SP Angel . Morning View . Gold holds ahead of FOMC news. Base metals weaken China data

SP Angel – Morning View – Tuesday 17 09 19

Gold holds ahead of FOMC news. Base metals weaken China data

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Arc Minerals* (ARCM LN) – STRONG BUY – ARC soil samples indicate potential for further copper discoveries within short distance from Cheyeza

Arkle Resources* (ARK LN) – Identification of new gold target at Inishowen

BHP (BHP LN) – Annual results dominated by iron ore

Bluejay Mining* (JAY LN) – BUY - Target price 21.3p - Bluejay submit paperwork for mining license at the Dundas ilmenite project in Greenland

Orosur Mining* (OMI LN) – Uruguay payment plan approved by court

Solgold* (SOLG LN) – Presenting at the Denver Gold Forum

 

Gold prices may rise further on Eurozone instability and as Iran appears to promote Drone attacks by proxy

• Potential instability in the Eurozone may prompt further gold buying as Eurozone states look to insulate themselves from a potential breakup of the union.
• The potential for recession in the Eurozone appears to be rising as ECB rate cuts can only offer limited benefit while negative interest rates hurt German banks.
• Poland’s recent purchase of 100t of gold in the first half indicates the nation’s preparation against economic instability if the Eurozone starts to break up and the Euro weakens further.
• We feel the world has entered a new phase of potential instability where aggressors like Iran are supplying drones to militant groups to attack facilities on their behalf.
• Iran’s denial of involvement feels disingenuous given the sophistication of the drones used, the immense damage caused and the benefits to Iran of the attack.
• More worrying is the potential for conflict escalation in the Middle East which may arguably have a much greater impact than this latest drone strike.

 

South Africa - US$11bn renewable energy initiative.

• South Africa is working on a plan for an $11bn renewable energy initiative using development finance institutions and private funders.
• The idea is for the initiative to support the construction of renewable power to enable the closure of South Africa’s worst coal fired power stations
• South Africa is one of the world’s worst polluters ranking 14^th in terms of greenhouse gas emissions
• Eskom which supplies around 95% of South African power is carrying some $30bn in debt following years of mismanagement and corruption.
• While the board of Eskom has been changed by the South African president the state utility is still struggling to meet demand for power due to years of underinvestment
• South Africa is also committed to reduce emissions by 42% by 2025.

 

Dow Jones Industrials		-0.52%	at	27,077
Nikkei 225		+0.06%	at	22,001
HK Hang Seng		-1.23%	at	26,790
Shanghai Composite		-1.74%	at	2,978
FTSE 350 Mining		-1.36%	at	18,584
AIM Basic Resources		-0.52%	at	2,167

 

Economics

US – Chinese trade officials are travelling to the US this Wednesday to prepare for a meeting of top negotiations in October.

 

Japan – Washington and Tokyo reach an initial agreement on tariffs, but no mention of levies on auto imports as part of the agreement.

• US Trade Representative Lighthizer said the limited trade deal will cover agriculture, industrial tariffs and digital trade.
• Under the initial deal, Japan would cut tariffs on US agricultural products, including beef, dairy products, wine and ethanol; the IS would cut levies on some Japanese industrial products, but not on cars.
• PM Abe agreed to direct talks with Trump in Sep/18 when the US levied tariffs on Japan’s steel and aluminium exports while threatening to do the same for imported autos and parts.
• The US trade deficit with Japan is currently the third largest following the ones for China and Mexico.
• Leaders of two nations said they hoped to sign the pact on the side-lines of the UN general Assembly in New York later this month.

 

UK – The pound is off slightly this morning as PM Johnson’s decision to suspend Parliament is facing scrutiny in the first of three days of hearings at the UK’s Supreme Court in London.

• Following a day of talks with PM, EC President Juncker said no concrete proposals have been put forward over the potential type of Brexit.

 

Australia – The minutes of the latest RBA meeting re-emphasised the central bank’s focus on leaving rates at record low for an “extended period” with a potential to ease further “if needed”.

• Commenting on the state of the labour market, the RBA said “the upward trend in wages growth appeared to have stalled” with forward-looking indicators suggesting employment growth is expected to moderate over the next six months.
• Household debt is at a record-high level together with weakening wages growth softens outlook for private consumption growth.
• The A$ is off 0.3% against the US$ this morning.

 

Saudi Arabia – Preliminary findings suggest Iranian weapons were used in the attack oil production and processing facilities, but Saudi Arabia stopped short of directly blaming Iran for the strikes as investigation continues.

