Gold prices are trading at the lowest in three weeks as geopolitical woes subside and market focus on the FOMC meeting due later today.
• Estimates are for the Fed to stay put on rates; although, the central bank may shed more light on the timing of the third hike this year and a reduction in a $4.5tn balance sheet.
• Holdings in gold ETFs held steady hovering at the highest level since November last year.
• The US$ index is slightly weaker as the euro headed for a fourth daily advance.
• Base metals range bound with the LME index consolidating following two straight weeks of declines on profit taking and weaker than expected Chinese economic data.
• Brent is little changed trading close to the highest level in five months; Iraq said OPEC members are considering to deepen output cuts by around…1%.
• Iron ore futures climbed for the first in the last four taking the September drop to 9.3%; steel prices are little changed today after having coming off from this year’s high reached earlier in September (rebar futures are 1.6% this month).
Steel - New hybrid steel opens up new design possibilities
• Swedish steelmaker Ovako claims that it's new hybrid steels represents one of the most significant developments in steel metallurgy 'for decades'
• Offers the properties of tool steel, maraging steel and stainless steel combined with the production economy of engineering steel – opening up possibilities to use steel components in demanding applications
Dresden Mining Conference – From Mine to Market - Dresden on Thursday 28th September
• The FAME Project, GKZ (Geokompetenzzentrum) and the Minor Metals Trade Association (MMTA). are sponsoring a mining conference in in Dresden to be attended by a range of European industrialists.
• Speeches range from minor metals to smelters and Europe’s approach to mining, metallurgy and downstream integration.
• SP Angel’s John Meyer, will delivering a key note speech on “Minor metals in mining and markets – the future has just begun”
Land Rover – Jim Ratcliffe of Ineos looking to restart production of a Land Rover Defender like vehicle
• Ratcliffe is reported to be looking at three site options including one on the coast in the northeast of the UK.
• Other options including potentially taking over a mothballed plant or spare production capacity in Europe.
• We suspect Land Rover defenders sell better in the UK then in the rest of Europe.
Dow Jones Industrials +0.28% at 22,331
Nikkei 225 +1.96% at 20,299
HK Hang Seng -0.23% at 28,094
Shanghai Composite -0.18% at 3,357
FTSE 350 Mining -0.41% at 16,549
AIM Basic Resources -1.39% at 2,485
Economics
US – Senate Republicans are considering a budget that would involve a $1.5tn in tax cuts over the next decade, the WSJ reports.
• Once approved the budget paves the way for a tax bill that would specify rate cuts and other policy changes.
• That should provide support to businesses lifting economic growth rates.
• Preliminary estimates suggest cuts are not going to be revenue neutral and may be dropped in 10 years time.
Currencies
US$1.1993/eur vs 1.1929/eur yesterday. Yen 111.79/$ vs 111.34/$. SAr 13.303/$ vs 13.201/$. $1.354/gbp vs $1.354/gbp.
0.798/aud vs 0.801/aud. CNY 6.583/$ vs 6.563/$.
Commodity News
Global investment in the metals rises to highest since 2011
• The investment by hedge funds follows mounting inflow of money into industrial metals on the back of rising commodity prices.
Precious metals:
Gold US$1,309/oz vs US$1,315/oz yesterday
• Weakness in the U.S. dollar inched the index down 0.1 percent, with a fall against the yen.
• Gold price improved with market focus on the two-day Federal Reserve meeting beginning today. The meeting will determine the plan to reduce the $4.5 trillion portfolio of debt assets accumulated since the 2007-2009 financial collapse.
• The U.S. military maintained pressure on North Korea’s nuclear threat with combined staged bombing drills with South Korea, Russia and China ahead of a U.N. General Assembly meeting today.
• Kinross shares fell nearly 7% after the miner said on Monday it would spend more than $800m expanding its mines in Mauritania and Nevada
• The company expects to boost annual output to 634,000 gold ounces per year and for the project to generate over $2.2bn over its lifetime
Gold ETFs 68.7moz vs US$68.7moz yesterday
Platinum US$959/oz vs US$968/oz yesterday
Palladium US$928/oz vs US$936/oz yesterday
Silver US$17.17/oz vs US$17.55/oz yesterday
Base metals:
Copper US$ 6,526/t vs US$6,566/t yesterday
• North Korean tensions are felt in the base metals market as banks in South Korea with large exposure to copper are offloading holdings.
• London copper rose despite data showing a cooling Chinese property market. House prices for August rose at the slowest pace since the beginning of the year on the back of government cooling measures.
