Anglo Asian Mining* (LON:AAZ) – BUY, Target price 25p - New gold discovery at Gedabek
Atlas African Industries (LON:AAI) SUSPENDED – Nomad resigns
Sable Mining Africa (LON:SBLM) – delisted today
SolGold* (LON:SOLG) – Newcrest Settlement and Share Issue Details
Wolf Minerals (LON:WLFE) – Update on funding and ASX Suspension
FTSE100 is trading lower this morning dragged down by energy names on the back of lower oil prices with miners little changed.
• Brent is off 0.6% on the back of reports released last week showing the number of US rigs climbed to the highest level since Feb.
• Yields on long-dated bonds in Europe climbed today following their counterparts in the US on the back of Yellen comments over a potential to allow the US economy to overheat slightly in order to fix some structural problems implying stronger tolerance of the US Fed to higher inflation.
• The US 10 year breakeven rate measuring inflation expectations climbed to around 1.68% lately marking the highest level since May.
• The US$ is little changed today trading around the highest level in seven months.
• Gold is range-bound at $1,250-1,256/oz with gold ETF holdings continuing to increase and hitting the level since mid-13.
• Iron ore futures continue to climb led by climbing steel prices.
Dow Jones Industrials +0.22% at 18,138
Nikkei 225 +0.26% at 16,900
HK Hang Seng -0.84% at 23,039
Shanghai Composite -0.74% at 3,041
FTSE 350 Mining +0.44% at 12,997 FTSE 350 +77% since 1st January
AIM Basic Resources -0.25% at 2,494 AIM Basic Resources +53% since 1st January
Economic News
US – A pick up in consumer spending through Sep as evidenced by stronger retail sales numbers released on Friday suggest the momentum in private consumption growth remains supporting a general economy expansion.
• While the measure that is used to calculate GDP and excludes autos, gas sales, building materials and dining out came in lower than forecast (0.1%mom v 0.4% expected), it marked a rebound from two consecutive monthly decline through Jul-Aug.
Date Index Period Actual Est Previous
Friday Retail Sales Sep %mom 0.6 0.6 -0.2
Core Retail Sales (ex Auto) Sep %mom 0.5 0.5 -0.2
Core PPI Sep %mom 0.2 0.1 0.1
Core PPI Sep %yoy 1.2 1.2 1.00
UoM Consumer Expectations Oct 87.9 91.8 91.2
Monday New York Manufacturing Oct 1.0 -2.0
Industrial Production Sep %mom 0.2 -0.4
Capacity Utilization Sep % 75.6 75.5
Tuesday CPI Sep %mom 0.3 0.2
CPI Sep %yoy 1.5 1.1
Core CPI Sep %mom 0.2 0.3
Core CPI Sep %yoy 2.3 2.3
Wednesday Housing Starts Sep %mom 2.9 -5.8
Building Permits Sep %mom 1.1 0.7
Thursday Weekly Jobless Claims
Existing Home Sales Sep %mom 0.4 -0.9
Friday Markit Manufacturing PMI Oct 51.5
Source: Bloomberg
ECB – Markets expect the ECB to stay put during this week’s policy meeting while seeing a fair chance of the central bank extending the tenor of its QE programme in Dec.
• Currently, its €80bn per month asset buying programme is targeted to to run through Mar/17 with markets suggesting the ECb will start to decelerate purchases until H2/17.
Indonesia – The government is likely to delay the ban on concentrate exports beyond previously envisaged 2017 to allow companied more time to complete construction of smelters.
• Changes to export policies are said to be decided on within the next three weeks.
• Separately, the Energy and Mineral Resources Minister suggested the country might keep its moratorium on unprocessed ore and bauxite exports.
Currencies
US$1.0996/eur vs 1.1021/eur yesterday. Yen 104.12/$ vs 104.17/$. SAr 14.256/$ vs 14.332/$. $1.218/gbp vs $1.221/gbp.
0.760/aud vs 0.762/aud. CNY 6.738/$ vs 6.725/$.
Commodity News
Precious metals:
Gold US$1,254/oz vs US$1,257/oz yesterday – ICE to start gold futures contract in the US in February (Bloomberg)
• The contract will be for bullion held in London and traded on ICE Futures in the US with each contract for 100 troy ounces.
