China – Yuan sees largest one day fall as China’s central bank devalues the currency
Metals rise as dollar weakens following good run in the currency
• China’s central bank cut the daily Yuan reference rate by 1.8% - referring to the move as a ‘one-time’ adjustment
• The Yuan went from 6.2119 to the US dollar to 6.3250
• The PBoC had been supporting the Yuan to keep pace with the US dollar.
• We believe the PBoC have allowed the readjustment to help Chinese manufacturers to export goods which they are not able to sell into weaker domestic markets
• We wonder how many more ‘one-time’ might be needed to restore profitability to inefficient Chinese industry
Precision Castparts
• Warren Buffett’s deal to buy Precision Castparts is a landmark deal for Berkshire Hathaway and an interesting deal for the US Aerospace industry.
• The deal catches the market at a time when US manufacturing industry is recovering from the shocks of the Global Financial Crisis and with strong forecasts for single aisle aircraft demand.
• Precision Castparts specialises in the manufacture of components for industry, two thirds to aerospace with much of the rest to power stations, oil & gas and automotive mainly in the US.
• Aerospace is a major US exporter but may come under increasing pressure from overseas manufacturers as the US dollar continues to strengthen.
• The company produces castings and precision parts made from a variety of metals and their alloys. It’s effectively like being a supplier to Rolls Royce but this is not an easy business to run and many competitors have struggled in recent years.
• Eramet, a listed but quasi-French government owned company, runs ‘Albert Duval’, a similar but smaller metallurgical business which supplies Airbus with super alloys for aircraft manufacture. Albert Duval is a similar and no-less critical business within Eramet in our view.
• ‘Special Metals’, is another similar business based in the US which incorporated Inco Alloys International
• Technological change, means the manufacture of some parts will move towards 3D printing particularly when the metal alloy powders needed for laser sintering become more widely available. This may be good for Precision Castparts or it may allow Boeing and Airbus to manufacture more of their own parts in house.
• If new alloy metal powders being developed are able to compete with the super alloys produced under high pressure in the world’s largest hydraulic presses this might cause a revolution in the cost of manufacture of specialist parts as well as reducing wastage and significantly improving the environmental performance of manufacture.
• Metallurgy is a business with has developed very slowly over the past 150 years, it is now time for this business to start to develop much faster.
Economic News
UK – Money Advice Trust warns that >1m UK home owners have never experienced a mortgage interest rate rise. The trust warns that home owners have only a ‘short window’ for home owners to organise their finances. The advice comes a week after the governor of the Bank of England warned that a rise in the Bank Rate was drawing closer.
Zimbabwe – Suspends 15% tax on raw platinum exports
• The Minister of Mines is said to have suspended tax on platinum exports giving mining companies time to set up smelters and refineries in country.
• The mining companies – Amplats, Implats and Aquarius Holdings are to be given two years to implement plans.
US$1.1031/eur vs 1.0964/eur last week. Yen 124.88/$ vs 124.65/$. SAr 12.723/$ vs 12.680/$. $1.5595/gbp vs 1.5475/gbp
US$0.7333/aud vs0.7370/aud. US dollar weakens on recovery in Chinese stock market
Commodity News
Precious metals:
Gold US$1,113/oz vs US$1,097/oz last week
Platinum US$994/oz vs US$972/oz last week
Palladium US$618/oz vs US$602/oz last week
Silver US$15.36/oz vs US$14.96/oz last week
Base metals:
Copper US$ 5,230/t vs US$5,183/t last week
Aluminium US$ 1,585/t vs US$1,594/t last week
Nickel US$ 10,835/t unch vs US$10,965/t last week
Zinc US$ 1,845/t vs US$1,880/t last week
Lead US$ 1,735/t vs US$1,731/t last week
Tin US$ 15,500/t vs US$15,285/t last week
Energy:
Oil US$50.32/bbl vs US$48.55/bbl
Natural Gas US$2.824/mmbtu vs US$2.834/mmbtu
Uranium US$36.00/lb unch vs US$35.95/lb – prices continue to rise as Japan restarts first nuclear reactors following a two year shutdown
Bulk commodities:
Iron ore 62% Fe spot (cfr Tianjin) US$54.30/t unch vs US$54.20t –
Thermal Coal $55.4 vs $55.4 cif ARA Europe –
Tungsten - APT European prices price $215.0/mtu unch vs $220/mtu – Price range pulls back to $210-220/mtu vs $210-230/mtu previously
Company News
Aureus Mining (LON:AUE) 20.375 pence, Mkt Cap £74.7m – Q2 Results to June 2015
• Aureus Mining reports a quarterly loss of US$2.1m for the three months to 30th June bringing the loss for the year to date to US$5.1m.
