Capital Drilling (LON:CAPD) – Rig rates and sales recover as exploration activity grows
Horizonte Minerals (LON:HZM) –Filing of licence applications for Araguaia
Kodal Minerals* (LON:KOD) – Work plan for Bougouni
Shanta Gold (LON:SHG) HOLD – Target price being updated – Q3 production update; FY operations remain on target
Tertiary Minerals* (LON:TYM) – Progress update
Trans-Siberian Gold (LON:TSG) – Q3 Production Results
Dow Jones Industrials +0.70% at 23,158
Nikkei 225 +0.40% at 21,449
HK Hang Seng -1.92% at 28,159
Shanghai Composite -0.34% at 3,370
FTSE 350 Mining -0.90% at 17,348
AIM Basic Resources -0.58% at 2,549
Economics
China – Q3 GDP comes straight in line with market estimates with exports and infrastructure spending continuing to support growth.
• Both industrial production and retail sales came ahead of expectations in September while FAIs missed estimates despite a continued strong contribution from infrastructure spending.
• FAIs breakdown showed infrastructure climbed 19.8%yoy in the first nine months of the year, real estate was up 8.1% and manufacturing slowed to 4.2%.
• Private business investments growth slowed to 6%yoy in the first nine months, marking the slowest pace this year.
• In the property market, a divergence in market dynamics between supply and demand have been reported as residential slaes slowed to 7.6%yoy YTD, down from 10.3%yoy in the first eight months of the year; whereas, new property under construction continued strong with growth at 11.1%yoy, marginally down on 11.6%yoy.
• Xi during his speech stressed the importance of controlling a rapid acceleration in property prices saying that housing should be for living in, not for speculation.
• Market estimates are for growth to continue to normalise in Q4 coming down to 6.6% taking the total for the year well ahead of the FY target of 6.5% for 2017 and up on 6.7% recorded in the previous year.
• GDP (%yoy): 6.8 v 6.9 in Q2/17 and 6.8 forecast.
• Industrial Production (%yoy YTD): 6.6 v 6.0 in August and 6.5 forecast.
• Retail Sales (%yoy YTD): 10.4 v 10.4 in August and 10.3 forecast.
• FAI (%yoy YTD): 7.5 v 7.8 in August and 7.7 forecast.
UK – Retail sales dropped more than forecast in September taking growth in Q3 to the slowed in four years.
• The data comes on the back of the evidence of accelerating inflation and falling real labour earnings.
• The pound is down 0.6% today post the release of the data.
• Retail Sales ex Auto (%mom/yoy): -0.7/+1.6 v 0.9/2.6 in August and -0.2/+2.2 forecast.
Currencies
US$1.1805/eur vs 1.1737/eur yesterday. Yen 112.62/$ vs 112.72/$. SAr 13.546/$ vs 13.495/$. $1.315/gbp vs $1.315/gbp.
0.786/aud vs 0.782/aud. CNY 6.623/$ vs 6.626/$.
Commodity News
Precious metals:
Gold US$1,285/oz vs US$1,280/oz yesterday - Scotiabank puts gold business up for sale
• Scotiabank is one of London’s main gold trading banks, put its gold business up for sale in aftermath of multi-billion dollar money laundering scandal
• Chinese buyers rumoured to be key targets of the sale
Gold ETFs 69.3moz vs US$69.3moz yesterday
Platinum US$924/oz vs US$925/oz yesterday
Palladium US$961/oz vs US$978/oz yesterday
Silver US$17.04/oz vs US$16.95/oz yesterday
Base metals:
Copper US$ 6,928/t vs US$7,020/t yesterday - Copper’s rally has further to run
• Copper prices have gained 30% this year with further gains likely as demand ramps up ahead of new EV production and the instillation of related infrastructure
• Copper mines are under pressure from falling grades and labour issues with a significant supply/demand gap expected to emerge over the next few years
Aluminium US$ 2,123/t vs US$2,117/t yesterday
Nickel US$ 11,665/t vs US$11,795/t yesterday
Zinc US$ 3,093/t vs US$3,090/t yesterday
Lead US$ 2,480/t vs US$2,477/t yesterday
Tin US$ 20,050/t vs US$20,230/t yesterday
Energy:
Oil US$57.5/bbl vs US$58.4/bbl yesterday
Natural Gas US$2.862/mmbtu vs US$2.929/mmbtu yesterday
Uranium US$20.45/lb vs US$20.45/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$60.1/t vs US$62.3/t - Iron ore drops again as demand concerns emerge
• Iron ore prices continue to fall pressured by demand concerns as Chinese mills curb output in line with Beijing’s campaign to fight smog as steel mills are expected to cut output further over the winter months
Chinese steel rebar 25mm US$628.5/t vs US$636.0/t
Thermal coal (1st year forward cif ARA) US$85.0/t vs US$85.4/t - Asia thermal coal market look set to tighten as winter approaches
• Utilities yet to stock up on coal ahead of winter as they wait for lower prices
• Cold spells could trigger demand and wave of orders once the first cold spell bites
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
Capital Drilling (LON:CAPD) 38 pence, Mkt Cap £51.4m – Rig rates and sales recover as exploration activity grows
• Capital Drilling report sales of $30m for the third quarter representing a 26% increase on Q2 but still -2% on Q1.
