Ariana Resources (LON:AAU) – Additional targets identified at Tavsan
Beowulf Mining (LON:BEM) – Drilling underway at Aitolampi
Golden Star Resources (CVE:GSC) – 2016 results and 2017 guidance
Savannah Resources (LON:SAV) – £2.24m placing and subscription
US stocks hit new highs on Tuesday providing strong growth momentum in other markets.
• The MSCI All-Country World Index is up for a third day while the Stoxx Europe 600 Index climbed for a fourth consecutive day reaching the strongest level since Dec/15.
• The US$ index is up this morning with the € down against the US currency for a fourth consecutive day.
• Gold is steady with investors seen raising gold ETF holdings.
• Brent is off this morning from the highest level in more than a week.
• Chinese rebar futures broke their two-and-a-half-weeks winning streak posting a 1.2% decline today; although, prices remain 11.7% higher since the start of the month. Iron ore futures followed steel prices lower falling 0.6% marking the first decline in the last three days.
Tronox to buy TiO2 business off Cristal for $1.7bn in cash plus stock to create world’s largest TiO2 pigment producer
• The new group will have total capacity of 1.3mtpa through the combination of Crystal’s eight plants and Tronox’s three.
• Tronox is selling its Soda Ash business (sales ~$800m) to help pay for the deal.
• The group also has titanium feedstock capacity of 1.5mtpa, though with concentrate prices set to rise
• The combination would give Tronox 15% of global market placing them ahead of Chemours, a DuPont spinoff, which currently holds a 14% market share.
• The deal further consolidates the market at a time when feedstock concentrate prices are forecast by industry observers to rise strongly
• The Tronox chairman sees the deal as cutting their net leverage ratio by 50% with EPS accretion of >100% in the first year with EPS, EBITDA and Cash Flow growth rates of 70%, 30% and 60% between 2018-2021 versus Tronox as a standalone business.
• These are impressive numbers indicating significant synergies to come through relatively quickly through the combination of the two groups.
• The National Industrialization Co. of Saudi Arabia which holds 79% of Cristal and other shareholders will retain a 24% stake in the combined group.
• Cristal saw sales of $1.7bn on 860,000t of capacity last year. Tronox TiO2 sales were $1.3bn on 470,000t of capacity.
• Huntsman Corp also plans to sell off ‘Ventor’ its TiO2 business later this year.
• The consolidation sounds like it has a sound rationale but may also be a reaction to a tightening market for tiO2 feedstock at a time when weak demand in China may make price rises difficult to push through.
• The market for TiO2 feedstock is evolving with a dramatic decline of TiO2 feedstock from the processing of titano-magnetite ores in China as low iron ore prices rendered processing of this material all-but obsolete.
• Much titano-magnetite production has either been closed or severely impaired with Chinese enforcement of environmental regulations also cutting titano-magnetite production and processing capacity.
• We expect TiO2 feedstock price rises to potentially outpace expected price rises in pigments and other TiO2 products and for this to potentially put margins under some pressure for TiO2 processors which do not have sufficient captive feedstock supply.
• The evolution of the market should prove to be good for primary producers like Iluka and Kenmare and near-term projects, such as FinAust in Greenland.
President Trump lists 50 projects worth US$137.5bn for rebuilding American infrastructure
• The list contains 3-5 projects from each state with the American steel industry to deliver ‘made in USA’ iron products as required
• Democrats are also reported to have offered to support Trump if he endorses their list of $1tr worth of infrastructure projects in a move typical of the pork barrel politics which the US is so well known for. The projects are thought to create as many as 15m jobs
• Trump’s projects include renewing US highways, airports, dams and bridges.
• Documentation is reported to propose funding by way of Public-Private Partnerships which half of the funding coming from private investment.
• Reports suggest a priority list of Emergency and National Security Projects includes cost estimates and job creation numbers
Dow Jones Industrials +0.58% at 20,743
Nikkei 225 -0.01% at 19,380
HK Hang Seng +0.99% at 24,202
Shanghai Composite +0.24% at 3,261
FTSE 350 Mining -0.32% at 17,025
AIM Basic Resources -0.43% at 2,735
Economic News
US – Cleveland Fed President Loretta Mester said the FOMC does not want to surprise the markets on interest rates.
• The US economy is “on a pretty good and sound footing” with the committee stands ready to adjust the policy should the economy evolve “differently than we anticipated”, Mester highlighted.
• Markets are currently pricing in a 38% chance of rates going up in Mar and a 60% chance for a May move.
• Mester advocated for higher rates though most of H2/16 having voted for an increase in Sep and Nov when the majority decided to leave rates unchanged.
• She is not voting this year.
• US private sector growth slowed in Feb from Jan/s 14-month peak as the post-election upturn loses some of its moementum, according to the latest Markit PMI numbers.
