Anglo American (LON:AAL) – Q2 production
BlueRock Diamonds* (LON:BRD) – Financing update
Caledonia Mining (LON:CMCL) – Quarterly gold production
Ncondezi Energy (LON:NCCL) – Update on search for strategic partner
European equities are up as US stocks closed at all-time highs while the BoJ maintained its easing bias.
• Gold holds near the highest level in nearly three weeks ahead of the ECB meeting results later today while the BoJ kept easing unchanged.
• The euro is trading near a 14-month high against the US$.
• The US$ index is marginally higher this morning climbing for a second trading session but remains down on the week.
• Brent is level this morning after climbing nearly a $1/bbl the previous day amid reports showing US crude and gasoline stockpiles extended declines.
• OPEC and non-members are meeting in St Petersburg later this month to discuss production rationing.
• Steel rebar futures drop 5% from 2013 highs in Shanghai following a strong run over the last two months; iron ore September futures were down 2.8%on the DCE marking the first decline this week.
Copper - market set to dive into deficit as demand outstrips global GDP growth and production forecasts
• World respected Bloomsbury Minerals Economics ‘BME’ in its latest 2020 copper outlook reviews market developments over four time periods.
• The Part 1 is in 2011 when copper prices peaked and averaged $8,800/t marking the top of the investment driven copper price bubble leading producers to make the best use of available capacities (utilisation hit 90%) and secondary refined production climbed to 3.7mt.
• The Part 2 covers the period over 2012-2016 when previously committed development projects led rapid mine capacity growth amid a slump in demand driving prices from above $8,800/t in 2011 to below $5,000/t in 2016.
• Surplus built up over the period while losses from closures and cutbacks and declines in refined production were compensated by increased production from remaining mines (utilisation came off only slightly by 2016).
• The Part 3 describes the 2017-2020 period when the market is expected to switch “from an average production excess of 365kt per year to a prospectively almost balanced market” mostly driven by improved demand growth rates.
• 2017 when two of the world’s largest operations recorded production disruptions from resource nationalism (Grasberg) and strikes (Escondida) BME estimates a small deficit, while over the 2017-2019 period the market is expected to post a cumulative surplus of under 0.1mt.
• The Part 4 when post 2020 mine capacity growth is expected to slowdown, the market is forecast to post a deficit lasting through 2020 “sufficient to remove much of the industry’s excess stock”.
• On the demand side, BME highlights growth in copper demand over the past five years (2012-2016) in line with growth in world industrial production (2.2%pa) implying “unchanged intensity of use of copper”.
• Moving forwards, BME expects increased copper intensity to help drive copper demand growth rates through 2018-20 past global industrial production growth pace (2.5-3.0%) on the back of increased usage of EVs and re-charging infrastructure, among other things.
• Price wise, BME sees demand growth rates as primary drivers for selection of forecast incentive prices
• Contact: Peter Hollands ph@bloomsburyminerals.com for further details.
Lithium – Reuters asks if there is sufficient lithium in the right chemical composition to support battery demand
• The market for lithium is a ‘chicken and egg’ thing right now in our view.
• There is no shortage of lithium mineralisation to mine, but there may be a shortage of good quality, higher grade lithium brine and pegmatite for processing.
• Chinese and Japanese lithium processors appear to be encouraging and miners to advance the better projects through finance and through education on demand growth though the Chinese government has made it difficult for private Chinese companies to remit funds for acquisitions outside China.
• Elon Musk reckons the lithium will come if Tesla builds more cars. Tesla delivered just 47,000 vehicles in the first half due to a ‘severe shortfall’ of battery packs, which may have been more to do with manufacturing issues than on feedstock constraints.
• Stories of lithium feedstock shortages have yet to emerge though relatively small quantities of lithium were seen trading in China at elevated levels earlier this year.
• Industrial Minerals (Metal Bulletin) are currently quoting Lithium Carbonate prices at between $11-16/kg for large biannual contracts delivered into the US and at $19.95/kg for June on their 12-month price trend. Spot prices CIF China are higher at $18-21.7/kg indicating greater competition for lithium feedstock in China reflecting the rapid growth of lithium processing and battery manufacturing in the region.
• Reports suggest that China is planning and probably building a number of battery manufacturing plants to rival and potentially exceed planned capacity at Tesla’s giga-factory.
