SP Angel . Morning View . German government preparing bold fiscal stimulus plan

SP Angel . Morning View . Wednesday 16 10 19

German government preparing bold fiscal stimulus plan

China warns retaliation if US supports HK protestors

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MiFID II exempt information – see disclaimer below

Arkle Resources* (ARK LN) – Glencore agrees C$1m of funding for Stonepark Zinc project in Ireland

BlueRock Diamonds* (BRD LN) – Houston and Simbanegavi drive record production and new value at Kareevlei diamond mine

Cora Gold* (CORA LN) – Flash note: De-risking Sanankoro Gold Project

Orosur Mining* (OMI LN) – Q1 results

Strategic Minerals* (SML LN) – Resumption of regular sales at Cobre magnetite in the US

Tri-Star Resources* (TSTR LN) – Tri-Star reports antimony concentrate grade at 99.5% with 5% gold

Wealth Minerals (WML CN) – Uranium One MOU signed for the Atacama Lithium Project

 

A Scotsman walks into a bar...

• There's usually an Englishman, Welshman and an Irishman too, but they're still at the Rugby World Cup.....

 

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Economics

UK - Pound falls as the DUP are the latest hurdle for Johnson’s Brexit deal

• Sterling surged the most in the last four days since 2008 as confidence grew that there could be an end to the Brexit saga.
• According to the BBC, the DUP believe that “gaps remain” regarding the situation in Northern Ireland.
• EU officials say that Johnson won’t make the deal public until he is sure the DUP will back it.
• The pound dropped 0.6% to $1.2707 on Wednesday morning, having touched a near five month high of $1.28 on Tuesday. Against the euro, the pound weakened 0.7% to £0.8685.

China - Beijing vows retaliation if US supports Hong Kong protestors

• China’s foreign ministry issued the warning on Wednesday morning after US passed a package of measures backing a pro-democracy movement.
• The Hong Kong Human Rights and Democracy Act was passed on Tuesday unanimously.
• The bill would require an annual review of whether the city is sufficiently autonomous from Beijing to justify its special trading status under US law.
• The Chinese government said that the bill “grossly interferes in China’s internal affairs”.
• Also passed was the Protect Hong Kong Act, halting the exportation of crowd-control devices to Hong Kong.
• A spokesman for the Chinese ministry of Foreign affairs warned America to stop meddling in China’s internal affairs before “falling off the edge of the cliff”- however didn’t specify how it would retaliate.

Germany – Government preparing to implement bold fiscal stimulus plan if deemed necessary

• Chancellor Merkel’s party have been vocal against fiscal policy, despite the countries finance ministry stating that it could be an option if the country is headed towards a deep recession.
• According to a member of the parliamentary group, the government would be ready to break its commitment to a balanced budget- regarded as the “black zero”.
• Merkel has hinted that despite not wanting the next generation to inherit huge volumes of debt, investing in the future is also a priority.
• German 10-year bonds fell to -0.4%, and the euro strengthened 0.2% to $1.1049 on Wednesday morning in Berlin.

Spain – Barcelona hit by a night of protesting

• Clashes between protestors and police occurred on Tuesday night due to the jailing of nine Catalan separatist leaders.
• Protestors attacked government buildings and fought with police as the nine leaders received a sentence totalling 100 years.

Japan – Typhoon Hagibis causes severe damage to fleet of high-speed bullet trains

• Severe flooding from Tyohoon Hagibis has damaged some $300m worth of bullet trains in Japan.
• Pictures of half submerged trains indicate potential for water damage to motors and other components not to mention the train interiors
• 10 trains and 120 carriages were damaged in a yard used to repair and store the trains.

Currencies

US$1.1035/eur vs 1.1027/eur yesterday.  Yen 108.63/$ vs 108.37/$.  SAr 15.009/$ vs 14.797/$.  $1.271/gbp vs $1.266/gbp.  0.673/aud vs 0.677/aud.  CNY 7.099/$ vs 7.079/$.

