Anglo Asian Mining* (LON:AAZ) – Production on target to 73-77koz in 2016; net debt reduced
Atalaya Mining (LON:ATYM) – Updated reserve and resources estimates
Berkeley Energia (LON:BKY) – Definitive Feasibility Study Results
European Metals (EMH LN) –Cinovec pre-feasibility study progress
IronRidge Resources* (IRR LN) - update
Chinese funds and companies rumoured to be set to compete to buy Glencore’s Vasilkovskoye gold mine for $2bn
Dow Jones Industrials +0.13% at 18,372 Another record close
Nikkei 225 +0.95% at 16,386
HK Hang Seng +1.12% at 21,561
Shanghai Composite -0.22% at 3,054
FTSE 350 Mining +1.64% at 11,961
AIM Basic Resources +0.64% at 2,117
Economic News
European markets are up this morning on expectations for a rate cut to be announced by the BoE later today and the BoJ considering a direct monetisation of its budget deficit.
• US equities closed at record high yesterday despite crude prices recording a 3.3% decline as reports showed US gasoline inventories climbed above their five-year average.
• The Japanese yen is off 1.2% on prospects for more fiscal and monetary stimulus.
• Sovereign bond yields are slightly higher this morning reflecting investors’ increased appetite for risk.
• Copper is on course to post the fifth consecutive gain on strong Chinese imports data and pro-stimulus sentiment in the market.
• Precious metals are trading lower with the US$ broadly flat.
US – Budget surplus has come in at a third of the forecast reading in Jun as receipts fell 3.9%yoy and government spending climbed 10.6%yoy in Jun.
• Surplus: $6.3bn v $50.5bn in May and $19.0bn forecast.
• Budget deficit was reduced to $185bn in the first six months, down from $192bn in the Jan-May period. This compares to $140bn in H1/15.
• The US$ index traded in the usual range (c.0.5% from min to max) with swings narrowing down towards the end of the day ahead of the BoE announcement. The range currently stands at c.0.2%.
• The Beige Book released yesterday highlighted a generally positive outlook across broad segments of the US economy.
Date Index Period Actual Expected (Bloomberg) Previous
Tuesday JOLTS Openings May 5,500k 5,650k 5,845k (revised from 5,788k)
Wednesday Fed Beige Book
Monthly Budget Jun $6.3bn $19.0bn $50.5bn
Thursday PPI Jun 0.3%mom/0.0%yoy 0.4%mom/-0.1%yoy
Core PPI Jun 0.1%mom/1.0%yoy 0.3%mom/1.2%yoy
Weekly Jobless Claims 2,130k 2,124k
Friday Retail Sales/Core Jun 0.1%mom/0.4%mom 0.5%mom/0.4%mom
CPI Jun 0.3%mom/1.1%yoy 0.2%mom/1.0%yoy
Core CPI Jun 0.2%mom/2.2%yoy 0.2%mom/2.2%yoy
New York Manufacturing Jul 5.0 6.0
Industrial Production Jun 0.2%mom -0.4%mom
Capacity Utilization Jun 75.1% 74.9%
UoM Consumer Sentiment Jul 93.0 93.5
Source: Bloomberg
UK – The BoE will announce its rate decision at noon today with expectations for the benchmark rate to go down 25bp to 0.25%.
Teresa May sworn in as Prime Minister
• Phillip Hammond takes over from George Osborne as the new Chancellor of the Exchequer
• Boris Johnson is the new Foreign Minister in preference to George Osborne who has effectively been sacked
South Korea – The BoK held rates unchanged at 1.25%, in line with expectations, while cutting its 2016 GDP growth and inflation rates forecasts on slowing global growth outlook.
• The economy is estimated to grow 2.7% this year, down from 2.8% forecast previously and slightly up on 2.6% in 2015.
• Inflation is forecast to slow down to 1.1% v 1.2% estimated before and 1.3% recorded in 2015.
Australia – A mixed employment report released today.
• Although employment climbed a little less than forecast in Jun, an increase was led purely by gains in full time jobs.
• Employment change: 7.9k v 19.2k in May (revised from 17.9k) and 10.0k forecast.
• Unemployment rate: 5.8% v 5.7% in May and 5.8% forecast.
• Full time/part time employment change: 38.4k/-30.6k v 2.5k/16.6k in May.
• The A$ climbed 0.5% on the news hitting touching 0.7635.
Philippines – government halts all mining in the Autonomous Region in Muslim Mindanao (ARMM)
• To reopen, mining companies will have to prove to a government task group that they have faithfully complied with the required Environmental Protection and Enhancement Plans (EPEPs), Social Development and Management Plans (SDMPs), and Final Mine Rehabilitation and Decommissioning Plans (FMRDPs).
