ASA Resource Group* (LON:ASA) – Bindura Nickel results
Kefi Minerals* (LON:KEFI) – AGM update on Tulu Kapi
Solgold* (LON:SOLG) – Drilling further extends the Alpala zone
Wolf Minerals (LON:WLFE) – Drakelands mine update
Commodity prices as measured by the Bloomberg commodity index is reported to have entered a bull market this month led by gains in oil, metal and agriculture products prices.
• The index is up 13%qoq so far with three of the top five performers in the index being agricultural commodities led by soybean meal returning 47%qoq.
• Natural gas was the strongest performer in the oil and gas segment, while all precious and base metals recorded gains (except for copper which is flat on the quarter).
FTSE 100 recovered all losses incurred post the Leave vote with the pound remaining some 10% off since Thursday last week.
• European equities are generally range bound this morning as volatility brought by Brexit subsides.
• US futures are trading higher with the S&P500 index having recovered nearly two-thirds of the post-Brexit losses.
• The US$ index and the yen are little changed today with gold prices slightly off.
• Brent prices are relatively flat after having posted a 29% increase this quarter marking the largest gain since Jun/09. US crude stockpiles fell to the lowest since Mar and production dropped for a third week, according to the EIA.
Dow Jones Industrials +1.64% at 17,695
Nikkei 225 +0.06% at 15,576
HK Hang Seng +1.75% at 20,794
Shanghai Composite -0.07% at 2,930
FTSE 350 Mining +2.24% at 10,430
AIM Basic Resources +0.57% at 1,925
Economic News
US – Apart from Deutsche Bank and Santander, 30 banks passed the Fed stress tests yesterday leading financial institutions to announce plans to pay dividends and launch stock buybacks.
• Deutsche and Santander were found to have “broad and substantial weaknesses across their capital planning processes” with banks’ assumptions and analyses remaining “not reasonable or appropriate”.
• May inflation numbers showed consumer prices’ growth was little changed compared to Apr with PCE and Core PCE indices, Fed’s preferred measures of inflation, coming in at +1.0%yoy and +1.6%yoy, respectively.
Date Index Period Actual Expected (Bloomberg) Previous
Monday Markit Services PMI Jun 51.3 52.00 51.3
Markit Composite PMI Jun 51.2 50.9
Tuesday GDP (Terminal) Q1 1.1%qoq 1.0%qoq 0.8%qoq
Personal Consumption (Terminal) Q1 1.5%qoq 2.0%qoq 1.9%qoq
Core PCE (Terminal) Q1 2.0%qoq 2.1%qoq 2.1%qoq
SP/CS 20 City Apr 0.5%mom/5.4%yoy 0.6%mom/5.4%yoy 0.8%mom/5.5%yoy
Wednesday Personal Income May 0.2%mom 0.3%mom 0.5%mom
Personal Spending May 0.4%mom 0.4%mom 1.1%mom
PCE May 0.2%mom/0.9%yoy 0.2%mom/1.0%yoy 0.3%mom/1.1%yoy
Core PCE May 0.2%mom/1.6%yoy 0.2%mom/1.6%yoy 0.2%mom/1.6%yoy
Thursday Weekly Jobless Claims 267k 259k
Friday ISM Manufacturing PMI Jun 51.3 51.3
Wards Total Vehicles Sales Jun 17.3m 17.4m
Source: Bloomberg
Japan – Industrial production slumps in the aftermath of the Kyushu earthquake and a strong appreciation of the yen weighed on goods shipments.
• Output fell 2.3%mom in May v an 0.5%mom increase in Apr and a 0.2%mom drop forecast.
• Weak industrial output report comes on the heels of poor May trade and retail sales numbers.
• Q2 GDP growth is forecast to come in at 0.4%qoq, less than a quarter of 1.9%qoq recorded in Q1/16.
Germany – Unemployment rate kept at a record low of 6.1% with a reduction in the number of people out of work beating market forecasts in Jun.
• The number of jobless fell by 6,000 to 2.69m compared to a 5,000 reduction expected.
UK – Mark Carney is planning to face members of the press and finance industry today at 4pm in London to address investors’ concerns following days of political turmoil and market volatility.
• With no clear plan from the Leave camp over the exit programme and negotiations with the EU in early stages, nearly three quarters of economists in Bloomberg survey forecast the economy to slip into recession for the first time since 2009.
France – Inflation picked up in France but remains a far cry from the ECB target of 2%.
• Consumer prices increased 0.3%yoy in Jun, up from 0.1%yoy recorded in May.
Australia – Job vacancies dipped in the three months to May compared to the previous quarter marking the first quarterly declein since mid-2014.
• Vacancies fell 1.9%qoq during the period compared with a 2.8%qoq growth recorded in the three months to Feb.
