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Today's Market View Including Goldplat, Herencia Resources, Metals Exploration, Ortac Resources and others

Published: 10:43 29 Oct 2015 GMT

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Economic News

US – The Fed kept rates unchanged at multi year lows although leaving the door open for a potential hike in Dec in a statement that was considered more hawkish than expected.
• “Labour market indicators, on balance show that underutilization of labour resources has diminished since early this year,” the Fed said.
• In addition, authorities pointed to “solid” growth in consumer spending and business investment as well as improvements in construction sector.
• On a less positive note, inflation expectations have receded “slightly” further lately.
• The House passed a bipartisan 2-year budget plan with deal designed to suspend the US debt ceiling and increase budget spending caps by US$50bn in FY16 ad US$30bn in FY17.
• The plan now needs to be passed by the Senate.
Date Announcement Period Actual Expected (Bloomberg) Prev month
Monday New home sales Sep -11.5%mom -0.6%mom 5.2%mom (rev from 5.7%)
Tuesday Durable Goods (Core) Sep -1.2%mom (-0.4%mom) -1.5%mom (0.0%mom) -3.0%mom (-0.9%mom)
Non-def Capital Goods Orders ex Air Sep -0.3%mom 0.2%mom -1.6%mom
House prices S&P/CS Aug 0.1%mom/5.1%yoy 0.1%mom/5.1%yoy -0.2%mom/5.0%yoy
Markit Services PMI Oct (prelim) 54.4 55.5 55.1
Wednesday FOMC statement   0.0-0.25% 0.0-0.25% 0.0-0.25%
Thursday Weekly jobless claims weekly   265k 259k
Advance GDP Q3  1.6%qoq (annualised) 3.9%qoq
Advance Core PCE Q3  1.4%qoq (annualised) 1.9%qoq
Friday Personal Spending Sep   0.2%mom 0.4%mom
  PCE Deflator (Core) Sep   0.2%yoy (1.4%yoy) 0.3%yoy (1.3%yoy)

Japan – Industrial production climbed the most in three months in Sep (+1.0%mom) while estimates for the next month’s reading point to considerable pick up in output (+4.1%mom).
• Market expectations were for a 0.6%mom increase following a 1.2%mom decline in Aug.
• On YoY basis, production remains down 0.9% underscoring fragile state of the local economy.

Germany – Nation-wide inflation numbers are due later today (-0.1%mom/0.0%yoy in Oct v -0.3%mom/-0.2%yoy in Sep).
• Preliminary readings from the Germany’s constituents released so far point to a slowdown in deflation with a number of federal states showing a marginal increase in consumer prices on yoy basis.

Spain – Inflation climbed mom (+0.7%mom) but remained in the red on last year’s numbers (-0.7%yoy) driven by softer oil prices.

Australia – New home sales start to slow down driven by lightening lending standards.
• Sales fell 4.0%mom in Sep with both detached and no-detached indices sales down and marking the weakest reading since Jan/15.
• The measure is 5.2% lower from a peak in Apr.

Currencies

US$1.0962/eur vs 1.1049/eur yesterday.    Yen 120.79/$ vs 120.35/$.    SAr 13.750/$ vs 13.608/$.    Sterling $1.527/gbp vs 1.533/gbp
0.709/aud vs 0.713/aud – US dollar strength following bullish comments from the Fed.  Rand looks set to break 14/USD and AUD to fall below 0.7

Commodity News

Precious and base metals trade lower following an increase in the US dollar against major currencies as the Fed does not rule out a hike during its Dec meeting.

Precious metals:

Gold US$1,161/oz vs US$1,172/oz yesterday – Venezuela is rapidly liquidating its gold reserves in an effort to raise FX to meet its debt repayments.
• While five months’ old, the data suggests the nation;s international reserves hovered near a 12-year low of US$15.2bn with gold holdings accounting for US$11.8bn at the end of May, Bloomberg reports.
• The value of gold holdings fell 28% through May this year while gold prices were only down 12% during the respective period.
Platinum US$1000/oz vs US$996/oz yesterday
Palladium US$674/oz vs US$684/oz yesterday –
Silver US$15.95/oz vs US$15.97/oz yesterday

Base metals:

