Anglo American (LON:AAL) – Latest De Beers diamond sales.
BHP Billiton (LON:BLT) – Elliott Advisors presentation tempts investors with unrealised value
Greatland Gold (LON:GGP) – Newmont to review the Ernest Giles project.
Metminco* (LON:MNC) – Mining major turning its sights on Colombia
Stratex International (LON:STI) – 2016 Final Results
Miners are little changed today after climbing more than 2% the previous day on pro-growth Chinese investments initiatives and strong steel production numbers.
• S&P set another record high on Monday closing aboe the 2,400 mark for the first time on the back positive Q1/17 corporate earnings released lately.
• Euro climbed 0.6% against the US$ trading at the highest since Nov/16 ahead of the Eurozone GDP numbers and Germany Zew economic sentiment surveys.
• Gold is inching higher on the back of a weakness in the US$ with the US$ index falling for a fifth consecutive session.
• Copper prices are broadly flat after climbing 0.8% on Monday on the back of Chinese President announcements to commit $78bn to infrastructure-related Belt & Road projects.
• Iron ore futures trade higher building up on yesterday’s gains and reports showing Chinese steel mills hit another monthly record.
• Oil prices continue to increase on the back of the agreement between Russia and Saudi Arabia to extend production cuts.
Glencore: Ivan Glasenberg is optimistic over demand for EV-related commodities including copper, nickel, cobalt, lithium and manganese on the back of faster-than-anticipated development of the market.
• Government policies and shifts in technologies are bringing down break-even prices for electric cars and energy storage systems, CEO of Glencore said.
Ford to cut 10% of global workforce as part of a US$3bn cost saving as auto sales fall in the US
• Half of Ford’s 200,000 strong workforce are based in North America.
• We suspect Ford will shed more non-US despite easier employment laws due to potential Trump reaction.
• Ford announced plans to spending $1.2bn in March to upgrade three plants in Michigan creating 130 new jobs
• Ford is known for moving very fast in reaction to falling sales and changing consumer trends.
• The company sold and slashed subsidiaries through the Global Financial Crisis and was able to withstand the collapse in sales without recourse to a government bailout, unlike GM.
• So why is Ford really cutting its staff? It is because Ford are investing in new technology or because sales are coming off?
• Eurozone sales have risen 4.6% so far this year but China, yesterday reported lower Industrial production and FAI growth rates in April
Dow Jones Industrials +0.41% at 20,982
Nikkei 225 +0.25% at 19,920
HK Hang Seng -0.13% at 25,339
Shanghai Composite +0.74% at 3,113
FTSE 350 Mining -0.10% at 14,689
AIM Basic Resources -0.07% at 2,633
Economic News
UK – Car sales dropped 20%yoy in Apr; although, YTD numbers still show a 1.1%yoy increase driven by record high monthly sales in Mar.
• Nevertheless, given a softening outlook for consumer spending and record high registrations reported in 2016 (2.7m units) it would not be all surprising to see a decline in annual headline numbers this year.
Eurozone – The highest number of auto registrations in the Eurozone in Mar since early 2010 have seen sales coming off in Apr month-on-month, although YTD numbers recorded a 4.6% increase.
• This is the slowest start to the year in the last three and compares to a strong 2016 when registration returned back above 10m units for the first time since 2011.
France – Inflation rate confirmed at1.4%yoy in Apr, unchanged from Mar and close to the highest level since 2012.
• This compares to 1.9%yoy recorded for the Eurozone region and 2.0%yoy in Germany.
Currencies
US$1.1027/eur vs 1.0940/eur yesterday. Yen 113.32/$ vs 113.68/$. SAr 13.104/$ vs 13.258/$. $1.293/gbp vs $1.293/gbp.
0.743/aud vs 0.742/aud. CNY 6.892/$ vs 6.898/$.
Commodity News
Precious metals:
Gold US$1,235/oz vs US$1,230/oz yesterday
Gold ETFs 59.6moz vs US$59.6moz yesterday
• China’s Fosun Group, Zhaojin Mining and Hainan Mining are considering taking a 15% stake in Polyus Gold, according to Russia’s Vedomosti.
• Agreement may be signed the near term, although the deal has been delayed a number of times in the past.
• A 10% sale would value the Company at $8.9bn with additional 5% interest to be made available in the form of call options with an exercise price at 10% premium.
• Previously, the Company flagged its plans to sell as much as 10% of the stock in Moscow and in the form of GDRs in London to meet the Moscow Exchange minimum float rules.
• The Company has only around 7% available as free float.
Platinum US$936/oz vs US$928/oz yesterday
• Around 60% of the industry is under water and cannot sustainably continue to operate at current platinum prices, Amplats Chris Griffith said during thr Precious Metals Forum in London.
• Supply is forecast to remain flat for a significant amount of time; although no supply cliff expected.
• Demand from auto industry in diesel based catalyst systems is forecast to remain “roughly the same” over the next decade.
