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Fairfax Marketing Report including Condor Resources, Ferrex, Aureus Mining, Ampella Mining, and others

Morning View

Markets pull back yesterday on concerns of structure of Spanish banking bailout structure

Gold holds level despite US dollar strength – we expect gold to post new gains as Eurozone crisis rolls on

IMF supervision of the bailout program appears positive but questions remain on the potential for conditions of the bailout funds

Speculation surrounds the Greek exit date from the Euro

Cyprus is poised to accept an ECB bailout 

Base metals have been hit despite increasing imports of copper into China

Economic News

Europe - The €100bn Spanish bailout deal failed to bring nation’s bond yields down as markets remain cautious over Spain’s finances. 

Mr. Barroso, the President of the European Commmission, proposed to set up a single EU banking supervisor as early as next year. The EU banking union will include the area-wide deposit guarantee scheme and a rescue fund financed by taxes on financial firms. The governing body will be able liquidate bank without the local state approval.

Mr. Osborne, the UK Chancellor, has rejected calls to become part of the union and is not planning to put major British financial institutions under the watch of the EU.

US – Chicago Fed President Charles Evans indicated his support towards a list of measures to help growth and improve employment including more stimulus.

“Extending the Twist would be useful (the programme expires this month). More asset purchases would be useful. More mortgage-backed securities purchases would be good.”

The FOMC is meeting next week.

Evans is no a voting member this year.

The Great Recession has wiped out 18 years of gains for the median US household net worth, a Federal Reserve study showed.

Median net worth dropped to US$77,300 in 2010, the lowest since 1992, from US$126,400 in 2007 primarily driven by the fall in home prices.

Mean net worth fell 14.7% to a 9-year low of US$498,000 (2010) from US$584,600 (2007).

Nearly every demographic group recorded a fall.

Asia- Stocks fall on the regional benchmark index form a two week high off of surging Spanish bond yields, citing contagion as the biggest fear.

Japan- IMF urges BOJ to buy assets such as long-dated government bonds and corporate debt to meet 1% inflation goal.

Indonesia- Bank of Indonesia benchmark rate stays unchanged at 5.75% in an effort to tack from inflation risks and a rate cut that might weaken the Rupiah further.

UK- The house price index remained negative in May as the tax exemption for first time buyers ended.

Meanwhile the BoE held bond purchase plan at £325m last week and interest rates at 0.5%.

Continuing public concern over stability and security of jobs has dropped a measure of new buyer enquiries to lowest figure since January. London remains the only exception to the rule. 

Manufacturing production dropped 0.7% mom in Apr versus a 0.1% decline estimated. The fall was led by pharmaceuticals, aircraft maintenance and food and drink production.

Peru – The first trade deficit in 3 years recorded in Apr amid weakening economic sentiment in the Euro zone, lower shipments to China and falling commodity prices.

China scaled back purchases of iron and zinc.

Gold shipments to Switzerland, the second largest gold trading partner after China, dropped in Apr declined as the state implemented laws in Mar to clamp down on illegal mining in the Amazon.

The government is planning an economic stimulus worth 25 of nation’s output to boost the economy.

Peru joined Chile, the world’s largest copper producer, that announced earlier the widest trade deficit since Nov 2008 in May on falling metal exports and surging imports.

India – The government plans to spend US$1bn in the next 5 year through state-controlled fertiliser producers to construct infrastructure and improve logistics in such African countries as Eritrea, Ethiopia, Congo and Ghana with a view to set up bilateral economic cooperation and potentially gain access to raw material sources.

“The model adopted by China has been very successful where Chinese companies invest heavily in infrastructure and logistics before gaining concessions for minerals. India needs to adopt a similar approach,” the Department of Chemicals and Fertiliser said.

US$1.2511/eur vs 1.2611/eur yesterday. Yen 79.63/$ vs 79.56/$. SAr 8.403/$ vs 8.289/$. $1.549/gbp vs 1.556/gbp

Commodity News


Gold US$1,592/oz vs US$1,598/oz yesterday – Gold is relatively flat this morning despite strengthening of the US dollar against the basket of major currencies on fears the Spanish bailout will not stop the Euro zone crisis from spreading.

SPDR gold trust holdings remained at 1.275t (40.986moz) value US$64.890bn. 

Platinum US$1,442/oz vs US$1,448/oz yesterday

Prices will need to recover to around US$2,000/oz to justify further investments in the industry and restart suspended operations at the Marikana Platinum mine, Rustnneburg (JV of Aquarius Platinum and Anglo American).

Both Johnson Matthey and GFMS forecast a surplus in FY 2012 and an average price of US$1,450-1,775/oz.

Last month, Eastern Platinum suspended for the Mareesburg project and Kennedy’s Vale concentrator citing weak market conditions.

