SP Angel . Morning View . China fiscal stimulus proposals lift metal prices

SP Angel – Morning View – Tuesday 15 01 19

China fiscal stimulus proposals lift metal prices

MiFID II exempt information – see disclaimer below

  

Anglo Asian Mining* (AAZ LN) BUY – Target Price raised to 108p from 84p – Annual production comes at the higher end of guidance

Atalaya Mining (ATYM LN) – Record Q4 production brings 2018 in at top end of revised guidance

Orosur Mining (OMI LN) – H1 and Q2 results, Newmont investment in Anzá gold project in Colombia and Uruguay developments

Rambler Metals (RMM LN) – US$1m unsecured loan from 60% shareholder

Tertiary Minerals* (TYM LN) – Intends to contest Storuman mine permit rejection

Vast Resources (VAST LN) – Chairman’s letter seeks authority to invest in the Marange Diamond fields in Zimbabwe and to start mining in Romania

 

Newmont Mining – US$10bn agreed deal with Goldcorp

Key facts:

• Merger ratio: 65:35
• Newmont will pay 0.328 Newmont shares for each Goldcorp share representing a 17% premium to the 20-day weighted average
• Gold production target 6-7moz pa
• Divestments of $1-1.5bn
• Largest dividend payer in the gold mining sector
• World’s second largest reserve and resource base at 121moz combined
• 55% of gold reserves are in Canada, US and Australia
• Synergies estimated at US$100m, which seems modest for a merger of this scale
• The new Newmont will be the only gold miner in the S&P 500 index.
• Break fee: US$350m for Newmont if Goldcorp breaks off or US$650m to Goldcorp if Newmont break the deal ahead of completion
• The deal trumps Barrick’s takeover of Randgold Resources on almost every major metric in what looks like a relatively defensive move

 

Dow Jones Industrials		-0.36%	at	23,910
Nikkei 225		+0.96%	at	20,555
HK Hang Seng		+1.83%	at	26,778
Shanghai Composite		+1.36%	at	2,570
FTSE 350 Mining		-0.96%	at	17,428
AIM Basic Resources		+0.57%	at	2,189

 

Economics

China is looking to continue cutting taxes, especially for small businesses and manufacturing sector, according to government officials.

• The government will step up fiscal expenditure and implement larger tax and fee cuts, the finance ministry said in a statement today.
• The office is focused on stabilising employment which is the government’s top priority, NDRC said.
• A step up in fiscal stimulus comes at a time of increasing concerns over the economy’s faltering growth outlook.
• Sources told Reuters last week that Beijing was planning to lower its growth target to 6-6.5% this year following an expected 6.6% in 2018, the slowest pace in 28 years.
• The target is set to be announced at the annual parliamentary session in March.
• In a separate report by Bloomberg, China is said to take measures to stabilise auto consumption which reported the first annual decline in decades in 2018.

 

Currencies

US$1.1460/eur vs 1.1527/eur yesterday. Yen 108.67/$ vs 108.25/$. SAr 13.785/$ vs 13.812/$. $1.288/gbp vs $1.274/gbp. 0.722/aud vs 0.721/aud. CNY 6.753/$ vs 6.747/$.

 

Commodity News

Precious metals:         

Gold US$1,288/oz vs US$1,293/oz yesterday

   Gold ETFs 71.9moz vs US$71.8moz yesterday

Platinum US$804/oz vs US$804/oz yesterday

Palladium US$1,327/oz vs US$1,315/oz yesterday

Silver US$15.61/oz vs US$15.59/oz yesterday

           

Base metals:   

Copper US$ 5,952/t vs US$5,893/t yesterday

Aluminium US$ 1,840/t vs US$1,830/t yesterday

Nickel US$ 11,525/t vs US$11,350/t yesterday

Zinc US$ 2,483/t vs US$2,460/t yesterday

Lead US$ 1,992/t vs US$1,980/t yesterday

Tin US$ 20,590/t vs US$20,320/t yesterday

           

Energy:           

