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Today's Market View - Herencia Resources, Shanta Gold Limited, SolGold plc

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Herencia Resources (LON:HER) - Geological review precedes further drilling

Shanta Gold (LON:SHG) – Interim results and Helio acquisition arrangement termination

SolGold* (LON:SOLG) – Admission to Main Market delayed

 

Vanadium prices holding at new high levels

• Ferro-Vanadium prices are holding at $42.6/kg (MB Bloomberg) having risen from around $26/kg in mid-July and $24/kg in January

• The market has jumped due to the closure of a number of vanadium process plants in Sichuan province, China where environmental inspectors have been focussed (see Metal Bulletin news)

• China’s environmental inspectors may move next to Hubei which may tighten the supply of ferro-vanadium further.

• The Metal Bulletin report prices of $55-60/kg for 78% ferro-vanadium fob China vs $40.40-42.60/kg in Western Europe.

Vanadium and single-electron transistors breaks law of thermal conductivity

• Physics.aps.org report that a single-electron transistor does not obey the Wiedemann-Franz law which states that at a given temperature, the thermal conductivity of a metal is proportionate to its electrical conductivity.

• The law does not hold for metallic vanadium dioxide or for single-electron transistors

 

Lithium – Super volcanic lakes may contain large deposits of lithium

• Scientists reckon there are huge deposits of lithium to be found in ‘supervolcanic’ lakes, eg in the caldera basins of super volcanos.

• Nature Communications published yesterday a paper on ‘Lithium enrichment in intracontinental rhyolite magmas leads to Li deposits in caldera basins’.

• ‘moderate to extreme lithium enrichment occurs in magmas that incorporate felsic continental crust. Cenozoic calderas in western North America and in other intracontinental settings that generated such magmas are promising new targets for lithium exploration because lithium leached from the eruptive products by meteoric and hydrothermal fluids becomes concentrated in clays within caldera lake sediments to potentially economically extractable levels.’

• We advise our intrepid geological readers pack carefully before rushing off to Yellowstone National Park or Mount St Helens in the US and we ask that they really think carefully before drilling into an active super volcano and remember what happened last time a super volcano erupted.

 

Lithium-air batteries

• Electronics weekly advise us not to hold our breath for lithium-sir cells indicating that these cells may not work as well as was first expected.

• The idea is to replace one energy-containing electrode with oxygen though this does not seem to have worked so well in the case of lithium-air.

• Problem is these cells need high voltages for charging, give low efficiency in terms of giving back less power than required to put in and .

• Worse still test batteries show low cycle lifetimes according to scientists at MIT.

• Looks like we are going to be using Lithium-ion batteries for some time to come.

 

Barcelona – our thoughts are with the victims and their families following this latest terrorist attack

• We also note the recent instillation of heavy concrete blocks outside many busy public places in London.

 

Dow Jones Industrials  -1.24% at 21,751

Nikkei 225   -1.18% at 19,470

HK Hang Seng   -0.96% at 27,082

Shanghai Composite    +0.01% at 3,269

FTSE 350 Mining   -0.39% at 16,574

AIM Basic Resources   +0.93% at 2,493

 

Economic News

 

Currencies

US$1.1729/eur vs 1.1740/eur yesterday.   Yen 109.04/$ vs 109.96/$.   SAr 13.242/$ vs 13.169/$.   $1.289/gbp vs $1.290/gbp.  

0.792/aud vs 0.795/aud.   CNY 6.680/$ vs 6.673/$.

 

Commodity News

Precious metals:

Gold US$1,294/oz vs US$1,288/oz yesterday

   Gold ETFs 66.8moz vs US$66.8moz yesterday

Platinum US$985/oz vs US$976/oz yesterday

Palladium US$933/oz vs US$924/oz yesterday

Silver US$17.13/oz vs US$17.10/oz yesterday

           

Base metals:   

Copper US$ 6,514/t vs US$6,505/t yesterday

Aluminium US$ 2,090/t vs US$2,081/t yesterday

Nickel US$ 10,845/t vs US$10,805/t yesterday

Zinc US$ 3,131/t vs US$3,106/t yesterday – prices jump to $3,131/t in London

• Zinc prices continue to rise as supply discipline and environmental inspections in China raises deficit.

• The Zinc supply deficit rose to 181,000t in the first five months of the year according to WBMS.

• Vedanta, though Hindustan Zinc and Glencore are major players in the zinc market with both companies acquiring zinc production in recent years.

• Hindustan Zinc has tried to take the market down in comments this year to dissuade other zinc production from starting up while Glencore has maintained a good degree of supply discipline.

Nyrstar, which was forced into a fire sale of certain assets a year ago and is the world’s second largest zinc smelter is restarting two projects in North America

Lead US$ 2,444/t vs US$2,497/t yesterday

Tin US$ 20,225/t vs US$20,255/t yesterday

           

Energy:           

Oil US$51.2/bbl vs US$50.3/bbl yesterday

Natural Gas US$2.926/mmbtu vs US$2.884/mmbtu yesterday

Uranium US$20.85/lb vs US$20.85/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$73.9/t vs US$74.6/t

Chinese steel rebar 25mm US$638.8/t vs US$634.1/t

Thermal coal (1st year forward cif ARA) US$78.5/t vs US$78.4/t yesterday

Premium hard coking coal Aus fob US$194.8/t vs US$195.9/t

 

Other:

Tungsten APT European US$248-256/mtu vs US$230-235/mtu

Tungsten prices moving higher but beware of problems at Wolf Mineral’s Drakelands mine

• We notice that Tungsten prices moved higher this week to US$248-256/mtu vs US$230-235/mtu previously.

