Commodities Week in a Minute: Bring out the "Fish", Diamonds, Gold plus CEY, PDL, POLY



Diamonds and precious stones

A quieter week this week with Jewish holidays 12-13 October but gives me a chance to catch up on a few things. I have attached September’s polished price index, which is in line with our thesis from the Quarterly Carat.

RapNet Diamond Index (RAPI™)


Sep 1, 2017 - Oct 1, 2017

3Q 2017
Jul 1, 2017 - Oct 1, 2017

Jan 1, 2017 - Oct 1, 2017

Oct 1, 2016 - Oct 1, 2017

RAPI 0.3 ct.





RAPI 0.5 ct. 





RAPI 1.0 ct.





RAPI 3.0 ct.





Copyright © 2017, Rapaport USA Inc.

In line with our view, is the consensus that rough prices from the major producers are being maintained for the current sales cycle.  This is despite calls from buyers for their standard 10% price cut to improve margins again. This will definitely require monitoring over the next few months and may even manifest itself by the end of the year.

Despite this, talk of lower prices incentivising jewellers to increase inventories ahead of the Q4 retail period may have some truth to it, albeit, I would say, varying significantly on region but could be a positive sign as the wider macro picture improves.

And on the fancy stone side of life: Sotheby’s will auction the Raj Pink diamond next month for between $20 million to $30 million. Weighing in at 37.30cts, the diamond is the largest fancy intense pink diamond on record. For comparison, the Graff Pink at 24.78cts sold for $46.2 million or $1.86m/ct in November 2010.

Precious metals

Gold has regained some poise this week, adding around 1.5% whilst the devils metals has added almost 3% after the Fed minutes this week reaffirmed the inflation conundrum for investors with today’s storm affected data release unlikely to satisfy either the bulls or bears. We remain constructive on precious metals but it feels like we are in consolidation mode with $1,300/oz. & $17/oz. a comfortable place to be right now for producers.

Oh and it seems where there is muck, there really is gold. A report into Swiss sewers from the Swiss Federal Institute of Aquatic Science and Technology (EAWAG) – has estimated around 43kg of gold and 3,000kg of silver was sent down the tubes last year. Apparently the sewage in the South of the country (where many refineries are based), concentrations of gold and silver are high enough to be economically recovered.

Base metals

We have had a decent week in the base metal space with the basket of six metals up 2.3% to last night close and should the complex avoid a last minute fall, the basket will have registered four straight weekly gains. The weekly winner’s hat goes to Nickel (+7.9%) as news of nickel pig iron plant closures in Shandong, Shanxi and Jiangsu provinces hit the wires.

The runners up medal goes to Copper (+3.3%), largely helped by yesterday’s 1.3% jump after Chinese import data confirmed imports of unwrought copper and products in September rose +10% from August to 430,000t whilst copper ore and concentrate imports increased +2.1% from August to 1.47mt, both figures were the highest since March.

To be fair, this big inventory build has followed a trend of other stockpiling materials ahead of any policy changes from the Chinese Plenary. One significant influencing factor for the longer term base metals investment case will come from how the industry deals with the raft of new environmental controls and a desire to move to a greener economy…

Bulk commodities

Well it all seems to have gone off in the iron ore market hasn’t it!

Iron ore imports have blown though the 100 million metric tons mark in September to 102.8Mmt, beating the previous record from December 2015 of 96.3Mmt. Demand for high grade material, as we have talked about for months now, shows no signs of letting up given the concerted push to reduce the environmental impact from the industry. One major loser is local low grade material as this is increasingly seen as undesirable, that is, unless it becomes significantly cheaper…

Total imports for the first nine months of 2017 are 7.1% higher at 817Mmt, putting full-year purchases on course to significantly exceed 1 billion tons and pushing the industry towards a total reliance on imported materials.

The news caused iron ore futures to briefly rally yesterday but dichotomy of demand between high grade and low grade looks almost permanent.

I would imagine lots of small, private, high-cost mines that produce low grade material may start to see a cancellation of operating licences given the ability to source material from overseas producers.

Prices are now back in our $60-65/t range after we highlighted the overbought nature recently, off c20% in the last month and I feel happier being neutral now.

