Economic News
US – A series of strong US economic data released on Friday lifted expectations for the Fed rate rise.
Estimates for at least one rate increase this year have improved to 50%, up from 35.8% on Thursday and as low as 11.3% recorded this month.
Q4 GDP growth was revised upwards with the major share of the change attributed to faster than expected stockpiles.
Economic growth was revised to 1.0%qoq, up from 0.7%qoq estimated previously and 0.4%qoq forecast.
More recent numbers show inflation and consumer spending picked up in Jan beating market estimates.
Economic news due this week:
China – The PBoC brought the reference CNY exchange rate down by 0.17% marking the fifth consecutive session for lower rate.
Despite a series of devaluations of the CNY, Chinese authorities argued there was “no basis for persistent renminbi deterioration”.
G-20 finance ministers are reported to have been told that Beijing has “no intent, no determination, no decision whatsoever to devalue the yuan”, Head of the IMF said.
Japan – Weak retail sales weigh on the Q1 growth outlook while industrial production remains on a downward trend despite a monthly rebound recorded in Jan.
Retail sales contracted 1.1%mom in Jan/16, extending a 0.3%mom decline in Dec (revised from -0.2%mom) and compared to a 0.1%mom increase.
This marks the third straight month of declines.
On year on year basis sales were down 0.1%yoy.
Industrial production jumped 3.7%mom in Jan/16, but were down 3.8% on yoy basis.
UK – Retailers may cut as many as 900,000 jobs over the next decade amid technological advances and the increased minimum wage, the British Retail Consortium said.
The fall will account for about a third of the industry’s current employment level.
Higher labour costs along with rising leasing costs may lead companies to expand in digital retailing, the report said.
Russia – The government is considering selling stakes in majority state-owned companies including Bashneft and Alrosa, according to Bloomberg.
Authorities are looking at divesting 10.9% of diamond miner Alrosa.
Free float currently stands at 23.1% with the remainder held the Federal Government (43.9%), the Republic of Sakha (25.0%) and local administrations of the municipal districts (8.0%).
The divestment will not change the majority-shareholder status of the government.
The government also indicated it is prepared to look at the sale of >50% stake in Bashneft (75% current interest|) if offered a premium.
Commodity News
Precious metals:
Gold US$1,233/oz vs US$1,233/oz yesterday –
• Gold ETFs at 54.1moz up from 54.0m last Thursday
Platinum US$922/oz vs US$922/oz yesterday – Impala guides for “lower-for-longer view of prices”.
Palladium US$494/oz vs US$484/oz yesterday
Silver US$14.79/oz vs US$15.06/oz yesterday
Base metals:
Copper US$ 4,698/t vs US$4,673/t yesterday – Copper concentrate shipments from Codelco’s Andina mine temporarily suspended after a burst in pipeline.
• The burst us reported to have resulted in a leakage of c.50m3 of copper concentrates into the river Blanco on Thursday last week.
• Remediation works were urgently started.
• The mine is the fifth largest operation in the Codelco portfolio and produced some 167,000t of copper in the first nine months of the year.
Aluminium US$ 1,568/t vs US$1,572/t yesterday
Nickel US$ 8,475/t vs US$8,450/t yesterday –
Zinc US$ 1,778/t vs US$1,739/t yesterday –
Lead US$ 1,759/t vs US$1,717/t yesterday
Tin US$ 16,050/t vs US$15,995/t yesterday –
Energy:
Oil US$35.3/bbl vs US$35.6/bbl yesterday –
Natural Gas US$1.708/mmbtu vs US$1.804/mmbtu yesterday
Uranium US$32.00/lb vs US$32.50/lb yesterday
Bulk comodities:
Iron ore 62% Fe spot (cfr Tianjin) US$46.2/t vs US$46.1/t – Moody’s downgrades Vale debt instruments to junk.
• Moody’s assigned Ba3 rating on the back of soft prices and slowdown in steel production.
• Prices are not expected to post any meaningful recovery till 2017, Moody’s estimates.
• “Negative outlook reflects the deterioration in market fundamentals for iron ore and base metals in a period in which Vale is undergoing a large expansion phase with substantial capital expenditures.”
• In addition, the outlook reflects potential penalties and costs related to the accident at Samarco operations.
• S&P continues to rate securities as investment grade despite a Jan downgrade (BBB-).
Steel – futures prices rose by 3% this morning lifting prospects for iron ore prices
• Steel futures are rising on expectations for demand into the Chinese new year as construction companies stock up on the reactivation of new project authorised by Beijing
• It remains to be seen if the rise in prices is seasonal or structural
• Some miners are said to be hedging iron ore cargos on the potential for a further downturn in iron ore prices
• World crude steel production for 66 countries reporting to the World Steel Association (world steel) fell -7.1% yoy to 128mt in January 2016
• https://www.worldsteel.org/media-centre/press-releases/2016/January-2016-crude-steel-production-.html
Thermal coal (1st year forward cif ARA) US$38.00/t vs US$38.70/t yesterday
Other:
Tungsten - APT European prices stood at $165-185/mtu shows prices rising vs $160-180/mtu last week
Company News
Amara Mining (LON:AMA) 12.5 pence, Mkt Cap £52.5m – Agreed combination with Perseus Mining at a 42% premium.
