Conroy Gold & Natural Resources (LON:CGNR) – Drilling results from Glenish
DiamondCorp (LON:DCP) – Temporary suspension of underground mining at Lace
Herencia Resources (LON:HER) – Annual results and Conditional agreement to sell the Paguanta project
Serabi Gold (LON:SRB) – Q2 gold production on track to achieve 2016 guidance
Trans-Siberian Gold (LON:TSG) – H1 gold production stable at Asacha
Dow Jones Industrials +0.05% at 18,517
Nikkei 225 16,498 Markets closed
HK Hang Seng +0.66% at 21,803
Shanghai Composite -0.35% at 3,044
FTSE 350 Mining -1.48% at 11,578
AIM Basic Resources -0.04% at 2,105
China – China is at long last getting serious about cutting steel supply.
• China planned to trim its steel production capacity by 45 million tonnes this year and cut coal output capacity by 280 million tonnes, Xu Shaoshi, head of the top economic planner said on June 26.
• So far, the plan to stem overcapacity is starting to bear fruit with improving operations of coal and steel mills, expectations of better performance and increased bank loan payments, Zhao said.
• In the first five months of this year, China’s crude steel output dipped 1.4 per cent from the same period a year earlier and its coal production dropped 8.4 per cent.
• As state leaders have stressed, we must fulfil the plan to cut overcapacity of steel and coal this year, the NDRC official said.
• According to data from the China Iron and Steel Association, its member mills, which are the industry’s major players, reported combined profits of 8.74 billion yuan (HK$10.49 billion) in the first five months, up 738 per cent from a year earlier. About 28.28 per cent of member mills reported losses, down 13.13 percentage points from a year earlier. The mills started to report profits for three straight months since from March, the association said.
• In comparison, in 2015, the mills reported a combined loss of 64.53 billion yuan, with 50.5 per cent of them reporting losses.
• For China’s coal and steel cities, drive to cut overcapacity casts pall over future.
• However, the improving market conditions have also deterred some manufacturers from further trimming capacity, Zhao said.
• “All relevant parties should keep a clear head to firmly press ahead with the plan to reduce excess capacity,” he said.
• Premier Li Keqiang agreed with European Commission President Jean-Claude Juncker on Wednesday that China and the EU would set up a team to monitor the steel trade and track Beijing’s efforts to address overcapacity, which Juncker said is clearly tied to the Brussels deliberation on granting China market economy status.
• Chinese steelmakers report huge losses amid plunging prices and overcapacity.
• Vice-commerce minister Wang Shouwen said on Sunday that China reduced steel capacity by 90 million tonnes in the five years to the end of 2015 and promised to cut another 1 trillion to 1.5 trillion tonnes in the five years to the end of 2020.
• The nation’s two top state-owned mills, Baosteel Group and Wuhan Iron and Steel (Group), plan to merge as the industry consolidates.
UK economy – “trim and singe" rather than "slash and burn”.
• Strong rhetoric of ‘Remain’ activists is softening as UK economy shows its resilience as volatility caused by ‘project fear’ subsides.
• Industrialists emerging with more positive views of the UK economy following Brexit vote.
• Simple maths shows that employing fewer more highly skilled and more highly paid employees is better for Treasury and economy than employment of hordes of more lowly paid migrant labour.
Economic News
European stocks are up slightly as markets digest news of a failed coup in Turkey over the weekend.
• FTSE100 gains have been driven by the news of Arm Holdings takeover by Softbank Group for £24.3bn in cash, implying a 43% premium to Friday’s close.
• Better than forecast US industrial production and retail sales numbers released on Friday drove the US$ higher as investors revised expectations for the Fed monetary policy tightening pace. The index is relatively flat this morning.
• The odds that the Fed will raise rates by Dec have more than doubled last week to 44%.
• The Turkish lira which fell more than 5% late on Friday recouped more than a half of its losses today. Unlike the lira, Turkish stocks continued to fall this morning with the Istanbul 100 Index 4.5% down.
• Risk appetite barometers such as gold and the Japanese yen are trading lower today suggesting investors are opting out of less risky assets.
• Brent is little changed today after going through a volatile period on Friday as a potential change of the government in Turkey sparked concerns over disruptions to transiting oil tankers through Istanbul’s Bosporus Strait.
US – Strong industrial production was driven by gains in the utilities sector amid hot summer weather and solid auto output.
• Despite a pickup in Jun, industrial output was down 0.7% over the last 12 months highlighting weak economic fundamentals.
• Retail sales in 11 of 13 major categories posted a monthly increase in Jun beating forecasts and pointing to a broad based increase in consumers’ spending habits.
• Core sales which exclude auto dealers and a few other categories have also climbed more than forecast posting a 7.4%qoq growth (annualised) over the past three months.
