Anglo American (LON:AAL) – Sale of Brazilian Phosphates and Niobium businesses
Herencia Resources (LON:HER) – Bad news on sale of Picachos project as buyers fail to proceed
Petropavlovsk* (LON:POG) 8.2p, Mkt Cap 271m – FY15 earnings, Q1 update and Strategic Agreements
Tri-Star Resources* (LON:TSTR) – Pilot plant pours first metal
Wolf Minerals (LON:WLFE) – Q1 Report – continuing ramp up at Drakelands
Anglo sells Brazilian phosphates and niobium business to China for an impressive $1.5bn
• The deal puts the asset sale at an impressive 10.1x EBITDA
• The valuation suggests that China is prepared to outbid other suitors for mineral assets and they are hungry for deals
Stillwater war chest of $460m (Bloomberg)
• Stillwater Mining is looking at acquiring producing assets in Australia and Scandinavia according to its ceo
• The company produces platinum and palladium in the US and is appears keen to diversify its asset base with potential to acquire non pgm assets
China Futures Association calls for tougher risk controls as it moves to restrict futures trading activity
• Copper prices fell for a third day as the government moves to limit futures positions
Neil Woodford, a well known fund manager now managing his own funds is calling for a ‘commodity calamity’
• Woodford might have a point as commodities brought into China have raised stock levels and may serve to depress prices if not taken up by local manufacturers.
• Many funds are underweight commodities and are suffering substantial relative underperformance as this much unloved sector.
• While commodity prices do tend to lead the sector, underlying margin growth is likely to lead to a significant recovery in earnings going forward.
• Cost cutting, lower oil prices and weaker local currencies should all serve to enable margins to take off helped by a recovery in commodity prices
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Nikkei 225 -3.61% at 16,666
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AIM Basic Resources +0.58% at 1,916
Economic News
Sorry – no time for economic news this morning due to POGs results
Currencies
US$1.1357/eur vs 1.1319/eur yesterday. Yen 108.17/$ vs 111.14/$. SAr 14.426/$ vs 14.416/$. $1.459/gbp vs 1.458/gbp
0.763/aud vs 0.763/aud. CNY 6.479/$ vs 6.493/$.
Commodity News
Precious metals:
Gold US$1,258/oz vs US$1,246/oz yesterday
• Gold ETFs 56.4moz unch vs 56.4moz yesterday
Platinum US$1,034/oz vs US$1,017/oz yesterday
Palladium US$611/oz vs US$605/oz yesterday
Silver US$17.38/oz vs US$17.35/oz yesterday
Base metals:
Copper US$ 4,906/t vs US$4,939/t yesterday
Aluminium US$ 1,648/t vs US$1,645/t yesterday
Nickel US$ 9,170/t vs US$9,205/t yesterday
Zinc US$ 1,884/t vs US$1,897/t yesterday
Lead US$ 1,741/t vs US$1,752/t yesterday
Tin US$ 16,890/t vs US$17,350/t yesterday
Energy:
Oil US$47.2/bbl vs US$46.8/bbl yesterday
Natural Gas US$2.145/mmbtu vs US$2.057/mmbtu yesterday
Uranium US$27.65/lb vs US$27.65/lb yesterday
Bulk comodities:
Iron ore 62% Fe spot (cfr Tianjin) US$58.9/t vs US$59.7/t yesterday
Thermal coal (1st year forward cif ARA) US$46.2/t vs US$47.3/t yesterday – Australian thermal coal exporters take 9.1% cut in annual contract prices to $61.6/t
• The settlement between Glencore and Tohoku Electric Power is better than expected as it is around $10.8/t higher than spot prices
• Less than half Australia’s thermal coal exports are now priced on the Japanese reference price indicating a move away from annual contract price settlement towards spot prices
Other:
Tungsten - APT European prices stood at $188-210/mtu vs $190-200/mtu last week
Lithium – lithium batteries are now finding new use in the marine environment
• Norwegian marine services group Østensjø Rederi AS has is commissioning a new offshore construction vessel with a hybrid diesel-electric system powered in part by a lithium ion battery.
