BlueJay Mining* (LON:JAY) STRONG BUY - Target Price 24p – Michael Hutchinson steps up as non-exec Chairman
Acacia Mining (LON:ACA) – Cutbacks at Bulyanhulu reduce production guidance by 100,000 oz of gold.
Avocet Mining (LON:AVM) – Standstill agreement expires
Highland Gold (LON:HGM) 161p, Mkt Cap £524m – Interims
Ncondezi Energy (LON:NCCL) – Shareholder loans extended
Premier African Minerals (LON:PREM) – Drilling shows continuity of mineralisation at Zulu
Tethyan Resources* (LON:TETH) – TSX listing
Gold prices are stronger this morning on the back of reports of a hydrogen bomb tests in North Korea over the weekend and weaker than expected US NFP numbers released on Friday.
• In the base metals complex copper and nickel are leading gains; nickel is trading at the strongest level since mid-2015 while copper climbed as much as 1.3% today to $6,920, marking the highest point since 2014.
• Almost all metals continue to rise on the back of Friday’s China PMI data.
• LME base metals index capped an eight-week long advance last Friday, one short of a record run in 2006.
• US markets are closed today as the nation is off on a Labor Day weekend.
• The ECB will meet on Thursday with Bloomberg survey showing respondents expect Mario Draghi to comment on the euro’s strength and its dampening effect on growth outlook but avoid commenting on potential changes to the QE program.
• The US$ index is little changed from early Friday hours after recovering all losses recorded right after the weak NFPs report.
• Brent is off 1.2% and trading at $52.2/bbl today; the number of oil rigs as unchanged at 759 rigs last week, according to the Baker Hughes data released last Friday; US gasoline futures are off for a second session coming off from the biggest monthly gain since March last year as some of temporarily suspended refineries in the hurricane Harvey affected areas are preparing to resume operations.
• Steel rebar futures are 2.6% today amid reports that two more fire accidents were recorded in the Hebei region after the accident at the Benxi Steel Group new smelter on Friday; accident involved no casualties; incidents prompted speculation of increased inspection risks causing potential supply disruptions.
• Iron ore futures for January delivery are up 0.9% on the DCE in China today.
US threatens to cut trade to North Korean trading partners
• That means China (>80%), India (3.5%), Pakistan, Russia, Thailand, Singapore Philippines.
• A third of N Korea’s exports are coal briquettes, eg coking coal, mostly going into China.
• While cutting trade to N Korea will help the fundamental issue is about who has been supplying nuclear and rocket technology to the rogue state?
• We suspect China is pulling more strings in North Korea than it lets on
Lithium – incremental improvements to li-ion battery chemistry likely to lead to significant increase in new demand
• Chemical and engineering news report further on news that ‘nanodiamonds’ when added to the electrolyte solution in a lithium battery help to make Li-ion batteries safer.
• The use of nanodiamonds could help to add to power capacity and extend the life span of Li-ion batteries through the better diffusion of Li ions across more uniform surface.
• Nanosized diamonds are commonly used in electroplating to make coatings more uniform.
• This and other developments suggest better battery capacity is close to hand with a series of incremental improvements looking to add meaningfully to performance
• There will be very substantial replacement and new demand for better batteries particularly as the number of electric vehicles grows
• The challenge for policy makers will be how to supply power to so many new EVs, how to tax them and how to make us pay to recycle used batteries.
Dow Jones Industrials +0.18% at 21,988
Nikkei 225 -0.93% at 19,508
HK Hang Seng -0.84% at 27,719
Shanghai Composite +0.37% at 3,380
FTSE 350 Mining +0.13% at 18,024
AIM Basic Resources +0.29% at 2,590
Economics
US – Employment numbers came in lower than forecast in August while previous two months saw downward revisions (-41k in total).
• Labor earnings have also lagged estimates.
• Despite a drop in August NFP, an average over the past three months is running at 172k which is roughly in line with t the general trend.
• The labor market statistics are expected to be skewed downwards in the next couple of months on the back of hurricane Harvey aftermath.
• While US Treasury yields dipped 3bp on the announcement of non-farm payrolls, they recovered afterwards and closed 4bp higher compared to the pre-release.
