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Market Briefing - Caledonia Mining, Stratex, IronRidge Resources, Randgold Resources and others

Published: 10:30 02 Nov 2017 GMT

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Caledonia Mining (LON:CMCL) – Blanket mine resource increases 6% to 714,000oz
Golden Star Resources (TSE:GSC) – Q3 results report increased production and lower costs
IronRidge Resources* (LON:IRR) – Results from trenching and sampling at Echbara in Chad
Randgold Resources (LON:RRS) – Remains on track to achieve 2017 production guidance
SolGold (LON:SOLG) - BHP wants to buy more copper
Stratex International* (LON:STI) / Crusader (ASX:CAS) – Rebels force sacking of CEO and rejection of Crusader deal

LME week positivity highlights budding bull market
• The electric revolution yields booming metal prices as Goldman Sachs forecast copper to bust through another significant margin to reach $8,000 per tonne by 2022. The rapidly growing technological sector is boosting demand across battery raw materials with nickel and lithium at multi-year highs and prices for cobalt metal tripling to nine-year peaks above $30/lb from below $10/lb at the close of 2015.
• Equipment manufacturer, Caterpillar, has reported surging ordering activity from mining customers in its third quarter, and higher demand for spares, as the intensity of operations ramps-up.
• Operational efficiencies developed during the bust cycle are returning greater payouts as Rio Tinto revealed its largest interim dividend in August thanks to cost cutting, improved productivity and the divestment of poor assets.

Bullish commodities as China hopes to revive the Silk Road
• Investment in president Xi Jinping “project of the century” has risen to $1.3 trillion as 68 countries and international organisations sign up for the mammoth infrastructure initiative. The single largest enterprise since China opened up to foreign investment with the “One Belt, One Road” plan in 2013 hopes to invest and construct infrastructure in participant countries in the form of rail networks, roads, transportation, port, power, etc., in an effort to boost trading opportunities and globalization.
• Development along the OBOR will generate huge demand for commodities, resources, energy, service and technology, with BHP Billiton Ltd. forecasting an additional 150 million tonnes of global steel demand. In turn, steel requirements will boost iron ore, energy and coal, with electricity infrastructure requiring increased consumption of copper.
• However, the decision to cement the initiative within the Communist Party constitution following the 19th Congress Party meeting increases project risk, as political decisions will drive the OBOR forward in spite of underlying economic viability.

Dow Jones Industrials  +0.25% at 23,435
Nikkei 225   +0.53% at 22,539
HK Hang Seng   -0.16% at 28,548
Shanghai Composite    -0.37% at 3,383
FTSE 350 Mining   -0.22% at 17,639
AIM Basic Resources   +1.08% at 2,549

Economics
US – In line with expectations, the Fed kept rates unchanged during the latest monetary policy meeting as US President is set to name the next Chairman later today.
• The FOMC highlighted sold gains in economic activity as indicated by a back-to-back increase in GDP of voer 3% in Q2 and Q3 as well as robust labour market with unemployment rate currently at 4.2% compared to the long-run target of 4.6%.
• Although, the central bank noted that core inflation “remained soft”.
• The reaction in bond markets was relatively muted with 10 year bond yields climbing 2bp following the announcement.
• The futures markets indicated expectations for the December rate hike remained high coming off only marginally to 85%, down from 88% as before the announcement.
• Expectations are for Trump to name Jay Powell as the next chair of the Fed, according to White House officials who suggested that President preferred him over more hawkish contestants for the post.
• Mr Powell has been a member of the Fed Board since May/12 and has expressed his support for gradual monetary policy adjustment advocated by Yellen.
• He previously agreed that the Fed is unlikely to lift rates aggressively given a weaker growth potential and low inflation.

Germany – Unemployment levels fell further in October with jobless rate holding at record low levels.
• The economy is on course to post the best growth performance in six years.
• Unemployment Change: -11k v -22k in September and -10k forecast.
• Unemployment Rate: 5.6% v 5.6% in September and 5.6% forecast.

