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Today's Market View - Copper rally halts as investors reduce bullish bets

Today's Market View - Copper rally halts as investors reduce bullish bets

Anglo Asian Mining* (LON:AAZ) – Q4 production up 31%qoq; net debt down 47% in FY17
Phoenix Global Mining* (LON:PGM) – Executive Chairman appointed
Rio Tinto (LON:RIO) ––2017 production meets guidance for all major product groups
Savannah Resources (LON:SAV) – Mining lease applications at Mutamba
Strategic Minerals* (LON:ML) – Update on Leigh Creek Acquisition
RNC Minerals (TSE:RNX) – Canada’s RNC Minerals in talks to fund world’s largest nickel and cobalt project

Toyota move to secure crucial battery metal
• Toyota Group’s trading unit have opted to take a 15% stake in Australian lithium miner Orocobre Ltd., in a move which looks to secure long-term supply of battery metals as the industry accelerates in development of electric vehicles. The investment brings A$292 million ($232 million), principally for the expansion of Orocobre’s Olaroz facility, which will more than double its capacity to 42,500tpa from 17,500tpa previously.
• Toyota reckon the investment will provide ‘long term stable supply to meet growing demand’
• Orocobre and Toyota are also finalising plans to jointly develop a 10,000tpa lithium hydroxide plan in Japan’s Fukushima prefecture, with a final investment decision expected in mid-2018.
• Figures from the Australian producer indicate growth across the space, with Orocobre reporting production of lithium carbonate rising 84% in the three months to December as demand across all battery metals is set to rapidly advance.
• The investment follows the trend of automakers pouring money into Australian miners, with production from the nation topping global output, in an attempt to secure supplies of resources including lithium and cobalt for electric vehicle batteries. In September, Great Wall Moto Co. agreed to invest in Pilbara Minerals Ltd., which owns the Pilgangoora lithium-tantalum project in Western Australia.

Rio Tinto meets 2017 iron ore export target but is hit by demand for back taxes in Mongolia
• Set a new quarterly record by shipping 90 tonnes of iron ore from Western Australia, taking the companies exports to 330.1 million tonnes, eclipsing its goal of 330million tonnes
• Chief executive said record shipments were testimony to increasing flexibility in Rio’s rail networks, which have been the bottle neck in recent years
• However, with Oyu Tolgoi copper operation  in Mongolia, government has requested $195 million in arrears, despite Rio stating it was of the ‘firm view’ the mine had paid all required taxes and charges

Dow Jones Industrials  +0.89% at 25,803
Nikkei 225   +1.00% at 23,952
HK Hang Seng   +1.66% at 31,861
Shanghai Composite    +0.77% at 3,437
FTSE 350 Mining   -1.11% at 19,738
AIM Basic Resources   -0.00% at 2,809


Economics
US – Dagong, a Chinese rating agency, downgraded US local and foreign-currency credit rating one notch to BBB+ with a negative outlook.
• The agency criticised “the debt-driven model of economic development” and argued that proposed tax cuts are due to further deteriorate state fiscal balance.

China – Hong Kong listed Chinese blue chip stocks climbed to the highest in more than two years led by financial, basic materials and energy sectors.
• On a separate note, foreign direct investment (FDI) in China reported a 9.2%yoy decline in December, normalising post a 90.7%yoy surge recorded in the previous month.
• FY17 FDI were up 7.9%yoy at $136bn.
• Nevertheless, the commerce ministry suggested large external pressures to attract foreign investment in China this year.
• At the same time, outbound non-financial investments recorded the first annual drop since at least 2009 as authorities tightened control on capital outflows and increase scrutiny on overseas deals.
• Overseas investments declined 29.4%yoy to $120bn last year.

Germany – The Berlin local branch of the Social Democrats party suddenly voted down the notion to form a grand coalition with Angela Merkel’s Christian Democrats.
• The news comes ahead of a party conference next Sunday where a general vote is planned to be held on whether to start formal coalition negotiations.
• Berlin members will represent 23 of 600 delegates to be present at the vote.
• The euro is off 0.3% against the US$ this morning following a strong rally recorded from the start of the year (+1.9% YTD).

