Fed Fatigue – causes markets to recover ahead of the US Federal Reserve meeting on interest rates today
• Traders may be closing short positions ahead of a Fed rate decision later today
• US 2-year bond yield rose 7bp to its highest since April 2011 at 0.8% despite mixed economic data
China – three executives of Citic Securities arrested in police investigation
• The executives are under investigation for leaking inside information
• The arrests come at a time when the Chinese government is investigating short selling and other issues relating to the collapse of the Chinese stock market
• A Reuters report indicates that Chinese authorities are also looking to regulate program trading with new rules on trader identity and server location with limits to be set to check futures trading particularly in equities
• The authorities are particularly keen to stop what they see as malicious trading in stock futures
• Program trading in China is to be defined as >4,000 trades per day with >5 instances of >5 orders per second
• Traders who submit trades but then withdraw the trade within a second of execution in >60% of >4,000 orders placed will be considered to be a program trader
Electric vehicles – Porsche unveiled its new concept electric car with >310 miles range
• Auto makers report offers by battery makers for new better performance batteries with longer range and shorter charge times to better rival gasoline
• Battery technology is moving fast with changes to materials and manufacturing processes indicating significant improved performance going forward
• Lithium battery manufacturing technology has changed little since its development by Sony for camcorders 30 years ago
Economic News
US – The FOMC begins its meeting today with the decision on rates to be announced tomorrow.
• Bloomberg rates chances for a 0.25pp increase in rates at 32%.
• Financial Times reports 14 of the 30 economists surveyed by the newspaper expect the Fed to raise rates tomorrow.
• US retail sales increased 0.2%mom compared with market expectations for a 0.3%mom rise.
• Excluding auto sales, the gauge was up only 0.1%mom.
China – Western auto producers are cutting production at their Chinese assembly lines in response to a slowing demand.
• Volkswagen is cancelling staff bonuses and cutting shifts at its Chinese JV.
• Volkswagen’s Audi also said it had cut production at its Chinese plants and taking the working week to five days from seven in response to lower demand.
• BMW reduced its locally produced 3 and 5 series models.
• Chinese sales were flat in the first eight months of the year with expectations for negative growth for FY15, according to the China Association of Automobile Manufacturers.
Japan – The BoJ highlights the effect Chinese slowdown on local economy.
• Industrial production is expected to remain flat through Sep quarter with uncertain outlook over the Dec quarter, the BoJ said yesterday.
• “Based on surveys we are conduction on companies, industrial output is expected to move sideways in Jul-Sep from the previous quarter.”
• “Output is expected to rebound in Oct-Dec, although there is strong uncertainty on overseas developments”.
• Factory output dropped unexpectedly in Jul with manufacturers expecting further declines in Sep following a modest increase in Aug, as companies struggle with high inventory on modest Chinese demand.
UK – Wages climbed at the fastest pace in more than six years while unemployment rate unexpectedly declined.
• Earnings ex bonuses increased an annual 2.9%yoy in th three months through Jul
• Jobless rate fell to 5.5%, the lowest reading since 2008.
• The BoE is expected to start tightening cycle in Q1/16 on Bloomberg estimates.
Prime Minister’s Question Time at 12:30 is eagerly awaited for Jeremey Corbin’s inaugural appearance
• Die-hard socialists, union officials and other communist along with Corbin’s former associates in Cuba and Venezuela are likely to listen in to what should be an interesting debate
• Vive La Revolution!
Currencies
US$1.1254/eur vs 1.1316/eur yesterday. Yen 120.33/$ vs 119.49/$. SAr 13.462/$ vs 13.439/$. $1.540/gbp vs 1.543/gbp
0.717/aud vs 0.713/aud
Commodity News
Precious metals:
Gold US$1,107/oz vs US$1,106/oz yesterday
Platinum US$962/oz vs US$953/oz yesterday
Palladium US$596/oz vs US$585/oz yesterday
Silver US$14.53/oz vs US$14.34/oz yesterday
Base metals:
Copper US$ 5,357/t vs US$5,263/t yesterday
Aluminium US$ 1,621/t vs US$1,602/t yesterday
Nickel US$ 10,150/t vs US$9,770/t yesterday
Zinc US$ 1,734/t vs US$1,701/t yesterday
Lead US$ 1,708/t vs US$1,657/t yesterday
Tin US$ 15,600/t vs US$15,600/t yesterday
Energy:
Oil US$48.62/bbl vs US$46.7/bbl yesterday
Natural Gas US$2.723/mmbtu vs US$2.772/mmbtu yesterday
Uranium US$37.15/lb vs US$37.75/lb yesterday – prices fall back again
Bulk commodities:
Iron ore 62% Fe spot (cfr Tianjin) US$56.0/t vs US$56.1/t
Thermal coal (1st year forward cif ARA) US$50.8/t vs US$50.8/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) 13.8p, Mkt Cap £60.5m – Flangovy drilling update
• 2015 field season 6,000m drilling programme at the Flangovy deposit, part of the Kun Manie license, is ongoing with the Company reporting on results so far.
