Edenville Energy (LON:EDL) - Rukwa coal project update
Horizonte Minerals (LON:HZM) – Commencing Feasibility Study at Araguaia
Shanta Gold (LON:SHG) – Changes to Tanzanian mineral concentrates exports rules
Stellar Diamonds (LON:STEL) – Presentation on Tongo-Tonguma
Vast Resources (LON:VAST) – Drilling results from the Faneata Tailings Dam, Romania
Base metal prices are off today as China guides for a continuing slowdown in economic growth rates.
• Rate hike probability implied by the market has gone up to 96% and is considered a “done deal” at the moment with the FOMC meeting scheduled for Tue-Wed next week.
• On Friday Janet Yellen highlighted that an increase in rates was likely to be “appropriate” at the Mar meeting should employment and inflation come in line with the Board projections.
• Reiterating the Fed view for an acceleration in rate hikes’ pace Yellen reminded that “given how close we are to meeting our statutory goals, and in the absence of new developments that might materially worsen the economic outlook, the process of scaling back accommodation likely will not be as slow as it was in 2015 and 2016”.
• Non-farm payrolls are due this Friday with estimates for a solid 190k reading, close to a 195k 12-months average, and an unemployment rate coming down 0.1pp to 4.7%.
• Before that the ECB will release its monetary policy statement on Thursday with estimates for the pace of the current easing programme to remain unchanged.
• On Wednesday, UK Chancellor will present his first budget statement.
• Gold is broadly flat this morning after posting a short-lived recovery off a 2-week trough on Friday.
• The US$ index is also little changed following a sell off on Friday.
Good news for iron ore prices as scrap capacity to be cut
China to cut steel capacity by 50mt and to cut coal capacity by >150mt according to its top economic planner
• China has reasserted pledges to make deep cuts in steel and coal capacity.
• The statements relate to a new drive by the authorities to tackle pollution and improve urban air quality. “We will make our skies blue again.”
• The government has pledged to continue to weed out low-grade steel that uses recycled material, which it reckons is a major source of smog. Bad news for scrap metal dealers!
• The cut in coal capacity is significant as China is likely to import more, better quality, thermal and coking coal to supplement some of the cuts.
• We suspect China will reinstate its 276 working day limit for coal mines, which is less of a capacity cut and more of a production cut in reality.
• We reckon the cut in steel capacity will not result in such a dramatic cut in steel output as ageing, inefficient capacity continues to be replaced with new capacity in less urban areas and much capacity is already idled.
• Part of the problem is that Chinese cities have grown up around the steel works and mines which helped to build them.
• The nation has pledged to environmentally monitor and control all polluting industry going forward and officials who ‘knowingly allow environmental violations will be held accountable’.
Tanzania gold and copper concentrate ban to hit some miners
• The President of Tanzania unveiled new directives on Friday including a ruling via the Ministry of Energy and Minerals to ban the export of mineral concentrates
• We wonder where they got that idea from? (Indonesia & the Philippines)
• Problem is that Tanzania may not produce sufficient concentrates to build new, efficient gold and copper smelters and the move may simply lead to a loss of earnings for the cash-strapped Tanzanian treasury.
• Acacia Mining (formerly Barrick Africa) may see a potential in sales from the rather sudden and unexpected directive which has the potential to derail its proposed merger with Endeavour Mining. Acacia Mining has halted all concentrate exports and its merger with Endeavour is likely to be delayed pending clarification of the new Tanzanian directive.
• Concentrate sales from Bulyanhulu and Buzwagi accounted for around 30% of Acacia sales last year.
• Peak Resources should be unaffected as the ban is for gold and copper concentrates only, though the risk of a similar ban on REE concentrate exports now looks somewhat higher.
• No doubt Peak will seek assurances / immunity from any future government move.
• The president gave a speech last year commenting on mines having airstrips suggesting the country is being robbed by planes from these gold mines. The fact that these planes stop at government customs if they leave Tanzania seems to have gone unnoticed.
