SP Angel – Morning View – Copper pulls back on softer Chinese economic data
Paul Kettle
SP Angel Research Notes -3 min read
11:18, 14th March 2019

SP Angel – Morning View – Thursday 14 03 19

Copper pulls back on softer Chinese economic data

MiFID II exempt information – see disclaimer below    

Anglo Asian Mining* (AAZ LN) BUY – Target Price 96p – Gedabek confirms extended mine life with brownfield development and further greenfield exploration

Avesoro Resources (ASO LN) – 2018 results show marked improvements

Gem Diamonds (GEMD LN) – Pink diamond sale sets record price per carat for Letseng mine

Horizonte Minerals (HZM LN) – Vermelho metallurgical test results

Ormonde Mining* (ORM LN) – Brookfield to buy out Oaktree in effort to rival private equity giant, Blackstone

Premier African Minerals* (PREM LN) – Restructuring subject to immediate recommissioning of mining operations

 

China – Industrial production growth slowed more than forecast in the first two months of the year pointing to further weakening of economic growth momentum.

  • At the same time property investment is reported to have picked up while overall retails sales have been steady.
  • “The latest data should partially ease concerns about a sharp slowdown at the start of the year… but the near-term outlook still looks downbeat”, Capital Economics said in the a note.
  • Industrial production climbed 5.3%yoy in January-February compared to 5.7%yoy recorded in December and 5.5% expected.
  • FAI accelerated to 6.1%yoy slightly more than expected and up marginally from 5.9% in 2018. Most of gains have been led by a jump in property investment which increased to a five-year high of 11.6%yoy.
  • Retail sales were marginally better than estimated with the headline number climbing 8.2%yoy, in line with December with the previous slowdown now having been stabilised.
  • Cutbacks by export oriented companies as well as calendar fluctuations led to a pick up in unemployment rate which increased to 5.3%, up from 4.9% in December, although it remains below the government’s target of 5.5% this year.

 

Tesla Model 3 – looks to become the best-selling electric car in Europe

  • Tesla has already delivered hundreds of Model 3 cars in Norway in the first week of March with >1,000 new Model 3 vehicles registered.
  • Around 1,000 Model 3 cars were delivered in Germany in February highlighting the success of the vehicle though we suspect German auto manufacturers have bought a few for deconstruction. 472 Model 3 were also delivered in Holland outselling its EV rivals.

 

Kosovo - Minister of Trade and Industry stresses importance of mining as the most sustainable way to develop the Kosovo economy.

  • "The International Finance Corporation, a member of the World Bank Group, recently signed an agreement with Kosovo’s Minister of Trade and Industry in order to help improve the business environment in the country by reforming business inspections system, simplifying administrative procedures, and providing better services to investors, aiming to boost the competitiveness of smaller businesses in the country".
  • “Kosovo is ripe for investment in the mining field, as the country has underground assets that can be used,” Mr Hasani told the audience at the Mining Sector and Mineral Resources Kosovo-Albania conference. According to emerging-europe.com.

 

Dow Jones Industrials

 

+0.58%

at

25,703

Nikkei 225

 

-0.02%

at

21,287

HK Hang Seng

 

+0.09%

at

28,835

Shanghai Composite

 

-1.20%

at

2,991

FTSE 350 Mining

 

-0.48%

at

19,026

AIM Basic Resources

 

-0.10%

at

2,157

 

Economics

UK – PMs voted down the plan to exit the EU without a transition deal and are expected to support the government seeking a delay to the March 29 Brexit date later today.