• “However, even with the Feb dip, the PMI remains at a level broadly consistent with the economy growing at a 2.5% annualised rate in the first quarter.”
Date Index Period Actual Est Previous
Tuesday Markit Manufacturing PMI Feb (Prelim) 54.3 55.4 55
Markit Services PMI Feb (Prelim) 53.9 55.8 55.6
Markit Composite PMI Feb (Prelim) 54.3 55.8
Wednesday Existing Home Sales Jan %mom 1.1 -2.8
Feb FOMC Meeting Minutes
Thursday Weekly Jobless Claims '000 240 239
Friday UoM Consumer Sentiment Feb (Final) 96 95.7
New Home Sales Jan %mom 6.5 -10.4
Source: Bloomberg
Eurozone – Inflation hit the highest level in four years in Jan the Eurostat data confirmed preliminary estimates.
• While headline number hit 1.8%yoy in Jan, core inflation remained weak at 0.9%yoy which justifies further monetary easing by the ECB.
UK – Q4 GDP growth rate has been revised slightly upwards from first estimates released in Jan with expansion led by strong trade and private consumption compensating for a decline in business investment.
• Q4 GDP: 0.7%qoq v 0.6%qoq estimated in Jan.
• Exports climbed 4.1%qoq while imports contracted 0.4%qoq with net trade contributing 1.3pp to GDP growth.
• Household spending increased 0.7%qoq compared with a 0.9%qoq growth in the previous quarter.
• Business investment was off 1.0%qoq versus a 0.7%qoq increase in Q3/16.
• Accelerating inflation weighing on household real incomes may translate into a slowdown in consumer spending moving forwards challenging one of the growth drivers.
• Market estimates are for UK growth to slow down to 1.4% this year from 1.8% in 2016.
Mexico – The peso rallied around 1.9% against the US$ yesterday as the central bank surprised markets planning to auction up to $20bn in FX hedges.
• The move is directed to support the currency without using up international reserves.
Iron ore – Chinese iron ore steel demand is expected to come off this year and fall every year until 2030, according to the state-backed China Metallurgical Industry Planning and Research Institute.
• Demand is forecast at 660m this year, down 1.8% from 2016.
• Prices are estimated to range at $55-85/t this year and average $65/t compared with the spot $95/t (62% Fe Qingdao) reached on Tuesday, the highest level since Aug/14.
• Another pessimistic forecast was voiced by the World Steel Association during the Metal Bulletin China Iron Ore Conference in Dalian today.
• The WSA highlighted that “the future is kind of pessimistic” with the Chinese steel demand is set to fall sharply over the next decade in line with the experience of Japan, Germany and the US.
• “The trend for steel demand in China is very similar to the US, Japan and Germany… peak then a sharp decline.”
Currencies
US$1.0507/eur vs 1.0564/eur yesterday. Yen 113.28/$ vs 113.50/$. SAr 13.058/$ vs 13.129/$. $1.250/gbp vs $1.243/gbp.
0.771/aud vs 0.766/aud. CNY 6.878/$ vs 6.883/$.
Sterling strengthens on Bank of England comments that Brexit process will be smoother than originally predicted
Commodity News
Precious metals:
Gold US$1,236/oz vs US$1,234/oz yesterday – Russia increases gold reserves to 31.1t
Gold ETFs 58.7moz vs US$58.5moz yesterday – ETF Securities reports strong inflows into gold ETFs.
• Maybe one day they will also report on strong outflows?
Platinum US$1,002/oz vs US$999/oz yesterday
Palladium US$781/oz vs US$768/oz yesterday
Silver US$18.01/oz vs US$17.97/oz yesterday
Base metals:
Copper US$ 6,018/t vs US$6,042/t yesterday
Aluminium US$ 1,872/t vs US$1,889/t yesterday
Nickel US$ 10,815/t vs US$11,090/t yesterday
Zinc US$ 2,857/t vs US$2,887/t yesterday
Lead US$ 2,279/t vs US$2,315/t yesterday
Tin US$ 19,825/t vs US$19,900/t yesterday
Energy:
Oil US$56.5/bbl vs US$56.5/bbl yesterday
Natural Gas US$2.532/mmbtu vs US$2.767/mmbtu yesterday
Uranium US$24.75/lb vs US$25.00/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$90.5/t vs US$91.1/t – Reuters report that surging steel and iron ore inventories are at odds with price gains
• The interesting thing is that we have heard this a few times before and iron ore prices continue to post gains
• Part of the reason is that Chinese blast furnaces are using more higher-cost, better quality, Australian iron ore to cut on energy costs and reduce emissions.
• Investors are also trading on expectations for price gains and may be using iron ore as a store of value in case of a potential weakening of the Renminbi
Chinese steel rebar 25mm US$567.4/t vs US$565.6/t
Thermal coal (1st year forward cif ARA) US$67.7/t vs US$69.0/t yesterday – Hwange colliery in Zimbabwe gets new coal concessions.
