Ariana Resources (LON:AAU) – Raising £445,000 at 1.5p/share
Kibo Mining (LON:KIBO) – Agreement for NSR at Imweru and Lubando
Paladin Energy (ASX:PDN) – Paladin Energy to sell 24% stake in the Langer Heinrich uranium mine in Namibia for US$175m cash.
Weatherly International (LON:WTI) – Under pressure to service loans as water inflows slow production at Tschudi
Templeton Prize – Please follow link for Lord Sacks’ brilliant speech on receiving the Templeton Prize
• CLICK FOR TEMPLETON PRIZE SPEECH
China – China’s premier has called on world leaders to increase macroeconomic policy coordination following a meeting with the IMF
• Premier Li comments that the sound fundamentals of the Chinese economy remain unchanged
• He also comments that China’s debt ratio was not high though the government will step up regulation of the shadow banking sector and monitor local government fiscal practices.
• Premier Li commented “Given the financial fluctuations as a result of Brexit, China will advance the market-based reform of the exchange rate,”
• “We will maintain a basically stable exchange rate at a balanced level and we will not engage in a trade or currency war,”.
• China grew faster than forecast in Q2 at 6.7% driven by government spending and better industrial activity led by a recovery in housing starts and demand.
• Lower private investment indicates to some that the Chinese economy may loose momentum in H2
• China may needs to better stimulate domestic demand if the economy is to meet its GDP target of 6.5-6.7% this year.
China steel production hits new record in June as the industry fails to slow despite US anti-dumping duties
• Steel exports out of China rose by 9% 57.12mt in the first half with June exports up 23% to 10.9mt
• Chinese steel appears relatively competitive in world markets despite anti-dumping duties due to low production costs helped by depressed prices for iron ore, coke and scrap steel.
• China produced around 800mt last year with total capacity for 1.2bnt.
• China pledged to reduce production capacity by 45mt this year though reducing capacity and cutting production look like very different objectives from here.
• Posco reckons China plans to cut steelmaking capacuity by 100-150mt in the next five years
Lithium – Breakthroughs in battery manufacturing likely to lead to significant increase in capacity and life
• Scientists all over the world are working on new chemistries to improve battery performance.
• Some labs have manufactured batteries with 5-10 power capacity and others are showing faster charging times as well.
• Perhaps the most interesting breakthroughs are more incremental and involve improving the manufacturing process to create better batteries using existing chemistries.
• The simplest is the coating of battery cathodes in salt solution, though not any old salt solution, to better stabalise the cathode material.
• The next and most recent breakthrough is the better alignment of graphite flakes within the battery to allow the faster movement of electrons through the battery. Graphite flakes are aligned by associating the graphite with iron and then aligning the flakes with a magnetic field – simples!
• Combining these and other new manufacturing ideas should help to produce batteries of superior performance without adding any real change to the battery chemistry.
• Better batteries = better performance = more robust batteries = more applications for battery powered products =
Dow Jones Industrials -0.42% At 18,517
Nikkei 225 -1.09% At 16,627
HK Hang Seng -0.16% At 21,964
Shanghai Composite -0.86% At 3,013
FTSE 350 Mining -0.46% At 11,276
AIM Basic Resources +0.02% At 2,130 – AIM resources holds gains as other markets fall
European equities are flat despite Asian indices posting a decline on central bank Governor Kuroda comments opposing the idea of using “helicopter money” to support growth in an interview recorded in mid-Jun.
• Kuroda said there was “no need and no possibility” for the BoJ to monetise the government debt.
• Gold prices are off this morning heading for a second weekly decline on the back of stronger US$ and investors’ increased appetite for risk.
• Base metals are relatively range bound, apart from nickel which has been going through strong swings on the back of concerns of the ores supply from the Philippines.
