BHP Billiton (LON:BLT) –Operational Review – production guidance largely unchanged after Q3
Noricum Gold* (LON:NMG) – Results confirm plan to start gold mining in Q3
Serabi Gold (LON:SRB) – Serabi reports “best quarter to date”
China – ramping up of city infrastructure projects
• We understand china is preparing to ramp up its next phase of city infrastructure projects including a number of MTRs Mass Transport Systems
• Comments made by the head of MOFCOM, ‘Ministry of Commerce People's Republic of China’ indicate that China will have enormous demand for steel for their next stage of city infrastructure. Eg for MTRs and tunnelling.
• The implication is that China will have enormous demand for steel, copper and other metals
• Maybe this is why Chinese traders have been stocking up on copper and other metals.
• We are watching Chinese inventory levels closely to see how this metal is being drawn down.
• China may have realised that the conversion to a model driven by greater domestic consumption model will take time and are wary of global and domestic instability.
Iron ore prices jump to US$61.92/t vs US$57.0/t
• As if to prove the point we make above, copper and iron ore prices have jumped overnight.
London property
• The Times reports “One of the country's oldest and largest landlords has called an end to the boom in high-end commercial and residential property in the UK, saying that it is planning for a correction in prices in "the near future". Grosvenor Group, which manages £6.7 billion of property assets across the world for the Duke of Westminster, 64, Britain's richest man, said it was "only a matter of time" before the market turns after years of double-digit growth. We hope this will not impact the rest of the property market.
Great news – Exxaro Resources has just managed to sell the company’s Boeing 737 and a Helicopter
• It’s nice to hear that companies are at last cutting back on their expenses.
Spring is coming and the first nightingales should be singing in Berkeley Square
• But we know Spring is here because our Romanian accordion player is back polluting the environment in Mill Street outside our office and he is no better than last year.
Extel survey – voting for the Extel survey is open
• Please feel free to express your appreciation for our work by voting on the Extel survey website
Dow Jones Industrials +0.27% at 18,054
Nikkei 225 +0.19% at 16,907
HK Hang Seng -0.93% at 21,236
Shanghai Composite -2.31% at 2,973
FTSE 350 Mining +2.81% at 10,834
AIM Basic Resources +0.87% at 1,898
Economic News
US – Economic news this week:
Date Index Period Actual Expected (Bloomberg) Previous
Tuesday Housing Starts Mar -8.8%mom -1.1%mom 6.9%mom (revised from 5.2%mom)
Building Permits Mar -7.7%mom 2.0%mom -2.2%mom (revised from -3.1%mom)
Wednesday Existing Home Sales Mar 3.9%mom -7.1%mom
Thursday Weekly Jobless Claims 265k 253k
Philly Manufacturing Index Apr 8.0 12.4
Friday Manufacturing PMI Markit Apr 52.0 51.5
Source: Bloomberg
China – The PBoC is signalling a moderation in the pace of monetary stimulus going forwards as growth outlook improves.
• The PBoC research bureau chief said in a briefing with local media yesterday, the bank will continue with the supporting growth measures while also keeping a close eye on macroeconomic risks in general and expanding corporate leverage, in particular.
Japan – An increase in the trade surplus masks poor exports and imports numbers in Mar.
• Exports fell 6.8%yoy last month following a 4.0%yoy decline in Feb.
• Imports contracted 14.9%yoy after a 14.2%yoy fall in Feb.
• The latest report shows export growth has been negative for six consecutive months, while imports fell for 15 consecutive months.
Germany – Producer prices were flat on mom basis in Mar against forecasts for a 0.2%mom pick up.
• On YoY basis, prices were down 3.1%yoy v a 2.9%yoy decline expected driven by a fall in oi prices (-9.2%yoy).
• A separate report released yesterday showed economic outlook index measured by ZEW index climbed for the second month to 11.2 in Apr, up from 4.3 in Mar and ahead of market estimates for a more moderate increase to 8.0.
• While “surprisingly positive economic news from China” helped to lift the mood this month, Zew noted remaining risks to German export industry including “the continued poor growth in important emerging markets” as well as “concern about Great Britain’s possible exit from the EU”.
UK –Sterling is down this morning on the back of worse than forecast increase in earnings.
• Average weekly earnings (incl/excl bonuses): 1.8%yoy/2.2%yoy in 3m to Feb v 2.1%yoy/2.2%yoy in 3m to Nov and 2.3%yoy/2.1%yoy forecast.
• Unemployment: 5.1%yoy v 5.1%yoy in the previous three months and 5.1%yoy forecast.
Russia – A raft of poor economic news released yesterday showed a fall in consumer spending amid an increase in unemployment to the highest level in more than three years.
• The jobless rate climbed fro the first time in four months to 6.0% last month, up from 5.8% in Feb.
• In addition, real wages are reported to have dropped 3.0%yoy.
• Weak earnings and labour data dragged retail sales lower that fell 5.8%yoy after contracting 4.3%yoy in the previous month.
Spain – The government advised it will miss the 3% budget deficit to GDP target this year amid downwards revisions to growth forecasts.
