Economic News
US – A series of weak economic news released yesterday point to a slowing growth momentum in Q3/15.
• Retail sales and capital goods orders, a proxy for business investment, both declined for another consecutive month led by stronger dollar and softer global demand.
• Weaker data comes on top of soft trade, retail sales and industrial production released earlier.
• Services sector continued to grow in Oct albeit at a slower pace.
• House prices ticked up in Aug (on mom basis) coming in line with expectations.
• Economic news this week:
Date Announcement Period Actual Expected (Bloomberg) Prev month
Monday New home sales Sep -11.5%mom -0.6%mom 5.2%mom (rev from 5.7%)
Tuesday Durable Goods (Core) Sep -1.2%mom (-0.4%mom) -1.5%mom (0.0%mom) -3.0%mom (-0.9%mom)
Non-def Capital Goods Orders ex Air Sep -0.3%mom 0.2%mom -1.6%mom
House prices S&P/CS Aug 0.1%mom/5.1%yoy 0.1%mom/5.1%yoy -0.2%mom/5.0%yoy
Markit Services PMI Oct (prelim) 54.4 55.5 55.1
Wednesday FOMC statement 0.0-0.25% 0.0-0.25%
Thursday Weekly jobless claims weekly 264k 259k
Advance GDP Q3 1.5%qoq (annualised) 3.9%qoq
Advance Core PCE Q3 1.4%qoq (annualised) 1.9%qoq
Friday Personal Spending Sep 0.2%mom 0.4%mom
PCE Deflator (Core) Sep 0.2%yoy (1.4%yoy) 0.3%yoy (1.3%yoy)
China – Consumer sentiment hit a record low in eight years of data in Oct on Westpac MNI China index.
• The index fell to 109.7 from 118.2 in Sep with the outlook over the coming year hit the hardest (-10.3%mom).
• Current and expected measures of household finances have also registered a decline (-5.3%mom and -7.3%mom, respectively).
Australia – Weaker than forecast inflation numbers see the currency lower.
• Inflation slowed in Q3/15 taking the measure closer to the lowest bound of the RBA target 2-3% range.
• CPI trimmed mean (RBA preferred measure of inflation): 0.3%qoq/2.1%yoy v 0.6%qoq/2.2%yoy in Q2/15 and 0.5%qoq/2.4%yoy forecast.
• That was the lowest trimmed mean CPI reading since Jun/12.
• CPI: 0.5%qoq/1.5%yoy v 0.7%qoq/1.5%yoy in Q2/15 and 0.7%qoq/1.7%yoy forecast.
• The Australian dollar fell as low as 0.7115 from 0.7186 following the release of the data.
• Markets now expect the RBA to announce another rate cut during the Nov meeting.
Japan – Retail sales released this morning disappointed pointing to a weakening consumption trend in the economy.
• Sales: 0.7%mom/-0.2%yoy in Sep v 0.0%mom/0.8%yoy in Aug and 1.1%mom/0.4%yoy forecast.
• The BoJ is due to release the monetary policy statement on Friday along with the new economic and inflation forecasts.
• There are increasing expectations over a possible expansion of the current monetary stimulus.
Currencies
US$1.1049/eur vs 1.1046/eur yesterday. Yen 120.35/$ vs 121.46/$. SAr 13.608/$ vs 13.672/$. Sterling $1.533/gbp vs 1.533/gbp
0.713/aud vs 0.724/aud –
Commodity News
Precious metals:
Gold US$1,172/oz vs US$1,166/oz yesterday –
Platinum US$996/oz vs US$990/oz yesterday
Palladium US$684/oz vs US$680/oz yesterday –
Silver US$15.97/oz vs US$15.92/oz yesterday
Base metals:
Copper US$ 5,185/t vs US$5,221/t yesterday – Copper production in Peru rose 41%yoy in Sep driven by gains at major mines including Antamina, Cerro Verde and Antapaccay.
• Peruvian production was 148.2kt in September up 16.4%yoy at 1.2mt in the first nine months of the year.
Aluminium US$ 1,473/t vs US$1,489/t yesterday - Rusal reported a 1.4%yo increase in production in Q1-Q3/15 while reiterating its plans to cut capacities by another 200ktpa.
• The Company is not planning to restart any of its idled capacities.
