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Today's Market View Including London Mining, North River Resources, Stratmin Global Resources and Kenmare Resources

Published: 12:17 12 Dec 2013 GMT

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M&A activity picking up for Miners – we expect this to be a busy Christmas for M&A experts as cash rich miners take advantage of low valuations

We expect M&A teams to have little rest this Christmas as miners with cash swoop on their less fortunate peers.

Already we have seen Centamin bid for Ampella Mining, Kefi bought into Nyota Minerals, Tri-Star acquired Portage Minerals + Stratex buying into Tembo Gold.

Many deals will be welcomed like the Centamin - Ampella deal which has much to recommend it and where paper is offered ensuring that investors can stay with the investment but with the added assurance that Centamin’s cash and technical resources are there to add value to the Ampella assets going forward. 

Ampella which was facing some tough decisions in an even tougher Australian market appear delighted with the deal.  The Centamin offer means that UK investors can now buy into the Ampella assets through Centamin stock, assuming the deal goes through. 

We expect more deals to follow over the next few weeks as the sector continues to consolidate and as the harsh reality of running cash hungry projects forces management teams to take on the partners which are so often needed to get the job done.

We reckon investors should look at cash strapped explorers with good quality mineral resources. The gold miners are generally the most oversold and barring further falls in gold prices should be well placed for further consolidation.

Economic View

US - Retail sales are forecast to have climbed 0.6%mom, the most since Feb, in Nov driven by strong auto sales. The gauge excluding auto segment is estimated to show 0.2%mom growth, in line with Oct advance.

Retail sale swill be one of the last pieces of economic news before next Fed Board meeting.

Jobless claims are expected to have come in at 320k in the week ended Dec 7. This should take a 4-month rolling average to the lowest level since end of Sep.

EU - The European Parliament and EU members agreed a new set of rules regarding future bailouts of troubled financial institutions.

Governments recapitalisation of banks in trouble would need EU approval.

In addition, members agreed to enact a “bail-in” regime that could force shareholders, bondholders and some depositors to bear a share of the costs of bank failure. A minimum bail-in is set at 8% of total liabilities as mandatory before a financial  institution can use public funds.

The rule will be applied across the EU since 2015 with the bail-in rules for senior bondholders applying in 2016.

It is estimated taxpayers have contributed about €473bn of capital into European banks since 2008.

Australia - Jobs report released yesterday showed unemployment rose 5to 5.8% in Nov from 5.7% in Oct coming in close to a post-financial crisis high of 5.9%.

Estimates suggest unemployment will grow past levels seen during the financial crisis on the back of a cooling mining boom.

The number of people employed rose 21,000, compared with an expected 10,000 increase.

15,500 full time work positions have been filled during the month, with the balance taken up by part-time employees.

Indonesia - 9 smelters are planned to come on line by end of 2014, Trade Ministry representative said.

A number of new smelters will only increase moving forwards as the government plans to ban raw ore exports.

31 companies are reported to have working plan and budget to build smelters.

Romania - Parliament rejected to pass a mining law that should have helped development of mining projects including Gabriel Resources’s Rosia Montana gold mine.

The company has been trying to develop the US$1.4bn mine for more than a decade amid local opposition to the use of cyanide to leach gold bearing ore.

Gabriel Resources has previously agreed to raise the state stake to 25% from 19% and to increase mining royalties to 6% from 4%.

The project is estimated to host 10.1moz of gold (@1.46g/t) and 47.6moz of silver (@6.88g/t) across four deposits that are susceptible to a conventional open pit mining method.

US$1.3787/eur vs 1.3758/eur yesterday. Yen 102.80/$ vs 102.44/$. SAr 10.388/$ vs 10.363/$. $1.640/gbp vs 1.641/gbp

Commodity News

Precious metals:

Gold US$1,255/oz vs US$1,256/oz yesterday - Prices are slightly off this morning following a strong recent run as investors weigh the possibility of the Fed announcing tapering as early as this month.

China produced 348t or or 11.2moz of gold in the first ten months of the year, according to the China Gold Association.

SPDR gold holdings declined to 833.6t (26,801koz) valued at US$33.8bn, the lowest since Jan 2009, from 835.7t (26,869koz) yesterday. Holdings lost nearly a third of the total from the start of the year.

Platinum US$1,387/oz vs US$1,386/oz yesterday

Palladium US$737/oz vs US$737/oz yesterday

Silver US$20.28/oz vs US$20.26/oz yesterday

Base metals:

Copper US$ 7,245/t vs US$7,165/t yesterday - Copper has been performing recently with prices up in the last five trading sessions supported by a series of positive economic news worldwide.

