Major miners fall further as metals prices fall on stronger US dollar
A stronger US dollar combined with slow demand for metals in China continues to depress base metals prices
NY Times reports EU leaders to discuss Rare Earth Mineral supply at Paris meeting
https://www.nytimes.com/2015/11/20/opinion/the-next-resource-shortage.html
The NY Times reports that European leaders are set to discuss how to secure Rare Earth Mineral supply at a key meeting in Paris this month
There are three key reasons for the discussion:
REE minerals are critical for the energy efficient technologies and are part of the drive to reduce carbon emissions
European manufacturers and technology companies need REEs for products and manufacturing
Military hardware increasingly uses REEs to improve performance.
The EU already recognises key REE’s as of critical importance with the ability to obtain consistent supply of economic and security interest
The American Chemical Society reports nearly half REE elements could see supply risks with long lead times for new sources of supply
A wise man send us the following words in relation to the mining sector
- As it will be in the future, it was at the birth of Man
- There are only four things certain since Social Progress began.
- That the Dog returns to his Vomit and the Sow returns to her Mire,
- And the burnt Fool's bandaged finger goes wabbling back to the Fire;
R.K.
FTSE 350 Mining Index – All 13 shares in the index post losses this morning on the back of a continuing sell off in commodity markets.
Base metals are testing multi-year lows with copper, aluminium and lead trading at their weakest since 2009 and nickel hovering around US$8,350/t.
Economic News
China – Auto sales growth are expected to normalise next year with the days of exponential increase reported to be over based on comments made by major producers at the Guangzhou Auto Show last Friday.
Volkswagen expects sales to grow 3-5% next year.
Toyota said the company will not be setting high targets for its dealers in 2016 to allow them to “regain strength”.
Daimler is expecting to offer heavier discounts in the market.
Germany – Both manufacturing and services PMIs beat forecasts with new orders in both sectors posting gains.
“The rise in new business was a particularly bright spot in the data set, with the respective pace of expansion the fastest in two years.”
Manufacturing PMI: 52.6 v 52.1 in Oct and 52.0 forecast.
Services PMI: 55.6 v 54.5 in Oct and 54.4 forecast.
France – Manufacturing PMI inched up in Nov coming in line with expectations while services sector expanded at a lower pace leaving composite PMI down on the previous month.
“French private output growth weakened slightly in Nov, with the Paris attacks reported to have hit the activity among some service providers,” the report read.
“While the longer-term economic impact following the attacks remains uncertain, PMI data suggest that GDP is on course to post another modest expansion in Q4 following the 0.3% growth reports in Q3/15.”
Manufacturing PMI: 50.8 v 50.6 in Oct and 50.8 forecast.
Services PMI: 51.3 v 52.7 in Oct and 52.5 forecast.
Myanmar – A landslide in Kachin State, Myanmar increased to at least 104 people over the weekend, after soil removed from a jade mine in the region collapsed burying c.70 huts used by miners.
Kachin state is reported to be the source of some of the highest quality jade in the world.
Currencies
US$1.0628/eur vs 1.0687/eur yesterday. Yen 123.16/$ vs 122.84/$. SAr 14.032/$ vs 13.977/$. Sterling $1.516/gbp vs 1.529/gbp
0.718/aud vs 0.722/aud – yesterday. Lockdown in Belgium may impact European activity
Commodity News
Precious metals:
Gold US$1,071/oz unch vs US$1,083/oz yesterday –
Platinum US$848/oz vs US$866/oz yesterday -
Palladium US$550/oz vs US$547/oz yesterday –
Silver US$13.99/oz vs US$14.32/oz yesterday
Base metals:
Copper US$ 4,489/t vs US$4,652/t yesterday –
Aluminium US$ 1,444/t vs US$1,485/t yesterday –
Nickel US$ 8,385/t vs US$8,945/t yesterday –
Zinc US$ 1,531/t vs US$1,595/t yesterday – Chinese top 10 zinc producers will cut production by 500kt in 2016 in an effort to support metal prices.
Coupled with announcements by Glencore and Nyrstar, total cuts come to 1.5mt for the next year.