UK – The BoE is set to announce its rate decision as well as updated economic forecasts at 12:00 GMT today with market expectations for a 25bp rate hike.
• Market commentators are suggesting the Bank is likely to hike its inflation forecasts for the year.
• Inflation averaged 2.8% in Q3/17 coming in 0.1pp higher than August MPC estimates.
• Mark Carney has earlier indicated that he will probably have to write a letter to the Chancellor of the Exchequer later this year explaining why inflation exceeded the 2% target by more than a percentage point.

Spain – Manufacturing PMI picked up strongly in October taking the index to the joint-highest in over a decade.
• Growth was driven by increases in output, new orders and employment recorded.
• Export orders have also picked up driven by demand from other European countries.
• Strong production translated into further gains in employment.
• Inflation pressures were recorded at both producers’ and consumers’ ends with output charges rising at the fastest pace in three months.
• Catalonia political crisis did not appear to affect last month production numbers but weakened business outlook.
• “There was no discernible impact from the political situation in Catalonia on manufacturers’ operations in October, but a drop off in sentiment regarding the 12-month outlook was partly attributed to uncertainty surrounding the current political environment,” the report said.
• Manufacturing PMI: 55.8 v 54.3 in September and 54.8 forecast.

Finnair checking the weight of passengers and hand luggage to better calculate total weight for fuel and safety calculations
• Samoa Air was the first airline to weigh passengers so they could better distribute the weight around the aircraft.  The airline also charged by the kilo.

Tesla – pushes back Model 3 production target
• Tesla will now produce 5,000 cars a week by the end of next year rather than by December.
• The company reported a net loss of $619m in Q3 as it ramped up production.
• So far Tesla has produced 260 Model 3 cars versus its 1,500 target and is working on fixing Model 3 bottlenecks
• Tesla invested around $1bn in Q3 with another $1bn of investment to be spent in the fourth quarter

Currencies
US$1.1638/eur vs 1.1647/eur yesterday.           Yen 114.09/$ vs 113.91/$.         SAr 13.976/$ vs 14.130/$.            $1.326/gbp vs $1.330/gbp.       
0.771/aud vs 0.768/aud.            CNY 6.605/$ vs 6.616/$.

Commodity News
Precious metals:
Gold US$1,276/oz vs US$1,275/oz yesterday
China increases gold consumption
• China’s consumption risen 15.49% year on year in 2017, mainly due to increased demand for gold bars
• Increased wealth and growth of consumption in second and third tier cities as well as cooling housing market and volatile securities market has been attributed to growth

• The US Federal Reserve’s decision to keep interest rates unchanged allowed gold to advance against the dollar. The index fell 0.2 percent as robust U.S. economic growth and a strengthening labour market hinted at the prospects of increased borrowing costs by the year end. Hurricane-related slowdown in consumer spending and declining construction were offset by unexpected growth in the third quarter of inventory investment and a diminishing trade deficit to point at strong growth of the US economy.
• The imminent nomination of the next chair of the U.S. central bank has quelled U.S. Treasury yields and dollar strength, as building expectations point towards a more dovish Fed Governor Jerome Powell.
• Investors pause as the anticipated Trump tax cut plan is due to be announced today.
   Gold ETFs 69.3moz vs US$69.3moz yesterday
Platinum US$931/oz vs US$926/oz yesterday
Palladium US$997/oz vs US$995/oz yesterday
Silver US$17.08/oz vs US$16.87/oz yesterday
           
Base metals:   
Copper US$ 6,917/t vs US$6,959/t yesterday - BHP Billiton looks for next big copper project
• The world’s largest miner is looking to add more copper to its portfolio through exploration, open to forming alliances with junior mining companies 
• Looking at discoveries in Ecuador, Chile, Peru, Southwest US and Australia
Aluminium US$ 2,170/t vs US$2,171/t yesterday
Nickel US$ 12,645/t vs US$12,650/t yesterday - Nickel prices extend run on supply concerns
• Nickel prices rallied to highest levels in 2 years as growing supply shortfall and stronger demand for stainless steel in China expected
• China accounts for half worlds stainless steel production, nickel consumption this tear 1.1m tonnes a 3.8% increase
• Bickel built on its 6% price surge yesterday breaking briefly through the $13,000/t level ($13,030/t) before settling to two-year highs. Shanghai nickel matched the earlier rise from London to rally a further 5.4% at $15,374.94/t as battery manufacturers forecast increase usage to power the growing electric economy.
• SHFE nickel contracts swelled as the number of net long positions in for delivery in January grew by almost 20,000 lots.
Zinc US$ 3,248/t vs US$3,276/t yesterday
Lead US$ 2,465/t vs US$2,453/t yesterday
Tin US$ 19,460/t vs US$19,525/t yesterday
           
