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Today's Market View Including Anglesey Mining, Metals Exploration

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Anglesey Mining (LON:AYM) – Deal gains control of Grangesberg Iron project in Sweden

Metals Exploration (LON:MTL) - Buy: Target Price 15 pence – Debt Financing in place for Runruno Project

Andrew Forrest is reported to be taking parcels of Australian steak in his luggage on his next trip to China

Forrest is so keen for China to appreciate the virtues of good Australian beef that he is determined to carry the steak on his next business trip

While we reckon it is safe for China to allow the steak through customs we are not so sure about Mr Forrest, who could enjoy some time in quarantine

 

Nickel – flexible capacitor / battery developed for next generation of smart phones and wearable devices

Scientists have developed a new generation of flexible capacitors using thin layers of nickel and fluoride which hold electric charge and show little loss of performance on flexing.

The development is not likely to alter the dynamics of the nickel market just yet but should add to demand going forward

 

China – looking to cut pollution by taking 5m cars off the road

New car sales should soar in China this year as the authorities move to take 5m old cars off the road this year in an effort to improve air quality.

While the move may improve air quality it may also lower oil demand if the cars are replaced with more fuel efficient models.

The authorities plan to decommission some 330,000 cars in Beijing alone.

Chinese urban pollution is thought to be often 10-100 times worse than European city limits.

Environmental groups reckon vehicle emissions are responsible for around 31% of hazardous airborne particles with 22% from coal.

China is in effect following London’s clean air act imposed in 1952 in cleaning up its emissions.

The nation is also looking to cut 15mt of steel smelting capacity and 100mt of cement capacity in an effort to cut polluting industries.

China had 240m vehicles in 2013 of which 120m are passenger cars with 15.1m new cars added last year.

Forecasts are for new car sales to top 20m this year for the first time.

 

 

US – A second reading on the Q1 GDP is due later today with estimates suggesting a downwards revision to -0.5% (annualised) from +0.1% reported previously.

 

The US are preparing an economic and political push into Africa to strengthen trade and financial ties

The US has finally woken up to the gains being made by China in Africa.

China has gone from more than $10bn to more than $200bn last year to make China Africa’s largest trading partner.

US Africa trade had merely doubled from around $50bn to over $110bn over the past 10 years.

Sub-Saharan Africa is forecast to grow by 5.4% through 2014 by the IMF making this one of the world’s faster growing regions.

 

Japan – Retail sales drop at a record pace in Apr hampered by an increase in sales tax.

The gauge fell 13.7%mom compared with a 11.7%mom forecast. Sales were down 4.4%yoy with drops across all sectors.

Consumers picked up purchases in Mar with sales up 11%yoy hitting the second highest reading following a record level posted in Mar/97.

The sales tax increase effect is expected to see the economy shrinking at a n annualised 3.4% in Q2/14 versus a 5.9% increase in Q1/14.

The government is considering a second increase in consumption tax (to 10%) effective as of Oct/15 given the economy performs according to plan. The decision on the new increase is expected this autumn

 

UK – Martin Weale, a member of the BoE’s MPC, is arguing the Bank should start a “gradual” increase in rates to avoid a sharp hike in the future.

A “gradual” increase means “by no more” than 25bp per quarter or 1pp per annum which compares to a relatively slower pace of gains forecast by markets. Analysts’ expect rates to go up by 1.8pp over three years.

The start date of the tightening is not certain at the moment, Mr Weale said.

 

Mongolia – The government is looking to tender more area available to mining and exploration to 20% from around 8% of the total.

The 2010 exploration ban on new licenses may be lifted while the period of exploration would increase from 9 to 12 years.

The restart of exploration could attract some US$1bn in new investment this year, according to Vice Minister for Mining.

 

US$1.3615/eur vs 1.3626/eur yesterday.  Yen 101.51/$ vs 101.86/$.  SAr 10.425/$ vs 10.509/$.  $1.674/gbp vs 1.677/gbp 

 

Commodity News

Precious metals:

Gold US$1,253/oz vs US$1,264/oz yesterday – Gold Fields appeals to the Ghanaian government to ease corporate tax rate and mining royalties.

