Metminco* (LON:MNC) – Trading Halt in Australia at request of company
Premier African Minerals (PREM LN) – 2015 Results and operational update
Gold ETF holdings break 60moz mark as prices defy dollar strength
• Gold is defying the pullback in commodities today as investors continue to buy the metal
• Gold ETFs are now over >60.0moz
• Demand may be partly driven by investor positioning ahead of next week’s FOMC meeting and in case of Brexit
Debt – Miners cut distressed debt pool by $60bn (Bloomberg)
• Mining companies have moved fast to cut debt to more manageable and sustainable levels given more conservative forecasts for commodities.
• Glencore, Anglo American and others rushed to pay down debt following short selling of their shares late last year and downgrades to their debt ratings.
• The debt burdens of both companies were seen at the time as potentially catastrophic leading to the signing of billion dollar streaming agreements and asset sales.
• Glencore took the unusual step of showing its debt book to the investing public along with a plan for debt reduction which turned its shares around.
• Glencore also reported better than expected performance for the second half last year helping to reduce the pressure on its stock.
• Other miners have followed with further rationalisation of underperforming assets and disposals across the sector.
• There have been no big corporate failures in the London market but Lonmin and Petropavlovsk needed bailing out in deeply discounted rights issues.
• The mining sector appears to have put its house in order from a debt perspective
• We expect these miners to report significant gains as a result of restructuring, rationalisation, commodity price and foreign exchange gains and still relatively low debt service costs from ongoing low US interest rates.
Lithium – Tesla tried to buy Simbol Materials, a lithium extraction startup for $325m in 2014
• The Desert Sun newspaper reported yesterday that Tesla had tried to buy Simbol Materials for $325m in 2014.
• Simbol Materials was a lithium extraction company which claimed to have invented an efficient method to extract and producer battery-grade lithium.
• Simbol is reported to have tried to negotiate a $2.5bn offer from Tesla causing Elon Musk to walk away and leaving Simbol Materials to collapse and cease operations.
• Alger Alternative Energy, formed by former Simbol executives is now reported to be trying to secure Simbol’s technology. The new company is looking to convert brines from the California Salton Sea geothermal plants into lithium on a large scale. The brines are 25% solid containing chloride, sodium, calcium and potassium and small quantities, lithium.
• Simbol Materials failed to raise the $400m it wanted to build its lithium extraction plant. It’s not easy to finance new technology in the mining sector due to the high cost of building new plants, the time taken to get to commercial production and the potential cost of any holdups or problems in the extraction and sale of product. These issues can sink a company and the risk becomes even larger if the process has not been fully trialled.
• We note hydrometallurgical processes are in our experience more successful as they can be trialled and up scaled relatively easily.
Dow Jones Industrials -0.11% at 17,985
Nikkei 225 -0.40% at 16,601
HK Hang Seng -1.20% at 21,043
Shanghai Composite 0.00% at 2,927 China on Dragon Boat ‘Tuen Ng’ festival holiday today and tomorrow
FTSE 350 Mining -1.28% at 9,166
AIM Basic Resources -0.51% at 1,973
Economic News
Equities are trading lower this morning on a risk-off mode with lower oil prices and stronger US$ weighing on the resource’s sector.
• The MSCI All-Country World Index, tracking the performance of emerging and developed economies’ equities, is heading towards the sharpest two-day drop in three weeks driven by commodity producers and financials companies.
Bond yields are hitting new lows on the back of revised expectations for the monetary tightening in the US, expansions to the QE programmes in the Eurozone and Japan and concerns over the global economic outlook.
• 10-year Germany government debt reached a new record low 0.02% today.
• 10-year UK bonds are trading at 1.24%. the weakest reading on record.
• Earlier 15-year Japanese government bonds dropped below 0 for the first time.
• The rally in bonds took more than US$10tn worth of government debt into negative-yielding territory, FT estimates.
US – Better than forecast weekly jobless claims coming on the heels of good JOLTS report provide evidence the labour market is holding up well.
• The four-week moving average fell 8k to 270k v the average YTD at 268k and 278k in 2015.
• Continuing claims have also contracted (-77k to 2,095k) marking the strongest weekly decline since Nov/13.
• US households’ net worth climbed 1%qoq to US$88.1tn in Q1/16 ($102.6tn in total assets less $14.3tn in debt) driven by an increase in property assets value while the stock index failed to post strong gains.
• Property assets value climbed 2.0%qoq to $25.8tn with owner’s equity in the share of total real-estate holdings climbing to 57.8%, from 56.9%.
• Household debt climbed 2.7%qoq (annualised) during the same period.
Date Index Period Actual Expected (Bloomberg) Previous
Wednesday JOLTS Job Openings Apr 5,788k 5,675k 5,670k (revised from 5,757k)
Thursday Weekly Jobless Claims 264k 270k 268k (revised from 267k)
Friday UoM Consumer Sentiment Jun 94.00 94.7
Source: Bloomberg
Japan – Producer prices posted another annual decline in May stretching a series of negative readings to 14 months.
• PPI: -4.2%yoy v -4.2%yoy in Apr and -4.2%yoy forecast.
• On a more positive note, prices recorded the first mom increase in 12 months.
UK – Trade deficit fell to the lowest level since Sep/15 as exports climbed at a faster rate than imports on the back of demand outside of the EU.
• Exports were up 9.1%mom v a 5.9%mom increase in imports.
• Exports into the EU climbed 7.7% v 10.2% for non-EU.
• Imports from the EU28 accounted for 55% of the total with the UK running a three times larger trade deficit with tis EU28 trading partners v non-EU.