• Core inflation came in strong at 2.3%yoy beating by 0.1pp and currently running above the Fed 2% target; although, the official 2% threshold is for the general price level which climbed 1.0%yoy in Jun.
• The University of Michigan Consumer Sentiment Index fell in Jul weighed down by the news over the UK exiting the EU.
Date Index Period Actual Expected (Bloomberg) Previous
Friday Retail Sales/Core Jun 0.6%mom/0.7%mom 0.1%mom/0.4%mom 0.5%mom/0.4%mom
CPI Jun 0.2%mom/1.0%yoy 0.3%mom/1.1%yoy 0.2%mom/1.0%yoy
Core CPI Jun 0.2%mom/2.3%yoy 0.2%mom/2.2%yoy 0.2%mom/2.2%yoy
New York Manufacturing Jul 0.6 5.0 6.0
Industrial Production Jun 0.6%mom 0.3%mom -0.3%mom (revised from -0.4%mom)
Capacity Utilization Jun 75.40% 75.1% 74.9%
UoM Consumer Sentiment Jul 89.5 93.5 93.5
Tuesday Housing Starts May 0.1%mom -0.3%mom
Building Permits May 1.2%mom 0.5%mom
Thursday Existing Home Sales Jun -0.9%mom 1.8%mom
Philly Fed Index Jul 4.5 4.7
Weekly Jobless Claims 265k 254k
Friday Markit Manufacturing PMI (P) Jul 51.5 51.3
Source: Bloomberg
China – The number of cities recording an annual increase in property prices climbed in Jun with the same ten first and second tier cities leading gains.
• Annualised prices for new residential homes climbed in 57 out of 70 cities surveyed and fell in 12.
• Although, annualised growth in prices had softened from May the statistics bureau added.
• Overall prices climbed only 0.5%yoy in Jun, down from 1.2%yoy recorded in May.
Peru – Economic growth accelerated to 4.0%yo in the 12-month period through May led by a 33.2%yoy increase in the mining sector.
• In particular, the mining sector was led by a 63.9%yoy jump in copper production.
Zimbabwe - Economic fears fuel growing protests in Zimbabwe (BBC).
• The current crisis in Zimbabwe's economy appears to be deepening with banks short of cash and the government delaying paying its own workers.
• Some basic imports have been banned and protests, which previously have been rare under President Robert Mugabe, are in evidence.
Currencies
US$1.1052/eur vs 1.1138/eur last week. Yen 105.63/$ vs 105.96/$. SAr 14.346/$ vs 14.317/$.
$1.325/gbp vs $1.344/gbp. 0.760/aud vs 0.765/aud. CNY 6.699/$ vs 6.682/$.
Commodity Newstop
Precious metals:
Gold US$1,329/oz vs US$1,332/oz last week
Gold ETFs 64.4moz v 64.3moz last week
Platinum US$1,086/oz vs US$1,095/oz last week
Palladium US$638/oz vs US$645/oz last week
Silver US$19.90/oz vs US$20.18/oz last week
Base metals:
Copper US$ 4,895/t vs US$4,965/t last week
Aluminium US$ 1,659/t vs US$1,684/t last week
Nickel US$ 10,330/t vs US$10,370/t last week
Zinc US$ 2,212/t vs US$2,211/t last week
Lead US$ 1,872/t vs US$1,912/t last week
Tin US$ 17,900/t vs US$18,045/t last week
Energy:
Oil US$47.7/bbl vs US$46.9/bbl last week
Natural Gas US$2.792/mmbtu vs US$2.710/mmbtu last week
Uranium US$25.90/lb vs US$26.00/lb last week
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$54.0/t vs US$54.4/t
Thermal coal (1st year forward cif ARA) US$61.3/t vs US$59.3/t last week
Other:
Tungsten - APT European prices dropped to $175-185/mtu vs $185-200/mtu from the previous week
Company News
Conroy Gold & Natural Resources (LON:CGNR) 43p, mkt cap £4.78m –Drilling results from Glenish
• The company has announced drilling results from drilling at its Glenish prospect located 7.5 km south west of its Clontibret gold project in Ireland. The results, which follow up on earlier channel sampling, include “2.25 metres grading 2.65 g/t gold, at a depth of 18 metres; 2.0 metres grading 1.59 g/t gold at a depth of 27.75 metres; 2.75 metres grading 1.43 g/t gold at a depth of 36 metres and 3 metres grading 1.76 g/t gold at a depth of 64.25 metres.”
• Conroy Gold and Natural Resources interprets the results to demonstrate that it has discovered “four new gold zones in a 150 metres wide structural corridor in the western part of the Glenish gold target.” And that the drilling has shown the “gold mineralisation in the drilling area was traced down dip for over 70 metres and remains open in all directions.”
