Atalaya Mining (LON:ATYM) – Hitting nameplate capacity in time for 2017
ASA Resource Group* (LON:ASA) – Half year results
DiamondCorp (LON:DCP) Suspended – Finance update
Gemfields (LON:GEM) – Ruby auction results
Horizonte Minerals (LON:HZM) – Completion of fundraising
Mkango Resources* (LON:MKA) – Collaboration agreement with major commodity trader and £450,000 fundraising
Ortac Resources* (LON:OTC) – Interim results
Petropavlovsk (LON:POG) – Corporate transactions update
Tri-Star Resources* (LON:TSTR) – Oman antimony roaster update
Equity markets are a little directionless with miners trading slightly lower on weaker iron ore and base metal prices.
Gold is trading slightly higher heading for a second consecutive day of gains on the back of the weaker US$ index.
Oil prices are off to a good start of the week with Brent up 0.7% at $55.6/bbl this morning.
Iron ore futures on the Dalian Exchange were off 5.3% today amid reports showing stockpiles in China climbed to 111.6mt, the highest level since 2014.
Dow Jones Industrials -0.04% at 19,843
Nikkei 225 -0.05% at 19,392
HK Hang Seng -0.85% at 21,833
Shanghai Composite -0.16% at 3,118
FTSE 350 Mining -0.63% at 14,291 FTSE 350 +95% since 1st January
AIM Basic Resources -0.18% at 2,296 AIM Basic Resources +41% since 1st January
Economic News
China – Property prices growth continued to run at the two-digit pace although monthly price gains came in below 1% for the first time in the last three months amid authorities drive to cool the market in major cities.
The average price for new residential housing climbed 12.6%yoy in Nov, up 0.3pp from the Oct rate, according to Reuters.
• MoM prices were up 0.6% compared with a peak of 2.1%mom recorded in Sep.
Germany – Business sentiment ends the year on a strong note, the latest IFO Institute survey results show.
The IFO Business Climate Index hit the highest level since Feb/14 beating market estimates.
“The German economy is in a festive mood. The business outlook for the first half of 2017 is also slightly more optimistic,” IFO president said.
The report follows positive Dec Markit Manufacturing PMI numbers released earlier this month which helped to compensate for soft services sector data.
IFO Business Climate: 111.0 in Dec v 110.4. in Nov and 110.6 forecast.
IFO Expectations: 105.6 in Dec v 105.5 in Nov and 105.6 forecast.
Australia – AAA rating secured following a FY17 budget update on a slightly narrower deficit estimates and forecast return to surplus by 2021.
All three agencies including S&P, Moody’s and Fitch measure the sovereign’s credit rating at the AAA equiValent level.
The government forecasts the budget deficit of A$36.5bn in the year through Jun 30, down from May estimates.
However, deficits in the following three years are expected to widen by a total of A$11bn.
The Treasury cut FY17 GDP growth to 2.0%, down from previously forecast 2.5%.
S&P said it will be watching budget developments closely with a potential for a downgrade should forecasts underperform government projections.
“Over the coming months, we will continue to monitor the government’s willingness and ability to enact new budget savings or revenue measures to reduce fiscal deficits materially over the next few years.”
The A$ is little changed against the US$ this morning trading around the $0.73 level.
Ukraine – The government nationalises the largest commercial lender, PrivatBank, as a $5.5bn liquidity gap is identified on the bank’s books.
The bank accounts for more than a third of private deposits and 20% of bank sector assets and is considered systemic to let go.
The government will recapitalise the bank by issuing domestic bonds to be purchased by the central bank.
Central Bank Governor highlighted that $15bn in reserves are “sufficient” to handle the issue as well as to cover near term external obligations.
Currencies
US$1.0443/eur vs 1.0464/eur yesterday. Yen 117.52/$ vs 118.05/$. SAr 14.048/$ vs 13.941/$. $1.246/gbp vs $1.245/gbp.
0.728/aud vs 0.734/aud. CNY 6.948/$ vs 6.958/$.
