SP Angel – Morning View – Tuesday 14 05 19
China hits back at sole US rare earth miner
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MiFID II exempt information – see disclaimer below
Ariana Resources (AAU LN) – Permits received for Salinbas copper, gold porphyry project in Turkey
Edenville Energy* (EDL LN) – Rukwa Coal project update
Savannah Resources* (SAV LN) – European Battery Cell Consortium investing €6bn across electric car battery industry
Scotgold Resources* (SGZ LN) BUY – Target price 57p – An acquisition of Nat le Roux options
Strategic Minerals* (SML LN) – Financials show ground work for substantial new development
China hits back at sole US rare earth miner
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- Rising tensions between the world’s top economies is hurting global metal industries, with the only US rare earth miner crying foul over China’s decision to raise tariffs on American shipments of the critical minerals.
- MP Materials, once the world’s largest producer, annually exports 3-4ktpa concentrates to China from its Mountain Pass mine in California.
- Higher levies are squeezing the margins of the California producer at a time when American consumers are driving US purchasing of domestic material to reduce the reliance on Asian sources.
- China controls around 80% of the rare-earth imports by the US, with the strategic decision to impact America’s only producing miner a message to the Trump administration about its growing prominence in key supply chains.
- MP Materials ships semi-processed concentrate to China, where the raw material is refined for use in permanent magnet motors in EVs.
- China’s dominance in the EV market has drawn demand from international manufacturers, with Telsa Inc. rushing to complete a Shanghai factory to capitalise on growing demand.
- “Maybe the U.S. will begin to take steps on the other side of these tariffs, such as taking action on those critical minerals with an eye towards reducing the leverage China has on those elements at this time,” said Dan McGroarty, the founder of Carmot Strategic Group, a consulting firm that advises companies on rare-earths and critical minerals.
- Evolving tariffs highlight the importance of securing long-term, reliable supply including Mkango Resources’ Songwe Hill material.
- More information on the rare earth market is read in the SP Angel Rare Earth Metals: Magnet metals for Drones, Turbines and Automobiles - Neodymium and Praseodymium ‘NdPr’
Graphene – to fix potholes
- There are may issues to address in the UK but few are as contentious as the fixing of potholes in certain parts of the UK.
- A combination of variable British weather and heavy road traffic creates millions of pot holes every year with many councils slow to act to fill them in.
- Now an Italian company is going to run a trial this year to test the application of graphene in asphalt ‘Eco Pave’ pothole repairs to test their resistance to cracking and boost repair lifespans by 2.5 times.
- The new Eco Pave is said to be 35% stronger than conventional asphalt, 46% less prone to buckling at 40C and 35% less ruts at 60C
- A one-off repair bill for UK potholes is estimated at £9.7bn though these holes are said to have contribute to 539 accidents, six fatalities and 147 serious crashes.
- One problem though – we are not aware of any large-scale commercial production of graphene and we suspect filling in potholes in good time might be just as effective.
Dow Jones Industrials
HK Hang Seng
FTSE 350 Mining
AIM Basic Resources
US – President Trump has not decided whether to go through with another set of tariffs with the USTR (US Trade Representative) planning to hold public hearing on June 17.
- This offers a chance to iron out differences between two positions and potentially announce a deal at the G-20 summit due at the end of month.
- President Trump and Chinese President Xi are expected to meet at the 28-29 summit in Osaka, Japan.
China – The government announced tariffs on $60bn of US goods from the start of June in retaliation to earlier US administration decision to hike tariffs to 25% on $200bn worth of imports from China.
Eurozone – Industrial production continued to decline in March on the latest numbers.
- Industrial production (mom/yoy): -0.3/-0.6 v -0.1/0.0 in February and -0.3/-0.8 forecast.
UK – Further signs of tight labour market emerge as the latest report showed unemployment edged lower to 3.8% in March.
- The economy added 99,000 jobs in the three months to March, down on 179,000 recorded in the previous three months and 140,000 forecast.
- The pound is slightly off against the € and US$ this morning.
