Altus Strategies* (LON:ALS) BUY - Target price 12.2p – New exploration license secured in Ethiopia
Amur Minerals* (LON:AMC) – Progress on Kun Manie PFS update
Asiamet Resources (LON:ARS) – Additional drilling intersections from BKZ
BlueJay Mining* (LON:JAY) STRONG BUY - Target Price 24p – Dundas feasibility study and director options
BHP Billiton (LON:BLT) – Maintaining all 2018 production and cost guidance –exploration focus on copper
Metminco* (LON:MNC) – Miraflores Feasibility study and maiden ore reserve
Ncondezi Energy (LON:NCCL) – Conditional placing of £750,000
Rio Tinto (LON:RIO) – Rio fined for accounting treatment of Riversdale losses
Shanta Gold (LON:SHG) Target price 4.1p – Debt restructuring update
Ballooning copper demand in China
• Demand for copper in China is expected to rise as the government implements ‘Made in China 2025 initiative to improve manufacturing industry
• The Chinese government has determined that demand will increase by 232,000tpa by 2025, as China upgrades its industry to be more efficient and “smart” and develops an advanced railway network
Miners are flat this today following a modest correction since Monday (-2.2% FTSE Mining 350 Index) in line with a slight pullback in base metals index as well as precious metals.
• European equities are modestly stronger this morning after US indices continued to hit new highs and a positive trading session in Asia.
• Gold continued to slide amid a stronger US$ and speculations that John Taylor, a candidate for US Fed Chairman to replace Yellen in February next year, favours a hawkish stance over the monetary policy outlook.
• Base metals are range bound today with copper continuing to trade above the $7,000/t mark.
• The US$ index is up extending gains since the start of the week to 0.5%.
• Iron ore futures climbed 1.3% in China despite the Xi’s reiterated drive to cut overcapacity and raise efficiency in industrial sector.
China - President Xi to keep up battle against pollution to ensure blue skies and promote a revolution in clean energy in opening remarks for the Communist Party congress
• Beijing has sent out droves of inspectors to ensure environmental compliance.
• China is also launching measures to replace coal with renewable energy and to improve rural areas by restoring soil and waterways as China modernises its agricultural sector.
Dow Jones Industrials +0.18% at 22,997
Nikkei 225 +0.13% at 21,363
HK Hang Seng +0.05% at 28,712
Shanghai Composite +0.29% at 3,382
FTSE 350 Mining +0.09% at 17,797
AIM Basic Resources -0.73% at 2,564
Economics
US – Fast recovery in manufacturing and utility production in September in hurricanes hit regions led to the strongest increase in industrial output since April.
• Utilities have been brought on line much quicker than initially forecast driven by gains in electricity and natural gas output.
• Total industrial production was up 1.6%yoy last month, coming in line with market estimates and slightly higher than the 1.4%yoy average historical increase since the end of the recession in 2009.
China – Xi Jinping delivered a 3.5 hour speech at the Congress opening today.
• The address was reported to have provided little in terms of details on concrete policies outlook hailing progress so far and highlighting future challenges faced by the nation.
• Xi noted anti-corruption campaign results with more than 150 senior officials having been accused corrupt practices including 18 members of the Central Committee, the nation’s key leadership group.
• The problem of pollution has been brought up with the President saying there is “a long way to go in protecting the environment”.
• China should continue reforms targeted at development of advanced manufacturing and services industries to speed up “innovation” in the economy.
• On a longer term outlook, Xi said that he expects China to be “prosperous, strong and democratic” by 2050.
• GDP numbers along with retail sales, FAIs and industrial production data due later this week.
• Estimates are for GDP growth to have held up well through Q3/17 coming in at 6.8%, only 0.1pp down on readings in H1/17.
UK – The pound is stable this morning after falling 0.8% on Tuesday as Mark Carney said the BoE Is making contingency places on case of a “hard” Brexit.
• The Governor highlighted that he supports rates to be raised in “coming months” amid building inflation pressures in the economy.
• The absence of clear commitment to increasing rates during the next meeting saw a slight adjustment in market expectations leading to a drop in the pound and UK bond yields.
• Two-year gilt yields were down 7bp to 40bp yesterday.
Currencies
US$1.1737/eur vs 1.1771/eur yesterday. Yen 112.72/$ vs 112.16/$. SAr 13.495/$ vs 13.324/$. $1.315/gbp vs $1.328/gbp.
0.782/aud vs 0.786/aud. CNY 6.626/$ vs 6.615/$.
