Aureus Mining (LON:AUE) – Update on New Liberty Mine
Bacanora Minerals (LON:BCN) – Bacanora place £7.7m of new stock and warrants with Blackrock
Kodal Minerals* (LON:KOD) – Completion of acquisition and fundraising
Gemfields (LON:GEM) – Record auction prices for low quality emeralds
Mariana Resources (LON:MARL) – Further high grade drilling results from Hot Maden
European equities are range bound as miners and oil producers trade lower on weaker commodity prices while tech stocks gain.
• Miners’ subset posted the biggest decline of the 19 sectors included on the Stoxx Europe 600 Index today.
China metal import / export statistics highlight continuing rise in refined imports despite fall in exports
• China continues to record substantial gains in their imports of base metals.
• Copper, the largest metal imported by value saw imports rise by 3.65% to 341,677t in April with imports up a substantial 26.51% for the first four months of this year.
• Copper exports rose by 37.55% in April to 32,371t but have fallen by 7.15% for the first four months of the year to just 75,495t highlighting how most copper imports are used within China.
• Other base metal imports also posted strong gains in China with nickel up 168% in April to 49,012t lead up a massive 3,309% to 103t. Zinc and tin saw lower imports yoy in April though refined zinc imports are up 65.39% for the first four months of the year.
Dow Jones Industrials +0.38% at 17,501
Nikkei 225 -0.49% at 16,655
HK Hang Seng -0.22% at 19,809
Shanghai Composite +0.64% at 2,844
FTSE 350 Mining -1.03% at 8,726
AIM Basic Resources +0.69% at 1,903
Economic News
Japan – Apr earthquake and stronger yen have dragged manufacturing sector lower with the PMI hitting the lowest reading since Dec/12.
• Manufacturing PMI:47.6 in May v 48.2 in Apr.
• “Both production and new orders declined sharply and at the quickest rates in 25 and 41 months respectively.”
• One of the primary reasons behind the fall in total new orders was a marked contraction in foreign demand, which saw the sharpest fall in over three years.”
Yen gains as US warns against Japan intervening in currency markets
• Japan plans on implementing a proposed sales tax increase in 2017 (8%→10%) while expanding the planned budget for this year by ¥15-20tn.
• The Prime Minister has been hesitant to go ahead with another tax hike following an increase in Apr 14 (5%→8%) which significantly cut consumption and led the economy into recession.
Eurozone – Weak May PMI numbers point to an “only 0.3%qoq (GDP growth rate) in the second quarter”, down on a 0.5%qoq increase recorded in Q1/16.
• Both composite and manufacturing PMIs came in lower than forecast marking lowest readings in 16 and 3 months.
• Manufacturing PMI: 51.5 v 51.7 in Apr and 51.9 forecast.
• Composite PMI: 52.9 v 53.0 in Apr and 53.2 forecast.
• Periphery countries have been principally responsible for falling rate of expansion.
• “There are signs of improving life in the ‘core’ countries of France and Germany, led mainly by their services sectors, as manufacturing continued to struggle.”
• “However, elsewhere the rate of expansion slowed to its weakest for almost one-and-half-years.”
Germany – Both services (55.2 v 54.5 in Apr) and manufacturing (52.4 v 51.8) sectors contributed to a sharper growth in composite PMI index (54.7 v 53.6) that hit a 5-month high in May.
• Despite, stronger economic growth companies surveyed noted challenging demand environment weighing on new business orders.
• “Part of the slowdown (in new business) was attributed to a weaker rise in new export orders placed with manufacturers, plus slower growth of new work overall at service providers.”
• Input prices posted the first increase in five months.
On Friday producer prices continue to linger in the deflation territory with the PPI posting a negative reading for a 33rd consecutive month in Apr on Friday.
• Unsurprisingly, the decline was led by a contraction in oil prices that were down 8.8%yoy last month.
• PPI: -3.1%yoy in Apr v -3.0%yoy forecast.
France – Services (51.8 v 50.6 in Apr) sector offset losses in the manufacturing (47.1 v 48.3) leading the composite PMI to a seven-month high (51.1 v 50.2).