US$1.1239/eur vs 1.1232/eur yesterday Yen 109.72/$ vs 109.69/nbsp; SAr 14.241/$ vs 14.262/nbsp; $1.294/gbp vs $1.300/gbp 0.695/aud vs 0.697/aud CNY 6.874/$ vs 6.856/$
Gold US$1,298/oz vs US$1,283/oz yesterday
Gold ETFs 70.5moz vs US$70.3moz yesterday
Platinum US$861/oz vs US$852/oz yesterday
- Platinum miners brace for a labour clash as the world’s top producers sit down with unions this month to negotiate a three-year wage deal, giving an early test to Cyril Ramaphosa’s new presidency in South Africa.
- An amicable outcome will bolster Ramaphosa -- the former mine union leader and one-time platinum company investor -- as he seeks to lure foreign investors.
- The Association of Mineworkers and Construction Union, the largest and most militant labour organisation in the sector, is expected to push for higher wages as the industry reaps windfall profits. Across the negotiating table, some producers have accumulated cash to withstand a repeat of the prolonged and violent strike in 2014.
- Growing fears suggests the AMCU is gearing up for industrial actions as South Africa’s regulator threatened to deregister the union for failing to hold a regular congress and leadership elections – potentially impairing the union’s ability to negotiate with mining companies and collect dues.
- Platinum-group metals are one of South Africa’s biggest exports, but less than year ago producers were closing shafts and cutting thousands of jobs as a stronger rand combined with stagnating metal prices to squeeze profit margins.
- Some producers are still in recovery mode from the 2014 strike, which cost approx. $2bn in revenue, with more than half of the nation’s production of PGMs either marginal or unprofitable, according to the Minerals Council of South Africa.
Palladium US$1,332/oz vs US$1,343/oz yesterday
Silver US$14.80/oz vs US$14.68/oz yesterday
Copper US$ 6,044/t vs US$6,086/t yesterday
Aluminium US$ 1,812/t vs US$1,802/t yesterday
Nickel US$ 11,780/t vs US$11,865/t yesterday
Zinc US$ 2,588/t vs US$2,617/t yesterday
Lead US$ 1,795/t vs US$1,810/t yesterday
Tin US$ 19,360/t vs US$19,380/t yesterday
Oil US$70.4/bbl vs US$71.2/bbl yesterday
Natural Gas US$2.641/mmbtu vs US$2.615/mmbtu yesterday
Uranium US$24.65/lb vs US$24.75/lb yesterday
Iron ore 62% Fe spot (cfr Tianjin) US$92.0/t vs US$92.5/t
Chinese steel rebar 25mm US$627.8/t vs US$629.4/t
Thermal coal (1st year forward cif ARA) US$69.4/t vs US$70.0/t
Coking coal futures Dalian Exchange US$179.5/t vs US$173.3/t
Cobalt LME 3m US$34,500/t vs US$34,500/t
NdPr Rare Earth Oxide (China) US$39,065/t vs US$39,164/t
Lithium carbonate 99% (China) US$9,675/t vs US$9,627/t
- The world’s largest lithium producer, Albemarle, announces improved production figures from its Chilean Salar de Atacama project without extracting more brines from the environmentally sensitive region.
- Chief Executive Luke Kissam reports the company has successfully tested the process in a laboratory and in field tests, with plans to begin construction in the second quarter. "There's not any specially made pieces of equipment or things like that. So we feel confident in our ability to execute this project," Kissam said.
- Lithium output is closely watched by Chile, despite the $100m in royalties the country collects annually from Albemarle, due to concerns about Atacama water and brine levels.
- Chilean regulators last year began delving into just how the new process works, ultimately rejecting Albemarle's application to produce more lithium for lack of details. Albemarle had said it would re-apply.
- Albemarle forecast production figures around 40,000tpa this year, roughly flat with 2018, however with authorisation to expand capacity to 80,000t annually through 2043.
Ferro Vanadium 80% FOB (China) US$47.0/kg vs US$48.0/kg
Antimony Trioxide 99.5% EU (China) US$6.0/kg vs US$6.0/kg
Tungsten APT European US$270-280/mtu vs US$270-280/mtu
Iceland moving away from ICE as capital Reykjavík aims to reduce gas stations by half by 2025
- The city council of Reykjavík, Iceland recently approved a plan to reduce the number of gas stations by half in Iceland’s capital by 2025, as one of the city’s environmental initiatives.
