Acacia Mining (LON:ACA) –Record 2016 gold output drives a more than doubling of dividend
BlueRock Diamonds* (LON:BRD) – First blast kimberlite ore being processed
DiamondCorp (LON:DCP) Suspended – Placing delayed till 28 February as AMCU union messes around with agreement
Georgian Mining* (LON:GEO) STRONG BUY – New drilling shows massive intersection of higher grade copper
Hummingbird Resources (LON:HUM) – Taurus Funds US$25m bridging loan now fully drawn
Mariana Resources (LON:MARL) – Drilling underway at Ergama in Turkey
Mkango Resources* (LON:MKA) – China importing significant tonnages of Rare Earths as the nation moves to control market
Solgold* (LON:SOLG) – Drilling results from Cascabel
Dow Jones Industrials +0.70% at 20,412
Nikkei 225 -1.13% at 19,239
HK Hang Seng -0.03% at 23,703
Shanghai Composite +0.03% at 3,218
FTSE 350 Mining -0.81% at 17,040
AIM Basic Resources +1.05% at 2,715
Economic News
China - China Producer Price Index rises 31% yoy in Jan for mining products
• The overall PPI rose 6.9% yoy in January – the most since 2011
• The rise in the PPI is mainly attributable to oil & gas, coal and steel prices with prices for coal and steel down to reduced local production
• The dramatic price rises is lifting the outlook for global inflation
China - credit surges to record level of Rmb3.7tr (US$545bn)
UK – Inflation hits 1.8% vs expectations for 1.9% and up from 1.6% in December
• UK inflation looks set for further gains as new car prices rise by 5.2%
• The inflation basket does not account for the fact that consumers might simply refuse to pay the price increase
• 86% of cars sold in the UK come from abroad with the fall in sterling acting as the major influence on pricing
• Petrol prices rose by around 1.6% in January driven by higher crude oil prices
Currencies
US$1.0620/eur vs 1.0653/eur yesterday. Yen 113.47/$ vs 113.65/$. SAr 13.226/$ vs 13.292/$. $1.252/gbp vs $1.253/gbp.
0.768/aud vs 0.767/aud. CNY 6.867/$ vs 6.877/$.
Commodity News
Precious metals:
Gold US$1,229/oz vs US$1,231/oz yesterday
Gold ETFs 58.4moz vs US$58.3moz yesterday
Platinum US$1,000/oz vs US$1,010/oz yesterday
Palladium US$779/oz vs US$781/oz yesterday
Silver US$17.89/oz vs US$17.93/oz yesterday
Base metals:
Copper US$ 6,140/t vs US$6,119/t yesterday
Aluminium US$ 1,894/t vs US$1,880/t yesterday
Nickel US$ 10,825/t vs US$10,755/t yesterday
Zinc US$ 2,945/t vs US$2,952/t yesterday
Lead US$ 2,431/t vs US$2,433/t yesterday
Tin US$ 19,870/t vs US$19,790/t yesterday
Energy:
Oil US$55.8/bbl vs US$56.5/bbl yesterday
Natural Gas US$2.920/mmbtu vs US$2.979/mmbtu yesterday
Uranium US$26.75/lb vs US$26.75/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$87.3/t vs US$87.2/t - Spot iron ore breaks $90/t for first time since Aug 2014 (Reuters)
Chinese steel rebar 25mm US$534.2/t vs US$507.8/t
Thermal coal (1st year forward cif ARA) US$64.6/t vs US$65.8/t yesterday - Colombian Jan thermal coal exports hit 10-month low of 6.52mt (Platts)
Premium hard coking coal Aus fob US$162.4/t vs US$164.6/t
Other:
Tungsten - APT European prices $196-205/mtu vs $194-200/mtu
Company News
Acacia Mining (LON:ACA) 494 pence, Mkt Cap £2.03bn –Record 2016 gold output drives a more than doubling of dividend
• Acacia Mining reports that it is recommending a final dividend for 2016 of 8.4 cents per share bringing the total dividend for the year to 10.4 cents which is “more than double [4.2 cents in] 2015.”
