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Fairfax Marketing Report including VANE Minerals, Horizonte Minerals, Rambler Metals & Mining plus others
Morning View:
Junior miners set to take off on a wave of deals and new money
· Acquisitions / offers – African Iron, Anvil Mining
· New production – Discovery Metals*, Shanta*, Black Angel,
· Production growth – Anglo Asian Mining*, Medusa Mining*
· Cash flow – Goldplat* using cash flow from metal recovery operations to develop new gold projects
· New mine developments – Metals Exploration*, Shanta’s Singida project, Ariana’s Red Rabbit project
· Project financings – Growth in the Euro carry trade should create new funds for project financing
· Project approvals – EMED’s* Rio Tinto mine expected soon
· New project discoveries – Aurum Mining*, North River Resources*
· Feasibility studies – Ampella, Ormonde Mining* (Tungsten), Vital Metals (Tungsten)
· Restructured deals – Q Resources*
The first week of the year usually sees a shaky start on index rebalancing and a post Christmas hangover of short term selling.
* Fairfax acts as Nomad and or broker / advisor for these companies
Worth watching if you are considering bungee jumping at the Livingston Mining conference this year
http://www.bbc.co.uk/news/world-asia-16459489
Economic News:
Europe – German GDP figures released this morning showed that the country grew 3.0% last year, inline with expectations but down from 3.6% in 2010.
· Both Spain and Italy will auction debt later this week amid concerns that their ratings will be cut further.
· Yesterday Fitch Ratings said that Italy has a “significant chance” of a downgrade.
· Fresh concerns are emerging over the Pension threat in Europe. In 2009 state funded pension obligations in 19 out of the European Union nations were about five times higher than gross debt according to a study by the ECB.
· Concerns are mounting that should Spain need to backstop the nation’s indebted regions than it will need to circumvent Spanish law, in a move similar to the EU avoidance of its non bailout rule.
· Regional shortfalls drove Spain’s deficit to 8% of GDP – a breach on the 6% pledge made to the EU.
· The new government is aiming to cut the deficit to 4.4% of GDP this year.
· Yesterday Norwegian 10 year bond yields fell to a 2 decade low – approaching parity with Germany as investors dump euro assets and look to the country with AAA rating and budget surplus.
· ECB – Interest rate announcement tomorrow. Estimates suggest that the rate will be held at 1%.
US – Mitt Romney looks odds on favourite for the Republican nomination with a win in the New Hampshire Primary.
· Reports are emerging that the FED will up the level of support for the country’s mortgage market this year by launching a fresh round of purchases.
China - Stocks fell today as inflationary concerns prompted speculation that interest rates will remain high and monetary policy tight over the next year.
· Inflation figures will be released tomorrow.
· Estimates suggest that consumer prices probably rose 4% in December from a year earlier.
Japan – in contrast Japanese stocks performed well in early trading advancing for a second day on the back of optimism over the recovery in the US and the outlook for Japan’s exporters.
UK – It appears that the race to a referendum on Scottish independence has well and truly started with the nationalists and the unionists clashing over the legality of the date of the vote.
· This morning Sainsbury, the UK’s 3rd largest supermarket, announced that Q3 sales rose more than estimated on the back of promotions and new product launches.
· UK shop price inflation slowed in December to the lowest level in 16 months.
· Retail prices rose 1.7% from a year earlier down from 2% in November.
· Food prices gained an annual 4.2% in December up from 4% in November.
Australia/NZ – Both the Austrian and New Zealand dollars fell today snapping two days of gains.
· Tropical Cyclone Heidi is heading to Australia’s North-western coast and has forced a number of mining companies to halt operations.
Malaysia – Export growth grew at the slowest pace in 4 months in November as sales of electrical goods to the US and Thailand fell. Overseas shipments climbed 8% to US$18bn from a year earlier after gaining a revised 15.4%.
Indonesia – coal shipments likely to fall due to heavy rainfall
Scotland – Scottish Nationalists move towards referendum on separation from the UK (good luck to them!)
