Altus Strategies* (LON:ALS) 10p, Mkt Cap £10.8m – Interims
Phoenix Global Mining* (LON:PGM) 4p, Mkt Cap £9.2m – Interim Results and update on Phoenix’s Empire mine project in Idaho
Savannah Resources (LON:SAV) 4.9p, Mkt cap £27.4m – Drilling results from Mina do Barroso
Stratex International (LON:STI) 1.4p, Mkt cap £6.3m – Why should Stratex shareholders bear exorbitant cost of expensive Crusader acquisition?
Equities are relatively calm with US stocks climbing to new highs with President Trump using a UN speech to threaten to annihilate North Korea.
• Gold prices are little changed this morning ahead of the FOMC announcement.
• The market assigns almost zero probability to a rate hike this week and only a 53% chance of a third rate increase before year end; attention is on the guidance regarding the timing of the Fed balance sheet unwinding.
• In the base metals complex, aluminium is leading gains having climbed 2.3% this morning hitting the highest intraday level since February 2013 setting the LME Index for a fourth consecutive daily rise.
• Iron ore futures are weaker today trading at the lowest in more than two months amid oversupply concerns; steel rebar prices also continued to slide extending losses from this year’s peak hit at the beginning of September.
Lithium - Little known US company files capacitor – lithium hybrid system patent
• Fernhill Corporation, a company that invests in and acquires companies has applied to patent a hybrid capacitor-battery energy storage system.
• Combination of the two technologies could help energy storage systems target applications that would be difficult to execute with just one or the other.
• Hybrids could be used in sectors including emergency and portable power, EVs, heavy industrial equipment and UPS (uninterruptible power supplies) for the likes of telecoms and data centres
Dow Jones Industrials +0.18% at 22,371
Nikkei 225 +0.05% at 20,310
HK Hang Seng +0.27% at 28,128
Shanghai Composite +0.27% at 3,366
FTSE 350 Mining -0.69% at 16,544
AIM Basic Resources -0.18% at 2,481
Economics
US – Atlantic hurricane season distorts housing market data with September numbers expected to come in week following declines in August while construction is likely to pick up in Q4 on rebuilding activity.
• Housing starts in August dropped 0.8%mom extending losses to the second consecutive month.
• South regions in particular recorded sharp declines with a 7.9%mom drop in starts as Hurricane Harvey disrupted operations at the end of the month.
Germany – Investors confidence improved in September with the Zew index published yesterday posting the strongest increase in 10 months following three months of declines.
• The report comes on the heels of the Ifo Institute business confidence gauge which remains near a record high.
• Bundesbank forecasts the economy to keep the growth momentum going taking it on track to hit the fastest growth since 2011.
• Political parties continue campaigning ahead of the September 24 election with Angela Merkel seeking to secure a fourth term in the office.
• Zew Current Situation: 87.9 v 86.7 in August and 86.2 forecast.
• Zew Survey Expectations: 17.0 v 10.0 in August and 12.0 forecast.
Currencies
US$1.2008/eur vs 1.1993/eur yesterday. Yen 111.36/$ vs 111.79/$. SAr 13.314/$ vs 13.303/$. $1.356/gbp vs $1.354/gbp.
0.804/aud vs 0.798/aud. CNY 6.575/$ vs 6.583/$.
Commodity News
Precious metals:
Gold US$1,314/oz vs US$1,309/oz yesterday
• Despite threats to ‘totally destroy’ North Korea and the ‘rocket man’ Kim Jong Un, U.S. President Donald Trump’s comments at the U.N. general assembly made little impact to gold futures.
• Investor caution ahead of today’s U.S. Fed monetary policy announcement could renew interest in the precious metal. The statement containing the Fed’s balance sheet reduction plans and interest rate outlook may provide indication on the future demand for non-interest bearing gold, with the majority consensus for one more hike in 2017.
Gold ETFs 68.8moz vs US$68.7moz yesterday
Platinum US$954/oz vs US$959/oz yesterday
Palladium US$910/oz vs US$928/oz yesterday
• Holdings in Palladium-backed exchange-traded funds are experiencing the biggest monthly inflow since June 2014. The fund, which has seen sizable outflows since the 2.6 million ounces mid-2015 peak, has already posted price growth of more than a third in 2017.
