60m sill target due to a mechanical issue and subsequent loss of the hole.
• Additionally, four holes were completed as part of the infill drilling programme within the block at Flangovy with a view to upgrade Inferred mineral resource to Indicated category.
• Two holes tested using on-site RFA unit showed the average Total mineralisation intersected per hole of 31.4m at 0.8% Ni and 0.2% Cu.
• Assay results for the other two are currently outstanding.
• The Company anticipates to complete 5,500-5,700m of drilig this field season.
Conclusion: Follow up drilling results confirm the presence of mineralisation previously intersected by the step out drill hole. In addition, in-fill drilling programme demonstrates results correlating with historical data suggesting high probability of converting the existing Inferred resource at Flangovy to the Indicated category. These are positive drilling results and we are looking forward to confirmation assays from Alex Stewart Laboratory and future drilling data following completion of the current field season.
*SP Angel act as Nomad and Broker to Amur Minerals
Anglo Platinum Zar 31,078, Zar 83.81bn – Sales to Rustenburg Mines to Sibanye
• The company has agreed to sell Rustenburg for at least for R4.5bn.
• This is to consist of a R1.5bn of either cash or Sibanye shares and deferred payments based on 35% of free cash flow amounting over 6 years to a minimum of R 3bn.
• The maximum consideration is to be capped at R 20bn
• Sibanye will sell all concentrate produced by Rustenburg operations to Anglo Plat till 31 Dec 2018 on pre-agreed terms.
• For a minimum of two years but up to eight years Sibanye will enter into a toll treating arrangement with Amplats for all smelting and refining on pre-agreed commercial terms.
• The toll treatment charge will include a return on capital on processing assets of Amplats as well as smelting and refining costs.
• The net asset value of Rustenburg was R 7.7bn at the end of June 2015 after tax losses for the period of R0.5bn.
• It will be accounted for as an asset held for sale till all sale conditions are met.
• Sibanye is an independent SA mining group which operates four underground and surface gold operations – The Cooke Driefontein and Kloof operations and the Beatrix mine.
• Sibanye will facilitate the introduction of a BEE consortium to hold 26% of the Rustenburg operations.
• The BEE consortium will include an Employees Trust, a Community Development Trust, Royal Bafokeng and Kagatia Ba-Kgafela Traditional Community.
Conclusion: This is not a straight forward disposal of the Rustenburg operations but more a transfer of risk on mining to Sibanye at a discount of around 42% based on the minimum deferred payment for scope for this discount to be narrowed should 35% of free cash flow generation exceed this amount over the next 6 years starting from 1 Jan 2017. Anglo continues to toll treat concentrates from the mines for at least 2 years and potentially 8 years at a pre-agreed economic return to the smelting and refining assets.
Sibanye is facilitating the BEE consortium which will own 26% of Rustenburg including Employee and Community Trusts – this makes sense given the recent history of labour disputes and the current community protests.
The market may be disappointed that the deal did not attract more cash up front but this looks like a sensible solution for Anglo Platinum and its parent Anglo American looking to move away from difficult deep underground mining and SA labour risk while at the same time earning a return on their smelting and refining assets.
Condor Gold (LON:CNR) 53.5p, Mkt Cap £24.5m – Half year results and strategic update.
• Condor Gold has reported a loss of £1.45m for the six months to 30th June (£1.57m loss in 2014). The bulk of the loss (£1.1m) arises from foreign currency translation and we note that the company’s administrative expenses have been reduced to £362,803 from £728,017 a year earlier.
• Cash balances at 30th June 2015 stand at £2.41m.
• In December 2014, the company completed Preliminary Economic Assessments (PEA) and a pre-feasibility study on the development of the La India project which considered developing the deposit either solely as an open-pit mine or using a combination of open-pit and underground mining.
• The open-pit option envisages production of 100,000oz pa of gold over 8 years at a cash cost of $685/oz while the combined approach yields 140,000oz pa of gold production at a cash cost of $697/oz over a similar period. At a gold price of $1250/oz, the open pit project generates an NPV of $124m and an IRR of 25% while the combined surface and underground mine delivers an NPV of $187m and an IRR of 24%.
• The company is currently focusing on exploration and on de-risking the project and on applying for the EIA permit.
