Anglo Asian Mining* (LON:AAZ) – Interim figures show return to profit for Gedabek gold mine
Botswana Diamonds (LON:BOD) – Resumption of exploration and drilling in Orapa and Gope
Firestone Diamonds (LON:FDI) – Sale agreement for BK11 lapses
Hummingbird Resources (LON:HUM) – Civil engineering contractor appointed for Yanfolila
Savannah Resources (LON:SAV) – Recent drilling results may expand Oman copper resources
Tri-Star Resources* (LON:TSTR) – Further major equipment order awarded as project accelerates
Strongbow Exploration* (CVE:SBW) – resurrecting Tin Mining in Cornwall
SolGold* (LON:SOLG) – New non-exec director
Markets are pricing stocks lower on potential for US Fed to raise rates
• The Fed should not risk a global market collapse, or not till the US is better able to withstand the shock of its contagion.
• Higher speed trading is able to move markets dramatically and much faster than previously seen with many investors driven by momentum as much more fundamental factors.
• Markets have been ‘climbing a wall of worry’ having just recovered from Brexit and appear vulnerable to news of higher interest rates at a time when funds are desperately searching for low-risk yield.
• So, is the sky falling in on our heads?
• If the US is able to maintain economic growth and raise rates then many billions will flow into the US dollar and into US Treasuries. This will strengthen the US dollar and suck liquidity out of Emerging and other markets though the move may be short lived.
• The move is naturally negative for miners as a stronger US dollar depresses metals prices while the flow of funds into less risky assets also depresses equity prices.
• We view this pullback as a good opportunity for buying the market. We are closely watching the miners to determine at what level they might rebound. We view this as a short term setback and a good opportunity to buy back into the sector.
Dow Jones Industrials -2.13% at 18,085
Nikkei 225 -1.73% at 16,673
HK Hang Seng -3.36% at 23,291
Shanghai Composite -1.85% at 3,022
FTSE 350 Mining -4.00% at 10,975 FTSE 350 +53% since 1st January
AIM Basic Resources -0.84% at 2,432 AIM Basic Resources +48% since 1st January
US – Hillary Clinton cancels California trip on confirmation of pneumonia
• The health scare make it increasingly likely that Donald Trump might become the next US President.
• Alternatively there might be some sort of sympathy vote.
China – retail sales, industrial production and fixed investment due tomorrow
• Credit and money supply data also due sometime this week
UK economy – British Chamber of Commerce forecasting a sharp slowdown in UK economy
• The BCC now expects the UK to grow 1.8% this year vs their March estimate of 2.2%
• They also forecast 1% GDP growth in 2017 vs 2.3% previously forecast.
• The BCC reckon sentiment is holding back investment and the impact of this will be seen over H2 ’16 and H1 ’17.
• They also forecast recovery in 2018. We wonder if the impact of weaker sterling and growth in manufacturing exports is in their numbers.
UK nuclear power – South Korea close to investing in a new nuclear power station near Sellafield
• Kepco, the Korea Electric Power Corp is in talks to join an international consortium planning a new £10bn facility.
UK – Inflation data due tomorrow expected to show 0.7% in August
Tanzania – raises taxes on VAT and on tourism
Currencies
US$1.1240/eur vs 1.1273/eur yesterday. Yen 102.09/$ vs 101.55/$. SAr 14.536/$ vs 14.953/$. $1.328/gbp vs $1.336/gbp.
0.751/aud vs 0.772/aud. CNY 6.680/$ vs 6.664/$.
Commodity News
Precious metals:
Gold US$1,330/oz vs US$1,348/oz yesterday –
Gold ETFs 64.9moz unch vs 65.3moz yesterday
Platinum US$1,052/oz vs US$1,094/oz yesterday
Palladium US$664/oz vs US$696/oz yesterday
Silver US$19.00/oz vs US$19.91/oz yesterday
Base metals:
Copper US$ 4,608/t vs US$4,653/t yesterday –
Aluminium US$ 1,567/t vs US$1,587/t yesterday
Nickel US$ 10,035/t vs US$10,330/t yesterday –
Zinc US$ 2,268/t vs US$2,298/t yesterday
Lead US$ 1,873/t vs US$1,906/t yesterday
Tin US$ 19,085/t vs US$19,580/t yesterday
Energy:
Oil US$47.3/bbl vs US$48.8/bbl yesterday
Natural Gas US$2.800/mmbtu vs US$2.698/mmbtu yesterday
Uranium US$25.40/lb vs US$25.65/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$55.2/t vs US$54.9/t –
Steel rebar, China 25mm US$392.1/t vs US$396.9/t –
Thermal coal (1st year forward cif ARA) US$56.1/t vs US$57.8/t yesterday -
Coking coal prices $180.0/t vs $158.4/t FOB Australia for Premium Hard Coking Coal (The Steel Index) – Prices rise dramatically
Lithium – Colonial states it has no exposure to ASX listed lithium juniors
• Barely a day goes by when you don’t see an exploration company announcing details of a new lithium prospect but its interesting to hear Colonial First State Global Asset Management deny any exposure to this market. The fund appears to be distancing itself from the inevitable fall.
