Atalaya Mining* (LON:ATYM) – Analysts’ visit to Proyecto Rio Tinto
Horizonte Minerals (LON:HZM) – Preliminary Licence for Araguaia nickel project
Shanta Gold* (LON:SHG) – completion of restructuring of convertible loan
Sirius Minerals (LON:SXX) – Take –or-Pay Offtake Agreement
Mining stocks are rising again today despite weak China trade data
• A weaker US dollar and higher oil prices are lifting precious and base metals
• The potential for a UK Brexit might prompt some funds to invest in more international stocks and US dollar earners
• We still reckon China is gearing up to invest massively in new suburban rail systems and other infrastructure projects, many of which were delayed through last year’s anti-corruption purge.
• Chinese steel exports remain strong despite trade barriers imposed by the US
Dow Jones Industrials +0.10% at 17,938
Nikkei 225 +0.93% at 16,831
HK Hang Seng -0.29% at 21,266
Shanghai Composite -0.30% at 2,927
FTSE 350 Mining +0.34% at 9,395
AIM Basic Resources -0.36% at 1,966
Economic News
European equities follow Asian markets lower following the release of weak Chinese trade data.
• Brent holds on to its gains trading at the highest since Oct last year.
• Surprisingly, all base metals are trading higher this morning supported by a marginal drop in the US$ index.
• Copper is up $20/t today recovering some of its losses in the previous session (-US$130/t -2.7%) due to a sharp jump in LME inventories over the last three days.
US – Economic news this week:
Date Index Period Actual Expected (Bloomberg) Previous
Wednesday JOLTS Job Openings Apr 5,675k 5,757k
Thursday Weekly Jobless Claims 270k 267k
Friday UoM Consumer Sentiment Jun 94 94.7
Source: Bloomberg
China – Exports contracted for a fourth month in the last five (in US$ terms) in May with imports following suit.
• Exports: -4.1%yoy v n-1.8%yoy in Apr and -4.0%yoy forecast.
• Imports: -0.4%yoy v -10.9%yoy in Apr and -6.8%yoy forecast.
• Thanks to a 6.1% renminbi depreciation over the last year CNY-denominated exports and imports posted gains (1.2%yoy and 5.1%yoy, respectively).
Japan – Q1 GDP growth has been revised upwards as business spending fell less and private consumption came in stronger than initially estimated.
• Q1 GDP: 1.9%qoq, up from 1.7%qoq estimated previously, and -1.8%qoq in Q4/15.
• Business investment: -0.7%qoq v -1.4%qoq.
• Private consumption: 0.%qoq v 0.5%qoq.
• The yen strengthened on the news and is trading 0.3% higher this morning hitting 106.8 earlier in the day.
Germany – Following the ECB quantitative easing programme, German 10 year bund yields are continuing to fall hitting the lowest ever level this morning (0.033%).
France – Business confidence hit the lowest level in more than a year in May on the back of continuing labour strikes in the petrochemical industry.
• Growth rates for Q2/16 have been cut by the Bank of France to 0.2%qoq, down from 0.3%qoq estimated before and 0.6%qoq recorded in Q1/16.
Currencies
US$1.1371/eur vs 1.1366/eur yesterday. Yen 107.02/$ vs 107.75/$. SAr 14.937/$ vs 14.854/$. $1.454/gbp vs 1.459/gbp
0.745/aud vs 0.744/aud. CNY 6.571/$ vs 6.572/$
Commodity News
Precious metals:
Gold US$1,253/oz vs US$1,241/oz yesterday –
•
Gold ETFs 59.8moz unch v 59.8moz yesterday – Gold ETFs holdings closing on >60moz
Platinum US$1,009/oz vs US$992/oz yesterday –
Palladium US$561/oz vs US$555/oz yesterday
Silver US$16.68/oz vs US$16.31/oz yesterday
Base metals:
Copper US$ 4,586/t vs US$4,614/t yesterday – LME inventories jumped by a whopping 35% in the last three days to 207.3kt while stocks in Asia are reported to have soared 61% over the same period.
• Chinese copper imports came off in May while the pace of shipments since the start of the year remained strong compared to last year.
• Unwrought copper and products imports totalled 430kt in May (-4.4%mom/18.6%yoy).
