DiamondCorp (LON:DCP) – Polished diamond sales and expansion of the mining equipment fleet.
Metminco * (LON:MNC) – Miraflores update
Shanta Gold* (LON:SHG) – Q1 gold production compares well with Q3 ‘15
Stratex International (LON:STI) – Thani Stratex raises US$2m
Clouds gather on resources horizon
• Copper treatment and refining charges are rising at $86.9/t & 8.67c/lb indicating a surplus of copper concentrate material.
• Chinese manufacturers appear to be slower to draw down copper stocks than expected with stock levels in Shanghai building higher at 330,000t.
• Shanghai stocks peaked at 395,000t last week but this is still more than double LME stocks which have been drawn down to a paltry 145,000t.
• Question is how fast will Chinese consumers draw down local stock levels?
• We will find out soon but we are more cautious than we were and would sell the rallies rather than buy the dips till we get greater clarity on China’s new demand growth.
• US and Eurozone economic growth look slow in comparison with China, with US industrial production dragged down by lower activity in the oil & gas sector, but with China looking slower than expected to restock on metals we are more a touch more cautious for the impact of new Chinese demand.
Well done to the 121 team for a very well run and attended Mining Investment Conference in London last week
• The event demonstrated growing interest within the investment community for equity and for developing ideas in the mining space
Extel survey – voting for the Extel survey is open
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Economic News
US – This week economic news:
Date Index Period Actual Expected (Bloomberg) Previous
Tuesday Housing Starts Mar -1.1%mom 5.2%mom
Building Permits Mar 2.0%mom -2.2%mom
Wednesday Existing Home Sales Mar 3.5%mom -7.1%mom
Thursday Weekly Jobless Claims 265k 253k
Philly Manufacturing Index Apr 8.0 12.4
Friday Manufacturing PMI Markit Apr 52.0 51.5
Source: Bloomberg
China – The PBoC is reported to have significantly expanded the so-called money multiplier, a measure of the extra credit that’s created by additional base money from the central bank.
• The gauge has climbed to the highest level since 2006, according to Bloomberg data.
Japan – The yen seen giving up its gains driven by a risk on sentiment in markets today amid stronger oil prices.
• The currency is currently trading at 109.2 v 108.0, the lowest in over a week, recorded yesterday.
UK – Leaving the EU will leading to losses in GDP ranging from 3.4% to 9.5% over 15 years as opposed to staying, latest Treasury estimates suggest.
• The extent of a potential reduction in GDP will depend on the final framework of the agreement with the EU trading partners: EEA (-3.4%/-4.3%), Bilateral agreements (-4.6%/-7.8%) and WTO (-5.4%/-9.5%).
Brazil – The lower house of congress passed the impeachment vote against President Dilma Rousseff on Sunday evening.
• The vote puts the 13 years of PT rule under pressure.
• The vote is now handed over to the 81-seat senate.
• Should the senate support the vote, Ms Rousseff would be suspended and her vice-president would take over as acting president.
• Mr Tremer heads the PMDB, congress’s biggest party that used to be in coalition with the PT before the partnership has been broken down last month with the party pursuing the impeachment.
Australia – The Australian dollar hit the highest level in 10 months the release of the hawkish RBA minutes.
• The minutes said the current monetary policy was “very” accommodative which was interpreted as authorities’ signalling rates were not going any lower.
• The odds of a 25bp cut in May fell 3pp to modest 14% today.
Currencies
US$1.1337/eur vs 1.1302/eur yesterday. Yen 109.27/$ vs 108.27/$. SAr 14.378/$ vs 14.649/$. $1.433/gbp vs 1.417/gbp
0.778/aud vs 0.768/aud. CNY 6.470/$ vs 6.480/$ - Yuan strengthening as US dollar pulls back.
Commodity News
Precious metals:
Gold US$1,243/oz vs US$1,235/oz yesterday –
• Gold ETFs 56.8moz vs US$56.6moz yesterday –
Platinum US$992/oz vs US$981/oz yesterday
Palladium US$572/oz vs US$564/oz yesterday
Silver US$16.66/oz vs US$16.16/oz yesterday
Base metals:
Copper US$ 4,788/t vs US$4,787/t yesterday – Copper Tc/Rc have risen 5.5% since end March to $86.9/t & 8.67c/lb. The rise in rates indicates to us a surplus of concentrate material.