Company announcements/news/meetings:

Daily company commentary is now covered in our Boom Ore Bust publication (sent by Jamie Campbell, so add him to your contact lists). I will reiterate some of interesting updates or comments that I feel may have been missed/underappreciated.

Naturally, if you wish to discuss any of these names in more detail, do get in touch.

Centamin – Q3 Results (LON:CEY, Mkt cap: £1,675.2m) – Positive

A record production quarter for Centamin with 156,533oz produced, up 26% on the previous quarter. Open pit production of 4,824Kt for the quarter was up 57% on the previous quarter highlighting the strength operations and the higher grade zones are coming through as plant throughput rates were actually down on Q2 (2,996Kt v. 3,056Kt)yet oz produced were much higher. FY17 guidance of 540,000oz and cash costs of $580/oz maintained. The results beat our estimates by 2.24% and the strength of this quarter’s performance will give the market far more confidence in the full year guidance numbers on both costs and production. With the tailwind from the gold price I would expect to see the stock up ~5%+ this morning.



Q2 2017

Q3 2016

PG Q3 Est.

PG FY17 Est.

Open Pit – Total Material (kt)





Open Pit – Ore Production (kt)





Underground Ore (kt)





Process Plant Throughput (kt)





Process Plant Productivity (kt)





Gold produced (oz)






After this result, I have placed Centamin onto our conviction list for Q4.

Petra Diamonds – Banking Covenants Update (LON:PDL, Mkt cap: £444.2m) – Neutral

Petra flagged the sensitivity to EBITDA related maintenance covenant measures in their 2017 preliminary results relating to debt facilities at 31 Dec 2017. The company is flagging today that compliance with these measures is further at risk post period end due to the labour disruptions at three of the South African mines and uncertainty around the final volume of sales at the Williamson mine in Tanzania. The likely breach has been flagged to the lender group whom the company remains in regular engagement with and the company forecasts indicate that sufficient liquidity exists from cash resources and operating cash flows to meet liabilities as they fall due under the forecasts and reasonable possible sensitivities. Whilst a negative that the covenant breach issue has been formally flagged it was well expected by analysts and investors following the issues in SA and Tanzania. We believe the lender group, made up predominantly of SA banks, will remain supportive particularly given recent commentary that the Cullinan mine is ramping up in line with expectations.

Polymetal Intl – Komar ore reserves increase (LON:POLY, Mkt cap: $4.9bn) – Positive

Following the acquisition of Komar in Q2 2016, Polymetal has undertaken a drilling programme consisting of 387 diamond drill holes for a total of 68,018m. As a result, total upgraded Ore Reserves are now 24 Mt of ore with a grade of 1.8 g/t for 1.4 Moz of gold contained, equal to a 60% increase in tonnages and a 57% increase in gold content. Operations at the Varvara hub will now increase by 3 years, until 2032. The additional ounces represent an upgrade and conversion from inferred resources in the southern part of the property, as well as new mineralised material discovered along strike in the far north of 5km-long deposit. To incorporate the additional material, a re-designed open pit offers many of the same characteristics with the stripping ratio unchanged at 13:1 and the base of the open pit unchanged at 190m. There remains further resource expansion potential as the mineralisation is open along strike in the northerly direction and down-dip in the southern part of the deposit.

Polymetal now plans to produce 2Mtpa from Komar, from 1mtpa and has concluded the economics of transporting by rail and processing at the Varvara plant offers superior total returns. During the first 9 months of 2017, 1.4 Mt of Komar ore was processed at Varvara. The additional Komar ore will displace the lower-grade material from the Varvara deposit and consequently, increase production and result in lower costs at the Varvara processing hub. Mine-to-mill transportation costs for Komar ore are low and comprise approximately $4.5/t

Today’s increase to Ore reserves reiterates the Polymetal DNA: To deliver positive ROIC. As one of only two majors to consistently achieve this (the other, of course is Randgold). Varvara will now see improved economics and increased contribution to group economics. Q3 production results are on Monday and we are expecting around 400koz Au Eq, a notable improvement on the 278koz Au Eq in Q2.


That's enough from me today

Stay strong




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