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Today's market view - Miner rise as metals continue to post gains

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Kennedy Ventures (LON:KENV) 4.1p, mkt cap £10.4m – Kennedy reports third shipment of tantalum

Rio Tinto (LON:RIO) 2682p, mkt cap £66.7bn - Glencore, Apollo bid for Rio Tinto’s $1.5bn coal assets

SolGold* (LON:SOLG) 26.5p, Mkt Cap £450m – La Hueca outcrop shows high copper grades in rock chip sampling

Tri-Star Resources* (LON:TSTR) 0.138p, mkt cap £24.6m – Emin Eyi steps down as Deputy Chairman at Tri-Star

 

Gold exploration jumps but 2018 output expected to fall

  • Gold mine exploration leapt in 2017 but output set to slip further from last year's record as the focus on existing sites intensifies over finding new projects, according to leading analysts
  • Gold mine output from China fell 10% over the first 9 months of 2017 and is predicted to decline for second year running in 2018, in the wake of lower investment and rising costs

Dow Jones Industrials

 

-0.15%

at

24,755

Nikkei 225

 

+0.10%

at

22,892

HK Hang Seng

 

-0.07%

at

29,234

Shanghai Composite

 

-0.27%

at

3,288

FTSE 350 Mining

 

+0.61%

at

17,585

AIM Basic Resources

 

+0.16%

at

2,648

 

Economics

US – Tax bill passed by the US Senate in a 51-48 vote with the legislation now up for a vote in the House of Representatives later today.

  • Both US$ and gold are steady while US equities finished marginally lower ahead of the final vote in the House.
  • US Treasuries came off yesterday with yields on 2y bonds extending gains climbing to 1.85%, the highest level since 2008.

 

UK – Property prices are forecast to stagnate next year amid a drop in the number of transactions and weak supply preventing outright declines, according the RICS estimates.

  • Political and economic uncertainty, tax changes, a lack of stock, low affordability and the BoE’s rate hike announced in November are included in driving factors behind forecasts.
  • Most parts of the UK are expected to see price increases, except for East Anglia, the northeast and the southeast.
  • Estimates follow Rightmove predictions for London house prices to post a 2%yoy drop next year taking national growth rates down to 1%yoy.
  • On a separate note, fewer businesses are expected to hire new staff next year on the back of weak economic outlook, according to a monthly recruitment industry survey
  • Net balance of companies planning to add permanent staff in the next 12 months fell to +16 in the three months to November, down from +24 the same time last year, the REC data showed.
  • Results come in contrast to survey results announced by the CBI yesterday which showed that 51% of employers expect to expand their workforce next year, up from 41% in last year’s survey.

 

Sweden – The central bank announced it will stop new bond purchases this month, but will keep other tools of expansionary monetary policy in place including reinvestment of bond repayments and coupons as well as record low interest rates (repo rate unchanged at -0.5%).

  • Markets were cautious over the likely outcome of the monetary policy meeting given weak recent data on inflation, growth and the housing market.
  • The krona spiked as much as 0.7% against the US$ on the announcement before losing all of its gains.
  • Policy makers urged that it is “important that the krona does not appreciate too quickly” highlighting risks of tightening the policy prematurely while the ECB continues is hesitant to wind down the monetary easing programme.

 

Currencies

US$1.1849/eur vs 1.1805/eur yesterday  Yen 113.14/$ vs 112.44/$  SAr 12.697/$ vs 12.754/$  $1.339/gbp vs $1.340/gbp  0.767/aud vs 0.768/aud  CNY 6.579/$ vs 6.616/$

 

Commodity News

Precious metals:         

Gold US$1,264/oz vs US$1,263/oz yesterday

  • Dollar index remains steady as the Senate Republicans pass the most extensive rewrite of US tax code in over 30 years, bringing Trump to the edge of his first major legislative victory. Despite the requirement for the bill to be returned to the House for another vote Wednesday morning after Senate Democrats invoked a technical budget rule to remove some minor provisions, the reform is broadly seen as a done deal.
  • Diminishing economic anxiety is expected to put downward pressure on the gold spot price, with Goldman Sachs forecasting the precious metal to fall to $1,200/oz by mid-2018. The near-term bearish view is built upon three key factors:
    • Continued robust GDP growth in developed markets, and shift into expansion phase of business cycle.
    • Further rate increases from the Fed, and market moving closer to pricing in bank’s view of 4 hikes in both 2018 and 2019.
    • No deterioration in geopolitical risks, nor recession arriving in 2018, 2019.

