(MENAFN- ProactiveInvestors)Economic News US dollar gains – on expectations for an early rise in US interest rates • Positive US retail data helped the US dollar gain as investors look towards an earlier rise in US rates. • US household net worth rises to $85 trillion in Q1 up $1.6 trillion qoq. US household borrowing slowed to 2.2% the slowest rate since Q4 '13 • American home values rose by $411bn with household financial holdings rising by $1.1 trillion in Q1 helped by a rising equity market. IMF withdraw negotiators from talks with Greece • This is the final straw the Greek government have effectively defaulted on the IMF. While the IMF did agree to defer repayment we see this as an effective default. • The EU is holding last ditch talks to resolve the Greek debt issue but anecdotal reports suggest more Greek taxpayers may be paying even less tax exacerbating the nation's problems. • Reports of Greece planning to introduce a parallel currency may signal its exit from the EU monetary union. UK – 2014 GDP growth will be revised upwards to 3.1% from previous 2.8% as the ONS changes the way it calculates price changes in the construction sector and the method for seasonal adjustments to the data. • The latest numbers suggest construction output in Q1/15 show a 0.2%qoq decline a revision to a -1.1%qoq decline reported previously. • Apr numbers showed the decline stretched past the Q1/15 with production down -0.8%mom in Apr/15l. Estimates were for a 0.1%mom growth from +1.4%mom increase in Mar. • The recent decline in construction is linked to uncertainty over Britain's national elections held on May 7. • Construction accounts for 6.4% of the UK economy. US$1.1164/eur vs 1.1261/eur yesterday. Yen 123.77/$ vs 123.57/$. SAr 12.439/$ vs 12.406/$. $1.549/gbp vs 1.546/gbp US$0.769/aud vs0.774/aud Commodity News Precious metals: Gold US$1179/oz unch vs US$1183/oz yesterday Platinum US$1099/oz vs US$1111/oz yesterday Palladium US$742/oz vs US$742/oz yesterday – prices continue to fall Silver US$15.92/oz vs US$15.92/oz yesterday Base metals: Copper US$ 5883/t vs US$5934/t yesterday – copper prices fall in double whammy on concerns over Chinese demand and US dollar strength. • Lower than expected mine supply and potential stimulus in China may recover the market going forward but short term concerns over China and the dollar are likely to drive prices lower for now Aluminium US$ 1740/t vs US$1741/t yesterday Nickel US$ 13045/t vs US$13440/t yesterday Zinc US$ 2101/t vs US$2130/t yesterday Lead US$ 1841/t vs US$1908/t yesterday – lead stocks in LME warehouses rise 31350t to 186325t a new three month high. • Increasing demand for hybrid vehicles should drive higher lead demand over the next few years. Tin US$ 14940/t vs US$15310/t yesterday Energy: Oil US$64.3/bbl vs US$65.8/bbl yesterday Natural Gas US$2.791/mmbtu vs US$2.845/mmbtu yesterday Uranium US$36.25/lb unch vs US$36.00/lb yesterday Bulk commodities: Iron ore 62% Fe spot (cfr Tianjin) US$64.2/t unch vs US$63.3/t - Iron ore imports fell 8.4% month on month in May to 17.8mt Thermal Coal $58.0 cif ARA Europe – UK imports of thermal coal continued to fall in April to just 1.27mt 50% down yoy. Jan-April imports were 25% lower yoy at 9.47mt • The figures reflect a rise in the cost of the price of the UK's Carbon Price Support mechanism to £18.08/t on 1st April from £9.55/t as well as the UK's changing energy mix. BP Statistical Review - 'Tectonic' shifts in Global Energy supply and use • Coal – global coal consumption grew by 0.4% in 2014 below the 10 year average annual growth of 2.9%. Coal's share of global consumption fell to 30%. • Consumption outside the OECD grew by 1.1% - the weakest growth since 1998 as a result of the flattening of Chinese Growth +0.1%. Indian growth was up 11.1%. • Global coal production fell by 0.7% with falls in China down 2.6% and Ukraine down 29% offset by large increase in India +6.4% and Australia +4.7%. • Nuclear – global nuclear output grew by an above average 1.8%. The first time nuclear power has gained global market share since 2009. • Nuclear output in South Korea China and France outpaced declines in Japan Belgium and the UK. • Hydropower – Global hydroelectric output grew by below an average 2% and accounted for a record 6.8% of global primary energy consumption. • Chinese hydroelectric output growth (+15.7%) and accounted for all of the increase in global output. • Renewable energy – in power generation as well as transport continued to increase reaching 3% of global energy from 0.9% 10 years ago. • Renewable energy in power generation grew by 12% and accounted for 6% of global power generation. • China recorded the largest increase in renewables power generation for the fifth consecutive year with growth of 15.1%. • Wind energy rose 10.2% globally and grew by half of its 10 year average. Solar power generation grew by 38.2% to 51 terawatt hours. Biofuel production growth slowed to 7.4% (+144000 bpd). Tungsten - APT price in China at $230-240/t now running ahead of European prices of $230-235/t Company News Avocet Mining (LON:AVM) 5.5 pence Mkt Cap £11.5m – Promising drilling results from Souma • Avocet Mining has reported the initial results from its drilling programme at its Souma prospect close to the company's Inata mine in Burkina Faso. To date a total of 63 reverse circulation drill holes (2921 metres) of drilling has been