Botswana Diamonds (LON:BOD) – Raising £500,000
SolGold* (LON:SOLG) – Initial Aguinaga drilling programme imminent
South Africa – Gupta business family compounds in South Africa are raided by police forces once President Zuma has been handed the resignation order by the ANC executive committee.
• Guptas are accused of using close connections to Mr Zuma violating anti-corruption regulations.
• The rand continued to strengthen against the US$ and is currently trading 11.85 (+5% YTD) on increasing expectations for Zuma to announce resignation later today.
Stockpiles swell ahead of Lunar New Year
• SHFE inventories of base metals rise as restocking ahead of tomorrow’s Chinese new year festivities. Deliverable aluminium stockpiles in Shanghai Futures Exchange warehouses extend multi-month gains to fresh records, growing 7,544 tonnes to 811,286 tonnes; increasing every week since late June.
• Deliverable zinc stockpiles also grow 4% to 102,557 tonnes, up for the 7th week.
• Deliverable copper inventories boosted levels 5.8% to 197,759 tonnes.
• Levels are expected to continue to rise as traders and mill workers have taken leave during the national holiday running 15th-21st Feb.
Dow Jones Industrials +0.16% at 24,640
Nikkei 225 -0.43% at 21,154
HK Hang Seng +2.47% at 30,577
Shanghai Composite +0.45% at 3,199
FTSE 350 Mining +0.15% at 18,402
AIM Basic Resources -0.13% at 2,526
Economics
US – CPI numbers are due later today with markets trying to understand if there is a build-up in inflation pressures.
• Core CPI is expected to come in at 1.7%yoy in January compared with 1.8%yoy the previous month.
• Benchmark 10y bond yields are little change this morning (2.83%) after coming off recent highs hit on Monday (2.89%) while stock markets futures are pointing towards modest equity gains once trading starts later today.
• Fed funds futures markets imply that traders expect at least two rate increases by the end of the year, with a 50% chance of three.
Japan – Weak GDP and inflation numbers point to an extension of the supportive monetary policy
• Positive effect of stronger consumer spending and business investments has been dented by a drop in government spending, weaker inventories and an increase in imports.
• GDP (%qoq annualised SA): 0.5 v 2.2 (revised from 2.5) in Q3/17 and 1.0 forecast.
• GDP deflator (%yoy): 0.0 v 0.2 in Q3/17 and 0.0 forecast.
Germany – The economy recorded robust growth in the final quarter of 2017 driven by strong overseas demand, according to Destatis.
• The statistics agency said “exports increased substantially” while government spending climbed while household consumption was essentially flat.
• Market estimates are for the economic growth to accelerate to 2.4% next year, 2pp up on 2017.
• GDP (%qoq SA): 0.6 v 0.8 in Q3/17 and 0.6 forecast.
• GDP (%yoy WDA): 2.9 v 2.8 in Q3/17 and 3.0 forecast.
Sweden – One of the central banks that keep short term interest rates in the negative territory voted to leave repo rates at -0.50% during today’s meeting.
• Although, one of the six members’ Executive Board voted for an increase in the benchmark rate by 25bp despite downwards revisions to future inflation forecasts.
• The Riksbank highlighted that labour earnings have been growing at a slower pace than previously forecast despite strong labour market and GDP growth data.
• As such the central bank does not see repo rate increases before the start of the second half of the year.
Currencies
US$1.2366/eur vs 1.2326/eur yesterday Yen 107.37/$ vs 107.65/$ SAr 11.868/$ vs 11.930/$ $1.388/gbp vs $1.386/gbp 0.787/aud vs 0.787/aud CNY 6.346/$ vs 6.343/$.
Commodity News
Precious metals:
Gold US$1,332/oz vs US$1,329/oz yesterday
• Gold rises for the third consecutive day as investors eagerly await key US inflation data which may offer fresh clues on monetary tightening. Bullion for immediate delivery climbed as much as 0.6% to $1,337.02 to add almost 2% to yearly gains for the precious metal. Gold’s increase was matched by a fourth day of losses for the Bloomberg Dollar Spot index, its worse run in a month to fall more than 3% lower for the year to date.
• “Some G-10 traders (are) arguing this is the most significant economic release in the past three years” according to Oanda analysts, with the looming inflation print “critical” following “last week’s market carnage in the wake of an inflationary uptick in wage growth”. “With the US dollar once again striking a bearish chord among G-10 traders, the long gold set up looks favourable. However, with nearly 100% of gold’s appeal trading off the back of US dollar weakness, the US CPI reading could be a day of reckoning for gold bulls”.
