SP Angel . Morning View . Iron ore prices rise further as Vale warns of further dam collapse
Paul Kettle
SP Angel Research Note - 4 min read
09:54, 17th May 2019

SP Angel – Morning View – Friday 17 05 19

Iron ore prices rise further as Vale warns of further dam collapse

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Anglo Asian Mining* (AAZ LN) BUY – 126p – Earnings update

African Battery Metals* (ABM LN) – Kisinka copper-cobalt project field programme completed

BlueRock Diamonds* (BRD LN) – Funding raised to implement new mine plan

Pan African Resources (PAF LN) – Q3 results on track to meet guidance of 170,000oz of gold production

 

Iron ore prices to rise further as Vale declares another major tailings dam is about to collapse according to a report to Brazalian prosecutors

  • ‘Vale is predicting the dam in the city of Barao de Cocais may collapse next week if the current rate of movement in the embankment of the mine pit close to the dam is maintained’ (Mining.Com).
  • The Gongo Soco mine is just 40 miles from Brumadinho.
  • The dam holds 6m cubic meters of mining waste, about half the scale of the Brumadinho tailings dam which collapsed in January killing 230.

 

Estimated 11m Americans are expected to take Monday off after HBO airs the final episode of Game of Thrones this Sunday.

  • That is almost as high as the estimated 17m people who missed the Monday after the NFL’s Patriots win over the Rams in Super Bowl in February.

 

Zimbabwe – Military stake in $4bn platinum project is a no-go for funding (Bloomberg)

  • A Russian joint venture with the Zimbabwean Army for a $4bn platinum mine in Zimbabwe is reported to be failing due to funding issues.
  • The African Export-Import Bank has committed $192m of funds along with the PIC of South Africa which invests South African pension fund money
  • The project is part of President Mnangagwa’s drive to attract investment to Zimbabwe.
  • Problem is that a Zimbabwe military company was subject to US sanctions as were companies associated with Russian company Vi Holdings according to a press report.
  • The project is held in Great Dyke Investments which is owned by:
    • 30% is held by Zimbabwe Defence Industries and Zimbabwe Mning Development own 30%
    • 50% is held by Vi Holding, led Vitaliy Machitski
    • 20% is held by other Zimbabwean investors
  • The US previously imposed sanctions on Zimbabwe Defense Industries due to links with election violence
  • Vi Holding group companies were also sanctioned due to involvement with the annexation of Crimea.
  • Global Witness has previously connected Zimbabwe Defense Industries to diamond mining at Marange through an indirect stake with a Chinese company which was accused of theft by President Robert Mugabe
  • Human Rights Watch has accused the Zimbabwean military of killing 200 miners in the Marange area.

Conclusion: Building the project would provide a much needed boost to the region but we suspect few banks or investors will want to be involved with the current ownership structure.

 

Dow Jones Industrials

 

+0.84%

at

  25,863

Nikkei 225

 

+0.89%

at

  21,250

HK Hang Seng

 

-1.08%

at

  27,970

Shanghai Composite

 

-2.48%

at

   2,882

FTSE 350 Mining

 

+0.22%

at

  19,281

AIM Basic Resources

 

-0.27%

at

   1,996

 

Economics

US – US equity futures point to a weaker opening with both European and Asian markets posting losses amid higher concerns over the status of US/China trade negotiations.

  • President Trump issued an executive order banning Huawei from buying parts and components from American firms without US government approval yesterday.
  • The order follows another decision by the administration declaring a national emergency and barring US companies from using telecommunications equipment mad by firms posing a national security risk.
  • At the same time, President Trump delayed the decision on cars and auto parts tariffs from the EU and Japan by six months.
  • Commenting on the decision one former US trade official said one “can’t fight multiple trade battels at the same time… you have to pick who your biggest enemy is”.

 

China – The government signalled little interest in resuming trade talks with the US under the current threat to escalate tariffs.

  • It seems both sides to negotiations have paused their dialogue with the ministry of Commerce saying they had no information over any US officials coming to Beijing for further talks.
  • At the same time, authorities indicated that stimulus will be stepped up to strengthen domestic economy as growth momentum wanes evidence by weaker economic data released this week.

 

UK – Brexit talks between PM and the opposition are about to close without an agreement after more than a month of negotiations, according to BBC.

