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Today's Market View - Asiamet Resources, Condor Gold PLC, Greatland Gold plc, Highland Gold, BlueJay Mining PLC, Kodal Minerals, Metminco, Metals Exploration Plc, Shanta Gold Limited, Thor Mining PLC

Published: 10:50 22 May 2017 BST

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Asiamet Resources (LON:ARS) – Metallurgical test work on BKM composites

Bluejay Mining* (LON:JAY) – BUY Target Price 22p – Significant new ilmenite province

Condor Gold (LON:CNR) – Initial drilling results from Mestiza

Greatland Gold (LON:GGP) – Airborne geophysics identifies additional targets at the Ernest Giles project.

Kodal Minerals* (LON:KOD) – Lithium grades to support future JORC resource as Suay Chin funds Bougouni project and offtake agreement

Highland Gold (LON:HGM) – Acquisition of exploration licenses adjacent to MNV

Metals Exploration (LON:MTL) – Annual results

Metminco* (LON:MNC) – A$0.75m received to advance the Miraflores Feasibility Study

Shanta Gold (LON:SHG) – BUY – $10m loan secured by the NLGM Power Plant

Thor Mining (LON:THR) – Tungsten resource upgrade at Pilot Mountain

 

We  are looking forward to seeing which junior miners publish valuations based on unreasonable commodity price expectations

• We feel the assumptions made in these reports go a long way to sorting out the men from the boys.

• It is our view that shareholders are often best served when management focus their efforts on value creation rather than the potential for value destruction.

• Eg to know when to park up a project which has little more than option value and when to move on to something more immediately value accretive.

• Some of the sector’s most notable successes have come from a change in direction; SolGold, Hummingbird, Kodal Minerals, BlueJay (FinnAust) spring to mind.

 

Dow Jones Industrials  +0.69% at 20,805

Nikkei 225   +0.45% at 19,678

HK Hang Seng   +0.86% at 25,391

Shanghai Composite    -0.48% at 3,076

FTSE 350 Mining   +0.81% at 15,200

AIM Basic Resources   +0.47% at 2,643

 

Currencies

US$1.1176/eur vs 1.1138/eur last week.   Yen 111.46/$ vs 111.43/$.   SAr 13.193/$ vs 13.309/$.   $1.297/gbp vs $1.298/gbp.

0.745/aud vs 0.743/aud.   CNY 6.892/$ vs 6.892/$.

 

Commodity News

Precious metals:

Gold US$1,256/oz vs US$1,251/oz last week

   Gold ETFs 59.7moz vs US$59.7moz last week

Platinum US$939/oz vs US$934/oz last week

Palladium US$762/oz vs US$768/oz last week

Silver US$16.96/oz vs US$16.73/oz last week

           

Base metals:   

Copper US$ 5,692/t vs US$5,613/t last week

Aluminium US$ 1,942/t vs US$1,923/t last week

Nickel US$ 9,430/t vs US$9,160/t last week

Zinc US$ 2,642/t vs US$2,534/t last week

Lead US$ 2,117/t vs US$2,073/t last week

Tin US$ 20,500/t vs US$20,345/t last week

           

Energy:           

Oil US$54.0/bbl vs US$52.9/bbl last week

Natural Gas US$3.306/mmbtu vs US$3.202/mmbtu last week

Uranium US$21.75/lb vs US$21.75/lb last week

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$63.7/t vs US$60.6/t

Chinese steel rebar 25mm US$587.3/t vs US$573.4/t

Thermal coal (1st year forward cif ARA) US$65.9/t vs US$66.0/t last week

Premium hard coking coal Aus fob US$154.7/t vs US$155.1/t

 

Lithium – Redflow bravely admits it cannot compete with lithium batteries on price in home market

• Australian battery manufacturer has conceded that it can not compete with lithium for storage batteries in its home market.

• The company makes a zinc-bromine flow battery and is now shifting manufacturing from Mexico to South-east Asia and is also moving to focus on the industrial, off grid and telecommunications markets.

