FinnAust Mining* (LON:FAM) – Pituffik – ‘the place where they tie their boats’
Today we publish a 34 page note on FinnAust Mining, see pdf for full note
Metminco* (LON:MNC –Completion of Los Calatos transaction
Petra Diamonds (LON:PDL) – Q1 Production results and production guidance.
Wolf Minerals (LON:WLFE) – £20m bridge loan agreed with Resource Capital Funds
FTSE100 is up slightly with miners posting strongest gains among other index constituents.
• A good set of services and manufacturing PMIs in Germany and France led Eurozone-wide measures higher with latest numbers beating market expectations.
• The US$ index continues to strengthen climbing to the highest since Feb/16m reflecting increasing chances for a rate hike in Dec.
• Brent prices are little changed as Iraq argued the nation should be excluded from output cuts suggested by the OPEC as the country is tied in a battle with Islamic State militants.
• Iron ore futures post solid start to the week climbing 1.1% as steel prices hold on to their gains with rebar futures trading close to the highest level since Aug/16.
• Gold prices are flat as holdings in ETFs slide slightly (+0.5% in Oct and +51.3%ytd).
Dow Jones Industrials -0.09% at 18,146
Nikkei 225 +0.29% at 17,234
HK Hang Seng +0.98% at 23,604
Shanghai Composite +1.21% at 3,128
FTSE 350 Mining +1.71% at 13,643 FTSE 350 +86% since 1st January
AIM Basic Resources -0.33% at 2,559 AIM Basic Resources +57% since 1st January
Economic News
US
Date Index Period Actual Est Previous
Monday Markit Manufacturing PMI Oct 51.5 51.5
Tuesday S&P CS20 House Prices Aug %mom 0.1 0.0
S&P CS20 House Prices Aug %yoy 5.1 5.0
Wednesday Markit Services PMI Oct 52.4 52.3
Markit Composite PMI Oct 52.3
Thursday Core Goods Orders Sep %mom -0.1 0.9
Weekly Jobless Claims 255k 260k
Friday Q3 GDP 1st reading %qoq 2.5 1.4
Q3 Personal Consumption 1st reading %qoq 2.6 4.3
Core PCE 1st reading %qoq 1.6 1.8
Source: Bloomberg
China – Communist party leaders are meeting in Beijing this week for a Central Committee plenum to discuss and shape nationwide policy plans.
• The PBoC cut its target currency band by 0.2% to the weakest level since early Sep/10.
Japan – Manufacturing PMI hit the highest level in nine months as overseas demand supported growth in new orders.
• “New exports rose at the fastest rate in nine months,” Markit PMI report said.
Germany – Both manufacturing and services sectors posted stronger growth in Oct beating market estimates
• The increase was led by the sharpest climb in new business this year so far which led gains in payroll numbers higher.
• On inflation, “there are some clear signs that inflationary pressures are picking up, which should provide welcome news for policy makers in Frankfurt,” the report said.
• “The Germany economy has entered the fast lane again at the start of the fourth quarter, with output growth accelerating from Sep’s recent low”.
• Markit Manufacturing PMI: 55.1 v 54.3 in Sep and 54.4 forecast.
• Markit Services PMI: 52.1 v 53.3 in Sep and 53.0 forecast.
• Markit Composite PMI: 52.2 v 52.7 in Sep and 52.8 forecast.
France – While overall growth has slowed driven by a slowdown in the services sector, a notable development is a pick up in the manufacturing sector driven by overseas demand.
• New manufacturing export orders climbed to the highest level since May/16.
• It is promising to see a rebound in the manufacturing sector which recorded the strongest month since the start of the year.
• Markit Manufacturing PMI: 51.3 v 49.7 in Sep and 50.0 forecast.
• Markit Services PMI: 52.1 v 53.3 in Sep and 53.0 forecast.
• PMI Composite PMI: 52.2 v 52.7 in Sep and 52.8 forecast.
Currencies
US$1.0889/eur vs 1.0880/eur yesterday. Yen 103.92/$ vs 103.73/$. SAr 13.881/$ vs 14.048/$. $1.223/gbp vs $1.223/gbp.
0.764/aud vs 0.763/aud. CNY 6.772/$ vs 6.764/$.
Commodity News
Precious metals:
Gold US$1,265/oz vs US$1,265/oz last week
Gold ETFs 65.6moz vs 66.2moz last week
Platinum US$938/oz vs US$929/oz last week
Palladium US$629/oz vs US$622/oz last week
Silver US$17.63/oz vs US$17.49/oz last week
Base metals:
Copper US$ 4,652/t vs US$4,638/t last week – Shipments of the Las Bambas concentrate from Port of Matarani should restart in late Oct / early Nov as sufficient quantities of con have been delivered to the Port.