  • The deadlock leaves “only two ways out of Brexit crisis: either parliament agrees a deal or we go back to the British people and ask them to make the choice,” the Chairman of parliament’s Brexit committee said.
  • PM May promised to step down after it her deal is approved by lawmakers in a fourth attempt while many fellow Conservatives call her to quit if the deal is rejected again.
  • The pound is sliding against the € and $ this morning.

 

Italy – Luigi Di Maio, leader of the Five Star Movement, tried to calm markets down after Matteo Salvini called for a change in EU fiscal deficit and debt rules.

  • “Nobody wants (debt) to go over 140%,” Di Maio said during an event in Florence arguing that debt may go out of control at that stage.
  • Deputy Prime Minister said investments should be focussed on projects that could accelerate the pace of GDP growth, thus, limiting the debt-to-GDP ratio.
  • The nation’s debt-to-GDP currently stands at 132% as of the end of last year.
  • The spread of sovereign 10y bond yields and equivalent Bund yields narrowed to 278bp, after touching the highest level since February earlier this week.

 

Turkey – The US has halved its Turkish steel imports’ tariffs to 25% on Thursday citing a shar drop in steel shipments over the past year.

  • The reduction in US tariffs brings them back in line with those imposed on other countries.

 

Currencies

US$1.1179/eur vs 1.1211/eur yesterday  Yen 109.69/$ vs 109.36/

nbsp; SAr 14.303/$ vs 14.215/
nbsp; $1.278/gbp vs $1.283/gbp  0.689/aud vs 0.691/aud  CNY 6.908/$ vs 6.881/$

 

Commodity News

Precious metals:         

Gold US$1,287/oz vs US$1,298/oz yesterday

   Gold ETFs 70.4moz vs US$70.4moz yesterday

Platinum US$827/oz vs US$849/oz yesterday

Palladium US$1,315/oz vs US$1,345/oz yesterday

Silver US$14.53/oz vs US$14.81/oz yesterday

           

Base metals:   

Copper US$ 6,035/t vs US$6,081/t yesterday

  • Copper tracks towards its fifth weekly decline, the longest run of losses since July, as tensions between China and the US weigh on the demand outlook.
  • The Trump administration reports new restrictions on Huawei Technologies Co. would take effect on Friday, with the parent company and 67 affiliates in 26 countries placed on a blacklist that will limit its access to U.S. suppliers.
  • China’s offshore yuan is heading for a second weekly decline amid the trade stand-off and analysts are assessing the impact of the trade conflict for potential policy responses in China.
  • Bank of America Corp., Morgan Stanley and UBS Group AG forecast China’s expansion may slow below 6% under trade woes, the first time in almost three decades.
  • Reports suggest the Asian nation’s economic growth could tumble, debt surge and foreign companies flee in a deepening trade war.

Aluminium US$ 1,847/t vs US$1,857/t yesterday

Nickel US$ 12,085/t vs US$12,100/t yesterday

Zinc US$ 2,602/t vs US$2,628/t yesterday

Lead US$ 1,819/t vs US$1,829/t yesterday

Tin US$ 19,430/t vs US$19,755/t yesterday

           

Energy:           

Oil US$72.6/bbl vs US$72.1/bbl yesterday

Natural Gas US$2.633/mmbtu vs US$2.604/mmbtu yesterday

Uranium US$24.65/lb vs US$24.65/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$95.3/t vs US$92.3/t

  • Iron ore prices charge towards $100/t, hitting the highest levels in almost five years and supercharge miners’ chares, as investors bet that a global supply crunch may spur a scramble for cargoes just as mills in China push out record volumes of steel.
  • The raw material continues to stage a power rally in 2019 as supply disruptions in Brazil and Australia, top global shippers, underpin expectations that the seaborne market will swing into deficit.
  • At the same time China has been rapidly absorbing material, with mainland mills producing record quantities of steel according to official data from China.
  • Ord Minnett Ltd. said in a report. “China’s steel output is surprising on the upside at a time when iron ore shipments remain materially affected by supply disruptions in Brazil and, to a lesser extent, Australia.”

