BlueRock Diamonds* (LON:BRD) – Update indicates improving production and better diamond grades ahead
Phoenix Global Mining* (LON:PGM) – Project update
SolGold* (LON:SOLG) – Drilling update from Cascabel
Gold and the US$ are little changed this morning as US markets return from holidays and markets are looking forward to Fed meeting minutes release (Today) and NFPs report (Friday).
• Copper continued to slide for a 4th consecutive day as LME stockpiles climbed by the most in four months; LME inventories climbed 15% today and were up by than a quarter from last week.
• Iron ore futures are off for a second day amid elevated port inventories.
• Oil prices trade below $50/bbl with a rebound from a low of $44.8/bbl hit last month halted as Russia is reported to oppose deeper production cuts; Russia argued that such a hasty decision to agree further cuts after the existing agreement was extended would send the wrong message to the oil market; Russia is hosting a meeting between OPEC and several non-members in St Petersburg on july 24.
Tanzania National Assembly passed all three bills proposed by the government in a little less than a week after changes to the existing legislation were first proposed.
• Amendments allow the government to renegotiate agreements with mining companies in the region should the Parliament find existing arrangements contain “unconscionable terms”.
• New legislation would see an establishment of the Commission to oversee the Tanzanian mining industry including approval and issuance as well as suspension and termination of exploration and exploitation licenses and permits.
• Chairman and Executive Secretaries of the Commission are to be directly appointed by the President.
• Bills involve increased level of regulation of the industry, introduction of a 16% state free carry in mining projects with a potential to take up to 50% in exchange for “the total tax expenditures incurred by the Government in favour of the mining company”, ban on “exportation of raw minerals and mineral concentrates” as well as a number of potentially highly limiting and vaguely formulated restrictions (e.g. “integrity pledge by which any person who fails to comply with integrity pledge shall break the conditions of license or permission to engage in mining operation or activity and such license or permission shall be deemed to have been withdrawn or cancelled”).
• While we are unsure of government actions’ motives (i.e. fight against corruption among authorities involved in the sector or simply populist calls for miners to provide a larger share of economic benefits to locals), we fear latest developments are likely to lead to completely opposite results involving a revision in estimates for risk premias of operating in Tanzania, hurting a major FX earner industry and costing the nation jobs, tax revenues and future investments.
Economic News
US – The Fed will release its June meeting minutes later today with markets to be closely watching for cues on the start of the Fed balance sheet reduction.
Date Index Period Actual Est Previous
Monday ISM Manufacturing Jun 57.8 55.3 54.9
Markit Manufacturing PMI (Final) Jun 52.0 52.1 52.7
Wards Auto Sales Jun 16.41m 16.53m 16.58m
Tuesday Independence Day
Wednesday Factory Orders (%mom) May -0.5 -0.2
Core Durables Orders (Final) May 0.1
Core Capital Goods Orders (Final) May -0.2
FOMC Meeting Minutes Jun
Thursday ADP Employment Change Jun 183k 253k
Weekly Jobless Claims Change 243k 244k
ISM Services Jun 56.5 56.9
Markit Services PMI (Final) Jun 53 53.6
Markit Composite PMI (Final) Jun 53.6
Friday NFPs Numbers Jun 177k 138k
Unemployment Rate Jun 4.3 4.3
Av Hourly Earnings (%mom) Jun 0.3 0.2
Av Hourly Earnings (%yoy) Jun 2.6 2.5
Source: Bloomberg
China – Composite PMI came off in June taking the general rate of expansion (services + manufacturing) to the weakest pace in a year.
• The slowdown is attributed to a weaker rate of growth in the services sector amid the weakest increase in new order in just over a year and marginal accumulation in outstanding business.
• Employment climbed, but the pace came in at the lowest level in the current ten-month series.
• Manufacturing data released earlier this week showed a slight pick up in activity, although, growth “remained marginal overall”.
• On input costs, general cost pressures remained subdued rising only marginally in June from the 11-month low in May.
• Nevertheless, strong business outlook among service providers on expectations of improving demand and new projects more than compensated for a drop in the sentiment in manufacturing sector supporting the overall business optimism to its highest in three months.
• “Even though the impact of slowing expansion in China’s services was cushioned by a slight rebound in manufacturing activity, the downward trend in the economy remains entrenched,” Caixin/Markit report read.
