Amur Minerals (LON:AMC) – An EPCM MOU signed Jinchuan
Anglo American (LON:AAL) – Sale of the Callide mine
Centamin (LON:CEY) – Rising production, cash flow and earnings
Savannah Resources (LON:SAV) – High grade copper intersections seen in Oman VMS drilling
Stellar Diamonds (LON:STEL) Suspended – CPR on Tonguma and Tongo projects (Koidu) in Sierra Leone confirms 4mct recoverable resource
Wolf Minerals (LON:WLFE) – Quarterly Activity Report – implementation of process plant improvements
Petropavlovsk (LON:POG) HOLD – Refinancing update
FTSE 100 pulls lower led by losses in energy stocks
Gold prices is holding above $1,270/oz after drifting down from $1,283/oz hit on Friday amid news of the FBI investigating the case of the Democratic candidate using private emails while she was Secretary of State.
Brent is off today following as OPEC members failed to agree a detailed plan to production cuts over the weekend in Vienna.
Iron ore futures continue their ascend despite reports showing steel making material stockpiles hit at Chinese ports hit the highest level in nearly two years.
Chinese iron ore stockpiles are reported to have climbed 15% this year standing at 107mt following four consecutive quarterly gains.
Toyota claims to have tamed lithium battery technologies
Toyota new hybrid, The Prius Prime is to use lithium-ion batteries with 80km range when fully charged before gasoline engine kicks in
Cornish tin mining – Captain Poldark finds mineral lode
Yet another gripping episode of Poldark on BBC1 last night
Sadly not enough scenes down the mine but at least Poldark and his investors have at long last struck it rich in the Grace copper, tin mine
We have yet to see the new discovery but are told the lode split into two seams with one seam larger and richer than seen before
With Britain going to war with the French and the price of copper and tin about to rise, Poldark’s Weal Grace discovery may be all the richer
Today, we are not at war with the French, but we are hoping for similar success with Strategic Mineral’s Redmore tin project in Cornwall
Economic News
US – GDP numbers released on Friday outperformed estimates rebounding from a lacklustre H1 driven by increases in inventories and exports compensating for a weaker consumer spending.
Inventories positively contributed to growth for the first time since early 2015.
Exports added the most to GDP growth since Q4/13.
Consumer spending stripping changes in inventories and exports out expanded at an annualised rate of 1.4%qoq versus a 2.4%qoq increase in Q2/16.
On a less positive note, business spending on equipment remained weak posting a decline for fourth consecutive quarter.
An acceleration in the growth rate together with a robustness in the consumer spending is likely to convince the FOMC to continue with tightening the monetary policy before year end.
Chances of a rate hike in Dec currently stand at 69.2%.
Germany – Retail sales dived in Sep posting the strongest weekly decline in two years pointing to a slowdown in consumer spending during the quarter.
Estimates are for personal consumption to slow down to 1.3%yoy in Q3/16, down from 1.5%yoy in Q2/16 and 1.7%yoy in Q1/16.
GDP growth rate is expected pick up 0.1pp to 1.8% in Q3/16 on the back of stronger growth in business investments. Numbers are due on 15 Nov.
On a different note, inflation is seen picking up with Oct CPI numbers showing a 0.2pp increase in rates from the previous quarter, according to the data released on Friday.
CPI (EU Harmonised, %mom): 0.2 v 0.0 in Sep and 0.1 forecast.
CPI (EU Harmonised, %yoy): 0.7 v 0.5 in Sep and 0.7 forecast.
UK – The BoE is expected to leave rates and the pace of assets purchases unchanged at 0.25% and £435bn, respectively, this Thursday.
There is a chance Mark Carney will make an announcement on his tenure as the Governor of the BoE.
The BoE did not comment on speculations that Carney might leave the BoE in 2018 saying the Governor will make a statement by a self-imposed deadline of year end.
Currencies
US$1.0953/eur vs 1.0905/eur yesterday. Yen 104.98/$ vs 105.31/$. SAr 13.631/$ vs 13.846/$. $1.218/gbp vs $1.214/gbp.
0.760/aud vs 0.758/aud. CNY 6.773/$ vs 6.780/$.