Commodity News
Precious metals:
Gold US$1,138/oz vs US$1,134/oz last week
Gold ETFs 57.8moz vs 58.1moz last week
Platinum US$921/oz vs US$905/oz last week
Palladium US$686/oz vs US$694/oz last week
Silver US$16.06/oz vs US$16.12/oz last week
Base metals:
Copper US$ 5,580/t vs US$5,677/t last week
Aluminium US$ 1,718/t vs US$1,732/t last week
Nickel US$ 11,035/t vs US$11,275/t last week
Zinc US$ 2,659/t vs US$2,766/t last week
Lead US$ 2,207/t vs US$2,280/t last week
Tin US$ 21,075/t vs US$21,105/t last week
Energy:
Oil US$55.5/bbl vs US$53.9/bbl last week
Natural Gas US$3.336/mmbtu vs US$3.390/mmbtu last week
Uranium US$20.40/lb vs US$22.00/lb last week
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$77.0/t vs US$77.6/t
• Australia forecasts iron ore prices to slide to $55/t by Sep quarter next year, the mid-year budget update read.
• “Liaison with industry indicates that there is very considerable uncertainty around the drivers of the recent price movements, with the only consensus being that current elevated prices are unlikely to be sustained.”
• Iron ore prices climbed nearly 90% YTD following three consecutive years of declines.
• Fortescue said the previously proposed JV with Vale regarding a potential blending of ores from two producers for the shipment of benchmark product to China looks less likely to happen.
• This follows Vale comments in Sep which highlighted that discussions with Fortescue slowed amid disagreement over what the pricing of the final product.
• “The commercial discussions are taking much longer than expected,” Vale said in Sep.
Chinese steel rebar 25mm US$517.3/t vs US$522.5/t
Thermal coal (1st year forward cif ARA) US$66.4/t vs US$66.6/t
Premium hard coking coal Aus fob US$259.0/t vs US$260.5/t
Other:
Tungsten - APT European prices $187-198/mtu vs $182-200/mtu
Company News
Atalaya Mining (LON:ATYM) 126 pence, Mkt Cap £147m – Hitting nameplate capacity in time for 2017
Atalaya Mining reports that the plant at its Proyecto RioTinto copper mine in southern Spain has reached nameplate capacity over a period of ten days during early September and in addition to reaching it targeted throughput rates is also achieving the design rates of recovery and concentrate grades.
“After scheduled maintenance and plant availability parameters are considered, the current treatment rates are enough to give comfort that the planned 9.5 Mtpa will be achieved in 2017”
The company is expecting copper production for 2017 to fall in the range 34,000-40,000 tonnes of copper.
Atalaya has also disclosed that it “has reached an agreement with the mining contractor to defer certain payments totalling €8 million until 2018.” The agreement, which will benefit the company’s working capital management “demonstrates the excellent working relationship the Company enjoys with one of its key stakeholders.”
Conclusion: Atalaya has achieved nameplate design for the expanded plant at RioTinto in an, apparently, trouble free ramp-up and should look forward to producing copper at a time when the market trends for the metal are improving.
ASA Resource Group* (LON:ASA) 1.925 pence, Mkt Cap £36.6m – Half year results
ASA Resources reports earnings of US$3.08m (0.14 cents) for the six months to 30th September 2016, reversing a loss of US$4.27m for the first half ending 30th September 2015.
The company’s gold division, centred on the Freda Rebecca Gold mine in Zimbabwe delivered a 30% increase in EBITDA to US$8.2m. Despite a modest decline in gold revenue to US$39.8m (vs US$40.4m) a successful cost reduction programme helped to increase pre-tax profit by 61% to US$5.3m.
The mine delivered a broadly similar tonnage and grade to the mill (685kt at 2.11g/t gold compared to 687kt at 2.09 g/t) however problems with the mill resulted in an 11% decline in throughput (to 537,000t) and a 13% decline in gold sales to 30,367 oz and an 8% rise in cash costs to US$967/oz.