• The period reflects the final stages of the construction of the New Liberty gold mine in Liberia where the mine poured its first gold in June and is currently commissioning. New Liberty is on course to achieve commercial production in Q$ and to reach its planned 120,000 oz per year of gold production rate by early next year.
• Investment, largely on mine and plant construction costs amounted toUS$32m during the six month period, however, with proceeds of the US$15m shares issued to the IFC and others earlier this year and the additional drawing of $20m loan from the debt facility, Aureus holds US$21.1m in cash leaving net debt of US$71.7m.
Conclusion: Aureus Mining is delivering the New Liberty mine against a backdrop of difficult conditions in the commodity market and despite the Ebola epidemic in Liberia. We look forward to the move from commissioning into full commercial production later this year.
Eurasia Mining (LON:EUA) 0.875p, mkt cap £10.8m – Drilling underway at Monchetundra
• The company has announced that it has now started a 4,000m drilling programme to “add and detail the reserves and resources at the West Nittis PGM deposit” within the company’s Monchetundra PGM licence area in Russia’s Kola Peninsula.
• A drilling programme focussed on the West Nittis area in 2013, identified a zone of PGM mineralisation with associated copper over an area of approximately 1100m by 700m.
• The current work will form part of the plans to lodge a Mining Licence application.
• The company has another PGM project at its 75% owned West Kyltim alluvial platinum project. Eurasia Mining comments that “the significant progress at West Kyltim has overshadowed other projects and this work announced today should, we believe, significantly increase the the value of Monchetundra. Furthermore, our commitment to progress work at Monchetundra and move the project up the value chain enables us to build project value whilst finalising discussions with third parties who have expressed interest in the project recently.”
Conclusion: The company had previously announced its intention to drill the West Nittis project and we welcome the start of this programme, however we remain concerned that while it is moving ahead at West Kyltim as well it may become overstretched.
Metals Exploration* (LON:MTL) 4.375 pence, Mkt Cap £60.2m – Commissioning and Funding Update
• The company have started the staged commissioning of the Runruno project with front end commissioning advanced.
• Commissioning has started on the ROM crusher, apron feeder, conveyors, mill and gravity, flotation cells, air services, switch-rooms, cooling towers and water services.
• So far the technical aspects of the plant are said to be on target.
• Operational permits for the plant are taking longer than expected to obtain.
• Stage 1 of the residual storage impoundment (RSI/tailings) is finalised and by mid-August Stage 2 is expected to be near completion.
• Before the facility is fully operational, finalisation of the discharge pipe from and the return pipe to the RSI need to be completed and project discharge permits issued.
• Completion is dependent on the time for operational permits to be issued by the relevant government agencies.
• Without all the necessary permits in place, the plant cannot move from commissioning into operations.
• As a result the company is putting into place additional funding arrangements with their shareholders to meet any potential working capital gap.
Conclusion: The management team are working hard to secure the operational permits so that the plant can move from the commissioning stage to full operations. The front end commissioning is advanced, however, timing will depend on the permitting agencies and the company have not been given a specific time line to achieve these permits. This introduces uncertainty on timing for production to start.
In the meanwhile, the company are in discussions with their majority shareholders to put into place funding arrangements to cover any potential working capital short fall.
*SP Angel acts as broker to Metal Exploration
North River Resources (LON:NRRP) 0.20 pence, Mkt Cap £3.8m – Funding proposal may take Greenstone’s stake to over 30%
• North River Resources ‘NRR’ are planning a US$4m funding advance the potential for development of the Namib lead mine in Namibia
• The ‘Phase one’ funding of $4m is to be spent on front end design work, some early development work on the decline, some underground development work to create access for the next phase of resource drilling, recruitment and the sourcing of plant and equipment.
• The funding is to be done in two stages with Greenstone contributing $1.2m for 10% convertible loan notes due 2018.
• A placing and open offer is then planned to raise up to $2.8m in a funding planned for September. The placing and offer is conditionally underwritten by Greenstone.
