SP Angel . Morning View . Friday 13 12 19

Trade deal optimism and UK election results lift markets



MiFID II exempt information – see disclaimer below

Ferro-Alloy Resources Limited (FAR LN) – Fall in vanadium pentoxide price prompts management to look for new funding

Resolute Mining (RSG LN) – Bibiani review

Sirius Minerals (SXX LN) – A Siriusly sorry Christmas Carol

Vast Resources* (VAST LN) 0.29p, Mkt Cap £29m – Exposure to copper and rough diamonds in Romania and Zimbabwe


Smaller UK companies rise on UK election result as confidence returns to the market for smaller companies

  • The FTSE 250 index rose 4.5% in early trading.
  • FTSE SmallCap Index rises 2.1%
  • Sterling rose to £1.352/USD and Eur1.20/£ its highest since May 2018.
  • Markets for smaller companies stalled ahead of the election with confidence now expected to return
  • Sterling strength is not good for investors in larger mining stocks as it erodes the value of their dividends and US dollar earnings
  • A stronger pound is good for buying new stock in mining companies which are looking to develop projects overseas.


South Africa – ESKOM reduces load shedding to Stage 2 as engineers rush to fix generating plants

  • ESKOM continues to operate the national power grid on lesser load shedding schedule.
  • Reasons for raising load shedding to Stage 6 include:
    • unplanned breakdowns – understandable but maybe due to poor maintenance contracts
    • diesel shortages – ESKOM really shouldn’t be running much diesel generation as South Africa is an oil importer.  
    • flooding at power stations – probably the only proper reason given for the power outages
    • wet coal – not sure why wet coal would be a surprise or a problem
    • Sabotage – unlikely
    • Corrupt practices and poor management leading to catastrophic failure – more than likely
    • South African economy likely to fall into recession as a direct result of the widespread disruption caused by ESKOM


Heavy rain, design and poor drainage factors in Vale dam breach (FT)

  • Several factors including design, poor drainage and heavy rainfall caused Vale’s deadly dam breach in Brazil according to and independent report.
  • More than 250 people died in January as 12 million cubic meters of tailings burst close to the town of Brumadinho.
  • According to the report, “The Panel concluded that the sudden strength loss and resulting failure of the marginally stable dam was due to a critical combination of ongoing internal strains due to creep, and a strength reduction due to loss of suction in the unsaturated zone caused by the cumulative rainfall since the end of tailings deposition, including the intense rainfall towards the end of 2018,”
  • The dam was an ‘upstream’ dam, whereby waste slurry is pumped into a storage pond behind a starter mud wall, which is then raised as more material is added. Upstream dams are seen as less stable than other designs, and are best suited to arid and aseismic regions.
  • The report also found that Dam 1 showed “no signs of distress, such as large deformations in cracking and bulging prior to failure”. Furthermore, there were no earthquakes or any blasting activity in the area on the day of the breach.


Dow Jones Industrials





Nikkei 225





HK Hang Seng





Shanghai Composite





FTSE 350 Mining





AIM Basic Resources







US – President Trump signed off on a trade deal with China yesterday that would roll back existing tariffs and delay a new round of levies, according to people familiar with the matter.

  • In exchange China is called to buy $50bn worth of agricultural products in 2020, along with energy and other goods.
  • Earlier on Thursday, President Trump wrote in a tweet “getting very close to a big deal with China… they want it, and so do we!”.
  • US markets closed higher while the MSCI All World index climbed 0.8% hitting a new peak.
  • US debt yields climbed while gold pulled back amid stronger risk on sentiment.


ECB – The central bank reiterated its bias towards ultra loose monetary policy keeping rates unchanged at record low levels and sticking with its bond-buying programme, in line with expectations.

  • New ECB governor Christine Lagarde voiced her concerns over a prolonged period of weak growth and low inflation.
  • The central bank lowered its economic forecasts for the longer term saying GDP growth would drop to 1.1% in 2020, down from 1.2% estimated in September, and 1% in 2021 and 2022.
  • Inflation is projected to accelerate to 1.6% by 2022 from current 1% suggesting the central bank is unlikely to revise its easing policy any time soon.


