Antofagasta (LON:ANTO)– Q1 Production Report – 2016 guidance unchanged
Berkeley Energia (LON:BKY) – Quarterly Report – Salamanca Uranium project moving into development
Economic News
US – Durable goods orders report undershoot estimates with GDP on its way to report weak Q1.
• Q1 GDP data is due tomorrow with estimates for a 0.6%qoq increase forecast (Q4/15: 1.4%qoq; Q1/15: 0.6%qoq).
• This week economic news:
Date Index Period Actual Expected (Bloomberg) Previous
Monday New Home Sales Mar -1.5%mom 1.6%mom 2.0%mom
Tuesday Durable Goods Orders/Core Mar 0.8%mom/-0.2%mom 1.9%mom/0.5%mom -3.1%mom/-1.3%mom
Capital Goods Orders Mar 0.0%mom 0.6%mom -2.7%mom (revised from -2.5%mom)
S&PCS Propoerty Prices Index Feb 0.7%mom/5.4%yoy 0.8%mom/5.5%yoy 0.8%mom/5.7%yoy
Markit Services PMI (P) Apr 52.1 52.0 51.3
Markit Composite PMI (P) Apr 51.7 51.3
Wednesday FOMC Rate Decision 0.25%-0.50% 0.25%-0.50%
Thursday Q1 GDP (A) 0.6%qoq 1.4%qoq
Q1 Core PCE (A) 1.9%qoq 1.3%qoq
Weekly Jobless Claims 260k 247k
Friday PCE Mar 0.1%mom/0.8%yoy -0.1%mom/1.0%yoy
Core PCE Mar 0.1%mom/1.5%yoy 0.1%mom/1.7%yoy
Source: Bloomberg
China – Following a 13.8%yoy decline in industrial profits recorded by state-owned enterprises (CNY 432bn) in Q1/16 announced yesterday, a more broad measure of earnings in the industrial sector was released todaty.
• Profits in industrial companies with annual revenues of more than CNY 20m per annum climbed 11.1%yoy in Mar taking the total for th quarter up 7.4%yoy (c. CNY 1,340tn).
• This marks an improvement on a 4.8%yoy increase in the Jan-Feb period.
• Gains were driven by chemical and agricultural and food processing companies that recorded 20.8%yoy and 12.1%yoy growth rates.
• Ferrous metal smelting and rolling firms posted a 15.8%yoy decline during the quarter while coal miners recorded a 92.6%yoy decline.
• Oil and gas producers also reported declines.
• Interestingly, nearly a third of profits in Mar came from investments and non-core activities raising questions over the sustainability of earnings growth in the sector.
• Borrowings by Chinese industrial companies continued to build up rising 5.2%yoy to CNY 55.2tn by end-Mar.
Germany – Consumer sentiment beat forecasts for May on positive growth outlook as well as ECB-induced increase in propensity to spend.
• “The recent decision of the ECB to lower the key interest rate to 0% to extend the bond buying program again, and to raise the penalty interest rate for banks that want to deposit money with the ECB caused propensity to save among Germans to fall to a new historic low in Apr”.
• “Conversely, propensity to buy increased.”
• GfK Consumer Confidence: 9.7 in May v 9.4 in Apr and 9.4 forecast.
UK – Q1 GDP came in line with estimates slowing down 20bp ahead of the Jun EU membership referendum.
• Q1 GDP: 0.4%qoq/2.1%yoy v 0.6%qoq/2.1%yoy in Q4/15 and 0.4%qoq/2.0%yoy forecast.
• The currency is trading slightly higher on the day at 1.459.
Australia – Poor Q1 inflation numbers released this morning raise chances for a further rate cut and drive the currency lower.
• CPI: -0.2%qoq/1.3%yoy v 0.4%qoq/1.7%yoy in Q4/15 and 0.2%qoq/1.7%yoy forecast.
• Core CPI: 0.2%qoq/1.7%yoy v 0.6%qoq/2.1%yoy in Q4/15 and 0.5%qoq/2.0%yoy forecast.
• The probability of a 25bp rate cut (currently at 2.0%) during the next week’s meeting surged to 46% today, up from 15% yesterday.
• AUDUSD currently trades around 0.763 versus 0.773 a day earlier.
Currencies
US$1.1319/eur vs 1.1298/eur yesterday. Yen 111.14/$ vs 110.87/$. SAr 14.416/$ vs 14.471/$. $1.458/gbp vs 1.457/gbp
0.763/aud vs 0.774/aud. CNY 6.493/$ vs 6.493/$.
