Bezant Resources (LON:BZT) – Scoping study for the Choco alluvial gold/platinum project
Hochschild Mining (LON:HOC) – 2016 reverses 2015’s loss
Shanta Gold (LON:SHG) – Drilling results from Nkuluwisi
FTSE100 is up 0.1% this morning with miners bouncing off a two-month driven by further weakness in the pound.
• Gold is off for a third consecutive day as the US$ index climbs higher.
• Brent is flat following a drop the previous session (-0.8% in two days) following the report showing an increase in crude US stockpiles.
• Iron ore futures are little changed while steel prices on SHFE drop to eight day low.
• Copper losing streak paused with prices up slightly today but trade some 2.4% down since the start of the week.
UK – The UK could use a Tesla-style battery plant to secure new battery vehicle manufacture
• BMW seems undecided as to where to manufacture the new ‘electric’ Mini in contrast to Nissan which almost immediately pledged commitment to the UK after the Brexit vote.
• BMW has made more than 3m Minis since the new model Mini first started production with >£1.75bn invested into making >2m Minis in the UK.
• 80% of these vehicles are exported with the US as the major export market followed by Germany, China, France and Italy.
• Given that the UK is the largest export market for German car companies and that the UK may well be a better manufacturing location for sales into the US and UK going forward then we suspect the UK may well prove to be a better manufacturing location than BMW’s other mini plants in Austria, Holland and Asia.
• Perhaps if the UK can follow China and Tesla in the construction of Li-ion battery plants with secure feedstock lithium and graphite supply then maybe the UK can become a more certain destination for new battery vehicle manufacture.
Li-on battery pioneer develops new battery with 3x energy density (Fortune)
• The good bit is the battery replaces liquid electrolyte with glass and should charge quickly, never explode and perform well at low temperatures.
• The less good bit is the battery is still in its early stages of development and at a stage of development which normally merits caution
Tesla – correction
• Yesterday we reported that Tesla was to build a $4bn battery plant in Sweden
• The project is being led by two ex-Tesla employees and is not a Tesla project
Dow Jones Industrials -0.14% at 20,925
Nikkei 225 -0.47% at 19,254
HK Hang Seng +0.43% at 23,782
Shanghai Composite -0.05% at 3,241
FTSE 350 Mining +0.55% at 16,047
AIM Basic Resources -1.51% at 2,581
Economic News
US – Trade deficit expanded to the widest in nearly five years on the back of resilient domestic demand.
• Imports climbed 2.3%mom last month reaching the highest level since Dec/14 with strengthening local currency providing tailwind to inbound shipments.
• In particular, the trade deficit widened to $31.3bn with China; whereas, the trade gap with Mexico has contracted to $3.9bn.
China – Customs announced an unexpected trade deficit in Feb as exports contracted (in US$ terms) and imports surged past market estimates.
• The decline in exports was reported despite a weaker renminbi which ended Feb 5% weaker compared to last year.
• A massive jump in imports is partly explained by the timing of weeklong Chinese New Year celebrations which fell on the beginning of Feb last year compared to almost evenly split between January and February in 2017.
• Exports (%yoy, US$ terms): -1.3 v 7.9 in Jan and 14.0 forecast.
• Imports (%yoy) : 38.1 v 16.7 in Jan and 20.0 forecast.
• Trade Balance (CNY terms): -60.4bn v 355bn in Jan and 173bn forecast.
Germany – Industrial production picked up in Jan more than compensating for a drop in Dec .
• The report comes in line with latest business survey reports and suggests the sector is on course to positively contribute to Q1 growth.
• Market estimates are for the economy to keep the pace of expansion at 0.4%qoq in Q1/17, little changed from 0.4%qoq recorded in Q4/16.
• Industrial Production (%mom/%yoy) 2.8/0.0 v -2.4/-0.1 in Dec and 2.7/-0.6 forecast.
UK – The pound is on a weak footing this morning following worse than expected economic data released yesterday and ahead of the UK Budget speech to be delivered by Philip Hammond later today.
• The House of Lords voted in favour of demanding the government to present the final Brexit plan before the Parliament for approval ahead of the implementation stage.
• The Brexit secretary called the vote “disappointing” but remained convinced that amendments are likely to get overturned in the House of Commons.
• UK Chancellor is expected to provide new economic growth and budget deficit forecasts during his appearance in Parliament today.
Spain – Strong industrial production were released this morning with non-seasonally adjusted numbers showing a 7.1%yoy following a 1.5%yoy slip in Dec.
• Although, the increase attributed to a solid growth in energy sector which added 0.9pp to month-on-month growth which would have been negative otherwise since most of other categories recorded a decline.
• Industrial Production (%mom/%yoy, SA): 0.3/2.5 v -0.5/2.0 in Jan and 0.2/2.4 forecast.
Ecuador – The Ecologist reports on Ecuador’s progressive extractivism – mining, ecocide and the silencing of dissent
• A revolt in the South of the country in protest against activities by a Chinese mining company let to the death of a police officer in December as the Shuar tried to reclaim part of their ancestral lands.
