Dow Jones Industrials +0.04% at 22,026
Nikkei 225 -0.38% at 19,952
HK Hang Seng +0.07% at 27,550
Shanghai Composite -0.33% at 3,262
FTSE 350 Mining +0.73% at 16,672
AIM Basic Resources -1.13% at 2,473
Lucara Diamonds (TSE:LUC) – Q2 Results
Gold is steady trading close to a seven-week high reached earlier this week.
• US$ is little changed hovering around a multi-year low.
• Copper is heading for 4th weekly gain trading in the $6,340-6,380/t range and little changed on the day.
• Iron ore futures are stronger today led by further increases in steel rebar prices.
• Brent is on course for a weekly decline following strong run recorded at the end of July while latest reports show the US production expanded to the highest level since Jul/15 and OPEC output was up at the strongest level this year last month.
Economic News
US – Jobless claims came down last week with the four week average continuing to hover around the lowest level in decades pointing to robust state of the market.
• The Labour Department is due to release July NFP numbers later this afternoon with estimates for the jobless rate to hit a fresh low in over a decade.
• Services sector recorded strong performance according to Markit PMI data as the flow of new business reached a two year high and service providers increased payroll numbers at fastest pace in 2017 so far.
• “At current levels, the surveys are indicative of GDP rising at an annualised rate of approximately 2%, but if growth accelerates further in line with the upturn in new business, the third quarter could be even stronger,” Markit said.
• Latest PMI numbers are indicative of a 200k increase in payroll numbers, Markit suggested; this compares to 180k currently expected by the market.
• While factory orders climbed 3.0%mom in June, the increase was mostly attributed to a one-off surge in aircraft demand with core orders and shipments coming in soft.
China – Financial regulators are tightening control over foreign investments by SOEs in an effort to rein in capital outflows and reduce systemic risk, FT reports.
• Form this week, Finance Ministry requires SOEs to provide more evidence of overseas investments financial viability, use stricter audit as well as better document FX transactions.
• “Some investments do not meet our industrial policy requirements for outwards investment… they are not of great benefit to China and have led to complaints abroad… therefore we think a certain degree of policy guidance is necessary and effective,” PBoC governor said.
• Confronted with increasing leverage and overcapacity, Chinese SOEs have been lagging private companies in terms of profitability while the government merged underperforming companies with stronger one warning them to reduce non-strategic investments.
Germany – Factory orders surge on the back of strong domestic demand in June beating market estimates and extending the run of the accelerating pace of growth.
• Factory orders (%mom/yoy): 1.0/5.1 v 1.1/3.8 in May and 0.5/4.4 forecast.
UK – The BoE voted 6-2 to leave rates unchanged, in line with estimates, but cut down economic growth forecasts on the back of Brexit-related uncertainty holding back business investment and household spending.
• Economic growth was revised downwards to 1.7% this year compared with 1.9% estimated previously.
• Business investments are said to be 20pp lower by 2020, down from forecasts before last year’s referendum.
• The pound declined 0.9% to $1.31 against the US$ and 1% to €1.11 against the euro following the announcement.
• On inflation, consumer prices growth which reached 2.6% in June, up from 2.3% in March are expected “to rise further in coming months and to peak around 3% in October, as the past depreciation of sterling continues to pass through to consumer prices”.
• “Inflation is projected to remain above the MPC’s target throughout the forecast period,” MPC said.
South Africa – The Department of Mines has withdrawn plans to place a moratorium on granting and renewing mining licenses.
• Objections to the moratorium submitted to the department, by junior miners in particular, suggested that alternative measures should be explored to ensure companies are compliant with the industry Charter, the department said.
• The moratorium was planned to allow the department to freeze issues of new rights while changes to Mining Charter proposed in June are being debated in court
• The lobbyist group Chamber of Mines filed the case to court to block the new Mining Charter which is set to be heard in September.
Currencies
US$1.1882/eur vs 1.1843/eur yesterday. Yen 110.09/$ vs 110.65/$. SAr 13.368/$ vs 13.264/$. $1.316/gbp vs $1.323/gbp.