• The company has also issued guidance for 2017 production and costs where, assisted by the previously announced extension to the life of its Buzwagi mine, it expects to produce 850,-900,000 oz of gold at an AISC (all-in-sustaining cost) of US$880-920/oz.
• The guidance represents an increase of 2.5-8.5% in gold output compared to the 829,705 ounces produced in 2016 and a 4-8% reduction in the 2016 AISC of US$958/oz.
• Strong operational cash-flow of US$318m was more than double the US$156m achieved in 2015 and after investment of US$185m (2015 – US$181m) the company generated free cash flow before financing of US$133m compared to a deficit of US$25m in the previous year.
• As a result, Acacia Mining increased its net cash position at the year end to US$218.4m from US$105.5m in December 2015.
• “On a group basis, our overall reserves and resources declined by 4% from 28.6 million ounces to 27.5 million ounces during the year.” We also note that the company “had a very positive year in exploration and expect to announce the maiden resource on the West Kenya Project in Q1 2017.”
BlueRock Diamonds* (LON:BRD) 5p, Mkt Cap £2.8m – First blast kimberlite ore being processed
• BlueRock Diamonds reports that kimberlite ore from the first blast of the year is now being processed at the Kareevlei mine in South Africa.
• The first blast shifted some 15,000t of kimberlite and processing volumes should rise to process this material.
• “The new primary crushing and screening circuit is expected be commissioned later this week when volumes will start to gradually ramp up.”
*SP Angel acts as Nomad & Broker to BlueRock Diamonds
DiamondCorp (LON:DCP) Suspended – Placing delayed till 28 February as AMCU union messes around with agreement
• DiamondCorp management do not seem to be favoured by the gods.
• Having come to an agreement with creditors, the business administrator and investors to breathe new life into the company and the Lace Diamond mine, the AMCU is insisting on material amendments which risk derailing the deal.
• Sadly this also risks the jobs of the workers which the AMCU claims to represent.
• Our advice to the AMCU is to let management get on with the job and to focus on the wellbeing of the workers who subscribe to their union. It is our view that the AMCU have done immeasurable damage to the economy of South Africa and have set back the mining industry several decades in terms of capital investment and mine development.
• Investors have very little patience when it comes to delaying placings and even less when placings are delayed by a union known for its militant activities.
• The AMCU would be well advised to let this one go in our humble opinion.
Georgian Mining* (LON:GEO) 8.625p, Mkt Cap £6.9m – New drilling shows massive intersection of higher grade copper
STRONG BUY
• Georgian Mining put out the results of two dramatically good drill holes from the Kvemo Bolnisi project yesterday.
• Copper grades start from close to surface implying an initial low stripping ratio
o 113.7m at 1.70% Cu from 18.4m (KED011)
o 28.6m at 1.60% Cu and 0.80g/t Au from 47.4m (KED008)
o The current location of the mineralisation incorporates the breccia pipes-diatremes and may indicate potential to find further epithermal gold mineralisation..
o The drill holes were angled back towards the original ‘discovery breccia pipe’ in order to pick up the northern limits of the mineralised structure.
o This was done in conjunction with the opening up of another excavation to the NNE for channel sampling and effectively directly east of this drill hole which was again looking for the limits of the pipe.
o The excavation exposed a large area of iron staining and alteration which looks like another pipe-like structure and one with more massive sulphides which may potentially pick up a number of similar pipe structures within the project area. This might be expected on the basis of a carbonate-base gold epithermal setting immediately above copper, gold porphyry mineralisation as seen in a typical Corbett Model.
Conclusion: These are dramatically good drill results and should start to create new investor interest as the market appreciates the value and implications of the discovery of so much copper in the Kvemo Bolnisi system. Add to that the use of the joint venture processing facilities available at the nearby Madneuli mine which should fast track Kvemo Bolnisi into production.
