SP Angel . Morning View . Thursday 17 10 19

Metal prices pull back on weak US retail sales and no US-China trade war news

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Aura Energy Limited* (AURA LN) – Work starts on new targets at Tasiast South gold tenement following reinterpretation of data

Ormonde Mining* (ORM LN) – Barruecopardo 12-month loan facility for €10m at 18% pa interest + 3% pa commitment fee

Shanta Gold (SHG LN) – Q3 update: on course for 80-84okz FY19 target

 China has eight times more EV charging points than the US (Bloomberg)

  • This imbalance is likely to become more pronounced as China champions EV technology unlike the trump administration.
  • China are currently evaluating the implementation of a new energy vehicle development plan which will set new goals for boosting the number of public and private chargers.
  • According to forecasts by BloombergNEF, China’s EV fleet may be as large as 162m vehicles by 2040.
  • On the other hand, EV sales in the US are set to slump this year, as the Trump administration proposed an end to electric vehicle tax credits in March (Reuters).
  • Tesla and VW are the automakers pushing to add more chargers in the US.
  • Global EV sales are forecast to rise to 56m units by 2040, with 2m sales last year.

 

Dow Jones Industrials

 

-0.08%

at

  27,002

Nikkei 225

 

-0.09%

at

  22,452

HK Hang Seng

 

+0.69%

at

  26,848

Shanghai Composite

 

-0.05%

at

   2,977

FTSE 350 Mining

 

+0.18%

at

  17,335

AIM Basic Resources

 

-0.42%

at

   2,106

 Economics

US – The economy grew at a “slight to modest pace” in recent weeks, representing a mild downgrade by the Fed in its latest Beige Book economic report.

  • The report highlighted poor performance in the manufacturing sector on the back of “persistent trade tensions and slower global growth” weighing on activity.
  • In contrast, household spending was “solid”, and activity in non-financial services “increased solidly”.
  • Disappointing retail sales numbers released yesterday increase speculation the Fed may opt for a cut during a meeting scheduled for next month.
  • Retail Sales (%mom): -0.3 v 0.6 (revised from 0.4) in August and 0.3 forecast.

 China – Beijing said it needs to hold further talks before it is ready to sign an agreement first made verbally last week, Bloomberg reports.

  • ”The working teams of both sides are maintaining close communication in various ways, negotiating on the specific text of the agreement,” Ministry of Commerce said.
  • Meanwhile, major economic data is due tomorrow with estimates for GDP to have slowed down in Q3, weighed down by the trade war with the US.

 EU – European leaders are meeting in Brussels in an attempt to reach a last minute agreement over terms of the Brexit.

  • PM Johnson will need th deal to be approved this Saturday or seek an extension from the EU.
  • Earlier, Macron expressed hopes that the deal can be reached saying he believed “that a deal is being finalised”.

 UK – The pound came off 0.4% this morning as the Democratic Unionist Party said it can not support the deal in the current form.

  • However, it is prepared to work with the government to “try and get a sensible deal”.
  • Retail sales were flat in September versus another decline forecast in a modestly positive report with the private consumption being one of the few drivers of economic growth lately.

 Australia – The A$ climbed 0.4% as markets trimmed forecasts over further policy easing on better than expected labour data.

  • Market pricing on an RBA rate cut next month declined to 20% from 40% before the release of the data.
  • Employment Change (‘000): +14.7 v 37.9 in August and 15.0 forecast.
  • Unemployment Rate: 5.2% v 5.3% in August and 5.3% forecast.