Aluminium US$ 1,568/t vs US$1,550/t yesterday
Nickel US$ 8,985/t vs US$8,955/t yesterday – The market reported a 3.6kt surpluys in Feb, according to the INSG data.
• With LME inventories hovering around record high and the market continuing to post surpluses the nickel outlook remains challenging.
Zinc US$ 1,892/t vs US$1,882/t yesterday
Lead US$ 1,718/t vs US$1,707/t yesterday
Tin US$ 17,005/t vs US$17,160/t yesterday
Energy:
Oil US$43.2/bbl vs US$41.2/bbl yesterday –
Natural Gas US$1.946/mmbtu vs US$1.908/mmbtu yesterday
Uranium US$27.00/lb vs US$25.90/lb yesterday
Bulk comodities:
Iron ore 62% Fe spot (cfr Tianjin) US$57.0/t vs US$57.6/t – Following a failed meeting in Doha, a separate event hosting China and other major steel-producing countries organised to agree measures to tackle a global steel crisis have not succeeded either.
• A meeting of ministers and trade officials from over 30 nations held in Belgium yesterday ended up with no agreement.
• The US blamed China for exporting its steel overcapacity into overseas markets.
• “Unless China starts to take timely and concrete actions to reduce its excess production and capacity in industries including steel… the fundamental structural problems in the industry will remain and affecter governments will have no alternatives other than trade action to avoid harm to their domestic industries and workers,” US Secretary of Commerce said.
• China argued world economic slowdown is responsible to a weaker demand while the nation’s steel industry is “market based and have good quality, low price and good service”, according to the China Iron and Steel Association. “The complaint on government subsidies is also crap,” the lobby group added.
Thermal coal (1st year forward cif ARA) US$45.0/t vs US$43.5/t yesterday
Other:
Tungsten - APT European prices stood at $190-200/mtu vs $175-190/mtu last week – a good pick up in tungsten prices as Hemerdon continues commissioning
Company News
DiamondCorp (LON:DCP) 8.125 pence, Mkt Cap £36.2m – Polished diamond sales and expansion of the mining equipment fleet.
• DiamondCorp has announced that the 22.1 carat rough diamond recovered from the Lace mine and sold in January to the Company’s beneficiation joint-venture “has been manufactured into two high quality diamonds – a 7.2 carat F coloured WS2 emerald cut diamond and a 0.9 carat E coloured VS1 pear shaped diamond.”
• These two stones have now been sold for a Total of US$261,361. “DiamondCorp’s 50% share of the profit on the sale of the two polished diamonds is $71,979, lifting the total revenue on this one stone to $182,529, or $8,256 per carat.”
• In addition, the company reports that, following breakdowns to the mining fleet, it has acquired 4 additional 20-tonne underground dump trucks, 2 underground loaders and 2 drilling rigs. Although this upgrading of the equipment represents an “unplanned additional expenditure of approximately $1 million, the total cost of the eight vehicles, including refurbishment …is approximately a quarter of the price of new units at current exchange rates. These vehicles will allow the Company to achieve tonnage ramp up to deliver 30,000 tonnes per month of kimberlite from the Upper K4 block to the conveyor belt from July onwards.”
• The company had indicated its intention to address the shortage in the availability of trucks and loaders by purchasing equipment from other mining operations.
• The company confirms that it is “on schedule to produce in excess of 75,000 carats from kimberlite in 2016 and in excess of 125,000 carats in 2017.”
Conclusion: The additional revenue benefits from the sale of high value polished diamonds underlines the quality of the diamonds from Lace. The enhancement to the mining fleet should help to ease bottlenecks in production and smooth out supply disruption.
Metminco * (LON:MNC) 0.2 pence, MKT Cap £6.6m – Miraflores update
• Metminco reports that it has short-listed three international engineering firms to complete the feasibility study on the Miraflores gold deposit in Colombia. Metminco is acquiring the Colombian assets of the Canadian listed Seafield Resources which went into receivership in September 2014.
• Seafield had initiated a feasibility study to develop the Miraflores deposit and once appointed, Metminco’s new engineering consultant will focus on “the completion of all outstanding works to a Feasibility Study level, including the optimisation of the existing mining schedule with a view to achieving an annual gold production target in excess of 55,000oz.”
• Metminco’s plan is to increase annual throughput from the previously envisaged 560,000tpa to 750,000 tpa, shortening the mine life from twelve years to nine “thereby bringing forward cash flows.”
