Economic News
US – Inflation ticked up in Jan/16, but remained significantly below the 2% target due to weak energy prices.
• Excluding volatile food and power components, prices posted a 2.2%yoy increase compared to estimates for a 2.1%yoy gain.
• Rising pace of CPI should provide comfort to Fed policymakers who started raising rates in Dec/15.
• Economic news due this week:
China – The latest business survey showed economic sentiment deteriorated to the lowest level since Feb/14 with new orders a their weakest since Aug/12.
• “From a business sentiment standpoint the theme is more of the same; conditions remain subdued as companies weigh a more supportive policy environment with market volatility,” the report read.
• The MNI China Business Indicator (based on responses of 200 companies listed on the Shanghai and Shenzhen stock markets): 49.9 in Feb/16 v 52.3 in the previous month.
Eurozone – Euro area wide Markit PMI pointed to a slowdown in economic growth to the slowest pace in more than a year.
• “Not only did the survey indicate the weakest pace of economic growth for just over a year, but deflationary forces intensified,” Markit said.
Germany – Manufacturing is reported to have hit a 15-month low on the back of weak global demand acting as a drag on the nation’s exports.
• “Euro weakness relative to the dollar and pound is not helping Eurozone manufacturers to the same extent as last year,” Markit report said.
• “The recent fall in the Chinese yuan has added to the pressure”.
• On a more positive note, services business demonstrated promising data pointing to a “solid growth of output and new business”.
• Manufacturing PMI: 50.2 v 52.3 in Jan and 51.9 forecast.
• Services PMI: 55.1 v 55.0 in Jan and 54.7 forecast.
• Composite PMI: 53.8 v 54.5 in Jan and 54.1 forecast.
France – The manufacturing sector reported a modest increase through Feb with services industry slipping into a contractionary territory.
• “The private sector economy continues to follow a broadly stagnant path, with Q1 GDP looking likely to remain sluggish,” Markit wrote in the report.
• Manufacturing PMI: 50.3 v 50.0 in Jan and 49.9 forecast.
• Services PMI: 49.8 v 50.3 in Jan and 50.3 forecast.
• Composite PMI: 49.8 v 50.2 in Jan and 50.03 forecast.
UK – Sterling has been sold off today on the back of increased support for Britain leaving the EU.
• Boris Johnson, a mayor for London, yesterday announced he will be advocating for the Brexit campaign.
• In addition, 18 mainstream MPs who campaigned for EU reforms are planning on joining the Brexit side, FT reports.
• EU membership referendum is scheduled to take place on the 23rd of Jun1/16.
• The pound’s volatility has climbed to a 51-month high of 12% as the currency slid 1.5% to US$1.4179 this morning.
Colombia – court bans mining in the paramos – high altitude ecosystems
• The Constitutional Court in Colombia has banned all mining and oil & gas operations in paramos areas
• The paramos ecosystems provide Colombia with around 70% of the nation’s water.
• The Court is effectively closing a loop-hole with allowed agricultural and other activities to occur if licenses were already in place
• Around 500 mining titles covering >140,000 hectares are likely to be affected.
Base metals:
Copper US$ 4,686/t vs US$4,586/t yesterday - The Polish government, a holder of nearly a third of KGHM, is launching an audit on Sierra Gorda copper project in Chile.
• The decision is driven by the fact that the project capex has come in “much more than planed”.
• “We believe that we will see a recovery in the next few months on the copper market,” Southern Copper
Aluminium US$ 1,555/t vs US$1,534/t yesterday
Nickel US$ 8,685/t vs US$8,380/t yesterday – Eramet to cut production at SLN nickel
Zinc US$ 1,773/t vs US$1,716/t yesterday – Zinc refiners are seen slashing fees in China as concentrate supply tightens.
• The closure of Lisheen and Century Zinc alongside production cuts by Glencore and Nyrstar have caused the market to tighten dramatically leading to a collapse in Tc/Rcs.
• Other lead/zinc mines in China are bound to close on environmental concerns causing the market to tighten further
• There is virtually no new mine supply available and certainly no chance of replacing lost production despite unhelpful comment’s from Vedanta’s Hindustan Zinc
• Zinc producers reacted quickly to avert a build up metal in the market causing the market to slip into a supply/demand deficit for the year according to the Lead Zinc producers association. Prices are likely to rise from hereon in our view.
• Zinc inventories have risen on the LME today to 504,375t up 6,550t today
Bulk comodities:
Iron ore 62% Fe spot (cfr Tianjin) US$45.2/t vs US$45.0/t - Steel and iron ore prices to fall again – according to the AFR, Australian Financial Review
• The paper reckons China has failed to shut-down outdated steel mills and will not meet its 2017 target for overhauling the sector.