Energy:           
Oil US$60.2/bbl vs US$61.3/bbl yesterday
Natural Gas US$2.915/mmbtu vs US$2.915/mmbtu yesterday
Uranium US$20.20/lb vs US$20.05/lb yesterday
           
Bulk:   
Iron ore 62% Fe spot (cfr Tianjin) US$58.5/t vs US$58.4/t
Chinese steel rebar 25mm US$629.0/t vs US$627.6/t
• The data fabrication scandal at Japan’s third-biggest steelmaker, Kobe Steel Ltd, couldn’t have come at a worse time, as rising steel prices generate the best market conditions ahead of the 2020 Tokyo Olympics. The boost in construction has elevated prices to three year highs, as Kobe continues to lose contracts after a seal of industry quality was revoked last week.
Thermal coal (1st year forward cif ARA) US$87.0/t vs US$86.9/t
Premium hard coking coal Aus fob US$177.3/t vs US$178.0/t

Other:  
Tungsten APT European US$275-285/mtu vs US$280-285/mtu last week

Company News


Caledonia Mining (LON:CMCI) 420p, Mkt Cap £44.4m – Blanket mine resource increases 6% to 714,000oz
• Caledonia Mining has announced a 6% increase in measured and indicated resources at its 49% owned Blanket gold mine in Zimbabwe to 5.62mt at an average grade of 3.95g/t for 714,000oz (December 2016 – 4.94mt averaging 4.23g/t or 671,000oz)
• In addition, Inferred resources have increased by 47% to 5.53mt at an average grade of 4.99g/t or 887,000oz (December 2016 – 3.76mt averaging 4.99g/t or 604,000oz).
• The company comments that “The resource update announced today marks the sixth successive year of sustained resource growth at Blanket. Blanket’s resources have grown by approximately 69% since 2011 despite mining over 250,000 ounces over this period.”
• The resource replenishment at the Blanket mine, particularly the increase in the inferred resources, which we would expect to be able to be upgraded, at least in part, through additional drilling, augurs well for the potential to extend the mine’s longer term life and we note that the Chief Executive, Steve Curtis, is quoted commenting “We are currently engaged in an investigation into the economic potential of modifying the current life of mine plan and the current investment plan at Blanket … to include additional ounces where possible with a view to extending the life of Blanket.”
Conclusion: The resource upgrade at the Blanket mine continues a six year trend of increases in the mineral resource inventory and gives the company the opportunity to consider an extension of mine life while it proceeds with the major investment plan aimed at accessing deeper mineralisation below the 750m level and works to lift production to 80,000oz of gold pa by 2021.

Golden Star Resources (TSE:GSC) C$1.00, Mkt Cap C$381m – Q3 results report increased production and lower costs
• In its Q3 results Golden Star Resources reports a 64% increase in gold production to 73,827oz (Q3 2016 – 44,974 oz) and a 30% decline in cash operating costs to $671/oz (Q3 2016 $964/oz) which is “the lowest cash operating cost per ounce reported since second quarter 2010”.
• The company goes on to report that the 26% decline in all-in sustaining costs to $848/oz represents the “lowest AISC since Golden Star began reporting AISC four years ago in the first quarter of 2013.”
• During the quarter, the company started underground stoping at its Prestea gold mine and expects to achieve full commercial production there during the current quarter.
• At its Wassa mine, the company has “decided to delay the next pushback of Wassa Main Pit, Cut 3, until a time when the gold price is higher and the open pit will deliver higher margin ore. From early 2018 Wassa will become solely an underground operation as the Company focusses on producing higher margin ounces that will generate the strongest cash flow.”
• The company repots a cash balance of $30m and remains “fully funded to deliver its capital programme”.
• The company is maintaining its production guidance for 2017 at 225-280,000oz of gold production.
Conclusion: The increased gold production and lower costs underline the success of the company’s strategic decision to move to higher grade underground mining.

