Gold gains as markets move towards risk aversion
• Gold prices rose to $1,282/oz this morning on prospects for lower interest rates and as oil, the US dollar and Asian equities pull back.
• Markets appear to be in more cautious mood with major miners pulling back from recent gains.
• Heightened risk of Brexit may also be leading to a more cautious tone in financial markets
• The US$ index is off slightly this morning (-0.1%) after climbing 1.1% over the previous two sessions.
• Chances of the Fed hiking rates on Wednesday are nil according to Fed funds futures tracked by Bloomberg.
• Oil – A report on Friday showed an expansion of the rig count by three to 328 last week in the US, capping the longest run of weekly gains since Aug.
Lithium – Kokam Co (Korea) develop more robust lithium battery
• Kokam Co, a Korean lithium company has developed a lithium battery which does not suffer from thermal runaway.
• The development of more robust batteries which are able to withstand temperatures from -40 to +60 degrees.
• The batteries also do not suffer thermal runaway after being shot rendering them better for unmanned systems, support vehicles, submarines and other demanding military applications.
• The batteries use Nickel Manganese Cobalt (NMC), Lithium Titanate Oxide (LTO) and Lithium Iron Phosphate (LFP)
• Kokam’s Ultra High Energy NMC batteries an industry leading energy density of more than 260 watt hours per kilogram ‘Wh/kg’ which compares well with the Tesla Model S which claims to pack 140Wh/kg.
Dow Jones Industrials -0.67% at 17,865
Nikkei 225 -3.51% at 16,019
HK Hang Seng -2.52% at 20,513
Shanghai Composite -3.21% at 2,933 China on Dragon Boat ‘Tuen Ng’ festival holiday today and tomorrow
FTSE 350 Mining -0.78% at 8,999
AIM Basic Resources -0.61% at 1,961
Economic News
US – Economic news this week:
Date Index Period Actual Expected (Bloomberg) Previous
Friday UoM Consumer Sentiment Jun 94.3 94.0 94.7
Tuesday Retail Sales May 0.3%mom 1.3%mom
Core Retail Sales May 0.4%mom 0.8%mom
Wednesday PPI May 0.3%mom/-0.1%yoy 0.2%mom/0.0%yoy
Core PPI May 0.1%mom/1.0%yoy 0.1%mom/0.9%yoy
Industrial Production May -0.2%mom 0.7%mom
Capacity Utilisation May 75.2% 75.4%
FOMC Rate 0.25%-0.50% 0.25%-0.50%
Thursday Weekly Jobless Claims 270k 264k
Current Account Balance Q1 -$124.3bn -$125.3bn
CPI May 0.3%mom/1.1%yoy 0.4%mom/1.1%yoy
Core CPI May 0.2%mom/2.2%yoy 0.2%mom/1.1%yoy
Friday Housing Starts May -1.9%mom 6.6%mom
Building Permits May 1.3%mom 4.9%mom
Source: Bloomberg
China fixed asset investment slows to 9.6% from January to May
Industrial production and retails sales growth matched expectations while investments slowed more than forecast in May.
• The data shows the economy managed to stabilise YTD led by monetary and fiscal stimulus efforts.
• Industrial production (YTD): 5.9%yoy v 5.8%yoy in Apr and 5.9%yoy forecast.
• Retail sales: 10.2%yoy v 10.3%yoy in Apr and 10.2%yoy forecast.
• Investments: 9.6%yoy v 10.5%yoy in Apr and 10.5%yoy forecast.
• Falling fixed asset investment in May was largely driven by declining coal and ferrous metals investment by private miners.
• Generally, private investments have slowed to below the 5% growth rate through May this year while state investments have been ramped up to +20%yoy rate from c.10-15% seen last year.
• Bloomberg monthly GDP tracker showed a 6.9% gain last month, little changed from Apr and in line with the government annual target for 2016.
UK – The pound is down 1.9% in two trading sessions hovering around the 1.42 level on growing concerns the UK may vote Brexit in the Jun referendum.
• Orb/Independent newspaper poll results released late on Friday showed a 10pp lead for Britain to leave the EU.
India – President Pranab Mukherjee is visiting three nation in Africa to develop trade in the region
• Mukherjee is touring Ghana, Cote D'Ivoire and Namibia with the visits coming just 10 days after visits to Morocco and Tunisia
• Uranium supply is reported to be very much on the agenda in Namibia.
• The Indian president is expected to offer development assistance following China’s rapid move to develop trading with the region
Currencies
US$1.1274/eur vs 1.1301/eur yesterday. Yen 105.92/$ vs 106.95/$. SAr 15.229/$ vs 14.958/$. $1.413/gbp vs 1.444/gbp
0.739/aud vs 0.740/aud. CNY 6.587/$ vs 6.562/$
Commodity News
Precious metals:
Gold US$1,284/oz vs US$1,266/oz yesterday – Rio Tinto looking for partners for privatisation of Oyu Tolgoi in Mongolia
• The minority stake could cost potential partners over US$3bn
Gold ETFs 60.2moz v 60.0moz yesterday – Gold ETFs jump to well over 60moz
Platinum US$995/oz vs US$995/oz yesterday –
Palladium US$547/oz vs US$550/oz yesterday –
Silver US$17.31/oz vs US$17.23/oz yesterday
Base metals:
Copper US$ 4,522/t vs US$4,494/t yesterday –
Aluminium US$ 1,577/t vs US$1,585/t yesterday –
Nickel US$ 8,860/t vs US$8,900/t yesterday – Cerro Matoso nickel mine in Colombia may not strike tomorrow following an improved offer from management
• Clive Palmer is planning on reopening the Townsville nickel Refinery in Yabulu, Australia. The refinery went into administration in January causing the loss of 800 jobs and requiring $70m of taxpayer funds to cover unpaid entitlements.
