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Today's Market View - Bushveld Minerals Limited, Diamondcorp Plc, BlueJay Mining PLC, Metminco Ltd

Published: 10:44 03 Apr 2017 BST

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Markets are relatively muted on the first trading day in Q2/17 with major economic releases this week including the release of FOMC and ECB minutes and US labour numbers due Friday.

• Gold and most of base metals are down marginally this morning amid a slight increase in the US$ index.

• The pound is off against the US$ on the back of worse than forecast Mar manufacturing PMI numbers.

• Chinese markets are closed on Monday/Tuesday.

• Major coal rail systems in Queensland are estimated to take up to five weeks to reopen following the aftermath of Cyclone Debbie, according to a local freight operator.

• “Cyclone Debbie moved out to sea overnight and is not expected to redevelop and poses no threat to the mainland,” the Australian Bureau of Metrology said on Friday.

• Coking coal futures for Sep delivery, the most traded ones on the DCE, climbed 7% from lows mid last week with estimates for prices to continue strengthening through the week.

 

Tesla – raises sales to >250,000 deliveries in first three months

• Tesla delivered 13,450 Model S cars and 11,550 of the Model X..

• Sales are likely to continue to rise significantly with the launch of the new Model 3 in the US at around $35,000 (£28,000).

• There is little doubt that Tesla drivers love their cars.  We even hear there is a Tesla taxi operating in Newmarket these days.

• The growth of Tesla is likely to be good for lithium, graphite, cobalt and other battery related raw mateials.

 

Dow Jones Industrials  -0.31% at 20,663

Nikkei 225   +0.39% at 18,983 

HK Hang Seng   +0.51% at 24,234 

Shanghai Composite       3,223 Markets are closed Monday/Tuesday

FTSE 350 Mining   +0.78% at 15,683

AIM Basic Resources   -0.43% at 2,654 

 

Economic News

US – Inflation gradually moves towards the Fed 2% target while consumer spending, the major driver of the US economic growth, disappoints in Feb.

• Consumer spending adjusted for inflation fell 0.1%mom following a 0.2%mom decline in Jan.

• Commentators pointed to mild winter weather (weaker outlays on power and natural gas) and a delay in tax returns as causes behind the slowdown with estimates pointing to an acceleration in the domestic demand moving forwards.

• Core PCE, a closely watched inflation index at the Fed, inched closer to the 2% target with the central bank doing a good job at managing inflation expectations and continuing to gradually tighten the monetary policy.

 

China – Private survey of the manufacturing sector showed different dynamics to the official report.

• While the sector continued to grow, the pace of expansion slowed in Mar with new export orders slowing to the weakest in three months.

• “The output, new orders and employment sub-indices edged down,” Markit said.

• “Overall the Chinese manufacturing economy continued to improve, but signs of a weakening have started to emerge ahead of the second quarter.”

• Previously, a government released PMI showed the sector growth strengthened in Mar hitting the highest growth pace since 2012.

• Caxin/Markit PMI: 51.2 v 51.7 in Feb and 51.7 forecast.

 

UK – Manufacturing activity growth continued to ease for a second consecutive month through Mar; although, the pace remained above long-term trends.

• The index hit a two year high in Dec on improved competitiveness of local producers from the weak sterling exchange rate.

• Local businesses remained optimistic over the 12 month outlook with the sentiment reaching the highest level in the last ten months.

• “With growth losing further momentum in Mar, that weaker trend is likely to continue into the second quarter,” Markit said.

• “The latest survey also clearly shows that high costs and weak wage growth are sapping the strength of consumers, with rates of expansion in output and new orders for these products slowing further.”

• Markit Manufacturing PMI: 54.2 v 54.5 in Feb and 55.0 forecast.

 

Spain – Manufacturing sector expansion seen slowing down in Mar with weaker increases in output, new orders and employment.

• While production expanded for 40 months now, the pace of expansion eased for the third month running and was the slowest since Oct/16.

• New orders growth came down for a third straight month pointing to a slowdown in the momentum during Q1/17.

• “Both input and output prices rose at rates rarely surpassed over the past six years, testing the resilience of customer demand”.

• Manufacturing PMI: 53.9 v 54.8 in Feb and 54.7 forecast.

 

Ecuador – election fraud allegations

• Guillermo Lasso had started celebrating his potential victory after exit polls indicated his victory.

• But, hold on, results now show Lenin Moreno, the incumbent socialist party candidate has 51.2% of the vote for all but 4% of districts.

• Lasso is demanding a recount and has asked his supporters to ‘peacefully defend your vote’.

• Lasso wants to create 1m new jobs through the promotion of foreign investment.  Moreno is the candidate of the incumbent socialist party.

• Either way we reckon Ecuador is an up and coming destination from a mining perspective

 

N Korea – Trump suggests that US could go it alone over North Korea

• With a new team of ‘hard-line’ advisors in the White House, the risk of action over North Korea is significantly raised.