completed largely on the Dynamite area in the northern part of the Souma prospect area. • A total of 882m of diamond core drilling in 20 holes has also been completed to obtain material for metallurgical testing. Further diamond drilling is planned to obtain metallurgical test samples from other areas. • The programme which is due to continue until July is designed to test shallow oxide mineralisation which may be amenable for treatment at Inata or amenable for development of a stand-alone heap leach operation. • Today's announcement details 28 drilling intercepts of which 11 show mineralised intersections of 10 metres width or greater and 5 of the reported samples show grades of 5 g/t gold or greater. • When it is completed the drilling should enable the company to 'upgrade the existing resource of 0.68 million ounces in order to generate a maiden ore reserve.' • The drilling is also intended to establish whether the mineralisation at Souma is free of the carbonaceous material which has proved difficult to process at Inata Conclusion: The initial results from the drilling at Souma are encouraging. As a substantial number of the results show relatively good grades Avocet may be able to process mineralisation at the existing Inata plant rather than accept the typically lower recovery rates available from heap leaching. We look forward to news of the metallurgical test programme in addition to the results of the continuing drilling programme as they become available. EMED Mining (LON:EMED) 5p Mkt Cap £72m (undiluted) – Fully funded to bring the Rio Tinto project to 7.5Mtpa • EMED has announced that it has raised £6.8m at a price of 4.75 pence/share. The fundraising is conditional upon shareholder approval at the forthcoming EGM due on 23rd June. • The funds raised in the placing are additional to the £54.7m already conditionally raised. • The funds in addition to short-term funding sources already in place will ensure that the company is fully funded to 'progress the Rio Tinto Copper Project through to 7.5Mtpa of production as part of the expansion of Phase 1 of the project'. • CEO Alberto Lavandeira commented that 'We continue to move closer to commissioning and look forward to commencing production in the coming months.' • Conclusion: It has been a long road for EMED at Rio Tinto but it is now moving closer to achieving its production goal demonstrating that its persistence has been worthwhile. IchorCoal Eur3.95 mkt cap Eur266.8m - agrees to buy Continental Coal's interests in the Penumbra and Vlakvarkfontein coal mines in South Africa. • IchorCoal has agreed to pay ZAR 55m for 100% interest in Penumbra which has 14mt of thermal coal and has produced 500000tpa since 2012. The deal includes a rail siding and annual export allocation of 18000tpa through the coal terminal at Richards Bay. Penumbra lies close to the IchorCoal Vunene coal mine giving good reason for IchorCoal to make the purchase. • The company will pay a further ZAR 73m for Continental Coal's 50% shareholding in Ntshovelo which owns the Vlakwarkfontein opencast mine. The mine produces around 1.2mtpa of thermal coal. • The deal raises IchorCoal's coal production by around 50% and adds another 11mt to the group's resource base according to 'World Coal'. Petra Diamonds (LON:PDL) 155 pence Mkt Cap £799m – Downgrade to FY 2015 revenues • Petra has updated on expectations to revenues which are now expected to be US$430m. • Overall volumes remain the same at 3.2m carats but there are now more small stones being recovered from Finsch and Cullinan. • This is a result of mining of mature areas in the old block areas at both mines and the treatment of development waste at Cullinan. Conclusion: This is disappointing news for Petra but not unexpected. Numbers will have to come down again for FY 2015. We had US$451m on the revenue line so will have to bring down revenues by just under 5% and earnings down by 18% from 9.8 pence to 8 pence. We still maintain our fundamental view that Petra offers good volume growth and we would be buyers on weakness. Petropavlovsk* (LON:POG) 6.4p Mkt Cap £214m – New strategy to rebuild confidence through better cost control and discovery of gold oxide ores Site visit review of POG's gold mines in the Amur region of Russia • Production target reiterated at 680-700koz. • Total cash costs expected to average less than US$700/oz vs US$865/oz in 2014: (625koz). • Net debt is expected come down to less than US$600m by end of CY15 down from US$707m as of Mar/15. • The focus is on maximising cash flow from existing operations with tight control over operating costs and a cut in capital expenditures to minimum levels. • Exploration is again a priority and is expected to account for 70-80% (US$25-35m) of total capex through 2015/17 with primary targets being Pioneer (50% of exploration spend) Malomir (25%) and Albyn (25%). POGs are good at exploration and we expect this renewed focus with 150 geologists and another 650 staff in the labs and in the field to generate new discoveries and find more higher-grade ore. • Albyn 2015/16 should see peak levels in terms of total material moved (c.40m m3 pa through both years v 30m m3 in 2014) with an expected decline in waste stripping ratios post CY16 benefiting unit costs. • Higher processed grades (FY15: 1.5g/t; FY14: 1.3g/t) leading to stronger production as well as a rouble depreciation and a