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Tomorrow's Business



1st November 2018

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Incoming Barclays chairman invested in tax avoidance schemes - comments from leading international tax lawyer

Beowulf Mining* (BEM LN) – Exploration investment in Kosovo

Caledon Mining (CMCL LN) – Blanket Mine continues without interruption despite Central Bank dollar shortage causing closure of gold mines

- Caledonia increase stake by 15% to 64% of the Blanket Gold Mine

Kefi Minerals* (KEFI LN) – Ethiopian exploration permits to be expanded seven-fold on Tulu Kapi construction start

Metals Exploration (MTL LN) – Bankers agree to waiver capital payments of US$35.64m till end January

Randgold Resources (RRS LN) – Quarterly production underpinned by record output at Kibali 

BHP introduces driverless train sooner than expected causing iron ore prices to rise in China as key rail track is damaged into major iron ore port

  • BHP’s forced derailment of a train which had somehow left its driver behind was a close run thing.
  • The train carrying some 30,000t of iron ore in 268 wagons appears to have reached a speed of over 200kmh faster than the UK’s planned HS2 rail link.
  • We calculate that the kinetic energy within the train was some 46Giga Joules equivalent to 11 tonnes of TNT or US MOAB bomb, known as the ‘Mother of All Bombas’.
  • If the train had entered the harbor at Port Headland at that speed the damage would have been immense.
  • The train was being monitored remotely by Rio Tinto’s Operations center in Perth 1,500miles away which presumably changed the points to derail the train before it reached town.
  • The speed of the train indicates that the train continued to accelerate through the journey indicating that a weight may have been placed on the ‘dead mans handle’
  • China iron ore futures climbed 1% in early trading, supported by concerns over tighter supply following the suspension of all iron ore rail operations by BHP Billiton in Western Australia after a runaway train incident. The world’s No. 3 iron ore supplier made the decision after a train loaded with iron ore ran away at high speed along BHP’s Mount Newman railway line for nearly 92km (57 miles) before being forcibly derailed.
  • BHP has four processing hubs and five mines in the Pilbara region of northern Western Australia, connected by more than 1,000km of rail infrastructure and port facilities. The company’s iron ore mine operations are unaffected and it’s working with authorities to investigate the cause of the incident, according to the company.
  • The incident occurred while the driver was inspecting an issue with the train when the locomotive ran away.
  • Rising iron ore prices reflect potential disruptions to supply from W. Australia, as the company expects to take about a week to recover from the derailment.
  • BHP will be reliant on stockpiles at Port Headland while the estimated 1.5km section of damaged track is undergoing repair.
  • Iron ore surged in October as steel mills in China churn out record volumes before anti-pollution curbs kick in over winter and the government beefs up stimulus. The rail mishap for BHP, the world’s third-largest exporter, could give prices a short-term boost, according to analysts. “At this stage it looks like a material derailment,” said Glyn Lawcock, an analyst at UBS Group AG. “Short term this may tighten the market.” Lost railings from mine-to-port over seven days could amount to about 6mt of ore, he said.
  • Glyn continued, “We would expect BHP to still ship during this period out of stock at port, but it is expected there will be some impact as customers will be awaiting certain products, ” he said. The company should be able to make up the shortfall in volume over the remainder of its 2019 financial year, he said.
  • Port Hedland is the world’s largest iron ore export port with a total annual throughput of 519mt in 2017/2018, according to Pilbara Ports Authority. As well as BHP, it’s used by miners including Fortescue Metals Group Ltd. and Roy Hill Holdings Pty. BHP shipped a total of 275mt in fiscal 2018.


Half Russians in London are spies 

  • A study backed by a former MI6 chief estimates that half of the 150,000 Russians living in London are informants to Moscow.
  • The study also estimates there are 200 officers handling some 500 agents vs some 39 Soviet case officers in 1985.
  • The revelations are all the more serious considering potential Russian influence in the US election and UK Brexit campaigns.
  • We suspect the foiled Russian poisoning of the Skripals in Salisbury is suspected to be one of many Russian state sponsored poisonings on British soil.


