Palladium price peaks at new record high, rhodium roaring

Palladium hit a fresh all-time high on Friday on persistent worries about supply from South Africa and prospects of a pickup in demand in China.

Nymex Palladium futures gained 1.5% to $1,636.60 an ounce in New York in morning trade before easing back. Palladium’s gains for the year now top 40% or $477 per ounce.

The threat of labour unrest in South Africa, which together with Russia are responsible for more than 80% of global platinum group metal output, loomed large again on Friday after the militant union Amcu re-elected its firebrand leader.

Amcu rose to prominence in 2012 when clashes between police and striking workers at the Marikana mine in the African nation’s prolific platinum belt left 34 dead.

Any signs of stimulus from the Chinese auto market could lead to additional upside price potential.

BMO Capital Markets

More than three-quarters of palladium ends up in catalytic converters for gasoline engines and the rise in the precious metal comes despite a severe slowdown in vehicle sales around the world.

Top consumer China has seen sales drop for 14 out of the last 15 months and in August 9.9% fewer cars and truck rolled off lots compared to last year. Annual sales in no 2 market US is also expected to come in below 2018’s total.

What has lifted palladium is greater average loadings per vehicle as more stringent emissions standards are implemented in China and Europe. BMO Capital Markets in a recent note said “any signs of stimulus from the Chinese auto market could lead to additional upside price potential.”

Robust rhodium

Sister metal rhodium is also on a roll, more than doubling in price so far this year. Rhodium, also used mainly in autocatalysts, exchanged hands at $5,400 an ounce on Friday in New York, the highest in 11 years.

Due to rarity, the small size of the market and concentrated supply prices are typically volatile.

Rhodium (and sister metal ruthenium) stands out when it comes to price swings – rhodium touched $10,025 an ounce just before the 2008 financial crisis hit, but would drop 90% before the end of that tumultuous year.

Platinum was trading flat on Friday at $945.10 after briefly scaling $1,000 an ounce two weeks ago. Given the historically weak price, some investors are using the opportunity to stock up on the metal.

ETF holdings of platinum has expanded rapidly this year, reaching 3.3m ounce last week, up 38% or 916,000 ounces in 2019.

In contrast, palladium ETF vaults have been emptying as investors lock in some of the gains. Palladium-backed ETF holdings total 655,000 ounces, down 120,000 ounces year to date.

Gold exploration trends: drilling up, optimism returns

The following is the analysis of monthly gold exploration trends from January to July 2019 using data from the Mining Intelligence Data Application. The data used represents reporting companies listed on the following stock exchanges: TSX (+TSX-V), ASX, LSE (+LSE-AIM), NYSE, and JSE.

Mining Intelligence data indicates that exploration activity in the gold sector jumped in July — to the highest point since the beginning of 2019, and both the number of drilled projects and the number of drillholes reported in July, were up in all major regions.

A trend towards exploration of advanced projects, rather than greenfield opportunities, was reversed in July with companies willing to take on more early-stage exploration risks.

There was a noticeable improvement in overall drill intersection grades, with reported gold intersections with grades greater than 2 g/t have risen from 36% of their total count in June to 40% in July 2019.

Surge in gold prices and overall optimism reviving across the gold mining sector have finally encouraged miners, developers and explorers to pour more money into drilling campaigns.

Analysis:

In July 2019, companies reported exploration results for 171 projects (Figure 1), which is the highest count observed since the beginning of 2019. Australia was the leading country in terms of a number of reported drilled projects (74), followed by Canada (42) and South America (22). The number of reported drilled projects was up in all major regions, with Australia doubling their count.

Figure 1: Number of reported drilled gold projects by region, January-July 2019
Source: Mining Intelligence

In July, companies reported results from 2,906 drillholes, which is twice more than in June (1,452 drillholes), and the highest number yet in 2019 (Figure 2). The amount of reported drillholes was up in all major regions and surged by a staggering 139% in Australia.

Figure 2: Number of gold drillholes reported by region, January-July 2019
Source: Mining Intelligence

Weight of early and advanced exploration projects in their total count increased from 54% in June to 64% in July (Figure 3).

The number of greenfield exploration projects drilled reported in July was 39, which is 144% more than in June, and the highest number since the beginning of 2019. While still being prudent when allocating budgets to exploration campaigns, companies have noticeably shifted focus towards much riskier early-stage drilling programs.

Figure 3: Development status of reported drilled projects, January-July.
Source: Mining Intelligence

As for the drill intersections grades, there was an increase in grades greater than 2 g/t that have risen from 36% (1,919 out of 5,279 intersections) in June to 40% of their total count (4,774 out of 11,927) in July 2019 (Figure 4).

