Avocet Mining (LON:AVM) – Inata Life of mine extension
Hummingbird Resources (LON:HUM) – Yanfolila development ramping up with project delivery on target
Kodal Minerals* (LON:KOD) 0.53p, Mkt Cap £27.4m – Bougouni lithium project shows 21m grading 1.7% lithium
Mkango Resources* (LON:MKA) 3.4p, Mkt Cap £2.8m – Exploration to start on the Thambani uranium project
Shanta Gold (LON:SHG) 9.9p, Mkt Cap £58m - BUY, Target price 13.8p - Mining new horizons
(Today we initiate on Shanta Gold) CLICK FOR PDF
Solgold* (LON:SOLG) 32p, Mkt Cap £458m – Drilling results from Cascabel
Strategic Minerals* (LON:SML) 0.6 pence, Mkt Cap £7.4m – Extension of contract at Cobre
Sula Iron & Gold (LON:SULA) – Ferensola gold assays show 4.8g/t in oxide ore
TEPCO cancels uranium order with Cameco due yesterday due to government regulations governing Japan’s nuclear power industry
• Cameco shares have fallen after TEPCO ‘Tokyo Electric Power Company Holdings’ which runs the Fukushima plant cancelled a major order. The termination notice was send on Jan 24 with respect of a shipment scheduled for delivery yesterday.
• The contract cancellation could impact 855,000lbspa totalling 9.3mlbs of deliveries, potentially worth US$1.3bn if continued through to 2028.
• Japan has been reluctant to restart nuclear reactors following the Fukushima and while the industry may be disappointed at the order cancellation they should not be overly surprised.
• The cancellation is likely to depress uranium prices in general as Cameco looks for new offtake agreements unless it suspends production capacity.
Gold – bullion coin sales take off as investors worry about political upheaval – Royal Mint coin production up 50% yoy
• Brexit concerns and the election of Donald Trump are serving to unnerve savers and investors as the world readjusts to a new wave of populist politics.
• The ‘will of the people’ in the West appears to be to break with long standing trade agreements and to command politicians to fight for a better deal
• Trade and economic upheaval will inevitably lead to higher costs, while Trump policies on ‘Rebuilding America’ while cutting taxes may lead to significant monetary supply growth.
• A massive rise in the number of bank frauds where scammers gain access to and drain bank accounts is also causing investors to look alternative ways to protect their savings.
• With the recent memory of the Global Financial Crisis caused by the collapse of sub-prime lending it is hardly surprising that investors are choosing to buy bullion to tuck away in case of a rainy-day.
China continues to move on the battery supply chain
Chinese battery maker buys stake in Finnnish car maker so as to supply batteries into European auto market
• CATL, full name ‘Contemporary Amperex Technology Limited’ has taken a 22% stake in Valmet Automotive which makes cars for Mercedes
• It’s getting difficult for Chinese companies to buy into German businesses for political reasons probably causing the Chinese firm to go to Finland and to buy into an automotive supplier to get quicker entry to the European automotive supply chain.
• CATL saw around 300% growth in lithium-ion automotive batteries last year with plans to raise battery capacity to beyond Tesla at 50GWh by 2020.
• The cost of battery cells has fallen from just over $400/kWh in 2013 to around $200/kWh last year with battery unit assembly costs falling in greater proportion resulting in pack prices falling from $600/kWh to under $300/kWh.
• The market expects battery prices to fall further and more importantly for new innovation in cell composition and manufacture to enable battery capacity to increase and to cycle longer.
Philippines – Department of Mines orders the closure of 21 mines
• The Philippines Department of Mines has ordered the suspension of 6 mines and another 23 due for foreclosure, mainly nickel laterite ore producers on the grounds of an environmental review.
• The Philippines is the world’s largest nickel laterite ore exporter, since Indonesia clamped down similarly on nickel ore exporters.
• The closures mainly relate to environmental and health and safety issues with 15 of the mines to be closed located in watersheds.
• The huge growth of ore exports into China for the production of nickel pig iron disrupted the nickel industry in recent years while causing massive environmental disruption in the mining areas and at the nickel pig-iron furnaces. The whole supply chain being a bit of an environmental disaster.
