UK - Negative interest rates
• The UK may be in for a prolonged period of low and even negative interest rates according to Michael Saunders in the Times.
Economic News
US – Economic news due this week:
Date Index Period Actual Expected (Bloomberg) Prev month
Friday (30.10.15) Personal Spending Sep 0.1%mom 0.2%mom 0.4%mom
PCE Deflator (Core) Sep 0.1%yoy (1.3%yoy) 0.2%yoy (1.4%yoy) 0.3%yoy (1.3%yoy)
Monday ISM Manufacturing PMI Oct 50.0 50.2
Tuesday Factory Orders Sep -0.9%mom -1.7%mom
Vehicle Sales (annualised) Oct 17.7m 18.1m
Wednesday ADP Payrolls Oct 180k 200k
Trade Balance Sep -US$41.0bn -US$48.3bn
ISM Services PMI Oct 56.5 56.9
Thursday Jobless Claims weekly 260k 260k
Friday Nonfarm Payrolls Oct 180k 142k
Unemployment Oct 5.10% 5.10%
Hourly Earnings Oct 0.2%mom/2.3%yoy 0.0%mom/2.2%yoy
China – Official data shows manufacturing sector remained in a contraction mode for a third consecutive month in Oct versus market forecasts for a neutral 50.0 PMI reading.
• Manufacturing PMI: 49.8 v 49.8 in Sep and 50.0 forecast.
• Private survey released by Caixin pointed to a sharper decline in the industry’s activity during the same period.
• Caixin manufacturing PMI: 48.3 v 47.2 in Sep and 47.6 forecast.
• Total new business orders fell at a slower pace on the back of improvement in new export orders.
• Input costs and output prices continued to decline with the report saying “the risk of deflation resulting from the continued fall in prices of bulk commodities” as well as “weak aggregate demand” should be watched closely.
• Services industry favoured better posting another monthly increase in output, albeit marking a slower pace of expansion (53.1 v 53.4 in Sep).
Japan – Vehicle sales have stabilised in Oct (+0.2%yoy) following a 3.0%yoy decline in Sep.
Eurozone – Manufacturing PMI has been revised upwards from the preliminary Oct reading, although the expansion remains “disappointingly insipid”, Markit reports.
• “The Oct survey signalling factory output growth of only 2%pa, a lucklustre performance given the amount of central bank stimulus in place.”
• “With factory production lacking vigour, employment growth sagging to an eight-month low and output prices falling at the fastest rate since Feb, its easy to see why the ECB are considering additional stimulus.”
• In Spain manufacturing output continued to grow in Oct although at a weaker pace with a slowdown attributed to business wariness before the Dec/15 general election in the country.
• Markit manufacturing PMI: 51.3 v 51.7 in Sep and 52.0 forecast.
Russia – Manufacturing output climbed in Oct, but only marginally (50.2), following 10 months of contraction in the sector.
• Growth in new business “was driven by stronger demand from the domestic market, however, as new export orders declined”, Markit said.
Turkey – President Erdogan wins majority in election
• Conflict on and within Turkey’s boarders has helped President Erdogan to win a further term in office.
• The Lira has strengthened on the back of the win as markets see Turkey’s strong man as offering more certain policies than a coalition government.
• The Turkish lira had weakened significantly in recent years with the currency halving since 2011 helping local businesses to compete internationally.
• The election result has lifted the Lira with the Turkish stock index also rising by 5.4% but the longer term slide may well continue.
Currencies
US$1.1006/eur vs 1.004/eur yesterday. Yen 120.64/$ vs 120.51/$. SAr 13.781/$ vs 13.800/$. Sterling $1.547/gbp vs 1.534/gbp
0.713/aud vs 0.710/aud –
Commodity News
Precious metals:
Gold US$1,138/oz vs US$1,148/oz yesterday –
Platinum US$974/oz vs US$996/oz yesterday
Palladium US$663/oz vs US$682/oz yesterday –
Silver US$15.41/oz vs US$15.59/oz yesterday
Base metals:
Copper US$ 5,118/t vs US$5,117/t yesterday –
Aluminium US$ 1,497/t vs US$1,473/t yesterday –
Nickel US$ 10,100/t vs US$10,180/t yesterday –
Zinc US$ 1,708/t vs US$1,687/t yesterday –
Lead US$ 1,704t vs US$1,696/t yesterday
Tin US$ 14,900/t vs US$15,050/t yesterday –
Energy:
Oil US$48.90/bbl unch vs US$48.90/bbl yesterday –
Natural Gas US$2.239/mmbtu vs US$2.238/mmbtu yesterday
Uranium US$35.40/lb unch vs US$35.50/lb yesterday –
Bulk commodities:
Iron ore 62% Fe spot (cfr Tianjin) US$48.2/t vs US$52.9/t – big fall in prices due to excessive inventory
Thermal coal (1st year forward cif ARA) US$47.90/t vs US$48.20/t –
Lithium – researchers said to be looking at developing lithium batteries with 10x the power of conventional batteries (Nature)
Other:
Tungsten - APT European prices $165-195/mtu vs $165-185/mtu last week – spreads widen suggesting some resistance
Ferrochrome – Benchmark charge chrome price for delivery in Europe at US$1.04/lb its lowest level since Q1/10.
