SP Angel . Morning View . Rising geopolitical risks fuel demand for gold

SP Angel – Morning View – Friday 21 06 19

Rising geopolitical risks fuel demand for gold

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MiFID II exempt information – see disclaimer below

 

Anglo Asian* (AAZ LN) – Board presents to packed AGM on dividends, further expansion and new exploration success

Bushveld Minerals* (BMN LN) – Brits Vanadium Project maiden resource at 66.8mt grading 1.58% V2O5 in magnetite

Edenville Energy* (EDL LN) – 2018 annual results

KEFI Minerals* (KEFI LN) – Hawiah exporation update

Premier African Minerals* (PREM LN) – Loan Note funding

Solgold* (SOLG LN) – Ecuador court rejects proposed referendum

 

Oil prices jumps 5% to $65/bbl following attacks in Gulf and Iran shooting down of US drone

• If there are any further attacks, the US is quite likely to respond by taking out an Iranian naval base in the region
• The US may well give the Iranians some time to clear the base to avoid loss of life but we suspect there are a number of Tomahawk missiles with some Iranian locations marked in their maps ready and waiting for action.

 

Georgia – Thousands storm parliament over Russian MP's speech (BBC)

• Some 240 people were hurt in clashes as protesters tried to storm Georgia's parliament after a Russian MP took the speaker's seat in parliament.
• Riot police stopped them from entering the building, reportedly using tear gas and rubber bullets.
• Anger erupted when Sergei Gavrilov addressed an assembly of MPs from Orthodox Christian countries.
• Gavrilov addressed delegates in Russian, angering politicians and Georgians vehemently opposed to Moscow's presence in the country.
• Mr Gavrilov supported independence for the South Ossetia and Abkhazia in the 2008 war with Russia

 

Melbourne Mining Club dinner – Lords Cricket Club

• Last night we were at the Melbourne Mining Club dinner with our Australian friends.
• The dinner has expanded to such an extent that its hard to see where any extra tables might be placed.
• It felt as if half the world’s mining industry was crammed into one room and had the security known just how many explosives experts were in the room they might have taken a bit more care over frisking everyone on the way in.
• The speaker guest speaker, Richard Adkerson, President and CEO of Freeport-McMoRan was really interesting on the subject of leadership though the fireside chat was a tad long for most attention spans.
• Fortunately Freeport is not listed in London where the roles of Chairman/President and CEO should be split, though we do note Freeport has Gerald Ford serving as a non-executive president.
• We note the mood in the room was not as depressed as markets might have indicated perhaps due to gold prices rising $50/oz to hit $1,410/oz overnight on the Iranian shooting down of a US drone.

 

Dow Jones Industrials		+0.94%	at	26,753
Nikkei 225		-0.95%	at	21,259
HK Hang Seng		-0.49%	at	28,411
Shanghai Composite		+0.50%	at	3,002
FTSE 350 Mining		+0.20%	at	20,190
AIM Basic Resources		+0.79%	at	2,022

 

Economics

US – President Trump abruptly called off military strikes on Iran on Thursday night after previously approving them in retaliation for the shot down US military drone, the New York Times reported.

• The operation was already underway in its initial stages and scheduled to start just before dawn on Friday, according to the newspaper.
• In turn, Iranian officials are reported to have received a message from Trump through Oman overnight warning that imminent and was willing to talk to Tehran to discuss the escalating standoff between two nations.
• Gold prices spiked to c.$1,410/oz overnight on the back of climbing geopolitical risks in the region before pulling back as the US strike was reported to have been averted.

 

Eurozone – Preliminary Markit PMI readings point to an improvement in economic growth rates in the region driven by the services sector, although, in absolute terms the pace remains weak with an estimated Eurozone growth of just over 0.2% in the second quarter.

