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Today's Market View - Anglo American, Birimian, Ironridge Resources Limited, Ormonde Mining plc, Shanta Gold Limited, Strategic Minerals Plc

Published: 05:40 05 Sep 2017 EDT

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Anglo American (AAL LN) – De Beers diamond sales slip

Birimian Limited (BGS AU) – Exploration at Goulamina lithium project shows three new pegmatite zones

IronRidge Resources* (IRR LN) – Completion of Tekton acquisition

Ormonde Mining* (ORM LN) – Barruecopardo on track for commissioning in Q3 2018

Shanta Gold (SHG LN) – Hold – Optimisation of the cost base and management changes

Strategic Minerals* (SML LN) – August delivers record sales at Cobre

 

Copper – prices continue to rise as China grows, manufacturers restock and investors look forward to further electrification

Copper prices look set to continue to rise as manufacturers, traders and investors look to secure supplies.

The environmental crackdown in China may have precipitated the price run but ongoing infrastructure and other growth in China along with the further electrification of urban sites for electric vehicles is likely to continue to ramp up demand.

Further, around 2mt of copper has been lost by major producers representing close to 10% of total mined (20.2mt 2016) and <10% of refined production (23.3mt 2016) so far this year through strikes and production issues.  While this is not particularly unusual in our view the losses are ahead of the 5% many forecasters might expect.

Critically, we feel it is increasingly difficult for the major mines to ramp up copper production again and for new mines to come to production indicating to us that the market response to higher prices will be less than seen in previous cycles.

 

Gold is slightly off this morning with European equity markets trading higher as risk-off sentiment subsided.

Brent is climbed marginally while copper gained most among industrial metals amid a largely range bound US$ index.

The US are back from a long holiday weekend with reports on durable goods orders, unemployment claims and the Fed’s Beige Book due this week.

Final Eurozone PMI numbers for August confirmed strong growth momentum in the region with the manufacturing sector growth accelerating post a slowdown in the previous month and the services segment growing at above its long-term trend.

“On current trend, output growth so far in the third quarter is slightly below its second quarter high, but remains among the best seen over the past seven years,” Markit wrote.

Positive Chinese services sector numbers for August came on top of good manufacturing data released last week.

Steel futures are lower today (-0.2%) following a strong run in previous session on the back of the news of a number of fire accidents at Chiense steel mills; iron ore is down as well (-2.0%).

 

Sky Taxis – Dubai pushing to become first city with drone taxis in the sky

https://www.bbc.co.uk/news/business-41088196

Drone taxis are fast becoming a reality with Uber, Airbus and Daimler looking to develop new drone Sky Taxis.

Battery capacity is still a challenge with the FAA requiring flights to have a spare 20mins of fuel on landing which does not leave much flight time on current capacity

The next generation of Li-ion batteries should lengthen flight times and could turn Sky Taxis into the next transport revolution.

This combined with incremental improvements in rotor design and motor efficiency should also add hugely to their potential.

 

Tungsten prices continue to rise

Tungsten prices continue to rise with prices now reported at US$285-300/mtu vs US$269-275/mtu last week as reported by the Metal Bulletin.  This is the benchmark price generally used by mines in the West for pricing contracts.

Prices are rising on the back of environment related issues in China, a lack of US DLA sales and the potential for the US DLA to start restocking tungsten again if Congress pass a proposal to classify a number of industrial metals and other elements as strategic minerals.

 

 

Economics

China – Following positive manufacturing activity reports in August, services PMI numbers came in ahead of estimates as well seeing the composite index recovering from a trough recorded in April-June.

New orders growth posted gains at both service providers and goods producers while inflation pressures continued to strengthen.

“The recovery in both manufacturing and services has led the economic outlook to continue to improve,” Markit/Caixin wrote.

Markit/Caixin Manufacturing PMI (announced on 01 September): 51.6 v 51.1 in July and 51.0 forecast.

Markit/Caixin Services PMI: 52.7 v 51.5 in July.

Markit/Caixin Composite PMI: 52.4 v 51.9 in July.

