KFM Weekly Investment Update: Friday, 30 December 2016

Local Market Summary

• Mining resource owners renewed calls to the national government to sign and implement the new Mining Act before the 2017 national elections. Former PNG Prime Minister and the New Ireland Governor Sir Julius Chan made the call in support of Nakuwi Landowners Association president Rex Mauri to have it implemented as early as possible. Sir Julius made an appeal to the mining resource owners to call on Prime Minister Peter O’Neill to rescind his decision to sign the new Mining Act before the national elections

• Twinza Oil confirmed their intent to drill well on Pasca A in mid-2017 to further appraisal of the Pasca gas discovery. This was revealed at the recent PNG Mining and Petroleum Conference in Australia. Pasca A is a rich-gas condensate field located approximately 95km offshore from the Gulf Provincial coastline and nearly 100 metres deep. The Petroleum Prospecting License 328 for Pasca A was awarded in October 2011 and an application for a Petroleum Development Licence was submitted to the Department of Petroleum and Energy on the June 30, 2015. The Pasca A project is a joint venture between Twinza and Eda Oil, a subsidiary of Petromin Holdings

• ExxonMobil this week, revealed a new natural gas discovery in PNG. It has a 42.5% stake in the project while Oil Search and Santos owns the rest. Steve Greenlee, the President of ExxonMobil stated that there is an excitement, in which the results of Muruk-1 exploration well proves the presence of hydrocarbons in the same high-quality sandstone pools similar to Hides field that underpins the PNG LNG project

• Despite 2016 being a challenging year for Ok Tedi, the management and the workers made significant progress in transforming it into a stronger and completive company. MD and CEO, Peter Graham said, 2016 has been a particularly challenging year for Ok Tedi with a restart in March after seven months suspension of operations due to dry weather. The company is again profitable and debt-free and declared a dividend of K150.0m while retaining prudent cash reserves on entering 2017.

• Two landowner groups from Southern Highlands under the PNG LNG project beneficiary signed the agreement this week to partake in the purchase of the Kroton equity. Four of the five governors under the PNG LNG project beneficiary groups also signed an agreement with Kumul Petroleum Holdings to use the vendor financing option to purchase the 4.37% Kroton equity in the project

• Bank Leumi will provide US$37.0m (K120.3m) in financing for the setting up a cow farm and dairy in PNG. Israel’s LR group, controlled by Ami Lustig and Roy Ben Yami, will fund the venture. The financing will be in the form of buyer’s credit, in which the financing bank actually finances the PNG government-owned company receiving services from the LR Group. The financing is backed by a guarantee from the local government and the Israel foreign Trade Risks Insurance Corporation (Ashra) is also insuring the loan

• K92 Mining has reached an agreement with PNG Power for the supply of power to the K92 site in Eastern Highlands. CEO Ian Stalker said the power supply agreement was an important milestone for K92. It locks in an attractive rate, ensures long term stability of supply and eliminates many of the risks associated with future potential increases in the price of oil, he said. This agreement enables K92 to continue the momentum towards reaching state operations at the mine and mill. In addition to being economically superior to diesel generated power

• ANZ Bank (PNG) recorded a Net Income after tax of K171.9m for the financial year ended 30 September 2016, despite the challenging economic conditions that remained throughout the year. The bank’s Loan book stagnated at circa K3.4bn. Capital adequacy ratio reported was 54.3%

• Westpac Bank (PNG) recorded a Net Income after tax of K146.2m for the year ending 30 September 2016. The bank’s Loan book was c.K1.7bn. Capital adequacy ratio reported was 42.4%

• This week’s BPNG auctions in Central Banks Bills were only offered for 28 days with an over-subscription of K254.5m out of a total of K706.0m on offer. The weighted average yield was 1.18%

• This week’s BPNG auctions in Treasury Bills were under-subscribed by K117.0m out of the K336.6m on offer. Weighted average yields were 2.40% for 63 days, 2.61% for 91 days, 182 days and 364 days remained unchanged at 4.72% and 7.77% respectively

• The Kina Securities Index was up 0.8% to close at 4,812.98 points, this was largely attributed to the rise in share price for Oil Search, while the Kina Securities Home Index decreased by 0.1% to K1.88, underpinned by a decreased in share price for Credit Corp

International Market Summary

• Japan’s Nikkei share average was flat on Wednesday morning in thin end-of-year trade, while Toshiba Corp tumbled 20% on continued concerns about posting a big special loss

• The Australian dollar is still down around a seven-month low against the US dollar amid concerns over Chinese growth, but its slowly making a comeback

• The US dollar rose on Wednesday on expectations for stronger US economic growth, while stocks fell broadly as home resales dropped sharply. On Wall Street, shares fell across the board with the S&P 500 posting its largest daily drop since Oct. 11

• Imports of crude oil by Iran’s four major buyers in Asia in November more than doubled for a second straight month from a year ago, with purchases by India and South Korea more than four times higher

• PGK/USD remained unchanged for the week to close at 0.3150 whilst PGK/AUD drop by 0.8% for the week to end at 0.4354 which was largely attributed to AUD appreciate against USD.

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pdfKFM Weekly Investment Update: Friday, 30 December 2016

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