• The budget deficit that came in at 5.0% last year is expected to come in at 3.6% in 2016 and 2.9% in 2017.
• Previously, the government was guiding for a 2.8% ratio in 2016.
• Authorities cut their GDP growth forecasts to 2.7% this year, down from 3.0%, due to the weakness in foreign markets and a selected local industries.
• Despite a downwards revision to growth numbers, the pace if achieved would make Spain one of the fastest-growing economies in the Eurozone this year.
Kuwait – Oil workers end a three-day strike that saw the nation’s oil more than halved to 1.1mmbbl, down from 3.0mmbbl.
• Oil prices were down on the news with a fall exacerbated by the report from the American Petroleum Institute released on Tuesday saying that US oil stocks rose more than forecast last week.
• US crude inventories increased by 3.1mmbbl in the week to Apr 15 to 539.5mmbbl beating analyst expectations for a pick up of 2.4mmbbl.
Currencies
US$1.1334/eur vs 1.1337/eur yesterday. Yen 109.32/$ vs 109.27/$. SAr 14.381/$ vs 14.378/$. $1.432/gbp vs 1.433/gbp
0.778/aud vs 0.778/aud. CNY 6.470/$ vs 6.470/$ - Yuan steadies after strengthening on US dollar pull back.
Commodity News
Precious metals:
Gold US$1,248/oz vs US$1,243/oz yesterday – The second largest Chinese gold miner is looking at options of expanding its asset base in overseas markets.
• Shandong Gold Group said the Company is targeting assets across the One Belt On Road region as well as north America to grow production to meet rising local demand.
Gold ETFs 56.8moz vs US$56.8moz yesterday –
Platinum US$1,012/oz vs US$992/oz yesterday
Palladium US$583/oz vs US$572/oz yesterday
Silver US$16.96/oz vs US$16.66/oz yesterday
Base metals:
Copper US$ 4,930/t vs US$4,788/t yesterday – Big move in copper
• Copper Tc/Rc have risen 5.5% since end March to $86.9/t & 8.67c/lb. The rise in rates indicates to us a surplus of concentrate material.
Aluminium US$ 1,599/t vs US$1,568/t yesterday
Nickel US$ 8,250/t vs US$8,985/t yesterday – 3.6kt supply surplus in Feb (INSG) the nickel outlook remains challenging.
Zinc US$ 1,930/t vs US$1,892/t yesterday
Lead US$ 1,771/t vs US$1,718/t yesterday
Tin US$ 17,250/t vs US$17,005/t yesterday
Energy:
Oil US$43.3/bbl vs US$43.2/bbl yesterday –
Natural Gas US$2.089/mmbtu vs US$1.946/mmbtu yesterday
Uranium US$27.50/lb vs US$27.00/lb yesterday
Bulk comodities:
Iron ore 62% Fe spot (cfr Tianjin) US$61.92/t vs US$57.0/t – Prices climbed 4.1% yesterday following a 3.6% gain on Monday taking this year’s advance to 44%.
• Bullish sentiment has been driven by stronger demand in China and reports on production cuts from major producers including Rio Tinto and BHP.
• BHP cut iron ore production guidance for its Australian operations by 4% to 260mt for 2016 on the back of poor weather and rail network maintenance.
• Rio also lowered its iron ore output forecasts on the back of delays in implementing a driverless train system in the Pilbara region.
Yesterday we reported that following a failed meeting in Doha, a separate event hosting China and other major steel-producing countries organised to agree measures to tackle a global steel crisis have not succeeded either.
• A meeting of ministers and trade officials from over 30 nations held in Belgium yesterday ended up with no agreement.
• The US blamed China for exporting its steel overcapacity into overseas markets.
• “Unless China starts to take timely and concrete actions to reduce its excess production and capacity in industries including steel… the fundamental structural problems in the industry will remain and affecter governments will have no alternatives other than trade action to avoid harm to their domestic industries and workers,” US Secretary of Commerce said.
• China argued world economic slowdown is responsible to a weaker demand while the nation’s steel industry is “market based and have good quality, low price and good service”, according to the China Iron and Steel Association. “The complaint on government subsidies is also crap,” the lobby group added.
Thermal coal (1st year forward cif ARA) US$44.6/t vs US$45.0/t yesterday
Other:
Tungsten - APT European prices stood at $190-200/mtu vs $175-190/mtu last week – a good pick up in tungsten prices as Hemerdon continues commissioning
Company News
BHP Billiton (LON:BLT) 994.3 pence, Mkt Cap £56.5bn –Operational Review – production guidance largely unchanged after Q3
• BHP Billiton’s third quarter production report shows unchanged full year guidance for the year ending 30th June 2016 across all commodities except iron ore where the company is flagging a 10m tonnes reduction to 260m tonnes from the Western Australian Iron Ore operations as a result of a combination of adverse weather conditions and an accelerated rail maintenance programme undertaken during the March quarter.
• Despite the slightly lower production volume guidance, the company is maintaining its US$15/tonne cost guidance for its WA iron-ore operations.
