BHP Billiton (LON:BLT) – Record WA production meets 2017 production guidance for iron ore
Petropavlovsk (LON:POG) – New CEO
Shanta Gold (LON:SHG) Under Review (from BUY) – Positive Q2 update overshadowed by mining legislation changes
SolGold* (LON:SOLG) – Publication of SRK Technical report in the Cascabel project in Ecuador
The DXY US dollar currency index rises marginally this morning after hitting the lowest in 10 months yesterday.
• The ECB and the BoJ will be holding monetary policy meetings tomorrow with the euro slightly off after hitting the highest close since Aug/15.
• Gold is relatively flat holding onto earlier gains trading around a two-week high.
• Copper is little changed as miners at Chile’s Zaldivar copper mine are set to vote on a new contract offer later this week; prices are consolidating near four and half month high helped by a weaker USD and better than forecast Chinese economic data released earlier.
• Brent is slightly lower around $48.6/bbl following a 0.8% increase in the previous session amid speculation that Saudi Arabia will be cutting exports.
• Steel rebar futures has been the performer among key Asian commodities on the back of production cuts of low grade steel output and surprisingly resilient demand, Reuters reports.
• Iron ore futures climbed 2.6%, building on a 7% gain over Monday and Tuesday.
Dow Jones Industrials -0.25% at 21,575
Nikkei 225 +0.10% at 20,021
HK Hang Seng +0.50% at 26,658
Shanghai Composite +1.36% at 3,231
FTSE 350 Mining -0.50% at 15,915
AIM Basic Resources +0.38% at 2,456
Economic News
China – Miners’ stock rise in China as nation considers merging large-scale parastatal companies
• Reuters report the state may be looking to merge China Minmetals and China National Gold Group.
• Other local parastatal mining companies also saw strong stock gains as investors speculated on who else might be next.
China added 24GW of Solar Power capacity in the first half
• China distributed solar projects added 7GW of new capacity in the same period with a total of 7% of total solar capacity lying idle.
• We wonder how many electrical connections are involved and what impact the harsh Chinese winter will have on them?
Oman - Public Authority for Mining in Oman signs landmark agreement for the drafting of a National Mining Strategy for the sector.
• Public Authority for Mining ‘PAM’ in Oman says it continues to receive and evaluate applications for mining permits from investors.
• The PAM is focussed on mining applications that will provide raw materials for existing and new value-added industries planned in industrial hubs and Special Economic Zones around the country. Gypsum and limestone, for instance, are key ingredients in the production of cement and building products, and are thus likely to receive greater consideration.
• A significant number of the minerals saw lower output in Oman last year with Marble production falling 26.7% to 1.2mt, Limestone output down 18.8% to 9.8mt, Gypsum falling 9.4% to 5.4mt
Currencies
1.1516/eur yesterday. Yen 112.07/$ vs 112.28/$. SAr 12.956/$ vs 12.927/$. $1.304/gbp vs $1.310/gbp.
0.793/aud vs 0.791/aud. CNY 6.757/$ vs 6.759/$.
Commodity News
Precious metals:
Gold US$1,240/oz vs US$1,236/oz yesterday
Gold ETFs 59.5moz vs US$59.7moz yesterday
Platinum US$925/oz vs US$923/oz yesterday
Palladium US$864/oz vs US$868/oz yesterday
Silver US$16.25/oz vs US$16.12/oz yesterday
Base metals:
Copper US$ 6,017/t vs US$5,986/t yesterday
Aluminium US$ 1,935/t vs US$1,903/t yesterday
Nickel US$ 9,760/t vs US$9,645/t yesterday
Zinc US$ 2,795/t vs US$2,797/t yesterday
Lead US$ 2,272/t vs US$2,289/t yesterday
Tin US$ 20,100/t vs US$19,950/t yesterday
Energy:
Oil US$48.8/bbl vs US$48.3/bbl yesterday
Natural Gas US$3.079/mmbtu vs US$3.026/mmbtu yesterday
Uranium US$20.15/lb vs US$20.15/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$67.4/t vs US$67.3/t
Chinese steel rebar 25mm US$601.8/t vs US$599.5/t
Thermal coal (1st year forward cif ARA) US$73.5/t vs US$72.5/t yesterday
Premium hard coking coal Aus fob US$168.5/t vs US$167.7/t
Other:
Tungsten APT European US$218-226/mtu vs US$215-222/mtu
Company News
BHP Billiton (LON:BLT) 1,306.5p, Mkt Cap £76.09bn – Record WA production meets 2017 production guidance for iron ore
• BHP has announced its production results for the year ending 30th June 2017, which includes records iron ore production from the Western Australian operations.
