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Today's Market View - Antofagasta Plc, Bluerock Diamonds Plc, Kibo Mining PLC, SolGold plc, Serabi Gold

Published: 10:51 26 Jul 2017 BST

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Dow Jones Industrials  +0.47% at   21,613

Nikkei 225   +0.48% at   20,050

HK Hang Seng   +0.30% at   26,933

Shanghai Composite    +0.12% at    3,248

FTSE 350 Mining   +0.30% at   16,339

AIM Basic Resources   +0.57% at    2,477

 

Antofagasta (LON:ANTO) – Q2 production on track to meet 2017 guidance

BlueRock Diamonds* (LON:BRD) – Kareevlei diamond sales

Kibo Mining (LON:KIBO) –Mbeya Coal to Power Project (MCPP) update

Serabi Gold (LON:SRB) – Q2 gold production

SolGold* (LON:SOLG) – Cascabel exploration update

 

Miners are up this morning extending this weeks’ gains with major names up 3-8% this week helped by a good run in base metals and bulk commodities prices.

• Copper prices are trading at the highest level in more than two years ($6,295/t +1.1%) marking the fourth consecutive day of gains on reports of a potential scrap imports ban in China amid a government drive to cut pollution and strong demand.

• The nation is reported to be planning a ban on some imports of machinery waste and other products used to as a source of scrap metal next year.

• The ban is estimated to cut scrap inbound shipments by up to 900kt copper contained per annum (SMM Information & Technology) amounting to 27% of 3.3mt of scrap imported last year and around 8% of 11.6mt, the nation’s annual demand.

• Gold is off (-5$/oz -0.4%) while the US$ is slightly up (+0.2%) ahead of the FOMC announcement later today.

• US equities closed higher yesterday on good earnings with 80% of SP500 companies having now delivered results which have beaten market estimates.

• Brent crossed the $50/bbl mark trading up 0.7% this morning and taking the total weekly advance to 5.3% amid reports showing US crude inventories dropped by 10.2mmbbl last week.

• Steel rebar for October delivery closed unchanged at the SHFE after climbing as much as 2% earlier on Wednesday with inventories said to be running near December lows.

• Iron ore September futures were off 1.6% on the DCE after climbing 2.8% yesterday.

 

Vanadium prices hit the highest level in four years on reports that China will temporarily limit supply during environmental checks while traders rushed into the market to restock.

• V2O5 and FeV prices fob China climbed to $6.4-7.0/lb and $30-33/kg, up 3% and 10% week on week, respectively.

• Panzhihua and Sichuan, two major vanadium producing regions in China, will be temporarily suspending production for environmental inspections to be conducted.

• Pangang, the largest vanadium producer in China, is reported to be running at normal 3,000tpm V2O5 at its two plants in Panzhihua and Xichang.

• Although the Company said that “around 300t V2O5 in Panzhihua area will be removed from the spot market in the following month when the plants here are ordered to halt for environmental inspection”.

• This compares to an average national production run rate of 7,000-7,200tpm so far this year.

• Shrinking local stockpiles provide further signs of tightening market with a number of Chinese suppliers declining to offer material for export.

• Markets in Europe and the US have also seen reduced supply with prices climbing 12% and 8% from the previous week to trade at $28.50-30.5/kg FeV and $12.85-13.25/kg FeV for the week ending 21 July, respectively.

• “There is no doubt suppliers have completely pulled back, and the are showing a lot of discipline in the market today,” one of suppliers said to AMM publication.

• Most of activity is said to be driven by restocking traders while consumers are reluctant to buy in rallying prices and waiting to see where prices settle.

• European vanadium pentoxide prices (V2O5) are up 24% YTD trading at the strongest level in four years and 165% up on lows hit in Dec/15.

• The continuing run up in prices bodes well for Bushveld Minerals (BMN LN) which runs South African Vametco operations, one of the cheapest primary producers of vanadium in the world with all-in cash cost of $17.33/kg as of 2015.

 

Economic News

US – The US Senate narrowly agreed to open debate on the Obama’s signature healthcare bill repeal case; although it still faces significant hurdles.

• The FOMC is due to release its monetary policy statement today with estimates for rates to remain unchanged at 1.00-1.25%.

• Markets assign 0% probability of a rate hike today and a 45% chance of one more increase before year end with the percentage drifting lower after hitting the highest in mid-June on weaker than expected inflation data and political woes around Trump administration.