On a separate note, Chinese refined zinc imports increased in Oct to the highest level in 21 months on arbitrage between local and LME prices.
Imports jumped 75%mom to 72.3kt marking the highest level since Jan/14.
Lead US$ 1,574t vs US$1,620/t yesterday –
Tin US$ 14,500/t vs US$14,695/t yesterday –
Energy:
Oil US$43.7/bbl vs US$44.4/bbl yesterday –
- The oil price, on an adjusted basis, is trading at, or near, historic “real” lows, such that the recent $120/bbl highs are equivalent to $30/bbl in 1980s. Consequently, to see prices at ~$42/bbl is equivalent to sub $8/bbl in 1980s, and arguably providing significant impetus to the global economy in real terms. This needs to be set against a backdrop of a higher E&P cost environment, which cumulatively is starving the oil and gas business of revenues sufficient to continue to invest in the projects that make a significant difference to the global supply/demand balance.
- · We see forward supply attrition increasingly lifting the mood of the oil market and pushing oil prices towards $100/bbl and believe that the oil price will peak at ~$125/bbl
- · We have based this not on rational supply/demand metrics, but supply concerns which, when contrasted against the growing demand (oil demand is an inelastic demand driver), could well precipitate the kind of sharp increase in the oil price that we experienced on the downside, i.e. that it could be as swift as it is savage.
- · The fact that recent ordinarily price deflationary news has resulted in limited movement, to our mind underlines the fact that we are entering the transition phase between demand side control, to supply side control of the oil price. As this balance transfers from the demand side, we would expect to see increasing volatility in the oil price, especially as it approaches the “tipping point.” We do not believe that we are too far away from this point currently, as we have seen increasing swings in volatility.
- · What is clear is that the “stressors” in the oil markets are growing and, given that a lack of investment will only see supply decline, we do not see those stressors resulting in the low oil price environment that many speak of but, as history will judge, a hiatus in a return to the norm of the $80 – 100/bbl range.
Natural Gas US$2.076/mmbtu vs US$2.247/mmbtu yesterday –
- The gas markets are more difficult to call than for oil, as the market is not as deep, or liquid, and the investment cycles considerably longer. Here, however, is the growing realisation, in Europe is that Russia, which supplies 40% of European demand, is not averse to politicising its natural resources to achieve its aims with a concomitant need for the West to diversify supply sources.
- · European imports primarily come from Russia, and even during the coldest periods of the cold war, gas flows were uninterrupted.
- The surplus of gas in Africa and Asia means that it is unlikely that meaningful gas volumes would flow from the US, if indeed FERC would ever approve exports.
- The need for gas would most likely be satisfied by West or East Africa, and after that, Qatar or Australia.
- The problem isn't the access to gas, it's the import points. In the UK, the main one is at Haverford West. In Europe, there are a number of points but nowhere near enough to offset the volumes deliver by pipeline from Russia.
- Given the long lead times to construct gasification facilities, even if there was sudden desire to diversify, it would be a minimum of 4 years before it commissioned.
- · We see higher prices for gas ahead too, and while Henry Hub is a liquid pricing point for the US, like the WTI price, it is no longer the barometer of what is occurring globally due to the market domestic supply balance in the US. In this respect, the European market is a good proxy for a balanced supply market, but the real barometer for pricing in the global gas market is the Japan Korea Marker (JKM) price, which is currently trading at ~$8.007/mcf and, although it is down 25% year on year, it is up >10% in the last 3 months alone. Given the fact that LNG facilities have significant lead times require very large investment before first shipment of volumes, such that the majority of the resulting supply has to find a home at a preordained price and preferably identified before FID, which tends not to develop a deep and liquid spot market.
- · That said, as European energy demand starts to grow, there will be greater confidence in building in spare capacity to supply into the spot LNG market, hence the global gas market will grow, albeit slowly, which means as European sourcing patterns shift at quicker rates, that the spot LNG market will be increasingly squeezed.
