Avesoro Resources (formerly Aureus Mining) (LON:ASO) – Update on project debt repayment schedule.
Condor Gold (LON:CNR) – Exploration identifies new potential targets in the La India district
Hochschild Mining (LON:HOC) – Protests lead to temporary stoppage at Pallancata
Petropavlovsk* (LON:POG) – FY16 production target revised down to 415-430koz at $700/oz TCC
Precious metals and miners are off this morning on the back of the Fed revising its forecast rates upwards.
The US$ index is up 1.6% trading at above 102 compared to pre Fed announcement levels.
Brent recovered some of its losses posted yesterday hovering above $54/bbl, down from c.$55/bbl recorded on Wednesday.
Capesize freight rates collapse 6% in biggest fall for >8 years
Capesize rates collapsed 6% yesterday on the Baltic Exchange in its biggest single percentage fall in eight years.
Fed rate hike reverses markets
The US Fed hit markets as they were weakening ahead of Christmas with a 0.25% rate hike.
The move was 100% expected BUT the change now is that markets are expecting the Fed to raise rates further than previously forecast.
The Fed board has guided towards ‘three’ Fed rate rises next year with the market now expecting a further three rises in 2018 to take rates to 2.25%.
Policymakers are expecting the Fed to raise rates to 2.9% by end 2019 though the US Treasury’s ability to sustain payments on a 3%ish interest rate for any length of time is questionable unless it is accompanied by significantly better growth rates and taxation receipts.
Given that Donald Trump has pledged to cut taxes and raise infrastructure spending its hard to see how such interest rates might be afforded.
Inflation expectations have lifted since the election of Donald Trump as businesses take a more optimistic view of the US economy.
The Fed also raised their growth projection to 1.9% from 1.8% for 2019.
Fed Rates are expected .
UK rates: we note The Telegraph today which comments on revised market forecasts for the BoE rate following Brexit to fall to 0.1% with rates to remain below 0.25% till late 2019 or 2020 and not making it back past 0.5% till 2021.
Gold and Fed rates – it’s going to be a bumpy road for gold
Gold prices continued to fall as the US dollar strengthened.
While markets 100% anticipated the Fed rate hike the reality still caused the US dollar to rise causing gold prices to continue to slide.
The danger for gold is that further rate rises through 2017 could hold back normal price appreciation and cause gold to weaken further.
Physical demand for gold is likely to rise as investors in weaker currency regions will use gold, copper and other metals to hedge against further US dollar appreciation.
Currency forecasting is notoriously difficult and it may be that the US dollar is already pricing in much its eventual gain.
The flip side is that when the US dollar goes up it affects currencies around the rest of the world. China is likely to allow the renminbi to weaken further and competing nations will need to remain competitive with China.
We do not want to predict a rerun of the Asian Crisis but sudden currency collapse is a very real threat with South Korea looking vulnerable due to political crisis.
These last points are good for gold, so we can but forecast greater volatility and a strategy to buy the dips.
Geologists drilling to 5km in Iceland in search of super-critical ‘steam’
Geologists are heading towards the centre of the earth in Iceland and are expected to reach a depth of 5km any day soon
See BBC news for further info.
Dow Jones Industrials -0.60% at 19,9793
Nikkei 225 +0.10% at 19,274
HK Hang Seng -1.77% at 22,059
Shanghai Composite -0.73% at 3,118
FTSE 350 Mining -2.18% at 14,562 FTSE 350 +98% since 1st January
AIM Basic Resources +0.13% at 2,363 AIM Basic Resources +45% since 1st January
Economic News
US – The FOMC raised rates by 25bp to 0.50-0.75% yesterday and pointed to a faster than previously expected tightening in the 2017/19 period.
The central bank now expects three interest rate increases in 2017, up from two guided for previously.
Updated FOMC rate projections guide for 1.25-1.50% rates by the end of next year, up from 1.0%-1.25% expected before.
