Coal of Africa (LON:CZA) – ‘CoAL’ drops offer for Universal Coal
FinnAust Mining* (LON:FAM) – Pituffik work program
Gem Diamonds (LON:GEMD) – Modest improvement in rough diamond prices to be maintained
Petropavlovsk* (LON:POG) – Rec and target under review - Weak H1/16 with 2016 production and net debt guidance intact
Rio Tinto (LON:RIO) – Q2 Production broadly stable across the commodity groups.
Shanta Gold (LON:SHG) – Cost savings driving net debt down
IMF expected to release Global Economic Growth projections today
• Lagarde warned last week estimated may be cut
Lithium - Better lithium batteries to come from improvements to manufacturing
• Nature Energy report scientists are able to better align graphite flakes within electrodes as they are manufactured to give lithium ions a clearer path through the battery.
• Graphite is incorporated into batteries in flake particle form but the graphite also limits the movement of ions within the graphite flake planes.
• Better flake orientation allows faster ion movement
• Superparamagnetic iron oxide nanoparticles are added to the graphite flake to enable the magnetic orientation
• Alignment of the graphite flakes improved performance by 1.6-3 times indicating the process of alignment can significantly improve battery performance if applied in manufacture.
'King Coal' Richard Budge, of RJB Mining has passed away
• We are very sad to hear of the passing of Richard Budge of RJB coal who was well respected within the mining community
• RJB Mining, under the leadership of Richard Budge rescued the UK coal industry buying 17 deep coal mines for £815m in 1994.
• He took on the mines following Arthur Scargill’s crippling miner’s strike. History tells that taking on the UK government does not end will for an industry.
• Budge then added further coal mines to become one of the biggest independent coal producers in Europe.
• In 2001 Budge bought the struggling Hatfield pit near Doncaster, spending £110m to bring the pit back to life.
• In 2007, Budge commented "Most people think it is unbelievable that you can reopen an old colliery, but we have done that." (BBC)
• Few are capable of safely running underground collieries. Fewer are able to breathe life back into ageing thin seam coal mines.
• The UK coal industry will be a lesser place without Richard Budge
Dow Jones Industrials +0.09% At 18,533
Nikkei 225 +1.37% 16,723
HK Hang Seng -0.60% At 21,673
Shanghai Composite -0.23% At 3,037
FTSE 350 Mining -2.69% At 11,374
AIM Basic Resources -0.80% At 2,122
US
Date Index Period Actual Expected (Bloomberg) Previous
Tuesday Housing Starts May 0.2%mom -0.3%mom
Building Permits May 1.2%mom 0.5%mom
Thursday Existing Home Sales Jun -0.9%mom 1.8%mom
Philly Fed Index Jul 4.5 4.7
Weekly Jobless Claims 265k 254k
Friday Markit Manufacturing PMI (P) Jul 51.5 51.3
Source: Bloomberg
UK – Inflation accelerated in Jun coming in at 0.5%yoy, up from 0.3%yoy in May and 0.4%yoy forecast on rises in air fares and motor fuels.
• The data does not take into account a pound slide following a Brexit vote with estimates for inflation to accelerate further through the year reflecting an increased cost to imports.
• Nevertheless, pound is trading lower this morning.
Botswana – government to continue to subsidise BCL with $130m this year
• The Botswanan government has reasserted its commitment to maintaining mining in Botswana through state support for BCL its loss making nickel and copper miner.
• The government intends to sell its stake in the mining and smelting business as soon as it returns to profit or as soon as a buyer can be found.
• Botswana expects its receipts from mining to fall by at least 8% this year
Currencies
US$1.1067/eur vs 1.1052/eur last week. Yen 106.06/$ vs 105.63/$. SAr 14.312/$ vs 14.346/$.
$1.319/gbp vs $1.325/gbp. 0.750/aud vs 0.760/aud. CNY 6.691/$ vs 6.699/$.
