Metminco* (LON:MNC) – Shares trade following brief suspension on 50:1 share consolidation
Solgold* (LON:SOLG) – Cascabel exploration update
European equities are flat this morning after touching the strongest level in a little over a year on Tuesday with a raft of positive PMI data released over the last two days.
Japanese shares climbed after traders came back from New Year celebrations on Wednesday with the Topix index rising to the highest in more than a year.
S&P futures are up following the biggest increase in four weeks in the underlying index on Tuesday.
Brent increased ahead of the US inventories numbers regaining some of its yesterday’s losses.
The US$ index reached the strongest level since 2002 on good PMI numbers on Tuesday.
Global manufacturing PMI hit a 34-month high in Dec led by stronger growth in the US and Western Europe regions, according to Markit PMI data.
Production grew at the fastest pace for two-an-a half years in Dec supported by the steepest increase in new orders since Jul/14.
In Asia, Japan, China, Taiwan, Vietnam, Philippines and Thailand reported growth while declines recorded in India, South Korea, Indonesia, Malaysia and Myanmar.
In Russia a recovery accelerated, while the downturn in Brazil got worse.
“Cost pressures intensified at the end of 2016, as purchase prices rose at the quickest pace in over five-and-a-half years,” Markit said.
“With rates of expansion in production and new order volumes having gathered pace during the latter part of 2016, the sector will start 2017 on a solid footing with positive momentum building and job creation accelerating.”
Markit Global Manufacturing PMI: 52.7 in Dec v 52.1 in Nov.
2017 – Mining sector set to become volatile and sensitive to political interaction
Commodities and related mining companies look set to become more volatile and sensitive to political action.
Donald Trump’s election is the principal catalyst along with his new emphasis on US infrastructure growth.
Raising the finance for Trump’s new construction could cause some big swings in emerging market currencies as funds are repatriated into the US dollar.
Even relatively small fund flows can have extreme effects on emerging market currencies where liquidity can be thin.
Local businesses and investors sometimes stock up on commodities as protection against currency weakness as seen in China but can also be fast to sell after devaluation.
The supply demand balance may become less relevant as political factors have greater.
Europe offers potential to influence commodity prices perhaps more on the downside
The US dollar is riding high .
Trading strategies: traders are looking to scalp commodity markets in what we see as a
Mining equities are likely to continue to rise albeit in a volatile manner through the year.
Risks: we will continue to highlight the risks and opportunities as we see them over the next few weeks.
Note, commodity trading in the first week of the year is partly directed by the rebalancing of commodity index funds
China – spending RMB800bn ($115bn) on adding 2,100km of new rail this year
China is maintaining its budget for spending on new railways this year at RMB800m or US$115bn .
China is planning on adding some 2,100km of track and to electrify a further 4,000km of rail adding to its existing 124,000km rail network which includes some 19,000km of high speed rail and 5,500 rail stations.
By contrast the UK which has some opened five new railway stations last year with another four due to open in 2017 to take the total number or UK stations to 2,564 on a rail network of around 15,760km. But then China is only 40 times the size of the UK.
China’s intention to maintain its rail infrastructure development is good for iron ore and steel demand and should also be good for many other metals as the network develops and new stations are built.
The development of increasing numbers of suburban rail systems means more electrification and copper and aluminium usage.
The construction of increasing numbers of stations on these shorter rail links is also good for chrome and nickel for stainless steel.
Rising demand for suburban rail trains should further increase demand for aluminium, steel and stainless steel.
Lithium:
Birimian Gold – offer of A$107.5m for its Bougouni ‘Golamina’ asset values A$469 (US$341) per lithium resource tonne
The offer by Shandong Mingrui Group appears to be bang on the average value for lithium resources which looks like a nice deal for Shandong considering the relatively high grade of Birimian’s Golamina resource at 1.8-2.2% lithium (Li2O) for 229,000t of contained lithium metal.
The weighted average on our table of lithium producers is US$350/t though this is skewed by a relatively high valuation for Nemaska Lithium in Canada.
If we strip out the value of Nemaska Lithium then our weighted average value for lithium resources falls to US$260/t of lithium.
We suspect Shandong’s offer is based on the potential for increasing the Golamina lithium resource which is still a bit on the small size compared with others in our peer group.
Elsewhere Albemarle Corp, the US lithium and speciality chemicals group has just completed its acquisition of Jiangli New Materials in China for US$145m. The Jiangli New Material assets are focussed on the production of battery-grade lithium hydroxide and lithium carbonate have a total lithium salts capacity of 15,000tpa which Albemarle will raise to 20-25,000tpa.
