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Morning View - Metals and equities recover from last week’s selloff; Zimbabwe – farmers who lost farms may soon be compensated

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Anglo Asian Mining* (LON:AAZ) – Refinancing locks in cheaper rates and extends debt maturity

Acacia Mining (LON:ACA) – 2017 results show net loss of US$707m

Bluebird Merchant Ventures* (LON:BMV) – Second gold, silver mine added to portfolio in South Korea

Savannah Resources (LON:SAV) – Further drilling results from Mina do Barroso

Strategic Minerals;* (LON:SML) – Extension of access to Cobre magnetite stockpile

Thor Mining (LONTHR) – Resource estimate for Kapunda Copper Project

 

Cape Town – SP Angel wish to thank the 121 team for organising such a successful conference

  • Over 300 investors and analysts attended the event with more than 1,700 meetings booked giving an average of 20 meetings per company
  • Around 450 people attended the late Monday drinks highlighting the growth in interest in the Cape Town event
  • The event is open to investors, mining analysts and sponsoring companies only

 

Commodities claw back volatile losses

  • The Bloomberg Commodity Index, measuring returns on 22 basic resources, regained 1.1% after tumbling 5.7% over the past two weeks as raw materials are swept up in a global rout of risk assets. Despite the boost in broad pricing, the gauge remains 4.9% below the more than two-year high of 90.8 scaled last month.
  • Raw materials were hit by the same concerns that sparked last weeks’ broad sell-off in stocks; the prospect of higher interest rates. However, market fundamentals remain positive with all eyes on China. “No other country has a greater impact on global commodity prices than China. As Chinese New Year approaches, the uncertainties ahead provide risks to our base case of: steady Chinese economic growth, commodities demand improvement and supply rationalisation via capacity reductions and environmental regulations”.

China demand to support commodities into 2018

  • Citigroup analysts foresee sustained support for commodities as demand will continue to expand in China as government policy supports steady economic growth. Infrastructure spending is expected to grow +16% yoy, with downside risk to demand from property slowdown appears limited for the year with the market steadied by growth in rental/social housing and easing of property restrictions in some cities.
  • Supply-side policies shift from capacity closures to controlled expansion with a focus on replacement of outdated polluting systems.
  • Winter supply curbs could expand to copper, zinc, and nickel, and could intensify if air quality in north China disappoints.

Steel - China’s top steel city to extend winter output curbs

  • City of Tangshan said it would extend restrictions on production beyond the end of winter heating season on March 15
  • Documents say the city will draw up a plan to continue some curbs including eight central steel mills by the end of this month
  • Eight steel mills near city centre include the main site of Tangsteel, a unit of HBIS Group, will face unspecified ‘normalized’ production limits after March 15 and others will be required to stagger production

 

Zimbabwe – farmers who lost farms may soon be compensated

  • Zimbabwe could recover fast as President Mnangagwa sets reforms in place
  • Restitution and new investment in farms could lead to a rapid recovery in farming in the country.
  • The Zimbabwean government is said to have set up a committee to advance a process of compensating farmers whose farms where taken during the country's land reform programme.
  • President Emmerson Mnangagwa’s administration has appointed permanent secretary of the land and agriculture ministry, Ringson Chitsiko, to chair the committee until October next year.
  • The appointment of Chitsiko is part of a drive to make agricultural production attractive again.
  • Some of the evicted farmers have demanded $9bn in compensation for expropriated assets.

 

South Africa – Ramaphosa promises to end Zuma transition limbo

  • Cyril Ramaphosa has promised to end the situation with President Zuma.
  • While Zuma is still president, the ANC refused to allow the President to swear himself in again by postponing the State of the Nation ceremony in Cape Town last Thursday.
  • The leadership of the ANC is in discussion over the transition.
  • The ANC National Executive committee is meeting today to discuss and finalise the transfer of power with Cyril Ramaphosa as leader of the ANC expected to become president of South Africa once Zuma has been dispatched.
  • The transfer of power is a sensitive issue as Zuma still has some support in his tribal homeland and within the ANC though most voters would prefer Zuma to go.

