SP Angel Morning View. Base metals complex at three year low on virus outbreak fears

SP Angel . Morning View . Thursday 30 01 20

Base metals complex at three year low on virus outbreak fears

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MiFID II exempt information – see disclaimer below   

Atalaya Mining (ATYM LN) – Update on permitting at Proyecto Riotinto

Bushveld Minerals* (BMN LN) - Valuation 82p – Significant operational improvements in Q4 help Bushveld to positive year end result

Caledonia Mining (CMCL LN) – Increased 2019 earnings guidance

Greatland Gold (GGP LN) – Newcrest quarterly exploration report highlights results from the Havieron project

KEFI Minerals* (KEFI LN) – TKGM partners to meet mid-February for release of funds

Kodal Minerals* (KOD LN) – MOU signed with Mali Lithium to explore synergies of Bougouni Lithium project

Peak Resources (PEK AU) – Presentation highlights Teesside rare-earths separation plant

Talga Resources* (TLG AU) – Test work validates PFS assumptions

Vast Resources* (VAST LN) – Atlas Capital facility drawdown update

 

Fortescue Metals monitors coronavirus outbreak as fears shut Chinese ports (Sydney Morning Herald)

• The Australian iron ore producer said the virus has not yet affected iron ore shipments, however the company is keeping a close watch on the ‘evolving situation’.
• Fortescue’s CEO said ports in China had been closed this week in a bid to contain the virus, but the company had not yet received any requests to defer its incoming shipments.
• The price of benchmark Australian iron ore has fallen 10.3% to $85.60/t this week, as the virus outbreak has lessened China’s appetite for raw materials (S&P Global Platts).
• Shares in BHP, Rio Tinto and Fortescue have all fallen this week, highlighting the dependence that these companies, along with the Australian Economy, have on iron ore and China (FT).
• Despite the recent dip in prices, iron ore prices remain high as many of the big miners can produce iron ore for as little as $15/t.

 

SP Angel team tops base metals prediction leaderboard - APEX Q4 2019 (FastmarketsMB)

• The metals and mining team at SP Angel clinched the top spot on the base metals leaderboard for the Apex fourth-quarter 2019 predictions, with an accuracy rating of 99.29%
• Rhona O’Connell of INTL FC Stone came top for precious metals with a rating of 99.26%.

SP Angel results:

• • 1^st - Base metals overall
  • 1^st – Copper
  • 1^st – Tin
  • 1^st – Zinc
  • 4^th – Precious metals
  • 3^rd – Silver
  • 5^th Palladium

 

Outlook for gold 

• We maintain a bullish outlook for gold as interest rates may fall further in the US, China, EU and elsewhere and as business sentiment, confidence and retail sales experience downturn.
• Phase 1 of the US-China trade war has been signed but further metal tariffs are threatened by the US and many are unconvinced that China will meet its obligations. To complicate matters further US farmers may not be able to produce sufficient produce to meet the trade war obligations either. Forecasting a final resolution to phase 2 of the trade war feels uncertain though Trump may want to sign something before the US election in November.
• Trump administration policies appear to promotes further federal borrowing, threatening the strength of the US dollar which should help gold move higher.
• Trump is also pressing the Federal Reserve to cut or hold interest rates and to allow inflation to rise above 2%. While the Fed appears diametrically opposed to Trump rhetoric Fed officials do now appear keen to allow inflation to rise above target levels.
• China’s novel 2019-nCoV virus has hit economic activity in Wuhan and other Chinese cities. The official number of infected cases is likely to be far less than reality indicating to us that the mortality rate is much less than headlines might suggest. SP Angel’s healthcare analysts reckon 2019-nCoV is, maybe, not so much worse than the common flu virus which is also a coronavirus.
• Geopolitical tension in the Middle East continues and is also helping gold prices higher following the assassination of Iranian General Qasem Soleimani. Turkey and Russia are filling the vacuum as the US military prepare to withdraw from the region.
• Drone strikes on Saudi Aramco oil facilities are a cause for concern and could see geopolitical tension rising again in the Middle East. The power struggle in Iran to replace Soleimani may calm things down for a while but another hostage crisis may be developing.
• Central banks are likely to continue to grow their gold reserves, as seen last year as central bankers attempt to diversify their foreign exchange reserves.
• Gold mine supply suffers anaemic growth while overall investor demand continues to rise indicating further upward momentum in the gold market.

