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Georgian Mining* (LON:GEO) - STRONG BUY – New gold discovery in drilling to determine extent of new open pit at KB
Bluebird Merchant Ventures (LON:BMV) – Bluebird team enter Gubong gold mine.
Shanta Gold (LON:SHG) Hold – Target price 4.6p (4.1p) – Updated earnings estimates
Stratex International (LON:STI) 1.25p, Mkt cap £5.8m – New value-generating plan proposed by Rebel shareholders
Ecuador - Gold miners look for growth projects in Ecuador
• Numerous major mining players are streaming into Ecuador after new president removed moratorium on new mineral licences and streamlined processes for exploration and mining
• Nations mining minister told press world’s largest god miners Barrick and Newmont in talks to set up operations
Australians – Mining and Surfing but not manufacturing
• Following news last week on the end of auto manufacturing last week we are able to report feedback from a number of Australians who confirm that they are definitely into surfing and not manufacturing. They are all mining entrepreneurs which suggests to us that Australia is making its money out of mining rather than manufacturing – but I guess we already knew that!
Dow Jones Industrials -0.23% at 23,274
Nikkei 225 +0.50% at 21,805
HK Hang Seng -0.70% at 28,108
Shanghai Composite +0.20% at 3,388
FTSE 350 Mining +0.14% at 17,568
AIM Basic Resources -0.17% at 2,547
Economics
Japan – Manufacturing continued to expand in October; albeit at a slower pace reflecting weaker inflow of new orders.
• Business confidence is reported to have dropped to 11-month low; although, the momentum may change post latest general elections results.
• Nikkei Manufacturing PMI: 52.5 v 52.9 in September.
• On a separate note, the Bank of Japan might again cut its inflation target for this year in a coming quarterly report due next week, according to people familiar with the central bank’s discussions.
Germany – The economy recorded strong start to Q4 with inflows of new orders increasing at the fastest pace in six-and-a-half years in October, according to the latest PMI data.
• More evidence of strengthening inflation is being released with prices for goods and services said to have climbed at one of the fastest rates since mid-2011.
• Employment numbers have also increased with gains in the jobs market seen among the strongest in years.
• Although the headline flash Composite Output PMI dipped slightly in October, the fundamentals remained strong and the economy has carried robust growth momentum into the closing stages of the year,” the report read.
• Manufacturing PMI: 60.5 v 60.6 in September and 60.0 forecast.
• Services PMI: 55.2 v 55.6 in September and 55.5 forecast.
• Composite PMI: 56.9 v 57.7 in September and 57.5 forecast
UK – Five British business groups sent a letter to Brexit David Davis urging negotiators to agree on details of the transition agreement as companies are struggling to forecast the level of future investment amid the deal uncertainty.
• “Agreement is need as soon as possible, as companies are preparing to make serious decision at the start of 2018, which will have consequences for jobs and investment in the UK,” the draft letter read.
• Prime Minister said that while the plan is for Britain to retain full access to the EU’s single market for two years after Brexit, the transition period and its terms will be agreed at the same time as the nation’s new trade deal.
France – Both manufacturing and services sectors are gaining growth momentum with the composite business activity measure seen hitting the highest level in years.
• Manufacturing PMI: 56.7 v 56.1 in September and 56.0 forecast.
• Services PMI: 57.4 v 57.0 in September and 56.9 forecast.
• Composite PMI: 57.5 v 57.1 in September and 57.0 forecast.
South Korea – Authorities are planning to tighten mortgage rules in an effort to slowdown an increase in household debt which climbed to 96% of GDP lately.
• From next year, loan limits will be introduced on second homes making it harder to take out mortgage loans.
• Currently, borrowers are not allowed to have debt repayments exceed 40% of their annual income.
• The Bank of Korea is expected to start increasing rates in the coming months on the back of global monetary tightening, with pre-emptive steps to limit the build-up in household debt targeted at limiting potential downside from increased borrowing costs.
