Commodities fall further on poor Chinese numbers
China – PMI for April weaker than expected.
• New orders in manufacturing fell to 51.7 from 52.3 in March.
• Index of new export orders dropped to 48.6 from 50.9
• Finished product inventories fell to 47.7 from 50.2
South Korea – South Korean data shows further slowing
• Industrial production numbers for March down 3% yoy and down 2.6% mon. Shows acceleration of fall in Korean industrial production.
New data expected to set direction for markets
• ADP monthly employment report likely to foreshadow the bigger nonfarm payrolls release on Friday. Expect the ADP report to reveal that 150,000 private payrolls were created in the US in April after 158,000 new jobs in March.
• Then US manufacturing PMI. Expect the index to fall to 52.0 from 54.0 last month reading, indicating a slowdown in the pace of growth in American manufacturing in April.
• US ISM Manufacturing index expected to fall to 50.6 from 51.3, confirming results from the Markit PMI report.
• US March construction spend. Expect 0.6% slowdown in March after growth of 1.2% in February.
• US Fed FOMC monetary policy body to announce its monthly interest rate decision.
US$1.3196/eur vs 1.3077/eur yesterday. Yen 97.56/$ vs 97.53/$. SAr 8.974/$ vs 8.965/$. $1.558/gbp vs 1.550/gbp
Gold US$1,471/oz vs US$1,473/oz yesterday –
Gold – forward sales likely to dampen gold prices as producers move to protect cash flow and expenditure programs
• News reports suggest traders are lining up short sales in anticipation of a further fall in gold prices.
• This suggests to us that gold prices may well fall for technical reasons as buyers stand back and the short sellers have their way
• We are increasingly seeing news on gold miners hedging some of their production to give downside protection.
• Announcements seen may form a fraction of the forward sales being planned and further volatility feels likely to prompt a rash of further sales.
• Gold miners might normally be tempted to resist hedging but are not able to rely on long suffering investors for ongoing bailout if prices fall below critical levels.
• On the positive side the fall in gold prices appears to have inspired substantial buying of physical gold by private investors who do not trust banks or their ETF instruments. Reports of the failure of ABN Amro to deliver physical gold to clients of one of it’s ETF products appears to have spooked gold investors.
• So on the one hand traders are reported to be lining up to sell paper gold and on the side investors are said to be buying every coin and tola bar going.
• Normally we might expect to see physical demand drive prices, but in the gold market anything is possible.
Platinum US$1,500/oz vs US$1,512/oz yesterday
Platinum – Lonmin’s closure of the Marikana platinum furnace highlights risks to production
• Investors should ask, where is new platinum supply going to come from?
• Lonmin’s furnace issue is a short term hiccup but the closure and flooding of shafts on the Bushveld has longer term consequences for supply.
• Experts reckon it takes around nine years to start production from a new shaft and infrastructure and it could also take some years to make safe and restart flooded infrastructure.
• So when demand for platinum picks up, where will the new supply come from.
• The industry resisted platinum ETFs for as long as was practical and their development may not have helped the fine balance between mine supply and consumption.
• Platinum can be thrifted and replaced in some applications but its presence as a catalyst often enhances performance by many times and new uses are sure to found on a regular basis. Platinum’s price means it is rarely used unless it makes a big difference to performance suggesting that many applications are less sensitive to price than for most other metals.
Palladium US$696/oz vs US$699/oz yesterday
Silver US$24.13/oz vs US$24.40/oz yesterday
Copper US$ 6,969/t vs US$7,114/t yesterday
Aluminium US$ 1,839/t vs US$1,895/t yesterday
Nickel US$ 15,173/t vs US$15,423/t yesterday
Zinc US$ 1,847/t vs US$1,894/t yesterday
Lead US$ 1,996/t vs US$2,039/t yesterday
Tin US$ 19,935/t vs US$20,824/t yesterday
Oil US$101.57/bbl vs US$103.7/bbl yesterday
Natural Gas US$4.357/mmbtu vs US$4.387/mmbtu yesterday
Uranium US$45.55/lb UxC U3O8 Swap June 16 unch
Glencore – trading to resume tomorrow with completion of the new scheme / merger to be finalised tomorrow
• We are not sure if Glenstrata (the Glencore – Xstrata combination) will trade as a single entity tomorrow.
