SP Angel . Morning View . Trump enlists Pentagon in rare earth magnet security

SP Angel – Morning View – Tuesday 23 07 19

Trump enlists Pentagon in rare earth magnet security

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MiFID II exempt information – see disclaimer below

 

Condor Gold (CNR LN) – Progress report on permitting

IronRidge Resources* (IRR LN) – Zaranou license high-grade gold

Petropavlovsk (POG LN) – H1 2019 production results

Shanta Gold (SHG LN) – Ilunga underground mine achieved commercial production

 

Trump enlists Pentagon in rare earth magnet security

• President Donald Trump ordered the US Defense Department to spur the production of a slew of rare-earth magnets consumed in electronics, military hardware and medical research, amid concerns China could manipulate global exports.
• Trump invoked the 69-year-old Defense Production Act -- once used to preserve American steelmaking capacity -- to remedy what he called “a shortfall” in production of the super-strong magnets made with rare-earth minerals neodymium and samarium.
• U.S. capacity to produce the magnets “is essential to the national defense,” Trump asserted in issuing the designations Monday. Without action, Trump said, American industry “cannot reasonably be expected to provide the production capability” for the products.
• The Defense Production Act allows the president to prioritize contracts for materials, equipment and services in order to preserve or build up domestic manufacturing capabilities.
• The move can only promote alternative rare earth sources such as Peak Resources’ Ngualla and Mkango Resources’ Songwe Hill advanced-stage projects.

 

China – Can China still meet GDP and Industrial Output targets as the US Trade War drags on

‘Ardous efforts’ needed to meet industrial output growth target according to China’s Industry ministry (Reuters)

• Ongoing reforms and restructuring of the country's industrial sectors also pose additional challenges as the nation moves to clean up its banking system, environment and to stamp out corruption.
• China's GDP growth slowed to 6.2% in Q2 due to slower growth domestically and lower exports due to the trade war with the US.
• Beijing reckons it can still meet its 2019 GDP target of 6-6.5% and 5.5%-6.0% industrial output growth target.
• Chinese manufacturers are busy selling former US exports into Asia with its belt & road infrastructure initiative helping to rollout trade routes through Central Asia and into Europe.
• Much lower-value production is moving to lower-cost and nearby Asian nations with central government helping firms to relocate lower-value production as the nation moves to build higher-value businesses back home.
• It is increasingly difficult to see China meeting its key growth targets as debt levels rise and as the Trade War rolls on.
• China is still significantly dependent on exports to the US despite promising to raise domestic consumption levels and lower trade barriers for US companies in recent years.
• Problem is that markedly lower exports to the US have damaged consumer confidence within China making it all the more difficult for the authorities to stimulate local demand to take up the slack.
• The US is massively upset at technology theft, industrial and other espionage and China’s move to dominate so much of the South China Seas and the Spratley Islands, to name just a few issues and could tip China into recession if agreement is not reached in the Fall with Trump’s trade team.

Dow Jones Industrials		+0.07%	at	27,172
Nikkei 225		+0.95%	at	21,621
HK Hang Seng		+0.41%	at	28,487
Shanghai Composite		+0.45%	at	2,900
FTSE 350 Mining		+0.86%	at	20,804
AIM Basic Resources		+0.75%	at	2,143

 

Economics

US – Major indices closed higher on Monday on the back of gains in tech stocks ahead of highly anticipated earnings reports this week.

 

US/China – The US issued sanctions against one of the China’s largest state-backed oil companies for transporting Iranian crude oil.

The Company Zhuhai Zhenrong and its CEO, Yomin Li, will be barred from carrying FX, banking or property transaction s under US jurisdiction, FT reports.

President Trump has withdrawn previously granted import restriction waivers in April in an effort to put more pressure on Tehran and drive Iran’s crude exports “to zero”.

Zhuhai Zhenrong has storng links with Iran after having been established 25 years ago as the then-sole importer of Iranian crude into China.

 

UK – Conservative party leader voting closed at 1600 GMT yesterday with results expected to be announced at 1145am today.

Boris Johnson is widely expected to secure the win and become new PM with Remainer Cabinet ministers preparing to  resign and begin their bid to block a no-deal Brexit.

The pound is trading close to the session low and the weakest since the end of last week this morning.