Commodity News
Precious metals:
Gold US$1,280/oz vs US$1,290/oz yesterday - Goldman Sachs says gold better than bitcoin
• Gold wins out over cryptocurrencies when assessed on key characteristics of money according to Goldman Sachs
• Looking at properties such as durability and intrinsic value, gold superior choice even with new materials discovered and new assets emerging, such as cryptocurrencies
Gold ETFs 69.3moz vs US$69.3moz yesterday
Platinum US$925/oz vs US$932/oz yesterday
Palladium US$978/oz vs US$987/oz yesterday – Palladium rallies due to US hurricanes
• Rose to 16 year high and may rise even further as consumers replaced vehicles damaged by hurricanes in the US
• Hurricane Harvey destroyed 500,000 cars and Irma 200,000 according to estimates – demand drives demand for palladium due to use in catalytic converters
Silver US$16.95/oz vs US$17.14/oz yesterday
Base metals:
Copper US$ 7,020/t vs US$7,091/t yesterday -
Liberty One lithium set for milestone start of drilling
• Liberty One will start drilling at the Pocitos West property in Argentina before the end of the month having received necessary permits
• Potential for lithium has been detected throughout the entire 29km length of the property and is ideally situated for lithium brine production via low-cost and well-proven evaporation methods, adjacent to substantive infrastructure and a skilled labour force
Aluminium US$ 2,117/t vs US$2,142/t yesterday
Nickel US$ 11,795/t vs US$11,730/t yesterday
Zinc US$ 3,090/t vs US$3,136/t yesterday
Lead US$ 2,477/t vs US$2,523/t yesterday
Tin US$ 20,230/t vs US$20,650/t yesterday
Energy:
Oil US$58.4/bbl vs US$58.1/bbl yesterday
Natural Gas US$2.929/mmbtu vs US$2.998/mmbtu yesterday
Uranium US$20.45/lb vs US$20.30/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$62.3/t vs US$63.0/t
Chinese steel rebar 25mm US$636.0/t vs US$638.8/t
Thermal coal (1st year forward cif ARA) US$85.4/t vs US$85.5/t
Premium hard coking coal Aus fob US$181.5/t vs US$181.5/t
Other:
Tungsten APT European US$280-285/mtu vs US$280-295/mtu
Company News
Altus Strategies* (LON:ALS) 8.8p, Mkt Cap £9.4m – New exploration license secured in Ethiopia
BUY - Target price 12.2p
• The exploration license (412km2) is located in northern Ethiopia, 95km west of the Company’s Tigray-Afar Cu-Ag project and 100km northwest of the Tigray state capital of Mekele.
• The Daro license is found in the Nakfa Terrane forming part of the Neo-Proterozoic Arabian Nubian Shield considered to be highly prospective in VMS type Cu-Au-Ag-Zn deposits.
• Selected projects and operating mines in the area include Bisha (190km northwest owned by Nevsun, PP 9.6mt at 1.1% Cu, 6.2% Zn, 45g/t Ag and 0.69g/t Au), Harvest/Adyabo (35km west owned by East Africa Metals, Ind&Inf 12.4mt at 1.4g/t Au, 10.4g/t Ag and 2.4% Cu (incl Zn)) and Asmara (100km north advanced by Sichuan Road & Bridge Mining Investment Corp, MI 76mt at 0.7% Cu, 1.5% Zn and 7.7g/t Au).
• Historic reconnaissance works included geological maps prepared by the French state Bureau de Recherches Geologiques et Minieres as well as remote satellite sensing data.
• The data included records of a historic mapped copper mineralisation as well as an active artisanal gold mining operation on the license.
• The license is reported to host “a significant northeast-southwest striking ophiolite complex and… a number of shear znes and thrust belts”.
• The exploration team is on the ground with a first phase of reconnaissance works in progress including mapping of priority targets to be followed by license wide stream sediment sampling programme to identify additional target areas.
Conclusion: The team secured the license in Ethiopia increasing its exposure to the highly prospective Arabian Nubian Shield area which hosts a number of high grade polymetallic and precious metals deposits.
*SP Angel acts as Nomad and Broker to Altus Strategies
Amur Minerals* (LON:AMC) 8.2p, MKt Cap £52m – Progress on Kun Manie PFS update
• Mining consultants RPM Global completed first estimate of the Kun Manie project economic potential as an open pit only operation based on the latest JORC mineral resource statement (Feb/17).
