European equities rangebound as the so-called “Macron rally” momentum fizzles out.
• Gold and base metals prices are flat with the US$ index bouncing slightly off weakest levels in nearly six months.
• BHP Billiton cut its annual copper production forecasts 18% to the 1.33-1.36mt range, down from 1.62mt guided previously (June YE), on the back of strike-related losses at Escondida.
• Euro off marginally from the highest reading since November last year against the US$ following a strong run in the beginning of the week post first round presidential elections results in France.
• Iron ore futures climbed 1.6% in the DCE, China, as prices rebound having fallen nearly 30% over the last two months.
• Brent prices are weaker this morning as US crude stockpiles expanded last week, according to the American Petroleum Institute data; government data on inventories is due later today with forecasts for a third week decline.
121 Mining Investment conference – sponsored by SP Angel - 10–11 May 2017
• The 121 team are running the London 121 Mining Investment conference at No 8 Fenchurch Street in The City on 10-11 May.
• The event is for registered investment professionals, mining and exploration companies and mining analysts and brings the industry together alongside a series of investor briefings.
• 65 quality producers, developers and explorers attending / presenting
• I’m talking at 3:00 on the Thursday on: ‘UK mining outlook - A new era of UK funded exploration and production’.
• Follow link for investor passes - https://www.weare121.com/121mininginvestment-london/registration/register-investor/
Dow Jones Industrials +1.12% at 20,996
Nikkei 225 +1.10% at 19,289
HK Hang Seng +0.43% at 24,562
Shanghai Composite +0.20% at 3,141
FTSE 350 Mining +0.14% at 15,178
AIM Basic Resources -0.23% at 2,673
Economic News
Currencies
US$1.0920/eur vs 1.0884/eur yesterday. Yen 111.40/$ vs 110.29/$. SAr 13.148/$ vs 13.055/$. $1.282/gbp vs $1.281/gbp.
0.750/aud vs 0.754/aud. CNY 6.889/$ vs 6.885/$.
Commodity News
Precious metals:
Gold US$1,264/oz vs US$1,272/oz yesterday
Gold ETFs 59.9moz vs US$60.1moz yesterday
Platinum US$953/oz vs US$958/oz yesterday
Palladium US$802/oz vs US$793/oz yesterday
Silver US$17.55/oz vs US$17.86/oz yesterday
Base metals:
Copper US$ 5,701/t vs US$5,689/t yesterday
Aluminium US$ 1,958/t vs US$1,946/t yesterday
Nickel US$ 9,285/t vs US$9,270/t yesterday
Zinc US$ 2,611/t vs US$2,615/t yesterday
Lead US$ 2,166/t vs US$2,159/t yesterday
Tin US$ 19,570/t vs US$19,610/t yesterday
Energy:
Oil US$51.9/bbl vs US$51.7/bbl yesterday
Natural Gas US$3.046/mmbtu vs US$3.059/mmbtu yesterday
Uranium US$22.75/lb vs US$22.75/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$67.4/t vs US$66.0/t
Chinese steel rebar 25mm US$507.9/t vs US$508.2/t
Thermal coal (1st year forward cif ARA) US$64.8/t vs US$65.5/t yesterday
Premium hard coking coal Aus fob US$257.4/t vs US$257.4/t
Other:
Tungsten - APT European prices $208-216/mtu vs $205-215/mtu
Company News
Antofagasta (LON:ANTO) 837p, Mkt Cap £8.3bn – Q1 production on track to meet 2017 guidance
• Antofagasta reports that its Q1 copper production of 171,900 tonnes is 9.4% above the level of Q1 2016 and that the company remains on course to achieve its 2017 production guidance of 685-720,000 tonnes of copper at a casjh cost of $1.55/lb before by-product credits and a net cost of $1.30/lb.
• By-product gold production of 53,300 oz is 6% below the 56,700oz achieved in Q1 2016 though molybdenum is 29% higher at 2200 tonnes.
• Net cash costs for the quarter of US$1.27/lb are 10 cents lower than the $1.37 reported for Q1 2016.
• The Los Pelambres mine produced 82,800 tonnes of copper during the quarter at a net cash cost of $1.04/lb (2016 82,200t at $1.22/lb). Output is almost 14% lower than in the final quarter of 2016 as “grade fell from 0.77% to 0.68% as expected.”