• Shipment in the first five months of the year totalled 2,310kt (21.8%yoy).
o LME copper stocks rose 11,075t today bringing new stocks into LME warehouses to 53,625t over the last three days.
o We have to wonder where all this metal is coming from. Eg Red Kite, Chinese strategic stocks or some other large unofficial stockholder.
o If the stocks rise by 200kt then it will more likely be Chinese
o While 50kt is not a huge amount of metal its quick movement suggests to us that someone need cash and needs it quickly.
Aluminium US$ 1,588/t vs US$1,552/t yesterday
Nickel US$ 8,720/t vs US$8,635/t yesterday –
Zinc US$ 2,028/t vs US$2,025/t yesterday –
Lead US$ 1,728/t vs US$1,733/t yesterday
Tin US$ 16,950/t vs US$16,890/t yesterday
Energy:
Oil US$51.50/bbl unch vs US$50.80/bbl yesterday
Natural Gas US$2.479/mmbtu vs US$2.434/mmbtu yesterday
Uranium US$28.25/lb vs US$28.25/lb yesterday
Bulk
Iron ore 62% Fe spot (cfr Tianjin) US$48.7/t vs US$47.8/t – yesterday –
Steel – Chinese steel exports continued to grow through May despite escalating protests from Europe to the US and increases in import tariffs.
• The nation exported 9.4mt last month, up 3.7%mom/2.3%yoy.
• Shipments in the first five months totalled 46.3mt, up 6.4%yoy.
• Exports are on the way to beat last year’s record 112.4mt when shipments climbed 19.8%yoy.
Thermal coal (1st year forward cif ARA) US$53.9/t vs US$54.4/t yesterday –
Other:
Tungsten - APT European prices stood at $208-222/mtu unch vs $213-225/mtu –
Lithium – Beware of stories on spot lithium prices
• Press reports citing high spot prices for lithium in China should be discounted.
• While there may be some high prices paid for small quantities of lithium carbonate and hydroxide these trades should not impact the broader market.
• Lithium is still very much an ‘industrial metal’ due to the need for customers to be sure of the characteristics, consistency and quality of the concentrates being traded.
• This means the lithium market trades very much like that for titanium mineral sands or tungsten concentrates with prices being agreed on a benchmark basis directly between industrial consumers and miners with little room for speculators to influence prices.
• Consumers are likely to allow lithium carbonate prices to rise to encourage new production but only to a point where they can maintain margins while stimulating new demand.
• Lithium batteries are complex and expensive products and while the price of the lithium input is relatively small compared with the overall battery when sold it is still a key cost component of the product.
• New demand is coming with Tesla, Mercedes, Nissan and other manufacturers investing in new battery and electric vehicle plants but the current consumers of lithium carbonate and hydroxide will hopefully manage the supply chain in an orderly manner.
• New entrants looking to buy longer-term tonnages of lithium carbonate/hydroxide have the potential to become disruptive but existing supply agreements are likely to cause these consumers to effectively bring on new supply to ensure their place in the market.
Company News
Atalaya Mining* (LON;ATYM) 115 pence, Mkt Cap £134.2m – Analysts’ visit to Proyecto Rio Tinto
• Atalaya Minerals has hosted an analysts visit to demonstrate progress on the Proyecto Rio Tinto.
• It is apparent that, with a committed and energetic team at the helm, the project is ramping up to the planned 9.5mtpa rate of the phase 2 development smoothly and is well placed to meet or improve upon the target date of achieving this throughput by Q3 this year.
• The integration of the processing plant is proceeding well with new mills and flotation cells in place and operational, and throughput and recovery rates building up to planned levels.
• The company has taken a rigorous approach to the engineering of the new plant which, aided to some extent by currency weakness in the €-zone, has delivered substantial capital cost savings of US$117m for the phase 1 (5mtpa rate) compared to original estimates.
• Drilling work to infill the coverage and firm up the in-pit reserve estimates is now complete and new estimates are being prepared by an independent third party and exploration has confirmed the potential for lateral extensions of the known mineralised zones at both the main Cerro Colorado pit and in proximity to the historic Atalaya pit.
Conclusion: The ramp-up of production is proceeding well, and we look forward to further news on possible resource/reserve updates and upgrades.
* SP Angel sent Simon Beardsmore to visit Atalaya Mining this week. Simon was closely involved with the construction of the mine and plant at Los Santos mine in Spain.
