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Today's Market View - Anglo American, Galantas Gold Corp, Georgian Mining Corporation, Hummingbird Resources Ltd, Petra Diamonds, Randgold Resources

Published: 10:31 24 Apr 2017 BST

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Anglo American (LON:AAL) – Anglo American Q1 production

Galantas Gold (LON:GAL) – Development at Omagh mine stalled over security concerns

Georgian Mining* (LON:GEO) – STRONG BUY – New JORC estimate nearly doubles resource at Kvemo Bolnisi

Hummingbird Resources (LON:HUM) – Yanfolila construction on budget and schedule

Petra Diamonds (LON:PDL) – Detecting stabilisation of rough diamond market.

Randgold Resources (LON:RRS) – underlining its commitment to Cote d’Ivoire

 

Lithium – train carrying vehicle lithium batteries to recycling centre explodes near Houston.

• The steel carriage carrying the batteries was ripped apart as the lithium batteries exploded with sufficient force to break nearby windows.

• The batteries were being taken to a recycling centre and were not considered to be hazardous material.  We feel sure they will be treated differently in future.

• We suspect one or more batteries may have been physically damaged leading to thermal runaway in the battery.

• Or it may be that an older lithium battery where the lithium has formed dendrites suffered thermal runaway spreading to other lithium batteries and precipitating a catastrophic chain reaction.  This is what we think would cause such a large explosion.

• The incident is likely to cause a re-think on transportation of new and older batteries and on the safety of li-ion batteries in general.

• Scientists are working to make li-ion batteries more stable and less prone to dendrite formation which leads to thermal runaway but it may be more difficult to prevent this in damaged batteries.

 

Safe haven assets retreat on the back of the first round of presidential elections results in France where a centrist Emmanuel Macron beat other contenders.

• A snap poll from Ipsos said Macron is set to secure a 62% support in the second round due May 7 versus 38% for Le Pen.

• The euro climbed two cents against the US dollar while the spread between German and French 10y bond yields narrowed to the lowest since late Jan.

• US Treasuries were down with gold and yen both down around 1% this morning.

• Copper prices are up 0.48% with tin down 0.89% with other base metals relatively range bound.

• Iron ore futures are off 0.6% with rebar prices down 0.9% in China following volatile trading in the previous week when prices bounced off a nearly five month low limiting weekly losses to 1.8%.

 

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 - https://www.weare121.com/121mininginvestment-london/registration/register-investor/

 

 

Dow Jones Industrials  -0.15% at 20,548

Nikkei 225   +1.37% at 18,876 

HK Hang Seng   +0.44% at 24,148 

Shanghai Composite    -1.37% at 3,130 

FTSE 350 Mining   +1.91% at 15,179

AIM Basic Resources   -0.25% at 2,680 

 

Economic News

US – Growth momentum slowed in both services and manufacturing hitting the lowest reading in seven months amid moderating new orders growth, according to the latest PMI data released on Friday.

• “The PMI data suggest the US economy lost further momentum at the start of the second quarter. The surveys are signalling a GDP growth rate of 1.1% after 1.7% in the first quarter.”

• “The labour market also continued to soften. The latest survey data are consistent with only around 100,000 non-farm payroll growth.”

• Despite a slowdown in growth rates business outlook about the year ahead improved.

• Official Q1 GDP data (1st reading) are due this Friday.

 

Germany – Business confidence continued strong in April, the latest IFO survey results show.

• IFO Expectations: 105.2 v 105.7 in Mar and 105.9 forecast.

• IFO Current Assessment: 121.1 v 119.3 in Mar and 119.2 forecast.

 

ECB – The ECB is holding the monetary policy meeting this week with estimates for no change in the current refinancing rate (0%) and monthly bond purchases running at €60bn form this month.

• Bloomberg survey showed investors and economists are expecting the ECB to revise its guidance during its June meeting, six months earlier than previous polls indicated.

• Respondents have also upped chances for the bank to cut bond purchases at a faster rate while rate hike estimates have been brought forward.

• Draghi in latest public appearances stressed that tightening of the policy was not a topic of the March meeting adding in April that the economy did not provide evidence to “materially alter our assessment of the inflation outlook”.