• To date results from 2,224m have been reported.
• Following a couple of successful step out drilling holes completed earlier suggesting a 400m extension to the Flangovy mineralisation in the eastwardly direction, the Company is now focused on infill drilling of the deposit with a view to convert Inferred mineral resource into the Indicated category.
• The infill drilling will progress from east to west across five delineated blocks at Flangovy (see schematic with drill hole locations on the AMC website).
• Drilling results from four infill holes in 250m long Block 1 confirm the continuity of the mineralisation in both thickness and grade.
• Grades recorded over four holes average 0.8% Ni and 0.2% Cu with total mineralised intersection per hole of 26.7m.
• This represents a 33% increase to estimated 0.6% Ni across Block 1 currently included in the mineral resource.
• Drilling on Block 2 is nearing completion.
• Block 1 and 2 together account for c. 64% (50/50 split) of the outstanding contained metal in mineral resource at Flangovy.
• In addition, assays from Alex Stewart Laboratory received so far show good correlation with results from the onsite Niton RFA unit. Average grades over 21 samples using ASL and Niton results came in at 1.14%Ni/0.31%Cu and 1.13%Ni/0.33%Cu, respectively.
Conclusion: The Company is making good progress at Flangovy with preliminary drilling results suggesting a potential upgrade of the existing resource to the indicated category. Additionally, grades at Block 1 which accounts for 32% of contained metal in mineral resource at Flangovy come in 33% higher than currently included in the JORC resource model. A potential improvement in planned processed grade should translate in better economics at the Kun Manie project.
*SP Angel act as Nomad and Broker to Amur Minerals
Galantas Gold (LON:GAL) 5.375 pence, Market Cap £5.8m – High grade exploration samples adjacent to Omagh mine site.
• Galantas Gold reports high grade assays from exploration samples taken close to its Cavanacaw mine site in the Sperrin Mountains of Northern Ireland.
• The results follow up on high grade grab sample taken in October last year and the recent results from two grab sample include assays of 67.5 g/t gold and 81.2g/t silver and 24.2 g/t gold and 6.8 g/t silver. In addition, a further grab sample locates some 540m to the east reported 11.8 g/t gold and 19.9 g/t silver.
• While we regard grab samples as a very early stage exploration tool, Galantas Gold operated an open pit gold mine at Cavanacaw between 2006 to 2013 and in June this year received planning approval for the development of an underground mine producing an average of around 27,500oz per year for a 5 year initial mine life based on an overall (measured and indicated) resource of 0.8m tonnes at an average grade of 6.9 g/t. There is an additional inferred resources of around 1.4m tonnes at an average grade of 7.7 g/t gold.
• According the company’s Preliminary Economic Assessment issued in July 2014, capital costs for the planned underground mine are reported to amount to approximately £11.6m; much of the process plant is understood to be available from the previous phase of open pit mining. Cash costs of production US$662/oz.
GB MInerals (CVE:GBL) C$0.045, C$11.4m – Completion of new feasibility for phosphate project in Guinea Bissau
• The company has published a new feasibility study for its Farim phosphate project in Guinea Bissau.
• The updated feasibility study shows reduced operating and capital costs.
• Reserves have been increased to 44 Mt at an average ROM grade of 30% P2O5 based on a 25 mine plan.
• ROM ore to be processed is to go up from 1.3 mpta to 1.75 mtpa.
• Operating costs are estimated at US$52.13/t – non-mining costs account for US$27.12/t of these costs.
• Capex for the project is now estimated at US$193.84m.
• The final product will have a grade of 34% with overall mass recovery of 75.5% and final P2 05 recovery of 78.5%.
• It is expected that the product is trucked 75 km to the new port at Ponta Chugue.
• Construction of the port is part of the project and estimated at US$44.99m or 23% of project costs.
• A post tax NPV of US$437m has been estimated for the project based on a discount rate of 10% with an IRR of 34.5% using a phosphate price of US$123/t.
Glencore (GLEN LN) 129.95 pence, Mkt Cap £19bn – Equity placing to raise £1.6bn at 125p/s
• Glencore has announced the issue of ~£1.6bn ($2.5bn) worth of new equity at 125 pence per share.
• The placing of 1,307,794,600 new shares is at a modest 2.4% discount to Tuesday’s closing price.
• Glencore executives have personally taken up 22% of the issue as part of a pledge to maintain their holdings.
• The placing is part of a greater $10bn debt reduction plan to ensure Glencore’s rating is maintained at investment grade level.
• Glencore has also pledged to cut dividends and sell assets to cut around $10bn off its ~$50bn of gross debt (~$30bn net debt).
• The balance sheet contains a proportion of floating rate debt in revolving credit facilities, which may rise in cost if the Fed votes for a rise in interest rates.
