Anglo American (LON:AAL) – Sale of Drayton coal mine
Asiamet Resources (LON:ARS) – Completion of infill and extension drilling at BKM
Bushveld Minerals (LON:BMN) BUY – Target Price 11.6p – Glencore cut in vanadium production continues to help prices higher
Georgian Mining* (LON:GEO) - Strong Buy – Results show good gold grades from surface and good copper grades underneath
Golden Star Resources (CVE:GSC) – Prestea delivers record production in Q1 2017
Gem Diamonds (LON:GEMD) – Recovery of an 80 carat diamond at Letseng
Randgold Resources (LON:RRS) –Q1 production performance outshines Q1 2016 but down on Q4 2016
Gold prices extended losses touching the lowest level in more than six weeks as the Fed confirmed the economy remains on track for planned rate hikes.
• Copper prices continued to slide this morning taking a two-day drop to 4% amid a jump in LME stockpiles and new reports highlighting slowing economic growth in China.
• Iron ore prices dropped 8% on the DCE, the max price limit on the exchange, while contracts in Singapore were off 9.1%.
• Rebar prices have also suffered a sell of trading 6.4% lower on the SHFE today.
India – government policy to give preference to domestic steel products in all government tenders
• The Indian Union Cabinet approved yesterday a policy to stimulate the construction of steel production capacity in India.
• The National Steel Policy 2017 is designed to increase crude steel capacity to near 300mt by 2030-31 from capacity of 122mt last year making India the world’s second largest steel producer. The nation is looking to become a net steel exporter by 2025-26. Indian steel production was 91mt last in 2015-16.
• The intention is to raise per capita steel consumption to 160kg/person from 61kg/person now vs a global average of around 208kg/person.
• Modi government is looking to stimulate infrastructure development and to ensure public money is spent on domestic products as it rolls out a program of new infrastructure projects.
Prince Philip to retire from public duties aged 96
• The Prince has finally set the bar for the retirement of public servants.
• If more public servants / government employees followed the Price in their retirement then UK government pension costs would fall dramatically.
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 +0.04% at 20,958
Nikkei 225 +0.70% at 19,446
HK Hang Seng -0.33% at 24,615
Shanghai Composite -0.25% at 3,127
FTSE 350 Mining -1.43% at 14,076
AIM Basic Resources -0.83% at 2,647
US – The Fed held rates unchanged saying the recent economic growth slowdown is likely to be temporary with the policy remaining on course for two more hikes this year.
• “The Committee views the slowing in growth during the first quarter as likely to be transitory and continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, labour market conditions will strengthen somewhat further, and inflation will stabilise around 2% over the medium term.”
• Odds of a hike during the Jun meeting climbed from 67% to 94%.
• Despite the latest slowdown in the consumer sector, the Fed highlighted that the “fundamentals behind consumption growth remained solid.
Eurozone – Services industry in line with manufacturing sector further strengthened through Apr pointing to a strong start to the second quarter.
• Eurozone Composite PMI: 56.8 v 56.4 in Mar and 56.7 forecast.
China – Services sector growth slowed for a fourth consecutive month in Apr to the lowest level since May/16 marking a weaker start to Q2/17.
• While new business orders expanded at a quicker pace in Apr, employment growth eased to the weakest rate this year.
• Same as in the manufacturing sector, cost pressures came off, with services providers pointing to the softest rate of input prices growth since last September.
• Although, final goods and services prices continued to increase, gains were only marginal as producers are being cautious in passing through increased costs onto consumers.
• The report comes on the heels of a drop in the manufacturing industry growth last month to the weakest reading since Q3/16.
• Services and manufacturing segments combined took the private composite PMI to 51.2, down from 52.1 in Mar and the lowest level in ten months.
• Markit Manufacturing PMI: 50.3 v 51.2 in Mar and 51.3 forecast.
• Markit Services PMI: 51.2 v 52.1 in Mar.
