Aston Bay Holdings (CVE:BAY) – BHP Billiton joint venture agreement meets conditions precedent
FinnAust Mining* (LON:FAM) – Blistering Barnacles and Wintering Walruses as Environmental study is approved
Horizonte Minerals (LON:HZM) – Completes acquisition of Glencore licences at the Araguaia nickel project
Rio Tinto (LON:RIO) – Solid result but management advise caution over H2 global economic growth
Solgold* (LON:SOLG) – Revision to Term Sheet for Private Placement
Titanium gold alloy has 4x tensile strength of pure commercial titanium metal
• The new alloy is made by melting titanium and gold powders highlighting the potential for more alloys to come from the melting of powders. With the use of metal powders we wonder if the metal may be fused into its alloy in the 3D printing process?
• Problem with this news is that commercial titanium metal is not nearly as strong as Grade 5 titanium alloy which is the most commonly used.
• We suspect the process of simply melting metal powders together could result in a number of new alloys and we hope the processes for producing metal powders will also come down in complexity and cost to enable the commercial application of these new alloys.
• See Metalysis, a private UK company which is building another pilot plant to trial a further iteration of its metal powder production process. Metalysis is backed by Illuka, the Australian Illmenite (titanium mineral sands) company and more recently by Neil Woodford’s new fund. SP Angel analysts have previously visited the Metalysis R&D operations.
Dow Jones Industrials -0. 49% At 18,314
Nikkei 225 -1.88% At 16,083
HK Hang Seng -1.76% At 21,739
Shanghai Composite +0.24% At 2,978
FTSE 350 Mining -0.09% At 11,643
AIM Basic Resources +0.37% At 2,276 – 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
European equities are relatively flat this morning helped by gains in financials after posting heavy losses in the previous session.
• Base metals are off on the back of stronger US$ while Brent prices are seen recovering from multi-months low recorded yesterday as weekly US data showed crude inventories declined.
• Gold ETFs holdings expanded for a fifth consecutive day following higher gold prices as investors bought the precious metal amid a sell-off in lenders shares on the back of concerns over future earnings growth and low economic growth.
• The Euro Stoxx Banks index is up 2% today after having recorded a 8% decline over Monday and Tuesday.
• Iron ore futures on Dalian Commodity Exchange fell for a second day having previously hit the highest level in 17 months on reports of the strongest monthly increase in stockpiles in 2016.
US – Private consumption growth picked in Jun while personal income came in lower than forecast.
• Spending is reported to have benefited from steady labour market, low inflation and cheap borrowing rates.
• Consumption was led by a rebound in spending on durable goods (+0.4%mom) and services (+0.3%mom).
• A separate report showed inflation failed to accelerate through Jun running at an unchanged pace of 0.9%yoy/1.6%yoy(core).
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 0.4%mom 0.3%mom 0.2%mom
Personal Income Jun 0.2%mom 0.3%mom 0.2%mom
PCE Jun 0.1%mom/0.9%yoy 0.2%mom/0.9%yoy 0.2%mom/0.9%yoy
PCE Core Jun 0.1%mom/1.6%yoy 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
China – The PBoC should ease further while the government needs to step up proactive fiscal policy helping to stimulate the economy and spending, the National Development and Reform Commission.
• On a separate, note the government sold CNY 35bn ($5.3bn) of 10 year sovereign bonds at a coupon of 2.74%, the lowest interest in at least 12 years.
• Additionally, the Ministry of Finance placed one year dent at a coupon rate of 2.14% yesterday.
Eurozone – Germany leads a modest increase in the services sector growth in the Eurozone.
• Markit Eurozone Services PMI: 52.9 in Jul v 52.8 in Jun and 52.7 estimated previously.
• Germany: 54.4 in Jul v 53.7 in Jun and 54.6 estimated previously.
• France: 50.5 in Jul v 49.9 in Jun and 50.3 estimated previously.
• On a composite PMI index (manufacturing and services), “although the latest data signalled a solid and steady pace of expansion, national data suggested that the upturn was uneven by nation,” Markit said.
• “Growth was primarily driven by an acceleration rate of output expansion in Germany, the fastest during the year-to-date.”
• “Rates of growth moderated in Italy and Spain, whereas France continued to hover around the stagnation mark.”
UK – The BoE may decide to cut rates to 0.1% tomorrow to avert the economy falling into a recession, according to the National Institute for Economic and Social Research.
• The Niesr expects growth to come down to 1.7% in 2016 and 1.0% in 2017, down from 2.2% recorded in 2015.
• 50 of 52 economists surveyed by Bloomberg forecast key rates to be brought lower following the MPC meeting on Thursday with the majority guiding for a 25bp cut.
Currencies
US$1.1194/eur vs 1.1163/eur last week. Yen 101.10/$ vs 102.26/$. SAr 14.046/$ vs 13.811/$ $1.334/gbp vs $1.319/gbp.
