Acacia Mining (LON:ACA) – Q3 revenue and EBITDA fall in response to concentrate export ban
Bacanora Minerals (LON:BCN) – Approval of Sonora Lithium Project Environmental Impact Study
BlueJay Mining* (LON:JAY) STRONG BUY, Target Price 24p – Director buying
Mining and Big Data – Mining companies making efficiency gains using big data and remote control of mines and process plants
• We expect to see more incremental improvement miners in terms of process plant controls and mining efficiency gains by many miners.
• Remote mining locations naturally suffer sub-optimal performance by virtue of their remote location.
• Benefits can definitely be made through the cross-fertilisation expertise gained on other mines and plants, and dare we say it, from the ability to sit back in an office and consider adjustments to be made. While nothing will ever replace hands on experience, particularly in the metallurgical industries where operations can be as much a dark art as a scientific process.
• Remote operation of many aspects are now normal in most process plants but the better collation of data and more efficient connection between mining and processing should lead to better recovery rates and improved margins for very little additional outlay.
Barrick proposed a resolution to a standoff between the Tanzanian government and Acacia yesterday.
• The proposed deal involves a one-off payment of $300m to the government to settle previously demanded outstanding tax claims.
• Additionally, the miner suggested to a set up a 50/50 JV for Acacia’s operating mines between Acacia and the government as well as providing a 16% frfee carry interest in local operations.
• Acacia which is 64% owned by Barrick will need to review and approve the proposal separately.
• “This shows the intent of the Tanzanian government, but also the intent of Barrick: that now we open a new chapter that will enable Tanzanians to see the benefits of their mines,” the President Magafuli said following the meeting with Barrick.
Aussies couldn’t give a xxxx for auto manufacturing as last Australian manufactured car rolls off production line
• The last Holden, Australia’s iconic car has rolled off its production line reducing Australian auto production to just a handful of hand-built prototype vehicles.
• Australia is good at mining and the handling of bulk materials but sadly the rest of the nation appears to be more interesting in surfing than manufacturing.
Dow Jones Industrials +0.02% at 23,163
Nikkei 225 +0.04% at 21,458
HK Hang Seng +1.17% at 28,487
Shanghai Composite +0.25% at 3,379
FTSE 350 Mining +0.73% at 17,723
AIM Basic Resources +0.22% at 2,555
Economics
US – Budget resolution has been passed by Senate in a 51-49 Thursday vote providing positive momentum to future tax regulation overhaul negotiations.
• Additionally, positive data on the weekly jobless claims issued yesterday continued to reflect robust state of the labour market.
• US equity market finished marginally higher yesterday extending its series of gains further.
Germany – Factory gate inflation is on a rise in September with prices accelerating accelerating across all of the nation’s main industrial groups.
• Producer prices climbed 3.1%yoy in September up from 2.6%yoy in August and 3.0%yoy forecast.
• The data is a welcome news at the ECB as producer prices are ultimately likely to filter into higher costs for consumers driving general inflation levels up.
Russia – The news about the completion of the second IPO on the Moscow exchange this year highlights low activity in the market for new listings in the sanctions’ hit country, FT reports.
• Obuv Rossii, a Russian footwear retailer, placed over $100m in shares securing the low end of the projected range valuing the company at Rbs15.8bn ($275m).
• The transaction follows the listing of toy store Detsky Mir earlier this year which marked the first IPO since 2013 earlier this year.
Currencies
US$1.1799/eur vs 1.1805/eur yesterday. Yen 113.38/$ vs 112.62/$. SAr 13.664/$ vs 13.546/$. $1.313/gbp vs $1.315/gbp.
0.784/aud vs 0.786/aud. CNY 6.621/$ vs 6.623/$.
Commodity News
Precious metals:
Gold US$1,281/oz vs US$1,285/oz yesterday – Precious metal ETFs flows reveal a divergence of demand towards gold in the US and EU.
• US investors are seen shedding their gold ETF holdings for a second week no amid expectations for increasing interest rates.
• European gold ETF Xetra-Gold (€6bn market cap) recorded the biggest weekly inflow since February as investors concern over geopolitical issues grows amid stalled Brexit negotiations and Catalonia independence crisis.
Gold ETFs 69.4moz vs US$69.3moz yesterday
Platinum US$920/oz vs US$924/oz yesterday
Palladium US$970/oz vs US$961/oz yesterday
Silver US$17.09/oz vs US$17.04/oz yesterday
Base metals:
Copper US$ 7,027/t vs US$6,928/t yesterday - Barclays sued by fund for $850m for copper market abuse
• Red Kite management world’s largest hedge fund suing Barclays for alleged abuse it claims cost the firm $850m between 2010 and 2013
• Alleges that Barclays shared confidential information about its positions with proprietary traders on floor of London Metal Exchange
Grasberg (Indonesia) - Rio Tinto is reported to be holding talks with Indonesian authorities regarding a potential exit from the Grasberg copper and gold operation, Bloomberg reports.
• Discussions have been instigated by the news that the government will increase its interest in the operation to 51% in exchange for an updated mining license.
• Under new contract of work Freeport-McMoRan is estimated to invest as much as $20bn through 2031 which includes the construction of a smelter.
• The government is planning to complete the valuation and investment process by Q1/19.
• Under the current agreement with Freeport, Rio is entitled to cash flows on a 40% of production above specific levels until 2021 and on 40% of all production after that year, subject to export disruptions.
