SP Angel . Morning View . Gold climbs on escalation of protectionist policies concerns

SP Angel . Morning View . Tuesday 03 12 19

Gold climbs on escalation of protectionist policies concerns

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MiFID II exempt information – see disclaimer below

Arc Minerals* (ARCM LN) – Arc Minerals acquires an additional 5% of Zaco

Centamin (CEY LN) – Advises rejection of unsolicited proposal from Endeavour Mining

Continental Gold (CNL CN) – Recommended offer from Zijin Mining

KEFI Minerals* (KEFI LN) – Drilling at Hawiah returns high grade copper intersections

Mkango Resources* (MKA LN) – Q3 Results and update

 

Mexican police force orders 15 Tesla Cybertrucks (Electrek)

• The mayor placed the reservation as he believes the truck has great potential as a local police and municipal vehicle.
• The vehicles will be utilized for heavy tasks such as pulling “water pipes and garbage containers”.
• The reservation cost the municipality about MXN$30K or a little over US$1,500.

 

Trump to hit Brazil and Argentina with steel and aluminium tariffs (FT)

• President Trump has reignited trade tensions, as he accuses Brazil and Argentina of a ‘massive devaluation’ of their currencies that hurts US farmers.
• The move could also be related to the two economies building closer ties with China.
• The announcement saw US and European equities suffer their largest one-day falls since early October.
• The S&P 500 fell 0.9%, Europe’s Stoxx 600 index fell 1.6% and the dollar was down 0.5%- the most in three months.
• Whilst both countries were initially shielded from US tariffs, the US-China trade war has caused Trump to restore the countries as targets.
• Brazil’s exports of farm products such as soybeans to China have grown rapidly since the trade war began undermining Trump’s efforts to sell US agricultural products into the region
• Trump is also taking more stringent measures to protect US manufacturing.
• The Brazilian real slumped to a record low against the dollar last week.
• The Argentine peso has lost nearly 60% of its value against the dollar this year due to the election of Alberto Fernandez as president and disgraced former president Cristina Fernandez de Kirchner who is on trial for corruption.

 

Standard Lithium completes US pilot plant (Arkansas Business)

• The Canadian company which plans to extract saltwater for lithium, has completed an industrial- scale test extraction plant near El Dorado.
• The test plant is part of an existing plant belonging to Lanxess Corp, who extract bromine from the Smackover brine formation.
• The pilot plant will now attempt to extract lithium by running brine already pumped through Lanxess’ bromine- extraction process.
• The company’s PEA contemplates the production of 20,900t of battery-quality lithium carbonate from existing brine flow, roughly five times greater than the existing US production (Chem Eng Online).

 

Dow Jones Industrials		-0.96%	at	27,783
Nikkei 225		-0.64%	at	23,380
HK Hang Seng		-0.20%	at	26,391
Shanghai Composite		+031%	at	2,885
FTSE 350 Mining		-1.28%	at	18,119
AIM Basic Resources		-0.32%	at	2,052

 

Economics

US – President Trump reinstated tariffs on steel and aluminium from Argentina and Brazil arguing countries benefited from devaluation in their currencies that hurt competitiveness of US farming goods.

• Additionally, the US threatened to levy $2.4bn worth of French products with tariffs over a dispute relating to the digital services tax charged on US companies.
• “USTR’s decision to day sends a clear signal that the US will take action against digital tax regimes that discriminate or otherwise impose undue burdens on US companies,” Lighthizer said in Monday’s statement.
• “The USTR is focused on countering the growing protectionism of EU member states, which unfairly targets US companies.”
• Tariffs would be imposed following a public comment period that is due to be finished in early 2020 and could target sparkling wine, cheeses, handbags and makeup.

 

China – The government is planning to publish a list of “unreliable entities” that could lead to sanctions against US companies, according to Chinese state media.

• The blacklist is reported to have been sped up in response to a bill supported by Republican Senator Marco Rubio involving sanctions against Chinese officials involved in alleged abuses of Uighur Muslims in the far west region of Xinjiang.
• The US House of Representatives is expected to vote on the new version of the bill today.

 

South Africa – The economy underperforms estimates posting a negative quarterly reading in Q3/19.

