Banro (BAO CN) Price C$0.17, mkt C$51m – armed attackers have kidnapped five workers at Banro’s Namoya mine in the DRC including one French national
Georgian Mining* (GEO LN) STRONG BUY – Board changes reflect move towards copper, gold mine development and production
Golden Star Resources (GSC CN) – 2016 ore reserve/resource report
Savannah Resources (SAV LN) – £1.01m subscription
Strategic Minerals* (SML LN) – Drilling to start at Redmoor by the end of March
Mining analysts and MiFID II – what will companies and investors do when there are no analysts left to talk to?
• European policymakers are introducing the new MiFID II regulations at the beginning of next year
• The directive proposes the further unbundling of research in an attempt to ensure that fund managers only pay for research which directly benefits the investor on whose behalf they are acting. The trouble, as ever with EU regulation, is that a hammer is being used to crack a nut. The way the rules are drafted means that:
o Research provided for free will be deemed to be an ‘inducement’ (even if, in fact, it clearly is not) and will, except in a few narrow circumstances, be prohibited; and
o Where fund managers do pay for research using fund monies they will have to justify in exhaustive detail (to their investors, compliance departments and regulators) why they did so.
It is widely anticipated that the combined effect of these rules will be to radically reduce the amount of research produced since managers will not be allowed to accept free research and will not want to pay to receive more than a few market-leaders. This will be bad enough for ‘big board’ stocks but we can all probably get by just fine with only five analysts covering Apple rather than thirty. For mid cap and down it might mean that some companies don’t get covered at all. Still fine?
• Many analysts working in the industry will be unaware that their costs are met or at least significantly defrayed by the trading commissions their employer receives as recognition by recipient managers.
• Now, is that because the traders tend to claim the commissions for themselves or because there isn’t any real research commission included?
• So who is going to pay for analysts research going forward?
• The FT has commented that banks have been asking for $10,000 for a single analyst phone call, what an ‘outrage’.
• Banks tend to multiply staff wages by a minimum of 5 times making if difficult to justify non-revenue earning salaries and we can’t see M&A or corporate finance offering to pay their earnings into other areas.
• We suspect MiFID II regulations will cause many analysts to jump ship or at least wait for their redundancy cheques and that this will cause significant issues for funds, companies and the media which rely on these analysts for input.
• Thankfully, the research team at SP Angel will remain in place but our advice to analysts at larger houses is to ‘panic now and avoid the rush’. We welcome your thoughts.
Trump – infrastructure spend
• Donald Trump has highlighted again the $6tr of military spending that the US has put into the Middle East while the nation’s infrastructure lacks repair.
• He is asking Congress for $1tr for infrastructure investment for the US to be financed through public and private capital.
• Trump reckons the program will create millions of new jobs and will be guided by two core principals “buy American and hire American”.
• While the scale of Trump’s ambitions looks small compared with infrastructure programs in China the task ahead is no-less challenging
Dow Jones Industrials +1.46% at 21,116
Nikkei 225 +0.88% at 19,565
HK Hang Seng -0.20% at 23,728
Shanghai Composite -0.52% at 3,230
FTSE 350 Mining +1.22% at 16,855
AIM Basic Resources +0.08% at 2,656
Economic News
FTSE100 trades at close to record high amid a risk on sentiment and a weaker pound.
• Lael Brainard, another “dove” on the Board of the FOMC, agreed that another rate increase “will likely be appropriate soon”, according to the text of her speech at Harvard University on Wednesday.
• “We are closing in on full employment, inflation is moving gradually toward our target, foreign growth is on more solid footing and risks to the outlook are as close to balanced as the y have been in some time.”
• Probability of a rate hike in Mar has gone further up hitting 86%, up from 80% as pre-Brainard comments and PCE reports showing an build up in inflation growth momentum.
• Pro-monetary tightening comments see the US$ index consolidating its previous trading session gains with gold and Brent prices slightly off.
• US crude inventories increased by 1.5mmbbl to a record of 520mmbbl following eight straight weeks of gains on the back of a recovery in oil prices.
• Changes in iron ore and steel futures are muted with base metals trading lower.
US – Inflation continues to build up as measured by PCE numbers strengthening the case for a rate hike.
• Private consumption began to tail off in Jan amid accelerating inflation and post a strong run in Q4/16.
• On a positive side, wages growth accelerated to 4.0% annualised pace up from 3.7% in Q4/16 which comes handy amid stronger inflation rates and is expected to provide support to consumption outlook.
• Auto sales remained flat at a 17.5m rate amid as automakers passed on some of its rising costs to consumers with new car and truck prices up 0.9%yoy in Feb; although, the rate marked a slight improvement over the first two months last year.
Germany – Following stronger growth in consumer prices in separate states in Feb, a nationwide number released later yesterday showed a surge in CPI to the highest level since 2012.
• While headline number points to a continuing strengthening of inflation trends, it would be interesting to know the level of core inflation which is closely watched by the ECB.
• The ECB has previously agreed with higher headline inflation numbers, but highlighted continuing weakness in core price pressures supporting the case for a continuing monetary easing programme.
