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Today's Market View - Avocet Mining, Bezant Resources plc, Gemfields PLC, Metals Exploration Plc, SolGold plc

Published: 10:58 31 May 2017 BST

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Avocet Mining (LON:AVM) SUSP – Standstill agreed with Inata’s major creditors

Bezant Resources (LON:BZT) – Acquisition of the Choco alluvial gold/platinum project

Dalradian Resources (LON:DALR) – Additional high grade drilling intersections

Gemfields (LON:GEM) – Independent committee rejects Pallinghurst’s derisory nil-premium offer

Metals Exploration (LON:MTL) – $2m Shareholder loan

Solgold* (LON:SOLG) – Securing new exploration concessions across Ecuador

 

China – May factory activity and services continue to expand supported by steel and construction activity

 

Moody’s raise global outlook despite China downgrade

 

Antimony – prices in China expected to rise as government cracks down on polluting antimony roasters

• A source tells us that 70-80% of Chinese Antimony processing is now shut, according to the largest foreign antimony concentrate supplier into China

• 50% has already been publically reported as closed (shut)

• Chinese production of antimony is reported to be running at 50% capacity as roasters are closed for non-compliance of environmental standards

• The largest, Hsikwangshan Twinkling Star, has been ordered to close and has been given a month to transform or upgrade its facility.

• Roasters in Guangxi province are reported to have been out of production since late January and are unlikely to resume till later this year if at all.

• Imports of antimony concentrates into China have also collapsed causing prices of raw materials to fall.

• We forecast antinomy prices could hit 12,000-13,000 by September and probably higher after that if many roasters are unable to clean up and reopen

 

Dow Jones Industrials            -0.24%  at  21,029

Nikkei 225                                -0.14%  at  19,651

HK Hang Seng                         -0.16%  at  25,661

Shanghai Composite               +0.23% at  3,117

FTSE 350 Mining                     -1.38%  at  14,708

AIM Basic Resources              -0.33%  at  2,640

 

Currencies

US$1.1179/eur vs 1.1141/eur yesterday.  Yen 110.83/$ vs 110.99/$.  SAr 13.078/$ vs 12.999/$.  $1.279/gbp vs   $1.286/gbp.     

0.745/aud vs 0.745/aud.  CNY 6.821/$ vs 6.856/$.

 

Commodity News

Precious metals:

Gold US$1,264/oz vs US$1,264/oz yesterday

   Gold ETFs 59.8moz vs US$59.8moz yesterday

Platinum US$942/oz vs US$947/oz yesterday

Palladium US$807/oz vs US$797/oz yesterday

Silver US$17.31/oz vs US$17.36/oz yesterday

 

Base metals:   

Copper US$ 5,642/t vs US$5,610/t yesterday

Aluminium US$ 1,913/t vs US$1,947/t yesterday

Nickel US$ 8,880/t vs US$9,100/t yesterday

Zinc US$ 2,577/t vs US$2,638/t yesterday

Lead US$ 2,079/t vs US$2,113/t yesterday

Tin US$ 20,300/t vs US$20,380/t yesterday

           

Energy:           

Oil US$51.3/bbl vs US$51.9/bbl yesterday

Natural Gas US$3.144/mmbtu vs US$3.207/mmbtu yesterday

Uranium US$19.75/lb vs US$19.50/lb yesterday

– Sputnik news report that Rosatom, the Russian state nuclear corporation has contracted on $6.5bn of nuclear fuel contracts to US companies through its subsidiary JSC Techsnabexport.  The group is now up to 95% of its agreed uranium delivery limits.

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$57.9/t vs US$58.2/t

Chinese steel rebar 25mm US$587.2/t vs US$585.2/t

Thermal coal (1st year forward cif ARA) US$68.0/t vs US$67.3/t yesterday

Premium hard coking coal Aus fob US$149.6/t vs US$149.6/t

 

Other:

Tungsten APT European US$000.0/mtu vs US$000.0/mtu

Quarterly hard coking coal US$285.0/t vs US$285.0/t

 

Company News

Avocet Mining (LON:AVM) SUSP – Standstill agreed with Inata’s major creditors

• Avocet has announced that it has reached agreement with the major trade and financial creditors of its Inata mine in Burkina Faso for a two month standstill “as strategic options are being explored in connection with a financial, debt and corporate restructuring”.

• The agreement has been reached with creditors “together representing approximately seventy percent of SMB’s [the local operating company running the Inata mine] debt”.

