Anglo American (LON:AAL) – De Beers diamond sales remain firm
Gem Diamonds (LON:GEMD) – Ghaghoo sale discussions ended – further negotiations underway
Premier African Minerals (LON:PREM) –Latest drilling from Zulu and RHA update
Rainbow Rare Earths Ltd (LON:RBW) – Raising £2.8m for growth plans at Gakara
Savannah Resources (LON:SAV) – Savannah commissions small 20tph pilot plant on Mutamba mineral sands project in Mozambique
W Resources (LON:WRES) – Potential US$30m term loan for La Parilla
Electric Vehicle sales may lose power as China scales back sUBSidies
• Even as long term confidence in role of electric cars grows a great deal of uncertainty remains for raw material producers as China scales back its car sUBSidies and technology that powers the vehicles evolves potentially slashing demand for some battery materials
• Carmakers are already planning to use less cobalt shifting ratios in favour of nickel due to supply chain risks and higher price levels
Dow Jones Industrials +0.23% at 24,386
Nikkei 225 -0.32% at 22,866
HK Hang Seng -0.63% at 28,782
Shanghai Composite -1.25% at 3,281
FTSE 350 Mining -0.25% at 16,808
AIM Basic Resources +0.97% at 2,579
Economics
US – The US$ index and precious metals are little changed this morning as the FOMC are holding the last policy setting meeting for this year.
• Both Dow (24,386) and S&P500 (2,660) closed at record levels on Monday led by gains in energy stocks and tech sector.
• The US Treasury latest economic growth projections show that tax cuts may generate around $1.8bn of extra tax revenue over 10 year period.
• The review says the economy will grow at 2.9% per annum over 10 years which is 0.7pp stronger compared to previous predictions.
• The Treasury expects half of the pick up in growth rates to be attributable to a reduction in corporate tax rate (20% down from 35%) with the balance of gains coming from changes to individual and pass-through businesses taxation, regulatory reform, infrastructure development and welfare reform.
Germany – CDU representatives are meeting with the SPD for initial talks over the potential to from the “grand coalition” this Wednesday.
• SPD leaders will decide on Friday whether to launch the process of formal negotiations.
UK – Inflation continued to accelerate through November hitting the strongest level in more than five years.
• The data marginally exceeded market estimates and latest BOE projections for 3.0% in Q4/17.
• Inflation is expected to level off once the effect of the 18% depreciation in the sterling since late 2015 falls away with the BOE guiding for CPI at 2.4% in Q4/18 and 2.2% in Q4/19 and 2.1% in Q4/20.
• Additional pressure came from higher energy prices.
• Input prices are reported to have climbed 7.3%yoy with manufacturers absorbing some of the increase forced by industry competition passing through less than a half of the increase to consumers.
• Mark Carny will now need to write a letter to Chancellor of the Exchequer explaining why inflation is running more than 1pp above the target 2% rate.
• CPI (%mom/yoy): 0.3/3.1 v 0.1/3.0 in October and 0.2/3.0 forecast.
South Africa – The National Prosecuting Agency (NPA) extended the deadline for President Zuma to make representations to prevent the corruption charges being brought against him to 31 January.
• The 783 charges against Zuma relate to a R30bn government arms deal arranged in the late 1990s which were then dropped by the NPA before Zuma ran for the presidency.
• The High Court reinstated charges last year with the Supreme Court upholding the decision in October, rejecting an appeal by Zuma and calling NPA decision to set aside the charges as “irrational”.
• Additionally, the High Court ruled that the appointment of the chief state prosecutor by Zuma in 2015 should be considered invalid and should be replaced immediately.
• The President filed an appeal with Abrahams, the chief prosecutor, to remain in office until the appeal is determined.
Currencies
US$1.1788/eur vs 1.1746/eur yesterday. Yen 113.40/$ vs 113.54/$. SAr 13.676/$ vs 13.683/$. $1.337/gbp vs $1.351/gbp.
0.753/aud vs 0.751/aud. CNY 6.617/$ vs 6.617/$.
Commodity News
Industrial cuts boost Chinese metals
• Effective supply cuts linked to China’s environmental crackdown are leading to great import demand and boosting Shanghai base metal futures. The pollution action plan devised in 2013, which includes the 2+26 plan forcing the closure of aluminium, steel and other industries during the winter heating season from mid-November to March, aims to curtail concentrations of hazardous airborne particles (PM2.5) by 25%.
• UBS see China’s focus on reducing air, land and water pollution to be a major driver for commodities, boosting the importance of higher-quality product and enhanced imports.
