Dow Jones Industrials +0.45% at 21,711
Nikkei 225 +0.15% at 20,080
HK Hang Seng +0.82% at 27,162
Shanghai Composite +0.06% at 3,250
FTSE 350 Mining +0.90% at 16,453
AIM Basic Resources -0.36% at 2,468
Anglo American (LON:AAL) –H1 recovery and dividend resumption as net debt almost halved in a year
Bushveld Minerals* (LON:BMN) – Vanadium prices continue their ascend on reduced supply in the market
Georgian Mining* (LON:GEO) – Copper resource upgrade at Kvemo Bolnisi East
Glencore (LON:GLEN) –Half year production report
Savannah Resources (LON:SAV) – Drilling underway at Mina do Barroso
Gold climbed to a six-week high as broadly expected no change Fed policy statement saw US yields and the US$ index coming off slightly.
• Copper is little changed this morning at $6,340/t holding onto its this weekly 5.7% gain.
• A good run in base metals prices this week (copper and nickel, in particular) saw the LME base metals index closing at the highest level since May/15 yesterday.
• Brent is holding up around $51/bbl amid reports showing US crude stocks contracting sharply in the previous week on strong refining activity and increased exports; gasoline and distillate inventories also contracted more than forecast, according to the EIA data.
• Both iron ore and steel rebar September futures are relatively level today after having climbed 1.1% and 1.5% from the start of the week and posting 10.8% and 9.1% gains since the start of Q3/17.
Economic News
US – The Fed unanimously voted to leave rates unchanged at 1.00-1.25%, in line with expectations, while suggesting the start in the normalisation of its balance sheet to start “relatively soon”.
• This compares to previously guided sometime “this year” regarding the timing of a reduction in the Fed’s balance sheet.
• The statement highlight the improvement in job gains with the wording going from “have moderated” to “have been solid”.
• On inflation, members acknowledged the recent slowdown making subtle changes to the announcement implying possibly a weaker inflation forecast in the near term.
• 10y bond yields finished 4bp lower yesterday with S&P500 closing relatively flat at record highs.
China – Industrial profits growth accelerated in June led by a faster production/sales expansion and a slower increase in input costs, according to the NBS.
• The structure of profit growth has changed moving from the mining industry to equipment manufacturing.
• Nevertheless, industrial sector H2/17 prospects are being challenged by market estimates for lower producer price increases and weaker economic growth rates.
• Industrial Profits (%yoy): 19.1 v 16.7 in May.
Germany – Consumer confidence continued to set new highs on the back of strong labour market and low borrowings costs.
• “Economic expectation continues to rise, and income expectations has surpasses its post-reunification high of last month,” GfK said.
• “The very good level of consumer mood is mostly based on the excellent employment situation in Germany… the threat of losing their jobs is very low for most employees”.
• “The start of the Brexit negotiations, the threat of trade tariffs form the American government and the increasingly difficult relationship between Germany and Turkey” all are said to represent risks to improving sentiment moving forwards.
• GfK Consumer Confidence: 10.8 v 10.6 in June and 10.6 forecast.
Spain – Unemployment rate continued to decline in Q2/17 coming down to 17.2%, the lowest level in more than eight years.
• Q2 has been historically strong quarter for the labour market as the hospitality industry accelerates hiring ahead of the summer tourist season.
Currencies
US$1.1726/eur vs 1.1626/eur yesterday. Yen 111.20/$ vs 111.82/$. SAr 12.897/$ vs 13.049/$. $1.314/gbp vs $1.303/gbp.
0.803/aud vs 0.790/aud. CNY 6.736/$ vs 6.756/$.
Commodity News
Precious metals:
Gold US$1,262/oz vs US$1,246/oz yesterday – GFMS highlights a potentially soft H2/17 with regards to the physical gold demand on the back of a new goods and services tax introduced in India on July 1.
• Q2/17 gold in India surged 126%yoy to 228t, the highest in six quarters, as buyers brought purchases forward ahead of new tax.
