Economic News
US – Auto sales grow stronger beating market expectations in Jan driven by lower gasoline prices, moderate economic growth and easy credit.
• WardAuto said US sales hit a record 17.39m units in 2015.
• Sales run at 17.46m units annual rate in Jan/16 and are forecast to hit 18m this year on market estimates.
• Results from the top 10 selling automakers in the US except for Volkswagen topped expectations of forecasters.
China – The economy is set to grow in a target range of 6.5-7% in 2016, the head of the National Development and Reform Commission, the nation’s to economic planner.
• The government is also planning to take steps to cut excess industrial capacity and deal with unprofitable “zombie companies”, the NDRC said.
• The economy posted a 6.9% increase last year.
• On a different note, services industry continued to expand in Jan/16 with the rate hitting the strongest level in six months.
• Caixin Markit services PMI: 52.4 v 50.2 in Dec/15.
• The report highlights the divergence in manufacturing and services sectors dynamics.
• “Overall, the fast development of the services sector has to a large extent offset the impact of weakening manufacturing, indicating a better economic structure,” the report said.
Japan – Services sector expanded at the fastest rate in almost six months in Jan/16.
• Nikkei Markit services PMI: 52.4 v 51.5 in Dec/15.
• A pick up in services industry more thn outweighed a slowdown in the manufacturing sector for the composite PMI index to increase to 52.6 last month from 52.2 in Dec/15.
• Business activity is said to have been driven by “a solid expansion in new orders”.
Eurozone – Economic growth slowed in the beginning of the year with a weaker business activity recorded in both manufacturing and services sectors.
• Markit composite Eurozone PMI fell to a four-month low of 53.6 in Jan/16, down from 54.3 in Dec/15 with growth easing in Germany and Italy. France remained close to stagnation.
• Germany’s composite PMI: 54.5 in Jan/16, down from 55.5 in Dec/15.
• France’s composite PMI: 50.2 in Jan/16, up from 50.1 in Dec/15.
• Italy’s services PMI: 53.6 in Jan/16, down from a 69-month high of 55.3 in Dec/15.
Donald Trump
• Poor or not so poor Donald Trump failed to win the Iowa primaries.
• It’s a shame as I was beginning to enjoy his rhetoric and razzmatazz.
• Hilary Clinton might be safer hands but is allot less fun when it comes to the show.
Currencies
US$1.0915/eur vs 1.0915/eur yesterday. Yen 119.58/$ vs 120.71/$. SAr 16.176$ vs 16.058/$. $1.445/gbp vs 1.437/gbp
0.705/aud vs 0.705/aud. China CNY 6.578/usd vs CNY6.580/usd –
Commodity News
Precious metals:
Gold US$1,128/oz vs US$1,125/oz yesterday – Holdings in gold ETFs stage an impressive recovery since the start of the year amid growing volatility in financial markets.
• Known gold ETF holdings climbed 4.9% YTD, breaking a three year trend of liquidations
Platinum US$862/oz vs US$860/oz yesterday –
Palladium US$498/oz vs US$497/oz yesterday –
Silver US$14.34/oz vs US$14.27/oz yesterday –
Base metals:
Copper US$4,586/t vs US$4,610/t yesterday –
Aluminium US$1,510/t vsUS$1,524/t yesterday –
Nickel US$8,450/t vs US$8,555/t yesterday –
Zinc US$1,683/t vs US$1,673/t yesterday –
Lead US$1,765/t vs US$1,748/t yesterday
Tin US$14,700/t vs US$14,855/t yesterday –
Energy:
Oil US$33.10/bbl vs US$35.60/bbl yesterday –
Natural Gas US$2.019/mmbtu vs US$2.114/mmbtu yesterday
Uranium US$34.50/lb vs US$34.60/lb yesterday -
Lithium - Zenith Minerals discovery in Pilbara, Western Australia
• We are looking into this further but our first thoughts are on the challenge of mining in the Pilbara
• The tonnage and grade looks good on initial inspection for lithium in spodumene.
• But the cost of supplying power, labour and reagents to such a remote location or of hauling concentrate ore to the nearest port could prove substantial
• Operating and capital costs could be higher than for similar projects in Canada which are also challenged by remote locations.
• We suspect labour and power costs may be higher in Australia than Canada but we note that the promotional abilities of the promoters may on a par with their Canadian counterparts.
