SP Angel . Morning View . Thursday 14 11 19
Nickel inventories fall to critical levels
Gold climbs as weak data highlight fragile growth outlook
MiFID II exempt information – see disclaimer below
Arkle Resources* (ARK LN) – Airborne geophysics highlights additional opportunities at Stonepark
Avesoro Resources (ASO LN) – Operational challenges prompt further downgrade to production guidance
BHP (BHP LN) - BHP name Mike Henry as new CEO
Chaarat Gold* (CGH LN) - $5.8m equity raise
Phoenix Copper* (PXC LN) – £850,000 fundraising to advance the Red Star project.
Savannah Resources* (SAV LN) – Metallurgical results from Mina do Barroso lithium project
Copper – LME and Comex inventories as nickel stocks fall to critical levels despite slowdown in China
- Something funny is going on in commodity markets.
- China, Europe and the US are slowing in economic growth yet inventory levels at the world’s major warehouses are seen falling.
- Policymakers understand the fastest and possibly most effective way to restore economic growth rates is to build infrastructure.
- New infrastructure is also a vote winner with the general population assuming the ‘vanity’ projects are not overly vain.
- Nickel inventories are now down to critical levels with Copper stocks also falling on the LME and Comex:.
- Copper 0.9 weeks down from 2 weeks in April 2018 and 2.3 weeks of global demand in July 2013.
- Nickel 2.0 weeks down from 10 weeks in January 2018 and >13 weeks in January 2016.
- Tin inventories have risen to 1.5 weeks from just 1 week in January 2018 but this is still significantly lower than the 4 weeks of demand seen in January 2010.
- We suspect China’s State Reserve Bureau is busy quietly rebuilding stocks at low price levels in preparation for new infrastructure spend despite restrictions on regional borrowing where debt levels are high.
- Europe is also likely to promote economic recovery through new infrastructure spend with West and East Germany seen as in need of new road, rail and communications infrastructure.
- In the UK both major political parties are majoring on massive infrastructure spend in the run up to the December General Election with few political objections to the new HS2 rail line despite its massive increase in cost.
- In this environment we may expect CrossRail 2 and HS3, the Northern Powerhouse Rail line to get approval.
- Now that it is politically acceptable to spend massively on new infrastructure in Europe, the US and probably China it is increasingly likely that commodity prices will jump as metal stocks fall.
EU – preparing to tweak MiFID II market rules after industry backlash (FT)
- Tweak, some might say the rules could use a complete rewrite!
US-China agree to end Trump tariffs on e-bikes (electrek)
- China’s ministry of commerce announced that an agreement had been made to phase out tariffs on electric bicycles and e-bike components imported from China.
- The original tariffs imposed by the Trump administration were set at 25%.
- The tariff was designed to encourage domestic production, however e-bikes are not being built in the US on a large scale and as a result the increase cost due to the tariff was passed onto the consumer.
Dow Jones Industrials
HK Hang Seng
FTSE 350 Mining
AIM Basic Resources
China – Economic data released this morning showed growth momentum continued to weaken at the start of the final quarter.
- Fixed Asset Investments (%ytd): 5.2 v 5.4 in September and 5.4 forecast.
- Industrial Production (%yoy/ytd): 4.7/5.6 v 5.8/5.6 in September and 5.4/5.6 forecast.
- Retail Sales (%yoy/ytd): 7.2/8.1 v 7.8/8.2 in September and 7.8/8.1 forecast.
Japan – Economic growth collapses more than forecast last quarter as exports declined amid trade tensions and de-stocking among retailers ahead of the sales tax hike.
- PM Abe ordered a fiscal stimulus package last week to support the economy amid a trade spat between US and China, rising tensions with Korea and typhoon Hagibis related disruptions.
- Details on the size and timing of the package are yet to be announced, although, an influential member of Abe’s ruling party said government spending of more than 6tn yen ($55bn) is needed.
- Consumer spending is reported to have surprised on the downside due to weaker purchases and orders frontloading ahead of the sales tax hike in October.
- GDP (annualised qoq): 0.2 v 1.8 (revised from 1.3) in Q2/19 and 0.9 forecast.
Germany – The economy defied expectations and eked out a 0.1%qoq growth in Q3 avoiding a technical recession.
- Estimates were for Germany to post a second consecutive quarterly decline in total economic output (-0.1%qoq).
- A pick up is reported to have been driven by consumer and government spending as well as construction and exports while business investment dropped.
- Economy Ministry characterised growth as “still too weak” saying that a rebound in economic activity proceeds “very slowly”.