• The cable laying vessel is designed for the North Sea market and uses a Corvus Energy ESS Energy Storage System.
• The system is expected to significantly cut fuel consumption and emissions of NOx, CO and CO2
Company News
Anglo American (LON:AAL) 784 pence, Mkt Cap £10.12bn – Sale of Brazilian Phosphates and Niobium businesses
• Anglo American has announced the sale of its Brazilian phosphates and niobium businesses to China Molybdenum Co for US$1.5bn cash.
• The sale, which has to be formally approved by the regulatory authorities in China, is expected to be completed during the second half of 2016.
• Anglo American has already received binding commitments from shareholders representing 63% of China Molybdenum.
• The cash sale is part of a move to reduce Anglo American’s debt to below $10bn by the end of 2016.
• The combined businesses generated $544m of revenue, £146m of EBITDA and PBT of $69m during 2015.
• The Boa Vista niobium assets and associated businesses produced 6300t of metal last year while the Chapadao mine and Catalao and Cubatao treatment complexes produced 1.3m tonnes of concentrates over 1m tonnes of fertiliser and 265,000 tonnes of phosphoric acid.
Conclusion: The sale of the Brazilian businesses, which had been earlier mooted as of potential interest to X2, is part of Anglo American’s strategic reshaping announced in December 2015. The US$1.5bn sale of the Brazilian businesses represents a significant part of the US$3-4bn of disposals that the company had flagged for 2016. Anglo American’s net debt at the end of 2015 amounted to US$12.9bn.
Herencia Resources (LON:HER) 0.045 pence, Mkt Cap £1.9m – Bad news on sale of Picachos project as buyers fail to proceed
• Herencia are under pressure to find new funds as ‘Next’ the $5.125m buyer for the Picacos project sends notice that it will not proceed.
• The company is now faced with a $290,000 license payment which it has withheld.
• Herencia state the company has sufficient working capital to last till early May, eg the next one to two weeks by the sounds of things.
Conclusion: The news may be a blessing in disguise for Herencia. If management raise funds for the license payment and ongoing expenses then Herencia may potentially find a new lease of life.
Petropavlovsk* (LON:POG) 8.2p, Mkt Cap 271m – FY15 earnings, Q1 update and Strategic Agreements
Target price and valuation under review
FY15 financial results point to benefits of Rouble devaluation and cost cutting initiatives.
• TCC fell to US$749/oz (2014: US$860/oz) on a Rouble devaluation and cost cutting programmes.
• AISC dropped to US$874/oz (2014: 972/oz) driven by lower operating costs, a reduction in corporate admin expenses (US$30.4m v US$38.2m in 2014) and a weaker capex spend (US$32.6m v US$96.8m).
• EBITDA came down to US$172.8m (2014: US$251.8m) reflecting lower sales (599.9koz v 865.0koz in 2014) and weaker realised gold prices (US$1,160/oz v US$1,266/oz).
• Despite recording a loss of US$190.5m (2014: -US$182.2m) from continuing operations, the Company remained FCF positive allowing it to continue repaying outstanding debt.
• Net debt ctood at US$610m as of YE15 and US$596m as of Q1/16, compared to US$696m as of H1/15.
• Q1/16 production update shows a reduction in output across Pioneer (32.4koz v 43.9koz in Q1/15), Malomir (12.0koz v 16.5koz) and Pokrovka (7.5koz v 12.8koz) with output at Albyn flat (40.1koz v 39.6koz).
• Total gold production was 92.1koz as the Compay focused on higher margin ounces.
• Gold sales totalled 101koz at an average realised price of US$1,164/oz.
• 2016 production guidance reiterated at 460-500koz (excl production from AZ) with TCC expected to come down to US$700/oz.