Commodity News
Precious metals:
Gold US$1,274/oz vs US$1,266/oz last week –
Gold ETFs 65.6moz vs 65.5moz last week – significant fall in ETF holdings
Platinum US$980/oz vs US$967/oz last week
Palladium US$617/oz vs US$615/oz last week
Silver US$17.82/oz vs US$17.59/oz last week
Base metals:
Copper US$ 4,841/t vs US$4,807/t last week –
Aluminium US$ 1,728/t vs US$1,706/t last week –
Nickel US$ 10,540/t vs US$10,420/t last week
Zinc US$ 2,412/t vs US$2,373/t last week –
Lead US$ 2,082/t vs US$2,064/t last week
Tin US$ 20,630/t vs US$20,530/t last week
Energy:
Oil US$49.6/bbl vs US$50.5/bbl last week
Natural Gas US$3.114/mmbtu vs US$3.047/mmbtu last week –
Uranium US$19.65/lb vs US$19.70/lb last week
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$61.7/t vs US$60.8/t
Chinese steel rebar 25mm US$412.2/t vs US$410.0/t –
Thermal coal (1st year forward cif ARA) US$70.8/t vs US$69.8/t last week
Premium hard coking coal Aus fob US$256.4/t vs US$252.4/t
Other:
Tungsten - APT European prices $190-198/mtu vs $191-197/mtu unch last week
Company News
Amur Minerals (LON:AMC) 4.3p, mkt cap £22.1 – An EPCM MOU signed Jinchuan
The Company signed a non-binding Memorandum of Understanding with Jinchuan Nickel & Cobalt Research and Design Institute relating to EPCM activities on the nickel/copper sulphide Kun Manie project.
The party to the MOU is a subsidiary of the Jinchuan Group, the world’s third largest and the biggest Chinese producer of nickel.
The subsidiary is responsible for the group’s EPCM activities with the MOU marking the start of the due diligence process regarding a potential cooperation with Amur Minerals over development options of the project.
Conclusion: The signed MOU with a subsidiary of an integrated nickel producer offers an exciting opportunity to study development options for the project which in case of a positive result of the due diligence process may lead to a closer cooperation between parties involved.
* SP Angel act as Nomad and broker to Amur Minerals
Anglo American (LON:AAL) 1111.5 pence, Mkt Cap £14.34bn – Sale of the Callide mine
Anglo American reports that it has completed the sale of the Callide thermal coal mine in Queensland to Batchfire Resources.
The terms of the transaction, which was originally announced in January, have not been disclosed.
The Callide mine is an open cut mine supplying two adjacent power stations under long term contracts. The mine produces at a rate of around 7.5mtpa and some 84% of the output is supplied under the power contract.
Centamin (LON:CEY) 156.4 pence, Mkt Cap £1802m – Rising production, cash flow and earnings
Centamin has announced that its Sukari mine produced 148,674 ounces of gold at a cash cost of US$466/oz and an all-in sustaining cost of US$644/oz during the three months to 30th September.
The production represents a 6% increase on the previous quarter but a 41% rise over the equivalent period in 2015 while costs are 39% lower than in 2015 on a cash cost basis and 30% lower on an AISC basis.
Recovery rates improved to 89.7%, (Q2 2016 – 89.5%) reflecting improved optimization of the plant.
As a result, Centamin is maintaining its production guidance for the full year at the upper end of 520-540,000 ounces of gold at cash costs within the range US$530-550/oz (AISC US$720-750/oz).
During August, the company started a new exploration decline to test the potential for future reserve growth within the north-eastern Cleopatra zone and assess the possibility of an additional 1mtpa of underground production. The assessment is expected to take approximately 9 months at a cost of some US$11.5m.
The company sold 150,201 oz of gold during the quarter at an average price of US$1335/oz generating US$122m of EBITDA and attributable profit of US$70.8m.
The company has also started its profit share arrangement with the Egyptian state entity, EMRA with a distribution of US$28.75m during the quarter and a further US$6.67m during October.
During the quarter, Centamin generated free cash flow, after investment of US$34.4m, of US$105.4m and is debt free with US$388.4m of cash at 30th September.
