Anglo Asian Mining* (AAZ LN) – Earnings fall on weaker production; H2 output guided stronger as annual 64-72koz GE forecast reiterated
Golden Star Resources (GSC CN) – Drilling demonstrates extension to the “B Shoot” at Wassa
IronRidge Resources* (IRR LN) – High-grade gold intersections in trenching at Dorothe in Chad offer multi-million ounce potential
Orosur Mining (OMI LN) – Progress report on Uruguay exploration
Little change in Fed rates projections in near term as well as the start of Fed balance sheet unwinding in October point to policy makers’ determination to continue monetary tightening.
• US bond yields on 2y and 10y debts climbed 6bp and 5bp on the news, respectively.
• US equities dipped following the Fed press release but recovered all its losses later through the day to close flat on the day.
• The US$ bounced strongly climbing 1.2% on the news dragging metal prices lower.
• Gold continued to slide this morning falling past the $1,300/oz mark yesterday extending losses to c.$20/oz post the Fed announcement.
• Iron ore futures on the DCE slipped into a bear market after posting a 22% drop from August highs.
Rebuilding of buildings in Mexico City, Florida and hurricane hit islands to raise demand for metals
• The very tragic events seen in Mexico City and around the Gulf of Mexico over the past few weeks is likely to inspire new building and new building regulations.
• Mexico City withstood its most recent earthquake better than in the past though the death toll is still tragically high.
• Reconstruction, repair work and seismic retrofitting of earthquake-proof steel frames will require millions of tonnes of high-strength rebar containing higher vanadium content.
• China is now more stringently applying higher standards in construction since its last major earthquake and since the government cracked down on lax application of its new standards.
• Residents in islands hit by recent hurricanes will also want to construct more solid houses and apartments after the immediate clear-up is done.
• We suspect steel frame buildings will become more popular as they can be made to better withstand storms, earthquakes and floods. The re-cabling, re-wiring, re-plumbing and re-building of affected areas will consume more copper, aluminium and other metals when reconstruction starts. We expect manufacturers to start to restock in anticipation of massive reconstruction programs sometime soon.
Iron ore – premiums seen rising for high-quality magnetite as Chinese blast furnaces shun lower quality feedstock
• Headline prices for standard iron ore are falling due to a shift by blast furnaces to focus on higher-grade and cleaner feedstock
• Chinese steel producers are producing record tonnages of steel driven by better utilisation of blast furnace capacity through use of higher-grade magnetite
• Premiums for super-high grade Direct Reduction pellets with low phosphorous content are said to have risen dramatically.
• Pellet prices grading 65% are quoted at $127/t CFR Qingdao China vs $70/t for 62% iron ore concentrate. Higher-grade iron ore 66% concentrate is currently selling for $93/t
Rusatom, the Russian state nuclear company and world’s fourth largest uranium miner plans to start lithium mining
• The company plans to fully integrate the process from mining to the production of lithium and final battery production.
• Rusatom already makes lithium compounds and is looking to mine lithium projects in South America
• The move makes sense for a company which has long-standing expertise in producing the lithium isotopes used to prime so many hydrogen bombs aimed at the West.
• We suspect their move into South America might prove to be an expensive exercise.
Happy Rosh Hashanah
• Rosh Hashanah customs include sounding the shofar (a hollowed-out ram's horn), as prescribed in the Torah, following the prescription of the Hebrew Bible to "raise a noise" on Yom Teruah; and among its rabbinical customs is attending synagogue services and reciting special liturgy about teshuva, as also enjoying festive meals. Eating symbolic foods such as apples dipped in honey is now a tradition, hoping thereby to evoke a "sweet new year". (Wikipedia)
Dow Jones Industrials +0.19% at 22,413
Nikkei 225 +0.18% at 20,347
HK Hang Seng -0.04% at 28,115
Shanghai Composite -0.24% at 3,358
FTSE 350 Mining -1.55% at 16,452
AIM Basic Resources +0.36% at 2,490
Economics
US – The FOMC voted to leave rates unchanged while announcing the start to the reduction of the balance sheet in October, broadly in line with market estimates.
• One more rate hike before year end remains on the cards with two meetings currently remaining.
• The committee noted near-term disruptions from the recent hurricane season, although policy makers did not believe there would be an impact on the overall national trend.
