(MENAFN- ProactiveInvestors - UK) SP Angel, Tue
Anglo American (LON:AAL) – Q3 Production Report – 2016 production guidance largely unchanged.
Kefi Minerals* (LON:KEFI) – Ethiopian government sets up new investment entity
Sirius Minerals (LON:SXX) – US$250m royalty financing agreement
Strongbow Exploration* (CVE:SBW) – Consultants hired for PEA for South Crofty tin mine
FTSE100 is up this morning with miners leading the way on the back of rick on sentiment in the Chinese market and better than expected manufacturing and services sectors growth numbers in the US and Europe.
• Base metals are following a strong run in steel making bulk commodities trading higher across the board this morning.
• Iron ore futures jumped 4.3% (in CNY terms) hitting the highest for the year with rebar futures up 3.2% with the sentiment driven by positive quarterly earnings results from Chinese steelmakers.
• Hot rolled coil prices climbed 3.5%% on the Shanghai Futures Exchange while coking coal futures in Dalian surged 4.5%, according to Bloomberg.
• Gold prices are a notch higher despite the US$ holding onto its recent gains and trading close to the highest level since Feb/16.
• Brent is up 0.2% after coming off 0.6% on Monday after Iraq flagged its reluctance to follow OPEC plans to cut production. The head of OPEC is travelling to Baghdad today to discuss the issue.
Dow Jones Industrials +0.43% at 18,223
Nikkei 225 +0.78% at 17,365
HK Hang Seng -0.17% at 23,565
Shanghai Composite +0.12% at 3,132
FTSE 350 Mining +2.43% at 13,692 FTSE 350 +86% since 1st January
AIM Basic Resources +1.03% at 2,585 AIM Basic Resources +58% since 1st January
Economic News
US – Manufacturing PMI climbed versus expectations for no change in Oct with new orders hitting a one-year high.
• Growth was reported to be driven by local demand compensating for slow export sales.
• On cost inflation, input prices were said to have climbed the most in nearly two years on the back of greater raw material prices.
• Expectations are for business activity to grow following the presidential election 'which has been commonly cited as a key factor that has subdued spending and investment in recent months'.
Date Index Period Actual Est Previous
Monday Markit Manufacturing PMI Oct 53.2 51.5 51.5
Tuesday S & P CS20 House Prices Aug %mom 0.1 0.0
S & P CS20 House Prices Aug %yoy 5.1 5.0
Wednesday Markit Services PMI Oct 52.4 52.3
Markit Composite PMI Oct 52.3
Thursday Core Goods Orders Sep %mom -0.1 0.9
Weekly Jobless Claims 255k 260k
Friday Q3 GDP 1st reading %qoq 2.5 1.4
Q3 Personal Consumption 1st reading %qoq 2.6 4.3
Core PCE 1st reading %qoq 1.6 1.8
Source: Bloomberg
China – The renminbi continued to weaken against the US$ as the PBoC signals a willing to allow greater currency flexibility.
• The offshore CNYUSD exchange rate hit the record low this morning.
Germany – Positive business survey results released by the IFO Institute with industry expectations hitting the highest level in more than two years.
• The report follows on the heels of optimistic manufacturing numbers showing the sector expanded at the fastest pace in nearly three years in Oct led by stronger foreign demand.
• This points to an improved growth outlook for Q4/16 following an expected slow-down in Q3/16 (0.3%qoq on Bloomberg estimates; official numbers are out on 15 Nov).
• Previously, the Bundesbank dismissed slower growth in Q3 as temporary suggesting the growth trend remains strong.
• IFO Current Assessment: 115.0 v 114.7 in Sep and 109.6 forecast.
• IFO Expectations: 106.1 v 104.5 in Sep and 104.5 forecast.
India – The nation is celebrating the Diwali festival this weekend, the auspicious time of the year to buy gold.
Currencies
US$1.0889/eur vs 1.0889/eur yesterday. Yen 104.4/$ vs 103.92/$. SAr 13.829/$ vs 13.881/$. $1.224/gbp vs $1.223/gbp.
0.764/aud vs 0.764/aud. CNY 6.776/$ vs 6.772/$.
