Moodys published their latest outlook for base metals with a weak outlook and a negative outlook for the sector
• Moodys continue to see a weak outlook for base metals on the basis of slowing growth in China and Brazil, muted conditions in Europe and weak recovery in the US.
• Uncertainty regarding growth in China is one of the primary factors underpinning their negative outlook.
• The agency could change their outlook for the industry to stable if “purchasing managers’ indexes in Europe, China and the US, the key consuming regions, track between 50 and 55 (above 50 indicates growth) for at least two consecutive months, and if Moody’s global macro outlook is for GDP growth of between 3 and 4%.”
Lithium Batteries – new silicon anode raises lifespan and capacity of lithium-ion batteries
• Scientists have developed a new type of silicon anode to replace graphite which gives greater capacity and longer lifespans
• The new batteries are lighter and longer lasting mainly due to Silicon’s ability to store more than 10x the power of graphite in cells
• The problem with silicon is its expansion within the battery which can crack the surrounding lithium
• The solution is to use silicon in nanoscale form and possibly with graphene and carbon nanotubes to create a robust nanoarchitecture
• The resulting battery design has 2x the capacity with claims of a 40-60% increase in energy density of conventional Li-Ion batteries.
Economic News
China – Industrial profits declined for another month in Sep although at a reduced pace.
• Industrial production: -0.1%yoy v -8.8%yoy in Aug.
• The sector remains in a fragile condition with four monthly consecutive declines recorded through Sep.
US – New home sales fell 11.5%mom in Sep highlighting volatile nature of the gauge.
• The year to date rate of new home sale (not seasonally adjusted) is up 17.6%yoy.
• Durable goods orders are due later today with estimates for another monthly decline as stronger US dollar and weaker overseas demand weigh on local economic activity.
• FOMC is starting its two-day meeting today with the monetary policy statement to be released tomorrow.
UK – GDP growth slowed more than forecast through Q3/15 led by weak manufacturing (-0.3%qoq) and construction (-2.2%qoq).
• Services sector contributed the most to a positive reading climbing 0.7%qoq.
• Q3 GDP: 0.5%qoq/2.3%yoy v 0.7%qoq/2.4%yoy in Q2/15 and 0.6%qoq/2.4%yoy forecast.
Spain – Mortgage lending grew in Aug marking a 15th consecutive monthly increase pointing to a recovery in the property sector.
• The value of outstanding mortgage lending increased 22.2%yoy in Aug v a 47.8%yoy growth in Jul.
• The gauge slipped in the negative growth territory in late 2007 posting losses through Mar/14.
Currencies
US$1.1046/eur vs 1.1028/eur yesterday. Yen 121.46/$ vs 121.03/$. SAr 13.672/$ vs 13.660/$. Sterling $1.533/gbp vs 1.535/gbp
0.724/aud vs 0.726/aud –
Commodity News
Precious metals:
Gold US$1,166/oz vs US$1,166/oz yesterday – CIS countries add to their gold reserve holdings in Sep, according to IMF numbers.
• Kazakhstan bought 3.2t (c.100koz) in Sep growing its reserves for a 36th consecutive month. The nation’s reserves are estimated at 213.5t (6.9moz).
• Russia added 34.5t taking its reserves to 1,352.2t (43.5moz).
• Ukraine expanded its reserves to 27.1t.
• In addition to CIS region, China is estimated to have grown its reserves during the month with holdings at 1,709t as of Sep/15, up from 1,658t reported in Jul/15.
Platinum US$990/oz vs US$988/oz yesterday
Palladium US$680/oz vs US$681/oz yesterday –
Silver US$15.92/oz vs US$15.93/oz yesterday
Base metals:
Copper US$ 5,221/t vs US$5,232/t yesterday – Chinalco says the latest labour unrest at its Toromocho copper mine in Peru had no significant impact on production.
• Workers downed tools last week demanding a 8% increase in pay compared to a 4.2% offered by the Company.
• Estimates suggest the strike cost the Company 600t of foregone production a day. A relatively modest impact compared to a 200-210kt annual capacity.
