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Today's Market View - US closes in on China trade deal

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SP Angel – Morning View – Tuesday 26 02 19

US closes in on China trade deal

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MiFID II exempt information – see disclaimer below

   

Amur Minerals* (LON:AMC) – Kun Manie PFS estimates NPV10% at $615-987m and IRR of 29-35% for two production scenarios

Barrick Gold (NYSE:GOLD) – Barrick offer for Newmont may fail on Antitrust issues as did Goldfields vs Mincorco

Newmont Mining (NYSE:EM)

Cora Gold* (LON:CORA) – Zone A drilling results return wide higher grade intersections

Element 25 (ASX:E25) – PFS metallurgical drilling update

Herencia Resources (LON:HER) Suspended – Death spiral facility looks likely to cause delisting

Ormonde Mining* (LON:ORM) – Progress report on Barruecopardo commissioning

Premium African Minerals (LON:PREM) – Zulu lithium drilling programme

Scotgold* (LON:SGZ) – Start of productio at Cononish guided for Q4/CY19

 

Dow Jones Industrials

 

+0.23%

at

  26,092

Nikkei 225

 

-0.37%

at

  21,449

HK Hang Seng

 

-0.63%

at

  28,776

Shanghai Composite

 

-0.67%

at

   2,942

FTSE 350 Mining

 

-0.98%

at

  19,245

AIM Basic Resources

 

+0.21%

at

   2,205

 

Economics

US – US and China ‘very very close’ on deal

  • Trump had delayed the imposition of further trade tariffs. The move demonstrates Trump’s pro-business approach to trade negotiations.
  • North Korea: Donald Trump heading off to Vietnam for meeting with Kim Jong Un
  • Trump has been nominated for a Nobel Peace prize for his work in bringing North Korea in from the cold
  • Trump also asks OPEC to take it easy on higher oil prices “Oil prices getting too high. OPEC, please relax and take it easy. World cannot take a price hike - fragile!”

 

UK – PM May will on Tuesday propose formally ruling out a no-deal Brexit aiming to avoid a rebellion by lawmakers who are threatening to take control of the divorce process, Reuters reported this morning.

  • The pound is trading at the highest in more than two years against the € amid expectations for a reduced risk of a disruptive no deal Brexit..
  • Mrs May says: "We still have it within our grasp to leave the European Union with a deal on 29 March. That's what I'm going to be working at." at EU-League of Arab States summit in Sharm el Sheikh

 

Russia – Moody’s upgraded Russia’s sovereign debt rating to investment grade citing positive effect of policies enacted in recent years to strengthen public finance and reduce its vulnerability to external shocks including fresh sanctions.

  • The rating has been brought up to Baa3 from Ba1 with outlook revised to stable from positive.
  • Both S&P and Fitch currently rate Russia’s sovereign debt at similar levels of BBB-.

 

Cornwall – The Peoples Republic of Cornwall is celebrating Cornish Pasty Week 2019

  • Cornish Mining are official sponsors in celebrating the traditional miner’s packed lunch from 24th Feb to 2nd March.

 

Currencies

US$1.1354/eur vs 1.1347/eur yesterday  Yen 110.81/$ vs 110.65/$  SAr 13.856/$ vs 13.909/$  $1.316/gbp vs $1.308/gbp  0.715/aud vs 0.716/aud  CNY 6.696/$ vs 6.698/$

 

Commodity News

Precious metals:         

Gold US$1,325/oz vs US$1,329/oz yesterday

   Gold ETFs 72.5moz vs US$72.6moz yesterday

Platinum US$850/oz vs US$850/oz yesterday

Palladium US$1,536/oz vs US$1,525/oz yesterday

Silver US$15.86/oz vs US$15.97/oz yesterday

           

Base metals:   

