Fairfax Market Report including Discovery Metals, Goldstone Resources and Titanium Resources Group


Fairfax Market Report including Discovery Metals, Goldstone Resources and Titanium Resources Group 
Earthquake and tsunami causes extensive damage to homes and industry in Japan near Tokyo
•    Gold and other precious metals may see some selling pressure from the Japanese earthquake and tsunami.
•    Preliminary estimates reckon the disaster could knock around 1% off Japanese GDP.
•    Japan has been preparing for such an event for many years and should manage the situation well.
•    The 8.9 earthquake struck in the afternoon in Japan enabling early warning systems to evacuate and prepare many areas ahead of the oncoming tsunami.  The earthquake struck 250miles 
•    Islands and nations around the Pacific are on Tsunami alert as the wave may be higher than some islands.
•    Power has been cut to 4m homes in Tokyo although the city has been largely spared by the offshore earthquake

Tsunami warnings have been issued for the following islands in the Pacific in the last month and look likely to see some impact from this Tsunami
Indonesia – Bali and other coastal areas are likely to be affected.  This could interrupt the production and shipment of coal, tin and some other metals
PNG – we know of copper and gold mining and exploration in PNG but again these are on higher ground
Chile & Peru – we are not aware of mining on the coast but ports and shipping terminals could be temporarily affected.  The port of Antofagasta could see some impact although most of the town is on higher ground.   
West Coast USA – expecting some remnants of the Tsunami wave but few mines if any on the US coast.  
Hawaii – we have not heard of any mines in Hawaii but we discover there are 63 mining operations employing 640 people directly producing coal, metals and non-minerals.
Russia – the first Tsunami wave to hit a Russian island was 1 foot 8 inches high causing little reason for alarm.  Russia has evacuated some 11,000 people from its Pacific islands including Sakhalin Island near Japan

We do not expect the following companies to be materially affected by the oncoming Tsunami
Medusa Mining – Medusa is located on high ground on the southern Philippine Island of Mindanao.  We would not expect this Island to suffer particularly from the Tsunami although the islands may see damage to low-lying coastal settlement. 
Solomon Gold – The Tsunami should lessen before it hits the Solomon Islands.  The capital, Honiara, on the Island of Guadalcanal is on an average elevation of 12m above sea level.  If the Tsunami maintains the 10m height seen in Japan then Honiara could see some damage.  
Allied Gold – Allied’s Simberi gold mine on PNG’s Tabar Islands group is on higher ground but the processing plant and man camp is on the coast and could be affected.  
Vatukoula Gold Mines – based in Fiji are again located on higher ground but if the Tsunami affects coastal areas there may be some impact to operations.

Economic News

Saudi Arabia – day of rage started early last night as locals used the event to demonstrate on local issues.  The protests dispersed quickly but new protests might start today following noon prayers.  Police are reported to have responded with rubber bullets.  

China – Figures released this morning show that consumer prices rose at an annual 4.9% in February, suggesting that efforts thus far to rein in soaring prices have been inadequate. 

Libya – Forces loyal to Colonel Gaddafi have made major gains in the fight against rebels pushing them back to two strategic positions, as EU leaders meet to discuss the crisis. France has become the first country to recognise the National Libyan Council, the group formed by the rebels as Libya’s legitimate government. The Office of the President stated yesterday that Paris regarded the group as the country’s “legitimate Representative” 

US – The uneven nature of the US labour market was highlighted yesterday with initial jobless benefits rising last week from an almost 3 year low. Applications for benefits increased by 26,000 to 397,000 surpassing forecasts of 376,000. The figure was however below the 400,000 mark that signifies that the labour market is contracting. 
•    Expectations ahead of a report due for release later today suggest that US retail sales probably rose last month by the largest figure in 4 months. Estimates suggest a 1% gain. 
•    A raft of incentives has encouraged more Americans to buy cars last month. Auto sales rose to a 13.38m annual rate, the largest since August 2009. 

UK – Amid a market fall yesterday some positive figures emerged on the economy. The National Institute of Economic and social research stated that the UK economy rebounded in the three months through February with GDP rising 0.2% after falling 0.2% in the period from November to January. 
•    Additionally the BOE as expected left its benchmark interest rate unchanged at the record low of 0.5%. 

South Africa – Mineral Resources Minister Susan Shabango has stated that South Africa will not nationalize the mining industry despite calls from prominent members of the ANC. In an interview in New York, Shabangu stated “Government policy is clear: it’s a mixed economy; the state will participate in the sector, but we will not nationalize”
•    Official data released yesterday showed that total mining production growth slowed to 4.3% on a year on year basis in January from a revised 10.2% growth in December. The figures are not unexpected and historical trends suggest that production tends to dip in January as a result of the festive season. On a quarter on quarter basis mining production rose by 3% for the 3 months ended January 2011. 

