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Today's Market View including: African Potash, Condor Gold, Medusa Mining and others

Published: 10:38 22 Jan 2016 GMT

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African Potash (LON:AFPO) – meeting with president Museveni and Lord Hain in Uganda
Anglo Amercian (LON:AAL) – De Beers first sightholding signals changes
Condor Gold (LON:CNR) –Optimisation Study on La India
Medusa Mining (ASX:MML) – CEO appointment update
Thor Mining (LON:THR) – Sale of gold interests

Palladium – Russian Central Bank reckons the palladium price is too low to want to sell stockpiled metal to Norilsk led trading group
The statement indicates that regular stock sales will be stalled pending better prices.
The move is likely to restore palladium prices and perhaps offers some insight as to why palladium prices moved higher yesterday.

Moodys cuts forecast for Brent to $33/bbl for the year
Could this cut prove to be the bottom of the market
Moody’s have also placed 11 mining companies and 62 resources exploration and production companies in the US on watch for downgrade.
We ask, is the oil price move all over by the time a rating’s agency makes its move

121 / SP Angel conference is “Last man standing” for smaller mining companies in Cape Town this year
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

Dow Jones Industrials                          +0.74% at         15,883
Nikkei 225                                              +5.88% at         16,959
HK Hang Seng                                       +2.90% at          19,081
Shanghai Composite                             +1.25% at           2,917
FTSE 350 Mining                                    +2.26% at          6,549
AIM Basic Resources                             +1.39% at           1,543



ECB – Mario Draghi suggests the stimulus may be expanded in next meetings as inflation outlook remains weak on the back of soft oil prices and downwards revision to economic growth in emerging economies.
“We’ve plenty of instruments. We have the determination, and the willingness and the capacity of the Governing Council to act and deploy these instruments,” Draghi said.
Latest ECb forecasts were for inflation to reach 1% in 2016 which were based on the assumption of oil prices averaging more than US%50/bbl compared to the current price of US$30/bbl.
Dovish comments helped the mood in the marketplace which combined with a rebound in oil prices translated into gains in major equity indices.

Eurozone – Flash PMI came down to an 11-month low in Jan/16 led by weaker data from Germany.
In France, growth in manufacturing sector ground to a halt ending a period of a four-month period of expansion.
On  a more positive note, order book growth in both manufacturing and services industries improved with companies set to boost employment.
Weak oil prices cut input costs with manufacturers showing the second-largest decline in costs since Jul/09. Service sector input cost inflation slowed to an 11-month low.
Lower input costs allowed producers to cut average prices to customers for both goods and services with the overall decline in output prices being the largest in ten months.

South Africa – Gold Mining Industry and potential claims from silicosis class action

The South Gauteng High Court in South Africa is being asked to rule on a proposal for class action certification for silicosis claims against the gold industry.
The class action covers current and former mineworkers who worked in gold mines after 1965 including dependents of deceased miners.
Should this application for class action be approved, 100,000 current and former mineworkers could be eligible for claims according to Mining Weekly.
A Human Rights lawyer acting for individuals sees claims ranging from R 200,000 to several million for more skilled workers.
A group of mining companies have been active in working outside the court to address this issue.
This is an issue that has been rumbling for a number of years and it is likely that claims will be made against mining companies but in what form will be determined on the outcome of any court ruling on the validity of class action.

Currencies
US$1.0839/eur vs 1.0895/eur yesterday.   Yen 118.18/$ vs 116.60/$.  SAr 16.496/$ vs 16.796/$.   $1.429/gbp vs 1.418/gbp
0.701/aud vs 0.692/aud.  CNY6.579/usd vs CNY6.579/usd 

Commodity News
Precious metals:
Gold US$1,098/oz vs US$1,098/oz yesterday – Gold prices rose to >$1,109/oz yesterday on volatile equity market movements
Platinum US$825/oz vs US$817/oz yesterday –
Palladium US$503/oz vs US$494/oz yesterday –  Russia central bank says palladium prices are too low to sell stockpile metal
Silver US$14.15/oz vs US$14.08/oz yesterday

Base metals:
Copper US$4,447/t vs US$4,368/t yesterday – Chinese State Grid is expecting to cut investments by 3% in 2016, according to Chairman Liu Zhenya.
Multi-year projects may require more spending in future years leading to an increase in demand for copper.
“Lower spending in 2016 may set up a spike for 2017 when out multi-year projects enter a stage that requires purchasing more expensive equipment,” Liu said.
The Company plans to spend CNY 2.3tn between 2016 and 2020 on power-transmission network, up 28% on the CNY 1.8tn spent in the previous five years.
“Overall China’s power market is still in the growth mode and we need to build a better network to meet the needs of power transmission.”
In Zambia, copper production increased 0.5% in 2015 despite introduced higher royalties, declining prices and low power availability.
Production totalled 711.5kt due to First Quantum’s Kalumbila operation starting output.

