Gem Diamonds (LON:GEMD) – H1 Results – continued uncertainty in the market for rough and polished diamonds
Shanta Gold (LON:SHG) – Interims highlight meaningful fall in AISC cost guidance
Xtract Resources (LON:XTR) – Update on Sale of Manica
Currencies
US$1.1255/eur vs 1.1257/eur yesterday. Yen 100.992/$ vs 100.266/$. SAr 13.648/$ vs 13.271/$. $1.301/gbp vs $1.297/gbp.
0.763/aud vs 0.771/aud. CNY 6.641/$ vs 6.623/$ unch.
UK – jobless fall by 52,000 to 1.64m
Commodity News
Precious metals:
Gold US$1,342/oz vs US$1,345/oz yesterday –
Gold ETFs 65.4moz vs 65.6moz yesterday –
Platinum US$1,112/oz vs US$1,176/oz yesterday
Palladium US$696/oz vs US$722/oz yesterday
Silver US$19.55/oz vs US$20.00/oz yesterday
Base metals:
Copper US$ 4,766/t vs US$4,825/t yesterday –
Aluminium US$ 1,690/t vs US$1,651/t yesterday
Nickel US$ 10,195/t vs US$10,760/t yesterday –
Zinc US$ 2,245/t vs US$2,279/t yesterday
Lead US$ 1,865/t vs US$1,823/t yesterday
Tin US$ 18,290/t vs US$18,440/t yesterday – The Financial Times finally gets round to commenting on the potential revival of the Cornish tin mining industry.
Energy:
Oil US$48.7/bbl vs US$43.7/bbl yesterday
Natural Gas US$2.639/mmbtu vs US$2.579/mmbtu yesterday
Uranium US$26.00/lb vs US$25.80/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$59.5/t vs US$58.8/t –
Steel rebar 25mm US$392.5/t vs US$400.8/t –
Thermal coal (1st year forward cif ARA) US$58.8/t vs US$57.5/t yesterday –
Other:
Tungsten - APT European prices vs $185-200/mtu vs $190-200/mtu –
Company News
Gem Diamonds (LON:GEMD) 123.75 pence, Mkt Cap £171m – H1 Results – continued uncertainty in the market for rough and polished diamonds
• Gem Diamonds reports attributable profits of US$13.4m for the six months to 30th June before a non-cash exceptional impairment charge of US$40m on the value of the Ghaghoo mining asset leaving an attributable loss of US$26.6m.
• The profit (pre the impairment charge) reflects a 7.5% year-on-year decline of 7.5% in revenues to US$109.1m and a 5.6% reduction in EBITDA to US$43.5m.
• Compared to H1 2015, cash generation from operations increased by 15% to US$44.45m and after a 16% reduction in capital expenditure to US$45.60m, free cash outflow before financing reduced from US$15.9m to US$1.1m.
• At 30th June, Gem Diamonds held cash on hand of US$66.5m and a net cash position of US$37.6mafter the repayment of US$2.7m of financial liabilities and dividends of US$18m to shareholders and minority interests.
• The company comments that the first half saw a “decline in the number of +100 carat diamonds recovered at Letseng compared to 2015, reflecting the areas in which mining had taken place … Since the beginning of July, two exceptional diamonds of 104 carats and 85 carats have been recovered as mining moves to a different area.”
• The lower incidence of large diamonds at the Letseng mine is reflected in a decline in the average price per carat of US$1,899 compared to the US$2,264 achieved in H1 2015, although Letseng increased volumes sold from 46,961 carats to 55,948 carats.
• Gem Diamonds has previously reported on the impact of heavy snowfall around the Letseng mine and that it is expecting to meet its full year production guidance of 107-109,000 carats and the company now elaborates to the extent that “Waste tonnes mined and carats recovered will remain within original guidance but tonnes treated will reduce to 6.6-6.8 million tonnes from 6.8-7.0 million tonnes.” The company is now guiding direct cash costs for the year higher at 155-165 maloti per tonne compared with its previous indication of 155-155 maloti/tonne.
• At Ghaghoo, “we continue to make good progress to downsize the operation and reduce costs … Targeted production rates and cost levels are anticipated to be achieved in H2 2016.” We note, however that prices achieved for Ghaghoo diamonds have fallen to US$157/ carat (H1 2015 US$210/ct) supporting the company’s description of an “ongoing weak market for Ghaghoo type diamonds”.
• In the wider diamond market, Gem Diamonds comments that “The market for both rough and polished diamonds remained cautious. Liquidity constraints, high polished inventory levels and the uncertain macro-economic outlook continue to create challenges for the diamond market. In the medium to long term, rough diamond prices are expected to be supported by the favourable supply/demand fundamentals which are underpinned by a continued growth in demand coupled with a limited growth in supply.”
