Ariana Resources (LON:AAU) – update
Caledonia Mining (LON:CMCL) – Quarterly Dividend
Medusa Mining (ASX:MML) – Progress on New Service Shaft at the Co-O Mine
North River Resources (LON:NRRP) – shareholder comments
Vast Resources (LON:VAST) – Agreement to acquire 50.1% of Manaila mine, Romania
Greece – what if Greece defaults and carries on just fine?
• Sure there will be a few gut wrenching headlines of starving street children in Athens and something about hospitals running out of drugs
• But what if those clever Greeks have enough cash stashed under their mattresses to keep going and the hospitals, some of which have been charging in cash have also made provision?
• The Greeks appear quite sanguine about the ATM cash limits suggesting that Greek residents are well prepared for the default with a well-developed black economy and overseas bank accounts. Strangely all government measures are focussed on the ‘official’ economy with little public will to tackle the ‘unofficial’ sector.
• The net wealth of median Greek households was estimated to be just over €100,000 in 2013 which is nearly twice the €50,000 estimated for Germany, though the figures may well change.
• Though the Mean household net wealth for Germany is close to €200,000 vs Greece at just under €150,000, highlighting the presence of a proportion of very poor Greeks.
• A few stories of hardship in Greece may fail to deter other indebted nations from following suit and we may fall into a new paradigm of democratic nations disowning the debt racked up by their political leaders? After all who would lend to a politician?
Copper – 400,000 contracts traded SFE (Shanghai Futures Exchange) yesterday, double the normal daily level on news of the withdrawal of the China Chaos fund from its short positions
• Copper prices fell 3.7% through the day in Shanghai as investors piled on bets against the metal as the China Chaos fund pulled back following reports of investors withdrawing funds following a 30% fall in the stock market.
• China is seeing slow demand as manufacturers shutdown for their summer break, maintenance schedules and on some environmental closures. More polluting furnaces may never reopen.
Economic News
Dow Jones Industrials -0.26% at 17,684
Nikkei 225 +1.31% at 20,377
HK Hang Seng -1.02% at 25,025
US – Services PMI climbed in Jun but came short of expectations.
• ISM non-manufacturing PMI: 56.0 v 55.7, the lowest in a year, in May and 56.2 forecast.
• Economic new due today:
o May JOLTS job openings (5,300k v 5,376k in Apr)
China – Chinese stocks continue to slide today with more than 200 listed companies reporting trading suspension.
• It is estimated 760 companies or a quarter of all A-share listed companies on Shanghai and Shenzhen exchanges suspended trading in the past week.
• Shanghai and Shenzhen composite indices were down 1.3% and 5.3% over the trading session.
• Given high percentage of retail investors trading in the marketplace there are concerns that a c.25-35% correction in the stock market will see a significant contraction in the consumer spending translating into a drag on the nation’s economic growth.
UK – Car registrations hit record high in H1/15 rising 7%yoy to 1.38m units.
• “Low interest rates and attractive finance deals, combined with a wealth of new models featuring the latest technologies, have continued to encourage consumers to purchase new cars,” the report read.
• Jun was the 40th consecutive month of growth for new registrations.
• British cars accounted for 13.9% of the total, marking the highest percentage in five years.
Australia – The RBA kept inter3est rates on hold at 2%, in line with estimates.
• The Australian dollar jumped on the release of the announcement but lost its gains through the day with AUDUSD down at 0.7456 v 0.7495 following the press release.
• The Board maintained their view that further depreciation in the Australian dollar “seems both likely and necessary”.
• Interest rates have been cut twice so far this year (Feb and May by 0.25pp each).
Greece – The ECB has tightened collateral requirements in exchange for ELA funds, according to the FT.
• It does not report the scale of the adjustment with the cap on the ELA retained at €89bn.
• Local banks will remain closed until Thursday.
• The ECB may be looking to ask eurozone leaders to guarantee Greek government debt for the use of collateral to keep the ELA available to Greek banks.
• Mr Tsiparis is set to present new set of bailout proposals at the summit in Brussels today.
Tanzania – Court finds former Finance Minister and former Energy and Minerals Minister corrupt
• A Tanzanian court has found Basil Mramba, the former Finance Minister and Daniel Yona, former Energy and Minerals Minister corrupt in dealings on gold auditing.
• The ex-ministers were accused of abusing their positions to wrongly audit gold production in the country in 2002.
• The audit contract was also illegally extended for two years after its expiry in 2005.
• As a result of the audit, government taxes had been underpaid.
US$1.1099/eur vs 1.1070/eur last Thursday. Yen 122.83/$ vs 122.53/$. SAr 12.495/$ vs 12.408/$. $1.553/gbp vs 1.556/gbp
US$0.744/aud vs0.751/aud
Commodity News
Precious metals:
Gold US$1,168/oz vs US$1,165/oz yesterday – South African miners reject the first pay offer made by companies last week.
