Commodities
Diamonds and precious stones
It’s been quite a week hasn’t it?
After the excitement a couple of weeks ago, the sale of the pink star got the scribes in a bit of a lather as it was sold for a tidy $71.2m (incl premium) a cool $1.2m/ct. The stone originated from a 132.50ct stone recovered by De Beers in Botswana in 1999 it took around 2 years to cut and polish both in Johannesburg and New York by Steinmetz Diamonds. Originally called the Steinmetz Pink, it was renamed the Pink Star in 2007 and had been on display in the Natural History Museum in London in 2005. *Hat tip to De Beers for that info.
Elsewhere, the provisional $580m sale for Sight 3, the last of the contract year, was well received (value 13% lower from last year’s strong sale). Obviously no one is getting carried away, but given the more optimistic outlook, especially following the Hong Kong and Basle shows, steady sales progress should be expected at least through the next quarter.
Interestingly, international Sight holders will receive lower supplies of rough than in the 2016-17 contract year, as De Beers will be allocating a larger proportion of goods to its beneficiation and government partners. The dynamics of this change and the potential impact on pricing will be watched with great interest by yours truly.
Precious metals
Trust the Donald to light a fire under the precious metals complex this week. I mean, actually contradicting previous policies announced on twitter, who’d have thought it?
Still, as one of our key upside factors to the gold price, one can often rely on the Middle East to provide an occasional trading bounce as much as you could a Fed member talking his/her own book every now and then. Personally, and in my own view, the initial reasons behind this particular move are, frankly, abhorrent and deserve retribution.
Otherwise this week, I am minded to revert back to our Chief Economist Simon French’s thesis of interest rates being lower for longer. The FOMC minutes this week would seem to support his thesis (and because I agree with him, mine too). One imagines that with the FOMC signalling a preference for shrinking the Fed’s $4 trillion-odd balance sheet later in the year as the US central bank seeks to gradually tighten financial conditions this would reduce the probability of the other two rate increases pencilled in for 2017 actually happening. It would seem ridiculous for policy makers to attempt to apply both the footbrake and handbrake at the sometime.
Remember we are bulls of Centamin, Polymetal, Randgold and Ariana, who recently announced first production
Mr French has just published his Q2 preview and chart book. I hear it is worth a read and given the abundance of pictures, I might even take a look as well.
Company announcements/news/meetings:
Firestone Diamonds (LON:FDI) (Buy): Well that’s a positive sign.
Firestone has today announced the recovery of a 110ct gem-quality light yellow diamond during the ramping up of operations at the Liqhobong Diamond Mine. Given our knowledge of this operation and the diamonds we have seen previously, this reaffirms our long held belief that Liqhobong has the potential to produce these valuable diamonds. We reiterate our Buy recommendation and 68p target price today.
Simply put, this is really good news and just merely hints at the opportunity Firestone is presenting investors right now.
Gem Diamonds (LON:GEMD) (Buy): That’s more like it…
Gem Diamonds today announced the recovery of an exceptional 114ct, D colour, Type II diamond. Given the paucity of large high value recoveries in recent months, we believe this recovery can precede a return to form for Gem as it migrates back towards areas of Letšeng known to historically produce large high value diamonds.
It’s been a while and whilst historically Gem wouldn’t stoop to announcing recoveries below 250cts unless of exceptional colour/quality, the dearth of large high-value recoveries has been troubling both investors and the company alike. I would sincerely like to think that as mining operations return to areas of the Letšeng operations that have previously yielded some tasty recoveries, a return to form could be underway.
Gemfields (LON:GEM) (Under Review): Site visit to Kagem and Montepuez.
As you may have seen the multiple site visit notes from my visit to Kagem and Montepuez please do shout if you wish to have a detailed discussion. I have copied the daily summary comments for this note – too much otherwise but my summary was to come away far more optimistic than when I left and once I have fully reviewed my financial models, formal coverage will resume.
Day one of our two-day site visit to the Kagem operations included an extensive tour of the main Chama pit and the Fibolele bulk sampling operation, leading us to conclude that recent production issues are now, we believe, past the worst. Moving into the drier months and with emerald production set to return to higher value areas of the main Chama pit, we believe Gemfields is likely to see a stronger finish to Q4 FY2017 than it closed Q2 FY2017
Day two of our two-day site visit to the Kagem operations included a visit to the wash plant, sort house and a presentation on the exploration potential both within the current mining operations and further opportunities. We conclude that the increased capacity at the wash plant provides a solid foundation for the company to improve both production and margins in the longer term.
Day 3 - Following our site visit to Kagem, we visited Gemfields second major asset, the Montepuez Ruby Mine in Mozambique. The visit included a tour of each production area, including hand-picking rubies from a primary deposit (a giddying experience even on our third visit), the new wash plant, sort house as well as attending presentations on exploration and the new sort house proposal. To cap it off, we even planted our own indigenous trees as part of the mine reclamation programme. We came away from MRM as enthusiastic as when we first visited the asset four years ago. Yes, there remain issues over security, given the scale of the deposit and the sort house upgrade, in our view, needs to happen, but this is a world class asset and as demand for rubies continues to grow, Gemfields shareholders will enjoy the benefits of this exceptional asset for many years
Griffin Mining (LON:GFM) (Buy, from under review): Return to profits and considerable potential upside to come.
During the week Griffin Mining announced preliminary results for the year ended 31 December 2016, that saw the company erase the loss of last year and return to profitable cash generative operations, despite various operational difficulties. I have had a good look at the company again and given the positive outlook for zinc and gold I am happy to return to a buy recommendation for Griffin.
GFM has been under the radar for a while but there are plenty of catalysts in the story to get investors excited about the story again, not least one of the only ways to gain exposure to profitable zinc production in the small cap mining space.
Coking coal – think Anglo Pacific.