DiamondCorp* (LON:DCP) – Interim loss highlights delayed sales
European Metals (LON:EMH) – Capital cost savings identified at Cinovec as pre-feasibility study progress
Metminco* (LON:MNC) –Half year results and update on projects
IronRidge Resources* (LON:IRR) – New right to acquire lithium license in The Ivory Coast
Potash Corp (NYSE:POT) – Agrium (AGU CN) merger terms
Petra Diamonds (LON:PDL) - invasion of illegal miners at Kimberly mine in South Africa
Dow Jones Industrials +1.32% at 18,325
Nikkei 225 +0.34% at 16,729
HK Hang Seng -0.32% at 23,216
Shanghai Composite +0.05% at 3,024
FTSE 350 Mining -0.68% at 11,103 FTSE 350 +51% since 1st January
AIM Basic Resources -0.67% at 2,416 AIM Basic Resources +46% since 1st January
US – Fed comments calm markets with comments reducing potential for near term Fed rate rise
China – economy strengthens as Vehicle sales, retail and factory output gains
• Industrial production up 6.3% in August yoy.
• Retail sales up in August 10.6% yoy.
• Vehicle sales rose by 24.2% yoy to 2.70m units in August.
• China produced 16.85m vehicles in the first eight months of the year up 10.8% yoy
UK – Brexit causes companies to become more cautious on hiring
• A survey by ‘Manpower’ the recruitment specialists says that employeres in six out of nine sectors have become more cautious about adding new jobs since the Brexit vote.
U – Jeremy Corbin may lose parliamentary seat through consolidation of constituencies
• The UK is reducing the number of parliamentarians and is cutting 50 constituencies under government plans to reduce the cost of running the country.
• Under the proposals Jeremey Corbin is likely to lose his seat when his constituency is abolished though he may be able to contest another seat nearby.
Ford demonstrates new self-driving car
• The car should be available for sale by 2021.
• Uber is reported to be just days away from pushing out a fleet of self driving taxis in Pittsburgh.
• The relatively rapid move to autonomous cars is likely to be popular among certain social groups.
• We wonder when the first drunk but not driving case will be fought through the courts.
Bicycle tourette’s - Increasing numbers of cyclists in London are raising the incidence of bicycle tourette’s.
• Actions which inflame the condition are, pedestrians stepping off the kerb, other bicycles getting in the way and improperly positioned cars.
Currencies
US$1.1229/eur vs 1.1240/eur yesterday. Yen 101.82/$ vs 102.09/$. SAr 14.254/$ vs 14.536/$. $1.329/gbp vs $1.328/gbp.
0.753/aud vs 0.751/aud. CNY 6.680/$ vs 6.680/$.
Commodity News
Precious metals:
Gold US$1,330/oz vs US$1,330/oz yesterday –
Gold ETFs 65.0moz unch vs 64.9moz yesterday
Platinum US$1,058/oz vs US$1,052/oz yesterday
Palladium US$664/oz vs US$664/oz yesterday
Silver US$19.00/oz vs US$19.00/oz yesterday
Base metals:
Copper US$ 4,675/t vs US$4,608/t yesterday –
Aluminium US$ 1,575/t vs US$1,567/t yesterday
Nickel US$ 10,085/t vs US$10,035/t yesterday –
Zinc US$ 2,277/t vs US$2,268/t yesterday
Lead US$ 1,907/t vs US$1,873/t yesterday
Tin US$ 19,135/t vs US$19,085/t yesterday
Energy:
Oil US$47.4/bbl vs US$47.3/bbl yesterday
Natural Gas US$2.900/mmbtu vs US$2.800/mmbtu yesterday
Uranium US$25.40/lb vs US$25.40/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$53.8/t vs US$55.2/t –
Steel rebar, China 25mm US$388.8/t vs US$392.1/t –
Thermal coal (1st year forward cif ARA) US$57.1/t vs US$56.1/t yesterday -
Coking coal prices $180.9/t vs $180.0/t FOB Australia for Premium Hard Coking Coal (The Steel Index) – Prices hold yesterday’s rise
Other:
Tungsten - APT European prices vs $180-200/mtu unch vs $185-200/mtu two weeks ago
Company News
DiamondCorp* (LON:DCP) 5.625 pence, Mkt Cap £26.9m – Interim loss highlights delayed sales
• DiamondCorp report a loss of £247,000 for the six months of end June.
• The loss was principally driven by admin charges of £893,000 vs £672,000 yoy.
• Cash reduced to £108,000 with a further £2m raised on 7th June to tide the company through delays to the Lace mine commissioning.
