SP Angel . Morning View . US Australian talks plan new Rare Earth refinery

SP Angel – Morning View – Friday 20 09 19

US Australian talks plan new Rare Earth refinery

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MiFID II exempt information – see disclaimer below

 

Chaarat Gold* (CGH LN) – New shares issued

Dark Horse Resources Ltd (DHR AU) – Identification of new mineralised zones

Beowulf Mining* (BEM LN) – Update on meetings with legal advisors and the Swedish Mining Industry Association

BlueRock Diamonds* (BRD LN) – Sale of new 10.6ct diamond for US$103,000 indicates better recovery values ahead

Ormonde Mining* (ORM LN) – Progress report on Barruecopardo ramp-up

Sunrise Resources Plc (SRES LN) – CS Project environmental submissions

 

US and Australia set to unveil rare earth plan today (Reuters)

• President Trump and Prime Minister Morrison are set to release a plan today aimed at securing the supply of rare earth minerals, according to a senior administration official.
• This alliance has been formed amid concerns that China could restrict supply of critical minerals.
• Despite Australia only containing 2.8% of the world’s rare earth reserves, more than half of the new projects in the global pipeline are situated there.
• Furthermore, a Pentagon official said in August the Defence Department was in talks with Australia to host a facility that would process rare earth metals.
• The news demonstrates the US administration is getting serious over securing supplies of critical rare earth materials.
• The development of processing facilities in the UK and Australia should create competition for rare earth concentrates raising prices and enabling a fairer deal for REE miners such as Mkango Resources*, Rainbow Rare Earths and Pensana Metals.

*SP Angel act as Nomad and Broker to Mkango Resources

 

121 Mining Investment Conference – 20-21 November - London

• Investors can meet some 137 mining companies at the 121 event
• Apply to: https://www.weare121.com/121mininginvestment-london/

 

Dow Jones Industrials		-0.19%	at	27,095
Nikkei 225		+0.16%	at	22,079
HK Hang Seng		-0.13%	at	26,436
Shanghai Composite		+0.24%	at	3,006
FTSE 350 Mining		-0.67%	at	18,398
AIM Basic Resources		-0.47%	at	2,151

 

Economics

The OECD cuts global growth rate estimates to 2.9% (-0.3pp from previous forecasts) and 3.0% (-0.4pp) in 2019 and 2020, respectively.

• Economic outlook has been labelled as “increasingly fragile and uncertain”.
• Main risks in its forecasts was that performance would be even weaker than its base case.
• Commenting on no-deal Brexit prospects, the OECD said Britain is facing risks of falling into recession while the eurozone growth may slow close to zero.

 

US – Larry Kudlow, an economic adviser to the US administration, said there been a “little softening” in mood as US and Chinese officials resumed talks in Washington ahead of a senior-level meeting in October.

 

China – The central bank has marginally cut the one-year reference rate for bank loans (4.2% v 4.25% in Aug), in line with market estimates.

• The five-year tenor was kept unchanged at 4.85%.
• The announcement had only muted effect on markets with the Shanghai Composite Index up just 0.2% while the yield on 10y sovereign bonds climbed 1bp to 3.12%.

 

Germany – focus on Green initiatives may provide excuse to stimulate German economy

• Angela Merkel is reported to be working on a new climate change strategy to boost the economy and relax Germany’s ridged fiscal controls.
• While the stimulus is likely to primarily support German manufacturers it may also have some beneficial impact on the rest of Europe.
• The economy struggles amid global trade tensions and uncertainty over Brexit, Finance Ministry said in its monthly September report.

• Decline in orders and sentiment indicators point to continuing contraction in manufacturing output.
• Exports are likely to continue to struggle amid global uncertainty.
• Labour market outlook weakened with employment growth slowing.

 

UK – The pound is trading at the strongest level in two months on optimism that Brexit deal may be reached before the October deadline.

