Base Resources (LON:BSE) – Kwale mine Phase 2 optimisation
Gem Diamonds (LON:GEMD) – Letseng prices move up 13% during the quarter to 31st March
Georgian Mining* (LON:GEO) – Strong Buy – Placing raises £5.46m (US$7m) for development and resource drilling
IronRidge Resources* (LON:IRR) – Lithium Pegmatite assay results
Shanta Gold (LON:SHG) – BUY – Commercial production at Bauhinia Creek commenced
Miners are off slightly today with the FTSE 350 Mining Index holding at close to the strongest level over the last month on the back of a recovery in gold, copper and iron ore prices.
• Gold is flat this morning with the US$ index little changed hovering around the lowest level since Nov/16.
• Euro is up marginally against the US$ on the back of positive Eurozone PMI numbers.
• Brent is down a little more than 1% as OPEC members are set to meet in Vienna this Thursday.
• Iron ore futures came off today following a week long recovery with reports showing inventories are building up at Chinese ports and currently standing at record high levels.
• Iron ore stockpiles increased for a fourth week climbing to 136mt.
Zinc and nickel prices rise as China cracks down on polluting industry
• The crackdown on zinc and nickel mining comes as part of a broader restrictions on steel and other polluting industries
• Moves to improve air quality in Tangshan City also hit steel mills which are failing to meet new air quality standards
Lithium – Daimler start €500m expansion of lithium-ion plant in Germany.
• Daimler are following through with plans to aggressively develop 10 new electric vehicles to market by 2020.
• The investment is planned to quadruple existing battery capacity at the site with is run by Accumotive, a subsidiary of Daimler.
• Daimler have also pledged to spend another €500m worldwide if all goes well at the Kamenz site.
• Other lithium-ion battery plants are planned around Europe with new plants destined for Sweden, Hungary, Poland.
• Battery costs are likely to continue to fall with increased competition and as manufacturing techniques improve.
• Battery chemistries continue to evolve to better suit the demands of automotive use.
o Tesla use Ni Co cathodes with added Al for stability
o Some others are using Ni, Mn, Co cathodes
o Future cathodes may incorporate graphene for stability
o The key is to raise energy density while improving cycle life, charging times and safety.
o Safety should improve with better design, manufacturing processes and chemistries to avoid the development of lithium dendrites which short circuit the internal workings of a battery causing thermal runaway. A recent fire / explosion on a train carrying used automotive batteries indicates to us that old batteries need to be carefully handled, particularly if physically damaged.
Noble Group – debt downgraded by Moodys to Caa1 outlook negative from B2 previously
• Noble Group shares fell heavily yesterday following last week’s downgrade of Moody’s debt rating on the company.
• Noble reported a loss in Q1 highlighting some uncertainty over the operational turnaround and raising the risk on Noble’s elevated debt levels.
• Moody’s sees Noble’s credit headroom at $1.2bn as potentially insufficient to cover the $2.1bn in debt due through the rest of 2017 and H1 2018.
UKIP political candidate pledges to invest >£1bn in asteroid mining
• Aidan Powlesland is reported to want to set aside £100m for "an interstellar colony ship design", £30m for an "interstellar nano-probe fleet design" designed to attract the attention of Russian investor Yuri Milner, and will provide a £1billion prize to any private company that can mine the asteroid belt by 2026.
• Will need to do more than that to secure our vote.
Scientists claim to have discovered remains of early man in Bulgaria and Greece
• The discoveries appear to have discovered the ‘missing link’ in human history between chimpanzees and humans.
• Climate change had turned Eastern Europe into savannah forcing apes to fund new food sources and forcing the shift towards bipedalism.
• We reckon relatives of early man are still prevalent in Brussels, within the protected and unchanging ecosystem of the European Parliament.
Dow Jones Industrials +0.43% at 20,895
Nikkei 225 -0.33% at 19,613
HK Hang Seng +0.07% at 25,408
Shanghai Composite -0.45% at 3,062
FTSE 350 Mining -0.66% at 15,065
AIM Basic Resources -0.18% at 2,638
Economic News
China - economy likely to expand by ~6.8% in Q2 according to the State Information Centre in the state-owned China Securities Journal.
Eurozone – Strong PMI numbers are expected to filter into higher GDP growth rates, Markit suggests.
• “Business activity is expanding at its fastest rate for six years so far in the second quarter, consistent with 0.6-0.7% GDP growth… the consensus forecast of 0.4% second quarter growth could well prove overly pessimistic if the PMI holds its elevated level in June.”
