SP Angel . Morning View . Expectations build for ECB rate cut and QE announcement

SP Angel – Morning View – Thursday 12 09 19

Expectations build for ECB rate cut and QE announcement

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MiFID II exempt information – see disclaimer below

 

Arc Minerals* (ARCM LN) STRONG BUY – More high grade copper discovered at Cheyeza in Zambia (inc. 10.5m grading 2.79% copper)

Cora Gold* (CORA LN) – Interims

Botswana Diamonds (BOD LN)* – Environmental authorisation at Marsfontein

Strongbow Exploration* (SBW CN) – Tungsten royalty rights

 

Demand for battery metals could rise six fold according to Moody’s (Reuters).

• Moody’s predict that if electric cars reach 8% of road traffic by the mid-2020s, then demand for metals such as cobalt, lithium, nickel and copper could see six fold increases.
• However, politically unstable regions where such metals originate such as the Congo could dissuade investors and scupper potential
• The credit rating agency said a worldwide shift to electric vehicles would likely drive up demand for cobalt, of which DRC is the world’s number one producer, as well as lithium, nickel and copper.
• However, issues in the DRC will hamper production, namely “very weak governance, poor infrastructure and persistent pockets of social instability” remain key obstacles to foreign investment, slowing the country’s ramp-up of production”.

 

Chilean lithium producer SQM plan to invest $2.1 billion in the next five years

• Shares in Chilean lithium producer SQM jumped on Wednesday after plans were announced to invest about $2.1 billion in the next five years to strengthen its production.
• This comes despite lithium prices easing of due to stalling electric vehicle demand and a ramp up of supply.
• SQM hopes to sell 65,000t/y of lithium carbonate by 2020 and 150,000t/y by 2025. Investments include US$280mn to expand lithium carbonate production to 50,000t/y and US$100mn to boost lithium hydroxide output to 16,000t/y (bnamericas).

 

Dow Jones Industrials		+0.85%	at	27,137
Nikkei 225		+0.75%	at	21,760
HK Hang Seng		-0.16%	at	27,117
Shanghai Composite		+0.75%	at	3,031
FTSE 350 Mining		+2.25%	at	18,926
AIM Basic Resources		+0.33%	at	2,182

 

Economics

US – President Trump delayed the next round of tariff hikes on Chinese goods by around two weeks .

• “At the request of the Vice Premier of China, Liu He, and due to the fact that the People’s Republic of China will be celebrating their 70th Anniversary on October 1st, we have agreed, as a gesture of good will, to move the increased tariffs on $250bn (25% to 30%), from October 1st to October 15th,” Trump wrote in Twitter.
• The news is seen as an easing in the confrontation between two countries fuelling demand for riskier assets.
• The S&P 500 hit the 3,000 level yesterday while gold dipped below $1,490/oz, although the latter bounced back this morning and is currently trading above $1,500/oz.

 

US – US companies paid $6.8bn in tariffs in July

• The news is being promoted by the ‘Tariffs Hurt the Heartland’ and ‘the Trade Partnership’..
• Americans might disagree on the merits of imposing high tariffs on Chinese imports into the US.
• We understand that the Republicans and Democrat representatives do agree that China needs to stop widespread industrial espionage and stealing of Western technology. Not to mention its blatant disregard for almost all western copyright and dumping of critical materials into overseas markets.
• China’s apparent military expansion into the South China Seas and military developments on the Spratley Islands is one of many worrying issues which has come to the fore during President Xi’s tenure.
• Xi is now life President following his culling of several hundred senior officials and generals on corruption charges in recent years but Xi has trouble at home with rising food inflation prices +10% in August and ongoing pro-democracy rioting in Hong Kong which has the potential to spread into Mainland China.

 

ECB – The monetary policy announcement is due later today (12:45pm) with expectations for a 10bp cut in the deposit rate as well as a notice of asset purchases’ restart.

• Most economists expect new QE programme of €30bn per month in size even if it means changing the rules on the amount of debt the ECB can buy at any given country, Bloomberg reports.
• Additionally, the ECB is expected to reduce its economic growth forecasts lower with the outlook weighed by trade tensions and no resolution to the form of the proposed Brexit.
• The Eurozone economy is currently expected to grow 1.2% and 1.4% in 2019 and 2020 with inflation to average 1.3% and 1.4% during the same period.
• The euro is up slightly against the US$ this morning (+0.14%) gaining back some of its losses recorded the previous day.