• In the absence of a map showing the relative position of the various drill-holes it is difficult to visualise the structure involved and with only highlights from 4 drill intersections reported today, it appears that each hole may have targeted one of the structures the company identifies.
Conclusion: The drilling results imply an encouraging start but Glenish would still appear to be at a relatively early stage of exploration. We look forward to further results and more detailed information as exploration proceeds.
DiamondCorp (LON:DCP) 6.1 pence, Mkt Cap £28.8m – Temporary suspension of underground mining at Lace
• DiamondCorp has announced that under instructions from the Department of Minerals Resources (DMR), underground mining has temporarily been suspended at its Lace Diamond Mine in S Africa.
• The suspension follows a fall-of-ground incident on the 310m level of the mine as an explosives miss-fire was being rectified which resulted in injuries to a miner’s assistant.
• The DMR has ordered that all miner’s assistants should receive additional refresher training in the handling of explosives and the company indicates that this training should be completed by Wednesday and that it expects to be in a position to resume underground mining by the end of this week.
• DiamondCorp will continue to reprocess tailings material during the period of suspension and although the company does not expect to achieve targeted 30,000 tonnes of ore production during July but that “there is no material financial impact as a result of the temporary suspension”.
• Management expects, however, that targeted production will be achieved during August and that the shortfall in underground ore tonnages will be made up by the end of September.
Conclusion: The explosives incident and fall of ground at the Lace mine highlight the risks of underground mining and it is fortunate that there were not more serious injuries. In the longer term, the additional training imposed by the DMR should have a beneficial effect on the safe conduct of future operations and the company is not expecting an adverse financial impact.
Herencia Resources (LON:HER) 0.03p, mkt cap £1.3m – Annual results and Conditional agreement to sell the Paguanta project
• Herencia Resources reports a loss of £13.9m for 2015 (2014 loss £3.9m) and has provided an update on the status of its negotiations sell the Paguanta project in northern Chile.
• The negotiations to sell the company’s 70% interest in the Paguanta to Golden Rim Resources are currently scheduled to complete “no later than 29 July 2016.”
• As previously announced “the Company has sufficient working capital to last to at least the end of July 2016. However there is no guarantee that the Paguanta disposal will complete and if it does not, there is no guarantee that the Company will be able to continue trading after the end of July 2016.”
Conclusion: With working capital declining, the sale of Paguanta by the end of July is crucial to Herencia Resources’ survival.
Serabi Gold (LON:SRB) 6.25 pence, Mkt Cap £41m – Q2 gold production on track to achieve 2016 guidance
• Serabi gold reports Q2 gold production of 9,896 oz of gold bringing its first half output to 19,667 oz and keeping the operations on track to deliver the 2016 guidance of 37,000 oz for the full year.
• Mine production of 33,606 tonne for the quarter comprised 25,198 tonnes at a grade of 10.48 g/t from the Palito mine supplemented by a further 8,408 tonnes averaging 6.81 g/t from the Sao Chico operation.
• The company reports that plant modifications, including the installation of a third ball mill, should facilitate additional plant throughput taking tonnes processed from the current level of around 380-400 tpd to over 500tpd, while the commissioning of a carbon regeneration kiln is expected to enhance gold recovery.
• There are also initial results from a 6000 metres underground drilling campaign at Sao Chico which is intended to test the down-dip continuity of the central ore zone. The first hole of the programme has intersected 2.32m averaging 46.2 g/t gold at approximately 240 metres below surface and 100 metres down-dip from the current lowest developed level of the mine.
• This result seems to be a particularly encouraging ; although it may not definitively prove continuous mineralisation to 100 metres below the current workings at least makes that a realistic prospect to be demonstrated through the rest of the drilling campaign.
Conclusion: The company is on-track to achieve its production guidance for the year and has introduced measures to improve plant throughput and efficienct. The initial exploration results provide encouragement that the orebody extends considerably below current workings.
Trans-Siberian Gold (LON:TSG) 36.5 pence, Mkt Cap £40.2m – H1 gold production stable at Asacha
• Trans-Siberian Gold reports H1 2016 gold dore production of 19,311 oz (H1 2015 19,088 oz), with higher H1 refined gold production of 18,680 oz (2015 - 17,746 oz)
• The company also reports a broadly unchanged silver production (H2 2016 25,062 oz in dore and 23,411 oz refined compared to 25,594 oz dore and 23,420 oz refined silver in H2 2015).
• The silver output, however shows a 9.5% decrease in grade to 11.86 g/t offset by an increase in silver recovery to 80.2% from 76% in H1 2015.
• The company has not released cost data at this stage but on production numbers alone, Asacha appears to be operating in a stable state, though it would be interesting to understand why silver recoveries have improved at a time when gold recoveries are broadly unchanged.