Dow Jones Industrials




Nikkei 225




HK Hang Seng




Shanghai Composite




FTSE 350 Mining




AIM Basic Resources






US – Equities are mixed as investors remain cautious amid the start of US midterm elections.

  • Europeans stock indices as well as US equity futures are trading slightly lower this morning while the mood is more upbeat in Asia.
  • US will be looking to vote on 35 senators (of 100 seats in the Senate) and all 435 members of the House of Representatives.
  • Democrats are expected to take control of the lower chamber of the Congress while falling short in the Senate.
  • Congress gridlock may ease further risks of trade tensions escalation while also not allow Democrats to roll back tax cuts or reinstate key parts of the Dodd-Franck financial regulations.
  • On the other hand, split Congress may lead to intense budget negotiations and increase the likelihood of a government shutdown that may add volatility to the stock market, CNCB reported citing BAML economists.

UK – The pound is climbing against the S$ as hopes climb for a Brexit deal breakthrough with the currency pair trading at a two-week high.

  • The optimism came amid a phone call between Mr Varadkar, the Ireland’s PM, and Mrs May during which both leaders agreed on commitment to avoid a hard border and the need for a legally operable backstop.

Italy – The Ministry of Economy and Finances is planning to continue negotiating with the EC to settle difference regarding budget deficit targets.

  • “I expect the dialogue will go on… of course, we have some disagreement(s) but this does not mean we can’t have a dialogue, constructive dialogue between the commission and Italy,” Giovanni Tria, Italy’s finance chief, said.
  • The spread between Italian and German 10y debt yields narrowed to sub 300bp recently currently trading at 293bp; although, the benchmark FSE MIB is down 0.7% today.


US$1.1418/eur vs 1.1384/eur yesterday Yen 113.26/$ vs 113.18/$ SAr 14.222/$ vs 14.403/$ $1.308/gbp vs $1.299/gbp 0.723/aud vs 0.720/aud CNY 6.921/$ vs 6.927/$

Commodity News

Precious metals: 

Gold US$1,233/oz vs US$1,233/oz yesterday

  • Gold hold steady ahead of the US congressional elections taking place today, with Democrats expected to take control of the House of Representatives but fall short in the Senate. The 2018 midterms represent the most closely watched, most expensive and most fretted-about congressional elections in memory, with President Donald Trump campaigning hard in the hours before the vote.
  • Money managers, including Stephen Land of Franklin Templeton investments say concerns the Federal Reserve will continue raising rates will overshadow any short-term boost to haven demand from Tuesday’s vote. Fed policy makers are expected to leave the main interest rate unchanged Thursday at their penultimate gathering of 2018.
  • China’s Vice President Wang Qishan said Beijing remained ready to discuss a trade solution with the U.S., but cautioned that the country wouldn’t again be “bullied and oppressed” by foreign powers.
  • Holdings in gold-backed exchange-traded funds rose to 2,133.1t as of Monday, highest since Aug. 13: data compiled by Bloomberg.

 Gold ETFs 68.6moz vs US$68.5moz yesterday

Platinum US$869/oz vs US$871/oz yesterday

Palladium US$1,132/oz vs US$1,121/oz yesterday

Silver US$14.69/oz vs US$14.74/oz yesterday


Base metals: 

Copper US$ 6,187/t vs US$6,241/t yesterday

Aluminium US$ 1,975/t vs US$1,982/t yesterday

Nickel US$ 11,815/t vs US$11,795/t yesterday

Zinc US$ 2,530/t vs US$2,547/t yesterday

Lead US$ 1,944/t vs US$1,980/t yesterday

Tin US$ 19,030/t vs US$19,090/t yesterday



Oil US$72.6/bbl vs US$72.6/bbl yesterday

Natural Gas US$3.528/mmbtu vs US$3.475/mmbtu yesterday

Uranium US$28.80/lb vs US$28.75/lb yesterday



Iron ore 62% Fe spot (cfr Tianjin) US$72.2/t vs US$70.8/t

Chinese steel rebar 25mm US$703.0/t vs US$702.8/t

  • Winter production curbs have normally weakened Chinese steel demand by 4.5%, however the impact may be lessened this year according to Citi. Expectations are that supply cuts this year may be less than normal as the Asian nation moves away from across-the-board bans on construction activity.
  • This year there is more flexibility for local governments to decide on the level of winter shutdowns in their area.

