US – Economic news due today:
• Feb New York manufacturing (8.50 v 9.95 in Jan)
China – Property prices continue to fall in Jan registering their fifth month of annual drops.
• Prices declined in 69 of 70 cities by an average of 5.1%yoy outpacing the 4.3% decline recorded in Dec, the largest fall since the current data series began in 2011.
• Growth pace has been on a downward trend since hitting c.9%yoy levels in Q1/14. Prices growth turned negative in Sep last year.
• Local realtors are pointing to large inventories worth 2-5 years that will continue to weigh on prices, according to Knight Frank.
Japan – An earthquake of 6.9 magnitude has struck off Honshu island in northern Japan.
• The local prefecture said waves of up to 1m may be expected to hit the coastal area warning people to avoid coastal areas in the meantime.
• So far the effects of the earthquake were limited to 10-20cm waves hitting the coast about 45 minutes after the initial reports.
• The earthquake struck in the same region in Mar/11 that cost more than 18,000 lives and damaged the Fukushima Daiichi nuclear plant was a 9.0 magnitude event.
UK – Inflation slowed more than forecast in Jan (+0.3%yoy v +0.5%yoy in Dec and +0.4%yoy forecast) and hit the weakest level on record.
• Core CPI (ex food, energy, alcohol and tobacco) was up 1.4%yoy reflecting an deflationary effect of lower oil prices.
Eurozone –Dec trade surplus climbed to a record driven by a decline in imports.
• Exports were up 1.1%mom at €161.5bn while imports fell 2.0%mom to €137.2bn.
• Estimates are for the surplus to expand this year as exports pick up on the back of the weaker euro.
Greece – Talks with Eurozone finance ministers broke down amid looming deadline for the latest bailout funds tranche expiring at the end of Feb.
• Creditors insisted Greece may have access to funds under the current programme which implies continuing with pre-agreed reforms.
• The new government is looking for a bridge funding with a revision to existing debt commitments.
• The Eurozone gave Athens time till Wednesday to agree an extension to the current programme.
• The EURUSD rate was down yesterday finishing the day at 1.133 versus 1.141 at the start of Monday.
• The Greek 0-year yields climbed 15bp to 9.46% and 3-year yield was up 65bp to 17.91%.
US$1.1382/eur vs 1.1399/eur yesterday. Yen 118.75/$ vs 118.63/$. SAr 11.651$ vs 11.633$. $1.537/gbp unch vs 1.539/gbp
A$0.781 vs 0.778 – Aussie dollar closing in on its Central Bank target of A$0.750 despite comments out of the US
Gold US$1,223/oz vs US$1,234/oz yesterday -
Platinum US$1,197/oz vs US$1,212/oz yesterday
Palladium US$783/oz vs US$786/oz yesterday
Silver US$16.89/oz vs US$17.38/oz yesterday
Copper US$5,714/t vs US$5,699/t yesterday –
Aluminium US$1,825/t vs US$1,832/t yesterday
Nickel US$14,490/t vs US$14,535/t yesterday
Zinc US$2,131/t vs US$2,157/t yesterday –
Lead US$1,818/t vs US$1,836/t yesterday
Tin US$18,050/t vs US$18,150/t yesterday – Number of tin smelters planning to limit shipments increases rapidly.
• 19 members of the Association of Indonesian Tin Exporters agreed to cut shipments of refined metal.
• The Association targets price of at least US$19,50-20,000/t.
o PT Timah (7% world demand) have suspended refined tin sales till benchmark prices rise above US$20,000/t.
o Increased sales out of Myanmar have depressed prices casing smelters to pull back production.
Oil US$62.00/bbl unch vs US$61.30/bbl yesterday - US Oil production to continue to fall on lower shale gas drilling rates
Gas US price US$2.855/mmbtu vs US$2.834/mmbtu yesterday
Uranium US$38.00/t unch vs US$38.00/t yesterday
Iron ore spot price index (62% fines Tianjin) $62.40/t unch vs $62.40/t yesterday – bridge failure in the Pilbara could interrupt iron ore shipments
Steel - Chinese steel production run rates slow down ahead of the Chinese Lunar New Year celebrations.
• Most steel mills schedule maintenance works before the Feb 18-24 holiday.
• Crude steel production run at an average rate of 1.6mtpd during the first 10 days of the month, down 3.6% from the last 11 days of Jan.
Thermal Coal (CFR European ARA price) $63.65/t vs $63.60/t Yesterday – Hunter Valley derailment cuts line for a week.
Speciality metals and alloys:
Tungsten APT European US$292.5/mtu unch vs US$292.5/mtu last week
Ferrochrome HC $1.08/lb Cr Q1 vs $1.15/lb Q4 quarterly Benchmark pricing
• Aureus Mining has announced the closing of a previously announced US$15.3m funding through the issue of 56m shares at 18 pence/share.
• The IFC subscribed US$8m bringing its holding in Aureus Mining to 14.66%.
• The proceeds of the funding are being used to implement a more flexible mine plan for the New Liberty mine which is scheduled to produce its first gold by the end of Q1 2015.
• The new plan “should allow for increased flexibility and generate stronger cash flows in the early years of the Project’s production phase.” We infer from this comment that the new plan will enable additional gold production in the early years of New Liberty’s life which should be value enhancing for the project and may lead to further operational enhancements as the mine develops.
Conclusion: The support of the IFC is beneficial to Aureus Mining and may have been helpful in encouraging other investors. The opportunity to enhance the initial production and cash generation of the New Liberty mine should be positive and we look forward to news of the first gold production.
