Atalaya Mining (LON:ATYM) – Study on further expansion of the Proyecto RioTinto
Golden Star Resources (CVE:GSC) –Simplifying the balance sheet
Kodal Minerals* (LON:KOD) – Update on Suay Chin financing
BlueRock Diamonds* (LON:BRD) – £366,000 raised at 3p per share
Gemfields (LON:GEM) – Shareholders should ‘not’ vote for Pallinghurst offer
Ormonde Mining* (LON:ORM) – Barruecopardo commissioning targeted for Q3 2018
Tethyan Resources* (LON:TETH) – Chairman’s statement highlights potential of the Suva Ruda and Gokcanica copper porphyry projects
Metals prices fall on decline in factory output in China in May
• The Caixin purchasing managers index fell to 49.6 from 50.3, the lowest reading since June 2016
• China’s crackdown on emissions and pollution in general is causing some disruption in commodity markets.
• We see this most severely in speciality metal concentrate volumes and prices at present.
• Antimony is the latest market to be significantly affected. Tungsten processors are also under some pressure.
• Many smaller Lead, zinc miners have been struggling for a while and we would not be surprised to hear of further producer and processor shutdowns this summer as the Chinese state continues to enforce environmental regulations and a general cleanup.
Gold / beer ratio
• A group in Liechtenstein, where else would you do this, has come up with a new way of measuring the relative value of gold.
• In 2016 you could get 111ltrs of beer per ounce of gold.
• Historically the medial was 87ltrs
• When gold hit $1,900/oz you could get 138lts of beer for an ounce of gold
• The peak occurred in 1980 at 227ltrs
• In Mayfair you could buy 178pints or 101ltrs of premium quality lager for an ounce of gold today
• We conclude the price of beer in Mayfair is therefore not out of line with the price of gold
Currencies
US$1.1225/eur vs 1.1179/eur yesterday. Yen 111.12/$ vs 110.83/$. SAr 13.046/$ vs 13.078/$. $1.288/gbp vs $1.279/gbp.
0.741/aud vs 0.745/aud. CNY 6.805/$ vs 6.821/$.
Commodity News
Precious metals:
Gold US$1,266/oz vs US$1,264/oz yesterday
Gold ETFs 59.8moz vs US$59.8moz yesterday
Platinum US$944/oz vs US$942/oz yesterday
Palladium US$817/oz vs US$807/oz yesterday
Silver US$17.29/oz vs US$17.31/oz yesterday
Base metals:
Copper US$ 5,681/t vs US$5,642/t yesterday
Aluminium US$ 1,928/t vs US$1,913/t yesterday
Nickel US$ 8,845/t vs US$8,880/t yesterday
Zinc US$ 2,578/t vs US$2,577/t yesterday
Lead US$ 2,108/t vs US$2,079/t yesterday
Tin US$ 20,380/t vs US$20,300/t yesterday
Energy:
Oil US$51.4/bbl vs US$51.3/bbl yesterday
Natural Gas US$3.095/mmbtu vs US$3.144/mmbtu yesterday
Uranium US$19.75/lb vs US$19.75/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$54.9/t vs US$57.9/t
Chinese steel rebar 25mm US$585.4/t vs US$587.2/t
Thermal coal (1st year forward cif ARA) US$66.7/t vs US$68.0/t yesterday
Premium hard coking coal Aus fob US$149.2/t vs US$149.6/t
Other:
Tungsten APT European US$220-225/mtu vs US$215-225/mtu
Quarterly hard coking coal US$285.0/t vs US$285.0/t
Company News
Atalaya Mining (LON:ATYM) 123.5 pence, Mkt Cap £144.1m – Study on further expansion of the Proyecto RioTinto
• Atalaya Mining has announced that, over the next three months, it is to examine the viability of expanding throughput at the Proyecto RioTinto to 15mtpa from its current 9.5mtpa, increasing annual copper output to 50-55,000tpa.
• Based on current production guidance for 2017 of 34-40,000tonnes of copper output the study is examining an approximately 60% increase in throughput the mine to deliver a 40% increase in copper output suggesting that economies of scale will allow lower cut-off-grades.
• If the study demonstrates a viable project, the company expects that economies of scale will deliver further improvements in the cash costs which, we recall, were US$1.83/lb during Q1 this year.
• The study will encompass a review of the existing geological model and resource and reserve estimates as well as mine-planning, the appropriate mining equipment fleet and tailings disposal for the larger scale of operations. “The study will also assess the potential for maximising processing capacity including complementing it with additional crushing and milling equipment. Flotation and concentrate handling modifications will be evaluated but are not expected to be significant.”
• It is interesting to note that “The plan is to revisit existing geological modelling and resource and reserve estimates with a view to maintaining the life of mine in the range of 12-14 years.” To us this hints that there is scope to expand the current resource base significantly and we suspect that this may be achieved through a combination of new discoveries from the current near mine exploration and the ability of a lower cost base to reduce the existing cut-off grades and leading to the inclusion of mineralised material previously seen as sub-economic within the resource inventory.
