(MENAFN- ProactiveInvestors) Iron Ore - Freight rates fall as price of bunker fuel oil comes down
• could save some US$450m this year according to Andrew Harding Rio’s iron ore ceo
• The company are spending $1.50/t shipped due to lower bunker oil prices
• Freight rates have fallen to Asia from Australia has fallen to US5-6/t from US7-8/t recently and from around US$15/t a year ago.
• Rates for filling containers destined for China are also said to be very low.
Auto sales:
• Japan - Dec car sales yoy fell 8.8% vs 13.5% in November
• US vehicle sales rose 5.8% to 16.5m.
• German December CPI 0%. German inflation fell to 0.2%.
• US December NY ISM index 70.8 (Nov 62.4).
SpaceX – to test launch its new Dragon spacecraft and reusable Falcon 9 launch rocket today
• The test has implications for missions to Mars and other planets in that a reusable rocket could provide a return journey for astronauts
• The Falcon 9 rocket will attempt to land on a floating platform on the ocean. Weather conditions need to be good to enable its safe landing.
Gold US$1212/oz
Inflation – markets spooked by the prospect of very low price inflation
• The prospect of deflation in the Eurozone and lower inflation elsewhere is spooking markets
• The big driver is the marked fall in oil prices which are now below $50/bbl in the US
• German inflation fell to an annualised 0.1% in December vs 0.5% in Nov strengthening the case for ECB QE
• Inflation rates are seen falling across most of the Eurozone with similar falls in Spanish inflation
• Many economists reckon ECB QE will be ineffective so it is up to the ECB to design a program of sufficient scale and reach to restore economic growth across the EU. If it fails the EU risks breakup led by French nationalists and other growing protest groups.
Rare Earth Elements:
• China’s new ‘Strict export license’ system looks to continue to restrict exports of REEs tungsten molybdenum and other industrial minerals.
• China failed in its legal appeal to the World Trade Organisation on the issuance of export licenses but seems determined to restrict exports by other means despite the WTO ruling. So its not really complying with the spirit of the WTO ruling in our view.
• China has been successful in persuading Japanese REE processors to move production closer to the raw material source in China but is said to have had little success in cleaning up the environmental damage caused by REE processing.
• With China playing games in REE supply like these the West needs to invest in building new supply to secure sources of supply.
• Unfortunately the two principal REE producers in the west MolyCorp and Lynas are both struggling and do not look like good investments to follow at this stage.
• The problem particularly with REE supply is that it takes years to develop plants for REE processing and relatively few chemical engineers and metallurgists in the west really understand how to build an operate such plants.
• Capital markets may need some encouragement while Chinese production keeps metals prices artificially low in China.
Conviction ideas for 2015:
• * () – the company stands to gain from margin improvement led by lower costs and a weaker SA rand.
• Kefi Minerals ()* – Expect new gold mine license and full mine financing in the new year
• * () – the rediscovery of two historic high grade copper mines in Norway gives the stock exciting potential.
• () – Volume and quality growth expected in the production and recovery of diamonds
• * () – New gold mines to start production with jv partners in Turkey next year with good potential for significant discovery
• () – we expect the Korea EAFD zinc recycling facility to have worked through its commissioning issues and to have a better year
Recovery stocks:
• () – the stock has been sold off on its need to refinance its convertible notes and is holding a rights issue to refinance the bonds. The collapsed rouble lower oil prices and return of Pavel Maslovskiy a former founder should be good for the company.
*SP Angel either act as Nomad broker or both to these companies
Economic News
EU – ECB QE likely to be relatively ineffective compared with the US according to economists
• ECB QE is a bit of an unknown – it’s never been tried before across the EU.
• Many member states of the EU would prefer to cut out Greece from any QE plan.
Greece – Grexit might be on the cards sooner than Greece thinks if France gets it way and chucks Greece out the EU
South Africa – Medupi power station about to come on line
• ESKOM is about to bring the new Medupi power station on line in South Africa
• The station is critical for helping to resolve rolling power blackouts which have been affecting municipalities
Ethopia – new 1870MW hydroelectric dam could start to supply power by June (CNBC Africa)
• The new $1.8bn Gigel Gibe 3 hydropower dam could start generating power by June according to project officials
• Two out of ten generators should be running in June with the rest coming in by around the year end.
• A larger 6000MW Grand Renaissance Dam is also being developed to generate power from the Nile
Zambia – Opposition candidate plans to review new legislation on mining royalties if elected to power in this month’s election
• The legislation was passed by the interim and temporary president following the death of President Sata late last year.
• New high taxes of 20% of open cast mining from 6% previously have caused to suspend operations at the Lumwana copper gold mine.
US$1.1909/eur vs 1.1952/eur yesterday. Yen 118.76/$ vs 120.34/$. SAr 11.745$ vs 11.693$ $1.520/gbb vs 1.529/gbp
A$0.814 vs 0.807 - Australia’s central bank governor reckons the A$ should probably be at around 0.75 to the US dollar so if he says it’s going to 0.75 then it’s probably going allot lower.
