Central Asia Metals (LON:CAML) 170 pence, Mkt Cap £189.9m – 2015 results
Kefi Minerals* (LON:KEFI) 0.36 pence, Mkt Cap £9.3m – Q1 update highlights progress at Tulu Kapi gold project in Ethiopia
Kibo Mining (LON:KIBO) 3.625 pence, Mkt Cap £12.7m – Mbeya coal resource update
Vedanta Resources (LON:VED) 212 pence, Mkt Cap £572m – Q4 and FY 2016 production release
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FTSE 350 Mining +1.88% at 8,895
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Economic News
Corporate defaults hit the highest level in seven years driven by commodities sector, S&P numbers show.
• The overall default tally climbed to 40 since the start of the year (Jan-Apr) compared to 29 the same time last year.
• Sector wise, defaults were driven by the oil and gas industry which saw 14 cases with a further 8 from the metals and mining.
• Geography wise, most of defaults were recorded in the US (34 cases) with only five in the emerging markets.
• Stripping out oil and gas as well as metals and mining numbers, the total number of defaults is actually at a post-crisis low.
New World Bank growth forecasts for the East Asia and Pacific region show only a modest slowdown in growth rates in the 2016-18 period.
• In particular, China is expected see a gradual slowdown in GDP growth rates towards the official 6.5% target for the 20166-2020 period:
US – Economic news this week:
Date Index Period Actual Expected (Bloomberg) Previous
Tuesday Monthly Budget Mar -$104.0bn -$52.9bn
Wednesday Retail sales/Core (ex auto) Mar 0.1%mom/0.4%mom -0.1%mom/-0.1%mom
PPI/Core Mar 0.3%mom/0.1%mom -0.2%mom/0.0%mom
Thursday Weekly Jobless Claims 270k 267k
CPI Mar 0.2%mom/1.1%yoy -0.2%mom/1.0%yoy
CPI Core Mar 0.2%mom/2.3%yoy 0.3%mom/2.3%yoy
Friday Industrial Production Mar -0.1%mom -0.5%mom
Manufacturing Production Mar 0.1%mom 0.2%mom
Capacity Utilization Mar 75.3% 75.4%
New York Manufacturing Apr 2.0 0.6
UoM Consumer Sentiment Apr 92.0 91.0
China – Deflation in producer prices slowed while general inflation remained unchanged at 2.3%yoy in Mar.
• The latest reading suggest price gains are comfortably contained below the targeted “around 3%” target.
• CPI: 2.3%yoy v 2.3%yoy in Feb and 2.4%yoy forecast.
• PPI: -4.3%yoy v -4.9%yoy in Feb and -4.6%yoy forecast.
• Trade data is due on Wednesday with exports expected to record a recovery in Mar (+9.3%yoy) following a sharp decline in the previous month (-25.4%yoy).
• Q1 GDP numbers are on Friday with estimates for a 6.7%yoy growth v 6.9%yoy in Q4/15.
Japan – Machinery orders retreated from the strongest growth in over a decade recorded in the previous month in Feb; although, market estimates were for a sharper decline.
• Machine orders: -9.2%mom v 15.0%mom in Jan and -12.0%mom forecast.
• The industry body guided for a 6.4%qoq increase in core orders that strip out orders for ships and electric power companies.
• Given a 6.6% increase over the first two months of the quarter, core orders are on the way to reach the target.
• Despite better than forecast economic data, equities index finished lower on the back of strengthening currency.
• The yen came down to ¥107.7 today marking the lowest level since Oct/14.
Germany – 10 year government bond yields dropped to a new 12-month low of 0.077% this morning following the start of expanded ECB purchases at the start of the month.
Italy – Authorities are looking to cut forest 2016 GDP growth rate to 1.2%, down from 1.6% estimated previously, according to the 2017 budget document that is expected to be approved by the Italian cabinet on Friday.
• Nevertheless, the cabinet is confident the target to bring down a debt to GDP ratio for the first time in eight years in 2016 is feasible.
• Debt to GDP which stood at 132.7% last year is forecast to come down to 132.4% in 2016.
• This compares to previous estimates released last year for a 131.4% target.
Currencies
US$1.1392/eur vs 1.1385/eur yesterday. Yen 108.11/$ vs 108.96/$. SAr 14.819/$ vs 15.116/$. $1.420/gbp vs 1.410/gbp
0.755/aud vs 0.755/aud. CNY 6.471/$ vs 6.473/$.