 

Dow Jones Industrials		+0.04%	at	28,734
Nikkei 225		-1.72%	at	22,978
HK Hang Seng		-2.62%	at	26,449
Shanghai Composite		CLOSED	at	2,977
FTSE 350 Mining		-0.42%	at	18,137
AIM Basic Resources		-0.67%	at	2,106

 

Economics

US – US equity futures are all in red following European and Asian equity indices as investors are trying to price consequences of the virus outbreak.

• The Fed kept rates unchanged at 1.50-1.75% while continuing to signal the policy will remain on hold in the medium term
• The central bank expects inflation to move closer to the 2% target over the next few months after “unusually low readings from early 2019 drop out of the calculation”.
• PCE inflation index climbed 1.5%yoy in the first 12 months ending in November as weak unemployment fails to exert pressure on labour earnings.
• Term and overnight repurchase agreement operations directed at addressing liquidity issues in money markets will be extended through April 2020.
• Treasury bond yields finished lower on Wednesday on the back of further deterioration in the risk sentiment amid the news of the coronavirus outbreak.
• Markets are increasingly betting the FOMC will cut rates during the next meeting with an implied chance of drop now at69% v 58% on Tuesday and 38% a month ago.
• The World Health Organisation will reconvene on Thursday to decide on whether the outbreak constitutes a global emergency.
• Latest estimates suggest 7,736 people were infected with a virus and 170 dead in China.
• Meanwhile, first cases of the virus have been reported in India, Philippines and Finland.

 

UK – Business sentiment soared to the highest in 14 months in a post-election bounce in January.

• The BoE is closely watching the latest series of economic data ahead of the MPC decision due later today with a 50% of cut priced in by markets.
• The pound is little changed against the US$ this morning trading at the weakest in six days ahead of the MPC announcement.

 

British car production falls at quickest pace since recession (Reuters)

• British car output dropped last year at the fastest rate since the 2008-09 recession, due to falling exports and slumping demand for diesel vehicles.
• Production fell by an annual 14.2% to 1.3 million cars in 2019, the third consecutive year of fall.
• However, investment nearly doubled to £1.1bn, due to Jaguar Land Rover’s decision to build EVs in Britain.
• The Society of Motor Manufacturers and Traders have called for an ambitious free trade agreement with Europe to protect the sector beyond the transition period which will be in force for the rest of 2020.

 

Currencies

US$1.1019/eur vs 1.1005/eur yesterday.  Yen 108.89/$ vs 109.04/$.  SAr 14.646/$ vs 14.600/$.  $1.302/gbp vs $1.302/gbp.  0.673/aud vs 0.676/aud.  CNY 6.911/$ vs  6.911/$.

 

Commodity News

Gold US$1,580/oz vs US$1,570/oz yesterday - World Gold Council – Gold Demand Trends Full year and Q4 2019

• Gold demand fell 1% in 2019 as a huge rise in investment flows and ETFs was matched by the price-driven slump in consumer demand.
• The WGC describe 2019 as a year of two halves – resilience/growth across most sectors in the first half of the year, contrasted with widespread y-o-y declines in the second.
• Global demand in H2 was down 10% on the same period of 2018, due to losses in jewellery demand and retail bar and coin investment.
• Central bank demand also slowed in the second half of 2019, down 38% in contrast with H1’s 65% increase.
• The decrease was due to the sheer scale of buying in the preceding few quarters and as a result, annual purchases reached 650.3t – the second highest level for 50 years.
• The annual supply of gold increased 2% to 4,776.1t. This growth came purely from recycling and hedging, as mine production fell 1% to 3,436.7t.
• For the full report, visit: https://www.gold.org/goldhub/research/gold-demand-trends/gold-demand-trends-full-year-2019

   Gold ETFs 82.6moz vs US$82.3moz yesterday

Platinum US$970/oz vs US$994/oz yesterday

Palladium US$2,269/oz vs US$2,314/oz yesterday - Nornickel to deliver three tonnes of palladium ingots to the market (Reuters)

• The world’s largest producer announced yesterday its Global Palladium Fund would deliver three tonnes of palladium ingots to the market to provide a short term relief to tight supplies.
• Around 340t of palladium is consumed every year, and the market has been undersupplied for the last decade as automakers have increased the palladium content of autocatalysts to meet environmental standards.
• Nornickel believe that the market has over-reacted, as the underlying industrial demand is not evolving as much as the price seems to indicate.

