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Fairfax Marketing Report including Anglo Asian Mining, Hummingbird Resources, and Afferro Mining

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Morning View

Metals prices pull back from higher levels on Friday despite Eurozone fears 

- rising US dollar also serves to soften prices

Poor Eurozone economic figures 

Hedge funds seen reducing speculative long positions in metals on Eurozone issues

In Asia, POSCO forecast earnings to improve in H2 on a better global economic outlook

US business sentiment improves ( see comment below)

Chinese over production of steel must cause some concern for overseas steel makers and iron ore producers

High Chinese copper inventories also cause some concern despite forecast supply demand deficit for 2012.  

Q1 Chinese copper imports rose by 77% on Q1 2011.  The market expects Chinese imports to total 2.7mt this year versus 2.8mt in 2011,

Chinese copper imports are falling but high inventory levels may reflect ongoing concern over mine supply.

Well done to Simon Harrison at Fairfax for running the London Marathon in 3 hours 51 mins.                       

Economic News

Europe - The socialist challenger, Francois Hollande has won the first round of the French election setting up a run off against incumbent President Sarkozy. 

The lead is a narrow one with Hollande winning 28.2% of the vote. 

Interestingly, the headline grabbing figure of the night was the 18.6% result for the National Front’s Marine Le Pen who beat all predictions. 

The run off will take place on May 6th. New polls indicate that the socialist challenger will beat Sarkozy in the run off. 

The markets are keenly aware of the uncertainty that would be created within the Eurozone leadership should Hollande win in May. 

Some weaker than expected PMI data emerged today. 

A very poor Eurozone PMI manufacturing figure of 46 was announced – below forecasts of 48.1 and down from 47.7 in March. 

Services, similarly poor at 47.9 below forecasts of 49.3. 

Looking at specific countries - German PMI manufacturing came in significantly down on March’s figure of 48.4 at 46.3. Forecasts had predicted a recovery of 49.   

In France there was a slight improvement in manufacturing with the figure rising to 47.3 from 46.7. The increase was slightly below forecasts of 47.4. Services in France fell to 46.4 from 50.1 in March. 

On the other side of the coin, PMI services in Germany expanded more than forecast – 52.6 in April compared to 52.1 in March. 

For the Eurozone as a whole, the PMI composite index painted a worrying picture with the figure for April coming in at 47.4 below March’s figure of 49.1 and forecasts of 49.3.   

US – According to the National Association of Business Economics 78% of businesses project that the US economy will expand more than 2% in 2012. 

4 in 10 firms, the most since July 2011, said they expect employment to pick up in the next 6 months. 

40% of companies polled stated that earnings were increasing. 

Interestingly, companies indicated in the latest survey that materials costs may be less of a concern with only 37% stating input prices rising. 

China - New forecasts suggest that Chinese manufacturing may shrink for a sixth month in April. 

According to new forecasts the preliminary reading of the HSBC purchasing managers’ index comes in at 49.1 in April. 

The continued contraction may well prompt officials to move towards more accommodative economic policy. 

Australia – Prices paid by Australian producers unexpectedly fell last quarter for the first time in more than two years. 

Producer price index dropped 0.3% in January to March. 

On the back of the fall speculation has increased that a rate cut is imminent. 

The Aussie dollar weakened today on the back of the announcement. 

Japan – Japanese stocks moved between gains and losses today.

The yen rose today as concerns over the implications of the French elections increased. 

Indonesia – Foreign and domestic investments increased in the Q1 on the expansion of its mining, food and plantation industries according to official figures. 

Investment rose 32.9% to 71.2 trillion rupiah – $7.8bn 

FDI rose 32.9%. 

Vietnam – The country’s inflation rate slowed to the lowest level in 18 months today.

Prices rose 10.5% in April – down from 14.15% previously reported. 

Forecasts now indicate that another rate cut is on the cards in the coming months. 

Currency – The Euro fell today against risk protection currencies, as concerns grew that the French elections will add problems to the euro crisis. 

The Aussie dollar is off today after a report showed the nation’s producer prices fell last quarter. 

US$1.3169/eur vs 1.3129/eur last week. Yen 81.24/$ vs 81.59/$. SAr 7.832/$ vs 7.826/$. $1.611/gbp vs 1.606/gbp

Commodity News

Precious:

Gold US$1,642/oz vs US$1,644/oz last week – Gold is off this morning amid poor Euro zone and Chinese PMI data driving the US dollar up.

The Shanghai Gold Exchange will increase margin requirements and trading bands for gold and silver contracts during May holidays.

