China’s yean (renminbi) to gain IMF reserve currency status
This means that for the first time a world reserve currency is set to carry the picture of a man who is widely seen as responsible for the death of millions of people
Economic News
US – NFP are due Friday this week with estimates for another strong >200k reading in Nov.
A continuing growth momentum in the labour market will raise chances for the Fed to move with a rate hike during the 15-16 Dec meeting.
The Dollar Index crossed a 100.0 mark is currently trading close to a 8-month high.
China – Manufacturing PMI is due tomorrow with estimates for official numbers that include a larger number of respondents as well as state owned entities to keep put at 49.8 implying the sector remains in a contractionary stage.
This will mark a fourth consecutive <50 reading.
Private sector manufacturing PMI prepared by Markit/Caixin points to faster decline (48.3) stretching losses to eight months now.
ECB – The Board is meeting this Thursday with expectations the Bank will cut the deposit rate to -0.3% from current -0.2%.
Markets have priced in a 100% chance of a 10bp cut in the deposit rate and a 90% probability of 15bp cut.
The Meeting starts on Wednesday.
Germany – Retail sales slowed in Oct recording on a 0.4%mom decline compared to an increase forecast.
YoY numbers also missed estimates climbing 2.1%yoy v +2.9%yoy estimated.
Barkina Faso – Both presidential and legislative elections completed over the weekend with votes currently being counted.
New president will be replacing an interim government appointed after Blaise Compaore has been forced to step down last year.
The front runners are ex-PM Roch Marc Christian Kabore and Zephirim Diabre, a former regional head of Areva.
Currencies
US$1.0581/eur vs 1.0588/eur yesterday. Yen 123.03/$ vs 122.57/$. SAr 14.377/$ vs 14.367/$. Sterling $1.501/gbp vs 1.504/gbp
0.720/aud vs 0.720/aud – yesterday. Non-Farm payrolls due Friday, Fed rate decision on 16 December
Commodity News
Precious metals:
Gold US$1,056/oz unch again vs US$1,067/oz yesterday – Gold production from Australia climbed 1%qoq/2%yoy in Q3/15 as a weakening Australian dollar compensated for a weak metal’s price, Surbiton Associates said.
Gold prices fell 2.7% during Q3/15 with the AUDUSD down 7.8% in the same period.
That left gold prices in AUD terms up >5% in Q3/15.
Platinum US$827/oz vs US$845/oz yesterday -
Palladium US$548/oz vs US$554/oz yesterday –
Silver US$14.10/oz vs US$14.10/oz yesterday
Base metals:
Copper US$ 4,589/t vs US$4,626/t yesterday – Chinese smelters agreed to cut production by 200kt copper at least in 2016.
A reduction is equiValent to 2.5% of the nation’s annual production and even less of the global output.
Aluminium US$ 1,457/t vs US$1,497/t yesterday –
Nickel US$ 8,840/t vs US$8,985/t yesterday –
Zinc US$ 1,562/t vs US$1,578/t yesterday –
Lead US$ 1,617t vs US$1,623/t yesterday –
Tin US$ 14,900/t vs US$14,940/t yesterday –
Energy:
Oil US$44.9/bbl vs US$44.9/bbl yesterday –
Natural Gas US$2.214/mmbtu vs US$2.236/mmbtu yesterday –
Uranium US$36.10/lb unch vs US$36.10/lb yesterday –
Bulk comodities:
Iron ore 62% Fe spot (cfr Tianjin) US$46.1/t unch vs US$46.5/t – yesterday
Thermal coal (1st year forward cif ARA) US$46.50/t vs US$46.80/t – yesterday
Other:
Tungsten - APT European prices $165-175/mtu unch again
Ferrochrome – Chinese contract prices went lower as stainless steel mills are pushing bid prices down on continuing oversupply and weak demand.
MB charge chrome index (cif Shanghai) fell 3c to 66c/lb last week.
Ferrochrome – Benchmark charge chrome price for delivery in Europe at US$1.04/lb its lowest level since Q1/10.
Company News
Aureus Mining (LON:AUE) 7 pence, Mkt Cap £25.8m – Raising $21.5m debt and equity
Aureus Mining reports that it has raised $11.5m in new equity at 5p/share plus negotiated an additional $10m loan facility from Rand Merchant Bank and Nedbank to strengthen its balance sheet as it brings the New Liberty gold mine to commercial production early next year.
The loan facility attracts interest at US LIBOR plus 5% and is repayable in a single bullet payment on 31st December 2017.
The operation has suffered from a shortage of explosives, mainly due, we believe, to movement constraints during the recent Ebola outbreak. These issues appear to have been addressed, with the arrival of a 100 tonne shipment of explosives in mid November and a further 330 tonne consignment (equiValent tom one month’s supply) currently in transit.
As a result of these delays, although the company has been able to produce and ship 13,500 ounces of gold during the commissioning and ramp up and expects to produce a similar quantity of gold during the rest of 2015, waste removal required to expose additional ore feed, has fallen behind schedule by approximately 9.5m tonnes.
The company expects to use $15m of the new funds to reduce its accounts payable to “normal operating levels” and of these, approximately $9m is due to the supplier of the mining fleet and “once this creditor position has been cleared, the fleet supplier has been cleared, the fleet supplier has agreed to bring additional mining equipment to site”
The company notes that it has “a US$6.6 million debt repayment due in January 2017, which, should the gold price remain at current levels, the Company may be unable to meet, and may therefore require the continued support of its stakeholders.”
At this stage, the company is maintaining its production guidance for 2016 of approximately 125,000 oz of gold at an all in sustaining cost of $959/oz.