• Initial findings contradict claims made by Iranian-backed Houthi rebels that they carried out the attack using a swarm of long-range drones with more sophisticated engines, Bloomberg reports.
• “We are working right now to spot the launch point of those attacks,” a spokesman for the Saudi-led coalition in Yemen said.
• Iran denied any involvement in the attack and said it will not negotiation with the US on any level.

 

Israel – Second general elections in five months are to take place today after Netanyahu failed to form a coalition.

• Polls suggest a tight race between PM Netanyahu’s Likud and former military chief Benny Gantz’s Blue and White.
• Final polls showed Likud getting 33 of 120 Knesset seats (v 35 in the last election) and Blue and White securing 32 seats (v 35).

 

Australian PM set for Trump rare earth talks this week

• Australian PM Scott Morrison leaves for Washington DC this week, and the supply of critical minerals along with Chinese influence in the region is to be discussed, the Australian Financial Review reports.
• The US is looking to build closer ties with Australia due to the presence of rare earths in the country although China controls at least 80 per cent of the global trade in these minerals.
• Australia has put together a prospectus of these minerals for the US State Department who are looking to gain a greater understanding of what critical minerals Australia has, and how these could be developed.

 

Currencies

US$1.1014/eur vs 1.1078/eur yesterday.  Yen 108.18/$ vs 107.85/$.  SAr 14.785/$ vs 14.665/$.  $1.241/gbp vs $1.246/gbp.  0.684/aud vs 0.688/aud.  CNY 7.094/$ vs 7.069/$.

• Higher oil prices to weaken the Australian dollar and South African rand as both countries are significant importers of crude.

 

Commodity News

Gold US$1,498/oz vs US$1,504/oz last week

   Gold ETFs 78.9moz vs US$78.8moz last week

Platinum US$932/oz vs US$956/oz last week

Palladium US$1,597/oz vs US$1,625/oz last week

Silver US$17.85/oz vs US$17.88/oz last week

           

Base metals:   

Copper US$ 5,822/t vs US$5,920/t last week

Copper price declines on weak China demand outlook (reuters)

• Copper, along with other industrial metals fell on Tuesday due to Chinese manufacturing data for August being well below forecasts. The National Bureau of Statistics outlined a 4.4% rise in factory output which was well below forecast and the lowest reading since February 2002.  
• Three month copper prices on the LME fell 0.5% to $5,841/t by 0344 GMT while the most-traded copper contract on the Shanghai Futures Exchange declined 0.8% to 47,310/t yuan ($6,674.76), according to Reuters.
• Copper producers are not optimistic about future demand. The CEO of Codelco, the world’s largest producer of copper, believes that the copper price will remain depressed through 2020.
• Speaking to local media, CEO Octavio Araneda stated: “Everything indicates that the price of copper will not improve next year. The trade war is difficult to predict”.  

 

Aluminium US$ 1,783/t vs US$1,811/t last week

Nickel US$ 16,990/t vs US$17,235/t last week

Zinc US$ 2,351/t vs US$2,394/t last week

Lead US$ 2,080/t vs US$2,111/t last week

Tin US$ 16,900/t vs US$16,825/t last week

           

Energy:           

Oil US$68.8/bbl vs US$65.4/bbl last week

Natural Gas US$2.681/mmbtu vs US$2.643/mmbtu last week

Uranium US$25.30/lb vs US$25.05/lb last week

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$93.9/t vs US$96.3/t

Chinese steel rebar 25mm US$564.3/t vs US$565.4/t

Thermal coal (1st year forward cif ARA) US$70.5/t vs US$70.0/t

Coking coal futures Dalian Exchange US$202.8/t vs US$211.5/t

           

Other:  

Cobalt LME 3m US$36,500/t vs US$36,500/t

NdPr Rare Earth Oxide (China) US$46,589/t vs US$46,750/t

Lithium carbonate 99% (China) US$6,978/t vs US$7,073/t

Ferro Vanadium 80% FOB (China) US$38.5/kg vs US$38.5/kg

Antimony Trioxide 99.5% EU (China) US$5./kg vs US$5./kg

Tungsten APT European US$195-205/mtu vs US$195-205/mtu

 

Battery News

Up to 100,000 tons of lithium-ion batteries could be recycled this year (greentechmedia)

• China recycled around 67,000 tons of lithium-ion batteries, or 69% of all the stock available for recycling worldwide according to Hans Eric Melin, founder of U.K.-based Circular Energy Storage.
• This goes against a commonly held view that lithium-ion batteries are not being recycled.
• China dominates the recycled market, due to the amount it recycles itself and the amount of recycled material it imports from abroad. Another 18,000 tons was recycled in South Korea last year, mostly for the Chinese market.
• China are also seen as world leaders in the recycling of lithium-ion batteries due to a decade of mobile phone manufacturing. Three out of four phones that are sent for refurbishing go to China, Melin said.