• EC President Juncker said in an interview he was doing “everything” to prevent a no-deal Brexit at the end of the next month.
• Irish PM Varadkar said he will be meeting with Boris Johnson next week “to try and get a deal”
• Yesterday, the MPC unanimously voted to leave the monetary policy unchanged keeping rates at 0.75% and asset purchase target at £435bn.
• Although, the central bank cut its Q3 2019 growth forecast by 0.1pp to 0.2% from its August forecast.
• Mark Carney said the BoE would cut interest rates to “a little above 0%” if economic conditions required it (ie should UK crash out of the EU without a deal).

 

India – The government announced a large fiscal stimulus in the form of a cut in corporate tax rate.

• The corporate tax for existing firms has been cut to 22% from 30%.
• The tax for new manufacturing firms registered after October 1 is slashed to 15% from 25%.
• The local equity benchmark NIFTY Index jumped more than 5% on the news today.

 

Currencies

US$1.1050/eur vs 1.1058/eur yesterday.  Yen 107.95/$ vs 108.01/$.  SAr 14.801/$ vs 14.661/$.  $1.254/gbp vs $1.250/gbp.  0.679/aud vs 0.679/aud.  CNY 7.088/$ vs 7.096/$.

Sterling rallies as President of the European Commission says ‘I think we can have a deal’

• Juncker’s words relate to the potential ditching of the Irish Backstop which has caused so much trouble in the negotiations.
• It makes sense for both sides to come sort of accommodation over Brexit particularly with Germany heading into recession and the rest of the European economy not far behind.
• ECB action to cut rates to a new record low of -0.5% on 12 September combined with an indication that rates will stay lower for longer has caused the Euro to weaken.
• The ECB is prepared to cut rates further in an effort to meet its inflation target attracting harsh words from German economists who reckon the ECB has already cut rates too far.
• Problem is the ECB needs to stimulate demand across Europe to help stimulate consumer demand for German cars and other manufacturing. While lower rates are helpful banks need to protect the value of their assets to meet capital adequacy ratios.
• Gold is a good asset to hold in this environment though implied gold lease rates remain close to zero.

 

Precious metals:

Gold US$1,505/oz vs US$1,498/oz yesterday

   Gold ETFs 79.3moz vs US$79.2moz yesterday

Platinum US$947/oz vs US$929/oz yesterday

Palladium US$1,648/oz vs US$1,594/oz yesterday

Silver US$17.91/oz vs US$17.72/oz yesterday

           

Base metals:   

Copper US$ 5,823/t vs US$5,817/t yesterday - Peru’s copper output to surge 27% by 2022 according to energy and mines minister (Reuters)

• Peru’s energy and mines minister expects copper production to grow 27% and gold output to expand 12% in the next three years.
• Peru is on track to produce 2.5m tonnes of copper this year, up from 2.44m tonnes in 2018. Peru has seen a 77% increase in production of copper in the past four years.

Japan’s top copper smelter anticipates global copper shortage shrinking in 2020 (Reuters)

• Pan Pacific Copper (PPC) expects the global shortage in copper to be less acute next year as China’s output increases and its demand growth weakens amid the US-China trade war.
• PPC projects the global consumption and supply of refined copper to climb by 1.5% and 1.7% respectively in 2020 compared with this year, PPC’s general manager told Reuters. He said: “China’s demand will continue to grow next year, but at a slower pace than this year and than we had expected last year”, which is likely to lead to weaker industrial demand for copper which is widely used in power and construction.

Aluminium US$ 1,797/t vs US$1,797/t yesterday

Nickel US$ 17,880/t vs US$17,265/t yesterday

Zinc US$ 2,314/t vs US$2,312/t yesterday

Lead US$ 2,110/t vs US$2,089/t yesterday

Tin US$ 16,605/t vs US$16,740/t yesterday

           

Energy:           

Oil US$64.6/bbl vs US$64.1/bbl yesterday – Oil prices nudged higher yesterday following the Iranian Foreign Minister’s “all-out-war” comment, as the permutations of the armed drone attack continue

• An escalation of tensions in the Middle East represents a key risk to the global supply/demand dynamic in our view
• Elsewhere, US-China trade tensions and the outlook for Fed policy remain the single largest drivers of oil prices in our view.