Commodity News
Precious metals:
Gold US$1,269/oz vs US$1,265/oz last week – strange short term upward move in gold prices see yesterday
Gold ETFs 65.7moz vs 65.6moz last week
Platinum US$954/oz vs US$938/oz last week
Palladium US$639/oz vs US$629/oz last week
Silver US$17.77/oz vs US$17.63/oz last week
Base metals:
Copper US$ 4,734/t vs US$4,652/t last week –
Aluminium US$ 1,669/t vs US$1,632/t last week
Nickel US$ 10,300/t vs US$10,070/t last week
Zinc US$ 2,364/t vs US$2,290/t last week
Lead US$ 2,064/t vs US$2,009/t last week
Tin US$ 20,175/t vs US$20,020/t last week
Energy:
Oil US$51.8/bbl vs US$51.9/bbl last week
Natural Gas US$2.866/mmbtu vs US$3.011/mmbtu last week
Uranium US$20.00/lb vs US$20.00/lb last week
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$57.7/t vs US$56.9/t
Chinese steel rebar 25mm US$405.4/t vs US$404.3/t
Thermal coal (1st year forward cif ARA) US$70.0/t vs US$70.5/t last week
Premium hard coking coal Aus fob US$245.5/t vs US$242.9/t
Other:
Tungsten - APT European prices $190-198/mtu vs $191-197/mtu unch last week
Company News
Anglo American (LON:AAL) 1113 pence, Mkt Cap £14.35bn – Q3 Production Report – 2016 production guidance largely unchanged.
• Anglo American reports broadly stable production across most of its commodities during the quarter ended September 30th and is maintaining its annual production guidance for all major commodities with the exception of export metallurgical coal where expectations have been reduced to 20.5-21.5m tonnes from 21-22m tonnes following the completion of the sale of the Foxleigh mine in August.
• Diamond production rose by 4% compared to Q3 2015 to a total of 6.3m carats reflecting improving market conditions and the 12% increase of production from Debswana to 4.55m carats. Debswana's Jwaneng mine reported a 47% increase in output compared to Q3 2015 when planned maintenance was underway last year to take advantage of weak trading conditions.
• The Group's Canadian diamond production fell by 48% to 0.2m carats as the Snap Lake mine was placed on care and maintenance in December last year. Production at the new Gahcho Kue mine, which was officially opened on 20th September, is 'progressing well' through the ramp up phase of operations.
• Anglo American is maintaining its 2016 diamond production guidance of '26-28 million carats, subject to trading conditions' where 'we maintain a cautious outlook.'
• Platinum production was broadly unchanged at 619,100 ounces of metal in concentrate (Q3-2015 – in output 614,000 oz) with a 12% increase in output at Mogalakwen, to 100,700 oz, a 16% rise at the Zimbabwean mine at Unki to 18,200 oz and steady output at Amandelbult (+1% to 128,300 oz) offsetting a 3% decline at Rustenburg to 129,300 oz.
• Platinum production guidance for 2016 remains in place at 2.3-2.4m oz of metal in concentrate.
• Iron ore production at Kumba's Sishen mine rose by 3% to 11.76mt (Q3 2015 -11.39mt) while the ramp up of production at Minas Rio is reflected in a 53% rise to 4.45mt and 28% higher than the Q2 output. At Minas Rio 'In July 2016, a provisional licence approval was granted and allowed immediate access to the next tranche of reserves, which brought forward an increase in availability and reduction in variability in run-of-mine material leading to overall improved operational performance in Q3 2016.'
• Anglo America is maintaining its 2016 iron ore production guidance at 27mt for Sishen, while 'Kolomela is expected to marginally exceed its full year guided production of ~12 million tonnes' while Brazilian iron ore production from Minas Rio 'remains unchanged at 15-17 million tonnes'.
• Copper production declined by 9% to 139,800 tonnes where 'Expected lower grades at Los Bronces and the impact of strikes at Los Bronces and El Soldado were partly offset by strong plant performance and higher grades at Collahuasi.' Production guidance is maintained at 570-600,000 tonnes.
• Increased nickel output (up 66% to 11,300 tonnes during the quarter) reflects successful rebuild of the Barro Alto furnaces 'which are now producing at nameplate capacity'. Full year production guidance of 45-47,000 tonnes is being maintained.
• Anglo American's Australian metallurgical coal output was essentially unchanged (+1%) at 5.5m tonnes, though there were 'geological issues at Grasstree ahead of the planned longwall move.' Australian thermal export coal output declined by 19% to 1.1mt as the Drayton mine runs down towards the completion of mining in Q4 2016.
• South African thermal coal output is seeing increasing demand from Eskom with a part of the coal from Landau and Zibulo being diverted from the export market towards S African power generation.
Conclusion: Anglo American's diverse production base appears to be broadly stable with production ramping up from a new De Beers diamond mine at Gahcho Kue in Canada and the Minas Rio iron ore mine in Brazil. The company appears to have successfully refurbished the furnaces at Barro Alto nickel while recent asset sales should help to strengthen the balance sheet.
Kefi Minerals* (LON:KEFI) 0.39p, Mkt Cap £14.9m – Ethiopian government sets up new investment entity
• The Ethiopian government has set up a new investment entity for managing its commitments in local projects.