South Africa – Around 150 community-based organisations and activists represented by the Centre for Applied Legal Studies (CALS) are seeking an official status in the mining charter review process, Bloomberg reports.
• The CALS is planning to challenge the proposed government charter and is after a declaratory order that mining-affected communities “are recognised as a key stakeholder and must be meaningfully engaged when developing any new charter”.
• Previously proposed charter which involved extra charges and increases in the BEE ownership has been temporarily suspended until objections by Chamber of Mines are reviewed in court with hearings scheduled to start in December.
Queensland, Australia - Explorer intensifies search for copper at Eloise project
• Drought for next big copper strike may be broke in Queensland if intersections of promising zones of copper mineralisation prove extensive
• Results so far support earlier electrical geophysical data indicating the presence of ore bodies under 100m of overburden – grade not yet determined
Currencies
US$1.1749/eur vs 1.1756/eur yesterday. Yen 113.65/$ vs 113.75/$. SAr 13.721/$ vs 13.708/$.
$1.320/gbp vs $1.320/gbp. 0.779/aud vs 0.782/aud. CNY 6.635/$ vs 6.635/$.
Commodity News
Precious metals:
Gold US$1,280/oz vs US$1,275/oz yesterday
• The US dollar retreated following its recent rally to two week highs following development in the proposed Trump tax reform and US Treasury yields boosted the index to 94.02 yesterday.
• Cautious investor sentiment supported gold on the possibility of an early announcement on the next US Federal Reserve chair and the selection by President Donald Trumps of a less hawkish candidate who would favour lower interest rates.
Zinc gains as Chinese output falters ahead of winter shutdowns
• Zinc prices rose after data showed output in China slipped in September, highlighting worries that winter production cuts are tightening supplies of metals
• Production fell 2.7% last month to 537,000 tonnes
Gold ETFs 69.5moz vs US$69.5moz yesterday
Platinum US$924/oz vs US$918/oz yesterday
Palladium US$966/oz vs US$968/oz yesterday
Silver US$17.07/oz vs US$16.95/oz yesterday
Base metals:
Copper US$ 7,082/t vs US$6,953/t yesterday
• Weakening US dollar boosted fresh investment across base metals, with copper futures rising more than 2 percent.
• LME copper stockpiles continue to diminish as a further 10 percent were drawn off over the past four weeks, elevating the price above the $7,000 a tonne mark. Additional deliveries out of warehouses are expected over the coming days, as more than 13,000 tonnes of copper warrants in LME stores are cancelled.
• Barclays Plc have been confronted by hedge fund Red Kite over allegations of copper market abuse by manipulating market prices, causing the fund to lose $850 million. Throughout 2010 to 2013 copper prices surged to a 2011-peak of $10,000 a tonne, during which time Barclay’s proprietary traders are accused of executed damaging trades based on inside knowledge.
Aluminium US$ 2,144/t vs US$2,143/t yesterday
Nickel US$ 11,985/t vs US$11,785/t yesterday
Zinc US$ 3,157/t vs US$3,114/t yesterday
• Zinc prices remain elevated as ongoing winter production restrictions cut into September’s Chinese output, falling 2.7 percent to 537,000 tonnes. The nationwide confrontation on pollution issues is expected to tighten base metal markets, which when combined with optimistic consumption expectations, is anticipated to support prices through to the end of the year.
• Positive sentiment following last week’s Chinese growth data, presenting 6.8 percent in the third quarter, continues to boost base metal prices on the back of strong demand forecasts for the world’s biggest metals consumer.
• Domestic environmental inspections are damaging Chinese mine output, particularly zinc concentrate production which has seen approximately 60 percent of Sichuan province output closed.