• Amara Mining and ASX listed Perseus Mining (PRU AX A$0.37, Mkt Cap A$195.9m) have announced an agreed combination between the two west-African focussed companies.
• Under the terms of the agreement, Perseus Mining is to acquire the entire capital of Amara Mining for shares and warrants. Perseus will issue 0.68 new Perseus shares and 0.34 unlisted warrants for each Amara Mining share. Each warrant entitles the holder to subscribe for one new Persus Mining share at a price of A$0.44.
• Based on Perseus Mining’s closing price of A$0.415/share and an exchange rate of A$1.94/£, the offer values Amara Mining at £68.3m or a 42% premium to Amara’s latest closing price of 10.3p/share.
• The announcement today reports that Amara’s directors are unanimously recommending the combination with Perseus Mining and have given irrevocable undertakings to vote in favour of the transaction. In addition, Perseus has received irrevocable undertkings of support from holders of approximately 15.18% of Amara’s shares.
• The combination of Perseus Mining’s existing 90% owned Edikan gold mine in Ghana, which produced over 212,000 oz of gold last year at “an all-in site cost of US$877/oz” and its Sessingue project in Cote d’Ivoire with Amara’s development project at Yaoure in Cote d’Ivoire and its feasibility study stage Baomahun project in Sierra Leone with the exploration portfolios of both companies sets in place a new mid-tier gold company focussed on west Africa.
• According to the companies joint presentation, the new Perseus Mining will have a combined market value around US$242m and will be owned approximately 65% by existing Perseus Mining shareholders and 35% by Amara Mining’s shareholders.
• The new company will control around 14m oz of measured and indicated gold resources and a proven/probable reserve of 7.3m oz of gold as well as an integrated portfolio of projects from initial exploration through to feasibility study stage projects.
Conclusion: The combination of Amara Mining and Perseus Mining should create an integrated west African focussed gold company which has sufficient scale to interest a wider investor base than either could attract individually. It maya also hearld a new phase of consolidation within the mid-tier gold industry.
Anglo American (LON:AAL) 367 pence, Mkt Cap £4.7bn – Kumba to appeal $341m South African tax bill
(Anglo own 69.7% of Kumba. Kumba holds 73.9% of Sishen Iron Ore Co.)
• Kumba is set to defend its self ‘vigorously’ against a whopping ZAR5.5bn ($341m) tax bill including ZAR3.7bn in interest and penalties
• The bill is due on its 73.9% owned Sishen Iron ore subsidiary.
• Worse still the overall bill might rise by another ZAR1.8bn in tax due plus additional charges.
• The bill is reported to be due for fines and interest due for the Sishen iron ore unit for 2006-2010.
• We expect the case to be hard fought and to last a year or two.
• Anglo is due to sell its stake in Kumba according to the group’s restructuring plans. The tax issue will make this .
• Kumba earnings were $304m for 2015 vs $1,011 for 2014. Kumba contributed $238m of this to Anglo vs 693m in 2014.
• Kumba sales reported on 9 February for FY 2015 were R36.1bn down 24% from R47.6m last year despite a 6% rise in tonnage sold to 47.8 Mt with export sales up 8%.
• Production from the Sishen mine was down 12% at 31.4 Mt due to the difficulty in providing the DMS plant with the correct quality of feedstock.
• The re-configuration of the Sishen Mine led to a R 6bn write down pre-tax in this year’s results.
• Kumba has a breakeven target of US$41/t versus US$45/t in H1 2015 with an operating margin of 24% vs 41% at end of FY 2014.
• The company plans a US$10/t reduction in controllable costs for this year
Kefi Minerals* (LON:KEFI) 0.325 pence, Mkt Cap £8.5m – Tulu Kapi development remains on track
• Kefi Minerals reports that its Tulu Kapi gold project in Ethiopia remains on track for financing in mid - 2016 and production at the end of 2017.
• The project capital estimate remains at US$120m and Kefi Minerals has been advised that the Government of Ethiopia is preparing legal documentation “for a proposed US$20m project equity investment”.
• Kefi Minerals’ is targeting a syndicate of loan finance providers and is indicating that it seeks US$60m of senior secured debt with a tenor of 6 years; US$30m of equity and the balance of capital requirements from “product-linked gold finance plus a 100,000oz hedge facility”.
• The company comments that it “has significantly expanded exploration activity to occur in the vicinity of the planned Tulu Kapi ore processing facility, with the aim of increasing production and expanding the project life”.
