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Breakaway Mining Research Daily and Weekly Report Summaries 10th - 17th February 2017

02/3/2017

Breakaway Research recently launched a new paid subscription product in February - The Breakaway Mining Research Daily and Weekly Reports

We have summarised the daily market commentary from the Breakaway Mining Research Daily Reports from 10th February to the 17th February. 

If you would like more up to date commentary, including a more extensive Economic Outlook of the past week, along with our Breakaway Mining Research sample Low Risk and Speculative Portfolios, as well as our Watchlist, you will need to subscribe.

 

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Subscribe by emailing Rachel Szabo - Manager Client services on rachel.szabo@breakawayinvestmentgroup.com or click on the link here>> to be taken to our Breakaway Mining Research subscription page.

 

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Friday, 17th February 2017

Markets:  The overseas markets were deemed to take a ‘breather’ yesterday and remained relatively flat.

Commodities:  Base metals sold off apart for nickel, and precious metals rose. Escondida workers and operators are in mediation. At the Graberg copper mine in Indonesia, Reuters reports that thousands of workers plan to demonstrate to demand that the government “make a wise decision,” as the operations are fully shuttered at the site. This part of the Indonesian Government’s pressure on the company to change its mining agreement.

Whitehaven Coal Half Yearly:  The result was broadly in line expectations, unit costs FOB costs at A$56/t were flat FY17 production guidance was maintained in the range of 21Mt to 22Mt (100%). The results included an interesting comparison of the efficiency of two power stations as follows:

Waigaoqiao No3 power station in China began operating in 2008 utilising USC boiler technology.

  • Two 1000MW units producing 2000MW operating at 46.5% efficiency producing 1.5Mtpa CO2, employing 265 people

Yallourn Power station in Victoria uses sub-critical boiler technology and commenced operations in 1974

  • Four units producing 1480MW operating at 28% efficiency and producing 2.0Mtpa CO2, employing 500 people. Highlighting there is significant opportunity to reduce coal consumption with technology.

Thursday, 16th February 2017

Markets:  DJIA and other indices higher overnight. Of concern is the AUS moving higher against the USD while the USD itself is moving higher against other currencies.

Commodities:  There has been interesting analysis this week by a number of analysts on the impact of US shale oil production with some analyst arguing that Shale oil output in the US may grow sequentially by 600 thousand b/d from 4Q16 to 4Q17 on increased activity in oil rigs and fast productivity gains. Importantly, the estimated breakeven costs for key major US players is now around the $55/bbl.  We believe this places a cap on oil prices and we are unlikely to see significantly higher oil prices for many years. It also places a floor price to some extent and we believe that there is a greater acceptance by OPEC that this will be the state of play going forward and it is resigned to this rather than attempting to push the oil price down to limit the economics of oil shale production.

 

Wednesday, 15th February 2017

Markets:  The DJIA was up strongly and other broad world indices  were positive. Federal Reserve Chair Janet Yellen said in her semi-annual report that more interest-rate increases will be appropriate if the U.S. economy meets the central bank’s outlook of gradually rising inflation and lightening labour  markets. The implications are that if Trump is successful in boostng U.S. growth, rate rises could be earlier.

Commodities:  Base metals sold off led by copper as news that the striking labour union at Escondida has agreed to enter government for media on with the mine operator.  While this is only ‘talking’ it does highlight the enthusiasm that the market has for investing in commodities on the back of any supply concerns.

Breakaway Mining Weekly:  Out today.

 

Tuesday, 14th February 2017

Daily:  DJIA up 0.7% overnight but the Australian resource sector performed strongly yesterday.

Commodities:  Iron ore was the star performer closing up 6% overnight and being driven by views on the underlying strength in the Chinese economy following last week’s Chinese trade data.

Results:  Yesterday NCM reported 1H FY17 underlying profit of $273mon revenue of $1,807m, in line with expectations. Dividend declared at 7.5cps. Main news is the Cadia expansion decision is expected in March and the company is building cash reserves which are not targeted for M&A but internal growth options.

 

Monday, 13th February 2017   

Daily Markets:  The DJIA (and other indices) increase to new highs on Friday with an increase in oil prices supporting energy shares while investors continued a renewed optimism over President Trump's economic agenda. Meanwhile the Australian market (S&P/ASX200) fell on Friday erasing all gains for 2017

Resources Sector:  On Friday there was a strong performance in resource stocks on the back of the earlier Rio Tinto result followed by higher than expected trade data out of China. China’s Customs Bureau reported that the value of exports grew by 7.9% in US-denominated terms from a year earlier, easily beating economist forecasts for an increase of 3.3%. It was the fastest year-on-year percentage increase since March 2016. Demonstrating that firm demand, volumes of iron ore and crude oil hit the second and third-highest levels on record in January.

 

Friday, 10th February 2017

Overnight Commentary

Markets:  US stocks hit record highs, helped by corporate results while US dollar rose across the board, posting its best one-day gain against the yen in three weeks. This was driven by comments from President Donald Trump that he would make a major announcement on a "phenomenal" tax plan in the next few weeks.

Commodities:  Commodity prices were generally down reflecting the strength in the US dollar. Reuters report that the labour strike was reported to have begun on Thursday, with Reuters reporting that transport buses contracted to take the night shift to the mine site were arriving empty. The last two significant strikes at Escondida in 2011 and 2006, lasted 14 and 25 days respectively.

Resources:  Credit Suisse reported view is that equities have not priced in current commodity prices. In particular, with uncertainty around economic policy direction in both the US and China, it is no wonder mining investors are nervous. However the investment bank believes that the risk to mining sector earnings is to the upside.


 


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