SP Angel . Morning View . Australian flooding strikes zinc and lead shipments

SP Angel – Morning View – Wednesday 13 02 19

Australian flooding strikes zinc and lead shipments

MiFID II exempt information – see disclaimer below

  

Bacanora Minerals (BCN LN)FOLLOW – Interim Results

Bushveld Minerals (BMN LN) FOLLOW– Lemur Q4 operational update

Crusader (CAS LN) FOLLOW- General meeting to endorse or restructure the board

Patagonia Gold (PGD LN)FOLLOW – Drill results from Uruguay

Serabi Gold (SRB LN) FOLLOW– Progress report shows January gold production in line with guidance

 

Australian metal shipments disrupted by flooding

• Floods in Australia's Queensland state are set to disrupt the rail delivery of zinc exports to the northern port of Townsville, with analysts reporting up to a month of inaction. The 1,000km (620m) rail line is used by miners including Glencore, MMG Ltd and South 32 to carry zinc and lead concentrate from the Mt Isa region, with at least one miner eyeing more expensive trucking.
• Townsville port ships about 40% of Australia's zinc production, equal to about 700,000tpa or 5% of global supply.
• Flooding rain raked the northern Queensland coast last week, before sweeping inland and submerging vast tracts of outback under record-breaking depths of muddy water.
• Line operator Queensland Rail said it was waiting for floodwaters to subside so it could assess the damage, with a 400 km stretch of track closed between the towns of Cloncurry and Hughenden.
• "First they have to wait for the flood waters to recede to assess the damage. And then it depends if it's damage to the rail line or damage to the embankments. If you've got serious earth moving to do, that takes time," said AME Group in Sydney.
• Glencore said its North Queensland operations were continuing and that it was monitoring the transport network situation, while MMG said it was considering the use of trucks. "We are aware of the impact to the rail logistics and are seeking alternative transportation arrangements involving the trucking of concentrate to the Port of Townsville," MMG said.

 

Dow Jones Industrials		+1.49%	at	25,426
Nikkei 225		+1.34%	at	21,144
HK Hang Seng		+1.16%	at	28,498
Shanghai Composite		+1.84%	at	2,721
FTSE 350 Mining		+1.01%	at	18,787
AIM Basic Resources		-0.12%	at	2,205

 

Economics

US – President Trump is considering to extend the March 1 deadline for US/China trade talks boosting market sentiment.

• “If we’re close to a deal where we think we can make a real deal and it’s going to get done, I could see myself letting that slide for a little while,” Mr Trump said at the beginning of a cabinet meeting on Tuesday.
• MSCI Asia Pacific (ex Japan) climbed 0.6% to the highest level since early October while Japan’s Nikkei is up 1.3% at an eight-week high on the back of the news.
• S&P 500 futures are up 0.3% this morning close to the highest level since early December and building on a 1.3% increase on Tuesday.
• Another positive announcement came from Cleveland Fed Head Loretta Mester saying on Tuesday that the Fed will chart plans at coming meetings to stop running down its balance sheet – easing concern that the Fed would continue its $50bn per month reduction of the balance sheet until incoming economic data warranted it.
• On the Congressional border security deal, Trump expressed displeasure with the latest proposal and said he had yet to decide whether to support it.

 

China – Apple iPhone sales are reported to have dropped 20%yoy in Q4/18 amid slowing economic growth rates and increasing competition from local producers, industry research firm IDC said on Monday.

• A 19.9%yoy decline came amid a 23.3%yoy increase in Huawei sales with Apple market share reduced to 11.5% form 12.9% in the previous year.
• “Besides regular performance upgrades in 2018 and small changes to the exterior, there has not been any major innovation that supports users to continue to change their phones at the greatly increased prices,” the report read.
• “The severe macro environment in China and the assault of domestic brands’ innovative products have also been reasons for Apple’s continued decline.”

