Golden Star Resources (CN:GSC) – Production guidance for 2018
Mkango Resources* (LON:MKA) – Exercise of Warrants
Ortac Resources* (LON:OTC) – Name change to Arc Minerals
Cobalt - harder to source metal for electric car batteries
- Automakers ambitious plans to fill line-ups with EV’s and hybrids could face major roadblock due to rising price of cobalt, scarcity of the metal and corruption in largest supplier of Congo
- Much of the Cobalt mining in Congo is now controlled by Chinese enterprises along with many of the attached cobalt refineries making it more difficult for non-Chinese companies to access supply
- BMW are concerned over the potential for supply difficulties in Cobalt and Lithium as highlighted in the failure of last year’s tender for longer term cobalt supply
Dow Jones Industrials
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at
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Nikkei 225
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at
23,654
HK Hang Seng
+0.78%
at
31,363
Shanghai Composite
+0.10%
at
3,429
FTSE 350 Mining
-0.33%
at
19,709
AIM Basic Resources
+0.09%
at
2,782
Economics
More reports are coming in over miscalculations of official GDP numbers with the latest case at the northern port city of Tianjin suggesting local GDP may be revised by almost 20% in 2017.
- Tianjin authorities confirmed production estimates included contributions from companies registered in the district taking advantage of favourable tax regime, looser FX regulations or other incentives, while actual commercial activity carried by firms was taking place elsewhere in China.
- One of districts at Tianjin which accounts for as much as half of its GDP is reported to have revised downwards local 2016 GDP by more than 30%.
- The news comes on the heels of a separate case reported by Inner Mongolia where local 2016 GDP had to be brought down by around 20% reflecting previous miscalculations.
US – Factory gate price inflation dipped more than forecast in December with CPI numbers due later today.
- Closely watched by Fed official PCE numbers are due towards the end of the month with the gauge recovering from a dip through a mid-year and on course to reach the target 2.0% level.
- PPI (%mom/yoy): -0.1/+2.6 v 0.4/3.1 in November and 0.2/3.0 forecast.
- PPI ex food and energy (%mom/yoy): -0.1/+2.3 v 0.4/2.4 in November and 0.2/2.5 forecast.
China – A mixed bag of economics data released today including weaker than estimated credit growth and imports numbers and continuing strong exports statistics.
- Total credit dropped from November levels last month and underperformed market estimates as credit expansion slowed towards the end of the year driving local yields up in the final quarter.
- Credit data are notoriously volatile and authorities are unlikely to follow an aggressive deleveraging that would jeopardise growth targets, Bloomberg Intelligence writes.
- “China’s policy makers have so far looked more to strong nominal growth rather than slower credit expansion as the key to stabilising the leverage ratio (debt to GDP),” BI said.
- As such “efforts to tamp down financial risks will come more from tighter macro-prudential regulation than tighter monetary policy”, BI concluded.
- Aggregate Financing (CNY bn): 1,140 v 1,598 in November and 1,500 forecast.
- On trade data, robust exports led by strong overseas demand came in together with soft imports numbers which raise concerns over the strength of domestic demand.
- Exports (US$, %yoy): 10.9 v 11.5 in November (revised from 12.3) and 10.8 forecast.
- Imports (US$, %yoy): 4.5 v 17.6 in November (revised from 17.7) and 15.1 forecast.
Germany – A breakthrough in a potential new grand coalition between Christian Democrats and Social Democrats is reported to have been achieved following inconclusive elections in September.
- The three leaders including the representative of the CDU’s Bavarian sister party the Christian Social Union will recommend to their parties to start official talks.
- Coupled with hawkish ECB meeting minutes released yesterday where authorities are said to review its loose monetary policy early this year, the news saw the euro climbing 1.5% against the US$.
France/Spain – Both nations saw downward revisions to December inflation rates in an unwelcome news regarding ECB efforts to reach the target rate of 2% in the single currency region.
- In France, consumer prices rate of change came in at 1.2%yoy last month, down 0.1pp on previous estimates.
- In Spain, change in CPI was 1.2%yoy, down 0.1pp on previous estimates and 0.6pp on a reading in November.
Currencies
US$1.2066/eur vs 1.2002/eur yesterday Yen 111.28/$ vs 111.46/$ SAr 12.422/$ vs 12.495/$ $1.355/gbp vs $1.355/gbp 0.787/aud vs 0.786/aud CNY 6.470/$ vs 6.508/$
Commodity News
Precious metals:
Gold US$1,328/oz vs US$1,325/oz yesterday
- Spot gold continues its advance and is on track to record its longest stretch of weekly gains in nine months as the dollar weakens and volatility in Treasuries market subsides. The precious metal rose as high as $1,329.15 during Asian trading following hawkish language contained within the European Central Bank’s (ECB) December meeting minutes and softening US data weighed in on the dollar.
- ANZ Research notes "ECB minutes were interpreted on the hawkish side due to a discussion of a “gradual shift” in guidance from “early 2018” – much earlier than had previously been discussed". The euro jumped against the dollar as the ECB signalled it could begin to wind down its 2.5 trillion euro stimulus program starting this year. Meanwhile, US data showed December producer price index fell 0.1% against an expected increase of 0.2%, while unemployment figures rose to more-than-three-month highs at 261,000 this week.