Conclusion: Centamin is in a strong position with rising production, cashflow and earnings and is now looking at possible additional reserve development at Sukari via the new exploratory decline
Savannah Resources (LON:SAV) 4.1 pence, Mkt Cap £18.5m – High grade copper intersections seen in Oman VMS drilling
(Savannah is earning into a 65% stake in Block 4 and holds 65% of Block 5)
Savannah Resources reports ‘broad high grade copper’ intersections in their VMS projects in Oman.
The company reports results from a further six drill holes at Mahab 4 and four holes at Maqail South.
The results are said to point towards a potential expansion of the current high-grade portions of both the Mahab 4 and Maqail South resources.
These are part of the current indicated and inferred mineral resource of 1.7mt grading 2.2% copper for 37,400t of contained copper.
These resources sit underneath the bottom of the Aarja pit which was mined between 1988 and 1994 with underground access via existing portals and working.
Mahab 4
67.4m at 4.64% copper, 1.13% zinc and 0.3g/t gold from 18.6m incl. 35.4m at 8.30% copper, 2.1% zinc and 0.4g/t gold from 18.6m
10.05m at 10.51% copper, 2.67% zinc and 0.4g/t gold from 34.95m
19.8m at 6.15% copper, 1.8% zinc and 0.4g/t gold from 65.2m
13.55m at 6.43% copper, 0.68% zinc and 0.2g/t gold from 84.45m
47m at 6.07% copper, 1.43% zinc and 0.3g/t gold from 52m
* drilled oblique to section to maximise sample size for metallurgical test work
Maqail South
5.8m at 4.42% copper and 0.2g/t gold from 58.6m
2.15m at 3.7% copper and 0.1g/t gold from 80.7m.
Conclusion: While these are good looking results it is normal to drill relatively high grade mineralisation in VMS projects where they are found.
Savannah has stated it wishes to fast-tracking its Oman projects for late 2017 copper concentrate production and we hope the joint venture partners in Oman, Al Thuraya LLC (Block 4) and Al Fairuz Mining (Block 5) will contribute to the capital cost of a copper concentrator and that sufficient water is available to support its operation. Savannah is aiming for 151,500-702,500to of contained copper and 55,000-362,000oz of gold.
It will take some effort to build a mine and plant for production in Oman and with a new lithium project in Finland and a mineral sands jv in Mozambique the company may be stretching itself a bit thin.
Stellar Diamonds (LON:STEL) Suspended – CPR on Tonguma and Tongo projects (Koidu) in Sierra Leone confirms 4mct recoverable resource
Stellar Diamonds report the completion of its Competent Persons Report on the Tonguma and Tongo projects in Sierra Leone.
The report confirms an initial recoverable diamond resource of 4.0mcts (+1.18mm) and endorses the mine plan for the projects.
The proposed transaction combines Stellar’s
1.45mcts at Tongo grading 165cpht worth US$270/ct
with Octeas’s:
3.45mcts at Tonguma at a grade of up to 290cpht worth US$193/ct.
A further 8mcts may exist within the exploration target at Tonguma.
Diamond production: The combined mines may produce around 250,000ctpa
Stella agreed to buy the Tonguma kimberlites from Octea Mining Limited which is owned by the Benny Steinmetz Group (BSG Resources Ltd) and to bring both assets into production using the same production infrastructure.
A recent press article in Sierra Leone comments that “BSG Resources is set to fund the future operations of all of Octéa companies (Koidu Limited, Tonguma Limited & Boroma Limited) as OCTEA is fully committed to remain a valued and long-term stakeholder in Sierra Leone.”
The deal with Octea (BSG), if completed, means Stellar Diamonds should hold 100% of the voting “A” shares in a “NewCo” holding the combined assets and giving Stellar fill legal and management control. Octea would hold 100% of the non-voting “B” shares in “NewCo” which will entitle Octea’s existing shareholders to receive “royalty payments of between 5% to 10% of the combined revenues of Tonguma and Tongo (the “Enlarged Project”) and a 25% economic interest in the net cash flows of the Enlarged Project.”
