FTSE is up 37 points (+0.5%) with both energy and mining stocks posting gains on a fall in inventories reports and better than forecast China trade data.
• Crude prices strengthened for a third day now as the API report showed oil stocks dropped by 12.1mmbbl in the US last week.
• Gold is up slightly as markets are waiting for the ECB announcement with some expecting an extension to the QE programme past the Mar/17 deadline.
• Nickel is the top performer of all base metals today (+$110/t/+1.1%) with the rest either being flat or down.
• Iron ore futures continued to slide having lost around 4% since start of the year.
Dow Jones Industrials -0.06% at 18,526
Nikkei 225 -0.32% at 16,959
HK Hang Seng +0.75% at 23,919
Shanghai Composite +0.13% at 3,096
FTSE 350 Mining +0.83% at 11,547 FTSE 350 +57% since 1st January
AIM Basic Resources +1.46% at 2,438 AIM Basic Resources +49% since 1st January
Date Index Period Actual Est Previous
Tuesday ISM Services PMI Aug 51.4 55 56.5
Wednesday JOLTS Job Openings Jul 5,871 5,630 5,643
US Fed Beige Book
Thursday Weekly Jobless Claims 265.0 263.0
China – Trade data exceed market estimates with a decline in exports slowing down while imports recorded the first increase in nearly two years(both in US$ terms).
• Exports: -2.8%yoy v -4.4%yoy in Jul and -4.0%yoy forecast.
• Imports: 1.5%yoy v -12.5%yoy in Jul and -5.4%yoy forecast.
• External demand improved in major export destinations including the US (-0.2%yoy v -2.0%yoy in Jul) and the EU (2.4%yoy v -3.2%yoy in Jul).
Japan – Q2 GDP numbers have been revised upwards suggesting the economy has done better than initially estimated.
• GDP: 0.7%qoq (annualised) in Q2/16 v 0.2%qoq estimated previously and 2.1%qoq in Q1/16.
• Adjustments included upward revisions to private (-0.1%qoq v -0.4%qoq) and public (2.6%qoq v 2.3%qoq) investment and private inventories (0.1%qoq v 0.0%qoq); whereas, government spending was revised down (0.1%qoq v 0.2%qoq).
• Consumer spending was left unchanged at 0.6%qoq.
• The yen fell slightly following the release of the news, but has resumed its upwards move trading 0.2% stronger today and on track for a fourth consecutive session of gains.
ECB – Draghi will be holding a press conference later today with estimates for rates and the pace of QE programme to remain unchanged.
• QE pace is currently held at €80bn of purchases per month with the programme expected to finish in the end of Mar/17.
• In addition to a monetary policy statement, the ECB will be releasing updated economic and inflation estimates.
• Latest estimates released in Jun guided for real GDP growth of 1.6% and 1.7% in 2016/17 with inflation to average 0.2% this year and accelerate to 1.3% next year.
• “The economic recovery in the euro area is expected to continue, supported by the ECB’s accommodative monetary policy stance, low oil prices, improving labour market conditions and some fiscal easing in 2016,” ECB said in Jun.
• “At the same time, the drag from weak export growth is projected to fade, thanks to the expected gradual recovery of global trade.”
• Market estimates for a slightly lower growth rates through 2016/17 (1.5%/1.2%).
US$1.1273/eur vs 1.1245/eur yesterday. Yen 101.55/$ vs 101.53/$. SAr 13.953/$ vs 14.992/$. $1.336/gbp vs $1.341/gbp.
0.772/aud vs 0.766/aud. CNY 6.664/$ vs 6.664/$.
Gold US$1,348/oz vs US$1,349/oz yesterday –
Gold ETFs 65.3moz unch vs 65.3moz yesterday
Platinum US$1,094/oz vs US$1,098/oz yesterday
Palladium US$696/oz vs US$699/oz yesterday
Silver US$19.91/oz vs US$19.92/oz yesterday
Copper US$ 4,653/t vs US$4,672/t yesterday –
Aluminium US$ 1,587/t vs US$1,592/t yesterday
Nickel US$ 10,330/t vs US$10,165/t yesterday –
Zinc US$ 2,298/t vs US$2,336/t yesterday
Lead US$ 1,906/t vs US$1,953/t yesterday
Tin US$ 19,580/t vs US$19,410/t yesterday
Oil US$48.8/bbl vs US$47.8/bbl yesterday
Natural Gas US$2.698/mmbtu vs US$2.704/mmbtu yesterday
Uranium US$25.65/lb vs US$25.65/lb yesterday
Iron ore 62% Fe spot (cfr Tianjin) US$54.9/t vs US$55.2/t – Stronger steel exports through the year led demand for iron ore higher with imports hitting 669.7mt, up 9.3%yoy, in the first eight months of the year.
• Aug shipments recorded the second largest level since the start of the year (87.7mt v 88.4mt in Jul and 74.1mt last year).
Steel rebar, China 25mm US$396.9/t vs US$400.8/t – Chinese steel exports slowed climbing at the lowest rate since Feb in Aug; although, YTD shipments were running at the highest pace on record.
