SP Angel . Morning View . Gold bets pile up against world economy
Paul Kettle
SP Angel Research Note -4 min read
10:09, 10th June 2019

SP Angel – Morning View – Monday 10 06 19

Gold bets pile up against world economy

Copper remains bearish as Chinese imports fall

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MiFID II exempt information – see disclaimer below 

AfriTin Mining* (ATM LN) – Exploration drilling results from Uis

Avesoro Resources (ASO LN) – Reduced 2019 production guidance

Aura Energy* (AURA LN) – Farm-in agreement with Nomads Mining

BlueRock Diamonds* (BRD LN) – Recovery of 25 carat diamond from Kareevlei

Bushveld Minerals* (BMN LN) BUY – Bushveld Energy develops rental product for vanadium electrolyte in VRFB batteries

Strategic Minerals* (SML LN) – Delay to receipt of funds at Cobre

 

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FTSE 350 Mining

 

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Economics

Kim Jong Un executes general in tank of Piranha

  • Truth may be stranger than fiction but in this case life appears to be copying the Bond movie ‘The Spy Who Loved Me’.
  • Reports indicate he executed a general with an anti-aircraft gun. We wonder what he next trick might be?

 

China – imports fall by 8.5% in May. Exports rose by 1.1%

  • The figures indicate a slowing of the Chinese economy as Trump Tariffs and the US – China trade war impacts markets and confidence

 

Hong Kong – huge demonstrations against creeping control by China

  • China is looking to change legislation in Hong Kong to allow residents to be extradited and tried in courts in Mainland China.
  • Mainland courts are seen as effectively led by the Chinese Communist party and are not considered to be fair by Hong Kong residents.
  • The latest HK demonstrations are thought to number several million protestors.

 

Europe – European Banking outlook is seen as grim (Bloomberg)

  • Europe’s banks which are suffering from slowing economic activity and persistent low interest rates.
  • Further ECB Quantative Easing may not help as inflation remains low led by stiff manufacturing competition from China.
  • The ECB may bring in a system of ‘Tiering’ whereby the deposits of some lenders are exempt from the impact of negative interest rates.
  • While this may be positive for European banks it is seen as favouring German banks more than some others.

 

UK – UK-S Korea agree to sign free trade deal ahead of Brexit

 

Pizza – The world pizza market was worth $145bn in 2018, meaning if pizza were a country, it would rank between Hungary and oil-rich Kuwait in terms of GDP (The Economist)

 

Currencies

US$1.1300/eur vs 1.1262/eur last week  Yen 108.66/$ vs 108.49/

nbsp; SAr 14.921/$ vs 15.104/
nbsp; $1.271/gbp vs $1.270/gbp  0.697/aud vs 0.697/aud  CNY 6.933/$ vs 6.909/$

 

Commodity News

Precious metals:         

Gold US$1,327/oz vs US$1,332/oz last week

  • Global economic growth forecasts continue easing with the World Bank estimating weaker-than-expected 2.6% in 2019 before inching up to 2.7% in 2020.
  • Global expansion was downgraded by -0.3% below the previous forecasts, reflecting weaker international trade and investment. Expansion in emerging markets and developing economies is expected to stabilize next year as some countries move past periods of financial strain, but economic momentum remains weak, the report maintains.
  • The report continues to suggest downside risks include rising trade barriers, renewed financial stress, and sharper-than-expected slowdowns in several major economies.
  • As global uncertainty rises, safe haven gold is gaining traction, with forecasts for $1,400/oz as investors hedge risk.
  • Indeed, JP Morgan Chase & Co. estimate the probability of a US recession in the second half of 2019 rising to 40% from 25% a month earlier.
  • Volatility in stocks following the escalating U.S. trade tensions with China and then with Mexico, has led to a surge in demand for havens, with 10-year Treasury yields near a 2017 low and Wall Street’s biggest banks warning of growing recession risks. The steepening U.S. yield curve shows bond traders have concluded that the case for the Fed to cut rates is only strengthening.
  • Responding to the risk and continuing its determined diversification away from dollar assets, China extended its gold-buying spree, increasing its bullion reserves to 61.61Moz in May.
  • The current rare of accumulation suggests the nation could consume 150t through 2019.
  • Interest in gold is surging amongst money managers, with hedge funds boosting their long positions in US gold futures and options by the most in 12 years - +38% to 174,233 contracts in the week ended June 4, Commodity Futures Trading Commission data.

