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Fairfax Marketing Report including Hambledon Mining, Vital Metals and Wolf Minerals

Fairfax Marketing Report including Hambledon Mining, Vital Metals and Wolf Minerals

Morning View

Economic News

G20 finance ministers will meet today in Washington to discuss measures to combat the continuing sovereign debt crisis in Europe.

IMF is seeking more than US$400bn in new reserves to raise the fire power of the rescue fund.

Europe – Repsol YPF rating was cut to BBB- from BBB with a negative outlook following the news that Argentina which took control of YPF on Apr 16 said it will not provide “near term” compensation to the company.

YPF contributed 40% to Resol’s aggregate EBITDA in 2011.

Germany – The Ifo Institute business climate index increased to 109.9 in Apr for a sixth month in a row versus 109.5 expected and 109.8 in Mar.

US – Initial jobless claims in the week ended Apr 14 came in at 386k compared to 370k expected and 388k in the previous week.

Existing home sales declined for a second month and stood at 4.48m in Mar versus 4.61m expected and 4.6m (revised) in Feb.

Philadelphia Fed Manufacturing Index dropped to 8.5 in Apr compared to 12.0 expected and 12.5 in Mar. Above 0.0 indicates improving conditions.

China – Market expectations are for China to announce a cut in bank’s reserve requirements in the coming weeks.

US$1.3129/eur vs 1.3130/eur yesterday. Yen 81.59/$ vs 81.48/$. SAr 7.826/$ vs 7.817/$. $1.606/gbp vs 1.607/gbp

Commodity News

Precious:

Gold US$1,644/oz vs US$1,643/oz yesterday – Prices are little changed as market digests a mixed news flow: worse than expected economic data in the US and positive business confidence figures in Geramny.

Thomson Reuters GFMS said yesterday gold prices may follow a “weak patch” and drop to US$1,600/oz in the short term.

SPDR gold trust holdings remained at 1,286t (41.352moz) value US$68,211bn. 

Platinum US$1,580/oz vs US$1,582/oz yesterday

Palladium US$666/oz vs US$659/oz yesterday

Silver US$31.78/oz vs US$31.59/oz yesterday

Thomson Reuters GFMS expects silver to range in between US$28.7-32.9/oz in Q2 this year and rise to US$40/oz in H2.

Rhodium US$1,390/oz vs US$1,390/oz yesterday

Base metals:

Copper US$ 8,060/t vs US$8,061/t yesterday – Copper is heading for the first weekly gain in the last three weeks on expectations the Chinese central bank may further lower the bank deposit reserve requirement ratio.

Freeport-McMoRan forecasts another year of deficit in 2012.

“Europe is weak, but its not as weak as some feared going in to the second half of 2011,” company’s CEO said.

“China continues to spend money on infrastructure projects. Its fundamental economy appears to be strong”.

Demand in the US is stronger-than-expected.

The company reported yesterday a 49% yoy drop in net income in Q1 2012 to US$764mt due to lower sales and higher cash costs.

The industry is expected to “face supply constraints from interruptions to existing operations and the challenges of bringing on new production because of a whole variety of issues: technical, cost constraints, environmental, etc.”.

Japanese copper wire and cable shipments including exports and local business climbed 5.9% yoy to 59,500t in Mar driven by a pick up in demand from the auto and electric-machinery industries.

Aluminium US$ 2,071/t vs US$2,068/t yesterday

Nickel US$ 17,697/t vs US$17,753/t yesterday

Zinc US$ 2,004/t vs US$1,995/t yesterday

Lead US$ 2,083/t vs US$2,048/t yesterday

Tin US$ 21,400/t vs US$21,006/t yesterday

Energy:

Oil US$118.27/bbl vs US$118.26/bbl yesterday – Brent holds just above $118/bbl as investors remain nervous about the Eurozone after Spain’s high borrowing costs on 2 and 10-year bond sale.

In a backlash to President Obama’s plans to increase regulation on speculators of oil futures contracts. 

CME Group has warned the President that speculation should not be confused with manipulation and his plans could have the exact opposite effect. 

WTI was at US$103.19/bbl, US Crude was at US$102.76/bbl. 

Natural Gas US$1.92/btu vs US$1.95/btu yesterday- 

Uranium US$51.10/lbs vs US$51.10/lbs yesterday – UX consulting weekly spot as of 16th April 2012 was at US$51.25/lb.

Coal – $101.55/t Richards Bay, Newcastle $103.05/t, Rotterdam $101.15/t

Other:

Steel – JFE Holdings, Japanese second-biggest steel producer, reported a 625m yen (US$7.7m) in the quarter ended Mar 31, compared with a loss of 5.9bn yen last year. 

Expectations were for the company to record a net loss of 2.7bn yen.

The yen fell by 9% against the dollar at the end of Mar from its record high of 75.35 on Oct 31 which in turn improved the competitiveness of Japanese mills compared to South Korean and Chinese producers.

Posco, the world’s third-largest steelmaker, reported a 42% yoy drop in profits to US$472.6m in the three months ended on Mar 31 on higher raw-material costs and weaker demand.

Iron ore – Anglo American reported a legal interruption with regards to a construction of a power transmission line at its US$6bn Minas Rio iron ore project in Brazil.

Tungsten – Chinese production of tungsten concentrate with 65% metal content grew 24.2% mom in Mar to 13,525t, according to the National Bureau of Statistics data.

Q1 production totalled 31,869t (+25.9% yoy).

Jiangxi province was the largest contributor to the total output producing 15,644t (+32.2% yoy).

Hunan province was the second biggest producing 15,644 (+13.5% yoy).

“Q2 is usually the peak season for noble alloys,” MetalBulletin reports citing local analyst.

