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Fairfax Market Report including Polo Resources and Exco Resources

Fairfax Market Report including Polo Resources and Exco Resources


Conferences:  Mining Journal Europe Day 14th January – Free registration

Companies presenting:
Endomines, NunaMinerals, Belvedere Resources, Kopylovskoye.


Dow Jones Industrials                                  -0.20% at 11,731.90

Nikkei 225                                                     -0.86% at 10,499.04

HK Hang Seng                                              +0.18% at 24,283.04

Europe – Helping to allay fears Spain and Italy yesterday raised Euro3bn and Euro6bn respectively from the international bond market but at a higher yield than their previous issues.

    * Sovereign bond yields fell across the Eurozone yesterday and spreads over German bunds narrowed as investor sentiment improved. Whether the return of positive sentiment to the region marks a solid and sustainable turning point remains to be seen.

    * Jean Claude Trichet yesterday stated that the ECB was prepared to take the necessary steps to ensure price stability.
    * Bearishly, The IMF stated this morning that Europe is not in a position to put to bed the skepticism over debt in the region in the near future.

US – The Labor department yesterday stated that the number of people seeking unemployment benefits rose 35,000 to 445,000 last week hitting the highest level since October.

·         Regulators have proposed plans to curb speculation in the raw materials market including gold amid fears that surging prices could threaten the economic recovery. The curbs will like involve position limits being imposed on 28 commodities. If adopted, the rules would initially only apply to spot contracts and those on the verge of delivery. Further details will emerge over the coming weeks. 

China – Evidence of the government’s commitment to increasing the Renminbi role on the global stage emerged yesterday, as it was announced that domestic companies have been permitted to move the currency off shore for the first time in an effort speed up the internationalisation of the currency.

UK – The Centre for Economics and Business Research has stated that the UK economy faces a 20% chance of slipping back into recession on the back of persistent high unemployment and rising inflation.

 * The CEBR raised its estimate for 2010 growth to 1.8% from 1.5% and its 2012 forecast to 1.5% from 1.4%. It also predicted inflation would accelerate to circa 4% this year before slowing to 1.6% by the middle of 2012

Currency – The Euro has strengthened this morning against the dollar on the back of a report showing that inflation in the Eurozone accelerated to the fastest pace in more than 2 years and investors digested the positive bond auctions yesterday.

US$1.343/eur vs $1.314eur yesterday. Yen82.48/$ vs 83.12/$ SAr6.83+/$ vs 6.83/$  $1.584/GBP vs 1.574/GBP


Precious Metals:

Gold US$1,369/oz vs US$1,383/oz yesterday – Prices slip back despite dollar weakening as traders bet against commodities as ETFs tracking energy and metals hit a two year high.

    * China’s first gold backed ETF has raised more than US$483million after the fund closed its subscription on Monday. Lion Fund Management who will manage the fund will mainly invest in overseas ETFs that track the international gold price.
    * On the other side of the coin Bloomberg data released today shows that gold assets in international ETFs fell to 2,084.35 tons yesterday having hit 2,114.6 on December 20th.

    * Consultancy group GFMS see gold in the early stages of a bubble with prices potentially breaking through US$1,600/oz either late this year or in 2012 as investment demand drives prices higher.  Supply demand fundamentals have also assisted with scrap supply declining last year and jewellery fabrication demand rising 16% yoy largely due to India.  Central Banks have also moved to being net buyers.

    * Negatives for the price highlighted by GFMS include the potential for greater scrap supply in response to rallies, and that mine output set a new annual record last year at 2,652t up 2.7% yoy.  The increased output is for the second year running.

    * SPDR gold trust falls to 1,265.09t (40.673moz) Current value US$56,183bn

Platinum US$1,809/oz vs US$1,793/oz yesterday – Northam Platinum has resumed operations at its Zonderinde mine following a fatality on Sunday in a tramming accident.  The mine produces 1,000ozpd of PGMs.

Palladium US$802/oz vs US$807/oz yesterday – Supply concerns from top exporter Russia coupled with rising auto demand in Asia are expected to help prices maintain the recent rally according to Standard Bank.

    * According to Johnson Matthey, Russian supply increased 2.1% to 3.71moz last year, representing 52% of global supply. However, speculation is increasing that Russia is moving to reduce state stockpiles before exiting the market in 2012 potentially causing a significant drop in market supply. 

Silver US$28.75/oz vs US$29.43/oz yesterday – Market estimates complied by Credit Agricole suggest that the positive run experienced by silver last year is set to continue in 2011 after a short correction over the coming months.

    * Silver will likely benefit from the persistent demand for safe haven investments and increasingly from its industrial capacity.

Rhodium US$/2425/oz vs US$2,425/oz yesterday -

Base metals:

Copper US$9,558/t vs US$9,626/t yesterday – Prices are off slightly again today as recent high prices discourage buyers in Asia.

    * Codelco has announced that production at the company’s Andina Mine in Chile will return to normal processing level by the end of the week after a fire at the plant.
    * Workers at Freeport McMoRan’s Cerro Verde copper mine  in Peru voted against a plan to strike today

Aluminium US$2,487/t vs US$2,489/t yesterday –

Nickel US$25,469/t  vs US$25,740/t yesterday –

Zinc US$2,443/t vs US$2,451/t yesterday -

Lead US$2,625/t vs US$2,655/t yesterday –

Tin US$26,700/t  vs US$26,925/t yesterday


Oil US$98.24/bbl vs US$98.31/bbl yesterday – Prices remain relatively flat in morning trading.

    * Signs of slowing US economic recovery appear to be holding back prices with futures falling back yesterday.
    * Problems continue with the Trans Alaska pipeline that was temporarily restarted on the 11th Jan to prevent the accumulation of wax and ice inside the pipe, having been closed on the 8th January due to a leak.  The pipe is to be closed today to install a bypass around the leak that could stop the pipe for 48hrs.  The line carries around 15% of US crude output.

