China continues to add to its stimulus efforts to maintain GDP growth and to restart stalled infrastructure projects
• The Chinese authorities continue to add to new measures to stimulate economic growth.
• China is cutting interest rates as well as making new funds available for infrastructure projects.
• The news should be good for metals and should help stimulate restocking by manufacturers following last year’s massive destocking and consequent collapse in prices.
• Glencore: News yesterday that banks were queuing up to lend to Glencore’s new Revolving Credit Facility was very good news for mining companies.
• The news confirms comments to us by bankers that they do not see a liquidity crisis in the banking system and they do not see problems with debt financing for miners.
• Anglo American, Glencore and most other miners had been heavily oversold on the back of liquidity concerns. Moodys downgrade of Anglo debt to junk bond status purely marked another point in the recovery of the shares. Downgrading the debt the night before Anglo’s year end results looked like a dastardly move to trash the shares before the stock opened though the stock continued to rise through the day.
Economic News
US – Jan FOMC meeting minutes released yesterday show growing concerns over risks to growth forecasts among policy-setting members.
• “A number of participants were concerned about the potential drag on the U.S. economy from the broader effects of a greater-than-expected slowdown in China and other (emerging market economies)," minutes read.
• Members agreed the outlook has become more uncertain suggesting the FOMC should wait for more evidence on the strength of the economy before tightening further.
• This may warrant a revision in inflation rate forecasts with a subsequent change in the pace of rate increases.
• The FOMC noted tighter financial conditions may be “roughly equivalent” to further hikes.
China – Inflation accelerated in Jan on rising food prices while consumer prices growth continues to trail the PBoC target of “around 3%”.
• The CPI climbed 1.8%yoy, up from 1.6%yoy recorded in Dec/15 and less than 1.9%yoy forecast by markets.
• Producer prices remained in the negative territory; although, the pace of decline improved.
• The PPI fell 5.3%yoy in Jan, improving from -5.9%yoy in Dec.
Japan – Jan trade data point to a significant slowdown in domestic and export demand.
• Japanese exports and imports fell 12.9%yoy and 18.0%yoy, respectively.
France – Inflation rate has been revised downwards highlighting challenges the ECB is faced with to reach its 2% target.
• A final reading for Jan was brought down to 0.3%yoy, down from 0.4%yoy estimate previously.
Brazil – S&P cut sovereign credit rating to BB, down from BB+, on “political and economic challenges”.
• “We now expect a more prolonged adjustment process with a slower contraction in fiscal policy, as well as another year o steep economic contraction”.
Australia – Unexpectedly unemployment posted an increase last month led by losses in full time payrolls.
• Unemployment climbed by 7.9k versus a 0.8k increase in Dec/15 and a 13.0k fall forecast.
• Jobless rate ticked up to 6.0% from 5.8% in the previous month and no change expected.
• Full time employment contracted by 40.6k, while part time payrolls climbed 32.7k.
• Australian dollar came off on the announcement before recovering some losses and settling in the range 0.714-0.716.
Greece –The nation continues with a painful adjustment process of the country’s competitiveness.
• Consumer prices are reported to have contracted 0.7%yoy in Jan marking the 35th month of declines.
Company News
Aureus Mining (LON:AUE) 3.25 pence, Mkt Cap £17.6m – Rising gold production as New Liberty moves towards commercial production
• Aureus Mining reports that it has produced a total of 11,001 ounces of gold in 2016 to date. This includes 5,478 oz during January and 5,523 oz so far in February and compares with a total of 17,172 oz produced during 2015 when the plant started commissioning.
• The company is starting to see the benefits of the plant optimisation which started in mid-January, with improving gold recovery rates averaging 85% during February to date and 87% achieved over the last seven operating days. “Further improvements in gold recovery are expected following the introduction of new carbon into the CIL circuit of the processing plant.”
• The company comments that “It is anticipated that overall plant performance will continue to improve towards design levels throughout the coming weeks, with Commercial Production expected to be declared by the end of March 2016.”
• Aureus Mining expects to complete an updated mine plan for New Liberty by the end of this month and intends to use this as a basis for further discussions with its lenders, Rand Merchant Bank, Nedbank and the Export Credit Insurance Corporation of S Africa in relation to a rescheduling of debt repayments following the deferral of its first repayment due on 31st January.