Aluminium US$ 2,166/t vs US$2,123/t yesterday
Nickel US$ 12,085/t vs US$11,665/t yesterday
Zinc US$ 3,166/t vs US$3,093/t yesterday
Lead US$ 2,530/t vs US$2,480/t yesterday
Tin US$ 19,975/t vs US$20,050/t yesterday
Energy:
Oil US$57.0/bbl vs US$57.5/bbl yesterday
Natural Gas US$2.900/mmbtu vs US$2.862/mmbtu yesterday
Uranium US$20.30/lb vs US$20.45/lb yesterday
Lithium - Czech mine to help supply European car battery demand
• Czech government signed memorandum of understanding with European metals to develop large lithium resource under Cinovec
• 3% of world’s identified lithium resources in Czech Republic and 1.1m tonnes in this region
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$60.0/t vs US$60.1/t – Futures prices reversed weekly loss to end +3% on DCE posting second week of gains.
Chinese steel rebar 25mm US$630.0/t vs US$628.5/t
Thermal coal (1st year forward cif ARA) US$83.5/t vs US$85.0/t - South 32 – considering bid for $1.6bn Tio Tinto coal mines
Asia’s thermal coal market tightens as winter approaches
• Asian thermal coal markets look set to tighten in the upcoming peak-demand heating season in the region's north as utilities are yet to stock up on the commodity
• China's state planner warned on Thursday that it expects gas supply and demand conditions to be "serious" this winter
Premium hard coking coal Aus fob US$176.7/t vs US$181.5/t
Other:
Tungsten APT European US$280-285/mtu vs US$280-295/mtu
Company News
Acacia Mining (LON:ACA) 202 pence, Mkt Cap £827m – Q3 revenue and EBITDA fall in response to concentrate export ban
• Acacia Mining’s Q3 results provide a stark illustration of the impact of the Tanzanian Government’s ban on mineral concentrate exports as revenues fell by 40% to $170.6m (Q3 2016 US$284.7m) and EBITDA dropped by 60% to US$50.3m (Q3 2016 - US$124.8m). On a year to date basis, revenue declined by 29% to US$562.3m and EBITDA by 32% to US$309.7m.
• Capital expenditure has been cut drastically to US$35.6m for the quarter (Q3 2016 – US$52.9m) but even so cash balances fell to US$95.3m (Q3 2016 – US$302.1m) and net cash fell to US$24.3m (Q3 b2016 – US$202.7m).
• The company points to the remedial measures it has implemented in response to the measures, which are exacerbated by the “lack of refunds of VAT”, including:
o Alterations to the process flowsheet at the Buzwagi mine to focus exclusively on dore gold production at the expense of concentrates
o The reduction in operations at the Bulyanhulu mine “with all underground mining and the processing of underground ore having ceased”
o Purchase of put options to secure a minimum US$1300/oz gold price “for the majority of our gold sales until February 2018”
• It has also been reported that the Chief Operating Officer, Mark Morcombe, has resigned effective the end of the year. “We will provide further information on plans for his replacement when available.”
• The company reiterates its revised production and cost guidance of 750,000 ounces of gold at an all-in-sustaining cost of US$880-920/oz.
• Acacia’s 63.9% owner, Barrick Gold has announced a proposal to create a new Tanzanian operating company “to manage Bulyanhulu, Buzwagi and North Mara, and all future operations in the country.” The new company is intended to ensure that “the economic benefits generated by Acacia’s operations would be shared with Tanzania on a 50/50 basis going forward.“ In addition, Barrick has stated that in an effort to resolve the continuing tax claims in Tanzania, “Acacia will make a payment of $300 million to the Government of Tanzania”.
• The discussions between Barrick and the Tanzanian Government appear to have sidelined Acacia Mining which comments that “No formal proposal has been put to Acacia for consideration at this point in time. As stated at the press conference, any proposal agreed in principle between Barrick and the GoT will require Acacia’s approval. Acacia will consider any proposal once it receives the full details and a further update will be provided when appropriate.”
Conclusion: The intervention of Barrick Gold in direct discussions with the Tanzanian Government may bring a resolution of the impasse closer but there may well be further upsets on the way. Operationally, Acacia Mining are implementing measures to mitigate the impact of the new regulations albeit at lower production levels.
Bacanora Minerals (LON:BCN) 85p, Mkt Cap £112m – Approval of Sonora Lithium Project Environmental Impact Study
• Bacanora Minerals reports that its Environmental Impact Statement for the development of its proposed 35,000tpa lithium carbonate operation at Sonora has been approved by the Mexican Environment Ministry.
• Highlighting the approval as “a major milestone for Bacanora”, the company also noted that the feasibility study, which is currently underway and expected to be completed in late 2017, is “expected to confirm Sonora occupies a favourable in the industry cost curve” as a result of factors including open pit mining of free-digging ore which will not require blasting, crushing or grinding prior to processing.
• The company also points out that the pilot plant “which has continuously produced battery grade lithium since May 2016” has de-risked the project through the “development of a conventional beneficiation process followed by a standard SO4 roasting process”
• Bacanora Minerals also states that its “Ability to re-cycle Na2SO4 into the roaster negates the requirement to purchase expensive sulphuric acid as a sulphate SO4 source.”
Conclusion: The environmental approval represents important progress for the Sonora project. We look forward to the results of the feasibility study which is expected to be completed later this year.
BlueJay Mining* (LON:JAY) 20p, Mkt Cap £154m – Director buying
STRONG BUY
Target Price 24p
• BlueJay Mining report that Peter Waugh, an executive director of the company has bought 40,385 share in the company.
• Peter Waugh is an ilmenite marketing expert and non-executive director of BlueJay.
• Waugh is an experienced technical director and consultant with 24 years at Tioxide Group, followed by Huntsman Pigments.
• It is important in the slightly opaque world of titanium concentrates to understand the details of concentrate purity and production to enable sales to end users.
*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.