Commodities Week in a Minute: The golden bull
(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
As we noted last week demand at Sight #2 was indeed firm as has demand for Alrosa's goods. Rapaport even run a story estimating up to $780m of Russian goods had been sold in the last two sales whilst the company had held pricing at the two sales broadly flat. Once again we are hearing plans for a 'privatisation' of the State backed diamond miner. However digging into the detail (excuse the pun) we see the stake being placed is just 10.9% which would take the official free float to around 40% better but probably not quite enough for most.
The jewellery show in Hong Kong started with a bit of a whimper but as the show has progressed buying has gently improved.
Rapaport polished diamond prices rose for the fourth month in a row. Up 0.3% and +1.3% in 2016. Year to date smaller goods continue to lead the charge up ~5% in two months although 3ct goods remain under pressure.
Precious metals
Gold: the Bull is back..
Spot bullion is currently above our average price range of $1200-$1250/oz. for March trading just shy of $1275/oz.
I note Bloomberg's new chart guru (I think it is a machine) is claiming $1318/oz. is possible. Given that is only about 3.5% above where we are today I can see it happening especially as open interest is now at its highest since October last year.
One to watch Gold and gold equities 14 and 30 day RSI's are now very much into 'overbought' territory are we so scared of a financial meltdown that a profit cannot be banked?
A reminder:
Positioning for March:
GoldNeutral/long
SilverLong
PlatinumShort
PalladiumLong
This week: Gold: +3%Silver: +4% Platinum: +4% Palladium: +11%
Base metals:
Copper is currently benefitting from hopes that China will announce more stimulus measures helping the red metal to post the best weekly performance since October last year. As many already know Saturday sees the beginning of the National People's Congress where delegates will sign off on a new five-year economic plan. Ivan Glasenberg also lit a fire under base metals this week by claiming 'commodity prices have bottomed and sales to China are pretty good.'
Fundamentally the failure to realise the great oversupply promised by so many scribes looks set to support the red metal in the near to medium term.
I saw a great chart from Bloomberg this am. Emphasises how important China's monetary programme is..
Elsewhere Al Ni and Zn are now back in positive territory for 2016. Tin has jumped back to $16.5k/t the highest level since April after PT Refined Bangka Tin Indonesia's second-largest smelter of the metal closed some operations on Bangka Island in support of the government's commitment to preserving the island which will now become a conservation area Expect to see an uptick in tourism then.
A reminder:
Positioning for March:
AluminiumNeutral
CopperLong
NickelFancy this as my top trade for MarchLong.
TinNeutral
ZincNeutral
This week: Al: +1.5%Cu: +4.2% Pb: 5% Ni: +6% Sn: 4% Zn: +4.3%
Bulk commodities:
On the other end of the confidence scale two prominent newswire services were reporting that the Chinese government plans to lay off 1.8 million coal and steel workers as part of the government's ongoing efforts to reduce industrial overcapacity.
Yin Weimin the minister for Human Resources and Social Security announced 1.3 million jobs will go in the coal industry with 500000 redundancies in the steel sector and the country had allocated $15.3bn for redundancy payments.
In December it was announced that no new coal mines would be approved for a period of three years and 60Mt of production would be removed by closing around 1000 mines this has now been increased to over 4000 mines many of which are uneconomical and would fail even the most basic health and safety requirements.
I don't mind admitting that the sheer scale of these numbers is mind boggling.
Company announcements/news/meetings:
DiamondCorp Buy (PT: 15.7p)*LON:DCP
Wednesday saw the arrival of the long awaited resource and reserve statement.
'DiamondCorp published the long awaited Technical Report and updated Resource and Reserve Statement for the Lace Diamond Mine on Wednesday. The report we believe provides reassurance to investors ahead of commercial production being announced in 2016. With a notable improvement in valuation offsetting the well flagged grade reduction associated with the bottom cut off change to 1.25mm we believe future sales updates can provide a catalyst for further gains. We thereby reiterate our Buy recommendation and 15.7p price target'.
Flash note with associated forecasts available upon request.
Gem Diamonds Buy (PT: 181p)*LON:GEMD
A bit of weakness yesterday recovering somewhat today.
The company will be announcing FY15 results on Tuesday 15th March with members of the management team available for meetings please let me know if you wish to see the team.
Lucapa Diamond Co N/R*
Yesterday Lucapa announced their quarterly sales update. Detail contained in our Boom ore Bust publication
Lucapa Diamond Co announced sales revenues in the quarter to 31 March from alluvial diamond mining activities at the company's highly prospective Lulo Diamond project in Angola. The latest sale of a further 1349cts of higher quality goods generated gross proceeds of $6.8m (100% basis) at an average price of over $5k/ct. Gross revenues during the quarter from the sale of 1931 carats were $23.7m including the exceptional 404ct diamond which sold for gross proceeds of $16m (net $5.9m to LOM)
The ground-based electromagnetic survey conducted at the high-priority L259 kimberlite at Lulo has now been completed. The company expects to have the final results interpretation and interim modelling in due course. As a reminder the EM survey was undertaken to assist in the understanding of the 110ha kimberlitic signature defined at L259 by the recently-completed gravity survey. L259 is located directly below the mining areas of Block 8 and adjacent to Block 6 at Lulo that has already produced more than 72 large special diamonds since mining commenced in this area in August 2015 including the 404ct diamond referred to above.
Management will be seeing investors the week commencing 14 March Please do let me know if you wish to see to Company.
Petra Diamonds Move to Hold from Buy (PT:112p)
'Following what was a very reassuring Interim results update Petra Diamonds has enjoyed a significant improvement in its share price subsequently taking the shares through our 112p target price. As a result of this outperformance Petra no longer qualifies for a Buy recommendation under the Panmure Gordon research guidelines. We thereby move to a Hold recommendation despite our long term optimism for Petra and the diamond industry'.
I do have to emphasise that following quite a few frantic calls from investors yesterday this is not a call based on anything other than the exceptional share price appreciation since we reappraised PDL back in November. No change has been made to our individual project NPV's or our group NAV of 151p.
Flash note and associated forecasts available upon request.
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