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Today's Market View - Amur Minerals Corporation, Firestone Diamonds, Ironridge Resources Limited, Stratex International plc

Published: 10:58 08 Aug 2017 BST

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Amur Minerals* (LON:AMC) – Independent analysis confirms company assay data

Firestone Diamonds (LON:FDI) – Revision to 2018 production guidance

IronRidge Resources* (LON:IRR) – Strengthening the exploration team

Stratex International (LON:STI) – Crusader merger presentation

 

Steel prices continue to rise in China as traders continue to buy stock ahead of expected winter environmental shutdowns

• Iron ore prices lost some of yesterday’s gains on the realisation of a build-up in iron ore port stocks

• Iron ore demand is likely to be hit through the winter months though we expect good quality Australian iron ore to continue to gain market share as preferred feedstock

 

China to impose environmental tax.  Tax will raise mineral processing costs and will cut production of many industrial commodities

• China’s new ‘Environmental Protection Tax Law" is due to come in on 1 January next year with Beijing committed to enforcement as top priority for the country.

• The anti-pollution crackdown is now being rolled out to other regions multiplying its impact on production and capacity.

• Industry is being offered the option of shutting polluting capacity through the worse winter months around urban areas to help stem the worst pollution though this may effectively render much capacity uneconomic as winter approaches.

• Many industrial furnaces, most of which are open to the atmosphere will have to be shut and the worst of these may never reopen despite price rises in a number of industrial commodities.

• This will cause some upset in the market for mineral concentrates into China as convertors run down stocks or simply go bust when the lack of several months of cash flow hits home.

• Producers must now declare details on their emissions and waste outflows as well as on tailings disposal and storage.

• The move marks a structural change in China policy and tolerance towards polluting industries and is likely to result in marked price rises for many base and specialist metals.

 

Dow Jones Industrials                +0.12%  at  22,118

Nikkei 225                                      -0.30%  at  19,996

HK Hang Seng                             +0.59%  at  27,855

Shanghai Composite                  +0.07%  at    3,282

FTSE 350 Mining                          -0.59%  at  16,960

AIM Basic Resources                  -0.56%  at    2,448

 

Economic News

China – trade surplus widens to US$46.7bn for fifth consecutive month to end July

 

China FOREX outflows stabilise at $3.1bn as Renminbi strengthens against the US dollar

• China may move to relax capital outflows as its currency gains against the US dollar.

• Enforcement tighter regulations on overseas acquisitions and investment has stemmed much of the capital outflow which had concerned Bejing

• Now that outflows have stabilised the authorities may start to relax what have been seen as relatively aggressive capital controls.

 

Currencies

US$1.1811/eur vs 1.1807/eur yesterday.  Yen 110.55/$ vs 110.76/$.  SAr 13.216/$ vs 13.393/$.  $1.304/gbp vs $1.305/gbp. 

0.793/aud vs 0.792/aud.  CNY 6.704/$ vs 6.718/$.

 

Commodity News

Precious metals:

Gold US$1,261/oz vs US$1,258/oz yesterday

   Gold ETFs 66.2moz vs US$66.2moz yesterday

Platinum US$971/oz vs US$961/oz yesterday

Palladium US$888/oz vs US$877/oz yesterday

Silver US$16.28/oz vs US$16.24/oz yesterday

           

Base metals:   

Copper US$ 6,389/t vs US$6,367/t yesterday

• China copper imports climb >8% in July as credit restrictions ease. China copper concentrate imports held steady at 1.4mt but were up 2.2% yoy.

Aluminium US$ 1,989/t vs US$1,924/t yesterday

Nickel US$ 10,320/t vs US$10,375/t yesterday

Zinc US$ 2,879/t vs US$2,825/t yesterday

Lead US$ 2,369/t vs US$2,365/t yesterday

Tin US$ 20,480/t vs US$20,640/t yesterday

           

Energy:           

Oil US$52.6/bbl vs US$52.1/bbl yesterday

Natural Gas US$2.826/mmbtu vs US$2.803/mmbtu yesterday

Uranium US$20.50/lb vs US$20.40/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$72.9/t vs US$75.4/t

Chinese steel rebar 25mm US$636.5/t vs US$614.5/t

Thermal coal (1st year forward cif ARA) US$75.2/t vs US$75.0/t yesterday

Premium hard coking coal Aus fob US$193.6/t vs US$191.3/t

 

Other:

Tungsten APT European US$230-235/mtu vs US$226-231/mtu

 

Company News

Amur Minerals* (LON:AMC) 7.22p, Mkt Cap £44.2m – Independent analysis confirms company assay data

• Amur Minerals reports that independent analysis, by Alex Stewart Laboratories (ASL), of 561 core samples derived from 12 holes drilled at  the Kubuk and Ikenskoe prospects in eastern Russia has confirmed the company’s results derived using the Niton X-Ray Fluorescence analyser which were released in June.

• Results showed the average analysis of the ASL results was 0.82% nickel and 0.26% copper while the company derived results averaged 0.84% nickel and 0.27% copper.

• Amur Minerals points out that the turnaround time for the independent sampling is approximately six to eight weeks longer than for the internally generated analysis, although it will be using the independent assaying for future Mineral Resource Estimates.

• Further results from “the second sample batch (557 core samples with 217 additional trench, QAQC and reconnaissance samples) … are now under management review. The third batch (403 core samples with 320 additional trench, QAQC and reconnaissance samples) is presently in analysis at ASL with the fourth (355 core samples and additional QAQC and trench samples) in transit.”