The commissioning of two small new mills, leads the company to expect that milling capacity, which has previously constrained gold output, may “finally be resolved in the next few quarters” and allow the company to reach its target gold output of 80-100,000 oz pa at a C3 cost of $1000/oz.
At the 80% owned Zani Kodo gold project in the DRC, which contains a resource of almost 3m oz, a pre-feasibility study has been delivered to the Ministry of Mines and the company is in the process of moving to a basic gravity-based gold recovery plant “as soon as possible in 2017.”
The Bindura nickel operations in Zimbabwe reported an after tax profit of US$1.2m reversing a US$3.4m loss in 2015.
Increased nickel revenues (up 9% to US$22.5m), prices and sales (up 25% to 3464 tonnes) contributed to a 34% reduction in unit cash costs to US$5216/t. The company expects that recently acquired additional mining equipment will improve production “in the next two quarters.”
The smelter refurbishment project at Bindura is now 71% complete and ASA Resources is now re-examining the possibility of deepening the shaft at the Trojan mine to “provide increased feed for the smelter”. If it proceeds, the deeper shaft could increase the mine life “by about 5 years and give Trojan increased access to known ore reserves and potentially higher grades in advance of the smelter restart.”
Under the current operating arrangements, Trojan can only supply around 50-55% of the nickel concentrate required and bringing additional in-house capacity on stream would help to reduce the requirements to purchase nickel concentrates from external sources.
The Klipspringer diamond project in S Africa continues to treat tailings, largely from the fine grained waste produced by earlier mining and “work has commenced on the substantial coarse diamond tailings Marsfontein dump.”
The underground diamond mine remains on care & maintenance for the time being, however, “discussions are ongoing with a number of potential JV mining partners with a view to re-starting the underground mine.” In the interim, however, ASA’s estimated $800,000 pa share of the current revenue stream “should more than cover the costs of care and maintenance of the underground mine, licences site supervision and security.”
Elsewhere, the company reports that its joint-venture partner in copper exploration in the Katanga region of the DRC “continues to meet their exploration commitments to spend up to $25m over a minimum of four years across 27 concessions”. As the controlling partner in the joint-venture, China’s largest manufacturer of copper pipes, Hailiang (62% - ASA 38%) is “now fully responsible for the exploration programme and we are reliant on them as to when they choose to confirm exploration findings or when reserves are JORC compliant.”
ASA is however, “working towards unlocking the value of five of the remaining most promising concessions of Kibolwe, Lutobwe, Lombe, Kapande and Mifumbi”.
Conclusion: ASA Resources two principal operating divisions, nickel and gold are both profitable and cost reduction and expansion programmes are continuing. In the DRC, the company aims to start small scale production operations at the large, 3m oz, Zani Kodo property “as soon as possible in 2017” and ASA Resources’s partner, Hailiang, is advancing the Katangan copper projects within the joint-venture.
*SP Angel act as Nomad and broker to ASA Resources
DiamondCorp (LON:DCP) Suspended – Finance update
DiamondCorp reports that it has received formal agreement of the Industrial Development Corporation of South Africa (IDC) to a standstill on repayments of its secured project loan by its 75% owned Lace Diamond mine until the completion of the business rescue process.
The Lace mine was placed in business rescue in November following production disruption when the mine became flooded as a result of severe storms in the region.
Discussions with other lenders “to achieve formal agreements for a similar standstill”. “Laurelton Diamonds Inc., a lender to DiamondCorp Holdings Limited has agreed to roll up its interest until 1 November 2017 or the completion of refinancing (whichever is earlier) and defer capital repayments until 1 March 2018”. Interest is to be accrued at the agreed rate of 9%pa plus a 2% premium.
The company also comments that it has repaid approximately £290,000 of the £700,000 Shariah complaint loan from Rasmala. Rasmala has, however, agreed to extend the repayment of the balance until 30 March 2017.
Conclusion: The standstill agreements on the project loans for the Lace mine should give the company some much-needed breathing space
Gemfields (LON:GEM) 56p, mkt cap £310.4m – Ruby auction results
Gemfields has announced that it has sold US$30.4m of rubies from its 75% owned Montepuez mine in Mozambique at auction in Singapore.
