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Today's Market View Including Bacanora Minerals, Polymetal International and Paragon Diamonds

Published: 05:23 16 Nov 2015 EST

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Economic News

Japan – The economy is back in recession following a second consecutive quarterly (annualised) decline on a decline in inventories and weaker investments.
• Q3/15 GDP: -0.8%qoq v -0.7%qoq (revised from -1.2%qoq) in Q2/15 and -0.2%qoq forecast.
• Investments cost 0.7pp in annualised growth rate.
• On a more positive note, consumption contributed 1.2% to growth while net exports added 0.4pp.

Euro – The currency hit a seven-month low against the US dollar in early trading hours today due to increasing expectations of a further ECB easing, in contrast, to a potential tightening by the Fed.
• The euro touched US$1.0687 earlier today, the lowest since Apr/15 and only 2.2c more than the 12-year low of US$1.0458 recorded in Mar/15.

India – Wholesale prices fell in Oct marking the longest deflationary streak on record on the back of low commodity prices.
• Prices were down 3.81%yoy in Oct v -4.54%yoy in Sep and a -3.8% forecast.

Currencies
US$1.0726/eur vs 1.0758/eur yesterday.    Yen 122.92/$ vs 122.73/$.    SAr 14.399/$ vs 14.320/$.    Sterling $1.520/gbp vs 1.522/gbp
0.713/aud vs 0.714/aud – yesterday.  US dollar gains and commodity price falls likely to further weaken currencies in producing nations

Commodity News
Precious metals:

Gold US$1,093/oz unch vs US$1,084/oz yesterday – Harmony Gold halted operations at Masimong Mine, South Africa, following a fatal fall of ground accident.
• The mine produced 79.2koz in FY15 (Jun YE).
• The Company guided for a 65-80koz gold production at Masimong in FY16, equivalent to 6-7% of total 1.1moz targeted next year.

Platinum US$869/oz vs US$879/oz yesterday -
Palladium US$545/oz vs US$554/oz yesterday –
Silver US$14.39/oz vs US$14.33/oz yesterday

Base metals:
Copper US$ 4,752/t vs  US$4,827/t yesterday – Codelco is planning to cut cathode copper premium charged on shipments to China by 26%yoy to US$98/t (Bloomberg)
• That is the biggest cut since 2009 and the lowest premium since 2013.
• “A two-digit premium is lower than predicted and reflects the company’s ambition to sell more metal through term contracts as demand slows,” CRU said commenting on the news.
• Chinese copper imports are set to fall 10% in 2016 on weaker local demand, domestic supplies increase and less metal used in financing, Arc Resources, one of the nation’s biggest buyers said.
• Shipments are down 4%yoy at c.2.6mt in the first nine months of 2015.

Aluminium US$ 1,472/t vs US$1,496/t yesterday – Rusal cut its demand forecasts leading to an upwards revision in market surpluses.
• Rusal have further reduced their global aluminium demand growth forecast for 2015 from 6% to 5.6% and increased the surplus forecast to 373kt [up from 277kt] in 2015.
• Demand rose 5.6%yoy in the first nine months of this year led by gains in North America, India, Middle East and the EU more than offsetting declines in Japan, Russia and South America led by strong auto sales in North America (+3.2%yoy in Jan-Sep) and the EU (+9.8%yoy in Sep).
• While 2.5mt of capacity has been cut this year but 3mt of new capacity has been commissioned and 616kt of operating capacities were resumed according to Rusal.
• Around 53% or 14mt of ex-China production is estimated as unprofitable and at risk of closure.

Nickel US$ 9,420/t vs US$9,414/t yesterday –
Zinc US$ 1,602/t vs US$1,617/t yesterday –
Lead US$ 1,596t vs US$1,612/t yesterday –
Tin US$ 14,650/t vs US$14,655/t yesterday –

Energy:
Oil US$44.7/bbl unch vs US$44.8/bbl yesterday – Oil stocks at 3bn bbls – not particularly different from that seen in previous cycles
Natural Gas US$2.427/mmbtu vs US$2.313/mmbtu yesterday
Uranium US$36.00/lb unch vs US$36.00/lb yesterday –

Bulk commodities:
Iron ore 62% Fe spot (cfr Tianjin) US$47.7/t unch vs US$47.7/t – yesterday
Thermal coal (1st year forward cif ARA) US$46.40/t vs US$45.90/t – yesterday
Steel – Steel mills in China estimated to lose around US$50/t of steel produced. Crude steel production fell 3.1%yoy in oct and was down 2.2%yoy in the first 10 months of the year.

Other:
Tungsten - APT European prices $165-175/mtu - $165-195/mtu as of last week – spreads narrow at lower level indicating ongoing imbalance between supply and demand.
Ferrochrome – Benchmark charge chrome price for delivery in Europe at US$1.04/lb its lowest level since Q1/10.
• The mood at the International Ferro-Alloys Conference in Prague earlier this week is reported to have the most depressing in decades according to a Metal Bulletin report.
• Prices for chrome ore, ferro-chrome, manganese and silico-manganese were forecast to fall further at the conference.

