Strength in the US$ has been moving commodities lower with some recovery in prices today.
The US$ continues to climb to multi year highs as growth continues in the economy.
The yen is now at a 5 year low against the dollar both as a result of the dollar rally and weakening of the yen on adoption of reflationary policies.
Sterling meanwhile continued to weaken with yesterday’s poll on Scottish independence making the market jittery.
UK electric vehicle sales boosted by speedy charging
• The UK Society of Motor Vehicle Manufacturers (SMMT) has reported that electric vehicle sales are now over 10,000.
• New charging stations can charge a vehicle to 80% in just 30 minutes – the time taken for a typical service
station coffee break.
• Electric vehicle sales remain tiny by proportion to the overall UK market - in 2013, 2.25m new cars were sold, this
up 10.8% on 2012 to see the UK become Europe’s second largest car market.
• Over 1.5 million cars were produced in the UK and there are now 31.9 million cars on the nations’ roads.
• The UK Government’s Office for Low Emission Vehicles (OLEV) is providing a £500m finance package during
2015 to 2020 to position the UK as a global leader in the development, demonstration manufacture and use of
• Ultra Low Emission Vehicles (ULEV).
• This finance package includes £100m for research and development and at least £200m towards the Plug in
• Car Grant which currently provides £5,000 off the price of a ULEV.
• According to the SMMT, in 2013 63.3% of new cars registered in the UK met the EU’s 2015 CO2 target of 130g/km.
• Rising electric vehicle sales, though small in volume at present, can only help to lower over vehicle emissions
US –Manufacturing PMI hit the highest reading since Mar/11 in Aug significantly beating market estimates (59.0 v 57.1 in Jul and 57.0 expected).
• The increase has been well spread across a number of sectors.
• 17 of 18 industries surveyed by the ISM group recorded an increase last month, driven by gains in plastics, furniture and metals.
• US equities closed lower yesterday as the news of strong manufacturing numbers was outweighed by a fall in energy shares dragged by weaker oil prices.
• Economic news due today:
o Wednesday: Jul factory orders (+11.0% v 1.1% in Jun)
China – Official services PMI came in at 54.4 in Aug from 54.2 in Jul.
• The gauge kept around the 54-55 levels for over a year now with a short period of stronger growth in Q4/13 after the government announced a “mini stimulus” in H2/13.
• HSBC services PMI which tracks private businesses sector climbed to 54.1 last month, up from 50.0 in Jul.
India – GDP expanded to 6% in the first quarter of the financial year
• The indian stock market rallied and the rupee continued to recover against strong GDP numbers.
• The BSE index crossed 27,000 for the first time.
• The market rally is also being supported by better than expected earnings.
• Optmism continues on Mr Modi being able to adopt more market friendly policies
UK – Services sector growth unexpectedly accelerated in Aug despite a slowdown in manufacturing sector reported earlier.
• Markit non-manufacturing PMI came in at 60.5, a 10-month high, from 59.1 in Jul. Estimates were for a decline to 58.5.
• Markit estimates the economy will grow about 0.8% this quarter, in line with the previous three months.
Russia/Ukraine – Petro Poroshenko and Vladimir Putin negotiated a “constant cease fire in the Donbass” region, according to a statement on the Ukrainian president’s website.
• Russia has been repeatedly denying involvement in the conflict and it is surprising to see Putin negotiating a cease fire agreement.
• Equities on Moscow stock exchange are up following the news, while the rouble climbed 1.68% to RUB36.82.
Australia – Q2/14 GDP growth slowed to 0.5%qoq, down from 1.1%qoq in Q1/14 and +0.4%qoq forecast, on the back of strong currency and weak commodity prices.
• The economy expanded 3.1%yoy compared with a 3.0%yoy increase expected.
• Sector by sector breakdown showed, household spending (+0.5%qoq adding 0.3pp to growth), residential (+2.3%qoq, +0.1pp) and non-residential (+2.5%qoq, +0.2%pp) construction recorded an increase. Weak manufacturing led by slowing mining sector is reflected in a decline in machinery and equipment segment (-3.4%qoq, -0.2pp).
• The currency bounced slightly today (+0.31% at 0.9303) following a 0.62% fall recorded yesterday on the back of the RBA comments regarding adverse effects of strong the Australian dollar.
US$1.3150/eur vs 1.3117/eur yesterday. Yen 104.98/$ vs 104.85/$. SAr 10.684/$ vs 10.713/$. $1.649/gbp vs 1.655/gbp
Gold US$1,264/oz vs US$1,276/oz yesterday
Platinum US$1,405/oz vs US$1,418/oz yesterday
Palladium US$876/oz vs US$901/oz yesterday
Silver US$19.17/oz vs US$19.37/oz yesterday
Copper US$6,931/t vs US$6,964/t yesterday
Aluminium US$2,100/t vs US$2,112/t yesterday
Nickel US$18,688/t vs US$18,715/t yesterday
Zinc US$2,381/t vs US$2,380/t yesterday
Lead US$2,232/t vs US$2,240/t yesterday
Tin US$21,394/t vs US$21,625/t yesterday
Oil US$100.7/bbl vs US$102.3/bbl yesterday
Natural Gas US$3.903/mmbtu vs US$4.007/mmbtu yesterday
Thermal coal (1st year forward cfr ARA) US$78.3/t vs US$79.0/t yesterday
Seaborne hard coking coal index (quarterly) US$120.0/t vs US$120.0/t
Uranium US$32.65/t vs US$32.50/t
Iron ore 62% Fe spot (cfr Tianjin) US$86.7/t vs US$87.1/t
Tungsten APT European US$355.0/mtu vs US$355.0/mtu
• Anglo’s share price was up 3% yesterday following a comment by the CEO Mark Cutifani that he would be open to a bid.
