Saudi Arabia pulls funds from Blackrock and other managers to cover deficit caused by low oil prices and cost of campaign in Yemen (FT)
- The FT reports that the government of Saudi Arabia may have withdrawn some $50, $70bn or more from asset managers
- Sama, the Saudi Arabian Monetary Agency is also though to have been looking to reinvest in less risky assets
- Selling by resource heavy funds combined with slower growth in industrial activity in China may be exacerbating the selling in Glencore and some other resource stocks
Economic News
US – US House Speaker John Boehner surprisingly announced his resignation last week reduces chances for a government shutdown this week.
• Boehner said the House will pass a Senate-authored government funding bill that does not meet conservatives’ demands.
China – Margin lending to investors by brokerages continues to come down posting a 62% decline in leveraged trading since the Jun peak.
• The balance currently stands at US$910m, down from a record US$2.4bn recorded in Jun and c. US$1bn as of start of the year.
• De-leveraging with brokers has been accompanied by a c.40% fall in Chinese equity markets.
• On a different note, industrial profits recorded another YoY decline highlighting challenging local economic conditions.
• Industrial profits: -8.8%yoy in Aug v -2.9%yoy in Jul.
Cap and trade carbon emissions plan to hit worst polluters in China
• Polluters will be required to buy permits for pollution above their allocations
• The system will raise costs for higher carbon emissions and may have some impact on coal and steel producers as well as base metal smelters and oil refiners
Rise in money supply between 2007 and 2013 greater than rest of the world combined
• The rise in money supply reflects the expansion of the Chinese economy but also risks enabling asset price bubbles
IMF – shareholders said to be likely to back adding China’s Renminbi to SDR basket
• Adding the Renminbi to the SDR basket would be a step forward in enabling reserve status for the currency
Japan – BoJ Governor Kuroda gave no clues over potential for further monetary easing during his speech in Osaka on Monday.
• The recent drop in core inflation that excludes changes in foods prices was attributed to lower oil prices.
• While domestic demand remains resilient, overseas shipments slow down on the back of weaker growth in China.
• It seems the BoJ is not prepared to accelerate bond purchases as of now, but would be willing to step in should the situation deteriorate further.
Spain – Pro-independence party in Catalonia together with a smaller nationalist party won 72 seats in the 135-seat regional parliament.
• Following the announcement of elections’ results, the pro-independence camp’s leaders said they would now proceed towards the creation of an independent Catalan state.
• Central government in Madrid noted that any unilateral moves towards independence will be challenged in court.
Switzerland – opens investigation into possible price manipulation of gold and other precious metals
• The investigation is to focus on the possible manipulation of bid/offer spreads by traders at related banks
Currencies
US$1.1189/eur vs 1.1138/eur on Friday. Yen 120.22/$ vs 120.94/$. SAr 13.863/$ vs 13.764/$. $1.521/gbp vs 1.523/gbp
0.702/aud unch vs 0.701/aud – Rand continues to fall as US dollar consolidates
Commodity News
Precious metals:
Gold US$1,138/oz vs US$1,142/oz on Friday
• The Swiss competition regulator has launched an investigation into potential collusion between major banks on the gold market.
• The watchdog is currently looking into UBS, Julius Baer, Deutsche, HSBC, Barclays, Morgan Stanley and Mitsui dealings and whether banks conspired to set bid/ask spreads..
Platinum US$928/oz vs US$947/oz – potentially tighter emissions legislation or more to the point better adherence to current regulations should increase platinum loadings in diesel cars
Palladium US$656/oz vs US$661/oz
Silver US$14.84/oz vs US$15.07/oz
Base metals:
Copper US$ 5,018/t vs US$5,062/t – Low demand could knock recent confidence in copper (Reuters)
• Weather related disruptions are thought to have taken some 1.2-1.5mt out of production this year. Add Glencore’s 0.4mt cut and this could cause the market to turn to deficit this year
• But demand growth is also pulling back and may serve to hold back prices
Aluminium US$ 1,569/t vs US$1,576/t
Nickel US$ 9,970/t vs US$9,875/t
Zinc US$ 1,637/t vs US$1,654/t
Lead US$ 1,665/t vs US$1,678/t
Tin US$ 15,150/t vs US$15,270/t
Energy:
Oil US$48.20/bbl vs US$48.30/bbl
Natural Gas US$2.602/mmbtu vs US$2.598/mmbtu
Uranium US$37.00/lb unch vs US$37.25/lb
Bulk commodities:
Iron ore 62% Fe spot (cfr Tianjin) US$56.6/t vs US$56.9/t
Thermal coal (1st year forward cif ARA) US$49.20/t vs US$49.70/t
Other:
Tungsten - APT European prices rose for the first time since beginning of July to $180/200 per mtu from $180/190 last week
• This is entirely unhelpful for Wolf Minerals which shipped first concentrate recently from the Hemerdon Mine in the UK
Lithium - Tesla – innovations made by Tesla are forecast to cut battery costs to just 38/kWh from $250/kWh
• The report is confusing as it talks of the actual price of a Tesla Model S battery falling to $200/kWh
• The figure of around $38/kWh is for a battery pack price and assumes peak production at the Gigfactory and cost reduction of 70% in battery pack costs
• Tesla plan to use a nickel cobalt aluminium cathode, a silicon synthetic graphene anode to achieve 2-6 times better lithium-ion storage capacity
• Tesla may also use a more efficient lithium-rich nickel cobalt manganese cathode with double the proportion of silicon in the graphene anode
Company News
Horizonte Minerals (LON:HZM) 1.65 pence, Mkt Cap £8.1m – Acquiring Glencore’s Araguaia nickel project in Brazil
• Horizonte has announced that it has reached agreement to acquire Glencore’s Araguaia nickel project in north central Brazil for a Total of US$8m of which an initial $2m in Horizonte shares is payable on closing.
