Metal Prices hold steady ahead of long awaited rise in rates by the Fed
• Gold and base metals trade sideways ahead of the Fed rise.
• A small rise in rates is well discounted in metal prices.
• Key will be the language on the path of rate rises and potential for continued dollar strength.
• Other factors still dominate predominantly related to Chinese demand and concerns about renminbi weakness.
121 Group Mining Investing Conference – Cape Town 8-9 February 2016
Link to program
• Investors are signing up for the 121 Mining Investment conference in Cape Town.
• Last year this was the perfect place for investors and companies to get together with ‘well managed’ schedules full.
• The garden of the historic Welgemeend farm house provide the perfect setting for 1-2-1 investor meetings.
• Buy-side investors and analysts are able to attend the summit for free. See registration form in link below
https://www.weare121.com/121mininginvestment-cape-town/registration/register-investor
• We are sponsoring because we think the 121 service is brilliant!
Economic News
US – Core CPI (ex food and energy) hit 2%yoy in Nov accelerating from the previous reading of 1.9%yoy.
• Stronger inflation bodes well with market expectations for a rate increase to be announced following the FOMC Dec meeting.
Date Index Period Actual Expected (Bloomberg) Prev month
Tuesday New York Manufacturing Dec -4.6 -7.0 -10.7
Core CPI Nov 0.2%mom/2.0%yoy 0.2%mom/2.0%yoy 0.2%mom/1.9%yoy
Wednesday Housing starts Nov 6.6%mom -11.0%mom
Building permits Nov -1.0%mom 5.1%mom
Industrial production Nov -0.2%mom -0.2%mom
Markit Manufacturing PMI Dec 52.6 52.8
FOMC rate decision 0.25-0.50% 0.00-0.25%
Thursday Weekly jobless claims Nov 274k 282k
Friday Markit Services PMI Dec 55.9 56.1
Markit Composite PMI Dec 55.9
China – Bloomberg survey shows six of 12 economists are not expecting downward Chinese economic growth trajectory to change until at least 2018 with other five seeing a turnaround only in 2019.
Germany – Growth in services and manufacturing industries is set to accelerate GDP expansion in the final quarter from 0.3%yoy seen in Q3/15.
• Markit manufacturing PMI: 53.0 v 52.9 in Nov and 52.8 forecast.
• Markit services PMI: 55.4 v 55.6 in Nov and 55.5 forecast.
• “While output and new orders increased at slightly weaker rates, growth remained above their respective long-term trends”.
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France – Composite PMI index nearly hits 50 mark as a contraction in services sector following the recent terrorist attacks outpaced an increase in manufacturing industry.
• Markit composite PMI: 50.3 in Dec v 51.0 in Nov.
• Markit manufacturing PMI: 51.6 v 50.6 in Nov and 50.6 forecast.
• Markit services PMI: 50.0 v 51.0 in Nov and 50.8 forecast.
• “A slowdown in the dominant service sector was the driver, with some panellists indicating that their new business intakes had been impacted following the recent terrorist attacks.”
• “French private sector output growth nearly ground to a halt at the end of 2015 amid faltering new business intakes.”
UK – Unemployment is down at the lowest in seven and a half years with labour market continuing to strengthen.
• The Jobless rate was at 5.2% in three weeks through Oct, down from 5.3% in Q3.
• Employment climbed 207k to 31.3m.
• Earnings on the other hand came in worse than forecast growing 2.0%yoy, down from 2.3%yoy forecast.
Ecuador – The government completed first overseas debt repayment in 183 years.
• “We have just submitted US$650m for the total payment of the 2015 bonds,” President said.
