DiamondCorp (DCP LN) Buy Target Price 13.25 – New NED
Goldplat* (GDP LN) – Completion of Resource Estimate at Tailings Storage Facility
Kenmare Resources (KMR LN) – Weak Trading update
Keras (KRS LN) – Secures Loan Note for Australian Gold Production
Metminco * (MNC LN) 0.16 pence, Mkt Cap £4.8m – Drilling of new TD2 targets to be completed this month
Serabi Gold (SRB LN) 3.0 pence, Mkt Cap £19.7m – Serabi gains confidence as December records best gold production month
121 / SP Angel conference is the only place to be in Cape Town this year
8th-9th February 2016 - in the beautiful and historic gardens of the Welgemeend farm house in Cape Town, close to the Mount Nelson Hotel
• Investors go for free. See registration form in link below
https://www.weare121.com/121mininginvestment-cape-town/registration/register-investor
Dow Jones Industrials +2.47% at 16,466
Nikkei 225 +1.98% at 17,865
HK Hang Seng -0.45% at 19,596
Shanghai Composite -1.78% at 2,689
FTSE 350 Mining +0.31% at 6,802
AIM Basic Resources +0.51% at 1,589
Economic News
US – Economic growth has slowed down significantly in Q4/15 according to numbers released last Friday.
• Economic growth: 0.7%qoq (annualised) in Q4/15 v 2.0%qoq in Q3/15 and 0.8%qoq forecast.
• Growth was affected by an industrial slowdown and weaker exports led by a stronger dollar, softening global demand and falling commodity prices.
• Investments fell 2.5%qoq on the back of cut in the energy sector.
• On a bright side, consumer spending came in stronger than forecast (2.2%qoq v 3.0% in Q3/15 and 1.8%qoq estimated).
• FY15 growth came in at 2.4%yoy, little changed from 2014.
• Bloomberg estimates are for growth to continue running at current 2.4% rate through the 2016-17 period.
• US stock indices finished on a strong note last Friday on the back of climbing oil prices and a dovish decision to cut rates into the negative territory by the BoJ.
• Economic news due this week:
China – Manufacturing PMI came in below 50 for a sixth consecutive month in Jan/16.
• Caixin Manufacturing PMI: 49.4 v 49.7 in Dec and 49.6 forecast.
• The report referred to weak market conditions and fewer new orders driving companies to cut production.
• “Output and employment both contract at faster rates but new orders decline at softest pace in seven months.”
• Services industry performed continuing to expand, albeit at a slower rate (53.5 in Jan v 54.4 in Dec).
• On a separate note, Chinese authorities are closing down on a P2P lending vehicle said to have been operated as “a complete Ponzi scheme” and took more than CNY 50bn (US$7.6bn) from investors.
• Ding Ning, a founder of one of the China’s highest profile P2P lending sites, has allegedly invested new investors’ capitl into its owl property projects and also used to pay off existing investors.
• Once economic growth slowed the Company it became complicated to attract new investors.
• The Company promised investors annual returns of up to 15%.
Japan – Domestic demand weighed on total new order growth while export orders gain at a sharper pace on a weak currency.
• The rate of expansion in new orders was the weakest since Jul.
• Nevertheless, manufacturing PMI came performed relatively well coming in at 52.3 in Jan, little changed from 52.6, one of the strongest readings since Mar/14, in Dec.
Russia – Manufacturing continued to contract in Jan/16 but was closer to stability than in the previous month.
• Manufacturing PMI: 49.8 v 48.7 in Dec/15.
• “Job cuts were still evident in the manufacturing sector of Russia in Jan/16, continuing a trend that began in Jul/13.”
Currencies
US$1.0855/eur vs 1.0910/eur yesterday. Yen 121.20/$ vs 120.84/$. SAr 16.025$ vs 16.049/$. $1.427/gbp vs 1.436/gbp
0.707/aud vs 0.710/aud. China CNY6.579/usd vs CNY6.578/usd –
Commodity News
Precious metals:
Gold US$1,122/oz vs US$1,114/oz yesterday –Prices hit the US$1,120 level on increased interest amid weak Chinese and US economic data.
Platinum US$868/oz vs US$864/oz yesterday – World Platinum Investment Council Report projects a deficit for platinum in every year for the next 6 years
• The report looks at the fundamental state of the platinum market and the outlook for the next 6 years.