• We are very pleased to see the Philippines taking this action while allowing proper mining companies which adhere to better environmental practice to continue.
• Having said that Oceana Gold’s, Didipio gold, copper mine is also on the list for suspension causing the company’s stock to fall. The company state they have not yet received notice of the suspension. Strangely OceanaGold Philippines also won the 2016 safest mining operation (metallic category), safest surface mining operation, safest mineral processing (concentrator category) and 3rd runner-up for best in mining forest program. Oceana Gold also won the 2015 Mother Nature Award for the implementation of an exemplary environmental management system at the Didipio mine site.
Malaria – drug resistant malaria cases rising
• Drug resistant malaria which appears to have started in Asia appears to have spread to parts of Africa.
• Four travellers who returned to the UK from Angola, Uganda and Liberia have shown malaria which is resistant to the conventional treatment of ‘Artemether-lumefantrine’ a drug which normally kills the malaria parasite. Similar cases were also reported in Sweden.
• The good news is that the patients were subsequently treated with different drugs, presumably curing their condition.
• Fortunately, a group called PATH, sponsored by the Gates Foundation is working hard on innovative malaria programs in Africa which we believe should make a huge difference to the incidence of malaria in certain parts of Africa as well as other healthcare initiatives. We would encourage mining companies in remote communities to enlist their support to improve the health of workers and local communities: https://www.path.org/
Dow Jones Industrials +0.14% at 19,891
Nikkei 225 -1.22% at 18,915
HK Hang Seng -0.57% at 23,185
Shanghai Composite 3,159 The nation celebrates Chinese New Year
FTSE 350 Mining +0.66% at 16,943
AIM Basic Resources -1.13% at 2,539
Economic News
Gold is up for fourth day in the last five as the Fed stayed put on rates with no change to its previous guidance for expected three rate increases.
• Brent is gaining for a third consecutive session led by a weak US$.
• Base metals are broadly little changed, except for nickel that rallied more than $200/t this morning as Environment Secretary of Philippines said as much of half of the nation’s nickel producer will be shut or suspended amid a mining audit.
US – In line with estimates, the Fed kept rates unchanged without offering any guidance on the next rate move.
• The FOMC was unanimous in the decision with the committee voting 10 to 0 in favour of no change in rates.
• The Fed mentioned “moderate” economic growth, improving consumer sentiment led by strengthening labour market as well as better business outlook.
• The announcement had little effect on markets with US bond yields finishing flat on the day as increases in rates ahead of the statement reversed following the event.
• Auto sales came in line with market forecasts at 17.5m unit annual pace; while sales are expected to come down from a record high seen last year, sales are likely to continue running at above 17m units rate supported to low borrowing costs and good labour market.
Date Index Period Actual Est Previous
Monday PCE Deflator Dec %mom 0.2 0.2 0.0
PCE Deflator Dec %yoy 1.6 1.7 1.4
PCE Core Dec %mom 0.1 0.1 0.0
PCE Core Dec %yoy 1.7 1.7 1.7 (revised from 1.6)
Personal Income Dec %mom 0.3 0.4 0.1 (revised from 0.0)
Personal Spending Dec %mom 0.5 0.5 0.2
Tuesday SP/CS House Prices Nov %mom 0.9 0.6 0.7 (revised from 0.6)
SP/CS House Prices Nov %yoy 5.3 5.0 5.1
Consumer Confidence (Conference Board) Jan 111.8 112.8 113.3 (revised from 113.7)
Wednesday FOMC Rate Decision 0.50-0.75 0.50-0.75 0.50-0.75
Wards Vehicle Sales Jan mln 17.5 17.5 18.3
Thursday Weekly Jobless Claims '000 250 259
Friday NFPs Jan '000 175 156
Unemployment Rate Jan % 4.7 4.7
Av Hourly Earnings Jan %yoy 2.7 2.9
Source: Bloomberg
UK – PM secured the House of Commons approval for the start of the Brexit process with MPs voting by 498 to 114 for the bill.
• May expects the bill to pass both chambers of Parliament by Mar 7 before PM officially triggers Article 50.
• The BoE is holding its policy meeting today with estimates for rates and the pace of monetary stimulus unchanged.
