Atalaya Mining (LON:ATYM) 144 pence, Mkt Cap £167m – 2016 Results and update
Weatherly International (LON:WTI) 0.48 pence, Mkt Cap £5m – Slower leaching rates at Tschudi cuts production guidance
European equities are following US stocks lower as FOMC minutes pointed to a chance of the Fed reducing its balance sheet and House Speaker Paul Ryan suggesting tax reform may take longer to complete than replacing Obamacare.
• Gold is relatively resilient to the monetary policy tightening signals delivered by the latest FOMC meeting minutes having recovered its yesterday’s losses
• The US$ index is rangebound trading in the 100.5-101.0 corridor over the last week.
• Brent prices are up marginally after coming off in the previous trading session as state numbers showed an unexpected increase in US crude inventories to a fresh record.
• Iron ore futures held on to gains recorded on Wednesday, the first trading day post a two-days break, with inventories reported to have come off record highs.
• Xi Jinping is meeting Donald Trump in Florida for the first time since US presidential elections.
Dow Jones Industrials -0.20% at 20,648
Nikkei 225 -1.40% at 18,597
HK Hang Seng -0.62% at 24,251
Shanghai Composite +0.33% at 3,281
FTSE 350 Mining -0.88% at 15,804
AIM Basic Resources -0.04% at 2,631
US – FOMC meeting (Mar 14-15) minutes released yesterday showed most officials supported the idea of starting to reduce the $4.5tn balance towards the end of the year.
• “Most participants anticipated that gradual increase in the federal funds rate would continue and judged that a change to the committee’s reinvestment policy would likely be appropriate later this year,” FOMC minutes read.
• “Many participants emphasized that reducing the size of the balance sheet should be conducted in a passive and predictable manner.”
• Previously, New York Fed William Dudley suggested that the Fed might start to “gradually let securities mature rather reinvesting them” from later this year or potentially in 2018.
• Next FOMC meeting is scheduled for May 2-3.
China – Following a weaker set of manufacturing numbers, services sector growth is reported to have slowed in Mar pointing to a deteriorating momentum in Q1/17.
• Growth in new orders dropped to a four-month low.
• Employment continued to grow but the weakest pace recorded in 2017 and “modest overall”; this comes amid declines in manufacturing employment .
• Despite a weaker growth momentum, surveyed firms continued to show optimism towards the 12-month business outlook.
• Markit/Caixin Manufacturing PMI (released last week): 51.2 v 51.7 in Feb and 51.7 forecast.
• Markit/Caixin Services PMI: 52.2 v 52.6 in Feb.
• Markit/Caixin Composite PMI: 52.1 v 52.6 in Feb.
Eurozone – The € fell nearly 0.5% against the US$ at some point this morning as Mr Draghi rejected a possibility of starting lifting rates later this year following the end of the QE programme.
• The asset purchase programme (APP) is currently running at €60bn per month (down €80bn from Apr/17) and is intended to continue at that pace until the end of Dec/17 “or beyond, if necessary”, the ECB Mar/17 announcement read.
• Local lenders are reported to have criticised the policy arguing low benchmark rates weigh on bank profit margins.
• “The negative rates, in conjunction with the other elements of our easing package, have turned out to be powerful in terms of easing financial conditions. And the potential negative side effects have so far been limited,” Draghi said today.
• “From today’s standpoint, I do not see cause to deviate from the indications we have been consistently providing in the introductory statement to our press conferences.”
Economic News
Currencies
US$1.0643/eur vs 1.0687/eur yesterday. Yen 110.43/$ vs 110.67/$. SAr 13.838/$ vs 13.491/$. $1.249/gbp vs $1.245/gbp.
0.754/aud vs 0.758/aud. CNY 6.900/$ vs 6.892/$.
Commodity News
Precious metals:
Gold US$1,254/oz vs US$1,257/oz yesterday
Gold ETFs 59.0moz vs US$59.0moz yesterday
Platinum US$958/oz vs US$969/oz yesterday
Palladium US$807/oz vs US$809/oz yesterday
Silver US$18.24/oz vs US$18.31/oz yesterday
Base metals:
Copper US$ 5,890/t vs US$5,855/t yesterday
Aluminium US$ 1,959/t vs US$1,964/t yesterday
Nickel US$ 10,305/t vs US$10,180/t yesterday
Zinc US$ 2,794/t vs US$2,795/t yesterday
Lead US$ 2,310/t vs US$2,337/t yesterday
Tin US$ 20,245/t vs US$20,050/t yesterday
Energy:
Oil US$54.3/bbl vs US$54.6/bbl yesterday
Natural Gas US$3.267/mmbtu vs US$3.279/mmbtu yesterday
Uranium US$23.50/lb vs US$23.50/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$77.4/t vs US$77.1/t
Chinese steel rebar 25mm US$557.1/t vs US$558.2/t
Thermal coal (1st year forward cif ARA) US$67.5/t vs US$66.5/t yesterday
Premium hard coking coal Aus fob US$187.5/t vs US$176.8/t
Other:
Tungsten - APT European prices $208-216/mtu vs $187-198/mtu
Steel – The EU places five year tariffs on Chinese hot rolled coil imports starting Friday on dumping allegations.