Company News
Atalaya Mining (LON:ATYM) 8.5 pence, Mkt Cap £89.5m – Legal claim made by Astor Management
(EMED Mining formerly)
• Astor Management has put in a claim to the High Court in London for deferred payments due to them as a result of the acquisition of 49% of Emed Tartessus in 2008.
• The acquisition from MRI was paid through a combination of shares 39.14m at 21 pence and a deferred cash settlement of €53m including the assignment of loans of €9.16m.
• These loans related to MRI were incurred in relation to the operation of Proyecto Riotinto. MRI were the previous operators of the mine.
• Up to a further €15.9m was due depending upon the copper price.
• On the 11 Nov 2011, MRI novated its right to the deferred consideration to Astor.
• The obligation to pay the deferred consideration was contingent on a number of conditions.
• These included receipt of all permits to restart the mine and securing a senior debt finance facility for a sum sufficient to restart the mine.
• The deferred consideration was payable in instalments over a period of 6 or 7 years following satisfaction of the above conditions.
• While the permitting condition has been satisfied the company has not entered into any senior debt arrangements to restart the mine.
Conclusion: Atalaya previously called EMED Mining has not met its obligations on the deferred consideration based on the structure of financing that did not include debt which was one of the key conditions for the restart of the mine. This is being challenged by the other party. The further €15.9m only becomes due based on copper prices which is likely to kick in if copper prices are higher from here.
Aureus Mining (LON:AUE) 17.375 pence, Mkt Cap £63.9m – Resumption of crushing and processing operations at New Liberty
• The company reports that, following the mechanical failure of the secondary crusher at the New Liberty mine in Liberia, repairs have now been completed and “gold processing operations have recommenced.”
• Mining operations were not interrupted during the 19 day suspension of crushing and processing operations and currently the mine reports a run-of-mine (ROM) stockpile of over 55,000 tonnes of ore at an average grade of 3.16 g/t gold and oxide ore stockpiles of over 105,000 tonnes at an average grade of 2.04 g/t gold.
• The installation of a temporary mobile crushing unit allowed crushing to be resumed on 28th October, while repairs to the damaged secondary crusher were completed on 29th October. Aureus plans to retain the mobile unit for six months in order to “provide additional operational flexibility during the final testing and commissioning phase of the plant, and also to provide additional crushed rock material for use on haul roads and other associated infrastructure.”
• As a result of the problem with the secondary crusher, the company is now targeting the formal declaration of “Commercial Production” (defined as the plant achieving an average of 60% plant capacity over a 60 day period) in early January 2016. Prior to the temporary shutdown, the company had been looking to reach this milestone in Q4 2015.
Conclusion: Aureus Mining has moved quickly to repair the damaged secondary crusher and restore processing operations at New Liberty. The commissioning and ramp up phase of mine development can present challenges and having completed mine development in around 18 months under very challenging conditions, Aureus Miining has acted swiftly to address the equipment problems and get the mine back on track.
Gemfields (LON:GEM) 47.8 pence, Mkt Cap £259.8m – Faberge wins an award at the Grand Prix d’Horlogerie de Geneve
• The company has won the Swiss watchmaking industry’s highest award in the Ladies Mechanical category.
• This is regarded as a key award in the global watch industry.
Conclusion: This should be good for the Faberge brand as they target growth in the luxury watch market.
Lonmin PLC (LON:LMI) 24.5 pence, Mkt Cap £144m – Fourth Quarter and FY Production Report
• The company produced a Total of 759,695 of refined platinum.
• Total platinum in concentrate of saleable oz was 740,315 oz.
• Mined production was 704,776 platinum oz with 48,000 oz impacted by Section 54 safety stoppages.
• Through the year there were 3 fatalities at operations.
• Unit costs for the year stood at Zar 9,841/oz (US$714) for the quarter down from Zar 10,339/oz (US$750).
• Capex is to be cut from US$250m to US$136m in the coming year.
• Cost is also expected to be reduced by Zar 0.7bn (US$50.8m) from FY 2015 to FY 2016 with a further reduction of Zar 1.6bn of US$116.2m in FY 2017.
• Unit costs are expected to be flat at Zar 10,400 or US$750/oz for the next 3 years.
Conclusion: Unit costs are expected to flat line from here. Cutting capex will be key to making this economic at current prices.
Metminco* (LON:MNC) 0.26 pence, Mkt Cap £7.0m – Quarterly operations update
• Metminco reports its quarterly update for the 3 months to 30th September summarising the results of the strategic mining study at its Los Calatos deposit in Peru and the progress of its legal appeal to regain mining access rights to the Mollacas project in Chile.