• Tesla’s 50% cut in the cost of lithium battery storage and the release of the Powerwall 2 battery last year has effectively forced them out of domestic grid storage.

• Redflow’s ZCell flow batteries are said to offer deeper depths of discharge and longer lifetimes than lithium but can not match on price.

• The ZCell batteries offer the advantage of operating in higher ambient temperatures which is a safety advantage and being able to discharge 100% of its power without degrading storage capacity or lifespan.  Both are important attributes in our view as lithium still presents certain heat, safety and lifespan issues particularly with the large numbers of cell connections involved.

 

Lithium - SQM reported last week “stronger lithium demand than growth than we had previously expected and now estimate that demand growth should reach approximately 14 percent this year,"

 

Other:

Tungsten - APT European prices $215-225/mtu vs $212-222/mtu

 

Company News

Asiamet Resources (LON:ARS) 4.9p, Mkt Cap £34.8m – Metallurgical test work on BKM composites

• Asiamet Resources reports that metallurgical column test work on composite drill core samples from its recent drilling programme at the BKM project in Kalimantan has produced “very positive” results to date.

• The testing is key to the design of the metallurgical flow sheet for the proposed leaching, solvent extraction and electro-winning plant which forms part of the feasibility study work currently underway.

• After 100 days of column testing of the planned 180 days and 270 days testing of 2m and 6m columns, the short columns have delivered over 87% copper recovery for the 12.5mm size fraction and over 75% recovery for the coarser, 19mm size fraction. The longer columns have shown over 72% recovery from the 12.5mm sized material with some composites yielding over 73%.

• The Preliminary Economic Assessment assumed recovery rates of 85% over the 270 day cycle and so far, the more detailed results seem to be performing in line with that assumption however as CEO, Peter Bird, commented “The detailed evaluations … provide a solid basis for the design and engineering work and are critical to ensuring the appropriate budget and schedule targets are set for the project construction phase to be outlined in the Feasibility Study.”

Conclusion: As the detailed feasibility study progresses, Asiamet is firming up its design parameters for the development of the BKM deposit. At this stage, the metallurgical testing seems on track to match the PEA assumptions.

 

Bluejay Mining* (LON:JAY) 14p, Mkt Cap £103m – Significant new ilmenite province

BUY Target Price 22p

• The team at Bluejay Mining report that the region in which the Pituffik Titanium project sits in Greenland represents a ‘very significant ilmenite province (‘the Dundas Province’).

• The implication is that there will be further ilmenite resources to be discovered near BlueJay’s high-grade ilmenite project at Pituffik which contains an estimated 23.6mt  grading 8.8% ilmenite which sits within a larger 90mt-130mt grading 6.3%-8.4%.

• The proposed development will initially start on a high-grade zone of 7.9mt grading 14.2% ilmenite (titanium mineral sand).

• Rod McIllree comments that “the area has now been demonstrated to host a combined total of up to 17bnt of pure ilmenite both in situ and available as naturally liberated primary ilmenite, with up to 700mt of ilmenite potentially occurring on the company 68 sq km licence area.”

• He goes on to say they are “currently in discussions with a potential off-take partner that will facilitate our move towards production in 2018."

Conclusion:  There are two key points in this press release.  First, is the proposal to mine a high-grade 14.2% zone to start.  We believe this could start as early as next year.  Second, is the off-take discussion which is critical and which we reckon will result in significant offers for the Pituffik product.

Mining of such high grade ilmenite means that Bluejay could mine 100,000t of saleable ilmenite concentrate in a matter of weeks.  Eg 500,000t could be mined using one of Royal IHC’s Beaver 40 cutter-suction dredges.  The dredge has a capacity of 500cu.m per hour which in theory means 100,000 of concentrate could be mined within the first month of operation though we would prefer to assume a longer timescale to allow for downtime and potential recovery issues.  This would fill two to three Handymax ships.    

