Economic News
Currencies
US$1.0700/eur vs 1.0685/eur yesterday. Yen 123.16/$ vs 123.28/$. SAr 14.142/$ vs 14.214/$. Sterling $1.525/gbp vs 1.524/gbp
0.718/aud vs 0.711/aud – yesterday. Euro targeting 1.05 rate vs US dollar as Fed rate rise nears
Commodity News
Precious metals:
Gold US$1,075/oz unch vs US$1,073/oz yesterday – Gold stabilises
Platinum US$860/oz vs US$853/oz yesterday -
Palladium US$540/oz vs US$547/oz yesterday –
Silver US$14.22/oz vs US$14.25/oz yesterday
Base metals:
Copper US$ 4,625/t vs US$4,655/t yesterday – prices continue to fall as producers look to cut costs rather than production
Aluminium US$ 1,471/t vs US$1,478/t yesterday – Prices are forecast to bottom at US$1,400/t in coming months amid a broader stabilisation in commodity prices in H1/16.
Nickel US$ 9,025/t vs US$9,125/t yesterday – Indonesia expects three nickel smelters to start operations in 2016 taking total smelting capacity to 767kt from 524kt forecast.
Zinc US$ 1,513/t vs US$1,543/t yesterday –
Lead US$ 1,585t vs US$1,583/t yesterday –
Tin US$ 14,585/t vs US$14,710/t yesterday –
Energy:
Oil US$44.3/bbl vs US$44.3/bbl yesterday –
Natural Gas US$2.328/mmbtu vs US$2.409/mmbtu yesterday
Uranium US$36.10/lb unch vs US$36.00/lb yesterday –
Bulk commodities:
Iron ore 62% Fe spot (cfr Tianjin) US$47.1/t unch vs US$47.2/t – yesterday There’s about 300mt of surplus capacity in China that need to bulldozed, ex Rio economist
Thermal coal (1st year forward cif ARA) US$46.90/t vs US$46.50/t – yesterday
Steel – Steel mills in China estimated to lose around US$50/t of steel produced.
Other:
Tungsten - APT European prices $165-175/mtu unch on last week
Ferrochrome – Benchmark charge chrome price for delivery in Europe at US$1.04/lb its lowest level since Q1/10.
Company News
Johnson Matthey (LON:JMAT) £26.2, Mkt Cap £5.4bn – Catalysts show higher demand for platinum and palladium
• Revenues were up 20% over the period with sales excluding precious metals up 5% to £1,588m.
• Profit before tax was down 4%.
• Sales of Emission Control Technologies (ECT) was up 8% at £939m with underlying operating profits +15% to £136m.
• ECT continued to perform strongly benefitting from new legislation in Europe and growth in the Asian and NA businesses.
• Europe Light Duty Vehicle catalysts grew sales by 11% outperforming vehicle production in the region which was down 3%.
• This was driven by Euro 6b legislation which imposes tighter NOx emission standards for diesel vehicles bringing them much closer to gasoline cars.
• ECT loadings increase per car to meet Euro 6b with new models for diesel from 1st Sept 2014.
• Sales at Process Technologies were flat at £283m with underlying profits down 28% at £35.9m.
• Process technologies suffered from a slow-down in activity in China and sustained low oil prices.
• Sales at Fine Chemicals were up 1% at £157m and profits down 3% to £40.6m.
• Precious Metal Products sales were down 15% to £165m with profits down 31% to £36.1m.
• New Business sales were up 98% to £72m with operating losses narrowed by 18% to £9.9m.
• Net debt has fallen from £802m to £441.2m with proceeds from the sale of tis Gold & Silver Refining business of £380m.
• A restructuring programme has started to reduce costs by £30m with a one of charge of £40m (£35m in cash).
• The board has agreed to pay out £1.50 as a special dividend to shareholders.
• The interim dividend has also been increased by 5% to 19.5 pence.
Conclusion: With the recent VW scandal on diesel cars there has been speculation on the future demand for diesel cars in Europe. The current share of diesel cars in Western Europe is 51% and the company expect this to trend down with fuel efficiency improvements in gasoline engines, however, Euro 6b should help to counter some of this decline as it deals with NOx emissions and has CO2 advantages.
