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Today's Market Report including: Amur Minerals, Aureus Mining, Metals Exploration, ZincOx Resources and others

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Chinese scientists announce the development of a  3D printer that uses low melting point metal alloys

3D printing using metals presents technical challenges including the non-trivial issue of the high temperatures required for printing with metals.

The 3D metal printing technology is advancing – in July 2014 aerospace multinational BAE Systems PLC announced that it was experimenting using the technology for components such as struts and brackets for fighter planes.  

Scientists at the Technical Institute of Physics and Chemistry at the Chinese Academy of Sciences have presented a method of liquid phase metal printing using a metal allow that melts just above room temperature. Cooling fluid is also utilised in the process.

The Chinese scientists have developed a 4-element alloy based on Bismuth, Indium, Tin and Zinc. 

There are wide range of potential applications: from printed electronic components to medical devices.. 

FINEX’14 -  Geological Society conference 22nd-23rd October

FINEX are running a conference on the role of private and institutional funding of exploration, development and mining at the Geological Society, Piccadilly, London

The event is sure to be populated with a gang of bearded geological theorists.

Economic News

HK – protest paralyse parts of city, this is not good for growth in the region

US – Personal Consumption Expenditure (PCE) price index was little changed in Aug (+1.5%yoy v 1.5%yoy in Jul and +1.4%yoy forecast) coming in well-below the Fed target for 2%.

Pending home sales fell more than forecast in Aug (-1.0%mom v +3.2%mom in Jul and -0.5%mom forecast).

Economic news due today:

Sep Chicago manufacturing PMI (62.0 v 64.3 in Aug), Jul S&P/CS 20 house prices (0.0%mom v -0.20%mom in Jun), Sep consumer confidence (92.5 v 92.4 in Aug)

China – A revised HSBC manufacturing PMI showed the sector expanded at a slower rate in Sep than previously estimated (50.2 v 50.5).

This suggests growth has been revised back to Aug levels which marked a three-month low.

The sub-index for employment in the manufacturing segment showed further weakness contracting for the 11th consecutive month.

Japan – Industrial production comes short of expectations (-1.5%mom in Aug v +0.4%mom in Jul and +0.2%mom forecast) as manufacturers are de-stocking with inventories reported to have reached the highest level since Feb 2009 last month.

Production is expected to increase 6%mom in Sep and contract 0.2%mom in Oct.

In particular, vehicle production slumped 6.7%yoy last month compared with a 1.7%yoy drop in Jul.

Retail sales growth outpaced market estimates (+1.9%mom in Aug v -0.5% in Jul and +0.5% forecast) suggesting consumption started recovering from a slump post a sales tax hike in Apr.

More on a positive note, labour cash earnings (base plus bonus and overtime) climbed more than forecast last month (+1.4%yoy v +2.4% in Jul and +0.9%yoy forecast). The government has long been pushing businesses to increase wages which in turn would support consumer demand and accelerate inflation.

Eurozone – Inflation rate remained unchanged in Sep (+0.8yoy) and close to a 4-year low recorded in May (+0.6%yoy) suggesting the ECB may ned to step up monetary expansion policy.

With the Fed continuing to wind down the latest QE programme and targeting first rate increase next year, suggests more pressure on the EURUSD exchange rate.

Inflation in Germany was in line (+0.8%yoy, unchanged from the rate in Aug) in Sep.

Good retail sales (+2.5%mom in Aug v -1.1%mom in Jul and +0.5%mom forecast) and employment numbers (+12k in Sep v +3k in Aug and -2k forecast) released in Germany this morning.

Eurozone unemployment to be released this morning with estimates for the jobless rate to hold at 11.5% in Aug.

UK – Consumer sentiment fell more than expected in Sep (-0.2 v +0.8 in Aug and +0.5 forecast, GfK) while growth in house prices slowed to levels seen in Q1/14 (+9.4yoy in Sep v +11.0yoy in Aug and +10.4% forecast, Nationwide).

Final Q2/14 GDP numbers are due later today with estimates for no change to previously estimated +0.8%qoq (+3.2%yoy) growth.