Commodity News
Precious metals:
Gold US$1,248/oz vs US$1,235/oz yesterday –
• Gold ETFs 56.7moz unch vs US$56.7moz – ETF holdings
Platinum US$972/oz vs US$957/oz yesterday –
Palladium US$544/oz vs US$542/oz yesterday
Silver US$15.49/oz vs US$15.21/oz yesterday
Base metals:
Copper US$ 4,644/t vs US$4,667/t yesterday –
Aluminium US$ 1,514/t vs US$1,508/t yesterday
Nickel US$ 8,575/t vs US$8,470/t yesterday –
Zinc US$ 1,755/t vs US$1,765/t yesterday
Lead US$ 1,697/t vs US$1,701/t yesterday
Tin US$ 16,850/t vs US$16,700/t yesterday –
Energy:
Oil US$41.7/bbl vs US$40.6/bbl yesterday
Natural Gas US$1.932/mmbtu vs US$2.030/mmbtu yesterday
Uranium US$28.50/lb vs US$28.50/lb yesterday
Bulk comodities:
Iron ore 62% Fe spot (cfr Tianjin) US$54.6/t vs US$53.3/t – Chinese steel mills ramped up production amid a seasonal increase in demand driving iron ore prices higher.
• Vale is planning to beat Rio Tinto and BHP as the top iron ore supplier for China.
• The company is targeting a 40% increase in shipments to China up from 180mt in 2016.
Thermal coal (1st year forward cif ARA) US$41.5/t vs US$40.8/t yesterday – .
Other:
Tungsten - APT European prices stood at $175-190/mtu vs $170-185/mtu last week –
Company News
Central Asia Metals (LON:CAML) 170 pence, Mkt Cap £189.9m – 2015 results
• Despite record copper production and sales in 2015, Central Asia Metals reports a sharp decline in annual profit to US$22.2m (2014- $59.47m) as a result of weakening copper prices.
• The Company is, however, proposing a final dividend of 8p which brings the dividends for the year to 12.5p in line with 2014.
• Cash costs of 60cents/lb were 3% below the 62 cents reported for 2014. Costs were a beneficiary of the decision in August 2015 of the Kazakhstan Government to devalue the Tenge by almost 37% as it moved “to a free-floating exchange rate, allowing the market to determine its value. The Tenge devalued further towards the end of 2015 resulting in in a total devaluation over the year of approximately 85%.”
• The sharp fall in costs helped to generate operating cash flow of $23.5m (2014 – $30.5m) and free cash flow before financing off $16.2m (2014 - $19.7m.)
• On the negative side, the devaluation of the currency “also resulted in a non-cash foreign exchange loss of $77.4m recognised within equity and the statement of comprehensive income.”
• Following Government approval in November 2015, the company is proceeding with the $19.5m Kounrad Phase 2 expansion is underway and expected to start copper production from the “western dumps” in 2017.
• Feasibility study work on the 75% owned Copper Bay project is underway with a Definitive Feasibility Study expected to be completed in late 2016.
• Central Asia Metals reports a 31st December cash balance of $42.0m (2014 - $46.3m).
Kefi Minerals* (LON:KEFI) 0.4 pence, Mkt Cap £12m – Q1 update highlights progress at Tulu Kapi gold project in Ethiopia
(Kefi hold 75% of the Tulu Kapi project, Govt of Ethopia hold 25%)
• Kefi Minerals tells us of progress on its gold project in Ethopia.
• The company continues to progress towards financing of $145m for the total project including working capital and contingencies.
• The financing looks like $65m of senior secured debt, $15m cost overrun facilities and a 100,000oz gold hedge and $40m of product-linked gold finance.
• $20m is expected from the Government of Ethiopia and $5m from Kefi Minerals which has already been raised. $50m has already been invested in the project by Kefi and its previous owners (Nyota)
• The project should generate sufficient cash flow in its first three years at a gold price of > $1,250/oz to repay substantially all of its project debt, to pay dividends and to start to fund development of the underground mine at Tulu Kapi and an initial heap leach at Jibal Qutman in Saudi Arabia.
• Optimisation of the project following work done by contractors and consultants including the move to selective in-pit mining has improved the economics of the project.
• Gold production is expected to average 115,000ozpa for the core eight years rising to a potential 150,000ozpa including the underground mine.
• AISC costs are $742/oz
• NPV $155m @8% and gold at $1,250/oz.
• Underground mine adds $44m to the NPV on the same assumptions.
*SP Angel act as Nomad and broker to Kefi Minerals
Kibo Mining (LON:KIBO) 3.625 pence, Mkt Cap £12.7m – Mbeya coal resource update
• Kibo Mining reports a 10% increase in the overall coal resource at its Mbeya project in Tanzania. The resource rises to 120.793m tonnes from 109.23m tonnes after allowing for geological losses of 5% within the “measured” portion of the estimate, 10% for the “indicated” and 15% for the “inferred” part of the estimate. The resource is reported in accordance with the standards set by the Canadian NI 43-101 code.
