Gold prices hold gains following jump on Friday on much weaker US jobs report as market sees further delay in US rate rise beyond December
Gold prices rose by $25/oz in the 15 minutes on Friday after the release of dramatically worse US jobs numbers.
The data indicates a downturn in US recruitment and indicates a potential downturn in industrial activity and expectations.
The fall in new US job creation indicates to us the impact of rising exports out of China in
Diesel emissions - If government officials are so bothered about the health impact from diesel emissions
Then why don’t they simply ban all busses, diesel taxis, white vans and lorries from our roads
Commercial vehicles account for the vast proportion of diesel emissions on London’s streets
Zambia – power restrictions cause copper producers to cut production
The power crisis in Southern Africa is worsening with poor management of hydropower at Kafue and Cahora Bassa now resulting in power restrictions to industrial consumers in Zambia.
Rolling blackouts are lasting as long as 14 hours a day for grid power consumers
Power levels at Lake Kariba are now down to 30% of normal water levels
The Zambian kwacha has fallen 48% against the US dollar so far this year on lower copper prices and falling copper production levels.
Economic News
US – Dollar fell helping USD-denominated gold on Friday as a disappointing set of employment and factory orders data.
China – Markets remain closed through Oct 7 as the nation celebrates a week long holiday.
Typhoons and tornadoes in Guangdong China kill three
The tornadoes turned over some structures and toppled cranes.
Japan – Wages growth slowed down in Aug highlighting challenges for the BoJ to take the inflation rate towards the 2% target.
Lower bonuses are reported to have accounted for poor earnings growth as they increased 0.6%yoy during the month versus +1.7%yoy in Jul.
Labour cash earnings: +0.5%yoy v +0.9%yoy in Jul and +0.6%yoy forecast.
A separate report showed services sector growth came down in Sep as measured by the PMI index (51.4 in Sep v 52.9 in Aug).
Eurozone – Composite PMI has been downgraded from preliminary estimates on weaker data from Germany, Spain and Italy.
Markit Composite PMI: 53.6 in Sep v 53.9 estimated previously and 54.3 in Aug.
“The weakening of the pace of expansion in Sep raises the risk of growth fading further in the fourth quarter, which would in turn boost the likelihood of the ECB opening the QE taps further,” Markit said.
Australia – Inflation accelerated to the highest level in 10 months as weaker Aussie dollar increased prices for imported goods.
CPI climbed 1.9%yoy last month compared with a 1.7%yoy increase in Aug.
Spain – Sovereign credit rating was upgraded to BBB+ from BBB as S&P expects the government to improve the budget position on the back of a sustained economic expansion.
Currencies
US$1.1257/eur vs 1.1165/eur yesterday. Yen 120.18/$ vs 120.14/$. SAr 13.6301/$ vs 13.9131/$. Sterling $1.518/gbp vs 1.515/gbp
0.709/aud vs 0.704/aud – Rand close to 14 to the USD
Commodity News
Precious metals:
Gold US$1,136/oz vs US$1,108/oz yesterday – It has been reported that South Africa’s National Union of Mineworkers (NUM) has accepted the latest pay offer by gold producers.
The agreement, which covers a three year period is reported to represent an increase of between 26.5% to 32% by the end of the third year.
The NUM represents around 50% of the workforce in the gold industry.
It is not yet clear if the other major union, the Association of Mineworkers and Construction Union (AMCU), which represents around 30% of the workforce, has also accepted the offer.
The NUM union agreement is with AngloGold Ashanti and Harmony Gold.
Harmony Gold reached a three-year agreement with the National Union of Mineworkers, UASA and Solidarity.
The new contract is effective since Jul/15 and includes a 6-10%pa increases in pays for miners, artisans and officials.
While the AMCU rejected the offer, with the majority of employees agreeing to the deal the agreement will be extended to all employees.
Market estimates suggest that nearly 50% of currently operating gold mines in South Africa are either marginally profitable or loss making at current commodity prices.
Platinum US$922/oz vs US$898/oz yesterday
Palladium US$711/oz vs US$692/oz yesterday
Silver US$15.33/oz vs US$14.48/oz yesterday
Base metals:
Copper US$ 5,174/t vs US$5,103/t yesterday –
Aluminium US$ 1,568/t vs US$1,568/t yesterday
Nickel US$ 10,030/t vs US$10,025/t yesterday
Zinc US$ 1,693/t vs US$1,678/t yesterday
Lead US$ 1,646/t vs US$1,638/t yesterday
Tin US$ 15,500/t vs US$15,525/t yesterday
Energy:
Oil US$48.70/bbl vs US$48.10/bbl yesterday
Natural Gas US$2.464/mmbtu vs US$2.427/mmbtu yesterday
Uranium US$36.80/lb vs US$36.45/lb yesterday –
Bulk commodities:
Iron ore 62% Fe spot (cfr Tianjin) US$52.8/t unch vs US$52.8/t – price is trading but maybe less movement due to Chinese holiday
Thermal coal (1st year forward cif ARA) US$48.60/t vs US$47.90/t
Over 30,000 NUM members are expected to down tools and participate in a walk out at South Africa’s coal mining operations this week.
NUM demands a 14% increase in wages for miners and officials plus a 13-14% increase in pay for the lowest-paid workers.