• In fact, the Fed revised its economic growth forecasts and employment projections slightly higher while bringing down its inflation estimates.
• Real GDP is expected to grow 2.4% in 2017, up from a previous estimate of 2.2% while 2018 was left unchanged at 2.1%; 2019 estimates were raised to 2.0%, up from 1.9% posted in June forecasts.
• Inflation forecasts were smoother only slightly leaving 2017 and 2019 estimates unchanged at 1.6% and 2.0%, respectively; whereas, 2018 estimates were brought down 0.1pp to 1.9%.
• Regarding future rates outlook, policy makers left 2017/18 projections unchanged at 1.4%/2.1% (median) while 2019 estimates were brought down 0.2pp to 2.7%; it is also worth noting that the longer term neutral policy rate was revised down to 2.8% from 3.0% suggesting the need for a more accommodative stance than previously forecast.
China – The PBoC and the China Banking Regulatory Commission are reported to be cracking down on consumer loans provided by local lenders for property purchases.
• Regulators issued a directive to suspend such lending activities as they are in breach of existing rules.
Japan – In contrast to US counterparts, the BoJ remained determined to continue with its monetary easing programme intending to keep the 10-year bond yield at around 0%.
• The bank reiterated it will continue to buy $711bn of debt on annual basis.
• The policy setting committee voted 8-1 to secure the status quo.
• The yen dropped to the lowest in two months against the US$ amid the hawkish announcement from the Fed earlier on Wednesday.
Russia – Another major lender asked for a emergency liquidity from the central bank following the rescue of Otkritie, formerly the largest privately owned bank by assets, last month.
• The central bank is reported to be taking major stake in B&N Bank and merging it with another troubled lender Rost Bank making it the eighth biggest in the country once the merger is complete.
Currencies
US$1.1909/eur vs 1.2008/eur yesterday. Yen 112.53/$ vs 111.36/$. SAr 13.357/$ vs 13.314/$. $1.350/gbp vs $1.356/gbp.
0.797/aud vs 0.804/aud. CNY 6.594/$ vs 6.575/$.
Commodity News
Precious metals:
Gold US$1,296/oz vs US$1,314/oz yesterday
• Yesterday’s Federal Open Market Committee announcement to reduce its balance sheet was met with the strongest growth of the U.S. dollar index in six weeks.
• The growing probability of rate hikes in December and 2018 bolstered the strength of the dollar and depressed gold prices to its lowest in three weeks.
• U.S. allies also reiterated the enforcement of international sanctions on North Korea as crucial to encourage Pyongyang to disband its nuclear development program while curtailing geopolitical risk.
Gold ETFs 68.8moz vs US$68.8moz yesterday
Platinum US$941/oz vs US$954/oz yesterday
Palladium US$912/oz vs US$910/oz yesterday
Silver US$16.99/oz vs US$17.34/oz yesterday
Base metals:
Copper US$ 6,463/t vs US$6,538/t yesterday
• International Copper Study Group (ICSG) revealed a 75kt market deficit in the first half of 2017.
• The ICSG identified a 2% YoY fall in global mine output, 1.7% decrease in concentrate production and solvent extraction-electrowinning diminishing by 3.5%.
• Chile mine output fell 9% on the back of strikes at the Escondida mine and reduced output from Codelco mines.
• Copper nanoparticles could help recycle co2 into fuel
• New catalyst converts carbon dioxide into 2 and 3 carbon compounds requiring a lower voltage
• Helps to move the bar in investigating the applications of copper-based catalysts for electrochemical transformation of CO2 to useful products
Aluminium US$ 2,171/t vs US$2,170/t yesterday
• Shanghai aluminium prices rise to a six year high after announced production cuts almost two months before China’s official winter restrictions.
• In efforts to avoid another smog-blackened winter the Ministry of Environmental Protection recently cemented plans to cut average concentrations of airborne particles (PM2.5) down 15% YoY.
• The 4 month seasonal suspension period (15th November – 15th March) eases coal-burning operations across 28 cities in the smog-prone provinces of Hebei, Shanxi, Shandong, and Henan.
• The premature closure of three smelters in Henan’s province allows the transfer of capacity out of the province in effort to control local pollution levels. The Commission of Industry and Information Technology of Henan Province announced 70,000 tpy aluminium capacity would be available for transfer throughout the country.