 

SP Angel rank No 1 in Copper price forecasting in the Q4 2017 MB APEX report

SP Angel analysts ranked:  See MB APEX report link for further details

  • 1st for copper, 1st = for gold, 2nd for Palladium, 3rd for Coking Coal, 5th for Zinc, 3rd in Q4 Precious Metals forecasts in Q4, 4th in Base Metals forecasting in Q4

SP Angel ranked No 1 for research by ‘Research Tree’ according to investor demand

 

Dow Jones Industrials

 

+1.38%

at

  24,191

Nikkei 225

 

-2.32%

at

  21,383

HK Hang Seng

 

+0.19%

at

  29,563

Shanghai Composite

 

+0.78%

at

   3,154

FTSE 350 Mining

 

-0.06%

at

  17,691

AIM Basic Resources

 

-1.62%

at

   2,487

 

Economics

Fidelity is reported to have temporarily suspended new clients from buying three ETFs developed for betting on market volatility falling or staying low following heavy corrections in value of such products last week.

  • One of such products (XIV) dropped around 96% last week with Credit Suisse acting as the issuer of the security saying it will halt trading in it on February 20.
  • The decision has also affected the SVXY ETF which lost more than 90% and ZIV ETF whish was down 26% last week.
  • The correction in value of ETFs has come on the back of a sharp drop in equity markets last week which saw the CBOE VIX hitting the highest level in more than two years

 

European equities post a broad-based recovery following worst two-weeks in two years and US equity indices’ futures also trading higher.

  • Oil is stronger this morning halting breaking a run of consecutive losses in the last six days.
  • 10y US Treasury bond yields are trading higher hovering around the 2.9% mark, the highest level in four years.
  • Markets will be closely watching US inflation numbers due tomorrow for signs of the strength of a recent pickup in consumer prices growth rate with estimates for a slight slowdown in CPI in January (1.9%yoy v 2.1%yoy in December).

 

China – The nation is due to start New Year celebrations this Thursday running through February 21 with mainland markets shut for the period.

 

UK – Shoppers spent less last month than the year before causing spending to drop in January for the first time since 2013, according to the payments processing company Visa.

  • Household spending dropped 1.2%yoy and spending in shops was 4%yoy down as people stayed away from the traditional post-Christmas sales month.
  • “Consumer spending entered the new year on a downbeat note, falling for the eighth time in the past nine months, as Britons continued to cut back on spending,” Visa said.
  • HIS Markit which produces the survey for Visa highlighted consumers’ concerns over Brexit weighing on spending and confidence.
  • Visa accounts for a third of payments made by debit and credit cards in Britain.

 

South/North Korea – North Korean leader invited South Korean President to meet in Pyongyang with a potential which may signal of improving relations between neighbouring states.

  • Should South Korean President accept the invitation it would be the first time two leaders meet in the last 11 years.
  • In October 2007 then President Roh Moo-hyun and Kim Jong Il, the father of the current North Korean leader, signed a peace declaration calling to end the armistice with a permanent treaty, although progress stalled since then.
  • Technically, two nations remain at war.
  • “I hope President Moon will take the leading role to open a new chapter for unification and accomplish a legacy that will be remembered for long,” Kim Jong Un sister said acting as a broker for the meeting.

 

Russia – The central bank cut the benchmark rate by 25bp to 7.5% on Friday as inflation remained “sustainably low”.

  • Authorities said further cuts are possible given some subdued inflationary pressures.
  • Coupled with weaker oil prices, the decision saw the rouble falling to 58.5 against the US$ last week; the currency has gained slightly this morning with the USDRUB pair hovering around 58.0.

 

South Africa – New head of ANC is planning to hold a meeting with other party members to discuss a potential replacement of Jacob Zuma as the nation’s president.

  • The National Executive Committee which has the power to demand that Zuma step down will be meeting on Monday, Cyril Ramaphosa said at a rally in Cape Town yesterday.
  • The ANC leader and Zuma are holding direct talks over the transfer of power, Ramaphosa added.