• Manufacturing sector continued to lag its services counterpart.
• New business orders remained subdued compared to levels seen this time last year with gains in the service sector countered by another steep decline in new orders for manufactured goods.
• Export orders for both goods and services fell during the month, though the rate of decline moderated slightly to the weakest since January.
• “Growth also remains very much dependent on the service sector, which in turn largely reflects the relative strength of domestic consumer demand and improving labour market… manufacturing, in contrast, remains in a steep downturn which is only showing tentative signs of moderating,” Markit commented on the numbers.
• Outlook remains weak amid “rising geopolitical risks and trade wars”.
• Eurozone Manufacturing PMI: 47.8 v 47.7 in May and 48.0 forecast.
• Eurozone Services PMI: 53.4 v 52.9 in May and 53.0 forecast.
• Eurozone Composite PMI: 52.1 v 51.8 in May and 52.0 forecast.

 

South African President to bail out ESKOM due to critical nature of the nation’s power supplies

• President Cyril Ramaphosa in his State of the Nation address marking the 25th anniversary of South Africa’s universal democracy made a number of references to the plight of the power generator, Eskom where he said that “we will ensure that there is meaningful consultation and dialogue with all key stakeholders
• … [and said that] …  Eskom will need to take urgent steps to significantly reduce its costs … [as well as taking] steps to] … reduce municipal non-payment and confront the culture of non-payment that exists in some communities”.
• While recognising the problems, the President also said that the “Government will support Eskom’s balance sheet … [and  … This we will do without burdening the fiscus with unmanageable debt”.
• Ramaphosa underlined that Eskom will need adopt  a new business model “to manage an independent state-owned transmission grid combined with the systems operator and power planning, procurement and buying functions” and ensure that measures are implemented, without delay “to stabilise Eskom’s finances, ensure security of electricity supply, and establish the basis for long-term sustainability”.

 

Currencies

US$1.1309/eur vs 1.1280/eur yesterday.  Yen 107.45/$ vs 107.71/$.  SAr 14.432/$ vs 14.251/$.  $1.270/gbp vs $1.270/gbp.  0.692/aud vs 0.691/aud.  CNY 6.873/$ vs  6.860/$.

 

Commodity News

Precious metals:         

Gold US$1,389/oz vs US$1,383/oz yesterday

   Gold ETFs 72.7moz vs US$72.6moz yesterday

Platinum US$807/oz vs US$818/oz yesterday

Palladium US$1,481/oz vs US$1,523/oz yesterday

Silver US$15.27/oz vs US$15.34/oz yesterday

           

Base metals:   

Copper US$ 5,964/t vs US$5,988/t yesterday

Aluminium US$ 1,776/t vs US$1,796/t yesterday

Nickel US$ 12,100/t vs US$12,255/t yesterday

Zinc US$ 2,444/t vs US$2,503/t yesterday

Lead US$ 1,898/t vs US$1,916/t yesterday

Tin US$ 19,070/t vs US$19,050/t yesterday

           

Energy:           

Oil US$64.6/bbl vs US$63.6/bbl yesterday  -

Natural Gas US$2.209/mmbtu vs US$2.282/mmbtu yesterday

Uranium US$24.55/lb vs US$24.45/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$112.0/t vs US$107.8/t

Chinese steel rebar 25mm US$594.9/t vs US$595.1/t

Thermal coal (1st year forward cif ARA) US$64.0/t vs US$62.2/t

Coking coal futures Dalian Exchange US$206.8/t vs US$208.5/t

           

Other:  

Cobalt LME 3m US$28,000/t vs US$28,000/t

NdPr Rare Earth Oxide (China) US$53,201/t vs US$55,032/t

Lithium carbonate 99% (China) US$9,607/t vs US$9,622/t

Ferro Vanadium 80% FOB (China) US$39.0/kg vs US$39.0/kg

Antimony Trioxide 99.5% EU (China) US$5.7/kg vs US$5.6/kg

Tungsten APT European US$255-265/mtu vs US$260-270/mtu

 

Company News

Anglo Asian* (AAZ LN) FOLLOW 120p, Mkt Cap £137m – Board presents to packed AGM on dividends, further expansion and new exploration success

