Miners – major miners pull back on profit taking as WTI oil prices fall into bear market
• Gold - prices rise as expectations fall to 36% for a US rate rise by the year end down from 45% before the weak US GDP numbers were released last week. A weaker US dollar should also help gold
Super hard metal developed by melting together titanium and gold
• The new alloy is a staggering four times harder than pure titanium
Rio Tinto reports tomorrow
• We expect Rio Tinto to report a year-on-year fall in interim earnings tomorrow
• Having said that we do expect to see recovery from H2 2015
• The sector continues to perform as investors slowly appreciate the earnings potential of mining companies.
• The environment looks positive driven by weak local currencies, lower input costs and rising prices.
• The cost excesses of the last two ‘bull markets’ are being worked out and better production rates should continue to lower unit cost.
• Rio Tinto should show solid results tomorrow
• Glencore (Production 11th August, Interims 24 August). Glencore is the wild card and while its trading division is less easy to forecast we expect the business to have done well over the past six months with commodity markets in recovery.
• BHP (FY results 16 August) should follow Rio Tinto but will suffer from the downturn in the petroleum business and the writedown in their US shale oil division
• Randgold Resources (4th August)
• Anglo American beat forecasts last week
• Antofagasta (Interims 16th August)
• Miners have recovered from their low levels seen last November and are ‘climbing a wall of worry’ as investors get over their perception of risk in search of the better yields to be offered by the miners.
Dow Jones Industrials -0. 15% At 18,405
Nikkei 225 -1.47% At 16,391
HK Hang Seng +1.09% At 22,129
Shanghai Composite +0.61% At 2,971
FTSE 350 Mining -1.83% At 11,578
AIM Basic Resources -0.46% At 2,267 – AIM resource stocks up 49% since the January low and up 38% from 1 January
The 350 Mining index is up 57% since 1st January
Currencies
US$1.1203/eur vs 1.1163/eur last week. Yen 101.66/$ vs 102.26/$. SAr 13.981/$ vs 13.811/$ $1.324/gbp vs $1.319/gbp.
0.757/aud vs 0.758/aud. CNY 6.639/$ vs 6.641/$.
European stocks are off for a second consecutive day on weaker oil prices and following downbeat session in Asia as Japanese fiscal stimulus underperformed expectations.
• Trading on the Hong Kong exchange was halted for an hour on the back of the Nida typhoon alert hitting southern China.
• Oil prices fell 2.5% yesterday and is trading lower this morning on further increases in US drill rigs numbers.
• Precious metals are up this morning helped by lower US$ index which fell for the fifth day in the last six on reduced expectations for the Fed tightening this year.
• Base metal prices are broadly range bound.
US – “Brexit has not impacted our business thus far,” one of the surveyed managers mentioned in the ISM manufacturing PMI report said.
• This is the first ISM PMI following the Brexit vote in Jun which showed the sector continued to expand at a slightly slower pace compared to Jun.
• The report follows the Markit manufacturing PMI which hit the highest reading since the start of the year covering the same period.
• “having signalled the sector’s worst performance for over six years in Q2, contributing to a sluggishness in the economy that was later seen in the soft GDP numbers, the improvement in Jul suggests that manufacturers and exporters will have helped lift the economy at the start of Q3,” Markit wrote in its report.
Date Index Period Actual Expected (Bloomberg) Previous
Monday ISM Manufacturing PMI Jul 52.9 52.9 53.2
ISM New Orders Jul 56.9 57.0
Tuesday Personal Spending Jun 0.3%mom 0.2%mom
PCE Jun 0.2%mom/0.9%yoy 0.2%mom/0.9%yoy
PCE Core Jun 0.1%mom/1.6%yoy 0.2%mom/1.6%yoy
Wednesday ISM Services PMI Jul 56.0 56.5
ADP Employment Change Jul 170k 172k
Thursday Weekly Jobless Claims Jul 265k 266k
Factory Orders Jun -1.9%mom -1.0%mom
Friday NFPs Jun 175k 287k
Unemployment Rate 4.8% 4.9%
Av Hourly Earnings 0.2%mom/2.6%yoy 0.1%mom/2.6%yoy
Source: Bloomberg
Japan – The government is set to announce a ¥4.6tn ($45bn) in extra spending for this fiscal year in an effort to accelerate economic growth.
• The amount is a part of larger ¥13.5tn budget targeted at a number of fiscal projects including infrastructure (¥6.2tn), demographics programme (¥3.4tn), rehabilitation post natural disasters budget (¥2.7tn) and help to smaller companies (¥1.3tn).
• Based on the market reaction, investors hoped for a larger stimulus as the benchmark index closed lower on the day (Topix -1.6%) while the yen strengthened against the US$ (-0.7%).
