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SP Angel

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Today's Market View Including Caledonia Mining, North River Resources, Triple Plate Junction, Xstrata and others

January 25 2013, 10:44am

Anglo American (LON:AAL) – Mixed Q4 Production –Good copper and met coal offset by impact of SA Strikes

Avocet Mining (LON:AVM) – Production Update Highlights Challenging Operational Issues (Burkina Faso)

Caledonia Mining (LON:CMCL) – Dividend and shareholder approval for capital reduction (Zimbabwe)

Clffs Natural Resources (NYSE:CLF) –$1bn write down on acquisition of Consolidated Thompson Iron Mines (US, Canada)

North River Resources* (LON:NRRP) – Appointment of Ms Qi to board (Namibia)

Triple Plate Junction (LON:TPJ) – Potential to consolidate Morobe (PNG) as Newmont withdraws budget from jv (PNG)

Xstrata (LON:XTA) – Definite Estimate Highlights Quality and Growth from Las Bambas

Now is the season for UK tax brutality, rail fare increases and announcing corporate write downs

If you live out of the reach of the UK tax man, we recommend you stay there!

Corporate write downs

A wave of brave takeovers is now being followed by a series of write downs as miners issue bad news ahead of more positive earnings for the last year.

All majors have assets which will require some form of write down from time to time

Glencore has acquired assets, often cheaply which will need readjustment.

BHP took a $2.84bn write down on the $12.1bn Petrohawk acquisition last August. The US company is a significant oil and shale gas producer.

While Rio Tinto’s write downs were large by corporate standards, the need to write back assets is regular occurrence

If we see a marked fall in commodity prices and lower grade portions of affected mines are rendered uneconomic then the scale of these write downs could increase.  

Thankfully most commodities have maintained higher price levels although cost inflation will catch out more marginal projects

South Africa and Australia are appear to have suffered the worst cost inflation with costs compounded in South Africa through unofficial strikes and the implementation of higher costs health and safety practices.  Rio Tinto reduced the impact of its cost inflation in Australia through the introduction of driverless trucks and more automated processes enabling good productivity gains.

Economic View

US - Jobless claims unexpectedly fell to 330K, a five year low, in the week ended Jan 19, compared to 335K in the previous week and 355K forecast.

A decline is said to be attributed to the calendar with applications for unemployment insurance likely to increase by the end of Jan. Apart from the calendar effects labour market is in fact improving. 

Existing jobless claims fell by 71K to 3.16m in the week ended Jan 12, the lowest reading since Jul 2008.

People who have exhausted their benefits and are on emergency and extended payments fell by 365.6K to 1.69m in the week ended Jan5.

A separate report due later today may show new house sales grew 2.1%mom to 385K, the highest since H1 2010.

Japan - CPI excluding fresh food dropped 0.2%yoy in Dec, in line with market estimates. This is the seventh drop in eight months.

The Central Bank might be pressured to provide more stimulus in order to drive prices closer to new target rate of +2%.

Prime Minister aims to replace current Bank of Japan’s governor in Apr and two deputies in Mar with people who would support further easing of the monetary policy.

Local media say updated economic forecasts might be released on Jan 28. In Aug, the Cabinet Office announced a forecast for 1.7% real and 1.9% nominal growth in the year. It is argued new fiscal stimulus and monetary easing will accelerate growth to 2.5% real and 2.7% nominal next year that starts in Apr.

UK economy fell more than forecast in the final quarter last year following a temporary pick up in Q3.

Q4 GDP was down 0.3%qoq, down from a 0.9%qoq growth in the previous quarter and a 0.1%qoq decline forecast.

Services sector was unchanged, while industrial production fell 1.8%qoq, manufacturing was down 1.5%qoq. Construction rose 0.3%qoq.

Oil and gas platforms were shut for maintenance during the quarter while total mining and quarrying output dropped a record 10.2%qoq subtracting 0.18pp of the GDP.

FY2012 GDP was unchanged, down from an 0.9% increase in the previous year.

German business confidence gauge climbed for a third month in Jan to 104.2. Sentiment recovered from a 2.5 year low in Oct. (Ifo Institute)

Analysts estimates were for an increase to 103.0 from 102.4 in Dec.

Canada - Inflation numbers are due later today. CPI Core is expected to fall 0.2%mom in Dec, down from no change in the previous month.

Earlier the Central Bank cut its economic growth forecast to 2% for 2013, down from tis previous estimates o f2.3%

US$1.3414/eur vs 1.3299/eur yesterday. Yen 90.63/$ vs 89.34/$. SAr 8.992/$ vs 9.044/$. $1.581/gbp vs 1.584/gbp

Commodity News


Gold US$1,671/oz vs US$1,682/oz yesterday - Gold prices pulled back amid positive economic data in the US and China and a drop in ETF holdings.