UK – Conservatives secured the biggest parliamentary majority since 1987 forcing the opposition Labour and Liberal Democrats parties looking for new leaders.

  • With one seat left to declare, the Conservatives have 364 MPs, Labour 203, SNP 48, Liberal Democrats 11 and DUP eight.
  • The estimated turnout was at 67.3%, down 1.4pp on 2017.
  • PM Johnson secures the mandate for pressing ahead with Brexit targeted for January 31 that would kick off a transitional period until the end of 2020.
  • The pound surged and crossed the 1.35 level against the US$ and UK equity indices trading higher this morning.



US$1.1172/eur vs 1.1128/eur yesterday.  Yen 109.65/$ vs 108.66/$.  SAr 14.425/$ vs 14.650/$.  $1.337/gbp vs $1.320/gbp.  0.692/aud vs 0.688/aud.  CNY 6.982/$ vs  7.034/$.


Commodity News

Gold US$1,472/oz vs US$1,473/oz yesterday

   Gold ETFs 80.9moz vs US$80.9moz yesterday

Platinum US$938/oz vs US$941/oz yesterday

Palladium US$1,976/oz vs US$1,928/oz yesterday

Silver US$16.96/oz vs US$16.86/oz yesterday


Base metals:   

Copper US$ 6,173/t vs US$6,130/t yesterday - China's Jiangxi Copper receives $213m loan from parent company (Reuters)

  • The financial assistance "can only be used by the company to supplement its working capital or repay bank loans," according to the company.
  • Jiangxi copper has received seven rounds of financial assistance totalling 4.9bn yuan (US$697m) since June, prior to this latest loan.

Copper inventory rises 4.1% in Shanghai

Aluminium US$ 1,776/t vs US$1,764/t yesterday

Nickel US$ 14,140/t vs US$13,785/t yesterday

Zinc US$ 2,284/t vs US$2,236/t yesterday

Lead US$ 1,956/t vs US$1,937/t yesterday

Tin US$ 17,085/t vs US$17,175/t yesterday



Oil US$64.8/bbl vs US$64.1/bbl yesterday

Natural Gas US$2.264/mmbtu vs US$2.285/mmbtu yesterday

Uranium US$25.75/lb vs US$25.85/lb yesterday



Iron ore 62% Fe spot (cfr Tianjin) US$92.6/t vs US$92.4/t

Chinese steel rebar 25mm US$586.4/t vs US$584.1/t

Thermal coal (1st year forward cif ARA) US$60.0/t vs US$59.5/t

Coking coal futures Dalian Exchange US$186.8/t vs US$183.9/t



Cobalt LME 3m US$34,750/t vs US$34,750/t

NdPr Rare Earth Oxide (China) US$41,751/t vs US$41,440/t

Lithium carbonate 99% (China) US$6,016/t vs US$6,042/t

Ferro Vanadium 80% FOB (China) US$28.7/kg vs US$28.8/kg

Antimony Trioxide 99.5% EU (China) US$5.1/kg vs US$5.1/kg

Tungsten APT European US$230-245/mtu vs US$225-245/mtu

Graphite flake 94% C, -100 mesh, fob China US$540/t vs US$540/t

Graphite spherical 99.95% C, 15 microns, fob China US$2,550/t vs US$2,550/t


Battery News

Used EV batteries will power Mitsubishi’s EV manufacturing plant (Electrek)

  • Old EV batteries will be used to power the Okazaki City plant, where it makes electric cars.
  • The utility-scale rooftop photovoltaic system will be able to produce 3GW of power a year and store 1MWh of energy in used batteries from Mitsubishi Outlander Plug-in Hybrid vehicles.
  • The PV and battery-storage system is expected to reduce carbon emissions by approximately 1,600t a year. 