 France – looks to impose taxes on shipping and aircraft fuel (Reuters)

  • The Republic of France is looking to impose it’s Socialist values on the rest of the world this week through its proposal to tax fuel for shipping and aircraft.
  • The proposal is for a new EU wide tax on aircraft and ship fuel is undoubtedly a populist move as is typical of France’s current administration and this state capitalist country (Suez, EDF,SNCF,RAP etc.).
  • The French Finance Minister reckons the tax would complement plans supported by France and Germany for a carbon border tax to would shield European companies from competition from countries with lower emissions standards. So, in short, if France and Germany want to do it then the rest of the EU is going to have to follow.
  • France is also going to review its public export guarantees in line with Paris’ commitment to stop financing projects that increase the growth of carbons emissions.
  • The 2020 budget bill also seeks to ban the French state from providing any financing for projects involving coal.
  • Fortunately the French government sank Greenpeace’s Rainbow Warrior in 1985 sending a clear message to the anti-nuclear campaign not to mess with the French State.
  • The French government subsequently continued its nuclear testing and nuclear power station programs resulting in plentiful supplies of state subsidised, low cost electrical power which France exports to neighbouring countries which used to generate more power from coal.  
  • We wonder what the French will seek to impose next, maybe a ban on flatulent Angus cows or CO2 in Champaign. Somehow we feel the latter might be a step too far for the French.
  • If the French government wants to do something really useful it should better support the development of fuel-cell and lithium battery technologies to replace diesel engines on the fleet of diesel-electric ships.

 Iran – claims to have video evidence of oil tanker attacks

  • The video is said to prove that the attacks were carried out by Israel, Saudi Arabia and the US according to the Mehr news agency who quote Iran’s National Security and Foreign Policy Commission member.
  • While the attack may well have been retaliation for drone attacks against Saudi Aramco, the idea of Israel, Saudi Arabia and the US coordinating drone attacks against an oil tanker sounds like fiction to us.

 Currencies

US$1.1087/eur vs 1.1035/eur yesterday.  Yen 108.83/$ vs 108.63/$.  SAr 14.837/$ vs 15.009/$.  $1.282/gbp vs $1.271/gbp.  0.680/aud vs 0.673/aud.  CNY 7.078/$ vs 7.099/$.

 LME set to hike trading and clearing fees (City A.M)

  • The exchange will raise fees by 8% at the start of next year, as HKEX looks to regain some of its investment.
  • Trading and clearing fees will be raised 8% from January 2020, its first increase in five years (mining.com).
  • According to the exchange, this is to fund new projects and keep up with inflation.
  • The LME will also increase the OTC booking fee to $1.14 per lot from $1.
  • In 2014, the LME was forced to reduced its proposed fee increases due to complaints from its members.

 Commodity News

Gold US$1,489/oz vs US$1,485/oz yesterday

   Gold ETFs 81.8moz vs US$81.9moz yesterday

Platinum US$883/oz vs US$884/oz yesterday

Palladium US$1,773/oz vs US$1,738/oz yesterday - Palladium hits another all time high of $1,779.23 on Wednesday

  • The demand/supply imbalance continues for palladium which keeps hitting record prices.
  • The metal has climbed 40% so far this year due to increased autocatalyst demand and lack of supply.
  • Despite worldwide auto sales slowing, demand for palladium autocatalysts is set to continue due to tightening emissions regulations.

 Silver US$17.46/oz vs US$17.33/oz yesterday

           

Base metals:   

Copper US$ 5,737/t vs US$5,724/t yesterday

Aluminium US$ 1,725/t vs US$1,723/t yesterday

Nickel US$ 16,255/t vs US$16,860/t yesterday

Zinc US$ 2,431/t vs US$2,421/t yesterday

Lead US$ 2,168/t vs US$2,145/t yesterday

Tin US$ 17,020/t vs US$16,740/t yesterday

           

Energy:           

Oil US$59.2/bbl vs US$58.7/bbl yesterday

Natural Gas US$2.304/mmbtu vs US$2.339/mmbtu yesterday

Uranium US$24.90/lb vs US$24.90/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$82.7/t vs US$87.0/t

Chinese steel rebar 25mm US$557.8/t vs US$559.1/t

Thermal coal (1st year forward cif ARA) US$68.3/t vs US$68.1/t

Coking coal futures Dalian Exchange US$183.6/t vs US$183.1/t

           

