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Morning View
Markets may have to wait a little while longer for the next shot of QE.
? Optimism around further regulatory action may abate as most of the rhetoric yesterday was ?ready to act if needed?.?
? The German chancellor Angela Merkel did appear to be softening her stance on using existing tools to support the Eurozone.?
? Markets may drift off till there is some concerted plan ? maybe after the Greek elections on June 17th.?
? On a positive note the Spanish debt sale went well yesterday with the Spanish Treasury issuance achieving its maximum target of ?2bn with oversubscription rates for the 2014 and 2-16 maturities.?
? Gold came off with hopes fading for immediate QE ? gold should be a good two way bet here ? up if there is QE and up if the Euro/Global crisis heightens.?
Chinese 25bp rate cut to 6.31% surprised the market
? The rate cut by the Chinese was welcomed but heightens concerns about the state of the Chinese economy.?
? With Chinese inflation nearer the 3% mark they have room to manoeuvre.?
? One commentator put this down ?Chinese taking responsibility for the global economy? ? anyone who knows the Chinese will find this rather optimistic.?
? If they do look after themselves, still good for the rest of us!?
Economic News
Europe ? Another day another twist in the ongoing saga??
? Figures released this morning showed that German exports declined in April for the first time in 2012.?
? Exports fell 1.7% in April from March.?
? The German trade surplus contracted to ?14.4bn in April from ?17.4bn in March.?
? Fitch Ratings have cut Spain?s credit rating to within two stages of junk.?
? The Ratings agency now estimates that the cost of recapitalising the banking sector could sit at ?100bn.?
? Spanish yields fell yesterday. Will this last??
? The German trade figures will increase pressure on Chancellor Merkel who appears to be increasingly isolated in Europe amid calls for Germany to do more.?
? Yesterday the German Chancellor reiterated her belief that a core group of European nations bust forge ahead with plans for closer integration.?
? Conclusion: The line is slowly but surely being traced in the sand. The question that will define the German approach (and Europe?s ultimate survival) is whether national domestic issues and national ambition can become subordinate to those of Europe.?
? History would suggest that this is a hard line to cross.?
? For southern states the prospect of effective ?Taxation without representation? may prove unpalatable.?
? For the Northern states the prospect of decades spent supporting the periphery could well prove too tiresome. ?If I owe you a pound, I have a problem, but if I owe you a million, the problem is yours??
? Does the political will to address the structural issues exist?Or will European policy makers continue to kick the can along the road? We expect the latter??
US ? Big Ben did not provide what the markets were looking for yesterday.
? The Federal Reserve Chairman reiterated that policy makers remain ?ready to act? should the economy merit further support.?
? The second half of the year is going to be very interesting in the US.?
? We expect that that political pressure will lead to further stimulus in one shape or another.?
? The US consumer (who accounts for two thirds of the US economy) continues to suffer.?
? The jobs market is stagnant and wage growth is non existent. (we note that initial jobless claims fell by 12,000 yesterday ? the 4 week average is up though by 1.7k)?
? 70% of US Corporation?s sales are domestic. The domestic market needs support.?
? With an election and the so called ?fiscal cliff? looming we expect action to stimulate short term ?good will? to materialise in due course.?
China ? Amid the continued economic uncertainty facing the global economy, policy makers yesterday cut the headline interest rate for the first time since 2008.?
? The People?s Bank of China cut the key lending and deposit rate by 25 basis points to 6.31% and 3.25% respectively.?
? Additionally officials relaxed rules, providing more freedom to banks to set deposit and loan rates.?
? The significance of this move should not be understated. Providing banks with more flexibility could well indicate that policy makers are becoming more acutely aware of the structural problems facing the domestic banking system.?
? The new rules will allow banks to cut lending rates to circa 5% and raise deposit rates to around 3.6%.?
? China is undoubtedly in a transition period. Socio-economic problems are prevalent throughout the country and we expect the uncertainty surrounding economic policy to increase in the coming months as the Communist Party undergoes the once in a decade leadership change.?
? Let us hope that Chinese officials remember the perils and consequences of providing easy credit to consumers.?
