Acacia Mining (LON:ACA) – Agreement for pre-payment of Tax in Tanzania
BHP Billiton (LON:BLT) – Iron Ore update – “relentless pursuit of the basics”
FinnAust Mining* (LON:FAM) – FinnAust completes acquisition of the Pituffik Titanium Project in Greenland
Kefi Minerals* (LON:KEFI) – Potential to raise gold production to >150,000ozpa at Tulu Kapi
Ortac Resources* (LON:OTC) – £350,000 Fund Raising
PolyMet* (NYSEMKT:PLM) – PDAC Presentation
SolGold* (LON:SOLG) – Conversion of convertible loan notes and cash raising
Stratex International (LON:STI) – Approaching commercial gold production at Altintepe
Bloomberg joke on Vale / Fortescue tie-up shows that good comedy does indeed reflect real life
• Vale joint venture agreement gives Vale option to buy a 5-15% stake in Fortescue Metals shares on market in Australia.
• The Father Ted joke goes:
o Father Ted [holding two toy cows]: OK, one last time. These
are small. [Points out window.] But the ones out there are far
away. Small. Far away. [Father Dougal shakes his head.] Ah, forget it.
https://www.youtube.com/watch?v=GFTgkibl7DU
• Vale has huge iron ore production far away from China while Fortescue’s is much smaller but significantly closer to its major customer
• The Vale / Fortescue deal is designed to increase the two group’s market share in China where Rio Tinto and BHP are naturally strong.
• The two groups should benefit from the ability to blend and better distribute some 80-100mt iron ore in China.
• The deal allows to blend Vale’s higher grade material with lower grade iron ore at Fortescue to target medium-grade space and gives Vale a foothold into iron ore from the Pilbara.
• The market segment for medium quality product is reported to have been more robust with more destinations to ship the product to including Japan and South Korea, SRK Consulting said commenting on the deal.
• An agreement between iron ore producers provides more scope for companies to adjust production rates depending on price developments in the market.
• Vale and Fortescue account for c.50% of Total iron ore production among top four producers (Rio and BHP being the other two), which in turn combined account for around 77% of global supply.
• Vale is the world’s largest iron ore producer at around 350mtpa, closely followed by Rio Tinto at 260mtpa, BHP at 240mtpa and Fortescue at 165mtpa
• Fortescue is carrying US$8.4bn of debt.
Iron ore futures prices are volatile today. Good physical buying is reported though futures are seen slightly lower on the day
• Iron ore futures hit US$62.5/t yesterday on the Dalian Commodity Exchange on the back of pro-stimulus comments of Chinese authorities at the annual National People’s Congress.
• The Benchmark Metal Bulletin price rose 28.46% to 63.74% for 62% Fe yesterday. Some commentators see the jump in iron ore prices as unsustainable.
Fitch downgraded its global growth forecasts on the back of a slowing investment in China and a reduction in consumption in resource economies.
• World GDP is set to climb 2.5% in 2016, down from 2.9% forecast in Dec release.
• Steepest cuts seen in Russia (-1.5% v +0.5% forecast previously) and Brazil (-3.5% v -2.5%).
• China recorded a marginal cut (6.2% v 6.3%).
• Growth in emerging economies is forecast to come down to 4.0% from 4.4% estimated before.
• Growth in developed economies has been cut to 1.7%, down from 2.1%.
• On a positive note, lower oil prices are helping consumers while advanced economies are moving past the worst part of the private sector deleveraging.
Exploration budgets contracted for a third consecutive year according to the latest World Exploration Trends report from SNL Metal & Mining.
• Nonferrous metals exploration spend fell 19%yoy in 2015.
• Last year’s budget amounted to US$9.2bn, less than half the record US$21.5bn recorded in 2012.
• SNL projects a modest decline in exploration budgets this year with the spend nearing crisis-hit 2009 levels.
International Women’s Day today
• The day is marked as a bank holiday in Russia. There does not appear to be a male equiValent except for something in Russia.
Dow Jones Industrials +0.40% at 17,074
Nikkei 225 -0.76% at 16,783
HK Hang Seng -0.73% at 20,012
Shanghai Composite +0.14% at 2,901
FTSE 350 Mining -4.40% at 9,608 – China export data leads copper down. Iron ore futures pull back slightly
AIM Basic Resources +0.74% at 1,769 The pull back in the FTSE 250 miners looks like a buying opportunity as investors take profits
Economic News
US – Economic news due this week:
Date Index Period Actual Expected (Bloomberg) Previous
Thursday Weekly Jobless Claims 275k 278k
Monthly Budget Feb -$200.0bn -$192.4bn
Source: Bloomberg
China – Trade data released this morning show an accelerating decline in shipments in Feb.
• Exports and imports underperformed estimates falling by 25.4%yoy and 13.8%yoy, respectively.