The median forecast for 2018 was revised up by 25bp to 2.0-2.25%. 2019 rates projection were brought up to 2.75-3.0%, up from 2.5-2.75%.
The implementation of forecast rate increases continues to be heavily geared to economic conditions as evidenced by a revision in the pace of tightening through 2016. The FOMC guided at least four rate increases over 2016 when the central bank hiked fed funds rate in Dec/15.
Economic growth projections were improved only marginally (2.1% in 2017, up from 2.0%), while inflation remaining on target to hit 2% in 2018.
UK – The pound is off 1.3% against the US$ this morning ahead of the BoE policy announcement due later today.
Expectations are for the BoE to avoid to changes to rates and QE programme.
US inventory levels reduced 0.2% in their biggest fall in a year in October vs forecast of a 0.1% decline
Retail inventories fell 0.4% vs a 0.1% fall in September
Currencies
US$1.0500/eur vs 1.0629/eur yesterday. Yen 117.88/$ vs 115.22/$. SAr 14.073/$ vs 13.675/$. $1.253/gbp vs $1.264/gbp.
0.740/aud vs 0.750/aud. CNY 6.929/$ vs 6.900/$ –
Sterling gains on higher than forecast UK Inflation
Commodity News
Precious metals:
Gold US$1,137/oz vs US$1,161/oz yesterday
Gold ETFs 58.2moz vs 58.9moz yesterday
Platinum US$923/oz vs US$939/oz yesterday
Palladium US$726/oz vs US$730/oz yesterday
Silver US$16.55/oz vs US$17.08/oz yesterday
Base metals:
Copper US$ 5,700/t vs US$5,725/t yesterday
Aluminium US$ 1,737/t vs US$1,737/t yesterday
Nickel US$ 11,395/t vs US$11,460/t yesterday
Zinc US$ 2,802/t vs US$2,734/t yesterday
Lead US$ 2,345/t vs US$2,345/t yesterday
Tin US$ 21,180/t vs US$21,270/t yesterday
Energy:
Oil US$54.4/bbl vs US$55.1/bbl yesterday
Natural Gas US$3.542/mmbtu vs US$3.457/mmbtu yesterday
Uranium US$22.00/lb vs US$19.25/lb yesterday – Surprise jump in price of uranium
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$76.8/t vs US$75.9/t – first significant pullback in iron ore prices for a couple of weeks despite smaller $2/t decline in Chinese iron ore futures
Chinese steel rebar 25mm US$524.6/t vs US$529.6/t – also pulls back
Thermal coal (1st year forward cif ARA) US$66.6/t vs US$64.4/t yesterday
Premium hard coking coal Aus fob US$260.5/t vs US$262.7/t
Other:
Tungsten - APT European prices $182-200/mtu vs $183-195/mtu – price range widens suggesting more poor quality material in the market.
Company News
Avesoro Resources (formerly Aureus Mining) (LON:ASO) 1.6 pence, Mkt Cap £19.3m – Update on project debt repayment schedule.
Avesoro Resources (formerly Aureus Mining) reports that it has made a repayment of US$12.4m of principal plus US$4m of interest on it project debt due on 14th December.
The payment reduces the outstanding project finance debt to US$97.6m.
Avesoro has also been granted a further extension to the default waiver and standstill agreement with Nedbank and First Rand Bank until 30th January in order “to allow additional time to complete due diligence on the guarantee being offered.”
The company adds, however, that “Should these negotiations not result in an amendment to the terms of the Company’s project finance facilities, the Company believes that it will have sufficient cash resources to meet the existing debt repayment schedule, however it may be in breach of certain covenants once covenant testing recommences.”
Conclusion: The new management team recently completed a US$76m fundraising which included a substantial investment by the Chief Executive and which should provide the lenders reassurance. The US$16.4m payment is further confirmation of management’s intention to address the financial issues as well as the outstanding technical points and we imagine that the company may well reach an accommodation with its lenders on a new schedule without breaching covenants on the project debt.
