Economic News
China – New loans more than quadrupled in Jan compared to the previous month on the back of increased injections of liquidity by the central bank ahead of the Lunar New Year holidays.
Expanding credit suggests the PBoC is keeping monetary policy loose to support economic growth.
New yuan loans: CNY 2,510bn v CNY 598bn in Dec/15 and CNY 1,900bn forecast.
Earlier, Premier Li Keqiang said Chinese government will take decisive actions if needed amid recent global economic headwinds and falling equity markets.
ECB – Mario Draghi defends the monetary policy course saying the easing programme was responsible for half the economic recovery in the Eurozone.
While acknowledging the inflation rate remains below the 2% target, Draghi noted the governing policy will “review and possibly reconsider” the policy during its March meeting.
The euro fell 1.2%to $1.1125 on the back of Draghi comments.
UK – Inflation hit the highest level in a year in Jan/16 on the back of motor fuels, food and clothing.
CPI increased 0.3%yoy, up from 0.2%yoy in Dec in line with market estimates.
Core CPI (ex food and energy) slowed to 1.2%yoy from 1.4%yoy in Dec/15.
Norway – The economy fell 1.2%qoq, underperforming expectations for a 0.4%qoq fall and marking the first quarterly contraction in more than two years on the back of soft oil and gas prices.
This compares to a 1.6%qoq growth in Q3/15.
Peru – The economy expanded 6.4%yoy in Dec led by gains in mining output and marking the fastest growth in two years.
The month recorded a 22.4%yoy increase in mining production due to the start of the Las Bambas project and expansions at the Cerro Verde operations.
Additionally, anchovy catches are said to have contributed to a 82.5%yoy surge in fisheries’ production.
Ukraine – Parliament is considering to hold a no confidence vote today replacing Prime Minister Arseniy Yatseniuk’s government.
The news is widely considered unexpected and might delay the release of a US$40bn loan from the IMF.
Commodity News
Precious metals:
Gold US$1,201/oz vs US$1,208/oz yesterday
Platinum US$933/oz vs US$937/oz yesterday
Palladium US$510/oz vs US$519/oz yesterday
Silver US$15.21/oz vs US$15.29/oz yesterday
Base metals:
Copper US$ 4,596/t vs US$4,561/t yesterday
Aluminium US$ 1,524/t vs US$1,511/t yesterday
Nickel US$ 8,335/t vs US$8,155/t yesterday
Zinc US$ 1,696/t vs US$1,705/t yesterday
Lead US$ 1,833/t vs US$1,853/t yesterday
Tin US$ 15,360/t vs US$15,400/t yesterday
Energy:
Oil US$35.2/bbl vs US$33.3/bbl yesterday – Oil prices gave up some of its gains this morning on the news Russia and Saudi Arabia will freeze production at Jan rates.
• Saudi Arabia produced 10.2mmbbl per day last month, below the most recent peak of 10.5mmbbl in Jun/15.
• In turn, Russia produced nearly 10.9mmbbl a day in the same month, a post-Soviet record.
• Prices have earlier hit US$35.5/bbl on expectations the Saudi Arabia and Russia meeting will yield an agreement to cut current production rates.
Natural Gas US$1.923/mmbtu vs US$1.934/mmbtu yesterday
Uranium US$34.15/lb vs US$34.15/lb yesterday
Bulk comodities:
Iron ore 62% Fe spot (cfr Tianjin) US$43.4/t vs US$43.3/t
Thermal coal (1st year forward cif ARA) US$37.3/t vs US$37.2/t yesterday
Other:
Tungsten - APT European prices stood at $160-175/mtu last week
Ferrochrome – Benchmark prices collapsed to 92c/lb in December for Q1/16, down 11.5% from 104c/lb in Q4/15.
Company News
Anglo American (LON:AAL) 369 pence, Mkt Cap £4.8bn – 2015 Results better than expected
• Underlying EBIT of US$2,223m down 55% on last year with underlying earnings down 63% to US$827m.
• Group revenues down 26% to US$23bn with underlying EBITDA down 38% to US$4.854bn.
• Weaker currencies offset the fall in prices by US$1.8bn.
• Prices accounted for a US$4.2bn in EBIT with US$2.4bn from bulks and US$1.8bn from base and precious metals.
