Dow Jones Industrials +0.24% at 22,016
Nikkei 225 -0.25% at 20,029
HK Hang Seng -0.29% at 27,526
Shanghai Composite -0.37% at 3,273
FTSE 350 Mining +0.03% at 16,311
AIM Basic Resources -0.06% at 2,502
BlueJay Mining* (LON:JAY) – Drilling campaign to multiply scale of Pituffik ilmenite resource (site visit update)
Centamin (LON:CEY) – Interim dividend increased by 25%
Dalradian Resources (LON:DALR) – Quarterly results and update
Randgold Resources (LON:RRS) – Strong quarter delivers 21% profit increase
Shanta Gold (LON:SHG) – Change of CEO
Gold demand is off 14%yoy in H1/17 on the back of significant drop in ETF investments which saw a record inflow in H1/16, according to the latest WGC data.
• Central bank purchases have also came off in the first half of the year (-3%yoy).
• Jewellery demand climbed compared to a weak 2016 on the back of a recovery in Indian demand from a trough posted last year; although, generally, jewellery sector continued to lag average historic levels.
• Mine supply was flat over the first six months of the year while reduced hedging from suppliers and a drop in recycling rates saw total gold supply lower.
• “We expect mine production to fall from 2019 onwards… although a small number of major projects are expected to come online by the end of 2017, the project pipeline remains weak… production development expenditure remains at multi-year lows,” WGC wrote.
Economic News
US – Preliminary data released by the ADP Research Institute showed the economy added 178k jobs in July while June numbers have been revised upwards signalling continued growth momentum in the labour market and boding well for future consumer spending.
• Official payrolls numbers are due tomorrow with estimates for 180k in July, down on strong June numbers (+222k) but on par with a six month average.
China – General business activity picked up to a four-month high in July led by strong growth momentum in manufacturing production, Caixin/Markit PMI showed.
• In contrast, services sector growth changed only slightly coming in on par with April’s reading that marked the weakest pace of expansion since May/16.
• New business trends diverged as a pick up in the manufacturing sector was partly compensated by the slowdown in new orders growth in the services sector with the composite gauge climbing at the quickest pace in four months.
• On the other hand, employment growth in the services industry continued for the 11th month running while manufacturing staffing continued to decline.
• On inflation, general input costs posted the strongest increase in three months in July on the back of stronger pressures in the manufacturing sector.
• “China’s economic performance in July was stronger than expected, mainly due to sustained recovery in the manufacturing sector… however, downward pressure on the economy likely remains as the index gauging companies’ confidence towards the 12-month business outlook dropped in both the manufacturing and services industries,” Caixin/Markit said.
• Caixin Manufacturing PMI (released Tuesday): 51.1 in July v 50.4 in June and 50.4 forecast.
• Caixin Services PMI: 51.5 in July v 51.6 in June.
• Caixin Composite PMI: 51.9 in July and 51.1 in June.
Eurozone – The economy in the single currency region made a solid start to Q3/17 according to the final Markit PMI numbers.
• “Although July saw rates of expansion in business activity and new work moderate, growth in both remained among the best registered over the past six years,” Markit said.
• The data points to “a very respectable 0.6%qoq increase in GDP”, in line with growth recorded in Q2/17 but stronger than 0.4% currently forecast by markets.
• Markit Compposite PMI: 55.7 in July v 55.8 (Flash reading) and 56.3 in June.
• On a separate note, retail sales growth accelerated in June in the latest sign of strengthening economic expansion in the region.
• Retail Sales (%mom/yoy): 0.5/3.1 in June v 0.4/2.4 in May and 0.0/2.5 forecast.
UK – Latest PMI numbers point to “steady but sluggish expansion” in Q3/17 while business confidence deteriorates.
• “Firm’s prospects for the coming year have slipped to a level which has previously been indicative of the economy stalling or even contracting, having taken a lurch downward since the general election, largely reflecting heightened uncertainty about the economic outlook and Brexit process,” Markit wrote.
