SP Angel Morning View - ECB expands the stimulus package to €1tn
SP Angel . Morning View . Thursday 19 03 20
ECB expands the stimulus package to €1tn
MiFID II exempt information – see disclaimer below
– Green Hydrogen Consortium with BHP, Fortescue and Hatch
–– Sale of CASA Mining asset for US$5m loan note plus royalty agreement worth up to $45m
– 2020 Production guidance
– Appointment of Eskom trouble-shooter Ms Mokgatle as an Independent Non-Executive Director
– After-tax profit rises 34% in 2019
– £2.9m equity raise
– Letseng small diamond tender succumbs to anti-virus precautions
– Capital projects update
Dow Jones Industrials
HK Hang Seng
FTSE 350 Mining
AIM Basic Resources
US hedge funds may be close to default as margin calls lenders force the unwinding of leveraged positions
- Rumours and speculation are rife in the US that we may see one or more defaults by some major hedge funds caught out by recent market events.
- The market volatility seen the past 12 days and the leverage of many hedge funds is sure to shake out any fund that was unfortunately positioned for such market events.
- In many ways this ‘Black Swan’ event is a ‘perfect financial storm’
- Oil rich sovereign funds are demanding their money back as the collapse in oil prices leaves them looking for cash to fund their economies which require $70-90/bbl to break even.
- We saw this in 2008 when these Sovereign funds demanded cash back from the major institutional funds collapsing many of the better mining stocks as the fund managers sold anything they could shift
- Gold which fell dramatically last week may have been hit by the same sellers.
- The dramatic market fall may also expose any improper fund activity which may have been papered over with profits in the market but where Ponzi and other schemes suddenly unwind.
- High volatility has forced many funds to cut risk limits by up to 80% causing further asset sales, cutting liquidity and forcing funds to hedge counterparty risk with corporate borrowers.
- Banks don’t want to take funds from the Fed to lend to funds or corporates as they don’t want to take the risk as seen with the poor take up of the $500bn offed in the repo market of which just $78bn was drawn.
- The Credit Crunch is exacerbated as interest rates for borrowers have risen destroying the economics of relative value trades.
- Traders are not normally allowed to trade from or create liquidity from home which may change as traders fall ill. Settlements staff may suffer greater disruption as they are normally the first to take time out when the flu goes round.
- Corporate credit trading has slowed and bank lending to corporate clients is restricted by regulations making it difficult for banks to reflate the market even if they wanted to take the risk.
- Property yields are now under greater threat from tenant default with Property funds are already reporting suspensions as investors move to cash with nine property portfolios now gating over £10bn worth of funds.
A bad week in financial markets may possibly be about to get much worse
- Base metals continue to fall as Chinese production numbers indicate potential for surpluses where there were to be deficits.
- Copper fell 5% to <US$4,900/t as expectations for demand fall due to Western slowdown.
- China must be getting worried as who is going to buy all this material.
- Peru is cutting mine production due to the Coronavirus and other nations will surely follow and this may restore the balance to the market as Freeport shuts Cerro Verde mine in Peru for 15 days.
- Newmont slows production at Yannachocha as part of the shutdown
Good news - a new study shows that Macaque monkeys are not re-infected with the Coronavirus
Coronavirus statistics: >220,000 cases, ~140,000 cases outside China
- Number of infections may be 5-10 times confirmed numbers due to super spreaders who don’t report symptoms
- >8900 fatalities, ~3,000 fatalities in Italy due to older population. 99% of Italian fatalities due to age or pre-existing conditions.
- South Korea is leading the world in terms of testing in the population. Koreas disciplined testing program appears to be working well in case reductions
Stimulus funding relating to the Coronavirus (Updates in bold, figures in US dollars)
- $1,000bn - IMF
- $850bn – US Stimulus – going through Congress
- $815bn (€750bn) ECB QE through the buying of bonds
- $400bn (£330bn) UK - Government-backed loan scheme. New business interruption loan scheme up to £5m with no interest. Will add whatever is required in COVID-bill
- $24bn (£20bn) – UK No business rates plus £25,000 cash grants for shops, pubs, clubs in hospitality sector.
