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Today's Market View - Atalaya Mining, Berkeley Energia, Highland Gold, Rainbow Rare Earths Limited, Strategic Minerals Plc, WEST AFRICAN MINERALS CORPORATION ORD NPV (DI), Nautilus Minerals

Published: 10:48 05 Jun 2017 BST

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Atalaya Mining (ATYM LN) – Proyecto Touro update

Berkeley Energia (BKY LN) – Exploration to target additional Zona 7 style targets

Highland Gold (HGM LN) – Kekura development project secures government approval

Nautilus Minerals (NUS CN) – Deep sea mining on Guardian agenda

Rainbow Rare Earths Ltd (RBW LN) – Gakara project update

Strategic Minerals* (SML LN) – Commencement of new supply contract at Cobre

West African Minerals (WAFM LN) – Brad Mills steps down from board

 

Gold is holding up well as prices surged on Friday on the back of weaker than forecast US employment data.

• The US$ index is trading around the weakest level since Q3/16.

• Brent prices are helped by the news of the political crisis in the Gulf with Saudi Arabia, Bahrain, the UAE and Egypt cutting diplomatic ties with Qatar saying the government supported “terrorist groups aiming to destabilise the region”.

• Iron ore prices are up for the second consecutive day despite reports showing that Chinese inventories levels at local ports have been little changed last week and remain at near all time highs of 136.6mt, according to Shanghai Steelhome.

• Chinese rebar futures were off 2.2% on Shanghai Futures Exchange, down for the 4th straight trading session.

 

Zambia – 31 Chinese national detained for illegal mining

• A senior Chinese diplomat has complained over the detention of 31 Chinese nationals for illegal mining in the copperbelt.

• Zambia has had a difficult time with Chinese workers with two Chinese managers charged with murder following the shooting of 13 miners during a pay dispute.

• A further pay dispute saw a Chinese manager killed by Zambian workers at the same mine.

 

Dow Jones Industrials  +0.29% at   21,206

Nikkei 225   -0.03% at   20,171

HK Hang Seng   -0.37% at   25,827

Shanghai Composite    -0.45% at    3,092

FTSE 350 Mining   -0.84% at   14,664

AIM Basic Resources   +0.85% at    2,668

 

Economic News

US – Nonfarm payrolls came in below market estimates for May on Friday while downwards revision for the previous month added to concerns over the strength of the labour market growth.

• Although, labour earnings growth slowed only slightly compared to Apr with the pace of gains abating together with weaker increases in headline NFP numbers.

• The FOMC will be holding a meeting next week with markets generally expecting the committee to announce a second rate hike for this year (91% market odds).

Date Index Period Actual Est Previous

Friday NFP ('000) May 138 182 174 (revised from 211)

  Unemployment May 4.3 4.4 4.4

  Av Earnings (%mom) May 0.2 0.2 0.2 (revised from 0.3)

  Av Earnings (%yoy) May 2.5 2.6 2.5

Monday ISM Services PMI May   57.1 57.5

Factory Orders (%mom) Apr  -0.2 0.5 (revised from 0.2)

  Factory Orders (ex Auto) Apr     0.0

Tuesday JOLTS Job Openings Apr     

Thursday Weekly Jobless Claims ('000) Jun-03   240 248

Source: Bloomberg    

 

China – Services industry PMI showed stronger growth in the sector in May helping to compensate for the latest slowdown in the manufacturing activity.

• Stronger growth in services led an increase in total new businesses, the private data showed.

• This comes on the back of further slowdown in new order growth in the manufacturing where the pace slumped to the lowest in the last 11 months.

• Aggregate employment contracted for the second month in a row, largely, driven by cuts in the manufacturing sector where staff was reduced at the strongest pace since last September.

• Inflation has slightly abated with prices climbing at a modest pace marking the lowest reading in 11 months.

• Overall business optimism “strengthened slightly, but remained below the series average”.

• Caixin/Markit Manufacturing PMI (released last Thursday): 49.6 v 50.3 in Apr and 50.1 forecast.

• Caixin/Markit Services PMI: 52.8 v 51.5 in Apr.

