Economic News
US – Payroll and earnings growth numbers came in significantly better than expected on Friday taking the USD dollar to a three-month high against the euro and a one-month high against the sterling.
• The economy created 271k jobs in Oct beating forecasts for a 185k increase.
• Unemployment came down 0.1pp to 5.0% while earnings climbed 0.4%mom/2.5%yoy last month.
• Previously, the Fed said jobs do not need jobs to grow at above 200k rate to feel confident that the labour market remains in a recovering mode.
• John Williams, a FOMC voting member, said in Sep that the US would need max 100k new jobs for stable growth.
China – Trade data released over the weekend highlights another yoy decline in exports/imports pointing to a slowdown in economic growth in China.
• Exports (in USD terms): -6.9%yoy v -3.7%yoy in Sep and -3.2%yoy forecast.
• Imports: -18.8%yoy v -20.4%yoy in Sep and -15.2%yoy forecast.
• Exports contracted in eight months of the last ten since the start of the year.
Japan – Labour earnings climbed both in nominal and real terms in Sep offering a bit of positive news amid expectations for the economy to have fallen into recession in Q3/15.
• Cash earnings: +0.6%yoy in nominal and +0.5%yoy in real terms in Sep v +0.4%mom/+0.1%mom in Aug and +0.5%mom/+0.3%mom forecast.
Germany – Exports and imports recovered in Sep following a weak performance in the previous month.
• Exports: +2.6%mom v -5.2%mom in Aug and 2.0%mom forecast.
• Imports: 3.6%mom v -3.2%mom in Aug and 1.0%mom forecast.
Myanmar (Burma) – Historic victory looks likely for Aung San Suu Kyi in Myanmar
• The National League for Democracy ‘NLD’ is confident of victory in the nation’s first open elections in 25 years
• The first 12 seats announced have all been won by the NLD
Currencies
US$1.0769/eur vs 1.0870/eur yesterday. Yen 123.88/$ vs 121.93/$. SAr 14.258/$ vs 13.918/$. Sterling $1.506/gbp vs 1.516/gbp
0.705/aud vs 0.716/aud –
Commodity News
Precious metals:
Gold US$1,094/oz unch vs US$1,109/oz yesterday –
Platinum US$938/oz vs US$954/oz yesterday -
Palladium US$606/oz vs US$610/oz yesterday –
Silver US$14.77/oz vs US$15.04/oz yesterday
Base metals:
Copper US$ 4,981/t vs US$5,003/t yesterday –
Aluminium US$ 1,519/t vs US$1,515/t yesterday –
Nickel US$ 9,590/t vs US$9,750/t yesterday –
Zinc US$ 1,664/t vs US$1,659/t yesterday –
Lead US$ 1,664t vs US$1,648/t yesterday –
Tin US$ 14,615/t vs US$14,570/t yesterday –
Energy:
Oil US$47.80/bbl unch vs US$48.20/bbl yesterday –
Natural Gas US$2.344/mmbtu vs US$2.373/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$47.9/t vs US$47.5/t –
Thermal coal (1st year forward cif ARA) US$47.30/t vs US$47.80/t –
Steel – Chinese steel exports fell in Oct amid rising trade friction and weak overseas demand albeit coming off from record levels.
• Outbound shipment fell 20%mom to 9.02mt marking the lowest number since Jun and below the monthly average for the year of 9.21mt.
• Despite reporting weak numbers in Oct, exports are still up 25% based on total shipments since the start of the year.
• On trade issues with major overseas markets, EU steelmakers call on policy makers to enact a set of protective trade policies against Chinese exports and relax environmental rules that weigh on competitiveness of local production.
• EU ministers will meet on Monday afternoon to discuss the situation in local steelmakers’ industry and options to improve competitiveness in the sector.
• “If this situation continues we will see more closures. We have modest steel demand growth in the EU, but it is being taken almost entirely by imports,” the European Steel Association (Eurofer) said.
• Eurofer reports that the 330k workforce in the steel industry has shrunk by 20% since 2009.
Other:
Tungsten - APT European prices $165-195/mtu unch vs $165-185/mtu
Ferrochrome – Benchmark charge chrome price for delivery in Europe at US$1.04/lb its lowest level since Q1/10.
Company News
BHP Billiton (LON:BLT) 974 pence, Mkt Cap £52.7bn – Update on Samarco Tailings Failure
• Following the announcement of the tailings incident last week, BHP have provided a further update.
• The Samarco operations include a three tiered tailings dam complex.
• The Fundao dam within this complex failed impacting the downstream Santarem dam.
• There is no confirmation of the causes of the tailings release.
• Of the employees and contractors impacted, there has been one confirmed fatality and 13 missing members.
