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Today's Market View - ASA Resource Group, Atalaya Mining, Caledonia Mining, IronRidge Resources and Shanta Gold

Today's Market View - ASA Resource Group, Atalaya Mining, Caledonia Mining, IronRidge Resources and Shanta Gold

ASA Resource Group* (LON:ASA) 1.3p, Mkt Cap £22m – Scott Morrison buys stock in company
Atalaya Mining  (LON:ATYM) 143 pence, Mkt Cap £167m – Q1 Results and update
Caledonia Mining (LON:CMCL) 111 pence, Mkt Cap £58m – Q1 gold production increases by 18% at Blanket.
IronRidge Resources* (LON:IRR) price 43p, Mkt Cap £101m – Confirms exploration partnership in Ivory Coast
Ortac Resources* (LON:OTC) 4.4p, mkt cap £3.6m – Joint-venture to develop the Sturec project
(Ortac recently consolidated their shares by 100:1)
Shanta Gold (LON:SHG) 8.9p, Mkt Cap £51.7m – Strong Q4 operational results.  Underground development on target

121 Mining Investment conference – sponsored by SP Angel - 10–11 May 2017
• The 121 team are running the London 121 Mining Investment conference at No 8 Fenchurch Street in The City on 10-11 May.
• The event is for registered investment professionals, mining and exploration companies and mining analysts and brings the industry together alongside a series of investor briefings.
• 65 quality producers, developers and explorers attending / presenting
• I’m talking at 3:00 on the Thursday on:  ‘UK mining outlook - A new era of UK funded exploration and production’.
• Follow link for investor passes - http://www.weare121.com/121mininginvestment-london/registration/register-investor/

Dow Jones Industrials  -0.55% at 20,523
Nikkei 225   +0.07% at 18,432 
HK Hang Seng   -0.38% at 23,833 
Shanghai Composite    -0.81% at 3,171 
FTSE 350 Mining   +0.72% at 14,916
AIM Basic Resources   -0.35% at 2,729 

Economic News
Currencies
US$1.0742/eur vs 1.0726/eur yesterday.   Yen 108.97/$ vs 108.86/$.   SAr 13.237/$ vs 13.352/$.   $1.283/gbp vs $1.284/gbp.
0.752/aud vs 0.751/aud.   CNY 6.885/$ vs 6.884/$.

Commodity News


Precious metals:
Gold US$1,280/oz vs US$1,284/oz yesterday
   Gold ETFs 59.7moz vs US$59.7moz yesterday
Platinum US$970/oz vs US$977/oz yesterday
Palladium US$785/oz vs US$777/oz yesterday
Silver US$18.17/oz vs US$18.21/oz yesterday
           
Base metals:   


Copper US$ 5,605/t vs US$5,647/t yesterday
Aluminium US$ 1,929/t vs US$1,907/t yesterday
Nickel US$ 9,465/t vs US$9,435/t yesterday
Zinc US$ 2,602/t vs US$2,541/t yesterday
Lead US$ 2,162/t vs US$2,138/t yesterday
Tin US$ 19,870/t vs US$19,700/t yesterday
           
Energy:           


Oil US$53.2/bbl vs US$54.9/bbl yesterday
Natural Gas US$3.191/mmbtu vs US$3.151/mmbtu yesterday
Uranium US$23.00/lb vs US$23.25/lb yesterday
           
Bulk:   


Iron ore 62% Fe spot (cfr Tianjin) US$62.9/t vs US$63.2/t
Chinese steel rebar 25mm US$504.0/t vs US$504.8/t
Thermal coal (1st year forward cif ARA) US$66.8/t vs US$66.3/t yesterday
Premium hard coking coal Aus fob US$302.0/t vs US$312.4/t

Other:


Tungsten - APT European prices $205-215/mtu vs $205-215/mtu

Company News
ASA Resource Group* (LON:ASA) 1.3p, Mkt Cap £22m – Scott Morrison buys stock in company
• Scott Morrison, the senior independent non-executive director has bought £4,909 worth of stock in Asa Resource.
• The purchase is a signal to us that Morrison is deemed to be in possession of no further inside information and that all material news on the missing $4.3m is now in the public domain.
• It appears that the non-executive directors have acted decisively to expose and limit the impact of the missing funds.
• Morrison’s share purchase is a further signal to us that the financial condition of the company should improve from here.
• The auditors, Ernst & Young are to undertake further investigation and it will be interesting to see if there is any restatement of the FY 2016 and H1 2017 figures.
Conclusion:   We have previously forecast a marked turnaround in the fortunes of ASA Resource Group as indicated by management driven and predicated on higher gold production and lower operating and management costs within the group.  We will review our figures in the light of this week’s announcement’s though the revelation of unexplained fund transfers may not have much impact on the operation of the underlying business and our forecasts.
*SP Angel acts as Nomad and broker to ASA Resources and its analysts have visited ASA’s Bindura Nickel, Freda Rebecca and Zani Kodo assets.

