18.08.14 - 10:27 Uhr
[cid:image001.png@01CFBABB.DCAD9D90] Monday, 18 August 2014
¢ Company news highlights: BHP research note on demerger of assets, Petra Diamonds guidance update, Glencore subsidiary Pacorini suing Qindao Port, African Minerals gets cash reprieve and management change, New Crest results include A$2.4bn impairment
¢ Commodity review highlights: Gold prices under pressure, Copper processing fees up 15% since end July, Chinese daily crude steel up at major producers despite tough markets
¢ Other economic news: Chinese new home prices under pressure
¢ African resources update: Transnet budgets ZAR36bn capex, Botswana leaves lending rates unchanged, Todays African proverb
¢ Research note on BHP Billiton (BLT LN). Following BLT announcement on 15 August re "a demerger of a selection of assets" as its preferred option our analyst arrives at a possible value of US$11.2-13.1bn on a PE basis vs. our NPV for the same of $15.2bn (ungeared, before costs at new centre). While we remain cautious on divestments involving such a broad range of commodities at a low point of earnings cycle, the strategy does make sense. However, we struggle to show significant increase in value compared to our existing estimates. The market has been anticipating this restructuring for some time as well as a higher cash distribution to shareholders following capex restraint. We expect updates the upcoming results due 19 August. Source: Investec
¢ Petra Diamonds (PDL LN) guidance update puts FY15 target production of 3.2m carats with targeted output of 5m carats by FY19 on track. Costs are expected to be in line with guidance with revenues to benefit from higher diamond prices although output is likely lower than previous expectations. Capex guidance is up ZAR300m (US$28.3m) up around 19% due to value accretive scope changes at Finsch and Koffiefontein. All capex is expected to be fully funded by cash flows and debt facilities. Source: Company
Investec View: In summary a lot of moving parts, but looks likely to lead to a down grade in nearer term numbers, although the long term value story remains intact.
¢ Glencore (GLEN LN) subsidiary, Pacorini suing Qindao Port for US$58.4m. The port is already being sued by Citic Resources for US$108m with other law suits underway worth some US$900m between banks and traders exposed to the fraud. Source: Thomson Reuters
¢ African Minerals (AMI LN) gets cash reprieve and change of management (again). In a late announcement on Friday, AMI said it had agreed with JV partner, Shandong, to have access to the $284m held at the project level for working capital. As a condition Shandong requested management changes and Alan Watling (previously COO) is taking over as CEO, while the previous CEO has Berni Prior "resigned". FY14E guidance of 16-18mtpa retained, with C1 cash costs in the $34-36/t range (Investec 17mt, $35/t). Source: Company
Investec view: The revolving door that is AMI senior management continues, while there was commentary last week that the board was looking at removing Frank Timis. While details of how the cash will be accessed are uncertain, AMI was in any case owed cash from the project level so this essentially fast-tracks such repayment. The access to working capital should carry it through until the planned operational improvements come through.
¢ Newcrest (NCM AU) full year results outline a loss of A$2.2bn and underlying profit of A$432m. Impairments totalled A$2.4bn and were associated with Lihir, Telfer, Bonikro and Hidden Valley. EBITDA totalled A$1.514m and EBIT of A$821m. Gold production stood at 2.4moz up 14% yoy. All in sustaining cost stood at US$897/oz 24% down yoy. Gearing at 33.8% with A$1.8bn in cash and undrawn facilities. No dividend to be provided for the year. Guidance for the year ahead is for 2.2-2.4moz Au. Source: Company
¢ Gold prices under pressure in response to equity strength despite Ukrainian crisis. Physical demand in China and India has been weak with many consumers anticipating further price weakness. Source: Thomson Reuters
¢ Copper processing fees up 15% since the end of July as Freeport McMoRan (FCX US) resumed shipments of concentrate at its Indonesian mine following 7 month dispute with government. Spot TC/RCs are reported at US$110/t and 11c/lb last week. The mine sells the bulk of its output to Japanese smelters and traders. Concentrate availability is reported to be plentiful enabling spot treatment charges to be lifted. Freeport had stockpiled around 140kt copper in concentrate at Grasberg that can now be sold. Source: Thomson Reuters
¢ Chinese daily crude steel output up 3.6% in first 10 days of August to 1.812mtpd driven by planned production increases by the bigger mills. However, demand is reported to be weak with traders reluctant to buy and some smaller mills cutting output in order to control inventories. Source: Thomson Reuters
Other economic news
¢ Chinese new home prices fell in July for third straight month with prices declines spreading to a record number of cities highlighting a property downturn. Average prices fell 0.9% mom for a third straight month. The fall in prices is adding to concerns over the health of the economy. Source: Thomson Reuters
African resources update
¢ South African rail operator Transnet has budgeted ZAR36bn capex until 2020 to invest in coal export capacity to achieve targeted 97mtpa. The operator wish to increase capacity from the Waterberg coalfields in Limpopo province and upgrade the line to Richards Bay Coal Terminal that is around 950km away. South African coal exports have been capped at around 70mtpa due to rail capacity constraints. Source: MiningMX
¢ Botswana leaves benchmark lending rate unchanged at 7.5% on Friday as it sees inflation as remaining within targets of 3-6%pa. Source: Thomson Reuters
¢ Todays African Proverb. "Todays African Proverb. "A cow gave birth to a fire; she wanted to lick it, but it burned; she wanted to leave it, but she could not because it was her own child". Source: BBC
Investec View: If this one makes much sense to you, please let us know.
Investec Global Natural Resources Research Team:
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Investec Commodity Hedging Team:
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