• Caixin Services PMI: 51.6 v 52.8 in May.
• Caixin Composite PMI: 51.1 v 51.5 in May.
Germany, France and Italy – Major Eurozone economies reported strong Q2/17 taking growth at six-yea high as seen in the latest PMI numbers
• While growth slowed in June, strong inflow of new orders and business confidence led growth in employment taking to the highest in over the past decade.
• “The dip in the PMI in June certainly doesn’t look like the start of a slowdown… growth of new orders accelerated very slightly to reach the second-highest in just over six years, and companies are struggling to satisfy this increase in demand,” Markit reported.
• “All four of the largest euro nations are reporting faster growth (including Spain, see below) in the second quarter as a whole, adding to the picture of an increasingly self-sustaining recovery amid rising domestic demand in the single currency area.”
• The agency estimates the PMI data is equivalent to “an impressive 0.7% (qoq)” growth in GDP in Q2/17, compared to 0.6%qoq in Q1/17 and 0.4%qoq forecast.
• Markit Services PMI: 55.4 v 56.3 in May and 54.7 forecast.
• Markit Composite PMI: 56.3 v 56.8 in May and 55.7 forecast.
Spain – Strong services sector numbers see composite PMI climbing to the highest since H2/15.
• Services sector growth hit a 22-month high in June led by “a substantial rise in new orders”.
• Respondents highlighted that “client demand had improved in line with strengthening economic conditions” with employment gains in the sector climbing at the fastest pace in almost a year.
• “Combining this release with Monday’s manufacturing PMI, the data suggest output rose more quickly in the second quarter of the year than in the first, bonding well for the Q2 GDP outturn,” Markit said.
Currencies
US$1.1360/eur vs 1.1362/eur yesterday. Yen 113.45/$ vs 113.11/$. SAr 13.218/$ vs 13.187/$. $1.291/gbp vs $1.295/gbp.
0.761/aud vs 0.761/aud. CNY 6.798/$ vs 6.798/$.
Commodity News
Precious metals:
Gold US$1,224/oz vs US$1,225/oz yesterday – This week Lydian International Inc announced that it is well underway in the construction phase of its giant Amulsar mine, which will be Armenia's largest gold mine on which as of the end of May 2017, its committed spend had totaled $213m, which was 58% of the initial capital.
• Now it has a first advance from its loan with Orion and Resource Capital Fund of $25mln with a second $25m due by August 15 this year.
• The group is aiming for first gold production in mid-2018 and the cost of the project was estimated at US$369.9 million, so is well on its way.
Gold ETFs 60.4moz vs US$60.4moz yesterday
Platinum US$910/oz vs US$909/oz yesterday
Palladium US$857/oz vs US$857/oz yesterday
Silver US$16.10/oz vs US$16.13/oz yesterday
Base metals:
Copper US$ 5,890/t vs US$5,876/t yesterday – One of the biggest global copper producers, Chilean mining company Antofagasta Minerals on Tuesday was facing potential strikes from workers at its Zaldivar mine and by supervisors at Centinela as contract talks continue.
• By the end of the week, Zaldivar workers will vote on whether or not to strike, said the legal advisor Marcos Lopez.
• Meanwhile supervisors at Centinela mine have already voted to strike although they expect a government mediation mechanism to extend negotiations for at least five more days, a spokesman for Chile's mining federation said. The federation represents workers at some of Chile's biggest mines.
• The combined annual production at both mines is 160 000 tonnes of copper. Chile is the world's largest producer of the red metal.
Aluminium US$ 1,929/t vs US$1,919/t yesterday
Nickel US$ 9,145/t vs US$9,135/t yesterday
Zinc US$ 2,788/t vs US$2,782/t yesterday – Yesterday, BMI said that an ore shortage will see the global refined zinc deficit gradually widen over the next few years, with producers to curb output and noted that zinc production and consumption growth are expected to average 1.9% and 1.7% respectively between 2017 and 2021, while the global stocks-to-use ration will narrow considerably from 9.2% this year, to 1.8% in 2021.