Gold ETFs 71.5moz vs US$71.8moz yesterday

Platinum US$914/oz vs US$913/oz yesterday

Palladium US$1,020/oz vs US$1,019/oz yesterday

  • Palladium’s biggest rally in seven years is prompting industrial users to seek cheaper substitutions for the metal used across the automotive and electronics sectors. The 50% surge in price is giving platinum an average $107/oz discount, the biggest since 2001, is seeing auto and autocatalysts manufacturers to consider replacing palladium with platinum. “Seventeen years ago, when palladium was last as expensive as it is today and considerably more expensive than platinum, precisely this kind of substitution was made, which weighed substantially on the palladium price in subsequent yearsCommerzbank analyst.

Silver US$16.13/oz vs US$16.15/oz yesterday

           

Base metals:   

Copper US$ 6,969/t vs US$6,905/t yesterday

  • Growing supply concerns surrounding the consistency of output across South America, the world’s largest producing region, draw the metal price higher, as unionised workers at the Quebrada Blanca copper mine walked off the job last week after failing to reach a new labour contract. The strike is the third in the last month, following the three-week strike at Southern Copper’s Peruvian operation and a union one-day ‘warning’ strike again at the giant Escondida mine. With a vast number of labour contracts up for renewal in the new year, threats of strike loom large for 2018 copper.
  • 38 labour contracts are due for renewal according to Barclays Capital analysts, covering production for more than seven million tonnes; the largest number since 2010. The list of potential disruptions include some of the world’s largest copper mines, with state-owned Codelco alone totaling 19 contracts. The world’s single largest mine, Escondida, which was hampered by the longest running 44-day strike in the first quarter of 2017, is drawing ever nearer to its June deadline. According to operator BHP Billiton, the strike removed 214Kt production and depressed Chilean output by 14%.
  • Striking actions are impacting broader market sentiment, with copper’s notoriously disruption-prone supply chain draw the metal price nearer to the $7,000/t mark. Despite the newly elected conservative Sebastian Pinera as Chile’s latest president, he faces a divided Congress with a leftist coalition who pledge to uphold the legacy of outgoing President Michelle Bachelet, thereby reducing the chances of revoking new national labour laws before mid-year contract deadlines. The real impact on copper market balance with ‘disruption allowances’ is unclear. A key offset to lost global output in 2017 was the simultaneous surge in scrap copper supply, and with more supportive prices forecast into 2018, the importance of this supply is expected to continue. With waning scrap stockpiles accumulated during the 2015-2016 price trough, potential supply disruptions may extend into secondary sources.

Aluminium US$ 2,102/t vs US$2,074/t yesterday

  • Shanghai aluminium climbed as production cuts for raw materials provide support. Producers of alumina in northern China have been affected by rising natural gas shortage, which has been driving fuel costs to greater levels than the normal 30% level. The alumina price rebound is translated into rising aluminium prices as the most-traded February contract in Shanghai closed 1.4% higher.

Nickel US$ 11,840/t vs US$11,830/t yesterday

Zinc US$ 3,222/t vs US$3,196/t yesterday

  • Tightening market is expected to persist into 2018 according to Goldman Sachs analysis, supporting a zinc price which has risen 25% throughout 2017. “Market remains physically tight as suggested by continued backwardation, low inventories, and depressed levels of concentrate treatment charges in China”.

Lead US$ 2,564/t vs US$2,561/t yesterday

Tin US$ 19,400/t vs US$19,350/t yesterday

           

Energy:           

Oil US$64.0/bbl vs US$63.1/bbl yesterday

  • France’s parliament upped the ante on the fight against climate change as they became the first nation to pass legislation requiring all oil and gas exploration and production on French territories to end by 2040. The bill bans the renewal of any existing concessions beyond the cut-off while no exploration permits will be granted immediately.

Natural Gas US$2.727/mmbtu vs US$2.756/mmbtu yesterday

Uranium US$24.00/lb vs US$24.40/lb yesterday

 

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$71.6/t vs US$72.3/t

Chinese steel rebar 25mm US$731.4/t vs US$742.7/t

Thermal coal (1st year forward cif ARA) US$89.3/t vs US$90.6/t

Premium hard coking coal Aus fob US$236.1/t vs US$236.1/t

           

Other:  

Tungsten APT European US$295-300/mtu vs US$293-300/mtu last week

Cobalt LME 3m US$74250/t vs US$72250/t yesterday

 

Company News

Kennedy Ventures (LON:KENV) 4.1p, mkt cap £10.4m – Kennedy reports third shipment of tantalum