• While prices for many commodities have come back, we feel the trading environment for Glencore looks relatively good
• Glencore’s expansion into bulk commodities should serve the business well while its merger with Xstrata should bring strong growth into its core mining business
Antofagasta (LON:ANTO) – Quarterly Production Update
• The company showed increased production from the same period last year to 183.8 kt up 12.8%.
• The increase in production was helped by higher production from Esperanza with higher throughput and grades.
• Esperanza contributed 47,900 tonnes of payable copper down on 49,400 t in the previous quarter because of inventory movements.
• Los Pelambres saw a 6% fall in production on a quarterly basis at 101,200 as a result of major planned plant maintenance.
• Throughput at Los Pelambres was down 7.4% but offset by higher grades.
• El Tesoro produced 25,400 tonnes down 5.2% due to lower throughput.
• As previously announced development has restarted at Antucoya.
• Provisional pricing for copper will show a negative adjustment of US$78.9m for Q1 2013 at an average realised price of 341.1 cents/lb.
• Negative provisional pricing on molybdenum will be US$4.8m and US$4.1m for gold.
• Average cash costs for the group before by product credits was in line with the previous quarter of 171.6 cents/lb and marginally up at 115.5 cents/lb net of by product credits.
Conclusion: This should be seen as a relatively positive set of numbers with Esperanza continuing to perform. Cash costs are in line with the previous quarter and the company are on track for full year production.
• Noricum Gold have announced the start of its new field season at the Rotgulden gold mine and other projects in Austria.
• The company have been waiting for the late snow to melt and for the risk of avalanche to subside before looking to access the mine and exploration properties.
• Roads may be secured through future winters to enable year-round access though the additional cost of this feels inappropriate for current exploration.
• Rotgulden is the key project with drilling to target the mid and lower levels of the mine.
• We believe ground conditions are stable and we expect to see regular updates from the drilling as the program progresses.
• Previous drilling in the lower level include 2.7m at 44.0g/t gold, 0.3m at 23.5g/t Au and 5.15m at 4.9g/t Au
• The team are planning a drill program for Rotgulden to compliment former drill results.
• Management are validating results from former drill core and these will be released when available.
• Wandstollen target to be mapped and sampled. Previous sampling returned up to 10.85 g/t of gold
• Altenberg – drill program planned
• Schonberg – exploration to be advanced, with simple sampling and geochemistry. Previous data suggests 3.1% Cu, 37.5g/t Ag and 3.5g/t Au
• The company also report the issue of 571429 shares to a consultant in lieu of fees.
• The company reckon they have sufficient funds for the season’s field program.
Conclusion: We look forward to regular news flow from the drilling at Rotgulden and on other projects. The historic Rotgulden mine offers good potential for the development of some form of economic resource with potential to reopen the mine in future years. Austria appears to be a relatively good mining destination with many mines operating and a pragmatic approach to the industry. We look forward to better definition of the potential of Rotgulden and the other properties described.
* SP Angel acts as Nomad and broker to Noricum Gold
• The quarterly highlights the progress made on the company’s key projects in Peru.
• Guadalupito – This is an advanced heavy mineral sands project where the company has increased resources significantly.
• This is a large scale project close to good road and power infrastructure and 10 km from Chimbote offering port facilities and home to one of the largest steel smelters in Peru owned by Gerdau the Brazilian steel producer.
• Over the quarter the company increased its JORC resource at the project with a maiden resource from the “Los Conchales” prospect.
• A maiden resource at Los Conchales of 1.073 bn tonnes at 6.1% Heavy Minerals in situ increases the JORC inferred resource at the project by 373% to 1.465 Bt at 5.7% HM in situ.