• While timing of holidays this year meant the base of comparison was distorted last year, combined data for Jan and Feb point to a significant decline compared to the previous year.
• Exports: -25.4%yoy v -11.2%yoy in Jan and -14.5%yoy forecast.
• Imports: -13.8%yoy v -18.8%yoy in Jan and -12.0%yoy forecast.
Japan – Final Q4 GDP reading has been revised upwards from previous estimates against expectations for a deeper contraction.
• Q4 GDP: -1.1%yoy v -1.4%yoy estimated previously and -1.5%yoy forecast.
• Revisions were attributed to a lower decline in consumption as well as a positive revision in capital expenditures growth.
Germany – Industrial production surged 3.3%mom in Jan recovering from a 0.3%mom decline (revised from -1.2%mom) in Dec.
• Growth was widely spread with output of capital and consumer goods up 5.3%mom and 3.7%mom.
UK – Retails sales growth slowed in Feb as consumers cut purchases following the Jan sales season.
• Sales inched up 0.1%yoy on like-for-like basis in Feb compared with a 2.6%yoy increase in Jan and a 0.5%yoy growth forecast.
• Market commentators suggest retailers are to come under additional pressure next month when the new higher living wage for people aged over 25 years come into force.
Currencies
US$1.1015/eur vs 1.0960/eur yesterday. Yen 112.95/$ vs 113.54/$. SAr 15.437/$ vs 15.384/$. $1.424/gbp vs 1.415/gbp
0.743/aud vs 0.741/aud. CNY 6.506/$ vs 6.517/$ unch.
US dollar weakens as oil rises and selling pressure by oil rich sovereign wealth funds abates
Commodity News
Precious metals:
Gold US$1,275/oz vs US$1,266/oz yesterday –
Gold ETFs 55.5moz vs 55.4moz yesterday
Platinum US$1003/oz vs US$999/oz yesterday – strong move for platinum and palladium despite slippage in gold prices. The move may reflect some catch-up with gold?
Palladium US$565/oz vs US$560/oz yesterday
Silver US$15.64/oz vs US$15.64/oz yesterday
Base metals:
Copper US$ 4,950/t vs US$4,971/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$173m in equity with the remainder funded by debt.
• News on the development comes at the time when mining majors including suspending operations in the area on the back of low prices.
Aluminium US$ 1,588/t vs US$1,580/t yesterday
Nickel US$ 9,105/t vs US$9,280/t yesterday
Zinc US$ 1,805/t vs US$1,820/t yesterday
Lead US$ 1,853/t vs US$1,870/t yesterday
Tin US$ 16,880/t vs US$17,060/t yesterday
Energy:
Oil US$40.6/bbl vs US$39.4/bbl yesterday –
Natural Gas US$1.714/mmbtu vs US$1.635/mmbtu yesterday
Uranium US$31.05/lb vs US$31.40/lb yesterday
Bulk comodities:
Iron ore 62% Fe spot (cfr Tianjin) US$59.5/t vs US$60.0/t –
Thermal coal (1st year forward cif ARA) US$41.10/t vs US$40.70/t yesterday
Other:
Tungsten - APT European prices stood at $168-185/mtu vs $165-185/mtu a very small further tick up
Company News
Acacia Mining (LON:ACA) 288.9 pence, Mkt Cap £1184.7m –Agreement for pre-payment of Tax in Tanzania
• Acacia Mining reports that it has reached agreement, in the form of a memorandum of understanding, with the Tanzania Revenue Authority, for the prepayment of corporate tax commencing in 2016.
• “Based on its current estimates, Acacia is bringing forward the payment of corporate tax by approximately three years, given that the taxable income generated over this period would in the first instance be offset by around US$80 million…”
• The Company points out that the US$80m “will still be recovered” and that this is a timing issue. Acacia expects to pay approximately US$20m tax in Tanzania in 2016.
• Pointing out that the Company had initiated the discussions with the Tanzanian authorities, the CEO, Brad Gordon, commented “We believe this agreement is mutually beneficial for all parties as we receive greater certainty over future VAT receipts and Tanzania sees an earlier corporate tax contribution fom Acacia than previously envisaged. In 2015, our net tax contribution was US$109 million and this agreement will significantly enhance our overall contribution, whilst further strengthening our relationships with Tanzania.”
Conclusion: Acacia Mining has moved to cement its position within Tanzania through an agreement to bring forward tax payments to the Government; we wonder if the need to make a proactive approach was deemed preferable to some alternative outcome perhaps being considered by Tanzania.
BHP Billiton (LON:BLT) 854.1 pence, Mkt Cap £48.6bn – Iron Ore update – “relentless pursuit of the basics”
• In an address to the Global Iron Ore and Steel Forecast Conference, BHP Billiton’s Edgar Basto pointed out that “The Chinese Government’s steel industry restructure plans will take time to implement but it’s important to note a reduction in excess capacity will mean improved sustainability of the industry and our customers are likely to benefit from any consolidation.”
