Anglo Pacific Group (LON:APF) – Q3 Trading Update
Atalaya Mining (LON:ATYM) (EMED Mining formerly) – Third quarter results in line
Caledonia Mining (LON:CMCL) – Analysts visit to Blanket Gold Mine
China – Regulators are looking into a request from metal industry group to study “malicious” short selling in local metal exchanges.
• In addition, the China Nonferrous Metals Industry Association has asked the government to step up purchases of nickel, aluminium and other metals to support prices.
• The arrest of some key investment professionals this year has led to speculation that the Chinese authorities are clamping down aggressively on short selling.
• We suspect the authorities were comfortable with a fall in metals prices but with price levels now well below the cost of production for many Chinese miners we reckon there will be increasing pressure on the short sellers.
• Miners in China are reported to be colluding to cut production and presumably staff numbers in efforts to survive unexpectedly low metals prices. The devaluation of the Rmb has offset some of the impact of the stronger US dollar but this is insufficient compete with many other lower cost miners.
• Meanwhile we reckon the China’s SRB ‘State Reserve Bureau’ and the US DLA will be taking full advantage of low metals prices to renew stock levels.
• US funds tend to cut short positions over the Thanksgiving holiday and tend to take a more cautious approach to trading between now and the new year.
• We feel base metals should have bottomed out now and forecast a recovery in prices through next year as existing stimulus in China take effect.
• The new year should also herald the restart of currently stalled infrastructure projects in China
Jack McDonnell (Labour) throws Mao’s little red book towards George Osborne during questions in UK Budget
• It’s nice to know what the shadow chancellor has been reading.
• We have to wonder what else Jack McDonnell is going to throw, Das Kapital, Mein Kampf or perhaps a copy of the Hungry Caterpillar
• Even the Chinese will be shocked to see someone throwing the red book around. McDonnell would have suffered life imprisonment or execution for this offense under Mao.
UK – George Osborne cut austerity programme amid an upwards revision in public finances to the tune of £27bn over the next five years driven by stronger tax revenues and lower debt interest.
• As opposed to previously proposed £41bn in real terms from day-to-day expenditure cuts in public services, the OBR estimated that cuts may come in at £10bn by 2019-2020.
• A £10bn budget surplus by the end of the decade remains the target.
Australia – Investments came down in Q3/CY15 marking nearly a three times decline in capex spend versus market estimates.
• Capex fell for four consecutive quarters while the mining investment continues to shrink.
• Investment: -9.2%qoq v -4.4%qoq in Q2/CY15 and -2.9%qoq forecast.
• Mining expenditure contracted 10.4%qoq during the quarter with the manufacturing sector up 6.9%qoq and other selected industries recording a 10%qoq decline.
Base metals:
Copper US$ 4,655/t vs US$4,555/t yesterday – The copper market is looking at two-three years of challenging conditions before recovering, Rio Tinto said.
On a positive note, the miner considers copper the metal to recover faster than other commodities once the market moves in deficit in 2017-18.
Aluminium US$ 1,481/t vs US$1,446/t yesterday –
Nickel US$ 9,125/t vs US$8,830/t yesterday – Major Chinese producers are planning to meet on Friday to discuss measures to counter falling metal prices that hit the lowest levels in 12 years recently, according to Bloomberg.
Zinc US$ 1,629/t vs US$1,579/t yesterday –
Lead US$ 1,647t vs US$1,617/t yesterday –
Tin US$ 14,835/t vs US$14,450/t yesterday –
Energy:
Oil US$45.8/bbl vs US$45.4/bbl yesterday –
Natural Gas US$2.272/mmbtu vs US$2.142/mmbtu yesterday –
Uranium US$36.10/lb unch vs US$36.10/lb yesterday –
Bulk comodities:
Iron ore 62% Fe spot (cfr Tianjin) US$46.5/t unch vs US$46.7/t – yesterday There’s about 300mt of surplus capacity in China that need to bulldozed, ex Rio economist
Iron ore – Mines Ministry in India is planning to lift a 10 % export tax on lower-grade iron ore offering support to miners struggling with falling commodity prices.
Steel – Steel mills in China estimated to lose around US$50/t of steel produced.
Thermal coal (1st year forward cif ARA) US$46.30/t vs US$46.20/t – yesterday
Other:
Tungsten - APT European prices $165-175/mtu unch on last week
Ferrochrome – Benchmark charge chrome price for delivery in Europe at US$1.04/lb its lowest level since Q1/10.
Company News
Anglo Pacific Group (LON:APF) 67 pence, Mkt Cap £114m – Q3 Trading Update
• For the quarter the company generated royalty income of £1.9m for Q3 2015 giving total royalty income of £5.7m for nine months.
• Production rates at Kestrel were down for the quarter due to the longwall changeout as expected with H2 2015 guidance remaining unchanged.
• The company also clarified recent speculation in the press about Rio’s application for extension of their licence at Kestrel.