- GDP (qoq/yoy): 0.1/1.0 v -0.2/-0.1 (revised from -0.1/0.0) in Q2/19 and -0.1/0.8 forecast.
UK – Retail sales disappoint in October as consumers enter the final quarter on a downbeat note.
- Total sales have now failed to grow in any of the past three months marking the worst run since the period ending Jan/17.
- Retail Sales (%mom/yoy): -0.1/+3.1 v 0.0/3.1 in September and 0.2/3.7 forecast.
- Retail Sales ex Fuel (%mom/yoy): -0.3/+2.7 v 0.2/2.9 in September and 0.2/3.4 forecast.
UK - European steel lobby seeks inquiry to British Steel rescue deal (Reuters)
- Eurofer plans to raise concerns with the European Commission over Chinese group Jingye’s proposed rescue of British Steel, citing rules on fair competition.
- The European steel lobby believe that China would be exporting excess steel capacity to the edge of the European Union.
- The industry is pushing for tougher EU safeguards to protect the European industry from a flood of cheap imports, and has often pointed the finger at China, who deny dumping steel below cost price.
- Jingye have promised to invest £1.2bn over the next decade in British Steel.
US$1.1003/eur vs 1.1014/eur yesterday. Yen 108.65/$ vs 108.91/$. SAr 14.858/$ vs 15.000/$. $1.285/gbp vs $1.285/gbp. 0.680/aud vs 0.683/aud. CNY 7.019/$ vs 7.020/$.
Gold US$1,469/oz vs US$1,466/oz yesterday
Gold ETFs 81.1moz vs US$81.2moz yesterday
Platinum US$876/oz vs US$876/oz yesterday
Palladium US$1,731/oz vs US$1,717/oz yesterday
Silver US$17.08/oz vs US$16.97/oz yesterday
Copper US$ 5,865/t vs US$5,835/t yesterday
Aluminium US$ 1,764/t vs US$1,767/t yesterday
Nickel US$ 15,425/t vs US$15,490/t yesterday - Indonesian competition authority investigating nickel smelters (Reuters)
- The Indonesia nickel miners association (APNI) said on Wednesday that the country’s anti-monopoly body has launched an investigation into alleged cartel operations.
- The probe was launched due to the nickel miners association filing a complaint that two giant smelters control 60% of the domestic nickel ore market and therefore local prices.
- APNI has argued that the local monopoly pushes nickel ore prices down, making the domestic market less attractive than selling overseas.
- An APNI spokesman said at a parliamentary committee on Wednesday that ores with 1.7% Ni content were priced at $14/t on the domestic market, below the average of $30/t government-set benchmark price this year.
Zinc US$ 2,412/t vs US$2,433/t yesterday
Lead US$ 2,026/t vs US$2,045/t yesterday
Tin US$ 16,265/t vs US$16,165/t yesterday
Oil US$62.8/bbl vs US$61.4/bbl yesterday
Natural Gas US$2.642/mmbtu vs US$2.616/mmbtu yesterday
Uranium US$24.85/lb vs US$24.65/lb yesterday
Iron ore 62% Fe spot (cfr Tianjin) US$79.2/t vs US$79.2/t
Chinese steel rebar 25mm US$575.3/t vs US$572.2/t – China backed consortium wins $14bn Guinea iron ore deal (AL JAZEERA)
- The consortium of the Societe Miniere de Boke and Winning Shipping (SMG-Winning) offered $14bn to win a tender to develop part of Guinea’s Simandou iron ore project.
- The organization represents Chinese, French, Singaporean and Guinean interests and has committed to developing the largest known deposit of its kind- more than 2bt of high grade ore.
- The bidders will also build a 650km railway and deep water port to transport the ore from the remote south-eastern corner of Guinea to the coast for export (Reuters).
- The offer saw Australia’s Fortescue Metals Group edged out, who offered $9bn and did not offer to build the railway.
- SMB-Winning aims to bring the deposit to production within five years of the agreement being ratified.
Steel – scrap recycling should account for around 50% of all Chinese steel production by 2030 (FastmarketsMB)
- Consumption of scrap steel could rise to 330mt by 2030 according to the China Association of Metal Scrap Utilisation.
- China is looking to reduce pollution through the use of ferrous scrap in steelmaking which will also serve to displace the import of millions of tonnes of high-grade iron ore and coking coal from Australia and elsewhere.
