Markets await Fed comment on interest rates today
• Market moves today indicate investors do not envisage a rise in Fed rates today
• Metals prices remain broadly stable as funds flatten their positions ahead of a potential Fed rise today
• Certain central banks have called on the Fed to end the uncertainty and raise rates
China - Ai-Wei Wei preview - Exhibition at the Royal Academy highlights the stark side effects of a decade of rapid growth in China
• Ai-Wei Wei the highly regarded Chinese artist opened his show at the Royal Academy in London yesterday.
• His works at the show paint a picture of the other side of the economic prosperity enjoyed by China in their decade of dash to growth.
• One work which ultimately led to his arrest by Chinese authorities shows footage of the damage wrought in Sichuan from the earthquake in 2008.
• Substandard construction is thought to have caused the collapse of 7,000 classrooms in the region with around 5,355 children/students killed.
• Ai Wei-Wei’s work remembering this event uses 200 tonnes of rebar recovered from collapsed buildings restored to their former glory from their twisted form.
• Ai Wei-Wei’s research into the corrupt practices that led to the construction of these “tofu” buildings resulted in house arrest and a period in prison for the artist.
• The fact that this show is taking place either shows a change in attitude of the Chinese authorities or a new regime that wants to highlight the weaknesses of the previous group in power.
• Another work also shows the impacts on human health from pollution in the major cities from rapid growth.
• Observations from this show – people hoping that China will reflate their economy from re-encouraging what happened over this period may be disappointed.
• It is likely that the Chinese will be looking to have a more considered approach to growth – cleaner both in terms of corruption and the environment.
• Should shoddy building tactics have been wide spread Chinese demand for materials could come back – a theory that Rio Tinto is putting forward in their long term forecasts for iron ore .
• China’s demand for materials could therefore be down but not out.
• China watchers should go and see this show.
Economic News
US – The Fed to announce its rate decision this evening with European equities trading slightly lower this morning and US posting a two-day gain trading near a four week high.
• EURUSD trades at a two-day low and little changed on the day as markets await the Fed decision.
• US inflation declined in Aug on softer gasoline prices and a strong dollar cutting the cost of imported goods.
• CPI fell 0.1%mom in Aug marking the first drop since Jan, after climbing 0.1%mom in Jul.
• Core CPI (ex energy and food) was up 0.1%mom in line with Jul reading.
Japan – S&P downgraded Japan sovereign credit rating to A+ from AA- taking it in line with estimates by Fitch and Moody’s.
• The decision saw little market reaction as the benchmark 10-year Japanese bond yields fell and Nikkei 225 recorded a 1.43% increase today.
• On a separate note, trade data showed exports climbed at 3.1%yoy in Aug marking a more than two times decline the growth rate compared with +7.6%yoy in Jul.
• Estimates were for a 4.3%yoy gain.
• While weaker yen provides support for Japanese exporters, the sector has been hit by a recent slowdown in emerging markets’ demand and China, in particular.
• Imports declined at 3.1%yoy last month versus -3.2%yoy in Jul and -2.5%yoy forecast.
Switzerland – The SNB left benchmark rates unchanged at -0.75%, in line with market estimates, noting the franc still remains overvalued.
• The CHFEUR climbed 10% after the currency cap has been dropped at the start of the year.
• The Bank said it will “remain active in the foreign exchange market as necessary”.
• “The Swiss franc is still significantly overvalued, despite a slight depreciation”.
Chile – A 8.3 magnitude earthquake struck off the coast of the central Chilean coast yesterday evening.
• One million people have evacuated from their homes with five people reported dead.
• Waves of up to 4.5m high reported in some parts of Chile with warnings issued in Peru, New Zealand, California and Hawaii.
• The hardest hit regions were Conquimbo with waves of up to 4.5m and Tongoy where waves reached 2m.
• The latest news suggest tsunami warnings have been lifted in a number of parts of the Chilean coast with some red alerts downgraded to yellow (Tarapacá, Antofagasta, Los Ríos, Los Lagos, Aysén and Magallanes).