• The International Nickel Study Group forecasts a nickel market deficit to widen to 10,100t in April from a deficit of 7,600t in March
• LME nickel pulled back today by 930t to 393,732t indicating it might take a while yet for nickel stocks to return to more normal levels in our view
Zinc US$ 2,062/t vs US$2,067/t yesterday –
Lead US$ 1,695/t vs US$1,708/t yesterday
Tin US$ 17,050/t vs US$17,000/t yesterday -
Energy:
Oil US$50.10/bbl unch vs US$52.20/bbl yesterday
Natural Gas US$2.593/mmbtu vs US$2.571/mmbtu yesterday
Uranium US$28.15/lb vs US$28.25/lb yesterday
Bulk
Iron ore 62% Fe spot (cfr Tianjin) US$48.7/t vs US$48.6/t – yesterday –
Steel – Chinese steel production hit a near record high in May contradicting past statements that China would cut back production
• China’s a crude steel production rises 1.7% mom in May with a 1.8% rise yoy
• Crude steel production is down 1.4% to 330mt for the first five months of the year
• Tangshan City have ordered steel mills to cut proeuction from 14-21 June
Thermal coal (1st year forward cif ARA) US$51.2/t vs US$51.9/t yesterday –
Other:
Tungsten - APT European prices stood at $205-222/mtu unch vs $208-222/mtu –
Company News
Golden Saint Resources (LON:GSR) 0.385 pence, Mkt Cap £2.1m – Raising £400,000
• Golden Saint Resources reports that it has raised £400,000 (£371,000 net) via the issue of shares at 0.07 pence per share.
• The shares are being issued at a discount of approximately 24.3 percent to the closing price on 9th June.
• “The Company intends to use the proceeds of the Placing to continue its bulk sampling operations and for general working capital purposes.”
Metals Exploration* (LON:MTL) 7.4 pence, Mkt Cap £127.7m – 2015
• Metals Exploration reports that it has completed its first gold pour at the Runruno mine in the Philippines. The gold pour was part of “"test running and debugging" of the processing plant and associated operations.”
• The gold was mainly sourced from gold recovered in the gravity circuit and work on test running of the carbon in leach circuit is underway while the company reports that “operations with the BIOX® circuit forecast to commence within seven to ten days.”
*SP Angel act as Broker to Metals Exploration
Petropavlovsk* (LON:POG) 8.1p, Mkt Cap £265m – A proposed acquisition of Kamchatka Gold assets
• The Company and Amur Zoloto owners agreed with the Group’s largest shareholder, Renova, to consider the acquisition of Renova’s gold assets in Kamchatka (Kamchatka Gold) as part of the AZ deal.
• Petropavlovsk, AZ shareholders and Renova will hold three-way talks to discuss a possibility of amending existing terms of the transaction.
• The agreement is preliminary in nature with the Group planning a further analysis of Kamchatka Gold as part of the review process.
• Kamchatka Gold owns a number of operating assets in the same name region in Russia and is reported have produced 82koz last year.
• The majority of gold output came from its Core Cluster including Aginskoye, Zolotoye, Kungurtsevskoye and Yuzhno-Aginskoye mines accounting for 61koz.
• The remainder was produced at the recently commissioned Ametistovoye complex including high grade underground deposit and a 600ktpa processing facility. Production totalled 21koz of gold last year.
Conclusion: Talks are in preliminary stage with parties to the agreement working out details of possible terms. Since the proposed amendment is likely to take the form of additional shares to be issued in consideration of Kamchatka Gold in addition to potential 1.4bn shares proposed under the AZ deal, the valuation of Renova assets will define the final dilution to the existing shareholder base. Given the recent rebound in the gold market and respective miners’ valuations, assets are unlikely to come cheap.
*SPAngel analysts have visited the Pioneer, Malomir and Albyn gold mines in Russia
Stellar Diamonds (LON:STEL) 7.3 pence, Mkt Cap £2.3m – Bulk sampling programme completed
• Stellar Diamonds reports that it has completed a 100,000 tonnes bulk-sampling programme on the Baoule kimberlite pipe in Guinea. The programme has recovered 46,561 tonne at an average grade of 13.3 carats per hundred tonnes (cpht) from the eastern lobe of the deposit and 56,955 tonnes at a grade of 9.8 cpht from the smaller western lobe.
• In total, the programme has recovered 11,808 carats of diamonds larger than 1.25mm, of which approximately 8,400 carats have been sold to date realising around US$1m. A further 3100 carats of diamonds are to be sold via an internet at auction with viewings in Antwerp later this month. The company believes that “This planned sale will add to US$1 million generated to-date from diamonds sold”.
• Previous auctions have yielded prices of up to $6800 per carat for individual gem and fancy coloured diamonds.
• To date, the trial mining has yielded 929 diamonds larger than 1 carat “including numerous high value gem and fancy coloured (yellow) diamonds of up to 12 carats in size. The presence of the 55 carat stone confirms the Company's belief that the Baoulé pipe is a source of large diamonds that are renowned in the Aredor area of Guinea”.
• In a separate announcement today, Stellar Diamonds discloses that two of its shareholders, Altus Strategies and Deutsche Balaton have provided six-month duration loans. Altus Strategies have provided £325,000 and DB have loaned £140,000. The loans bear “interest at a rate of 20% per annum” and include an “agreement to use best endeavours to sell certain non-core assets (namely plant and equipment) to repay the Loan in the event of default.” Presumably, however both the company and the lenders expect the forthcoming diamond sale will realise sufficient proceeds to ensure repayment.
Conclusion: The forthcoming auction of diamonds recovered during bulk mining trials should provide additional insight into the quality of diamonds at Baoule and support repayment of the shareholder loans.