Fox Marble Holdings (LON:FOX) – Operational highlights mark tough year for Fox Marble
Kefi Minerals* (LON:KEFI) – Reduced capital expenditure estimate for Tulu Kapi
Metal Tiger (LON:MTR) – Drilling underway at T3 in Botswana
North River Resources (LON:NRRP) – Cash conservation a priority pending licence approval
Savannah Resources (LON:SAV) – Applying for lithium licences in Finland
The US dollar is weaker vs an index of currencies for a second consecutive trading session seeing gold and oil prices higher.
• OPEC members are arriving in Vienna for today’s meeting with the general expectations for no deal on production caps to be reached.
• Saudi Arabia is suggested to remain open to reintroduction of an overall OPEC output target while Iran said it would prefer individual country-level output quotas while remaining sceptical deal is possible at this meeting, Bloomberg reports.
• European equities are little changed following a two-day decline ahead of the ECB rate decision.
• Japanese equities posted a decline today (Nikkei -2.3%) as Premier Shinzo Abe announced a delay to the sales tax increase.
• The Yen fell 1.9% over the two days and is currently trading at 109.0 weighing on the export sector.
Iran in talks with Rio Tinto and Glencore on copper projects
• The lifting of certain sanctions applying to Iran is encouraging major companies to hold talks with the government of Iran.
• Iranian mineral exports are estimated to be around $11.5bn excluding oil though this could rise substantially with new investment and improved management.
• Glencore and NFC (China) are reported to already have business agreements in place to help Iran’s copper miners with Trafigura and Aurubis not far behind.
Uber raises $3.5bn from the Saudi Public Investment Fund
• The funding values Uber at a whopping $62.5bn.
• The funds should help Uber to expand in the Middle East
• Uber reckons 80% of its users in Saudi Arabia are women. Might be something to do with the ban on women drivers.
• The deal marks the closing of Uber’s Series G investment round, which began last year and has raised more than $5bn from investors including Russia’s LetterOne and China’s Baidu, at a valuation of $62.5bn.
• In total Uber has raised about $10.7bn from outside investors, excluding a $2.3bn convertible debt facility, making it the best funded start-up in the world.
Dow Jones Industrials +0.01% at 17,790
Nikkei 225 -2.32% at 16,563
HK Hang Seng +0.47% at 20,859
Shanghai Composite +0.40% at 2,925
FTSE 350 Mining +0.08% at 8,621
AIM Basic Resources +0.14% at 1,917
Economic News
US – The Beige Book released by the Fed showed an increase in wages with “tight labor market conditions… widely noted”.
• Separate reports delivered a better than forecast growth in the manufacturing sector last month led by an increase in domestic and overseas orders.
• US auto sales dropped in May compared to last year due to fewer sales days than the year before.
• All six largest auto producers were expected to post a decline ranging from -1.0% (Nissan) to -12.8%yoy (GM). Apart from Fiat Chrysler (+1.1%yoy), the rest recorded a fall in sales.
• On a seasonally adjusted basis, sales beat estimates.
Date Index Period Actual Expected (Bloomberg) Previous
Tuesday Personal Income Apr 0.4%mom 0.4%mom 0.4%mom
Personal Consumption Apr 1.0%mom 0.7%mom 0.1%mom
PCE Apr 0.3%mom/1.1%yoy 0.3%mom/1.1%yoy 0.1%mom/0.8%yoy
PCE (Core) Apr 02%mom/1.6%yoy 0.2%mom/1.6%yoy 0.1%mom/1.6%yoy
S&P/CS House Prices Mar 0.9%mom 0.7%mom 0.7%mom
Wednesday ISM Manufacturing May 51.3 50.3 50.8
Wards Vehicles Sales May 17.4m 17.3m 17.3m
Thursday Weekly Jobless Claims 270k 268k
ADP Employment Change May 175k 156k
Friday NFP May 160k 160k
Unemployment Rate May 5.0% 5.0%
Av Hourly Earnings May 0.2%mom/2.5%yoy 0.3%mom/2.5%yoy
Source: Bloomberg
Eurozone – The ECB is forecast to leave the main refinancing rate unchanged at 0%, the deposit rate at -0.4%, and the asset-purchase programme at €80bn per month, according to Bloomberg estimates.