Copper US$ 6,476/t vs US$6,521/t yesterday

Aluminium US$ 1,902/t vs US$1,923/t yesterday

Nickel US$ 12,960/t vs US$13,100/t yesterday

Zinc US$ 2,701/t vs US$2,730/t yesterday

  • Rebounding mine supply is expected to have raw material producers “begging smelters” for capacity to refine the metal used to galvenise steel, giving strong negotiating power for smelters to boost their fees to the highest in two years.
  • Tight refined metal supply follows smelter disruptions across China, with the situation exacerbating as zinc concentrate output is forecast to climb +6.5% compared to +3.7% according to Goldman Sachs Group figures.
  • Treatment charges were set at $147/t globally last year, down from $172/t a year earlier. Organised by the International Zinc Association, industry executives are gathered in Scottdale, Arizona, to focus on how high the fees can bounce back.
  • Citigroup also warns the world’s processing capacity, excluding China, will be “pushed to extreme” to process the increased volume, while the “bigger burden is on the Chinese smelters to boost output”.
  • The metal has risen +10% this year on the London Metal Exchange as refined stockpiles shrink. Deliverable stockpiles at the London Metal Exchange are near less than a day’s worth of demand and rebuilding holdings could require a “full-blown global recession,” according to ICBC Standard Bank Plc.
  • China’s zinc demand could rise more than expected this year as infrastructure fixed asset investment growth accelerates to 10% from 3.8% last year, and the metal will also benefit from a pick-up in construction, according to Bloomberg Intelligence.

Lead US$ 2,070/t vs US$2,073/t yesterday

Tin US$ 21,670/t vs US$21,700/t yesterday

  • Shanghai tin futures could once again be testing record highs following the halt of a major mine in northern China that is expected to tighten domestic supplies following deadly accident.
  • International Tin Association representative identified the incident came at a time when imports from Myanmar had yet to ramp up following the Lunar New Year break so dampen the supply blow.
  • The metal will extend gains in both Shanghai and London, with domestic contracts reaching May’s record of 157,560 yuan a ton ($23,532), Cui Lin added.

           

Energy:           

Oil US$64.7/bbl vs US$67.0/bbl yesterday

Natural Gas US$2.850/mmbtu vs US$2.775/mmbtu yesterday

Uranium US$28.20/lb vs US$28.60/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$82.4/t vs US$84.5/t

  • Failures in Brazil’s iron ore production is putting some of the richest untapped iron ore deposits in Guinea back in the spotlight, as the government ends a seven-year-old dispute with billionaire Beny Steinmetz over the Simandou iron ore project. At the same time, mining veteran Mick Davis is starting a new development that could be the precursor to projects exploiting Guinea’s great mineral wealth.
  • The nations deposits remain untouched for more than a decade due to political infighting, corporate squabbling, an Ebola outbreak and a crash in iron ore prices.
  • The Simandou project remains the crown jewel of Guinea’s assets, which have the potential to transform the dynamics of the iron ore market, as production ramping to around 150mtpa to drive the West African nation into the top producing countries.
  • The iron ore is also some of the highest quality, making it a sought-after product, especially for steelmakers as China pursues a clean skies policy.
  • However, costs are exorbitant – an estimated $20bn due largely to the insistence on the constriction of a 650km railway to export iron ore from a local port. Around two-thirds of the capital is designated for infrastructure.
  • ArcelorMittal offer up the trans-Guinean rail to export material via Liberia assuming there is spare capacity and upgrade costs are covered.
  • This option was favoured by a number of smaller projects closer to the southern border, with permission won to export, but were never developed.
  • Successful development offers a big win to the Guinean President Alpha Conde to finally get the country’s iron ore industry running.

Chinese steel rebar 25mm US$607.5/t vs US$607.4/t

Thermal coal (1st year forward cif ARA) US$78.0/t vs US$77.6/t

Coking coal futures Dalian Exchange US$197.3/t vs US$197.2/t

           

Other:  

Cobalt LME 3m US$32,000/t vs US$31,000/t

China NdPr Rare Earth Oxide US$46,294/t vs US$46,285/t

China Lithium carbonate 99% US$10,230/t vs US$10,228/t

China Ferro Vanadium 80% FOB US$71.5/kg vs US$71.4/kg

China Antimony Trioxide 99.5% EU US$6.9/kg vs US$6.9/kg

Tungsten APT European US$260-270/mtu unchanged from previous week

 

