Gemfields (LON:GEM) – Potential rival offer from Fosun Gold
IronRidge Resources* (LON:IRR) – Additional lithium outcrops in Ghana
Metminco* (LON:MNC) – Disposal of the remainder 49% interest in Los Calatos for $5m
Ortac Resources* (LON:OTC) – Conversion of notes for equity interest in Zamsort
Solgold* (LON:SOLG) – Expanding drill programme at Cascabel extends mineralised corridor at Alpala to 1.3 km
Tri-Star Resources* (LON:TSTR) – Antimony concentrate supply agreement
Miners are little changed today amid a mixed bag of Chinese economic data and ahead of the FOMC meeting today.
• IMF notched up forecast Chinese economic growth to 6.7%, up 0.1pp from previous estimates, for 2017 on the back of “policy support, especially expansionary credit and public investment”; medium term growth in 2018-2020 is estimated at 6.4%.
• Gold prices are rangebound this morning after an increase reported on Tuesday as the US$ resumed the downward trend.
• In base metals, money managers are seen reducing net long positions in copper (three week low), zinc (four week low) and aluminium (three week low).
• Brent is off on reports that US inventories might have climbed for a second week while the data showed an increase in OPEC production rates in May as Libya and Nigeria restarted output temporarily disrupted by attacks and political crises.
• A separate report showed that the IEA forecasts a well-supplied market through 2017-18; while demand is expected to accelerate by 1.4mbpd in 2018, supply growth is expected to pick up more led by the US and other non-OPEC producers with the rate climbing by 1.5mbpd.
• Iron ore futures are off 1.5% in China on reports that steel production eased from a record last month but still up compared to the previous year (72.26mt +1.8%yoy and -0.7%mom).
Dow Jones Industrials +0.44% at 21,328
Nikkei 225 -0.08% at 19,884
HK Hang Seng -0.01% at 25,849
Shanghai Composite -0.73% at 3,131
FTSE 350 Mining +0.50% at 15,131
AIM Basic Resources -0.96% at 2,593
Economic News
US – While headline PPI dropped to 0.0%mom in May on the back of lower gas prices, while core PPI (ex energy) came in strong reflecting higher prices in the services sector.
• The FOMC which is due to announce monetary policy decision today is likely to focus on underlying price pressures led by tightening labour market and disregard temporary slowdown in the headline measure reflecting volatile energy prices.
China – Consumer spending measured by retail sales and industrial production held up well through the first five months of the year; although, aggregate investment growth continued to come down post a Q1 rebound.
• Fixed investments slowed more than forecast in the first five months on the back of weaker property development spend.
• Real estate investment in China expanded at the slowest pace this year to date coupled with continuing downward trend in property sales.
• The data comes in line with forecasts for a gradual weakening in growth rates through the year from the annual peak of 6.9% recorded in Q1/17.
• The monthly GDP tracker estimated by Bloomberg shows the economy expanding at 7.14% in May, little changed from Apr.
• Retail Sales (%yoy/YTD): 10.7/10.3 v 10.7/10.2 in Apr and 10.7/10.3 forecast.
• Fixed Investments, FAI (%YTD): 8.6 v 8.9 in Apr and 8.8 forecast.
• Industrial Production (%yoy/YTD): 6.5/6.7 v 6.5/6.7 in Apr and 6.4/6.6 forecast.
Germany – Weaker inflation rates confirmed at 1.4% in May reflecting lower oil prices and a sharp decline in vegetable prices.
• Inflation excluding energy prices swings came in at 1.5%yoy, up on 1.3%yoy in Apr and slowly recovering from a dip in rates recorded Mar-Apr.
Currencies
US$1.1216/eur vs 1.1201/eur yesterday. Yen 110.10/$ vs 110.15/$. SAr 12.757/$ vs 12.798/$. $1.279/gbp vs $1.268/gbp.
0.756/aud vs 0.754/aud. CNY 6.797/$ vs 6.798/$.
