Glencore winds down Singapore coal marketing office as the company moves towards dealing direct with end customers
• The Singapore office was originally opened by Xstrata to get company staff closer to end customers
• The move is effectively part of the consolidation of Xstrata within Glencore
AIM Basic Resources Index rises 19.4% this year as miners show new value
• General perception is that mining industry is going through challenging times.
• However, the performance of the AIM Basic Resources Index year to date suggests otherwise. The index is up 19.4% ytd following four years of 27-38% pa falls.
• This compares with the -8%ytd posted by the FTSE Mining Index with a heavy bias towards iron ore and coal production.
• The AIM performance is driven by a handful of companies as is so often the case.
• Of the £507m increase in market capitalisation of the index two companies accounted for 40% of the move – Amur Minerals (+226.2%, +£106m) and Sirius Minerals (+55%, +£97m).
• Both companies have been heavily traded on the back of mining licence application related announcements.
• Among other major contributions in market cap terms were
o Coal of Africa (+200.5%ytd, +£66m)
o Wolf Minerals (+52.4%, +£56m)
o Aureus Mining (+50.3%, +£34m)
o Gemfields (+29.9%, +£68m):
o Highland Gold Mining (+60.3%, +£44m)
o Top ten companies (based on respective market caps) making 55% of the index (c.130 companies) accounted for nearly all of the £510m increase climbing 42%ytd.
o The make up of the top stocks is diverse, ranging from established producers like Highland Gold and Gemfields to project developers, Aureus Mining and Wolf Minerals plus others which are still pre mine financing like Amur Minerals and Sirius Minerals.
o Companies from 11-20 (again, based on mkt cap weighting in the index) were up 16% in aggregate adding £85m to the index. 21-30’s were up 9% (+£21m).
Economic News
Euro sliding down Greasy political pole
• Angela Merkel wants a deal, the French government wants a deal, the Greek PM wants a deal
• But the German finance minister is a hard liner and other Greek politicians are reported to have reacted badly to concessions offered
• German and French banks are stuffed full of Greek debt, they can take a haircut like any responsible lender but a default is going to be very painful for banks which are holding the debt on the assumption that their political leaders will do a deal.
• Greece is going to descend into even more of a mess than it is already, remember the Russian debt crisis where government workers were not paid for >6 months.
• Greek leaders now appear to be trying to negotiate a deal but the Greek people and their political representatives may yet plunge Greece and a bunch of European banks into crisis.
Greece – Athens might reach an agreement with international creditors for the release of the €7.2bn bailout tranche.
• The government is reported to have submitted an updated list of reforms to Eurozone members which included first substantial concessions to creditors’ demands.
• Negotiations are set to continue in an effort to close the deal this week.
• Meanwhile, the ECB offered another €2bn to Greek banks under the ELA programme as withdrawals from local banks run at accelerated pace.
• Banks registered €2bn in withdrawals over Friday-Sunday with another €1bn leaving the system yesterday.
China – Manufacturing in China recovered in Jun but continued to run sub-50 mark with the sector remaining in contraction through Jun.
• HSBC manufacturing PMI: 49.6 v 49.2 in May and 49.4 forecast.
• The report highlighted companies continued to cut staff with the latest reduction the strongest in more than six years.
• Reduction in payrolls suggests “relatively muted growth expectations as demand conditions both at home and abroad remain relatively subdued”, Markit said.
• The report continued “the data add to evidence that the sector has lost growth momentum in Q2 as a whole, and suggests that the authorities may step up their efforts to stimulate growth and job creation in the second half of the year”.
Germany – Manufacturing sector gained momentum this month with a respective Markit PMI beating expectations this month.
• Markit manufacturing PMI: 51.9 v 51.1 in May and 51.2 forecast.
• On a less positive note, new business rose the least this year in Jun while employment slowed from May.
• In general, the average PMI reading over Q2/15 was slightly lower than that for the opening three months.
France – Manufacturing sector posted growth for the first time in more than a year.