UK ? Factory output prices fell in May as the costs of petroleum products declined.
? Prices for goods at the factory gate fell 0.2% - the first decline since December.?
? Yesterday the BOE refrained from adding more monetary stimulus.?
Japan ? Figures released this morning showed that Japan posted a smaller than expected current account surplus in April amid slowing global demand for Japanese exports.?
? The excess sat at $4.2bn compared to estimates of $5.5bn.?
? GDP figures in Q1 2012 (revised) indicated growth of 4.7%.?
? The country has been struggling since the end of Q1 with a strengthening currency and the uncertainty created as a result of the ongoing problems in European.?
? A stronger currency not only impacts exports but it further reduces the value of income returning to Japan.?
New Zealand ? The IMF has stated that the country?s economic recovery will remain modest this year.
? Falling levels of consumer spending and relatively high levels of household debt are impacting consumer confidence and consumption.?
? The country?s government is focusing on returning a budget surplus in 2015.?
? The economy is forecast to grow 2.3% in 2012.?
Peru ? Borrowing costs were maintained yesterday for a 13th month. The overnight lending rate was held at 4.25%
South Africa ? Domestic media outlets are speculating that South Africa?s Department of Public Services and Administration by raise the current offer of a 6.5% wage increase, as general strikes continue to plague parts of the economy.?
US$1.2499/eur vs 1.2551/eur yesterday. Yen 79.33/$ vs 79.35/$. SAr 8.410/$ vs 8.302/$. $1.545/gbp vs 1.545/gbp
Commodity News
Precious:
Gold US$1,574/oz vs US$1,622/oz yesterday ? Gold if off today and heads for a weekly loss after Ben Bernanke said no stimulus is planned for now during his speech yesterday.
? Gold output in Ghana, the second biggest producer in Africa, dropped 1.7% last year to 2.92moz (Ghana Chamber of Mines).
? Revenue climbed to US$4.6bn from US$3.6bn 2010 on the back of a 29.9% increase in average prices to US$1,583/oz. Old revenue accounted for 97% of nation?s total mineral revenue in 2011.
? Tanzania gold exports increased 44% in the last 12 months through April to US$2.3bn.
? SPDR gold trust holdings remained at 1.275t (40.986moz) value US$65.794bn.?
US$1,420/oz vs US$1,464/oz yesterday
Palladium US$613/oz vs US$629/oz yesterday
Silver US$28.26/oz vs US$29.27/oz yesterday
Rhodium US$1,390/oz vs US$1,390/oz last week
Base metals:
Copper US$ 7,340/t vs US$7,398/t yesterday ? Prices dropped today driven by stringer US dollar.
? A cut in Chinese interest rates, the first decrease since 2008, may cut copper imports for financing needs and release more metal from bonded warehouses. This in turn may increase the supply and lower prices.
? Jiangxi Copper, the largest Chinese producer, may stop shipments to LME warehouses after prices fell 9% in the last month.
? The company together with major producers in the China Smelters Purchase Team sold the refined metal to the LME due to better prices and higher domestic stockpiles.
Aluminium US$ 1,980/t vs US$1,979/t yesterday
Nickel US$ 16,330/t vs US$16,040/t yesterday
Zinc US$ 1,883/t vs US$1,876/t yesterday
? Prices are likely to reach US$3,000/t by 2016 as major zinc mines are scheduled for exhaustion by 2015 (Hallgarten & Company estimates).
? Mine closure will take 1.4mt of zinc, or 12% of world?s supply, out of the market over the next few years.
? Mega-mines are being replaced with much smaller mines with lower life of mine.
? Brunswick and Perseverance mines in Canada are set to close in 2013 removing 350,000t of metal capacity. At the same time Glencore?s Perkoa project in Burkina Faso is expected to produce around 90,000t and Talvivaara in Finland to add over 25,000t.
Lead US$ 1,904/t vs US$1,910/t yesterday
Tin US$ 19,550/t vs US$19,600/t yesterday
Energy:
Oil US$98.3/bbl vs US$100.2/bbl yesterday?
