Asiamet Resources (LON:ARS) – BKM drilling update
Kodal Minerals* (LON:KOD) – Chinese offtaker preparing to buy £4.3m of stock at 65% premium following initial £0.5m investment at 30% premium
Strategic Minerals* (LON:SML) BUY – Target Price 1.31p – Initiation Report - Opening a new era in Cornish tin
Tri-Star Resources* (LON:TSTR)– Oman antimony roaster update
Neanderthals may have medicated with penicillin and painkillers (New Scientist)
• We think we know a few who still do. Specimens are to be found in Spain, probably on the Costa del Sol.
Dow Jones Industrials +0.01% at 20,858
Nikkei 225 +1.48% at 19,605
HK Hang Seng +0.29% at 23,569
Shanghai Composite -0.12% at 3,213
FTSE 350 Mining +0.53% at 15,350
AIM Basic Resources -0.55% at 2,552
Currencies
US$1.0617/eur vs 1.0549/eur yesterday. Yen 115.40/$ vs 114.58/$. SAr 13.277/$ vs 13.209/$. $1.217/gbp vs $1.216/gbp.
0.753/aud vs 0.752/aud. CNY 6.918/$ vs 6.908/$.
Commodity News
Precious metals:
Gold US$1,197/oz vs US$1,205/oz yesterday
Gold ETFs 58.5moz vs US$58.5moz yesterday
Platinum US$939/oz vs US$946/oz yesterday
• Platinum supply climbed only slightly last year (+1%yoy/+60koz at 8.0moz) as an increase in recycling more than compensated for a drop in mine supply.
• A decline in mine supply (-2%yoy/-120koz at 6.0moz) was led primarily by a weaker production in South Africa, the world’s largest supplier of the metal.
• South Africa mine supply was down 5% to 4.2moz “owing to a higher number of safety-related stoppages, price-induced restructuring on the Western Limb and more general operational challenges which resulted in lower underground ore volumes being hoisted at other Western Limb mines”.
• Mine supply climbed in Zimbabwe (+19%yoy/+75koz at 480koz) and North America (+6%yoy/+25koz at 410koz) with production in Russia flat (715koz).
• Platinum demand was virtually flat (0%/-5koz at 8.2moz) as stronger industrial sector demand (+5%yoy/+90koz at 1.6moz) mostly driven by an expansion of petroleum refining capacity (+80koz), good investment interest (+66%/+200koz at 0.5moz) and robust automotive industry demand (+1%yoy/+20koz at 3.4moz) were matched by a reduction in platinum jewellery demand (-11%yoy/-315koz at 2.6moz).
• In the automotive sector, higher loadings of the metal in autocatalysts made up for a drop in the share of diesel engines in total car sales in Western Europe, one of the world’s largest diesel cars markets.
• While auto sales in the EU climbed to the highest in nine years in 2016 with all five largest markets (Germany, UK, France, Italy and Spain) posting growth, the share of diesel cars fell 2.5pp to 49.6% in 2016.
• Jewellery demand fell victim to a significant drop in China amid sluggish retail demand and jewellers working through their stockpiles from 2015.
• Investment demand held up well thanks to close to no liquidations in ETFs holdings last year (-10koz v -240koz in 2015).
• Despite the market posting the fifth consecutive deficit, 2016 was the year when average platinum prices recorded a fifth consecutive annual decline amid ample inventories available in the marketplace.
• Outstaying above ground stocks stood at 2.1moz as of 2016, according to the WGIC.
• 2017-wise, the WGIC forecasts the market to remain in a structural deficit (-120koz v -270koz in 2016) which should help to cut outstanding stocks further (2.0moz as of 2017e).
• Mine supply is forecast to post another annual decline in 2017 (-2%yoy/-110koz) with South African production down due to the “closure of loss making production and depletion at a handful of small-scale UG2 operations on both the Western and Eastern limbs”.
• Automotive demand is set to remain flat amid a slowdown in auto sales in Europe on the back of regional political uncertainty.
• Investment demand is forecast to moderate, although it may to be too conservative as it has been in the past.
• “The platinum price is expected to be somewhat higher in 2017 than 2016 and ETF hlidngs are estimated to increase modestly”.
