Solgold* (LON:SOLG) – “advanced negotiations for the potential participation of a major international gold mining company”
Bellzone Mining (LON:BZM) – Conceptual breakeven price exceeds ferronickel price for Kalia project in Guinea
Metal Tiger (LON:MTR) – New license application for Logrosan gold and tungsten jv in Spain
Iron ore prices pull back as on reports that China might pull back on easier monetary policy
• China appears to be focussing on managing risk in its finance and banking sector and may move to limit liquidity as it forces lending institutions to limit their activity and clean up their loan books.
• The move may be part of the government’s drive to cut surplus capacity in mines and the steel and other conversion industries.
US takes on Europe over tax loopholes ahead of EU ruling on Apple tax probe
• The EU is finally waking up to the massive, blatant and probably legal abuse of Europe’s tax loopholes.
• It will be interesting to hear Mr Junkers thoughts on all this as the architect of Luxembourg’s interesting tax system.
• It is claimed that Jean-Claude Junkers, President of the European Commission secured a confidential deal from the local Luxembourg tax office working with the group as a form of business partner.
• EU commission investigators reckoned the 2003 deal with Luxembourg which has been used by Amazon for many years is so generous it is tantamount to state aid.
Dow Jones Industrials -0.35% at 18,481
Nikkei 225 -0.25% at 16,556
HK Hang Seng +0.03% at 22,827
Shanghai Composite -0.57% at 3,068
FTSE 350 Mining -1.99% at 11,445
AIM Basic Resources +0.32% at 2,466
Economic News
European equities are off following weak sessions in Asia and the US with miners posting new losses as copper and gold prices hover around multi-week lows.
• Brent is flat trading close to a one week low on the back of reports of an unexpected increase in US stockpiles.
• The US$ index has pulled back slightly following a four-day winning run fuelled by hawkish comments by Fed officials.
• Healthcare stocks were among the heaviest hit in the US yesterday as Hilary Clinton critiqued a rapid increase in prices of separate drugs.
• Iron ore futures recorded a 2.9% drop and currently trade at CNY442/t ($67/t).
US – Existing home sales posted the first decline since Feb last month while inventories of available properties fell for a 14th straight month (-5.8%yoy) and prices posted an increase (5.3%yoy).
• Current stock of homes stands at 4.7 months of purchases with everything under five months considered as a tight market.
• Despite a pullback, estimates are for the market to post another solid year for existing home sales led by gains in a labour market and close to record low borrowing costs.
Date Index Period Actual Expected (Bloomberg) Previous
Tuesday Markit Manufacturing PMI Aug 52.1 52.6 52.9
New Home Sales Jul (%mom) 12.4 -2.0 3.5
Wednesday Existing Home Sales Jul (%mom) -3.2 -1.1 1.1
Thursday Jobless Claims 265 262
Durable Goods Orders Jul (%mom) 3.4 -3.9
Durable Goods Orders (ex Transport) Jul (%mom) 0.4 -0.4
Capital Goods Orders (ex Air) Jul (%mom) 0.2 0.4
Markit Services PMI Aug 51.8 51.4
Markit Composite Aug 51.8
Friday GDP (Second reading) Q2 (%qoq) 1.1 1.2
Core PCE (Second reading) Q2 (%qoq) 1.7 1.7
Source: Bloomberg
China - Shanghai authorities are looking for a series of measures to cool the local property market.
• Among step discussed are potential restrictions on mortgages and loans to developers to raise supply, Bloomberg reports.
• Authorities are considering raising the down payments to 50% and 70% for first- (from 30%) and second-time buyers.
• The latest report showed Shanghai property prices jumped 27%yoy in Jul with new plots of land for development going for national record prices.
• Smaller cities are reported to have also tried to slowdown increases in housing prices including Nanjin, Jiangsu provincial capital, and Suzhou, a regional manufacturing base, both raising down payment requirements for some buyers of second homes.
Germany – Business confidence came in at the lowest level in six months in Aug as companies consider effects of the Bexit vote on future demand.
• Ifo Business Climate: 106.2 v 108.3 in Jul and 108.5 forecast.
• Ifo Expectations: 112.8 v 114.8 in Jul and 114.9 forecast.
Spain – The nation beat forecasts growing at 0.8%qoq/3.2%yoy in Q2 final despite a political deadlock, final estimates showed.
• This compares to a 0.7%qoq/3.2%yoy growth rate estimated previously and 0.8%qoq/3.4%yoy recorded in Q1/16.
• Stronger business investments, consumer spending and net exports compensated for reduced government expenditures.
• The government expects the economy to grow 2.9% and 2.3% in 2016/17 versus 2.6% posted in 2015. Markets are guiding for a more conservative rate of expansion – 1.5%/2.2%, respectively.
Currencies
US$1.1285/eur vs 1.1293/eur yesterday. Yen 100.37/$ vs 100.17/$. SAr 14.060/$ vs 14.057/$. $1.322/gbp vs $1.322/gbp.
0.762/aud vs 0.763/aud. CNY 6.656/$ vs 6.651/$.
