Metminco * (MNC LN) - Acquisition of Colombian Gold Project
Metals Exploration* (MTL LN) – Runruno Project update
Xtract Resources (XTR LN) – Manica Project economics
PolyMet* (PLM US) – State of Minnesota validates PolyMet EIS
Iron ore prices jump 21%
• Iron ore producers to gain from sudden jump in iron ore prices
• News that iron ore prices had jumped >20% came out after Friday’s close
• Fortescue Metals rose 24% in Australia this morning highlighting its leverage to iron ore prices
• China watchers are looking for pro-stimulus statements coming out of the China National Peoples Congress which is going on this week
Lithium – Daimler Spending €500m on new Li battery in Germany
• Daimler AG have announced plans to spend €500m on the development of a new Li battery factory in Germany.
• The move should roughly triple Deutsche ACCUMOTIVE’s production space with the group buying another 20Ha of land next to their existing facility.
• The announcement follows a €100m investment in increasing battery capacity in 2014.
• Daimler ACCUMOTIVE also plans to enter the stationary battery storage market as well as providing batteries for EV, hybrid and general automotive use.
• Daimler ACCUMOTIVE started production in 2012 and has delivered more than 70,000 Li-ion batteries to date
• “The scalability of the systems enables the use of the lithium-ion batteries in large industry for network stabilization and smoothing of peak shaving for energy producers as well as private households.”
• The move highlights the advance of automotive manufacturers into electric vehicles and Lithium-ion technology as important part of the transition.
• We expect other manufacturers to follow Daimler’s move. Toyota, Mitsubishi and Tesla still look like the market leaders in this space.
SQM – 20% stake sale will not be blocked by Chile
• SQM, the world’s largest lithium producer based in Chile may potentially cede control to Potash Corp in Canada.
• Potash Corp of Saskatchewan is keen to buy the stake to take its stake to 50% of SQM
• SQM produces potash in Chile as well as lithium from brines from Chilean ‘salars’ salt lakes so you can see why the deal is attractive to Potash Corp
• SQM holds licenses and access rights to additional salars indicating that it may be able to raise lithium production levels on further investment.
• The cost of lithium production from brines is around $2,000-3,000/t of lithium carbonate which is somewhat cheaper than hard rock producers at around $3,000-5,000/t
• SQM produces around 48,000tpa out of a total market of around 250,000tpa
Economic News
US Non-farm payrolls released on Friday showed NFPs increased at a faster than anticipated rate, while growth in earnings disappointed.
• The US dollar closed lower after the mixed report with markets assigning low chance of a hike during the Mar meeting.
• Economic news due this week:
Date Index Period Actual Expected (Bloomberg) Previous
Friday NFP Feb 242k 195k 172k (revised from 151k)
Unemployment Rate Feb 4.9% 4.9% 4.9%
Av Hourly Earnings Feb -0.1%mom/2.2%yoy 0.2%mom/2.5%yoy 0.5%mom/2.5%yoy
Thursday Weekly Jobless Claims 275k 278k
Monthly Budget Feb -$200.0bn -$192.4bn
Source: Bloomberg
China – Premier Li Keqiang has outlined broad economic targets for the next five years with top priority given to development.
• In a move towards planned growth rates the government will permit a record high deficit and raised its money supply expansion target, Premier highlighted.
• GDP is set to increase 6.5-7.0% this year with 6.5% planned as a base case through 2020.
• Fiscal deficit to GDP to expand to 3%, the highest in the history of the People’s Republic of China, up from 2.3% targeted last year and the 2.4% realised ratio.
• By the same token, total outstanding debt is forecast to further expand from 247% recorded in 2015.
• Inflation to be allowed to climb at around 3%.
• The government plans new tax breaks to stimulate demand. The programme to include deductions for mortgage interests, education expenses and the cost of raising children.
• Authorities dropped a target for trade highlighting difficulties in targeting such volatile metrics as exports/imports.
• The expansionary bias in the fiscal and monetary policies should provide support to commodity markets.
• Trade and inflation data are due this week.
• Estimates are for exports to post a 14.5%yoy decline in Feb with imports down 12.0%yoy (Tuesday).
• Inflation pace expected to have held unchanged at 1.8%yoy in Feb (Thursday).
ECB – The central bank is due to release its policy statement on Thursday with market estimates for a cut in the interest rate and an increase in bon-purchases programme.
• The rate is forecast to be cut 10bp to -0.4%.
Germany – Factory orders contracted for a second consecutive month in Jan, albeit at a slower pace.
• Orders were down 0.1%mom in Jan compared with a 0.2%mom (revised from -0.7%mom) in Dec and -0.3%mom forecast.
