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Today's Market View - Amur Minerals, Bacanora Minerals, Rare Earth Minerals, Gemfields, Hummingbird Resources, Ormonde Mining, Ncondezi Energy, Ortac Resources, Metals Exploration, Wolf Minerals

Published: 11:05 30 Sep 2016 BST

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Amur Minerals (LON:AMC) – MKF drilling results point to resource expansion; Interims
Bacanora Minerals (LON::BCN) – Bacanora rejects all-share merger offer from Rare Earth Minerals
Rare Earth Minerals (LON:REM)
Gemfields (LON:GEM) – Emerald auction in Jaipur
Hummingbird Resources (LON:HUM) – Civil engineering contractor appointed for Yanfolila
Ormonde Mining* (LON:ORM) – Interim results and Barruecopardo progress report
Ncondezi Energy (LON:NCCL) – Interim results and update
Ortac Resources* (LON:OTC) – Casa mining further investment
Metals Exploration (LON:MTL) – Interims
Wolf Minerals (LON:WLFE) – ASX Suspension requested pending resolution of funding arrangements.

Extreme pollution is forcing China to shutdown hundreds of coal and steel operations
• Inspectors revoked safety certificates for 28 coal mines and closed another 286 for failure to comply with environmental and safety regulations after inspection of 4600 coal mines.
• The inspectors also shut two steel companies permanently and forced 29 steel producers to suspend output and another 23 to reduce production.
• China is to set up a no-coal zone around key cities in an effort to reduce hazardous pollution and smog.
• Beijing recently restricted coal mine operations to a maximum of 276 days a year causing coking coal prices to rocket to $210/t

Equity markets are off led by losses in banking shares with Deutsche Bank hitting an all-time low this morning as investors cut exposure to the lender.
• Crude prices are trading 1.2% lower this morning after having climbed 6.6% in the last two days on the back of the OPEC plan to cut oil production.
• Gold is slightly up trading at $1,326/oz (+$4/oz) benefiting from its safety haven status and despite an increase in the US$ index.
• Iron ore futures fell 2.5% on Friday marking 0.9% weekly decline ahead of a week long holiday in China.
• Base metals are mixed with nickel prices consolidating around $10,400-10,500/t levels after posting a 3.7% decline yesterday on the Philippine government comments that 20 mines that were advised to be suspended may restart operations if all issues mentioned in the audit were addressed.

Deutsche Bank – Deutsche shares drag US market lower on speculation that the bank may ask for a bailout from German government
• The WSJ report major hedge funds are pulling money out of Deutsche Bank.
• We have to wonder how many hedge funds have been seeded by Deutsche Bank and how much Prime Brokerage has been done by the bank.
• US policymakers privately admit that allowing Lehman Bros to collapse was a bad move and not something to be repeated.  The ECB and related governments are aware of the potential disruption of allowing a major European Bank collapse and while they may oversee an orderly reduction in the scale of its more risky operations they are not going to allow its outright collapse.
• The problem with bailing out Deutsche is that it will need to be seen to be done on the same basis as a number of Italian banks which are seen to be in a similar crisis. 
• While the situation might remind some of the Lehman Bros collapse and the subsequent crisis the bailing out of Deutsche Bank should not have such global impact.

Dow Jones Industrials  -1.07% at 18,143 
Nikkei 225   -1.46% at 16,450 
HK Hang Seng   -1.86% at 23,207   China National Day, week long holiday next week
Shanghai Composite   +0.21% at   3,005 
FTSE 350 Mining   -1.18% at 12,740  FTSE 350 +73% since 1st January
AIM Basic Resources   -1.09% at   2,508  AIM Basic Resources +54% since 1st January