• A further $1m in shares, or cash at Horizonte’s election, is payable 10 days after the issue of a joint-feasibility study for the enlarged Araguaia project with the balance to be paid in cash at the time of the first commercial production from the enlarged project.
• The acquisition, when combined with Horizonte Minerals’ existing Araguaia project “will create one of the largest saprolite nickel projects in the world” and add resources “with potential to provide ore grading 2% nickel for the first 10 years of mine life.”
• The additional resources to be acquired from Glencore amount to 105.1m tonnes of measured and indicated resources at an average grade of 1.33% nickel (cut-off grade of 0.9% nickel) more than double the overall measured and indicated resource of the existing Horizonte Minerals Araguaia resource which currently stands at 72m tonnes at 1.33% nickel using a 0.95% nickel cut-off.
• Horizonte Minerals’ pre-feasibility study for its own project envisaged a US$582m capital investment generating 15,000 tpa of nickel in ferro nickel at a cash cost of $4.16/lb through mining ore at a grade of 1.76% nickel over an initial 25 year mine life. The PFS economic analysis generated an after tax NPV of US$519m at an 8% discount rate and an after-tax IRR of 20% with project payback in 4.4 years. The PFS used a nickel price assumption of $19,000/t ($8.62/lb) compared to current prices of just under $10,000/t.
• The company has also announced that it has raised £1.55m at a price of 1p per share for general working capital purposes and to integrate the Glencore acquisition into a revised NI 43-101 resource estimate, an optimised mining schedule and additional economic and feasibility work.
Conclusion: The ability to provide high grade ore at 2% nickel during the first ten years of the project should enhance the economic viability of the Araguaia nickel project, particularly at lower nickel prices; we look forward to the revised feasibility study in due course.
Berkeley Energy (LON:BKY) 21.25 pence, Mkt Cap £38.3m – Further high grade results from Zona 7 drill programme.
• Berkeley Energy has now completed its infill drilling programme at the Zona 7 uranium deposit in the Salamanca Province of western Spain.
• The programme, comprising 90 drill hole Totalling 6,226 metres of drilling was aimed at upgrading the existing inferred resource at Zona 7 (23.2m tonnes at an average grade of 589ppm or 0.059% U3O8) into the indicated classification which would allow it to be incorporated into a formal pre-feasibility study (PFS).
• The planned PFS “will enable the overall economics of the project to be reported for the first time.”
• The latest drilling results “have confirmed the overall continuity of the mineralisation and have reported significantly higher grades.”
• Among the higher grade intersections reported today are 10 individual intersections ranging between 10 and 52 metres thick with grades in excess of 1000 ppm (0.1%) U3O8, including 13 metres averaging 8,543ppm from a depth of 8m in hole Z7R-204 and 52metres averaging 1,909 ppm from a depth of 9m in hole Z7R-205.
• Results of this tenor have the potential to increase the overall grade of the renewed mineral resource estimate which is expected imminently.
Conclusion: The recent drilling at Zona 7 has demonstrated the continuity of shallow high grade mineralisation which may well leapfrog development of Zona 7 ahead of the Retortillo and Alameda deposits in Berkeley Energy’s Salamanca Uranium Project. Zona 7 lies within 10km of the proposed processing plant where the permitting process is already underway. We look forward to the forthcoming PFS and an insight into the project economics.
Goldplat (LON:GDP) 3.4 pence, Mkt Cap £5.7m – Final Results for year end 30 June 2015
• Goldplat reported an operating loss of £711,000 for the full year against an operating loss of £155,000 for last year.
• The second half of the year saw the company return to profitability after a first half loss of £826,000.
• Cash at the end of the period stood at £630,000.