Precious metals:
Gold US$1,244/oz vs US$1,250/oz yesterday
• Gold price climbs from yesterday’s five-month intraday low of $1,240.81/oz, with market participants seeing the key $1,240 support level a short-cover position ahead of the Federal Reserve meeting. However, support for the metal maybe short lived as outgoing Chair Janet Yellen is set to signal that more interest rate increases are due in 2018 after raising the Fed’s benchmark by a quarter of a percentage point.
• Further interest rate increases would steadily grind gold lower, with hawkish comments drawing the metal down toward $1,205-$1,210 forecast INTL Fcstone analyst.
• Market analyst at Oanda linked yesterday’s decline in gold price to increased access to cryptocurrency trading as the CBOE Bitcoin futures went live, suggesting “it is no coincidence that the day that Bitcoin futures officially started trading, gold prices dropped in an otherwise sideways overnight session in most markets”.
Gold ETFs 71.7moz vs US$71.7moz yesterday
Platinum US$886/oz vs US$892/oz yesterday
Palladium US$1,010/oz vs US$1,011/oz yesterday
Silver US$15.76/oz vs US$15.87/oz yesterday
Base metals:
Copper US$ 6,648/t vs US$6,573/t yesterday
• Subdued investor digest banks’ view on outlook for 2018 draws metals lower. Nickel led the fall with 1.3%, while LME copper contracted 0.4% on subdued demand with an average $6,382/t in 2018.
• Barclays and Goldman Sachs are outright bullish concerning supply volatility as labour negotiations could trigger disruptions at mines producing 40% of the world’s raw material. 7.8 million tonnes of annual production could be at risk as a swathe of labour contracts are due for renewal, with labour renegotiations surrounding the 20% rally in copper price this year. Copper surged to a three-year high in October on supply cuts, better-than-expected demand and waning long-term supply concerns. Elevated prices have already attracted strikes and widespread industrial action across Chile and Peru as unions focus on fairer wages.
• Planned winter closure of smelting operations to combat air emissions are ramping up imports of intermediate copper products as unwrought copper and copper-fabricated products were up 42.4% mom, or 24.7% yoy.
Aluminium US$ 2,010/t vs US$2,011/t yesterday
Nickel US$ 11,130/t vs US$10,900/t yesterday
Zinc US$ 3,120/t vs US$3,098/t yesterday - Zinc prices rising in China as top producing areas start environmental checks
• Zinc futures rose 0.8% to 24,910 yuan a tonne amid growing concerns about supplies of zinc concentrate after Huayuan county warned it will carry out more environmental inspections
• As much as 3,000 tonnes – 5,000 tonnes of zinc could be affected by the checks
Lead US$ 2,496/t vs US$2,458/t yesterday
Tin US$ 19,405/t vs US$19,360/t yesterday
Energy:
Oil US$65.4/bbl vs US$63.3/bbl yesterday
• Britain’s largest oil pipeline could shut down for unscheduled repair work as routine inspection works revealed a small leak. The Forties Pipeline System, which carries 450,000 barrels per day of Forties crude from the North Sea to the Kinneil processing terminal in Scotland, has been operating at reduced capacity since December 7. sending the price of crude to new two-year highs.
• Hedge fund managers begin profit taking from strong rally in crude oil and refined product prices, with portfolio managers cutting their combined net long position in the five major futures and options contracts linked to petroleum prices by an equivalent of 34 million barrels last week.
Natural Gas US$2.833/mmbtu vs US$2.830/mmbtu yesterday
Uranium US$25.00/lb vs US$25.00/lb yesterday
Lithium – new study links trace levels of lithium in drinking water to lower Altzheimer death rates
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$67.8/t vs US$67.8/t
Chinese steel rebar 25mm US$758.0/t vs US$752.1/t
Thermal coal (1st year forward cif ARA) US$88.4/t vs US$87.4/t - China coal prices soar as gas shortages spur unexpected demand
• Coal futures jumped to record high on Monday as natural gas shortages across the north spurred an unexpected demand for the fuel from utilities
• State media reported Beijing would be forced to restart coal fired power plant to help ease the gas shortage
Premium hard coking coal Aus fob US$236.1/t vs US$236.1/t
Other:
Tungsten APT European US$293-300/mtu vs US$291-300/mtu last week
Cobalt LME 3m US$74750/t vs US$74500/t yesterday
• Revision of the mining code in the Democratic Republic of Congo could do lasting damage to investment in the globally leading cobalt and copper producer. The method of revising the 2002 mining code has been a laborious process extending for over five years, but on Friday the National Assembly approved a bill that would increase taxes and royalties. The measure is set to increase the state’s minimum unpaid share of new mining projects and require that Congolese investors hold at least 10% of shares in large-scale mines.
