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Today's Market View Including: Berkeley Energia, DiamondCorp, Edenville Energy, Lucara Diamonds, Metminco

Published: 10:35 14 Jun 2016 BST

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Berkeley Energia (LON:BKY) – Resumption of Drilling on Salamanca Uranium Project
DiamondCorp (LON:DCP) – Sale of diamonds realises £436,597
Edenville Energy (LON:EDL) -  £432,500 fund-raising.
Lucara Diamonds (CVE:LUC) – Exploration at BK02 and deep drilling at Karowe.
Metminco* (LON:MNC) – Funding of up to $45m for Los Calatos

Lithium – pre-treating lithium battery electrodes with a simple salt bath extends life, performance and safety
• Scientists at CSIRO in Australia have discovered that pre-treatment of lithium electrodes in a simple salt solution increases their life, performance and makes them safety.
• The simple technique appears to offer significant benefit to the batteries treated and potentially outperforms other batteries currently on the market.
• The pre-treatment also reduces the risk of fire and explosion through the addition of a protective film to the electrode surface which helps stabilise the battery in operation.
• The process reduces the breakdown of the electrolyte and also enables lithium batteries to sit on a shelf for a year without loss of performance.
• The pre-treatment process can easily be adopted by battery manufacturers.  CSIRO holds patents over the chemical composition of the electrolyte salt solution.
• Scientists reckon the treatment improves batteries to a point where electric vehicles will soon be competitive with traditional petrol vehicles.

Brexit – The Sun backs Brexit
• The Sun newspaper has backed Brexit reflecting the views of its readers, though its historic headline of “Up Yours Delors” suggests some long held views on Europe.
• The move is interesting with book makers still offering better odds yesterday on staying in Europe, though the odds are shortening for Brexit.
• With nine days left before voting and with months of somewhat ‘inconclusive’ political commentary behind us the people of Britain are making up their mind.
• If the Remain campaign are not able to offer significant ‘tangible’ reason for staying in Europe then many voters will vote for Brexit.
• The whole campaign has done little to restore trust in our political elite and the near deafening silence from the technocrats in Brussels may not have helped.
• British voters might not particularly trust their own politicians but they are likely to trust the faceless and unaccountable bureaucrats in Brussels a whole lot less.
• Voting for Brexit does not mark a sudden exit and it is quite likely that Europe may offer further concessions to keep the UK within the European fold in some form despite aggressive comments from some German politicians.
• If anything is to blame for this vote it is the near total lack of understanding of how the European parliament and legislature works and the inability to determine who runs the EU.
• Immigration is a key issue for many voters along with a loss of sovereignty and determination of legislation which appears to be mainly driven by the key northern European states.  Michael Gove the Lord Chancellor and Secretary of State for Justice commented that he was frustrated at his inability to do anything about new laws passed in Europe applying to the UK.
• Key business leaders have come out on both sides with JCB and Dyson for Brexit and BT, Bloomberg and JP Morgan for Remain.  It is interesting that key UK based manufacturers with global reach are for Brexit and that foreign companies which are selling into Europe from the UK are keen to remain.
• While a Brexit vote is likely to weaken sterling further we suspect not much is likely to change.  The UK is buying far more from Europe indicating that it would be economically irrational for Europe to impose punitive trade barriers. 
• Slow economic growth in Europe also means that Europe is now a significantly lesser destination for British goods with the proportion of UK exports to Europe falling to 47% last year from 60% in 2000.
• Winston Churchill was involved in the formation of the European Union to help prevent the formation of dictatorships and division within Europe following the rise of far right regimes across Europe.  It is ironic that the EU which was partly designed to hold back the far right in Europe now looks responsible for gains in right wing parties across the union.
• The UK has survived with its own brand of liberal democracy since the time of Oliver Cromwell and Sir Thomas Fairfax does it need to be part of this union?

