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Today's Market Report including Mariana Resources, Orogen Gold and Sierra Rutile

Last updated: 11:07 08 Sep 2014 BST, First published: 10:07 08 Sep 2014 BST

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Oil prices collapse $2/bbl to $102.1/bbl as deflation threat hits prices

Saudi Arabia is reported to be continuing supply rather that restricting output as demand falls.

The new policy may partly reflect the increased cost of employing Pakistani troops to protect its boarders and the increased cost of security in the region.

Oversupply into Europe resulting from oversupply in Libya is compounding the situation

Sterling collapses as Scottish devolution steps closer on YouGov poll puts Yes campaign at just 4% behind the No campaign

Sterling continues to fall on potential for Yes campaign to edge ahead and cause the devolution of Scotland from the UK.

Alex Salmond’s £300bn revenue claim from shale gas might turn voters to the Yes camp.

Explosives truck explodes destroying bridges and a section of road in Australia

A truck carrying 50t of ammonium nitrate rolled over and caught fire leading to a major explosion in Western Australia.

Firemen rescued the truck driver but lost two fire tenders in the process.

The fire crew saw diesel leaking into the spilled ammonium nitrate and ran for it.

A number of firemen were injured in the blast.

Police are searching for remnants of the vehicle but have not yet located any specific wreckage.

Economic News

US – Non-farm payrolls released on Friday showed the economy added 142,000 jobs in Aug, the least this year. That was significantly below forecasts for a 230,000 growth.

Jul numbers have been slightly revised (212,000 v 209,000 estimated previously).

While growth in payrolls have underperformed the current pace is set to post the best year for total and private sector job growth since 1999.

Unemployment fell to 6.1%, the lowest level since 2008.

Earnings’ growth picked up slightly last month 0.2%mom (2.1%yoy).

China – Trade surplus surged to new highs in Aug as exports’ growth beat estimates (+9.4%yoy v +14.5%yoy in Jul and +9.0%yoy forecast) on  stronger shipments to the US (+11.4%yoy) and Europe (+12.1%yoy).

Imports unexpectedly fell (-2.4%yoy v -1.6%yoy in Jul and +3.0% forecast) taking the trade surplus to US$49.8bn (US$47.3bn  in Jul and US$40.0bn forecast).

Chinese mainland markets are closed today.

Japan – Q2/14 GDP fell more than initially forecast as the government released revised numbers today (-7.1%yoy v -6.8% estimated before).

Germany – Trade surplus climbed strongly driven by booming exports (+4.7%mom v +0.9%mom in Jun and +0.6%mom expected).

UK – The British pound is sold off against the dollar this morning (-0.99%) on concerns the Scottish referendum may see a majority Yes vote.

Russia/Ukraine – The ceasefire continues to hold since coming into force on Friday at 4pm (GMT).

The EU indicated new series of sanctions could be suspended is Russia withdraws troops from Ukraine and the ceasefire is kept in place.

Kremlin promised to come up with an unspecified “reaction” if the EU decides to go ahead with new sanctions.

US$1.2944/eur vs 1.2942/eur yesterday.  Yen 105.10/$ vs 105.29/$.   SAr 10.758/$ vs 10.730/$.   $1.617/gbp vs 1.633/gbp

Commodity News

Precious metals:

Gold US$1,268/oz vs US$1,264/oz on Friday

Platinum US$1,410/oz vs US$1,406/oz on Friday

Palladium US$894/oz vs US$887/oz on Friday

Silver US$19.26/oz vs US$19.11/oz on Friday

Base metals:

Copper US$7,015/t vs US$6,955/t on Friday

Aluminium US$2,107/t vs US$2,105/t on Friday 

Nickel US$19,849/t vs US$19,420/t on Friday

Zinc US$2,401/t vs US$2,403/t on Friday

Lead US$2,213/t vs US$2,229/t on Friday

Tin US$21,443/t vs US$21,500/t on Friday

Energy:

Oil US$100.1/bbl vs US$102.1/bbl on Friday

Natural Gas US$3.801/mmbtu vs US$3.818/mmbtu on Friday

Thermal coal (1st year forward cfr ARA) US$78.0/t unch vs US$78.0/t on Friday

Seaborne hard coking coal index (quarterly) US$120.0/t unch vs US$120.0/t

Uranium US$33.00/t vs US$32.65/t

Other:

Iron ore 62% Fe spot (cfr Tianjin) US$83.6/t vs US$84.3/t

Tungsten APT European US$355.0/mtu unch vs US$355.0/mtu

Company News

BC Iron Acquisition of Iron Ore Holdings  - Conditions of Bid still apply

One of the conditions of this agreed bid for Iron Ore Holdings is that the Platts IODEX 62% CFR China iron ore price does not close below A$90/dmt for 20 consecutive days.