Other:  

Cobalt LME 3m US$36,000/t vs US$36,000/t

NdPr Rare Earth Oxide (China) US$44,431/t vs US$44,305/t

Lithium carbonate 99% (China) US$6,993/t vs US$6,973/t

Ferro Vanadium 80% FOB (China) US$36.7/kg vs US$37.0/kg

Antimony Trioxide 99.5% EU (China) US$5.2/kg vs US$5.1/kg

Tungsten APT European US$225-245/mtu vs US$205-215/mtu

 

Battery News

Lithium – battery fire on diesel-electric passenger ferry in Norway

  • Norwegian authorities are warning shipowners and operators about the dangers associated with lithium-ion battery systems after a fire and subsequent gas explosion on board a diesel-electric ferry in Norway.

 

Company News

Aura Energy Limited* (AURA LN) FOLLOW 0.48p, Mkt Cap £6.2m – Work starts on new targets at Tasiast South gold tenement following reinterpretation of data

  • Aura Energy report the start of field work on new targets at the Tasiast South gold tenement following reinterpretation of data.
  • The team are licensed for gold and base metals and battery metal exploration in Mauritania.
  • Exploration is to focus on gold and nickel, cobalt targets on the licenses and will involve the mapping of structures and confirmation of previous drill data.
  • Aura has a 435 km2 license area in two lightly explored mineralised greenstone belts along strike from Kinross' >20moz Tasiast Gold Mine and from Algold's Tijirit gold deposits.
  • Kinross plans to expand gold production at Tasiast to 530,000 oz pa.
  • Tasiast strike: The licenses along strike from Tasiast gold mine are particularly interesting given the potential to discover similar gold deposits in the region.
  • Aura’s geological team are looking for historic artisanal mining sites along with rock outcrop to further refine their exploration campaign.
  • Ghassariat: Gold intersections on the Ghassariat prospect indicate potential for a large mineralised gold system. Air-core drilling to bedrock shows 1-3 g/t gold values on three of the four air-core traverses drilled with the  anomaly extending over ~8km parallel to the strike of the greenstone belt.
  • Ghassariat Zone results:
  • Drill hole: TGRC 022:      
  • 71m @ 0.3 g/t Au including:
    • 5m @ 1.2 g/t Au,
    • 3m @ 1.0 g/t Au
    • 11m @ 0.5 g/t Au
  • TGRC 007:    
  • 38m @ 0.4 g/t Au including:
    • 1m @ 6.1 g/t Au
    • 10m @ 0.5 g/t Au
    • 3m @ 0.9 g/t Au
  • Bella: A large untested magnetic anomaly on the Bella prospect is interpreted to reflect an unusually large ultramafic complex prospective for nickel and cobalt with drilling showing strong nickel and cobalt values.
  • The Bella complex has five additional lines of previously proposed drilling across magnetic highs which have not yet been done.
  • Air-core drilling 100m apart on a single line shows strong nickel values over 1.6 km with 0.5-1.0% showing over this major untested ultramafic anomaly.
  • Taet: Aura report, previously unreported, strong nickel, cobalt, copper values including strong copper values which may indicate the presence of nickel sulphides.
  • Two artisanal pit locations were recorded, both small.   As much of the Aura permit areas are under shallow cover or laterite the area is not generally attractive to artisanal miners.
  • The Taet prospect looks similar to a number of major nickel, cobalt, copper sulphide orebodies in Archean greenstone belts such as that seen at Kambalda in Western Australia.
  •  Of interest on the Taet targets is the existence of anomalous copper in some of the aircore drillholes as elsewhere this can be indicative of the presence of nickel/copper sulphides.
  • Funding: the Aura team have spent $3m on the gold targets and are talking to a number of Royalty companies and listed shells which may better utilise its gold assets. Aura is also looking at the idea of spinning off certains assets into a stand-alone IPO,

Conclusion:  Aura has a wealth of data and exploration results to work through in Mauritania. We have highlighted just a few of the more compelling results on the four key targets.