Silver US$17.73/oz vs US$17.50/oz yesterday

            

Base metals:    

Copper US$ 5,636/t vs US$5,717/t yesterday

Aluminium US$ 1,742/t vs US$1,750/t yesterday

Nickel US$ 12,685/t vs US$12,595/t yesterday

Zinc US$ 2,215/t vs US$2,242/t yesterday

Lead US$ 1,812/t vs US$1,886/t yesterday

Tin US$ 16,155/t vs US$16,265/t yesterday

            

Energy:            

Oil US$58.8/bbl vs US$60.1/bbl yesterday

• Oil futures saw mixed trading yesterday, with US prices down after government data revealed that domestic crude inventories posted a bigger than expected weekly climb—the largest since November

• Global benchmark crude prices, meanwhile, settled higher on the back of reported conflicts in the Middle East
• Elsewhere, OPEC is considering moving up its March meeting as the effects of Coronavirus continues to exert strong downward pressure on oil prices, signalling that the group is concerned about the effects on the oil market
• The virus has progressed quickly, and so too has the effects on demand. With the death toll reaching 132 and the number of infected reaching nearly 6,000, many flights have been cancelled to and from China, posing a tangible threat to jet fuel demand
• Pre-virus Chinese oil demand has been growing at an annual rate of 5.5%, while comparatively, US oil demand has been growing by 0.5%
• The Chinese government has tried to quarantine Wuhan and other cities, affecting tens of millions of people
• Multinational businesses in China are also implementing lockdown procedures.

Brent futures down up 0.3% to $59.3/bbl, whilst WTI futures are down 0.4% to US$53.9/bbl

Natural Gas US$1.846/mmbtu vs US$1.920/mmbtu yesterday - Natural gas prices moved lower yesteray ahead of the Department of Energy’s inventory report scheduled for today

• Expectations are for inventories to decline by 145Bcf according to survey provider Estimize
• The weather is expected to remain warmer than normal for the next 6-10 days according to NOAA, but they moved back toward normal over the 8-14 day period.
• US LNG exports increased in the latest week. Expectations moving forward are that LNG exports to China will begin to increase

Uranium US$24.40/lb vs US$24.40/lb yesterday

            

Bulk:    

Iron ore 62% Fe spot (cfr Tianjin) US$85.0/t vs US$83.3/t

Chinese steel rebar 25mm US$570.4/t vs US$570.4/t

Thermal coal (1st year forward cif ARA) US$60.8/t vs US$62.2/t

Coking coal swap Australia FOB US$152.0/t vs US$152.0/t

            

Other:   

Cobalt LME 3m US$33,000/t vs US$33,000/t

NdPr Rare Earth Oxide (China) US$40,371/t vs US$40,371/t - Rare earths miner Lynas secures Malaysian site for waste treatment (Reuters)

• The Australian producer announced today that the Malaysian state of Pahang have approved a permanent disposal site for waste treatment.
• A local construction firm Gading Senggara have been appointed to manage the project for $98m.
• In August 2019, Malaysia renewed the operating license for Lynas’ processing plant for six months, with new conditions including a crackdown on the storage of its low-level radioactive waste.
• Lynas are the only major proven producer of rare earths of China.

Lithium carbonate 99% (China) US$5,571/t vs US$5,571/t

Ferro Vanadium 80% FOB (China) US$28.5/kg vs US$28.5/kg - Ferro-vanadium prices rose 7.2% to $27.5-29.5/kgV this week in Western Europe (Fastmarkets MB)

Antimony Trioxide 99.5% EU (China) US$5.0/kg vs US$5.0/kg

Tungsten APT European US$235-245/mtu vs US$235-245/mtu

Graphite flake 94% C, -100 mesh, fob China US$540/t vs US$540/t

Graphite spherical 99.95% C, 15 microns, fob China US$2,550/t vs US$2,550/t

 

Battery News

Elon Musk suggests Tesla has no plans to raise capital despite souring share price (CNBC)