• Markit manufacturing PMI: 50.5 v 49.4 in Mar and 49.6 forecast.
US$1.1242/eur vs 1.1329/eur yesterday. Yen 123.58/$ vs 123.09/$. SAr 12.146/$ vs 12.177/$. $1.580/gbp vs 1.586/gbp
US$0.773/aud vs0.777/aud
Commodity News
Precious metals:
Gold US$1,185/oz unch vs US$1,195/oz yesterday
Platinum US$1,073/oz vs US$1,074/oz yesterday
Palladium US$702/oz vs US$700/oz yesterday –
Silver US$16.03/oz vs US$16.14/oz yesterday
Base metals:
Copper US$ 5,723/t vs US$5,671/t yesterday – Naperville, Illinois moves to copper only plumbing for new build houses due to the antimicrobial properties of copper.
Aluminium US$ 1,721/t vs US$1,704/t yesterday
Nickel US$ 12,640/t unch vs US$12,640/t yesterday
Zinc US$ 2,030/t vs US$2,037/t yesterday –
Lead US$ 1,777/t vs US$1,774/t yesterday
Tin US$ 15,295/t vs US$15,305/t yesterday
Energy:
Oil US$63.4/bbl vs US$63.3/bbl yesterday
Natural Gas US$2.722/mmbtu vs US$2.748/mmbtu yesterday
Uranium US$36.75/lb unch vs US$36.75/lb yesterday –
Bulk commodities:
Iron ore 62% Fe spot (cfr Tianjin) US$62.60/t unch vs US$62.60t – iron ore prices look to fall further as China exports steel at below cost indicating
Steel – Robots to 3D print steel bridge over canal in Amsterdam. The process may enable the quick and safe construction of many more bridges
Thermal Coal $59.8 vs $58.8 cif ARA Europe
Tungsten - APT European prices price $225-230/mtu on Friday vs $225.3/mtu
Company News
Acacia Mining (LON:ACA) 306 pence, Mkt Cap £1.255 bn – Impact of weaker Tanzanian currency
• The company reports that between 31st March and 22nd June, the Tanzanian Shilling (TSH) has weakened from a rate of TSH1,788/US$ to TSH2,094/US$ or by around 17% (SP Angel).
• Acacia Mining is carrying TSH denominated tax balances owed to the company on its balance sheet. In the event that the current exchange rates prevail, there will be an impact on the $124m value of these tax balances reported in the 31st March balance sheet.
• We calculate that they could now be reduced to around $106m when the company reports its 30th June balance sheet on 27th July. The company points out that in the event that it has to report an accounting loss from the revaluation there will be no impact on cash flow.
• Acacia also remarks that around 15-20% of its cost base is denominated in TSH and the company “anticipates a marginal ongoing benefit to reported costs going forward.” We estimate that this impact could be in the order of 2.5% to 3.5% reduction in costs which were reported as $744/oz (cash costs) in Q4 2014
Firestone Diamonds (LON:FDI) 33.4 pence, Mkt Cap £103m – Update on Liqhobong Development
• Completion has been pushed out by around a quarter with the start of production moving from the end of H1 2016 to Q4 2016.
• The schedule has been impacted by an increase in overburden material to be removed from the primary crusher and plant terraces.
• Above average rainfall has also impeded work.
• A number of initiatives have been put into place to progress works including introduction of an additional shift.
• Additional cost involved are estimated at Zar 156m or around US$12.85m.
• The cost increase has been offset by currency gains made against the original US$ budget of US$185.4m and savings made on the grid power project of around 45%.
• The project remains fully funded with cash at the end of May of US$20m with a US$30m Eurobond facility to start draw down during July.
• The Absa facilty of US$82.4m also remains undrawn with drawn down expected to start in August.
• The company do not currently expect to tap the US$15m standby facility and also expect to have sufficient working capital till first revenues in Q1 2017.
• A total of Zar 830m has been spent to date.
• The work on the tailings dam is ahead of schedule and first concentre was poured around the Primary Crusher area at the end of May.