• Sales of diamonds produced appears to have also been delayed to meet returning diamond dealers with the first tender expected to be concluded Saturday 17th September. Do diamond dealers really work on a Saturday? Results are to be announced on the 20th.
• Production did not work well through August. The first problem was when the production level was flooded due to drilling into a geological contact with water flowing through it. The production level has since been pumped out but we suspect higher pumping costs and ongoing water issues may become more of a feature of future reports.
• Specialist contractors sealed the problematic face and pilot hole drilling might be required to ensure this does not happen again.
• See Roger Moor in https://www.youtube.com/watch?v=omc2R54KrXI The film of the flood at West Driefontein mine was loosely based on a true story of how the underground manager, Peter Tress, saved the mine which was within 24 hours from being lost.
• The Lace incidence by contrast lost just 9 days of operation reducing the number of carats produced to 5,700cts from 7,000cts as previously planned.
• A further 8 days were lost due to water issues as the return air pass tunnel was sealed from any serious water inflow.
• “Management considers these operational issues are not unusual in the ramp up of underground mining operations”. We beg to differ, flooding the production level is a relatively unusual event, though we concede that drilling into unforeseen water is slightly more common.
• What worries us is the potential impact of unforeseen water on the rock mechanics and the caving of block cave. If a block cave hangs then one solution is to pump water into it but this may then make the rock flow rather more difficult to manage.
• Given that South Africa is suffering a major drought at present, when the drought breaks there will be more water to deal with in addition to the ground water flows being encountered. On the plus side there should be plenty of ground water to help the process plant going forward.
• Management reckon the financial impact will be covered by existing cash and a new third party convertible debt facility which is currently being considered.
• The good news is that recovered grades appear consistent with the geological modelling, the bad news is that the modelling includes a certain amount of cautious underestimation and we would have hoped for better. Though further production has the potential to yield better and more valuable stones.
• Four stones of >10ct including a 12.7ct gem quality diamond were discovered which may critically increase the predicted value of production.
o Management have rebudgeted production throughput as a result of the flooding and its impact on the development/commissioning of the block cave.
o Throughput is now forecast to be 20,000t in September, 25,000t in October and 30,000t in each of November and December with the mine estimated to produce future monthly sales in the order of 9,000-12,000cts depending grade.
o It will be interesting to see if the September diamond sale is able to exceed the $175/ct realised in April. The sale of the 12.7ct stone and other gem quality stones should help raise the average sale price.
Conclusion: The commissioning of the block cave is particularly interesting and we will be watching to see how well this works through the second half. The presence of some larger and higher value gem quality stones offers the potential to raise revenues and to help compensate for some operational challenges going forward. The market might not like the idea of the company taking on a new convertible loan facility though it is important to maintain sufficient funding in case of further production issues.
*The author of this comment has previously visited DiamondCorp’s Lace mine in South Africa
European Metals (LON:EMH) 36.125 pence, Mkt Cap £31.4m – Capital cost savings identified at Cinovec as pre-feasibility study progress
• European Metals reports that as it works on the pre-feasibility study, it has identified capital cost savings of 33% for the development of the Cinovec lithium project in the Czech Republic.
• Estimates of the capital cost to bring the Cinovec deposit to production have been reduced by US$85m to US$169m compared to earlies estimates of US$254m.
• The estimates for the capital cost of mining has been reduced by US$38m to US$52m as the company “has identified a higher-grade lithium zone in the northern part of the deposit which is relatively closer to the surface”. This has enabled the scoping study to modify the proposed mining layout to include “haulage access via a shorter decline [tunnel] and [with] no requirement for a refurbishment of the historic Cinovec No 1 shaft.”
• The potential ability to process higher grade ore “reduced the tonnage required to produce 20,000 tonnes of lithium carbonate per annum” and this contributes to the scoping study envisaging a reduction of US$47m in the cost of the processing plant to US$117m.
• Earlier this year, the company reported an indicated resource of 49.1m tonnes at an average grade of 0.2% lithium with an additional inferred resource of 482.9m tonnes at the same grade.
Conclusion: The substantial cost savings envisaged are a result of a better understanding of the geology and in particular of the location of higher grade near-surface pockets of mineralisation. Much of the resource is, however classed as “inferred” and is therefore probably relatively poorly understood in detail. The pre-feasibility and scoping study work is identifying the areas where further more detailed study is likely to yield significant economic and operational benefits but may well require significant additional work.
Metminco* (LON:MNC) 0.165 pence, Mkt Cap £6.4m –Half year results and update on projects
• Metminco has announced a reduced loss of $1.13m (0.04cps) for the six months to 30th June 2016 compared to a loss of $1.93m in the first six months of 2015.
