Antofagasta (ANTO LN) – Dividend slashed as Antofagasta feel full pain of copper collapse
Berkeley Energia (BKY LN) – Developments at Salamanca Uranium Project
Gem Diamonds (GEMD LN) – Positive earnings and dividends but downsizing of Ghaghoo
Scotgold Resources Ltd (SGZ LN) – Interims highlight progress at Cononish
Stellar Diamonds (STEL LN) – Latest diamond auction results and £600,000 equity raising.
W Resources (WRES LN) – Raising a further £100,000 at 0.45p/share
China – leaders leaning towards stimulus vs reform
• China aims to achieve GDP growth of 6.4-7% through 2016 through credit growth and growing the budget deficit if required.
• Government revenues are targeting 3% growth indicating potential for tax cuts.
• Restructuring of inefficient industry and the removal of overcapacity is now underway with 1.8m workers due to be moved.
• New ‘Silk Road’ infrastructure is being promoted and a second rail line into Tibet is being planned – it will probably be completed ahead of HS1
• Capital controls have stemmed the flow of capital out of China helping to promote internal investment and credit is increasingly available causing property to rise again in key cities
• China may allow some of its worse state enterprises to fail to effectively persuade lenders to focus on lending to better quality companies
Economic News
Japan – The BoJ kept the deposit rate unchanged at -0.1%, in line with expectations, while highlighting risks to growth developing from strengthening currency and a slowdown in emerging economies.
• The rate of asset purchases was left at ¥80tn per annum.
• The Bank noted exports had slowed lately on the back of appreciating currency, while public inflation expectations had “recently weakened”.
• “Due attention still needs to be paid to a risk that an improvement in the business confidence of Japanese firms and conversion of the deflationary mindset might be delayed and that the underlying trend in inflation might be negatively affected,” the BoJ said.
Eurozone – Industrial production surged 2.8%yoy in Jan recovering from a 0.1%yoy decline in Jan and beating estimates for a 1.6%yoy growth.
• The increase was led by “production of non-durable consumer goods rising 7.3%yoy , capital goods, by 4.6%yoy, durable goods by 3.2%yoy and intermediate goods by 1.9%yoy”.
• Production of energy declined 3.7%yoy.
India – CPI-measured inflation hit 5.2%yoy in Feb, down from 5.7%yoy in Jan and 5.5%yoy forecast.
• The nation has been benefiting from falling oil prices which filtered into lower inflation rates offering more room for monetary stimulus by the RBI.
UK – Chances of a rate cut this year are reported to have recently climbed to 23%, up from 10% a month ago, on the back of BoE downwards revisions to growth and increasing uncertainty over the Brexit effect on the economy.
• At the moment, markets are not expecting a hike before Q1/17.
• The BoE MPC members are meeting this week with the announcement due on Thursday.
Russia – Vladimir Putin is reported to have ordered a withdrawal of a “basic part” of Russian troops from Syria catching many off guard by the decision.
Currencies
US$1.1087/eur vs 1.1117/eur yesterday. Yen 113.04/$ vs 113.66/$. SAr 15.629/$ vs 15.351/$. $1.417/gbp vs 1.435/gbp
0.746/aud vs 0.754/aud. CNY 6.514/$ vs 6.495/$ unch. Weaker yuan makes China more competitive but raises import costs for Chinese manufacturers
Commodity News
Precious metals:
Gold US$1,233/oz vs US$1,258/oz yesterday – Sibanye Gold will not be buying platinum mines in the Rustenburg area if Competition Commission insists no merger-specific job cuts, Sibanye CEO.
Gold ETFs 55.7 moz yesterday vs 55.9moz yesterday – first EFT fall for a week
Platinum US$954/oz vs US$970/oz yesterday
Palladium US$560/oz vs US$572/oz yesterday
Silver US$15.31/oz vs US$15.67/oz yesterday
Base metals:
Copper US$ 4,900/t vs US$4,962/t yesterday –
Copper – Prices are off this morning on the back of surging inventories monitored by the Shanghai Futures Exchnage.