• Year to date copper production declined by 8% y-o-y to 1,167kt where the Escondida mine where “Strong operating performance, including improvements in truck availability, utilisation and maintenance, and record material mined, was more than offset by a [planned] 28 per cent decline in grade.” Year to date copper production from Escondida of 711kt, although 20% lower than the 2015 level keeps the mine on course to achieve the 940kt full year guidance.
• Elsewhere, nine-month copper production at Olympic Dam “increased by 46 per cent to a record 162 kt” although copper output declined by 3% at Pampa Norte to 186 kt. “Antamina copper production for the nine months ended March 2016 increased by 35% to 108kt as higher grades and recoveries, supported by record material mined and milled, more than offset the impact of planned maintenance in the NMarch 2016 quarter. Antamina copper production of 136 kt is forecast for the 2016 financial year.”
• Metallurgical coal production for the nine-month period remained steady at 31mt and guidance remains at 40mt for the full year. “Queensland Coal production was flat as record production at six mines, underpinned by increased plant and equipment utilisation, offset the completion of longwall mining at Crinum”.
• The company reports that “The first shipment from the Haju mine in Indonesia was achieved during the March 2016 quarter. BHP Billiton is conducting a strategic review of the long-term future options for its Indonesian coal interests.”
• Energy coal production from New South Wales fell by 10% during the nine-month period as a result of the combination of heavy rainfall, blasting restrictions and a period of higher waste;ore ratios. Unaffected by rain and subject to drought conditions, the 33% owned Cerrejon coal operations in Colombia reported a 7% decline in nine month output to 7.8mt.
• “Total petroleum production for the nine months ended March 2016 decreased by four per cent to 184.1 MMboe. Guidance for the 2016 financial year remains unchanged at 237MMboe”. Natural gas production for the same period fell by 5% to 567bcf.
• The company is currently developing four major projects in petroleum, copper and potash with a combined budget of US$6.9bn. The US$3.4bn Escondida water desalination project is now 86% complete and is on schedule to start during 2017. The $2.6bn Jansen Potash in Saskatchewan is reported to be 58% complete and shaft sinking is progressing. In the US, the company has spent some $1.1bn on land acquisition, pipelines and wells to expand its oil and gas operations.
Conclusion: There are few surprises on the production statistics with guidance maintained in all commodities apart from a minor downward adjustment to expectations of the WA iron-ore output.
Noricum Gold* (LON:NMG) 0.17p, Mkt Cap £6.8m – Results confirm plan to start gold mining in Q3
• Noricum Gold which plans to start mining gold ore in Q3 this year reports full year results to end December.
• The company lost £653,854 last year vs £1,372,756 in 2014 highlighting just how frugal management are in terms of managing their expenses.
• Noricum has transformed itself from a relatively small explorer in Austria to a near-term gold producer with a substantial gold portfolio in Georgia.
• The 50:50 joint venture on the Bolnisi copper / gold exploration portfolio with substantial ‘non-JORC’ resources estimated at 980,000t of contained copper, 6.6oz of gold and 22moz silver.
• The Noricum team is working hard to define more meaningful JORC-standard resources on the Georgia exploration prospects.
• The plan to start open pit mining this year should raise cash flow to fund much of the exploration work required for the development of a much larger copper, gold mine at Kvemo Bolnisi and Tsitel Sopeli.
• The two targets have a combined non-JORC resource of well defined C1 & C2 Soviet resources of 450,000t grading 1.31% copper an 900,000oz of gold grading 1.1g/t alongside substantial silver, lead, zinc and barite..
• Recent results at Tsitel Sopeli also show promising near-surface grades with an intersection of 15m grading 2.07g/t gold, 2.39% copper, 2.97% zinc.
Conclusion: Noricum in one of our top pics in the smaller company arena and its results show good progress while management maintain tight fiscal control. Investors should feel well served by the board in this case.
*SP Angel acts as Nomad and Broker to Noricum.
Serabi Gold (LON:SRB) 4.625 pence, Mkt Cap £30.4m – Serabi reports “best quarter to date”
• Serabi reports a 23% increase in quarterly gold output to 9,771 oz during the March quarter (December 2015 – 7,924 oz).
• Total mine production of 37,546 tonnes of ore comprised 26,752 tonnes of ore at an average grade of 11.84g/t gold from the Palito mine and 10,794 tonnes from the Sao Chico mine at ana average of 9 g/t. The plant processed 36,615 tonnes of ore at an average grade of 8.58 g/t gold implying a recovery rate of 96.7% compared to the 88.8% recorded in the preceding quarter.
• After the first quarter, Serabi is on course to achieve the full year production guidance of 28,000 oz from Palito and “the Company also anticipates production of 9,000 ounces of gold from ore mined at Sao Chico.” The company’s cost guidance is for all in sustaining costs in the range US$840-870/oz.
• The plant is being “further expanded to allow the processing of significant surface ore stockpiles … The planned improvements are all expected to be completed and operational by 1 May 2016 as originally scheduled.”
• The company notes that “The first quarter of 2016 has been … the best quarter to date in terms of both ore production from the mines and the volume of ore processed through the plant.”
Conclusion: Serabi is opening up a number of high grade faces at Palito and is confident of achieving guidance of 37,000 oz of gold production in 2016.