• According to The Ecologist, “Ecuador's 'socialist' President Correa has unleashed a wave of repression at Andean communities seeking to protect their lands, forests and nature from open pit mining,”.
• "It seems Ecuador's government is systematically dissolving organisations when they become too vocal or challenge official orthodoxy", the UN experts claim.
• "This strategy to asphyxiate civil society has been implemented through two decrees - 16 and 739 - that give the authorities power to unilaterally dissolve any kind of organisation.
• It’s good to hear of a ‘socialist’ government working towards economic development and job creation in a relatively poor part of the world
Currencies
US$1.0560/eur vs 1.0593/eur yesterday. Yen 113.90/$ vs 113.83/$. SAr 12.993/$ vs 12.946/$. $1.218/gbp vs $1.221/gbp.
0.756/aud vs 0.761/aud. CNY 6.907/$ vs 6.898/$.
Commodity News
Precious metals:
Gold US$1,213/oz vs US$1,225/oz yesterday
Gold ETFs 58.6moz vs US$58.6moz yesterday
Platinum US$955/oz vs US$974/oz yesterday
Palladium US$767/oz vs US$772/oz yesterday
Silver US$17.44/oz vs US$17.72/oz yesterday
Base metals:
Copper US$ 5,783/t vs US$5,830/t yesterday
• The copper market may see a deficit this year on the back of operations disruptions, Aurora Williams, a Chilean mining minister, said at the PDAC conference in Toronto yesterday.
• The strike at Escondida which is estimated to cost 3.4kt in lost copper production per day or 100kt in month has entered its 27th day now.
• At Grasberg copper concentrate exports have been halted since Jan 12.
• The Ministry currently forecasts 2017 average prices of $2.4/lb, but Williams said there is a chance estimates may be revised upwards during the next quarterly assessment.
• However, “ we’re clear that we’re not going back to super-cycle prices,” William added.
Copper smelting vs mine-site metal production
• Bloomberg report today on the oversupply of copper smelting capacity and its impact on copper treatment and refining costs ‘Tc/Rc’.
• Tc/Rcs have risen in recent years due to oversupply from Escondida and Grasberg amongst others.
• We note that while Tc/Rc charges have risen they have yet to include the additional cost of price participation which was cut out of smelting contracts some years ago.
• While it is possible that China could close additional copper smelting capacity to raise Tc/Rc charges it is unlikely that they would do much of this.
• With a surplus of copper smelting and refining capacity miners look likely to retain the upper hand in Tc/Rc cost negotiations meaning that in a capital constrained environment it’s often cost effective for miners to produce concentrates in preference to pure metal.
• However, Indonesia and now Tanzania are imposing restrictions on copper concentrate exports which may change the equation in certain instances.
Aluminium US$ 1,881/t vs US$1,870/t yesterday – three global aluminium producers ask for 42% qoq rise in premiums to $135/t for shipments to Japan in Q2 (Reuters)
• Aluminium producers are following premium rises in the US and have noticed a drawdown in Japanese stock levels. One end-uses said they would aim to settle at $120-125/t
Nickel US$ 10,620/t vs US$10,965/t yesterday – Tesla reckons its batteries should be called nickel-graphite batteries
• A 50kWh Tesla Li-ion battery is said to contain 40kg Li, 15kgs Co, 35kgs Ni, and 50kgs of carbon in from graphite
Zinc US$ 2,705/t vs US$2,705/t yesterday
Lead US$ 2,237/t vs US$2,221/t yesterday
Tin US$ 19,255/t vs US$19,350/t yesterday
Energy:
Oil US$55.6/bbl vs US$56.0/bbl yesterday
Natural Gas US$2.893/mmbtu vs US$2.874/mmbtu yesterday
Uranium US$26.25/lb vs US$25.75/lb yesterday – Azarga Uranium says Powertech unit has received notice of two draft permits for the Dewey Burdock uranium project
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$81.6/t vs US$81.8/t
Chinese steel rebar 25mm US$572.3/t vs US$573.0/t
Thermal coal (1st year forward cif ARA) US$64.3/t vs US$66.4/t yesterday – China will not force coal mines to cut output on a large scale according to a Reuters report
• "NDRC is unlikely to introduce any form of output cut, as it caused too much turbulence to the market last year," said Zhang Wuzong, president of Shiheng Special Steel Group in Shandong, on the sidelines of parliament's annual meeting.
• The rhetoric differs from official statements which suggest the government is preparing to crack down on polluters and cut production levels once the weather warms up.
• It may be preferable for China to import more better quality coal to ensure lower air pollution from coal fired power plants.
• The government announced a 150mt coal reduction this year but with spot physical prices at around Rmb650 ($94.2/t) the government may not enforce restrictions just yet.
Premium hard coking coal Aus fob US$163.1/t vs US$163.1/t
Tunsgten APT European US$210-217/mtu (from the 03Mar week) v US$197-207/mtu previously
Company News
Bezant Resources (LON:BZT) 2.3 pence, Mkt Cap £4.6m – Scoping study for the Choco alluvial gold/platinum project
• Bezant Resources has announced the highlights of its scoping study for the Choco gold/platinum alluvial project in western Colombia.
