Only registred members can create thier own customized alerts.
Fairfax Market Report including Stellar Diamonds, African Minerals,Ampella Mining and others
Morning View
Mining - Investors prepare for the Indaba conference next week in Cape Town
Site visits, conference speeches, meetings and corporate jollies are on offer to help Africa’s mining sector prepare for another year of new discoveries, new mines and political bombshells
European banks to ask for double the funding from the ECB
• This shows that the scale of the European financial problem is far from defined
• German unemployment rate fell
Economic News
Europe – Reports are emerging that EU banks are preparing to ask the ECB for up to twice as much cash as supplied in December as the liquidity squeeze intensifies.
• The FT is reporting that several banks have indicated they could double or triple their request for funds in the ECB’s 3 year money window at the end of next month.
• €230 of bank bonds are due for repayment in Q1.
• So what was achieved yesterday by European leaders?
• 25 of the European Union’s 27 nations signed up to the German lead treaty of tougher fiscal rules.
• The Czech Republic announced that it would join Britain on the sidelines.
• Beyond that, it appears very little was achieved – Reports continue to emerge that European governments are moving towards a confrontation over the new rescue package for Greece.
• The Germans continue to act surprised that the Greeks are failing to implement all the required cuts.
• New estimates suggest that Greece will now struggle to meet its targets for assets sales even by the new deadline of 2017.
• Greece had previously agreed to sell €50bn of real estate and other assets by 2015
• Sarkozy appears to have focused on his up coming election, for the first time in awhile breaking from a union of statements with Germany.
• The French election is becoming increasingly important. Should France choose a new President, then the Euro crisis will take on a whole new dynamic.
• Portugal now appears to be teetering on the edge – again. Fears that a second bailout cold be on the cards in the latter stages of this year sent yields soaring yesterday.
• Earlier in the month S&P downgraded Portugal to junk status.
Europe today – Germany unemployment figures released today show on a seasonally adjusted basis; the unemployment rate fell to 6.7% beating estimates of 6.8%.
• Unemployment declined by 34,000 jobs in January.
• German retail sales unexpectedly declined in December as consumer confidence continued to be impacted by economic uncertainty.
• Sales adjusted for inflation and seasonal swings declined 1.4% from November.
• Similarly in France consumer spending decreased more than estimated in December, falling 0.7%.
Japan – Japanese stocks rose this morning on optimism – maybe misplaced? – that Europe will be able to handle the current crisis. That having been said, the yen continued to strengthen.
• The appreciation of the yen continues to be a problem for the country’s exporters and they will not have been helped by the Federal Reserve’s pledge to keep US rates near Zero.
• Figures released today show that Japan’s industrial production rose more than forecast in December as automakers rebounded after the devastating flooding in Thailand.
• Japan’s factory output rose 4% in December from November.
• Industrial output for October to December though declined 0.4%
• For the full year output fell 3.5%
• Japan’s unemployment rate unexpectedly rose last month, mainly on the strong yen and the pressure on manufacturers. The jobless rate was 4.6% in December above forecasts of 4.5%.
• Vehicle production figures show that in December production increased 13.4% yoy.
China – Domestic stocks were up this morning.
• In an effort to ease liquidity conditions, it has emerged that the People’s Bank of China injected 477bn yuan in to the system in the first 3 weeks of the month. Credit conditions are obviously tight in the country.
• On the back of the news the repo rate is set to drop by the most in a year.
• Officials reiterated that property curbs are here to stay today in an effort to bring down prices to a sustainable level.
UK – The GFK consumer confidence index indicates, somewhat surprisingly, that UK consumer confidence rose to the highest level in seven months in January on the back of slowing inflation.
• The index of sentiment rose 4 points from December to -29.
US – Forecasts ahead of a report due for release later today show that home prices in 20 US cities probably fell at a slower pace in the year to November suggesting a limited improvement in the residential real estate market.
• Chicago PMI figures will be released later today. Forecasts indicated an increase to 63 from 62.2 in December.