Atalaya Mining  (LON:ATYM) 143 pence, Mkt Cap £167m – Q1 Results and update
• Atalaya Mining reports increased Q1 copper production and reduced costs from its Proyecto RioTinto operation is Spain
• Commenting on the results, CEO, Alberto Lavandeira, noted that “since reaching nameplate capacity at Riotinto at the end of 2016, the plant continues to run smoothly and we are on track to meet our production targets”.
• Quarterly production of 8,805 tonnes of copper at a cash cost of US$1.83/lb (all-in cost of US$2.15/lb) compares favourably with the 4,048 tonnes of production at a cash cost of US$2.28/lb ($2.25/lb all-in cost) achieved in Q1 2016 when the mine was in ramp-up phase, and also with the Q4 2016 result of 8,938 tonnes of production at US41.95/lb ($2.15/lb all-in cost).
• The company is maintaining its 2017 production guidance of 34-40,000 tonnes of copper production at cash costs of US41.90-2.10/lb.
• During the construction, commissioning and ramp-up phases of Proyecto Riotinto, the company’s attention to detail and engineering fundamentals allowed an apparently trouble free production build up and we note that the same approach appears to prevail during operations as “Adjustments to geological modelling are currently under evaluation to improve mine-to-mill efficiencies. Drilling and blasting parameters have been adjusted to improve fragmentation, loading rates and crushing capacity.”
• At the recently acquired Touro project in north-west Spain, where the company has the right to increase its initial 10% interest up to 80% in stages, the permitting process is underway and a 7,900m infill and step-out drilling campaign is progressing using two reverse-circulation and one diamond coring rig. “Resource modelling is well advanced … [and] … Metallurgical test work at feasibility study level was completed during 2016”.
• Basic engineering at Touro “is progressing with a view to completing a capital and operating cost estimate as part of the study. Long-lead items have been identified together with suppliers’ quotations.”
Conclusion: Atalya’s Riotinto project appears to be bedding down well and on track to meet 2017 guidance targets. The new project at Touro is advancing through the technical and permitting study phases and we look forward to further news as the work-streams come together.

Caledonia Mining (LON:CMCL) 111 pence, Mkt Cap £58m – Q1 gold production increases by 18% at Blanket.
• Caledonia Mining has announced an 18% year-on-year increase in Q1 gold production to 12,794 oz at its 49% owned Blanket gold mine in Zimbabwe.
• Although production was 6% below the record achieved in the previous quarter, the company notes that “This trend is in line with the historical quarterly production profile at Blanket which typically experiences slightly lower production rates in the first quarter of the year due to holidays and mine scheduling.”
• The result keeps the mine on course to achieve the long term target production of 80,000oz pa by 2021 and the company is maintaining its 2017 production guidance of approximately 60,000oz.
• Commenting on the result, Chief Executive, Steve Curtis, said “Production continues to be supported by access to resources below the 750m level through the development of a second secline into the AR Main ore body as well as though the current decline at AR South and through the 6 Winze shaft.”
• The company reports a cash balance of US$14.3m as at 31st December 2016.
Conclusion: Caledonia Mining remains on course in the delivery of its strategic plan to secure the long term future of the Blanket mine through developing the deeper level resources below the 750m level.

IronRidge Resources* (LON:IRR) price 43p, Mkt Cap £101m – Confirms exploration partnership in Ivory Coast
• IronRidge Resources reports that, following a technical due diligence programme, it has now confirmed the previously announced exploration partnership with Eburnea Gold Resources and Kestrel Mining Exploration over the Marahui, Kineta and Bouna licence applications in the north-east of Ivory Coast.
• The licence areas cover 75 km of a prospective north-south trending gold bearing shear zone along strike from Centamin’s 3.3moz Konkera deposit and Azumah’s 2.2moz Wa-Lawra deposit.
• The due-diligence work included the recovery of 199 soil samples, 67 rock-chip samples and 37 auger drill samples and targeted “prospective structural settings and/or areas of artisanal workings.”
• The results included “Highly anomalous rock chip assay results including 35.1g/t, 32g/t,27.4g/t and 27.3g/t gold” over an area measuring 400m x 100m within the Marahui licence. The company identifies an area of contact between granites and metamorphosed sediments as a high priority target for future exploration although in conjunction with its joint venture partner it “will now lobby the Ministry of Mines to convert the application areas to granted mineral exploration licences prior to commencement of field programmes.”
• The agreements with Eburnea Gold and Kestrel Mining Exploration allow IronRidge to “acquire up to 100% of the projects through staged earn in arrangements and expenditure to Feasibility Study subject to each company retaining and NSR of 2.5% of which 40% may be acquired for US$3 million at any time.”
Conclusion: The confirmation of IronRidge’s agreements over the Marahui, Kineta and Bouna licence application areas underlines the company’s commitment to exploration in Ivory Coast where earlier this week it announced another, similar transaction on the Vavoua South licence in the west of the country. The decision to defer field programmes on the licence areas until the applications are confirmed as granted seems prudent and although the results so far are largely from very early stage rock-chip and soil sampling programmes, the results have been encouraging and the structural setting along strike from substantial discoveries by other companies underline the prospectivity of the targets.

