Avocet Mining (LON:AVM) – Q3 Production and suspension of operations
Bacanora Minerals (LON:BCN) – Lithium carbonate samples sent to Japan for testing. Results announced.
DiamondCorp (LON:DCP) – Board restructuring
Strategic Minerals (LON:SML) – Heavily oversubscribed placement and new broker appointment
European equities are climbing on gains in food and beverage and healthcare names with the Stoxx 600 Index up for the first time in five days.
US$ is holding onto its gains trading little changed close to the highest level in seven months as positive PMI numbers point to improving growth momentum.
Brent is up 0.8% today hovering around a three-week low amid reports showing US crude supply climbed for a second week.
Base metals are mixed with little change in gold prices.
Iron ore futures posted a modest increase (CNY priced futures +0.2%) amid stronger steel prices (steel rebar in CNY terms +1.1%) as the latest reports from China showed steel producers’ earnings surged 272%yoy in Sep.
Economic News
US – Oct business activity reports show an accelerated growth in manufacturing and services in Oct and point to an improved GDP growth outlook through H2/16.
“Taken together, the ‘flash’ PMIs suggest that the economy is growing at an annualised rate of around 2% at the start of the fourth quarter,” Markit said.
Service providers reported the strongest increase in new orders since late-2015 on improved domestic demand.
Earlier, manufacturers have also reported the fastest rates of growth in new orders in a year on “widespread optimism that demand will pick up again after the presidential election”.
China – Industrial profits growth came down to 8.4% in the Jan-Sep period compared with a 19.5% advance recorded in Jan-Aug.
A MoM slowdown was attributed to a high base in Aug reflecting a surge in profits compared from a year ago.
Earnings growth is reported to be driven by steel production and oil refining profits which surged 272% and 264%, respectively.
The National Bureau of Statistics noted in a statement that foreign and domestic demand remained weak while coal and steel producers are said to have taken on more debt.
“We should take heed of corporate debt risks as we cut overcapacity,” the NBS said.
Spain – Unemployment fell the lowest level in more than six years in Q3 although continuing to run at significantly higher levels when compared to other Eurozone nations.
The number of people out of work dropped to 4.3m compared with a crisis high of 6m in 2013.
Unemployment rate: 18.9% v 20.0% in Q2 and 19.3% forecast.
Mariano Rajoy is set to get the premiership back this week following a confidence vote on Saturday and after the opposition party dropped a veto blocking his bid.
Sweden – The central bank left the benchmark rate unchanged at -0.5% and extended its guidance for lower rates implying a downwards revision to inflation forecasts.
“The Riksbank now assesses that it will take longer for inflation to reach 2%.”
“The Board does not expect to begin slowly raising the rate again until early 2018.”
The central bank has also indicated that its policy is contingent on ECB moves.
Currencies
US$1.0911/eur vs 1.08929/eur yesterday. Yen 104.69/$ vs 104.07/$. SAr 13.938/$ vs 13.768/$. $1.222/gbp vs $1.221/gbp.
0.761/aud vs 0.769/aud. CNY 6.780/$ vs 6.768/$.
Commodity News
Precious metals:
Gold US$1,268/oz vs US$1,274/oz last week – GFMS expects gold physical demand which dropped 30%yoy in Q3 to recover moving forwards driven by Asia and helping to support prices above $1,240/oz.
GFMS forecasts prices to average $1,420/oz in 2017.
“ETF demand in the West is also set to remain at healthy levels with a growing number of financial institutions recommending gold purchases in a world with trillions of dollars of negative yielding bonds.”