• The study is part of the Kun Manie PFS update with RPM now finishing an underground mine design analysing potential for a combined open pit and underground operation.
• Open pit only (toll smelting) option results show a potential for a 13 years life of mine producing 77mt of ore at 9.8x strip ratio and 0.73% Ni and 0.20% Cu grades.
• Using July/17 updated unit operating costs and long-term nickel price of $7.27/lb or $16,020/t as well as excluding by-product revenues, the study forecasts a LoM EBITDA of $1,606m.
• Previously (30 Mar/15), the Company reported EBITDA estimates for a toll smelting open pit only production option at $1,183m.
• The difference accounts for a higher grade and larger tonnage updated resource compared to the previously envisaged 11 years life of mine producing 67mt at 5.1x strip ratio and 0.60% Ni and 0.16% Cu grades.
• Also, previous in-house study assumed slightly higher nickel prices of $7.5/lb or $16,530/t and counted in 50% sales proceeds from copper by-product.
• Once the RPM completes an underground mine design an updated economics estimate will compiled to reflect the combined open pit and underground production schedule.
• A combination of open pit and underground mining operations are likely to lead to higher cumulative EBITDA levels as previous estimates based on lower grades resource showed.
• Additionally, there is a potential to further expand the life of mine and improve Kun Manie economics from the newly discovered mineralisation in step out drilling programmes carried at KUB and IKEN this year which is not part of the Feb/17 mineral resource statement.
*SP Angel act as Nomad and Broker to Anglo Asian Mining
Asiamet Resources (LON:ARS) 6.9p, Mkt Cap £58.2m – Additional drilling intersections from BKZ
• Asiamet Resources reports additional results from its scout drilling programme at the BKZ property located approximately 800m north of its BKM copper project where feasibility study work is well advanced.
• The results include a 30m wide intersection averaging 8.3% zinc, 3.3% lead, 39g/t silver and 0.51g/t gold from a depth of 14m in hole BKZ33700-03, and 8.3m averaging 4.0% zinc, 1.9% lead, 42g/t silver and 0.19g/t gold from a depth of 1.3m in hole BKZ33750-01.
• Step out drilling is continuing “which we hope will continue to intersect potentially near-surface high value mineralised material at which point we may be encouraged to take a decision to advancing exploration work at BKZ to the delineation of a maiden Resource.”
Conclusion: The results reported today follow earlier results from the scout drilling at BKZ which showed similar near-surface base and precious metal mineralisation. Continuing drilling may lead to preliminary resource estimation in due course, meanwhile the company is continuing its feasibility study work on its nearby BKM project.
BlueJay Mining* (LON:JAY) 17.8p, Mkt Cap £136m – Dundas feasibility study and director options
STRONG BUY
Target Price 24p
• BlueJay Mining remind us today that Feasibility Study work has started on the Dundas project in the north of Greenland.
• Feasibility Study: Key components of the feasibility work are being undertaken by SRK (Resource work), IHC Robbins (Process Plant Engineering), Royal IHC (Dredging Study) and Amec Foster Wheeler for the infrastructure and services part of the study.
• Engineering Design: While the resource and process plant work should be relatively straight forward we are keen to see more detail on the mining approach to be taken and particularly on the engineering design of the bulk material handling and ship loading facilities.
• We suspect there will be simple and elegant solutions for ship loading as the bathymetry survey shows deep water in the Fjord relatively close to the end of the ‘tombola’. We reckon a simple conveyor system can be constructed for ship loading direct from a dry concentrate storage facility.
• The next questions are on the length of field season for mining, processing and ship loading. Dry mining onshore could work all year round while dredging wants to be ice free though there are engineering solutions to preventing ice forming around a dredge. Shipping is likely to be seasonal from a cost perspective in our minds indicating that large storage bins may be constructed for drying and storing material prior to shipping.
• While the region is remote it is close to the large US airbase at Thule and to the town of Nuuk which are just 20 minutes away by helicopter in either direction so in reality it is better connected than many other remote locations.
• Incentivisation: BlueJay Mining has also agreed to issue a series of options to directors and key employees as part of their incentivisation of key staff. The options are struck at prices higher than the current share price.
• Options: 5.35m options are issued at a strike price of 20p, a further 5.35m are at 25p and the last 5.35m options are at 30p.
• The options go to Mike Hutchinson a former commodity trader and new Chairman for the company, Peter Waugh an ilmenite marketing expert and non-executive director, Hans Jensen the general manager in Greenland who is a key person from a project perspective and Eric Sondergaard, chief geology manager.
