Alecto Minerals (LON:ALO) – Joint Venture agreed for Karan gold project in Mali
Caledonia Mining (LON:CMCL) – Continuing progress with the strategic development at Blanket
Ncondezi Energy (LON:NCCL) – US$1.32m shareholder loan
Noricum Gold* (LON:NMG) – Drilling starts at Kvemo Bolnisi gold project in Georgia
Savannah Resources (LON:SAV) – Resource drilling starts in Oman
Tri-Star Resources* (LON:TSTR) – AGM statement confirms completion of the Oman Antimony Roaster in 2017
Vedanta Resources (LON:VED) – 2015 Preliminary Results
Dow Jones Industrials -1.21% at 17,711
Nikkei 225 +0.41% at 16,646
HK Hang Seng -0.68% at 19,919
Shanghai Composite -0.04% at 2,836
FTSE 350 Mining -0.69% at 9,015
AIM Basic Resources +0.52% at 1,911
Economic News
US – Economic news this week:
Date Index Period Actual Expected (Bloomberg) Previous
Tuesday JOLTS Job Openings Mar 5,757k 5,450k 5,608k (revised from 5,445k)
Thursday Weekly Jobless Claims 270k 274k
Friday Retail Sales/(ex auto) Apr 0.8%mom/0.5%mom -0.4%mom/0.1%mom
PPI/PPI (Core) Apr 0.3%mom/0.1%mom -0.1%mom/-0.1%mom
UoM Consumer Sentiment May 89.5 89.0
Source: Bloomberg
Japan – Current account surplus expanded to the highest in nine years through Mar while the currency only appreciated by 0.1% that month.
• Exports posted a 12.2%mom nearly doubling trade balance to ¥927.3bn from ¥425.2bn in Feb.
• Current account surplus came in at ¥2.98tn, up from ¥2.43tn and beating market forecasts for ¥2.97tn.
• The Apr number is of particular interest given a 3.8% appreciation recorded in the yen.
UK – Markets are pricing in a higher chance of rate cut rather than a hike before year end, Bloomberg reports.
• The probability of the BoE to lower rates this year currently stand at 40% compared to nearly no chance for an increase.
• The pound lost 2.3% since the start of the year as prospects for the start of the tightening cycle by the BoE dwindled.
Brazil – Senators continue debates regarding the impeachment vote with the majority having already expressed their support for the action against the president.
• The vote to be held later is increasingly likely will see Dilma Rousseff to be suspended from office and replaced by the vice-president.
• The local stock index is in a wait and see mode (-0.58%) with currency extending gains in the third trading session (+0.45% this morning).
Norway – The Central Bank kept interest rates unchanged at 0.5% this month after a 0.25pp cut announced in Mar.
• Previously, neighbouring Sweden and Denmark have seen their benchmark rates reduced below 0.
• The WGC in its latest report on gold demand trends (see below) estimates that nearly a third of global government debt has now negative yields.
Currencies
US$1.1409/eur vs 1.1385/eur yesterday. Yen 108.85/$ vs 108.69/$. SAr 15.114/$ vs 15.269/$. $1.442/gbp vs 1.440/gbp
0.732/aud vs 0.734/aud. CNY 6.510/$ vs 6.511/$.
Commodity News
Precious metals:
Gold US$1,272/oz vs US$1,272/oz yesterday
Gold demand climbed 21%yoy led by gains in investment category that recorded the strongest uplift in seven years while higher prices incentivised producers to reconsider hedging policy in Q1/16,m the latest WGC report shows.
• Demand climbed on a 122%yoy increase in investment interest compensating for declines in jewellery (-19%yoy), technology (-3%yoy) and central bank purchases (-3%yoy).
• Purchases of ETFs totalled 363.7t (11.7moz) compared to an average of 34.1t in liquidations in the last five years.
• “Negative interest rates, stock market volatility and concerns over global economic growth all contributed to the upsurge in demand.”