BUY – TP Under Review

• The board and its technical experts presented to a packed AGM of investors on the company strategy going forward.
• Management highlighted how unusually well aligned they are with shareholders in their interests.
• Anglo Asian paid out 7c/s representing just over 25% of earnings in dividends following impressive performance in lowering costs and driving production.
• The payout implies a 10.2% yield on 2018 average price of 53p
• All in cash costs fell to $541/oz placing the company at the lowest quartile of global gold producers.
• The team reported a 17% increase in production at 83.7koz gold equivalent ounces in the upper range of the guidance driving pre-tax profits to $25.2m
• Critically, the team highlighted their thoughts and excitement on the newly announced exploration targets close to the Gedabek gold mine .
• Exploration: recent geological surveys indicate good potential over 31 prospective targets with 20 anomalies close to surface offering the opportunity to fast track new production from a number of open pits.
• We look forward to an exciting year from an exploration perspective.

*SP Angel act as Nomad and broker to Anglo Asian Mining

 

Bushveld Minerals* (BMN LN) FOLLOW 25p, Mkt Cap £283m – Brits Vanadium Project maiden resource at 66.8mt grading 1.58% V2O5 in magnetite

(Bushveld Minerals owns 84% of Bushveld Energy in South Africa)

BUY – Target price under review

• Bushveld Minerals report a maiden Mineral Resource estimate for the Brits Vanadium Project at 66.8mt grading 1.58% V2O5 in magnetite using a cut-off grade of 20% magnetite.
• The resource is driven off 26 drill holes for a total of 2,967m of diamond drilling.
• The resource contains 175,400t of contained vanadium indicating a mine life of around 15 years on production of around 10,000tpa of V2O5
• Some 67% of the resource is indicated at 44.9mt grading 1.59% V2O5 in magnetite for 115,600t of contained vanadium across the three seams.
• The Lower Seam represents 83% of the total tonnage at 55.5mt grading 1.58% V2O5 in magnetite for 137,000t of contained vanadium.
• The Intermediate Seam has the highest grade of the three seams at 1.76% V2O5 in magnetite but with a relatively low tonnage.
• This may provide the opportunity to mine higher grades on a more selective mining basis if practical.
• The Brits Vanadium resource is slightly lower than at the current operating Vametco Mine due to the general geological trend for grades to decrease from west to east across the Bushveld Complex.
• The resource is reported to a depth of 150m and over around 1.65km with potential for continuation for a further 1km to the east.
• Management comment that the new resource is an important step our path to producing over 8,400mtVpa with the Brits resource giving improves optionality for ore feed

Conclusion: Brits is among the world’s higher grade vanadium resources and its location next to the existing Vametco mine and process plant makes it much more valuable.

*SP Angel acts as Nomad & Broker to Bushveld Minerals. 

 

Edenville Energy* (EDL LN) FOLLOW 0.05p, Mkt Cap £2.3m – 2018 annual results

• 2018 was the first full year of production at the Rukwa coal project in southwest Tanzania following a commissioning of the wash plant in late 2017.
• The plant processed 75kt of ROM coal producing 15kt of washed coal and 32kt of fine coal.
• In the first five months of the year production was affected by shortage of working capital available with mining operations continuing at the existing pit supplying 19,000t of ROM coal for production of 3,900t of washed product and 9,700t of fine coal.
• Commenting on outlook, the team is looking to ramp up the supply of ROM coal to the processing plant once the operations relocate to the Northern Mining Area targeting break-even run rate in Q3/19 (6,000t of washed coal per month) and be cash flow positive within the next 10 months (c.10,000t of washed coal per month).
• Mining at the Northern Mining Area that is expected to provide better washed coal yields (currently 20%) and incur lower waste stripping is expected to start next month.
• In the meantime, the Company is studying options to monetise the existing fine coal inventories including beneficiating the product raising its calorific value to marketable amounts; although, this would involve additional capex, the management expects a short payback on investment with costs to be funded with future FCF from mining operations.
• In Feb/19, Tanesco informed the Company that its application for tender to supply power to the utility from the proposed Coal to Power project has been declined, while the management remains confident that if and when the transmission line infrastructure is built in the local area the opportunity for a power plant development at the Rukwa Coal Project will continue to move forward.
• On financias, the Company reported maiden revenues of £0.3m during the year, however, due to low production volumes the loss for the year came in at £1.8m (2017: -£1.2m).
• Admin costs (including share based payments) amounted to £0.9m (2017: -£1.1m).
• FCF totalled -£2.0m (2017: -£3.1m) including £0.7m in capex spent during the year.
• Closing cash balance stood at £0.2m with some £0.6m in outstanding convertible notes (issued during the year) as of YE18.