 

UK – Average London property asking prices dropped 1.5%yoy to £636.8k in Apr, the largest annual decline since May/09, according to Rightmove.

• Declines were driven by a 4.2% drop in the centre areas with suburbs recording a 1.7% increase.

• “While the rest of the country enjoys a spring surge with most regions seeing a price boom and new price records, some parts of the London market are still re-adjusting,” the agency said.

• “The more discretionary upper end of the market is having to tempt buyers with cheaper asking prices, offsetting the higher purchase taxes.”

 

Currencies

US$1.0840/eur vs 1.0733/eur last week.   Yen 110.10/$ vs 109.24/$.   SAr 12.990/$ vs 13.156/$.   $1.279/gbp vs $1.282/gbp.

0.757/aud vs 0.754/aud.   CNY 6.886/$ vs 6.883/$.

 

Commodity News

Precious metals:

Gold US$1,272/oz vs US$1,280/oz last week

   Gold ETFs 60.1moz vs US$59.9moz last week

Platinum US$968/oz vs US$976/oz last week

Palladium US$803/oz vs US$802/oz last week

Silver US$17.83/oz vs US$17.97/oz last week

           

Base metals:   

Copper US$ 5,665/t vs US$5,660/t last week

Aluminium US$ 1,943/t vs US$1,949/t last week

Nickel US$ 9,385/t vs US$9,480/t last week

Zinc US$ 2,597/t vs US$2,631/t last week

Lead US$ 2,149/t vs US$2,156/t last week

Tin US$ 19,650/t vs US$19,860/t last week

           

Energy:           

Oil US$52.2/bbl vs US$53.1/bbl last week

Natural Gas US$3.118/mmbtu vs US$3.176/mmbtu last week

Uranium US$22.90/lb vs US$23.00/lb last week

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$65.2/t vs US$66.9/t

Chinese steel rebar 25mm US$508.4/t vs US$504.1/t

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

Premium hard coking coal Aus fob US$263.4/t vs US$289.5/t

 

Other:

Tungsten - APT European prices $208-216/mtu vs $205-215/mtu

 

Company News

Anglo American (LON:AAL) 1139p, mkt cap £14.7bn – Anglo American Q1 production

• Anglo American reports what it describes as “a strong operational performance” as it ramps up iron ore production at Minas Rio, diamond output at the new Gahcho Kue min and metallurgical coal at Grosvenor.

• The company’s iron-ore business benefitted from a 17% increase in production from the Kumba mining operations in S Africa as well as the 30% increase in output, to 4.3m tonnes, at Minas Rio in Brazil. “After the Step 3 licences have been secured, expected late in 2018, the operation is expected to be in a position to produce its nameplate capacity of 26.5 million tonnes (wet basis) per year.”

• Rough diamond output increased by 8% to 7.4 million carats during the quarter as the Gahcho Kue mine in Canada started to increase. Production guidance for the year of 31-33 million carats remains in place. The company also makes a brief reference to “improved trading conditions” for rough diamonds where there was stronger demand at Sight 1 2017.

• Copper production declined by 3% to 142,600 tonnes during the quarter, reflecting lower grades and ore hardness at the Los Bronces mine, and the temporary suspension of operations at El Soldado, offset by “Continued strong performance at Collahuasi”.

Conclusion: Strong production in a number of key commodities and the build up of production at new mines is a positive for Anglo American where asset disposals in recent months have satreted to repair the balance sheet.

 

Galantas Gold (LON:GAL) 4.8 pence, Market Cap £8.1m – Development at Omagh mine stalled over security concerns

• Galantas Gold reports that further development of its Omagh gold mine in Northern Ireland is on hold following receipt of a notification from the Police Service of Northern Ireland (PSNI) that will be unable to provide the required anti-terrorism cover for the movement and use of the explosives required for mining.

• The Omagh deposit has been known for many years and its development during the period preceding the “Good Friday Agreement” proved intractable because of similar security concerns.

• Galantas Gold has made significant strides in bringing the mine to development stage and it is disappointing that it has now encountered this obstacle.

• The company makes the point that other mining and quarrying operations in Northern Ireland receive anti-terrorism cover and implies that it sees the inability to extend this protection to the Omagh development as discriminatory “against a lawful business”.

