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Today's market view - Gold rises on fresh tax reform concerns

Published: 10:59 15 Dec 2017 GMT

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Bacanora Minerals* (LON:BCN) – £31m investment for 19.89% from new Chinese investor
Georgian Mining* (LON:GEO) STRONG BUY – JV partner sells London listed supermarket chain
Hummingbird Resources (LON:HUM) –Commissioning progress at Yanfolila
Nautilus Minerals (CN:NUS) – Attenborough condemns Nautilus’ sub-sea mining
Ortac Resources* (LONOTC) – Ortac to expand Misisi Gold project along parallel structure to East
Shanta Gold (LON:SHG) BUY – Target price 5.5 (from Hold 5.2) – Site visit and valuation update

Strategic Minerals* (LON:SML) – Leigh Creek acquisition going ahead on improved terms

Dow Jones Industrials  -0.31% at 24,509
Nikkei 225   -0.62% at 22,553
HK Hang Seng   -1.03% at 28,867
Shanghai Composite    -0.80% at 3,266
FTSE 350 Mining   +0.36% at 17,074
AIM Basic Resources   +0.34% at 2,587

Economics
US – Equities closed lower and the US$ fell after Republican Senator Marco Rubio said he will oppose tax legislation unless it will include a larger child tax credit.
• The announcement raises concerns the bill might not be voted amid a tight Republican majority in the Senate (52/48 before Democrat Doug Jones who has recently secured a victory in Alabama joins the Senate in 2018).
• The news overshadowed positive retail sales numbers which came ahead of expectations in November as the shopping season kicked off.
• Sales in the retail control group climbed at a three-month annualised pace of 6.6%, the most since Jun/14.
• Retail Sales (%mom): 0.8 v 0.5 (revised from 0.2) in October and 0.3 forecast.
• Retail Sales ex Auto and Gas (%mom): 0.8 v 0.4 (revised from 0.3) in October and 0.4 forecast.

ECB – The bank continued to highlight the need for monetary stimulus despite improving Euro area growth forecasts and slightly increasing inflation estimates.
• The ECB reiterated its willingness to keep buying bonds at least until September next year and to keep rates at record lows well after that.
• In recognition of the latest positive economic data in the region, Draghi added that he was more confident that the inflation target of 2% could be reached.
• “It’s quite early before we talk about change in our monetary policy support… though in the presence of an expansion which is gaining momentum, our confidence towards this objective is increasing and is certainly greater than it was at the last monetary policy meeting,” Draghi said.

Eurozone – Growth in the single currency zone continued to accelerate in the final month of the year.
• Manufacturing sector PMI hit a record high with services PMI posting the best reading since early-2011.
• Employment stayed at the highest in over 17 years with price pressures reported to remain elevated, although easing slightly during the month.
• “The PMI is signalling an impressive 0.8% GDP increase in the fourth quarter, with accelerating growth seen in both Germany and France, where fourth quarter growth rates of 1.0% and 0.7-0.8% are indicated, respectively,” the report said.
• “Although price pressures abated slightly in December, the robust growth of demand and tightening labour market hint at rising core inflationary pressures as we move through 2018.”
• Eurozone PMI Composite: 58.0 v 57.5 in November and 57.2 forecast.

UK – The BoE kept rates unchanged at 0.5% in a unanimous vote
• The Bank highlighted a recent progress in Brexit negotiations saying it reduces “the likelihood of a disorderly exit” which in turn would support household and corporate confidence.
• On a less positive note, the BoE mentioned the fact the recent economic growth indicators this quarter were “softer than expected” and acknowledged the fact that inflation continued to accelerate “above the target by the boost to import prices that resulted from the past deprecation of sterling”.

