Antofagasta (LON:ANTO) HOLD – Production forecast at risk as group targets for lower end of targeted range
Berkeley Energia (LON:BKY) – Infrastructure development work underway
Connemara Mining (LON:CON) – Drilling results from Inishowen, Donegal
DiamondCorp (LON:DCP) –Suspension of underground mining at Lace lifted
Kumba Iron Ore (JSE:KIO) – Results for 6 months to 30th June show margin recovery
Metminco* (LON:MNC) – Departure of Chairman
W Resources (LON:WRES) – First blast at La Pariilla
CAT - was the best performing stock on the Dow Jones yesterday after earnings beat expectations.
• Big miners chasing ever lower grades in existing mines and buying more energy efficient trucks appears to have offset a stronger US dollar.
Dow Jones Industrials -0.10% At 18,494
Nikkei 225 +1.72% At 16,665 - Japanese stock are up today on press reports the BoJ will issue a Yen 28tr ($268bn) stimulus package
HK Hang Seng +0.40% At 22,219
Shanghai Composite -1.91% At 2,992
FTSE 350 Mining +1.59% At 11,665
AIM Basic Resources +2.05% At 2,246 – AIM resource stocks rise 48% since the January low
US – House prices recorded a weaker than forecast increase in the last 12 months in May while new house sales hit the highest level in Jun supported by low borrowing interest rates and steady labour markets.
• Growth in the services industry steadied in Jul posting the weakest growth pace in six months.
• Composite PMI index tracking both services and manufacturing sector ticked up driven by gains in the industrial segment.
• The latest consumer confidence report released yesterday showed the gap between consumers current assessment and future expectations continued to widen.
• “Consumers were slightly more positive about current business and labor market conditions, suggesting the economy will continue to expand at a moderate pace,” Conference Board said.
• Fewer Americans expected an in increase in their incomes and an improvement in business conditions in the next six months in Jul compare to Jun.
Date Index Period Actual Expected (Bloomberg) Previous
Tuesday S&P/CS Property Prices May -0.1%mom/5.2%yoy 0.1%mom/5.5%yoy -0.2%mom/5.4%yoy
Consumer Confidence Jul 97.3 96.0 97.4
- Current Situation Jul 118.3 116.6
- Expectations (next 6 months) Jul 83.3 84.6
New Home Sales Jun 3.5%mom 1.6%mom 0.0%mom
Wednesday Durable Goods/Core Jun -1.1%mom/0.3%mom -2.3%mom/-0.3%mom
Capital Goods Orders Jun 0.2%mom -0.4%mom
FOMC Rate 0.25%-0.50% 0.25%-0.50%
Thursday Weeklyt Jobless Claims 263k 253k
Friday GDP (1st reading) Q2 2.6%qoq 1.1%qoq
Core PCE 1.7%qoq 2.0%qoq
Source: Bloomberg
China – Industrial profits have stabilised showing a 5.1%yoy increase in Jun indicating fiscal and monetary efforts to support the economy during the transitionary stage show results.
Japan – PM Shinzo Abe said the government is looking at launching a ¥28tn ($265bn) stimulus programme aiming to revive economic growth rate.
• The PM speech was short on details and how much of that money is new spending.
• The package should be complete next week.
• Topix index close 1.1% higher today while the yen has come off 0.7% on the news.
UK – The pound is set to strengthen on the back of better than forecast Q2 GDP growth numbers.
• Q2 GDP: 0.6%qoq/2.2%yoy v 0.4%qoq/2.0%yoy in Q1/16 and 0.5%qoq/2.1%yoy forecast.
• Industrial sector is reported to have recorded the best quarter since Q3/99 climbing 2.1%qoq following a 0.2%qoq decline in Q1/16
• Services growth slowed down a little to +0.5%qoq v +0.6%qoq in Q1/16 on the back of a weaker growth in business services and finance industries ahead of the Brexit vote.
• All in all, industrial and services sectors added 0.3pp and 0.37pp to growth, respectively; while, agriculture and construction posted quarterly declines.
Australia – The Australia dollar spiked against the US$ on the release of weaker than expected inflation data for Q2/16, but has since come back and is trading below pre-announcement levels as markets continue to expect the RBA to cut rates next week.
• Last time the RBA cut rates was in May/16 taking the cash rate target to 1.75%. down from 2.0%, following weak Q1 inflation data.
• CPI: 0.4%qoq/1.0%yoy v -0.2%qoq/1.3%yoy in Q1/16 and 0.4%qoq/1.1%yoy forecast.