• Jewellery demand was down in China (-17%yoy) and India (-41%yoy), two countries accounting for 56% of the world’s total, as price sensitive regions cut back on purchases as prices climbed 7%qoq.
• In addition, strikes across India with jewellers protesting against provisions in the budget regarding an increase in tax levies significantly limited the supply.
• India’s Q1 demand was the weakest in seven years with the decline (-62t) accounting for over the half of the 115t fall in global jewellery demand.
• The pent up demand accumulated through weeks of the strike is expected to benefit the outlook for the remainder of the year, WGC notes.
• In China, despite strong start to the quarter due to purchases during the Chinese New Year, the second half of the quarter was weaker as producers started adjusting their inventories to new national standard for hallmarking coming into effect on May 4.
• The increase in stock replacement activity led to a temporary supply squeeze that together with concerns over the slowing pace of economic growth weighed on demand.
• On the supply side, an marginal increase in mine supply (1%yoy) together with a 40t increase in net producer hedging compensated for a 1%yoy decline in recycling.
• Despite an increase in hedging, the WGC does not expect a widespread shift to long term hedging any time soon.
• Most of the hedging recorded through the quarter remained relatively short-term involving months rather than years and was driven by the need to secure cash for project-related financing or debt repayments.
• Among companies involved in hedging in Q1/16 the WGC points out Polyus Gold (19.4t), Evolution Mining (4.7t), Newcrest, Acacia Mining and New Gold.
• Mine supply climbed a modest 5t while the WGC noted the trend remains for output to plateau over coming years.
• Gold ETFs 58.2moz v 58.1moz yesterday
Platinum US$1,060/oz vs US$1,060/oz yesterday
Palladium US$606/oz vs US$598/oz yesterday
Silver US$17.26/oz vs US$17.31/oz yesterday
Base metals:
Copper US$ 4,721/t vs US$4,720/t yesterday
Aluminium US$ 1,564/t vs US$1,576/t yesterday
Nickel US$ 8,900/t vs US$8,830/t yesterday
Zinc US$ 1,917/t vs US$1,889/t yesterday
Lead US$ 1,766/t vs US$1,774/t yesterday
Tin US$ 17,400/t vs US$17,225/t yesterday
Energy:
Oil US$47.6/bbl vs US$45.2/bbl yesterday
Natural Gas US$2.156/mmbtu vs US$2.158/mmbtu yesterday
Uranium US$27.75/lb vs US$27.75/lb yesterday
Bulk
Iron ore 62% Fe spot (cfr Tianjin) US$52.2/t vs US$51.6/t
Thermal coal (1st year forward cif ARA) US$46.0/t vs US$45.2/t yesterday
Other:
Tungsten - APT European prices stood at $215-225/mtu vs $205-215/mtu last week
Lithium –
Company News
Alecto Minerals (LON:ALO) 0.1 pence, Mkt Cap £4.1m – Joint Venture agreed for Karan gold project in Mali
• Alecto Minerals reports that it has reached an agreement with Cora Gold, a wholly owned subsidiary of Kola Gold, for the continuing exploration and possible future development of the Karan gold project in southern Mali.
• The properties are contiguous with gold permits already held by Cora Gold so it would appear that they are well placed to undertake further exploration using the expertise and infrastructure they have already.
• Under the agreement, Cora Gold will earn a 65% interest in the Karan licences by funding all exploration up to the completion of a scoping study and can an additional 15% interest by continuing to fund through to the completion of a bankable feasibility study.
• After Cora Gold has reached an 80% interest in the project, Alecto may “elect to either participate in future funding on a pro rata basis and retain its 20% interest, or decline the rights to provide future funding and relinquish its remaining interest such that Cora would then own 100% of the Karan JV.”
• Alecto will, however, retain a 2% net-smelter- return on future production from the property with the proviso that, during the first 5 years of production, Cora Gold will have the right to purchase the NSR for US$3m in cash.