• New inflation and economic growth forecasts to be released by the governing council.
• A euro-area official mentioned the ECB may raise inflation and growth outlook slightly for this year while leaving it unchanged over the rest of the horizon.
ECB Mar/16 economic forecasts 2016 2017 2018
GDP 1.4% 1.7% 1.8%
Inflation 0.1% 1.3% 1.6%
Source: ECB
Germany – The government auctioned five-year bonds at a record-low yields.
• The debt due in Apr/21 offered an average yield of -0.38%.
Japan – Shinzo Abe postponed the rise in sales tax until Oct/19 from Apr/17 and promised a fiscal stimulus this autumn without providing any details.
• Finance Minister Taro Aso argued “the biggest problem is that private consumption hasn’t risen” with the sales tax likely to further dampen the economy and failing to significantly bump tax revenues up.
• New fiscal stimulus to be funded by new bonds adding to the outstanding government debt currently standing at c.230% pf GDP.
• With the BoJ buying up debt notes at a record pace, there are concerns the government is effectively monetizing debt using the central bank.
• The share of the debt held by non-BoJ parties is estimated to come down to c.100% of GDP in the next two-three years, from 177% as of late 2012, with the BoJ’s balance sheet expanding accordingly, according to Fujitsu Research Institute.
• On a separate note, Takehiro Sato, a BoJ board member, shared his pessimistic outlook on the economy while doubting the feasibility of the 2% inflation target.
Currencies
US$1.1209/eur vs 1.1155/eur yesterday. Yen 109.06/$ vs 109.83/$. SAr 15.569/$ vs 15.693/$. $1.444/gbp vs 1.447/gbp
0.722/aud vs 0.725/aud. CNY 6.581/$ vs 6.582/$
Commodity News
Precious metals:
Gold US$1,215/oz vs US$1,216/oz yesterday
Gold ETFs 59.4moz v 59.3moz yesterday –
Platinum US$974/oz vs US$976/oz yesterday – AMCU strike at Kroondal started last Friday declared unlawful by court. The AMCU has backed down to call off the strike but observers fear that a new round of wage demands and potential strike action may be coming.
Palladium US$545/oz vs US$544/oz yesterday
Silver US$16.00/oz vs US$15.99/oz yesterday
Base metals:
Copper US$ 4,604/t vs US$4,589/t yesterday –
Aluminium US$ 1,572/t vs US$1,557/t yesterday
Nickel US$ 8,410/t vs US$8,395/t yesterday
Zinc US$ 1,987/t vs US$1,906/t yesterday
Lead US$ 1,731/t vs US$1,678/t yesterday
Tin US$ 16,140/t vs US$15,950/t yesterday
Energy:
Oil US$49.84/bbl vs US$49.1/bbl yesterday
Natural Gas US$2.388/mmbtu vs US$2.282/mmbtu yesterday
Uranium US$27.25/lb vs US$27.25/lb yesterday
Bulk
Iron ore 62% Fe spot (cfr Tianjin) US$44.7/t vs US$44.8/t – yesterday – China steel mills reported to be operating at around break-even and are cutting back on stock levels
Thermal coal (1st year forward cif ARA) US$50.9/t vs US$49.3/t yesterday – South 32 says it will not hunt for thermal coal bargains
Other:
Tungsten - APT European prices stood at $213-225/mtu unch vs $215-225/mtu
Lithium – Rio Tinto claims its Jadar lithium project in Serbia is strategically important
• Rio Tinto estimate the Jadar project could produce up to 20% of global lithium supply.
• Rio’s have spent some $70m on the project already with $20m committed for further study.
• The project has an inferred resource of 125.3mt with a lithium concentration of 1.8% and 16.2mt of Borate (B2O2).
