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Today's Market View - Kenmare Resources, Tethyan Resources PLC

Published: 06:10 12 Jul 2017 EDT

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Kenmare Resources (LON:KMR) – Trading update shows higher ilmenite prices and production leading to expected higher margins

Tethyan Resources* (LON:TETH) – TSX listing update

 

US$ index is flat ahead of the Yellen testimony to Congress

• The US dollar fell 0.4% yesterday as two voting FOMC members made comments on the future of the policy that were taken as less bullish than expected while reports emerged showing Trump Jr. was ready to accept “incriminating” information about Mrs Clinton from Russia related parties.

• Lael Brainard said the Fed should soon start reducing the balance sheet as long as economic data on US jobs and growth holds up.

• Patrick Harker said in an interview to the Wall Street Journal that further rate hikes might be put on hold if inflation did not move towards the Fed’s two percent target.

• A drop in the US dollar on Tuesday helped gold slightly as prices recovered from a more than three months’ low hit earlier in the week.

• Copper prices are up for a second session now having climbed 1.1% this week ahead of Chinese credit data.

• Brent is up 1.8% this morning after gaining on Tuesday amid reports of contracting US inventories.

 

Dow Jones Industrials  +0.00% at   21,409

Nikkei 225   -0.48% at   20,098

HK Hang Seng   +0.68% at   26,054

Shanghai Composite    -0.17% at    3,198

FTSE 350 Mining   +0.86% at   15,619

AIM Basic Resources   -0.43% at    2,418

 

Economic News

US – Job openings fell from a record high in May, although, the reading remains consistent with strong demand in the labour market.

• Quit rate climbed 2.2% from 2.1% which also demonstrates confidence among workers leaving jobs following upon better offers.

 

China – Open interest in the futures commodities market climbed to a record level on Tuesday led by an increase in steel, iron ore and rubber contracts as investors build up bets on Chinese demand.

• In particular, holdings of steel rebar futures on the Shanghai Futures Exchange hit a record 5.7m contracts yesterday, more than double the levels at the start of the year.

• Open interest in iron ore climbed to the all-time high on June 27 while holdings in thermal coal remain at a record hit last month.

 

UK – BoE Deputy Governor Ben Broadbent suggested he is unlikely to support a rate cut, although, indicated that it would not take much to change his mind.

• “If you look at the past six to 12 months, economic growth has been okay and the employment rate good; undemployment has drifted down a little… and inflation is higher.”

• “There is reason to see the committee moving in that direction (higher interest rates) – but there are still a lot of imponderables.”

• “In my opinion, it is a bit tricky at the moment to make a decision (to raise rates). I am not ready to do it yet.”

• The pound fell against the US$ on the news yesterday given a close tie between those in favour (3) and against (5) a rate hike seen during the last meeting in June.

• Employment numbers released this morning showed jobless rate dropped to the lowest level in decades while real earnings continued to contract.

• The economy added 175k jobs taking the unemployment rate to 4.5%

• Earnings in three months through May climbed 2%yoy but were down 0.5%yoy in real terms.

• Unemployment Rate (%): 4.5 v 4.6 in 3m through Apr and 4.6 forecast.

• Weekly Earnings ex Bonus (3m %yoy): 2.0 v 1.8 (revised from 1.7) in 3m through Apr and 1.9 forecast.

 

Canada – The Bank of Canada is set to hike rates today by 25bp to 0.75% marking the first increase in almost seven years.

 

Currencies

US$1.1458/eur vs 1.1398/eur yesterday.   Yen 113.40/$ vs 114.37/$.   SAr 13.459/$ vs 13.618/$.   $1.282/gbp vs $1.290/gbp.

0.765/aud vs 0.762/aud.   CNY 6.788/$ vs 6.806/$.

 

Commodity News

Precious metals:

Gold US$1,219/oz vs US$1,210/oz yesterday

   Gold ETFs 59.9moz vs US$59.9moz yesterday

Platinum US$906/oz vs US$896/oz yesterday

Palladium US$856/oz vs US$844/oz yesterday

Silver US$15.85/oz vs US$15.50/oz yesterday

           

Base metals:   

Copper US$ 5,892/t vs US$5,842/t yesterday – The market is expected to post widening deficits amid a shortage of new projects, Codelco Chairman Oscar Landerretche said.