*SP Angel act as nomad and broker to Bluejay Mining

 

Condor Gold (LON:CNR) 58p, Mkt Cap £35.6 m – Initial drilling results from Mestiza

• Condor Gold has announced its initial 2000m drilling programme investigating the Mestza vein set at its La India project area in Nicaragua has encountered results which justify an expansion of the programme to 3000m.

• The programme is investigating “a relatively shallow, Soviet mineral resource (2,392kt at 10.2 g/t gold for 785,694 oz gold.)”. Initial drilling has focussed on the Tatiana Vein, which is reported to show “excellent continuity for 1.5 km and is 4-5m wide”, and the company comments that it would expect a total of some 6000m of drilling to be required to upgrade the Soviet style resource to an NI 43-101 compliant resource.

• Among the highlights of the drilling so far are:

o a 3.3m wide intersection (2.2m true width) averaging 28.3g/t gold and 38.9g/t silver from a depth of 76.7m in borehole LIDC344 and

o a 2.65m wide intersection (1.7m true width) averaging 12.6g/t gold and 21.8g/t silver from a depth of 91m in borehole LIDC348

o A second drill rig has been mobilised and started drilling. The earlier drilling is reported to have encountered poor recovery rates within brecciated zones and encouragingly, the current programme is achieving much improved results  and “with only one exception, achieved 100% recovery of the vein zone, including the fault breccias.”

Conclusion: The follow up drilling of the former Soviet standard resource has the scope to add additional resource s to the La India project for comparatively little additional drilling. at present the Mestiza area is not incorporated in the mine plan but a successful campaign outlining a “large, high grade, relatively shallow” resource could, in our view, justify a re-evaluation of the mine plan

 

Greatland Gold (LON:GGP) 0.42 pence, Mkt Cap £7.1m – Airborne geophysics identifies additional targets at the Ernest Giles project.

• Greatland Gold, which recently announced an agreement with Newmont Mining to access the Ernest Giles project in W Australia, has announced that interpretation of airborne geophysical data has identified several new structural targets for gold mineralisation.

• “A full review of the many gold targets at the Ernest Giles project is being conducted and results will be published once the gravity and seismic surveys that are currently underway are complete.”

• Previous work on the project area has “intersected gold mineralisation and large alteration systems” based on “wildcat drilling of blind structural targets defined by detailed airborne geophysics”

Conclusion: Greatland Gold appears to have evolved an effective exploration strategy using geophysical interpretation to identify structural targets for drilling. The identification of new geophysical targets may allow them to build on this exploration model which has already attracted the attention of Newmont.

 

Kodal Minerals* (LON:KOD) 0.32p, Mkt Cap £20m – Lithium grades to support future JORC resource as Suay Chin funds Bougouni project and offtake agreement

• Kodal Minerals released a number of notable lithium assay results from recent drilling on Friday.

• The results show broad intersections including 47m grading 1.51% lithium oxide at the relatively shallow depth of 32m.

• Lithium mineralisation in wide pegmatite veins is evident from surface indicating good potential for mining going forward.

• Management now has confirmation of a continuous unit extending for over 500m of strike and greater than 200m depth, with the prospect remaining open in all directions.

• Financing:  Kodal recently reported the signing of the agreement with Suay Chin for offtake material from Bougouni for a £4.3m financing in addition to the £0.5m received from Suay Chin earlier.

• The price for the subscription is 0.38p/s meaning that Suay Chin will hold 20% of Kodal shares

• Suay China and Kodal reported that they continue to negotiating over an offtake agreement to cover 80-100% of the spodumene product to be produced at the company’s Bougouni project in Southern Mali.

Conclusion:  Kodal shares look significantly undervalued relative to the Suay Chin funding price of 0.38p and the future potential of the company.  The £4.8m (£4.3m+£0.5m) of funds from Suay China funds will help Kodal advance toward a JORC resource and should go some way towards the development of a feasibility study on the project.

We expect Suay Chin to help Kodal to work through the processing process for concentration of lithium in spodumene and to help with financing the Bougouni project as a new mine.  We would expect this process to continue to advance the project and add value to Kodal.

*SP Angel acts as Financial Advisor and Broker to the company.  Robert Wooldridge, a partner at SP Angel is Chairman of Kodal Minerals.