Figure 4: Reported gold drill intersections, January-July 2019. Source: Mining Intelligence

List of the top highest-grade gold intersects in July 2019, in gram-meters:

Grade width is calculated at width at the drill interception (in metres) multiplied by the grade (in grams of gold per tonne). Where multiple high-grade intersections were reported for an individual project, only the best interval has been considered.

#1 Buritica – 1,314 gram-meter

The Buriticá project is Continental Gold’s 100%-owned flagship high-grade gold project located in the middle Cauca belt in the northwest region of Colombia. The mine is currently under construction and on schedule for 2020 production. The Feasibility Study suggests that the Buriticá project will be a lowest quartile cost producer.

#2 Kiena – 1,296 gram-meter

The Kiena Complex is located in Val D’Or, Quebec. On March 7, 2013, Wesdome Gold announced suspension of mining activities at the Kiena mine due decreasing recovered grades and persistent industry cost pressures. Despite this suspension, Wesdome considers the Kiena Complex a premiere brownfield exploration and development opportunity.

#3 Hope Bay – 1,124 gram-meter

TMAC Resources’ 1,101 square kilometre Hope Bay Property (approximately 80 km by 20 km) is located in Nunavut, Canada. The Hope Bay Property is a high-grade gold district located approximately 160 km above the Arctic Circle.

#4 Windfall Lake – 998 gram-meter

Osisko Mining’s Windfall Lake project is located in the Abitibi greenstone belt 700 kilometres north-northwest of Montréal, Canada. The Windfall Lake Mine Project is a proposed underground gold mine with preliminary assessed AISC of $704/ozt per year.

#5 Wassa – 873 gram-meter

Wassa mine located in south-western Ghana, approximately 40 km from the Prestea Gold Mine. Golden Star commenced production from the surface operation at Wassa in 2005 and commercial production was achieved at Wassa Underground on January 1, 2017. In early 2018, Wassa transitioned into an underground-focused operation. The recent exploration campaign aimed to increase LOM of Wassa.

#6 Kainantu – 807 gram-meter

K92 Mining’s Kainantu Gold Mine is located in the Eastern Highlands province of Papua New Guinea. Currently, Kainantu is one of the highest-grade gold mines in the world.

#7 Tennant Creek – 770 gram-meter

Emmerson Resources’ Tennant Creek Mineral Field is situated approximately 500km north of Alice Springs, Australia. Emmerson intersected bonanza gold grades in all diamond drill holes at the Mauretania greenfield discovery. Recent drilling results from Mauretania have increased Emmerson’s confidence in the potential for economic mineralisation in both the shallow oxide and deeper primary gold zones.

#8 King Of The Hills – 689 gram-meter

Red 5’s 100%-owned King of the Hills (KOTH) Gold Mine is located 80km south of the Company’s Darlot Gold Mine and 28km north of the town of Leonora in the Eastern Goldfields region of Western Australia. Mining at KOTH has traditionally been focused on extracting high-grade gold veins, with the ore currently trucked to Red 5’s nearby Darlot Processing Plant for processing. Red 5 has identified the potential to pursue a bulk mining operation and the ongoing exploration campaign is aiming to outline significant quantities of lower-grade gold mineralisation located between the high-grade veins.

#9 Antakori – 610 gram-meter

Regulus Resources’ AntaKori Cu-Au-Ag project is located 60 km north of the city of Cajamarca in the Hualgayoc District, northern Peru. The project sits in a world-class Au-Cu province which hosts a number of nearby renowned deposits, including Yanacocha, Cerro Corona and Tantahuatay mines.

#10 Westonia / Edna May – 580 gram-meter

The Edna May deposit is located within the Westonia Greenstone Belt, within the Southern Cross Province of Western Australia’s Archaean Yilgarn Craton. Ramelius acquired the Edna May Gold Mine on 1st October 2017 from Evolution Mining. Edna May is an operating open pit. In October 2018, the Edna May underground project was approved by the Ramelius Board and operations aimed to commence in 2019.

Brazil to lay criminal charges against Vale, auditor in dam burst

Brazilian authorities will lay criminal charges against iron ore giant Vale (NYSE: VALE), 13 of its employees and German auditor TÜV SÜD, accusing them of fraud in relation to a deadly dam burst at the company’s Córrego do Feijão mine in January.

Federal police said the companies presented fake documents backing the stability of the dam whose collapse killed nearly 250 people and unleashed a gush of mining waste on a nearby towns.

Federal police said the companies presented fake documents backing the stability of the dam that collapsed in January.

Penalties for these kinds of crimes can be of up to 18 years in jail.

The Rio de Janeiro-based company reacted to the news by saying it was “aware of the police investigation,” but wouldn’t comment further until it analyzes “the full content of the report.”