   Gold ETFs 72.0moz vs US$71.5moz last week

Platinum US$803/oz vs US$804/oz last week

Palladium US$1,356/oz vs US$1,351/oz last week

Silver US$14.78/oz vs US$14.88/oz last week

           

Base metals:   

Copper US$ 5,828/t vs US$5,842/t last week

  • Copper prices continue to falter after being hammered amid the impact of the US-China trade war, with the red metal trading more than 20% below levels seen this time last year.
  • The global Purchasing Managers Index slid to 49.8, signaling contract in factory activity globally for the first time since 2012, the worst reading in seven years.
  • While technically in expansion mode above 50, US May PMI recorded its worst print since the aftermath of the 2008 global financial crisis.
  • China’s official PMI figures also slid below 50 last month with the employment sub-index tumbling to its lowest level in more than a decade. With the country consuming nearly half the world's copper, the price of copper is closely correlated with domestic factory conditions.

Aluminium US$ 1,754/t vs US$1,776/t last week

Nickel US$ 11,720/t vs US$11,660/t last week

Zinc US$ 2,495/t vs US$2,519/t last week

Lead US$ 1,851/t vs US$1,879/t last week

Tin US$ 19,180/t vs US$19,250/t last week

           

Energy:           

Oil US$63.4/bbl vs US$62.6/bbl last week – US rig count falls to five month low, down 11 to 789 active rigs

Natural Gas US$2.332/mmbtu vs US$2.342/mmbtu last week

Uranium US$24.65/lb vs US$24.60/lb last week

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$95.4/t vs US$95.4/t

Chinese steel rebar 25mm US$598.8/t vs US$603.7/t

Thermal coal (1st year forward cif ARA) US$66.1/t vs US$64.3/t

Coking coal futures Dalian Exchange US$196.6/t vs US$197.3/t

           

Other:  

Cobalt LME 3m US$28,000/t vs US$31,000/t

NdPr Rare Earth Oxide (China) US$50,480/t vs US$50,654/t

  • As global supply chains recognise risks with dominating Chinese sources, Brazil, Vietnam and Russia are beginning to support development of large, untapped known reserves.
  • Since 2010, Australia has risen as the world’s second-largest rare earth producer.
  • While the chart highlights growing ex-China raw material production, the Asian nation dominates intermediate rare earth processing and controls more than 90% global downstream value-add product sales such as permanent magnets.
  • This illustrates the importance of investment in downstream processing capability, such as Peak Resources’ proposed processing plant in Teeside Industrial Zone, England.

Lithium carbonate 99% (China) US$9,591/t vs US$9,624/t

Ferro Vanadium 80% FOB (China) US$36./kg vs US$35.7/kg

Antimony Trioxide 99.5% EU (China) US$5.8/kg vs US$5.8/kg

Tungsten APT European US$260-270/mtu vs US$260-270/mtu

 

Battery News

Tesla opens first public Supercharger V3 250kW station to its fleet

  • Tesla is now officially opening its first Supercharger V3, the new more powerful version of its fast-charging station, to the rest of its fleet after a pilot program.
  • Back in March, Tesla launched Supercharger V3, which can deliver a burst of power up to 250 kW to Model 3 vehicles and up to 200 kW on the latest Model S and Model X vehicles.
  • For the launch, Tesla upgraded some of the stalls at its Supercharger station located at the Fremont factory, but they were only accessible to a few Model 3 owners on the early access program. Then right after the Model Y announcement in Hawthorne, a V3 Supercharger was demonstrated outside.
  • Tesla has announced on Twitter that the Supercharger V3 station is now opened to the wider fleet.
  • All Model 3 owners can stop by to take full advantage of the 250 kW fast-charging capability of their vehicles when combined with Tesla’s new on-route battery management feature.
  • It should significantly reduce charge time and wait times at the charging station.