Commodity News
Precious metals:
Gold US$1,246/oz vs US$1,235/oz yesterday
Gold ETFs 56.4moz vs 56.4moz yesterday
Platinum US$1,017/oz vs US$1,014/oz yesterday
Palladium US$605/oz vs US$600/oz yesterday
Silver US$17.35/oz vs US$17.01/oz yesterday
Base metals:
Copper US$ 4,936/t vs US$4,949/t yesterday
Aluminium US$ 1,645/t vs US$1,647/t yesterday
Nickel US$ 9,205/t vs US$9,040/t yesterday
Zinc US$ 1,897/t vs US$1,867/t yesterday
Lead US$ 1,752/t vs US$1,732/t yesterday
Tin US$ 17,350/t vs US$17,350/t yesterday
Energy:
Oil US$46.8/bbl vs US$44.8/bbl yesterday
Natural Gas US$2.057/mmbtu vs US$2.068/mmbtu yesterday
Uranium US$27.65/lb vs US$27.50/lb yesterday
Bulk comodities:
Iron ore 62% Fe spot (cfr Tianjin) US$59.7/t vs US$61.8/t yesterday
Thermal coal (1st year forward cif ARA) US$47.3/t vs US$43.0/t yesterday
Other:
Tungsten - APT European prices stood at $188-210/mtu vs $190-200/mtu last week
Company News
Antofagasta (LON:ANTO) 471.2 pence, Mkt Cap £4.65bn – Q1 Production Report – 2016 guidance unchanged
• Antofagasta reports a 7.3% increase in copper output vs Q1 2015 at 157,100 tonnes. Compared to the preceding quarter (Q4 2015) output was 7.5% lower.
• The increase is attributed to the “first full quarter of production from Zaldivar [12,400 tonnes] and increases at Antucoya [which achieved commercial production at the end of the quarter] offset by lower production at Centinela Cathodes, as grade declined, and no contribution from Michilla, now that it is on care and maintenance.”
• Group costs before by-product credits at $1.72/lb were 6% lower than Q1 2015 (but 4.2% higher than Q4 2015). On a net basis, the strength of gold prices reduced costs to $1.37/lb (Q1 2015 $1.43/lb).
• The Los Pelambres mine, which produces over 50% of the group’s copper, showed a 4% increase in output (82,200 tonnes) compared to Q1 2015 which was affected by community action blocking access to the mine. The impact of an extended maintenance period at Los Pelambres during February is reflected in a 14% decline in output compared to Q4 2015. Net cash costs for the quarter amounted to $1.22/lb.
• Lower grades at both the Centinela Cathodes and Centinela Concentrates operations resulted in reductions in copper output of 12.5% to 12,600t at the Cathodes Division and 3.1% to 37,200t with net cash costs steady at $1.57/lb (Q1 2015 $1.58/lb) helped by a higher contribution from by-products.
• Zaldivar (50% share) reported initial quarterly production of 12,400 tonnes at a cash cost of $1.59/lb.
• The new Antucoya produced 12,700 tonnes of copper during the quarter and is expected to ramp up during the current quarter. The “final total capital expenditure was in line with the budget of $1.9 billion.”
• The Company’s guidance for 2016 “remains unchanged at 710-740,000 tonnes at a net cash cost of $1.35/lb.” We observe that this target guidance implies average production for each of the remaining 3 quarters of the year in excess of 185,000 tonnes at similar or slightly lower net cash costs. Given the ramp up of Antucoya and the contribution from Zaldivar, we share the Company’s confidence at this stage that the guidance will be achieved.
• Antofagasta comments that “Movements in the copper price over the quarter may suggest the market is beginning to stabilise. However, with price growth likely to remain subdued in the near term our focus continues to be on operating safely, efficiently and profitably.”
Berkeley Energia (LON:BKY) 27.75 pence, Mkt Cap £50.5m – Quarterly Report – Salamanca Uranium project moving into development
• Berkeley Energia reports that the Salamanca Uranium Project is moving into development as contractors start work on rerouting a power line and road to facilitate the start of mining at the Retortillo pit which will be the first area to be mined.
• Meanwhile, continuing optimisation work is contributing to the definitive feasibility study which is due for publication in June. The main areas of attention are:
Upgrading the geological model to bring some of the resources to measured status
Geotechnical work to optimise pit slopes and mine design
Cut-off grade studies to provide greater selectivity of mining units
Optimisation of metallurgical performance and review of waste management
Further reductions to the steady state cost of US$15.60/lb of uranium produced
Analysis of “different production ramp up scenarios in order to use internally generated cash flows to fund growth.”
Discussions and negotiations are under way with potential off-take partners for yellow-cake. The company aims “to enter into a combination of fixed-pricing and market-related pricing contracts, looking to balance certainty over pricing for financiers whilst maintaining an exposure to any future increases in the uranium price.” Discussions have been initiated with potential customers in the US, Europe and Asia.
o “General market consensus appears to be that whilst uranium prices are expected to remain flat in the near term there are an increasing number of utilities that will be re-contracting off-take from 2018 onwards and are looking to enter into such contracts during the current calendar year.”
o The company is also continuing exploration targeting further high grade mineralisation similar to the Zona 7 style deposits. Recent reinterpretation of geophysical information and previous drilling data has identified new shallow targets within 10 kilometres of the proposed process plant. After wet winter weather, drilling has now commenced on the Luis target and further targets will be drilled during the year.
o The Company currently has cash of A$6m available to complete the studies. “The company is considering a range of financing options with a view to fully funding the project’s development during the second half of 2016. The Company is focussing on minimising dilution in ordert to protect the equity of its shareholders.” At this stage, a “potential sale of a project interest may include associated off-take rights over a minority portion of production on commercial terms.”
Conclusion: Berkeley Energia has made significant advances on the technical, marketing and financing of its Salamanca Uranium Project; we look forward to the publication of the forthcoming definitive feasibility study