US – Revised GDP numbers showed the economy advanced at a higher rate than initially calculated with an upwards revision accounted for a smaller drag from inventories and stronger exports.
• Consumer spending expanded at a solid 4.3%qoq (annualised) rate, donw from 4.4% estimated previously.
Date Index Period   Actual Est Previous
Monday New Home Sales Aug %mom -7.6 -8.3 13.8
Tuesday SPCS 20 City Index (SA) Jul %mom 0.0 0.00 -0.1
  SPCS 20 City Index (NSA) Jul %yoy 5.0 5.1 5.1
  Markit Services PMI Sep   51.9 51.2 51.00
  Markit Composite PMI Sep   52.0   51.5
  Consumer Confidence Sep   104.1 99.0 101.1
Wednesday Durable Goods Orders (ex Transport) Aug (Prelim) %mom -0.4 -0.5 1.3
  Capital Goods Orders Aug (Prelim) %mom 0.6 -0.1 1.5
Thursday Weekly Jobless Claims     254k 260k 252k
  GDP Q2 (Final) %qoq 1.4 1.3 1.1*
  Consumer Spending Q2 (Final) %qoq 4.3 4.4 4.4
  Core PCE Q2 (Final) %qoq 1.8 1.8 1.8
Friday Personal Income Aug %mom   0.2 0.4
Personal Spending Aug %mom  0.1 0.3
PCE Aug %mom  0.2 0.00
PCE Aug %yoy  0.9 0.8
Core PCE Aug %mom  0.2 0.1
  Core PCE Aug %yoy   1.7 1.6
* Previous Q2 GDP estimate; Q1 GDP change was +0.8%qoq   

US – Och-Ziff’s $400m settlement of US Foreign Bribery Probe
• The settlement combined with numerous settlements is making the US look more like the Central Asian states
• Less wealthy nations sometimes look for a reason to impose fines on companies to bolster their finances.
• Perhaps the US with its mountain of debt is now looking for ways to restore its finances through similar means.

US – September 11 legislation may be amended following overturning of Presidential veto
• US lawmakers overturned the presidential veto in relation to the new proposed ‘Justice Against Sponsors of Terrorism Act’, ‘JASTA’
• Senate leaders say they could narrow the new law to help the interests of American’s abroad.
• Lawyers representing victims of the September 11 attack are keen to seek damages from Saudi Arabia which is seen as having played a role in sponsoring terrorist groups which played a role in the attacks.
• The bill is seen as eroding sovereign immunity which has broader global implications

Philippines – President Duterte comments on extermination of drug peddlers
• The new Philippine president is on a mission to exterminate a large number of drug peddlers according to a recent speech.
• While Duterte’s comments are attracting criticism it appears his policies to eradicate the drug trade are finding huge popularity with the population in general

Canada – reports suggest a large number of promoters are preparing to hit Bay Street with mineral prospects
• A resurgence of interest in mining and exploration projects appears to have awoken a mass of dormant promoters in Canada.
• We are told privately that a significant number of projects are being dusted off ready for presentation as their owners come out of hibernation following a long cold winter in the Canadian junior mining space.

Currencies
US$1.1183/eur vs 1.1219/eur yesterday.    Yen 101.06/$ vs 101.48/$.   SAr 13.974/$ vs 13.713/$.    $1.295/gbp vs $1.299/gbp.
0.761/aud vs 0.767/aud.   CNY 6.669/$ vs 6.669/$.  

Commodity News
Precious metals:
Gold US$1,327/oz vs US$1,322/oz yesterday –
     Gold ETFs 65.3moz unch vs 65.3moz yesterday
Platinum US$1,032/oz vs US$1,029/oz yesterday – Impala platinum refinery strike
Palladium US$717/oz vs US$711/oz yesterday
Silver US$19.33/oz vs US$19.14/oz yesterday

Base metals:   
Copper US$ 4,827/t vs US$4,826/t yesterday –
Aluminium US$ 1,664/t vs US$1,660/t yesterday –
Nickel US$ 10,465/t vs US$10,600/t yesterday –
Zinc US$ 2,354/t vs US$2,337/t yesterday –
Lead US$ 2,075/t vs US$1,006/t yesterday –
Tin US$ 19,925/t vs US$19,945/t yesterday –

Energy:
Oil US$48.6/bbl vs US$48.2/bbl yesterday –
•  
Natural Gas US$2.954/mmbtu vs US$2.014/mmbtu yesterday
Uranium US$23.00/lb vs US$23.50/lb yesterday –