• Farming, mining and factory production dropped during the quarter putting the target for a 0.5% increase in GDP in 2019 under question.
• Weak data risks the nation losing its last investment grade rating with Moody’s.
• The rand is down 0.5% this morning on the news.
• GDP (%qoq (annualised) and $yoy): -0.6/+0.1 v 3.2/0.9 in Q2 and 0.0/0.4 forecast.

 

Chile – The government announced a $5.5bn stimulus package yesterday as economic activity declined sharply in October.

• The Imacec index, a proxy for GDP, dropped 5.4%mom and 3.4%yoy in October amid violent protests that kicked off in the middle of the month.

 

Currencies

US$1.1083/eur vs 1.1013/eur yesterday.  Yen 109.08/$ vs 109.65/$.  SAr 14.564/$ vs 14.697/$.  $1.299/gbp vs $1.291/gbp.  0.686/aud vs 0.678/aud.  CNY 7.046/$ vs  7.042/$.

 

Commodity News

Gold US$1,464/oz vs US$1,456/oz yesterday

   Gold ETFs 81.1moz vs US$81.3moz yesterday

Platinum US$901/oz vs US$895/oz yesterday

Palladium US$1,858/oz vs US$1,846/oz yesterday

Silver US$16.95/oz vs US$16.86/oz yesterday

           

Base metals:   

Copper US$ 5,834/t vs US$5,873/t yesterday

Aluminium US$ 1,790/t vs US$1,753/t yesterday

Nickel US$ 13,690/t vs US$13,660/t yesterday

Zinc US$ 2,219/t vs US$2,265/t yesterday

Lead US$ 1,894/t vs US$1,921/t yesterday

Tin US$ 16,570/t vs US$16,400/t yesterday

           

Energy:           

Oil US$61.1/bbl vs US$62.0/bbl yesterday

Natural Gas US$2.384/mmbtu vs US$2.353/mmbtu yesterday

Uranium US$25.95/lb vs US$25.95/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$86.4/t vs US$84.6/t – Chinese iron ore futures rebound as Vale cuts production outlook (Reuters)

• January 2020 Iron ore futures on the Dalian Exchange rose as much as 2.2% to $32.98/t, recovering after a 0.8% decline in the previous session.
• The world’s largest iron ore producer slashed its output predictions yesterday, as it evaluates the stability of the Laranjeiras dam.
• This will leave Vales largest mine in Minas Gerais state, Brucutu, operating at 40% of normal capacity.
• Vale lowered its iron ore production for Q1 2020 to 68-73mt from a previous range of 70-75mt.
• Meanwhile, Chinese iron ore inventories are nearing 10 week lows, and are more than 14mt lower than this time last year (Hellenic Shipping News).

Chinese steel rebar 25mm US$602.0/t vs US$604.5/t

Thermal coal (1st year forward cif ARA) US$62.8/t vs US$62.9/t

Coking coal futures Dalian Exchange US$188.0/t vs US$188.2/t

           

Other:  

Cobalt LME 3m US$35,750/t vs US$35,750/t

NdPr Rare Earth Oxide (China) US$40,661/t vs US$40,400/t

Lithium carbonate 99% (China) US$6,387/t vs US$6,532/t

Ferro Vanadium 80% FOB (China) US$29.0/kg vs US$29.0/kg

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

Tungsten APT European US$225-245/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

 

Company News

Arc Minerals* (ARCM LN)  FOLLOW2.5p, Mkt Cap £18.4m – Arc Minerals acquires an additional 5% of Zaco

Arc Minerals holds an effective 71.34% interest in Zamsort Limited ("Zamsort"), a private company focused on a prospective copper licence in the Zambia Copperbelt, together with a convertible loan to Zamsort which converts into approximately a 5% additional equity interest in Zamsort. A 52.5% equity interest in Zaco Limited (“Zaco”), a private company focussed on a prospective copper and cobalt license adjacent to Zamsort.

