Amur Minerals* (LON:AMC) – Warrants converted into new shares
Anglo American (LON:AAL) – De Beers sees further demand growth at 2nd sale of 2016
Aureus Mining (LON:AUE) – Deferment of initial debt repayment agreed
Bacanora Minerals (LON:BCN) – Interim Statement flags imminent completion of PFS for Sonoral Lithium Project
Glencore (LON:GLEN) – Marketing division supports better than expected results
Medusa Mining (ASX:MML) – Interim Results show improving production and earnings performance
Rio Tinto (LON:RIO) – Sale of 40% interest in Bengalia Coal Joint Venture
Xtract Resources (LON:XTR) – Final Approvals for acquisition of Manica
Economic News
China – Manufacturing sector PMI hit the lowest level in five months stretching the series of below 50 mark reading to a year now.
• “The index readings for all key categories including output, new orders and employment signalled that conditions worsened, in line with signs that the economy’s road to stability remains bumpy,” Caixin Insight said.
• Caixin Manufacturing PMI: 48.0 in Feb, down from 48.4 in Jan and 48.4 forecast.
• Official estimates also show the sector contracted through Feb (49.0 v 49.4 in Jan and 49.4 forecast).
• Equity markets closed higher shrugging off weak economic data and gaining positive momentum from the PBoC decision to cut lenders’ reserve requirement ratios.
Japan – Capital spending dragged down by cuts in chemicals, petroleum and coal industries on the back of soft commodity prices.
• Capital Spending: 8.5%yoy in Q4/15 v 11.2%yoy in Q3/15 and 8.7%yoy forecast.
• Spending in the chemicals industry was down 19.8%yoy in Q4 compared to a 3.2%yoy increase in the previous quarter.
• Petroleum and coal sector recorded a 30.5%yoy compared with a 54.3%yoy gain in Sep quarter.
• Separate report showed Company profits contracted 1.7%yoy in the final quarter of CY15 versus a 9.0%yoy gain in Q3/15.
• Auto sales report released this morning showed sales fell 4.6%yoy in Feb versus a 0.2%yoy increase in Jan.
Germany – Solid employment numbers released this morning.
• Jobless rate remained at the record low of 6.2% in Feb.
• Unemployment fell by 10,000, in line with market estimates.
India – Manufacturing PMI came in at 51.1 in Feb, unchanged from a Jan reading, led by “modest gains in new orders and output”.
Russia – Manufacturing in a contraction stage for a third consecutive month with Markit noting “the survey data leaves little encouraging news”.
• “Workforce numbers continued to slide…”
• “Although there was a slight expansion in new orders, albeit underwhelming, export orders contracted at the quickest rate in 19 months, highlighting the difficulty facing Russian goods exporters at present.”
• Manufacturing PMI: 49.3 in Feb v 49.8 in Jan and 49.5 forecast.
Australia – The RBA left benchmark rate unchanged at a record low of 2%, broadly in line with estimates.
• “The available information suggests that the expansion in the non-mining parts of the economy strengthened during 2015 despite the contraction in spending in mining investment.”
• “This was reflected in improved labour market conditions. The pace of lending of businesses also picked up.”
• Inflation has recently slowed to 2.1%yoy in Feb moving closer the lower half of the RBA’s target band of 2-3%.
• “Feb fall reflects pass-through effects stemming from oil price volatility,” according to the Melbourne Institute.
• Low inflation “would provide scope for easer policy, should that be appropriate to lend support to demand,” the RBA said.
• The Aussie dollar traded higher against the US$ this morning.
Currencies
US$1.0864/eur vs 1.0902/eur yesterday. Yen 113.11/$ vs 113.00/$. SAr 15.716/$ vs 16.048/$. $1.396/gbp vs 1.387/gbp
0.715/aud vs 0.715/aud. CNY 6.549/$ vs 6.552/$.
Commodity News
Precious metals:
Gold US$1,241/oz vs US$1,233/oz yesterday – Jewellers in the India’s largest market went on strike protesting against the introduction of a 1% excise duty.
