Amur Minerals* (LON:AMC) – Increased metallurgical recoveries at MKF reported
Ariana Resources (LON:AAU) – Snow delays Kiziltepe project construction in Turkey
Caledonia Mining (LON:CMCL) – Record quarterly and annual gold production at Blanket.
Hummingbird Resources (LON:HUM) – Yanfolila quarterly progress report
Sibanye (SGL SJ) – $2.2bn Stillwater Mining acquisition
The world looks to be moving from ‘Deflation’ to ‘Inflation’
With Chinese PPI hitting its highest level in >5 years we look at what are the driving forces
The falling cost of many goods has been deflationary for China and for consuming nations, but is now changing.
China’s latest PPI figures released yesterday rose 5.5% yoy in November and vs 4.6% forecast.
A weaker renminbi has raised the cost of energy and other imports raising feedstock prices but we reckon better quality products may also be a factor
Pricing to a maximum of what customers will pay versus pricing to a minimum of what a factory can produce goods at
It is our observation that Western companies generally try to charge the maximum price for their products.
Chinese companies appear to look to charge almost a minimum price to gain greater sales.
An older and wiser colleague remarked that the Japanese did something similar as they built their manufacturing industry.
Perhaps China is simply following a similar path by buying market share through lower margins on their products.
It strikes us that US and European and Japanese companies strive to produce better quality products enabling them to command premium prices.
So as Chinese manufacturers improve the quality of their products, they may also move to a model of trying to charge a maximum for their goods rather than the minimum currently seen.
The consequences are profound as the impact of lower prices on Chinese goods has been hugely deflationary for the West and that this could change as the quality of Chinese good improve.
However, we wonder if it might take longer to change the pricing mindset?
Lithium may become an increasingly ‘strategic’ metal if nations compete to produce the world’s best batteries
Tesla now appears to have the upper hand in the emerging electric car industry with production of new larger, higher capacity batteries from its GigaFactory in Nevada.
Many of the world’s auto manufacturers have proven that they can make electric cars but only Tesla has access to its own, improved battery technology.
So long as Tesla does not suffer a Samsung style battery meltdown with the new batteries then the company should be set to dominate EV sales.
Mercedes pledged last year to invest €400m into a new battery plant and others are working to catch up though Toyota may be the only real contender.
But EVs are effectively a new industry and we wonder if state support from China, Russia, S Korea or Japan might lead to the development of a number of new ‘GigaFactory’ lookalikes.
Samsung are sourcing batteries from ATL in China while Japan has Panasonic which also makes batteries in China as well as in jv with Tesla in the US.
Samsung SDI are supplying batteries to BMW
A Chinese-Korean group, which is more Chinese than Korean has apparently pledged to build a $2bn lithium battery plant in Chile in order to gain access to Chilean lithium resources. We will believe in the factory when it happens.
LG Chem is looking at opening a lithium battery plant in Poland to supply European lithium battery demand for EVs.
With all these new lithium ion factories going up it is no wonder the price of lithium is rising and demand looks set to take off.
Samsung’s new Lithium-ion cells recharge 80% in 20 minutes
So long as the batteries don’t catch fire then this marks a major advance in extending the range of electric vehicles
Eg an EV with a 372 mile range could recover 310 miles in 20 minutes which should satisfy most delivery companies and consumers
With many garages now making more money from non-fuel sales, a 20 minute recharge has the added advantage of capturing drivers for other sales
We expect the supermarket chains to be quick to exploit this trend
UAE to invest $163bn in renewable energy
The UAE is planning on investing $163bn in renewable energy projects to generate half the nation’s power from renewable energy
Cape Town - 121 / SP Angel Mining Investment conference Cape Town, 6th-7th February 2016
Located in the beautiful and historic gardens of the Welgemeend farm house in Cape Town, close to the Mount Nelson Hotel
Investors go for free. Please ask for conference brochure
Dow Jones Industrials -0.16% at 19,856
Nikkei 225 +0.33% at 19,365
HK Hang Seng +0.84% at 22,935
Shanghai Composite -0.79% at 3,137
FTSE 350 Mining -0.06% at 15,859
AIM Basic Resources +0.61% at 2,474
Economic News
US – Job openings climbed in Nov providing more evidence over the strength of the US labour market.