US
Date Index Period Actual Expected (Bloomberg) Previous
Tuesday Housing Starts May 4.8%mom 0.2%mom -0.3%mom
Building Permits May 1.5%mom 1.2%mom 0.5%mom
Thursday Existing Home Sales Jun 1.1%mom -0.9%mom 1.8%mom
Philly Fed Index Jul -2.9 4.5 4.7
Weekly Jobless Claims 253k 265k 254k
Friday Markit Manufacturing PMI (P) Jul 51.5 51.3
Source: Bloomberg
Japan – Manufacturing contracted for a fifth consecutive month in Jul but at the slowest pace in four.
• Production, new orders and new export orders all reported a decline.
• International demand fell at the strongest rate in over three-and-a-half years on the back of the appreciating currency.
• Manufacturing PMI: 49.0 v 48.1 in Jun.
Germany – The first set of post-Brexit PMI data beat estimates.
• Manufacturing PMIM: 23.7 v 54.5 in Jun and 53.4 forecast.
• Services PMI: 54.6 v 53.7 in Jun and 53.2 forecast.
• Composite PMI: 55.3 v 54.4 in Jun and 53.6 forecast.
• The survey mentioned a positive trend in new orders which reported a 19th consecutive monthly increase. In particular, new export orders came in strong.
• Companies picked increased hiring while an rise in input costs and solid demand allowed producers to raise final goods prices.
• “Strong tailwinds from a healthy market and rising demand are propelling the economy forward, while businesses so far seem to be unaffected by uncertainties around the UKs decision to leave the EU,” Markit said.
ECB – European markets have gone through the period of increased volatility post the Brexit vote with “encouraging resilience”, the ECB said.
• The central bank left key rates unchanged as officials assess the full impact of Brexit.
• “Over the coming months when we have more information including new staff preojections we’ll be in a better position to assess the underlying macroeconomic conditions,” Draghi said.
• Draghi has also hinted that public money may also be required to fix some of banks in the Eurozone and Italy, in particular, addressing the high proportion of nbon performing loans.
• Italy is estimated to hold 15.6% in NPLs of total loans, the third largest share following Ireland (16.0%) and Greece (33.4%).
• High NPLs ratio makes those banks “less capable to transmit our monetary policy impulses to the real economy.”
• Markets currently price in 32% chance the ECB will cut rates during the Sep meeting and 51% before year end.
France – A marginal pick up in services sector compensated for another monthly contraction in the manufacturing sector leaving the Composite PMI at 50.0 threshold.
• Manufacturing PMI: 48.6 v 48.3 in Jun and 48.0 forecast.
• Services PMI: 50.3 v 49.9 in Jun and 49.5 forecast.
• Composite: 50.0 v 49.6 in Jun and 49.2 forecast.
• New orders growth, albeit marginal overall, was concentrated in the services while manufacturers posteed the sharpest decline in the three months.
• Despite a pick up in the services output, Markit highlighted dwindling expectations in the sector which have hit the lowest level so far.
UK – A special edition Markit PMI prepared to reflect the effect of the Brexit on businesses showed a “dramatic deterioration” inb economic activity.
• “Jul saw a dramatic deterioration in the economy, with business activity slumping at the fastest rate since the height of the global financial crisis in early-2009,” Markit wrote.
• Services PMI (80% of the economy): 47.4 in Jul v 52.3 in Jun and 48.8 forecast.
• Manufacturing PMI: 49.1 v 52.1 in Jun and 48.7 forecast.
• Composite: 47.7 v 52.4 in Jun and 49.0 forecast.
• A rapid depreciation of the pound saw a steep rise in manufactuers’ input price with input costs inflation hitting a five-year high. No similar increase in service sector costs was recorded.
• Both services and manufacturers reported job cuts.
• On a more positive note, exporters are reported to have got a lift with shipments’ growth reaching the strongest level in two years.
South Africa – The central bank left rates unchanged amid policymakers’ efforts to bring inflation down to target levels.
• Expectations are for more tightening this year after the rate has gone up twice this year from 6.25%.
• “The MPC (Committee) is aware that some of the favourable factors that contributed to this decision could reverse quickly, and remains ready to react appropriately to any significant change in the inflation outlook,” the Bank said.