Company News
Fox Marble Holdings (FOX LN) 10.10p, mkt cap £18.1m – Operational highlights mark tough year for Fox Marble
• Fox Marble report results for a tough year through 2015
• Production of just 10,700t was down on 14,188t a year earlier.
• Order book value of €3.9m at 1 June 2016 for this year indicates substantial improvement in the company’s outlook though the challenge is for the company to meet its obligations.
• Marble factory due for completion this summer following delays due to a fire at an equipment supplier. The new factory should increase the range of product sales and lower costs due to its beneficial location in the Balkans
• Sales of €0.23m for the year to end December were than impressive though €0.25m has been received for the year to 1 June marking an upturn in business
• Loss: the business recorded a €3.03m loss for the year vs €2.33 yoy attributed to the cost of bringing the quarries to more consistent and larger block size production as well as the cost of attendance at industry fairs and key events. There is also a €0.38m fair value adjustment to the value of the company’s loan note instrument.
• Administrative expenses of €2.5m vs €2.2m yoy look high for such a small company given the scale of sales achieved and delays to growth. Staff costs account for just over €1m vs quarry operating costs of just €0.35m
• Advance payment of €0.39m from Eboracum Marble looks more positive and is part of a €2m contract for all Fox Marble materials via a UK distributor.
• Funding: a £2m fund raising on 13 May at 10p per share diluted investors to the tune of 18.7m new ordinary shares.
• Cash: The company now has a cash pile of €2.8m.
• Sivec marble: management have entered agreements to produce the very rare and sparsely used Sivec marble which is only produced at one other quarry in the world.
• Sivec marble is being used in the construction of the Sheik Zayed Grand Mosque with demand exceeding supply. One of the agreements involved the payment of £1m and a 40% gross revenue royalty – the highest royalty we have ever seen in the mining business anywhere in the world and Fox has to spend an additional £600,000 of capital to reach commercial production.
• The company has an initial order for a minimum €440,000 worth of blocks to be delivered by the year end.
• Accumulated losses: Fox Marble now has €17m of accumulated losses vs €14m yoy
• Convertible loan notes: The company paid out €147,811 in interest on its convertible loan note. The interest rate on this note has been reduced to 8%.
• FOREX: there is a useful foreign exchange gain of €0.20m vs a gain of €0.12m yoy
• Director remuneration: it is good to see the executive directors Chris Gilbert and Etrur Albani agreeing to use 50% of their renumeration to subscribe to new shares on an ongoing basis. It is interesting that the accounts rather unusually do not break down the director remuneration with the figures buried within staff costs.
Conclusion: Given that quarrying and marble production is all about sales and distribution management’s performance last year could have been better. It is good to see sales picking up and the challenge for management is to meet its expanded order book and to continue to grow its sales.
Kefi Minerals* (KEFI LN) 0.6 pence, Mkt Cap £17.3m – Reduced capital expenditure estimate for Tulu Kapi
• Kefi Minerals has announced that as a result of refining its 2015 Definitive Feasibility Study (DFS) it has achieved savings of around 9% (US$13.3m) in the estimated capital cost of developing its Tulu Kapi gold project in Ethiopia.
• The company now estimates that the project will require US$131.7m compared to the US$145.0m previously announced.
• Among the main savings is the cost of the processing plant which, despite an upward revision in the annual capacity from 1.1mtpa to 1.5mtpa, (increasing annual gold production 95koz to 115 koz as previously announced) the capital cost estimate has been reduced by some 17% from US$72.3m to US$59.7m. The cost of road and power infrastructure has also been cut by over 15% from US$17.8m to US$15m.
• The capital costs associated with mining have been more than halved from US$10.6m to US$5.4m.
• Some elements of the capital cost have increased under the revised DFS, including those of the tailings storage facility (up US$1.5m to 49.7m); the community resettlement programme (up $$1.4m to $9.2m) and the owners cost during theh construction phase which rises $2.2m to $9.8m.