Natural Gas US$2.555/mmbtu vs US$2.625/mmbtu yesterday

Uranium US$25.70/lb vs US$25.65/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$88.5/t vs US$90.7/t

Chinese steel rebar 25mm US$557.4/t vs US$561.0/t

Thermal coal (1st year forward cif ARA) US$70.7/t vs US$69.8/t

Coking coal futures Dalian Exchange US$195.7/t vs US$195.5/t - Oversupply and import restrictions imposed by Beijing cause iron ore and coking coal prices to fall (mining.com)

• The Chinese import price of 62% Fe content ore fell 3.3% on Thursday to $93.23/t, after coming close to $100/t last week (Fastmarkets MB).  
• On the Dalian Commodities Exchange, iron ore futures closed down 4.6% and Shanghai rebar lost more than 3%.
• The Australian export price of metallurgical coal used in steelmaking dropped 7% to $122.50/t, down almost $70/t since the start of the year.
•  The availability of ample cargoes of lower quality seaborne coking coal and uncertainty regarding the clearing process has raised the possibility of traders engaging in panic selling, according to Fastmarkets MB.

        

Other:  

Cobalt LME 3m US$37,000/t vs US$36,500/t

NdPr Rare Earth Oxide (China) US$45,499/t vs US$45,447/t

Lithium carbonate 99% (China) US$6,984/t vs US$6,976/t

Ferro Vanadium 80% FOB (China) US$38.4/kg vs US$38.4/kg

Antimony Trioxide 99.5% EU (China) US$5.1/kg vs US$5.0/kg

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

 

Battery News

India’s Tata Motors to launch new EV next year (IndiaToday)

• The Indian automaker aims to release an EV early next year, Comprising of an efficient permanent magnet AC motor and industry-best dust and waterproof battery system meeting IP67 standards, Tata Motors has claimed. 
• The company has developed what it calls ‘powertrain technology’ and will now grow its portfolio of clean energy cars, the company’s chief executive said on Thursday.
• A recent government incentive scheme supporting electric transport, and a recent cut in taxes on electric cars is making EVs more affordable to build in India. The government is trying to encourage EV adoption in an effort to curb high pollution in several cities and also to bring down its fuel import bill.
• However, Indian automakers say that the charging infrastructure in India is not yet adequate and that battery costs are currently too high to build affordable EVs for the Indian market.

 

Peru’s copper output to surge 27% by 2022 according to energy and mines minister (Reuters)

• Peru’s energy and mines minister expects copper production to grow 27% and gold output to expand 12% in the next three years.
• Peru is on track to produce 2.5m tonnes of copper this year, up from 2.44m tonnes in 2018. Peru has seen a 77% increase in production of copper in the past four years.

 

Virginia sets 100% renewable energy goal by 2050 (power-grid.com)

• Gov. Ralph Northam has issued an executive order setting a goal for Virginia to produce 100% of its electricity from carbon-free sources by 2050, which also includes a shorter term target of 30% green energy by 2030.
• He aims to ensure at least  3,000MW of solar and onshore wind projects are under development by 2022 and up to 2,500MW of offshore wind projects are fully developed by 2026.
• The executive order states that the electric power sector represents around 30% of the carbon emissions in Virginia and recent storms, heatwaves and flooding events “have reminded us climate disruption poses potentially devastating risk” to the state.

 

Japan’s top copper smelter anticipates global copper shortage shrinking in 2020 (Reuters)

• Pan Pacific Copper (PPC) expects the global shortage in copper to be less acute next year as China’s output increases and its demand growth weakens amid the US-China trade war.
• PPC projects the global consumption and supply of refined copper to climb by 1.5% and 1.7% respectively in 2020 compared with this year, PPC’s general manager told Reuters. He said: “China’s demand will continue to grow next year, but at a slower pace than this year and than we had expected last year”, which is likely to lead to weaker industrial demand for copper which is widely used in power and construction.