Palladium US$746/oz vs US$764/oz yesterday
Silver US$16.88/oz vs US$17.19/oz yesterday
Base metals:
Copper US$ 5,708/t vs US$5,695/t yesterday
Aluminium US$ 1,892/t vs US$1,871/t yesterday
Nickel US$ 10,095/t vs US$10,125/t yesterday
Zinc US$ 2,693/t vs US$2,655/t yesterday
Lead US$ 2,253/t vs US$2,212/t yesterday
Tin US$ 19,315/t vs US$19,130/t yesterday
Energy:
Oil US$52.5/bbl vs US$53.7/bbl yesterday
Natural Gas US$3.006/mmbtu vs US$2.909/mmbtu yesterday
Uranium US$25.25/lb vs US$25.65/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$80.9/t vs US$81.2/t
Chinese steel rebar 25mm US$570.0/t vs US$570.8/t
Thermal coal (1st year forward cif ARA) US$64.5/t vs US$64.3/t yesterday
Premium hard coking coal Aus fob US$161.0/t vs US$163.1/t
Other:
Tunsgten APT European US$210-217/mtu (from the 03Mar week) v US$197-207/mtu previously
Company News
Asiamet Resources (LON:ARS) 4.25p, Mkt Cap £30.2m – BKM drilling update
• Asiamet Resources reports that it has now completed 93 holes (9050m) of its infill drilling programme at the BKM project in central Kalimantan. The company has released the results from the latest 9 holes located in the northern part of the deposit and comments that three holes are currently underway and “a further 25 holes / 1950 metres are planned and an updated Resource estimate incorporating all of the 2016-2017 drilling will be prepared for release shortly thereafter.”
• Highlights of the results released today include:
o 93m at an average grade of 0.72% copper from a depth of 8.5m in hole BKM 32565-01
o 67m at an average grade of 0.63% copper from a depth of 20.0m in hole BKM 32660-01
o 47m at an average grade of 0.68% copper from a depth of 77.0m in hole BKM 32650-04
o 58.1m at an average grade of 0.48% copper from a depth of 3.0m in hole BKM 32090-01 and
o 75m at an average grade of 0.43% copper from surface in hole BKM 32065-01
• As well as the results of the infill drilling campaign, recently appointed Chief Executive, Peter Bird, commented that “several additional strategic and high value targets outside of the current resource envelope are being targeted for drill testing”
Conclusion: Asiamet Resources’ infill drilling campaign continues to intersect wide, near-surface copper mineralisation within the main BKM area and has also identified additional targets for follow-up drilling. We look forward to the forthcoming resource estimate
Kodal Minerals* (LON:KOD) 0.325p, Mkt Cap £17m – Chinese offtaker preparing to buy £4.3m of stock at 65% premium following initial £0.5m investment at 30% premium
• Suay Chin International Pte Ltd which has strong support from Shandong Mingrui Chemical Co Ltd has taken an initial stake in Kodal Minerals.
• The Chinese group ‘has’ paid for £500,000 worth of shares at a price of £0.003 per share highlighting its interest in the company and not just the Bougouni lithium project.
• Suay China is now undertaking due diligence which, if successful, will increase its shareholding in Kodal to 20% of the company at a price of £0.0038/s for a further cash investment of £4.3m representing a 65% premium to yesterday’s closing share price.
• Kodal and Suay Chin International have agreed to start talking about an off-take agreement over 20% of the spodumene concentrate to be produced from Kodal’s Bougouni project.
• Kodal is about to recommence drilling its Bougouni lithium project in Mali with similar-ish results to Birimian Limited’s results at its closely named and more advanced Bougouni Goulamina project in Mali.
• Anecdotal evidence indicates there is a supply shortage of lithium feedstock in China which is causing prices to rise dramatically particularly for smaller contracts.
• This appears to be causing Chinese companies to move quickly to take stakes in promising, higher-grade, lithium projects around the world where processing routes are reasonably well defined.
• Lithium Carbonate prices which were generally considered to be around 6,500-8,500/t last year are now reported to vary between $10,000-18,000t for larger contracts and $18,000-21,000/t for smaller contracts in China. We suspect the larger contracts are still being priced towards the lower end of the range but Tesla’s entry into the market for its new Gigafactory and rising demand in China, Japan and South Korea is raising prices significantly for smaller contracts.