 

UK – Olly Robbins, PM’s personal Brexit advisor, suggested May would offer MPs an extension to the Article 50 as opposed to threatened no-deal scenario, according to ITV news.,

• Robbins was overheard in a Brussels hotel bar claiming that MPs are likely to be faced with a choice to support PM deal or face a delay to Brexit.
• “Got to make them believe that the week beginning end of March… Extension is possible, but if they don’t vote for the deal then the extension is a long one,” Robbins was reported as saying.
• The news undermines PM’s insistence that MPs need to support her proposal amid a potential for a no-deal exit.
• The pound is little changed this morning hovering around the 1.2905 mark.
• Inflation came back below the BoE 2% target for the first time in two years allowing the central bank to delay monetary tightening.
• CPI climbed a less than forecast 1.8%yoy in January, down from 2.1%yoy in December and 1.9%yoy expected, marking the slowest pace since January 2017.
• Weaker inflation has been driven by cheaper auto fuel as well as a sharp drop in gas and power costs after price caps were imposed by the energy regulator came into force on January 1.
• Core inflation (excl food, energy, alcohol and tobacco) stayed at 1.9%yoy, in line with estimates.
• Slowing inflation is also good news for consumers enjoying growth in real earnings which in turn bodes well for demand.

 

South Africa – The largest labour group staged a nationwide protest affecting eight major cities on Wednesday.

• The walkout was called by the 1.6m-member Congress of South African Trade Unions, which backs the ruling ANC.
• While unemployment remains the union’s primary concern – recent announcements made by President Cyril Ramaphosa on reforming of Eskom, the nation’s power supplier, is also regarded as a catalyst to the nationwide discontent.
• This in turn raises risks of further load shedding at Eskom that currently stands at Stage 3 should employees decide to abandon their posts or if there is an act of sabotage.
• Eskom is currently aiming to halt load shedding by the end of the week as a number of generating units went out of service due to breakdowns.

 

Currencies

US$1.1326/eur vs 1.1280/eur yesterday  Yen 110.69/$ vs 110.54/$  SAr 13.758/$ vs 13.764/$  $1.290/gbp vs $1.287/gbp  0.712/aud vs 0.708/aud  CNY 6.761/$ vs 6.775/$

 

Commodity News

Precious metals:         

Gold US$1,313/oz vs US$1,314/oz yesterday

   Gold ETFs 72.7moz vs US$72.7moz yesterday

Platinum US$792/oz vs US$791/oz yesterday

Palladium US$1,411/oz vs US$1,395/oz yesterday

Silver US$15.72/oz vs US$15.81/oz yesterday

           

Base metals:   

Copper US$ 6,124/t vs US$6,145/t yesterday

Aluminium US$ 1,859/t vs US$1,880/t yesterday

Nickel US$ 12,350/t vs US$12,420/t yesterday

Zinc US$ 2,594/t vs US$2,646/t yesterday

Lead US$ 2,023/t vs US$2,056/t yesterday

Tin US$ 20,965/t vs US$20,975/t yesterday

           

Energy:           

Oil US$61.9/bbl vs US$61.9/bbl yesterday

Natural Gas US$2.692/mmbtu vs US$2.692/mmbtu yesterday

Uranium US$28.80/lb vs US$28.80/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$83.2/t vs US$87.7/t

Chinese steel rebar 25mm US$608.5/t vs US$594.3/t

Thermal coal (1st year forward cif ARA) US$76.8/t vs US$77.4/t

Coking coal futures Dalian Exchange US$195.6/t vs US$195.2/t

           

Other:  

Cobalt LME 3m US$32,000/t vs US$32,000/t

China NdPr Rare Earth Oxide US$46,076/t vs US$45,981/t

China Lithium carbonate 99% US$9,984/t vs US$9,964/t

China Ferro Vanadium 80% FOB US$70.9/kg vs US$70.9/kg

China Antimony Trioxide 99.5% EU US$7.0/kg vs US$6.9/kg

Tungsten APT European US$260-270/mtu unchanged from previous week

 

Battery News

Building a better fuel cell begins with surface chemistry

• Fuel cells powered by electrocatalytic reactions have the potential to eliminate pollution caused by burning fossil fuels, if they could be made more efficient.
• Key to higher efficiency are the chemical reactions at the surfaces of the materials involved. An international team of scientists peered deep into the molecular reactions of ethanol on gold surfaces in alkaline environments typically seen in model fuel cells.
• Fuel cells convert chemical energy into clean electrical energy through a series of reactions. Changes in surface chemistry during these reactions may influence both the catalytic efficiency and the reactions themselves. By providing fundamental insight into surface chemistry, this work is giving scientists a more complete picture of the catalytic process and will help them design better fuel cells that can be used to power a single device such as your laptop computer or a local electric grid.

