Highland Gold (LON:HGM) – 2016 earnings beat market estimates
Hummingbird Resources (LON:HUM) - $60m loan agreement signed with local lender
Kodal Minerals* (LON:KOD) – Bougouni lithium project update and due diligence
Solgold* (LON:SOLG) – Hole 22 shows Alpala Central high grade core extends around 200m closer to surface
Tethyan Resources* (LON:TYM) – Drilling starts at Rudnitza copper porphyry project in Serbia
Coking coal prices continued to surge on supply disruptions in Australia with local coking coal closing at £300.3/t on Monday coming close to a record $308.8/t reached in Nov last year.
• Gold is rangebound this morning trading around the $1,257/oz level.
• G7 foreign ministers are wrapping up a two day meeting in Lucca, Italy, discussing next move in the escalated Syrian conflict.
• The US Secretary of State Rex Tillerson is meeting his counterparts in Moscow in an effort to persuade Russia to drop support for the Bashar al-Assad.
• Iron ore futures were little changed on the DCE holding at 5-month low with steel rebar prices off 0.6% trading around the lowest over the last quarter.
• Iron ore slipped to $75.5/t 62% Fe Qingdao on Friday last week taking it in the bear market as prices fell more than 20% since this year’s high of $94.9/t hit in Feb on concerns over the steel sector demand and record high stockpiles, according to MetalBulletin.
• Brent is trading at the highest in nearly a month climbing c.12% over the last two weeks on increased geopolitical risks in Syria as well as the news over disruptions at Libya’s major oil field.
• Libya’s National Oil Corp declared force majeure on shipments from the Zawiya oil terminal as production stopped at the Sharara field.
• Russia is looking to start talks with local producers over the possibility of extending a production cap deal with OPEC, according to Russian Energy Minister Alexander Novak.
Dow Jones Industrials +0.01% at 20,658
Nikkei 225 -0.27% at 18,748
HK Hang Seng -0.87% at 24,050
Shanghai Composite +0.57% at 3,288
FTSE 350 Mining -0.04% at 15,997
AIM Basic Resources +0.11% at 2,676
Economic News
China – Auto sales growth slows in Q1/17 reflecting the effect of front loaded purchases in 2016 ahead of the expiration of tax breaks on small engine vehicles at the of this year.
• While authorities indicated that the tax would be doubled to 10% in 2017, the rate was raised to only 7.5%.
• Q1/17 sales growth came in at 7%, down 2pp from the rate recorded in the Jan-Feb.
UK – Non-food retail sales contract the most in nearly six years as accelerating inflation puts pressure on consumer demand.
• Retail sales, excluding good dropped 0.8%yoy in Q1/17, according to the BRC data.
• Narrowing gap between earnings and consumer prices growth raises concerns over the domestic consumption outlook.
• Although some of the decline is explained by the timing of Easter holidays which fell in Mar last year.
• Inflation numbers released this morning showed consumer prices growth held up at the highest level in over two years in Mar.
• CPI (mom/yoy%): 0.4/2.3 v 0.7/2.3 in Feb and 0.3/2.3 forecast.
• Core CPI (yoy%): 1.8 v 2.0 in Feb and 1.9 forecast.
Mexico - The peso is one of the best performing currencies this year marking a remarkable turnaround from last year.
• The currency is up 11% since the start of Jan on the back of the news that the Fed is unlikely to accelerate the pace of its monetary policy tightening as well as softer rhetoric from Washington directed at the US neighbour.
Currencies
US$1.0584/eur vs 1.0584/eur yesterday. Yen 110.53/$ vs 111.29/$. SAr 13.939/$ vs 13.859/$. $1.241/gbp vs $1.239/gbp.
0.750/aud vs 0.748/aud. CNY 6.902/$ vs 6.908/$.
Commodity News
Precious metals:
Gold US$1,257/oz vs US$1,254/oz yesterday – Top Barrick Gold executives are meeting Argentina authorities as the government threatened to cancel the Veladero mining license on the day the Company agreed to sell half the asset.