• Costs offset the fall in EBIT by US$1bn.
• Costs were down across the group with platinum down 28%, Australian export coal down 23%, SA export coal down 13%, Kumba down 9%, copper down 9% and De Beers down 6%.
• Platinum EBIT was up significantly reflecting the recovery from the strikes in 2014 with underlying EBIT of US$263m against US$32m last year.
• De Beers was impacted by lower volume and prices with EBIT of US$571m down 58%.
• Copper EBIT down 81% reflecting lower production (down 5% as result of disposal of Anglo American Norte and 1% on a pro forma basis) and prices.
• Iron ore and manganese EBIT was down 66% to US$671m reflecting the fall in iron ore prices.
• Coal was flat at US$457m.
• Nickel swung into losses at US$22m and Niobium and Phosphates was down 4% to US$119m.
• Impairments mainly announced previously took the group into losses.
• Impairments were taken on Minas-Rios of US$2.5bn, Capcoal, Peace River Coal of US$1.2bn, $0.7bn at the platinum business, U$0.6bn at Snap Lake and write down at Rustenburg of US$0.7bn.
• The company expect to be cash flow positive in 2016 based on spot prices and weak currencies.
• A US$1.9bn of cost and productivity improvements expected in 2016 with US$4.8bn of Group EBITDA at spot prices.
• Continue to target disposals of US$3-4bn for FY 2016.
• Core portfolio to include De Beers, Platinum and Copper where EBITDA margins are 30% versus 23% for the current portfolio.
• Net debt remained flat at US$12.9bn with a US$2bn reduction in capex.
• Disposals are targeted to bring net debt down by US$7bn to US$6bn in the medium term – for FY 2016 net debt of US$10bn targeted with disposal of US$3-4bn.
• Liquidity maintained at US$15bn – cash stood at US$6.9bn with undrawn committed facilities of US$7.9bn.
• Niobium & Phosphates, Nickel and Australian and SA Coal targeted for disposal first with other non-core assets to be disposed over time or spun out.
• Cash flow improvements of US$0.6bn is being targeted from core portfolio with US$0.5bn of non-core.
• Yesterday Moodys cut Anglo’s rating to Ba3 and put Anglo on a negative outlook which puts Anglo now on a non-investment grade rating.
Conclusion: These results are better than expected given the scare on Anglo following the poorly presented investor day at the end of last year which put Anglo into a tail spin. Today’s results do not feel as if Anglo is going bust with both core and non-core portfolio targeted for improvement.
Currencies have provided a useful cushion at US$1.8bn a 43% cushion to the fall in prices with costs helping by a further US$1bn.
De Beers, Platinum and Copper are all considered core with EBIT margins of 30% versus 23% - De Beers is the most valuable of these and is expected to dominate going forward.
Still a lot of work to be done but once disposals are achieved, the market will be more comfortable with the group debt which is still high and needs to come down.
Berkeley Energia (LON:BKY) 22.5 pence, Mkt Cap £40.9m – New drilling campaign to test 11 more targets in the Salamanca Uranium Project
• The company reports that it has started a major, 10,000 metres reverse-circulation drilling programme to follow up 11 near surface targets located within “ten kilometres of the proposed process plant.” at its Salamanca Uranium project in western Spain.
• The programme will be completed in two phases and will start with drilling of the Luis target, which is located 5 km north-west of the plant site.
• Exploration is aimed at targets similar to the Zona 7 deposit which currently contains around 35% of the total uranium resource in the Project area at an average grade of 0.065% U3O8. Recent work reported in January has also shown wide, high grade intersections at depth beneath the Zona 7 deposit with individual grades ranging as high as a 5m wide section averaging 1.19% U3O8.
• The company is moving towards initial production from the Zona & and Retortillo deposits and has most of the major permits in place and plans to start initial infrastructure development in March.
Conclusion: The discovery of the Zona 7 deposit “just over one year ago” has helped the company accelerate towards development of a new uranium mine which is estimated to have operating costs of “US$15.60 per pound which is less than half the current spot price”. The newly announced drilling programme targeting similar deposits and the discovery of particularly high grade mineralisation below Zona 7 itself could further expand the project in the longer term. We look forward to drilling results as they become available.
