Economic News
US - Economic news due this week:
Date Announcement Period Expected (Bloomberg) Prev month
Monday Existing Home Sales Aug 5.50m/-1.6%mom 5.59m/+2.0%mom
Wednesday Markit Maufacturing PMI Sep (Prelim) 52.8 53
Thursday Durable Goods Orders/ex Transport Aug -2.3%mom/+0.1%mom +2.2%mom/+0.4%mom
Non-defence Capial Goods Orders ex Air Aug -0.2%mom +2.2%mom
New Home Sales Aug 515k/+1.6%mom 507k/+5.4%mom
Friday Final Q2 GDP (annualised) Q2/15 +3.7%qoq +3.7%qoq (prelim reading)
Markit Services PMI Sep (Prelim) 55.6 56.1
Markit Composite PMI Sep (Prelim) - 55.7
China – Business expectations measure fell to the lowest reading since the survey began in 2007.
• The index dropped to 52.1 while the MNI China Business Indicator measuring current industry sentiment was down to 51.3.
China – communist party moves to tighten grip on state and parastatal companies
• State and parastatal companies account for around 150,000 business employing some 30m people and producing around two thirds of Chinese industrial production.
Germany – Producer prices remain in a deflationary zone posting a 25th consecutive decline in Aug (-1.7%yoy v -1.6%yoy forecast).
• Volkswagen is down 18% this morning on the back of the news that the car maker installed software on its vehicles that allowed to sidestep US air pollution tests for years according to the Environmental Protection Agency.
• Diesel autos including Jetta, Passat, Beetle and Golf are reported to have been fitted with the software that turned on full pollution controls only when the car was undergoing official emissions testing.
• The company halted sales of models involved, admitted to allegations, launched its internal investigation and is cooperating with the probe.
France – Moody’s cut the sovereign credit rating on the back of weaker medium term growth outlook and “high debt burden over the remainder of the decade”.
• “The current economic recovery in France has already proven to be significantly slower – and Moody’s believes that it will remain so… In part, this is due to the erosion of competitiveness and loss of growth potential following the global financial crisis.”
• The rating was cut by one notch to Aa2 with outlook changed to “stable” from “negative”.
Italy – The government upgraded its economic growth forecasts (+0.9% and +1.6% in 2015-16 v +0.7% and 1.4% previously forecast).
• Stronger growth is expected to be driven by a weaker euro and lower oil prices as well as an increase in domestic demand.
Greece – Syriza wins 35% of vote giving the far-left party 145 seats in the 300 seat parliament.
• That compares to 28% and 75 seats secured by centre-right New Democracy party.
• Mr Tsiparis has already formed a coalition with the small nationalist independent Greeks party (Anel) giving them a six-seat majority in parliament.
• Unity, the party formed by former far-left Syriza members whose exit triggered the election, failed to hit the 3% barrier winning only 2.8% of the vote.
Japan – well done in the Rugby world Cup
• Japan won its first world cup game for 24 years on Saturday against South Africa (34-32). We expect the South African team to raise their game from here on.
UK bond auction demand falls to lowest level since financial crisis starts
• Demand for Gilts has fallen to its lowest level since partially due to the high level of auctions in recent years to fund big budget deficits.
• Low level demand is also partly related to changing regulations which has limited banks appetite for gilts. Banks are reluctant to risk having Gilts sitting on their balance sheet.
• Inflation linked Gilts proved more popular in June with three times oversubscription.
UK – Pensions tsar warns the cost of funding NHS pensions to 1.3m former and current staff is around £500bn
UK – Steel production to be paused at Redcar, Teesside
• Steel slab production is to be paused at the Redcar plant in a reaction to high operating costs and lower steel slab prices now <$300/t from >$500/t earlier this year.
• SSI of Thailand who acquired the plant from Tata after its shutdown in 2010 blame low demand for steel from Russia and China
• Redcar produces around 3.5mt of steel slab per year. SSI have invested around $600m into the plant following its acquisition from Tata in a $469m deal
• The plant is estimated to support some 8,000 direct and indirect jobs in an area of already high unemployment
• We recommend UK steel workers drive a convoy of tractors to Brussels to campaign against low steel price levels – it works for French and Belgium farmers!