• Purchasing Managers survey suggest the economy is growing at just over 0.3%qoq.
• Markit Manufacturing PMI (released on Tuesday): 55.1 in July v 54.2 in June and 54.5 forecast.
• Markit Services PMI: 53.8 in July v 53.4 in June and 53.6 forecast.
• Markit Composite PMI: 54.1 in July and 53.8 in June and 53.8 forecast.
Currencies
US$1.1843/eur vs 1.1846/eur yesterday. Yen 110.65/$ vs 110.78/$. SAr 13.264/$ vs 13.289/$. $1.323/gbp vs $1.324/gbp.
0.792/aud vs 0.796/aud. CNY 6.723/$ vs 6.721/$.
Commodity News
Precious metals:
Gold US$1,261/oz vs US$1,267/oz yesterday
Gold ETFs 66.4moz vs US$66.4moz yesterday
Platinum US$946/oz vs US$946/oz yesterday
Palladium US$892/oz vs US$897/oz yesterday
Silver US$16.46/oz vs US$16.66/oz yesterday
Base metals:
Copper US$ 6,316/t vs US$6,330/t yesterday
Aluminium US$ 1,923/t vs US$1,921/t yesterday
Nickel US$ 10,295/t vs US$10,250/t yesterday
Zinc US$ 2,819/t vs US$2,763/t yesterday
Lead US$ 2,365/t vs US$2,335/t yesterday
Tin US$ 20,565/t vs US$20,445/t yesterday
Energy:
Oil US$52.1/bbl vs US$51.8/bbl yesterday
Natural Gas US$2.817/mmbtu vs US$2.815/mmbtu yesterday
Uranium US$20.25/lb vs US$20.15/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$71.1/t vs US$70.8/t
Chinese steel rebar 25mm US$611.5/t vs US$611.3/t
Thermal coal (1st year forward cif ARA) US$73.3/t vs US$73.6/t yesterday
Premium hard coking coal Aus fob US$182.1/t vs US$182.1/t
Other:
Tungsten APT European US$230-235/mtu vs US$226-231/mtu
Company News
BlueJay Mining* (LON:JAY) 14p, Mkt Cap £108m – Drilling campaign to multiply scale of Pituffik ilmenite resource
Investor and broker site visit update
STRONG BUY
• The BlueJay team are refreshed from their Arctic swim and are back at work loading concentrate bags with what looks like high-grade mineral sand.
• The sonic drill rig is out site beyond the current resource and is working away with the drillers reckoning on 5 or 6 drill holes a day. The crew could go faster but we suspect they are taking care at the start of the drill program.
• There is no word on the depth of the ilmenite mineral sand as yet but it seems likely that the resource could multiply in scale on news on the depth and lateral extension from the sonic drilling.
• Our view is that the resource should at least double in size on the next resource estimate and that with a successful sonic drill campaign could be shown to be very much larger.
• Furthermore, the team may try to drill the Itelak end of the deposit towards the end of the season. This has the potential to show some very high-grade material and the sonic drill should give some idea of the potential tonnage of this material.
• Grades appear very much higher than are normally seen in mineral sands deposits due to the unusually high grade nature of the ilmenite dyke swarms in the country rock. Approximately 700m of total vertical erosion, suggested by recent Danish study which indicates there may be some 17bnt of pure ilmenite in the area. The high rate of erosion has been aided by freeze/thaw, glacial action and short rivers which have transported the ilmenite grains to the beach where wave action and slumping has further liberated the near-pure ilmenite grains and then further concentrated the heavy mineral sands.
• The Bathymetry team are now making good headway after setting up a complex base station network in the bay and in the near shore area in what have been quiet consistently calm seas. The survey is looking for the best location for a ship loader to carry a conveyor belt for Handymax ship-loading. The results of the survey should allow the engineers to design a relatively short pier to deep water in the fjord.