• Morningstar estimates a potential supply shortfall of 100,000t by 2025 as lithium demand rises 16% each year till then
Conclusion: The subscription shows how serious Chinese companies are in securing future lithium supply and confirms our view that the Bougouni area of Mali looks like is may make a meaningful lithium production centre in future years.
Shandong Mingrui has previously offered to buy Birimian Limited for A$107.5m but the deal fell over when Shandong failed to deliver A$10.75m into an escrow account in January.
Suay Chin International Pte Ltd was set up in January this year specifically to act as a trading group for the supply and source of lithium feedstock into the Chinese Lithium market.
The Suay Chin team is said to be well connected, funded and with relevant industry experience and to have support from key Chinese manufacturers.
The statement says that Suay Chin has strong support from Shandong Mingrui which is a long-term supplier to existing lithium carbonate producers in Shandong Province.
The race to secure feedstock materials for battery producers is hotting up with Chinese companies moving to grab higher-grade lithium projects and prospects. This follows China’s recent multi-billion purchase of the Tenke Fungurume copper, cobalt mine in the DRC.
*SP Angel acts as Financial Advisor and Broker to the company. Robert Wooldridge, a partner at SP Angel is also Chairman of Kodal Minerals.
Strategic Minerals* (LON:SML) 0.725 p, Mkt Cap £8.6m – Initiation Report - Opening a new era in Cornish tin
BUY – Target Price 1.31p
Key Points
• Strategic Minerals is commencing drilling of its 50% owned Redmoor tin prospect in a historic tin mining district of Cornwall.
• The new, 23-hole, programme is aimed at upgrading and expanding the high grade part of the current inferred resource base of 13.3m tonnes at an average grade of 0.21% tin, 0.32% copper and 0.16% WO3.
• Early stage exploration in Western Australia has confirmed the mineral potential of the Hann’s Camp tenement and encountered grades of up to 1% nickel in two of the three exploration holes drilled to date along with cobalt grades of up to 1.85% over a 2km long strike.
• The cash flow from the Cobre magnetite business more than covers corporate costs and distinguishes Strategic Minerals from many of its peer group as a profitable company.
• Our Base case, based on a “sum-of-the-parts” estimate, values Strategic Minerals at £16.0m or 1.31p/share.
• We see scope to enhance this valuation if the forthcoming drilling programme at Redmoor generates an increased and/or enhanced ore resource estimate.
Summary
• Unlike many of its junior mining peers group, Strategic Minerals’ Cobre magnetite business in New Mexico provides a source of cash flow to support both corporate costs and the continuing exploration of its Cornish and Western Australian projects.
• The portfolio of both Australian nickel/cobalt and Cornish tin projects further diversifies the company’s risk profile from both a commodity and geographical perspective, while retaining the benefits of operating in developed economies with ready access to infrastructure, expertise and support services.
• The forthcoming drilling programme in Cornwall seeks to extend the vertical and lateral extent of the known deposit at Redmoor and to upgrade the resource estimate from its current inferred status. A successful outcome to this programme provides potential uplift to our base case value estimate of £16.0m.
• Strategic Minerals is relatively unusual among the junior AIM listed mining companies in having a cash generative asset from its access to the Cobre magnetite stockpile in New Mexico. Although the group’s more high-profile activities comprise nickel/cobalt exploration in the Hann’s Creek area of Western Australia and the potential rejuvenation of a promising tin district at Redmoor in eastern Cornwall, Cobre provides an important financial safety net which can cover the Group’s central overheads.
• We have assessed the constituent parts of the company to derive a range of values between £16.0m to £22.4m as summarised in the table below:-
Summary
Redmoor (SNC 50%) Cornwall Resources Limited JV
• The Redmoor area is an historic tin mining area with a recorded tin, tungsten, lead, silver and copper production from the eighteenth century until closure in 1888. The mines reopened briefly between 1907 and 1914 and again in 1934 and 1943. There was some drilling, amounting to around 12,000 metres conducted during the early 1980s and Strategic Minerals is now planning to drill a further series of exploration holes during 2017 with a view to upgrading and expanding the 13.3m tonnes inferred resource averaging 0.21% tin, 0.16% tungsten trioxide and 0.32% copper which was established using the 1980s drilling.
