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Fairfax Market Report including First Quantum, Nyota Minerals, Stellar Diamonds, Rambler Metals & Mining and others

Last updated: 05:47 18 Oct 2010 EDT, First published: 04:47 18 Oct 2010 EDT

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Morning View

M&A gathering pace as cash rich miners look to grow by acquisition as well as through organic expansion
•    We are seeing increasing news flow on miners which are looking to make acquisitions
•    Cash rich companies making plans to grow on a number of fronts
•    Gold and copper miners appear particularly keen to buy into new exploration and development assets

Economic News

China – The Chinese officials have been finalising the country’s economic roadmap that will layout the plan for the next five years. One of the most significant areas is expected to be new targets for energy efficiency and carbon emissions reduction. The energy target is expected be a 15-20% reduction in energy intensity over the next 5 years.  In order to hit the ambitious target the country is rumoured to be preparing a US$753billion spending program to boost clean energy.
•    Government bonds have extended last weeks losses on speculation that a rally in the stock market is attracting money away from the debt market.
•    New government plans to restrict financing to certain industries is expected to impact base metal prices in the global market. Reports suggest that certain Chinese firms will need to consult government bodies should they plan to seek more financing.  The nine industries to be affected by the new regulation include steel, cement, coal processing, Aluminum, and steel forging.

US – Expectations ahead of production data due for release later today is expected to show that production output continued to increase for the 14th month in a row. 
•    Federal Reserve Chairman, Ben Bernanke signalled again on Friday that further stimulus was likely but without revealing any specifics.

Japan - The yen rose against all its major peers on speculation Japan will refrain from intervening to weaken its currency.
•    The Tertiary Index, a measure of services demand fell for the first time in 3 months. The index fell 0.2% from July when it rose 1.6% according to the trade Ministry.

Europe– Speculation ahead of the ZEW confidence report released tomorrow suggests that investor confidence dropped for a sixth month in October increasing concerns that the economic recovery in the Euro zone might be slowing.
•    European Central Bank President Jean-Claude Trichet has rejected Bundesbank President Axel Weber’s call to end the bond purchase program stating that the program has provided a lifeline for European governments and Banks.

Australia – Rio/BHP iron ore JV cancelled with no break fee showing a surprising degree of good will between the two companies.
•    Equities in Australia off today as investors book profits

Philippines – Super Typhoon Megi now upgraded to category 5 gusting up to 200mph hitting the northern Philippines.  It is of note that Medusa Mining is at the South of the Philippines on the Island of Mindanao which is some distance from the typhoon corridor through which Megi is passing

Currency – Increasing speculation that the Fed will announce details on a time line for further stimulus has lead the dollar to strengthen today. 

US$1.387/eur vs $1.409eur yesterday. Yen81.19/$ vs  81.24/$ SAr6.88/$ vs 6.78/$  $1.588GBP vs 1.605/GBP

Commodity News


Precious Metals:
Gold US$1,359/oz vs US$1,379/oz – Prices are off slightly today as the dollar strengthens on the back of increasing speculation that US government stimulus is imminent. 
•    Zijin Mining, China’s largest gold producer is being sued by the local government in relation to the fatal dam collapse at the companies tin mine earlier in the year that lead to the death of 28 people.
•    SPDR gold holdings rise to 1,301.91t (41.857moz) from 1,285.2t (41.320moz) yesterday. Current value US$57.230bn.
Platinum US$1,678/oz vs US$1,700/oz yesterday –
Palladium US$572/oz vs US$597/oz yesterday –
Silver US$23.91oz vs US$24.57/oz yesterday – GFMS has stated that the Silver market will remain in substantial surplus this year. Mine supply could gain by more than 400 tons in 2010 will sales figures by governments remaining constrained.
Rhodium US$2,300/oz vs US$2,250/oz yesterday –

Base metals:
Copper US$8,327/t vs US$8,410/t yesterday – Prices are off slightly today as the dollar strengthened and poor expectations about the housing market resurfaced.
•    TC/RC charges in China have surged to US$80/t and 8c/lb according to Metal Bulletin in response to rising copper prices and weak demand from smelters.  This is a significant change from a month ago when TC/RC’s were at around US$20/t and 2c/lb.  Demand could be tailing off in advance of the year end with smelters unwilling to buy more concentrates.  Despite this market participants still expect the 2011 contract to fall.
Aluminium US$2,369/t vs US$2,395/t yesterday – Expectations are that the power restrictions put in place by the Chinese government are likely to have a greater long term effect on aluminium than on steel according to industry reports released today. Any price rises seen as a result of the power curbs are likely to encourage new projects to be started when Beijing loosens its grip.  
Nickel US$23,450/t vsUS$24200/t yesterday –
Zinc US$2,393/t vs US$2,411/t yesterday –
Lead US$2,393/t vs US$2,408/t yesterday –
Tin US$26,300/t vs US$26,650/t yesterday –

Energy:
Oil US$81.89/bbl vs US$85.30/bbl – Prices are down for a third day today in anticipation of further poor housing data expected latter this week.
Gas US$3.490/MMBTU vs US$3.672/MMBTU yesterday – 
Uranium US$46.50/lb vs $46.50/lb last week –

Other:
Iron Ore – Iron ore stockpiles at Chinese ports rose by 0.23% last week to 71mt according to Interfax
BHP and Rio terminate iron ore JV in Australia as regulatory approvals to allow the JV to come into effect look increasingly unlikely to be achieved.
•    Both parties have mutually agreed that no break fee is payable.
•    The collapse of the deal is of no real surprise.

