Dow Jones Industrials +0.28% at 21,891
Nikkei 225 +0.30% at 19,986
HK Hang Seng +0.79% at 27,540
Shanghai Composite +0.60% at 3,293
FTSE 350 Mining +0.42% at 16,689
AIM Basic Resources +0.93% at 2,506
Golden Star Resources (TSE:GSC) – Profitable June quarter – 2017 production guidance maintained.
Rio Tinto (LON:RIO) – $3bn to be returned to shareholders in dividends and buy-back
Stratex International (LON:STI) – Crusader sale of Posse iron ore mine
Gold is off slightly (-$6/oz at $1,267/oz) ahead of US labour data due on Friday.
• The US$ remains rangebound, up 0.1% today following a 0.2% increase on Tuesday.
• US equity-index futures are trading higher today helped by better than forecast Apple quarterly results; Apple shares climbed more than 6% in after-ours trading.
• Base metals are weaker this morning except for aluminium which is up 1% on the back of the news that the China’s top smelter is deepening capacity cuts.
• China Hongqiao Group is planning to shut 2mt of outdated aluminium capacity; although the Company also suggested that capacity cuts should be offset by new additions with production likely to remain at similar levels.
• More news of increased of supply from Indonesia weighs on the nickel price as local authorities are reported to have issued permits to two miners to ship low-grade nickel ores.
• Brent is off 0.7% extending yesterday’s losses when prices slid 1.7% as the API reported increasing inventories of crude in the week to July 28 (+1.8mmbbl to 488.8mmbbl) compared to market expectations for a decline; official inventories figures released by the US EIA are due later today.
• Spot iron ore delivered to Qingdao traded at $73.56/t yesterday coming off slightly from $73.70/t reached on Monday, the highest level since April; prices recorded a 13% increase in July following a 14% increase in June, recovering from this year’s decline.
Economic News
US – Final manufacturing PMI report showed the sector expanded at the strongest pace in four months driven by expansions in both output and new orders.
• New business was predominantly sourced locally with overseas orders said to have come down for the first time in ten months “albeit only slightly”.
• Business optimism is reported to have picked up to a six-month high while firms have also accelerated hiring.
• Inflation pressures were relatively subdued during the month.
• “However, although rising, the survey indices remain consistent with only very modest increases in comparable official data… clearly the manufacturing sector remains stuck in a low gear, though it is at least gaining momentum and will hopefully shift up a gear as we move through the second hald of the year if demand continues to improve,” Markit concluded.
Date Event Survey Actual Prior Revised
Monday Pending Home Sales MoM Jun 1.00% 1.50% -0.80% -0.70%
Tuesday Personal Income Jun 0.40% 0.00% 0.40% 0.30%
Personal Spending Jun 0.10% 0.10% 0.10% 0.20%
Real Personal Spending Jun 0.10% 0.00% 0.10% 0.20%
PCE Deflator MoM Jun 0.00% 0.00% -0.10% 0.00%
PCE Deflator YoY Jun 1.30% 1.40% 1.40% 1.50%
PCE Core MoM Jun 0.10% 0.10% 0.10% --
PCE Core YoY Jun 1.40% 1.50% 1.40% 1.50%
ISM Manufacturing Jul 56.4 56.3 57.8 --
Wards Total Vehicle Sales Jul 16.80m 16.69m 16.41m 16.59m
Wednesday ADP Employment Change Jul 190k -- 158k --
Thursday Initial Jobless Claims Jul-29 242k -- 244k --
Continuing Claims Jul-22 1958k -- 1964k --
ISM Non-Manf. Composite Jul 56.9 -- 57.4 --
Factory Orders Jun 3.00% -- -0.80% --
Factory Orders Ex Trans Jun -- -- -0.30% --
Friday Change in Nonfarm Payrolls Jul 180k -- 222k --
Two-Month Payroll Net Revision Jul -- -- 47k --
Unemployment Rate Jul 4.30% -- 4.40% --
Average Hourly Earnings MoM Jul 0.30% -- 0.20% --
Average Hourly Earnings YoY Jul 2.40% -- 2.50% --
Source: Bloomberg
Spain – Unemployment recorded the sixth consecutive decline in July coming off a high base as well as being led by a recovering economy.
• Jobless rate currently has come down to 17.1%, still the second highest in the Eurozone after Greece, from over 26% reached in 2013 following the sovereign debt crisis in the region.
