Going back to the old structure…


Diamonds and precious stones

Still rather quiet but US retail really doesn’t feel too strong right now. Comments relating to buyers pushing prices lower are very much in line with the typical cycles for this time of the year with both the Belgian and Israeli bourses shut.

It is worth noting that blue diamond’s still dominate the coloured diamond market, performance-wise. Prices are up 5.5% year on year, whilst other colours are generally flat, pink diamonds fell 0.4% and yellows fell 2.5%. 

Finally, solid journalism from the team at Reuters this week, breaking the news that the amiable Patrick Evans will be heading up Dominion Diamonds after the takeover by Washington Companies $1.2bn takeover completes.

Precious metals

Looking through the obvious headlines right now, today’s inflation data may indicate a tick up in July. Put into context, actual numbers have missed for the last four months in a row and any solid improvement may see a slight undercurrent of uncertainty for the yellow metal, similar to what we saw last Friday with the decent jobs data trimming >1% off the benchmark. 

To be fair, the probability of another raise in 2017 is just 33%, from over 40% last week.

Given the wider market perception, should gold be higher?

Base metals

Interestingly a couple of things caught my eye this week. Firstly Glencore getting excited about the electric revolution (for many of us the Sinclair C5 was the true pioneer, not the Hollywood favourite the Prius) anyway, the commentary around bringing its idled zinc capacity back on line. Even at 500ktpa in a c13Mtpa market is not insignificant, but given the demand growth and the claim to manage carefully, there should not be too much downward pressure on prices in the short term, in other words, looking good for >$3,000/t.

In the copper market, IndustriALL Global Union, that represents labour unions worldwide (I bet they are fun to be around, sorry brothers), urged and PT Smelting to reinstate the thousands of fired workers and called for talks to resolve a strike at the massive Grasberg copper mine (the former #1 producing copper mine). Given the Chinese ban on importing scrap metals from 1st Jan and limited real world demand growth, upside for the red metal may be limited and some profit taking should be expected.

Bulk commodities

Whilst many were enjoying the higher iron ore prices and starting to reconsider the longer term outlook, the Chinese Steel industry Association has come along with a rather large bucket of ice cold water for the bulls. In an unusually frank statement, the association (backed by the government) stated that the recent price surge in iron ore and steel futures wasn’t driven by demand or supply cuts, but a misunderstanding of the impact government policies. Remember the target is to reduce output by up to 50% during the winter months, to fight against pollution.

As to support the commentary, China’s steelmakers churning out a record 73.2 million tons in June, figures for July are due for release on Monday. One assumes another increase could be on the cards here, but with 62% Fe still above $80/t, we expect the second half of the year to be back around the $60/t level.

Technology minerals

I am increasingly interested in ’s updates recently when they discuss the Jadar deposit in Serbia, important as it is one of the world’s largest liffium deposits globally with the potential to supply around 10% of global demand.  Today the company confirmed that it can now produce saleable products and could bring the mine into production by 2023.

Why do I mention, well currently Albermarle, SQM, Tianqi Lithium and FMC control over 80% of global production and bringing the mighty Rio to the party would probably mean its equally illustrious peers are interested too. (Glencore highlighted it wants to increase its exposure and noted it was considering suitable acquisitions). Positive I would say, but let’s see the economics first, the current value of the lithium market is still only about $2.5-$3.0bn…

Company announcements/news/meetings:


Daily company commentary is now covered in our Boom Ore Bust publication (sent by Jamie Campbell, so add him to your contact lists). I will reiterate some of interesting updates or comments that I feel may have been missed/underappreciated.

Naturally, if you wish to discuss any of these names in more detail, do get in touch.


Companies covered this week: RRS, LMI, FDI, GLEN, EVR.   


– Model Updated (LON:RRS, Mkt cap: $6.7bn) – Neutral

Following last week’s Q2 update and results I have updated my Randgold model and recommendation remaining hold and target price 6930p (~2.4% beneath spot). The update, Randgold Resources: Model updated. Good H1 performance, but expensive also includes an updated valuation matrix for investors to input their own gold price and discount rate to determine what RRS is worth under our modelling. A few points worth highlighting however: the company continues to look expensive versus the rest of our gold stocks but that doesn’t come as a surprise, it always has, trading on a P/NAV greater than 1.5x but below the 1.8-2.2x we have seen historically. Dividend wise we forecast $800m of cash at year end and £300m available for distribution. This is almost twice the amount required to fund the consensus $1.70/share final dividend forecast, which in itself would be a 70% uplift on last year and as management have priorities to deliver the “Three in Five” strategy I doubt we will see anything instrumental dividend wise this year beyond what the market is forecasting.


The result s themselves were ahead of our conservative forecasts as the Loulo-Gounkoto operation continues to exceed expectations both on production and costs. We have adjusted our forecasts and now assume PBT of $560.2million (Up 14%) and EPS of $3.45 (Up 9%). The stock continues to trade as the London gold proxy although the correlation has slipped slightly recently but I expect the H1 update may alleviate market concerns resulting in this gap being closed over the coming months.


– Revisions to FY2018 guidance (LON:FDI, Mkt cap: $153m) – Negative


Firestone has provided a revised production target for FY2018 reducing output to 800-850kcts from the company’s previous guidance of 1mcts primarily due to higher volumes of waste rock being processed.  In a strange valedictory way, today’s guidance change is actually an upgrade on our numbers! We always conservatively assume production growth in the early stages of any project and our current FY18 estimates assumed 625kcts, so in effect, today’s update is an upgrade. Given the weakness in the shares and the complete lack of volume and broker support, expect the screen to red although frustratingly very few people will probably care, indicating a potential opportunity longer term.


Glencore Plc – Half year report (LON:GLEN, Mkt cap: $64.6bn) – Neutral/negative

Glencore H1 was released an hour earlier than originally planned this morning. The results as a whole were a bit of a mixed bag;

• 1H adjusted EBITDA $6.74 billion, estimate $6.80 billion

• 1H adjusted EPS 0.17c, estimate 17.8c

• 1H adjusted EBIT $3.80 billion

• 1H net debt $13.87 billion – Down $1.6 billion from the end of 2016 – ND/EBITDA now 1.07x

• Marketing adjusted EBIT up 13% to $1.4 billion, citing improving fundamentals for core commodities

Glencore, in our view, may have misread what many investors are looking for. The company is generating massive amounts of cash – Free cash flow would be >$7billion a year at current spot prices, but the company is clearly now looking for acquisitions again. The bottom of the statement notes under “well positioned for the future”. There, Glencore says that its strengthened balance sheet will give it “headroom for highly selective growth opportunities”.


Clearly looking to satisfy a different group of investors than say Rio are.

That’s enough from me today

Stay strong


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