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SP Angel Marketing Report Including: Anglesey Mining plc, Discovery Metals, GoldStone Resources, Ormonde Mining plc and others

Published: 22:01 26 Nov 2012 AEDT

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Morning View

Whittle Consulting lunch – Wednesday at SP Angel offices

We are hosting a lunch for Gerald Whittle on Wednesday for the presentation of Whittle Consulting’s optimization technique

The talk is on ‘how to optimise value in the mine and processing production process’ 

Whittle call it ‘money mining’ but it is really the optimization of cash flow generation to generate value 

The process as worked particularly well with nickel laterite producers and also adds value for other miners

The lunch is a taster for Whittle’s excellent two day course for investors, miners and geologists at the end of this week

Mines & Some Money conference next week

Don’t forget the Mines & Money conference starts Tuesday next week

The conference ends with the ‘Pointless’ Awards dinner where awards are given for mines which most have never heard of 

Please send your suggestions to us for your favorite award categories, eg most Toxic tailings dam or management disaster

Economic View

US – Retail sales recorded a 13% growth during the Thanksgiving weekend with shoppers buying a week’s worth of goods on Black Friday alone. Online sales rose 26% to surpass US$1bn for the first time on Friday.

Republicans and Democrats differ on ways to approach fiscal cliff issue.

Republicans suggest to limit tax deductions rather than directly lifting tax rates.

Democrats advocate for an increase in rates for high-earners – to nearly 40% from current 35%.

The Congressional Budget Office said a failure to revise conditions and avert US$607bn in tax increases and spending cuts may lead to a recession and take a jobless rate to around 9% from current 7.9%.

Euro Zone meeting – Finance ministers meet in Brussels today to finalise a pay out at least €31bn in bailout funds to Greece.

In addition, Greece needs to finance a €10bn gap resulted from a delay in deficit reduction targets by two year through 2022. Measures to fill in the gap included cutting interest rates on rescue funds, a debt write off and releasing more bailout funds. Germany strongly opposes first two options.

Spain – Catalonia independence moves step closes on local election results 

Catalan President pro-independence party won a regional vote in early elections securing 50 of the 135 seats in the regional assembly. Rajoy’s People’s Party won 19 seats. The Republican Left secured 21.

This raises the possibility of a region wide referendum within four years with regards to Catalonia independence. The President will have support of Republicans that suggested to declare independence in 2014.

Catalonia is the largest GDP contributor accounting for 19% of the nation’s production last year. It is also the most indebted region, with total borrowings standing at €48.5bn. Moody’s cut the region’s credit rating to junk on Aug 31.

Voting in the state of Catalonia has returned sufficient votes to the two Catalan independence parties to enable a break away from the rest of Spain

This is an emotive issue for the Spanish where substantial power is devolved to regional administrators

We are not experts on Spanish politics but experience in the mining industry highlights how diverse the Spanish regions are:

Andalucía appears to be a near communist, socialist state with allegations of corruption and misuse of EU grants 

Salamanca is poor region but appears keen to promote industry and jobs having benefitted in recent years from substantial EU grants for roads and historic buildings

Catalonia is more prosperous and industrialised and quite understandably does not wish to subsidise the rest of Spain 

Perhaps London should break away from the rest of the UK?

Singapore – Industrial production dropped 2.1%yoy in Oct, a third consecutive decline, on lower output in electronics and pharmaceuticals sectors. IP fell 2.8%yoy in Sep. Estimates were for a 0.7%yoy decline.

Electronics were down 6%yoy in Oct, while pharmaceuticals fell 15.3%yoy.

Annual IP is forecast to be at a lower end of forecasts on the state’s efforts to introduce foreign labour workers restrictions.

South Korea – Consumer confidence index picked up to 99 in Nov from 98 last month on improvements in exports, industrial production and labour market. The government cut borrowing costs twice this year and pledged to spend US$7bn on infrastructure and public works projects in H2 to boost growth.

The index is still below a 100 threshold indicating more pessimistic than optimistic outlook.

South Sudan – The parliament passed a mining bill last week that should pave the road for foreign investments in the sector.

It may take further three weeks to turn it into law.

The nation’s budget currently relies heavily on oil revenues (98% of state income). The country is estimated to host potential deposits of gold, diamonds, chromite, copper, uranium, manganese and iron ore.

Mining licenses will be issued for a maximum of 25 years on a renewable basis, and the government has the right to buy in 15% of the project.

Mozambique – The state-controlled mining company said the government does not plan to raise state participation in mining projects from current 5-20% with a view to attract new investments.

Investor confidence over the regulatory environment is essential to meet expansionary plans of the mining sector in Mozambique.

The nation is planning to increase its coal exports to 100mt per annum from current 3-4mt coming from Tete region. 

The main hurdle is transport and port infrastructure.

Upgrading of the two existing rail lines and constructing of a third one will cost at least US$12bn. This figure does not include expansion of port facilities along with mines development.

