Economic View
US - President Barack Obama proposed to focus on ?reigniting? the US economy and the middle class, calling for an increase in the minimum wage from US$7.25 to US$9.
? Obama called for Congress to avoid US$1.2tn worth of budget cuts demanding deficit reductions to include more revenues including closing personal and business tax loopholes. Republicans insist that cuts should be met with spending reductions only.
? No agreement between Democrats and Republicans has been reached so far.
? Automatic tax cuts are planned to come into effect in two weeks.
? It seems negotiations will be left till the last minute. As one Republican representative puts it ?take no action, go right up to the deadline, and have an 11th-hour negotiation?.
? President backed negotiations with the EU on a transatlantic free trade that should harmonize standards and grow trading between nations which now stands at US$2.7bn per day.
? Retail sales numbers are due later today. Estimates are for a 0.1%mom increase in Jan compared with a 0.5%mom rise recorded in Dec.
Japan - Annualised Q4 GDP is expected to pick up 0.4%, up from a 3.5% decline in the previous quarter.
Australia - Consumer confidence gained 7.7%mom to 108.3 in Feb, the highest increase since Sep 2011, as interest rate cuts filtered into the economy.
? This was the strongest reading since Dec 2010 and the fourth consecutive figure above 100, a threshold dividing optimists and pessimists.
India - The government plans to privatise US$6.5bn worth of state-owned companies as the nation is trying to close the budget gap.
? Companies short listed for a privatization are Coal India Ltd., Indian Oil Corp., Engineers India Ltd., Power Grid Corp. of India Ltd. and Bharat Heavy Electricals Ltd., according to the Finance Ministry.
Philippines - The country enjoys record investments as Japanese producers shift more operations to Southeast Asia on territorial disputes and rising costs in China.
Mozambique - A railway line connecting Tete province with an export terminal at Beira was shut on Tuesday due to heavy rains. No indication of when the railway will be reopened has been provided.
? It is said the first 100km of the route are particularly prone to flooding. The plan was to elevate tracks to avoid disruptions, but it has not been done yet.
? The company operating the line is looking to raise its capacity to 6mtpa by the end of the year from current 2mt. The line should be able to carry near 18mtpa by 2015.
US$1.3456/eur vs 1.3376/eur yesterday. Yen 93.23/$ vs 94.15/$. SAr 8.908/$ vs 8.972/$. $1.566/gbp vs 1.565/gbp
Commodity News
Precious:
Gold US$1,648/oz vs US$1,644/oz yesterday - Prices range bound this morning as most of the Asian participants are celebrating the Lunar New Year.
? Russia may become the third world?s largest gold producer in 2015, the Gold Producers? union said.
? Assuming current spot prices, nation?s god output will keep expanding by 4-5% per annum to 2020.
? Currently, Russia is fourth globally, following China, the US and Australia.
? SPDR gold holdings remained at 1,327t (42,661koz) valued at US$70.2bn yesterday.
Platinum US$1,723/oz vs US$1,696/oz yesterday
? Platinum producers will have to start refining platinum locally within two years Mines Minister said.
? The industry opposed saying a below 300,000oz per annum nation?s production does not justify te expenses, estimated at US$2bn.
? The government also announced it would expropriate 28,000 hectares of land from Impala?s subsidiary which would be given to new investors in the sector.
? These land holdings were believed to have been held for speculative purposes and, thus, had to be taken away.
Palladium US$772/oz vs US$758/oz yesterday
Silver US$31.07/oz vs US$30.77/oz yesterday
Base metals:
Copper US$ 8,236/t vs US$8,199/t yesterday - Copper remained strong in thin trading as traders remained on the sidelines with China on a week-long holiday.
? The copper fabricators asked a US court to review a regulatory approval of the JPMorgan copper ETF saying it will ?lead to an investor-financed squeeze of the market?.
? The SEC granted its approval to JPMorgan regarding te first US physically backed copper ETF in Dec last year.
Aluminium US$ 2,120/t vs US$2,103/t yesterday
Nickel US$ 18,365/t vs US$18,165/t yesterday
Zinc US$ 2,210/t vs US$2,191/t yesterday
Lead US$ 2,414/t vs US$2,389/t yesterday
Tin US$ 24,875/t vs US$24,850/t yesterday
Energy:
Oil US$118.7/bbl vs US$118.0/bbl yesterday
Natural Gas US$3.236/mmbtu vs US$3.277/mmbtu yesterday
Uranium US$43.40 (close 12/02/13) unchanged on the previous close
Steel - European governments asked ArceloMittal to delay its planned closures of plants in France, Belgium and Luxembourg. The Company refused blaming weak markets in Europe. Earlier, the Company posted a US$3.7bn loss in 2012 on the back of declining demand in Europe. ?Failing to take action in response to this will only serve to weaken the company in Europe. thereby threatening the viability of other plants,? the company said. Among other factors challenging steel industry economics were high power costs in the region that are four times as high as in the US, subsidized imports from China and carbon emission restrictions.
Company News
? Results disappoint with a downgraded outlook
? Gold production was 626 k oz for the full year with guidance for 2013 of 540-600 koz.
? Cash costs stool at US$949/oz with guidance for total cash cost including royalties of US$925 and US$975/oz for 2013.