• BMI said: “zinc refiners, particularly those in China, will scramble to secure zinc concentrate over the coming quarters on the back of production curtailments implemented in 2016 and two key mines coming offline permanently” adding that “Over the long term, the re-emergence of China's metal demand deceleration will keep global zinc demand growth muted, albeit steady".
• However, it is salient to note that given Chinese smelters' reliance on imported zinc ore, producers with low-cost domestic zinc mines will fare better over the coming quarters as prices continue to climb.
• Meanwhile, India whose production increased by 44.5% year-on-year to 222 000t has been identified as a bright spot for zinc production, with its largest producer Hindustan Zinc Limited continuing to ramp up output. This was further supported by declining operating costs and India's strong economic growth.
• Both HZL and parent firm Vedanta Resources will boost spending on zinc projects in 2017, driving production growth and BMI expects this upward trajectory to continue, forecasting that the country’s zinc production would outperform peers and average 6.5% growth a year for the next four years.
• Consumption is also expected to increase from 616 000 t to 745 000 t by 2021.
Lead US$ 2,279/t vs US$2,308/t yesterday
Tin US$ 20,000/t vs US$20,050/t yesterday
Energy:
Oil US$49.7/bbl vs US$49.5/bbl yesterday
Natural Gas US$2.979/mmbtu vs US$2.967/mmbtu yesterday
Uranium US$20.25/lb vs US$20.25/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$63.7/t vs US$63.7/t – According to the predictions from the developer of a planned $3.7bn mine in Australia, iron ore markets are heading for a bumpy ride in the next couple of years, marked by price swings as the steel industry in China restructures.
• "Extreme volatility is going to be a hallmark of the market for at least a year or two," said Andrew Stocks, MD of Iron Road, whose partner in the mine, port and rail project is China Railway Group, the world’s second-largest infrastructure builder.
• During the last 3 months, iron ore prices have been extremely volatile, rebounding from a year low of $53.36 a tonne in June. This volatility was the result of the Chinese market moving to a cleaner, leaner production phase, said Stocks, who expects prices to average about $70 a tonne over the longer term.
• "You have got a fair bit of iron ore around the world," he said last week. This oversupply had led to record stockpiles sitting at ports and mills, which might take a year to recede to a reasonable level, he said.
• Salient to note that some forecasts do not support Andrew Stocks’s predictions with Goldman Sachs saying that prices were heading lower and Citigroup forecasting a fall to the $40s.
Chinese steel rebar 25mm US$584.0/t vs US$582.3/t
Thermal coal (1st year forward cif ARA) US$72.3/t vs US$71.0/t yesterday
Premium hard coking coal Aus fob US$153.0/t vs US$149.8/t
Other:
Tungsten APT European US$212-222/mtu vs US$220-226/mtu
Lithium – Share price of junior Red Mountain Mining dropped by almost 60% on the ASX on Tuesday, as it was announced that the company’s Red Valley lithium brines project, in the US, had failed to deliver results.
• Company told shareholders that laboratory results from drilling operations at the Red Valley project had shown anomalous levels of lithium were present in brine samples for both the holes, but that there was insufficient lithium brine enriched present to justify continued work at the project.
• Because of this, Red Mountain will not be proceeding with further drilling or it’s joint venture over the project area and the director, Jeremy King said: “Results at Red Valley are disappointing. Anomalous lithium was present but not in quantities required for commercial operations”.
• Under an earn-in agreement at the Red Valley project, Red Mountain had funded the initial drilling and chemical analysis of the project at a cost of between $200 000 and $325 000.
Company News
BlueRock Diamonds* (LON:BRD) 3.25p, Mkt Cap £2.2m – Update indicates improving production and better diamond grades ahead
• BlueRock Diamonds report consistent production from improvements to its operations at the Kareevlei diamond mine, near Kimberley, South Africa.
• The mine produced some 14,427t in June up from 9,769t in May and this should grow to the monthly target of 25,000t/m of ore processed.
• Grades remain low at 1.6cpht but should improve as the company moves to mine deeper parts of the pit away from the very hard calcretised kimberlite material which overlies the softer kimberlite orebody.
• The calcretised material is diluted and carries lower grades than the main kimberlite though it does appear to contain some larger, gem quality, stones.