Thermal coal (1st year forward cif ARA) US$90.5/t vs US$91.9/t

Coking coal futures Dalian Exchange US$199.4/t vs US$199.2/t



Cobalt LME 3m US$53,000/t vs US$57,750/t

China NdPr Rare Earth Oxide US$45,661/t vs US$45,621/t

  • Crucial supply from China could undergo severe disruptions during the month-long crackdown on environmental violations by companies mining and producing rare earth elements in eight provinces. The Asian nation dominates global production, supplying ~80% requirements of 17 rare earth elements, which are fundamental to producing components and batteries in everything from smartphones to wind turbines and electric vehicles.
  • Inspections over the coming month will focus on environmental protection and business compliance with other rules, including taxes and licensing, the Ministry of Ecology and Environment and the Ministry of Industry and Information Technology announced in a joint Nov. 1 statement.
  • This will definitely tighten the supply of rare earths,” and concerns about prices and supplies could extend into next year, Helen Lau, a metals and mining analyst at Argonaut Securities Pty Ltd. in Hong Kong.
  • Pollution has been a major issue in China, with very little historical regard for environmental practices. “This has been a big problem for many years”, says Lau. . “It is better late than never, so we’re seeing the government try to regulate this better and improve the environment. Once the production becomes compliant, they will not be able to produce below their cost, so just from that perspective prices will increase over time.”
  • The nation has made major changes in recent history to improve control over domestic supply, consolidating hundreds of operations into six large rare earth groups; China Northern Rare Earth, China Southern Rare Earth, Chinalco Rare Earth, Xiamen Tungsten, China Minmetals, and Guangdong Rising.
  • The biggest impacts could come from inspections in Jiangxi, which supplies around 40% of the country’s heavy rare earths, and Inner Mongolia, which has around 83% of the country’s rare earth resources, Lau said.
  • China prices have yet to really react to the crackdown, though I’m starting to see prices about 2 or 3 percent higher compared to the same prices last month,” Lau said.
  • The impact of tightening environmental controls in China is expected to support rare earth prices, while improving the attractiveness of ex-Chinese production which isn’t impacted by supply disruptions. We look toward advanced-stage exploration projects including Mkango Resources’ Songwe Hill to boost worldwide output.

China Lithium carbonate 99% US$10,115/t vs US$10,106/t

Tungsten APT European US$275-295/mtu vs US$275-295/mtu


Battery New


Company News

Beowulf Mining* (BEM LN) 4.9p, Mkt Cap £28.0m – Exploration investment in Kosovo

  • The Nordic focused mineral exploration and development company, Beowulf, has acquired new shares representing an initial 14% interest in Vardar Minerals Limited, a private exploration company with interests in the Balkans, for the consideration of £250,000 to be satisfied in cash. The company also has the option to make a further investment and increase its ownership in Vardar.
  • The investment into Vardar gives Beowulf exposure to a portfolio of exploration licences situated in the European Tertiary calc-alkaline Tethys Arc most notable for its lead-zinc-silver mining districts, as well as recent porphyry related copper and gold discoveries. Investment in the Balkans reflects a recent increased focus from explorers following significant recent discoveries and generally improving conditions in the region.
  • Vardar has four wholly owned exploration licences in Kosovo and two more under purchase agreement whereby Vardar will own 85% of the licences. The combined coverage is a total of 333.2km². Licences are split into three projects – Mitrovica, Viti and Drazna.