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• Arc Minerals reports that it has acquired an additional 5% interest in Zaco bringing it interest to 52.5%
• Zaco owns the 448km² license adjacent to Arc Minerals’ Zamsort property in Zambia
• This gives the board of Arc control over the exploration assets within Zaco and the ability to forge joint venture’s on the assets with major mining companies
• The 5% stake cost just US$37,500 valuing Zaco at US$0.75m.
• The stake was bought from Mumena Mushinge, a Non-Executive Director of Arc
• Commenting on the acquisition, Executive Chairman, Nick von Schirnding confirmed that “we have increased our stake in Zaco to 52.5% giving us a controlling interest in this exciting prospect, which contains a number of anomalies which we are drilling.”
• Recommendation: we recommend Arc Minerals as a Strong Buy due to its potential for a major copper discovery at the Cheyeza and at its other projects in Zambia.
• Any significant copper discovery is likely add significantly to the company’s value once the market recognises 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. Sentinel is producing >190,000tpa of copper.
  • Lumwana, 100km to the east also has a reserve of 758mt grading 0.51% copper and is producing >116,000tpa of copper.
  • Kiwara PLC, acquired by First Quantum Minerals in 2010 for US$260m with a Kiwara estimated resource at Kalumbila of 1.38bt grading 0.78% copper. The resources was later adjusted by FQM to 1.027bt grading 0.51% copper. Last year the mine reported an new resource of 0.88bnt grading 0.53% copper following production of 223,656t of copper in 2018.
  • Equinox, bought by Barrick Gold for its Lumwana assets in 2011 for $7.8bn post construction with 322mt of copper ore grading 0.73% copper.

Conclusion: Arc has moved to a controlling stake in Zaco in Zambia which helps consolidate its position adjacent to its existing Zamsort licences.

*SP Angel acts as nomad and broker to Arc Minerals

 

Centamin (CEY LN) FOLLOW 120.9p, Mkt Cap £1,397.6m – Advises rejection of unsolicited proposal from Endeavour Mining

• Centamin has advised shareholders to take no action in relation to a preliminary proposal from Endeavour Mining for a combination between the two companies based on an exchange ratio of 0.0846 Endaeavour shares for each Centamin share. Based on Endeavour’s price of C$25.79/share we estimate that the offer is worth approximately C$2.5bn.
• In its advice to its shareholders, Centamin says that the offer would “provide comparatively greater benefit to Endeavour’s shareholders” and that the terms “do not adequately reflect the contribution that Centamin would make to the merged entity and that Centamin is better positioned to deliver shareholder returns than the combined entity”.
• “Centamin will be making a further announcement with its detailed response in the near future.”
• Endeavour Mining however, says that “the Combined Entity will be a compelling investment proposition for both Centamin’s and Endeavour’s shareholders, noting that there is significant overlap between their shareholder registers, as well as an attractive investment opportunity for the broader investor community due to its enhanced capital markets profile” and points to pro-forma gold production of 1.2moz pa (based on current guidance for 2019) all-in sustain costs of US$875/oz and a combined mineral reserve inventory of 15.9moz and 31.9moz of measured and indicated resources.

Conclusion: The offer for Centamin may prove to be an opening salvo in a lengthy struggle to consolidate African gold production -  we await Centamin’s detailed response to Endeavour Mining with interest.

 

Continental Gold (CNL CN) C$5.39, Mkt Cap C$1094.9m – Recommended offer from Zijin Mining

• Continental Gold, whose principal assets is the 5.3moz Buritica gold project in Colombia, is recommending shareholders accept a C$1.4bn (approximately US$1.06bn) all cash offer from Zijin Mining.
• The offer, reported to be at a 29% premium to the VWAP over the last 20 days, values the current 5.3m oz gold resource (excluding a further 21m oz of silver) at approximately US$200/oz of resources and at approximately US$4,200/oz of the projected 250,000oz pa production.

• Newmont Goldcorp, plus directors and officers of Continental gold, “collectively holding approximately 21.5% … have entered into voting support agreements to support the transaction”.
• As well as offering an up to date insight into current industry valuation yardsticks for gold assets, we anticipate that Zijin’s move may stimulate attention towards the gold exploration potential of Colombia and of the mid-Cauca belt in particular which hosts other deposits including the San Ramon deposit of the former Red Eagle Mining (reserves – 2.4mt averaging 5.2g/t gold), Orosur Mining*’s Anza deposit, where the consultants, MDA have identified a formal “exploration target” of 1.6-2.3mt at grades ranging between 3.2-3.7g/t gold over a small portion of the identified strike extent of the mineralisation, and Metminco’s Miraflores  deposit which, following some 40,000m of drilling, currently reports 877,000 oz of resources.