• Producers proposed a five year deal with annual wage increases of 13% in addition to a share of profits.
• Union members demanded 84% increase for underground workers, 11% for surface employees and 15% for artisans, miners and officials.
• The AMCU, NUM and UASA all rejected the proposal.
Platinum US$1,058/oz vs US$1,065/oz –
Palladium US$682/oz vs US$675/oz –
Silver US$15.64/oz unch vs US$15.64/oz
Base metals:
Copper US$ 5,486/t vs US$5,571/t – ‘Shanghai Chaos’ fund closes short position on last week’s fall in the Shanghai stock market
• The fall in the Shanghai Composite caused investors to pull funds out of other markets and funds precipitating the closure of the funds huge short positions
• The FT speculated that the fund may have been forced to return funds to investors, maybe to cover losses in other areas
• This and other new Chinese hedge funds are increasingly influential in commodity trading, increasingly interconnecting Chinese and global markets.
• There is a 5% daily limit on the Shanghai Futures Exchange giving some protection against market manipulation and dramatic moves.
Aluminium US$ 1,691/t vs US$1,693/t
Nickel US$ 11,450/t unch vs US$11,610/t –
Zinc US$ 1,996/t vs US$1,987/t –
Lead US$ 1,753/t vs US$1,737/t
Tin US$ 14,175/t vs US$13,975/t
Energy:
Oil US$57.4/bbl vs US$59.4/bbl
Natural Gas US$2.771/mmbtu vs US$2.746/mmbtu
Uranium US$36.30/lb vs US$36.30/lb –
Bulk commodities:
Iron ore 62% Fe spot (cfr Tianjin) US$49.00/t vs US$54.00t – Big move down as China continues to shut blast furnaces and stockpiles build at ports
• Question is are these furnaces shutdown for the long term and are the Chinese serious about enforcing environmental controls
Thermal Coal $58.2 unch vs $58.5 cif ARA Europe –
Tungsten - APT European prices price $225.0/mtu yesterday vs $217.5/mtu on Friday
Lithium – Researchers in South Korea have also nearly doubled the capacity of a lithium-ion battery by using a graphene coating through improving the cell’s electrical conductivity and preventing damage within the cell.
• Korean researchers have created a lithium-ion battery made from a porous solid - www.newelectronics.co.uk
• The team are using a honeycomb like structure to boost lithium-ion performance and cut the risk of overheating without the use of separators within the battery
• The molecules have 1D channels running through them, measuring 7.5Å on average. The porous structure enables the lithium ions to diffuse more easily
• Cycle tests shows no thermal runaway between 25 and 100°C for four days and hardly any change in conductivity.
• The framework may potentially enable lithium air batteries.
Company News
Ariana Resources (LON:AAU) 1.2p, Mkt Cap £7.9m – update
Hold
• Ariana Resources slipped out yet another update yesterday at 12:00, though perhaps we should not be surprised as the company or its advisors seem incapable of reporting RNS announcements at 7:00/8:00 on a regular basis like most other resources companies.
• The RNS states that 100% of the freehold land in the tailings dam and process plant sites of Red Rabbit Project has been acquired meaning that 95% of the land required has now been purchased.
• The company states “Permission to utilise Treasury (Government) lands within the project area has been granted.
• The Environmental Impact Assessment area has been increased and granted following an application to the Ministry of Environment and Urban Planning.
• Final quotes are being obtained from mining contractors, ahead of mobilisation to site following construction start-up.
• The timing of start-up is contingent on the felling of trees by the Department of Forestry primarily in the process plant and tailings dam locations.”
• Let’s hope the Department of Forestry are quicker at felling trees than issuance of the long awaited Forestry permits
• The statement all sounds well and good till the ceo’s comment which rather hopefully targets the project’s first gold pour for H2 2016. This would be a tough target for many, more adept, gold mining companies but we hope it doesn’t show the same misplaced optimism as previous targets.
*The author of this report has previously visited the Red Rabbit project
Caledonia Mining (LON:CMCL) 53 pence, Mkt Cap £27.6m – Quarterly Dividend
• Caledonia Mining reports its C$0.015 quarterly dividend is to be maintained with payments due on 31st July to sharehoders of record on July 17th.
• The company has an established policy of paying annual dividends of C$0.06/ share on a quarterly basis. “It is currently envisaged that the existing dividend policy of 6 cents per annum, paid in equal quarterly instalments will be maintained. Caledonia will continue to maintain its strong financial position so that it can implement its stated growth strategy without the need to raise third party finance.”
Medusa Mining (ASX:MML) A$0.805, Mkt Cap A$167m – Progress on New Service Shaft at the Co-O Mine
Buy Target Price Under Review
• The company have updated on the service shaft being constructed to Level 8 which will free up the L8 shaft for ore capacity.
• The men and materials service shaft is expected to be installed by Q2 2016.
• The announcement shows a schematic work completed to date and work that is due to be completed.