• Speculation coincides with a note from Jeffries which proposes a takeover by Anglo by Glencore as one which would achieve cost and revenue synergies and would be EPS accretive.
• The company released results from its 2014 drill programme which is two-thirds complete with 53,000m of drilling to end of August.
• Focus on the diamond drilling programme in late July and August focused on the CMA zone with 22 of 37 DD holes and a further 11 RC holes.
• Significant intercepts include 31m at 4.2 g/t gold from 116m in hole YDD0256, 16m at 4.7 g/t gold from 117m in hole YRC0711 and 19m at 3.6 g/t gold from 115m in hole YDD0236.
• 15 of the DD holes testing the Yaoure central zone found some high grades which were less wide including 4m at 25.2 g/t gold from 261m and 8m at 8.5 g/t gold from 117m.
• These drill results will be used to deliver an update on the mineral resource this month.
• In-fill drilling continues with a second Mineral Resource update expected in Q4 2014.
• The PFS for the project is on track for delivery in Q1 2015.
Conclusion: Good drill results continue to come through from Yaoure which augurs well for the upgrade on the mineral resource. These results will support a strategy to focus funds on Yaoure instead of trying to turn around Kalsaka/Sega.
Griffin Mining (LON:GFM) – Interims
• Revenues of US$33.2m in line with last year at US433.7m.
• Operating profit of US$9.2m up 26% on last year with profit before tax of US$7.4m up 28%.
• Throughput of 408,671 tonnes was in line with tonnage of 412,799 tonnes in the same period last year.
• Production of 19,147 tonnes of zinc in line with last year with lead and silver down 32% and 3% respectively to 609 tonnes and 147.9 koz.
• Lower production of lead and silver were impacted by lower grades.
• Operating costs are down following the management change.
• The company continue to wait for the granting of the new mining licence for the unmined Zone III deeps, Zone II and adjacent areas at the Caijaying mine.
• Work continues to upgrade the processing facility and underground development to increase throughput to 1.5 mtpa.
• Capex over the period was around US$6.4m.
• Cash and cash equivalents at the end of the quarter stand at US$24.3m.
• Bank loans under current liabilities stood at US$47.1m with $2m of loans paid down over the period.
• Gold reserves increased by 9.8% to 10.1m oz for 2014 against 9.2m oz in 2013.
• 0.6m oz increase was attributed to Barberton Mines as a result of the extension at Fairview mine of the MRC ore body.
• 0.3m oz increase was related to Evander Mines as result of conversion of mineral resources at Evander 8-26 level.
• Gold resources fell by 4.5% to 33.5m oz from 35.1m oz in 2013.
• The decrease in mineral resources was a result of a lower gold price and inflationary cost drivers.
• A gold price of around US$1058/oz has been factored into calculations (Zar 400,000/kg).
• Operating costs assumed are based on historical achievements as a baseline.
• Sundance has raised A$40m from a global resources investor Gennadiy Bogolyubov through his vehicle Wafin Ltd.
• The investment is by way of a convertible note at a conversion price of 10 cents a share, a 20.5% premium to the current share price and 19.1% of the one month VWAP.
• The convertible carries a zero coupon and is unsecured and expires 60 months from issue and 20 business days after the project’s financial close.
• Wafin has the right to appoint a representative to the board if its total shareholding exceeds 12.5% of Sundance total issued share capital.
• Wafin will also have anti-dilution rights including first refusal of a top up right.
• The consortium Balckstone Alternative Solutions and D E Shaw and Senrigan Capital have agreed to replace their existing convertible of A$20m which expires in Nov 2015.
• A new convertible of A$22m 2 year convertible note will be issued to the consortium with an expiry of Nov 2016.
• Proceeds will be used to support the debt and equity financing of the Mbalam-Nabeba project.
• These include front end engineering and design, appointment of technical advisers to satisfy lenders requirements and upgrading the EIA to the latest Equator principles.
• Continuation of pre-construction activities and detailed negotiation of term sheets.
Conclusion: It is interesting to see that Sundance is continuing to attract funding for the Mbalam-Nabeba project despite the fall in iron ore prices and the generally negative sentiment towards iron ore projects in West Africa. This was one of few buys in the iron ore review we published in February this year which also highlighted the risk of iron prices falling and the challenges facing West African iron ore juniors. See below link to the note.
Iron Ore Review and comment on Sundance Resources
• The development loan of US$15m has been extended by one year and will now fall due in Feb 2016.
• The loan provided by Korea Zinc is part of the financing for the Korean Recycling Project is linked to an offtake for zinc oxide.
• The overall volume to be supplied under the agreement has increased by 70,000 tonnes to 840,000 tonnes and will extend the offtake by a year.
• The recycling project has restarted following the planned inspection and maintenance in October with full production expected in the Q4 2014.
Conclusion: Should the company achieve full production in Q4 they will be producing into a strengthening zinc price. At a zinc price of US$2,250/t (US$2,187/t today) the company expect the project to generate an EBITDA of US$31mpa with an NPV of US$110m and an IRR of 28%. A second phase is envisaged at a capital cost of US$146m to give an NPV of $162m and an IRR of 22% with an EBITDA of $59mpa