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Today's Market View Including Patagonia Gold, Gemfields, Bushveld Minerals, Mariana Resources and others

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Gold US$1,188/oz vs US$1,188/oz yesterday – Gold prices back over $1,200/oz

The Swiss National Bank ‘SNB’ prepares for the referendum on its gold reserves.

The vote on the 30thof Nov will determine whether the central bank should boost its gold holdings to 20% of the balance sheet compared ot current less than 10%. 

o India might increase gold import curbs. New measures may be announced in the next few days.

o India’s trade deficit has been held in check by falling oil prices but this may be challenged by increasing gold imports.

Ebola - Bob Geldoff – releases ‘Do They Know its Christmas’ in 2014 Band Aid

Buy the song or simply donate to - www.msf.org.uk/donate‎

Economic News

US – Industrial production numbers for Oct disappointed yesterday.

Output was down 0.1%mom versus +0.8%mom (revised from +1.0%mom) in Sep and +0.2%mom forecast.

Capacity utilization fll to 78.9% from 79.2% in Sep and 79.3% forecast.

New York manufacturing index slightly underperformed expectations (10.16 in Nov v 6.17 in Oct and 12.00 forecast)

Economic news due today: 

o Tuesday: Oct PPI (-0.1%mom v 0.0% in Sep) (dragged by weaker oil prices); Oct PPI ex food and energy (+0.1%mom v 0.0%mom in Sep)

China – Residential property prices fell 2.6%yoy in Oct, the sharpest annual drop since the current data series began in 2011.

Struggling housing sector as well as a general GDP growth slow down weigh on the lenders’ loan portfolio.

A separate report showed FDI continued to slide for the fourth straight month on a cumulative YTD basis in Oct.

FDI fell 1.2%yoy in the first 10 months of the year.

Investments weighed more towards the services sector as investments in non-manufacturing industry totalled US$53.1bn YTD compared with US$32.5 flown into factory segment.

On a regional basis, FDI growth was led by South Korea (+26.4%yoy) and Britain (+32.4%yoy). Both the EU (-23.8%yoy) and the US (-16.2%yoy) recorded a decline.

Eurozone – Asset purchase programme may expand to include government debt if inflation in the reason continues to fall, Mr Draghi told European Parliament.

European equity indices closed higher yesterday after reclaiming earlier losses on poor Japan’s GDP numbers.

Prospects for larger stimulus dragged the USDEUR exchange lower.

Germany’s Zew economic expectations index released this morning showed an unexpected sharp increase this month (+11.5 v -3.6 in Oct and 0.5 forecast).

While the reading is far from strong levels recorded in H1/14 (max in Jan/14 of 61.7), the data marked a 4-month high for the index.

UK – Inflation accelerated 0.1pp to 1.3%yoy in Oct versus no change forecast.

Core CPI was up 1.5%yoy versus +1.6%yoy expected.

US$1.2528/eur vs 1.2496/eur yesterday.   Yen 116.072/$ vs 116.080/$.   SAr11.079/$ vs 11.102/$.   $1.567/gbp vs 1.563/gbp

A$0.8706 vs 0.8729 yesterday – 

Commodity News

Precious metals:

Gold US$1,204/oz vs US$1,188/oz yesterday –

Platinum US$1,213/oz vs US$1,204/oz yesterday – 

Six of the world’s largest platinum miners are launching the World Platinum Investment Council to promote platinum as an investment.

The agency will produce data and analysis on the market researched by SFA Oxford.

Palladium US$775/oz vs US$765/oz yesterday

Silver US$16.41/oz vs US$16.18/oz yesterday

Base metals:

China released its monthly base metal production statistics:

Copper output climbed 11.9%yoy to 6.38mt in the Jan-Oct period.

Annualised Oct production of 8.8mt compared to 7.7mt YTD (annualised).

Aluminium output climbed 8.6%yoy to 19.6mt in the Jan-Oct period.

Annualised Oct production of 25.0mt compared to 23.5mt YTD (annualised)

Lead output climbed 6.3%yoy to 3.52mt in the Jan-Oct period.

Annualised Oct production of 4.3mt compared to 4.2mt iYTD (annualised.

Zinc output climbed 4.4%yoy to 4.71mt in the Jan-Oct period.

Annualised Oct production of 6.2mt compared to 5.7mt YTD (annualised).

