KFM Weekly Investment Update: Friday, 08 December 2016

Local Market Summary:

•The Bank of Papua New Guinea (BNPG) raised concerns about the Government’s
2016 budget, including fiscal deficits, national debts and the effects of commodity
prices against its targets in the petroleum and mineral sector. Governor Loi Bakani
stated the Government’s price for forecast of US$60 (K176) per barrel for oil and
US$12 (K35) per mmbtu (million metric British thermal unit) for LNG were on the
high side and that the revenue targets might not be achieved

•BPNG’s Employment Index shows employment in the formal private sector has
increased in Momase region and declined in the Southern, Highlands, New Guinea
Islands. The level of employment in the formal private sector declined by 3.40% in
the third quarter of 2015, compared to an increase of 2.60% in the second quarter.
Over the 12 months to September 2015, the total level of employment declined by
2.60%, while excluding the mineral sector, it declined by 2.80%

•The Independent Consumer and Competition Commission (ICCC) have advised
that fuel prices have dropped. Based on the ICCC’s calculations, the Import Parity
Prices (IPP) for petrol, diesel and kerosene have all decreased again for this
month. Petrol price has decreased by 7 toea per litre to K2.73 from K2.80; Diesel
also went down by 23 toea per litre to K1.98 from K2.21 and Kerosene dropped by
20 toea per litre to K1.91 from K2.11. Commissioner and CEO, Mr Paulus Ain said
there was another decrease in the Singapore refinery prices and a further decrease
in the international shipping rate during that period

•InterOil Corp (IOC) announced the release of their ‘LNG from PNG’ presentation for
the Goldman Sachs Global Energy Conference. Main highlights in the presentation
were the deal with Total SA to acquire interest in Elk-Antelope (PRL15) and
announcement of Total as the operator for Papua LNG and sale of downstream
assets to Puma Energy for U$525m

•PNG Power Chief Executive Officer (CEO) Mr. John Yanis stated earlier in the
week that the company intends to increase the power generating capacity in Port
Moresby and Lae amidst increasing pressures on the grid and the company’s
intention to increase power supply to include mining loads which are currently not
catered for. Mr. Yanis said that the Company had signed power purchasing
agreements with Independent Power Producers (IPP) which will see the
replacement of the existing diesel generators within three years. Moreover, he said
that the alternate sources may alleviate the existing problems as a result of
increasing demand and extreme weather

•Kumul Petroleum Holdings published an announcement early this week to advise
beneficiary groups in the PNG LNG project Umbrella Benefits Sharing Agreement
of their option to acquire 25.75% of Kroton No 2 (Kroton). Kroton is a subsidiary of
the restructured Kumul Petroleum Holdings. The offer is at an agreed fixed price of
US$1.01 billion (K2.97b).

•This week’s BPNG auctions in Central Banks Bills were only offered for 28 days
with an oversubscription of K571.5m out of total of K206.5m on offer. The weighted
average yield was at 1.3%

•This week’s BPNG auctions in Treasury Bills were oversubscribed by K4.5m out of
a total K300.0m on offer. The weighted average yield for 63 days was 2.5%, 91
days was 2.6%, 182 days was 4.7% and 364 days was at 7.6%

•The KSi Index ended the week up by 2.7%, supported by Oil Search (+6.7 %), to
end at 3,508.32 points while the KSi Home Index was down by 1.0%, underpinned
by a fall in share price of Bank of South Pacific (-1.3 %) and Kina Securities Ltd (-
3.8%), to end at 9,501.07 points

International Market Summary:

•The World Bank revealed in their report that global growth for 2015 was 2.40%
which fell short of their expectations of 3.00% growth for the year. The report stated
that the disappointing performance was mainly due to continued deceleration of
economic activity in emerging and developing economies amid weakening
commodity prices, global trade, and capital flows

•The United States stocks have fallen 4.20% in the last five sessions, and there’s
little reason for optimism amidst the international threats and corporate weaknesses
that have prompted accelerate selling

•Japanese stocks tumbled on this week for a fourth day after China’s central bank
weakened the Yuan – sparking a sharp strengthening of the yen and rattling
investors already on edge over geopolitical tensions. The Nikkei share average
tumbled 2.30% to 17,767.34, the lowest closing since October 2015

•European shares fell sharply this week after China accelerated the depreciation of
the Yuan, sending currencies across the region reeling and domestic stock markets

•Chinese Shares fell 7.00% this week after less than half an hour of trading, halting
trade amidst increased selling pressure in line with a slide in the currency which fell
to its lowest level since February 2011 and gloomy prospects for China’s economy.
The People’s Bank of China again surprise markets by setting the official midpoint
rate on the Yuan, also known as the renminbi (RMB), at 6.5646 per dollar, the
lowest since March 2011

•PGK/USD remained at 0.3325 reflecting the continued shortfall in liquidity
experienced throughout the year. PGK/AUD closed the week by 3.3% to 0.4706

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pdfKFM Weekly Investment Update: Friday, 08 January 2016

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