Dow Jones Industrials                         -0.74% at            17,732
Nikkei 225                                             -1.00%  at           15,859
HK Hang Seng                                      -0.61%  at           20,388
Shanghai Composite                             +0.32%  at          2,842   Dragon Boat ‘Tuen Ng’ festival holiday finished yesterday
FTSE 350 Mining                                  -2.19%  at            8,855
AIM Basic Resources                           -0.37% at            1,954

Economic News

Stronger US$ leads oil prices and metal prices lower this morning.
• The British pound is ploughing new lows falling to an eight-week low ass four latest polls put Brexit as a favourite while the Sun backed the Leave vote on the front page.
• A one-month volatility of the currency hit the highest level since 2008.
• Yields on sovereign bonds in Australia, Germany and Japan fell to new record lows on increased demand for safe haven assets.
• The US FOMC Board starts its two-day meeting today with no rate change announcement forecast by markets.
• Jul rate hike probability currently stands at 16%, down from 53% at the end of May before the release of the latest weak NFPs.

US – May retail sales numbers are due later today with estimates for a slowdown following a strong rebound in growth in Apr and upward revisions in Feb/Mar.
• Headline numbers were boosted by autos and gasoline in Apr while core sales also recorded solid gains.
• Strong May numbers coupled with solid Apr report will provide confidence to investors the economy may accelerate through the quarter rebounding from weak Q1.
Date Index Period Actual Expected (Bloomberg) Previous
Tuesday Retail Sales May   0.3%mom 1.3%mom
  Core Retail Sales May   0.4%mom 0.8%mom
Wednesday PPI May   0.3%mom/-0.1%yoy 0.2%mom/0.0%yoy
Core PPI May  0.1%mom/1.0%yoy 0.1%mom/0.9%yoy
Industrial Production May  -0.2%mom 0.7%mom
Capacity Utilisation May  75.2% 75.4%
  FOMC Rate     0.25%-0.50% 0.25%-0.50%
Thursday Weekly Jobless Claims     270k 264k
Current Account Balance Q1  -$124.3bn -$125.3bn
CPI May  0.3%mom/1.1%yoy 0.4%mom/1.1%yoy
  Core CPI May   0.2%mom/2.2%yoy 0.2%mom/1.1%yoy
Friday Housing Starts May   -1.9%mom 6.6%mom
  Building Permits May   1.3%mom 4.9%mom
Source: Bloomberg       

China – The IMF highlighted risks of rapidly expanding credit in China as well as the government reluctance to harden budget constraints on state enterprises.
• The Fund advised the government to impose budgetary constraints on its SOEs, restructure firms on an effort to cut outstanding corporate debt levels and liquidate weakest companies.
• Corporate debt is currently standing at 165% of GDP with combined borrowings at 247% of GDP.
• This compares to c.105% and 160% a decade ago.

Germany – 10 year government bond yields dipped below zero for the first time on record driven by the ECB QE programme and concerns over the effect of the UK referendum on economic growth outlook.
• The yield briefly touched -0.004% levels before bouncing back and currently trading around 0.001% v 0.600% recorded in the beginning of the year.

UK – Weaker than forecast inflation released this morning is unlikely to provide any support for the tumbling British pound.
• CPI: 0.2%mom/0.3%yoy in May v 0.1%mom/0.3%yoy in Apr and 0.3%mom/0.4%yoy forecast.
• Core CPI: 1.2%yoy v 1.2%yoy in Apr and 1.3%yoy forecast.
• The pound is off 0.7% this morning and 2.5% since the start of the month.

Spain – The economy remained in deflation for the 10th consecutive month in May with the rate of price declines holding close to the fastest in over a year.
• CPI (EU Harmonised): 0.5%mom/-1.1%yoy v 0.5%mom/-1.2%yoy in Apr.
• Stripping out energy costs and other volatile components, prices climbed 0.3%mom/0.7%yoy in May.

Mozambique – The central bank raised the benchmark rate for a third time this year to fight accelerating inflation.
The rate was increased by 1.5pp to 14.25% which compares to an official rate of inflation of 18.3% in May.

Currencies
US$1.1223/eur vs 1.1274/eur yesterday.   Yen 105.81/$ vs 105.92/$.   SAr 15.345/$ vs 14.229/$.   $1.416/gbp vs 1.413/gbp
0.734/aud vs 0.739/aud.   CNY 6.592/$ vs 6.587/$

Commodity News
Precious metals:
Gold US$1,281/oz vs US$1,284/oz yesterday –
Gold ETFs 60.3moz v 60.2moz yesterday – Gold ETFs continue to rise as Brexit fears and ongoing demand raise holdings
Platinum US$983/oz vs US$995/oz yesterday –
Palladium US$541/oz vs US$547/oz yesterday –
Silver US$17.30/oz vs US$17.31/oz yesterday
           