• The report concludes that the platinum market is likely to be in deficit for each of the years from 2016 to 2021.
• Mine supply in 2021 is expected to remain at today’s levels with greater downside risk to production.
• Mine supply is likely to be impacted by the political environment in supplier countries, low prevailing metal prices and the impact of sustained price weakness over the last 6 years.
• Including recycling supply is expected to grow at a CAGR of 1.1 to 1.2% over the next 6 years with mine supply at 5.7m oz and secondary supply of adding a further 2m oz.
• Global demand is expected to grow from 8.1m oz in 2015 to 8.63m oz in 2021..
• They project a deficit of around 263,000 oz of platinum for FY 2016 coming down to 123,000 oz for FY 2017 and then going back to over 260,000 oz and higher for the following years.
Palladium US$497/oz vs US$494/oz yesterday –
Silver US$14.31/oz vs US$14.27/oz yesterday –
• Sharps Pixley have issued a note on how the new ‘silver fix’ which is managed by The computer boffins at the CME and Thompson Reuters is not fit for purpose.
• It appears the sliver fix has been set outside the trading range for spot prices on the day 10 times in the last six months.
• If that had happened under the old regime many would have thought the price had been ‘fixed’
• Sharps Pixley reckon the new ‘price fixing’ is not fit for purpose but also reckon part of the problem is the loss of the last non-bank traders among the price setters.
• They also see the current regulatory regime as having killed off the willingness of bank traders to place corresponding orders for fear of being accused of abusing prices and facing compliance officers or their regulators.
• Sometimes the best system is one which has a few imperfections and where opposing forces keep the market in check and in balance.
Base metals:
Copper US$4,513/t vs US$4,550/t yesterday – Freeport export permit expired yesterday with no deal with Indonesian government on renewal of a six-month copper concentrate shipment permit.
Aluminium US$1,510/t vsUS$1,522/t yesterday –
Nickel US$8,475/t vs US$8,580/t yesterday –
Zinc US$1,604/t vs US$1,607/t yesterday –
Lead US$1,703/t vs US$1,699/t yesterday
Tin US$14,750/t vs US$14,655/t yesterday – Indonesian government is meeting 33 tin smelters to ensure companies are using right processes and exporting refined metal in line with regulations.
Energy:
Oil US$35.80/bbl vs US$34.40/bbl yesterday –
Natural Gas US$2.201/mmbtu vs US$2.263/mmbtu yesterday
Uranium US$34.65/lb vs US$34.75/lb yesterday -
Bulk comodities:
Iron ore 62% Fe spot (cfr Tianjin) US$42.10/t vs US$41.10/t yesterday –
Steel – The EU imposes 9.2-13% tariff on Chinese steel imports amid an ongoing anti-dumping investigation.
• Tariffs will affect Chinese exporters of high fatigue performance steel concrete reinforcement bars (HFP rebards).
• Duties will take effect on Saturday and are expected to last for six months, but may be prolonged for five years.
• Chinese producers showed an impressive increase in market share for HFP rebars in the EU market lately.
• The share of Chinese products is estimated at 36% as of the 12 months through Mar/15, up from 7.9% in 2013 and immaterial levels seen in previous years.
Thermal coal (1st year forward cif ARA) US$38.90/t vs US$37.70/t on 30 December –
Other:
Tungsten - APT European prices $160-175/mtu vs $150-175/mtu last week vs $165–175/mtu a the week earlier – prices may at long last be turning
Ferrochrome – Benchmark prices collapsed to 92c/lb in December for Q1/16.
Company News
DiamondCorp (LON:DCP) 7.25 pence, Mkt Cap £32.3m – New NED
Buy Target Price 13.25
• Chis Ellis joins the board as a NED following the retirement of Nick Allen.
• He is currently a director of DFin Ltd and worked previously for Consensus Advisors.
• He brings experience in diamond supply chain management in his role as advising industry banks on cutters & polishers, jewellery manufacturers and retailers.
Conclusion: Chris Ellis sounds like a good addition to the board with good downstream experience.
Goldplat* (LON:GDP) 4 pence, Mkt Cap £6.7m – Completion of Resource Estimate at Tailings Storage Facility
(Amended comment)
• Goldplat has built up a resource at its Tailings Storage Facility while treating material containing gold and other minerals since 2003 at its South African gold recovery operations.
