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20 July 2018 07:56 AM
Overseas Market ReportCurrent
Level
PreviousChangeDaily %
Change
Monthly %
Change
Dow Jones Industrial Average25,06425,199-135.00-0.531.65
S&P 5002,8042,816-11.00-0.401.34
NASDAQ7,8257,854-29.00-0.370.56
FTSE 100 Index7,6847,6768.000.100.74
DAX 3012,68612,766-80.00-0.62-0.07
CAC 40 Index5,4175,447-30.00-0.560.83
Nikkei 225 (Japan)22,76522,794-30.00-0.130.93
HKSE28,01128,117-107.00-0.38-5.68
SSE Composite Index2,7732,787-15.00-0.53-4.91
S&P/TSX Composite Index16,54316,47766.000.400.74
NZ 508,9128,918-5.00-0.060.07
US Volatility (Vix)13
Overseas Market Report

US sharemarkets declined on Thursday after President Trump's criticism of the US Federal Reserve and some disappointing earnings results. Shares of eBay fell by 10.1% on investor concerns over its revenue and guidance. American Express (-2.7%) reported rising expenses associated with its rewards program. Shares of Travelers Companies fell by 3.7% on storm-related losses, while Bank of New York Mellon (-5.2%) confirmed client losses will hurt results. IBM shares rose by 3.3% as new business boosted profits. The Dow Jones index fell by 134 points or 0.5%, the S&P 500 index fell by 0.4% and the Nasdaq index fell by 29 points or 0.4%.

Global oil prices were mixed on Thursday. The Brent crude oil price dropped on rising oversupply concerns and US dollar strength. But Saudi Arabia's OPEC Governor Adeeb Al-Aama said that crude oil exports would fall by around 100,000 barrels per day in August to limit excess production. Brent crude fell by US32 cents or 0.4% to US$72.58 a barrel, but the US Nymex rose by US70 cents or 1.0% to US$69.46 a barrel.

Base metal prices were down on the London Metal Exchange(LME) on Thursday. Copper (-1.4%) fell below US$6,000 a tonne during the trading session for the first time in 12 months as the US dollar strengthened and concerns over the impact of tariffs on global growth re-intensified. Tin rose by just 0.1%.

The gold futures price fell by US$3.90 an ounce or 0.3% to $1,224.00 an ounce. The spot gold price was trading near US$1,222 an ounce in late US trade. Iron ore rose by US95 cents or 1.5% to US$64.70 a tonne.

CommoditiesCurrent
Level
PreviousChangeDaily %
Change
Monthly %
Change
Oil Brent72.5872.90-0.32-0.44-3.33
Oil - West Texas crude69.5969.460.130.195.09
Gold Spot $/OZ1,223.001,223.000.500.04-3.50
Silver Spot $/OZ15.3015.300.000.08-5.88
Iron Ore58.0058.30-0.30-0.50-6.59
Thermal Coal Newcastle119.30119.60-0.30-0.253.42
Coking Coal FOB ECP AUS173.50174.60-1.10-0.63-13.60
Aluminium ($US/t)2,0422,054-12.00-0.58-5.99
Copper Mar-18 ($US/lb)2.692.69-6.60-2.40-11.85
Lead ($US/t)2,0972,150-53.00-2.45-12.54
Nickel ($US/t)13,24913,519-270.00-2.00-9.04
Zinc ($US/t)2,5922,631-40.00-1.50-14.58
Tin ($US/t)19,59019,56129.000.15-4.23
Uranium ($US/lb)24.0024.000.001.062.59
Australian Market ReportCurrent
Level
PreviousChangeDaily %
Change
Monthly %
Change
ASX All Ords6,3556,32926.000.411.28
S&P/ASX 2006,2636,24518.000.281.46
ASX 24 Futures6,201
Australian Market Report

Thursday 20 July - close. Australian shares have closed higher on Thursday, with banks and miners leading strength though broader market gains were checked by generally subdued regional markets amid trade war worries. The benchmark S&P/ASX200 index close up 17.6 points, or 0.3 per cent, at 6,262.7 points, while the broader All Ordinaries gained 25.9 points, or 0.41 per cent, to 6,355.0 points.

Ashanti Headlines

Copper continues to provide an opportunity in our view, with MOD Resources (ASX:MOD) a leveraged exposure to an increasingly positive medium term thematic. Below is positive commentary from Citi citing an increase in Cu pricing to $8000/t in 2022 and passing $9000/t by 2028 under its baseline scenario (current price $6125/t), with “copper set to outperform most other commodities under our coverage over the coming decade”. Additionally, while the majors are keen to acquire copper projects, those who own copper projects are not willing sellers. This will increase competition for projects generally and will create a focus on the recently 100% consolidated T3 project within MOD Resources, given robust economics and a world class exploration pipeline in the Kalahari Copper belt. With genuine production potential, MOD is quickly moving towards a decision point on  development of a 28,000 tpa mine. 