• At least 15 people have been confirmed dead in the affected communities.
• BHP are reviewing production guidance for the year.
• Samarco contributed 14.5 Mt of production (BHP’s share) and 3% of EBIT.
Conclusion: It is unfortunate that the only cut to supply coming from the majors BHP and Vale in this case has been a result of such as tragic event. Iron ore with an annual run rate 30.5 mt of iron ore pellets will be taken out of the market till operations restart.
Berkeley Energy (LON:BKY) 26.5 pence, Mkt Cap £47.8m – Meeting with the Management Team
• The MD and Corporate Development team updated us on the status and prospects for the Salamanca Uranium project.
• The company presented the more positive outlook for uranium following the restart of nuclear reactors in Tokyo, a greater drive to include nuclear as 15% of the energy mix with a number of new reactors now planned in India and China.
• Development of the project in Spain has a number of positives in terms of capex and in terms of security of supply.
• The availability of developed infrastructure lowers the capex threshold for the project by US$100-150m.
• Security of supply is also a key positive for the project with some supply sources coming from high risk jurisdictions such as Niger.
• Grades, closeness of ore to surface and low strip ratios (1:1.8) also result in potential first quartile opex costs with C1 cash costs estimates of US$17.5/lb and C2 costs of US$19.8/lb.
• A full DFS is expected to be completed by May 2016 with a view to starting site works in mid-2016.
• To move from the current PFS to a DFS requires work to be done on leach columns in Zona 7 which significantly improves project economics.
• Below we reiterate our view of the PFS released by the company.
• Berkeley Energy has announced the findings of its pre-feasibility study for its Salamanca Uranium Project in Spain. The study incorporates mining the shallow, high grade the Zona 7 deposit where the company recently announced a substantial resource upgrade.
• Mining of Zona 7 starting in year 2 has had a radical impact on the economics of the overall project which is now reported to generate an after tax NPV (discounted at 8%) of US$871.3m and an IRR of 93.3% based on a long term uranium price of US$65/lb.
• The company comments that its use in the economic analysis of a $65/lb price of uranium oxide “represents a consensus view of market analysts long-term price to incentivise new uranium production.” Sensitivity analysis presented by the company shows that a 10% lower long term uranium oxide price ($58.50/lb) would reduce the after tax NPV by approximately 13% to $754m. Current uranium oxide price is $35.75/lb.
• The project, which covers “17.5 years with initial mining at Retortillo, being replaced by Zona 7 in year 2 and Alameda coming into production in year 3 with Retortillo resuming operation in year 9, once the high grade ore from Zona 7 is mined out” is expected to incur pre - production capex of $81.4m (down from a previously announced $95.1m) and produce a life of mine average of 3m lbs of U3O8 pa at a C1 cash cost of $15.60/lb (previously $24.60/lb).
• The mine expects to produce an average of 5.2m tonnes of combined ore at a low average life-of-mine waste:ore ratio of 1:1.84 (Retortillo 1:2.7; Zona 7 1:0.98 and Alameda 1:1.8)
• The benefits of the early exploitation of the high-grade Zona 7 deposit are reflected in average production of “4.3 pounds per year during steady state operations” in the early years of the project after initial ramp up and this is apparently a key factor in the enhanced economic returns. Construction is now expected to start in 2016 with the company looking for initial production in 2017.
• Permitting is well advanced at the EU, National, Regional and Provincial level, with both “the Mining Licence and Environmental Licence already obtained, the final approvals comprise the locally issued Urbanism Licence and the Construction Authorisation by the Ministry of Industry, Energy and Tourism.” The company expects the remaining licences to be “finalised well ahead of the targeted commencement of site works in mid-2016.”
• A full Definitive Feasibility Study is expected to be completed in May 2016 and the company is progressing approaches from potential financiers.
Conclusion: Berkeley Energy is well positioned to benefit in the renaissance for nuclear power. The Project has been re-energised with the strengthening of the management team earlier this year. The Salamanca Province in Spain is a mining-friendly jurisdiction with the provincial Mines Department clearly well-versed in the process required to permit a new mine.
The economics of the project with up-front capex of US$81.4m and all in cash costs around US$20/lb should find backing from a sector that is looking for fundable projects against a less certain environment for commodity prices.
International Mining & Infrastructure Corp (LON:IMIC) Suspended/Delisted – Raises new bond issue of US$22m
• The company has raised US$22m in a 4 year with a 15% coupon maturing 5 Nov 2019.
• 3% is payable every year with the balance of 12% being rolled up and deferred till maturity.
• As part of the bond arrangement bond holders will have the option to acquire 49.5% of the enlarged share capital of Caminex the local subsidiary.
• The option is exercisable at any time from after 19 months after the date of issue.