Renminbi weakened on the Turkish coup yesterday and is down 2% since Brexit
Commodity Newstop
Precious metals:
Gold US$1,334/oz vs US$1,329/oz last week
Gold ETFs 64.5moz v 64.4moz last week
Platinum US$1,091/oz vs US$1,086/oz last week
Palladium US$644/oz vs US$638/oz last week
Silver US$19.99/oz vs US$19.90/oz last week
Base metals:
Copper US$ 4,925/t vs US$4,895/t last week
Aluminium US$ 1,651/t vs US$1,659/t last week
Nickel US$ 10,510/t vs US$10,330/t last week – Nickel prices pull back from recent high driven by Philippines crack down as huge inventory weighs on outlook
• The Philippines is China’s biggest nickel laterite ore supplier since Indonesia banned raw ore exports.
Zinc US$ 2,235/t vs US$2,212/t last week – zinc prices rise to year high as deficit develops with little new zinc supply on the horizon
Lead US$ 1,860/t vs US$1,872/t last week
Tin US$ 17,800/t vs US$17,900/t last week
Energy:
Oil US$46.9/bbl vs US$47.7/bbl last week
Natural Gas US$2.762/mmbtu vs US$2.792/mmbtu last week
Uranium US$24.90/lb vs US$25.90/lb last week
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$51.6/t vs US$54.0/t – iron ore production cuts rebalancing iron ore market faster than many predicted
• Positive fundamentals in the Iron ore market are returning faster than many expected as supply side cuts restore market balance
• China’s slow rationalization of its steel industry has soaked up surplus iron ore supply while many higher cost mines have been forced to scale back or shut altogether. China has cut around 6% or 30mt in total with further cuts expected unless prices rise significantly from here.
Thermal coal (1st year forward cif ARA) US$59.9/t vs US$61.3/t last week
Other:
Tungsten - APT European prices dropped to $175-185/mtu vs $185-200/mtu from the previous week
Company News
Coal of Africa (CZA LN) 3.3pence, Mkt Cap £62.8m – ‘CoAL’ drops offer for Universal Coal
• Coal of Africa ‘CoAL’ have pulled out of its proposed takeover by allowing their offer to lapse.
• Universal now plans on devoting its attention to commissioning its second colliery within the next few months though Eskom has not yet signed a coal sale contract for production from the mine.
• The Kangala Colliery delivered record coal production last quarter having completed a pit reconfiguration.
FinnAust Mining* (LON:FAM) 5.2p, mkt Cap £25/7m – Pituffik work program
• FinnAust report approval for its 2016 work program from the Marine License and Safety Authority of the Greenland government.
• The FinnAust work program is to include:
o Vibracore drilling in the shallow marine environment
o Ground penetrating radar over the raised beaches
o Extensive pit sampling and auger drilling
o Environmental Impact Study ('EIA') approval expected in the near term to include a baseline study inclusive of marine, freshwater and terrestrial samples
o Results are to be compiled by SRK and should enable a resource calculation for both the high-grade Moriusaq Bay target and the broader area.
• The bulk sample should enable the definition of a suitable processing route.
* SP Angel acts as nomad and broker to the company
Gem Diamonds (LON:GEMD) 125 pence, Mkt Cap £172.9m – Modest improvement in rough diamond prices to be maintained
• Gem Diamonds reports that its first half production of 57,380 carats (Q1 2015 – 50,019 carats) from the Letseng diamond mine “is currently tracking towards the top end of guidance for 2016.” We understand that the company is looking for 107-109,000 carrats of production for the full year.
• The company has held four tenders for Letseng diamonds so far this year, realising an average of US$1,899/carat on the 55,959 carats sold (H1 2015 46,961 carats were sold at an average price of US$2,264/carat). As a result revenues for the first half were unchanged at US$106.3m.
• The company attributes the lower average price achieved to “the mix of diamonds recovered and fewer +100 carat diamonds, as mining worked through a lower value but higher grade area during the Period.”
• The measures taken to reduce breakage of larger diamonds have seen the recovery of “an undamaged Type II 160 carat and an 11.8 carat pink diamond (which sold for US$187,000 per carat” and an undamaged 104 carat white Type ii diamond “of exceptional quality” was recovered in early July.