- · Conclusion: Europe is keen to diversify its gas supply away from Russia and to import shale gas from the US but low oil and gas prices will reduce US shale oil and gas exports at a time when north sea production is in decline. Other gas supply comes into Spain from Algeria and into Italy from Turkmenistan. Quatar is also a significant LNG supplier. Russia wants to continue selling its gas into Europe but its political stance has made it more of a priority to diversify supply. Mr Putin will want to reassure major consumers that Russian gas is a secure supply in a world where the ability to turn the tap off brings significant political influence.
Uranium US$36.10/lb unch vs US$36.10/lb yesterday –
Bulk commodities:
Iron ore 62% Fe spot (cfr Tianjin) US$46.1/t unch vs US$46.4/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$46.00/t vs US$47.40/t – yesterday
Steel – Steel mills in China estimated to lose around US$50/t of steel produced.
Iron ore – Mines Ministry in India is planning to lift a 10 % export tax on lower-grade iron ore offering support to miners struggling with falling commodity prices.
The ministry is considering removing levies on fines with an iron content of below 58% Fe.
While a positive development for local producers, a removal of export taxes is set to add to downward pressure on global iron ore prices.
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
Gemfields (LON:GEM) Buy, Target Price 82 pence – Good Results from Jaipur Emerald Auction
The company reported sales of US$19.2m from the sale of 4.45m carats out of 5.07m carats offered.
This is up 17% from the same time last year.
The average sales per carat was up 30% to US$4.32/carat against US$3.32/carat the same time last year.
Lots sold by value was 88% against 91% last year but consistent with previous auctions.
The carats on offer was less than in previous auctions at 5.07 carats against 5.62 carats offered the same time last year and down from 10.1 carats offered in Feb 2015.
A higher quality emerald auction in Singapore netted US$34.7mm in September this year with an average realised price of US$58.42/carat.
Gemfields next auction will take place in Dec 2015 and is expected to be a mix of rubies and corundum from the Montepuez deposit.
Conclusion: This is a good result for Gemfields with carat per value up 30%. With one high quality and one low quality auction for FY 2016 already done, the company has netted US$53.9m against our full year forecasts of US$68.8m from Kagem. This gives them 78% of assumed sales from Kagem and means they are well placed ahead of their next emerald auction. We factor in lower prices and higher volumes in our assumptions and will review this as sales progress through the year.
The shares have come back with the sector and now offers a better entry point for a company which is unique in the coloured gemstones market. We maintain our buy recommendation on the shares.
Bacanora Minerals (LON:BCN) 82.5pence, Mkt Cap £70.2m – Sonora lithium project resource raised to 5mt
Bacanora Minerals has published a significant 337% increase in the lithium resource at its main Sonora project in Mexico.
The increase to some 5mt of or for the production of Lithium Carbonate .
The new resource is part of the company’s ongoing feasibility study.
Bacanora recently raised £8.8m through the placing of 11.5m new shares at 77p/s into the market.
The funds are to be used to complete a Bankable Feasibility Study on the Sonora Lithium project in Mexico.
Funds will also be used to upgrade the pilot plant at Hermosillo for the provision of bulk samples to support offtake discussions with offtakers.
Central Asia Metals (LON:CAML) 165 pence, Mkt Cap £184.3m – Regulatory Approvals achieved for Stage 2 Expansion
The company has received regulatory approval for mining the copper contained in the Western Dumps through amendment of their existing Subsoil Use Contract.
Construction works for Stage 2 development are expected to start in March 2016.
Capital costs for the programme ae expected to be within the US$19.5m estimate.
Operations are benefitting a 65% devaluation of the Kazakhstan Tenge.
For Q3 2015 2,966 tonnes of copper was produced with record monthly production of 1,285 tonnes in October.
Conclusion: The 65% devaluation of the currency is helpful at the time when copper prices have fallen.
Leed Resources* (LON:LDP) 0.05p, mkt cap £1.6m – Issue of Ordinary Shares to Consultant
Leed Resources today announces the issue of £32,900 worth of shares to PG Mining Management pursuant to their agreement with the company.
The company has issued 32.9m new shares at an agreed price of 0.1 pence per share. PGMM elected to take a larger portion of their payment in shares.