• Tesla’s share price continued its run this week, up 11% on better than expected results for Q4’19. The Company improved its cash position by $930m to $6.3b in Q4 and suggested they expect positive quarterly FCF moving forward.
• Despite suggestions from investors in the earnings call that now would be a favourable time to look to raise money, Elon Musk, whose sentiments were echoed by CFO Zachery Kirkhorn stated that Tesla has no intention to raise money at this time.
• Musk declined to provide further details on capital expenditure plans in 2020. The car maker has a number of sizable expenses including a new factory in Shanghai, China.
• Tesla has targeted delivering 500,000 vehicles in 2020 and expects production to outpace delivery as a result of Model 3 and Model Y production ramps. (Tesla)
• Despite the positives in recent results Tesla is still yet to be profitable across a 12 month period. Loses in 2019 were $862m, an improvement on $976m of losses in 2018.

 

Samsung SDI suffered net loss in Q4 driven by reduced demand for small batteries (Morningstar)

• The Company posted a net loss of KRW33.1b ($28.1m) for the quarter ended December 31. This results missed FactSet forecasts for a net profit of KRW96b.
• Revenues increased by 14% for the year to KRW2.821t however operating profit fell dramatically by 92% to KRW20.12b.
• The South Korean battery maker expects an improvement in earnings in 2020 driven by strong growth in EV battery sales and a recovery in the energy-storage system segment.
• The Company did however suggest Q1’20 earnings could be negatively affected by Coronavirus outbreak in China. (Yahoo Finance)

 

EV start-up and Tesla rival Rivian to help build Lincoln’s first EV, part of a $500m investment by Ford (Business Insider)

• Ford, which owns the Lincoln brand will work in partnership with Rivian to produce an EV using the latter’s flexible skateboard platform.
• Last year Ford invested $500m into the EV start-up which has 7 offices across the US, Canada and the UK and designs and builds adventure EVs. (Rivian)
• The investment is part of Ford’s plan to invest $11.5b into EV by 2022. Ford is soon to release the Mustang-Mach-E SUV and is looking to make an electric version of its F-150 pickup truck.
• This is not the first sizable investment into Rivian, in February 2019 the Company announced a $700m equity raise led by Amazon. The Company expects to have their flagship R1T (pick-up) and R1S (SUV) vehicles available for sale this year. (Detroit Free press)

 

Company News

Atalaya Mining (ATYM LN) 195 pence, Mkt Cap £267.8m – Update on permitting at Proyecto Riotinto

• Atalaya Mining reports that the Junta de Andalucia has “issued a favorable report in relation to the Unified Environmental Authorization (the "AAU") of Proyecto Riotinto. The AAU is now on a short legal consultation period exclusively with parties involved in the process.”
• The company explains that this consultation “will finally resolve all the administrative issues identified in the ruling of the Tribunal Superior de Justicia de Andalucía ("TSJA") on 19 September 2018 regarding the AAU … [and that] … The validation of the AAU is a required step towards the automatic re-validation of the mining permit for Proyecto Riotinto.”
• The Company also confirms that it “continues to operate the mine normally”.

Conclusion: Confirmation of the legal standing of the Environmental Authorisation for Proyecto Riotinto affirms Atalaya’s eligibility for the automatic re-validation of the mine’s permits and underlines the company’s ability to navigate the permitting process effectively.

 

Bushveld Minerals* (BMN LN) 20p, Mkt Cap £230m – Significant operational improvements in Q4 help Bushveld to positive year end result

(Bushveld Minerals owns 74% of Vametco, 100% of Vanchem, 84% of Bushveld Energy in South Africa, 100% of Lemur Holdings, 9.5% of Afritin)

