Caledonia Mining (LON:CMCL) – Shaft deepening to extend mine life at the Blanket mine
Dalradian Resources (LON:DALR) – Raising C$84.75m to advance Curraghinalt
Canadian investor anger as stock halted on concerns over collapse of announced deal (Bloomberg)
• The collapse of a $750m Canadian mining deal has sparked criticism of Canada’s light-touch regulation.
• “Canada’s investment regulator won’t be reversing the trades on West High Yield (W.H.Y.) Resources Ltd. from Oct. 5, when the Calgary-based penny stock surged almost 1,000 percent on a deal to sell its main assets to an unknown buyer. The announcement “did not contain information which was either misstated or inaccurate,” according to a letter obtained by Bloomberg News that the Investment Industry Regulatory Organization of Canada sent to an investor in the company.” According to Bloomberg.
• “West High Yield had continued to trade on Oct. 5 as more red flags appeared. Its filing stated Gryphon’s legal representative was Baker McKenzie, yet the law firm said later it had no knowledge of the deal. Google searches showed that Gryphon operates from a modest two-story, beige clapboard apartment in Janesville, Wisconsin and that CEO Stephen Cummins had a previous run in with the Colorado Securities Commissioner for operating without a license.” (Bloomberg)
Rio Tinto to go coal free on sales of coal mines
• Rio Tinto is to go coal free after many years of working some of the world’s larger coal mines.
• The move is despite Rio’s credentials as an expert coal miner.
• Rio’s ceo says he wants to focus management time on what he sees as more productive assets though it looks more like a sop to investors and lobbyists whit an anti-carbon agenda
• Our view is that power consumption growth will inevitably raise coal demand in line with Electric Vehicle growth and that it would be better to prepare for this through investment in clean coal technology fitted to power stations.
• Government incentives to build wind and solar farms is a very convenient way to stimulate economic activity but when power demand rises and the wind is still utilities will be turning the coal and the diesel back on to fill the gap.
• In the meantime we should be investing in developing more vanadium redox battery storage sites to enable consumers to recharge their cars overnight.
Dow Jones Industrials -0.43% at 23,462
Nikkei 225 -0.82% at 22,681
HK Hang Seng +0.11% at 29,168
Shanghai Composite +0.14% at 3,433
FTSE 350 Mining +0.38% at 17,603
AIM Basic Resources +0.17% at 2,610
Economics
US – US equities closed lower yesterday as the proposed by Senate Republicans differed from the House version delaying corporate rate cuts until 2019.
• John Williams, San Francisco Fed head, who will become a voting member on the rate setting FOMC is pencilling in three more hikes in 2018 following another rate increase in December.
• That will bring the fed funds rate range to 2.0-2.25% by YE18 from current 1.0-1.25%.
• “From my own perspective, I think there will be more continuity than differences in terms of the approach to policy,” Williams said commenting on the policy outlook once Jerome Powell takes over from Janet Yellen.
• Despite an increase in jobless claims last week, the labour market remains in good condition with unemployment rates at more than a decade low.
• Initial Jobless Claims (week ended November 4): 239k v 229k in the previous week and 232k forecast.
China – The government is gradually allowing higher foreign ownership in financial sector companies.
• The ceiling on foreign ownership of securities, fund management and futures trading joint ventures to be increased to 51% while dropping all limits on foreign investments in these companies after three years.
• Limits of 20% on foreign interest in local Chinese banks will be removed as well.
France – Industrial sector remained on a rising trend in September with growth accelerating through the month and marginally beating market estimates.
• Three month average year-on-year growth rate climbed to 2.7% in September, up from 2.4% in August.
• The rate is above than the economy can be expected to sustain in the long run, but its indicative of spare capacity being reduced, Bloomberg estimates.
• Industrial Production (%mom/yoy): 0.6/3.2 v -0.2/+1.0 in August and 0.5/3.1 forecast.
South Africa – The rand continued to slide hitting the lowest in nearly a year as the central bank governor Lesetja Kganyago said the Reserve Bank is considering supportive monetary policy amid slowing economic growth.
• Although, the governor highlighted that inflation risks remain tilted to the upside.
• “We have to take cognizance of the growth outlook and provide whatever support we can… we therefore aim for a policy stance that balances short-term growth supporter with long-term disinflation, and all its accompanying benefits,” Kganyago said.