• The results were further impacted by a loss on exchange difference of $1.24m compared to a profit on foreign exchange of $5.09m in H1 2015.
• The first six months of 2016 have seen two significant transactions for Metminco’s business with the successful identification of a financial partner to advance the Los Calatos copper project in Peru and, secondly, the acquisition of the Quinchia portfolio of gold properties in Colombia providing a suite of development projects capable of delivering operating cashflow in the relatively near term.
• At Los Calatos, CD Capital has agreed to fund up to US$45m in three stages to acquire up to 70% of the project. The funds will be used to complete the project pre-feasibility and feasibility studies, where Metminco had previously identified a smaller scale, less expensive and more economically robust underground mining development project in contrast to the highly capital intensive large scale open pit mining plan which had originally been envisaged when the deposit was discovered by Phelps Dodge.
• CD Capital’s involvement in the future development of Los Calatos is reported to reduce “the Company’s monthly cash burn by approximately A$100,000 from September 2016.”
• The initial US$16m of the CD Capital funding package is being used to fund an infill drilling programme in order to upgrade inferred resources to measured and indicated status and to provide material for metallurgical test-work.
• Previous exploration drilling by Metminco has identified potential for additional resources at, for example, the TD2 target at Los Calatos which might also prove fruitful for CD Capital to follow up at some point in future.
• In the second major transaction in H1, Metminco has now acquired the Quinchia gold portfolio in Colombia. An updated mining study of the most advanced of the projects, at Miraflores , has identified an underground mining opportunity to produce approximately 50,000 oz pa of gold over an eight year period at an all-in—sustaining cost of US$648/oz generating an after-tax NPV8% of US$73.4m from an initial capital investment of US$81m
• “The Company will seek funding for the completion of a Feasibility Study and Environmental Impact Statement (EIS) at the Miraflores Project with a view to having the project permitted and the development funded by the end of the 2017 calendar year.”
• At the company’s Mollacas project in Chile, legal issues with the landowner regarding access have now been settled and “The Company is assessing options available to it in relation to this project including seeking to secure land access for mining purposes.”
• The company’s 30th June cash balance amounted to approximately $0.6m.
Conclusion: Metminco has been through a transformative six months with the funding of the Los Calatos project through to a full feasibility study and the acquisition of the Quinchia gold project opening up a clear and eminently attainable route to cashflow
*SP Angel act as broker to Metminco
IronRidge Resources* (LON:IRR) 12.125p, Mkt Cap £28.7m – New right to acquire lithium license in The Ivory Coast
• IronRidge has acquired a right to acquire a highly prospective license in the Ivory Coast.
• The license area hosts multiple pegmatites of significant scale.
• IronRidge can earn up to 100% of the project through development of a feasibility study over a four year period.
• The prospect area is within 75km of the capital Abidjan.
• Summary of key Earn-in and Joint Venture terms:
o IronRidge to establish a Special Purpose Vehicle (SPV), IronRidge (100%).
o Satisfied completion of Due Diligence - US$60k to EP by IronRidge
o Asset Transfer Fee - US$20k, EP earn 20% of the SPV by IronRidge
o Commencement of a Scoping Study Fee - US$60k, IronRidge earn to 85% total of the SPV.
o Commencement of Prefeasibility Study - US$150k, IronRidge earn to 90% total of the SPV.
o Commencement of Feasibility study - US$225k, IronRidge earn to 95% total of the SPV at this point EP can either co-contribute or dilute down to a NSR of 2% at which time IronRidge will have earned 100% of the SPV..
Conclusion: While many companies are looking at lithium resources, IronRidge’s management team track record in the discovery and onward sale of mineral assets is such that its move into this area should be watched closely.
*SP Angel act as Nomad and Broker to IronRidge Resources
Potash Corp (POT CN) C$22.28, mkt C$18.7bn – Agrium (AGU CN) - merger terms
Agrium (AGU CN) C$121.04, mkt cap C$16.7nm
• Potash Corp and Agrium have confirmed that Potash Corp stockholders should get the upper hand with 52% of the combined entity and Agrium with 48%.
Petra Diamonds (LON:PDL) 115.75p, mkt cap £607m - invasion of illegal miners at Kimberly mine in South Africa
• Things are becoming rather more militant in South Africa these days. Last week we wrote about the murder/assassination of the HR General Manager at Richards Bay Minerals, this week there is an invasion of illegal miners at Petra’s newly acquired diamond mining operations in Kimberley, South Africa.
• The news is symptomatic of disaffection of the population and a general weakening of law and order as the ANC struggles to maintain its legacy of popularity.