SP Angel . Morning View . Safe haven gold tracks higher on dovish Fed sentiment
Paul Kettle
SP Angel Research Note -4 min read
10:08, 11th July 2019

SP Angel – Morning View – Thursday 11 07 19

Safe haven gold tracks higher on dovish Fed sentiment

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MiFID II exempt information – see disclaimer below

 

Altus Strategies* (ALS LN) – CFO appointment

Ariana Resources (AAU LN) –Salinbas drilling results

Atalaya Mining (ATYM LN) – Q2 production helps maintain 2019 production guidance

Caledonia Mining (CMCL LN) – Central Shaft nears end of the sinking phase

Keras Resources* (KRS LN) – Keras bulk sample metallurgical test shows ore is best suited for silico manganese alloys

Walkabout Resources* (WKT AU) – General project and funding update

 

S&P index hit a new record at >3,000pts yesterday

 

Dow Jones Industrials

 

+0.29%

at

  26,860

Nikkei 225

 

+0.51%

at

  21,644

HK Hang Seng

 

+0.75%

at

  28,416

Shanghai Composite

 

+0.08%

at

   2,918

FTSE 350 Mining

 

+0.20%

at

  20,426

AIM Basic Resources

 

+0.89%

at

   2,090

 

Economics

US – The Fed Chairman Jerome Powell delivered a dovish address to the Congress setting the scene for a rate cut this month.

  • “Based on incoming data and other developments, it appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the US outlook,” Powell said.
  • James Bullard, a voting member of the FOMC and head of St Louis Fed, is likely to push for two 25bp cuts by the end of the year, assuming conditions don’t change much, he said during talk at Washington University in St Louis.
  • Comments saw equities climbing with S&P 500 crossing the 3,000 record high mark while short term bond yield dropped together with the US$.
  • Gold is up c.$30/oz and trading at $1,424/oz this morning.

 

UK – Property sentiment survey shows the difference between respondents reporting price rises and falls narrowed the lowest reading since August last year.

  • The Royal Institution of Chartered Surveyors house price measure improved to -1 in June from a revised -9 in May.
  • Prices in London and the south east of England continued to fall but climbed across the rest of the UK.
  • “I don’t get the impression from the insight provided by contributors that this is fuelling hope of a significantly more active market going forward… many of the factors that have provided a challenge during the first half of the year remain unresolved,” the RICS commented on numbers.

 

UK/Iran – Three Iranian vessels tries to block the passage of a UK ship through the strait of Hormuz but withdrew following a warning from a British warship.

  • The UK ship is reported to have been an oil tanker operated by BP under an Isle of Man flag, according to Reuters.
  • “HMS Montrose was to forced to position herself between the Iranian vessels and British Heritage and issue verbal warnings to the Iranian vessels, which the turned away,” British government spokesman said.
  • The incidence comes almost a week after British Royal Marines seized an Iranian tanker, the Grace 1, on suspicion that the ship was breaking EU sanctions taking oil to Syria.

 

Currencies

US$1.1269/eur vs 1.1212/eur yesterday  Yen 108.08/$ vs 108.96/

nbsp; SAr 13.946/$ vs 14.211/
nbsp; $1.253/gbp vs $1.246/gbp  0.697/aud vs .692/aud  CNY 6.864/$ vs 6.885/$

 

 

Commodity News

Precious metals:         

Gold US$1,421/oz vs US$1,392/oz yesterday

  • Gold climbed for a third day, topping $1,400/oz, as the Federal Reserve indicates preparation to cut interest rates for the first time in a decade as the global economy slows, and investors take note of the dovish sentiment.
  • Speaking to Congress on Wednesday, Chairman Jerome Powell reports June’s job report was “great news” but not significant enough to tilt the balance because wages weren’t rising fast enough to trigger much inflation.
  • Exchange-traded funds backed by the precious metal also received a boost, as holdings climbed to 2,311.3t – the highest level since 2013.
  • Gold is trading near a six-year high on the prospects of lower rates, which boost the appeal of non-interest-bearing assets, with geopolitical and trade tensions also spurring demand.
  • Minutes from the June meeting also confirmed inclination among officials to ease policy, with Powell stressing downside risks stemming from uncertainties over trade and slowing momentum in some economies.
  • Powell is set to continue with his testimony later Thursday, this time before the Senate Banking Committee. Also on investors’ watch lists is data on U.S. inflation scheduled for release Thursday.