• The market has rushed, quite rightly, to sign up projects and prospects with the hope of holding one of the world’s better lithium projects.
• There is little doubt the world will need more lithium but which companies and what type of projects will succeed?
• Much of the world’s lithium production is supplied by lithium brine producers out of the Atacama in Chile with more brine production coming on in Argentina. Other ‘hard-rock’ projects provide lithium in Australia. The market has seen huge growth in the number of hard-rock’ spodumene, pegmatite projects and these will rank in accordance with their scale, grade and processing characteristics.
Other:
Tungsten - APT European prices vs $180-200/mtu unch vs $185-200/mtu two weeks ago
Company News
Anglo Asian Mining* (LON:AAZ) 15.5p, Mkt Cap £17.5m – Interim figures show return to profit for Gedabek gold mine
Free cash flow climbs on rising stronger concentrate sales and weaker currency; 2016 output guided slightly lower
BUY – Target price under review
• Gold bullion sales Totalled 27.7koz at an average gold price of $1,230/oz (H1/15: 33.3koz at $1,204/oz) generating $34.1m in gold revenues (H1/15: $40.1m).
• Total revenues fell slightly to $39.3m (H1/15: $41.8m) as by-product revenues largely compensated for lower gold dore sales.
• Copper concentrate sales (SART + Flotation) rose to 2.9kt bringing in $5.2m in by-product revenues (H1/15: 0.6kt and $1.7m).
• C1 cash costs averaged $546/oz (H1/15: $736/oz) on a weaker USDAZN exchange rate and higher by-product revenues.
• EBITDA rose to $16.8 (H1/15: $10.7m) despite a reduction in gold sales with EBITDA margins improving to 43% (H1/15: 25%).
• Pre-tax profit recovered to $3.5m though tax charges reduced the post-tax profit to $0.4m (H1/15: -$4.1m and -$3.4m), respectively.
• EPS was $0.4c (H1/15: -$3.4c).
• Levered CFO (post interest and tax) totalled $15.1m (H1/15: $13.2m). Post $6.7m in capex and exploration spend (H1/15: $9.3m), levered FCF came in at $8.4m (H1/15: $3.9m).
• Gross and net debt came down to $44.0m and $40.7m, respectively (FY16: $49.3m and 49.0m), with cash balances standing at $3.3m as of H1/16 (H1/15: $0.2m).
• Operationally, construction of a $2m 2x16MW power substation commenced with first power to be sourced from the national electricity grid by year end. Gedabek processing operations are currently run exclusively on diesel gen sets, while connecting it the power grid is expected to translate into $1.8-2.0m costs saving per annum.
• Works on a $1.7m water purification and discharge facility are progressing as planned with completion also expected by year end.
• The second SAG mill is operational as of the end of Aug following a seven week commissioning delay on the back of late shipment of liners from Turkey.
• Late commissioning with additional development works at the Gadir mine led to a shortfall in gold production of 2.8koz versus budgeted levels through the Jul/Aug period.
• As a result, the Company revised its gold production guidance to 69,000-71,000 for 2016, down from 73-77koz expected previously.
• Copper output guidance kept unchanged at 1.7-2.1kt Cu.
• On exploration, at Gadir the team drove an exploration drift to test down dip and lateral extensions of the deposit. A new copper rich zone was discovered which will be followed upon in H2/16.
Conclusion: Positive earnings results highlight a contraction in operating cash costs, growth in FCF generation and an acceleration in deleveraging of the business. Despite a revision in annual production numbers, H2/16 gold output is guided to come in slightly above 33.8koz recorded in H1/16 and together with concentrate by-product revenues should see operating cash costs at least at H1/16 levels. Assuming capex spend to be limited to water treatment plant, power substation, maintenance and exploration for c.$5.5m in total, we estimate operations to generate $9.4m in levered FCF (H1/16: $8.4m), which covers $5m due in ATB loan repayments. This is excepted to reduce YE16 net debt to c.$31m.