• While unemployment rate held at 5.7%, a 29-month low, latest reports suggest employment growth was largely diven by part-time jobs implying lower earning levels compared to full time positions.
Currencies
US$1.1122/eur vs 1.1062/eur yesterday. Yen 102.81/$ vs 102.54/$. SAr 14.760/$ vs 14.985/$. $1.349/gbp vs $1.339/gbp.
0.744/aud vs 0.743/aud. CNY 6.646/$ vs 6.647/$.
Commodity News
Precious metals:
Gold US$1,320/oz vs US$1,320/oz yesterday
Gold ETFs 62.6moz v 62.4moz yesterday
Platinum US$1,005/oz vs US$988/oz yesterday
Palladium US$588/oz vs US$574/oz yesterday
Silver US$18.40/oz vs US$18.24/oz yesterday
Base metals:
Copper US$ 4,835/t vs US$4,791/t yesterday
Aluminium US$ 1,638/t vs US$1,621/t yesterday
Nickel US$ 9,480/t vs US$9,275/t yesterday
Zinc US$ 2,092/t vs US$2,062/t yesterday
Lead US$ 1,778/t vs US$1,732/t yesterday
Tin US$ 16,975/t vs US$16,835/t yesterday
Energy:
Oil US$50.1/bbl vs US$49.2/bbl yesterday
Natural Gas US$2.872/mmbtu vs US$2.878/mmbtu yesterday
Uranium US$26.45/lb vs US$26.55/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$52.0/t vs US$52.3/t
Thermal coal (1st year forward cif ARA) US$55.0/t vs US$53.5/t yesterday
Other:
Tungsten - APT European prices stood unchanged at $200-220/mtu from last week
Company News
ASA Resource Group* (LON:ASA) 0.5 pence, Mkt Cap £7.6m – Bindura Nickel results
• ASA Resources reports that its 74.7% owned subsidiary, Bindura Nickel, has released results for the year to 31st March 2016.
• Bindura has sold a total of 6613 tonnes of nickel in concentrate during the year (2015 7352 tonnes) with the 10% decline attributed to a 26% decline in the tonnage treated as the company shifted its operating strategy towards treating a greater proportion of higher grade material (1.71% nickel head grade vs 1.46% in the previous year) enhancing recovery rates by 2.8% to 86.5%.
• A 38% decline in received nickel prices (US$6,737/t vs US$10,855/t) , combined with this reduced production, has reduced turnover by 46% to US$42.3m.
• The company attributes the weaker nickel prices to a combination of the strength of the US$, contractions in the Chinese economy and falling crude oil prices.
• Cost of sales declined by 22% to US$33.2m as a result of a decline in all-in-sustaining costs to $6818/tonne from $8558/tonne of contained nickel produced. Cost cutting measures included the retrenchment of 300 workers.
• Operations generated a net outflow of cash of US$5.2m (2015 – cash inflow of US$7.0m) and there was an increase in net debt to $25.1m from $7.4m resulting in a rise in gearing (net debt:net debt plus equity) to 39.8% from 15.9%.
• Constraints on cash have slowed the company’s capital projects, with the shaft deepening at the Trojan Mine proceeding slower than in the previous year, however the restart of the smelter is expected to be commissioning by the end of 2016. The refinery and the Shangani mine remain on “care and maintenance” although the Board is considering feasibility work on the possible restarting of the refinery. Plans to convert the smelter to process platinum group metals have been shelved due to lack of adequate platinum bearing concentrates.
• The company points to the difficult state of the international nickel market. “There have been no meaningful production cuts by nickel producers despite estimates that 60-70% of nickel producers are running at a loss” and although underlying fundamentals support a slow price increase, “Analysts estimate that there is approximately one million tonnes of refined nickel available, which is equivalent to half a year’s consumption. This large stock overhang will continue to cap the increase in nickel prices.”
Conclusion: Lower nickel prices have impacted Bindura’s revenues and profitability, however the company has achieved significant cost cutting and altered its mining strategy towards providing higher grade ore for treatment in the future. The restart of the smelter later this year should help to protect margins but with a large overhang of global nickel stocks amounting to some six months of consumption, conditions are likely to be tough for some time although the cost-cutting measures it has implemented should position Bindura to benefit from a recovery when it comes.
*SP Angel act as Nomad and broker to ASA Resources
Kefi Minerals* (LON:KEFI) 0.5 pence, Mkt Cap £16.5m – AGM update on Tulu Kapi
• Kefi Minerals has provided an update on the status of Tulu Kapi and its other projects to coincide with the Company’s AGM.
o The project is now moving towards production which has previously been targeted “to advance towards commencing construction of the processing plant in Q4-16 and production commissioning from Q4-17”.
o The project capital is now estimated at US$130m, “compared with the inherited plans for more than double that amount” and the company has secured $85m of debt facilities from “two reputable African banking organisations” and a commitment for a US$20m investment from the Ethiopian Government.
o The company is expecting all in costs of US$746/oz to place Tulu Kapi within the “lowest cost quartile of gold producers globally.”
o Forthcoming work streams for the next quarter include the finalising of the regulatory and other permitting approvals and the start of the Government’s community resettlement paln.
o In the exploration area, alongside the continuing work on the Saudi Arabian projects, the company is continuing exploration in Ethipia where “our first priority is satellite deposits within trucking distance of Tulu Kapi soa s to unfold the operational sequence to complement the planned open pit operation.” The company also suggests that it has potential underground mine exploration targets within the Tulu Kapi area.