Aluminium US$ 1,489/t vs US$1,514/t yesterday -
Nickel US$ 10,525/t vs US$10,545/t yesterday –
Zinc US$ 1,754/t vs US$1,764/t yesterday –
Lead US$ 1,759t vs US$1,765/t yesterday
Tin US$ 15,435/t vs US$15,495/t yesterday
Energy:
Oil US$47.40/bbl unch vs US$48.20/bbl yesterday –
Natural Gas US$2.004/mmbtu vs US$2.192/mmbtu yesterday
Uranium US$36.50/lb unch vs US$36.75/lb yesterday – China connects new nuclear reactor to power grid
• China General Nuclear connected its latest nuclear reactor to the Chinese grid last week
• This is China’s 28th operating nuclear reactor with another 23 under construction
• China plans to raise nuclear capacity to 58 GWe by 2020/21 and then to 150 GWe by 2030
• The reactors should start to replace demand for coal from coal fired generation plants
Bulk commodities:
Iron ore 62% Fe spot (cfr Tianjin) US$53.4/t vs US$53.5/t –
• Chinese ore stockpiles may grow should miners increase shipments as demand is expected to come down in Nov amid scaled back construction activity during winter.
• Port inventories are reported to have increased 0.9%wow to 83.95mt as of Oct 23 on Shanghai Steelhome numbers.
Thermal coal (1st year forward cif ARA) US$47.60/t vs US$47.10/t
Other:
Tungsten - APT European prices $170-190/mtu $175-195/mtu –
• Tungsten Mining has acquired Western Australian Tungsten assets. The Mt Mulgine and Bug Hill properties contain 88mt grading 0.17% tungsten with >150mt of contained tungsten.
• 2D laser technology - Tungsten disulfide is reported to be the most promising of materials for the next generation of 2D lasers. The only problem for tungsten producers is that the devices are using single molecular layers.
Ferrochrome – Benchmark charge chrome price for delivery in Europe at US$1.04/lb its lowest level since Q1/10.
Company News
Amur Minerals* (LON:AMC) 12.1p, Mkt Cap £55.4m – Infill drilling at Flangovy complete – resource upgrade and increase in average grades expected
• 14 additional infill drill holes completed on top of the existing 12 indicate the continuity of nickel/sulphide mineralisation over the 800m length of the Flangovy area.
• A total of 3,915m were drilled within 14 holes returning intersections with average nickel grades of 0.81% Ni and 0.21% Cu and average thickness of 26.0m per hole (15m per mineralised interval).
• A number of high grade pockets have been intersected during the programme with grades averaging in excess of 1.0% Ni.
• Nearly 80% of the drill defined metal is estimated to be contained within high grade structures with average grades of 1.03% Ni and 0.27% Cu.
• This mineralisation is expected to become the basis for the underground mining operation.
• Final assay results from Alex Stewart Laboratories are due in Dec/15.
• The Company targets the Maly Kurumkon/Flangovy resource update by the end of the year.
• The update will include both open pit and underground development options.
• After having finished infill drilling at Flangovy the team has now shifted its focus on exploration works at Maly Kurumkon.
• Infill drilling at Maly Kurumkon will continue as long as weather conditions permit with 6,000m remaining the objective for the year.
Conclusion: The focus of the current drilling programme was to improve the confidence in the Flangovy deposit converting a share of the current Inferred resource into the Indicated category by doubling the intensity of the grid spacing. With infill drilling programme at Flangovy now finished preliminary results point to a potential establishment of the Indicated resource in the area. While official ASL assays should be received before YE15, previous comparison of results from laboratory tests and on-site Niton X-Ray Fluorescence gun demonstrated close correlation between the two. Latest drilling results also suggest new resource Flangovy resource statement to record an increase in average grades (0.79% Ni in drill core v 0.55% Ni in the Inferred resource). Following the conversion, Flangovy may be included in the future reserves updates used to form the basis for the Kun Manie project development.
*SP Angel act as Nomad and Broker to Amur Minerals
Aquarius Platinum (LON:AQP) 11.50 pence, Mkt Cap £173.5m – Sharp reduction in PGM prices offsets production improvements.
