Horizonte Minerals (LON:HZM) – Quarterly report – moving forwards on updated feasibility study
Metals Exploration* (LON:MTL) – Runruno gold plant starts stage commissioning, test running and debugging
Xtract Resources (LON:XTR) – Manica resource increase
Jim Lennon, the legendary, metals analyst and forecaster is looking at a surprising recovery in China
• Lennon, in an article in Metal bulletin Monthly, talks about an ‘incredible revival in the Chinese demand for commodities in recent months.’
• He goes on to quote a rise in Chinese cement production of +24% yoy in March and national power generation +4% yoy.
• Chinese housing has also sprung to life with investment, sales and new starts rising 6%, 33% and 19%.
• Funding to property developers also jumped by 15% yoy in March.
• Planned new investment in fixed asset investment projects also rose 40%.
• These figures tally with our own intel for massive stimulus in new urban and suburban infrastructure in China.
• In recent high-level discussions between China and the UK Mr Gao Hucheng of the Minister of Commerce of PRC assured business leaders that there would be enormous demand for the next stage of city infrastructure and increased use of their steel in tunnelling and station envelopes etc.
• We would expect this to consume most if not all of China’s surplus steel.
• Our view of the recent rush in investment in iron ore and steel futures in China, which has been deflated in recent days by the authorities, is that there is no smoke without fire.
Metals stage recovery on rising inflation data in china
• Metals prices bounced yesterday lifted by higher inflation in China
• The metals complex had been hit by a turnaround in the US dollar which went stronger following weakness on a more dovish Fed interest rate outlook.
• China posted positive April inflation numbers supporting new ‘risk on’ sentiment in metals market.
• China CPI came in at +2.3%yoy v 2.3%yoy in Mar and 2.3%yoy forecast with PPI at -3.4%yoy v -4.3%yoy in Mar and -3.7%yoy forecast.
• It is encouraging to see a slowdown in producer price deflation as commodity prices show signs of a recovery.
• China passenger vehicle sales rose +6.4%yoy in Apr taking the YTD increase to 6.7%yoy at 1.7m units during the month with the total for the first four months of the year at 7.4m units.
Gold nugget found off coast of Anglesey
• The largest gold nugget at 3 ounces has been found on the sea bed off shore Anglesey.
• It is believed to be part of a £120 haul of treasure from a ship with the Royal Charter which sank in a hurricane in 1859
• The nugget may have been found outside the UK.
Dow Jones Industrials +1.26% at 17,928
Nikkei 225 +0.08% at 16,579
HK Hang Seng -0.93% at 20,055
Shanghai Composite +0.16% at 2,837
FTSE 350 Mining +1.32% at 8,965
AIM Basic Resources -0.32% at 1,901
Economic News
US – The US dollar index is taking a break after a six day recovery which saw the currency coming back to levels seen in the end of last month.
• Meanwhile, a revision in market expectations for the next rate hike which drove the US$ lower saw chances for the decision to tighten during the Jun meeting collapsing to 1%.
• That is down from 18% seen a month ago.
• Good labour data was released yesterday showing the number of job openings climbed in Mar nearing a record high.
• The reading was second only to the high of 5,788k recorded last Jul.
Date Index Period Actual Expected (Bloomberg) Previous
Tuesday JOLTS Job Openings Mar 5,757k 5,450k 5,608k (revised from 5,445k)
Thursday Weekly Jobless Claims 270k 274k
Friday Retail Sales/(ex auto) Apr 0.8%mom/0.5%mom -0.4%mom/0.1%mom
PPI/PPI (Core) Apr 0.3%mom/0.1%mom -0.1%mom/-0.1%mom
UoM Consumer Sentiment May 89.5 89.0
Source: Bloomberg
China – The government plans a CNY 4.7tn (US$720bn) infrastructure investment programme over the next three years, according to the Ministry of Transport.
• A total of 303 projects highlighted in the programme include railways, roads, waterways, airports and metro lines.