• China is already way ahead in lithium battery manufacturing with some 200m e-bikes running on the road with a value of some Eur14bn. The massive growth in e-bikes and their use on pavements has caused new legislation to enable the banning of e-bikes from major cities. Many new e-bikes in the UK are running on lithium batteries though in China lead-acid batteries still more commonly used.
• New battery types; Lithium-ion batteries continue to appear to be the way ahead despite sporadic news on other battery-related breakthroughs and while the precise composition of lithium batteries will continue to vary it is hard to beat the light-weight characteristics of lithium combined with its energy storage capacity.
• We suspect the next generation of lithium batteries will pack greater energy density and will hopefully be more robust than the current generation cells.
• The race is on for miners to secure their place within the lithium supply chain while lithium processors appear fairly desperate for feedstock at the right quality and the right price.
Dow Jones Industrials +0.31% at 21,641
Nikkei 225 +0.62% at 20,145
HK Hang Seng +0.27% at 26,744
Shanghai Composite +0.43% at 3,245
FTSE 350 Mining -0.11% at 16,002
AIM Basic Resources -0.14% at 2,452
Economic News
US – Building permits and new property starts jump in June following a couple of months of declines.
• Despite the latest pick up, homebuilders become less upbeat on the sector with the industry’s sentiment at an eight-month low losing the post-election boost in enthusiasm on the back of unrealised expectations of deregulation and tax reforms.
• Construction companies complain about rising input costs such as lumber and shortages of land and skilled labour.
• Nevertheless, low borrowing costs and strong labour market continued to support demand and prices for properties.
Date Event Period Survey Actual Prior Revised
Monday Empire Manufacturing Jul 15 9.8 19.8 --
Wednesday Housing Starts MoM Jun 6.20% 8.30% -5.50% -2.80%
Building Permits MoM Jun 2.80% 7.40% -4.90% --
Thursday Initial Jobless Claims Jul-15 245k -- 247k --
Continuing Claims Jul-08 1949k -- 1945k --
Philadelphia Fed Business Outlook Jul 22.9 -- 27.6 --
Source: Bloomberg
Japan – The BoJ left the monetary stimulus programme unchanged while pushing back the timing of reaching the 2% inflation target.
• The Bank expects the economy to hit the 2% target in FY20, one year out compared to previous forecasts.
• The central bank has also cut its price forecasts for the FY17-19 period (FY17: 1.1% down from 1.4%; FY18: 1.5% down from 1.7%; FY19: 1.8% down from 1.9%).
• On a positive note, the Bank raised its GDP growth estimates although the slowing trend has remained unchanged (FY17: 1.8% up from 1.6%; FY18: 1.4% up from 1.3%; FY19: 0.7% unchanged).
• Market commentators voice concerns over the sustainability of the easing programme given that the size of the BoJ balance sheet has grown nearly to the size of the economy.
ECB – The central bank is expected to keep rates and the pace of quantitative easing unchanged as inflation in absence of inflation pressures.
• Although, economic activity in the region has been on an improving trend recently with the latest set of PMI numbers pointing to the economy expanding at a higher than 0.7%qoq in Q2, up from 0.6%qoq recorded in Q1/17.
• The Bank has reduced its monthly purchasing rate to €60bn, down from €80bn, earlier this year in response to a strengthening growth.
Australia – The AUD$ hit the highest level in two years against the US$ earlier this morning after the release of strong employment data.
• Western Australia added 6,900 jobs, the strongest reading by state, on the back of a recovery in the mining industry sentiment; the region has also seen the largest increase in participation rate.
• While the RBA highlighted strengthening labour market this week, inflation remains well below the 3.5% target (2pp below) suggesting the central bank is in no rush to hike rates at this point.
• Markets are pricing in a 65% chance of a rate hike in May/18.
Date Event Survey Actual Prior Revised
Thursday Employment Change Jun 15.0k 14.0k 42.0k 38.0k
Unemployment Rate Jun 5.60% 5.60% 5.50% 5.60%
Full Time Employment Change Jun -- 62.0k 52.1k 53.4k
Part Time Employment Change Jun -- -48.0k -10.1k -15.4k
Participation Rate Jun 64.90% 65.00% 64.90% --
Source: Bloomberg
South Africa – SA Mineral Resources Minister Mosebenzi Zwane proposed a restriction on granting and renewing mining licenses.
• Previously, Zwane published new Mining Charter in mid-June advocating for changes to stakes owned by locals in mining companies.
• Changes to the Mining Charter have been put on hold pending the decision of the court on the case brought by the Chamber of Mines against the Ministry.
