Petra Diamonds (LON:PDL) – Production up 8% y-o-y to 4m carats
Randgold Resources (LON:RRS) – Tongon on track for 285,000oz in 2017
Tri-Star Resources* (LON:TSTR) – Firming up capital budget for OAR
Markets will be watching the US Fed that holds the FOMC meeting Tuesday/Wednesday with the press release potentially elaborating on the timing to start normalizing the central bank’s balance sheet.
- The US$ index is level after falling for two straight weeks and touching the lowest level since may/16 on Friday last week.
- Gold is trading around $1,255/oz helped by US political woes.
- Copper prices are hovering around the highest level in more than four months as reports show net long speculative positions climbed 12% in the week ended July 18 (US CFTC data).
- Crude is little changed at $47.93/bbl today after falling c.$1.80/bbl on Friday as a consultancy forecast an increase in OPEC production in July; ministers from OPEC and non-OPEC countries are meeting today in St Petersburg to examine proposals relating to production cuts.
The IMF releases updated growth projections confirming its previous estimates for a 3.5% growth rate for 2017 and 2018; although the distribution of growth rates has changed slightly.
- In particular, growth in the Eurozone, China and Japan have been brought upwards.
- Offsetting changes included downwards revision in the US and UK growth rates.
- In China, “the upward revision of 0.2pp (in 2018) mainly reflects an expectation that the authorities will delay the needed fiscal adjustment (especially by maintaining high public investment) to meet their target of doubling 2010 real GDP by 2020”.
- In the US growth forecasts have been reduced “because near term US fiscal policy looks less likely to be expansionary” than what was believed in April.
- Lower UK growth rates reflected “the economy’s tepid performance so far”, while “the ultimate impact of Brexit on the UK remains unclear”.
- IMF 2017/18 growth projections
Economic News
US – Jared Kushner, a Trump’s son in law, is set to have a hearing led by the Senate Intelligence Committee amid a continuing probe into a possible connection between a Trump’s presidential campaign and Kremlin.
Donald Trump Jr and former Trump campaign Chairman Paul Manafort will stand before the Committee on Wednesday.
China – Komatsu Chairman is optimistic over future Chinese demand beyond leadership meeting in the autumn.
The government needs to continue spending on infrastructure to maintain growth, Kuino Noji said.
Eurozone – Despite coming off recent highs, Eurozone composite economic activity (manufacturing + services) continued to expand at a strong pace starting the third quarter on a solid footing, on Markit PMI numbers.
- The report showed solid growth in new orders and jobs, while input costs’ inflation abating and final goods prices’ increase “slipping to the weakest since January”.
- “Forward looking indicators such as new order inflows remain elevated, suggesting robust growth will be sustained in coming months; job creation is consequently booming as companies seek to expand in line with growing demand,” market said.
- “However, even with employment growing at one of the fastest rates seen over the past decade, the survey is still showing backlogs of uncompleted orders rising at a rate close to a six-year high; Manufacturing suppliers’ lead times also lengthened to the greatest extent for over six years as demand exceeded supply for many inputs; these are symptoms of booming rather than an ailing economy.”
UK – UK households posted the fastest decline in financial situation in three years in July, according to Markit numbers.
“There are signs that squeezed household budgets and worries about earnings have started to spill over to consumer spending patterns,” Markit said.
Consumer willingness to purchase big ticket items such as cars and household appliances dropped to the lowest since December 2013.
Markit Household Finance Index: 41.8 in July v 43.7 in June.
The IMF cut UK economy growth projections by 0.3pp to 1.7% for 2017 while estimates for 2018 remained unchanged at 1.5%
Currencies
US$1.1654/eur vs 1.1656/eur last week. Yen 110.86/$ vs 111.83/$. SAr 12.920/$ vs 12.996/$. $1.301/gbp vs $1.299/gbp.
0.795/aud vs 0.789/aud. CNY 6.752/$ vs 6.765/$.
Commodity News
Precious metals:
Gold US$1,254/oz vs US$1,248/oz last week
Gold ETFs 59.3Moz vs US$59.4moz last week
Platinum US$934/oz vs US$929/oz last week
Palladium US$842/oz vs US$849/oz last week
Silver US$16.47/oz vs US$16.39/oz last week
Base metals:
Copper US$ 6,000/t vs US$6,010/t last week – The ICSG estimates that market deficit widened to 53kt in April, from a 18kt shortage recorded in March.
The deficit has been driven by a six-week strike at BHP Billiton’s Escondida and lower production from Codelco operations cutting Chilean output by 12% in the first four months of the year.
More recently, 5,000 miners are Grasebrg decided to extend their strike for a fourth month, the union said July 21.
In Peru, the Mininistry of Energy and Mines said around 4,000 out of 65,000 workers are participating in strikes and demonstrations protesting government plans to change labour rules.
LME monitored copper stockpiles dropped 2% last week extending latest drawdowns to 20% since this year’s peak in March.