 

Electric cars are already cheaper to own and run, says study

• Electric cars are already cheaper to own and run than petrol or diesel alternatives in five European countries analysed in new research.
• The study examined the purchase, fuel and tax costs of Europe’s bestselling car, the VW golf, in its battery electric, hybrid, petrol and diesel versions. Over four years, the pure electric version was the cheapest in all places – UK, Germany, France, Netherlands and Norway – owing to a combination of lower taxes, fuel costs and subsidies on the purchase price.
• Researchers from the International Council for Clean Transportation (ICCT) said their report showed that tax breaks are a key way to drive the rollout of electric vehicles and tackle climate change and air pollution.
• Electric cars offer the biggest savings over diesel in Norway (27%) as the battery-powered vehicles are exempt from a heavy registration tax. The ICCT analysis was updated for the Guardian after recent cuts in the UK’s grants for electric car purchases. It shows British drivers see the smallest saving 5%. In Germany, France and the Netherlands, the saving varied from 11% to 15%.

 

Reading to go zero emissions by 2030 amidst ‘climate emergency’

• Reading Borough Council will announce its intentions for Reading to become a zero-carbon town in the next 11 years at its next full council meeting on Tuesday February 26. If the motion is passed, Reading would join over 20 local authorities in declaring a climate emergency including Oxford, Brighton and Bristol.
• However, in the motion set to be put forward by deputy council leader Cllr Tony Page, the council has stressed that it will only achieve its carbon reduction aims if the government takes the initiative.
• The motion reads: ‘Reading Borough Council (RBC) believes the world is now clearly in the midst of a climate emergency and that more concerted and urgent action is needed at local, national and international level to protect our planet for future generations.

 

Company News

Bacanora Minerals (BCN LN) 21.8p, Mkt Cap £29.2m – Interim Results

• Development during the second half 2018 at the flagship Sonora Lithium project in Mexico focused on securing partial US$240m funding to support the construction of an initial 17,500tpa lithium carbonate operation:
  • US$150m senior debt facility with RK Mine Finance, a leading provider of finance for resources companies
  • US$65m conditional equity commitment from the State General Reserve Fund of Oman
  • US$25m conditional equity commitment from Bacanora's offtake partner, Hanwa Co., LTD
  • The Company remain in discussions with industry and strategic financial partners with regards to competing Sonora’s finance package for the large, open-pit, scalable US$1.25bn NPV project.
  • Bacanora have continued advancing detailed design and cost to complete estimate work, focusing on engineering and design work with the EPC, kiln and crystalliser contractors.
  • The project also have unrestricted access to develop and operate the Sonora mine secured following acquisition of La Ventana and La Joya parcels of land in Sonora for US$2.9m with the final consideration settled in August 2018.
  • Ongoing work at the Zinnwald Lithium Project in Germany focuses on completing the Feasibility Study during Q2 2019 for a battery-grade product operation.
  • The Company issued a NI 43-101 compliant upgraded measured and indicated resource of 124,974t of contained lithium in September 2018. This is a 30% increase from the previous measured and indicated PERC resource estimate of 96,200t.
  • Bacanora also successfully produced the first batch of lithium fluoride samples with over 99% purity from Zinnwald concentrates, giving proof of concept for output for the unusual battery grade lithium projects.
  • CEO Peter Secker adds “The second half of this year will not just see us look to finalise the funding package for Sonora, but also complete the Feasibility Study for Zinnwald”.
  • During the six month ending 31 December 2018, the Group made an operating loss of US$4.4m compared with US$3.2m loss a year earlier.

 

