Industry Trend Analysis - Weekly Mining & Projects Roundup - AUG 2015

  • Congo-Brazzaville's iron ore production growth will be limited by weak global iron ore demand growth and continued iron ore price weakness.

  • Cote d'Ivoire's gold production growth will be supported by new projects coming online and low production cash costs.

  • Correlation between iron ore and Chinese stock indices not expected to persist in the case of a significant rally in Chinese equities.

  • Canada's status as a major zinc producer will continue to slip over the next few years as recent mine closures serve to limit output.

Key Developments: Africa

Congo-Brazzaville - Regional Boom, But Problems Persist - Congo-Brazzaville holds significant iron ore production growth potential, as a number of multinational mining firms compete to take advantage of the country's considerable and largely untapped deposits. However, a contraction in global iron ore demand and prices may threaten the development of the sector as junior miners in particular struggle to maintain profitability. Congo-Brazzaville's considerable iron ore reserves and the high-grade of its deposits have seen the country increasingly targeted by international investors in recent years, particularly as deteriorating iron ore prices squeezed the operating margins of many producers. Many of the country's deposits have an average grade of above 60%, compared with the global average of about 40-50%. The development of the Congo's mining sector will have significant macroeconomic implications as it will diversify the country's dependence on oil revenues, which currently account for approximately 90% of export earnings.

Cote d'Ivoire - New Projects To Boost Gold Output - Cote d'Ivoire's gold production growth will be supported by new projects coming online and low production costs. Despite this, the country's ongoing political instability and inadequate infrastructure will prevent the sector from reaching its full growth potential. The country's gold output growth will be driven by End e avour Mining's Agbaou gold project. The mine produced 146koz in 2014, and will produce 400koz, accounting for roughly half of the country's gold output, at full production in 2019. The mine's average cash costs are set to be competitive at USD690-740/oz, which will allow the operation to remain profitable despite the downturn in global gold prices. Besides the Agbaou project, a number of other projects will come online, including Amara Mining's Yaoure gold project. The mine, scheduled to begin production in 2017, holds reserves of 6.3moz, and is expected to produce 247koz per annum (kozpa) at full production. Additionally, the project's cash costs will average around USD648/oz over the mine's lifetime.

New Projects To Support Growth
Cote dIvoire - Gold Mine Production (moz) & Growth y-o-y (%)
f= BMI forecast. Source: USGS,BMI

Key Developments: Asia

China: Chinese Equities Temporarily Overriding Iron Ore Fundamentals: Iron ore prices have plummeted and risen along with the Chinese stock indexes the past week. However, we do not expect this correlation to continue.

The correlation between declining iron ore prices and plunging stock indices is due to the extensive use of metals for financial collateral in China. Given much of the investment in Chinese equities in H115 was on margin, the recent correlated drop in iron ore prices is likely due to the liquidation of collateral. The 2014 Qingdao scandal appears to have slowed, but not eliminated the use of metal as collateral.

In the case of a significant rally in the stock market, we believe iron ore's gains will be capped as fundamentals remain weak due to two reasons:

  • Steel demand will remain weak. High frequency data including manufacturing surveys, credit creation figures, and fixed asset investment levels suggest that significant momentum was lost in H115. For instance, China's construction activity slowed significantly, with floor space of buildings completed in April, May and June 2015 averaging a fall of 21% y-o-y.

  • Iron ore surplus will persist. Though low iron ore prices will exert pressure on iron ore producers higher up the cost curve to mothball their operations, the global iron ore market will still remain in surplus if Vale, BHP Billiton and Rio Tinto stick to their export targets and expansion plans.

Correlation Will Not Continue
Shanghai Composite Index & 62% Iron Ore Delivered To Qingdao China, Rebased
Note: 13 April 2015 = 100. Source: Bloomberg

Key Developments: Americas

Canada: Zinc Growth To Resume But Output To Remain Limited - Canada's status as a major zinc producer will continue to slip over the next few years as recent mine closures serve to limit output. Canada's zinc mining sector is undergoing a period of readjustment which will see output continue to decline on a y-o-y basis through 2015 before starting to climb over the remainder of our medium-term forecast period through to 2019. However, he recent closure of Glencore Xstrata's Brunswick Mine means that Canadian mined zinc output will not return to the highs seen in the previous decade and will lead Canada to fall further behind leading producer such as Australia and Peru in terms of output growth. We expect 2015 mined zinc output to decline 2.5% from 2014 levels to 341,000 tonnes (kt) and to rise by 0.8% a year on average over 2015-2019. By 2019 we expect Canada to be contributing about 2.5% of global zinc production, compared with more than 6% in the late 2000s.