• Economists at Oversea-Chinese Banking Corp. suggest “gold’s reaction to inflation data is profoundly hard to predict. Given how markets have been pricing in more Fed rate hikes into 2018, faster-than-expected inflation pressures would likely persuade higher policy rates across key central banks and pressure prices lower, rather than lift gold’s status as an inflation hedge”.
• Data this week also indicates Dalio’s Bridgewater Associates raised its stakes across SPDR Gold shares and iShares Gold Trust in the final quarter of 2017, with recommendations for investors to consider placing 5-10% of assets in gold.
Gold ETFs 72.0moz vs US$71.8moz yesterday
Platinum US$977/oz vs US$974/oz yesterday
Palladium US$989/oz vs US$984/oz yesterday
Silver US$16.58/oz vs US$16.64/oz yesterday
Base metals:
Copper US$ 6,982/t vs US$6,919/t yesterday
Aluminium US$ 2,125/t vs US$2,144/t yesterday
Nickel US$ 13,500/t vs US$13,185/t yesterday
Zinc US$ 3,459/t vs US$3,416/t yesterday
• Zinc prices are expected to fade in the second-half of the year, as the metal reaches a 10-year closing high of $3,557/t on Feb. 1. Expectations for a slowdown in China’s property sector is forecast to soften demand for ferrous commodities according to senior research analyst at Macquarie Group Ltd, with Lloyd seeing prices drop to $2,850/t.
• Zinc will also face “headwinds from substitution pressure” as the price surges higher than aluminium, a common substitute metal.
Lead US$ 2,545/t vs US$2,510/t yesterday
Tin US$ 21,600/t vs US$21,200/t yesterday
Energy:
Oil US$62.6/bbl vs US$62.9/bbl yesterday
Natural Gas US$2.582/mmbtu vs US$2.610/mmbtu yesterday
Uranium US$21.65/lb vs US$21.65/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$76.3/t vs US$74.9/t
• Iron ore futures in China surged to their strongest in three-weeks on expectations for firm steel demand in the world’s top consumer during 1H 2018. The most-traded iron ore contract for May delivery on the Dalian Commodity Exchange jumped as far as $85/t, the highest since Jan. 23. The climb marked the second straight session of sharp gains in steelmaking raw materials, as price movements become exaggerated by low liquidity as many market players have taken off for the week-long Lunar New Year holiday.
• “Many mills have good profit expectations for the first and second quarter, so they have increased purchase of iron ore” according to a Beijing trader.
• A Chinese government think-tank warned earlier that the debated “unfair and unreasonable” US trade measures on steel will be met with “counter-measures” under World Trade Organization rules.
Chinese steel rebar 25mm US$637.9/t vs US$638.2/t
• Industrial buyers of steel in the US are appealing to President Donald Trump to protect the US steelmaking industry by directly negotiating with China, the main culprit driving global overcapacity, instead of instating trade restrictions on imported steel. Executive director of American Wire Producers Association penned the president a letter on behalf of steel consumers in the US arguing that restrictions on imports of foreign metal could be potentially ‘disastrous’.
• “We should be dealing with the overcapacity situation, not trying to plug one part of the industry that’s going to harm another industry”. The appeal follows on on-going investigation by the Commerce Department to prove whether imports of steel and aluminium represent a threat to US national security, under the premise of a seldom-used law, Section 232 of the Trade Expansion Act of 1962.
• Steel-import restrictions being considered by the US could have “unintended and disastrous consequences” for the domestic economy and manufacturers in his address written on behalf of 15 US industrial groups. The association represent more than 1 million jobs spread across 30,000 facilities. “Restrictions on basic steel imports will actually adversely impact national security, the economy, and the steel industry itself because it will undermine our competitiveness and limit our ability to make value-added products here”.