• Weak numbers come on top of reports showing producer prices contracted for 30th consecutive month in Jan and business sentiment falling to a four year low.
Currencies
US$1.0960/eur vs 1.0969/eur yesterday. Yen 113.54/$ vs 113.65/$. SAr 15.384/$ vs 15.667/$. $1.415/gbp vs 1.414/gbp
0.741/aud vs 0.737/aud. CNY 6.517/$ vs 6.517/$ unch.
US dollar regains losses following slightly disappointing non-farm payrolls
Commodity News
Precious metals:
Gold US$1,266/oz vs US$1,272/oz yesterday –
Gold ETFs 55.1moz unch on yesterday –
Platinum US$999/oz vs US$958/oz yesterday – strong move for platinum and palladium despite slippage in gold prices. The move may reflect some catch-up with gold?
Palladium US$560/oz vs US$540/oz yesterday
Silver US$15.64/oz vs US$15.43/oz yesterday
Base metals:
Copper US$ 4,971/t vs US$4,895/t yesterday – Chinese investors approved a US$578m plan to develop a copper project close to Kolwezi, the DRC.
• Shareholders of COMMUS project will put in US$173m in equity with the remainder funded by debt.
• News on the development comes at the time when mining majors including suspending operations in the area on the back of low prices.
Aluminium US$ 1,580/t vs US$1,576/t yesterday
Nickel US$ 9,280/t vs US$8,880/t yesterday
Zinc US$ 1,820/t vs US$1,839/t yesterday
Lead US$ 1,870/t vs US$1,836/t yesterday
Tin US$ 17,060/t vs US$16,545/t yesterday
Energy:
Oil US$39.4/bbl vs US$37.0/bbl yesterday –
Natural Gas US$1.635/mmbtu vs US$1.627/mmbtu yesterday
Uranium US$31.40/lb vs US$32.80/lb yesterday
Bulk comodities:
Iron ore 62% Fe spot (cfr Tianjin) US$60.0/t vs US$49.6/t – Prices came off multi-year highs yesterday on the back of maple inventories in China.
Iron ore – Futures hit US$62.5/t on the Dalian Commodity Exchange on the back of pro-stimulus comments of Chinese authorities at the annual National People’s Congress.
• Benchmark Metal Bulletin price for 62% Fe delivered in Qingdao is expected to follow suit and record an increase from US$53.8/t, the highest since Oct, seen on Friday.
Thermal coal (1st year forward cif ARA) US$40.70/t vs US$39.50/t yesterday
Other:
Tungsten - APT European prices stood at $168-185/mtu vs $165-185/mtu a very small further tick up
Company News
Metminco * (LON:MNC) 0.255 pence, MKT Cap £7.6m - Acquisition of Colombian Gold Project
• Metminco are taking over the Quinchia Gold Project in Colomba via the acquisition of Minera Seafield SAS, a subsidiary of the Canadian Company, Seafield Resources from RMB which acquired the Colombian assets after successfully applying for a receiver to be appointed for Seafield Resources in September 2014.
• The Quinchia Project hosts an NI-43-101 compliant resource of 2.8m oz of gold in two deposits; Miraflores (1.88m oz -Measured, Indicated and Inferred) and Dosquebrados (1.04m oz- Inferred only).
• The licences acquired also contain the Tesorito gold porphyry system "where drill hole TS-DH-02 returned an intercept of 384m @ 1.01 g/t gold, 0.9 g/t silver and 0.08% copper from surface (including 29.3m @ 1.9 g/t gold, 1.0 g/t silver and 0.12% copper)".
• The Quinchia property also hosts what is describes as "significant regional exploration potential" within the well known Cauca Porphry Belt which hosts a number of significant gold deposits including Anglogold Ashanti's 33m oz La Colosa deposit and Gran Colombia's 12m oz Marmato gold mine.
• Subject to the successful completion of a Sale & Purchase Agreement, Metminco will issue 50m shares to RMB and make an initial cash payment of A$1m twelve months after Settlement. Further cash payments of A$1m at twenty-four months and A$3m at the earlier of thirty-six months or the decision to mine. A fourth payment of A$2m is due at the earlier of a decision to mine or at forty-eight months.
• The more advanced, Miraflores deposit contains a Measured and Indicated resource of 72.6m tonnes at an average grade of 0.78g/t gold and 1.52 g/t silver and an additional 3.76m inferred tonnes at an average grade of 0.51 g/t gold and 2.28 g/t silver.
• Dosquebrados contains an inferred resource of 57.8mt at an average grade of 0.5g/t gold, 0.6 g/t solver and 0.04% copper.
• Much of the longer term value may, however, lie in the further assessment of the exploration ground which contains substantial porphyry intrusions similar to those known to host large gold deposits elsewhere along the belt.