Zimbabwe - tax authority accuses Zimplats of underpaying royalties of $28m
Mozambique – Families relocated by Vale in the Tete region of Mozambique protested on yesterday saying the company did not stick to the agreement reached in 2009. The resettlement are in Cateme area is reported to have limited access to water, electricity and agricultural land.
Currency – The euro is up today on the back of the German GDP figure and the fact that it did not come in below estimates.
Commodity News:
Precious:
Gold US$1,643/oz vs US$1,618/oz yesterday – Gold is up this morning despite stronger dollar as investors resume buying amid persistent sovereign debt crisis in Europe.
· China imported a record 102,8t (+19% mom) of gold from Hong Kong in Nov on strong sales ahead of the Lunar New Year.
· Nevsun Resources, gold miner in Eritrea, produced 101koz of gold in Q4 and 379koz in FY2011.
· Holdings in gold backed ETPs climbed for the 2nd day and totalled 2,346t yesterday.
· SPDR gold trust holdings remained at 1,255t (40.336moz) value US$65.997bn.
Platinum US$1,477/oz vs US$1,434/oz yesterday
· NYSE open interest for Platinum futures climbed to an all-time high of 43,855 contracts yesterday exceeding the previous record of 43,810 on Feb 8 ast year.
Palladium US$645/oz vs US$624/oz yesterday
Silver US$30.08/oz vs US$29.16/oz yesterday
Rhodium US$1,315/oz vs US$1,325/oz yesterday
Base metals:
Copper US$ 7,770/t vs US$7,576/t yesterday – Copper is slightly up from its yesterday’s close as market participants await Chinese Dec inflation figures today and results of Italian and Spanish debt auctions tomorrow.
Aluminium US$ 2,164/t vs US$2,126/t yesterday
· Vedanta, Indian biggest producer, forecasts aluminum prices to rise to US$2,300/t, a 6–month high, by the end of Q1 this year on a rebound in demand and a cut in global production.
· Norsk Hydro, the 3rd largest aluminum producer in Europe, will cut capacity 1/3 at its Kurri Kurri smelter in New South Wales, Australia, due to weak market prices.
· A stoppage at 1 of its 3 potlines will cut aluminum production by around 60ktpa.
· Norsk Hydro’s total capacity currently stands at 2.1mtpa.
· Standard Chartered upgraded it s short-term outlook on aluminum to “bullish” on global supply cuts. The bank said current prices are 6% below average production costs.
Nickel US$ 19,645/t vs US$19,175/t yesterday
Zinc US$ 1,924/t vs US$1,895/t yesterday
· South Korea will be bidding for 1.5kt of zinc next week due for delivery by Mar 15, the Public Procurement Service said.
Lead US$ 2,014/t vs US$1,985/t yesterday
Tin US$ 20,350/t vs US$20,100/t yesterday
Energy:
Oil US$113.46/bbl vs US$113.13/bbl last week – Brent crude gains slightly amid news that not all EU members are happy with tougher sanctions on Iran.
· Greece, Spain and Italy are among those that have concerns that any disruption to their supply could add further pressure to their battle for economic recovery.
· China too is unlikely to give any favourable support for U.S. sanctions as it purchases an estimated one-third of Iran’s oil export.
· U.S. Treasury Secretary Timothy Geithner is in Beijing today for talks with China and heads to Japan tomorrow to garner more support to increase pressure on Iran.
· US crude is at US$102.17/bbl on the New York Mercantile exchange with WTI at US$102.28/bbl on the ICE.
Natural Gas US$3.092/mmbtu vs US$3.047/mmbtu last week – EDF Energy plans to cut gas prices by %5 from early February due to milder weather conditions that have been the main cause of falling natural gas prices this winter.
Uranium US$52.80/lbs vs US$53.05/lbs yesterday – Extract Resources Ltd. developer of the Husab Uranium mine in Namibia announced that Namibian Competitions Commission has endorsed the proposed acquisition by China Guangdong Nuclear Power Group Co. for Kalahari minerals Plc.
· Australian regulators have stipulated that Guangdong must offer A$8.65 a share for Extract should the offer for Kalahari complete.
· Extract shares trading at A$8.49
Coal – Vietnam plans to raise coal output to 55-58mt in 2015, in order to meet growing demand for electricity production. Output for 2012 is expected to be around 48.9mt.