• Production of 268m tonnes (100% basis) or iron ore represents a 4% increase on FY 2016 and the company is guiding for a further increase in FY 2018 to 275-280m tonnes, subject to regulatory approval to increase output above 270mt.
• The company notes that, during the June quarter, production of 60.14mt met an annualised production rate of 280mt. The increased production is attributed to “strong productivity improvements across the supply chain as well as the commissioning of a new primary crusher and additional conveying capacity at Jimblebar.”
• Iron ore prices improved by 32% during the year to US$58/t and second half prices at US$62/t point to a continuing recovery from the lows of US$44/t achieved in FY 2016.
• The company has approved US$184m for the South Flank project which “is BHP’s preferred option to replace production from the 80Mtpa (100 per cent basis) Yandi mine when it reaches the end of its economic life in the early-to-mid 2020s.”
• Elsewhere in the product portfolio, copper production fell by 16?% during the year to 1.33mt reflecting, largely, the 21% decline in Escondida’s production to 772,000 tonnes as a result of 44 days of strike action at the mine as well as the impact of severe weather during early June 2017 and the suspension of operations for four days following a fatality at the mine in October 2016.
• Copper production at Olympic Dam declined 18% during the year to 166kt as a result of “the state-wide power outage during September and October 2016 and unplanned maintenance at the refinery during December 2016 and January 2017.”
• Average copper prices increased bu19% during the year to US$2.70/lb. BHP Billiton is guiding towards 1.13-1.23 million tonnes of copper production in FY 2018.
• Production of metallurgical coal declined by 6% during the year to 39.77mt while output of thermal coal increased by 7% to 29.14mt. Output in Queensland “was lower as a result of damage caused by Cyclone Debbie to the network infrastructure of rail track provider Aurizon. Mine operations recovered quickly after the cyclone as dewatering infrastructure installed after the 2011 floods worked as designed.”
• The company comments that “Despite the impacts of Cyclone Debbie, Peak Downs and Saraji achieved record annual production underpinned by improved stripping and mining performance.” BHP Billiton is guiding towards broadly stable production of energy coal of 29-30mt in FY 2018 while metallurgical coal output is expected to increase to 44-46mt.
• Nickel West increased output by 5% during the year to 85,100 tonnes and this level of production is expected to be maintained into FY 2018.
• Expenditure on exploration amounted to US$163m during the year. “Greenfields mineral exploration is predominantly focussed on advancing copper targets within Chile, Peru, Canada, South Australia and South-West United States. BHP was awarded five exploration concessions in Ecuador in June 2017.”
• “At the end of the 2017 financial year, BHP had three major projects under development in Petroleum and Potash, with a combined budget of US$5.1 billion over the life of the projects.”
• Conclusion: Setting production records in iron ore and in some of the coal operations is testament to management efficiency and control within an existing business, however, we find it interesting that the only mining major new mining project development specifically identified as a major capital project is BHP Billiton’s Jansen potash development and that the primary focus of exploration is on discovering new copper orebodies.
Petropavlovsk (LON:POG) 7.2p, Mkt Cap ₤238m – New CEO
• Mr Sergey Ermolenko who is currently General Director of the Company has been appointed as a new interim CEO following the resignation of Pavel Maslovskiy.
• Mr Ermolenko has led the Group from Dec/11 to Nov/14 when Mr Maslovskiy was serving as a Russian Senator.
• Mr Ermolenko was one fo the original members of the founding management team and has been with the Group since its inception in 1994.
• Meanwhile, the recruitment process for an external permanent replacement for former CEO Dr Maslovskiy has been launched.