• Market estimates of a rate hike odds before year end declined only slightly to 31.4%, down from 33.4% recorded before the NFP release.
Date Event Survey Actual Prior Revised
Friday Change in Nonfarm Payrolls Aug 180k 156k 209k 189k
Unemployment Rate Aug 4.3% 4.4% 4.3% --
Average Hourly Earnings MoM Aug 0.2% 0.1% 0.3% --
Average Hourly Earnings YoY Aug 2.6% 2.5% 2.5% --
ISM Manufacturing Aug 56.5 58.8 56.3 --
Wards Total Vehicle Sales Aug 16.60m 16.03m 16.69m --
Wards Domestic Vehicle Sales Aug 13.00m 12.48m 12.96m --
Tuesday Factory Orders Jul -3.30% -- 3.00% --
Factory Orders Ex Trans Jul -- -- -0.20% --
Wednesday ISM Non-Manf. Composite Aug 55.5 -- 53.9 --
U.S. Federal Reserve Releases Beige Book
Thursday Initial Jobless Claims Sep-02 242k -- 236k --
Continuing Claims Aug-26 1945k -- 1942k --
Source: Bloomberg
Spain – Unemployment recorded the first increase since January last month in August.
North Korea – Pyongyang described underground explosions at its nuclear test site as a “perfect success in the test of a hydrogen bomb for an intercontinental ballistic missile”.
• The explosion at the sits in North Korea’s northeast region at Punggye-ri was followed by a magnitude-6.3 earthquake and a magnitude-4.1 tremor.
Currencies
US$1.1889/eur vs 1.1889/eur last week. Yen 109.51/$ vs 110.18/$. SAr 12.952/$ vs 12.961/$. $1.294/gbp vs $1.292/gbp.
0.795/aud vs 0.793/aud. CNY 6.538/$ vs 6.577/$.
Commodity News
Precious metals:
Gold US$1,338/oz vs US$1,319/oz last week
Gold ETFs 68.1moz vs US$67.6moz last week
Platinum US$1,012/oz vs US$998/oz last week
Palladium US$997/oz vs US$939/oz last week
Silver US$17.88/oz vs US$17.54/oz last week
Base metals:
Copper US$ 6,899/t vs US$6,820/t last week
Aluminium US$ 2,124/t vs US$2,142/t last week
Nickel US$ 12,165/t vs US$11,925/t last week
Zinc US$ 3,179/t vs US$3,167/t last week
Lead US$ 2,399/t vs US$2,407/t last week
Tin US$ 20,735/t vs US$20,705/t last week
Energy:
Oil US$52.4/bbl vs US$52.6/bbl last week
Natural Gas US$3.045/mmbtu vs US$3.046/mmbtu last week
Uranium US$20.25/lb vs US$20.15/lb last week
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$76.5/t vs US$74.5/t
Chinese steel rebar 25mm US$672.5/t vs US$653.1/t
Thermal coal (1st year forward cif ARA) US$77.9/t vs US$77.5/t
Premium hard coking coal Aus fob US$209.8/t vs US$209.8/t
Other:
Tungsten APT European US$285-300/mtu vs US$269-275/mtu
Company News
BlueJay Mining* (LON:JAY) 17.8p, Mkt Cap £136m – Michael Hutchinson steps up as non-exec Chairman
STRONG BUY
Target Price 24p
• Michael Hutchinson, a legend in metals trading circles, has stepped into the role of non-executive Chairman.
• ‘Hutch’ as he is known in trading circles, worked for Metallgesellschaft for 25 years working his way up to Managing Director.
• He was also a director of the London Metals Exchange from 1986-2008.
• More recently Hutch was Chairman of Metalloyd Ltd, a major supplier of steel and other raw materials to traders, distributors and end-users as well as Chairman of Wogen. These roles are particularly relevant given the forthcoming development of BlueJay ilmenite sales to consumers in North America, Europe and China.
• Hutchinson was also Chairman of Greenland Minerals & Energy Ltd and is currently Chairman of SL & PF Solar Limited, a Director of Pierces Solar Limited, and Non-Executive Director of Greenland Gas & Oil Limited.
