Kefi Minerals* (LON:KEFI) – Definitive Feasibility Study update for the Tulu Kapi Gold Project in Ethiopia
Metals Exploration (LON:MTL) – Shareholder loan
Mkango Resources* (LON:MKA) – Sampling at Thambani identifies new areas of uranium tantalum and niobium mineralisation
Mitsui & Co, a major trading house and part of the Japanese Mitsui Group conglomerate, is targeting to invest $5.9bn in resources projects over the next three years, CEO Tatsuo Yasanaga said.
• “While we aim to balance out portfolio, we will be strengthening our already strong resources business.”
• “We have set a hurdle to only invest in project which will turn a profit even with low oil or iron ore prices.”
Peru – declares mercury poison emergency due to artisanal and unregulated gold mining
• Western listed gold miners do ‘NOT’ use mercury in the recovery of gold for very obvious reasons.
• Governments need to learn that unregulated and artisanal mining can be hugely harmful for the population and for the environment.
• Peru declared an environmental emergency on Monday in 11 Amazon jungle districts where mercury poisoning is poisoning fish and people and blamed on unregulated gold mining.
• The authorities have advised local people not to eat a species of catfish common in the region that has also been contaminated by the mercury..
Tanzania - President of Tanzania dismissed Mineral Audit Agency Board and asked Mines Minister to resign amid reports showing cases of understatement of mineral exports from the port of Dar es Salaam.
• Previously, Tanzania Ports Authority seized 262 containers of gold mineral sands which were awaiting customs procedures.
• Assays of sands showed that containers contained 7.8-13.2t of gold instead of the 1.1t declared, the President said.
• Mineral sands were sourced from Buzwagi and Pangea gold mines, Bloomberg reported.
Bank Q1 commodity trading revenues fall 40%
• It’s no bad thing and after the banks expanded their commodity trading activities so much in the past 15 years.
• Lower oil and base metals prices in Q1 served to cut risk and trading activity as did the profit from storing metal.
• Tighter bank regulation and lower profit potential for bank traders also served to reduce their risk appetite.
Dow Jones Industrials +0.21% at 20,938
Nikkei 225 +0.66% at 19,743
HK Hang Seng -0.11% at 25,374
Shanghai Composite +0.07% at 3,064
FTSE 350 Mining -1.63% at 14,754
AIM Basic Resources +0.02% at 2,639
Economic News
US – Private sector growth accelerated in May led by stronger expansion pace in the services sector.
• New business growth advanced to the strongest level since the start of 2017 encouraging firms to step up hiring in May.
• Employment gains are estimated to have hit the strongest level in three months.
• Cost pressures were most notably felt in services sector where input prices posted the steepest rise in two years.
• “Average prices charged for goods and services meanwhile showed one of the largest rises in the past two year… the strengthening of business activity growth and rise in prices will add to expectations of the Fed hiking interest rates again in Jun,” Markit said.
China – Moody’s downgraded long-term local currency rating to A1 from Aa3 yesterday morning on the back of concerns over rising debt and the slowing economic growth rate.
• “The downgrade reflects Moody’s expectation that China’s financial strength will erode somewhat over the coming years, with economy-wide debt continuing to rise as potential growth slows,” Moody’s said.
• “While ongoing progress on reforms is likely to transform the economy and financial system over time, it is not likely to prevent a further material rise in economy-wide debt, and the consequent increase in contingent liabilities for the government.”
• The rating matches the A+ rating by Fitch and is one notch lower than the AA- rating by S&P.
Germany – Consumer confidence is “definitely on upswing”, GfK reports.
• “Neither uncertainty over the future political course of the US nor the upcoming Brexit negotiations are making any impact,” the report said.
• The index measuring the sentiment is forecast to climb to 10.4 next month, up from 10.2 in May and ahead of market estimates.
South Africa – The rand climbed against the US$ early on Tuesday on the back of rumours that the African National Congress is considering options to impeach the nation’s acting president.
• While an ANC spokesman denied claims, the currency continued to strengthen and is up more than 1.5% over the last two days.
