Goldplat* (LON:GDP) – Operational update
Hummingbird Resources (LON:HUM) – Hydro-electric power Pre-Feasibility Study for Liberia
Mkango Resources* (LON:MKA) – Interim Results show progress with the Malawi projects being achieved at low cost
Ncondezi Energy (LON:NCCL) – AFC loan facility for additional $3m
Weatherly International (LON:WTI) – Amendments to loan facility with Orion
Major miners led lower as concerns over Chinese growth and restructuring of the steel industry rattles market
• General concerns over Chinese GDP growth rates on potential for reduced stimulus are leading the miners lower
• At the same time concerns over the potential restructuring of steel capacity may also be leading iron ore prices lower
• US dollar strength adds to the mix serving to depress metals prices
FTSE100 is flat this morning as losses in mining and energy names are compensated by gains in financial stocks.
• 2y US Treasury yields are heading for the strongest monthly run since Jun/15 on revised expectations for a rate hike in the US.
• US$ index jumped more than 0.5% yesterday after Stanley Fischer indicated that a rate hike during the September meeting (21st) remains on the cards.
• US oil inventories data is due to today with estimates for a 1.3mmbbl increase through last week compared to a 2.5mmbbl increase in the week through 19 Aug.
• Gold is heading for a c.3% monthly decline on a slowed investment demand post a surge in purchase orders post Brexit vote and an increase in the US$ index.
• Jan iron ore futures closed 1.1% lower today hitting the lowest level since end of Jul and extending losses to 9.1% from the highest YTD level reached on Wednesday last week.
• Gold prices are seen pulling back on the stronger US dollar despite heading into the gold-buying season. If the Chinese currency remains relatively stable against the US dollar then the pull back in gold might attract new Chinese buying.
Dow Jones Industrials -0.26% at 18,454
Nikkei 225 +0.97% at 16,887
HK Hang Seng -0.17% at 22,977
Shanghai Composite +0.35% at 3,085
FTSE 350 Mining -1.53% at 11,193
AIM Basic Resources -2.51% at 2,413
Economic News
US – House prices growth came in at 5.1%yoy in Jun, in the middle of the 4.7-5.4% range in which the rate has been fluctuating since Aug last year.
• Robust growth rate has been supported by low interest rates and healthy labour market.
Date Index Period Actual Est Previous
Monday Personal Income Jul (%mom) 0.4 0.4 0.3
Personal Spending Jul (%mom) 0.3 0.3 0.5
PCE Jul (%mom) 0.0 0.0 0.1
PCE Jul (%yoy) 0.8 0.8 0.9
PCE Core Jul (%mom) 0.1 0.1 0.1
PCE Core Jul (%yoy) 1.6 1.6 1.6
Tuesday SP US House Price Index Jun (yoy) 5.1 5.1
Wednesday ADP Employment Change Aug 175 178.6
Pending Home Sales Jul (%mom) 2.15 0.29
Thursday Weekly Jobless Claims 265 261
Firday NFP Aug 180 255
Unemployment Rate Aug 4.8 4.9
Av Hourly Earnings Aug (%yoy) 2.5 2.6
Labour Participation Rate Aug 62.8
Factory Orders Jul (%mom) 0.4
Source: Bloomberg
Japan – A set of weak economic data released this morning point to a sluggish start to Q3.
• Industrial production fell for a third consecutive month in Jul marking a sixth decline in the last seven months with the activity dampened by the strong yen and a weak recovery in overseas markets.
• Industrial production: -3.8%yoy v -1.5%yoy in Jun and -3.0%yoy forecast.
• Vehicles production: -4.1%yoy v -1.0%yoy in Jun.
Germany – Inflation numbers disappointed yesterday coming in significantly below expectations in Aug raising concerns over the sufficiency of the present ECB QE programme.
• CPI (EU Harmonised): -0.1%mom/0.3%yoy v 0.4%mom/0.4%yoy in Jul and 0.1%mom/0.5%yoy forecast.
• The ECB policy meeting is scheduled for Sep 8 when the central bank is expected to release its economic growth and inflation forecasts.
• The bank may well consider bringing its estimates down on the back of weak inflation growth in the largest nation of the currency block.
France – Inflation came in little changed from the pace recorded in the previous month with foods prices climbing at an accelerated pace while services prices growth slightly slowed down.
• CPI (EU Harmonised): 0.4%mom/0.4%yoy v -0.4%mom/0.4%yoy in Jul and 0.4%mom/0.4%yoy forecast.