Oil US$59.6/bbl vs US$59.9/bbl yesterday

Natural Gas US$3.608/mmbtu vs US$3.310/mmbtu yesterday

Uranium US$28.90/lb vs US$28.90/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$72.3/t vs US$72.5/t

Chinese steel rebar 25mm US$587.8/t vs US$587.2/t

Thermal coal (1st year forward cif ARA) US$81.8/t vs US$82.6/t

Coking coal futures Dalian Exchange US$214.1/t vs US$218.8/t

           

Other:  

Cobalt LME 3m US$40,000/t vs US$42,000/t

China NdPr Rare Earth Oxide US$46,278/t vs US$46,675/t

China Lithium carbonate 99% US$9,996/t vs US$10,134/t

China Ferro Vanadium 80% FOB US$69.5/kg vs US$69.0/kg

China Antimony Trioxide 99.5% EU US$7.0/kg vs US$7.0/kg

Tungsten APT European US$260-270/mtu unchanged from previous week

 

Battery News

 

Company News

Anglo Asian Mining* (AAZ LN) FOLLOW86p, Mkt Cap £98m – Annual production comes at the higher end of guidance

BUY – Target Price raised to 108p from 84p

• The Company produced 83.7koz GEO up 17%yoy (2017: 71.5koz GEO) and coming at the higher end of the forecast 78-84koz range.
• Q4/18 production amounted to 21.9koz GEO (Q3/18: 24.4koz; Q4/17: 23.2koz) comprised of 18.2 koz gold (Q3/18: 21.3koz; Q4/17: 21.9koz), 588t copper (Q3/18: 470t; Q4/17: 119t) and 65.8koz silver.
• Gold in dore production (heap and agitation leaching circuits) totalled 15.4koz (Q3/18: 18.9koz; Q4/17: 21.9koz) reflecting slightly lower throughput rates and processed grades.
• Splitting out copper rich ores processing into a separate mill feed is reflected in good leaching plant gold recoveries which run at historically high 92% for the second consecutive quarter.
• Additionally, flotation plant production has been ramping up through H2/18 with 521t copper produced in Q4/18, up on 389t produced in Q3/18 and 336t produced in Q1/18 and Q2/18 combined.
• FY18 gold production totalled 72.8koz, up 22%yoy, driven by stronger performance at the agitation leaching circuit (+25%yoy) treating slightly higher grades (2.23g/t v 2.08g/t) but more importantly yielding better gold recoveries (87% v 68%).
• FY18 copper production amounted to 1.6kt, down 17%yoy, and silver output was 210.2koz, up 22%yoy.
• Annual gold dore sales were 59.5koz (ex PSA) at an average price of $1,265/oz (2017: 43.5koz at $1,265/oz).
• Annual copper concentrate sales (SART and flotation) totalled 7.7kt (ex PSA) generating $15.4m in revenues (2017: 8.5kt and $16.7m).
• Results from the maiden airborne geophysical survey over the 300km² Gedabek contract area are expected in Q1/19.
• First JORC mineral resource estimate at Gadir is also expected to be released in Q1/19.
• The Company is looking “forward to providing further updates on forecast 2019 production… in the coming weeks”.
• Net cash balance climbed to $6.1m ($14.5m in cash and $8.4m in Pasha Bank debt), up from $2.8m as of Sep/18, after deducting $3.4m in maiden dividend payment in November.

Conclusion: The update highlights good performance for the year including annual production coming at the top end of the guidance, the Company having announced a dividend programme and made the maiden payment in November, further strengthening of the balance sheet that has gone from $18.1m in net debt to $6.1m in net cash, expanding and optimising operations as well as launching an exploration programme targeting extensions to existing orebodies and new sources of the ore feed across Group license areas.

Based on closing net cash, the Company generated around $27.5m in FCF during the year which is below our previous estimates ($32.0m) on weaker than expected production in Q4/18 and slightly lower commodity prices among other things . Nevertheless, strong FCF generation is expected to translate into some $6.5m in dividend payments for FY18 (8.3% yield on an average price of 53p for the year). Moving forwards, we expect strong FCF generation to be sustained allowing the Company to continue returning cash to shareholders ($27.3m in FCF, $6.8m in dividends, 5% yield on yesterday’s closing price of 92p) while also investing heavily in the ongoing exploration programme.