• Chinese demand downtrend is reported to have continued with Q2/17 jewellery purchases down 10%yoy at 131.4t.
• Overall, Q2/17 gold demand enjoyed solid gains with physical purchases up 21%yoy to 957t; at the same time, gold supply posted a 3%yoy decline at 1,094t including a 1%yoy drop in scrap recycling, GFMS reported.
Gold ETFs 66.7moz vs US$59.0moz yesterday
Platinum US$931/oz vs US$924/oz yesterday
Palladium US$875/oz vs US$863/oz yesterday
Silver US$16.74/oz vs US$16.37/oz yesterday
Base metals:
Copper US$ 6,337/t vs US$6,286/t yesterday
Aluminium US$ 1,940/t vs US$1,942/t yesterday – Global market has been broadly balanced in H1/17 as an oversupply in China compensated for a shortage elsewhere, according to Rusal.
• Global demand climbed solid 5.7%yoy to 31.7mt while world refined production was up 11.5%yoy at 31.8mt.
• In China, the market was around 1.2mt in surplus during the period as a 7.5% increase in consumption (17mt) was surpassed by strong growth in domestic output on new capacity additions through Q4/16 and restarts of existing plants.
• Rusal expects Chinese market to tighten from H2/17 on the back of so-called “illegal capacities” closures; in particular, the Company estimates 2-3mt of operating aluminium capacity to go by the end of the year, on top of 3.8mt of illegal operations reportedly having been closed so far.
Nickel US$ 10,115/t vs US$9,945/t yesterday
Zinc US$ 2,817/t vs US$2,820/t yesterday
Lead US$ 2,328/t vs US$2,319/t yesterday
Tin US$ 20,650/t vs US$20,255/t yesterday
Energy:
Oil US$51.0/bbl vs US$50.6/bbl yesterday
Natural Gas US$2.916/mmbtu vs US$2.955/mmbtu yesterday
Uranium US$20.50/lb vs US$20.65/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$67.7/t vs US$68.0/t
Chinese steel rebar 25mm US$602.1/t vs US$600.2/t
Thermal coal (1st year forward cif ARA) US$73.0/t vs US$73.5/t yesterday
Premium hard coking coal Aus fob US$178.9/t vs US$176.0/t
Other:
Tungsten APT European US$226-231/mtu vs US$218-226/mtu
Company News
Anglo American (LON:AAL) 1232 pence, Mkt Cap £15.9bn –H1 recovery and dividend resumption as net debt almost halved in a year
• Anglo American reports that it delivered a 68% improvement in underlying EBITDA to US$4.12bn (2016 – US$2.45bn) during the six months to 30th June 2017.
• The group’s underlying H1 earnings more than doubled to US$1.54bn (2016 US$698m) and the group reports a reversal of the H1 2016 loss of US$813m to an attributable profit in H1 2017 of US$1.42bn.
• “We have nearly halved our net debt to $6.2billion over the past year to take us well below our year-end target of $7 billion. Our materially improved balance sheet strength with gearing at 19% and net debt to annualized EBITDA of 0.8x, has supported the decision to resume dividend payments six months early”. In line with its targeted 40% pay-out policy, Anglo American has, therefore, declared a dividend of 48US cents per share.
• The coal and iron-ore/manganese operations together contributed some 64% of EBITDA with US$1.38bn from coal and US$1.17bn for iron ore/manganese. Coal operations more than trebled from the US$389m EBITDA contribution of H1 2016 while the ferrous metals more than doubled from US$512m in H1 2016.
• The EBITDA contribution of De Beers remained relatively steady at US$786m (2016 H1 US$766m) while copper operations increased in absolute terms from US$424m to US$586m. Platinum declined from US$290m in H1 2016 to US$576m.
Conclusion: The resumption of dividends ahead of the original schedule and the reduction of net debt to below the targeted level six months ahead of schedule provides a positive signal on the turnaround at Anglo American.