• The grid power project is progressing ahead of schedule and to budget with expected connection to the grid in Q3 2015.
• 50% of the costs for the grid power is now being shared with Storm Mountain Diamonds owners of the Kao Mine with the plan revised to supply the Kao mine as well.
• The original budget for the project has increased from Zar165m to Zar189m but the cost is now being shared 50/50 with Kao Mine.
Conclusion: The project is now not anticipated to start around a quarter later with costs being partially absorbed by currency gains and sharing of the power costs with the Kao Mine. This does not impact our numbers as we do not have revenues kicking in till 2017. We remain buyers of the shares on fundamentals but the shares are likely to be sidelined in the short term against a lack lustre performance for diamonds and till construction progresses further.
Goldstone Resources (LON:GRL) 2.75 pence, Mkt Cap £1.7m – Final Results for 10 months to 31 Dec 2014
• Results focussed on board changes implemented following the investment by Stratex and further exploration at Homase/Akrokerri.
• After a limited programme of pitting to get a better understanding of the weathering profile, an auger sampling programme was undertaken.
• The latter programme was completed in April 2015 post results.
• Results from this programme has led to planned drilling of two anomalies of 1,500m and 800m respectively, SW of the current resource.
• These anomalies are thought to be part of the continuing trend linking Akrokerri with Obuasi.
• The exploration strategy is to delineate further near surface oxide resources which would be easier to process.
• The interest in Homase has been increased from 65% to 90% through a payment of US$25,000 to their partner in the project.
• The main focus remains on Ghana with the project in Senegal on hold following the termination of the JV with Randgold in April 2014.
Mariana Resources (LON:MARL) 2.05 pence, Mkt Cap £15.6m – Hot Maden drilling continues to intersect wide zones of gold copper mineralisation
• Mariana Resources has reported its latest drilling results from its Hot Maden project in eastern Turkey where the company’s local partner, Lidya Madencilik Sanayi ve Ticaret (Lidya) is earning a 70% interest by funding 10,000 metres of drilling. Lidya has now completed 8 holes (2,803m) of the Phase 2 drilling programme at Hot Maden.
• Assay results from hole HTD-013, which was designed to test the down dip extension of the 82m long intersection at an average grade of 20.4 g/t gold and 1.94% copper in hole HTD-05, has intersected a 109.9m long zone of mineralisation at an average grade of 11.9 g/t gold and 1.13% copper from a depth (in hole) of 259.1m. This zone includes a higher grade section, from a depth of 259.1m, of 89.6g/t gold and 1.7% copper over a length of 12.9m.
• The company reports results from Hole HTD-012 amounting to a 38m wide intersection at an average grade of 3g/t gold and 1.74% copper from a depth of 227m. This intersection also includes higher grade sections of 5m averaging 7.5 g/t gold and 2.1% copper from 235m and 2m at an average grade of 17.5 g/t gold and 5.2% copper from a depth of 253m.
• Hole HTD-014 intersected a post mineralisation fault zone which may have disrupted mineralisation but still reported 3 separate zones of mineralisation including an 8m wide intersection averaging 2.2g/t gold and 0.23% copper from a depth of 37m; a 17.3m wide zone averaging 1.05g/t gold and 0.31% copper from 70.7m; a 10m wide zone averaging 1.29 g/t gold and 0.85% copper and 3.5m averaging 1.96 g/t gold and 0.74% copper from 116m.
• Hole HTD-015 has now been completed and has successfully intersected an upper mineralised zone between 31 to 89m depth and a deeper and wider “main” mineralised zone between 200-331m. Assays are not yet available but the “main” mineralised zone is thought represent the down-dip extension of mineralisation intersected in hole HTD-010 which intersected 100.2m averaging 5.6 g/t gold and 1.13% copper from 81.8m.
• Drilling is underway on Holes HTD-016 and 017.
• The company comments that “Future drilling will continue to work on defining the limits of the Au-Cu mineralisation, especially close to the surface (up dip) but also at depth (down dip) and towards the south.”