 

Germany – Economic growth estimates reduced as the nation heads toward recession in Q3/19, the latest Ifo institute data suggests.

• GDP growth forecast cut to 0.5% (from 0.6%) for 2019 as the economy to contract 0.1%qoq in Q3.
• The economy is expected to grow 1.2% in 2020, down from 1.7% estimated previously.

 

Currencies

US$1.1016/eur vs 1.1034/eur yesterday.  Yen 107.95/$ vs 107.82/$.  SAr 14.605/$ vs 14.688/$.  $1.233/gbp vs $1.237/gbp.  0.688/aud vs 0.687/aud.  CNY 7.086/$ vs 7.115/$.

 

Commodity News

Gold US$1,503/oz vs US$1,490/oz yesterday

   Gold ETFs 79.1moz vs US$79.2moz yesterday

Platinum US$951/oz vs US$938/oz yesterday

Palladium US$1,595/oz vs US$1,564/oz yesterday

Silver US$18.17/oz vs US$18.10/oz yesterday

           

Base metals:   

Copper US$ 5,867/t vs US$5,807/t yesterday

Aluminium US$ 1,822/t vs US$1,823/t yesterday

Nickel US$ 18,180/t vs US$18,150/t yesterday

Zinc US$ 2,366/t vs US$2,366/t yesterday

Lead US$ 2,091/t vs US$2,101/t yesterday

Tin US$ 17,600/t vs US$17,350/t yesterday

           

Energy:           

Oil US$61.0/bbl vs US$62.9/bbl yesterday

Natural Gas US$2.548/mmbtu vs US$2.591/mmbtu yesterday

Uranium US$25.10/lb vs US$25.10/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$91.0/t vs US$88.9/t

Chinese steel rebar 25mm US$561.7/t vs US$559.3/t

Thermal coal (1st year forward cif ARA) US$67.7/t vs US$68.6/t

Coking coal futures Dalian Exchange US$236.7/t vs US$223.8/t

           

Other:  

Cobalt LME 3m US$36,500/t vs US$35,500/t

NdPr Rare Earth Oxide (China) US$46,641/t vs US$46,031/t

Lithium carbonate 99% (China) US$7,056/t vs US$7,028/t

Ferro Vanadium 80% FOB (China) US$38.7/kg vs US$38.7/kg

Antimony Trioxide 99.5% EU (China) US$5.0/kg vs US$5.0/kg

Tungsten APT European US$195-205/mtu vs US$198-205/mtu

 

Company News

Arc Minerals* (ARCM LN)  FOLLOW3.2p, Mkt Cap £23m – More high grade copper discovered at Cheyeza in Zambia (inc. 10.5m grading 2.79% copper)

(The Cheyeza project is 66% owned by Arc Minerals through its holding in Zamsort)

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• Arc Minerals report further impressive copper results from drilling on their Cheyeza prospect at the Western end of the Copperbelt in Zambia.
• The results are near-surface, indicate the presence of a high-grade core to the mineralised zone and show impressive intersection lengths.
• Hole 25 intersected:
  • 1.27% Cu over 32.50m from 23.50m down hole including;
    • 2.05% Cu over 17.50m from 38.50m, or
    • 2.79% Cu over 10.50m from 44.50m
• Hole 23 intersected:
  • 0.95% Cu over 17m from 22m including;
    • 1.60% Cu over 5m from 30m
• The two holes were drilled 100m apart and approximately 100m to the northwest of holes 4 and 5 which were also drilled on section 100m apart
• Hole 4 intersected 2.35% Cu over 18m
• Hole 5 intersected 1.32% Cu over 28.50m.
• The geologists will now look to see if the observed mineralisation links to the high-grade copper mineralisation seen in holes 2 and 3 which are ~300m north-west of holes 4 & 5.
• The press release also includes the following additional results (See RNS for further detail):
  • Hole 14: 30.50m, 0.50% copper.
  • Hole 15: 4.50m grading 0.44% copper + 5m, 23% cu + 13m, 0.27% cu.
  • Hole 16: 10.00m, 0.54% copper
  • Hole 18: 3.50m, 0.25% copper + 2.00m, 0.34% cu
  • Hole 20: 2.66m, 0.32% copper
  • Hole 23: 17m, 0.96% copper + 4.75m, 0.26% cu + 6m, 0.76% cu
  • Hole 24: 3m, 0.24% copper
  • Hole 25: 3.5m, 1.27% cu + 9m, 0.36% cu + 9.5m, 0.69% cu
• Holes 15, 18, 20 and 24 were all drilled at the southern end of the Cheyeza East anomaly, ~1km to the south west of the above-mentioned holes.
• The Cheyeza East target is some 3,000m x 800m in scale according to its soli anomaly.
• Drilling now shows mineralisation covers >300m x 750m so far with good potential for further drilling to significantly extend the scale of the prospect to date.
• Previous drilling at Cheyeza East shows:

• Hole 1: 3.94m, 0.72% copper from 35.8m down hole
• Hole 2: 25m of 1.05% copper mineralisation from just 2m depth including:
• Hole 3: hole lost due to problem in drilling.
• Hole 4: 18.00m at 2.35% Copper from 30.60m down hole including:
• Hole 5: 28.5m @ 1.32% copper inc.
• Hole 6:  19.70m grading 0.59% Cu from 15.30m depth, Inc. 5.80m at 1.00% Cu from 27.70m
• Hole 7:  11m @ 0.75% Cu from 69.40m, Inc. 3.9m @ 1.42% Cu from 72.10m
• Hole 9:  intersected 9.00m @ 0.63% Cu from 11.90m, Inc. 5.00m @ 0.92% Cu from 14.90m

Conclusion:  Drilling continues to show good potential for an economic copper project at Cheyeza East. Copper intersections are all relatively close to surface with grades that will be the envy of many other copper miners and explorers.

We recommend Arc Minerals as a STRONG BUY due to its potential for a major copper discovery at the Cheyeza project in Zambia.

The potential value of a significant copper discovery is likely to be a multiple of the current market capitalisation with the market recognising the value of the discovery on further drill results and resource estimation.

Discoveries in Zambia in recent years include Sentinel in 2014 with 939mt grading 0.49% copper just 40km away from Kalaba and is producing >190,000tpa of copper. Lumwana which is 100km to the east also has a reserve of 758mt grading 0.51% copper and is producing >116,000tpa of copper.

Note: drilling is relatively shallow at 70-100m deep leaving plenty of scope for further mineralisation to be discovered at greater depth.

 

Arc Minerals also holds a 47.5% interest in Zaco Limited which holds copper, cobalt licenses next to Zamsort’s license blocks

Arc Minerals also owns 100% of CASA Mining, which has a 3moz inferred gold resource in the DRC at Akyanga

Arc also holds 100% of the Kremnica Mining project in Slovakia which holds 1.3moz of gold equivalent.

*SP Angel acts as nomad and broker to Arc Minerals.

 

Cora Gold* (CORA LN) FOLLOW 8p, Mkt Cap £8.1m – Interims

• The team has competed two targeted drilling programmes including 9,400m of AC and RC drilling as well as a further 670m of core drilling.
• Drilling has been successful in confirming continuous oxide mineralisation of potentially economic grades at Zone A, Zone B and Selin at the Sanankoro Project.
• Selected drilling results included 46m at 4.48g/t from (Selin) and 24m at 2.83g/t from 56m (Zone A).
• Drilling results from Zone B released yesterday showed good widths and grades as well including 7m at 3.14g/t from 28m and 11m at 3.27g/t from 76m.
• The Company has also started assessing the deeper sulphide potential at Sanankoro with positive initial results recorded.
• Metallurgical tests showed the Selin and Zone A material is amenable to cyanide leaching showing 97% recoveries.
• Overhead costs remained well contained at $0.4m for the period (H1/18: $0.4m).
• This compares with $1.2m in capitalised exploration costs (H1/18: $1.9m) as the Company continues with confirmatory and step out drilling at the Sanankoro.
• Cash balance stood at $1.1m as of H1/19 with the Company having conditionally raised £1.95m in the beginning of September to be directed for the coming field season starting in early Q4/19.
• The Company remained debt free.

Conclusion: The Company continues to de-risk the Sanankoro project targeting the maiden Sanankoro resource by the end of the year along with a Scoping Study that is to lay out preliminary parameters for an open pit operation. Interims highlight the Company’s focus on exploration with well controlled overhead costs.

