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Today's Market View - Aston Bay Holdings, Mkango Resources, Ortac Resources, PolyMet Mining,Premier African Minerals, SolGold

Published: 05:45 12 Jul 2016 EDT

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Aston Bay Holdings (CVE:BAY) – C$1.8m private placement at premium to market
Mkango Resources* (LON:MKA) – Airborne geophysics at Thambani
Ortac Resources* (LON:OTC) – Positive conclusion to a judicial proceeding brought against the District Environmental Office
PolyMet Mining* (NYSE:PLM) – Permit application for
Premier African Minerals (LON:PREM) – RHA tungsten plant to restart this week
Solgold* (LON:SOLG) – Further world class intersection reported at hole 17.  Term Sheet for a US$20m Private Placement

The case for mining
• Being bearish on mining right now is a bit like being bullish on everything else
• We are not bearish on mining due to need for governments to stimulate demand to avert deflation and maintain some form of economic growth
• That effectively tells you that being bullish on mining is a reaction to the poor state of the global economic system
• Gold is performing well and copper is also often considered as a defensive asset with an option on economic recovery
• Copper also has the added benefit of being linked to a new generation of technological development, eg electric vehicles
• We believe we are effectively entering a new phase of the super cycle before the global economy is able to self sustain
• Policymakers will hopefully only take their feet off the QE pedals when their economies enter into new phases of economic growth
• At that point enough economies should be able to support sufficient growth for commodity demand to continue, though the growth may switch from infrastructure development to more consumer driven activity.
• This should be a win win for mining companies though there will inevitably be some volatility along the way

Dow Jones Industrials   +0.444% at 18,227 
Nikkei 225   +2.46% at 16,096  
HK Hang Seng   +1.65% at 21,225  
Shanghai Composite    +1.82% at   3,049  
FTSE 350 Mining   +0.29% at 11,705  
AIM Basic Resources   +2.36% at   2,117  
• FTSE 100 now in bull market territory.  S&P closed at record high.
• Global markets making strong gains in anticipation of lower interest rates and potential for additional QE

Economic News
Global equities extend their gains driven by the prospects of stimulus in the UK and Japan.
• Sterling is up for a third day on the news Theresa May to assume PM role on Wednesday.
• S&P500 futures trade at a record high; Euro Stoxx index is up 1.5% this morning: Asian CSI 300 index is up 2.2%.
• All major sovereign bonds are off today.
• Crude is up this morning helped by a weaker US$ index and ahead of the US inventories data which is expected to show a decline in stockpiles.
• Iron ore is trading higher helped by a jump in Chinese steel prices as the production hub in the Chinese Hebei province is cutting output in an effort to reduce air pollution ahead of memorial events marking the 40th anniversary of one of China’s deadliest earthquakes.

US
Date Index Period Actual Expected (Bloomberg) Previous
Tuesday JOLTS Openings May     5,788k
Wednesday Fed Beige Book       
Thursday PPI Jun   0.3%mom/-0.1%yoy 0.4%mom/-0.1%yoy
Core PPI Jun  0.1%mom/1.0%yoy 0.3%mom/1.2%yoy
  Weekly Jobless Claims     2,140k 2,124k
Friday Retail Sales/Core Jun   0.1%mom/0.4%mom 0.5%mom/0.4%mom
CPI Jun  0.3%mom/1.1%yoy 0.2%mom/1.0%yoy
Core CPI Jun  0.2%mom/2.2%yoy 0.2%mom/2.2%yoy
New York Manufacturing Jul  5.0 6.0
Industrial Production Jun  0.2%mom -0.4%mom
Capacity Utilization Jun  75.1% 74.9%
  UoM Consumer Sentiment Jul   93.0 93.5
Source: Bloomberg    

Japan – USDJPY is off for a second day driven by expectations for a government led fiscal stimulus.
• Economy Minister Nobuteru Ishihara said the government is considering issuing construction bonds to kick start development projects and stimulate flagging economy.

Eurozone – The EU Commission is set to propose a set of fines for Spain and Portugal on failing to meet EU fiscal rules.
• It is widely expected that both countries will avoid any penalties given the post-recession status of both economies and the progress demonstrated in improving public finances.
• While both Spain and Portugal have brought their respective budget deficit down lately (Spain: -5.1% of GDP in 2015 v -10.4% in 2012; Portugal: -4.4% in 2015 v -5.7% in 2012), those remain above the 3% deficit threshold.
• Although, the rule has been consistently broken by various parties with the nations involved never facing any penalties. In fact, France, the second largest economy in the single currency block, is currently running a 3.5% deficit with expectations for the budget shortfall to go sub-3% in 2017.