• The average revenue per rig increased to US$198,000 with an average of 48 rigs utilised through the quarter raising utilisation rates to 52%.
• The rig fleet has slimmed slightly to 92 rigs down from 95 in Q3 helping the utilisation rate higher.
• Dividend: the company report an interim dividend of 0.5c/s vs 1.4c/s for the interim last year reflecting the challenges of the business environment over the past year.
• Tanzania: is a serious problem for Capital Drilling. The President has banned all gold concentrate exports causing significant issues for many gold producers in the country. This coupled with some extraordinary demands for back taxes and a refusal to reimburse VAT payments is creating further financial strain for local producers. This is bound to cut budgets for drilling and is likely to be affecting contracts at the North Mara Mine and the Geita Gold Mine both of which are significant contracts for the company.
• Debt: Group debt was reduced to $13.5m following the repayment of $1.5m on the company’s current revolving credit facility.
Conclusion: Capital Drilling should be posting news of a stronger recovery as exploration in the sector gains pace on the new drive for energy metals. We have to hope the company is able to shake off troubles in Tanzania and expand into new contracts elsewhere to raise utilisation rates and the average revenue per operating rig.
Horizonte Minerals (LON:HZM) 4.3 pence, Mkt Cap £49.8m –Filing of licence applications for Araguaia
• Horizonte Minerals reports that it has completed and filed the Mine Construction licence application for its Araguaia nickel project in Brazil. “Upon approval of the LI together with approval of the Mine Plan from the Brazilian mining authority, Horizonte will have the necessary permits in place to commence construction.”
• The company does not, however, elaborate on when it expects to receive these approvals, though it does underline the potential economic benefits of the project in Para State where the creation of around 500 new jobs “in a rural area where the average family income ranges between US$2-US$4 per day. As a result, the Pará Government considers Araguaia to be a key economic driver for the southern part of the State.”
• The current target for initial production from Araguaia is, however, 2020.
• CEO, Jeremy Martin commented that “The work required to collect the data and develop the suite of documents that make up the LI has been finalised as part of Araguaia's ongoing Feasibility Study, which is on track for completion in Q1 2018.”
Conclusion: Submission of the licence application is a milestone for the project; we look forward to news on the progress of the application
Kodal Minerals* (LON:KOD) 0.25p, mkt cap £15.8m – Work plan for Bougouni
• Kodal Minerals has outlined its forthcoming programme of geophysical surveying, definition and exploration drilling, metallurgical testing and bulk sampling at its Bougouni lithium project in Mali.
• The programme aims to follow up the previously identified targets with infill drilling and test-work, to follow up exploration targets with initial drilling and test the “full production process from run of mine material to saleable lithium carbonate product” with the extraction of a 5,000 tonne bulk sample for test processing in China.
• The 10,000m planned drilling programme will start with infill and definition drilling at the Ngoualana deposit and its extensions before moving on to follow up high grade intersections from earlier drilling and sampling at Sogola, Baoule and Boumou.
• The planned drilling is aimed at improving the understanding of the geological continuity and structural setting of the core mineralised areas as well as extending the overall footprint of the mineralisation. Although this strategy may ultimately lead to the definition of a larger deposit than current information would justify, the company has disclosed that it is not currently “looking to establish a JORC Mineral Resource estimate. This position will be reviewed at the end of the current field season.”
• Testing of drill core already retrieved from Ngoualana “to provide further details on the metallurgical characteristics of the ore as well as a full suite of comminution [crushing and grinding] tests” is continuing in both Australia and in China.
• The company is considering its options for contract mining to recover the planned bulk sample for testing in China. “This bulk sample is expected to take three months to mine and transport” and consequently we imagine that initial results from the test processing will not be available until well into 2018. The testing of the full process from ore to a saleable end product should provide valuable technical insights and generate sample product which may help to establish the commercial marketability of possible future output from Bougouni.
Conclusion: Today’s announcement helps give us a timetable for future work at Boubouni. The start of this season’s exploration work should generate a flow of drilling information as infill and extension results become available, however results of the process testing seem unlikely before 2018 and an initial resource estimate is not now planned until after the current field exploration season is completed.
