SP Angel . Morning View . Military intervention in HK could raise gold prices by >$100 per/oz

SP Angel – Morning View – Wednesday 21 08 19

Military intervention in HK could raise gold prices by >$100/oz

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MiFID II exempt information – see disclaimer below

 

Asiamet Resources (ARS LN) – MoU for EPCM services at BKM copper project

Edenville Energy* (EDL LN) – Delivery of mining trucks

MOD Resources (MOD LN) – Progress report on Sandfire’s proposed acquisition of  MOD Resources

Talga Resources* (TLG AU) – Maiden cobalt resource estimate at Kiskama

 

Gold – Military intervention in HK could raise gold prices by >$100/oz

• Tensions are high in HK and China as protestors continue to demonstrate in the centre of HK.
• China has warned that protestors risk severe consequences if they continue their demonstrations and has amassed military forces just outside HK.
• To be fair China is giving ample warning with videos of the military practicing riot-control procedures on the border.
• The HK Police bravely state they can control the situation but the protests continue in an attempt to protect the HK people from Chinese military forces.
• The head of the police watchdog has asked for China to withdraw the extradition bill which has upset so many young HK citizens.
• China has also detained a young British consulate employee and is reported to be detaining an increasing number of foreign teachers in Mainland China.
• China risks another Tiananmen Square if it sends military forces into HK and any resulting fatalities will have profound implications for relations with China.
• Gold prices are likely to react dramatically to events as they unfold and we estimate that gold could rise >$100/oz relatively quickly on mass arrests or fatalities.

 

UK’s grid supported by 475MW of battery power in power failure (Energy Storage news)

• Last week’s power grid failure would have been a lot worse had it not been for some 475MW of battery backup power which helped to restore power to the network.
• Some 5% of the network was sacrificed to protect the other 95% according to the National Grid after the event.
• National Grid are blaming a lightning strike which we suspect is code for we are too embarrassed to admit that we couldn’t forecast that strong winds would cause the 1.2GW Hornsea One offshore wind farm to cut power to protect its windmills on a particularly windy day – as they do!
• The National Grid’s Duncan Burt told the BBC that “It wasn’t the case that the wind got too strong.”
• Yes, there was a lightning strike between Eaton Socon and Wymondsly near Bedford but did it really cause the Little Barford gas power station (owned by RWE) to go down? Eaton Socon is 2.5 miles from Little Barford. Lightning strikes are not normally expected to trip out power generators.
• National Grid are under contract to transmit power to the UK. Could blaming the power outage on an act of God may help save the company from a potential 10% fine on revenues by Ofgem the grid regulator?  We shall see what the Ofgem investigation concludes.
• Looking ahead, battery backup looks like the best solution to support an increasingly unstable grid as power generation moves from coal to wind and solar.
• New instillations of Lithium-ion and Vanadium Redox Flow Batteries ‘VRFB’ are being trialled in the UK.
• Listed companies to watch in this space are:
  • Bushveld Minerals* - testing a ‘VRFB’ in South Africa with the local state utility and planning a vanadium electrolyte production plant.  
  • Talga Resources* - producing value-added spherical graphite for battery anodes which should improve Lithium-ion battery performance
  • Savannah Resources* – lithium mining project in Portugal and copper in Oman
  • IronRidge Resources* - lithium mining project in Ghana and gold exploration in Ivory Coast, gold exploration in Chad and iron ore in Gabon
  • Kodal Minerals* - lithium project in Mali

*SP Angel acts as Nomad & or broker to these companies.

 

Marble – property construction slowdown in China causes Turkish marble exports to fall

 

Dow Jones Industrials		-0.66%	at	25,962
Nikkei 225		-0.28%	at	20,619
HK Hang Seng		+0.22%	at	26,289
Shanghai Composite		+0.01%	at	2,880
FTSE 350 Mining		+0.21%	at	17,421
AIM Basic Resources		+1.20%	at	2,107

 

Economics

US – July FOMC minutes are due later today, although, the release is likely to be overshadowed by the Chairman Jerome Powell’s address at Jackson Hole on Friday.

• Markets will be watching if the Fed will stick to the earlier mid-cycle adjustment rhetoric or go further and hint at more easing moving forwards.

 

China – Investors pulled $2.9bn from funds investing in china in the month ending last Wednesday amid concerns over slowing economic growth and US/China trade war worries.