*SP Angel act as nomad and broker to BlueJay Mining. An SP Angel Mining analyst has visited the Dundas (formerly Pituffik) ilmenite sands project in Greenland.
BHP Billiton (LON:BLT) 1412p, Mkt Cap £81.7bn – Maintaining all 2018 production and cost guidance –exploration focus on copper
• In its operating review for the quarter ending 30th September, BHP Billiton reports that it is maintaining all its 2018 production and unit cost guidance and that all the company’s major development projects are on track.
• The company highlights increased copper production at its Escondida mine where the recovery from earlier industrial unrest has resulted in a 23% rise to 268kt as a result of the Los Colorados Extension project. Production rose by 3% to 42kt at Olympic Dam while production declined by 7% to 58kt at Pampa Norte. Copper production guidance is maintained at 1.655-1.79mt.
• Iron ore production from Western Australia declined by 3% to 55.6mt. “Record production at Jimblebar was more than offset by the impact of lower opening stockpile levels, following the fire at the Mt Whaleback screening plant in June 2017, and planned maintenance in the September 2017 quarter.” Guidance for the year is maintained at 239-243mt.
• The company reports that it had four major projects in petroleum, copper and potash with a combined US$7.5bn budget underway at 30th September. The controversial US$2.6m Jansen potash project in Canada is reported to be 73% complete with shaft sinking and equipping underway.
• “Nickel West production for the September 2017 quarter increased by 21 per cent to 23 kt of nickel primarily due to increased production from the Leinster and Mt Keith operations. Nickel production for the 2018 financial year is expected to remain broadly unchanged from the 2017 financial year.”
• The company reports exploration expenditure of US$43m during the quarter with “Greenfield minerals exploration is predominantly focused on advancing copper targets within Chile, Ecuador, Peru, Canada, South Australia and the South-West United States.” We note that this comment echoes Rio Tinto’s emphasis on copper exploration in its quarterly review yesterday.
Conclusion: BHP Billiton’s operations appear to be remaining on track with production and cost guidance maintained across all the product groups. We find it interesting that the company is the second major mining company in two days to emphasise an exploration focus on the discovery of new copper deposits.
Metminco* (LON:MNC) 3.8p, Mkt Cap £4.8m – Miraflores Feasibility study and maiden ore reserve
• Metminco has published the highlights of its feasibility assessment of the Miraflores gold deposit located in the mid-Cauca gold belt of Colombia.
• The study envisages the development of an underground mine producing approximately 45,000oz of gold annually for a period of 9.5 years at average life-of-mine cash cost of US$599/oz and an all-in-sustaining cost of US$643/oz. The company highlights that these costs rank in the lowest quartile of the global cost curve.
• The estimated initial capital cost of US$71.8m, which excludes contingency funding, and further life-of-mine sustaining capital of US$18.5m delivers an after tax NPV of US$72.3m discounted at 8% and generates an after tax IRR of 25% using a gold price of US$1300/oz.
• Previous owners of the project envisaged large scale open pit mining at Miraflores which would have produced a considerably greater surface impact at a larger capital cost than now envisaged by Metminco. From the outset, Metminco has identified the switch to underground mining as a more capital efficient and environmentally sensitive development option for the deposit.
• Over the life of the mine, which excludes any possible extensions arising from the continuing exploration at the nearby Chuscal and Tesorito prospects, Metminco expects to process 4.3m tonnes of ore at an average grade “of 3.29g/t Au and 2.56g/t Ag for total production of 421,241 ounces of gold and 201,815 ounces of silver”.
• The feasibility study work has also generated an initial ore reserve estimate for the Miraflores project totalling 417,000 oz of contained gold at an average grade of 4.35g/t gold and 3.08g/t silver on an undiluted basis at a cut-off grade of 1.53g/t gold. The estimate was prepared by the consulting company, Ausenco, using a range of assumptions including a gold price of US$1200/oz and total underground dilution of 31% appropriate to the preferred “longhole open stope [mining ] method with partial backfill”.
• Approximately 31% of the reserve (835,606 tonnes at an average grade of 4.84g/t gold and 2.73g/t silver) is classified as proven with the remaining 2.14mt at a grade of 4.16g/t gold and 3.21g/t silver classes as probable.
• Commenting on the results of the study, Metminco’s Managing Director, William Howe, underlined the “outcome which is further vindication of the Company’s decision to pursue an underground-only development option at Miraflores as a means of reducing capital costs and shrinking the mine footprint.”