    • Mitrovica, situated in northern Kosovo adjacent to the significant Stan-Terg lead-zinc-silver mine, exhibits alteration typical of porphyry-epithermal systems. Highlights from this licence include gold and silver anomalies associated with advanced argillic alteration, several iron stockworks, breccias and gossans with associated copper and lead-zinc anomalies. The project is prospective for high-sulphidation gold, porphyry copper-gold and vein/replacement related base metal targets.
    • Viti is situated in south-eastern Kosovo and is made up of three adjacent licences covering 213 km². The main exploration target is an interpreted circular intrusive body identified in magnetic data. There is evidence of intense alteration typically associated with porphyry systems, with several copper occurrences and stream sample anomalies in proximity to, and within, the licence areas. In addition, Viti is prospective for lithium-boron mineralisation, with a geological setting similar to Rio Tinto's Jadar deposit in Serbia.
    • Drazna is situated on Kosovo's western border, in proximity to the Kiseljak copper-gold porphyry and Draznja lead-zinc mine. The licence has several alteration centres typical of porphyry/epithermal systems.
  • The net proceeds of the investment are targeting Vardar’s exploration programme and general working capital requirements.
  • CEO Kurt Budge added “stepping into a new geography, like Kosovo, only makes sense if you are collaborating with a competent team, which we have in Vardar’s founders, Luke Bryan and Adam Woolridge, with experience technical and support personal in Kosovo. One of the goals for 2018 was to identify M&A opportunities that would complement Beowulf's portfolio. With our initial investment in Vardar, we have taken a modest step into Kosovo, creating diversification for the Company, in commodity mix and geography, and potential upside with additional exploration”.

*SP Angel acts as nomad and broker

Caledon Mining (CMCL LN) 428p mkt cap £45.4m – Blanket Mine continues without interruption despite Central Bank dollar shortage causing closure of gold mines

Caledonia increase stake by 15% to 64% of the Blanket Gold Mine

  • Caledonia Resources report that their Blanked gold mine continues to work despite escalating a lack of foreign exchange in general in Zimbabwe.
  • Last week Rio Zim announced the closure of three gold mines in Zimbabwe due to a lack of available foreign exchange from the Central Bank.
  • Gold miners must sell gold through the Central Bank in Zimbabwe and get a credit from the government for exporting gold which should give the gold miners first priority on foreign exchange which comes in.
  • This system has worked well in recent years with the government recognising the importance of keeping the gold mines working.
  • We wonder how much foreign exchange in going out in the servicing of debt to China used to build roads and other infrastructure.
  • In separate news Caledonia Mining report they have purchased a further 15% of the Blanket gold mine taking their stake to 64%.
  • The purchase values the 15% stake at $16.667m implying a value for the whole mine at US$111m.
  • The deal involves the cancellation of a $11.467m loan to the vendors and the issuance of 727,266 new shares at $7.15/s.
  • The sellers, Fremiro will then hold 6.42% of the Blanket mine following the transaction


Kefi Minerals* (KEFI LN) 1.6p, Mkt Cap £8.9m – Ethiopian exploration permits to be expanded seven-fold on Tulu Kapi construction start

  • The Company has been advised by the Ethiopian Ministry of Mines, Petroleum and Natural Gas that local exploration tenements will be expanded seven times to c.1,900km2.
  • Licenses are expected to be released after the Tulu Kapi Gold Project construction stars.
  • Permitting would cover the area adjacent to project and may potentially provide additional ore feed to the processing plant.
  • Exploration funding is expected to be covered from the planned development funding and operational cash flows of the Company’s subsidiary Tulu Kapi Gold Mines.

Conclusion: A potential addition of highly prospective ground in vicinity to the future gold operation is a positive news and offers an opportunity to discover new ounces that could be processed at Tulu Kapi.

