West African Minerals (LON:WAFM) – Scoping study uses US$112/tonne for iron ore concentrate price
Savannah Resources (LON:SAV) – EIA lodged on copper projects in Oman
Miners are dragged lower amid a retreat in iron ore and coking coal prices.
• Iron ore futures continued to slide and were down 1.8% today on the DCE taking aggregate losses in May to c.15%.
• Metallurgical coal prices are heading towards the biggest weekly decline since the Steel Index launched the price index in 2013 amid a recovery in supply from cyclone-hit producers in Australia; prices fell $18.4/t or 9.5% to $175/t on Thursday marking the biggest daily decline on record; prices are down 17.4% this week and on course for a fourth weekly decline.
• Copper prices climb amid better than forecast Chinese credit growth numbers.
• Gold is up for a second day while oil prices are on course to post the first weekly increase in a month amid weaker US$.
• Two OPEC member suggested there is consensus to prolong production cuts past June.
• The US$ index is flat following two days of declines.
Well done to the 121 team for organising such a successful event in London over the past two days
• Thank you to all the investors, companies and analysts for their time and attendance.
• All seemed to enjoy and appreciate the event and every company looked to have busy schedules throughout.
Economic News
US – Producer prices growth jumped in Apr led by food and energy prices, although, the growth rate is likely to come down moving forwards reflecting a recent decline in oil prices.
Date Index Period Actual Est Previous
Tuesday JOLTS Job Openings Mar 5,743k 5,725k 5,682k
Thursday Weekly Jobless Claims 236k 245k 238k
PPI (%mom/yoy) Apr 0.5/2.5 02/2.2 -0.1/+2.3
Core PPI (%mom/yoy) Apr 0.2/1.6 0.2/1.6 0.0/1.6
Friday CPI (%mom/yoy) Apr 0.2/2.3 -0.3/+2.4
Core CPI (%mom/yoy) Apr 0.2/2.0 -0.1/+2.0
Retail Sales Apr 0.6 -0.2
Core Retail Sales Apr 0.4 0.1
UoM Consumer Sentiment May (prelim) 97.0 97.0
Source: Bloomberg
China – Money supply growth slowed less than forecast while the availability of credit climbed 11.2%yoy YTD (Jan-Apr).
• This compares with a 3.4%yoy growth in the first three months of the year.
• Aggregate Financing (bn CNY): 1,390 v 2,119 in Mar and 1,150 forecast.
• Money Supply M2 (%yoy): 10.5 v 10.6 in Mar and 10.8 forecast.
Germany – Growth accelerated in Q1/17 with strong quarterly numbers coming in line with market estimates.
• The major driver of strong performance in Q1/17 is reported to have been fixed capital investment which benefited from gains in construction, in particular, on mild winter.
• Additionally, consumer and government spending coupled with net exports contributed to growth.
• GDP (%qoq): 0.6 v 0.4 in Q4/16 and 0.6 forecast.
• Real GDP (%yoy): 1.7 v 1.8 in Q4/16 and 1.7 forecast.
UK – The MPC voted to keep rates unchanged at 0.25% in May with seven members backing the decision and Kristin Forbes being the only member to support a 25bp hike.
• The asset purchase target was left at £435bn with plans to buy as much as £10bn worth of corporate bonds.
• Economic growth forecasts have been slightly revised downwards for 2017 (1.9% from 2.0%) while 2018/19 numbers were brought marginally higher (1.7/1.8 v 1.6/1.7).
• The BoE expects trade, investment and fiscal policy to offset weaker consumption growth reflecting stronger world economic outlook, lower borrowing costs and a slight fiscal loosening highlighted in the March Budget.
• On inflation, the BoE estimates prices growth to hit 2.8% in Q4/17 before coming down to 2.4% in 2018 and 2.2% in 2019.
• BoE growth forecasts have been questioned by markets with many commentators assuming a more disruptive Brexit process that the Bank built in its estimates.
• The pound fell 0.75% against the US$ following the announcement.
Currencies
US$1.0860/eur vs 1.0880/eur yesterday. Yen 113.67/$ vs 114.15/$. SAr 13.434/$ vs 13.444/$. $1.287/gbp vs $1.294/gbp.