Conclusion: The feasibility study results appear consistent with Metminco’s earlier scoping study and demonstrate the viability of the underground development of the project. We look forward to further details of the feasibility study, and particularly the sensitivity of the financial outcomes to the underlying operating and commodity price assumptions, in due course.
*SP Angel act as broker to Metminco. SP Angel analysts have previously visited Los Calatos in Peru and the Miraflores project in Colombia.
Ncondezi Energy (LON:NCCL) 6.1 pence, Mkt Cap £15.3m – Conditional placing of £750,000
• Ncondezi Energy reports that it has conditionally raised £750,000 through the placing of 15m shares at 5p/share. “In connection with the Placing, the Company has also agreed to issue 1,500,000 warrants over Ordinary Shares to a nominee of Novum Securities … Each warrant entitles the holder to subscribe for one Ordinary Share at ana exercise price of 5 pence per Ordinary Share” and is exercisable for the next 2 years.
• The new funds are intended “to cover non project corporate costs until the end of August 2018, before the maturity of the Shareholder Loan, and to secure the Company’s position as it finalises the exclusivity arrangement with its proposed partner.”
• The company confirms that work to identify a new development partner is continuing and negotiations are well advanced “with a non-binding offer awaiting internal sign off from a new partner, which the parties have targeted for finalisation during October although there can be no assurance that it will be concluded in this time or at all.”
Rio Tinto (LON:RIO) – 3691p, Mkt Cap £67.9bn – Rio fined for accounting treatment of Riversdale losses
• Rio Tinto have been fined by the FCA for its accounting treatment of losses relating to the disastrous $3.7bn acquisition of Riversdale Resources in 2011 which it sold for just $50m in 2014
• The SEC alleges the company made misleading claims and was then able to raise $5.5bn from US investors.
• Tom Albanese the CEO of Rio Tinto at the time was under pressure within the organisation to do a deal leading to the disastrous acquisition which unravelled shortly after the deal completed when Rio Tinto realised Riversdale licenses would produce less coal and at a lesser quality than previously considered. Problems relating to transportation of the coal and potentially permits from the Mozambique government were also issues.
• Guy Elliott, the former finance director at Rio Tinto at the time has also resigned his position at Shell which said "We hope he satisfactorily resolves those proceedings and, that in that event, he would like to be considered for rejoining the Board."
Conclusion: This is the largest fine ever handed out by the FCA for a listing rule breach. As analysts covering Rio Tinto for many years we have seen Rio Tinto prudently and cautiously write down the value of assets on a reasonably regular basis and we do not see Rio Tinto as a Fraudulent organisation. Other large companies looking at these fines are likely to take a more cautious approach to impairment though they will also have to contend with the IRC and HMRC on these matters.
We have to wonder why Rio Tinto didn’t go after Riversdale Mining when they realised the realised the coal resource was far smaller than it had believed and the coal quality was not so good. Rumours at the time suggested that another rival mining company had lobbied the government in opposition to the barging concept causing the Mozambique government to reject the proposal.
Shanta Gold (LON:SHG) 3.1p, Mkt Cap £24m – Debt restructuring update
Target price 4.1p
• Investec continues with due diligence with regards to the refinancing of the outstanding $40m facility with a new $50m loan.
• The refinancing is part of the debt restructuring exercise by which Shanta intended to buy back $15m of outstanding 13.5% convertible notes due in Apr/19.
• Previously, the Company expected Investec to complete the process in August; however, the change in the regulatory landscape in Tanzania led to an extension of the timetable.
• Additionally, the Company reports that its right to acquire notes expires on 20 October 2017 suggesting new agreement will need to be put in place post the expiry date.
• The offer was for a buyback of notes at par.
• The Company will provide a further update on the debt restructuring to shareholders and the holders of Loan Notes by 31 Mar/18.
• Cash wise, the Company reports $8.0m of cash in the bank and access to the undrawn unrestricted Exim Bank facilities for a total of $5.6m out of $7.5m as of Sep/17.
Conclusion: The refinancing should have provided the Company with a safety buffer amid a ramp of underground operations at Bauhinia Creek. Safe underground operations perform as planned, we expect Shanta to turn FCF positive in 2018 allowing the Company to start reducing outstanding debt. Outstanding cash balance as well as access to undrawn facilities with Exim Bank allows the Company to continue with debt restructuring negotiations in the meantime.