• EU based producers are said to have suffered “a threat of a clearly foreseeable and imminent injury” as a results of dumped imports from China, the European Commission said.
• Exporters will face duties of as high as 35.9% marking the end of a dumping inquiry started in Feb/16.
• At the same time, the Commission ruled not to place any provisional duties on imports from Brazil, Iran, Russia, Serbia and Ukraine.
Company News
Atalaya Mining (LON:ATYM) 144 pence, Mkt Cap £167m – 2016 Results and update
• Atalaya Mining reports that during the final 11 months of 2016, since declaring commercial production in February 2016 at the Proyecto Riotinto in southern Spain, it generated net income of €12m (10.3cents/share) , including a credit of €12.2m for prior year tax losses. The company notes that with the restart of commercial production it expects that accumulated tax losses, amounting to €48.6m at 31st December 2016, will be recoverable as the project progresses.
• Sales revenue of €98.8m generated an EBITDA margin of 16% after deducting operating costs of €77.8m, corporate expenses of €4.6m and exploration expenditure of €1m.
• The company treated a Total of 6.5mt of ore to produce a total of 26,179 tonnes of copper, and 434,000 oz of silver, contained in a concentrate grading approximately 21% copper. Total cash costs amounted to US$1.95/lb of copper.
• The restart of production at Proyecto Riotinto was completed ahead of schedule and below budget with the planned throughput rate of 9.5mtpa being announced in July 2016. Copper recovery rates have built up steadily through the expansion project to average 83.3% for the year.
• CEO, Alberto Lavandeira, commented that “Having reached our nameplate capacity of 9.5Mtpa the plant has been running smoothly but we continue to focus on improving performance and chasing efficiencies in order to further reduce our operating costs.”
• The company is maintaining its 2017 production guidance of 34-40,000 tonnes of copper production
• Following the restart of the Riotinto operation, the company has also exercised an option to acquire a second Spanish copper project, at Touro near the city of Santiago de Compostella in northwest Spain.
• The brownfield open-pit mining project operated until 1986 and Atalaya has the opportunity to acquire an 80% interest in a series of staged payments totalling €18.5m. Project feasibility work is already well advanced ahead of permit applications.
Conclusion: The long-awaited resumption of production at Proyecto Riotinto appears to have been completed relatively smoothly ahead of schedule and below budget and while the management team continues to look for further improvements at Riotinto it is now looking at bringing its talents to bear on restarting a second former copper operation in Spain at Touro. We will follow developments with interest.
Weatherly International (LON:WTI) 0.48 pence, Mkt Cap £5m – Slower leaching rates at Tschudi cuts production guidance
• Weatherly International reports that slower than expected leach rates for mixed sulphide/oxide ore at its Tschudi copper mine in Namibia has delayed its efforts to recover the production shortfall earlier in the financial year and as a result the company has reduced its production guidance for the year to June 2017 to 14,500-15,000 tonnes of copper in cathode from the earlier guidance which we recollect was 17,000 tonnes.
• The company notes that “above average rainfall which caused operational delays that were typically 2 to 3 times longer than those experienced in previous years’ rainy seasons” prevented the company from increasing the rates at which ore was stacked in order to compensate for the slower leaching rates.
• Delays due to the rain were reduced during March and improved stacking rates “are expected to be sustained going forward” and although the company expects leaching rates to improve during the June quarter, these improvements look to be insufficient to catch up the accumulated shortfall in anticipated production.
• Remedial measure to improve leaching rates are aimed at increasing the area available for stacking ore for leaching “and therefore the construction of stage 2 heap leach pad extension commenced in March.”
• “Weatherly has previously advised that if copper prices remain at current levels it is unlikely that the Company and its subsidiaries will generate sufficient surplus cash to meet all loan repayments when due. This remains the case and the Company continues to positively engage with Orion on the subject.” Orion is the company’s major shareholder with a 24.6% interest.
• During February, the company announced that payments due to Orion, already deferred until 28th February 2016 had been further deferred until 30th April and today’s news may put even the revised repayment date in doubt.
Conclusion: The combination of lower leaching rates and adverse weather has reduced copper production and triggered a downward revision of production guidance. These events all increase the financial pressure on Weatherly International and may make for tough discussions with its principal shareholder.