ASA Resource Group* (LON:ASA) – Q4 operational results
Champion Iron (TSX:CIA) – Offtake agreement with Sojitz iron ore supports $40m bridge loan to restart of Bloom Lake iron ore mine
Chatham Rock Phosphate (TSX:CRP) – Chatham Rock continue to push to mine phosphate on the Chatham Sound in New Zealand
Gemfields (LON:GEM) – Jaipur emerald auction and offer from Pallinghurst
Stratex International (LON:STI) – Investing £300,000 in Thani Stratex
European equities are steady with US indices closing higher on Thursday as markets calm following an increased volatility through mid-week on controversies around President Trump.
• The US$ is off slightly while gold prices hovering around the $1,250/oz mark, slightly off from yesterday following a five-day rally.
• Base metals are broadly stronger this morning.
• Brent is on course for a the biggest weekly gain since the end of Mar on supply rationing news from Saudi Arabia and Russia.
• Iron ore futures are flat today with the sentiment reported to be recovering as a number of steel mills restart production post temporary government led suspensions on environment related reason.
• Steel rebar prices are up 2.1% in Shanghai.
SQM – reports “stronger lithium demand than growth than we had previously expected and now estimate that demand growth should reach approximately 14 percent this year,"
Profound thought for the day from our Russian colleague - “A happy wife is a happy life”
The Day the Dinosaurs Died (BBC)
• This program is brilliantly done and will be of interest to any geologist interested in the drilling of the Chicxulub crater in the Gulf of Mexico
Dow Jones Industrials +0.27% at 20,663
Nikkei 225 +0.19% at 19,591
HK Hang Seng +0.27% at 25,203
Shanghai Composite +0.02% at 3,091
FTSE 350 Mining +0.80% at 14,940
AIM Basic Resources -0.98% at 2,630
Germany – Inflation pressures are building up in the major European economy with producer prices reported to have hit the highest level since Dec/11.
• Increasing energy costs have been the biggest contributor to the increase in Apr (+4.6%yoy) with intermediate goods prices up 4.3%yoy and non-durable items prices up 3.2%yoy.
• PPI (%yoy): 3.4 v 3.1 in Mar and 3.2 forecast.
Brazil – The Sao Paulo Stock Exchange Index slid 9% while the real lost 8% against the US$ on Thursday following the news the Supreme Court authorised the opening of a criminal inquiry into the President bribery allegations on Thursday.
• A leading local newspaper released an article suggesting Michel Temer, the acting President, approved bribes to Eduardo Cunha, the former Parliament speaker jailed for corruption, to remain silent.
• Opposition lawmakers have already filed impeachment proceedings.
Greece – The Parliament approved the latest set off economic reforms demanded by creditors aiming to unlock the bailout tranche from European and IMF creditors.
• Economic data released earlier this week showed the nation slipped back into recession in Q1.
• A delay in the funds release led the government to cut its 2017 growth forecast to 1.8%, down from 2.7% estimated previously.
DRC – Miners are urging the government to adjust outstanding VAT reimbursements to the depreciation in the Congolese franc.
• The currency lost 34% over the past 12 months against the US$.
• With $700m owed by the government, the mining lobby estimates miners are set to record a 30% drop in US$ terms if the government uses historical exchange rate in reimbursements.
• The chamber of mines went as far as suggesting authorities might consider repaying outstanding VAT rebates in US$.
• Given that the nation’s FX reserves stand at $738m as of the end of Apr, it is highly unlikely miners will be reimbursed in US$.
• The government stopped VAT reimbursements in April last year before suspending VAT on imports for mining companies for 12 months in Jul/16.
Zimbabwe – The government is planning to implement “use it or lose it” policy in respect of mining licenses.
US$1.1138/eur vs 1.1144/eur yesterday. Yen 111.43/$ vs 110.96/$. SAr 13.309/$ vs 13.410/$. $1.298/gbp vs $1.305/gbp.
0.743/aud vs 0.744/aud. CNY 6.892/$ vs 6.889/$.
Gold US$1,251/oz vs US$1,257/oz yesterday
Gold ETFs 59.7moz vs US$59.7moz yesterday
Platinum US$934/oz vs US$937/oz yesterday
Palladium US$768/oz vs US$779/oz yesterday
Silver US$16.73/oz vs US$16.78/oz yesterday
Copper US$ 5,613/t vs US$5,540/t yesterday – Net short positions on copper futures climbed for a third week to 11,238 contracts, up from 10,052 a week ago, on the Shanghai Futures Exchange.