South Africa – Mining production continued to contract with a 6.9%yoy decline recorded in Apr taking the losing streak to eight months.
• SA Mining Production: -6.9%yoy v -17.8%yoy in Mar and -8.5%yoy forecast.
• Nearly all constituents of the mining industry posted a decline with only nickel and coal posting gains (=4.9%yoy and 1.0%yoy).
• Iron ore output contracted by a whopping 23.4%yoy.
Currencies
US$1.1301/eur vs 1.1378/eur yesterday. Yen 106.95/$ vs 106.41/$. SAr 14.958/$ vs 14.829/$. $1.444/gbp vs 1.447/gbp
0.740/aud vs 0.745/aud. CNY 6.562/$ vs 6.562/$
Commodity News
Precious metals:
Gold US$1,266/oz vs US$1,260/oz yesterday – Gold is holding on to its gains recorded since the start of the week on the back of a safe haven demand as US$ appreciates for a second consecutive trading session and oil prices come off.
• Gold is on the way to post a 1.8% weekly gain adding to a +19.2% move since the start of the year.
Gold ETFs 60.0moz v 59.8moz yesterday – Gold ETFs holdings break >60moz
Platinum US$995/oz vs US$1,002/oz yesterday –
Palladium US$550/oz vs US$555/oz yesterday –
Silver US$17.23/oz vs US$17.08/oz yesterday
Base metals:
Copper US$ 4,494/t vs US$4,569/t yesterday – Stronger US$ and high LME stockpiles weigh on copper prices that are off 0.4% this morning and are on the way to post a 4.3% weekly decline.
• Copper is the worst performing base metal this quarter (-7.2%) and the second worst on the YTD basis (-4.4%), following lead (-5.0%).
Aluminium US$ 1,585/t vs US$1,598/t yesterday –
Nickel US$ 8,900/t vs US$8,985/t yesterday –
Zinc US$ 2,067/t vs US$2,069/t yesterday –
Lead US$ 1,708/t vs US$1,744/t yesterday
Tin US$ 17,000/t vs US$17,075/t yesterday
Energy:
Oil US$52.20/bbl unch vs US$52.30/bbl yesterday
Natural Gas US$2.571/mmbtu vs US$2.471/mmbtu yesterday
Uranium US$28.25/lb vs US$28.25/lb yesterday
Bulk
Iron ore 62% Fe spot (cfr Tianjin) US$48.6/t vs US$48.3/t – yesterday –
Thermal coal (1st year forward cif ARA) US$51.9/t vs US$52.4/t yesterday –
Other:
Tungsten - APT European prices stood at $208-222/mtu unch vs $213-225/mtu –
Company News
Metminco* (LON:MNC) 0.3 pence, Mkt Cap £9m – Trading Halt in Australia at request of company
• Metminco Limited advises that trading in the shares of the Company was halted on the Australian Securities Exchange ("ASX") today pursuant to ASX Listing Rule 17.1.
• The ASX trading halt was requested due to the Company becoming aware that price sensitive information concerning advanced, but incomplete, negotiations regarding the Los Calatos Partnership Process (announced 21 October 2015) may be in the public domain.
• The Company notes that its shares will continue to trade on AIM throughout the period of the ASX trading halt.
• It is expected that the ASX trading halt will end no later than Tuesday, 14 June 2016 when the Company is anticipating being in a position to advise the outcome of these Los Calatos Partnership Process negotiations.
• The Company cautions however that there can be no guarantee that these negotiations will be successfully concluded.
*SP Angel act as joint-broker to Metminco
Premier African Minerals (LON:PREM) 0.7 pence, Mkt Cap £13.2m – 2015 Results and operational update
• Premier African Minerals reports a loss of $7.86m both before and after tax in 2015 (2014 -$537,000 loss).
• Including $1.23m of convertible loan notes, held by Darwin Strategic and due to be redeemed in October 2016, the 31st December balance sheet shows net debt of $2.06m representing gearing (net debt:net debt + equity) of approximately 15% (December 2014 – 5%).
• Much of the company’s focus during 2015 was on the development of the RHA tungsten mine in Zimbabwe where open pit operations failed “to deliver ore at the anticipated grade, [and] Premier had to suspend operations in early November 2015. Specifically, mine dilution could not be adequately managed and there were difficulties experienced in clearly identifying the mineralised zones described in the resource model.”
• Subsequently, during this year, ore production has shifted to the old underground mine where “RHA has finished re-equipping the 120-metre shaft and commenced delivery of ore from the lower levels of the mine.”
• Initial test work on the use of X-Ray sorting to upgrade the open-pit ore was positive and “RHA has an approach that could result in an upgrade of pit material such that profitable operation of the pit may still be possible.”
• Apart from the problems supplying ore “the plant has experienced a series of issues from inception. A protracted period of negotiation with the plant supplier has finally resulted in committed undertakings from the plant supplier to deal with imperative modifications and other fixes by 6 July 2016.”
• At 31st December 2015, Premier African had loans outstanding to RHA amounting to $13.5m ($8.7m)
• Elsewhere, Premier African Minerals has previously announced a binding MoU to acquire a 52% interest in a “substantial” Mozambique limestone deposit located on a rail connection in the Sofala Province. The transaction, with TCT Industrias Florestais Limitada, includes forestry interests which are “expected to generate revenue from the date that the deal is closed.”
Conclusion: Premier African has clearly had to address a number of challenging issues on the geology, resources, mining and processing in the development of the RHA tungsten mine. The diversification into limestone and forestry assets in Mozambique could provide an additional source of near-term income.