• We note the weather at Qaanaaq, which is close to Bluejay’s Pituffik operations is turning colder this week at -4oc to -9 oc though the team can look forward to a warmer weekend with temperatures varying from -1 oc to -4oc.
Conclusion: Michael Hutchinson was Chairman at Greenland Minerals & Energy Ltd when it helped to overturn a long standing ban on uranium exploration. While we expect permitting of full scale mining to be very much simpler at Pituffik we see Hutchinson’s knowledge, experience and presence in Greenland to be helpful to the company.
*SP Angel act as nomad and broker to BlueJay Mining. An SP Angel mining analyst has visited the Pituffik ilmenite sands project in Greenland and has carried out his own density tests on the heavy mineral sands at Pituffik.
Acacia Mining (LON:ACA) 193 pence, Mkt Cap £791m – Cutbacks at Bulyanhulu reduce production guidance by 100,000 oz of gold.
• Acacia Mining has announced that operational cutbacks at its Bulyanhulu mine in response to the Governments gold/copper concentrate ban are likely to reduce the company’s production guidance by around 100,000 oz below “the bottom of the previous guidance range of 850,000-900,000 ounces”. This would take group production to around 750,000oz in 2017.
• The company’s cost guidance of between US$880-920/oz on an all-in-sustaining cost basis remains unchanged.
• Acacia Mining points out that, since the concentrate export ban was implemented in March this year, a concentrate inventory amounting to some US$265m has been accumulated and that despite operating and capital cost controls there has been “a significant cash outflow of approximately US$210 million in 2017 year to date”.
• In response, Acacia is now planning to cut operations at Bulyanhulu by the cessation of underground mining within the next four weeks. Treatment of tailings from previous mining, which has currently been suspended in response to continuing drought conditions in Tanzania ”is expected to recommence in October, assuming adequate rainfall is received, and will continue at a rate of 30-35,000 ounces per annum whilst underground activity is ceased.”
• The company points out that “Regrettably, the implementation of this programme will lead to a significant reduction in the workforce from the current 1,200 employee and 800 contractor roles.”
• The company expects that, at this stage, operations at the short-life Buzwagi mine will continue unaffected. North Mara, Acacia’s largest mine produces dore gold and is, as far as we know, also not affected.
• Acacia believes that the changes at Bulyanhulu will allow the Group “to return to positive cash generation early in 2018.” Further remedial steps under consideration include “a reduction in corporate overheads, expansionary drilling at North Mara, greenfield exploration activity and a gold hedging programme.”
• The company balance sheet at the end of August shows a cash balance of US$107m and debt of US$71 million.
• Discussions between Barrick Gold, which owns approximately 64% of Acacia Mining, and the Government of Tanzania are continuing.
Conclusion: The decision to suspend underground mining operations at its second largest mine underlines the seriousness Acacia Mining sees in its present position over the concentrate export ban. The potential losses of well-paid job are likely to have a widespread impact in Tanzania and beyond and it must be hoped that the continuing discussions with Government will produce a speedy resolution of the impasse.
Avocet Mining (LON:AVM) 27p Mkt Cap £5.6m – Standstill agreement expires
• Avocet has announced the expiry of the standstill agreement between its operating subsidiary (SMB) at the Inata gold mine in Burkina Faso and its creditors.
• The company reports that “Given the current status of discussions, it is unclear whether agreement on a restructuring of the balance sheet can be reached before SMB has exhausted all available sources of financing.”
• The agreement runs out without an agreement between the parties and as a result, “the boards of both Avocet and SMB will convene on 8 September 2017 to assess the status of the discussions with the Major Creditors, SMB’s current liquidity position and its imminent liabilities.”
• Avocet Mining’s announcement reports that “The boards will consider all available options, including the potential filing of an insolvency position by SMB.” At this stage, however, the company emphasises that no decision has been made in regard to whether to file for insolvency.
Conclusion: It appears that whatever the final outcome, Inata is reaching an endgame.