• Markit Manufacturing PMI: 57.0 v 56.7 in Apr and 56.5 forecast.
• Markit Services PMI: 56.2 v 56.4 in Apr and 56.4 forecast.
Germany – Private sector activity continued strong through May with growth recorded across both services and manufacturing.
• New business expanded with export orders climbing at the sharpest pace in seven years.
• Employment continued to expand at the second strongest pace in almost six years in May.
• While input cost pressures abated slightly in Mar on the back of a stronger euro exchange rate, the rate of output price inflation in the private sector accelerated for the third time in the last four months and was the third highest in nearly six years.
• Markit reported concluded: “PMI data for the first two months of the second quarter are signalling continued positive momentum… growth in the coming quarters remaining strong at around 0.6% on average, and our full-year forecast for 2017 has been raised to 2.0% in calendar-adjusted terms.”
• Final GDP numbers released this morning showed economic growth accelerating to 0.6%qoq in Q1/17, up from 0.4%qoq in Q4/16, with major contributors to growth being net exports (+0.4pp), business investments (+0.3pp).
• Private consumption and government spending added 0.2pp and 0.1pp, respectively, while a drawdown in inventories subtracted 0.4pp.
• Markit Manufacturing PMI: 59.4 v 58.2 in Apr and 58.0 forecast.
• Markit Services PMI: 55.2 v 55.4 in Apr and 55.5 forecast.
France – Output growth accelerated to six year high as new orders continued to increase and companies raised hiring led by strong client demand.
• Final goods prices climbed for a second successive month as firms are passing on higher costs onto consumers.
• “The acceleration was driven by the dominant service sector, buoyed by strong client demand and the sharpest round of job creation since Aug/11.”
• “The numbers continue to paint a positive picture of the French private sector economy… with May’s conclusion to the presidential elections, the road looks set fair for future growth.”
• Markit Manufacturing PMI: 54.0 v 55.1 in Apr and 55.2 forecast.
• Markit Services PMI: 58.0 v 56.7 in Apr and 56.7 forecast.
Greece – Two year bond yields jumped more than 25bp climbing to the highest level this month as talks between Greek creditors broke down.
• The IMF continued to push other creditors to agree to debt relief programmes for Greece suggesting the Fund will not be taking part in the latest bailout package, otherwise.
Currencies
US$1.1254/eur vs 1.1176/eur yesterday. Yen 111.17/$ vs 111.46/$. SAr 13.293/$ vs 13.193/$. $1.299/gbp vs $1.297/gbp.
0.749/aud vs 0.745/aud. CNY 6.890/$ vs 6.892/$.
Commodity News
Precious metals:
Gold US$1,260/oz vs US$1,256/oz yesterday
Gold ETFs 59.9moz vs US$59.7moz yesterday
Platinum US$948/oz vs US$939/oz yesterday
Palladium US$769/oz vs US$762/oz yesterday
Silver US$17.12/oz vs US$16.96/oz yesterday
Base metals:
Copper US$ 5,680/t vs US$5,692/t yesterday
Aluminium US$ 1,928/t vs US$1,942/t yesterday
Nickel US$ 9,350/t vs US$9,430/t yesterday
Zinc US$ 2,653/t vs US$2,642/t yesterday – Chinese refined metal imports climbed to the highest level in 13 months in April amid falling inventories and dwindling output.
• April imports of refined zinc stood at 47.5kt compared to 52.6kt in March and 39.1kt Apr/16.
• Despite a pick-up in April, inbound shipments for the first four months were down 52%yoy.
• Inventories in the SHFE decline last week to 91.7kt, the weakest since Jan/15 and about a third of LME stockpiles.
• LME drawdowns led outstanding stockpiles to drop to 339kt, the lowest since 2009.
• Concentrates imports were up 16%yoy in the first four months of the year coming in at 913.3kt.
Lead US$ 2,107/t vs US$2,117/t yesterday
Tin US$ 20,520/t vs US$20,500/t yesterday
Energy:
Oil US$53.4/bbl vs US$54.0/bbl yesterday
Natural Gas US$3.320/mmbtu vs US$3.306/mmbtu yesterday
Uranium US$21.75/lb vs US$21.75/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$63.1/t vs US$63.7/t
Chinese steel rebar 25mm US$590.7/t vs US$587.3/t
Thermal coal (1st year forward cif ARA) US$66.9/t vs US$65.9/t yesterday
Premium hard coking coal Aus fob US$153.5/t vs US$154.7/t
Other:
Tungsten - APT European prices $215-225/mtu vs $212-222/mtu
Company News
Base Resources (LON:BSE) 17 pence, Mkt Cap £126.2m –Kwale mine Phase 2 optimisation
• Base Resources reports that its internal Definitive Feasibility Study (DFS) for the Phase 2 operations at its Kwale mineral sands operation in Kenya and that the Board has approved its implementation.