• Referring to the Company’s Western Australian operations, Mr Basto noted “We continue to increase our productivity in Port and Rail as we approach our targeted run rate of approximately 270 million tonnes per annum.” Among the key factors, the growth is attributed to optimisation of the pit-to-port scheduling and the “alignment of maintenance shutdowns across our mines, port and track.”
• Mr Basto’s comments are a timely reminder that improvements at the operating level are fundamental to the continuing success of any mining business and he notes that “Our productivity drive has supported an EBITDA margin of over 50 per cent at WAIO despite the iron ore price halving since 2012.” Some commentators might, however, argue that the rapid build-up in iron ore production volumes by the majors contributed to the decline in iron ore prices.
• BHP Billiton is looking to “deliver faster replication of leading practices and improved technologies across all of BHP Billiton’s global operations as well as a major reduction in the costs of our functions.”
Conclusion: BHP Billiton’s focus on the fundamentals of its operations and the “relentless pursuit of the basics” is a timely reminder for the entire mining industry – if one were needed. The Company also appears to be seeing a consolidation of the steel industry in China and reduction in Chinese steel capacity as beneficial in the longer term.
FinnAust Mining* (LON:FAM) 2.1p, mkt Cap £9m – FinnAust completes acquisition of the Pituffik Titanium Project in Greenland
• FinnAust have completed the acquisition of 60% of Bluejay Mining Limited which holds the Pituffik Titanium project in Greenland.
• The acquisition completed following consent of the change of control from the Greenland government.
• FinnAust also has an option to acquire the remaining 40% of Bluejay Mining limited for £594,393 to be paid by the issue of 108m new shares. The option is exercisable for a period of four years.
• The company has also reports the placement of £200,000 worth of stock at 2p/s a 264% premium to the 0.55p price seen on 7 December 2015 when the Bluejay deal was struck.
• FinnAust recently also raised £1m through the issue of 50m new shares at 2p/share with proceeds to be used to advance the Pituffik titanium mineral sands project in Greenland.
Conclusion: Its good to see the Bluejay (Pituffik) deal finally approved by the authorities.
* SP Angel acts as nomad and broker to the company
Kefi Minerals* (LON:KEFI) 0.4 pence, Mkt Cap £10.5m – Potential to raise gold production to >150,000ozpa at Tulu Kapi
(Kefi hold 75% of the Tulu Kapi project, Govt of Ethopia hold 25%)
• Kefi Minerals are working on a plan to potentially raise gold production to over 150,000ozpa in Ethiopia.
• The plan is included in a report on an updated Preliminary Economic Assessment which has been reviewed by independent technical experts for potential lenders
• This dramatic increase in gold production from an average of 115,000ozpa is down to the potential development of an underground mine at the site.
• The new 150,000ozpa production plan takes net cash flow to $100mpa and gives an attributable NPV of $150m based on a gold price of $1,250/oz (gold is currently at $1,263/oz).
• Kefi also report forecast cash flows of $135m in the first three years of production sufficient to repay $70m of project loans and to provide returns to shareholders.
• PEA highlights for potential underground mine plan:
o Underground mine NPV $44m @ 8% and $1,250/oz gold.
o Capex $37m
o Cash cost $664/oz,
o AISC $845/oz (All In Sustaining Cost)
o Cash Flow $30mpa
o Gold production 50,000ozpa
o Total ore production in plan 1.65mt grading 6.26g/t for 330,000oz at a 3.5g/t cut-off grade.
o Potential for more ore to be brought into the plan for >1moz underground ore resource.
• Conclusion: We suspect the underground mine will be relatively easy to finance as a separate or as part of the main project financing.
The higher grades mineable underground look extremely attractive and should serve to sweeten the open pit ore to the benefit of both operations.
This looks like a valuable and useful addition to the existing mine plan and we expect the open pit mine to break ground later this year.
*SP Angel act as Nomad and broker to Kefi Minerals
Ortac Resources* (LON:OTC) 0.035p, mkt cap £1.5m – £350,000 Fund Raising
• Ortac Resources has announced that it has raised a Total of £350,000 via a placing of 1.4bn new shares at a 0.025p/share.
• The funds are to “be used by the Company to develop its expanding portfolio of mineral projects and for working capital purposes.”
• The company’s directors have subscribed for 104m of the new shares and “Directors and parties connected thereto have subscribed for 200,000,000 Placing Shares.”
• The CEO, Vassillios Carellas commented that “Shareholders will be pleased to hear that Zamsort continues to move forward towards production and I shall be following up our investment in Casa Mining with a site visit over the next couple of weeks and look forward to reporting more news on my return.”
Conclusion: We look forward to project update following the CEO’s site visit to Casa Mining and to further news on progress at Zamsort.