• The HM composition is dominated by magnetite (22-25%) and andalusite (21-24%) with other high value minerals such as ilmenite, rutile and zircon.
• Metalurgical testwork done so far shows potential for a high grade magnetite concentrate of 63% Fe and less than 4% TiO2 .
• This large scale project with three different deposits offers scope for either a smaller scale dry mining option at the Heldmaier deposit where the high HM content is above the water table or a larger scale dredging operation at Los Conchales where the resource is low gravel content, shallow water table.
• A scoping study was completed at the project in August last year which looked at a two stage large scale dredging and mineral separation operation mining 25 Mtpa to produce 1 mt of HMC and 207 kt of magnetite which would be doubled in the second stage.
• The estimated capex for this two stage project is $623.7m and the company is looking at a simple dry mining alternative with a significantly lower capex of $30-35m.
• Ilo Norte – This is a copper gold project with a contiguous block of 21,000 hectares in Southern Peru close to a number of major copper projects.
• Based on re-interpretation of satellite data and geophysics and follow up ground magnetics, the company have identified drill targets within this potential copper porphyry system.
• Over the quarter the company has raised funds to undertake a drill programme with all permits for the drill programme in place.
• Ilo- Mariela – This is an iron/copper JV with Junefield which is a Hong Kong based group involved in exploration activities in Peru.
• Junefield is the operator on this project with Latin Resources having 30% free carry.
• 21 drill holes have been completed on the project with preliminary results for 7 holes.
• There is a high degree of ground cover at this project and Junefield have targets holes of around 300 – 1000m.
• The most significant intersection to date if for 49.6m of 42% Fe at between 321 and 827m.
• An infill drilling programme has started to define a resource at the project.
• Funds raised: On 23rd April the company raised funds from an increased interest from Junefield of $950,709 with Junefield now having a 22.2% interest in the company.
• The company expect to raise further funds from an option entitlement which is expected to raise a net amount of $1.05m.
Conclusion: Good progress has been made over the quarter at the Guadalupito mineral sands project which is an advanced project with real potential for development - being close to infrastructure and markets, with an option for a simple dry mining operation with manageable capex. While the magnetite concentrate is a titano magnetite concentrate with a narrower end market mainly in China, the company has the advantage of having the Gerdau steel plant at their doorstep which has an electric arc furnace using scrap. Additional revenue streams are also available from a HMC concentrate and andalusite.
The recent fund raise will enable the company to test the potential for a copper-porphyry system at Ilo Norte where geophysics/IP has identified some good targets. The company has also good backing from the Junefield Group who are spending the money required to do some deep drilling to advance the Mariela project.
Latin Resources looks well positioned to advance its projects in Peru.
*SP Angel analysts have recently visited the Latin Resources Projects
• A geological model has been built by Moore Geophysics at Cascabel using helimagnetic survey data.
• The model is looking to map the three dimensional geometry of the magnetic bodies below the outcropping copper and gold porphyry mineralisation.
• The model has defined a magma chamber at depth and a magnetic protrusion close to the land surface near the mineralised trenches at Alpala.
• The company continue to assay channel samples at the Alpala prospect with assays from seven additional areas of channel sampling.
• Sampling is continuing over a broader area at the exposed stockwork at Alpala to get a better understanding of the distribution of mineralisation at surface.
• Drill permitting is advanced and the company have an ongoing dialogue with the community.
• Codelco has recently entered into a JV with Ecuador’s state owned company Enami to explore the Junin deposit 60 km southwest of Cascabel.
Conclusion: Following the recent fund raise the company continue to map out the targets for drilling at Cascabel with drill permitting said to be advanced.
Results so far show potential for consistent mineralisation through the length of trenches sampled which is being further supported by geological modelling. We look forward to results from the drill program.
*SP Angel acts as broker to SolGold
• The UK oil and minerals services group reported on the performance of their divisions.
