Asiamet Resources (ARS LN) – Filing of updated resource report
Avocet Mining (AVM LN) – Extension of standstill agreement with Inata’s major creditors
Mkango Resources* (MKA LN) – Respected industry observer sees 50% YTD price increase in key rare earth elements in China
Tri-Star Resources* (TSTR LN) – Antimony prices continue to rise as environmental shutdowns in China cause stock levels to fall
Gold prices posted new losses as the US$ index climbed on Dudley hawkish comments.
• William Dudley, a FOMC voting member, said it is not unreasonable to expect Fed to release plans in September to start reducing balance sheet; he also highlighted he was in support of another rate increase before year end if economy performs as expected.
• Open interest in copper futures market hit the highest level on record as speculative demand in the commodity increases; hedge funds bullish bets climbed to an all-time high last week.
• Steel rebar prices continued to decline marking the 4th consecutive drop in their longest streak of loses since early June as the SHFE increased fees and capped daily positions for some traders.
• January iron ore futures were slightly higher today following three days of losses.
• Oil prices are flat this morning after sliding nearly $2/bbl to $50.5/bbl ahead of the EIA inventories data due later today with estimates for another drop in a period of strong seasonal demand; earlier EIA said strong US shale oil production is likely to keep crude oil in the mid-$50/bbl.
Noble Group saw its credit rating cut by two major rating agencies as the Company is trying to refinance operations with a covenant waiver on its $1.1bn revolving credit facility expiring on October 20.
• Both S&P and Moody’s cut respective ratings two notches down to CCC- and Caa3 highlighting increased risks of a default.
• Noble agreed to sell its gas-and-power unit to its rivals Mercuria Energy Group for $248m and is looking for buyers for its oil liquids business in an effort to shore up its balance sheet.
• “The increased losses reflect in part a loss of confidence among Noble’s lenders, suppliers, customers and other counter-parties,” Moody’s said.
• It is uncertain if asset sales “will raise sufficient proceeds to meet debt maturities and cash outflow over the next 12 months”, the agency added.
Dow Jones Industrials +0.62% at 21,994
Nikkei 225 +1.11% at 19,753
HK Hang Seng -0.09% at 27,226
Shanghai Composite +0.43% at 3,251
FTSE 350 Mining -0.97% at 16,256
AIM Basic Resources +0.16% at 2,487
Economic News
US - ordered trade probe of China’s alleged theft of US intellectual property on Monday
China – Aggregate financing continued strong through July beating market expectations with the total for the first seven months of the year up 20.5%yoy, marking the strongest run in the last four years.
• M2 Money Supply (%yoy): 9.2 v 9.4 in June and 9.5 forecast.
• Aggregate Financing (CNY bn): 1220 v 1776 (revised from 1780) in June and 1000 forecast.
Stronger Renminbi may allow select Chinese companies to resume overseas acquisitions
• We expect to see China return to M&A markets as the renminbi strengthens and to continue to move to grab.
Chinese – Chinese offer for Fiat Chrysler rejected
• Other Chinese automaker executives are reported to have been seen working on due diligence.
• Fiat Chrysler has been streamlining its operations for some time to make itself more attractive to byers, though The Agnelli family holding company, Exor would apparently want to exclude Maserati and Alfa Romeo from the sale.
• Automotive companies are faced with a stark choice. Invest in the development of new, hybrid or pure Electric Vehicles or find their vehicles excluded from the world’s major city centres.
• The ease at which Tesla has risen to the largest automotive company in the US by market capitalisation demonstrates the disruptive potential of new Electric Vehicle production.
• Chinese and other auto manufacturers are working hard to catch up with Tesla and Toyota who currently dominate the EV field.
Germany – The economy enjoyed 0.6%qoq growth last quarter with Q1 numbers revised upwards.
• Continuing robust economic growth is expected to boost support for the Christian Democratic Union led coalition in the September 24 election and raise chances of Angela Merkel securing a fourth term as chancellor.
• Growth was driven by domestic consumption with both consumers and government increasing spending; although, trade weighed on overall growth with imports rising significantly faster than exports.
• Business investment and construction also climbed from the Q1.
• Q2 GDP (%qoq): 0.6 v 0.7 (revised from 0.6) in Q1 and 0.7 forecast.
• Q2 GDP (%yoy): 2.1 v 2.0 (revised from 1.7) in Q1 and 1.9 forecast.
UK – The pound is off 045% this morning as July inflation data slightly undershoots estimates.
