Major Miners – recover from short term dip as metal prices continue recovery
• Major mining company shares are rising again as metal prices rise again led by oil
• The miners are generally following oil which led metals prices lower yesterday, though the miners fell by more than the oil companies which should be more affected.
• The irony is that lower oil prices are beneficial for mining company costs and that lower oil prices should act as a stimulus to global growth.
• The reality is that lower oil prices indicate more asset sales by oil-rich sovereign wealth funds and the potential for this drive equities lower in general.
• The longer oil prices stay below the cost per barrel of running oil-rich economies the greater the risk of further collapse within these emerging markets.
• Anglo and Glencore are leading the pack while Rio Tinto is down following Moodys debt rating cut to Baa1 from A3. The rating is still investment grade and has some way to fall to before it joins Anglo’s junk bond status.
Vale have reported the ‘mother of all losses’ with a $12.1bn loss today led by Q4 loss of
• Underlying loss excluding write-downs was $1.7bn this year vs $4.4bn in 2014 and $0.7bn of net income in 2014
• Moody’s kindly cut Vale to junk bond status yesterday. Seems to be a trend to downgrade these stocks a day of their results.
Oil vs Electric vehicles
• Bloomberg reckon electric vehicles sales will rise to match gasoline “sooner than you think”.
• We agree but, we also know that it is going to take time for the supply chain to grow to match new demand for commodities for the rise in EVs.
• Lithium is in great demand, but demand is sensitive to price and the FAA just banned lithium batteries from checked in luggage so its not an easy ride.
• Other REEs ‘rare earth minerals’ are also in strong demand. Prices might look low for some of these, but try and buy 10t of Neodynium and you will find out how difficult it is to actually buy the physical metal.
• Bloomberg reckon “Another Oil Crash Is Coming, and There May Be No Recovery”. This may be true but Saudi Arabia’s action to lower prices should ensure that oil remains competitive as a fuel for many years to come.
Economic News
US – Services sector unexpectedly contracted in Feb breaking a 27-month expansion.
“Reports from survey respondents suggested that softer underlying new order growth and uncertainty about the economic outlook on business activity in Feb,” Markit said.
Coupled with the weakest manufacturing sector reading in over three years, composite PMI index slowed to 50.1 signalling “the overall US private sector business activity stalled in Feb”. Economic news due this week:
China – Stock indices record the sharpest fall in a month amid surging money-market rates signalling tighter liquidity.
• Both the Shanghai and Shenzhen Stock indices have both fallen 6.4% and 7.3%, respectively.
• Overnight money rates are reported to have climbed the most since Feb 06.
Germany – Consumer confidence improved in Mar climbing to the highest level since Jul/15, according to the GfK report.
• “A major reason for this optimistic outlook is continued excellent state of German labour market,” the report said.
• The index climbed to 9.5 from 9.4 in Jan and 9.3 forecast.
UK – The IMF released its latest economic estimates yesterday saying the UK is set to post 2.2% growth in both 2016 and 2017.
• Inflation is expected to average 1.4% and 2.0% in two years.
• Among risks to growth the fund mentioned the 23 Jun EU membership referendum and potential changes to the global economic outlook.
Australia – Private capex spend surprisingly expanded 0.8%qoq in Q4/15 compared to estimates for a 3.0%qoq decline.
• The increase was driven by stronger numbers from investments in buildings, equipment, plant and machinery.
• On a less positive note, released estimates for FY numbers showed the economy is on track to record a third consecutive annual decline in private capex.
Company News
FinnAust Mining* (LON:FAM) 2p, mkt Cap £8.7m – SRK and GEUS to work on Pituffik titanium project
• FinnAust Mining have appointed SRK Exploration and the Geological Survey of Greenland to ‘GEUS’ to work on the Pituffik project in Greenland .
• GEUS were previously giving logistical support and are now engaged to design and execute the 2016 field season.
• This work includes the completion of initial metallurgical testwork to generate a representative concentrate sample for the project.
• SRK are to create a geological model and initial resource calculation as well as providing a ‘competent person’ for the resource estimation.
• FinnAust recently appointed independent experts, Peter Waugh and TZ Minerals International (TZMI) to assist it in assessing the near-term production potential at Pituffik.
* SP Angel acts as nomad and broker to the company
Hummingbird Resources (LON:HUM) 19.8 pence, Mkt Cap £21.1m – Extension of $15m bridge facility with Taurus Mining Finance
• Hummingbird announce a 6-month extension of their $15m bridge facility with the Taurus Mining Finance Fund LP.
• The extension is to allow Hummingbird to work with Taurus to fully fund the Yanfolila Gold Project more easily.
• SENET has also agreed to defer payment of $1.7m in fees which fell due for payment in April.
• SENET completed the process design and engineering study for the DFS announced in January.
• Hummingbird recently reported the completion of a further study on Gonka, an extension of the Yanfolila project.
• The Gonka study adds further resources and value to Yanfolila and adds 92,000oz at 2.3 g/t gold for a 4 year open pit + 77,000oz at 4.5 g/t for the underground.
• Ore can be trucked and processed at the Yanfolila process plant 5 km away when built.
• Average cash costs start at US$766/oz with open pit capex of US$3m and underground of US$10m.
• Processing cost was estimated at US$15.8m, with transport to processing plant of US$1.0/t and G& A cost of US$0.9/t.
• Adding Gonka to the Yanfolila DFS increases the NPV to US$166m from US$142m at a US$1,250/oz gold price and to US$101m from US$88m at a US$1,100/oz gold price.
• IRRs go from 55% to 56% and stay at 37% on the same assumptions.
Conclusion: Extending the bridge facility and the deferral if the SENET fees will help Hummingbird complete finance of Yanfolila project
Stratex International (LON:STI) 1.9p, Mkt cap £8.9m – $1.25m of new funding from jv partner Thani Stratex
• Stratex International have agreed the injection of $1.25m of new funding into their Thani Stratex jv from their Middle Eastern partner NutureEx B.V..
• The funds are in the form of a non-repayable, interest free convertible loan.
• The funding follows a previous $1m injection into Thani Sratex for a 40% interest in the joint venture company by the partner.
• The funds are to be used to drill a further 4,000m into the Pandora vein system in Djibouti.
• NurtureEx then has the right to fund a further $1.25m for another 4,000m of drilling to take its interest to 50% in Thani Stratex Djibouti.
• Pandora is an epithermal gold discovery in the Okila licence. The vein is on a major fault structure which extends for at least 5km and is up to 2.5m wide at surface.
• The vein can be traced NW for approximately 1.5km with mapping and sampling indicating that the structure outcrops for a further 510m to give a total vein strike length of 2.3km.