Bezant Resources (LON:BZT) – Bezant report extraction and processing of gold and platinum gravels in Colombia
Centamin (LON:CEY) – Reports record quarterly gold production
Edenville Energy (LON:EDL) - Preparing to supply sized coal from Rukwa
Kefi Minerals* (LON:KEFI) – Operations update on Tulu Kapi and Saudi Arabia
Kodal Minerals* (LON:KOD) – Lithium carbonate production from Bougouni test samples
Stratex International (LON:STI) – Further dilution likely following Crusader acquisition if shareholders don’t vote down deal at General Meeting
Sula Iron & Gold (LON:SULA) – Non-Exec technical director leaves as new geologist comes in
Petra Diamonds warns on loan
• Petra is likely to breach terms of its loans by the year end
• Petra is, in our view, a good company and we would be surprised if the banks did not allow Petra significant support.
Dow Jones Industrials -0.01% at 22,774
Nikkei 225 +0.30% at 20,691
HK Hang Seng -0.47% at 28,324
Shanghai Composite +0.76% at 3,374
FTSE 350 Mining -0.57% at 17,498
AIM Basic Resources +0.64% at 2,521
Economics
US – Non farm payrolls recorded the first decline since the financial crisis of 2008/09 reflecting hurricane related disruptions in the Gulf of Mexico.
• In particular, petrochemicals and tourism companies posted largest declines
• Average earnings numbers have also borne hurricanes’ related effects posting an increase on the back of higher overtime pay for utility workers.
• Absences from work due to bad weather and weather related curtailments of average weekly hours cmae in at 1,474k and 2,934k, respectively, significantly outpacing historical averages of 44k and 236k (10-year averages).
• Estimates are for jobs to overshoot historical averages in October as the labour market recovers from a weather related slump in September, Bloomberg reports.
China – Chinese equities close higher as markets reopened post a week long holiday.
• Large banks have been catching up with earlier news of the central bank to cut lenders’ reserve ratios.
• Lenders outpaced the increase in the benchmark Shanghai Composite Index which climbed 1.8%.
• On a different, services sector growth slowed down in September, coupled with a weaker business activity in the manufacturing sector, dragging the composite PMI down following a rebound seen in July and August.
• Slower growth was accompanied by a slowdown in new order growth in both monitored sectors, according to Caixin Markit data.
• “The Chinese economy generally held up well in the third quarter… however, the expansion in both manufacturing and services cooled in September, suggesting downward pressure on economic growth may re-emerge in the fourth-quarter,” Caixin wrote.
• Caixin Services PMI: 50.6 v 52.7 in August.
Germany – Factory output climbed at the fastest pace in six years in August coinciding with previously released positive factory orders report that showed the gauge rising the most since December.
• Both reports bode well for Q3 GDP numbers.
• “The favourable business climate and the positive development in the order intake speak for continuing good industrial activity,” the Economy Ministry said.
• Industrial production (%mom/%yoy): 2.6/4.7 v -0.1/+4.2 in July and 0.9/2.9 forecast.
UK – Consumer spending resumed its decline in September with outlays on recreation falling the most since July 2013, according to HIS Markit and Visa data.
• “Despite a slight uptick in UK consumer spending in August, the story of the past few months has been one of wariness… recent trend of belt tightening, as the landscape of financial uncertainty takes its toll,” Visa commented on numbers.
Turkey – The US cut its visa services in Turkey after a US consulate employee was arrested in Turkey on charges of links to a cleric blamed for last year’s failed coup, Reuters reports.
• In response, Turkey retaliated with the same decision suspending all non-immigrant visa services at all Turkish diplomatic facilities in the US.
• The lira dropped 2.4% against the US on the news.
Currencies
US$1.1730/eur vs 1.1687/eur last week. Yen 112.68/$ vs 113.03/$. SAr 13.785/$ vs 13.699/$. $1.311/gbp vs $1.307/gbp.
0.776/aud vs 0.777/aud. CNY 6.629/$ vs 6.653/$.
Commodity News
Precious metals:
Gold US$1,280/oz vs US$1,268/oz last week
• Safe-haven demand for gold rose over the weekend amid fresh concerns surrounding preparations towards the latest test of a long-range missile as part of North Korea’s nuclear weapons development program.
• The continuing tests ramp up in severity as one Russian lawmaker returning from Pyongyang believes the latest trial weapon can reach the west cost of the United States.
• The escalation of tensions follow U.S. President Donald Trump’s suggestion that ‘only one thing will work’ to resolve ongoing North Korean development of its ‘powerful deterrent’.
• The dollar retreated from fresh 12-week highs on the back of the latest geopolitical news.
