BlueRock Diamonds* (LON:BRD) 4.5p, Mkt Cap £2.5m – Operational update and £150,000 loan facility
Gem Diamonds (LON:GEMD) 110 pence, Mkt Cap £152m – 2016 Results
Metals Exploration (LON:MTL) 4.1p, Mkt Cap £85m – Runruno update
Ortac Resources* (LON:OTC) 0.03p, mkt cap £2.8m – 1:100 share consolidation
Scotgold Resources (LON:SGZ) 0.55p, Mkt Cap £8.8m – Feasibility Study update for Cononish
Vast Resources (LON:VAST) 0.54 pence, Mkt Cap £24.9m – Update on Pickstone Peerless
FTSE 350 Mining Index is up driven by majors gains on stronger copper and iron ore prices.
• Gold is level ahead of the FOMC announcement later today.
• Base metals gain helped by the slight decline in the US$ index and news over the progress of negotiations at strike hit operations.
• Strike at Cerro Verde, the Peru’s largest copper mine running at c.500ktpa, which began Friday last week has been declared illegal. With more than 1,300 union members out on strike the mine may only be run at around 15% of its normal capacity.
• Brent is about to break its seven day losing streak trading 1.4% higher this morning with the industry-led API data showing US inventories dropped by 531mbbl last week. State EIA data is due later today with estimates for a 10th consecutive weekly increase.
• Iron ore futures gained 5.5% on the Dalian Commodity Exchange on the back of good economic data released yesterday with steel prices closing 1.3% higher in Shanghai. Iron ore with 62% Fe Qingdao cfr price stood at $88.1/t on Tuesday, according to Metal Bulletin.
Iron ore prices jump to US$88.7/t cfr Tianjin vs US$84.2/t
• Iron ore spot prices and futures prices are posting new gains following a short-lived selloff.
• China fixed-asset investment rose 8.8% through January and February vs 8.1% in 2016
• The increase was mainly down to activity infrastructure and property highlighting the effectiveness of government policies to continue to urbanise China
• While Chinese government statements have talked down the GDP growth rate we think this may be more to correct statistical misalignment than to reduce economic activity
• Government policy has been to continue to invest in new infrastructure development on a massive scale with particular focus on new intercity and suburban rail links and energy infrastructure.
• The drive to reduce pollution is important and the closing of inefficient polluting steel capacity does not necessarily mean that China will produce much less metal, just that closed capacity will be replaced by capacity from newer and more efficient plants.
Oil stocks continue to rise despite OPEC agreement on cuts last year
• Oil prices are falling following OPEC announcement that global stock levels had risen
• Saudi Arabian production rose to 10.011mbbls in February from 9.748mbbls in a month earlier
• Saudi Arabia claims to remain ‘committed’ to stabilising the global oil market with output still in line with its target
• We suspect Saudi Arabia is looking to price oil at a level which slows the development of the market for electric vehicles
Dow Jones Industrials -0.21% at 20,837
Nikkei 225 -0.16% at 19,577
HK Hang Seng -0.15% at 23,793
Shanghai Composite +0.08% at 3,242
FTSE 350 Mining +1.79% at 16,016
AIM Basic Resources -0.37% at 2,574
Economics
US – Headline producer inflation climbed more than forecast in Feb with core index (ex food and energy) further strengthening, in line with growing inflationary pressures momentum.
US – Donald Trump’s 2005 tax return has been leaked
• It shows he paid $38m in tax on >$150m in income and declared losses of $103m
• Trump is reported to have paid $5.3m in federal income taxes and an extra $31m in AMT ‘Alternative Minimum Tax’ which Trump wants to abolish
• We wonder if any of this is ‘fake news’?
UK – Strong jobs numbers see unemployment rate drop 0.1pp to 4.7% in three months through Jan, while earnings growth slows slightly through the same period.
• The average number of people employed climbed 92k to 31,854k in 3m through Jan v 31,762k (-6k) in 3m through Oct.
• Slowing earnings growth may see risk to future economic growth amid accelerating inflation levels which would cut real incomes and weigh on consumer demand.
• The pound has come off slightly against the US$ on the release of the news.
• Unemployment Rate (%): 4.7 in 3m through Jan v 4.8% in 3m through Dec and 4.8% forecast.
• Earnings ex Bonus (%yoy): 2.2 in 3m through Jan v 2.6 in 3m through Dec and 2.5 forecast.
Netherlands – Dutch are heading to the polls today in nation’s general elections with PM’s centre-right People’s Party for Freedom and Democracy (VVD) showing only a 2-3pp point lead over rivals.
• The most recent polls show six parties are set to get more than 10% of votes but all capped under 20.
• This suggests the nation is set for negotiations over the coalition government.
Zimbabwe – liquidity situation set to improve as nations tobacco market opens with strong sales expected
• The tobacco selling season has just started in Zimbabwe with a big and high-quality harvest reported following good rains.
