Antofagasta (LON:ANTO) – Q2 production on track to meet 2017 guidance
Bushveld Minerals (LON:BMN) – Wogen prepayment facility retired
BHP Billiton (LON:BLT) – Dividend increased by 177% to 83cents per share
Ortac Resources* (LON:OTC) – Annual results and start of drilling at Akyanga
Gold is off ahead of the annual meeting of world central bankers this week (24-26 Aug) in Jackson Hole.
• Palladium hit $941/oz, the highest level since Feb/01, earlier today.
• LME base metals index is trading at the strongest level since late 2014 with major gains in copper and nickel this week.
• Copper is up 2.2% since the start of the week and 4.1% in August helped by a weaker US$, strong demand for the metal and speculation China is looking at banning copper scrap imports.
• The Shanghai Futures Exchange imposed a cap of 2,000 lots on new positions for non-hedging clients trading October and November zinc futures from Wednesday in an effort to cool speculation in the zinc market which saw prices climbing to a ten-year high.
• Brent is stronger today before the US EIA inventories report due tomorrow and estimates for stocks to post another weekly decline; Libya declared force majeure and halted shipments from Sharara, its biggest oil field, on Saturday.
• Iron ore futures for January delivery climbed 1.7% to CNY 606/t on DCE extending gains to March highs.
Dow Jones Industrials +0.13% at 21,704
Nikkei 225 -0.05% at 19,384
HK Hang Seng +1.26% at 27,498
Shanghai Composite +0.10% at 3,290
FTSE 350 Mining +1.39% at 16,887
AIM Basic Resources +0.60% at 2,511
Economic News
Germany – The economy may post stronger growth this year than earlier expected driven by robust industrial production, exports and consumption, according to latest Germany central bank report.
• “The exceptionally positive corporate and consumer sentiment indicators, and the solid stock of industrial orders suggest that the German economy is likely to continue to gain momentum in the current quarter as well,” the Bundesbank said.
• Strong consumer demand helps to load up manufacturing capacities leading to a further increase in corporate investment in the German economy.
Currencies
US$1.1792/eur vs 1.1737/eur yesterday. Yen 109.39/$ vs 109.00/$. SAr 13.157/$ vs 13.212/$. $1.287/gbp vs $1.285/gbp.
0.794/aud vs 0.792/aud. CNY 6.656/$ vs 6.671/$.
Commodity News
Precious metals:
Gold US$1,285/oz vs US$1,288/oz yesterday
Gold ETFs 66.9moz vs US$66.8moz yesterday
Platinum US$977/oz vs US$979/oz yesterday
Palladium US$936/oz vs US$929/oz yesterday
Silver US$16.95/oz vs US$16.99/oz yesterday
Base metals:
Copper US$ 6,619/t vs US$6,551/t yesterday – At least seven people were injured and dozens of vehicles and building torched at Grasberg operations as protesting miners blocked access road to the mine.
• Police arrested 17 people on Saturday amid violent demonstrations over employment terms.
Aluminium US$ 2,079/t vs US$2,078/t yesterday
Nickel US$ 11,400/t vs US$11,190/t yesterday
Zinc US$ 3,143/t vs US$3,150/t yesterday
Lead US$ 2,355/t vs US$2,381/t yesterday
Tin US$ 20,465/t vs US$20,340/t yesterday
Energy:
Oil US$52.1/bbl vs US$52.6/bbl yesterday
Natural Gas US$2.964/mmbtu vs US$2.907/mmbtu yesterday
Uranium US$20.50/lb vs US$20.85/lb last week
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$76.8/t vs US$73.9/t
Chinese steel rebar 25mm US$652.5/t vs US$638.8/t
Thermal coal (1st year forward cif ARA) US$77.6/t vs US$78.5/t
Premium hard coking coal Aus fob US$194.6/t vs US$194.8/t
Other:
Tungsten APT European US$248-256/mtu vs US$230-235/mtu
Vanadium – The China Iron & Steel Research Institute submitted a revision to the standard tensile strength in rebar products in China to the Standardization Administration for review.
• The review considers a replacement of 335MPa strength rebar with a new 600MPa standard which should see increased vanadium usage in steel alloys.
• The CISRI estimates that new standard would lead to a 30% increase in Chinese vanadium demand equivalent to 10,000t per annum.
• “The (required) amount of vanadium to be added is 0.03-0.05% for HRB400 and 0.05-0.08% for HRB500 (two most used hot rolled high strength steel rebar products),” the official said.