Commodity News
Precious metals:
Gold US$1,268/oz vs US$1,265/oz yesterday
Gold ETFs 60.7moz vs US$60.7moz yesterday
Platinum US$929/oz vs US$945/oz yesterday
Palladium US$884/oz vs US$896/oz yesterday
Silver US$16.93/oz vs US$16.86/oz yesterday
Base metals:
Copper US$ 5,730/t vs US$5,735/t yesterday
Aluminium US$ 1,887/t vs US$1,885/t yesterday
Nickel US$ 8,865/t vs US$8,780/t yesterday
Zinc US$ 2,484/t vs US$2,451/t yesterday
Lead US$ 2,063/t vs US$2,057/t yesterday
Tin US$ 19,390/t vs US$19,165/t yesterday
Energy:
Oil US$48.5/bbl vs US$48.4/bbl yesterday
Natural Gas US$2.966/mmbtu vs US$3.030/mmbtu yesterday
Uranium US$20.00/lb vs US$20.00/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$52.8/t vs US$54.4/t
Chinese steel rebar 25mm US$569.5/t vs US$569.5/t
Thermal coal (1st year forward cif ARA) US$68.1/t vs US$67.8/t yesterday
Premium hard coking coal Aus fob US$146.2/t vs US$146.2/t
Other:
Tungsten - APT European prices $220-226/mtu vs $220-225/mtu
Lithium – Today, the rapidly growing EV industry is just the tip of the iceberg compared with where it's headed to, according to the Bloomberg New Energy Finance which predicts that 35 percent of all new vehicle sales by 2040 will be electronic vehicles, equivalent to 100m units every year
• Since lithium is one of the most important components for electric vehicles, it looks like a very attractive commodity for investors.
Titanium – Norsk Titanium secures additional funding.
• Norsk Titanium has closed on what it calls a "significant investment" from the aerospace investment company Triangle Holdings LP
• Terms of the new investment were not released to the public, but Norsk leadership was beyond pleased to announce the deal.
• The investment comes very shortly after Norsk announced that it will deliver the world’s first, 3D-printed, FAA-approved, structural titanium components to Boeing.
Company News
Gemfields (LON:GEM) 40.3p, mkt cap £221m – Potential rival offer from Fosun Gold
• Gemfields management report they are in active discussions with Fosun Gold which may or may not lead to an offer for Gemfields.
• A cash offer would be preferable to shareholders particularly at a premium price as UK investors would not be forced to accept paper from Pallinghurst which is South African listed.
• Most UK institutional investors would not be able to hold the Pallinghurst paper for any length of time.
• We agree with Gemfields management in that the Pallinghurst offer is opportunistic and derisory.
• Gemfields shareholders have in our view been denied cash through ongoing investment in the Faberge brand which was sold to Gemfields by Pallinghurst.
• We reckon Gemfields is hugely undervalued and shareholders should hold out for a very significant premium.
• Pallinghurst are offering a derisory 1.91 Pallinghurst shares listed on the JSE ‘Johannesburg Stock Exchange’ for each Gemfields share.
• Pallinghurst’s offer is now worth the equivalent of 37.08p/s. This represents a small premium to the Gemfield’s London stock which is trading lower as some shareholders are selling not wanting to hold JSE listed paper.
• Pallinghurst’s offer was worth 38.2p/s on the 19th May when the offer was first made highlighting the fall in value of the offer as Pallinghurst shares have sold off since the offer. We believe Pallinghurst shares will sell off further following a successful bid as many UK institutional investors will be forced to liquidate their holdings to comply with their fund mandates.
• “The Independent Committee continues to strongly advise the Company’s shareholders to take no action in relation to the Unsolicited Offer and to wait for a further update on the status of discussions with Fosun Gold on or before 27 June 2017. Pallinghurst has confirmed that the Unsolicited Offer will, at a minimum, remain open for acceptance until 4 July 2017.”
• Pallinghurst have now posted their offer document.
Conclusion: We view an independent Gemfields as offering the best potential upside for Gemfields shareholders going forwards. We believe the Faberge brand could be sold for significant additional value in time and there is potential to sell substantially more rubies from Montepuez than are currently being realised. It is our view that Gemfields is currently worth more than two times the current offer price and that management could realise around half the current market capitalisation in asset and stock sales over the next few years without materially impacting the operations if supported by shareholders. We do not know if key investors have signed soft or hard irrevocables with Pallinghurst. We ‘do’ understand that the irrevocable undertakings fall away in the event of a bid which is at >10% to the Gemfields share price. We expect Fosun Gold to come through with a bid in the next few days at a sufficient premium to allow key investors to accept th is offer. We still regard this to be at a significant discount to our fundamental valuation on the company.
