Economic News
China – Oct new loans came in at CNY 513.6bn in Oct, below CNY 1,050.0bn in Sep and CNY 800.0bn forecast.
• New loans in the Jan-Oct period are up 15.4%yoy.
Japan – Machine order climbed in Sep at twice the rate forecast by market analysts; albeit, Oct preliminary reading of machine tool orders point to a 23.1%yoy decline in Oct.
UK – House prices are forecast to climb 25% over five years or 4.5%pa on the back of low supply on Royal Institute of Chartered Surveyors numbers.
• “The legacy of the drop in new build following the onset of the global financial crisis is now really hitting home, with both sales and letting markets continuing to show demand outstripping supply on a month by month basis,” RICS said.
• In Oct, 49% more chartered surveyors saw house prices rise rather than fall in the UK, up from 44% recorded in Sep.
Australia – Jobs numbers smashed forecasts in Oct with unemployment rate falling 0.3pp and the amount of both part and full time employed up.
• The Australian dollar climbed more than 1% on the back of the announcement.
• Jobs: +58.6k in Oct (the most in 3.5 years) v -0.8k in Sep and 15.0k forecast.
• Unemployment rate: 5.9% v 6.2% in Sep and 6.2% forecast.
Myanmar – National League for Democracy run by Aung San Suu Kyi looks certain to win first democratic election in 25 years
Currencies
US$1.0710/eur vs 1.0742/eur yesterday. Yen 122.96/$ vs 123.09/$. SAr 14.158/$ vs 14.169/$. Sterling $1.519/gbp vs 1.517/gbp
0.714/aud vs 0.706/aud – yesterday
Commodity News
Precious metals:
Gold US$1,087/oz unch vs US$1,090/oz yesterday –
Platinum US$881/oz vs US$901/oz yesterday -
Palladium US$577/oz vs US$597/oz yesterday –
Silver US$14.38/oz vs US$14.44/oz yesterday
Base metals:
Copper US$ 4,929/t vs US$4,936/t yesterday –
Aluminium US$ 1,524/t vs US$1,507/t yesterday –
Nickel US$ 9,620/t vs US$9,510/t yesterday –
Zinc US$ 1,638/t vs US$1,583/t yesterday –
Lead US$ 1,633t vs US$1,600/t yesterday –
Tin US$ 14,880/t vs US$14,600/t yesterday –
Energy:
Oil US$46.0/bbl unch vs US$47.3/bbl yesterday –
Natural Gas US$2.279/mmbtu vs US$2.312/mmbtu yesterday
Uranium US$36.00/lb unch vs US$36.00/lb yesterday –
Bulk commodities:
Iron ore 62% Fe spot (cfr Tianjin) US$47.8/t vs US$47.3/t – yesterday
Thermal coal (1st year forward cif ARA) US$46.10/t vs US$46.80/t – yesterday
Steel – Steel production decline in China accelerated in Oct with total output down 3.1%yoy taking the fall in the first 10 months to 2.2%yoy.
Other:
Tungsten - APT European prices $165-175/mtu - $165-195/mtu as of last week – spreads narrow at lower level indicating ongoing imbalance between supply and demand.
• The tungsten market may return to balance quite quickly
Ferrochrome – Benchmark charge chrome price for delivery in Europe at US$1.04/lb its lowest level since Q1/10.
Ferro-alloys – The mood at the International Ferro-Alloys Conference in Prague earlier this week is reported to have the most depressing in decades, Metal Bulletin reports.
• Despite a number of producers struggling to make a margin in current markets, price continue to fall.
• At the conference, prices for chrome ore, ferro-chrome, manganese and silico-manganese were forecast to fall further.
Company News
Caledonia Mining (LON:CMCL) 41 pence, Mkt Cap £21.4m – Q3
• Caledonia Mining reports Q3 earnings of $1.7m bringing the year to date earnings to $3.6m. Operating cash flow for the YTD amounts to $6.8m though, with quarterly operating cashflow of $0.9m, the company is under rising pressure from the current low gold prices.
• Cash resources amount to $19.7m.
• The company has previously reported Q3 operating results of 10,927 oz of gold at an all-in sustaining cost of $1,011/oz bringing year-to date output to 31,288 oz at an AISC of $993/oz.
• Gold output is up approximately 5% during the quarter as a result of higher mill throughput partially offset by a minor decrease in grade and recovery.
• The company is in the process of implementing major re-development of the Blanket mine to access mineralisation below the 750m level and build up production levels to around 65,000oz pa by 2017 and reduce costs. The major cost element in the programme is a $23m shaft deepening project to access lower levels of the mineralisation.
• This redevelopment programme was planned on gold price of $1200/oz and with current prices falling below this level, Caledonia mine is making an additional $5m available to the Blanket mine from its corporate treasury. At this stage, the company is maintaining its policy of a quarterly dividend of 1.5 Canadian cents though the Board “remains attentive to further changes in market conditions.”
• The development plan appears to be running according to schedule, however, with the underground ore handling and transport system ( tramming loop) on the 750m level successfully completed in June and the No.6 winze (internal shaft) on track to start production in Q1 2016. The CEO, Steve Curtis is reported saying “I am pleased to report that we have met all of our key milestones and we remain on target for achieving all of the future milestones."