*SP Angel acts as Nomad and broker to Ortac Resources
PolyMet* (NYSEMKT:PLM) US$1.00c, Mkt Cap US$278m – PDAC Presentation
• Polymet are presenting at the PDAC this week. We summarise key points from the presentation.
• Polymet’s NorthMet project is now at EC-2 on the EPA EIS rating scale.
• This shows that virtually all previous EPA and agency comments have been resolved alongside the review of important questions about project modelling
• The permitting process is now all but complete with ‘Records of Decision’, ‘State Permits’ and ‘Federal Permits’ to be done ahead of construction
• Management expect to be into commercial production within 24 months after receiving all final permits which should be sometime in 2018
• NorthMet cash flows remain attractive at current commodities prices due to the relatively low cost of open cast operation and low cost of railing ore from the mine to the Erie process plant.
• Polymet continue to enjoy support financial, commercial and technical support from Glencore with construction financing already in process
• Glencore holds the nickel and copper concentrate offtake agreements from the NorthMet mine and is well incentivised to help Polymet into production
• Polymet has a close alliance with Glencore and has a $42m loan facility as well as a $34m convertible placed with Glencore at US$1.29/s. Glencore understand the strategic importance of the Polymet’s NorthMet project and the value of its Erie plant within the US.
• Minessota has an abundance of recently unemployed skilled miners within its community and could easily use the >1,000 jobs which will be created in the construction of the project.
• Polymet has invested over $186m in the NorthMet project alongside including maintanence of the giant Erie processing plant and associated infrastructure. The Erie plant is a key asset within the group. The plant and infrastructure cost $300m and started construction in 1953-1957. It has a throughput capacity of >10mtpa for iron ore and has ample capacity for the processing of NorthMet’s more modest
• If Donal Trump becomes the next US president these assets may become all the more strategic and significant as the US will be increasingly likely to become more protectionist.
• The NorthMet mine plan is to extract 224mt grading 0.77% copper equiValent from a resource which contains a measured and indicated resource of 694mt of 0.74% copper equiValent. The NorthMet mine once restarted is expected to produce 24,000 tpa of copper, 4,500 tpa of Nickel and 53,000 oz of PGMs.
*SP Angel act as advisors and UK brokers to Polymet
SolGold* (LON:SOLG) 3.1p, Mkt Cap 25.3m – Conversion of convertible loan notes and cash raising
• SolGold has announced the conversion of convertible loan notes and the issuance of new stock to raise cash for the company
• The conversion of loans covers fees, remuneration and loans.
• 5.6m new shares are issued to the directors and a further 35.4m new shares go to service providers, employees and consultants.
• The drilling contractor has agreed to convert A$1m of fees into new shares.
• A further 52.4m new shares are issued to DGR Global and Tenstar Trading Limited as settlement for loans and interest.
• Another 35m new shares are issued to DGR Global to cover the conversion of an $805,803 loan.
• The company’s independent non-executive director, John Bovard, has given a fair and reasonable undertaking on the conversion of loans and on the issuance of new shares in lieu of fees and remuneration to directors, staff, consultants and contractors.
*SP Angel acts as Nomad and Broker to SolGold. An SP Angel analyst has visited the Cascabel project.
Stratex International (LON:STI) 2.55p, Mkt cap £8.3m – Approaching commercial gold production at Altintepe
• Stratex International reports that, following the first gold-pour at its 45% owned Altintepe mine in November last year and the operation “has made steady progress since the first gold pour in November last year and production is gearing up to the annualised level of at least 30,000oz, although heavy snow and resulting muddy conditions have slowed the ramp-up to full production.”
• The company now expects to achieve full commercial production by the end of March and “First cash flow to Stratex can be anticipated once the targeted production level has been achieved.”
• Under the terms of its agreement with its Turkish partners, Bahar Madencilik, the partner will receive 80% of the mine’s cash flow until it has recouped its US$39m construction costs.
• Initial mining in Phase 1 comes from the Camlik East and Camlik zones and “In the meantime, further technical and economic assessment is being completed on the Extension Ridge zone ready for the start of Stage 2 2 exploitation during the later stages of mining of the Camlik East and Camlik resources.”
• On other matters, the company reports that the legal challenges to the Environmental Study are being “managed in a very professional manner and to date the courts’ decisions have weighed in favour of Altintepe, although resulting appeals by the various bodies mean that final decisions are still awaited.” The company also points out, however, that “whatever the outcome, it will have no impact on the current mine development and project economics, which are based on the Camlik East and Camlik Zone Stage 1 exploitation, with development then moving on to the Extension Ridge Zone during Stage 2.”
Conclusion: Stratex is approaching the milestone of formal commercial production at Altintepe at which point it can look forward to an income stream which should provide the company with increased financial flexibility to pursue its exploration projects in west Africa.