The markets
Europe
The FTSE-100 finished yesterday's session 0.07% lower at 6,200.12, whilst the FTSE AIM All-Share index closed 0.31% higher at 721.65. Continental markets ended in the green, driven by a rally in banking stocks and an improvement in oil prices. Germany's DAX and France's CAC 40 gained 0.6% and 0.2%, respectively.
Wall Street
Wall Street ended in the red, led by losses in the consumer staples and healthcare sectors. Investors remained concerned ahead of key corporate earnings releases due this week. The S&P 500 declined 0.3% in yesterday's trading session.
Asia
Equities are trading higher, as an increase in commodity prices lifted investor sentiment. The Nikkei 225 rose 1.1%, as a weaker yen led to gains in Japanese export stocks. The Hang Seng was trading 0.3% up at 7:00 am.
Oil
Yesterday, Brent and WTI prices increased 2.1% and 1.6%, respectively. The spread between the two varieties stood at US$2.5 per barrel.
Headlines
Like-for-like sales in UK fall in March
According to the British Retail Consortium, like-for-like sales in the UK declined 0.7% y-o-y in March after increasing 0.1% in February. The drop was the highest since August 2015. The agency stated that the decrease in sales was due to increased online shopping and closure of shops due to Easter.
Company news
Kibo Mining (LON:KIBO, 3.63p) – Speculative Buy
Kibo Mining, the exploration and development company focused on energy and mineral exploration projects in Tanzania, announced yesterday a revised NI43-101 compliant resource estimate for its Mbeya Coal to Power Project (MCPP). The total resource increased by 10.4% to 120.8Mt from the previously disclosed resource estimate of 109.2Mt. More importantly, the total resources were re-classified as 20.9Mt in the Measured category, 88.6Mt as Indicated and 11.3 as Inferred resources. As a result, 91% of the total resource now occurs within the Measured and Indicated categories and is eligible for inclusion in a reserve estimate. In addition, final raw quality attributes of the coal are within specification for the proposed power plant design.
Our view: Yesterday's results are another important tick in the box as the coal mining definitive feasibility study progresses. The revised resource estimate improves the quality and confidence levels from which the reserve statement can be estimated. Furthermore, the raw quality attributes of the coal are within specification for the power plant design. With the revised mineral resource estimate providing confidence that the mine will have sufficient reserve capacity we look forward to continued project developments and finalisation of the Mining Definitive Feasibility Study (MDFS). In the meantime, we maintain a Speculative Buy on the stock.
Beaufort Securities acts as corporate broker to Kibo Mining plc
Central Asia Metals (LON:CAML, 166.0p) - Speculative Buy
Yesterday, Central Asia Metals (CAML) declared results for the year ended 31st December 2015. CAML's revenue fell to US$67.3m in 2015 from US$76.6m in 2014. The fall was due to weak copper prices throughout the year. It reported US$34.9m in EBITDA for 2015 vis-à-vis US$47.3m in 2014. As a result, pre-tax profit decreased to US$32.7m in 2015 from US$70.3m in 2014, leading to EPS of 20.06 cents in 2015 against 56.04 cents in 2014. Cash balance stood at US$42m as on 31st December 2015. On the operational front, CAML's copper production increased 8.4% y-o-y to 12,071 tonnes and copper sales rose 7.9% to 12,040 tonnes during the period. CAML commissioned the stage 1 expansion of the Kounrad SX-EW plant on time and under budget. The Kounrad stage 2 expansion, aimed at accessing the western dumps, remains on track. Therefore, the company is expected to commence production in H1 2017. In June 2015, CAML invested US$3m in the Copper Bay project in Chile, thereby increasing its shareholding to 75%. Going into 2016, the company targets a production level of 13,000–14,000 tonnes from the Kounrad SX-EW plant and the completion of the Kounrad stage 2 expansion. CAML has proposed a final dividend of 8p, taking overall dividend to 12.5p (in line with that in the previous year).
Our view: CAML delivered a resilient performance in 2015 despite challenging market conditions. The company reported record copper output from the Kounrad plant. CAML's strong focus on cash management resulted in the Kounrad site maintaining its position in the lowest quartile of the industry cash cost curve. The company has commissioned the stage 1 expansion and expects to achieve first production from the western dumps in H1 2017. CAML's solid cash position has paved the way for maintaining dividend similar to the 2014 level. Moreover, it has sufficient funds for capital expansion at the Kounrad site and providing financial flexibility for business growth. CAML has started 2016 on a positive note, supported by an increase in production and sales levels. CAML is placed well to achieve the targeted production level for 2016. It plans to look for investment opportunities to enhance its resource potential. In the light of the argument mentioned above, we reiterate a Speculative Buy rating on the stock.
Vedanta Resources (LON:VED, 359.0p) - Hold
Yesterday, Vedanta Resources (Vedanta) released a production update for the fourth quarter and the year ended 31st March 2016. In Q4 2016, average gross production was 197,039 barrels of oil equivalent per day (boepd), down 9% y-o-y. The decline was primarily due to low volumes from the Ravva field owing to natural decline. In 2016, average gross production was 203,703 boepd, down 4% y-o-y, due to fall in production levels in Rajasthan and offshore assets. In Zinc India, mined metal production decreased 30% y-o-y to 188,500 tonnes in Q4 2016. The decrease was primarily due to low production at the Rampura Agucha open pit. For full-year 2016, mined metal production was registered at 889,000 tonnes (in line with that in the previous year). Zinc International reported production of 42,000 tonnes (down 39% y-o-y) for Q4 2016. Meanwhile, full-year production declined 27% y-o-y to 226,000 tonnes due to production cuts at Lisheen in November 2015 (as per mine life). Copper India reported a 6% y-o-y rise in production to 102,500 tonnes in Q4 2016 and a 6% y-o-y increase in production to 384,000 tonnes for full-year 2016. Copper Zambia registered a 1% increase in production for Q4 2016 to 28,600 tonnes and 6% y-o-y rise in production for 2016 to 123,000 tonnes. In Q4 2016, aluminium production stood at 226,000 tonnes, down 2% y-o-y. Meanwhile, for the full year 2016, aluminium production rose 5% y-o-y to 923,000 tonnes. In the iron ore division, production at Goa stood at 1.9 million tonnes and sales were 1.6 million tonnes in Q4 2016. While for the full year 2016, production at Goa was 2.2 million tonnes and sales were 2.2 million tonnes. Power sales have increased 33% y-o-y to 3,391 million units and 23% y-o-y to 12,121 million units in 2016. Separately, Vedanta informed that its banks had agreed to certain changes to covenants attached to debt facilities to ensure it does not breach conditions related to the year ended 31st March 2016. Moreover, the company is reviewing the carrying value of its assets and long-term price assumptions to weather the prolonged period of low commodities prices.
Our view: Financial year 2016 was a fairly mixed one for Vedanta. The company's performance varied across operations, with Oil & Gas, Zinc India and Zinc International registering poor production levels. Meanwhile, Vedanta reported increased output from its copper, aluminium, iron and power businesses. Vedanta undertook several measures to optimise production across its portfolio to mitigate the downturns of low commodities prices. Vedanta completed the ramp-up of pots at Korba II and Jharsuguda II (parts of its aluminium business). The commissioning of additional units at TSPL and BALCO during the year had a positive impact on power sales. With the commissioning of these units, Vedanta's entire 9,000 MW of power capacity was operational as of March 2016. Nonetheless, the company continues to face ongoing volatility in the commodity and currency markets. Vedanta's exposure to these factors cannot be ignored. In the light of the mixed outlook for the company, we maintain a Hold rating on the stock.