Nickel US$ 10,495/t vs US$10,525/t yesterday –
Zinc US$ 1,731/t vs US$1,754/t yesterday –
Lead US$ 1,738t vs US$1,759/t yesterday
Tin US$ 15,200/t vs US$15,435/t yesterday
Energy:
Oil US$47.30/bbl unch vs US$47.40/bbl yesterday –
Natural Gas US$2.096/mmbtu vs US$2.004/mmbtu yesterday
Uranium US$36.05/lb unch vs US$36.50/lb yesterday –
Bulk commodities:
Iron ore 62% Fe spot (cfr Tianjin) US$53.4/t vs US$53.4/t –
Steel – Steel industry is suffering from rapidly contracting demand, slow pace of production cuts and rising cost of credit, according to the China Iron & Steel Association.
• “Production cuts are slower than the contraction in demand, therefore oversupply is worsening,” the CISA said.
• “China’s steel demand evaporated at unprecedented speed as the nation’s economic growth slowed.”
• Crude steel production is down 2.1%yoy at 609mt in the first nine months of the year with producers raising overseas shipments amid waning local demand.
• Exports are up 27%yoy at 83.1mt.
• Earlier estimates released by Shanghai Baosteel Group suggested Chinese Steel production may eventually shrink 20% as part of the adjustment to softer economic growth rates in China.
Thermal coal (1st year forward cif ARA) US$47.60/t vs US$47.60/t
Other:
Tungsten - APT European prices $170-190/mtu $175-195/mtu –
Ferrochrome – Benchmark charge chrome price for delivery in Europe at US$1.04/lb its lowest level since Q1/10.
Company News
Antofagasta (LON:ANTO) 528p, Mkt Cap £5.205bn –Mixed production results with Los Pelambres and initial output from Antucoya offsetting a weaker quarter at Michilla and Centinela
• Copper production for the quarter matched that in Q2 at 157 kt giving year to date production of 460.4 kt down 11%.
• Gold production was down 17% for the quarter at 45,700 oz and down 16.1% year to date at 158,200oz.
• Molybdenum output remained steady for the quarter at 2,600 tonnes bring the year to date output to 7,300 tonnes – an increase of 32.7% on 2014.
• Net cash costs for copper production for the quarter at $1.42/lb are 11.3% lower than Q2 but year to date at $1.49/lb are 3.5% above 2014 levels
• The Los Pelambres mine increased copper production qtr on qtr by 6.2% to 96,200 tonnes as a result of higher grades and recoveries, partially offset by a 6.4% decline in throughput. Gold output at Los Pelambres rose by 20% during the quarter to 13,200 oz.
• Aided by the strong upturn in gold output, net cash costs at Los Pelambres declined by 25% to $1.08/lb during the quarter bring ing the year to date cost to $1.26/lb (2014 $1.15).
• At Centinela, copper production declined by 12.6% during the quarter to 50,700 tonnes reflecting a decline in grades and recovery despite a modest increase in throughput. On a year to date basis, copper output is 11.8% lower than 2014 at 169,000 tonnes.
• Net cash costs at Centinela declined by 14.1% during the quarter to $2.02/lb as a result of reduced volumes of both copper and gold.
• Michilla’s production of 8,000 tonnes brings the year to date copper production to 23,600 tonnes – 30.8% lower than 2014. Cash costs of $2.06/lb for the quarter bring year to date to $2.18/lb (2014 $2.41/lb).
• Initial cathode production at the new Antocoya operation was achieved in early September but formal “commercial production” has yet to be achieved. This is targeted for mid 2016.
Minera IRL (LON:MIRL) SUSPENDED – Please vote to sack the board of Minera IRL Limited. We believe they are not working in the best interest of shareholders
• We view today’s statement as potentially disingenuous and potentially misleading for investors who might not know more about the current situation at Minera IRL.
• The board of Minera IRL Limited report that the company has applied to delist from the TSX in Canada. TSX are to initiate an expedited delisting review for failure to comply with the TXS’s continued listing criteria.
• It is our view that news of this review plays very neatly into the hands and strategy of the Minera IRL Limited board who appear unusually keen to allow the company to delist in each market on any regulatory pretext.
• The statement also points out that the company’s admission to AIM will also be automatically cancelled should the shares be suspended for a period of six months. While this is strictly true, we believe the board should be focussed on making more effort to reinstate the shares and to prevent delisting on AIM and the TSX.
• Today’s statement claims that “due to the actions undertaken by the manager of its Peruvian operating subsidiaries, there was a temporary compromise of control of those entities”.
• It is our view that Diego Benavidez, who runs Minera IRL SA, is acting in the best interests of Minera IRL’s shareholders and the Peruvian community, whose support is essential. Mr Benavidez has sold gold held by Minera IRL SA with funds being used to ensure that Minera IRL SA and Limited meet its obligations in Peru in order to prevent a potential default situation. There is no sense of any shortage of cash within the business.
• We also view the statement of cancelling the admission to AIM as scaremongering and potentially misleading as we, again, view the situation as eminently resolvable.