• The Centinela operation produce an 11% y-o-y improvement in overall copper output to 55,500 tonnes at a 15% lower net cash cost of $1.33/lb (Q1 2016 49,800 tonnes at $1.57/lb. Copper cathode production rose by 31% to 16,500 tonnes from12,600 tonnes while copper in concentrates output rose by approximately 5% to 39,000 tonnes.
• At Antucoya, which achieved commercial production at the end of Q1 2016, copper production also rose, by almost 60% y-o-y to 20,300 tonnes at a cash cost of $1.75/lb – costs for the pre-commercial period in 2016 are not reported. Production in the quarter also rose by some 3% compared to the final, preceding, quarter of 2016.
• Zaldivar produced 12,900 tonnes of copper during the quarter at a cost of $1.64/t (Q1 2016 – 11,500t at $1.59/lb)
Conclusion: Antofagasta has produced strong production quarter and increased copper output at all of its mines during Q1 and achieved cost savings at both Los Pelambres and Centinela.
ASA Resource Group* (LON:ASA) 1.8p, Mkt Cap £30.9m – Press speculation, shareholder activity and new website
• ASA Resources Group comments today on press speculation in Zimbabwe relating to unaccounted for funds from the group.
• The board remains satisfied that this figure does not exceed $4.3m.
• The board also notes speculation relating to inter-company loans made by the Freda Rebecca Gold Mine and Asa Resources without approval from the Federal Reserve Bank of Zimbabwe. The board are satisfied that this does not exceed >US$200,000 and retrospective approval is being sought.
• A further RNS this morning declares the buying of shares in ASA Resource Group by David Li Kwok Po who has taken his holding to >6% of the company. We are told this is positive news.
• ASA Website: Management have released an updated website to help investors in their understanding of the group and facts relating to the company and recent events
• https://www.asaresourcegroup.com
• ASA Resources publishes its own investment case on the website listing key facts to support the premise that the company is undervalued.
• https://www.asaresourcegroup.com/investors/overview/investment-case
• See link to our January initiation note:
• Zimbabwe: President Robert Mugabe is 93 and is reported to be unwell. Mugabe recently returned to Zimbabwe from seeing his doctors in Singapore where rumour suggests he receives blood transfusions for his condition.
• It is difficult to predict how the passing of Robert Mugabe will impact Zimbabwe but some fear a difficult transition for the nation if factions move to settle old scores.
• We prefer to take a more optimistic view on the assumption that law and order is maintained and that the resulting election should produce a less radical and more business friendly government. This scenario could transform the fortunes of the nation, bring in a flood of foreign investment and enable the nation to grow again though this in itself may present some challenges.
Conclusion: African newspapers are hugely entertaining and often well written though some may be a little loose with numbers and occasionally the facts. The Sunday Mail Business in Zimbabwe reports that US$15m was siphoned from Freda Rebecca a figure denied by the company. The paper also reports on unsubstantiated allegations of gold smuggling and that security systems at Freda Rebecca’s gold room had been tampered with. There is always potential for theft from any gold mine and Freda Rebecca like most gold mines has appropriate security and is able to reconcile gold production with sales reducing the opportunity for smuggling and theft.
The non-executive directors moved quickly and decisively to sack the Chinese Chairman and CEO and to suspended related employees. They concede that there has been some mismanagement at the Freda Rebecca Gold mine by unfit employees brought in by Mr Yat but that the prices of most materials procured from China were not inflated.
*SP Angel acts as Nomad and broker to ASA Resources and its analysts have visited ASA’s Bindura Nickel, Freda Rebecca and Zani Kodo assets.
Kodal Minerals* (LON:KOD) 0.3p, Mkt Cap £16.3m – Initial assays from drilling at the Bougouni lithium project
• Kodal Minerals reports the receipt of initial assay results from its drilling at the new Sogola-Baoule and Boumou prospects within the Bougouni lithium project in southern Mali.