 

China bans offerings of Bitcoins and other cryptocurrencies

It was inevitable that China would crack down on Coin offerings of bitcoins and other cryptocurrencies.

Tech companies have been taking advantage of a lack of regulation in the space.

Nearly $400m has been raised through Initial Coin Offerings ‘ICOs’ in China this year.

This is not the first Chinese crackdown on crypto-currencies but it is inevitable that governments and security services will want to block this financing route.

 

Currencies

US$1.1876/eur vs 1.1889/eur yesterday.   Yen 109.44/$ vs 109.51/$.   SAr 12.985/$ vs 12.952/$.   $1.292/gbp vs $1.294/gbp.    

0.796/aud vs 0.795/aud.   CNY 6.545/$ vs 6.538/$.

 

Commodity News

Precious metals:

Gold US$1,331/oz vs US$1,338/oz yesterday

   Gold ETFs 68.2moz vs US$68.1moz yesterday

Platinum US$1,002/oz vs US$1,012/oz yesterday

Palladium US$979/oz vs US$997/oz yesterday

Silver US$17.80/oz vs US$17.88/oz yesterday

          

Base metals:  

Copper US$ 6,942/t vs US$6,899/t yesterday

Aluminium US$ 2,113/t vs US$2,124/t yesterday

Nickel US$ 12,180/t vs US$12,165/t yesterday

Zinc US$ 3,196/t vs US$3,179/t yesterday

Lead US$ 2,399/t vs US$2,399/t yesterday

Tin US$ 20,715/t vs US$20,735/t yesterday

          

Energy:          

Oil US$52.2/bbl vs US$52.4/bbl yesterday

Natural Gas US$3.025/mmbtu vs US$3.045/mmbtu yesterday

Uranium US$20.25/lb vs US$20.25/lb yesterday

          

Bulk:  

Iron ore 62% Fe spot (cfr Tianjin) US$76.5/t vs US$76.5/t

Chinese steel rebar 25mm US$671.5/t vs US$672.5/t

Thermal coal (1st year forward cif ARA) US$79.5/t vs US$77.9/t

Premium hard coking coal Aus fob US$210.0/t vs US$209.8/t

 

Other: 

Tungsten APT European US$285-300/mtu vs US$269-275/mtu

Ferrochrome $1.1/lb – rising costs of operation in South Africa may cause Samancor to shut ferrochrome smelters despite recent price rises

Rising local costs and in particular higher future electricity prices could prompt further closures.

Samancor restarted three quarters of its capacity after suspending all production in December through weak demand.

 

Company News

Anglo American (LON:AAL) 1422 pence, Mkt Cap £18.4bn –De Beers diamond sales slip

Anglo American reports that De Beers achieved sales of US$505m for its 7th diamond sale of 2017.

“As expected, rough diamond sales were somewhat lower in the seventh cycle of the year, with some midstream demand having already been brought forward into Cycle 6 due to Diwali being earlier than normal in 2017.”

The latest sales were approximately 12% lower than the US$576m achieved in the preceding sales round and 21% lower than the US$639m in the equivalent sales round in 2016.

Conclusion: Diamond sales declined at the 7th De Beers sale of the year - we look forward to signs of improvement later in the year

 

Birimian Limited (ASX:BGS) A$0.37/s, mkt cap A$72m – Exploration at Goulamina lithium project shows three new pegmatite zones

Birimian Limited which have sparked a small rush of exploration for lithium in pegmatite veins in Mali reports the discovery of three new pegmatite zones close to the current lithium resource at Goulamina.

The Birimian team have conducted two auger drill programs to locate the new pegmatite zones.  562 holes averaging 8m deep show the three pegmatite zones along with some other anomalies in the area.

The company also report lithium grades in outcropping pegmatites from rock chip samples.  We are wary of rock chip grades due to their selectivity and the propensity for geologists to chip off the best bits, though it’s still a useful tool and a good starting point from an exploration perspective.

The current resource at Goulamina is for 32.9mt grading 1.37% Li2O for 451,000t of contained lithium oxide.