Currencies
US$1.1147/eur vs 1.1167/eur yesterday. Yen 103.10/$ vs 102.29/$. SAr 14.418/$ vs 14.129/$. $1.314/gbp vs $1.308/gbp.
0.753/aud vs 0.755/aud. CNY 6.678/$ vs 6.679/$.
US dollar continues to strengthen against major currencies on yesterday’s FOMC members comments
Commodity News
Precious metals:
Gold US$1,315/oz vs US$1,321/oz yesterday –
Gold ETFs 65.4moz unch vs 65.4moz yesterday
Platinum US$1,063/oz vs US$1,078/oz yesterday
Palladium US$687/oz vs US$697/oz yesterday
Silver US$18.78/oz vs US$18.75/oz yesterday
Base metals:
Copper US$ 4,630/t vs US$4,616/t yesterday
Copper
• Codelco suspended operations at the Chuquicamata open pit after an accident involving a vehicle crash and killing two people.
• Miners at the smaller Salvador mine are voting on a two-year pay offer with results expected later today. The union flagged a possibility of workers going on strike if the vote falls through.
• Salvador copper operation is the smallest in the Codelco portfolio contributing 40-60kt of copper per annum v 310kt from Chuquicamata and a total of 1.7mtpa from its wholly owned Chilean mines.
Aluminium US$ 1,623/t vs US$1,641/t yesterday
Nickel US$ 9,815/t vs US$9,825/t yesterday
Zinc US$ 2,310/t vs US$2,303/t yesterday
• Nyrstar, a major zinc producer, hedged 70% of the free metal produced by its Metals Processing unit or 8kt of zinc metal per month from Sep/16 to Q1/17.
• The structure of the hedge involves a secured price range of $2,137-2,437/t from Sep/16 and Dec/16 and $2,100-2,457/t through Q1/17.
• “While we believe that the zinc price should continue to rise on the basis of improving supply and demand fundamentals and that the Euro should depreciate over the medium term against the US dollar, we are prudently entering into short term hedging arrangements to reduce donside risks to the Company’s earnings as we execute the transformation plan,” the Company said.
Lead US$ 1,884/t vs US$1,875/t yesterday
Tin US$ 18,775/t vs US$18,865/t yesterday
Energy:
Oil US$48.0/bbl vs US$49.6/bbl yesterday
Natural Gas US$2.840/mmbtu vs US$2.912/mmbtu yesterday
Uranium US$25.25/lb vs US$25.40/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$57.7/t vs US$57.9/t
Steel rebar, China 25mm US$397.3/t vs US$399.9/t -
• Chinese steel mills are warning of a challenging H2 saying improved conditions and prices in the first half of the year may not last.
• “Industry prospects are not optimistic,” Hesteel, the listed unit of China’s biggest mill by output, said last night after having reported the best H1 results since 2011.
• Steel prices jumped 31% in H1 helped by low inventories and state stimulus measures driving iron ore prices up 36%.
• The China Iron & Steel Association warned earlier this month that there is a potential for significant declines in demand and production.
Thermal coal (1st year forward cif ARA) US$59.0/t vs US$57.1/t yesterday
Other:
Tungsten - APT European prices vs $180-200/mtu vs $185-200/mtu last week – prices pull back slightly
Lithium – China’s Tianqi lithium company plans to build a lithium hydroxide plant to process lithium concentrate from Greenbushes in Australia
• We understand there have been three previous attempts at this over the past 20 years, first by Greenbushes, then Lithium Australia, Talison and now Tianqi.
• While the conversion process is relatively straight forward it is the high cost of operating in Western Australia which may kill off the project
• Kwinana is said to be highly unionized with some of the highest labour costs in the world. Electricity is also among the highest cost in the world as is the local gas supply and soda ash. This is likely to raise the cost of producing hydroxide at Kwinana to among the highest in the world and may well persuade Tianqi’s board to decide against the expansion.
Company News
Goldplat* (LON:GDP) 5.9 pence, Mkt Cap £9.5m – Operational update
• Goldplat produced 11,095oz of gold and gold equivalent through the quarter.
• 5,012oz of gold was sold and 9,131oz transferred to clients by way of metal transfers.
• GPL: The company ‘GPL’ is in dispute with The Rand Refinery in South Africa over its silver toll recovery project to which around half of the increase in the elution plant has been dedicated. Management are confident the dispute will be resolved. GPL is demanding payment of ZAR13.5m (c. £628k) and is threatening to institute processes to resolve the issue.
• The company’s first dore bars were sent to the Heraeus Refinery as part of their strategy to de-risk their single refinery dependency.