- $5bn (£3.5bn) – UK Local Authority funding to compensate for lost business rates
- + Direct cash grants to cover rent plus support for Welfare & healthcare and 3-month Mortgage holiday
- $700bn – US + Fed rate cut to 0-0.25% last night. The $700bn QE program is to buy Treasuries and mortgage-backed securities. The program in two parts $500bn + $200bn
- $333bn (€300bn) – Loan guarantees for French business
- $200bn (€200bn) – Spain coronavirus stimulus
- $50bn (€45bn) – France just blew out the Fiscal discipline of the EU but their budget deficit has been over 3% GDP for some time. France to also pay half wages for employees in affected firms
- $50bn – US – in the form of low-interest loans to companies in affected areas through the Small Business Administration.
- $39m – UK (£30bn) stimulus – more expected today – Govt. pledged to do more if needed. (any excuse to spend money through Brexit)
- $120bn - ECB increased bond purchases + ECB – targeted loans to companies at an interest rate of -0.75%
- $28.3bn (€25bn) - EU
- $15.4bn – Hong Kong relief package
- $13.7bn - South Korea
- $12bn - World Bank
- $11.4bn – Australia – likely to announce more stimulus this week
- $10bn – Switzerland (SFr10bn)
- $8.4bn – Italy may move to $18bn
- $8.3bn – US House of Representatives – (US GFC stimulus totalled $2.8tr starting with $168bn in early 2008).
- $5.5bn – Bank of Japan, ETF purchases and short term liquidity to Banks
- $11.9bn – BoJ triples financing for small and mid-sized firms
- $7bn – New Zealand
- $3.5bn - Ireland
- $2bn – Taiwan stimulus
- $0.75bn - Indonesia
- $14.2bn China, already spent. $113bn worth of bonds issued by China regional governments in January
- $145m – $100m in cash grants and ad credits to eligible small businesses. Facebook also giving $1,000 per employee
- China – government indicates it is not inclined to support the world this time in a move that is typical of a petulant dictatorship.
- China stimulus was $586bn in 2009 to rescue itself and the global economy. This time it is simply lowering lending rates slightly and made $77bn of new loan capacity at banks
- China will be delighted to watch a number of US hedge funds and other leveraged investors lose their shirts. China may not be sad to see a number of Sovereign Wealth funds liquidating at distressed prices
- Japan – to put ample package together
- ECB ready to take targeted action
- Germany – no numbers yet but government is likely to relax rules if businesses start to go bust
- $5.58tr – TOTAL stimulus offered to-date. GFC fiscal stimulus within the G20 was ~$2 trillion or 1.4% of global GDP (ILO, EU, IILS)
NASA repairs Mars lander By instructing the rover to hit itself With a shovel
- Goes to prove the adage that if it doesn’t work, just hit it with something large and heavy!
US – The US$ is hovering around a three year high reflecting strong appeal for the safe haven status of the currency.
- The pound held near the weakest level since 1985 while the € is gradually giving up its earlier gains after the ECB stimulus package announcement.
- The Australian dollar is close to a 17-month low.
- Feb EU25 new car registrations fell 7.4% (Jan -7.5%),
- Feb US housing starts down 1.5% (-3.6%)
- Feb US building permits off 5.5% (9.2%)..
ECB – The central bank will buy £750bn bonds in an emergency announcement as economic and financial outlook worsens.
- Extra purchases will be completed this year and cover both sovereign and corporate debt.
- The so-called Pandemic Emergency Purchase Programme will last until the coronavirus is judged to be over, FT reports.
- The new programme also allows for Greek debt to included for the first time since the nation’s sovereign debt crisis.
- The decision comes on top of last week’s €120bn extra purchases suggesting the central bank will buy more than €1tn of bonds in the next nine months, the highest ever rate of purchases.
Germany – Business sentiment dropped to the weakest level since the GFC in 2009 this month, according to the Ifo institute data.
- The business climate index fell to 87.7 from 96.0 in February.
- “This marks the biggest drop since 1991 and brings the index to its lowest level since August 2009,” Ifo Institute commented on numbers.
- “The German economy is speeding into recession”.
BMW taking a four-week break from production
- A collapse in demand combined with logistical challenges make having a Spring break a good idea.
UK – London is bracing for a potential lockdown with transport authority planning to close up to 40 underground train stations until further notice, Reuters reports.
- “People should not be traveling, by any means, unless they really, really have to,” London Mayor Sadiq Khan said.
- 20,000 British military service personnel were put on standby to help tackle the coronavirus outbreak.
Business continues as most move to work from home in the UK
- We expect Boris Johnson to enforce a stricter Lock-down in London next week, following Italy and Spain.
- While most are following government guidelines there are still a few who continue to disregard government advice
BREXIT - We are saddened to hear Michel Barnier, the EU Brexit negotiator has contracted the Coronavirus. This may account for the slow pace of BREXIT negotiations
Italy – The government is planning to extend a national lockdown beyond April 3 as number of new cases fail to come down.