• Shipments have been disrupted after local communities blocked transport roads from the Las Bambas mine arguing the Company should seek alternative trucking routes.
• “The process of restoring calm in local communities and the re-opening of essential infrastructure is now underway,” the Company said.
• “Following 10 days of regional unrest in the communities along the Las Bambas transport corridor, the Government of Peru and local communities have agreed a framework for future dialogue and cooperation in the region.”
Aluminium US$ 1,632/t vs US$1,616/t last week
Nickel US$ 10,070/t vs US$10,050/t last week
Zinc US$ 2,290/t vs US$2,270/t last week
Lead US$ 2,009/t vs US$2,021/t last week
Tin US$ 20,020/t vs US$19,915/t last week
Energy:
Oil US$51.9/bbl vs US$51.5/bbl last week
Natural Gas US$3.011/mmbtu vs US$3.100/mmbtu last week
Uranium US$20.00/lb vs US$20.50/lb last week
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$56.9/t vs US$57.2/t
Chinese steel rebar 25mm US$404.3/t vs US$405.4/t
Thermal coal (1st year forward cif ARA) US$70.5/t vs US$67.6/t last week
Premium hard coking coal Aus fob US$242.9/t vs US$242.9/t
Other:
Tungsten - APT European prices $19-198/mtu vs $191-197/mtu unch last week
Company News
FinnAust Mining* (LON:FAM) 7p, Mkt Cap £35m - Pituffik – ‘the place where they tie their boats’
BUY Target Price 15p
Today we publish a 34 page note on FinnAust Mining, see pdf for full note
FinnAust Mining is advancing toward mining titanium rich, ilmenite mineral sands at its 60% owned Pituffik mineral sands project on the coast of Greenland. The company also has other base metal and mineral licenses in Finland and Greenland which it is evaluating with the support of its major shareholder, Western Areas.
• The nature of Pituffik deposit is very different from other mineral sands deposits and experts suggest Pituffik titanium mineral sands grades may rank among world’s highest. Pituffik’s mineralogy is much simpler and the deposit is seen as unusually consistent.
• Tonnage, consistency and metallurgical evaluation should help confirm potential value of the in-situ deposit. Quality of mineral sands concentrates is critical with Pituffik appearing suitable for sulphate production. Processing, as with all ilmenite, is required to reduce impurities to acceptable levels.
• Simple removal of silicates improves the ilmenite product and optimisation of the process route will further improve the product. A major bulk sample is planned with which to prepare samples for testing by consumers.
• Royal IHC, the Dutch dredging company, is supporting work on the dredging of shallow and near shore marine mineral sands. The support of such a major dredging company is a major positive for the company.
• Demand for ilmenite concentrates should continue to rise as cost and pollution causes China to cut production of titanium from titano-magnetite iron ores.
• Avannaa acquisition gives the FinnAust team more to look at in Greenland and option value over some potentially large exploration projects.
• Valuation on 100% of Pituffik: We value the project at an IRR of 43% and a $144m NPV on an 8% discount rate. This give us an NPV per share of 19 pence.
• Assumptions: Ilmenite production 332,500tpa. Ilmenite price $130/t less a 10% discount reducing the price to $117/t. Shipping $40/t (>$10/t to Canada). Mining and processing $15/t. Capital cost $60m, though preliminary estimates are significantly lower. Royalty rate 2.5%. Corporate tax 30% starting in year 4.
• Climate: The project is located in the high Arctic limiting mining to between 3-5 months per year. The project will be subject to campaign mining through the summer. The ground is subject to permafrost with the top meter or so thawing through the summer months hence the preference for dredge mining.
• Location: Greenland should offer relatively simple extraction site with no community to move and relatively few environmental issues. Work continues with the support from Greenland government agencies.
• Its near-shore, shallow-marine location on the West coast of Greenland means temperatures fall to a relatively mild -29C for the Arctic through January and February. Ilmenite mineral sands should not freeze below sea ice.
• *We are grateful for the contribution made by Phil Swinfen toward the preparation of the note
*SP Angel act as nomad and broker to FinnAust
Metminco* (LON:MNC) 0.2 pence, Mkt Cap £7.5m –Completion of Los Calatos transaction
• Metminco reports that it has settled with CD Capital for its US$45m investment in the Los Calatos copper project in Peru. As previously announced, CD Capital will invest an initial US$ 16m in the project in order to acquire a 51% interest, followed by two subsequent tranches, each of US$14.5m, to increase its holding to 65% and 70% eespectively.