SA rand falls to new low as traders wait for ECB QE. The SA trade deficit and power blackouts are also not helping the currency.
Commodity News
Precious metals:
Gold US$1212/oz vs US$1194/oz yesterday
Platinum US$1216/oz vs US$1211/oz yesterday
Palladium US$800/oz unch vs US$800/oz yesterday
Silver US$16.34/oz vs US$16.05/oz yesterday
Base metals:
Copper US$6150/t vs US$6235/t yesterday
Aluminium US$1818/t vs US$1835/t yesterday
Nickel US$15384/t vs US$14900/t yesterday
Zinc US$2183/t vs US$2202/t yesterday
Lead US$1854/t vs US$1863t yesterday
Tin US$19646/t vs US$19701/t yesterday
Energy:
Oil US$51.48/bbl vs US$55.63/bbl yesterday – prices continue to fall as Saudi Arabia refuses to cut production
• US oil output has surpassed Saudi Arabia according to claims by US Senator Amy Klobuchar who reckons the US overtook Saudi two years ago.
• US oil output increased by 1mbbls per day last year pushing US oil production to its highest for 30 years.
• In 2013 the US was 10.8% of world production vs Saudi Arabia at 13.1% and Russia at 12.8% (IEA stats). The addition of shale oil production is adding around 4mmbbls per day to US production creating the imbalance seen in oil markets. Global oil production is around 75mmbbls per day
• Saudi Arabia acts as a swing producer and could be the largest producer if it chose to do so.
• The US Bureau of Industry is to would allow companies to export oil condensate processed through basic distillation towers in a move which should better connect US and international oil prices without violating the US government long term ban on oil exports.
Saudi Arabia – endorses increased domestic budget for 2015 despite fall in oil prices
• The government of Saudi Arabia is likely to record a $39bn deficit on spending plans for a 0.6% rise to $229bn vs forecast income of $191bn
• The deficit is to be financed out the nation’s net foreign assets which totalled $736bn at end November.
• The budget assumes an average oil price of $60/bbl for 2015 and a loss of $89bn in revenue from oil to the kingdom on last year.
• The budget also assume the kingdom’s oil production will remain unchanged at 9.6mbd next year
• The effective budget breakeven oil price rose to $90/bbl last year from $65/bbl previously due to rising spending programs
Natural Gas US price US$2.846/mmbtu
Uranium US$35.15/t unch vs US$35.25/t yesterday
Iron ore spot price index (62% fines Tianjin) $69.98/t vs $66.4/t yesterday –
Iron ore spot price (62% fines Qingdao) $70.87/t
Tungsten APT European US$305/mtu vs US$317.5/mtu last year
Ferrochrome HC $1.08/lb Cr Q1 vs $1.15/lb Q4 quarterly Benchmark pricing – China scraps 1% import tax on HC ferrochrome (>4% carbon content)
• The move may drive some Chinese ferrochrome production out of the market with greater ferrochrome imports and lower domestic prices.
Company News
to install Blutip Technologies engine management systems to CAT dump trucks to optimise fuel consumption
• The technology should reduce fuel consumption on a per tonne basis across the fleet
• Lower oil prices should also help
() – Resource upgrade at Yaoure Gold Project
• Following the completion of its 2014 drilling campaign at Yaoure has announced an NI 43-101 compliant resource of 6.8m ounces of gold at an average grade of 1.25g/t (based on a 0.5g/t cut-off grade).
• Sixty-five percent of the resource (4.4m oz) is now classed as “indicated” at a grade of 1.29g/t and the 85574m 2014 drilling campaign has added some 1.7m oz of indicated resources to Yaoure generating some 20 ounces of gold per metre of last year’s definition drilling.
• The company reports that it has identified additional gold potential at Yaoure both along strike from the current mineralisation and also in parallel structures to the west.
• The updated resource estimate is a key part of Amara’s pre-feasibility study (PFS) for Yaoure which is expected to be completed in March 2015. This study should firm up the information contained in the Preliminary Economic Assessment for Yaoure released in Q1 2014 which suggested that an 8mtpa mine could deliver 325000 oz pa of gold over a 12 year mine life at an all in cost of $691/oz.
Conclusion: The 2014 drilling campaign has achieved a 63% increase in the “indicated” portion of the Yaoure resource by closing down the average drill spacing from 100m to 50m. This will have provided a wealth of more detailed information for the forthcoming PFS and may enable the company to start fine tuning the plans for mine development. The original PEA reported that at a gold price of $1250/oz the project could deliver an NPV of $688m using a discount rate of 8% and an IRR of 32%. We look forward to the results of the PFS.
Avalon Minerals Ltd (ASX:AVI) – Progress on drilling at Viscaria Copper Project
• Recent drilling of the A Zone at Viscaria intersected visible copper.