• “Discussions in regard to potential redundancies, with mine personnel recently hired for the development are taking place. New hiring and the current investment programme has been deferred.”

Conclusions: The security of explosives, particularly in the Northern Ireland context, is a serious concern, however, the loss of the potential economic benefits to Northern Ireland if the mine is not development is abandoned is also a serious issue. The company’s statement makes no reference to continuing discussions with PSNI, however we hope that a resolution can be found which safeguards the investment, jobs and wider economic benefits to Northern Ireland while also protecting the legitimate security of explosives from the threat of terrorist misuse.

 

Georgian Mining* (LON:GEO) 11.1p, Mkt Cap £8.9m – New JORC estimate nearly doubles resource at Kvemo Bolnisi

STRONG BUY

• Georgian Mining reports the near doubling of its mineral resource estimate at Kvemo Bolnisi in Georgia.

• The new resource estimate carries 2.2mt grading 0.8% copper and 0.1g/t gold at a 0.3% copper cut-off grade.

• Optimisation of the resource for open pit mining shows 1.2mt of ore a higher copper grade of 1.03% using a 0.4% cut-off.

• New drill intersections include:

o KED 001 - 60.25m @ 1.48% Cu and 0.12g/t Au from 89.75m

o KED 006 - 18.8m @ 1.5% Cu and 0.1g/t Au from 47.0m

o KED 008 - 28.6m @ 1.6% Cu and 0.8g/t Au from 47.4m

o KED 011 - 46.4m @ 2.88% Cu and 0.1g/t Au from 19.6m

• The team is targeting delineation of a 3-5mt resource later this year.

• Re-examination of the geology of the Bolnisi area indicates ore is from epithermal sources offering potential for the discovery of a much larger system of gold and copper beyond what would have been expected under previous models.

• The team is looking to develop a potential 50mt copper, gold resource with work underway on 14 advanced brownfield exploration sites.  Brownfield sites are, by definition previously mined, offering markedly better potential for new resource definition and future mining.  Certain larger mining companies focus on previous mine sites for their greater potential.

• Epithermal style geological systems are relatively well studied and understood.  They have formed some of the world’s largest mineral discoveries and understanding the way they are formed can better direct geologists to discover higher grade ores within the system.  The team have retained Greg Corbett a known epithermal specialist to advise on their work.

• The team have the added benefit of being able to examine the nearby Madneuli copper, gold mine which is similar in terms of its geology and ore genesis.  This should be a great benefit from a geological perspective.

• Georgian plans to truck ore from Kvemo Bolnisi and other pits to Madneuli under an existing joint venture agreement.  The company should be able to do this for very little capital outlay through the use of external mining and trucking contractors.  The plan is to use spare capacity at the Madneuli plant as it is for processing.  Work on improving capacity and recovery rates at the Madneuli plant may be done at a later stage.

• Gold production from gold oxide zones:  two gold oxide resources are being worked up for near-term production.  These are located above the copper, gold sulphides and will naturally be processed first.

• The team plan to move onto the definition of a much larger >50mt ore resource once the phase 2 target of 3-5mt has been achieved and gold oxide production has started.

• Drilling at Kvemo Bolnisi shows:

o 20m @ 2.2g/t Au from 0.0m to 20.0m

o 14.2m @ 2.00g/t Au from 5.0m to 19.2m

o 12m @ 1.29g/t Au from 8.0m to 20.0m

o 20m @ 0.74g/t Au from 0.0m to 20.0m

Conclusion:  Georgian Mining are working their way towards mining the gold oxide resource at Kvemo Bolnisi later this year.  The success of the exploration program is a good indication of more to come and for the potential discovery of 3-5mt of copper, gold ore in the short-medium term and the potential definition of >50mt of copper, gold resources on a longer term basis.  The presence of ore from surface indicates to us that much in the way of future resources may be accessible by open pit.

*SP Angel acts as Nomad and Broker to Georgian Mining. 

 

Hummingbird Resources (LON:HUM) 25p, Mkt Cap £86m – Yanfolila construction on budget and schedule

• Yanfolila gold mine and processing plant construction remain on time and budget with first gold pour towards the end of the year.