Commodity News

Gold US$1,485/oz vs US$1,493/oz yesterday

   Gold ETFs 81.9moz vs US$81.9moz yesterday

Platinum US$884/oz vs US$893/oz yesterday

Palladium US$1,738/oz vs US$1,723/oz yesterday

Silver US$17.33/oz vs US$17.65/oz yesterday

Base metals:   

Copper US$ 5,724/t vs US$5,791/t yesterday - Codelco considering the close of Chilean coastal copper smelter (Reuters)

• The world’s largest copper producer is evaluating the close of the Ventanas copper smelter, situated in a polluted coastal region.
• In August this year, Codelco had to close the plant for maintenance and last year, over a hundred local people complained of sickness due to a gas leak in the area (Reuters).
• As a result, the smelter has been the target of criticism from social and environmental groups due to pollution levels in the Quintero area.
• Chilean media outlets have reported that President Sebastian Pinera would announce the closing of the plant at the COP25 climate change conference in Santiago in December.
• According to Codelco, the facility is old, and losses made at the facility are projected to continue.

Aluminium US$ 1,723/t vs US$1,717/t yesterday

Nickel US$ 16,860/t vs US$16,850/t yesterday – Roskill issue nickel market outlook to 2028 highlighting strong rise in demand in 2017 for stainless steel with China commanding 53% of total nickel demand.

• Roskill forecasts that nickel use in batteries will grow from around 3–4% of nickel demand, to account for as much as 15–20% of the market.
• Nickel sulphate is the key raw material for the nickel in lithium-ion batteries and producing this will require an increase in the supply of class I material according to Roskill.

Zinc US$ 2,421/t vs US$2,428/t yesterday

Lead US$ 2,145/t vs US$2,148/t yesterday

Tin US$ 16,740/t vs US$16,600/t yesterday

           

Energy:           

Oil & Gas view - Despite a tough capital market environment, UK equities in the Oil & Gas sector remained flat YTD (2018: -16%) wiping out September’s 8% gains

• AIM Oil & Gas indices were also flat YTD despite some volatility, yet stabilising 2018’s 13% decline
• These indices have largely tracked the oil price, and with the futures market also remaining steady
• The small/mid cap constituents of the sector are due to engage in an active year of operational activity in 2020, with a number of high impact drilling catalysts.

Oil US$58.7/bbl vs US$59.2/bbl yesterday - Oil prices were off for the second successive session as the IMF has once again cut its global growth forecast, predicting economic growth will fall to its weakest rate since 2009.

• The fund reported that the world economy is in a “synchronised slowdown,” and will only expand by 3% this year
• U.S. crude futures were down 0.4% at $53.9/bbl on the New York Mercantile Exchange, underlining uncertainties in the global economy
• The Middle East’s unpredictable diplomatic-security conditions continue to play off against the economic impact of various trade wars around the globe
• Longer term, US-China trade tensions and the outlook for Fed policy remain the single largest drivers of oil prices in our view

Natural Gas US$2.339/mmbtu vs US$2.284/mmbtu yesterday - Natural gas prices ramped up another 2.5% yesterday following the emergence of Tropical depression 15, forming in the Atlantic and there is one other storm that has less than a 10% chance of becoming a tropical cyclone.

• There is also one storm in the Gulf of Mexico with a 10% chance of becoming a tropical cyclone.
• The weather is expected to be colder than normal throughout most of the US mid-west which could buoy natural gas heating demand.

Uranium US$24.90/lb vs US$24.95/lb yesterday

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$87.0/t vs US$86.4/t - Rio Tinto increases Western Australian iron ore production by 10% in third quarter (FT)

• The miner produced 87.3mt of iron ore in the last quarter compared to 79.7mt the one before.
• The company looks to have recovered from “operational challenges” that it experienced in Q2, as the company was producing a product which contained too much mow grade material.
• On Wednesday, the company announced that its Q3 iron ore shipments rose 5%, due to higher demand from Chinese steelmakers.
• Rio Tinto shipped 86.1mt of iron ore last quarter, compared with 81.9mt a year earlier (Reuters).
• The miner lowered its forecast for alumina and bauxite, primarily due to lower output from its Pacific Aluminium unit smelters.

Chinese steel rebar 25mm US$559.1/t vs US$563.1/t

Thermal coal (1st year forward cif ARA) US$68.1/t vs US$70.0/t

Coking coal futures Dalian Exchange US$183.1/t vs US$183.6/t

Other:  

Cobalt LME 3m US$36,000/t vs US$36,000/t

NdPr Rare Earth Oxide (China) US$44,305/t vs US$44,430/t

Lithium carbonate 99% (China) US$6,973/t vs US$6,993/t - Russian nuclear firm Rosatom may buy controlling stake in Chilean lithium project (Reuters)

• Uranium One Group, a company controlled by the state nuclear company Rosatom, has the option to purchase a 51% stake in the project.
•  The purchase has been agreed with Wealth Minerals, a Canadian listed company whose main focus is the acquisition and development of lithium projects in South America.
• The Atacama project covers a 46,200 hectare license in an area home to the world’s highest grade and largest source of lithium (mining.com).
• World leading lithium producers also have stakes in the area, including SQM and Albemarle.
• According to Reuters, once the deal between Uranium One and Wealth is closed, then the Russian company would have the right to purchase 100% of the project’s production.