• Gold traders are reported to have stopped work at Mumbai’s Zaveri Bazaar for an indefinite period of time with the action likely to spread to other markets.
• The All India Gems & Jewellery Trade Federation which represents 300,000 jewellers and bullion dealers will be meeting with other groups later today and discussing the next course of action.
• Known gold ETFs 54.7moz vs US$54.1moz yesterday
Platinum US$938/oz vs US$922/oz yesterday
Palladium US$504/oz vs US$494/oz yesterday
Silver US$14.89/oz vs US$14.79/oz yesterday
Base metals:
Copper US$ 4,699/t vs US$4,698/t yesterday
Aluminium US$ 1,580/t vs US$1,568/t yesterday
Nickel US$ 8,600/t vs US$8,475/t yesterday
Zinc US$ 1,775/t vs US$1,778/t yesterday
Lead US$ 1,766/t vs US$1,759/t yesterday
Tin US$ 15,885/t vs US$16,050/t yesterday
Energy:
Oil US$36.7/bbl vs US$35.3/bbl yesterday – Prices climbed on Monday on the back of estimates of a reduced supply from the OPEC, Chinese monetary stimulus and Saudi Arabia comments that authorities are looking at ways to curb market fluctuations.
• Supply from the OPEC has declined to 32.37mbpd in Feb from a revised 32.65mbpd in Jan.
Natural Gas US$1.700/mmbtu vs US$1.708/mmbtu yesterday
Uranium US$32.15/lb vs US$32.00/lb yesterday
Bulk comodities:
Iron ore 62% Fe spot (cfr Tianjin) US$48.7/t vs US$46.2/t – Moody’s downgrades Vale debt instruments to ‘junk’, S&P still at ‘BBB-‘.
Steel – 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
Thermal coal (1st year forward cif ARA) US$38.40/t vs US$38.00/t yesterday
Other:
Tungsten - APT European prices stood at $165-185/mtu shows prices rising vs $160-180/mtu last week
Chrome – Chinese traders closure of Zimbabwe offices leave Zimbabwe miners bereft
• Chinese traders had cut chrome ore prices to $15/t from $40/t but have now withdrawn all together
• The Zimbabwean government is reported to have created a Special Purpose Vehicle to buy chrome ore which has hiked prices to $80/t
• Zimasco, the major Zimbabwean chromite processor shut down last year but a South African company, Portnex may reopen the Zimasco furnaces
Company News
Amur Minerals* (LON:AMC) 7.6p, Mkr Cap £35m – Warrants converted into new shares
• 17.0m warrants issued to Crede CG III on 14 Dec/15 as part of the multi-tranche £12.5m investment by the Company have been converted into 22.0m new shares.
• As per agreement signed in Dec/15, Crede has an option to exercise warrants for cash payment or exchanging warrants for new shares.
• The amount of shares issued in lieu of exercised warrants is calculated using the value of outstanding warrants based on the Black-Scholes model divided by “the closing bid price of ordinary Shares on the trading day two days prior to the date on which the warrant notice is issued [7.3p as of 24 Feb/16]”.
• Crede opted for a non-cash option and was issued 22.0m shares in exchange for 17.0m warrants that were in turn issued back in Dec/15 following the subscription for 22.7m shares at 11p for £2.5m.
• There are currently four £2.5m worth (each) tranches outstanding which are agreed to be released at 90 day intervals with the next one due this month.
Conclusion: As previously argued the deal agreed in Dec/15 with Crede is dilutive to existing shareholders, but offers the capital to move the Kun Manie project further towards the DFS.
The Company is currently gears up for the 2016 field season planning infill and step out drilling programme at multiple targets and Kubuk, in particular.
*SP Angel act as Nomad and Broker to Amur Minerals
Anglo American (LON:AAL) 500.5 pence, Mkt Cap £6.45bn – De Beers sees further demand growth at 2nd sale of 2016
• Anglo American reports that De Beers’ second diamond sale of 2016 realised US$610m showing a 12% increase on the US$545m from the first sale of 2016 and more than double the US$248m from the final sale of 2015.