• Aquarius Platinum has reported a quarterly loss of $12.3m for the September quarter, reversing a profit of $5m in the September quarter of 2014. At the mine level, the company reported an EBITDA of $2.5m for the quarter, a reduction of $12.3m from the September 2104 result.
• The reduction reflects a sharp decline of 29% over the year (down 14% qtr-on-qtr) in the US$ commodity price for the company’s basket of platinum group metals (PGMs) and offsets an 8% increase in production to 93,513 oz during the quarter.
• The company notes that “Quarterly production from Mimosa and Kroondal attributable to AQP is an all time company record.”
• A 19% weakening in the Rand/US$ exchange rate (down 6% qtr-on qtr) helped to lift revenues in Rand terms and contain costs at Kroondal which declined 1% to R9,123/oz on a quarterly basis and rose 1% on a the year. Costs at Mimosa remained unchanged from the previous quarter at $795/PGM oz (down 3$ year-on-year).
• At the Mimosa operation in Zimbabwe, Aquarius Platinum’s share of loss was $9m lower that the September 2014 figure at $2m.
• Capex required to “stay in business” amounted to $48/oz at Kroondal, $117/oz at Mimosa and $22/oz at the Platmile Tailings operation.
• Cash balances declined by $21m during the quarter to $175m.
Conclusion: On 6th October, Sibanye Gold made an offer to acquire Aquarius Platinum for US$0.195/share; “In the absence of a superior proposal and subject to an independent an independent expert concluding that the Transaction is fair and reasonable and in the best interests of Aquarius shareholders, the Aquarius Board has resolved unanimously to recommend that Aquarius shareholders vote in favour of the Transaction.” A shareholder meeting is expected to be held before the end of January 2016, and hence these could be the last quarterly results posted by an independent Aquarius Platinum.
Medusa Mining (ASX:MML) A$0.60, Mkt Cap $124.7m - Quarterly Update points to an improving trend at Co-O Mine
• The company delivered 31,495 oz for the quarter at an AISC of US$953/oz including discretionary exploration spend.
• The head grade achieved for the quarter was 6.8 g/t.
• Production is up 19% with head grades improving from the 6.01 g/t gold in the previous quarter.
• The mill seeing 94% recovery in line with the previous quarter remains underutilised at around 73%.
• Tonnes mined for the quarter were 166,620 wmt in line with the previous quarter with ore milled of 151,463 dmt up 4% from the previous quarter.
• Gold sold for the quarter was 31,176 oz for an average gold price of US$1,121/oz.
• Cash at the end of the period was US$11.6m – down US$3m from the previous quarter reflecting net cash movements in creditor/receivable accounts.
• As previously announced total ore reserves (based on JORC 2012) of 1.81 Mt at 7.33 g/t is 427,000 oz with ore resources of 3.5 Mt at 10.2 g/t for 1.15m oz.
• For FY 2015-2016 the company is guiding to 120,000 to 130,000 oz with an AISC of US$900-US$1,000/oz.
• Costs are expected to come down once full hoisting capacities are achieved in the mine.
• Work is progressing on the service shaft which should free up capacity on the L8 shaft.
• The headframe, main winder and sinking equipment for the service shaft are all scheduled to arrive during the Dec quarter.
• The rope guided man cage is scheduled to be installed in the second quarter of 2016.
• Once commissioned this will enable all men and material to be transferred to the Service Shaft from L8 shaft enabling the latter to reach its planned capacity of 1,700 tpd.
• Underground development continues on schedule with 7,269m of horizontal and vertical development completed during the quarter.
• The new stoping protocol and payment system based on tonnes blasted rather than trammed are being introduced progressively with nearly all stopes on the system now.
• This has helped in improving stope inventory and stope grades drawn.
Conclusion: These are good numbers from Medusa demonstrating that the hard work to turn around the performance of the mine is coming through. Production for the quarter was helped with an uplift in head grades with implementation of the new stoping protocol and payment system helping to improve stope grades drawn.