  • Chancellor of the Exchequer Philip Hammond earlier said that the EU might insist on a long delay to Brexit if the UK government requests an extension to the process without a clear deal it is working on.
  • The pound is climbing against the euro and the US$ as no deal Brexit prospect is off the table now.
  • Property prices growth is at its weakest since 2011 as Brexit uncertainty continued to weigh on the market, according to the RICS data.
  • The index dropped to -28 in February, the lowest since May 2011, from -22 in January.
  • 77% of respondents in the RICS survey said Brexit uncertainty was holding back sales activity; although 12-monht sales expectations suggested momentum could recover moving forwards.
  • 2019 GDP growth has been revised down to 1.2% compared to 1.6% estimate released in October as the government failed to clear up the uncertainty about Brexit as well as on the back of weakening global growth outlook, the latest OBR numbers showed. 2020-2021 growth rates are predicted at 1.4% and 1.6%, respectively, versus 1.4% estimated in October. This is largely in line with BoE estimates that previously suggested the economy to climb 1.2% this year.

 

Currencies

US$1.1332/eur vs 1.1285/eur yesterday. Yen 111.64/$ vs 111.36/$. SAr 14.423/$ vs 14.350/$. $1.332/gbp vs $1.314/gbp. 0.707/aud vs 0.706/aud. CNY 6.716/$ vs 6.711/$.

 

Commodity News

Precious metals:         

Gold US$1,303/oz vs US$1,304/oz yesterday

   Gold ETFs 71.7moz vs US$71.7moz yesterday

Platinum US$835/oz vs US$835/oz yesterday

Palladium US$1,546/oz vs US$1,537/oz yesterday

Silver US$15.34/oz vs US$15.46/oz yesterday

           

Base metals:   

Copper US$ 6,432/t vs US$6,454/t yesterday

Aluminium US$ 1,899/t vs US$1,881/t yesterday

Nickel US$ 13,055/t vs US$12,990/t yesterday

Zinc US$ 2,830/t vs US$2,844/t yesterday

Lead US$ 2,115/t vs US$2,094/t yesterday

Tin US$ 21,240/t vs US$21,130/t yesterday

           

Energy:           

Oil US$68.0/bbl vs US$66.9/bbl yesterday

Natural Gas US$2.835/mmbtu vs US$2.771/mmbtu yesterday

Uranium US$27.65/lb vs US$27.90/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$82.1/t vs US$82.4/t

Chinese steel rebar 25mm US$616.6/t vs US$612.8/t

Thermal coal (1st year forward cif ARA) US$74.8/t vs US$75.8/t

Coking coal futures Dalian Exchange US$196.7/t vs US$196.8/t

           

Other:  

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

China NdPr Rare Earth Oxide US$43,554/t vs US$43,587/t

China Lithium carbonate 99% US$9,753/t vs US$9,761/t

China Ferro Vanadium 80% FOB US$73.5/kg vs US$74.0/kg – ferro-vanadium prices pull back on European slowdown and caution over timing of Brexit

  • Ferro-vanadium prices pulled back 4.1% in Western Europe this week to $68.5-73/kgV Fastmarkets MB.
  • The Fastmarkets MB trade log shows a number of trades and offers of metal to be sold in a reasonably active market.
  • We suspect European consumers and traders are cautious due to poor economic performance in Germany and Italy and ahead of Brexit.
  • Confusion over the UK’s exit process from Europe is likely to be a contributory factor to the European slowdown as trade with the UK may well be affected with the introduction of new customs checks.
  • If the UK crashes out of Europe then the European Parliament may have to restructure and delay planned new infrastructure construction and financial support for other European projects.
  • Uncertainty over future financial contributions into the EU will lead to further caution at steel producers, traders and other materials suppliers.

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

Tungsten APT European US$271-282/mtu vs US$270-280/mtu

 

Battery News

Jaguar Land Rover recalls 44,000 as vehicles fail to meet permitted emissions

  • The recall appears to affect two litre diesel and petrol engines and demonstrates how tough it is for SUVs to meet EU emissions legislation for vehicles built in recent years.
  • Might be why I drive a much older model which is going strong at >90,000 miles and no intention of buying a newer model till it’s forced off the road.