Aluminium US$ 1,923/t vs US$1,913/t yesterday
Nickel US$ 9,160/t vs US$9,090/t yesterday
Zinc US$ 2,534/t vs US$2,535/t yesterday – Zinc lozenges reduce duration of common cold – its official!
• Two randomized trials found that colds were shortened on average by 4.0 days and by 1.77 days according to a paper published in BMC Medical Research Methodology.
Lead US$ 2,073/t vs US$2,081/t yesterday
Tin US$ 20,345/t vs US$20,400/t yesterday
Oil US$52.9/bbl vs US$52.1/bbl yesterday
Natural Gas US$3.202/mmbtu vs US$3.201/mmbtu yesterday
Uranium US$21.75/lb vs US$21.75/lb yesterday
Iron ore 62% Fe spot (cfr Tianjin) US$60.6/t vs US$61.8/t
Chinese steel rebar 25mm US$573.4/t vs US$569.4/t
Thermal coal (1st year forward cif ARA) US$66.0/t vs US$65.8/t yesterday
Premium hard coking coal Aus fob US$155.1/t vs US$158.3/t
Tungsten - APT European prices $212-222/mtu vs $210-219/mtu
ASA Resource Group* (LON:ASA) 1.6p, Mkt Cap £26.2m – Q4 operational results
• ASA Resource Group has released details of its operational results for the final quarter of its financial year ending 31st March. The company reports that both the principal operations at Bindura Nickel and at the Freda Rebecca Gold Mine are operating profitably.
• Subject to the results of the final annual audit, “EBITDA increased to $20.5m (FY 2016: $0.3m loss)”.
• The Group’s operations generated $17.8m from operations and the company reports a cash balance of $2.1m.
• Corporate cost reduction continues to rank high in the company’s priorities and the closure of the Group’s Hong Kong office following the recent disclosure of financial irregularities involving a number of senior personnel and directors should continue to maintain downward pressure on costs.
• The Zimbabwe management have acted quickly to address the alleged mismanagement of funds and have reconfirmed that “the total amount of Group funds unaccounted for does not exceed $4.3m.” The company comments that “Since the launch of this enquiry, it has been especially encouraging to receive so much support from within Zimbabwe”.
• Production of nickel in concentrates increased by 13% during the quarter to 1771 tonnes largely as a result of a 13% increase in head grade to 1.684% nickel. Cost control is described as “the standout achievement” with a 20% reduction in C1 costs to $4955/t and a 31% decline in C3 costs to $4,594/t.
• During the quarter, the nickel operations mined a higher than usual proportion of massive ore relative to the lower grade disseminated ore “As this plan was not sustainable in the long term, BNC management is reverting to its previously accepted plan to maintain a blend of massive and disseminated ores, which sustains the life of the mine.”
• In another measure which we interpret as part of the broader cost control strategy, the nickel operation is moving to owner operation of development and internal haulage noting that “Outside contractors can be unreliable and often unable to respond to fluctuating equipment needs”.
• The nickel smelter refurbishment project is reported to be around 82% complete while the shaft re-deepening project at the Trojan nickel mine has now spent around 75% ($13.9m) of the $18.9m authorised.
• Nickel commodity prices have “dropped on the back of news from the Philippines and Indonesia … [and] … It is a reasonable expectation that the nickel price may remain range-bound for the next few quarters. Given this lower price environment, BNC will need to keep their operating costs (C3) around or below US$5,000/t.”
• The Freda Rebecca Gold Mine showed a reduction of around 19% in gold production during the quarter to 12,462 oz reflecting a 27% decline in the tonnage of ore treated offsetting improvements in feed grade (up 15% to 2.04 g/t) and recovery 83.2%.
• Costs of gold production rose by 22% to US$1291/oz on an all-in sustaining (C3) basis. Management’s comment that “all-in-sustaining costs were on a positive downward trend up until this quarter and, once mill capacity and contractors’ issues are fully addressed, we remain confident of reaching our target of AISC target of “1,000/oz this year” clearly indicates that they perceive this quarter as a temporary aberration in an overall improving trend.
• Today’s announcement also comments that ASA is pressing for the Zimbabwe High Court to dismiss the Zindico legal action on the grounds that the plaintiff has failed to submit the relevant documents to the Court on time and that ASA “is satisfied that the conditions precedent to the alleged agreement, including approval by the board of directors of Asa Resource, was never met and that the claim has neither foundation nor merit.”
Conclusion: The nickel operations have continued to improve their cost structure, and although the Freda Rebecca Gold mine received what management appear to interpret as a short term setback on costs the mine is reported to be on course to reach $1000/oz later this year. Zimbabwean management has responded quickly to address alleged financial regularities replacing those deemed responsible and implementing stricter controls on key areas of procurement policy, stock levels and suppliers’ quality, pricing and timing.