We see Kvemo Bolnisi as offering a rather unusual combination of significant upside and a fast track to production. While we do not yet have much in the way of financial details of the joint venture arrangement we do believe the arrangement should result in a relatively low cost of around $600/oz in gold equivalent terms.
The big advantage of the arrangement is that Georgian Mining should have relatively little capital cost to bear. The use of a mining contractor and existing infrastructure between the proposed pit and the Madneuli processing plant means that capital costs should be very low. We would only speculate that there may be some cost to upgrading certain elements of the Madneuli process plant after initial production in order to achieve better recovery rates.
*SP Angel acts as Nomad and Broker to Georgian Mining.
Hummingbird Resources (LON:HUM) 25.75p, Mkt Cap £88.4m – Taurus Funds US$25m bridging loan now fully drawn
• Hummingbird has announced that following its announcement in early December that it had agreed with Taurus Funds to “increase the existing bridge loan in place between the Company and Taurus Funds Management Pty Limited ("Taurus") from US$15 million to US$25 million, these additional funds have now been fully drawn down. “
Mariana Resources (LON:MARL) 77p, Mkt Cap £95.8m – Drilling underway at Ergama in Turkey
• Mariana Resources reports initial results from the first two boreholes of its maiden drilling programme at the wholly owned Ergama project in western Turkey. Results from a third hole in the seven hole programme are still pending. The three holes completed to date represent a total of 1522m of drilling.
• Holes ERD-01 and ERD-02 were both drilled towards the south close to the northern margin of the Main Porphyry Target. Both holes intersected mineralisation in three main zones.
• ERD-01, which was angled at 75⁰ was completed at a depth of 480m and intersected 3 zones of mineralisation:
o 66m at an average grade of 0.22 g/t from 43.8m
o 88m at an average grade of 0.19g/t gold from 117.8m, and
o 22m at 0.25 g/t gold from 218.5m downhole
o ERD-02, which was angled at 45⁰ was drilled to a depth of 626.4m and encountered:
141m at an average grade of 0.23g/t gold from a depth of 57m
56m at 0.22 g/t gold from a depth of 274m, and
156.4m at 0.25 g/t gold from 470m to the end of the hole. The final 56.4m of the hole, from a depth of 570m averaged 0.33g/t gold and 0.12% copper
The drilling is following up targets defined by geophysical induced polarisation (IP) surveying and the identification of surface hydrothermal alteration. The drilling shows “strong stockworking … with grades increasing at depth to the south.” Commenting on the initial results, Chief Executive, Glen Parsons, highlighted the similarity in grades to the Teck-Pilot Gold’s Halilaga Project with a resource of 182.7mt of indicated resources at an average grade of 0.3g/t gold and 0.27% copper (plus 178.7mt of inferred resources at 0.24g/t gold and 0.23% copper) said “What is encouraging are the initial grades from our first holes on the margin of the system are similar to reported resource grades for other projects in the area and we have still to test the main zone.”
Conclusion: Intersecting multiple horizons of mineralisation in the first two boreholes at Ergama is most encouraging for Mariana Resources, however, with even the initial 7 hole programme still to be completed there is clearly a substantial amount of work still to be done at Ergama. At this stage, although similar to Haililaga, the grades look relatively low though we note the company’s comment that they seem to be increasing at depth towards the south. We look forward to further results as they become available and, perhaps in the longer term, to an initial resource estimate
Mkango Resources* (LON:MKA) 3.25p, Mkt Cap £2.7m – China importing significant tonnages of Rare Earths as the nation moves to control market
• China’s Association of China Rare Earth Industry (ACREI) announced yesterday that China imported 15,500t of smelted/separated rare earth products over the first 11 months of 2016.
• The move represents a 52% increase year-on-year suggesting that China may become a net importer of certain rare earths much sooner than some experts suggest.
• A recent report by Adamas Intelligence (www.adamasintel.com) forecasts that China will become a net importer of certain rare earth elements by 2025.