Aluminium US$ 1,819/t vs US$1,812/t yesterday

Nickel US$ 14,161/t vs US$14,052/t yesterday

Zinc US$ 1,968/t vs US$1,951/t yesterday

Lead US$ 2,159/t vs US$2,135/t yesterday

Tin US$ 22,698/t vs US$22,525/t yesterday

Energy:

Oil US$109.9/bbl vs US$109.7/bbl yesterday

Natural Gas US$4.367/mmbtu vs US$4.226/mmbtu yesterday

Uranium US$34.75/lb (11/12/13) vs US$34.90/lb (10/12/13) 

Others:

Iron Ore - US$139.1 (11/12/13) vs US$139.4 (10/12/13) 62% Fe spot (cfr Tianjin)  

Company News

Kenmare Resources (LON:KMR) - Board Change

Japie Deysel is to step down from the board.

He will remain as COO at the Moma Mine.

London Mining (LON:LOND) – Production downgrade for 2013

Guidance has been revised down for 2013 to 3.3 to 3.4 wmt from 3.5 to 3.9 wmt.

The revision down is based on a stockpile adjustment, slower than expected upgrade to the processing plant and wet weather reducing production.

The stockpile adjustment is a negative 0.1 wmt.

At the end of November the company had achieved 3.1 wmt and sales of 3.3 wmt.

Conclusion: Looks like the company is still finding challenges in terms of operating in wet weather both in terms of curtailing production and stockpile management. The 10% downgrade is not that large but the market will be disappointed that the positive ramp up has stalled.

North River Resources (LON:NRRP) – Concerns over resource upgrade from new consultant 

North River Resources have issued a new upgrade to its JORC code mineral resource today.

The new JORC resource statement contains tables of estimated tonnages for the Northern and Southern Lodes of the South Historic Mine and a new resource for the tailings area.

The statement states a 129% increase in overall resource to 1,527,000 tonnes

A significant increase in fresh ore resource to 917,000 tonnes, and upgrade in classification category

A maiden tailings resource identified of 610,000 tonnes @ 2.1% zinc

Resulting in-situ metal inventory of: 

o 23,700 tonnes of lead (‘Pb’)

o 65,500 tonnes of zinc (‘Zn’)

o 1.48 million ounces of silver (‘Ag’)

We have to wonder if the new resource upgrade might qualify under the new JORC 2012 rules.

We are surprised to not to see any results from the recently completed drilling campaign and were under the impression that JORC resource upgrades needed to be accompanied with some supporting information to better describe and justify the upgrade. 

Neither can we seen any previous announcement on the results of the drilling work and results if obtained.

New drilling is targeting the area beneath the existing mine but again there are no results given, so its hard to see what the new JORC resource upgrade is really based on and what has changed since the last consultant’s more conservative JORC resource statement.  If the new consultant is taking a differing view then we would like to see what this is based on.

We understand from a recent seminar on the JORC 2012 code that a JORC resource statement when reissued by a new Competent Person needs agreement from the previous Competent Person prior to the issuance of the report.  No statement is made referring to this and so we can not see if this the JORC resource is compliant under the new JORC 2012 rules which we believe came into force at the beginning of this month.

The statement contains a JORC estimate for the tailings resource.  Again there is no indication as to how the JORC resource of these tailings has been estimated.  Management’s previous view was that the tailings were of such low grade to be uneconomic under previously assumed metals prices.  We can not see how these metals price assumptions might have risen given the way metals prices have moved in recent years.

Please follow the link below to the new JORC 2012 code for further info

https://www.jorc.org/docs/JORC_code_2012.pdf

Conclusion:  We are concerned that the new JORC resource upgrade may not comply with the new JORC 2012 rules.  We are also concerned that the company has not offered much of an explanation as to how the new JORC resource upgrade has been arrive at.  There are no supporting drill results as we would normally expect.  We would not want to be shareholders in a company which was not able to adhere to the new JORC code when publishing JORC resources. Retraction of a JORC resource might not be a good moment for a stock.

StratMin (LON:STGR) – Operational Update, first shipment completed at long last

The company’s first contract to produce 200 tonnes of 70% graphite has been completed.

The product has below 5% moisture content.

The first consignment which has been paid for confirmed grades of 75.8%.

The final consignment is expected to arrive in Austria in Feb 2014.

Discussions are on going with purchase agents based on higher grade product.

A new scrubber has been purchased which will perform the same role as a pebble mill.

Production will be stopped till the new scrubber is fitted with volumes and grades helped once the plant is upgraded.

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