Kazakhstan’s largest iron ore company now has a smart mine
• The Kacharsky mine in Kazakhstan is being transformed into a smart mine, with a $10m investment in new modular automated systems for production processes
• Operators will be able to optimise production using US Modular Mining Systems to plan the despatch and delivery of products
• The mine will be monitored in real time by sensors that can detect where changes should be made in the mining process to improve productivity
• The news marks the move of sensor technology used in Australia and the US.
• Investors should look at Transense Technologies which fits sensors to Mining trucks as well as Formula 1 cars

Currencies
US$1.1787/eur vs 1.1832/eur yesterday  Yen 112.05/$ vs 112.74/$  SAr 13.478/$ vs 13.452/$  $1.343/gbp vs $1.344/gbp  0.769/aud vs 0.767/aud  CNY 6.607/$ vs 6.609/$.

Commodity News
Precious metals:         
Gold US$1,257/oz vs US$1,255/oz yesterday
• Despite the Federal Reserve maintaining its projected three interest rate hikes into the new year, renewed US tax reform concerns force the dollar lower. While two more Republican senators insisted on revisions to the bill, President Donald Trump claimed he was ‘very sure’ Senator Marco Rubio would be voting to pass the tax legislation next week despite the threat to oppose the bill without revised enhancements to child tax credits.
• Holiday season shopping boosted US retail sales more than expected in November, pointing to sustained economic strength and reaffirming the signals for future interest rate hikes.
• The spot price for gold traded in a narrow range and is set for its first weekly advance in four as “The lack of any hawkish comments by the Fed, as well as uncertainties in the U.S. about the tax reform and government funding, have provided some further support to gold” (National Australia Bank).
   Gold ETFs 71.7moz vs US$71.7moz yesterday
Platinum US$882/oz vs US$885/oz yesterday
Palladium US$1,037/oz vs US$1,020/oz yesterday
Silver US$15.96/oz vs US$16.05/oz yesterday

• Weakening silver prices are driving buyer interest from the world’s top consumer, as imports by India continue to rise from a four-year low in 2016. Overseas purchases are estimated at c. 5,500 tonnes in 2017, with expectation for the rise to extend to 6,000 tonne into 2018 (Metal Focus Ltd.). The growth into the new year would represent a doubling of consumption from 2016 lows of 3,000 tonnes.
• Renewed interest in the precious metal boosts imports ahead of the implementation of the new goods and services tax in July, while demand looks to be increasing; “There has been a consistent improvement in the market, with visible improvement in the jewelry segment and the silverware segment” (Metal Focus Ltd).
           
Base metals:   
Copper US$ 6,796/t vs US$6,740/t yesterday

• Industrial metals gained in Shanghai base metal futures as upbeat China manufacturing data settles concerns over slowing growth of the world’s largest consumer of copper and aluminium. The nation’s industrial output expanded at a faster than expected pace in November supported by the ongoing construction boom.
• Continuing divestment negotiations concerning Freeport-McMoRan Inc’s monster Grasberg copper and gold mine may be closing with the signing of a new agreement over the weekend. The new contract, expected to be initiated as soon as the Phoenix-based Freeport completes the transaction completion agreement, sets the transfer of majority ownership to the nation’s government, state-owned PT Indonesia Asahan Aluminium (Inalum). While details of the new deal remain private, Inalum will seek to acquire Rio Tinto Group’s joint venture interest in Grasberg by March, and subsequently aim to convert the interest into an equity stake.
• The US miner will forgo its current 91% ownership under the new framework deal, transferring majority (51%) to local ownership. In return, Freeport will be authorized to continue to operate the project through 2041, with the deal to incorporate plans for investment of as much as $20 billion through to 2031 to further develop the mine and construction smelting facilities.
 

Aluminium US$ 2,047/t vs US$2,021/t yesterday
Nickel US$ 11,250/t vs US$11,125/t yesterday
Zinc US$ 3,199/t vs US$3,168/t yesterday
• Zinc growth remains on track for its bigge
st weekly gain since September as LME stockpiles fall to the lowest since 2008, signaling sustained market deficit. The ILZSG estimate the global market was in 401,000 tonne deficit in Jan-Oct 2017.