• The escalation of the government rhetoric builds on the cyanide leak incident at the mine on Mar 28.
• Barrick Gold announced a $960m deal with Shandong Gold covering a divestment of a 50% interest in the Veladero mine.
• The deposit hosts 6.7moz in reserves and is targeted to yield 770-830koz in gold production at $840-940/oz AISC in 2017.
Gold ETFs 59.2moz vs US$59.1moz yesterday
Platinum US$943/oz vs US$953/oz yesterday
Palladium US$792/oz vs US$800/oz yesterday
Silver US$17.94/oz vs US$17.94/oz yesterday
Base metals:
Copper US$ 5,739/t vs US$5,792/t yesterday - Indonesia is planning to establish a state mining company by Oct/17, a vehicle to be used to nationalise the majority stake in Freeport Indonesia.
• The proposed vehicle is expected to sell bonds or use state lenders to fund the stake purchase, a government official said.
Aluminium US$ 1,921/t vs US$1,945/t yesterday
Nickel US$ 10,135/t vs US$10,135/t yesterday
Zinc US$ 2,580/t vs US$2,663/t yesterday
Lead US$ 2,236/t vs US$2,246/t yesterday
Tin US$ 19,920/t vs US$20,200/t yesterday
Energy:
Oil US$55.9/bbl vs US$55.5/bbl yesterday
Natural Gas US$3.249/mmbtu vs US$3.238/mmbtu yesterday
Uranium US$23.50/lb vs US$23.50/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$71.7/t vs US$72.0/t
Chinese steel rebar 25mm US$537.6/t vs US$543.5/t
Thermal coal (1st year forward cif ARA) US$65.3/t vs US$66.6/t yesterday
Premium hard coking coal Aus fob US$300.3/t vs US$283.1/t
Other:
Tungsten - APT European prices $205-215/mtu vs $208-216/mtu
Company News
Highland Gold (LON:HGM) 181p, Mkt Cap £590m – 2016 earnings beat market estimates
• Revenues were up 10.8% at $305.9m (2015: $276.2m) reflecting slightly higher gold equivalent sales of 267.3koz (+3.5%) and stronger gold prices $1,251 (+7.8%).
• TCC and AISC averaged at $454/oz and $652/ozm, respectively (2015: $480/oz and $640/oz).
• EBITDA climbed 21.9% to $162.5m (2015: $133.3m) reflecting “strict expenditure controls, a higher gold price, efficiency improvement and the weakness of Russian Rouble versus the US$”.
• Net Income came in at $47.9m (2015: -$10.0m) .
• Strong FCF generation during the year of $58m (2015: $38m) allowed the Company to cut outstanding debt and more than doubling dividends for the year v 2015.
• Net debt reduced to $205.5m (2015: $231.4m) and the respective ND/EBITDA ratio fell to 1.26x (2015: 1.74x).
• Board proposed a final dividend of 5.4p which coupled with the interim dividend of 5p (paid on 13 Oct/17) equates to a total dividend of 10.4p for the year.
• This compares to a 4.5p total dividend recorded in 2015 and is equivalent to 5.8% yield on the current share price.
• On operations highlights and outlook, total production came in line with management estimates at 261.2koz, close to the record 262.5koz reported in 2015, with 2017 guidance reiterated at 255-265koz.
• The Company placed strong focus on exploration in 2016 with 74,000m of drilling completed and launched an audit of the existing reserve base MNV, Novo, BG, Blagodatnoye and Kekura with the updated mineral reserves statement due over the next six months.
• In particular, the team has been successful in extending the MNV life of mine to by another four years beyond the previously estimated 2018. Updated JORC-compliant reserves at MNV and Novo are due in Q2/17.