Zurich abandons plans to bid for Royal Sun Alliance
Currencies
US$1.1299/eur vs 1.1420/eur yesterday. Yen 120.27/$ vs 119.41/$. SAr 13.372/$ vs 13.248/$. $1.553/gbp vs 1.558/gbp
0.716/aud unch vs 0.723/aud
Commodity News
Precious metals:
Gold US$1,139/oz vs US$1,129/oz yesterday
Platinum US$981/oz vs US$977/oz yesterday
Palladium US$603/oz vs US$607/oz yesterday
Silver US$15.19/oz vs US$15.11/oz yesterday
Base metals:
Copper US$ 5,295/t vs US$5,344/t yesterday - Copper prices rising this morning as copper mines
• Some key copper mines paused production last week to give time for engineers to check their operations following the earthquake and tsunami last week.
• The US Fed’s decision to hold rates also weakened the US dollar helping prices push higher.
• We expect renewed demand out of China to lift prices further following the restart of industry following the WWII parades two weeks ago.
• Glencore’s cut of 400,000t out of the market over the next 12 months also helps and we expect China’s SRB to be in the market buying inventory at opportunistically low levels
Aluminium US$ 1,630/t vs US$1,625/t yesterday
Nickel US$ 9,850/t vs US$9,895/t yesterday
Zinc US$ 1,670/t vs US$1,725/t yesterday – zinc prices fall below lead prices
Lead US$ 1,692/t vs US$1,711/t yesterday
Tin US$ 15,150/t vs US$14,950/t yesterday
Energy:
Oil US$48.10/bbl vs US$48.80/bbl yesterday -
Natural Gas US$2.580/mmbtu vs US$2.643/mmbtu yesterday
Uranium US$37.25/lb unch vs US$37.25/lb yesterday –
Bulk commodities:
Iron ore 62% Fe spot (cfr Tianjin) US$56.4/t vs US$56.4/t
Thermal coal (1st year forward cif ARA) US$50.30/t vs US$50.65/t yesterday
Other:
Tungsten - APT European prices fall further to $180/190 per mtu from $185/195 last Friday
Company News
Avalon Resources (ASX:AVI) A$0.028, A$6.7m – Further high grade copper in the D Zone
• Results of drill hole VDD 193 has delivered some high grade intersections.
• An intersection of 26.7m at 2.6% copper has been found from 564m including 6.6m at 3.5% copper, 5.2m at 2.9% copper.
• VDD 193 was targeted to deliver significant vertical extension to the higher grade and thicker portion of the D Zone outside of the current MRE.
• The strike extent of this thicker and higher grade zone is estimated at around 400m strike with true width ranges from 10m to 25m and a 400m vertical extent.
• VDD 193 has delivered the best results so far from the D Zone.
• An updated MRE is expected to be published in November followed by an updated scoping study.
• The D zone currently has a resource of 13.6 Mt at 1.0% copper.
Conclusion: This is a very good result from drilling at the D Zone and should be supportive of an expanded resource from the D zone.
Caledonia Mining (LON:CMCL) 40 pence, Mkt Cap £20.8m – Blanket mine development update
• Caledonia Mining has provided a status report and update on the progress of its redevelopment work at the Blanket mine in Zimbabwe which was announced in November 2014.
• The plan, which is designed to access mineralisation below the 750m level, and increase gold output to around 65,000 oz pa by 2017 and 80,000 ounces of gold by 2021 comprises three main elements, two of which are now largely complete.
• The “Tramming Loop”, a new underground ore handling network on the 750 metres level, was completed ahead of schedule in June 2015. This should allow for increased underground development and underpin “increased production towards the end of 2015, as reflected in the 2015 production guidance of 42,000 ounces of gold.”
• The No 6 Winze (internal shaft) was also complete in June and is currently being equipped which will allow increased horizontal development and a build-up of ore throughput from January 2016 to reach target levels of 500 tpd in May 217.
• The final major part of the investment plan involves the US$23m sinking of the new Central Shaft from surface to a depth of 1,080 metres accessing mineralisation below the 750 metres level and providing the foundation for the long term future of the mine. Currently much of the preparatory work has been completed and initial sinking to a depth of 90metres is expected to be completed by the end of this year enabling the main shaft-sinking effort to get underway in mid-January 2016.