Target price: We have applied 3.5x EV/EBITDA multiple to our updated 2019 EBITDA estimate ($39m) in arriving to our target price of 108p highlighting low cash costs of operations driving robust FCFs, dividends, a strong balance sheet and exciting exploration potential. We reiterate our BUY recommendation.

 

(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	$/t	6,828	5,505	4,872	6,196	6,554	6,313	7,000
Gold production	koz	60.3	72.0	65.4	59.6	72.8	82.5	76.7
Copper production	kt	0.8	1.0	1.9	2.0	1.6	4.1	4.1
GE production	koz	65.0	77.0	75.2	71.6	83.8	104.8	100.4
AISC (incl PSA, reported)	US$/oz	1,050	858	616	604	615	552	585
Revenue	US$m	68.0	78.1	79.2	71.8	90.8	116.5	114.8
EBITDA	US$m	10.1	18.7	33.7	32.0	39.6	47.5	44.9
FCF	US$m	-6.9	3.4	14.6	16.3	27.5	27.3	26.6
EV/EBITDA	x	7.7	3.1	1.7	1.7	1.9	2.7	2.9
PER	x	-	-	5.5	13.9	9.0	8.9	6.7
DY	%	-	-	-	-	8.3%	5.0%	4.9%
Net Debt	US$m	52.4	49.0	34.6	18.1	-6.1	-26.4	-46.4
Prices are as of 14/01/19 (92p)

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

 

Atalaya Mining (ATYM LN) FOLLOW227.5 pence, Mkt Cap £312.4m – Record Q4 production brings 2018 in at top end of revised guidance

• Atalaya Mining reports that a new record quarterly production of 11,172 tonnes of contained copper at Proyecto Riotinto during Q4 resulted in a 13% increase in annual production to 42,114 tonnes in 2018.
• In November 2018, the company increased its 2018 production guidance to 39-41,000t of copper from the previously indicated range of 37-40,000t as a result of improved grades, throughputs and recoveries.
• The company’s guidance for 2019, described as a transitional year “given the commissioning of the plant expansion in mid-2019, which will increase production within the range 50,000 to 55,000 tonnes in 2020” is for production in the range 45-46,500 tonnes.
• At this stage, detailed cost information for the final quarter has yet to be published but “Cash operating costs for Q4 2018 are expected to be lower than the 2018 cost guidance ranges previously provided of $2.15-2.30/lb.”
• The company confirms that mining operations are in line with plans and at similar levels to precious quarters and that the plant expansion to 15,tpa is also proceeding on schedule with 80% of the work completed by the end of December 2018.
• At the company’s Touro project in northern Spain, the environmental impact assessment was completed during Q4 and “a number of queries have been addressed and cleared as part of the consultation and permitting process. The next step in the permitting process is the evaluation of the project from a regulatory perspective”.
• Commenting on the results, CEO, Alberto Lavandeira, highlighted the record quarterly and annual copper production achieved during 2018 and noted “the success of the ongoing improvement measures that have been implemented by our operating teams at Proyecto Riotinto in recent years”.

Conclusion: The Proyecto Riotinto continues to set production records as it moves ahead, on schedule, for the commissioning of the plant expansion which takes production capacity to 50-55,000tpa of copper in concentrates, later this year.