The company claims weaker gold prices barely cover all all-in production costs that are currently estimated at US$1,200/oz.

Gold Fields proposed a reduction in the corporate tax to 30% from 35% and royalties to 4%, down from 5% now.

Ghana, the Africa’s second largest gold miner, produced 4.7moz last year with Gold Fields’ local mines (Tarkwa and Damang) contributing 0.8moz, or c.17% of the total.

Platinum US$1,452/oz vs US$1,464/oz yesterday – 

Platinum miners and the AMCU are meeting today in an effort to end a 4-month strike with >70,000 miners demanding an increase in the basic wage.

Palladium US$837/oz unch vs US$832/oz yesterday – 

Silver US$18.93/oz vs US$19.10/oz yesterday

 

Base metals:

Copper US$6,904/t vs US$6,959/t yesterday

Aluminium US$1,832/t vs US$1,835/t yesterday

Nickel US$18,922/t vs US$19,740/t yesterday – 

Chinese NPI production costs climbed as much as 67% since the start of the year as the prices for high grade nickel ore surged following the Indonesian decision to ban unprocessed ore exports.

Operating costs at a relatively cost-competitive RKEF plant in China jumpe to US$20,000/t of NPI compared with US$12,000/t at the start of 2014, according to Macquarie estimates.

While China is currently using up stockpiled ore for production of NPI, inventories are falling and are estimated to last only for next six months.

Ore inventories in China fell to 28mt from 35mt at the end of 2013.

Zinc US$2,052/t vs US$2,093/t yesterday

Lead US$2,111/t vs US$2,151/t yesterday

Tin US$23,289/t vs US$23,441/t yesterday

 

Energy:

Oil US$110.1/bbl vs US$110.2/bbl yesterday

Natural Gas US$4.624/mmbtu vs US$4.498/mmbtu yesterday

Thermal Coal US$82.1/t vs US$82.6/t (28/05/14)– first year forward CFR ARA

Coking coal US$120/t unch vs US$120/t (28/05/14)seaborne hard coking coal index - 

Uranium US$28.25/lb unch (28/05/14) vs US$28.25/lb (28/05/14) - 

Tungsten - US$374.0/mtu (28/05/14) vs US$372.5/mtu (28/05/14) APT European 

Iron Ore US$96.8 (28/05/14) vs US$98.6 (27/05/14) 62% Fe spot (cfr Tianjin) 

 

Company News

Anglesey Mining (AYM LN) 3.9 pence, Mkt Cap £6.3m – Deal gains control of Grangesberg Iron project in Sweden

Anglesey Mining today announces a deal to buy a controlling interest in the Grangesberg Iron project ‘GIAB’ in Sweden.

The company holds a 15.3% interest in Labrador Iron Mines Holdings Ltd which produced some 1.7mt of iron ore in FY’13.

The company also continues to exploration and development work at its historic Parys Mountain zinc-copper-lead deposit in Anglesey, North Wales.

Parys Mountain has an indicated JORC resource of 2.1mt grading 6.9% combined base metals and an inferred resource of 4.1mt grading 5% as published in November 2012.

The Grangesberg Iron project cost $145,000 for a direct 6% interest.  GIAB holds a 25 year exploitation permit covering the previously mined Grangesberg underground mining operations as granted by the Swedish Mining Inspectorate in May 2013.

Anglesey has negotiated a 12-month evaluation option to acquire 51% of the enlarged share capital of GIAB in return for Anglesey Mining shares.

Anglesey will manage and control the GAIB project through the term of the option and will appoint three out of five directors to the board of GIAB including the Chairman.

The other 43% of GIAB will remain with Roslagen Resources, a private Swedish company which has led the re-development of Grangesberg since 2007.

GAIB is committed to repay a $3.5m loan to KII Holdings Limited by end 2016.

Eurang Limited, a private UK company, has agreed to invest $1.75m of which $1.25m has been invested in GIAB, for new shares representing the 51% shareholding interest in GIAB.

GIAB will have debt outstanding of some US$ 5m eg $4m to KII and US$1m to Roslagen.  Eurang will have debt of about $4.5m.

