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Today's Market View Including Beowulf Mining, Coal of Africa, Kibo Mining, Almonty Industries and others

Published: 11:20 11 Jan 2016 GMT

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Shanghai Composite index falls 17.5% since 22nd December ’15 – not quite bear market territory
• The market has fallen by 40% since in peak in mid June ’15 falling 27% in August when the authorities started to
• The market is essentially back to where it was at the start of 2015 which is materially better performance than seen in many Western markets.
• Eg it is still better than the FTSE 100, S&P Composite and the Down Jones Industrials. Perhaps we should start locking up unpatriotic short sellers?

South African Rand – Japanese retail investors blamed for collapse of the South African rand
• The rand’s recent move through key ‘stops’ and ‘margin call’ levels are said to have caused mass capitulation in the Rand by Japanese retail investors according to a FX strategist based in Singapore
• We view the fall in the rand as long overdue

Attend Cape Town in style and comfort with the 121 Group Mining Investing Conference
– Cape Town 8-9 February 2016
• Join us in the beautiful and historic gardens of the Welgemeend farm house in Cape Town, close to the Mount Nelson Hotel
• Buy-side investors and analysts are able to attend the summit for free.  See registration form in link below
https://www.weare121.com/121mininginvestment-cape-town/registration/register-investor

Economic News
US – US equity markets finished lower on Friday on the back of building up concerns over the Chinese economic growth outlook and falling oil prices.
• Declines in stock indices have also come amid better than expected non-farm payrolls.
• NFP: 292k v 252k in Nov (revised from 211k) and 200k forecast.
• Unemployment rate held unchanged at 5.0%.
• Earnings growth disappointed coming in worse than forecast: 0.0%mom/2.5%yoy v 0.2%mom/2.3%yoy in Nov and 0.2%mom/2.7%yoy expected.

China – A sell off in equity markets resumed with both the Shanghai and Shenzhen indices falling 5.3% and 6.6%, respectively.
• Latest performance takes YTD declines to 16.1% and 20.0%, respectively.
• Inflation data and comments from authorities flag risks to slowing economic growth.
• The economy will be struggling to hit 6.5% growth rate over the 2016-20, a senior Chinese official said.
• Consumer prices climbed 1.6%yoy, around a half of the Beijing’s official target, according to the latest data.
• Producer prices posted another consecutive decline with the index down 5.9%yoy marking a 46th month of deflation.
• On a separate note, the short term offshore renminbi borrowing rate (the overnight CNH Hibor or Hong Kong Interbank Offer Rate) hit a record high of 13.4% today.
• The move has been driven by state owned banks buying of renminbi to strengthen CNH and narrow the gap between CNH and onshore renminbi.
• A fall in renminbi liquidity drove borrowing rates higher discouraging speculators from participating in short-term carry trades.
China – implements new power price mechanism linked to coal prices
• The new mechanism which came into force this year uses the average coal power price in 2014 as the benchmark coal price, while the corresponding feed-in tariff in 2014 will be the benchmark electricity price each time the linkage initiates.  The coal power price and the feed-in tariff are calculated according to the benchmark coal price and electricity price when prices vary between the power coal and benchmark coal prices ranges between RMB 30 and RMB 150 per ton.
China devaluation – offers central banks the chance to print money (more QE) to build new infrastructure
US – badly needs to replace ageing transport infrastructure
UK - The poor state of UK intercity links
• UK inter-city infrastructure is lagging behind the rest of the world.
• London has been the focus of much of the budget with the M25 followed bv Cross Rail but London is falling behind with a significant shortage of airport capacity, housing and bridges.
• A massive lack of capital expenditure in recent years means that outlying regions are poorly connected to the capital in terms of speed and capacity with HS2 still being debated as costs rise.  HS2 might connect Birmingham with Manchester before it gets anywhere near London.
• The UK is desperately short of housing in and around the capital skewing the housing market as speculators distort the prices.
• US infrastructure also appears to be in a poor state as the government focusses on other issues.
• The prospect of the devaluing impact of Chinese devaluation should allow policy makers the chance to bring in fresh QE to stimulate domestic construction.

Currencies
US$1.0886/eur vs 1.0878/eur yesterday.   Yen 117.83/$ vs 118.33/$.  SAr 16.498/$ vs 16.0261/$.   $1.457/gbp vs 1.462/gbp
0.701/aud vs 0.703/aud - South African rand spiked to ZAR17.9 against the US dollar in erratic Asian trading before settling at ZAR16.7.