One commentator operating coal mines in the country said the fob cost to get the Mozambique coal to the port should be under US$100/t for the mining project to be viable. Another producer said that delivering coal at less than US$130/t will be a challenge.

South Africa – Violence, strikes and job cuts may continue in the mining sector, the Chamber of Mines said.

Anglo American Platinum review of tis South African operations will be published in the beginning of 2013. Many expect the report to lead to shaft closures and job cuts.

The Company is estimated to have lost 191koz of platinum to strikes that ended earlier this month and more to be lost as operations ramp up to pre-disruption levels.

US$1.2970/eur vs 1.2901/eur last week. Yen 82.06/$ vs 82.19/$. SAr 8.858/$ vs 8.928/$. $1.602/gbp vs 1.596/gbp

Commodity News

Precious:

Gold US$1,750/oz vs US$1,734/oz last week – Gold is expected to be little changed ahead of the Euro zone finance chiefs’ meeting with regards to the Greek bailout.

Gold Fields, the fourth largest gold producer, produced 810koz in Q3 which is 6% lower than in Q2 as the Company lost 30koz to a fire at the KDC operations and another 35koz to wildcat protests in South Africa. The Compnay guides for 3.3moz in FY2012, down from previous estimates of 3.4moz.

SPDR gold trust holdings remained at 1,342t (43.153moz) value US$74.282bn yesterday. 

Platinum US$1,612/oz vs US$1,585/oz last week

Palladium US$664/oz vs US$657/oz last week

Silver US$34.08/oz vs US$33.50/oz last week

Base metals:

Copper US$ 7,774/t vs US$7,729/t last week – Copper is off following two weeks of gains, but may find support on improving economic growth in China and a release of bailout funds to Greece.

Japanese supply of copper and copper-alloy products, including tubes and sheets, increased 0.5%yoy to 65,830t in Oct, advancing for the first time in 17 months. (the Japan Copper & Brass Association)

An increase is attributed to particularly weak month last year led by the semiconductor industry.

Aluminium US$ 1,990/t vs US$1,949/t last week

Nickel US$ 16,668/t vs US$16,619/t last week

Zinc US$ 1,976/t vs US$1,933/t last week

Lead US$ 2,207/t vs US$2,164/t last week

Tin US$ 20,850/t vs US$20,605/t last week

Energy:

Oil US$111.1/bbl vs US$110.5/bbl last week

Natural Gas US$3.841/mmbtu vs US$3.895/mmbtu last week

Uranium US$41.75lb unch last week

Iron ore – China looking to reverse tax hikes imposed on iron ore producers earlier this year

China, having raised taxes for mineral producers earlier this year is proposing to cut taxes in an effort to maintain iron ore production

The process may be seen in a number of key mineral sectors in an effort to maintain competitiveness and jobs

Mine workers are often quick to kick off industrial action when they feel a lack of government support.

Company News

Anglesey Mining (LON:AYM)– IMS

The company reported a loss of £7.4m based on losses at its 26% owned Labrador Mines.

LIM which started producing this year has sold 1.1 dmt of iron ore and is currently producing around 250,000 t of ore a month at the James mine.,

Operational losses reflect the share fall in iron ore prices to US$90/t as the company has been ramping up production.

To improve profitability the company is focusing on costs as well as using a new dry classifying system to produce sinter and lump only.

The company has also scaled back its capex on the Phase 3 expansion which will result in the expansion of the wet processing plant coming on stream in 2013 instead of this year as planned.

Conclusion: As signalled earlier in the year the company has been suffering from the sharp fall in iron ore prices during ramp up realising in losses. This has resulted in the company focussing on the higher value, cheaper to produce lump and sinter and scaling back on capex.  This a story being repeated by a number of junior miners with higher costs during ramp up at the same time as a sharp fall off in prices resulting in losses rather than projected profits.

Anglo American (LON:AAL) – Sale of steelmaker Scaw to IDC and local partners

Anglo has disposed of its 74% interest in Scaw for Rand 3.4 bn ($430m) to the IDC (Industrial Development Bank) and local partners Shanduka Resources, Izingwe Holdings and Souther Palace Group.

The realised price is thought to exceed the NPV of $232m and brings Anglo’s sale of non-core assets to $3.7bn.

Scaw produces a range of steel products from rolled products to cast and wire rod products servicing a range of industries from construction, railway, power generation to mining.

Conclusion: What is interesting is the involvement of the IDC which is looking to take a more active role in the South African steel industry who is looking to develop steel  capacity in the country to rival that of Arcelor Mittal.

Continental Coal (ASX:CCC)  

First thermal coal production from the underground development at Penumbra Mine in South African was achieved.

ROM production of 5,000 to 10,000 tonnes a month is forecast for December and ramping up to 63,000 tonnes by June 2013.

The mine which has reserves of 5.4 Mt and resources of 68.3 Mt is forecast to produce 750,000 tonnes (ROM) over 10 years at an FOB cost of $57/t.