Conclusion: It appears that the New Liberty mine is moving towards Commercial Production with improved recovery rates and rising gold output. The outcome of debt rescheduling discussions will be an important milestone, however with rising gold output and the recent improvement in gold prices, Aureus Mining’s operating performance should start to improve from here.
Dalradian Resources (LON:DALR) 41.375 pence, Mkt Cap £89.1m – Further high grade drilling results from Curraghinalt
• Dalradian Resources has reported drilling results from a further 51 drill holes in its continuing drilling programme at it Curraghinalt property in Northern Ireland. Today’s results come mainly from holes drilled in the central and western parts of the property and were generally drilled towards the south in order to test a series of steeply north-dipping mineralised veins.
• These results represent a total of 13,365 metres of the 50,000 metres planned infill drilling programme and together with results of 91 holes released earlier, bring the total results released so far to 142 holes (39,582m)
• Among the results highlighted, are 3.67m averaging 15.33g/t gold from a depth of 243.7m in hole 15-CT-307 and 2.05m averaging 15.79 g/t gold from 333.44m in hole 15-CT-312 which intersected the No 1 Vein.
• The T17 Vein was intersected in holes 15-CT-296 (1.84m averaging 33.9g/t gold) and hole 15-CT-308 (1.62m averaging 48.31g/t) while a 0.72m intersection of the V55 vein averaged 106.57g/t (Hole 15-CT-297) and a 0.76m wide intersection of the 106-16 vein in hole 15-CT-317 averaged 95g/t gold.
• The company notes that “These intercepts correlate well with and improve the current geological model with respect to the continuity and smoothness of the individual wireframes….with test stoping to begin shortly, we remain on track for completion of our feasibility study in the second half of the year.”
Conclusion: The infill drilling at Curraghinalt is continuing to produce high grade intersections from multiple, relatively narrow veins and the company reports that it will be completing its feasibility study during the second half of the year. The test mining programme should also add considerable information for the forthcoming feasibility study. We look forward to the next tranche of drilling results and, we imagine there will be an updated resource estimate once the results have been integrated into the block model.
First Quantum Minerals (LON:FQM) 245 pence, Mkt Cap £1.69bn – Three year guidance shows continuing commitment to copper mine developments
• First Quantum Minerals has issued production capital and operating cost guidance for the next three years to 2018.
• In copper production, the company expects to maintain output from its existing portfolio of mines at around 400,000 tpa largely based around 235-240ktpa from its Kansanshi mine and 70ktpa from Las Cruces. Expansion of group copper production is expected to come from the ramp up of the Sentinel mine in Zambia from 135-155,000 tonnes this year rising to 230-260,000 tonnes in 2018.
• Nickel production is expected to be maintained at around 40,000 tpa based around 28,000 tpa from Ravensthorpe and 13,000 tpa from Kevitsa.
• Gold production rises slightly from 215,000 oz this year to 225,000 oz in 2017 and 2018 as a result of minor increases in the contributions from Kevitsa and Pyhasalmi.
• Capital expenditure this year is expected to be approximately $710m, including $390m for Cobre Panama, $200m for waste stripping and $100m for sustaining capital. In 2017 and 2018, the company indicates that it is expecting to spend around $820m each year, “with Cobre Panama net capital expenditure of approximately $480m per annum”. We note that in addition to the Sentinel mine, First Quantum is looking to spend a further $1.35bn over the next three years on its next copper project at Cobre Panama which represents almost 60% of the planned capital expenditure over the period.
• The company expects to return cash costs of around $1.15-1.45/lb for copper production from its existing mines this year rising to between $120-1.40/lb in 2017 and 2018. Nickel cash costs are expected to range between $4.00 to $4.40/lb over the three year period.
Conclusion: First Quantum is sticking to its roots in copper production with the start of its new Sentinel mine and a further $1.35bn over the next three years to advance Cobre Panama.
European Metals (LON:EMH) 6 pence, Mkt Cap £5.2m – Cinovec drill results
• European Metals reports results from the Cinovec project in the Czech republic.
• The project lies on the border with Germany and has long been known as a historic tin mine.
• Hole PSn01 returned a good intersection of 156m at an average grade of 0.46% Li2O (lithium oxide).
• This includes a higher grade interval of 64m grading 0.63% Li2O including enriched tin and wolframite (tungsten).