0.759/aud vs 0.758/aud. CNY 6.630/$ vs 6.641/$.
Commodity News
Precious metals:
Gold US$1,364/oz vs US$1,359/oz last week – Vale sold a 25% share of its gold stream from the Salobo copper mine over the life of the mine to Silver Wheaton for $800m in cash with approximately $23m gain in option value due to a reduction of the exercise price on warrants issued to Vale.
• This takes the total Silver Wheaton share of Salobo gold production to 75%.
• Salobo is ramping up and is expected to reach capacity later this year with an average gold production of 300kozpa over the next five years.
• Under the agreement, Silver Wheaton will be paying the lesser of $400/oz and the prevailing market price for its share of production.
Gold ETFs 65.1moz v 64.8moz last week – ETFs see increased buying as 300,000oz added to ETF since yesterday
Platinum US$1,160/oz vs US$1,165/oz last week
Palladium US$707/oz vs US$715/oz last week – China petrol car sales reported to be driving palladium prices
Silver US$20.64/oz vs US$20.58/oz last week
Base metals:
Copper US$ 4,873/t vs US$4,881/t last week – TC/RC climb in China on increased supply of concentrates, Bloomberg reports.
• Jul charges came in at $105/10.5c, respectively, up 2% from the previous month.
Aluminium US$ 1,619/t vs US$1,639t last week –
Nickel US$ 10,665/t vs US$10,825/t last week –
Zinc US$ 2,254/t vs US$2,274/t last week –
Lead US$ 1,810/t vs US$1,822/t last week
Tin US$ 17,950/t vs US$17,865/t last week –
Energy:
Oil US$42.1/bbl vs US$42.2/bbl last week
Natural Gas US$2.730/mmbtu vs US$2.788/mmbtu last week –
Uranium US$26.65/lb vs US$26.25/lb last week –
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$58.3/t vs US$58.2/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 – Rebar (China, grade III)– US$390/t vs US$391/t yesterday
• We are adding the price for Chinese rebar as we believe rebar prices are driving iron ore prices at present
Thermal coal (1st year forward cif ARA) US$60.3/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
Aston Bay Holdings (CVE:BAY) 0.44c/s, Mkt cap C$24.1m – BHP Billiton joint venture agreement meets conditions precedent
(75% BHP Billiton, 25% Aston Bay after option exercise)
• Aston Bay Holdings reports that all conditions precedent have been completed in the option agreement between Aston Bay and the BHP Billiton’s Canadian subsidiary relating to the jv on the Storm Copper project in Nanavut in Canada.
See https://astonbayholdings.com/storm-copper for more information on the Storm project.
Conclusion: Aston Bay in joint venture with BHP is drilling one of the most prospective and interesting copper projects in the world. We are travelling to see the project later this month to view progress being made at the site. We hope to see evidence indicating potential substantial tonnages higher grade copper ore.
FinnAust Mining* (LON:FAM) 5.1p, mkt Cap £25.3m – Blistering Barnacles and Wintering Walruses as Environmental study is approved
• FinnAust Mining is pushing ahead with exploration and delineation of the Pituffik titanium mineral sands project in Greenland.
• So far reports suggest the project is shaping up well and is heading towards trial mining of a relatively pure and potentially premium ilmenite product.
• Illuka’s recent offer to buy Sierra Rutile indicates to us that demand for titanium mineral sands is rising again after several years of depressed prices and a surplus of supply.
• High iron ore prices in past years caused Chinese smelters to utilise lower cost titanium rich magnetite ores promoting the sale of surplus titanium ore from these types of deposits. Now lower iron ore prices has put an end to much of this higher-cost ore supply causing buyers to return to the market for titanium mineral sands.
• Existing mineral sands producers are watching FinnAust to see how the project shapes up and if new supply from Pituffik might displace their own material within this competitive market place.
• FinnAust management hope that the relative purity of the Pituffik mineral sands might find a premium market within sector.
• The Environmental Programme includes baseline studies and more detailed project-related programmes conducted in consultation with the Greenland Mineral Resources Authority ('MRA') and the MRA's scientific advisors.
• These studies will include offshore licences covered by the Company's new marine exploration licence which will form the bulk of the Environmental Impact Assessment 'EIA' which is currently underway.
• Management expect to deliver a maiden resource later this year.
• A Benthos study is being done to quantify the dominant seabed marine life - namely bivalves and Polychaeta and thereby determine the importance of the area for wintering walruses, which feed on macro benthos (the community of organisms that live on, in, or near the seabed).