• The closures could spark more trouble with insurgents in the short term
India - Amnesty International flags issues of human rights violations in India’s coal-mining operations
• The Times of India today report a comprehensive report on coal mining in Chhattisgarh, Odisha and Jharkhand in India.
• The report highlights a pattern of human rights violations in open cast mines run by different subsidiaries of state-owned Coal India Limited.
• The plight of workers in Indian coal mines is not a new subject but it is notable that Amnesty International are now on the case.
• We hope the Indian authorities move quickly to professionalise the industry and install western style working and safety practices
BHS - It’s a funny old world when Poundland which sells everything so long as it can be sold for £1 is valued at £596m more than BHS which was itself only sold for a pound just over a year ago but has since proven that it might be worth less than £1
Currencies
US$1.1108/eur vs 1.1052/eur yesterday. Yen 105.61/$ vs 104.36/$. SAr 14.354/$ vs 14.394/$. $1.323/gbp vs $1.325/gbp.
0.764/aud vs 0.760/aud. CNY 6.687/$ vs 6.691/$ -
Commodity News
Precious metals:
Gold US$1,327/oz vs US$1,341/oz yesterday –
Gold ETFs 64.4moz v 64.4moz yesterday –
Platinum US$1,083/oz vs US$1,088/oz yesterday –
Palladium US$638/oz vs US$638/oz yesterday
Silver US$20.19/oz vs US$20.35/oz yesterday
Base metals:
Copper US$ 4,955/t vs US$4,940/t yesterday –
Aluminium US$ 1,679/t vs US$1,679/t yesterday –
Nickel US$ 10,470/t vs US$10,300/t yesterday –
Zinc US$ 2,2201/t vs US$2,187/t yesterday –
Lead US$ 1,886/t vs US$1,862/t yesterday
Tin US$ 17,945/t vs US$17,850/t yesterday
Energy:
Oil US$46.5/bbl vs US$47.6/bbl yesterday -
Natural Gas US$2.747/mmbtu vs US$2.756/mmbtu yesterday
Uranium US$26.20/lb vs US$26.45/lb yesterday –
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$55.5/t vs US$54.8/t –
Steel – Brexit might enable the UK government to bail out the British steel industry. Bail outs are currently not allowed under EU regulations.
Thermal coal (1st year forward cif ARA) US$60.0/t vs US$59.2/t yesterday
Other:
Tungsten - APT European prices dropped to $185-200/mtu vs $185-210/mtu from the previous week
Company News
Anglo Asian Mining* (LON:AAZ) 18.8p, £19.4m – Production on target to 73-77koz in 2016; net debt reduced
Target price and recommendation under review
• Gold production came in at 19.7koz (Q1/16: 13.4koz; Q2/15:18.7koz) during the quarter driven by high processed grades and improved recoveries at the agitation leaching plant and higher contribution from the new flotation plant.
Reported Gedabek production Q1/15 Q2/15 Q3/15 Q4/15 Q1/16 Q2/16
HL
Tonnes stacked kt 228 371 209 133 206 374
Feed gold grade g/t 1.19 1.07 1.21 1.39 1.14 0.94
Contained gold koz 8.7 12.7 8.1 5.9 7.5 11.3
Gold produced koz 6.0 6.5 6.4 4.6 4.7 5.0
AL
Tonnes processed kt 137 142 150 148 132 152
Feed gold grade g/t 3.38 3.61 3.27 3.51 2.93 3.59
Contained gold koz 14.9 16.4 15.8 16.7 12.4 17.5
Recovery 0.76 0.74 0.75 0.78 0.70 0.74
Gold produced koz 11.2 12.2 11.8 13.0 8.7 12.9
Total gold in dore koz 17.2 18.7 18.2 17.6 13.4 17.9
FLO
Gold produced koz 0.3 0.8 1.7
Copper produced kt 0.130 0.251 0.342
SART 0.090
Gold produced koz 0.0 0.0 0.0 0.0 0.0 0.0
Copper produced kt 0.182 0.236 0.216 0.205 0.181 0.195
Total - gold koz 17.2 18.7 18.2 17.9 14.2 19.7
Total - copper kt 0.182 0.236 0.216 0.335 0.432 0.537
• Underground mine at Gadir (400m away from Gedabek) supplied 37.7kt of ore at an average grade of 9.29g/t (Q1/16: 17.8kt at 7.91g/t) lifting overall processed grades to 3.59g/t at the AL plant (Q1/16 2.93g/t).