• The company notes that “Rough diamond demand continues to show signs of improvement as excess inventory has continued to work through the system in recent months.”
• Anglo American remains cautious however on the recovery continuing although, “Retailer restocking after the end-of-year holiday season is supporting demand for polished diamonds and, in turn, we are seeing improved demand from the mainstream for rough diamonds.”
Conclusion: De Beers diamond sales continue to pick up although the company is advising caution on the sustainability of the improved demand.
Aureus Mining (LON:AUE) 4.625 pence, Mkt Cap £25.1m – Deferment of initial debt repayment agreed
• Aureus Mining has confirmed that it has received the approval of its lenders “to further defer its first debt repayment to 4 April 2016.”
• The confirmation had been expected and forms part of a wider debt rescheduling discussion currently underway between the company and its lenders. These discussions are being pursued against a background of refinements to the mine plan at the New Liberty mine in Liberia.
• Recent announcements suggest that New Liberty is overcoming the teething troubles which affected commissioning late last year and is on course to achieve formal Commercial Production by the end of March.
Conclusion: Aureus Mining appears to be receiving the support of its lenders as it resolves the initial problems at New Liberty. We look forward to further details of the rescheduling of debt repayments in due course.
Bacanora Minerals (LON:BCN) 72pence, Mkt Cap £70.0m – Interim Statement flags imminent completion of PFS for Sonoral Lithium Project
• Bacanora Minerals, which is currently preparing a Pre-Feasibility Study (PFS) for the development of its Sonora Lithium project in Mexico reported a loss of C$3.96m for the six months to 31st December 2015 (C$1.15m loss in 2014).
• The company comments that following completion of the PFS it intends “to immediately embark on a Definitive Feasibility Study” and that, as a result of completing a private placement of C$17.8m at C$1.56/share during November, Bacanora Minerals reports a year end cash balance of C$23.23m; sufficient to fund the DFS work.
• The company is expecting to release the results of its PFS during the current quarter, however today’s announcement restates the previously reported 37% increase in the indicated resource estimate at Sonora to 95m tonnes at an average grade of 2200ppm lithium (0.22%) within an overall resource of 364m tonnes of lithium-bearing clay at an average grade of 2600ppm lithium (0.26%) representing 5 million tonnes of lithium carbonate equiValent.
• The PFS is focussed on “designing a plant potentially capable of delivering up to 35,000 tonnes per annum of lithium carbonate.”
• Bacanora Minerals comments that the “Lithium market dynamic remains highly positive - demand is expected to continue to grow rapidly thanks to lithium’s key role in highly innovative industries such as smartphones, electric vehicles and energy storage.”
Conclusion: Bacanora is expecting to complete its PFS shortly and already has the funds available to move on directly to a full DFS, which could imply that they expect a positive outcome to the PFS.
Glencore (LON:GLEN) 127 pence, Mkt Cap £18.28 bn – Marketing division supports better than expected results
• Glencore performed relatively well through the toughest half year of their consolidated existence.
• The Marketing (Trading) businesses performed well with a strong recovery in profits in energy and copper despite lower price levels.
• Trading conditions were good through the period and the Chinese were not able to wrong-foot the market on copper as they did in the first half.
• In a fair world regulators would be investigating China inc. for market manipulation.
• Glencore also performed better than many would have expected in the Mining and Oil & gas businesses. Agriculture worsened due to low price levels.
• Net income came in at $1.3bn for the full year 2015 vs $0.9bn for H1 ’15 and $4.3bn for 2014.
• Marketing (Trading) contributed virtually all the good news with $2.5bn of EBIT vs a loss of -$292m from the Industrial division.
• The Marketing business has proven to be remarkably consistent through the years and looks set to continue to support the group through this period of lower commodity prices.
• The figures go to show the underlying strength of Glencore and should serve to silence critics who point towards the higher operating cost of the Industrial activities.