• Management could look to sell some of the $17bn of ‘readily marketable inventories’ much of which is thought to be in aluminium.
• Traders reckon these metal holdings still gives good returns to Glencore, though new LME regulations on inventory may.
• Moody’s cut its outlook to negative on Glencore holding its Baa2 debt rating.
• Standard & Poor’s cut Glencore to a negative BBB rating.
• Recommendation: We affirm our buy rating now that the placing is announced at 125 pence per share
• Glencore's enlarged issued ordinary share capital immediately following the issue of the New Shares will be 14,586,200,066 ordinary shares
Conclusion: The beauty about a placing is that Glasenberg might be able to deny new stock to some of the short sellers in the market, though such traders may work their way around any attempt to deny new stock to them. This might result in higher stock trading volumes while short sellers cover their positions.
Hummingbird Resources (LON:HUM) 27.75 pence, Mkt Cap £28.6m – Preliminary view on hydropower potential of Dugbe River
• Hummingbird Resources reports that Knight Piesold Consulting have delivered a draft preliminary report on the proposed hydro-electric power plant on the Dugbe River in southeast Liberia.
• The plant site is located approximately 10 km from Hummingbird’s 4.2m oz Dugbe Gold Project and, if the hydropower scheme were to proceed, it offers considerable potential advantages to mine development, as well as wider and continuing benefits in the community at large, persisting beyond the 20 year life of the mine.
• The study, which was financed by IFC Infraventures, examined four potential development options for run-of-river power generation ranging from 15MW to 30MW at capital costs ranging between US$90m to US$170m.
• The Dugbe Gold Project has a relatively low grade resource of 1.4 g/t and according to the company’s Preliminary Economic Assessment, generates an NPV of US$186m and an IRR of 29% using a gold price of US$1300/oz. The company signed a 25 year Mineral Development Agreement for Dugbe with the Liberian Government in July this year.
Conclusion: In the prevailing gold price environment, we imagine that Hummingbird will not be in a hurry to proceed with developing Dugbe, particularly while they focus on the development of the Yanfolila mine. Given that the current report is a draft of a preliminary study, a formal development decision to proceed with the hydropower project may take some time, however, demonstrating a viable project to produce reliable, low cost power close to the Dugbe Gold Project is positive for the longer term outlook for the project.
Paragon Diamonds (LON:PRG) 5.125 pence, Mkt Cap £14.2m – Results of Technical study for Mothae Kimberlite Project
• The company have published highlights of a technical study on the Mothae Kimberlite project.
• The studies form the basis of a PEA and PFS for the project.
• A number of revenue models have been projected from a sample of 23,738 carats that had been previously used to model diamond values at Mothae.
• Models have been developed using average diamond value per size class for each of the four kimberlite domains.
• These were calculated on three bottom cut off screens of +2mm, +3mm and +4mm.
• The resource of the Main Pipe which includes SW, SC, SE domains is estimated at 32.4 Mt at a grade of 2.2 cpht and a diamond value of US$1,352/carat at a 3mm cut off screen.
• Upside for the main pit in terms of value is US$1,971/carat if the cap on the +20 carat diamond value is lifted from US$6,492/carat to US$11,057/carat.
• A downside scenario of US$1,024/carat is still assessed as being above break even.
• The optimum scenario for mining based on this resource is for a 12 year open pit life with a strip ratio of 1.1 yielding around 42,000 carats per annum.
• The company is talking to a number of funding sources for the acquisition of a 75% interest in the Mothae kimberlite from Lucara.
Conclusion: Further work on Mothae would suggest scope for improvement on the economics when a PEA or PFS is completed. There is also some suggestion in the announcement that funding for this project and also potentially Lemphane may not come from ITGT but sought from other sources. Funding needs to be in place to progress both Mothae and also trial mining at Lemphane.
Tri-Star Resources (LON:TSTR) 0.16 pence, Mkt Cap £13.5m – Funding update for the roaster
• Following the finalisation of debt funding for the roaster, equity commitments from all partners have been paid.
• Tri-Star’s equity commitment is US$6m.
• US$4m has been met from the sale of IP rights to SPMP with US$2m from proceeds through the recent fund raise of £3.5m.
• An additional US$2m is payable to Tri-Star for the IP rights on commissioning of the pilot plant.
Conclusion: With the equity funding now paid into SPMP as part of the US$70m budget for the roaster, full financial close has been achieved. Tri-Star has received US$4m for their IP contribution at this stage – we had previously factored in US$2.4m. This gives Tri-Star a further cushion at the corporate level. A further US$2m is expected once the pilot plant is commissioned ahead of the roaster being in place. The pilot plant is expected to take around a year to put into place and is included in the budget already in place at around 5% of the overall budget.
We look forward to news flow as the company starts the construction process which we anticipate will take between 18-20 months for the full plant to come into operation.
*SP Angel acts as Nomad and Broker to Tri-Star Resources