  • Kennedy Ventures today reports a third shipment of high purity tantalum has been sent to its customer from its mine in Namibia.
  • The statement also updates the market on >400m of drilling by MSA Group and the organisation of drill cores to be sent to ALS Laboratories.
  • It seems strange that shipments are being reported with no indication of concentrate grade or tonnage which makes the statement next to useless from our perspective. 
  • While it’s nice to read that the mine has fitted some solar panels and a couple of 60,000ltr dams have been purchased we are really more interested to know more about the costs of the operation, capital being spent, revenues due and the often all-consuming corporate overheads.
  • Rather unusually the statement fails to give direct contact details for the CEO Larry Johnson suggesting that he does not take direct calls while the company website does not do much better giving an address at St Mellons, Cardiff and a somewhat impersonal [email protected] email address.

Conclusion: It’s nice to see progress at Kennedy Ventures but the content of the statement is next to useless from an analyst perspective and the company’s nomad should perhaps examine the press release to determine if it is deficient from an investor and AIM market perspective?

 

Rio Tinto (LON:RIO) 2682p, mkt cap £66.7bn - Glencore, Apollo bid for Rio Tinto’s $1.5bn coal assets

  • Glencore plc and a group led by Apollo Global Management LLC are among bidders set to be shortlisted for the sale of Rio Tinto group’s last remaining coal mines.
  • A sale would allow Rio, the world’s second-biggest miner, to complete its exit from coal and continue an asset divestment program that has returned more than $7 billion since 2013.
  • Personally we see the de-carbonisation of Rio Tinto as a sop to certain oil-rich sovereign wealth funds which have recently declared policies not to invest in oil and gas or other carbon fuel sources despite the origin of their funds being principally carbon-based. 
  • Ironically, Rio Tinto is possibly the world’s best large-scale coal miner with a strong track record in coal and bulk commodities though Glencore may well extract greater value from the coal sold.
  • We note the move to greater Electromobility is likely to drive greater coal demand as consumers plug in their new Electric Vehicles which should make this a smart move for Glencore and Apollo.

 

SolGold* (LON:SOLG) 26.5p, Mkt Cap £450m – La Hueca outcrop shows high copper grades in rock chip sampling

  • SolGold report a number of very promising rock chip assays in a newly identified outcrop at the La Hueca project in Southern Ecuador.
  • Mineralisation is shown along a 250m brecciated fault which is reported to be open along strike in both directions.
  • Surface rock chip assays include:
    • 2.23% copper, 0.21 g/t gold, 4.45% gold
    • 2.13 % copper, 0.13 g/t gold, 1.53% gold
    • 2.07 % copper, 0.24 g/t gold, 0.63% gold
    • 2.01 % copper, 0.11 g/t gold, 0.5% gold
  • Rockchip samples from Target 3 also returned anomalous copper and gold results including from localised float material.  Best results included:
    • 3.52 % copper, 0.97 g/t gold
    • 0.55% copper

Conclusion: The reported rock chip assays are a great starting point for further exploration and are a significant indicator for a potential resource below. SolGold’s Inherent intellectual property in relation to exploration in Ecuador appears to be delivering results with lessons learned from geophysical surveying and drilling at the giant Cascabel project now delivering results on other properties to the south of Ecuador.

*SP Angel act as UK broker to SolGold and have acted as placing agent in relation to the recent £45m new share issue

 

Tri-Star Resources* (LON:TSTR) 0.138p, mkt cap £24.6m – Emin Eyi steps down as Deputy Chairman at Tri-Star

(Tri-Star holds 40% of jv company SPMP alongside The Oman Investment Fund and Dutco Natural Resources)

(Odey Asset Management, holds a 53.8% interest in TriStar Resources)

  • Emin Eyi has stepped down as Deputy Chairman at Tri-Star Resources.
  • The move follows Emin Eyi’s resignation from the joint venture company SPMP in which Tri-Star owns a 40% stake.
  • SPMP recently appointed Jason Peers as interim CEO and as a board representative.  Peers has been heavily involved with SPMP since its formation and is well placed to step in following Eyi’s departure.
  • SPMP should be close to commissioning of the Oman Antimony Roaster project.  The project should commission at an opportune time as Chinese antimony smelting capacity is closed due to environmental concerns and raw material should be looking for new roasting capacity.
  • Tri-Star reported that it invested a further US$6m via a mezzanine loan to SPMP pay for further costs in the roaster project including the added gold recovery plant.

 

*SP Angel acts as Nomad and Broker to Tri-Star Resources

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