Nickel US$ 11,060/t vs US$11,325/t yesterday - Muted demand drags down nickel futures
• Nickel prices continue to ease in futures markets as traders cut positions, driven by subdued demand from consuming industries in the spot markets
• Analysts said the fall in nickel prices in futures trade is mostly attributed to tepid demand from alloy-makers at the domestic spot markets
Zinc US$ 3,099/t vs US$3,123/t yesterday
Lead US$ 2,464/t vs US$2,444/t yesterday
• Despite healthy lead demand, there is growing concern over tightening Chinese raw material supply.
• Shanghai stocks have fallen to their lowest since March 2016, dropping 80% since the peak in May to 16,568 tonnes.
• Global physical supply is in a squeeze, with imports of mine concentrate sinking 28% across the last year. This drop is further compounded by recent U.N. sanctions, with North Korea being the second-largest concentrate supplier by volume which recently added a further 45% growth over the first seven months of 2017.
• Import limitations are only applying further stress to domestic supply; of which 80% of ‘illegal’ secondary smelter have been closed. Limitations on the environmental performance has hit the entire industry supply chain, with a focus on lead and its association with toxicity.
Tin US$ 20,550/t vs US$20,720/t yesterday
Energy:
Oil US$56.1/bbl vs US$55.4/bbl yesterday
Natural Gas US$3.079/mmbtu vs US$3.120/mmbtu yesterday
Uranium US$20.30/lb vs US$20.30/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$66.7/t vs US$66.8/t
• Following August’s peak near US$80/t, iron ore prices retreat for the fourth consecutive week.
• Faltering demand from a cooling property market, new house prices growing at an annualised pace of 5%, and reducing credit figures point to a decelerating economy
• Key-steel making areas, such as Hebei and Tianjin, have been ordered to cut output by up to 50% ahead of winter environmental controls
Chinese steel rebar 25mm US$647.2/t vs US$651.2/t
Thermal coal (1st year forward cif ARA) US$83.2/t vs US$83.9/t
Premium hard coking coal Aus fob US$205.6/t vs US$206.2/t
Lithium - Segue Resources reveals thick lithium discovery with drilling
• Confirmed lithium discovery through maiden drilling program at Malinda lithium project in Western Australia
• Assay results from the first six holes have confirmed significant lithium and tantalum mineralisation with intersections including 14 metres at 1.25% lithium oxide and 12 metres at 335ppm tantalum pentoxide
Other:
Tungsten APT European US$310-335/mtu vs US$310-335/mtu - W resources gets licence extension for Tarouca Tungsten project
• Received a two-year extension to its Tarouca tungsten project in Portugal – licence now expires in 2019 and during this time expects to complete a 15 hole/1,500m reverse circulation drilling campaign
• Trench sampling at the Tarouca project has already indicated high-grade tungsten, drilling campaign at Tarouca will help to further delineate the resource with a view to increasing overall tungsten resource and production base
Company News
Anglo Asian Mining* (LON:AAZ) 30p, Mkt Cap £34.1m – Earnings fall on weaker production; H2 output guided stronger as annual 64-72koz GE forecast reiterated
• Total sales totalled $29.8m net of government PSA share of dore and concentrate sales (H1/16: $39.3m) reflecting weaker gold production during the period partially compensated by stronger copper concentrate sales.
• Gold and silver dore sales accounted for c. 2/3s of total revenues generated by the sale of 15.7koz at an average gold price $1,238/oz (H1/16: 27.8koz at $1,230/oz).
• Lower H1/17 gold production was attributed to a drop in processed gold grades as well as production optimisation initiatives implemented at Gedabek and Gadir mining operations.
• Copper concentrate production benefited from better copper grades in processed ores as well as higher flotation plant throughput, while a recovery in base metals prices helped to raise concentrate sales proceeds.
• Copper concentrate shipments totalled 5.4kt generating $10.3m in revenue net of PSA (H1/16: 2.9kt and $5.1m).
• AISC came in at $564/oz which include PSA share of dore and concentrate production (H1/16: $703/oz) reflecting high by-product revenues that are netted off costs.
• EBITDA ad EBIT totalled $8.6m and $0.6m (H1/16: $16.8m and $6.0m) with earnings margins lower on weaker grades and production rates.