 

Currencies

US$1.1189/eur vs 1.1219/eur yesterday  Yen 108.11/$ vs 107.94/$  SAr 13.878/$ vs 13.946/$  $1.244/gbp vs $1.249/gbp  0.702/aud vs 0.704/aud  CNY 6.881/$ vs 6.878/$

 

Commodity News

Precious metals:         

Gold US$1,418/oz vs US$1,426/oz yesterday

   Gold ETFs 75.4moz vs US$75.2moz yesterday

Platinum US$848/oz vs US$850/oz yesterday

Palladium US$1,525/oz vs US$1,508/oz yesterday

Silver US$16.35/oz vs US$16.34/oz yesterday

           

Base metals:   

Copper US$ 6,019/t vs US$6,042/t yesterday

Aluminium US$ 1,815/t vs US$1,843/t yesterday

Nickel US$ 14,290/t vs US$14,315/t yesterday

• Vale SA’s Indonesian unit and partners finalise plans to spend approx. $5bn on developing nickel projects over the next few years to capitalise on bullish demand from the swelling battery sector and steel markets in China.
• PT Vale Indonesia and Sumitomo Metal Mining Co Ltd aim to make the final investment decision for their $2.5bn battery-grade nickel plant in the first quarter, Febriany Eddy, deputy Chief Executive Office reports. The Jakarta-based company also plans to spend about $1.8bn on a ferronickel smelter and several hundred million dollars to expand its nickel mines, she said.
• Nickel has remained resilient, offering the best performance on the London Metal Exchange as global inventories shrink and stainless steel output posts robust growth.
• The output remains significant, with Bloomberg NEF forecasting annual lithium-ion demand to swell nine-fold between 2020 and 2030.
• Nickel has come into the spotlight for batteries, Eddy said in an interview. While stainless steel will remain the primary market for nickel, batteries will consume 30% of supply in the long term, she said.
• “If we see that, Indonesia actually can play a very important role there. We feel that if the government can seize the opportunity, it would be very good.” Indonesia was the top supplier of mined nickel before halting shipments in 2014.
• Producers globally are developing six new High-Pressure Acid Leaching technology projects that collectively will be able to produce 220,000t of battery-grade refined nickel, and 70% of this capacity is being developed in Indonesia, according to BloombergNEF.
• Vale Indonesia joins Tsingshan Holding Group Co in developing a battery-grade nickel plant in Indonesia, targeting annual output of 50,000t nickel compounds and 4,000t cobalt compounds.
• Vale will soon reveal its Chinese partner for the $1.8bn ferronickel plant in Central Sulawesi with an annual capacity of 70,000t, Eddy said.

 

Nickel going into batteries for electric vehicles rose 57% yoy in May (Adamas Intelligence ‘EV Battery Nickel Monthly’ report)

• Demand for nickel going into batteries for electric vehicles is rising fast.
• Most lithium batteries are incorporate nickel into their structure for current collection with nickel seen as a robust and cost effective current collector.
• The higher the energy density in the battery the more nickel is incorporated into the battery.
• Nickel helps to deliver higher energy density and greater storage capacity at a competitive cost, though it is one of the weightier components
• EV manufacturers are moving to higher nickel chemistries of NCM 523, 622 and 811 with the new higher energy density NMC 811 battery using 80% nickel, 10% cobalt and 10% manganese. These batteries were introduced in China this year, though the batteries are not thought to be broadly commercialised as yet.
• 73% of all nickel used in EV batteries went into vehicles sold in China, the U.S. and Japan (Adamas Intelligence ‘EV Battery Nickel Monthly’ report).
• The Tesla Model 3 uses a high-NCA chemistry with the nickel supplied in sulphate form.
• In Japan, nickel is used in NiMH batteries for hybrid electric vehicles
• In China and the US nickel is mainly used in Li-ion batteries for battery electric vehicles and plug-in hybrid electric vehicles.
• In Japan the nickel is consumed in hydroxide and AB5 nickel-REE alloy form in Japan.
• All these batteries use lithium as their electrolyte.

Zinc US$ 2,432/t vs US$2,423/t yesterday

Lead US$ 2,012/t vs US$2,011/t yesterday

Tin US$ 17,790/t vs US$17,865/t yesterday

           

Energy:           

Oil US$63.4/bbl vs US$63.4/bbl yesterday

Natural Gas US$2.311/mmbtu vs US$2.284/mmbtu yesterday

Uranium US$25.25/lb vs US$25.20/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$113.8/t vs US$114.6/t

Chinese steel rebar 25mm US$616.2/t vs US$616.9/t

Thermal coal (1st year forward cif ARA) US$69.9/t vs US$71.0/t

Coking coal futures Dalian Exchange US$207.8/t vs US$207.9/t

           

Other:  