• Additionally, the BoE will release its latest economic forecasts which are likely to be inched up slightly based on the latest Q4 GDP numbers which beat BoE estimates.
• Inflation has also overshot BoE estimates climbing to 1.6% in Dec, compared to MPC expectations for a 1.4% increase.
• Below are MPC Nov projections (with numbers in parentheses being Aug estimates):
2016 2017 2018 2019
GDP 2.2 (2.0) 1.4 (0.8) 1.5 (1.8) 1.6
CPI (by Q4) 1.3 (1.2) 2.7 (2.0) 2.7 (2.4) 2.5
Source: MPC
Eurozone – Producer prices gains accelerated in Dec last year confirming latest reports of firming inflation expectations.
• PPI (%mom): 0.7 v 0.3 in Nov and 0.5 forecast.
• PPI (%yoy): 1.6 v 0.1 in Nov and 1.2 forecast.
Spain – Unemployment jumped in Jan coming in slightly better than market estimates but showing a sharp reversal from good Dec data.
• The economy has done well in cutting down unemployment levels last year with the rate sliding below 20% for the first time since late 2010 despite not having a permanent government for the first 10 months of the year, FT reports.
• Unemployment (000 change): +57.3 v -86.8 in Dec and +60.6 forecast.
Currencies
US$1.0803/eur vs 1.0795/eur yesterday. Yen 112.67/$ vs 113.39/$. SAr 13.349/$ vs 13.514/$. $1.269/gbp vs $1.258/gbp.
0.767/aud vs 0.758/aud. CNY 6.884/$ vs 6.884/$.
Commodity News
Precious metals:
Gold US$1,216/oz vs S$1,210/oz yesterday
Gold ETFs 57.2moz vs US$56.8moz yesterday
Platinum US$1,006/oz vs US$995/oz yesterday
Palladium US$768/oz vs US$763/oz yesterday
Silver US$17.65/oz vs US$17.52/oz yesterday
Base metals:
Copper US$ 5,964/t vs US$5,956/t yesterday
Aluminium US$ 1,825/t vs US$1,817/t yesterday
Nickel US$ 10,445/t vs US$10,000/t yesterday
Zinc US$ 2,876/t vs US$2,860/t yesterday
Lead US$ 2,350/t vs US$2,353/t yesterday
Tin US$ 19,965/t vs US$19,855/t yesterday
Energy:
Oil US$56.8/bbl vs US$55.6/bbl yesterday
Natural Gas US$3.141/mmbtu vs US$3.179/mmbtu yesterday
Uranium US$25.00/lb vs US$24.65/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$82.1/t vs US$81.1/t
Chinese steel rebar 25mm US$498.8/t vs US$498.8/t
Thermal coal (1st year forward cif ARA) US$66.9/t vs US$66.9/t yesterday
Premium hard coking coal Aus fob US$169.7/t vs US$169.7/t
Other:
Tungsten - APT European prices $194-200/mtu vs $$191-200/mtu
Company News
Avocet Mining (LON:AVM) 61.8p, Mkt Cap £12.9m – Inata Life of mine extension
• The Company has announced that the addition of a further 105,300 oz of reserves at the Inata mine has extended the mine’s life to Q4 2019.
• Avocet has also issued production guidance for 2017. The company expects to produce 75-85,000 oz of gold a5 a cash cost of between US$900 to US$1000 per ounce.
• The updated reserve now contains a total of 306,400 oz of gold in 5.76m tonnes at an average grade of 1.84g/t. Approximately 55% (167,400 oz) of the reserves are classified as proven, with a further 46,600 oz (14%) within the ROM stockpiles and the balance classed as probable.
• The reserve increase is attributed to an increase in the gold price from $1100/oz to $1150/oz, and “the identification of additional geological resources at Minfo, and improved recoveries now assumed in the treatment of carbonaceous (preg-robbing) ores.”