The auction, which is the first of the current fianacial year and the seventh overall sold a total of 1,094,406 carats of rubies at an average price of US$27.79 per carat and the company comments that it received “feedback which showed growing demand for rough rubies suited to the production of high quality jewellery as well as larger volume production runs, thereby allowing a broad cross-section of product to be placed on offer.”
The company comments that of the 76 lots (1,372,145 carats) offered for sale 58 were sold.
Conclusion: Gemfields continues to build its coloured gemstone franchise and the benefits to customers of a reliable source of supply and consistency of quality are part of that process.
Horizonte Minerals (LON:HZM) 2.7 pence, Mkt Cap £31.6m – Completion of fundraising
The company reports that it has invited proposals for the preparation of a definitive feasibility study for its wholly owned Araguaia nickel project in Brazil.
The company expects the tender process to “close in January 2017 and successful groups will be announced and commence work in February 2017.”
A pre-feasibility study for the project, released in October this year, considers a 0.9mtpa open pit mining operation feeding ore to a Rotary Kiln Electric furnace for processing to produce around 14,400 tpa of nickel contained in a 30% ferronickel product over a 28 years project life.
Mkango Resources* (LON:MKA) 0.125p, Mkt Cap £2.4m – Collaboration agreement with major commodity trader and £450,000 fundraising
Mkango Resources has announced that it has concluded a collaboration agreement with the major, Singapore listed, commodity trader, Noble Resources.
Under the terms of the agreement, Noble will provide Mkango with a range of marketing, logistics and strategic advice and help it to identify potential strategic funding partners as Mkango develops the bankable feasibility study for the development of the Songwe Hill rare earth project in Malawi.
Noble Resources, which is capitalised at approximately US$.billion, will receive 12 million share purchase warrants entitling it to acquire 12 million shares, equivalent to a 12.5% holding in Mkango for a price of 6.6 pence per share over the next two years.
In addition to the agreement with Noble Resources, Mkango has raised £450,000 through the placing of approximately 12.9m new shares at 3.5p/share to “two specialist Swiss mutual funds, the Rare Earth Elements Fund and the Metals Exploration Fund”. As a result, the new Swiss investors will each hold a 3.6% interest in Mkango.
Earlier this month, the European Union published a report highlighting potential supply bottlenecks in the rare earths and noting the EU’s vulnerability to supply bottlenecks for its development of environmentally beneficial “wind, photovoltaic and electric vehicles technologies”. The report highlighted that as an expected growth in demand for key rare earth elements, including neodymium, praseodymium and dysprosium, increased, the EU’s resilience to supply bottlenecks would be impaired unless measures to mitigate the risks were implemented.
Conclusion: The collaboration with Noble Resources should assist Mkango in developing its marketing, product mix and logistics strategies for the bankable feasibility while the involvement of one of the world’s largest commodity traders should help to source project finance. The addition of two specialist investors to the share register and the additional funding should facilitate Mkango’s continuing feasibility study work on the development of Songwe Hill.
*SP Angel acts as Nomad and Broker to Mkango Resources
Ortac Resources* (LON:OTC) 0.0255p, mkt cap £2.1m – Interim results
Ortac Resources reports that it has reduced its pre- and post-tax losses for the six months to 30th September 2016 by 26% to £253,000 (H1 2015 loss - £342,000). The result largely reflects a 32% decline in administrative expenses to £292,000.
The company notes that, during H1, it increased its interest in Casa Mining to 21.25%. Casa, which is working towards developing and increasing the resource base of its Misisi project in DRC. The current inferred resource estimate stands at 1.2m oz, however Ortac comments that Casa Mining “believe that there is scope to potentially more than double this resource.”
Ortac has also increased its interest in Andiamo Exploration, which is undertaking exploration of VMS targets in Eritrea, close to the operating Bisha mine of Nevsun, to 27%. Andiamo has been building up its land holdings in the region and is planning an active exploration effort during 2017.