Cobalt LME 3m US$28,000/t vs US$28,000/t

NdPr Rare Earth Oxide (China) US$43,960/t vs US$43,983/t

Lithium carbonate 99% (China) US$9,083/t vs US$9,160/t

Ferro Vanadium 80% FOB (China) US$37.3/kg vs US$37.2/kg

Antimony Trioxide 99.5% EU (China) US$5.4/kg vs US$5.4/kg

Tungsten APT European US$210-225/mtu vs US$210-225/mtu

 

Battery News

VW prepares Zwickau factory for 330,000 all-electric cars per year

• VW is converting its entire Zwickau factory to electric vehicle production, and as it prepares for the start of ID3 production later this year, the German automaker teases the production of 330,000 all-electric cars per year.
• Volkswagen is the first major legacy automaker to convert an entire factory to electric vehicle production. The Zwickau factory is currently producing several variants of the VW Golf, as well as bodies for the Bentley Bentayga and Lamborghini Urus.
• Now it’s going electric, and VW is also investing in making the production cleaner. VW wrote in a press release today: “Volkswagen is set to build the attractive, affordable e-car for everyone. An e-car for millions, not just for millionaires. To do so, the Volkswagen plant in Zwickau is currently being transformed into the first, largest, highest-performing, and most environmentally friendly, e-factory in Europe.”
• Zwickau will be the first, and Volkswagen also announced two additional new factories to go electric, including a US factory.
• The company says that ID.3 production will start by the end of the year, and going into 2021, they will be able to produce 330,000 all-electric cars annually at the plant.
• The first production lines are going to come online after the summer shutdown next month. The other production line will be converted to electric by the end of next year.
• Beyond producing zero-emission vehicles, VW also wants to the production process to be zero-emission. The automaker aims for the modernized factory to be “CO2-neutral.”

 

Company News

Condor Gold (CNR LN) FOLLOW 18.5p, Mkt Cap £15.7m – Progress report on permitting

• Condor Gold reports that Nicaragua’s Ministry of Environment and Natural Resources has granted it an extension to the time available to secure legal agreements with the owners of land required for mine site infrastructure for the development of the La India mine.
• Environmental permission was awarded for the construction of a 2800tpd mine and plant in August 2018 with an initial deadline of 18 months to secure the necessary land and commence construction. The length of the extra period granted on the extension is not apparent, however, today’s announcement does include details of the Ministry’s approval of matters relating to issues such as waste water disposal for the proposed offices and accommodation blocks which suggests that detailed planning and scrutiny by the authorities is well underway.
• The company also says that it “is making good progress” in the preparation of Environmental Impact Assessments for proposed high grade satellite pits at Mestiza and America “which have the potential to increase annual production from open pit material by 50% to 120,000oz gold pa for a seven year life of mine”.
• Condor Gold outlines that “Upon completion of the permitting of the two feeder pits approximately 1M oz gold of Mineral Resource in the Indicated and Inferred category will be permitted for extraction, producing approximately 800,000 oz gold. It is the intention to permit at a later stage the underground Mineral Resources of 1.27Mt at a grade of 5.8 g/t gold, for 238,000 oz gold in the Indicated category and 5.47Mt at a grade of 5.1 g/t gold, for 889,000 oz gold in the Inferred category.”

Conclusion: Condor Gold has been granted an extension to the time required to commence construction of the La India mine in order to complete the required land acquisition. We look forward to further progress.

 

IronRidge Resources* (IRR LN) FOLLOW 13.5p, Mkt Cap £42.0m – Zaranou license high-grade gold

• African-focused minerals exploration company report high-grade gold results from its Zaranou gold license in Côte d’Ivoire, West Africa from 324 reconnaissance channel and rock chip samples collected over primary ‘hard rock’ artisanal mining sites.
• Field teams completed detailed face mapping and channel sampling on over 15 large-scale and 130 small-scale artisanal pits for a total of 145 primary ‘hard rock’ artisanal mining pits within the central portion of the Zaranou license. A total of 324 samples, including 114m channel sampling and Quality Assurance/Quality Control samples, were submitted to ALS laboratories in Ghana for gold assaying.
• Multiple high-grade channel sampling results include:
  • 6m @ 3.67g/t Au
  • 3m @ 4.13g/t Au
  • 4m @ 2.39g/t Au
  • Results are more significant as mineralisation was encountered in both schists and quartz veins, providing confidence in broader mineralised intervals within host rock amenable to bulk mining techniques.
  • This discovery give support to unverified SEDAR and annual reports by Winslow Gold Corporation and Etruscan Resources indicating mineralisation in quartz veins averaging 1.5-12g/t Au extending 10m into pyritic schists either side of the veins.
  • Rock-chip sampling returned multiple high-grade results including 69.6g/t, 48.8g/t, 25.3g/t and 20.5g/t Au, with both quartz veins and schists with disseminated weathered sulphides returned gold mineralisation, providing confidence in broader mineralised widths.
  • Results have defined a 9.8km long and average 800m high-priority gold target zone with coincident hard-rock and alluvial artisanal workings, high-grade channel sampling and rock chip results including 6m @ 3.67g/t Au and up to 69.6g/t respectively, and favourable geology. Mineralisation remains open to the north-east and south-west within a 40km striking shear zone with coincident artisanal workings.
  • IronRidge management are planning infill aircore drilling campaign test for mineralisation width and continuity within high-priority zones highlighted in channel and rock-chip sampling assay results, as well as regional soil geochemistry sampling programmes within the south-western portion of the license area. This work will commence following the wet season, expected October 2019.