- While some cities use congestion pricing or low emission zones, like London’s new Ultra Low Emission Zone, Reykjavík is taking another interesting approach as a city looking to get greener and to lower emissions going forward.
- There are currently 75 gas stations in the capital area of Reykjavík, and that number will be reduced to around 37 over the next six years, Iceland Review reports.
- The country’s Climate Action Plan, established last year, calls for a ban of new diesel and gasoline cars by 2030.
- Iceland is aiming to be completely carbon-neutral before 2040, with fossil fuels phased out entirely by 2050. The country has a carbon pricing plan in place.
Tesla Model Y production will create a battery shortage, says Panasonic
- Tesla’s main battery supplier and partner in Gigafactory 1 says that the start of Model Y production next year will result in a battery cell shortage at the factory.
- Last month, a report came out of Asia claiming that Tesla and Panasonic suspended investments in the expansion of Gigafactory 1.
- Tesla partly denied the report saying that they still plan to continue investments, but they want to first focus on getting more production out of their existing equipment
- CEO Elon Musk later confirmed that while Panasonic had invested in an annual production capacity of 35 GWh of battery cells, they are currently limited to about 23 GWh.
- During Panasonic’s latest earnings report, CEO Kazuhiro Tsuga said that they plan to ramp up to the full 35 GWh this year.
- Panasonic’s CEO also said that there’s currently not enough capacity to supply Tesla’s expanding business and especially the upcoming production of the Model Y. “Batteries will run out if Tesla starts to sell the Model Y and expands its business next year. What will we do then? It’s one of a few topics to discuss with Tesla, including battery [production] in China.”
1.9p, Mkt Cap £20.1m – Permits received for Salinbas copper, gold porphyry project in Turkey
(Salinbas is 100% owned by Ariana)
- Ariana Resources report the company has renewed and received exploration permits for its Salinbas copper, gold porphyry project in Turkey.
- The renewal of permits enabling ‘operational status’ gives Ariana a further 10 years to operate on the project.
- A scoping study at Salinbas shows planned gold production of 50,000ozpa at a cash costs of US$770/oz for 10 years
- Ardala: Ariana has also received permits to drill in forestry on the Ardala concession which is directly adjacent to Salinbas
- The permits include permission for access roads and drill sites which are needed to test this copper-gold-molybdenum rich porphyry discovery.
- A Reverse Circulation rig is on its way to site for a 2,000m drill program which will give better indication of the grades within the porphyry discovery.
- A 10,000t stockpile of material at Ardala has been extracted with a probable average grade of 0.27g/t gold, 0.14% copper and 0.0072% molybdenum.
- This is typical for the top of a porphyry system with higher grades hopefully to be discovered below.
Conclusion: Drilling at Ardala will give better indication of the grade profile of this particular porphyry system.
The gold resource at Ardala suggests the porphyry project is well mineralised and may have been the source of the gold.
We look forward to seeing the results of the drilling and for a better understanding of the scale of the project in time.
0.12p, Mkt Cap £2.0m – Rukwa Coal project update
- The Company provided an update on its Rukwa open pit and processing plant thermal coal operation in southwest Tanzania.
- The Company has now received £100k Firm Placing proceeds with a further £410k from Conditional Placing due shortly.
- The team carried optimisation works on the processing plant in the meantime readying operations to higher feed rates from the new open pit starts.
- The team started preparations for the road construction to the new mining area with first ore due before the end of Q3/19.
- Before that, the washing plant is expected to treat material from the existing open pit.
- New pit is expected to allow the team to ramp up production rates reaching 8-10kt of washed coal per month.
- The team estimates it will become cashflow positive at a steady rate of 6kt of washed coal per month.
- The management is also considering beneficiation of coal fines that should allow to monetize washed coal by-product with any upgrade to infrastructure expected to be paid for by future free cash flows from mining operations.
*SP Angel acts as Nomad and Broker to Edenville Energy
5.4p, Mkt Cap £47.6m – European Battery Cell Consortium investing €6bn across electric car battery industry
- Savannah Resources welcomes the news that France and Germany have established a European cross-border battery cell consortium with the objective of developing next-generation batteries for EVs with an initial investment of between €5-6bn into the initiative.
- €4bn of the investment is expected to come from European private companies, with France and Germany having earmarked €1.7bn of this investment to support European private company alliances, mostly comprising automakers and energy firms.
