Commodities
Diamonds and precious stones
Solid production and sales data on Monday from DB, Gaucho Kué kicked in, but more importantly was the sales numbers in my view as total sales jumped 75% to 14.1Mcts, (consolidated +80% year on year to 13.7Mcts) Admittedly, the extra Sight will have helped so something to consider next quarter, but what really matters and after we discussed previously, the increased volumes of lower value goods and the reduction in global inventories, due to lower prices and the recovery in Indian liquidity, is a notable positive.
On that, the Rupee has been on a bit of a run recently, touching a near two year high. This is also a positive for the lower value end of the market and polished prices have held pretty steady during the week.
Stornoway have just closed their tender in Antwerp with Mountain Province and Grib underway. Next week sees the start of the Gem Diamonds large stone tender, Dominion and Rio Tinto sales as well as Sight 4 on Wednesday.
Precious metals
The precious space has continued to drift again this week with gold off c1.5% leaving the month’s performance around +1.25%, whilst the devils metal is c3.5% lower (down 4.5% in April) as investors took a more optimistic view of the global growth outlook, well that was until the Q1 prints for Japan, the UK and France hit our screens, potentially undermining the case for further global inflation growth.
Eyes are on the US once again as an annualised 1% growth rate is the target. Conversely a bad print would probably be positive for the yellow metal as it would further undermine the already weak case for multiple rate increases in 2017, as per our man, Le French.
Lots of chatter on the technical side of things with gold the main focus. Now I am not a “ruler to the screen” cardholder but could we be approaching “golden cross” territory? I will let you decide and come back to me.
Company announcements/news/meetings:
Ariana Resources (LON:AAU) (Buy)*: Mariana deal highlights potential value at Salinbaş
Now I don’t normally go in for the whole “opportunity next door ideas” but given the fact that Ariana’s Salinbaş project is roughly a very weak stone’s throw from the acreage Sandstorm are acquiring from Mariana, via their Hot Maden project for over £150m (January’s scoping study valued it at around $1.4bn), it probably means Ariana’s project is worth another look.
Increasingly the “hot gold corridor” – (great name) which hosts the Salinbaş project and Hot Maden, plus many other targets, looks like a very exciting province and given Ariana already have a resource of >1moz eq one imagines things could get very exciting…
Firestone Diamonds (LON:FDI) (Buy): Quarterly update
Quarterly update, that apart from the not altogether surprising reduction in FY production guidance to 300kcts, given the issues with the tertiary crushers and the usual recovery optimisation programmes at every new processing plant, we already knew most of what we needed to know given the recent better than expected sales announcements.
Given the mine remains in ramp up mode I would expect further issues for the team to overcome and whilst recoveries are lower, the next sale in a couple of weeks will help to further increase funds, certainly as the 110ct could be sold. Operationally tonnes will increase, as will grades, when the mining operations move into the higher value areas as noted previously.
Highland Gold (LON:HGM) (N/C): Q1 Update
We mentioned HGM last week and yesterday the company announced its Q1 production update that confirmed that things continue to tick along nicely.
Total production at (MNV), (Novo) and Belaya Gora rose 14.7% to 65,243ozs of gold and gold equivalent, average prices were in line with peers at $1,222/oz. Growth mainly came from MNV +27.5% and Novo +15.7%, as expected Belaya Gora continued to focus on low-grade ore stockpiles ahead of the anticipated project development programme.
Finally, full year production guidance of for 255,000-265,000ozs Au equivalent has been reiterated.
Given the stock went ex-div recently, many income hunters will probably be looking elsewhere, certainly with the gold price drifting, but given the growth profile over the next few years, I would not imagine it would be too long before HGM is back on the shopping list for investors seeking low cost production growth.
Lucapa Diamond Co (LON:LOM) (Buy): Quarterly update
Without running through the significant events during the period as they have already been covered in this publication many times, think the key points to observe are consistent recoveries of large, high value diamonds from existing and new mining blocks, the expanded JORC resource base and average valuation, thereby giving us confidence over the long life nature of the projects acreage and the strong cash generation associated with an average value of $2,370/ct in the period.
Exploration work, whilst slower in progress has seen some notable developments with four targets intersecting coarse resedimented volcaniclastic kimberlite (RVK) with L15 (3.5km from Mining Block 8) encountering RVK nearer to surface than previous intersections.
Petra Diamonds (LON:PDL) (Hold): Target price unchanged at 152p.
“Petra's Q3 production and sales update confirmed our fears that production in FY2017 would be towards the lower end of previous guidance of 4.4-4.6Mcts. However, given that much of the impact was from lower value resources and our preference is for seeing higher volumes of undiluted ore, despite some short term operational issues, we are happy to retain our Hold recommendation. That said, the de-rating since our move from Buy is making the longer-term valuation case harder to ignore”.
PDL are inching their way to the inflection point that investors have been patiently awaiting for a number of years. One imagines that should a final shake out in the shares occur, a sustained recovery using FY18 forecasts as a base would be quite compelling for investors…
Companies reporting next week include: Centamin and Randgold, neither of which I expect to be significantly different to consensus. Lucara and Glencore are also set to give us an update as well.