Dow Jones Industrials +0.01% at 21,006
Nikkei 225 -0.46% at 19,379
HK Hang Seng +0.18% at 23,596
Shanghai Composite +0.48% at 3,234
FTSE 350 Mining -1.26% at 16,240
AIM Basic Resources -0.50% at 2,641
Economic News
Japan on high alert as North Korea fires four more missiles towards the sea of Japan
• The North Korean leadership seems intent on its own destruction as the nation launches four more missiles towards the Sea of Japan.
• The missiles travelled around 1,000km towards the East Sea with three landing within 200 nautical miles of Japan.
• The missiles violate UN security council resolutions. China has urged restraint and avoid actions which would provoke each other and escalate tensions.
China – The government is expected to hit 6.5% GDP growth in 2017, Premier Li Keqiang said on Sunday.
• This marks a slowdown on 6.7% recorded in 2016, which in turn marked a mid-range reading of the 6.5-7.0% government target for the year.
• Capacity normalisation to continue in the coal and steel sectors.
• The government plans push forward with de-leveraging of the economy, mainly in the non-financial corporate sector.
• M2 growth target set at 12% v 11% recorded in 2016.
• Inflation target was left unchanged at 3%.
Greece – Government creditors suggested all parties may sign off on the second bailout before a Eurogroup meeting on Mar 20, although there was “still a lot of work to do”.
• Klaus Regling, head of the European Stbaility Mechanism, said it is still hard to say “how much progress will be made in the next two weeks”.
• The deadline for agreeing the €86 bailout package seems to be early Jul when the government is due to make a €7bn repayment (07Jul).
• Negotiations may get delayed due to oncoming elections season in Netherlands, France and Germany.
North Korea – Four North Korean ballistic missiles launched and landed in to the Sea of Japan on Monday are seen escalating tensions in the region.
• South Korea defence ministry confirmed all four missiles falling in Japan’s exclusive economic zone stretching for up to 370km offshore from the Japan’s coast.
• The tests followed aggressive rhetoric from Pyongyang over the ongoing US/South Korea Foal Eagle military exercises in the region.
Ethiopia set to overtake Kenya as East Africa’s largest economy
• Ethiopia may be in a state of emergency imposed due to difficulties in a minor part of the region but its economy continues to grow
• The nation, with plentiful cheap labour, should have GDP of US$69.2m on IMF figures for 2016 and US$61.6bn in 2015
• Kenya which is growing less quickly saw US$69.1bn in 2016 and US$63.4bn in 2015
• We expect Harry Adams and his new gold mine at Kefi Minerals to make the difference and lead Ethiopia into a new era of prosperity
• Ethiopia also hosts one of six Chinese special economic zones
Currencies
US$1.0629/eur vs 1.0518/eur last week. Yen 113.64/$ vs 114.28/$. SAr 12.992/$ vs 13.120/$. $1.227/gbp vs $1.223/gbp.
0.759/aud vs 0.755/aud. CNY 6.893/$ vs 6.900/$.
Commodity News
Precious metals:
Gold US$1,234/oz vs US$1,227/oz last week
Gold ETFs 58.7moz vs US$59.1moz last week
Platinum US$990/oz vs US$988/oz last week
Palladium US$772/oz vs US$766/oz last week
Silver US$17.83/oz vs US$17.70/oz last week
Base metals:
Copper US$ 5,883/t vs US$5,927/t last week – Jiangxi Copper plans to add another 160,000t to sales this year as it raises rates to maximum capacity of 1.36mt in 2017 vs 1.2mt in 2016.