• The DFS optimisation is aimed at maintaining “maximum concentrate feed to the Mineral Separation Plant (MSP) and therefore final production volumes, in the face of declining ore grades expected from mid-2018 onwards.” This is achieved by increasing the maximum mining rate to 2400tph from the 1800tph in Phase 1, thereby reducing the mine life by two years to November 2022.
• The company highlights that “Faster mining and processing of Ore Reserves over a 24 month shorter period eliminates approximately US$60 million in fixed costs with a commensurate reduction in average operating costs per tonne produced, significantly enhancing project economics compared with the current mine plan.”
• The incremental capital expenditure to bring in “Kwale Phase 2 is a modest US$13.1 million, which will be fully funded from operating cash flows.” and the construction is expected to be completed during the June quarter 2018.
• The major element of the capital programme is a US$7.5m increase in the expenditure on plant modifications to the wet-concentrator plant, to US$10.5m, to add additional spirals and install equipment upgrades. Additional water, tailings pumping systems and piping account for a further US$2.9m of the increased capital.
Conclusion: The implementation of the higher mining and treatment rate under Kwale Phase 2 seeks to address the impact of declining grades as mining shifts from the Central Dune area to the South Dune area in the second half of 2019.
Gem Diamonds (LON:GEMD) 91.5p, Mkt Cap £126.7m –Letseng prices move up 13% during the quarter to 31st March
• Gem Diamonds reports that sales of 39,950 carats of diamonds from its Letseng mine in Lesotho in three sales during the three months to 31st March realised an average price of US$1,636 per carat representing a 13% increase on the average US$1,444 per carat achieved during the previous quarter ending 31st December 2016.
• During the quarter the company sold an 8.65 carat pink diamond for the sixth highest price per carat achieved by a Letseng rough diamond at US$164,855 per carat.
• The company has also announced this morning the recovery of a 98.42 carat high quality D-colour Type II diamond which is due to be sold in June at which time the previously announced 80.58 carat D-colour type II will also be offered for sale.
• Commenting on the results, CEO, Clifford Elphick said “Letseng has recovered larger better quality diamonds during the quarter and it is encouraging that during April and May, there has been a notable improvement in the size and quality of diamonds recovered at Letseng with the US$ per carat achieved trending positively.”
• Mr. Elphick went on to say that “The market for Letseng’s high-quality diamonds has remained firm over the Period and this is anticipated to continue into H2 of this year.”
• Operationally, the Letseng plant experienced lower than planned plant availability resulting in a shortfall in planned throughput at approximately 76,000 tonnes. The issues are being addressed and the company is maintaining its guidance and the Ghaghoo mine was placed on care and maintenance ahead of schedule on 31st March.
Conclusion: Letseng is continuing to discover large high value diamonds at a time when prices for its production are on an upward trend.
Georgian Mining* (LON:GEO) 17.8p, Mkt Cap £20.4m – Placing raises £5.46m (US$7m) for development and resource drilling
Strong Buy
(Kvemo Bolnisi 50:50 jv with CMG)
• Georgian Mining have raised £5.46m (US$7m) through the placing of 34.15m new shares to investors at 16p/s. The company now has 114,574,491 ordinary shares.
• The placing is reported to have been heavily oversubscribed.
• Georgian stock is in demand following the discovery of significant copper and gold grades at Kvemo Bolnisi and the realisation that the Kvemo Bolnisi project looks set to become a much larger mineral resource and may in time prove to be similar to the much larger mine at Madneuli.
• Management have a three phase resource development program targeting a 50mt resource at just one of the 14 target areas identified.
• The funds will allow the team to continue to drill the resource while they work toward delivering ‘proof of concept copper and gold production’ using the jv partner’s processing infrastructure which is located just 7km away and has excess processing capacity. Use of these facilities will hugely de-risk and refine the project in terms of processing routes and ore characteristics.
• The ability to remove the gold oxide cap to expose the sulphide (copper, gold) orebody underneath and to process the gold oxide ore for gold production is a useful and important step for the company and will help with future mining and mine planning. Further gold oxide mineralisation is also seen to the side of the known oxide deposit at GZ1.