• The new 'Ethiopian Mines, Petroleum and Bio-Fuel Corporation' is likely to manage and hold the government stake in the Tulu Kapi gold project and any shares in Kefi Minerals.
• Kefi Minerals continues negotiations with the Development Bank of Ethiopia and is comfortable with a recent government policy directive which requiring a maximum 50% debt gearing policy for new projects. Some $60m has been spent on the Tulu Kapi gold project and the National Bank of Ethiopia 'the regulator' has indicated that the historic spend on the Project counts as equity in the calculation. This is normal for project finance in our experience.
• The company continue with plans for resettlement of locals to be affected by the mine plan. Ethiopian Government experts and the project's social licence advisers are ensuring that calculations and plans comply with Ethiopian law and IFC (World Bank) principles.
Conclusion: The news is confirmation of further progress towards the final financing of the Tulu Kapi gold project in Ethiopia.
*SP Angel act as Nomad and broker to Kefi Minerals
Sirius Minerals (LON:SXX) 36.3 pence, Mkt Cap £839m – US$250m royalty financing agreement
• Sirius Minerals has announced that it has secured a US$250m royalty financing agreement with a British subsidiary of Hancock Prospecting 'a privately owned company which operates in the mining and agricultural sectors', including the large scale Hope Downs iron ore mine in Western Australia and the Alpha coal project in Queensland.
• Under the agreement, Hancock has agreed to purchase a royalty on 5% of the gross revenue on the first 13mtpa of production from the North Yorkshire polyhalite project and a 1% royalty on sales in excess of 13mtpa.
• 'upon drawdown of the Royalty purchase amount, Hancock will subscribe for new ordinary shares … in an amount of US$50 million subject to certain conditions'.
• Drawdown of the royalty financing 'is conditional on … notice having been given to Hancock that the Company has expended US$630 million of the total amount of its stage 1 financing'. We understand that Stage 1 financing requirements total US$1.09bn of mixed debt and equity capital. On this basis, the US$250m royalty agreement with Hancock represents around 55% of the outstanding stage 1 financing after the first US$530m has been spent.
Conclusion: The securing of the royalty agreement is an important advance for Sirius Mining. We comment that with existing mining and agricultural interests, Hancock Prospecting is a particularly appropriate partner for the development of a mining project providing fertiliser products to the agricultural industry.
Strongbow Exploration* (CVE:SBW) price C$0.18, mkt cap C$8.3m – Consultants hired for PEA for South Crofty tin mine
Strongbow Exploration, led by Richard Williams and Grenn Thomas have hired P & E Mining consultants out of Ontario, Canada to evaluate a Preliminary Economic Assessment to be completed in Q1 next year.
The consultants produced Strongbow's NI 43-101 mineral resource in April this year which states a resource of:
Lower mine resource (0.60% cut-off grade)
Indicated 1,660t grading 1.81% tin for 30,000t of contained tin
Inferred 738t grading 1.91% tin for 14,100t contained tin
Upper mine resource (0.60% cut-off grade assuming Sn equivalent (SnEq) grade calculated using: SnEq%= Sn% + (Cu% x 0.311) + (Zn% x 0.084).
Indicated 257t grading 0.99% tin for 2,500t of contained tin
Inferred 464t grading 0.91% tin for 4,200t contained tin
Water treatment testwork is to start a three-month trial in November for the removal of suspended solids and dissolved metals to meet Environment Agency guidelines for discharge and eventual dewatering of the mine.
Our view is that a certain amount of water flows naturally in and out of the mine and that this should lower the expected level of dissolved metals and particulates for water in the mine.
The team plan to treat and discharge up to 25,000m3 per day to dewater the mine over a 18-24 month period. This should be a good option for the mine, for the environment and for the economy of Cornwall.
A recent meeting in Cornwall is reported to have received overwhelming community support
The South Crofty tin mine project includes 26 former producing mines with production records dating back to 1592 with full-scale mining in the mid 17th century. The mine closed in the late 1990s due to a collapse in tin prices and more relevantly just ahead of a change in UK mining laws making companies liable for all liabilities relating to historic activity on the site.
South Crofty contains one of the world's higher grade tin resources and with the use of modern management and mining techniques should be able to justify the restart of the mine.
The mine has substantial infrastructure in the form of shafts, underground tunnels and a substantial decline into the orebody.
Investors may be interested to see the BBC's most recent episode of Poldark in which the failure to put proper timber into the roof support causes a fatal mine collapse. While this may have been more common in the upper levels of a mine it is now, thankfully a very rare event in modern run mines.
http://www.bbc.co.uk/programmes/b0813lwc
*The author of this note has previously worked in the South Crofty tin mine in the 1980's and recently revisited the mine including the more recent decline built the mine. A second SP Angel mining analyst also worked in the Cornish tin mining industry.
SP Angel
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