From September 2017, real world driving emission standards will be introduced which will require cleaner diesel engines. The company believe they have advanced selective catalytic reduction control systems which will be useful in meeting new legislation.
Palladium has been used more in gasoline than diesel engines although the loading from palladium in diesel engines has been growing. Hybrids use as much palladium as a gasoline engine. The biggest impact on PGM use in catalyst will come from electric cars.
In the short and medium term, with higher loadings required in diesel cars, PGM demand for auto catalysts should run ahead of demand for cars.
Lucara Diamonds C$1.61, C$611m – Karowe Mine produces 1,111 carat diamond
• Lucara Diamonds has recovered a 1,111 carat gem quality stone from the South Lobe of the Karowe Mine.
• This will be the world’s second largest stone ever recovered.
• The stone was recovered by a newly installed XRT machines and measures 65mm x 56mm x 40mm.
• The largest ever diamond found was 3,106.75 carats and was cut into 105 diamonds including Cullinan 1 – the Great Star of Africa.
Conclusion: This is great news for Lucara who are now mining mainly from the South Lobe which has been a source of higher value stones. It also vindicates the operational strategy of the team who have re-aligned the operating process to recover high value and large stones using XRT technology.
Focus will now be on how this stone will be marketed in the rough. The company is already sitting on a cash pile of US$122.7m as at the end of the last quarter and a special sale since then. It is unlikely to be marketed in this financial year but could form a significant part of revenues for next year. Full year guidance is for US$200-US$220m and we are confident that they will be or could beat the upper end of this range.
The author of this note recently visited the Karowe mine and was impressed with 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.
Leed Resources* (LON:LDP) 0.03p, mkt cap £0.935m – Production of ‘limestone walls’ to raise sales and margins
• Leed Resources the investment company which is producing building blocks and prefabricated walls for housing development reports its results today.
• The end-June 2015 results show a loss of £291k vs £236k yoy.
• The company have invested A$1.2m in a holding company which owns ‘High Mannor Pty’ a Limestone miner / producer outside Perth, Australia.
• High Mannor PTY, is breaking new ground through the production of large-scale wall panels for instillation on building plots in the Perth area.
• The last financial year saw the investment of funds into the development of the ‘limestone wall’ product while continuing to produce lower margin limestone blocks.
• This year the production and delivery of higher-margin ‘limestone walls’ should see a substantial increase in sales and margins through the new delivery of this product.
• It has taken High Mannor Pty longer than expected to perfect the wall construction process with modifications made to the pre-fabrication moulds.
• Management appear confident in their ability to deliver a high specification product and are set to become a market leader in the supply of its wall panels which speed up the wall construction process.
Conclusion: Having invested in the new production process last year Leed Resources’ should now start to benefit from sales of its new innovative limestone wall panels.
* SP Angel acts as nomad and broker to Leed Resources
Noricum Gold* (LON:NMG) 0.115p, Mkt Cap £3.1m – New high-grade copper target indicates potential for a third mining area
• Noricum have identified a new high-grade copper target at Kvemo Bolnisi through the assaying of drill core.
• These results are particularly significant as they are found adjacent to one of the new planned starter pits
• Drill cores had been previously assayed for gold or copper but rarely for both and was only assayed where mineralisation was visible.
• In this case the previous team were looking for gold and were not assaying for copper meaning that they missed the high-grade potential of what looks like a promising copper deposit.
• Noricum’s new results include:
o 40m at 2.11% copper from 69m (including 5m at 9.95%)
o 83m at 0.71% copper from 23m (including 15m at 1.17%)
o 7m at 4.02% copper from 39m
o 13m at 1.52% copper from 2m
o Located adjacent to two anomalous adits:
o 11.6m at 1.90% Cu from 31m ending in mineralisation
o 11.4m at 2.47% Cu from 32m ending in mineralisation
o There is also a deeper soviet era drill hole with 43m grading 0.95% copper from 83m.
o The target also shows significant gold grades in drilling with:
§ 4m at 3.5g/t
§ 5.5m at 5.8g/t
§ 4m at 6.26
Conclusion: This is another great result for Noricum with the implication that the company could be looking at mining three rather than two potential pits in the next few years in Georgia.
*SP Angel acts as Nomad and Broker to Noricum.