• It is worth pointing out that the Marketing division does benefit from owning its own mines and from the consolidation with Xstrata.
• Glencore has continued to improve its underlying Industrial activities though the Agricultural business has not provided much benefit from its diversification.
• Metals and Minerals
• Debt: Net debt cut by $8.5bn to $25.8bn with $41.2bn of gross debt
• Glencore’s debt remain investment grade with banks queing up to participate in Glencore’s Revolving Credit Facility recently. The bankers will be relieved to see Glencore’s strong marketing performance without which these results would be a very different story.
• Impairments: $4.5bn of impairments were not unexpected and are a regular feature of earnings announcements in the current economic environment. The Knoiambo nickel business is not looking like a good investment and the timing of the acquisition of the Chad oil assets was unfortunate but these are small beer compared with the write downs seen at other large cap miners.
Conclusion: Glencore’s performance through the second half vindicates the strategy of combining the marketing businesses with Xstrata’s mining. While some may suggest that Glencore overpaid for Xstrata it is the combination of these assets which helps the marketing business to perform well. While Glencore is focussed on cutting costs and reducing debt we reckon the group should continue to expand its mining and Industrial empire so that it can generate better production discipline.
Medusa Mining (ASX:MML) A$0.69, A$143.4m – Interim Results show improving production and earnings performance
• Medusa Mining reports that, as a result of a 27% increase in gold production (61,169 oz), largely attributable to improved grades of ore processed, it achieved a 12% improvement in revenues during the 6 months to 31st December 2015 despite a 10% fall in the average price of gold it received.
• Cash costs increased by 14% to US$436/oz on largely unchanged mill throughput of 326,000 tonnes.
• The positive operational performance has resulted in an 18% improvement in EPS to US$0.151/share.
• The company has reiterated its guidance for the full financial year to June 2016 of 120,000-130,000 oz of gold production at a cash cost of between US$400-450/oz and all in sustaining costs in the range US$900-1000/oz.
Rio Tinto (LON:RIO) 1947 pence, Mkt Cap £35.7bn – Sale of 40% interest in Bengalia Coal Joint Venture
• Rio Tinto has announced the sale of its 40% interest in the Bengalia coal operation in the Hunter Valley to New Hope Corporation for US$616.7m
• Rio Tinto notes that it “has now announced or completed US$4.7 billion of divestments since January 2013.”
• In February this year, Rio Tinto also announced that it had agreed to sell its Mount Pleasant thermal coal operation in Australia to MACH Energy Australia for US$224m (plus royalties).
• When the company announced its final results for 2015, in February, the company reported that net debt had been reduced by US$700m during 2015 to finish the year at US$13.8bn representing gearing of 24% (net debt as percentage of net debt plus total equity).
• Rio Tinto has stated that it is continuing to maintain a target gearing ratio of 20% to 30% through the cycle.
Conclusion: The completion of the sale of its stake in the Bengalia joint venture had been announced previously and is a further step in the process of rebalancing the company. Debt levels are in line with Rio Tinto’s stated target zone.
Xtract Resources (LON:XTR) 0.19 pence, Mkt Cap £16.3m – Final Approvals for acquisition of Manica
• Xtract Resources reports that it has now received the final approval required under the Mozambique Mining Act to complete the acquisition of the Manica gold project from Australian listed Auroch Minerals.
• The company also announces a number of revisions to the terms of the acquisition. Xtract Resources will now pay US$3m (previously US$3.5m) to complete the transaction and this is expected to occur on 1st March.
• The company will issue US$4.4m of shares (previously US$4m) and pay US$2.5m cash (previously US$2m) three months after completion.
• In addition, Xtract has agreed to assume responsibility for US$1m of creditors to the Manica project.
• The project has a JORC resource of 9.5 Mt at 3.10 g/t gold and has a LOM plan of 8 years.
Conclusion: It is encouraging to see the closure of the Manica transaction which provides the company with an additional project to add to its Chepica operation in Chile