• Caixin/Markit Composite PMI: 51.5 v 51.2 in Apr

 

UK – Voters are preparing for the general elections due this Thursday with latest surveys pointing to a tightening race raising chances for a hung Parliament.

One-week options on the British pound against other major currencies are showing the most bearish sterling stance since the Brexit vote a year ago, FT reports.

 

Eurozone – Major southern Eurozone economies, Spain and Italy, posted good composite PMI numbers this morning.

• In particular, in Span strong business sentiment has been driving increases in output and employment with the labour market posting solid gains in both manufacturing and services sectors.

• Generally, given positive Germany and France PMIs, Eurozone business activity is expected to translate into higher growth rates in Q2/17 (0.7%qoq forecast v 0.5%qoq reported in Q1/17).

• “Both the hard data and the surveys are revealing a broad-based upturn,” Markit wrote.

• “The outlook for the Eurozone economy therefore seem to be tilting to the upside, and it seems likely that we’ll start to see many forecasters’ expectations for 2017 growth revised higher.”

• The euro is trading slightly lower against the US$ this morning ; although, the currency remains up 0.5% versus Friday as the US$ came off on weak US payrolls numbers.

 

Currencies

US$1.1276/eur vs 1.1220/eur yesterday.   Yen 110.48/$ vs 111.53/$.   SAr 12.744/$ vs 12.934/$.   $1.288/gbp vs $1.286/gbp.  

0.747/aud vs 0.738/aud.   CNY 6.804/$ vs 6.817/$.

 

Commodity News

Precious metals:

Gold US$1,282/oz vs US$1,262/oz yesterday

   Gold ETFs 60.0moz vs US$59.9moz yesterday

Platinum US$954/oz vs US$930/oz yesterday

Palladium US$842/oz vs US$834/oz yesterday

Silver US$17.56/oz vs US$17.19/oz yesterday

           

Base metals:   

Copper US$ 5,627/t vs US$5,627/t yesterday

Aluminium US$ 1,923/t vs US$1,922/t yesterday

Nickel US$ 8,865/t vs US$8,765/t yesterday

Zinc US$ 2,500/t vs US$2,525/t yesterday

Lead US$ 2,098/t vs US$2,088/t yesterday

Tin US$ 20,120/t vs US$20,300/t yesterday

           

Energy:           

Oil US$50.5/bbl vs US$49.7/bbl yesterday

Natural Gas US$3.035/mmbtu vs US$3.030/mmbtu yesterday

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

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$55.1/t vs US$54.7/t

Chinese steel rebar 25mm US$582.2/t vs US$581.1/t

Thermal coal (1st year forward cif ARA) US$67.5/t vs US$66.7/t yesterday

Premium hard coking coal Aus fob US$149.5/t vs US$149.5/t

 

Other:

Tungsten - APT European prices $220-225/mtu vs $215-225/mtu – tungsten prices holding ground with many smaller Chinese mines selling material for any money they can get before they get shut down on health and safety and environmental grounds

 

 

Company News

Atalaya Mining (LON:ATYM) 124 pence, Mkt Cap £144m –Proyecto Touro update

• Atalaya Mining has provided an update on the Touro project in north-west Spain. The announcement shows progress in three key areas, geology and resource estimation, metallurgical testing and the securing of additional purchase options on concessions which “gives the Company control over the entire geological district hosting additional mineralised zones.”

• Atalaya has now completed 272 new reverse-circulation and diamond drill holes totalling 26,557 metres of drilling providing additional data for the preparation of a new NI-43-101 compliant resource and reserves estimate.

• The drilling comprised both infill (15,169m in 184 holes) and step-out drilling (88 holes for 11,388m) and this work, combined with an independently verified exploration database including historical exploration and mining records, underpins the estimation work.

• The work has shown that mineralisation is hosted in a series of tabular, shallow-dipping mineralised lenses containing chalcopyrite and pyrrhotite. “In general, the orebodies … [are] very consistent and continuous in terms of geometry and grade-thickness values.” The programme  has also “confirmed that Aranteiro and Vieiro, known historically as two separate orebodies, are in fact a single orebody.”