Lead US$ 2,499/t vs US$2,476/t yesterday
Tin US$ 19,735/t vs US$19,650/t yesterday
Energy:
Oil US$57.4/bbl vs US$57.8/bbl yesterday
• Reliance on fossil fuels is forecast to remain strong in Southeast Asia until 2040 as demand in emerging nations to support the rapidly developing populations, ship goods and plastic products will be persistent. The International Energy Agency forecast a 40% growth in oil usage, expanding to 6.6 million barrels per day as the number of vehicles increases by two-thirds.
• Despite the climate change combating electric vehicle boom, oil is expected to meet 90% of transport-related demand in the region, with electricity only penetrating 1 percent of the transport market; approximately 4 million electric cars in a total passenger vehicle stock of 62 million.
Natural Gas US$2.994/mmbtu vs US$2.967/mmbtu yesterday
Uranium US$20.15/lb vs US$20.15/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$61.7/t vs US$60.6/t yesterday
Chinese steel rebar 25mm US$634.1/t vs US$632.7/t yesterday
• Asian crude steel production rose 97.94 million tonnes in September to boost global construction 5 percent year on year according to the World Steel Association. The regional increase, which represents 70 percent of the global production, was enhanced predominantly by China, which improved output by 71.83 million tonnes, and Pakistan, which increased by 64.3%.
Thermal coal (1st year forward cif ARA) US$82.8/t vs US$83.5/t yesterday
Premium hard coking coal Aus fob US$177.9/t vs US$177.9/t yesterday
Other:
Tungsten APT European US$280-285/mtu vs US$280-285/mtu last week
Company News
Georgian Mining* (LON:GEO) 21.25p, Mkt Cap £24.3m - STRONG BUY – New gold discovery in drilling to determine extent of new open pit at KB
(Georgian’s assets in Georgia are held in a 50:50 joint venture)
STRONG BUY
• Georgian Mining reports the discovery of a new gold zone at the Kvemo Bolnisi project in Georgia.
• This round of drilling was more technical in nature and designed to better define the boundary of the initial mineable orebody as requested by the joint venture partner.
• The results indicate an expanded open pit of around 1.2mt of ore with elevated gold grades over one meter intervals from surface indicating less waste material.
• Interestingly a new style of gold oxide mineralisation has been identified in the drilling indicating potential for a much larger scale orebody than previously envisaged.
• Mining is expected to start as soon as the joint venture agreements are signed and when mining and trucking contractors come available.
• Gold oxides: One meter intervals include: 35.4g/t Au, 35.0g/t Au, 15.35g/t Au, 14.3g/t Au, 10.55g/t Au and 5.96g/t Au.
• Hole TGD094, includes: 62.0m grading 1.1g/t gold from a depth of 2.0m.
• The team have now defined the limits of the gold oxide resource at GZ2 for mining and heap leach processing with drilling expected to add modestly to the known gold resource at GZ2.
• Copper results within a number of the reported drill holes are an unexpected bonus as this drilling campaign was not designed to target the copper sulphide mineralisation.
• New discovery: a further drill hole 150m to the west shows 0.65g/t gold over 143.8m from 117.20m downhole including:
o 1.2m grading 35g/t gold from 67.0m down hole
o 75.3m at 0.46g/t gold from 117.2m
o 56.0m at 03g/t gold from 205.0m.
• Copper sulphides: peak copper grades achieved during drilling include:
o 16m grading 3.4% copper from 188.0m; and
o 35m at 0.95% copper from 67.0 m which included 0.9m at 15.24% copper
• Drilling is ongoing at GZ1 with further results due shortly and at GZ2 where the rig is targeting deeper chalcocite and other copper mineralisation.
Conclusion: These results indicate a modest increase in the existing gold resource and a potentially larger resource increase with the new gold discovery.
While these will generate cash flow for the joint venture they should pale in comparison with our expectation for a larger and significantly more valuable copper resource underlying the gold oxides.
High grades of copper appear with depth in some of the longer inclined drill holes though this was not the object of this particular drilling campaign.
