Atalaya Mining (LON:ATYM) – Expansion to 9.5mtpa rate expected to be reached in Q3 2016
Savannah Resources (LON:SAV) – Gravity survey in Oman
Tertiary Minerals* (LON:TYM) – £500,000 placing and interim results
Xtract Resources (XTR LN) – Sale of Manica for US$17.5m
China tightening oversight on commodity futures trading
• China is moving to clamp down on commodity speculation in its futures markets while avowing to open up commodity-derivatives to offshore investors and become a price maker for global market
• We wonder how the authorities might react to rampant speculation by US and other investors
UBS says Small cap mining is the next hot sector
• The Sydney Morning Herald report UBS’s smaller companies fund team in Australia as forecasting Small Cap Mining to be the next hot sector.
• The portfolio manager reckons miners that have managed to make it through the savage downturn following the nation's biggest mining boom are now poised to reap the benefits of their survival skills. That mining companies have spent the past five years cutting the fat and creating efficiencies and are becoming attractive buying opportunities and that demand for commodities has stabilised.
• "What we've seen over five years or more is a huge increase in efficiency”
Myanmar – pit collapse at illegal mine kills 13 at Jade mine
• We are reminded of the dangers of illegal mining all too often with news of another 13 killed in an illegal mine in Myanmar.
• The pit was several hundred feet deep and remains unstable hampering rescue efforts.
• Last November more than 100 mine workers were buried as they slept as a landslip of mine waste submerged their accommodation followed by another 13 killed in a further landslide in May.
Volvo launches driverless underground truck
• Volvo has launched a driverless truck suitable for underground work developed in joint venture with Boliden.
• The automation should eventually lead to higher utilisation rates, lower capital and working capital costs and better health and safety figures.
• The trucks are still being trialled with a real mine pilot trial in the Autumn.
Lithium - ETF
• ETFs have proved hugely popular for investors looking for exposure to gold, silver and other metals but speciality metals like Lithium are less easy to acquire.
• Global X offers a Lithium ETF backed by shares in Lithium producing companies with holdings in Rockwood and SQM.
Dow Jones Industrials +0.82% at 17,852
Nikkei 225 +0.09% at 16,772
HK Hang Seng +0.14% at 20,397
Shanghai Composite +0.26% at 2,822
FTSE 350 Mining +2.37% at 9,162
AIM Basic Resources -0.90% at 1,882
Economic News
Oil prices together with a correction in the US dollar index led gains in global equities yesterday with US and European equities trading close to one month highs.
• Brent contract passed the US$50/bbl mark for the first time this year having recorded a 34% increase YTD and 85% gain since lows seen in Jan/16.
• Oil price were buoyed by the American Petroleum Institute report showing US oil stockpiles dropped 5.1mmbbl, while analysts forecast a 3.3mmbbl fall.
• A separate report showed US crude inventories came down by 4.2mmbbl to a total of 537.1mmbbl (EIA).
• US crude production decline for an 11th week to 8.77mmbbl per day marking the lowest level since Sep/14.
• Weaker US currency supported the base and precious metals’ complex:
o Gold is up this morning after hitting a nearly two month low yesterday;
o Copper has briefly crossed the US$4,700 mark this morning and is up 0.9% today.
US – Services industry growth slowed in May registering the lowest reading since Feb/16.
• Markit Services PMI: 51.2 v 52.8 in Apr and 53.0 forecast.
• Markit Composite PMI: 50.8 v 52.4 in Apr.
• Combined with poor manufacturing PMI released earlier this week (50.5 v 50.8 in Apr), the composite index came down to the lowest level in three months.
Date Index Period Actual Expected (Bloomberg) Previous
Monday Markit Manufacturing PMI May 50.5 51.0 50.8
Tuesday New Home Sales Apr 16.6%mom 2.4%mom -1.3%mom
Wednesday Markit Services PMI May 51.2 53 52.8
Markit Composite PMI May 50.8 52.4
Thursday Weekly Jobless Claims 275k 278k
Durable Goods Orders 0.5%mom 0.4%mom
Durable Goods Orders (Core) 0.3%mom -0.3%mom
Capital Goods Orders (ex Air) 0.3%mom -0.8%mom
Friday Q1 GDP (2nd reading) 0.9%qoq 0.5%qoq (1st reading)
Core PCE (2nd reading) 2.1%qoq 2.1%qoq (1st reading)
Source: Bloomberg
UK – The economy expanded at 0.4%qoq, matching initial estimates.
• Private consumption led growth climbing 0.7%qoq, the fastest pace in almost a year, and offsetting softer exports (-0.3%qoq) and business investment (-0.5%qoq).
• Services industry expanded at 0.6%qoq, while industrial production and construction fell.
• On the YoY the economy climbed 2.0%, revised from an earlier estimate of 2.1%.
France – The government was forced to tap into strategic petrol reserves on the back of continuing protests at the nation’s eight oil refineries amid proposed new labour bill.
• The government is estimated to hold around three months of reserves that could be used if needed.