• Drill hole VDD0182 was completed in mid-Dec at 174m.
• This hole intersected visible copper sulphide mineralisation in the main mineralised zone from 36 to 93m and from 136 to 145m in the footwall zone.
• Assay results are expected in mid-January.
• Driling at Viscaria is targeting further oxide copper mineralisation which is expected to start in early 2015.
• The company has started an optimised scoping study to assess potential for a lower capex start up scenario.
• Further exploration targets have been identified with an electromagnetic anomaly identified eash of the A Zone.
• A further significant magnetic anomaly has been identified 3 km south of the D Zone and 2 km south of the A Zone.
• The company expects to drill test these anomalies further in 2015.
• The company received an R&D tax rebate of A$1.23m leaving it with a cash position of A$1.8m at the end of December
Conclusion: Avalon is making steady progress at the Viscaria copper project and we look forward to the assay results in mid-January.
() – Quarterly dividend announced but new capex commitments will deplete cash pile
• today announce the declaration of their fifth quarterly dividend of C$0.015 per share.
• It is good and important to see the company continue with its dividend declaration particularly with significant capital expenditure plans ahead.
• The team plan to deepen the Blanket gold mine to 1120m to provide access to additional ore and to improve ore handling (tramming) underground.
• A new shaft sinking to increase production to over 70000ozpa (40000ozpa now) by 2019 should cost $23m.
• Costs are forecast to reduce to around $500/oz from around $700/oz as a result.
• The capital needs to be spent to bring inferred gold resources into the reserves for mining and the additional underground access should enable low cost drilling of these resources.
• The capex plan is forecast to generate an IRR of 267% based on a $1250/oz gold price giving the mine an NPV of $147m.
Conclusion: We suspect Caledonia will be forced to suspend its quarterly dividend at some stage due to commitments from its new investment program unless gold prices rise significantly from here.
() – Record annual copper production in 2014
• has announced a record year of copper production in 2014. The company exceeded production guidance of 11000 tonnes to produce 11136 tonnes.
• The $13.4m stage 1 expansion of the Kounrad SX/EW plant to 15000 tpa capacity is on budget and on target for commissioning in Q2 2015 and as a result target production for 2015 is 13000 tonnes of copper.
• The expansion project is fully funded and the company ended 2014 with a cash balance of $47.6m.
* () – Directors buy stock
• announce that four directors have bought stock following the release of the interim results and last year’s placing.
• The directors Anthony Balme Vassilios Carellas paul Heber and Dave Paxton have bought some 35m of new shares.
• The company recently announced successful test work for the processing of gold ore at the Kremnica project in Slovakia
• Testwork using ammonium thiosulphate in a specifically designed plant gave recoveries of 90.5% for gold and 48.9% for silver over 10 samples each of around 800kg.
• Ortac also holds a 26.7% interest in Andiamo Exploration which is evaluating small scale copper and gold opportunities in Eritrea.
Conclusion: The ability to process gold ore from the historic mine at Kremnica is very good news. This does not appear to be reflected in the company share price
*SP Angel acts as broker to
() – Update on Trial Mining at Baoule
• Trial mining at Baoule continues as planned with mining and processing of mainly weathered kimberlite.
• The processing plant is running at steady state average capacity of 50 tph over a double shift at 15 cpht.
• The target is for 2000 carats per month.
• A total of 15597 diamonds yielding 2145 carats have been recovered to date at a +1.25mm cut off giving an average grade of 14.6 cpht.
• 138 diamonds were greater than 1 carat 42 greater than 2 carat and 9 stones greater than 5 carats.
• A parcel of 941 carats of diamonds has been exported to Antwerp in Dec for sale with the sale deferred to January 2015.
• A second parcel is to be sent of 1250 carats in the first half of January which will be added to the existing parcel for sale.
Conclusion: Trial mining continues to progress on target and we look forward to results of the sale of the enlarged package in January.
Wolf Minerals () – Power supply contract for the Hemerdon tungsten/tin project
• Wolf Minerals reports that it has concluded a power supply contract with Danish – based DONG Energy for its Drakelands tungsten/tin mine at Hemerdon in Devon.
• The 3 year contract to supply 82GWh to the project has been concluded at prices which “are in line with estimates contained in the Definitive Feasibility Study”. The Company announced in May 2011 that the DFS envisaged operating costs of £9.91/tonne of ore to produce 345000 mtu (metric tonne units) of tungsten trioxide per year and an average 462 tpa of tin in concentrate.
• Today’s announcement implies that that as the project develops the costs are broadly consistent with the DFS assumptions.
• The company is progressing well with development of Drakelands which is planned to commence in mid-late 2015.
Conclusion: The base case for the DFS assumed commodity price of $360/mtu for APT (an intermediate tungsten product used as a benchmark for tungsten concentrate pricing). Recent weakness sees the current APT price around $305/mtu and in this environment cost containment will be an important factor in ensuring the success of the project.