Conclusion: Gem Diamonds remains in a strong position despite the setbacks as a result of adverse weather around the Letseng mine. As mining moves into an area which may contain more large diamonds, there may be a modest boost to average values per carat. Meanwhile we look forward to news of the prices received for the large stones recovered during July as a pointer to the state of the market for the larger Letseng stones.
Shanta Gold (LON:SHG) 9.25p, Mkt Cap £53.9m – Interims highlight meaningful fall in AISC cost guidance
• Shanta Gold’s interim statement reports a positive picture going forward with a small but meaningful fall in All In Sustaining Cost guidance to $730-780/oz.
• The P&L statement shows a loss of $4.7m for the year driven almost entirely by a whopping and unusually heavy $33m amortisation charge vs $5.6m yoy for work done on the New Luika pit. Compared with the amortisation charge everything else looks like small beer, though we note that admin expenses have been cut to $3.1m vs $4.7m yoy.
• “amortisation charge for the period of US$21.1 million, a non-cash charge, relating to the amortisation of waste mining (US$11.2 million) and future development expenditure (FDE) amortisation (US$9.9 million) relating to the capital expenditure programme.”
• Despite this the Gross operating profit came in at $4.4m vs $0.8m yoy
• Cash costs came in at $437/oz vs $993/oz a year earlier, showing what a difference a year and improved focus on mining can make.
• AISC costs, which cover just about everything, fell to $632/oz from what was an unsustainable $1,310/oz a year ago.
• Sales rise to $55.7m vs $$31.9m yoy on the back of higher gold production and slightly better gold prices through the first half.
• Gold prices were $1,222 vs $1,238/oz, though the big difference was really in the amount of gold sold yoy at 47,621oz vs 25,142oz.
• Exploration: it is good to see greater focus on exploration with further good news on the new Ilunga project and we believe there are further substantial resources to be discovered in the region.
• Ilunga: The team report further good drill intersections from the Phase 1 programme which is very good news for extending the mine life and for the prospect for mining more higher-grade gold. The program has added a further 100m of mineralisation and the deposit continues to extend down dip to the west offering the prospect of further extensions to the resource.
• So far the Ilunga resource is defined at 92,000oz at 3.5g/t but this should grow significantly from here in terms of resource ounces and hopefully also in grade.
• Hedging: the company has used hedging to protect cash flows. As the gold prices improves and there is greater confidence in the company’s margins we would expect the company to use less hedging.
• Outlook: management expect to see slightly lower grades at the New Luika Gold mine in H2 at around 5g/t with grades due to pick up in Q2 2017 as underground ore from Bauhinia Creek come in.
• Net debt: is back below $40m which is further good news.
Conclusion: Shanta is heading in the right direction led by an unusually strong professional team. The H1 amortisation seems unusually harsh but it is now typical to take these charges up front. The second half might be tougher going but with so much amortisation out of the way we would expect the H2 results to look very much better.
*An SP Angel analyst has visited the New Luika gold mine site on two occasions
Xtract Resources (LON:XTR) 0.0475 pence, Mkt Cap £6.1m – Update on Sale of Manica
• Xtract Resources has updated the market on its previously announced sale of the Manica gold project. The purchasers, Nexus Capital and Mineral Technologies International, “have not yet made the Initial Payment and, furthermore, the parties are currently in discussions regarding the structure of the Transaction. These discussions may result in further revisions to the terms of the Transaction …”.
• As part of the deal, Xtract Resources had agreed to complete the Bankable Feasibility Study. We speculate that while “The review of the Bankable Feasibility Study (“BFS”) is continuing” the final revisions to the terms of the Transaction may be in abeyance. “The Company is currently in discussions with the Purchasers regarding an extension to the deadline for completion of the BFS.” Current indications are that the review process will be completed in September.
• In addition, Xtract Resources reports that it has already paid the initial US$750,000 due to the original owners of Manica, Auroch Minerals NL, and has made a second payment of US$100,000 as part of the outstanding US$1.75m due to Auroch. “The parties are in discussions with regards to the final settlement of US$1.65m.”
• Xtract Resources also announces that refurbishment of the crushing plant and construction of a new flotation plant have commenced at its Chepica mine in Chile. Discussions with the option holder at Chepica regarding payment of a balance of US$3.5m are continuing although the company has made an initial US$100,000 payment.
Conclusion: Completion of the Manica deal appears to be going a little slower than originally expected – the completion of the review of the BFS in September appears to be the key target date.