Bushveld Minerals* (BMN LN) 35.3p, Mkt Cap £394.5m – Lemur Q4 operational update

• Lemur Holdings Limited, Bushveld Mineral’s coal and energy subsidiary, provide operational update for the development of an integrated thermal coal mining and independent power project in Madagascar. Completion and review of the Bankable Feasibility Study indicates positive project feasibility on the potential of the Imaloto Project.
• The report prepared by Sinohydro indicates:
  • Phase-1 installed capacity focuses on 30Mw, which site expansion reserved in the design for an additional 30MW Phase-2, to bring the total capacity to 60MW, as prescribed by the concession agreement with the government of Madagascar.
  • The plant will utilize Circulating Fluidized Bed Combustion technology and Electrostatic Precipitators will be equipped for emission control.
  • Initial distance of the transmission line will be 250km, interconnecting the Imaloto power station with Ilakaka, Toliara and Ambalavao. Post Phase-2, the Imaloto project transmission network will cover an addressable market stretching approximately 500km - and will connect Toliara in the west to Fainaranstoa in the east for the first time.
  • Further work focuses on the review process for the final draft of the BFS for the coal mine portion of the Project.
  • Meanwhile Lemur continue to engage with all lenders on project financing following conclusion of due diligence for the project preparation finance with one leader.
  • The Company have also issued a request for Proposals for Legal Advisory Services to draft and negotiate EPC (Engineering, Procurement and Construction) Contract(s) for the power project while continuing progress on the Social and Environmental Impact Assessment Study fieldwork.
  • CEO Prince Nyati adds “the peaceful democratic elections in Madagascar held in December 2018 are a welcome development and positive indication for projects in the country.”

*SP Angel act as nomad and broker to Bushveld Minerals

 

Crusader (CAS LN) – Suspended on AIM, - General meeting to endorse or restructure the board

Crusader (CAS AU) -  Also suspended

• Crusader Resources has announced a General Meeting, to be held in Melbourne on 22^nd March, in order to consider the resolutions calling for the removal of directors Marcus Engelbrecht (Managing Director) and Andrew Vickerman (Non-Executive Chairman) and their replacement with Brett Clark, Carl Luttig and David Sanders.
• Perhaps unsurprisingly the “Directors unanimously recommend that Shareholders vote AGAINST” all the resolutions. We note that in addition to Messrs Engelbrecht and Vickerman, this recommendation is also made by Mr John Evans, whose removal from the board is not being sought by the shareholder group seeking to appoint the new directors.
• In support of their recommendation to reject the resolutions, the existing board says that “The Resolutions are in our view opportunistic and no funding proposal has been provided to the Company or Shareholders” and that it “is in advanced discussions regarding a potential funding proposal from its major Shareholder. The Board understands that this funding proposal will not be completed if the Nominee Directors are appointed”.
• The Board also questions proposals by those requisitioning the meeting  to reduce corporate overheads and to “undertake a maiden drilling programme at the early stage Novo Astro Gold exploration project with no indication as to how they might fund such a programme or what it would be expected to deliver” as well as criticising proposals for a further optimisation of the Borborema Feasibility Study and claims that the costs of the AIM listing are “exorbitant”
• Specifically, they say that “both Mr Vickerman and Mr Engelbrecht have deferred part or the majority of their employment entitlements. Management have also initiated significant cost cuts.”
• In response, the requisitioning shareholder group states that during Mr. Engelbrecht’s tenure “The Company's share price has fallen from 12cps in May 2017 to 5.5cps in April 2018 and the Company is now proposing a rights issue at a price as low as 0.5cps.  The Company has also recently placed shares at 1cps, representing a fall in market capitalisation from $35M to just over $5M - the destruction of nearly $30M in shareholder value and 91% share price fall.“ The group also asserts that “Marcus Engelbrecht has spent only 3 days in Brazil since being appointed approximately 15 months ago”.
• They also state that “Over this period the Company also issued more than 200,000,000 new shares, incurred short term debt greater than $1,400,000 and is now proposing to issue up to an additional 500,000,000 shares. [and]
• Salaries for the UK Board are at the extreme upper quantum for a junior mining company.  Marcus Engelbrecht's remuneration is approximately $500,000pa in guaranteed payments with additional short-term bonus payments available and the non-executive chairman is paid $120,000pa.”

Conclusion: The acrimonious struggle for control of Crusader Resources looks to be coming to a resolution at the General Meeting on 22^ndMarch. Sadly, whatever the outcome, shareholders funds, which arguably could have been more productively deployed on advancing projects, will have been eroded.