• We believe that the Board of Minera IRL Limited are not working in the best interest of shareholders to resolve the issues which might lead to the cancellation of its listings.
Conclusion: We conclude that shareholders should post their votes at the forthcoming EGM in favour of changing the board as petitioned.
* SP Angel analysts are expressing their own views and opinions in this analysis. SP Angel has no corporate connection with Minera IRL or its subsidiaries. SP Angel holds no shares in Minera IRL and does not have any current financial arrangements with the company.
Noricum Gold* (LON:NMG) 0.17p, Mkt Cap £4.4m – MD buys stock
• Greg Kuenzel, MD of Noricum Gold has bought £20,930 of stock in Noricum Gold in the market.
• The 13m share purchase takes his holding to 18.5m shares.
• The company has posted a new presentation on its website indicating potential time lines to production at its two key open pit sites.
• We advise investors to look at the presentation. We are happy to answer questions, though the regulations only allow us to offer advice to ‘professional investors’
• https://www.noricumgold.com/documents/BolnisiPresentation27.10.15_000.pdf
• Page 7 of the presentation lists the time line to first JORC resources in 3-12 months and then to cash flow within 1-3 years.
• Page 12 highlights the ‘near term production potential’ through using the Madneuli processing plant and Armanis toll treatment facility which has spare processing capacity.
• The facility is connected by rail to Bolnisi. Bolnisi is an hour’s drive from the capital Tbilisi.
• Page 15 shows the joint venture acquisition terms
• Please see our comment published yesterday for more on our a view.
Conclusion: The company’s deal / joint venture in Georgia is transformational for the company in that it could enable the company to start low cost gold production within 12-18 months. We can see why Greg Kuenzel is buying the shares.
*SP Angel acts as Nomad and Broker to Noricum.
Northcote Energy (LON:NCT) 0.15p mkt cap £9m – Shoats Creek getting there
• Our oil analyst is out of the office today and unable to provide a full brief of the news, but we did want to follow up on one news item.
• On Northcote's Shoats Creek asset we have said previously that:
o "The Company is probably due an update on its asset base, especially reserves and resources, valuations, etc."
o We note today that the company has provided another update on its Shoats Creek interests, in which it details more of the structure surrounding the mechanisms through which it enjoins its economic benefits of ownership. However, what we believe that the information still lacks the right kind of detail to make an informed decision as to the valuation we can ascribe.
o In this instance, a somewhat more rigorous approach will be required because of the varying interests assigned to differing productive horizons. To enable us to fully understand, or utilise our judgement more effectively, we will require not only the "per horizon" reserves, production profiles, or estimated ultimate recoverability of each well/completion, but also the costs assigned to each, both drill and complete and production costs, or whether the horizons will be produced sequentially, produced using differing completions or commingled with the economic benefits of the commingled stream agreed ahead of time.
o To be clear, we class value and worth as two completely different ideas, with value of an asset being the economic benefit accruing to an interest holder from the production, and the worth being what a third party, or investor, is willing to pay for it.
o It is further worth remembering that value is often a function of the prevailing price, the reservoir and its development, and the worth including additional non-operational factors such as desire to participate in a particular asset, particular hurdle rate and belief in the assumptions and ability of the operators to unlock the underlying value.
o Currently, based on our assessments, depending on what position in the exploration/appraisal/development/production cycle the particular asset or range of assets is at, the worth can trade at between 0.15 - 0.72x the assessed value.
We understand that more detail on the asset will be forthcoming, against which we will hope to be able to conduct a rudimentary "peer based" assessment of the market "worth" of the company's interest.
Petra Diamonds (LON:PDL) 75.6 pence, Mkt Cap £395m – Weak Q1 Trading Update as expected
• Operationally the company performed well with Finsch performing well and Cullinan lower according to mine plans.
• Finsch production increased by 14% to 590,799 carats with ROM grade up to 46.6 cpht from 42.9 cpht.
• Tailings grades at Finsch were marginally down and the bulk sampling plant commissioned in FY 2015 to treat the dumps delivered 66,334 carats to ROM production.
• Cullinan’s production fell by 31% to 145,385 carats in line with guidance with a grade of 23.6 cpht against 27.2 cpht last year and a low of 20.9 cpht in Q3 FY 2015.
• The lower grade at Cullinan is in line with the company’s strategy to improve value against maximising volumes.
• Koffiefontein’s production increased 35% to 14,350 carats further to the ramp up of the SLC production area.
• This should see production achieve guided levels towards the end of H1 FY 2016 at Koffiefontein.
