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Rare Earths prices start to recover in China
• Metal-Pages report rising prices for Rare Earth Elements in China with Gadolinium prices rising on tight supply.
• A decline in spot cargos is also reported to be raising prices for Praseodymium and Neodymium oxide.
• The Shanghai contract price index for Neodymium oxide is now at Rmb 0.248m up from Rmb 0.224m in August
• The index of REE equities in China is rising on the Shanghai market according to Bloomberg data indicating that the worst may be over for REE prices
• Recent low price levels have disrupted supply cutting production and sending some miners like Tantalus which has just applied for insolvency to the wall.
• The sale of REE stocks in China which were used for ‘irregular’ financing schemes caused REE prices to crash earlier this year as financing schemes offering guaranteed annual returns collapsed with the pull back in REE prices. The collapse of these schemes is thought to have forced the sudden sale of some REE stock into the market.
o Praseodymium is mainly used as an alloying agent with magnesium for aircraft engines.
o Neodymium is best known for its use in improving the strength of permanent magnets, eg in Dyson hand-held vacuum cleaners and EV and hybrid cars.
Nigeria – President Buhari asks head of Nigeria’s largest private equity firm to join cabinet
• Mr Enelamah, formerly at Goldman Sachs, founded and runs African Capital Alliance. and has raised over US$750million in managed funds founding the fund in 1997
Back to the Future day today
• The film ‘Back to the Future’ transported its two stars back to the future of 21 October 2015 – eg today
• The film predicted technology innovations, like drones, fingerprint recognition, videoconferencing and electric cars.
Glencore – Chinese buyers reported to be looking at Glencore Cobar copper mine in Australia
Economic News
US – a mixed set of property statistics released in the US yesterday.
• Housing starts recovered more than forecast marking the second best reading in nearly a decade.
• In total, starts are 12%yoy higher in the first nine months of the year compared to 2014.
• On a less positive note, building permits, indicators of future construction activity, surprisingly recorded a monthly decline.
Date Announcement Period Actual Expected (Bloomberg) Prev month
Tuesday Housing starts Sep 6.5%mom 1.4%mom 1.7%mom (rev from -3.0%mom)
Building permits Sep -5.0%mom 0.8%mom 2.7%mom (rev from 3.5%mom)
Thursday Weekly jobless claims weekly 265k 255k
Existing home sales Sep 1.5%mom -4.8%mom
Friday Markit Manufacturing PMI Oct (prelim) 52.7 53.1
Japan – The nation recorded a sixth consecutive monthly trade deficit on the back of weak exports.
• The gap came in at -¥114.5bn v a ¥87bn surplus forecast.
• Exports climbed 0.6%mom compared to a 3.8%yoy increase forecast.
• Poor overseas shipments are attributed to weak demand in Asian destinations (China -3.5%yoy; Asia, in general, -0.9%yoy).
Eurozone – The ECB QE programme may be finally filtering through the economy in the form of improved bank lending.
• “[QE] had a net easing impact on credit standards and particularly credit terms and conditions… The easing impact was greatest for loans to enterprises,” the ECB said.
• While loan terms eased for enterprises, banks are reported to have toughened their requirements for loans to households.
UK/China – Two countries are expected to sign a series of business deals today, the second day of President Xi Jinping’s visit to Britain.
• Chinese investors are expected to take a one-third stake in the £24bn Hinkley Point nuclear power plant project.
• BP and Chinese CNPC are likely to sign an agreement to develop new projects in China and worldwide.
• On a more delicate issue, David Cameron is planning to discuss issues with increased flow of cheap steel in the EU that undercuts local production.
• In particular, Tata Steel, a Britain’s biggest steelmaker, recently announced it will cut 1,200 jobs at its plants in northern England and Scotland blaming a “flood of cheap imports” particularly from China.
• Earlier this year British PM supported the EU wide anti-dumping tariffs imposed on Chinese imports.
Iraq – The IMF considers offering an emergency funding package to Iraq to help repair government finances and improve investors’ confidence should authorities target bond markets for capital in the future.
