Small scale and artisanal miners stockpiling ores
• We are hearing reports of small scale and artisanal miners downing tools and stockpiling ores as metals prices fall
• The move may serve to help prices of certain commodities higher, particularly tin, tungsten, tantalum, cobalt and gold where there is significant small scale and artisanal activity
Saudi Arabia – When will fund redemptions caused by the Saudi Arabian Monetary Agency and other Middle Eastern funds end?
• News this week that SAMA had probably withdrawn some $50-70bn from a series of major investment funds including Blackrock has served to pull back markets
• We suspect there will be more fund redemptions to come particularly with oil prices continuing at low levels
• Families of victims of the crane collapse are due to receive R1m ($266k) each. Some 1,075 pilgrims are reported to have died in the Hajj crush with another 934 injured.
• Compensation claims are likely to be well over $300m particularly following stinging criticism from the Iranian government
Economic News
China – Consumer sentiment improves in Sep for the fourth consecutive time and reaches the highest level since May/14.
• The Westpac MNI China Consumer Sentiment: 118.2 v 116.5 in Aug.
• The increase comes amid an earlier rout in equity markets as well as deteriorating economic growth outlook.
• Westpac said that only 11% of respondents said they actually invested in the market.
• Official manufacturing PMI is due tomorrow with estimates for no change in the index (49.7 v 49.7 in Aug).
• Following official index release, a private gauge of the sector will be announced with estimates for a 47.0 reading.
Japan – A series of economic data released today came in significantly below expectations including weak industrial production and retail sales numbers.
• Industrial production: -0.5%mom/+0.2%yoy v -0.8%mom/0.0%yoy in Jul and +1.0%mom/+1.8%yoy forecast.
• Retail sales: 0.0%mom/+0.8%yoy v +1.4%mom/+1.8%yoy in Jul and +0.5%mom/1.2%yoy forecast.
• Should subdued economic conditions persist while inflation fails to pick up the BoJ may decide to add to its current stimulus
• Among other news, vehicle production contracted for the 14th consecutive month in Aug (-4.7%yoy v -5.9%yoy in Jul).
Germany – Retail sales disappoint while Sep inflation numbers come below zero.
• Retail sales: -0.4%mom/+2.5%yoy in Aug v +1.6%mom/+3.8%yoy in Jul and +0.2%mom/+3.3%yoy forecast.
• CPI: -0.3%mom/-0.2%yoy in Sep v 0.0%mom/+0.1%yoy in Aug and -0.1%mom/0.0%yoy forecast.
• The ECB Executive Board member said it was too early to discuss whether the central bank should take further actions to reach its 2% inflation target.
UK – Property prices climbed ahead of expectations in Sep marking the strongest increase since Apr led by gains in London and a general shortage of houses for sale.
• House prices increased 0.5%mom up from a 0.4%mom gain in Aug and +0.4%mom forecast.
• Prices were 3.8%yoy higher this month, up from +3.2%yoy recorded in Aug.
• The gap between London house prices and the rest of the UK has continued to widen and hit new high.
• A London property price is more than double the UK average and more than three times the price of the typical property in the cheapest region in the UK.
• “In recent months surveyors have reported historically low levels of properties for sale and increased new buyer enquiries,” Nationwide said.
• “Therefore it unsurprising that most surveyors expect a pickup in house price growth in the months ahead.”
Australia – Lower rates are translating into stonger lending numbers with borrowings by private customers being up 6.3%yoy in Aug.
• This was the fastest pace of growth since Jan/09.
• Lending had increased 6.1%yoy in Jul with estimates for a 6.2%yoy gain.
Peru – The government issued state of emergency in the southern Adneas region following a series of violent protests against the Las Bambas copper project that left three people dead.
• Protesters are reported to have broken into the area of the mine on Monday afternoon which resulted in clashes with the police.
• The MMG’s US$7.4bn Las Bambas project is currently in the construction stage with first concentrate production expected in Q1/16.