Conclusion: Aureus Mining has overcome great challenges to deliver the New Liberty mine against a background of economic turbulence and the impact of the Ebola epidemic in West Africa. The company’s shareholders and debt providers look to have stepped up to support the company through this latest setback. Given the comments from the company about the likely impact of a prolonged period of gold price weakness, we would imagine that Aureus may have a contingency plan to address this eventuality - perhaps to produce higher grade ore at a lower rate.
BHP Billiton (LON:BLT) 791 pence, Mkt Cap £44.5bn – Update on Samarco
The Brazilian Federal Government and some State governments are to start legal proceedings against Samarco, Vale and BHP Billiton for clean-up costs and damages.
It is expected that they will ask a fund to be set up of around BRL 20 billion or around US$5.2bn at current exchange rates.
The company has not received a formal notice of action yet.
Independent work to test the impact on the Rio Doce river system by the Brazilian Geological Service (CPRM) and SGS Geosol have not found any impact of hazardous materials from the tailings.
Samarco remains suspended and 13 fatalities have been recorded so far with 6 still missing.
Conclusion: Fatalities have gone up from 9 to 13 and missing people have come down from 19 to 6 people. The size of the fund required for damages has predictably gone up and now is being muted at US$5.2bn. There has been speculation that the tailings contains some contaminants but as would be expected given they were iron ore tailings, no hazardous materials have been found. This should help Samarco and its JV partners. It is in the interest of BHP and Vale to push forward on this and clear up their reputations.
Petra Diamonds (LON:PDL) 58 pence, Mkt Cap £303m – Recovery of 23 carat pink from Williamson provides useful addition to revenues
Petra made its most significant find from Williamson with a 23 carat pink stone.
The diamond is to be offered for sale by appointment at Antwerp as part of the December tender process.
Conclusion: This should be helpful to Petra in the December sales. Pinks are rare and are well sought after. The Lucara 8.03 pink carat went for around US$113,000 a carat at their recent exceptional tender – using this benchmark for the stone would value it at around US$2.6m although direct comparisons cannot easily be made given the difference in size and without knowing the quality. Williamson made US$10.1m in Q1 FY 2016 and for the full year we are factoring in US$60.8m of revenues from Williamson based on a better second half. This could be a helpful contributor to these projections.
We remain above concensus in our FY 2016 forecast and will review these at the end of the first half.
Scotgold Resources Ltd (LON:SGZ) 0.775p, Mkt Cap £9.8m – Scotgold identifies additional exploration targets near Cononish
Using a combination of structural geological interpretation and an existing geochemical database, Scotgold’s consultants, have identified 6 additional high priority exploration targets within a 2.5 km radius of the company’s flagship Cononish gold deposit in the Grampian region of Scotland.
The Coire Nan Sionnach and Kilbridge areas, which lie outside the boundary of the National Park and to the north of the Cononish deposit are described as highly prospective and the study has identified “two further parallel anomalies between the Cononish deposit and Coire Nan Sionnach.” These anomalies appear to the Meall Odhar and Gharb Choirean anomalies, while additional linear anomalies following a similar NE trend have been identified to the northeast.
Beyond this area, the Beinn Udlaidh and Arrivain areas further to the north are described as “particular important targets for ongoing exploration.”
The study also identified a further 5 targets, presumably of a lower priority, and further work is planned to follow up all these 11 prospects and investigate whether there are other, as yet unidentified, opportunities.
Conclusion: Scotgold released its Bankable Feasibility Study to develop a 23,000 oz pa gold mine at Cononish earlier this year and is understood to be in discussions to finance the £18.5m mine development. It is encouraging to see that additional promising targets have been identified in close proximity to Cononish, however we consider that the mine development should be the prime focus at this stage.
ZincOx (LON:ZOX) 1.6pence, Mkt Cap £3m – Rescheduling of Korean debt
As a result of a fall in the zinc price, Korea Zinc has agreed to roll up all interest payments due on the Development and Offtake agreement.
This amounts to US$5.4m to 31 Dec 2016 unless the zinc price recovers to above US$2,000 per tonne for 3 months in which case debt repayments will restart.
In addition, the semi-annual principal repayments on the development loan will be deferred for a year unless the average zinc price rises to above US$2,500/t for a 3 month period.
This is conditional on the company raising US$5m before 31 Dec 2015.
If these funds are not found then the company has to transfer 90% of its interest in its Korean subsidiary to Korea Zinc.
As part of this restructuring ZincOx(Korea) ltd has agreed to increase its zinc concentrate offtake from 1,050,000 tonnes to 1,190,000 tones – so far 141,000 tonnes has been delivered.
For the first half the company generated a positive EBITDA of US$0.8m from their Korean plant as it moved to design capacity and achieved 90% of monthly targets.
Nameplate capacity is 200,000 tonnes per annum.
The company raised £3.1m in August with pre-development of the next stage of project development.
A plant upgrade of 50% of the KRP zinc concentrate estimated at US$20m could potentially add to EBITDA by US$11.7m based on a zinc price of US$1,600/t (current spot is US$1,554/t).
The upgrade would take a year to implement once 6 months of pre-development work is completed.
Conclusion: The company are in a difficult position given the current backdrop for zinc where prices have fallen 16% from the prices achieved in October when zinc shutdowns were muted. Recent announcements by Chinese producers to cut production have not resulted in a significant price appreciation yet.
Finding a fresh investment of US$5m by the end of December would be quite a challenge despite significant improvements made on the plant with prospects for additional EBITDA from a plant upgrade which would cost around US$20m.