Steel – Shandong Steel gets $350m credit line  from nine financial institutions according to Interfax
•    The syndicate of banks is Standard Chartered Bank, HSBC, Banque Indosuez, Agricultural Bank of China, Bank of China, Westpac Bank, Industrial Bank, Wing Lung Bank and Hang Seng Bank.
•    The money is likely to be used to expand steel production capacity in Shandong Province.
•    The credit line is further evidence of fund inflows into China and highlights how low interest rates in the west are serving to further expand Chinese industry.
•    Emirates Steel is looking to raise capacity to 6mtpa from 2mtpa  in the next three years.

Rare Earths – China:  The Ministry of Commerce has announced that the country’s medium and heavy reserves may only last 15 to 20 years at the current level of production. Domestic rare earths deposits fell to 27 million metric tons by the end of 2009, equivalent to 30% of the world’s total known reserves, from 43 million tons in 1996.
•    Glencore is also reported to have agreed to develop the Pea Ridge rare earth project with Wings Enterprises in the US, Bloomberg.

Potash – Sionchem (China) will not counterbid for Potash Corp - Reuters

Company news

Mining:
Allied Gold – Exploration success at Gold Ridge and Simberi

First Quantum (LSE:FQM)– C$460m acquisition of Antares Minerals
•    First Quantum has announced that it has entered into a definitive agreement to acquire the outstanding shares of Antares for C$460m in cash and shares.   Each Antares share will be exchanged for 0.07619 First Quantum Shares and a cash payment of C$6.35 subject to an aggregate maximum cash consideration of C$250m.
•    Antares principal asset is its 100% owned Haquira project located in Southern Peru adjacent to Xstrata’s Las Bambas copper gold project.  Haquira has a measured and indicated resource of 3.7mt of contained copper equivalent and inferred resources of 2.4mt, copper grades stand at around 0.5% Cu.
•    Antares also holds a 50% interest in the Rio Grande project in northwest Argentina which will be spun out with C$5m in cash.
Conclusion:  This is a substantial project for the company and we look forward to seeing how it evolves.  This will also provide diversification of First Quantum’s asset base and therefore decrease its risk profile.

Equinox – is said to be looking for acquisition opportunities to add to its existing copper operations in Zambia
•    Equinox has come far from its beginnings when it was being stalked by First Quantum
•    Equinox’s Lumwana copper mine is now said to be Africa’s largest copper mine.
•    This serves to add to competition to buy into mining assets in Africa

Fortescue – looking to place over $2bn of bonds to replay debt

Nyota Minerals (LSE:NYO)– Drilling update
•    Positive drilling results from Tulu Kapi Project from a further 21RC and 8DD holes totaling 7,961.15m as part of a programme aimed to increase the  current inferred 1.38moz resource.
•    Grades returned reflect considerable variability in terms of both grade and width.

Stellar Diamonds (LSE:STEL)– Progress at Bomboko
•    Stellar Diamonds highlights the progress made from trial mining at Bomboko that has to date recovered 5,116carats most recently selling stones at US$132carat (815 carat parcel).
•    Seasonal rains led to suspension of operations in early August reducing quarterly output to 576carats versus 1,510carats previously.  The gravels being mined have an average grade of 4cpht.
•    Bomboko has a current inferred resource of 41,000carats with work underway to add to the resource base.  The plant is being upgraded to enhance diamond recoveries including an X-Ray flow sort module.

Rambler Metals & Mining (LSE:RMM)– Financial results show considerable progress
•    In the year to 31st July, Rambler has made considerable progress towards brining the Ming Ming mine in Canada into production.  The company has purchased processing facilities for the ore around 40km distant from the mine, the Nugget Pond facility for C$3.5m.  In addition the development is largely financed following a gold loan agreement raising US$20m.
•    Two share placings have also taken place during the period raising a total of US$12.9m.
•    As at the 15th October the company had US$7.9m in cash and equivalents.
•    The mine has a short mine life as things currently stands although there appears to be considerable upside potential as the resource is open at depth, and there are other targets in the footwall and nearby that could hold significant resources.  The region also has a number of gold targets that could eventually be processed through the Nugget Pond facility as they are too small to be stand alone operations.
Conclusion:  It has been a year of considerable progress and the company hopes to start production by the middle of next year following the start of production in December.  We look forward to newsflow on progress with the asset and from exploration that could add to the resource base extending the 6 year mine life.

Royal Bafokeng Platinum – looking to raise R3.2bn (US$464m) in an IPO
•    Impala bid to buy the Bafokeng Rasimone mine last week
•    AngloPlatinum vetoed acceptance of Impala’s bid
•    Looks like Impala may be forced to buy its stake in the market or walk away
•    AngloPlatinum hold a smelting agreement relating to the pgm concentrate

Vedanta – newspaper report Vedanta may seek to raise US$800m through stock sale in Zambian copper mines
•    Vedanta have suffered criticism in some quarters over their management of certain Zambian copper mining assets in recent years.  The sale of a stake in the operations may help to finance work on the operations and a potential new structure could improve perceived ownership and governance issues

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