Bulk:    
Iron ore 62% Fe spot (cfr Tianjin) US$55.8/t vs US$55.3/t –
Steel rebar, China 25mm US$389.4/t vs US$389.3/t –

Thermal coal (1st year forward cif ARA) US$64.9/t vs US$64.9/t yesterday –
Coking coal prices $210.8/t unch vs $206.4/t FOB Australia for Premium Hard Coking Coal (The Steel Index) – Prices holding new high level

Other:
Tungsten - APT European prices vs $180-200/mtu unch ‘again’ vs $185-200/mtu two weeks ago

Company News

Amur Minerals (LON:AMC) 3.2p, Mkt Cap £16.5m – MKF drilling results point to resource expansion; Interims
• The 80 holes 19,400m drilling programme completed to date (May – late Sep) was split between infill and step out resource definition drilling and metallurgical sample collection.
• 59 holes for c.15,200m drilled at MKF confirmed the continuity of the MKF mineralisation along 3km strike.
• The Company narrowed its drilling grid at MKF to convert available Inferred mineral resource to a higher confidence Indicated category.
• Step out drilling also completed at an Indicated category spacing confirmed the extension of the mineralisation for additional 300m and 500m in western and eastern parts of MKF.
• Preliminary results show the average mineralisation thickness in holes of 24m at 0.76% Ni and 0.21% Cu (at 0.2% Ni cut-off grade) and 19.7m at 0.90% NI and 0.25% Cu (at 0.5% Ni COG).
• The remainder 21 holes allowed the Company to collect a 7.5t bulk metallurgical sample for future treatment tests.
• New resource statement is planned for Q1/17.
• The remainder of the programme will focus on eastern parts of the MKF deposit with exploration team planning to test a 400m expansion to the mineralisation zone potentially connecting it to the eastwardly lying Gorny deposit and increasing the total strike of the MKF to c.5km.
• The Company expanded its mobile fleet as well as doubling drill capacity allowing it to complete the record exploration programme this year.
• Admin expenses totalled $2.3m (H1/15: $1.1m) with lower operating cash outflow for the period versus last year on timing differences (-$1.1m v -$1.4m in H1/15).
• Capital equipment costs were $1.4m (H1/15: 0.3m) and $1.3m was spent in exploration costs (H1/15: $1.0m).
• Cash in the bank as of H1/16 stood at $11.5m (FY15: $9.6m) following completion of two financing rounds with Crede in Mar and Jun for a total of £5m. The Company remains debt free.
Conclusion: The exploration team is doing good job at expanding the available mineral inventory at MKF with new drilling results suggesting a potential increase to the Indicated category of the resource which in turn would form the base for an updated reserve statement. The Company has accomplished two set targets for the H1/16 field season including acquiring new drilling results at MKF for the updated Reserve Statement and collecting the bulk metallurgical sample.
With $11.5m in the bank the Company is well capitalised to continue with preparatory works for the DFS which is targeted for completion in Q4/17.
* SP Angel act as Nomad and broker to Amur Minerals