UK – Inflation rate notched down a little from the highest pace in five years coming in line with estimates.
• This marks the first slowdown in six months, although the ONS said that that it is too early to say if the change is the “start of any longer-term reduction in the rate”.
• A separate report on factory gate prices showed PPI picked up to 3.3%yoy last month ahead of market expectations for a 2.9%yoy increase following a 3.1%yoy change in November reflecting building up price pressures on the supply side.
• The pound dropped 0.16% against the US$ on the news.
CPI (%mom/yoy): 0.4/3.0 v 0.3/3.1 in November and 0.4/3.0 forecast.
• A list of stricter conditions for a post-Brexit transition deal for the UK drafted by EU member states appeared in the press.
• These include extending free movement rights and a special status to all EU citizens before the end of 2020 and an EU authorisation of bilateral trade deals of the UK with other states for nearly two years after Brexit.
• Additionally, EU officials are considering plans to hold the UK liable for additional payments on top of the agreed £39bn bill should the nation decide to allow banks access to the European financial services market.

Currencies
US$1.2255/eur vs 1.2219/eur yesterday  Yen 110.75/$ vs 110.67/$  SAr 12.254/$ vs 12.372/$  $1.379/gbp vs $1.376/gbp  0.797/aud vs 0.795/aud  CNY 6.436/$ vs 6.441/$.

Commodity News
Precious metals:         
Gold US$1,339/oz vs US$1,342/oz yesterday

• Gold spot eases 0.1% to US$1,338.71/oz as the dollar advances from Monday’s three-year low. Investors are weighing in the effects of a pick-up in inflation, signaled by recent slumping in longer-dated bonds, and potentially hawkish policy shifts from central banks in Europe and Japan.
• The euro stands near a three-year peak on rising expectations that the European Central Bank could pare its monetary stimulus, with ECB rate-setter Ardo Hansson noting that the central bank could end the entirety of its bond purchase scheme after September if the economy and inflation develop as expected. The dollar looks set to continue to stumble as markets grow increasingly confident that global recovery will outpace US growth, which is expected to prompt other major central banks to hastily unwind their easy money strategy.
• MKS PAMP Group traders foresee support for the precious metal, with “further short squeezes over the near-term pushing the metal toward $1,350/oz”. Reuters retracement technical analysis also points towards a buoyant gold price, with spot potentially revisiting its Sept 8th high of $1,357.64/oz.
  

Gold ETFs 71.5moz vs US$71.5moz yesterday

Platinum US$994/oz vs US$1,001/oz yesterday


Palladium US$1,119/oz vs US$1,136/oz yesterday - Palladium prices hit new high as vehicle sales in China climb to record levels while
• Palladium which is principally used in gasoline catalysts as well as in three-way diesel catalysts with platinum and rhodium saw its price rise to a new high level.
• The metal rose 56% last year on tightening supply as consumers increasingly switch to gasoline from diesel in Europe and Asia, though diesel was never encouraged in many Asian countries due to pollution issues.
• Supply deficit: Palladium supply may continue to struggle to meet demand due to platinum mine shaft closures in South Africa and a general lack of new investment in the South African mining sector in recent years.
• The election of Cyril Ramaphosa as leader of the ANC is a positive step and an early exit for President Zuma could help transform the South African mining scene.  Ramaphosa is an ex NUM leader, he understands mining and is seen as a pragmatic and commercial as a businessman.
• If Ramaphosa ousts Zuma and takes over as president we may see a return to investment in underground gold and platinum mining in SA raising production rates once again.
• Auto producers may adjust metal weightings in catalysts back towards platinum from palladium in response to higher prices leading the market to rebalance.
Silver US$17.26/oz vs US$17.38/oz yesterday
           
Base metals:   