Currencies
US$1.1178/eur vs 1.1254/eur yesterday. Yen 111.84/$ vs 111.17/$. SAr 13.062/$ vs 13.293/$. $1.298/gbp vs $1.299/gbp.
0.746/aud vs 0.749/aud. CNY 6.890/$ vs 6.890/$.
Commodity News
Precious metals:
Gold US$1,250/oz vs US$1,260/oz yesterday - Gold prices are flat after coming off $10/oz yesterday with the US$ index climbing ahead of the Fed meeting minutes due later today.
• Copper prices are off slightly despite the news over the extension of the labour action at Grasberg.
• Iron ore and steel prices slide on the back of the Chinese credit rating cut.
• Brent is up for a sixth consecutive day amid a drop in US crude inventories while OPEC members are due to hold a meeting tomorrow where markets expect producers would agree to extend output cuts until Mar/18.
Gold ETFs 59.7moz vs US$59.9moz yesterday - First Trust launches active ETF trading long and short commodity futures
• The ETF that seeks to profit from either long or short positions in select exchange-listed commodity futures contracts.
Platinum US$942/oz vs US$948/oz yesterday
Palladium US$774/oz vs US$769/oz yesterday
Silver US$16.98/oz vs US$17.12/oz yesterday
Base metals:
Copper US$ 5,672/t vs US$5,680/t yesterday – BHP Spence copper mine in Chile suffers new strike
• Also, what was previously envisaged a 30-day strike at Grabserg is turning into a two month labour action as unions notified the Company about the extension.
• Workers at Grasberg downed tools on May 1 protesting about furlough and layoffs.
Aluminium US$ 1,939/t vs US$1,928/t yesterday
Nickel US$ 9,180/t vs US$9,350/t yesterday
Zinc US$ 2,641/t vs US$2,653/t yesterday
Lead US$ 2,092/t vs US$2,107/t yesterday
Tin US$ 20,345/t vs US$20,520/t yesterday
Energy:
Oil US$54.4/bbl vs US$53.4/bbl yesterday
Natural Gas US$3.228/mmbtu vs US$3.320/mmbtu yesterday
Uranium US$20.25/lb vs US$21.75/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$59.5/t vs US$63.1/t
Chinese steel rebar 25mm US$588.6/t vs US$590.7/t
Thermal coal (1st year forward cif ARA) US$66.8/t vs US$66.9/t yesterday
Premium hard coking coal Aus fob US$153.5/t vs US$153.5/t
Other:
Tungsten - APT European prices $215-225/mtu vs $212-222/mtu
Ferrochrome – ScienceDirect comment on the Acid resistance, sulphate resistance and strength properties of concrete containing Ferrochrome Ash and lime
• Ferrochrome Ash is a waste material of ferroalloy industry.
• Utilization of Ferrochrome Ash with lime as a substitute of cement is explored in this study.
• Use of Ferrochrome Ash and lime has positive impact on strength and durability of concrete.
• Optimum substitution of Ferrochrome Ash is 40% along with 7% lime, replacing 47% of OPC.
Company News
Kefi Minerals* (LON:KEFI) 5.3p, Mkt Cap £17.6m – Definitive Feasibility Study update for the Tulu Kapi Gold Project in Ethiopia
• Kefi Minerals reports results from the updated Definitive Feasibility Study ‘DFS’ for the Tulu Kapi Gold project in Ethiopia.
• The DFS has been updated from an earlier DFS completed in August 2015 and is based on proposed and warranted contracted costs. This should make this a Bankable Study in our view.
• The new DFS was done by Lycopodium Minerals, a well-respected consulting and engineering group who are known for building mineral process plants.
• The study is being used as a base case plan for funding. More aggressive and hopefully more numbers are to be used by Kefi for for business planning purposes.