Lead US$ 2,502/t vs US$2,515/t yesterday
Tin US$ 18,875/t vs US$18,860/t yesterday

           
Energy:           
Oil US$63.6/bbl vs US$62.9/bbl yesterday
Natural Gas US$2.711/mmbtu vs US$2.672/mmbtu yesterday
Uranium US$24.40/lb vs US$24.65/lb yesterday

Bulk:   
Iron ore 62% Fe spot (cfr Tianjin) US$68.1/t vs US$69.0/t
Chinese steel rebar 25mm US$742.3/t vs US$750.2/t - Slower business awaits Chinese steel mills in 2018 (Horizon Insights, Shanghai)

• Steel demand may slow in 2018 as economy reins in stimulus and tightens credit according to ‘The Business Times’.
• Horizon Insights Analysts believe a recovery in supply could spell downward moves for prices again in second quarter of 2018 after winter production curbs are lifted.
• New steelmaking capacity, using steel scrap, of about 30mt is also expected to come on stream next year.
• We don’t completely agree with this analysis as construction activity continues at a pace in China while we expect steel capacity to remain restricted due to the ongoing crackdown on pollution.

Thermal coal (1st year forward cif ARA) US$89.1/t vs US$89.5/t
• The laborious creation of each new digital bitcoin by private cryptographic computer networks is creating massive energy demand to sustain the budding ‘mining’ operations, with significant portions of global operations relying on electricity production from coal. Energy is fundamental to the principal of bitcoin, where Satoshi Nakamoto, the creator of the cryptocurrency, devised the system which relies on a ‘proof of work’ concept for the successful cryptographic decryption of each coin. The digital system is supported by a global decentralized digital ledger to track the work and every transaction.
• The fixed limit of 21 million bitcoins ‘hard-wired’ into the protocol is generating a scarcity of coins, attracting more mining interest and value for the cryptocurrency. As the number of bitcoin created increases, the difficulty rate of the token-generating calculations also increase, driving rapid competition to secure the digital currency and significantly boosting the computing power and energy requirements for the growing networks.
• Accordingly the global industry’s power consumption is growing, equaling usage by 3 million US homes and topping the individual consumption of 159 countries (Digiconomist Bitcoin Energy Consumption Index). With 58% of the world’s largest cryptocurrency mining pools located in China, the reliance upon coal-generated power is rising. Total electricity use in bitcoin mining has increased by 30% in the past month, and is driving environmental concerns over clean electricity sources. Despite estimates over current consumption of coal representing less than 1% global use, the rapidly accelerating interest and adoption by major companies across the cryptocurrency space will create real future coal demand.
Premium hard coking coal Aus fob US$236.1/t vs US$236.1/t
           
Other:  
Tungsten APT European US$293-300/mtu vs US$291-300/mtu last week
Cobalt LME 3m US$72250/t vs US$71000/t yesterday - Australian cobalt rush accelerates on EV demand and trouble in the DRC (Reuters)

• Reuters report a rush of interest in cobalt projects in Australia despite production being potentially years away. 
• Amnesty International report that potentially 20% of DRC cobalt production is mined by artisanal mining, sometimes in dangerous conditions and involving women and children.
• Cobalt project companies report significant interest from battery manufacturers in cobalt offtake
• Australian Mines’ Queensland Sconi project is expected to produce 2,500tpa of cobalt and 17,500tpa of nickel from 2019 and is reported to be in talks with battery makers from Germany, Japan, China and South Korea.