Copper US$ 7,124/t vs US$7,231/t yesterday


• Global copper markets ease as the dollar pulls up from Monday’s three-year low of 90.279. Copper in London fell 0.9% to $7,142.25/t, while some early Asian trade strengthening limited the loss of the most-traded copper contract on the Shanghai Futures Exchange SCFcv1 to 0.6% at $8,435.61/t.
• After amassing their most-bullish holdings since September and supporting copper prices to their highest in almost three years, money managers have cut their bets on a sustained rally and reducing their net-long positions. While strong end market consumption developed over last year, there are growing speculations that demand gains may be overwhelmed by new supply from mines that have an increased incentive to boost output. Global copper production, which contracted across 2017 on global supply disruptions, is likely to expand into 2018 and 2019 with broad projects expecting to come online across Peru, Chile, the Democratic Republic of Congo, Zambia and Panama.
• Rio Tinto Group have booked copper output from the giant Grasberg mine for the first time since 2014, while discussions look to determine a possible entry strategy for the new joint venture pact incorporating state-owned PT Indonesia Asahan Aluminium. Indonesia’s government is seeking to complete a negotiation with Freeport McMoRan before June to lift local control of the asset to 51%, after which production from the world’s second largest copper mine is expected to continue undisrupted.
• Strategists at Aberdeen Standard Investments note that “China’s not necessarily wanting as much copper”, while the Chinese government’s decision to crack down on pollution from some industrial operations has halted output across refining facilities and therefore demand for copper ore. While other market participants (Prudential Financial Inc.) see a “growing consensus that the Chinese economy won’t slow down as dramatically as initially projected”, there still remain “questions regarding Chinese demand as they transition more and more into a consumer-led economy”.
• Money managers cut their net-long positions by 5.9% to 106,471 futures and options contracts in the week ended Jan 9th according to US Commodity Futures Trading Commission data, the first reduction since mid-December. The number of short bets have also been creeping back into the Global X Copper Miners ETF.

Aluminium US$ 2,195/t vs US$2,244/t yesterday
Nickel US$ 12,480/t vs US$12,870/t yesterday
Zinc US$ 3,394/t vs US$3,429/t yesterday
Lead US$ 2,543/t vs US$2,569/t yesterday
Tin US$ 20,295/t vs US$20,270/t yesterday

           
Energy:           
Oil US$69.9/bbl vs US$69.9/bbl yesterday
• Record breaking shale production is set to push US oil output to more than 10 million barrels per day, above historically high levels set in 1970. US government forecasts the figure to rise to 11 million barrels per day by late 2019, rivalling production by the world’s largest producer, Russia. The rapid uptake of US shale in the face of OPEC production cuts are likely to undo the joint work to reduce global supply glut and drive prices to lower levels.
• In the face of lower oil prices, Royal Dutch Shell have agreed to acquire a stake in a US solar company, representing the first investment in the sector after exiting 12 years ago.
Natural Gas US$3.117/mmbtu vs US$3.144/mmbtu yesterday
Uranium US$23.75/lb vs US$23.75/lb yesterday
           
Bulk:   
Iron ore 62% Fe spot (cfr Tianjin) US$75.7/t vs US$75.7/t
Chinese steel rebar 25mm US$629.7/t vs US$629.1/t
Thermal coal (1st year forward cif ARA) US$85.8/t vs US$84.8/t
Premium hard coking coal Aus fob US$254.3/t vs US$261.1/t


Other:  
Tungsten APT European US$310-318/mtu vs US$307-318/mtu last week
Cobalt LME 3m US$75,250.0/t vs US$75,250.0/t


Company News
Anglo Asian Mining* (LON:AAZ) 44p, £49.5m – Q4 production up 31%qoq; net debt down 47% in FY17