Molybdenum – Chinese production of molybdenum concentrate with 45% content increased 12.3% mom in Mar to 21,748t.

Q1 production came in at 58,928t (+11% yoy).

Henan produced the most molybdenum concentrate in Q1 with total output of 26,644t, little changed from the previous year.

Shanxi province, the second-biggest manufacturer in China, produced 11,348t in Q1 (+19.7% yoy).

Rare Earth- Lynas Corp Rare Earth project is struggling to obtain the refining licence in Malaysia it needs where the first phase of the worlds largest plant is near finishing.  

Company News

Hambledon Mining* (LON:HMB) – Quarterly Report to 31 March 2012 

The company announced quarterly gold production of 4870 oz in line with management expectations with 26,000 oz targeted for the full year. 

Underground production contributed to 22% of this at around 1057 oz. 

The company retains its target to achieve ore mined from underground of 100,000 tonnes for the full year against the level achieved in Q1 of 14,504 tonnes. 

The decline to access the next level of the underground ore zone is said to be on plan according to management. 

Recoveries for the quarter at 78% are below budgeted levels as a result of the processing of increased levels of clays and carbonates in the underground ore and deeper sections of the open pit. 

Tailings dam remediation work has commenced and is expected to be completed in Q3 2012. 

The company is still hopeful that it can achieve a reduction to the fines being imposed for the tailings incident and have engaged two specialist law firms to assist them. 

Negotiations are ongoing with respect to the Akmola acquisition. 

Conclusion: There is a lot of bad news discounted in the Hambldeon share price given the flow of negative news. Management have said that they are meeting their budgets to reach targets for this year of 26,000 oz which includes production from mining 100,000 tons from underground production for the full year from 14,504 tonnes achieved so far – should they achieve these there is value in the shares.

* Fairfax acts as Nomad & Broker to Hambledon Mining

Vital Metals* (ASX:VML) – Update on Watershed Tungsten DFS and Burkina Faso Exploration

Watershed Tungsten: The DFS being conducted on Vital’s tungsten project Watershed has strong support from JOGMEC who is funding $5.4m to earn a 30% stake in the project. 

The DFS is expected to be completed by the end of 2012 at which point the JOGMEC stake will be assigned to a Japanese corporation who will partner with Vital in the development and operation of the Watershed mine. 

To facilitate this transfer discussions with a number of potential partners are ongoing with respect to potential off-takes as well as project finance. 

The DFS is progressing well in tandem with environmental permitting. 

The DFS is showing gravity concentrates in excess of 70% WO3 . 

Burkina Faso Gold Project: The company expect to have a JORC estimate of resource at the Kollo Prospect by the end of the quarter. 

A program of soil sampling is being undertaken to identify further targets for first pass drilling. 

Conclusion: The current share price does not reflect the value being assigned for the tungsten project which based on JOGMEC’s participation of $5.4m for a 30% stake, value the project at $18m against the current market cap for the company of A$9.7m. JOGMEC is also helping the company find partners to take the project to the next stage once the DFS is completed expected at the end of this year. The current share price gives a discounted participation in a tungsten project while having potential value in the Burkina Faso gold project once a JORC resource is achieved expected in the second quarter of this year. We remain buyers of the shares.

*Fairfax has previously raised funds for Vital Metals.

Wolf Minerals* (LON:WLFE)– Signing of offtake agreements 

The company has signed an offtake and loan facility for the amount of £20m with Wolfram Bergbau in Austria and Global Tungsten & Powders Corp in Pennsylvania. 

These offtake agreements cover 80% of the average annual production of tungsten for a minimum period of 5 years which can be extended by mutual agreement. 

The mine is projected to produce 345,000 mtu’s of 65% WO3  tungsten concentrate per year for a 9.25 year mine life. 

The additional loan facility adds to an existing debt facility of £55m giving them around £75m towards the £104m estimated project capital cost leaving a potential 30% equity component. 

The ungeared NPV based on the DFS completed in May 2011 is £74m. 

Conclusion: This is good news for Wolfe Minerals with most of the funding in place for their low cost tungsten project. We remain positive on the outlook for tungsten prices. Tungsten is a ‘critical’ strategic metal as defined by the EU and prices have moved higher in recent years to support its importance in global manufacturing.  While tungsten prices will move with global demand for machine tools and other uses we also see new potential demand from strategic stockpiles giving support to prices.   

Other listed tungsten plays which we support are Vital metals and Ormonde Mining**. 

* Fairfax analysts recently visited the Hemerdon site in Devon, UK (it really is a mine in the UK!)

Mining this week:

Central Asia Metals (LON:CAML) – Full-year results 

(Kounrad copper project in Kazakhstan 60% owned)

Fortescue Metals (ASX:FMG) – Report iron ore shipments of 12.6m vs guidance of 13-13.5mt

Noricum Gold (LON:NMG) – Exploration Update at Schonberg

Rio Tinto (LON:RIO) – Gains control over Oyu Tolgoi

Talvivaara Mining (LON:TALV) – Q1 operating loss expected due to lower production volumes and nickel prices

BHP Billiton (LON:BLT) -  Quarterly production numbers

Firestone Diamonds (LON:FDI) – Resignation of CFO from the Board

EMED Mining (LON:EMED) – Hard Line on budgets by Spain’s Central Govt should be helpful

Rio Tinto (LON:RIO) – First Quarter Operations Review 

Scotgold Resources Ltd (LON:SGZ) – Positive Results from Development Study

Cluff Gold (LON:CLF) – Annual results 

Gem Diamonds (LON:GEMD) – Interim Management Statement to 15 April 2012

North River Resources* (LON:NRRP) - Progress update on Namib Lead and Zinc Mine

Sumatra Copper and Gold& (ASX:SUM) – Tembang Project Optimisation

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