 

UK – Growth only modestly picked in Q2/17 latest GDP data showed.

• The economy experienced a “notable slowdown in the first half of this year”, the ONS said commenting on the numbers.

• According to preliminary data, growth is reported to have been driven by services which were the sole positive contributor.

• Within services retail and the film industry were primary drivers; although, retailing posted flat growth over the six months period as consumers are faced with shrinking real incomes.

• Markets expectations are for the economic growth to slowdown to 1.6% and 1.3% in 2017 and 2018, respectively, down from 1.8% in 2016.

• GDP (%qoq): 0.3 v 0.2 in Q1/17 and 0.3 forecast.

• GDP (%yoy): 1.7 v 2.0 in Q1/17 and 1.7 forecast.

 

Australia – The A$ is off 0.6% against the US$ on the back of softer than forecast Australian inflation numbers.

CPI is reported to be dragged down by lower oil prices with the headline measure coming in below the 2-3% RBA target range.

• CPI (%qoq): 0.2 v 0.5 in Q1/17 and 0.4 forecast.

• CPI (%yoy): 1.9 v 2.1 in Q1/17 and 2.2 forecast.

 

Philippines – Rodrigo Duterte talked down local mining sector as the President threatened to raise local taxes unless miners increase efforts to protect the environment.

• During his address to lawmakers on Monday, Duterte called on mining companies to develop local processing capacities and also place an emphasis on protecting the environment.

• “At this point in my administration, it’s possible that we shall put a stop to the extraction and exploration of our mineral resources to foreign nations for processing abroad and importing them back to the Philippines,” Duterte said during his speech.

• “Spend to restore the virginity of resources or I will tax you to death.”

• Nickel prices enjoyed a strong run and are trading up 4% from the start of the week.

 

Currencies

US$1.1626/eur vs 1.1655/eur yesterday.   Yen 111.82/$ vs 111.25/$.   SAr 13.049/$ vs 12.981/$.   $1.303/gbp vs $1.303/gbp.

0.790/aud vs 0.793/aud.   CNY 6.756/$ vs 6.751/$.

 

Commodity News

Precious metals:

Gold US$1,246/oz vs US$1,252/oz yesterday

   Gold ETFs 59.0moz vs US$59.2moz yesterday

Platinum US$924/oz vs US$930/oz yesterday

Palladium US$863/oz vs US$862/oz yesterday

Silver US$16.37/oz vs US$16.40/oz yesterday

           

Base metals:   

Copper US$ 6,286/t vs US$6,155/t yesterday

Aluminium US$ 1,942/t vs US$1,919/t yesterday

Nickel US$ 9,945/t vs US$9,915/t yesterday

Zinc US$ 2,820/t vs US$2,832/t yesterday

Lead US$ 2,319/t vs US$2,297/t yesterday

Tin US$ 20,255/t vs US$20,250/t yesterday

           

Energy:           

Oil US$50.6/bbl vs US$49.1/bbl yesterday

Natural Gas US$2.955/mmbtu vs US$2.922/mmbtu yesterday

Uranium US$20.65/lb vs US$20.65/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$68.0/t vs US$67.3/t

Chinese steel rebar 25mm US$600.2/t vs US$598.7/t

Thermal coal (1st year forward cif ARA) US$73.5/t vs US$72.0/t yesterday

Premium hard coking coal Aus fob US$176.0/t vs US$174.0/t

 

Other:

Tungsten APT European US$226-231/mtu vs US$218-226/mtu

 

Company News

Antofagasta (LON:ANTO) 946p, Mkt Cap £9.3bn – Q2 production on track to meet 2017 guidance

• Antofagasta reports that its Q2 copper production of 174,400 tonnes is 1.5% above the level of Q1 2017 and that the company remains on course to achieve its 2017 production guidance of 685-720,000 tonnes of copper at a cash  cost of $1.55/lb before by-product credits and a net cost of $1.30/lb. H1 output 346,300 tonnes is 7.1% higher than the output achieved during H1 2016.

• Cash costs for the quarter at US$1.54/lb before by-product credits are 3.1% lower than the US$1.59/lb reported for Q1 2017 while H2 2017 costs of US$1.56/lb are 2.5% lower than the US$1.60/lb in H1 2016.