• The new concessions should extend the mine life from five to >50 years and encourage further investment.
• Hwange currently employs around 2,400 currently produces around 55,000tpm down from peak production of around 200,000tpm.
• The miner recently secured a $3.2m loan for the repair of key underground coal mining equipment including its continuous miner
Premium hard coking coal Aus fob US$156.6/t vs US$153.6/t
Tungsten – APT European prices $195-205/mtu
Company News
Ariana Resources (LON:AAU) 2p, Mkt Cap £18m – Additional targets identified at Tavsan
• Ariana Resources reports that a review of data and target generation at its Tavsan property within the Red Rabbit project area has identified a total of 16 new target areas.
• Threee of these targets are charcacterised as “Very High” priority with a further 4 identified as “High” priority. The ranking is based on data including historical drilling intersections, one of which was as high as 11m at an average grade of 5.11g/t gold, trenching and rock chip sampling.
• Managing Director, Kerim Sener, commented that “More work is required at Tavsan before we can refine our models and operational plans, but it is certainly a project deserving of our efforts due to the significant potential uplift in company value that it represents to our shareholders”.
Beowulf Mining (LON:BEM) 10.3 pence, Mkt Cap £51.5m – Drilling underway at Aitolampi
• Beowulf Mining reports that drilling has started at its wholly owned Aitolampi graphite prospect in Finland where it is planning a two phase programme comprising approximately 2000 metres over 30 drill holes.
• The first part of the programme comprising 1150metres is expected to take 2-3 weeks with a second phase of work planned for the summer after the test results from the earlier work are available for interpretation.
Conclusion: Beowulf Mining’s planned drilling should improve the geological understanding of the mineralisation and provide sample material for testing. The decision to conduct the drilling in two stages will provide the opportunity to evaluate the first results and perhaps refine the plan for the work in the summer which should help to make the drilling cost effective.
Golden Star Resources (CVE:GSC) C$0.99, Mkt Cap C$362m – 2016 results and 2017 guidance
• Golden Star reports a reduction in net attributable losses to US$39.65m compared to a loss of US$67.68m in 2015. After “certain adjustments” which include US$13.85m relating to share based payments, US$25.63m for fair value adjustments on financial instruments and US$11.59m for a loss on the repurchase of the comp[nay’s 5% convertible debenture. the company reports adjusted net earnings of US$11.18m compared to an adjusted loss of US$28.36m in 2015.
• The results reflect production of 194,054 oz of gold with fourth quarter production of 53,403 oz “representing Golden Star’s strongest quarterly performance of the year.” Cash operating costs fell by 11% in 2016 to US$872/oz and on an all-in-sustaining (AISC) cost basis declined by 5% to US$1093/oz.
• Eighty-four percent of the US$84.4m capital expenditure during the year was deployed on development of underground mines at Wassa and Prestea where the company is making the transition from the metallurgically complex high cost refractory ore production to high grade underground ore sources which are simpler to process.
• Before US$22.21m of additional working capital, Golden Star’s operations generated a 40% increase in cash generated by operations to US$75.46m.
• The company’s guidance for 2017 indicates production rising by 31-44% to 255-280,000 ounces of gold, cash costs falling by 1-11% to US$780-860/oz, AISC falling by 2-11% to US$970-1070/oz and capital expenditure reducing by 31% to US$58m.
• In more detail, the Wassa open pit and underground operation is expected to produce 145-160,000 oz of gold in 2017 (2016 -104,381oz) at a cash cost of US$830-915/oz while the Prestea mine is targeting 110-120,000oz (2016 – 89,673 oz) at a cash cost of US$715-780/oz.
Conclusion: Golden Star’s evolution towards a higher grade, lower cost, largely underground, mining operation is well underway with the company indicating that it will increase gold output by over 30% in 2017 while reducing both operating and capital costs.
Savannah Resources (LON:SAV) 5.9p, Mkt Cap £26.5m – £2.24m placing and subscription
• Savannah Resources has announced that it has raised £2.24m shares by way of a placing and subscription priced at 5.25p per share.
• The company also reports that “Letters of intent have been received from a Director and Al Marjan Limited, the Company's major shareholder, for an additional £1.01 million cash ordinary shares at the Placing Price, once the Company has exited its current close period. … The Company will be required to seek additional authorities from shareholders in order to issue 11,190,088 ordinary shares of the shares relating to Al Marjan's proposed subscription.” Additional funding by Al Marjan would “maintain its shareholding of 29.99%”.
• The new funds will be used to progress the Oman copper project through mineral resource estimation, preparation of a scoping study and the preparation of licensing documents. In addition the company will progress both its Mutamba mineral sands project in Mozambique and the identification of potential drilling targets at the lithium exploration projects in Finland which were acquired last year.