FinnAust Mining* (LON:FAM) 2.075p, mkt Cap £8.9m – Mineral sands experts appointed to assist in Pituffik assessment
• FinnAust Mining reports that it has appointed the independent experts, Mr Peter Waugh and TZ Minerals International (TZMI) to assist it in assessing the near-term production potential of its recently acquired Pituffik Titanium Project in Greenland.
• TZMI is “a recognised leader in the provision of accurate & up to date technical, engineering and marketing support within the mineral sand industry”. They are to focus, in the first instance, on “grade, volume and composition to create cost effective development scenarios that can be assessed by the company and potential investors.”
• Mr Waugh “has broad industry management experience as well as valuable knowledge of the international titanium dioxide pigment industry and will assist with end user & off-take agrements as well as timely metallurgical management and advice.”
Conclusion: Since announcing the acquisition of the Pituffik project in December, FinnAust has moved ahead with geological sampling and profiling the bathymetry of the offshore parts of the licence which is understood to contain high grade ilmenite at relatively shallow depths. The strengthening of the metallurgical and mineral marketing expertise available to FinnAust Mining should help to accelerate the project and identify potential routes to market
* SP Angel acts as nomad and broker to the company
Gemfields (LON:GEM) 44 pence, Mkt Cap £242m – Quarterly Q2 FY 2016 - Update shows good progress
Buy Target Price 82 pence
• Emeralds – For the quarter the company produced 8.2m carats bringing to a total of 15.7m carats for the half year up 30% on the same time last year.
• Grade performance was good in the second quarter at 272 carats per tonne giving 254 carats per tonne for the half year up 202 carats per tonne the same time last year.
• Total waste mined for the half year of 6.8 mt giving a strip ratio of 110 against 122 at the half year level with the fourth high wall push back completed in Sept 2015.
• This gives 15 months of exposed ore available for mining.
• Gemstone unit cost of US$0.91/carat for the quarter an improvement on the previous quarter and for the full year at US$1.03/carat at the half year a 42% improvement.
• Ore/reaction zone unit costs at US$262/reaction zone tonne also shows good improvement from US$262/reaction zone tonne.
• For the quarter the company held a low quality emerald auction in Jaipur netting US$19.2m or an average of US$4.32/carat.
• The traded auction market was run alongside in Jaipur and yielded US$1.1m with 20,400 carats being sold.
• The next Emerald auction of high quality stones will be held in March 2016.
• Rubies – Production for the quarter was for 1.6 m carats giving production at the half year of 2.1m carats down from 6.3m carats achieved last year.
• Grades for the second quarter were better than the first quarter at 22 carats/tonne against 7 carats per tonne in the first quarter – grades at the half year were 15 carats per tonne down from 37 carats per tonne.
• The strip ratio for the quarter was 6.9 giving a strip ratio of 7.1 at the half year point up from 5.1 last year.
• Gemstone unit costs were US$3.31/carat better than the first half with costs of US$4.95 at the first half higher than US$1.37/carat in the previous year.
• Key focus was to mine at the Mugloto block – this block is spread over a large area resulting in an increase in the volume of waste mined.
• The December ruby auction resulted in revenues of US$28.2m as previously reported.
• Faberge is said to have a strong quarter up 13% compared to the same time last year with costs also up by 16% reflecting higher advertising spend.
• At the end of the period cash and cash equivalents stood at US$24.9m with total debt of US$55m giving net debt of US$30.1m.
Conclusion: Strong performance from the Emerald division with mining efficiency running ahead of our forecasts – with the fourth push back now completed, ore availability will be good for the next 15 months. Ruby grades down from last year but in line with our expectations. We look forward to the upcoming auctions which should give a good steer on how high value emeralds are holding up. The shares continue to be a buy.
Tertiary Minerals* (LON:TYM) 1.05p, Mkt £2.3m – Results of Phase 4 Drilling programme at the MB Project
• Tertiary Minerals reports that it has completed its Phase 4 drilling programme at its MB Fluorspar Project in Nevada with the completion of 4 drill holes for a total of 1,553 metres. Drilling took place to the north and west of the area where the company has already defined a JORC compliant resource of 86.4m tonnes at an average grade of 10.7% fluorite.