Argentina – US judge riles Argentina is in contempt of court for refusing to repay debt owed to US hedge funds 

The hedge funds involved are also being condemned by a UN human rights council in Geneva.

Argentina is apparently looking at ways of meeting its obligations to other creditors without paying the hedge funds in full.

The council is concerned about the impact of the repayment of funds which will effectively take money away from schools, hospitals and security.

Iraq – ‘IS’ fighters reported to be just 5 miles from Bagdad

‘IS’ fighters are said to be well organised and are brutal in their treatment of non-Sunni ethnic groups.

Spain – court suspends Catalonia independence referendum

Catalonia is more sure to break away from Spain than Scotland was from the UK.

The head of Catalonia signed a decree on Saturday calling for a referendum.

Catalonia has 7.5m people just 16% of the Spanish population but is the nation’s richest and most industrialised regions.

US$1.2688/eur vs 1.2679/eur yesterday.   Yen 109.41/$ vs 109.59/$.   SAr 11.254/$ vs 11.303/$.   $1.627/gbp vs 1.623/gbp

Commodity News

Precious metals:

Gold US$1,217/oz vs US$1,220/oz yesterday

Platinum US$1,308/oz vs US$1,303/oz yesterday

Palladium US$790/oz vs US$786/oz yesterday

Silver US$17.50/oz vs US$17.57/oz yesterday

Base metals:

Copper US$6,750/t vs US$6,695/t yesterday – 

Aluminium US$1,974/t vs US$1,943/t yesterday

Nickel US$16,805/t vs US$17,635/t yesterday – 

Zinc US$2,310/t vs US$2,263/t yesterday

Lead US$2,107/t vs US$2,062/t yesterday

Tin US$20,416/t vs US$20,725/t yesterday – 

Energy:

Oil US$97.4/bbl vs US$96.4/bbl yesterday

Natural Gas US$4.146/mmbtu vs US$4.023/mmbtu yesterday

Thermal Coal $74.0/t vs $74.6/t

Seaborne hard coking coal index (quarterly) US$119.0/t unch vs US$119.0/t

Uranium US$35.30/t vs US$35.50/t –  

Other:

Iron ore 62% Fe spot (cfr Tianjin) US$77.7/t vs US$78.6/t – 

Iron ore posts a third quarter of price falls as Majors oversupply the market and China slows economic growth

Lower iron ore prices are expected to cause the closure of many smaller and higher cost producers

Tungsten APT European US$352.5/mtu unch vs US$352.5/mtu –

Company News

Amur Minerals* (LON:AMC) – H1 financial results in line; Kun Manie PFS under review with the Board; mining permit filed with the MED

Administrative expenses well contained at US$1.2m (H1/13: US$1.6m).

Net loss of US$5.8m (H1/13: US$3.4m) is attributed to a loss on exercised equity swap agreement (US$0.4m) and revaluation of the balance derivative instruments (US$3.7m) given the share price fell through H1/14 (3.4GBp as of Jun/14 v 6.9GBp as of Dec/13).

EPS totalled -1.2USc (H1/13: -0.6USc).

Lanstead financing agreement has been used 5 times during the period for a total of US$178,000 in net proceeds.

Total value of outstanding derivative contracts with Lanstead stood at US$4.0m as at Jun/14 with cash in the bank at US$1.0m.

On the operations side, we highlight things we have not covered in our previous comments below.

Exploration site has been restocked with fuel, spares and supplies in Mar/14 and is now prepared for the field season.

The Company indicated that the next field season will only start should authorities award a mining license highlighting the management’s prudent approach to minimising cash outflow as the management awaits the decision on the mining license application.

In the meantime, the team will focus on a revision of the PFS (SRK, 2007) and engineering aspects of the proposed operation design.

The revised PFS (prepared internally) is currently being reviewed by the Board of Directors and Executive Management.

The latest mineral reserve update (prepared internally) used EBITDA optimization adjusted for new Q1/14 operating cost assumptions, revised production rate, metallurgical recoveries, smelter penalties and changes to fiscal terms.