• Eurozone-wide core inflation numbers are due today (0.9%yoy (est.) v 0.9%yoy in Jan)
• CPI (EU Harmonised; %mom/yoy: 0.7/2.2 v -0.8/1.9 in Jan and 0.6/2.1 forecast.
UK – Construction industry expanded at a faster than forecast rates in Feb, marking the sixth consecutive month of growth, driven by stronger ouput in the civil engineering segment.
• Housebuilding in turn declined to a six-month low with commercial construction activity recording the first drop since Oct last year.
• Markit Construction PMI: 52.5 v 52.2 in Jan and 52.0 forecast.
UK property (BBC) - New homes 'unaffordable for eight out of 10 locally'
• Nearly eight out of 10 families across England are unable to afford newly built homes in their local area, according to a report by housing charity Shelter.
• The government is investing £50bn by 2021 in housing loans and subsidies, but more than half of this is being earmarked for "market-priced" housing.
• Shelter used regional data on gross household incomes, new-build house prices, information on loans and advances from the Council of Mortgage Lenders and ONS statistics.
Spain – Q4/16 GDP growth was confirmed at 3.2%yoy making it the second fastest growing economy in the Eurozone, second only to Ireland.
Currencies
US$1.0537/eur vs 1.0536/eur yesterday. Yen 114.23/$ vs 113.51/$. SAr 13.048/$ vs 13.097/$. $1.229/gbp vs $1.237/gbp.
0.765/aud vs 0.767/aud. CNY 6.883/$ vs 6.879/$.
Commodity News
Precious metals:
Gold US$1,245/oz vs US$1,245/oz yesterday – Bert Dohmen describes investing in gold as “opportunity of a lifetime”
• We are not normally gold bulls and with the Fed poised to raise rates we would not naturally encourage much in the way of gold investment but when seasoned investors like Bert of Dohmen Capital we feel we should highlight his thoughts.
• It is interesting to note that Dohmen’s comments coincide with reports of a 67% plunge in gold coin sales at the US Mint in February, perhaps highlighting his contrarian analysis.https://www.bbc.co.uk/news/business
• .Dohmen’s views can be found at https://www.forbes.com/sites/investor/2017/03/01/gold-and-silver-opportunity-of-a-lifetime/#51e3c38b205e
Gold ETFs 59.0moz vs US$58.9moz yesterday
Platinum US$1,015/oz vs US$1,025/oz yesterday
Palladium US$776/oz vs US$777/oz yesterday
Silver US$18.38/oz vs US$18.35/oz yesterday
Base metals:
Copper US$ 6,007/t vs US$6,035/t yesterday – Codelco reckons copper miners will struggle to respond to higher prices with new projects while natural obstacles will prevent other miners from piling in.
• In separate comment the BHP ceo reckoned copper tightness could be exacerbated by a reluctance to invest after years of low prices (Bloomberg).
Aluminium US$ 1,936/t vs US$1,929/t yesterday
Nickel US$ 10,990/t vs US$11,045/t yesterday
Zinc US$ 2,848/t vs US$2,866/t yesterday
Lead US$ 2,289/t vs US$2,269/t yesterday
Tin US$ 19,450/t vs US$19,255/t yesterday
Energy:
Oil US$56.2/bbl vs US$56.4/bbl yesterday
Natural Gas US$2.789/mmbtu vs US$2.767/mmbtu yesterday
Uranium US$24.50/lb vs US$23.00/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$85.5/t vs US$84.9/t – The single largest iron ore shipment left Port Hedland as miners are pressing on with the delivery of tonnages with prices trading at the highest level in two years.
• A 270kt shipment loaded with Fortescue Metals Group material left the port on Mar 1 beating a record set in 2015.
• Qingdao 62% Fe iron ore trades at $91.3/t versus $94.9/t recorded on Feb 21, the highest level since Aug/14, according to the Metal Bulletin data.
Chinese steel rebar 25mm US$579.4/t vs US$578.7/t
Thermal coal (1st year forward cif ARA) US$68.4/t vs US$67.0/t yesterday - Trump administration is planning to lift the US federal coal leasing moratorium as part of the executive order.
• This would undo President Barack Obama initiative which new administration said is costly for US business and has challenged drilling and mining without providing any clear benefits.
• The temporary ban was enacted in Jan/16 as part of a broad environmental and economic programme.
Premium hard coking coal Aus fob US$161.6/t vs US$161.3/t
Tungsten – APT European prices $197-207/mtu (from the 24Feb/17 week)
Company News
Banro (TSX:BAO) Price C$0.17, mkt C$51m – armed attackers have kidnapped five workers at Banro’s Namoya mine in the DRC including one French national
• We have no further news at this stage
Georgian Mining* (LON:GEO) 11.5p, Mkt Cap £9.2m – Board changes reflect move towards copper, gold mine development and production
Click here for last flash note
STRONG BUY
• Tony Frizelle has joined the board of Georgian Mining as non-executive Chairman.
