The Markets
Market opening: The FTSE-100 is expected to start the session around 11-points higher this morning.
New York: Wall Street ended in the red, with continued weakness in oil prices exerting pressure on energy stocks. Disappointing trade data from China dented investor sentiment. The S&P 500 fell 0.7%, with the materials sector losing the most.
Asia: Equities are trading lower amid concerns of weakening demand in China following the release of poor trade numbers. The Nikkei 225 fell 1.0%, with investors largely ignoring the positive data on core machinery orders. The Hang Seng was trading 0.4% down at 7:00 am.
Continental Europe: Markets ended in the red on renewed worries of economic slowdown in China after the release of weak trade data. Germany’s DAX and France’s CAC 40 shed 2.0% and 1.6%, respectively.
Crude Oil: Yesterday, Brent and WTI oil prices fell 1.2% and 0.4%, respectively. The spread between the two varieties stood at US$2.8 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.71% lower yesterday at 736.40.
Today’s news
UK manufacturing output falls in October
As per the Office for National Statistics, manufacturing output in the UK fell 0.4% m-o-m in October, after rising 0.9% in September. On y-o-y basis, the output fell 0.1%, marking the fifth consecutive month of contraction. The manufacturing sector has failed to contribute to the country’s economic growth in 2015.
Company News
Savannah Resources (LON:SAV) – Speculative Buy
Savannah Resources, the diversified mining group focused on exploration and development of mineral sands in Mozambique and copper-gold projects in Oman, announced today an update on its drill programme on Blocks 4 and 5 in Oman. Initial assay results have returned intersections of high-grade copper, zinc and gold from the Company’s current 1,800m drill programme. Savannah is earning a 65% shareholding in the Omani company, Al Thuraya LLC, the owner of Block 4 and is a 65% shareholder in Al Fairuz Mining, the holder of the Block 5 licence. Assays results from Block 4 licence (Dog’s Bone deposit) returned 9m grading 4.86% Cu, 1.54% Zn, 1.3g/t Au and 37.3g/t Ag from a depth of 103m, including 6m grading 7.01% Cu, 2.2% Zn, 1.9g/t Au and 53.8g/t Ag in drill hole 15B4RC003. Assay results from Mahab 4 (Block 5 licence) returned 6.6m grading 6.92% Cu, 5.6% Zn, 0.3g/t Au and 23.8g/t Ag from a depth of 67m in drill hole 15B5DD005. Drilling at Dog’s Bone has confirmed the high-grade mineralisation and work is currently underway to test continuity of mineralisation and compile a compliant resource estimate. The latest results have expanded the high-grade (>5% Cu) portion of the Mahab 4 deposit in the up-dip direction and additional drilling will target high-grade extensions.
Our view: We are encouraged with the high-grade copper mineralisation intersected in both Block 4 and Block 5 licences. We look forward continued positive drill results from Mahab 4 as well as from the Dog’s Bone and surrounding Aarja deposit area and expect an increase in the current resource estimates once drilling and assay results are completed. We also note the recent gold intercept of 6m grading 1.9g/t from the Dog’s Bone deposit, gold associated with the copper mineralisation could have a significant impact on the overall economics of the surrounding Aarja area. Given the existing underground access at Aarja there is potential for rapid development and exploitation. In the meantime, we maintain a Speculative Buy rating on the stock.
Beaufort Securities acts as corporate broker to Savannah Resources plc
FinnAust Mining (LON:FAM) – Speculative Buy
FinnAust, the exploration and development company with projects in Finland and Austria, announced today that it has signed an agreement to acquire an initial 60% interest in Bluejay Mining. Bluejay is the 100% owner of the 126 sq km, high grade Pituffik titanium project in Greenland. Under terms of the agreement, the acquisition price of £0.9m will be satisfied through the issue of up to 164,655,885 new ordinary shares of FinnAust (no cash component), with an option to acquire the remaining 40%. The Geological Survey of Greenland and Denmark (GEUS) and Bluejay Mining have demonstrated the presence of usually pure titanium and work to date indicates potential for the Pituffik project to be in the top percentile of projects worldwide in terms of heavy mineral grade. FinnAust also announced management changes with the appointment of Roderick McIllree to the Board as Managing Director, Graham Marshall to move to the position of Non-Executive Chariman and Daniel Lougher to move to the position of Non-Executive Director.