• Additionally consumer confidence figures will be released at 15.00.
• Forecasts are that confidence increased to 68 in January from 64.5 in December.
Australia – Business confidence rose in December to the highest level in 7 months on the back of falling interest rates.
• The confidence index was 3 last month from 2 in November.
Singapore – The country’s unemployment rate held near a 3 year low last quarter after companies in the services and construction industries added jobs in 2011.
• The seasonally adjusted unemployment rate was 2% in Q4.
Zimbabwe - Zimbabwean Youth Development, Indigenisation and Economic Empowerment Minister Saviour Kasukuwere has announced that the Government will not pay anything for companies that it would seize for not complying with the country’s indigenisation programme.
• Speaking Gwanda last week she stated: "Because the mineral deposits in this country are 100% ours, the government will not pay anything to mining companies we take over under the indigenisation policy. These deposits are our natural heritage, yet these mining companies have been benefitting from them for years without developing the communities they operate in.
• In terms of the Indigenisation and Economic Empowerment Act, all foreign-owned companies with an asset value of $500 000 and above are required to surrender 51% of their shares to locals by May 2015.
Russia – Yesterday Putin set out an economic plan for Russia based on state capitalism and a strong paternalistic government.
• Writing in a local paper, Putin stated “we need a new economy with competitive industries and infrastructure with a developed service sector, in short an economy that harnesses modern technology”
Iran – International traders will stop sales of Russian metals to Iran as part of international sanctions over the nation’s nuclear program.
Currency – The dollar is off this morning, as the risk aversion declines on the positive signs from Germany improve demand.
US$1.3167/eur vs 1.3154/eur yesterday. Yen 76.31/$ vs 76.69/$. SAr 7.823/$ vs 7.836/$. $1.573/gbp vs 1.568/gbp
Commodity News
Precious:
Gold US$1,742/oz vs US$1,728/oz yesterday – Gold is up this morning and trading at the highest level since Dec 2 last year on stronger investment and physical demand.
• Gold is heading for an 11% increase this month.
• Venezuela repatriated last gold bars held in reserves abroad. In total the country shipped back 160t of gold, less than had been previously planned. Central bank said 51t of gold will be held in reserves outside Venezuala.
• As of Aug 2010, Venezuela held 211t of its 365t of gold reserves in US, European and Canadian banks.
• Kingsgate, a gold miner with operations in Thailand, South Australia and Chile, has today announced its Dec quarter production results. Gold production in the three months to Dec surged by 62% to 53,320oz from the previous quarter.
• Chatree operations in Thailand registered a 80% quarter on quarter increase to 26,035oz due to a commissioning of an additional plant that doubled ore processing capacity to 5mtpa.
• Challenger operation in South Australia gained 47% quarter on quarter to 27,285oz due to better head grade and smoother run production.
• Pan Afrfican Resources and Wits Gold will acquire the Evander gold mine, South Africa, operated by Harmony for R1.7bn.
• CEOs of Pan African and Wits Gold both worked previously at Evander.
• The Evander operations consist of the Evander 8 producing mine, the Rolspruit, Poplar, Evander South and Libra development projects and the Kinross metallurgical processing plant.
• Total resource currently stands at 32.5moz of contained gold at 6.88g/t and a reserve of 7.6moz from at 8.02g/t.
• Evander 8 has a 10 year life of mine and produces between 85-95koz per annum.
• Companies say there is a potential to expand production at the under-developed Evander to more than 100koz.
• Evander requires a significant capex to take Evander through exploration and development programme which does not match the current Harmony business plans, the company said.
• The proceeds of the sale will be used to fund Harmony’ Wafi-Golpu project in PNG.
• Polyus Gold international, a gold producer partly owned by a runner up for presidential elections in Russia, Mikhail Prokhorov, plans to produce 1.5moz of gold in 2012 despite a sale of its Kazakh assets.
• Holdings in gold backed ETPs were little changed at 2,371.25t yesterday.
• SPDR gold trust holdings remained at 1.271t (40.867moz) value US$70.634bn.
