Commodities Week in a Minute: Diamond premiums, gold price forecasts plus ACA, CEY, DCP, FDI, GEM, LOM, PDL & POLY
Date
9/25/2016 4:35:22 AM
(MENAFN- ProactiveInvestors - UK) Kieron Hodgson, Follow !function(d,s,id){var js,fjs=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(js,fjs);}}(document,"script","twitter-wjs"); Fri
Commodities
Diamonds and precious stones
Following on from the more positive notes around the last few sales Alrosa announced that sales during August rose 58% to $243 million. The company maintains a moderately conservative outlook but noted that 'in August 2016, the company observed no seasonal slump in demand for rough diamonds characteristic of this month'.
Elsewhere, after prices rose by an average of 3% at the last DB Sight, premiums have gone even further with some categories reporting double digit gains. The offset of this, and very much in line with our long term thesis, is that smaller, lower quality goods remain on offer with very few buyers.
It will be interesting to see how the demand side holds up once we are the other side of the Diwali rush as inventories seem to be pretty much in balance right now…
Precious metals
In recent weeks Central Banks have been providing their respective views of the world, and how they plan to raise inflation rates to something more than anaemic. We had the Fed giving more mixed signals to the market (hawkish hold, or dovish whatever…certainly nothing to do with the election?).
Better yet, the BoJ confirmed they are just making it up as they go along and the ECB have clearly gone to lunch.
Still, with the upcoming conference season about to commence, the competition for headlines is intensifying. This week's winner has to be Mr McEwen, who admittedly knows a fair bit about mining, but to claim gold will rise to between $1,700oz to $1,900/oz by the end of the year, may be a little far-fetched. Still if his call of $5,000/oz in four years is even half right, that will be a huge opportunity for some producers to actually make a profit…
I think a reduction in the go-go juice might not be a bad idea, in my humble opinion of course…
PS Before you ask, the average price for gold in 2016 is currently $1,258, we are using $1,275.
More seriously, let's hope for something next week. I genuinely fear a downgrade is in the post, either in the form of lower production or higher costs…
Centamin PLC (Hold) Stake sale
News during the week that Van Eck Associates lobbed out around 118m shares has put the shares under a fair bit of pressure, from which they are yet to really return. Likely to remain a bit soggy for a bit, but given they remain good value vs. peers, relative performance should recover in due course.
DiamondCorp, (Under Review from Buy): September sales
'As reported on 20 September, DiamondCorp provided details of the latest Antwerp tender and direct sales in Johannesburg that, whilst possibly lower than many had expected, highlight the volatility of smaller parcel sizes during the ramping up phase of a mining operation. Looking forward, increasing underground tonnages and providing buyers with larger parcel sizes to satisfy the considerable interest in Lace Diamonds, we believe, will provide the key to unlocking the significant value inherent in DiamondCorp's operation'.
I expect further newsflow in due course. Once published, a full valuation review can then be undertaken.
Firestone Diamonds, (Buy): Chairman buying
Mr Genovese, Non – Executive Chairman has acquired a healthy 1 million shares in recent days.
For Lucio to put his hand in his pocket is a rare treat indeed, obviously a good sign…
Gemfields (Buy): Results Monday
Gemfields are set to announce results on Monday. We are looking for around $192m in sales and $60m in EBITDA. It will be interesting to understand the impact of the Metical's effective devaluation in recent weeks, down almost 40% in 2016. Positive for the operations to an extent, but in-country inflation will be a concern going forward.
I remain a big fan of Gemfields, the valuation is starting to burn off a little and I hope to see that continue with another solid set of results.
Lucapa Diamond, (Buy): Another biggie
Recovered the fourth >100ct stone from Lulo this year with an exceptional top-tier 104ct Type IIa.
Link for the image Here
One could imagine that should recoveries continue, then further shareholder distributions cannot be far off. Positive.
Petra Diamonds, (Hold): Starting to settle down after a pretty rough ride
'Petra Diamonds announced FY2016 preliminary results whilst slightly lower than our expectations, maintain plenty of scope for growth, primarily through the 5Mcts production target possibly being attained in FY2018, one year earlier than planned. The failure to meet the covenant for dividend distributions is not a major surprise as we had previously voiced our concerns over the potential for a suspension. However, that said, we believe that the company can return to the dividend list next year. We maintain our Hold recommendation and 120p target price at this time'.
Polymetal International, (N/c): Resource growing.
Last week I had the pleasure of catching up with the team and came away reassured that the long term outlook for Polymetal is as solid as it perhaps ever has been. Poly has one of the highest average reserve grades around and offers a clearly defined production growth profile (Unlike other many peers). This week, the company announced a maiden PGM resource of more than 6 million ounces (plus 220kt of Cu) at its Viksha project in the Republic of Karelia supporting the investment case.
Placing overnight of 26m shares at 975p as Fodina and Staroak reduce their holdings. Likely we will see a little bit of volatility as the shares are absorbed, in what is a relatively thin market vs. peers, but given the long term value growth and notable track record of shareholder returns, POLY could be worth another look.
Company announcements/news/meetings:
Acacia Mining, (Hold): Still no update on Buly…
Company seems to have been on the end of a rather controversial article published today in the Globe and Mail (?!). The company has provided a suitable response.
Since last week, I have been doing a fair bit of research on the mechanics of ball mills, notably trunnion bearings... and it's fair to say I now have a little more appreciation as to how complex the mechanics indeed are, but also it allowed me to discover that Kimberley Engineering works have just achieved their largest casting to date – bearing housings for a 2800kW ball mill.
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