UK – The pound has gone up hitting 1.315 early this morning and trading 1.3% higher on the day on the back of the news Theresa may will replace David Cameron as a ruling party leader as early as tomorrow reducing political uncertainty that followed the Jun 23 Brexit vote.
• Theresa May is determined to make Brexit work, but is not expecting to launch Article 50 this year.
• The BoE is to hold its monetary policy meeting later this week with estimates pointing to a potential 25bp cut in benchmark rates despite inflation expectations currently standing at the highest since Jul last year.

Venezuela – Citibank is reported to be closing down the nation’s correspondent banking and servicing amid a deteriorating credit profile of Venezuela.
• President Maduro called the decision a “financial blockade”.
• “Do you think they’re going to stop us with a financial blockade? No, gentlemen, this is a different world. Nobody stops Venezuela. With Citibank or without Citibank, we march on,” President told his supporters.

Data due later today:
• Indian Industrial output for May and Consumer prices for June
• US Wholesale inventories for May and US Job openings and labour turnover survey for May

UK credit rating – When will the ratings agencies restore the UK’s AAA credit rating
• Sterling is strengthening now that much political uncertainty is removed – the sky has not fallen in on our heads and Teresa May is well liked by the markets
• Credit Agencies which sometimes appear to follow the actions of aggressive hedge funds must surely have to reconsider downgrading UK government debt

Currencies
US$1.1116/eur vs 1.1026/eur yesterday.   Yen 103.31/$ vs 102.04/$.   SAr 14.325/$ vs 14.650/$.   $1.315/gbp vs $1.292/gbp.
0.763/aud vs 0.754/aud.   CNY 6.684/$ vs 6.688/$ -

Commodity News
Precious metals:
Gold US$1,356/oz vs US$1,359/oz yesterday –
Gold ETFs 64.7moz v 64.5moz yesterday –
Platinum US$1,101/oz vs US$1,095/oz yesterday – Anglo American Platinum is expecting a 50-70%yoy decline in H1 earnings on the back of lower PGM prices.
• Headline earnings for the six months dropped to a range of R745-1,240m, down from R2,470m recorded last year which also included a R1.6bn gain on inventories revaluation.
Palladium US$626/oz vs US$616/oz yesterday
Silver US$20.47/oz vs US$20.22/oz yesterday
        
Base metals:   
Copper US$ 4,805/t vs US$4,766/t yesterday –
Aluminium US$ 1,659/t vs US$1,665/t yesterday – Chinalso expects demand for aluminium products in the auto sector to more than double to 5.3mt by 2020, up from 2.4mt in 2014. The Company will grow fabrication capacity to 1.5mt, up from current 1.2mt.
Nickel US$ 10,340/t vs US$10,095/t yesterday – nickel prices continue to gain adding nearly $800/t over the last three days and marking the best run among base metals quarter to date (+9..4%) on the back of Philippines supply concerns.
• Jinchuan, China’s largest refiner, may cut production by as much as 9% amid weak pricing environment (Bloomberg).
Zinc US$ 2,177/t vs US$2,158/t yesterday – Zinc trading at a new high for the year
Lead US$ 1,850/t vs US$1,831/t yesterday
Tin US$ 17,900/t vs US$17,905/t yesterday

Energy:           
Oil US$46.8/bbl vs US$46.3/bbl yesterday -
Natural Gas US$2.721/mmbtu vs US$2.854/mmbtu yesterday
Uranium US$26.45/lb vs US$26.50/lb yesterday – Energy Resources of Australia produced 489t of uranium oxide in the June quarter down from 593t in the March quarter.
ERA also entered into a $100m credit facility with Rio Tinto in April to providing additional assurance on the rehabilitation of the Ranger project area.