   Gold ETFs 74.3moz vs US$74.1moz yesterday

Platinum US$829/oz vs US$811/oz yesterday

Palladium US$1,594/oz vs US$1,547/oz yesterday

Silver US$15.26/oz vs US$15.08/oz yesterday

           

Base metals:   

Copper US$ 5,947/t vs US$5,843/t yesterday

Aluminium US$ 1,846/t vs US$1,824/t yesterday

Nickel US$ 13,105/t vs US$12,820/t yesterday

Zinc US$ 2,406/t vs US$2,390/t yesterday

Lead US$ 1,971/t vs US$1,939/t yesterday

Tin US$ 18,010/t vs US$18,340/t yesterday

           

Energy:           

Oil US$67.2/bbl vs US$65.0/bbl yesterday - Oil prices hit $67.4/bbl on 9.5mbbl inventory drawdown on production shutdown in the Gulf of Mexico

  • Tropical storms in the Gulf of Mexico are causing oil majors to shut production causing hedge funds and consumers to buy oil ahead of potential shortages
  • The Gulf of Mexico is responsible to some 17% of total US crude production
  • The 9.5mbbl drawdown compares with 1.1mbbl drawn down in the last week of June.
  • Sanctions and a lack of investment are hitting production out of Venezuela and Iran while Russian production is at its lowest level for three years
  • Tensions in the Middle East create potential for further supply interruptions particularly to Asia while the US is now an exporter of oil and gas products.
  • OPEC also extended cuts of 1.2mbpd into 2020 on the back of predictions for weaker global GDP growth.
  • Further storms in the Gulf of Mexico have potential to ratchet oil prices higher further damaging global growth prospects as energy costs rise..

Natural Gas US$2.451/mmbtu vs US$2.425/mmbtu yesterday

Uranium US$24.75/lb vs US$24.75/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$114.7/t vs US$114.7/t

Chinese steel rebar 25mm US$618.6/t vs US$617.0/t

Thermal coal (1st year forward cif ARA) US$69.0/t vs US$67.0/t

Coking coal futures Dalian Exchange US$201.0/t vs US$200.4/t

           

Other:  

Cobalt LME 3m US$27,050/t vs US$27,050/t

NdPr Rare Earth Oxide (China) US$46,982/t vs US$47,568/t

Lithium carbonate 99% (China) US$9,178/t vs US$9,150/t

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

Antimony Trioxide 99.5% EU (China) US$5.5/kg vs US$5.6/kg

Tungsten APT European US$230-242/mtu vs US$250-255/mtu

*Pricing sourced from Bloomberg

 

Battery News

Milan to receive 250 electric buses

  • Italian transport operator ATM Milano has awarded a contract for 250 electric buses to Poland’s Solaris, in one of the largest electric bus orders yet in Europe.
  • Milan is planning to get rid of all diesel buses by 2030. The city recently called for tenders to supply up to 250 electric buses, and it announced today that it’s awarded the contract to Solaris.
  • The €192m ($216m) agreement will start in June 2020, with the first 40 buses delivered to the city by then.
  • Milan will be receiving the Urbino 12 electric city bus, which Solaris says is “already in operation in tens of cities in 17 European countries.” The 12-meter 240 kWh electric bus has room for 26 seated passengers, with Solaris claiming a total capacity of 82 people.
  • Solaris notes that it’s already supplied Milan with 25 electric models in the past. It says this new contract is one of its largest to date, and “the biggest electric bus manufacturing project in Europe.”