IronRidge Resources* (LON:IRR) 37p, Mkt Cap £88m – Additional lithium outcrops in Ghana
• IronRidge has announced that early stage exploration of its prospective Cape Coast Lithium Project in Ghana has “discovered multiple, significant outcropping lithium pegmatites” and that it has also had the opportunity to inspect the “historic Egyasaminku Hill Lithium resource” where, in 1962, the Ghana Geological Survey defined a non-JORC compliant resource of 1.48mt at an average grade of 1.66% Li2O.
• Clearing vegetation along lines spaced at 50m spacing has shown “large pegmatite outcrops with coarsely crystalline visible spodumene in addition to historical trenching and panel sampling sites.”
• This early work has identified “Three separate pegmatite outcrop and boulder float zones mapped over 480m, 350m and 320m strike lengths with 20m to 50m widths open to the south-west. … Additional pegmatite target zones have been identified in satellite imagery along similar trends within the poorly explored and thickly vegetated Egyasimanku Hill area.”
• As part of follow up work, the company has commissioned an ultra-high resolution airborne geophysical magnetic and radiometric geophysical survey which will commence “within the coming weeks on receipt of the required permits.”
• We hope that, in addition to its geological and geophysical exploration programmes IronRidge has an active community relations programme as we note that “The Egyasimanku Hill Lithium deposit occurs within the Yenku Forest Reserve, a designated forested area set aside for the local population. Access rights for minerals prospecting and exploration has been granted by the Forestry Commission of Ghana.”
• A successful exploration programme has the potential to bring significant benefits to the local community but the company needs to ensure that those communities fully understand the opportunity to enhance their wellbeing and benefit as opposed to focussing on the potential to disrupt the Forest Reserve.
Conclusion: The early stage follow up work, and particularly the helicopter borne airborne geophysics programme should help to refine the targets and help IronRidge to plan its future exploration strategy. We look forward to further news on target definition and the results of the airborne geophysical survey.
*SP Angel act as Nomad and Broker to IronRidge Resources
Metminco* (LON:MNC) 3.8p, Mkt Cap £4.8m – Disposal of the remainder 49% interest in Los Calatos for $5m
• The Company completed the binding agreement with CD Capital Natural Resources Fund III to sell 49% interest in a local subsidiary owning the Los Calatos projects in Peru.
• Total proceeds amount to $5m in cash and net of costs.
• The deal would see CD Capital consolidating its interest in the project after securing 51% stake for $16m an investment in Los Calatos Holding Limited (LCH), a Peruvian subsidiary owning the asset, in H2/16.
• The sale is expected to be completed by the end of Jun/17 and “no later than 11 Jul/17”.
• A 49% interest in LCH has been accounted for using equity method and stood at A$33.8m (c.$25.6m) as of Dec/16, suggesting an approximate $20m impairment to be recorded this fiscal year.
• Funds will be directed towards continuing development of the Miraflores Gold Project in Colombia where the team is finishing a feasibility study targeted for the Q3/17 completion.
*SP Angel act as broker to Metminco. SP Angel analysts have previously visited Los Calatos in Peru and Miraflores project in Colombia
Ortac Resources* (LON:OTC) 3.3p, Mkt Cap £4.8m – Conversion of notes for equity interest in Zamsort
• The Company converted the Secured Convertible Loan Note and part of the Call Option Agreement for a 14% equity stake in Zamsort Ltd.
• The Company has been issued 2,100 shares in Zamsort in exchange for the $828,472 in outstanding loan notes.
• The remainder $371,528 balance due under the Option Agreement that would see the Company increasing its equity position in Zamsort to 19.35% upon conversion has been extended to 31 Dec/18 with terms of the 8% notes remaining unchanged.
• Mr Nick von Schirnding (Ortac Resources NED) will be replacing Vassilos Carellas on the Board of Zamsort.