• Markit Composite PMI: 51.5 v 52.2 in Mar.
Philippines – mining companies accuse Gina Lopez of graft to the Ombudsman
• Citinickel Mines Development Corp ‘CMDC’ have accused Gina Lopez of violations of the Anti-Graft and Corrupt Practices Act, Illegal Exaction, Code of Conduct and Ethical Standards for Public Officials and Employees and Red Tape Act of 2007.
• CMDC also questioned Lopez’s directive to place Peso 130m into a non-government organization, which they say was controlled by Lopez.
• Lopez suspended CMDC’s offshore mining operations last year and demanded a deposit of Peso 1m per vessel used to ship mineral ores.
• CMDC claims it was in full compliance of the regulations based on government audits
Economic News
Currencies
US$1.0889/eur vs 1.0910/eur yesterday. Yen 112.77/$ vs 112.22/$. SAr 13.521/$ vs 13.377/$. $1.285/gbp vs $1.292/gbp.
0.740/aud vs 0.749/aud. CNY 6.898/$ vs 6.893/$.
Commodity News
Precious metals:
Gold US$1,234/oz vs US$1,254/oz yesterday
Gold ETFs 59.6moz vs US$59.6moz yesterday
• Q1 demand contracted 18%yoy on the back of weaker ETF purchases and central bank buying; although, Q1/16 was the strongest quarter on record skewing the comparison slightly, the latest World Gold Council data showed.
• ETF purchases were only a third of extraordinary levels recorded in Q1/16.
• Jewellery demand climbed marginally driven by gains in India where pent up demand and an appreciating rupee supported purchases.
• Chinese jewellery demand came in 2% and 5% below last year’s numbers and a 5y average as the Lunar New Year related purchases failed to compensate for negative affects of rising local prices, slowing growth momentum and changing consumer tastes.
• Overall, jewellery was broadly steady, but remained weak in the longer-term context coming in 18% below the five-year average.
• Central bank purchases slowed through the quarter coming in 27%%yoy and 30%qoq lower with few active buyers in the market and China leaving reserves unchanged from Oct last year.
• Mine production was broadly level during the quarter as supply from new projects that came lately on stream compensated for disruptions elsewhere (Grasberg, in particular).
• “Having plateaued in recent years, mine production will soon enter a period of decline,” WGC reports.
• “The production profile of currently operating mines shows a relatively steep drop-off over the next 5-10 years. Even factoring in high-probability projects, the fall in production is still significant.”
• Hedging by producers was significantly cut during the quarter reflecting higher base comparison as well as many miners’ reluctance to lock in gold prices through Q1/17, “particularly as prices stayed below average 2016 levels”.
Platinum US$900/oz vs US$921/oz yesterday
Palladium US$799/oz vs US$810/oz yesterday
Silver US$16.46/oz vs US$16.82/oz yesterday
Base metals:
Copper US$ 5,574/t vs US$5,670/t yesterday
Aluminium US$ 1,913/t vs US$1,923/t yesterday
Nickel US$ 9,105/t vs US$9,320/t yesterday
Zinc US$ 2,559/t vs US$2,606/t yesterday
Lead US$ 2,173/t vs US$2,200/t yesterday
Tin US$ 19,780/t vs US$19,900/t yesterday
Energy:
Oil US$50.3/bbl vs US$51.0/bbl yesterday
Natural Gas US$3.218/mmbtu vs US$3.191/mmbtu yesterday
Uranium US$22.65/lb vs US$22.65/lb yesterday – Kazakhstan looking to OPEC as an example of how to manage the uranium market.
• Kazakhstan currently produces around 40% of the world’s uranium a similar proportion of global production to that of OPEC
• Like Saudi Arabia, Kazakhstan is the world’s lowest cost producer and can afford to manage the market through organizing supply restrictions.
• The Kazaks are looking at setting up a trading business to exert further influence in the market and increased uranium prices last year on news of a cut in production for this year.
