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Today's Market View Including Aquarius Platinum, Mwana Africa plc, and ZincOx Resources

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New financing deals for exploration, power and transportation infrastructure in Africa

News this week:

Denham Capital committing $100m to Endeavour Energy a new energy services investment company.

Warburg Pincus investing $600m into Delonex Energy a start-up African focused resources exploration company.

GE to build a new $1bn gas-powered plant at Mtwara in Tanzania

Kenya reckons it needs $3.9bn pa to meet infrastructure needs in accordance with its Vision 2030 economic blueprint.

Shanghai market falls on hawkish comments from the People’s Bank of China

PBoC is telling banks to source their own liquidity through the use of higher interbank rates

However the PBoC is still seen supplying liquidity to the market as leaders address the financial health of the banking system

While credit to property developers in China may remain restricted we believe overseas projects such as the new $11bn bridge from Sumatra to Java should remain in place.

Good projects should still find funding and the Chinese still appear interested in securing sources of supply as seen with EMED yesterday.

Australia – Treasurer Wayne Swan welcomes fall in A$ which should weaken further

Swan addressing a Committee for Economic Development said that the weak A$ was welcome as it has checked the growth of the manufacturing in Australia.

The weaker A$ “should make the transition towards non-mining sources of growth a bit easier”.

The high A$ has enabled real incomes in Australia to stay high with inflation contained and rates reduced by 2% in the past 20 months to 2.75%.

There appears little reason for the weakness in the A$ to reverse against this back drop.

A continuing fall in the A$ will be good for the miners trying to contain the high costs built up in Australian mining operations.

Economic View

US -  Two Fed Officials have underlined the accommodative stance of the Fed

Following market reaction to Ben Bernanke’s remarks on tapering of QE, two officials Richard Fisher and Narayana Kocherlakota emphasised that this was not an “exit” and that policy likely to stay accommodative for a “considerable time”.

They reinforced Bernanke’s policy of QE till the unemployment rate remains below 7% and against a medium term outlook for inflation at 2.5%.

The statements from the two Fed regional bank presidents was thought to be unusual as they don’t normally issue statements or have press briefings.

This could be as a result of the strong market reaction and the need to more effectively communicate the continuing accommodative stance.

China – PBOC says that liquidity risks in China are controllable

The central bank of China said that recent moves in interest rates as a result of a liquidity squeeze were readily controllable and affected by seasonal forces.

The central bank will closely monitor the money market rate and keep it at a reasonable level.

They continued to urge banks to control risks from credit expansion.

South Africa - The Association of Mineworkers and Construction Union wage demands are said to equal or exceed demands made by the NUM

AMCU demands are likely to exceed demands made by the NUM for 15%-60% increases in next round of wage demands.

AMCU demands are said to include raising the work categories that some of their members are included in.

The National Union of Mineworkers representing around 64% of the gold sector’s workforce file their demands for a 60% increase in a labour pay.

US$1.3130/eur vs 1.3114/eur yesterday. Yen 97.54/$ vs 98.33/$. SAr 10.245/$ vs 10.00/$. $1.5436/gbp vs 1.537/gbp

Commodity News

Precious:

Gold US$1,278/oz vs US$1,282/oz yesterday - Prices remain relatively stable despite continuing volatility

Yesterday saw a number of  major banks cutting their gold price forecasts to between $1,000 to $1,250.

This follows shifts in views of gold as a result of Fed QE tapering as well as a catch up between forecasts and current spot prices.

SPDR gold holdings fell 0.4% 985.73t (31,694koz). 

Platinum US$1,339/oz vs US$1,361/oz yesterday

With high wage demands being put forward by both the AMCU and NUM labour disruptions are likely to continue.

This could result in a rebound in platinum prices.

Palladium US$666/oz vs US$671/oz yesterday

Silver US$19.62/oz vs US$19.64/oz last week

Base metals:

Copper US$ 6,704/t vs  US$6,676/t yesterday - Copper stabilised this morning after flirting with psychologically import $3.00/lb level.

Copper was under pressure yesterday with forecast downgrades coupled with high stockpiles and news of Grasberg restart.

Copper stockpiles in warehouses approved by the LME climbed to the highest in 10 years.

This is thought to be driven by storage companies offering incentives to companies.

Aluminium US$ 1,782/t vs US$1,784/t yesterday

Nickel US$ 13,780/t vs US$13,778/t yesterday

Zinc US$ 1,833/t vs US$1,830/t yesterday

Lead US$ 2,002/t vs US$2,000/t yesterday

Tin US$ 19,650/t vs US$19,490/t yesterday

Energy:

Oil US$101.2/bbl vs US$100.2/bbl yesterday

Natural Gas US$3.733/mmbtu vs US$3.776/mmbtu yesterday

Uranium US$39.65 (close 24/06/13) vs US$39.75 (close 21/06/13) 

Other:

Iron ore 62% Fe spot (cfr Tianjin) US$116.6/t (close 24/06/13) vs US$118.6/t (close 21/06/13)

The biggest jump in shipping rates since September could suggest demand from Chinese steelmakers after stockpiles fell to 5 year low.

Iron ore prices appear to relatively stable after the recent sell off in most commodities.