*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.
Champion Iron (TSX:CIA) Price C$0.92 , Mkt cap C$356m – Offtake agreement with Sojitz iron ore supports $40m bridge loan to restart of Bloom Lake iron ore mine
(Champion Iron holds a 63.2% in QIO which owns Bloom Lake)
• Sojitz Corporation a major Japanese trading company, has signed a framework offtake agreement with Champion Iron.
• The company has also arranged a $40m debt and equity bridge financing for its subsidiary Quebec Iron Ore ‘QIO’ to enable the restart of the Bloom Lake iron ore mine.
• The facility is comprised of $26m in debt and $14m in equity with the debt including a $20m loan from Sojitz plus $6m from Resources Quebec Inc which is a 36.8% shareholder in QIO.
• The offtake agreement is for 3mtpa for an initial five year term automatically extendable for successive five year terms.
• The Boom Lake NI 43-101 Technical Report feasibility study was done by Ausenco, who are probably the best in the business when it comes to iron ore. The report published in March is based on a price of US$50/dmt concentrate and includes a price adjustment of 1$/dmt per 1% iron (i.2 US$4/dmt for a 66% iron concentrate).
• The report states,
• IRR Page 333 of the technical report shows a pre-tax IRR sensitivity table which is critical in our view to forming a view on allowing the mine to restart.
• “A break-even net present value (i.e., a NPV @ 8% equal to zero) is achieved at a price variation of about -20%, which corresponds to a concentrate price of approximately USD 51 per tonne (after-tax basis) in the first production year.”
• Geology and Mineral Resources (NI 43-101 report P345): The Mineral Resources are reported within a Lerchs-Grossman open pit shell and are effective November 15th, 2016, using a cut-off of 15% Fe and a long-term iron price of USD $60/dmt con as follows:
o Open pit Measured and Indicated Mineral Resources total 911.6 Mt at an average grade of 27.7% Fe.
o Open pit Inferred Mineral Resources total 80.4 Mt at an average grade of 25.6% Fe.
o Mining and mineral reserves: at a cut-off grade of 15% Fe, Proven and Probable Mineral Reserves are estimated to be 411.7mt an average grade of 30.0% Fe for 155.4 Mt of iron concentrate at 66.2% Fe. The open pit generates 198.9 Mt of overburden and waste rock for a strip ratio of 0.48:1.
Conclusion: The successful financing of the Bloom Lake mine restart makes an interesting proxy for other iron ore projects with similar grades. We note this is the restart of an old mine and that the company is supported by the Resources Quebec Inc, which looks like a state supported fund. The company reported in March that it has already acquired 735 specialised iron ore railcars for the restart. A right Champion deal if ever we saw one.
Chatham Rock Phosphate (TSX:CRP) Price C$0.48, Mkt cap C$6.5m – Chatham Rock continue to push to mine phosphate on the Chatham Sound in New Zealand
• Chatham Rock are continuing their appeal to gain permission to mine the Chatham Sound offshore New Zealand.
• The company have sent round an interesting comment this morning by the ‘Exponential Investor’ see below
• “Phosphate is different from the other major fertilisers, as it’s in limited supply. More worryingly, this supply is highly concentrated in just a few countries – such as Western Sahara. This gives producer countries the opportunity to form a cartel – enabling them to cut supply, to spike prices. This was the trick Opec pulled in the 1970s, and it lead to the oil crisis. If that happened with phosphate, we’d be in the grip of a new global oligarchy. That new world order would bring a global famine – one which would likely kill millions.
• You might think that’s a far-off prospect – but there are already signs of trouble. Recently, Western Sahara seized a phosphate-carrying ship in South Africa. This was because of a legal dispute over the mineral rights.”
Conclusion: Phosphate prices feel as if they are artificially low which suggests to us that it may not take too much for prices to rise. Much Moroccan phosphate contains uranium which is an issues which should not be ignored when it comes to spreading the product on fields through Europe or anywhere else for that matter. One day New Zealand may be encouraging Chatham Rock to start mining this sea-bed phosphate rather than impeding its progress.
Gemfields (LON:GEM) 39p, mkt cap £214m – Jaipur emerald auction and offer from Pallinghurst
• Gemfields has announced the results of its latest auction of rough emeralds from its Kagem operation in Zambia. The auction realised US$14.5m at an average price of US$4.68/carat from the sale of 3.1m carats, “the second highest average price achieved for a commercial quality emerald auction.”
• The company notes that “100% of the carats offered were sold, a first for a commercial quality Kagem emerald auction”.