 

Company News

Chaarat Gold* (CGH LN)  FOLLOW32.2p, Mkt Cap £135m – New shares issued

• The Company issued 1.6m new shares most of which covered guarantee and drawdown fees paid in shares to Labro Investments.
• Drawdown fees accounted for 0.4m shares in respect of the $15m revolving term loan facility provided by Labro with Chaarat having drawn upon $6m so far and $5.5m to be repaid.
• Guarantee fees accounted for 0.9m shares with regards to the 2% charged by Labro for guaranteeing the full amount $17m in loan facility (due Mar/20).
• Additionally, the Company issued 21.6m new shares under the Management Incentive Plan to remunerate directors and top management.
• Details of the remuneration programme were disclosed in the 14 Dec/18 re-admission document and included conversion of old options plans into restricted share units, a one-off grant of restricted share units (up to 19.8m shares) and new options with a strike price of 42p (59.3m options).
• Restricted share units issued in respect of old options have a one year vesting period while the last two components of the programme vest in three years.
• New 23.2m shares bring the total number currently outstanding to 441.4m.

 

Dark Horse Resources Ltd (DHR AU) A$0.004c, A$9.1m – Identification of new mineralised zones

• Dark Horse Resources report the identification of five new mineralised zones within their Presagio target at their Las Openas Gold project towards the west of Argentina, just north of Mendoza.
• Four of the five new mineralized zones returned anomalous Gold and Silver results, with two higher grade samples showing 2,098 g/t and 272 g/t.
• The best Gold-Silver grades occur on east-west flexures within veins and further investigation will be undertaken define the nature and extent of the mineralization.
• The prospect boarders the Indio Belt where there are a number of large gold projects at Veladero in Argentina and Pascua Lama in Chile which was closed on environmental grounds.
• Fortunately for Dark Horse Resources the Las Openas gold project is in a less environmentally sensitive area though mine permitting in Argentina is known for its challenges in certain states.
• There is little doubt this is a highly prospective region with significant potential for discovery by a good team of geologists.

 

Beowulf Mining* (BEM LN) FOLLOW 5.9p, Mkt Cap £35m – Update on meetings with legal advisors and the Swedish Mining Industry Association

• Beowulf continues to press ahead with the permitting of its Kallak iron ore project in Sweden.
• Management are working to restart the permitting process which has been held up by the government for some time.
• The company appears to have significant local support and understands that government ministers have discussed the Kallak project in recent weeks.
• Kurt Budge, Beowulf’s CEO has now written to The Minister of Enterprise and Innovation in Sweden requesting a meeting.
• The letter also stresses the economic importance of the project to the region with particular regard to the financial health of the Jokkmokks Kommun.
• The mine development should create some 250 direct jobs plus a further 300 indirect jobs over a 25-year mine life.
• Beowulf had cash reserves of some £1,177,823 and end June and has taken a 37.55% in the Vadar copper prospect in Kosovo

*SP Angel acts as nomad and broker to Beowulf Mining

 

BlueRock Diamonds* (BRD LN) FOLLOW 95p, Mkt Cap £3.1m – Sale of new 10.6ct diamond for US$103,000 indicates better recovery values ahead

• BlueRock diamonds continue to produce good gem-quality diamonds selling at good prices.
• Today’s reported sale of a new 10.6ct stone for US$103,000 is further good news for the company.
• The news indicates the plant is working better than in previous years and that the area being mined may be producing significantly better quality stones than seen in previous years.
• The company will provide further update on its progress in its October Q3 update.

Conclusion: While it is always possible that the better rate of discovery of larger gem-quality stones may be down to luck, we suspect improved recoveries, mining rates and other controls may be more responsible. This is a significant development for Bluerock in terms of its potential financial returns and In the words of Gary Player, ‘the more I practice the luckier I get’.