Commodity News
Precious metals:
Gold US$1,326/oz vs US$1,339/oz yesterday
Gold ETFs 65.4moz unch vs 65.3moz yesterday –
Platinum US$1,183/oz vs US$1,106/oz yesterday
Palladium US$687/oz vs US$696/oz yesterday
Silver US$18.65/oz vs US$19.05/oz yesterday
Base metals:
Copper US$ 4,636/t vs US$4,688/t yesterday – copper prices fall on reports of rising inventory levels. LME stock levels rose 9,175t today
Aluminium US$ 1,647/t vs US$1,664/t yesterday
Nickel US$ 9,920/t vs US$10,225/t yesterday –
Zinc US$ 2,274/t vs US$2,303/t yesterday – LME zinc stocks continued to decline falling another 200t today
Lead US$ 1,852/t vs US$1,863/t yesterday
Tin US$ 18,785/t vs US$18,725/t yesterday
Energy:
Oil US$48.9/bbl vs US$49.3/bbl yesterday
Natural Gas US$2.785/mmbtu vs US$2.767/mmbtu yesterday
Uranium US$25.90/lb vs US$25.90/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$60.8/t vs US$60.9/t
Chinese steel rebar 25mm US$404.9/t vs US$406.7/t
Thermal coal (1st year forward cif ARA) US$56.3/t vs US$56.4/t yesterday
Other:
Tungsten - APT European prices vs $185-200/mtu unch vs $190-200/mtu
Company News
Bellzone Mining (LON:BZM) 0.265 pence, Mkt Cap £3.9m – Conceptual breakeven price exceeds ferronickel price for Kalia project in Guinea
• Bellzone Mining today report details of its Kalia ferronickel project in Guinea.
• The report shows a conceptual breakeven price for ferronickel pf $10,617/t which is currently higher than the underlying nickel price.
• Ferronickel fetches a premium for its iron content with better premiums are applied to higher iron content ferronickel or nickel pig iron
• For example Metal Bulletin report that a $200-250/t premium has been agreed for Q3 cif China for 30-35% nickel content.
• We are not entirely sure what the conceptual breakeven price is based on but further study often results in higher capital and operating costs till, in total desperation, someone works out how to make the project more efficient again.
• Given nickel prices are around $9,920/t today then the Kalia project looks marginally uneconomic on these numbers though it may be that Bellzone’s Chinese supporters know more about the closure of other ferronickel concentrate production feeding Chinese plants than we are aware of. Many nickel/iron ore mines have been disrupted in recent years by the closure of mines in Indonesia and the Philippines.
• The proposed plan is for two 1.2MW ferronickel smelters to produce 9,602tpa of Ferronickel though the report does not specify if this is based on the contained nickel, the more valuable bit or the total weight of the concentrate produced most of which is less valuable iron content.
• Capital costs are estimated at a low US$51m indicating there will be relatively little in the way of environmental control and emissions management. This equates to $5,359/tpa for capital intensity.
• “A critical enabler of the Ferronickel Project is the use of Envirosteel Proprietary Limited's small scale Energy Saving Smelters ("ESSs"), marketed exclusively by Tenova Pyromet. This smelting technology enables smelting to take place at Kalia site, allowing Bellzone to export a high-value low-volume product, largely utilising existing transport infrastructure. This should enable Kalia to generate free cash flows that will contribute to the development of the bulk infrastructure required to be built for the exploitation of the iron ore Mineral Resources and Reserves at Kalia.” Their words not ours.
• Kalia has a JORC 2012 indicated and inferred mineral resource of 79.28mt grading 0.59% nickel as published last October.
• The press release comments that “The Ferronickel Project represents a start to iron ore mining at Kalia, ahead of Kalia Project 1 or "KP1", the planned exploitation of the highest grade iron ore at Kalia. The Ferronickel Project has the benefit of stripping the lateritic cap above sections of the iron oxide that will be exploited in KP1 and KP2.” Which makes us wonder if the start of iron ore mining is important in some way to the authorities in Guinea.
• China Sonangol has been funding Bellzone through a wholly owned subsidiary.
Conclusion: Bellzone must be assuming higher nickel prices than we are seeing on our screens as they expect “the first phase of Kalia's development is expected to deliver a positive return on investment on a standalone basis,” If funded to construction this will be the first instance, we can remember, of a project being financed and developed while the underlying commodity price is lower than the stated breakeven price of a project.
The ferronickel project is a precursor to the “the planned development of the large-scale bulk export iron ore mine.”
Bellzone plans to achieve first ferronickel production from Kalia in H1 2018. We hope the nickel price will rise sufficiently by then to support the project.
Metal Tiger (LON:MTR) 4.0 pence, Mkt Cap £22.6m – New license application for Logrosan gold and tungsten jv in Spain
• Metal Tiger report their Lagrosan gold and tungsten joint venture has lodged and application for a new exploration license at ‘San Cristobal Sur’ in Spain.
• The field teams are set to resume work on 4th September at site.
Conclusion: It’s good to see Metal Tiger’s team so busy on a number of fronts. Spain has become a more supportive mining jurisdiction in recent years with a number of new mines in permitting and under construction.
Solgold* (LON:SOLG) 6.8p, Mkt Cap £64.4m – “advanced negotiations for the potential participation of a major international gold mining company”
• SolGold report the company is in “advanced negotiations for the potential participation of a major international gold mining company in SolGold's capital raising initiatives, and the Company hopes to be able to update the market further on these developments shortly.”
• The company has previously reported that is in the process of raising funds for further exploration of the Cascabel copper project in Ecuador.
• The company is looking at a total placement of $36.5 including a second tranche of $15m to other investors.
*SP Angel acts as Nomad and Broker to SolGold. An SP Angel analyst visited the Cascabel project.