Conclusion: The independent validation of the company’s analytical results should assist in exploration planning through the more rapid turnaround of results as well as helping to maintain the flow of information to the market. In the light of the close correlation between the two sets of data, the use of the independent assays for future resource estimation purposes in preference to the internally generated assay data is unlikely to materially affect the estimates themselves but should add a higher level of credibility to the resulting estimates.

*SP Angel act as Nomad and Broker to Amur Minerals

 

Firestone Diamonds (LON:FDI) 29.5 pence, Mkt Cap £94m – Revision to 2018 production guidance

• Firestone Diamonds has announced that, as a result of a review aimed at optimising the long term mining plan at its 75% owned Liqhobong diamond mine in Lesotho, it is reducing its production guidance for the year to June 2018 to 800-850,000 carats from the 1 million carats indicated previously.

• The revision represents a change in the timing of extraction of diamonds and Firestone expects that “the overall life of mine carats is not anticipated to change.”

• As part of the optimisation plan, Firestone “plans to mine additional waste rock in the coming year, in order to improve the long term mining operations.” This should allow access to “lower areas of the pit that have historically yielded higher grade and higher value diamonds.”

• The company intends to release further details of the optimised mine plan in conjunction with its Q4 results.

• Liqhobong announced the formal start of commercial production last month and we interpret the current re-optimisation as both part of a sensible process of continuing review of the mining plan and also, perhaps, a response and adjustment to the real-world data of full scale commercial production.

Conclusion: The reduction in short term diamond output in order to deliver an improved long term plan has, presumably, enhanced the overall project value of the Liqhobong operation and we look forward to the details of the new plan in due course.

 

IronRidge Resources* (LON:IRR) 33.25p, Mkt Cap £87.3m – Strengthening the exploration team

• IronRidge Resources reports that it has appointed an experienced exploration manager, Joe Clarry, to strengthen its growing exploration efforts in Africa.

• Mr Clarry “has over 20 years’ experience in managing greenfields, brownfields and near mine exploration in gold, lithium, iron ore and base metals” with both major and junior companies in West Africa and Australia and was recently “involved in the rapid delineation of a spodumene dominant lithium pegmatite in Mali, West Africa.”

• His immediate priority will be to advance IronRidge’s “Cape Coast Lithium Project in Ghana as it moves towards initial drill planning.”

• Commenting on the appointment, Chief Geologist, Len Kolff, said “Joe brings with him a wealth of African expertise, including extensive lithium pegmatite and gold exploration experience. He will be a valuable addition to the team as we advance our project pipeline.”

Conclusion: IronRidge is expanding its exploration portfolio and Mr Clarry’s geographical and commodity experience should complement the existing IronRidge team.

*SP Angel act as Nomad and Broker to IronRidge Resources

 

Stratex International (LON:STI) 1.175p, Mkt cap £5.5m – Crusader merger presentation

• Stratex International have issued an updated presentation in an attempt to justify their expenditure on their effective takeover by Crusader.

• The presentation highlights an effective four man management team led by Marcus Engelbrecht and Perry Ashwood of Stratex and the two senior executives from Crusader Paul Stephen formerly of Pattersons Securities in Australia and Robert Smakman who is said to be a well regarded geologist.  Both Crusader executives had their severance terms uncommonly boosted as part of the deal terms, though you can’t say they did a bad deal for Crusader.

• Sadly Robert Smakman is not on the board meaning that the Stratex board is run by people with banking expertise more than real world mining experience.

• Engelbrecht is at pains to explain to the market the benefits of the Crusader transaction.

• The great news is that existing Stratex shareholders are only getting 19% of the enlarged company vs Crusader shareholders’ 81% stake – a great deal for Crusader.

• We also note Marcus Engelbrecht’s recently approved 12m of options expiring in August 2020 and further 11m of options expiring in August 2027 which equates to 5% of the current issued share capital.  There are conditions which appear align these options to the creation of shareholder value and we are not at all against management incentives.

• The Stratex presentation goes on to highlight the former undervaluation of Crusader against it’s peers in EV/Resource ounce terms which is unusual for a stock run by a ex Pattersons’ stockbroker though the high price being paid in shares and cash commitments by Stratex shareholders goes some way to closing that gap.

• Borborema: the presentation goes on to highlight a clear path to production for the Borborema gold resource which is around 100km inland in the North East of Brazil.  The plan is to build a large open pit and plant to process 2mtpa of ore grading 1.61g/t for 75,000oz pa of gold.  The project needs optimisation, some $100-120m of funding and a mining license to create more clarity on the path to production.

• Juruena: arguably the better asset in the Crusader portfolio, Juruena carries unusually high grade but is very much smaller in its current form.  Juruena grades 14.7g/t for 205,000oz in indicated and inferred.  This reduces to 6.3g/t when a further 55,000oz grading 2g/t are included.  There is good potential for Juruena to become a larger and more promising project but it will need more drilling and geological investigation to work this out.  Crusader spent US$25m on 44,458m of drilling giving a discovery cost of US$96/oz which looks like expensive exploration particularly considering the drilling cost at US$562/m.

Conclusion:  We encourage Stratex shareholders to review the latest company presentation.  The expanded executive management team has much to prove to justify the elevated cost of the Crusader acquisition.  We are looking forward to further progress and optimisation at Borborema and to more high grade gold at Juruena but we have to hope the company does not take any wrong turns in Rio along the way.

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