• Re-examination of the geology of the Bolnisi area indicates ore is from epithermal sources indicating the presence of a number of larger mineralised mineral systems than previously considered.
• Chalcocite: Drilling at Kvemo Bolnisi recently showed:
o 16m @ 15.4% Cu from 47m, inc. 4.95m@ 40.50% Cu.
• This highlights the presence of chalcocite (a high-grade copper mineral) which will form part of a more substantial resource upgrade later this year.
• Chalcocite is normally created in secondary enrichment in a supergene zone often with elevated copper grades (pure 100% chalcocite carries >79.9% copper theoretically) though this is likely to be slightly reduced with other gangue minerals. The orebody is likely to have a number of zones of chalcocite enriched mineralisation giving rich, high grade lenses around which we would expect to see lower-grade but still economic copper and gold ores.
• The company have previously report a modest JORC resource of 2.2mt grading 0.8% copper and 0.1g/t gold at a 0.3% copper cut-off grade.
Conclusion: Georgian’s exploration success and proximity to initial ‘proof-of-concept’ production cash flow has created substantial interest in the shares from new and existing institutional shareholders. The new funds should ensure the company is able to accelerate its resource development and definition program as well as adding to the exploration of some more regional targets. Today’s placing does not alter our recommendation or fundamental view of the value to be generated going forward by the company.
*SP Angel acts as Nomad and Broker to Georgian Mining.
IronRidge Resources* (LON:IRR) price 39p, Mkt Cap £93.2m – Lithium Pegmatite assay results
(Cape Coast Project - Saltpond, Apam and Winneba licenses in partnership with Barari Developments, Obotan Minerals and Merlink Resources)
• IronRidge Resources report high-grade lithium assays over broad intersections at their Cape Coast project in the South of Ghana.
• IronRidge now has exclusive rights to the three key exploration licenses through agreement with Barari, Obotan and Merlink.
• The license area includes rights to the historic Egyasimanku Hill spodumene rich lithium resource.
• This was drilled by the Ghana Geological Survey in 1962 giving a resource estimate of 1.48mt grading 1,66% Li2O. This is a long way before JORC and NI 43101 standards.
• As such the resource estimate should be simply seen as a guide, though the work may have been well done back then.
• Among the results reported today is a 40m wide trench intersection at an average grade of 1.93% lithium oxide which includes a higher grade section of 15m at an average grade of 2.18%.
• The company notes that “Additional mapped pegmatites remain untested with significant lithium exploration upside within the Barari licence area and across the Cape Coast project portfolio.”
• IronRidge Resources also reports that its previously announced partnership with Barari Developments, Obotan Minerals and Merlink Resources has now become unconditional. The agreement “provides the Company with over 45km strike of prospective ground with highly anomalous due-diligence sampling results and exciting exploration targets along rediscovered lithium bearing pegmatite trends that hosts the historic Egyasimanku Hill resource”.
• The partnership agreement with Obotan and with Merlink provides IronRidge the opportunity to acquire 100% of the projects through a staged earn-in agreement and expenditure to complete a Feasibility Study within 4 years. The partners retain a right to a 2.5% NSR, of which 50% may be acquired for US$3m at any stage.
• The agreement with Barari is structured along similar lines with a 2% NSR, capped at US$2m of which 50% may be acquired for US$2m at any stage.
• The company points to “Global demand for lithium … increasing at an unprecedented rate …” and publishes estimates of future lithium carbonate price performance from a number of sources showing prices ranging between US$10,000-US$12,000 per tonne by 2025.
Conclusion: IronRidge Resources is building its lithium exposure in Ghana. Initial sampling and trenching work has identified wide outcrops of lithium bearing pegmatites with grades in excess of 1.5% lithium oxide.
Shanta Gold (LON:SHG) 8.4p, Mkt Cap £48.8m – Commercial production at Bauhinia Creek commenced
BUY
• First stope ore has been produced from the Bauhinia Creek orebody (BC) at the New Luika Gold Mine underground operation, in line with the management guidance.
• The Company completed 3,000m of underground development works from the portal at the 960m level since Jun/16.
• The main decline is approaching the 865m level with development of the orebody at 915m, 900m and 880m completed.
• Development of the Luika orebody is progressing in parallel with the mineralisation intersected at the 937m level, ahead of the schedule, last week.
• Underground Luika production is due in Q4/17.
• The management has further reiterated its 2017 gold production target for 80-85koz.