Battery News

Shelved EU ban gives ‘reprieve in sight’ for lead-acid batteries

  • Lead battery makers fended off a European proposal that threatened to kill off the industry by imposing an in-effect ban on the use of four lead compounds.
  • Irreplaceable lead compounds were due to move to the EU’s REACH authorisation list, with industry leaders warning thousands of battery jobs risked being axed in Europe and ‘exported’ to competitors.
  • However, the Brussels-based Association of European Automotive and Industrial Battery Manufacturers— Eurobat— has reported it understands the Commission is not now recommending the inclusion of lead monoxide, lead tetroxide, pentalead tetraoxide sulfate and tetralead trioxide sulfate on the REACH list.
  • The decision will rely on a review of the occupational exposure limits progressed by the European Chemicals Agency. During the manufacturing phase of lead-based batteries, “all four compounds are transformed into other substances with only trace amounts (<0.1%) present in the finished battery”. Lead-based batteries “are sealed units that operate in Europe in a closed loop with almost 100% collected and recycled at the end of life”.

 

India first step into battery storage

  • India’s first grid-scale battery energy storage system has gone online in Rohini, Delhi, as the country targets 225GW of renewable energy integration by 2022.
  • The 10MW/10MWh lithium-ion system is jointly owned by AES Energy Storage and Mitsubishi, and supports a Rohini substation operated by Tata Power.
  • The system will provide “grid stabilisation, better peak load management, add system flexibility, enhance reliability, and protect critical facilities for 2 million consumers.”

 

Research theory could lead to better batteries & fuel cells

  • New research suggests researchers may tune and improve the performance of ionic ceramics in rechargeable batteries and fuel cells according to Phys.org
  • Ionic ceramics are composed of many faceted "grains" that meet at boundaries in ways that affect power deliver in fuel cells and charge duration in batteries.
  • Research suggests it may be possible to better engineer interfacial ceramics to improve fuel cell and battery performance as interfacial phase transitions can cause the grain boundaries to become insulators, interfering with a battery's performance.

 

High-powered fuel cell boosts electric-powered submersibles, drones

  • Engineers at Washington University have developed a direct borohydride fuel cell that operates at double the voltage of today's commercial fuel cells.
  • This advancement using a unique pH-gradient-enabled microscale bipolar interface (PMBI) could power a variety of transportation modes including unmanned underwater vehicles, drones and eventually electric aircraft, at significantly lower cost.
  • The fuel cell uses an acidic electrolyte at one electrode and an alkaline electrolyte at the other electrode. Typically, the acid and alkali will quickly react when brought in contact with each other. Using membrane technology developed at the McKelvey Engineering School, the PMBI can keep the acid and alkali from mixing, forming a sharp pH gradient and enabling the successful operation of this system.

 

Company News

Amur Minerals* (LON:AMC) 3.6p, Mkt Cap £25m – Kun Manie PFS estimates NPV10% at $615-987m and IRR of 29-35% for two production scenarios

  • The Company released an internally prepared PFS on the wholly owned sulphide polymetallic Kun Manie project located in a Far East Russia.
  • The PFS covers two production scenarios including the Toll Smelt option (TS Option or Base Case) for output of flotation nickel/copper concentrate to be sold to a third party toll smelter and the Electric Furnace/Flash Smelter option (FFS Option) involving more downstream processing of the concentrate and its conversion into a Low Grade Matte capturing by product revenues from copper, cobalt, platinum and palladium.
  • The study assumed 6mtpa processing plant capacity, a combination of open pit and underground mining operation, 15 years life of mine based on the available JORC Mineral Resource of 155mt at 1.02% NiEq.
  • Annual payable nickel production is estimated to average 24kt Ni for the TS Option and 29kt NiEq for the FFS Option.
  • Estimated NPVs and IRRs (both post tax) together with operating and capital costs estimates are provided below:

Production

Option

NPV 10%

$US (m)

IRR

(%)

Years to production

Initial Capital

$US (m)

Sustaining Capital

$US (m)

Free Cash Flow

$US (m)

TS

$614.5

29.3%

3

$570.4

$494.3

$2,041

FFS

$987.4

34.7%

3

$695.0

$495.2

$2,980

 