• Three of the four holes drilled encountered fluorite mineralisation with Hole 15TMBRC036, located west of the known resource intersecting a total of 89.91m at an average grade of 12.02% in 8 “significant fluorspar intersections” from a depth of 120.4m. Hole 15MTBRC038 located to the north of the resource area encountered 11.86m at an average grade of 11.47% from a depth of 74.68m and hole 15MTBRC039 intersected a total of 137.16m of mineralisation at an average grade of 11.54% within a “total of 16 significant fluorspar intersections” from a depth of 53.34m.
• When the programme was first was first announced the company indicated that it planned to drill 5 holes during the phase 4 programme. Today’s announcement note that hole 15TMBRC037, located as a step-out hole “approximately 425 metres northwest of the existing Mineral Resources boundary …. Was drilled to test the northern extent of the fluorspar mineralisation in the Western Area but was terminated due to a change in lithology from limestone to barren granite. Further work is required to understand the nature of this granite intrusive in relation to the fluorspar mineralisation.” We speculate that management has, prudently, chosen to forgo the fifth hole while it assesses the implications of this unexpected result.
• The company reports that, once it has evaluated the results of the drilling, during the remainder of 2016 it will focus on metallurgical testing, economic modelling, preparation of a scoping study and mine- permit planning.
Conclusion: Tertiary Minerals appears to have further extended the limits of known fluorspar mineralisation at its MB project as a result of its Phase 4 drilling programme. Although one hole appears to have been drilled beyond the northern limits of the fluorspar mineralisation, the other drill intersections suggest that, in the longer term Tertiary Minerals may be able to expand the MB project resource base further.
*SP Angel act as Nomad and broker to Tertiary Minerals
Tri-Star Resources* (LON:TSTR) 0.11pence, Mkt Cap £9.3m – EPCM contract awarded for roaster construction
Buy Target Price under review
• The company has taken a key step forward in the award of the EPCM contract to WorleyParson Oman.
• The planned schedule of work is for 18 months targeting commissioning in September 2017.
Conclusion: The award of the contact sets the time frame for the roaster construction to be delivered and is a key step in Tri-Star’s strategy. We expect the build and commissioning of the roaster to be within the original budget set of US$70m. While the prices of antimony has fallen with a number of minor metals, the fundamentals for a price recovery remains strong with scope for high cost supply to come off stream.
We remain buyers of Tri-Star but are reviewing the valuation of the company based on the timing of the start of the roaster which has slipped from our original expectation and against a backdrop of lower antimony prices.
*SP Angel acts as Nomad and Broker to Tri-Star Resources
Stellar Diamonds (LON:STEL) 10.5 pence, Mkt Cap £2.7m – Further package of Baoule diamonds to be auctioned in March
• Stellar Diamonds reports that it has exported 3,341 carats of diamonds for its Baoule pipe for sale in Antwerp. The planned auction is expected to take place in March.
• The auction, which will be the 3rd sale of Baoule diamonds is part of the current trial mining programme and should help to establish the value of diamonds from Baoule.
• To date 8,830 carats have been recovered and “Two diamond sales, totalling 5,173 carats and generating revenues of over US$700,000, have been completed in 2015.”
Solgold* (LON:SOLG) 1.875p, Mkt Cap 15.4m – Progress on hole CSD-16-016 at Cascabel
• Solgold reports that its current hole CSD-16-016 has now reached a depth of 635metres and entered visible copper mineralisation at a depth of 568.1m.
• “The mineralisation encountered so far is typical of the other holes drilled at Alpala. The presence of significant altered fracture zones along with visible networks of copper sulphide quartz and magmetite veining at relayively high levels, similar to that intersected at similar depth within Hole 12, is very encouraging.” Hole 12 intersected 576m of mineralisation at an average grade of 1.03% copper and 1.19 g/t gold.
Conclusion: Although at this stage no assays are available from hole 16, the reported similarities with the previous mineralisation encountered within the property bodes well for the assays when they are available. Solgold’s team has had considerable success with its drilling programme at Casacabel which is producing long intersections of copper/gold mineralisation to considerable depth. We look forward to tha assay results from Hole 16 when they become available.