Aluminium US$1,494/t vsUS$1,467/t yesterday –
Nickel US$8,725/t vs US$8,535/t yesterday –Of 2mt of global nickel capacity , 16kt was shut down last year, Morgan Stanley estimates.
This compares to estimates for 2/3s of the industry said to be losing money at current spot prices.
Global supply should be cut by as much as 30% to ease surplus, Norilsk Nickel estimates. Following production curtailments, the industry may move into a destocking cycle.

Zinc US$1,522/t vs US$1,468/t yesterday
Lead US$1,644/t vs US$1,604/t yesterday
Tin US$13,600/t vs US$13,440/t yesterday

Energy:
Oil US$30.80/bbl vs US$27.70/bbl yesterday – End to Iranian sanctions will help Iran but should not add new oil supplies into markets as Iran was selling oil despite the sanctions
Natural Gas US$2.139/mmbtu vs US$2.147/mmbtu yesterday
Uranium US$34.75/lb vs US$34.75/lb yesterday

Bulk comodities:
Iron ore 62% Fe spot (cfr Tianjin) US$41.10/t vs US$41.40/t yesterday –
Iron ore futures climbed in Asia on the back of the news Brazilian authorities ordered Vale to temporarily close one of its main ports following suggested environmental breaches.
The Brazilian court ordered a halt of exports/imports from Tubarao port after iron ore and coal dust were found in the sea.
Estimates suggest Tubarao port normally handles around 110mt of ore per annum.
Overproduction by Rio Tinto, BHP, Vale and others raise China port inventories to > 100mt

Steel – Tata Steel scales back iron ore mining in Canada.  The operations are a joint venture between Tata and Alberta-based New Millennium Iron Corporation (NML)
China Crude steel production fell 2.3%yoy to 803.8mt last year.  Dec production was down 5.2%yoy at 64.4mt.
Thermal coal (1st year forward cif ARA) US$38.70/t vs US$37.40/t on 30 December –

Other:
Tungsten - APT European prices $150-175/mtu  vs $165–175/mtu last week and $165–180/mtu the week – looks like the lowest price since at least Jan 2010
Ferrochrome – Benchmark prices collapsed to 92c/lb in December for Q1/16.

Company News
African Potash (ALON:FPO) 1.6p, Mkt Cap £12.5m – meeting with president Museveni and Lord Hain in Uganda
African Potash, the fertiliser trading company, report on press reports relating to a meeting between the company and President Museveni.
Lord Hain, representing the UK was promoting African Potash’s interest in investing in fertilizer development in Uganda.
Hain is keen to see African unlock its agricultural potential through the supply of cheap fertilizer and for greater food security in Africa.
He notes that with increasing populations in China and India that food scarcity is becoming a real world threat.
An independent news update says “The President welcomed Lord Hain’s commitment to invest in Uganda and said that the country has enough reserves to make all the needed fertilizers that would take the entire African continent 100 years to exhaust. He added that Uganda is already number 2 producer of bananas without using fertilizers.  He observed that the country would be number one in the world in the production of bananas if farmers made use of fertilizers.”
African Potash recently raised £825,000 through the placing of 48.5m new shares at 1.7 pence per share.  The funds are to be used to improve local infrastructure to support the company's trading activities.
Trading:  The funding followed announcements on the company’s first two African fertilizer trades which served to highlight the potential for developing this business.
The team recently reported on the dispatch of an initial 20,000t order of urea fertiliser as part of a 50,000t purchase order in Zambia introduced by COMESA as previously announced.  The order is worth $10.16m with a price of $508/t of Urea stock.
The company is negotiating a $50m trade finance facility to help with rolling out its fertiliser operations.  It has also developed a trading agreement with the Common Market for Eastern and Southern Africa to supply and deliver at least 500,000tpa of fertilisers over a three year period.
Mining:  The company is also planning to drill at its Lac Dinga Potash Project in the Republic of Congo where it is looking to generate an initial resource statement.
Results:  African Potash reported a loss for the year of US$8.8m due mainly to a non-cash $7.5m impairment of its Lac Dinga project.  In reality the cost of running the company in operating expenses was $1.3m vs $1.0m a year earlier.  We note this is a relatively modest corporate cost considering the activities of the company and
Investment:  The company made an investment of $105,000 in an AIM company, Blenheim Natural Resources. Chris Cleverley has subsequently become a non-executive director. Blenheim is focussed on
Board:  African Potash has an interesting board led by Chris Cleverly, a barrister by profession and CEO of the Made in Africa Foundation.  The board was further  bolstered in October by the appointments of:  Rt Hon Lord Peter Hain, a former UK government cabinet minister and former Foreign minister; the Rt Hon Mark Simonds a conservative MP and Declan O’Brien who is currently CEO of the Barak Fund based in Cape Town.
Conclusion:  African Potash appears to be a company which is going places.  The transformation of the board and the rapid development of fertiliser contracts suggest the business is forging ahead in the development of its trading business.  Today’s report on the company’s meeting with President Museveni of Uganda indicates access to key decision makers and the potential to rapidly expand the business through Africa.  