Copper US$6,688/t vs US$6,687/t yesterday – 

Aluminium US$2,012/t vs US$2,026/t yesterday 

Nickel US$15,817/t vs US$15,660/t yesterday – BHP’s Cerro Matoso nickel mine in Colombia threatens to strike

Zinc US$2,253/t vs US$2,262/t yesterday 

Lead US$2,031/t vs US$2,026/t yesterday 

Tin US$19,676/t vs US$19,850/t yesterday 

Energy:

Oil US$79.80/bbl vs US$78.32/bbl yesterday – 

Natural Gas US$4.274/mmbtu vs US$4.153/mmbtu yesterday

Thermal Coal $72.0/t vs $71.3/t

Uranium US$44.00/t unch vs US$43.50/t  -

Other:

Iron ore spot price index (62% fines) $75.0 vs $75.7/t – 

Seabourne Coking coal (quarterly) – US$119/t vs US$119/t

Tungsten APT European US$335.0/mtu vs US$335.0/mtu – 

Ferrochrome $1.15/lb Cr Q4 vs $1.19/lb Q4 quarterly Benchmark pricing – prices rise in China to 78-80 cents/lb for charge chrome

Company News

Avalon* (ASX:AVI) - Positive drill results from Viscaria Project

The company has received good results from the Viscaria copper-iron project.

This will give them the confidence to complete further oxide copper drilling

The focus will be in the Southern zone where mineralisation is not closed off.

Drill results were from Hole VDD180 is adjacent to VDD0085 where there were encouraging results from a preliminary met test work.

Drill hole VDD180 was targeting drill results  at the NE end of D Zone.

The hole intersected 5.6m at 1.6% copper from 33.75m within a wider zone of 15.55m at 0..7% copper from 26.2m.

Core from this drill hole will be used to do further met test work.

VD00181 which was being drilled at the SW end of the D Zone intersected 23.95m at 0.4% copper from 98m.

This hole was abandoned due to hole collapse and stuck rods.

This hole is 50m along strike from VDD0171 which intersected 14.7m at 1.5% copper from 80m within a broader zone of 39m at 0.9% copper.

Drill hole VD0085 was drilled in 2010 and had poor core recovery and may be excluded from future resource calculations with VD180 used instead.

The next stage will be to do further test work on core obtained with more drilling to be completed in 2015.

Conclusion: Drill results from the oxide D Zone look positive and we look forward to results from the met test work.

Bushveld Minerals (LON:BMN) – Positive scoping study on Bushveld Vanadium and results for 6 months to 31st August

Bushveld Minerals reports that it has completed a scoping study on its flagship Bushveld Vanadium project in South Africa.  The study shows an after tax NPV of $264m at a 10% discount rate and generates an IRR after tax of 24.1%. The mine will have a 30 year life and the capital expenditure is expected to be $261.5m.

The work to date is to be followed up by a definitive feasibility study on the Bushveld Vanadium project.

Discussions are continuing with potential strategic partners for the Mokopane Tin project, which completed a scoping study earlier this year, however, the company has hinted that they may proceed independently.

Financial results for the 6 months to end August show losses of £1.5m (.27 pence/share). 

Following a £3.3m inflow from the issue of shares and the exercise of warrants earlier this year, cash balances of £8.5m at 31st August suggest that the company is in a position to support the additional studies for its vanadium and tin projects.

Conclusion: Further work suggesting a significant resource  increase at Bushveld Vanadium may change the scoping study parameters and might ultimately lead to a larger project.

Chatham Rock Phosphate (LON:CRP) – NZ EPA decision on seabed mining due before Christmas

Radio New Zealand reports that the NZ EPA is expected to make a decision on allowing Chatham Rock Phosphate to mine phosphate on the seabed on Chatham Sound before Christmas.

According to Radio NZ The Hokotehi Moriori Trust presented its submission last week opposing the mining company's application, saying it could jeopardise 60% of New Zealand's commercial fishery.

Considering that Chatham’s proposed phosphate mining project will disturb just 30km² of seabed per annum compared with the thousands of square miles disturbed through trawling each year we find the EPA submission a little disingenuous to say the least.

The last submissions are being presented by Forest and Bird, the Deepwater Group (fishing industry), the Crown, the Environmental Defence Society and Ngai Tahu.

A key focus is to protected seabirds and marine mammals.  Sea birds fly into the lights of trawlers and other vessels but this issue can be managed.

Greenpeace which has effectively promoted climate change by effectively lobbying against nuclear power but now accepts nuclear power as a viable alternative is also getting in on the act. 

Chatham Rock Phosphate is to give its final submission tomorrow.

The committee has 20 working days to consider its decision once the hearing is formally closed.

We see Chatham Rock Phosphate’s project as offering a good source of phosphate fertiliser for New Zealand averting costly imports.

Chatham Rock Phosphate will, based on company existing assumptions, earn post-tax profits of $525m, pay royalties of $81m and pay income tax of $204m over a 15-year period.

Gemfields* (LON:GEM) – Rough emerald and beryl Auction results

Gemfields today publishes results from its rough emerald and beryl auction in Lusaka.

The auction is for predominantly higher quality rough emerald from the Kagem emerald mine in Zambia.