Ferro Vanadium 80% FOB (China) US$37.0/kg vs US$37.3/kg

Antimony Trioxide 99.5% EU (China) US$5.1/kg vs US$5.1/kg

Tungsten APT European US$225-245/mtu vs US$205-215/mtu

Company News

Arkle Resources* (ARK LN)  FOLLOW1.2p, Mkt Cap £1.6m – Glencore agrees C$1m of funding for Stonepark Zinc project in Ireland

(Formerly Connemara Mining)

• Arkle Resources reports the investment of C$1m of funding by Glencore into Group Eleven which holds the Stonepark Zinc project.
• Arkle holds 23.44% in the Stonepark project.
• Glencore holds the Pallas Green deposit which lies adjacent to Stonepark
• Stonepark has an established resource at shallower depth than at Pallas Green.
• The recent Kilteely hole shows a potential new Irish-Type zinc system at Stonepark next to the Carrickittle prospect
• Additional drilling is required.  Arkle has the right to participate in all agreed expenditure up to 23.44% or it can elect to dilute depending on the proposed programme.

Conclusion: Arkle has a meaningful stake in a potentially economic resource at Stonepark.

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

 

BlueRock Diamonds* (BRD LN)  FOLLOW133p, Mkt Cap £4.3m – Houston and Simbanegavi drive record production and new value at Kareevlei diamond mine

• BlueRock Diamonds reports record monthly mine production at its Kareevlei Diamond Mine in South Africa.
• Production: mine production hit 40,000t in September
• Production rose 45% to 92,500t vs 63,600t yoy despite suspension of operations for 19 days during crushing circuit works in July.
• Prices: Diamond prices achieved in Q3 also rose to US$432/ct on sales of 4,139cts vs US$341/ct on sales of 1,834cts yoy.
• Big stones: A second gem quality stone was recovered of >20cts
• Revenue: Tender revenue in Q3 recorded US$1,786,000 vs US$614,000 yoy;
• Grades also rose to 4.30cpht vs 3.13cpht
• Grades at 4.3cpht exceeded guidance of 4.25cpht
• The KV1 pipe has an inferred grade of 6.3cpht which is lifting overall average grades. Now much of the mining is now at the KV1 pipe it will be interesting to see how close the mine grade will be to the statistical estimation.
• Given that estimating the grade of a diamond pipe is an inexact science we will forgive the statisticians for this sort of error particularly with diamond quality and values running significantly ahead of expectations.
• The turnaround confirms our view that Mike Houston and Gus Simbanegavi are a class act when it comes to running the Kareevlei diamond mine and
• Diamond values are elevated by the recovery of around 100 diamonds worth > US$1,000 of which slightly over half of which were recovered in Q3 suggesting . 
• The company had 1,149cts in the safe and end-September including the 20.7ct stone. The whole tender should sell for something over US$0.5m.
• Costs: total mine costs fell to ZAR 190/t (US$13/t) in August and September or ~US$300/ct vs revenue of US$432/ct.
• Further cost savings are likely as throughput rises and through further initiatives eg connecting to grid power and the instillation of a third pan into the diamond plant to improve efficiency, capacity and diamond recovery.
• Some reprocessing of the tailings may also be done to see is many diamonds have been missed in this material.
• The company will continue to report the recovery of diamonds of >20cts as they are found.
• Valuation: Simple modelling of the Bluerock numbers gives an approximate NPV@8% value of 243 pence per share. This assumes ongoing grades of 4.3cpht, diamond values of US$432/ct, throughput of 35,000t a month and costs of US$190/ct.
• We do not try to estimate the potential value of recovery of unusually valuable diamonds and we have not modelled any unit cost reduction in mining and processing as yet.

Conclusion: There is significant value to be recovered at BlueRock’s diamond mines in the Kimberley region of South Africa. We are hopeful that the operations are at long last starting to realise their economic potential and we expect to see the mine report some very interesting gem-quality stones over the next few years based on the recovery of ~100 >20ct stones so far this year.