• A Chinese insider is reported to claim that Chinese steel production has increased recently ahead of the National People’s Congress which begins on 5th March.
• Heavy industry expects to be shut down to enable blue skies over Beijing during the National People’s Congress.
• The European Chamber of Commerce reckons that China closed 31mt of steel capacity in 2014 but this was not replicated last year. They claim the steel province of Hebei, next to Beijing is the main problem area which was supposed to bear 75% of the cuts.
• China overall steel production fell 2.3% to 804mt last year marking its first annual fall in thirty years.
• China exported a record 110mt last year up 17% yoy as domestic demand fell. The impact of rising exports has been falling global steel prices and the decline of steel production in Europe and the US.
Thermal coal (1st year forward cif ARA) US$38.9/t vs US$38.4/t yesterday
Coking coal – Chinese based coking coal producer is reported to have defaulted on its convertible bnd. The Company is reported to hold 1.2bn tons in coal resources and 0.3bn in mineral reserves.
Other:
Tungsten - APT European prices stood at $160-180/mtu - $160-175/mtu unch last week – widening of spread on the upside may potentially indicate a positive turn to the market
Company News
Goldplat* (LON:GDP) 5.4 pence, Mkt Cap £9m – Interim results show a return to profitability
• Goldplat reported an operating profit of £245,000 for the interim period against a loss of £827,000 for the same time last year on increased revenues of £10.67m against £8.054m previously.
• Including net finance income the company reported net income of £395,000 against a loss of £377,000 the same time last year.
• Profit after tax was £192,000 against a loss of £417,000 last year.
• GPL (South African Recovery) performed well with the installation of a 4 tonne elution plant helping to clear the backlog of stock.
• GPL accounted for 56% of the gold sold with 11,831 oz of gold produced.
• GPL benefitted from a range of self funded capital projects including a new electric boiler, a new woodchip wash plant, a replacement mill for the low grade circuit and a new pumping station for the tailings treatment.
• GRG (Ghana Recovery) produced 4,694 oz from the fine carbon business – the sole revenue stream currently for Ghana.
• A pre-payment agreement with Auramet International enabled the division to clear up payments to clients and speed up deliveries held up with customers.
• During the period a shot blast facility was built and commissioned for the processing of steel mill liners and production of concentrate for export.
• At Kilimapesa, 932 oz of gold was produced down 14% on the same time last year.
• Mining and exploration reported an operating loss of £477,000 for the period against £368,000 the same time last year.
• Work is continuing on a small scale development of the mine with re-opening of Adit D and the de-watering of the Teng-Teng mine which is part of the Kilimapesa exploration permit.
• As recently announced a JORC resource of 81,959 oz of gold has been reported in the tailings facility at GPL.
• Cash and cash equivalents stand at £729,000 up from £630,000 at the end of FY 2015.
Conclusion: These are good numbers from Goldplat which is now back to profitability – GPL continues to perform well with a number of small capital projects contributing to improved profitability with the new elution capacity being key. GRG has used to the pre-payment facility with Auramet to pay customers and freed up future deliveries being held up at customers.
These results should provide confidence that Goldplat is re-building the profitability of its recovery operations.
*SP Angel act as Nomad and Broker to Goldplat
Gemfields (LON:GEM) 45 pence, Mkt Cap £247m – Interim Results in Line
Buy - Target Price 82 pence
• The company reported revenues of US$94m as expected based on auctions held to date.
• EBITDA of US$35.6mn is down from US$61.7m last year.
• Profit after tax of US$8.2m down from US$23.2m last year.
• Cash at bank of US$24.9m.
• Production results in line with recent quarterly update.
• The company retains its production target of 25-30m for rough emerald and beryl and 8m carats of ruby and corundrum for FY 2016.
• The company see increased demand for smaller sized higher and medium quality rubies suited to larger production runs of mid-market jewellery.
• The next Emerald auction is to be held in March 2016.
Conclusion: These results are in line with our expectations – the recent quarterly update saw good performance from the Kagem mine with mining efficiency ahead of our forecasts. At Montepuez grade recovery is in line. The company are seeing good demand from mid-tier market in jewellery which will be helpful in moving volume as the company builds up production.
Lithium Australia – Claims for hydromet breakthrough
• Lithium Australia claim to have made a significant breakthrough in the processing of lithium ore and tailings
• The hydrometallurgical process is called Sileach and enables the recovery of lithium from spodumene.