Silver US$17.34/oz vs US$17.17/oz yesterday
Base metals:
Copper US$ 6,538/t vs US$6,526/t yesterday - Giant Peru copper project attracts first bidder
• Precious metal's miner Buenaventura is considering bidding for the $2bn Michiquillay copper project in Peru which the South American nation is auctioning off in November
• Chairman told Reuters the company has already bought the necessary bidding paperwork adding that Buenaventura could develop Michiquillay by sharing infrastructure with two other proposed mines in the northern region of Cajamarca
Aluminium US$ 2,170/t vs US$2,106/t yesterday
• Aluminium maintained higher prices in advance of the annual Chinese winter clean air production cuts.
• LME stockpiles continued to be drawn, declining 4,150 tonnes and enhancing the year to date draw down to 41%. Inventories in August reached 1,306,650 tonnes; the lowest levels since 2008.
• The encouraging price rise is building confidence in the effectiveness of recent limitations on Chinese aluminium capacity.
Nickel US$ 11,325/t vs US$10,970/t yesterday
• Increased stainless steel buying activity is linked to steel mill stockpiling and dip buying ahead of the Chinese National Golden Week holidays, which has China’s domestic Norilsk full-plate premium sales rising.
• With a tight supply of refined nickel, the stainless-steel additive is also experiencing a price increase.
• The appointment of new Philippine Environment and Natural Resources Secretary, Roy Cimatu, has been deferred until 27th Sept. Cimatu and his team are currently reviewing the closure or suspension of 26 of the nation’s 41 mines and banned open-pit mining, which may have major implication for global nickel ore from the world’s top supplier.
Zinc US$ 3,123/t vs US$3,096/t yesterday
• Ongoing environmental inspections across Chinese base metal producers have suspended output across a number of miners. The orders to undergo facility upgrades is creating growing supply worries and driving zinc and lead prices to higher levels.
• Despite rising prices, the risk of industrial substitution of zinc is mounting. The recent price rally may diminish the overall consumption of the metal, with Western automakers applying thinner coats of zinc alloys in the effort to cut vehicle weights to meet ever stringent emission limits.
Lead US$ 2,444/t vs US$2,384/t yesterday
Tin US$ 20,720/t vs US$20,675/t yesterday
Energy:
Oil US$55.4/bbl vs US$55.7/bbl yesterday
Natural Gas US$3.120/mmbtu vs US$3.147/mmbtu yesterday
Uranium US$20.30/lb vs US$20.60/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$66.8/t vs US$69.6/t
Chinese steel rebar 25mm US$651.2/t vs US$653.3/t
Steel - Tata and ThyssenKrupp agree steel merger
• India's Tata Steel and German rival, Thyssenkrupp, have taken the first step towards merging their European steel operations - deal would create Europe's second-largest steel group
• Signed a memorandum of understanding that proposes a 50/50 joint venture, leading to annual cost savings of up to 600m euros
• Needed to consolidate because of increasing pressure from imports and an overcapacity within the industry
Thermal coal (1st year forward cif ARA) US$83.9/t vs US$82.2/t - Coal consumption hits a plateau
• Latest projections from US Energy Information Administration last week suggest global coal consumption has gone as high as its ever going to go
• Not predicting a sharp peak with consumption now likely to decline steeply, but it expects a long plateau, with demand stable at around today’s level of approximately 160 quadrillion British thermal units until 2050
Premium hard coking coal Aus fob US$206.2/t vs US$206.2/t
Other:
Tungsten APT European US$310-335/mtu vs US$310-335/mtu
Tungsten - North Korea outpaces US in Tungsten production
• North Korea recently outpaced the entire US in the production of tungsten – price of the rare element has surged 50% since July
• It hardly surprising as can’t think of any operating tungsten mines in the US. Though we note Thor Mining has the Pilot Mountain Project in Nevada and Avocet used to run the Pine Creek tungsten mine in California which was shut down in around 1999.
• Used by Smartphone makers and Armed forces due to its high melting point and ability to withstand heat
Company News
Altus Strategies* (LON:ALS) 10p, Mkt Cap £10.8m – Interims
• The Company releases financial results for the first six months of the year.
• PBT totalled £1.2m (H1/16: £0.1m) driven by admin expenses £1.6m (H1/16: £0.3m) incurred across its portfolio of early stage exploration assets as well as UK management costs.