Conclusion: Alecto Minerals has retained significant participation in future exploration success on the Karan JV area while minimising its financial commitments to the project. By selecting a JV partner with existing exploration on adjacent areas, it is also gaining the expertise Cora Gold will have developed on the specific local geology which should enhance the possibilities for exploration success.
Caledonia Mining (LON:CMCL) 68.5 pence, Mkt Cap £35.7m – Continuing progress with the strategic development at Blanket
• Caledonia Mining reports a 3.7% increase in Q1 gross profit to $3.89m (Q1 2015 - $3.75m), reflecting increased gold production and lower costs at the Blanket gold mine in Zimbabwe.
• At the attributable level, however, net profit fell to $543,000 (Q1 2015 - $1,256,000) reflecting a deferred tax charge of $909,000.
• Gold production of 10,822 oz (Q1 2015 – 9960oz) was marginally better than expected and on mine ($689/oz vs $716/oz in Q1 2015) and all-in sustaining costs ($950/oz vs $985/oz) as a result of continued control of sustaining capital and operating costs.
• Caledonia reports that it started to produce ore from the No 6 Winze ore “and from an additional development which provides access to ore below the 750 meter level. These developments have substantially improved operational flexibility and are expected to be the main reason for the projected increase in production from 42,800 ounces in 2015, to approximately 50,000 ounces in 2016.”
• The mine is implementing its long term strategic plan to access ore below the 750m level increasing gold production to approximately 65,000 ounces per year by 2017 and 80,000 oz pa by 2021. Today’s report that “A huge amount has been achieved at the Central Shaft since work commenced in late 2014; in the first quarter of 2016 the main sinking headgear was assembled; the winders have been commissioned and sinking is expected to re-commence within a few days. Completion of the Central Shaft remains on track for mid-2018” indicates solid progress on this plan.
• Caledonia also reports that it has “entered into a hedge in respect of 15,000 ounces of gold over a period of 6 months” in order to protect the “Company if the gold price falls below $1,050 per ounce but gives Caledonia full participation if the price of gold exceeds $1,079 per ounce”
• During the quarter, the company generated operating cashflow of $1.75m though continuing investment in the strategic development of $3.25m and the continuation of the company’s quarterly dividend distribution reduced overall cash balances to $8.84m by 31st March 2016.
Conclusion: Caledonia Mining remains on track with its plan at Blanket and is maintaining its target of 50,000 oz of gold production for 2015.
Ncondezi Energy (LON:NCCL) 5.1 pence, Mkt Cap £12.8m – US$1.32m shareholder loan
• As indicated in its announcement of 6th May, Ncondezi Energy has concluded an agreement “with certain of Ncondezi’s Directors, Management and long term shareholders” for a 12 months US$1.32m loan facility.
• The loan facility, which is larger than the minimum US$1m indicated in the previous announcement, leaves the company “fully funded until the end of Q3 2016 and the expected completion of the JDA [Joint Development Agreement] with SEP” [Shanghai Electric Power].
• The proposed JDA with one of China’s largest power generators which was announced in January, provides a framework for SEP to “invest up to US$25.5 million to fund the balance of the Power Project development costs to Financial Close in return for a 60% shareholding in the Ncondezi Power Project.”
• Approximately 60% (US$790,000) of the total loan facility is being provided by directors and management, including US$500,000 “by a trust of which Non-Executive Chairman, Michael Haworth, is a potential beneficiary. US$108,000 is being provided by Executive Director and Chief Operations Officer, Chris Schutte, US$35,000 from Non-Executive Director Estevao Pale, and US$147,000 from Ncondezi management.”
Conclusion: The loan from its directors, management and long-term shareholders provides Ncondezi with the funds to conclude its Agreement with one of China’s largest power companies and lays the foundation for development of the proposed 300MW power plant in Mozambique.