We look forward to release of further results from ongoing drilling which is now targeting what are forecast to be copper rich portions of the underlying mineralisation.
*SP Angel acts as Nomad and Broker to Georgian Mining. An SP Angel Mining analyst recently visited the Kvemo Bolnisi site in Georgia.
Bluebird Merchant Ventures (LON:BMV) 1.9p, Mkt Cap £3.5m – Bluebird team enter Gubong gold mine.
• Bluebird Merchant Ventures have re-entered the historic Gubong gold mine.
• The team recently opened a number of previously hidden portals and have abseiled 50m down a 2x4m concrete lined incline shaft which may have been the main production shaft for the mine.
• The concrete in the shaft is said to look to be in good condition indicating that it may be useable for mining with relatively little work.
• The former production shaft looks like it had a double winder and is estimated to be worth around $500,000 in today’s terms
• Bluebird have also accessed ‘adit 4’ for a total distance of 250m with visual inspection indicating a number of unmined narrow veins.
• Initial inspection appears positive towards the potential reopening of the mine.
• We see the mine infrastructure is a valuable asset as it provides a low cost route to exploration, development and future gold production.
• The ability to see and sample ore from underground should enable the company to fast track its way through exploration to production enabling early cash flow generation from small scale mining if and when permitted.
• Former drill results show some exceptionally high grade intersects with 57 historic drill holes for 17,715m covering the 1968-2015 period (5 holes were completed in 2014-15 by ASX listed Southern Gold, a current owner of licenses). Eighteen drill holes reported show >1g/t Au intersections see below:
o 1.6m at 27.9g/t Au from 845m
o 1.5m at .9g/t from 347m
o 3.0m at 15.2g/t from 442m
o 0.9m at 8.4g/t from 111m
Conclusion: The rapid move to open the old Gubong mine and good condition of tunnels and infrastructure indicate to us that rapid progress may be seen to more tangible exploration and metallurgical assessment from here.
*SP Angel act as broker to Bluebird Merchant Ventures
Shanta Gold (LON:SHG) 3.4p, Mkt Cap £26m – Updated earnings estimates
Hold – Target price 4.6p (4.1p)
• We have adjusted our earnings estimates to account for:
ü $3m one-off restructuring charge in respect of “severance, termination and retrenchment costs” borne in Q3/17;
ü cost savings guided by the management including renegotiation of legacy contracts, staff cuts, management remuneration reductions and other items which the company expects to translate into $4-5m per annum (or c.$50-55/oz) running rate to be reached in H1/18;
ü minor changes in capital spend schedule as per management guidance regarding the Phase II of TSF2 project moving $2m one year out to 2019 with current tailings storage facilities allowing for enough capacity for now;
• At unchanged conservative gold assumptions (2018: $1,150/oz; 2019/LT: $1,250/oz) NAVPS climbs to 4.6p, up from previous estimates for 4.0p;
• The latest progress achieved between Barrick Gold and the Tanzanian government in discussions regarding allegations over undeclared precious and base metals exports by Acacia is good news and suggests authorities are willing to negotiate.
• Acacia has been previously hit with an estimated $190bn bill for unpaid taxes and penalties by the GoT after been accused of understating its exports to avoid paying royalties and other taxes.
• That came on top of a ban on the export of the gold/copper concentrates and a continuing build up in outstanding VAT refunds which came at $175m as of Q3/17.
• The agreement which has been highlighted by Barrick last week involves a set up of 50/50 JV with the government to manage currently operating mines and future development projects while Acacia will make a payment of $300m to the government “as a gesture of good faith” in an effort to resolve continuing tax claims.
• “Barrick and the GoT are also reviewing conditions for the lifting of the country’s concentrate export ban,” the statement read.
• The proposed framework remains subject to Acacia’s approval.
