Economic News
US – The dollar touched a new high for the year as Janet Yellen said her confidence that inflation will be moving towards target levels was “bolstered” amid strong jobs numbers and a pickup in earnings growth.
Yellen comments point to increasing chances of a rate hike during the Dec FOMC meeting (15-16 Dec).
Economic activity continued to grow at a modest pace in most regions from early Oct through mid-Nov, the Fed Beige Book said.
Overall wage pressures were “generally stable to increasing”.
China – Private sector services PMI showed the industry continue to expand in Nov, though, at a reduced pace.
This compares to a challenging situation in the manufacturing sector that remains in a contractionary phase.
The composite index passed the 50.0 mark coming in at 50.5 for the first itme since Jul this year recovering from a record low of 48.0 in Sep.
ECB – The euro is trading lower this morning ahead of the ECB monetary policy announcement.
Estimates are for the Bank to cut the deposit rate further into the negative territory and potentially expand the bond purchasing programme.
France – Unemployment hit record levels in Q3/15 coming in at 10.6% as of Sep versus 10.4% forecast by markets.
Australia – Trade deficit widened more than forecast in Oct amid falling commodity prices.
Currencies
US$1.0561/eur vs 1.0622/eur yesterday. Yen 123.50/$ vs 123.12/$. SAr 14.323/$ vs 14.364/$. $1.493/gbp vs 1.507/gbp
0.733/aud vs 0.732/aud
Commodity News
Precious metals:
Gold US$1,050/oz vs US$1,068/oz yesterday
Platinum US$832/oz vs US$841/oz yesterday
Palladium US$528/oz vs US$540/oz yesterday
Silver US$13.95/oz vs US$14.17/oz yesterday
Base metals:
Copper US$ 4,526/t vs US$4,583/t yesterday
Aluminium US$ 1,467/t vs US$1,469/t yesterday
Nickel US$ 8,735/t vs US$8,970/t yesterday
Zinc US$ 1,534/t vs US$1,560/t yesterday
Lead US$ 1,636/t vs US$1,648/t yesterday
Tin US$ 14,750/t vs US$15,030/t yesterday – The market is expected to move into a structural deficit this year as a fall in mined supply is forecast to exceed a contraction in demand, on International Tin Research Institute (ITRI) estimates.
World refined production to fall 7.7%yoy to 340.6kt this year with a further 1.1%yoy decline to 336.8kt in 2016.
On a demand side, a small decline is forecast (-3%) with little recovery in 2016.
The agency estimates a 6kt deficit this year with a further 10kt shortfall in 2016.
Energy:
Oil US$43.3/bbl vs US$44.2/bbl yesterday
Natural Gas US$2.161/mmbtu vs US$2.198/mmbtu yesterday
Uranium US$36.10/lb vs US$36.10/lb yesterday
Bulk comodities:
Iron ore 62% Fe spot (cfr Tianjin) US$38.8/t vs US$39.9/t
Thermal coal (1st year forward cif ARA) US$45.2/t vs US$46.0/t yesterday
Other:
Tungsten - APT European prices $165-175/mtu unch again
Steel – 85% of Chinese steel mills are reported to be operating at a loss amid weakening demand and solid supply weighing on steel prices according to Macquarie estimates.
Company News
Acacia Mining (LON:ACA) 180.7 pence, Mkt Cap £741m – Accelerating workforce reductions
Acacia Mining reports that it is speeding up the previously announced reductions to workforce numbers which have “already led to a 60% reduction in the number of higher cost expatriates.”
The programme was originally planned to extend through to the end of 2016, however the company now states that “approximately 1,050 of our people, representing approximately 27% of our workforce, have either left or are expected to leave Acacia over the next few months through a combination of voluntary separation agreements and redundancies.”
Overall, the programme will be particularly directed at the Bulyanhulu mine though “all of our mines and offices will be affected”. Cost savings are expected to amount to around $25m pa before a one off restructuring charge of approximately $11m which will be incurred largely in 2015.
The company comments that “The majority of those employees affected have already left Acacia, with operational performance continuing to be in line with plan for the quarter.”