Dow Jones Industrials +0.60% at 19,882
Nikkei 225 +2.51% at 19,594
HK Hang Seng -0.07% at 22,134
Shanghai Composite +0.73% at 3,159
FTSE 350 Mining +0.01% at 14,967
AIM Basic Resources +0.49% at 2,354
Economic News
US – Manufacturing sector growth rate expanded for a fourth consecutive month with both production and new orders coming in strong.
Export orders’ growth reached the strongest level since May/14 despite a continuing strength in the US$.
Inflation index has also climbed.
Japan – Manufacturing sector posted the sharpest increase in 12 months in Dec/16 with production and new orders growing at quickest rates recorded over the year.
New orders growth was led by improving international demand with new export orders growing for the fourth month in a row.
Stronger trade flows were recorded with Europe, China and North America.
Higher cost pressures were led by stronger raw material costs (oil and metal-related items, in particular) and a depreciating currency.
Markit Manufacturing PMI: 52.4 v 51.9 in Nov.
Eurozone – Services sector expanded at a stronger pace than initially estimated in Dec led by better numbers from Germany (5-month high), France (18-month high) and Spain (6-month high).
Italy was the only exception posting a slowdown in the pace of expansion (2-month low) during the month.
“Growth in incoming new orders (manufacturing + services) was the fastest since Dec/15 and among the quickest seen over the past five-an-a-half years.”
Eurozone-wide “price pressures continued to mount, with inflation of both input costs and output charges gathering pace”.
On the 2017 outlook, Markit noted “much depends on political events over the course of the next year…the concern is that domestic demand is likely to remain subdued over the course of 2017 as political uncertainty dominates, resulting in another year of disappointing growth across the region as a whole.”
Germany general elections will be taking place in H2/17, while first round of French presidential votes is due in Apr/17.
Markit Eurozone Composite PMI: 54.4 (final) v 53.9 in Nov and 53.9 forecast.
Spain – Unemployment fell at the fastest pace since Jul/16 in Dec/16 following four consecutive months of increases.
A separate survey on services sector growth showed the segment continued to expand at a solid pace with strong new orders reported and “some panellists reporting improving market conditions”.
Employment climbed at the fastest pace since Jul in services.
Output prices inflation has been led by an increase in input costs which climbed at the strongest pace in 69 months. The move is primarily attributed to higher fuel costs.
“Activity continued to rise markedly, but companies will be hoping that growth of ew orders can pick up in coming months to return to the rates seen earlier in 2016,” Markit said.
“IHS Markit currently forecasts a rise in GDP of 2.1% in 2017.”
Unemployment Change (‘000 mom): -87 v 25 in Nov and -50 forecast.
Markit Services PMI: 55.0 v 55.1 in Nov and 54.7 forecast.
Currencies
US$1.0430/eur vs 1.0422/eur yesterday. Yen 117.80/$ vs 118.00/$. SAr 13.680/$ vs 13.716/$. $1.227/gbp vs $1.227/gbp.
0.727/aud vs 0.722/aud. CNY 6.949/$ vs 6.956/$.
Commodity News
Precious metals:
Gold US$1,163/oz vs US$1,151/oz yesterday
Gold ETFs 57.0moz vs US$57.1moz yesterday
Platinum US$937/oz vs US$907/oz yesterday
Palladium US$721/oz vs US$686/oz yesterday
Silver US$16.42/oz vs US$15.99/oz yesterday
Base metals:
Copper US$ 5,528/t vs US$5,584/t yesterday
Aluminium US$ 1,684/t vs US$1,696/t yesterday
Nickel US$ 9,980/t vs US$10,125/t yesterday
Zinc US$ 2,541/t vs US$2,563/t yesterday
Lead US$ 2,037/t vs US$1,993/t yesterday
Tin US$ 20,975/t vs US$21,100/t yesterday
Energy:
Oil US$56.1/bbl vs US$57.1/bbl yesterday
Natural Gas US$3.295/mmbtu vs US$3.493/mmbtu yesterday
Uranium US$20.50/lb v US$20.40/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$71.3/t vs US$72.0/t
Chinese steel rebar 25mm US$478.3/t vs US$478.8/t
Thermal coal (1st year forward cif ARA) US$61.5/t vs US$62.5/t yesterday – China continues to aggressively cut coal production in efforts to reduce pollution and improve safety. China is looking to cut out 800mt of ageing capacity to realise target production of 3.9bnt by 2020.
China produced some 3.75bn tonnes of coal in 2015 and plans to limit thermal coal consumption to 4.4bnt this year and further limit consumption to 4.1mt in 2020.