AMPR Cost Basis

TS Option

FFS Option

C1 Cash Cost

$8,536 / t

$3.87 / lb

$5,390 /t

$2.45 / lb

All In Sustaining Cost

$9,890 /t

$4.49 / lb

$6,521/t

$2.96 / lb

Fully Loaded All In Cost

$10,473 /t

$4.75 / lb

$7,252 / t

$3.29 / lb

Capital Intensity Cost

$23,450 / t

$10.64 / lb

$23,838 t

$10.82

  • C1 operating costs for both options fall within the second lowest quartile in the industry.
  • Kun Manie ranks in the mid-range of 16 selected nickel sulphide projects on capital intensity measures for both options reflecting remoteness and lack of infrastructure in the area.
  • Estimates used a long term nickel price of $8.0/lb ($17,637/t).
  • The Company highlights current PFS does not include a potential expansion of the March 2018 MRE following a successful exploration 2018 field season, metallurgical work on a potential reduction of the magnesium oxide content and a possibility to launch a separate copper concentrate stream.
  • The study is based on available information as of June 2018 and has been audited by QP/CP Kevin Wright.

Conclusion: The PFS reflects attractive returns based on the latest set of production, operating expenses, capital costs and commodity price assumptions. Additionally, the Kun Manie project technical risk is minimised being a sulphide deposit susceptible to industry proven mining and mineral extraction technologies. The Company highlights further upside potential present from a potential expansion of the mineral inventory, optimisation of the mining schedule, further metallurgical testwork (project economics are very sensitive to metal recoveries) as well as a potential to separate out copper from the flotation concentrate.

*SP Angel acts as Nomad and Broker to Amur Minerals

 

Barrick Gold (NYSE:GOLD) US$12.61, Mkt Cap US$22.1bn – Barrick offer for Newmont may fail on Antitrust issues as did Goldfields vs Mincorco

Newmont Mining (NYSE:NEM) US$36.10, Mkt Cap US$19.2bn

  • Stepping forward from its January 2019 merger with Randgold Resources, which cemented its position as the world’s largest gold producer, Barrick Gold has now proposed a US$17.8bn all-share offer to acquire the second largest, Newmont Mining.
  • Barrick is proposing exchanging 2.5694 of its shares for each Newmont share creating an enlarged company in which former Newmont Mining shareholders would own a 44.1% interest.
  • According to Barrick’s presentation, on a pro-forma 2018 basis, the combination of the two companies would create a miner with 4.1moz of annual gold production, a mineral reserve base of 48.3moz of gold and would generate over US$7bn of pre-tax synergies, including around US$5bn of NPV from a rationalisation of gold mining assets in Nevada where Barrick “has the majority of high grade reserves and resources and Newmont has the majority of processing plant capacity and infrastructure”.
  • Barrick is also proposing “to match Newmont’s annual dividend of $0.56 per share which, based on the proposed exchange ratio, will represent a pro forma annual dividend of $0.22 per Barrick share (compared to the current annual dividend of $0.16 per Barrick share)”.
  • Barrick describes their proposal as creating a “Virtuous Circle of Value Creation” in which optimisation of the combined operations reduces costs and generates higher levels of free cash flow, leading to lower cut-off grades, increased mineral reserves and resources and longer and more profitable mine lives.
  • Conditions: the proposal sets a number of conditions including the termination of the all-share $10bn Newmont Goldcorp merger, which is itself subject to a “break” condition ensuring that Goldcorp receives $650m in the event that Newmont does not complete its merger with Goldcorp.
  • Antitrust precedent: among other conditions on Barrick’s offer for Newmont is regulatory approval by the relevant authorities. Readers may recall that a major factor in the failure of the Anglo American subsidiary, Minorco’s bid to acquire Consolidated Gold Fields, in 1989, admirably described by Bill Jamieson in his book “Goldstrike”, were antitrust concerns over the combination of what were at the time the world’s largest and second largest gold producers.
  • At this stage, it is unclear whether regulators would adopt a similar stance to a major consolidation of the gold industry today, however, in the event that the proposal is contested, the potential restriction of competition could form an element of a defence strategy. In 1989, Newmont Mining was a party to the legal action in the US courts which ultimately resulted in Minorco being unable to satisfy the conditions of its offer despite winning the support of a majority of Consolidated Gold Fields’ shareholders. No doubt Newmont’s internal files contain the details.
  • Newmont for its part has confirmed receipt of the proposal from Barrick and though its initial response clearly favours continuing with the Goldcorp transaction in preference to Barrick’s overtures, “Newmont’s Board of Directors intends to fully evaluate the Barrick proposal and respond in due course, including providing advice to its shareholders. No shareholder action is necessary in response to Barrick’s proposal.”
  • Newmont has, however, highlighted its perception that “Barrick’s Proposed Combination Ignores Risks and Overstates Rewards” while asserting that the “Nevada synergies could be more efficiently realized through a Nevada joint venture between the companies without exposing Newmont’s shareholders to Barrick’s riskier portfolio, integration risks and transaction costs”.
  • Newmont also takes a view that the proposed combination with Goldcorp “provides the greatest potential for additional value creation through asset optimization, project sequencing, and application of Newmont’s operating model. The combination will be immediately and highly value-accretive to Newmont’s net asset value and cash flow per share; generate an estimated $75 per ounce in Full Potential cost and efficiency improvements, representing anticipated benefits of approximately $165 million per year, and along with $100 million in pre-tax synergies, generate $265 million in combined expected annual pre-tax synergies and Full Potential benefits representing potential value creation of more than $2.5 billion”.

