Gem Diamonds (LON:GEMD) – Q3 Results – Placing the Ghaghoo diamond mine on care maintenance
Minera IRL (LON:MIRL) Suspended – Final Assay Results show increasing gold resource at the Ollachea project in Peru
Base Metals head towards deficit
Rising demand and significant production cuts in Chile, Indonesia and the Philippines are pushing base metals markets increasingly into deficit
Add to this the impact of further stimulus in China and the potential for Donald Trump to stimulate construction activity in the US.
The need by manufacturers to carry increased inventory in case of a trade war within china may also add to the deficit as producers move to protect and strengthen supply chains.
Dow Jones Industrials +0.52% at 20,612
Nikkei 225 -0.47% at 19,348
HK Hang Seng +0.47% at 24,108
Shanghai Composite +0.52% at 3,230
FTSE 350 Mining -0.30% at 17,138
AIM Basic Resources +0.49% at 2,740
Economic News
Mongolia – votes to nationalise Erdenet copper mine
• Mongolian parliament votes to nationalise the Erdenet copper mine following a ruling declaring the $400m sale of the mine by Rostec (Russia) to Copper Copper Corp, a little known local firm.
• The mine produces 530,000t of copper concentrate grading 23-25% for around 127,200tpa of copper and 4,500t of moly concentrate containing 2,205tpa of molybdenum metal. The mine is a major contributor to the Mongolian economy and has been a significant to the economy of Mongolia through its 38 year history.
• The complex sale is reported to have used multiple shell companies controlled by the Trade and Development Bank and its staff and to have used borrowed funds from the Mongolian Central Bank. Me thinks there is more to this than meets the eye?
• Mongolia is the world’s seventh largest exporter of copper concentrates just behind Canada and Peru.
Australia – mining boom clean-up could cost taxpayers billions says Australian institute (Guardian)
• The Guardian, a paper which would have us all back in the dark ages reading papyrus by candlelight reports on a paper by the Australian Institute which warns that many sites may not be successfully rehabilitated.
• The report suggests there are over 60,000 abandoned mining sites in Australia which may need attention.
China - China’s reserves have dipped below US$3 trillion falling to US$2.998 trillion in January
• The lowest level since early 2011 according to Standard & Poors. The “reserves are more than ample to meet its external needs and liabilities” according to S&P
Philippines – the Philippine Inquirer sports the headline “Industry outraged over cancellation of 75 mining deals”
• We applaud the ministers of mines the minister of the environment and the president for taking action to close 23 mines, suspend five others and cancel 75 mining contracts.
• Most of the projects are said to be nickel laterite ore exporters based in delta areas. We are sure many if not all of these do not meet western style environmental standards risking the long-term health and livelihoods of local communities. We do not support the export of nickel laterite ores neither should the Philippine government in our view.
• The Chinese authorities should also be grateful as the production of nickel pig iron at smelters in China is a filthy, polluting business and a cheap way of undermining the good work done by nickel producers which have invested billions in the development of facilities for the production of nickel in a more environmentally controlled manner.
Lloyds of London, the insurance and reinsurance market has banned drinking at lunchtime
• Stories of insurance brokers’ drinking habits are legendary in city circles.
• The move will be a welcome relief for young insurance brokers with the new generation drinking and smoking far less than their elders.
• Lloyd’s ban is almost certainly a reaction to the excessive drinking done by a few exuberant insurance brokers and while it may upset some of the old boys it does show that this last bastion of traditional city life is willing to evolve albeit slowly.
Currencies
US$1.0625/eur vs 1.0558/eur yesterday. Yen 113.77/$ vs 114.49/$. SAr 12.930/$ vs 13.016/$. $1.249/gbp vs $1.246/gbp.
0.771/aud vs 0.768/aud. CNY 6.859/$ vs 6.868/$.