 

Patagonia Gold (PGD LN) 102.5p, mkt cap £24.2m – Drill results from Uruguay

• Patagonia Gold reports initial drilling results from the Dream Walker prospect within its San Jose project in Uruguay where the company has completed two diamond drill and five reverse-circulation holes along a NW striking regional scale shear zone known as the Carreta Quemada Shear Zone.
• “Field observations and aeromagnetic data indicate a several kilometre wide, diffuse zone of NW-SE oriented lineaments and structures … [in a] … geological setting [which] appears typical of the terranes that host some of the world's most prolific Orogenic Gold Belts, such as those of the same age in the West Africa Craton, which host many multi-million ounce deposits.”
• Among the results reported today, in which each of the seven holes drill encountered gold mineralisation, are:
  • A 4.55m wide intersection averaging 4.70g/t gold from a depth of 13.75m in hole DWDD-010 which also included intersections of 7.10m averaging 1g/t gold  and 4.9m averaging 2.18g/t gold from depths of 20.00m and 40.95m respectively; and
  • A 3.00m wide intersection averaging 2.49g/t gold from a depth of 82.00m in hole DWRC-005; and
  • A 3.90m wide intersection averaging 1.63g/t gold from a depth of 48.70m in hole DWDD-009, which also intersected 4.85m averaging 0.92g/t gold from 61.70m depth; and
  • A single metre wide intersection averaging 3.90g/t gold from a depth of 74.85m in hole DWDD-001; and
  • A single metre wide intersection averaging 1.54g/t gold from a depth of 19.00m in hole DWRC-008 which also intersected 3.00m averaging 0.89g/t gold from 45.00m and 2.00m averaging 1.87g/t gold from 77m depth
• Citing the results of hole DWRC008, the company reports that the “mineralised structures are open both along strike and at depth.  To the south, the results of a RC fence drilling demonstrated the possible continuation of this mineralised trend … [and that] … Given that this fence was drilled at 90 degrees (approximately) to the strike of the main mineralised structure, these additional intersections confirm that the project contains multiple mineralised zones.”
• Commenting on the early success of the drilling, CEO, Christopher van Tienhoven, said “The results obtained from this maiden but limited drill campaign are encouraging and we are currently reviewing our next steps to evaluate the gold potential of this exciting, new occurrence”.

Conclusion: Initial encouraging results from the drilling of the San Jose project are likely to be followed up but at this stage the company is reviewing its options to advance the exploration programme.

 

Serabi Gold (SRB LN) 41p Mkt value £24.1m – Progress report shows January gold production in line with guidance

• Serabi Gold, which yesterday reported a mining fatality at its Palito gold mine in Brazil,  has provided a progress report including the news that gold production of 3,671oz during January keeps the company in line with its production guidance of 40-44,000oz for 2019.
• ·         The guidance incorporates “the processing of some of the 40,000 tonnes of flotation tails (grading 3 g/t gold) which will supplement the normal ‘run-of-mine’ production” and the announcement discloses that the required trommel has recently been commissioned and that the ore-sorter which is to be installed to improve and upgrade the mill feed has been tested and is now being shipped to Brazil.
• ·         Resource drilling at Coringa is nearing completion and “We remain on schedule to publish an updated geological resource estimate before the end of the first quarter, and will follow this up with the preparation of a PEA, the results of which are expected to be available before the end of June 2019.”
• The company remains well financed with a 31^st January cash balance of US$12.8m.
• ·         Referring to the recent mine tailings accident at Vale’s iron ore mine in Brazil, CEO, Mike Hodgson reassures the market that ” In light of recent events at Brumadinho in Minas Gerais state in Brazil, I would like to give reassurance to our stakeholders regarding the tailings management facility at Palito.  Serabi’s operations are all about quality not quantity, therefore we mine and process almost insignificant volumes of rock relative to industrial mineral, iron ore and bauxite operations such as Brumadinho”.
• ·         Mr. Hodgson went on to say that “We do expect further tightening of legislation post Brumadinho, and this week the government, through the National Mining Agency (AMN), have moved to ban all upstream tailings dams.  Such a move would not affect the safety and legality of our tailings facility which (i) comprises small ponds, rather than dams and (ii) is not upstream of any nearby population.”

Conclusion: Early in the year, Serabi Gold is on track to attain its gold production guidance of 40-44,000oz. Drilling at Coringa is expected to result in an updated mineral resources estimate by the end of the current quarter and to a Preliminary Economic Assessment of the project by the end of June.

 

Analysts

John Meyer – 0203 470 0490

Simon Beardsmore – 0203 470 0484

Sergey Raevskiy – 0203 470 0474

Phil Smith (Technology) – 0203 470 0475

Zac Phillips (Oil & Gas) – 0203 470 0481

 

Sales

Richard Parlons – 0203 470 0472

Jonathan Williams – 0203 470 0471

 

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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.

 

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