• Gemfields has also received an “unsolicited firm offer for the entire issued and to be issued share capital of the Company not already held by Pallinghurst” from its major shareholder, Pallinghurst Resources.
• Pallinghurst is offering 1.91 new Pallinghurst shares for each Gemfielkds share, valuing Gemfields at £211.5m or 38.5pence per share.
• Gemfields response is that “Pallinghurst has not engaged with the Company with respect to the Unsolicited Offer and as such the Independent Board is reviewing the Unsolicited Offer with its advisors.”
• According to Gemfields formal disclosures, Pallinghurst already owns 47.09% of the company and Pallinghurst’s announcement discloses that it has received irrevocable undertakings from a number of shareholders to accept the offer such that “Together, with the irrevocable undertakings and Pallinghurst’s current holding in Gemfields constitute 75.3% of the total issued share capital of Gemfields.”
• Pallinghurst also notes that if it receives 100% acceptances for its offer, former Gemfields shareholders will hold 42.2% of the enlarged Pallinghurst.
• Part of the rationale for Pallinghurt’s move seems to be encapsulated in their comment that “Pallinghurst believes that, since its investment, the performance of the Gemfields share price has been disappointing and despite the major positive developments, Gemfields’ shareholders, including Pallinghurst, have not benefitted appropriately. The share price of Gemfields has not increased over the last decade, and over the last year has suffered a material decline.”
Conclusion: Securing irrevocable undertakings which would give them over 75% of the company should enable Pallinghurst to complete the transaction successfully. We wonder, however, whether the various competition regulators may wish to examine a possible change of control of the pre-eminent coloured gemstones producer.
Kodal Minerals* (LON:KOD) 0.3p, Mkt Cap £18.8m – Further drilling results from the Bougouni lithium project
• Kodal Minerals reports results from drilling at the Ngoualana and Orchard prospects within its Bougouni lithium prospect in Mali. The results reported today are based on a 1% lithium oxide cut-off grade.
• The results, which come from an area to the east of the previously announced drilling results at the Sogola-Baoule and Boumou prospects, include, at Ngoulana:
o a 47m wide intersection at an average grade of 1.51% lithium oxide from a depth of 32m in borehole KLRC028;
o 18 metres at an average grade of 2.06% lithium oxide from a depth of 140m in borehole KLRC027;
o 21m at 1.72% average grade of lithium oxide from a depth of 11m in borehole KLRC024 and
o 18 metres at an average grade of 1.69% lithium oxide from a depth of 37m in borehole KLRC029 as well as
o 8 metres at an average grade of 1.68% lithium oxide from a depth of 38m in borehole KLRC019 at the Orchard prospect and
o 8 metres at an average grade of 1.73% lithium oxide from a depth of 78m also in borehole KLRC019 at the Orchard prospect and
o 6 metres averaging 1.61% from a depth of 55m in hole KLRC021
o Prior to returning to Ngoulana to undertake extension and infill drilling, the drilling rig is now completing some follow-up work at the Sogola-Baoule prospect where Kodal Minerals has previously reported a number of relatively high grade intersections including:
8m at 1.24% Li2O from 40m
7m at 1.29% Li2O from 63m
8m at 1.62%Li2O from 104m
The Ngoulana mineralisation “remains open along strike and at depth and further drilling is planned to target the eastern extension of the pegmatite unit”.
Commenting on the results, CEO, Bernard Aylward, explained that “Our drilling programme was designed to target strike and depth extensions of the pegmatite vein, and we now have confirmation of a continuous unit extending for over 500m of strike and greater than 200m in depth, with the prospect remaining open in all directions. … Kodal is continuing the rapid delineation and assessment of the Ngoualana prospect and is moving to define a maiden JORC compliant mineral resource estimate as quickly as possible”
Conclusion: Drilling at Bougouni is continuing to extend the known lithium mineralisation as Kodal Minerals moves towards the establishment of an initial resource estimate.
*SP Angel acts as Financial Advisor and Broker to the company. Robert Wooldridge, a partner at SP Angel is also Chairman of Kodal Minerals.
Stratex International (LON:STI) 1.5p, Mkt cap £7m – Investing £300,000 in Thani Stratex
• Stratex International has invested a further US$390,000 in Thani Stratex as part of a US$1m funding to help finance a 10 holes (2,380m) drilling programme at the Anbat gold project in Egypt.
• The drilling is intended to test extensions of the previously defined mineralisation, to help identify the geological controls of the higher grade mineralisation and to “deliver an initial resource estimate.”
• The investment leaves Stratex International with a 30.1% interest in Thani Stratex Resources.