ASA Resource Group* (LON:ASA) – Freda Rebecca lawsuit
Avesoro Resources (formerly Aureus Mining) (LON:ASO) – Update on project debt repayment schedule.
Golden Star Resources (TEX:GSC) – Guiding towards a 31% to 44% gold production increase in 2017
Strategic Minerals* (LON:SML) – Appointment of exploration manager
Tertiary Minerals* (LON:TYM) – Evaluating acquisition opportunities
ZincOx (LON:ZOX) SUSPENDED – Sale of remaining interest in the Korea Recycling Plant
Miners climb on higher commodity prices as the US$ index slides and the latest report shows the Chinese credit expansion continues strong.
• The US$ index is off .7% today on little reference to previously strongly promoted fiscal stimulus in the first Trump press conference since the election victory yesterday.
• Gold climbed past the $1,200/oz level hitting the highest level since Nov and extending gains for a fourth consecutive day.
• Brent is little changed following a 2.8% increase on Wednesday despite reports showing US inventories and refineries’ output climbing in the previous week.
• In a separate report the UAE and other Gulf producers said production is being cut in accordance with the previously agreed OPEC deal.
• Iron ore futures are up 1.4% this morning marking the fourth daily gain led by stronger steel prices with rebar futures up 1.2% today on continuing news over scrap steel refining capacities cuts.
Government-led stimulus in 2016 is reflected in the strongest growth in Komatsu diggers sales in six years.
• Chinese total sales of excavators by Komatsu, the largest producer of construction and mining equipment in Asia, climbed 31%yoy to 4,934 units last year.
• Despite an impressive growth recorded last year, annual sales came in at just one-fifth of its peak in 2010.
The world is a changing
The world was changing before the election of Donald Trump though he swearing in of President Trump may cause it to change all the quicker.
Trump is already causing ‘globalised’ manufacturers to consider plans for more local content – no bad thing in my book for a variety of reasons.
Something similar happened with the Kobe earthquake but on a smaller scale, when manufacturers realised they were vulnerable to supply chain issues.
China will hopefully activate plans to further stimulate domestic demand and the world will then be a better place, but that’s a bit of a ‘maybe’
We are sure there will be some proverbial ‘spanners’ to jam up the global economy – like the next big Fed Treasury bond fund issue
‘Deflation’ to ‘Inflation’
China PPI is at its highest level in >5 years
The falling cost of many goods has been deflationary for China and for consuming nations, but this 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 – it’s what you do when you are stealing market share!
This has perhaps been exacerbated by the dramatic rise on e-commerce systems like Alibaba, Amazon and others.
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, as seen with the development of the Chinese ball-point pen, they may also move to a model of charge a maximum for their goods rather than the minimum currently seen.
Innovation: China is also sponsoring a degree of home-grown innovation which should enable future Chinese goods to command better prices.
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 mind-set following so many years of minimum pricing?
Inflation: While inflation may be driven in the short term by Donald Trump as well as higher energy and food prices driven by OPEC and a stronger US dollar it is possible that inflation in China may also serve to allow manufacturer prices to rise further on a global basis.
Either way, the environment looks relatively good for metals prices though the future impact of a massive Fed Treasury issue remains uncertain
Dow Jones Industrials +0.50% at 19,954
Nikkei 225 -1.19% at 19,135
HK Hang Seng -0.43% at 22,836
Shanghai Composite -0.56% at 3,119
FTSE 350 Mining +1.10% at 16,243
AIM Basic Resources +0.04% at 2,475
Economic News
China – Credit expansion held up strong in Dec beating market estimates and supporting economic growth momentum.
Annual auto sales numbers released today showed total vehicles shipments jumped 13.7%yoy to 28m units in 2016 compared with a 4.7% increase in the previous year.
An acceleration is attributed to a tax cut on small-engine cars.
This marked the strongest annual increase since 2013.
Aggregate Financing (CNY bn): 1,630 v 1,737 in Nov and 1,300 forecast.
M2 Money Supply Growth (%yoy): 11.3 v 11.4 in Nov and 11.4 forecast.
Germany – Economic growth in 2016 hit the strongest pace in the last five years driven by both private and state spending.
Private consumption climbed 2%yoy while government spending was up 4.2%yoy.
Investments increased 1.7%yoy.
Exports grew 2.5%yoy and imports increased 3.4%yoy.
GDP (%yoy): 1.9 in 2016 v 1.7 in 2015 and 1.8 forecast.
Ivory Coast – President Alassane Outtara slims cabinet following two day mutiny within the Army
The energy and trade ministers lost their jobs following the sacking of the heads of the army, police and a number of gendarmes.
The ministers of defence and the interior have retained their jobs.
The Cote d’Ivoire football team reunited the nation when they qualified for the 2006 World Cup highlighting the power of sport over politics.
UK – The pound continued to appreciate against the US$ for a second trading session with Mark Carney signalling recent economic data is “consistent with some further upgrade”.
The currency is up 0.5% this morning extending gains to c.1% over the last two days.