• We note the support of Newmont for the transaction and observe that Newmont is also involved in the advancing of Orosur’s Anza exploration where it can earn an initial 51% interest in the project by spending US$10m over four years and cash payments of US$2m during the first 2 years. Newmont can acquire an additional 14% interest through the sole funding of a further US$20m within 4 years, completing an NI-43-101 level pre-feasibility study and paying a further US$2m cash to Orosur.
• Completion of a NI-43-101 feasibility study within a third phase of 4 years gives a further 10% interest bringing Newmont to a 75% interest in the project which is located in the mid-Cauca gold belt approximately 50km west of Medellin and where gold mineralisation has been encountered along 450m of strike length at the APTA zone “immediately north of previous drilling”.

Conclusion: Zijin Mining’s acquisition of Continental Gold may spark further interest in the potential of the mid-Cauca gold belt in Colombia, including Orosur Mining’s Anza project.

*SP Angel act as Nomad and broker to Orosur Mining

 

KEFI Minerals* (KEFI LN) FOLLOW 1.7p, Mkt Cap £17m – Drilling at Hawiah returns high grade copper intersections

• Assay results from two more holes returned high copper intersections at the Hawiah Exploration License in Saudi Arabia.
  • 2.6m at 2.5% Cu, 1.9g/t Au, 17.8g/t Ag and 0.1% Zn from 37m (2m true width, HWD 002);
  • 8.7m at 4.2% Cu, 0.7g/t Au, 15.6g/t Ag and 0.2% Zn from 39m (6m true width, HWD 003).
• The VMS mineralisation is reported to be continuous both along strike and down dip and is consistently intersected with drilling at the 1.5km long southern part of the 5km long outcropping gossanous ridge.
• Remaining assay results for nine drill holes completed to date are pending, although, sulphide mineralisation is seen within the core.
• Additionally, the Company is awaiting results on drill holes that tested the presence of supergene enriched gold in the weathered horizon of the ridgeline (within 20-40m from surface).

Conclusion: This is a good set of drilling results showing high grade copper intersections along with good gold grades as drilling consistently intersects sulphide mineralisation. The management believes Hawiah may represent a large VMS system with supergene enriched oxide gold zone at surface overlaying copper/gold/zinc sulphide mineralisation at depth.

*SP Angel act as Nomad and Broker to KEFI Minerals

 

Mkango Resources* (MKA LN) FOLLOW 7.35p, Mkt Cap £9.8m – Q3 Results and update

• Mkango Resources has reported a loss of US$1.1m for the three months to 30^th September (2018 – loss of US$2.8m) bringing the year to date loss to US$2.2m ( 2018 – loss US$5.9m) as it progresses the feasibility study for the development of the Songwe Hill rare earths project in Malawi.
• The study is being funded by being funded by Talaxis Limited under its earn-in agreement with Mkango Resources which gives Talaxis the right to earn a 49% interest in the project through the feasibility study and with the option to increase its holding by a further 26% to 75% by arranging funding for project development including funding the equity component.
• Following the receipt, March 2019, of the third tranche of the Talaxis investment (£7m), the company reports a 30^th September cash balance of US$10m.
• The feasibility study is being run by SENET Engineering as project manager. SENET has a well established track record of project evaluation and development in Africa having successfully delivered some 500 African assignments and “has longstanding experience in project management and in providing detailed multidiscipline engineering, procurement, logistics management, and construction services to the mining, mineral processing, infrastructure and materials handling industries. It has extensive project and construction experience throughout Africa and boasts the largest and most advanced hydrometallurgical process engineering team on the continent.”
• The company reports the shipment of a 60 tonne bulk sample of the mineralisation to Australia for pilot scale metallurgical testing, focussed on flotation and hydrometallurgical evaluations, and “Potential pilot facilities have been reviewed and a tender process for selection of a flotation pilot facility has commenced.”
• Environmental Social Health (ESHIA) and related studies are also underway and are “being completed in accordance with World Bank Standards and Equator Principles”
• On other projects, exploration of the Thambani licence, also in Malawi, is “focused on further definition of uranium, tantalum and niobium mineralisation in the licence area.”

Conclusion: Feasibility study work on Mkango Resources’ Songwe Hill rare earths project is advancing with bulk sample testing at the pilot scale in Australia, a technical study team under the management of SENET Engineering and ESHIA studies are underway.

*SP Angel act as Nomad and broker to Mkango Resources.

 

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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