Bulk comodities:
Iron ore 62% Fe spot (cfr Tianjin) US$43.20/t vs US$42.60/t yesterday –
Thermal coal (1st year forward cif ARA) US$39.30/t vs US$38.70/t on 30 December –
Other:
Tungsten - APT European prices $160-175/mtu vs $150-175/mtu last week vs $165–175/mtu a the week earlier – prices may at long last be turning
Ferrochrome – Benchmark prices collapsed to 92c/lb in December for Q1/16.
Company News
DiamondCorp (LON:DCP) 7.5 pence, Mkt Cap £32.8m – Update Note Issued Today
Buy Target Price 14.5 pence (13.25 pence)
• We update our view on DiamondCorp based on recent news flow.
• The company reaffirmed their target to get to their run rate of 30,000 tpm by July this year from the Upper K4 Block (UK4).
• This block offers potential for a spread of higher value stones based on bulk testing with revenues now in sight.
• 7,449 carats recovered from the block to date including 3 stones greater than 10 carats.
• The largest stone was a 22 carat H coloured stone which has been sold into a downstream partnership for US$5,000/carat.
• A fund raise of £4m last year and renegotiation of the IDC loan put the balance sheet on a better footing.
Conclusion: We remain buyers of DiamondCorp and have upgraded our target price to 14.5 pence, An upcoming resource statement and production/sales this year could act as a potential catalyst for a further re-rating. Rough diamond pricing appears to have stabilised but is still vulnerable to an uncertain global growth environment.
Gem Diamonds (LON:GEMD) 118 pence, Mkt Cap £163.5m – Trading Update in line
• Letseng – carats recovered remained relatively flat for the final quarter and the full year at 29,100 carats for the quarter and 108,579 carats for the year.
• Waste stripping was up 3% for the quarter and 21% for the full year with ore treated up 3% at 1.81mt and 6.679 Mt for the full year.
• The recovered grade fell 4% for the quarter and for the full year down 4% to 1.63 cpht.
• Waste stripping increased the contribution from the Satellite pipe to 1.9 Mt from 1.8 Mt.
• Carats sold for the quarter were up 19% to 30,567 carats but down 6% for the full year at 102,778 carats.
• Revenues generated for the quarter stood at US$64.3m giving an achieved US$/carat value of US$2,117 down 18%.
• For the full year revenues were US$236.3m down 15% with a realised US$/carat value of US$2,299/carat down 9%.
• US$6.2m remained in polished inventory at the end of the year compared to US$15m last year.
• Costs are expected to be in line with full year guidance.
• For next year the company are guiding to flat performance in terms of 107-109 kct.
• Costs remain in line with this year in Maloti terms with direct cash costs guided at 145-155 Maloti/t and operating costs per tonne of 200-220 Maloti/t.
• Ghaghoo – For Q4 the company recovered less carats than in Q3 with ore treated down 22% and carats recovered down 24%.
• The grade recovered was 28.6 cpht with full year recovery at 28 cpht.
• For the full year 326,922 tonnes with 91,499 carats produced.
• A parcel of 49,120 carats was sold for US$7.4m or US$150/carat with the average for the year is US$162/carat.
• For 2016 the company is guiding to 300,000 tonnes of ore being treated at Ghaghoo due to safety procedures being put into place.
• Diamond market sentiment is said to be improving with Letseng’s first tender in 2016 which is currently underway being well attended.
Conclusion: Next year guidance for Letseng is flat so growth in revenues will be based on price improvement rather than volume growth. Costs remain flat in Maloti terms and should benefit from a weakening currency although waste stripping goes up by around 20% (these are capitalised). Ghaghoo production is being held back as the company continues to deal with poor underground mining conditions.
Consensus forecasts are for an improvement in the top line by 17% and EBITDA up 7% in FY 2016 compared to FY 2015 and then pretty flat for the following year. This would suggest an implicit improvement in pricing for this year which may or may not come through. However, the shares do not look expensive on an EV/EBITDA basis at 2.8-3X. We still prefere the growth opportunities offered by Petra Diamonds.
Kefi Minerals* (LON:KEFI) 0.34 pence, Mkt Cap £8.9m – Selection of preferred senior debt providers for Tulu Kapi
• Kefi Minerals has announced that it has selected its preferred banks for the project financing of its Tulu Kapi project in Ethiopia.