• The funds will allow the immediate start of pre-feasibility studies including the upgrading of the existing inferred resources to measured and indicated classification, additional metallurgical test-work and some additional permitting matters. The first phase of funding will also allow some additional drilling on the TD2 and TD3 targets which may provide scope for the identification odf a larger overall resource, which currently stands at 352m tonnes at ana vearge grade of 0.76% copper and 318ppm of molybdenum.
• Looking further ahead, the company will move towards a full feasibility study. Metminco’s Managing Director, William Howe, commented “The Company and CD Capital will focus on advancing Los Calatos through to completion of Pre-feasibility and Feasibility Studies and a decision to mine.”
• Metminco has given an undertaking to CD Capital that it “will use its best endeavours to distribute at least 90% its holding in Hampton Mining (the wholly owned subsidiary holding its interest in the Los Calatos Project) to its shareholders within six months of completion of the transaction.”
Conclusion: The completion of the transaction with CD Capital ensures funding to take the project through to a decision to mine and allows Metminco to focus on the development of its Quinchia portfolio of gold assets in Colombia where it is looking to fast track the Miraflores project to production.
*SP Angel act as broker to Metminco
Petra Diamonds (LON:PDL) 149p, mkt cap £791m - Q1 Production results and production guidance.
• Petra Diamonds reports a 30% increase in diamond production during the quarter to 30th September to 1,097,523 carats. The increased diamond output reflects improved output at the Cullinan, Koffiefontein, and Kimberley operations in South Africa and the Williamson mine in Tanzania, partially offset by a small decreas in production from the Finsch mine.
• Excluding the values of large, “exceptional” diamonds, unit values of US$164/carat from the Cullinan mine exceeded the company’s guidance of US$105-115/ct and values from Williamson of US$360/carat were ahead of the guidance range of US$220-230/carat.
• Values of diamonds from the Finsch mine at US$95/carat (guidance of US$100-105), Koffiefontein at US$483/carat (guidance – US$520-550/ct) and Kimberley Ekapa at US$87/carat (guidance – US$125-130/ct) were below expectation though the figure from Kimberley Ekapa reflects production from the retreatment of tailings while plant modifications have been implemented.
• The company reports US$94.7m of diamond revenue for the quarter, including US$6.5m from the sale of a 138.57 carat white diamond from Cullinan and US$5.2m from the sale of a 10.64 carat pink diamond from the Williamson mine.
• The expansion programmes at Cullinan and Finsch are reported to remain on track and in line with expectations. The new caving areas are now delivering undiluted ore which is expected to improve both the grade and product mix of recovered diamonds.
• Net debt at the end of the quarter amounted to US$463.9m, (June 30th US$384.8m), however with the production increasing, “Petra remains on track to become cash flow positive from H2 FY 2017 onwards as Capex requirements will reduce from Q3 FY 3017, due to the advanced nature of the expansion projects.”
• Petra Diamonds also “continued to witness strong signs of a stabilising diamond market, with prices for the Period remaining flat when compared to H2 FY 2016.”
Conclusion: The build-up of production as a result of the investment programme at Cullinan and Finsch is expected to make Petra cash-flow positive from H2 of the 2017 FY. Meanwhile the diamond market appears to be stabilising.
Wolf Minerals (LON:WLFE) 5p, Mkt Cap £54m – £20m bridge loan agreed with Resource Capital Funds
• Wolf Minerals reports that it has agreed terms with Resource Capital Funds for the provision of £20m of bridging finance, with potential for this to be increased to £30m.
• The Company has also agreed with its lenders that Senior Debt principal repayments are deferred until January 2018 “and the tenor of the Senior Debt is extended intil June 2023, conditional upon a decision to extend Drakelands planning permission beyond 2021.”
• The company reports that it currently has £64m of Senior Debt outstanding.
• Wolf Minerals has called an AGM on 29th November.
• The company’s financial difficulties arise at a time when low tungsten prices (the benchmark price for ammonium paratungstate currently stands at US$190/198 per metric tonne unit) are coinciding with a period of plant commissioning when the “production of tungsten concentrate at Drakelands has been adversely affected by the underperformance of the processing plant and the finer nature of the ore than originally expected.”
• In our opinion, the technical issues are capable of resolution and the company reports that “a work programme involving equipment changes and design modifications is underway and gradual improvements in production are expected during implementation of the programme over the coming quarters.”
Conclusion: Wolf Minerals is fortunate in being able to draw on the continuing financial support of its major investor, RCF, while it works to resolve the technical issues at Drakelands. While we consider that the technical issues are solvable, we expect a gradual improvement rather than a dramatic turnaround, though a strengthening of APT prices would be welcome too.