 

Highland Gold (LON:HGM) 149p, Mkt Cap £483m – Acquisition of exploration licenses adjacent to MNV

• The Company secured two exploration licenses adjacent to existing operations at MNV.

• The Kulibinskaya license (38km2), to the south west of MNV, and the Zmanachivaya area (4.2km2) to the north east of MNV.

• Zamanchivaya is reported to be located right next to the existing MNV’s developed ore bodies (Pebble).

• The management provided $1m exploration budget for these prospects preparing for more detailed exploration works in 2018.

• The Company is looking to expand the existing life of mine through new discoveries with the MNV, the oldest operation in the Highland’s portfolio, estimated to host 3.0mt at 5.2g/t in Mineral Reserves as of Jan/17.

• The latest life of mine estimates point to MNV depletion in 2022.

 

Metals Exploration (LON:MTL) 2.6p, Mkt Cap £54.4m – Annual results

• Runruno Q1/17 gold production totalled 8.4koz taking total output since the start of ore commissioning in Jun/16 to 16.6koz.

• Slower than forecast production ramp up is attributed to a number of factors highlighted in the final results, including:

• Mining operations constraints:

o Waste stripping of primary sulphide ores has been delayed due to the requirement to finish “enhancement works” in the tailings dam area (RSI), permitting delays to a setup of an additional space for waste material and rainy-season related complications.

o Due to waste stripping operations constraints, mining was focused on lower stripping close to surface oxide material which delivered lower grades ores to the plant and adversely affected processing plant recoveries.

o While most of the ore and waste in the mining plan are susceptible to free digging, rock hardness in certain areas require blasting. The Company reported that blasting permits for the operation experience delays which in turn “required a re-design of the operation in this area to mitigate the inefficiency of having to mine around this area” (the permit has been recently issued by the MGB).

o The management is considering “alternative strategies for waste management in advance of the 2017-18 wet season to prevent a repeat of the circumstances recently experienced should the tree cutting permit (for the waste overflow area area) be delayed further.”

o Mining operations are being accelerated to increase the availability of sulphide ore for the processing plant.

o Processing plant commissioning ramp up progress:

 Crushing and grinding are run “at or above design throughput”.

 Gravity circuit is operating at design parameters (we understand, gravity circuit is responsible for most of the gold recovered to date).

 Flotation plant “is operating soundly with performance around design when fed with sulphidic ores”.

 CIP circuit is “operating at or above design recovery when fed with BIOX derived product”.

 BIOX circuit ramp up process was challenged due to disruptions of the sulphide ore feed and the supply of “inferior” low sulphide oxide ores from the mine during the extended rain season. The Company said “once supplies of available sulphidic ore were exhausted, and oxide ores were the only available alternative the performance of the BIOX circuit progressively deteriorated until it effectively passivated”. The re-establishment of the sulphide ore feed in March/April this year the bacteria is being re-activated and the ramp-up plan has been re-established (previously, expected to be 2-3 months long).

 In addition, the Company noted that “compliance costs in the Philippines industry, as measured in dollar terms and operations constraints has increased significantly”.

 The project remains in the ramp up stage with the management expecting to achieve design parameters in H2/17.

 The Company recorded maiden revenues of £5.8m in 2016 with first shipment of gold recorded in Nov/16.

 Admin costs climbed to £9.5m (2015: £5.2m).

 Finance costs totalled £4.2m (2015: £2.9m).

 Losses for the year came at £18.0m v £2.1m in 2015 with most of the difference attributed to changes in the value of outstanding forward gold sales (a £6.7m loss was recorded in forward gold sales v a £8.5m gain in 2015).

 Cash in the bank stood at £6.0m as of FY/16 ($3.8m as of Q1/17) with £70.9m in debt (£47.2m due in 2017).

 Following the rescheduling of outstanding loans with HSBC and BNP to the amount of $81m agreed in Dec/17, the Company is due $10.7m in debt repayments in H1/17.