• Number of positions advertised climbed 71k to 5.52m v 5.50 forecast.
• The number of job listings has been slowing through 2016, which might be an indicator of tightening market and may translate into an accelerated growth in wages.
UK – The pound is little changed this morning consolidating around the 1.215 level ahead of the Mark Carney speech before a parliamentary committee today.
Spain – Nov industrial production numbers jump more than forecast joining a series of positive data from France and Germany released earlier.
Industrial production (%yoy SA): 3.2 v 0.6 in Oct and 1.0 forecast.
Turkey – Lira hit a new low this morning losing nearly 2% against the US$ as central bank’s efforts to increase the supply of foreign currency did little to slowdown the ndepreciation.
Earlier, the central bank said it will change lenders’ FX reserve requirements in an effort to ease liquidity in the foreign exchange market.
The nation reported deteriorating trade balance in Nov with the deficit expanding by $590m to $2.3bn adding to the pressure on the slowing economy.
Azerbaijan – The central bank will get a boost in its FX reserves with a $4bn transfer from the SOFAZ, the national wealth fund, with the proceeds to be used to support the national currency.
The central bank is reported to have burnt through two-thirds of its reserves in 2015 before allowing the national currency to shift to a managed float.
The manat lost 13% last year and more than a half of its value in the previous year.
The latest estimate of the central bank FX reserves stood at $4bn.
SOFAZ AUM currently stand at $33bn, little changed from $33.6bn as of 2015 and down on $37.1bn in 2014.
Morocco bans sale and production of the burka
Shops were told to get rid of stocks of burkas on Monday in Morocco.
No official announcement has been made but letters have been sent to businesses to remove stocks within 48 hours, a move confirmed by a high-ranking official.
Bandits have repeatedly used the burka to perpetrate crimes in Morocco and the nation which is increasingly popular with overseas tourists is keen to reduce this crime.
UK - Thunder Snow coming to UK as freezing weather comes in from Canada
2-5cms of snow is expected on higher ground with Wales and the east of England expected to see the bad weather first.
Currencies
US$1.0557/eur vs 1.0594/eur yesterday. Yen 115.93/$ vs 115.96/$. SAr 13.709/$ vs 13.655/$. $1.216/gbp vs $1.212/gbp.
0.739/aud vs 0.735/aud. CNY 6.927/$ vs 6.924/$.
Commodity News
Precious metals:
Gold US$1,191/oz vs US$1,184/oz yesterday
Gold ETFs 56.8moz vs US$56.8moz yesterday
Platinum US$981/oz vs US$972/oz yesterday
Palladium US$765/oz vs US$758/oz yesterday
Silver US$16.84/oz vs US$16.61/oz yesterday
Base metals:
Copper US$ 5,751/t vs US$5,648/t yesterday – Pay talks at Escondida continue as the management rejected demands by its union for a 7% pay rise and a signing bonus of 25m pesos ($37k).
Escondida negotiations will influence the course of union wage discussions for the other more than a dozen of contracts set for renewal in Chile including Codelco, Barrick Gold, Antofagasta and Teck Resources.
Latest pay negotiations in at Codelco’s Chuquicamata in Dec saw unions accepting no real wage increases and a signing bonus of 4.35m pesos (c.$6.5k) which marked a 40% decline over the previous contract.