Chinese steel rebar 25mm US$617.2/t vs US$618.4/t

Thermal coal (1st year forward cif ARA) US$69.7/t vs US$71.4/t

Coking coal futures Dalian Exchange US$178.8/t vs US$179.6/t

           

Other:  

Cobalt LME 3m US$34,500/t vs US$34,500/t

NdPr Rare Earth Oxide (China) US$38,286/t vs US$39,022/t

Lithium carbonate 99% (China) US$9,626/t vs US$9,665/t

Ferro Vanadium 80% FOB (China) US$44.0/kg vs US$45.0/kg

Antimony Trioxide 99.5% EU (China) US$5.9/kg vs US$5.9/kg

Tungsten APT European US$270-280/mtu vs US$270-280/mtu

 

Battery News

Tesla completes Maxwell battery technology acquisition

  • Tesla finally completes its offer to acquire Maxwell, San Diego-based ultracapacitor and battery company, with the transfer of stocks worth just over $235m.
  • It is believed that Tesla is after the company’s intellectual property. Maxwell is best-known as an ultracapacitor manufacturer, but it has also recently been discussing a dry electrode technology for batteries.
  • Maxwell make claim that its dry electrode technology enables energy densities over 300 Wh/kg in current demonstration cells, with a pathway to over 500 Wh/kg.
  • The Company also demonstrate close to 90% capacity retention after almost 1,500 cycles and their cells maintain their capacity at higher discharge rates, allowing faster charging and longer life batteries.

 

Jay Inslee unveils ‘Evergreen Economy Plan’ focused on clean energy, jobs, infrastructure

  • Democratic presidential candidate and Washington Gov. Jay Inslee has unveiled his “Evergreen Economy Plan,” a $9tr plan for the US that would create 8m jobs over the next decade, centred around clean energy initiatives.
  • Inslee’s Evergreen Economy for America is centred on “good jobs, clean energy and modern infrastructure.” The 34-page plan includes a wide array of ideas and policies, which all fit into five “key strategies for economic growth”:
    1. Igniting America’s Clean Energy Economy
    2. Building Sustainable & Climate-Smart Infrastructure
    3. Leading the World in Clean Manufacturing
    4. Investing in Innovation & Scientific Research
    5. Ensuring Good Jobs with Family Supporting Wages & Benefits
  • The Evergreen Economy Plan is the second major policy announcement from Inslee’s Climate Mission agenda, following the Clean Energy for America plan he announced a few weeks ago.

 

Coventry earmarked for UK battery hub

  • The government wants Coventry to become the hub of the UK’s fledging EV battery industry with plans unveiled for an extra £28m to support a new ‘centre of excellence’ for battery technology.
  • The £80m UK Battery Industrialisation Centre is designed to be a "stepping stone" towards a UK 'gigafactory' - a large scale manufacturing plant for electric vehicle batteries.
  • "This new world-class facility will allow the UK to rigorously prepare our home-grown battery technologies for global competitiveness," said Tony Harper, Faraday Battery Challenge Director at UK Research and Innovation.

 

Company News

Anglo Asian Mining* (AAZ LN)  FOLLOW98p, Mkt Cap £112m – Earnings update

BUY – 126p

CLICK FOR PDF

  • The pdf contains our yesterday’s comment on FY18 results and updated earnings.

*SP Angel act as Nomad and broker to Anglo Asian Mining

 

African Battery Metals* (ABM LN) FOLLOW 0.41p, Mkt Cap £1.5m – Kisinka copper-cobalt project field programme completed

  • ABM report completion of exploration activities after finalising refinancing earlier this year, highlighting:
    • A total of 663 termite mound samples, excluding samples collected for QA/QC purposes, were collected over 3 weeks on a grid covering the whole license area.
    • Sample preparation is being carried out, working towards XRF analysis (x-ray fluorescence spectrometry) to identify anomalous levels of copper and cobalt.
  • Executive Director, Paul Johnson, adds “the initial programme has been carried out with speed and efficiency and bodes well for our ability to operate effectively in the DRC.”

Conclusion: Completion of initial phase of exploration is positive news, and we look forwards to understanding the anomalous potential of the Kisinka project.

