Caledonia Mining (LON:CMCL) – 20% quarterly increase in gold output at Blanket mine
Goldplat* (LON:GDP) – Dispute with Rand Refinery in South Africa
Jubilee Platinum (LON:JLP) – Second quarter update on chrome projects
ZincOx (LON:ZOX) – Dream team reunites as Donald McAlister joins board of ZincOx
Dow Jones Industrials +1.40% at 18,147
Nikkei 225 +3.98% at 15,709
HK Hang Seng +1.62% at 20,897
Shanghai Composite +0.23% at 2,995
FTSE 350 Mining +3.45% at 11,545
AIM Basic Resources +0.84% at 2,068
All indices rises on positive of Non Farm Payroll numbers with BoE and BoJ expected to cut rates further this week
Economic News
Markets are going stronger taking cues from better than forecast labour data in the US released on Friday and expectations for central banks to ease the policy further.
• Gold is off $8/oz on the back of a stronger US$ index as investors and an increased risk appetite among investors.
• Yen is trading lower (+1.39%) with local equities posting the best one-day gain in several months on expectations for fiscal stimulus following the news Abe’s Liberal Democratci Party along with its coalition partner got the majority in the upper house elections.
• Despite a risk on sentiment in the marketplace, UK government bond yields are trading lower on expectations the BoE to cut benchmark rates to 0.25% on Thursday.
US – A rebound in monthly payrolls implied a May trough is likely to have been a temporary setback with labour market back on a solid footing with growth in earnings accelerating through Jun.
• Rate hike chances have climbed slightly (21% v 12% that rates will go up by at least 25bp by the end of 2016) on the news but remain negligible and suggest the Fed might avoid policy tightening this year altogether.
• May was a particularly month with previous estimates having been revised downwards to 11k, down from 38k and an average of 172k YTD.
Date Index Period Actual Expected (Bloomberg) Previous
Friday NFP Jun 287k 180k 11k (revised from 38k)
Unemployment Rate Jun 4.9% 4.8% 4.7%
Av Hourly Earnings Jun 0.1%mom/2.6%yoy 0.2%mom/2.7%yoy 0.2%mom/2.5%yoy
Tuesday JOLTS Openings May 5,788k
Wednesday Fed Beige Book
Thursday PPI Jun 0.3%mom/-0.1%yoy 0.4%mom/-0.1%yoy
Core PPI Jun 0.1%mom/1.0%yoy 0.3%mom/1.2%yoy
Weekly Jobless Claims 2,140k 2,124k
Friday Retail Sales/Core Jun 0.1%mom/0.4%mom 0.5%mom/0.4%mom
CPI Jun 0.3%mom/1.1%yoy 0.2%mom/1.0%yoy
Core CPI Jun 0.2%mom/2.2%yoy 0.2%mom/2.2%yoy
New York Manufacturing Jul 5.0 6.0
Industrial Production Jun 0.2%mom -0.4%mom
Capacity Utilization Jun 75.1% 74.9%
UoM Consumer Sentiment Jul 93.0 93.5
Source: Bloomberg
China – Consumer prices gained at the slowest rate since Jan in Jun with producer prices deflation continuing to slow down.
• CPI: 1.9%yoy v 2.0%yoy in May and 1.8%yoy forecast.
• PPI: -2.6%yoy v -2.8%yoy in May and -2.5%yoy forecast.
• A deflation in producer prices slowed to the weakest reading since late 2014 amid a recovery in property [and commodity prices.
Japan – Liberal Democratic Party led by PM Shizno Abe together with its junior partner secured 70 of 121 seats that were available in the 242-seat upper house.
• Together with smaller opposition parties and independent senators who support constitutional revision, Abe has the necessary two-thirds of the upper house for structural changes to be voted through.
• The coalition already controls two-thirds of the lower house.
• Markets are expecting Abe to pass the stimulus package now the political mandate has been secured.
• PM to hold a cabinet meeting on economic measures tomorrow and consider more than ¥10 yen ($98bn) in stimulus, the Nikkei newspaper said.
Currencies
US$1.1026/eur vs 1.1079/eur yesterday. Yen 102.04/$ vs 100.65/$. SAr 14.650/$ vs 14.709/$. $1.292/gbp vs $1.295/gbp.
0.754/aud vs 0.750/aud. CNY 6.688/$ vs 6.688/$ - Renminbi maintains level following fall of 1.5% since the Brexit vote
Commodity News
Precious metals:
Gold US$1,359/oz vs US$1,355/oz yesterday –
Gold ETFs 64.5moz v 64.2moz yesterday –
Platinum US$1,095/oz vs US$1,080/oz yesterday
Palladium US$616/oz vs US$605/oz yesterday
Silver US$20.22/oz vs US$19.66/oz yesterday
Base metals:
Copper US$ 4,766/t vs US$4,696/t yesterday –
Aluminium US$ 1,665/t vs US$1,644/t yesterday – A Chinese smelter is expecting to expand its fabrication capacity on growing domestic demand for aluminium products.