Valuation 82p

• Bushveld Minerals report a strong, fourth quarter for production and low costs at Vametco in South Africa.
• Vametco produced 880mt of ferro-vanadium up 32% yoy in Q4 bringing the year to 2,833mtV vs guidance of 2,800-2900mtV.
• Vanadium sales lagged behind Q4 production at 673mt causing sales to fall by 6.7% yoy to 2,389mtV. The difference of 441mtV is worth over $12.3m at current price levels
• Cash costs fell 20% qoq for the quarter to an impressive $15.2/kgV
• The Q4 fall in cash costs highlights the impact of improvements made to the Vametco plant and the effect of higher production on unit costs despite ESKOM power restrictions and the Christmas holidays in South Africa.  
• Cash costs also fell 5% yoy for the year to $18.10/kgV (ZAR261/kgV) for the year vs $19.6/kgV in 2018 and better than guidance of $18.90-19.50/kgV.
• Guidance is for production of 3,000-3,200mtV in 2020 with higher production due to come through in the second half.
• Cash cost guidance is estimated at between US$17.20-17.70/kgV (ZAR257-ZAR265/kg representing a 2-5% cost reduction on FY2019 though Vametco has shown it can produce at $15.2/kgV in Q4..
• A 10 day planned maintenance programme is scheduled in Q2 2020 which is much reduced from the 22 day- maintenance seen in in Q3 last year. 
• Vanchem which was acquired in November produced 98mtV in the form of ferrovanadium and vanadium chemicals under Bushveld ownership.
• Bushveld will diversify its vanadium chemical and product range with the Vanchem business diversifying its product range.
• Vanchem guidance is for 960-1,100mtV of Vanadium. Cash cost guidance will be given in the Q1 operational update.
• Mokopane: Bushveld received a 30-year mining right from the Department of Mineral Resources and Energy in South Africa. Bushveld plans to develop the Mokopane project to raise vanadium production at Vanchem.
• Synergies: are expected from the Vanchem acquisition through improved focus on safety, volumes and costs with Vametco to start producing ferrovanadium through the Vanchem processing facility.
• Bushveld has a scalable, low cost production base and potential to develop a value-added vertically integrated business model through Bushveld Energy.
• Capital costs at Vanchem are estimates at $7.1m for 2020 which is lower than the $11.1 we had budgeted for.
• EBITDA: Vametco generated an Underlying EBITDA of $42m for the year vs our estimate of $39.7m lifted by strong performance in the fourth quarter. We are impressed by the EBITDA performance despite a 35% decline in prices yoy.
• Management improved productivity sufficiently at Vametco to cut costs offsetting much of the impact of the price fall and ensuring ongoing profitability of the plant while the market worked through some surplus stocks.
• Development of production from Mokopane will serve to restart idled production at Vamchem while cutting costs. The Vametco team should also be able to apply recent improvements at Vametco to Vanchem realising further new value.
• Management are focussed on maintenance of their low cost base and on the creation of new low-cost growth at Vanchem which may serve to temper the restart of some furnaces while vanadium prices remain at current levels.
• Bushveld Energy investments into VIP platform should act as a natural hedge for Bushveld in future years as the company ramps up electrolyte production for sale into their new leasing model
• Avalon/redT: Investment into Avalon’s takeover of redT should enable the rollout of existing VRFB contracts .
• Enerox: acquisition of minority stake in Enerox puts the company in a key position for the construction and roll-out of Vanadium Redox flow Batteries.
• 2020 priorities: 
  • Advance construction of the vanadium electrolyte plant.
  • Implement additional, larger electrolyte rental contracts.
  • Vametco mini-grid: Bushveld plans to develop mini-grid to supply and store power at Vametco, this project should advance through 2020.
  • Submit bids for Battery Energy Storage Systems opportunities as part of South Africa’s Integrated Resource Plan.
• Electrolyte plant: basic design completed and tenders issued for the EPC ‘Engineering, Procurement and Construction’ contract.
• The plant should produce electrolyte for VRFB storage at Vametco and support the vanadium electrolyte rental product.
• Ferro-vanadium prices rose 7.2% to $27.5-29.5/kgV this week in Western Europe (Fastmarkets MB)
• Prices rose on increasing ferro-vanadium imports into China in recent months as China better enforces the rebar standards introduced in November 2018
• Production of vanadium from non-primary sources such as stone coal should continue to fall.
• Substitution with niobium should also substantially reduce due to higher relative niobium prices driven by niobium demand for alloying for magnet and battery metals.
• Bushveld see positive ‘supply and demand dynamics supported by reduced supply and increased intensity of use of vanadium in steel from emerging markets’.
• Management also see ‘growing demand for VRFB contributing to increased demand’ and are encouraged by the recovery of ferro-vanadium prices in Europe.