Bacanora Minerals (LON:BCN) 92p, Mkt Cap £99.2m – Bacanora rejects all-share merger offer from Rare Earth Minerals
Rare Earth Minerals (REM LN) 0.7p, mkt cap £53.5m
• Rare Earth Minerals, an investment company which holds stakes in a number of lithium projects has proposed a merger offer with Bacanora Minerals.
• Rare Earth Minerals ‘REM’ recently increased its stake in Bacanora to 19.8%.
• REM also holds direct stakes in certain licenses which are held by Bacanora Minerals.
• The Pre-Feasibility Study schedules the majority of mining in the first 15 years to come from licenses which are 100% held by Bacanora. 
• Mining from licenses which are held in joint venture with REM is mainly from around year 15 of the mine plan. 
• REM hold around 17% of the first 21 years of production but with production from the REM jv licenses so far back in the mine plan one would not attribute significant value to this production as of today.
• Rare Earth Minerals holds 30% joint- venture interests at the project level in the  Ventana, La Ventana 1, Megalit, El Sauz and Fleur concessions. As a result Rare Earth Minerals hold a combined direct and indirect interest of 43.9% in the projects.
• The merger exchange takeover ratio proposed by REM is for between 135-141 REM shares for each Bacanora share. 
• We can not see any particular reason why the Bacanora board would support this all share merger proposal at this point in time. 
• REM does not appear have significant value in its portfolio of licenses in our view with much of the value in REM by virtue of the stock its holds in Bacanora. 
• While REM is well placed in the market for a potential uplift in value across a range of likely higher cost lithium projects we do not currently see this as offering particular value to Bancanora shareholders.  If anything a merger could detract Bacanora management from its focus on the development of the Sonora lithium project in Mexico and the potential uplift in value which should come with the financing, construction and commissioning of a new lithium producer.
Conclusion:  Rare Earth Minerals have been slowly increasing their interest in Bacanora Minerals.  Knowing the people behind REM they are unlikely to be deterred by today’s rejection.

Gemfields (LON:GEM) 51.3p, mkt cap £284m – Emerald auction in Jaipur
• Gemfields has announced that it has realised US$10.7m from rough emeralds from its Kagem operation in Zambia auctioned in Jaipur between 26th-29th September.
• The company sold 3.27m carats of the 4.05m carats on offer for an average price of US$3.28/ carat.
• The unit price received for this latest auction is somewhat lower than recent sales, however, the company points out that “The specific auction mix and exact quality of the lots offered at each auction vary in characteristics such as size, colour and clarity on account of variations in mined production and market demand.”
• The company notes that total revenues from the 23 auctions of Kagem material held to date total revenues amount to US$437m.
• Gemfields next auction, of rubies from its Montepuez mine in Mozambique is scheduled to take place in Singapore in December.
Hummingbird Resources (HUM LN) 24.8 pence, Mkt Cap £ 85m – Civil engineering contractor appointed for Yanfolila
• Hummingbird Resources reports a loss of US$2.75m for the six months to 30th June 2016 (2015 loss US$1.88m).
• Mine development at its Yanfolila gold project in Mali is reported to be on track and on budget with civil engineering works scheduled to start during October. The company has previously announced that production is expected to start by the end of 2017 with a projected 132,000 oz of gold in the first full year of production and an average of 107,000 per year over the mine’s initial 7 years.
• The Yanfoloila project is expected to generate an NPV of US$162m at a gold price of US$1250/oz. Estimated capital expenditure has previously been reported to be US$80m.
• At the Dugbe project in Liberia, the recent IFC funded study to develop hydroelectric power generation on the Dugbe River offers the potential for significant cost savings for mine development and operation.
• The company raised £49.5m during June in what we believe to be one of the largest fund-raisings for a mining project in recent months. Hummingbird also raised an additional £5m in a private palcing to Fidelity at an 18% premium to the June financing.
Conclusion: Hummingbird’s Yanfolila project is progressing on schedule and is funded to production of an initial 132,000 oz of gold starting in late 2017.