Conclusion: It is reasonable to expect the Goulamina project resource to continue to expand and for the economic potential of the project feasibility study to meaningfully increase.  The Goulamina scoping study currently envisages the processing of 1mtpa of ore for 190,000t of spodumene concentrate with a capex of US$42.7m in phase 1 plus US$40.7m in phase 2. The study works on a concentrate sales price of US$537/t and an operating cash cost of US$326/t. Results from the ongoing Pre-Feasibility Study are expected this month.

Kodal Minerals holds the Bougouni lithium project next to Birimian’s Goulamina project.  The area around Bougouni which is around 163km south of Bamako in Mali may become a centre for lithium mining and further exploration going forward.

 

IronRidge Resources* (LON:IRR) 29.8p, Mkt Cap £78.1m – Completion of Tekton acquisition

IronRidge Resources reports the completion of its acquisition of 100% of Tekton Minerals giving it “full ownership of a highly prospective gold exploration portfolio in Chad.”

The company first announced an interest in Tekton in September 2016 when it acquired a 6% holding and entered into an agreement to spend US$3.5m in order to increase its holding to up to 58%. By June 2017, IronRidge proposed to acquire 100% for 10m shares. “This equates to a 3.8% interest in the enlarged share capital of IronRidge“

Commenting on the exploration opportunity of the Tekton projects in Chad, Chief Executive, Vincent Macolo, noted that “The Chad portfolio represents a highly prospective ground holding with high-grade gold targets within an underexplored yet highly prospective gold Province, potentially analogous to the world class Tintina Province in the Alaska and Yukon Territory”. There are reported to be extensive artisanal gold workings in the area with the presence of visible gold.

Key exploration professionals from the Tekton team are being incorporated into the IronRidge team which should help to ensure a relatively seamless continuity in the work on site.

A work programme for the coming field season is in an advanced stage of planning “with teams expected to mobilise to country during September 2017 … [ and with] Field work is expected to commence in October 2017 after the effects of wet season rains abate.”

Conclusion: The acquisition of Tekton Minerals gives IronRidge a portfolio of over 1000 km2 of high potential gold exploration properties in Chad with an experienced exploration team and a database of initial exploration results indicating near surface high-grade gold potential in an area of widespread artisanal gold production. We look forward to results of the forthcoming exploration programme due to start in October.

*SP Angel act as Nomad and Broker to IronRidge Resources

 

Ormonde Mining* (LON:ORM) 2.3p, Mkt Cap £11m – Barruecopardo on track for commissioning in Q3 2018

Ormonde Mining reports that as the company presses ahead with the accelerated development of the Barruecopardo tungsten project in Spain, all the high priority equipment is now being manufactured, the second order equipment including gravity separation equipment including the spirals and tables, screens and thickeners has been ordered and orders for the lower priority items are being prepared.

In addition, the civil engineering works contract for the construction of the process plant foundations has been awarded with the contractor, Copisa, expected to mobilise to the site in early October.

Initial work for the dam construction started in early July shortly after the award of the contract to the Spanish contractor, Cerezo, “with wide experience of dams and other mining infrastructure, including the execution of entire open pit mining operations for several international mining companies.”

These initiatives place the commissioning of Barruecopardo on course for Q3 2018.

Commenting on the recent improvements in the tungsten market, the company noted that the benchmark ammonium paratungstate (APT) price “touched a low of US$162 per metric tonne unit (“mtu”) in January 2016 following a period which had seen significant commodity price reductions associated with a general weakening of the commodity markets.”

Subsequent improvements in the economic outlook of Europe and the US and reductions in supply from the world’s largest producer, China, sees the current APT price at “US$285-300/mtu” … While some consolidation in the near term may be expected, the outlook remains positive over the medium and longer term.”

Conclusion: Ormonde is currently on track to commission the Barruecopardo tungsten operation in Q3 2018. Major items of equipment are on order and currently being manufactured while key civil engineering contracts have been awarded. The market for tungsten concentrates is improving and although the company is expecting short-term consolidation, it remains positive on the prospects for the medium and longer term. We look forward to continuing progress reports as project development proceeds.