 

Company News

AfriTin Mining* (ATM LN) FOLLOW – 3.8p, Mkt cap £24.5m – Exploration drilling results from Uis

(AfriTin hold the Uis project in Namibia)

  • AfriTin has reported highlights of the second batch of results from its resource validation drilling at the Uis tin mine in Namibia. The company has already released results of the first five holes of the programme and further results are expected “in the near future”.
  • The latest work comprises five holes “designed to support the declaration of a maiden JORC (2012) compliant Mineral Resource estimate on the V1 and V2 pegmatites at the Uis Project.”
  • The company explains that the “intersections indicate an increase in the thickness of the pegmatites with depth, a trend that is also reflected in the historic drill programme”.
  • Among the results highlighted today are:
    • A 30.32m wide intersection of the V1 pegmatite averaging 0.20% tin and 91ppm tantalum from a depth of 41.94m in hole V1V2008; and
    • A 109.32m wide intersection averaging 0.17% tin and 77ppm tantalum from a depth of 51.26m in hole V1V2010. The company explains that at this point, the V1 and V2 structures have “combined into a single unit”; and
    • A 53.83m wide intersection of the V2 structure averaging 0.16% tin and 73ppm tantalum from a depth of 0.78m in hole V1V2011. This hole also intersected the V1 pegmatite over 11.52m from a depth of 58.51m at an average grade of 0.23% tin and 40ppm tantalum.
  • Holes V1V2007 and V1V2009 also intersected both the V1 and V2 structures with grades ranging as high as 0.18% tin and over widths up to 27.39m. Hole V1V2007 intersected subdivisions of the V1 structure designated the “Upper … “Middle” and … “Lower” horizons suggesting that, in conjunction with the meging of the main V1 and V2 structure reported in hole V1V2010, at least in parts of the structure there may be somewhat more complex geology.
  • Commenting on the recent drilling, Anthony Viljoen, CEO, said that “Of particular interest is a 109m intersection of mineralised pegmatite starting at 51m, indicating the presence of a voluminous ore body extension at depth.”
  • He also expressed encouragement that the recent drilling results are comparable with historic information from 1985 when, according to the company’s website, the mine was in operation

Conclusion: Recent drilling results from Uis are confirming historic data; we look forward to the forthcoming mineral resource estimate.

*SP Angel acts as nomad and broker to Bushveld Minerals which spun off AfriTin and still holds a meaningful stake in AfriTin.

 

Avesoro Resources (ASO LN) FOLLOW 39p, Mkt Cap £31.8m – Reduced 2019 production guidance

  • Avesoro Resource reports that plans to adopt contractor mining at both its New Liberty and Youga mines have led to disruption.
  • At Youga, “this  has resulted in the open pit mining fleet operators refusing to work. If the situation at Youga is not resolved on or before June 12, 2019 gold production at Youga will be temporarily suspended”
  • At New Liberty, The planned transition to contractor mining … has also resulted in disruption to mining activities and gold production, with production materially deviating from budget in April and May as a result.”
  • In consequence, the company has reduced its 2019 production guidance, “to 180,000 - 200,000 ounces (previous guidance 210,000 - 230,000 ounces). Assuming the stoppage in mining operations at Youga is resolved quickly, we expect a funding shortfall of between US$25milliion to US$30million later this year.”

 

Aura Energy* (AURA LN) FOLLOW 0.6p, Mkt Cap £7.3m – Farm-in agreement with Nomads Mining

  • Aura Energy report an extension of its position in the Tasiast Archean Greenstone Belt via farm-in/joint venture with Nomads Mining Company sarl of Mauritania, allowing Aura to earn a 70% interest in Nomads 100% owned exploration permit.
  • The exploration permit of 160 km2 covers 50 km2 of Archean greenstones in the Tasiast greenstone belt, and lies approx. 35km along strike from Kinross’ +20Moz Tasiast Gold Mine, and 30 km from Algold's Tijirit +1Moz gold deposits which occur in the adjoining greenstone belt.
  • Drawn to the permit, Aura is not aware of any significant prior exploration and has not been exposed to modern exploration techniques.
  • Initial field geological work indicates similarities in the greenstone sequence of the prolifically mineralised greenstone belts in the Yilgarn Province of Western Australia and the Superior Province in Canada.
  • Aura’s adjoining Taet permit reports anomalous nickel and cobalt mineralisation, which are commonly associated with significant gold deposition. The Company believes the lightly explored greenstone belts in Mauritania, with only one producing gold mine, represent some of the best under-explored greenstone belt targets in the world.
  • Planned exploration programme focuses on:
    • Airborne geophysics to define geology and structure
    • Bedrock geochemistry based on RAB or aircore drilling
    • Possibly ground geophysics (induced polarisation) in selected areas of interest arising from these programs
    • RC and diamond drill testing of targets arising
  • Key terms of the agreement with Nomad Mining are:
    • Aura will pay;
      • $25,000 in cash and $25,000 in Aura shares on signature
      • $50,000 (shares or cash) 6 months after the initial payment
      • $50,000 after 12 months (unless Aura has withdrawn from the venture)
    • Aura commits to spend a minimum of $100,000
    • Aura may earn a 70% by spending $ 1m over a 3-years period
    • If Aura defines a 1Moz resource Aura will pay $ 1.5m to Nomads
    • When Aura has earned 70%, Aura will solely fund to Decision to Mine