Currencies
US$ 1.0924/eur vs 1.1014/eur yesterday. Yen 122.06/$ vs 120.98/$. SAr 15.026/$ vs 15.034/$. $1.501/gbp vs 1.516/gbp
0.718/aud vs 0.725/aud
Commodity News
Precious metals:
Gold US$1,065/oz vs US$1,063/oz yesterday
Platinum US$865/oz vs US$849/oz yesterday
Palladium US$567/oz vs US$554/oz yesterday
Silver US$13.83/oz vs US$13.72/oz yesterday
Base metals:
Copper US$ 4,570/t vs US$4,640/t yesterday
Aluminium US$ 1,470/t vs US$1,486/t yesterday
Nickel US$ 8,690/t vs US$8,725/t yesterday
Zinc US$ 1,491/t vs US$1,533/t yesterday
Lead US$ 1,674/t vs US$1,726/t yesterday
Tin US$ 14,500/t vs US$14,725/t yesterday
Energy:
Oil US$37.4/bbl vs US$38.3/bbl yesterday
Natural Gas US$1.785/mmbtu vs US$1.882/mmbtu yesterday
Uranium US$35.90/lb vs US$36.15/lb yesterday
Bulk comodities:
Iron ore 62% Fe spot (cfr Tianjin) US$38.0/t vs US$38.7/t
Thermal coal (1st year forward cif ARA) US$44.4/t vs US$44.5/t yesterday
Other:
Tungsten - APT European prices $170–180/mtu vs $170–177/mtu – second price rise for over a month
• Metal Bulletin (the source for our weekly prices) is expected to cut the frequency of APT prices releases in Europe from Friday 29 Jan/16.
• The frequency will be reduced from twice a week to once a month.
• The decision is led by a relative illiquidity of the market with longer time intervals allowing MB to capture longer time intervals leading to larger amount of reference data.
Ferrochrome – Benchmark prices collapse to 92c/lb for Q1/16 marking a 11.5% decline.
Steel – Chinese officials are discussing a change in regulation on steel intensities in the construction sector which is expected to ease oversupply in the market.
• Party members are considering tripling the amount of steel used in construction from current 50kg per sq m to 150kg.
Company News
DiamondCorp (LON:DCP) 6.125 pence, Mkt Cap £25m – Starting of production at UK4 Block at Lace Mine
• First production has started from the Upper K4 Block at the 310m level where the slot is being opened up.
• Around 4,000 tonnes a month is to be produced from UK4 from January to March and then rising to 15,000 tonnes per month from April to June 2016.
• From July 2016 full production from the Block is to be established at 30,000 tonnes a month.
Conclusion: It is good to see that mining has now started at UK4 and we look forward to news flow in the New Year on diamond recoveries and first revenues from ROM at the Lace Mine.
Alecto Minerals (LON:ALO) 0.0675 pence, Mkt Cap £2.1m – Project development and EPC management plan for recently acquired Zambian assets
• Alecto Resources, which acquired the historic Dunrobin and Matala mines in south-central Zambia in late November, reports that it has appointed a S African based consulting group, Petmin Ltd, to assist it in updating the pre-existing feasibility study, preparing the Design Build and Operate contract, appointing a mining contractor and securing vendor financing for the supply of the processing plant.
• Alecto acquired the projects in November for a total of US$1.54m settled via the issue of 943.75m new Alecto shares, £100,000 in cash and a deferred consideration of £307,500 which “must be settled as soon as practicable and in any event within three years. The Deferred Consideration may be satisfied through either cash or the issue of new Ordinary Shares.”
• The projects contain a JORC compliant resource of 760,000 oz of gold at an average grade of 2.3g/t of gold. Around 11% of the resource (81,000 oz) is classified as measured; 46% (347,000 oz) as indicated with the balance (332,000 oz) as inferred.
• Alecto plans to expedite a plan for production at Matala which is reported to contain 568,000 oz of the overall resource – all classified as indicated or inferred. “Alecto has identified, subject to further funding, the potential to develop a low-cost, profitable, small scale 400,000 tonnes per annum open pit mine at Matala and satellite deposits targeting the oxide and transitional ore using a simple crushing, milling and gravity circuit with subsequent cyanidation.”
Conclusion: Alecto has moved quickly to formulate a plan to bring Matala to production, however the company appears to imply that it will need further funding to bring this plan to fruition.
Iluka Resources (ASX:ILU) $3.62, Mkt Cap $1.5bn – Lowers production guidance for FY 2015 on lower zircon sales
• Production for FY 2015 is expected to be 5% lower than previous guidance and is now expected to be 645 kt.
• This is mainly as a result of lower zircon sales which are expected to be 330 kt.
• The company note that selling from distressed producers has upset the zircon market and prices.
• Iluka will not pursue volume at the expense of price.
Conclusion: A number of emerging producers in the mineral sands sector have been over leveraged and have had to sell aggressively into the market. This has resulted in the weakening of the market particularly for zircon. It is good that Iluka is acting as a swing producer in these circumstances and is not pursuing volume at the cost of price.