• The data reflects outflows form mutual funds and exchange traded funds that invest in China’s A-shares marking the sharpest drop since the start of 2017.
• Total outflows amounted to $5.9bn since the start of the year, according to EPFR Global data.

 

Italy – PM Conte resigned pre-empting the no confidence vote tabled by Matteo Salvini, the leader of the anti-immigration League party.

• Italian President Sergio Mattarella accepted the resignation and started the consultation process with party leaders whether there is scope for a new coalition government or whether the country will need a new election.
• Conte accused Salvini of looking of a pretext to call early elections to increase seats in the parliament after his party’s success in European elections in May.
• The League won 34% of the votes in Italy versus 17% for its coalition partner Five Star.
• Political crisis comes in the midst of annual budget discussion closely followed by markets for clues over the government commitment to cut its fiscal deficit and overall debt levels.

 

South Korea – Trade continues to contract with exports reported to have dropped 13.3%yoy in the first 20 days in August marking the eighth consecutive negative reading.

• Exports to China, the US and the EU dropped 20%, 8.7% and 9.8%, respectively.

 

Armenia – PM Nikol Pashinyan on Moday threw his support behind the Amulsar gold project owned by Lydian saying the operation would be permitted to proceed with completion of development works.

• “The information we currently have is very clear – the exploitation of the mine does not harm the environment,” PM said.
• The statement follows the state audit published last week showing there are no grounds for criminal proceedings against the Company.
• The news paves the way for the re-start of development works at Amulsar that were suspended in Jun/18 amid protests by locals and environmental activists.
• The project has now been subject to three full-scale environmental audits in the last 12 months and passed all three.
• Amulsar is a large-scale, low cost project with projected target production of c.225koz pa over initial 10y mine life and 3.5moz in M&I resources and 1.3moz in the Inferred category.

 

Trump says Europe will give him anything he wants: ‘All we have to do is tax their cars’

• Trump has a point.

 

China - Xi stresses importance of vocational education

• China's economy needs the support of the real economy, which requires a large number of professional and technical personnel and craftsmen. "Therefore, vocational education has a lot to contribute," Xi said, voicing his support.
• What this may mean in reality is that if the state pays you to learn a skill that it might not let you change your mind and move into another sector or profession.
• Russia used to operate a similar system whereby the state would effectively allocate jobs to graduates and workers.

 

Germany – threat of recession causes Germany to hint at stimulus program

• German Finance minister hints that Germany may spend €50bn (~1.5% of GDP) to boost spending.

 

Currencies

US$1.1094/eur vs 1.1096/eur yesterday. Yen 106.52/$ vs 106.18/$. SAr 15.262/$ vs 15.208/$. $1.214/gbp vs $1.212/gbp. 0.678/aud vs 0.678/aud. CNY 7.060/$ vs    7.044/$.

Commodity News

Precious metals:         

Gold US$1,499/oz vs US$1,500/oz yesterday

   Gold ETFs 77.7moz vs US$77.5moz yesterday

Platinum US$843/oz vs US$836/oz yesterday

Palladium US$1,489/oz vs US$1,449/oz yesterday

• The global palladium market is forecast to remain in structural deficit through 2019 according to estimates from the world’s largest palladium producer, Norilsk Nickel, as first-half net profit surges 81%.
• A climb of London palladium prices by 40% has sent net profit figures to $3bn, combined with increased output to offset a decline in prices for nickel, copper and platinum amid concerns over the US-China trade negotiations and a slowdown in the global economy.
• Nornickel is expecting a 600,000oz deficit due to growing catalytic converter demand from the autos sector on the back of tighter emissions regulations in all major markets.
• Nornickel, vying with Brazil’s Vale to be the world’s biggest nickel producer, said it also expects the global nickel deficit to narrow to 60,000t in 2019, with Indonesia and China increasing their nickel pig iron (NPI) output.

Silver US$17.05/oz vs US$17.17/oz yesterday

           

Base metals:   

Copper US$ 5,738/t vs US$5,764/t yesterday

Aluminium US$ 1,788/t vs US$1,783/t yesterday

Nickel US$ 15,965/t vs US$16,195/t yesterday

Zinc US$ 2,249/t vs US$2,271/t yesterday

Lead US$ 2,082/t vs US$2,049/t yesterday

Tin US$ 16,445/t vs US$16,890/t yesterday

           

Energy:           

Oil US$60.4/bbl vs US$58.9/bbl yesterday

Natural Gas US$2.217/mmbtu vs US$2.208/mmbtu yesterday

Uranium US$25.20/lb vs US$25.15/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$84.6/t vs US$86.3/t