DRC – Yesterday the DRC lifted the 5 month ban on mining in the east of the country. The ban had originally been imposed in an attempt to try and stop illegal mining that was a direct source of funding for the various armed groups operating in the region. The ban was widely seen as highly unsuccessful. 
•    All focus will now be on the US “conflict minerals” bill due to come into force in April that will require companies to prove that minerals sold are not linked to conflicts. Bizarrely the bill has named a number of neighbouring countries on the list that will require regulations. 

Spain – It was announced yesterday that 12 banks require as much as 15.2bn euros to meet minimum capital requirements. The lenders will have as along as a year to raise the required capital. 

Germany – CPI in the country hit a two year high last month figures released this morning show. Prices increased 2.1% from a year earlier more than the 2.0 estimated. Annual inflation was at 2.4%. More pressure on Jean Claude!

Middle East – Gulf states have announced plans to provide Oman and Bahrain with US$10bn worth of financial aid each over the next decade with the aim of improving and developing infrastructure and housing in an effort to stem further protests.

Currency – The yen is off this morning as the market digests the impact of the earthquake on the Japanese economy. The euro is up this morning also as inflation data emerging from Germany hit a two year high. The dollar is up slightly this morning as investor’s trade out of yen and expectations are that retail sales figures due for release later today will be positive. 

US$1.383/eur vs $1.387eur yesterday. Yen82.78/$ vs 82.84/$ SAr6.90$ vs 6.90/$  $1.604GBP vs 1.674/GBP 

Commodity News

Precious
Gold US$1,416/oz vs US$1,426/oz yesterday-  Prices are up this morning as the dollar weakens and concerns grow that the NATO will take action on Libya following 
•    Figures released yesterday show that gold output in South Africa increased by 15% in January. 
•    SPDR gold trust holdings unchanged at 1,217.30t (39.137moz). Current value US$55,302bn 
Platinum US$1,771/oz vs US$1,792/oz yesterday –Prices this morning appear to be caught between the positive auto sales figures in the US and consequences of the earth quake in Japan. Historically Japanese manufacturers have been holders of large quantities of PGMs for use in auto manufacturing and electronics such as mobile phones. 
Palladium US$766/oz vs US$775/oz yesterday –  
Silver US$35.23/oz vs US$35.68/oz yesterday –  
Rhodium US$2,400/oz vs US$2,400/oz yesterday –

Base metals: 
Copper US$9,109/t vs US$9,158/t yesterday – Prices are off this morning as the market digests the inflation figures emerging in China and expectations increase the further curbs will follow, dampening demand for base metals in the country. 
•    Deutsche Bank AG announced yesterday that it is forecasting copper consumption growth to slow to 0.8% should oil prices by $50/barrel. 
•    Metals Bulletin is reporting that China’s daily copper output rose 6% in February as soaring prices encouraged producers to increase operations.  The recent fall in prices could potentially bring down production in the coming months.
•    Lundin Mining has stated that it believes copper prices will remain strong for at least the next 10 years on the back of continuing supply constraints. 
•    Mitsubishi Materials has announced that it has stopped operations as a result of the earthquake at its Onahama copper refinery. 
Aluminium US$2,543/t vs US$2,565/t yesterday – Chinese daily primary aluminium output climbed to a near record high of 46607t in February as smelters moved back towards full production.
•    Output last month rose 11.3% higher than January. Over the last few months local governments have been removing energy curbs and limitations, encouraging companies to ramp up production. China has produced a total of 1.31 million tonnes of primary aluminium in the first two months of the year, down 1.6% yoy according to Metals Bulletin. 
Nickel US$25,800/t vs US$25,800/t yesterday – 
Zinc US$2,278/t vs US$2,236/t yesterday – 
Lead US$2,403/t vs US$2,423/t yesterday –
Tin US$29,584/t vs US$29,525/t yesterday – 

Energy:
Oil US$113.34/bbl vs US$115.60/bbl yesterday – 
•    Iraq will resume oil exports to the Turkish port of Ceyhan within 5 days following the disruption caused by an explosion on the pipeline on Wednesday. 
Gas US$3.827/MMBTU vs US$3.604/MMBTU yesterday – 
Uranium US$66.50/lb vs US $69.75/lb last week – 

Other: 
Iron Ore – Figures released yesterday showed that China’s imports of Iron Ore fell 29% last month from January on the back of the national holiday and high prices dampening demand. Imports dropped to 48.64million tons last month from a record of 68.97 in January. 
•    According to Metals Bulletin the price of 62% iron ore arriving at China’s Tianjin port fell 11% to US$171.6/t yesterday from 191.9/t in mid February. 
•    India plans to raise duties on shipments of all grades of iron ore to 20% from the beginning of April. 