Conclusion: Preliminary high-grade gold discoveries are significant for IronRidge, with the broader mineralised intervals promising for low-cost bulk mining methods. We look forward to understanding the full potential of the Zaranou license with the upcoming drilling campaign. IronRidge are well placed with hedging minerals for the imminent battery revolution and growing economic uncertainty.

*SP Angel act as nomad and broker to IronRidge Resources

 

Petropavlovsk (POG LN) FOLLOW 10.1p, Mkt Cap £334m – H1 2019 production results

• Gold production totalled 225.1koz in H1/19 (H1/18: 201.4koz) with POX contributing 62.0koz during the period (H1/18: -).
• The Company expects production to come in higher in H2/19 v H1/19.
• 2019 annual guidance reiterated at 450-500koz that includes processing of stockpiled 2018 Malomir flotation concentrate but excluding upside from 3rd party concentrate purchases.
• At Pioneer, production came in at 52.7koz (H1/18: 78.7koz) reflecting lower mined falling grades and weaker mined volumes due to higher waste stripping and water ingress issues recorded in Q1/19. Amid falling production rates at Pioneer, the Board approved the construction of the flotation plant to transitions to refractory ore processing in Q4/20.
• Albyn performed well delivering 79.2koz (H1/18: 70.3koz) reflecting better processed grades as operations approach the bottom of the designed pit. The preparation of the Elignskoye (2020) and Unglichikanskoye (2022) operations are progressing well.
• Malomir production totalled 93.1koz (H1/18: 46.8koz) with 31.9koz (H1/18: 44.0koz) attributed to non-refractory ore processing and 62.0koz (H1/18: -) accounting for POX related output.
• Malomir non-refractory ore processing using the standalone 0.6mtpa RIP line benefited from better than expected grades from the underground, while recoveries improved (79.4% v 72.4% in H1/18) due to less refractory nature of the feed.
• Malomir flotation plant feed ramped up to 1.8mt in H1/19 (H1/18: 0.1mtpa) as the facility reached full 3.6mtpa capacity producing 59kt of concentrate at 25.8g/t grade.
• POX plant processed 76kt (29.7g/t) of concentrate including 29kt (28.2g/t) of 2018 stockpiled Malomir material with average recoveries coming at 86.0% during the first six months of the year.
• The focus is currently on achieving stable recoveries with the team reported to have installed new filer tissues in the filtration unit to resolve previously encountered issue with gold losses leading to recovery rates improving up to 93-94% (93% design level) across the plant earlier in July.
• The POX plant starter processing 3^rd party material in July having secured 37kt of concentrate (40-75g/t) so far.

Conclusion: The Company reported a robust set of production results with increasing refractory material contribution (28% of total production in H1/19). The Company reiterated the 450-500koz annual guidance with H2/19 output due to come in stronger than H1/19 as POX processing rates grow.

 

Shanta Gold (SHG LN) FOLLOW 8.4p, Mkt Cap £66m – Ilunga underground mine achieved commercial production

• Ilunga underground mine achieved commercial production on schedule and on budget.
• The first ore stop in now in production at a depth of 130m below surface (98m below portal) offering a third source of high grade material to the NLGM plant.
• The primary ventilation and underground infrastructure are all in place with the development completed in less than 12 months (portal blast carried in Aug/18) and total capex of $7.9m.
• Ilunga underground deposit hosts 118koz at 5.6g/t in reserves and additional 73.1koz at 3.6g/t in the Inferred category.
• Infill drilling to convert the inferred resource into the mine plan extending the life of mine is expected in H1/20.

Conclusion: The positive news about the successful commissioning of the underground operation highlights the dedication of the team delivering the project on budget and schedule. Ilunga adds another source of higher grade ore to the processing plant improving the flexibility of operations.

 

 

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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