Bulk:    
Iron ore 62% Fe spot (cfr Tianjin) US$52.7/t vs US$52.5/t –
Steel – Shanghai steel futures prices rise as government of Tangshan orders producers to cut production in Hebei province
• The province has ordered producers to halt production from sintering plants to improve air quality through the last week of July.  Steel mills are allowed to continue to run blast furnaces making pig iron from iron ore.
• Demand is also reported to have been better than expected and the market is also looking for China to roll out new stimulus
• China Steel Exports climbed 6.4%yoy to a record 46.3mt in the first five months of the year.
Thermal coal (1st year forward cif ARA) US$58.3/t vs US$57.4/t yesterday

Other:
Tungsten - APT European prices dropped to $185-200/mtu vs $185-210/mtu from the previous week

Company News

Aston Bay Holdings (CVE:BAY) 0.44c/s, Mkt cap C$24.1m – C$1.8m private placement at premium to market
(75% BHP Billiton, 25% Aston Bay after option exercise)
• Sometimes one finds a company which is extraordinary or unusually interesting.
• Aston Bay Holdings is both.
• The company has a joint venture with BHP Billiton, the world’s largest mining company, which only very rarely ever enters into joint ventures with junior mining companies.
• The company also has JP Morgan as a significant shareholder after JP Morgan rather unusually bought a block of stock in the market.
• Now the company has just completed a C$1.8m placement at a price of C$0.45/s eg a 15% (6c/s) premium to the market price when the deal was first announced.
• The stock is going to Mackenzie Investments which is raising its stake to 15.1% of the company with funds to be used for general corporate purposes.
• Aston Bay and its jv partner BHP are currently drilling with the summer season’s exploration campaign now well underway on the Storm Copper and Seal Zinc projects on the northwest Somerset Island in Nunavut, up by the northwest passage.
• The project has produced some extraordinarily rich copper samples at surface and some very promising drill intersections in what looks like sediment hosted copper formed through potential hydrocarbon replacement.
• These look similar to some very high grade copper samples seen at very rich copper mines in the DRC see BHP presentation:
• https://www.bhpbilliton.com/~/media/bhp/documents/investors/reports/2016/160627_valuethroughcreation_presentation.pdf
• Drill results from Teck Resources were more focussed on finding zinc than copper and reinterpretation of the results
• Looking at the drill results indicates a property which would have been drilled like a Swiss cheese if located anywhere else in the world.
• The agreement with BHP is as follows:
o BHP Billiton may earn a 75-per-cent interest in Storm.
o BHP Billiton to spend a minimum of $40 million on exploration at Storm within nine years of signing the option agreement, with a minimum $2.5m in the first
o two years.
o Aston Bay has no required exploration expenses for four years from the closing of the option agreement.
o Aston Bay holds a GOR of 0.3% on all mineral claims outside of area of mutual interest with Commander Resources Ltd..
• Thomas Ullrich, ex chief geologist for Antofagasta in North America is coo of Aston Bay and is running the field program.
• Aston Bay is the operator for this upcoming field season but BHP can assume operatorship at any time.
• Previous results Include:
o 110m @ 2.45% Cu
o 56.3m @ 3.07% Cu
o 53.2m @ 1.34% Cu
o 51.3m @ 1.16% Cu
See https://astonbayholdings.com/storm-copper for more information on the Storm project.
Conclusion:   Somerset Island, Nunavut is not exactly next door and working in the area is not exactly a walk in the park but if you can fight off the Polar Bears and if drilling can prove enough tonnes of high grade copper then this might prove to be BHP’s next big copper project.

Mkango Resources* (LON:MKA) 4.5p, Mkt Cap £3.2m – Airborne geophysics at Thambani
• Mkango Resources reports radiometric and magnetic results from interpretation of data over its Thambani licence area in Malawi. The data was derived from a $25m, World Bank funded programme of airborne geophysics over Malawi.
• The survey has confirmed “a previously identified uranium radiometric anomaly measuring at least 3 kilometres (“km”) by 1.5 km along the western flank of the Thambani East ridge.” The anomalous area, the Little Ngona prospect which has “previously yielded very encouraging uranium, niobium and tantalum values from geochemical sampling, is located at the northern end of this anomaly.”
• A further east/west trending anomaly has been identified to the south of this main area while the previously identified Chikoleka prospect, which did not fall within the scope of the current survey, and has yielded “very encouraging” geochemical results in the past, is located to the north.
• As well as the radiometric data, the survey has shown a number of previously unidentified magnetic anomalies including a 2.3 km long magnetic high along the Thambani East ridge and a magnetic low anomaly [which appears to be] co-incident with the abovementioned east-west oriented uranium anpmaly”.
• The company indicates that “the magnetic high anomalies provide an excellent focus for future exploration for niobium – tantalum, because columbite – a niobium - tantalum  mineral, has previously been shown to be closely associated with magnetite and/or ilmenite at Thambani.”
Conclusion: The geophysical results are an early-stage exploration tool which should help Mkango to refine target selection within the Thambani licence area. We concur that the anomalous areas “require further investigation to determine the significance of the magnetic anomalies, and whether they are related to mineralisation or geological features.” and look forward to further results from follow up work.
*SP Angel acts as Nomad and Broker to Mkango Resources