Horizonte Minerals (LON:HZM) 2.4 pence, Mkt Cap £15.9m – Preliminary Licence for Araguaia nickel project
• Horizonte Minerals reports that the Environmental Agency of Para State has granted a Preliminary Environmental Licence for the mining and treatment plant at Araguaia.
• The Company describes receiving the licence as the first and “often regarded as the most important licence” step in a three stage approval process which will subsequently require an Installation Licence which permits the start of construction and the Licence to Operate once construction is complete.
• The Installation Licence will require further detailed environmental studies, a Definitive Feasibility Study and further discussions with local communities.
• The Company is “in the final stages of preparing a new Pre-Feasibility Study” which “will include a revised Mineral Resource covering the recently acquired Glencore project combined with infill resource drilling results, data from the full scale metallurgical pilot plant campaign … and updated capital and operating costs.” The updated study is planned for release in H2 2016.
Conclusion: The Preliminary Environmental Licence signals that the State authorities are supportive in principle to the development of Araguaia, however there will be a number of further milestones along the route to development. The release of the updated PFS in the second half of this year is likely to be an important step towards the Definitive Feasibility Study required for the next regulatory step – the Installation Licence.
Shanta Gold* (LON:SHG) 6.1 pence, Mkt Cap £35.5m – completion of restructuring of convertible loan
• Shanta Gold report they have completed the restructuring of their convertible loan.
• We sat down with management last week to understand the deal.
• The restructuring cuts the cost of servicing the interest on the convertible and leaves the conversion prices at 28p. The bonds are repayable in 2019.
• If the bonds are converted at 28p then given the uplift from where we are now that is not an unhappy problem to have.
• It is interesting to note that Shanta bought in $10m of convertible notes but has not cancelled the paper.
• The $5.25m streaming deal with Sliverback Limited is predicated on the base case mine plan. The plant produces around 12,000ozpa of silver with Shanta contracted to supply just 10,000ozpa which represents just 2% of Shanta’s revenue.
• Debt: Shanta has now drawn down the remaining $10m of its $40m debt facility so it has substantial cash in the bank.
• The underground portal is ready for blasting pending the issuance of an environmental permit which is due any day now
• The company has 30-40 underground staff ready to go with many miners having good underground experience from a nearby competitor
• Development ore will be available from the underground mine by the year end with fresh ore from stoping in H2 2017.
• A number of improvements in the processing plant should help to reduce costs
• The company reckon they will produce 82-87,000oz this year with costs of $750-800/oz
• Exploration: There appears to be significant potential from the exploration and development of extensions to the existing pits and new underground workings.
• Conclusion: Shanta looks well set on the road to financial recovery with relatively steady gold production and an improved mine plan in place. The team understand so much more about the geology of the license area with the potential to discover allot more high grade gold ore in our view.
*SP Angel analysts have visited Shanta’s gold mining operations in Tanzania in recent years.
Sirius Minerals (LON:SXX) 19.8 pence, Mkt Cap £456m – Take –or-Pay Offtake Agreement
• Sirius Minerals reports that it has “entered into a new take-or-pay agreement … with Yunnan Dian Huang Peony Industrial Group” (Dian Huang)
• The agreement will cover a “period of ten years from first production, ramping up to one million tonnes per annum over the first six years of the contract”.
• Pricing will remain confidential, however the Company advises that “It is, however,, based on a formula linked to the market price of nutrients contained in POLY4 [the principal polyhalite based product to be produced from Sirius Minerals’ North Yorkshire Potash Project]”.
• The new agreement replaces an earlier “offtake contract announced on 27 June 2013 with Yunnan TCT Yong-Zhe Company … which TCT and Sirius have mutually agreed to cancel. The TCT Agreement was for a period of three years with a seven year extension option”.
• Sirius Minerals points out that TCT “has facilitated the Dian Huang agreement as a replacement and upgrading of the contract to supply Yunnan. The Agreement with Dian Huang strengthens the Company’s supply position in Yunnan by supplying a customer closer to the end user… “
Conclusion: Sirius Minerals continues to expand and develop market acceptance of the polyhalite product. The restructuring of the offtake agreements with Dian Huang and TCT provides a longer tenure to the agreement and hence adds an improved level of “confidence to both parties moving forward”.