• This comparable to CNY 4.0tn stimulus the government announced in 2008 to ease the effects of the global financial crisis.
UK – Mar industrial and manufacturing data announced today came in lower than forecast
• Industrial Production: -0.2%yoy/0.3%mom v 0.1%yoy/-0.2%mom in Feb and -0.4%yoy/0.5%mom forecast.
• Manufacturing Production: -1.9%yoy/0.1%mom v -1.6%yuoy/-0.9%mom in Feb and -1.9%yoy/0.3%mom forecast.
• UK numbers join poor data from manufacturing sectors in France and Germany released in Mar.
• Manufacturing that contributes the most to the UK industry recorded a 10th consecutive YoY decline.
Australia – The RBA decision to cut rates earlier this month to 1.75% pushed consumer sentiment to the highest since Jan/14.
• Westpac Consumer Confidence: 103.2 in May v 95.1 in Apr.
• A reading above 100 means optimists outnumber pessimists.
• On a flip side, concerns are voiced over the effect of lower borrowing costs on the local property market.
• The latest data show, buy-to-let loans climbed 1.5%mom in Mar after growing 3.1%mom in the previous month.
• This compares to a decline in borrowings by owner-occupiers (-1.2%mom).
• This marks the first occasion since Jul/14 when the pace of change in the former exceeded the one for the latter.
• Residential property prices growth held at 9-11% in the last three quarters of 2015 which is at the top of the range recorded in the last 5 years.
Currencies
US$1.1385/eur vs 1.1385/eur yesterday. Yen 108.69/$ vs 108.93/$. SAr 15.269/$ vs 15.248/$. $1.440/gbp vs 1.442/gbp
0.734/aud vs 0.734/aud. CNY 6.511/$ vs 6.518/$.
Commodity News
Precious metals:
Gold US$1,272/oz vs US$1,266/oz yesterday
• Gold ETFs 58.1moz unch vs 58.0moz yesterday –
Platinum US$1,060/oz vs US$1,049/oz yesterday
Palladium US$598/oz vs US$589/oz yesterday
Silver US$17.31/oz vs US$17.07/oz yesterday
Base metals:
Copper US$ 4,720/t vs US$4,712/t yesterday – CODELCO see copper prices rising till end 2017 as investment cuts accelerate rebalancing of supply and demand. They reckon the outlook has improved since the recent CESCO conference.
• Glencore estimates capex committed by the top five diversified producers has fallen to US$24bn this year, from a peak of US$71bn in 2012.
• Prices are little changed YTD (+0.04%) as an initial increase fuelled by improved market liquidity amid expansionary monetary policies was undone later.
Aluminium US$ 1,576/t vs US$1,562/t yesterday – Bloomberg report that aluminium flat-rolled products are benefitting from the recession in Brazil making tin can manufacturers recession proof. Cash strapped Brazilians are drinking six and 12-packs of beer cans at home rather than going out to bars where beer is served in glasses.
Nickel US$ 8,830/t vs US$8,710/t yesterday –
Zinc US$ 1,889/t vs US$1,852/t yesterday – “Structural deficits are returning, led by zinc,” Glencore said in its latest presentation for the mining conference in Miami.
• “Supply for copper and zinc remain due to resource quality and scarcity at current prices.”
• “Record low sector margins are setting the scene for the next price upswing.”
• Glencore joins the ILZSG in forecasting tight zinc markets with the latter expecting a 352kt shortfall this year, an expanded deficit compared to 152kt estimated in Oct last year.
Lead US$ 1,774/t vs US$1,749/t yesterday
Tin US$ 17,225/t vs US$17,215/t yesterday
Energy:
Oil US$45.2/bbl vs US$44.0/bbl yesterday
Natural Gas US$2.158/mmbtu vs US$2.099/mmbtu yesterday
Uranium US$27.75/lb vs US$27.65/lb yesterday
Bulk comodities:
Iron ore 62% Fe spot (cfr Tianjin) US$51.6/t vs US$50.0/t – Chinese steel rebar spot prices continued to decline for a seventh consecutive day with iron ore prices consolidating around 1-month lows.