• Laurence Mutch also joins as a non-executive director.
• Rod McIllree is stepping down from the board to focus on FinnAust and its high-grade and potentially world-class ilmenite project in Greenland.
• Michael Hutchinson the current non-executive chairman is retiring from the board.
• Tony Frizelle has previously worked for Anglo American, Phillip Brothers Inc/Salomon Inc, Brascan Group and Rand Mines.
• Laurie Mutch is a management consultant, previously on the board of Shell International Gas & Power and as principal adviser on the coal industry to the International Energy Agency in Paris. He is currently a NED at Quadrise Fuels.
Conclusion: The board changes reflect developments at Georgian mining, the changing nature of its business and the greater demands on the board presented by the near-term move to copper and gold mining in Georgia. Georgian’s discovery of what looks like a “forest” of mineralised pipe structures within the Kvemo Bolnisi project area is exciting and compelling. The structures indicate the project could be in a carbonate-base metal, epithermal gold, setting immediately above a porphyry bearing copper, gold mineralisation.
*SP Angel acts as Nomad and Broker to Georgian Mining.
Golden Star Resources (TSX:GSC) C$1.2, Mkt Cap C$436m – 2016 ore reserve/resource report
• Golden Star recently reported overall proven and probable reserves, as of 31st December 2016, of 1.9m oz of gold (19.5mt at an average grade of 3.05g/t) within a measured and indicated resource of 4.4m oz (49.7mt at 2.74g/t) . In addition, the company reports an inferred resource of a further 3.0m oz of gold at an average grade of 4.89 g/t.
• Both the overall gold reserve (-11%) and resource (-7%) are lower than the totals reported last year but with average grades of the reserve 8% higher than last year at 3.05 g/t gold and of the resource 15% higher at 2.74 g/t gold, the quality of both the reserve and of the resource appear to be enhanced.
• The latest estimates do not include refractory ore as the mining plan moves towards “mining higher grade, more profitable ore going forward and underlines our strategy to become a high grade low cost producer.”
• Average reserve grades at both the Prestea and Wassa operations have improved.
• Wassa’s grade increased by 4% to produce a proven and probable reserve of 17.4mt at an average grade of 2.37g/t for 1.3m oz of contained gold (2015 – 20.4mt at 2.27g/t for 1.5m oz).
• Grade at Prestea rose by an impressive 43% for a proven and probable reserve of 2.0mt at an average 8.96g/t for 582,000 oz (2015 – 3.3mt averaging 6.26 g/t for 656,000 oz).
Conclusion: The improved reserve and resource grades at both Wassa and at Prestea should underpin Golden Star’s move to focus on more profitable, lower cost gold production as it progresses in its move away from higher cost refractory ore.
Savannah Resources (LON:SAV) 5.8p, Mkt Cap £25.9m – £1.01m subscription
• As previously announced in its release of 22nd February, Savannah Resources has now reported that now it is out of the close period, the Company’s Chairman, Matthew King and its major shareholder, Al Marjan Ltd have now subscribed for 19.2m new shares at the same 5.25 pence/share price as the placing and subscription completed in February.
• The subscription of an additional £998,292 by Al Marjan maintains its holding at 29.99%.
• As in the earlier announcement, Savannah Resources reconfirms that the proceeds are to be used to progress the Oman copper project through mineral resource estimation, preparation of a scoping study and the preparation of licensing documents. In addition the company will progress both its Mutamba mineral sands project in Mozambique and the identification of potential drilling targets at the lithium exploration projects in Finland which were acquired last year.
Conclusion: The continuing support of a major shareholder, as well as the financial commitment of its Chairman, should assist in advancing the projects in Oman, Mozambique and Finland and we look forward to further news from the projects as work progresses.
Strategic Minerals* (LON:SML) 0.9p, Mkt Cap £11m – Drilling to start at Redmoor by the end of March
• Strategic Minerals reports that, having negotiated access agreements, received the required permits and contracted Energold Drilling to undertake the work, it expects to start the first drill-hole at its 50% owned Redmoor tin project in Cornwall at the end of March.
• The drilling is expected to take place in two phases of work with the first 13 holes being used to firm up the specification for the final 10 holes of the programme.. The company adds that “There is provision for a further six holes subject to additional planning and landowner approvals.”
• The “aim of the programme is to confirm and extend the high grade resource at Redmoor” which currently amounts to a “2.3Mt high grade Inferred Resource” and lies within a larger resource of 13.3mt at an average grade of 0.56% tin equivalent.
• Strategic Minerals “expects to complete both phases of the drilling programme this year and anticipates being in a position to update the market on the results from initial drill holes in the third quarter of 2017.”
• The company makes clear that it has received support from the local community in Callington for its plans and that this support has contributed to the speedy passage of the permissions and to the resolution of access agreements with the local landowners.
Conclusion: Strategic Minerals has moved quickly to secure the access rights, regulatory permissions and the services of a drilling contractor for Redmoor and we look forward to the results of the drilling campaign as they become available.
*SP Angel act as Nomad and joint broker to Strategic Minerals