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Today's Market View - Bushveld Minerals, Petropavlovsk, Shanta Gold and Stratex International

Today's Market View -  Bushveld Minerals, Petropavlovsk, Shanta Gold and Stratex International

Bushveld Minerals (BMN) BUY – Target price 14p – AfriTin to start trading on Thursday following demerger of tin assets from Bushveld
Petropavlovsk (POG LN) – 5-year 8.125% $500m notes to be issued
Shanta Gold (SHG LN) Hold – Target price 4.8p (from 4.6p) – GoT partially refunds outstanding VAT
Stratex International (STI LN) – Bob Foster returns

Dow Jones Industrials  +0.04% at 23,557
Nikkei 225   -0.10% at 22,914
HK Hang Seng   -0.30% at 28,906
Shanghai Composite    +0.06% at 3,415
FTSE 350 Mining   +0.36% at 17,809
AIM Basic Resources   -0.24% at 2,594


US$1.1607/eur vs 1.1584/eur yesterday.           Yen 113.81/$ vs 114.19/$.         SAr 14.181/$ vs 14.195/$.            $1.314/gbp vs $1.316/gbp.
            0.767/aud vs 0.766/aud.            CNY 6.633/$ vs 6.631/$.

Commodity News

Chinese winter cuts dull commodities buying
• China’s winter combat against smog is efficiently curbing raw material purchases in October from record-breaking imports in the months prior, as factories continue to clear inventories during ongoing production limits. Imports across a range of commodities including crude oil, gas, iron ore, coal and copper pulled back from September highs as demand from the world’s largest consumer diminished against environmental protectionism.
• The seasonal environmental constraints enforced by the Ministry of Environmental Protection were enhanced by more advanced closures ahead of the week-long national holiday and the Communist Party Congress, serving only to further weaken demand for raw material imports.
• The fight on air quality preservation is making positive advances as the northern province of Hebei announces fulfilment of 2013-2017 targets, in a region which hosts six of the top ten smoggiest cities in China. The vice-head of Hebei’s environmental protection bureau confirmed a cut of PM2.5 to 64 micrograms per cubic metre year to date, representing a 38.5% decline (25% target) since 2013.
• Imports of iron ore sank to their lowest levels in 1.5 years in September as steel mills across the key production provinces dropped output by 30-50% and favored working off inventory.
• Output cuts on coal consumption have hit imports hard as domestic sources remain more competitive. Coal has fallen out of favour as air quality improvements focus on the elimination of 44,000 coal-fired industrial boilers and the replacement of coal-fueled household heating with gas or electricity across millions of residences.

Precious metals:
Gold US$1,279/oz vs US$1,278/oz yesterday
• The dollar wavered following reporting from the Washington Post concerning delays in the Senate Republican leader implementation of the proposed corporate tax cut. The one-year delay aims to comply with Senate rules but serves to lay doubt in the ability of US Donald Trump to pass the tax reform plan.
• While reshaping the legislation aims to provide further business stimulus, a top credit-ratings agency has said the bill would balloon the budget deficit and give only a temporary boost to the economy.
• Donald Trump reiterated his warning to North Korea he was prepared to use the full range of U.S. military power to prevent any nuclear attack but tactfully urged Pyongyang to “make a deal” to end the standoff as he closes his tour of South Korea.
• Weakening interest for gold in India brought concerns about physical demand, as data from India’s Finance Ministry indicated a 31% drop in imports in October, equivalent to 96.7 tonnes.
   Gold ETFs 69.2moz vs US$69.2moz yesterday
Platinum US$929/oz vs US$928/oz yesterday
Palladium US$1,001/oz vs US$1,000/oz yesterday
Silver US$17.05/oz vs US$17.11/oz yesterday
Base metals:   
Copper US$ 6,800/t vs US$6,942/t yesterday
• Broad Chinese profit-taking selling across base metals leads to copper price contracting 2.1%.
• Booming demand from the transition into the electric economy is driving Chinese refined copper production as year to date output rises to 6.6 million tonnes, representing a 6.3% yoy gain.
Aluminium US$ 2,134/t vs US$2,159/t yesterday
Nickel US$ 12,585/t vs US$12,845/t yesterday
• Broad Chinese profit-taking selling across base metals encourage investors to secure close-20% gains in nickel over October, with the metal falling over 2.1%.
• Elevated metal prices built on fundamental growing EV demand has lead the Indonesia’s Energy and Mineral Resources Ministry to issue an export quota recommendations for 20.4 million tonnes of ore.
Zinc US$ 3,173/t vs US$3,218/t yesterday
Lead US$ 2,487/t vs US$2,486/t yesterday
Tin US$ 19,425/t vs US$19,425/t yesterday
Oil US$63.5/bbl vs US$64.4/bbl yesterday
• The Organization of the Petroleum Exporting Countries looks to extend the broad oil output production limitation of 1.8 million barrels per day until March 2018 in an effort to maintain buoyant prices. The global pact looks to eradicate the supply glut, with a Nov. 30th meeting set to finalise the remaining length of the accord.
• Producers will be keen to return to higher output levels following the latest OPEC report, proposing peak oil in the second half of the 2030s resultant the rapid adoption of electric vehicles.
Natural Gas US$3.128/mmbtu vs US$3.135/mmbtu yesterday
Uranium US$20.40/lb vs US$20.25/lb yesterday
Iron ore 62% Fe spot (cfr Tianjin) US$61.7/t vs US$63.5/t
Chinese steel rebar 25mm US$634.9/t vs US$631.2/t
Thermal coal (1st year forward cif ARA) US$86.1/t vs US$87.4/t
Premium hard coking coal Aus fob US$180.5/t vs US$179.8/t

