Karelian Diamonds (LON:KDR) – Exploration licence adjacent to Lahtojoki mining permit
Landore Resources (LON:LND) – Drilling programme at Junior Lake
Petra Diamonds (LON:PDL) – Flagging a shortfall in FY 2017 production guidance
Australia and Canada governments financing new mines to help industry get ahead
• The Clean Energy Finance Corporation CEFC is in the news today in Australia as it makes its first move into mining
• CEFC is investing $20m into the Pilgangoora lithium mine in Western Australia.
• The move supports the equity component of the $214m financing the new lithium mine effectively accelerating its development and giving it an advantage over other new lithium mine developments.
• The project is expected to generate life-of-mine revenues of 9.23bn, to have a post-tax net present value of $709m and an internal rate of return of 38.1%.
• First concentrate shipments scheduled for the second quarter of 2018.
• It feels particularly important in the lithium space to secure and establish offtake agreements while processors in China are keen to establish new sources of supply
• Later entrants may have better mines but may struggle to gain offtake agreements if and when the market becomes saturated with new production
• Australia, understands the importance of mining to its economy and is providing critical finance to help its domestic miners get ahead of other nations.
• We recently saw Canada supporting the restart of Champion Iron’s Quebec Iron Ore mine using Resources Quebec Inc, eg state funds.
• With countries increasingly viewing the sourcing of rare earths and other critical elements as strategic minerals we expect to see more nations supporting domestic production
• In many cases nation states should also expect to see significant returns on their investment in terms of taxes paid and hopefully profits generated
Currencies
US$1.1385/eur vs 1.1173/eur yesterday. Yen 112.12/$ vs 111.33/$. SAr 13.034/$ vs 12.970/$. $1.283/gbp vs $1.274/gbp.
0.759/aud vs 0.757/aud. CNY 6.798/$ vs 6.838/$.
Commodity News
Equities - Technology stocks continue to lose value as market calls time on the tech sector
China – Beige book indicates growth should continue to hold up as hiring and sales recover and increases to inflation
• Observers reckon China PMI may fall in June after a flat May as anti-pollution and efficiency drives cut production and capacity
US – IMF cuts outlook for US economy
• The IMF has removed assumptions relating to Donald Trump’s plan to cut taxes and stimulate infrastructure spending
• Lower oil prices are also seen applying downward pressure to state and industry revenues
Eurozone – ECB chief lifts euro with positive comments indicating a potential reduction in stimulus as Eurozone growth picks up.
• The remarks are seen as potentially allowing ECB interest rates to rise
France – Macron to make ‘Mother of All Reforms’ in major move on labour market reform
• New French cabinet expected to approve outline changes to labour code
• Union hard liners are preparing for the ‘Mother of all Battles’
• It will be interesting to see if Macron will support the reopening and potential development of a number of mines in France where all mining was closed by the state in the 1980s
• Macron signed a number of exploration permits for mining in France when he was minister of the economy and industry. He may or may not continue to support these developments.
South Africa - Sibanye Gold aims to resume production at its strike-hit Cooke Mine later this week, but first plans to conduct safety inspections in the shafts on Monday.
• According to company’s spokesman, the company needed to wrap up an appeal process approximately 1,500 miners who face possible dismissal for taking part in a violent wildcat strike that started three weeks ago in protest against a company drive to root out illegal miners.
• Illegal gold mining plagued South Africa for many years, with bullion pilfered from both disused and operating mines, and Sibanye has vowed it will clear all illegal miners from its shafts by January 2018.
• Workers at the mine downed tools over resentment at the company crackdown against illegal miners, which has included the arrest of employees for collusion and a ban on taking food underground.
• Located in the province of Gauteng, South Africa, the Cooke mine produces about 181,700 ounces of gold a year and brings in around $29m rand in operating profit.
Precious metals:
Gold US$1,252/oz vs US$1,250/oz yesterday – Emmerson Resources has received final approvals from the Northern Territory (NT) government for production to commence at the Edna Beryl Gold Mine in NT which is the first new mine in NT in over 10 years and has the potential to be one of the highest grade gold mines in Australia.
• The approvals are convincing evidence supporting the government’s recently outlined initiatives to revitalise Tennant Creek and make it the ‘Mining and Services Centre’ of the Northern Territory.
• The government is conducting a feasibility study into establishing a central milling facility at Tennant Creek, which is expected to stimulate additional mine development and exploration in the region which is extremely salient as further high-grade gold projects within Emmerson’s extensive tenement holdings are currently undergoing permitting and approval.
Gold ETFs 60.3moz vs US$60.2moz yesterday
Platinum US$919/oz vs US$922/oz yesterday
Palladium US$860/oz vs US$872/oz yesterday
Silver US$16.78/oz vs US$16.66/oz yesterday
Base metals:
Copper US$ 5,859/t vs US$5,824/t yesterday
Aluminium US$ 1,889/t vs US$1,867/t yesterday
Nickel US$ 9,195/t vs US$9,090/t yesterday
Zinc US$ 2,752/t vs US$2,743/t yesterday
Lead US$ 2,290/t vs US$2,266/t yesterday
Tin US$ 19,355/t vs US$19,370/t yesterday
Energy:
Oil US$46.4/bbl vs US$46.2/bbl yesterday
Natural Gas US$3.028/mmbtu vs US$3.055/mmbtu yesterday
Uranium US$20.25/lb vs US$20.10/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$59.6/t vs US$56.7/t - On Monday, BHP Billiton Ltd, also highlighted that new supply now flowing out Brazil, predicting a drop in market volatility.