• The company also comments that it does not expect to be interrupted by power supply disruption as a result of the low levels of water and power generation from the Kariba Dam. Power cuts have occurred both within Zambai and Zimbabwe but the Blanket mine has an agreement in place for access to an uninterrupted supply. This agreement has held so far but the company also points out that it also has 12MW of standby diesel generating capacity which would be adequate to maintain mining and processing as well as work on the central shaft if this was necessary.
DiamondCorp (LON:DCP) 8 pence, Mkt Cap £30.1m – Conveyor Belt Commissioned
• The 400 tph conveyor belt has been commissioned from the first production level.
• This will enable the company to have a significant increase in capacity (10 fold) to haul ore out of the mine.
• Commissioning of the conveyor belt should also facilitate the underground development and help reduce underground costs.
• The need for trucks for waste hauling will be reduced as underground loaders will now load buckets directly on to the conveyor belt.
Conclusion: It is good to see the conveyor belt commissioned on time and this should not only help processing of development ore but help with getting all ore to surface alleviating wear and tear on trucks hence reducing development costs. We recently lowered our target price on concerns about timing of revenues and restructuring of debt and we look forward to further news flow on this front.
Goldplat* (LON:GDP) 3.5 pence, Mkt Cap £5.9m – Pre-payment facility agreed with Auramet
• The company has entered into a pre-payment facility of US$1.4m with Auramet for gold deliveries from Aurubis AG.
• This is to facilitate payments to two of Goldplat’s major gold material suppliers at the Ghanian Recovery operations who have material being refined at Aurubis.
• The pre-payment agreement is structured around receipt of funds due in Dec 2015 and Jan 2016.
• The facility is based on payment of interest at Libor plus 5% on an annualised basis with the cost over the period estimated at around US$15,000.
Conclusion: This pre-payment arrangement facilitates payments to two major clients of Goldplat Recovery Ghana and by clearing this payment they should continue to receive ongoing material for processing from these clients. Goldplat continues to work through clearing the backlog of material that was held up by Rand Refinery.
*SP Angel act as Nomad and Broker to Goldplat Plc
Kefi Minerals* (LON:KEFI) 0.4 pence, Mkt Cap £7m - Government of Ethiopia makes US$15-$20m investment in Tulu Kapi Project
• The Ethiopian government have confirmed its intention to make a US$15-20m investment in the Tulu Kapi Project.
• This will give them a 20-25% stake in the project and including the 5% pre-carry gets them to 25-30%.
• This would imply a project value of US$75m at its current stage of development.
• Based on a gold price of US$1,250, the project NPV is US$168m once fully funded and based on after tax unleveraged cash flows using a discount rate of 8%.
• Funds invested by the government are to be directed towards the infrastructure required for the project.
• The next stage will be to progress discussions with the syndicate group and agree terms.
• The company is seeking US$70m of debt finance and a combination of US$40m from streaming and project equity.
• As previously reported project economics have been improved with higher production (115,000 against prev 95,000 oz) and improved all in sustaining costs.
Conclusion: This is a positive step forward for the Tulu Kapi project and should help in discussions with financiers for project debt, equity and funding from streaming. We look forward to further developments on this front.
*SP Angel act as Nomad to Kefi Minerals
Mariana Resources (LON:MARL) 2.1 pence, Mkt Cap £16.2m – Drilling results point to a second mineralised zone at Hot Maden
• The company reports the latest drilling results from its Hot Maden project in eastern Turkey. Following completion of its earn in terms by its Turkish partner, Lidya, last month, Mariana holds a 30% interest in the project.
• Mariana reports, today, a 39m intersection at an average grade of 5.8 g/t gold and 0.7% copper from a depth of 88m and a second, 57m wide intersection at an average grade of 0.8g/t gold, 0.6% copper and 3.1% zinc from a depth of 231m
• The latest results come from hole HTD-027 which is located approximately 250 metres south of the area where the company announced a maiden indicated/inferred resource of 8.36mt at an average grade of 8 g/t gold and 2% copper (2.2m oz of contained gold) in August.
• The latest results which test the down-dip extensions of the mineralisation previously intersected in hole HTD-025 (25.2m at an average grade of 7.3 g/t gold and 0.47% copper from a depth pf 42.8m). The company considers that the results “are highly encouraging ….. and suggest that the high grade mineralisation intersected previously in HTD-25 could be part of a new mineralized target …. located approximately 250m south of the existing Mineral Resource Area. Further drilling will be required to test the potential of this new zone.”
• The company is currently working on a Preliminary Economic Assessment of the northern resource area and this is scheduled to be complete in Q3 2016.
Conclusion: The discovery of what may develop as a second zone of mineralisation located to the south is shaping up to extend the size of the overall mineralised footprint at Hot Maden
Petra Diamonds (LON:PDL) 60 pence, Mkt Cap £313m – “Blue Moon” goes for record US$48m at Sothebys
• The cut and polished “Blue Moon” sold at Sothebys for US$48m well above its estimate of around US$35m.