Currencies
US$1.1216/eur vs 1.1251/eur yesterday. Yen 120.22/$ vs 119.70/$. SAr 13.817/$ vs 14.050/$. Sterling $1.517/gbp vs 1.519/gbp
0.703/aud vs 0.697/aud
Commodity News
Precious metals:
Gold US$1,125/oz vs US$1,127/oz yesterday
Platinum US$926/oz vs US$903/oz yesterday
Palladium US$668/oz vs US$647/oz yesterday
Silver US$14.69/oz vs US$14.56/oz yesterday
Base metals:
Copper US$ 5,075/t vs US$4,954/t yesterday
• Collahuasi mine owned by a conglomerate including Anglo American, Glencore, Mitsui and Nippon will cut production by 30ktpa on lower copper prices.
• This accounts for c. 6% of the 470kt produced in 2014 and 530ktpa operations’ capacity.
• The restructuring “involves a reduction of operations, including the leaching plant and associated activities”.
• “Unfortunately, this decision means adjustments in the staff of the company”.
• More on cost optimisations among copper miners, Codelco said it will cut its executive staff by 16% to account for softer commodity prices.
• The decision will be effective from Nov 1.
Aluminium US$ 1,574/t vs US$1,556/t yesterday
Nickel US$ 10,030/t vs US$9,800/t yesterday
Zinc US$ 1,682/t vs US$1,626/t yesterday
Lead US$ 1,672/t vs US$1,655/t yesterday
Tin US$ 15,525/t vs US$15,475/t yesterday
Energy:
Oil US$48.2/bbl vs US$47.7/bbl yesterday
Natural Gas US$2.596/mmbtu vs US$2.669/mmbtu yesterday
Uranium US$36.65/lb vs US$36.75/lb yesterday
Bulk commodities:
Iron ore 62% Fe spot (cfr Tianjin) US$56.5/t vs US$56.6/t
Thermal coal (1st year forward cif ARA) US$48.90/t vs US$48.80/t
Other:
Tungsten - APT European prices $180/200 per mtu from $180/190 last week
• Vital Metal’s Watershed mine which has been evaluated in joint venture with JOGMEC, the Japanese state metals agency, has found no interest after JOGMEC’s search to bring in a Japanese partner to build the project. The move suggests Japanese industry is less worried about supply disruption out of China than it was probably due to increased exports out of China of raw materials as well as other goods.
Company News
Glencore (LON:GLEN) – 87 pence, Mkt Cap £12.5bn – Official statement ‘no covenants’ and ‘business remains operationally and financially robust’
• Glencore may move a bit faster next time to allay market fears about its debt levels.
• The fall in Glencore’s share price so soon after its $2.5bn placing suggested something more was potentially going on and short sellers wound the shares down to a low of 73 pence.
• Management’s short but strong statement “Our business remains operationally and financially robust - we have positive cash flow, good liquidity and absolutely no solvency issues.” Is a clear statement to the market that the company are in good shape.
• It is our view that many traders do not understand the nature of Glencore’s trading business. Glencore trades huge tonnages of physical commodities. It is a form of DHL within the commodity trading world.
• But it also adds value to many of its shipments by blending shipments of ore and concentrates to meet customer requirements.
• Don’t forget that customers deal with Glencore because they offer good prices, great service and the security of dealing with the world’s largest trading company. ‘No one ever got fired dealing with IBM!’.
• Risk: can Glencore suffer a VW / Gerald Ratner moment? There is always potential for any mining / trading company to be let down by a rogue trader but Rio Tinto and BHP have survived bribery and corruption scandals and we expect Glencore to have better controls in place.
• The Chinese hedge funds which bear raided the copper market wrong footing Glencore’s traders could catch Glencore out again but the copper division still made good money at the interim and the higher cost, loss making copper production is being closed and this business may perform better going forward despite lower current copper prices.
• “Glencore has no debt covenants and continues to retain strong lines of credit and secure access to funding thanks to long term relationships we have with the banks”
• We see further upside in Glencore’s shares.
Goldstone Resources (LON:GRL) 1.75 pence, Mkt Cap £1.1m – Interim results
• Goldstone Resources has reported a loss of $0.8m for the six months to 30th June 2015. The company points out, however, that “Goldstone is unusual in that it expenses its exploration costs and does not capitalise them as is common.”
• Exploration expenses amounted to $0.42m compared to $0.33m for the 10 month period ended in December 2014.