• As much as developments in the standoff between the miner and the government are welcome, benefits to the industry including a revision in previously increased taxation and regulatory burden or a potential start to settlement of outstanding VAT receipts ($15.8m as of Sept/17 owed to Shanta) remain to be seen.
• Commenting on the balance sheet, the Company is currently in discussions with Investec Bank regarding a new $50m facility to replace the current $40m facility ($30m outstanding as of Q3/17) with the lender reported to be continuing with the due diligence.
• In the meantime, the Company continues with repayments on current Investec facilities estimated to come in at $5.4m in H2/17.
• At conservative gold price forecasts (2018: $1,150/oz) and current capex/production estimates we estimate the Company will to complete a refinancing to close a potential cash gap in H1/19 on the back of the $15m convertible note repayment due in Apr/19.
• As such our valuation and price target are subject to a successful debt restructuring with a recommendation “Hold” unchanged until such refinancing is completed.
(Dec year end) FY2014 FY2015 FY2016 FY2017e FY2018e
Gold price (spot) US$/oz 1,289 1,163 1,222 1,264 1,204
Gold sales Koz 87.8 80.6 86.3 81.7 86.1
AISC US$/oz 941 845 661 888 760
Revenue US$m 114.9 98.0 103.1 104.4 105.8
EBITDA US$m 33.8 32.0 50.2 29.7 42.9
PAT US$m 8.9 -17.3 -8.0 -2.3 6.8
Basic EPS USc 1.9 -3.7 -1.5 -0.4 0.9
FCF US$m 11.7 1.1 -13.6 -13.3 16.5
EV/EBITDA x 2.9 2.8 2.1 2.6 1.8
PER x 11.0 - - - 5.2
Source: SP Angel, Company
NAV sensitivity to changes in discount rate and gold price
Gold Price
14.9 1,100 1,150 1,200 1,250 1,300 SPA
DR 8% 2.1 3.3 4.5 5.5 6.4 5.1
10% 1.9 3.0 4.1 5.0 5.9 4.6
12% 1.6 2.6 3.7 4.6 5.4 4.2
Sensitivities are arrived at by keeping gold prices flat at respective levels from Q1/18 onwards
Source: SP Angel
Stratex International (LON:STI) 1.1p, Mkt cap £5.3m – New value-generating plan proposed by Rebel shareholders
• Stratex tried to pre-empt information put out by its Rebel shareholders this morning with a RNS press release which attempts to rubbish the Rebel shareholder plan.
• We believe Stratex are simply incorrect when they indicate that total Stratex overheads are less than $2-3m. The accounts indicate that Stratex overheads are been running at >£3mpa and we are not aware of significant cost cutting at board or operational level.
• The proposal by the Rebels has been put together at the request of some significant shareholders and appears to offer a better value proposition to the Crusader deal in our view.
• https://newstrat.co.uk/
• https://newstrat.co.uk/new-presentations
• The Rebels have used independent valuation work to structure their proposal for the generation of better value for Stratex and its shareholders
• The key points in our view are:
o To cut overheads through lower salaries to the board and in line with the value of the company
o To create team incentives to link performance to company growth
o To include a shareholder representative on the board
• Stratex’s sale of its stake in Goldstone, not only cut out potential near term cash flow but also saw the destruction of some $3m in value for Stratex shareholders.
• Stratex board and other expenses have, in our view, recklessly, reduced £6m of cash down to around $4m since the sale of their key Turkish asset without generating value for shareholders.
• We view a new merger proposal with Thani Stratex which is said to have been previously put to the Stratex board as potentially offering significantly more appropriate upside and value potential.
Conclusion: We view this as a much better deal for Stratex than the Crusader and we believe the plan will have the support of the major shareholders.
The Stratex General Meeting will be held at the offices Grant Thornton UK LLP, 30 Finsbury Square, London EC2P 2YU at 9.30 a.m. on 1 November 2017.
Latest time and date for receipt of Forms of Proxy for the General Meeting is 9.30 a.m. on 30 October 2017