- ‘If scrap’s share as a steelmaking raw material increases to 30% by 2025, it could replace as much as 165 million tonnes of iron ore. Scrap currently accounts for about 20.1% of steelmaking raw materials in China, according to Camu.’ Camu’s secretary-general estimated that Chinese ferrous scrap availability would be at about 40-50% of annual steel output by 2030.
- Scrap supply is hugely sensitive to labour costs which may serve to restrict clean scrap supply if labour costs rise in China.
- Scrap prices have been elevated this year due to tight domestic supply as steel mills increase scrap consumption to improve output through the use of converters while adhering to environmental regulations and caps in steel making capacity.
- ‘China consumed 101.13 million tonnes of ferrous scrap over the first half of 2019, up 15.3% a year earlier, according to Camu.’.
Thermal coal (1st year forward cif ARA) US$63.6/t vs US$62.8/t
Coking coal futures Dalian Exchange US$183.4/t vs US$179.5/t
Cobalt LME 3m US$36,000/t vs US$36,000/t
NdPr Rare Earth Oxide (China) US$40,389/t vs US$40,384/t - Rare Earths – Australia to offer cheap loans to promote production of rare earths
- Australia is looking to promote its rare earth industry through the offer of subsidised finance.
- But, what the world needs is more processing and refining capacity outside China rather than new rare earths projects.
- Creating new rare earth mines could simply force rare earth concentrate prices yet lower forcing the new mines out of business
- New processing and refining capacity as proposed at Teeside in the UK is critical in our view to the support of strategic rare earths production outside China.
*SP Angel act as Nomad and broker to Mkango Resources
Lithium carbonate 99% (China) US$6,910/t vs US$6,909/t
Ferro Vanadium 80% FOB (China) US$28.7/kg vs US$28.7/kg - Ferro-Vanadium prices rise 8.4% to US$22-23.75/kg in Western Europe this week
- New buying returned to the market for ferro-vanadium in Western Europe this week as buyers sought to take advantage of the recent fall in prices.
- Chinese prices which are still significant higher fell last week to US$26.5-28.5/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
XPeng Motors raises US$400m for Electric Vehicle development
- XPeng Motors which is backed by Alibaba and Foxconn has raised a fresh US$400m .
- XPeng is preparing to launch its P7 sedan in Spring 2020.
- The company launched its G3 SUV last December and had shipped some 10,000 vehicles by mid-June.
- An updated G3 has a stated driving range of 520km.
- The cars look like a modified Tesla to us which leaves us wondering where the blueprints came from?
- The company is thought to have a >Rmb25bn valuation eg around (US$3.6bn).
- Xiaomi Corporation and Xpeng Motors are working together to develop the in-car technology.
- XPeng is promising Level 3 assistance which gives automated lane changes but not full automation.
1.3p, Mkt Cap £1.7m – Airborne geophysics highlights additional opportunities at Stonepark
- Arkle Resources reports that preliminary analysis of new geophysical data from the Irish Geological Survey’s Tellus airborne survey has identified previously unknown and prospective geological features within the company’s 23.44% owned Stonepark zinc project (Canadian listed Group 11 Resources owns a 75.56% interest in the project and funded approximately 25% of the cost of the Tellus Survey).
- The survey confirms and refines the key exploration concept of the NW trending ‘Pallas Green Corridor’ and provides better definition of the cross cutting fault north of Kilteely which should aid in the future exploration of the property.
- Better definition of the extent of the volcanic cover rocks provided by the new geophysics should also assist in targeting future drilling in the vicinity of Kilteeely where, to date, there has been little drilling.
- In addition, the survey has shown several previously undiscovered large circular features along the southwestern part of the prospect area which are interpreted as possible buried volcanic centres which, we speculate, may be linked to the mineralisation history of the area.
- CEO, Patrick Cullen, welcomed the identification of prospective new targets for exploration “which appear to be buried intrusives” and said that “We expect further holes to be drilled in the vicinity of Kilteely, where we had exciting drilling results earlier this year”.
Conclusion: The Geological Survey and industry funded Tellus airborne geophysical survey has provided additional exploration targets at the Stonepark zinc project and provided validation of the overall exploration concept linking key target areas to the Pallas Green Corridor. We look forward to further news as Arkle Resources and Group Eleven deploy the new information to refine and develop the exploration strategy at Stonepark.
*SP Angel is Nomad and Joint-Broker to Arkle Resources
92.5p, Mkt Cap £75.5m – Operational challenges prompt further downgrade to production guidance
- Avesoro Resources has announced an after tax loss of US$16.3m for the three months ending 30th September 2019 (2018- loss of US$16.1m) bringing the loss for the first nine months of 2019 to US$47.0m (2018 – loss of US$9.2m).