• The company claims independent laboratory tests of the Sileach process have achieved lithium extractions, from alpha spodumene, of up to 92% in four hours.
• We generally support hydrometallurgical processes over roasting and smelting as they can work well in certain environments.
• BUT, we are more sceptical in this case. Much work was done in Canada in the past on the direct conversion of alpha spodumene into lithium products, to both carbonate and metals back in the 60’s and 70’s.
• The trial hydrometallurgical processes did not appear to work economically even with the supply of low cost hydro-power.
Conclusion: Western Australia’s power costs are highly unlikely to support the economic argument for lithium processing by hydrometallurgical extraction
Petra Diamonds (LON:PDL) 85 pence, Mkt Cap £444m – Interim Results in line
Buy Target Price 148 pence
• Petra’s revenues of US$154m gives the company an adjusted EBITDA of US$48.5m.
• EBTIDA is down 43% from the same time last year reflecting the fall in diamond prices as expected.
• The company reports an adjusted profit after tax of US$6.3m and a small loss of US$2.2m after foreign exchange losses.
• Cash at the bank stood at US$42.1m with net debt of US$323.9m as reported in their trading update.
• Market conditions are said to have stabilised post period with firm prices achieved for the first tender.
Conclusion: With the bias for Petra in the second half, we expect much of the forecast EBITDA of US$137.7m secured in the second half with 35% secured so far. Sales post results are said to have improved and should be helpful for a better second half.
Savannah Resources (LON:SAV) 1.975 pence, Mkt Cap £7.0m – Latest exploration update from Oman
• Savannah Resources has announced the final tranche of results from the final 7 holes of its 16 hole drilling campaign on its Block 4 & 5 licences in Oman which it completed on 30th December.
• Highlights include a 16m intersection at an average grade of 0.85% copper from a depth of 105m in borehole 15B5DD006 at the Mahab 4 prospect in Block 5 and a 9m wide intersection grading 0.5% copper and 2 g/t gold from a depth of 4m in borehole 15B4RC009 at the Gaddamah prospect in Block 4.
• These results follow a series of other high grade drilling intersections previously reported from the recent and previous campaigns and should underpin a resource update for the Block 4 properties at Aarja, Bayda and Lasail which is expected later this year and will assist in the planning of future drilling programmes in the Block 4 and Block 5 areas.
• As well as the drilling results, Savannah Resources reports that it has continued with its reassessment of historical data from the Lasail mine which is reported to have produced some 13mt of ore at an average grade of 2% copper during the 8 year period between 1986 and 1994. Laisail is said to have exploited the largest VMS (volcanigenic massive sulphide) deposit in the Oman Ophiolite Belt and Savannah Resources has “been able to identify several potential areas which could present future mining opportunities”.
• Savannah Resources recently secured a £1.75m investment from a major shareholder, Al Marjan Ltd, which should ensure that the company is able to continue with its exploration and progress its other objectives for 2016, including the preparation of a feasibility study “of an amalgamated mine development of the deposits within blocks 4 and 5” as well as advancing the permitting process as it moves towards its objective of “high grade, low cost copper concentrate production in late 2017.”
Conclusion: Savannah’s recent drilling programme in Oman has produced a number of high grade intersections and the company already has outlined a 1.5mt resource at an average grade of 2.1% copper within Block 5. The recent drilling is likely to allow for additional resource upgrades in the future.
Sirius Minerals 13.5 pence, Mkt Cap £309.8m – Additional agronomy data on sugar cane, soybean and tomatoes
• Sirius Minerals has released presentations to its website on the agronomy of sugar cane, soybean and tomatoes and the beneficial effects of its polyhalite product from the planned mine in North Yorkshire.
• The company highlights that tests on Brazilian sugar cane showed a 9 % improvement in yield and 10% greater sugar production from the use of polyhalite compared to currently available alternative products.
• Soybean production showed an 8% improvement in dry matter content and a 20% reduction in costs through the use of its polyhalite material compared to MOP based alternatives.
• Sirius Minerals has also published information showing the benefits of polyhalite use in countering disease in tomatoes.
• Statements in January indicated that the company expects to issue the highlights of the Definitive Feasibility Study for the £1.7bn project in March 2016. At that time, the company also stated that it “is confident that it will execute a financing strategy that will bring the Project into production and will deliver significant value to shareholders.”
Conclusion: The company has put a lot of work into crop trials and research and has been building a body of evidence demonstrating improved yield performance in a number of crops in various parts of the world the presentations released today are part of a continuing drive to establish its market credentials with potential users. We look forward to the DFS results as they become available and to the financing strategy for this major project.