• In particular, Chinalso expects demand for aluminium products in the auto sector to more than double to 5.3mt by 2020, up from 2.4mt in 2014.
• The Company will grow fabrication capacity to 1.5mt, up from current 1.2mt.
Nickel US$ 10,095/t vs US$9,700/t yesterday – Prices jumped $200/t this morning making it the best performer among other base metals on continued concerns over supply from Philippines amid a state-led audit of existing mining operations and comments by the major Chinese producer on a potential cut in output.
• On Friday, Jinchuan Group, the largest Chinese refiner, said it may cut production by as much as 9% amid weak pricing environment, Bloomberg reports.
Philippines: As we commented last week, moves by the incoming Government of the Philippines to scrutinise environmental compliance in the country’s mines has led to concerns over supply, principally to China, of the world’s largest nickel ore producer. Press reports clarify the situation in one of the Philippines Provinces, Zambales, which is estimated to provide around 10% of the Philippines nickel ore exports to China. Apparently specific suspensions in Zambales Province would amount to less than 5% of possible production and extend for less than a single quarter and are prompted by specific issues during periods of particularly severe wet weather. Overall potential lost nickel supply (reported to be equivalent to under 15,000 tonnes of nickel metal) as a result of the current Philippines action represents a very small proportion of recorded warehouse inventories of around 380,000 tonnes on the LME and 100,000 tonnes in Shanghai. The total overhang of warehou se supplies of nickel, thought by some commentators to represent up to six months of global consumption, is expected to have a stronger influence on medium term nickel price movements.
Zinc US$ 2,158/t vs US$2,101/t yesterday
Lead US$ 1,831/t vs US$1,819/t yesterday
Tin US$ 17,905/t vs US$17,525/t yesterday
Energy:
Oil US$46.3/bbl vs US$46.9/bbl yesterday -
Natural Gas US$2.854/mmbtu vs US$2.759/mmbtu yesterday
Uranium US$26.50/lb vs US$26.50/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$52.5/t vs US$51.9/t –
Steel – China Steel Exports climbed 6.4%yoy to a record 46.3mt in the first five months of the year.
Thermal coal (1st year forward cif ARA) US$57.4/t vs US$58.0/t yesterday
Other:
Tungsten - APT European prices dropped to $185-200/mtu vs $185-210/mtu from the previous week
Company News
Caledonia Mining (LON:CMCL) 83 pence, Mkt Cap £43.3m – 20% quarterly increase in gold output at Blanket mine
• Caledonia Mining has reported Q2 gold production of approximately 12,509 ounces of gold at its Blanket mine in Zimbabwe for the 3 months to 30th June.
• This keeps the company on track for its 2016 target of 50,000 oz of gold and represents a 20% increase on the production in Q2 2015 and a 16% improvement on the production achieved in Q1.
• The company comments that “Quarterly production for the remainder of 2016 is expected to increase progressively to approximately 14,000 ounces by the fourth quarter of 2016 as production from below 750 metres increases over the course of 2016.”
• The Q2 production increase “includes production from higher grade material below 750 metres which is accessed via the No 6 Winze and decline development.”
• Conclusion: The development of the deeper ore at the Blanket mine lies at the core of the company’s plans to increase production to around 80,000 oz by 2021. The improvement of production in Q2 adds to the growing body of evidence of success in implementing this strategic plan
Goldplat* (LON:GDP) 5.4 pence, Mkt Cap £9m – Dispute with Rand Refinery in South Africa
• Goldplat report that its principal subsidiary Goldplat Recovery (Pty) Limited is in dispute with the Rand Refinery in South Africa.
• The dispute related to the invoicing and processing of a batch of silver sulphide material for toll-treatment.
• GPL is demanding payment of ZAR13.5m (c. £628k) and is threatening to institute processes to resolve the issue.
• The Rand Refinery will also not be able to accept GPL by-product materials for treatment in their smelter through August, for operational reasons.
• GPL report that they have alternative refiners to use to treat the bulk of group production and do not expect the change in plans to have a significant impact on its business.
• The company go on “In light of the strong end to the financial year, marked exchange rate movements, which have worked in the Company's favour, and lack of certainty as to the recoverability and consequential accounting treatment of the disputed debt, the Company is not yet in a position to advise whether its annual results for the year ended 30 June 2016 will be in line with market expectations.”