*SP Angel acts as Nomad & Broker to BlueRock Diamonds

 

Cora Gold* (CORA LN) FOLLOW 7.5p, Mkt Cap £9.7m – Flash note: De-risking Sanankoro Gold Project

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• As the team gears up for the release of the maiden MRE on the Sanankoro Gold Discovery as well as the start of the new 2019/20 field season, we provide an overview of results achieved to date as well as highlight future upside potential at the flagship Sanankoro project as well as other targets across underexplored, but highly prospective license areas.
• The team continues to develop the early stage exploration portfolio of assets through step out drilling as well as de-risking already identified mineralised zones.
• 2018/19 drilling programme confirmed continuity of mineralised zones, expanded the scale of the Sanankoro Gold project along strike as well as down dip.
• Only 6km of the >30km long structural corridor has been drilled on a sufficiently narrow grid to prepare MRE implying potential upward revisions to the coming maiden Sanankoro resource.
• Sanankoro 1-2moz Exploration Target is based on shallow oxide gold and excludes any upside from recently intersected sulphide mineralisation at depth.
• Metallurgical testwork points to favourable leaching kinetics of Sanankoro oxides including 97% recoveries for straightforward gravity and CIL circuit, the latter provides flexibility in accommodation of sulphide ore processing.
• Sanankoro Scoping Study and maiden MRE due in Q4/19 to present a first take on the project potential looking at low cost open pit operation treating soft saprolite (free dig, shallow, low power intensity).
• Ultimately the goal is to identify >1moz in reserves supporting ~100kozpa Au run rates.
• Debt free and funded for the coming 2019/20 drilling season as well as maiden MRE publication with $1.1m in cash as of H1/19 and additional £1.95m raised in Sep/19.
• Significant exploration potential within over 1,400km2 land package along two prospective gold belts as drilling is driven by capital availability not the shortage of targets.
• Supportive shareholder base and experienced management team.
• Strong gold price supports the consolidation in the sector across the value chain.
• On a median $20/oz in resource market multiple Sanankoro is potentially worth $20-40m on successful conversion of the Exploration Target into compliant MRE.
• Busy news flow expected in coming months offering value rerating catalysts.
• We touch on some of the points further in the note.

*SP Angel acts as Nomad and Broker to Cora Gold

 

Orosur Mining* (OMI LN) FOLLOW 3.75p, Mkt Cap £5.6m – Q1 results

• Orosur Mining report net income of US$96,000 vs a loss of US$277,000 a year earlier.
• The profit arises from the payment of US$500,000 from Newmont Mining, its joint venture partner in Colombia.
• Corporate and administrative expenses rose to $356,000 from US$259,000 presumably relating to the closure of the operations in Uruguay where creditors have agreed to the proposed settlement.
• Exploration expenses were US$38,000 in Q1 2020 vs $20,000 a year earlier.
• Cash and cash equivalents stand at US$512,000.

Conclusion:  Orosur appears well placed with its joint venture with Newmont Mining in Colombia.

*SP Angel act as Nomad and broker to Orosur Mining

 

Strategic Minerals* (SML LN) FOLLOW 0.75p, Mkt Cap £11m – Resumption of regular sales at Cobre magnetite in the US

• Strategic Minerals reports the resumption of regular demand from existing Cobre clients sales at it’s Cobre magnetite operation in New Mexico through the last quarter to end-September.
• This does not include the major client where Strategic Minerals is pursuing a claim with arbitration now scheduled.
• Q3 sales were 26.3% higher yoy.
• Cash rose to US$765,000m at end-September from US$319.000m at end-June forcing management to slow expenditure and conserve cash while the company pursues its arbitration in the US.
• September sales also include the forfeiture of US$375,000, relating to deposits from the major Cobre client bringing the total deposits forfeited to US$750,000 for the year.
• Management are growing sales in the absence of the major client as seen in the Q3 sales recovery.
• Cobre magnetite: sales recovered to US$1.130m in Q3 vs US$0.598 yoy and to US$3,158 for FY 2019 vs US$4.856 for 2018 and US$4.032 for 2017.
• Leigh Creek: project received A$269,564 as a research grant and reimbursement of expenditure. The company produced and sold an initial consignment of copper cement and is working to bring the mine back into full scale production in late 2019 / early in 2020/
• Redmoor scoping study: outlines a potential 600tpd underground mine with a ten year mine life. Capital costs estimated at US$89m are expected to generate an NPV_8% of US$94m and IRR of 19.4% using prices of US$22,000/tonne for tin, US$330/mtu for tungsten trioxide and US$3.18/lb for copper.