MOD Resources production potential 

  • The summary results of the pre-feasibility work, show that at a copper price of $3/lb, the 2.5mtpa base case would produce around 23,000tpa pf copper and 690,000ozpa of silver at a net all-in sustaining cost of US$1.36/lb  over a period of 8.8 years. An estimated  US$155m development cost is expected to generate a pre tax NPV8% of US$281m and an IRR of 39%.
  • An “Expansion Case” treating 4mtpa of ore over 11.7 years would produce around 28,000tpa pf copper and 903,000ozpa of silver at a net all-in sustaining cost of US$1.46/lb. The larger project requires an estimated US$192m development cost to generate a pre tax NPV8% of US$402m and an IRR of 38%.

Citi views on Copper pricing in the medium term

  • Slumping copper prices amid a deepening global trade war conflict market fundamentals which indicate a strong long-term buying opportunity, according to the latest forecasts from Citigroup Inc. The research note calls for average annual prices at $8,000/t in 2022 and passing $9,000/t by 2028 under its baseline scenario.
  • The metal, often viewed as a barometer of world economic health, has spiraled lower from highs six weeks ago as President Donald Trump upends global trade with disputes involving multiple nations, most critically with No. 2 economy China. But, in the longer term, Citigroup said prices have to rise because the metal is getting much more difficult and more expensive to mine.
  • We look beyond the potential trade war to longer-term copper market fundamentals and we find that current prices of $6,200 a ton are nowhere near high enough to enable the market to clear,” the analysts said. “Copper is set to outperform most other commodities under our coverage over the coming decade on a lack of mine supply growth.”
  • A global supply shortage is looming as urbanization and the rise of renewable energy and electric vehicles fuels the world’s need for the metal. Demand can keep growing at an average of 2.7% a year through 2030, with new energy sectors and EVs contributing most of the increase, according to Bloomberg Intelligence. The market is expected to enter a long period of deficits starting this year.
  • Failing wage negotiations at BHP’s Escondida only serve to highlight risks to existing supply levels, as the union rejected the company’s first proposal for a collective contract. Discussions are set to continue as the Union has put forward a new, more flexible set of demands to co., which shows workers’ commitment to reach agreement. Under union’s demands, there are 17 points of interest, including production bonuses, real wage increases, redundancy packages and promotions.
  • Near-term prices could continue on a negative trajectory if a full-blown trade war materialises, before tracking supply-driven pricing.

Major’s who are focused on copper acquisitions

Rio Tinto: Rio is best-positioned to capitalize on potential deals. The company is making more cash then it knows what to do with, has almost no debt and, aside from a simmering dispute in Mongolia, none of the distractions dogging its rivals. Rio agreed to sell its interest in the Grasberg copper and gold mine for $3.5 billion last week, and has pending coal and aluminium sales also set to close this year. Rio approached Anglo and Glencore in 2015 with an offer for their holdings in Collahuasi, which is one of the world’s most profitable copper mines, but was quickly rebuffed by both companies, according to the people familiar with the matter. All three companies declined to comment. Today, Rio is keeping a “watching brief” on potential M&A and would like to add more copper, Chief Executive Officer Jean- Sebastien Jacques said in a Bloomberg TV interview last week. Still, the company’s appetite for big deals is uncertain. The No. 2 miner may prefer working with a partner on any acquisitions and focusing on smaller opportunities. It would also need to sell any deal to skeptical shareholders.

BHP Billiton:BHP is also cash rich and keen for more copper. Yet it’s got more pressing concerns in the form of activist shareholder Elliott Management Corp. and an ongoing sale process for its $10 billion shale business. The biggest miner has also stated that big deals are not its priority, with new Chairman Ken Mackenzie saying earlier this month that the asset portfolio will be close to ideal once the U.S. oil and gas assets have been sold.

Glencore:The world’s most acquisitive miner, Glencore Plc, is currently facing a probe from U.S. authorities that may dampen its ability to pursue big deals. The company will spend up to $1 billion buying back its own shares this year to soothe the fallout from the probe.

Anglo American:Anglo’s response to the lack of opportunities has been to build its own new copper mine, with the company’s board set to approve a new $6 billion project in Peru. While partner Mitshubishi Corp. will help share the burden of funding, the large price tag makes the London-based miner unlikely to makeany big purchases. Anglo’s own copper assets might be of interest though. India’s LiveMint reported this month that top shareholder Anil Agarwal is considering a plan to split the miner’s South African assets into a new company, citing unidentified people. Such a deal would leave the rump of the international business dominated by copper and diamonds.


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