 

Company News

Altus Strategies* (ALS LN)FOLLOW  4.9p, Mkt Cap £8.6m – CFO appointment

  • Martin Keylock has been appointed as CFO and Company Secretary replacing David Miles who will continue to as an adviser to the Company.
  • Martin joined the Company as Financial Controller in November 2018.
  • He has over 15 years of experience in corporate accounting having worked for telecoms and architecture sectors in the past,
  • Martin has recently worked as Financial Controller at Velocys, an AIM-listed fuels company.

*SP Angel acts as nomad and broker to Altus Strategies

 

Ariana Resources (AAU LN) FOLLOW 2.4p, Mkt Cap £25.4m –Salinbas drilling results

  • Ariana Resource reports the partial results of a 15 holes (2,210m) reverse-circulation (RC) drilling programme, completed during May, at its wholly owned Salinbas gold project in north-east Turkey.
  • The programme comprised three main objectives; first, to establish whether the Salinbas deposit is physically connected with the Ardala porphyry complex; second, to test an extension of the breccia zone previously intersected in a 2013 drilling programme where hole ARD008A intersected 34.5m at an average grade of 2.21g/t gold and 10.7 g/t silver; and finally to test “accessible parts of the Salinbas North Target”.
  • The three holes drilled to establish the relationship between Salinbas and the Ardala porphyry have “demonstrated clearly that the Salinbas mineralisation interfingers with the Ardala porphyry system in an area where at least four distinct intrusive phases interact with each other … . At least two of these intrusive phases have been demonstrated as significantly mineralised, or at least to be associated with significant contact mineralisation between the porphyry and adjacent limestone units.”
  • Drilling of the breccia target comprised a further five holes and two of these, intended to “to test either side (east and west) of the breccia-style mineralisation intercepted in hole ARD008A  … intercepted a weakly mineralised porphyry dyke, showing base-metal mineralisation at its contacts with altered manganese enriched limestones of the Ziyarettepe Formation. Results from these holes included 4m @ 0.4 g/t Au + 10.1 g/t Ag + 0.39% Pb + 1.77% Zn (ARD022) and 12m @ 0.22 g/t Au + 22.8 g/t Ag +0.32% Pb + 0.73% Zn (ARD028).”
  • A further two holes “intercepted the Salinbas mineralisation horizon as expected, yielding 11m @ 5.33 Au + 47.14g/t Ag and 5m @ 1.54g/t Au + 8.28g/t Ag respectively”.
  • The remaining seven holes, targeting peripheral parts of the Salinbas North mineralisation intercepted “multiple zones with significant lead and zinc anomalies in hole ARD024, however, The lithological target horizon (the Kizilcik and Ziyarettepe formation boundary) for this designed hole was not intercepted, as the geology appears to have been down-faulted in this area. ”A further 3 of these holes not reflect the results of the surface sampling but the target remains open for investigation”.

Conclusion: Partial results of recent drilling at Salinbas have provided encouraging results in establishing the geological connection between the Salinbas and the Ardala porphyry and also in establishing extensions to the mineralised breccia. Results from drilling at Salinbas North initially appear more enigmatic and may reflect faulting displacing the target zone from its expected position. We await the remaining results from this drilling programme and the company’s plans to progress the exploration of Salinbas.

 

Atalaya Mining (ATYM LN) FOLLOW 205 pence, Mkt Cap £281.5m – Q2 production helps maintain 2019 production guidance