• We surmise that this rise in exploration expenditure, despite efforts to reduce overheads, is largely reflected in the activity at company’s flagship Akorokerri-Homase gold project in Ghana where Goldstone has able to increase its ownership to 90% (from 65%) for a modest $25,000.
• An auger drilling programme at Akrokerri-Homase indicated that there is a 1.5km long anomaly over an area known as AK02 as well as an additional 800km long gold anomaly at AK04 along a south western extension of the of the structural zone hosting the existing resource. The company is evaluating these results in order to identify prospective targets for follow up drilling.
• Cash balances at 30th June amount to $0.75m
Ormonde Mining (LON:ORM) 1.7 pence, £7.9m – Interims, Board and Management Appointments
• Steve Nicol the interim CEO is to take on the role of MD, Paul Carroll is appointed CFO, Jonathan Henry as NED and Mike Donoghue reverts to Non-Executive Chairman.
• Steve Nicol’s has been closely involved with Barruecopardo including heading all the technical aspects of the project, taking it through feasibility and permitting.
• Paul Carrol previously acted as Corporate Development Manager over the last three years and is a Chartered Accountant by background.
• Jonathan Henry who joins the board as NED has a background in tungsten through his previous roles at Avocet Mining at the time it owned the Panasqueira Tungsten Mine.
• The interims highlighted the progress in securing permitting and financing for Barruecopardo.
• Since financial close in June, the first tranche of US$25m has been drawn down and provided to Saloro from the Oaktree Financing package.
• Fairport Engineering is now working on the second stage of engineering for the project including tendering for priority equipment for the proceesing plant.
• Secondary licences such as Council Building permits, urban planning approvals and a water use licence are currently being processed.
• Land access including expropriation where relevant is being put into place.
• For the period the company reported a profit of €2.56m based on the part disposal of Saloro for €3.4m.
• Cash and cash equivalent stood at €1.171m at the end of the period.
Conclusion: Management changes are as expected following the sad death of Kerr Anderson. Steve Nicol has been a driving force for the Barrucopardo project and is well placed to take the project through the development process. All the foundations in terms of final licences, engineering work, securing land are being put into place.
The tungsten price has been weak almost halving driving North American Tungsten one of the largest producers to Chapter 11. NAT’s with assets are up for sale. NAT’s mine Cantung if taken offline takes 275,000 mtus out of the market at a time when Hemerdon comes on. While clarity on demand remains weak, the supply and demand balances for tungsten are still expected to support a recovery in prices. With the construction period expected to take around18 months, Ormonde is well placed to bring Barruecopardo into production at a time when the backdrop for tungsten prices should be better.
*SP Angel act as broker to Ormonde Mining
Paragon Diamonds (LON:PRG) 4.8 pence, Mkt Cap £13.4m – Interims
• Interims highlight ongoing discussions on the acquisition of Mothae and project objectives for Lemphane.
• The company is looking to conclude funding for both projects.
• The company is extending a loan facility of £500,000 due on 30th September until the 7th October with a further option to extend this to the 14th October.
• For the period the company reported an operating loss of £0.5m and had cash of £0.4m at the end of the period.
Conclusion: We look forward to hearing shortly where financing stands with both Mothae and Lemphane – with a loan payment being extended for a short period things look tight.
Rio Tinto (LON:RIO) 2187 pence, Mkt Cap £40.2bn – Sale of Interest in Bengalla JV for US$606m
• Rio has agreed to the sale of Bengalla JV in Australia to New Hope for US$606m.
• The final price will be subject to net debt and working capital adjustments.
• Bengalla is the smallest of the three coal mines in Hunter Valley production 8.6 Mt.
• Close of sale is expected in the first quarter of 2016.
Conclusion: Reducing exposure to thermal coal looks like a good move for Rio.
Savannah Resources (LON:SAV) 1.825 pence, mkt Cap £4.6m – Interim Results
• Savannah Resources has reported a reduced H1 loss of £1.6m for the six months to June 2015 (2014 – loss of $2.7m).
• At the operating level, Savannah posted a loss of £1.01m, including a realised loss of £0.28m on the sale of shares in Alecto (2014 - loss of £0.92m)
• Cash balances at 30th June were £0.4m.