• The news of the earthquake led copper prices higher.
• Codelco evacuated workers from its Ventanas operations that houses its smelter and refinery.
Burkina Faso COUP – President Michel Kafando and Prime Minister Isaac Zida have been detained at the Presidential palace by members of the Presidential guard in an apparent coup
• The move comes two days after a commission recommended the disbanding of the presidential guard. Instead the presidential guard have disbanded the government.
• Elections are due to be held within weeks and the intentions of the presidential guard are not yet clear
• There will likely be demonstrations and violence if the presidential guard does not act to allow free elections on 11 October
Chile – Earthquake and tsunami hits Chile
• The earthquake was an 8.3 magnitude quake and centered off the coast around 144miles NW from Santiago
• Tsunami waves of up to 4.5m along the coast of the Coquimbo region and around 1 million residents were forced to evacuate their homes. Tsunami alerts were issued in Peru, Hawaii, California and NZ.
• The earthquake was also felt in Buenos Aires
• The event may serve to disrupt and delay shipments of copper out of Chile. Copper concentrate pipelines will need to be checked as will tailings dam walls as a precaution
Indonesia – government arrests company execs behind illegal fires
• Illegal fires are causing a massive haze to hang over the Indonesian region as illegally set forest fires burn
• Riau province has declared a state of emergency as farmers and companies clear vegetation for planting
• The haze is also affecting Malaysia and Singapore
Vietnam – auto sales take off in Vietnam
• Vietnam is leading auto sales growth tables in Asia as sales rise 62% yoy to end August
• The nation is following the path of rapid urbanisation and ditching their motorbikes for new cars
• Most cars are built locally under license from foreign manufacturers but imports of luxury, Mercs are rising and Bentley and Rolls Royce have recently opened their first dealerships in the nation.
• A new import consumption tax is expected to add up to 12% to the cost of imported vehicles. Vietnam is part of the World Trade Organisation and can not directly raise import taxes on cars.
• Just goes to show the entrepreneurs of communists nations still like a bit of luxury
Currencies
US$1.1327/eur vs 1.1254/eur yesterday. Yen 120.92/$ vs 120.33/$. SAr 13.332/$ vs 13.462/$. $1.549/gbp vs 1.540/gbp
0.717/aud unch vs 0.717/aud
Commodity News
Precious metals:
Gold US$1,119/oz vs US$1,107/oz yesterday
Platinum US$966/oz vs US$962/oz yesterday
Palladium US$609/oz vs US$596/oz yesterday
Silver US$14.90/oz vs US$14.53/oz yesterday
Diamonds – Sales from Richemont in China and outlook for diamond pricing
• Nervousness has prevailed in terms of the outlook for diamond pricing against a backdrop of uncertainty on Chinese growth.
• Strong sales figures from Richemont could allay fears for diamonds going into the luxury goods category.
• Richemont that owns a number of luxury goods brands including Cartier, Chloe and Montblanc reported overall sales growth of 16%.
• Although wholesalers remain cautious in China, retail sales increased by 20% in the period.
• Sales in Japan and Europe were strong thought to reflect purchases by Chinese tourists picking up luxury goods in places where the currency has depreciated.
• It is too early to call with rough producers still having to cut back on production or drop prices to sell their goods.
• Results from Petra Diamonds tomorrow which show results in line with downgraded expectations should provide some insight from their outlook and any changes in guidance for the next two years.
Base metals:
Copper US$ 5,367/t vs US$5,357/t yesterday
Aluminium US$ 1,614/t vs US$1,621/t yesterday
Nickel US$ 9,945/t vs US$10,150/t yesterday
Zinc US$ 1,725/t vs US$1,734/t yesterday
Lead US$ 1,715/t vs US$1,708/t yesterday
Tin US$ 15,640/t vs US$15,600/t yesterday
Energy:
Oil US$49.26/bbl vs US$48.62/bbl yesterday - Shell ceo says ‘the oil price responds to very small mismatches between supply and demand’
• A BBC reporter asked the Shell ceo, where oil prices may go next he said, “the honest answer is I don’t know” – we reckon he could make a good guess
• He adds “oil becoming cheaper would not tempt consumers to use more of it, as can happen with other products.” But low oil prices are tempting US consumers to buy bigger SUVs again in preference to hybrid vehicles and it also allows haulage companies to run less efficient trucks for longer journeys.