• At the Ghaghoo mine, production on Level 1 of Block 2 has been completed and the development of level 2 is underway. Sales of Ghaghoo production during Q1, previously reported, realised an average of 160/carat and a further sale in June has achieved US$155/ carat “due to an increase in the proportion of finer material sold”
• Ghaghoo has, however focussed on its plan to downsize the original throughput from the original target of 2000 tpd. “Towards the end of the Period mining rates improved and are currently at a rate consistent with the 300,000 tonnes per annum target.”
• Commenting on the current state of the diamond market, the company points out that “Letseng’s high quality large white rough diamonds have seen a modest improvement in prices … Liquidity constraints, high polished inventory levels and the uncertain macro-economic outlook continue to characterise the polished diamond market. It is anticipated theat the modest recovery in rough prices will continue into the second half of 2016.”
Conclusion: Gem Diamonds continues to deliver large, high quality stones from Letseng and is expecting a modest improvement in prices to be maintained at least into H2
Petropavlovsk* (LON:POG) 7.6p, Mkt Cap £249m – Weak H1/16 with 2016 production and net debt guidance intact
Recommendation and target price under review (was 6.7p)
• Gold production totalled 187.4koz in H1/16 (H1/15: 240.2koz; SPA H1/16:213.3koz) on weaker processed grades and adverse effects of heavy rains.
• The Group estimates TCC to have averaged $690/oz during the period (H1/15: $767/oz) on the back of a depreciation in the national currency (70.5 in H1/16 v 58.1 in H1/15) and operational efficiencies.
• Gold sales came in at 195.4koz (H1/15: 229.7koz) at an average gold price of $1,194/oz (H1/15: $1,221/oz).
• As of H1/16, the Group has 119koz of forward gold contracts outstanding with an average price of $1,269/oz.
• Net debt came down to $598m (Dec/15: $610m) with $18m in cash balances as of Jun/16.
• Sberbank and VTB, holders of $516m in POG debt, are reported to have submitted revised term sheets including an extended debt maturity with negotiations on details of repayment schedules continuing.
• On 2016 guidance, production is expected to come in at a lower bound of the 460-500koz range in 2016 at $700/oz in TCC (2015: 504koz at $749/oz).
• In line with the past performance, production is expected to ramp in Q4/16 when high grade ore is accessed at the flagship Pioneer operation.
• Net debt and annual capex numbers reiterated at $570m (2015: $610m) and $70m including $35m spend on POX to be covered by GMD Gold (2015: $33m).
• Underground development at Pioneer is expected to start in Aug/16 with first ore production from the underground targeted for Q1/17.
• Development costs for H1/16 are expected at c.$6.2m with preparation works having now been completed and the underground contractor on site.
• An audit of Amur Zoloto assets has been completed with a respective CPR prepared by SRK issued today.
• Amur Zoloto hard rock assets hold 20.8mt at 1.80g/t for 1.2moz gold in mineral reserves and 21.7mt at 2.46g/t for 1.7moz in total resources.
• In addition, deposits contain 2.9moz and 6.5moz of silver in reserves and resources and 0.15moz in placer gold.
• SRK puts NPV of AZ assets at $170m at 10% discount rate and $1,100/oz gold price.
• The Company continues to hold talks with Renova, the group’s largest shareholder, regarding a potential acquisition of Kamchatka Gold with little details on the status of those negotiations at this point.
• IRC produced c.1,000t of maiden iron ore concentrate at the newly commissioned K&S plant on the 15 Jul/16 with a ramp up to full 3.2mtpa capacity remaining to be on target for Q3/16.
Conclusion: Gold production is 12% below our H1/16 estimates driven by a shortfall in Pioneer production (67.7koz v 90.3koz forecast) as weaker grades (0.74g/t v 1.00g/t forecast in RIP) and heavy rains weighed on mining operations. The fact that the Company left its annual production range unchanged, suggests annual gold output should come in at c.273koz in H2/16 or 45% higher than in H1/16. With H1/16 numbers 26koz behind our estimates, we expect annual production to come in at c.440koz.
*SPAngel analysts have visited the Pioneer, Malomir and Albyn gold mines in Russia
Rio Tinto (LON:RIO) 2359 pence, Mkt Cap £44.2bn – Q2 Production broadly stable across the commodity groups.