• Shipments dropped to 9mt in Aug, down from 10.3mt in Jul and 9.7mt last year.
• YTD deliveries totalled 76.4mt, up 6.3%yoy.
Thermal coal (1st year forward cif ARA) US$57.8/t vs US$58.3/t yesterday -
Coking coal prices $158.4/t vs $158.4/t FOB Australia for Premium Hard Coking Coal (The Steel Index) –
• Coking coal prices stabalise following Panic buying
• Coking coal prices are now 103% higher than on 1st January
• China is limiting domestic coal mines to production on no more than 276 days per annum which is worrying local consumers.
• Speculators are thought to be driving spot prices higher in relatively thin trading markets as consumers search for new sources of supply.
• Problem is that so many coal producers have cut back or gone to the wall particularly in the US that it is not so easy to turn production back on.
• The few investors, like Taurus Funds and Stanmore Coal who were brave enough to buy into struggling coking coal mines last year are now making multiple returns as coking coal prices rise to new levels.
Tungsten - APT European prices vs $180-200/mtu unch vs $185-200/mtu two weeks ago
Aurum Mining (LON:AUR)* 1.1p, mkt cap £1.53m – Chris Eadie back on board
• Chris Eadie, formerly ceo at Aurum Mining, is rejoining the board.
• Chris is to assist with the ongoing transformation of the company and to take a strategic view of the remaining mining assets.
• Aurum holds a number of gold licenses in Salamanca in Spain in joint venture with Ormonde Mining and retains a 20% stake in the Morille tungsten project where it sold a majority stake to Plymouth Minerals.
• Plymouth Minerals appears more focused on lithium and potash than on the prospects of lowly-priced tungsten
• Plymouth’s lithium project is in Spain with work ongoing to convert historic drilling into a new JORC resource. The potash project in Gabon is reported to be drill tested, high grade and shallow with excellent development potential and located near existing transport infrastructure.
• Funding: Aurum holds very limited funds with the company raising £257,500 at 1p/s in April this year
• Haresh Kanabar, is stepping down from Aurum Mining at the next AGM on 29 September
Conclusion: It will be interesting to see the next direction for Aurum under the direction of the Dynamic Duo, David Williams and Chris Eadie
*SP Angel analysts have visited the Aurum gold and tungsten sites.
Metals Exploration* (LON:MTL) 5.5p, Mkt Cap £99.4m – US$6.4m equity raising at 5p/s
• Metals Exploration have commitments for $6.4m of funding at five pence per share.
• The funds are being raised as the company’s debt restructuring process is taking longer than expected due to delays in realising revenue for the project.
• The team expect to complete the debt restructuring this month with realigned deliverables to better enable the company to meet its financial obligations.
• The company was due to repay $15m on 30 June but has paid around $161,000 in interest to date.
• The mine received its ISO14001 accreditation in the Philippines on 23 August and should now be able to start the process of shipping its first gold production.
• The company reported ore milling started in July at the Runruno gold mine and the project is now expected to ramp up to design specifications in the next two to three months.
• The equity raising enlarges the company’s share capital to 1,904,436,469 shares.
Conclusion: Commissioning is always a tricky time for miners as maximum funds are depleted ahead of incoming cash flow. It is not unusual for lenders to be asked to extend payment terms with delayed repayments and it is normally in the lenders best interests to allow some flexibility when the start of cash flow is delayed
*SP Angel act as Broker to Metals Exploration
Metminco* (LON:MNC) 0.18 pence, Mkt Cap £7.0m –Miraflores Mining Study
• Metminco has announced the results of the Miraflores mining study recently completed by the company’s consultants, SRK.
• The study completed a number of outstanding items which the previous owners of the project, Seafield Resources, had been unable to finish prior to entering administration, and has refocussed the development plan to a solely underground mining strategy in preference to the earlier plan to develop a combination of open pit and underground operations.
• The revised project plan envisages mining approximately 4m tonnes of ore at an average grade of approximately 3.5 g/t gold and 2.8 g/t silver over a period of 8 years to produce approximately 50,000 oz of gold per year at an operating cost of US$595/oz and an all in sustaining cost of US$648/oz.
• The project requires initial capital investment of US$81m and a life-of-mine sustaining capital expenditure of US$17m to generate an IRR of 26% and an after tax NPV of US$73.4m discounted at 8% using a life of mine gold price of US$1300/oz.
• The major item of capital expenditure is US$38 to develop the processing plant.
• One of the important advantages of the underground mining approach is that the waste tailings material can be used as backfill underground thereby substantially reducing the surface footprint of the operation with clear benefits to the environmental impact of the overall project.
• The plan, as currently envisaged will require approximately 18 months of pre-production development and is expected to pay-back in approximately 2.8 years.
Conclusion: The development of the Miraflores project provides Metminco with a relatively short term route to production and cashflow and the new underground plans are minimising the environmental impact which in our opinion, should help to allay any environmental concerns and expedite the approval process.