• Atalaya delivered a relatively trouble free restart of the operation at RioTinto and was able to effectively combine an original two phase expansion to 5mtpa moving to 9.5mtpa into effectively a single step. Provided the study demonstrates the viability of the expansion to 15mtpa, we believe that the operating team has demonstrated its credentials to deliver the further expansion.
• The comment that “In anticipation of a positive outcome of this study, the Company is currently evaluating different sources of financing.” suggests that management is planning for a rapid implementation of the expansion in the expectation of a positive outcome to the study.
Conclusion: The decision to examine a further expansion of the RioTinto mine suggests that management sees resource expansion potential. Although the outcome of the study will take 3 months, it appears that management is putting the planning in place to move into implementation of the expansion in the event of viability being demonstrated.
Golden Star Resources (CVE:GSC) C$0.84, Mkt Cap C$316m –Simplifying the balance sheet
• Golden Star Resources reports that it has repaid the “remaining $13.6 million principal amount of its 5.0% convertible senior unsecured debentures ("5.0% Convertible Debentures") due June 1, 2017, plus accrued interest, in cash.”
• The move comes as part of a planned simplifying of the company’s balance sheet “as we continue along our path to become a high grade, low cost gold producer."
• The 31st March 2017 balance sheet shows that, in addition to the 5% convertible debentures, Golden Star had a further US$41.1m 7% convertible debenture, due for repayment in August 2021, and an outstanding loan of US$18.6m due to Royal Gold in 2019 as well as debt due to vendors in two tranches each of US$12.3m due in 2018 and 2019. Cash amounted to US$36.2m, providing adequate resources for the debt repayment.
• On a pro-forma basis the repayment of the 5% convertible debenture, which was held as current debt, reduces the company’s short term debt to approximately US$3m.
• Excluding loans for equipment financing, finance leases and interest payments on the main loans, we estimate that Golden Star’s major repayments of its principal debts will now be US$12m in 2018, US$32m in 2019 and US$51m in 2021, which should now more closely match the build-up in the company’s cash flow as it makes the transition from low grade, metallurgically complex open-pit ores to production of high grade gold ore from its underground gold mines at Wassa and Prestea in Ghana.
Conclusion: Golden Star has repaid its 5% convertible debenture on time as planned and has a repayment schedule for its other loans which should synchronise with the build-up in its cash generation capacity as it moves into high grade, low cost underground mining.
Kodal Minerals* (LON:KOD) 0.31p, Mkt Cap £19m – Update on Suay Chin financing
• Kodal Minerals report that Suay Chin have completed the first tranche of their £4.3m investment through the payment of £3.3m for 0.868m new shares at 0.38p/s.
• The second tranche of the subscription for £1,025,266 was to be completed by 2 June 2017 but the parties have agreed to extend the deadline to 31 July.
• We understand it is difficult for private companies to remit funds out of China.
• We reckon Suay Chin will eventually be able to remit the funds and should be a longer-term supporter of Kodal Minerals as it works up a JORC lithium resource in Mali and then moves to develop a feasibility study and financing plan for a potential new lithium mine.
*SP Angel acts as Financial Advisor and Broker to the company. Robert Wooldridge, a partner at SP Angel is Chairman of Kodal Minerals.
BlueRock Diamonds* (LON:BRD) 3.6p, Mkt Cap £2.0m – £366,000 raised at 3p per share
• BlueRock Diamonds have raised £366,000 at 3 pence per share to continue the development of the Kareevlei diamond mine in South Africa.
• Funds will also be used to add to the portfolio of diamond mining assets.
• The company sold 143cts for an average price of $224/ct. This is said to have increased the overall value to $298/ct when combined with the April diamond tender.
• The April tender of 206 carats of diamonds averaged $438/ct due to the inclusion of a 9.5 carat stone which achieved $3,750/ct.
• Excluding this large stone, the April tender achieved $280/ct, broadly in line with the “previous average for all diamonds mined at Kareevlei Mine” of $293/carat.
• Paul Beck, a director, has subscribed for 333,333 new shares in the placing taking his interest to 3.8% of the company.
Conclusion: BlueRock have invested substantial time, energy and finance into getting the diamond mine and plant working at Kareevlei. Management changes, contractor changes and modifications to the recovery plant are showing improvement in terms of diamond recovery and diamond values are also better than expected. We are hopeful that an improvement in recovered grades and stone sizes may further increase the value of sales and profit potential going forward.
*SP Angel acts as Nomad & Broker to BlueRock Diamonds
Gemfields (LON:GEM) 35.5p, mkt cap £195m – Shareholders should ‘not’ vote for Pallinghurst offer
• We have no connection with Gemfields other than our association with the company as analysts watching and valuing the company’s performance.
• We have visited the emerald and ruby mines and we have noted how the ceo, Ian Harebottle has developed and expanded the markets and auction process to drive prices for high-end stones as well as to place volume into the market.
• We fear that Pallinghurst are less interested in shareholder rights and more interested in asset stripping the company.