Gas US$4.416/MMBTU vs US$4.490/MMBTU yesterday – Europe faces a shortfall of Norwegian natural gas as the country slashed estimates from undiscovered resources following a lack of discoveries by companies according to a Bloomberg article.

    * Norway’s estimate gas as yet undiscovered was cut by 31% or 570bn cubic metres to 1.26trillion cubic metres.  The cut is equal to over 5 years of production at current rates that could lead to a shortfall in the region by 2015, leaving European countries more reliant on Russian exports.  Norway’s biggest oil and gas producer Statoil aims to maintain production levels until 2020 that could be overly ambitious.

Uranium US$66.00/lb vs US $63/lb last week –

Coal – The shortage of coal in Australia is prompting dry bulk carriers to leave its ports in search of alternative supplies.

    * Major port Dalrymple Bay is operating at 60% of normal levels, and the queue appears to have declined to 43 from last year’s average of 52.
    * To add to the problems with coal availability we hear reports that South African shipments could also be adversely impacted by heavy rains disrupting rail operations getting coal to export terminals Richards Bay and Maputo.


Iron Ore – Metal Bulletin survey sees spot prices to break US$200/t cfr China in Q2 as supplies struggle to meet demand.

    * Last year demand in China was capped by a series of power cuts and ordered shutdowns as the country moved to meet its 5 year emission target reductions easing pressure on spot markets.  Factors to drive up prices include peak seasonal demand in Q2, limited availability from India partially due to the risk of export bans in Orissa following the ban in Karnataka.


Company News

Polo Resources (LSE:POL) 4.88p mkt cap £117m – Investment update

    * Polo resources announces an NAV/share as of the 31st December of 7.06p.
    * The share of equity investments of this NAV is split:  37% in Caledon Resources, 24% in GCM Resources.
    * Debt investments total 14% of the NAV and is made up of 3% in a Caledon convertible loan note at 47.5p, 9% in one Caledon loan advance, and 2% in another Caledon loan advance.
    * Non listed investments in Ironstone resources comprise 3% of Polo’s NAV, with other investments making up 5% of the company’s value.  Net cash and receivables totals 17% of NAV.
    * We note that yesterday Polo Resources agreed to subscribe to new ordinary shares in Caledon Resources as part of the second tranche of a conditional placing.  Polo will hold 29.9% of the enlarged share issue of Caledon once the placing is completed.  The loans to Caledon from Polo stand at £14.5m and A$4m which are due for repayment next month will be set off against a corresponding amount due from Polo to Caledon under the placing which should close on or around the 4th February.

Exco Resources (LSE:EXS)
A$0.52 mkt cap A$178m – White Dam Resource upgrade

    * A resource upgrade for the Vertigo deposit has converted 50% of the inferred resource to indicated totaling 2.45mt at 1.04g/t Au for 82,100oz contained (0.4g/t cutoff).  Of which the indicated portion stands at 1.22mt at 1.18g/t Au for 46,200oz contained.  As part of the resource re-calculation was a reduction of the cut off grade from 0.7g/t Au to 0.4g/t Au.
    * The conversion of these resources forms part of the company’s strategy to extend the mine life of White Dam.  A mining lease application for the Vertigo deposit has been submitted to Primary Industry and Resources South Australia for approval that is expected to be completed in Q2.  Reserve calculations and detailed pit design will be undertaken following metallurgical test work due for Q2.  Final mine scheduling and planning is also aimed to be completed next quarter.
    * Production at the mine remains above expectations with 40,000oz produced this year at an average cash cost of A$600/oz providing very healthy cashflows fro the group when the average sales price achieved for the project to date stands at A$1,373/oz.  Exco’s stake in the project stands at 75%.

Conclusion: We note that Exco’s flag ship project is its Cloncurry Copper project in Australia that contains 519,400t of copper and 500,000oz Au which the company aims to get into production by 2012 with a definitive feasibility study in progress.  Alternatively the asset could provide a welcome ore source to Xstrata’s Ernest Henry Mine. However, White Dam has proved to be a valuable asset, generating cash and demonstrating operational competence.

Mining this week:

Rio Tinto (LSE:RIO) 4,570p mkt cap £93,282m – Force majeure declared at Boyne smelters

Ncondezi Coal (LSE:NCCL) 202p mkt cap £241m – Proposed placement for US$36.5m

Ormonde Mining (LSE:ORM) 9.6p mkt cap £24.01m – Mining concession application submitted

Vallar (LSE:VAA) 1230p mkt cap £828m – update on Bumi transaction

Petra Diamonds (LSE:PDL) 155p mkt cap £546m – Interim trading update

Anglo Pacific (LSE:APF) 355p mkt cap £385m – Formal option royalty agreement with Horizonte

Archipelago Resources (LSE:AR) 64p mkt cap £360m – US$55m loan facility

Rambler Metals & Mining (LSE:RMM) 37.75p mkt cap £36m – Nugget Pond environmental registration filed

Rio Tinto (LSE:RIO) 4402p mkt cap £90,177m – Offer for Riversdale opens

African Eagle (LSE:AFE) 12.25p mkt cap £47.13m – Dutwa resource upgrade

Carbine Resources*+ (LSE:CRB) A$0.45 mkt cap A$46.73m – 7.4km geochemical anomaly outlined

Allied Gold (LSE:AGLD) 41.5p  mkt cap £432m – December quarter exceeds budget

Vatakoula Gold (LSE:VGM) 212p mkt cap £175m – Quarterly update

Hambledon Mining (LSE:HMB) 8.25p mkt cap £42.65m – Quarterly production report


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