• Total gold recovered over the period stood at 30,524 oz against 30,977 oz for 2014 with the recovery operations accounting for 28,246 oz.
• South African Recovery Operations – GPL accounted for the majority of the gold produced and sold over the period.
• Gold sold from GPL stood at 16,530 oz with gold produced of 22,135 oz.
• The company made good progress at GPL over the period to improve the plant, reduce cost and improve efficiency.
• Key operational improvements included the introduction of the use of liquid cyanide and also to build up in house elution capacity.
• Local procurement of liquid cyanide should help costs to improve further with the elution capacity countering the well flagged constraints of sending concentrates to Rand Refinery for processing.
• The elution capacity increased to 5 tpd with further initiatives being implemented to bring this up to 8 tpd.
• Rand Refinery is now accepting small batches from GPL and as announced previously GPL is treated a large batch of by product for Rand Refinery which should result in GPL earning treatment and refining charges from Rand Refinery.
• A number of steps are being undertaken to improve the efficiency of the circuits in the recovery operations with a new woodchip plant, a new pumping station for tailings retreatment and a new mill for the low grade circuit.
o Ghanaian Recovery Operations – at GRG production was much lower than last year reflecting the termination of the CIL operation, the toll treatment contract with Endeavour being put on hold and the backlog at Rand Refinery to treat concentrates.
o Gold production for GRG was 6,111 oz against 13,737 oz in FY 2014 with 2,578 oz sold against 12,623 oz in FY 2014.
o The CIL plant at GRG has been moved to Kilimapesa in Kenya, enabling potential to expand the currently operating spiralling and incinerator circuits.
o To further improve efficiency, one of the three 4t elution plants is to be moved and installed at GRG by Oct 2016.
o Kilimapesa – for the period 2,278 oz were produced and 2,073 oz sold.
o The current rate of production of production is around 2.700 pa at which rate the operation is said to be breaking even.
o A mine plan has been developed to ensure there is sufficient high grade ore with on reef development ongoing.
o Low grade ore is being stockpiled with high grade ore being hand sorted for processing.
o A new Adit has been cut and prepared for reef development.
o The company continue to look for partners for further development of the mine.
o GPL has been operating profitably since H2 2015 and GRG has returned to profitability.
Conclusion: This has been a difficult period for Goldplat with a number of operational improvements needed at GPL and operations curtailed at GRG. GPL now looks better placed to run recovery operations more efficiently and GRG is now said to be back in profits. A number of initiatives which are mainly self funded appear to be paying off. Operations particularly in South Africa now look on a better footing.
SP Angel acts as Nomad & Broker to Goldplat
Kefi Minerals* (LON:KEFI) 0.70 pence, Mkt Cap £12.2m – Company expect $120m Tulu Kapi funding to be expected at project level
• Kefi Minerals today report that management now expect the full $120m development funding for the Tulu Kapi gold project in Ethiopia to be covered at the project level.
• “A key component is the intended participation by the Government of Ethiopia, by funding up to $20m of infrastructure in exchange for an increased share of project equity”.
• Full funding may bring together project finance (bank debt), development finance, metal streaming and some equity funding. This finance will not be available for funding Kefi’s other projects in Saudi Arabia.
• Management are now looking to formally appoint contractors to build the recently enlarged mine plan. The plant is to be built on a fixed price basis
• Re-engineering of some elements of the project has cut capex to some $120m from $130m
• Gold production now estimated to be around 100,000ozpa over the life of the mine.
• Tulk Kapi NPV est. $147m assuming gold at $1,250/oz and a post-tax discount rate of 8%.
• Costs ‘AISC’ should fall further from est. $760/oz on the increased av. 100,000ozpa production schedule.
• The Executive Chairman at Kefi comments that the reduced level of debt makes the financial structure more conservative and this is more appropriate for some volatile times in capital markets,
Conclusion: Kefi is making good progress towards the completion of its financing and development of the Tulu Kapi project.
*SP Angel act as Nomad to Kefi Minerals. An SP Angel analyst has visited the Tulu Kapi mine site with Kefi Minerals.
Trans-Siberian Gold (LON:TSG) 9.25 pence, Mkt Cap £10.2m – Interim Results
• The company has reported earnings for the 6 months to 30th June 2015 of $1.275m reversing a loss of $3.06m in the six months to June 2014.
• Refined precious metal production rose by 8.6% to 17,746 oz of gold and by 5.4% to 23,420oz of silver.
• Cash costs fell by 40.6% to $489/oz, reflecting “the impact of the sUBStantial depreciation of the Russian rouble against the US dollar which commenced in the second half of 2014.”
• The company held $7.633m in cash at 30th June giving it net debt of $13.182m (31st Dec $18,186m) reducing gearing from 19.2% to 14.5% during the first half of 2015.