Australia – In line with expectations, the RBA has brought down the benchmark rate by 25bp to 1.5% today in a second rate move for this year.
• The A$ was down 1% following the announcement but has recovered most of its losses since then.
• The move is attributed to stubbornly weak inflation with the core estimate coming in at 1.5%yoy in the three months to Jun versus the RBA target of 2-3%.
• “In Australia, recent data suggest that overall growth is continuing at a moderate pace, despite a very large decline in business investment,” the statement read.
• “Other areas of domestic demand, as well as exports, have been expanding at a pace at or above trend.”
Commodity News
LME stock levels
• Copper stocks fall 425t to 209,650
• Aluminium down 9,250 to 2,284,550
• Zinc falls 50t to 431,150
• Nickel stocks tumble 204t to 372,750
• Tin falls 10t to 5,530
• Lead stocks remain unchanged 187,075
Precious metals:
Gold US$1,359/oz vs US$1,349/oz last week –
Gold ETFs 64.8moz v 64.5moz last week – ETF buying continues
Platinum US$1,165/oz vs US$1,150/oz last week
Palladium US$715/oz vs US$713/oz last week – China petrol car sales reported to be driving palladium prices
Silver US$20.58/oz vs US$20.50/oz last week
Base metals:
Copper US$ 4,881/t vs US$4,950/t last week –
Aluminium US$ 1,639/t vs US$1,657t last week –
Nickel US$ 10,825/t vs US$10,720/t last week –
Zinc US$ 2,274/t vs US$2,270/t last week –
Lead US$ 1,822/t vs US$1,844/t last week
Tin US$ 17,865/t vs US$17,945/t last week –
Energy:
Oil US$42.2/bbl vs US$43.1/bbl last week
Natural Gas US$2.788/mmbtu vs US$2.834/mmbtu last week –
Uranium US$26.25/lb vs US$26.00/lb last week –
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$58.2/t vs US$55.5/t – China iron ore futures surge as investors and traders continue to drive market.
• Spot iron ore (62%) traded in Qingdao hit $US62/t on Monday
Steel –
• .
Thermal coal (1st year forward cif ARA) US$61.8/t vs US$61.8/t last week –
Other:
Tungsten - APT European prices $180-190/mtu vs $175-185/mtu on last week –
Company News
Anglo American (LON:AAL) 826 pence, Mkt Cap £10.7bn – De Beers reports positive sentiment from diamond customers.
• Anglo American reports that the sixth diamond sale of 2016 by its De Beers group realised US$520m.
• The sales are somewhat lower than the US$564m raised at the 5th sale and the $636m realised in the fourth sale, but the company comments that “This is an encouraging sales performance for this point in the year, supported by positive sentiment from our customers. We maintain a cautious outlook for the remainder of 2016."
• We estimate that this brings De Beers’ total realisations from diamond sales so far this year to over US$3.5bn compared to the US$4.67bn reported for the calendar year 2015.
Beowulf Mining (LON:BEM) 4.3 pence, Mkt Cap £20.4m –Graphite zones identified in eastern Finland.
• Beowulf Mining reports that it has completed initial geological work at its Haapamäki and Puppimaki graphite projects located in eastern Finland approximately 40km from Outokumpu.
• A geophysical, electromagnetic survey at Haapamaki, has identified a large conductive zone of around 5 km length and extending up to 400m wide which contains outcrops of graphite including coarse flake graphite up to 1-2mm in size.
• The area is known to contain historic graphite workings and the company is planning a programme of mapping, trenching, sampling and metallurgical testing to identify any suitable targets for follow-up drilling.
• At Piippumaki, the company has identified two conductive zones considered prospective for graphite mineralisation over a strike length of approximately 2 km and widths of up t 60m. Samples are currently awaiting analysis which we expect to guide management’s follow up exploration.
Conclusion: Beowulf Mining announced the acquisition of Finnish graphite exploration interests in January this year and with progress at the Kallak North project in Sweden slower than hoped, it is encouraging to see that the company has moved swiftly to progress these new project. We look forward to future progress reports.
Metal Tiger (LON:MTR) 3.5 pence, Mkt Cap £19.7m – Drilling at T3 expands central high grade mineralisation into the western part of the deposit
• Metal Tiger’s partner on its 30% owned T3 copper silver project in Botswana has announced a further tranche of drilling results over “significant widths of copper and silver mineralisation in [the] western part of [the] T3 resource area.”
• “Wide intersections in MO-G-24D (32.6m @ 1.6% Cu and 22g/t Ag from 146m down hole) and MO-G-25D (45.3m @ 2.0% Cu and 36g/t Ag from 131m down hole) and previously announced MO-G-20D (20m @ 3.2% Cu and 77g/t Ag from 130m down hole) now appear to extend the central footprint of higher grade mineralisation into the western part of the deposit.”