• In addition 5.034m shares are to issues in IMIC representing 2.5% of the enlarged share capital and warrants on 0.2% of the enlarged capital.
• A royalty of US$1/t over 35 years is also to be over Ntem which if it ever went into development would be targeting 4 mtpa over 15 years.
• A further 25 cents would be paying over Nkout with development targets of 16-35 mtpa.
• Both new and existing bondholders will have security over the assets within Caminex.
• An independent firm is to provide an audit report on a quarterly basis for new bondholders with regard to spending and progress on a DFS at Ntem.
• A scoping study has been completed on the project.
• Proceeds from the issue will be used to advance development, working capital and to service existing debt issues.
• The company is looking to restructure its existing bonds totalling US$90m which have already been through one phase of restructuring.
• Under new restructuring arrangements the bonds paying 5% will now pay 3% on an annual basis and 2% will be rolled up and deferred to maturity.
Conclusion: Shares in the company were suspended and were due to delist one month after the resignation of their nomad which was a month ago. The sheer level of debt for a company with no new term earnings. Prospects for earnings for their West African iron ore assets are difficult to assess against a challenging scenario for iron ore pricing and the capital required for development. Any shareholder participation will be very diluted.
Lonmin PLC (LON:LMI) 17.75 pence, Mkt Cap £104.2m – Underwritten Rights Issue and Final Results
• Subject to shareholder approval at a meeting on 19th November, Lonmin is to raise US$407m in a previously announced rights issue. Net proceeds after the payment of fees and expenses etc are US$369m
• The shares are to be issued at 1 pence per new share on the basis of 46 new shares for every share currently held.
• The issue of the new shares, which are being issued at a discount of 93.85 percent to the closing price on 6th November, is being underwritten by HSBC, JP Morgan Cazenove and Standard Bank.
• “Upon the Underwriting Agreement with respect to the Rights Issue becoming wholly unconditional and certain customary conditions being met” agreements that the Company has entered into with its existing syndicate of lenders will come into effect whereby the existing US$ loan can be extended from May 2016 to May 2020 and the Rand denominated loan facility will be extended from June 2016 to June 2020.
• The funds are to be used implement Lonmin’s plans to restructure the business through shaft closures and reductions in PGM output, capital expenditure and headcount.
• In December 2012, Lonmin raised $767m at £1.40/share.
• Lonmin has also reported a loss for the year to 30th September of US$1.9 bn, including “Special Items” amounting to US$1.8bn of which the main elements are impairment charges of US$1.4bn on tangible assets and a further US$358m on intangible assets.
• At 30th September Lonmin reports a cash balance of US$320m and net debt of US$185m.
• Lonmin’s guidance is for platinum sales to decline to 700,000 oz in 2016; and 650,000 oz in both 2017 and 2018.
• Capital expenditure is to be limited to $132m in 2016; $110m in 2017 and $188m in 2018.
Conclusion: Lonmin is facing difficult times and weak commodity prices. The current rights issue feels like the last chance to turn the situation round and there appears to be little leeway for further weakness in commodity prices.
Minera IRL (LON:MIRL) SUSPENDED – Minera IRL Limited board calls EGM to remove Diego Benavidez
• The Board of Minera IRL have announced the calling of an EGM of the company’s 99.99% owned Peruvian subsidiary Minera IRL S.A.
• The resolution calls for the removal of the General Manager, Diego Benavides, the Minera IRL S.A. board and the repeal of powers of attorney.
• “In accordance with article 117 of Peruvian Corporations Law, the Board of Directors of Minera IRL S.A. is mandated to call for such EGM by no later than November 11, 2015.”
• The move highlights the board’s desperation to remove Diego Benavides and exert their control on the company and its subsidiaries.
• We continue to support Diego Benavides in his EGM vote to remove the board of Minera IRL London.
• We believe Mr Benavides has been working in the best interest of shareholders to maintain gold production and to advance the new Ollachea gold project.
• We do not see the actions of the Minera IRL Limited board as conducive to the addition of shareholder value.
* 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.
Nyrstar – one of the world’s larger integrated zinc producers looks set to raise €250-275m by placing new stock (FT)
• The company have also appointed bankers to look at a total exit from mining
• Nyrstar is also looking at raising a further €150-200 in a pre-payment deal for metal, which sounds like a metal streaming arrangement
• The company may also issue a high-yield bond to raise further funds
• Trafigura is backing the deal and is reported to be underwriting the deal up to €125m of the equity issue
• Nyrstar state that they might have to cut 400,000tpa of zinc concentrates if prices remain at current low levels. This combined with Glencore’s 500,000tpa zinc cut would certainly restore the market rapidly to a deficit situation.