• Increases in clothing, household goods and food are reported to have led inflation gains.
• CPI (%mom): -0.1 v 0.0 in June and 0.0 forecast.
• CPI (%yoy): 2.6 v 2.6 in June and 2.7 forecast.
Brexit – UK suggests temporary customs union with EU (BBC)
• David Davis sees the arrangement as being “as close as we can get to the current arrangements”.
• The temporary customs union may last for two years or less but the transition period has to be done by the time of the next UK election in 2022 at the latest.
• The UK is in talks with non-EU countries but is not signing deals as yet considering the temporary customs union with the EU.
North Korea backs away from Guam missiles as China imposes US Sanctions banning imports of iron ore, coal and seafood
• We note China is still not restricting the supply of fuel into North Korea.
• China has already imported its quota of coal under the sanctions and North Korea has already exported nearly as much iron ore as last year so there appears to be little change for North Korea when dealing with China.
• The question remains, how has North Korea obtained ballistic and nuclear technology when nations like Iran have yet to master the technology?
Zambia – Energy price rise causing problems for copper miners and farmers
• ZESCO, the Zambian Electricity Supply Corporation is proposing a further rise in electricity prices of 25% on top of the 50% price rise already imposed.
• Glencore has already suspended operations at its Mopani copper mine after CEC which supplies power into the Kitwe and Mufulira regions raised prices to ~9.3USc/kWh from ~6USc/kWh previously negotiated.
• The government is looking to generate a million new jobs in the energy sector by making it more attractive for investment.
• Zambia continues to suffer from lower hydropower availability due to low water levels in the Kariba dam.
Currencies
US$1.1756/eur vs 1.1822/eur yesterday. Yen 110.32/$ vs 109.53/$. SAr 13.313/$ vs 13.368/$. $1.294/gbp vs $1.301/gbp.
0.784/aud vs 0.789/aud. CNY 6.676/$ vs 6.661/$.
Commodity News
Precious metals:
Gold US$1,275/oz vs US$1,286/oz yesterday
Gold ETFs 66.5moz vs US$66.3moz yesterday
Platinum US$963/oz vs US$978/oz yesterday
Palladium US$897/oz vs US$896/oz yesterday
Silver US$16.91/oz vs US$17.14/oz yesterday
Base metals:
Copper US$ 6,418/t vs US$6,405/t yesterday
Aluminium US$ 2,033/t vs US$2,029/t yesterday
Nickel US$ 10,435/t vs US$10,610/t yesterday
BHP talking to gold miners in Kambalda region in effort to keep nickel concentrator going
• News reports today suggest that BHP Nickel West is in talks to see if gold can be concentrated at the plant to avert closure of the Nickel West plant at Kambalda.
• The plant is challenged by a lack of feed due to the closure of mines by Mincor and Panoramic leaving only Western Areas, Independence Group and BHP ores to feed the concentrator plant.
• Worse still Independence is to close its Long nickel mine at Kambalda next year exacerbating the shortage of feed stock.
• BHP’s Nickel West plant has been running for 50 years and may extend its life through mining some of its own opportunities
Zinc US$ 2,939/t vs US$2,916/t yesterday
Lead US$ 2,363/t vs US$2,344/t yesterday
Tin US$ 20,375/t vs US$20,325/t yesterday
Energy:
Oil US$50.5/bbl vs US$52.1/bbl yesterday
Natural Gas US$2.961/mmbtu vs US$3.001/mmbtu yesterday
Uranium US$20.80/lb vs US$20.80/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$70.6/t vs US$70.5/t
Chinese steel rebar 25mm US$644.4/t vs US$649.6/t
Thermal coal (1st year forward cif ARA) US$77.5/t vs US$77.0/t yesterday
Premium hard coking coal Aus fob US$196.9/t vs US$198.0/t
Other:
Tungsten APT European US$248-256/mtu vs US$230-235/mtu
Titanium – Chinese environmental inspections are restricting TiO2 supply in China.
• Coatings manufacturers in China are said to be the worst affected.
• September is said to be peak season for TiO2 sales in China according to ‘Industrial Minerals’
• EU proposal: The British Coatings Federation ‘BCF’ is countering proposals by the European Commission to classify titanium dioxide as a potential carcinogen.
• The proposed classification could lead to products containing titanium dioxide being labelled as ‘suspected of causing cancer’ even when included in products where titanium dioxide can nor be inhaled.
Ilmenite prices hold at $170/t (MB price)
• Prices for basic Ilmenite recovered to around $170/t in August following a very brief dip to around $155/t at end July.