*SP Angel acts as Broker to Ormonde Mining

 

Shanta Gold (LON:SHG) 4.5p, Mkt Cap £35m – Optimisation of the cost base and management changes

Hold

In light of latest regulatory and fiscal changes in Tanzania, Shanta announced a number of initiatives targeted at optimising its cost base.

The management estimates up to $5m per annum ($60/oz) on a run-rate basis is achievable through a reduction in headcount and streamlining support services.

This is expected to partly mitigate an adverse effect on cash flows of increased royalties and a newly introduced 1% clearing fee which together amount to c. $39/oz in additional costs as well as increasing amount of capital tied in owed VAT rebates.

Headcount cuts will involve the NLGM amid a drop in capital project development activity and a reduction in the usage of external contractors.

Some of previously outsourced functions will brought in-house including such things as open pit mining and catering.

The plan is to bring staff numbers from 1,075 (447 contractors / 628 direct employees) as of Jun/17 to 700-750 (1225 contractors / 600 direct employees) by the end of the year.

Importantly, no cuts or reductions will take place at NLGM underground operations where development works are progressing as planned

As at Aug/17, 4.6km of development has been completed at the underground mine with over 90kt of 7.50g/t material mined (v 7.48g/t budgeted) to date.

First ore was mined at Luika last month following the start of commercial production at Bauhinia Creek in June.

Annual production and cost guidance (AISC) was reiterated at 80-85koz and $800-850/oz for this year.

No VAT rebates returned by the government continue to be a drag on working capital with the outstanding owed balance currently standing at $15m; although, the management indicated the pace of accumulation of owed VAT has come down significantly as capex comes down and large contracts are being internalised with the run rate cash outflow currently at $7m, down from $12m, previously.

Senior management unanimously agreed to an average 15% reduction in salary while discretionary remuneration is now 100% share based.

Singida development which has been put on hold as all efforts and cash resources were focused on delivering the NLGM underground operation is being assessed with regards to an asset level financing with and update on development plans to be provided before year end.

Management changes announced today include:

Scott Yelland promoted from GM of NLGM to COO.

Honest Mrema who joined Shanta in 2015 as the Technical Services Manager with 20 years’ experience in mining has been promoted to GM of NLGM.

Luke Leslie who acted as Shanta’s NED since 2012 will assuming CFO responsibilities.

Conclusion: The management is taking a proactive approach in streamlining operations and reducing the cost base amid cash generation constraining government initiatives. It is a positive development which is expected to at least cover increased running costs from higher royalties and clearing fees. It is also welcoming news to see the management agreeing to a pay cut and having potential bonuses made 100% share based. Importantly, underground operations that are planned to account for 80-90% of annual gold production appear to be ringfenced from proposed staff cuts.

Earnings below have not accounted for recently proposed cost cuts.

 

*Two SP Angel analysts have visited Shanta’s New Luika Gold mine in Tanzania

 

Strategic Minerals* (LON:SML) 2.3p, Mkt Cap £28.7m – August delivers record sales at Cobre

Strategic Minerals has announced that its Southern Minerals Group’s Cobre magnetite tailings operation in New Mexico achieved record monthly sales of $999,064 during August more than doubling the record $486,560  of sales reported during July.

The record revenues result August from sales of 13,897 tons of magnetite and mean that in the first two months of the September quarter Cobre has already sold over 21,000 tons; more than doubling the total sales of the June 2017 quarter and 50% more than the record tonnages sold during the Mar 2017 quarter.

Commenting on the increasing sales volumes, Managing Director, John Peters, paid tribute to the local management team at Cobre “for rising to the logistical challenge of moving significant stockpiles of material by truck in order to achieve record magnetite sales.”

He went on to underline the significance of the improved performance at Cobre; “The performance at Cobre has placed the Company in an ideal position to record an increased profit performance in 2017 and provided it the luxury of recycling the profits derived from Cobre into value adding exploration programmes at Redmoor and Hanns Camp, without diluting shareholders.”

Conclusion: The increasing cash flow from Cobre facilitates Strategic Minerals’ exploration programme, where drilling is underway at both Redmoor and Hann’s Camp, and the management’s wider growth ambitions.

*SP Angel act as Nomad and broker to Strategic Minerals

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