• The key metals of interest are Neodymium, Praseodymium, and Lanthanum. These also happen to make up the bulk of Mkango’s project at Songwe Hill in Malawi.
• The rise in demand suggests that the world may need to develop a new REE mine every year by 2025, so its lucky that Rainbow Rare Earths should come on stream later this year, though we are not at all sure when the next REE mine will enter development given the lack of funding for REEs in recent years.
Conclusion: China already dominates and controls REE processing and metal supply. It is relatively simple for China to use its dominant position to more fully control the market with relatively small purchases of additional REE material. Strategic stockpile managers and industry executives should be extremely concerned by the rise in Chinese REE imports as China further dominates the market in a markedly uncertain environment for new mine supply.
*SP Angel acts as Nomad and Broker to Mkango Resources
Solgold* (LON:SOLG) 39.5p, Mkt Cap £565.3m – Drilling results from Cascabel
• SolGold reports that its drill hole CSD-16-019 at Alpala within the Cascabel project area in Ecuador has intersected 1132m of mineralisation at an average grade of 0.50% copper and 0.33 g/t gold from a depth of 268m in borehole CSD 16-019.
• Assays are still awaited for the final 232.52m of the hole which was terminated at a depth of 1632.52m on 20th January.
• The borehole was drilled at an angle of 80⁰ towards the SSW (azimuth 211⁰) into the steeply inclined Alpala mineralisation and hence the interpreted true width of the 1132m long intersection is “approximately 500m”.
• Within the overall intersection, the company has identified an 802m wide zone (approximately 360m true width) at an average grade of 0.63% copper and 0.43 g/t gold from a depth of 572m which in turn includes a 516m long section (approximately 230m true width) at an average grade of 0.75% copper and 0.5g/t gold from a depth of 838m.
• The company highlights that the mineralisation encountered in hole 19 contains “intersections significantly richer in bornite … than in previous drillholes”. The mineral bornite (Cu5FeS4) contains 63% copper and the company’s geological interpretation indicates that “higher portions of the system appear rich in bornite whilst deeper portions of the known system are rich in chalcopyrite”. Chalcopyrite, (CuFeS2) is a more widely known copper mineral containing approximately 35% copper.
• Solgold’s technical team indicate that the bornite mineralisation increases and may be at shallower depths towards the south¬-east and that “drilling results may get better as we head south east.” Technical Services Manager, Benn Whistler commented that “The lower extensions of Alpala have still not been tested”.
• The company points out that “Hole 19 is the most southerly of the drill holes at Alpala and the increased presence of bornite … in comparison to other holes at Alpala, endorses SolGold’s south easterly extension targets. [and] The mineralisation intersected in Hole 19 remains open to the southeast, where relatively strong bornite mineralisation and high temperature advanced argillic alteration are mapped at surface.”
• Holes 21 and 22 are currently at depths of 750.4m and 702.2m respectively and “entering increasingly strong mineralisation” while hole 20R is continuing at a depth of 1342.4m where recent “technical drilling challenges have delayed the recent advance of this hole, however, drilling rates are expected to improve in the near future.”
• Two further rigs are expected to arrive on site within the next month “as part of an increase in drilling activities to seven rigs by year’s end” which will enable the company to undertake initial drill testing of other identified targets including “the promising Trivinio, Tandayama/America and Aguinaga targets.”
• SolGold also comments that it has identified a number of other additional exploration opportunities in Ecuador where, subject to securing tenure, it intends to deploy the exploration strategies which have been implemented at Cascabel.
Conclusion: The results from hole 19 are guiding the company to extend its Alpala drilling campaign towards the southeast where it expects to encounter increasing bornite mineralisation. The drilling campaign is being stepped up significantly and results should be coming through with increasing frequency throughout 2017, meanwhile SolGold is building on its expertise in Ecuador to identify further opportunities.
*SP Angel acts as Nomad and Broker to SolGold; An SP Angel analyst has previously visited the Cascabel project.