 

Currencies

US$1.2263/eur vs 1.2271/eur yesterday  Yen 108.54/$ vs 109.17/$  SAr 11.967/$ vs 12.100/$  $1.382/gbp vs $1.396/gbp  0.781/aud vs 0.778/aud  CNY 6.324/$ vs 6.300/$.

 

Commodity News

Precious metals:         

Gold US$1,321/oz vs US$1,315/oz last week

  • Gold prices regained portions of last weeks’ losses as the US dollar slips and investors await inflation data from the US later this week for signs of the intensity of expected interest rate increases. US consumer price data will be released on Wednesday that is expected to give a clearer indication on the pace of inflation and therefore the frequency of the anticipated interest rate rises. Consumer price data is also expected to confirm concerns of rising inflation which triggered the global equity drop last week.
  • After last week’s sell off in risk assets, we expect gold to be well supported, especially if volatility in financial markets persists” according to chief economist at gold trader ABC Bullion. Last week, the S&P 500 dropped 5.2%, its biggest decline since January 2016.

   Gold ETFs 71.8moz vs US$72.0moz last week

Platinum US$968/oz vs US$971/oz last week

Palladium US$987/oz vs US$965/oz last week

Silver US$16.43/oz vs US$16.34/oz last week

           

Base metals:   

Copper US$ 6,825/t vs US$6,791/t last week

Aluminium US$ 2,130/t vs US$2,144/t last week

  • Aluminium prices fall as stockpiles across China expand to record highs of 1.805 million tonnes, up 25,000 tonnes from last week, according to researcher SMM Info & Tech Co.

Nickel US$ 13,030/t vs US$12,910/t last week

Zinc US$ 3,385/t vs US$3,372/t last week

  • Control remains firmly in the hands of the miners as zinc companies begin negotiations with smelters over processing fees at an industry conference in California, as dwindling stockpiles are a key bargaining tool. Miners will be hoping to erode at the $172/t level set last year with higher stockpiles. According to senior energy and mining equity analyst at Bloomberg Intelligence, “The market is super-tight right now. Miners are reportedly pushing for below half of last year’s level. They have the upper hand”.
  • Inventories tracked by the London Metal Exchange record the lowest levels since October 2008, with the metal expected to ring up a deficit of 230,000 tonnes. Bank of America Merrill Lynch analysts note with “LME stocks low, holdings concentrated and to a large extent not available, there is a risk of a short supply”. The rising deficit is enough to justify a 10% increase in price, with Wood Mackenzie forecasting the metal price to rise to $4,000/t by the third quarter.
  • Supply is expected to expand to match growing demand with “sufficient new mine supply to allow the world’s zinc smelters to collectively increase output by 6.5% or 880,000 tonnes, whilst high zinc prices will ensure that this can be produced profitability”. China boosted production in the close of last year to meet demand as zinc ended the year with gains on 30%.
  • Producers have been able to capitalise on attractive spot treatment charges, which dropped 22% to $180/t from 2015 highs of $220/t. Cosgrove forecast the benchmark treatment charge could land in the region of $120-130/t as tight conditions drive competition for smelter output.

Lead US$ 2,520/t vs US$2,494/t last week

Tin US$ 21,140/t vs US$21,265/t last week

           

Energy:           

Oil US$63.4/bbl vs US$64.3/bbl last week

Natural Gas US$2.575/mmbtu vs US$2.630/mmbtu last week

Uranium US$21.50/lb vs US$21.50/lb last week

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$74.0/t vs US$75.3/t

Chinese steel rebar 25mm US$640.1/t vs US$642.6/t

Thermal coal (1st year forward cif ARA) US$75.8/t vs US$78.0/t

Premium hard coking coal Aus fob US$228.4/t vs US$228.6/t

 

Other:  

Tungsten APT European US$319-325/mtu vs US$317-325/mtu last week

Cobalt LME 3m US$81,250.0/t vs US$81,250.0/t

Samsung SDI turns to used phones for cobalt as prices surge

  • Samsung SDI Co. a battery supplier to carmakers including BMW plans to recycle cobalt from used mobile phones as companies around the world scramble to secure supplies of the metal amid surging prices
  • Will buy stake in company with recycling technology and sign deal to ensure long term cobalt supplies
  • Plan fuels trend among battery makers to reduce dependence on Democratic Republic of Congo as source of cobalt

 

Lithium - New desalination membrane produces both drinking water and lithium

  • Team of scientists in Australia and US have developed a new desalination technique that can not only make seawater fresh enough to drink but can recover lithium ions for use in batteries
  • Key to the process is metal-organic frameworks (MOFs), which boast the largest internal surface area of any known material, which enable them to filter materials
  • The technique could also be put to work filtering waste water from industrial processes like fracking.