• The company have now formally assessed the potential resource held within the Tailings Facility with a view to assessing the viability of reprocessing this material.
• A JORC compliant resource has been established totalling 1.2 Mt with a grade of 1.92 g/t gold and 2.77 g/t silver in the TSF and a further 0.23 Mt at 1.09 g/t gold and 2.66 g/t silver in the tailings footwall.
• This gives a total JORC resource of 1.43 Mt at 1.78 g/t gold containing 81,959 oz and 4.7 g/t silver containing 216,094 oz.
• Uranium oxide is also contained with the resource at a grade of 61.32 g/t containing 193,276 lbs.
• More detailed metallurgical test work will be done but it is estimated that a 15-20% recovery rate for gold can be achieved through a tailings circuit.
Conclusion: This is good news for Goldplat giving them additional revenue stream. This is essentially a source of “free” material which can be processed through existing circuits. This will provide a boost to revenues in the South African operations and help at a time when the company is re-building profitability at its operations.
*SP Angel act as Nomad and Broker to Goldplat plc
Kenmare Resources (LON:KMR) 0.65 pence, Mkt Cap £18.1m – Weak Trading update
• Ore excavated for the quarter was down 22% on a quarter on quarter basis to 7.05 Mt.
• Grades up 9% to 4.93% giving HMC production down 10% to 306,600 tonnes.
• Ilmenite was down 22% at 190,700 tonnes with Zircon up 9% to 14,500 tonnes and Rutile up 13% to 1,700 tonnes.
• Overall shipments for the quarter were 198,300 tonnes up 4% on a quarter on quarter basis.
• For the full year the company produced 1,100,600 tonnes down 15% year on year.
• Ilmenite production was down 11% to 763,500 tonnes, Zircon up 2% to 51,800 tonnes and Rutile down 2% 6,100 tonnes.
• Shipments flat at 800,400 tonnes.
• Poor power reliability and stoppages continued to impact production in Q4 2015.
• Power supply has improved since Dec 2015 as EdM has added additional transmission capacity from 118 MW to 163 MW.
• Flooding in January 2015 affected the 110 kV Moma line which is currently being repaired and expected to be completed in early Feb.
• Costs for H2 2015 were in line with H1 2015.
• The ilmenite market remains difficult with supplier competition said to have intensified impacting prices.
• The market for ilmenite is expected to improve in 2016 as high cost Chinese and Russian titanomagnetite plants closed in 2015.
• Reduced supply is also expected from Vietnam and Australia of sulphate ilmenite production with chloride ilmenite falling due to depleting mines in the US.
• The company has received a force majeure notice from a customer relating to 100 kt which is expected to lead to a reduction or deferral of shipments.
• The company continues to be in discussion with its bankers over a debt solution which includes an investment of US$100m from the Sultanate of Oman.
Conclusion: Operational problems continue to dog operations at the Moma Mine although the power situation should start improving. The market for ilmenite which has suffered from over supply is said to have better supply/demand dynamics as a result of the closure of high cost titanomagnetite mines reducing ilmenite supply. Debt discussions continue. A number of risks remain.
Keras Resouces (LON:KRS) 0.525 pence, Mkt Cap £5.8m – Secures Loan Note for Australian Gold Production
• The company has raised £563,889 through a loan note.
• Dave Reeves the MD and Peter Hepurn-Brown a NED are to subscribe for £194,44,500 and £50,000 respectively.
Conclusion: Funds raised are to be used to progress their Australian gold projects targeting the two shallow laterite pits to prepare for processing.
Metminco * (LON:MNC) 0.16 pence, Mkt Cap £4.8m – Drilling of new TD2 targets to be completed this month
• Metminco reports that it plans to start drilling on the TD2 prospect adjacent to its main Los Calatos prospect in Peru. Site works to gain access and prepare the drilling location are expected to be completed during February..
• The identification of additional exploration opportunities in close proximity to Los Calatos stems from the detailed re-examination of the historic drilling and exploration information which last year enabled Metminco to establish a smaller, less expensive but economically more robust plan to develop Los Calatos through underground mining of lower volumes of higher grade ore than was originally envisaged through a major open pit development.