We continue to rate the Company as a buy and will release updated earnings estimate shortly.
*SP Angel act as Nomad and broker to Anglo Asian Mining. Two SP Angel mining analysts have visited the Gedabek mining operations in Azerbaijan
Botswana Diamonds (LON:BOD) 0.9 pence, Mkt Cap £2.7m – Resumption of exploration and drilling in Orapa and Gope
• Botswana Diamonds has announced that it is planning a twelve week exploration programme, in association with its partner, Alrosa, at the 50:50 joint venture licences in Botswana.
• The programme which will be conducted by a joint BOD/Alrosa team is expected to include the drilling of 4 cored holes on licence PL135 at Gope, two cored holes on the AK22 kimberlite occurrence in PL 260 at Orapa and a further two cored holes on the PL 085 licence at Orapa.
• The company also reports that it is still awaiting results from an 80 tonnes bulk sample of kimberlite material previously recovered from two large diameter holes drilled on the PL 260 licence. BOD comments that “Delays in finding a company in South Africa capable of conducting the work were compounded by an inconclusive result.” The sample is to be returned to Botswana “for evaluation by Alrosa specialists.”
Conclusion: The resumption of drilling should generate additional news in the future. We comment that inconclusive results from the earlier work on PL 260 underline the technical complexity of diamond exploration and BOD is fortunate to have adequate financial backing and the technical support from Alrosa to be able to pursue further drilling.
Firestone Diamonds (LON:FDI) 42.5 pence, Mkt Cap £133.4m – Sale agreement for BK11 lapses
• Firestone Diamonds has announced that Tango Mining, the prospective purchaser of the BK11 diamond mine in Botswana, has informed them that is not able to proceed with the purchase and “Accordingly, the CSA [conditional Sale Agreement] has lapsed and the Disposal will not proceed.”
• The company reiterates its reassurance to the market that, excluding the US$15m standby facility it expects to have cash of US$9m at the end of December 2016 and that “there will be no impact on the Company’s cash position as a result of the Disposal not proceeding.”
• Firestone Diamond’s efforts are “focussed on the completion and commissioning of its Liqhobong Diamond Mine in Lesotho with initial production expected to commence early in Q4 2016”
Conclusion: The failure of Tango Mining to complete the purchase of BK11 should come as little surprise following a succession of deferrals to deadlines since the proposed purchase was first announced in July 2015.
Hummingbird Resources (LON:HUM) 23.8 pence, Mkt Cap £ 81.5m – Civil engineering contractor appointed for Yanfolila
• Hummingbird Resources has announced that it has appointed IMAGRI SARL to complete the civil engineering works associated with the ROM tipping area and primary crushers, the secondary crushing area and milling and carbon-in-leach area of the processing plant at its Yanfolila gold mine development in Mali as well as ancillary works including water supply and sewage treatment works
• Mobilisation is continuing and the site work is targeted to start in October.
• IMAGRI is reported to have particularly relevant expertise of civil engineering for mine development in Mali having participated in the “construction and expansion of Randgold Resources’ flagship Loulo underground mine power plant and the associated Gounkoto open pit mine.” In addition, IMAGRI has previously worked on Resolute Resources’ Syama mine, also in Mali.
• The Yanfolila project is reported to be currently on schedule and on budget
• The appointment of IMAGRI follows the recently reported appointment of the South African based SENET as Engineering, Procurement and Construction Management Contractor for Yanfolila in order to oversee the project construction. Senet also played a similar role at Randgold Resources Loulo mine so there may already be a constructive working relationship with IMAGRI which should benefit the overall project.
Conclusion: The appointment of an experienced civil engineering contractor with relevant experience for Yanfolila is a tangible sign of the project advancing towards its planned initial gold production by the end of 2017.
Savannah Resources (LON:SAV) 4.4 pence, Mkt Cap £16.9m – Recent drilling results may expand Oman copper resources
• Savannah Resources reports that after the completion of a further six drillholes totalling 608 metres at its Block 4 and Block 5 licence areas in Oman, “point towards a potential expansion of the current high grade portions of both the Mahab 4 and Maqail South resources, which have a current Indicated and Inferred Mineral Resource of 1.7Mt at 2.2% copper.”
