Caledonia Mining (LON:CMCL) 68.5 pence, Mkt Cap £35.7m – Sale of Zimbabwe Government Bills
Kefi Minerals* (LON:KEFI) 0.53 pence, Mkt Cap £16.5m – Ethiopian Government investing in Tulu Kapi
Lonmin PLC (LON:LMI) 186.5 pence, Mkt Cap £526.1m – 2016 Sales guidance of 700,000 oz of platinum remains intact
Metminco * (LON:MNC) 0.235 pence, Mkt Cap £8.1m –Resource study and consideration of underground mining for Miraflores
Base metals rally lifted by higher oil and weaker US dollar
• Metals prices appear to be following oil higher as supply issues in Nigeria crude lift prices
• More fundamentally, recent Chinese statements on $720bn of new infrastructure investment over the next three years are also expected to lift demand for metals.
• We expect iron ore and copper to be major beneficiaries of the new demand and reckon the recent moves by traders to bring stock into Chinese warehouses are driven by expectations for rising physical sales to domestic manufacturers.
• Much of this investment is planned for new urban and suburban rail infrastructure to ease congestion in around 120 cities around china.
Dow Jones Industrials +1.05% at 17,535
Nikkei 225 +0.33% at 16,466
HK Hang Seng +0.84% at 19,884
Shanghai Composite +0.84% at 2,851
FTSE 350 Mining +1.54% at 9,025
AIM Basic Resources +0.45% at 1,926
Economic News
Currencies
US$1.1321/eur vs 1.1337/eur yesterday. Yen 108.79/$ vs 108.76/$. SAr 15.463/$ vs 15.091/$. $1.435/gbp vs 1.440/gbp
0.730/aud vs 0.729/aud. CNY 6.522/$ vs 6.523/$.
Commodity News
Precious metals:
Gold US$1,282/oz vs US$1,275/oz yesterday
• Gold ETFs 58.3moz v 58.3moz yesterday
Platinum US$1,055/oz vs US$1,059/oz yesterday – China demand falls for platinum jewellery falls as sales fall by double digits
• Bloomberg survey points towards uplift in platinum prices as forecasters look to growing demand from automakers desperate to meet emissions and performance targets
Palladium US$596/oz vs US$598/oz yesterday
Silver US$17.32/oz vs US$17.14/oz yesterday
Base metals:
Copper US$ 4,641/t vs US$4,630/t yesterday
Aluminium US$ 1,542/t vs US$1,541/t yesterday
Nickel US$ 8,650/t vs US$8,620/t yesterday
Zinc US$ 1,892/t vs US$1,888/t yesterday
Lead US$ 1,703/t vs US$1,718/t yesterday
Tin US$ 16,715/t vs US$16,800/t yesterday
Energy:
Oil US$48.7/bbl vs US$47.7/bbl yesterday
Natural Gas US$2.072/mmbtu vs US$2.085/mmbtu yesterday
Uranium US$28.00/lb vs US$27.75/lb yesterday
Bulk
Iron ore 62% Fe spot (cfr Tianjin) US$49.3/t vs US$50.4/t – Hebei Iron & Steel Group, China’s leading steel producer, reported a cut of 5.02mt of steel capacity on Friday
• China hit record steel production of 69.42mt in April despite government moves to shut down inefficient steel production
• The nation is struggling to bring the sector in line with government policy and is seen as having as much as 400mtpa surplus of steel capacity
• Hebei Province, China’s biggest steel producing region has banned the reopening of steel plants.
• Many steel mills in China are reported to have avoided Total closure to qualify for government compensation
• Baoshan Iron & Steel Co. is calling for the US to reject moves to block imports of its steel into the US
• The EU has also launched an anti-subsidy review of Chinese steel, but given the lightening reaction of the European Parliament to most crises we would not expect any action soon
• India already has trade barriers in place to protect its domestic steel industry
• Steel prices marked the worst weekly decline on record falling 13%, after the record weekly gain recorded in Apr.
Thermal coal (1st year forward cif ARA) US$46.3/t vs US$45.7/t yesterday
Other:
Tungsten - APT European prices stood at $215-225/mtu vs $205-215/mtu two weeks ago – prices unchanged on last week
Ferrochrome – Zimbabwe defence ministry partnering with Africa Chrome Fields (ACF) a subsidiary of Fanshawe Minign Holdings on a new exothermic chrome smelting project in Kwekwe. The new technology is reported to be able to produce ultra-low carbon ferrochrome in 45 seconds.
Company News
Caledonia Mining (LON:CMCL) 68.5 pence, Mkt Cap £35.7m – Sale of Zimbabwe Government Bills
• Caledonia Mining reports that its 49% owned Zimbabwean subsidiary, Blanket Mine, has sold Zimbabwean Government Treasury Bills for a gross value of approximately $3.2m.
• The Bills replaced Governments Special Tradeable Gold Bonds which were issued to the Blanket mine in 2009 as part payment for gold sales in 2008.