Base metals:   
Copper US$ 4,528/t vs US$4,522/t yesterday –
Aluminium US$ 1,607/t vs US$1,577/t yesterday – Six major aluminium smelters in China met to discuss a potential output cut if prices fall to CNY 11,500/t (US$1,745/t) on SHFE in an effort to set the floor price for an aluminium contract, Bloomberg reports.
• The meeting was attended by Chalco, State Power Investment, Hongqiao Group, Jiungang Group, Yunnan Aluminium and Jinjiang Group.
• The closest delivery futures (Jun/16) currently trades at CNY 13,125/t on SHFE while Dec/16 futures stand at CNY 10,640/t.
Nickel US$ 8,865/t vs US$8,860/t yesterday – Cuba sees nickel output steady at 56,000t despite low nickel prices
Zinc US$ 2,037/t vs US$2,062/t yesterday –
Lead US$ 1,700/t vs US$1,695/t yesterday
Tin US$ 17,045/t vs US$17,050/t yesterday -
           
Energy:           
Oil US$49.73/bbl unch vs US$50.10/bbl yesterday
Natural Gas US$2.574/mmbtu vs US$2.593/mmbtu yesterday
Uranium US$28.00/lb vs US$28.15/lb yesterday

Bulk    
Iron ore 62% Fe spot (cfr Tianjin) US$49.1/t vs US$48.7/t – yesterday –
Steel – Chinese steel production hit a near record high in May contradicting past statements that China would cut back production
Thermal coal (1st year forward cif ARA) US$51.2/t vs US$51.2/t yesterday –

Other:
Tungsten - APT European prices stood at $205-222/mtu unch vs $208-222/mtu –

Company News

Berkeley Energia (LON:BKY) 34 pence, Mkt Cap £65.7m – Resumption of Drilling on Salamanca Uranium Project
• Berkeley Energia has announced the resumption of drilling at its Salamanca Uranium Project in Spain.
• The company has deployed two rigs to site to complete a 38 holes programme concentrating on 3 main target areas:
o 12 holes to a depth of 250m are designed to test the continuity and possible extensions of the high grade mineralisation previously encountered at depth in Zona 7
o An additional 15 holes are planned to test the area south of Zona 7 with the objective of identifying extensions to the existing mineralisation
o A further 11 holes to a depth of 80m are planned to test shallow mineralisation and follow up a broad radiometric anomaly in the recently identified Las Eras zone located 5 km north of Zona 7
o The Zona 7 discovery with high grade mineralisation has transformed the economics of the Salamanca Uranium Project and the company’s decision to target its exploration at extensions and lookalikes seems pragmatic.
Conclusion: The resumption of drilling is targeted at identifying further high grade mineralisation similar to that outlined in the Zona 7 zone – we look forward to results of the drilling campaign as they become available.

DiamondCorp (LON:DCP) 7 pence, Mkt Cap £31.2m – Sale of diamonds realises £436,597
• DiamondCorp has announced the sale of two parcels of diamonds from its Lace Mine in S Africa for a total of £436,597. The sale consisted of a parcel of 1,838 carats of run-of mine kimberlite diamonds which realised an average of $189/carat and a parcel of 1,679 carats recovered from tailings which realised and average $53/carat.
• The diamonds, which were originally scheduled to be offered at auction in Antwerp at the end of June were also offered in South Africa under an arrangement where diamonds planned for export are offered to local diamantieres in S Africa over a four day period. In this case, the local bids exceeded the company’s reserve price and “the Company is obliged to sell the diamonds to the highest bids rather than [allow them to be] exported.”
• The Company points out that these latest selling prices exceed the $164 carat estimate of the company’s base-case financial models and mineral resources estimates.
• On the operational side, two of the three underground dump trucks currently being refurbished are now scheduled to go into operation by the end of this month. This should facilitate the consistent delivery of 30,000tpm of kimberlite ore to the conveyor system and reduce delays caused by high levels of breakdowns and repair costs of the existing mining fleet.
• The final outstanding critical path project in the development plan, the completion “of the 1,500 tonne underground ore silo and tipping arrangement onto the conveyor belt … remains on target for hand over from the contractor by the end of June.”
Conclusion: The recent diamond sale at better than expected prices should ease cash flow as the Lace Mine moves towards steady state operation at 30,000tpm.