The two companies will be entitled to preferential repayment of their investment in the respective projects with Stellar’s contribution to Tongo assessed at “at least US$25m” and Octea’s investment on Tonguma set at “a maximum of US$5m during the same period.” “Any royalty payments and net profit share due to Octea under the Agreement will only commence once the total initial investment amount of both parties has been fully repaid by NewCo. There is therefore no upfront acquisition cost to Stellar in terms of the Potential Transaction.”
Stella Diamonds is currently suspended pending the completion of its reverse takeover under AIM Regulations in relation to its consolidation of ownership to a 75% economic interest in the Tonguma and Tongo diamond projects.
Stellar needs to raise a minimum US$25m to fund the projects into production. We note an initial capital requirement of around US$40m which we assume may be partly funded by Octea (BSG).
*The author of this comment has previously visited the diamond mines at Koidu in Sierra Leone.
Wolf Minerals (LON:WLFE) 4.75p, Mkt Cap £51.5m – Quarterly Activity Report – implementation of process plant improvements
Wolf Minerals’ report for the quarter to 30th September discloses that the processing plant at the Drakelands mine treated a total of 505,414 tonnes of ore to produce 29,981 metric tonne units (mtu – equivalent to 10kg) of tungsten concentrate. The company points out that both the throughput and concentrate production are quarterly records.
As a result of the dry summer, Wolf Minerals has made better than expected progress on mine waste stripping and on the mine-waste facility allowing the company to temporarily reduce the size of the waste removal truck fleet ahead of what are likely to be more difficult operating conditions during the winter months and with benefits to overall costs.
The company generated A$4m of revenue during the quarter with cash expenditure of A$28.5m comprising A$6.1m of development, A$13.8m on production and A$8.7m on debt service.
The softer, weathered, near surface material within the upper levels of the open-pit mine contains fine grained tungsten mineralisation which is more challenging from a recovery point of view within the processing plant. Drilling has, however, confirmed that “as mining gets deeper, the weathering will reduce such that hard granite rock becomes the principal feed to the processing plant. A gradual transition from the soft ore currently being experienced to the harder granite is expected to take place over the next twelve months and should result in a consequential improvement in recoveries and plant throughput.”
Wolf Minerals is in the process of implementing design modifications to the plant to help address these issues. The company expects that “Production is expected to increase during the implementation of the programme over the coming quarters, however, completion of all elements of the programme, expected in the first half of 2017, is required before the full effects on processing plant performance can be ascertained.”
The benchmark ammonium paratungtstate (APT) prices remain below the historically weak level of US$200/mtu, though they moved up slightly last week to US$195/199/mtu from US4190/198/mtu. The company reports that demand for tungsten concentrate remains firm in Europe and Japan but “demand from other regions remained low as a result of soft conditions in the mining, oil and fracking industries and the economic slowdown in China.”
As previously announced, the company has received £20m of bridging finance from its major shareholder, Resource Capital Funds which allows it the breathing space to work through the softer, upper ore horizons and to implement the plant modifications.
Conclusion: The Drakelands mine is currently being supported by its major shareholder while it resolves issues of the quality of its ore feed and implements improvements to the processing plant. These changes will take some time. The current APT price remains at historically low levels, and demand for tungsten concentrates is mixed, however, the company could perhaps be fortunate if prices recover as its operational performance improves over the medium term.
Petropavlovsk (LON:POG) 8.2p, £268m – Refinancing update
Hold
The Company continues to work on extending debt maturities of the existing debt facilities with Sberbank (75% of total bank debt) and VTB (25% of bank debt).
As parties work towards an updated debt maturity profile, the Company announced that “Sberbank has deferred the repayment instalment of principal due under its facilities on 31 oct/16 to 20 Dec/16”.
VTB is reported to be working “towards execution of the necessary documentation, and satisfaction of all necessary Conditions Precedent on Monday, 31 Oct/16”.
Conclusion: It is a positive development to see support provided by major lenders with the Company expecting to deliver an update refinancing plan “shortly”.
In our calculations we assumed an extension to the outstanding bank debt to match the Company’s cash flows with the news bearing little effect on our estimates.