• Metallurgical testing has confirmed “that high grade clean concentrates and high recovery rates can be expected at Proyecto Touro.” Test work shows that recovery rates range between 80% to 96% and average 89%. The programme also indicates that concentrates averaging 29% copper are “free of deleterious elements such as arsenic and lead.”

• Atalaya Mining has secured a 2.5 years option over 112.7 square km of concessions that include a number of “well documented mineralised copper occurrences” and allow the company effective control of the mineralised area surrounding the Proyecto Touro area. Exploration on these areas is expected to commence shortly.

• Commenting on these developments, CEO, Alberto Lavandeira commented “Proyecto Touro is rapidly emerging as our next near term copper producing asset in Spain and I am confident that our team’s proven efficient development skills will be applied at Proyecto Touro in order to replicate the success of our Riotinto copper mine.”

Conclusion: Atalaya Mining has significantly advanced Proyecto Touro with new insights into the geology and metallurgical characteristics of the mineralisation while tying up the surrounding exploration areas. We look forward to the new resources estimate in due course as well as to the outcome of the studies into the possible expansion of operations at Riotinto announced last week.

 

Berkeley Energia (LON:BKY) 49p, Mkt Cap £125m – Exploration to target additional Zona 7 style targets

• Berkeley Energia reports that it has started an exploration campaign to search for additional uranium deposits similar to the high grade Zona 7 deposit.

• “The discovery of the high grade extensions at the Zona 7 deposit in late 2017 transformed the economics for the project and changed the Company’s geological model for the region.”

• The aim of the new exploration, which is being conducted in tandem with the company’s development work on the site of its Salamanca Uranium Project, is to identify opportunities “with the potential to increase the project’s production profile or mine life.”

• In addition to this new exploration initiative, Berkeley Energia “will continue with exploration below Zona 7, where previous high grade intercepts were found beneath the current defined resource, demonstrating continuity of mineralisation and potential for the resource to increase.”

Conclusion: As development work continues on the Salamanca Uranium Project, Berkeley Energia is harnessing its detailed knowledge of the Zona 7 deposit to identify similar targets within its licence area. We look forward to further news as exploration proceeds.

 

Highland Gold (LON:HGM) 154p, Mkt Cap £502m – Kekura development project secures government approval

• The Kekura project has issued a government clearance under the mining legislation covering mineral deposits of “federal significance”.

• Given the size of the project, Kekura has been identified as federally significant which involved a separate permit from authorities in addition to the standard exploration and mining licenses,

 

Nautilus Minerals (TSE:NUS) C$0.25c/s, mkt cap C$164m – Deep sea mining on Guardian agenda

• The Guardian paper ran an in-depth, excuse the pun, article on Nautilus Minerals yesterday arguing the pros and cons of deep sea, sea bed mining.

• Curiously for the Guardian, which is known for its liberal, left wing and environmental views the story is remarkably balanced suggesting to us that they are being persuaded that mining the seabed may be a lesser evil than mining on land.

• Bramley Murton makes of the UK National Oceanography Centre, makes the point that mining of active hydrothermal vents is unlikely to last long with water at 400C and a PH of one.

• Given the harsh environment we hardly think a bit of mining is going to make much difference this ‘delicate’ ecosystem and we can’t see Nautilus wanting to drive one of its valuable sub-sea machines into such a corrosive environment in a hurry.

*Two SP Angel analysts have previously visited the factory assembling the Nautilus machinery and one analyst has visited Nautilus’’ exploration vessel in PNG

 

Rainbow Rare Earths Ltd (LON:RBW) – 12.6p, mkt cap £19.5 – Gakara project update

• Rainbow Rare Earths confirms that it remains on course to deliver its first rare-earth concentrate from its Gakara project in Burundi for sale in Q4 2017.

• Overburden removal commenced during April and led to the discovery “of several unrecorded veins at Gasagwe [which] further supports the Company’s confidence of significant upside to the known mineralisation”.

• In addition, the company reports that it has been working on upgrades to the local infrastructure “to support haul vehicles transporting run of mine (ROM) ore to the processing plant in development at Kabezi” and has made significant progress “with preparation work at the Kabezi site with permitting concluded ahead of commencement of civil works and construction of processing plant”.

• “By the end of May 2017, the number of local workers trained and inducted by Rainbow’s team had doubled to 80 from the initial 40.”