• The results, which comprise results from 4 of the 5 holes (total 864m) drilled at Sogola-Baoule prospect and from 1 of the 6 holes (total 842m) drilled at Boumou, confirm “Lithium mineralisation at the two new prospects” including:
o an 11m intersection at an average grade of 1.65% lithium oxide from a depth of 131m in hole MDRC008 at the Sogola-Baoule prospect
o an 8m wide intersection at an average grade of 1.53% lithium oxide from a depth of 117m in hole MDRC009 also at the Sogola-Baoule prospect
o a 10m wide intersection at an average grade of 1.61% lithium oxide from a depth of 50m and a 6m wide intersection at an average grade of 1.45% lithium oxide from a depth of 106m both in hole KLRC.13 at the Boumou prospect
o Infill and extension drilling targeting extensions to the previously reported mineralisation at the nearby Ngouanala prospect is “nearing completion” and “The Company is extending the drill programme and will move back to the Sogola-Baoule prospect to begin immediate follow-up of the initial results”.
o At this stage, preliminary interpretation of the drilling at Sogola-Baoule “is indicating continuity along strike of good width and grade pegmatites. The prospect remains open along strike and at depth, and follow-up drilling is due to commence immediately.”
o At Boumou, “Drilling has indicated that the Boumou area is heavily weathered, with depth of weathering exceeding 50m. … The prospect remains open along strike and at depth, and geological mapping of the area continues to reveal further zones of significant pegmatite intrusion that will require first-pass drill testing.”
o Kodal Minerals has also verified that the due-diligence for the previously announced potential £4.3m investment into the company by Suay Chin International has now been completed and “the parties are now negotiating the final terms of the investment agreements.”
Conclusion: The initial assay results have provided sufficient encouragement for Kodal Minerals to extend its original drilling programme. The satisfactory completion of due diligence for the proposed funding by Suay Chin International makes the injection of new funds, which could expedite the extended drilling programme, look more likely. We await further news on the outstanding drilling results and on the financing with interest.
*SP Angel acts as Financial Advisor and Broker to the company. Robert Wooldridge, a partner at SP Angel is also Chairman of Kodal Minerals.
Ortac Resources* (LON:OTC) 4p, mkt cap £3.3m – Andiamo - Imminent start of drilling at Haykota
(Ortac recently consolidated their shares by 100:1)
• Ortac Resources reports that 18.48% owned Andiamo Exploration is about to start a reverse-circulation drilling programme at the Haykota licence area in Eritrea.
• The programme, which involves drilling 1095-1195m in 13-14 holes is expected to take 15 to 16 days to complete.
• Three or four holes (around 200m) are planned for the Yacob Dewar prospect to investigate mineralisation below trenches which exposed wide intersections with grades in excess of 0.5% copper. The trench results included 60m averaging 0.5% in YDTR029 and 80m averaging 0.49% in trench YDTR028.
• A further three holes (170m) are to be drilled at Ber Gebey “to test the potential along strike and down dip continuation of the oxide target zone (both gold and copper).”
• Additional drilling is planned to test the geophysical anomalies in Zones 1 and 1a where VTEM surveys have identified structures which may either “represent the along strike continuation of the Yacob Dewar targest horizon; or … targets … related to Ber Gebey [which] are now folded and faulted and displaced to the west.”
• The balance of the drilling is planned to test the Zone 19 target area and its southern extension in Zone 20 where potentially mineralised zones of up to 10 metres wide have been identified in similar rocks to the mineralisation elsewhere within the project area.
Conclusion: The start of Andiamo’s exploration drilling programme in Eritrea should yield results relatively quickly and help the company to focus on the most productive targets for future follow up work. We look forward to the results as they become available.
*SP Angel acts as broker to Ortac Resources
Mariana Resources (LON:MARL) 87p, Mkt Cap £110m – Recommended Combination with Sandstorm Gold
• Mariana Resources has agreed a merger with the US based royalty company, Sandstorm Gold. Sandstorm currently holds approximately 9m Mariana shares representing around 7% of the company.