· Electricity demand is growing at a rate of 7-10% yoy in Vietnam. There are 12 thermal power plants under construction, expected to be operational by 2015.
· Vietnam has est. coal reserves of at 48.7mt. Plans for 2020 for exploitation of the Red river Delta with est. reserves of 39.4mt, nearly five times larger than the country’s main coal site could cause some issues as it’s densely populated and is a significant rice-producing area.
Other
Rio Tinto and Fortescue Metals halted loading of iron ore at ports of Hedland, Dampier and Cape Lambert as tropical cyclone Heidi moves towards Austrlia’s northwestern coast.
· BHP Billiton is monitoring the cyclone and is prepared to halt operations should the weather start to disturb production.
· Cyclone is assigned a category 1 storm which can be potentially upgrade to a category 2 (on the scale of 1-5), the Astralian Bureau of Meteorlogy said.
LME decision to increase for cross trades to 50p per lot that was planned to take effect from Mar this year may be blocked by members of the exchange.
· Members say that passing on the fees may not be done as readily as the exchange expects.
· It is speculated that a revision in charges was caused by the potential bid for the exchange and shareholders’ wish to increase the price before the sale.
Company news:
Cargill - world’s largest agricultural commodities trader suffers worst quarter in a decade, with an 88% fall in net income
Tiffany – profit warning following a benign Christmas
Rio Tinto and Fortescue metals stop iron ore loading at key ports in Western Australia as cyclone nears.
o These cyclones are hugely convenient for supply disruption into China during annual iron ore price negotiations
o While increasing tonnages of iron ore will be spot priced any restriction to supply
Angle Mining (LON:ANGM) – gold production rises with 518kg gold pour this week
· Angle Mining which is mining the Nalunaq gold mine in Greenland has poured 517.8oz (16.1kg) of gold dore this week.
· Production is set to continue to rise to around 1,500 – 2,000oz of gold dore per month for the next few years.
· Unfortunately the Nalunaq gold mine has a relatively small resource and may finish within the next 2-5 years depending on the results of further exploration. Nalunaq may become a toll treatment facility in time giving it additional economic life.
· Investors should note that gold dore is a rough bar of mixed gold and silver which is sent for further refining. Dore bars are normally largely silver in their content depending on the gold and silver grades being processed.
· The company is also looking to redevelop the Black Angel lead / zinc / silver mine in Greenland.
African Iron (LON:AKI) – Recommended cash over by Exxaro but still room for more
· The company has announced an agreed cash take over for the company.
· The offer is at A$0.51 per share increasing to A$0.57 cash if Exxaro acquires 75% of African Iron Ore shares on a fully diluted basis.
· In addition the company are offering A$0.31 cash (ratcheting up to A$0.37 cash on 75% ownership) for the listed warrants.
· There are 48.9 m listed warrants (AKIOA AU) outstanding with a strike price of A$.20 cents which expire on 1st December 2013.
· The offer is subject to minimum acceptance of 50% and is fully recommended by the board.
· Exxaro has entered into a pre-bid agreement with Cape Lambert Resources, African Iron’s largest shareholder in respect of 19.99% of African Iron’s current shares on issue.
· At A$0.51 cents a share, the bid is valued at A$302m and at the increased offer of A$0.57, $338m – on a fully diluted basis (595.98m shares vs 501.82m undiluted).
· The offer is open to acceptances until 14th February 2012.
· Exxaro will fund the takeover with cash reserves and existing debt facilities and has already obtained necessary South African regulatory approvals for the deal.
Conclusion: Exxaro have managed this takeover well securing the Cape Lambert agreement ahead of the bid which comfortably get them over the 50% mark. To achieve 75%, they could require all or part of the Equatorial holding last recorded at 19.9% on an undiluted basis.
The bid for Exxaro leaves value for the bidder although African Iron’s project still needs licensing and funding to get into production.