Company News
Bacanora Minerals (LON:BCN) 87pence, Mkt Cap £74.1m – £8.8m raised through placing of 11.5m shares
Bacanora Minerals have raised £8.8m through the placing of 11.5m new shares at 77p/s into the market.
• The funds are to be used to complete a Bankable Feasibility Study on the Sonora Lithium project in Mexico.
• Funds will also be used to upgrade the pilot plant at Hermosillo for the provision of bulk samples to support offtake discussions with offtakers.

Dalradian Resources (LON:DALR) 35.8 pence, Mkt Cap £76.6m – Q3 2015 Results
• At the end of the period the company had cash and cash equivalents of $24.4m – this excludes the $40m raised in October 2015.
• Net loss for the quarter was $2.1m with losses of $4.7m over nine months.
• Spend on asset evaluation, development planning and permitting was $7.2m in the three months and $22.1m over 9 months.
• The underground programme is 65% complete with around 300m of development remaining including 2 test stopes.
• Around 75% of infill drilling is completed, 40% on feasibility study and 50% of the ESIA is now complete.
• The budget for completion of these tasks is expected to be $55m.
• A PEA completed on the project in October 2014 envisaged an underground mine treating 620,000 tpa to produce 162,000 oz of gold pa and 50,000 oz of silver.
• Cash costs were estimated at 485/oz with pre-production capital of C$274m.

Minera IRL (LON:MIRL) SUSPENDED – Letter from Minera IRL Chairman upsets Ollachea community
• It is important, in Peru, and in most other countries to win support from the communities affected by mining.
• Most communities in developing nations support mines for the jobs and other benefits they bring.
• In Peru, community support is particularly important as mining normally forms a disproportionately large part of their income and infrastructure development.
• Jamie Pinto, the ‘non-executive’ chairman of Minera IRL Limited has managed to offend the Ollachea community with a letter circulated to the community on 10th November.
• A translation of the community response threatens to stop the project if Mr Pinto continues with his declarations.
• The letter’s translation goes on state that the community wish to maintain their existing relationship structure to respect the Honorary Community Member Dr Diego Benavides.
• The letter goes on to state that the community of Ollachea is in favour of development of the project and has consulted COFIDE on the financing of the deal.
• The community state that they support the election of new directors for Minera IRL on 26th November to move forward and develop the Ollachea project.
Rio Tinto:  We understand the community regard Rio Tinto’s near 20% shareholding in Minera IRL to represent their interest in the Ollachea project.  This could become a broader issue for Rio Tinto if they fail to support the community.
• We recommend investors in the UK stock should ensure that their votes are cast with “Computershare Investor Services (Jersey) Limited, c/o Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol BS99 6ZY, United Kingdom, by not later than 3:00 pm on 24 November 2015.
Conclusion:  we interpret the community letter in its support for Diego Benavides and for the replacement of the Minera IRL Limited board on 26th November.
* SP Angel analysts are expressing their own views and opinions in this analysis.  SP Angel has no corporate connection with Minera IRL or its subsidiaries.  SP Angel holds no shares in Minera IRL and does not have any current financial arrangements with the company. 

Paragon Diamonds (LON:PRG) Suspended – Shares suspended while funding position clarified
• The company is continuing to have discussions regarding the funding for the acquisition of Mothae and development of Lemphane.
• The company also needs to repay short-term debts including £500,000 due on the 18th November 2015.
• If payment is not made within 5 business days of this due date this will become a default event.
• Payment will become due immediately for 120% of the outstanding amount of the lender has the option to convert into shares at 5.22 pence of 90% of the prevailing market price.
Conclusion: The company is negotiating terms with Accrux Resources for a US$15m funding package. This is taking time and in the meanwhile the company has obligations to meet on outstanding debt – not a good situation to be in unless the company can demonstrate that their discussions with Accrux Resources are on firm grounding.

Polymetal International (LON:POLY) 558 pence, Mkt £2.36bn – Feasibility Study for Kyzyl Gold Project
• The Project FS looked at development for a 10 year open pit followed by 12 year underground mine.
• The open pit would target 1.8 mtpa with 325,000 oz of gold with the underground targeting 1.2 mtpa for 270,000 oz.
• Mineral Reserves for the deposit are estimated at 29.2 Mt at an average grade of 7.7 g/t gold with further resources of 14.2 Mt at 6.8 g/t gold.
• Met recoveries stand at 91% based on sulphide ore floatation with an all in sustaining cost of US$630/oz.
• Initial capex estimated at US$538m with an additional pre-strip cost of US$69m.
• Sustaining cost are estimated at US$228m with underground start-up costs of US$202m.
• An after tax IRR of 27% has been estimated at a gold price of US$1,200 and RUB/US$ exchange rate of 55 and Tenge/US$ exchange rate of 180.
• Full scale construction is to start in Q2 2016 with processing expected in the second half of 2018 and first full year of production in 2019.
Conclusion: This looks like a good development project for Polymetal with good grades and recoveries helping with estimated costs and generating a decent after tax IRR of 27%.

Australian Strategic Materials signs US$600 million LoI

Rowena Smith, CEO and managing director of Australian Strategic Materials Ltd (ASX:ASM, OTC:ASMMF), joins Jonathan Jackson in the Proactive studio to discuss the company’ s Dubbo Project, in Central West New South Wales. This project aims to extract and process critical minerals and rare earth...

4 hours, 41 minutes ago