• The review is expected to be “formally released” in September, the CISRI official involved in the drafting of the document said.
Company News
Antofagasta (LON:ANTO) 1003p, Mkt Cap £9.9bn – Q2 production on track to meet 2017 guidance
• Antofagasta reports a strong first half with earnings of 29.5 cents per share more than three times the 8.9 cents per share reported for H1 2016. The interim dividend has been increased by a similar proportion to 10.3 cents per share (H1 2016 3.1 cents per share).
• EBITDA grew by 87.8% to $1080m (H1 2016 - $575m) while EBITDA margins widened to 52.7% (H1 2016 – 39.8%.
• The company reports a strong balance sheet with cash an liquid investments of US$2.2bn available at 30th June leaving the company with net debt of US$860m or 9% gearing.
• The company’s guidance for 2017 production (685-720,000 tonnes of copper), cash costs (US$1.30/lb of copper production – net of by-product credits) and capital expenditure ($900m) remain intact.
• The company highlights the impact of its “Cost and Competitiveness Programme” in delivering $403m of mine site cost savings since it was introduced in 2014, including $44m of savings during H1 2017.
• Looking to the future, Antofagasta reports that it sees the development of the Centinela mining district as a “key area for longer-term growth” with the construction of a second concentrator some 7km from the current facility seen as a key development project. Optimisation of the original plan to construct a 90,000tpd concentrator capable of delivering an additional 170,000 tpa of copper equivalent is continuing into 2018 with the phasing of expenditure over a longer period than originally envisaged one key focus of the evaluation.
• Plans to develop the Twin Metals copper-nickel-platinum group metals project in Minnesota are currently the subject of legal dispute following the decision by “the relevant US authorities” to deny “renewal of two of its long-held federal mining leases”.
• Commenting on the state of the copper market, Antofagasta reports that “The copper market is currently exhibiting unexpected strength, but it is unclear if this can be maintained although it does appear that a new base price level has been established at $2.50-2.60/lb. The outlook in the mid to longer term continues to be favourable as demand is expected to grow at around 2% while supply growth remains constrained.”
• In the shorter term, “the market is moving to a tighter demand-supply position with a small deficit expected this year and next. However, volatility is anticipated as demand expectations are continually reassessed although supply has stabilised following the spate of disruptions earlier in the year”.
Conclusion: Antofagasta reports a robust half year and strong increase in both earnings and dividends.
Bushveld Minerals (LON:BMN) 9.1p, mkt cap £73.5m – Wogen prepayment facility retired
Target price 14p (raised from 11.6p)
• Bushveld Minerals reports that its Bushveld Vametco business has agreed with Wogen Resources, which exclusively markets Vametco’s Nitrovan product, to “retire in full the US$3 million prepayment facility and to simultaneously increase the Vametco Alloys (Proprietary) Limited ("Vametco") working capital facility by same amount from US$6 million to US$9 million.”
• The US$3m prepayment facility was an element of the financing for Bushveld Vametco’s April 2017 acquisition of a 78.8% interest in SMC, (Strategic Minerals Corporation) from Evraz.
• The global marketing agreement excludes “Japan and Taiwan which are covered exclusively by Sojitz Noble Alloys Corporation, the minority partner in SMC.”
• Commenting on the evolving relationship with Wogen, Bushveld’s CEO, Fortune Mojapelo, said “The retirement of the prepayment facility at such an earlier point than initially anticipated is testament to the quality of Vametco's operations and the extent to which the vanadium market has strengthened in the past year. Wogen continues to be a supportive and beneficial partner and its increase in the working capital facility from US$6 to US$9 million we believe demonstrates their confidence in Bushveld Vametco's strategy and vision going forward.”
Conclusion: Wogen Resources’ agreement to the early retirement of the prepayment facility is a milestone in the relationship with Bushveld Vametco and implies Wogen’s confidence in Bushveld’s capability.
*An SP Angel mining analyst and nomad have visited the Vametco vanadium mine and processing facilities in South Africa. This note is MiFID II compliant.
BHP Billiton (LON:BLT) 1,406.p, Mkt Cap £81.1bn – Dividend increased by 177% to 83cents per share
• BHP Billiton has announced a sharp increase in its annual dividend to 83 cents per share (FY 2016 – 30 cents per share) as “Recognising the importance of cash returns to shareholders, the Board has determined to pay an additional amount of 10 US cents per share, taking the final dividend to 43 US cents per share.”
