US dollar gains as Huricane Irma loses power and North Korea fails to celebrate nation’s anniversary with missile firing
China considering ban on production of combustion engine vehicles
• China produced and sold >28m vehicles last year with EVs and hybrids rising by 50% to >500,000
Tungsten prices continue to gain - APT European US$310-335/mtu vs US$285-300/mtu last week
• Tungsten prices continue to rise. The increase in prices may reflect proposals to rebuild strategic stocks while supplies of low grade tungsten from Chinese mines may be cut back.
China commodity imports may be running out of momentum
• The big question in base metals and other industrial commodity markets is on how much will environmental closures affect Chinese metals production?
• Reuters comments this morning on “China’s commodity imports show why rally in prices may stall”.
• Reuters’ focus is on falling imports for crude oil and coal which they see as tapering off in recent months.
• We are not surprised to see lower import numbers through August as China’s crackdown on polluting mines, smelters and other businesses should naturally reduce energy consumption.
• Furthermore, directives to enforce the closure of polluting businesses through the worst winter months are likely to prompt lower stock levels at power utilities, blast furnaces etc…
• Comparing the fall in commodity exports with import numbers should reveal more about underlying activity and overall demand trends within China
• China’s focus on electric vehicles is also likely to cause to a longer term increase in coal consumption while leading to a decline in crude oil imports.
• China already has some 200m e-bikes on the road with around 700 e-bike manufacturers. There are so many e-bikes that legislation now limits e-bikes from certain parks of its major cities.
• China is also ramping up Electric Vehicle production to further reduce the nation’s dependence on oil imports, while the recent fall in oil imports may also reflect a slowdown in the construction and stocking of massive strategic storage facilities.
• While coal imports remain firm, local production is reported to be rising to better balance domestic needs though the quality of new local coal is likely to be significantly less than imported material.
• Imports for copper and iron ore remained relatively strong through August probably reflecting more ongoing internal demand growth for steel and copper products.
• Imports of unwrought copper were steady through June, July and August indicating that copper demand remained firm and that many processors continue to operate despite new environmental controls
• We expect to see lower export exports for many refined commodity products as polluting mines and furnaces close. While some will reopen following work on their environmental compliance we suspect many will not as the cost of rehabilitation and environmental compliance will raise production costs beyond economic sense.
• We have already seen significant disruption to commodity imports and exports in some of the speciality metals such as antimony, vanadium, titanium and tungsten with prices rising strongly as a result of both temporary and permanent plant closures in China.
• Rare Earth Element prices are also seen rising strongly as resolving the pollution issues relating to the production of Rare Earths from clays in China is no easy matter.
Dow Jones Industrials -0.10% at 21,785
Nikkei 225 -0.63% at 19,275
HK Hang Seng +0.53% at 27,668
Shanghai Composite -0.01% at 3,365
FTSE 350 Mining -0.63% at 17,829
AIM Basic Resources +0.04% at 2,606
Economics
Currencies
US$1.2047/eur vs 1.1966/eur yesterday. Yen 107.64/$ vs 108.97/$. SAr 12.821/$ vs 12.823/$. $1.314/gbp vs $1.306/gbp.
0.809/aud vs 0.801/aud. CNY 6.466/$ vs 6.501/$.
Commodity News
Precious metals:
Gold US$1,337/oz vs US$1,354/oz yesterday - Gold retreats from 1 year high as dollar gains ground
Gold ETFs 68.5moz vs US$68.5moz yesterday
• Gold fell early Monday morning after hitting highest level in over a year, with recovery in US dollar reining in any upward momentum in the metal
• Dollar recovered from last week’s low as a lack of geopolitical developments dented safe-haven appeal of gold
Platinum US$1,004/oz vs US$1,019/oz yesterday
Palladium US$949/oz vs US$956/oz yesterday
Silver US$17.85/oz vs US$18.18/oz yesterday
Base metals:
Copper US$ 6,755/t vs US$6,807/t yesterday
Aluminium US$ 2,128/t vs US$2,094/t yesterday
Nickel US$ 11,600/t vs US$11,940/t yesterday - New Australian nickel mine hoping to cash in on battery demand
• A new nickel mine in Australia is pinning its hopes on use of nickel in electric vehicle batteries which could significantly raise demand for the metal
Zinc US$ 3,096/t vs US$3,090/t yesterday
Lead US$ 2,283/t vs US$2,309/t yesterday
Tin US$ 20,630/t vs US$20,750/t yesterday
Energy:
Oil US$53.8/bbl vs US$54.7/bbl yesterday
Natural Gas US$2.923/mmbtu vs US$2.971/mmbtu yesterday
Uranium US$20.75/lb vs US$20.90/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$73.2/t vs US$74.6/t - Iron Ore prices continue to pull back
• Some weakness is down to a sharp rally in the Chinese Yuan on Friday leaving it at fresh multi-year high against the US dollar
Chinese steel rebar 25mm US$674.2/t vs US$671.8/t
Thermal coal (1st year forward cif ARA) US$80.5/t vs US$80.0/t - Coal prices set to lose their spark
• Benchmark coal prices may pull back over next couple of years as China and India strive to meet demand with through domestic production
• Coal imports are expected to remain subdued because of low demand from coal-based units and the rise in renewable energy capacity
Premium hard coking coal Aus fob US$210.0/t vs US$210.0/t
Other:
Tungsten APT European US$310-335/mtu vs US$285-300/mtu
Quarterly hard coking coal US$285.0/t vs US$285.0/t
Company News
Dalradian Resources (LON:DALR) 100 pence, Mkt Cap £264.2m – Taking a new look at Curraghinalt veins
• In a report which the company emphasises is not a new resource update, Dalradian Resources outlines the findings of a “sensitivity study” on two veins (T17 and V75) at its Curraghinalt gold deposit in Northern Ireland.