Air France warns that France is a dangerous destination
• This is a surprising statement from a national carrier to warn that its home territory is a dangerous place to fly to.
• We do understand there are many dangers in France the Tour de France, roundabouts, crusty Baguettes, Steak Tatar, ripe Cambembert, the Tour de France, over use of Garlic
Fireman Sam – episode withdrawn due to Koran slip
• Fireman Sam or more precisely one of his Fireman colleagues has slipped up on a page of the Koran in an episode which has now been withdrawn.
• The BBC has said it would no longer work with the animation studio responsible. Next episode Fireman Sam and the Fat wa.
Currencies
US$1.0994/eur vs 1.1007/eur last week. Yen 105.54/$ vs 104.35/$. SAr 14.280/$ vs 14.400/$ $1.311/gbp vs $1.310/gbp.
0.749/aud vs 0.752/aud. CNY 6.671/$ vs 6.675/$.
Commodity News
Precious metals:
Gold US$1,320/oz vs US$1,321/oz last week
Gold ETFs 64.2moz v 64.3moz last week –
Platinum US$1,096/oz vs US$1,087/oz last week
Palladium US$689/oz vs US$684/oz last week
Silver US$19.60/oz vs US$19.68/oz last week
Base metals:
Copper US$ 4,896/t vs US$4,869/t last week –
Aluminium US$ 1,598/t vs US$1,607t last week –
Nickel US$ 10,355/t vs US$10,280/t last week –
Zinc US$ 2,221/t vs US$2,223/t last week –
Lead US$ 1,829/t vs US$1,839/t last week
Tin US$ 17,745/t vs US$17,725/t last week –
Energy:
Oil US$44.6/bbl vs US$44.4/bbl last week
Natural Gas US$2.676/mmbtu vs US$2.713/mmbtu last week
Uranium US$25.50/lb vs US$25.20/lb last week –
Lithium - Porsche reported to be hiring for electric car project
• Porsche is reported to be spending around €1bn on Mission E a battery powered sports car to rival the Tesla Model S
• We ask what took them so long?
• Electric vehicles offer vastly improved performance in terms of weight, balance, ride quality etc. and you don’t get a noisy, smelly engine in the back.
• The only downsides are range, power availability for the air-conditioning and that old fashioned noisy engine sound.
• So, how will the UK grid supply power for all these new Plug in EVs and then how will the government tax them given the loss of duty on fossil fuels?
• And how will everyone recharge their EVs?
• The scene is set for EVs to take over just as soon as better batteries emerge – and improvements to manufacturing processes mean better batteries are on the way
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$56.4/t vs US$54.7/t –
Iron ore - Iron ore futures are up for a third day in China on speculation for increased demand amid reconstruction and restocking post floods in northern China.
• Sep futures on the Dalian Futures Exchange increased 4% to CNY 464 ($70/t) and are up more than 6% this week.
• Spot iron ore prices added 2.2% to $58.1/t yesterday, the highest in more than a week, MetalBulletin reports.
Thermal coal (1st year forward cif ARA) US$60.3/t vs US$58.5/t last week
Other:
Tungsten - APT European prices $180-190/mtu vs $175-185/mtu on last week – a small rise in prices and not a fall as previously mentioned, sorry.
Company News
Antofagasta (LON:ANTO) 493p, Mkt Cap £4.9bn – Production forecast at risk as group targets for lower end of targeted range
HOLD
• Antofagasta report a mixed set of production numbers today with production forecasts now targeting the lower end of the 710-740t range.
• Management warn of the risk to production from project work.
• Group copper production rose 5.8% qoq in Q2 to 166,200t
• Net cash cost fell 2.3% in Q2 to 125c/lb, Cash cost fell by 3.7% qoq to 157c/lb.
• H1 output at 323,300t is likely to disappoint the market against many more bullish forecasts
• H1 cash costs fell by 28c to $1.60/lb
• Guidance: management are now guiding to 160c/lb and 130c/lb post credits of moly, gold and silver.
• Capitalisation of stripping costs: management are now capitalising stripping costs at Los Pelambres, while this is not particularly unusual for a mining company the change of policy looks more like a method of massaging the cost numbers lower. The move accounted for an 8c/lb cut in group costs through H1.