Conclusion: Metminco has acquired a substantial package of exploration projects in a known gold belt hosting major gold deposits. The resources defined by the previous owners are relatively low grade, however, Metminco has proved adept at redefining its own los Calatos project in Peru in order to enhance the economics through adjusting the scale of mining to improve capital and operating costs and they will now to be able to deploy these skills at Quinchia. Metminco has already identified potential to reduce the initial capital costs and sustaining capital of US$ 83m and US$123m respectively by more than 25%. "Operating costs are also anticipated to significantly reduce".
*SP Angel act as joint-broker to Metminco
Metals Exploration* (LON:MTL) 4.125 pence, Mkt Cap £65.3m – Runruno Project update
• Metals Exploration confirms that it is continuing to work with the Philippines Mines and Geosciences Bureau to “facilitate the partial suspension order being lifted.”
• The Bureau is verifying the completed rehabilitation and enhancement work put in place after the super typhoon Lando and ensuring that the work has been completed to the required standard “and that the third party geotechnical and design reports are satisfactory.”
• “Once the MGB is satisfied and the partial suspension order lifted the Runruno Project will complete ore commissioning and move into commercial operations shortly thereafter.”
Conclusion: Metal Exploration looks likely to be able to complete the commissioning work at Runruno shortly following delays caused by the need to repair the damage caused by super typhoon Lando and upgrade facilities
*SP Angel act as Broker to Metals Exploration
Xtract Resources (LON:XTR) 0.185 pence, Mkt Cap £18.0m – Manica Project economics
• Xtract Resources has released highlights of an internal review on the economics of the Manica gold project in Mozambique.
• At a gold price of US$1250/oz, the company estimates that Manica generates an NPV of US$70m at a discount rate of 10% and generates an
• IRR of 50%. These figures compare with an NPV of US$50m and IRR of 58% reported in the Preliminary Economic Assessment (PEA) of the project’s previous owners, Auroch Minerals.
• The company expects production to commence in Q4 2017 and operate for 12 years (PEA estimate 8 years) to recover a total of 477,000 oz of gold (PEA estimate 316,000 oz).
• Xtract Resources expects pre-production capital expenditure for the open pit mine to rise from the PEA estimate of US$28.4m to US$35m and “additional capital of US$14m, from cash flow, will be expended in years three and four of the MAnica Project as part of the underground access development compared to US$8.7m capital for underground development planned in PEA (8 years of underground mining projected vs 3 years under the PEA).”
• Cash costs are now estimated at US$757/oz compared with US$650/oz.
• The company I currently completing a new resource estimate for Manica and expects to release an update in the near future.
Conclusion: Xtract Resources has enhanced the NPV of the Manica project through extending the life of the underground mining phase and significantly increasing the total volume of gold production, albeit at a higher capital cost.
PolyMet* (NYSEMKT:PLM) US$1.00c, Mkt Cap US$278m – State of Minnesota validates PolyMet EIS
• PolyMet continue to advance towards the receipt of relevant permits for mining and processing in the State of Minnesota.
• The company which owns the giant Erie processing plant and associated facilities as well as the nearby NorthMet copper-nickel-PGE ore body, is well placed to complete the permitting process.
• The Erie plant includes substantial tailings impoundment and other infrastructure which are necessary for mining within the area. New operations will bring some legacy environmental issues into compliance with current standards.
• Last week the State’s announced that the PolyMet Final EIS, published late last year, is complete and meets various regulatory requirements. After a decade and nearly $100 million, this is a big milestone for PolyMet. This was the State’s final action required on the environmental review.
• This paves the way for PolyMet to complete permitting and start construction of the NorthMet copper/nickel mine which lies just along from the taconite mines on the Mesabi iron range.
• The land exchange which will give PolyMet surface rights over nearly 30 square miles including the plant site and mine site, is proceeding well. Once completed, PolyMet will be able to drill some of the high-priority targets it has identified south, east and west of the current reserves.
• The mine is at the western end of the Duluth Complex though it is not connected to Antofagasta’s (Duluth Metals) Twin-Metals project which lies in the Boundary Water wilderness area and therefore faces different permitting challenges.
• Environmental sensitivities in the area might force other projects in the Duluth Complex to use existing permitted sites for processing and tailings impoundment going forward.
• Glencore continue to support and fund PolyMet through the permitting process with the result that PolyMet are now well placed to receive final permits to start reconstruction and reconditioning of the Erie plant.
• The sooner the permits arrive the sooner PolyMet can start hiring staff for the reconditioning and redevelopment of the Erie plant and associated infrastructure.
• As the Company says, this is a great time to buy equipment and build a mine, with equipment costs down and delivery lead times shortened.