Conclusion: Acacia Mining is taking hard decisions to adjust its cost base in response to gold market weakness. The painful process has been accelerated but it may provide a more secure future for the company and its remaining workforce.
Caledonia Mining (LON:CMCL) 43 pence, Mkt Cap £22.4m – Resource increase below 750m at the Blanket mine
Caledonia Mining reports that drilling work over the last six months below the 750m level in the AR South section of its 49% owned Blanket gold mine in Zimbabwe has added an additional resource of 222kt of indicated resources at a grade of 4.9g/t gold and 283kt of inferred resources at an average grade of 4.03g/t gold.
The additional resources represent approximately 72,000 oz of contained gold, of which 49% (approximately 35,000 oz) is classified as indicated. The company comments that “The upgrade and addition represents an increase of 14% in terms of tonnes and 19% in terms of contained gold and equates to 2 years of production at 2014 levels.”
The upgrade announced today is the result of a long term programme of resources estimation drilling over the next 3 to 4 years to establish and upgrade inferred resources below the mine’s 750m level which become accessible from the new Central Shaft which is already underway and expected to be completed to a depth of 1080 metres by June 2018.
This major development programme is aimed at securing the long term future of the Blanket gold mine and increasing gold output from the present level of around 40,000 oz pa to approximately 65,000 oz by 2017 and 80,000 oz by 2021.
The company recently hosted a visit for analysts which showed progress on a number of aspects of the development programme, including the shaft sinking on Central Shaft, where the pre-sinking stage is now complete, and on the recently completed “tramming loop” which increases and simplifies underground ore movement capacity.
Presentations to the analysts outlined the drilling strategy to upgrade deeper level resources at the Blanket mine and today’s announcement underlines the progress in implementing this strategy; we expect further announcements as the drilling progresses.
Conclusion: Identifying additional ore resources at depth in the Blanket mine is good news for Caledonia Mining and, in our opinion, is likely to be the first of a number of similar upgrades which may result from the continuing drilling programme over the next 3-4 years.
DiamondCorp (LON:DCP) 6.125 pence, Mkt Cap £23m – IDC debt rescheduling and fund raise
The IDC have agreed to reschedule debt payment due on the loan.
The first capital payment due in FY 2016 of around Zar 82m is to be now rescheduled to 1 Feb 2017.
In addition interest is to be rolled up to that date with interest and capital coming due on a quarterly basis from 1 Feb 2017.
The interest rate on the loan is to go up from 2% above South African primer to 3.2% over starting from the 31 Han 2016.
Total loan and capitalised interest will now go up from Zar 258m (£11.9m) should payments have started in Jan 2016 to Zar 311m by 1 Feb 2017 or around £14.4m.
In addition the company are raising £4m by way of share placing.
50% of funds raised will be to continue development to the 475m level tunnel, £0.65m (16%) towards processing costs, £0.65m (16%) towards G&A at Lace, £0.33m to pay coupons on the UK bonds, £0.56m to the Laurelton/Tiffany and general corporate costs (£0.4m).
The placing is to be done through a book build and will be issued in two tranches of 32,337,000 in the first tranche and second tranche subject to approval in an EGM.
Based on funds being in place, the company expect to ramp up production from the K4 block to around 30,000 tonnes by July 2016 with Total ore mined for FY 2016 of 247 kt recovering 138,000 carats for the year.
The company expect to generate cash of around Zar 74.4m in FY 2016 to meet external debt payments in the year of Zar 10.23m.
Conclusion: Renegotiation of the IDC loan is good news – delay in paying the loan will result in higher payment terms raising the overall cost of the debt payment. The fund raise is to meet the working capital short fall as a result of delayed production as already signalled. Coupon payments are to be made to convertible holders and a coupon paid on the Tiffany loan which will be partially funded from the equity fund raise.
Shareholders are likely to be supportive given the amount of work already done on the mine to get to first production with a credible ramp up schedule set out by the company and in line with our expectations.
Current assumptions for a US$150/carat valuation based on a 1.00m bottom cut off although lower volumes and a higher valuation could be established should the company optimise the cut off form 1.00m to 1.25mm.