INTRODUCTION
In the news: Armour Energy (ASX:AJQ) /Origin Energy (ASX:ORG), Coal Stocks & Metminco (LON:MNC)
Armour Energy is set to buy a number of assets on the Roma Shelf in the Surat Basin, Queensland, from Origin Energy (ORG AU) for A$10m in cash and A$3m in deferred consideration. Origin Energy has been advised by RFC Ambrian on this deal. This is the second major deal for Armour in as many weeks. It includes the Kincora gas, LPG and condensate processing facilities, a dedicated pipeline to the Roma to Brisbane pipeline at Wallumbilla and the Newstead gas storage facility. The assets also include a number of oil fields with associated facilities. To see the full announcement, please click here.
We saw news out last week that the ‘legendary’ investor George Soros has been buying shares in Peabody Energy and Arch Coal. A few theories are washing around. One is that Soros was short covering, while another is that he has abandoned his wishy-washy leftie-green credentials after pledging to spend US$1bn of his own money on renewable energy and funding the Climate Policy Initiative (CPI) think-tank.
It’s fair to say that the purchases were not large. It was just US$2.25m in Peabody and US$188,000 in Arch, but the share prices of coal stocks are more or less rock-bottom right now, so there is clearly more upside potential than downside risk. Peabody (BTU US) traded at US$0.99 on 28 July and had bounced to US$2.70 on 31 August after the filing was made on the back of the Soros trade. Peabody shares traded at a high of US$73.95 on 4 April 2011.
While environmentalists argue that coal’s importance in the energy mix is dwindling, it still produces 40% of the energy in the US. This is down from 50% ten years ago, largely due to cheap shale gas, but coal is still extremely significant; with a lot of US shale supply being marginal to loss making at these prices, it’s difficult to believe that gas supply is going to increase.
METALS & MINING EQUITIES
Metminco*† — 1H15 Report — The dual ASX- and AIM-quoted copper developer focused on South America has released a report for the half year ended June 2015. The key highlight during the period was the completion of a mining study on the Los Calatos copper porphyry project in Peru, which yielded a 50% capex saving relative to the previous 2013 study. The 2015 study focused on delivering a smaller 45,000tpa operation from the higher-grade hydrothermal breccias within the Los Calatos porphyry complex, more aligned with current market conditions. Key parameters from both the July 2015 and August 2013 studies are given below.
At a copper price of US$3.00/lb and a molybdenum price of US$11.15/lb, the new study gives a post-tax NPV8 for Los Calatos of US$285m, with a 5.3 year payback. Decreasing the cut-off grade from 0.75% to 0.50%, as would be appropriate in a higher copper price environment, would provide substantial upside, increasing the size of the Los Calatos mineral resource to 352Mt at 0.76% Cu and 318ppm Mo. The current total resource stands at 129Mt, with an approximately 73% conversion rate from mineral resources to tonnes mined.
Regarding the Mollacas copper heap leach project, in early August 2015 the Chilean Supreme Court agreed to hear the company’s appeal against the July 2015 Constitutional Court decision regarding access disputes at the project. The company is looking to have its access rights reinstated over the project area and, if successful, intends to fast track the project to development. Alongside seeking a legal solution, the company is continuing to attempt to negotiate a settlement with the relevant landholder regarding mining access to the property. The Mollacas Project has a mineral resource of 15.5Mt at 0.51% Cu and 0.13 g/t Au (cut-off grade of 0.2% Cu) consisting of a Measured mineral Resource of 11.2Mt at 0.55% Cu and 0.12 g/t Au and an Indicated mineral resource of 4.3Mt at 0.41% Cu and 0.14 g/t Au.
RFC Ambrian Comment: Pending resolution of the appeals process at Mollacas, Los Calatos remains Metminco’s primary focus, and the company is looking to advance the project towards feasibility, contingent on funding. An infill drilling programme has been planned to convert the first ten years of mineral resources into the Measured and Indicated categories. This will be associated with metallurgical sampling and the collection of geotechnical information required for the development of the planned underground mining operation. The company also plans to undertake exploration drilling at the TD2 exploration target adjacent to the main Los Calatos deposit, and initiate an environmental baseline study leading towards the longer-term completion of an Environmental Impact Assessment.
The loss for the half year stood at A$1.9m (including a A$0.5m write-off for evaluation, due diligence and exploration expenses). The cash position rose during the period from A$1.2m to A$2m due to a capital raising of A$4m (post-costs), and the company benefits from a debt-free balance sheet.