• US shale oil production costs have fallen dramatically with cash costs around $45-50/bbl but not enough to maintain margins and new investment levels.
• We would expect the US shale oil boom to restart at $65-70/bbl so long as investors can gain confidence in prices maintaining these levels over a 3-5 year basis.
• This is good for consumers but may slow down the rollout of hybrid and other electric vehicles with ever more efficient gasoline engines now giving similar efficiencies if one is to believe the advertising.
Natural Gas US$2.661/mmbtu vs US$2.723/mmbtu yesterday
Uranium US$37.25/lb vs US$37.15/lb yesterday – prices fall back again
Bulk commodities:
Iron ore 62% Fe spot (cfr Tianjin) US$56.2/t vs US$56.0/t
Thermal coal (1st year forward cif ARA) US$51.15/t vs US$50.8/t yesterday
Other:
Tungsten - APT European prices fall further to $180/190 per mtu from $185/195 last Friday
Company News
Amara Mining (LON:AMA) 9.7 pence, Mkt Cap £40.4m – Yaoure Optimisation Study based on drilling results
• The company report results from the northern area of the Yaoure Central zone which is being targeted as a potential starter pit.
• Drill results from this area show potential for some high grades notably intercepts of 5m at 39.6 g/t from 163m and 4m at 34 g/t gold from 75m.
• Agrregation of drill results from the area including internal waste are expected to show economic potential.
• These results could show improvements in overall economics of the project with a starter pit at the northern area of Yaoure Central rather than the CMA Zone.
• This would reduce pre-strip which was around US$33m of the upfront capital for the project.
• Increased head grade could result in a smaller operating plant and result in lower operating costs.
Conclusion: These results should be supportive of the optimisation that the company plan to undertake to improve the capital and operating costs for the project.
Herencia (LON:HER) 0.095 pence, Mkt Cap £36m - Results of a mapping and surface sampling programme
• The company believe that geological mapping and surface sampling shows potential zones of mineralisation over a combined strike of 4km.
• Recent mapping and sampling programme at the Picachos project area in Chile has identified four northerly striking parallel zones of shallow copper mineralisation.
• These zones include the 40M Shaft Zone extending over 1.2 km, the Central Zone over 1.2 km, Santa Rosa Zone over 1.4 km and the Eastern Zone over 0.5 km.
• These zones have seen shallow mining previously.
o The zones are located in the southern and central part of the project area and do not preclude the possibility that additional mineralisation may, in future, be identified in the northern part of the project area which includes the prospective Leoncito and LA Dura areas.
o From west to east, the zones, some of which have already been reported, are:
§ The 40m Shaft zone extending over 1.2km and including the 40M Shaft, 40M Shaft East and Flor del Bosque zones
§ The Central zone also extending over 1.2 km
§ The 1.4 km long Santa Rosa zone which inclides the Santa Rosa and Rancho 4 zones and
§ The Eastern Zone extending 0.5 km
o The company notes that each of these zones contains “high grade mineralisation at the surface and in many cases shallow historical mining to support deeper potential”. The company goes on to comment that “this is the first time we have been able to confidently predict four separate parallel zones of potential contiguous mineralisation”.
Conclusion: Herencia Resources’ exploration is identifying extensive, shallow copper mineralisation at Picachos which opens up the possibility of multiple open pit mining in an area of historic underground copper production. As a coherent geological picture of the distribution of the mineralisation starts to emerge from the exploration effort, mine planning should become easier.
We look forward to follow up from a drill programme work to support these initial findings.