Company News

Ferro-Alloy Resources Limited (FAR LN) FOLLOW 12.25p, Mkt cap £38m – Fall in vanadium pentoxide price prompts management to look for new funding

  • The fall in the price of vanadium pentoxide to $5/lb from $16/lb at the start of the year hit profit at Ferro-Alloy Resources hitting cash flows as management work to finance  expansion.
  • Negotiations are in progress for near term funding requirements with banks and other funding institutions.
  • Management cite an ‘initial lack of enforcement by China of their new higher standards for construction steel’
  • Chinese enforcement is now thought to be much stronger and much of this increase in production and substitution is likely to reverse as prices stabilise at more normal levels. In the longer term the outlook for vanadium demand growth is very strong from its traditional market to steel-makers,’
  • ‘The advent of vanadium redox flow batteries remains a tantalising opportunity for the industry, the roll-out of which was delayed by the unusually high vanadium price in 2018.’
  • ‘The Company continues to use a long-term forecast price of $7.50/lb which is around the historic average and conservatively reflects the cost required to incentivise new production capacity. ‘
  • Ferro-Alloy production in October was a record 18.2t of vanadium pentoxide with new equipment expected to lead to a significant rise in production from mid-December.
  • New plant production capacity of > 50t per month will be limited by power-supply till the new high-voltage supply is connected
  • Further expansion expected to raise production to 1,500tpa of vanadium pentoxide
  • While the Balasausqandiq project is expected to have the world's lowest cost of production cash flows are impacted by long lead times for deliveries to customers resulting in lower prices and a mark down on anything that has been provisionally priced.
  • While the Company's previous forecasts, based on a slower fall in vanadium prices over 2019 and 2020, would have been sufficient to meet the capital expenditure requirements for the completion of the expansion of the existing operation out of operating cash flows the reduction in vanadium prices, compounded by the timing differences described above, have reduced the cash flows available to the Group in the short term.
  • While the Company is currently debt free it is in advanced discussions regarding a loan of up to $1.3m and is considering other sources of capital including the issue of equity.


Resolute Mining (RSG LN) FOLLOW 63p, Mkt Cap £570m – Bibiani review

  • Resolute Mining reports that it has engaged advisors to review its strategic options for the historic Bibiani Gold mine in Ghana.
  • Options are reported to include reviewing plans to recommission the mine, assess capital requirements, evaluate funding alternatives, and investigate recently received expressions of interest from third parties seeking to acquire the asset”.
  • Bibiani has a long history dating to the early years of the 20th century and has operated intermittently since then under different managements including the State Mining Corporation of Ghana, Ashanti Goldfields and Anglogold prior to its acquisition by Resolute Mining in 2014.
  • The mine has a 3mtpa plant and Resolute Mining’s 2018 Feasibility Study demonstrated the potential for Bibiani to produce ~100,000 ounces (oz) of gold annually at a life-of-mine All-In Sustaining Cost of US$764/oz over a ten-year mine life. Current Mineral Resources at Bibiani consist of 21.7 million tonnes at 3.6 grams of gold per tonne for 2.5 million ounces of gold”.
  • Gold mining in west Africa is currently undergoing a number of strategic realignments with the announcement earlier this week of Terranga Gold’s $380m acquisition of the Massawa project in Senegal and Endeavour Mining’s C$2.5bn overtures to Centamin announced last week. In this climate therefore, third party interest in an existing, mothballed mine with a substantial resource base and an established production history at Bibiani, is unsurprising.  