 

Volocopter completes first urban flight (electrek)

• Volocopter is a startup aimed at creating electric air taxi services in urban areas, made unique by its vertical take off and landing system.  
• At the moment, the system is limited to a top speed of 100 km/h (62 mph) and a range of roughly 27 km (16 miles), but it is aimed at quick point-to-point transport in cities to bypass traffic.
• The aircraft consists of 18 motors and nine battery packs and features a lot of redundancy to make the short trips safe.
• Earlier this month Volocopter raised €50 million in a funding round led by Geely, the Chinese parent company of Volvo Cars, the company announced. 

 

Company News

Arc Minerals* (ARCM LN) FOLLOW 3.3p, Mkt Cap £24m – ARC soil samples indicate potential for further copper discoveries within short distance from Cheyeza

(The Cheyeza project is 66% owned by Arc Minerals through its holding in Zamsort)

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• Arc Minerals reports further results from infill soil sampling over the Lumbeta and Muswema targets which lie within 10-15km of the Cheyeza West license area.
• The team have analysed a further 8,100 soil samples at both targets showing a 4km long soil anomaly at Muswema and Lumbeta.
• Samples were dried, sieved, pelletised and assayed using X-ray Fluorescence Spectrometer ‘pXRF’. This is less accurate and reliable than a professional Assay lab but is a useful tool for rapid results in the field.
• Drilling will start in this area imminently
• ‘Drilling continues at Cheyeza where visible sulphide mineralisation has just been observed’ with a larger mineralised system indicated.
• Note: drilling at Cheyeza has been relatively shallow at 70-100m deep leaving plenty of scope for further mineralisation to be discovered at greater depth.
• Results at Muswema and Lumbeta are similar to the soil assays seen at Cheyeza before the first drill holes confirmed high-grade copper mineralisation close to surface.
• A further drill rig is moving to West Lunga within weeks largely paid for by the company’s agreed drill-equity program.
• Lumbeta and Muswema show copper grades of 25–75ppm with values up to 1,793ppm (o.19%) Cu and 378ppm Cu (0.378%) returned by the pXRF gun.

Conclusion:  These are exciting times for Arc Minerals and its investors. The new soil anomalies indicate the potential to replicate drilling success at Cheyeza West.

It is possible that Arc may be uncovering potential for several open pit copper mines within easy distance of each other indicating better economics potential for a mining and processing complex in the area.

The presence of visible sulphide mineralisation is of particular interest to majors looking for new, near-surface copper mining opportunities.

It is our view that it is only a matter of time before one of more majors sign up for participation or a meaningful stake in one or more of these licenses.

Arc’s share price has slipped since its recent high of 4.88p in July possibly following stock sales from some long-term Zambian investors. Zambian investors have also benefitted from the depreciation of the Zambian Kwacha which has depreciated 62% against Sterling over the past five years.

Recommendation: we recommend Arc Minerals as a Strong Buy due to its potential for a major copper discovery at the Cheyeza project in Zambia.

The potential value of a significant copper discovery is likely to be a multiple of the current market capitalisation with the market recognising the value of the discovery on further drill results and resource estimation.

Other copper discoveries in Zambia in recent years include Sentinel in 2014 with 939mt grading 0.49% copper just 40km away from Kalaba and is producing >190,000tpa of copper. Lumwana which is 100km to the east also has a reserve of 758mt grading 0.51% copper and is producing >116,000tpa of copper.

First Quantum Minerals acquired Kiwara PLC 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.

Barrick Gold bought Equinox for its Lumwana assets in 2011 for $7.8bn post construction with 322mt of copper ore grading 0.73% copper.

Arc Minerals also holds a 47.5% interest in Zaco Limited which holds copper, cobalt licenses next to Zamsort’s license blocks. Arc Minerals also owns 100% of CASA Mining, which has a 3moz inferred gold resource in the DRC at Akyanga.  Arc also holds 100% of the Kremnica Mining project in Slovakia which holds 1.3moz of gold equivalent.

*SP Angel acts as nomad and broker to Arc Minerals.