• GPL has a JORC resource of around 81,959 oz of gold within tailings at GPL in South Africa.
• Ghana: 304oz of gold was produced in Ghana with 947oz sold.
• GRG ‘Gold Recovery Ghana’ is in the process of renewing its environmental licenses and while this is taking longer than anticipated the process should be concluded in the first half next year.
• The decommissioned CIL plant has been shipped to Kenya, this makes room for a new elution plant.
• Kilimapesa, GoldPlat’s Kenyan gold mine produced 570oz of gold through the quarter and 625oz were sold.
• Losses at the mine are being reduced by the addition of higher-grade gold from artisanal tailings from within the license area.
• There is limited production of high grade ore from on-reef exploration at Teng-Teng.
• A Knelson concentrator has been installed and re-commissioned at site and will be used to process lower-grade artisanal tailings.
• The CIL plant from Ghana has cleared customs, a challenge at the best of times, and other equipment is being manufactured in South Africa for containerisation and shipment to Kenya.
• Kilimapesa, produced an operating loss of £501,000 in H1 as losses slowed through the third quarter.
*SP Angel analysts have visited the Goldplat’s recycling plant at Benoni in Johannesburg
Hummingbird Resources (LON:HUM) 23.8 pence, Mkt Cap £ 81.5m – Hydro-electric power Pre-Feasibility Study for Liberia
• Hummingbird Resources has announced that the IFC funded pre-feasibility study by the consultants Knight Piesold on the viability of hydro-electric power generation from the Dugbe River in Liberia has confirmed “the potential viability of a range of options for HEP plants with the ability to supply a sustainable source of power for Dugbe, as well as the southeast Liberian region.”
• The study examined potential projects ranging in scale from 10 to 30MW of generating capacity at capital costs in the range of US$51.5m to US$143.5m.
• The possibility of sourcing a reliable sustainable source of electricity could have important positive implications for the future development of Hummingbird Resources’ 4.2m oz Dugbe gold deposit which is located approximately 10 km from the proposed hydro power site. The company says that “Power costs make up over a third of our total process Opex at Dugbe and finding savings in this area will have positive implications for the Project’s economics. We had been using an estimate of US$28c/kW for rented diesel power in the PFS. Taking the Capex and Opex for the HEP plant over the current 20 year mine life gives you a theoretical cost of US$0.05c/kWh.”
• Although the company stresses that the two numbers are not directly comparable as the financing cost of a new hydro-electric plant is not yet known and it remains unclear who would undertake the project, the potential to significantly reduce the US$903/oz all-in-sustaining cost envisaged in the 2013 scoping study for a 125,000 oz pa gold mine development at Dugbe may well move the project into contention to become Hummingbird’s next mine development project after it completes the current Yanfolila gold mine development in Mali.
Conclusion: The positive outcome to the PFS for hydro-electric power generation close to Dugbe could generate significant cost savings and trigger development of the Dugbe deposit. There is not yet a decision to develop the hydro-electric plant, however, the lack of power is widely seen as a major constraint on economic development across sub-Saharan Africa and a developmemt which has the potential to bring wider benefits to the region as a whole could be of specific benefit to the gold mine development.
Mkango Resources* (LON:MKA) 4.25 pence, Mkt Cap £2.9m – Interim Results show progress with the Malawi projects being achieved at low cost
• Mkango Resources has reported a loss of US$0.02/share (US$900,364) for the six months ending 30th June 2016. Comparable results for the first six months of 2015 benefitted from An unrealised gain on revaluation of warrants amounting to approximately US$1.3m giving overall earnings of US$0.01/share.
• Cash balances at 30th June amount to approximately US$1.12m and the company reports that “As at the current date, the Company’s expenditures remain within budget”. Under current plans , “the budget does not include drilling on either project [at the Songwe Hill rare-earths project or the Thambani uranium project – both located in Malawi and] the budget does not include salaries or payments for any of the Executive Directors going forward. Salaries are deferred and included in long term liabilities.”
• Looking to the future “The Company intends to bring in a joint venture, financial or strategic partner to fund the next stages of development for the assets, being a bankable feasibility study, including further drilling for the Songwe Hill rare earths project and further exploration, including drilling on the Thambani project.”
• Recent developments have included the acquisition of an option to acquire hydrochloric acid regeneration technology developed by McGill University in Canada which has the potential to produce significant cost savings in the process plant at Songwe Hill as well as simplifying the project logistics by eliminating the need to transport liquid hydrochloric acid to site by road.