• Two major development projects – an expansion to the Novo mining and processing rates from 0.7mtpa to 1.3mtpa and the construction of the greenfield Kekura project – progress on schedule:
o At Novo, expanded 1.3mtpa capacity is due for commissioning in mid-2018 ramping up to full capacity targeted by the end of same year.
o At Kekura, a DFS is in final stages with completion expected in Q3/17; commercial production targeted for 2020. Of interest is government sponsored power infrastructure project in Chukotka that is planned to be developed in 2019-20 in time for the Kekura commissioning and allow the Company to save significantly on access to cheap power from the grid versus currently envisaged supply from on-site diesel generators.
o Operational issues at Belaya Gora including grade dilution and low gold recoveries are being addressed with brought in consultants working on an updated mining schedule and an installation of leaching tanks to improve gold recoveries. PFS is being prepared for completion in Sep-Oct/17 which would include updated reserves at Belaya Gora and Blagodatnoye based on the CIL processing of mined ores.
Conclusion: A good set of results released this morning beat market estimates (Bloomberg EBITDA estimates $142.3m) as production stabilises in the 255-265koz range while good control on costs coupled with benefits of lower USDRUB rate allow filter into strong earnings margins and FCF. The decision to increase dividends for the year highlights management confidence in business cash flow generation capacity as well as available access to bank funding to complete development projects.
Hummingbird Resources (LON:HUM) 25.9p, Mkt Cap £88.8m - $60m loan agreement signed with local lender
• The Company entered into a loan agreement with Coris Bank International for CFA37bn ($60m) over a four-year term.
• The loan carries a 9% interest and includes a 12-month capital repayment deferral.
• $25m draw down is expected to be completed shortly to cover the outstanding $25m bridge loan facility with Taurus Mining Finance.
• New debt facility “provides the Company with sufficient working capital to complete the mine build at Yanfolila at a lower cost and without any royalty commitment,” CEO Dan Betts said commenting on the announcement.
Kodal Minerals* (LON:KOD) 0.3p, Mkt Cap £16m – Bougouni lithium project update and due diligence
• Kodal Minerals reports that due diligence with Suay Chin International, Kodal’s Chinese strategic partner is now substantially complete.
• Suay Chin is looking to put a further £4.3m into Kodal Minerals to support the development of the Bougouni project and raise its holding to around 20% of the company.
• The company also updates us on its 5,000m ‘RC’ drill program which is covering four prospects including three which are previously undrilled.
• Suay Chin: We met with the CEO of Suay Chin, a Singapore based lithium trading company yesterday, yesterday along with their specialist lithium consultant to discuss lithium supply, pricing, supply and processing issues.
• The company appears keen to source higher-grade lithium ‘spodumene’ concentrates for processing into battery grade lithium.
• Analysis of lithium concentrate consumers and producers looks like a game of musical chairs but a game where the players don’t get to move much and where not having a chair to support your production means you can not expand to meet new demand.
• We suspect all the major Chinese lithium processors are looking to expand their battery grade production and will be looking to sign up further sources of supply.
• Suay Chin’s Chinese lithium specialist was pessimistic on the longer term outlook for lithium pricing but sounded bullish over its short to medium term prospects.
• The specialist forecast that lithium carbonate prices should fall from Rmb120,000/t to a longer term price of around Rmb80/t. Spot LiC prices hit a highs of ~Rmb180,000/t in China last year before pulling back.
• They also reckon some 60% of the battery anode cost as coming from lithium raw material making the sourcing and pricing of this material critical for processors.
• Spodumene is preferred over other raw materials due to its higher lithium content (~8%) within the spodumene mineral and low mica content.
• Micas naturally contain less lithium mineral (~4%), generally more impurities, stick to furnace linings and produce more dust which is an increasing environmental issue within China.
• Pegmatites which are mica rich are therefore more expensive to process and effectively reduce the productive capacity of processors.
• So processors are typically looking for the right sort of ‘spodumene’ from pegmatites to gain advantage over their competitors.
• Suay Chin made no comment on its due diligence with Kodal Minerals but we were impressed with their openness, pragmatic forward thinking and surmise that Kodal’s Bougouni Lithium Project may well prove to be the sort of pegmatite spodumene they may be looking to support.