• The company has yet to agree binding terms with the un-named “leading African Mining Bank and … leading African Development Bank.”
• Key features of the project loan package of US$60m will include hedging of 100,000oz of gold production or around 10% of the Tulu Kapi ore ore-reserve.
• The Directors have confirmed that “the most recent project cost estimates aggregate to approximately US$120 million (excluding financing costs and cost overrun facilities).”
• As well as finalising engineering design and other technical matters, the company will now focus on completing “agreement, in principle, of product linked finance terms and formal approvals of all financing syndicate members” and determine the “final piece of equity capital to be provided at project level”.
• The legal documentation for the final financing arrangements will require the approval of the National Bank of Ethiopia.
• The company has reaffirmed its intention to start production at Tulu Kapi in 2017.
Conclusion: since acquiring the Tulu Kapi project in late 2013, Kefi Minerals has been moving systematically towards project development. The selection of preferred lenders for the senior debt positions the company to complete the project financing and determine its future equity requirements.
*SP Angel act as Nomad to Kefi Minerals
Herencia Resources (LON:HER) 0.045 pence, Mkt Cap £1.9m – Asset disposals in Chile as working capital comes under pressure
• Herencia Resources has announced that it has signed a binding Term Sheet with a private Chilean mining company, Next Minerals, for Next to acquire up to 100% of its Picachos and Pastizal copper projects in Chile.
• Subject to the successful completion of due-diligence, Next will pay an initial US$2m by 30th April 2016 at the latest and spend a further $2m on exploration over the following 15 months in order to acquire an initial 70% interest in the two projects. A further US$625,000 in cash payable within the next 6 months will give Next Minerals an additional 7.5% interest and after a further 9 months, Next can elect to pay a further $2.5m to acquire 100% of the Picachos and Pastizal projects.
• In August last year, Herencia announced that it was in discussions with the owners of the nearby Tambillos copper mine, Errazuriz Group, with a view to merging their exploration interests at Picachos with the operating Tambillos mine. In today’s announcement, Herencia Resources reports that “The Tambillos due diligence work in relation to a possible Joint Venture with this Group has been completed but in light of more recent developments, will not now be progressed.”
• Although Herencia has achieved some exploration success in locating shallow, high grade copper mineralisation on its leases, and had been aiming to fast-track mine development, today’s announcement discloses that “Notwithstanding the cost cutting measures the Company has put in place, its working capital position is constrained and the directors believe that its current working capital position is sufficient to meet operating costs for approximately one month.” The company suggests that it has a number of fundraising options and intends to update the market very shortly.
Conclusion: Despite achieving some success with its exploration programmes in Chile it appears that Herencia Resources has been unable to finance any further work and is unfortunately driven to dispose of its key assets. The parlous state of the junior mining sector in recent years is well known and this is another, graphic, instance of a junior mining company with projects of merit unable to sustain continuing activity.
Minera IRL (LON:MIRL) SUSPENDED – Canaccord resigns as Nomad
• The new board of Minera IRL report the resignation of Canaccord as the company’s nomad.
• The company has 30 days in which to find a new nomad and resume trading by 21 March 2016 to avoid delisting off AIM.
• The company has been suspended from trading since 21 September 2015.
• “The board is addressing the matters that led to the suspension and expects to make a further announcement regarding progress within the next week.”
• We are not sure what these issues are but we suspect Canaccord’s previous support for former board members who were voted off the board by shareholders has made life difficult with the new board.
* SP Angel personnel have visited Minera’s Corihuarmi and Ollachea sites in Peru
Sundance Resources (ASX:SDL) A$0.006, A$19.8m – Announcement of a partially underwritten rights issue
• Sundance is to offer eligible shareholders the offer to buy 1 new share for every 1 share held at an issue price of A$0.005.
• The offer is to raise a total of A$16.5m before costs.
• The offer is partially underwritten by Patersons Securities for A$13.25m with sub-underwriting arrangements with Mr David Porter for A$11m and other investors for A$2.25m.
• Funds to be used are to pay Mr Porter in cash for A$500,000.
• The balance is to be used to continuing the development process for their iron ore project including progressing funding and signing of the EPC contract for the port and rail and for general working capital purposes.
Conclusion: This sounds like the first sound of life in the West African Iron Ore market and we look forward to seeing how the rights issue progresses and any further news flow on financing for the port and rail.