• Copper catalyst yields high efficiency co2 to fuel conversion
• Scientists have developed a new electrocatalyst that can directly convert carbon dioxide into multicarbon fuels and alcohols using record-low inputs of energy
• The work is the latest in a round of studies coming out of Berkeley Lab tackling the challenge of creating a clean chemical manufacturing system that can put carbon dioxide to good use
Aluminium US$ 2,106/t vs US$2,095/t yesterday
Nickel US$ 10,970/t vs US$11,165/t yesterday
Zinc US$ 3,096/t vs US$3,085/t yesterday
• Upcoming Chinese winter steel output restrictions and environmental closures has limited industry steel production, increasing profits across the sector. This has caused a revival in zinc and nickel prices, on prospects of negotiating higher raw material costs.
• Despite domestic supply of zinc falling in August, market supply is being met by advances in production from large international sources. Peru, largest supplier of zinc ore to China, is ramping up production to capitalise on higher prices, with July exports growing 50% from 2016 figures.
Lead US$ 2,384/t vs US$2,404/t yesterday
Tin US$ 20,675/t vs US$20,635/t yesterday
Energy:
Oil US$55.7/bbl vs US$55.7/bbl yesterday
• U.S. shale output is forecast for its 10th consecutive rise in October 2017. Growing U.S. oil price above the $50 per barrel level has spurred production across seven principal shale plays since the beginning of the year, delivering a total of 6.1 million bpd.
Natural Gas US$3.147/mmbtu vs US$3.067/mmbtu yesterday
Uranium US$20.60/lb vs US$20.60/lb yesterday
Lithium - Albemarle has developed a novel technology to increase of annual lithium production in Chile on a sustainable basis to as much as 125,000tpa of LCE equivalent without requiring additional brine pumping. Projects currently underway are expected to raise the company's total annual production capacity in Chile to more than 80,000tpa of LCE equivalent by 2020
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$69.6/t vs US$68.7/t
• The RBA is expecting iron ore prices to come down in the medium term on the back of “ongoing expansion of global iron ore supply following an extended period of strong investment”.
• More long term the Bank highlighted there is a chance India will step up its steel demand driven by an increase residential construction and transport infrastructure.
• 62% Fe iron ore delivered to Qingdao was priced at $71.8/t yesterday, down 9.1% this month but up 34.5% over the last three months.
Chinese steel rebar 25mm US$653.3/t vs US$656.4/t
• Uncertainties surrounding the trend in ferrous prices over the winter production period have caused steel and iron ore futures in China to fall.
Thermal coal (1st year forward cif ARA) US$82.2/t vs US$82.5/t
Premium hard coking coal Aus fob US$206.2/t vs US$207.3/t
Other:
Tungsten APT European US$310-335/mtu vs US$310-335/mtu
Graphite
• Tightening supply from China for the crucial manufacturing element, graphite, is threatening to limit European steel production. More stringent Chinese environmental legislations threaten the source as production quotas and pollution limitations are leading to a shortage of the metal.
• European steelmakers consume 226 kt graphite electrodes each year, although Chinese exports in 2017 have fallen 29 percent in a bid to maintain domestic steel. The current tightness of electrode supply has driven the spot price of graphite electrodes 10x the price at the beginning of the year.
Company News
BlueJay Mining* (LON:JAY) 16.8p, Mkt Cap £129m – High Spec products seen in Metallurgical test work
STRONG BUY
Target Price 24p
• BlueJay Mining report the confirmation of high specification ilmenite products in metallurgical test work from its Pituffik project in Greenland.
• The further optimisation of the wet and dry magnetic circuits has improved the process efficiency liberating a particularly pure ilmenite product cheaply and cleanly.
• The new simple and flexible improved flow sheet should now give a homogenous and consistent grade of ilmenite ore which is suitable for sulphate and as well as for sulphate chloride slag production.
• The low levels of chromium oxide and vanadium oxide are particularly significant while radioactive elements are also below detection limits.
• BlueJay reckon they can produce a typical ilmenite product with the following constituents:
• TiO2 • 46.5%
• FeO • 39.2%
• SiO2 • 0.71%
• CaO • 0.15%
• MgO • 0.78%
• U • <10ppm
• Th • <10ppm
Conclusion: Our current valuation is based on a base-case ilmenite price of $180/t. If the company is able to sell a premium product then the price received may increase by up to $100/t on our estimate price. While a full $100/t premium seems unlikely it is possible that a $30-50/t increase as seen for Australian and Ukrainian ilmenite may be justifiable.
Assuming an ilmenite price of $210/t would raise our valuation to 33p/s and to 35p/s on a $230/t price assumption. We assuming concentrate sales of 426,000tpa of ilmenite product by year three.
Our recent site visit confirmed potential to raise ilmenite concentrate production to this level at Pituffik using either dry mining or dredging. The team are expected to ship >500t of screened concentrate material this field season demonstrating the relative simplicity of the mining operation.