Copper US$ 5,166/t vs  US$5,185/t yesterday – Copper production in Peru rose 41%yoy in Sep driven by gains at major mines including Antamina, Cerro Verde and Antapaccay.
Aluminium US$ 1,474/t vs US$1,473/t yesterday – The government may cut on-grid power tariffs for industrial users benefiting power-intensive production of aluminium.
• With the global market remaining in surplus fed by increasing production in China, a “power subsidy” to local smelters may delay market adjustment and metal price recovery.
• On a separate note, regional aluminium demand remains strong.
• In North America, Ford’s aluminium-intensive F-150 pickup truck is reported to have been the main driver behind the producer’s strong North American sales, the Company reports.
• On auto-industry in the US in general, the Company expects it to stay “healthy (barring any shocks) for the next few years”.
Nickel US$ 10,450/t vs US$10,495/t yesterday –
Zinc US$ 1,723/t vs US$1,731/t yesterday –
Lead US$ 1,726t vs US$1,738/t yesterday
Tin US$ 15,250/t vs US$15,200/t yesterday

Energy:
Oil US$48.70/bbl unch vs US$47.30/bbl yesterday –
Natural Gas US$2.313/mmbtu vs US$2.096/mmbtu yesterday
Uranium US$35.70/lb unch vs US$36.05/lb yesterday –

Bulk commodities:
Iron ore 62% Fe spot (cfr Tianjin) US$53.1/t vs US$53.4/t –
Steel – Japanese steel mills cut earnings forecasts for 2015 on concerns over a global supply glut led by strong Chinese exports.
• Nippon Steel expects net income for FY15 (ending Mar/16) to come in at ¥180bn, 31% down from previous estimates.
• The Japanes second largest mill JFE Holdings halved its profit forecasts to ¥100bn.
• “China’s overproduction has resulted in big declines in Asian markets,” Nippon said.
• Companies have been challenge by falling margins which have come down to “unprecedented low levels”.
China’s steel industry is suffering from rapidly contracting demand, slow pace of production cuts and rising cost of credit, according to the China Iron & Steel Association.
• Crude steel production is down 2.1%yoy at 609mt in the first nine months of the year with producers raising overseas shipments amid waning local demand.
• Exports are up 27%yoy at 83.1mt causing accusations of dumping by other steel producers.
• Earlier estimates released by Shanghai Baosteel Group suggested Chinese Steel production may eventually shrink 20% as part of the adjustment to softer economic growth rates in China.
Thermal coal (1st year forward cif ARA) US$47.60/t vs US$47.60/t

Lithium – researchers said to be looking at developing lithium batteries with 10x the power of conventional batteries (Nature)

Other:

Tungsten - APT European prices $165-185/mtu vs $170-190/mtu last week – when will this fall in tungsten prices end?
Ferrochrome – Benchmark charge chrome price for delivery in Europe at US$1.04/lb its lowest level since Q1/10.

Company News

Avocet Mining (LON:AVM) 2.85 pence, Mkt Cap £6m – Third quarter production update
• Gold production for the third quarter was 17,517 oz at a cash cost of US$1,107/oz.
• This is lower in terms of production in Q2 which was 22,848 oz at a cash cost of US$952/oz.
• Mining volumes rose to 4.6 Mt for the quarter with average head grades of 1.5 g/t gold with recoveries improving to 72% from 67%.
• Production for the full year is now expected to be lower than previous guidance of 70-75,000 oz.
• The coup in the country during September/October presented additional challenges with gold shipments being suspended for three weeks.
• The company continue to optimise Tri-K to be able to finance the project.
• The company expect to have sufficient funds through to the end of October 2015 and are in discussions to raise funds beyond this.
Conclusion:  As well as contending with challenges to improve potential for profitability at Inata, the company was faced with strikes last year and a recent coup in the country. Elliot has been keeping the company afloat but with funds running out again we wonder what scope there is to keep operations going at Inata. The best chance still looks like getting funding for Tri-K.