Canada's Share To Decrease
Canada Zinc Production Growth y-o-y (%) & Share Of Global Output (%)
f = BMI forecast. Source: BMI Calculation, USGS
Projects & Announcements This Week
Source: Company Announcements, BMI
Country Company Mine Commodity Update
Australia Aurelia Metals Hera Gold, Lead, Zinc Has announced plans to expand production at the mine
Australia Glencore West Wallsend Coal Has confirmed that production at the mine has been halted owing to longwall issues
Australia Poseidon Nickel Lake Johnston Nickel Has reported a maiden reserve estimate for the Maggie Hays deposit, within the Lake Johnston project, of 1.9mnt, grading 1.19% nickel for 22,600 tonnes of contained nickel
Australia Kimberley Diamonds Ellendale Diamond Operations at the mine have been suspended
Australia Centennial Coal Springvale Coal The life of mine has been extended by 13 years after the state's Planning Assessment Commission (PAC) approved owner's extension plans
Australia Padbury Mining Telecom Hill Iron Ore Has been granted mining lease for the project
Botswana Cupric Canyon Capital Ghantisi-Chobe Copper, Silver Construction of the mine is set to start in 2016, with the first copper expected to be shipped to the markets in 2018
Botswana African Energy Mmamantswe Coal Has signed a term sheet with a South African project developer to divest of the project
Canada De Beers Canada, Mountain Province Diamonds Gahcho Kue Diamond Construction of the project is 62% complete as at the end of May 2015
Chile Sumitomo Metal Mining, KGHM Polska Miedz Sierra Gorda Copper The mine began commercial production at the end of June 2015
Ghana Resolute Mining Bibiani Gold Plans to complete a feasibility study on the project in mid-2016, after an underground scoping study delivered positive results
Mongolia Erdenes Tavan Tolgoi Tavan Tolgoi Coal The Government is considering the sale of a stake in the mine
Mozambique Coal India Limited (CIL) A1, A2 Coal Has decided to relinquish 75% of the acreage of the two blocks as despite three years of exploration, no coal has been discovered on the blocks
Niger GoviEx Uranium Madaouela Uranium Has filed its mining permit application with the government of Niger for the project
Philippines Indophil Resources, Glencore Tampakan Copper, Gold A final agreement may be signed in the middle of July 2015, allowing Indophil to take control of the long-delayed USD5.9bn project from Glencore
Portugal Medgold Resources, Centerra Gold Lagares Gold Medgold has granted Centerra an option to earn a 51% interest in the project by spending USD3mn over three years
Romania Vast Resources, Sinarom Mining Manaila Copper, Zinc Vast Resources has concluded the acquisition of a 50.1% stake in the mine from Sinarom Mining
South Africa Universal Coal New Clydesdale Colliery Coal Has been given clearance to start recommissioning work of the colliery after the transfer of ownership for the project was approved. Universal acquired the NCC from Exxaro Resources in 2014
South Africa Atlatsa Resources Bokoni Platinum Atlatsa is in talks with Anglo American Platinum (Amplats) regarding the future sustainability of the mine
South Africa Coal of Africa (CoAL), Blackspear Capital Mooiplaats Coal The sale and purchase agreement for CoAL's sale of the colliery to Blackspear has lapsed. The former had announced that it would sell the colliery, which had been placed on care and maintenance in October 2013, to Blackspear
Tanzania Edenville Energy Rukwa Coal Has submitted all elements of the mining licence application for the project to the Tanzania Ministry of Energy and Minerals
United States Pershing Gold Relief Canyon Gold An upgraded National Instrument 43-101-compliant resource estimate for the project now shows a combined measured and indicated resource of 739koz and an inferred resource of 70koz of gold
United States Evolving Gold, GFG Resources Rattlesnake Hills Gold Evolving Gold has entered into a binding LOI to sell the project to GFG Resources
United States BHP Billiton, Westmoreland Coal San Juan Coal BHP Billiton has confirmed that an agreement to transfer ownership of the mine to Westmoreland is final
Zimbabwe Caledonia Mining Blanket Gold Production increased by 4.7% quarter-on-quarter to 10,424oz in the second quarter of 2015
Zimbabwe Vast Resources Pickstone-Peerless Gold Production at the mine would start in August 2015, with estimated output of 10koz/yr of gold from the targeted initial mining rate of 10,000 tonnes/month of ore