The freeing up of the L8 shaft once the service shaft is in place in the second quarter of 2016 will be another step in terms of ore availability and improved mill utilisation. This should help to bring down costs and improve cash flows. Work still needs to be done but it is good to see that performance is moving in the right direction – we remain buyers.
Minera IRL (LON:MIRL) SUSPENDED – VOTE FOR EGM resolution to replace directors of Minera IRL
• It is rare that as analyst we offer advice on the voting of EGM resolutions. It is even rarer that we should offer this advice so publicly.
• We have considered statements made by the company Minera IRL (London) and Minera IRL SA (Peru) a subsidiary of Minera IRL in London.
• Minera IRL SA (Peru) are proposing to replace the board of Minera IRL (London) with a set of new directors – we agree with their strategy and with believe this is in shareholders’ best interests.
• A former ceo, Daryl Hodges, was recently ousted in a shareholder vote – we believe shareholders cast their votes correctly in this move.
• Minera IRL (London) are trying to sack Diego Benavides, a founder of the company alongside the late Courtney Chamberlain.
• The board are going through a legal process in Peru to sack Mr Benavides on undisclosed evidence from a ‘whistle-blowers’ hotline in Peru – we believe this is the wrong thing to do as we see Diego Benavides as a dedicated, loyal and critically important character in the running of the mining operation in Peru and important in terms of community relations.
• We see the Corihuarmi gold mine and Ollachea gold project as valuable assets which the company should maintain and progress.
• We do not see the actions of the Minera IRL (London) board as indicating the best strategy for building shareholder value.
• We suspect the board may be happy to allow the default and closure of the Corihuarmi gold mine and the potential sale of the Ollachea gold project which we do not see as being in shareholders’ best interests.
• We view the posting of the ‘Notice of EGM and Posting of Circular’ in an RNS on Friday afternoon in the UK at 2.30pm as designed for investors to miss this announcement.
• We see the holding of the EGM in Toronto as being contrary to the interests of many UK based shareholders who might wish the EGM to take place in London.
• Votes must be cast and received by Computershare in Jersey by 24 November for UK shareholders.
• Minera IRL (London) has published information in Friday’s circular in an attempt to discredit Mr Lema and Mr Jorge Ramos who are proposed as directors of Minera IRL (London) board.
Conclusion: We believe Minera IRL shareholders should support Diego Benavides and the new proposed directors in the EGM vote to reconstitute the board.
* SP Angel analysts are expressing their own views and opinions in this analysis. SP Angel has no corporate connection with Minera IRL or its subsidiaries. SP Angel holds no shares in Minera IRL and does not have any current financial arrangements with the company.
Noricum Gold* (LON:NMG) 0.14p, Mkt Cap £3.8m – Noricum heads towards open cast gold mining through evaluation of prospective sites
• Noricum Gold have released results from historic drilling at the Kvemo Bolnisi target in Georgia.
• Kvemo is one of a number of targets in Georgia which arebeing modelled and investigated by Noricum in preparation for mining.
• Noricum is re-evaluating historic and more recent drilling data with a view to the development of open cast mining at one and probably more sites in the Bolnisi area.
• Mining: The team are focussed on two starter pits which offer potential for mining in the next 12-18 months. Noricum’s 50:50 joint venture agreement allows for the company to utilise spare capacity at their partner’s near-by Madneuli mining operations. Kvemo is just 7km away from the operating Madneuli mine.
• Mining license: The company has a 30 year mining license covering the key prospect areas enabling Noricum to fast track progress towards mining
• JORC resource: The team plan on proving up a 1.5moz gold and 200,000t copper resource within the next 3-12 months at 2-3 sites where there is significant data available.
• These sites are part of a larger portfolio of licenses which are reported to contain some 6.6moz gold, 980,000t copper and 22moz silver within Soviet C1, C2 and P1 resource categories. Our view is that Soviet C1 and C2 resources should convert into JORC resources but that P1 resources are far less certain in terms of economic potential. Noricum are working towards the conversion of resources at the key sites to develop more useful JORC resource models.
