DiamondCorp (LON:DCP) – Lace mine development progress
Galantas Gold (LON:GAL) – Purchasing underground mining equipment and exploration update
Highland Gold (LON:HGM) – H1 gold production at 129koz (+6%yoy) driven by gains at Novo and MNV
Mkango Resources* (LON:MKA) – World Bank airborne survey highlights targets within license area
Ortac Resources* (LON:OTC) – Conversion of convertibles in Zamsort
Sierra Rutile (LON:SRX) – Meeting date for Iluka merger
Tri-Star Resources* (LON:TSTR) – First major equipment order awarded
China – drafting new rules on environmental standards.
• Tough new rules are likely to force mines to treat >85% of all waste water.
• Also the mines will need to comprehensively utilise tailings and other solid waste.
• Miners will have to remediate land and minimise emissions while in operation and to remediate contaminated soils.
• State-run companies have been given to 25 August to submit their views.
• One estimate of the cost for soil remediation is put at US$750bn
• The rules, if properly applied, will raise costs and put many smaller scale miners out of business.
Iron Ore – Rio Tinto and BHP may have got it right after all
• It’s been a painful few years of falling iron ore prices and lower margins but Rio Tinto and BHP’s strategies of raising production to force lesser quality producers out of business appears to be paying off.
• The strategy has been helped by China’s move to rationalise domestic iron ore production and a reluctance to cut back on steel production.
• Imports into China rise by 8.3% to 88.4mt in July confounding many experts.
• We believe one of the reasons for the rise is the effect of strong stimulus measures supporting new infrastructure and house prices done year to date.
• The net effect has been for imported iron ore to increasingly replace and displace local production as local iron ore prices rise.
• It may be that local steel producers are working hard to avert their own rationalisation but our own intel suggests that China has plans for much of this steel production while it also looks like China is happy to continue to dump low cost steel onto world markets.
• For a communist government they really have embraced the notion of ‘free markets’ when it comes to their own exports.
Lithium – theoretical maximum capacity for lithium-silicon cell at 2300mAh/g vs graphite at 372mAh/g
• Good news for lithium, scientists have observed lithium ions moving in a lithium-silicon half cell.
• The observation has allowed the calculation of a theoretical maximum energy storage capacity of 2300mAh/g, which is way more than current production cells but means there is much room for manoeuvre.
• The interesting bit is that the lithium ions were observed in two distinct and very thin <100nm layers of silicon after the charging cycle.
• Developments in battery design and chemistry are going to significantly improve charge capacities, cycle times and the effective life span of the next generation of lithium batteries.
• The ability to see lithium ions interacting with silicon atoms in a half cell feels like a major step forward in understanding how cells work
Dow Jones Industrials -0.08% at 18,529
Nikkei 225 +0.69% at 16,675
HK Hang Seng -0.13% at 22,466
Shanghai Composite +0.71% at 3,026
FTSE 350 Mining +0.04% at 12,173
AIM Basic Resources +0.62% at 2,332 AIM resource stocks up 51% since the January low and up 41% from 1st January
The 350 Mining index is up 63% since 1st January
China – Inflation slowed 10bp through Jul, in line with expectations, on weaker price moves in food, tobacco and liquor.
• CPI: 1.8%yoy v 1.9%yoy in Jun and 1.8%yoy forecast.
• PPI: -1.7%yoy v -2.6%yoy in Jun and -2.0%%yoy forecast.
UK – Manufacturing sector recorded another month of a negative growth in Jun (on a mom basis) as the activity slowed ahead of the Brexit vote.
• Manufacturing production: -0.3%mom/0.9%yoy v -0.6%mom/1.5%yoy in May and -0.2%mom/1.3%yoy forecast.
• Industrial production: 0.1%mom/1.6%yoy v -0.6%mom/1.4%yoy in May and 0.1%mom/1.6%yoy forecast.
• The pound is off 0.22% this morning trading at 1.30 and extending losses for a fifth day now.
India – The RBI kept benchmark rates unchanged at 6.5% in a widely expected move today.