Conclusion – The agreement looks to complement Aura’s uranium play in Mauritania, allowing the Company to effectively manage exploration efforts from existing in-country expertise. We look forward to understanding potential mineralisation from a vastly underexplored region of greenstone rocks.

*SP Angel act as Broker to Aura Energy

 

BlueRock Diamonds* (BRD LN)FOLLOW  0.11p, Mkt Cap £1.8m – Recovery of 25 carat diamond from Kareevlei

  • BlueRock Diamonds reports the recovery of a 24.98 carat gem quality diamond from its Kareevlei operation in South Africa.
  • The stone, the largest diamond recovered to date from the mine, is to be “put to tender, the results of which will be known on Monday 17 June”.
  • The company explains that “The largest diamond prior to this was 16.28 carats which sold for US$78,947”.
  • Executive Chairman, Mike Houston, said that “This record recovery of such a high quality diamond is an exciting milestone and underpins why we are so confident about the potential of the Kareevlei mine.”

Conclusion: The recovery of another large diamond from Kareevlei provides encouragement as the new management team implements its revised plans for the mine aimed at lifting production and achieving a profitable operation during the second half of 2019

*SP Angel acts as Nomad & Broker to BlueRock Diamonds

 

Bushveld Minerals* (BMN LN) FOLLOW 27p, Mkt Cap £302m – Bushveld Energy develops rental product for vanadium electrolyte in VRFB batteries

(Bushveld Minerals owns 84% of Bushveld Energy in South Africa)

BUY – Target price under review

  • Bushveld Energy report management have developed an innovative method of enabling consumers to rent vanadium electrolyte for industrial-scale batteries.
  • Grid-scale Vanadium Redox Flow Batteries ‘VFRB’ require significant quantities of vanadium in electrolyte form for their operation significantly raising the cost of the battery when vanadium prices are strong.
  • There is some $200,000 worth of vanadium in the Bushveld’s joint venture UET battery which fills a 20ft shipping container.
  • Bushveld has worked together with Avalon Battery to formulate a financial and legal structure for the rental of the rental product to work for the electricity customer, the battery company and the vanadium producer.
    • “Avalon's customer, Santa Cruz Westside Electric Inc., doing business as Sandbar Solar & Electric ("Sandbar"), a leading Santa Cruz, California-based installer of commercial, industrial, and residential solar photovoltaic ("PV') systems, recently installed a solar PV mini grid at its 11,500 square foot facility. Sandbar incorporated an energy storage system consisting of three Avalon Vanadium Redox Flow Batteries ("VRFBs") for full independence from the electric grid. Sandbar chose to rent the vanadium electrolyte component of the Avalon batteries from Avalon, rather than purchase it outright, due to the cost efficiencies of the Bushveld-Avalon rental structure.
    • Batteries that use vanadium electrolyte to store energy have a major advantage over competing battery technologies as vanadium does not degrade, therefore, the performance of electrolyte batteries does not deteriorate with age. Renting the electrolyte reduces capital costs, and essential consistent performance reduces overall costs, making VRFBs the most dependable, safe, and economical battery for energy storage systems.”
  • Eskom are running trials with the Bushveld / UET battery over the next 14-20 months and may start to order larger scale vanadium batteries for grid before the end of the trial. We expect ESKOM to discover further grid-scale applications for VFRB batteries as the trial progresses.
  • The number of VFRB trials indicate significant new interest in the technology for Grid storage as lithium-ion batteries shortages become the norm and with a significant number of fires at li-ion grid-instillations (21 fires at LI-ion plants in S Korea).
  • South Africa is also looking to avert a developing energy crisis through the instillation of substantial new capacity in wind and solar farms. The effect of this is to require substantial grid-scale battery storage to ensure continuity of service as South Africa’s coal-fired power generation struggles to meet demand.
  • The Word Bank is looking to support the development of new ‘renewable’ energy production and to prevent a potential total collapse of the South African grid system.
  • The multilateral bank has committed US$1bn to battery storage for energy systems in low and middle-income countries which is expected to mobilise an additional US$4bn in concessional climate financing and public and private investments in a programme which aims to finance 17.5GWh of battery storage by 2025;.
  • South Africa’s draft 2018 Integrated Resource Plan is looking for the development of 15,000MW of new renewable electricity generation by 2040; 9,000MW in peaking generation capacity with provision for alternative technologies (such as battery energy storage) to participate; and a new allocation of an additional 200MW per annum for small scale embedded generation that can include storage.
  • Eskom is preparing to roll-out 1,400MWh of battery energy this year with completion by 2022..
  • Valuation: we value Bushveld Energy at US$64m representing 3.74 pence per share to our valuation on Bushveld Minerals.