Gold ETFs 66.0moz vs 65.9moz yesterday –
Platinum US$938/oz vs US$939/oz yesterday
Palladium US$648/oz vs US$640/oz yesterday
Silver US$17.39/oz vs US$17.53/oz yesterday
Base metals:
Copper US$ 4,687/t vs US$4,707/t yesterday – European copper premiums cut by 6.5% to $86/t for 2017 by Aurubis, the top European refined metla producer, suggesting there is an ample supply of the metal in the market.
Aluminium US$ 1,652/t vs US$1,692/t yesterday – Chinese aluminium producers still raising capacity and pushing into western markets.
• The move is likely to cause Chinese producers to buy into established Western aluminium fabricators to better secure customers for new metal supply
• Western fabricators have the technology and processes necessary to feed into the automotive and aerospace industries
• Zhongwang backed by Liu Zhongtian has tabled a $2.3bn offer to buy Aleris Corp. Aleris supplies to the US defense industry meaning any deal requires regulatory approval.
Nickel US$ 10,450/t vs US$10,430/t yesterday – The metal is trading lower this morning on the news that Indonesian government is likely to keep ban on nickel ore exports amid growing opposition from local smelters.
• The quick turnaround in the government stance over unprocessed ore exports comes about a week after the administration indicated the possibility of easing the ban.
Zinc US$ 2,261/t vs US$2,247/t yesterday – Prices may continue to rise to the highest since 2011 when zinc hit $2,600/t on the back of a deficit in the concentrates market, according to Mitsui Mining and Smelting, the Japan’s top producer.
• Prices could climb to $2,500/t by Mar on “super tight” ore supply as companies cut production.
• “Even if Glencore ends production cuts, supply will continue to trail demand, though the feeling of shortage will ease somewhat.”
• The Company reiterated its 440kt market deficit which is set to be the widest in over a decade.
• Average prices may climb to $2,400/t in the financial year starting next Apr with Glencore bringing its mothballed capacities back to market and fall to $2,100/t if Glencore did, according to Mitsui.
• “There’s nothing out there that we can see capable of driving prices below $2,000/t.”
Lead US$ 1,999/t vs US$2,004/t yesterday
Tin US$ 19,550/t vs US$19,440/t yesterday –
Energy:
Oil US$51.9/bbl vs US$52.4/bbl yesterday -
Natural Gas US$3.238/mmbtu vs US$3.333/mmbtu yesterday
Uranium US$21.90/lb vs US$22.00/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$55.9/t vs US$56.6/t –
Chinese steel rebar 25mm US$402.9.9/t vs US$395.9/t
Thermal coal (1st year forward cif ARA) US$67.0/t vs US$65.5/t yesterday –
Premium hard coking coal Aus fob US$226.3/t vs US$220.6/t
Other:
Tungsten - APT European prices $191-197/mtu vs $183-197/mtu unch last week
Company News
Anglo Asian Mining* (AAZ LN) 19.75p, Mkt Cap £22.3m – New gold discovery at Gedabek
BUY – Target price – 25p
• Anglo Asian report the discovery of a gold exploration target, named Ugur, in close proximity, 3km NW, to the existing gold/copper Gedabek deposit.
• 20 vertical RC drill holes for a total of 360m have been completed at Ugur testing the oxide zone of the mineralisation.
• All drill holes ended in oxide mineralisation with selected intersections provided below:
o 27m at 1.8g/t, starting 3m from surface;
o 34m at 5.5g/t;
o 19m at 1.7g/t;
o 28m at 1.4g/t, starting 6m from surface (including 8m at 2.8g/t, starting 6m from surface);
o 30m at 1.1g/t (including 8m at 1.7g/t, starting 10m from surface).
o The mineralisation remains open at depth and along strike.
o The Company launched a follow up drilling programme to establish the depth and style of the mineralisation and estimate a resource.
o Preliminary assay results showed average gold recoveries of 87% using the standard leaching processing.
o An additional exploration target has been located 1,500m to the south of the current drilling area with further evaluation works planned for 2017.
Conclusion: The discovery offers good potential to further expand the existing mineral resource inventory extending the economic life of the Gedabek mine and process plant.
The amenity of the gold to processing through conventional leaching as well as promising and close-to-surface intersections suggest Ugur may turn into a valuable addition to the Company’s portfolio of deposits in the area.