Peru – Workers at 56 mioning unions in Peru, the world’s second largest copper producers, including top copper mines are protesting the government’s proposed labour reforms, Reuters reports.
Currencies
US$1.1509/eur vs 1.1534/eur yesterday. Yen 112.28/$ vs 112.07/$. SAr 12.967/$ vs 12.956/$. $1.300/gbp vs $1.304/gbp.
0.792/aud vs 0.793/aud. CNY 6.766/$ vs 6.757/$.
Commodity News
Precious metals:
Gold US$1,238/oz vs US$1,240/oz yesterday
Gold ETFs 59.4moz vs US$59.5moz yesterday
Platinum US$917/oz vs US$925/oz yesterday
Palladium US$857/oz vs US$864/oz yesterday
Silver US$16.20/oz vs US$16.25/oz yesterday
Base metals:
Copper US$ 5,984/t vs US$6,017/t yesterday
Aluminium US$ 1,928/t vs US$1,935/t yesterday
Nickel US$ 9,655/t vs US$9,760/t yesterday
Zinc US$ 2,744/t vs US$2,795/t yesterday
Lead US$ 2,221/t vs US$2,272/t yesterday
Tin US$ 20,100/t vs US$20,100/t yesterday
Energy:
Oil US$49.7/bbl vs US$48.8/bbl yesterday
Natural Gas US$3.074/mmbtu vs US$3.079/mmbtu yesterday
Uranium US$20.25/lb vs US$20.15/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$68.3/t vs US$67.4/t
Chinese steel rebar 25mm US$602.2/t vs US$601.8/t
Thermal coal (1st year forward cif ARA) US$73.5/t vs US$73.5/t yesterday
Premium hard coking coal Aus fob US$168.6/t vs US$168.5/t
Other:
Tungsten APT European US$218-226/mtu vs US$215-222/mtu
Company News
Anglo American (LON:AAL) 1139 pence, Mkt Cap £14.7bn – Q2 production
• Anglo American reports increased production of diamonds, iron ore and platinum, stable copper production and a decline in metallurgical coal output following the disruption caused by Cyclone Debbie and operational and geological issues.
• Rough diamond production at De Beers rose, in line with production forecasts reflecting the ramp up of production at Gahcho Kue, rose by 36% year-on-year to 8.7m carats. Production, compared with Q2 2016, rose across all the operations with Debswana up 14% to 5.9m carats, Namdeb up 32% to 391,000 carats and the South African operations of DBCM up 71% to 1.4m carats. The new Gahcho Kue mine in Canada produced over 1m carats as it ramped up to design capacity.
• Diamond production guidance for 2017 remains intact at 31-77m carats.
• Copper production remained broadly stable at 140,800 tonnes (Q2 2016 – 144,200 tonnes) with a 9% decline at Collahuasi to 51kt and a 13% fall at El Soldado to 10,800 tonnes partially offset by a 4% rise in output at Los Bronces to 79kt. Copper production guidance for the full year 2017 remains unchanged at 570-600,000 tonnes.
• Platinum production at Mogalakwena benefitted from increased throughput and higher grades to deliver a 15% increase in platinum output to 113,900 oz. overall production guidance for 2017 at 2.35-2.40m oz of metal in concentrate remains intact.
• Metallurgical coal output declined by 19% to 4mt reflecting the impact of Cyclone Debbie on the rail infrastructure of Queensland while longwall moves were implemented at both the Moranbah and Grasstree mines. Geological issues and damage to a conveyor belt at the Grosvenor mine also impacted production. “Full year production guidance for export metallurgical coal remains unchanged at 19 - 21 million tonnes, but is expected to be at the lower end of this range due to the geological issues at Grosvenor.”
• Export thermal coal output from Australia declined to 0.3mtfollowing completion of mining at Drayton while in South Africa, export thermal coal output dropped by 8.1% to 4.1m tonnes “due to operational challenges at Khwezela associated with the integration of the Kleinkopje and Landau mines.” “The sale of the Eskom-tied operating mines (New Vaal, New Denmark and Kriel) to Seriti Resources was announced on 10 April 2017, and is expected to complete by the end of 2017”
• In Colombia, attributable production rose by 5% to 2.4mt as a result of gains in productivity. Overall, the company’s “Full year production guidance for export thermal coal from South Africa and Cerrejón remains unchanged at 29 - 31 million tonnes, but is expected to be at the lower end of this range primarily due to the operational challenges at Khwezela.”