Conclusion: Management continue to advance the future of Leigh Creek copper production and are stepping forward with full ownership of the Redmoor tin, tungsten, copper, project in Cornwall. While the setback at the Cobre magnetite operation in the US has slowed progress cash reserves are recovering and the company should continue to add value on each of its three key fronts.

*SP Angel acts as Nomad and Broker to Strategic Minerals

 

Tri-Star Resources* (TSTR LN) FOLLOW 36p, Mkt Cap £34m – Tri-Star reports antimony concentrate grade at 99.5% with 5% gold

(Tri-Star holds 40% in ‘SPMP’(Strategic & Precious Metals Processing LLC) which owns the antimony-gold processing facility in the Port of Sohar Free Zone, Oman)

World’s first Clean Plant designed to EU Environmental standards.

Target gold capacity 50,000ozpa, antimony 20,000tpa

• Tri-Star resources reports antimony concentrate grade at 99.5% and 5% gold.
• The 99.5% grade is close to SPMP’s target 99.65% with the operational team now concentrating on reducing impurity levels further.  
• A concentrate grade of 99.5% is said to be the minimum grade required by some companies in the acid battery market indicating that the product is now saleable to certain manufacturers.
• SPMP is now also producing gold dore bars with 5% gold content for further refining.
• The production of gold is important as it should persuade owners of ‘antimony gold’ stocks/tailings and mines to send material to SPMP for refining.
• This may become a significant driver for antimony concentrates to SPMP as Chinese antimony roasters are not thought to pay anything much for the gold content in antimony concs.
• Tri-Star is also issuing some 60,273 new shares for services provided. The company will have 94,186,118 shares in issue following the new share issue.
• TriStar Resources recently reported an interim pre-tax profit of £0.42m for the six months to 30^th June 2019 (2018 – loss £1.16m).
• Management reported at end-September that the planned production ramp-up is subject to further debt financing required as a result of the protracted construction and commissioning phase and the need to resolve technical performance issues. “A number of interested parties have been identified and due diligence is currently ongoing. The primary aim of the fund raising is to ensure that SPMP will be fully funded through to being cash flow positive”.
• Tri-Star also explained that “The conversion of the mezzanine debt, owned by Tri-Star, which was initially announced on 20 March 2019, has been agreed but not yet formally approved by the SPMP shareholders.  It is expected to be finalised prior to, or at the same time as, the completion of the current funding round.”
• “The amount owing to Tri-Star of $22,800,000 plus accrued interest at 1 January 2019 of $2,014,322, will be converted to a non-interest bearing equity loan, along with proportional conversions by our co-shareholders.  The remaining mezzanine debt owned by Tri-Star of $2,000,000 plus accrued interest will remain payable on the original terms.”

Conclusion:  Tri-Star is making progress towards its target concentrate grade. We await further news on the operation and on details of its current funding round.

*SP Angel acts as Nomad to Tri-Star Resources. David Facey, a former partner at SP Angel is the CEO & CFO at Tri-Star Resources.

 

Wealth Minerals (WML CN) C$0.36, mkt Cap C$50m – Uranium One MOU signed for the Atacama Lithium Project

• The team signed a strategic MOU with Uranium One Group (U1G) in relation to a potential acquisition of a 51% interest in the Company’s Atacama Lithium project.
• U1G is a subsidiary of Russia’s state nuclear company Rosatom responsible for its uranium production outside the Russia Federation and is a fourth largest uranium producer.
• The project comprises a ~46,200 hectare license area located in the Atacama Salar in Region II of Antofagasta, northern Chile.
• Commercial terms of the potential acquisition are to be agreed at a later stage following a due diligence process to be completed by U1G.
• The MOU envisages an off-take agreement, whereby U1G would have the right to purchase 100% of the products.
• Additionally, the agreement provides for increased co-operation between two companies for the development of the lithium project using U1G’s ecologically friendly sorption lithium extraction technology as opposed to the traditional solar evaporation.
• The sorption technology is reported to involve less physical footprint, enhances the quality of lithium extraction and recovery levels as well as allows for the brine to be pumped back into the salar following the recovery of lithium ensuring long-term operation al and environmental viability.

 

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

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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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