(Dec year end) 2014 2015 2016E 2017E 2018E
Gold price US$/oz 1,267 1,161 1,271 1,300 1,300
Copper price $/t 6,828 5,505 4,799 5,000 5,500
Gold production koz 60.3 72.0 68.8 78.8 60.7
Gold dore sold (ex PSA) koz 50.6 63.9 56.1 63.9 45.1
Copper production (SART+FLO) kt 0.8 1.0 2.0 2.7 3.9
C1 cash costs (incl PSA) US$/oz 971 724 559 508 433
TCC (net of PSA) US$/oz 1,168 821 668 620 576
Revenue US$m 68.0 78.1 83.9 99.5 83.3
EBITDA US$m 10.1 18.7 31.6 37.5 23.2
PAT US$m -10.9 -7.4 2.8 8.4 0.9
Basic EPS USc -9.8 -6.6 2.5 7.5 0.8
FCF (CFO-Capex-Interest) US$m -6.9 3.4 15.6 16.9 20.6
EV/EBITDA 7.7 3.1 2.1 1.8 2.9
PER - - 9.3 3.1 29.5
Net Debt US$m 52.4 49.0 33.5 16.6 -4.1
ND/EBITDA 5.2 2.6 1.1 0.4 -0.2
Source: SP Angel, Company
*SP Angel act as Nomad and Broker to Anglo Asian Mining
Atlas African Industries (AAI LN) SUSPENDED – Nomad resigns
• It’s a tough day for African focussed companies on AIM today. Sable Mining Africa has resigned and Atlas African Industries has lost its Nomad
• The company’s shares have been suspended pending the potential appointment of a new Nomad
• If the company is not able to find a Nomad which is willing to take on the company then the stock will be delisted within a month
• It is rare for a company to suffer the resignation of its Nomad without a replacement found to take over and ensure an orderly market
• We wonder what caused Stifel Nicolaus Europe Limited, the company’s nomad to resign
• This is a sad day for the market and affected shareholders
Sable Mining Africa (SBLM LN) – delisted today
• Sable Mining Africa delists from the stock market today
• The company says:
• “In recent months, the long term effects of factors including political instability, public health emergencies, the impact of the depressed bulk commodities markets, unpredictability of legal systems together with unsubstantiated and irresponsible allegations and adverse press speculation have caused significant harm to the Company's long term prospects as a mineral exploration and development business.”
• The company has been the subject of some controversy due to a ‘Global Witness report’. We look forward to Global Witnesses’ next update, though with the delisting of Sable regulators and lobby groups may have less influence on the company.
• https://www.globalwitness.org/thedeceivers/
SolGold* (SOLG LN) 19.3p, Mkt Cap £235m – Newcrest Settlement and Share Issue Details
• SolGold is today issuing 142,896,661 new ordinary shares of 1p each for USD22,863,466 to Newcrest International, Australia's largest gold miner and block cave mining expert.
• The shares are being issued at US16c/s
• Proceeds will be used to continue to fund the Company's exploration of its flagship Cascabel Copper Gold Porphyry Project, for general working capital purposes and ongoing corporate costs.
• SolGold intends to contract additional drill rigs to expand exploration on the overall Cascabel concession, and will update the market shortly with respect to the forecast work program.
*SP Angel acts as Nomad and Broker to SolGold. An SP Angel analyst visited the Cascabel project.
Wolf Minerals (WLFE LN) 5p, Mkt Cap £54.2m – Update on funding and ASX Suspension
• Wolf Minerals remains in discussions with its Lenders and Resource Capital Fund in relation to forecast cash flows and the Company's financial position
• All parties are reported to be targeting completion of final binding agreements on or before 17 October 2016.
• Discussions have continue to be positive and have advanced to a point where the Company has every expectation that completion of final binding agreements will now occur on or before 21 October 2016.
• The Board plans to release the Company's Annual Report for the year to end 30 June 2016 upon finalisation of the funding solution.
• The company will remain in voluntary suspension from the ASX till the report is released.
o Wolf Minerals is in breach of loan covenants in relation to its £70m loan facility and a £5m bond due to problems relating to the slow ramp up and full commissioning of its process plant at the Drakelands Mine, Hemerdon, near Plymouth.
o The agreement is expected to be finalised by 17th October.
Conclusion: We believe Drakelands’ processing issues are resolvable through adjustment to the mine plan and process plant though this may require further time and capital expenditure. It may also require further understanding of the issues by the board and patience from the company’s lenders.