FY17 GE production totalled 71.5koz (FY16: 72.3koz) coming in at the top end of the guided 64.0-72.0koz GE range.
Q4 gold equivalent (GE) production climbed 31%qoq/24%yoy to 23.2koz in Q4/17 including:
• 21.9koz in gold dore (Q3/17: 14.5koz)
• 119t in copper from SART alone (Q3/17: 550t Cu)
• Strong gold production in the final quarter of the year (+52%qoq) was attributed to increased supply of high grade Ugur oxide ore and improved gold recoveries.
• Ugur supplied 181.7kt of ore at 3.2g/t during the quarter (Q3: 57.2kt at 3.3g/t) accounting for most of the plant feed.
• The Gedabek agitation leaching plant processed 211.4kt at 2.9g/t (Q3/17: 177.0kt at 2.0g/t) producing 17.0koz of gold in dore implying gold recoveries of 86% compared to sub-70% recorded previously during the year.
• Copper concentrate production came solely from the SART unit in Q4/17 as the floatation circuit was temporarily idled with the Ugur ore being copper free.
Annual bullion gold sales totalled 43.5koz (ex PSA) at an average price of $1,265/oz (FY16: 53.3koz at $1,253/oz).
Annual copper concentrate sales totalled 8.5k dmt for $16.8m, excluding PSA share (FY16: 6.8k dmt for $12.3m), benefiting from higher copper prices.
• Gedabek open pit restart is expected in Q1/18 while the installation of a second crushing line should allow the Company to re-commence the flotation circuit for copper rich sulphide ores and run it in parallel to the agitation leaching plant.
Net debt continued to come down with $18.3m outstanding as of YE17 which is nearly a half of $34.6m reported as of YE16.
Conclusion: This is an impressive set of results with Q4/17 GE production ramping up in the final quarter of the year accounting for 32% of FY17 output and hitting the higher end of the annual guidance. Processing of Ugur ores allowed to take benefit of higher grade plant feed and better gold recoveries and keep cash costs down translating into an accelerated deleveraging of the business.
*SP Angel acts as nomad and broker to Anglo Asian Mining

Phoenix Global Mining* (LON:PGM) 5.025p, Mkt Cap £11.5m – Executive Chairman appointed
• Phoenix Global Mining has announced the appointment of the current non-executive Chairman, Marcus Edwards-Jones as Executive Chairman; effective immediately.
• The acceleration of the exploration programme at the historic Empire Copper Mine in Idaho, where a significant resource upgrade was announced in November and the acquisition of the adjacent ground surrounding the former Horseshoe mine as well as the  securing of the Bighorn and Redcastle copper cobalt exploration licences in Idaho will no doubt have substantially increased the workload of the management team.
Conclusion: The transition from a non-executive to an executive role for the Chairman highlights the increasing momentum at Phoenix Global Mining and we look forward to further news when the technical team gain approval from the authorities at MHSA to re-enter the old Empire mine.
*SP Angel acts as Nomad to Phoenix Global Mining

Rio Tinto (LON:RIO) – 4130p, Mkt Cap  £74.7bn –2017 production meets guidance for all major product groups
• Rio Tinto described its 4th quarter production results as showing that the business was performing well and its 2017 annual production was “in line with guidance across all major product groups.”
• The company highlights the record quarterly production of its Pilbara iron ore operations where shipping of 90m tonnes of ore during the final quarter brought the total for the year to 330.1m tonnes – 1% above 2016.
• Production of iron ore is ramping up at the Silvergrass operation following the completion of the conveyor system while the plans for automation of the Pilbara iron ore rail system are progressing strongly “with greater than 60 per cent of all train kilometres now completed in autonomous mode with a driver on board for supervision. The project is on schedule to be completed by the end of 2018.”
• Rio Tinto’s guidance for 2018 iron ore shipments lies in the range 330-340 million tonnes “subject to market conditions and any weather constraints and partly reflects rail maintenance required in 2018”.
• The company’s bauxite production of 50.8m tonnes during the year increased by 6% and met the upward revision of guidance reflecting “strong operational performance at both Gove and Weipa. Alumina output of 8.1mt was in line with the previous year reflecting “a strong performance at Yarwun partially offset by lower production at the Queensland Alumina refinery due to major maintenance.”
• Guidance for 2018 bauxite production is in the range 49-51m tonnes while alumina is expected in the range 3.7-3.7m tonnes.
• Copper production from the mines declined by 9% compared to 2016 at 487,100 tonnes “due primarily to the impact of the 43 day strike at Escondida in the first quarter. Production was in line with revised guidance.” Copper production at Escondida declined by 11% to 270,800 tonnes.
• Copper output fell by 22% at Oyu Tolgoi “as phases 2 and 3, which were source of higher grade ore, were fully depleted by the end of 2016. The company notes, however, that Oyu Tolgoi established “new records for rates of total material moved and mill throughput in the year. Copper production in the fourth quarter was 23 per cent higher than the previous quarter due to improved mill availability and reduced ore hardness.”
• Guidance for 2018 mined copper production is in the range 510-610,000 tonnes
• Diamond production rose by 23% at the Argyle mine to 17.1m carats (2016 14.0m carats) while Rio Tinto’s share of production at Diavik rose by 12% to 4.5m carats (2016 4.0m carats).
• Guidance for 2018 production is between 17 to 20m carats suggesting a slight decline compared to 2017.
• The company currently has active exploration projects in 16 countries focussing on eight main commodity targets, however “The bulk of the exploration expenditure in this quarter was focussed on copper targets in Australia, Chile, Kazakhstan, Mongolia, Papua New Guinea, Peru, Serbia, United States and Zambia.”
Conclusion: Rio Tinto is expecting increased copper production in 2018 as Escondida recovers from the strikes in early 2017. Iron ore and bauxite production is expected to be broadly similar to 2017 while diamond output is forecast to decline by around 10-20%.