The management opted for on-site generation case using diesel. While this involves higher charges per kWh used, development capex will be cut significantly assuming US$1m/km cost for a >360km long power line.

In terms of access road capex, a revised processing plant capacity (6mtpa, up from 4mtpa) will require new expanded road design. Costs are estimated to range between US$0.25-1.00m/km for a 310-320km long road connecting the site with the Baikal-Amur Mainline railhead.

Final development capex estimates to be released together with an updated PFS.

Regarding the mining permit application, terms and condition of the license are being reviewed by the Ministry of Economics (MED). The MED approval would constitute the fourth and final external review of the license (following successful reviews by the FAS, FSB and the MOD), before Rosnedra issues its recommendation and passes all documents to the Ministry of Natural Resources (MNR). Post MNR stage, the recommendation is directed to the Russian Government for final approval.

It is important to note that the Company will remain owner of production rights to the asset should the exploration license (Dec/14 expiry date) terminate before the award of the mining license.

Conclusion: The management has done well to keep costs under control as the Company goes through the mining permit approval process. Previous successful exploration programmes completed at the Kun Manie site delineated proved and probable mineral reserves enough to last a 6mtpa operation for >6 years with another 81.6mt contained in M,I&I categories that may be potentially converted into mineable tonnages. Given the size of the ore stock secured to date, we support the Company’s decision to limit exploration spend pending results of the mining license application.

The cash balance together with the outstanding Lanstead facility is enough to see the Company through the remainder of this year and 2015, on our estimates.

Financial results have broadly came in line with our estimates and we leave our FY2014-15 earnings forecasts little changed (adjustments are made to Lanstead ESA exercise schedule).

*An SP Angel analyst has visited the Kun Maine licenses in Russia

Aureus Mining (LON:AUE) – Final Drill Results from Ndablama

Results are announced for the remaining 49 holes of the Phase 4 drilling programme at the project.

Phase 4 included a total of 19,000m of RC and DC drilling.

DC drilling was undertaken to test the down dip and extensions of the 2013 inferred resource of 451,000 oz at 2.1 g/t gold.

Intercepts from results show grades of between 2.3 to 3.3 g/t gold over 18 to 28m from depths for 88 to 139m.

All drill holes have intersected a mineralised system at relatively shallow depths.

The RC drill holes of 3,480m carried out were for infill holes to upgrade the resource from inferred to indicated.

This drilling is said to confirm continuity with the already defined ore body.

With results in hand, the NI 43-101 Resource Estimate for Ndablama is to be updated and is expected to be completed in Q3 2014.

Further met test work is to be done at the project.

Conclusion: These results look good and should help the team achieve an upgrade in the next MRE.

Blue Rock Diamonds* (LON:BRD) – Interims to 30 June 2014

The company provide and operational update with their interims.

Over the period, the company have commissioned and run the trial plant which has been achieving a rate of 20 tonne an hour.

The company had recovered 138.69 carats at the end of the period which increased to 379.17 carats as at the 15th September.

All diamond inventory to hand as at the end of 31 August of 327.3 carats were put up for sale by tender.

The parcels contained 1,102 stones ranging in size up to 6.23 carats.

The diamonds put up for sale in a number of parcels achieved a total of US$58,305 at US$178/carat.

Offers were made for the package totalling US$77,571 which would have valued the package at US$237/carat.

The tender packages still remain relatively small.

The company plan to invest £400,000 to expand plant capacity to 80 tonnes per hour or 14,000 tonnes per month  based on a single shift.

This should enable them to process more of the available ore.

Only two pipes K1 and K2 have been mined so far with 10m of kimberlite removed from the area.

No work has been carried out on the other pipes K3, K4 and K5.

To fund the plant, the company plans to issue a £450,000 zero coupon 5 year convertible bond with the conversion price of 11 pence.

This was a 2.3% conversion premium over the mid-market closing price of 10.75 pence as of 26 September.

The convertible is to be issued to Mark Poole who holds 16.8% of the current share capital.

The company reported a loss for the period of £321,850 and had cash at the end of the period of £175,450.