• The key results of the updated study, which have been announced earlier, are:
o Mining of a total of 134m tonnes of ore at an average grade of 0.89% copper and 0.036% molybdenum over a 22 year period using sub-level caving.
o Pre-production capital expenditure of US$655m and net cash operating costs (C1) of US$1.29/lb of copper.
o After tax, ungeared NPV of US$477m at an 8% discount rate and assuming copper price of $3.00/lb; gold price of $1250/oz; silver $19/oz and molybdenum $11.16/lb.
o Assuming 60% gearing after tax NPV at an 8% discount rate of US$456m based on US$ LIBOR of 0.33% plus 4% per annum.
o Payback 4.85 years.
• The improved geological model which resulted from this study has given the company an improved understanding of the emplacement, grade characteristics and structural controls of the mineralisation at Los Calatos which has helped identify additional targets with similar characteristics for follow up exploration work.
• The TD2 target lies south west of the main deposit at Los Calatos on a bend in the fault which cuts off the main deposit. Geochemical, geophysical and surface mapping surveys, taken in conjunction with the improved geological understanding of the mineralised breccias in the area has produced a new target at TD2 which the company expects to intersect at a depth of around 200m in this new drill hole..
• A further target area, designated TD3 is located southeast of the main deposit located on a major wrench fault which it is believed controlled the emplacement of the Los Calatos Porphyry Complex. The company comments that its work supports “the theory that the Los Calatos Porphyry Complex continues beyond the current interpreted limits into the TD3 area and further to the southeast.”
• The company continues discussions with third party potential partners for the development of Los Calatos. A number of the interested parties are conducting “due diligence” including site inspections. Metminco reports cash of A$0.95m at 31st December.
Conclusion: Metminco’s reappraisal of Los Calatos has not only improved the project economics but, through an improved understanding of the controls to mineralisation, has identified a number of new targets which have the potential to extend the known higher grade mineralisation and possibly expand the overall resource. We await the results of the initial drilling of the first of these newly identified targets with interest.
*SP Angel act as joint-broker to Metminco
Serabi Gold (LON:SRB) 3.0 pence, Mkt Cap £19.7m – Serabi gains confidence as December records best gold production month
• Serabi’s gold production for hit a new high for the year at 32,629oz with Q4 2015 lifted in December but still fell short of Q3s record.
• Gold production in Q4 hit 7,925oz down on Q3s 9,078oz
• Palito: mining and grade control is now working better with near 10g/t grades being achieved over much of the past two years. Lateral development is now opening up access to more known veins with diamond drilling expected to extend the ore resource.
• Sao Chico: mine is working well and should continue to add to gold production. December saw 4,000t mined at >12g/t. The ‘Main Vein’ has four known steeply dipping ‘pay shoots’ where spectacular grades of >100g/t are seen and are mined. The problem is that grades with the ‘Main Vein’ are variable and inconsistent indicating that there will be some months or quarters where lower grades are seen before higher grades are again mined. .
• Development on the central pay shoot is now 100m long and more consistent grades are being mined as a result
• The Sao Chico mine is still in development and new access to more areas should help to iron out some of the grade variability.
• Exploration: Recent drilling at Sao Chico also indicated potential for gold grades to continue to 100m below the deepest development level indicating potential to extend the life and gold resource at this mine as we would expect.
• Processing: A Gekko intensive leach reactor ‘ILR’ was installed in November to recover gravity gold from ore at Sao Chico. This should speed up gold recovery, lower cash costs and may raise effective capacity. Instillation of a third ball mill at the Palito gold mine should allow throughput capacity to rise to 500tpd in Q2 2016 from the current 350-400tpd.
• Debt: Serabi have agreed extended repayment terms for the remaining loan with Sprott Resources Lending partnership. The balance of the loan was due in March. Payments are now due to be made monthly from March till end December
Conclusion: Serabi is effectively telling us of potential to deliver spectacular grades from ‘pay shoots’ off the ‘Main Vein’ at the new Sao Chico mine. The downside is that there will be months of lower grade between these much higher grade areas. We are hopeful that these higher grade areas where much gold is readily recoverable by gravity will produce some very good monthly and quarterly results going forward.
Mike Hodgson and his team appear to have be doing a good job at Sao Chico and Palito and we see their ability to add value in a potentially rising gold price environment as offering shareholders a good opportunity for value creation.
*An SP Angel analyst has visited Serabi’s Palito gold mine and other properties