• Iron ore production at Kumba’s Sishen mine rose by 38% to 7.9m tonnes “as a result of improved mining productivity, driven by fleet efficiencies and higher plant yields [and] Full year production guidance has been increased to 41 - 43 million tonnes (previously 40 - 42 million tonnes) as a result of the improved performance at Sishen.”
• Brazilian iron ore production from Minas Rio rose by 24% to 4.3mt as a result of the continuing ramp up odf production to its current operating capacity. “Full year production guidance remains unchanged at 16-18 million tonnes”.
Conclusion: The major mining operations remain on track to meet full year production guidance. Iron ore production at Sishen is exceeding original expectations with increased guidance while the Australian coal operations are expected to come in at the lower end of guidance ranges as they recover from the impact of Cyclone Debbie.
BlueRock Diamonds* (LON:BRD) 3p, Mkt Cap £2.0m – Financing update
• BlueRock Diamonds are taking a loan of £310,000 with Mark Poole, a substantial shareholder to be used to buy essential equipment for the mine.
• The funds are to be used for a loader .
• The unsecured loan has a 10%pa interest rate over a five year term though it does carry the right to purchase certain capital goods in the event of company default.
• A further loan of £150,000 has also been fully drawn and has been increased by £40,000 indicating that the principal founders and shareholders are willing to continue to support the business.
• The mine is to run its final blast of the upper level ‘calcrete’ kimberlite in early August, eg the hard stuff and to then move onto mining the higher grade and softer kimberlite after that.
• “Production utilising the Company’s reconfigured plant, continues to progress positively with ongoing operation at or around targeted daily tonnages.”
• CEO, Adam Waugh, commented that “We are currently exploring options to fund the further development of mining operations at Kareevlei, including lowering our reliance on outside contractors to deliver productivity improvements and cost savings similar to those that we expect from the current planned equipment purchase.”
Conclusion: It is good to see a company so well supported by its shareholders in such an open and reasonable manner. We hope the mining and development of the softer and higher-grade kimberlite will continue to realise larger and higher-value stones and for this, in conjunction with continuing productivity gains and cost improvements, to lead the company to profit and further expansion.
*SP Angel acts as Nomad & Broker to BlueRock Diamonds
Caledonia Mining (LON:CMCL) 493 pence, Mkt Cap £52m – Quarterly gold production
• Caledonia Mining has announced that its Blanket gold mine in Zimbabwe produced 12,522 oz during the quarter ending 30th June, bringing H1 output to 25,316 oz – an 8.5% increase on H1 2016.
• Production remains on course to meet the revised 2017 production guidance target range of 52-57,000oz and to achieve the longer term objective of 80,000 oz by 2021.
• We interpret the reduced production guidance for 2017, from the former 60,000 oz target, as a balanced response from management to the competing demands on the mine’s shaft capacity and underground infrastructure of production and the major development programme to access ore below the 750 level in order to ensure the longer term future of the mine and the build-up to the 80,000 oz pa gold production target.
• CEO, Steve Curtis, commented “The existing infrastructure constraints at Blanket are temporary and are expected to be fully alleviated when the new Central Shaft is commissioned in the second half of 2018. I am pleased to say that work on the Central Shaft remains on track.”
Conclusion: The major development programme at the Blanket mine is progressing while production operations have delivered an 8.5% year-on-year increase in gold output during H1 2017.
Ncondezi Energy (LON:NCCL) 3.1 pence, Mkt Cap £7.8m – Update on search for strategic partner
• Ncondezi Energy reports that it has received letters of intent from several potential strategic partners for the development of its proposed integrated coal mine and power generation facility in northern Mozambique.
• At this stage, the company “has been encouraged by the quality of the participating parties, which represent a combination of leading international power companies and regional power developers.”
• In order to progress, the interested parties will need to complete their own due-diligence on the project prior to the submission of non-binding offers which can be evaluated by the company in order to select preferred bidders. “The process is currently targeting submission of binding offers before the end of Q3 2017 with transaction close during Q4 2017.”
• The process timetable impinges on the existing schedule for the shareholder loans, “which currently reach maturity on 2 September 2017.” The company is planning to “initiate discussions with Shareholder Loan holders to extend the maturity date”.
• The company notes that “Assuming the Shareholder Loans repayment date can be extended, the Company will have sufficient funding in place to cover its working capital commitments until the end of September 2017.”
Conclusion: The process of selecting a new strategic partner is proceeding towards a close by the end of 2017 and shareholders are to be asked to extend thir loans to facilitate the process.