• Given the weak iron ore pricing environment, the main focus for the company is the Nayega manganese project in Togo.
• The company is looking to develop Nayega in two phases.
• The first phase is for a low capex open pit producing 250,000 tpa of 38% managanese.
• The second phase in the medium term would look at a smelting facility to produce 74% High Carbon Ferromanganese alloy.
• The first phase based on a feasibility study would involve capex of around US$14.5m.
• An environmental and social study has been approved by the government and the company are working on a mining convention to secure a permit.
• Cash and cash equivalents at the end of September stood at £107,000.
Conclusion: Funds remain tight for the company and they are looking to secure funding for working capital as well as to progress the manganese project.
Fortescue Metals (ASX:FMG) – FY 2015 Half Year Results show impact of fall in iron ore prices
• Revenues for first of US$4.858bn down 17% from the same time last year.
• EBITDA of US$1.44bn down 55% with a profit before tax of US$440m down from US$3.2 bn last year.
• Volumes were up 53% with shipments of 82.7 Mt contributing US$2.019bn to EBITDA this was offset by a fall in prices which resulted in a US$4.32bn fall in EBITDA.
• Cost improvements contributed US$414m with C1 costs falling 9% to US$30/wmt from US$33/wmt.
• Delivered costs for the second half guided to US$35/wmt from US$43/wmt in H1 FY 2015.
• Delivered costs are down 14% from H2 FY 2014 and 19% from H1 FY 2014.
• The main drivers to cost improvements have been an improvement in shipping, royalty and administration costs so far.
• C1 cash costs are coming down and are forecast to fall to US$25/wmt in H2 from US$30/wmt in the H1 2015.
• Capex guidance halved to US$650m.
• Cash at the end of the year was US$1.6bn giving net debt of US$7.5bn.
• Interest payment totalled US$315m for the first half against US$409m in the same period last year as a result of a prepayment of US$500m of debt.
• Gemfields are having a good time in Mozambique with a very significant increase in ruby production in the fourth quarter.
• A big increase in ore throughput using the semi mobile processing plant should result in the recovery of more better quality stones with the potential for the recovery of some very significant stones.
• Kagem (75%): Development of the open cast mine continues with 4.1mt of waste moved through the quarter. The mine saw an increased strip ratio of 134:1 through the quarter to push back the pit to enable better access to emerald bearing ores in a number of ‘reaction zones’.
• Kagem underground mine plan: the underground trial mine is now suspended pending the development of a larger scale mine plan.
• Taxation: The new tax regime in Zambia removes all profit tax in favour of increased top line royalty rates. The new 8% royalty on underground mining might persuade management to go for underground mining in future years as open cast mining now attracts a 20% royalty on sales.
• Management report that the new taxation regime results in lower effective taxation for the Kagem mine than previously. The government is aiming to force some other miners which had been evading tax to pay their fair share.
• Faberge: The Russian crisis and conflict in Ukraine has hit Faberge with the value of sales agreed falling by 12% through the quarter
• Montepuez (75%): Near three-fold increase in ore processed despite a significant decline in the capital spent through the quarter. The rise in ore throughput is the result of significant expenditure over the past two years with $14.5m spent on the operations to date.
• Total cast costs came in at $1.44/ct total gemstone unit costs at $1.68/ct.
Conclusion: The significant rise in ruby production should more than offset an 8% fall in emerald production in Zambia in the quarter. Good sales prices for emeralds and rubies seen in recent auctions might be tempered by potential softening in demand for coloured stones due to the situation in Russia and the anti-corruption drive in China. Faberge’s fall in sales agreed gives some indication of the state of the market.
*An SP Angel analyst has visited Gemfield’s emerald mines in Zambia and ruby mine in Mozambique
• The company reports that despite a drive to reduce costs and conserve cash at its Moma Titanium Minerals mine in northern Mozambique, “savings have been insufficient to offset the decline in prices experienced by the Company.”
• Kenmare Resources achieved unit cash operating cost reductions of 14% during H1 2014, however, it has now also reviewed staffing levels at the Moma operation and concluded that it needs to cut back its workforce by some 15-20% in order to achieve further savings. Discussions with the Mozambique Government and the trades unions at the mine are continuing.
• Despite operational improvements and higher levels of output, bank loans at the end of Dec stood at US$337.3m with cash of US$21.8m giving the company net debt of US$315.5m. We understand that under the loan agreements, banks are able to sweep any cash balances over $80m and no doubt the company is engaged in continuing discussions with its bankers.
• Mining and processing at the mine has now resumed following the restoration of grid power after recent flooding in northern Mozambique.
Conclusion: Significant labour force reductions at Moma are the company’s latest response to the challenges of low commodity prices and high debt levels. We hope that the necessary cut-backs can be implemented without undue disruption as the company struggles to address its debt position in a weak commodity price environment.
• The company has received approval from the DTI for the CIP grant for its 15 MW smelter.
• The smelter is to be used in conjunction with the mining of Vanadium and Titanium ore and to produce speciality products such as high purity iron power as well as Vanadium and Titanium products.
• The CIP is a cost sharing grant for 30% of the infrastructure related to the smelter.
• The grant covers costs including design, engineering and preparation work towards the development of road, bulk electricity and bulk water.
• Final engineering work is currently being undertaken on the smelter.
• The Environmental Impact Assessment and mining licence are expected in mid-2015.
Conclusion: The DTI grant for the smelter is in line with South Africa’s ambitions to encourage further beneficiation of product in country. Power constraints continue to challenge the industry and need to be tackled in conjuction with new projects coming on stream.