Valuation:  we are not changing our valuation on today’s results. While the figures are better than expected and ferro-vanadium prices have risen in recent weeks we are conscious of potential impact from an extended seasonal shutdown in China due to the Coronavirus. While the Coronavirus is not seen as a major threat to the world according to the World Health Organisation it may disrupt steel production and construction in China.

We do not include any additional value for Bushveld’s involvement in Enerox and Avalon/redT though we can see the ‘VIP’ VRFB Investment Platform adding to our valuation of the group in future years.

We maintain our valuation of 82p for Bushveld. We see Vanchem as offering good flexibility in terms of production and product diversification. We have adjusted our assumed rand/USD exchange rate to reflect some further slippage to SAR18/USD from 2022. We maintain our valuation on Bushveld Energy at 8.4p/s.

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

 

Caledonia Mining (CMCL LN) 705, Mkt Cap £81.2m – Increased 2019 earnings guidance

• Caledonia Mining has announced that it has increased its earnings guidance for 2019 as a result of the combination of higher than expected gold production and lower costs together with gold price strength.
• As a result, “adjusted earnings per share … for 2019 are expected to be in the range of US$1.55 to US$1.75 per share compared to company guidance in early 2019 of US$0.86 to US$1.17 per share”.
• The results are to be published “on or around March 20, 2020”. Commenting on the“excellent performance of the Blanket Mine”, which produced over 55,000oz of gold during 2019, CEO, Steve Curtis, credited “the hard work and dedication of our exceptional team operating at the Blanket Mine not least in how they have successfully addressed challenges in the year such as the variable power supply and grade fluctuations”.
• Mr. Curtis went on to confirm that the company had made “an excellent start to 2020 and with the development of the Central Shaft continuing on time and record quarterly production in the fourth quarter, we look forward to an exciting year ahead."

Conclusion: Earlier in January, Caledonia Mining announced that it was increasing its quarterly dividend by around 9% to US$0.075/share from the previously established US$0.6875/share. The company is now indicating that earnings for 2019 are significantly stronger than previous guidance and that the improvements, driven by improved operational performance, as well as a resilient gold price, are continuing into 2020.

 

Greatland Gold (GGP LN) 3.55p, Mkt cap £127.0m – Newcrest quarterly exploration report highlights results from the Havieron project

• Greatland Gold highlights the publication, by Newcrest Mining, of further drilling results from Greatland Gold’s Havieron prospect in the Paterson District of Western Australia where Newcrest is faming in to the project through a staged expenditure programme which could ultimately earn Newcrest a 70% interest through expenditure of US$65m over a six year period.
• The release from Newcrest discloses previously unreported drilling results including:
  • A 136m long intersection averaging 2.9g/t gold and 0.6% copper from a depth of 504m in hole HAD034, including a 43.5m section averaging 6.1g/t gold and 1.2% copper from 577.9m depth; and
  • A 73m long intersection averaging 3.2g/t gold and 0.67% copper from a depth of 513m in hole HAD036 and including a higher grade section of 24.8m averaging 7.2% gold and 1.6% copper from 525m depth.
• The company confirms that, following a short break over the Christmas period, drilling has resumed with six operational rigs and that 20-30,000m of additional drilling planned over the next two quarters with the intention of enabling an initial mineral resource estimate to be prepared by the end of 2020.
• Greatland Gold also says that “A number of environmental, geotechnical and metallurgical studies have commenced to support the potential delivery of a resource and future permitting requirements.”
• Managing Director, Gervaise Heddle, said that the exploration had shown that “The true scale of Havieron is beginning to emerge, with continuity of mineralisation observed over 450 metres of strike, and mineralisation still open to the north-west and at depth”.
• He also said that “we expect additional step out drilling to further extend the known mineralisation of the project”.

Conclusion: Newcrest Mining’s quarterly exploration report leads with the Havieron project and with a further 20-30,000m of drilling over the next two quarters expected to both extend the footprint of the known mineralisation and lead to an initial mineral resource estimate by the end of the year, we look forward to further news.