• One of the highlights of the report is the steady decline in youth unemployment as the jobless rate among under-25s was around 12%, higher than the 9.1% average, but down from over 50% in 2013.
Indonesia – The Energy and Mineral Resources Ministry concluded Freeport needs to divest 51% interest in the local unit which owns the Grasberg operation to the state and complete construction of a copper smelter by 2022.
• “The regulation is non-negotiable… we agree that they can maintain operational control until the Indonesian side is ready and professional,” Minister Ignasius Jonan said.
• In return, the Company is expected to receive an extension of the mining license through 2021 with two 10-year extensions.
• This will allow the Company to continue with a $15bn investment in underground mining and the construction of a $2.3bn smelter.
Venezuela – Sovereign bonds are sold off with the 2022 debt trading at a 15-month low as secret service imprisons two opposition leaders and changes in the nation’s structure of legislative bodies.
• The newly established 545-member constituent assembly that is expected to be controlled by President Maduro and his allies is set to supersede the national assembly currently dominated by the opposition.
Currencies
US$1.1816/eur vs 1.1733/eur yesterday. Yen 110.36/$ vs 110.64/$. SAr 13.224/$ vs 13.039/$. $1.323/gbp vs $1.312/gbp.
0.801/aud vs 0.798/aud. CNY 6.722/$ vs 6.725/$.
Commodity News
Precious metals:
Gold US$1,268/oz vs US$1,267/oz yesterday
Gold ETFs 66.3moz vs US$66.4moz yesterday
Platinum US$943/oz vs US$937/oz yesterday
Palladium US$889/oz vs US$891/oz yesterday
Silver US$16.81/oz vs US$16.70/oz yesterday
Base metals:
Copper US$ 6,342/t vs US$6,408/t yesterday
Aluminium US$ 1,908/t vs US$1,921/t yesterday
Nickel US$ 10,150/t vs US$10,300/t yesterday
Zinc US$ 2,776/t vs US$2,818/t yesterday
Lead US$ 2,312/t vs US$2,345/t yesterday
Tin US$ 20,565/t vs US$20,880/t yesterday
Energy:
Oil US$52.8/bbl vs US$52.8/bbl yesterday
Natural Gas US$2.826/mmbtu vs US$2.881/mmbtu yesterday
Uranium US$20.05/lb vs US$20.50/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$71.5/t vs US$72.4/t
Chinese steel rebar 25mm US$611.3/t vs US$599.8/t
Thermal coal (1st year forward cif ARA) US$75.5/t vs US$75.3/t yesterday
Premium hard coking coal Aus fob US$180.3/t vs US$179.9/t
Other:
Tungsten APT European US$230-235/mtu vs US$226-231/mtu
Company News
Golden Star Resources (TSE:GSC) C$0.83, Mkt Cap C$312m – Profitable June quarter – 2017 production guidance maintained.
• Golden Star Resources reports attributable profit for the quarter ending 30th June 2017 of US$13.88m, reversing the US$22.03m loss reported in the same quarter of 2016.
• Gold sales increased by 48% y-o-y to 63,604 ounces (Q2 2016 – 42,997 oz) while gold revenues rose by 50% to US$77.3m (2016 – 51.5m).
• Gold production increased by 51% to 64,176oz reflecting both a record fourth consecutive quarter from the Prestea open pits, which produced 31.689 oz as well as a 16% increase in underground gold production from the Wassa mine to 13,288 oz and initial production from underground development ore at Prestea. Year to date production amounts to 121,971 oz with Q2 representing an 11% improvement on Q1 2017.
• Production costs on a cash basis showed an 18% decline to US$785/oz and a 19% fall on an all-in-sustaining basis to US$960/oz.
• The company is, at the half way point in the year, maintaining its 2017 production guidance range of 255-280,000 ounces of gold production, implying that production will continue to increase during the second half of the year.
• Golden Star did, however, suffer a short term setback in its underground development operations at Prestea where “The original installed pumping system at Prestea Underground began to come under pressure due to the increased mining activity and as a result, the Company took the decision to suspend hoisting in order to safeguard the shaft infrastructure. By the start of the third quarter of 2017, the situation was rectified and hoisting had resumed, but the suspension impacted the rate of waste development as the operations team prioritized raise development. As a result of the limited hoisting capacity, the first stoping ore is expected to be blasted during the third quarter of 2017 and commercial production is anticipated to be achieved during the fourth quarter of 2017.”