Bushveld Minerals* (LON:BMN) 8.0p, Mkt Cap £64.3m – Vanadium prices continue their ascend on reduced supply in the market
• Vanadium prices hit the highest level in four years on reports that China will limit temporarily limit supply during environmental checks while traders rushed into the market to restock.
• V2O5 and FeV prices fob China climbed to $6.4-7.0/lb and $30-33/kg, up 3% and 10% week on week, respectively.
• Panzhihua and Sichuan, two major vanadium producing regions in China, will be temporarily suspending production for environmental inspections to be conducted.
• Pangang, the largest vanadium producer in China, is reported to be running at normal 3,000tpm V2O5 at its two plants in Panzhihua and Xichang.
• Although the Company said that “around 300t V2O5 in Panzhihua area will be removed from the spot market in the following month when the plants here are ordered to halt for environmental inspection”.
• This compares to an average national production run rate of 7,000-7,200tpm so far this year.
• Shrinking local stockpiles provide further signs of tightening market with a number of Chinese suppliers declining to offer material for export.
• Markets in Europe and the US have also seen reduced supply with prices climbing 12% and 8% from the previous week to trade at $28.50-30.5/kg FeV and $12.85-13.25/kg FeV for the week ending 21 July, respectively.
• “There is no doubt suppliers have completely pulled back, and the are showing a lot of discipline in the market today,” one of suppliers said to AMM publication.
• Most of activity is said to be driven by restocking traders while consumers are reluctant to buy in rallying prices and waiting to see where prices settle.
• European vanadium pentoxide prices (V2O5) are up 24% YTD trading at the strongest level in four years and 165% up on lows hit in Dec/15.
• The continuing run up in prices bodes well for Bushveld Minerals which runs South African Vametco operations, one of the cheapest primary producers of vanadium in the world with all-in cash cost of $17.33/kg as of 2015.
*An SP Angel mining analyst and nomad have visited the Vametco vanadium mine and processing facilities in South Africa.
Georgian Mining* (LON:GEO) 17.1p, Mkt Cap £19.6m – Copper resource upgrade at Kvemo Bolnisi East
(Georgian’s assets in Georgia are held in a 50:50 joint venture)
STRONG BUY
• Georgian Mining reports that, following the recent discovery of a breccia pipe beneath the base of the gold oxide mineralisation at Gold Zone 2 at its Kvemo Bolnisi project in Georgia (KB) , it has upgraded the in-pit optimized resource by 41% to 1.7mt at an average grade of 1.05% copper and 0.2g/t gold.
• The in pit resource lies within a wider, JORC compliant resource of 3.15mt at an average grade of 0.82% copper and 0.14 g/t gold. Approximately 97% of this resource tonnage is classified as inferred with 101,000 tonnes at an average grade of 0.45% copper and 0.5g/t gold classified as an indicated resource.
• The upgraded resource is made up of “two separate high grade copper-gold breccia pipes at Copper Zone 1 (“CZ1”) and GZ2”.
• Commenting on the new copper resource estimate Managing Director, Greg Kuenzel said “The copper mineralisation is augmented by a gold ‘kicker’ that in some cases is as high as 0.5g/t Au which will also report to the final copper-gold concentrate as a credit and add significant value.”
• The company points out that Gold Zone 2 is “one of three zones currently being developed at KB which may form one large epithermal copper-gold system.” Earlier this week, Georgian Mining provided an exploration update which, in addition to the continuing work at KB discussed wider regional exploration within the licence area of 860 sq km where exploratory work is underway at Damludka, Tsitel Sopeli and Tamarsi .
• Georgian Mining is “continuing to expand the GZ2 copper gold sulphide Mineral Resource, as well as further work within the 1km by 1km footprint that makes up the KB Project.” The company reports that “Expert opinion is that further mineralisation at GZ2 can be expected at depth in this low sulphidation epithermal environment – additional drilling to commence in the coming weeks”.