 Commenting on the “going concern” status of Company’s operations the directors said that “there is a reasonable expectation that the Group will be able to raise additional working capital funding on or before 30 Jun/17; will achieve forecast levels of gold production as the testing and debugging phase of operation becomes complete and will continue to have the support of its financiers”.

Conclusion: The Company is struggling with the ramp up of Runruno operations due to a shortage of sulphide ore feed to the plant with the tight debt repayment schedule putting pressure on the Group to seek another working capital funding before 30 Jun/17. While the management is addressing waste management issues, delays to tree cutting permits and the development of overflow waste dumps areas affects mining schedule and challenges the sustainability of operations. 

 

Metminco* (LON:MNC) 3.5p, mkt cap £4.5m – A$0.75m received to advance the Miraflores Feasibility Study

• Metminco has confirmed the receipt of A$0.75m from Redfield Asset Management as it completes the previously announced convertible issue.

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

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

o The company has also announced that it has has executed a binding term sheet with its 19.9% shareholder, Lanstead to provide approximately an additional A$200,000 in funding through a non-redeemable convertible note facility.

o The note, which is issued at  A$1000/note, will run for an 18 months period and attract a 5%pa coupon. The conversion ratio is set at 16,461 shares per note.

o Conversion expected to increase Lanstead’s holding to 21.9% of Metminco.

o The proceeds of both transactions are to be used to progress the Feasibility Study on the Miraflores project, which is expected to be completed during Q3, 2017. Miraflores is expected to produce around 50,000oz pa of gold at a  sustaing cost of US$650/oz for a period of approximately 9 years commencing in Q1 2019.

Conclusion: We look forward to the results of the Miraflores Feasibility Study later this year.

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

 

Shanta Gold (LON:SHG) 8.3p, Mkt Cap £48.1m – $10m loan secured by the NLGM Power Plant

BUY

• The 4-year term loan for $10m is amortised quarterly and bears variable interest rate of 7.25%.

• This represents an improvement of 2.75% in interest costs over the previous power plant lending facility announced in Q1/16.

• The loan is secured against the 7.5MW NLGM Power Plant which was commissioned in Mar/17 ahead of the commercial production start of underground operations.

• The new plant is reported to be delivering “reliable power with a significant drop in per kWh”. 

Conclusion: New financing locks in lower interest rates compared to the original equipment financing while providing liquidity as the Company goes through the capital intensive period of underground operations development (which remains on schedule to deliver first stope ore this quarter). The management continued to experience difficulties in recovering owed VAT refunds from the Tanzanian government.

 

Thor Mining (LON:THR) 0.85 pence, Mkt Cap £3.2m – Tungsten resource upgrade at Pilot Mountain

• Thor Mining reports that its recent drilling programme has allowed the company to increase the resource estimate its Desert Scheelite property in Nevada and a maiden inferred estimate for the Garnet prospect which together represent a 55% increase in the estimated resource for its wholly owned Pilot Mountain tungsten project in Nevada.

• The company is now reporting a total resource of 11.73mt at an average grade of 0.28% tungsten trioxide of which 8.41mt at 0.27% are classed as indicated. Approximately 85% of the resource (9.9mt averaging 0.26%) are contained within the Desert Scheelite prospect. The estimate is reported in accordance with the JORC (2012) standard.

• Earlier published estimates for Desert Scheelite showed a JORC compliant  indicated/inferred resource of 6.79myt at an average grade of 0.31% tungsten trioxide suggesting that, in addition to the maiden resource at the Garnet property, the recent drilling has added an additional 3.1mt to the Desert Scheelite deposit.

• Thor Mining’s Exectutive Chairman, Mick Billings, expressed the view that “The resource inventory still has considerable growth potential via the Gunmetal and Good Hope deposits, as well as more potential upside at Desert Scheelite and Garnet.”

• The company also comments that “Further opportunities for the growth of the Garnet resource are being evaluated for follow-up drilling.”

Conclusion: Drilling at Pilot Mountain has expanded the known resource and identified further expansion opportunities for future drilling.

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