Ormonde Mining* (LON:ORM) 2.0 pence, Mkt Cap £ 9.6m – Interim results and Barruecopardo progress report
• Ormonde Mining reports a €96,000 post-tax loss for the six months to 30th June 2016. The comparable figure for 2015 was a profit of €2.56m as a result of €3.40m of investment income.
• Administration expenses fell sharply to €378,000 from €882,000 in 2015, leaving the company with a profit of €120,000 at the operating level (2015 - €2.56m)
•  Cash balances at 30th June 2016 stand at €504,000.
• The company confirms that the optimised construction schedule for the Barruecopardo tungsten project in Spain will see “commissioning in late 2017”. Orders have been placed for critical, long lead-time, equipment and “Engineering design and awarding of processing plant equipment supply contracts [is] proceeding in line with budget.”
• As previously announced, with the support of the local administration in Castilla y Leon, “Virtually all the land blocks that were under option to purchase” have been acquired and “The final phase of land acquisition, the compulsory acquisition of the remaining land blocks, was also advanced, although an appeal by a third party against an administrative step in this process led to a change in the timelines to completion of the process.”
• Ormonde Mining has also undertaken a limited, 5 hole, drilling programme, “and the results were encouraging and support the Company’s belief that the mine life at Barruecopardo can be extended through the development of an underground mine after the open-pit mine has been established.” Further drilling to develop this option is planned in due course.
• The Company comments that a recovery in  the tungsten price, which currently stands at US$180/200 per mtu for the benchmark ammonium paratungstate, “seems to be underway” and cites independent third party sources to support a view that there should be a “gradual recovery in the tungsten price in 2017, with prices increasing further in 2018”. We observe that, if this price evolution occurs, it could correspond well with the proposed onset of production at Barruecopardo.
Conclusion: Ormonde Mining’s Barruecopardo project should be commissioning in late 2017 when a possible recovery in tungsten prices may be underway. Further drilling is planned to assess possible underground mine development once open pit mining is established. The news that the land access issues are substantially resolved should enable an acceleration of work on the ground and we look forward to continuing news of the development of the Barruecopardo mine.
• *SP Angel acts as Broker to Ormonde Mining

Ncondezi Energy (LON:NCCL) 5.1 pence, Mkt Cap £12.8m – Interim results and update
• Ncondezi Energy reports a loss of US$1.1m for the six months ending 30th June (2015 – US$1.8m loss).
• The first half of 2016 has seen the company achieve a significant milestone with the signing of a binding Joint Development Agreement (JDA) with Shanghai Electric Power Co (SEP) to develop a 300MW integrated thermal coal fueled power plant and transmission line in Mozambique.
• The final JDA documentation is expected to be completed during Q4 2016 “after which State Power Investment Corporation (“SPIC”) and China Government approvals will be sought with Financial Close targeted for H2 2017”.
• Joint discussions in Mozambique by Ncondezi and SEP have resulted in “in principle support for SEP to become the Strategic Partner in the Power Project” from Electricidade de Mocambique (EDM).”
• Technical discussions have resulted in approval for changes to the proposed boiler technology and the partners have submitted and updated power plant feasibility study and financial model to EDM for their review.
• Up to US$3m of financing has been  agreed with Africa Finance, the company’s largest shareholder. The funding will consist of an initial US$1m tranche, which is repayable on 10th May 2017, with a second US$2m tranche, conditional upon the completion of the JDA with SEP and appropriate security, available over 24 months.
• In addition to the undrawn US$1m initial funding, the company reports that it has a cash balance of US$0.8m as of 22nd September 2016.
Conclusion: Ncondezi continues to advance its power project in Mozambique with significant progress on discussions with its partner, SEP and with the authorities in Mozambique. We look forward to an announcement of the final JDA agreement later this year and to the Financial Close in H2 2017.

Ortac Resources* (LON:OTC) 0.03p, mkt cap £1.5m – Casa mining further investment
• Ortac Resources report a further investment in Casa Mining taking their stake to 19.63%.
• Casa Mining hold title to the Misisi gold project in the DRC which holds >1moz of gold albeit at a relatively low grade but with the benefit of potential for mining from surface at relatively low cost.
• We see the Misisi project as offering value to Ortac shareholders.  Some $30m has been spent on drilling and investigating the project.
• Some 18,522m of diamond drilling, 2,730m of reverse circulation drilling and 6,274m line meters of trenching.
• Casa’s most advanced project at Akyanga hosts 272,000oz of gold within 5.5mt of ore grading 1.5g/t at a 0.5g/t cut-off grade and $1,200/oz gold price.
• SRK estimate an ungeared NPV of $171m at an 8% discount rate and an IRR of 35%.
Conclusion:  We see Casa mining as offering significant potential upside for Ortac in time.
*SP Angel acts as Nomad and broker to Ortac Resources