 

Orosur Mining (OMI LN) FOLLOW6.1 pence, Mkt Cap £9.2m – H1 and Q2 results, Newmont investment in Anzá gold project in Colombia and Uruguay developments

• Orosur Mining reports a loss of US$1.9m for the quarter ending 30^th November 2018 bringing the loss for H1 to US$8.3m. Following US$2m proceeds received from Newmont as part of its exploration and option agreement to acquire up to 75% of the Anza gold exploration project in Colombia, the company reports a 30^th November 2018 cash balance of US$1.05m.
• The quarterly loss included US$613,000 care and maintenance costs for the San Gregorio mine in Uruguay, US$645,000 for termination costs of the San Gregorio employees and US$639,000 of corporate expenses.
• The company has previously announced that its subsidiary in Uruguay, Loryser, has reached a payment plan with its creditors, “This agreement contemplates that net proceeds from the sale of Loryser’s assets in Uruguay together with the issuance of 10 million common shares of Orosur shall fully satisfy all amounts owing to Loryser’s creditors as well as provide funds for Loryser to conduct this process and close operation responsibly”.
• Under the agreement with Newmont Mining, it can “earn up to a 75% ownership interest in the Anzá Project by making cash payments to Orosur equaling a total of $4 million over Phases 1 and 2, spending a minimum of $30 million in qualifying expenditures over twelve years, and in addition completing NI 43-101 compliant pre-feasibility and feasibility studies”.
• Commenting on the significance of attracting Newmont’s investment and of securing the creditors’ agreement in Uruguay, which he described as providing “a platform to transform Orosur”, CEO, Ignacio Salazar  expressed delight at securing these milestones and recognised that we are “very aware of the work in front of us and our commitment to deliver on both agreements”.

Conclusion: Orosur Mining is moving to an orderly resolution of the events surrounding the closure of the San Gregorio mine and moving forward with Newmont Mining in the exploration of the promising Anza gold project in Colombia.

 

Rambler Metals (RMM LN) FOLLOW2.2p, Mkt Cap £14.5m – US$1m unsecured loan from 60% shareholder

• Rambler Metals has announced that its wholly owned Canadian subsidiary, Rambler Metals and Mining Canada (RMMC) has agreed a US$1m unsecured loan from CE Mining III Rambler Limited (CEIII).
• CEIII is described as a “wholly-owned subsidiary of CE Mining Fund III L.P., a Cayman Islands exempted limited partnership whose general partner is under common ownership with the general partner of CE Mining II L.P., whose subsidiary CE Mining II Rambler Limited (CEII) is a control person of Rambler” and owns approximately 60% of the company and is described as part of the CE Mining Fund “… a specialised investment fund, established in 2015 to invest in hard asset mining and mineral projects”.
• The loan carries interest at 10% and is subject to an arrangement fee of US$15,000 and a defined final repayment date of “the first business day falling 12 moonths after the date of the loan”. “The Loan is repayable by the payment to CEIII of all net proceeds realized from each fundraising (whether by way of the issuance of equity or debt by the Company) completed by the Company prior to the Final Repayment Date”.
• In relation to its operating Ming copper/gold mine in Canada, the company comments that “Following the completion of its recent productivity improvement initiative Rambler's focus is on sustaining mine and mill production at 1,250 metric tonnes per day.  With a return to profitability and positive cash flow, Rambler will continue advancing Phase III engineering studies with a view to further increase production to 2,000 mtpd at the Ming Mine”.

Conclusion: Rambler Metals main shareholder is supporting the recent improvements at the Ming mine where the company expects increased throughput to deliver a return to profitability and positive cashflow.

 

Tertiary Minerals* (TYM LN) FOLLOW0.325p, Mkt Cap £1.2m – Intends to contest Storuman mine permit rejection

• Tertiary Minerals has confirmed that, in accordance with the advice of its Swedish lawyers, it intends to appeal the decision by the Swedish Mining Inspectorate to reject the application to develop the Storuman fluorspar project.

The company notes that the Mining Inspectorate “states in their decision that the economic aspects point in favour of granting the exploitation concession, that a permit regarding Natura 2000-area is unnecessary, that fluorspar is included in the EU list of critical materials and that a mining establishment would mean positive socio-economic benefit for the municipality of Storuman”.
Despite this recognition of the merits of the proposed development, the Mining Inspectorate has decided that “the protective/mitigation measures suggested by Tertiary are not sufficient to enable coexistence between mining and reindeer husbandry”.
The company has, however, obtained legal advice that “the Mining Inspectorate has not fully assessed the case regarding the protective/mitigation measures suggested by Tertiary” and consequently it intends to appeal the decision to the Government.