IronRidge Resources* (LON:IRR) 31.25p, Mkt Cap £85.3m – Results from trenching and sampling at Echbara in Chad
• IronRidge Resources reports the results from trenching and soil sampling work on its Echbara exploration area in Chad and outlines its programme of exploration for the forthcoming dry season.
• The “first pass trenching results over significant widths within the Echbara target demonstrate good continuity over a 1.2km strike length with a higher grade core over 500m strike and up to 2.7 g/t gold.”
• The trenching work comprised a total of 5,448m in nine trenches excavated into bedrock using a 30 tonne excavator and “was primarily designed to assess the extent and surface grade of the 2km long … soil anomaly as well as to understand potential controls of mineralisation therein.”
• Among the results from the trenching the company highlights are 12m at an average grade of 2.71 g/t fold, a further 12m averaging 0.94 g/t, 22m averaging 0.74 g/t and 52m averaging 0.35g/t.
• The company has also identified “multiple gold-in-soil  sampling anomalies … including a 4km x 2 km gold anomalous zone along strike from Echbara”.
• IronRidge Resources has mobilised its field exploration teams for the forthcoming dry season. “Field programmes will focus on infill and extensional trenching at the Dorothe prospect, detailed structural mapping at the Dorothe and Am Ouchar prospects and soil sampling and mapping over the Dorothe and Echbara licences.”
Conclusion: Early stage exploration by geochemical sampling and trenching has identified large anomalous areas and a continuing programme of early stage exploration including more trenching, geochemical soil sampling and structural mapping which may lead to a closer definition of the target areas.
*SP Angel act as Nomad and Broker to IronRidge Resources

Randgold Resources (LON:RRS) 7100 pence, Mkt Cap £6.7bn – Remains on track to achieve 2017 production guidance
• Randgold Resources reports that it remains on track to meet its 2017 production guidance of 1.25-1.3m oz of gold production, despite a forecast dip during Q3.
• The pushback of the pit at the Gounkoto mine in Mali combined with a planned decrease in grade at the mine, coupled with a mill upgrade at the Tongon mine in Cote d’Ivoire led to a 9% decline in gold production during the quarter to 310,618 oz. Costs on a cash basis increased by 17% during the quarter to $667/oz.
• On a year-to date basis, gold production is reported to be 11% higher than in 2016  and cash costs are down 9%.
• The company reiterates its objective “to define three new projects over the next four years. In Senegal, our focus is on delivering a Massawa feasibility study with a +3 million ounce reserve … In Cote d’Ivoire Randgold has concluded a joint venture with Endeavour Mining which will give it access to the ground immediately north of its Mankono permit where the promising Gbongogo target is located”

SolGold (LON:SOLG) 32.8p, Mkt Cap £497m - BHP wants to buy more copper
• Daniel Malchuk, head of BHP’s Minerals Americas division, said “We want more copper resources in our portfolio,” in a speech at an LME Week Forum yesterday.
• BHP previously offered $30m for a 10% stake in SolGold with a proposal to potentially take their stake to 70% on a further $275m investment.
• The offer was trumped by Newcrest which has continued to invest in SolGold and its giant Alpala project in Central Ecuador.
• SolGold with Newcrest are evaluating the multibillion-dollar project for its potential to become giant block caving operation.
• SolGold is not resting on its laurels with the Alpala project but is also making good progress on other licenses with a new discovery declared at La Hueca in Southern Ecuador.
• SolGold is the largest tenement holder in Ecuador and holds 100% of the La Hueca prospect.
• The new discovery hosts five porphyry systems along 25km of strike and shows high grade copper in chip samples at surface grading 13.82%, 8.37%, 4.08%, 2.5%, 1.8%
• Ecuador is planning a referendum in which it will ask the population to vote on changes to the constitution which could prevent the previous president from seeking re-election as well as on measures to limit mining and oil & gas production in environmentally sensitive areas. We believe, Ecuador is also looking to repeal its onerous windfall profits tax on large scale miners which has severely limited exploration and mining.