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

Company News
Bushveld Minerals (LON:BMN) 9.8p, mkt cap £79m – AfriTin to start trading on Thursday following demerger of tin assets from Bushveld
BUY – Target price 14p
• Bushveld Minerals is to list its AfriTin business with trading due to start on Thursday on AIM.
• AfriTin is being demerged by way of a sub-division of ordinary shares into ordinary shares and redeemable shares representing 85% of the value of the deemed value of Greenhills Resources.
• Bushveld is to retain 15% of the company and may exchange this for AfriTin shares on admission to AIM.
• Shareholders will receive 0.0899 AfriTin shares for each share in Bushveld Minerals rather than the 1 share envisaged in the circular to reduce the number of AfriTin shares in issue.
• Bushveld Minerals shareholders will therefore hold the same interest in AfriTin Mining as they do in Bushveld Minerals, though their stake will be diluted by the placing of new AfriTin shares.
• Management now expect the placing to reduce Bushveld shareholder’s stake to a combined interest of 41.9% in AfriTin Mining.
• Uis tin project: AfriTin is focusing on the Uis tin project in Namibia which it reckons may be the world’s largest open cast hard-rock tin deposit.
• Iscor, the South African steel group, ran the Uis tin mine from the 1970s to 1990 when the tin price crashed.
• A non-JORC compliant resource shows 73mt grading 0.136% tin plus a further 2.7mt grading 0.015% tin.
• The project is part of a central pegmatite field containing around 120 pegmatites over a strike length of around 120km.
• The mineralogy shows coarse grained tin-bearing cassiterite crystals of up to 25mm allowing for simple gravity separation for much of the tin.
• This could enable the upgrading of the tin to be carried out simply and for relatively little cost and much may depend on the effectiveness of this concentration process.
• Two of the three projects which make up the 73mt resource also contain around 0.015% tantalum.
• Heavy Liquid Separation tests show tin recoveries of >74% at concentrate grades of >67% with niobium, lithium, beryllium and muscovite also recoverable.
• The world’s largest tin mine in Brazil at Pitinga is of similar size with similar grades.
• Phase 1: The plan is to upgrade the existing pilot plant at the Uis mine to 10mtpa of tin concentrate to complete the pilot plant campaign and to reconfirm and upgrade the Uis tin resource
• This should then lead into a Pre-Feasibility Study ‘PFS’ and then a Bankable Feasibility Study ‘BFS’
• Phase 2: should see the construction of a much larger 3mtpa tin mine to produce 5,000tpa of a 60% tin concentrate
• Capex is estimated at around £21m for this not including feasibility study work.
• AfriTin also holds the Mokopane tin project in South Africa which has a scoping study done in 2014  with base case production of around 700tpa of tin metal showing an IRR of 34.6%.
Conclusion:  We look forward to the listing and trading of AfriTin on the market on Thursday
*SP Angel act as Nomad and broker to Bushveld Minerals.  An SP Angel Mining analyst and nomad have visited the Vametco vanadium mine and processing facilities in South Africa.