SPDR gold holdings fell to 1,332t (42,816koz) valued at US$71.5bn from 1,334t (42,893koz) yesterday. 

Platinum US$1,692/oz vs US$1,687/oz yesterday

Palladium US$726/oz vs US$720/oz yesterday

Silver US$31.76/oz vs US$31.97/oz yesterday

A silver dollar coin sold for a record US$10m at auction on Thursday. A 1974 coin is believed to be the first silver dollar struck by the US Mint.

Base metals:

Copper US$ 8,122/t vs US$8,083/t yesterday - Copper prices gained this morning on the signs of improving job and housing market in the US and rising business confidence in the largest Eurozone economy, Germany.

Copper may average US$8,150-8,350/t in 2013 on “urbanization and urban renewal programs in major developing economies and shortfalls in mine production with slower development of new projects,” OZ Minerals said, Australia’s third-biggest copper producer.

Aluminium US$ 2,084/t vs US$2,063/t yesterday

Japanese copper and copper-alloy fabricated goods production fell 5.5%yoy to 57,120t in Dec. (Japan Copper & Brass Association)

Nickel US$ 17,424/t vs US$17,432/t yesterday

Zinc US$ 2,106/t vs US$2,068/t yesterday

Lead US$ 2,405/t vs US$2,352/t yesterday

Tin US$ 24,800/t vs US$24,375/t yesterday


Oil US$113.3/bbl vs US$112.6/bbl yesterday

Natural Gas US$3.475/mmbtu vs US$3.585/mmbtu yesterday

Uranium US$43.65 (close 24/01/13) vs US$42.50 (close 23/01/13)

Company News

Anglo American (LON:AAL) – Mixed Q4 Production –Good copper and met coal offset by impact of SA Strikes

Iron Ore – Production impacted by strike action at Sishen with 5 Mt of lost production.

Ramp up at Kolomela partially offset some of these losses producing 2.8 Mt for the fourth quarter  exceeding mine capacity.

For the full year iron ore was up 4% over 2011 to 43.08 Mt.

At Minas Rios injunctions to ship at the end of 2014 have been lifted but the company are conducting a detailed capex review of the project.

Metallurgical Coal – This showed strong performance with 4.6 Mt produced over the quarter and 17.7 Mt for the full year up 24%.

The improvement in production came through from longwall productivity.

Export thermal coal was up by 5% year on year at 17.1 Mt and 4.7 Mt for the fourth quarter.

Copper – Los Bronces increased by 31% as the mine ramps up with copper production for the full year up 10% at 659,700 t.

Platinum – equivalent refined platinum down 29% due to South African strikes with 2.219 m oz for FY 2012 and Q4 production of 416,000 oz.

Diamonds – Q4 production increased by 26% over Q3 as Jwaneng comes back on stream – for the full year production was down 11%.

Conclusion: Good performance from met coal and copper. The South African strikes having taken their toll at platinum as expected with iron ore from Sishen also being affected. Looks like issues at Minas Rios have been sorted but a detailed capex review could bring further capital requirements for the project.

Avocet Mining (LON:AVM) – Production Update Highlights Challenging Operational Issues

Cash costs over the quarter were US$1,246/oz at Inata for gold production of 33,067 oz.

This compares to 33,067 oz for the third quarter at US$937/oz.

Full year production is 135,189 oz at a cash cost of US$1,000/oz against 166,744 oz at US$693/oz for 2011.

Mining costs were up significantly (50%)over the quarter to $562/oz reflecting some one off costs a hired mining fleet but also reflecting the dilution in fourth quarter with ore mined of 906kt versus ore processed of 654 kt.

Processing costs were up by 25% quarter on quarter at $350/oz and admin costs up 31% to $219/oz reflecting the use of consultants.

Conclusion: These numbers highlight the operational challenges facing Avocet at the Inata mine which has been flagged to the market and will hit their numbers with both the top line and margins taking a hit.

Caledonia Mining (LON:CMCL) – Dividend and shareholder approval for capital reduction (Zimbabwe)

Caledonia Mining announces today its initial dividend of C$0.005 per non-consolidated share. 

The shares will trade ex-dividend on 6 February.

The company has also gained near unanimous approval for a share consolidation on a one for 10 basis 

The shares should trade at ten times their share price when the consolidation becomes effective

The company continues to run profitable Blanket Gold mine in Zimbabwe producing some 11,980oz of gold last qyuarter and 45,623oz for the full year.

Caledonia held cash of $25m at end Q3

Gold production is due to rise to around 76,000ozpa by 2016.  

Conclusion:  The announcement of today’s dividend and the approval of the share consolidation are significant steps forward for shareholders.  

The shares trade on an EV/EBITDA of just over 2x giving good room for substantial improvement.