Goldplat* (LON:GDP) 3.9 pence, Mkt Cap £6.5m – Quarterly operational update shows turnaround in Ghana Recovery
• Goldplat Recovery in SA (GPL) generated an operating profit of £415,000 on Total gold oz recovered of 6,141.
• A new 4 tonne elution plant is scheduled to be commissioned in Nov 2015 increasing throughput capacity to increase from 5 to 8 tonnes.
• This will reduce by-product stock levels and reduce backlog and also help to capture more of the gold recovery value chain in house.
• Gold Recovery in Ghana (GRG) returned to profitability of £156,000 on gold recovery 2,797 oz and gold sold of 3,086 oz.
• A return to profitability has been helped by the increased in house elution capacity and ability to refine through Aurubis.
• The spirals capacity has also been improved by the installation of four new filer presses sourced from GPL in South Africa.
o At Kilimapesa 643 oz was produced during the quarter and 611 oz sold with an operating loss of £115,000 for the period.
o A new adit and cross-cut will enable access to 6 additional reef drives and help delineate a new mining block.
Conclusion: It is good to see Ghana showing an operating profit for the quarter and we look forward to continued progress this year from operational improvements put into place in Ghana and the South African operations. Backlogs caused by the lack of capacity at Rand Refinery have been eased by putting into place more in house elution capacity as well as finding alternative refining facilities. This should also help in releasing cash from inventories.
*SP Angel acts as Nomad and Broker to Goldplat

Herencia (LON:HER) 0.09 pence, Mkt Cap £3.8m – Acquisition of additional ground adjacent to Picachos
• The company has announced that it has exercised a right to acquire additional ground, the Pastizal Project, adjacent to, and south of its Picachos copper project in Chile.
• Herencia’s geological interpretation indicates that the Pastizal area, which currently has some artisanal mining activity, covers an extension of the high grade mineralisation encountered in its 40M Shaft area at Picachos.
• The option agreement allows Herencia to acquire Pastizal via a staged series of payments involving relatively small expenditure in the early stages. There is no payment due on signing and $50,000 is payable after 6 months.  Thereafter, $160,000 is payable 12 months after signing; $250,000 at 24 months and $400,000 after 36 months.  In addition, a royalty of $0.05/lb of refined copper is payable on the first 4m tonnes of copper produced from Pastizal.
• Work by Herencia’s geologists as part of the due diligence process has already identified areas within Pastizal which have not attracted the attention of the artisanal miners as well as the main targets extending from Picachos.
• Herencia raised £0.5m in September which should allow the company to continue with exploration in the short term, however as it expands the scope of its exploration work into additional areas it may need to make some hard decisions on the priorities of an expanding number of targets.
Conclusion: The expansion of Herencia’s licences gives the company the opportunity to consolidate what seems to be developing as a single zone of mineralisation within a single ownership which should assist the optimal development of the orebody and help to expand Herencia’s resource base. Targets within the Pastizal area are described as “walk-up” implying that results may become available relatively quickly.

Metals Exploration* (LON:MTL) 3.375 pence, Mkt Cap £50.2m – Result of Open Offer and Update on Impact of Hurricane
• A Total number of  99,999,988 new ordinary shares at 3 pence were issued under the open offer raising £2,999,999.64.
o Under the announced open offer the company received applications for 104,990,271 shares.
o 63,465,489 shares are basic entitlements by shareholders and the balance were oversubscriptions of 41,524,782 shares.
o The latter was scaled back to 36,534,499 shares.
o Total number of new shares now outstanding is 1,583,005,345.
o As a result of the impact of Typhoon Lando, the company has been given a partial suspension at the Runruno Project affecting works in the area of the tailings dam.
o The Mines and Geosciences Bureau has issued an order to stop works at the Maliliberg dump site and tailings pipeline bench area.
o The company has also been told to undertake rehabilitation and clean up works in the areas affected by excessive water run off,
o A programme of works is to be agreed in order to lift the suspension order.
Conclusion: It is good to see that the company has raised funds to cover working capital requirements while they await operating and occupancy permits to fully commission and operate the Runruno Mine. It is unfortunate that as a result of Typhoon Lando that work has been suspended around the tailings facility – at the end of September the tailings facility had been close to completion. We look forward to hearing on a formal agreement on the work programme agreed to lift the suspension order.
*SP Angel acts as Broker to Metals Exploration