Steel –The first reports are emerging – surely more will follow of – of damage at steel plants in Japan as a result of the earthquake. JFE Steel, the second largest steel maker is battling with fires at its Chiba plant. 

Coking Coal - Kobe Steel, Japan’s fourth largest steel maker has agreed a record quarterly price of round $330 a ton with Rio Tinto, as a result of supply constraints on the back of the heavy flooding in Australia earlier in the year. Prices this quarter are around $225/t. 

Molybdenum – Australian miner Moly Mines has announced that it expects the long term price of molybdenum to average around US$20/lb as the global economic recovery continues to gather pace. 65% of consumption comes from western economies. Additionally China has become a net importer of the metal further boosting demand prospects. 

Indium – Investor interest in the specialist metal has increased this week as expectations increase that China will establish a “tactical metals reserve”. Prices rose to US$645-$700per kg from 625-690. Indium is used to form transparent electrodes used in liquid crystal displays and touch screens. 
                                                           
Company News

Discovery Metals *(LON:DME) Drilling update at Zeta gives greater confidence in underground
•    Discovery metals has returned some excellent drill results from its infill drilling programme at Zeta that is focused on the development of reserves for the development of an underground mine. A definitive feasibility study is in progress and is due for completion by the end of Q3 for the Zeta underground mine.
•    The 52 hole programme has been completed with a total of 35 holes now released to the market, of which 10 have been published today.  The intercepts released contain some particularly high grades across significant intercepts between 190m and 300m below surface.  Highlighted results include: hole GDRD1142: 10.2m @ 2.0 % Cu & 43.8 g/t Ag, hole GDRD1164: 9.0m @ 2.0 % Cu & 46.2 g/t Ag and, hole GDRD1165:  5.0m @ 2.4 % Cu & 43.0 g/t Ag.
•    The results that have been returned from the drill programme have exceeded expectations in terms of grade and widths.  The holes are over a 2.7km strike length aimed to intersect the mineralised horizon at 200-300m below surface.  An updated resource is expected by the end of Q2 with final drill results in the next month or so.  We note also that the steep structure of the ore body should lend itself well to bulk underground mining techniques.
•    The plan for Zeta is to mine 1.5mtpa with grades around 1.5% Cu, however, the drilling results have demonstrated significant higher grade areas that would prove very valuable.  The underground would feed the 3mtpa plant that is currently under construction and will start off with open pit mining.  If sufficient underground resources are delineated at Zeta and perhaps later on at Plutus and Petra then we would expect the company to look at expanding the mill to 5mtpa which could take output to around 50ktpa of copper in concentrate.
•    An 11 hole preliminary programme has now started at Plutus to test the underground potential that could extend the mine life or support the expanded production base.
•    The Boseto project is looking increasingly robust and with construction underway the project is being de-risked on a daily basis adding value.  
•    Discovery is pushing ahead with an extensive exploration programme across its exciting tenement package that could well hold resources to support additional operations.
Conclusion: These further drilling results give greater confidence in the underground potential for Zeta and should support the underground BFS to give better economics than the last scoping study as grades are higher than previously anticipated.  Some weakness in the shares provide an ideal buying opportunity as the mine should start production against a background of strong copper prices.
* Fairfax acts as broker and Nomad to Discovery Metals

Goldstone Resources (LON:GRL)– Application of licences in Gabon. 
•    Gold exploration company focused on operations in Ghana, Senegal, and Gabon has received verbal approval from the environmental protection agency to commence drilling operations at its Homase project in Ghana and expects the EPA certificate in the coming weeks. The company has stated that it expects to have drilling results by the 3rd quarter 2011.  
•    In Senegal soil sampling program covering the Sangola licence is underway.  The company has thus far taken 6500 samples. Completion of interpretation of the results is expected in Q2. 
•    In Gabon the company submitted licence applications last year and has been recognised as being first in line for the licences. 

Titanium Resources Group (LON:TXR)– Early repayment of Eur13m of debt to Sierra Leone government

Mining this week:
Shanta Gold* (LON:SHG) 32p, mkt cap £57m – Resource upgrade on New Luika Gold mine (Chunya) due 
Randgold Resources (LON:RRS ) 4495p, mkt cap £4bn –.
Rio Tinto (LON:RIO ) 3960p, mkt cap £82bn - Rios US$4bn bid for Riversdale seen as best development option
Sirius Minerals (LON:SXX ) 13.13p, mkt cap £115.25m – Completed placing raising £20m
Stellar Diamonds (LON:STEL ) 8.13p mkt cap £11.49m - £6.2 million raised through placing

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