Commodity News
Precious metals:

Gold
US$1,100/oz vs US$1,098/oz yesterday – China bank buys London gold vault with 1,500t capacity
• Shanghai gold withdrawals rise 19% to 2,596t on 2,182t seen in 2014.  Gold withdrawls rise ahead of the Chinese New Year
• India IBJA to open 100 centres to push gold monetisation scheme as announced by Prime Minister Modi
Platinum US$872/oz vs US$877/oz yesteray
Palladium US$488/oz vs US$500/oz yesterday
Silver US$13.99/oz vs US$14.05/oz yesterday

Base metals:
Copper
US$4,419/t vs US$4,537/t yesterday – Cerro Colorado miners are planning to go on strike over pay rise demands from Jan 11.
• The mine is a wholly owned BHP operation located in the Atacama Desert, Chile, producing copper cathode.
• In FY15 the mine produced 78.2kt Cu.
• The deposit hosts 217mt at 0.57% TCu (oxide) and 143mt at 0.56% TCu (sulphide) in MI Mineral Resource.
Aluminium US$1,480/t vsUS$1,485/t yesterday – Chinese Hongqiao Group, the world’s largest maker of aluminium, is planning a US$490m rights issue.
• Chairman and founder Zhang Shiping, a holder of more than 78% of the Company, pledged to underwrite 99% of the issue.
• That will take the founder’s interest in Hongqiao to 81% in case no other shareholders subscribe to the rights issue.
Nickel US$8,345/t vs US$8,425/t yesterday –
Zinc US$1,488/t vs US$1,507/t yesterday
Lead US$1,607/t vs US$1,658/t yesterday
Tin US$13,750/t vs US$13,900/t yesterday

Energy:
Oil US$33.10/bbl vs US$34.33/bbl yesterday
Natural Gas US$2.428/mmbtu vs US$2.399/mmbtu yesterday
Uranium US$34.50/lb vs US$35.00/lb yesterday

Bulk comodities:
Iron ore 62% Fe spot (cfr Tianjin) US$40.50/t vs US$38.18/t yesterday
Thermal coal (1st year forward cif ARA) US$40.00/t vs US$40.25/t on 30 December

Other:
Tungsten
- APT European prices $165–185/mtu vs $170–190/mtu last year
Ferrochrome – Benchmark prices collapsed to 92c/lb in December for Q1/16 marking.

Company News
Almonty Industries (CVE:AII)
C$0.30, Mkt Cap C$26.1m – Acquires 100% of the Panasqueira Mine
• Almonty has acquired 100% of Panasqueira from Sojitz for a cash payment of €1m and a promissory note of €500,000 with interest of 4% and maturity to Dec 2017.
• Sojitz acquired Panesquiera for around C$51m in 2007 from Primary Metals Inc.
• From June 2005 to Dec 2007 Lewis Black was Chairman and CEO of Primary Metals Inc.
• The company also purchased €12.26m of debt owed by Sojitz.
• Panasqueira has proved and probable reserves of 1.661 mt at 0.21% WO3  or 3,431 tonnes of contained WO3  or 343,104 mtus.
Total resources stand at 9.538 Mt at 0.23% WO3 or 23,123 tonnes or 2,212,316 mtus.
Conclusion: Almonty has been on the look-out for tungsten assets and has appeared to have acquired Panasqueira on relatively nominal terms. This is a small asset for Sojitz bought at a time when the Japanese company was looking to secure upstream supply of tungsten. It is involved in a range of activities from transport to IT and telecommunications. Operating an underground mine is unlikely to have sat well inside such a large company. Lewis Black at Almonty should know this asset well since he was involved in selling it to Sojitz in the first place for a much higher price when tungsten APT prices were around US$250/mtu.

Beowulf Mining (LON:BEM) 5.95 pence, Mkt Cap £25.6m – Acquires private Finnish Graphite Company
• The company has acquired four early stage graphite exploration projects through its purchase of Fennoscandian.
• Four projects are in the Fennoscandian portfolio – Viistola, Haapamaki, Piipumaki and Kolari.
• At Viistola, historical exploration includes rock chip drlling, trenching and ground geophysics followed by diamond drill holes to test a potential high grade magnetic target.
• This target was 10% of a prospective length of 20 km where graphite is thought to be hosted in brecciated graphitic schist.
• At Piippumaki, historic small scale mining has taken place with old workings said to match ground and airborne electromagnetic anomalies.
• Haapamki also had several historic workings with grab samples yielding high grades.
• Kolari is said to have historical information on diamond drilling done in the 1970s.
• Based on a combination of drilling and EM data, a historical mineral resource was estimated of 4Mt at 28.6% graphitic carbon (Cg).
• Each of these projects has been explored historically.
• Payment will be made 100% through shares with a Total due of 2.55m shares.
• An initial payment will be made of 2.1m shares with a deferred payment of 450,000 shares.
Conclusion: A move away from iron ore is not surprising given the current environment for iron ore. We look forward to hearing how these graphite projects will be progressed.