• Miraflores contains an NI-43-101 resource of 1.88m oz of gold and 3.8m oz of silver and the current mining schedule plans for 3.1m tonnes of ore at an average grade of 1.48g/t gold and 2g/t silver to be mined from an open pit with an additional 3.6m tonnes grading 3.5 g/t gold and 2.8 g/t silver being mined by underground methods.
Conclusion: Miraflores provides Metminco with a near production gold asset where much of the Feasibility work has already been completed. In our opinion, Metminco is prudent to review the earlier work in detail before committing to develop the plan evolved by the previous owners and to use their own expertise to enhance the project as well as completing the outstanding work-streams.
*SP Angel act as joint-broker to Metminco
Shanta Gold* (LON:SHG) 8.1p, Mkt Cap £38m – Q1 gold production compares well with Q3 ‘15
• Shanta Gold report solid performance for Q1.
• Gold production of 24,341oz for the quarter was lower than the rather exceptional 29,139 produced in Q4.
• Grades of 5.69g/t in Q1 and 6.4g/t in Q4 helped production but are expected to average 5g/t for the rest of the year.
• We hope there is an element of conservative forecasting in the predicted grade and that Shanta will do a bit better than forecast
• Gold production target: 82,000–87,000oz appears to account for lower grade and quarterly production which is likely to raise unit cash costs
• Base case mine plan for new Luika delivers av 84,000oz for five years at an AISC of around $665/oz.
• Gold sales prices were 1,132/oz on average and lower than a spot price of $1,183/oz due to the impact of hedging.
• Hedging covers 30% of Shanta’s forecast gold production and is in place to underpin capital expenditure.
• Costs: cash cost of 445/oz and AISC at $600/oz are impressive though unit costs may rise as grades pull back
• Shanta’s operating costs rank the company well amongst its competitors with the second lowest cost vs its nearest peers.
• Exploration – increased reserve to 667,000 @1.33g/t helped to fill void in ore to feed mill capacity. Very promising results
• Potential to extend Ilunga into the mining reserve. Total resource outside the mine plan for 0.5moz and expected to grow with ongoing exploration.
• Mining: management completely reconfigured the open cast mine and have built up available ore to reduce risk of a fall in available tonnage.
• Open pit development expenditure is now coming down following much work on the pit and will this will lead to cost benefits till the mine goes underground.
• The team are effectively accelerating the closure of the larger open pits so as to reduce costs and to move quickly into the underground and newer surface operations.
• Capex: Shanta spent some $5.6m in Q1 with work ongoing for new power station and for underground development.
• Shanta has committed to spend some $13m this year with a further $12m to spend
• Cash: $16.3m vs $19.1m in Q4. With cash generation of $12.3m in Q1 before working capital.
• Debt: gross debt stands at $74.4m with net debt of $58.4m driven higher by the cost of buying new underground mining equipment and for the new power stations.
• Both projects should serve to drive down costs and provide significant financial return and enable the longer term sustainable operation of the mining operations
• Funding: Two financings were completed in the quarter. The remaining $10m was drawn down from the Investec facility.
Conclusion: Shanta plans to mine around 5g/t through the year. While lower than in Q4 and Q1 this is still the envy of many other gold producers. The higher unit costs of processing lower grades should be partially offset by the impact of more efficient mining and the improvements made to the pit through the last year.
* The author of this report has visited the New Luika mine site on two occasions
Stratex International (LON:STI) 2.075p, Mkt cap £9.7m – Thani Stratex raises US$2m
• Stratex announces that its sister company, Thani Stratex Resources(TSRL), has raised US$2m by way of a Subscription Agreement with Resource Capital Fund (RCF).
• The funding will give RCF a 15.2% in TSRL and dilute Stratex’s 38.4% interest to 32.4%. At current exchange rates, the RCF investment implies a value of $4.26m (approximately £3m) for Stratex’s share of TSRL,
• TSRL is planning a 4000 metres drilling programme in Djibouti during Q2 2016 in order to investigate the Pandora vein system and the newly located Asaleyta prospect “located 16 km north of Pandora, where recent work has defined disseminated and vein-hosted gold mineralisation in rhyolite domes.”
• The additional funding from RCF “will be used principally to advance TSRL’s Egyptian prospects as well as for general corporate purposes”.
Conclusion : The RCF investment endorses the exploration strategy of Thani Stratex Resources, particularly in Egypt. Stratex International retains a significant residual stake in TSRL and exposure to any future exploration success in Djibouti or Egypt.