Metals Exploration (LON:MTL) 5.6p, Mkt Cap £107.1m – Interims
• The plant is in the ramp up stage with parts of the circuit delivering gold pours since first production has been achieved in mid-Jun/16.
• Gold has been recovered post gravity circuit only, direct CIL treatment and a combination of BIOX and CIL processing.
• The BIOX is expected to reach nameplate capacity in two months.
• Milling rates are achieving design parameters following a four-week delay due to a replacement of a faulty feed end trunnion bearing in early Jul/16.
• The Company declared commercial production on 9 Sep/16 acknowledging the Mines and Geosciences Bureau (MGB) that Runruno moved from Development and Construction to Operating stage under the FTAA terms.
• Once the MGB confirms the status of the project the Company will proceed with the first gold export which is expected in early Oct/16.
• Furthermore, the Company expects to meet all additional conditions of the partial suspension order removal (Apr/16) in the next month which would then allow the Company to fully utilise Residual Storage Impoundment (RSI) and ramp up mining operations to budgeted rates.
• Debt restructuring negotiations with two major lenders (HSBC and BNP Paribas) regarding the $81m in outstanding debt.
• The $15m loan repayment tranche originally scheduled for 30 Jun/16 has been waived until 31 Oct/16 with interest payments (c.6%pa) charged on those amounts paid each month ($75k in Jul and $86k in Aug), under the waiver conditions.
• Admin costs totalled £3.8m (H1/15: £3.0m).
• Losses for the period came in at £12.5m (H1/15: £1.9m) with most of it attributed to a non-cash loss on revaluation of outstanding gold forward sales contracts to the tune of £11.4m (H1/15: positive contribution of £1.8m).
• The Company currently has 12 outstanding gold forward sales contracts for 45koz at an average locked price of $1,287/oz with quarterly cash settlements (7.5koz per quarter); whereas, in recognition of gold prices moving closer to the strike price the team managed to close out previous 12 contracts early “in the money” generating c.$2.2 in positive cash settlements.
• Cash from operations totalled -£4.0m (H1/15: -£1.8m) reflecting higher admin costs and changes in working capital.
• As of H1/16, the management estimates the project will need c.$3.9m spend to complete outstanding works bringing total capex to date to $207m (v $183m budgeted pre-typhoon, permitting delays and rehabilitation works).
• Cash in the bank stood at £1.6m as H1/16 and £5.3m as of Sep/16 with $4m stored in physical gold (in addition to cash).
Conclusion: The Company is in final stages of negotiating the change of its status under the FTAA license which should allow Runruno to realise first gold sales. The project is guided to reach nameplate capacity in two months’ time suggesting the plant may hit 1,750ktpa/99kozpa production rate before year end. Concurrently, the management is busy negotiating new debt amortisation schedule with the waiver for $15m payment deadline set at 31 Oct/16.
The team has come a long way to commission low cash costs (AISC sub-$600/oz) Runruno gold project with first cash inflow from gold sales in sight. Hopeful of successful debt restructuring talks completion we are looking forward to an orderly Runruno ramp up unlocking attractive FCF generation capacity of the mine.
*SP Angel act as Broker to Metals Exploration

Wolf Minerals (LON:WLFE) 5p, Mkt Cap £54.2m – ASX Suspension requested pending resolution of funding arrangements.
• Wolf Minerals reports that it has decided to delay the release of its Annual Report and financial statements pending resolution of funding discussions with its lenders. As a consequence, the company has requested a voluntary suspension from the ASX.
• In late July, the company’s quarterly report disclosed that it was in breach of loan covenants in relation to its £70m loan facility and a £5m bond. “The covenant relates to a minimum forward cash flow forecast requirement, which the Company is unable to meet without further support.”
• Discussions with the lenders are reported to have been positive and the parties have negotiated a “draft non-binding term sheet for a funding solution involving a standstill and restructure of the senior debt facilities and additional funding support for working capital requirements.”
• The agreement is expected to be finalised by 17th October.
Conclusion: The difficulties at Wolf Minerals have, no doubt been exacerbated by the current weakness in tungsten prices. The basis of a funding solution appears to be evolving and we look forward to a resolution over the next few weeks.

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