The CEO Riaan Visser and CTO John Kilham have had the exercise price of their options reduced to 14 pence from the previous level of 22 pence in Tranche 1 and 22 pence from 40 pence in Tranche 2 to continue to incentivise the on the ground management team.

Conclusion: The investment in a new plant with better capacity should help improve recoveries and offer scope for bigger packages to set the valuation potential for these pipes. The company has a supportive shareholder base which should help them as they build up production. We look forward to further news flow as a new plant is put into place.

*SP Angel acts as Nomad and Broker to BlueRock Diamonds 

*SP Angel Analysts visited the Kareevlei Mine and plant sites in Feb2014

Metals Exploration* (LON:MTL) – Interims to 30 June 2014 – Good progress made in mine construction

The interims highlighted the progress in constructing the Runruno gold mine.

The interims follow a recent update on the project to the end of August 2014.

As of the end of August post the interims, 62% of the project is estimated to be constructed with 65% of the US$182.8m of the construction budget spent.

In addition a further US$23.2m has been committed against work in progress and plant and equipment.

As at the end of August the company had drawn down £14.5m of their £48.7m (US$83m) debt facilities.

Mine development is progressing well with unrestricted access to develop mining works.

The process plant design has been held up as previously advised and has led to commissioning being pushed out a quarter.

The design for the plant is expected to be made available by the end of October.

Process plant construction was 25.4% completed by the end of August.

All large value and long lead time packages have been awarded.

The company reported a loss for the period of £5.55m.

Cash and cash equivalents at the end of June stood at £22.25m.

As at the end of August the company had US$29m of cash with further draw downs to be made on the debt facility.

Conclusion: No new news in this announcement but the company provide good detail on the progress at the Runruno project on all aspects of the work. The process plant design which has held up works should be made available by the end of October which should enable them to move forward on plant construction. The mine is targeting an average of 101,800 oz in the first five years and 92,700 oz in years 6 – 10. C1 cash costs which was re-estimated recently on actual costs where available is US$474/oz putting the mine in the first quartile in terms of cost. Metals Exploration, like Aureus is one of the few gold mines funded to come on stream next year and is well positioned to perform.

*SP Angel acts as broker to Metals Exploration

Chatham Rock Phosphate (NZE:CRP) – Shares rise on public hearing in NZ

Chatham Rock Phosphate shares have risen after the first day of public hearing in NZ

The company is countering claims by environmental groups that its proposed mining activities might overly disrupt the marine environment on the Chatham Rise offshore New Zealand.

Chatham plans on dredging a trench of silt on the sea bed to recover nodules of rock phosphate.  The silt is then sieved to remove the nodules at surface before the silt is returned to the trench from which it came on the sea floor.

We believe the process is far less disruptive than the damage done by dredging for sea food.

The company is proposing to mine phosphate nodules up to 450m depth within a 820sqkm area for five years but may apply to widen its activity to a 5,207sqkm up to a further 30 years with a processing rate targeted of 1.5mtpa of nodules.

In its opening submission to the public hearing, the Royal Forest and Bird Society criticised the company's risk management processes as being inadequate, and said that the project posed a risk to the Chatham Island taiko, a seabird on the verge of extinction.

The Forest and Bird counsel also questioned the economic benefit of the project and that the proposal was at risk from a significant change in the price of phosphate.

We believe the birds are attracted to lights on boats and then fly into them.  We do not understand why this is not such a big issue with the many fishing boats which trawl the Chatham Sound.  The company only plan to operate one production and one trans-shipment vessel.

West African Minerals* (LON:WAFM) – Interim statement highlight exciting discovery at Sanaga in Cameroon

West African Minerals are making progress in Cameroon at their Binga and Sanaga iron ore projects.

Both projects have reasonable potential to become iron ore mines due to their location near port facilities at the coast.

Binga: an initial Mineral Resource Estimate of 30.5mt grading 29.7% Fe at a 25% Fe cut off grade.

Metallurgical test work confirms potential to upgrade ore to 61%-64% Fe using coarse comminution and magnetic separation.

Further targets have been identified at Binga and Sanaga using ground based geophysics and magnetics.