• “Sample testing by Suay Chin has confirmed assay values up to 2.12% Li2O for the Ngoualana prospect and returned assay values up to 1.82% Li2O for the exploration prospects.”
• We suspect the Suay Chin assays are checking for more than just the lithium content but also for other metallurgical issues indicating its processing characteristics.
• “Suay Chin has arranged the metallurgical testing of the Kodal's spodumene rich pegmatite samples by existing lithium carbonate producers in China and will continue to offer strong technical contribution to the development of Bougouni Lithium project.”
• Back to Kodal Minerals which is drilling three new prospects:
o Sogola-Boule: intersections up to 25m seen in five drill holes covering 864m - trench intersections including 27m at 1.38% Li2O
o Boumou: intersections up to 28m in six drill holes covering 842m – results >2% Li2O in rock chips
o Orchard: intersections up to 14m in four drill holes covering 544m
o Ngouanala:12 holes completed for 2,013m of drilling show 48 metres width.
28m at 1.85% Li2O from 72m
21m at 1.7% Li2O from 62m
22m at 1.64% Li2O from 48m.
Results confirm a total strike of >450m to a maximum vertical depth of ~175m.
The pegmatite veins intersected at Bougouni are spodumene rich with 20-30% spodumene content and critically are seen as low mica pegmatite bodies with spodumene being the main lithium bearing mineral
A 2008 report on the Bougouni project indicated a simple process to produce a good quality spodumene concentrate, with grade over 6% Li2O which is suitable for battery manufacture.
“Recent lithium concentrate (grade 6%) prices are approximately US$600/t.”
Conclusion: Kodal Minerals are fortunate in that the prospect appears to present good quality spodumene with relatively high lithium content with low mica and other impurities.
*SP Angel acts as Financial Advisor and Broker to the company. Robert Wooldridge, a partner at SP Angel is also Chairman of Kodal Minerals.
Solgold* (LON:SOLG) 41p, Mkt Cap £591m – Hole 22 shows Alpala Central high grade core extends around 200m closer to surface
(SolGold holds an 85% interest in ENSA which which holds 100% of Cascabel)
• SolGold report results from hole 22 from their drill program at Alpala, Cascabel in Ecuador.
• The results show that the Aplala Central high-grade core extends closer to surface than seen in previous drilling.
• The results show an intersection of:
• 730m grading 0.52% copper and 0.23g/t gold from 446m using a 0.30% copper equivalent cut-off grade.
• 384m grading 0.65% copper and 0.34g/t gold from 770m at 0.50% copper equivalent cut-off grade.
and
• 100m @ 1.10 % copper and 0.57 g/t gold from 896m at a 0.70% copper equivalent cut-off grade.
• The use of differing cut-off grades is interesting with higher cut-off grades appropriately used on higher-grade intersections though we note that if the prospect is mined by block caving that higher grade and lower grade material will be mined together.
• The company plans to update the market on holes 23R, 24 and 25 before Easter.
• SolGold is expanding its exploration program to seven drill rigs by October and to 10 rigs next year with 90,000m of drilling planned.
Tethyan Resources* (LON:TYM) 4.5p, Mkt £7.5m – Drilling starts at Rudnitza copper porphyry project in Serbia
• Tertiary Minerals are to start drilling at its Rudnitza copper porphyry prospect in Serbia in late April.
• The plan is to drill ~2,000m in three to four drill holes.
• The drilling is being orientated to follow up on results reported in January and to step out to expand the footprint of the project.
• Previous drill highlights:
o Drill hole RDD-001: 567 m @ 0.28% copper and 0.45 g/t gold from surface;
o Drill hole RDD-004 356 m @ 0.38% copper and 0.31 g/t gold from 48 m
(including 30 m @ 1.45% copper and 0.39 g/t gold from 102 m);
o Drill hole RDD-003 285 m @ 0.31% copper and 0.33 g/t gold from 42 m
(including 16.7 m @ 1.55 % copper and 0.20 g/t gold from 102 m).
*SP Angel act as Nomad and broker to Tethyan Resources