• In return for the standstill, “SMB agreed to a payment scheme for deliveries of services and goods during the standstill period that provides for payments thereof in sync with the receipt of the gold proceeds by SMB, once the mine has resumed its full operation.”

Conclusion: The agreement with Inatas’s creditors provides a welcome breathing space and synchronising payments to creditors with receipts from gold sales seems pragmatic. However, it appears that the clock is running and management will need to demonstrate tangible progress over the two month standstill period. We wish them well in their endeavours.

 

Bezant Resources (LON:BZT)  1.025 pence, Mkt Cap £3.1m – Acquisition of the Choco alluvial gold/platinum project

• Bezant Resources has announced the acquisition of the alluvial gold and platinum Choco plant in Colombia.

• The company is making an upfront payment of US$200,000 in cash and issuing 25m shares. A deferred payment of a further 15m shares “will be payable when the plant being acquired has for 10 consecutive scheduled work days processed 900m3 of material per day”. The two tranches of shares will represent approximately 11.6% of the enlarged share capital. In addition, Bezant’s wholly owned subsidiary, Andean Mining will assume responsibility for a payment of approximately US$162,000 due on equipment.

• The company expects plant commissioning in Q2/Q3 2017 and to recover its “first platinum and gold within two months of commencement of mining operations”

• CEO, Bernard Olivier commented “We shall now progress our first recovery plant into production over the coming months with the intention of realising a low-cost gold-platinum model that can be replicated quickly and cheaply across the Choco region.”

• The company’s initial focus is on an area which was mined between 2007-2012 and where its scoping studies indicate “a total cost of production of US$768 per ounce for platinum and gold recoveries over a 12-month operational period.”

• The company notes that its plant will be the first in the area which will not use mercury to recover precious metals and that it plans to replicate this technology elsewhere in Colombia.

Conclusion: Alluvial mining operations can be unpredictable and we note that today’s announcement does not mention expected production levels of precious metals. The introduction of a mercury free processing plant does, however, offer a significant environmental benefit and plans to roll out that technology should attract support.

 

Dalradian Resources (LON:DALR) 85 pence, Mkt Cap £212.7m – Additional high grade drilling intersections

• Dalradian Resources has reported results from a further 9 drill hole (3267m) of its recently completed 27 hole, 9,580m underground drilling programme at its Curraghinalt project in Northern Ireland. Results from a further 9 holes are still awaited and the company is already preparing a further 30,000m programme of step-out drilling to test potential strike extensions of the mineralisation from the surface to be undertaken during this summer.

• Among the highlights reported today are:-

o a 2.04m wide intersection of the 106-16 Vein grading 63.98g/t gold from a depth of 139.81m in borehole 17-CT-423

o and a 0.75m wide intersection of the Crow Vein grading 50.24g/t gold from a depth of 347.24m also in borehole 17-CT-423

o a 1.98m wide intersection, also of the V106-16 Vein grading 25.60g/t gold from a depth of 119.70m in borehole 17-CT-419

o a 1.37m wide intersection of the V75 Vein grading 75.69g/t gold from a depth of 177.22m in borehole 17-CT-418

o and a 0.74m wide intersection of the No.1 Vein grading 29.44g/t gold from a depth of 51.00m in borehole 17-CT-413

o and a 0.56m wide intersection of the V75 Vein grading 74.15g/t gold from a depth of 107.09m also in borehole 17-CT-413

• The company notes that “Most drill holes were oriented generally towards the south in order to intercept the steeply north dipping vein array.” and that “True widths vary depending on the vein zone intersected but generally average 85% of the down hole interval”.

Conclusion: Drilling at Curraghinalt continues to intersect high grade mineralisation in a number of relatively narrow, steeply dipping vein systems. We expect that when mining starts such mineralisation will require very close operational control to minimise dilution and will present a continuing challenge to the grade control process and resource estimation. Having said that, it is a nice problem to have, and we look forward to the remaining results from the underground drilling programme and in due course to results from the surface drilling campaign.

 

Gemfields (LON:GEM) 34p, mkt cap £187m – Independent committee rejects Pallinghurst’s derisory nil-premium offer

• The gloves are off.  Gemfields management have formed an independent committee of ‘independent’ directors  who will act in accordance with their duties as directors and in particular, in order to protect the interests of the minority of independent shareholders in the company.

• The committee has been quick to describe the offer as derisory and undervaluing the company.