• In a separate announcement, Caledonia Mining also reports that it has been made aware of the sale, by a third party manager of discretionary funds, of 75,200 shares in Caledonia held by the company’s Chairman, Leigh Wilson. The shares were sold ”between February 26, 2016 and March 2, 2016 at an average realised sale price of 63.24 US cents per share. Mr Wilson had no knowledge of the share sale until 13 May.” The sale represented Mr Wilson’s entire shareholding in the company.
• The company points out that the sale of the Treasury Bills is part of a continuing drive to dispose of non-core assets and the additional funds will, no doubt, be well employed in the current implementation of the long term strategic plan to develop the Blanket mine at depths below the 750m level providing increased mine life and underpinning plans to increase gold production from the 42,806 oz in 2015 to approximately 65,000 ounces per year by 2017 and 80,000 oz pa by 2021.
Conclusion: The additional funds raised from the sale of the Treasury Bills disposes of a legacy asset and we expect it to help fund the continuing development of the Blanket mine
Kefi Minerals* (LON:KEFI) 0.53 pence, Mkt Cap £16.5m – Ethiopian Government investing in Tulu Kapi
• Kefi Minerals has announced that “it has received formal confirmation from the Ethiopian Government of its commitment to invest US$20m for equity in the Tulu Kapi Gold Project.”
• This investment secures the Government approximately 20% of the company’s local subsidiary, Kefi Minerals (Ethiopia), implying “a Project value of approximately US$100 million at its current stage of development.”
• The Government already has a 5% free carried interest in the project and the additional investment is tangible evidence of its continuing support and commitment to the advancement of the project.
• As previously reported, the company estimates that, at a gold price of US$1250/oz, it estimates that the combined open-pit and underground development project, once fully funded, would generate unleveraged after tax NPV of around $200m at a discount rate of 8%.
• The company has also reiterated that it is continuing “to advance towards commencing construction of the processing plant in Q4-16 and production commissioning from Q4-17”.
Conclusion: The financial support of the Ethiopian Government provides concrete evidence of its support for the development of Tulu Kapi and a guide to project value.
*SP Angel act as Nomad and broker to Kefi Minerals
Lonmin PLC (LON:LMI) 186.5 pence, Mkt Cap £526.1m – 2016 Sales guidance of 700,000 oz of platinum remains intact
• Lonmin reports that it produced 177,444 oz of refined platinum in Q2 ending 31st March 2016. Output was 54,964 oz or 44.9% higher than in Q2 2015 as a result of smooth operations at the smelter complex which were impacted by two shutdowns in 2015.
• Total PGM production was 336,105 oz, an increase of 42.2% on the equivalent
• Costs of R10,390 per PGM oz were 2.6% lower than in Q2 2015 and 5.1% lower than the holiday affected R10,949/oz recorded for Q1 2016.
• The company is implementing its policy to close a number of high cost shafts and as a result the core K3, Rowland, Saffy and 4B/1B shafts produced 1.9m tonnes of the total 2.5m tonnes while the non-core shafts showed a 22.1% decline in output .
• The company also notes that there has been a significant reduction in lost production due to safety stoppages . In Q2 2016, production losses of 35,000 tonnes are significantly below the 185,000 lost tonnes reported for Q2 2015 and 160,000 tonnes below the losses in Q1 2016.
• Lonmin is pressing ahead with its cost-saving programme and reports that R469m of savings have been achieved during H1 of the financial year. This represents 67% of the R700m target for the full year. The company reports that over 5,400 people have left the company’s employ.
• “Net cash has improved to $114million as at 31 March 2016. This is compared with $185 million net debt at 30 September 2015.”
• Commenting on the PGM market, the company expects the demand for platinum from the automotive and chemical industries to “remain firm despite current concerns over the diesel market and the economic headwinds in China.” Lonmin expects that demand should increase as tightening of emission standards leads to potentially higher loadings in PGM catalysts.
Conclusion: Lonmin has made progress on its cost cutting and rationalisation programme and has reversed its debt position as a result – the company is maintaining its 700,000 oz platinum production target for the year.
Metminco* (LON:MNC) 0.235 pence, Mkt Cap £8.1m –Resource study and consideration of underground mining for Miraflores
• Metminco reports that it has appointed the consultants SRK from Denver to update the resource estimate for the Miraflores gold project in Colombia to JORC 2012 level.
• The previous owners of the project, Seafield Resources, envisaged an open-pit mining operation and feasibility work was underway at the time that the company was placed into receivership.
• SRK, which was also the consultant to the previous owners, will now complete the feasibility work it had underway plus other tasks not previously started.
• In addition, SRK is to develop an underground mining only development plan for Miraflores using paste backfill, which should minimise the requirements for surface disposal of mine tailings, in order to assess whether this alternative approach is feasible and, presumably, whether it offers improved economic returns compared to open pit mining.
Conclusion: The appointment of a consultant already familiar with the Miraflores project should expedite the new feasibility study work. The consideration of an underground mine may ultimately prove a superior development plan as we speculate that it could entail lower tonnages at higher grades requiring a smaller scale process plant at lower capital cost to generate equivalent gold output to the open-pit mining option as well as offering some environmental benefits. We look forward to further news of the feasibility work in the coming months.
*SP Angel act as joint-broker to Metminco