• Copper is forecast to post a small deficit this year with the shortage expanding in 2018 and 2019 and demand being driven by increased usage of EVs, urbanisation in emerging markets such as India and Indonesia and infrastructure programs in the developed world.

• Prices are expected to trend higher to $3/lb ($6,615/t).

Aluminium US$ 1,897/t vs US$1,901/t yesterday

Nickel US$ 9,210/t vs US$9,015/t yesterday

Zinc US$ 2,840/t vs US$2,787/t yesterday

Lead US$ 2,320/t vs US$2,321/t yesterday

Tin US$ 19,875/t vs US$19,845/t yesterday

           

Energy:           

Oil US$48.4/bbl vs US$47.2/bbl yesterday

Natural Gas US$3.026/mmbtu vs US$2.934/mmbtu yesterday

Uranium US$20.75/lb vs US$20.55/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$64.2/t vs US$64.4/t

Chinese steel rebar 25mm US$593.5/t vs US$587.3/t

Thermal coal (1st year forward cif ARA) US$71.2/t vs US$71.9/t yesterday

Premium hard coking coal Aus fob US$157.3/t vs US$155.1/t

 

Other:

Tungsten APT European US$215-222/mtu vs US$212-222/mtu

 

Company News

Kenmare Resources (LON:KMR) 0.75 pence, Mkt Cap £20.9m – Trading update shows higher ilmenite prices and production leading to expected higher margins

• Kenmare Resources report significantly better Q2 and H1 2017 production for the Moma Titanium Minerals Mine in Mozambique.

• Highlights include:

• Ilmenite and zircon prices increased in Q2 2017

• “Kenmare has agreed further price increases for contracted volumes in H2 2017 in comparison to H1 2017, though there has been a recent drop in domestic Chinese spot prices.”

• “Increased pigment production volumes and rising ilmenite prices have led some pigment producers to increase feedstock inventories, to offset further prices increases and ensure supply”.  “This is partially attributable to stockpiles of low quality ilmenite and concentrates entering the market, which are not expected to be a source of long term supply. These factors, in combination with seasonally weaker Chinese pigment demand have resulted in weaker Chinese offtake of ilmenite in recent weeks, as customers take a more cautious approach to buying.”

• Heavy Mineral Concentrate production rose by 8% in Q2 ’17 to 359,200t vs 331,300t yoy

• Ilmenite production increased by 14% to 248,300t vs 217,900t yoy

• Primary zircon production increased by 18% to 12,900t vs 10,900t yoy

• Total shipments of finished products were down 10% to 279,600t, due to normal variations in shipping schedules vs 309,000t

• The company also states “Shipping capacity will be reduced in Q3 2017, as one of the Company’s two transhipment barges is currently undergoing maintenance required every five years to comply with marine classification regulations. The vessel is expected to return to service in Q3, with no impact on shipping volumes for the year.”

Conclusion:   This is good announcement from Kenmare highlighting the expected increase in margins from the rise in production and prices.  Shipment issues will hold back sales and margins in H1 but Kenmare should catch up in H2 to make this a much better half assuming ilmenite demand and prices don’t collapse in the meantime.

*An SP Angel analyst has previously visited Kenmare’s mineral sands mining operations at Moma in Mozambique

 

Tethyan Resources* (LON:TETH) 3.25p, Mkt £5.5m – TSX listing update

• Further to the announcement of 19 May 2017 relating to its application for a secondary listing  on the TSX Venture Exchange (“TSXV”), Tethyan Resources PLC ("Tethyan" or the "Company") is pleased to announce that it has filed and received a receipt for a preliminary non-offering prospectus dated July 5, 2017 (“Preliminary Prospectus”) with the British Columbia Securities Commission (“BCSC”).

• The Preliminary Prospectus contains important information relating to the Company and its currently issued securities and is subject to amendment as may be required by the BCSC.  Copies of the Preliminary Prospectus are available on SEDAR at www.sedar.com under the Company’s SEDAR profile.

• The Company has also filed its initial listing application with the TSX-V and has reserved the trading symbol “TETH” for its ordinary shares. The listing is subject to the review and acceptance of the final prospectus by the BCSC and the Company meeting the initial listing requirements of the TSX-V.  A further announcement will be made as appropriate in due course..

*SP Angel act as Nomad and broker to Tethyan Resources

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