• Chief Executive, Andrew Mackenzie, commented “We had a very strong financial year. Free cash flow was US$12.6 billion, our second highest on record. We used this cash to reduce net debt by nearly US$10 billion and return US$4.4 billion to shareholders. Productivity gains across our simpler portfolio of tier one assets increased our return on capital to 10 per cent.”
• The results assisted a continuing strengthening of the balance sheet with a US$9.8bn reduction in net debt to US$16.3bn (December 2016 – US$20.1bn and June 2016 US$26.1bn) giving year end gearing of 20.6%.
• In his comments, retiring Chairman, Jac Nasser, added “Over the last five years, we have laid the foundations to significantly improve our return on capital and grow long-term shareholder value. … We have reduced unit costs by over 40 per cent and achieved over US$12 billion in productivity gains. Our capital allocation framework provides flexibility at the bottom of the cycle and discipline at the top”
• EBITDA margins have increased to 55% from the 41% in the previous years’ delivering underlying EBITDA of US$20.3bn as a result of higher commodity prices, operating cash cost improvements and “other net movements (in total US$9.4 billion) more than offsetting the impacts of unfavourable exchange rate movements, inflation and one-off items (in total US$1.4 billion).”
• The company’s iron ore business contributed 45% (US$9,077m) of the total EBITDA; the petroleum division contributed a further 20% (US$4,063m) with the coal (US$3,784m (19%) and copper US$3,545m (17%) businesses also significant.
• Reflecting on the global economic outlook, the company noted that “World economic growth is likely to be close to the top of the anticipated range of three to three and a half per cent in the 2017 calendar year” and that “China's economic growth is expected to slow modestly in the 2018 financial year, while remaining within the official GDP target range of between six and a half and seven per cent.”
Conclusion: BHP Billiton continues to strengthen its balance sheet while increasing its dividend payout.
Ortac Resources* (LON:OTC) 3.3p, Mkt cap £4.8m – Annual results and start of drilling at Akyanga
• Ortac Resources reports a loss of 1.2p per share (£835,000) for the year ending 31st March 2017 (loss of 2.2p/share or £853,000 in 2016).
• During the year, Ortac raised £716,000 through the issue of a total of approximately 2.5bn new shares. Shares were subsequently consolidated on a 1:100 basis. Cash balance as of 31st March amounted to £80,000.
• The company’s long-serving Chairman, Anthony Balme is to pass the baton to Nick von Schirnding at the AGM on 8th September at which time non-executive director, Paul Heber will retire.
• During the year, Ortac increased its interest in Casa Mining, the holder of the 1m oz Akyanga gold deposit in the DRC and where the next phase of drilling has now started, to 22.2%. Subsequent to the year end, Ortac “put a convertible loan note in place that, when converted, will result in Ortac owning approximately 45 percent of Casa.”
• The drilling involves a total of around 5000m of diamond drilling, including 2200m in the first phase of work which should be completed in October. The work aims to assess the grade continuity of the mineralisation, particularly in the southern part of the deposit, and examine the geological controls of mineralisation. The company aims to establish the potential for grades in excess of 2g/t gold and or a deposit exceeding 2moz of contained gold as well as assessing the scale of drilling needed to establish an indicated resource.
• Among the other highlights of the past financial year are the resolution of the long-standing mining permit issues at the Sturec mine in Slovakia where the company has now been issued an amended underground mining permit which allows the commencement of small scale mining beyond the boundaries of the town of Kremnica.
• The company has also “also entered into a non-binding Memorandum of Understanding with a potential Joint Venture partner in Slovakia in April 2017”.
• In Zambia, the “completion of the demonstration scale processing plant at Kalaba was delayed whilst Zamsort [Ortac’s local partner] concluded financing to complete the plant.” Following the partial conversion of Ortac’s loan notes to Zamsort, “the company now holds a 14% equity stake in Zamsort with the c. 6 percent balance and interest being rolled forward to the end of 2018.”
• Ortac’s intereset in “Andiamo Exploration Limited ("Andiamo") was reduced to 18.5 percent as a result of the acquisition for shares of Environminerals East Africa Limited's JV interest in Andiamo's Haykota Licence and subsequent fundraise.”
Conclusion: Ortac’s leadership team is changing as it seeks to advance its portfolio of projects in Slovakia, Zambia, the DRC and Eritrea. Drilling has just started at Akyanga with a view to establishing grade continuity and mineralisation controls and laying the groundwork for future resource estimation.
*SP Angel acts as nomad and broker to Ortac Resources