Commodities
Diamonds and precious stones
After digesting the news from the last sight, it seems most of the narratives that were written came to the conclusion that all goods were dropped by between 8%-9%. Well not quite. As is always the case, it was all about specifics and whilst the average was around 9%, some goods were down by only 2.5% whilst others saw more significant double digit declines.
Again it comes down to the specifics. With Gem just closing their large stone tender in Antwerp this week, Lucara has set a November date for their next exceptional stone sale. Sentiment here will also provide a useful gauge on how the different categories are performing. Gem, (Buy, 198p) is far more geared towards the upper end, an area we believe is showing far more resiliance than say the lower quality Indian-type goods.
And on that note, Lucapa continues to recover large diamonds at Lulo. 9 specials in the first two weeks of mining Area 8, including a nice light pink...Interesting.
Bulk commodities:
I've been giving the Iron ore space more than just a little thought in the last couple of weeks. Price action, to me, is indicating a stabilisation of trade, additional supplies (from the majors) is now no longer a major concern, buyers, especially in China continue to deviate towards imports and the world feels a more stable place.
So if we stick in this $50/t to $60/t range for 62% and c$10/t less for 58% then should we have another look at the names that produce this stuff at cash costs of significantly less than $30/t? Some even below $20/t?
Now, how about adding massive depreciation in the producer currencies. The Real is the biggest dog this year, the Aussie is not much better...
Hmm, is it time to make the trade that feels so wrong, yet may just be so right?
Oh go on, throw in some chunky dividends as well then.
How about it?
Precious metals
After the record jobs opening data this week a rate rise in the US is nailed on next week, well the price reaction tells you that. But wait, what if they hold... Again. Deja Vu anyone?
More of a concern for me longer term is not what Auntie Janet does, or does not do. (Remember gold actually rose during the rate hike cycles in the late 70's/early 80's, mid 80's and early 2000's, but let's not try to change conventional thinking with disruptive thoughts like that). No, for me what any gold bug should be worried about is the potential monetisation of bullion in India, oh that and that trainload of Nazi gold.
India: the monetisation of anything between 10,000 and 20,000t of gold via savings schemes, trading and eligibility for collateral is a bit of a theoretical concern. I mean its unlikely right now, but the impact could be massive.
The "gold" bonds issued by the Reserve Bank of India have a minimum tenor of 5-7 years and will be restricted to 500g per person per year in denominations of 5g, 10g, 50g and 100g. Commercial bank gold deposits can be short term (1-3 years), medium term (5-7 years) and long term (12-15 years) and provide tax-free interest.
However it is the redemption structure that raises an eyebrow. Short-term deposits return either in cash or gold. Medium and long term deposits are only in cash... So the Indian govt is a buyer of gold then.
Train load of Nazi gold: Press conferences have been scheduled ...
Base metals:
Focussing on the red metal this week. Its all about production cuts.
Well for too long that I care to remember people far more intelligent than I have called for substantial production cuts and low and behold, like London busses they are all at it.
Freeport-McMoran the other week, Glencore this week. Not sure I need to go through their statement, but considering they could take out anything up to 350k-400kt pa of production putting Mopani and Katanga on ice for 18 months means the red metal could be facing a deficit and not a surplus in 2016...
In addition, Codelco, the worlds largest producer is also announcing that it will cut costs "to the bone"... but that might have more to do with the fact they can't afford their enormous growth plans... production cuts in the post.
Inventory data looking more positive... should we be too?
This week: Aluminium: +1.7%, Copper: +5.4%, Lead: +3.7%, Nickel: +3.9%, Tin: +1.0%, Zinc: +2.0%.
Technology/niche materials:
It's been a while since I mentioned this space, mainly because it has been a graveyard of hope and dreams. Well sadly that graveyard has another resident. Who remembers MolyCorp? The only rare earth producer in the U.S.? Well not anymore. The company has placed its Mountain Pass operations on Care and Maintenance and is undergoing a massive debt reorganisation. Now that is how you evaporate over $5bn of shareholder funds!
Don't worry the US government is still debating how to secure the supply of these strategically important metals...
Company announcements/news/meetings:
Gemfields (LON:GEM)
Two things this week.
Emerald sale: Solid. Importantly the auction was the first sale to be held in Singapore since the restrictions imposed on overseas sales in November 2012. We believe that the company will now split auctions between both trading centres to ensure all stakeholders benefit. The auction raised revenues of $34.7m at an average value of $58.42, the third highest average value received. We believe that on a like for like basis prices are broadly flat. With four auctions planned in FY16, two high quality and two low quality, we believe emerald sales in FY16 will record a significant improvement to the $65m raised in FY15.
Secondly, marching into Colombia.
Gemfields announced binding agreements to acquire controlling interests in two emerald projects with operations and further exploration potential in the Boyacá state for up to $22.5m. The first project sees Gemfields looking to acquire a 70% stake in the Coscuez mine and adjoining licence area covering 47ha for up to $15m. The Coscuez mine is known to have produced exceptional quality emeralds for over 25 years. The second project includes controlling stakes in mining concessions and applications covering a further 20kha for up to $7.5m. The company will seek to undertake a comprehensive exploration programme to support a geological model and comprehensive mine plan, due to take between 18 – 24 months.
Not immediately accretive, but I think the higher quality Colombian goods will add a new dimension to the current emerald production profile and let's not forget that weak Kwacha...