Conclusion: This agreement now enables Power Utilities to use a rental structure to fund the contained vanadium in VFRBs. This should make VRFB’s more competitive compared with Li-ion instillations and enable the rollout of significant numbers of new VFRBs for Grid instillation. While the cost of vanadium in a VFRB is significant the leasing model should render the vanadium price to be less material as its cost should be amortised over a long period.

*SP Angel acts as Nomad & Broker to Bushveld Minerals. 

 

Strategic Minerals* (SML LN) FOLLOW 1.675p, Mkt Cap £23.5m – Delay to receipt of funds at Cobre

  • Strategic Minerals reports that the previously reported payment of just over US$4m expected from its major client at the Cobre magnetite tailings operation in New Mexico has not yet been received.
  • Although “The client has been keeping the Company informed of procedural delays to its funding lines and continues to indicate that payment is imminent. However, despite the client's assurances, the Company considers that it is in the best interests of shareholders to prepare a claim for service on the client, which is likely to seek damages in excess of the amounts due”.
  • Commenting on these developments, Managing Director, John Peters, explained that although Strategic Minerals “is hopeful that a non-litigious solution can be reached with the major Cobre client …  the board has agreed to prepare a claim in relation to potential lost profits associated with the balance of sales due under the contract. It is expected that this claim will be served shortly …”.
  • Strategic Minerals recently announced that its own payment plans to acquire the outstanding 50% interest in the Redmoor project in Cornwall which it does not currently own had been rescheduled “to allow for the expected receipt of the funds from Cobre's major client” and we speculate that the delays to the receipt of these funds may well have prompted the company to adopt this firmer line with the customer in New Mexico.
  • Strategic Minerals is also working to bring the Leigh Creek copper operation in South Australia back into production and recently reported initial sales of copper cement product from the Mountain of Light plant. Plans to re-establish full production by late 2019, when achieved, will provide Strategic Minerals with a second cash generating asset and reduce its reliance on Cobre.

Conclusion: The company’s 31st December 2018 balance sheet shows cash of US$1.84m and although the delays to the payments from Cobre’s client may impact the timing of Strategic Minerals’ work at its other projects at Leigh Creek and Redmoor; we note the company’s optimism that “a non-litigious solution can be reached”

*SP Angel act as Nomad and Broker to Strategic Minerals

 

 

Analysts

John Meyer – 0203 470 0490

Simon Beardsmore – 0203 470 0484

Sergey Raevskiy – 0203 470 0474

James Mills -0203 470 0486

 

Sales

Richard Parlons – 0203 470 0472

Jonathan Williams – 0203 470 0471

Abigail Wayne – 0203 470 0534

Rob Rees – 0203 470 0535

 

SP Angel                                                            

Prince Frederick House

35-39 Maddox Street London

W1S 2PP

 

*SP Angel are the No1 integrated nomad and broker by number of mining brokerage clients on AIM according to the AIM Advisers Ranking Guide (joint brokerships excluded)

+SP Angel employees may have previously held, or currently hold, shares in the companies mentioned in this note.

 

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