• The quality of the resource estimate has also been improved through the incorporation of additional drilling, which though primarily aimed at securing additional geotechnical and metallurgical information, has enabled 91% of the resource to be classified as “measured and indicated” (17% measured) and hence eligible for inclusion in reserves.
• The additional metallurgical information has demonstrated that “Final Raw Quality attributes of coal are within specification for power plant design”.
• The Mbeya deposit comprises a total of 7 seams of which the largest, the S2 seam contains around 31m tonnes of coal or around a quarter of the total resource.
Conclusion: The upgraded mineral resource estimate for Mbeya forms part of the Mbeya mining feasibility study; the Definitive Power Feasibility Study for the associated power plant was completed recently and is under review. Kibo Mining appears to be progressing on schedule and meeting management’s expectations.
Vedanta Resources (LON:VED) 359 pence, Mkt Cap £968m – Q4 and FY 2016 production release
• Vedanta Resources have released their Q4 and Full year 2016 production numbers.
• The figures show relatively good operational performance apart from a lower Q4 in zinc.
• Oil & Gas production pulled back by 4% following an 8% decline in Q4 production volumes as a result of natural decline in the Ravva and Bhagyam fields with some offset from the Cambay block.
• Zinc which had seen good production through much of the year but saw a substantial 30% fall in production in Q4 due to changes to the mine plan at the Rampura Agucha open pit. The year as a whole was flat for production and Q4 would have been worse had it not been for higher production from underground mines at the Sindesar Khurd and Kayad mines.
• Zinc International: saw a 27% fall to 226,000t mainly due to the closure of the Lisheen mine in Ireland. The closures was partially offset by higher +61% Q4 production from the Skorpion mine in Namibia following planned maintenance in Q3 which pulled back the FY numbers. The division continues to strip waste off the top of the low-grade Gamsberg orebody in South Africa and is currently negotiating with contractors for construction of the plant.
• Iron Ore: production continues rose strongly in Q4 taking sales to 5.3mt for the FY vs 1.2mt in FY 2015. The sales were from new production coming in at Goa and a ramp up of production at Karnataka in India. Export duties of 10% were removed from 1 March this year.
• Pig Iron: production also rise strongly by 30% to 188,000t in Q4 taking the full year to 654,000t up 7% year on year.
• Copper: arguably the jewel in Vedanta’s crown, performed well with the Tuticorin IsaSmelt smelter improving its efficiency. Copper production rise by 6% in Q4 and 6% yoy to 384,000t of copper cathodes. Vedanta lost 23 days of production a year earlier due to the biennial maintenance production shutdown.
• Power sales from Tuticorin to the Tamil Nadu Electricity Board were 57% lower in Q4 and 37% down for the full year due to reduced off-take. Compensation was paid at the rate of 20% of realisation for offtake below 85% of the contracted quantity. The value of these power sales are included in the Indian Copper division.
• Copper Zambia: continued to see rising production, 6% higher for the full year but just 1% higher in Q4 yoy. Vedanta improved production at Konkola Deeps by 14% yoy though underground mining was put on care and maintenance in Q3 2016 causing the pull back in the Q4 numbers. Power tariffs rose by 25% in Zambia from 1 January 2016 adding $3m per month ($36mpa). We would expect much of this additional cost to be offset in the short term by lower oil prices.
• Aluminium: total aluminium production rose by 5% for the year to 923,000t despite a small pull back in Q4. Alumina production fell just 1% in the year to 971,000t despite a massive 23% fall in Q4. Sales of value added products rise by 7% in the year.
• Power: power sales continue to rise as power production ramps up and permission is given to utilise more self generated supply. Power sales rose by 33% in Q4 with the year up 23%. The division now has some 9,000MW of power capacity commissioned and operational as of March this year.
• Bank covenants: Vedanta’s lending banks have consented to changes in certain covenants ensuring that the company will remain compliant with its covenants till 31 March 2016 .
• Impairments: we expect some significant non-cash impairments in the oil and gas and other mining assets in the year end accounts .
• Refinancing: Vedanta repurchased some $550m of convertible bonds. Another $1.5bn worth of debt matures in FY 2017 with maturities expected to be met through the repayment of an intercompany loan from Vedanta Limited to Vedanta plc. The company has announced the further buyback of $200m in convertible bonds and up to $148.6m of bonds due in this financial year.
Conclusion: Vedanta’s production report looks relatively good. The full year financial results will show a significant fall in revenues due to lower metal and oil and gas prices. Well done to Vedanta for the production of a relatively concise and clear production report.