• The USDZAR strengthened 1.0% on the news but bounced back afterwards and is currently trading 0.6% up v the pre-announcement level.
Zimbabwe – War veterans end backing for Robert Mugabe (BBC)
• Robert Mugabe’s rule over Zimbabwe might be coming to an end
• The association of war veterans has released a statement withdrawing its backing for the 92 year-old leader
• This may be a pre-emptive move by a faction within the Zanu-PF party to take over the leadership before Mugabe finally moves on
• Pastor Mawarire who was arrested for subversion and later released may be in the running as the nation struggles to overcome its broken economy
N Korean economy shrinks most in eight years – we are waiting for officials at the IMF to blame the slowdown in N Korea on Brexit
• Other issues we can blame on Brexit are: England’s football performance, British performance at the Brazil Olympics, Donald Trump
• China premier also blames economic issues on Blexit but says state will not engage in trade or currency war despite dropping the renminbi during the Brexit turmoil
Currencies
US$1.103/eur vs 1.108/eur last week. Yen 106.25/$ vs 105.96/$. SAr 14.216/$ vs 14.281/$ $1.318/gbp vs $1.319/gbp.
0.748/aud vs 0.750/aud. CNY 6.672/$ vs 6.677/$.
Commodity News
Precious metals:
Gold US$1,324/oz vs US$1,321/oz last week
Gold ETFs 64.4moz v 64.5moz last week – small fall
Platinum US$1,096/oz vs US$1,087/oz last week
Palladium US$681/oz vs US$672/oz last week
Silver US$19.62/oz vs US$19.45/oz last week
Base metals:
Copper US$ 4,968/t vs US$4,969/t last week – China refined copper output rises 8% in H1
Aluminium US$ 1,612/t vs US$1,6418t last week –
Nickel US$ 10,660/t vs US$10,660/t last week – Philippine mining minister asks Nickel Asia Corp to stop shipping nickel ore to China, citing environmental concerns.
Zinc US$ 2,264/t vs US$2,261/t last week – Hindustan Zinc Q1 (June quarter) net profit falls 47% mainly on lower volumes of zinc produced
Lead US$ 1,856/t vs US$1,862/t last week
Tin US$ 17,835/t vs US$17,850/t last week –
Energy:
Oil US$46.2/bbl vs US$47.2/bbl last week
Natural Gas US$2.681/mmbtu vs US$2.638/mmbtu last week
Uranium US$25.40/lb vs US$25.40/lb last week – India imported some 600t of uranium from Russia and Canada last year
• India imported over 345t of uranium from Russia and 250t from Canada during 2015-16 to fuel Indian nuclear plants under bilateral civil nuclear cooperation agreements,.
• India previously imported 297t of uranium in 2014-15 also from TVEL, the fuel company of Rosatom, Russia’s state-run atomic energy corporation.
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$54.9/t vs US$52.8/t – Spot prices for steel products recovering in northern China after a week of futures selling
• Demand is expected to slow on a weaker property market, the rainy season and fading stimulus hopes
• Iron ore futures for delivery into Dalian rose 2.7% in what is seen as a technical rebound
• Iron ore for immediate delivery into Tianjin is at $55.1/t
Posco report 88% rise in Q2 profits as steel prices continue to rise
• Posco reckons China plans to cut steelmaking capacuity by 100-150mt in the next five years
Thermal coal (1st year forward cif ARA) US$58.4/t vs US$58.9/t last week
Other:
Tungsten - APT European prices dropped to $175-185/mtu vs $185-200/mtu from the previous week
Ferrochrome – Tubatse Ferrochrome offers to buy ASA Metals business from Sinosteel
• ASA Metals a subsidiary of Sinosteel went into ‘business rescue’ in South Africa in March following an announcement that it could not meet its debt commitments
Company News
Ariana Resources (LON:AAU) 1.5p, Mkt Cap £12.1m – Raising £445,000 at 1.5p/share
• Ariana Resources reports that it is raising £445,000 via a placing of 29.6m shares at 1.5p/share.