• The tin and tungsten were seen in 36m grading 0.22% tin and 20m grading 0.18% wolframite.
• Hole PSn07 returned 194m grading 0.32%Li2O including 47m at 0.47% Li2O from 288m to 335m depth.
• The two holes are some 500m apart with mineralisation starting at 227m and 72m respectively according to the reported figures.
• Interestingly the release only gives us grades from two off the four holes reported leading us to wonder what the grades of the other two holes are?
• Drilling is largely designed to confirm Cinovec’s inferred mineral resource of 514.8mt grading 0.43% Li2O.
• The project also contains 79.7mt grading 0.23% tin for 183kt of contained metal
o The inferred resources are based on 83,000m of historic drilling and 21.5km of historic underground exploration drifting.
o A 400,000t mining trial using sub-level open stoping has been previously undertaken giving some insight as to how best to mine the deposit if the economics allow.
o European Metals quote a potential production cost of around $800/t for lithium carbonate production though this will need confirmation and may be subject to further upward revision in our view.
Conclusion: These are interesting results though much work will need to be done to confirm the economics of the Cinovec project. Investors should be aware that the market for lithium companies has the potential for a degree of ‘irrational over exuberance’.
Ortac Resources* (LON:OTC) 0.028p, mkt cap £1.2m – Ortac partner, Andiamo gives update on progress in Eritrea
(Ortac holds 25% of Andiamo)
• Ortac Resources’ partner Andiamo have announced further progress in drilling at the Hoba prospect in Eritrea.
• The Andiamo team have just completed a 2,000m second round drilling program.
• Hoba is confirmed as a VMS ‘volcanogenic massive sulphide’ system suggesting the potential for more high grade mineralisation.
• So far results at Hoba show good widths of 0.8-1.1% copper across 8.5-21.9m intersections.
• Andiamo have not given a tonnage estimate as yet for the Hoba prospect.
• Yacob Dewar: A new JORC indicated resource is estimated to contain 880,000t of ore grading 2,82g/t gold for 80,000oz of gold and 0.37% cu for 5,200t of copper.
• The prospect also contains a small inferred resource of 60,000t grading 2.37/t gold and 0.43% copper for and additional 4,500oz gold and 16,700t copper.
Conclusion: the results show good progress in Eritrea with Hoba and Yacob Dewar both indicating good reason to continue to investigate the properties.
*SP Angel acts as Nomad and broker to Ortac Resources
Keras (LON:KRS) – Soon to be London’s next and possibly only listed Australian Gold Producer
With the name change from Ferrex to Keras the company is now focused on near term cashflow projects in Australia. Key points below:
• Keras have signed a 5 year tribute with Paddington Gold a subsidiary of Norton Gold Fields to produce from small scale deposits within their leases
• All product will be treated at the Paddington Mill which has capacity and is only 25km from the deposit.
• The company reckons it is funded to first production in Q2 and aim to produce c. 25koz pa.
• First production from two existing open pits (est. 164,000t @ 1.4g/t for 7,200oz) with no need to pre-strip. Confirmatory grade control drilling started.
• There are a further two open pits to follow, both oxide with historical resources of 150,000t @ 2g/t for 10,000oz and they are doing an internal FS into the restart of the Prince of Wales UG Mine which has c. 650,000t @ an ave. 10g/t for 209,000oz.
• All development will be funded by cashflow meanwhile there are plenty of other opportunities to investigate nearby.
• They will hire their own equipment but contract mine to keep costs low.
• Payment wise they get paid 30days from delivery
• On the numbers side their AISC C3 costs (which includes the 22% royalty to Norton) is c. A$1,200oz against the current gold price there of A$1,680/oz giving them c. A$400/oz margin ie A$10m pa based on production of 25koz.
• In terms of their existing portfolio, the iron ore is on the back burner for the time being given the current price. In Togo they are working on the mining licence for their manganese licence with a view to doing a joint venture on the project once they get it.
Keras will become London’s next listed Australian gold miner. The Australia gold sector is currently booming due to the weak Aussie dollar looks set to become the next gold producer on AIM with production due to start in Q2. There are further similar opportunities with companies either cash strapped and or lacking the skill set to mine or simply not focused on the smaller deposits which they are looking at that have the potential to add further near term production oz. So far the market has not picked up on this - BUY