 

KEFI Minerals* (KEFI LN) 1.5p, Mkt Cap £19m – TKGM partners to meet mid-February for release of funds

• Tulu Kapi Gold Mines, the holder of the mining license, will be holding a general meeting on 14 February 2020 to discuss the release of funds from ANS Mining.
• The meeting will “formalise the final and procedural sign-off of all matters required for the release of funds from ANS”.
• The first tranche of $9.5m of the total $38m ANS Mining commitment is expected to follow after the meeting.
• Separately, KEFI confirmed the Ethiopian Government, an equity partner in the project, authorise TKGM to proceed with the community resettlement process.

Conclusion: Further delay to the release of equity funding is an unwelcome news, although, KEFI is reporting all administrative hurdles for the first ANS equity investment have been cleared with the release of funds expected following the TKGM general meeting in mid-February. The investment will kick start the relocation programme with development and construction works to follow. In the meantime, the team is arranging debt funding to cover the remaining share of the Tulu Kapi project capex with two African banks reported to have offered a preliminary term sheet for a more financially attractive option compared to the previously envisaged infrastructure bond scenario.

*SP Angel act as Nomad and Broker to KEFI Minerals

 

Kodal Minerals* (KOD LN) 0.065p, Mkt Cap £6m – MOU signed with Mali Lithium to explore synergies of Bougouni Lithium project

• In a rare case of common sense Kodal Minerals reports it has signed an MOU with Mali lithium to explore synergies of the Bougouni Lithium project in Mali.
• A tie-up between the two companies makes great sense due to cost and time savings in the phased and sequenced development of both projects and the sharing of transport and other logistics.
• The two companies are looking at:
• Sharing of facilities in the town of Bougouni pre-development to support exploration and fieldwork;
• Establishing common workshops for servicing, storage and catering (a mine marches on its stomach);
• Creating common supply chains for spares, reagents, fuel and other consumables;
• A joint strategy for transport and shipping which are critical and could lead to very substantial savings not to mention the avoidance of logistical problems
• A joint approach to community development which will again save on costs and probably be more effective overall than two separate community programs.
• The two companies also intend to negotiate an access agreement for the Bougouni West Project currently owned by Kodal Minerals through the Bamabara option agreement.
• Questioning of Kodal Minerals Feasibility Study reveals the involvement of DRA, Standing Wave (Red Star Construction), Orelogy, Knight Piésold, and Kodal’s Steven Zaninovich
• DRA providing oversight and the overall estimate review function for the Feasibility Study.
• Kodal Minerals Feasibility Study estimates are based on similar projects completed in the region and the experience of Kodal’s Steven Zaninovich
• Metallurgy, recovery rates and concentrate quality was reviewed by DRA who have experience the design and commissioning of the two Pilgangoora lithium project in Australia run by Altura and Pilbara Minerals.
• Feasibility Study costs were estimated in Q4 2019 in US dollars and developed on the basis of a mining contractor operation with quotes from AMS Ausdrill, BCM and ETASI, a local Mali contractor. They include:
  • Contract mining costs.
  • Contract grade control costs.
  • Capital works relating to establishing mining operations.
  • Owners mining costs.
• The timetable for initial concentrate in 2021 looks tight and is dependent on funding  solution.
• Permits: Kodal has an Environmental permit and Community development plan approval which has been submitted with Mining License application.
• The company will also need licenses for Water abstraction from the Baoulé river, camp construction and more routine items like: radio licence, fuel storage, solid waste management, land fill, explosives, chemical storage, power production, etc.
• Consultants are to be used for the permitting of trucking through Mali and the Ivory Coast.  We expect the company to review the road route from a safety perspective due to the very large tonnage to be hauled to the San Pedro port.
• Duties include Mali export clearance at €3.00/t and border crossing at €3.50/t all of which are included in the transport cost estimate.
• Funding: Discussions are ongoing with Kodal’s Chinese partner who have expressed interest in working with Kodal on the plant and other items…
• Lithium price assumption: Kodal used US$680/t for the Feasibility study following a review of operating companies, other proposals and industry review. 
• We agree current price for Spodumene concentrate of $480-550/t for 5-6% Li2O min should improve though it is normal for Feasibility Studies to be run at prevailing price levels with scenario valuations at differing prices.

Conclusion:  Combining the two lithium projects should create a new centre for lithium mine production and could offer potential for further processing and value addition in Mali. Trucking spodumene concentrate to the port of San Pedro should create early cash flow to get the mine’s stated while stakeholders consider the potential for further processing in Mali or in the Ivory Coast.