• Processing of the harder Gedabek ore has slowed during the quarter as the Company is working on installing an additional SAG mill for processing rates to improve towards budgeted levels.
• The second SAG mill is on site and is expected to come online in Aug.
• New underground equipment in production at the Gadir mine which is demonstrated in an increased average mining rate which reached c.15ktpm during the quarter.
• Copper production increased to 537t (Q1/16:432t; Q2/15: 236t) on increased throughput at the flotation plant and improved recoveries of the metal from AL tailings.
• Dore sales (ex PSA) totalled 15.7koz at an average gold price of $1,265/oz (Q1/16: 12.1koz at $1,184/oz).
• Copper concentrate sales (ex PSA) of 1,582dmt generated $3.0m in revenues (Q1/16: 1,330dmt and $2.1m).
• 2016 production target was reiterated at 73.0-77.0koz gold including 4.0-5.0koz gold from floatation plant and 1.7-2.1kt copper.
• The Company has agreed a construction of an $2m onsite substation to be connected to the national power grid.
• The project is expected to be complete by the end of 2016 allowing the Company to substitute currently used diesel gen sets with a cheaper power source and translating into $1.8-2.0m in cost savings per annum.
• The Company is spending $1.7m on the water purification and discharge facility that would allow for a more efficient use of the available tailings dam.
• Net debt has come down to $40.8m (Q1/16: $47.5m) as the Company continued to meet its debt obligations to ATB and reduced outstanding liabilities with local banks.
• The closing cash balance stood at $3.0m as Q2/16 (Q1/16: $1.0m)
Conclusion: A positive quarterly update shows Gedabek production ramps up as the year progresses with the annual output target reiterated and the business stepping up the deleveraging pace.
An installation of the second SAG mill should improve processing rates at the plant driving production higher in H2/16, while increased AL tailings throughput into the flotation plant is expected to guarantee the Company is on track for its 1.7-2.1kt copper output goal.
*SP Angel act as Nomad and Broker to Anglo Asian Mining
Atalaya Mining (LON:ATYM) 104 pence, Mkt Cap £121m – Updated reserve and resources estimates
• Atalaya Minerals has released an updated estimate of reserves and resources for its Proyecto Riotinto in Spain. Underground orebodies do not form part of the estimate which is confined to open pit reserves.
• The updated reserve estimate shows a 12% increase in the total contained copper content with the proven and probable reserve rising to 153m tonnes at an average grade of 0.45% copper (previously 123m tonnes at 0.49% copper).
• Over 50% of the reserve tonnes are classified as “Proven” in terms of the Canadian NI-43-101 guidelines.
• The reserve estimate, which provides a16.5 year mine life at an overall waste:ore ratio of 1.9:1, is contained within a total resource (measured, indicated and inferred) of 180m tonnes at an average grade of 0.47% copper.
• The estimate is based on a total of almost 172,000 metres of historical and new drilling which generated more than 86,000 samples. CEO, Alberto Lavandeira commented that “These results have provided us with greatly improved confidence in the overall distribution of mineralisation and a much better understanding of the potential impurity levels which will enhance the efficiency of our mine planning.”
Conclusion: The updated reserve and resources estimate shows a solid mine life of 16.5 years. Continuing exploration efforts by the company may augment this at some point in the future but with a solid long-term reserve established, and production ramping up towards the 9.5mtpa target rate, the team at Atalaya are delivering the long-awaited renaissance of the Riotinto operation.
Berkeley Energia (LON:BKY) 39 pence, Mkt Cap £77m – Definitive Feasibility Study Results
• Berkeley Energia, has released details of the independent Definitive Feasibility Study (DFS) for its Salamanca Uranium Project in western Spain which it expects to bring to production in 2018.
• The project is expected to generate an after tax NPV of US$531.9m at an 8% discount rate and an IRR of 60% from an initial capital expenditure of US$95.7m. The estimates are prepared on an ungeared basis using a conservative uranium price outlook prepared by “the industry’s leading source of publications, data services, consulting on the global nuclear fuel cycle markets”, UxC.
• The UxC pricing of the forward curve of long-term contracted uranium prices “which is consistent with the Company’s intention to enter long term offtake contracts over the significant majority of its offtake” and envisages a price of US$40.10/lb of U3O8 in 2018 and 2019 rising steadily thereafter by around 5% pa to reach US$67.69/lb by 2030.
• Annual production during the first ten years is expected to be 4.4m lbs of uranium oxide with an overall 14 year mine life with cash production costs of US$13.30/lb “expected to generate an average annual bet profit after tax of US$116 million.”
• Production will start at the Retortillo deposit with the promising, higher grade, Zona 7 deposit, located approximately 10km from the plant site, available for development around two years later.