• £1.0m in cash outflows during the period were compensated by a £0.9m of new privately issued shares during the period.
• The Company is debt free with £351k in the bank and £330k worth of Canyon Resources shares as of H1/17.
• Outstanding payables stood at £317k most of which would have been covered following the post reporting period IPO which raised £1.1m pre fees (£0.8m net of fees) in August.
Conclusion: The Company targets to optimise its cash spend through prioritising works across its portfolio of assets and engaging JV partners early on to fund the higher risk and more capital intensive stages of exploration like drilling. The team currently manages twelve projects across seven commodities and four countries with two JVs in place.
The Company is estimated to have £0.8m in the bank post IPO and settlement of some of its payables with another £0.4m in Canyon Resources stock versus the 12 months’ budget of £0.6m on exploration at existing and new projects (ex JVs) and £0.4m planned for corporate G&A. Cash spend may further be supported by potential management fees and costs reimbursements from current and future JV agreements.
*SP Angel acts as Nomad and Broker to Altus Strategies
Phoenix Global Mining* (LON:PGM) 4p, Mkt Cap £9.2m – Interim Results and update on Phoenix’s Empire mine project in Idaho
• During the period which immediately precedes the company’s admission to the AIM market on 29th June and the raising of £4.6m to accelerate the re-development of the historic Empire mine in Idaho, Phoenix Global Mining reports a loss for the six months ending 30th June 2017 of £564,559.
• The AIM admission also coincided with the acquisition of 80% of Konnex Resources, the owner of the mining rights to the Empire mine giving the company effective management control over the plans to reinvigorate an historic mining operations which is recorded to have produced “a total of 694,000t with a recovered grade of 3.64% copper (“Cu”), plus gold, silver and tungsten from 1901-1942.”
• The old mine is reported to include some 11.5km of underground workings which test only around 5% of the mineralised system. Post-closure, the company estimates that “over US$7m has been spent on exploration” and this information is to be incorporated with the results of the recently completed drilling programme in the preparation of a new resource estimate by the end of 2017.
• The updated resources estimate will precede and form part of a Preliminary Feasibility Study which is expected to be completed early in Q2 2018.
• The company has evolved a two-pronged strategy to advance the project. Priority is accorded to the development of the surface oxide ores in the area known as the AP Pit in order to establish revenue generating copper cathode production through a heap-leach / solvent extraction and electro-winning plant producing some 7000tpa of cathode by 2020.
• The company points out that “the oxide resources [is] still open along strike” and the company is “confident that we will be in a position to increase the oxide resource by the year end.”
• The second phase of development is targeting exploration of “the deeper sulphide ore, which sits below the oxide resource” and which was the target of much of the historic mining . “Limited exploration has been conducted on this zone to date, but intercepts have returned high copper grades of up to 11.4% copper.”
• In order to advance this strategy, contractors have been appointed to rehabilitate underground mine access and ensure safe entry to the underground workings for further exploration “The timing of this programme will depend on the work required to make these adits [tunnels] safe which will be determined once the portals (entrances) have been rebuilt.”
Conclusion: The company has moved ahead rapidly since its AIM listing and expects to produce a pre-feasibility study for the initial production of copper cathodes from oxide ore early in Q2 2018 with a view to a 2020 target date for production. In parallel, the company is opening up some of the extensive historic underground mine workings to help in its evaluation of the potential of the deeper underlying sulphide ore.
*SP Angel acts as Nomad to Phoenix Global Mining
Savannah Resources (LON:SAV) 4.9p, Mkt cap £27.4m – Drilling results from Mina do Barroso
• Savannah Resources reports results from its reverse-circulation drilling on its Mina do Barroso lithium exploration project in Portugal where it has confirmed mineralisation over 200m of strike length at both the Reservatorio and Grandao prospects with mineralisation remaining open both along strike and at depth in both areas.
o “Drilling is due to commence again shortly at NOA and will be followed by further drilling at both Reservatorio and Grandao with a view to defining a JORC compliant resource by the end of 2017”.