Coal of Africa (LON:CZA) 2.6 pence, Mkt Cap £51.1m – Haohua Energy announces intention to subscribe for $5m worth of shares
• Haohua Energy International (Hong Kong) Resource Co has announced to the Shanghai Stock Exchange that it will subscribe for $5m worth of Coal of Africa shares at a price of US$0.0435/s.
• The company states that discussions remain incomplete with no binding agreements.  The subscription will be conditional on the normal regulatory approvals in China and Australia.
• Haohua Energy previously had a 26.5% stake in the company which we reckon was diluted to 24% when Yishun Brightrise Investment invested £9.4m at a price of 5.15p/s.  Yishun also advanced $10m in an interest free loan to the company.
• M&G Investment Management recently invested $3m at US$0.0435/s (around 3p/s), the same price as the Haohua announcement.
• The M&G investment was reported to be the ‘final element’ of the financing required by Coal of Africa in its offer to acquire Universal Coal plc.
Universal Coal has a group of coking coal and thermal coal assets with the majority of assets in South Africa including the Kangala Mine producing 2.1 Mtpa of saleable thermal coal.
• The company generated sales of A$74.9m in FY 2015 with gross profits of A$15m and PBT of A$2.3m.
Universal Coal is said to have generated cash flow of A$14.7m in FY 2015 with cash of A$26.5 and Total debt of A$40.1m including A$30.39m of current borrowings.
Universal Coal was formerly associated with Peter Landau whose assets are reported by ‘Hot Copper’ to be frozen by the Federal Court in Perth pending investigation.

Dalradian Resources (LON:DALR) 38.5 pence, Mkt Cap £82.8m – Further progress on land acquisition.
Dalradian Resources has announced that it has issued 150,000 shares at a price of 39.5p/share (£59,250) to a landowner in order to acquire “land for a proposed mine site processing plant and associated facilities in proximity to the Curraghinalt gold deposit” in Northern Ireland.
• In mid-December 2015, the company announced a similar land purchase for shares valued at £340,000.
• In addition to the land acquisition announced today, Dalradian reported that it had issued a further 400,000 shares to two directors, Messrs Anderson and Roosen, following the exercise of options at a price of $0.25 (12.19p).
Conclusion: The moves to acquire land for mine and plant construction at Curraghinalt and the exercise of options by directors signal a growing confidence by management.  The company’s website indicates that it proposes to submit a planning application for mine development during Q3 2016.

Kibo Mining (LON:KIBO) 5.0 pence, Mkt Cap £16.5m – Mbeya Coal to Power project update
Kibo Mining reports that it is nearing agreement with the Tanzania Electric Supply Company (TANESCO) on a Power Purchase Agreement for the Mbeya Coal to Power Project (formerly known as Rukwa). Louis Coetzee, CEO of Kibo Mining, commented “We have every reason to believe that we will be able to conclude the MOU in the very near future and that we will complete all the remaining feasibility work on time and in doing so also deliver the Bankable Feasibility Study for the integrated MCPP on schedule.”
• The coal deposit at Rukwa has a Total resource of 109mt, of which 71mt is classed as “indicated”. The integrated power supply project aims to exploit this resource to generate around 250-300Mw of power using circulating fluidised bed technology. Estimates released by the company in March last year suggested that the project could generate an NPV of US$250-280m using a 15% discount rate to produce a 23% IRR from a capital investment of $640-760m.
• The company’s website indicates that Tanzania currently has less than 1,000Mw of operating electrical power generating capacity “out of the 2,000 MW it requires and with a projected growth rate of 7% per year in the medium term (IMF projection), it is facing increasing power-generation under-capacity to meet its economic development needs.”
Conclusion: It is encouraging that Kibo Mining is close to concluding an agreement which has the potential to transform the electricity supply industry of Tanzania. Although a project of this nature would be likely to attract support from development authorities, Kibo may have a financing challenge in current market conditions.

Tri-Star Resources* (LON:TSTR) 0.08 pence, Mkt Cap £6.8m – Disposal of Golden Pike
• Further to their announcement on the 22nd December, Tri-Star has completed its disposal of Golden Pike to Globex.
• Golden Pike has an inferred mineral resource of 214,800t grading 9.6 g/t gold for 66,300 oz.
• The deal is over 119 of the 124 claims owned by Tri-Star and excludes claims over the Bond Road antimony target.
• Tri-Star receives 350,000 Globex shares and potential future royalty payments on production.
Conclusion: This disposal is in line with the company’s strategy of disposing of non-core assets.
*SP Angel acts as Nomad and Broker to Tri-Star Resources

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