The coal from Penumbra is to be transported by rail to Richards Bay and sold under existing offtakes to the spot market.

The company is planning to continue to develop the mine in 2013 with an additional underground shaft and ventilation shaft at a capital cost of A$39m.

Gold Fields (NYSE:GFISJ) Ceo looking to restructure group on rising costs following labour disruption

Q3 earnings were lower at R1,424m (US$171m) versus R1,606m (US$198m) in the June quarter

Operating profit fell 5% qoq to US$617m from US$667m

Group costs rose 8% to US$916/oz (US$1,448/oz including opex and capex) quarter on quarter

Recent strike action, in which about 29,000 of workers took part had a significant impact on the economics and financial viability of a number of shafts 

Above-inflation wage increases, rising power and other input costs mean that some shafts now look marginal at best and uneconomic at worst

A fall in gold prices could be terminal for some shafts and many jobs causing the potential for further unrest on the mines

Illegal strike action continues to cut production 

Comments suggest that workers need to get better at following health and safety processes in the workplace

Gold Fields reckon they will loose some 116,000oz for the year from strike action

Tellingly, management are looking at further geographical diversification eg moving out of South Africa as fast as they can to protect the business in case South Africa erupts into a mass of protest and violent strike action again.

Conclusion: There should be no surprise in this but perhaps the statement is a hard reminder of the financial reality of running a gold mining business in South Africa

Polo Resources (LON:POL) – Award of Mining Licence at Nimini

The company has been awarded a 25 year licence at the90% owned gold project at Nimini in Sierra Leone.

The project has 521,000 oz of 4.59 g/t in the indicated category and 263,000 oz of gold in the inferred category at 3.64 g/t gold.

An updated mineral resource estimate is expected to be published in Feb 2013 based on an on going drill programme which will be used for the PFS expected to be completed in April 2013.

Once the PFS is received, the company expect to fast track to BFS.

Valuation:  Polo appears still valued as an investment vehicle with stakes in 

Polo reported a Net Asset Value of 3.83p at end September versus a 2.5p share price today.

The company’s asset allocation has some £6.1m of listed investments, £48.4m of unlisted investments and £33.4m of short-term cash and receivables = £87.9m.

Much depends on the quality of the investment portfolio with the following stakes making up the allocated value of the assets.

Significant investments add up to £54.5m on the following assets:

Nimini = £21.1m; Signet Petroleum = £16.7m; Ironstone Resources = £15.7m; GCM Resources = £29.8m; Equus Petroleum £1.95m

Nimini Conclusion:  Nimini looks like a quality gold project with good grades and good prospects.  The company appears to be ahead of the game in obtaining a mining licence having obtained their environmental licence earlier in the year.  This would underscore the management team’s confidence in the project and puts them in a position to fast track the project based on results of the PFS.  

Polo Conclusion:  The fund is trading at a significant 35% discount to its September NAV versus a typical investment trust discount of around 11.5% for UK growth and income funds and 15% for UK smaller companies funds.  There is good potential for the company to rerate better as the portfolio of interests makes progress.  The company is led by a world class management team and while some of the investments are seen to be at the more speculative end of the scale there is good potential for value gain across the portfolio.

Mining this week:

Discovery Metals (ASX:DML) - DML Board rejects Takeover Offer at $1.70 – Our Valuation -  A$2.17

Eurasian Natural Resources (LON:ENRC) – Board and Senior Management Changes

Elemental Minerals (ASX:ELM) – A$14m raised to advance Sintoukola Potash project

Hochschild Mining (LON:HOC) – Timing of Permitting at Inmaculada and Crespo Projects

Ortac Resources (LON:OTC) – Drill Results from Sturec Project, Slovakia

Volta Mining (ASX:VTM) – Volta Acquires Kango Iron Ore Project from Core Mining

African Minerals (LON:AMI) – Operational and Financial Update Confirms Impact of  Delayed Shipments

Glencore/Xstrata (LON:GLEN, LON:XTA) – Clearance expected from EU

Goldstone Resources (LON:GRL) – Resource Upgrade

Ormonde Mining (LON:ORM) – Update on Barruecopardo Tungsten Project

Medusa Mining (LON:MML) – Resource Drilling Update

Gemfields (LON:GEMD) - Proposed Acquisition of Faberge

Elemental Minerals (LON:ELM) – Fund Raise to progress the project

Gryphon Minerals (ASX:GRY) -  Fund Raise for Banfora Gold Project in Burkina Faso

Aureus Mining (ASX:AUE) – Operational Update

Caledonia Mining (LON:CAL) – Proposal to pay a dividend

Diamcor (TSE:DMI) – Raises funds from Tiffany for processing plant

Wolf Minerals (LON:WLFE) – revised credit approval for £75m project finance

Sirius Minerals (LON:SXX) – York Potash product study and drilling update 

 

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