Company News
Bacanora Minerals* (LON:BCN) 106p, Mkt Cap £140m – £31m investment for 19.89% from new Chinese investor

• Bacanora Minerals has announced that a “leading Chinese institutional fund management group”, NextView Capital, is acquiring a 19.89% interest in the company via the placement of approximately 33m shares at a price of 94.53p/share or £31m.
• The funds are to be used for the continuing development of the Company’s Sonora lithium project in Mexico.
• NextView Capital will appoint a director to the Board of Bacanora.
• The transaction also includes an undertaking by Bacanora “to supply NextView with 5,000tpa of lithium carbonate produced at its Sonora Project in Mexico ('Sonora' or 'the Project') on a best endeavours basis at market prices from its Stage 1 of production, with a firm commitment to supply 8,000tpa of lithium carbonate during Stage 2 and a best endeavours promise to supply a further 7,000tpa during Stage 2.”
• “NextView has also agreed to employ its reasonable endeavours to assist the Company in procuring project debt financing for Sonora.”
• Bacanora’s announcement describes NextView Capital as “an active investment fund based in Beijing and Shanghai, China. NextView Capital has available resources of c.RMB 30 billion and invests primarily in new energy, mineral resources, TMT, sports and consumption sectors. … Earlier this year, NextView together with Tibet Summit Resources Co., Ltd. (a company listed on the Shanghai Stock Exchange) launched a USD 1.5 billion fund focused on investments in the new energy and resources sectors … The Fund has recently acquired a Canadian listed company with a South American lithium salt lake project.”
• Peter Secker, CEO of Bacanora commenting on this latest strengthening of the share register noted that with “a shareholder register dominated by blue chip institutions and with all relevant approvals in place, we have an excellent funding platform with which to move to the construction phase at Sonora in H1 2018.  With an estimated construction period of 24 months, Sonora remains on track to become the next major world class lithium carbonate producer and I look forward to providing further updates on our progress."
• Bacanora Minerals recently released the results of its feasibility study for the Sonora Lithium Project. Based on a two phase development taking output to 35,000tpa of battery grade lithium carbonate, the project is expected to deliver an after-tax NPV8% of US$802m and an IRR of 21.2% from a capital investment totaling US$800m.
Conclusion: NextView Capital joins the Japanese investor and off-taker, Hanwa, on Bacanora’s register and, with this new offtake agreement NextView provides the company with exposure to the key Chinese market for lithium carbonate. China is described as the “largest new energy vehicles market in the world.”
*SP Angel analysts met with Bacanora Minerals on Wednesday this week

Georgian Mining* (LON:GEO) 13.8p, Mkt Cap £15.8m – JV partner sells London listed supermarkets
(Georgian’s assets in Georgia are held in a 50:50 joint venture)
STRONG BUY
• O’KEY Group S.A., owned by Dmitry Troitsky and Dmitry Korzhev has agreed to sell a number of supermarkets to the X5 Retail Group which is also based in Russia.
• We understand Troitsky and Korzhev also own Georgian’s joint venture partner, Caucasian Mining Group JSC ('CMG') and own the nearby Madneuli mine in Georgia.
• The sale consists of 32 supermarkets including 18 in St Petersburg and four in Moscow
• O'KEY is one of Russia’s largest retail chains operating hypermarkets under the O'KEY brand and discounters under the DA! Brand with the first hypermarket opened in 2002.
• The company also has e-commerce operations in St. Petersburg and Moscow based on its hypermarket assortment.
• O'KEY operates 145 stores, excluding the 32 supermarkets being acquired by X5, across Russia.
Conclusion: The market is waiting for news on the signing of a joint venture agreement between Georgian and their joint venture partner on initial gold production from the Kvemo Bolnisi project in Georgia.  We speculate that the jv partners may have been distracted by the sale of supermarkets in Russia and look forward to news of progress in these negotiations.
In the meantime Georgian Mining should continue to advance exploration and resource delineation at Kvemo Bolnisi and at its other sites. While it might be helpful for the jv partners to agree for Georgian to supply ore to the process plants at Madneuli the lack of an agreement should not detract from the development of significant new value at Kvemo Bolnisi and other sites.
*SP Angel acts as Nomad and Broker to Georgian Mining. An SP Angel Mining analyst recently visited the Kvemo Bolnisi site in Georgia.