• Commenting on the company’s disappointment at the Inspectorate’s decision, Managing Director, Richard Clemmey said “We, together with our Swedish Lawyers, will appeal the decision to the Swedish Government and will now assess the future options available to the Company”.

Conclusion: Although there appear to be legal ground to contest the rejection of the exploitation permits for the Storuman project we fear that these could prove to be protracted.

*SP Angel act as Nomad and broker to Tertiary Minerals

 

Vast Resources (VAST LN) FOLLOW0.31p, Mkt Cap £17.9m – Chairman’s letter seeks authority to invest in the Marange Diamond fields in Zimbabwe and to start mining in Romania

• The Chairman of Vast Resources has written to shareholders seeking authority for a number of specific resolutions at the AGM.
• The board are looking to raise new equity to fund the following projects:
  • Development of diamond mining in the Marange diamond fields in Zimbabwe (Resolutions 1 and 2);
  • Creation of head room in connection with the loan from Bergen Global Opportunities Fund LP (“Bergen”) (Resolutions 3 and 4); and
  • Commencement of mining at the Baita Plai polymetallic mine in Romania and general working capital (Resolutions 5 and 6)
• The resolution to raise the equity headroom with Bergen may well prove contentious though
  • “The agreement with Bergen requires a resolution to increase headroom to be put to Shareholders by 31 January 2019. The Directors consider that the interests of Shareholders are best served by bringing forward all the proposals for increased headroom in a single document, rather than over a period.  It should be stressed that there is no firm commitment at this time to issue any of the new equity share capital for which authority is sought, and it remains the policy of the Directors to minimise such issues.” According to today’s statement.
• Marange: The board is looking to issue £2m worth of shares as security for a loan where the shares will only be issued in the event of default.
• The Marange diamond fields are known for their rich diamonds and have previously subjected to targeted EU Sanctions on ZMDC, the Zimbabwe state mining company. Vast is looking to mine an area at Marange that has not been previously mined by the Zimbabwe state or a Chinese military group which was said to have taken over an area of the Marange diamond fields at one stage.
• The government evicted all diamond mining companies in 2016 including two Chinese joint venture companies from Marange after they refused to merge with ZMDC. The move may have been part of a broader  purge of Chinese companies which were seen to be exploiting Zimbabwe.
• Vast are looking to work the Heritage concession in conjunction with Botswana Diamonds run by James Campbell which is looking to perform due diligence on the area in jv with Vast Resources
• The Heritage concession is owned by the Marange-Zimunya Community Share Ownership Trust which has kept the concession free of exploitation and has received an undertaking from the Government of Zimbabwe for a licence to mine on the Heritage Concession.
  • “The Zimbabwe Mines Minister has made a statement that indigenous ownership requirements may be waived subject to certain conditions including reserving 10% of the gems mined for ‘local value addition’.”
  • “Despite reports in the press that the Minister of Mines has stated that the Company will be invited to explore for diamonds in Zimbabwe, as yet the Company has received no official notification of this position.”
• Baita Plai, Romania: Vast is also looking for approval to fund the start of production at the Baita Plai  polymetallic mine in Romania following completion of legal documentation and mining approvals. Delays to the legal documentation have delayed cash flow generation while incurring pumping and other costs at the mine. The team plan to move to 13,000t per month of throughput after the first 12 months.
• Funding: “Under Resolution 5 the Board is seeking authority to issue new shares up to a nominal value of £800,000  (allowing for the allotment of up to 800 million new ordinary shares of 0.1p each) and under Resolution 6 the Board is requesting the disapplication of pre-emption rights in respect of any such allotment which authorities also cover general working capital requirements..”
• See link for further info on resolutions and the Bergen loan facility:
• http://www.vastresourcesplc.com/news/letter-to-shareholders-and-notice-of-general-meeting-15-01-2019/

 

 

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

 

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*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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