• The funds are likely to help in further exploration around the company’s licences at Kiziltepe in Turkey. Dr Kerim Sener, Managing Director, commented that “We are particularly keen to extend the current drilling programme beyond the budgeted 4,000m given the number of new target areas we have defined in recent months.”
• Directors of Ariana, Dr Sener, Michael de Villiers and William Payne, have announced their intention “to subscribe for a total of 2,050,000 shares on the same terms for a further sum of £30,750 following the announcement of the Placing.”
Kibo Mining (LON:KIBO) 5.4 pence, Mkt Cap £19.0m – Agreement for NSR at Imweru and Lubando
• Kibo Mining has reached agreement with Acacia Mining for Acacia to convert its residual equity in the Imweru and Lubando gold projects in the Lake Victoria region of Tanzania into a 2% Net Smelter Royalty (NSR).
• The agreement gives Kibo Mining 100% ownership of the projects which are reported to contain resources of around 550,000 oz of gold at Imweru of which we understand around 20% is classed as “indicated”.
• Lubando contains a total resource of around 157,000 oz of gold of which around 80% is classified as inferred.
• A Definitive Mining Feasibility Study is underway for the development of Imweru
• In early July 2016, the company announced that it had a Memorandum of Understanding with Lake Victoria Gold to consolidate its Imweru project with LVG’s Imwelo project.
Conclusion: The conversion of the Acacia Mining interest to an NSR should simplify the continuing work to amalgamate Imweru with LVG’s Imwelo project.
Paladin Energy (ASX:PDN) A$0.2, Mkt Cap 351m – Paladin Energy to sell 24% stake in the Langer Heinrich uranium mine in Namibia for US$175m cash.
• Paladin will continue to hold 51% of Langer Heinrich and will remain as the operator.
• Paladin sold 25% of the Langer Heinrich mine to China National Nuclear Corporation for $190m two years ago
• It is more than likely that CNNC is the unnamed buyer
Weatherly International (LON:WTI) 0.4 pence, Mkt Cap £3.7m – Under pressure to service loans as water inflows slow production at Tschudi
• Weatherly International reports that production from its Tschudi copper mine declined by around 10% during the quarter to 30th June reaching 3812 tonnes of copper cathode at a cash cost of $4689/tonne.
• The decline in output is attributed to unexpectedly high rates of groundwater inflow which have exceeded the maximum level anticipated in the Bankable Feasibility Study (BFS).
• Although remedial action has been taken, “Current expectations are for production levels in the September 2016 quarter to be approximately 15% below nameplate” capacity. “Production is then expected to return to design rates by the end of the December 2016 quarter.”
• The company goes on to say that “Provided the groundwater management proceeds as expected, for the coming financial year to 30 June 2017 the company still expects to produce 17,000 tonnes of copper cathode, recovering by financial year end from any shortfalls expected in the coming months. Forecast C1 unit costs for the financial year are expected to be in the range of USD4,100-4,200 per tonne”
• The cost of the remedial measures to control the water problems have not been disclosed, however, in the wider context, “Weatherly has previously advised that if copper prices remain at current levels it is unlikely that the Company and its subsidiaries will generate sufficient surplus cash to meet all loan repayments when due.”
• Weatherly is in discussions with its major shareholder Orion Mine Finance (Master) Fund which holds 24.6%. In connection with a May 2015 fundraising for Weatherly, Orion subscribed $5.2m and stated at that that time that it would be prepared to take up to 29.9% of the company. It is not clear whether that would still be the case.
• Disputes with the EPC contractor for the Tschudi plant, LogiMan, continue and “the Company anticipates that arbitration proceedings will likely arise to determine those disputes.” We note that Logiman is currently reported to hold an 11.4% interest in Weatherly International.
Conclusion: The water unexpected rates of inflow have hit production at a time of relatively low copper prices and place the company under pressure to meet its loan obligations. Disputes with the contractor are expected to go to arbitration. We imagine that there will be some hard talking and difficult concessions required before a commercially sensible solution is reached.