• The rand touched 14.38 against the US$ this morning.
Currencies
US$1.1629/eur vs 1.1593/eur yesterday. Yen 113.57/$ vs 113.57/$. SAr 14.273/$ vs 14.135/$. $1.314/gbp vs $1.314/gbp.
0.767/aud vs 0.768/aud. CNY 6.642/$ vs 6.638/$.
Commodity News
Precious metals:
Gold US$1,283/oz vs US$1,284/oz yesterday
• Dwindling physical demand sees gold price edge lower, as the latest World Gold Council report noted a third quarter drop of 9% YoY to 915 tonnes equivalent to 12% on an annual year to date basis. The report commented “A softer quarter in the jewellery sector (-3%) accounted for 17 tonnes of the year-on-year decline. Demand from other sectors firmed: central banks bought a healthy 111 tonnes of gold (+25% year on year) while bar and coin investment strengthened by 17% (to 222.3 tonnes), albeit from a low base.”
• However losses were halted as investors favoured the safe-haven on news that the Republican tax cut plan could be delayed until 2019. Disappointment in the US tax bill, also muddled by the US Senate Republicans unveiling a supplementary tax plan on Thursday, saw the dollar weaken by 0.02% to 94.51 points. The House of Representatives version differed on several key fronts, including the treatment of corporate tax (also dropping from 35% to 20%), the tax deduction of state and local taxes, and the estate tax.
• The world’s largest gold, and second largest copper mine, Grasberg is under threat once again in a year full of labour unrest and disputes over operating rights. Armed separatists have occupied five villages in Indonesia’s Papua province, as a state of emergency has been declared and approx. 300 additional forces are deployed to Freeport-McMoRan Inc’s giant mining area.
Gold ETFs 69.1moz vs US$69.1moz yesterday
Platinum US$936/oz vs US$932/oz yesterday
Palladium US$1,011/oz vs US$1,022/oz yesterday
Silver US$17.00/oz vs US$17.08/oz yesterday
Base metals:
Copper US$ 6,837/t vs US$6,778/t yesterday
Aluminium US$ 2,085/t vs US$2,095/t yesterday
Nickel US$ 12,340/t vs US$12,365/t yesterday
Zinc US$ 3,195/t vs US$3,160/t yesterday
• Market deficit deepens as zinc continues to be the tightest of the major base metals with inventories approaching critical levels. Prices for the metal, consumed in galvanize steel, have rallied 90% since Glencore (world’s largest zinc miner) suspended operations in October 2015. The shutdowns across Lady Loretta mine in Australia and the Iscaycruz project in Peru effectively removed 3.5% of global mine production, equivalent to 500,000 tonnes, aiding to steadily deplete supply inventories and support prices.
• BMO capital recognise that a combined 550,000 tonnes stock held privately and on-exchange year to date, placing zinc in the largest deficit since 2005. China’s efficient pollution fueled crackdown also limited domestic output for the metal.
• The Swiss commodity giant is anticipated to restart existing operations, while boosting its zinc position in Latin America’s largest zinc miner, Volcan Cia. Minera SAA. The timing of the restart is unclear, but as much as 280,000-tonnes of the idled capacity is forecast next year although Chief Executive Officer Ivan Glasenberg said they will “bring them up at the right point in the cycle”.
Lead US$ 2,538/t vs US$2,491/t yesterday
• Lead rose 1.8% on rising demand prospects while China’s winter season pollution crackdown threatens to tighten supply. The International Lead and Zinc Study Group identify a 109,000-tonne deficit in the refined lead market for the first seven months of the year, compared to a 42,000-tonne surplus over the previous period.
Tin US$ 19,505/t vs US$19,410/t yesterday
Energy:
Oil US$63.8/bbl vs US$63.5/bbl yesterday
Natural Gas US$3.215/mmbtu vs US$3.166/mmbtu yesterday
Uranium US$22.75/lb vs US$20.45/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$62.0/t vs US$63.1/t
• Chinese iron ore futures contracted for the third consecutive session as concerns develop over steel production cuts over the winter period. Limits on air quality and smog during four months of the cold season see 30-50% output restrictions across principal milling provinces.