• LME inventories (170kt) have been trending downwards on the way to hit the lowest since mid-14; while SHFE stockpiles (350kt) are posting new record highs.
Aluminium US$ 1,527/t vs US$1,548/t yesterday –
Nickel US$ 8,580/t vs US$8,770/t yesterday – New Caledonia to allow nickel ore exports to China as revenues from refined nickel fall.
• The move is a bit like giving the firing squad bullets for your own execution.
Zinc US$ 1,755/t vs US$1,808/t yesterday
Lead US$ 1,806/t vs US$1,847/t yesterday
Tin US$ 16,800/t vs US$16,900/t yesterday
Energy:
Oil US$38.4/bbl vs US$39.7/bbl yesterday
Natural Gas US$1.826/mmbtu vs US$1.806/mmbtu yesterday
Uranium US$28.50/lb vs US$28.50/lb yesterday
Bulk comodities:
Iron ore 62% Fe spot (cfr Tianjin) US$54.1/t vs US$55.7/t –
Steel – US authorities are prepared to introduce new measures to help local steel producers as 266% tariff on imports from China may not be enough of a protection.
• Preliminary results of protective tariffs show Chinese steel shipments to US ports fell 54%yoy in Jan.
• In a separate news, MMK, the Russian steelmaker, is looking to reduce its stake in Fortescue metals following a recovery in the share price on a jump in iron ore prices.
• The Company has already sold 0.6% stake with the remainder of interest (>4%) planned to be divested in due course.
• Chinese steel production fell in January and February by 5.7%yoy to 121.1mt.
• Estimates are for steel demand to record another annual decline this year (-3.0%yoy), according to the Chian Iron & Steel Association.
Thermal coal (1st year forward cif ARA) US$39.50/t vs US$40.60/t yesterday –
• China is planning to cut 1.3m coal and 0.5m steel jobs as part of its economic restructuring programme and battle against overcapacity in mining and steel sectors.
Lithium – Lithium Australia wins government grant to advance its SileachTM process
• The process aims to aid the recovery of lithium from micaceous silicate ores without roasting.
• The process if successful could also apply to lithium rich Spodumene ores.
• While we generally support the development of new technologies in the processing of ores we would not hold our breath on this one.
Other:
Tungsten - APT European prices stood at $165-180/mtu vs $168-185/mtu last week
Company News
Antofagasta (LON:ANTO) 481 pence, Mkt Cap £4.75bn – Dividend slashed as Antofagasta feel full pain of copper collapse
• Antofagasta report a tough set of financial results following the collapse of copper prices last year.
• Shareholders and ‘The family’ are not going to be happy at the loss of their final dividend which has been cut as debt levels rise
• In Antofagasta’s defence the group already paid out 3.1c/s at the interim therefore exceeding their 35% minimum payout.
• Earnings fell to $702m for the year vs $851m in 2014.
• Net debt rocketed to $1,023m vs just $1.6m last year driven by capex spend of $1,049m though this was $250m lower than initially planned
• Sales from copper concentrates and cathodes fell by $1.555m vs 2014 highlighting the impact of lower copper prices
• Copper production fell by 74,500t to 630,300t for the year as the giant Los Pelambres mined harder ore
• Sales and earnings would have been hit by a negative charge for provisional pricing.
• Group cash costs of $1.81/lb were 1.1% lower than last year. Costs would have been substantially lower if copper production had not fallen by 10.6%.
• Group net cash costs rose by 4.9% to $1.50/lb due to the lower value of by-product credits partially driven by lower gold production
Conclusion: Antofagasta’s results would have been worse if the weak Chilean peso and lower oil prices had not offset much of the cost of lower copper and by product production.
Higher copper and gold prices should enable the group to recover some lost ground with further benefits from lower oil and the peso. While earnings should recover lost ground we suspect management may look to further reduce and delay some capital expenditure to enable the payment of the next interim dividend.