• While inflation has picked up in Q2/16 and is currently standing at 5.8%, prices growth should slow down in H2/16 on the back of good monsoons and downwards pressure on food prices.
• The RBI is targeting inflation to come down to 5% by Mar/17.
• GDP forecasts have been reiterated at a 7.6% growth for FY/17 (Bloomberg estimates for +7.7%).
Spain – Sovereign bond yields on 10y notes hit record lows this morning slipping below 1% as the BoE and ECB monetary easing bias drove an inflow of funds into bond markets.
Philippines – gold miners targeted in latest government crackdown on mining.
• The Environment Secretary comments that all small-scale mining activities outside the nation’s mining co-operatives system were illegal in nature and should be stopped immediately.
• We do not know how they are defining small-scale mining activities.
US - Trump is looking increasingly like a President despite campaign against him
• Gold prices are likely to move to reflect the increasing likelihood of a Trump presidency as the US election draws closer.
• Trump’s new focus on helping jobs, companies and the economy is likely to pick up more voters.
• His pledge to cut regulations massively will appeal to many entrepreneurs and with the public in the US
• Whatever we think, many Americans do not appear to trust Hillary Clinton and it is US votes which will decide the presidency.
• Many in the US see Trump as a more effective and decisive president than Obama or Clinton, a view which resonates with voters.
• In contrast Hillary Clinton does not appear to have much left in the political toolbox, though what was on her ‘secret server’ we may never know – where is WikiLeaks when you actually want them?
Currencies
US$1.1094/eur vs 1.1088/eur yesterday. Yen 102.31/$ vs 102.28/$. SAr 13.550/$ vs 13.667/$. $1.300/gbp vs $1.305/gbp.
0.766/aud vs 0.763/aud. CNY 6.662/$ vs 6.662/$ unch.
Commodity News
Precious metals:
Gold US$1,334/oz vs US$1,331/oz yesterday – London to get new gold futures contracts. The contract is expected to make the world’s largest bullion market more transparent and to create a new era in gold trading.
Gold ETFs 65.4moz vs 65.6moz yesterday – small pull back following big 0.5moz jump in ETF holdings over the weekend
Platinum US$1,145/oz vs US$1,144/oz yesterday
Palladium US$689/oz vs US$694/oz yesterday
Silver US$19.71/oz vs US$19.66/oz yesterday
Base metals:
Copper US$ 4,786/t vs US$4,829/t yesterday –
Aluminium US$ 1,642/t vs US$1,658/t yesterday
Nickel US$ 10,765/t vs US$10,825/t yesterday
Zinc US$ 2,270/t vs US$2,282/t yesterday
Lead US$ 1,795/t vs US$1,802/t yesterday
Tin US$ 18,180/t vs US$18,280/t yesterday
Energy:
Oil US$45.3/bbl vs US$44.8/bbl yesterday
Natural Gas US$2.735/mmbtu vs US$2.738/mmbtu yesterday
Uranium US$26.20/lb vs US$26.25/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$60.1/t vs US$59.1/t –
Steel rebar 25mm US$392.1/t vs US$390.4/t – rebar futures
Thermal coal (1st year forward cif ARA) US$59.5/t vs US$56.3/t yesterday –
Other:
Tungsten - APT European prices vs $190-200/mtu vs $180-190/mtu on last week – prices rise again
Company News
Highland Gold (LON:HGM) 145p, Mkt Cap £470.8m – H1 gold production at 129koz (+6%yoy) driven by gains at Novo and MNV
• At MNV production totalled 44.9koz, up 5.8%yoy, in H1/16 on the back of better processed grades from the underground.
• At Novo gold output was 58.0koz, up 19.1%yoy, driven by stronger processed rates on operations improvements.
• At Belaya Gora production came in at 25.3koz, down 15.9%yoy, as an increase in throughput (834kt v 675kt in H1/15) failed to compensate for a decline in processed grades (1.29g/t v 1.87g/t in H1/15).