• Ore will be processed by crushing, screening, agglomeration, heap leaching and uranium extraction and purification by solvent extraction.
• The company has a continuing exploration programme and has already identified a number of promising targets which have the potential to extend the operational life well beyond the 14 years identified in the DFS.
Conclusion: The DFS has identified a robust project capable of generating a 60% after tax IRR. Production is expected to be on stream in 2018 and meanwhile a continuing exploration effort has the potential to extend the mine life beyond the 14 years currently envisaged.
European Metals (LON:EMH) 24 pence, Mkt Cap £20.7m –Cinovec pre-feasibility study progress
• European Metals has provided a progress report on the pre-feasibility study for its Cinovec lithium-tin project in the Czech Republic.
• Detailed review and revision of the mine plan aimed at “decreasing required capital and maximising cashflow in the first 5 years of the mine life” has identified high grade lithium areas of the orebody close to the surface which can be scheduled to “provide a steady-state flow to a lithium carbonate plant to maximise lithium output.”
• Drilling is continuing on site with 3 rigs now in operation to further investigate this higher grade shallow mineralisation
• Metallurgical test-work “has confirmed that a relatively coarse primary grind is required to liberate the lithium bearing micas which can be cheaply and efficiently concentrated through flotation”. The mica concentrate is scheduled “for further lithium leaching and hydrometallurgical testwork.”
• Tendering is underway for the appointment of a lead engineer for the pre-feasibility study and “It is the Company’s intention to award this work within the next 2 weeks.”
Conclusion: Cinovec is described by the company as the largest lithium deposit in Europe and the 4th largest non-brine deposit in the world. The refinements to the mining and further investigation of possible process flowsheets are central to the pre-feasibility work and we look forward to further updates following the appointment of a lead engineering firm.
IronRidge Resources* (LON:IRR) 7.25 pence, Mkt Cap £17.2m - update
• IronRidge Resources has updated the market following the recent rise in its share price.
• The company notes that iron ore prices have been volatile having risen off historic low levels but that “The current state of the global iron ore market and the outlook for prices in the next five years is not currently conducive to extensive iron ore exploration and development.”
• “Accordingly, IronRidge is taking a conservative approach to the investigation of its iron ore projects in Gabon until the iron ore price returns to a level which would underpin a likely project development. The Company's strategy continues to be, in part, to identify and secure on favourable terms, iron exploration and or development assets that complement its existing projects in Gabon.”
• In the meantime IronRidge are reviewing their Australian assets along with “a top down global search with a focus on gold, for new grass roots and/or advanced projects which show the potential for the discovery of world class deposits.”
• “Iron Ridge's initiatives have identified several opportunities, which are the subject of ongoing investigation in the ordinary course of the Company's business.”
• These are likely to be in gold and to take advantage of potentially better margins in other metals by our estimation.
• IronRidge appear to enjoy the “continued support of our major shareholders; Assore Limited of South Africa, Sumitomo Corporation of Japan and DGR Global Limited of Australia."
• The company’s key assets remain ‘Belinga Sud’, which we believe is an extension to the giant Belinga iron ore discovery in the north east of Gabon and Tchibanga which lies close to the coast to the south of the country.
• Tchibanga would likely be the first of the company’s iron ore asset to be evaluated for production if forecasts for iron ore prices rise due to its coastal location and proximity to infrastructure.
• IronRidge’s major backers, Assore (Assmang) and Sumitomo would also likely need to back plans to advance the project if exploration and metallurgical work meet expectations.
• The giant Belinga Sud project is on another scale. The main Belinga project (>1bnt) was reportedly being considered for development by the Chinese at a potential cost of $2.2bn for 30mtpa though these figures are old and inevitably out of date. The Main Belinga project also includes plans for two hydropower dams with a total capacity of 300MW.
• Rio Tinto recently commented that Simandou, Africa’s other truly major iron ore project would not be developed in the current environment. This may be political posturing as we understand the major Australian iron ore producers should start to see a decline in the quality of their iron ore in the next 10 years requiring the majors to invest in new projects in the longer term.
• Investors should also note that good quality iron ore of high grade and low contaminants still sells for a significant premium above the iron ore benchmark price. We believe the ability to supply significant tonnages of premium material should still prove attractive to the major miners and consumers. Given that it can take a minimum of 5-10 years to develop a major iron ore mine and associated infrastructure we reckon the majors should be considering where they will mine next once the best parts of their Australian projects are mined out.
Conclusion: We await further news on progress at Belinga Sud and Tchibanga and on where IronRidge will focus its attention while it waits for the outlook for iron ore prices to improve.