• They state “The Unsolicited Offer would appear to be driven by Pallinghurst's proposed restructuring which seeks to preserve the Pallinghurst investment managers' own self-interests at the expense of the independent shareholders of Gemfields."

• They go on: “Unsolicited Offer has the potential to dilute Gemfields shareholders with inferior assets that offer exposure to more volatile commodities.”

• Faberge:  There is tremendous unrealised value in the Faberge brand. While Faberge has been a cash drain since it was acquired by Pallinghurst, and then Gemfields, shareholders should stand to gain significantly if Gemfields sells the Faberge brand in our view.

• Gemfields were persuaded to pay £90m to Pallinghurst Resources in 2012.

• Gemfields management have worked with the Faberge brand and have continued to invest in the business and should have added to its value since its acquisition.

• Pallinghurst well understand the value of the Faberge brand and how to use it to create value particularly in the event of a potential sale to a brand leader like LVMH, DeBeers, Gucci etc….

Conclusion: We currently value Gemfields at 70 pence per share on its mining business. We reckon there is potential to realise a further 18 pence per share on the sale of the Faberge business and that a good sale of Faberge by Pallinghurst might effectively pay for the majority of their acquisition of the cash generative mining business.

 

Metals Exploration (LON:MTL) 2.875p, Mkt Cap £59.6m – $2m Shareholder loan

• The Company has confirmed that it has signed a loan agreement to borrow US$2m, on an unsecured basis, from its two major shareholders, Runruno Holdings (RHL) and MTL (Luxembourg).

• RHL is providing US$577,000 with MTL’s share being US$1,423,000.

• Interest is payable at 20% until 31st August 2017 with a penalty rate of 30% applied from 1st September.

• “The repayment date is effectively the date when drawdown occurs of funds provided from a larger debt facility which is intended to be provided by a mezzanine debt provider by 30 June 2017”

• “The proceeds of the Loan will be used to facilitate a payment to the Group's senior lenders of $2.1 million falling due on 31 May 2017 which is in accordance with the payment schedule agreed with them”

• “As previously announced to the market the Company is in advanced discussions with potential providers of a larger working capital funding facility of which US $2m would be used for the repayment of the Loan. The Board expects to finalise the terms of this facility before 30 June and will make a further announcement in due course”

 

Solgold* (LON:SOLG) 44.25p, Mkt Cap £633.3m – Securing new exploration concessions across Ecuador

(SolGold holds an 85% interest in ENSA which holds 100% of Cascabel)

• SolGold has moved to capitalise on the expertise it has developed at Cascabel in exploring for copper and gold mineralisation in Ecuador by securing an additional 38 new exploration licences covering 14 new porphyry centres across the country. Applications on a number of other targets have been submitted and are awaiting approval.

• Solgold has created and funded four new, wholly owned, subsidiaries each based within a geographical region of the country to advance the new exploration concessions totalling almost 130,000 square kilometres and the company notes that ”Visible copper porphyry mineralisation has been observed outcropping on several of the new licences”.

o Carnegie Ridge Resources will explore the Rio Amarillo project in Carolina Province, The Blanca Nieves and Rio Mira projects in Jijon y Caamano Province and the Chical project in Chical Province

o Green Rock Resources is responsible for advancing the Chillanes project in Pallatanga, the San Antonio project in San Antonio Province, The Sharug, Porvenir, Loyola Nangaritza, Sacapalca, Timbarra and Pinas projects.

o Valle Rico Resources is to explore the Salampe, Salinas, Yatubi and Augustin project; while

o Cruz de Sol is exploring the Helipuerto group of licences in San Carlos de Limon province

o “The concessions are prospective for porphyry systems and / or skarn and breccia pipe Cu-Au and epithermal Au deposit types.”

Conclusion: Solgold has developed a detailed understanding of the geological setting of copper/gold mineralisation in Ecuador as it has advanced its exploration at Cascabel. Deploying this expertise and building on its relationships with the authorities in Ecuador to investigate other targets seems an effective way to build the company. At this stage we imagine that all the new projects will be at a relatively early stage of exploration and that some may fall by the wayside as evaluation progresses, however some are likely to emerge as worthy of a more significant exploration effort capable of providing Solgold with a project pipeline of exploration as the flagship project at Cascabel is progressed.

*SP Angel acts as Nomad and Broker to SolGold; An SP Angel analyst has previously visited the Cascabel project.

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