Tightening market drives lithium carbonate outside of Asia

  • As the majority of global lithium production flows into China, nations outside of Asia are receiving a boost in price in North America and Europe as limited short-term availability is tightening market conditions.
  • Global lithium carbonate rose 9.4% in January to an average $17,338/t; global lithium hydroxide +0.6% to avg. $19,238/t; and spodumene concentrate avg. $810/t.
  • Carbonate prices across Europe rose 7% and North America prices grew 3%, while a seasonal slowdown in consumption in China caused prices to fall.

 

Company News

Anglo Asian Mining* (LON:AAZ) 43p, Mkt Cap £48.9m – Refinancing locks in cheaper rates and extends debt maturity

  • A syndicated, two-year term loan has been secured with Pasha Bank as arranger for $15m at 7% (arrangement fee 0.25%).
  • Proceeds will be used to refinance existing loans to the amount of $13.5m including:
    • $3.7m owed to ATB (9.6% and was due this year);
    • $3.7m owed to Gazprombank (9.6% and was due this year);
    • $2.2m owed to Yapi Credit Bank (9.5% and was due this year);
    • $3.9m owed to Company CEO Reza Vaziri (7.0% and was due this year).
  • The facility is repayable in eight equal quarterly instalments with interest payments due monthly.
  • A rescheduling of principal repayments releases $8.4m in extra funds to be used in a capital programme including an installation of a second crusher, replacement/expansion of the mining fleet and purchase of new drilling rigs as well as exploration.
  • Interest on the remaining debt to the IBA in the amount of $2.1m has been revised down to 7% from previous 12%.
  • The Company presented at a well attended Proactive Investors Conference yesterday reiterating strong production guidance for 78-84koz GE in FY18.

Conclusion: Refinancing helps the Company to lock in lower interest rates (estimated $0.1m saving on interest payments), but more importantly allows the Group to smooth out loan repayments providing additional funds to help business development.

*SP Angel acts as nomad and broker to Anglo Asian Mining

 

Acacia Mining (ACA LN) 156 pence, Mkt Cap £640m – 2017 results show net loss of US$707m

  • Acacia Mining has reported a net loss of US$707m for 2017 (2016 – profit US$95m) including a US$644m non-cash impairment charge arising from the “uncertainty in the operating environment and the ban on exporting concentrate, resulting in US$264m of lost revenue in the last year.”
  • Despite these difficulties, the company also reports “its “lowest ever” all-in sustaining cost of US$875/oz of production (2016 – US$958/oz) on the 767,883 oz of gold production. Cash operating costs in 2017 were US$587/oz (2016 – US%640/oz).
  • The company notes that its sales of 592,861 ounces of gold (2016 – 816,743 oz) were 22% lower than production. Cash flow was, however, impacted by “Acacia’s inability to export and sell a total of 158,500 ounces of gold, 12.1 million pound of copper and 158,900 ounces of silver contained in concentrate as a result of the concentrate export ban.”
  • Acacia Mining highlights a successful drilling programme at its North Mara mine which has “more than doubled the Mineral Reserve at the Gokona Underground to 1.3Moz”
  • The CEO is quoted as saying that “The company recorded a resilient performance in what became a difficult operating environment in 2017 and expects to return the business to free cash generation during the forthcoming year.”

Conclusion: Acacia Mining has battled external conditions this year and produced record low sustaining costs of production. We wish the company well in its efforts to return to positive cash flow this year.