Berkeley Energia (LON:BKY) 24.75 pence, Mkt Cap £45.0m – Developments at Salamanca Uranium Project
• The company has announced that “development of the Salamanca project is now underway” bringing a decade of exploration and feasibility studies costing over US$60m to fruition.
• Berkeley Energia reports that “activities on the ground will commence shortly.” These initial works will include re-routing of a power line and the ”realignment of an existing road to allow for the commencement of the Retortillo pit.”
• The company also notes that it has received “over 19,000 applications for the first 200 job vacancies offered” as evidence for the strong local support for the project.
Conclusion: In recent years, the Salamanca Province has demonstrated its support for mining with the development of the operating Los Santos tungsten mine and the approval of the development of the Barruecopardo tungsten mine as well as the Salamanca Uranium Project and a number of less advanced exploration programmes in the province. This has given the local Mines Department a growing depth of knowledge and experience in the regulatory aspects of mine development which should be of benefit as Berkeley Energia proceeds.
Gem Diamonds (LON:GEMD) 108.5 pence, Mkt Cap £150.1m – Positive earnings and dividends but downsizing of Ghaghoo
• Gem Diamonds has reported a 12% increase in profits for 2015 with profit from continuing operations of US$67.4m (2014 US$60.4m) and a 57% rise in attributable profit after exceptional items to US$52m (2014 – US$33.2m).
• The Company is now proposing an ordinary dividend of US5 cents/share and a special dividend of US5 cents/share. The special dividend is proposed to reflect “the cash saving arising from the settlement of a previous tax assessment”.
• The balance sheet remains strong with net cash of US$55.3m.
• Gem Diamonds’ Letseng mine realised US$2,299 per carat on sales from its 108,579 carats of production and notes that relatively minor capital investment of around $14.5m to increase production capacity and reduce breakages have yielded positive results in terms of the recovery of the larger (and generally more valuable) diamonds. “Before these interventions, an average of six diamonds greater than 100 carats were recovered per year, whereas in 20145, the Group recovered 11 diamonds greater than 100 carats, the largest of which was the 357 carat “Letseng Dynasty”. This exceptional diamond was sold for US$19.3m, achieving the highest price for a single diamond from our Letseng mine”.
• At the Ghaghoo mine, development is proceeding with average grades of diamonds recovered during the year of 28 carats per hundred tonnes (cpht0 comparing well with the reserve grade of 27.8 cpht. Ghaghoo has, however, experienced difficult ground conditions underground with caving through to surface in a section of the mine occurring “some six months earlier than expected”. Although no injuries or damage to equipment resulted, remedial measures to limit the resulting dilution have caused the deferment of some 300,000 tonnes of ore for extraction.
• Ghaghho diamonds have realised lower prices recently, with a sale of 49,120 carats in December realising an average of US$150/ct (US$7.4m in total) compared with the “US$210 and US$165 per carat in the previous sales held in February and July respectively.” As a result of the “depressed state of the rough diamond market for Ghaghoo’s production … it was considered prudent to downsize the operation to minimise the cash to be consumed by this asset. Consequently a modified target of approximately 300,000 tonnes of ore to be treated has been set for 2016.”
Conclusion: Overall Gem Diamonds is performing well on the back of Letseng where improvements have reduced breakage of large, valuable diamonds. Ghaghoo, however is experiencing some operating issues and a weakening in prices for its production and is being downsized, at least for the time being.
Scotgold Resources Ltd (LON:SGZ) 0.7p, Mkt Cap £8.5m – Interims highlight progress at Cononish
• Scotgold report interim results today and highlight the estimated value of the Cononish gold mine in Scotland.