Sirius Minerals (SXX LN) FOLLOW – A Siriusly sorry Christmas Carol

On the first day of Christmas Sirius Minerals said to me

  • Twelve-months for the shares to fall 87%
  • Eleven million tonnes of contracted sales
  • Ten million tonnes of estimated Polyhalite 4 production
  • £9m of convertible loan issue costs
  • Eighty-five thousand retail investor blew their savings
  • Seven percent of the potash market
  • Six figure salaries for key directors
  • Five hundred million bond sale cancelled
  • Four billion Woodsmith project
  • Three billion initial capital cost
  • Two billion still to be raised
  • One half sunk shaft and a massive a massive Yorkshire turkey near Whitby


Vast Resources* (VAST LN) FOLLOW 0.29p, Mkt Cap £29m – Exposure to copper and rough diamonds in Romania and Zimbabwe


Vast Resources is an AIM listed mining company with a portfolio of exploration, development and production multi commodity assets in Romania and Zimbabwe. Flagship development projects include the fully permitted high grade polymetallic brownfield Baita Plai deposit (Romania) with good access to historic infrastructure and first saleable concentrate expected in H1/20 and the alluvial diamonds Chiadzwa Concession in the prolific Marange Diamond Fields to be developed in a JV with a local community and fast tracked to production.

Key points

  • Baita Plai (80%), a fully permitted, funded and close to production brownfield polymetallic mine, is a low capital intensity and high margin project offering exposure to copper along with a series of precious and base metals’ by-products. The mine is expected to launch operations in H1/20 delivering 4ktpa CuEq and yielding $17m in EBITDA (60% margin) and $12m in FCF annually (at $7,500/t Cu price) once ramped up to full 13ktpm capacity.
  • Chiadzwa Community Diamond Concession (TBC%), an unmined license area in a prolific Marange Diamond Fields that supplied ~60mcts over the last two decades, is the second major project in the Group. A potential alluvial diamonds operation can be brought quickly into production and at a low capital cost. On preliminary management estimates adjusted for lower than planned plant availability (50% v 85% budgeted by Vast) the project is expected to run at ~1.2mcts in annual production, generating $45m in EBITDA and $33m in FCF per annum (at $58/ct rough diamond price).
  • Carlibaba Extension Project (100%), is part of the Manaila Polymetallic Mine (on C&M since Dec/18) and an opportunity to restart operations at reduced unit costs allowing positive FCF potential.
  • Exploration potential remains in the highly prospective Eastern Carpathians and Apuseni Mountains allowing to further improve on the life of mine of planned operations in Romania, while the scale of the Chiadzwa Community Diamond Concession is yet to be determined at the time when Zimbabwe aims to attract investment in diamond industry and nearly double local output to 6mcts by 2023 (conglomerate source only and not accounting for incremental supply from alluvial operations).
  • Vast Resources offers exposure to a diversified portfolio of assets both in terms of commodities and jurisdiction prioritising pre-production projects with a view to deliver early cash flows while also working on a pipeline of early exploration assets.
  • Using our DCF valuation model (10%DR) we arrive at attributed NAVPS of 0.37p adjusted for the development stage of each project. Upside to the valuation lies within further de-risking of the Vast portfolio of assets narrowing down the P/NAV discount that may potentially yield a ~180% increase in attributed project value ($68m v $191m) translating into a 1.22p NAVPS. In particular, Chiadzwa offers the most value upside in terms of gradual de-risking of the project.




P/NAV adj

Att US$m


Baita Plai
























Project Value












Net Debt






Corporate overheads






Company NAV






GBPUSD exchange rate 1.4

*SP Angel acts as Broker to Vast Resources




John Meyer – 0203 470 0490

Simon Beardsmore – 0203 470 0484

Sergey Raevskiy – 0203 470 0474



Richard Parlons – 0203 470 0472

Abigail Wayne – 0203 470 0534

Rob Rees – 0203 470 0535


SP Angel                                                            

Prince Frederick House

35-39 Maddox Street London



*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.


Sources of commodity prices


Gold, Platinum, Palladium, Silver

BGNL (Bloomberg Generic Composite rate, London)

Gold ETFs, Steel


Copper, Aluminium, Nickel, Zinc, Lead, Tin, Cobalt


Oil Brent


Natural Gas, Uranium, Iron Ore


Thermal Coal

Bloomberg OTC Composite

Coking Coal




Lithium Carbonate, Ferro Vanadium, Antimony

Asian Metal


Metal Bulletin



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