- While the future status of the digital currency bitcoin has created a market frenzy in recent months, analysts at Goldman Sachs conclude the world’s largest cryptocurrency represents the new gold. The results of the released nine-page report titled “Bitcoin as Money” expect the cryptocurrency market to grow in the new year, with success forming if it is capable of facilitating transactions at a low cost or can provide better risk-adjusted returns for portfolios. “Our working assumption is that long-run cryptocurrency returns should be equal to—or slightly below—growth in global real output”, while “digital currencies should be thought of as low/zero return or hedge-like assets, akin to gold”. With the total market capitalisation of the crypto-space sitting at $688 billion and growing, traditional safe-haven investor interest will continue to be drawn toward the innovative new digital space.
Gold ETFs 71.5moz vs US$71.6moz yesterday
Platinum US$993/oz vs US$967/oz yesterday
Palladium US$1,089/oz vs US$1,100/oz yesterday
Silver US$17.10/oz vs US$17.16/oz yesterday
Base metals:
Copper US$ 7,152/t vs US$7,165/t yesterday
- Despite winter capacity restrictions hampering domestic production, Chinese unwrought copper imports fell 4.3% into December from a month earlier on signs of demand edging lower. According to Chinese customs data last month’s arrivals of unwrought copper, including anode, refined and semi-refined copper products stood at 450Kt, and sat 8.2% lower year-on-year. Annual imports for 2017 fell 5.1% to 4.69 million tonnes, the lowest annual figures since 2013.
- Hong Kong Argonaut Securities analysis comment “Production came down but imports didn't pick up, so I think that reflects that the year-end demand is not really that strong, especially in the power sector, and a lot of construction activity has stopped during the winter season."
- However, future consumption looks brighter as Japan’s biggest smelter foresees increasing demand for the metal in everything from smartphones to electric and self-driving vehicles, supporting the price from current levels. The metal has surged over 60% since falling to a multi-year low in early 2016, with President of JX Nippon Mining and Metals Corp forecasting prices to be above $7,150/t by the end of the year at least, with trading likely to be volatile. Shigeru Oi notes diminishing supply within the project pipeline, and notes current levels are still not high enough for miners to feel confident about starting development projects and they would theoretically need something near to $8,000/t to cover the costs.
- PT Freeport Indonesia negotiations close as Papua signs the agreement setting out the regional governments of Papua and Mimika as beneficiaries of dividends from 10% stake in the company after the divestment. Inalum expects to hold a 51% stake in Freeport Indonesia following the divestment, and will pay out the dividends to the regional govts. The signing on Friday marks a big step in the Grasberg Mine Deal, with the next steps focusing on “discussions on rights and responsibilities. And the last step is the valuation”.
BMW and Codelco set up responsible copper initiative
- BMW is setting up new project alongside Codelco, the Chile state copper mining company, with the aim of providing the industry with a sustainable and transparent supply of copper.
- BMW plans to offer 25 electrified models from 2025, increasing copper demand by >20,000tpa on top of the 42,000tpa of copper which they bought last year for more conventional models.
Aluminium US$ 2,196/t vs US$2,173/t yesterday
Nickel US$ 12,680/t vs US$12,905/t yesterday
Zinc US$ 3,401/t vs US$3,346/t yesterday
Lead US$ 2,559/t vs US$2,573/t yesterday
Tin US$ 20,205/t vs US$19,970/t yesterday
Energy:
Oil US$69.0/bbl vs US$69.1/bbl yesterday
- Oil prices are expected to remain close to current levels, ranging $60-70/bbl, through to 2020 according to Reuters annual survey of energy professionals.
Natural Gas US$3.119/mmbtu vs US$2.959/mmbtu yesterday
Uranium US$23.90/lb vs US$24.00/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$76.1/t vs US$76.7/t
- Iron ore futures slump -2.2% for May to close at 544 yuan/t, representing the biggest drop since Dec. 25th, as Chinese port inventories continue to climb. While exports from Western Australia and Brazil have declined due to limiting severe weather events, port inventories continue to edge higher suggesting a slowing pace of restocking by mills. Ore holdings across mainland ports jumped to all-time high of 150.8 million tonnes as of Jan 5th according to Steelhome E-Commerce Co.
- Despite Chinese iron ore imports falling 11% in December from the previous month, full-year shipments fall at record highs. With mills restocking at slowing levels, maintaining high imports could be a signal for the rapid escalation of output following the winter pollution curbs.
Chinese steel rebar 25mm US$637.3/t vs US$643.9/t
Thermal coal (1st year forward cif ARA) US$84.3/t vs US$84.8/t
Premium hard coking coal Aus fob US$261.1/t vs US$259.1/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
Golden Star Resources (CN:GSC) C$1.1, Mkt Cap C$415m – Production guidance for 2018
- Golden Star Resources has announced that it produced a total of 267,565oz of gold in 2017. The figure lies in the upper part of the previously published guidance range of 228-280,000oz.