Hummingbird Resources (LON:HUM) 36.5p, Mkt Cap £126m –Commissioning progress at Yanfolila
• Hummingbird Resources reports that ore commissioning is underway at the new Yanfolila mine in Mali and that the company expects to deliver its first gold production before tend of December.
• The company expects to ramp-up production during Q1 2018 and to produce 130,000oz of gold during the first full year of production.
• Commenting on what he described as a key transitional moment for Hummingbird, transforming the Company from a developer to a producer”, CEO, Dan Betts, said that he looked “forward to reporting news of our first gold pour in the very near future.”
Conclusion: First gold production at the new Yanfolila mine in Mali is expected imminently. We wish the entire management team a trouble free commissioning and ramp-up.

Nautilus Minerals (CAN:NUS) C$0.17c/s, mkt cap C$116m – Attenborough condemns Nautilus’ sub-sea mining
• Nautilus Minerals’ sub sea mining was condemned by Sir David Attenborough on the BBC news last night.
• The news report interviewed the Nautilus ceo before condemnation of sea-bed mining by Sir David when shown pictures active black smokers which were teaming with life.
• Thing is: Nautilus, as we see it, is not proposing to mine ‘active’ black smokers for a whole variety of reasons.
• The risk to machinery mining near an active vent would dissuade even the most environmentally insensitive of miners.
• Nautilus is proposing to mine historic inactive smokers, though some still have marine life, mainly shrimps associated with them.
• We agree with Attenborough on the ecological risks of mining active smokers but we also see huge damage and risk to the seas from bottom trawling nets with heavy machinery. They even electrocute fish on the sea-bed by trailing lines of high-tension electrodes across the sea floor in a form of mass-Tasering. 
• We also note that DeBeers has been mining and vacuuming diamonds up off the sea bed for decades using similar machinery to Nautilus off the coast of Namibia.
• While some also complain about trenches to bury oil pipelines and sub-sea telecoms and power cables but when it comes to mining, the world’s most famous and respected commentators are lined up in opposition.
• We wonder who will line up against Planetary Resources when they start mining their first Asteroids? Will it be the Green-Space or Asteroids have Rights Group
*Two SP Angel analysts have previously visited the factory assembling the Nautilus machinery and one analyst has visited Nautilus’’ exploration vessel in PNG

Ortac Resources* (LON:OTC) 2.6p, Mkt Cap £8.8m – Ortac to expand Misisi Gold project along parallel structure to East
(Ortac holds 70.09% of CASA Mining which holds 71.25% of the Misisi Gold project in South Kivu in the Eastern part of the DRC.
This gives Ortac an effective 49.9% stake in the Akyanga project)
• Ortac Resources have decided to continue drilling the Misisi Gold project at Akyanga East which shows a parallel structure to that at the main Akyanga gold resource.
• Drilling at Akyanga East already shows promise at:
o 5.05m grading 5.93 g/t Au from 49.20m
o 11.10m grading 1.68 g/t Au from 65.70m  and 7.90m @ 4.97 g/t Au from 103.30m
o 9.00m grading 2.84 g/t Au from 46.00m
Conclusion: Further drilling is expected to grow the resource to >2moz and to show Akyanga as part of a much larger system of parallel gold structures ins a potentially 55km gold system.
*SP Angel acts as nomad and broker to Ortac Resources