Raising future production beyond our assumed 426,000tpa rate makes a significant difference to our valuation. If we raise sales to 710,000tpa of ilmenite concentrate from year four our valuation rises to 39p/s assuming a base case price of $180/t. This rises further to 49p/s at $210/t and to 56p/s at $230/t.
We await the results of the ongoing feasibility study for confirmation of the intended route/routes for mining and processing. Today’s announcement shows the conceptual process methodology by IHC Robbins. See: https://www.titanium.gl/announcements/metallurgical-process-developments-and-product-specifications-for-its-ilmenite-products-from-its-flagship-pituffik-project-in-greenland/
*SP Angel act as nomad and broker to BlueJay Mining. An SP Angel mining analyst has visited the Pituffik ilmenite sands project in Greenland and has carried out his own density tests on the heavy mineral sands at Pituffik.
BlueRock Diamonds* (LON:BRD) 2.4p, Mkt Cap £3.2m – Interims highlight ongoing improvement in Kareevlei diamond grades and production
• BlueRock Diamonds resolved a number of management and contractor issues in the first half and are finally getting to their warranted throughput and grade levels.
• Bringing all mining in-house and improvement to the mining and process plant is helping to ramp up production as is the move into fresh kimberlite underlying the very hard calcrete material which has so hampered production.
• Run times are now at 16 hours a day vs the very poor 6.4 hours a day seen from March to May this year.
• The mine has yet to see its target diamond grade of 4.5cpht as estimated in the CPR consultant report and there is some evidence that grades could rise to this level potentially by the year end with Level 2 kimberlite material seen at significantly higher grade than the Level 1 material so far mined.
• Diamond sales values continue to do well with the last sale at $323/ct far over the $232/ct assumed in the CPR. This is despite worsening liquidity in the diamond supply chain and a potential surplus of smaller stones seen in the market.
• Koedenza: not wishing to be constrained by the one diamond mine, BlueRock are busy evaluating another kimberlite some 40km north of Kimberley with a potential 2,500t bulk sample being mined in the next month.
• We note there are another two kimberlite resources at Kareevlei with the K1 pipe grading 6.3cpht and K3 grading 3.7cpht.
• Interim Sales fell to £150,551cts through H1 from £206,072cts yoy.
• Interim Operating losses widened to £751,109ct vs £301,324ct yoy
• Total losses rose to £803,787 vs £574,588 yoy.
Conclusion: BlueRock will almost certainly post a profit in the second half marking a dramatic turnaround. While it is difficult to see this enabling a profit for the full year it is likely that the business should be in a position to post ongoing positive returns if it is able to meet its target throughput and grade rates.
*SP Angel acts as Nomad & Broker to BlueRock Diamonds
Metals Explorations (LON:MTL) 3.3p, Mkt Cap £67m – Algae in reprocessed water hampers BIOX processing
• The BIOX plant is reported to have experienced difficulties in ramping up throughput rates after reaching 50% of the design capacity with “currently limited material being processed through the citcuit”.
• The test work showed the presence of algae in the return water negatively affected the performance of the bacteria in the BIOX plant.
• Biomin, BIOX technology developers, have been called out to assist with remediation works and implement engineering solutions identified to fix the algae problem.
• No timing on a potential recovery in processing rates has been provided.
• On a positive note, cutting permit and all necessary blasting permits have been issued allowing the Company to start the access to the overflow waste dump site as well as increasing the supply of refractory ores to feed to the BIOX plant.
• The Company continues talks with lenders regarding a loan to refinance $12m in debt repayments and meet its working capital requirements.
Petra Diamonds (LON:PDL) 75p, mkt cap £399m – Petra having a bad week as it suffers labour disruption in South Africa following investigation in Tanzania
• Poor old Petra Diamonds is having a bad week. First they are hit by the seizure of 71,655cts of diamonds worth around $14m by the Tanzania government and now they are suffering from labour disruption.
• The disruption is reported to be affecting Petra’s Finch and Kimberley Ekapa Mining JV operations in South Africa.
• Management are in discussions with the National Union of Mineworkers to finalise a new wage agreement.
• Things are hotting up in Tanzania with Petra’s latest parcel of diamonds seized by the government on suspicion that the stones had been undervalued before export.
• Petra management have said they will cut investment into Tanzania if the government continues to prevent the export of their diamonds out of the country.
• Petra shut down for four days but might still breach banking covenants if it is unable to resume diamond exports over the next two to three months.
• Petra is carrying net debt of around US$555m and while its banks are reported to have agreed to ease the terms of its covenants on its senior debt facilities it still leaves the company vulnerable to further disruption.
Conclusion: Labour disruption at Petra’s mines in South Africa has the potential to destabilise the company at a time when the Tanzanian government is also preventing diamond sales. While Petra’s lenders are likely to remain accommodating shareholders are bound to suffer and there may well be further cost to this accommodation.