• The government argues that the proposed 3.5% royalties on precious and base metals are lower than in competitor nations such as Zambia, and revenues could boost the country’s annual budget of only around $5 billion.
• The bill could have devastating impacts on the nation’s economy, representing some 95% of the country’s export revenues, while hampering crucial supply for the developing electric economy, with copper and cobalt playing a fundamental role in electric vehicles and renewable technologies.
• LME’s probe into ethical sourcing of cobalt finds its first victim, as China’s Nanjing Hanrui said it was unable to ascertain that its products did not involve the use of child labour in Africa.
China’s Nanjing Hanrui can’t be sure cobalt didn’t use child labour
• China’s Nanjing Hanrui Cobalt, which sells the metal to a firm approved by the London Metal Exchange, said it was unable to ascertain that its products did not involve the use of child labour in Africa.
• Another LME supplier, Yantai Cash is unable to deliver against the LME cobalt contract as has yet to set up a supply chain verification system.
Company News
Anglo American (LON:AAL) 1376 pence, Mkt Cap £17.8bn –De Beers diamond sales remain firm
• Anglo American reports that De Beers achieved sales of US$450m for its 10th diamond sale of 2017. Equivalent sales in 2016 amounted to $422m.
• The sales represent a modest, 3% reduction on the $466m sales achieved during the previous sales cycle, which has been adjusted upwards from the provisionally reported $455m to $466m.
• Commenting on the sales, De Beers CEO, Bruce Cleaver, said that “the sales saw the continuation of good demand for De Beers rough diamonds as we head towards the end of 2017 … with sales slightly ahead of the equivalent period in 2016“.
Conclusion: The upgrading of the provisional value of the 9th sales cycle and the maintenance of this level of demand into the 10th cycle suggests a firming of the demand for rough diamonds in the run up to Christmas and the New Year.
Gem Diamonds (LON:GEMD) 76.3p, Mkt Cap £106m – Ghaghoo sale discussions ended – further negotiations underway
• Gem Diamonds reports that the earlier proposal by a third party to acquire 100% of the mothballed Ghaghoo diamond mine has not resulted in agreement and that the offer has been withdrawn.
• The company does confirm, however, that it is “presently in discussions with other parties interested in acquiring 100% of the Ghaghoo asset and will update the market as and when appropriate.”
Premier African Minerals (LON:PREM) 0.4p, Mkt Cap £26m –Latest drilling from Zulu and RHA update
• Premier African Minerals has announced the assay results of the upper portion of its latest drillhole at the Zulu Lithium project near Fort Rixon, Zimbabwe.
• Hole ZDD-45, which is a step-out hole located approximately 220m south of the Main Zone where the company has a maiden resource estimate of 20.1m tonnes grading 1.06% Li2O, has encountered 68m of mineralised pegmatite from a depth of 101m down hole.
• “Assay results from the first 38.84m analysed contains an average of 1.55% Li2O in Multiple intersections including:
o 8.22m at 1.96% Li2O from 101.24m
o 3.53m at 1.06% Li2Ofrom 111.70m
o 1.20m at 2.08% Li2O from 124.40m
o 11.47m at 1.90% Li2O from 126.77m
Including 0.95m at 4.24% Li2O from 138.96m
• 8.48m at 1.25% Li2O from 138.96m”
• Results from the rest of the hole are still pending.
• The drilling so far adds a further 24 holes (3683.54m) to the 2500m of drilling which was incorporated in the maiden resource estimate of June 2017. “The currents drilling programme is focussed on expanding as well as upgrading the resources in the Main Zone and to delineate further the Li mineralisation in the new south-eastern zone.”
• The company notes that all of the holes in the current programme have intersected mineralisation but that today’s results in Hole ZDD-45 are the best to date and are located at the junction of three zones and that the lithium mineralisation is spodumene rich with only scarce petalite and lepidolite.
• In a separate announcement, the company provides a progress report on its RHA tungsten project in Zimbabwe. A bulk sample of some 8,300 tonnes of open pit ore has been taken and of this around 7,250 tonnes have been processed in order to provide data which “will guide future open pit operations and cost effectiveness”. The remaining ore from the bulk sample will be processed “when the mining contractor has completed fragmentation of large boulders”, suggesting that the initial mining was perhaps not overly efficient.