• Rio Tinto’s Q2 and H1 production report shows increased levels of output across all product divisions except the output of hard-coking coal and titanium dioxide slag.
• The Group’s Pilbara iron ore operations increased production by 8% during the quarter and 10% during H1 to reach 160.8m tonnes keeping in touch with the “run rate close to 330 million tonnes per annum (100 per cent basis) in line with annual guidance.” “This performance reflects minimal weather impacts as well as the successful implementation of operational improvements and the ramp up of expanded and new mines across the Pilbara.”
• Bauxite operations showed higher H1 production at all the mines, with Weipa up 3%, Gove up 23% and Sangaredi in Guinea up 22% delivering an overall rise of 9% compared to H1 2015 at 12.07m tonnes.
• Alumina output rose by 6% compared to H1 2015, reflecting “a strong second quarter from Yarwun (18 per cent higher than the same quarter in 2015) as design and process improvement initiatives were progressively implemented.”
• Aluminium metal output rose by 10% to 1.8mt during H1 as a result of the recently modernised and expanded Kitimat smelter.
• The company is maintaining its 2016 production guidance of 45m tonnes of bauxite, 7.8m tonnes of alumina and 3.6m tonnes of aluminium.
• Increased H1 copper production at Kennecott (up 62% to 71.4kt) and Oyu Tolgoi (up 23% to 17.3kt) was partially offset by a 23% decline at Escondida (to 157.1kt) where lower gardes were partially offset by higher throughput at the new concentrator.
• Copper production guidance for the year is expected to fall in the range 575-625,000 tonnes and refined copper guidance is also unchanged at 220-250,000 tonnes.
• Diamond production from the Argyle mine rose by 4% to 6.88m carats during H1 following the continued ramp up of underground production provided higher treatment volumes albeit at reduced grades.
• Lower grades also had an adverse impact on diamond production at Diavik where overall production of 2.08m carats was particularly hit by a weak 2nd quarter (down 16% due to lower recovered grades and a planned maintenance shutdown.
• The company has reduced its guidance for diamond production following reorganisation to 18-20 million carats (previously 21m carats).
• Production of hard coking coal was down 8% “primarily due to the timing of the longwall changeover at Kestrel.” Thermal coal production “was broadly in line with the same period last year.”
• Guidance for coal output is 7-8m tonnes of hard coking coal; 3.3-3.9m tonnes of semi soft and 17-18m tonnes of thermal coal.
Shanta Gold (LON:SHG) 8.25p, Mkt Cap £48.1m – Cost savings driving net debt down
• Shanta Gold reports that its New Luika gold mine in Tanzania produced 23,896 oz of gold in the quarter to 30th June, 1.8% lower than the previous quarter bringing output for the first six months of 2016 to 48,237 oz and keeping the company on track to achieve the previously announced guidance of 82-87,000 oz in 2016.
• Cash costs declined by 3.6% quarter-on-quarter to $429/oz although on an all-in-sustaining basis costs were 10.7% higher at $664/oz. The company has reduced is guidance for 2016 all-in-sustaining costs to US$730-780/oz (from $750-800/oz).
• The company notes that “The first half of 2016 has benefitted from an accelerated mining programme in a below average strip ratio environment.” … “With the completion of Luika Pit in June and Bauhinia Creek Pit expected to complete at the end of Q3 2016, the Company expects cash costs to be higher in the second half of the year in comparison to the first half.”
• The company benefitted from increased gold sales of 26,134 oz (Q1 21,486 oz) at a higher price of $1246/oz (Q1- $1132/oz) and as a result, net debt at 30th June was reduced by almost 24% lower over the quarter to $44.5m with a cash balance of $30.5m.
• Underground development of the Bauhinia Creek deposit at New Luika started during June and “remains on track and within budget to produce first production of underground ore in Q2 2017.”
• The closure of a US$5.25m silver stream agreement over the next 7 to 10 years is reported to be imminent.
Conclusion: Shanta Gold has had a strong quarter in terms of gold sales and costs which is helping to drive a sharp reduction in debt. The operations are in transition with some of the open pit operations at or close to the end of their natural lives and a move into underground mining at Bauhinia Creek reported to be on track to achieve its timetable and budget.