The November auction realised US$34.9m from the sale of 530,000 carats versus 598,000cts offered down around 4% from the Feb high quality auction.

Percentage of lots sold was 94% with percentage sold by value 89% against 86% achieved in the Feb auction.

Average sales price was US$65.89/carat up 11% from the Feb auction – this is the highest value achieved in the 10 high quality Kagem auctions.

The August lower quality auction achieved US$15.6m with 11.58m carats sold at an average value of US$1.34/carat.

We believe Gemfields had planned to sell some unusually large emeralds in this auction helping prices higher.

It is reassuring and perhaps a little surprising to see average emerald auction price jump to $65.89/ct.  This is 11% higher than Feb ’14, 22% higher than July ’13 and 122% higher than back in Nov ‘12.

The price progression is good in terms of value though we believe the market might start to soften.

We believe the Chinese crackdown on corruption and ‘gift giving’ and a marked slowdown in economic activity in Japan and the Eurozone might also serve to hold back the market.

For us the most meaningful news going forward will be on the potential recovery of greater numbers of better quality emeralds from the Kagem going forward.

Gemfields has focussed much attention on improving mining, recovery and security at the mine and we believe this could lead to continuing improvement in the value of recovered stones. 

At Kagem  Management have focussed much on cost control, stripping overburden at a stripping ratio of around 100:1 and on the potential for underground mining emeralds going forward to extend the life of the mine.  Lower oil/diesel prices will help costs enormously as will other improvements to the mine and recovery operation.

The next auction is in Singapore in December and is for rubies from the Montepuez ruby mine and alluvial workings.

Guessing the average value of rubies recovered and to be sold is significantly more difficult and variable than with the emerald auction.

The wider price range of prices for rubies and corundums (lower quality rubies) makes forecasting difficult and the number of high-value Pidgeon-blood rubies is impossible to guess.  The Montepuez mine appears to produce allot of lower quality stones while the alluvial workings produces significant higher-value stones albeit in smaller numbers.  The operation is around 2.5 years old and is still establishing its operation. The hard-rock mine may have been the source of these higher-value stones suggesting potential for better higher-value recovery from the mine going forward. 

Conclusion: 

The auction value is a good result for the Kagem mine and we hope the team may continue to maintain per carat values at around this level going forward through the recovery of better quality stones and good sales values. 

The auction was delayed due to the death of the long standing Zambian President Michael Sata. While the company had reservations initially about auctions taking place in Lusaka, there has been no impact on prices achieved and the country now gets to host the sale of the gemstones found in country.

The stock trades on an EV/EBITDA of 5.7x for FY 2015 (June year end) coming down to 4.6x for FY 2016 on concensus numbers which does not look demanding.

*An SP Angel analyst has visited Gemfield’s Kagem emerald mine in Zambia and the Montepuez ruby mine in Mozambique

Mariana Resources (LON:MARL) – Initiation of Exploration at Nassau Gold Project

The company has started its exploration at the newly acquired Nassau Gold Project in Suriname.

Mariana has an earn in arrangement on the project with Sumin Resources to earn up to 50%.

The 28,174 Ha concession has three major artisanal workings – Witlage Creek, Bamboo Creek and Bowl with the former two the most active historically.

The Nassau Gold project is located 20km south of Newmont’s 4.2m oz Merian deposit which is expected to start producing 300-400,000 oz of gold per year in late 2016.

The company will focus its initial exploration on looking for high grade vein systems near the headwaters of Witlage Creek and Bamboo Creek.

A 2,210 line fixed wing airborne geophysical survey is being done over the property.

The first stage of 6 months will require an exploration commitment of US$650,000 (US$100,000 payable in cash) for 20%.

The end of the second stage (18 months) requires a commitment of US$2.2m (US$300,000)  for 40%.

The end of the third stage (30 months) will require a commitment of US$2.45m (US$300,000 in cash) for 50.01%.

The Nassau Project was first explored by Alcoa in 2000 but was not advanced significantly.

Conclusion:  We look forward to results from early stage exploration work.

Patagonia Gold (LON:PGD) – Raising £8.73m at 4.5p

Patagonia Gold has announced plans to raise £8.73m by placing 193.96m new shares at 4.5p in order to advance its Cap Oeste project.

The issue price represents a 14% discount to yesterday’s closing price of 5.25p

The new shares represent approximately 10.5% of the enlarged company.

A major shareholder, Mr Carlos Miguens and associated parties have agreed to subscribe for over 55% of the shares.

The first phase of the Cap Oeste development is the construction of a heap leach gold mine capable of producing 50,000 oz pa from oxide ores.

A pre-feasibility study is underway for a second phase of development to treat the sulphide portion of the mineralisation and the proposed fund raising will help to complete these investigations.

Conclusion: The company recently completed development of the Lomada de Lieva mine and is now looking to advance its Cap Oeste project

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