The MPC is set to release an updated set of economic forecasts in three weeks in what might appear to be a second upwards revision in estimates since the Brexit vote.
The Bank currently expects the economy to grow 1.4% this year, down from 2.2% in 2016, and inflation to hit the 2% target in Q2/17.
Prices of Mr Kipling cakes to go up
The prices of Mr Kipling cakes may be going up but we are told that ‘shrinkflation’ being used by other food producers whereby packet sizes are reduced in order to maintain price levels in the face of rising input prices. ‘shrinkflation’ strikes us as offering the added benefit of smaller portion sizes lowering obesity within the population. But at the end of the day ‘Mr kipling does make exceedingly good cakes’.
Currencies
US$1.0636/eur vs 1.0557/eur yesterday. Yen 114.17/$ vs 115.93/$. SAr 13.627/$ vs 13.709/$. $1.228/gbp vs $1.216/gbp.
0.749/aud vs 0.739/aud. CNY 6.901/$ vs 6.927/$.
Commodity News
Precious metals:
Gold US$1,202/oz vs US$1,191/oz yesterday
Gold ETFs 56.9moz vs US$56.8moz yesterday
Platinum US$985/oz vs US$981/oz yesterday
Palladium US$760/oz vs US$765/oz yesterday
Silver US$16.90/oz vs US$16.84/oz yesterday
Base metals:
Copper US$ 5,787/t vs US$5,751/t yesterday – Freeport and other miners halt exports from Indonesia (Reuters)
It is amazing that Freeport have not built a smelter to process concentrates from the giant Grasberg mine which it operates in joint venture with Rio Tinto
Freeport had an agreement to build a smelter at Gresik >10 years ago though this does not seem to have happened
Aluminium US$ 1,773/t vs US$1,749/t yesterday – US likely to press aluminium dumping case against China at WTO
Nickel US$ 10,230/t vs US$10,530/t yesterday
Zinc US$ 2,745/t vs US$2,728/t yesterday – Zinc prices continue to rise on expectations for continued production deficit
Lead US$ 2,171/t vs US$2,203/t yesterday
Tin US$ 21,140/t vs US$21,145/t yesterday
Energy:
Oil US$55.2/bbl vs US$53.8/bbl yesterday
Natural Gas US$3.358/mmbtu vs US$3.224/mmbtu yesterday
Uranium US$23.00/lb vs US$24.25/lb yesterday
Bulk
Iron ore 62% Fe spot (cfr Tianjin) US$78.0/t vs US$77.1/t
Chinese steel rebar 25mm US$487.9/t vs US$485.0/t
Thermal coal (1st year forward cif ARA) US$67.4/t vs US$66.0/t yesterday
Premium hard coking coal Aus fob US$185.2/t vs US$188.4/t
Other:
Tungsten - APT European prices $187-198/mtu vs $187-198/mtu
Company News
ASA Resource Group* (LON:ASA) 1.625 pence, Mkt Cap £27.5m – Freda Rebecca lawsuit
ASA Resources has confirmed that “Freda Rebecca Gold Mine, in which the Company has an 85% interest has been served with a claim in the High Court of Zimbabwe. The claim has been issued by Zindico Consortium (“Zindico”)”.
The company reports that the claim relates to “a two year old draft, unsigned agreement which, if signed would have been conditional on the approval of the Directors of Mwana Africa plc (the previous name of ASA Resource).”
The draft was negotiated by the company’s previous chief executive “who appears never to have submitted it for approval to the Board of Directors … and it has not been approved by the Board of Directors.”
The company confirms that it is taking legal advice and will make further announcements in due course.
Conclusion: The company’s interpretation suggests that it has a robust defence of the claim by Zindico, however, with the case now formally presented to the Zimbabwe High Court, there may well be a protracted legal process to negotiate before a formal resolution can be reached.
*SP Angel act as Nomad and broker to ASA Resources
Avesoro Resources (formerly Aureus Mining) (ASO LN) 1.65 pence, Mkt Cap £87.9m – Update on project debt repayment schedule.
Avesoro Resources reports that its New Liberty gold mine in Liberia produced 18,872 oz of gold during the quarter ending 31st December 2016. bringing annual production to 63,556 oz. Quarterly production was “in line with guidance of 17,000 to 20,000 ounces for the period.”
The quarterly production represents a 34% increase over the previous quarter and the company reports that “processing operations at New Liberty have stabilised, and plant utilisation for the Period increased to 91%.”
The improvements result from a number of measures under which company has recruited additional, experienced, process plant staff and implemented a number of operational initiatives to improve maintenance, tailings disposal and surface water management as well as moving the mining operations in-house.
Avesoro comments that “Notwithstanding this improvement in performance, optimisation activities and infrastructure improvements continue at New Liberty…”. The company plans to provide production guidance for 2017 later this month.
Conclusion: The incoming management appear to be stabilising the New Liberty operations and we look forward to their 2017 guidance and perhaps a more detailed breakdown of the operational improvements later this month.