- Under the lockdown rules, citizens can only leave their homes to get food or medicines or to perform other essential services or to go to work, CNBC reports.
- Interior Ministry said yesterday that 43,000 people have been caught breaking rules of the lockdown in the first week of controls with a million people being checked since the March 11 kick off date.
- Hospitals in Italy’s Lombardy at the centre of the pandemic are reaching capacity limits.
- “Unfortunately the numbers of the contagion are not falling, they continue to be high… we will soon be unable to give a response to those who fall ill… stay at home: if you don’t understand that we’ll have to be more aggressive,” the region’s Governor Attilio Fontana said yesterday.
Italy says 99% of Coronavirus fatalities with people with pre-existing illnesses
- Bet anyone with a pre-existing condition feels really good about that.
Russian and other forces potentially adding volatility to already disrupted markets
- Russia is reported to be deploying disinformation on the Coronavirus to create panic in the West according to a new EU document.
- The EU has recorded nearly 80 cases of disinformation about the Coronavirus while Russia has also amplified Iranian accusations online suggesting the Coronavirus was a US bio-weapon.
- The Kremlin denies the allegations but the Kremlin also denies the killing of ex-Soviet spies and other dissidents on UK soil despite overwhelming evidence to the contrary.
Thailand - Domestic car sales fall 17% YoY in February
- Sales fell to 68,000 vehicles due to tougher lending by banks and the coronavirus outbreak.
US$1.0807/eur vs 1.1007/eur last week. Yen 109.20/$ vs 107.48/$. SAr 17.271/$ vs 16.864/$. $1.151/gbp vs $1.202/gbp. 0.572/aud vs 0.594/aud. CNY 7.102/$ vs 7.024/$.
Sterling falls as Sovereign wealth funds sell sterling-denominated assets to counteract cost of lower oil prices
- We are not concerned over this fall as Sterling is likely to recover well once the Sovereign Wealth and distressed hedge fund and other leveraged asset sales are done.
Gold US$1,477/oz vs US$1,491/oz yesterday
Gold ETFs 85.7moz vs US$86.1moz yesterday
Platinum US$606/oz vs US$658/oz yesterday
Palladium US$1,573/oz vs US$1,576/oz yesterday
Silver US$11.95/oz vs US$12.40/oz yesterday
Base metals fall across the board in Shanghai as virus panic intensifies (SMM News)
- Rising global coronavirus cases continues to drive fears of a prolonged virus-related recession, providing a negative outlook for base metals.
- Copper fell it's daily limit on the SHFE of 6% yesterday, closing at 39,960 yuan/mt. Short sellers aggressively loaded up their positions on fear of further escalation may keep near-term prices under pressure.
- Aluminium for May delivery fell to its lowest level since October 2017 and closed down 3.5% at 12,399 yuan/mt.
- Zinc for May delivery accelerated its decline, falling 5% yesterday to 14,880 yuan/mt.
- Nickel for June delivery hit its lowest level in 10 months at 94,950 yuan/mt yesterday, a fall of 4.5%. Prices have returned to levels in July 2019, erasing gains as a result of the nickel ore export ban from Indonesia.
- Lead for May delivery fell to its 6% daily limit near closing ending at 13,075 yuan/mt.
- Tin for June delivery also fell its maximum of 6% yesterday, to a low of 117,390 yuan/mt.
- Similarly, LME base metal prices have seen step declines following the outbreak of the coronavirus pandemic, and have fallen between 9.8% and 22.9% since the start of 2020 (Fastmarkets MB).
Copper US$ 4,667/t vs US$4,912/t yesterday - Copper falls heavily for fourth straight day on the LME
- Copper fell nearly 8% yesterday to four-year lows at under $4,400/t on the LME, as investors continue to liquidate base metals positions (Reuters).
- Copper on the LME has fallen 16% so far this week, and is on course for its worst week since October 2008.
- On the Shanghai Exchange, copper fell 6% and hit its daily 'limit down' for a second straight day (SMM News).
- Copper stocks in LME approved warehouses have climbed nearly 30% over the past few days to 233,150 tonnes.
Anti-viral and reusable face mask uses embedded copper filaments to act as a barrier to Coronavirus
- A small firm in Chile is making what it claims is a reusable face mask with copper threads embedded into the mask.
- Copper has anti-microbial properties such microbes can not survive on copper for so long though this might not stop infection.