 

Bluebird Merchant Ventures* (LON:BMV) 3p, Mkt Cap £5.5m – Second gold, silver mine added to portfolio in South Korea

  • Bluebird is spending just US$500,000 to earn into a 50:50 jv with Southern Gold Ltd on the Kochang gold, silver mine in South Korea.
  • Kochang is just 130km south east of Bluebird’s main Gubong project.
  • The Korean Resource Corporation ‘KORES’, a government backed body funded 70% of last year’s Kochang campaign .
  • The Kochang assets were valued at around A$2m last year but could easily demonstrate greater value on further drilling and evaluation.
  • Kochang operated from 1928-1975 and produced some 110,000oz of gold and 5.9moz of silver between 1961 and 1975 according to a KORES report.
  • Bluebird have moved fast and have already dewatered the mine and gained access to the lowest levels of production. .
  • The mine has a series of parallel and vertical orebodies which could make for relatively simple and potentially low cost development depending on the width and consistency of the veins.
  • The Kochang mine closed at a time when the gold price was US$140/oz.
  • Bluebird’s geologists reckon that a number of separate veins associated with the ‘main’ gold vein were not exploited in the past while a number of additional veins have also been found at the ‘silver’ mine.
  • The ‘Main Vein’ runs for around 2km with a further 0.5km of strike identified through surface mapping.
  • Surface rock-chip samples show gold grades of: 8.2 g/t, 15.3 g/t, 3.61 g/t, 10.5 g/t, 6.35 g/t and 23.9 g/t.   
  • A further 500 metres of additional Main Vein strike has been identified to the south of known workings.  Assays from rock-chip sampling confirm high tenor, gold mineralisation along the entire strike of the newly mapped Main Vein trend.  This is now visually confirmed on surface from a newly located and significant open stope that was historically developed on high grade.
  • Bluebird previously published a Competent Persons Report on 26 January 2018 which included details of the Kochang project.
  • The acquisition of Bluebird’s share of the jv is funded through the last round of funding with sufficient funding to complete the feasibility reports on the Gubong and Kochang projects.
  • See company website for further details www.bluebirdmv.com

Conclusion: Bluebird is pressing ahead fast with evaluation ahead of potential mine development. The quick dewatering and access of Kochang the mine should make further evaluation much quicker than for many mining projects. We await further news on the potential mineable resource, metallurgy and permissions required for making the project viable.

*SP Angel act as broker to Bluebird Merchant Ventures

 

Savannah Resources (LON:SAV) 6.1p, Mkt cap £38.9m – Further drilling results from Mina do Barroso

  • Savannah Resources has provided further news on the progress of its reverse circulation drilling programme at its Mina do Barroso lithium exploration project in Portugal where a total of 7,081m has been drilled, to date, in 87 holes.
  • The drilling is aimed at increasing the estimated inferred mineral resource beyond the 3.2mt averaging 1.0% Li2O which was announced for the Reservatorio deposit in December 2017. The company expects to add a resource estimate for the Grandao deposit, which is located to the south-east of Reservatorio, during Q1 2018. A second drilling rig is expected to be deployed at Grandao during the second half of February in order to test depth extensions to the mineralisation.
  • Among the results from the drilling at Grandao which are highlighted today are:
    • A 59m wide intersection of the newly discovered vertical pegmatite body at an average grade of 1.13% Li2O from a depth of 5m in borehole 17GRARC31;
    • A 33m wide intersection of the flat-lying pegmatite body at an average grade of 1.22% Li2O from a depth of 40m in borehole 17GRARC41; and
    • A 31m wide intersection of the flat-lying pegmatite body at an average grade of 1.07% Li2O from a depth of 40m in borehole 17GRARC25. This intersection includes a higher grade section of 24m averaging 1.31% Li2O.
  • In addition to the drilling at Grandao, further exploration targets, described as “high priority” have been identified at Romainho, Campo de Futebol and Peigro Negro north-east of Grandao.
  • Results of drilling from 10 holes (768m) at the NOA deposit north-east of Reservatorio are also reported today, including:
    • 15m at an average grade of 0.83% Li2O from a depth of 9m in hole 17NOARC06 and
    • 14m at an average grade of 0.73% Li2O from 19m in hole 17NOARC10.
  • The company explains that “Results [from the NOA drilling] have been encouraging with 10m-15m wide zones of pegmatite being intersected over a strike length of 200m and a down dip depth of around 50m … . Further work is now required to access the full potential of the deposit.”
  • “Based on the new results an additional 16 RC drill holes have been added to the programme at Grandao, Romainho, Campo de Futebol and Piero Negro in order to further evaluate the potential of the wider project area.” A 1500m diamond drilling programme is also planned to provide samples for further metallurgical test work and to assist in the geological interpretation.
  • The current metallurgical testing programme, which is investigating the crushing characteristics of the mineralisation and its amenability to gravity separation processing,  is expected to be completed in Q1 2018.