• If Kazakhstan organizes its own version of OPEC it will be interesting to see if the World Trade Organisation and European Competition Authority wade in with cartel allegations etc..
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$62.0/t vs US$67.2/t
Chinese steel rebar 25mm US$543.2/t vs US$546.8/t
Thermal coal (1st year forward cif ARA) US$65.5/t vs US$65.9/t yesterday
Premium hard coking coal Aus fob US$234.0/t vs US$234.9/t
Other:
Tungsten - APT European prices $212-219/mtu vs $208-216/mtu
Company News
Anglo American (LON:AAL) 1025p, mkt cap £13.2bn – Sale of Drayton coal mine
• Anglo American reports that it has reached an agreement to sell its 88.17% interest in the Drayton coal mine in New South Wales to Malabar Coal Limited. The terms of the transaction, which remains conditional at present, are confidential.
• Chief Executive, Mark Cutifani, commented “The agreement to sell the Drayton thermal coal mine marks further progress as we focus our global portfolio around our largest and most competitive assets.”
• Anglo American “ceased mining activities at the Drayton mine during 2016” and we note that in its 2015 Annual Report Anglo American reported reserves of 2.3m tonnes of export grade thermal coal at Drayton.
Conclusion: The non-operational Drayton coal mine represents a small part of Anglo American’s thermal coal reserve base and the sale of the asset should be relatively insignificant in financial terms but should yield savings on management time and sharpen focus on the more significant assets.
Asiamet Resources (LON:ARS) 5.1p, Mkt Cap £.36.2m – Completion of infill and extension drilling at BKM
• Asiamet Resources reports that its recent drilling at the BKM copper project in Kalimantan has intersected “thick depth extensions of copper mineralisation in the BK044 Zone.” These are located “more than 100 metres below the base of the conceptual open pit design, as proposed in the Preliminary Economic Assessment”.
• Results have been received from a further 11 drill-holes and “pending assays will be received over the next month”. Among the highlighted intersections received so far are:-
o 33m at an average grade of 1.11% copper from a depth of 110.5m in borehole BKM 32400-10
o 19.35m at an average grade of 1.46% copper from a depth of 204.5m also in borehole BKM 32400-10
o 18m at an average grade of 1.60% copper from a depth of 18m in borehole BKM 32400-07 and
o 35m at an average grade of 0.75% copper from a depth of 22m in borehole BKM 32400-08
o These deeper zones of mineralisation were “intersected in a deeper mineral domain extending well beyond the limits of the BKM PEA open pit mine design.”
o “Future drilling is required along strike (north-south) and laterally to establish continuity of this deeper domain and determine the potential for extending the open-pit to capture this mineralisation.”
o The completion of the infill drilling campaign adds a further 12,480.9m of drilling information from 122 drill-holes to the mineral resources update which is already underway.
Conclusion: Asiamet’s drilling continues to extend the limits of known mineralisation at BKM and the intersection of deeper shoots of mineralisation clearly will need follow up. In the immediate future, however, we look forward to the results of the infill campaign in upgrading the current, shallower resource at BKM.
Bushveld Minerals (LON:BMN) 8.1p, £62m Mkt Cap – Glencore cut in vanadium production continues to help prices higher
BUY – Target Price 11.6p
• Vanadium prices (V2O5) have jumped another 11% since we wrote our initiation note of 7 April CLICK FOR PDF and it is possible that vanadium flake prices may have risen further.
• News today that Glencore’s vanadium production fell around 10% in Q1 on lower kiln availability and maintenance on their evaporation plant is good news for vanadium prices with the shortfall in production likely to continue to support higher vanadium prices for longer.
• We believe vanadium prices should remain supported by rising demand for hardened steels and lower levels of non-primary production, eg vanadium from magnetite and slag production.
Conclusion: Bushveld Minerals is one of the luckiest companies we know. Not only has it contrived a formula for using the cash flows from its Vametco acquisition to pay for the deal but it can now see those cash flows accelerating as vanadium prices rise further.