• The licenses cover some 861sqkm in the Tethyan orogenic belt a huge license by any standards within a range which hosts many copper and gold mines. The license is just a bit larger than the nation of Singapore.
• Assays & Drilling: Noricum are assaying historic cores and plan to drill twin drill holes ‘confirmation drilling’ to double check existing data, as is standard practice. The team also plan to drill some new angled holes to check for mineral structure as all the historic drilling was of the Soviet ‘vertical’ variety.
• Infill drilling: The company will also drill infill holes in time to convert resources to reserves
• Kvemo Bolnisi (7km from Madnueli mine): Results show good prospects for open cast mining at Kvemo with high grade gold over good intersections in near surface drilling and trenching.
o 5.5m @ 5.80g/t gold from surface
o 4m @ 6.26g/t gold from surface
o 12m @ 7.79g/t gold from surface
o 12.11m @ 3.46g/t gold from surface
Recent diamond drilling shows:
• 4m @ 3.51 g/t gold from surface
• 5.5m @ 5.80g/t gold from surface
• 4m @ 6.26g/t gold from surface
Trenching shows significant high-grade mineralisation with the resource open to the north-east.
• Tsitel Sopeli (10km from Madneuli mine): Noricum have started work at Tsitel Sopeli with the evaluation of 159,000m of drill data and field work to bring missing data into the integrated into the into the database. Resampling of drill cores is underway and check drilling should confirm the accuracy of drill data.
• Tsitel Sopeli contains Soviet GKZ C1/C2 368,535oz grading 0.51g/t gold, 2moz @ 2.79g/t silver and 283,920t @1.27% copper.
• Presentation: The company has produced a new presentation on the Bolnisi project in Georgia. The presentation contains 3D representation generated from modelling drill result from the Tsitel Sopeli and Kvemo Bolnisi prospects.
• Security: The president of Georgia has transformed the nation from an iffy FSU state into a paragon of anti-corruption. Sweeping reforms saw the training of a new police force in the US to replace the corrupt force of the past. All police stations were bulldozed to reassure the population of the change with new, transparent glass police stations built for the newly trained police. Georgia now leads the global anti-corruption rankings for police forces making Georgia a safe place to work and conduct business.
Conclusion: We view the opportunity of Noricum advancing one or potential two open pits into production with toll treatment at the Madneuli Mine as a potential game changer for the company. The advance to mining could be achieved at very little cost through the use of contractors and the toll treatment plant once a JORC reserve / resource has been determined and a plan for mining established. Forward gold sales and contractor finance might cover much of the cost of starting one or two small scale operations.
*SP Angel acts as Nomad and Broker to Noricum.
Petra Diamonds (LON:PDL) 89 pence, Mkt Cap£451m - Upcoming Trading Update - are we long and wrong?
We review the company ahead of the trading update (28 Oct 2015)
Buy - Target Price 156p (Previously 200p)
• Petra’s share price continues to underperform triggered by earnings downgrades and compounded by selling of a significant shareholding. Earnings downgrades have been driven by a weaker outlook for diamond prices particularly for the smaller stones and a blockage in the middle market as cutting and polishing margins are squeezed with lack of trade capital making the situation worse. The latter news should now be in the price – key concerns are - timing of recovery, upcoming trading update unlikely to be positive for first half with second half expected to be better. Current forecast puts company on EV/EBITDA of 5.7x expanding to 8x should prices across mines fall a further 10%.
• Will first half trading update bring any good news?
• The trading update is likely to point to still difficult trading conditions but reasonable operational performance.
• As we have said before we expect FY 2016 to be story of two halves with most of the ramp up in volumes expected in H2 so investors need to look beyond this update to next year.
A further 10% fall in prices across the mines will see EBITDA fall 29%
• Prices are said to have stabilised since the last set of revisions to guidance.
• We apply a 10% further hair cut to prices which could see a 29% fall in EBITDA.
We continue to see this as a fundamental growth play – as do most analysts in the market
• According to Bloomberg, 15 out of 18 analysts that cover Petra still have the company on a buy rating.