Company News
Asiamet Resources (LON:ARS) 5.1p, Mkt Cap £43m – Filing of updated resource report
• Asiamet Resources reports that it has now filed the independent technical report relating to the resource upgrade at its Beruang Kanan Main (BKM) property in central Kalimantan.
• The measured/indicated resource, reported at a 0.2% cut-off grade is now 49.2mt at an average grade off 0.7% copper with a further 17.7mt grading 0.6% copper classed as inferred.
• The new estimate, which has been reported earlier, represents a 200% increase in the contained copper inventory of BKM and the company reports that 73% of the resource lies within the conceptual pit outlined in April 2016 Preliminary Economic Assessment.
• Ore reserve delineation and further definition and optimisation of the open pit configuration forms part of the full feasibility study for BKM which is expected to be completed early in 2018.
Conclusion: Asiamet is moving ahead with the BKM project and has also identified additional targets at BKZ, approximately 800m to the north to follow up. We look forward to continuing news on the progress of the BKM Feasibility Study.
Avocet Mining (LON:AVM) 35p Mkt Cap £7.3m – Extension of standstill agreement with Inata’s major creditors
• Avocet has announced that, following the attack on a restaurant in the capital of Burkina Faso, Ougadoudou, which left at least 18 people dead, it has reached agreement with the major creditors of its Inata mine to extend the standstill agreement from 14th August to 18th August 2017.
• The standstill agreement, which is intended to allow time for restructuring of the balance sheet in collaboration with the Government, banks and major creditors, had previously been extended from the original 31st July 2017 date.
Conclusion: The short extension of the standstill agreement has been precipitated by wider events in Burkina Faso. We look forward to news of the resolution of the problems at Inata in the coming days.
Mkango Resources* (LON:MKA) 3p, Mkt Cap £2.5m – Respected industry observer sees 50% YTD price increase in key rare earth elements in China
• Mkango Resources, which is working towards the development of the Songwe Hill rare earths deposit in Malawi, should take considerable encouragement in a recently published review of the rare-earths market by the highly regarded industry commentator, Adamas Intelligence.
• Mkango Resources is one of a number of companies developing rare-earths projects which the authors identify as potential beneficiaries of structural changes within the Chinese rare-earths supply chain.
• The report highlights a 50% increase in the price of so far this year. Spot prices are currently at 3 year highs as the availability of spot material in China is squeezed as a result of Government intervention to curb illegal production of rare-earth materials.
• Government inspections of over 400 companies, “with an explicit focus on 180 companies involved in mining, processing and trading of rare-earth products” has focused on “inventory levels, actual output versus permitted, and entailed a thorough audit of past sales, tax payments and export prices charged to clients abroad.”
• Supply tightness in the spot market is being exacerbated by the Government inspired concentration of the industry into the hands of six major players which have been developing key long-term supply agreements with downstream industry off-takers and thereby further restricting material entering the spot market.
• In an interesting observation of the position of non-Chinese producers of rare-earths, Adamas Intelligence highlights that Chinese purchasers of overseas produced rare earths “can avoid paying a 17% value-added tax (VAT) imposed on China-derived supplies.”
• Adamas observe internal demand for neodymium/praseodymium in China growing at around 10% pa and have increased their short term price forecasts while maintaining their long term target prices post 2025. Although they do not detail their price forecasts in the summary, they describe the price outlook as “higher prices sooner”.
Conclusion: Structural changes in the Chinese rare earths supply chain in response to Government controls and a concentration amongst a limited number of large players is restricting supply and increasing prices. Mkango Resources is identified by the authors at Adamas Intelligence as a potential beneficiary.
*SP Angel acts as Nomad and Broker to Mkango Resources
Tri-Star Resources* (LON:TSTR) 0.16p, mkt cap £31.4m – Antimony prices continue to rise as environmental shutdowns in China cause stock levels to fall
• Prices for Antimony trioxide and metal continue to rise in China as shutdowns for environmental work have taken stock out of the market.
• The Metal Bulletin report that prices have risen 6% mom and 32% yoy for Standard Grade II antimony metal delivered duty paid in China
• Prices have also risen 5% mom and 16% yoy for Standard Grede II antimony metal in Rotterdam
• A number of Chinese antimony smelters are due to restart in September though some restarts may be delayed depending on environmental approvals. Smelters may also be required to shutdown in certain winter months to save on coal fired power generation in efforts to reduce smog.