  • Atalaya Mining reports that it produced 10,888 tonnes of copper during the quarter ending 30th June 2019 (Q2 2018 – 10,446t), bringing H1 production to 21,107t and keeping the company on track to achieve its 2019 guidance range of 45,000-46,500t.
  • “Cash operating costs for Q2 2019 are expected to be lower than the full year 2019 cost guidance ranges previously provided of $1.95-2.15/lb”.
  • The company confirms that its mining operations are proceeding according to plan and that “Additional mining equipment is available on site to meet the increase in production scheduled for H2 2019.”
  • Atalaya Mining also reports substantial progress during the quarter on the delivery of its plan to increase throughput at Proyecto RioTinto to the 15mtpa rate. Mechanical completion is expected “in the next few weeks” and new flotation and concentrate storage and handling facilities are already operational and commissioning of the new primary crushing circuit is underway and expected to be completed over the coming weeks.
  • Commenting on the imminent completion of the expansion project both on time and within budget, which he described as “an excellent outcome for the Company … [which] … continues to demonstrate its operational capabilities” CEO, Alberto Lavandiera said that “With the mechanical completion of the Riotinto expansion and modernisation project expected imminently, the Company will progressively increase the level of copper production during the remainder of the year.”
  • We note that the team at Proyecto RioTinto has previously delivered an expansion of the mine from 5mtpa to 9.5mtpa also on budget and schedule underlining Mr. Lavandiera’s recognition of the operational competence of the team.

Conclusion: The expansion of the Proyecto RioTinto operation to the 15mtpa rate is expected to be completed shortly providing the opportunity for production growth during H2.

 

Caledonia Mining (CMCL LN)FOLLOW  455p, Mkt Cap £48.9m – Central Shaft nears end of the sinking phase

  • Caledonia Mining reports that gold production at the Blanket mine in Zimbabwe of 12,712oz during the quarter ending 30th June 2019 (Q1 2019 – 11,948oz) brings the total for H1 2019 to 24,660oz and maintains the company on course to meet its 53-56,000oz 2019 guidance.
  • Meeting that guidance level implies higher H2 output and Chief Executive, Steve Curtis’s comment that “… our efforts to improve grade control have delivered results in the quarter although this remains a significant area of focus” provide an insight into one of the ways this is to achieved.
  • Mr. Curtis also confirmed that “We expect to complete the shaft sinking phase of the central shaft project later this month, which will be a significant milestone for our business. We look forward to commencing production from the central shaft during H2 2020 which is expected to deliver the Company's growth plan to achieve 75,000 ounces in 2021 and 80,000 ounces by 2022."

Conclusion: Caledonia Mining’s operational focus on improved grade control should help to deliver the 2019 production guidance of 53-56,000oz while the completion of the sinking phase of the new Central Shaft at the Blanket mine later this month will be a key point in the company’s plans to increase output to 80,000oz by 2022 and secure the mine’s life beyond 2034.

 

Keras Resources* (KRS LN) FOLLOW 0.4p, Mkt Cap £9m – Keras bulk sample metallurgical test shows ore is best suited for silico manganese alloys

(Keras currently has 458m shares in Calidus, representing approximately 32.3% of the Calidus issued share capital. On successful completion of the PFS, due this month.

Keras will then receive an additional 265m performance shares in Calidus which will then be converted into ordinary shares). Keras’s 723m shares in Calidus value at A$22.4m (£12.4m) at the current share price.

BUY, Valuation 1.04p

Click for our last full note on Keras

Keras Resources report results from the 10,000t (9,801t) bulk sample test done by a manganese alloy producer on ore from Keras’ Nageya mine in Togo.