• The Minerals division showed order input for the 13 week period from 29 Dec 2012 to 30 April 2013 down by 6% against the same period last year.
• This was in line with expectations.
• Original equipment input was 23% lower while aftermarket input was up 6%.
• On a sequential basis like for like input was up 20% on the fourth quarter supported by OEM orders delayed pre year end.
• The company reports strong activity in Africa and South America with Australia remaining at low levels against a back drop of weaker coal and iron ore markets.
• The company continue to see a solid pipeline of projects with a move towards smaller brownfield projects.
• The company maintain their guidance for revenues and margins for the division.
Conclusion: The statement would suggest that activity in the minerals division is picking up on a quarterly basis while down as expected on a year on year basis.
Goldplat (LON:GDP) – Update on Recovery Operations
• Goldplat South Africa (GPL) – The CIL plant for new tailings re-treatment has now been commissioned and is within budget.
• The tailings treatment plant which will process tailings already on site will have sufficient material for 5 years of production.
• The investment in the plant was around R5m or $550,000 and is expected to generate profits of around $600,000 a year.
• The second rotary kiln which will be used to treat the woodchip stockpile at the plant is also on budget and is targeting commissioning by the end of July.
• The kiln will double the current available capacity at GPL and treat the wood chip stock pile providing enough material for seven years worth of capacity and is another planned investment to grow profits at GPL for a relatively modest investment of R5m.
• The company is also strengthening the team at GPL with the recruitment of Hansie van Vreeden who brings metallurgical experience from AngloGold Ashanti.
• Mr van Vreeden will be the General Manager at GPL.
• Gold Recovery Ghana (GRG) – The company continues to target improvements at GRG by improving the terms for their toll treating arrangements with Adamus which contributes to 55% of profits at GRG and where there has been some margin pressure.
• GRG has suffered a refractory failure at one of the fluidized bed incinerators which has affected throughput in this section.
• GRG has two fluidized bed incinerators and this section contributes 10% to profits at GRG.
• With one of the incinerators partially down the company is likely to be operating at 75% capacity but will be working to restore full capacity.
• The failure relates to a refractory disc in one of the chambers and can be replaced relatively easily.
• This section has been targeted for improvement and the company have added additional spirals at minimal costs to improve the quality of feed to the incinerator.
• At the CIL section which contributes 35% to profits a thickener has been delivered to site to improve recoveries at the CIL plant.
• In addition the company plan to install a rotary kiln at GRG in the second half of FY 2014.
• The rotary kiln came free when they bought the rotary kiln for the South African plant and the cost will be related to transport and installation.
• Bukina Faso expansion – The company’s planned expansion into Burkina Faso to create a third recovery unit has been reviewed.
• The focus for this plant will now be to target high grade fine carbon and mill liners from major gold producers rather than treat artisanal tailings as originally planned.
• As a result of the change in focus the Environmental Study has been re-commissioned and is expected to be completed at the end of August 2013 with all operating licences in place by the end of 2013.
Conclusion: This is positive update from Goldplat on its recovery operations with the initiatives set out to grow profits at the South African being put into place on time and on budget. These incremental investments in plant can add meaningfully to profits growth in that division with the new tailings treatment to add around $600,000 a year to profits in South Africa. The contributions from these initiatives are in our current forecasts.
The impact of failure at one of their incinerator lines in Ghana has not been quantified but we would expect this not to be significant as they have two incinerator lines in Ghana and the failure will bring capacity down to around 75% in a section that currently contributes to 10% of profits in Ghana.
The expansion into Burkina Faso to target high grade carbon and mill liners from major gold producers is in our view the best way to move forward on this expansion and when in place should provide the company a step up in growth. This is not factored into our numbers.
The recent volatility in the gold price is likely to have an impact on the company but we believe the company has the flexibility in their operations to try and minimise the impact. We continue to see Goldplat offering good fundamental value with the shares trading on a prospective PE of 6.4x coming down to 4.2x for FY 2014 and with good cash flows to pay a dividend.