0.738/aud vs 0.737/aud. CNY 6.905/$ vs 6.905/$.
Commodity News
Precious metals:
Gold US$1,228/oz vs US$1,222/oz yesterday
Gold ETFs 59.6moz vs US$59.6moz yesterday
Platinum US$924/oz vs US$918/oz yesterday
Palladium US$807/oz vs US$804/oz yesterday
Silver US$16.44/oz vs US$16.28/oz yesterday
Base metals:
Copper US$ 5,549/t vs US$5,558/t yesterday
Aluminium US$ 1,883/t vs US$1,874/t yesterday
Nickel US$ 9,335/t vs US$9,265/t yesterday
Zinc US$ 2,593/t vs US$2,637/t yesterday
Lead US$ 2,172/t vs US$2,212/t yesterday
Tin US$ 19,850/t vs US$19,802/t yesterday
Energy:
Oil US$50.9/bbl vs US$50.6/bbl yesterday
Natural Gas US$3.369/mmbtu vs US$3.280/mmbtu yesterday
Uranium US$22.65/lb vs US$22.65/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$60.5/t vs US$60.3/t
Chinese steel rebar 25mm US$548.9/t vs US$548.5/t
Thermal coal (1st year forward cif ARA) US$63.2/t vs US$63.3/t yesterday
Premium hard coking coal Aus fob US$175.0/t vs US$175.0/t
Other:
Tungsten - APT European prices $210-219/mtu vs $212-219/mtu
Company News
West African Minerals (LON:WAFM) 3.5p, Mkt cap £13.3m – Scoping study uses US$112/tonne for iron ore concentrate price
• West African Minerals which is looking to potentially develop a number of smallish iron ore projects has released details of a scoping study on the Sanaga iron ore project in Cameroon.
• The company which has been virtually dormant for some years and still shows presentations from 2014 and February 2015 on its website under the title ‘what’s new’ has at long last come out with a scoping study and a valuation done by Royal HaskoningDHV .
• The study lists numbers like “NPV10 of US$262-292m*” and “IRR of 29-37%* with 29-46 month payback on capital costs”.
• The numbers are inflated by the use of (*Based on long term forecast of 69% concentrate (CFR China) of US$112/ tonne).
• While we can see that good quality magnetite concentrates might attract a marginally higher price to that of standard iron ore we consider the use of US$112/tonne as a long term forecast as wholly inappropriate when it comes to the valuation and presentation of an iron ore project.
• We are surprised to see that Royal HaskoningDHV have allowed their name to be associated with this sort of promotion.
• The use of this figure and the inflated valuations which come from it go to show how WAFM has lost touch with the reality of iron ore markets. It also suggests to us that there is a risk that other aspects of the report may be similarly adjusted from a promotional perspective.
Savannah Resources (LON:SAV) 5.4p, Mkt Cap £27.7m – EIA lodged on copper projects in Oman
(Savannah holds 65% in holder of Mahab 4 and Maquail South deposits within Block 5)
• Savannah Resources has now lodged the Environmental Impact Assesment ‘EIA’ for its Mahab 4 and Maquail South deposits within Block 5 in Oman.
• The EIA is the “final permitting submission requirement for Mining License applications” according to the company.
• The approval process should take around three months.
• Savannah plan to run Maqail South as an open pit and Mahab 4 underground.
• An economic study on the mine development is planned for completion in July. The comment does not specify what sort of economic study this is which is a bit of an omission so we presume it is some sort of unverified scoping / pre-feasibility study.
• Savannah claims that it has “an excellent opportunity to potentially evolve into a mid-tier copper and gold producer within a relatively short time frame”.
• These are lofty ambitions for a company with no mine and or mining permit as yet. Furthermore, the exploration targets are for 10-29mt grading between 1.4-2.4% copper.
• If we generously assume the team prove up 29mt of resource and again very generously go with the upper end 2.4% grade then the company might potentially justify production of around 35,000tpa assuming an average 15-year mine life which is a normal assumption for many a copper mine. At the lower end the company might produce 7,500tap of copper indicating to us that the mid-tier claim is a tad ambitious by our way of thinking.