• Additionally, the Company produced 0.4koz of gold from the pilot Sredny Golgotay project, part of the Baley hub, processed at the Novo flotation plant.
• Expansion project at Novo targeting new horizons and an increase to the mining and processing capacities to 1.3mtpa started with the management guiding for completion in late 2018.
• Consultants are working on recalculating gold reserves at Belaya Gora and optimise mining operations.
• At Kekura, the major development project of the Group, consultants completed a Fatal Flaw Review of the PFS concluding with a positive view on planned open pit and underground operations. Preparatory works for the 2017 start of construction and installation are progressing well. H2/16 target is to secure construction permits for the project.
Conclusion: Good half-year production results imply the Group remains on target to hit its annual guidance of 255-265koz.
Mkango Resources* (LON:MKA) 4.5p, Mkt Cap £3.1m – World Bank airborne survey highlights targets within license area
• A recent US$25m World Bank survey has highlighted a number of exploration tartgets within Mkango’s Phalombe license area.
• Mkango’s main Songwe Hill project was not covered by the survey.
• The Phalombe license contains at least two vent systems which are thought to be similar to Mkango’s REE project at Songwe Hill.
• The airborne survey shows strong thorium radiometric anomalies with the vents which is a good indicator for Rare Earth minerals.
• The Nkalonje and Namangale vent systems do not feature large areas of outcropping carbonatite but do show carbonate vents and dykes.
o Mkango’s Songwe project has a post-tax NPV of US$345m at a 10% discount with a 37% IRR
o Capex is estimated at US$216m.
Conclusion: The potential to expand production at a later date is often important for mineral projects and the higher the initial capital the more important this seems to become.
*SP Angel acts as Nomad and Broker to Mkango Resources
Ortac Resources* (LON:OTC) 0.03p, mkt cap £1.7m – Conversion of convertibles in Zamsort
• Ortac report that they have exercised their right for 19.35% of Zamsort stock.
• Zamsort have advised that they may wish to make further changes to their capital structure to facilitate further funding.
• Ortac advise that they will cooperate so long as it is to the benefit of Ortac and its shareholders.
• Zamsort run the Kalaba copper-cobalt mine and mining project in Zambia. The project lies to the west of First Quantum’s giant Trident project incorporating the $2.1bn Sentinel copper mine alongside the Intrepid and Enterprise mines.
• The Kalaba copper mine has mined just 70,000t of material to-date for toll treatment and is maintained to keep the mining license in good standing on a seasonal basis.
• The Kalaba copper-cobalt project is estimated to contain some 16.59mt of surface and near surface material grading 0.94% copper equivalent. This is a rough estimation and is not a compliant resource at this stage.
• “Zamsort has started the construction of a commercial scale demonstration plant expected to produce copper cement (precipitated copper) and cobalt hydroxide filter cake from the Kalaba Cu-Co resource in the SML.”
*SP Angel acts as Nomad and broker to Ortac Resources
Tri-Star Resources* (LON:TSTR) 0.11p, Mkt Cap £8.9m – First major equipment order awarded
(Tri-Star holds 40% of SPMP)
• Tri-Star’s in joint venture with the Oman Sovereign Wealth Fund has placed its first major equipment order, effectively launching the project.
• The order has been placed by Strategic & Precious Metals Processing LLc ‘SPMP’ the joint venture company running the project.
• The project expanded recently to include the addition of a third furnace for the recovery of gold and other precious metals.
• The recovery of gold and other precious metals should add meaningfully to the economics of the project while also serving to attract antimony concentrates which might otherwise be processed in China.
• SPMP has ordered three furnaces which are designed to operate in a clean and low emission manner. The new facility should serve to meet demand growth for antimony products and may also serve to fill in for lost capacity in China as the nation moves to close its more polluting mines and smelting facilities.
*SP Angel acts as Nomad and Broker to Tri-Star Resources
DiamondCorp (LON:DCP) 6.5 pence, Mkt Cap £31.1m –Lace mine development progress
• DiamondCorp has announced that mining of the first ore block on the 310m level of the mine is now meeting the targeted 30,000 tonnes per month production rate and the recovered grade of 31 carats per hundred tonnes (cpht) is in line with expectations.