* SP Angel acts as nomad and broker to the company
Horizonte Minerals (LON:HZM) 2 pence, Mkt Cap £13.3m – Completes acquisition of Glencore licences at the Araguaia nickel project
• Horizonte Minerals reports that it has completed the acquisition of licences from Glencore at its Araguaia nickel project in Brazil. The transaction was first announced in September last year and today’s announcement confirms the transfer of the last two licences to Horizonte Minerals’ local subsidiary.
• The transfer, which follows registration with the National Department of Mineral Production in Brazil, is effected by the issue of some 50.7m shares in Horizonte at a total purchase price of US$1.34m.
• The newly acquired licences gives Horizonte Minerals “one of the largest nickel saprolite projects globally” and includes the “advanced Serra do Tapa nickel project”.
• The company is currently preparing a pre-feasibility study on the development of Araguaia and expects to complete this phase of work during Q3 2016.
Conclusion: We look forward to the outcome of the pre-feasibility study later this year.
Rio Tinto (LON:RIO) 2430p, Mkt Cap £45.3bn – Solid result but management advise caution over H2 global economic growth
• Rio Tinto reports underlying earnings for the 6 months to 30th June 2016 of US$1.56bn (87 cents/share) a 47% decline compared to H1 2015 (US$2.92bn or 159.1 cents).
• The impact of lower commodity prices reduced earnings by US$1.9bn. Iron ore fines prices was down 14% compared to H1 2015, coking coal and metallurgical coal prices fell by 26% and 19% respectively while copper and aluminium prices fell by 21% and by 13%.
• Net earnings, however, rose to US$1.71bn (2015 US$806m) reflecting, among other factors a turnaround from the US$1.31m negative adjustment as a result of exchange rate adjustments in 2015 to a US$558m positive adjustment.
• The company has declared an interim dividend of 45cents/share (2015 107.5 cents) “consistent with our commitment to no less than 110 US cents per share for the full year.”
• A combination of “strong operating cash flows, tight control over capital expenditure and progress on divestments” leaves the balance sheet in a healthy position with net debt of US$12.9bn leaving gearing comfortably within the company’s stated target range of 20-30% at 23%.
• Cost savings of US$0.6bn during the period helped contribute to free cash flow of US$2.0bn. The company points out that it has managed to strip out US$6.8bn of pre-tax costs through operating cost improvements ad reductions in exploration compared to a 2012 base year.
• Asset disposals of 0.6bn were achieved during H1 2016, with a further US$0.2bn in the pipeline and expected to complete during the second half of 2016, contribute to the balance sheet.
• Looking to the rest of this year, Rio Tinto expecting capital expenditure for 2016 to be around US$4bn rising to US$5.0bn in 2017 and US$5.5bn in 2018 – each year includes around US$2bn of sustaining capital.
• Major projects in the pipeline include the US$338m Silvergrass iron ore project in Australia, and the US$5.3bn Oyu Tolgoi underground copper development in Mongolia. At Escondida, (30% Rio Tinto) a $180m expansion of concentrator capacity by a further 200,000tpa of copper is expected to start delivering concentrate during H1 2017.
• Rio Tinto’s iron-ore business remains dominant, providing 60% of EBITDA (US$3.44bn) and over 80% of underlying earnings (US$1.74bn) although compared to H1 2015, iron ore EBITDA and earnings fell by 14% and by 17% respectively.
• An upturn in the construction sector in China has helped revive iron ore prices somewhat from “below $40 per dry metric tonne (CFR) throughout January, the iron ore price briefly reached above $60 in early April and averaged close to $50 over the first six months of the year.”
• Interestingly, however, Rio Tinto also comment that China imported close to 520m tonnes of iron ore in the first six months of 2016 - a 9% increase on H1 2015 and that Chinese crude steel output is running at an annualised rate of over 850mtpa during the second quarter.
• Commenting on the state of the global economy, Rio Tinto believes that it has been “more resilient than markets had anticipated” and that negative sentiment towards growth in China has stabilised “with GDP growth remaining above six and a half percent” as government stimulus “and a strong credit boost at the start of 2016” has “been successful in reviving a moribund property sector.”
• The company considers that while China’s growth has stabilised “it is on a long transition path of slower and less commodity intensive growth. Meanwhile the global economy seems stuck in a subdued low productivity growth pattern which would indicate that continued caution is required for the second half of 2016.”
Conclusion: Rio Tinto has weathered a difficult H1 characterised by commodity prices weakness and volatility with a strong balance sheet and cash generation.
Although cautious on the global economy China appears to have stabilised albeit on a lower rate of growth than it has achieved historically.
Considering the conditions seen in H2 last year Rio Tinto has recovered well and with a relatively strong balance sheet which sets it apart from some of its peers.
Solgold* (LON:SOLG) 5.7p, Mkt Cap £54.1m – 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 has now agreed to subscribe for 268.8 million 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.
*SP Angel acts as Nomad and Broker to SolGold. An SP Angel analyst visited the Cascabel project.