• Among the drilling results reported today are 6.3m averaging 1.9% copper and 16 g/t silver from a depth of 159m in hole MO-G-23D; 32.6m averaging 1.6% copper and 22 g/t silver from 146m and 4.5m averaging 3.3% copper and 53 g/t silver from 184.5m in hole MO-G-24D and 45.3m averaging 2.0% copper and 36 g/t silver and 237 ppm molybdenum from a depth of 131m in hole MO-G-25D.
• Six drill rigs, including 4 diamond core rigs, are currently operating on the T3 prospect area to evaluate the “Phase One” resource area and testing extensions to the mineralisation.
• There are currently 12 drill holes currently awaiting assay results and, according to MOD Resources’ Managing Director, Julian Hanna, these, coupled with the remaining planned holes, “may provide further support for this interpretation of a wide, high core extending at least 700m along the deposit which remains open along strike.”
Conclusion: The drilling at T3 is hitting wide, high grade intersections of copper and silver and more recently molybdenum across an extensive area. The extent of the mineralisation, which in some holes appears to occur in multiple horizons has yet to be closed off and we look forward to further results as they become available.
Rio Tinto (LON:RIO) 2434p, Mkt Cap £45.4bn – Expect Rio to report improvement in earnings on H2 2015
• Rio Tinto are due to publish results tomorrow morning.
• We expect the figures to improve on H2 2015 through the numbers will be significantly lower year-on-year
• We are looking to see significant benefits from lower input costs and rationalisation feeding through.
• Mining companies suffer much when prices fall, as provisional pricing, writedowns and many other issues conspire to help their results lower.
• Equally, these factors can come together to help profits go better on the recovery.
• For example as iron ore and coal prices fell so did the Australian dollar enabling the company to achieve a lower cost base.
• Oil prices are also much lower enabling miners to save a significantly on fuel costs and in some cases power generation costs.
• Costs: mining companies tend to run for growth or for profit. No matter how big they are they still seem to run this way, the exception was Xstrata, now part of Glencore. The race for growth costs buckets but nobody seems to mind the loss of cost control in a rising price environment, while a return to cost cutting always seems to achieve multi-billion dollar cost savings – every time!
• Rio Tinto and its peers have been put under very significant pressure to cut costs and to run leaner balance sheets, we expect the group to achieve very significant cost savings while paying down debt.
• Production: Rio Tinto did rather well in their Q2 and H1 production report with increased levels of output across all product divisions except for hard coking coal and titanium dioxide slag, which hardly feature against the scale of the iron ore and copper businesses.
• Rio increased production of iron ore by 8% in Q2 and 10% in H1 to 161mt which helps sales and should cut unit costs.
• Bauxite, alumina, aluminium performed similarly well though diamonds and copper may struggle to perform as well.
• Question is will Rio Tinto maintain the interim dividend? We think they should as the outlook is improving for and as investors are increasing looking for yield.
Conclusion: Normally traders sell Rio Tinto shares on the eve of the results. This time it might be an idea to wait to see what improvement has been made to the bottom line based on cost cutting and other cost benefits.
Solgold* (LON:SOLG) 5.5p, Mkt Cap £52.5m – Revision to Term Sheet for Private Placement
• SolGold reports that it has agreed revised terms for the previously announced private placement with Maxit Capital.
• Maxit Capital is a corporate advisory and merchant banking firm based in Canada.
• The group has now agreed to subscribe for 268.8m shares at US$0.08/share to raise US$21.5m with an option for up to a further US$15m taking the total to a maximum of US$36.5m.
• “The US$0.08 price represents a 97% premium to the Company’s closing mid-market share price prior to the initial announcement of the Maxit private placement and a 28.9% premium to the latest closing mid-market price on Friday 29 July 2016”.
• The revised agreement is a substantial increase on the previously announced terms which had been for Maxit to subscribe for US$20m of Solgold’s shares. Similar terms, in respect of the 6% fee due to Maxit Capital and the issue of warrants equivalent to a further 6% announced in the original statement also apply under the revised terms.
• Executive Director, Nick Mather, commented that the additional funds will enable Solgold to undertake “aggressive drill testing of the other seven priority targets in the Cascabel cluster, and the definition of a maiden resource at Alpala.”
Conclusion: The revised terms agreed with Maxit Capital should provide Solgold with the financial capacity to accelerate its exploration at Cascabel significantly. The ability to investigate the priority targets, some of which show a larger surface expression than the Alpala target which has received most of the exploratory work to date, enables Solgold to plan an exploration campaign which gives a more detailed view of the full scale of the Cascabel licence area. A maiden resource for the Alpala prospect will provide investors with a quantifiable benchmark against which they can assess the value of the wider licence area.