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Today's Market View Including Caledonia Mining, Amara Mining, Central Asia Metals, MDM Engineering and others

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How Earth Made Us - BBC

A program series to inspire a generation of geologists, and hopefully some new mining engineers

This is well worth following if only for the graphics on the plate tectonics

http://www.bbc.co.uk/programmes/b00qclqx.

Economic View

US$1.3050/eur vs 1.3036/eur yesterday.  Yen 99.63/$ vs 99.62/$. SAr 9.8969/$ vs 9.9025/$.  $1.5227/gbp vs 1.5237/gbp

Commodity News

Newcastle coal price drops to $77.75 a metric ton, the lowest price since Nov 2009.

Precious:

Gold US$1,264/oz vs US$1,242/oz yesterday

Indian policy makers continue to maintain pressure on easing gold buying in India by scrutinising speculative currency trades to ensure that import curbs on gold are being upheld.

SPDR holdings have dropped 28% this year.

Platinum US$1,383/oz vs US$1,351/oz yesterday

Palladium US$688/oz vs US$676/oz yesterday

Silver US$19.79/oz vs US$19.72/oz yesterday

The US mint has sold 826,000 oz of silver coins in July so far which at this rate would realise in 18.9m oz for the month up 993.4% on the same period last year.

The US mint has also sold a significant amount of gold coins so far in July with 14,500 oz of gold coins sold.

Base metals:

Copper US$ 6,937/t vs  US$6,861/t yesterday

Aluminium US$ 1,827/t vs US$1,785/t yesterday

Nickel US$ 13,997/t vs US$13,814/t yesterday

Zinc US$ 1,884/t vs US$1,863/t yesterday

Lead US$ 2,098/t vs US$2,070/t yesterday

Tin US$ 20,149/t vs US$19,825/t yesterday

Energy:

Oil US$103.19/bbl vs US$102.25/bbl yesterday

Natural Gas US$3.576/mmbtu vs US$3.585/mmbtu yesterday

Uranium US$39.50 (close 01/07/13) against $39.65 on 28/06/13

Other:

Iron ore 62% Fe spot (cfr Tianjin) US$116.9/t (close 01/07/13) vs US$116.5/t (close 28/06/13)

Company News

Amara Mining (LON:AMA) – Baomahun Feasibility Study

The company have reported their feasibility study on the Baomahun project giving a post tax IRR and NPV of 22% and US$127m at a discount rate of 8% and gold price of US$1,350.

Upfront capital costs are projected at US$151.2m with 35% of that related to the plant and 20% for pre-production costs.

A further US$86m is required for the mining fleet (US$74.7m) and power station (US$11.3m) which could be leased or sub-contracted.

The project is targeting 148,500 oz for the first 6 years at an average grade of 2.53 g/t gold and in the first year high grading to 3.9 g/t gold.

Average recoveries are expected to be 93.4% with an annual processing rate of 2 mtpa giving a production life of 11.5 years with proven and probable reserves standing at 23.27 Mt at 1.62 g/t gold.

Average head grade through life of mine is projected to be 1.62 g/t with a strip ratio of 8.25:1.

Total cash cost are projected at $799/oz including royalties and freight.

Mining is to be done by conventional track and shovel with a typical gravity/CIL process for the plant.

Conclusion: While capex for the project are reasonable, the high strip costs push up the cash cost of the mine ($799/oz) with mining costs expected to be around $400/oz. Adding maintenance capex will push costs up to around $830/oz. 

The discount rate of 8% is low as is the long term gold price assumption of US$1,350 as a base case – readjusting for both of these using the company’s sensitivity table gives a post-tax NPV of US$22.2m and a US$1,200 gold price also brings the IRR down to 13%. This makes the project less compelling and exposed to any increase in cash, working capital requirements or changes to royalties. 

The partnership with Samsung gives them some protection but on the face of it the project is not compelling.

Caledonia Mining (LON:CMCL) – Second and First Half Production Update

The Blanket mine produced 11,592 oz of gold for the second quarter up 10.7% in Q1 2013 and 0.3% over the same period last year.

For the first half of the year 2013 22,064 oz of gold was produced giving them a 6.5% increase half year on half year.