• The Los Pelambres mine produced 81,400 tonnes of copper during the quarter (Q1 2017 - 82,800t)  at a cash cost before by-product credits of $1.50/lb. Reduced throughput as a result of planned maintenance, combined with “slightly lower grades, … partially offset by improved recoveries” are responsible for the production decline.

• The Centinela operation produced a 10.3% improvement in overall copper output during the quarter to 61,200 tonnes bringing H1 output to 116,600 tonnes of copper; 18.9% above H1 2016. The improvement is attributed to higher grades. Cash costs before by-product credits fell by 12.8% during the quarter to US$1.56/lb bringing H1 cost to US$1.67/lb- 18.9% lower than the US$2.06/lb reported in H1 2016.

• Copper output at Antucoya fell by 5.4% during the quarter to 19,200 tonnes, bringing the total for the 6 months to June 2017 to 39,500 tonnes (H1 2016 – 27,000t). Cash costs declined by 5.1% over the quarter to US$1.66/lb bringing the average for H1 to US$1.71/lb (H1 2016 1.82/lb).

• Zaldivar produced 12,600 tonnes of copper during the quarter at a cost of $1.55/t (Q1 2017 – 13,300t at $1.64/lb).

Conclusion: Antofagasta remains on course to produce 685-720,000 tonnes of copper in 2017.

 

BlueRock Diamonds* (LON:BRD) 2.1p, Mkt Cap £1.4m – Kareevlei diamond sales

• BlueRock Diamonds reports that it sold a parcel of 330 carats of diamonds during July realizing an average price of $395/carat.

• The sale included a 5.5 carat diamond which achieved the “highest dollar per carat valuation to date of $7,054”, which implies an average sales price for the balance of the parcel of around US$282/carat.

• The company has also announced that its plan to increase production to 25,000 tonnes per month during Q4 2017 is progressing with throughput during July expected to be around 20,000 tonnes “an increase of over 35% on the production of 14,427 tonnes achieved for June 2017.”

• CEO, Adam Waugh, commented that “As we move into deeper ground in line with our mine plan, following the final blast of upper level kimberlite in early August, we expect grades to continue to improve. In the meantime we intend to provide further updates on the funding of our operations and developments as we progress towards operational profitability in due course.”

Conclusion: The rising trend of monthly kimberlite production as the mine moves into higher grade areas should lift diamond production later in the year. The recovery of occasional high value diamonds has the potential to boost average unit sales values significantly as demonstrated by the sale of a single 5.5 carat diamond for over $7,000/carat.

*SP Angel acts as Nomad & Broker to BlueRock Diamonds

 

Kibo Mining (LON:KIBO) 5.4 pence, Mkt Cap £19.6m –Mbeya Coal to Power Project (MCPP) update

• Kibo Mining reports that it has concluded a series of meetings with Tanzanian Government departments over the last week which have progressed the “Memorandum of Understanding that will govern the further development of the MCPP in general and the Power Purchase Agreement (“PPA”) in particular. The latter is to be submitted to the Attorney General for review within the next ten days”

• The company is confident that the PPA will receive approval and meanwhile it confirms that the “special mining right application remains on course, as does the environmental certification of the Mbeya Coal Mine and Mbeya Power Plant”.

Conclusion: It is encouraging to hear of the progress at MCPP, however, the recent legislative changes relating to mining in Tanzania have damaged market confidence and has had a major negative impact on, for example, the share price of Acacia Mining. The legislation provides for the Government to hold a 16% free-carried interest and to acquire up to 50% of any mining asset and allows the Mining Commission to suspend or revoke exploration and exploitation permits. The coal industry is not named explicitly but would appear to fall under the jurisdiction of the Mining Commissioner’s responsibility to advise the Minister of Mines “on all matters relating to the mining sector.” We hope that the current turmoil in Tanzania’s mining industry can be resolved in a way that nationally significant developments such as the MCPP can proceed to the benefit of all Tanzanians.

 

Serabi Gold (LON:SRB) 4.4 pence, Mkt Cap £30.6m – Q2 gold production

• Serabi Gold reports that it produced 8,148 oz of gold during the quarter ending 30th June, bringing production for H1 2017 to 18,009 oz and keeping the company “broadly in line with the Company’s forecast” of 40,000 oz for 2017.

• The slight reduction in gold output during the 2nd quarter is attributed to lower than scheduled grades during April and May at both Palito and Sao Chico. The company notes, however, that “Production improved significantly in June and the operational issue has now been fully resolved.”