• Los Pelambres: continues to perform well with copper production rising 9.2% through the quarter to 89,800t vs 82,200t driven by better grades and higher throughput following major maintainece in Q1. Cash costs for Los Pelambres remained steady at an impressive 1.33c/lb and were 34c/lb lower yoy or 20c/lb lower before the deferring of the stripping charge “with lower material movement and lower input prices being the main contributors.”
• Antucoya: The new Antucoya mine is now at commercial production but a fatality at the mine is a bad sign and a very unfortunate event all round for a company with good historical record. Antucoya produced 14,400t in Q2 as throughput rose vs 12,700 tonnes of copper in Q1. Grades fell back to 0.35% from 0.42% in Q1 causing recovery rates to fall Antucoya cost $1.9bn to build. Sales and costs are no longer being capitalised at Antucoya now that commercial production has been declared with production ramping up to a rate of 85,000tpa.
o Centinela: lower throughput caused Q2 production to fall despite better grades and better recovery rates. Total copper production at Centinela was 48,300t vs 49,800t despite better grades as throughput fell due to repairs to the plant. Management expect to mine significantly higher grades through the second half with better throughput also expected.
o Zaldivar (50%): has now been integrated into Antofagasta. Production rose through the quarter to 13,600t in Q2 vs 12,400t in Q1. Grades also fell at Zaldivar as throughput rose, though recovery rates were also better helping cash costs to fall to 1.42c/lb vs $1.59/lb last quarter.
o Michilla: remains on care and maintenance but could restart if copper prices rise again.
o Molybdenum production fell to 1,600t in Q2 vs 1,700t in Q1. Production is variable according to which parts of the mine are being worked through each period.
o Chile is showing disturbing signs of a regression to populist, anti capitalist/foreigner/foreign ownership sentiment. It looks as if the stability of most of the last 20 years are over and that a less stable and reliable environment is in place. Codelco are having to go out for large scale government-backed debt syndicates just to sustain current production levels with little in the pipeline of any great consequence.
Copper market: Chinese copper smelters are reported to be ramping up production as margins improve on a surplus of lower cost copper concentrates and on lower local energy prices. The relative strength of the US dollar versus a recently depreciated renminbi also serves to stimulate Chinese copper production. These factors are likely to have a depressing effect on copper prices in the short term.
Risks: the group reports that inherent risks will persist until the tailings thickeners at Centinela and the ramp-up at Antucoya are completed.
Conclusion: Disappointing production performance in Q2 makes the year end production forecast yet more challenging even with the ramp up of Antucoya and contribution from Zaldivar. The fatality at Antucoya is a sign that production may have been chased at the cost of safety while a further fatality in the Transport division is also unfortunate and does not bode well for the group.
Berkeley Energia (LON:BKY) 49.3 pence, Mkt Cap £97.7m – Infrastructure development work underway
• Berkeley Energia reports that “work has now commenced on the road realignment and power line upgrade ahead of the main construction.”
• The road and power realignment will clear the way for initial mining at the first pit at Retortillo and the company has made progress “with equipment ordering, contractual permitting and with work on the ground which commenced recently.”
• Although exploration and evaluation of the Salamanca Uranium Project has been underway for the past ten years at a cost of over US$60m, the start of initial construction work is a milestone in the evolution of the project which is expected to become “Europe’s largest uranium mine, [and] one of the world’s top ten producers”.
• Based on the Definitive Feasibility Study (DFS)The mine will have an initial life of 14 years, however drilling is continuing both to upgrade currently known inferred resources and to investigate additional near surface targets within a ten km radius of the processing plant . Any success with these efforts provides the potential for significant extensions to the mine life.
• “The Company is of the view that whilst uranium prices will remain soft in the near term, in 2018, when Salamanca is scheduled to come on line, the market will be dominated by US utilities looking to re-contract. These utilities will also be competing with Chinese new reactor demand, which may lead to higher prices.”
• Following the recent royalty agreement with its major shareholder, Resource Capital, the company expects to receive an additional US$5m to bolster 30th June cash balances of A$11.3m shortly.
• The company is considering a range of financing options for the initial US$95.7m capital expenditure “with a view to fully funding the project’s development during the second half of 2016.”
Conclusion: The Salamanca Uranium project continues to be well funded for the completion of its preliminary work while a range of financing options for the full development are likely to be available for consideration during the second half of 2016.
Connemara Mining (LON:CON) 2.6p mkt cap £2m – Drilling results from Inishowen, Donegal
• Connemara Mining reports gold mineralisation in the first two holes of a four-hole drilling programme at its Inishowen project in County Donegal.
