Asiamet Resources (LON:ARS) – Production licence for Beutong
Edenville Energy (LON:EDL) - Plant moves to two shift working to help offset impact of wet season
Gem Diamonds (LON:GEMD) –Letseng yields two more large diamonds
Lucapa Diamonds (ASX:LOM) –9th diamond larger than 100 carat diamond recovered from Lulo
Shanta Gold (LON:SHG) – Luke Leslie appointed as permanent CFO
China’s lithium conversion crucial to 2018 pricing
- China’s lithium conversion capacity bottleneck will have significant bearing on prices in early 2018, as the ability of chemical conversion from spodumene ore to battery-grade lithium products could limits electric vehicle uptake. Rising output across December from Chinese conversion facilities helped meet demand and maintain stable pricing, with global lithium carbonate -0.2% in December to avg. $16,000/t; global lithium hydroxide 1.2% to avg. $18,813/t.
- Global demand from the battery sector is expected to rise rapidly, with strong Chinese EV production outlook and SK Innovation Co.’s plan to develop a 7.5 GWh plant in Europe.
- Potential restrictions in battery-grade supply highlights limitations with China exports, indicating nations outside of China targeting rapid expansion in battery capacity will need to bolster supply chains. President Donald Trump’s executive order to reduce critical mineral reliance aims to draw focus away from imports and support domestic mining projects across the US.
- The rapid ramp-up in raw material to conversion facilities in China could see Lithium hydroxide prices settle at slightly lower levels into 2018, although the slowdown in production around China’s Spring Festival is likely to support pricing across Q1.
As China restricts scrap metal, companies look to process copper abroad
- As China tightens restrictions on imports of foreign waste, Chinese metal recyclers and smelters like Jiangxi Copper Co are looking to use Southeast Asian countries as alternative location for processing of scrap copper.
- Vietnam, Indonesia, Myanmar, Laos and India were named by industry sources as possible alternative scrap-processing destinations.
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Economics
US – Jobs numbers came in lower than forecast in December after a bounce recorded in the previous month on a recovery from weather related disruptions in Q3/17.
- Weak numbers were largely driven by slower hiring in the private sector (91k v 176k in Nov) with most deceleration coming from trade, transportation, utilities and retail sector.
- Earnings growth improved only marginally from the previous month as November data has been revised down 0.1pp with the headline growth rate continuing to range bound between 2.4% and 2.9% of the past two years.
- Both US Treasury bond yields and US$ index closed higher on Friday following a brief dip on the announcement of weak labour numbers.
- Both major US equity indices closed higher on the day as well with S&P500 up 0.7% and Dow up 0.9% on the day.
- NFP: 148k v 252k in November and 190k forecast.
- Unemployment rate (%): 4.1 v 4.1 in November and 4.1 forecast.
- Av hourly earnings (%mom/yoy): 0.3/2.5 v 0.1/2.4 in November and 0.3/2.5 forecast.
China – Inner Mongolia, one of the top 10 Chinese regions based on GDP per capita, admitted to rigging economic statistics.
- The region said its industrial production for 2016 should be revised down by 40% to $44.7bn, while fiscal revenue for the same year should have been 26% lower than first reported.
- This marks the second region to have confirmed to data manipulation lately with the north-eastern province of Liaoning previously saying it had fabricated economic numbers from 2011 to 2014.
- The news highlights the government drive to improve state reporting standards which if left unchanged risk reliability and accuracy of incoming data and my potentially provide wrong signals to the state of the economy and the policy response required.
Germany – Factory orders contracted in November with export bookings sliding more than domestic ones; although, orders remained strongly up on the previous year.
- “Overall, orders in the second half of 2017 developed extremely dynamically… this lays the foundation for a strong start to the year in industry,” the Economy Ministry said in a statement.
- Factory Orders (%mom/yoy): -0.4/+8.7 v 0.7/7.2 in October and 0.0/7.8 forecast.
- Chancellor Merkel is looking to secure a commitment from the rival Social Democrats to start formal negotiations over a potential coalition this week.
UK – Consumer spending dropped for the first time in five years in 2017, accosting to the Visa data.
- The index tracking private consumption slipped 0.3%yoy last year with sales in December reported to have dropped 1%yoy, highlighting subdued Christmas shopping season sentiment.
- The momentum is unlikely to turn this year, the payments processing company said.
- While online sales took up some slack, the rate of growth slowed from 2.0%yoy in December, down from 2.0%yoy in the previous month.
- On a separate note, house prices growth is reported to have dropped from the previous month marking the first decline in six months amid “a squeeze on real-wage growth and continuing uncertainty over the economy”, Halifax data showed.
- Annual price change came in at 2.7%yoy, down 1.2pp on the previous month and the lowest since Aug/17.
- Halifax house prices (%mom/3myoy): -0.6/+2.7 v 0.3/3.9 in November and 0.2/3.3 forecast.