0.798/aud vs 0.792/aud. CNY 6.718/$ vs 6.723/$.
Commodity News
Precious metals:
Gold US$1,269/oz vs US$1,261/oz yesterday
Gold ETFs 66.4moz vs US$66.4moz yesterday
Platinum US$966/oz vs US$946/oz yesterday
Palladium US$886/oz vs US$892/oz yesterday
Silver US$16.71/oz vs US$16.46/oz yesterday
Base metals:
Copper US$ 6,367/t vs US$6,316/t yesterday
Aluminium US$ 1,908/t vs US$1,923/t yesterday – Chinese aluminium inventories are reported to have climbed to an all-time high as smelters ramped up production on better margins, according to the SMM Information & Technology data.
• Inventories in Shanghai, Wuxi, Nanhai, Hangzhou and Gongyi, which account for mor ethan 90% of the nation’s total climbed to 1.33mt as of yesterday, up more than 6 times from late last year.
Nickel US$ 10,400/t vs US$10,295/t yesterday
Zinc US$ 2,827/t vs US$2,819/t yesterday
Lead US$ 2,373/t vs US$2,365/t yesterday
Tin US$ 20,730/t vs US$20,565/t yesterday
Energy:
Oil US$52.0/bbl vs US$52.1/bbl yesterday
Natural Gas US$2.786/mmbtu vs US$2.817/mmbtu yesterday
Uranium US$20.40/lb vs US$20.25/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$71.5/t vs US$71.1/t
Chinese steel rebar 25mm US$614.5/t vs US$611.5/t
Thermal coal (1st year forward cif ARA) US$75.1/t vs US$73.3/t yesterday
Premium hard coking coal Aus fob US$182.3/t vs US$182.1/t
Other:
Tungsten APT European US$230-235/mtu vs US$226-231/mtu
Company News
Lucara Diamonds (TSE:LUC) C$2.70, Mkt Cap C$1.0bn –Q2 Results
• Lucara Diamonds, the owner of the Karowe mine in Botswana, reports that diamond production during the quarter to 30th June 2017 amounted 57,624 carats bringing production for the first half of 2017 to 122,865 carats.
• The company notes that its mining contractor, which we observe was appointed in January this year, “experienced equipment availability issues during the beginning of the quarter that resulted in lower than planned waste and ore mined.” President and Chief Executive, William Lamb commented that “We have worked with our new mine contractor to improve performance during Q2 and Q3 and our mining department is now achieving our productivity targets.”
• The mine is engaged on a major waste removal exercise to uncover the higher value but lower grade South Lobe material with 5mt of waste and 432,000 tonnes of ore were removed during the quarter (Q1 2017, 131,000 tonnes of ore and 587kt of waste).
• The mine treated around 14% fewer tonnes (513,643 tonnes vs 598,934 tonnes in Q1 2017) albeit at a somewhat higher grade of 11.2cpht (Q1 2017 10.9cpht).
• On the positive side, the increased proportion of higher value production from the South Lobe increased received prices on sales from US$405/ct in Q1 to US$1336/ct.
• The company has reduced its production guidance for the year from 290-310,000 carats to 265,-285,000 carats while maintaining “its revenue guidance due to the more than planned south lobe ore being processed.” Lucara Diamonds does, however add the caveat that “While revenue guidance is maintained, lower recovered carats results in increased risk to the revenue forecast based on the overall timing of the recovery of large and higher value stones.”
• The company has completed a drilling programme to assess the AK06 kimberlite at depths below 400 metres and expects to update its mineral resources estimate during Q4 2017. In addition, work is underway to assess the underground mining potential at Karowe; the company expects to produce a Preliminary Economic Assessment in Q4 2017 and a pre-feasibility study in Q1 2018.
Conclusion: After a wobbly start with its new mining contractor, productivity at Karowe is getting back on track although the company has reduced its 2017 production guidance by around 10%. At this lower level, the company will need to increase diamond output by some 15-30% during the second half. Fortunately, by accessing higher value ore, the company expects to protect its revenue expectations albeit at somewhat higher risk.