• Of the 12,000 petrol stations in France, 4,000 were empty on yesterday, up from 300 on Tuesday.
• In addition, to oil refineries strikes are held at nuclear power plants with some unite reported to have been drawn to a halt by the hard-line leftist CGT union supporters.
• Given an open-ended national train and metro strikes scheduled for next week, many fear the Euro 2016 running through Jun 10 and Jul 10 might be affected.
• Union leaders have already stated that “workers come before football”.
• The bill is attempting to loosen the French labour market by easing rules for employee’s dismissal and promote more mobility in the sector.
Australia – Business investment contracted 5.2%qoq in Q1/16 with the gauge having recorded five negative readings in the last six quarters.
• Poor start to the year in private capital expenditures suggests growth will continue to be driven by public and private consumption this year.
• Business investment: -5.2%qoq v 1.8%qoq (revised up from 0.8%qoq) in Q4/15 and -3.5%qoq forecast.
• The currency dipped to 0.7162 around the time of the news release but has recovered since then and is trading around 0.7200.
Kazakhstan – Authorities are planning to gross more than US$6bn for one of the biggest privatizations in the nation’s history as state budget feels the pressure from low commodity prices.
• The programme involves 173 smaller assets and 44 companies of “national scale”, according to the Kazakhstan’s sovereign wealth fund Samruk-Kazyna.
• Seven deals including the sale of KazMunaiGaz National (an oil and gas producer), Kazatomprom (a uranium producer) and Kazakhstan Temir Zholy (a railway monopoly) will be made via IPOs.
Currencies
US$1.1176/eur vs 1.1144/eur yesterday. Yen 109.98/$ vs 110.24/$. SAr 15.615/$ vs 15.650/$. $1.468/gbp vs 1.464/gbp
0.721/aud vs 0.719/aud. CNY 6.559/$ vs 6.562/$ –
Commodity News
Precious metals:
Gold US$1,227/oz vs US$1,224/oz yesterday – Venezuela continues to sell down its gold reserves amid collapsing FX oil revenues.
• The nation sold 16% or 1.4moz of its reserves in Q1/16 making it the largest sovereign seller fo the precious metal, according to the IMF.
• This come on top of the 24% reduction in 2015.
Gold ETFs 59.3moz unch v 59.3moz yesterday – unch
Platinum US$1,002/oz vs US$1,002/oz yesterday –
Palladium US$541/oz vs US$536/oz yesterday –
Silver US$16.38/oz vs US$16.26/oz yesterday –
Base metals:
Copper US$ 4,693/t vs US$4,627/t yesterday -
Aluminium US$ 1,555/t vs US$1,551/t yesterday
Nickel US$ 8,400/t vs US$8,395/t yesterday –
Zinc US$ 1,871/t vs US$1,836/t yesterday
Lead US$ 1,653/t vs US$1,655/t yesterday
Tin US$ 15,750/t vs US$15,655/t yesterday
Energy:
Oil US$50.0/bbl vs US$49.4/bbl yesterday
Natural Gas US$1.965/mmbtu vs US$1.982/mmbtu yesterday
Uranium US$27.90/lb vs US$28.15/lb yesterday
Bulk
Iron ore 62% Fe spot (cfr Tianjin) US$46.9/t vs US$48.3/t –
Steel – The EU may place new anti-dumping tariffs on Chinese steel shipments.
• A number of steel associations urged the G7 economies that meet in Japan this week to harden their stance on cheap steel imports from China.
• The US has also put a 450% duty on Chinese corrosion resistant steel as well as 3-92% duties on similar steel from Italy, India, South Korea and Taiwan
Thermal coal (1st year forward cif ARA) US$48.6/t vs US$47.4/t yesterday –
Other:
Tungsten - APT European prices stood at $213-225/mtu vs $215-225/mtu
Company News
Atalaya Mining (LON:ATYM) 93.5 pence, Mkt Cap £109.9m – Expansion to 9.5mtpa rate expected to be reached in Q3 2016
• Atalaya Mining reports that “Based upon the considerable progress made during the commissioning of the Expansion, the Company anticipates that production ramp-up to the full rate of 9.5Mtpa will be achieved during Q3 2016, earlier than anticipated. “
• Copper production during the quarter amounted to 4048 tonnes, with March production, described as the “first month of normalised production” since the formal declaration of commercial production on 1st February, amounting to 1,465 tonnes. Production is continuing to build up with 1,373 tonnes produced during the first 20 days of April “before the tailings discharge was provisionally suspended by the Junta de Andalucia.” The suspension has now been lifted.
• Cash costs in the two month of commercial production (February & March) amounted to US$2.20/lb and “the Directors expect these to improve as production progresses from the ramp-up phase through to steady state production of 9.5 Mtpa”
• The company reports that “Total capital costs have been kept under control and are expected to come in below the revised budget of US$164 million for both Phase I and the Expansion. “ Atalya points out that this brings the Rio Tinto project in as “one of the lowest capital intensity projects in the world”, however, as a reopening of a former mine this should be expected compared to greenfields development. Even so, management has delivered a substantial new copper producer moving relatively seamlessly through an expansion programme now expected to come in ahead of schedule in Q3.