Ortac Resources* (LON:OTC) 4.4p, mkt cap £3.6m – Joint-venture to develop the Sturec project
(Ortac recently consolidated their shares by 100:1)
• Ortac Resources reports that it has reached an agreement “to form a joint venture with a Slovakian company to jointly develop the Sturec Gold Project at Kremnica.”
• The company comments that “Further details of the joint venture agreement will be published when it has been formalised in a legally binding contract.”
• The 900,000 oz Sturec project has been stalled for some time as a result of permitting issues related to historic mine workings beneath the town. These were reconciled late last year and the licence was re-issued in an amended form in March this year. Today’s announcement comments that “the process for final validation of the underground mining licence as announced on 17 March 2017 continues on track.”
• Concerns were also expressed in the past over the proposed use of cyanide in the gold processing circuit and the company conducted tests on the use of an alternative thiosulphate reagent which delivered gold recoveries of over 90% and around 50% for silver.
• A 2015 review of the original 2013 pre-feasibility study conducted by SRK identified capital and operating cost savings of around 3-5% which deliver a project IRR of 23% and an NPV of $111m at a discount rate of 8% using a $1200/oz gold price assumption. At the time, capex was estimated at around US$120m to produce approximately 70,000oz of gold per year at a cash cost of approximately US$550/oz.
Conclusion: The agreement with a local company for the joint development of the Sturec project looks as if it could reinvigorate the project which had encountered delays over permitting and aspects of the proposed treatment process.
*SP Angel acts as broker to Ortac Resources

Shanta Gold (LON:SHG) 8.9p, Mkt Cap £51.7m – Strong Q4 operational results.  Underground development on target
BUY – 12.2p
• Shanta Gold report strong operational results with better than expected Q4 ’16 gold production though this is offset with lower expectations for Q2 ’17.
• Quarterly gold production came in at 20.4koz (Q4/16: 18.9koz) with the processing plant operating at full capacity and treating 151kt at 4.6g/t (Q4/16: 152kt at 4.3g/t).
• Gold recoveries hit record 92%, in line with the revised mine plan which is good news from a cost and gold production perspective.
• Operating (C1) and all-in sustaining (AISC) cash costs averaged $553/oz and $768/oz, respectively (Q4/16: $486/oz and $747/oz).
• Gold sales totalled 23.3koz in the quarter (Q4/16: 15.3koz) with the gold sold at an average gold price $1,249/oz (Q4/16: $1,219/oz).
• Cash generated from operations was boosted by a $3m drop in working capital to $9.5m with $9.9m spent in capex, most of which invested in underground development.
• The government is reported to have not returned any VAT during the quarter with the total amount currently outstanding of $12m.
• The Company said it remains in discussions regarding VAT rebates with the last payment reported to have been received was for Apr/16.
• Given delays in VAT refunds, the Company has deferred non-essential capex which includes Singida Pilot Mining Project, exploration drilling and community projects.
• The closing quarterly cash balance stood at $11.7m (Q4/16: 15.0m)
• Net debt rose slightly to $44.5m (Q4/16: $42.9m) elevated by the late $12m VAT rebate from the government.
• Underground development remains on schedule for commercial production start-up at Bauhinia Creek in Q2/17.
• Shanta extracted 15.7kt of underground ore grading 10.6g/t as part of its development work through the quarter.
• Maiden resource on the recently discovered mineralised zone at the Nkuluwusi target in Q2/17.
• 2017 gold production and costs guidance reiterated at 80-85koz and $800-850/oz (AISC), respectively.
Conclusion:  This looks like a good quarterly operations update highlighting the on target underground development works with annual production and costs guidance intact. Given the transition nature of Q2/17 as the underground operations at Bauhinia Creek launch commercial production, Q2/17 gold production is guided to be the weakest this year before mining ramps up and starts to deliver high grade tonnages through the remainder of the year. With Q1/17 production beating our estimates for 16.4koz, we expect Q2/17 to come in below our 18.4koz estimates, thus, normalising the total for H1/17.  Our earnings estimates remain unchanged.
We note that the problem in rebating outstanding VAT payments from the local government which restricts cash in working capital and looks like a national problem. Acacia Mining reported this morning that they have “incurred approximately $25m in VAT outflows and received no VAT refunds…(with) our total indirect tax receivables increased from $136m to $152m during the quarter”.  Shanta management remain in close contact with the authorities and we hope the government will resolve the issue in due course.



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