Bushveld’s timing has been spectacular in terms of agreeing the Vimetco acquisition at the bottom of the vanadium market and then completing the deal as vanadium prices take off. Vanadium prices have risen by around 150% since the deal was agreed.
Vametco is one of the cheapest primary producers of vanadium in the world, realising an all-in cash cost of US$17.33/kgV (US$3.57/lb V2O5equivalent) for the year 2015. We reckon the business should be substantially cash generative with prices now at $6.07/lb. Our modelling shows the plant to be highly leveraged to the V2O5 and FeV prices. Profitability should also be helped by further falls in the South African rand.
*An SP Angel mining analyst and nomad have visited the Vametco vanadium mine and processing facilities in South Africa.
Georgian Mining* (LON:GEO) 18p, Mkt Cap £14m – Results show good gold grades from surface and good copper grades underneath
Strong Buy
(Kvemo Bolnisi 50:50 jv with CMG)
• Georgian Mining continue to deliver great grades in drilling at the Kvemo Bolnisi project in Georgia, Eastern Europe.
• Today’s press release shows very good gold results in drilling over relatively long intersections from surface and remarkably close to surface.
• Good copper grades are also evident relatively close to surface underlying the gold oxide zone starting at just 24m depth.
• In a world where grades of >0.3% copper for near surface open cast mining are generally considered to be economic, particularly when a process plant is already in place then the identification of 0.95% copper over 17m followed by 19m at 1.1% copper and 34m at 1.54% looks like a good start for a more sizeable open cast copper mine.
• The numbers speak for themselves.
• Gold oxide, selected intersections:
o TGD-015: 10m @ 6.36g/t Au from 8.0m
o TGD-026: 10m @ 0.90g/t Au from 10.0m
o TGD-030: 6.0m @ 1.55g/t Au from 0.0m
o TGD-034: 30.6m @ 1.31g/t Au from 1.0m
o TGD-036: 1.0m @ 6.17g/t Au from 3.0m
o TGD-037: 6.0m @ 4.63g/t Au from 5.0m
o TGD-038: 25m @ 2.71g/t Au from 0.0m
o TGD-045: 17m @ 0.8g/t Au from 24m
• Copper, selected intersections and grades
o TGD-038: 34m @ 1.54% Cu from 56m
o TGD-041: 19m @ 1.1% Cu from 34m
o TGD-045: 17m @ 0.95% Cu from 24m
• We should note that there are plenty of lesser grades in other drill holes shown in the company statement which might serve to reduce the grade of the overall resource, but there appear to be sufficient intersections of grade in these to carry the development of a new mine at the Kvemo Bolnisi site at a larger scale than was previously envisaged.
• The data will be used to formulate a maiden JORC resource for the gold oxide zone and to update the JORC resource on the copper orebody below.
Conclusion: The Kvemo Bolnisi project is rapidly developing into a larger scale mineral resource. The project benefits from its proximity to the Madneuli gold mine which we believe should have spare processing capacity for copper and gold. Management are working through the finer details of the joint venture agreement for the processing of ore at the Madneuli plant and we expect mining to start within months once there is sufficient drilling to work out an optimal pit design.
*SP Angel acts as Nomad and Broker to Georgian Mining.
Golden Star Resources (CVE:GSC) C$0.96, Mkt Cap C$352m –Prestea delivers record production in Q1 2017
• Golden Star Resources reports that Q1 2017 production of 57,795 oz represented the strongest quarterly production since the cessation of refractory gold production in Q3 2015.
• The results include a record performance from the Prestea mine for the third consecutive quarter with 26,446oz f gold production at a cash operating cost of US$628/oz (Q1 2016 21,994oz at US$742/oz).
• “By the end of the first quarter of 2017, refurbishment of Prestea Underground was in its final stages and development of the first stope of the West Reef had commenced.” Further increases in hoisting capacity and upgraded winders are expected to “achieve the targeted production rate in 2017”.
