Economic News
US – Economic news due this week:
• Futures markets are currently assigning 56% probability to a Fed rate hike in Dec.
Germany – Industrial production decline has accelerated in Sep falling 1.1%mom following a 0.6%mom decrease in Aug.
• Slowing growth in emerging markets and China, in particular, weighed on German business activity lately.
UK – The MPC voted 8:1 for the benchmark rate to be left at 0.5% with the stock of purchased assets to be held at £375bn.
• Inflation forecasts have revised down with prices expected to grow at less 1% until the H2/16 on the back “the continuing drag from commodity and other imported goods prices”.
• Inflation is now expected to rise to the 2% target in around two years, suggesting the BoE is comfortable with rates staying at record lows for longer than previously forecast.
• That contrasts with earlier comments made by Mark Carney that interest rates may start to go up in early 2016.
• Dovish comments saw British pound trading lower against the US dollar.
• Industrial production fell more than forecast this morning (-0.2%mom in Sep v 1.0%mom in Aug and -0.1%mom forecast).
Australia – The RBA is pleased to note the so-called “Great Rebalancing” of the economy is moving forwards.
• “Survey measures of business conditions in the non-mining sector are clearly above their long-run average level, most notably for services.”
• Growth is reported to have been helped by depreciating currency.
• Despite positive developments in non-mining sector the RBA says “resource exports will remain a key drive of growth over the period ahead”.
• With soft commodities prices outlook and given low levels of current inflation, market analysts expect the RBA to cut rates once or even twice in the coming 12 month.
Currencies
US$1.0870/eur vs 1.0874/eur yesterday. Yen 121.93/$ vs 121.88/$. SAr 13.918/$ vs 13.986/$. Sterling $1.516/gbp vs 1.539/gbp
0.716/aud vs 0.713/aud –
Commodity News
Precious metals:
Gold US$1,109/oz unch vs US$1,109/oz yesterday –
Platinum US$954/oz vs US$958/oz yesterday -
Palladium US$610/oz vs US$613/oz yesterday –
Silver US$15.04/oz vs US$15.06/oz yesterday
Base metals:
Copper US$ 5,003/t vs US$5,059/t yesterday –
Aluminium US$ 1,515/t vs US$1,490/t yesterday –
Nickel US$ 9,750/t vs US$9,685/t yesterday –
Zinc US$ 1,659/t vs US$1,660/t yesterday –
Lead US$ 1,648t vs US$1,663/t yesterday –
Tin US$ 14,570/t vs US$14,770/t yesterday –
Energy:
Oil US$48.20/bbl unch vs US$48.90/bbl yesterday –
Natural Gas US$2.373/mmbtu vs US$2.251/mmbtu yesterday
Uranium US$36.00/lb unch vs US$36.00/lb yesterday –
Solar – Lightsource raises £348m through the RBS to refinance 101MW of ground-mounted solar power generation
Bulk commodities:
Iron ore 62% Fe spot (cfr Tianjin) US$47.5/t vs US$46.8/t –
Thermal coal (1st year forward cif ARA) US$47.80/t vs US$48.00/t –
Steel – Chinese anti-corrosive steel exports to the US may be taxed as much as 236% given the level of subsidies they receive , according to preliminary results by the US Department of Commerce. Five Chinese exporters are estimated to have received subsidies equal to that amount on the US numbers.
Shipping – Maersk cuts 4,000 jobs and cancels six new vessels as freight volumes fall
• Shippers are being hit by a slowdown in global trade and excess capacity of shipping built in recent years
• Maersk, the world’s largest shipper is scaling back as forecasts for shipping fall
• The fall in demand for shipping containers fell at end September and continued to fall through October as trade slowed
• Shipments rose 1.1% yoy in the last three months but with lower container volumes and at 19% lower freight rates
• The MSCI World container and packaging index indicates a recovery in freight though the market is concerned at how robust demand might be
Other:
Tungsten - APT European prices $165-195/mtu vs $165-185/mtu two weeks ago – no change on last week’s widening of the spread
Ferrochrome – Benchmark charge chrome price for delivery in Europe at US$1.04/lb its lowest level since Q1/10.
Company News
Amur Minerals* (LON:AMC) 11p, Mkt Cap £44m – 2015 field season completed: objectives achieved and more
• The Company completed 5,820m of exploration drilling of the planned 6,000m in the 2015 field season.
• A total of 21 holes have been drilled with 19 accounting for the infill programme using 100m spaced grid and covering a 1,200m long area at the Maly-Kurumkon/Flangovy (MKRL) deposit.