 

Fuel cell vehicles: New sensor system safeguards fuel quality at hydrogen filling stations

  • Hydrogen for most fuel cells needs to be free of contaminants that can shorten the cells life or need flushing to regain performance
  • Some types of fuel cell are robust and can use propane and other gasses but most work best of pure, uncontaminated hydrogen
  • A new sensor system for continuous in situ monitoring of hydrogen quality at hydrogen fuelling stations is an important step forward to safeguard fuel cell performance and life. The sensor system need to under high pressure in short refuelling times. Trials will start in the Autumn.

 

Company News

Anglo Asian Mining* (AAZ LN) FOLLOW73p, Mkt Cap £84m – Gedabek confirms extended mine life with brownfield development and further greenfield exploration

BUY – Target Price 96p

  • The Company released detailed JORC compliant resources and reserves reports on Gedabek open pit and Gadir underground operations.
  • While headline mineral inventory numbers remain unchanged from previous announcements, reports provide information on geology, mineralisation and orientation of orebodies at Gedabek and Gadir as well as planned mining schedules, metallurgical recoveries and operating cost estimates used to arrive at JORC compliant mineral resources and reserves.
  • At Gedabek (open pit only) mineral resources and reserves currently stand at:
    • 986koz at 0.8g/t gold, 8,172koz at 6.8g/t silver and 63kt at 0.2% copper in total mineral resources in gold domain in addition to 25koz at 0.1g/t gold, 426lkoz at 2.0g/t silver and 33kt at 0.5% copper in total mineral resources in copper domain;
    • 343koz at 0.88g/t gold, 3,457koz at 8.9g/t silver and 36kt at 0.30% copper in mineral reserves.
  • At Gadir (excluding any mineralisation below the Gedabek back wall) mineral resources and reserves currently stand at:
    • 172koz at 2.29g/t gold, 840koz at 11.14g/t silver, 3.9kt at 0.19% copper and 17.4kt at 0.78% zinc in total mineral resources (more than 3/4s of that is in higher confidence Measured and Indicated category);
    • 70koz at 2.73g/t gold, 304koz at 11.86g/t silver and 1.4kt at 0.17% copper in mineral reserves.
  • $1,250/oz gold and $6,000/t copper price assumptions have been used in both reports.
  • On current reserves, Gedabek and Gadir life of mines currently run to 2024 and 2023, respectively, with ample potential to improve on those with mineralisation remaining open both along strike as well down dip.
  • In particular, exploration at Gedabek open pit continues on flanks of the orebody targeting copper mineralisation while both surface and underground drilling is planned to test deeper extensions of the orebody.
  • At Gadir, exploration works will be predominantly carried form the underground benefitting from the existing infrastructure of the producing mine with step out drill holes yet to delineate boundaries of the orebody.
  • “The completion of this work provides a strong understanding of the combined production profile of all operating mines, that gives a mine life until end 2024 from the current reserves… exceptional exploration potential exists at not only the Gedabek Contract Area, but also at the Ordubad and Gosha Contract Areas, which will be evaluated in due course to increase the Group resources with the aim of expanding current mines and constructing new mines,” Stephen Westhead commented on the announcement.

(Dec year end)

 

2014

2015

2016

2017

2018E

2019E

2020E

Gold price

US$/oz

1,267

1,161

1,253

1,261

1,271

1,313

1,350

Copper price

$/t

6,828

5,505

4,872

6,196

6,554

6,313

7,000

Gold production

koz

60.3

72.0

65.4

59.6

72.8

67.6

65.7

Copper production

kt

0.8

1.0

1.9

2.0

1.6

3.3

3.6

GE production

koz

65.0

77.0

75.2

71.6

83.8

86.3

86.9

AISC (incl PSA, reported)

US$/oz

1,050

858

616

604

612

603

594

Revenue

US$m

68.0

78.1

79.2

71.8

90.8

95.8

99.1

EBITDA

US$m

10.1

18.7

33.7

32.0

39.8

35.8

38.2

FCF

US$m

-6.9

3.4

14.6

16.3

27.6

19.8

22.0

EV/EBITDA

x

7.7

3.1

1.7

1.7

1.9

2.9

2.7

PER

x

-

-

5.5

13.9

8.9

16.0

12.0

DY

%

-

-

-

-

8.7%

6.2%

6.2%

Net Debt

US$m

52.4

49.0

34.6

18.1

-6.1

-19.1

-34.2

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

 