Chinese steel rebar 25mm US$554.6/t vs US$561.0/t

Thermal coal (1st year forward cif ARA) US$63.7/t vs US$64.3/t

Coking coal futures Dalian Exchange US$198.4/t vs US$200.1/t

           

Other:  

Cobalt LME 3m US$32,600/t vs US$32,600/t

NdPr Rare Earth Oxide (China) US$43,550/t vs US$42,235/t

Lithium carbonate 99% (China) US$8,002/t vs US$8,092/t

Ferro Vanadium 80% FOB (China) US$38.9/kg vs US$39.3/kg

Antimony Trioxide 99.5% EU (China) US$5.3/kg vs US$5.3/kg

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

 

Battery News

Record official government certificate ahead of production for Tesla Gigafactory 3

• Tesla report obtaining an official government certificate of approval for Gigafactory 3 in record time ahead of imminent production, for its first electric vehicle factory wholly-owned by a foreign automaker in the country.
• The first manufacturing facility in China will be fundamental to the company as the trade war between China and the US keeps getting more complicated, with the facility important to avoid increasingly uncertain import tariffs in the biggest auto market in the world.
• Less than a year ago Tesla secured the 210-acres location, officially breaking ground in January.
• China’s Global Times reported: “Tesla’s electric car Gigafactory in Shanghai received its first comprehensive acceptance certificate on Monday, within three days of making an application, which sets a new inspection and approval timing record for the local government.”
• CEO Elon Musk has been guiding a start of production in early Q4 2019, which would mean around October, and by the end of the year, Tesla aims for a rapid production ramp-up in phases starting with 3,000 vehicles per week.

 

Company News

Asiamet Resources (ARS LN)  FOLLOW 3.75p, Mkt Cap £39.2m – MoU for EPCM services at BKM copper project

• Asiamet Resources reports that it has signed a Memorandum of Understanding (MoU) with China Nonferrous Metal Industry’s Foreign Engineering and Construction Co (NFC) for the provision of Engineering, Procurement and Construction Management services (EPCM).
• NFC will also provide value engineering services which may assist in reducing some of the capital costs of project development, in part through “a China and local Indonesian-Southeast Asian sourcing strategy” to “enhance overall project economics”.
• NFC is reported to have experience in “complex projects across the Middle East, Central and North Asia, Central and South Africa, and neighbouring countries” and is currently engaged on the construction of the Dairi Zinc mine in North Sumatra giving it up-to-date and relevant experience of mine construction in Indonesia.
• “As part of the proposed engagement with Asiamet, China NFC will undertake a detailed evaluation of the technical and financial aspects of the BKM copper project and propose a series of solutions to the Company with respect to the value engineering and EPCM components of the proposed BKM mine development”.
• Key areas under consideration include:
  • Engineering and design and the associated budgets, and schedules;
  • Procurement including the establishment and management of a tender process and managing relations with suppliers;
  • Construction including contractor management; and
  • Project Management “including potential sources of finance”.
• Tony Manini, Executive Chairman of Asiamet, welcomed the “opportunity to work with one of China’s leading mining, processing and contracting companies” and commented  that “Despite recent market volatility, supply-demand fundamentals for copper remain strong” and expressed Asiamet Resources’ “ongoing commitment to developing the BKM copper project in the shortest timeframe possible”.

Conclusion: Selection of an EPCM contractor is a milestone in the development of the BKM project and cooperating with a major Chinese business with current Indonesian mine development expertise and access to Chinese manufacturers and financing may bring additional benefit to the project as it progresses.

 

Edenville Energy* (EDL LN)  FOLLOW 0.5p, Mkt Cap £2.3m – Delivery of mining trucks

• The Company took a delivery of two recently acquired 30t trucks at its Rukwa Coal Project in Tanzania.
• New trucks will increase mining rates and reduce costs due to improved productivity compared to the previously used contractors’ equipment (two shift instead of a single shift).
• Consequently, the wash plant is expected to move to a double shift basis in the coming weeks leading to improved final product output rates.
• The Company is ramping up mining at the Northern Area (2km away from the processing plant) which involves less waste stripping compared to the previous open pit operation and better yields.

Conclusion: Positive news on ramping up of mining operations at the Norther Area open pit helps to address the mining capacity bottleneck at the Rukwa Coal Project increasing the supply of the ore to the wash plant. The Company remains on track to reach breakeven levels and hitting 6,000t per month over the next eight months and ramping up to >10,000t per month thereafter.