• Infill drilling confirmed thickness and grades defined by historical drilling at the MKFL deposit with average intersections of 25.7m per hole at 0.83% Ni and 0.22% Cu.
• In addition, the programme confirmed the presence of high grade intervals along the structure with 18 holes returning 18.4m intervals at an average grade of 1.03% Ni and 0.27% Cu.
• Step out drill holes completed in the eastward part of the MKFL deposit (C305 11.3m at 0.8% Ni and 0.2% Cu; C306: 46.6m at 0.8% Ni and 0.2% Cu) extended the strike of mineralisation by 400m and is expected to contribute towards updated mineral resource statement.
• Final assays are expected to be ready in Dec/15 with works on the updated resource model to follow.
Conclusion: The 1,200m long segment of the deposit tested with the infill drilling is estimated to host 87% of the resource tonnage at MKFL with 27.4mt in the Inferred category that can be potentially converted into a higher-confidence category. The management expects that the majority of the Inferred Resource at the MKFL to be upgraded to Indicated. Measured and Indicated Resource may then be used towards calculation of Mineral Reserves to be included in the DFS. Additional tonnages are also expected to be included in the updated Inferred Resource to account for mineralisation intersected with step out holes. We are looking forward to ASL final assays which are likely to be close to reported preliminary in-house estimates.
*SP Angel act as Nomad and Broker to Amur Minerals
BHP Billiton (LON:BLT) 988 pence, Mkt Cap £65.3bn – Tailings Dam at Iron ore mine in Samarco
• There has been a tailings dam failure which has caused at least 16 fatalities and significant damage to the city of Mariana in Minas Gerais in Brazil.
• Samarco is operated by Samarco Minercao SA which is jointly owned by Vale and BHP Billiton.
• The failure of the tailings dam has caused a massive mudslide.
• This is an open pit mine with concentrate three 396 km slurry pipelines to the port where pellets are produced for the export market.
• The mine produces 30 mt of iron ore.
Conclusion: This is a small operation in the context of BHP but a much bigger hit in terms of reputational hit. BHP has invested a lot of capex in iron ore in Australia and capex has gone to develop the three slurry pipelines at the mine. It will be a shame if there has been a safety breach on the tailings dam.
Lucara Diamonds (CVE:LUC) C$1.70, Mkt Cap C$645.3m – Strong third quarter reflects exceptional tender in the quarter
• Lucara which owns the Karowe Mine in Botswana reported a strong quarter with revenues of US$90.9m in line with last year but up strongly from the last quarter.
• The strong quarter reflects the first exceptional tender held for FY 2015 with proceeds of US$68.7m from the sale of 1,674 carats.
• A total of 160 special stones (+10.8 carats) were recovered at an average size of 33.49 carats this is up 34% compared to FY 2014.
• This gives year to date revenues of US$158.6m with full year guidance of US$200-$220m.
• Carats sold to date stand at 283,220 carats with full year guidance of 350,000 to 400,000 carats.
• As a result of the make of revenues for the quarter, operating margin per carat sold stood at U$951/carat against US$511/carat over the nine month period.
• The operating margin per carat also exceeds the margin achieved in Q3 2014 which included an exceptional stone tender for US$46.4m of revenues.
• Improvements in margins reflect the process investments made in recovering large stones as well as mining from the South Lobe which is a source of higher value stones as well as exceptionals.
• A large exceptional of 336 carat recovered during the quarter is expected to be sold along with 12 other stones in the second exceptional tender of 2015.
• The cash balance at the end of the quarter stood at US$122.7m compared to US$74m with capex for the quarter of US$7.8m.
• The company remains within guidance for the plant optimisation project of US$55m and sustaining guidance of US$4.5-US$5.5m.
• The company continues to see softness in the diamond market for the small and medium size stones as a result of large volumes of polished inventories.
• Push back from polished inventories in the downstream has resulted in rough producers being left with inventories of specific quality and size goods.
• They see this as taking time to work through the system.
Conclusion: This strong quarter underscores the strength of Lucara’s position in the sector – the company are mining from the South Lobe of the mine which has been the source of high value stones and exceptionals. This is the end of the market which continues to be strong. In addition, the company has developed a good customer group across the broader spectrum of goods. With US$122.7m in cash, a significant investment already in mine and plant optimisation, a debt free balance sheet, Lucara is ahead of the pack.
A site visit last month reinforced the quality of the mine, process from extraction to sales and the management team. We have yet to initiate but this could easily be the top pick in the sector.