• Key parameters for BlueJay are, concentrate purity, grade, tonnage and ease of loading. The purity is looking good and may be set to improve on simple refinement of the separation process. Tonnage is set to increase and low cost dredge mining and ship loading should add to the economics of the project.
Conclusion: BlueJay is shaping up to be a world-class ilmenite mineral sands project. It still requires the endorsement which only comes with customer orders and it needs to better prove its tonnage and grade potential but with rich-looking black beach sands on the active beaches and in the historic beaches the project is looks set for world-class potential.
*SP Angel acts as nomad and broker to BlueJay
Centamin (LON:CEY) 166 pence, Mkt Cap £1.9bn – Interim dividend increased by 25%
• Centamin has declared an interim dividend of 2.5US cents/share, a 25% increase on the 2016 interim disbursement.
• Despite a fall in after tax profit to US$67.3m ((H1 2016 – US%$114.2m) the company reports that it has generated US$50.8m of free cash flow in the year to date as a result of increased production and sales volumes and higher average realised sales prices.
• Centamin reports that it remains on track to achieve its 2017 production guidance of 540,000 oz of gold production at a cash cost of US$580/oz and an all-in-sustaining cost of US$790/oz.
• Gold production of 124,641 oz represents a 14% increase during the quarter and brings production for H1 2017 to 233,828 oz.
• This implies that Centamin will produce approximately 306,000 oz of gold during the second half of the year at a cash cost of around US$880/oz
Conclusion: Centamin will need to build up production rates by around 30% during the second half of the year in order to meet its maintained production guidance. In our view, the mine and processing infrastructure capable of processing 12mtpa should be able to deliver this ramp up in line with plan. Strong cash generation underpins a 25% increase in the interim dividend.
Dalradian Resources (LON:DALR) 94 pence, Mkt Cap £228m – Quarterly results and update
• In its quarterly report for the three months to 30th June, Dalradian Resources confirms that it plans to submit a formal application to build a mine at Curraghinalt in Northern Ireland during 2017 and that the relevant technical and environmental studies and reports to support the application are being finalised.
• The company also confirms that its cash balances at 30th June amounted to C$34.6m and that it expects warrants worth some $23m and exercisable at $1.04 to be “exercised before their expiry in October.”
• As a development company, Dalradian reported a financial loss of $2.7m for the quarter bringing the total loss for the first half of the year to $4.0m “compared to a net loss of $3.4m … in the same period of 2016.”
• The company reiterates a number of the significant, previously announced developments, which include the completion of a 9,580m programme of underground drilling which continued to intersect multiple high grade veins as well as the initiation of a 30,000m programme of surface drilling designed to test potential strike extensions of the mineralisation.
• The processing of some 14,500 tonnes of ore from test stoping confirmed a better than expected recovery rate of 95.9% while reconciliation with the reserve block model showed a 42% increase in the volume of gold expected largely as a result of a 40% improvement in the grade achieved compared to the model.
• The company also confirmed the acquisition of Minco plc’s 2% net smelter royalty, subject to the final approval of the Irish High Court.
Conclusion: Dalradian Resources is making systematic progress towards the submission of its applications to mine at Curraghinalt before the end of the year. The company is adequately funded to complete the relevant studies and the current programme of surface drilling. We await the results of the drilling and any sUBSequent updates to the resource estimate, particularly in the light of the apparent understatement of the estimated grades highlighted by the test stoping.
Randgold Resources (LON:RRS) 7210 pence, Mkt Cap £6.8bn – Strong quarter delivers 21% profit increase
• Randgold Resources reports a 21% increase in profit during the quarter ending 30th June to US$102.8m bringing the profit for the half year to US$187.7m – up 53% on H1 2016.