Lonmin said the industry will have to reconsider investment plans should weak current prices persist.

Palladium US$623/oz vs US$624/oz yesterday

Silver US$28.48/oz vs US$28.83/oz yesterday

Rhodium US$1,200/oz vs US$1,390/oz last week 

Base metals:

Copper US$ 7,372/t vs US$7,443/t yesterday – Copper prices declined driven by the US currency and concerns over the Euro zone crisis. 

Aluminium US$ 1,973/t vs US$1,995/t yesterday

Nickel US$ 17,071/t vs US$16,955/t yesterday

Zinc US$ 1,884/t vs US$1,892/t yesterday

Lead US$ 1,906/t vs US$1,918/t yesterday

Tin US$ 19,540/t vs US$19,810/t yesterday    


Oil US$97.19/bbl vs US$101.31/bbl yesterday – Reality sets back in after brief boost from agreed Spanish bailout

Brent dropped 5% from Monday morning albeit the day saw a low of $96.46/bbl. 

U.S. crude falls this morning on the ICE to $81.69/bbl with U.S. benchmark WTI at $81.75/bbl on NYM. 

Saudi Arabia announced a likely increase in output quotas, OPEC members meet in the Austrian capital on Thursday to decide on output levels for the second half of the year. 

Also the U.S. lightened its stance on Iran, issuing exemptions on sanctions from buying Iranian crude. 

Six countries are on the list of nations who have significantly reduced the amount of Iranian crude purchased. 

Countries include: India, Malaysia, South Korea, South Africa, Sri Lanka, Turkey and Taiwan 

It would appear the U.S. is offering some goodwill albeit indirectly. 

So far there appears to be moderate calm over the risk of supply disruptions. 

Natural Gas US$2.197/mmbtu vs US$2.261/mmbtu last week- Greece may suffer rolling blackouts as debt crisis hits utilities, leaving them short of funds to pay for natural gas imports.

India’s Petronet LNG ltd. plans to raise $1 billion in debt to expand import capacity.

No confirmation if debt will be raised by bonds or loans.

Uranium US$51.15/lbs vs US$50.90/lbs last week

Coal- China Shenhua Energy Co., China’s largest coal producer was just one of the super nation’s energy producers to suffer the biggest drop among industry groups.

A Bloomberg measure of energy stocks in the CSI 300 tumbled 2.1% today, the most among the 10 industry groups.

Societe Generale SA cut its forecast for average 2012 CIF ARA coal to $109.70 a metric ton from $113.80.

Coal shipments from Australia’s Newcastle port dropped 15% last week.

Richards Bay Coal $85.25t vs 85.90 yesterday

Newcastle Coal $88.25t vs 88.50 yesterday

Rotterdam Coal $85.35 vs 87.20 yesterday


Rare Earths – Molycorp Inc completes its takeover of Canadian rare earth processor Neo Material Technologies Inc.

It is a cash and stock deal worth around C$1.2 billion.

The deal will benefit Molycorp’s earnings and de-risk the start-up of its processing facility.

Iron ore – Prices (62% Fe cfr Tianjin port) increased 0.7% to US$13.3/t yesterday, the highest price since Jun 1, after China reported a 11% mom increase in imports to 63.84mt in May.

Prices rebounded 1.8% from this year’s low on May 23 following the news China approved US$23bn worth of steel projects.

Prices declined 7.3% last month and are down 4.5% so far this year.

Company News

Ampella Mining* (ASX:AMX) High grade gold intercepts at new Wadaradoo prospect

Ampella Mining continue to make new discoveries along and off the company’s 150km licensed shear zone in Burkina Faso.

The company report significant gold intersections shown below:

74m at 2.6g/t  inc. 27m at 5.0 g/t from 46 metres

9m at 5.9g/t gold inc. 5m at 9.2 g/t from 76 metres

7m at 8.0g/t gold inc. 2m at 27.1 g/t from 77 metres.

The results from this show very good gold grades and intersections although they do not represent true thicknesses as such.

Auger drilling at the Wadaradoo prospect around the site of an artisanal gold rush highlighted the 1500m x 1500m prospect.  A further 93 RC holes were drilled across five lines to check the gold anomaly.

“Only a limited number of drill holes intersected major structural targets” but almost all drill holes saw “significant wide zones of lower tenor gold mineralisation”.  

Higher grade intersections will now be used to target further drilling.

There is no comment on the metallurgy of the prospect which can have significant impact on the eventual value of the prospect.

Ampella’s shares have been hit over the past year by concerns over the metallurgy and recovery rates of ore within the Konkera gold project.  Metallurgical test work is ongoing with new options being explored to enhance the overall recovery rate for the Konkera project (3.1moz JORC resource).  Other mines in the region are thought to process ores of similar metallurgy and the process route is being examined with this in mind.