• Kefi’s internal plan shows higher gold production and faster progress than is assumed in the DFS Update which, by definition, errs on side of caution.
o Endeavour Financial who advise mining companies on project and debt financing have prepared a detailed financial analysis to aid the financing process.
o 2017 DFS key figures:
Throughput 1.5-1.7mtpa
Capex - US$161m (US$145m assuming contract mining) vs US$176m in 2015 and US$289m assuming 1.2mtpa under Nyota Minerals
The EPCM contract, eg capital costs, has contingency provisions of 10-20% on other items.
Production 980,000oz over the first 10 years of production.
Production rate average 115,000ozpa over first 8 years. KEFI’s internal target is 120,000ozpa from year two of open pit production.
AISC costs US$800/oz inc. op costs, royalties, sustaining capex and closure costs. Excluding financing and income taxes.
Cash Flow: the project is estimate to deliver net operating cash flow of US$55m vs US$61mpa estimated by Kefi
.Assumes US$1,250/oz gold price
• Kefi has refined the mine and processing plan further to squeeze out further value from the project through increasing throughput by 10% from year 2. The model assumes the same gold price at US$1,250/oz.
.Conclusion: The new Lycopodium DFS has cut the NPV valuation and IRR for the project from that seen in the 2015 DFS. Kefi’s internal numbers are more optimistic and are closer to the previous DFS study using a slightly less conservative approach. It feels fair to say that the Lycopodium study should be more of a base case and the use of $1,250/oz also looks fair given that a bank could finance the project based on this price and using the forward market if it was ready to do so today. The AISC costs also look low enough to support most stress tests. Bank finance will depend much on support from the government and the availability of credit for Ethopia which has a respectable B1 stable outlook credit rating as set by Moody’s as of last December in our view.
*SP Angel act as Nomad and broker to Kefi Minerals
Metals Exploration (LON:MTL) 2.9p, Mkt Cap £59.6m – Shareholder loan
• The Company continues discussions with lenders regarding a working capital financing with the facility expected to be agreed before the 30th of June.
• Meanwhile, the management approached major shareholders for a $2m loan to cover its working capital requirements and a $2m principal repayment due to existing lenders on the 31st of May.
• MTL (Luxembourg) Sarl Ltd and Runruno Holdings Ltd agreed to provide a $2m short term loan with the funding split on prorata basis to their shareholding in the Group.
Mkango Resources* (LON:MKA) 3.4p, Mkt Cap £2.8m – Sampling at Thambani identifies new areas of uranium tantalum and niobium mineralisation
• Mkango Resources reports that results from 85 rock grab samples within the Thambani project area in Malawi have “returned high grade uranium, tantalum and niobium values, ranging up to 3.3% U3O8, 1.9% Ta2O5 and 6.0% NbO2”.
• The results are derived from a follow up programme to “confirm previously identified high grade mineralisation at the Little Ngona target, ground-truth new geophysical targets and complete further reconnaissance sampling along the East and West Ridges.”
• The company highlights that four of the highest grade samples were taken from the foot of the West Ridge where it had identified a strong north-west trending radiometric geophysical anomaly measuring 1.5km by 0.4 km anomaly. A second 3km by 1.5km radiometric anomaly lies along the length of the East Ridge.
• “Mkango is currently evaluating strategic options for Thambani, including opportunities to joint-venture or spin-off the project”.
• Mkango’s main project is the development of its rare-earth minerals deposit at Songwe Hill in southern Malawi. The company completed an updated pre-feasibility study in November 2015 and has since worked to optimise the project from the cost and efficiency standpoint. In addition, the company has developed marketing and market intelligence alliances for rare earths with Noble Resources and collaborated with Metalysis Limited to “jointly research, develop And commercialise novel rare earth metal alloys for use in three-dimensional (3D) printed permanent magnets.”
• Conclusion: Early stage exploration sampling of Mkango’s Thambani uranium/tantalum/niobium project in Malawi has recovered high grade grab samples from areas identified by radiometric anomalies. The company is evaluating options to realise value from Thambani as it moves ahead with its flagship Songwe Hill rare-earths project.
*SP Angel acts as Nomad and Broker to Mkango Resources