• The Board has reviewed the strategic options for mine development involving capex between $110m to $169m and concluded that in the current investment climate for junior mining companies financing “would prove significantly dilutive to existing shareholders. Furthermore, there is no guarantee that either equity or debt financing for the construction of the mine and associated infrastructure can be secured on satisfactory terms.”
• Today’s announcement notes that “One of the options being considered would be a possible offer for the Company” though it is unclear whether a specific acquirer has been identified or this is an aspiration. The company also says that another option under consideration “is for a joint venture or sale of one or more of the Company’s assets”.
Conclusion: Condor Gold’s recognition that, despite having established a worthwhile development project at La India, it may not be able to secure the development capital to proceed alone is a stark reminder of the troubled state of the junior mining sector.
Glencore (LON:GLEN) 144 pence, Mkt Cap £18.9bn – Proposed change to structure of equity issue
• Glencore is proposing to change the structure of its proposed equity issue to either a convertible or equity placing.
• The equity issue may still be underwritten but is not likely to be done as a rights issue according to management as previously assumed.
• Glasenberg comments in today’s Financial Times that the equity may be issues by way of a convertible. We believe this would need to be in the form of a convertible preference share so as to be treated as equity and not as debt which would defeat the purpose of the issue.
• Glencore are in the process of talking to a broad range of funds and may opt to issue a combination of new convertible and equity shares.
• The debt reduction plan appears to have reigned in the action of short sellers for the time being and to have arrested the fall in Glencore’s stock price
• Glencore’s decisive move to close its higher cost copper production in Zambia and the DRC turned around copper prices and may cause the market to end the year in deficit.
• The group may also look to suspend higher cost production of other metals where recent selling pressure out of China has caused prices to fall in recent weeks.
• Now China’s WWII commemoration ceremonies are done and Chinese heavy industry is allowed to restart polluting the atmosphere again commodity appear to be staging a recovery.
Kefi Minerals* (LON:KEFI) 0.70 pence, Mkt Cap £12.2m – Capital costs fall as board work on financing for Tulu Kapi gold mine in Ethopia
• Kefi Minerals report board approval for the financing structure of the Tulu Kapi project.
• The board have approved a development funding plan with equity capital to be raised at the project level rather than at the PLC listed company level.
• This should minimise dilution in the listed PLC which also holds gold assets in the Kingdom of Saudi Arabia.
• Discussions with contractors and potential re-engineering of some elements of the project indicate potential to reduce the capital cost to around $120m from $130m despite the increase in average gold production to around 100,000ozpa.
• We expect the company to raise around $100m in debt from a syndicate of development and commercial banks with the remaining $20m to be in the form of a minority equity investment directly into the project subsidiary and not into the listed PLC.
• The company state they are in discussions with a number of interested parties including the government of Ethopia.
• Tulk Kapi’s NPV is reported to be around $90m at current gold prices. The value of the mine rises to $147m from $125m assuming gold at $1,250/oz and a post-tax discount rate of 8%.
• Costs: All-in Sustaining Costs ‘AISC’ are estimated to be $760/oz and could fall further with the increase in gold production to average production of 100,000ozpa
Conclusion: Kefi continues to put out good news on an almost daily basis and investors should expect to see a significant uplift in value when the Tulu Kapi project financing is complete.
*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) 3.5 pence, Mkt Cap £8.1m – Appointment of a non-Executive Chairman and resumption of Operations at Corihuami
• Minera IRL has announced the appointment of a high profile Peruvian lawyer, Mr Jaime Pinto, as a director and non-executive Chairman.
• Mr Pinto is a former representative of Peru at the Board of the Inter American Development Bank and is currently a director of Refineria La Pampilla SAA, described as Peru’s largest oil refinery and is also a director of TSXV listed Lupaka Gold.
• The announcement also headlines the resumption of operations at the company’s Corihuarmi mine, where work was temporarily suspended at the weekend due to an incursion of protestors. No further details of the resumption of work have been provided.
Conclusion: The appointment of a prominent Peruvian as Chairman may help to address the company’s community relations both at Corihuarmi and at the flagship Olachea development project where there has also been friction. We look forward to an improving relationship with the host communities at both sites and to further information on the resumption of work at Corihuarmi.