*SP Angel act as Nomad and Broker to KEFI Minerals

Metals Exploration (MTL LN) 1.6p, Mkt Cap £34m – Bankers agree to waiver capital payments of US$35.64m till end January

  • Metals Exploration report their Senior Lenders have agreed to a waiver for the payment of capital amounts owing totaling US $35.64m til 31 January 2019.
  • The payments cover capital due in each of the quarters ending 31 December 2017, 31 March 2018, 30 June 2018, 30 September 2018 and 31 December 2018.
  • The waiver contains a commitment from the Company to complete the restructuring of the senior debt facility of US $63.8m by 31 January 2019.

Randgold Resources (RRS LN) 6434p, Mkt Cap £6.1bn – Quarterly production underpinned by record output at Kibali 

  • Randgold Resources reports that, as a result of record production from Kibali, which offset the impact of the strike at Tongon, group gold production for the quarter was 306,628 ounces at a cash operating cost of US$520/oz.
  • The quarter brings output for the year to-date to 920,811oz at a cash operating cost of US$603/oz and, with the Tongon mine returning to work last month, keeps the company within reach of achieving the previously announced production guidance range of 1.3-1.35moz of gold output for the year.
  • Overall total cash costs declined by 16% during the quarter to US$586/oz compared to US$697/oz in the previous quarter and US$667/oz in the September quarter of 2017.
  • The cost reductions helped drive increased profits, which rose by 25% during the quarter to US$73.2m, and generated net free cash flow of US$51.3m.
  • Production at Kibali rose 11% during the quarter (and by 55% compared to Q3 2017) to 224,594 oz of gold at a cash operating cost of US$443/oz and a total cash cost, which was 22% lower, of US$507/oz.
  • Preliminary scoping work on the potential open-pit development of the Kalimva-Ikamva resource, located some 20km north ogf the Kibali plant has concluded that at a gold price of US$1000/oz and a capital investment of US£33.7m the project could produce 476,000oz of gold and “positive cash flows”.
  • An extended, illegal, work stoppage at the 89.7% owned Tongon mine, which lasted from 13th July until 4th September, saw gold output drop by 60% during the quarter to 20,068 oz at a 16% higher cash operating cost of US$874/oz. Low plant availabilities and throughput resulting from the stoppage and reduced recovery rates all contributed to the reduced output.
  • The Loulo-Gounkoto complex in Mali produced 174,018oz of gold during the quarter at a cash operating cost of US$505/oz (Q2 2018 – 150,117oz at US$613/oz).
  • The company reports that a preliminary scoping study for the Phase 3 development at Loulo, based on a combined underground and open-pit mining operation and a $1000/oz gold price “demonstrated positive cash flows”. A pre-feasibility study is expected to be completed in 2019.
  • The final feasibility study and ESIA (Environmental & Social Impact Assessment) for the development of the Massawa deposit in Senegal is expected by the end of the year, meanwhile further work is refining aspects of the metallurgical character of the ore and fine tuning cost estimates.
  • Exploration activity saw “ongoing progress in identifying and defining new zones of high grade mineralisation at Yalea, Gara, Gounkoto and Loulo 3, with further encouraging results from ongoing work along the Badenou Structure in Tongon and on the infill drilling at Kalimva-Ikamva in Kibali”.
  • Summarising the quarter, Chief Executive, Mark Bristow, said that “considering that Tongon only returned to normal in the last month of the quarter, this was an exceptional performance, highlighted by Kibali posting another set of record results, and moving further ahead of plan, while Loulo-Gounkoto also delivered increases across the board”.
  • The shareholder vote on the all share merger with Barrick Gold is set to take place tomorrow having been rescheduled from the previously announced date of 5th November.

Conclusion: Randgold Resources appears to have weathered the impact of the strike at Tongon with strong performances from its other mines, particularly at Kibali. It is interesting to observe that, at least in the case of the evaluation of Phase 3 at Loulo and the Kalimva-Ikamva resource north of Kibali, Randgold Resources appears to evaluate gold projects at US$1000/oz – a level of prudence and conservatism not exhibited by all in the sector.