• Much of the deeper mineralisation remains to be fully defined by exploratory drilling and sampling. In May 2015, the company announced that it had upgraded 490,000 tonnes of deeper level mineralisation from “inferred” to “indicated” and the company has deployed additional drilling equipment to resource definition work. As additional drilling sites become available through further underground development, we would expect this effort to accelerate.
Conclusion: Caledonia Mining is making steady progress on the long term plans for the Blanket mine which should see production double by 2012 and ensure a longer term future for the operations. While the mining progresses on track, we look forward to news of similar progress on the resource definition work.
Coal of Africa (LON:CZA) 3.40 pence, Mkt Cap £65.5m – Equity investment and loan from Yishun
• Coal of Africa, the owner of the Makhado thermal and coking coal project in the Limpopo Province, South Africa, confirms that its previously announced funding from the Singapore-based private investment company, Yishun Brightrise Investment (Yishun) has been completed.
• Yishun has subscribed for 183.2m new shares at 5.15p/share to raise £9.4m (US$14.5m). In addition, Yishun has advanced an interest free loan of US$10m to the company. Based upon the company’s AIM Rule 26 disclosure, we estimate that the Yishun investment represents around 9.5% of Coal of Africa diluting the largest shareholder’s (Haohua Energy International (Hong Kong) Resource Company) interest from 26.5% to approximately 24%.
• “Yishun has expressed an intention to acquire a strategic interest in the Makhado Project and discussions between the parties continue. The investment package being discussed includes an equity investment in the Makhado Project, the provision of a shareholder loan on commercial terms providing the funds required for the development of the colliery; and the award of the Makhado Project engineering, procurement and construction (EPC) contract on commercial terms”
• Coal of Africa plans to use the funds received from Yishun for “general working capital and to settle obligations prompted by the granting of the Makhado New Order Mining Right as well as those triggered by the granting of the Integrated Water Use Licence”.
Freeport McMoran – raises $1bn in equity in the US.
• The copper producer is also looking to bring other investors into its oil & gas business in the public sale of a minority position in this unit
Metminco (LON:MNC) 0.235 pence, Mtki Cap £6.2m – Improved economics on Los Calatos
• Results have been published from the RPM strategic mining study for Los Calatos.
• The aim of the study was to produce 50,000 tpa of copper concentrate based on a milling rate of 6-6.5 mtpa.
• This required using a cut-off grade of 0.70% to 0.75% copper and using a more selective mining method versus the block cave method initially proposed.
• The mining method being proposed by RPM against this scenario is for a sub-level cave mining method.
• Key parameters being proposed is for sub level spacing of 25m, 25m long stopes, minimum stope width of 10m with a maximum of 50m.
• Minimum waste pillar width of 10m width and a minimum 60 degree angel between the footwall and hanging wall.
• Based on this criteria the economic depth to which underground mining should be undertaken was estimated at 1,300m.
• Mining losses were estimated at 10% and with dilution of 20%.
• The mineable quantity estimated for the resource is 134.3 Mt at 0.89% copper with measured and indicated category 38% of this.
• The estimated capex for this scenario is for US$655.1m including US$216.2m for infrastructure including road access, power supply, water and concentrate pipeline to the coast.
• C1 cash cost is estimated at US$1.69/lb (US$3,724/t) and US$1.29 (US$2,854/t) including by product credits.
• Based on a US$3.00/lb (US$6,612/t) the ungeared after tax IRR is estimated at 16.6%.
Conclusion: The company has made progress in improving the economics at Los Calatos particularly with respect to operating costs. Capex has also come done. We look forward to further work on the geotechnics as feasibility study work is conducted. Against the current back drop for commodities, the economics need further improvement.
Sable Mining (LON:SBLM) 0.53 pence, Mkt Cap £5.9m – MOU for 600 MW coal fired plant
• Sable is looking to collaborate with Citic to build a commercial coal fired power plant at Lubu in Zimbabwe.
• The intention is to use coal sourced from Lubu which is Hwange to supply the power station.
• The MOU signed by the two parties is thought to have the support of the Republic of Zimbabwe and the Ministry of Energy and Power.