Savannah Resources (LON:SAV) 2.95 pence, mkt Cap £4.9m – 1km long gold anomaly at Salahi 1 prospect in Oman
• Savannah Resources reports that additional early stage exploration, including mapping and grab sampling, has identified additional high grade gold mineralisation ant the Salahi 1 prospect within its Block 4 copper/gold licence area in Oman.
• The recent exploration, which concentrated on the Main Gossan and North Gossan about 1km to the north of the Main zone, zones has returned assay results of up to 13.9 g/t gold from grab samples and has now defined anomalous gold values in a zone up to 26 metres wide over a strike length of approximately 1 km, though at this stage, the mineralisation remains open laterally along strike to both north and south.
• The company comments that “The exploration team will continue to sample and conduct geological mapping of the project area in order to determine the most prospective targets for drilling”.
• Savannah is earning a 65% interest in the Block 4 licence area from the local company, Al Thuraya LLC.
Conclusion: Savannah continues to identify promising drill targets within its exploration areas in Oman, however, we imagine that drilling budgets will be tight and that the company will need to be rigorous in allocating its funds to the most promising targets.
Shanta Gold* (LON:SHG) 4.4p, Mkt Cap £20.5m – Production and cost guidance maintained – resource upgrade for Elizabeth Hill
• Shanta Gold has announced that it is maintaining its production and cost guidance for the year at 72-77,000 oz of gold production at a cost in the range $850 to $900/oz on an all-in-sustaining-cost basis.
• The company has also announced that, following a programme of reverse circulation drilling which has provided more detailed information on the distribution of mineralisation, it has upgraded the resource estimate on the satellite deposit at Elizabeth Hill by 46% to 128,000 oz of gold (2.3m tonnes at an average grade of 1.7 g/t gold using a 1 g/t cut-off). Around 60% of the new resource at Elizabeth hill is classified as indicated.
• The company is now evaluating how Elizabeth Hill, which is one of a number of satellite deposits in the mine area, “fits into the Life of Mine Plan, which we are scheduled to release the base case for at the end of this month.”
• The development of additional relatively low grade, but low stripping ratio, satellite deposits such as Elizabeth Hill provides Shanta Gold with material it can blend with higher grade feed from its Bauhinia Creek pit to increase throughput and reduce unit costs at the New Luika plant.
• Shanta Gold produced 28,180 oz of gold during H1 at an AISC of $1310/oz while it reconfigured its operations and completed a major waste removal programme. We note that meeting the company’s guidance for the full year implies a significant turnaround in the second half with 44-49,000 oz of gold production at an AISC of $550-600/oz.
• Conclusion: It is encouraging that Shanta Gold is able to reiterate its production guidance as it indicates that the reoptimisation which occurred during the first half of the year has been successful and that a substantial turnaround is underway. Developing satellite deposits such as Elizabeth Hill is emerging as a component of the company’s development strategy to maximise the use of the New Luika plant.
*SP Angel’s analyst has visited New Luika
Stratex International plc (LON:STI) 1.925p, Mkt cap £9.0m – Altintepe gold mine - commissioning update
• Stratex reports that cold-commissioning at its 45% owned Altintepe gold mine in Turkey has now been completed and that hot-commissioning of the crushing circuit is now underway.
• Other equipment, including the agglomerator and the conveyors have also been completed and tested.
• Unseasonally heavy rains have slightly delayed the installation of the leach pad and as a result, the initial production of gold, which had been expected in the current quarter will now slip into October.
Conclusion: The completion of the Altintepe mine will be a watershed for the company and though minor commissioning delays are clearly frustrating, the development of an independent source of cashflow should be transformational for the company providing Stratex with the funds to pursue its core exploration activities or for corporate transactions similar to its acquisition of a strategic stake in Goldstone last year.
Tri-Star Resources (LON:TSTR) 0.16 pence, Mkt Cap £13.5m – Funding update for the roaster – Note typo on target price
• 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