Chinese steel rebar 25mm US$573.2/t vs US$566.6/t
Thermal coal (1st year forward cif ARA) US$70.0/t vs US$68.6/t yesterday
Premium hard coking coal Aus fob US$147.4/t vs US$147.4/t
Other:
Tungsten APT European US$000.0/mtu vs US$000.0/mtu
FeCr lumpy Charge 52% Cr US$0.00/lb vs US$0.00/lb yesterday
Quarterly hard coking coal US$285.0/t vs US$285.0/t
Company News
Karelian Diamonds (LON:KDR) 0.525 pence, Mkt Cap £3.1m – Exploration licence adjacent to Lahtojoki mining permit
• Karelian Diamonds reports that the Finnish Mining Authority has granted it “an exploration Claim Reservation in the Kaavi area”. “A Claim Reservation gives exclusive rights to apply for exploration claims within the reservation area.” and hence appears not to be an exploration licence itself.
• The area , totalling 8.67 square kilometres, was identified on the basis of geophysical and kimberlite indicator mineral anomalies and covers the “up-ice area of the new kimberlite boulder discovery” adjacent to Karelian Diamonds’ Lahtojoki mining concession area.
• The company has taken the opportunity to remind investors that, on the basis of mineralogical studies, the boulder found within its licence “is not derived from the Lahtojoki diamondiferous kimberlite pipe but derived from an as yet undiscovered kimberlite in the area.”
• Professor Richard Conroy, Chairman of Karelian Diamonds, commented that the extension of its area of activities at Lahtojoki, “could potentially lead to a new kimberlite discovery in time, given that the boulder comes from a yet undiscovered pipe.”
Conclusion: The claim reservation appears to represent an early stage move in the process to obtain an exploration licence in what may be a promising area for future diamond exploration. It ensures that, presumably for an (undisclosed) period of time, Karelian Diamonds will have the opportunity to apply for exploration licences in its continuing search for additional diamond bearing kimberlite pipes.
Landore Resources (LON:LND) 2.9 pence, Mkt Cap £22.8m – Drilling programme at Junior Lake
• Landore Resources has announced the results of the latest drilling at its Junior Lake property in Ontario. To date, the company has completed 59 drill holes totalling 9,920m of diamond drilling during the current campaign
• The company reports that “The BAM East Gold Deposit, Central Zone, has now been confirmed over 1,000 metres of strike length … and remains open down dip. To the east and to the west along strike.”
• Among the results reported today are:
o a 15.37m wide intersection averaging 1.05 g/t gold from a depth of 206.33m in borehole 0417-566 and
o a 17.36m wide intersection averaging 1.82 g/t gold from a depth of 203.64m in borehole 0417-571 and
o a 18.79m wide intersection averaging 3.65 g/t gold from a depth of 166.61m in borehole 0417-574
o There are a further 5 drill holes scheduled within the current campaign and a pipeline of assay results which will be incorporated in a resource update which is due for completion during Q4 -2017. The current resource estimate for the BAM East deposit, published in the company’s 2016 Annual Report show an indicated resource of 4.45mt at an average grade of 1.35 g/t gold (193,000 contained oz) and an additional inferred resource of 2.73mt at an average grade of 1.23 g/t gold (108,000 oz)
o In addition to the drilling, the company plans field exploration, including geophysical surveying, “to locate the highly prospective northern extent of the Grassy Pond Sill to the east and west of the BAM East Gold Deposit.”
Conclusion: Drilling is continuing at Junior Lake with a view to updating the existing mineral resource estimate of approximately 300,000 oz of gold later this year.
Petra Diamonds (LON:PDL) 105.5p, mkt cap £561.2m - Flagging a shortfall in FY 2017 production guidance
• Petra Diamonds reports that as a result of slower than expected build up in production at its mine expansions, principally at Finsch and Cullinan, it expects 2017 production to be around 8-9% lower than the guidance figure of around 4.4m carats.
• As a result, the company is also expecting a similar shortfall in revenue “and financial results for the Year are therefore also forecast to be below market expectations.”
• The company, which is aiming to reach annual production rates of around 5.3m carats by FY 2019, confirms that production is now running at a rate “which supports FY 2018 production guidance of ca. 5 million carats (which, as stated before, is being reached a year earlier than originally anticipated).”
• The ramp up of production from the sub-level cave at the Finsch mine “took longer than expected [but] it is now operating at the required levels.”
• At the Cullinan mine, where there have been significant plant upgrades, “both mills and crushing circuits have now been commissioned, with the first mill and crushing circuit having been run successfully for over a month.”
• The accumulated run-of-mine (ROM) stockpile at Cullinan, expected to be around 400-450,000 tonnes by the year end, will be processed during H1 of the 2018 financial year as the additional processing capacity becomes fully operational.
• Referring to the banking implications of the slower than expected production build up, Petra Diamonds notes that it “has had initial constructive discussions with its lender group and is confident that the likely shortfall in the upcoming ratio measurement, arising from the lower production levels, will not present an issue.”
• We note that, in September 2016, Petra Diamonds reported that as it had not achieved revised covenant ratios with its lenders it was not declaring a dividend for FY 2016. The company may find that it faces similar restrictions in relation to FY 2017.
Conclusion: Petra Diamonds has experienced a slower than expected build up in its planned expansion and as a result is warning that it is going to miss production targets. We are reassured, however, that this is a largely historical setback and that looking to the future the company is expressing confidence in its ability to achieve the longer term production expansion targets.