• The company reports a loss of $0.92m for 2015 vs $1.23m in 2014
• Admin costs rose to $0.27m vs $0.16m yoy
• Exploration costs nearly halved to $0.11m vs $0.21 yoy as the company shifted its focus to project evaluation
• Employee and consultant costs rose slightly to $0.14m vs $0.16m yoy
• The unwinding of the convertible note discount cost $0.11m vs $0.03m yoy
The Cononish gold project:
• Gold production: 23,379 peaking at 28,540 in year 2
• Grade av 11.8g/t peaking at 15.4g/t in year 2
• IRR 54%, NPV £30m at a $1,200/oz gold price assuming a 10% discount rate.
• IRR 64%, NPV £37m at $1,300/oz
• LOM Cash costs $523/oz – the project breaks even at a $689/oz eq gold
• Capex - £18.5m peak funding.
• Construction schedule for 16 months
• Payback 19 months.
• Pilot plant Bulk Processing Trial ‘BPT’ to start on 7,000t of stockpiled ore grading 7.9g/t gold and 39g/t silver.
• The BPT plans to process 2,400t of ore at a cost of £140,000 subject to planning approvals from the Loch Lomond & The Trossachs National Park Planning Authority.
Conclusion: Scotgold continue to make progress towards the permitting and expected construction of Scotland’s first new gold mine in modern times.
Stellar Diamonds (LON:STEL) 10.5 pence, Mkt Cap £2.7m – Latest diamond auction results and £600,000 equity raising.
• Stellar Diamonds reports the results of its recent diamond auction in Antwerp where it sold 3,291 crats of diamonds realising US$299,988 at an average price of US$91.05/ct.
• The company notes that the average price is lower than the US$156/ct achieved at its previous sale in May 2015.
• The lower prices are ascribed to offering a different mix of stones containing a “higher proportion of lower quality stones as well as a broadly weaker rough diamond market since mid-last year.”
• One large, 55 carat stone recently found at Baoule, though of poor quality is seen as confirmation “that the Baoule pipe is a possible source of the large diamonds which have been mined in alluvial deposits downstream of the Baoule pipe for many years, several of which have been +100 carats in size.”
• Stellar also comments that there were some more valuable, mostly white gemstones in the auction which “realised prices of over US$1,000 per carat and up to US$4,600 per carat”.
• In addition to the results of the diamond auction, Stellar Diamonds reports that it has conditionally raised a further £600,000 through the placing and subscription of a total of 6m new shares at a price of 10p/share. The funds are to be used at Baoule to complete the trial mining and bulk sampling programme, further the test sales of diamonds which should help establish the average price of the Baoule product and complete a maiden resource estimate as a well as for working capital.
Conclusion: The recent sales suggest that there may be a relatively wide variability in the value and quality of diamonds at Baoule, which underlines the rationale for undertaking the trial mining and test sales programme. The discovery of large diamonds within the pipe, albeit initially of poor quality further adds to the data on size distribution of diamonds within the Baoule pipe.
W Resources (LON:WRES) 0.47p, Mkt Cap £17.4m – Raising a further £100,000 at 0.45p/share
• W Resources has announced that it is raising an additional £100,000 at 0.45p/share “in response to additional demand following the £750,000 placing announced on 11 March 2016, and the combined funds will be used for the mine and plant engineering at La Parilla and Regua, resource estimation at Sao Martinho and general working capital.”
• The company recently reported that test work had indicated that its Spanish La Parilla project was amenable to scaling up of production at low costs. At present the company is looking to develop a fast track mining operation producing at a rate of 1300 tpa of tungsten concentrates by late 2016 at a cost of US$16m. The company is looking ahead to potentially double production at La Parilla for an additional US$6m capex.
• W Resources is pressing ahead with La Parilla and another tungsten project at Regua in Portugal at a time of prolonged low prices for the intermediate benchmark ammonium paratungstate product. The resource grade of 0.096% tungsten trioxide is relatively low by comparison with other tungsten projects and if the commodity price remains low the project may prove challenging.
Conclusion: W Resources is raising additional funds in response to demand. This support from investors is most encouraging however we caution that the underlying tungsten concentrate commodity price remains at depressed levels.