• The price is a far cry from the persistent sub $200/mtu seen in January and may serve to allow a few tungsten miners to come off lifesupport.

• Prices were said to be depressed by the production of poor quality tungsten as some miners in China prepared for their inevitable closure.

• Chinese environmental regulators have become more vociferous since then and while tungsten mines are not a major polluters APT process plants may suffer more significant closure.

• Tungsten concentrate and APT prices may well continue to rise but despite this we are still wary of investment in Wolf Minerals where ongoing problems with recovery rates must be hurting investors.

• Wolf Minerals is also seeking to recover £7.5m of costs from its lead construction contractor under a performance bond due to low frequency noise coming from its plant which is further evidence that all is not well.

 

Company News

Herencia Resources (LON:HER) 0.04p, mkt cap £3.4m - Geological review precedes further drilling

• Herencia Resources reports that a geological  review of past exploration and the exploration potential its Chilean exploration licenses, including the Picachos, Montenegro and relatively underexplored Pastizal areas has identified "significant upside exists for the discovery of further copper mineralisation".

• The review was conducted by an independent geological consultant, John Holliday, who specialises in this type of mineralisation and amongst other projects was involved in the discovery and evaluation of the Cadia copper-gold deposit in Australia.

• Among the conclusions the company highlights is that future drilling should focus on the "'main mineralised manto …. a cherty limestone at the base of a sedimentary sequence above a volcanic breccia'.

• "The company is now planning the scope of its exploration program which will commence shortly."

Conclusion: The review by its independent geological consultant points to additional exploration potential within the company's licenses in Chile. We look forward to further information when specific drilling targets have been identified.

 

Shanta Gold (LON:SHG) 3.3p, Mkt Cap £24.9m – Interim results and Helio acquisition arrangement termination

Under Review

• Revenues totalled $52.7m (H1/16: $55.7m) reflecting gold sales of 41.2koz at an average price of $1,257/oz (H1/16: 47.6koz at $1,193/oz); this compares to an average spot gold price of $1,240/oz.

• EBITDA totalled $21.5m (H1/16: $33.3m) which includes the contribution from the sale of underground development ore prior to commercial production (H1/16: $33.3m); lower margins compared to last year are attributed to weaker processed grades and sales during the period as the NLGM operation transitioned to underground operations and the plant was fed stockpiled ores.

• Admin and exploration spend came in at $4.2m (H1/16: $4.4m) due to less exploration works completed during the period.

• C1 and AISC averaged $546/oz and $755/oz during the period (H1/16: $437/oz and $632/oz, respectively) accounting for “underground development ore as it became available with the development cost reporting to capital”; stripping out development ounces would see AISC average around $950-1,000/oz.

• PAT totalled -$2.1m (H1/16: -$4.7m) with EPS of -0.36c (H1/16: -0.95c).

• Levered FCF (post interest payments) totalled -$9.0m (H1/16: $0.4m; FY16: -$9.6m) reflecting continuing investment the NLGM underground operations development and locked in cash in working capital.

• Outstanding VAT receipts due to the Company continued to increase with the balance coming to $13.6m having been accumulated over the course of the last 14 months; the last VAT refund was received in Apr/16.

• The Company is planning to “update the market… with details of its ongoing and one-time efficiencies and cost improvements” in due course.

• Helio Resource acquisition arrangement by which Shanta was planning to issue 63.4m shares in exchange for 100% of Helio equity has been terminated due to “potential impact on Helio of the bills signed into Tanzanian law on 10 Jul/17”.

• On operations side, Underground operations continue as planned as the Bauhinia Creek decline reached the 835 RL level as of the end of June/17 having completed 4.4km in just over 13 months.

• The underground mine declared the start of commercial production on 1 Jun/17 with 56.3kt at 8.3g/t mined in H1/17.

• Singida development spend remains on hold amid delays in the release of VAT receipts and legislative changes focusing on development of underground operations at the NLGM.

• 2017 annual production guidance reiterated at 80-85koz; although, since previously the management included a small contribution from the Singida pilot plant this year and with the project development paused for the time being, total output “is expected to remain with guidance, albeit towards the lower end”.

• Production estimates for the 2017-20 remain as per the Mar/17 Revised Mine Plan (RMP) at around 85kozpa.

Conclusion: Good operational results have been weighed down by legislative changes and challenges with claiming back VAT receipts putting pressure on FCF generation. Although H2/17 is expected to be much better in this regard as capital investments are due to come down significantly while production is forecast to benefit from increased share of high grade underground ores. The management excluded cash costs forecasts from the announcement as the team is working on optimising its cost structure due to recent legal changes with the market update expected in due course. We are looking forward to what extent the revision will affect the NLGM RMP.

 

SolGold* (LON:SOLG) 38p, Mkt Cap £576m – Admission to Main Market delayed

• SolGold report the delay of their planned move from the AIM market onto the Main Market on the London Stock Exchange.

• SolGold have been planning to move onto what is called the ‘Standard List’ of the LSE from AIM.

• We suspect the move is partly driven by investors in Canada who have insisted the company list on the TSX.

*SP Angel acts as Nomad and broker to SolGold.  The mining team at SP Angel have raised funds for SolGold on at least eight occasions over the past 10 years.

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