Komatsu forecasts another tough year ahead on the back of soft commodity prices.
• “Demand will probably be lower than the current year’s level,” the world’s second biggest mining and construction equipment producer said.
• “We anticipate there will be fewer markets showing growth.”
• Demand for mining equipment to post a fifth consecutive annual decline in 2016 as the largest miners expect another 25% cut in capex, Bloomberg Intelligence estimates indicate.
Economic News
US – Economic news due this week:
China – Nov weak trade data point to slowing growth in the world’s second largest economy.
• Exports dropped 3.7%yoy (CNY terms) marking the sharpest decline in three months and coming in worse than a 2.9%yoy fall forecast. Shipments fell 3.6%yoy in Oct.
• Imports declined 5.6%yoy v -16.0%yoy in Oct and -11.3%yoy forecast.
Japan – The economy avoids a technical recession as quarterly growth numbers are revised upwards led by stronger business investments than initially estimated.
• Q3/CY15: 0.3%qoq v -0.2%qoq estimated previously and 0.0%qoq forecast.
UK – Nov retail sales post a 0.4%yoy decline as Black Friday failed to compensate for reduced shopping during the rest of the month.
• Consumers are increasingly taking shopping online with internet sales up 11.8%yoy and accounting for more than 20% of the total.
• Property prices fell 0.2%mom in Nov compared to a 0.2%mom increase forecast, on Halifax numbers.
• The average cost of a house dropped to £204,552 last month.
• Prices were up 3.7%yoy.
• In three months to Nov prices climbed 1.4%qoq.
• This compares to a 8.7%yoy increase posted last year.
• Halifax expects prices to continue growing “at a robust pace” on “the increasingly acute imbalance between supply and demand”.
Currencies
US$1.0856/eur vs 1.0818/eur yesterday. Yen 123.10/$ vs 123.43/$. SAr 14.585/$ vs 14.453/$. $1.502/gbp vs 1.507/gbp
0.721/aud vs 0.730/aud
Commodity News
Precious metals:
Gold US$1,075/oz vs US$1,083/oz yesterday
Platinum US$863/oz vs US$874/oz yesterday
Palladium US$552/oz vs US$561/oz yesterday
Silver US$14.30/oz vs US$14.60/oz yesterday
Base metals:
Copper US$ 4,552/t vs US$4,604/t yesterday
Aluminium US$ 1,477/t vs US$1,514/t yesterday
Nickel US$ 8,705/t vs US$9,065/t yesterday - Major Chinese mills to cut stainless steel production on the back of waning demand and falling prices.
• In particular, producers are expected to reduce output of 200-series stainless steel by 30% in 2016.
• 200-series is a low nickel austenitic stainless steel (1-2% Ni) and accounts for a c.30% of Chinese stainless steel production, according to Antaike.
• China produced 6.92mt of 200-series stainless steel in 2015 with the six producers involved in the plan to cut production accounting for 65% of the nation’s output.
• A planned 30% reduction in 2016 wold amount to 15-30kt Ni in lost nickel demand equivalent to just over c.3% of the Chinese demand or 1.5% of the world annual consumption.
Zinc US$ 1,521/t vs US$1,565/t yesterday
Lead US$ 1,676/t vs US$1,689/t yesterday
Tin US$ 14,630/t vs US$14,865/t yesterday
Energy:
Oil US$41.1/bbl vs US$42.6/bbl yesterday
Natural Gas US$2.064/mmbtu vs US$2.127/mmbtu yesterday
Uranium US$36.10/lb vs US$36.10/lb yesterday
Bulk comodities:
Iron ore 62% Fe spot (cfr Tianjin) US$39.4/t vs US$39.2/t
Thermal coal (1st year forward cif ARA) US$44.8/t vs US$45.0/t yesterday
Other:
Tungsten - APT European prices $165-175/mtu unch again
Company News
Anglo American (LON:AAL) 363 pence, Mkt Cap £4.68bn – Radical restructuring to focus on Priority 1 assets and dividend suspension
• Anglo host an investor day today and have released key points to their presentation.
• They are to focus on Priority 1 assets which deliver free cash flow through the cycle.
• Reducing from 55 assets to 20 assets a reduction of 60% with 135,000 employees going to 92,000 by FY 2017 and 50,000 in the future.
• Assets are to be streamlined from 6 to 3 businesses – De Beers, Industrial Metals and Bulk Commodities.
• Dividend to be suspended in 2H15 and 2016.
• Capex reduced by a further US$1bn to the end of 2016 – US$2.9bn for 2015-2017 and US$2.5bn in 2017.
• Capex reduction will result in most capex spend to mainly maintenance capex.
• Costs reduction of US$1.1bn in 2016 and $1bn in 2017.
• In iron ore – Sishen unit cash cost now less than US$30/t om 2016 with breakeven target of US$40/t.
• Minas Rios at US$26-28/t per wet metric tonne at full capacity.
• Overall cost reduction shows that Anglo has reduced costs by 22% since 2012 benchmarked against peers Rio Tinto, BHP and Glencore.
• Peer 1 has reduced costs by 29%, Peer 2 by 21% and Peer 3 by 17%
• Disposals target increased to US$4bn – Phosphates and Niobium for sale.
• Net debt guided from US$13-13.5bn previously US$10-US12bn reduced by asset sales.
• Impairments of US$3.7-US$4.7bn.
• This is after impairments this year of US$2.9bn on Minas Rios post tax and coal assets US$0.6bn post tax.
Conclusion: This looks like a more radical restructuring then the market has been expecting with the suspension of the dividend rather than a cut. Costs cutting puts them second to the rest of their peer group but does not tell you the absolute base which still makes Anglo vulnerable in iron ore and copper. With net debt still high relative to the current market cap, this looks like a survival plan for the next two years.
Aureus Mining (LON:AUE) 4.625 pence, Mkt Cap £17.0m – Earthworks contractor seeking arbitration
• Aureus Mining has announced that it has received a request for arbitration from International Construction & Engineering (Seychelles) (ICE, with respect to its civil and earth works at the new Liberty Mine in Liberia.
• The Company reports that it terminated ICE’s contract in August 2014 when the work was around 60-70% complete and completed the work using directly employed labour under the supervision of the main construction management contractor DRA Projects.
• Although the original cause of the termination of the contract and other details are not readily apparent, Aureus Mining “strongly believes that the request is frivolous, without merit and opportunistic. … Aureus intends to vigorously defend itself against the claims made by ICE and believes that this disclosure of such request will facilitate the timely conclusion of this matter.”
• The Company goes on to confirm that the action by ICE “will have no impact on its operations at New Liberty.”
International Ferro Metals* (LON:IFL) Suspended – Lenders approve the Business Rescue Plan
• The Business Rescue Plan has been voted through by existing creditors.
• The appointed Business Rescue Practitioner will now negotiate and execute sale agreements with Samancor Chrome Ltd, a major FeCr producer in the region.
• The sale should be completed before 15 Feb 2016 before the PRB needs to seek new approval from creditors.
• The Company estimates total proceeds from the sale of assets may come in at R720m (although the amount is subject to negotiations and may change).