Avesoro Resources (ASO LN) FOLLOW153.5p, Mkt Cap £125.2m – 2018 results show marked improvements

  • Avesoro Resource has reported a reversal of 2017’s operating loss of approximately $15.4m with a profit of $0.6m and a 348% improvement in EBITDA to $77.5m and an EBITDA margin of 27%.
  • Higher levels of financing costs and foreign exchange losses result in a pre-tax loss of $16.4m (2017 - $27.3m loss) and a sharply increased $10.4m tax charge (2017 - $0.1m) result in a net 2018 loss of $26.9m (2017 - $27.4m loss)
  • Cash flow generated from operations of US$73.1 million in 2018, a 571% increase YoY” and we estimate that free cash flow after $44.7m of capital investments reversed last year’s outflow of $24.0m with positive free cash flow generation of $28.4m.
  • The company reports a 5% reduction in gross debt to $127.0m and we estimate that net debt is slightly lower at $120.3m (2017 – 121.5m).
  • Confirming that its focus remains on producing profitable ounces from our gold mines and delivering long term value by optimising the efficiency of our operations and increasing the Company's Mineral Reserves base and project pipeline”Chief Executive, Serhan Umurhan, explained that The cash flow from operations enabled us to undertake an exceptional exploration drilling campaign during 2018 which has already resulted in Mineral Reserves almost doubling at New Liberty to 1,355koz and developing the underground mining plan for the deposit combined with first reserves from the Ndablama satellite deposit. I look forward to delivering on the New Liberty life of mine extension plan during 2019 with the preparations for the transition towards underground operations at New Liberty now underway. We also expect to announce an increase in reserves at Youga during Q2 2019”.
  • Mr Umurhan went on to emphasise that We are consistently delivering on our plan to build a multi-asset gold producer and management is committed to continuing to do so.”

Conclusion: Avesoro continues to carry substantial debt, however, the improving operations and cash flow generation place them in  stronger position to address the issues and implement their plans to extend mine life and develop underground at New Liberty.

 

Gem Diamonds (GEMD LN) FOLLOW94.8p, Mkt Cap £125.3m –Pink diamond sale sets record price per carat for Letseng mine

  • Gem Diamonds reports that the sale of a 13.33 carat pink diamond from the Letseng mine for a total of US$8,750,360 has realised a “record dollar per carat price of US$656,933 for a Letseng diamond”.
  • To put this sale into context following the release of the company’s 2018 annual results yesterday, this single diamond has realised the equivalent of approximately 3% of the company’s 2018 revenue of US$267m.
  • We note that in the March 2019 edition of the highly respected specialist diamond industry “Rapaport Magazine” the “RapNet Diamond Index” shows a declining trends in the prices of both the larger stones greater than 3 carats in size and in the smaller stones less than 0.3 carats.
  • Index levels for the smaller stones have declined by 0.33% during the month to 10th March and by 9.11% over the year while the larger stones are shown to have declined by 0.52% over the month and by 6.51% annually.
  • Intermediate sizes of diamonds appear to have shown greater price stability with 0.50 carat stones declining 2.87% and the 1 carat diamonds declining by 2.61% respectively over the year.

Conclusion: The Letseng mine continues to deliver large, valuable and high quality diamonds and despite softening in some parts of the diamond market we expect unique diamonds like the recently sold pink stone and the 15 stones larger than 100 carats produced by Letseng last year to continue to command premium prices

 

Horizonte Minerals (HZM LN) FOLLOW2.07p, mkt cap £30.4m –Vermelho metallurgical test results