The bid was announced on August 11th.

While US$ iron ore prices have come down given the exchange rate of US$/A$ of 1.07 and the plats index closing at US$88.75 CFR North China we believe this bid has still not breached its terms.

We also do not see BCI walking away given the quality of the Iron Holding’s assets and strong balance sheet.

Kirkland Lake GoldQ1 2015 Results

Income before tax was US$5.6m for the quarter against a Q4 2014 loss.

The quarter is said to have benefitted from a higher grade lower tonnage strategy.

Gold sales were up to 38,543 oz +25% on Q4 2014 and +27% on the same quarter last year.

Cash operating cost per ton was down 3% and down 21% on a per oz basis to $788/oz.

All in cash costs was down 29% to $1,2550/oz from $1,774/oz and down 42% over the same period last year.

There was a 58% reduction in waste tons milled.

Grade variability and stope availability will result in fluctuating production on a quarterly basis.

Full year guidance is for revenues of $200m with US$54m achieved in the first quarter.

Cash operating costs are being guided at $800-850/oz for the full year with an AICC of $1,250-$1,350/oz.

Sustaining capex is expected to $58m with Q1 capex of $12m in line.

Guidance remains unchanged for gold production of 150-170 k oz for 2016 and 160-180 oz in 2017.

Conclusion: These results look like an improving trend with cost performance better than targeted for the full year although the company caution that quarterly performance could vary depending on mining of the third higher grade horizon at SMC.

Mariana Resources (LON:MARL) – Signs option for earn in on Rurimarac Gold Properties

The company has  signed an option to earn 70% of two gold tenements in Central Peru called the Rurimarac properties.

The tenements are located 4 km West of Mariana’s  Soledad project.

The option agreement is with Tinka Resources which owns the Rurimarac Properties through its Peruvian subsidiary.

Exploration by Tinka at the properties started in 2006 included soil, pit and trench sampling, IP work and diamond drilling.

The pit and trench sampling include 65 samples averaging 5.1 g/t gold.

Soil sampling delineated a 1400 x 300m anomaly ranging from 0.02 t0 1.86 g/t gold.

A total of 6 diamond holes were drilling with ne hole testing the NW striking breccia target with 6m at 3.3 g/t gold from 60m.

The other 5 holes tested IP targets in the footwall sediment.

The option does not have any cash payment but is only a work commitment earn in.

Within 6 months the company has to lodge a renewed drill permit.

The drill permit is for 1,500m and approval of the permit within 12 months will result in a 51% interest.

Marian can earn a further 19% by lodging the next stage of drill permit and drilling a further 3,000m within 2 years of attaining a 51% interest.

Conclusion: This looks like a sensible earn in for Mariana and may have some synergies with their Soledad project which is not too far. It is striking how much of an earn in they get on achievement of the first renewal of the permit for drilling which would suggest getting drill permits in Peru is no mean feat.

 Orogen (LON:ORE) – Update on drilling at the Mutsk gold project

The company has completed 1,700m of a planned 3,000m drilling at Mutsk.

Assays have been received on 7 of the 11 holes drilled to date.

Step out drilling is said to have confirmed wide zones of gold mineralisation with intercepts up to 60m at 1.21 g/t gold.

Shaft Sinkers (LON:SHF) – Second fatality 

Shaft sinkers report a second fatality in a month this time at the Impala 16 project.

The last fatality was at Randgold’s Kibali project in the DRC on the 13th August

The fatality highlights the dangerous nature of shaft sinking and the pressure on the company to perform.

We reckon that Shaft Sinkers are probably the best shaft sinking company in the world and we also reckon they may also have best practical health and safety procedures in place.

The contract will suffer some form of setback at Impala 16 as a result of the fatality and its investigation.

We wonder if there are companies out there with better ability and safety records for shaft sinking in similar conditions.

Sierra Rutile (LON:SRX) – Lockdown in Sierra Leone 

Sierra Rutile report that they support the government’s four-day lockdown.

All citizens in Sierra Leone are confined to their homes for four days in an effort to contain the spread of the Ebola virus.

The company report that there have been no reported or suspected cases of Ebola in the at the company’s operations.

The company is screening employees on entry into the mine area, the canteen and offices.

We suspect the lockdown will slow the spread of the virus but the need for families to access food and fresh water may will inevitably lead to further infection.

We believe Sierra Rutile have stocked up as a precaution and may continue to operate scaled down production if workers are able to remain within in the mine camp.

The company should has sufficient stocks of food and water for over 100 days of operation.  We are less certain about stocks of fuel and other consumables

Ebola – vaccine proves 100% successful on monkeys

The war againse Ebola moved a step closer toward resolution as trials showed 100% effectiveness against the virus in monkeys.

The WHO is likely to allow trials to start immediately in affected regions in West Africa.

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