• The temporary slowdown at the Prestea underground operation does, however, illustrate the prudence of the company’s “stated strategy since 2013 [which] has been to develop multiple sources of ore in order to reduce our risk profile and protect the Company against temporary issues with any one source.”
• Commenting on the quarter, President and SEO, Sam Coetzer, said “The second quarter of 2017 represents the fifth consecutive quarter of production growth. I am also delighted to see out operating costs continue to decrease as we are beginning to see the impact of our high grade underground ore being realised.”
Conclusion: Golden Star is moving from its former, relatively high costs and low grade, open pit mining operations into higher grade, lower cost underground mining from multiple ore sources – at this stage, with production growing and costs falling the strategy is increasingly showing that it is be being vindicated. We look forward to this improving trend continuing
Rio Tinto (LON:RIO) 34.23p, Mkt Cap £63.6bn – $3bn to be returned to shareholders in dividends and buy-back
• Rio Tinto has declared an interim dividend of US$1.10/share (US$2bn) and announced a further share buy-back amounting to US$1bn on the back of faster than expected sustainable cash cost savings of US$2bn and strong first half operating cash flow of US$6.3bn.
• After capital expenditure of US$1.8bn, Rio Tinto generated free cash flow of US$4.6bn during the first half, which, after dividends and share buy-backs, enabled a debt reduction of US$2.0bn to US$7.6bn from US$9.6bn.
• In its guidance, the company highlights
o “Additional cumulative free cash flow of $5.0 billion from 2017 to the end of 2021 from productivity improvements” and
o “Capital expenditure expected to remain at around $5.0 billion in 2017 and around $5.5 billion in each of 2018 and 2019. Each year includes approximately $2.0 to 2.5 billion of sustaining capex.”
• Sector performance is dominated by the Group’s iron ore division which contributed 59% of EBITDA (US$5.6bn) and 71% off earnings (US$3.3bn). Strong EBITDA performance was generated by the Energy & Minerals Group (US$1.4bn or 15%) and by the aluminium business (US$1.7bn or 18%). Copper and diamonds generated a further US$771m of EBITDA (8%).
• Underlining the significance of the bulk commodities is the 63% increase in the year-on-year first half growth in EBITDA contribution of iron ore, 55% increase in aluminium, and 170% increase in the contribution from the Energy and Minerals Group.
• The improvements in iron ore reflect “a reduction in Pilbara unit cash costs to $13.8 per tonne in 2017 first half (2016 first half :$14.3 per tonne).” as well as productivity improvements and an average 42% increase in iron ore prices, slightly offset by a minor 2% decline in shipped volumes.
• A “strong operational performance and a rise in alumina and aluminium LME prices.” as well as productivity improvements and increased volumes drove the improvements in the aluminium business.
• The Energy & Minerals business delivered a further $41m of cost savings bringing the cumulative total to $1.5bn “compared with the 2012 base.”
• Capital expenditure of US$1.8bn is dominated by the Copper and Diamonds Group which accounted for US$665m (38%) of the total with the Oyu Tolgoi/Turquoise Hill project in Mongolia spending over half the divisional total (US$347m). Iron ore and Aluminium each consumed around 30% of the capital expenditure (US$528m and US$521m respectively.).
Conclusion: Rio Tinto’s H1 performance has been dominated by the performance of its iron ore and aluminium businesses, however all the business units have delivered growth and continuing cost savings.
Stratex International (LON:STI) 1.2p, Mkt cap £5.7m – Crusader sale of Posse iron ore mine
• Stratex International has announced that Crusader Resources has reached a conditional agreement on the sale of its Posse iron ore mine in Brazil for R$8.005m (approximately £1.94m).
• The sale is conditional upon Crusader receiving the initial R$1m “on or before 10 August 2017” with the balance to be paid “in 15 equal monthly payments commencing 60 days from the effective date of the sale agreement (1 August 2017).”
• The sale is also conditional upon the transfer of the mineral tenements to the purchaser by the Brazilian Mines Department.
Conclusion: Stratex is acquiring Crusader Resources mainly for the 2.4m oz Borborema gold deposit and the smaller Juruena deposit (260koz). The divestment of the iron ore mine prior to the acquisition gives Stratex a more focussed gold vehicle to form a platform for the development of its “intention to become a gold explorer and near-term producer”.