- The result reflects the operational issues previously reported at both the Youga and New Liberty mines and the resulting impact on gold production which declined by 34% during the quarter to 22,678oz during the quarter (Q2 2019 – 34,338oz) bringing the year-to-date total to 102,114oz (2018 – 175,496oz).
- Unit cash costs rose by 17% during the quarter to US$1,315/oz (Q2 2019 – US$1,125/oz) bringing the year-to date cost to US$1,069/oz (2018 – US$719/oz) while on an all-in-sustaining cost basis the year-to date cost of US$1,431/oz is 44% above the US$995/oz reported in 2018. During the quarter itself, AISC costs increased in line with the declining gold output by 34% to US$1,971/oz.
- As a result of the operational issues, the company is reducing its gold production guidance for 2019 production to 140-145,000oz. In June, the company reduced its production guidance to 180-200,000oz from a previously published range of 210-230,000oz.
- Cash amounted to US$6.3m and gross debt to US$144.8m at 30th September. CEO, Serhan Umurhan explained that “The Company's majority shareholder, Mr Murathan Gunal, has reconfirmed his commitment to continue to provide such financial support as the Company requires for its continued operation as the effects of the transition to contractor mining and other cost saving initiatives settle down”.
- The company reports that the additional equipment deployed by its contractors at the Youga mine “is expected to improve mining productivity during Q4 2019. However, gold production and unit cost performance will continue to be impacted by low grade ore from the Zergoe pit.”
- The company has previously reported the pit wall and access ramp failure at New Liberty’s Kinjor-east pit and now reports that “Mining operations continue at the Marvoe and Kinjor-south pits, but ore production will be reduced, and unit cost underperformance is expected in Q4 2019 as a result. …Higher waste stripping is expected in the short-term as access to the Kinjor pit remains restricted and to complete the final open pit pushback. The Company continues to work on the New Liberty underground Definitive Feasibility Study and the start of underground development remains targeted for H1 2020”.
- A circular was issued by the directors on 21st October recommending minority shareholders to accept the £1.00/share cash offer by the company’s major shareholder, Avesoro Jersey which already owns 72.9% of the company. The circular states that “The Offer is open for acceptance …until 5:00 p.m. (Toronto time) on November 22, 2019” unless the offer period is extended.
BHP (BHP LN) - BHP name Mike Henry as new CEO
- Mike Henry will take over from Andrew Mackenzie who is retiring at the end of the year after running BHP since 2013.
- Henry has 30 years of experience in the global mining and petroleum industry including: operational, commercial, safety, technology and marketing roles.
34p, Mkt Cap £156m - $5.8m equity raise
Target Price and Recommendation under review
- The Company completed a $5.8m equity raise by placing 12.9m shares at 35p.
- Of that 2.9m shares worth $1.3m have been issued to Labro Investments in respect of the working capital facility reducing the amount owed to $3.5m
- “We are delighted to see continued support from our existing shareholder base as well as welcome new investors into the exciting Chaarat story,” CEO Artem Volynets comments on the fund raise.
Conclusion: The fund raise offers working capital to the Company as the team progresses optimisation initiatives at the polymetallic Kapan mine and advances the gold Tulkubash project to funding completion (Q4/19 or early 2020) readying for the start of full scale construction works. The price of the fund raise is reflective of strong support from the Company’s investor base that has been further expanded following the placing.
*SP Angel acts as Broker to Chaarat Gold
15p, Mkt Cap £6.4m – £850,000 fundraising to advance the Red Star project.
Phoenix holds 80% of the Empire mining property in Idaho
- Phoenix Copper reports that it has raised £340,000 through the issue 2m new shares at 17p/share plus a further £510,000through the issue of unsecured loan notes. The notes carry a 12% coupon and are repayable on 31st January 2021.
- In addition, the company “will also grant a total of 650,000 [unlisted] warrants to the loan note holders which will be exercisable at 20 pence per share and valid until 31 July 2022”.
- The funds will be deployed “to develop the resources at the Company's Red Star silver deposit adjacent to the proposed Empire Mine open pit copper project in Idaho, USA as well as provide the Company with additional working capital”.
- CEO, Dennis Thomas, explained that “These funds will be used to continue the sampling and drilling programme on the Red Star silver deposit and the polymetallic sulphide potential along strike towards four old underground mines worked in the first half of the twentieth century.”