Platinum US$1,624/oz vs US$1,604/oz yesterday
Palladium US$693/oz vs US$681/oz yesterday
Silver US$33.73/oz vs US$33.33/oz yesterday
• Silver is heading to record a 22% gain in price in Jan.
• Total ETP holdings increased by 196t in Jan, raising the total to 17,492t valued at US$18.8bn, around 7% less than the record reached in Apr.
Rhodium US$1,375/oz vs US$1,375/oz yesterday
Base metals:
Copper US$ 8,465/t vs US$8,401/t yesterday – Copper prices climbed this morning on weaker dollar.
• Codelco, the largest copper producer, may seek a court order to freeze Anglo American profits regarding its Sur division in Chile.
• First Quantum raised US$1bn through 5-year term and revolving facilities with banks to increase production at its Kansashi copper mine in Zambia. Output is expected to rise from 231ktpa recorded in 2010 to 400ktpa by the end of 2014.
Aluminium US$ 2,292/t vs US$2,232/t yesterday
Nickel US$ 21,325/t vs US$21,420/t yesterday
• Vale halted operations at all its mines in Sudbury, Canada, after a miner was killed by a falling rock at the Coleman mine.
Zinc US$ 2,125/t vs US$2,107/t yesterday
Lead US$ 2,274/t vs US$2,256/t yesterday
Tin US$ 24,050/t vs US$24,100/t yesterday
Energy:
Oil US$111.37/bbl vs US$111.78/bbl yesterday – Brent regains after falling off late yesterday afternoon as Japan’s industrial output grew more than analysts forecast driving a bullish oil market.
• U.S. crude futures decline this morning at $99.33 on the New York Mercantile exchange and WTI the same at $99.51 on the London-based ICE futures exchange.
Natural Gas US$2.651/mmbtu vs US$2.82/mmbtu yesterday – Henry Hub was at $2.713
• Progress on a Turkmenistan- Afghanistan- Pakistan- India (TAPI) interconnector is being made as India and Pakistan agreed a uniform transit fee in a meeting in New Delhi last week.
• The Indian government has said support from Russian and U.S. investors as well as some sort of security guarantees would help speed up the process of building the pipeline set to run from Turkmenistan’s South Yoloten gas reserve, through Heart to Kandahar.
• The biggest issue is that there is yet to be any financing of the project set to be c. $7.6bn and of course attacks from insurgents need to be quelled. Both Kabul and Islamabad have promised to address those concerns.
• Turkmenistan is pushing to finalise the TAPI agreements by December 2012 to complete the project by 2014, but a more likely 2016.
• Centrica, the British utility company acquired a further 15.17% stake in ConocoPhillip’s North Sea Statfjord field for £142m ($223) taking its total stake to 34.30%
• Uranium US$53.45/lbs vs US$53.45/lbs yesterday – Spot prices for uranium have dropped 1% to $52/lb from UX consulting.
Coal – India has urged Indonesia for bilateral talks over its tariff and non-tariff restrictions on coal exports.
• The restrictions are threatening the feasibility of a number of Indian power projects. Any talks are likely to be taken at Prime Minister level.
• Indonesia’s trade ministry reports coal exports fell 3.9% in December from November to 28.4mt
• South Africa makes plans to impose measures that would cut electricity use in order to help power utility company Eskom Holding SOC Ltd. avoid a repeat of 2008 blackouts
Other:
Shipping – Sanctions on Iran will put pressure on shipping companies because they are insured under rules governed by European law.
• International Group of Protection & Indemnity clubs secretary and executive officer told Bloomberg that “any EU-regulated insurer will not be able to provide insurance to cover any ships engaged in the carriage of Iranian oil and petrochemicals to the EU and elsewhere”.
• The EU sanctions apply to its 27 member states but the impact on insuring ships will curb global trade, Bloomberg said.
Rare Earths – China’s appeal was rejected by World Trade Organization (WTO) ruling that found export restrictions of nine raw materials, which included bauxite, coke, magnesium, manganese and zinc; were giving an unfair advantage to protect domestic manufacturers.