Shanta Gold (LON:SHG) 4.4p, Mkt Cap £33.6m – Site visit and valuation update
Buy – Target price 5.5 (from Hold 5.2)
CLICK FOR Shanta note PDF
• The Company hosted an analyst site visit last week providing an update on the NLGM mining and processing operations as well as supporting infrastructure.
• Underground development is progressing well having reached 6,500m to date at Bauhinia Creek (BC) and Luika combined with current decline depth at 810mrl (790mrp target for YE17 and 690mrl, the lowest level in the current mine plan) at BC and 885mrl (705mrl mine plan target) at Luika.
Underground mining operations approach budgeted mining capacity of 45ktpm (30ktpm at BC and 15ktpm at Luika), with current rates at c.43ktpm, up from 37kt in September.
• Three stopes are currently in production (two at higher grade and larger BC and one at Luika) improving the flexibility of operations in terms of blending material for the processing plant.
• Widths and grades of BC and Luika orebodies vary significantly along strike and at depth and require careful blending for a stable plant feed.
• Reconciliation of mining operations at the two underground mines has been good so far, with limited underperformance recorded at the western end of the BC orebody where the mineralisation is cut-off by a fault and actual tonnes/grade come in 40% less than estimated in the Resource model.
On resource update and exploration, in the view of cost cutting initiatives including lower power and cement costs compared to budgeted levels, the change of mining method at Luika and lower development costs ($2,500/m underground development costs v $3,500/m budgeted) as well as a revision in gold price assumptions (up from current $1,200/oz to $1,250/oz) has resulted in the Company reviewing their resources/reserves; this will potentially result in a reduction in cut off grades (from 3.0g/t to 2.5g/t) at BC and Luika underground mines allowing Shanta to convert some of the Inferred resource into MI category and bring additional tonnages into the mine plan.
• Focus of the current exploration works is on conversion of Inferred and Indicated resources outside the Revised Mine Plan to expand the LoM which are estimated at 680koz with 2/3s of which are split between BC (167koz), Luika (159koz) and Ilunga (92koz).
• All three deposits – BC, Luika and Ilunga, – remain open at depth with the plan to continue exploration works from the hanging wall underground to avoid costly longhole drilling from surface.
• As highlighted in the latest operations update, the processing plant will see an installation of a second same capacity pre-leach tank that should raise gold recoveries by 1.5-2.0pp from the current 92% at a cost of only $0.5m by H2/18. The standard CIL processing plant operates a two stage crushing circuit, two 300ktpa ball mills, a leaching/sorption/desorption circuit for production of dore bars (c.40/55% Au/Ag).
• At Ilunga, following depletion of the open pit in Jul/17, the Company is planning to launch underground operations using equipment engaged at Luika with current underground reserve running at 0.7mt at 5.6g/t 118koz.
• We assumed Ilunga to come into production in Q2/19, but the commissioning may be moved forward given higher grades and virtually little infrastructure required.
• At Singida, the Company is bringing in a new team of geologists to take a new look at the deposit and review the exploration programme for this year; in view of the current Shanta focus on minimising non-essential capital spend and deleveraging, as well as problems with claiming VAT back, the Company limited Singida exploration budget to $2m 2018 excluding drilling spend which is subject to results of the review.
• On infrastructure, phase I of the second tailings storage facility (TSF2) for 4mt is nearing completion with commissioning due in Q1/18 providing more than six years’ worth of operations for the 600ktpa processing plant and in time to replace 4mt TSF1 which is reaching its limits next year.
• Newly commissioned 7.5MW HFO power plant(Q1/17) with six generators – four running at a time and two remaining on stand-by offering back up during maintenance works or a potential failure of one of the units, – has significantly reduced power costs (c.20c/kWh).
• The HFO plant is complemented by a 0.6MW solar power panels set up which offers cheap (12c/kWh) but weather dependent, hence, volatile power source.
• Tanzanian nationals now account for 96% of total workforce (44% are from nearby villages in Songwe) with 214 people involved in underground operations of which only three are expats (two drillers and one electrician).
Conclusion: The site visit highlighted the completion of the transition phase for Shanta to a predominantly underground mining operation with mining rates at 40-45ktpm or 80-90% of NLGM processing capacity. The team is doing well in delivering underground development on time and budget, thus, significantly de-risking the production profile  while continuing to optimise operations with a view of reducing cost base amid the latest regulatory and fiscal challenges (incl increased royalty, clearing fee, VAT rebate delays). The focus of the Group is on cost control, limiting capital spend to a minimum (underground development accounts for 78% and 65% of total capex in 218/19) and deleveraging. Near term LoM extension is to come from cost effective conversion of Inferred and Indicated resources into reserves with more drilling and application of new economic input parameters (lower costs, higher gold price).
We have made slight adjustments to our model with most of a revision in NAVPS from 5.2p to 5.5p attributed to an adjustment in our gold price assumptions for 2018e to $1,250/oz from $1,150/oz bringing it closer to the market median and forward prices of $1,263/oz and $1,253/oz, respectively. Other changes included minor revisions to UG operating costs, owed VAT account accumulation rate, payable taxes calculation, Singida capex and a delay in tailings retreatment facility commissioning. We left production unchanged from the RMP given the resources/reserves revision is not yet finalised.
As highlighted previously, Shanta is expected to start generating FCF from next year as the major capex programme falls away and operations benefit from first full year of high grade feed from the underground mines. On our revised gold price assumptions and RMP production profile, we expect the Company to manage debt repayments including the $15m convertible note due in H1/19.
Recommendation Buy and target price of 5.5p (from Hold 5.2p).
(Dec year end)   FY2015 FY2016 FY2017e FY2018e FY2019e
Gold price (spot) US$/oz 1,163 1,222 1,264 1,246 1,241
Gold sales Koz 80.6 86.3 81.7 86.7 90.0
AISC US$/oz 845 661 888 719 726
Revenue US$m 98.0 103.1 104.4 110.2 114.0
EBITDA US$m 32.0 50.2 29.7 49.4 51.8
PAT US$m -17.3 -8.0 -2.4 13.1 16.9
Basic EPS USc -3.7 -1.5 -0.4 1.7 2.2
FCF US$m 1.1 -13.6 -11.9 23.5 24.8
EV/EBITDA x 2.8 2.1 3.0 1.8 1.7
PER x - - - 3.5 2.7
Source: SP Angel, Company   
       