• The drop also follows weakened U.S. employment figures, which highlight economic disruption following Hurricanes Harvey and Irma. Ahead of the growing possibility of a further interest rate hike, a hawkish Fed official warns on against a rapid raising of interest rates or risk halting economic recovery in a ‘very tight’ labour market.
Gold ETFs 69.1moz vs US$69.0moz last week
Platinum US$917/oz vs US$916/oz last week
Palladium US$929/oz vs US$941/oz last week
• Palladium futures progress show no signs of waning as the metal price surpasses platinum for the first time since 2001 to become the biggest gainer across the commodities.
• The metal has gained 35% year-to-date, trading above the price parity mark of $925.50 an ounce for the previous six out of seven sessions.
• Platinum Group Metals are required for their use in catalytic converters, where palladium has taken favour over platinum due to cheaper prices. With both metals trading at comparable levels, there could become an argument for some automotive manufacturers to switch back to platinum.
• The downward trend of platinum also follows Volkswagen’s emissions scandal which has significantly diminished diesel vehicle demand, where platinum is the preferential metal.
Silver US$16.91/oz vs US$16.60/oz last week
Base metals:
Copper US$ 6,670/t vs US$6,693/t last week
• An independent survey of China’s services sector indicated the slowest growth of new business in 21 months.
Aluminium US$ 2,156/t vs US$2,161/t last week
Nickel US$ 10,800/t vs US$10,605/t last week
Zinc US$ 3,271/t vs US$3,284/t last week
• The return of activity on the Shanghai Futures Exchange signaled mass interest in the metal zinc, which rallied 4 percent to $4,048 per tonne, to reach its highest price in a decade.
• Chinese Shfe zinc stocks have diminished to their lowest levels in 8 years, falling to below 65,000 tonnes, amid elevated supply concerns following the closure of prominent domestic mines.
Lead US$ 2,515/t vs US$2,573/t last week
Tin US$ 20,860/t vs US$20,975/t last week
Energy:
Oil US$55.8/bbl vs US$56.8/bbl last week
Natural Gas US$2.870/mmbtu vs US$2.910/mmbtu last week
Uranium US$20.45/lb vs US$20.45/lb last week
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$63.1/t vs US$62.2/t
Chinese steel rebar 25mm US$638.5/t vs US$621.2/t
• Chinese ferrous futures perform poorly on the return to trading after the country’s Golden Week holiday despite buoyant purchasing managers index figures released by the National Bureau of Statistics.
• China’s manufacturing PMI climbed 0.7 points to 52.4 to record its second consecutive monthly increase. However, this sentiment wasn’t felt in steel, where the purchasing managers’ index fell 3.5 points to 53.7 points according to China Federation of Logistics & Purchasing data.
• Chinese provinces begin ramping up production capacity cuts ahead of the winter heating season in an attempt to lower emissions. 14 mills across north China’s Handan City began limiting production rates by 50-55% from October 7. China’s Minister of Environmental Protection, Li Ganjie, completed a tour of Hebei, Shanxi, Shandong and Henan provinces ahead of the production curbs to urge local authorities to maintain enforcement.
Thermal coal (1st year forward cif ARA) US$78.5/t vs US$79.8/t
Premium hard coking coal Aus fob US$185.3/t vs US$187.0/t
Other:
Tungsten APT European US$280-295/mtu vs US$290-305/mtu
Cobalt - Growing demand for cobalt sulphate is calling for further price efficiency and transparency, with metal consultants CRU Group wanting to create a clear price mechanism.
• Existing prices are derived from LME’s refined metal contracts. Cobalt is predominantly produced from global cobalt hydroxide by-product output via acidic dissolution and purification, and therefore requires some market mechanisms for pricing as cobalt chemicals.
• Sulphate prices have strongly risen from a premium $5 a lb at the beginning of the year to nine-year highs above $30 a lb.
Company News
Bezant Resources (LON:BZT) 1.175p, Mkt Cap £4.8m – Bezant report extraction and processing of gold and platinum gravels in Colombia
• Bezant Resources report this morning the extraction and processing of higher-grade gravels from within the deeper levels of the open pit.
• While we reckon the statement may be technically correct, inspection of the company’s website quickly reveals the words ‘alluvial mining’ which is a bit of a red flag to most mining investors.
• It makes us wonder, at what point does an alluvial gravel operation become an open pit with deeper levels, and does this have any bearing on the expected variability of grade normally seen within alluvial mines?
• In our view, alluvial mines should normally require closer spaced drilling to gain resource standards where possible than more conventional hard rock deposits though this might not apply in every case, eg in the Witwatersrand where the geology is particularly well understood.