• Forward earnings would suggest fundamental outlook still positive for the share price.
Catalysts for performance
• Improving performance in the second half.
• Specials coming through from Cullinan – with a new plant being put into place this may be pushed forward to minimise diamond breakage.
We maintain our revenues for the full year ahead of the trading update and post FY 2015 results but update on technical and marketing costs
• We maintain our last published revenue forecasts in July but update Group EBITDA for central technical and marketing costs.
• With a more difficult background to deliver mine plans we reduce our target price to 156 pence.
Premier African Minerals (LON:PREM) 0.75p, Mkt Cap £5.3m – Delivery of underground ore to the RHA tungsten plant
• The company has announced that Darwin Capital has exercised its conversion rights of £500,000 of convertible notes into equity
• The notes were used to help fund the reopening of underground operations at the company’s 49% owned RHA tungsten operation in Zimbabwe
• Premier African Minerals also comments that “the first ore from the underground operation was delivered on 20 October 2015 with ore being delivered on a daily basis now from historic workings to build up a stockpile for processing through the plant.”
• In September, the company announced that it was achieving throughput rates in excess of 20tph – 25% above planned rates. In our view, although this is good news for the operation, the higher throughput will accelerate the depletion of limited open pit resources at the mine and appears to be driving the need to accelerate efforts to provide additional feed from easily accessible underground sources.
Strategic Minerals (LON:SML) 4.125 pence, Mkt Cap £22.8m – Mine manager appointed for Tatu coal project in New Zealand
• Strategic Minerals have appointed Mr Lincoln Smith a ‘seasoned and respected’ New Zealand underground miner as an ‘Acting’ mine manager for its Tatu coal project.
• Tatu has a company stated target of $15/t margin with an IRR of 30% and a 2 year payback.
• The underground mine hopes to pick up orders from coal buyers who have been hit by the recent closure of the Huntly East coal mine.
• Tatu has a horizontal seam exposed in a cliff face which is able to produce coal immediately, though the first sections mined may be weathered and of lower value.
• Management are targeting 200-300,000tpa of thermal coal production following amendment to the current permit for 100,000tpa of production.
• The implication is that the mine could make a margin of $3m-4.5mpa in margin if the permit is extended with first sales expected in H1 2016.
• The company also runs the Cobre magnetite iron ore mine in Mexico which has been refocussed to try to restore profitability following losses last year. The mine is impacted by lower iron ore prices, though magnetite can fetch significantly higher price levels than haematite iron ore due to its higher iron content and lower impurity levels.
• The refocussing is on domestic Mexican sales rather than exports sales into the seaborne market which should improve prices and may lower transport costs.
• Normally we would be concerned by a small company trying manage operations in Mexico and New Zealand but Strategic Minerals appears to have an unusually experienced board and the appointment of Lincoln Smith should allow the directors to rely on his expertise for the management of this new mine.
W Resources (LON:WRES) 0.645 pence, Mkt Cap £23.1m – Resource increase at Regua tungsten project
• W Resources has announced a 22% increase in indicated and inferred resources at its Regua tungsten project in Portugal. The estimate was prepared by the consulting company, Golder Associates.
• The new resource amounts to 5.46m tonnes at an average grade of 0.28% tungsten trioxide at a cut-off grade of 0.1%. Indicated resources (3.76mt at 0.304%) now comprise 75% of the overall contained tungsten trioxide and have increased by 76% since the 2012 estimate of 2.14mt at 0.367%.
• The new resource estimate follows a drilling programme which was completed in August and identified near surface mineralisation within the prospect area which hosts historic tungsten mining activity.
• The company indicates that metallurgical test-work is continuing and has shown “good metal recoveries.” And that it expects to update the market on the testing programme “in the next two months.”
• Mine planning is also underway.
Conclusion: W Resources has made progress on upgrading resources at Regua and we note that these are higher grade than at the company’s Spanish project at La Parilla which may make Regua look more attractive in the current low tungsten price environment. We look forward to the results of the mine planning and metallurgical test work at Regua.