Ortac Resources* (LON:OTC) 0.055p, mkt cap £2.4m – Kalaba trenching results
• Ortac reports the results of a programme of trenching from the Kalaba project in Zambia. Kalaba is owned by a private Zambian company, Zamsort, in which Ortac holds a 20% interest with a convertible loan note which gives it the opportunity, when converted to increase its holding to 39.35%.
• The results reported today show wide intersections of oxide copper mineralisation, including headline results of 95m averaging 2.08% copper and 0.26% cobalt in trench 3, 30m averaging 2.10% copper and 0.24% cobalt in trench 4 and 20m averaging 1.73% copper and 0.25% cobalt in trench 7.
• The programme comprised the excavation of 9 trenches over an aggregate length of 355 metres. A Total of 71 channel samples, each of 5 metres length were taken from a layer of saprolite material which has been mined on an intermittent basis and processed off-site to produce metallic copper over the last ten years in a small open pit at Kalaba.
• The mineralised zone dips towards the east and is considered to remain open in that direction. Trenches 2 and 4 are located on the eastern margin of the existing pit,  while Trench 3 is located immediately west of the pit with other trenches located further towards the west. Trenches 1 and 5 are located on the northern and southern edges of the pit.  Individual sample results range as high as 3.3% copper in Trench 4.
• The trenching is to be followed up with auger and diamond drilling to test the continuity of the mineralised saprolite horizon beneath laterite cover towards the east.
• The Kalaba deposit is located in western Zambia on the western flank of the Kabompo Dome, and around 40km from First Quantum Minerals’ Trident project which lies on the eastern margin of the same structure. Ortac reports that vegetation has been cleared in preparation for the construction of an on-site leach plant at Kalaba.
Conclusion: The recent trenching provides evidence that the mineralisation at Kalaba is more extensive than the immediate area of recent mining and that there are wide zones of copper oxide mineralisation carrying potentially economic grades. We await the results of the follow-up programme with interest as it may shed light on the potential scale of the Kalaba mineralisation.
*SP Angel acts as Nomad and broker to Ortac Resources

Kaz Minerals (LON:KAZ) 116 pence, Mkt Cap £518m – Third Quarter Production Update and IMS
• The company produced 23.2 kt of copper in concentrate for the third quarter giving Total for 9m of 66.5 kt in line with the previous year.
• Copper cathode production was 21.7 kt for the quarter and 58.4 kt for nine months.
• The average copper grade across the Group in the nine months was 1.51% lower than in the previous year as a result of mining at Aktogay at a grade of 0.37%.
• Zinc in concentrate for the first nine months was 73.3 kt, 18% below the same time last year.
• This reflects mining in lower zinc grade areas at Orlovsky and Artemyevsky mines.
• Gold production for the nine months was up 21% to 28.2 koz and silver output was 2,450 koz.
• The company remains on track to achieve guidance in copper, zinc and gold and exceed guidance for silver.

Serabi Gold (LON:SRB) 3.75 pence, Mkt Cap £24.6m – Q3 update highlights continued growth in gold production
• Serabi Gold continues to improve gold production under the direction of Michael Hodges, the company’s relatively new ceo.
• Gold production increased through Q3 to 9,078oz up 10.1% on Q2 at 7,878oz
• The improvement was helped by the addition of some 1,200oz of gold in ore from the new Sao Chico satellite mine.
• Mill throughput rose to 31,789t for the quarter with 28,625t of mine production Palito and 7,962t
• Grades were 11.04 g/t at Palito and 9.27 g/t from Sao Chico. 
• Mine development is progressing at Sao Chico with further development of the underground ramp and ore development on three higher levels
• Mine production ran nearly 5,000t ahead of milling enabling the ore stockpile to rise to 14,799 tonnes grading 3.66 g/t gold.
• Management plan on increasing capacity in the process plant for the start of Q2 2016.
• Target production remains at 35,000oz this year.
• 2016 target is for 44,000os of gold with 24,000oz from Palito and 20,000oz from Sao Chico – it looks as if both mines should be on track for these numbers
• AISC costs are estimated to be between US$900-US$950/oz.
• We expect unit costs to fall significantly from this year’s target with the increase in production
• Mill throughput of around 400tpd is anticipated to rise to 500tpd giving significant additional capacity and an ability to process lower grade ores from mine development.
• Sao Chico mine:  “The grades at Sao Chico are, at times, truly spectacular and often in excess of 100 g/t of gold” indicating to us the potential for bonanza lodes of very high grade ore.
Conclusion:  Serabi looks set to beat production expectations.  Unit costs should fall significantly and the potential for the mining a significant tonnages of bonanza grade ore from Sao Chico could produce extraordinary returns.  We look forward to further news on Sao Chico and on the development of these very high grade veins.
*An SP Angel analyst has visited Serabi’s Palito gold mine and other properties

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