• Pallinghurst are offering 1.91 Pallinghurst shares listed on the JSE ‘Johannesburg Stock Exchange’ for each Gemfields share in a move which will inevitably cause UK funds to dump the stock as many of these funds are not able to hold shares on the JSE.
• Furthermore, shareholders will effectively swap shares on the London Stock Exchange in a relatively liquid company for stock in a relatively illiquid company on what is seen as an emerging market exchange where relatively few international investors trade.
• This is not what ‘we’ call a fair offer and we do not feel this is not a fair shareholder contest as Pallinghurst have given the appearance of a done deal. This is not a done deal in our view and shareholders should stand their ground, stand up for their rights and vote this ‘derisory’ offer down.
• Inspection of Pallinghurst’s share chart shows low volumes and very irregular trading.
• We can see that the Faberge brand has benefitted indirectly via Gemfields’ auction platform in terms of driving continued demand and in turn higher prices for our emerald and rubies but are also concerned that Faberge has suffered a fall in the average sales price per item while management focussed and invested in the launch of the new, award winning, watch range.
Conclusion: We can not understand why any respectable fund would wish to swap shares in a liquid LSE stock for Pallinghurst shares on the JSE. It’s simply not a rational move in our view unless there is going to be some asset stripping and a whopping great cash distribution to ‘all’ shareholders to compensate for the lack of liquidity.
Ormonde Mining* (LON:ORM) 1.475p, Mkt Cap £7.0m – Barruecopardo commissioning targeted for Q3 2018
• Ormonde Mining reports that it has approved “the issuance of outstanding approvals on various equipment and plant construction contracts, [for the Barruecopardo tungsten project] thus advancing the Project into an accelerated construction and implementation phase, with an updated schedule allowing for mine commissioning in the third quarter of 2018.”
• In order to focus exclusively on the project development of Barruecopardo, Steve Nicol is to relinquish his current role as Ormonde’s Managing Director, with the company’s Chairman, Mike Donoghue, assuming the post of interim Managing Director.
• Steve Nicol assumed the role of Managing Director of Ormonde Mining following the tragic and untimely death of Kerr Anderson in August 2015, Steve having previously been responsible for the project management of Barruecopardo. He is therefore eminently suitable to oversee the construction, commissioning and operation of the project with which he has been intimately involved for some nine years.
• Commenting on the risk exposure inherent in commissioning the project during the recent period of tungsten price weakness which “has led to the construction schedule being extended on two occasions during 2016” , the company notes that “Against a backdrop of rising tungsten prices, and increasing demand for tungsten concentrates, the partners believe the time is now right to ensure that the construction of the Project progresses at full speed towards commissioning of a new mine at Barruecopardo, now targeted for the third quarter of 2018.”
Conclusion: Having delayed the project timetable for Barruecopardo during a prolonged period of price weakness, Ormonde Mining now judges that the improving price outlook justifies moving ahead towards commissioning in Q3 2018. The company’s managing director is stepping aside from the corporate role in order to focus full time on delivering the project. We look forward to continuing news as the implementation of the Barruecopardo development accelerates.
*SP Angel acts as Broker to Ormonde Mining
Tethyan Resources* (LON:TETH) 4p, Mkt £6.7m – Chairman’s statement highlights potential of the Suva Ruda and Gokcanica copper porphyry projects
• Tethyan Resources have issued their annual report today
• The company continues to drill and advance the Suva Ruda and Gokcanica copper porphyry projects in Serbia.
• Ongoing work includes drilling, deep penetration IP geophysics, geochemical sampling and geological mapping.
• The plan is to advance the Rudnitza porphyry system for an initial resource estimate later this year and to get the Gokcanica project ready for a decision on drilling
• The team are also looking to acquire further copper projects along the Tethyan Metallogenic Belt.
• Management are disciplined in their approach having dropped the Cadinje project last year as grades were less continuous than previously interpreted.
• Suva Ruda is looking far more prospective causing the team to expand the area of identified mineralisation:
• Results include:
Drillhole RDD-001 : 584.6 m @ 0.27 % Cu, 0.44 g/t Au from surface.
(including 38 m @ 1.2% Cu and 0.38 g/t Au from 122 m)
Drillhole RDD-004: 356 m @ 0.38% copper and 0.31 g/t gold from 48 m
(including 30 m @ 1.45% Cu and 0.39 g/t Au from 102 m)
Drillhole RDD-003: 285 m @ 0.31% copper and 0.33 g/t gold from 42 m
(including 16.7 m @ 1.55 % Cu and 0.20 g/t Au from 102 m)
• Gokcanica: outcropping veins over a 200m strike and up to 20m wide showing up to 67g/t of gold looks interesting though drilling has yet to be decided on.
• Results: the company reports a loss of £1.3m for the year to end December vs £0.5m a year earlier. Operating expenses increased to £710k with the new higher level of exploration activity and there was a £317k loss taken on asset acquisition.
• The company has £985k of cash and cash equivalents and £338 of trade and ither receivables
*SP Angel act as Nomad and broker to Tethyan Resources