• In passing, we wonder whether the recently announced increased equity participation of the Ethiopian Government may be a factor influencing the increased expenditure on the community resettlement programme.
• Some of the financing elements of the programme have increase by around 13% with a rise of $1.1m in financing/insurance/transaction costs to $13.8m and a $2.3m increase in the cost overrun facility to $15.0m.
• The company already has some $115m of financing in place through $85m of senior debt, $10m attributed to the cost overrun debt facility and $20m of equity. Kefi Minerals reports that it expects to decide on the financing of the remaining $15m required “during Q3-16”.
Conclusion: Kefi Minerals has achieved significant reductions to its capital expenditure estimates for Tulu Kapi through what appears to be a meticulous review of the engineering requirements even though it is now looking to mine the orebody some three years faster and produce more gold each year of the revised 10 year mine life.
*SP Angel act as Nomad and broker to Kefi Minerals
Metal Tiger (MTR LN) 3.5 pence, Mkt Cap £19.0m – Drilling underway at T3 in Botswana
• Metal Tiger has announce the start of resource definition drilling has started at its 30% owned Kalahari Copper / Silverjoint venture in Botswana with MOD Resources.
• The drilling, which currently comprises 29 planned diamond drill holes on a 100m grid, is concentrating on an 800m long section of the T3 deposit from depths of 60m below surface to 200m depth.
• The drilling programme is following up targets defined by earlier work on a ”number of extensive, shallow dipping, chargeability anomalies that could be linked to mineralised ground. The central chargeability anomaly appears to correlate with the copper/solver sulphide mineralisation already intersected by the drilling at T3.”
• Assay results from the drilling so far have yet to be released but the company underlines “the objective of delineating a maiden Mineral Resource as the first step towards supporting a conceptual open pit mining study. The completion date is planned fro Q3 2016.”
Conclusion: The drilling at T3 should give the joint venture solid geological and metallurgical information on the T3 deposit. Unless the mineralisation is extremely consistent, it is unlikely that this initial programme at 100m centres will support more than an inferred resource estimate, however it should help to determine the potential of T3.
North River Resources (NRRP LN) 0.1 pence, Mkt Cap £2.5m – Cash conservation a priority pending licence approval
• North River Resources reports an operating and after tax loss of £9.7m for 2015 (2014 loss - £3.3m).The company ended the year with cash of £1.4m, following a £4m fund-raising in September 2015.
• The company reports that it continues discussions with the Namibian Ministry of Mines and Energy for the Namib Lead Zinc Project and that a process and timeline for the application have been agreed. Formal representations regarding supplemental conditions were submitted by the company in April and although “uncertainty around timing and conditions to be attached to the issue of the licence has been a source of frustration for the Company and its shareholders” it is now encouraged that there are no further outstanding technical issues to be resolved.
• During this period of uncertainty over timing on the licence, however, “we are redoubling our efforts to conserve cash and identify further cost savings.”
*An SP Angel analyst has previously visited the Namib lead / zinc mine
Savannah Resources (SAV LN) 3.3 pence, Mkt Cap £12.5m – Applying for lithium licences in Finland
• Savannah Resources reports “that it has applied for Reservation Permits over two new lithium projects, Somero and Erajarvi, covering an area of 159km2 of highly prospective lithium terrain in Finland”.
• The company points to geological mapping work by the Finnish Government agency, GTK, highlighting “the presence of key lithium minerals spodumene, lepidolite and petalite.”
• Savannah Resources “plans to initiate an exploration programme including data compilation, geological mapping and surface sampling with the aim of generating drill ready targets during 2016.”
Conclusion: Savannah Resources’ interest in lithium is topical at present and starting from solid base line work by the Finnish Government geological teams should enable them to assess the prospectivity and identify drill targets relatively rapidly. We note that although at first the Finnish work will probably not put undue strain on the company’s management and financial resources, it adds activity on a third continent to the projects in Oman and Mozambique and could ultimately be an organisational challenge to a small exploration company.