Gold ETFs 65.4moz vs 65.8moz last week – significant fall in ETF holdings
Platinum US$962/oz vs US$967/oz last week
Palladium US$622/oz vs US$638/oz last week
Silver US$17.64/oz vs US$17.77/oz last week
Base metals:
Copper US$ 4,759/t vs US$4,734/t last week –
Aluminium US$ 1,678/t vs US$1,670/t last week –
Nickel US$ 10,195/t vs US$10,170/t last week
Zinc US$ 2,354/t vs US$2,357/t last week
Lead US$ 2,063/t vs US$2,054/t last week
Tin US$ 20,460/t vs US$20,225/t last week
Energy:
Oil US$50.3/bbl vs US$50.1/bbl last week
Natural Gas US$2.723/mmbtu vs US$2.754/mmbtu last week
Uranium US$19.70/lb vs US$20.00/lb last week
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$60.1/t vs US$60.2/t
Chinese steel rebar 25mm US$410.9/t vs US$405.9/t
Thermal coal (1st year forward cif ARA) US$71.0/t vs US$70.8/t last week
Premium hard coking coal Aus fob US$249.1/t vs US$245.5/t
Other:
Tungsten - APT European prices $190-198/mtu vs $191-197/mtu unch last week
Mineral sands – Huntsman increased prices for its titanium dioxide pigments effect Jan/17 with charges of $160/t in the EMEA, APAC and Latin America regions and $0.07/lb in North America.
Company News
Avocet Mining (LON:AVM) 47 pence, Mkt Cap £9.8m – Q3 Production and suspension of operations
Avocet Mining reports that its Inata mine produced 17,694 ounces of gold at a cash cost of US$1,047/oz during Q3 (Q2 – 21,086oz at US$903/oz). Lower levels of gold production were the result of mechanical issues in the plant including the failure of a circuit breaker in the mine’s power plant which impacted plant availability.
The company has also announced that it is suspending operations at Inata pending a court verdict, due on 7th November, adjudicating on the legality of a seizure of a shipment of approximately 1400oz of gold from the mine by bailiffs acting on behalf of former employees of the mine “who had been laid off following the illegal strike in December 2014”.
The company has suspended operations in order to avoid “the potential threat of further seizure of gold shipments before the verdict” and is maintaining a skeleton crew on site to maintain the equipment and ensure that it can implement a smooth restart to the operation. We imagine that the rest of the workforce will be keen to resume work, however, and may be generating considerable local pressure for a speedy resolution of the dispute and a resumption of operations.
The company cautions, however, that “A prolonged cessation of operations may mean that the mine cannot be re-started without significant investment, if at all, and will likely have a material effect on … the Company’s financial position.”
The company has previously disclosed that “The legal basis for the seizure was, according to representatives of the ex-workers, a number of unpaid benefits which remain outstanding.” The company has also pointed out that the funding required to cover corporate and head office costs is currently running at US$1-200,000 per month.
The company is expecting to complete its joint-venture agreement with Managem for the Tri-K project in Guinea before the end of the year but “if funding is required before completion of the Tri-K transaction and such funding is not available from Inata or the Company is not able to secure alternative funding, the Company will likely enter an insolvency process”.
We note that in the interim balance sheet for 30th June 2016, Avocet reports an unrestricted cash balance of US$377,000 and a further balance of US$3.9m held on restricted deposit in Burkina Faso for environmental rehabilitation.
In April this year, the company announced that its 27.7% shareholder, Elliott Management, had injected additional loans. We speculate that with a supportive shareholder, the company may have access to additional bridging finance provided that the court finds in its favour.
Conclusion: Avocet’s decision to suspend operations at Inata pending the outcome of the legal adjudication may be interpreted as a prudent precaution to avoid the possibility of further gold seizures but the company must be banking on a speedy court decision in their favour if they are not to need emergency funding to survive.
Bacanora Minerals (LON:BCN) 80.5p, Mkt Cap £86.8m – Lithium carbonate samples sent to Japan for testing. Results announced.
It’s been an eventful year at Bacanora Minerals.
The company continues to make progress with the preparation of battery grade samples at its pilot plant in Mexico and continues to develop the lithium clay resource at Sonora which the company will mine.
There is renewed focus on the quality of lithium carbonate and lithium hydroxide concentrates due to the probable inclusion of impurities in the lithium batteries which caused fires in Samsung phones recently. Though we suspect impurities were not the only issue.
Peter Secker, Bacanora’s ceo, continues to drive the project ahead and is a great asset to the company. Secker is a rare expert in the developing lithium mining and processing space.