Aluminium US$ 1,749/t vs US$1,735/t yesterday
Nickel US$ 10,530/t vs US$10,440/t yesterday
Zinc US$ 2,728/t vs US$2,728/t yesterday
Lead US$ 2,203/t vs US$2,144/t yesterday
Tin US$ 21,145/t vs US$21,120/t yesterday
Energy:
Oil US$53.8/bbl vs US$55.1/bbl yesterday
Natural Gas US$3.224/mmbtu vs US$3.150/mmbtu yesterday
Uranium US$24.25/lb vs US$22.00/lb yesterday – Kazakhstan plans on cutting uranium output by 10% this year due to market oversupply
The move is equivalent to a 3% cut in global uranium production
Iran is reported to be moving to cut its Enriched uranium stockpile far below the 300kg cap fixed in 2015, though we would not expect this material to appear on the market
Ferrochrome – high carbon ferrochrome prices are said to have fallen in China to $1.20/lb from $1.35/lb at end 2016 (Metal Bulletin)
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$77.1/t vs US$75.9/t
Chinese steel rebar 25mm US$485.0/t vs US$482.7/t – Chinese steel prices continue to rise
China set a mid-year for the shutdown of illegal steel mills accounting for around 40mt or 5% of the nation’s total according to some estimates.
In addition, the government is reported to have put eight steel projects in Hebei, the top steel province, on hold for breaching state rules on capped capacities.
A crackdown on illegal and substandard scrap production has fuelled a positive momentum in the steel market.
Thermal coal (1st year forward cif ARA) US$66.0/t vs US$61.4/t yesterday
Premium hard coking coal Aus fob US$188.4/t vs US$201.3/t
Other:
Tungsten - APT European prices $187-198/mtu vs $187-198/mtu
Company News
Amur Minerals* (LON:AMC) 12p, Mkt Cap £62m – Increased metallurgical recoveries at MKF reported
Gipronickel Institute, Russian certified metallurgical assay specialists, prepared a review of previously completed metallurgical test results of the MKF ores from SGS Minerals and Sibsvetmetniproyect (SIB).
Additionally, Gipronickel done a separate metallurgical test on a bulk size sample from the MKF which provides a better insight into metal recoveries to be expected once production is commissioned.
An audit of the SGS and SIB results announced in Aug/16 suggested higher metal recoveries are achievable at the MKF utilising a two stage grinding process as opposed to one stage considered previously.
A comparison of respective metal recoveries is provided in the table below:
Metal recoveries, % Ni Cu Co Pt Pd Ag Au
Gipronickel (Jan/17) 80.6 83.8 61.4 59.6 82.3 63.7 71.5
SGS (Aug/16) 69.2 77.9 53.3 49.5 58.3 49.5 53.4
Source: Company
Furthermore, Gipronickel concluded that flotation mass pull can be reduced which would translate in a more efficient operation and allow to cut transportation costs as well as proposed smelter capacity.
Importantly, tests are reported to have been completed on the sample representing an average grade of the planned mining operation with RPM consultants projecting mined grades to be in order of 0.75% Ni and 0.19% Cu.
Tests were run on a 443kg bulk sample containing 0.70% Ni and 0.17% Cu.
The Company estimates stronger recoveries could see gross revenues “increased by as much as 10% for nickel and 6% for copper”.
RPM are currently working on an update for the Kun Manie mineral resource statement incorporating 2016 drilling data.
*SP Angel act as Nomad and broker to Amur Minerals
Ariana Resources (LON:AAU) 1.8p, Mkt Cap £14.9m – Snow delays Kiziltepe project construction in Turkey
Ariana Resources’s joint venture on the Kiziltepe gold project is being held up by heavy snow in Trukey.
Much of the plant is said to be largely complete but Proccea, the jv partner is unable to install the geomembrane for the Stage 1 Tailings Storage Facility due to the presence of around two feet of snow.
Ariana had previously announced that it expected to complete construction “by mid-December 2016 with production commencing during the weeks thereafter”.
Ironically, the region around Kiziltepe is known for its hot springs and relatively warm climate so it’s pretty unlucky to get hit by heavy snow at the point of commissioning. We wonder if the nearby health spa is now offering hot springs followed by rolling in the snow as done in Finland. We suspect the locals won’t be cooking their potatoes in the hot springs in this weather.
Conclusion: Delays are not uncommon on mining projects but let’s hope they don’t need to pour any more concrete otherwise production may delayed further. It will be interesting to see if there are further delays to the cash flow expected from the Turkish joint venture partner.