• New business orders recorded by service providers hit a six-month high while manufacturers continued to post falling new orders.
Nigeria – The largest oil producer of oil in Africa released the worst GDP reading in more than six years.
• The economy contracted 0.4%yoy in Q1/16
US – Janet Yellen to appear on panel event at Harvard University on Friday. Yellen is due to speak on May 27 and June 6th before the FOMC meeting
• Uncertainty over growth in China and BREXIT fears may serve to delay a Fed rate rise
• William Dudley, a permanent voting member of the FOMC and president of the New York Fed, supported the view of a number of his colleagues in the Fed last Thursday saying that a Jun rate hike remains “appropriate” should economic data come in strong.
• Revisions in expectations for the first rate hike this year weighed on the US equities with the S&P500 index closing at the lowest level since Mar and bringing YTD returns in the negative territory on Thursday.
• The US dollar index rallied to a seven-week high yesterday.
• On a separate note, the Philly Fed manufacturing index joined the New York analog posting a decline in regional business activity in May.
• The index slipped to -1.8 this month compared with -1.6 in Apr.
• The decline was driven by a fall in new orders and marked the eighth negative reading in the past nine months.
South Africa – The rand is regaining some of its yesterday’s losses this morning after hitting the lowest level (15.95) in nearly three months on Thursday.
• The Central Bank decided to keep rates unchanged at 7.0% at the meeting yesterday given the incoming weak economic data.
Greek – Eurozone creditors and the IMF are working on settling all differences with regards of the next bailout tranche to Greece.
• The IMF has been pushing for a revision in borrowing terms including a deferral of loan repayments until 2040 compared to 2022 currently agreed.
• Germany and other Eurozone members are examining debt relief options that would avoid a Parliamentary vote on an increasingly political issue.
• Additionally, the parliamentary mandate for the bailout programme is currently conditional on the IMF taking part in it and should the Fund decide to exit Eurozone governments will likely need to seek new lawmakers’ approval.
• Creditors are targeting to reach an agreement at the meeting next week for bailout funds to be released next month.
Argentina – The government set the minimum wage at 8,060 pesos (US$570), a 33% increase over the prior 6,060 pesos, compensating for a 27% depreciation in the national currency after the government moved to floating exchange rate.
• The government aims for an inflation rate no higher than 25% this year.
• This compares to 35% expected by the market.
Currencies
US$1.1207/eur vs 1.1224/eur yesterday. Yen 109.61/$ vs 110.08/$. SAr 15.596/$ vs 15.805/$. $1.454/gbp vs 1.465/gbp
0.722/aud vs 0.721/aud. CNY 6.553/$ vs 6.544/$. – US dollar off recent high but remains supported by potential for US rate rise
Commodity News
Precious metals:
Gold US$1,250/oz vs US$1,255/oz yesterday – A gold refinery is to be opened in Monaco in early 2017 on strong local and global jewelers’ demand, according to a Dubai investor involved in the project.
• Aurum Monaco SAM will start with 1t per month of gold production rate in the first year before ramping up to 3t per month capacity.
• The dore will sourced from Colombia, Peru, Chile and soon Ecuador.
• The refinery will be funded by the proceeds from the Dubai gold trading company Noble Precious Metal DMCC business.
• The WGC does not publish Monaco gold demand numbers separately but rather aggregate it in the “Other Europe” category which has been running at <1% of the world’s total lately.
• The Other category stands at c.1moz per annum and accounts for 10% of the European (ex CIS) demand.
Gold ETFs 58.7moz unch v 58.7moz yesterday –
Platinum US$1,017/oz vs US$1,021/oz yesterday –
Palladium US$553/oz vs US$573/oz yesterday –
Silver US$16.37/oz vs US$16.66/oz yesterday –
Base metals:
Copper US$ 4,559/t vs US$4,578/t yesterday -
Aluminium US$ 1,536/t vs US$1,551/t yesterday
Nickel US$ 8,385/t vs US$8,545/t yesterday –
Zinc US$ 1,838/t vs US$1,858/t yesterday
Lead US$ 1,650/t vs US$1,695/t yesterday
Tin US$ 16,080/t vs US$16,670/t yesterday
Energy:
Oil US$48.3/bbl vs US$49.5/bbl yesterday
Natural Gas US$2.117/mmbtu vs US$2.025/mmbtu yesterday
Uranium US$28.65/lb vs US$28.65/lb yesterday
Bulk
Iron ore 62% Fe spot (cfr Tianjin) US$50.8/t vs US$51.1/t –
Thermal coal (1st year forward cif ARA) US$47.2/t vs US$46.7/t yesterday – Norway sovereign wealth funds could be forced to step up divestments on fossil fuels. The fund guidelines currently force divestment of companies which derive >30% of sales from thermal coal.