o Among the results highlighted today are:
25m at an average grade of 1.01% Li2O from a depth of 36m in hole 17RESRC03 at Reservatorio,
26m at an average grade of 0.92% Li2O from a depth of 61m in hole 17RESRC04 at Reservatorio,
36m at an average grade of 1.26% Li2O from a depth of 29m in hole 17RESRC05 at Reservatorio,
33m at an average grade of 1.15% Li2O from a depth of 16m in hole 17RESRC07 at Reservatorio,
15m at an average grade of 1.08% Li2O from a depth of 39m in hole 17GRARC04 at Grandao,
17m at an average grade of 1.24% Li2O from a depth of 16m in hole 17GRARC05 at Grandao,
18m at an average grade of 1.27% Li2O from a depth of 1m in hole 17GRARC06 at Grandao, and
14m at an average grade of 1.18% Li2O from surface in hole 17GRARC07 at Grandao,
The drilling at Reservatorio has established mineralisation down dip to a depth of at least 80m within a pegmatite “up to 49 metres in width”. Drilling suggests that the Reservatorio pegmatite body “has a dip of about 40 degrees to the northwest”
The work at Grandao confirms earlier indications of a “large, near surface, sub horizontal pegmatite body which could offer the possibility of low stripping ratios in a shallow open pit mine. At this stage the pegmatite body “remains open in all directions, further work is required to better define the full potential of the Grandao pegmatite bodies.”
The company has identified a further 5 high priority targets for further drilling and is expecting to receive results from metallurgical testing “before the end of 2017” and is “targeting a development decision before the end of 2018.” The possibility of making a rapid development decision will, no doubt, be aided by the fact that “We have a granted mining lease with 19 years to run.”
Metallurgical work so far has shown “very good recoveries producing a 6% Li2O low iron concentrate product.”
Conclusion: The drilling results at Mina do Barroso are expected to result in the definition of a JORC compliant resource estimate by the end of this year and with the benefit of an existing mining permit, the company hopes to make a development decision before the end of 2018.
Stratex International (LON:STI) 1.2p, Mkt cap £5.5m – Why should Stratex shareholders bear exorbitant cost of expensive Crusader acquisition?
• Every time we look at Stratex’s acquisition we wonder what planet Stratex directors are on?
• We suspect the major shareholders of Stratex who are demanding termination of the acquisition might also agree with us.
• Director change: The shareholders plan to replace the current CEO and Chairman with David Hall and Paul Foord who we believe represent the major Stratex Shareholders who we believe are AngloGold Ashanti and Teck Mining. Both are large and well respected mining companies who do not normally get involved in rebel shareholder actions making this action, in our view, a statement all in its self.
• We are not surprised the Stratex board did ‘not welcome’ the proposed resolutions in yesterday’s press release as the major shareholders set about sacking the Chairman and CEO.
• Peer Valuation: Stratex go on to try to justify their valuation methodology through peer group analysis stating that exploration peers currently trade at a median EV/Resource multiple of ~US$15/oz and a P?NAV of <0.3x versus Production peers at US$44/oz and a median P/NAV of 0.6x. While we see the move to production as a valid argument for most exploration / mining companies we struggle to understand the premium being paid for the Crusader acquisition and the move by Stratex into a region where they have no current presence and where many Stratex investors have no particular interest.
• Depletion of Funds: Stratex reported a cash balance of £6m in their June presentation and we expect this to more than halve if the Crusader acquisition goes through. The cash burn and cost of Crusader acquisition will likely force Stratex into quickly raising significant funding diluting shareholders yet further to complete optimisation and feasibility work in preparation for the funding of a new gold mine at Borborema in Brazil. Funding the project development will incur further dilution again.
• Stratex cash depletion: Stratex earned $8m in cash from the sale of its Altintepe gold mine in Turkey to its Turkish joint venture partner back in April this year. But rather than funding Stratex’s internal projects through to resource definition and potential production the Stratex board has taken it upon itself to blow the money on a premium-priced deal which may place the company in a difficult financial position.
• Deal costs: We suspect the deal costs alone could add up to A$2-3m which added to the cost of running Stratex and Crusader in its first year could reduce Stratex’s cash balance to near zero.
• Admin costs: Stratex admin costs are running at around £3m a year while Crusader costs around A$2mpa. Furthermore Stratex are proposing to develop, finance and construct a low-grade gold project on a continent far from the company’s existing operations which would be likely to raise admin costs further.