• The 2m x 2m Alimak raise (the vertical excavation that leads to a raise) is 70% complete (250m out of 350m) from Level 8 to Level 3.
• The shaft headframe, main winder and sinking equipment are scheduled to arrive in Q4 2015 and once installed will be used to widen the shaft to its final size of 3.2m by 3.65m.
• Once this shaft is completed, all men and material will be moved to the service shaft leaving the L8 shaft to achieve planned capacity of 1,700 tpd.
Conclusion: Having the new services shaft in place frees up capacity in the L8 shaft and will enable the company to achieve the mining rate to be more in tandem with the mill expansion to 2500 tpd. Guidance for FY 2015 is 95-100 oz (June year end) with 71,817 oz achieved in three quarters already. For next year guidance steps to 120-130,000 with AISC of US$960-US$1060/oz – the latter should come down as mining and milling run more efficiently.
At the lower end of production targets for next year (120,000 oz) and the upper end of AISC, the company should be generating cash of around US$17m pre capex and post discretionary exploration at a US$1,200/oz giving strong valuation support. We remain buyers.
North River Resources (LON:NRRP) 0.37 pence, Mkt Cap £7m – shareholder comments
• We commented on the 2nd July on the voting down of Resolution of Special Resolution 8 at the NRR AGM.
• A shareholder has written to us to state that the resolution was voted down by an action group.
• The shareholder states: “The voting down of Resolution 8 was actually inspired by a group of highly motivated shareholders who are hugely dissatisfied with the company’s recent progress (or lack of it) and who were aware that if Resolution 8 was passed, the company could be effectively given away to institutional investors for next to nothing. A former director may or may not have been contacted by the group and may or may not have added his vote against Resolution 8, but no current or former directors of NRRP have any connection at all with any action group nor have they been involved in any malicious campaign to derail the company’s ambitions.”
o We agree that shareholders have every right to be disgruntled and we normally support their action.
o Typical large corporation / Chinese intransigence appears to have locked up the NRR shares in their portfolio leaving the only real option for NRR directors to be to dilute them down.
o In comes Mark Sawyer of Greenstone Capital. Sawyer was formerly at Xstrata and knows how to build a mine or two. The Greenstone fund has sufficient resources to back NRR and to help it build the Namib lead/zinc mine, a value building proposition in our view.
o In our view, Greenstone should be seen as a saviour for the company and the board should be free to press ahead with the development of the mine as this should provide the quickest route to developing value for all shareholders going forward.
o We understand the activist shareholder group are in communication with NRR management and hope all are working towards an equitable solution. We hope they will allow the company to push ahead to fund the mine development at the earliest opportunity perhaps with a less aggressive equity issue.
Vast Resources (LON:VAST) 1.725 pence, mkt Cap £23.4m – Agreement to acquire 50.1% of Manaila mine, Romania
• Vast Resources reports that it has concluded an agreement with Mr Ni Jin Ming (the Vendor) to acquire a 50.1% interest in the Manaila polymetallic mine in Suceava County, northern Romania. The transaction is subject, amongst certain other conditions, to “the production of a number of certificates from the Romanian government and other agencies”
• Vast Resources will acquire 50.1% of the shares of Sinarom Mining Group, the owner of the mine, for €1 plus the assumption of debts of approximately $384,650 due by Sinarom to Zheng Yuaning (the historic offtake partner for the Manaila mine) and to Shi Xu Ming, the former manager of the mine.
• In total, it has been agreed with the vendor that the debts of Sinarom amount to US$724,000. In the event that debts exceed US$770,000, the vendor has agreed “to transfer to Vast as a penalty, one per cent of the 49.9 per cent of the issued capital of Sinarom retained by the vendor for each US$14,000 by which the debts exceed US$700,000.”
• Vast Resources “will also assume 50.1 per cent of all receivables due to the Vendor, being in total approximately US$4,500,000 (“Shareholder Loan”)”.
• The Manaila mine has a Russian resource (unclassified) of 1.8m tonnes at an average grade of 0.95% lead, 1.86% zinc, 1.17% copper, 0.63g/t gold and 45.97 g/t silver. Approximately 0.35mt of this resource (grading 1.1% lead, 2% zinc, 1.25% copper, 0.7g/t gold and 50g/t silver is reported to be available for continuation of the current open pit mining over the next 3 years at a rate of 10,000 tpm.
• In order to expedite production, “Vast intends to exercise its right under the Pre-Sale Agreement to lend money to Sinarom in advance of Completion, … in order to eliminate the inefficiencies of the previous mining opertation and also to commence the programme of capital expenditure as set out in the announcement of 10 June 2015“ (approximately US$1.69m).
Conclusion: The acquisition of the Manaila mine is in addition to Vast Resources’ acquisition of the Baita Bihor mine in Romania, which is also owned by Mr Ni Jin Ming. The Company recently announced the start of small scale gold production at its Pickstone Peerless mine in Zimbabwe, however it appears that the focus of activity is increasingly moving towards Romania.