*SP Angel acts as Nomad and Broker to Edenville Energy

 

KEFI Minerals* (KEFI LN) FOLLOW 1.5p, Mkt Cap £10.2m – Hawiah exporation update

• The Company launched a surface geophysical study at Hawiah Exploration License in Saudi Arabia.
• The survey involving IP and resistivity studies aimed at better defining the large VMS target for drilling after previous studies located two strong anomalies under the main 6km long gossan.
• The programme is expected to be followed up by trenching helping to further identify geochemical signature of the anomaly to better set drilling targets.
• Initial 2,500m diamond drilling programme is planned for Q3/19.

Conclusion: Exploration works restart at Hawiah following a two years’ pause as the Company resolved local access issues, regulatory overhauls and secured subsequent license renewal. The low cost programme is expected to test the potential of the previously identified geophysical anomalies in the area prospective in copper/gold/zinc VMS type mineralisation.

*SP Angel act as Nomad and Broker to KEFI Minerals

 

Premier African Minerals* (PREM LN) FOLLOW 0.07p, Mkt Cap £5.6m – Loan Note funding

• Premier African Minerals reports that it has issued a convertible loan note for US$350,000. The loan note carries an annual interest rate of 10%.
• The principal, plus any accrued interest “is repayable in two equal payments on 1 August 1919 and 1 September 2019”.
• Welcoming the financial support, George Roach, CEO of Premier African Minerals said that “I have remarked on the need for our Company to plan for alternative support and to look for further diversification of risk and I do expect this to be one of several key developments in the immediate future."

*SP Angel have an agreement with Premier African Minerals as a result of the acquisition of Northland Capital Partners

 

Solgold* (SOLG LN) FOLLOW 35.55p, Mkt Cap £656.4m – Ecuador court rejects proposed referendum

• Solgold reports that the Constitutional Court has “unanimously and definitively rejected” a proposed referendum relating to “mining in the provinces in which SolGold's 85% owned Cascabel project and other wholly owned exploration projects are located”.

Solgold explains that  “Representatives from a large number of Ecuadorean government bodies, employees, regional community representatives, pro-mining groups, international mining groups as well as members of the community from Cascabel attended the hearing to demonstrate their strong opposition to the proposal”.

• The Court’s decision was based on0 “technicalities. The Court did not discuss, or rule on, the merits of the case. The formal resolution of the Court with further detail in to its rejection of the petition is yet to be published.”
• When the details of the ruling are known the basis of the technicalities leading to the Court’s decision will be better understood by both the proponents of mining and those opposing such development. We support the responsible development of important minerals deposits and recognise that such developments bring important economic and social benefits to their host governments and local communities.
• The history of the industry however suggests that, in our increasingly globalised environment, even relatively small groups of campaigners, sometimes from beyond the regions directly affected, can be tenacious in fomenting opposition to minerals development. Solgold will, no doubt, study the Court’s decision closely and prepare to address any future moves to reinvigorate the referendum proposal.

Conclusion: Ecuador’s Constitutional Court has rejected proposals for a referendum on mining – while welcoming the decision we recognise that Solgold, which we believe has a commendable record of community engagement, may need to ensure it is fully prepared to explain the benefits to a broad audience including the sceptics.

*SP Angel acts as broker and advisor to Solgold. SP Angel have raised funds for SolGold on eight previous occasions.

 

 

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

 

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⁺SP Angel employees may have previously held, or currently hold, shares in the companies mentioned in this note.

 

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