- This is in addition to €1.2bn of planned state subsidies, to be approved by Brussels, aimed at supporting the creation of a viable battery manufacturing sector and encouraging expansion of European markets from current 3% manufacturing capacity (compared to Asia with 85%).
- To reduce the dependence on lithium battery imports, the consortium are aiming to establish two production plants over the next four years, one in France and one in Germany, with around 1,500 employees at each site.
- Maroš Šefčovič, the European Commission vice-president responsible for the Energy Union, commented: "EU companies need to be better supported to invest in sustainable mining and refining of raw materials - both in EU and third countries. We plan to launch a European raw materials investment facility with the EBRD and the EIB - hopefully at the end of the year."
- The significance of Savannah Resources’ Mina do Barroso lithium spodumene project is highlighted, with European governments conscious of securing critical elements for EV production targets.
- The 23.5Mt with 241,000t contained Li2O project represents the largest spodumene lithium Mineral Resource in W. European, and is one of the most advanced lithium mine developments across Europe.
Conclusion: SP Angel continue to be impressed with rate of development at the Mina do Barroso project, and see it as a cornerstone resource to build the European lithium battery market expected to be worth €250bn by 2025.
*SP Angel acts as Nomad to Savannah Resources
37p, Mkt Cap £16.7m – An acquisition of Nat le Roux options
BUY – Target price 57p
- Nat le Roux, a non-Executive Chairman of Scotgold, informed the Board he is unlikely to exercise his 1.7m options given current significant investment in the Company in the form of equity (c.50%) and loan facility.
- Rhodora, a Jersey incorporated investment holding company, owned by a Jersey discretionary trust for the benefit of the Fleming family among others, offered to buy 1.7m options (3.7% of outstanding shares) held by Nat le Roux.
- Options are exercised at 040p per share and mature on 31 December 2019.
- “The transaction not only greatly increases the likelihood that a substantial proportion of the Options will be exercised, but also has the potential to bring on board a strategic investor who share the Company’s vision for a Scottish gold mining industry,” the Company commented.
*SP Angel acts as Nomad and Broker to Scotgold Resources
1.6p, Mkt Cap £23m – Financials show ground work for substantial new development
- Strategic Minerals report a profit from operations of US$1.5m vs US$1.6m yoy driven by US$3.4m of magnetite sales from Cobre in New Mexico, USA.
- Cash stands at US$1.8m vs US$3.7m a year earlier reflecting ongoing work at Redmoor in Cornwall, UK and at Leigh Creek in Australia.
- US$2.8m was invested in the year including US$2.0m into Leigh Creek and US$0.6m into work at Redmoor.
- Leigh Creek: sold five tonnes of copper cement from the restart of production and reactivation of the Mountain of Light plant.
- Production of some 150-180t of copper cement is expected from the existing leach pads. This is a good start ahead of moving to full-scale operations.
- The low cost of acquiring Leigh Creek has resulted in a gain of US$2.2m on the investment for the year.
- Redmoor: work at Redmoor shows a 200% increase in metal contained at Redmoor with 11.7mt grading 1.17% tin equivalent from 4.5mt grading 1%.
- Ongoing work at Redmoor is very promising indicating that Redmoor may well become the UK’s next significant proposed tin-tungsten mine.
- Strategic Minerals made a comprehensive profit of US$0.8m vs US$1.8m last year. The reduction is principally due to lower sales from Cobre at US$3.4m vs US$5.6m yoy.
- Directors salaries remain relatively low at just US$245k for the board with a further $419k paid in consultancy fees and bonuses adding to a total cost of US$927k for the year vs US$612k last year due partly to the addition of Jeffrey Harrison to the board. Harrison was instrumental in establishing Wolf Minerals’ Hemerdon Mine which is close to Redmoor.
Conclusion: Last year set the ground work for two major developments within Strategic Minerals. Copper production at Leigh Creek is a major step forward while ongoing drilling at Redmoor combined with the updated resource indicates Redmoor project may become a significant mining project going forward for the UK.
*SP Angel act as Nomad and broker to Strategic Minerals
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Simon Beardsmore – 0203 470 0484
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Rob Rees – 0203 470 0535
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