• The drilling, which is reported to be the second drilling programme in the area, has encountered what the company describes as “a new gold system … contained within quartz calcite veins, shears and an altered unit”.
• The individual assays reported show relatively narrow intersections, of which the highest grade is a 1m intersection at an average grade of 2.48 g/t gold and the widest is a 2.98m wide intersection at an average grade of 0.27 g/t gold. Further results are to be made available “within weeks”.
• We agree with the company’s comment that “This is still an early stage project”, however it is encouraging that the company has encountered gold mineralisation in what it suggests is a previously unrecognised gold-bearing structure. At this stage, the mineralisation is still relatively narrow and low grade, however.
Conclusion: Connemara Mining has discovered an interesting gold occurrence in County Donegal; the challenge for future exploration will be to outline a coherent body of mineralisation at a sufficiently high grade to offer mining potential.
DiamondCorp (LON:DCP) 6.4 pence, Mkt Cap £30.5m –Suspension of underground mining at Lace lifted
• DiamondCorp has announced that the S African Department of Mineral Resources (DMR) has approved the immediate resumption of underground mining at the Lace Diamond Mine.
• Underground mining was suspended last week on the instructions of the DMR following an injury causing accident involving a fall of ground related to an explosives miss-fire.
• The DMR instructed that the mine should implement additional training on the handling of explosives and this, presumably, has now been completed to the DMR’s satisfaction.
Conclusion: The relatively speedy resumption of mining should minimise any production losses and the company has previously stated that “there is no material financial impact as a result of the temporary suspension”. The additional training should have a longer term benefit on the safe conduct of future operations.
Kumba Iron Ore (JSE:KIO) Zar 130, Mkt Cap Zar 42bn – Results for 6 months to 30th June show margin recovery
• Total production of iron ore was down by 21% to 17.8m tonnes reflecting the successful implementation of a new mine plan at the Sishen mine where production was pulled back by 29% to 11.54m tonnes.
• Other production cutbacks came at the Thabazimbi mine, where the mine is being closed, (down 42% to 370,000 tonnes) while output at the Kolomela mine was unchanged at 5.88mt (H1 2015 – 5.85mt).
• Overall, approximately 64% of output was lump ore with the balance as fines.
• Aided by a 29% decline in the Rand against the US$, cash margins have recovered to 29% from the 18% achieved in H2 2015 and in line with the 28% margin in H1 2015. The company “reduced controllable costs by $8/tonne from the average for the fill year 2015to achieve an average cash breakeven price of $34/tonne (CFR China) … well within the targeted range of $32/tonne- $40/tonne.”
• Operating free cash flow rose by 18% to R6.7bn and the balance sheet was strengthened to a net cash position of R548m.
• The company expects factors including “continued weakening supply demand fundamentals … to result in further pressure on the iron ore price for the remainder of the year.”
Conclusion: The restructuring of the Sishen mine, coupled with continuing Rand weakness have helped restore Kumba’s margins but the iron ore price is expected to remain under pressure for the rest of this year.
Metminco* (LON:MNC) 0.16 pence, Mkt Cap £6.2m – Departure of Chairman
• Metminco has announced that its long-term Chairman, Tim Read, has elected to stand down from the Board as part of a scaling back of his business commitments.
• Tim Read, who has been a director of Metminco since April 2010 and the company’s Chairman since 2011, has been a long-established figure in the City’s mining scene for many years. We wish him well for the future.
*SP Angel act as joint-broker to Metminco. An SP Angel analyst has visited the Miraflores mine site in Colombia
W Resources (LON:WRES) 0.40p, Mkt Cap £16.7m – First blast at La Pariilla
• W Resources reports that it has successfully completed the first blast at its La Parilla tungsten mine in Spain.
• The blast “covered the first two 10 metre benches in the Fast Track Mine area and open up directly accessible ore to the mine operation.”
• The company comments that “Process plant upgrades are planned to commence in September with concentrate production remaining on track for Q4 2016.”
• W Resources is pressing ahead with its plans for initial tungsten concentrate production by the end of this year.
• Benchmark ammonium paratungstate prices remain below US$200/metric tonne unit and, with a low grade resource grading only 0.096% tungsten trioxide, process plant recovery rates will be critical to the success of La Parilla.
Conclusion: The first blast at La Parilla is a milestone in the project’s development. We believe that with plans to produce tungsten concentrate by the end of this year and a prevailing low commodity price, recovery rates will be critical for La Parilla.