Golden Star Resources (TSX:GSC) C$1.17, Mkt Cap C$384.6m – Guiding towards a 31% to 44% gold production increase in 2017
Golden Star reports that it produced a total of 194,054 ounces of gold in 2016 and that it expects to increase production to between 255-280,000 ounces in 2017 at a cash cost between US$780-860 per ounce and an all-in-sustaining cost of $970-1070 per ounce.
The 2016 production fell within the upper end of the company’s guidance range of 180-205,000 ounces and comprised 93,319 oz from the Wassa pit, 11,062 oz from the Wassa underground workings and 89,673 oz from the Prestea open pits.
Underground gold production is expected to commence at Prestea in mid-2017 (reaching 45-50,000 oz in 2017) and to continue to build up at Wassa to reach 60-65,000 oz in 2017. Open pit production at Wassa is expected to stay broadly in line with 2016’s output at 85-95,000 oz while the company is flagging a modest decrease of around 25% in open-pit output from the Prestea open-pits to 65-75,000 oz.
Golden Star expects the 2017 production increases to be skewed towards the second half of the year as it accesses the higher grade stopes on the “B Shoot” at Wassa and the high grade underground reserve “grading 14.02 g/t” at Prestea reaches commercial production in mid-2017.
The company is also indicating that it expects to spend US$58.4m on capital projects next year with approximately 55% (US$31.6m) to be used for the development of the underground mine and the processing plant at Prestea.
Company President, Sam Coetzer, described 2016 as “a transformational year for Golden Star as it represented our transition into a combined open pit and underground gold mining company and our first full year a wholly non-refractory producer.” This transition provides cost-reduction opportunities “as Golden Star continues on its path to become a high grade, low cost producer.”
Conclusion: Golden Star’s move to develop its higher grade, non-refractory underground gold operations is expected to deliver a significant increase in gold output in 2017.
Strategic Minerals* (LON:SML) 0.54 pence, Mkt Cap £6.6m – Appointment of exploration manager
Strategic Minerals has announced the appointment of Brett Grist, former CEO of Casa Mining, as exploration manager to oversee its Redmoor exploration project where drilling to confirm and expand the existing mineral resource is scheduled to begin during the first half of 2017.
Mr Grist is a Royal School of Mines trained geologist with over 18 years of exploration and mining experience in both base metals and gold gained in Europe, the Middle East, west and central Africa and Australia. In his most recent role at Casa Mining he has been credited with leading the team that discovered the 1.2m oz gold deposit at Misisi in the DRC.
In his new role, he will assist in finalising the arrangements for selection of a drilling contractor to undertake the two-stage drilling programme at Redmoor as well as recruitment of additional staff to conduct the exploration programme.
Conclusion: Strategic Minerals is assembling an experienced team to advance its Redmoor tin/tungsten project where drilling tenders were invited in November last year and work is expected to start later this year to assess possible expansion of the existing inferred resource of 13.3m tonnes at an average grade of 0.56% tin equivalent. We look forward to the commencement of drilling and news of the progress of exploration.
*SP Angel act as Nomad and joint broker to Strategic Minerals alongside Optiva Securities
Tertiary Minerals* (LON:TYM) 0.875p, Mkt £2.3m – Evaluating acquisition opportunities
Tertiary Minerals reports that although it has made considerable process in advancing its wholly owned fluorspar projects it is now also looking for “complementary projects for acquisition with near term revenue and profit potential.”
The company points to a number of factors, including poor market conditions both for fluorspar itself as well as for junior mining companies, and changes to the mine permitting process which have delayed progress on its Swedish fluorspar project at Storuman.
Tertiary Minerals has also made significant progress at its MB Fluorspar project in Nevada where it completed its fourth phase of drilling during 2016 and has previously announced that it is expecting to complete a scoping-study during the first half of 2017.
The company has also announced, in December, the disposal of a number of gold exploration projects which were seen as non-core assets.
Conclusion: The decision to seek revenue generating acquisitions coming relatively shortly after the disposal of the gold exploration properties suggests that the company has taken far-reaching decisions on its strategic direction. We look forward to further news of the acquisition targets as the company’s evaluations are concluded.
*SP Angel act as Nomad and broker to Tertiary Minerals
ZincOx (LON:ZOX) SUSPENDED – Sale of remaining interest in the Korea Recycling Plant
ZincOx has closed the final chapter in its Korea Recycling Plant adventure.
The company has sold its remaining stake in the plant for US$7.95m to be paid in two tranches by Korea Zinc.
The first tranche is for US$7m with the remainder to be paid following various procedural requirements in Korea.
The carrying value of the asset is US$5.8m indicating a gain of around $2m on the sale.
Proceeds are to be used to repay US$5m of loan notes with the remaining funds to be used to press ahead on other new and existing projects.
Conclusion: The ZincOx team now have the opportunity to restart and reinvent their business. The Korean Recycling Plant is now ancient history but with zinc prices so very much higher and management more expert than before, the next incarnation should see a better outcome.