• Among the results reported today, the company highlights an intersection of 15.18m, from a depth of 62.50m in hole 16B5DD012 on the Mahab 4 licence which averaged 4.02% copper and 0.2g/t gold.
• On the Maqail South licence area, hole 15B5DD001 intersected an average of 2.66% copper and 0.1g/t over a length of 25.63m from a depth of 49.37m in a hole angled at 54⁰ towards the west and hole 16B5DD001A (drilled at a similar angle and orientation) averaged 3.09% copper and 0.1g/t gold over a length of 20.55m from a depth of 48.95m.
• “Additional drilling at Bayda in Block 4 suggests a larger tonnage, lower grade deposit target.” The company reports that hole 16B4DD003 intersected 33.4metres at an average grade of 0.69% copper and 0.1g/t gold from a depth of 87m.
• The drilling programme is continuing and is expected to be completed before the end of Q3 2016.
• The results of the drilling programme are to contribute to an updated mineral resources estimate for both the Mahab 4 and Maqail South licence areas which is expected to be released during Q4 2016. The drilling “will also assist the completion of initial geotechnical and metallurgical testwork for both Blocks 4 and 5, which will feed into feasibility studies and ultimately Ore Reserves as the Company continues to target production in late 2017.”
Conclusion: The continuing exploration drilling in Oman is yielding positive results and hopes of an expanded resource at both Mahab 4 and Maqail South. We look forward to the updated resource estimates later this year.
Tri-Star Resources* (LON:TSTR) 0.10p, Mkt Cap £8.5m – Further major equipment order awarded as project accelerates
(Tri-Star holds 40% of SPMP)
• Tri-Star reports that its 40% owned Strategic and Precious Metals Processing LLC (SPMP) has awarded contracts for the delivery of further key items of equipment for the Oman Antimony Roaster (OAR).
• Following the announcement last month that the furnace had been ordered, the company has now also placed contracts to supply “the rotary kiln and dry and wet gas handling circuitry, representing the core operational packages for the OAR.”
• The recent recruitment of an experienced General Manager and the placing of orders for the main items of plant show an acceleration of activity as the project moves towards completion in 2017.
• The OAR is being constructed, with the benefit of low cost energy available in Oman, to ensure the lowest levels of emissions and aspires to achieve the highest environmental standards in its planned production of 20,000tpa of antimony which, according to CPMP’s website, represents some “12% of average annual world antimony production over the past five years.”
• The ability to recover gold from the mineral concentrate feed which was announced in June this year adds a potential additional revenue stream and may attract a wider range of concentrate sources. A report in the “Oman Daily Observer” on Saturday headlines the potential for the plant, located in the Sohar Port and Freezone, to produce an estimated 50,000 oz pa of gold.
Conclusion: News of the placing of contracts to supply key items of equipment demonstrates solid progress in the construction of the Oman Antimony Roaster.
*SP Angel acts as Nomad and Broker to Tri-Star Resources
Strongbow Exploration* (CVE:SBW) price C$0.16, mkt cap C$7.3m – resurrecting Tin Mining in Cornwall
• The tin mining industry in Cornwall is being resurrected both on the BBC and by Strongbow, a Canadian exploration company
• We visited the South Crofty tin mine on Friday to view the upper levels of the mine entering through a relatively new decline which was put in by the last operator.
• Strongbow plan to dewater the South Crofty tin mine and to drill further tin resources to prove the economics of reopening the mine
• We do hope Strongbow’s bid to resurrect Cornish tin mining will not be as harrowing as the episode of Poldark as shown on the BBC last night. We won’t spoil the plot for anyone who has yet to see the program but let’s say Poldark needs to find more ore in his mine quick.
• https://www.bbc.co.uk/iplayer/episode/b07w5nqq/poldark-series-2-episode-2
*Two SP Angel mining analysts have previously worked in Cornish tin mines.
SolGold* (LON:SOLG) 10.6p, Mkt Cap £110m – New non-exec director
• SolGold has appointed a new non-executive director to the board.
• Scott Caldwell, a mining engineer with over 30 years of industry experience is also president and ceo of Guyana Goldfields and led the team which built the Aurora mine in Guyana. Caldwell was also President, ceo and director of Allied Nevada Gold Corp from 2006-2013.
*SP Angel acts as Nomad and Broker to SolGold. An SP Angel analyst visited the Cascabel project.