• The company’s underground operations at RHS are reported to be progressing well although the monthly production remains below the 6000 tpm target projected for profitable operations though the company indicates that this target may have been overstated it expectes to achieve the 6000tpm target rate in December. Plant performance is “encouraging” with throughput at around 700tpd “and plant performance is primarily constrained because of high fine particle percentage in the open pit ore.” The company expects this problem to be alleviated by the blending of underground ore into the plant feed.
Conclusion: Drilling at Zulu appears to be extending the footprint of the mineralisation and offering the possibility of an upgrade to the existing 20mt resource. We await the assays from the lower portion of the current hole with interest. At RHA, it appears that there are continuing operational challenges. Despite a number of improvements relatively high levels of fine ore in the plant feed constricts plant throughput while the underground operation is only expected to reach its target production rate this month.
Rainbow Rare Earths Ltd (LON:RBW) – 15.1p, mkt cap £23.4m – Raising £2.8m for growth plans at Gakara
• Rainbow Rare Earths reports plans to raise between £2.6-2.8m in order to “bring forward its growth plans at its producing Gakara Rare Earth Project in Burundi … including an exploration campaign and the expansion of the mining fleet”.
• The company identifies the principal uses of the proceeds as:
o “Acceleration of the production ramp-up by fast-tracking the development of new mining areas at Gakara
o Purchase of additional mining fleet
o Drilling campaign to investigate recently identified anomalies at Gakara
o Strengthening balance sheet during ramp up.”
o The company confirms that the minimum price at which the funds are to raised is 14p/share.
o Conclusion: Rainbow Rare Earths is raising funds to accelerate the expansion of the Gakara Rare Earths project in Burundi.
Savannah Resources (LON:SAV) 5.4p, Mkt cap £34m – Savannah commissions small 20tph pilot plant on Mutamba mineral sands project in Mozambique
• Savannah Resources report the commissioning of a 20tph pilot plant on the Mutamba mineral sands project in Mozambique.
• The plant, which was opened by the Governor of the Inhambane district, was built by a local subsidiary of the Mutamba consortium is small by most standards but should be sufficient to provide samples for metallurgical work and for testing by potential consumers
• The consortium is made up of Savannah Resources, it’s local subsidiary and Rio Tinto plc with which Savannah has a consortium agreement.
• A scoping study by TZMI, experts in mineral sands, indicates a potential 30 year mine life based on a 451mt resource grading 6.0% Total Heavy Minerals.
• This is based on a very conceptual ‘dry mining’ mine plan utilising 33% indicated resource and 67% inferred resource.
• Production was modelled at 15mtpa with negligible waste to ore ratio for 456,000tpa of ilmenite and 118,000t of non-magnetic concentrate starting in 2020
• The plan shows base case sales of US$3.53bn forecast
• Capita cost, pre-production, are for US$152m + US$74m contingency for an EPCM contract +/-35%.
• Ilmenite prices are currently at around $173/t of 54% TiO2 concentrate FOB Australia according to the Metal Bulletin though this does not reflect premiums paid for better quality material.
• Ilmenite prices are said to have, unusually, continued to rise towards the year end. Anti-pollution action in China should reduce the amount of titanium produced from non-ilmenite sources at a time when demand is expected in the industry to rise.
Conclusion: The modelled project has an IRR of 19% on the base case ilmenite price of $185/t rising to 23% on $204/t and 27% pm $222/t. We do not consider these rates of return should be acceptable to Savannah or its consortium particularly given the +/-35% capital cost variability. We have to wonder why Savannah are spending time and money on the project although speculation indicates that Savannah are warehousing the project for Rio Tinto who are less than popular in Mozambique since the Riversdale disaster. The potential returns may not be good enough for Rio Tinto either.
W Resources (LON:WRES) 0.4p, Mkt Cap £20.4m – Potential US$30m term loan for La Parilla
• The Company reports that the investment committee of an un-named US based fund has granted preliminary approval to provide a US$30m loan to fund the La Parilla tungsten mine development in Extremadura, Spain. If the loan is forthcoming, it “fully funds the development of the 2 million tonnes per annum … La Parilla mine development”.
• The company confirms that development is progressing and that “Engineering is on schedule for completion in Q1 2018 and orders for all long lead items have been placed”.
• W Resources also comments that it “has submitted the environmental approval documentation to expand the mine from 2mtpa to 3.5mtpa”.
Conclusion: The possibility of loan finance for La Parilla should help the company deliver its plans to expand from 2mtpa to 3.5mtpa and comes at a time when the price of the benchmark intermediate product, ammonium paratungstate has recovered by around 50% this year to around $300 per metric tonne unit.