• We suspect the company may not meet its ambitious target to hit maximum capacity and the statement may be more of a ruse to hold expectations for higher copper prices down
• Jaangxi’s chairman forecast that prices should average Rmb45,000-46,000/t this year, slightly lower than the average this year of Rmb47,513/t
Aluminium US$ 1,881/t vs US$1,915/t last week
Nickel US$ 10,965/t vs US$10,920/t last week
Zinc US$ 2,734/t vsUS$2,809/t last week
Lead US$ 2,208/t vs US$2,261/t last week
Tin US$ 19,330/t vs US$19,350/t last week
Energy:
Oil US$55.5/bbl vs US$55.2/bbl last week
Natural Gas US$2.916/mmbtu vs US$2.793/mmbtu last week
Uranium US$25.50/lb vs US$24.65/lb last week – US uranium production falls 13% in 2016 to 2.9mlbs as the market responds to lower demand following the Fukushima disaster.
• The recent declaration of Force Majeure by TEPCO which may be unable to store much more surplus uranium has also held back prices
• Some reports suggest that TEPCO is not happy about its agreed contract price for uranium.
• Reports indicate that three nuclear plants are now operating in Japan with a further seven approved for restart
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$81.7/t vs US$85.6/t
Chinese steel rebar 25mm US$576.5/t vs US$576.8/t
Thermal coal (1st year forward cif ARA) US$66.7/t vs US$66.6/t last week
Premium hard coking coal Aus fob US$162.4/t vs US$162.3/t
Tungsten – APT European prices $210-217/mtu (from the 03Mar/17 week) v $197-207/mtu previously
Company News
Edenville Energy (LON:EDL) 0.8 pence, Mkt Cap £7.0m - Rukwa coal project update
• Edenville Energy reports that it has appointed, an un-named, consultant mining engineer and a process engineer to oversee the mine development and construction and operation of the coal washing plant at the Rukwa coal operation in Tanzania.
• The company also comments that it has received “Letters of Intent” from “several parties who intend to purchase coal from the operating mine on a long-term basis.” The company cautions that these may not necessarily be formalised as contracted sales “the Company is conservatively planning for firm orders that will result in initial sales in the region of 5,000 to 8,000 tonnes per month, with the ability to increase production as appropriate.”
• The company is also “working with interested parties to determine the product quality characteristics they require.”
Conclusion: Edenville Energy continues to make progress at Rukwa, and is appointing key management to advance the project development on site while furthering discussions with potential customers.
Horizonte Minerals (LON:HZM) 2.9 pence, Mkt Cap £33.4m – Commencing Feasibility Study at Araguaia
• The company reports that it has awarded contracts to a number of high profile engineering and consulting companies for the preparation of its Feasibility Study of the Araguaia nickel project in Brazil.
• The team will be headed by Worley Parsons, which is also responsible for the process engineering work, supported by Snowden Mining for the mine planning and mineral resource/reserve estimation and reporting and Environment Resources Management covering the hydrogeological work and the environmental and social permitting.
• The core team will be supported by “other specialised consulting groups” and the study is expected to be completed by the end of 2017.
• “The aim of the FS is to deliver the most economically robust production scenario to produce 14,500 tonnes per annum … of nickel using the proven rotary kiln furnace technology [and] … to position itself as one of the lowest cost nickel producers globally”.
• Horizonte Minerals is “fully funded through to completion of the FS.”
Conclusion: We look forward to the outcome of the feasibility study for the Araguaia nickel project later in the year.
Shanta Gold (LON:SHG) 9.5p, Mkt Cap £55.4m – Changes to Tanzanian mineral concentrates exports rules
• The Tanzanian Ministry of Energy and Minerals released an announcement on Friday banning gold, copper nickel and silver concentrates exports immediately.
• “The Ministry of Energy and Minerals would like to inform the public, companies and individuals involved in minerals extraction that export of mineral concentrates and ores for metallic minerals such as gold, copper, nickel and silver has been banned with effect from 2nd March, 2017,” the statement read.
• Shanta Gold currently produces gold/silver dore bars at its New Luika Gold Mine operations and is not affected by the ruling.
Conclusion: While sudden government policy change does not help the Tanzanian risk profile, Shanta Gold operations will continue intact. We reiterate our buy recommendation with a 13.8p.