Premium hard coking coal Aus fob US$224.3/t vs US$226.0/t
Other:
Tungsten - APT European prices $187-198/mtu vs $187-198/mtu
Company News
Metminco* (LON:MNC) 5.75p, mkt cap £5.2m, – Shares trade following brief suspension on 50:1 share consolidation
Metminco shares are trading again this morning following their 50:1 consolidation.
The company now has 90,280,468 shares in issue.
Metminco is working on a feasibility study for the development of the Miraflores gold project in Colombia for completion in the first half
Other gold licenses within striking distance of Miraflores present interesting potential particularly at Dosquebrados and Tesorito.
Metminco’s Los Calatos copper project in Peru is being funded by CD Capital as part of its agreement to earn up to 70% of the project in return for US$45m of funding for additional drilling and feasibility study work.
The CD Capital Tranche 1 values Metminco’s stake in the business at 16p/s though we see significant potential upside on this valuation.
The Los Calatos resource which currently stands at 352mt grading 0.76% copper and 318ppm of molybdenum.
*SP Angel act as broker to Metminco. SP Angel analysts have previously visited Los Calatos in Peru and Miraflores project in Colombia.
Solgold* (LON:SOLG) 26p, Mkt Cap £372m – Cascabel exploration update
Solgold has provided an update on the progress of its exploration drilling campaign at the Cascabel project in Ecuador where plans are underway to expand the current deployment of three drilling rigs by adding a fourth rig in February, a fifth during March and expanding to a total complement of seven rigs by the end of October this year.
The current drillhole CSD-16-018, which is planned to reach a depth of 2300m to test the lower and south western part of the Alpala Central system, is currently at a depth of 2144.8m. The hole intersected 665 metres of visible copper mineralisation between 903.9m and 1568.9m, including a “richer section from 1171.8m to 1519.1m” (347.3m) and is continuing in order to test “the lower and south western portion of the Alpala Central system.”
Drillhole CSD–16-019 is currently at a depth of 1161.5m with a target depth of “at least 1600m” and is still in mineralisation entered at a depth of 325.6m giving a total intersection so far of approximately 836m. The company notes that hole 19 encountered “an intensely mineralised section from 545.9m, where intense visible copper sulphide mineralisation occurs with visible chalcopyrite up to 4.3% and bornite up to 2% of the rock volume over selected short intervals.” Although the company has yet to report assay values for these intersections, photographs of the drill core included in the announcement show pervasive sulphide veining which, in our view could report copper assays in the order of 1-1.5% copper over these short intervals.
Drillhole CSD-16-20R “is being drilled to test the lower trend of the grade and direction of the mineralisation between 1200m depth on the northeast side of the porphyry system and 2800m depth on the southwest. The hole will test for mineralisation up to 1000m below the lowest known intersections in holes 5,9,12 and 16.” The hole has intersected a mineralised breccia from a depth of 905.4m and is currently at a depth of 1050m. The mineralisation has been intersected “approximately 200m higher than expected and approximately 200m north east of the expected position, establishing potential for significant extensions to Alpala on the eastern and north eastern sides of the porphyry system.”
Hole 20R is also planned as a “parent hole” in order to allow 3 “daughter holes” to be drilled into the mineralised area at a low angle and varying depths from the north east. In our view, this may help to address the geometrical complexity of drilling a relatively steeply dipping mineralised body with steeply inclined drill holes in rugged terrain and should provide intersections more directly across the mineralisation rather than obliquely to it.
The deployment of additional drilling equipment is set to ramp up through the year with a fourth rig working on Alpala from next month and a fifth rig to be assigned to the Alpala South area, approximately 1km southeast of the current area in March.
The company has a total of 14 targets within the Cascabel licences and we would speculate that as the sixth and seventh rigs arrive in the autumn there may be some initial drilling of some of these prospective sites.
Conclusion: The funding completed in October last year, which brought in the industry major Newcrest Mining amongst other new investors, has provided Solgold with the financial resources to increase the scale of its deep exploration drilling programme at Cascabel. We look forward to the assay results from the holes currently being drilled, and in particular, for further news on the progress of hole 20R and its daughters which, in our opinion, have the potential to provide significant additional insight into the scale and morphology of the Alpala mineralisation at depths of approximately 1km deeper than the ground previously tested. With the additional drilling capacity we expect to see increased news-flow from Solgold as 2017 progresses.
*SP Angel acts as Nomad and Broker to SolGold; An SP Angel analyst has previously visited the Cascabel project.