• Operations remained FCF generative yielding $5.8m during the period (H1/16: $8.4m; FY16: $14.6m) as CFO of $10.8m more than covered interest costs of $1.5m (H1/16: $1.8m) and $3.5m (H1/16: $6.7m) in capex.
• Capex covered capitalised waste stripping, water treatment plant costs as well as Ugur development.
• PBT amounted to -$2.7m (H1/16: $0.4m).
• The Company had $1.5m in the bank (FY16: $1.4m) and $29.0m in ned debt (FY16: $34.6m) as repayments to ATB and Gazprombank continued as per schedule; both lenders provided waivers regarding the debt service cover ratio covenant though H1/17 (1.25 v reported 1.0 during the period).
• Ugur development works near completion with maiden dore production declared in September and daily output rates seen doubling in the first 10 days of the month compared to the previous eight months’ average; floatation plant is run separately utilizing a small 300-400tpd standalone mill and processing copper rich stockpiles (Ugur oxides do not contain copper and are treated directly by agitation leaching).
• The management reiterated its FY17 production guidance for 64-72koz GE (FY16: 72.3koz).
Conclusion: Results highlight lower earnings margins on the back of weaker processed grades partly compensated by stronger by-product concentrate revenues. Commissioning of the newly discovered Ugur mine helps to ramp up gold dore output rate and sees the management reiterating its full year guidance at 64-72koz implying a step up from the H1 production of 28.5koz GE (H1/16: 36.7koz).
*SP Angel act as Nomad and Broker to Anglo Asian Mining
Golden Star Resources (TSE:GSC) C$0.86, Mkt Cap C$324m – Drilling demonstrates extension to the “B Shoot” at Wassa
• Golden Star Resources reports that assays received from 11 of the 15 holes drilled to investigate the extent of the high grade B-Shoot at its Wassa mine in Ghana have shown that it extends approximately 50 metres to the north of the previously planned mining area and 200m to the south of the current inferred resource area “suggesting the potential to expand production in the short and longer term.”
• The programme comprised a total of 4.164m of drilling on the B Shoot North and 7000m on B Shoot South; further results are expected from the remaining holes during the second half of 2017, however among the results highlighted today are:
o A 14.9m wide intersection in the B Shoot North area at an average grade of 18.9g/t gold from a depth of 294m in hole BS17DD002, which included a higher grade section of 2m at an average grade of 91.8g/t from 300m and
o A 24.1m wide intersection at an average grade of 7.3g/t gold from a depth of 289.9m in hole BS17DD003, also in the B Shoot North area; and
o A 23.8m wide intersection in the B Shoot South area at an average grade of 6.1g/t gold from a depth of 1001m in hole BS17DD385M. This includes a 2m section from 1018m depth at an average grade of 20.1g/t gold and a 21.5m section from 1049.3m which averages 5.3g/t. In addition, this hole reports a second intersection of 21.7m width at an average grade of 5.3g/t gold from a depth of 1049.3m.
• The deeper B Shoot South drilling programme includes “two mother holes with up to four directional daughter holes being deflected from each of these.” Currently the first of the daughter holes of the first mother hole has been completed and a second is underway.
• A geological section on the company’s website illustrates the northward extension to the B Shoot beneath the Wassa Main open pit and the southern extensions apparently remaining open beyond hole BS17DD385 which appears to be currently the most southerly hole drilled.
• There remains additional assay information pending from a further four holes in the B Shoot North programme and results are expected to become available “during the fourth quarter of 2017, along with the results for the second mother hole and the daughter holes in the B Shoot South drilling.”
• Golden Star also comments that it expects to report drilling results from “definition and extension drilling at Prestea Underground during the third and fourth quarters of 2017.”
Conclusion: Golden Star’s drilling is helping to extend the B Shoot area at Wassa where the mine’s most recent overall proven & probable reserve is estimated at 5.4m tonnes at an average grade of 4.6g/t gold. High grade individual intersections in the recent drilling offer encouragement that the extensions now being identified will continue to maintain these high grades in any future resource update. We look forward to the remaining results from the programme as they become available.