 

Arkle Resources* (ARK LN)  FOLLOW0.925p, Mkt Cap £1.2m – Identification of new gold target at Inishowen

• Arkle Resources reports the identification of a new gold target at its wholly owned Inishowen exploration project in County Donegal.
• The new target is located at the junction between the previously known Glentogher Fault structure and a newly recognised shear zone structure approximately 3km northwest of the historic Glentogher lead/silver mine in a 5km long zone between Glentogher and the company’s Meeneragh gold prospect.
• Arkle Resources identifies the new discovery as a “priority target”.
• Previous drilling at Meeneragh encountered a number of mineralised intersections including:
  • A 3.05m long section averaging 5.8g/t gold from a depth of 23.05m in hole 16-MR-03; and
  • A 4.12m long intersection grading 5.48g/t gold from a depth of 8.13m in hole 16-MR-07; and
  • A 0.5m long intersection grading 14.25g/t gold from a depth of 21.5m in hole 16-MR-08
• Based on the prevailing geology, Inishowen is expected to host similar, mesothermal, gold mineralisation to that identified at Curraghinalt in County Tyrone approximately 40km away.
• Commenting on the recent work at Inishowen, Patrick Cullen, CEO of Arkle Resources said that “Arkle’s 2016-17 drilling intersected high grade gold at Meeneragh which establishes the Glentogher Fault as a fertile structure. We believe that the base metal mineralisation at Glentogher is related to the same fault. Our recent fieldwork has identified a previously unknown structure which intersects the Glentogher Fault 3 kms northwest of Meeneragh”

Conclusion: The identification of a new gold target in a favourable structural geological setting at Inishowen provides Arkle Resources with a priority target as the focus for its continuing exploration. We look forward to further news as the exploration programme advances.

*SP Angel is Nomad and Joint-Broker to Arkle Resources formerly Connemara Mining

 

BHP (BHP LN) FOLLOW 1,811p, £99.8bn – Annual results dominated by iron ore

• BHP reports attributable earnings of US$8.31bn for the year ending 30^th June 2019 ((2018 – US$3.71bn). Overall EBITDA of US$23.2bn (2018 – US$23.2bn) is dominated by the contribution from iron ore operations in Western Australia of US$11.1bn (2018- US$8.9bn).
• Copper (US$4.6bn) and coal operations US$4.1bn amounted to 20% and 18% respectively of the underlying EBITDA with petroleum operations (US$3.8bn) contributing a further 16%.
• Escondida’s copper operations (US$3.4bn)  represented approximately 75% of the copper division’s EBITDA with Pampa Norte (US$0.7bn), Antamina (0.7bn) and Olympic Dam contributing 15%, 16% and 6% respectively.
• EBITDA from coal (US$4.4bn) is dominated by the Queensland operation (US$3.6bn or 83%), with US$0.7bn from the operations in New South Wales and US$0.4bn from Colombia.
• The group’s net debt declined to US$9.2bn (2018- US$10.9bn) which continues a declining trend established since a peak of US$26.1bn in 2016.
• Operating cash-flow of US$17.9bn (2018 – US$18.5bn) was offset by capital expenditure from continuing operations of US$7.4bn (2018 – US$5.1bn) and discontinued operations of US$0.4bn (2018 -US$0.9bn) and proceeds from the sale of the Group’s US onshore operations of US$10.4bn resulting in surplus cash flow before finance of US$21.1bn (2018 – US$12.0bn)
• Exploration expenditure of US$537m during the year was dominated by US$409m spent on petroleum, however, copper (US$62m) dominated the spending on metals with a further US$41m on iron ore and US$15m on coal.
• The company’s exploration effort is focussed on conventional petroleum, particularly in the Caribbean and Gulf of Mexico and on the replenishment of its resource base in copper where “activities are directed towards the discovery of large, high-quality copper deposits in Chile, Peru, Ecuador, North America and Australia”.
• BHP identifies the success of its exploration team in drilling four holes located approximately 65km southeast of Olympic Dam including an intersection averaging “3.04 per cent copper, 0.59 grams per tonne gold and 346 parts per million uranium over a drill length of 426 metres” and also adds that “During FY2019, we acquired an 11.2 per cent interest in Solgold Plc*, the majority owner and operator of the Cascabel porphyry copper-gold project, and in July 2019 we entered into a binding earn-in and joint venture agreement with Luminex, both in Ecuador.”

*SP Angel acts as broker and advisor to Solgold.

