Date
2/22/2016 2:40:22 AM
(MENAFN- ProactiveInvestors - UK) Kieron Hodgson Follow !function(dsid){var jsfjs=d.getElementsByTagName(s)[0];if(!d.getElementById(id)){js=d.createElement(s);js.id=id;js.src="//platform.twitter.com/widgets.js";fjs.parentNode.insertBefore(jsfjs);}}(document"script""twitter-wjs"); Fri
Commodities
Diamonds and precious stones
Lots of contradictory messages in the gemstone space over the last couple of weeks with some commentators exercising caution or even disbelief a recovery could ever occur being countered by elements of positivity from a stabilisation in pricing trends. Admittedly the only commonality is that they all tend to be talking their own books.
As in all industries as trends weaken or even reverse there is always a fragility in confidence. No one seriously believes everything is fine and we can all start stocking up on champagne and caviar. The recovery will take longer to establish itself than the results of one sight (#2 begins next week) and will inevitably see some bumps along the way which makes me 'face palm' every time I read about the reduction in supply now being a negative to the industry I mean should the producers continued to oversupply the market? Give me strength
We had De Beers Alrosa and Chow Tai Fook (Lunar holiday sales) provide updates. All as we had anticipated whilst the absolute numbers look awful at CTF same store sales down 29% led by gold products (-31%) Gem-set sales only 20% lower
Precious metals
Well well well. So the surge in the yellow metal finally happened whilst I was away as well. Typical!
After rather controversially predicting gold would jump to $1250/oz. in 2016 last year it seemed I was going to be very much off the mark after Auntie Janet decided a lift off was appropriate. However our thesis of lower for longer rates in the US and further stimulus measures in one form or another firmly underpinned our view of a risk to the upside. After deciding to go negative last month the Japanese have now joined a bunch of bankers adopting negative interest rates in an attempt to stimulate growth. Worrying for me this crowd of represents around a quarter of the global economy.
Thought Bloomberg summed it up quite nicely
As you know I am not a gold bug or a bear in fact I don't even really class it as a proper 'commodity'. Its pricing is so far removed from actual 'physical' purchases and production rates that any mined asset could get. Instead it is just a leveraged play on monetary policy decisions and central banks dalliance into financial markets driven by career politicians who's overriding concern is the need to secure their own political positions. But I digress.
At the end of the day irrespective of my personal view if you are depositing a million whatever's in a bank and after a year or so receiving back less than you originally placed (lets ignore inflation for now) it is not surprising to see a switch into physical or near physical asset classes.
The chances of seeing those sub-$1000/oz. predictions come true anytime soon look as remote as me not going to Long street when in Cape Town.
Happy to hold onto those positions
This week: Gold: (1%)Silver: (2.2%) Platinum: (1.1%) Palladium: (3.6%) Rhodium: flat
Bulk commodities:
Iron Ore prices have been gently climbing to their highest levels in several months as steelmakers in China return to work following the Lunar New Year break which has coincided with slower supply growth.
Vale announced Q4 production numbers on Thursday that missed expectations largely due to the Samarco tragedy. The iron ore giant saw output fall to 85.4Mmt from 88.2Mmt in Q3. On an annualised basis production grew 4.3% to 345.9Mmt still a record for the company.
I am not confident in a continuation of the strong price performance for the next couple of months. However I am increasingly of the opinion that a longer term price band for 62% Fe is being established around these levels.
Company announcements/news/meetings:
Acacia Mining Plc Under review LON:ACA
Full year results published this week with our thoughts contained in our new Boom Ore Bust publication please let me know if you did not receive and/or wish to in the future.
'Despite the heightened leverage Acacia has to the gold price the scepticism the market has in relation to the recent gold price rally has meant the company has been a relative laggard compared to peers as investors favour more liquid and higher margin producers. As a result of this morning's slightly disappointing set of the results combined with weaker gold the Acacia is leading the gold miners lower. We question the deliverability of the AISC targets over 2016 and raise an eyebrow to the $34.5m in corporate administration (+5.4% on FY14) during a time when most miners are reducing their G&A'
DiamondCorp Buy (PT: 15.7p)* LON:DCP
We published a site visit round-up note this week following our visit to Lace last week. 'DiamondCorp hosted a site visit for the sell-side and its advisors to the Lace Diamond Mine in the Free State following the conclusion of the Mining indaba in Cape Town. No price sensitive information was disclosed but the key takeaways centred around how much the operation has progressed since our last site visit in February 2015 and how production rates can now increase towards the new mine plan targets announced in December 2015. We thereby reiterate our Buy recommendation and 15.7p target price'.
Site visit photos can be found here: http://www.panmure.com/htmlimages/DiamondCorpFeb2016.html
Gem Diamonds -LON:GEM="" pt:="" rel="3457">LON:GEM
Jamie and I were fortunate to visit both Ghaghoo and Letseng during our travels. Jamie published a comprehensive write up of our thoughts earlier this week so if you have not seen it please let me know and I will forward on accordingly.
Site visit photos can be found here: http://www.panmure.com/htmlimages/GemDiamonds.html
Gemfields Buy (PT: 64p)LON:GEM
Operational update earlier this week ahead of Monday's Interim results announcement again with our thoughts contained in our new Boom Ore Bust publication.
Summary: 'We remain comfortable with the opportunity Gemfields provides investors. Some will be concerned over the increasing debt position and ongoing G&A costs at a time when others are tightening their belts however Gemfields have always highlighted the importance of a solid marketing effort something the diamond industry has now woken up to. The efforts to diversify production centres via Ethiopia or Colombia will set the base for further shareholder value in the long term'.
Lucapa Diamond Co N/R (PT: n/r)*ASX:LOM
Lucapa announced the recovery of a 404.2ct Type IIa D-Colour diamond from alluvial mining in Block 8 located above the key L259 kimberlite target at the company's hugely prospective Lulo Diamond operation in Angola. Block 8 at Lulo has now produced more than 60 large special diamonds since August 2015. The diamond is the largest ever to be found in Angola which also hosts the fourth largest diamond mine in the world Catoca (located just 150km down the road) and the 27th largest stone ever to be found globally. The diamond is the 114th yes 114th special stone to be recovered by LOM in the last few years.
'We do not estimate prices for stones without viewing but the basic characteristics would safely imply future exploration and capital expenditure for ramping up alluvial mining efforts are now fully funded for the next few years. The Lucapa story we believe has the potential to further increase investor interest in the sector as the company's stated intention to join the London market would offer investors a chance to access a new region renowned to be a highly prospective post code for future production the company utilises ongoing alluvial mining to self-fund its exploration programme and we believe with the consistent recovery of large stones believed to be proximal to source'.
Petra Diamonds Buy (LON:PT:112p)LON:PDL
Petra will announce their Interim results on Monday and with a credible 3 month share price appreciation of >40% it seems investors are finally settling in for the long term with this name again. Many of the meetings we held with investors focussed on the balance sheet which we believe is far less of a concern than widely perceived.
Overall in the absence of any shocks it is likely the update will pass without too much volatility. A rare beast indeed for mining companies nowadays.