• No progress has yet been made on China’s ability to monopolize rare earths supply, crucial in many modern high-tech products
Company News
Ampella Mining* (ASX:AMP) – Quarterly report highlights scope for future resources
http://www.ampella.com.au
http://www.ampella.com.au/public/documents/4/2/120131-1%20Dec%202011%20Quarterly%20Report%20FINAL.pdf
• Ampella have released their quarterly report to end December.
• The report highlights potential for the Konkera project resource to increase to increase beyond the current 3.1moz gold resource.
• Konkera resource mineralisation extends over a lengthy 4.9km strike with a large 14mt high grade section at 2.9g/t. This gives 1.3moz at a 2g/t cut off grade which should realise good money in any gold miners book.
• Doubema: another gold project just 14km from Konkera in Burkina Faso. High grades shown below highlight the potential of this project and could lead to a second gold mine for Ampella along the shear zone.
o 12m at 16.1 g/t gold including 4m at 45.8 g/t gold from 80m
o 9m at 11.9 g/t gold including 5m at 20.2 g/t gold from 52m
o 9m at 4.7 g/t gold from 44m
o 13m at 2.1 g/t gold including 2m at 11.5 g/t gold from 15m.
Conclusion: We refer investors to the quarterly report for a full rundown of the Q4 ’11 activities and continue to recommend the stock.
*Fairfax has acted for Ampella Mining in their last three placings
African Minerals (LON:AMI) - New Convertible Loan and Refinancing Package
• Convertible Bond: The company has announced the launch on a $350m convertible bond offer due 2017 with a semi-annual coupon of 8.5%.
• The conversion price has been set at US$10.98 (£7.00) which represents are 35% premium to the current share price.
• The bonds are callable at 110% 36 months after the issue date.
• Potential dilution from the convertible is 8.3% with the issue of 27 million new shares.
• The company may increase the offer by US$50m.
• The proceeds are to be used to accelerate the expansion capital into H1 2012 to achieve a production target of 20 mtpa by the end of 2012.
• The funding requirement to achieve this is US$300m.
• Refinancing Package with Standard Bank: The company has refinanced an existing secured loan facility of $417.7m with a new refinancing package of $518m with Standard Bank.
• Terms of the financing have not been announced but the company state that the financing is on improved terms and takes away a restrictive financing facility that was in place.
• Shandong Iron and Steel (SISL) The deal with SISL has not completed yet although the company state that they are confident that this will conclude.
• Blast furnace testing of the 40,000t trial shipment is ongoing and the receipt of Chinese regulatory approvals is awaited.
• During 2011 the Tonkolli Mine produced 1.3 Mt of saleable ore however in Q4 only exported 0.2 Mt due to delay in commissioning of the stacker at Pepel Port.
Conclusion: Given the company’s tight cash flow position we view this announcement of a $300m convertible bond financing and the refinancing of the secured loan facility as good news for the company. The terms of the convertible are not cheap at 8.5% although conversion premium at 35% has been set at a level not to be too dilutive. The timing also reflects the protracted process of receiving final approval of the SISL deal –part of the funds from the transaction would have been used to pay down the restrictive loan facility. The proceeds from the convertible bond are being used to accelerate the expansion to 20 mtpa – this puts them ahead in the race to get tonnage to market.
Coal of Africa (LON:CZA) – Quarter end Report for Dec 2011
• Extraction at Vele Colliery commenced on 20 Dec 2011 following the previously announced lifting of the suspension on the Integrated Water Use Licence.
• The remaining construction of the mine, plant and infrastructure was completed by the end of the quarter enabling mining to start.
• The mine produced 118,000 m3 of overburden and 3,200 ROM tonnes of coal – hot commissioning scheduled for Jan 2012.
• At the other collieries the company produced 1,083,396 tonnes of ROM tonnes and 531,506 tonnes of export quality coal from Woestalleen and Mooiplaats.