Gold contracts margins will be increased to 13% from 12%.

Silver margins will be raised to 16% from 15%.

SPDR gold trust holdings remained at 1,286t (41.352moz) value US$67.859bn. 

Platinum US$1,577/oz vs US$1,580/oz last week

China imported 7.4t in Mar compared to 5.9t in Feb.

Palladium US$673/oz vs US$666/oz last week

Silver US$31.48/oz vs US$31.78/oz last week

China’s silver imports were 255.5t in Mar versus 213.2t in Feb.

Silver Institute released its world market survey last week.

Industrial demand dropped 2.5% to 486.5moz due to a slow down in the Euro zone towards the end of 2011.

Jewellery demand fell 4.54% to 159.8moz on the back of high price volatility.

Photography sector use recorded the lowest decrease in 6 years at 8.32% as the medical sector postponed a change to digital devices due to insufficient funding.

Silverware demand decreased 10.15% to 46moz.

Total fabrication demand reached its second highest reading since 2000.

Silver bullion bar investment advanced 67% 95.7moz and coins and medals demand grew 19% to an all-time record of 118.2moz.

Silver ETFs lost 4% to 576.1moz.

Mine supply increased 1.4% to 761.6moz on an upbeat by-product production from gold and lead/zinc mines.

Silver mining lost 29% last year on falling headgrades.

Operating cash costs rose to US$7.25/oz on the back of increasing labour costs and slowing production.

Mexico was the largest supplier of the metal followed by Peru, China, Australia and Chile.

Government sales declined 74% to a 14-year low of 11.5moz driven by weaker figures from Russia.

Producers cut their hedging positions to 10.7moz.

Scrap supply rose 12% to 256.7moz as average prices increased 74% to a record of US$35.12 in 2011.

Rhodium US$1,390/oz vs US$1,390/oz last week

Base metals:

Copper US$ 8,075/t vs US$8,060/t last week – Poor preliminary Chinese PMI released this morning and worse than expected manufacturing and services PMI data in the Euro zone drove copper prices down this morning.

China’s refined copper imports were 350,568t in Mar compared to 375,831t in Fb and a record high of 406,937t in Dec last year.

Zambia’s environmental management agency allowed Glencores Mopani to resume operations at the Mufulira plant on Thursday.

The plant was shut last month due to high emissions of the pollutant acid mist.

Aluminium US$ 2,075/t vs US$2,071/t last week

Rusal and Glencore signed an agreement according to which aluminum producer will sell US$43bn worth of the metal (14.5mt) over 7 years to a trader at multi-decade high premiums.

Premiums to LME prices are currently at US$140/t compared to US$83/t at the start of 2010.

The contract accounts for a 3rd of Rusal’s annual production.

Glencore accounted for c. 45% of Rusal’s aluminum sales in 2010.

The company also sealed a deal with Rusal to sell its alumina through 2019.

Nickel US$ 17,790/t vs US$17,697/t last week

Zinc US$ 2,005/t vs US$2,004/t last week

Lead US$ 2,100/t vs US$2,083/t last week

Tin US$ 21,500/t vs US$21,400/t last week            

Energy:

Oil US$118.72/bbl vs US$118.27/bbl Friday- Oil rises as Iraq halted some exports because of a technical fault at a pipeline network supported by increased demand  in the U.S. form a rise in consumer spending in 1Q2012

Oil trading faces tough disclosure rules proposed by the industry-backed “Extractive Industries Transparency Initiative”. 

This latest news comes after President Barack Obama called for tougher regulation on oil speculators manipulating the price of oil on futures trading. 

South Sudan ordered its troops to withdraw from the Heglig oil field to avert the risk of all-out-war.    

WTI was at US$103.76/bbl, US Crude was at US$103.76/bbl. 

Natural Gas US$1.94/btu vs US$1.92/btu Friday- 

Falkland Island oil and gas explorer Borders and Southern Petroleum Plc confirmed a “significant gas condensate discovery” in its first exploration well. 

Uranium US$51.10/lbs vs US$51.10/lbs Friday- Kazakhstan the world’s largest uranium producer has boosted output, producing almost 5% more uranium from Jan-Mar 2012 than in the same period last year.

UX consulting weekly spot as of 16th April 2012 was at US$51.25/lb. 

Coal $101.55/t Richards Bay, Newcastle $103.20/t, Rotterdam $102.10/t

A dispute on a thermal coal tax between the ministry of energy and minerals and the trade ministry in Indonesia is still in discussions 

Indonesia is seeking ways to increase revenues and investment into its mining industry. 