Steel - prices in China continue to fall with October delivery prices falling by >6% in the SFE on concerns that the recent rise in supply might outstrip demand. Recent moves by the authorities to reduce investment and speculation on steel and iron ore futures may also being having some impact. The imposition last week of anti dumping duties by the US of 520% may also be helping to force Chinese steel prices lower.
Other:
Tungsten - APT European prices stood at $213-225/mtu vs $215-225/mtu
Lithium – Poseidon Nickel backed by Andrew ‘Twiggy’ Forrest has announced a high-grade lithium discovery at its Lake Johnston project in Western Austraial
All credit to Twiggy for building Fortescue his iron ore business into an apparently sustainable company.
Twiggy knows how to exploit The Australian market appears to have a bit of a lithium bubble going on .
Company News
Aureus Mining (LON:AUE) 3.5 pence, Mkt Cap £19.0m – Update on New Liberty Mine
• Aureus Mining reports that, subject to the approval of the Ministry of Lands, Mines and Energy, it expects to be able to restart processing gold ore at the New Liberty mine within the next two weeks.
• The company has received permission from the Environmental Protection Agency to construct additional holding zones within the wetalnds area downstream of the tailings storage area in order to improve aeration of surface water and improve retention times and has also engaged a number of consulting companies to assist it with modifications to the process plant and the detoxification circuits “to ensure that discharges into the TSF [Tailings Storage Facility] comply with the Environmental and Operating Permits”.
• During the suspension of processing operations, Aureus Mining is continuing mining operations at New Liberty and building ore stockpiles which currently contain approximately 73,400 tonnes at an average grade of 3.78 g/t gold.
• The company also states that production for 2016 to date amounts to 30,000 oz of gold.
Conclusion: Aureus Mining has implemented a series of remedial measures which the company expects to allow the restart of processing within two weeks
Bacanora Minerals (LON:BCN) 85.5 pence, Mkt Cap £83.2m – Bacanora place £7.7m of new stock and warrants with Blackrock
• Bacanora Minerals have placed 9.75m new shares worth £7.7m with Blackrock at a price of 79 pence per share.
• Each new share comes with a sweetener for Blackrock of 0.3 warrants per share at an exercise price of 79p/s.
• The total proceeds if and when the warrants are exercised are £10m. The use of the warrant sweetens the deal nicely for Blackrock.
• Funds should give Bacanora surplus cash to post the completion of their fully funded feasibility study on the Sonora lithium project in Mexico.
• M&G notified an 8.7% stake in Bacanora on 20 November following a placing of £8.8m at 77p/s.
• In a recent meeting with the company Bacanora discussed its potential to become one of the world’s larger producer of Lithium from its lithium clay projects in Mexico.
• The potential for the company to confirm production within a relatively short time scale and to then upscale the mine and plant perhaps underscores Blackrock’s investment rationale.
• Management recently released an updated minerals resource for the Sonora lithium project in Mexico of 259m tonnes grading an average of 3200ppm lithium indicated and an additional inferred resource of 160mt at an average grade of 1200ppm lithium. The SRK NI-43-101 standard resource is reported at a cut-off grade of 1000ppm.
Kodal Minerals* (LON:KOD) 0.045p, mkt cap $1.7m – Completion of acquisition and fundraising
• Kodal Minerals has announced the successful completion of its acquisition of a portfolio of west African gold exploration properties from Australian listed Taruga Gold.