Police also said it didn’t rule out the possibility of charging executives from both Vale TÜV SÜD with homicide and environmental damage in coming days, local O Globo reported.

Seven people from Vale and six from Tüv Süd are being indicted, according to the paper.

The world’s top iron ore producer is also facing a lawsuit by a group of investors who argue that Vale did not disclose information about risks facing the dam in the state of Minas Gerais to the market, even though it was aware of it,

Earlier this year, Vale’s announced a $107-million compensation (400 million Brazilian real) to workers impacted by the rupture of the dam and said would spend R$1.8 billion ($471 million) by 2023 on several projects to stabilize remaining structures at the Córrego do Feijão mine.

Other programs include reducing tailings flow into the Paraopeba river and ensuring proper disposal of tailings and rebuilding public facilities. The projects are expected to generate around 2,500 jobs. 

SL Mining to halt operations at Marampa iron ore mine in Sierra Leone

SL Mining, a subsidiary of US commodity trader Gerald Group, is allegedly planning to halt operations as early as next week to help it offset the impact of a Sierra Leone’s ban on export from the company’s Marampa mine, imposed in July.

Despite an international court recently ordered the West African nation to lift such prohibition, authorities remain firm, claiming that SL Mining has failed to maintain the mine’s agreed work schedule or make royalty payments. 

The company, which rejects the government’s claims, told employers that without being able to export, it was not possible for them to remain in operations.

“The [Sierra Leone’s government] continues to ignore the terms of the London’s court final order, failing to engage in a meaningful discussion with SL Mining,” it said in a letter published by The Sierra Leone Telegraph.

“SL Mining’s sole shareholder, the Gerald Group, has invested a great deal of money and efforts in Sierra Leone over many years and yet, was only allowed to make three successful shipments in a highly favorable market before being struck [by the ban],” it said.

The move would leave more than 1,000 locals on forced leave.

SL Mining’s first iron ore concentrate from Marampa, branded “Marampa Blue’, set sail from Freetown Port on June 16.

Located in the Port Loko District, in the country’s north, SL Mining is engaged in the exploration, development and production of a high-grade iron ore concentrate with >65 percent Fe content.

The company estimates that Marampa, permitted since 2017, holds about 1 billion tonnes of iron ore with a potential lifespan of 30 years.

Following a steady growth until 2012, foreign direct investment in Sierra Leone was severely impacted by an Ebola outbreak.

The country’s economy currently faces serious challenges, the latest World Bank’s report shows. Those issues include falling government revenue as a result of low export and lack of investments in key sectors of the economy, including mining.

Kepco Bylong’s coal mine in Australia denied development consent

The New South Wales Government’s Independent Planning Commission refused development consent for Kepco Bylong Australia’s coal mine near Mudgee, in the Australian state’s Central West region.

The Commission cited concerns about long-lasting environmental, agricultural and heritage impacts as the main reasons for the refusal.

The Independent Commission considered problematical the greenhouse gas aspects of the project

Prior to making the decision, three commissioners were instructed to conduct meetings with the company, the Department of Planning, Industry and Environment, the Mid-Western Regional and Muswellbrook Shire Councils and the Bylong Valley Protection Alliance to discuss the proposed mine.

The commissioners also conducted an inspection of the site and surrounding area and held a public meeting in Mudgee to listen to the community’s views. 

In their final statement, they said that after considering all the evidence and weighing the community’s concerns, they decided to refuse development consent for the mine.

“While the Commission found the mine’s predicted air quality, biodiversity, noise, subsidence and visual impacts are acceptable and/or can be effectively managed or mitigated, it raised significant concern about other longer-lasting environmental impacts,” the document reads.

The other environmental issues cited are the fact that, in their view, the groundwater impacts would be unacceptable; that there is no evidence to support Kepco’s claim that impacted Biophysical Strategic Agricultural Land or BSAL can be rehabilitated post-mining to BSAL-equivalent given the expected level of disturbance to the existing natural landscape; and finally, the fact that a recreated landscape post-mining is very unlikely to retain the same aesthetic, scenic, heritage and natural values.

The Australian subsidiary of Korea’s Electric Power Corporation or Kepco sought approval to develop an open-pit and underground coal mine in the Bylong Valley to extract up to 120 million tonnes of run-of-mine coal over 25 years for the thermal coal export market. 

The operation was expected to employ up to 645 people during peak construction and up to 450 people during peak operation, as well as generate A$290 million in royalties for New South Wales.

New Trevali boss bullish despite zinc price weakness

The stock market has not been kind of late to Trevali Mining Corp. (TSX:TV).