Ortac Resources* (LON:OTC) 0.04p, mkt cap £2.1m – Positive conclusion to a judicial proceeding brought against the District Environmental Office
• Ortac Resources report a positive conclusion to judicial proceeding brought against the District Environmental Office in Ziar nad Hronom, Slovakia for a decision made in favour of the Company.
• “it is even more encouraging to see that the application submitted by the Company has passed such rigorous scrutiny by both the environmental office and the regional courts."
• “These judicial proceedings relate to an underground mining application submitted in 2014 for which the DEO approved the application. Following this, an appeal was lodged in the regional court in Banska Bystrica by a local NGO group and the local municipality against the DEO. The Company has been informed that the regional court dismissed the appeal. Further judicial proceedings with respect to a decision made by the Central Mining Bureau for the same application are currently underway and a decision is expected in due course.
• The Company has also been advised by its lawyers that it has recently been cleared to proceed with a surface mining application which had been held up by the actions of local opposition groups.”
• Ortac ran a trial mining campaign in July 2014 producing some 400t of high grade gold ore for metallurgical testing from the existing Šturec underground gold mine
• Ortac’s pre-feasibility study done by SRK calculates some 71,000oz pa of gold equivalent production. 
o JORC pre-2012 ore reserve of 873,000oz gold equivalent grading 1.90g/t as used in the SRK pre-feasibility study.  The measured and indicated resource is 1moz assuming another 310,000oz of ‘inferred’ gold resource.
o Cash cost of around $555/oz indicate this to be a valuable project
o IRR of around 30% at a $1,343/oz gold price as assumed by SRK.  This is curiously close to today’s prevailing gold price, so well done SRK.
 Capex = $124m inc +15% contingency. The model assumes no sustaining capital as mining equipment is assumed to be leased with lease costs and all plant maintenance included in operating costs.
 The company calculate a post-tax NPV at an 8% discount rate was $145m and $195m pre-tax at a $1,343/oz gold price.
 We suspect the $124m capital cost could be cut back significantly if financed in the current environment leading to significantly improved economics for the project.
 Capex = $124m inc +15% contingency. The model assumes no sustaining capital as mining equipment is assumed to be leased with lease costs and all plant maintenance included in operating costs.
Conclusion:  There is potential for significant additional upside in the current environment if Ortac are able to finally gain the relevant environmental and mining permits.
*SP Angel acts as Nomad and broker to Ortac Resources

PolyMet Mining* (NYSE:PLM) US$0.80, Mkt Cap US$215m – Permit application for
• PolyMet Mining have lodged applications for all water-related permits relating to the construction and operation of the NorthMet mine and Erie processing plant in the state of Minnesota.
• The company has also repaid its loan to the Range Resources Rehabilitation Board.  The loan had helped to secure some of the land acquired as part of a proposed land exchange with the Federal government as is normal practice in the US.  The discharge of the loan helps to facilitate the closing of the land exchange once its finally approved by the US Forest Service which has already indicated its public interest.
• Water permits are critical for any mining operation and the state of Minnesota is particularly sensitive to water treatment and discharge with so many lakes in the region.
• Polymet’s water application permits include:
o Water quality permit to establish the terms and conditions that must be met, including monitoring, when a facility discharges to surface or groundwater of the state.
o Water use permit needed for withdrawing or using water from a surface or groundwater source for the project.
o Dam safety permits that outline the design, construction, and operating parameters to ensure long-term safe and stable operations of facilities with water impoundments, such as the tailings basin.
o The permits have been carefully prepared to align with the state-approved Final Environmental Impact Statement to help the state agencies process the application.
o Polymet has now spent an incredible $108m on environmental review and permitting, of which $101.200 million has been spent since the NorthMet Project moved from exploration to development stage.
o Management expect to Complete the Definitive Cost Estimates and Project Update, Complete the Project Implementation Plan and Complete the Construction Finance Plan in 2017 in advance of financing and construction.
Conclusion:  We now feel the company is making good progress in its permit applications and towards the “Section 404 wetlands permit for review”.  Polymet’s NorthMet project offers significant future potential and the permitting and redevelopment of the giant Erie processing plant presents further opportunity for the company.  There should be very substantial interest in the operations once final permits are received.
*SP Angel act as advisors and UK brokers to Polymet