• The company has resumed sales of export coal which increased by 87.7% to 520,812 tonnes in December from the September quarter.
• The company raised $106m from a share placing and secured a new working capital facility of US$40m from JP Morgan Chase.
• Total cash balances at the end of the quarter stood at US$101.2m.
• The company has sufficient capital to complete the construction at the Vele Colliery and funding for phase one of the acquisition and exploration of their other projects at Chapudi and Soutpansberg.
Conclusion: The lifting of the suspension on the Water Use Licence at Vele was an important step for the company. They are now in a position to resume normal activities and advance their construction at the colliery with funds to advance other projects.
Impala Platinum (IMP)– new ceo Terence Goodlace appointed to take over from David Brown
• Terence Goodlace ex Metorex, has a tough job ahead of him. The Platinum industry is facing unprecedented crisis.
• Deepening mines, new health and safety regulations, demands for higher wages and stoppages and other inflationary issues make running a Platinum mine one of the toughest and most unenviable jobs in the industry.
• Add to this problems with running a mine in Zimbabwe's random political environment and you have a job that makes solving the Middle East crisis look like a piece of cake.
• We can only wish Goodlace the best of luck and wonder how long he might last
Stellar Diamonds (LON:STEL) – Interim Results to 31 Dec 2011
• As previously announced resource drilling has been completed at Droujba kimberlite and bulk sampling is underway to obtain diamond grade and value.
• Resource drilling and bulk sampling also completed at Tongo Dyke 1 in Sierra Leone with diamond grade of 121 cpht and value of $185 per carat.
• Maiden resource statements expected at Droujba and Tongo in Q2 2012 with an investment of $4.2m
• The company had $1m in cash reserves and $0.6m in diamonds in stock for sale.
Sumatra Copper & Gold (ASX:SUM) A$0.14, mkt cap A$25m – Fast track to underground mining Quarterly Update
• Sumatra Copper is an emerging gold and silver producer in Indonesia with a flagship brownfield project Tembang which is targeting production in 2013 and JV exploration project Tandai with Newcrest.
• The Tembang project is a brownfield mine which is a combination of open pit and underground has a projected mine life of 10 years with a resource of 976,000 oz of gold and 12.8 m oz of silver with numerous regional exploration targets.
• During the quarter the company continued development to fast track Stage 1 of underground mining of the Belinau deposit and the small satellite open pits Adit South and Bujang.
• A PFS and revised stage 1 PFS has been submitted to support the environmental permit application.
• A PFS on the Belinau orebody was completed over the quarter and will be used as a base case to look at opportunities to best develop the mine in terms of capital and operating expenses.
• The PFS has looked at a conventional boxcut, decline and level development to access the steeply dipping orebody using open stoping of the vein with backfilling using waste material.
• It is planned to mine both Adit and Bujang open pits in the first four years of the 10 year plan coinciding with Belinau underground mining.
• The company plan to complete preliminary open pit designs for Adit and Bujang next quarter.
• During March 2012 the company intend to follow the submission of the PFS and revised Stage 1 PFS with a completed Environmental Impact Assessment and Env Management Plan.
• They intend to complete the conversion of the current JORC resource into reserve.
• Tandai Exploration: This is a JV with Newcrest where Newcrest is to spend US$12m to earn 70% interest in the project within 5 years.
• Newcrest has met minimum expenditure of US$1.8m so far with Sumatra managing the project.
• The company have a drill programme with a A$4.3 m for 2011/2012.
• A significant new discovery was made at Lusang North prospect over the quarter with three major intersections from 58.5 m to 165.1 metres averaging 2.85 g/t gold and 15.1 g/t silver.
• Regional programme has been successful at generating a prospect area named Ulukau, 10 km southeast of Tandai.
• Over the quarter the company raised A$1.076m through the placing of 6.72m CDIs.
Conclusion: The Fairfax team met with management recently to run through progress at the Tembang and Tandai projects. We think this is an interesting emerging gold and silver company that is worth watching.