• At the Wassa mine (31,349 oz at a cash cost of US$942/oz) underground production continues to ramp up with a 46% increase to 11.482 oz from the underground mine and a further 19,867 oz from the Main Pit. High levels of waste removal in the open pit mine contributed to the high costs but the company comments that “Both underground and open pit operations are expected to increase production and reduce cash operating costs as the year progresses.”
• Golden Star remains “on track to achieve its full year 2017 guidance in terms of gold production, cash operating cost per ounce, AISC per ounce and capital expenditures.” These are to produce between 255-280,000 oz of gold at an cash operating cost in the range US$780-860/oz and an AISC between US$970-1070/oz. Capital expenditure guidance, including an up-scaled exploration programme is expected to be US$63m.
Conclusion: Golden Star’s Q1 production results, and particularly the record performance at Prestea, should bolster confidence that the company’s drive to refocus on high grade, low cost underground mining operations since the decision to curtail the treatment of refractory ores remains on track. The maintenance of 2017 guidance reinforces that impression and we look forward to continuing developments as production ramps up at Wassa.
Gem Diamonds (LON:GEMD) 87p, Mkt Cap £121m – Recovery of an 80 carat diamond at Letseng
• Gem Diamonds reports the recovery of an undamaged 80 carat type II “D” colour diamond from its Letseng diamond mine in Lesotho.
• The news follows the announcement In early April of the recovery of a 114 carat type II diamond from Letseng.
• Commenting on the recent discovery, CEO, Clifford Elphick, noted that “Although this 80 carat diamond is not of the very large size for which Letseng is renowned, it is one of the highest quality diamonds recovered at the Letseng mine and is entirely undamaged making this a significant recovery.”
Conclusion: Given the exceptionally high prices commanded by large high-quality stones and the rapid diminution of value when stones are reduced in size through breakage, recovering a valuable diamond without inflicting damage to it in the process is what every diamond producer hopes to achieve. We look forward to learning the prices achieved by the new 80 carat stone as well as the earlier 114 carat diamond.
Randgold Resources (LON:RRS) 6635 pence, Mkt Cap £6.2bn –Q1 production performance outshines Q1 2016 but down on Q4 2016
• Randgold Resources reports that production of 322,470 oz of gold during the 3 months to 31st March represents a 10% y-o-y improvement on Q1 2016 but a 15% decline compared to the previous (Q4 2016) quarter.
• Cash costs during the quarter declined by 4% to US$619/oz y-o-y but rose by 13% over the quarter. “Work stoppages … impacted operations at both the Loulo-Gounkoto complex in Mali and Tongon in Cote d’Ivoire”
• Cash generated by operations declined by US$ 50m over the quarter to US$144m but after allowing for US$11m payment of taxes and US$45m of investment, Randgold Resources delivered free cash flow of some US$88m increasing cash balances by approximately US$84m to US$600m. The company remains debt free.
• Production at the Loulo/Gounkoto complex in Mali, gold output declined slightly over the quarter to 186,366 oz following the record previous quarter (Q4 2016 – 206,124 oz) reflecting a minor decline in head geades to 5.4g/t from 5.6 g/t. Cash operating costs rose to US$459/oz from US$407/oz and total cash costs increased by US$53/oz to US$532/oz.
• The Tongon mine in Cote d’Ivoire produced 67,220 oz at a total cash cost of US$629/oz (Q4 2016 – 84,856 oz at US$623/oz. Both mill throughput and head grade were slightly reduced during the quarter.
• Production at Kibali declined, in line with planned lower head grade (2.8g/t vs 3.3 g/t), to 63,456 oz and costs increased to US$839/oz (Q4 2016 – US$659/oz). Costs were adversely impacted by the lower seasonal rainfall which caused a reduction in the availability of hydropower which resulted in the increased use of more costly thermal power generation.
Conclusion: Randgold Resources remains in a strong position with increased cash balances available despite a dip in q-o-q gold production.