• If the mine continues to recover these sorts of high-value stones from the higher-grade kimberlite material then BlueRock could do well going forward as grades improve towards the 5.5cpht estimated in the company’s Competent Persons report ‘CPR’. The CPR also forecast an average value of US$232/ct vs the average for 2017 of US$318/ct and the latest June sales price of US$355/ct. The overall per carat value is US$300/ct since operations began.
Phoenix Global Mining* (LON:PGM) 3.9p, Mkt Cap £8.9m – Project update
• Phoenix Global Mining, which made its AIM debut last week has provided an update on its efforts to bring the historic Empire copper mine in Custer County, Idaho, back into production.
• A 2800m (12 hole) programme of reverse-circulation and core-drilling is underway to identify further oxide resources in the AP Pit area and to provide large diameter drill core for metallurgical testing.
• The programme, which is expected to take 3 to 4 weeks, should contribute to the planned upgrade and expansion of the existing JORC compliant mineral resource of 12.8mt at an average grade of 0.68% copper.
• Although the primary focus of the company is to progress the development of the oxide copper project, the company is also exploring the longer term potential of the deeper sulphide mineralisation “which has historically yielded grades of up to 11.4% copper and remains largely untested. … The Company is now completing the necessary plan for regaining access [to the historic workings] for mapping, sampling and drilling in the sulphide zone beneath the oxides.”
• On the corporate side, Phoenix Global Mining owns an 80% interest in Konnex Resources, which owns the rights to the Empire Mine. Phoenix Global Mining has now appointed 3 members (Dennis Thomas, Richard Wilkins and Ryan McDermott) to the 5 person Konnex Board in order to exercise operational and management control.
• The company acknowledges that it is “receiving great support from the citizens of Mackay, the closest town to our operations.”
Conclusion: The start of technical mineral resource evaluation and metallurgical work at the Empire mine should generate further news in the coming weeks. The restart of work seems to have been well received in the host community and the injection of Phoenix Global Mining’s appointees to the board of the company holding the licence gives it operational and management control.
*SP Angel acts as Nomad to Phoenix Global Mining
SolGold* (LON:SOLG) 38p, Mkt Cap £575m – Drilling update from Cascabel
• SolGold has provided a progress report on its drilling activities at Cascabel where four holes are currently underway, an additional rig has been mobilised and a further rig is expected to arrive later in July with a third additional rig arriving during August.
• Hole 23R-D1 at Alpala Central, which is a “daughter” hole splitting from the parent, 23R at a depth of 710m, has reached a depth of 987.6m in mineralised dolerite. The hole is intended to test for extensions to “the high grade early quartz diorite intrusion intersected in Hole 23R, which recently returned 1030m @1.16% copper equivalent (0.59% Cu, 0.90g/t Au”.
• Hole 24-D1R in Alpala Southeast is also a daughter hole, of hole 24, which diverts from the parent at a depth of 735m. The hole is currently at a depth of 777.9m and is testing deeper extensions of the mineralisation encountered in the parent hole 24 which encountered a mineralised intersection of 586m at an average grade of 0.27% copper and 0.25g/t gold.
• Hole 26 at Alpala Northwest, which is planned to extend to at least 1800m, is currently at a depth of 1416.4m within a mineralised diorite containing visible copper sulphides. The “mineralisation encountered to date in Hole 26 extends the Alpala deposit approximately 120m northeast of Hole 15R2” which intersected 830m of mineralisation at an average grade of 0.63% copper and 0.46g/t gold.
• Drilling is also underway at Hematite Hill where Hole 27 is currently at a depth of 1257.1m also within mineralised dolerite containing visible copper mineralisation. The drilling here is intended to test extensions towards the southeast of the mineralisation encountered in hole 16 “which returned 894m @ 1.41% copper equivalent (0.78% Cu, 0.99 g/t Au.)”
• Solgold’s Technical Services Manager, Ben Whistler commented that “We are very pleased to have more drill rigs entering the task in coming months to assist expediting the Alpala drilling as well as testing robust targets we have at Aguinaga and Tandayama-America.”
Conclusion: Solgold has now completed over 40,000m of drilling along the Alpala trend and as more rigs arrive in the coming weeks it is accelerating its exploration efforts. The company notes, however, that the deposit remains open and that less than half of the footprint of the system has yet been tested.
*SP Angel acts as broker to SolGold