- Costs for 2017 on both a cash and all-in-sustaining (AISC) basis are to be released with the annual financial results on 20th February, however the company reminds the market that the mid-point of its 2017 guidance range stands at US$820/oz for cash costs and US$1020/oz for the AISC.
- The Wassa mine increased gold production by 31% during the year to 137,234 oz and Prestea increased output by 45% to 130,331oz.
- The company’s guidance for 2018 gold production is in the range 230-255,000oz at a cash cost between US$650-730/oz and an AISC between US$850-US$950/oz.
- The 5-14% lower overall production for 2018 reflects the “transition to being primarily underground focussed producer” and, in our opinion, is more than offset by the forecast 11-21% decline in cash costs and 7-17% reduction in AISC.
- In detail, the Wassa operation is expected to produce 137-142,000oz of gold at a cash cost of US$600-650/oz and the Prestea mine is to produce 93-113,000oz at a cash cost between US$650/oz to US$730/oz.
- Capital cost guidance for 2018 amounts to US$36.5m with US$18.8m of development capital, including US$6.6m of exploration, and the balance of US$17.7m for sustaining capital needs. The company points out that capital expenditures are budgeted to be significantly lower in 2018 than in 2017. US$5.9m of development capital at the Wassa mine “are expected to be incurred primarily on the construction of a ventilation intake/exhaust raise and a rock pass and on the purchase of additional mining equipment.”
- Capital expenditures at the Prestea mine are expected to be lower than at Wassa “due to the existing historical workings within the Prestea Underground and the smaller scale of operations. The cost to modernise historical workings is lower than the cost to build new workings and therefore the sustaining capital required for Prestea Underground is anticipated to be significantly lower than for Wassa Underground going forwards.”
- Commenting on the results for 2017 and outlook for 2018, President and CEO, Sam Coetzer said “I’m particularly pleased to see strong results from Wassa Underground in the fourth quarter of 2017 including a 55% increase in grade compared to the third quarter and I look forward to stronger production in 2018 as we increase the mining rate further.” He went on to say “Although production in 2018 is anticipated to be lower than in 2017, our operating cost guidance is also significantly reduced and thus we believe this strategy delivers the best value for all of our stakeholders.”
Conclusion: Golden Star is delivering its strategic transition from mining high cost metallurgically complex ores from open pit mines to higher grade more easily treatable material from underground mines. The rationale for this strategy is demonstrated by the lower unit costs expected in 2018 which should produce a significant improvement in margins and profitability.
Mkango Resources* (LON:MKA) 9.3p, Mkt Cap £9.5m – Exercise of Warrants
- Mkango Resources reports that 2,006,060 warrants at 6.6p each plus a further 150,000 warrants at 3.5p each have been exercised leading to the issue of a further 2,156,060 shares in the company.
- The exercise of the warrants has raised a further £137,650 for the company. The balance sheet for 30th September 2017 shows a total of 45.37m warrants outstanding exercisable at a weighted average price of 6.6p each.
- The latest announcement follows previous announcements in December where the exercising of some 4m warrants at, we estimate, a weighted average price of approximately 6.3p, raised approximately £250,000.
- Since Mkango announced, in November, that Noble Group’s Talaxis had agreed to fund the feasibility study for its Songwe Hill rare-earths project in Malawi, a clear pathway to develop the project has become apparent to the market. The agreement with Talaxis also identified Mkango as Talaxis’ preferred partner for all rare-earths projects world-wide.
- In addition to Noble’s initial £12m investment for a 49% direct interest in the project it also has an option to increase its holding to 75% and to secure rights to 100% of the production for the cost of implementing the BFS and funding the project through to production.
Conclusion: Mkango is assuming a higher profile since the Noble Group identified it as its preferred partner for rare-earths projects and agreed to fund the Songwe Hill feasibility work.
*SP Angel acts as Nomad and Broker to Mkango Resources
Ortac Resources* (LON:OTC) 2.5p, Mkt Cap 8.3m – Name change to Arc Minerals
(new ticker LON:ARC) (Ortac an effective 49.9% stake in the Akyanga project)
- Ortac Resources has announced that it is changing its name, with immediate effect, to Arc Minerals which will now trade under the ticker ARCM LN.
- Over the recent past, Ortac has identified a clear, African focussed, strategy and brought in experienced management with relevant expertise to reflect the shift in emphasis away from its previous Slovakian focus.
- Commenting on the change, Executive Chairman, Nick von Schirnding said “The renaming of the group to Arc Minerals represents an exciting new chapter for us. This follows a number of material changes that have been implemented over the past few months including executing a clear strategy focusing on our high quality African exploration assets”.
- Recent drilling at Akyanga (part of Missisi) appears to be extending the footprint of the known mineralisation in the DRC leading to better definition and expansion of the gold resource.
- Zamsort: in Zambia, the company is “now actively pursuing discussions with fellow stakeholders at Zamsort, which is an attractive Zambian copper/cobalt asset.”
Conclusion: The change of name comes as the company moves towards a new phase focussed on its African projects.