Edenville Energy (LON:EDL) 0.02 pence, Mkt Cap £2.3m -  £432,500 fund-raising.
• Edenville Energy, which is developing the Rukwa coal-to-power project in Tanzania,  has announced that it has raised £432,500 through the issue of 1,922m shares at 0.0225 pence per share. There will also be 961.1m warrants (1 warrant for every two shares)  to subscribe for a further share at a price of 0.03pence per share within the next 12 months.
• The funds are to be used for “the advancement of mining development, including bulk sampling and analysis, progressing regulatory requirements for mine and power development with Tanzanian government institutions, the progression of commercial discussions with Tanesco and general working capital requirements”.
• Two of the company’s executive Directors, the Chairman, Rufus Short, and COO Mark Pryor, have each subscribed 44.44m shares (2.3% of the offer and 0.38% of the enlarged capital).
Conclusion: The new funding was not unexpected given the accelerating progress of the project.

Lucara Diamonds (CVE:LUC) C$3.90, Mkt Cap C$1466m –Exploration at BK02 and deep drilling at Karowe.
• Lucara Diamonds reports that it has completed a mini-bulk sampling programme at the BK02 kimberlite located 30km east of the  company’s Karowe diamond mine in Botswana.
• The company recovered 274.33 carats of diamonds from a sample of 5916 tonnes of kimberlite ore. The “Three largest diamonds recovered were 5.48 ct, 2.26 ct and 2.03 ct” and in total 24 stones greater than 1 carat in weight including 3 stones in excess of 3 carats. The large, 5.48 carat diamond is described as a “brownish octahedron”.
• At the Karowe mine itself, the company has started a 10,000 metres deep drilling programme to test the inferred resource below 400m depth within the South Lobe of the kimberlite pipe. The results of this programme will contribute to an updated resource estimate for the Karowe mine.
• Further exploration includes a trenching programme yielding a 6000 tonnes sample from the AK12 pipe which is currently being treated.
Conclusion: The recovery of large diamonds from the sampling of the BK02 pipe is encouraging given its relative proximity to the Karowe mine. We look forward to the results from the deep drilling at Karowe and of the bulk sample from the AK12 pipe in due course.

Metminco* (LON:MNC) 0.2 pence, Mkt Cap £6.2m – Funding of up to $45m for Los Calatos
• Metminco has announced that it has signed a binding Heads of Agreement with CD Capital Natural Resources Fund III  (CD) for an equity investment of up to US$45m in Los Calatos Mining its Peruvian copper project.
• The funding will be injected in three tranches over a period of 3 years:
o On settlement, CD will subscribe US$16m to acquire a 51% interest in Los Calatos Mining, valuing the entire project at approximately US$31.4m and Metminco’s residual 49% holding in Los Calatos at US$15.4m.
o Metminco expects that Los Calatos Mining “will receive Tranche 1 equity funds in July 2016”
o CD has the option to acquire an additional 14% interest (taking its holding to 65%) for an additional US$14.5m
o A further investment of US$14.5m gives CD the option to acquire a further 15% interest taking its overall holding to 70%.
o The funds from CD are to be “applied to complete the Prefeasibility and Feasibility Studies on the Project.”
o If, ultimately, CD invests the entire US$45m to acquire a 70% holding in Los Calatos, the implied value of Metminco’s 30% interest would be approximately US$19.3m.
o Metminco has been looking for a partner to help it advance Los Calatos  for some time and Managing Director, William Howe, commented that ”the Board believes that CD Capital are the right fit and bring the deep mineral knowledge and a proven track record in identifying and investing in world class mining and resource assets like Los Calatos”
o Having secured the funds to advance Los Calatos through Feasibility, Metminco “is now in a position to focus on the recently completed acquisition of Minera Seafield SAS, which owns the Quinchia Gold Portfolio in Colombia”. The Quinchia project area includes the Miraflores gold deposit which contains approximately 1.9m oz of gold resources and offers near term development potential.
Conclusion: The transaction with CD not only ensures the funding for the feasibility work at Los Calatos and provides Metminco with the opportunity to focus on its Colombian projects, it also puts a benchmark  value on  the company’s residual 49% interest in Los Calatos at approximately US$15.4m or approximately 1.7 times the current market value of the entire company.
*SP Angel act as joint-broker to Metminco

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