Currencies
US$1.1999/eur vs 1.2052/eur yesterday Yen 113.32/$ vs 113.18/$ SAr 12.375/$ vs 12.353/$ $1.353/gbp vs $1.355/gbp 0.784/aud vs 0.784/aud CNY 6.494/$ vs 6.485/$.
Commodity News
Precious metals:
Gold US$1,316/oz vs US$1,317/oz last week
- Gold continues to trade in a tight range following four weeks of increases, as Friday’s US payrolls report missed expectations and the dollar fades. Non-farm payrolls increased by 148,000 jobs last month, with employment data for October and November being revised to show 9,000 fewer jobs created than previously reported, signaling a slowdown in US jobs.
- Expectations for further US interest rate hikes and anticipation of subdued physical demand ahead of the Chinese New Year could draw the metal away from recent 3.5 month highs. Physical gold demand across Asia remained deflated as retail buyers find prices “too hard to shallow”, However, demand is expected to increase nearer to New Year celebrations, with hedge funds and money managers raised their net long positions in COMEX gold last week, on the bet of rising prices.
- Tightening Federal Reserve monetary policy and increasing yields on US Treasury is expected to draw gold prices lower over the next two years according to the world’s second-largest producer, Australia. The Department of Industry, Innovation and Science forecast an average $1,250/oz in 2018, falling to $1,205/oz into 2019. “Real yields on 10-year U.S. Treasury bonds are expected to average near 1 percent over the next two years, propelled by rising official interest rates in the U.S”, according to the department.
Gold ETFs 71.6moz vs US$71.6moz last week
Platinum US$969/oz vs US$961/oz last week
Palladium US$1,101/oz vs US$1,096/oz last week
- Investors in one of 2017’s hottest commodities expect the bullish run to continue as palladium production will continue to lag behind consumption through to 2022, according to Morgan Stanley analysis. The metal, which is used in vehicle pollution-control devices, recorded its best annual performance since 2010, pushing palladium’s price relative to gold up to a 15-year high.
Silver US$17.15/oz vs US$17.16/oz last week
Base metals:
Copper US$ 7,138/t vs US$7,169/t last week
Aluminium US$ 2,208/t vs US$2,237/t last week
Nickel US$ 12,560/t vs US$12,525/t last week
Zinc US$ 3,370/t vs US$3,355/t last week
- Zinc continues to extend recent gains, rising 0.5% as the metal draws closer to its highest close since 2007. LME cash zinc is trading at a $26 premium to the benchmark contract CMZN0-3, up from $10 in early December, encouraging deliveries to SHFE warehouses.
Lead US$ 2,570/t vs US$2,579/t last week
- LME lead rallied 1.2% as traders are being forced to cover growing short positions in the metal. In particular, a very big short-position holder has emerged in lead futures, with 20-29% of outstanding positions for February which rise to 30-39% in March. A significant 40-50% of LME stock holding of lead warrants could also suggest an impending tumble in price.
Tin US$ 19,940/t vs US$19,880/t last week
Energy:
Oil US$67.7/bbl vs US$67.9/bbl last week
- 136,000 tonnes condensate, equivalent to one million barrels of crude oil, is at risk of exploding onboard the Panama-flagged Sanchi tanker in the East China Sea. After colliding with a Hong Kong-registered freighter CF Crystal, the contents of the tanker have been spilling into the sea causing a huge environmental impact with the potential loss of cargo of $60m.
Natural Gas US$2.862/mmbtu vs US$2.809/mmbtu last week
Uranium US$24.00/lb vs US$24.00/lb last week
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$74.0/t vs US$73.8/t
- Australian government projections for iron ore prices foresee a 20% contraction from 2017 levels to settle to an average $51.5/0/t. Rising global supply and moderating steel sector demand from top importer China are expected to draw prices lower.
Chinese steel rebar 25mm US$657.2/t vs US$673.8/t
- Steel rebar contracts after closing last week 0.5% higher, as steel holdings begin to climb. Rebar stocks across China rose 8.4%, the most since February, after bottoming out at the lowest levels since 2010, according to Steelhome.
Thermal coal (1st year forward cif ARA) US$85.6/t vs US$85.6/t
Premium hard coking coal Aus fob US$261.7/t vs US$261.9/t
Other:
Tungsten APT European US$307-318/mtu vs US$294-301/mtu last week
Cobalt LME 3m US$75,250.0/t vs US$75,250.0/t
Company News
Asiamet Resources (LON:ARS) 10.65p, Mkt Cap £90.5m – Production licence for Beutong
- Asiamet Resources reports the granting of a 20+ year production licence for its 40% owned Beutong copper-gold project in the Nagan Raya Regency, Aceh, Indonesia.