• The company comments that despite this increased reserve, “without the addition of further deposits (particularly Souma, Pali or Ouzeni, as outlined below), the LoMP at current gold prices remains unlikely to result in the full repayment of creditors. Furthermore, the operation continues to face ongoing day-to-day challenges, including:
o Cashflow constraints - meeting the payment demands from suppliers with overdue balances, at the same time as servicing bank loans (including the obligation to repay a 2.5bn CFA loan to Coris Bank by 31 March 2017)
o Security issues - implementing measures in response to the increase in security incidents in the region around the Inata site
o Mechanical availability - with stores of spare parts and repair cycles impacted by cash shortages, production continues to be exposed to mechanical outages affecting the mining fleet or the plant”
o The company has identified three satellite deposits at Souma, Pali and Ouzeni,which have the potential to add “a further six to seven years to the LOMP and additional gold production of 500-600,000 ounces.” Assessment and development of these additional deposits is, however expected to cost a further US$10-12m. The company indicates that the Souma deposit could require US$5-7m of drilling and feasibility work plus a further US$5m in capex. Work at Pali and Ouzeni could require a further US$1-2m mainly for drilling and the company notes that currently they currently lie outside the licence area, though it expresses confidence that permits will be forthcoming.
Conclusion: Avocet is in a difficult position with insufficient reserve life left at Inata to meet its obligations to creditors and suppliers. It has identified potential to extend the life of the operation however bringing those additional deposits to account may need an additional US$10-12m which may be challenging to source.
Hummingbird Resources (LON:HUM) 24.9p, Mkt Cap £85.4m – Yanfolila development ramping up with project delivery on target
• Hummingbird has announced that it has reached an agreement with the Malian Government for the state to acquire an additional 10% stake in the Yanfolila project for US$11m.
• The Government will also hold a 10% free-carried interest in the project giving it an overall 20% stake in Yanfolila.
• Mali’s Minister of Mines, Professor Tiemoko Sangare is quoted as saying ” Yanfolila's transition into a producing asset over the next 12 months will crystallise the value of this important national asset and will make tangible contributions to Mali through the generation of revenue, creation of employment and other ancillary benefits."
• The company has also published key terms for the development which include a 3% royalty; a tax rate of 30% with a minimum tax of 1% of gross revenue, a fuel duty exemption and a VAT holiday for the first three years of production.
Conclusion: Hummingbird is pressing ahead with the project and clearly enjoys the support of the Government in its endeavours.
Kodal Minerals* (LON:KOD) 0.53p, Mkt Cap £27.4m – Bougouni lithium project shows 21m grading 1.7% lithium
• Kodal Minerals reports its first batch of drilling samples from its ongoing drilling campaign at its Bougouni lithium in Mali.
• The best results out of the first seven ‘RC’ holes out of 18 drilled to be reported using a 1.0% cut-off:
• Ngoualana: 21m at 1.7% Li2O from 62m including 12m at 1.81% Li2O from 69m
• Sogola: 3m at 1.92% Li2O including 2.94% Li2O - Sogola has a strike length at surface of >300m
• Kola: 2m at 1.94% Li2O.
• The drill results show the pegmatite veins to be lithium rich with relatively high-grade lithium mineralisation when compared against other spodumene pegmatite veins and lithium producers.
• Prices for spodumene concentrate are reported to be around $600/t, with Birimian Limited using an assumed price of $537/t in their scoping study released yesterday.
• Of the 328 samples assayed and received the maximum grade returned is 2.92% Li2O with >16% of samples returning values of >1% lithium.
Conclusion: We have to say well done to Kodal. Drilling for lithium in Spodumene pegmatite veins might look like ‘shooting fish in a barrel’ but as anyone who has tried to shoot a fish in a barrel will know, it’s not as easy as it first looks and we know many a geologist who has missed the most ‘obvious’ of targets. It’s even more impressive if the targets are at depth but fortunately for Kodal the targets start at surface and the mineralisation appears to continue to >100m.
The drill ‘truth machine’ has spoken and it looks as if Kodal has a new lithium discovery on its hands.
Observers of Birimian Limited, which published a scoping study on the similarly-named Bougouni (Goulamina) project yesterday will be aware of the potential economic parameters of Birimian’s project. Birimian is to publish a Feasibility study in the June quarter which will give greater definition to and better establish the potential value of the Bougouni project. Kodal may be able to draw similar conclusions for its own lithium prospects depending on the results of this and further rounds of drilling.
*SP Angel acts as Financial Advisor and Broker to the company. Robert Wooldridge, a partner at SP Angel is also Chairman of Kodal Minerals.