*SP Angel act as Financial Advisor and broker to Kodal Minerals. A partner at SP Angel acts as Chairman to the company.
Shanta Gold (LON:SHG) 3.3p, Mkt Cap £25m – Q3 production update; FY operations remain on target
HOLD – Target price being updated
• Gold totalled 18.2koz (Q2/17: 19.7koz) with a higher plant throughput compensating for weaker processed grades.
• The NLGM plant treated 163.1kt at 3.83g/t (Q2/17: 155.6kt at 4.28g/t) amid stable gold recoveries.
• Underground operations are reported to have ramped up ahead of plan with record 37kt mined in September month.
• First underground ore from Luika were mined in August.
• Underground operations supplied 77kt at 5.83g/t (Q2/17: 41.1kt at 7.41g/t) with lower grades attributed to the variability of the mined grade in the stope in western section of BC along the nose fault.
• Q4/17 grades are expected to improve as mining operations work from two stopes now; the plan is to have operations at three stopes at any time to allow for flexibility and blending of ores according to budget.
• Operating cash costs (C1) and AISC came in at $558/oz and $822/oz (Q2/17: $559/oz and $735/oz), respectively.
• Full year guidance is for 80koz at AISC $800/oz, marking the lower end of previously forecast 80-85koz at AISC $800-850/oz range.
• On financial side of things, gold sales totalled 18.5koz at $1,267/oz.
• Capital expenditures came in $9.5m (Q2/17: $10.7) including costs for mobile equipment, TSF 2, Singida and pilot related costs and other.
• A $3.0m one off payment in respect of “severance, termination and retrenchment costs” has been completed.
• Outstanding VAT amount climbed $1.8m to $15.8m during the quarter.
• Net debt climbed to $45.5m (Q2/17: $43.3m) with cash balances at $8.0m (Q2/17: $13.8m).
Conclusion: Production came off slightly on lower grades from underground which are expected to improve through Q4/17 helping the Company to hit its 80koz and $800/oz in AISC annual target. On a positive side, management cost cutting programme is expected to see target AISC come at the lower end of the previously targeted range. Operations remained FCF negative during the quarter, although the situation is due to change in 2018 following completion of underground development works.
Tertiary Minerals* (LON:TYM) 0. 5p, Mkt £1.6m – Progress update
• Tertiary Minerals has provided an update on its projects in Scandinavia and the US.
• The company reports that it submitted additional information on its Storuman fluorspar project requested by the Swedish authorities in May this year and that the deadline for responses to this revised submission by interested parties expires on 27th October.
• Tertiary Minerals has already defined a resource of almost 28m tonnes at a grade of 10.2% fluorspar at Storuman; we imagine that, following the consultation period, the Swedish Mining Inspectorate will consider the views expressed before concluding its deliberations on the mining permit which was originally submitted in July 2014.
• At the MB fluorspar project in Nevada, where the company has a resource of 86mt at an average grade of 10.7% fluorspar, bench scale metallurgical testing appropriate to a scoping study is continuing. The company also alludes to the possibility of producing “a commercial grade mica product alongside commercial grade acid-spar” at the Nevada project.
• At Lassedalen in Norway, Tertiary Minerals continues its seasonal environmental testing “as part of the due diligence for the purchase of land and old fluorspar mine workings … and data review is now underway”.
• Tertiary Minerals also report that shares in Aurion Resources which it received as part payment for the sale of its Finnish gold properties have “increased in value from £85,000 to more than £140,000”. The company also highlights that it retains “pre-production and production royalty interests in the projects”.
• Referring to a potential acquisition of a near term revenue generating fluorspar project, Tertiary Minerals is also in “Advanced discussions and technical due diligence are underway for shortlisted fluorspar project.”
Conclusion: Further news on the protracted mining permit application for the Storuman project may be forthcoming following the end of the consultation process in Sweden while there may also be news of a possible revenue generating fluorspar project acquisition in the future.
*SP Angel act as Nomad and broker to Tertiary Minerals
Trans-Siberian Gold (LON:TSG) 41.5 pence, Mkt Cap £45.7m – Q3 Production Results
• Trans Siberian Gold has reported a 37% increase in Q3 production to 10,573 oz of gold (Q£ 2016 – 7,727oz) from its Asacha mine during the 3 months to 30th September, bringing gold production for the year-to-date to 24,470 oz.
• The company is maintaining its 2017 production guidance of 32-36,000 oz of gold.
• The mine treated 15% more ore; 47,504t during the quarter (Q3 2016 41,481t) and gold head grades increased by 21% to 7.4g/t (Q3 2016 6.1g/t with silver grades rising by 12% to 13.3g/t.
Conclusion: Asacha seems to be operating smoothly with a mine life in excess of ten years and steady state production in line with the company’s production guidance.