- The Beutong deposit, which “is located … in Aceh in Indonesia, some 60 kilometres inland from the coastal city of Meulaboh on the island of Sumatra”, has a JORC compliant measured/indicated resource of 93mt at an average grade of 0.61% copper and 97ppm molybdenum with minor gold and silver and an additional inferred resource of 418mt at an average grade of 0.45% copper and 129ppm molybdenum.
- “Asiamet has a 40% equity interest in the Beutong Project which subject to meeting certain expenditure and site based activity milestones can increase to 80%”.
- The Beutong deposit outcrops at surface and remains open in multiple directions including to depth “where the geology indicates potential for the discovery of a deep high-grade copper-gold zone”
- Beutong is described as the company’s “second large copper-gold project” in addition to its BKM project in Kalimantan where “negotiations aimed at finalising amendments to the KSK CoW and providing the certainty required for proceeding the BKM copper project to the project financing and development phase in 2018 are nearing completion."
Conclusion: The award of the Beutong licence de-risks the project while the company moves in parallel to advance the BKM project in Kalimantan. We look forward to further news of the progress of both projects as work proceeds.
Edenville Energy (LON:EDL) 0.54 pence, Mkt Cap £7.2m - Plant moves to two shift working to help offset impact of wet season
- Edenville Energy reports that it is moving to double shift production on its coal plant at its Rukwa coal project in south west Tanzania.
- “In anticipation of the Company's planned increase in production, and as heavy wet season rains are affecting both production and transport logistics, the decision has been taken to initiate two shifts on the plant to help ensure production can be maximised”.
- We note that, while two shift working on the plant may provide the planned production and logisitics benefits it may be harder to maintain mine production during periods of excessive rainfall.
- The company is supplying washed coal to a number of customers in the region and is “in detailed discussions on contractual terms with several of these groups and others on potential orders that total over 10,000 tonnes of coal per month. One group is requesting a regular order of 5,000 tonnes per month, whilst two others are requesting 3,000 tonnes each per month.”
- “If these discussions result in firm orders then monthly revenue to the Company is projected to be in excess of US$300,000, depending on the calorific value of the product taken” although the company emphasises that, at this stage, there is no assurance that it will conclude these negotiations successfully.
- The longer term ambition is to develop Rukwa as an integrated coal-to-power project supplying an initial 120MW with potential to expand to 300MW. In the interim, the revenue generated from coal sales will no doubt be welcome.
Conclusion: The company is seeking to secure plant output of washed coal to regional customers through the implementation of double-shift working on the plant. Ensuring continuity of supply to existing customers during the wet season when production and transport issues are more challenging may prove an important negotiating point as the company seeks to secure longer term and larger supply contracts.
Gem Diamonds (LON:GEMD) 80p, Mkt Cap £110.9m –Letseng yields two more large diamonds
- Gem Diamonds reports that its 70% owned Letseng mine in Lesotho has recovered two further large diamonds; a 117 carat and a 110 carat stone both of which are described as type IIa D colour stones.
- The Letseng mine has an enviable track record of recovering large, high-quality diamonds, including the 123 carat "Star of Lesotho", the 603 carat, Lesotho Promise and the 357 carat Letseng Dynasty diamond which was recovered in July 2015 and sUBSequently sold for US$19.3m. In November, 2017, the mine announced the recovery of a 202 carat diamond which appears to have been the seventh stone larger than 100 carats in size recovered in 2017.
- These included a 115 carat D colour Type IIa diamond was reported in September; a 126 carat stone in July; a 105 carat and 152 carat stone were reported in June; and a 114 carat diamond in April.
Conclusion: Having recovered 7 diamonds over 100 carts in size during 2017, the announcement of two further large stone so early in 2018 is a welcome start to the year.
Lucapa Diamonds (ASX:LOM) A$0.21, Mkt Cap A$80m –9th diamond larger than 100 carat diamond recovered from Lulo
- Lucapa Diamonds has announced the recovery of two large diamonds weighing 103 carats and 83 carats from Mining Block 8 at its Lulo mine in Angola.
- The larger, 103 carat stone is described as a “light brown diamond” while the 83 carat stone is a Type IIa diamond.
- The announcement follows the recovery “of two exceptional Type IIa D-colour gems weighing 129 carats and 78 carats” which was announced on 13th November.
- Commenting that the 103 crat stone was the ninth largest diamond recovered from Lulo, the company points out that the largest was “the Angolan record 404 carat 4th February Stone which sold for US$16 million in 2016.”
Shanta Gold (LON:SHG) 6.1p, Mkt Cap £47.2m – Luke Leslie appointed as permanent CFO
- Luke joined the management team in Sep/17 as Interim CFO after having served as a NED of the Company since 2012.
- He previously worked as a Co-Head of Trafigura-Origo, a member of UBS Investment Banking Corporate Finance team and a management consultant with Accenture focusing on post-acquisition and cost reduction strategies.