Condor Gold (LON:CNR) 57p, Mkt Cap £30.2m – Exploration identifies new potential targets in the La India district
Condor Gold has announced that its continuing exploration programme in the La India district of Nicaragua has identified what initial interpretations of soil geochemical and airborne geophysical data suggest may be two major feeder zones for the mineralisation where Condor Gold has already shown a resource of 2.3m oz of gold.
The “La India Corridor is better understood and hosts 90% of the Project’s high grade mineral resource of 18.08M tonnes at 4.0g/t” while the less well known “Andrea” Corridor, which runs sub-parallel to the La India structure and approximately 5 km to the north, is currently the subject of an initial 4000m drilling programme.
Interestingly, early stage exploration grab sampling of the Limones area at the northern end of the 12.5km long Andrea structure showed an assay of 142.4g/t gold at a site only 30m from an earlier sample which assayed at 53.9 g/t gold.
The geochemical sampling work, particularly assays for antimony, selenium and tellurium, has also shown “a sinuous, almost East-West, linking structure between the two corridors”. The significance of this work has yet to become fully apparent but Condor’s continuing exploration seems to be aimed at defining the wider potential of the district and understanding the structural context of the mineralisation.
The company also comments that that its geochemical interpretation implies “that the district scale epithermal system was dropped down by a post-mineral offset” to the east of the Highway Fault. Current drilling at the Cacao prospect, where four holes (720m) have been completed to date, seems to be targeted at assessing the potential of this down-thrown block. Results are expected to become available in 2017. The drilling rig is now to be moved to Real de la Cruz, also within this down-thrown block.
Conclusion: Condor Gold’s current exploration is starting to provide insights into the wider geological context and potential of the mineralisation already located at La India. This longer term work may identify additional exploration targets for future drilling and we look forward to continuing news and to the release of assay results from the current drilling which are expected to be available in 2017.
Hochschild Mining (LON:HOC) 230 pence, Mkt Cap £1.163bn – Protests lead to temporary stoppage at Pallancata
Hochschild Mining reports that it has temporarily stopped production at its Pallancata mine in Peru as a result of local community action to blockade the road.
The protests are in relation to community demands for renegotiation of existing agreements for land easements.
Hochschild reports that it is in continuing discussion with the local groups and that its production guidance for 2016 is not affected.
The Pallancata silver gold mine is located in southern Peru and is the smallest of the groups producing mines with 2015 production of 3.7m oz of silver and approximately 16,000 oz of gold. Production guidance for 2016 is for the mine to produce 3.5-4m oz of silver equivalent at a AISC of $13/oz.
Petropavlovsk* (LON:POG) – FY16 production target revised down to 415-430koz at $700/oz TCC
Hold - Valuation under review
Following completion of the Impact Assessment at the Andreevskaya East pit, Pioneer, the Company cut annual Group production guidance to 415-430koz, down from 460-500koz forecast previously.
As a result of pit stability issues at Andreevskaya with an abrupt drop in temperatures and regional flooding causing fractures in pit benches, mining and operations have been suspended.
The Company expects full capacity operations to be restarted before year end once the permafrost layer sets helping to bind the pit walls.
Operations at three other complexes including Malomir, Albyn and Pokrovka continue unaffected.
Group TCC guidance reiterated at c.$700/oz.
Underground development at Pioneer and Malomir progress well with first production on schedule for H2/17.
POX commissioning remains on target for completion by the end of 2018 and first refractory ore treatment expected in early 2019.
An update on corporate transaction will be provided by close of business tomorrow.
Conclusion: Updated guidance is below our previous estimates for 445koz at $678/oz TCC implying a downwards revision to our earnings forecasts. It is good to hear the underground development continues as planned with works continuing at NE Bakhmut, the neighbouring pit to the affected Andreevskaya East operation. We will review our earnings estimate and release updated numbers shortly.