*SP Angel acts as Nomad & Broker to BlueRock Diamonds

 

Ormonde Mining* (ORM LN) FOLLOW 2.7p, Mkt Cap £12.8m – Progress report on Barruecopardo ramp-up

• Ormonde Mining has provided a report on the ramp-up of operations at its 30% owned Barruecopardo tungsten mine in Spain where the inventory of tungsten concentrate is now building up ahead of initial shipments in the coming weeks.
• The company says that it is encountering better grades in the southern starter pit than were initially seen in the northern starter pit as “mining progresses deeper and northwards from near-surface weathered material to fresh ore in the direction of the main orebody. Improved blasting and mining procedures have also contributed towards mined ore grades corresponding increasingly well with modelled grades. Consequently, batches of higher grade and fresher ore are being delivered to the process plant”.
• In addition, the company reports substantial progress with the cut back of the eastern wall “such that its southern end is merged with the southern starter pit, and as both pits advance northwards during the fourth quarter, ore mining will effectively transition into the main orebody.”
• Commenting on the progress, Chairman, Michael Donoghue, said that “it is encouraging to see that tungsten grades in the Mine have been improving, and that the waste stripping required to allow Saloro access to more continuous and higher grade fresh tungsten ore, in the main orebody, has seen significant progress”.
• As well as the operational improvements, the company reports that its joint- venture partner at Barruecopardo, Oaktree Capital Management, is in the final stages of agreeing a €10m 12 month loan facility to provide liquidity to cover “the additional mining costs related to the revised mining schedule and the deferral of first revenues as a result of the lower grade material encountered during the first months of operation”.
• The company discusses the recent sale of stocks of the intermediate tungsten product, ammonium paratungstate (APT) by the liquidators of the “defunct Fanya Metal Exchange in China” as a positive development for the future price of APT which at a current level of around US$200/mtu (metric tonne unit) has fallen back from the US$270/mtu level which prevailed for much of H1 2019. We understand from reports in the trade press that China Molybdenum acquired the entire APT stock of Fanya, amounting to over 28,000t earlier this month at close to market prices.
• Mr. Donoghue observed that “The recent, successful auction of Fanya APT stocks, and reported tightness of available tungsten material for prompt delivery, are leading to improved market sentiment which may prove both timely and positive for Saloro [the operating company at Barruecopardo] as it continues to ramp up operations.”

Conclusion: It appears that the initial sale of tungsten concentrates from the Barruecopardo mine is expected shortly and, ahead of the onset of winter, it is encouraging to hear that the quality of the ore for the mill is improving as mining reaches deeper levels and approaches the broader, higher grade main tungsten zone below the historic open-pit from the initial starter pits.

*SP Angel acts as Broker to Ormonde Mining

 

Sunrise Resources Plc (SRES LN) FOLLOW 0.14 pence, Mkt Cap £3.8m – CS Project environmental submissions

• Sunrise Resources reports that it has now submitted several Supplementary Environmental Reports covering the impact of the proposed CS Pozzolan-Perlite Project in Nevada to the Bureau of Land Management.
• The reports cover the impact on water, air quality, wildlife, soils, land use, vegetation and geology of the proposed development. The company says that its environmental consultants consider the impact “to be minor or negligible in most cases except in respect of the mine area itself where there is a moderate but localised impact on soils and geology as would be expected for any mining operation.”
• The additional reports are currently being combined into the main Environmental Assessment document and will shortly “be submitted and put forward by the BLM for public comment as a part of the final permit approval process which is now an expedited process under recent government directives.”
• Sunrise Resources confirms that its “permitting timeline remains on track”.
• Welcoming the permitting progress, Executive Chairman, Patrick Cheetham, also explained that the project was attracting industry interest and that “The latest United States Geological Survey commodity summary shows a growing market for perlite with a 12% annual rise in US consumption in 2018 and a 22% rise over 2015, driven in part by increased use of perlite in the expanding cannabis market in North America”.

Conclusion: The additional environmental documents are being incorporated in the main Environmental Assessment for the Buureau of Land Management and other regulatory bodies. At this stage, the company remains confident that the permitting process remains on track and highlights the growing demand for perlite in the United States.

 

 

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

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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