This compares to 8% offered by coal companies.
Other:
Tungsten - APT European prices $180/200 per mtu from $180/190 last week – unchanged
Ferrochrome – Benchmark charge chrome price for delivery in Europe fell 4c to US$1.04/lb last week marking the lowest reading since Q1/10.
In addition, producers and consumers are reported to have widened a discount to the benchmark to as much as 30% in separate cases.
The benchmark is set for Q4/15 deliveries.
Company News
Central Asia Metals (LON:CAML) 155 pence, Mkt Cap £173.1m – Q3 Production
Central Asia Metals reports that copper production for the September quarter amounted to 2,966 tonnes; an 11% decline on Q3 2014. Year to date copper production of 8,410 tonnes of copper is, however, broadly in line with 2014 and the company maintains its production guidance of 12,000 tonnes for 2015.
The reduction in Q3 output reflects an incident in June where a large amount of organic inventory from the solvent extraction section was lost to the dumps.
The Kounrad plant is reported to have achieved record production of 1,216 tonnes of copper in September and if this rate can be maintained through the final quarter the company will meet its 12,000 tonnes target for the year.
The company points out that 30th September marked the 5th anniversary of its admission to AIM and that over that period it has constructed the Kounrad plant “and produced over 36,000 tonnes of copper at an average C1 cost of $0.72/pound.”
Conclusion: The company has recovered from the setback at Kounrad in June and with record production in September is maintaining its production guidance for 2015.
Gemfields (LON:GEM) 57 pence, Mkt Cap £307m – Unique Play in Coloured Gemstones
We have published an initiation note on Gemfields today
We like the investment case for Gemfields which is supported by fundamental valuation based on a SOTP basis:
The valuation of the upstream businesses at Kagem (Emeralds) and Montepuez (Rubies) are the key drivers of value for the group.
Kagem and Montepuez see sustainable EBITDA margins of 40-45%.
We value the group on a sum of the parts basis – we value Kagem and Montepuez on a NPV basis of US$317m and US$595m respectively with Gemfields share at US$684m.
Faberge remains loss making – we value this at 2.5 x sales or US$31m. Faberge has a BV of US$40m with inventories of US$36m.
The SOTP value for the business if US$684m or £452m ($/£ 1.51) which includes cash of US$40m which gives a per share value of 82 pence a share
Headwinds in the luxury goods and diamond sector could impact appetite for luxury goods plays and hold back shares.
Outperformance by the shares relative to the sector could see a better entry point with premium rating making it vulnerable to any slips in operational performance.
Results for FY 2015 see earnings fall with recovery in FY 2016 as emerald auctions return to a two high value two low value cycle – growth now premised on volume not prices.
Glencore (LON:GLEN) – 99.5 pence, Mkt Cap £14.3bn – stock trades up in Hong Kong overnight
Glencore stock was highly volatile in trading in Hong Kong overnight. The stock rose 71.6% at one stage but settled back to record a gain of 18% in HK on the day
9.7m shares traded through the day representing around 6% of an average trading day in London
Glencore reported to the London Stock Exchange that the directors are not aware of any reason for these price and volume movements
We reckon rumours of a potential takeover may stem from talks relating to the sale of an equity stake in Glencore’s Agriculture business
Question is who might have the funds to buy part or all of the Agriculture business.
A potential sale to a Middle Eastern Sovereign Wealth fund may struggle to complete as such funds are reported to be selling units in equity funds in London. The funds are suffering from lower oil prices.
Officials are reported to be working towards the sale of Glencore’s metal-by-products business in Peru in a potential >$1bn deal
The company are also looking to refinance production using streaming agreements where future metal production is committed for sale at a discount to the price at the time of production / sale.
Kefi Minerals* (LON:KEFI) 0.475 pence, Mkt Cap £8.3m – Progress report on Jibal Outman
Kefi Minerals reports that it has completed approximately 75% of its infill drilling programme at its Jibal Outman joint-venture project in Saudi Arabia. The programme is aimed at upgrading the existing inferred portion of the resource (28.4mt at an average grade of 0.8 g/t gold of which around 68% is already classed as indicated).
Kefi Minerals is aiming to develop Jibal Outman as a low capex open-pit, heap leach project processing oxide gold ores. Recently completed metallurgical test work has improved recoveries to an average of 73% compared to earlier recovery rates of 69%.
The drilling and metallurgical testing is part of a programme of work to prepare the relevant technical studies to support a mining licence application for Jibal Outman which the company plans to develop after its Tulu Kapi Gold Project in Ethiopia.
In addition to the infill resource drilling at Jibal Outman, the company has identified further gold mineralisation at prospects in the vicinity known as 4K Hill, 3K Hill, Pyrite Hill, Main, West and South Zones.
The company will shortly transfer the focus of its drilling programmes in Saudi Arabia to the 6km long Hawiah gold mineralised gossan and its underlying copper gold zinc massive sulphide target which has been identidfied by geophysical surveys.
Conclusion: Kefi Minerals is focussing on the project development and financing of its Tulu Kapi gold project in Ethiopia but it is encouraging to see that it is also working to build a pipeline of projects through its joint-venture in Saudi Arabia.
*SP Angel act as Nomad to Kefi Minerals.