• Kimberley Underground production increased by 36% to 49,107 carats with an increased ROM grade of 18.4 cpht and better recoveries from tailings.
• Williamson’s production fell by 20% to 43,155 carats due to a planned shutdown.
• The first tender held in October (after the end of Q1) saw a fall of 8.8% versus Q4 FY 2015 actual prices achieved.
• Price falls were greater at Finsch at 10.8% against 5% for Cullinan.
• At Finsch the calculated average achieved at the tender was US$77/carat against management guidance of US$94/carat and an actual of US$90/carat for FY 2015.
• Actual ranges of individual tenders for FY 2015 ranged at Finsch between US$82-US$112/carat.
• At Cullinan the company achieved US$109/carat against management guidance for the full year of US$126/carat for the full year with actual tender ranges of US$106-135/carat.
• Prices of gem quality stones in the 2 to 5 carat range remained fairly stable while prices of 0.75 to 1.5 carat (3 to 6 grainers0 and 5 to 10 carats were significantly softer.
• Prices of 2nd to 3rd tier stones remained fairly stable while lowest quality assortments were weak.
• At the end of the period cash stood at US$57.2m with net debt of US$306.2m.
• The company has undrawn bank facilities of US$208.4m.
• Diamond inventories at the end of the period stood at US$103.4m of 1,181,822 carats reflecting the timing of sales.
• The impact of the fall in prices is partially mitigated by a the 13% weakening of the rand over the period.
Conclusion: The trading update was difficult as expected – while the first tender in October saw an overall price fall of 8.8% across mines (Finsch greater at 10.8% and Cullinan less at 5%) – the company maintain their guidance for the full year based on a better mix of stones expected in H2 FY 2016.
Petra’s shares continue to suffer from a lack of confidence in this scenario and is vulnerable to selling pressure as worries persist about Chinese demand – China is only around 16% of market demand but growth for this market was expected to be in the mid-teens going forward making it an important growth market.
We continue to maintain that patient investors will be rewarded but may need to wait till better news flow in the second half.
Wolf Minerals (LON:WLFE) 14.5 pence, Mkt Cap £117.4m – Quarterly update and tungsten market comment
• Wolf Minerals’ review of activities for the September quarter confirms that the Drakelands tungsten mine at Hemerdon in Devon is now fully operational and ramping up to full production, which is expected to be achieved early in 2016.
• Shipments of tungsten concentrates are already underway to customers in both Europe and the USA.
• The operation is currently designed to produce around 345,000 mtu (metric tonne units) of tungsten trioxide based on a 5½ day working week. Currently the mine is able to work a 7 day week on a trial basis until March 2016. If the company can successfully apply for a change to the permitted working week on a permanent basis, it will have effectively have increased the production capacity of the mine by around 27% without incurring additional capital costs.
• The more efficient use of the plant should also have a positive impact on operating costs “pushing the operation further down the tungsten concentrate production cost curve”. The company’s DFS in 2011 envisaged that the mine would produce tungsten concentrate at a cash cost (C1) of US$105/mtu so reductions below this level would be clearly beneficial at a time of weak commodity prices. Currently, the benchmark price of the intermediate product, ammonium paratungstate (APT) is $170-190 per mtu and mine producers would expect to receive a discount to this price.
• Wolf Minerals’ comments on the current state of the tungsten market include the following; “ During the June quarter the demand for tungsten concentrate remained sound in Japan and Europe as a result of steady output from the automotive sector. Demand in other regions slowed as a result of softening in the mining, oil and fracking industries and the economic slowdown in China. Current market conditions appear to have resulted in some supply being withdrawn from the market with some producers reportedly shutting down, and overall trading volumes are lower than in previous years. New supply from projects outside of China is expected to be limited for the next few years which may result in a tighter supply scenario.”
• The major Cantung tungsten mine of North American Tungsten in Canada, which is trading under Canada’s Companies’ Creditor Arrangement Act, recently announced that “the Company expects to curtail its mining operations in an orderly way as it prepares the Cantung mine for care and maintenance”. The closure of Cantung, may be one of the measures Wolf refers to in the context of supply being withdrawn from the market, however when this occurs, Drakelands is likely to be the largest tungsten mine outside Russia and China. Efforts to find a buyer for the Cantung mine appear to have been fruitless so far.
Conclusion: The commissioning and ramp-up of the Drakelands mine comes at an interesting time for the tungsten market with the world’s leading mine preparing for closure on a temporary or permanent basis. Cost reduction opportunities at Drakelands may be available if Wolf can secure changes to allow it to continue 7 day working on a permanent basis and provided it is able to achieve these cost and recovery goals, Wolf could evolve as a market leader in the tungsten industry