• Crusader burn rate: Crusader raised A$5.5m on 2 March 2016 and a further A$8.5m on 27 September 2016. The company has since burned its way through the A$14m leaving itself with just A$0.5m of cash and cash equivalents at end June 2017. This appears insufficient to fund Crusader’s admin and corporate expenses costs which wereA$0.9m for the first half. Add in A$0.1m of business development and finance costs and Crusader burns its way through A$2m a year before any money is spent on exploration and evaluation which is where the real value is added.
• Crusader not much of a going concern: examination of Crusader’s recently released interim accounts shows Crusader lost A$3.86m in H1 2017 vs a loss of A$4.59m yoy. Furthermore crusader has a net current liability of A$3.01m. The statement shows that Stratex lent Crusader A$1m and that Stratex has also agreed to lend further funds to Crusader at its absolute discretion.
• “The directors have prepared a cash flow forecast for the period ending 31 October 2018, which indicates the Group will have sufficient cash flow to fund its operations during the thirteen month period from the date of signing this report, which has been based on the following assumptions: Cash of $400,000 to be received in September 2017, and an additional $2,000,000 between October and December 2017 in the form of further convertible notes subscribed for by Stratex, or the raising of this capital via an alternative funding source. This convertible note subscription which is not currently committed by Stratex is in excess of the $1,000,000 funding noted above which has already been received at the date of signing this report;”
• Eg Crusader needs an additional A$2.4m which is either coming from Stratex or some alternative source or the company might cease to be a going concern.
• The good bit is that Stratex should get it’s A$1m back within 6 month if the Scheme of Arrangement does not complete and should be able to walk away from the Crusader deal relatively unimpaired if shareholders vote the deal down.
• Thani Stratex: The company reported yesterday that there had been a proposal to merge Thani Stratex with Stratex International. We understand this came from a confidential letter sent to Stratex which contained a very tentative proposal to discuss the idea and was by no means a firm merger offer. We understand the idea of merging with Thani Statex is currently not a proposal and while we reckon Stratex International would do well to merge with Thani Statex we understand Thani Stratex are keen to remain private for now.
• Stratex International already holds a 30% stake in Thani Stratex which we believe is performing well in terms of discovery and resource delineation.
• Thani Stratex recently reported results from 15 drill holes from 2,159m of diamond drilling at the Pandora South and Central Zones where the best reported results include:
o 3.95 m @ 4.49 g/t Au from 87.20 m incl. 1.55 m @ 7.49 g/t Au from 87.20 m (OK-D-10*);
o 8.68 m @ 1.36 g/t Au from 49.27 m and 3.84 m @ 5.19 g/t Au from 147.00 m (OK-D-11*);
o 6.87 m @ 4.45 g/t Au from 51.10 m incl. 1.36 m @ 10.55 g/t Au from 56.60 m (OK-D-12**);
o 4.70 m @ 3.41 g/t Au from 78.00 m incl. 0.80 m @ 13.90 g/t Au from 81.20 m (OK-D-13*).
• We reckon these are decent results and we are told the depth continuity of mineralisation is confirmed to approximately 150 m vertically giving greater confidence in the potential for this gold project. Commenting on the Thani Stratex announcement, Stratex's Chief Executive Officer, Marcus Engelbrecht, said: "The initial drilling results reported for Pandora are exciting and confirm our confidence in the prospectivity of this project. Identifying these high grade intercepts during a maiden drilling programme is exceptional and I wish to congratulate the Thani Stratex team on the results." Better still Thani Stratex secured US$4.5m in February to fund its ongoing exploration leveraging off some US$30m of past exploration. It is also worth mentioning that Graham Brown, former head of Geosceinces and Exploration at Anglo American is a technical consultant to Thani Stratex alongside David Hall who established the new AngloGold exploration team.
• Thani Stratex value: A recent Thani Stratex presentation values the company at US$15.4m with a target to declare a >1moz gold resource at Anbat in Egypt in Q4 2017 and to define a further gold resource at Pandora in Djibouti in Q1/2 in 2018. Thani Stratex target US$100m + value with their ‘Money in the ground philosophy’. Futhermore Thani Stratex reckon the assets have good economics with A|nbat NPV: $185m; Pandora NPV: $210m.
• Thani Stratex are supported by RCF, and NutureEX (AMED Group) well reputed mining investment funds. The company is valued at around US$15.5m by its most recent cash investment by RCF as at June 2017 and its already 30% owned by Stratex.
Conclusion: It is our view that Stratex shareholders should support the major shareholders in their action.