fall in oil prices are expected to see Albyn TCC lower in FY15 versus US$830/ozin FY14. • The team plan to bring into production Elginskoye (c.30km south of processing plant) and Afanasevskoye (c.20km southwest) non refractory ore zones. Thanks to a number of alluvial gold mining operations in the area most of the roads required for ore transportation are available. • Elginskoye is a large regular grade deposit (2.3moz at 1.0g/t in total Mineral Resource JORC) hosting gently dipping thick mineralisation amenable to low cost open pit mining. • Afanasevskaya is currently going through trial mining demonstrating good grades (average of 2.5g/t) with mineralisation reported to have been traced for 5km. • Malomir existing non-refractory reserves are estimated to last a little more than four years (333koz in proven and probable reserves assuming an 80kozpa production rate) with exploration works concentrated on the conversion of available mineral resources (683koz) into reserves and delineating new non-refractory ore zones. • Perspective non-refractory targets include: Osennee (c.10km west away from the plant) which is currently mined (average 1.45g/t) with 22koz included in the latest Mineral Resources Uspenskaya (selected drillhole intersections include 2m@6g/t 6m@1g/t 1m@25g/t) located next to Osennee and Razlomniy ore zone (2km east from the plant with selected intersections of 9m@2.2g/t). • The Group expects Malomir to remain the highest cost mine in the portfolio (TCC >US$800/oz) until the switch to the processing of refractory material is completed. Til then subdued gold recoveries due to the processing of some of transitional ores scattered nature of mined deposits as well significant spend on exploration works will continue to weigh on economics of Malomir production. • Pioneer the team is working on establishing more non-refractory reserves to continue to run the existing RIP plant (capacity 6.6mtpa) following the decision to pause construction of the flotation circuit for treatment of pyrite containing ores. • Exploration results show good of potential for more high grade non-refractory feed for the plant at Nikolaevskaya and Perspektivnaya where intersections range 2-40m between 1-11g/t. Targets south-east of the high grade Andreevskaya pit and Brekchevaya and Opitnaya (selected drilling results showed 3m @ 8g/t) zones located 8-9km north of the processing plant. Described zones are likely to become the source of valuable blending material once Andreevskaya and NE Bakhmut deplete in 2016. • Geological modelling suggests the area is crossed with a series of faults in step-like 300-400m long intervals associated with high grade mineralized zones two of which are currently mined at Andreevskaya and NE Bakhmut pits. • In addition the Company has discovered a number of high grade pay shoots(grades range between 5-30g/t) that extend beyond existing modelled open pits offering a potential for underground development. Drilling has recently started at one of the targets to test deeper horizons and update available mineral resources. • Preliminary management estimates suggest a potential for 4-8moz of non-refractory gold with an underground operation producing 200-250kozpa. Development costs (c. US$20-50m) have not been included into budgeted 2016-19 capex numbers and remain subject to capital availability. • POX project at Pokrovka being currently mothballed is 18-24 months and c.US$140m (including US$10-15m for flotation at Malomir) away from completion. • The 'oxygen plant' is complete and ready for pre-commissioning trials. Four 60m3 autoclave vessels (100% of Stage I) have been assembled with total capacity in excess of planned 300ktpa Malomir concentrate input. Construction of the 'neutralisation plant' is complete with the kit expected to be shipped and installed once the decision to restart the project has been taken. Conclusion: We support the management drive to focus on FCF generation delaying POX related capital outlays and deleveraging its balance sheet in this lower gold price environment. We are focussed on results from exploration around the existing mines as the future availability of non-refractory material will play a key part in ensuring the success of the current business strategy. Ongoing exploration is showing promising results in extending available non-refractory reserves in the flanks of existing pits and close lying satellite deposits. In particular newly discovered high grade zones at Pioneer are expected to help substitute mined high grade ounces and allow the Company to maintain production at >200kozpa. Underground potential should see Pioneer remain as non-refractory ore processing unit for more than 6 years. The company faces a relatively aggressive debt amortization schedule with most repayments due in 2015/17 (US$104m in 2015 US$241m in 2016 and US$258m in 2017). Net Debt/EBITDA target of 1.5x implies an optimal US$400m in net debt (assuming EBITDA of US$260-280m with US$1200/oz gold price US$700/oz TCCs and 590-620kozpa gold production) This suggests part of existing facilities are likely to be refinanced while delivering on the outlined strategy and deleveraging should help rebuild investor confidence in POG and lead to a re-rating in the stock. *SPAngel analysts have visited the Pioneer Malomir and Albyn gold mines in Russia
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