London mining markets report last week

The gains made in the first half were wiped out on Thursday and Friday as the market continued to fret about the financial health of some European countries, in particular Greece and Portugal. These concerns fed a more general malaise and commodities were sold off sharply, with gold suffering its largest one day fall for more than a year. The FTSE 100 miners fell by an average of 3.0 per cent, while the mid and small cap stocks lost 3.3 per cent.

Antofagasta (LSE: ANTO) was among the worst performers of the FTSE 100 miners, suffering a 6.1 per cent fall to 826.25p, presumably because the market was disappointed with its fourth quarter production report. Copper cash costs at the Los Pelambres mine in particular rose sharply year-on-year, principally because of the reduced contribution from the by-product molybdenum. Interestingly, the story of a few weeks ago that the company had lost its rights to the Reko Diq project in Pakistan was not confirmed. What the company did say was that whilst the technical aspects of the feasibility study into Reko Diq have been completed, discussions for agreements with the relevant authorities are in progress (whatever that might mean).

The actual worst performer was Xstrata (LSE: XTA), which fell by 7.9 per cent to 950.05p. This followed the release of a production report which showed that the company's operations are only slowly recovering from the chaos of late 2008 and early 2009. The best performer of the week among the majors was Fresnillo (LSE: FRES), which fell by only 0.4 per cent, on no news.

First Quantum (LSE: FQM) was one of the week's weakest performers, falling 11.8 per cent to 4,160.5p after it commenced international arbitration in Paris against Gécamines and the Democratic Republic of Congo over the confiscation of its partly constructed Kolwezi tailings retreatment project. This appears to be a move of last resort as First Quantum has established a solid track record as a high quality operator both in DRC and over the border in Zambia, and it is surely in the interests of everyone for a compromise to be negotiated. First Quantum also operates the Frontier mine in DRC and has other operations elsewhere.

In corporate news, European Nickel (AIM: ENK) and Rusina (AIM: RMLA) announced that they intend to merge. The deal is intended to create a mid-tier nickel producer with a pipeline of projects in geographically diverse locations, and to bring together two capable operating teams. European Nickel's Çaldağ project in Turkey will still be the first priority, though this will be closely followed by Acoje project in the Philippines. At the same time, European Nickel has just completed a £12.1 million placing, in part to repay the bridging loan it received from Endeavour Financial Corporation, but also to provide funds to advance the projects. European Nickel is still waiting for Jiangxi Rare Earth and Rare Metals and China Tianchen Engineering to complete the approvals for the project funding for Çaldağ. This process has been dragging on for almost a year now. The Rusina deal effectively gives European Nickel a “Plan B” in case Çaldağ is delayed, and is helped along by the fact that it already has a 20 per cent interest in Acoje and a small direct holding in Rusina. European Nickel ended the week down by 4.3 per cent at 6.7p, while Rusina added a modest 2.3 per cent to finish at 5.5p.

Minco (AIM: MIO) announced that it and joint venture partner Xstrata are to spend around US$10 million this year on continuing exploration at the Pallas Green zinc-lead project in Ireland. The exploration work will involve the use of 16 drilling rigs and will include around 70,000 metres of drilling in around 150 holes. This will be the largest single exploration campaign in terms of annual metres ever undertaken, in Ireland and represents a substantial vote of confidence from Xstrata as it will be funding the majority of the work. Xstrata clearly thinks that there is the potential for the size of the project to be substantially increased over the present JORC compliant resource of around 11.3 million tonnes grading 12% zinc+lead hosted within the Tobermalug deposit. The same geology continues for a strike length of 25 kilometres and about 60 per cent of the trend remains unexplored. This is excellent news for Ireland's zinc mining industry, which has been going through some difficult times recently following the 2009 closure of Galmoy mine, cutbacks at Lisheen, and concerns that the Irish zinc flagship, Tara, is nearing the end of its life. Oddly, given the very positive tone of the announcement, Minco ended the week down by 7.4 per cent at 3.125p, though with a closing spread on Aim of 24 per cent, the move is probably not significant.

The week's best performer was coal-focussed GCM Resources (AIM: GCM) which rose by 13.9 per cent to 107.875p on no real news, though it appears that one of its major shareholders has slightly reduced its position.

Next up was another coal stock, Coal of Africa (AIM: CZA), which added 10.9 per cent to end the week at 132.5p after it announced that it had been granted the New Order Mining Rights for its flagship Vele coking coal project in the far north of South Africa. Rights were also conditionally granted for the company’s smaller Holfontein project. Coal of Africa expects to execute both sets of mining rights fully before the end of February. It will then move rapidly towards the development of Vele. The permitting logjam within the South African Department of Mineral Resources has been a severe obstacle to doing business there and so this has to be excellent news for the region's aspiring miners.

Third up was one of the sector's sleepers, Alexander Mining (AIM: AXM). Alexander ended the week up by 10.5 per cent at 11.875p, though before it was hit by profit taking at one stage it was up by more than 20 per cent. The company announced that a long-rumoured series of discussions with various multinational mining companies had resulted in the receipt of a preliminary, non-binding proposal for the outright purchase of the rights to its proprietary Ammleach ammonia leaching process. Alexander is now moving forward with the appointment of independent experts to establish the commercial value of the technology.

On the downside, the selling was for the most part driven by general market nervousness and there was little of substance to report. For now, the markets are in the grip of macro events and until this works through there is little that the miners can do to change sentiment. At least this is a state that they are now familiar with managing.

source:minesite

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