Conclusion: The Hot Maden project continues to deliver wide intersections of strong mineralisation and at present the limits of mineralisation remain to be defined. We note that many of the intersections are relatively deep and that mineralisation remains open at depth. We also note that there are particularly high grade zones within wide mineralised envelopes which could be amenable to bulk mining methods if, in due course, resource definition results justify mine development. At this relatively early stage we are encouraged and look forward to a continuing flow of results from Hot Maden.
North River Resources (LON:NRRP) 0.375 pence, Mkt Cap £7.2m – Reconstruction
• North River Resources ‘NRR’ has outlined plans to take the company into production as fast as is practically possible.
• Management are looking for second hand equipment for the mine and are ‘advancing into engineering of the defined processing plant flow sheet’.
o The team are looking to finance the mine through a combination of debt and equity with the company.
o The new minister of Mines and Energy in Namibia, the Honorable Obeth Kandjoze, and the Governor of the Erongo Region, the Honorable Cleophas Mutjavikua recently visited the mine including its underground infrastructure as part of their tour of mines in the region. We do not envisage any problems with permits for the new mine.
§ NRR is backed by Greenstone, a specialist mining fund which is committed to US$12m of funding and is supporting the company in its drive toward production. We expect Greenstone to be instrumental in ensuring the mine and its working capital needs are adequately funded.
§ A recent DFS gives the mine an initial mine life of 3.5 years with annual ore throughput of 250,000 tonnes for production of 19,100t of zinc/lead in concentrate plus 280,000oz of silver.
§ Greenstone’s firm and guiding hand could enable the mine to restart this year at relatively low capital cost.
PolyMet* US$1.30c, Mkt Cap US$340m – Prelim final EIS completed and now being reviewed by agencies before publication of final EIS
• Polymet have reached a major milestone in the application process to attain a full mining license for the NorthMet copper / nickel (polymetallic) mine in Minnesota.
• The Co-lead and Cooperating Agencies are reviewing the Preliminary Final Environmental Impact Study ‘PFEIS’ and should sign off on the study shortly prior to publication of the final EIS.
• The study and the mine plan set new standards for environmental protection and consideration to safeguard air, water, land and communities around the operation.
• Furhermore, restarting the Erie Plant will enable Polymet to remediate a number of legacy environmental issues to benefit the environment and local communities.
• The Erie Plant is located near Hoyt Lakes on the Mesabi Iron Range of northeastern Minnesota.
• The Co-lead agencies are The Minnesota Department of Natural Resources, the U.S. Army Corps of Engineers and the U.S. Forest Service.
• The U.S. Environmental Protection Agency and three Minnesota Chippewa bands have participated as Cooperating Agencies with the Minnesota Pollution Control Agency also involved.
• The PFEIS incorporates analysis of and responses to approximately 58,000 comments on the supplemental draft EIS and the review now has a ‘EC-2 rating’ among the highest rating for a proposed mining project.
• The Polymet team reckon the final EIS will be published in about three months and we expect the full mining license to be awarded early next year.
• Construction of the Northmet mine and the refurbishment of the Erie plant will involve thousands of contract workers with longer term employment for hundreds more at a time when the steel industry of Northern Minnesota is laying off workers due to low prices and imports from China.
• This is a great time from Polymet’s perspective to start the refurbishment and construction of the mine before the talent and expertise of skilled workers on the iron range dissipates to neighbouring states.
o The depressed state of the mining industry should allow Polymet to make significant capital savings on the cost of new equipment and machinery and to part fund the project using forward financing from equipment manufacturers like CAT. CAT just announced significant layoffs due to falling orders.
Conclusion: Polymet and state agencies have worked hard in the preparation of the environmental report to ensure best practice for the new mine. The report sets new standards for mining on the iron range and should allow the smooth progression to the award of the mining license. Construction of the mine can not start soon enough for workers and contractors being laid off on the iron range and for support industries which are suffering from the downturn.
*SP Angel act as advisors and UK brokers to Polymet