Stratex International* (LON:STI) 1.2p, Mkt cap £5.7m – Rebels force sacking of CEO and rejection of Crusader deal
Crusader (CAS AU) Suspended at A$0.092, Mkt cap A$27.7m
(Stratex’s offer: 6.6 new Stratex shares for each Crusader share giving Crusader shareholders ‘81%’ of the enlarged company and valuing Crusader at A$0.127/s)
(Thani Stratex merger proposal gives Stratex shareholders ‘56%’ of the new group, see Thani Stratex presentation for more details)
• Shareholders have voted to sack the Stratex CEO and to reject his proposed deal with Crusader Resources.  The CEO has now left the company with immediate effect.
• Reports from attendees of the Stratex General meeting indicate that the Chairman survived by the narrowest of margins with a majority of just a few thousand shares out of the 145m votes thought to be cast.
• Votes to appoint David Hall and Paul Foord were not counted as they were conditional on the Chairman and CEO being sacked.
• The good bit is that the shares have started trading again, though we wonder why they were actually suspended.
AngloGold Ashanti offloaded all their 11.40% stake in Stratex just two days ahead of the vote like rats leaving a listing ship.  Worse still they signed an irrevocable undertaking to vote against the proposed resolutions to sack the CEO and cancel the Crusader deal.  The shares went to a group called ‘Preston Road Limited’.  We wonder who is behind this company and why it suddenly acquired the shareholding.
• We do not believe AngloGold Ashanti acted in the best interests of itself in their last minute sale voting of Stratex shares.  We hope their CEO, Srinivasan Venkatakrishnan, will seek to find out why their shares were so suddenly sold and voted in this way.
• Our sources indicate that when the major institutions holding Stratex shares looked more closely at the Crusader assets that they were wholly unconvinced by the quality of the assets alongside the merits of the deal providing further damming indictment of the deal.
• We saw the deal with Crusader as, expensive, inappropriate and not offering the value to loyal Stratex shareholders which we expect to see from a listed company board.
• Reports indicate that the rest of the board were not overly keen on the deal but were led by the forceful action of the CEO.
• We believe the majority of voting Stratex shareholders should wish for the company to pursue asset opportunities in Africa and we hope what is left of the board will now seriously consider a potential merger with it’s most valuable subsidiary, Thani Stratex.
• Thani Stratex’s proposal makes more sense to us as it consolidates Stratex’s shareholding while being proposed at more reasonable value than the Crusader deal.
• We also see the Thani Stratex assets as at a more appropriate stage for Stratex.  While the assets are at an earlier stage of development and we believe they should continue to add to their value before development decisions are to be taken.  This should enable the board to minimise dilution for shareholders and allow time to consider the many alternative financing routes available in the market today.
• Details of the ‘draft’ Thani Stratex proposal are contained on the link below.  We expect to see some improvement to the proposed terms in favor of Stratex shareholders before terms are agreed:
• https://newstrat.co.uk/new-presentations - we recommend you click down to the third presentation for the Thani Stratex proposal.
• There were no ‘dirty tricks’ evident at the meeting and we congratulate the Chairman for his integrity in swiftly implementing the shareholder decisions.
Conclusion: Shareholders won an important victory yesterday in voting out a deal that was not in their best interests.  The board now needs to call in loans advanced to Crusader Resources.  While this may lead to the liquidation of Crusader we expect the loans to have been secured on the underlying assets and for the potential sale of Crusader assets to be sufficient to repay the cash advanced by Stratex.  We believe cancelling the Crusader deal will recuperate valuable cash and preserve funds for more appropriate investment as well as avoiding onerous fees which we believe would have run to an estimated $3-4m.
*SP Angel are completely independent with regard to Stratex, Thani Stratex, Crusader Resource or any of their directors, staff and advisors.

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