• The company plans additional trenching, mapping and gravity surveying “with a view to uncovering, accurately mapping and sampling the in-situ sources of large Bastnaesite blocks previously discovered on the surface in the Kiyenzi area.”

• Rainbow Rare Earths also comments that “Burundi has recently experienced widely reported fuel shortages, which has had some impact on supply to contractors’ machinery and caused some temporatry work interruptions. At present Rainbow does not foresee any issues supplying its own equipment but is monitoring the situation closely”.

Conclusion: Rainbow Rare Earths is maintaining its schedule to deliver saleable concentrates from Gakara during Q4 and has not yet been affected by local issues over fuel supply.

 

Strategic Minerals* (LON:SML) – 2.1p, mkt cap £25.5m - Commencement of new supply contract at Cobre

• Strategic Minerals has confirmed the commencement of its previously announced 4,000tpm magnetite sales contract with a new customer of its Cobre operation in New Mexico.

• The company points out that “This client has, in addition to lodging a US$250,000 deposit, now confirmed and commenced the contract.”

• As well as the increased sale volumes from Cobre, Strategic Minerals has also received the final payment of US$175,000 of its US$675,000 settlement with the rail provider at Cobre.

• Commenting on these developments, Managing Director, John Peters, said “The commencement of the new contract at Cobre, combined with the receipt of the final payment due under the rail settlement agreement, places Strategic Minerals in a healthy cash position ready to internally fund proposed drilling requirements for our  Redmoor and CARE projects in the UK and Australia, as well as opening up potential for involvement in additional projects.”

Conclusion: Strategic Minerals robust financial position places the company in a position to advance exploration at its Redmoor and CARE projects and to consider other projects. We look forward to further news of progress as exploration progresses.

*SP Angel act as Nomad and joint broker to Strategic Minerals

 

West African Minerals (LON:WAFM) 2.8p, Mkt cap £10.5m – Brad Mills steps down from board

AVOID

• West African Minerals reports that Brad Mills has stepped down from its board today.

• We are very sorry to see Brad go because we reckon he was the best guy on the board from a technical mining perspective.

• Mills’ enthusiastic approach to the projects under his jurisdiction should have been beneficial for shareholders and we reckon his legacy to WAFM may eventually stand the test of time.

• The potential development of the Sanaga magnetite project may, one day, in a more beneficial pricing environment, add significant value to the company.

• Brad has argued that iron ore prices should, in future years, rise to $94/t and that a $20/t premium for 69% magnetite is achievable at Sanaga.

• While we think the $20/t premium might be tough, though technically not impossible, to achieve in Cameroon we do see merit and potential future value, in the project.

• Mills may also be correct in his future $94/t price assumption for the Sanaga project arguing that the iron ore majors may not produce sufficient iron ore to meet demand and that prices will rise in future years.

• We agree, it’s expensive to produce and then store iron ore and it’s not like copper which is easily financed and stored in LME warehouses.

• We can see a scenario where cyclones or other events serve to disrupt iron ore supply and a lack of available stock sees consumers paying significant higher prices for material, though how long this sort of situation might last for we don’t know.

• Sanaga is quite well located in Cameroon, with cheap gas and hydropower in the region and potential for barging material or trucking material to port so as a project it has an interesting strategic location.

• The challenge for the board is to reduce the potential cost of mining and processing of the magnetite to a level at which the banks or other entities might finance the project.

• We don’t know enough about the specifics of the project to understand the potential to reduce the cost base but there are often ways of cutting operational costs in iron ore when projects are up and running so there may be some further ideas to improve the project economics at Sanaga

• While we do not see any conventional western banks rushing to the project we do see potential for a major steel company to look to incorporate Sanaga into a broader strategy to develop iron ore and steel production in Cameroon.

Conclusion:  We reckon Mills has preserved some future value for WAFM shareholders through the Sanaga project.  This is unlikely to translate into much value today but should be considered to be more like option value for tomorrow in our view.  Sadly Brad Mills leaves a board which is now bereft of hands on, practical, mining expertise.  We reiterate our AVOID recommendation as we cannot see this company developing value in the short term unless it moves to take on some new and more exciting assets.

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