Centamin (LON:CEY) 147 pence, Mkt Cap £1,698m – Reports record quarterly gold production
• Centamin reports that it produced a record 156,533oz of gold during the quarter ending 30th September 2017.
• The total represents a 5.3% increase on the equivalent period in 2016 and a 25.6% increase on the preceding quarter.
• Centamin is maintaining its 2017 production guidance of 540,000 ounces. We estimate that Centamin’s production for the first 9 months of 2017 amounts to 390,361 oz of gold implying a target of approximately 150,000oz for the final quarter.
Conclusion: Centamin is maintaining its 2017 production guidance and following a record Q3 result this looks achievable.
Edenville Energy (LON:EDL) 0.66 pence, Mkt Cap £8.8m - Preparing to supply sized coal from Rukwa
• Edenville Energy reports that it has now completed the commissioning and testing of its coal wash plant at the Rukwa site in south-west Tanzania and that “the plant is now producing washed coal for sale.”
• The plant is expected to ramp up to a rate of 10,000tpm of saleable production by January 2018.
Conclusion: The completion of the coal washing facility at Rukwa is a watershed for Edenville Energy. We note, however, that the impact of recent legislative changes concerning mining in Tanzania on the company’s business remains unclear at this stage though, in the past, the company has appeared to enjoy a constructive relationship with Government.
Kefi Minerals* (LON:KEFI) 4.3p, Mkt Cap £14.4m – Operations update on Tulu Kapi and Saudi Arabia
• Kefi Minerals reports on progress at its flagship Tulu Kapi gold project in Ethiopia and on its exploration work in Saudi Arabia.
• At Tulu Kapi, Kefi Minerals is working towards the development of a mine producing in excess of 100,000oz of annual gold production over the next two years.
• As previously reported, the company has secured financing through its agreement with Oryx Management and as a result of this transaction and its contract mining agreement with Ausdrill “KEFI will have reduced the residual capital requirement for development to proceed to approximately US$20 million, as compared with approximately US$289 million (adjusted by KEFI from the then-published US$235 million to include assumed working capital and financing costs) when KEFI assumed Project control in 2014.”
• The company comments that through the introduction of selective mining of its enlarged resource base, it has reduced the 160m tonnes mine life material movement of 17mt of ore and 143mt of waste outlined in the 2012 DFS to 140mt (15mt of ore and 125mt of waste while increasing the average head grade from 1.8g/t to 2.1g/t gold.
• Additional $5m funding from Oryx to US$140m will “allow for an increase in ore processing capacity from 1.5 to 1.7 million tonnes per annum ("Mtpa") to 1.9 to 2.1 Mtpa, with the upper and lower limits depending upon the hardness of the ore”.
• The company is also planning more drilling at Tulu Kapi “to add additional resources”.
• Commenting on the wider attractions of Ethiopia, Kefi Minerals also highlights that “Ethiopia has recently been named by the World Bank as the highest growth country in the world, improving its ranking within the top 10 growth countries where is has been for 15 years running” and that, as previously reported, the Ethiopian Government has lifted the State of Emergency imposed in October 2016.
• In Saudi Arabia, the Government’s “announcement of the new regulations intended to overhaul the mining industry with a view to facilitating growth and making it the third pillar of the Saudi economy” is still awaited, however, Kefi Minerals has in “the meantime …has upgraded its portfolio and tenure.”
Conclusion: Kefi Minerals is pressing ahead with the development of the Tulu Kapi gold mine where it is working in partnership with the Government. Major progress in Saudi Arabia seems to be awaiting clarity on new regulations for the mining industry.
*SP Angel act as Nomad and broker to Kefi Minerals
Kodal Minerals* (LON:KOD) 0.28p, mkt cap £18m – Lithium carbonate production from Bougouni test samples
• Kodal Minerals reports that metallurgical testing of samples from its reverse circulation drilling at Bougouni has demonstrated the technical feasibility of producing a high quality, battery grade lithium carbonate product with low levels of impurities.
• The test-work was undertaken in China at the facilities of Shangdong Ruifi Lithium, “one of the largest lithium carbonate producers in China”, and a company which “has a close relationship with Kodal’s major shareholder Suay Chin International Pte Ltd and operates a lithium carbonate and lithium hydroxide production plant in the Shangdong province of China.”
• Testing is continuing and the company plans to ship a 5000 tonnes bulk sample to China for further work which should provide valuable insight into the processing characteristics of the material from Bougouni and help with establishing design parameters for a potential processing plant.
• Kodal Minerals also plans further testing on the available drill core from Bougouni to assist in understanding the crushing and grinding characteristics of the mineralisation and the optimal route for concentration of the principal lithium bearing mineral, spodumene.