IronRidge Resources* (LON:IRR) 38p, Mkt Cap £104m – High-grade gold intersections in trenching at Dorothe in Chad offer multi-million ounce potential
Chad (Tekton Gold 100%)
• IronRidge Resources report multiple high-grade gold intersections seen in fresh rock trenches at the Dorothe prospect in Chad held within its Tekton subsidiary.
• The combined grades and intersections are good for trenching and show the Main Vein zone to be open in all directions.
• The high-grade gold is close to surface as seen in IronRidge’s fresh trenches and in artisanal pitting.
• Management have dug 5,204m of trenches at Dorothe mostly using a 30 tonne excavator with the longest trench running at 1.74km in length. (See press release for trench locations)
• The surface extent covered by the Tekton program is around 3,000 x 1,000m covering the artisanal pitting zone.
• Trenching results:
o 8m @ 4.73g/t gold
o 12m @ 2.87g/t gold
o 10m @ 2.98g/t gold
o 10m @ 2.05g/t gold
o 4m @ 4.67g/t gold
o 4m @ 4.61g/t gold
o 2m @ 8.9g/t gold.
• Soil sampling has also identified three new target areas for follow-up sampling. One at the north strike extension of the Dorothe prospect, a second to the north-west coincident with new artisanal workings and the third along a lithological contact zone.
• Previous sampling shows 14.12g/t of gold over 4m, 16m at 3.1g/t, 6m at 9.5g/t and 1m @ 63.2g/t Au and grades up to 103g/t, 99.6g/t and 94.5g/t in rock chips
• The spatial association between known gold occurrences in the region, granitic Intrusions and major fault corridors may suggest an Intrusion Related Gold System.
• The Ouaddaï Province potentially represents a metallogenic belt with possible analogies to the Tintina Gold Belt and other Intrusion Related Gold Systems hosting multi-million ounce deposits.
• The Dorothe area is characterised by two significant zones of mineralisation; the north-south striking ‘Main Vein Swarm’ defined over a 1km strike with potential extensions to 3km, and the north-east trending ‘Artisanal Pitting Zone’ over a 3x1km area. Previous sampling by Tekton has focussed on the Main Vein Swarm with significant trenching results over sub-vertical quartz veins.
• Further details are available on the company website: https://www.ironridgeresources.com.au
Conclusion: We reckon IronRidge’s geologist, Len Kolff, is doing a good job with the Tekton team on the Dorothe prospect. The discovery of very high-grade gold over widths of 2m-10m extending out to 14m in lower grade intervals as seen in the trenches reminds us of some previous major West African gold discoveries. We look forward to future news of drilling on the prospect to confirm the lateral scale and depth extent of the discovery.
*SP Angel act as Nomad and Broker to IronRidge Resources
Orosur Mining (LON:OMI) 17.5 pence, Mkt Cap £20.6m – Progress report on Uruguay exploration
• Orosur Mining has provided information on the progress of its exploration work in Uruguay, including near mine projects close to the San Gregorio operation where the new San Gregorio West underground mine has produced 12,600 oz of gold.
• The company has completed around 15,000m of reverse-circulation and diamond core drilling during FY 2017 with a series of objectives including:
o The addition of short term reserves around the San Gregorio West mine (8,750m);
o The addition of reserves and resources to near mine open pit projects (6,060m); and
o Limited exploration of early stage opportunities within the Isla Cristalina greenstone belt
• Continuing exploration to continue these objectives is planned in 2018 with increased drilling close to the plant and along a 100km long belt of exploration licences.
• Near mine exploration has demonstrated the possibility of further eastward and depth extensions to the San Gregorio underground mineralisation where probable reserves currently amount to approximately 665,000 tonnes at an average grade of 1.62g/t gold.
• The company also identifies the Veta A project as a potential new underground mine beneath a “relatively small high grade open pit located next to the now reclaimed San Gregorio tailings dam which was in operation from September 2006 until March 2008” with historic production of approximately 29,000oz at an average grade of 3.1g/t.
Conclusion: Orosur Mining has demonstrated continuity of mineralisation at depth in the new San Gregorio West underground mine as well as identifying a new potential underground mining opportunity at Veta A. In the wider exploration area, continuing exploration of the 100km long licences within the Isla Cristina greenstone belt is characterised as having the scope for discoveries in excess of 100,000oz of gold. We look forward to further announcements as exploration progresses.