Natural Gas US$2.254/mmbtu vs US$2.420/mmbtu yesterday
Uranium US$50.50/lbs vs US$52.25/lbs last week
Coal ? The Queensland administration approved the A$1.7bn Grosvenor coal mine to be developed by .
? Construction should start soon with longwall mining to commence in 2016.
? The site will produce 7mtpa of high quality hard coking coal with a 40-year life of mine.
? China will build a 200mtpa coal rail link to run from Lvliang city in Shanxi province to Rizhao port.
Other:
Iron ore ? Australian iron ore exports revenue increased to A$5.35bn in Apr, highest since Oct, while prices dropped 1.5% to US$145.5/t for 62% Fe fines cfr Tianjin.
? Iron ore prices may pick up from a 6-month low following China approving US$23bn worth of steel projects.
Company News
() First Quarter Results 2013
? The company announced a strong set of results with EBITDA up 77% to $44.2m compared to $25m in the same quarter last year.?
? Rough diamond sales increased 43% to $89m mainly as a result of the quantity of diamonds sold ? with 1m carats sold versus 0.5 m FY Q1 2012.?
? The average prices achieved for the diamonds sold was $88 per carat versus $132 per carat reflecting the sale of lower prices good held back in inventory at Oct 31 2011 as well as higher production.?
? If the company had only sold the production achieved in the quarter prices achieved would have been around $125 per carat.?
? The company have agreed a mine plan with on Diavik for calendar 2012 with production to remain at 8.3m carats (100% basis).?
? Beyond 2012 the plan is to optimise production from underground portions of the mine with capex estimated at around $500m (100% basis).?
? The company expects the luxury goods market for jewellery and watches to increases but cites concerns relating to Europe and the slowdown in China as challenges.?
Conclusion: The diamond market continues to be buoyant with the company being able to sell all its lower priced inventory, Interestingly the company has held back some of its higher priced goods as it sees and imbalance in the rough and polished diamond prices in these goods.
Mwana Africa () Clarification on Fund Raising
? We would like to clarify comments made in yesterday?s note regarding the fund raising for the restart of the Trojan Mine in Zimbabwe.
? The rights issue is being done by Mwana?s 52.9% subsidiary Bindura Nickel Corporation to raise US$21m (not Mwana Africa) and is fully underwritten by Mwana Africa.
? Mwana Africa is in a position to underwrite the rights issue following the fund raise done earlier this year.
? The total cost of restarting the mine is estimated to be US$33m with US$21m required in the first year of re-start.?
? The balance of the funding required in the following year is expected to be raised through alternative sources of funding.?
? BNC signed an offtake agreement with Glencore in Feb 2011 where Glencore will purchase all the concentrate produced at the Trojan mine.?
Conclusion: The fund raise through the rights offering by BNC will enable the company to unlock value in the Trojan mine project.?
The company has undertaken significant care and maintenance at the Trojan mine enabling the mine to be re-started relatively quickly.
? There has been some underground development undertaken at the mine during this period.?
? The mine has hoisted waste and ore to the surface enabling hot commissioning to the surface waste conveyors and crushing facilities.?
? The management team has also been retained during care and maintenance.?
? All the infrastructure is in place for a mine re-start and we anticipate the mine can be started within 7 months of the conclusion of the fund raise.?
The company projections in the first year is for ore mined including dilution of 364 kt producing nickel in concentrate of 1,627 tonnes. This will rise to 832 kt in Year 2 with 5.457t nickel concentrate produced increasing to thereafter to around 6,600 t of nickel concentrate.?
The total resource at Bindura is for 51,997 kt with 313,874t of contained nickel ? 11% in the measured (grade of 0.96% nickel) and 68% in the indicated category (grade of 0.57% nickel).
Mining this week:
() Commissioning at Boseto Project
Goldstone Resources () Operational Update
* () US$10m loan received from EBRD
Mwana Africa () Funding for Trojan Nickel Mine
() PEA for Zebediela Nickel Project
* () JORC gold reserve rises to 744,038oz
() Preliminary results to 31 Dec 2011
Goldplat () Update on Recovery Operations
Ormonde Mining () Final Results?
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