* SP Angel acts as nomad and broker to Leed Resources
IronRidge Resources* (LON:IRR) 2.3 pence, Mkt Cap £5.3mm – Update on Tchibanga Iron Ore project in Gabon
IronRidge have been conducting ongoing field geological mapping and sampling of the Tchibanga Project.
500 rock chip samples with a walked grid of 200m x 100m have been collected over 300km.
This has established a project area of 1.95 km2 of canga mineralisation.
Assay results have found an average of 45.2% Fe with relatively low contaminant levels.
Canga mineralisation is representative of surface enriched detrital and in-situ iron formation caused by extensive weathering.
To test the potential for high grade haematite-goethite mineralisation indicated by the surface canga, the company have started a low cost ground penetrating radar (GPR analysis).
GPR will enable the company to assess the depth potential of this mineralisation before undertaking a more costly drill programme.
Ongoing definition of the canga plateaus will continue over the coming months.
The company has also put in an application to the Ministry of Mines for a reconnaissance licence along the southern boundary of the project area.
The company are also evaluating the potential for infrastructure around the proposed port of Mayumba.
Indicative road pricing and barging costs are being sought from contractors/local suppliers active in the area.
Conclusion: Iron ore is not a sector that is attracting much interest given current supply/demand dynamics with development of West African iron ore projects seen as difficult in this context. However, IronRidge has been supported through the investment of Assore and Sumitomo to look at the prospectivity of the Tchibanga project based on early indications.
Extending the area of canga mineralisation is positive in this context and doing low GPR work before undertaking a more expensive drill programme makes sense. Tchibanga also offers the potential for access to infrastructure through the proposed port of Mayumba and through barging - options also being evaluated. With funds in place to continue exploration, we look forward to further news flow.
*SP Angel act as Nomad and Broker to IronRidge Resources.
Sumatra Copper & Gold (ASX:SUM) A$0.04, Mkt Cap A$22.8m – Tembang project production remains on target for 40-50koz AuEq by Q1/16
The Company met us on Friday and provided an update on operations at the flagship gold/silver Tembang project, South Sumatra, Indonesia.
The management has brought a brownfield operation into production under budget and two months ahead of plan with first god poured on 28Sep/15.
Operations are in a ramp up stage with the plan to hit 40-50kozpa gold equivalent production rate (75%/25% Au/Ag) in Q1/16.
The plant has a nominal capacity of 400ktpa with budgeted processed head grades of 3-4g/t AuEq and 92% and 85% gold and silver recoveries, respectively.
Milling section capacity is said to be able to operate at 20% above the 400ktpa capacity, although, that would require adjusting other parts of the CIL circuit to match extra capacity.
Mining of high grade material has been constrained due to a delay in delivery of the explosives with the plant being fed with low grade free dig material and stockpiles.
The Tembang project constitutes a number of open pits and underground targets.
At high grade Belinau underground mine (the Company is progressing in line with an updated mine plan establishing a second access to the orebody following a completion of a small cutback to the south of existing pit.
The ore from the adit will provide an early high grade feed to the plant adding to the operating cash flow.
Development of the main Belinau decline continues with 45m completed as of Sep/15.
Open pit operations currently in progress at the Buluh, Siamang (35kt 8.9g/t AuEq for 10koz AuEq in PP Reserves), Bujang (56kt at 4.7g/t for 8koz) and Berenai (710kt at 2.7g/t for 61koz).
The Company targets operating and all-in sustaining cash costs at US$525/oz and US$800/oz once the project is up and running at full capacity.
Team has drawn down on the outstanding US$45m facility with Nomura and Singapore Ltd and Indonesia Eximbank carrying an effective interest rate of 15%.
Conclusion: The Company reiterated its plan to ramp up production to 40-50kozpa AuEq run rate by Q1/16 as the supply of high grade feed from underground and open pit mines gain pace. In the meantime, the management is continuing with exploration programme in adjacent areas with a view of extending currently short LoM (5 years on latest Mineral Reserves: 2,011kt at 3.3g/t AuEq for 211koz AuEq). The management will be looking to refinance existing debt facility with a cheaper alternative during first year of production.