• Spot iron contracts on the Dalian Commodity Exchange have prices fall more than 10% from near $70/t in late September, with BMI Research forecasting an average $50/t across 2018 amid slowing economic growth in China.
Chinese steel rebar 25mm US$638.6/t vs US$634.7/t
Thermal coal (1st year forward cif ARA) US$85.1/t vs US$85.9/t
Premium hard coking coal Aus fob US$180.5/t vs US$180.5/t
Other:
Tungsten APT European US$275-285/mtu vs US$275-285/mtu last week
Company News
Caledonia Mining (LON:CMCL) 415p, Mkt Cap £43.9m – Shaft deepening to extend mine life at the Blanket mine
• Following its recent announcement of increased mineral resources at its 49% owned Blanket gold mine in Zimbabwe, Caledonia Mining reports plans to extend the current shaft sinking on Central Shaft by a further 250m to access mineralisation below the 30 level (990m), potentially extending the mine’s life by a further 4 years.
• The project is expected to cost an additional £10m to deepen the shaft to the 38 level (1230m) plus $8m for the additional development of the 34 and 38 levels. The addition brings the overall cost of the Central Shaft project to $51m.
• The company provides reassurance that the additional capital can be funded from the internal cash flow generated by the mine and that it “is not expected to have any effect on the continuation of Caledonia’s existing dividend.”
• Caledonia Mining also points out that the deepening of the shaft “is not expected to adversely affect the production target of 80,000 ounces of production by 2021 … [and] … Caledonia expects that its long term All-In Sustaining Cost (“AISC”) guidance is expected to remain in the range $700 to $800 per ounce.”
• Production profiles in today’s announcement show annual gold production rising to 80,000oz by 2021 and maintaining at this level until 2029 before tailing off to around 58,000oz in 2030 and 54,000oz in 2031. Production until around 2023 is generated largely from the proven and probable reserves and thereafter draws in increasing material currently classified within inferred resources.
• The quality of the mineral resource inventory in the latter years of the proposed production profile should, however be addressed by a budgeted additional $11m of deep exploration drilling to firm up the mineral resource below 22 level in addition to the shaft deepening budget.
• The company, points out, correctly in our opinion, that “it is significantly cheaper to continue shaft sinking while we are in the construction phase of the project rather than to deepen a fully commissioned and operational shaft in several years’ time.”
• Commenting on the plans to sink the Central Shaft deeper than previously planned, CEO, Steve Curtis, noted that “The Central Shaft is already a transformational project for our business, and to extend the project an additional 250 metres in depth including development on 34 and 38 levels will potentially secure Blanket’s future for the next 20 years taking exploration into account.”
Conclusion: The proposal to further extend the Central Shaft can be funded internally and offers an extension to mine life without jeopardising existing production and cost projections or the continuation of the existing dividend policy.
Dalradian Resources (LON:DALR) 79p, Mkt Cap £224m – Raising C$84.75m to advance Curraghinalt
• Dalradian Resources reports a net loss of $5.9m ($0.02/share) for the nine months ended 30th September 2017 (2016 – loss of $4.8m or $0.02/share) as it moves ahead with the technical and permitting issues for its proposed Curraghinalt gold mine in Northern Ireland.
• The company expects to release “both an updated resource and feasibility study” for the project during the first half of 2018. The resource estimate, incorporating the results of the 2017 drilling work, is expected during Q1 2018.
• We expect the feasibility study to provide greater detail on the results of the test mining in Curraghinalt where the company was able to recover significantly higher grades and ounces of gold than had been envisaged in the resource estimation studies.
• Detailed information on the mining and metallurgical characteristics of the mineralisation recovered during the preparation of the feasibility study should provide significant risk mitigation for the project development phase.
• The company spent approximately $12.4m (net) on its work at Currghinalt during the first 9 months of 2017 “compared with $19.6 million during the comparable period in 2016. Lower expenditures in 2017 were a result of less spending due to the completion of the Underground Programme in late 2016.”
• Dalradian Resource held cash of $48.8m at 30th September and with “the pending $78 million private placement and proceeds from warrant exercises” is well placed to continue with the permitting, feasibility and development of Curraghinalt.
Conclusion: We look forward to the updated mineral resource estimate and feasibility study for Curraghinalt next year.