  • Horizonte Minerals has released a summary of laboratory metallurgical testing of material from its Vermelho nickel cobalt project in Para state, Brazil.
  • The results, “using a calcine charge of approximately 200 grams” of crushed and sized saprolite material from Vermelho “returned an average ferronickel grade of 31.8% nickel”  and the company describes the product as of high quality, being low in trace elements and meeting the commercial requirement of stainless-steel manufacturers”.
  • This testing confirms the suitability of the conventional Rotary Kiln Electric Furnace ("RKEF") for processing Vermelho saprolite ore.”
  • Horizonte Minerals CEO, Jeremy Martin, commented that We currently have a prefeasibility underway for the project and the data from this test work and the work being undertaken by SGS Lakefield, will be incorporated into the study with the objective of demonstrating a robust set of economics for the selected process route”.
  • Mr. Martin went on to confirm that “we continue to advance the construction financing on the Araguaia Project [which also plans to use RKEF technology]. Against a backdrop of global growth in nickel consumption running at around 4 to 5% per year with stainless steel currently accounting for two thirds of demand.”

Conclusion: Horizonte Minerals’ laboratory scale metallurgical testing shows the suitability of the saprolite material at Vermelho to produce commercial quality ferronickel using RKEF technology. The results are to be incorporated in pre-feasibility level work currently underway on the Vermelho project. As the project advances, we would expect more extensive testing of larger samples of material to build on this initial work to establish an appropriate flowsheet.

 

Ormonde Mining* (ORM LN)FOLLOW 4.2p, Mkt Cap £19.8m – Brookfield to buy out Oaktree in effort to rival private equity giant, Blackstone

  • Brookfield Asset Management has agreed to buy a majority stake in Oaktree Capital in a ~$4.8bn deal  billion deal.
  • Brookfeld and Oaktree have a mere $475bn of assets under management vs Blackstone $472bn.
  • Oaktree Capital currently hold 70% of Ormonde Mining* which is currently commissioning and is perilously close to tungsten production.
  • See http://ormondemining.com/timeline-in-pictures/
  • It is typical for asset managers to review management and assets in this sort of combination
  • We suspect Oaktree will be looking to do more with their stake in Ormonde Mining going forward
  • Open-pit mining of tungsten ore started in January with ore used to commission the crushing, screening and to prepare fine ore for the commissioning of the process plant.
  • The process plant has already treated some ore as part of the “hot-commissioning” which “will continue during the remainder of February and into March.”
  • Wet and dry commissioning of the process plant should now be mostly complete, with ore now being introduced to the process plant.
  • Tungsten APT 88.5% WO3 prices moved slightly higher yesterday in China rising 0.6% to $268-277/mtu (Fastmarkets MB).
  • APT prices in Europe also rise by 0.5% to $271-282/mtu last week (Fastmarkets MB).

Conclusion: Commissioning at Barruecopardo should be near completion though no date has been set. Barruecopardo should be in a good position as spring approaches and we look forward to positive news as the mine and plant approach commercial production.

*SP Angel acts as Broker to Ormonde Mining

 

Premier African Minerals* (PREM LN) FOLLOW0.12p, Mkt Cap £8.9m – Restructuring subject to immediate recommissioning of mining operations

  • Premier African Minerals report the securing of a $6m investment into the RHA tungsten mine in Zimbabwe from the Zimbabwe Ministry of Industry, Commerce and Enterprise Development.
  • The move highlights the government’s new business-friendly approach to mining and investment in Zimbabwe.
  • The US$6m investment is to offset existing loans to get the mine straight back into production at 6,000t per month.
  • The exact form of the US$6m investment is not yet known.
  • Management are to drill at the RHA mine to determine the viability of a decline with 3-4 months needed for development.
  • The company recently placed £400,000 worth of stock in the market at 0.09 pence per share.
  • Premier’s management are also working on a DFS for the Zulu lithium project.
  • The team have also entered into a binding conditional heads of terms to acquire 50% of the equity of HBR, the owner of a Zimbabwe-based near-term gold producer with substantial exploration and development upside potential, for a consideration of US$3.7 million to be settled in Shares

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

 

 

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

 

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.

 

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This note has been issued by SP Angel Corporate Finance LLP (“SP Angel”) in order to promote its investment services.

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