• We estimate the value of Redmoor based on a direct comparison with the market value of the owner of the other 50% of the project and also by comparison with the market value of a basket of 4 other companies with advanced tin exploration/development projects around the world. On this basis, we estimate that Strategic Minerals’ interest in Redmoor is worth between £6.9m and £8.2m although there remains scope for an upgrading of this valuation in the event of a successful drilling campaign.
• Strategic Minerals holds a 50% interest in over 400 km2 at Hann’s Creek in the Laverton area of Western Australia (Central Australian Rare Earths 50%). An initial three-hole drilling programme in June 2016 encountered nickel mineralisation in excess of 20m down-hole width in two of the 3 holes drilled. Recent analysis also shows the presence of prospective levels of cobalt mineralisation.
• Based on the market valuation accorded to the ground holdings of 5 other nickel explorers in the region, we estimate that we estimate that Strategic Minerals’ holding is worth between £6.55m for the weighted average of the cohort of companies and up to £10.9m if the interest attracts the valuation achieved by the most highly rated of the peer group, GME Resources which has defined a measured, indicated and inferred resource of 81mt at an average grade of 1.03% nickel and .006% cobalt.
• Cobre is building its magnetite sales volumes, albeit at lower margins. Our conservative estimates suggest earnings of around US$670k pa which, at current exchange rates and on multiples between 6x and 10x earnings, could be worth £3.3m to £5.5m or 0.27p to 0.45p per share to Strategic Minerals.
Hann’s Camp Nickel/Cobalt (50%)
Cobre
Tri-Star Resources* (LON:TSTR) 0.19p, Mkt Cap £16.1m – Oman antimony roaster update
(Tri-Star holds 40% of SPMP)
• Tri-Star has released its annual results for 2016 and is reporting a sharply reduced loss of £832,000 compared with the £7.19m loss recorded in 2015. Although, in 2015, Tri-Star incurred a £4.2m impairment charge which is not repeated this year, the company reports a 57% reduction in administrative costs and a fall of over 60% in directors remuneration.
• The company takes the opportunity to provide an update on progress on the development of the 40% owned Oman Antimony Roaster (OAR) where the project remains on course for hot-commissioning by the end of 2017 and “commercial production in 2018”.
• Construction is now well underway with contracts awarded covering “approximately two-thirds, by value, of an updated estimated $80 million capital budget”. Long-lead time equipment, including three furnaces which were ordered in August 2016, is already on order and the company anticipates the “first antimony being produced in Q1 2018.”
• The updated capital cost estimate of $80m includes some $10m to add a gold recovery circuit capable of producing 50,000oz pa of gold from metallurgically complex mineral concentrates, as well as accommodating a number of flowsheet enhancements and a 39% increase in treatment capacity to produce up to 26,000 tpa of antimony.
• The company highlights the potential 45% revenue enhancement of treating these challenging refractory gold ores which it estimates constitute between “30% - 50% of remaining gold in the ground. The second phase of SPMP’s proposed antimony plant in Oman envisages a refractory gold roaster that solves this problem efficiently and at low cost to provide potentially a very valuable alternative processing route…”.
• The development of the OAR, incorporating up to date advanced environmental technology to control emissions, comes at a time when “Chinese smelters face closure by environmental inspectors due to those facilities’ high pollution emissions”.
• “Since financial year end, SPMP has announced … that it has successfully renewed its preliminary environmental permit for the third consecutive year”.
• In other parts of the business, Tri-Star “completed the rationalisation of its operations in Canada, selling (in January 2016) a portion of historically held gold assets (the Golden Pike discovery) and ceasing further exploration at Bald Hill, for the time being.”
• Tri-Star holds cash of £350,000 as of 29th February.
Conclusion: Tri-Star reports that it is on track for completion of the OAR by the end of the year and first antimony production in Q1 2018. The addition of a gold recovery circuit to the plant provides potential for a second revenue stream in what could be an increasingly important business treating refractory gold ores. We look forward to further news as project development advances through the year.
*SP Angel acts as Nomad and Broker to Tri-Star Resources