(Dec year end) 2014A 2015A 2016E 2017E 2018E
Gold price (incl hedge) US$/oz 1,289 1,163 1,222 1,211 1,152
Gold sales koz 87.8 80.6 86.3 80.3 95.6
AISC US$/oz 941 845 661 802 703
Revenue US$m 114.9 95.7 105.3 99.2 112.5
EBITDA US$m 33.8 32.0 54.4 33.9 46.4
PAT US$m 8.9 -17.3 3.6 9.9 18.7
Basic EPS USc 1.9 -3.7 0.5 1.7 3.2
FCF US$m 11.7 1.1 -18.3 2.5 32.3
EV/EBITDA x 2.9 2.8 1.9 3.3 2.4
PER x 11.0 - 23.5 6.9 3.6
Source: SP Angel, Company
Stellar Diamonds (LON:STEL) 5.3 pence, Mkt Cap £2.0m – Presentation on Tongo-Tonguma
• Stellar Diamonds has released a presentation summarising the Tongo-Tonguma project in Sierra Leone. The presentation is available on the company’s website at https://stellar-diamonds.com/wp-content/uploads/2017/03/Q1_2017_Tongo_Tonguma_Presentation.pdf
• The presentation highlights the economic benefits of the proposed tribute mining agreement with Octea Mining to combine the Tongo and Tonguma mining assets in Sierra Leone.
• Stellar Diamonds’ attributable share of the after tax NPV is US$104m, discounted at 8%, and generates an IRR of 31% over the proposed 21 years minimum mine life.
• The company expects to be able to start production within twelve months with diamond production ramping up to over 200,000 carats per annum by year 4.
• Capital expenditure to initiate production is estimated to be US$32m and approximately $90m over the life of the mine.
• It is estimated that the operation will treat a total of approximately 6.1m tonnes of ore over the 21 years mine life and recover a total of 3.9m carats of diamonds.
• Diamonds from Tongo-Tonguma are expected to command a relatively strong price averaging US$229/carat.
Conclusion: The tribute mining agreement was developed as a solution to problems arising from the reverse takeover status of the original plans to acquire Tonguma.
Vast Resources (LON:VAST) 0.6 pence, Mkt Cap £28.7m – Drilling results from the Faneata Tailings Dam, Romania
• Vast Resources has announced results from the drilling of 33 surface drill holes (630m) at its 80% owned Faneata tailings dam in Romania, which is located 7km from Vast Resources’ Baita Plai polymetallic mine.
• Chief Executive, Roy Pitchford, commented that “Our intention is to utilise our existing plant and equipment at Baita Plai to recover metals from the tailings dam “.
• The drilling work, undertaken during November 2016, was targeted to “support the delineation of a JORC compliant mineral resource” and comprised confirmatory drilling to support an earlier resource estimate prepared in 2011 by El Dore Mining Corporation “which estimated that the 4.6Mt tailings facility contains 4,080 tonnes of copper, 6,640 tonnes of zinc, 3,100 tonnes of lead, , 35 tonnes of silver and 309 kg of gold in situ.”
• Vast Resources expects to publish an updated JORC compliant mineral resource for the Faneata tailings dam by the end of March 2017, but in the meantime the company notes that its drilling has shown significantly higher metal assays than the 2011 work with an average increase of 24% in silver grades (to 9.15 g/t); a 12% increase in copper grades to 0.1% and increases in lead and zinc grades.
• The new resource estimate, when available, will contribute to a feasibility study planned for H2 2017 which will also utilise the results of additional metallurgical test work undertaken “to determine optimum processing routes to recover the contained metals”.
Conclusion: The recent drilling at Faneata suggests that Vast Resources expects to upgrade the historic resource when it completes the new estimation study later this month. Although the average of the new assay results suggests that reported grades may be higher we would not necessarily expect the increase to be in proportion to the increased average for the assays. Of greater significance, in our view, will be the results of the metallurgical testing which will give a guide to the levels of recovery which can be expected from the re-treating of the Faneata tailings. We look forward to these results when they become available.