• August is the first month of commercial production and the company reports that “the quality of the diamonds recovered from fresh kimberlite continues to be impressive, with a good proportion of clean sawable stones in all size fractions, including type IIa diamonds.”
• As mine development proceeds, the initial slot which is opening up the mining block between the 290m and 310m levels has produced approximately 25,000 tonnes of kimberlite ore, of which around 40% is reported to have been low grade material which had to be extracted to allow access to the high grade “K4 kimberlite” which is now expected to form the bulk of the plant feed as mining progresses towards the north.
• Mapping of the underground workings has shown that the K4 material is less diluted with waste material than had been expected “and grades should continue to improve as mining of the current block progresses.”
• The company expects to offer around 7000 carats of diamonds for sale in Antwerp at the end of August and continue thereafter on a monthly basis. The August sale is offering slightly fewer diamonds for sale than initially expected as a number of parcels of diamonds (totalling 1838 carats of run-of-mine diamonds and 1679 carats of diamonds recovered from old tailings), have been purchased in Johannesburg prior to export.
• Diamonds available for the August sale are also reduced as a result of the temporary suspension of mining which occurred in July following a fall of ground.
• For future monthly sales, “sales are forecast to be in the order of 9,000-12,000 carats depending on monthly grade fluctuations.”
Conclusion: DiamondCorp is now achieving its planned 30,000 tpm production ate of ore and recovered diamond grades are in line with expectation. Regular monthly diamond sales commence at the end of August and we look forward to news of the sale and of the prices achieved. For reference, we note that the company sold stones from development ore during April at an average price of $175 per carat – in excess of the previous company estimates of $164 per carat.
Galantas Gold (LON:GAL) 8.5 pence, Market Cap £11.7m – Purchasing underground mining equipment and exploration update
• The company reports that is in the process of purchasing a refurbishing underground drilling and loading equipment for its underground Omagh gold mine in Northern Ireland.
• The “refurbished units will avoid delays in the delivery of the main operating equipment, which is planned to be supplied new. Anticipated to be supplied on a lease finance basis, the main equipment will be confirmed when project funding is secured.” On the arrival of the new equipment, the refurbished units will be available for back-up and training purposes.
• Preparatory work for the portal (entrance) of the new underground mine which is accessed from the base of the former Kearney open-pit are reported to be “well-advanced”.
• In addition to the mining developments, Galantas Gold is also reporting on detailed geological mapping and sampling work over the Creevan Burn shear zone (CBS) which lies south of the mine and which yielded high grade grab samples containing 24.2 g/t gold and 11.8 g/t gold reported last year.
• Follow-up work suggests that “veins to the south of the CBS and mine-site, may persist and underlie parts of the shear zone at depths in excess of the current planned mining depth.” In addition, the company is developing a geological concept that the southern veins “are shared extensions of the Joshua vein system to the north of the shear zone. The Joshua vein is one of two main vein systems known in detail from drilling on the Omagh mine site.”
• “The structural evaluation, with existing geophysical data also supports a hypothesis that vein systems to the north of the CBS, as identified within and adjacent to the mine-site, may persist at extended depths to the north of the mine-site and may underlie parts of a near parallel shear-zone considered to exist to the north of the mine boundary.”
Conclusion: Galantas Gold is gearing up for the start of underground development at the Omagh mine. The company’s recent geological work may indicate that there is greater structural continuity and extent to the mineralisation than previously recognised. We look forward to further news as exploration proceeds.
Sierra Rutile (SRX LN) 35p, Mkt Cap £208.5m – Meeting date for Iluka merger
• Sierra Rutile reports that the General Meeting of shareholders to approve the £215m merger between Sierra Rutile and Iluka Resources is to be held on 1st September 2016.
• Irrevocable undertakings to accept the merger terms from shareholders representing over 60% of the equity make the success of the cash offer of 36p per Sierra Rutile share seem virtually inevitable.