  • The manganese concentrate was simply upgraded by dry screening and wet scrubbing to 38.88% Mn and 6.28% iron and 11.50% SiO2.
  • Testwork shows the Nayega concentrate to be good for battery and agricultural sectors.
  • The ore can also be leached within in two hours for >90% recovery with minimal impurities.
  • This is good news and further work will be done to optimise leach conditions for the potential production of battery grade manganese which currently uses high-purity manganese sulphate.
  • Ore was shipped to and tested in a silico-manganese furnace with a peak fead rate of 340kg/t (34%) determined to be the peak feed ratio for the furnace used.
  • Silico manganese prices rose by $44/t on last month to $1,147/t (Rmb7,900/t)  in China
  • Ferro manganese prices are at $1,330-1,400/t in the US.
  • Electrolytic manganese metal, the starting point for some Nickel Manganese Cathodes accounts for 12% of global ore demand in 2017.
  • The majority of manganese cathodes are made from high-purity manganese sulphate.
  • 90% of manganese goes into steel production.
  • The bulk sample was delivered within budget and on time indicating the simplicity of the upgrade process and logistics chain.
  • Calidus Resources shares continue to rise to 33c/s in anticipation of a Pre-Feasibility Study on its Warrawoona Gold Project due this month.
  • Calidus recently acquired a key tenement in the Marble Bar Goldfield as part of its strategy to grow its existing 1.25moz resource at Warrawoona at a cost of $55,000 and 5,000,000 Calidus shares.
  • Recommendation and valuation: We base our recommendation on the value gap between the share price and our valuation of 1.04p per share.
  • Around half our valuation is based on our assumption that Keras should produce some 6,000t per month of manganese concentrate in Togo where the Keras team are currently waiting for approval to move to a full-scale mining license and for confirmation of its offtake agreement. We assume no additional capital is required following the production of a near 10,000t bulk sample for shipment to run the mine and plant at around 6,000t per month (Current plant capacity is for 75,000t per month).
  • “on receipt of the exploitation licence Keras expects to expand and improve the plant to add more value as well as increasing production.  The Company intends this to be financed in conjunction with an offtake agreement rather than equity funding.”

Conclusion:  Management refer in the statement to the application for an exploitation license to double the current production capacity to 13,000t per month from 6,500t per month. Increasing capacity to 13,000t per month should add a further value to the business depending on the cost of capital required for the expansion.

*SP Angel act as Nomad and broker to Keras Resources

 

Walkabout Resources* (WKT AU) A$0.36, Mkt Cap A$113.9m – General project and funding update

  • Walkabout Resources is advancing efforts on securing funding requirements for the Lindi Jumbo project, with options progressed with an international investment bank for non-bank debt financing alternatives. Due diligence activities are underway and detailed discussions are ongoing.
  • Early start program continues progressing at site remains to schedule and within budget at the processing plant, tailings storage facility, explosive magazine and topsoil storage areas.
  • At the processing plant area, strong progress has been made with clearing, topsoil removal and stockpiling, terracing and levelling and ROM pad, with the initial phase expected to be completed by mid-July.
  • Approximately two thirds of the Relocation Assistance Program (RAP) has been finalised with all affected persons being satisfactorily disposed to the compensation payments. The final third of the program will be concluded before the end of July 2019.
  • In China, all procurement of out-purchase long-lead time items for the manufacture of long lead items has been completed and manufacturing activities have commenced. Walkabout’s project engineer has returned from Yantai and reports that the rod mill and float cell banks are currently in the manufacturing workshop.
  • In Scotland, reconnaissance exploration activities continue and long-term access agreements are discussed with Forestry and Land Scotland and other affected landowners and stakeholders over priority areas identified.
  • In Northern Ireland the Company is continuing with the regional reconnaissance exploration activities while all necessary permits and permissions are obtained to proceed with drilling activities over the Tyrone Licence area. 
  • At the Eureka lithium project, the interpretation of the regional geochemical datasets collected within the project area has been completed and a short drill program over selected anomalous target areas is planned. Once the necessary access agreements are in place a drilling contractor will be mobilised to complete the Reverse Circulation program.

Conclusion – Walkabout management continue steadily progressing the flagship, high-grade Lindi Jumbo deposit and we look forward to understanding financing options to deliver valuable graphite.

*SP Angel acts as UK Broker to Walkabout Resources Ltd

 

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.

 

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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The information, investment views and recommendations in this article are provided for general information purposes only. Nothing in this article should be construed as a solicitation to buy or sell any financial product relating to any companies under discussion or to engage in or refrain from doing so or engaging in any other transaction. Any opinions or comments are made to the best of the knowledge and belief of the writer but no responsibility is accepted for actions based on such opinions or comments. Vox Markets may receive payment from companies mentioned for enhanced profiling or publication presence. The writer may or may not hold investments in the companies under discussion.

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