• The acquisition of Taruga’s wholly owned subsidiary, International Goldfields (Bermuda), for £410,000 in new Kodal shares leaves Taruga Gold with a 27.45% interest in the enlarged company. Kodal reportsthat “Taruga intends to distribute the Consideration Shares on 3 June 2016 as an in specie return of capital to Taruga shareholders”.
• In addition, Kodal Minerals has raised £680,000 through the issue of 1,700m new shares at a price of 0.04p/share to progress the exploration of the newly acquired west African properties and the existing Norwegian assets.
Conclusion: The successful acquisition of a suite of gold exploration properties in west Africa marks a new chapter in Kodal Minerals’ evolution. Exploration of a number of the projects is being funded through joint-ventures with major mining companies which should limit Kodal Minerals financial exposure while retaining significant exposure to any successful discoveries.
*SP Angel acts as Financial Advisor and Broker to the company.
*The author of this report does not hold shares in Kodal Minerals.
Three Partners of SP Angel and SP Angel LLP hold stock in Kodal Minerals due to their long running financial support for the company.
Gemfields (LON:GEM) 43.75 pence, Mkt Cap £238m – Record auction prices for low quality emeralds
• Gemfields reports that its recent auction of “lower quality rough emeralds” held in Jaipur, India between 17-20th May, raised a total of US$14.3m, bringing auction revenues from the Kagem mine to over US$100m so far this year.
• A total of 2.78m carats, of the 3.67m carats offered for sale from the 75% owned Kagem mine in Zambia, was sold at a record average price of US$5.15/carat. The previous Jaipur auction of the lower quality material, held in November 2015, realised an average price of US$4.32/carat.
• The company notes that it did not offer any beryl for auction on this occasion, or at the previous auction of lower quality emeralds, as it had been sold direct “with a considerable degree of success”.
• The next Gemfields auction is due to be held in Singapore in June and is expected to comprise mainly mixed quality rough rubies from the Montepuez mine in Mozambique.
• Commenting on the unsold lots from the Jaipur auction, Gemfields notes that these lots had a higher degree of uncertainty with respect to final recovery and hence failed to reach the minimum reserve price.
• “The Company, however, believes that these goods offer considerable opportunity to further build demand in other new areas and is confident in the quality and longer term value of these lots and is supported by evidence of the US market continuing to come back on stream.”
Conclusion: Gemfields is building confidence in the coloured gemstone market and it is particularly encouraging to hear their view that the US market is recovering.
Mariana Resources (LON:MARL) 3.2p, Mkt Cap £38.1m – Further high grade drilling results from Hot Maden
• Mariana has released results from its continuing drilling programme at Hot Maden in Turkey. Results from Holes HTD-36 to HTD-50 have been released and results from Holes HTD51-HTD53 are expected to be released shortly.
• The drilling has been planned to examine three different areas:
• The company reports that some of the highest grade zinc intersections it has encountered, have been located around the northern and eastern margins of the resource area, including an intersection of 36.5m at an average grade of 7.1% zinc; 1.8 g/t gold and 0.51% copper from a depth of 25.5m in Hole HTD-44.
• In the southern area, 400m south of the ciurrent resource area, high grade stockwork mineralisation includes an intersection of 1m at an average grade of 13.7 g/t gold from a depth of 64m “with assays pending for multiple sulphide bearing stockwork zones in HTD-51 and HTD-53”.
• In the northern section of the current mineral resource area, Hole HTD-52 has intersected “a new down-dip extension to the high grade gold-copper resource.” Although assays for this hole are not yet available, “A total of 50m of multiphase, chalcopyrite-pyrite (hematite-jasper) bearing breccia was intersected from 262m.”
• The company is currently updating the Hot Maden mineral-resources estimate and this work, which will presumably incorporate much of the recent drilling since the August 2015 estimate, is expected to be completed next month.
o Potential extensions to the known high grade copper/gold resource where the company announced a maiden resource of 2.2m oz of gold in August 2015
o Scout drilling of the southern “Ridge Area” which is the southerly step out extension of the current resource area; and
o Scout drilling of the “Southern Vein Field” which represents the northern extension of an area mined by Russian interests before 1923
Conclusion: Drilling at Hot Maden is continuing to make high grade intersections. We look forward to the results of the current resource estimate.