Conclusion:  GAIB looks like a transformational deal for Anglesey Mining and offers potential for the addition of new iron ore production to the Anglesey portfolio.  We wonder how a company with an effective 260,000tpa of iron ore production is only worth £6.3m.  We also wonder if the company will ever give up on Parys Mountain.

 

Metals Exploration (LON:MTL) 7.5 pence, Mkt Cap £103.1m – Debt Financing in place for Runruno Project

Buy: Target Price 15 pence

The company has agreed terms for project finance of US$83m from HSBC and BNP Paribas for a 55 month duration to 31 Dec 2018.

Funding is for a US$75m senior debt facility including a $5m provision for capitalised interest and fees and US$8m cost overrun facility.

Funds will be used for the completion of development of the Runruno project which is expecting to commission the mine in Q1 2015.

Total forecast capex for the project is US$182.8m of which 52% or US$95.4m has been incurred to the end of April.

A further US$26.6m has been committed and US$60.8m is yet to be committed.

The debt facility is guaranteed by the company till project completion is achieved.

In addition, 40% of the interest rate exposure needs to be hedged.

Subject to the gold price, up to a maximum of 35% of the annual forecast gold production over the terms of the debt facility.

It is expected based on 90,000-105,000 oz of production, around 30% of gold production will be hedged over the term of the debt facility.

Conclusion: The completion of project financing from two reputable banks provides funding for the completion of development at the Runruno mine.

The construction which has been self-managed has progressed well with the last update showing significant progress towards building the mine.

The mine is targeting an average of 101,800 oz in the first five years and 92,700 oz in years 6 – 10. C1 cash costs which was re-estimated recently on actual costs where available is US$474/oz putting the mine in the first quartile in terms of cost. The project has access to grid power which is helpful for costs and a further positive is the short haul to the pit which reduces fuel costs and hence mining costs.

This project has been well managed and has had the support of a strong shareholder group. With commissioning now in sight, the company offers potential exposure to 100,000 oz production which propels it higher up the mid-cap scale. Upside remains in terms of extending the mine life with good results in drilling around the existing resource. Commissioning risks remain but with the self-management of the build some of this might be mitigated.

 

Village Main Reef ( Zar 33, Mkt Cap Zar 343m – Sale of 76.6% interest in Cons Murch Antimony mine to Stibium Mining

The company is selling its interest in Cons Murch to Stibium for R150m.

The other 23.4% is held within an employee trust.

Stibium is a private Australian company with ambitions to build up antimony production outside China.

The current mine is loss making.

Stibium plans to take operational control of the mine from August.

The company plan to improve plant infrastructure, upgrade the trackless underground fleet and put capital into underground development to make more stopes available.

The mine has suffered from operational problems under the Village management team with output from antimony and gold falling.

Gold is said to represent 36% of current revenues of the mine.

Village took over the operations at Cons Murch in March 2011 and raised R22.5m to fund expansion and working capital at the mine.

The mine is one of the largest producers of antimony outside China.

It is in the antimony line of the Archaean Murchison greenstone belt, with reserves of 26 547 t antimony and 96 000 oz gold in relatively shallow orebodie

Conclusion: It will be interesting to see how Stibium’s management team implement their plans to improve operational performance at this mine which offers the prospect of good scale antimony production outside China. The antimony market is currently dominated by China which accounts for 70% of world supplies. With the greater focus by China on environmental management, a number of antimony blast furnaces in China look set for closure. This is expected to restrict supply at a time when demand for antimony is forecast by Roskill to grow. Stibium is taking a bet on this with the operating Cons Murch mine as well as other antimony assets within their portfolio.

Tri-Star Resource, another antimony player,  is aiming to be an integrated antimony player with both downstream and upstream operations being targeted. The downstream roaster facility once built will put Tri-Star in a good position to achieve its ambitions to build an antimony capacity outside China.

Antimony is used as a flame retardant and a chemical additive for printed circuit boards with demand linked to GDP. Antimony is also used in lead-acid batteries and recovery in the auto markets in North America and Europe should see a boost to prices. It accounts for 40% of the metallurgical market for antimony and 15% of the overall market.

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