• Sales of copper during the ramp up phase since commercial production amounted to 1617 tonnes generating €4.9m net of deductions for offtake and penalties and resulting in a loss for the quarter of €3.1m and an EBITDA loss of €2.5m. Reduction of costs as the ramp-up builds up and elimination of penalty elements in the concentrate is expected to turn these losses around.
• Cash at 31st March amounted to €11.8m.
Conclusion: Atalaya has brought the Rio Tinto operations back to production under budget and ahead of schedule. Production is ramping up and management is predicting a further decline in costs to below the US$2.20/lb achieved during the first two months of commercial production.
Savannah Resources (LON:SAV) 3.3 pence, Mkt Cap £12.8m – Gravity survey in Oman
• Savannah Resources has announced the completion of 3 gravity surveys within its Block 4 and Block 5 licence areas in Oman.
• The results of the survey are expected in June and are likely to further refine the definition of drill targets within areas already defined by electro-magnetic surveys and limited drilling.
• Meanwhile, the previously announced drilling programme at the Maquail South and Mahab 4 prospects in Block 5 and the Dog’s Bone prospect in Block 4 “is continuing as planned”.
Conclusion: We look forward to the results of the gravity programme and further news from the drilling in due course.
Tertiary Minerals* (LON:TYM) 1.4p, Mkt £2.9m – £500,000 placing and interim results
• Tertiary Minerals reports that it has raised £500,000 through the placing of 50m new shares at 1p/share. The funds are to be used for further work on the MB project in Nevada, including the advancement of the scoping study and economic modelling, additional metallurgical work and permitting as well as work on the appeal over the Storuman Mine Permit in Sweden.
• The company held a cash balance of £287,000 at 31st March suggesting that post- the fundraising, the company should have adequate funding to complete the tasks highlighted above.
• In addition, the company has released its interim report for the six-month period ending 31st March 2016 revealing an operating loss of £220,000 (2015 loss of 223,000)
• The Phase 4 drilling programme (4 holes totalling 1,553m) at MB has now been completed and despite encountering further fluorspar mineralisation, the deposit remains open both at depth and along strike.
• The main intersections reported today include an aggregated interval of 89.91m at an average grade of 12.02% calcium fluorite from a depth of 120.4m in borehole 15TMBRC036 in the western part of the deposit. The aggregate total included 8 significant fluorspar intersections of which six reported grades above 15% of which the company highlights 31.99m at an average grade of 16.74% from a depth of 150.88m.
• Other intersections, also from the western area included 22.86m at an average grade of 11.47m from a depth of 74.68m in hole 15TMBRC038 and 137.16m at an average grade of 11.54% from a total of 16 intersections starting from a depth of 53.34m in hole 15TMBRC039 with a single reported interval of 32m grading 15.81% nfrom a depth of 185.93m.
• Conclusion Tertiary Minerals has continued to intersect multiple fluorspar beds in its drilling in the western part of its MB project in Nevada. Although not all of up to 16 individual horizons intersected in recent drilling may ultimately prove to be economic, the company continues to extend the area of known mineralisation and is likely, in due cource, to be able to expand the already defined indicated resource of 6.1mt at an average grade of 10.8%CaF2 and inferred resource of 80.3m tonnes grading 10.7%. The recent fundraising should help to keep the project moving forward.
*SP Angel act as Nomad and broker to Tertiary Minerals
Xtract Resources (LON:XTR) 0.2 pence, Mkt Cap £17.0m – Sale of Manica for US$17.5m
• Xtract Resources has announced that it has reached a conditional agreement to sell its Manica gold project in Mozambique to Nexus Capital and Mineral Technologies Inc for US$17.5m in cash.
• The deposit was acquired with a JORC resource of around 950,000 oz of gold (9.1mt at a grade of 3.1g/t) suggesting that Xtract ids selling the project for around $18.50/oz of resource.
• Xtract acquired the project in June 2015 from the ASX company, Auroch Minerals, for a total of US$12.5m. The company has been working on a feasibility study to develop the deposit at a rate of around 50,000 oz pa of gold production and the study was expected to “be completed in Q2 2016, with mine construction planned to commence in Q4 2016 and first production in Q4 2017. Mining of the alluvial gold deposit is planned for Q3 2016.”
• As part of the transaction, Xtract Resources is required too deliver the BFS to the purchaers by 30th June 2016 or face a reduction of US$1m in the purchase price.
• Initial indications are that the capital cost will be around US$35m to develop the mine and this “would be highly likely to result in material dilution for Xtract's shareholders.”
• The additional funds realised by the sale of Manica allow “Xtract to focus on the Chepica mine in Chile” and strengthen the company’s balance sheet
Conclusion: Excluding the post-acquisition expenditure on the feasibility study, Xtract is realising 40% on its investment in Manica in less than a year. It appears that management considered that harvesting a profit now was a better solution than seeking to raise the US$35m of capital to develop the mine and that the funds can be better employed on the less risky development of its Manica mine in Chile.