• At Los Calatos, which had originally been viewed as a potential large scale open pit mining opportunity, work by the consultants, RPM, and a review of the geology and mineral resource estimates by SRK has shown the possibility of enhancing the project economics by the development of a higher grade underground mining operation focussed on “laterally and vertically persistent hydrothermal breccias …which host the high-grade copper and molybdenum mineralisation.”
• The key results of the updated study, which have been announced earlier, are:
o Mining of a Total of 134m tonnes of ore at an average grade of 0.89% copper and 0.036% molybdenum over a 22 year period using sub-level caving.
o Pre-production capital expenditure of US$655m and net cash operating costs (C1) of US$1.29/lb of copper.
o After tax, ungeared NPV of US$477m at an 8% discount rate and assuming copper price of $3.00/lb; gold price of $1250/oz; silver $19/oz and molybdenum $11.16/lb.
o Assuming 60% gearing after tax NPV at an 8% discount rate of US$456m based on US$ LIBOR of 0.33% plus 4% per annum.
o Payback 4.85 years.
o Metminco “has been approached by a number of interested parties who are currently undertaking a due diligence on the Los Calatos data set in order to make a decision on their possible involvement in the project.” The company reports that a number of interested parties have visited the site as part of this process.
o At the disputed Mollacas project in Chile, where the company had appealed to the Supreme Court for restitution of its mining access rights which had been set aside by a regional court in Chile’s Region IV, the Supreme Court has now heard the case and a decision is expected by the end of 2015.
o Metminco’s cash at 30th September amounted to approximately A$850k.
Conclusion: Metminco has identified significant scope to enhance the economic viability of the Los Calatos project through a re-evaluation of the geological controls of mineralisation and updated resources estimates leading to a significantly lower capital cost mining method. Interested third parties are currently evaluating the data and we are encouraged that Metminco has demonstrated the flexibility to consider alternative mine development routes for Los Calatos.
*SP Angel act as joint-broker to Metminco
Minera IRL (LON:MIRL) SUSPENDED – Statement from the Board of Minera IRL Limited
• Minera IRL Limited has issued a further press release this morning relating to a ‘cease trade’ order in Canada.
• The ‘cease trade’ order has been made as the board of Mineral IRL Limited did not file its interim accounts by 16 October.
• The company also states “Minera IRL expects that the Order will be lifted after the Company files the Financial Materials.”
• The statement also refers to the temporary compromise of the company’s Peruvian subsidiary.
• It is our view that given the EGM vote to replace the current board that is probably better from a shareholder perspective for the shares to be suspended in both markets.
• Shareholders need to decide which party should run this company going forward.
• Should it be Diego Benevides, joint founder and director of the Peruvian subsidiaries or the existing board which seem unable to work with Mr Benevides?
• We have been made aware of statements from persons supporting Mr Benevides. We will not reveal where these statements have come from but we will say that they provide damming accounts of the behaviour and actions of the board of Minera IRL Limited.
• We believe that the board of Minera IRL are disingenuous in their statements.
• In our opinion the board of Mineral IRL Limited are not acting in the best interest of shareholders.
• That shareholders should support Diego Benevides in voting for the election of a new board.
• Investors in the UK stock should send their votes to “Computershare Investor Services (Jersey) Limited, c/o Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol BS99 6ZY, United Kingdom, by not later than 3:00 pm on 24 November 2015.
* 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.
Stellar Diamonds (LON:STEL) 0.3 pence, Mkt Cap £2.4m – Capital Restructuring and Fund Raise
• The company is to consolidate its shares on a 1 for 50 ratio.
• At the same time the company is raising funds through a combination of a convertible loan, an issue of warrants and shares.
• The funds are being raised from Deutsche Balaton.
• US$1.65m (around £1.06m) is to be raised from the convertible loan at an effective price of 0.56 pence and maturity of 31 Oct 2017.
• A further US$1.65m is to be raised from warrants at an exercise price of 0.35 pence.
• £497,000 is to raised through an issued of shares at 0.131 pence.
• The weighted average price across all three instruments to raise a Total of US$4m from Deutsche Batalon is 0.31 pence.
• Funds are to be used to complete the application for the Tongo mining licence, resume trial mining at Baolule and for general working capital purposes.
• Conversion of the new convertibles will be subject to Deutsche Batalon having a maximum interest of 37.5% of the enlarged capital.
• Once the convertible loans are issued, Hansjorg Plaggemars, a director of Deutsche Batalon is to join the board of Stellar Diamonds.
Conclusion: The raising of these funds should enable Stellar Diamonds to progress its ambitions to develop the Tongo mine. A PEA has been completed on the mine for development for an 18 year mine life based on an initial open pit for 4 years and then an underground mine. 117,000 carats are to be produced from the open pit and 838,000 carats from underground mining. Captial costs are estimated at US$24.8m with a project pre-tax NPV of US$53m.