Highland Gold (LON:HGM) 161p, Mkt Cap £524m – Interims
• Revenues were little changed from last year (H1/17: $147.2m; H1/16: $147.1m) reflecting stable gold sales (H1/17: 128.5koz AuEq; H1/16: 127.7koz) and commodities prices.
• EBITDA slipped 8.2% to $73.2m (H1/16: $79.7m) on the back of an appreciation of the rouble against the US$ and inflation in separate costs segments.
• TCC and AISC came in at $509/oz and 674/oz, respectively (H1/16: $444/oz and $609/oz).
• The average USDRUB exchange rate went from 70.2 in H1/16 to 57.8 in H1/17.
• Additionally, overall local inflation totalled 2.3%yoy while energy prices climbed 13.0%yoy (in rouble terms).
• PAT totalled $25.9m (H1/16: $37.1m) taking EPS to $0.08/sh (H1/16: $0.11/sh).
• Generated FCF came down to $26.2m (H1/16: $48.7m) on the back of higher operating costs, tax expenses as well as capital outlays.
• Capex (excluding capitalised interest and waster stripping) totalled $27.4m (H1/16: $18.8m) funding development costs at Kekura, expansion project at Novo and exploration expenses at MNV targeted at increasing the reserves base and extending the life of mine.
• The Board approved a £0.0498 per share interim dividend ($0.0646/sh) payable on 13 October.
Conclusion: A drop in earnings reflect higher operating costs amid stronger rouble and higher local inflation, while operationally the Company demonstrated stable performance. The management reiterated its full year gold production guidance at 255-265koz with significant progress recorded at Company’s development projects.
Ncondezi Energy (LON:NCCL) 3.9 pence, Mkt Cap £9.7m – Shareholder loans extended
• Ncondezi Energy reports that it has now reached a formal agreement with holders of its shareholder loan to extend the repayment date until 2nd September 2018.
• The loan extension had been previously mooted and today’s announcement confirms that the formal agreement is now in place and that “This provides the Company with time to conclude the new partner search process, better develop loan repayment options and raise additional working capital by the end of September 2017.”
• In late August, Ncondezi announced that it expected to have selected a new partner for the development of the planned 300MW coal fired power plant in Mozambique before the end of 2017.
Conclusion: The formal agreement to extend the repayment date for the shareholder loans is not unexpected but it is encouraging that the company is sticking to its new timetable and we look forward to further news on the selection of a new strategic partner over the coming weeks.
Premier African Minerals (LON:PREM) 0.4p, Mkt Cap £23.8m – Drilling shows continuity of mineralisation at Zulu
• Premier African Minerals confirms that it has now completed 16 drill-holes (2278m) in its current drilling programme at its Zulu lithium prospect near Fort Rixon, Zimbabwe.
• The current drilling “is proving successful in confirming continuity in the Main Zone as well as identifying additional targets such as massive pegmatites with visually high-grade lithium mineralisation intersected in the new south-eastern zone.”
• The company confirms that “Assay results are now being received and any significant results will be published in the near future.” Today’s announcement does not contain new assay data, implying that the company has not yet received assay results which it considers significant.
• The drilling programme is being undertaken to expand and extend the previously published maiden resource on the Main Zone of 20.1mt at an average grade of 1.06% Li2O, which was published under the guidelines of South Africa’s SAMREC mineral reporting code, in June this year.
• Encouraged by the initial resource, Premier African Minerals committed to a further 8-10,000m of drilling which would now appear to be around 25% complete.
Conclusion: The demonstration of continuity of mineralisation within the Main Zone at the Zulu prospect is encouraging, however, the absence of specific assay data in today’s announcement makes it difficult to speculate on whether the mineralisation encountered in the recent drilling is of a comparable grade to the previously announced resource. We look forward to assay information when it becomes available.
Tethyan Resources* (LON:TETH) 3.6p, Mkt £6.1m – TSX listing
• Tethyan Resources report the company’s shares are due to start trading on the TSX on Wednesday 6th September.
• Southern Arc Minerals currently controls 29.91% of Tethyan Resources. A recent presentation by Souther Arc Minerals describes the TSX-V listing filing as for better access to the North American mining market.
*SP Angel act as broker to Tethyan Resources