*SP Angel act as broker to African Battery Metals

 

BlueRock Diamonds* (BRD LN) FOLLOW 0.13p, Mkt Cap £0.83m – Funding raised to implement new mine plan

  • BlueRock Diamonds reports that it has raised £982,000 in order to help implement a new mine plan aimed at increasing “production with a target of becoming cash flow positive at a corporate level”.
  • The company is issuing 937m new shares at a price of 0.1 pence per share to raise £937,000 and in addition, a number of the directors have subscribed to raise a further £45,000 at the same price.
  • We estimate that the new shares represent approximately 60% of the enlarged capital of the company.
  • “The Board expects that the funds raised … will be sufficient to reach its medium term goal of processing in excess of 400,000 tonnes per annum (2018: 190,000 tonnes). The target for 2019 is between 280,000 tonnes and 330,000 tonnes. The Board expects that the Company will be profitable in the second half of 2019 and expects the Company to be self-funding going forward.”
  • The new funds will enable the company to improve the operational flexibility and overall production rate at its Kareevlei minesite by opening up and developing additional diamond bearing kimberlite pipes as well as completing modifications to the crushing circuit and implementing improvements to the material handling within the plant and to build up stocks of spares in order to minimise downtime due to breakdowns.
  • “Since the appointment [in November 2018]  of Mike Houston as Chairman, the Company has been reviewing its overall operation including its medium term mine plan” and has already implemented a number of changes including an upgrading of the operational mining expertise of the management team, and improved equipment utilisation rates through the introduction of  a seven-day work roster and started modifications to the crushing circuit “to handle the variable ore and ensure adequate inventories are in place so that the operation maximises capacity.”
  • As part of the continuing operational changes, “The Company expects to shortly enter into a contracting agreement with a member of the Teichmann Group, a pan African civil engineering and mining group, to provide the quantity of ore necessary to meet BlueRock’s production plans”.
  • The company’s production guidance for FY 2019 is for the production of 11,900-16,500 carats of diamonds valued at $340 per carat from the production of 280-330,000t of ore at an average grade of between 4.25-5.00 cpht (carats per hundred tonnes). Guidance for FY 2020 reflects the expected performance gains with  production of 16,200-21,500 carats of diamonds also valued at $340 per carat from the production of 380-430,000t of ore at the same average grade of between 4.25-5.00 cpht

Conclusion: BlueRock Diamonds has raised additional funds and restructured its management team in order to implement operational changes at Kareevlei aimed at bringing the company to profitability during the second half of 2019

*SP Angel acts as Nomad & Broker to BlueRock Diamonds

 

Pan African Resources (PAF LN) FOLLOW 9.76p, Mkt Cap £218.1m – Q3 results on track to meet guidance of 170,000oz of gold production

  • Pan African Resources reports that with FYTD production of 123,771 oz of gold (2018 81,729 oz) it is on track to achieve its guidance target of 170,000oz for the year to 30th June 2019.
  • Production for the following year to the end of June 2020 is expected to improve to approximately 185,000 oz.
  • The Barberton operations contributed 72.944oz (2018 – 65,279 oz) with a 3.4% increase from the surface and underground operations to 54,857 oz (2018 – 53,034 oz) and production from the tailings retreatment operation increasing by 47.5% to 18,087 oz.
  • The Elikhulu tailings retreatment plant treated approximately 6.9mt at an average recovered grade of 0.135g/t gold to deliver 29,881oz at a lower than expected all-in sustaining cost of under US$600/oz.
  • The remnant mining and surface operations of the Evander operation contributed a further 20,946 oz (2018 – 16,432 oz)
  • Work has already started on the extraction of the Evander 8 Shaft pillar with initial gold production expected in August 2019 in a project, to be undertaken by a specialist mining contractor, which “is expected to contribute, on average, 30,000oz per annum over the next three financial years, with approximately 20,000oz of production forecast for FY2020.” All-in-sustaining costs are expected to be approximately US$900/oz.
  • The company has also reported that, following “the Royal Sheba project feasibility study … concluded that the merits of mining the near-surface resource, using an opencast mining method, did not meet the Group’s disciplined capital allocation criteria. This was as a result of higher than anticipated capital expenditure, largely due to the challenging topography of the Sheba valley”. However “The existing Barberton Mines’ processing plant infrastructure can be upgraded to process ore from this orebody. The benefits of this approach is the ability to expedite the environmental licencing process, shorten the timeline to production, enhance returns from mining this orebody and negate the requirement for external capital funding.

Conclusion: Pan African Resources is on course to meet current production guidance for the year to 30th June 2019 and is looking for an increase of around 8% to 185,000oz next year as its Elikhulu tailings builds up and it recovers remnant gold from the Evander 8 Shaft pillar.

 

 

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

Abagail Wayne – 0203 470 0534

Rob Rees – 0203 470 0535

 

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35-39 Maddox Street London

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

 

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