• The operational problem relates to “a major mechanical problem” with a loader which reduced the output during “April and much of May”. These difficulties in the production stopes required the use of development ore as mill feed with a consequent decline in grades. CEO, Mike Hodgson is quoted that “…we feel confident, the second quarter shortfall will be recovered over the remainder of the year and we will meet our full year production guidance of 40,000 ounces.”

Conclusion: The operational setbacks during April and May seem to have been overcome with the company reporting “the improvement in the latter part of May and an excellent June” continuing into July. We look forward to Serabi Gold getting back on track during the third quarter.

 

SolGold* (LON:SOLG) 38p, Mkt Cap £576m – Cascabel exploration update

• SolGold has provided an update for the market on the status of its expanding drilling programme at Cascabel in Ecuador. Currently there are five operational drilling rigs on site and a sixth is due to arrive in August as part of an escalation of the programme which is expected to see up to 9 rigs on site by September 2017.

• Today’s announcement describes Hole 23R-D1 continuing within mineralised diorite at a depth of 1351.6m at Alpala Central where it is investigating eastward extensions of the mineralisation encountered in its “parent” hole, 23R, which intersected 770m of mineralisation grading 0.71% copper and 1.16g/t gold from a depth of 540m. Hole 23R-D1 is planned to continue for around a further 340m to reach the planned 1000m from the point at which the daughter hole diverted from the parent.

• Hole 24-D1R is currently at a depth of 1044.8m testing the Aplala Southeast mineralisation at depth beneath hole 24R which encountered 286m at average grades of 0.27% copper and 0.25g/t gold from a depth of 636m. The hole is currently in mineralised diorite with a further 320+ metres planned to completion.

• Drilling is continuing at Alpala Northwest where hole 26 has now reached a depth of 1876m. “Visible copper sulphide mineralisation encountered in the upper portion of Hole 26 extends the Alpala deposit approximately 120m northeast of hole 15R2 which returned 830m @ 0.93% copper equivalent (0.63% Cu, 0.46 g/t Au). A strongly mineralised diorite intrusion encountered in the lower portion of Hole 26 confirms the Alpala Northwest deposit at depth, some 400m below the intersection achieved in Hole 13 of 190m @0.82% copper equivalent(0.63% Cu, 0.31 g/t Au).”

• Hole 27 at Hematite Hill was recently completed at a depth of 1875.9m extending the “Alpala Central deposit 100m southeast of Hole 21 and approximately 250m southeast of the intersection achieved in Hole 16 which returned 894m @1.41% copper equivalent (0.78% Cu, 0.99g/t Au).” Assay results for Hole 27 are awaited.

• Hole 28, which is being drilled from the same collar site as Hole 27 at Hematite Hill is currently at a depth of 233.4m and intended to infill between Holes 16, 21 and 27 noted above in order to confirm “resource potential at Alpala Central.”

• Hole 29 is currently being established with the intention of testing “high grade extensions along the eastern flank of the Alpala Central deposit.”

• Solgold has now completed over 41,000m of drilling at Cascabel at a cost of over US$49m. To date, however, the company has only tested 4 of the 15 known targets with drilling and the Alpala deposit remains “open in multiple directions and the mineralised corridor marked for drill testing of the greater Alpala cluster occurs over a 2.2km strike length from Trivinio in the northwest to Cristal in the southeast. The mineralised corridor is known to be prospective over approximately 700m width.”

• As the exploration programme builds up, Solgold has identified the Moran target, approximately 700m north of Alpala and the Aguinaga target located 2.3km northeast as high priority targets with additional important targets at Tandayama-America, Alpala West, Carmen, Cristal, Parambas and Chinambicito.

• “The company is currently planning further metallurgical testing and completion of an Independent Pre-Feasibility Study at Cascabel. Solgold is investigating both high tonnage opencut and underground block caving operations as well as a high grade / low tonnage initial underground development towards the economic development of the copper gold deposit / s at Cascabel.”

Conclusion: The increasing scale of the drilling operations at Cascabel continues to extend the dimensions of the known mineralisation, even within the 4 target areas being drilled, while eleven further known targets remain in the pipeline for future drilling. We look forward to the assay results from the current drilling and, in the longer term, to the independent pre-feasibility study on the economic development potential of surface or underground mining at Cascabel.

*SP Angel acts as broker to SolGold.  The mining team at SP Angel have raised funds for SolGold on at least eight occasions over the past 10 years.

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