• This should have a significant impact on fund inflows into the nation helping to ease currency illiquidity which has been seen for sometime
• Zimbabwe should not have to import so much food this year following higher than normal imports last year due to the drought across southern Africa
• The Zimbabwe government was urged yesterday to adopt the South African rand for the pricing of goods and services and US dollar for savings by Jimmy Pilvos, economist at the Confederation of Zimbabwe Industries. Pilvos urged the Parliamentary Portfolio Committee on Finance to attract more of the large quantity of US dollars in the informal market into the formal system.
• One miner confirmed on the phone this morning that the government remains supportive of their activity and that they are able to operate despite some local liquidity issues.
Currencies
US$1.0630/eur vs 1.0645/eur yesterday. Yen 114.67/$ vs 115.12/$. SAr 13.090/$ vs 13.200/$. $1.223/gbp vs $1.214/gbp.
0.759/aud vs 0.755/aud. CNY 6.912/$ vs 6.913/$.
Commodity News
Precious metals:
Gold US$1,204/oz vs US$1,203/oz yesterday
Gold ETFs 58.4moz vs US$58.3moz yesterday
Platinum US$943/oz vs US$937/oz yesterday
Palladium US$747/oz vs US$751/oz yesterday
Silver US$16.93/oz vs US$16.96/oz yesterday
Base metals:
Copper US$ 5,867/t vs US$5,785/t yesterday – There are slightly differing reports on the union reaction to management proposals at Escondida in Chile.
• One report suggests unionists burned a letter from management yesterday (Bloomberg).
• Another suggests the mine may be about to restart operations despite striking workers again rejected an invitation by BHP (Reports)
• The one think the two news agencies agree on is that the Unions are playing ball
• The Escondida mine plans to restart operations in two areas of the mine which are unrelated to current talks. Escondida, the world’s largest copper mine, is allowed to hire temporary workers under Chilean law after 15 strike days. The Mine is to wait 30 days to show its commitment to dialogue.
Aluminium US$ 1,874/t vs US$1,871/t yesterday
Nickel US$ 10,235/t vs US$10,125/t yesterday
Zinc US$ 2,781/t vs US$2,731/t yesterday
Lead US$ 2,246/t vs US$2,231/t yesterday
Tin US$ 19,880/t vs US$19,395/t yesterday – Reports suggest China may be about to scrap its 10% tin export tariff (Nikkei)
• China has not officially confirmed abolition of the tax but interestingly the tax does not appear on the 2107 list of product-by-product tariff rates published in January
• Tin prices are expected to fall if the tariff is lifted with Chinese traders potentially offering more metal into international markets
Energy:
Oil US$51.7/bbl vs US$51.5/bbl yesterday
Natural Gas US$2.935/mmbtu vs US$3.039/mmbtu yesterday
Uranium US$25.00/lb vs US$24.50/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$88.7/t vs US$84.2/t -
Chinese steel rebar 25mm US$579.6/t vs US$575.3/t
Thermal coal (1st year forward cif ARA) US$64.5/t vs US$65.5/t yesterday
Premium hard coking coal Aus fob US$158.6/t vs US$158.6/t
Other:
Tunsgten APT European US$212-217/mtu (from the 10Mar week) v US$210-217/mtu (from the 03Mar week)
Company News
BlueRock Diamonds* (LON:BRD) 4.5p, Mkt Cap £2.5m – Operational update and £150,000 loan facility
• BlueRock Diamonds reports that it’s new crushing and screening plant at the Kareevlei mine is now fully operational and, despite abnormally wet weather which has increased the moisture content of the kimberlite ore being processed, is operating at approximately 80% of optimal rates.
• The weather is now reverting to a more normal regime and the targeted throughput now appears “well within reach” on a five day working pattern.
• BlueRock Diamonds CEO, Adam Waugh, commented "Kareevlei mine has had a significant overhaul over the last nine months. We have made many changes to the operation and we move into this new phase of increased production with excitement".
• With the operational issues at Kareevlei improving, BlueRock’s new management team is now looking for new opportunities as they identify an “extremely polarised” industry with very large and very small producers which offer potential “to take on attractive, known diamond deposits too small for the larger players and out of reach of the small operators.”
• The company has also announced that it has agreed terms for a £150,000 unsecured loan facility with two of its directors, Tim Leslie and Paul Beck and one of its major shareholders, Mark Poole.
• The loan “has a term of six months and a coupon of 10% per annum, payable at the end of the term.”
Conclusion: As the weather improves we would expect continuing improvements at Kareevlei. Meanwhile, with the continuing financial support of board members and a major shareholder, the company seems to have identified a longer term strategy to evolve as a middle tier diamond producer. We look forward to further announcements as the company moves towards identifying specific assets to advance this strategy.
*SP Angel acts as Nomad & Broker to BlueRock Diamonds
Gem Diamonds (LON:GEMD) 110 pence, Mkt Cap £152m – 2016 Results –
• Gem Diamonds reports after $176.5m of exceptional charges, largely relating to the $170.8m for the impairment of the Ghaghoo mine, it generated a loss of $158.8m.
• Excluding exceptional items, however, Gem Diamonds remains profitable (US$ 32.4m vs US$67.4m in 2015).