• 62% Fe iron ore delivered to Qingdao prices stood at US$55.3/t today, down from US$70.5/t, the highest for the year hit on 21 Apr/16.
Steel – Seven bidders lined up to buy Tata’s UK steel operations
• The first 100 British supertanks to be built with Swedish steel in Spain. Production will then be moved to Wales for the next 500 in a £4.5bn program
Thermal coal (1st year forward cif ARA) US$45.2/t vs US$44.8/t yesterday
Other:
Tungsten - APT European prices stood at $215-225/mtu vs $205-215/mtu last week
Lithium – Chetan Maini joins board of Lithium Urban Technologies in India
• Chetan Maini a pioneer of Indian electric cars has joined Lithium Urban Technologies
• Maini build India’s first electric car, The Reva and has 20 years of expertise in the space.
• The company currently runs 100 electric cars in Bangalore and is providing electric cab services.
• We expect this business to expand fast as low cost electric vehicle services gain popularity for their low cost, quality ride and emissions benefits.
Company News
Horizonte Minerals (LON:HZM) 2.125 pence, Mkt Cap £14.3m – Quarterly report – moving forwards on updated feasibility study
• Horizonte Minerals, which is preparing an updated feasibility study, due for release during H2 2016, for the development of the Araguaia saprolite / laterite nickel deposit in Brazil, has reported a Q1 loss of £332,000 (Q1 2015 loss of £936,000).
• During the quarter, the Company acquired additional concession areas, further adding to the scale of the project after it also acquired Glencore’s adjacent Araguaia project in September last year.
• The company has conducted extensive metallurgical testing on the preferred rotary-kin electric furnace (RKEF) technology which benefits from the ready availability of hydro-electric power and the local expertise derived from “the presence of three operating RKEF pyrometallurgical nickel operations in Brazil.”
• At 31st March 2016, Horizonte Minerals held cash of £2.2m.
Conclusion: We look forward to the results of the feasibility work later in the year.
Metals Exploration* (LON:MTL) 7.4 pence, Mkt Cap £127.7m – Runruno gold plant starts stage commissioning, test running and debugging
• Metals Exploration reports the test running and debugging of the process plant and associated operations.
• “Ore from the mine is being used to stage commission the process plant, with the SAG mill currently being test run under an increasing load of ore and grinding balls.”
o The Mines & Geosciences Bureau recently lifted its suspension order imposed on the RunRuno mine development following the typhoon Lando.
Conclusion: It’s great to hear the plant is test running and debugging and we hope the team are able to proceed with full commissioning unimpeded
*SP Angel act as Broker to Metals Exploration
Xtract Resources (LON:XTR) 0.19 pence, Mkt Cap £18.5m – Manica resource increase
• Xtract Resources reports that an independent resource estimation by the consultants Minxcon has increased the resource reported by the previous owners, Auroch Minerals, at the Fair Bride deposit at its Manica project in Mozambique.
• The resources are reported in compliance with South Africa’s SAMREC code at a cut-off grade of 1g/t gold and show a 22% increase in the measured and indicated resource to 678koz (8.71mt at an average grade of 2.42 g/t gold) and a 57% rise in inferred resources to 579koz (8.6mt at an average grade of 2.10g/t gold).
• The renewed estimate forms part of work on the Bankable Feasibility Study on the Manica deposit which is “nearing completion”.
• The resource is largely open pittable, although the Minxcon report shows a measured and indicated resource (reported at a 1.5g/t cut-off) of 312,000 tonnes at an average grade of 2.64 g/t (26,500 oz) as amenable to underground mining.
Conclusion: The Manica deposit is now reporting a total resource of over 1.25m oz of gold and the company notes that the increased resource volume “creates flexibility from an open-pit perspective”.