*SP Angel acts as broker to Ortac Resources
Solgold* (LON:SOLG) 38.3p, Mkt Cap £547m – Expanding drill programme at Cascabel extends mineralised corridor at Alpala to 1.3 km
(SolGold holds an 85% interest in ENSA which holds 100% of Cascabel)
• SolGold has provided an update on its rapidly expanding drilling programme at the Cascabel project in Ecuador where it expects to have 7 operational rigs on site in August with the fleet expanding to eight rigs by the end of the year.
• The company points out that “An increasing understanding of the deposit is now leading to much larger step-outs in drilling as SolGold directs its programme towards the copper and gold at a predicted large and rich-heart of the Alpala system.”
• The recent drilling at Alpala Southeast (Hole 24) and Hematite Hill (hole 25) “discovered previously unknown mineralisation, extending the mineralised corridor at Alpala to approximately 1,300 [metres] from Hole 13 in the northwest to hole 24 in the southeast”.
• SolGold is suggesting that, while “the bounds of the greater Alpala system … remain untested” the company “now believes that several targets clustered within the Alpala area may coalesce.” Based on these comments, it is clear that SolGold is coming to the view that they are investigating a larger mineralised system than had been apparent at earlier stages in the exploration programme.
• Assay results from the recently completed hole 23R are expected imminently and are “expected to represent one of the most significant intersections achieved to date, leaving a large portion of the high-grade core of the Alpala deposit open to the east.” Visual logging and inspection of the drill core, however, showed over 850m of chalcopyrite copper mineralisation between depths of 563.7m and 1,417.6m.
• Preliminary work to drill a 1,500m long “daughter” hole, designated 23R-D1, using hole 23R is underway “to test the eastern extensions to the high grade core at Alpala Central.” and to look for deeper intersections of the mineralisation encountered in hole 24 at Alpala East where results are also imminent and where visual logging shows a 248m interval between 738.9m and 986.9m of bornite copper mineralisation.
• Hole 25 at Hematite Hill was completed at a depth of 1,681.6m and results from a 454.2m long mineralised interval between 772.2m and 1,226.4m are expected shortly.
• Hole 26 is underway with a planned depth of 1,800m to test strike and depth extensions of the Alpala Northwest mineralisation and is currently at 451.1m. Hole 27 is being drilled from the same collar as Hole 25, currently at a depth of 511.6m to test extensions of the mineralisation encountered in holes 16,19 and 22 approximately 250m further southeast.
Conclusion: As SolGold is able to deploy more drilling capacity and its knowledge of the geology of Cascabel increases, it is extending the known extent of mineralisation to over 1,300m without yet defining the its full extent. Additional assay results from the recently completed holes are expected shortly and exploration is accelerating as the company seeks to demonstrate that some of the previously identified mineralised bodies may coalesce to form a larger entity.
*SP Angel acts as Nomad and Broker to SolGold; An SP Angel analyst has previously visited the Cascabel project.
Tri-Star Resources* (LON:TSTR) 0.17p, Mkt Cap £14.4m – Antimony concentrate supply agreement
(Tri-Star holds 40% of SPMP)
• Tri-Star has announced that its 40% owned associate, Strategic & Precious Metals Processing (SPMP) has signed a 5 year contract with Traxys to source antimony and antimony-gold mineral concentrates and direct shipping ores as feedstock for SPMP’s Oman Antimony Roaster (OAR) currently under construction in the free trade area at Sohar
• The material will be supplied to SPMP on a “cost plus” basis and “The raw materials will be delivered to and warehoused by Traxys until required by SPMP.”
• Heads of Agreement between SPMP and Traxys were first announced in April 2015 and today’s announcement formalises the relationship which will give SPMP “access to the global expertise provided by Traxys on minor metal concentrate sourcing and supply chain logistics management.”
• Commenting on the tie up with Traxys, SPMP’s CEO and Deputy Chairman of TriStar, Emin Eyi pointed out that “the global reach and expertise of Traxys brings considerable value and further de-risking to our project”
• Mr Eyi also disclosed that work was already underway in conjunction “with the Traxys team in identifying and approaching major suppliers of antimony and antimony gold concentrates at a time when some 50% of China’s antimony smelters are shuttered pending environmental concerns.”
Conclusion: The agreement with Traxys opens up a supply chain for feedstock for the OAR and is a further de-risking of the project following the recent announcement that the major shareholder, Odey Asset Management is to exchange its loan notes for equity.