Some major miners have said they hold contracts that are decades old which contain clauses that would make it very difficult for the government to change should any tax hikes come into force. 

Coal shipments from Newcastle port rose 6.6% last week. 

U.S. demand for coal from power utilities has declined forcing some producers to idle mines. 

Company News

Anglo Asian Mining* (LON:AAZ) Notice of Discovery at Ordubad, Azerbaijan, submitted 

The company filed the Notice of Discovery with regards to the 462sq km Ordubad Contract Area with the Ministry of Ecology and Natural Resources of Azerbaijan. 

The Ordubad Contract Area covers licenses located in the Nakhchivan region, western Azerbaijan. 

The document details the exploration programme completed at Agyurt and Piyazbashi (meaning “Head of Onion”) deposits during 2010 and 2011 complemented by the Soviet period data. 

The exploration work consisted of surface trenching and sampling, re-sampling 3,000m of adits, 2,500m of surface drilling and 1,400m of underground drilling at Agyurt. Results should be announced in due course. 

More exploration activity is planned in the region with a view to set up a small gold production. 

The Agyurt and Piyazbashi areas are close to each other and may potentially benefit from common processing facilities. 

Following the submission of the Notice of Discovery the company has 6 months to submit a Development and Production Programme to the government. 

Upon approval of a Development plan the company is granted a license to commence the 15 year production stage with two 5 year extensions.

We have not included any value for the Agyurt and Piyazbashi in our current valuation of the company.  Our valuation is determined on forecast cash flow from the Gedabek mine and the Gosha project.

Conclusion:  The submission of the Notice of Discovery is another step in the direction of growing the company’s resource base with a potential to develop gold operations in addition to the flagship Gedabek project. We are looking forward to further detail on the exploration programme completed in the region.  

 *Fairfax acts as Nomad and broker to Anglo Asian Mining

** A Fairfax analyst has previously visited the Nakhchivan region in western Azerbaijan with Anglo Asian. 

Afferro Mining (LON:AFF) Operational Update at Nkout Project (Cameroon)

Afferro Mining have announced drill results from Nkout in the Cameroon which show high grade iron with potential for DSO (Direct Shipping Ore).

Grades at Nkout centre include intercepts of 47m at 60.7% Fe from 3.5 metres below surface. 

At Nkout East intercepts include 58.2% Fe from surface. 

The company expect to release a fourth mineral resource estimate at the project in Q2 2012. 

Early metallurgical results show that project economics could be helped by the coarse grind of the high Fe product with 150 microns for 65% Fe with a soft rock bond work index of 12-13 WHr and high recoveries of 80-90%. 

The company also low deleterious materials in the product with aluminium below 0.2%, phosphorous below 0.01% and negligible sulphur. 

Afferro Mining recently sold its 38.5% minority stake in the Putu project in Liberia to Severstal for US$55.25m + US$9.75m held in with respect to a potential government 15% withholding tax. 

Conclusion: Resource economics should be helped by the discovery of potential DSO at the Nkout project. The company have the funds to take the forward to PFS stage and the company should be looking to collaborate with other projects in the vicinity to push forward developments on the infrastructure front so that over time the resource potential can be realised.

Hummingbird Resources (LON:HUM) Drill results extends resource potential at Tuzon

Hummingbird Resources have announced some good drill results from a drill programme at the north extension of the existing resource at Tuzon. 

17 drill hole results from a 28 hole 5,700 m drill programme to the north extends could potentially extend the strike of the resource by 300 to 400m. 

The grades are higher than the grades seen so far from Tuzon with grades north of 2 g/t  in relatively shallow areas with good success at TD047, TD 052 and TD 054 

o TD 047 – 19.32m at 2.3 g/t gold from 65-85m 

o 6.87m at 2.98 g/t gold from 138-145m 

o TD052 – 13 m at 1.73 g/t gold from 85 to 98m 

o TD054 22.38m at 2.15 g/t gold from 28.86 m to 51 m 

o 29.46m at 1.78 g/t gold from 111 to 141 m 

The company also announced trench results from the Sackor gold target 3 km SW of the 1.8m oz Dugbe F gold resource ahead of drill programme at the target. 

Conclusion: These are good drill results from Tuzon and better than grades historically been achieved and promises well for a resource upgrade at Tuzon. We look forward to hearing about any progress made to do a feasibility study on the project to take it forward.

Mining last week:

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

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

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

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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