Anglo Amercian (LON:AAL) 248 pence, Mkt Cap £3.2bn – De Beers first sightholding signals changes
Phlippe Mellier the CEO addressed sightholders at a reception held on Jan 20th on the current state of the diamond market and De Beers actions.
De Beers say that they see polished diamond prices starting to stabilise and even increase in certain areas with greater trading activity at the end of 2015.
The mid-stream is seen to be “delicate” and remains work in progress.
Against this backdrop, De Beers plan to restructure Global Sightholder Sales with sales more attuned with customer needs.
Multi-functional groups are to be set up to gauge the state of the market and be able to respond on the supply side.
The company is continuing to invest in non-proprietary marketing in 2016.
Conclusion: It is good to see De Beers making moves to be more flexible on the supply side to align themselves more to their sightholder needs. While little was said in this transcript on detailed actions, last year’s move to cut supply and also give sightholders more flexibility was the first move.
Supply management and improving polished market demand through marketing look like key platforms of the strategy rather than having an auction system used by other players which determines the end price. Either way a strategy to support prices should be seen as positive to the industry. Stable to gently improving prices will be the key driver to earnings in the diamond sector rather than a high volume low cost strategy.
Other industry players should also be involved in non-proprietary marketing to support end demand and not just piggy back on De Beers marketing budget.
We remain buyers of producers such as Petra Diamonds and Lucara and near term producers such as DiamondCorp and Firestone Diamonds.

Condor Gold (LON:CNR) 24p, Mkt Cap £11.0m –Optimisation Study on La India
Condor Gold has disclosed the headline results of optimisation studies conducted by the international consulting company, Whittle Consulting, on its La India gold project in Nicaragua.
The study involved a number of different development scenarios based on earlier Pre Feasibility (PFS) and Preliminary Economic Assessment (PEA) work by SRK Consulting and “clearly demonstrates the potential to unlock substantial additional value from the La India Project. Across 3 production scenarios, NPV increases over 50%, IRRs average 30%, the payback on upfront capital costs is between two to three production years and gold production increases on average 22% for the first 5 years.”
Results show post tax improvements in NPV ranging from 37% for a scenario of combined open pit and underground mining based on indicated and inferred resources [Note that using inferred resources is outside the scope of NI-43-101 guidance], to a 78% improvement to the NPV generated in SRK’s base case PFS assumptions for an open pit mine based on the indicated resource.
The optimised NPVs now range from $167.8m for the PFS base case to $267.9m for the combined open pit/underground mining scenario. The study also improved IRR by between 26% and 39% to between 29.5% and 32.1%.
The improvements are the result of a number of factors, including the use of variable cut-off grades associated with active stock-pile management through the mine life, process cost reductions through balancing the grind size/throughput and recovery profile in the process plant and optimising the pit developments to enhance gold production by around 20,000oz pa during the early years of the mine’s life and increase the overall volume of gold extraction through deeper pits.
The studies incorporate an assumed gold price of $1250/oz and silver price of $19.75/oz which are somewhat higher than current levels, however, it appears that the optimisation work has identified a number of fruitful areas to enhance the project economics more than offsetting any adverse impact of the current weakness in commodity prices.
Conclusion: The optimisation work underlines the quality of the La India deposit and identifies specific areas of resource definition, process technology and mine scheduling and development which bring tangible improvements to the project economics. Applications for environmental approval were filed early in December last year and the company now needs to find a way forward to finance the project development.

Medusa Mining (ASX:MML) A$0.34, A$71m – CEO appointment update
Hold
Medusa Mining have updated the market on their search for a new CEO to take the business forward.
Roy Daniel the previous CFO re-joined the board as a NED in November.
Rob Gregory, the COO was initially hired as a mining consultant in November 2014 and appeared to doing a good job on our last review
We see Medusa as offering an interesting challenge for any new ceo.

Thor Mining (LON:THR) 0.035 pence, Mkt Cap £1.6m – Sale of gold interests
The company is selling its gold interests to a private Australian company PC Gold.
The purchase is subject to PC Gold being funded by a precious metal private equity fund based in San Francisco.
TM Gold which holds Thor’s interest in Spring Hill and Dundas project is being sold for A$2m net of a deposit of A$150,000 for a 60% interest.
A$1.5m is payable is cash within 12 months for the balance of the 40%.
A royalty of A$6 per oz is payble for gold sold for up to A$1,500/oz and A$14/oz for prices achieved above A$1,500/oz.
Conclusion: Raising funds for its gold assets which are early stage with no resource would be a good move for Thor Mining giving it the scope to move forward on its more advanced Molyhill tungsten project which where it has a JORC 3 mt of reserves at 0.31% tungsten trioxide and an upgraded DFS has been completed.

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