• Commenting on the results of what he described as a good quarter for Randgold “both operationally and on the exploration and new business front”, Chief Executive, Mark Bristow commented that “At this stage the outlook is positive and Randgold is trending towards the top end of its production guidance range at a total cash cost below $600 per ounce.”
• The results reflect a 16% increase in gold production for the six-month period to 663,786oz of gold and a 15% decline in the group’s cash operating cost to US$533/oz. Total cash costs for the half year fell to US$ 595/oz (H1 2016 – US$687/oz).
• Operations at the Loulo-Gounkoto complex in Mali, rose to 194,091 oz at a cash operating cost of US$382/oz (Q1 2017 – 186,366 oz at US$459/oz) largely as a result of improved mill throughput at an unchanged 5.4g/t head grade.
• The Tongon mine in Cote d’Ivoire increased quarterly output by 15% to 77,260 oz bringing production for H1 to 144,480oz at an average cash operating cost of US$597/oz. Stripping ratios increased during the quarter, in line with the long term mine plan, resulting in an increase in cash costs from US$592/oz in Q1 to US$601/oz.
• At the Kibali mine quarterly production remained stable at 141,203 oz (Q1 2017 – 141,013 oz) at a cash operating cost of US$803/oz (Q1 2017 – US$782/oz). “Brownfields drilling from surface and underground has shown potential for extensions of current underground reserves on the 3000 and 9000 up plunge shoots.”
• In Senegal, the company is continuing its feasibility work on the Massawa / Sofia deposits with additional drilling, trenching and metallurgical testing on a bulk sample “expected to take place in Q3.”
• True to its roots, Randgold Resources continues an active exploration programme with work in Mali concentrating on follow up work in the Loulo/Gounkoto area as well as at Sinsinko and on the joint-venture projects at Bakolobi with Taurus Gold and Massakama with Alecto Mineralsas well as continuing regional exploration. In Senegal, exploration continues in the Massawa area while in Cote d’Ivoire, “Recent RC drilling along the Fonondara corridor to the immediate north and south of Fonondara Main has [identified] … three new mineralised zones”. These have “not only have significantly extended the initial Fonondara target from 1.3km to 8km, but highlighted a real opportunity to move the target towards a +3Moz asset.”
• Exploration in DRC centred on the Kibali area where additional trenching at Makoke between the Meg and Pamao satellite deposits has now “confirmed the continuity of the geology and mineralisation in the area which will now be tested by drilling.” Additional work at the Moku and Ngayu joint-venture properties has followed up on artisanal working areas and examined structural, geophysical and field mapping data to feed additional projects into the base of Randgold’s famous resource triangle.
Conclusion: Randgold Resources has had a strong production quarter while continuing the strong commitment to exploration which has over the past delivered its operating mines.
Shanta Gold (LON:SHG) 3.6p, Mkt Cap £27.8m – Change of CEO
• Toby Bradbury is stepping down as CEO of the Company.
• “Following the recent changes to the regulatory, operating and fiscal environment in Tanzania, the Company will be refocusing its strategy on cost control and shareholder return,” the announcement read.
• Toby will remain on the Board until Sep/17 to help with the transition.
• Eric Zurrin who was re-appointed as CFO in March this year will replace Toby with immediate effect while the Board is planning to find new CFO in due course.
• Eric knows operations well having worked with the Company over the last four years including as interim CFO in 2015/16 and as adviser to the CEO in 2013 amid an operational restructuring at the NLGM.
• He has 15 years of experience in investment banking and mining having previously worked with UBS (London) and served as a director of Kincora Copper Limited (KCC TSX).
• Eric will be based in the UK from Sep/17.
Conclusion: The announcement raises many questions to the sudden and hasty departure of the CEO. The news comes amid extensive underground development works at Bauhinia Creek and Luika mines. It is unclear what change in the strategy led Toby Bradbury to leave and if the departure of top management would see other key operational people go putting further development plans under risk.
We wish good luck to Eric with the new role and hope he will manage the transition well.