Conclusion: We do see significant operational benefits in combining the Nevada operations if the regulators allow, however, Newmont’s reference to realising synergies in Nevada in the context of a joint-venture may be an alternative mechanism to realising that end. We await a more formal response from Newmont as it deploys counter-arguments to highlight the competing merits of the Goldcorp transaction.

Barrick’s new ceo, Mark Bristow, should be bedding down its merger with Randgold before going after its next target while Bristow’s proven expertise in building gold mines in Africa, a far cry from running established mines in the US, Latin America and Australia.

 

Cora Gold* (LON:CORA) 6.2p, Mkt Cap £4.1m – Zone A drilling results return wide higher grade intersections

  • The Company released results from the first set of drilling results of the 2019 programme at Sanankoro, Western Mali (3,000m AC/RC and 200m DD).
  • Drilling results include assays from four RC holes (381m) and one diamond core hole (76m) focusing on confirmatory and infill drilling at the Zone A of the Sanankoro structure.
  • Selected results include:
    • 8m at 3.17g/t from 69m (SC0153);
    • 26m at 2.60g/t from 71m (SC0154);
    • 24m at 2.83g/t from 56m (SC0155).
  • Drilling results demonstrate good correlation with historical drilling.
  • Diamond core drill hole has been completed to collect samples for metallurgical test work to assess the oxide material amenability to leaching; results are expected in due course.
  • Results from the Selin structure where historical drilling returned wide high grade shallow intersections (52m at 2.41g/t from 14m and 32m at 3.54g/t from 14m among others) are due in the upcoming weeks.

Conclusion: The Company reports results from the first series of drillholes completed at Sanankoro during the 2019 field season focused on identifying high grade close to surface oxide mineralisation that may potentially from a starter pit and supply economic ounces. Results show wide higher grade intersections which correlate well with historical drilling.

*SP Angel acts as Nomad and Broker to Cora Gold

 

Element 25 (ASX:E25) A$0.18, Mkt Cap A$14.7m – PFS metallurgical drilling update

  • Completed diamond drilling programme for thirteen PQ3 holes has been finalised for geotechnical tests while providing 2.4t samples from within the initial twenty-year mine plan area for metallurgical test work. Three of the holes were drilled for geotechnical assessment of the planned wind farm outside the mining area, the remainder were drilled to inform the pit design process.
  • The test programme has been designed to further demonstrate the scalability of the processing flowsheet developed in conjunction with the CSIRO, with additional information for detailed process plant design.
  • The work, which extracted 340.1m material, underpins the ongoing Pre-Feasibility Study scheduled for completion in 2019.
  • The flowsheet efficiently extracts manganese (approximately 95% extraction in 30 minutes at room temperature and pressure) into solution to produce high purity manganese including battery grade manganese sulphate (HPMSM) and High Purity Electrolytic Manganese Metal (HPEMM).

