US sharemarkets were mixed on Thursday. The technology heavy Nasdaq index dropped more than 1% during the trading session as internet stocks faltered for a second day on concerns about increased regulation. Shares of Facebook fell 2.8%,Twitter dropped 5.9%, Alphabet slipped 1.3%, Apple was down1.7% and Snap fell 3.1%, hitting a fresh record low. Demand warnings from Micron Technology (-9.9%) and KLA-Tencor (-9.8%)led a slide in chip shares. US-Canada trade talks continued on Thursday adding to market volatility. The Dow Jones index rose by 20 points or 0.1%. The S&P 500 index fell by 0.4% and the Nasdaq lost 72 points or 0.9%.

Global oil prices fell by over 1% on Thursday after US data showed gasoline inventories rose unexpectedly last week, overshadowing a bullish 4.3 million drawdown in crude. Stocks at the Cushing, Oklahoma, delivery hub for US crude futures rose by 549,000 barrels according to the EIA. Brent crude fell by US77cents or 1% to US$76.50 a barrel and the US Nymex price fell byUS95 cents or 1.4% to US$67.77 a barrel.

Base metal prices were mixed on the London Metals Exchange (LME) on Thursday. Copper rose 0.8% on US dollar weakness, funds short covering and vows by the Chinese authorities to maintain demand if the US imposes more import tariffs. But aluminium was down by 1.6% and lead fell 0.9%.

The gold futures price rose by US$3.00 an ounce or 0.2% to $1,204.30 an ounce. The spot gold price was trading near US$1,200 an ounce in late US trade. Iron ore rose by US$1.80 or 2.7% to US$68.85 a tonne.

Thursday 6 September - close. Australian shares have dropped to their lowest since June in the wake of near-across the board falls triggered by increased US-China trade worries, falling world oil prices and a new round of mortgage rate hikes by local banks. The benchmark S&P/ASX200 index closed down 70 points, or 1.12 per cent, at 6,160.4 points, while the broader All Ordinaries index was down 71.4 points, or 1.13 per cent, to 6,267.8 points.

MOD Resources Site Visit

Ashanti recently visited MOD’s (and subsidiary Tshukudu Metals – MOD 70% MTR 30%) significant land holding in the Kalahari Copper belt. Fortuitously, the visit coincided with the new discovery announced  at A4 on the 6^th of August. The headline number of 52m @ 1.5% Cu is exciting for a bunch of reasons but mostly as a proof that MOD’s geological exploration model works. 

Also attending the visit was George Long (Founder & CIO LIM in HK- 6.75% MOD shareholder), Steve McGhee (MOD Technical Director), Jeff Bowen (Manager - Project Development) and an SRK representative from London (working on independent tech report for LSE listing).

As you can see below, there have been significant improvements to the infrastructure at “The Barn” since our Dec 17 visit - and the ALS built sample prep lab is now fully operational. With 10drill rigs now active this has been important to ensure efficient turn around time with assays.

Following some frustrating delays with DEA approvals, MOD now has access to the wider T3 Dome- drilling the new A4 and A1 Domes with immediate success. The A4 discovery is 8km from T3, and the A1 target which is currently being drilled is just 26km east of A4.What is most encouraging (aside from the results) is that the exploration techniques of Airborne EM are now showing consistency of identifying mineralisation through the 3-5m layer of calcrete- a very important proof of concept. The cutting edge processing of the AEM data opens up the real possibility of district scale exploration success in the Kalahari Copper Belt (this is the first of 7 domes to be tested). 

We again benefited from spending time with the local geologists (KB Tau - Exploration Manager) and Gaba Chinyepi (In-Country Manager) who are equally excited about all 7 Dome targets. The company is advancing the environmental approvals process for T20 and we expect drilling to commence at T20 in Q4 18. This ~2000km² exploration area has attracted interest from some of the global majors, and we expect interest to increase as drilling approaches. Tshukudu geologists are convinced that T20 has the potential to host a significant copper deposit (much more obvious than T3, fingers crossed).

The recent resource update at T3 – 44% increase in contained copper sees the revised Mineral Resource at60.2Mt at 0.98% Cu for 590kt Cu from 36Mt at 1.14% Cu for 409kt Cu (with cutoff grade at 0.4% Cu). This has further confirmed the attractiveness of a standalone operation at T3- and we expect to see completed Feasibility Study in late Q1 19. The PFS reported in Q1 18 was based upon the 36Mt resource (including 21Mt reserve) and allowed for a 2.5Mtpa processing plant which had a capital cost circa US$155M for an NPV of US$280M and 2.5 year payback. 

MOD has recently announced consolidation of T3 to 100% ownership following a deal with MTR that is due to complete Q4 18. The FS for T3 will be based on a 3Mtpa process plant and anticipates a mine life in excess of 10 years. The company is targeting copper production around 30ktpa with a view to increasing this through higher grade feed from possible underground ore at T1 and T3. This does not take into account ore supply from any new discovery such as A4 and A1.

The below table indicates where T3 sits compared to peers not owned by majors. This only adds to our opinion that MOD will attract increasing attention from strategic investors /potential acquirers.

We spent some time at the proposed T3 open pit – and the work below illustrates the “ground geotechnical testing for the plant site” as well as the “water pumping testing” for the pit. The water aquifer sits under the calcrete, typically 15m below ground level and the testing is also evaluating whether this will be a sustainable source of water for process plant and infrastructure requirements. 

The first stage of the workers temporary accommodation camps and offices are almost complete (see below). The camp is originally designed to accommodate 40 personnel, but with plans to increase this to approximately 400 as development begins in Q3 19. Tshukudu now employs approximately 60 staff and contractors and is rapidly emerging as the largest employer in Ghanzi region. 

Path forward and key catalysts for the next 6-12 Months:

Exploration

Exploration remains a continual catalyst for the MOD story (as demonstrated by the recent results atA4). With so many rigs active across such a large, prospective landholding, there is potential for one (or more) company making discoveries in the current drill campaign. 

Feasibility Study

We expect the path to production at T3 to become clearer over the next 6 months (FS due 1H19). In our view, the T3 resource and Jan-18 PFS (Base Case Pre-tax NPV₈ of US$280M) more than justifies the current valuation (MCAP A$115M, A$100M EV)excluding exploration upside. 

Azure Appointed for Debt Discussions 

The appointment of Azure to lead the debt discussion is an important step in our eyes. The debt discussions will allow the development of T3 to progress alongside the substantial exploration campaign. 

LSE listing 

MOD are in the process of listing on the LSE. We share the company’s view that MOD will have few peers(quality copper developers) on the LSE and expect the listing to draw strong investor interest. Furthermore, the LSE  is traditionally less adverse to investments in African jurisdictions 

Marketing

Ashanti will be leading a roadshow through Hong Kong and Singapore on the 13th and 14th of September respectively. Please reach out should you wish to arrange a meeting.