• The 12.03 carat diamond came from the exceptional 29.6 carat blue diamond from the Cullinan mine – found in January 2014.
• Blue diamonds are amongst the rarest and most highly coveted of all diamonds.
• Petra sold the blue diamond in its rough form in February 2014 for US$25.8m and has no further participation in the sale proceeds of the Blue Moon.
• The “Blue Moon” was bought by HK billionaire Joseph Lau for his seven year old daughter.
• Lau has bought a number of rare diamonds – he bought a 16.08 pink diamond for US$28.5m from a Christies sale the day before.
Conclusion: Petra does not have any interest in the proceeds of the sale of the “Blue Moon” having sold the rough for US$25.8m. It is however a reminder of the quality of stones to be found from Cullinan mine and the potential for further discoveries from this mine. This should be the case when mining moves to undiluted ore and the Cullinan plant is up and running.
Shanta Gold* (LON:SHG) 5.625p, Mkt Cap £26.3m – Site visit highlights longer term potential of open pits combined with high grade ore from underground mining
We have just returned from an analyst site visit to Tanzania, these are our initial thoughts on the company’s progress
• Shanta Gold is entering a third phase of its metamorphosis into a larger-scale gold mining company.
• The company is now evolving to create a more sustainable and lower cost business with significant ability to continue to expand its resource base and feed its recently expanded gold processing plant.
• Bauhinia Creek: The team are currently pulling high grade ore out of the Bauhinia Creek mine following the redesign of the mine earlier this year. This has enabled the plant to beat all previous gold production rates by a margin and to reduce operating costs to new low levels
• The forthcoming development of underground mining at Bauhinia Creek should enable the company to continue to feed around 50,000t/ month of blended high-grade and low-grade gold ores to feed an average of around 8g/t through the process plant on an ongoing basis.
• The plan is to produce around 462,000oz of gold over the next six and a bit years equating to around 77,000oz pa, at the higher end of the company’s 72-77,000ozpa gold production target.
• The development of a relatively shallow underground mine at Bauhinia Creek should avoid the need for the more expensive expansion of the existing open pit.
• This higher grade ore will be mixed with near surface lower grade ores from New Luika, Elizabeth Hill, Black Tree Hill and other pits to be developed.
• Costs: Efficiency gains have lowered cash costs to $452/oz and AISC costs to $608/oz for Q3 ‘15 from the US$850-900oz expected this year . More work is to be done on reducing costs offering potential gains.
• If grades and ore throughput rates are maintained then Shanta should maintain costs at around these levels going forward, though we would expect some variability depending on the ability to consistently feed higher grade ores into the plant.
• Power: Power generation cost are still outrageous despite the use of HFO heavy fuel oil for primary power generation at some 28c/kWh and the company should move to connect to the Tanzanian grid for non-critical power supply sometime soon. It is also trialling a solar plant and may consider a small hydropower plant when the new water dam is complete.
• Power is around a third of most mine costs and is probably higher given the cost for Shanta indicating the significant savings can be made in this area.
• Legacy contracts: Shanta is still suffering the effects of some very poorly negotiated contracts signed by a previous mine manager at the time of first mine construction. Mike Houston did a good job of renegotiating many of these contracts and the new ceo Toby Bradbury should sort out remaining legacy contract issues enabling further potential cost improvement. The move to underground mining and to mining new pits will help on this front.
• Process plant: Management consider the process at last to be working well though there are still initiatives to further expand capacity if needed. Reagents are still seen as expensive and offer another area for further cost saving.
• Bauhinia Creek underground capex is estimated to be $20m, a meaningful expense with gold prices close to $1,100/oz. Estimates suggest Shanta generate sufficient cash to cover the capital cost though the need to and badly need to access more of Buhnia Creek's high grade ore.
• Elizabeth Hill shows high grade gold in Quartz with 8.9g/t in drill results and 2-3g/t in trenches. The team plan to strip the top 50-70m for ore with the benefit of lower strip rates from mining the hill. A 1g/t cutoff could add some 57,000oz of recoverable gold. The team reckon they have 6-7 similar ore reserves. Surface scree is also free digging adding to the low cost nature of the ore available for processing.
• Exploration Shanta has cut back in recent years on its exploration budget due to cash constraint but the return of Peet Prinsloo, the geologist credited with identifying Bauhinia Creek and other discoveries in the area, raises the chance of other higher-grade discoveries being made. Prinsloo’s return endorses the work of the new management team and we believe recent drilling bv the team could lead to the identification of another high-grade ore resource.
• Thankfully the cost of drilling has fallen recently with costs now around $70-80/m for reverse circulation drilling 'RC' and to around $130/m for diamond core.
• Net debt reduced to $49.1m from $54.5m at end of Q2 giving the company some headroom though any rise in US libor will inevitably add to borrowing costs.
Conclusion: Shanta is correcting the mistakes of the past and marching towards a longer-term sustainable future under the guiding hands of, ceo,Tony Bradbury and his General Manager Scott Yelland. We can see good potential for new discoveries and strong gold production to build Shanta into a significantly larger business, though the road to future success may suffer the occasional pit fall.
* The author of this report has previously visited the New Luika mine site