 

Herencia Resources (LON:HER) Suspended – Death spiral facility looks likely to cause delisting

  • Herencia Resources which arguably holds one or more potentially valuable projects in Chile appears to be in a deadlock created by its lenders and backers.
  • ‘The Directors confirm they have executed legally binding term sheets with two of its shareholders, the Australian Special Opportunity Fund ("Lind Partners") and Oriental Darius Co. Ltd ("Oriental") to advance the Company US$300,000, subject to the satisfaction of certain conditions (the "Shareholders"). It is intended that the funds will be provided equally by each of the Shareholders ( US$150,000 each).
  • However, the Directors note that the term sheet is subject to certain pre-conditions which are highly unlikely to be achieved and that, to be AIM Rule compliant, the transaction requires approval by the Company's Nominated Adviser, WH Ireland pursuant to AIM Rule 13 of the AIM Rules for Companies. Therefore there can be no guarantee the transaction will progress.
  • The Company also confirms that its working capital position is now severely constrained and if the term sheets cannot be approved, and if no further source of funds can be found, it is unlikely that the Company will be able to continue to trade after this time.
  • Accordingly, trading in the Company's Ordinary Shares has been suspended with immediate effect pending clarification of financial condition. Further updates will be provided in due course.’
  • Lind Partners and other investors acting in concert hold 24.66% of the ordinary shares
  • If Lind Partners convert all its convertible interests including the latest facility its stake would rise to 32.14%.

Conclusion: We suspect the company’s Nomad, WH Ireland, will not want the headache and reputational risk of the impasse at Herencia and this may cause the suspension to turn into an eventual delisting.

Herencia is a sad example of a company which should be drilling, advancing and defining value on a number of fronts in Chile, which is home to many of the world’s larger copper mines.

 

Ormonde Mining* (LON:ORM) 4.2p, Mkt Cap £19.8m – Progress report on Barruecopardo commissioning

  • Ormonde Mining reports that construction and commissioning of its 30% owned Barruecopardo tungsten project in Spain is now expected to “continue during the following weeks, including producing tungsten concentrates, which will lead on to a progressive transition from the commissioning phase into the gradual ramp-up of production at Barruecopardo.”
  • Mining has concentrated on the northern part of the starter pit and on waste stripping of the east wall of the historic open-pit mine.
  • Open-pit mining of tungsten ore started in January and used to help commission the crushing and screening plant and prepare a stockpile of fine ore for the commissioning of the process plant, which has already treated some ore as part of the “hot-commissioning” which “will continue during the remainder of February and into March.”
  • Commenting on the progress, Chairman, Michael Donoghue, confirmed that mining was underway and wet and dry commissioning of the process plant was now “mostly complete, with ore now being introduced to the process plant”.
  • Mr. Donoghue went on to observe that “"These are significant milestones for the Project, and we look forward to seeing ore commissioning progress during the weeks ahead and the successful transition into the Project's production phase."                        

Conclusion: The commissioning of the Barruecopardo tungsten operation now seems to be well underway with initial ore already being fed into the plant. The precise timetable for moving from commissioning into the build up to full scale production is not clear but as the spring weather approaches, Barruecopardo should be in a good position to avoid any timing delays resulting from adverse weather. We look forward to further news as the project gets closer to commercial production.

*SP Angel acts as Broker to Ormonde Mining

 

Premium African Minerals (LON:PREM) 0.12p, Mkt Cap £8.9m – Zulu lithium drilling programme

  • Drilling recommenced at the company’s wholly-owned Zulu lithium and tantalum project in Zimbabwe, with first drilling beginning as soon as seasonal rains permit.
  • The programme will follow the recommendations identified in the Definitive Feasibility Study, focusing on expanding both the size and confidence of the current SAMREC compliant Resource, as well as the generation of geotechnical and hydrological data for the pit shell designs and future mine construction.
  • The company has appointed KME Plant Hire Proprietary Limited as drilling contractor to carry out these drilling works, with previous announcements agreeing amended conditional terms to acquire 50% of KME.
  • The advanced stage lithium development project covers 3.5km2 and is located 80km north east of Bulawayo. In June 2017, Premier announced a Maiden Mineral Inferred Resource Estimate on Zulu of 20.1mt grading 1.06% Li2O.
  • The budget for the initial drilling programme, including mobilisation, is approximately US$400,000 and the company has today issued 212,413,793 new Ordinary Shares of nil par value at an issue price of 0.145p per share to KME as pre-payment for the mobilisation and drilling.