Strategic Minerals* (SML LN) 2.1p, Mkt Cap £27.4m – Leigh Creek acquisition going ahead on improved terms
• Strategic Minerals has announced that, following the successful conclusion of its financial and technical due-diligence, it is to proceed with the previously announced acquisition of the Leigh Creek copper mine (LCCM) in South Australia.
• The transaction, subject to “documentation and final legal due diligence”, is now to proceed on renegotiated terms.
• Under the new agreement, Strategic Minerals will acquire LCCM from Resilience Mining “on 16 January 2018 for a total consideration of AUD $3,000,000 (approximately GBP 1,710,000 to be paid by way of AUD $1,500,000 (approximately GBP 855,000) in cash, payable at settlement, and AUD $1,500,000 (approximately  GBP 855,000) paid by way of the issue of new ordinary shares of SML ("Shares") in the first week of April 2018, based on the volume weighted average share price ("VWAP") for the month of March 2018.”
• The previously indicated acquisition terms were “to pay a total consideration of AUD 5,000,000 (approximately GBP 2,850,000) predominantly by way of royalties in combination with cash, shares and assumption of debt.”
• In our view, Strategic Minerals’ renegotiation to acquire LCCM with a mixture of cash and equity provides a cleaner deal without the potential uncertainty of a long term commitment to royalty payments as well as a lower overall acquisition cost and reflects the focus on value of the SML management team.
• Commenting on the decision to proceed with the acquisition and on the new terms, Managing Director, John Peters, said “The outright acquisition of Leigh Creek Copper Mine for an up-front payment of AUD $3m is a significant step forward for the Company. The renegotiated sale terms reflect the confidence we derived from our due diligence and the vendor's acceptance of payment certainty.”
Conclusion: The Leigh Creek acquisition will provide an additional leg to the SML business while remaining consistent with the overall theme of operating in developed, first-world, countries and in commodities with underlying supply demand dynamics which offer potential price appreciation over a five-year view. We look forward to further news on plans to recommission copper production at Leigh Creek.
*SP Angel act as Nomad and broker to Strategic Minerals

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