• Underground operations are planned to start at Pioneer in 2016 and at Malomir in 2029 with respective production rates of 130-180koz and 53koz.
• The Company is in the process of completing a full feasibility studies on projects.
• Net Debt target set at US$570m by YE16 assuming US$1,200/oz gold price.
• Capex forecast at US$70m with US$10m set for exploration works and US$60 for maintenance and underground operations and POX development.
• POX development, AZ acquisition and sucesful development of the underground at Pioneer are expected to see a 10-20% increase in annual production through 2017-2020 at lower costs.
POX plant development is due to unlock value of 9.3moz in refractory gold reserves and resources hosted by Malomir and Pioneer mines.
• Under the terms of the conditional agreement, Petropavlovsk to create a JV for development and operation of the Pressure Oxidation Hub (POX) project with LLC GMD Gold.
• GMD Gold has agreed to provide US$120m of capital estimated to complete the POX plant in return for 51% of the JV.
• The POX plant is more than 2/3s complete with Petropavlovsk having previously invested nearly US$200m and is 18 months away from completion.
• Petropavlovsk will not need to commit more capital should the project be completed within the budget.
• Should the cost of completion exceed the US$120m, Petropavlovsk will close the fund the remainder but the relative shareholding will stay intact.
• The plant is expected to come online in 2018.
• Based on internal feasibility study, Petropavlovsk’s share of production is expected to come in at c.200-300koz at c.US$700/oz TCC.
• Each partner will have access to 50% of the POX processing capacity with operations run on a toll-treatment basis with a margin of up to 5%.
• Petropavlovsk will initially process Malomir concentrate at the facility while GMD Gold will be treating both the material sourced from affiliated companies and third-parties’ concentrates.
• The Company agreed to sell at least 25% of the POX plant capacity to GMD Gold to help fully utilise its share of capacity.
• Flotation operations at the Malomir mine will require additional US$30m which are expected to be spent over 2017-18 ahead of the first production at the POX operation.
• The agreement is subject to a number of conditions including the approval by Petropavlovsk shareholders and creditors.
• GMD Gold is affiliated with the Novoangarsky metallurgical plant and Gorevsky GOK both Russian based operations involved in mining and processing of lead-zinc ores from the Gorevsky deposit, one of the world’s largest polymetallic deposits.
Amur Zoloto acquisition provides access to 1.55moz of non-refractory gold reserves.
• The Company agreed to acquire Amur Zoloto LLC (AZ) that owns a number of development and in production assets in the Khabarovsk region in the Far East of Russia.
• Total consideration of US$160m is comprised of US$144m to be paid in shares (1,434m at 6.89p) and US$16m of assumed net debt.
• The AZ holds 1.55moz in mineral reserves and 2.16moz in gold resources as at Dec/15 (JORC-compliant).
• AZ assets include:
o Yubileiny Complex – Krasivoye (operating UG mine with 1.13mt at 6.41g/t reserves) and Ulun (pre-production UG operation with targeted 100ktpa capacity from 2019) mines and the Yubileiny processing plant with current capacity of 100ktpa and a planned expansion to 200ktpa by 2019 to accommodate the Ulun ore.
o Perevalnoe OP mine with a 100ktpa concentrator to come into production in 2016 (concentrate to be treated at the Yubileiny leaching plant). The deposit hosts several high grade zones grading up to 40g/t.
o Malutka OP mine with a planned 2,000ktpa heap leaching operation.
o Tas-Yurakh Complex including two OP and three UG mines with a 200ktpa mining capacity and infrastructure in place.
o Gold placers (1mln m3 in washing capacity).
o AZ is expected to produce 38koz this year with budgeted expansions planned to take total output from 70koz to 127koz through the 2017-2020 period.
o Average costs are estimated at US$640/oz.
o With 3,301m share currently in issue, the deal will see owners of AZ to become 30% shareholders in Petropavlovsk.
o AZ is owned by Russia’s Alliance Mining Group and Lexor Group that ultimately controlled by Musa Bazhaev and his associates.
o The acquisition is subject to a shareholder vote.