The Vancouver-based zinc miner has doubled in size since acquiring two zinc mines from Glencore Plc in 2017, bumping it to mid-tier miner status, with a global head count of about 2,000.

It now has four operating zinc mines – one in New Brunswick, one in Peru and two in Africa (Namibia and Burkina Faso).

Normally, that kind of production growth would be a good reason to hold onto a mining stock. But the company’s share price has recently fallen to below $0.20 from $1.68 at the end of January 2018.

Trevali is not the only zinc miner to experience a stock market pummelling. Glencore PLC (LON:GLEN), one of the world’s largest zinc producers, has suffered a 45% decline in share value since January 2018.

Copper prices are also down to a two-year low – a strong indicator of a global economic slowdown.

But Trevali’s stock price drop also appears to be partly driven by shareholder dissatisfaction with the company’s performance since it acquired the two Glencore mines.

“I think Trevali is oversold; I think it’s well owned,” Rick Rule, president of Sprott U.S. Holdings, told BNN Bloomberg in March.

By “well owned,” Rule means that a lot of the stock owners are “mission-specific” shareholders who understand mining, as opposed to generalist investors.

Rule added he doesn’t own Trevali stock because he’s “a little bit nervous about the broad economy.”

In other words, a global recession would result in a lower demand for zinc, copper and other industrial metals. Trevali would then have to reduce its costs and increase its grades to make a profit with lower zinc prices.

To do that, the company will need an experienced CEO to turn things around, which it now has.

Earlier this year, Trevali’s CEO and chairman resigned, and a new management team is now in place. In April, Ricus Grimbeek, former COO of Vale Base Metals, joined Trevali as the company’s new CEO.

Most of the executive team is also new and has been expanded to include three new positions – chief sustainability, technology and commercial officers, a reflection of Grimbeek’s belief that technology and sustainability are keys to a successful modern mining operation.

“We’d be one of the first mining companies with a chief sustainability officer,” Grimbeek said.

Grimbeek’s mining experience is extensive. He started out underground as a coal miner in South Africa and later earned a degree in mining engineering. Over the years, he has supervised or managed mining operations in almost every space imaginable – from manganese and platinum mines to bauxite and diamond mines.

Grimbeek, who was president and COO for BHP Billiton Diamonds at the Ekati mine in the Northwest Territories, acknowledges that Trevali has not lived up to shareholder expectations. He has plans to optimize the company’s operations.

“It’s like anything – you get rewarded when you deliver what you say you’re going to,” he said. “And so I think the company struggled a bit over the last 18 months to deliver on what they promised they would be doing.

“On the flip side, for the last two quarters, we’ve produced really good results. We’ve been on target – or higher than target – for both cost and production. And that’s what we’ve got to keep on doing.”

While at Vale Base Metals, Grimbeek helped cut costs by $130 million in one year. He hopes to accomplish something similar at Trevali, which he describes as four small mining companies operating four mines. His goal is to get them all operating more as a single company.

The company is also investing in exploration at its existing mines to try to identify higher-grade deposits and extend mine life.

Trevali is a bit unusual for a Vancouver mining company. Most mining and exploration companies here are in gold, copper, silver or metallurgical coal. Trevali, founded in 2007 with a single mine in Peru, is a pure-play zinc miner.

Zinc’s primary market is for strengthening steel. In 2016, commodities analysts began warning of a looming zinc shortage and soaring prices. In 2018, it hit US$1.60 per pound, but it has since dropped to about US$1 per pound.

Mickey Fulp, who publishes the Mercenary Geologist, said zinc’s downward trajectory is only partly attributable to global economic performance. It’s also a supply issue. Three zinc mines closed between 2015 and 2016, he said.

“That led to the idea we were going to face zinc supply shortages,” Fulp said. “So all these new projects popped up.

“Year-over-year, production’s increased 2.1%. You get these high prices. Well, the cure for high prices is high prices, so logically it went back down. And it’s been exacerbated, no doubt, by the continuing trade dispute between the U.S. and China and the thoughts of a slowing economy.”

But the long-term demand for zinc and other industrial metals is believed to be strong. Renewable energy, electric vehicles and the general decarbonization and electrification effort will drive demand for industrial metals.

Grimbeek said there may also be an increased demand from manufacturers of zinc-air batteries, as well as in agriculture, as a soil supplement.

Scotiabank’s (TSX:BNS) commodity price index foresees zinc prices around US$1.20 per pound through 2019 and 2020. Grimbeek said he thinks he can get Trevali operating at a profit at $1 per pound. And he doesn’t seem overly worried about the prospect of a global slowdown.

“I always believe you can’t waste a good recession. It’s the time when I think there’s lots of value in the market. This is the time to work together to become more efficient.”