• The ball mill is in transit expected for delivery in May/17.

• The crushing unit design work completed with the delivery of all parts expected by Aug/17.

• CIL tanks construction in progress with completion targeted for May/17.

• Cement foundations for the parts of the processing facility including the ball mill, CIL and reagents tanks and gold room finished.

• TSF construction preparatory works commenced ahead of the arrival of AMS mining contractors.

• Nearly 5,000m of grade control drilling has been completed during the quarter at Komana East.

• Dewatering holes finalised at Komana East with dewatering drilling moving onto Komana West this quarter to level the water table in the mining area ahead of the start of operations.

 

Petra Diamonds (LON:PDL) 129p, mkt cap £682m -  Detecting stabilisation of rough diamond market.

• Petra Diamonds reports that it is seeing signs of stabilisation within the rough diamond market  with improving retail demand “with some encouraging trends In Mainland China, as well as narrowing declines in Hong Kong and Macau.” The company notes that on a like-for-like basis, prices in Q3 ending 31st March 2017 up around 2% compared to the previous six months.

• The company expects to hold two further diamond tenders during the current quarter and “expects market conditions to remain stable during this time, with Q4 being traditionally Petra’s strongest sales period.”

• Sales of 614,504 carats from the Cullinan mine during the first 9 months of the financial year achieved US$115/carat at the upper end of the guidance range of US$105-115/carat, while the Williamson mine exceeded guidance of US$220-230/carat with US$278/carat on its 163,284 carats of sales. The Koffiefontein mine (40,103 carats of sales) was within the price guidance range of US$520-550/carat with a realised price of US$535/carat.  Prices at Finsch and the KEM JV, however, failed to achieve price guidance with Finsch selling 4,737,797 carats at an average of US$98/carat (guidance of US$100-105) and KEM selling 624,427 carats at US$94/carat (guidance price US$125-130/carat).

• Operationally, production during the quarter was roughly flat with just under 1m carats (999,768 carats vs 995,905 carats in Q3 2016). Production for the first nine months of the financial year to date however shows a 15% increase (3,014,856 carats vs 2,625,308 carats).

• Revenue for the 9 months showed a 27% y-o-y increase to US$347.6m including US$ 10.9m resulting from the sale of “Exceptional Diamonds” (2016 - US$25.0m).

• The company reports that the “Underground expansion programmes remain in line with expectations. Commissioning commenced towards the end of Q3 FY 2017, with initial production expected during May 2017 and full commissioning planned to be achieved by the end of Q4 FY 2017.”

• The company reports a 31st March 2017 cash balance of US$66.2m (2016 – US$39.0m) and Net Debt of US$508.4m (2016 – 395.6m).

Conclusion: Petra Diamonds’ view that the rough diamond market is stabilising is encouraging at a time when the company is moving into commissioning of its underground expansion at the Cullinan mine. We await further news on the progress at Cullinan with interest.

 

Randgold Resources (LON:RRS) 6805 pence, Mkt Cap £6.4bn – underlining its commitment to Cote d’Ivoire

• Randgold Resources reports that it is seeking to extend the current four year life of its Tongon gold mine in Cote d’Ivoire through exploration for further near-mine development opportunities elsewhere within the Nielle licence area.

• The company confirms that the Tongon mine itself remains on course to “achieve its production guidance of 285,000oz of gold for 2017.”

• Elsewhere in the country Randgold is “building a solid permit portfolio towards its next big discovery, in line with its belief that the country is one of West Africa’s most prospective gold regions.”

• Commenting on the country’s turbulent political events in recent time, which have included “a wave of strikes and protest actions”, Chief Executive, Mark Bristow, underlined Randgold Resources continuing commitment to investment in the country and emphasised “our belief in the country and its people’s ability to work through these difficulties”.

• Conclusion: Randgold’s Mark Bristow has consistently expressed confidence in the exploration potential of Cote d’Ivoire and today’s announcement shows that the enthusiasm remains undiminished. Randgold has built its success on delivering exploration discoveries and its focus on Cote d’Ivoire, where it has also developed an exploration joint-venture with Newcrest Mining, is a serious endorsement.

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