The potential issuance of better recovery rates for the Konkera prospect could make a marked difference in valuation for this project.  Metallurgy can vary substantially for deposits within the region.

Conclusion:  Ampella continue to record new gold discoveries and should increase the value of the business significantly from a discovery perspective.  Any enhancement to recovery rates at Konkera should add significantly to the company’s perceived value.  

* Fairfax has previously acted for Ampella Mining in the issue of new shares 

Aureus Mining (LON:AUE) Drilling Update at Leopard Rock Target

Aureus Mining announce final results for the 27 hole DC drilling programme at Leopard Rock target 40 km north east of the New Liberty deposit. 

The drill results come from the completion of the first phase of exploration at the target which included soil geochemistry, geological mapping, 27 trenches and drilling totalling 4,293m. 

Results have shown multiple gold zones ranging from thin (1-4m) grades of +5 g/t to wider intercepts of 8-20m grading 0,5 to 2 g/t hosted within a NW and SE trending shear zone over a strike of 1.1 km. 

Further drilling will focus on the NW and SE extensions as well as infill drilling of the current gold zones. 

The company also had positive trench results from the Gondoja gold target. 

An airborne geophysical survey covering the whole licence area of 549 km2  outlines a follow up exploration programme. 

Conclusion:  The news flow from Aureus continues to be positive – the company recently upgraded the resource at the New Liberty deposit with 1.14m oz of gold in the measured and indicated category and 0.6m oz in inferred with a DFS expected to be completed in Q3 2012.

Condor Resources (LON:CNR) Drilling Update at La India

Condor Resources report drill results which are testing the open pit potential at La India. 

Two drill holes show high grade intercepts of over 7 g/t only 16m and 25m from surface. 

The drill results are from 1188m of a current 7,000m drill programme at La India. 

The programme is aiming to look at the open pit potential on the La India vein but also look at the coalescence with the California Vein set which is 100 to 150m below surface. 

Conclusion:  The La India vein system is showing good results and significant potential for economic value.  Coalescence of the veins particularly appears to create good opportunity for discovery and for economic value.  We will be watching future results closely to see how much continuity there is within this multiple set vein system.  

DiamondCorp* (LON:DCP) Operational Update at Lace Diamond Mine

DiamondCorp is continuing to treat tailings at the processing plant at the Lace Diamond Mine. 

Till the end of May they treated 55,391 tonnes of tailings with recovery rates higher than budget (5 cpht) with a recovery grade of 7.10 cpht. 

For the quarter (March to May) the company have treated 55,391 tonnes and recovered a total of 4061 carats with an average recovered grade of 7.33 cpht. 

A fine 8.3 carat sawable white diamond was recovered although the bulk of the diamonds recovered are small mainly gem quality. 

Costs for treating the tailings is less than expected at R28.7/t against budgeted costs of R 33.4/t. 

Over June 36,000 tonnes of tailings should be treated – ahead of the next tender sale in Johannesburg. 

On the development front while the company is finalising its loan with the IDC, the major rebuilds of the underground mining fleet is continuing to schedule and within budget. 

Conclusion: The recovery of diamonds from the tailings provides the company with a useful source of cash flow while they wait to start the development work on the mine although grades from the tailings dumps will decline over time. The price per carat for the diamonds from tailings recovery around $75/carat provides a useful revenue stream of around $190,000 a month based on production of 2,500 carats with margins of around 15%. The processing cost pays for basic labour and utility costs and enables the company to keep the process plant running.

We expect development to start shortly after the loan is received from the IDC – the timing to finalise the terms is expected to be in mid-July with drawdown in August. Re-builds for the underground fleet is ongoing and will be ready to start as soon as funds are drawn down and we are forecasting for development work to be underway in the third quarter. The share price does not reflect the de-risking of the company from a technical and financial point of view. Once confirmation of the funding we see considerable upside from current levels.

There is a tender coming up which will provide an insight into rough prices which so far have been holding up against a deteriorating economic environment. Over the last week polished price index stayed in positive territory – the overall index is 5% below its level this time last year and is 3.6% down from the start of the year.

*Fairfax acts as Nomad and joint broker to DiamondCorp PLC 

      *Fairfax analysts recently visited the Lace Diamond Site. 

Ferrex Plc (LON:FRX) Appointment of CFO to the board

Ferrex Plc have appointed James Carter the CFO to the board with immediate effect. 

James Carter has 18 years of experience as a CFO and brings useful experience from his time at Straits Asia Resources a thermal coal producer listed on ASX and Singapore Securities Exchange. 

The company have a portfolio of iron ore and manganese projects which are progressing well towards development with a positive scoping study recently announced at the Malelane iron ore project. 


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