Company News

Aquarius Platinum (LON:AQP) – Kroondal PSA agreement with Amplats extended

Amplats are to contribute more reserves at Kroondal in exchange for Aquarius Platinum contributing more to use of infrastructure, Amplats selling AQPA’s share of concentrate from the additional reserves and payment of a royalty.

The royalty will increase and decrease in the Rand metal price with a cap of R14.95/t and a floor of R11.50/t.

Amplats is to contribute 9.91 Mt at 2.38 g/t proved reserves and 6.06 Mt at 2.48 g/t of probable reserves to the Kroondal mine.

The reserves are located near the current Kroondal mine and will be mined using existing infrastructure and treatment plants.

Conclusion: The continuation of the PSA should not be a surprise and the arrangement should work for both parties against a continuing back drop of weak prices and cost pressures through labour unrest.

Mwana Africa (LON:MWA) – Operations and Financing Update

BNC and Trojan Mine: Funding to restart phase 2 of the Trojan mine has been difficult to find in the debt markets as planned resulting in a funding shortfall.

The company intended to have a phased restart of Bindura with the first phase to mine and produce concentrate and restart the smelter and refinery as a second phase. 

Mining at the Trojan mine started in September last year with first concentrate completed in April.

They were targeting around 7,200 t in 22 months from re-start – they have an offtake with Glencore for 100% of the production. 

The funds raised last year took the company through the first year of a re-start with a requirement for further capital in a year’s time where they will be looking at debt funding options. 

Freda Rebecca is said to be performing well but margins under pressure as a result of the lower gold price.

C1 cash cost are down to $883/oz 13% below cash cost for the previous year of $1021.

Total cash cost of $1098/oz for the year and improvement of 8% over the period.

Freda Rebecca gold production up 37% for the full year ending March 2013 with 65,350 oz.

Recoveries over the period improved from 75% to 81% with head grades up from 2.28 g/t to 2.64 g/t.

Production for the March quarter was 12,510 oz down 24% from the Dec quarter reflecting the production issues already reported to the market.

The disruptions to production have now been resolved and regular production restarted on the 1st April.

The pilot plant for the retreatment of tailings is on schedule with commissioning expected in the September quarter.

Zani Kodo: The PFS which has started at Zani Kodo is planned to continue.

Cost saving and cost cutting US$5m will be sought by targeting budgeted corporate costs

Conclusion: The funding gap will result in the closing of operations at BNC with the current concentrate operations unlikely to have the scale to be profitable at current nickel prices. 

While production has been on an improving trend at Freda Rebecca, the current gold price will result in a lower cash contribution with operating margins now standing at 30% (gold price of $1,280/oz and C1 cash cost of $883/oz). At C3 cash costs of $1,098/oz the margin shrinks to 14%. The company are continuing with the PFS at Zani Kodo. 

While little value was  being assigned to BNC, against a weak gold price the value from close to 70,000 oz of gold production from Freda Rebecca has fallen with the gold price. Zani Kodo has significant potential but will need the right partner to get to development given the worsening outlook for the DRC.

ZincOx (LON:ZOX) – AGM statement highlights repairs to Korean Recycling plant

ZincOx Resources has reported details of work to be done at its $100m, 40,000tpa zinc recycling plant in Korea.

The plant reprocesses EAFD, Electric Arc Furnace Dust to capture the high 20% zinc content.

The process should be superior to the Waelz Kiln process used elsewhere.

The AGM statement gives details of the repairs to be made by the German fabricators.  The Fabricators are to re-weld the faulty units at their own cost.  New units are to be using a significantly more resistant alloy.

The off-gas flow will be modified so that one side of the heat exchange equipment can be isolated and repaired while the other side continues to operate

Excess capacity within the units means the plant could continue to work at 80-85% design capacity.

This means the plant could manage 95% monthly throughput .

The repair and improvement plan sounds good and we expect to see better performance once the work is done.

Ignoring stoppages the plant has been running at above target availability of 92% and zinc recovery has risen to 94% (target 97%)

Further modifications are to be made to improve recovery rates improving oxygen enrichment and combustion temperatures.

Throughput is currently at 83% but should increase from here.

EAFD feed grades have also risen by around 10%.  .

Concentrate product grades are at a good 64% zinc oxide, a premium product for traders.  

ZincOx is also trialing an iron by-product in test marketing.  This should add a small but important revenue stream to the business

The plant has achieved just 45% of its target capacity in recent months.

Higher energy costs due to air leakage from the corroded welds has raised unit costs and this combined with lower zinc production has created a shortfall in funding through the commissioning process.

Lower production and low zinc prices have squeezed company finances through the commissioning period and the company are taking up a $7m loan to be secured against land assets in Turkey.

We expect ZincOx plan a second phase $100-110m expansion once full capacity is achieved and plant economics are proven.

Zinc:  we expect to see some recovery in zinc demand and prices later this year as new infrastructure projects and consumer demand for galvanised cars comes through

Conclusion:   ZincOx has come far with the development of its EAFD process and with the new plant in Korea.  We look forward to news of material improvement in plant performance over the next few months and in the financial benefits of improved recovery and production rates this Autumn.


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