• The nation has recently scrapped a US$2bn international bonds issue due to high yields demanded by markets.
• The new IMF loan is expected to be a “multiple” of the US$1.2bn in funding agreed by the IMF in Jul this year.
• Authorities are reported to be running a US$25bn budget deficit per annum.
Currencies
US$1.1349/eur vs 1.1351/eur yesterday. Yen 119.99/$ vs 119.53/$. SAr 13.372/$ vs 13.261/$. Sterling $1.544/gBP vs 1.548/gBP
0.722/aud vs 0.727/aud –
Commodity News
Precious metals:
Gold US$1,176/oz vs US$1,173/oz yesterday –
Platinum US$1,013/oz vs US$1,008/oz yesterday
Palladium US$682/oz vs US$682/oz yesterday – Swiss palladium imports fall to lowest level since 2008 (Reuters)
Silver US$15.80/oz vs US$15.85/oz yesterday
Base metals:
Copper US$ 5,173/t vs US$5,182/t yesterday –
Aluminium US$ 1,524/t vs US$1,534/t yesterday -
Nickel US$ 10,340/t vs US$10,330/t yesterday –
Zinc US$ 1,761/t vs US$1,773/t yesterday –
Lead US$ 1,762/t vs US$1,781/t yesterday
Tin US$ 15,875/t vs US$15,930/t yesterday
Energy:
Oil US$48.30/bbl vs US$48.30/bbl yesterday – Natural decline rates in oil production run at between 8-10%pa without investment.
• Oil field recoverable rates fall to around 30% of the total estimated field recovery without investment
• Investment requires around 3-10% of installed cost to maintain recoverability rates
Conclusion: A lack of investment combined with production issues should cause supply to fall to rebalance the market within the next few years
Natural Gas US$2.430/mmbtu vs US$2.454/mmbtu yesterday
Uranium US$37.65/lb unch vs US$37.65/lb yesterday –
Bulk commodities:
Iron ore 62% Fe spot (cfr Tianjin) US$53.9/t vs US$53.0/t –
Thermal coal (1st year forward cif ARA) US$47.50/t vs US$47.50/t
Other:
Tungsten - APT European prices $175/195 /mtu vs $180/200 /mtu – 1/3rd of Chinese production is thought to have been shut with remaining production around $170/mtu
• The market is still working through tungsten and other minor metal stocks held on the Fanya Exchange and used for financing purposes
Ferrochrome – Benchmark charge chrome price for delivery in Europe at US$1.04/lb its lowest level since Q1/10.
Company News
Base Resources (LON:BSE) 3.125 pence, Mkt Cap £17.6m – Quarterly activities report
• Tonnage mined over the quarter remained steady at 2.3 Mt with average grades of heavy mineral (HM) increased to 9.7%.
• The Wet Concentrator Plant performed well with availabilities of 90.2% for the quarter against 89.2% in the previous quarter.
• This resulted in HMC production increasing to 210 kt against 206 kt in the previous quarter.
• Closing stocks of HMC increased to 154 kt from 114 kt in the June quarter.
• For the next quarter production is expected to drop as mining moves to area of the ore body with lower grades.
• Throughput in the Mineral Separation Plant was maintained at 170 kt with availability of 94% and feed rate of 82 tph.
• Rutile production for the quarter was 20.9 kt representing an increase of 7% due to higher average MSP recoveries of 104%.
• Adjusting for re-treat gains, rutile recoveries increased by 1% this quarter to 97%.
• Adding further magnet stages are expected to keep recoveries high for rutile.
• Ilmenite production increased by 2% to 116 kt.
• Zircon production improved during the quarter to 6,546t.
• A wet zircon pumping station was commissioned in August with further improvements made to the primary magnet separation capacity.
• Cash operating costs for the quarter including royalties stood at US$13.6m in line with the prior quarter.
• Operating cost per tonne for all three streams stood at US$95 compared to US$97/t in the previous quarter.
• Demand remains weak in mineral sands products with the global TiO2 pigment industry experiencing a slowdown through September.
• Both volumes and prices fell through the quarter.