Conclusion: Georgian Mining is building its resource base at Kvemo Bolnisi and is moving towards negotiations with its joint-venture partner over processing of the gold oxide material at the partner’s nearby mine and processing plant. Further exploration potential beneath the current known resources and from lateral extensions as well as other targets within the wider lease area could deliver further resource increases as exploration proceeds.
*SP Angel acts as Nomad and Broker to Georgian Mining.
Glencore (LON:GLEN) 330 pence, Mkt Cap £47.5bn –Half year production report
• Glencore reports mixed production results from it mining operations, with increased production of zinc, ferrochrome and coal and lower output of copper and nickel compared with H1 2016.
• Copper production declined by 9% to 642,900 tonnes reflecting an increased emphasis on zinc production at the Antamina mine (70,300 tonnes of copper in concentrates vs 76,900 tonnes in H1 2016) in Chile as well as a dip in grades at Antapaccay, disruptions due to bad weather at Mutanda and the impact of pit stability issues at the ageing Alumbrera mine.
• Glencore has reduced its copper production guidance for 2017 by 25,000 tonnes (2%) to 1.33m tonnes (± 25,000) to reflect the pit wall stability issues at Alumbrera as it approaches exhaustion.
• Nickel production declined by 10% to 51,200 tonnes largely as a result of scheduled maintenance at Murrin Murrin in Australia and INO in Canada partially offset by improving performance at the Koniambo operation in New Caledonia.
• Guidance for 2017 nickel output has been reduced by 4% (5,000t) to 115,000 tonnes (± 4,000t) as a result of the maintenance delay encountered during the early part of the year.
• Zinc production rose by 13% to 570,800 tonnes as a result of “generally solid performances across the portfolio” and in particular, the increased production of zinc in concentrates at Antamina where output rose from 21,800 tonnes of contained metal in H1 2016 to 59,000 tonnes. Atamina is currently mining mixed copper/zinc ores as compared with the copper only ores mined previously.
• Glencore is in the process of selling its Perkoa and Rosh Pinah zinc operations and, assuming that it completes the disposal in early August is guiding for full year production of 1.13mt of zince (±25,000t) to reflect the loss of output at these mines plus the shift in product mix from Antamina.
• Ferrochrome output increased by 10% to 836,000 tonnes as a result of strong operational performances, however the company is reducing its 2017 guidance by 65,000t (4%) to 1.59mt to account for “additional market driven maintenance days”.
• Coal production rose by 4% (2.3mt) to 61.1mt “reflecting expected increases in the Australian thermal portfolio and improved coking coal production.” Overall, guidance for 2017 has been reduced by 2% or 3mt to 132mt (±3mt) “reflecting the rain impact in Colombia and various other minor revisions.”
Conclusion: Glencore has reduced production guidance for 2017 across its commodity range by between 2% to 4% reflecting a variety of operational and market factors. Glencore is characteristically responsive to market conditions and these comparatively small adjustments reflect this.
Savannah Resources (LON:SAV) 5.3p, Mkt Cap £29.4m – Drilling underway at Mina do Barroso
• Savannah Resources reports the commencement of reverse-circulation drilling at the recently acquired Mina do Barroso lithium project where the company acquired a 75% interest in a project covering some 1,018 sq km.
• Drilling will focus on the Grandao, Rervatorio and NOA project areas “which have been shown to have relatively high grade of Lithium oxide (‘Li2O’) with drill results of up to 1.67% Li2O over significant widths.”
• The company adds that in addition to the drilling, further mapping of the licence area is also underway to locate “other lithium bearing pegmatites”.
• Savannah’s CEO, David Archer, commenting on the start of drilling said “We’re pleased that drilling is now underway at Mina do Barroso, less than two months after acquiring this highly prospective asset. This targeted drill programme will help define the extent and grades of the multiple lithium deposits covered by the mining licence, …”.
Conclusion: Savannah has moved quickly to start the assessment of the Mina do Barroso licence and to explore for additional lithium bearing mineralisation in an area which has shown potentially significant grades during earlier exploration. We look forward to the results of the current drilling campaign as they become available.