Conclusion: We see a strategical update involving a redevelopment of the POX project and an addition of non-refractory ounces to the Petropavlovsk portfolio (AZ acquisition) as positive benefiting the sustainability of gold production and cash generation of the Group.
*SPAngel analysts have visited the Pioneer, Malomir and Albyn gold mines in Russia
Tri-Star Resources* (LON:TSTR) 0.11p, Mkt Cap £9.3m – Pilot plant pours first metal
(Tri-Star hold 40% of Strategic & Precious Metals Processing LLC ‘SPMP’, 40% Oman Investment Fund, 20% Dutco Group)
Buy - Target Price 0.36 pence
• Tri-Star have announced the approval for the development of a secondary process for the recovery of gold and silver from antimony ores.
• The process will be added to the new antimony roaster to be built in Oman.
• The addition of this process should add significant value to the ore recovery process and provide miners with additional reason to send ores to Tri-Star.
• Further test-work on new ores/concentrates will be done to test the recovery process.
• The extraction of gold will contribute a potentially significant additional revenue stream for the Roaster and will allow the conversion of a broader range of antimony ore.
• Plant engineering work in Johannesburg by SPMP is to be re-located to Sohar and should give further detail on the operating parameters for the proposed recovery of gold from refractory ores.
Conclusion: Many antimony ores contain substantial gold and silver credits. The roasting process should enable the recovery of gold, silver and other metals as part of the antimony recovery process.
*SP Angel acts as Nomad and Broker to Tri-Star Resources
Wolf Minerals (LON:WLFE) 8.625 pence, Mkt Cap £69.8m – Q1 Report – continuing ramp up at Drakelands
• Wolf Minerals reports on the continuing ramp up of production at its Drakelands tin/tungsten mine in Devon.
• Almost 530,000 bcm of material was removed during the quarter ending 31st March with mining activities predominantly focused on the extraction of ore from benches on the northern end of the pit. Blasting is now continuing on a regular basis suggesting that the operation has now mined through a significant part of the upper, weathered, levels of the deposit and is now starting to access fresh rock.
• The processing plant has now treated 310,949 tonnes of ore, at an undisclosed grade, to produce 17,607 metric tonne units (mtu) of tungsten trioxide in concentrate, generating A$3.9m revenue. The plant is reported to have experienced a number of stoppages due to manufacturing faults with items of equipment. “The faults have been rectified under warranty and Wolf is working with the manufacturers and GRES [the contractor] to prevent future failures. However the down time has impacted production of tungsten concentrate during the period.”
• “Given the continuing softness of the tungsten price, the Company has taken steps to reduce its costs through active engagement with suppliers and reviewing manning levels at Drakelands.”
• During the quarter, capital expenditure totalled A$16.8m, of which A$3.9m was spent on development with a further A$7.7m on production and A$4.1m on debt servicing and repayments.
• Commenting on the market for tungsten, Wolf Minerals notes that “Demand for tungsten concentrate during the Quarter was similar to the December quarter with sound interest in Japan and Europe from the automotive and aerospace sectors while demand from other regions remained low as a result of soft conditions in the mining, oil and fracking industries.”
• As previously reported, Wolf Minerals has successfully concluded a £25m standby subscription facility with its major shareholder, RCF, which provides added financial resilience during the commissioning and ramp-up phases, which are taking place through a period of weak prices for tungsten concentrates.
Conclusion: Although there have been unforeseen issues with commissioning, Wolf Minerals and its contractors and suppliers have moved to resolve these. With the summer approaching and the move into less weathered, deeper parts of the deposit we would expect mining conditions to improve over the coming months. As the initial problems with the plant are resolved, we would expect steady improvements in availability, throughput and recovery. Although the benchmark APT price has edged up recently, it remains at historically low levels and the support of RCF should provide Wolf Minerals additional financial resilience.