 

Bluejay Mining* (JAY LN) FOLLOW 9.1p, Mkt cap £78m – Bluejay submit paperwork for mining license at the Dundas ilmenite project in Greenland

BUY - Target price 21.3p (Dundas Ilmenite project, Greenland, 100% owned)

(Dundas Ilmenite project, Greenland, 100% owned)

• Bluejay Mining have formally submitted their application to move the Dundas project to an exploitation project in Greenland.
• The new license will allow the Company to make an important next step in targeted 440,000tpa of high-grade ilmenite.
• Importantly, the latest development follows after the transfer of a bulk sample to Canada for smelter  testing 

• Dundas mineral resource: 117Mt at 6.1% ilmenite (in situ) at a 0% cut-off grade.
• Offshore exploration target: 300-530mt ilmenite expected grade 0.4-4.8% ilmenite in-situ. 
• The Exploitation Licence application consists of multiple modules, many of which were previously submitted.  These modules are summarised as follows:
• The license includes an:
  • Environmental Impact Assessment ‘EIA’
  • Social Impact Assessment ‘SIA’
  • Mine Plan;
  • Financial Model;
  • JORC-Code compliant ore reserve statement; and
  • Project Study.
•  
• Ilmenite prices: remain stable at higher levels following a summer of gains rising to $200/t from $175/t in early May for 47-49% TiO2 cif China (MBFastmarkets).
• Spot Ilmenite TiO2 50% Fe in China ports is quoted at $208.7/t rising from around $185/t last month (AsiaMetals via Bloomberg)
• Higher prices appear to reflect no major new supply of feedstock or pigment coming on-line in an environment of static demand.
• Prices moved higher in Q3 in the US on tighter supply and higher costs at ilmenite producers and processors. Q4 is typically soft in the northern hemisphere for demand for paint containing TiO2.
• Further info is available on Bluejay’s new corporate website:  www.bluejaymining.com

Conclusion: Bluejay are progressing with preparing for large-scale mining at Dundas. We look forward to news of the assessment of the smelter sized sample by Rio Tinto Iron & Titanium in Canada

*SP Angel acts as nomad and broker to Bluejay Mining

 

Orosur Mining* (OMI LN) FOLLOW 6.1p, Mkt Cap £9m – Uruguay payment plan approved by court

• Orosur Mining which used to be Uruguay Goldfields has received approval from the court in Uruguay for a payment which has been agreed between the company’s creditors in Uruguay and Orosur’s subsidiary company in Uruguay.
• Orosur has effectively closed the San Gregorio West gold mine which was operated by Orosur’s local subsidiary, Loryser, since 1997.
• ‘The Agreement provides that the net proceeds from the sale of Loryser’s assets in Uruguay, together with the issuance of 10 million common shares in Orosur, shall fully satisfy all amounts owing by Loryser to its creditors, as well as provide funds for Loryser to conduct this process and manage the orderly closure of its operations.’
• ‘The Agreement requires Loryser to manage and complete the sale and payment process within two years, starting from the date of the ratification by the Court. The issuance of common shares in Orosur is subject to the approval of the Toronto Stock Exchange.’
• The San Gregorio mine was a significant gold producer, tax payer and employer in the region with over 500 employees.
• Orosur Mining are focussed on exploration at the Anza Gold project in Colombia where Newmont Mining is earning up to 75% in a three-phase of investment.
• Newmont, is committed to pay US$4m in cash to Orosur in phases 1 and 2 and spend a minimum of US$30m in qualifying expenditure over a twelve year period and complete pre-feasibility and feasibility level studies to the standards of Canada’s NI-43-101 protocols.
• Orosur’s Anza project lies around 60km from Continental Gold’s giant Buriticá gold discovery in Colombia. Buriticá hosts a reserve of 3.71moz of gold grading 8.4g/t and 10.7moz of silver grading 24.3g/t and a mineral resource of 5.32moz of gold grading 10.32g/t gold and 21.0moz of silver grading 40.8g/t.
• Newmont is also a joint venture partner with Continental Gold on its Buriticá project.

Conclusion:  Orosur has cleaned up overhanging legacy issues and is now free to press ahead with the potential future development at Anza.

*SP Angel act as Nomad and broker to Orosur Mining

 

Solgold* (SOLG LN) FOLLOW 22.65p Mkt Cap £418.2m – Presenting at the Denver Gold Forum

• We understand that Solgold is presenting at the prestigious Denver Gold Forum this week, underlining that although primarily identified as a copper project, Solgold’s Alpala project in Ecuador has a significant gold component with 19.4moz of gold classed as indicated in the November 2018 mineral resource update including an estimated 12.3m oz contained within the higher grade core of the deposit.

*SP Angel acts as broker and advisor to Solgold.

 

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                                                            

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35-39 Maddox Street London

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*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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