Each target appears to offer the potential to yield a major discovery.

*SP Angel act as Nomad & Broker to Aura Energy

 

Ormonde Mining* (ORM LN) FOLLOW 2.8p, Mkt Cap £13m – Barruecopardo 12-month loan facility for €10m at 18% pa interest + 3% pa commitment fee

  • Ormonde Mining reports that Saloro, the operator of the Barruecopardo Tungsten Mine in Spain in which Ormonde holds a 30% jv interest, has entered into a €10m, 12-month term loan facility Oaktree Capital Management.
  • The loan is for additional liquidity support as the company it establishes mining operations on the main orebody at Barruecopardo.
  • Construction of the mine has been delayed though a period of lower tungsten prices which will inevitably require further financing by virtue of the delay.
  • Saloro can draw from the facility in lumps of > €500,000 with interest on the loan to be capitalised in full
  • The interest rate is 18% pa + a 3% pa commitment fee accruing on undrawn amounts. Drawn funds, capitalised interest and commitment fees are repayable at the end of the 12 month term, by bullet repayment. 
  • Full repayment is due at the end of the 12-month term.
  • It has also been agreed that interest on the original loan in place with Oaktree since 2015 will be accrued in full, at a rate of 15%, over the New Term Loan’s 12 month term. 
  • This will revert to 7% cash interest and 5% payment in kind interest at the end of the period, should certain financial covenant tests be achieved, or 7% cash interest and 7% PIK interest if tests are not achieved.
  • Losses: Ormonde recently reported an after-tax loss of €1.08m for the six months to end-June (2018 – loss on a restated basis €0.41m -previously €1.65m).
  • The increased loss reflects higher costs at its operating associate, Saloro, as a result of the ramp-up at the Barruecopardo tungsten mine.
  • The company reported a 30th June cash balance of €0.31m
  • Tungsten prices rose 12% last week to $225-245/mtu WO3 ending three months of falling prices.
  • The sale of tungsten APT stocks from the Fanya exchange Administrator in China appears to have taken the lid off prices with further gains expected.

*SP Angel acts as Broker to Ormonde Mining

 

Shanta Gold (SHG LN) FOLLOW 8.6p, Mkt Cap £68m – Q3 update: on course for 80-84okz FY19 target

  • The Company produced 22.7koz (Q2/19: 19.9koz) as plant continued to operate above the nameplate capacity rate processing higher grades (4.5g/t in Q3/19 v 3.9g/t in Q2/19).
  • Commercial production declared at Ilunga being the third source of high-grade underground ore feed at the NLGM operation.
  • C1 costs averaged $474/oz (Q2/19: $564/oz)
  • AISC costs came in at $723/oz (Q2/19: 773/oz).
  • Adjusted EBITDA amounted to $16.5m (Q2/19: $10.5m).
  • The team is planning to connect to the state power grid by early 2020 that should help to bring operating costs lower with initial power drawdown expected to be at 10% of total requirement with potential for it to increase to 25%.
  • Net debt balance reduced to $20.7m, down from $26.9m as of Q2/19 marking the lowest level in over six years and down 50% since the same period two years ago.
  • VAT receivable increased by ~$2m during the quarter to $27.4m.
  • FY19 guidance reiterated at 80-84koz at $740-780/oz AISCs.
  • The Company is planning to release an updated MRE and reserves in Q1/20 that would include latest drilling completed at BC North and EH North where high grade 6-9g/t mineralisation was intersected over 4-9m widths.

Conclusion: Good quarterly update highlights robust operational performance, strong control on costs, that coupled with high gold price allowed the Company to accelerate deleveraging of the business with net debt at its lowest in over six years. Additionally, the Company is investing in exploration both at producing mines as well as regional targets with a view to extend the NLGM life of mine.

 

 

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

 

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.

 

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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