• Conclusion: Kefi Minerals has moved consistently towards the development of the Tulu Kapi project since it acquired it in late 2013. Today’s announcement indicates that it remains on tracjk and it is particularly interesting that the Government of Ethiopia is looking to support the development through equity investment as well as its efforts to facilitate permitting and related issues.
*SP Angel act as Nomad to Kefi Minerals
Hummingbird Resources (LON:HUM) 19.125 pence, Mkt Cap £ 20.5m – Revised mine plan enhances project economics at Yanfolila
• Hummingbird Resources has announced an updated JORC compliant mineral reserve estimate which increases the contained oz of gold at the Yanfolila project by approximately 7% to 709,800 oz.
• The new reserve of 7.04mt at an average grade of 3.14 g/t gold, classified as “probable”, results from a re-design of the pit shell based on current cost estimates, revised pit geometry and lower mine dilution “based on detailed geometry studies and correct grade control being used”.
• Improved pit design has reduced the LOM waste:ore ratio to 11.9:1 from 12.1:1 in the January study and overall LOM gold production rises by around 5% to 830koz from787 koz. Costs are reduced from $645/oz to $620/oz on a cash cost basis and by 5% on an all-in-sustaining basis to $686/oz. Capex remains unchanged from the earlier estimate at US$79m.
• As a result of the updated technical information, Hummingbird has now been able to update the project economics showing a 24% increase in the NPV (discounted at 8%) to US$109m compared to the January 2016 DFS based on the same US$1100/oz gold price assumption. At a higher gold price of US$1250/oz, the NPV under the new mine development plan rises to US$162m.
• IRR rises from 37% in the original DFS to 42% under the updated plan at a gold price of $1100/oz or to 60% if a gold price of US$1250/oz is projected.
• CEO, Dan Betts, commented that “These much improved Project economics have left the Company in a better position to negotiate the final funding package for the development of Yanfolila to production.”
Conclusion: The refined mine plan for the Yanfolila project has delivered an enhanced ore reserve estimate, an improved mine plan, and significant enhancements to the project economics. This may also strengthen the company’s negotiating position for development funding.
Ortac Resources* (LON:OTC) xx p, mkt cap £ xx m – Ortac takes 12% stake in CASA Mining
(Ortac holds 25% of Andiamo and 20% in Zamsort on conversion)
• Ortac Resources is investing $62,500 for a 12% Stake in CASA Mining.
• CASA Mining hold a 1.2moz open pittable gold resource grading 1.7g/t in the DRC.
• Over $30m has been spent on the project.
• The Akyanga Deposit is located in the South Kivu province in the eastern Congo not far from Banro’s 120,000ozpa Twangiza Gold Mine.
• CASA holds 71.25% of the Misisi Gold project in South Kivu.
• Akyanga has an inferred oxide gold mineral resource of 5.5mt grading 1.5 g/t gold for around 272koz.
• SRK has further reported an Inferred transition gold mineral resource of 16.2mt grading 1.8 g/t gold for another 927koz of contained metal..
• MDM in conjunction with SRK have completed a scoping feasibility study for Akyanga
o NPV (8%) ungeared - US$171m at a US$1,300/oz gold price
o IRR 35% assuming contract mining
o CAPEX US$87.4m and a total operating cost of
o AISCosts US$628/oz.
• Potential for a low CAPEX option starting with just US$5m.
Conclusion: This looks like another great deal for Ortac Resources. We expect to see Ortac gain further value through this and its other holdings in Zamsort, and Andiamo. We also expect Ortac to realise value by advancing in some way towards the development of the Sturec gold project in Slovakia.
*SP Angel acts as Nomad and broker to Ortac Resources
Ormonde Mining* (LON:ORM) 1.425 pence, Mkt Cap £ 6.7m – Progress as Barruecopardo heads closer to production
• Ormonde Mining has updated the market on its progress with the Barruecopardo tungsten project.
• The company has placed some 100% of priority 1 equipment orders and 60% of priority 2 orders.
• 30% of project capital is now committed with capital expenditure costs running below budget.
• Detailed process plant engineering design well advanced.
• Final site geotechnical investigations are complete.
• Dam construction engineering design 70% complete.
• 96% of land ‘option to purchase’ agreements exercised.
• A recent administrative appeal by a third party in relation to an element of the compulsory land acquisition process will delay the completion of the completion of the land acquisition process causing Ormonde to prioritise work on land it already owns.
• The company reports that its debt provider has been very constructive in discussions of modifications to the debt facility which may become necessary as a result of possible changes to the project timetable resulting from the compulsory land acquisition process.
• Ormonde is discussing the potential to extent its time line to production with its lenders as a result of this appeal.
• Drilling to test depth of mineralisation below the main pit and to the northern end is nearly done with results starting to be receive and evaluated. We expect the results from the 6 holes, 2300m campaign to be reported soon to the market.
• Q2 sees the execution of onsite earthworks compaction trials and commencement of water dam construction works.
• Ormonde are using a UK-based firm for the Construction Management Contract.