China urges US to exercise restraint on steel trade actions
• China's Ministry of Commerce has urged the US to exercise restraint in using trade restrictions on steel imports ahead of a meeting between President Donald Trump and US lawmakers to discuss steel and aluminium trade issues
• Director of Chinese Ministry of Commerce, Wang Hejun, said ‘China is worried about the serious tendency of US protectionism in the field of steel products’
• He urged the US to exercise restraint in using trade restrictions and abiding by the multilateral trading rules with all parties so as to give a positive impetus to the development of world economy
Thermal coal (1st year forward cif ARA) US$79.7/t vs US$78.8/t - Global thermal coal demand to outstrip supply in 2018
• Powered by Asia’s continuing demand, the global seaborne thermal coal market is expected to grow by around 48mt or 5% from 2017 to 974mt in 2018, trading house Noble Group said
• While the spike in demand will largely come from Asia, the market is contemplating the supply to be short by about 10 million mt
• China is at the beginning of a new construction cycle looking at the increase in land purchase, also Indian steel production was expected to increase by about 10% in 2018, which would have a knock-on effect on power demand and hence coal consumption
Premium hard coking coal Aus fob US$230.2/t vs US$231.7/t
Other:
Tungsten APT European US$319-325/mtu vs US$317-325/mtu last week
Cobalt LME 3m US$81,250.0/t vs US$81,250.0/t - Cobalt cannot be eradicated from electric car batteries – Umicore
• Makers of electric vehicle batteries will have to keep using scarce, expensive cobalt in their products for the foreseeable future despite a push towards higher nickel compositions, materials technology company Umicore said
• Whilst technology was evolving towards higher nickel loadings, not possible to completely design out cobalt as cobalt is the element that gives nickel stability
• Reducing cobalt has impact on cycle life and charging
Company News
Botswana Diamonds (LON:BOD) 1.1 pence, Mkt Cap £4.8m – Raising £500,000
• Botswana Diamonds has raised £500,000 through the placing of 50m new shares at 1p/share. The new shares represent approximately 9.8% of the enlarged capital of the company.
• The funds are to be used for continuing diamond exploration in Botswana, where Botswana Diamonds is working with the Russian diamond major, Alrosa, on projects in the Orapa region and in the central Kalahari, and in South Africa, where the company is evaluating ground in close proximity to the former Marsfontein diamond mine.
• Speaking in Cape Town last week, Managing Director, James Campbell, indicated that, among other initiatives, the company intended to commence drilling to determine the size and shape of the kimberlite body at its Ontevreden project in South Africa within the next three months.
SolGold* (LON:SOLG) 22.25p, Mkt Cap £377m – Initial Aguinaga drilling programme imminent
(SolGold own 85% of Cascabel in Ecuador)
• Solgold has announced plans to mobilise two man-portable diamond drilling rigs to the Aguinaga prospect within its Cascabel exploration area in Ecuador. The Aguinaga area is located approximately 3km northeast of the Alpala project area where the company announced a maiden resource estimate in January.
• The initial programme, which is expected to start in early March, is planned to consist of five holes to depths up to 1200m although success at this relatively early stage of exploration will no doubt trigger further drilling.
• Aguinaga is one of 15 priority targets which Solgold has identified within the Cascabel project area and the recent arrival of five large rigs to continue the detailed deep drilling work at Alpala has freed up the man-portable rigs for deployment on the initial drilling at Aguinaga.
• The Aguinaga discovery occurred in 2015 when “field teams discovered porphyry copper-gold, quartz stock-work veining and telescoping of epithermal-gold style veining within potassic altered porphyritic diorite. Rock saw-channel sampling over the limited exposure, returned an open-ended nine metres grading more than 1.0% copper and 0.7 g/t gold” in the upper part of the Aguinaga Creek.
• Since the original discovery, follow up exploration has assembled a compelling body of coincident geological, structural, geochemical and geophysical evidence which characterises Aguinaga as a potentially significant large porphyry centre located at the junction of “a deep seated regional north-west trending structure with major north-east- and north-trending lineaments”.
• A large scale positive magnetic anomaly some 500m x 500m in size, surrounded by an annular magnetic low is also “characteristic of a large porphyry centre … similar to magnetic signatures at the Bajo de la Alumbrera, Grasberg and Batu Hijau porphyry deposits”
• Additional chargeability and magneto telluric resistivity anomalies reinforce the geophysical case for an underlying porphyry beneath Aguinaga while “Coincident highs in copper, gold, molybdenum and the Cu-Zn ratio in soil and auger results are supported by a surrounding zone of low manganese-in-soil, which is likely to be related to intense late-stage hydrothermal alteration above the centre of the Aguinaga porphyry system. These soil geochemical relationships are characteristic of the metal zonation around porphyry copper-gold deposits”.
• The Cascabel area hosts a number of high priority targets in addition to the Alpala cluster and the Aguinaga target and Solgold has also secured a number of other licences elsewhere in Ecuador including the Timbara prospect where the company recently announced the discovery of copper porphyry style mineralisation in outcrop.
• The company has budgeted for 120,000m of exploration drilling in 2018 with the majority focused on infill and expansion work at Alpala where a maiden resource of 1.08bn tonnes at an average grade of 0.68% copper equivalent was announced in January.
Conclusion: The imminent commencement of early stage drilling at the Aguinaga property is supported by a substantial body of geological, structural , geophysical and geochemical evidence and is no doubt also informed by the detailed knowledge and understanding of the controls to mineralisation the exploration team has accumulated during the continuing exploration of Alpala. We look forward to the initial drilling results from Aguinanga as well as results from the continuing drilling at Alpala.
*SP Angel act as UK broker to SolGold