Commodities
Diamonds and precious stones
We are firmly in the quiet times now, but all credit to DB, the July sight raised a creditable $520m (vs. c $300m last year) overall the value fell slightly but the company, as previously noted, remains cautious. As do we.
Rappaport announced lower polished prices in July, down between 0.5% and 1.8% for the month. Reasons given range from holidays to increasing supply (as the goods acquired earlier in the year reach the end of the pipe…
Gaucho Kué commissioning announcement this week. The mine is expected to ramp up to reach full commercial production in Q1 2017, producing an average of 4.5M carats per year over its anticipated 13-year life.
Finally, my thoughts are with the family and friends of Bob Gannicott today. A larger than life character that will be sorely missed.
Precious metals
This week has undeniably belonged to the bears given the actions of the Japanese, Australian and our very own Central Bank, but could the economic bulls snatch an unlikely victory at the weekly finishing line with the US joining the data party later today? Seems the majority are expecting a rather weak print after the GDP miss and a particularly bad number could see the yellow metal threaten $1,400/oz, conversely a better than expected number…
37% change of a rate rise by year end, expect that to change before last orders.
Away from the short term shenanigans, the continued communication around the efficacy of the BOJ’s policies and for that matter, all zero-bound (or accomdative) Central Bank policies, is surely just increasing the potential for central banks to unwittingly walk us into another financial crisis a la 2007/8? One could argue that this particular outcome may just be a better bet than Leicester were to win the Premier League last year.
Not good.
Bulk commodities:
Rio Tinto: Additional 10Mtpa $338m Silvergrass project development (one of our longer term bear risks to prices)
H1 Pilbara unit costs $14.3/t from $16.20/t.
Spot prices c$60/t
Enough said.
At least they are not going ahead with Simandou.
Base metals:
The base metal complex has pretty much been all about the resurgence in zinc, tin and nickel so far in 2016, and very little about the rest (mainly as they have been as exciting as watching paint dry). Well, this week a couple of articles and comments on the copper market gently piqued my interest in the red metal once more. Sadly not in a positive way though.
As you will no doubt remember my comments back at the end of April discussing the moderating demand from China and increasing output from Peru which could keep a lid on pricing for some time etc ie demand at 1.8% supply growth at 4%.
This week saw the Chilean Copper Commission (what do you mean, “who are Cochilco?”) publish a study on the ever improving efficiencies at the world’s largest production centre (just under 30% of global production). Whilst production disruptions this year have been lower than average it’s the conclusion that at the country’s top 19 mines (top five equal to 15% of global production) now produce copper for less than $1/lb ($2.06/lb on the screen today) down over 13% in a year.
In a telling statement Cochilco considered the fall in output costs, improving mine management, lower costs for electricity, transport and treatment & refining charges by smelters, but considering the well-established trends of falling grades, increasing water costs etc. the decline in costs looks all the more impressive.
Oh, Cochilco has a price forecast for 2016 of $2.15 a pound ($4,740 a tonne) rising only slightly to $2.20 next year ($4,850). That compares to a 2015 average of $2.49 or $5,490.
Supply cuts to support pricing… not it seems, for some time yet.
Yikes, could Goldmine’s turn out to be right on this one?
Company announcements/news/meetings:
Many more company updates coming next week still going through model updates etc.
Lucapa Diamond Co, (Buy)
The Lucapa story continues to get better and better.. from Wednesday: “Lucapa has today announced exceptional operational results from the Lulo operation in July. Record production in the month has been driven by both plant and machine upgrades and also exceptional grades at Mining Block 8. Exploration activities are also yielding better than expected results with the programme now being accelerated. We reiterate our Buy recommendation”
Gemfields, (Buy)
Solid update at the start of the week as ruby production certainly beat my expectations.
Spent quite a bit of time with the company this week running through my forecasts and frankly everything seems fine. It goes without saying the consumption of cash is set to rise, but given the new debt facilities, that is not exactly new news.
I am still a fan and given the recent pick up in interest in this name, it feels a recovery in the price could be just around the corner…
Randgold Resources, (Downgrade to Hold)
From yesterday: “Randgold has today announced Q2 results that were below our expectations. Plant downtime at Tongon and the continued transition to mixed-ore feed at Kibali served to disappoint. Following the near 40% gain since we upgraded our recommendation to Buy, immediately after the referendum outcome, we now struggle to see significant upside ahead from the current market valuation. As such, we now move to a Hold recommendation”.
What can I say, stock up over 100% this year, no harm in taking profits. In my view they will do very well to meet, let alone beat, market forecasts – well at least the ones from the start of the year anyway.
Results meeting was probably the most embarrassing example of unctuous behaviour I have heard for some time. (Except for one brave soul, who can expect one less Christmas card this year). At least I don’t think management was thanked for publishing results this time, fair to say I didn’t listen to the US call though…