• Based on an 1800 cubic metre per day throughput for the stage 1 project the company expects to produce 2200oz pa of platinum and 1467 oz pa of gold at a cost of “US$768 per ounce total cost of production for platinum and gold recoveries”.
• Although the capital cost of the project is not clear at this stage, the company expects that, using “current metal prices (US$965 per ounce of platinum and US$1,176 per ounce of gold” and a 10% discount rate the project will generate a post-tax NPV of US$2.8m over 5 years and will deliver an IRR of 32%.
• “Bezant believes that an initial production plant can be mobilised, brought into production and be capable of achieving initial operational profits within twelve months of commencing operations.”
Conclusion: The company is awaiting further sampling results which may flesh out the details in the scoping study. Alluvial mining of precious metals is relatively uncommon in a public company though widespread in the artisanal mining arena. We look forward to further news on Bezant’s development proposal in due course.
Hochschild Mining (LON:HOC) 232 pence, Mkt Cap £1,175m – 2016 reverses 2015’s loss
• Hochschild Mining reports a 2016, pre-tax profit of US$108.3m reversing the 2015 loss of US$256.2m. After tax, the company reports a profit of US$62.9m (2015 – loss of US$239.7m).
• The improved financial performance reflects record attributable production in 2016 with 17.3m oz of silver and 246 koz of gold representing 35.5m equivalent ounces of silver - a 31% increase on the 27.0m oz of attributable equivalent oz achieved in 2015 and a 13% reduction in all-in-sustaining costs (AISC) to $11.2 per equivalent oz of silver.
• The improved operational performance led to the generation of US$188.7m of free cash flow before financing (2015 - outflow of US$90.1m) and underpinned a debt repayment of US$127.4m leaving the company with net debt of US$187.4m at 31st December 2016 (December 2015 – US$350.5m) and reducing gearing to 19.1% from 31.4%.
• The new Inmaculada mine in Peru produced around 30% (4.9moz) of the group’s attributable silver production and 66% (162,7100 oz) of its gold output at an AISC of $8.7/oz of equivalent silver (or $644/oz of equivalent gold production).
• The Arcata mine, which is described as having “its best year since 2010” produced 6.3m oz of silver and 22,540 oz of gold at an AISC of $13.7/oz of silver equivalent, partly as a result of improved grades of both silver (up 4% to 337g/t) and gold (up 25% to 1.24 g/t).
• Production of both silver and gold declined at the Pallancata mine where ore production declined by over 50% to 245kt as a result of measures to prepare the mine for commercial production on the new Pablo vein in 2017 were exacerbated by “a reduction in the mine’s output due to a road blockade by members of a local community which halted production from early November 2016 … with production re-commencing on 25 January 2017”. The lower throughput more than outweighed the impact of an almost 50% increase in the mined grades of both silver (381g/t) and gold (1.86g/t)
• Both silver (6.7m oz) and gold (95koz) production were maintained at the San Jose mine in Argentina where AISC declined by 18% to $11.5/oz of silver equivalent output.
• The company is maintaining its previously announced, upgraded, target of 37m oz of equivalent silver production in 2017. AISC target for 2017 is “expected to be $12.2-12.7 per silver equivalent ounce”.
• The company is also providing guidance that “Total sustaining and development capital expenditure [is] expected to be approximately $120-130 million including $20 million to develop the Pablo vein and its surrounding infrastructure”.
• The company is proposing a final dividend of 1.38 cents per share.
Conclusion: The improved operational performance with increased production and strict cost control have enabled the company to make sizeable reductions in debt during 2016 and these trends seem likely to continue into 2017.
Shanta Gold (LON:SHG) 8.9p, Mkt Cap £51.7m – Drilling results from Nkuluwisi
• Shanta Gold has reported results from a 44 holes, 5,833 metres, programme of reverse-circulation drilling at its Nkuluwisi target located approximately 12 km northwest of the company’s New Luika gold mine in Tanzania.
• The results, which cover approximately 900m of the Nkuluwisi shear zone to a depth of up to 200 metres, includes high grade intersections of 13m grading 6.3g/t gold from a depth of 60m in hole SGR090; 15m grading 4.2g/t from 27m in hole SGR185; 4m averaging 5.5g/t from 7m in hole SGR088 and 12m averaging 3.5g/t gold from 54m in hole SGR186.
• The results will be incorporated in a maiden mineral resource estimate for Nkuluwisi “anticipated to be delivered in Q2 2017”.
• Commenting on the success of Shanta Gold’s exploration team in this phase of work at Nkuluwisi, CEO, Toby Bradbury, highlighted that “The grades and thicknesses of the mineralisation at Nkuluwisi are very encouraging. The deposit remains open at depth, and strike, and we are confident that further exploration will add to the forthcoming expected maiden resource at Nkuluwisi".
Conclusion: The successful drilling campaign at Nkuluwisi continues a number of recent successes in identifying satellite deposits at Ilunga and at Elizabeth Hill. We llook forward to the initial resource estimate for Nkuluwisi later this year.