• The study, which lays increased emphasis on the detailed geology observed in the drilling, “yields 24% narrower veins accompanied by a 20% decrease in tonnage”.
• “This change in modelling sequence, … can in part explain the positive reconciliation between mill and resource (42% more ounces) resulting from the test stopes completed in 2016.”, leading to the conclusion that “The bottom line is that we have 32% more mineable ounces for the two veins tested."
• The results show that contained ounces of gold within the T75 vein are 3% higher than previously expected for the measured/indicated resource and 10% greater for the inferred resource with grades around 35% higher than originally modelled. On the T17 vein, measured and indicated ounces are 15% higher and inferred ounces of gold are 9% higher as a result of a 38% increase in modelled grades.
Conclusion: The higher grades seem better to reflect the results of the various trial mining exercises completed by the company and are reported to tie in better with the observed geology. The conclusion that the resources are contained within lower estimated tonnages is helpful but the mining of narrower veins will require rigorous control of mining operations in order to minimize dilution and capture the benefits of the higher grades.
Ortac Resources* (LON:OTC) 2.375p, Mkt cap £3.5m – New board emphasises African focus
• Ortac Resources has emphasised that under the direction of its new Chairman, Nick von Schirnding, the company is “to focus exclusively on its high potential African exploration mining assets.”
• These comprise the copper assets of Zamsort in Zambia and the gold exploration of Casa Mining in the DRC where drilling of the priority target at Akyanga started in late August.
• The company is looking “to divest its investment in Eritrea” where it holds an 18.5% interest in Andiamo Exploration as well as considering “a number of strategic options with respect to its Slovakia (Kremnica) gold project”.
• In Slovakia, Ortac reports that it “is in constructive discussions with a number of parties, both local and international and in the interim, will keep associated expenditures to a minimum.”
Conclusion: The decision to focus on its principal African projects and move away from the Slovakian project where it has encountered repeated setbacks on permit issues, now largely resolved, comes as little surprise. We look forward to news of progress in Zambia and the DRC and of the possible divestment of Andiamo and the Slovakian interests.
*SP Angel acts as nomad and broker to Ortac Resources
Petra Diamonds (LON:PDL) 83p, mkt cap £441.5m – Tanzania blocks diamond exports from Williamson – mine operations temporarily shut down
• The company has confirmed that “a parcel of diamonds (71,645.45 carats) from the Williamson mine in Tanzania has been blocked from export to Petra’s marketing office in Antwerp and certain key personnel from Williamson are currently being questioned by the authorities.”
• As a result of the diversion of these “key personnel” from their usual duties, “operations at Williamson have temporarily been stopped for health and safety and security reasons.”
• The measures come as part of the Government’s implementation of new measures to control the minerals industry, however, the company makes clear that “the grounds upon which these actions have been taken have not been made clear to the Company as yet.” The company also indicates that it has yet to receive a copy of the report which led to the blocking of the export of this parcel of diamonds.
• Petra points out that the Government, which has a 25% interest in the mine, “has complete oversight of the diamonds produced at the mine, which are physically controlled by a number of different Government representatives in conjunction with Petra from the point of recovery until the point of sale.”
• Emphasising the transparency of the chain of custody, the company also points out that “the provisional valuation of the diamond parcels from Williamson before they are exported to Antwerp is carried out by the Government’s Diamonds and Gemstones valuation agency” and not by the company.
• This provisional valuation is the basis of provisional royalty payments to the Tanzanian Government with subsequent adjustments applied based on the actual sales achieved.
• The company emphasises its commitment to address the concerns raised by the parliamentary investigation and “to resolve this matter and ensure that the correct information is available to all parties.”
Conclusion: The company makes a strong case for the transparency of its operations at Williamson and emphasises the involvement of government, which is a 25% owner of the mine, at all stages of the production and sales process. We hope that there is a speedy resolution leading to a resumption of normal activity at Williamson before the impact on the mine workforce and the company becomes too onerous.
Stellar Diamonds (LON:STEL) 3.375 pence, Mkt Cap £1.4m – Placing and £200,000 open offer
• Stellar Diamonds reports that “it has conditionally raised £330,000 through the issue of 10,153,847 new Ordinary Shares of the Company at an issue price of 3.25 pence per share”.
• “In order to provide all Stellar shareholders with an opportunity to participate in the proposed issue of new ordinary shares of the Company, the Company proposes to raise up to approximately £200,000 (before expenses), at 3.25 pence each through an open offer”
• The funds are to be used to “prioritise payment of the Tongo environmental licence and renewal of the Tonguma environmental licence (estimated $250,000 for both”. The approval of the Tongo Mining licence in Sierra Leone is “subject to the payment of the Tongo environmental licence” and hence the financial capacity to secure the renewal of the environmental licences is a key milestone in the project development.
Conclusion: The funding should help to keep the longer term development of the Tongo project on track.