Palladium US$802/oz vs US$813/oz yesterday
Silver US$16.73/oz vs US$16.59/oz yesterday
Base metals:
Copper US$ 5,581/t vs US$5,590/t yesterday
Aluminium US$ 1,902/t vs US$1,899/t yesterday
Nickel US$ 9,145/t vs US$9,280/t yesterday
Zinc US$ 2,531/t vs US$2,566/t yesterday
Lead US$ 2,104/t vs US$2,137/t yesterday
Tin US$ 19,830/t vs US$19,885/t yesterday
Energy:
Oil US$51.9/bbl vs US$52.1/bbl yesterday
Natural Gas US$3.365/mmbtu vs US$3.403/mmbtu yesterday
Uranium US$21.50/lb vs US$22.65/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$59.9/t vs US$59.9/t
Chinese steel rebar 25mm US$558.6/t vs US$549.4/t
Thermal coal (1st year forward cif ARA) US$64.3/t vs US$63.4/t yesterday
Premium hard coking coal Aus fob US$163.8/t vs US$170.0/t
Other:
Tungsten - APT European prices $212-222/mtu vs $210-219/mtu
Company News
Anglo American (LON:AAL) 1073 pence, Mkt Cap £13.9bn – Latest De Beers diamond sales.
• Anglo American reports that De Beers achieved sales of US$520m for its 4th diamond sale of 2017.
• The value of sales is approximately 11% lower than the $586m achieved during the third sale of the year and 18% below the $636m during the 4th sale in 2016.
• Bruce Cleaver, CEO of De Beers, commented that “We are continuing to see steady demand for rough diamonds, despite the industry entering a typically quiet season.”
BHP Billiton (LON:BLT) 1,193p, Mkt Cap £69.5bn – Elliott Advisors presentation tempts investors with unrealised value
• Elliott Advisors, the US activist hedge fund have published a presentation to investors outlining proposals to unlock additional value for shareholders of BHP.
• Elliott highlight:
o US$15bn - demerger of US petroleum business
o US$20bn - capital return from enhanced capital management
o US$11bn - from stranded franking credits via the unification of its legacy DLC structure.
• It is difficult to confirm these figures but it’s worth management investigating what they can do here
• Elliott go on to point out:
o US$23bn destroyed through the ill-fated foray into the US onshore petroleum sector
o US$8bn spent on petroleum exploration with no apparent value created
o US$9bn destroyed in share buybacks made at inflated market prices
• These figures are more subjective in our view and depend to some degree on oil & gas prices though we do feel that share buybacks are better saved for lower share price environments.
• Elliott go on to call for the initiation of an ‘In-Depth, Open and Truly Independent Review of BHP’s Petroleum Business.
• BHP has built up its petroleum business successfully over many years. It moved into the US along time ago looking at the Gulf of Mexico and then moving onshore into the Fracking business. Like many companies which have forayed into the US BHP suffered at the hands of a strong US dollar, high US costs and lower oil & gas prices.
• While management bear responsibility for this strategy investors were aware of the oil & gas portfolio and many of the risks associated with being in this business.
• It is not surprising that BHP has underperformed Rio Tinto due largely to its exposure to oil & gas and its lesser exposure to iron ore. Had oil prices remained at high levels then BHP’s performance would likely have been ahead of Rio Tinto’s.
• If BHP offloads its oil & gas business then it would become more like Rio Tinto and a little bit like Anglo American. We feel the additional diversification in oil & gas has served BHP well over many years enhancing cash flows at times when other miners have suffered from low metals, coal and iron ore prices. Offloading the business would remove this diversification at a time when oil & gas assets may not be fetching full value.
• BHP did well with the IPO of South 32. It was well timed and was cast off with sufficient funding to ensure positive performance. This was a value creative move and if they split off the oil & gas business is the same way would it be big enough to perform in the capital hungry world of oil & gas majors? Our view is that an IPO of the oil & gas business will be a good idea at a point when oil prices present a better value opportunity and when BHP has greater need for new capital. Eg for the development of the next Escondida-like copper mine.
• BHP management have done relatively well over the past 20 years growing the company beyond the expectations of many and benefiting from their ability to feed bulk commodities into Japan and China from Australia while growing their successful copper and petroleum businesses.
• Our view is that management should continue to focus on the development of large-scale, low cost commodity production for the delivery of longer-term returns while investing in exploration for the next generation of production.
• Our advice to Andrew Mackenzie, ceo, BHP is to thank Elliott for their ideas, adopt the better points of the Elliott strategy, and move to further enhance shareholder returns.
Greatland Gold (LON:GGP) 0.35 pence, Mkt Cap £5.9m – Newmont to review the Ernest Giles project.
• Greatland Gold has announced an agreement with Newmont Mining which grants Newmont access to the Ernest Giles project area in the East Yilgarn area of Western Australia and to the company’s exploration data for a period of six months.
• In addition, Newmont has the right of first-refusal in the event that Greatland Gold chooses to sell or joint-venture the project.
• The project area covers approximately 1800 square kilometres in an area where there have been several notable discoveries in recent years including Gold Road Resources’ 6m oz Gruyere deposit and Anglogold Ashanti’s 7m oz Tropicana deposit.
