Commodities
Diamonds and precious stones
A bit of a mixed bag in recent weeks, starting with the retailers, Signet announced lower than expected sales numbers during the festive period but more from their own inability to get the ecommerce business working efficiently. Overall, physical sales were down “mid-single digit”, which many will have hoped would be avoided, given the Trump optimism trade, so how the rest of the retailers perform now will be key. Let’s hope Signet was an outlier.
Over in China, Chow Tai Fook, did announce improving sales numbers, well by improving I mean they went down less that previous quarters, As this was a trend I had highlighted back in November, relief is palpable and maybe perversely, I am a little more positive on the recovery of the Chinese consumer.
The other major influence on sentiment at the moment continues to be how Indian buyers are being affected by the de-monetisation efforts. This is really causing problems and the impact on lower quality goods should not be underestimated. Alrosa this week announced lower sales in December, driven by a “weakening of small and middle-size Indian diamond-cutting companies”
Whilst typically accounting for only around 20% of revenue from a diverse production source, there remains the not insignificant risk that total sales are pulled down due to goods being either completely pulled from sale, or in the case of a weaker balance sheet, rock bottom bids are accepted. On the flipside, higher quality goods remain well-supported with some prices even improving. The upcoming reporting season is set to be an interesting one and opportunities may arise given any larger than average exposures to either end of the value curve.
Precious metals
Always an interesting one for me, as overall ETF balances continue to reduce (the last month alone has seen bullion +3.5% when global holdings are down 3.5%). So what gives? Interestingly within this trend “professional” investors continue to bail, but smaller ETF’s, more closely aligned with everyday investors continue to increase their holdings. The last week alone saw SPDR shed 276koz whilst ETF and others smaller providers added over 150koz. Certainly gives the impression that one group of investors is actively seeking higher yielding assets whilst the other is rather more fearful as they rarely diverge in terms of flows.
Bulk commodities
As we enjoy the annual bump in demand for commodities ahead of the Chinese New Year celebrations, that this year kick off at the end of January, I am always taken by some visual representations that can emphasise demand growth/declines and this week is no different,
Announced last week was the confirmation that China’s imports of iron ore exceeded 1 billion metric tons in 2016, driven by government stimulus supporting steel production and higher overseas imports, a trend I have bored many of you with for many years now. Shipments reached a record 1.024 billion tons in 2016, up 7.5% on 2015, which works out at roughly 32 tons a second!
Oh and coking coal has gone from $195/t on 13th Sept, to $308.8/t on 13th November to $185/t on 13th January…
All together now, Old King Cole was a merry old soul..
Company announcements/news/meetings:
Ariana Resources (LON:AAU), (Buy): Double update week…
On Wednesday we had “Ariana has today provided an operational update to activities at the Kiziltepe mine in Turkey that, whilst impacted by the extraordinary weather conditions affecting Central Europe and resulting in a delay to production commencement, has seen notable progress made, with the mine now largely operational. Normalised weather conditions will see the final requirements made and we expect a further announcement by the end of January. Maintaining Buy recommendation”
And today we had a placing (not through PG).
“Ariana has today announced a placing of shares to help fund the advancement of the company's main development projects away from the key Kiziltepe mine, principally the 100% owned, 1-million ounce Salinbaş project and Tavşan. We adjust our target price accordingly, given the dilution, but maintain a positive view on the outlook for Ariana. We do also note that this placing was made at a modest premium to the last effort”.
Centamin (LON:CEY), (Hold): Strong Q4 and extra cherries please…
“Centamin this week announced Q4/FY2016 production results that saw full year guidance exceed our full year expectations coupled with commentary that the strong financial position and strong cash generation at Sukari will see a higher than anticipated dividend payment at the full year results”
Some interesting commentary around this company at the moment and some punchy numbers have been mentioned when it comes to the dividend. What is becoming crystal clear to me is that Sukari is increasingly looking like an asset that can improve almost any gold producer’s portfolio and the Egyptian risk is, to borrow a phrase from one investor “a bit of a red herring”. .