• The company is in the process of refinancing its debt of US$224m.
• Cash and cash equivalents stand at A$58.4m with a restricted portion of A$7.2m.
Conclusion: Operationally Base continue to perform well with good recoveries coming through on rutile. However, under a background of depressed prices we wonder if the current debt level is sustainable. The company are currently refinancing their debt and we look forward to hearing the updated terms and the degree of flexibility in paying down debt.
Lonmin (LON:LMI) 30.3 pence, Mkt Cap £177.5m – Trading, Financing and Strategy Update
• The company plan to raise US$400m through a rights issue and intend to restructure debt facilities of US$370m maturing in May 2020.
• The terms of the rights issue will be made known and underwritten on Nov 9th.
• R800m is to be used to restructure the business that is expected to affect 6,000 jobs by Sept next year.
• Lonmin’s sales for this year exceeded its guidance for the year with sales of 751,560 oz compared to forecast guidance of 730,000 oz.
• Mined production was around 704,000 platinum oz taking into account 48,000 oz of Section 52 safety stoppages.
• The unit cost of production per PGM oz is expected to be Zar 10,339/oz or US$772/oz.
• The company has undertaken a business review to continue to cut costs.
• Capex is to be limited to maintain safety standards and essential sustaining capex in the continuing shafts – this is expected to be US$132m, US$110m and US$188m for the next three financial years.
• The company plan to put high cost shafts under care and maintenance - this will include Newman, Hossy and 1B shaft with the K4 shaft remaining on care and maintenance.
• This will result in oz falling to 700,000 oz for FY 2016 and 650,000 oz for the subsequent two years.
• Overhead and support service structures will be streamlined.
Conclusion: Under the constraints of the industry they face Lonmin are trying to do their best. It is hard to make an investment case for the shares unless you believe in the potential for a strong recovery in PGM prices. Cutting out unprofitable oz by 100,000 oz from FY 2017 would only take out around 2% of supply and by itself is unlikely to impact supply/demand balances unless deficits widen significantly from here.
Metminco (LON:MNC) 0.29 pence, Mkt Cap £7.7m – Los Calatos Update
• The company have appointed the LinQ group on options for the Los Calatos project.
• This follows interest in a number of groups in the project post the publication of the recent Strategic Mining Study.
Ortac Resources* (LON:OTC) – Placing results
• SP Angel have raised £400,000 for Ortac Resources through the placing of 800m new shares at 0.05 pence per share.
• Funds are to be used to develop the portfolio of existing mineral projects and for working capital.
• The company holds convertible loan notes representing a 20% interest in Zamsort a copper miner with significant exploration licenses in Zambia.
• Ortac also holds an additional loan note with if converted would give Ortac a further 19.35% in Zamsort to take its stake to 39.35%.
• Ortac increased its ownership in Andiamo Exploration from 18% to 25% earlier this year. Andiamo is working towards a JORC resource on its Yacob Dewar project in Eritrea.
• Ortac has slowed progress at its Sturec gold project in Slovakia due to permitting issues.
Conclusion: The injection of new funds should enable Ortac to make further progress with Zamsort and Andiamo
*SP Angel acts as Nomad and broker to Ortac Resources
Serabi Gold (LON:SRB) 3.75 pence, Mkt Cap £24.6m – Sao Chico drilling update
• The company report results from a 5,000m 35 hole drill programme at the Sao Chico mine.
• The programme is aiming to rest strike and depth extensions of the main Sao Chico main vein.
• A number narrow but high grade intersections have been found.
• The results with the ongoing underground mine development is providing a better understanding of the gold mineralisation at Sao Chico.
• While the high grade mineralisation is hosted in 2 to 8m wide alteration zones which are visually identifiable, the high grade zones within this are less clear.
• This will result in a requirement for on-lode development at regular intervals with on-going channel sampling and infill drilling between levels to define the gold mineralisation.
Conclusion: Based on the nature of the high grade mineralised zones within the orebody the drill programme now needs to be focussed on more infill drilling – this will result in a delay to he planned mineral resource update to 2016.
shares in the companies mentioned in this note.