• The risk for the US or anywhere else to that matter is that North Korea launches an EMP ‘Electro Magnetic Pulse’ weapon to knock out US power and other infrastructure.

• The move could reverse US economic development by decades causing widespread chaos and allowing its competitors huge advantage.

• N Korea is hardly likely to strike against China but it could go for S Korea, Japan or its major ally the US.

• The rhetoric might spur China into taking some action as if the US bombs N Korea then it could create a huge refugee crisis for China.

• The message for China is clear, do something or bear the consequences.

 

Paraguay – government coup and death of activist may further unsettle nation

• The political coup by the existing President who is manoeuvring to retain power has unsettled the nation

• Violent protests by opposition activists was opposed by police leading to the death of a 25 year old activist

• The police action appears reminiscent of a government which is determined to remain in power

• The action may or may not affect Latin American Minerals which was looking for diamonds in the country but now seems focussed on gold

 

Currencies

US$1.0666/eur vs 1.0684/eur yesterday.   Yen 111.45/$ vs 111.79/$.   SAr 13.492/$ vs 13.368/$.   $1.253/gbp vs $1.246/gbp.  

0.760/aud vs 0.766/aud.   CNY 6.887/$ vs 6.889/$.

 

Commodity News

Precious metals:

Gold US$1,246/oz vs US$1,243/oz yesterday – Investors increased net long positions on gold to the highest in 11 weeks through Mar 28 amid a weakening Trump trade.

• Net long positions climbed 50% to 99,150 futures and options, according to the US CFTC data.

• Gold prices climbed 8.6% in Q1/17 marking the strongest increase in a year.

 

   Gold ETFs 58.9moz vs US$58.9moz yesterday

Platinum US$952/oz vs US$946/oz yesterday

Palladium US$798/oz vs US$794/oz yesterday

Silver US$18.18/oz vs US$18.10/oz yesterday

           

Base metals:   

Copper US$ 5,870/t vs US$5,900/t yesterday – As an indicator of tight concentrate supply, spot TC/RSs are reported to have hit new 4-year low of $73.9/7.39 over the past two weeks.

• Restart of operations at Escondida and Cerro Verde as well as a potential resolution of the standoff between Freeport and Indonesian government overt the Grasberg mining license are expected to increase the availability of concentrates in the market and see a recovery in TC/RCs further in the year.

 

Aluminium US$ 1,969/t vs US$1,969/t yesterday

Nickel US$ 10,000/t vs US$10,095/t yesterday – The Energy and Mineral Resources Ministry approved 3.7mt of nickel ores exports by two local miners.

Aneka Tambang secured a permit to ship 2.7mt of nickel ores and 850kt of bauxite.

• Another miner was issued with a recommendation to export 1mt of nickel ores.

• The nation banned all unprocessed ores exports in Jan/14 in a move to stimulate local smelting capacities development.

• Indonesia shipped some 60mt of nickel ores in 2013.

 

Zinc US$ 2,785/t vs US$2,831/t yesterday

Lead US$ 2,339/t vs US$2,328/t yesterday

Tin US$ 19,910/t vs US$19,970/t yesterday

           

Energy:           

Oil US$53.5/bbl vs US$52.9/bbl yesterday

Natural Gas US$3.229/mmbtu vs US$3.216/mmbtu yesterday

Uranium US$23.25/lb vs US$24.15/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$76.4/t vs US$78.6/t

Chinese steel rebar 25mm US$557.3/t vs US$557.1/t

Thermal coal (1st year forward cif ARA) US$67.0/t vs US$66.0/t yesterday

Premium hard coking coal Aus fob US$152.3/t vs US$151.6/t

 

Other:

Tungsten - APT European prices $208-216/mtu vs $187-198/mtu

 

Company News

BlueJay Mining* (LON:JAY – formerly FAM LN) 13.8p, Mkt Cap £86m – Maiden JORC resource update due on Pituffik titanium mineral sands project in Greenland

(formerly FinnAust Mining)

BUY Target Price to be revised on higher ilmenite prices

• BlueJay Mining, the ilmenite project company with assets in Greenland, appears to be promoting Greenland as a destination in an advertisement in the much respected City AM newspaper.

• The company has used a picture of a settlement set against some mountains with a couple of small floating icebergs which looks like it just might have come from the Greenland tourist board.

• BlueJay claim in the region has “outstanding prospectivity”, “Established Infrastructure” and a “Strong rule of law” they go on to say;

• “Greenland has a lot to offer – including one of the world’s highest grade titanium projects.”

• We are expecting the company to release a new JORC resource statement on the Pituffik project sometime soon which will give further detail and conformation of the scale of the project and on some of the economic parameters around the project.

• The initial JORC resource will be indicative / symbolic of the larger project area and give guidance on what may be expected over the entire project area as drilling continues onto 2017 and beyond.