*SP Angel acts as Nomad and Broker to Cora Gold

 

Botswana Diamonds (BOD LN)* FOLLOW 0.625p, Mkt Cap £3.9m – Environmental authorisation at Marsfontein

• Botswana Diamonds reports that its 40% owned associate, Vutomi, has been granted Environmental Authorisation over “a substantial portion of the residual diamond-bearing gravels produced from the very high grade Marsfontein mine” which is adjacent to the company’s Thorny River project in S Africa.
• The grant of this authorisation is seen as “a critical step towards obtaining a Mining Permit, which we expect to receive shortly.  A Mining Permit covers an area of 5 Hectares and has a lifespan of 2-years, which is renewable”.
• Chairman, John Teeling, said that “We believe that the mine gravels and unprocessed stockpiles around the Marsfontein mine contain commercial grades of diamonds. To secure the Mining Permit we need certain approvals.  Granting of the Environmental Authorisation is a critical step.  This facilitates the issuing of the Mining Permit necessary for BOD to recover and sell the diamonds. We plan to shortly commence royalty mining operations at no cost to the company.”
• Mobilisation is expected to get underway within six weeks.
• The company explains that the commercial diamond potential of the gravels was largely overlooked as previous operators as they concentrated on the particularly high-grade hard rock resources at Marsfontein which are reported to be 172 carats per hundred tonnes. The adjoining gravels were, however, “confirmed to be diamond-bearing through subsequent sampling” although today’s announcement does not mention the grades.

*SP Angel acts as Nomad & Broker to BlueRock Diamonds which operates the Kareevlei diamond mine in S Africa

 

Strongbow Exploration* (SBW CN) CAD 0.06, Mkt Cap CAD5.2m – Tungsten royalty rights

• Strongbow Exploration has announced that its recent AGM approved the retention of a 4% net-smelter-return royalty (NSR) in the undeveloped Mactung tungsten property in northern Canada as well as a 1% NSR in the currently mothballed Cantung mine, which is under care and maintenance, in the same area.
• Both projects are located north of the city of Whitehorse and were formerly owned by North American Tungsten which entered creditor protection in 2015 at which point ownership of Cantung reverted to the Canadian Federal Government and Mactung to the NWT Provincial administration.
• The 2009 feasibility study for Mactung envisaged capital expenditure in excess of C$400m to produce an average of around 750,000 metric tonne units (mtu) of tungsten trioxide annually over the first five years of an estimated 11 years mine life.  The study was conducted using a price of US$300 per mtu for the benchmark ammonium paratungstate (APT) price. The current price of APT is around US$200/mtu.
• At the time of its closure, due to weak commodity prices, the underground Cantung mine was one of the western world’s largest tungsten producers, however, the mine had struggled for some time, including a temporary year-long closure during 2010.
• The Canadian Government’s Northern Abandoned Mine Reclamation program https://www.canada.ca/en/crown-indigenous-relations-northern-affairs/news/2019/08/the-northern-abandoned-mine-reclamation-program.html  said, in August this year, that the Provincial and Federal Government had agreed on joint marketing of Mactung and Cantung and that “There are viable tungsten and copper reserves remaining at the Cantung mine, and as such it is possible that the Government of Canada could find a new operator to resume mining activities before the site is remediated and eventually closed”.

Conclusion: Strongbow is demonstrating its faith in the longer term prospects of tungsten through the retention of royalties at Cantung and Mactung, however, neither is currently in operation and given their remote locations and likely capital requirements, they may need a sustained improvement in APT prices to become viable.

*SP Angel acts as Broker to Ormonde Mining the owner of the Barruecopardo tungsten development in Spain

 

 

 

Analysts

John Meyer – 0203 470 0490

Simon Beardsmore – 0203 470 0484

Sergey Raevskiy – 0203 470 0474

 

Sales

Richard Parlons – 0203 470 0472

Abigail Wayne – 0203 470 0534

Rob Rees – 0203 470 0535

 

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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.

 

Sources of commodity prices
Gold, Platinum, Palladium, Silver	BGNL (Bloomberg Generic Composite rate, London)
Gold ETFs, Steel	Bloomberg
Copper, Aluminium, Nickel, Zinc, Lead, Tin, Cobalt	LME
Oil Brent	ICE
Natural Gas, Uranium, Iron Ore	NYMEX
Thermal Coal	Bloomberg OTC Composite
Coking Coal	DCE
RRE	Steelhome
Lithium Carbonate, Ferro Vanadium, Antimony	Asian Metal
Tungsten	Metal Bulletin

 

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