Bacanora Minerals reports a loss of US$10.4m for the year to June 2016 ( 2015 – loss of US$2.8m).
Following the successful completion of a US$17.9m placing in December 2015 and a further US$14.7m placing to BlackRock in June, the company reported a cash balance of US$28.7m at 30th June 2016 which is sufficient to fund the completion of the feasibility study and project development through to the start of construction.
The company is working towards a full feasibility study on its Sonora Lithium project in Mexico and has completed additional resource estimation and geotechnical drilling and the company expects to publish an updated ore resource estimate in the first quarter of 2017. This will provide the basis for the detailed mine design and planning work for the feasibility study.
The study will evaluate a two-stage mine and processing facility producing 35,000 tonnes per year of lithium carbonate. Additional metallurgical testing and plant design work, overseen by the consultants, Ausenco, is approximately 35% complete and on schedule for completion in late calendar Q1 2017.
Expenses came in at C$8m contributing to a loss of C$10m before tax and a total comprehensive loss of $11.5m due to a loss of C$1.1m from foreign currency adjustments. If the C$28m are held in Canadian dollars then that would have been a good thing since the company’s year end. “Cash is comprised of cash held on deposit and other short-term, highly liquid investments with original maturities of three months or less with a Canadian chartered bank, UK bank and Mexican banks.”
James Leahy was appointed to the position of interim non-executive Chairman following the passing of the Hon Colin Orr-Ewing who founded and built the company.
Conclusion: Bacanora is well funded for the completion of its feasibility study on the development of its proposed Sonora lithium project in Mexico.
DiamondCorp (LON:DCP) 2.6p, Mkt Cap £12.4m – Board restructuring
Following the departure last week of the Chairman, DiamondCorp has announced further changes to its Board.
Chris Ellis, has been appointed as the independent Non-Executive Chairman and Neil McDougall the CFO of the providers of the new funding, Rasmala plc, has joined the Board in a non-Executive capacity.
Mr McDougall’s background in finance roles with a number of major banks, including Commerz Bank, Standard Chartered and Europe Arab Bank, strengthens the financial expertise at DiamondCorp as it strives to ramp up production at the Lace mine.
Hulme Scholes is standing down as a non-Executive Director of the company but remains a director of the operating subsidiary, Lace Diamond Mines.
Conclusion: The strengthening of the financial and banking expertise at Board level may provide the breathing space for the operational team at Lace to complete the production ramp-up.
Strategic Minerals (LON:SML) 0.5 pence, Mkt Cap £5.3m – Heavily oversubscribed placement and new broker appointment
Strategic Minerals report the completion of an oversubscribed placing raising £600,000.
The funding was increased to £600,000 due to demand for significant additional stock from investors in the placing.
Demand was around four times the funding being originally asked for, resulted in minimum dilution to shareholders and was at a 33% premium to June’s placing price according to the company statement.
The funding should help the company complete minimum funding requirements till Q4 next year.
SP Angel arranged the placing with assistance from Optiva Securities and have been appointed joint broker following the success of the issue.
Proceeds are to exercise the option to acquire an additional interest in NAE Resources for the Redmoor tin project in Cornwall, UK. The project is located just 40km from the recently commissioned Drakelands tungsten mine in Devon and is 25km from Plymouth.
Strategic Minerals reported a cash balance of US$837,000 at end June and the company’s Cobre magnetite operation in the US reported a profit of US$62,000 (US$162,000).
Work at Redmoor is aimed at upgrading at least a part of existing “inferred” resources to “indicated”, and bringing additional exploration targets to “inferred”. Plans to optimise a planned 19 holes drilling programme and to ensure land access and the relevant permits are underway alongside the selection of an appropriate drilling contractor.
Conclusion: Strategic Minerals is well placed to benefit from renewed investor interest in redeveloping the Cornish tin mining industry. The company has the added benefit of ongoing cash flow from sales at its Cobre operation in New Mexico in the US.
*SP Angel act as joint broker to Strategic Minerals and acted as broker to the £600,000 placing with assistance from Optiva Securities