Conclusion: Since acquiring the project Kefi Minerals has made significant and rapid progress in bringing Tulu Kapi to the brink of becoming a production company. Capital costs have been substantially reduced, financing agreements are well advanced and additional targets close to the central develooment area have been identified.
*SP Angel act as Nomad and broker to Kefi Minerals
Solgold* (LON:SOLG) 3.1p, Mkt Cap £29.3m – Drilling further extends the Alpala zone
• Solgold has reported results from its hole CSD-16-15-R2 at the Cascabel project which further extend the Alpala mineralised zone by 100m at depth and 100m to the north and north east.
• The drilling intersection reported today encountered 1338m of mineralisation averaging 0.49% copper and 0.36 g/t gold from a depth of 394m.
• The wider intersection contained two overlapping higher grade sections:
o 334 at an average grade of 0.86% copper and 0.68 g/t gold from a depth of 1294m, and
o 750m averaging 0.67% copper and 0.50g/t gold from a depth of 890m
• The company points out that “The Alpala deposit has now been intersected in 17 of 18 holes put into the project for a total of 23,700m of drilling. The deposit lies over a 700m strike extent, oriented north westerly and up to 400m wide with a drill intersected vertical extent of 1,800m.” In our view, this is a very high rate of drilling success which has been aided by the use of sophisticated geophysical interpretation within an integrated exploration plan encompassing field geology and sampling and geochemical exploration as well as highly targeted drilling.
• The latest intersection comes from a site located approximately 100 metres north of a deep high grade zone intersected in hole 9 which intersected 1050.8m at an average grade of 0.68% copper and 0.92 g/t gold.
• Results from hole 17 (CSD-16-017), which is targeting shallow extensions of the Alpala deposit towards the west, are expected to be available within 10 days.
• Conclusion: Solgold’s exploration efforts at Cascabel continue to extend the Alpala deposit both laterally and at depth. The company has also identified a number of other targets, now numbering 14 in total, including some promising shallow targets– most recently at the Moran prospect which could ultimately give it a range of development options.
*SP Angel acts as Nomad and Broker to SolGold. An SP Angel analyst has visited the Cascabel project
Wolf Minerals (LON:WLFE) 5.8 pence, Mkt Cap £56.6m – Drakelands mine update
• Wolf Minerals has provided an update on the progress at its Drakelands tungsten mine in Devon.
• To date, over 1.6m tonnes of ore has been mined from the open pit and currently mining is proceeding at both the northern and southern ends of the pit on a number of benches.
• As the upper levels of the deposit are in weathered ground, early ore production has encountered ore with “much finer particle sizes than will be the case over the mine life, and for which the processing plant was primarily designed which has had a consequential effect on recoveries.”
• The company has completed a ten hole diamond drilling programme within “the open pit to gather additional data on particle size and distribution within the ore body. Ore samples are being analysed by both geological and metallurgical personnel and the results will be used to refine the mining plan to ensure an ore blend that best suits the plant.”
• On the positive side, however, reconciliation of the ore grades extracted relative to the reserve grades expected has been positive with higher production grades than predicted by the reserve model.
• On the processing plant, “performance has been impacted by core equipment manufacturing faults, leading to high levels of unplanned downtime.” Wolf Minerals and its EPC contractor, GRES are in discussion on a work programme “aimed at achieving continuous operation at capacity, enhancement of recoveries and general plant improvements. Production improvements are expected during implementation of the program, however completion of all elements of the program is required before the full impact on processing plant performance can be ascertained.”
• The difficulties with the processing plant have resulted in Wolf failing to meet “its contracted supply commitments to major customers”. This triggers price penalties and Wolf is “currently in discussions with its major customers to reduce or defer this penalty”.
Conclusion: Problems in processing weathered, fine grained tungsten ore are not unknown and these issues should lessen as the mine moves deeper into harder, un-weathered ore. Further adjustments to the plant should also help to address issues of throughput and recovery although as the company recognises, until the full programme of repairs and modifications is completed, its detailed impact will be difficult to assess. Meanwhile, the company is fortunate to have the backing of its major shareholder, RCF. Negotiations with customers could be tough, but with limited western world tungsten production available, customers will also be under pressure to reach a sensible commercial conclusion.