? This cost will include a reduction of $120/oz for deferred stripping costs.
? EBITDA for the year was US$331m with net cash of US$401m.
? The company have initiated an operational review at the mine.
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Conclusion: These results are disappointing with production for next year down from next year with costs continuing to be an issue.
Anglo Pacific ? Prelims in line with expectations
? Royalties were down for the year by 55% at ?15.2m from ?35m last year mainly as a result of previously flagged issues at Kestrel.
? Kestrel has been impacted by disruption in production, delays in commissioning of the new processing plant and a misallocation of royalty revenues.
? Kestrel receipts still form the bulk of the company?s income and produced ?10.9m against the restated value of ?26.08 m in 2011.
? Royalty receipts from Kestrel are expected to improve in 2013 as result of an increase in royalty rates by the Queensland Government and Rio?s expansion programme.
? Royalties from Amapa were ?2.2m for the year down 13.6% and at El Valle-Boinas royalties were up at ?1.9m from ?0.3m in the previous year as the mine builds up to full production.
? Pre-production royalties are advancing with Four Mile Uranium expected to start in Q2 2013.
? Other pre-production projects are progressing as planned.
? Profit before tax for the year was ?14.2m versus ?48.5m restated in 2011 with cash of ?24m at the end of 2012.
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Conclusion: 2012 was a difficult year for Anglo Pacific and 2013 should improve with increased rates at Kestrel and improvement in production although this is dependent on Rio following through. Production from the gold and copper project in Spain will be helpful with relatively attractive royalty terms on projected production of 63,000 oz of gold and 200,000 oz of silver. Total assets stand at ?353m and should be supportive of the share price from here.
Mwana Africa ?-? Hot commissioning started at Trojan Nickel
? The cold commissioning of electrical and mechanical circuits has been successful and hot commissioning started on the 8th Feb.
? Progress at the plant has been matched by the ramp up in underground operations.
? 70 kt of material is available in surface stock piles with nickel concentrate ready for delivery by Q2 2013.
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Conclusion: So far restart of Trojan is going to plan. We are not surprised to see this as the company had undertaken a good care and maintenance programme at Trojan. The share price does not reflect the potential at Trojan and the other assets within this portfolio. We continue to see value in the shares.
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? York potash update
? has updated the market on progress relating to the York Potash project.
? The company confirms that it is most likely to use EPCM or EPC construction methodologies. While these are commonplace for larger projects with substantial debt funding the contracts also carry significant additional cost added by contractors to compensate for the guarantee of performance of contractors and plant. EPCM/EPC contracts effective lower the construction and completion risk for bankers lending to the project.
? The schedule for completion of the DFS ?Definative Feasibility Study? is delayed with completion now expected in Q4 this year.
? A new development director is appointed to lead the EPCM / EPC contracts.
? The good news is that last year?s project study defines a simpler and lower cost project to start the York Potash development.
? The company claim this to be a higher value project despite its production of, what we think, is a lower value product.
? The estimated capital cost reduced from $2.7bn to $1.7bn but is still a very substantial capex to finance in current market conditions.
? We do agree there is good longer demand for potash and fertilizer products but pricing appears to follow agricultural cycles and the presence of Campotex, the monopolistic Canadian export and marketing company.? Campotex is owned by the Saskatchewan potash producers: , Mosaic and Potash Corp. but is also politically influenced and is unlikely to help new producers.
? The statement highlights the critical nature of the construction and commissioning of the shafts to access the polyhalite orebody.? These need to be well constructed to meet the demands of moving the very substantial tonnage needed to feed the surface processing plant for the production of 5mt of NPK fertilizers.? The company correctly highlight the value of using contractors on EPCM/EPC contracts for this specialist work.?
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Conclusion:? It is not surprising to see some delay and changes to the specification of the work to be done on this project.? While improvements have been made to the project in terms of simplifying the project and reducing its capex we are still concerned that the principal of producing from polyhalite could lead to generally higher cost production compared with many other potash producers.? It is possible that UK and EU grants may assist in the financing of the project in this part of the UK and that the project may be financed by banks who are persuaded to assist in a project in this area.? This part of the UK also appears to be a relatively good area for new mine development.
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West African Minerals ? Cameroon progress
? West African Minerals are making progress on drilling of their South East Cameroon licenses.
? A drill program for 500 holes (22,500m) is designed to verify the iron ore targets highlighted in geophysical surveys over the license areas.
? Geophysical surveying shows demagnetised areas which are thought to contain non-magnetic haematite ores.
? These are over fold structures on kilometre-scale and may show banded iron formation.
? A gravity survey was also flown over the key licenses to see which areas show the greatest density and presumably heavy iron content.
? 14 of 52 ?RC? Reverse Circulation holes drilled have hit ?BIF? Banded Iron Formations so far with five intersecting haematite rich material.
? This is a good start to the drill program and a further 5,000m of drilling is planned for the next two months covering an area of 98km2 of anomalies picked out from the geophysical and gravity surveys.
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Conclusion:? Results show a promising start to the drill campaign and good interpretation of the geophysical and gravity data.? It will be interesting to see more detail on the grade of the haematite and to gain some idea of the areas of contained haematite. The identification of a good scale and grade haematite discovery should more than justify the company?s capitalisation and could potentially lead to a very substantial increase in its valuation.
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