In Zambia, Ortac retains its option over 19.35% of Zamsort Limited which is aiming to commission a copper cobalt recovery plant at the Kalaba licence “during the first half of 2017”. The Kalaba small scale mining licence is located within a much larger exploration licence on the Kabopo Dome “which is also host to First Quantum’s Trident Project.”
Conclusion: Ortac holds meaningful stakes in a number of companies with exploration and development projects in Africa. Work continues to advance the Sturec project in Slovakia through discussions with the Mining Bureau and the Ministry of Economy and to develop alternative gold leaching technologies.
*SP Angel acts as Nomad and broker to Ortac Resources
Petropavlovsk (LON:POG) 6.7p, Mkt Cap £221m – Corporate transactions update
Hold – Valuation under review
The Company agreed with Russia’s Alliance Mining Group (AMG) and Lexor Zoloto (Lexor), entities controlled by Musa Bazhaev, not to pursue the acquisition of Amur Zoloto.
The decision has been led by major Petropavlovsk shareholders arguing the Company is better off focusing on the POX project and underground development at Pioneer and Malomir.
AMG and Lexor, in turn, highlighted risks over “the Company’s potential and ongoing contingent liability under its guarantee of IRC Ltd”.
In addition, Petropavlovsk said it will not be progressing talks with Kamchatka Gold further regarding the acquisition of its assets in the same-name region.
IRC, where Petropavlovsk continues to hold 35.8% interest and guarantee the $340m ICBC facility ($255m outstanding as of H1/16), is facing a $10m shortage ahead of the 20 Dec payment of principal and interest due to ICBC.
The deal with Tiger Capital Fund with regards to a subscription to 937.5m shares (representing c.13% of the enlarged share capital) at HKD 0.21 for $25m of gross proceeds will not be completed on time and will need to seek a shareholders’ approval during the EGM scheduled for 29 Dec.
The deal has been supported by two major shareholders so far including Petropavlovsk and General Nice that both hold 56.4% interest in IRC.
• IRC said to be “in discussions with various parties to obtain this additional funding”.
• Completion of the $26m payment to ICBC is the final precondition of the $530m refinancing plan announced by Petropavlovsk on 30 Nov.
Conclusion: We view the decision to focus on its current operations and the POX as positive news. Besides, the POX project has been supported by major lenders which agreed to extend existing lending facilities’ maturities from previously agreed 2018 to 2022 which provide the Company with the necessary development funds. Taking on Amur Zoloto portfolio of assets with one producing hard rock mine and all growth originating from the development of new projects such as Perevalnoe and Malutka (both of which are PFS stage assets) is likely to spread the management focus too thin and may adversely affect the development schedule of POG core assets.
Petropavlovsk highlighted that IRC informed the Group that it “expects to make the payment”. We are hopeful IRC will be able to close the liquidity gap ahead of the due date. If anything, iron ore producer’s prospects have only improved since the start of the year as steel making ingredient prices rallied more than 80% YTD.
*SPAngel analysts have visited the Pioneer, Malomir and Albyn gold mines in Russia
Tri-Star Resources* (LON:TSTR) 0.115p, Mkt Cap £9.7m – Oman antimony roaster update
(Tri-Star holds 40% of SPMP)
• Tri-Star has released a progress report on the SPMP antimony roaster in Oman where Tri-Star holds a 40% interest alongside the Oman Investment Authority and DNR Industries.
• The company confirms that the Oman Antimony Roaster “remains on course for commissioning by the end of 2017, as previously advised”
• Test work on bulk concentrates is continuing using both antimony and gold concentrates. The ability to treat gold rich concentrate provides the potential to develop an important additional revenue stream to augment the antimony production and may, in the future, provide the possibility to roll out the company’s know how.
• Tri-Star also advises that following the previously advised placing of orders for major, long-lead-time items of equipment, it expects major capital items “to arrive on site during the first half of 2017.”
Conclusion: Tri-Star is progressing the construction of the Oman antimony roaster and major construction and development work remains on course for commissioning of the plant by the end of 2017. We look forward to continuing progress reports during what will be a bust 2017 for the company.