• Given that JORC Resource statements come with a degree of economic assessment and effective feasibility study work the statement should get us someway down the road in terms of confirming the potential future value of the Pituffik resource.  We hope to update our valuation and comments on the back of this report.

• It is envisaged that production from Pitiffuk should be done by dredging submerged near-shore and marine deposits of ilmenite.

• BlueJay had around £5m in cash and cash equivalents at end December which should see it through the field season, trial mining and into next year.

• Ilmenite prices have risen dramatically to over US$177.5/t a 69% price increase according to Bloomberg.

• The price has moved beyond the expectation of many in the market with pigment producers said to be working flat out to meet demand and to make up for a number of plants which have suffered fire damage.

• Prices are negotiated individually for contracts with spot prices seen as more normal in China and longer term 3-month and 6-month price revisions said to be common more internationally.

• A supply shortage looks likely to help to keep prices higher for longer with pigment producers seen as able to absorb concentrate price increases.

Conclusion:  We expect the company to report a relatively large ilmenite resource given the scale of the beech sands being surveyed.  It will be also be interesting to see if there will be any comment on when trial mining might start, on the length of the field season for dredging and if any secondary processing might be required?

*SP Angel act as nomad and broker to Bluejay Mining

 

Bushveld Minerals* (LON:BMN) 8.2p, Mkt Cap £60m – Bushveld satisfies conditions president for Vametco Acquisition

• Bushveld reported late on Friday that it has met conditions precedent to the Share Purchase Agreement between Bushveld Vametco Limited and Evraz Group S.A for the acquisition of a 78.8% shareholding in Strategic Minerals Corporation.

• The deal also has the relevant and necessary blessing of the Minister of Mines.

• Bushveld now needs to pay the agreed sum of US$14.8m by this coming Friday.

• The funding has been put together with an $11m bridge facility from the Barak Fund in South Africa, $3m from Wogen and $0.8m from Bushveld and Yellow Dragon Holdings

Conclusion:  This looks like a great deal for Bushveld, particularly considering the recovery in vanadium prices and future potential for the Vametco plant.  We will publish more details on this shortly.

*An SP Angel mining analyst and nomad have visited the Vametco vanadium mine and processing facilities in South Africa.

 

DiamondCorp (LON:DCP) Suspended – Ineptocracy at AMCU leads to retrenchment of all employees and likely collapse of group

• DiamondCorp report that discussions between the AMCU union and the Business Rescue Practitioner in South Africa under the supervision of the South African Commission for Conciliation, Mediation and Arbitration have terminated without a settlement being reached on a collective agreement to allow care and maintenance to commence.

• The failure to reach agreement means that all employees have been retrenched.

• This also means that the finance agreed with the International Development Corporation ‘IDC’ of South Africa is now no longer available.

• “The Board of DiamondCorp has advised the BRP and the IDC that unless there is an accelerated plan and route for funding in place which can be completed by mid-May 2017, including a significant restructuring of all debt, and successful exit from the Business Rescue process, then it is likely that the Group would need to be placed into administration.”

Conclusion:  The situation is summed up by a relatively new word, Ineptocracy.  Ineptocracy, is a relatively new word describing “a system of government where the least capable to lead are elected by the least capable of producing, and where the members of society least likely to sustain themselves or succeed, are rewarded with goods and services paid for by the confiscated wealth of a diminishing number of producers.”

 

Metminco* (LON:MNC) 5p, mkt cap £6m, – A$0.75m funding from Redfield Asset Management

• Metminco has signed a binding term sheet with Redfield Asset Management for a convertible note facility of A$0.75m

• The note carries a coupon of 12.5%pa compounded monthly interest is to be capitalised.

• The note has a conversion price of $0.06075/s and could raise Redfield’s shareholding to 16.71% of exercised

• Proceeds are to be applied towards the Miraflores Gold Project feasibility study and working capital.

• Management are targeting 50,000ozpa of gold production from Miraflores in Colombia at an estimated cost of $650/oz with resources for nine years.

• Redfield shares a director with Metminco, Mr Ram Venkat and is declared as a ‘related party’.

• Metminco currently hold 49% of the Los Calatos copper porphyry which is currently being funded by CD Capital under an agreement whereby CD Capital has a right to earn up to 70% of the project through expenditure of US$45m on a pre-feasibility and feasibility study.

• Metminco also holds:

o Mollacas project in Chile which has a copper oxide and enriched copper supergene cap.  The project has a resource of 15.5mt grading 0.51% leachable copper and 0.40% soluble copper for 79.1kt and 61.6kt respectively.

o Vallecillo, a polymetallic project containing 8.1mt grading 0.82g/t gold, 10.06g/t silver, 1.06% zinc, 0.06% copper, 0.33% lead

*SP Angel act as broker to Metminco.  SP Angel analysts have previously visited Los Calatos in Peru and Miraflores project in Colombia

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