*SP Angel acts as Nomad and Broker to Edenville Energy

 

MOD Resources (MOD LN)  FOLLOW 22.75p, Mkt cap £69.2m – Progress report on Sandfire’s proposed acquisition of  MOD Resources

• MOD Resources has provided a progress report on the previously announced offer by Sandfire to acquire the company which, based on the current price of Sandfire (A$5.80/share) values MOD Resources at A$0.385/share. The current Australian mid-price of MOD Resources is quoted at A$0.405/share.
• The Supreme Court of Western Australia has approved the dispatch of the Scheme Booklet to shareholders and has ordered a meeting of shareholders to consider the proposal. The meeting is to be held on 1^st October.
• In addition, the company reports that the Competition of Botswana has “provided approval for the Scheme”.
• As previously announced, “in the absence of a superior proposal for the Company and subject to the Independent Expert continuing to indicate that the Scheme is in the best interests of MOD shareholders”, the Board of MOD Resources “unanimously recommends that all MOD shareholders vote in favour of the proposed Scheme”, which offers 0.0664 Sandfire shares for each MOD share. There is an alternative to elect for a cash consideration “up to a maximum cash consideration of A$41.6m”.
• On the project, “A substantial in-fill drilling programme is in progress with the objective to upgrade a portion of T3 Indicated Mineral Resources to the higher confidence Measured Resource category” and MOD Resources is also continuing to explore a number of targets “within untested areas of interesting and potentially significant Cu-Zn soil anomalies”.
• Previously published feasibility work on MOD Resources’ T3 project describes a 3mtpa open-pit mining operation producing an average of approximately 28,000tpa of copper and 1.1mozpa of silver over a mine life of 11.5 years. These studies envisage pre-production capital expenditure of US$182m, plus additional sustaining capital of US$84m over the T3 mine's life, is expected to produce a pre-tax NPV_8% of US$368m and generate an IRR of 33% at a copper price averaging US$3.08/lb (US$6,790/t).

Conclusion: MOD Resources’ shareholders will consider the proposal from Sandfire on 1st October. The Board is currently recommending acceptance subject to a superior offer not arising.

 

Talga Resources* (TLG AU) A$0.42, Mkt Cap A$94.4m – Maiden cobalt resource estimate at Kiskama

• While primarily focused on the Vittangi graphite deposit, the world’s highest grade resource, Talga are exploring for complimentary battery suite metals with the maiden JORC Mineral Resource Estimate for its Kiskama copper-cobalt deposit 40km east of Kiruna in northern Sweden.
• The resource estimate focused on 7.7Mt @ 0.25% Cu, 0.04% Co, 0.36% CuEq., 100% classified as Inferred, without any extensions or targets such as the recently discovered large K2 conductor.
• The update was completed by independent geological consultancy, Micon International Co Limited, utilising a substantial historical drillhole database, Talga’s own and more recent drillhole database, exploration and metallurgical results.
• A total of 96 diamond drill holes have been historically drilled – 91 by the SGU and 5 by Anglo American. Historical data has yielded 2,602 samples collected over 3,843m of a total 12,824m.
• In 2014, Talga completed 4 drill holes for a total 200 samples over 402m. The entirety of each drill hole was sampled except for the uppermost weathered horizon.
• Sample preparation was undertaken at the ALS Pitea preparation facility in Sweden, with sample analysis completed at ALS Loughrea in County Galway, Ireland.
• During 2017, Talga appointed Simulus Laboratories of Perth to complete batch metallurgical testwork, obtaining up to 91% recovery of cobalt and 86% recovery of copper, with flotation conditions relatively simple.
• Potential, high-level Whittle pit optimisation (insufficient engineering work as a Pre-Development Project) by Micon estimated the potential ‘mineable resource’ containing 4.2Mt @ 0.3% Cu, 0.45% CuEq.
• Managing Director Mark Thompson adds “the timing of its potential further development is right to match the growing need for conflict-free sources of critical minerals, such as cobalt, to make lithium-ion batteries in Europe.”

Conclusion – The resource provides robust complementary metals to support Talga’s integration as an battery and energy metal supplier in an accelerating European market. We look forward to understand potential partnerships as exploration and development continues, particularly to incorporate the large geophysical “K2” conductor.

*SP Angel acts as UK broker to Talga Resources. SP Angel analysts have visited the leading battery R&D institution WMG partnering with Talga.

 

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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