Shanta Gold (LON:SHG) 4.8p, Mkt Cap ₤25m – Positive Q2 update overshadowed by mining legislation changes
Under Review (from BUY)
• Q2 production totalled 19.7koz (Q1/17: 20.4koz; Q2/16: 23.9koz) at C1 and AISC costs of $559/oz and $735/oz, respectively, (Q1/17: $553/oz and $768/oz; Q2/16: $429/oz and $664/oz) beating internal estimates.
• Processing plant operated at full capacity treating 155.6kt at 4.28g/t and 90.9% recoveries (Q1/17: 151.4kt at 4.57g/t and 92%; Q2/16: 151.7kt at 5.48g/t and 89.4% recoveries).
• Underground operations at Bauhinia Creek declared the start of commercial production on 1 June with a total of 41.1kt at 7.41g/t mined underground during the quarter (Q1/17: 15.2kt at 10.6g/t).
• Establishment of further stopes is progressing on schedule while mining operations “continued to achieve good and consistent gold grades”.
• Q2 gold sales totalled 18.0koz at $1,249/oz (Q1/17: 23.3koz at $1,249/oz; Q2/16: 26.1koz at $1,246/oz).
• Cash generated from operations (pre changes in WC) came in at $13.1m (Q1/17: $6.6m) constrained by a $8.8m increase in WC (Q1/17: $3m decrease) due to an increase in inventories and receivables and a drop in payables.
• VAT rebates outstanding climbed by $1.6m to $14.0m as of June as the last time authorities returned VAT to Shanta was 14 months ago.
• As a results, the Company put most of non-underground development related capital expenditure on hold with no drilling conducted during the quarter and no spending on Singida Pilot Plant project.
• Capex during the quarter totalled $8.7m (Q1/17: $9.9m) which was mainly underground development and equipment.
• Cash balances stood at $13.8m as of Q2/17 (Q1/17: $11.7m) which includes proceeds from the $14.0m equity raise (equivalent to the outstanding owed VAT balance) closed in Q2/17 with gross debt at $57.1m (Q1/17: $56.2m).
• On changes in the Tanzanian legislation, Shanta “is seeking advice on the legislation and assessing its potential impact and will provide updates as appropriate”.
• The Company highlights that it is likely that the next gold shipment will attract new 6% royalty charge instead of a 4% used previously with an additional 1% clearing fee already in place.
• “As a result of the new legislation, Shanta is undergoing a business review of its operation and cost base… although this does not impact Shanta’s production forecast,” the Company said.
• Annual production and cost guidance reiterated at 80-85koz at AISC of $800-850/oz.
Conclusion: H1/17 production and cost numbers came ahead of our estimates (SPA: 34.8koz at C1 and AISC of $649/oz and $949/oz). With Shanta in H2/17 set to benefit from an increased feed of the high grade ore from the Bauhinia Creek underground mine we expect the Company to reach the upper limit of production guidance. Reiterated management costs estimates reflect the cautious approach the Company is taking over new legislation effects on operations including higher royalty payments and clearing fees (potentially additional $40/oz to AISC based on 3pp on $1,250/oz gold price). Suspension of outstanding VAT repayments came in in the middle of a capital intensive period of the Company’s underground development programme which led the Company to raise equity and change the structure of the outstanding borrowings. Uncertainty over local legislation is not helping either with the refinancing of the major Investec lending facility currently in progress subject to “fin al documentation and due diligence”. Despite a good quarter operationally we will be updating our earnings estimates to account for recent changes in the local mining law with our recommendation currently “under review”.
SolGold* (LON:SOLG) 38.5p, Mkt Cap £583m – Publication of SRK Technical report in the Cascabel project in Ecuador
• SolGold has published a NI 43-101 report on SEDAR as part of its listing for the TSX.
• The technical report is a good review and summation of the project and makes some suggestions for the project going forward.
• The report is available through the following link:
• https://sedar.com/DisplayCompanyDocuments.do?lang=EN&issuerNo=00043090
Conclusion: This is a useful document which effectively brings together much of the geology which has been mentioned in previous SolGold press releases.
*SP Angel acts as broker to SolGold. The mining team at SP Angel have raised funds for SolGold on at least eight occasions over the past 10 years.