• The funding is structured so that Greenstone’s shareholding will remain under 29.99% assuming Greenstone are not required to take stock as party of their underwriting commitment.
• We reckon Greenstone will end up taking stock as part of their underwriting commitment and will therefore end up with a holding of over 29.99% when the Tranche One notes are converted. The Greenstone convertible converts at the lower of the issue price or the US$0.0046413 conversion price using the published FT exchange rate.
• The company are also looking for a further $2m of funding for working capital headroom. Management will seek approval for this at a General Meeting to be held on 28th August in The City, London. We suspect this will be another eventful meeting though we hope shareholders might allow management to get on with funding the project.
• Risks:
o The funding assumes the company should receive its mining license before end October 2015.
o The $2m required for working capital might not be authorised at the General Meeting.
o Resource drilling to be done using phase one funds may not give the desired results.
o The company may decide not to develop the mine.
o The company and its shareholders may struggle to agree on an acceptable funding for the development of the mine if management decide to go ahead with construction.
o If the Resolution is not approved then the Greenstone subscription will not happen and the company will need to seek alternative sources of financing.
o NRR has around $500,000 of cash at present which is seen as insufficient to continue development of the project
o Greenstone has put in $6m to date in two tranches and remains a supportive and committed shareholder. Greenstones total potential commitment in this funding could be $4m if investors leave Greenstone with unallocated stock in the placing. Investors should not want to lose this support.
o Greenstone will take an effective fee of 5% (up to $200k) on its funding.
o Greenstone may seek a waiver from the Takeover Panel to take its shareholding over 30% with the approval of the majority of independent shareholders
• Capex: The company now envisage a total funding requirement of between $25-30m for the commissioning of the Namib lead zinc project. $4m of this is in the Phase One funding described above and $21-26m to be funded mainly by bank financing supported by further equity following the issue of the mining license.
• We are concerned that the cost of evaluating and developing the Namib mine appears to have risen and hope management are either able to see greater value in the project or might be able to reduce the overall capital cost through careful capital control.
• 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. Perhaps the drilling might extend the initial mine life as well as the forecast returns on the project in this lower price lead and zinc environment.
Conclusion: We are interested to see the new forecast capital cost estimates. Management are committing the company to finding more ore resource to support bank financing for the enlarged project.
Stratex International plc (LON:STI) 2.15p, Mkt cap £10m – Exploration identifies a wide zone of gold mineralisation extending over 1.2km at Madina Bafe in Senegal
• Stratex International reports results from a programme of mapping sampling and trenching on the 85% owned, 472.5 sq km, Dalafin prospect located within the Kedougou- Kenieba inlier in Senegal.
• The programme, which covered the Madina Bafe prospect within the southern part of the licence area, has identified a north-east trending shear zone around 30-45 metres wide containing gold mineralised vein sets over a strike length of at least 1.2km and remaining open towards the east..
• The company has recovered 649 channel samples from 5 trenches extending over 1,052metres and sample results include intersections of 4m averaging 1.4 g/t gold and 6m averaging 0.86 g/t in trench MBT -005 and 1.2m averaging 1.14 g/t and 1 m averaging 1.77 g/t in trench MBT-003.
• The results follow up on earlier work which included RAB, RC and diamond-drilling and yielded higher grade intersections including a 9.6m wide intersection averaging 16.08 g/t gold in hole MBDD-002.
• On the face of it the trench samples are relatively low grade, however the company points out that these samples were taken from the weathered zone “and it is probable that the modest gold grades actually reflect leaching of the gold in the weathered part of the regolith profile.” This hypothesis is supported by the earlier, higher grade drilling intersections as well as grab sampling of the quartz-tourmaline veins undertaken during the current exploration campaign which “commonly return elevated gold assay values up to 22.24 g/t Au.”
• The company is considering follow up trenching during Q4 and the possibility of further drilling next year.
Conclusion: The results from the Madina Bafe prospect at Dalafin point to a wide, laterally extensive zone of gold mineralisation associated with sheeted quartz tourmaline veins and breccias within an area which hosts a number of substantial gold deposits including Randgold’s Loulo mine in Mali (where mineralisation is also associated with tourmalisation) and Iamgold’s Boto prospect located immediately east of Dalafin. We look forward to further news as the exploration programme develops.