Equatorial Resources (ASX:EQX)
o Equatorial’s stake would be worth – A$50.9m to A$56.9m (assuming 19.9% of the undiluted shares of 501.8m) at the 51-57 cents.
o This would give Equatorial a profit of around A$20.97-A$26.96m based on an average acquisition price of 30 cents for their stake announced in June 2011.
o Equatorial has the option to cash in and use the funds on their own nearby project or cash in part of their stake and retain some optionality on the proven high quality DSO project at African Iron’s Mayoko project.
o Either way the company are well positioned as they have nearly doubled their investment.
o The bid for African Iron also underlines the value of projects in this region and around their site. The key is having a DSO resource within easy access of a suitable rail line to the coast.
o Equatorial does not yet have a resource but does have double the strike of African Iron right next door and early drill results from their Mayoko-Moussondji project are encouraging – intersections from first 5 holes showed potential for DSO at 60% Fe.
o The company are targeting a resource of 50-100 Mt by June 2012. With the potential cash and an upcoming resource, Equatorial is in our view a buy.
o The takeover for African Iron underscores that it is that DSO which matters – an oxide cap to get early and significant cash flows puts iron ore projects into a totally different context making it much more viable for iron ore juniors even if the overall tonnages are small. African Iron benefitted from having DSO and being close to the coast.
o Target valuation assumptions: value of around $2.50/t for DSO and a resource of around 100mt to give $250m + $80 cash and cash equivalents. This assumes no additional value for Equitorial’s northern permits.
Conclusion: Equatorial looks like a good takeover option with either Exxaro or some other player coming into take up the DSO potential of this near term project. Our approximate valuation shows significant potential upside for investors.
* A Fairfax analyst recently visited the Equatorial and Zanaga iron ore projects in the Republic of the Congo
West African Minerals (LON:WAFM) – Early stage iron ore (DSO, haematite) potential
o We continue to recommend a selective approach to the iron ore junior space.
o We recommend investors target companies which are pursuing projects with DSO (haematite) production potential rather than large scale magnetite projects.
o In this context we recommend that investors might consider West African Minerals as a speculative but extremely interesting iron ore play
o The company is at a very early stage of its exploration programme but is following a very targeted strategy of finding tenements where there is DSO (haematite) potential.
o The team have already identified six permits in the Cameroon DSO with potential from aeromagnetic geophysical surveys
o Two of the key licenses are located near the Cameroon coast and discovery here could enable relatively easy transportation potential.
o The company also hold five exploration licences in Sierra Leone. These projects are around six months ahead in its exploration programme.
o The company is backed by some highly successful and regarded mining entrepreneurs, Jim Mellon, Stephen Dattels and Brad Mills.
o While at an early stage we like the management strategy and the targeted approach to look for DSO material with near term production potential.
* Fairfax analysts hold shares in West African Minerals following its transformation from Emerging Metals Limited
Kasbah Resources (ASX:KAS) – Ongoing drilling shows good results from Achmmach tin project in Morocco
· Kasbah Resources has reported good drilling results from Achmmach in Morocco
· Best results show:
o 38m @ 1.63% tin from 287m
o 43m @ 2.01% tin from 380m
· Kasbah continue to impress with good tin grades from the Achmmach. The company are backed by the IFC and some other key investors.
· Kasbah has one of very few new tin discoveries and gives unusual exposure to this important industrial metal
Mining this week:
Alcoa (NYSE:AA) – 4Q 2011 in line with previously downgraded expectations
African Iron (ASX:AKI) – Trading Halted Based on Pending Major Transaction
Equatorial Resources (ASX:EQX)
Horizonte Minerals (LON:HZM) – Araguaia Nickel project resources rises to >100mt
Vane Minerals (LON:VML) – Withdrawal of Federal Uranium Lands in Northern Arizona
Copper Development Corporation (LON:CDC) – Basay Drilling Update
CDC hold 70% of the Basay project
Paragon Diamonds (LON:PRG) – Further Results from micro-diamond sample at Motete-Dyke Licence (Lesotho, Southern Africa)
Rambler Metals and Mining (LON:RMM) – Signs Off-Take Agreement with Transamine for Copper in Concentrate from Ming Mine
Rio Tinto (LON:RIO) – Offer for Hathor Exploration Has 93.76% take up