Commodity News
Precious metals:
Gold US$1,236/oz vs US$1,226/oz yesterday
Gold ETFs 58.6moz vs US$58.4moz yesterday
Platinum US$1,012/oz vs US$999/oz yesterday
Palladium US$791/oz vs US$781/oz yesterday
Silver US$17.99/oz vs US$17.88/oz yesterday
Base metals:
Copper US$ 6,033/t vs US$6,032/t yesterday
Aluminium US$ 1,906/t vs US$1,892/t yesterday
Nickel US$ 10,905/t vs US$10,800/t yesterday
Zinc US$ 2,859/t vs US$2,901/t yesterday
Lead US$ 2,312/t vs US$2,359/t yesterday
Tin US$ 19,920/t vs US$20,040/t yesterday
Energy:
Oil US$55.9/bbl vs US$55.7/bbl yesterday
Natural Gas US$2.927/mmbtu vs US$2.946/mmbtu yesterday
Uranium US$25.90/lb vs US$25.90/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$86.6/t vs US$87.7/t
Chinese steel rebar 25mm US$536.8/t vs US$535.9/t
Thermal coal (1st year forward cif ARA) US$67.3/t vs US$66.2/t yesterday
Premium hard coking coal Aus fob US$154.8/t vs US$154.8/t
Tungsten - APT European prices $196-205/mtu vs $194-200/mtu
Company News
Gem Diamonds (LON:GEMD) 115 pence, Mkt Cap £159.1m – Q3 Results – Placing the Ghaghoo diamond mine on care maintenance
• Gem Diamonds reports that the Ghaghoo diamond mine in Botswana is being placed on care and ,maintenance as a result of the fall in the prices for its diamonds from US$210/carat to US$142/carat.
• The mine, which has been developed to the point where it “has now reached the point where it will shortly be In a position to commence full commercial production” will cost an annualised US$3m to maintain until “a time when commencing full production would make economic sense.”
• In August 2016, the company’s interim results statement disclosed that the prices received for Ghaghoo production was US$157/carat and it would therefore appear that prices have continued to weaken. We assume that the imposition of monetary restraints in India, which has historically been an important market for lower value diamonds, will have been a contributory factor in the continued decline in prices.
• The mine was initially brought into production at a capital cost, for phase 1 operations of about 150,000 carats per year, of around US$85m in mid 2014 and has been ramping up since. Ghaghoo did not reach the planned levels of output with 2016 production of 40,976 carats – a reduction on the 91,499 carats produced in 2015 as the mine responded to difficult pricing and trading conditions by downsizing its operations.
Conclusion: The decision to suspend operations at Ghaghoo is a pragmatic response to low diamond prices while the company concentrates on its Letseng mine in Lesotho which is building a reputation for producing large high value diamonds including a 12.3carat pink diamond which realised US$109,677/carat and a 56.48 carat stone valued at US$53,451/carat.
Minera IRL (LON:MIRL) – Final Assay Results show increasing gold resource at the Ollachea project in Peru
• Minera IRL has released final assays from its Minapampa Far East drill program, at the Ollachea gold project in Puno, Peru.
• The results show gold mineralisation continues >500m to the east and remains open to the east and at depth.
• 23 drill holes cover 5,421m of drilling and outline a zone of 370,000-550,000oz of gold grading 3.1-4.6mt grading 2.9-4.3g/t gold
• The team reckon the Ollachea Project is still significantly underexplored, with considerable potential to add to the >1moz reserve.
• Significant drill hole intercepts from the program are:
o DDH16-T06 8 m downhole @ 3.69 g/t from 122 meters of depth
o DDH16-T07 13 m downhole @ 6.34 g/t from 143 meters of depth
o DDH16-T10 4 m downhole @ 11.23 g/t from 217 meters of depth
o DDH16-T11 21 m downhole @ 3.61 g/t from 96 meters of depth
o DDH16-T12 18 m downhole @ 3.4 g/t from 122 meters of depth
o DDH16-T14 22 m downhole @ 2.41 g/t from 176 meters of depth
o DDH16-T16 4 m downhole @ 16.8 g/t from 294 meters of depth
o DDH16-T18 10 m downhole @ 2.59 g/t from 186 meters of depth
o DDH16-T18 10 m downhole @ 2.65 g/t from 198 meters of depth
o DDH16-T19 19 m downhole @ 2.96 g/t from 188 meters of depth
o DDH16-T24 18 m downhole @ 2.1 g/t from 190 meters of depth
o DDH16-T24 7 m downhole @ 4.05 g/t from 213 meters of depth
Cut-off grade 1 g/t gold.
• The results will go towards the production of an updated NI-43-101 technical report.
Conclusion: It is good to see Minera IRL returning to more normal operations following the removal of members of the board who seemed more intent on feathering their own nests than serving the interests of the company’s long suffering investors. We hope we never see the name of Daryl Hodges and his merry men again.