Metminco* (LON:MNC) 0.2 pence, Mkt Cap £5.1m – Metminco raises A$1.2m in placing to advance Los Calatos copper project in Peru
• Metminco announced the placing of A$1.1m worth of stock to investors at A$0.005c (0.26p) per share.
• Los Calatos: The funds are to be directed towards drilling the prospective hydrothermal breccia target next to the main Los Calatos deposit which has not been previously drilled.
• Positive results from this drilling have the potential to transform the Los Calatos project by enhancing the economics.
• Los Calatos has been well drilled with 134 intersections defining 40% of the resource in the measured and indicated categories within the breccia systems.
• Copper mineralisation starts at a depth of approximately 50m in the current resource.
• Previous studies focussed on the production of 50,000tpa of copper in concentrate based on a milling rate of 6.5 mtpa at a 0.70% cut-off grade.
o William Howe, Metminco’s managing director has also exercised some 16.6666m options contributing some A$83,333 to the company to take the total raised to A$1.2m.
o The company is in discussions with a number of potential interested parties on partnership deal to advance the project. Due diligence is underway.
o Metminco are working with the LinQ group on options for the potential development of the Los Calatos copper mine/project.
o Mollacas project: Metminco recently reported that the Chilean Supreme Court has now heard the appeal against a ruling by the Court of Appeal of the IV Region which extinguished rights to the company’s Mollacas Copper Leach Project.
o The decision by the Supreme Court of Chile is expected by the end of 2015 on the Mollacas project which may enable the company to develop further value from this project.
Metminco’s cash position should be around A$2m.
*SP Angel act as broker to Metminco. SP Angel raised the A1.2m for Metminco.
Minera IRL (LON:MIRL) SUSPENDED – Minera IRL RNS clarifies previous RNS. We continue to support the removal of the board in the forthcoming EGM
• Minera IRL Limited have issued yet another series of clarifications to the information they released in the company’s previous RNS. We suspect the company’s Nomads will have reminded the board of the rules of the AIM market (LSE).
• The title of the RNS is “Response to False Media Speculation” but we feel this is a red herring designed to disguise the real purpose of the press release which we feel is to clarify elements of previous statements.
• It is interesting that these statements are put out under the name of Eric Olson, the company COO, though Mr Olson is not on the board. We assume Mr Olson’ name is used with his consent but we have been told that the press releases originate with a main board director.
• We are also told that certain people had discussions relating to the sacking of Diego Benavides before the Whistle Blowing Hotline was set up. The allegation being that the hotline was set up as a mechanism to oust Mr Benavides under Peruvian law.
• We have recently spoken to directors of Minera IRL Limited, Minera IRL SA and other persons related to the company. We feel we now have a fuller understanding of who the good guys are in this story and we feel we are supporting the right team in this particular board room scuffle.
• We have also been made aware of statements giving support to the actions and statements of Diego Benavides from people who have been extremely close to the operation of the company.
• We continue to support Diego Benevides in his actions to replace the board of Minera IRL Limited and that this move should enable the company to get back on track and serve shareholders in more productive manner.
* 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.
Stratex International (LON:STI) 1.975 pence, Mkt Cap £9.2m – First gold pour at Altintepe.
• Stratex reports that the first gold pour has taken place at its 45% owned Altintepe gold mine in Turkey where mine development costs of $39m have been funded by the company’s local partner, Bahar Madencilik, in order to earn its stake in the mine. “Stratex’s initial investment in Altintepe stands at just US$1.5million.”
• Bringing the Altintepe mine to production has brought a number of challenges, including construction delays as a result of bad weather and Stratex’s Chief Executive, Bob Foster, said, “we would like to acknowledge the very professional work delivered by our Partner as they have overcome the many hurdles that confront putting any new mine into production.”
• Over the next 34 months, the mine is expected to produce at a rate of 30,000 oz per year from the Camlik East zone. As production ramps up to this level in the coming month, additional technical and economic evaluation of other parts of the Camlik East zone, including the Extension Ridge and Camlik zones will be completed to assist with longer term planning of future mining.
• Under the earn-in agreement, Bahar is able to recover its pre-production costs from an 80% share of the mine’s cash flow, when this has been achieved, Stratex’s share of cash flow increases from 20% to 45% representing its ownership level.
Conclusion: Stratex has evolved a powerful business model which builds on the company’s core expertise in exploration and delineation of economic deposits and develops local partnerships for mine development and operation. In our opinion, the first gold pour at Altintepe is a pivotal moment in the development of this strategy and provides Stratex with a platform of independent cashflow to expand this approach to other projects elsewhere in Turkey or in west Africa.