Aluminium US$ 1,922/t vs US$1,922/t last week
Nickel US$ 9,605/t vs US$9,575/t last week
Zinc US$ 2,778/t vs US$2,749/t last week
Lead US$ 2,253/t vs US$2,227/t last week
Tin US$ 20,130/t vs US$20,125/t last week
Energy:
Oil US$48.0/bbl vs US$49.3/bbl last week
Natural Gas US$2.932/mmbtu vs US$3.029/mmbtu last week
Uranium US$20.55/lb vs US$20.55/lb last week
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$66.3/t vs US$66.6/t
Chinese steel rebar 25mm US$598.6/t vs US$601.4/t
Thermal coal (1st year forward cif ARA) US$74.0/t vs US$73.5/t last week
Premium hard coking coal Aus fob US$174.0/t vs US$171.1/t
Other:
Tungsten APT European US$226-231/mtu vs US$218-226/mtu
Company News
Petra Diamonds (LON:PDL) 99.7p, mkt cap £530m - Production up 8% y-o-y to 4m carats
Petra Diamonds reports that during the financial year to 30th June 2017, the company produced 4m carats of diamonds. The figure is in line with the 8-9% downward revision issued in June to the previously indicated expectation of 4.4m carats.
Revenue increased by 11% to US$477m and the company highlights that both production volumes and revenues are records for the Group.
In FY 2018, Petra Diamonds is guiding towards a 23% increase in output to 4.8-5.0Mcts and is indicating that “The mine planning process is focussed on maximising value as opposed to maximising production volumes.” Beyond that the company is looking for output in the range 5.0-5.3M carats in FY 2019.
The company’s FY year end cash balance was US$205m and net debt amounted to US$554.4m (FY 2016 US$382.8m) though the company states that “With Capex now on a declining trend, debt levels will start to fall in FT 2018 and the Company expects to become free cashflow positive during FY 2018.”
At the Finsch mine, production increased by 16% to 1.82m carats and now that the delayed Block 5 sub-level-cave is now operating at the planned levels lower grade tailing production expected to decrease.
The previously announced delays to plant commissioning at the Cullinan mine notwithstanding, Cullinan produced a 16% increase in output to 486,509 crats. The plant has now come into commission and “the increased contribution from undiluted ore is expected to increase the ROM grade to ca 43 cpht in H1 FY 2018 and ca 50cpht in H” FY 2018”.
The company identifies continuing stability in the rough diamond market, with “evidence of an improving retail market in China and a recovering market in India” offsetting mixed results in the US. The Diamond Producers Association is to launch “its first marketing campaigns in India in September 2017 and in China in April 2018.”
Conclusion: Despite setbacks during the year, Petra has delivered both record production and revenue and is now looking to become cash flow positive during FY 2018 as it accesses undiluted ore from its new production areas at Finsch and Cullinan.
Randgold Resources (LON:RRS) 6885 pence, Mkt Cap £6472m –Tongon on track for 285,000oz in 2017
Randgold Resources has announced that its Tongon mine in Cote d’Ivoire is on course for 285,000 ounces of gold production in 2017.
Chief Executive, Mark Bristow, told a briefing that the mine is now operating to plan and that efforts were now increasingly being focussed on reserve and resource replenishment in order to extend the mine’s life beyond the current four years.
Highlighting exploration success elsewhere in the country Mr Bristow described “a large target at Boundiali in the Fonondara Corridor” as “potentially the most exciting gold prospect in West Africa.”
Among other comments, Mr Bristow also described “the unhindered encroachment of illegal mining“ as “the single biggest challenge facing the industry.” Control of illegal mining, though a challenge to all participants and stakeholders, is ultimately the responsibility of Government through their duty to uphold the law.
Tri-Star Resources* (LON:TSTR) 0.165p, Mkt Cap £32.4m – Firming up capital budget for OAR
(Tri-Star holds 40% of SPMP)
Tri-Star Resources report that as a result of process design improvements arising from further test work on antimony and gold processing, it has been able to introduce a number of additional features to the Oman Antimony Roaster (OAR) currently under construction in Sohar, Oman.
The principal enhancements include the ability to accept a wider range of feedstock for the roaster, including direct-shipping ores “of which there is a large global network of small scale operators currently poorly served with sustainable off-taker demand”. The plant revisions also allow TriStar’s operating company, SPMP, to accept “non-conventional feed sources of high gold content directly for gold recovery, thereby increasing gold output viability without compromising the antimony concentrate process route.”
The third feature of the design modifications is the use of more resilient materials “for the construction of the gold furnaces to protect the equipment from the highly corrosive behaviour of antimony on the linings, therefore improving plant life, equipment performance and most importantly the quality of the gold produced.”
In our view, the impact of these design changes should be to improve the operational efficiency and flexibility of the roaster plant through the ability to treat a wider range of feedstock and to enhance the gold stream. These benefits will, however, incur a higher capital budget, now fixed at US$96m. The company has, however, confirmed that “TriStar expects SPMP to be in a position to start paying dividends to shareholders within three years of commencement of commercial operations in Q1 2018.”
“SPMP is working closely with its stakeholders … to increase the size of these [existing] facilities to accommodate the increased capital cost, the associated contingency and SPMP’s working capital requirements through to cash flow positive operations.” Our recent research on the company assumed that capital costs would be higher than originally planned and we assumed that Tristar would need to contribute an additional £5m to SPMP. We will be revisiting this assumption in the light of the confirmation of the revised budget, however, at this stage we infer TriStar’s additional capital contribution to be relatively modest compared to our existing assumptions.
Conclusion: Design improvements to the OAR should deliver greater operational flexibility and efficiency albeit at slightly higher capital cost. We are encouraged by the confirmation that commercial production remains on course for Q1 2018.
*SP Angel acts as Nomad and Broker to Tri-Star Resources