Petropavlovsk (LON:POG) 8p, Mkt Cap £264m – 5-year 8.125% $500m notes to be issued
• The Company agreed the price on its $500m guaranteed notes offering.
• Bonds are priced at 8.125% yield, to be issued at 100 nominal and due for repayment on 14 Nov/22.
• Net proceeds from the bond issue will be directed towards repayment most of outstanding bank borrowings with Sberbank and VTB which stood at $518m as of H1/17.
• Notes are expected to be issued on or about 14 November 2017.
• Bonds have been assigned credit rating of B- by both Fitch and S&P.
Conclusion: The refinancing of the bank allows the Company to shift debt repayment profile forwards alleviating pressure on cash flows as the team is launching flotation plant at Malomir and continues development of the POX plant.

Shanta Gold (LON:SHG) 3.3p, Mkt Cap £25m – GoT partially refunds outstanding VAT
Hold – Target price 4.8p (from 4.6p)
• Government of Tanzania released $3.4m in a VAT refund to Shanta made up of a $1.9m offset against payable corporate tax in 2016 and 2017 and a cash payment of $1.5m.
• Outstanding owed VAT receivable came down to $13.4m.
Conclusion: Positive news for the Company which marks the first release of owed VAT by the government since H1/16.
We have decreased payable taxes and included a $1.5m reduction in accounts receivable to account for the news which lifted our NAV per share to 4.8p (up from 4.6p).
As previously highlighted, our valuation and price target are subject to a successful Investec debt refinancing with a recommendation “Hold” unchanged until such deal is completed.
We assumed no further release of outstanding VAT; hence, further improvements in the outstanding VAT account should reduce the risk of a potential cash gap in 2019 amid a $15m convertible note repayment (Apr/19).

(Dec year end)     2013A 2014A 2015A 2016A 2017E 2018E
Gold price (incl hedge)  US$/oz 1,413 1,289 1,163 1,222 1,264 1,204
Gold sales  Koz 61.9 87.8 80.6 86.3 81.7 86.1
AISC  US$/oz 1,049 941 845 661 888 760
Revenue  US$m 66.0 114.9 98.0 103.1 104.4 105.8
EBITDA  US$m 1.6 33.8 32.0 50.2 29.7 42.9
PAT  US$m 0.8 8.9 -17.3 -8.0 -2.3 8.0
Basic EPS  USc 0.2 1.9 -3.7 -1.5 -0.4 1.0
FCF  US$m -4.9 11.7 1.1 -13.6 -11.8 17.7
EV/EBITDA  X 66.1 2.9 2.8 2.1 2.6 1.8
PER  X 140.2 11.0 - - - 4.2
Source: SP Angel, Company               

Stratex International (LON:STI) 1.3p, Mkt cap £6.1m – Bob Foster returns
• Stratex International have reappointed legendary geologist Bob Foster as CEO.
• Bob’s appointment as a director will be confirmed following the usual regulatory due diligence by the company’s Nomad.
• Foster is being charged to review the company’s position and strategy and to consider the way forward.
• Bob has 39 years of experience as a geologist and was a co-founded Stratex in 2006.
• He is known for his expertise in the genesis and exploration for gold deposits.
• Foster has more letters after his name than name than a bowl of alphabet soup; B.Sc, Ph.D., FIMM, C.Eng, FGS, C.Geol.
• It is interesting to note that Stratex has discovered more than 2.2moz of gold and 7.09moz of silver, as well as 186,000 tonnes of copper over the past 10 years.
• Stratex continues to hold a number of gold and copper projects in Turkey along including a 15% stake in a copper-gold project at feasibility stage.
• Stratex holds 30.5% of Thani Stratex Resources Ltd (Djibouti and Egypt) and a stake in Tembo Gold Corp (Tanzania) and an interesting gold exploration project in Senegal.
• It’s a shame that Stratex let its stake in Goldstone Resources go when it was advancing funds to Crusader Resources.
• Goldstone stock is doing rather better since the hurried Stratex sale at 1.9p/s.  Stratex sold its 13.7% stake in Goldstone Resources at a price of 1.6p/s for a total cash consideration of £0.55m.
• Goldstone has a JORC resource of 602,000oz of gold grading 1.77g/t at its Homase/Akrokerri project in Ghana just next to the old Obuasi gold mine.
Conclusion:  Shareholders should be relieved to see Bob Foster restored as CEO though questions remain over the actions of other members of the board, in particular the apparent inaction of the non-executive directors who appear to have supported the proposed acquisition of Crusader Resources.


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