*An SP Angel analyst has previously visited the Kiziltepe project in Turkey
Caledonia Mining (LON:CMCL) 118 pence, Mkt Cap £62m – Record quarterly and annual gold production at Blanket.
Caledonia Mining has announced record quarterly gold production of 13,591 ounces at its 49% owned Blanket mine in Zimbabwe. The 18% increase on Q4 2015 output brings gold output for the year to a new annual record of 50,351 oz – 17.6% higher than 2015 production.
The company attributes the increased gold output to a combination of the sourcing of additional ore from below the mine’s 750m level, improvements in the underground ore handling infrastructure and the commissioning of the new ball mill.
The positive improvements are further evidence of the increasing impact of the strategic plan for the Blanket mine which is aimed at increasing output to 80,000 oz by 2021 and securing a long term future through the access to deeper ore levels.
The new Central shaft, which forms another key element of the development plan, reached a depth of 534m by the end of 2016 and is scheduled for completion in mid-2018 at a depth of 1080m.
Caledonia reaffirms its production guidance for 2017 at “approximately 60,000 ounces at an estimated on-mine cost in the range of $600 to $630 per ounce and an All-in Sustaining cost in the range of $810 to $850 per ounce.”
Conclusion: The record quarterly and annual gold production from the Blanket mine provides further tangible evidence of the successful implementation of the long term plan and should continue to reassure investors of the achievability of the company’s targets.
Hummingbird Resources (LON:HUM) 22p, Mkt Cap £76.4m – Yanfolila quarterly progress report
The company identifies the “defining moment of Q4 2016” as “the commencement of full scale construction at Yanfolila” in October.
Long lead time items, including crushing equipment and key items of processing equipment required to bring the 2.2m oz project to production by the target date of the end of 2017 have now been ordered.
Preliminary civil engineering work has been completed and “we are on track for steel works to begin in the coming weeks”.
The mine development is now fully funded with a US$45m Senior Secured Term Facility and US$10m Cost Overrun Facility agreement in place with Taurus Funds Management.
Conclusion: Yanfolila is at an exciting stage of project development and the company should have much to show its visitors when a group of mining analysts are on site later this month.
Sibanye (SGL SJ) R26.70, Mkt Cap R24.6bn – $2.2bn Stillwater Mining acquisition
Sibanye has announced that it has reached agreement to acquire Stillwater Mining in a US$2.2bn cash transaction priced at US$18 per Stillwater share representing a 23% premium to Stillwater’s previous closing price.
“Sibanye will fund the transaction through a US$2.7bn bridge loan commitment.” A company presentation identifies the loan providers as Citi and HSBC and indicates that Sibanye shareholders will be asked to approve a rights issue.
The transaction, which is subject to the approval of both Sibanye’s and Stillwater Mining’s shareholders has been recommended by the Stillwater Mining’s Board. Other conditions include “applicable regulatory approvals in the US and South Africa.”
Sibanye has been building its PGM business with the US$294m acquisition in April 2016 of Aquarius Platinum followed by its R1.5bn (US$326m) purchase of Rustenburg Platinum in November 2016.
The acquisition of Stillwater expands Sibanye’s platinum/palladium interests into North America and, in addition to the Stillwater and East Boulder mines in Montana, brings the Columbus metallurgical processing complex which “will provide Sibanye with a “mine-to-market” PGM business” as well as a “sizeable recycling operation” and “strategic market insight”. Stillwater is also developing its US$250m “Blitz Project”, located adjacent to the Stillwater mine, which is due to start production in early 2018 producing some 270-330koz pa of 2PGEs over a 35 year life.
The company’s presentation indicates that, on a pro-forma basis, including Blitz, the transaction would make Sibanye the world’s 3rd largest palladium producer and 4th largest in the world on a 4 PGE basis.
Sibanye’s CEO, Neal Froneman, described the acquisition of Stillwater as “a transformational opportunity for Sibanye to acquire high-quality, low-cost, PGM assets at a favourable point in the cycle”.
Conclusion: Sibanye is making a major commitment to the long term future of its PGM strategy as well as diversifying its geographical sphere of operations into the US.