• The company plans to restart its drilling programme at Bougouni, “as soon as possible after the rainy season” in order to help definition of the existing mineralised structures and to explore a number of further targets.
• The company also comments that “The high-grade lithium mineralisation returned in the assays compares favourably with other hard rock spodumene mineralised pegmatite veins under development around the world where grades range from 1.1% Li2O through to 1.4% Li2O.”
• Commenting on the test results, CEO, Bernard Aylward, pointed out that “The production of a high-purity, battery grade lithium carbonate from our spodumene concentrate is a further indication of the quality of the mineralisation at our Bougouni Lithium Project. The testwork completed previously had demonstrated good metallurgical recoveries producing a high grade spodumene concentrate, and these test results now confirm that this spodumene can be converted to a final lithium carbonate product that will be seen as a premium product compared to many others in the market.”
Conclusion: The successful test-work to produce lithium carbonate represents a significant milestone for the Bougouni Project. The testing was conducted by an existing Chinese lithium carbonate producer allied to Kodal Minerals’ major shareholder which, in our view, adds weight to both the potential commercial viability of the material and to hopes of securing an integrated supply chain from Bougouni through to a final saleable product.
*SP Angel act as Nomad and broker to Kodal Minerals
Stratex International (LON:STI) 1.1p, Mkt cap £5.1m – Further dilution likely following Crusader acquisition if shareholders don’t vote down deal at General Meeting
• We are not generally in the business of commenting on executive pay. In fact we would go so far as to defend bonuses to directors who genuinely create value for shareholders.
• What we don’t like to see is deals enriching directors while significantly diluting shareholders and the value of their holdings.
• The reverse acquisition of Crusader by Stratex appears to enrich the directors beyond our normal expectations.
• First, two of the Crusader directors get enhanced severance packages in the event of their departure which looks a bit odd to us particularly considering the premium being paid for Crusader shares.
• Second, looking back through Stratex’s announcements reveals details of Marcus Englebrecht’s Long Term Incentive Plan and Share Option schemes which were published following news of the unusually expensive and dilutive deal with Crusader.
• Englebrecht will increase his number of options in the company to 29.3m in Stratex representing almost 24% of the entire capital of the company post the merger assuming no further dilution.
• However on 4th August the company said “The terms of the new LTIP and the Company's existing unapproved scheme have been aligned, such that no option or award shall be granted if, as a result of such grant, the total number of options and awards granted and outstanding to employees under the LTIP and options or awards granted pursuant to any other option scheme of Stratex to employees (excluding cash-settled and transfer only awards) would exceed 10% of the issued ordinary share capital of Stratex.”
• Please can someone explain what “(excluding cash-settled and transfer only awards)” means?
• The following conditions apply: “Under the terms of the award, the LTIP Options will vest if the Company undertakes a significant merger, acquisition or other corporate transaction which increases the Company’s market capitalisation to not less than £40 million, and with a projected cash flow within 3 years of £8 million, within three years of the grant date; or if within three years of his appointment as CEO of the Company, the Company achieves a target market capitalisation (measured over any 6 month rolling period) of £80 million.”
• This appears to us to indicate that for Englebrecht to qualify for and exercise the 29.3m options due that he might be incentivised to significantly increase the number of shares in the company following the Crusader transaction.
• On 4th October, Stratex issued a statement aimed at justifying the deal with Crusader, In the statement they mention “The Board believes the requisition is an opportunistic move by David Hall and Paul Foord to obtain Stratex's net cash;”. It is our view that David Hall and Paul Foord as directors of Thani Stratex are keen for the company to pursue the investment and future development of assets which, in our view, are more appropriate for existing investors in Stratex, potentially offer significantly better value and should be less dilutive in the longer term.
Conclusion: It’s no wonder the major shareholders are looking to vote against the dilutive Crusader deal and we have to wonder how shareholders were ever expected to tolerate this massive giveaway and how this was ever passed by Stratex’s, apparently impotent, remuneration committee?
Sula Iron & Gold (LON:SULA) 0.95p, Mkt Cap £3.0m – Non-Exec technical director leaves as new geologist comes in
• Sula report that their non-executive technical director has left the company with immediate effect.
• Coincidently they also report that they are retaining the consultancy services of a highly experienced South African based geologist with significant experience of exploration data capture and analysis in Archean greenstone gold deposits, analogous to Sula’s Ferensola gold project.
Conclusion: Exploration is all about matching the right geologist with relevant expertise and experience with relevant deposits. Same as you wouldn’t employ a sushi chef to run a hamburger grill. We hope the change will help Sula in their challenge to find sufficient gold at Ferensola to make this a viable project.