We currently prefer the risk of operating in Zimbabwe to risks presented in South Africa

Cliffs Natural Resources (NYSE:CLF) - $1bn writedown on acquisition of Consolidated Thompson Iron Mines

Cliffs is taking a $1bn goodwill write off on its 2011 acquisition of Consolidated Thompson Iron Mines.

Consolidated Thompson was acquired in 2011 for $4.9bn.

The impairment is driven by lower long term volumes and higher capex and operating costs.

The company will also incur charge of around $100-$150m on its Eastern Canadian Iron Ore business.

North River Resources* (LON:NRRP) – Appointment of Ms Qi to board

North River Resources (NRR) have announced the appointment of Ms Q1 Yu as a non-exec director.

Ms Qi is a director of Kalahari Minerals and ceo of Extract Resources which holds/held 43% of NRR.

Ms Qi is a Chinese certified public accountant .

Ms Qi was appointed to Kalahari and Extract following their acquisition by China Guangdong Nuclear Power Corp and China-Africa Development Fund through a vehicle called Taurus Mineral Limited.

The statement iterates NRR’s principal focus on re-opening the Namib lead-zinc mine in Namibia which lies close to Kalahari/Extract planned Husab open pit mine.

NRR hopes that Ms Qi’s involvement with the development of the Husab uranium mine might also lead the Chinese to support NRR in its plans to drill and prove further resources at the Namib lead/zinc mine.

Proof of sufficient lead/zinc resource may then lead to the potential refinancing and reopening of the mine.

NRR published a maiden JORC resource last October of 668,000t at 6.6% zinc (‘Zn’), 2.5% lead (‘Pb’), 46 g/t silver (‘Ag’) and 33 g/t indium (‘In’) estimated using a 1% combined lead, zinc cut-off grade.  A conceptual exploration target is thought to host some 900,000t of mineralised material which may add to the resource on further delineation.

Cash:  The company has around £1m in cash

Conclusion:  NRR are looking for support from their Chinese shareholders for the potential redevelopment of the Namib lead zinc mine.  NRR also holds other exploration licenses which were formerly part of the Kalahari portfolio which may be of potential interest to the Chinese parties.

* SP Angel analysts have previously visited the North River licenses 

* SP Angel acts as broker to North River Resources

Triple Plate Junction (LON:TPJ) – Potential to consolidate Morobe (PNG) as Newmont withdraws budget from jv

Triple Plate Junction have updated the market on Newmont’s decision not to allocate a development budget to TPJ’s Morobe project for 2013

Newmont is also terminating its search for large bulk tonnage gold/copper porphyry systems on the joint venture.

Newmont is exploring options in consultation with TPJ.

But when majors pull out there are often valuable crumbs left on the table for less ambitious junior companies to pick over.

TPJ reckon there are a series of high grade targets which were seen as too small by Newmont but might make good smaller scale prospects.

TPJ have engaged a team of experienced geologists to review the data.

The company are also in discussions with Barrick Gold regarding their intentions with the jv at Wamum

The team are also waiting on results from drilling by Newcrest at the Arie project.

The Morobe project is just just 4.5km from Wafi suggesting potential for large scale porphyry style projects in the region

Newmont and other majors tend to focus on a minimum target of 5moz for their projects and when budgets are cut projects which do not convincingly show this sort of potential are discharged.

But understanding geology is one of nature’s more elusive challenges and often good prospects are cut alongside projects which do not make the grade (please excuse the pun).

Porphry exploration is often a long-term and expensive game but its rewards can be substantial.  Many of the world’s larger copper mines are on porphyry systems which offer large tonnage with generally low grade mining opportunities

Conclusion:  It is often disappointing when a partner pulls out of exploration funding but it can give rise to better opportunities for the remaining junior if smaller higher grade targets are consolidated within the Junior partner.  

Xstrata (LON:XTA) – Definite Estimate Highlights Quality and Growth from Las Bambas

The company has announced a definitive estimate of US$5.2bn for the Las Bambas copper project.

The mine which is in full construction will come on stream in 2015 with a production target of 400,000 t of copper.

With a mine life projected of 20 years the capital intensity of the project will be $13,000 per annual tonne of copper with capital cost over the life of the project of US$1.89/lb.

Once Las Bambas comes into production Xstata will have a total of 700,000 t of production from Peru including production from Antapaccay and the JV on Antamina.

Both Antacapacy and Antamina are exceeding their daily throughput capacities.

At Las Bambas 65% of the project capital has been committed and commissioning is being targeted for the end fo 2014.

14,000  people are being currently employed on the project.

Conclusion: The successful execution at Las Bambas will highlight Xstrata’s strong execution skills and its capacity now to bring on organic growth at the top quartile. The merger with Glencore will be a test on whether this will remain intact.


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



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