- Assays “from shallow drilling at Red Star include 62 ounces per tonne of silver equivalent over a 1.5 metre intersection and 26 ounces per tonne over a 9.2 metre intersection. Earlier this year we announced an NI 43-101 compliant maiden resource at Red Star of 1.6 million ounces of silver equivalent, returned from three drill holes.” Future work seeks to expand this initial resource both laterally along strike and at depth down-dip.
- The company’s announcement reports that directors, Roger Turner and Dennis Thomas each subscribed for 58,824 new shares taking their holdings in Phoenix Copper to 2.9% and 2.8% respectively while “Andre Cohen subscribed for US$50,000 in unsecured loan notes and will therefore also receive 50,000 warrants”.
Conclusion: Additional funding should expedite the exploration of the Red Star prospect and the participation of board members in the funding signals their commitment and confidence in the success of the exploration.
*SP Angel acts as Nomad and broker to Phoenix Copper
2.4p, Mkt Cap £31.1m – Metallurgical results from Mina do Barroso lithium project
- Savannah Resources reports that its continuing metallurgical testing programme has produced “high quality spodumene concentrates” from the Grandao, Pinhiero and Aldeia deposits within its Mina do Barroso lithium project in Portugal.
- The results were produced using whole ore flotation in contrast to the dense-media separation (DMS) work which formed the basis of the scoping study last year, however, the results “are broadly consistent with the recovery and grade assumptions in last year’s Scoping Study of 80% recoveries and 6% Li2O grades in the concentrate”. The “Definitive Feasibility Study test work has shown that ‘whole of ore’ float has the potential to provide the best overall economic outcomes for the project”.
- In detail, work on sample material from the Grandao deposit showed that a 6% Li2O concentrate could be produced recovering between 72-80% of the contained Li2O from fresh sample material and 66-83% from samples of transition material. Approximately 80-90% of the iron was removed during processing to produce a concentrate with less than 1% iron content.
- Material from drillhole PNRM004 at Pinhiero “produced the best results of 6.1% Li2O at 77% recoveries and further test work will focus on other samples from the project”.
- Results from Aldeia show concentrate grades of between 5.5%-6% Li2) with recovery rates of approximately 60% to 80% although “Further development test work is now required to optimise and improve the Aldeia flotation performance”.
- Underlining the considerable work which Savannah Resources has devoted to its metallurgical testing and flowsheet validation CEO, David Archer said that “while flotation is a venerable processing technique in the mining industry, we have sought to ensure the application of the technique to Mina do Barroso spodumene mineralisation is optimised”.
- While explaining that these issues arose from variable weathering rates and the presence of mica within the ore, Mr. Archer confirmed that the latest results “vindicate the extra time and investment we have put into the metallurgical test work programmes, which will now continue culminating in a final stage pilot plant scale testing”.
- The more detailed testing has shown that, contrary to the Scoping Study findings, whole ore flotation may provide a more effective outcome than the dense-media separation envisaged at the Scoping Study stage. We imagine that the whole-ore flotation route may require a larger flotation plant than previously envisaged but that additional costs will be offset by eliminating the need for a DMS circuit. The forthcoming DFS may shed further light on the selection of the final flowsheet design.
- Savannah Resources is also preparing detailed geometallurgical models for each of its deposits at Mina do Barroso to aid its understanding of the likely process performance and the impacts of variations in grade, weathering state and the impact of introducing some host schist rock with the aim of ensuring a “robust flow sheet [which] … can treat all rock types and produce a saleable concentrate at acceptable recoveries.”
- “The geometallurgical model has highlighted the distribution of the transitional material where metallurgical performance is more variable than in the fresh material - having a strong understanding of the distribution of these areas will enable optimal mine scheduling to maximise recoveries and cash flows and to reduce metallurgical risk.”
Conclusion: Savannah Resources’ metallurgical testing is demonstrating that a simpler process route than originally envisaged has the capacity to produce similar quality spodumene concentrates at similar recovery rates. We look forward to further information as testing for the DFS progresses.
*SP Angel acts as Nomad to Savannah Resources
John Meyer – 0203 470 0490
Simon Beardsmore – 0203 470 0484
Sergey Raevskiy – 0203 470 0474
Richard Parlons – 0203 470 0472
Abigail Wayne – 0203 470 0534
Rob Rees – 0203 470 0535
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+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
Copper, Aluminium, Nickel, Zinc, Lead, Tin, Cobalt
Natural Gas, Uranium, Iron Ore
Bloomberg OTC Composite
Lithium Carbonate, Ferro Vanadium, Antimony
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