• During late 2016, Greatland Gold completed a wide-spaced 23 holes reverse-circulation drilling programme (5581m) over part of the Meadows project area in the south east part of its licence area. Thirteen of the holes are reported to have intersected mineralisation “and several holes exhibited gold anomalous zones over tens of metres, peaking at 0.78g/t gold with mineralisation at end of hole.”
• Two large zones of mineralisation were identified; Western 6km x 1.5km and Eastern 2km x 1.5 km” follow up work “confirmed mineralisation is present over a large area at Meadows and suggest that Greatland has discovered a new gold province in this largely unexplored region.”
Conclusion: Although the terms of the Newmont deal have not been disclosed, the scale of the potential, in an area where there have already been multi-million ounce gold discoveries appears to have piqued the interest of Newmont. The project appears to be at a relatively early stage of exploration and no doubt a company of Newmont’s stature will screen a large number of offers until it identifies a project it wishes to advance. We look forward to further news indicating whether or not, after the initial period of exploration access, the Ernest Giles project meets Newmont’s criteria
Metminco* (LON:MNC) 3.4p, mkt cap £4.3m – Mining major turning its sights on Colombia
• Last week, Newmont Mining announced that it had invested US$109m to acquire a 19.9% interest in TSX listed Continental Gold, the owner of the Buritica gold project in Colombia. Although Buritica is a larger and somewhat more advanced project with a formal ore reserve, the Newmont investment offers an insight into the potential value of Metminco’s Miraflores gold project.
• At the same time as the announcement of Newmont’s investment it was also disclosed that Red Kite had also invested US$25m in Continental Gold for a 4.6% interest at the same price of C$4.00/share.
• Both the Buritica and Miraflores deposits are located within the middle Cauca gold belt of Colombia which also hosts the 3.5m oz Gramalote deposit and the 28.5m oz La Colosa gold deposit of Anglogold Ashanti, which has been experiencing issues over permitting of a large scale open pit mine. Metminco’s La Quinchia project area is located some 100km south of the regional city of Medellin while Buritica, located some 70km northwest of the city is described as the northernmost significant precious metals deposit within the belt.
• We estimate that, at current precious metals prices, the Newmont and Red Kite investments value Buritica (measured and indicated resources of 12.9mt at a grade of 10.8g/t gold and 34 g/t silver and projected annu8al production of around 250,000oz of gold) at approximately US$117/oz of gold equivalent measured/indicated resource and at US$2,196/oz of projected annual gold production.
• These benchmarks imply a value for the current Miraflores resource (9.2mt at an average grade of 2.8g/t gold and 2.8g/t silver and around 46,000oz pa of average annual production in the range of around US$100m and although we would expect a discount to this theoretical figure to reflect the smaller, lower grade and less advanced stage of the project, with Metminco currently expecting to complete the Bankable Feasibility Study during the first half of 2017, the discrepancy between the current market value of the company and the value implied by the recent transactions seems likely to narrow over the coming months.
*SP Angel act as broker to Metminco. SP Angel analysts have previously visited Los Calatos in Peru and Miraflores project in Colombia
Stratex International (LON:STI) 1.5p, Mkt cap £6.8m – 2016 Final Results
• Stratex International has reported an after tax loss of £2.66m for the year to 31st December 2016. The result compares with a reported loss of £0.6m during 2015, however the company points out that the 2015 result reflects a £3.04m profit from the sale of the royalty on Oksut resulting in a loss on a comparable basis of £3.67m in 2015.
• The results also show a £0.68m reduction in the administrative costs “on a like-for-like cash basis.”
• As previously announced, Stratex has accepted a US$8m offer to sell its 45% interest in the Altintepe gold project in Turkey where “We had been frustrated in enforcing our rights under our agreement with our Turkish partners”. The offer is net of any taxes and costs and should provide a financial platform for Stratex to advance its strategy “to develop its existing exploration projects and seek to identify accretive acquisition opportunities that complement our portfolio of projects.”
• The group’s interest in Thani Stratex has been diluted to 30.4% following Thani Stratex’s US$4.5m fund-raising. Operationally the Anbat gold project in Egypt continues to deliver promising drilling results which suggest the presence of flat lying gold bearing mineralised structures.
• “In the light of commodity price pressures, the Group’s interest in the Muratdere copper-gold project has been diluted to 14.87% following the Board’s decision in February 2016 not to commit further funds to the project.”
Conclusion: 2016 has seen substantial changes in the leadership of Stratex International with the retirement of founding director Bob Foster as well as the long serving Chairman, Christopher Hall. We regard Messrs Foster and Hall as the architects of Stratex International in its present form having presided over the discovery of some 2.2m oz of gold and the completion of the Altintepe gold mine. In addition, Emma Priestly has assumed a non-executive director role within Stratex following her appointment as CEO of Goldstone Resources, in which Stratex maintains a 33.45% interest. Leadership is now in the hands of Marcus Engelnrecht, who as the CEO will lead the effort to identify Stratex’s next strategic opportunity.