• As previously reported, the company has identified a number of promising exploration targets in Oman and has also reached an agreement with Rio Tinto on the combination of its Jangamo mineral sands project with Rio Tinto’s Mutamba project in Mozambique where Savannah will act as operator of an unincorporated joint-venture, with Savannah earning a 51% interest in the combined entity.
Conclusion: Despite losses and write –offs on its 18.6% holding in Alecto, Savannah Resources appears has reported reduced losses in a period when it has identified further copper exploration targets in Oman and conclude a deal with Rio Tinto on mineral sands in Mozambique. The company has a modest cash balance of £0.4m and we imagine that it will have to make some difficult decisions on which targets justify funds for follow up work.
Tri-Star Resources (LON:TSTR) 0.14 pence, Mkt Cap £11.8m – Appointment of Project Manager for Antimony Roaster
• Mr Robin McNaughton has been appointed as Project Manager for the construction of the antimony roaster.
• He brings experience in delivering projects working within project teams at Rio Tinto and Bechtel.
• He brings experience of working in the Middle East and has worked in engineering and management roles for some of the largest aluminium smelters and refineries.
• He started his career with Alcoa, is a Mechanical Engineer by background and earned his Six Sigma Green Belt with Rio Tinto Alcan in 2005.
Conclusion: It is good to see a solid recruit to head the project management of the antimony roaster project. We look forward to news flow as the roaster moves into construction phase.
*SP Angel acts as Nomad and Broker to Tri-Star Resources
Zanaga Resources (LON:ZIOC) 2.2 pence, Mkt Cap £6m – Interims
• The company had cash balances of US$9.7mm at the end of June.
• A work programme and budget of US$8.8m was agreed between the two partners for 2015.
• Zanaga are contributing US$2.5m plus an amount equal to 50% of the management team costs estimated to be US$0.9m.
• Cash reserves are said to be sufficient to support the budgeted project costs.
• Discussions have started to find potential power developers for the transmission and generation of 100 MW.
Conclusion: Against the current iron ore price environment the partners are spending the minimum to keep the project afloat but putting into place the groundwork on power and port which will be crucial should iron prices improve sufficiently to make the project viable.
ZincOx Resources (LON:ZOX) 8 pence, Mkt Cap £15.2m – Moving to positive EBITDA as Korean plant moves close to design capacity
• ZincOx reports that it has generated a positive EBITDA of $0.8m during the first six months of 2015. This reverses a negative EBITDA of $3.9m in H1 2014 and reflects a number of important improvements in the operation of the Korean zinc recycling plant (KRP) which is currently operating at over 90% of monthly target capacity of 17,500tpm.
• The Korean plant is also now achieving 90% recovery rates for zinc and the company is “increasingly confident that the plant can operate at full nameplate capacity of 200,000 tonnes per annum”.
• Revenues of $22.7m are some 27% higher than in 2014 reflecting the pick up in production levels offset to some extent by falls in the zinc price.
• The company has also been adversely effected by the depreciation of the Korean Won against the US$ which generated a $1.2m currency loss and overall ZincOx reports a net loss of $6.2m (2014 $7.6m)
• The company has been constrained to some extent by the availability of Electric Arc Furnace Dust (EAFD) feedstock in Korea and ZincOx has now secured the agreement of the Korean Government to import up to 48,000 tonnes per year of EAFD with effect from the start of October.
• This additional source of feedstock, coupled with the levels of Korean-sourced material built up during shutdowns for planned maintenance should ensure that the supply constraints on EAFD have now been addressed.
• As previously reported, the KRP had been experiencing operational problems with heat exchangers which required the plant to be shut down at regular intervals for maintenance. The company is now removing the heat exchangers and this is an important factor in the improvement in throughput rates albeit at a cost in terms of increased energy requirements, which are being offset by the introduction of coal briquettes.
• In August, ZincOx raised an additional £3.1m which is intended to “allow us to press ahead with the pre-development work for the next project and so begin to unlock the full potential of the rotary hearth furnace technology.”
Conclusion: ZincOx has persevered with the KRP and has now developed the technical know-how and operating expertise to start looking for the next project to rollout the technology