Management will choose which project best merits further advancement and cash spending.

Sanaga:  shows surface Fe grades of 29.1% to 66.3%.

The key point about Sanaga is that the ore deposit sits within 10km of a suitable railroad which leads directly to the port of Douala.

If Sanaga can show good potential for >100mt of iron ore at equal or better grades than that at Binga then WAFM will look to infill drill the resource and complete a PEA first on this project.

Sanaga looks as if it would have a lower stripping ratio and this combined with the close access to rail should give it an advantage as a project.

East Cameroon:  exploration shows 24.1% -58.7% at Lele and 36.2%-56.1% at Djadom in the east of the country.  These projects effectively require commitment to build a railroad into the interior.  The nation is courting a number of major companies to finance and construct a heavy duty rail line to link iron ore projects in the East and in North East Republic of Congo.  South Djadom has an inferred iron ore resource of 111.5mt grading 30.0% Fe including 15.6mt grading 40.7% Fe at a 35% cut-off grade.

Madina, Sierra Leone: trenching program shows a Marampa Group type hematite schist target over 1.5km of strike length with preliminary samples from first three trenches showing 38.5% to 41.4% Fe.  Mineralisation is said to be easily identical to that being mined by London Mining at Marampa just 70km to the south.  True thickness is an impressive 42m to 209m. 

P&L:  WAFM report a total loss of £8.5m for the year of which £5.2m were from impairment of deferred mine exploration and exploration permits. 

Other significant costs are £0.8m for share options and warrants, £0.8m for other professional fees, £0.6m for directors fees, salaries and wages and £0.4m for admin expenses.

Cash: £7.1m at end June following the raising of £6.1m in February compares with £9.4m a year earlier.

Management are focussed on reducing the company’s operating expenses and has cut the expensive jungle exploration in favour of more practical and hopefully more productive work in the coastal region.  Exploration is now carried out on a campaign basis with much reduced expenditure.

EBOLA:  thankfully Cameroon does not have any cases of Ebola and took the prudent step of closing its boarders with Nigeria. 

Conclusion:  WAFM have taken steps to limit expenditure while making good progress at Sanaga and Binga which are located near the coast and within reach of suitable port facilities.  The company continues to progress with the development of iron ore resources and should advance a  

*SP Angel act as Nomad and broker to WAFM

ZincOx Resources (LON:ZOX) – Interim results highlight improvement in zinc recovery

ZincOx Resources report significantly reduced losses for the six months to June this year.

The company is processing zinc from Electric Arc Furnace Dust ‘EAFD’ at a new plant in Korea.

The plant recovery rate has attained >92% ahead of the company’s own 90% target, a great achievement for the company and its team.

Interim loss of $7.55m compares with $26.3m lost last year.

Sales of $17,775 reflects better zinc prices and improved recovery rates in the Korean Recycling Plant ‘KRP’.

Zinc prices: The company received a zinc price of $2,050/t up 6% on last year.  Zinc prices are now significantly higher at $2,310/t which should make a significant difference to second half sales.

EAFD processing of 60,555t vs 53,280t yoy.  

ZincOx processed a record 13,826t of EAFD in May for $3.7m though this fell back to 9,569t in June worth $3.2m as the plant was suspended to allow further modification to be made.

Funding:  Net proceeds from share issues were $4.94m through the period.

ZincOx raised funding through the year by way of a placing for £1m and open offer £3.9m for and a recent loan restructuring.  The IFC also injected £5.6m in a placing in November 2013.

Cash:  $3.3m in cash and cash equivalents might be a bit tight unless the company is producing cash.

At a zinc price of US$2,250/t (US$2,187/t today) the company expect the project to generate an EBITDA of US$31mpa with an NPV of US$110m and an IRR of 28%. A second phase is envisaged at a capital cost of US$146m to give an NPV of $162m and an IRR of 22% with an EBITDA of $59mpa.

Conclusion:   It is great to see the EAFD plant now working to its design recovery rate.  Cash is a bit tight but the improvement in zinc prices and sustained recovery rates over 90% should lead the turnaround.

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