Savannah Resources (LON:SAV) 6p, Mkt cap £38.2m – Mining lease applications at Mutamba
• Savannah Resources has announced that it has submitted applications to the Ministry of Mineral Resources and Energy in Mozambique for the mining of the Jangamo, Ravene and Chilubane minerals sands deposits.
• The Ministry has  up to six months to process  the applications, which cover a total area of 417.32 square kilometres. If the applications are approved, “Mining Leases are generally awarded for a term of 25 years and can be renewed at the end of their terms.”
• The pilot processing plant at Mutamba was commissioned during December and will provide important data to the continuing feasibility studies and process design work as well as furnishing samples of the product to potential customers.
• Describing the licence submissions as a key milestone, CEO, David Archer, commented that “We believe our timing means we are well placed to take advantage of the increasing global demand for titanium feedstocks.”
Conclusion: Savannah Resources is pressing ahead with the licence applications in Mozambique while, in parallel, evaluating the Portuguese lithium project at Mina do Barroso and moving ahead on the copper projects in Oman where mining applications to reopen areas of former production have also been submitted.

Strategic Minerals* (LON:SML) 2.125p, Mkt Cap £28.1m – Update on Leigh Creek Acquisition
• Strategic Minerals has provided further information on the timetable for the acquisition of the Leigh Creek copper mine in South Australia.
• The December holiday period, in conjunction with “the need to satisfy a number of conditions precedent associated with the purchase being of an existing company, inclusive of mineral rights” means that “binding contracts will be exchanged in the coming weeks and settlement will occur once all conditions precedents are met”
• Strategic Minerals had originally indicated that it expected to complete the acquisition of Leigh Creek on 16th January, however, in reference to the amended timetable, Managing Director, John Peters, stated explicitly that “We have no concerns about completing the transaction but want to ensure that all procedures are completed properly to reduce risk to the Company.”
• The acquisition and resumption of production at Leigh Creek will provide Strategic Minerals with a second revenue stream alongside its Cobre magnetite operation in New Mexico.
Conclusion: In our view, the business model of operating assets generating cashflow to help fund the company’s exploration programmes and growth aspirations has served Strategic Minerals well. The addition of a second operating business at Leigh Creek builds on the success of this strategy and, although the short delay in completing the acquisition is frustrating, maintains the company’s momentum.

RNC Minerals (TSE:RNX) C$0.25, Mkt Cap £77m - Canada’s RNC Minerals in talks to fund world’s largest nickel and cobalt project
• RNC Minerals (formerly Royal Nickel) is in talks with commodity traders, mine operators and financiers to help secure $1bn to build the world’s largest nickel and cobalt project next year. The project ranks as the world’s 2nd largest nickel and 8th largest cobalt reserve
• Plans to begin construction at the Dumont Nickel and Cobalt project in Quebec, which contains one of the world’s largest undeveloped reserves of both cobalt and nickel, with 1.18bt of ore containing 3.15mt of nickel and 126,000t of cobalt
•  RNC in talks with large Japanese trading houses, companies that offer ‘streaming’ deals and miners interested in offtake arrangements to feed their smelters
• Initial annual production of 33,000tpa could produce some 73mlbs of nickel and 1,000tpa of cobalt in concentrate
• There is potential to expand the project in year five to 51,000tpa for 113mlbs of nickel and 2,000tpa of cobalt

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