Our view: We are encouraged with the recent acquisition, subject to regulatory and shareholder approval, of a potentially high quality, low cost heavy mineral sands asset in Greenland. We also note the strong support for the project by FinnAust’s major shareholder Western Areas Limited through the placing of 10m new ordinary shares at a price of 2p to raise £200,000. We look forward to more detailed information on work programmes regarding the Pituffik titanium project. In the meantime, we maintain a Speculative Buy rating on the stock.
Rio Tinto (LON:RIO) – Speculative Buy
Yesterday, Rio Tinto (Rio) released an update related to its cost savings in aluminium product division and capital expenditure. Till the end of 2015, the company’s aluminium product division expects to deliver around US$300m of cash cost improvements, a US$45m decrease in sustaining capex and reduce working capital by US$400m as compared to 2014. Going into 2016, Rio expects to increase 4% output from bauxite to 45 million tonnes, alumina by 3% to 8 million tonnes and aluminium by 10% to 3.6 million tonnes. The company’s Amrun project in Australia would require capital investment of US$1.9bn. In addition, Rio expects capital expenditure in 2016 to be around US$5bn against initial estimates of less than US$6bn.
Our view: The aforementioned update highlights Rio’s focus on cost optimization and enhancing operational efficiency amidst difficult trading conditions. The company has made significant progress in the aluminium business as it anticipates reduced costs and capital expenditure. The division has raised its production levels for various compounds owing to its sustained measures to enhance productivity. In addition, Rio’s well balanced capital distribution has turned fruitful as it expects reduced capital expenditure going forward. Recently, the company received approval for its US$1.9bn Amrun project, located on the Cape York Peninsula in north Queensland, Australia. Rio holds 1.49 billion tonnes of bauxite reserves and 1.91 billion tonnes of resources in the Cape York area. Amrun project involves one of the world’s highest quality bauxite deposits, which is expected to generate lucrative returns for Rio. We believe Rio is well placed with adequate resources and assets to face the tough situations ahead and maintain its market position. In light of the above argument, we continue to recommend a Speculative Buy rating on the stock.
Hutchison China Meditech (LON:HCM) – Buy
Yesterday, Hutchison China Meditech (Chi-Med) informed that Hutchison MediPharma (HMP), its drug R&D subsidiary has started FALUCA, a Phase III registration study for fruquintinib (HMPL‑013) in third-line non-squamous non-small cell lung cancer (NSCLC) patients in China. Fruquintinib is an investigational small molecule which selectively inhibits vascular endothelial growth factor receptors (VEGFR).
Our view: The initiation of FALUCA by Chi-Med’s is an important milestone in the company’s growth story. FALUCA is a randomised, double-blind, placebo-controlled, multi-centre, Phase III registration study targeted at treating patients with advanced non-squamous NSCLC, who have failed two lines of systemic chemotherapy. Recently, HMP started the Phase I clinical trial of sulfatinib (HMPL-012) in the United States. In addition, the first in-human Phase I clinical trials on HMPL-523 have been positive and in line with its expectations. The drug is useful in various immune system associated diseases, such as autoimmune diseases including rheumatoid arthritis, systemic lupus erythematosus and allergy, as well as haematological cancers including lymphoma and leukaemia. Furthermore, HMP is all set to receive a US$10m payment in Q4 2015 from its partner Eli Lilly. Going forward, HMP plans to start Phase III registration study for the treatment of neuroendocrine tumours and Phase Ib study for the treatment of thyroid cancer by the end of 2015. In light of the overall developments surrounding Chi-Med, we maintain a Buy rating on the stock.
Economic News
UK industrial production
UK industrial production grew 0.1% m-o-m in October, after a revised flat reading in September, the Office for National Statistics reported yesterday. This was in line with the market expectations. On a y-o-y basis, industrial production rose 1.7% in October, from 1.5% in September, better than the market expected gain of 1.2%.
Eurozone GDP
Eurozone GDP expanded 0.3% q-o-q in Q3 2015, following similar growth in Q2 2015, European Union’s statistic office revealed yesterday. On y-o-y basis, the economy grew 1.6% in Q3 2015 following a similar rise in the previous quarter, in line with the market expectations.