• The impact of lower unit revenues (US$1695/carat – 2015 US$2299/crat) resulting from the reduction in the number of large, high value diamonds greater than 100 carats caused overall revenue to fall to US$189.8m (2015 – US$249.5m) despite total diamond production from the flagship Letseng mine remaining stable at 108,206 carats (2015 – 108,579 carats).
• The company ended 2016 debt free with net cash of $3m
• Underlining the company’s belief in the long term fundamental strength of the diamond industry Gem Diamonds emphasised that 2017 will see it working to reduce diamond damage to maximise “our core asset, Letseng”.
• The Ghaghoo mine is to remain on care and maintenance with a focus on cost efficient maintenance.
• “We remain confident about the future of Gem Diamonds and its strategic positioning to weather current challenging commodity prices”
Metals Exploration (LON:MTL) 4.1p, Mkt Cap £85m – Runruno update
• Mining and processing operations are reported to be ramping up slower than had been forecast on the back of “a prolonged period of incessant rainfall and other factors which have restricted the effective mining of waste materials”.
• As a result the grade of the ore delivered to the plant has been lower than expected.
• The Company will start to release quarterly updates with the first one covering a Q1/17 review expected to be out by 30 Apr.
Conclusion: A brief update on the Runruno operations provides little detail on the scale of underperformance relative to budgeted levels and complicates the assessment of the impact of the news. Successful ramp up and running the plant at planned grades, throughput and recoveries are essential in meeting a revised debt repayment schedule with $10.7m and $13.0m due in H1/17 and H2/17, respectively.
On our numbers, assuming throughput and grades improve through the year and reach 80% of 1.75mt capacity, ore grades hitting budgeted 1.95g/t and recoveries showing 90%, we expect the Company to meet its debt repayment obligations. Q1/17 update is likely to provide more information on the progress at Runruno and where operations stand at the moment.
Ortac Resources* (LON:OTC) 0.03p, mkt cap £2.8m – 1:100 share consolidation
• Ortac Resources is enacting a 1 for 100 share consolidation in which the number of shares will be reduced to 82,134,988 from 8,213,507,859.
• The last day of dealings in the existing shares will be 23 March with the consolidation taking place at 6.00pm on that day.
*SP Angel acts as Nomad and broker to Ortac Resources
Scotgold Resources (LON:SGZ) 0.55p, Mkt Cap £8.8m – Feasibility Study update for Cononish
• Scotgold has announced the results of an update to its Bankable Feasibility Study (BFS) for the Cononish gold project.
• The company highlights an improvement in the pre-tax NPV at a 10% discount rate to £43m from an earlier figure of £23m as a result of an increase in the assumed gold price to $1150/oz from $1100/oz and modifications to the TSF (tailings storage facility) from valley fill to a dry stack disposal plan.
• We also note the change in the exchange rate assumption from $1.60/£ in the earlier study to $1.25/£ in the update.
• The company’s revised plan also phases the build-up of throughput to an interim rate of 3000tpm as it moves to the full 6000tpm planned rate.
• The company also comments that “The total capital cost of the processing plant increased from £7.2 million to £10.3 million in the phased approach. This was due to the need to install an interim reduced capacity plant for Phase 1. However, we believe that there are further cost savings possible in the final plant which have yet to be identified fully.”
• Scotgold Resources makes clear that the revised plan will need further planning permission by the Loch Lomond and Trossachs National Park Planning Authority and that it anticipates that the application process will be completed by the end of 2017 and “we expect final permission for underground development work to be granted by Q1 2018.”
• “Subject to permitting and securing the necessary finance, we expect to commence work underground in Q2 2018 and to reach a sustainable First Phase 3,000 tpm by early 2019. The Second Phase increase to 6,000 tpm will be self-funded and is scheduled to be achieved by Q3 2021.”
Conclusion: The modifications to the BFS operational plan and the underlying economic assumptions have enhanced the project returns. We hope that the necessary modicfications to the planning permissions can be achieved within the company’s timescale to a achieve phase 1 throughput of 3000 tpm by early 2019.
Vast Resources (LON:VAST) 0.54 pence, Mkt Cap £24.9m – Update on Pickstone Peerless
• Vast Resources has provided an update on progress of the construction of a sulphide ore processing plant at its Pickstone-Peerless gold mine in Zimbabwe.
• The company reports that “Construction is progressing on time and on budget - first sulphide production is scheduled for Q3 2017” and that the majority of the equipment “is on site and a significant proportion is installed.”
• The sulphide plant is expected to double the primary milling capacity to 40,000 tpm, which in conjunction with an expected increase in grades to “up to 4.00 g/t Au … would provide enormous upside and further enhance the performance of Pickstone-Peerless, which produced an average of over 4,150 oz Au per quarter over the past 12 months from the oxide cap alone.”
• Earlier this year the company announced that it had agreed to sell 49.99% of its 50%interest in its Pickstone Peerless and Giant gold mines in Zimbabwe for S$4m in cash in order to focus on its assets in Romania.
Conclusion: The development of the sulphide plant at Pickstone-Peerless is reported to be on track for first production in Q3 this year.