Noricum Gold* (LON:NMG) 0.175p, Mkt Cap £7.0m – Drilling starts at Kvemo Bolnisi gold project in Georgia
(Noricum has a 50:50 jv on Bolnisi’s exploration portfolio in Georgia)
• Noricum Gold have started drilling in preparation for gold mining at Kvemo Bolnisi in Georgia.
• Work is focussed on defining a high grade gold zone within the planned starter pit with a target of around 50,000t of mineable ore.
• The infill drilling is expected to increase the size of the mineable resource as well as testing some secondary quartzite pods which are close to the initial planned production area.
• Noricum hope to convert the historic Soviet style resource into a JORC or NI 43-101 resource
• The team plan to mine at least an initial 50,000t of ore for toll treatment at the Bolnisi gold plant which is run by Noricum’s joint venture partner.
• Drilling also continues at the Tsitel Sopeli project with four drill holes completed to date.
*SP Angel acts as Nomad and Broker to Noricum.
Savannah Resources (LON:SAV) 3.3 pence, Mkt Cap £12.5m – Resource drilling starts in Oman
• Savannah Resources reports that a 2,930m resource drilling campaign has started on its Block 4 and Block 5 properties in Oman where the company has a 65% interest in the Block 5 licences via its holding in Al Fairuz Mining and is earning a 65% interest in Al Thuraya LLC, the owner of the Block 4 area.
• Drilling is aiming to establish Measured resources at the Maqail South and Mahab 4 prospects in Block 5 and is “Aiming to further define the resource potential” at the Dog’s Bone and Bayda targets, which were both formerly producing copper mines, in the Block 4 licence area.
• The company has previously indicated that it is aiming to achieve “high grade, low cost copper concentrate production in late 2017.” The latest phase of drilling is another tangible move towards this objective as the VMS type deposits targeted may require relatively intense drilling to bring mining blocks up to measured resource status.
Tri-Star Resources* (LON:TSTR) 0.09p, Mkt Cap £7.6m – AGM statement confirms completion of the Oman Antimony Roaster in 2017
(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 Resources has confirmed the expected completion date of construction of its Oman Antimony Roaster for 2017.
• The statement also confirms the original capital cost of $62m which is fully funded by the joint venture.
• Tri-Star’s joint venture company, Strategic & Precious Metals Processing LLC ‘SPMP’ has produced its first metal samples in saleable form from a mini pilot plant in Johannesburg.
• The plant design has now been modified to allow the roaster to recover by-product gold and to take a broader range of available feedstock.
• Development of a second plant could allow Tri-Star to process refractory gold ores in time.
• Tri-Star’s restructuring of its upstream assets in Canada and Turkey is now largely complete.
• Management are confident of achieving its “objectives for the year against a backdrop of recovering antimony prices.”
*SP Angel acts as Nomad and Broker to Tri-Star Resources
Vedanta Resources (LON:VED) 378 pence, Mkt Cap £1.0bn – 2015 Preliminary Results
• Vedanta Resources reports a loss of US$1,837.4m for the year to 31st March 2016 (2015 – Loss of US$1,798.6m).
• EBITDA of US$2336.4m generated a margin of 21.8% compared to the US$3,741.2m (29.1% margin) for 2015 suffered from lower commodity prices during the year.
• A reduction in capital expenditure from $2.29bn to $872m resulted in a 63% improvement in free cash flow to US$1.7bn (2015 US$1.0bn) and helped to reduce net debt by US$1.1bn to US$7.3bn (2015 US$8.5bn).
• The company reports that it achieved record production of zinc, lead and silver from its Indian zinc operations and that cost savings across the Group amounted to US$325m.
• The Company expresses cautious optimism for an improvement in global commodity markets and believes that “a recovery may be emerging, led by zinc.”
• CEO, Tom Albanese identifies the focus issues for the year ahead as:
o Improve operations
o Optimise assets
o Build reserves and resources
o Simplify the business structure and
o “protect and preserve our licence to operate”
• Operationallly, targets for the coming year are to deliver volume growth in the aluminium, iron ore and power businesses and ramp up capacities at KCM.