Conclusion: Exploration drilling at Mina do Barroso is continuing to identify additional targets and we look forward to the publication of an initial resource estimate at the Grandao deposit later this quarter.

 

Strategic Minerals* (LON:SML) 2p, Mkt Cap £26.7m – Extension of access to Cobre magnetite stockpile

  • Strategic Minerals reports that it has received a further one year extension of its rolling agreement with the owner of the Cobre magnetite stockpile in New Mexico securing guaranteed access until 31st March 2019.
  • The agreement, between Strategic Minerals’ wholly owned subsidiary, Southern Minerals Group, and the owner of the stockpile, is subject to automatic one year extensions and Managing Director, John Peters commented that “We have a good working relationship with the mine owner and, on this basis, it would suggest that the contract will ultimately continue to rollover until the entire stockpile is removed.”
  • During 2017, sales revenue from Cobre increased by some 260% to US$5.64m from the sale of 84,980 tonnes of material  compared to 25,383 tonnes in 2016.
  • Mr. Peters went on to underline the importance of Cobre as a source of funding for the company’s wider exploration and development projects; “The expected Cobre sales and existing cash balances place the Company in a strong position from which we hope to be able to internally fund exploration programmes at Hanns Camp/Mount Weld and Redmoor and provide capital to restart the Leigh Creek Copper Mine operations.”
  • Strategic Minerals has also announced the appointment of Jeffrey Harrison as a non-executive director where Mr. Harrison’s expertise in mineral development in south-west England where he previously served as operatioons manager at the Wolf Minerals tungsten operation in Devon is particularly relevant to the continuing exploration of the Redmoor tin tungsten deposit. Mr Harrison has been a consultant to the project and the company comments that his appointment to the Board “will not preclude him from undertaking further consulting work…”.

Conclusion: The rollover of the Cobre agreement, though not unexpected, provides certainty of continued access and with the significant build-up of sales achieved in 2017 expected to continue into 2018 should enable the company to press ahead with its exploration programmes in the UK and Australia and with the acquisition and re-start of the Leigh Creek Copper mine in Australia.

*SP Angel act as Nomad and broker to Strategic Minerals

 

Thor Mining (LON:THR) 3.8p, Mkt Cap £23.5m – Resource estimate for Kapunda Copper Project

  • Thor Mining has announced that Environmental Copper Recovery (ECR) has announced an inferred resource estimate of 47.4mt at an average grade of 0.25% copper for the Kapunda copper project in South Australia. The estimate, which uses a cut-off grade of 0.05% copper,  incorporates a review of historical drilling information as well as hydrogeological parameters considered likely to influence recovery rates and yields.
  • Thor Mining is earning up to a 60% interest in ECR which is, in turn earning a 75% interest in the project from Terramin, giving, we estimate, Thor Mining a 45% interest in the possible in-situ leaching copper project.
  • The estimate published today relates to the upper 100 metres of the deposit and only relates to the portion expected to recoverable by in-situ leaching technique.
  • The company comments that “Further work is required to advance a range of areas prior to commercial development including ongoing local government and community engagement, continuing technical assessment and various environmental and regulatory issues.”

 

Conclusion: The initial resource estimate will need to be firmed up from the current inferred status but provides a firm base for continuing work as the company pursues the continuing technical, governmental and social issues and regulatory permitting. We look forward to further news as the project proceeds.

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