• Under the agreed terms, Mariana’s shareholders will receive 0.2573 Sandstorm shares and 28.75p per share in a transaction which values each Mariana share at approximately 109.71pence and the overall transaction at £166.85m. The company announcement comments that the price represents “a premium of approximately 84.38 per cent to the closing price of 59.5 pence per Mariana Share on AIM on 25 April 2017 …”
• Former Mariana shareholders are expected to own around 19% of the enlarged company, which will hold “a diversified portfolio of 155 streams and royalties including 20 producing, 23 development stage, 26 advanced exploration stage and 86 exploration stage assets” located in North and South America, Asia, Africa and Australia. The company will aslo hold Mariana’s 30% interest in the Hot Maden copper gold deposit in eastern Turkey.
Conclusion: Mariana appears to have secured a significant perium for its shareholders through the transaction to combine with Sandstorm Gold.
Petropavlovsk (LON:POG) 7.6p, Mkt Cap £250m – Positive 2016 earnings results - higher margins offset a decline in production
• Gold sales totalled 399.9koz with an average realised price of $1,222/oz (2015: 481.9koz at $1,178/oz).
• Revenues generated came in at $540.7m (2015: $172.8m)
• TCC and AISC cash costs continued to come down to $660/oz and $807/oz, respectively (Guidance: $700/oz and $800/oz; 2015: $749/oz and $874/oz) driven by currency depreciation benefits and costs optimisation initiatives.
• EBITDA climbed 16% to $200.1m (2015: $172.8m), as higher margin ounces more than compensated negative earnings effect from a drop in annual production.
• Group net income and diluted EPS were $31.7m and $0.01/share (2015: -$297.5m and -$0.09/share; of which c. -$167.4m and -$0.05/share was attributed to losses at IRC).
• Capital expenditure at $29.4m (2015: $32.6m) with a 55/45 split between exploration and maintenance spend.
• Net debt reduced to $598.6m (2015: $610.0).
• FCF totalled $7.6m (2015: $78.4m; excluding IRC) not accounting for the proceeds of non-core assets disposals of $19.4 (2015: $7.5m) with the difference mostly attributing to changes in working capital (-$63.2m in 2016 v +$43.5m in 2015).
• Updated mineral resources statement showed a conversion of 1.6moz of Resources to Reserves with the majority of which coming from the non-refractory Elginskoye deposit at Albyn.
• Maiden underground mineral reserve of 2.3mt at 5.14g/t for 370koz included:
• 1.2mt at 4.5g/t for 165koz at Pioneer;
• 1.1mt at 5.9g/t for 205koz at Malomir.
• Underground at NE Bakhmut at Pioneer is on course for the start of production this year ramping up to 200ktpa mining rate. Underground operations at Malomir are expected to start in H2/17.
• 2017 production target at 420-460koz with TCC and AISC forecast at $600-700/oz and $800-900/oz.
• Capex for 2017 is guided at $100-110m with the increase on 2016 attributed to the start of development works on the POX project and underground operations ($15-20 on exploration and $85-90m on maintenance and development).
Tethyan Resources* (LON:TETH) 4.5p, Mkt £7.5m – Tethyan starts drilling at Suva Ruda copper project in Serbia
• Tethyan Resources report the start of drilling at the Suva Ruda copper project in Serbia.
• The company are drilling 2,000m of diamond drilling in three to four holes to test the Rudinitza copper porphyry project.
• The drill core will be assayed in ALS laboratories in Serbia and Romania.
• The Suva Ruda permit area was identified by Phelps Dodge in 2004. Phelps Dodge drilled seven holes over a 1.2km x 0.8km.
• The most interesting drill hole from this program reported 144m grading 0.4% copper, 0.4 g/t gold ending in mineralisation.
• Tethyan has since reported:
o 567m at 0.28% copper and 0.45 g/t gold from surface in hole RDD-001
o 356m at 0.38% copper and 0.31 g/t gold from 48m in hole RDD-004
(including 30 m @ 1.45% copper and 0.39 g/t gold from 102 m);
o 285m at 0.31% copper and 0.33 g/t gold from 42m in hole RDD-003
(including 16.7 m @ 1.55 % copper and 0.20 g/t gold from 102 m)
Conclusion: We hope Tethyan will continue to report positive copper and gold results in their latest drilling. It is too early to judge the scale and economic potential of the Suva Ruda project but the results so far which appear to extend from surface or near surface indicate good potential for an economic discovery assuming ongoing copper price levels.
*SP Angel act as Nomad and broker to Tethyan Resources