• The outcome of the extension has no impact on Anglo Pac as it is mainly outside the longwall area where Anglo Pac have their royalty arrangements.
• Kestrel production is expected to normalise in the fourth quarter with annual run rates moving to 6 mtpa.
• At Narrabi ROM coal production was 1 mt down 52% compared to 2.1 Mt the same time last year due to planned longwall changeout.
• Narrabi accounts for 44% of royalty income for the group.
• Whitehaven Coal is seeking approval to increase production at the Narrabi Mine to 11 mtpa which is above current expectations in royalties.
• EVBC will see gold production down from FY 2014 by 14.5% to 53,733 oz.
• At the Maracas mine vanadium pentoxide has more than halved since last year although production achieved 110% of nameplate capacity.
• Berkeley Energy could be a winner with production being accelerated at the Salamanca Uranium Project.
• The company holds a 1% Net Smelter Royalty overall production from Berkeley Energy’s Spanish and Portuguese assets and a 16.75% holding in the shares.
• An interim dividend of 4 pence has been declared with the final dividend in line with 2014 at 4 pence giving a total dividend of 8 pence which totals £6.8m.
• Cash and cash equivalents stand at £9.7m with group borrowings of £8.6m.
Conclusion: Concensus numbers are for revenues of £10.023m for the full year which is premised on a stronger final quarter. With a full year dividend of 8 pence, the shares stand at a yield of 12% - the payout looks high based on projected net income but is covered by cash on the balance sheet. Paying dividends has been an ongoing policy and not cutting the dividend could be based on the optimistic outlook in terms of production from their main royalty arrangements with arguably most of the falls in the commodities being priced in.
Atalaya Mining (LON:ATYM) 67.5 pence, Mkt Cap £78.8m – Third quarter results in line
(EMED Mining formerly)
• Commissioning at the Rio Tinto has got to 80% of design throughput with 1,500 tonnes of concentrate produced at grades of 18%.
• Commercial production expected in Jan 2016.
• The company continue to expand processing capacity from 7.5 mtpa from 5 mtpa with 64% complete.
• Financing options are being pursued to expand capacity further to 9.5 mtpa.
• Expenses for the quarter were €5.169m and €10.13m for 9 months.
• This has resulted in losses of €5.335m for the quarter and €21.17m over the nine months.
• Cash and cash equivalents at the end of September stood at €37.88m with trade and other receivables standing at €10.28m.
• Additions to plant and equipment from 31st Dec 2014 to end of September 2015 were €54.81m.
• Work is said to be going to plan with the company optimistic that they will be at or better on budgets.
Conclusion: Operationally the company are working towards their mine plans with full commercial production expected at the beginning of next year. However, the recent claim in the High Court’s puts these achievements under a cloud. We look forward to further news flow on both these fronts.
Caledonia Mining (LON:CMCL) 41.5 pence, Mkt Cap £21.6m – Analysts visit to Blanket Gold Mine
• Caledonia Mining has hosted an analysts’ visit at the Blanket Gold mine in Zimbabwe, providing the opportunity to see the progress on implementing the long term development plan which is aimed at increasing gold output from the present level of around 40,000 oz pa to approximately 65,000 oz by 2017 and 80,000 oz by 2021.
• The underground ore transport system known as the “tramming loop” on the 750m level is now in full operation and the benefits are now flowing through, with September quarter milled tonnage of 117,000 tonnes helping to deliver Q3 gold production of 10,927 oz; 5% above Q2 and 10% higher than the production in Q3 2014.
• The increased volumes have also started to reduce costs with a 7% reduction on a per milled tonne basis to $62.60/tonne compared to Q3 2014.
• The new Central Shaft, which is planned to reach a depth of 1080m by June 2018 is well underway with the pre-sinking stage largely complete. The company has purchased winders for the shaft from another mine in South Africa and refurbished them generating substantial cost savings over the price of new equipment.
• Drilling work to upgrade the resources below the 750m level is well underway and part of a long term programme of resources estimation drilling over at least the next 3 to 4 years. Existing mines within the area have already mined to significantly greater depths than the Blanket mine and, although there may be changes to the metallurgical characteristics of deeper mineralisation there is reason to infer that the drilling programmes will demonstrate that gold mineralisation extends at least to the depths envisaged in the company’s development plan.
• The company has also identified a number of other deposits within its licences which, subject to positive metallurgical test results and project economics, have the potential to deliver additional sources of feed to the Blanket mill, where additional milling and treatment capacity is also part of the long term plan.
Conclusion: The site visit, in conjunction with the recently released Q3 results provided evidence that the development programme is beginning to bear fruit in terms of both production and costs. The major work on site is being managed efficiently by an experienced in-house team and is currently on schedule. We await the next results from the drilling work which, if positive, should help to upgrade the deeper level inferred resources and should add further support to the credibility of the long term plan.