• While the company report that they had a very active month of June and that exchange rate movements acted in the company’s favour it looks likely that the group may suffer another disappointing year.
• GPL reported an operating profit of £1.535m for the first nine months of the year helped by the installation of a 4 tonne elution plant helping to clear a backlog of material.
• GRG (Ghana Recovery) produced an operating profit of £458,000 for the first 9 months with the renewal of gold and environmental protection agency licenses in progress
• Kilimapesa, Goldplat’s small gold mine in Kenya produced an operating loss of £501,000 in H1 as losses slowed through the third quarter
• The company has a JORC resource of 81,959 oz of gold within tailings at GPL in South Africa.
Conclusion: Goldplat is highly leveraged to the gold price and should start to perform better given new investment and renewed management focus. Expected better results might be hit by a loss of earnings and potential impairment charges relating to the dispute with the Rand Refinery.
*SP Angel analysts have visited the Goldplat’s recycling plant at Benoni in Johannesburg
Jubilee Platinum (LON:JLP) 3.2 pence, Mkt Cap £29m – Second quarter update on chrome projects
• Jubilee Platinum has announced that chromite concentrate production at its Dilokong Chrome mine tailings project (DCM Project) has reached 15,188 t (7,480 t – June 2015), generating £0.74m of earnings on revenues of £1.00m, of which £0.46m is attributable to Jubilee.
• Chief Executive, Leon Coetzer, commented “The DCM Project has outperformed the original design numbers both in terms of revenue, earnings from chromite concentrate sales and better than designed operational performance.”
• Mr Coetzer goes on to elaborate that “To date early project revenue has been generated from the sales of chromite concentrate. The enrichment of the platinum material which is produced by recovering chromite from the surface mineral and rejecting waste has exceeded our projections”. The company is considering whether to use toll processing in preference to constructing its own facility.
• In addition to the DCM Project, the company reports that construction of a 55,000 tpm platinum and chromite processing plant at its Hernic project is on schedule for the start of commissioning in December 2016. To date, approximately $4.6m (R88.5m) or 45% of the total projected capital cost has been spent on what the company describes as the “world’s largest platinum recovery plant from chrome tailings.”
ZincOx (LON:ZOX) 0.8pence, Mkt Cap £1.9m – Dream team reunites as Donald McAlister joins board of ZincOx
• Donald McAlister formerly Finance Director at Mwana Africa, Ridge Mining, Cluff Mining and the legendary Reunion Mining has joined ZincOx Resources.
• McAlister worked as FD with the ZincOx team at Reunion Mining when the company planned the Skorpion zinc oxide mine in Namibia.
• The team then sold the company to Anglo American in the middle of the Asian Crisis. Anglo then went on to successfully develop the mine.
• ZincOx currently holds 10% of the Korean Zinc Recycling Plant though this could be reduced further to around 9.2%.
• We believe the implied value of Zincox’s 10% stake in Korean Zinc Recycling Plant is around $6.3m.
• ZincOx also retains its proprietary technology and significant expertise in the construction and operation of zinc mining and processing.
• Zinc market deficit: Zinc is geologically relatively rare and forecsts suggest the zinc market should move to deficit in future years as some major current producers start to wind down. Century Zinc, once the world’s largest zinc mine closed last year exacerbating shortages of zinc concentrates for the myriad of Chinese zinc smelters. Chinese lead zinc mines are also thought to have closed production capacity due to cost and environmental concerns.
o We expect the zinc market to record a significant deficit this year with a widening deficit
o The International Lead Zinc Study Group ‘ILZG’ forecast a 352,000t deficit for this year while Goldman Sachs forecast a 114,000t deficit for this year and 360,000t in 2017.
o Chinese smelters indicated they would cut production by 500,000t this year to around 5.65mt for the year. While the Chinese have been slow to cut so far, cuts are likely to be enforced by a significant shortage of zinc concentrates. CRU, the consultancy, forecast a deficit of 910,000 of metal content in ore.
o Treatment and refining fees ‘Tc/Rcs’ earned by smelters have fallen to low levels as smelters compete for increasingly scares concentrate supplies.
o China is now seen importing significantly more refined zinc ingots as it moves to increase stocks and cover the shortfall for metal to be consumed within China.
o Citigroup reckon China may have some 2.5-3.5mt of zinc stockpiled away from the listed exchanges in China representing around 13 weeks of consumption.
o Either way, a developing deficit in zinc looks likely to lead to higher price levels and greater demand for the construction of new mines for fresh ore production.
o The company currently had around £360,000 in cash in April and under AIM rules “must carry out a reverse takeover within six months of the date of transfer, being 28 October 2016” in order retain its listing.
Conclusion: ZincOx has had its problems but is worth watching to see what they are able to develop next.