*SP Angel acts as Financial Adviser and broker to Kodal Minerals A partner at SP Angel acts as Chairman to the company.

 

Peak Resources (PEK AU) A$0.036, Mkt Cap A$47.0m – Presentation highlights Teesside rare-earths separation plant

• Peak Resources’ presentation for the Cape Town mining conference highlights a pending supply demand imbalance for neodymium/praseodymium (NdPr) driven increasing electrification of vehicles.
• The company indicates that EU emission standards represent an indirect quota on electric vehicles which imply “50% of total sales will need to be electrified by 2030” leading to a supply shortage as soon as 2021 with NdPr consumption expected to increase every year until 2040.
• The company presentation shows Roskill’s extrapolation that average NdPr prices couls reach $85/kg by 2030 with a “high side” case of US$115/kg and a more pessimistic view of US$60/kg.
• The presentation describes the growth potential  26 year Ngualla mine development where only 22% of the overall mineral resource is yet in the reserve and extolls the merits of the high grade “weathered bastnaesite ore”
• Peak Resources also describes its planned Teesside rare-earth separator in the UK as a significant differentiating factor compared to its peers with Teesside expected to “become a rare earth separation hub” with phase 1 annual production of 2810t of NdPr oxide (plus 7995tpa of Lanthanum carbonate, 3475tpa of cerium carbonate and 625tpa of SEG carbonate) doubling in a second phase which would also see the addition of magnet recycling, and heavy rare-earth separation capability.
• Planned capex for the Teesside facility is reported to be US$165m with annual operating costs of US$40m.
• This investment, which, we observe, could be well received as part of the UK Government’s commitment to investment in northern England, is expected to generate a pre-tax NPV8% of US$914m and post-tax NPV of 612m and IRR of 22%.

 

Talga Resources* (TLG AU) A$0.47, Mkt Cap A$114.5m – Test work validates PFS assumptions

Valuation: A$1.80

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• In a release to the ASX  https://www.asx.com.au/asxpdf/20200130/pdf/44dm3fq58xcyp5.pdf Talga Resources reports that pilot processing of a 60 tonnes sample of graphite ore from its Vittangi project in norther Sweden has successfully produced a graphite concentrate which provides the feedstock for Talga’s planned battery anode refinery and material for its continuing programme of customer development.
• The company says that the programme “achieved the Company’s targeted range of operational and product performance, in line with the PFS assumptions … [announced 23^rdMarch 2019] … and demonstrated suitability of the process flowsheet for planned commercial purposes”.
• Talga Resources also confirms that “The next stage of the anode scale-up programme is currently underway, incorporating the refining of the concentrate into active anode for distribution to customers via several of Talga’s European process partner sites and at Talga’s German pilot processing facility”.
• Managing Director, Mark Thompson said “This successful increase in processing scale is a positive milestone in progressing our plans for an integrated graphite mine and anode refinery in Sweden. The pilot scale programme confirmed some key equipment requirements and production parameters, further improving our in-house knowledge and capability for future operations.”

Conclusion: Talga Resources programme has established and validated operational parameters for producing a graphite concentrate suitable for anode production and further work is already underway to expand the anode programme and to provide test material to potential customers

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

 

Vast Resources* (VAST LN) 0.31p, Mkt Cap £31m – Atlas Capital facility drawdown update

• The Company expects the drawdown of Tranche 1 ($7.1m gross) announced in Oct/19 is expected to be completed imminently.
• A further announcement regarding the drawdown will be made in due course.

Conclusion: The facility will be used to fast track Baita Plai in Romania in production and progress with development works at the Diamond Concession in Zimbabwe as well as refinance existing debt to Mercuria and Sub-Sahara Goldia Investments. We are looking forward to completion of the drawdown.

*SP Angel acts as Broker to Vast Resources

 

 

Analysts

John Meyer – 0203 470 0490

Simon Beardsmore – 0203 470 0484

Sergey Raevskiy – 0203 470 0474 

 

Sales

Richard Parlons – 0203 470 0472 

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	SSY
RRE	Steelhome
Lithium Carbonate, Ferro Vanadium, Antimony	Asian Metal
Tungsten	Metal Bulletin

 

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