Premier African Minerals (LON:PREM) 0.7 pence, Mkt Cap £12.7m – RHA tungsten plant to restart this week
• Premier African Minerals reports that the plant modifications to the 49% owned RHA tungsten plant in Zimbabwe are now largely complete and that following reconnection of the electrical supply it will be restarting the plant later this week.
• The company disclosed in its annual results statement in June that “the plant has experienced a series of issues from inception. A protracted period of negotiation with the plant supplier has finally resulted in committed undertakings from the plant supplier to deal with imperative modifications and other fixes by 6 July 2016.”.
• The resumption of plant operations should allow RHA to process ore from the recently refurbished underground mine following the inability of the  open pit operation to deliver adequate volume of feed at the anticipated grades.
• The benchmark ammonium paratungstate price has recently slipped back below the US$200 per metric tonne unit level; industry reports suggest that although major Chinese suppliers of tungsten concentrate have been cutting back in the face of demand weakness, the smaller producers continue to release supplies to the market in an effort to lock in prices and realise cash.

Solgold* (LON:SOLG) 4.1p, Mkt Cap £32.6m – Further world class intersection reported at hole 17.  Term Sheet for a US$20m Private Placement
• SolGold report a Further world class intersection reported at hole 17, its latest borehole CSD-16-017 at the Alpala prospect within the Cascabel licence in Ecuador.
• The hole intersected a total of 948m of mineralisation at an average grade of 0.54% copper and 0.53 g/t gold from a depth of 330m.
• The overall intersection contains higher grade sections including 562m at an average grade of 0.7% copper and 0.75g/t gold from a depth of 702m and 136m at an average grade of 1.28% copper and 2.20g/t gold from 846m.
• The drilling further extends the known extent of the Alp[ala mineralisation to 450m width, 700m in length and a vertical extent of 1800m.
• “Hole 17 represents the continuation of strong copper and gold mineralisation intersected in holes 5 and 12 … which returned intersections including Hole 5: 5362m @ 1.05% Cu and 1.08g/t Au from 778m [and] Hole 12: 576m @ 1.03% Cu and 1.19 g/t Au from 844m”
• CEO, Nick Mather commented  on the result Not only does it extend the Alpala deposit but it confers strong copper and grades high up closer to surface. We’ll be putting in some new pads to test this zone over a 500 metre strike length and I think it will add significantly to the size of this deposit.”
Conclusion: Solgold’s drilling continues its high rate of drilling success at Cascabel to extend the known extent of high grade mineralisation at Alpala which, as the company points out is only one of 14 targets so far identified within the Cascabel cluster of mineralised porphyries.
Term Sheet for a US$20m Private Placement
• Solgold also announced that it has reached an agreement with Maxit Capital in respect of a US$20m private placement which is to be used for continued exploration of the company’s Cascabel Project in Ecuador and for general corporate expenses and working capital purposes.
• “Maxit have agreed to subscribe for up to 238,475,000 ordinary shares (Placement Shares) or a maximum of 19.99% of the issued share capital of the Company …Under the agreement reached, the issue price shall be determined by Maxit, acting reasonably, no later than 5 business days prior to the closing date and notified to the Company in writing”.  The Offering is scheduled to close on or about October 6, 2016.”
• Maxit will be entitled to a success fee amounting to 6% of the gross value of funds raised and will receive warrants equal to 6% of the Placement Shares.  Half of the warrants are to be exercisable at 14p and half at 28p. The Warrants are exercisable over a period of 24 months.
• The proposal for Maxit to raise funds for Sogold comes shortly after an announcement earlier this month that DGR Global, a company holding a 15.99% interest in Solgold and including Solgold directors, Brian Moller and Nicholas Mather, on its Board had agreed a US$7m short term unsecured loan to Solgold. The DGR Loan is repayable by 31st December 2016 or when Solgold raises further equity.
• The offer of $20m indicates very substantial interest in the Cascabel project in Ecuador.  SolGold are drilling what looks like a giant copper porphyry project which is showing mineralisation in kilometer long intersections. 
• SolGold may choose to continue to drill from surface where recent promising trench results and sampling indicate further potential for surface mineralisation.
• Alternatively SolGold may choose to drive an adit into a lower level of the mineralized porphyry for further drilling from underground.
Conclusion: At this stage, the pricing and hence the potential dilution of this new funding round are not clear, however, we note that in the six months to 31st December 2015, Solgold spent approximately A$3.5m (US$2.6m) on exploration and evaluation, suggesting that a US$20m injection of funds has the capacity to significantly accelerate exploration at Cascabel.

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