• At Thambani, exploration including geochemical analysis of rock and soil samples and geophysical interpretation of airborne radiometry has highlighted significant radiometric and magnetic anomalies along the “western flank of the Thambani East ridge.” The company notes that “The Little Ngona prospect, which previously yielded very encouraging uranium, niobium and tantalum values from geochemical sampling, is located at the northern end of this anomaly.” “The magnetic high anomalies provide an excellent focus for future exploration for niobium – tantalum, because columbite, a niobium-tantalum mineral, has previously been shown to be closely associated with magnetite and/or ilmenite at Thambani.”
• The company comments that its recent AIM debut, which “is the only IPO in the mining sector to have been completed this year on AIM to date and was the first AIM IPO in the mining sector to have taken place for more than a year” cost approximately £455,000 as expected and “accounted for a significant portion of the use of proceeds of the £1 million as outlined in the Company’s AIM admission document. It was and remains the Company’s view that the benefits of the dual listing outweigh the costs of the AIM listing process.”
Conclusion: Mkango Resources has continued to advance its Malawi projects through the application of low cost exploration and technology. The company’s recent AIM debut is highlighted as the first IPO of a mining company on AIM for over a year.
*SP Angel acts as Nomad and Broker to Mkango Resources
Ncondezi Energy (LON:NCCL) 5.4 pence, Mkt Cap £13.4m – AFC loan facility for additional $3m
• Ncondezi Energy has announced that its largest shareholder, Africa Finance Corporation (AFC), has joined the existing US$1.32m Shareholder Loan Facility which was announced in May and has committed an additional US$3m to the Shareholder Loan Facility.
• The additional funds, which are to be delivered in two tranches, are to be used to fund “project development costs, including those that will not be covered by the Joint Development Agreement (“JDA”) with Shanghai Electric Power Co., Ltd”.
• The initial US$1m tranche (Tranche A) of the additional funds “will be drawn down alongside the existing Shareholder Loan and in accordance with its terms … A catch up payment of US$943,000 will be paid to Ncondezi as an upfront payment, which is equivalent to AFC’s pro rata payment alongside the existing drawdown from Lenders.” The balance of funds from the AFC contribution to the Shareholder Loan and from US$1m “Tranche A” of the additional funding package, which we estimate amounts to US$1.38m “are now available for drawdown until 31 December 2016.”
• The Tranche B funding “will potentially provide a further advance of US$2m to Ncondezi at Ncondezi’s election”. The company plans to update its budget once the JDA with Shanghai Electric Power has been concluded and “will explore the drawdown of Tranche B at that time along with other potential financing options.”
• Repayment of the Tranche A funds will be “no later than 10 May 2017. The cost of the Tranche A loan is 1.5x the drawn amount (comprising 1.0x principal and 0.5zx return).” There is a penalty for late repayment which increases the repayment to 2x the drawn funds. The Tranche B funds, if drawn, are subject to a 2.5x multiple on the drawn amount and there is a commitment fee of 0.35%pa or US$7000/year on undrawn funds.
Conclusion: The AFC funding underlines the commitment of Ncondezi’s major shareholder to the success of the project and should ease financial pressure in advance of the conclusion of the JDA with Shanghai Electric Power.
Weatherly International (LON:WTI) 0.4 pence, Mkt Cap £4.2m – Amendments to loan facility with Orion
• Weatherly International reports that it has agreed a deferment of repayments of the “Facility C” with Orion Mine Finance until 28th February 2017 and also agreed that “interest accruing on the loan made under Facility C shall be capitalised.”
• There are no additional fees to be incurred for the changes nor are there changes to the offtake agreements under which Orion purchases copper cathode from the Tschudi mine.
• “The repayment date of Facilities B and D of the Amended Facility remains unchanged. Facility D is due to be repaid on 9 December 2016 and Facility B is due to be repaid in 13 equal quarterly instalments with the first repayment due on 28 February, 2017 and the final repayment due to be paid on 29 February 2020.”
• In the June 2015 accounts, the company reported that “On 15 September 2015 the Group announced that it has executed an agreement for the drawdown of US$4 million under its master facility agreement with Orion Mine Finance (Master) Fund I LP ("Orion"). The key terms of Facility C include inter alia an interest rate of Libor plus 9% (with a minimum Libor of 2%) which remains unchanged from the terms originally agreed in respect of Facility C in 2013; a drawdown period of 60 days from signing; a due date 350 days after signing the Amendment and Restatement Agreement; and an arrangement fee of US$280,000 payable on or before 31 August 2016.”
Conclusion: The Revised repayment date for the loans to Orion, which holds 24.6% of the company and buys the copper production, should help to ensure continuing operations at Tschudi.