Conclusion: These production numbers look in line with expectations where real growth in expansion plans is expected to come through in 2014 from the current level of 40,000 oz. 

Cash cost the mine are running at around $500/oz which positions the company well to keep generating cash to self fund expansion and pay dividends to shareholders. This is one of the better run companies in the sector with cash in hand and a programme of indigenization which should give them some protection against political risk. We remain buyers.

Central Asia Metals (LON:CAML)– H1 2013 Production and Operations Update

The company produced 3,081 tonnes for Q2 2013 giving them 4,857 tonnes for the first half and in line with production targets of 10,000 tonnes.

Production has been achieved during some challenging conditions particularly during the winter period which should enable it to maintain targeted production levels.

The company are continuing to review expansion options at Kounrad looking at expansion of the current plant as well as building a second plant.

A decision will be made in Q4 2013 and will be based on the framework agreement recently put into place with Kenges Rakishev.

The company has allowed its exploration licence at Alag Bayan lapse as the current resource is insufficient to be converted into a mining licence.

Conclusion: Production and operations are in line with expectations.

MDM Engineering (LON:MDM) – Gross profits double to $33m

MDM Engineering have posted a significant uplift in sales and profits for the year end March 2013.

The company’s profits buck the sector trend and highlight the gains to be made when a business is well managed.

While other mining contractors are seen failing MDM are able to double profits raise dividends and demonstrate future growth.

MDM’s reorganisation ahead of its London listing has served the business well and ensures the company is able to post gains despite worsening market conditions.

The statement reminds us that the agreed merger with Sedgman did not complete and while the shares are not quite at the offer price of £1.81p this puts a marker into the market for the value of the business.

Investors will be delighted to see a special dividend of 6USc included in the final dividend of 18.9USc to give a full year dividend of 24.1USc.

Sales of $127.2m vs $89.1m highlight the expansion of business in recent years.

Gross profits of $33m vs $16.2m while post tax earnings rise to $14.2m from $5.8m.

MDM works on a straight forward EPCM or cost plus model and is focussed on delivering projects across Africa from its base in South Africa.

South Africa remains the principal base for African mining engineering and services contractors.  The concentration of engineering services around Johannesburg enables Mine planners and contractors to supply services and build projects across Africa.  

MDM’s orderbook remains strong, though current conditions may defer or even cancel some projects.

Cash of $34.6m gives the company a good base to work from

The company is currently working on four execution projects.  They are:

EPC execution contract for the expansion of ABG’s Bulyanhulu gold mine in Tanzania.

EPCM contract for Banro on the Namoya Gold Mine process plant in the DRC.

EPCM contract at the Umtu manganese mine for Kalgadi Resources in South Africa.

EPCM contract for plant replacement at the Foskor phosphate processing facility.

Conclusion:  The range and variety of the above projects demonstrates MDM’s range of skills and ability to work on contracts across commodities.

Wolf Minerals (LON:WLFE) – £85m services contract award

Wolf Minerals have announced the award of a £85m mining services contract for the Hemerdon tungsten and tin project.

The contract is awarded to CA Blackwell (Contracts) Limited and is split into two parts:

Phase 1, mining pre-strip and mine development (11 months from its start)

Phase 2, mine production (5 year term from completion of Phase 1)

The contract price is remarkably close to the DFS estimate of £85.5m as published in May 2011.

The contractor is part of Blackwell Group, a civil engineering contractor which employees some 450 in the UK.  The company started as an agricultural contractor in 1956 and has expanded its reach into civil engineering, earthworks, remediation, renewable energy, plant and engineering and coastal projects.  The company’s first major contract was in 1958 on the construction of the M1, the UK’s first motorway.

Conclusion:  It is great to see the Hemerdon project moving ahead with the award of the contract to CA Blackwell. 

Tungsten prices have risen in recent weeks against the trend for other metals.  Prices reflect tungsten’s importance as a strategic metal and control of its supply by China.  Company estimates at a US$360/mtu (today US$398.5/mtu) calculate an ungeared post tax NPV of £74m at an 8% using a discount rate giving a 21% IRR. 


 

+SP Angel employees may have previously held, or currently hold, shares in the companies mentioned in this note.

 

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