 

Scotgold* (LON:SGZ) 32p, Mkt Cap £14m – Start of productio at Cononish guided for Q4/CY19

BUY – Target Price 57p

  • Underground mine development commenced with enlarging the existing adit portal to accommodate mining equipment.
  • The Company employed General Manager, Process Manager and Junior Mining Engineer strengthening the operations team to 11 people.
  • On surface infrastructure, upgrading the Dalrigh Junction with the A82 is well advanced with works on the installation of the new steel bridge over the Crom Allt ford are due to start shortly. Access roads are widened and upgraded for materials and equipment deliveries. Surface equipment has been ordered and is on schedule for arrival in the spring.
  • On processing plant, the team decided to optimise sizing of certain process facility units to accelerate the shift from Phase I (3ktpm) to Phase II (6ktpm) as well as cutting total Cononish development capex. In particular, the Company will be ordering larger feed bin, crushing and filtration circuits which would accommodate higher throughput rates once all operations ramp up to 6ktpm. Among major processing plant related items left for phased development schedule are the mill and flotation cells.
  • As such peak funding for Phase I has gone up to £8.7m from £7.4m; items pulled forward in terms of development spend in turn reduced Phase II with a total saving on the development capex of £1.0m (from £20.1m to £19.1m)
  • Plant configuration, procurement and installation is managed by APT Ltd that supplied the Bulk Processing Trial plant in 2016.
  • In light of accelerated development schedule, the Company indicated it may require more funding before becoming cash positive in 2020 which in turn had the Company securing an additional £1m loan facility from Nat le Roux. The facility comes on top of the existing £5m with the terms of the total secured loan including 24 month term from the date of each drawdown, 9%pa interest payable at the end of the 24 months’ term and no penalty early repayment clause.
  • First gold production is scheduled for the end of 2019.
  • On exploration front, the Company reported on positive reconciliation of the newly utilised geochemical sampling technique in mapping mineralised sections of the Cononish Vein called ionic leach soil drainage sampling approach. The team is planning to expand the survey to evaluate other anomalies identified in the area.
  • On the Pomar gold project in Portugal, PanEx Resources has withdrawn from the March 2018 earn in agreement with Scotgold retaining 100% interest in the asset. The team is currently completing its own soil sampling programme ahead of the decision whether to apply for an extension of the license.

Conclusion: The Company is moving towards production at the high grade Cononish gold project with first gold scheduled for the end of 2019. Optimised development schedule allows to bring some of development costs forward installing parts of the processing plant fit for the Phase II 6ktpm run rate translating into marginal cost savings for the project (£1m from £20.1 to £19.1m); in addition, this may potentially accelerate the timing on a switch from Phase I to Phase II. We have revised our capex estimates, delayed Phase I production from H1/19 to H2/19, brought Phase II start forward to H2/21 (from H1/22) and adjusted out NAV estimates for £1m in new debt. We remain buyers of Scotgold Resources with a target price of 57p (from 58p).

(Jun year end)

 

FY16

FY17

FY18

FY19e

FY20e

FY21e

FY22e

Gold price

US$/oz

1,168

1,258

1,298

1,268

1,338

1,350

1,350

Gold price

GBP/oz

788

992

964

905

955

964

964

AUDGBP

A$/£

2.04

1.68

1.74

1.78

1.78

1.78

1.78

Gold sales

koz

-

-

-

-

5.2

15.8

22.0

TCC

GBP/oz

-

-

-

-

439

321

313

Sales

A$m

0.0

0.0

0.3

-

8.9

27.1

37.7

EBITDA

A$m

-1.3

-1.1

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