Al US$ 1,611/t vs US$1,622/t yesterday
Nickel US$ 11,180/t vs US$11,640/t yesterday
Zinc US$ 1,832/t vs US$1,859/t yesterday
Lead US$ 1,640/t vs US$1,648/t yesterday
Tin US$ 13,480/t vs US$14,125/t yesterday
Oil US$26.3/bbl vs US$28.3/bbl yesterday
Natural Gas US$1.667/mmbtu vs US$1.672/mmbtu yesterday
Uranium US$24.05/lb vs US$24.00/lb yesterday
Iron ore 62% Fe spot (cfr Tianjin) US$88.2/t vs US$88.0/t
Chinese steel rebar 25mm US$529.5/t vs US$536.5/t
Thermal coal (1st year forward cif ARA) US$55.5/t vs US$55.2/t - US coal exports fall 20% in 2019
- US coal exports declined 20% to 93 million short tons according to the US Energy Information Administration's annual coal report.
- US steam coal and metallurgical coal exports both fell in 2019, dropping 30% and 12% respectively.
Coking coal swap Australia FOB US$157.0/t vs US$160.0/t - Coking coal is up 17%ytd and thermal coal unchanged due to short term supply problems in China with the Mongolian border closed and flooding in Australia.
Cobalt LME 3m US$30,000/t vs US$30,000/t
NdPr Rare Earth Oxide (China) US$38,582/t vs US$38,727/t
Lithium carbonate 99% (China) US$5,632/t vs US$5,695/t
Ferro Vanadium 80% FOB (China) US$28.0/kg vs US$28.0/kg
Ferro-vanadium basis fell -4.9% $24-24.5/kgV yesterday in Western Europe
Antimony Trioxide 99.5% EU (China) US$5.0/kg vs US$5.1/kg
Covid-19 kills off EV sales in Asia (Stockhead)
- EV sales across Asia have been hit hard by the coronavirus and the measures introduced by government to combat it.
- EV sales across Asia are down:
- China down 44%
- South Korea down 18%
- Japan down 10%
- India down 7%
- EVs are particularly exposed to buyer risk as the supply chain is relatively new and the vehicles remain a premium purchase for consumers.
Tesla prepares to reduce staff by 75% at California plant
- Tesla is preparing to reduced staff by about 75% at its lone US assembly plant after initially resisting an order from the local sheriff (Bloomberg).
- Detroit automakers are also planning to shut down their US plants to stop the spread of coronavirus.
- Ford, GM and Fiat Chrysler have confirmed decisions to shut US plants, as well factories in Canada and Mexico (Reuters).
Cash strapped NIO raises doubts about its future
- Chinese EV start up NIO said on Wednesday that there is significant doubt over it ability to remain a going concern. (Yahoo Finance)
- The carmaker has been hurt by plummeting demand and a reduction in Chinese government subsidies. The coronavirus outbreak has only deepened these woes.
- Auto sales in China have fallen 42% in 2020, whilst sales of new BEV, PHEV and hydrogen fuel cell vehicles have plummeted 60%.
- Although expecting to hit sales targets for 2020, NIO’s December 2019 cash balance of $151.7m is not enough to cover working capital and liquidity for continuous operations over the next 12 months. (Auto news)
- The Company’s cash position does not include a framework agreement with the Hefei city government to raise 10bn Yuan ($1.4bn) to set up new manufacturing facilities or $435m from private placements of convertible notes in February and March.
- NIO reported Q4 revenues down 17.1% YoY and expects Q1 deliveries of 3400-3600 vehicles, down 57.4% on Q4 and 12.3% down on the same time last year. (Business Insider)
- The stock trades at $2.43, down 22% on Wednesday.
Volkswagen to increase the amount of nickel in EV batteries
- VW is to increase the amount of nickel in its EV battery cells from 65% to 80% in the next 12 months. (Reuters)
- Currently their batteries contain 65% nickel, 15% cobalt and 20% manganese but this is expected to become 80% nickel, 10% cobalt and 10% manganese.
- VW is starting a push to build 3 million EVs by 2025, requiring 300GWh of battery cells. Ramping up battery manufacturing packs at scale will cut costs below $100KWh by 2025.
- The Company recently unveiled an ambitious plan to overtake Tesla as the largest EV maker and produce 26m vehicles in the coming nine years. The headline, their plans for profitability from the get go in a market where that has been rarely achieved. ( Financial Times).
redT to manufacture 2MW/5MW vanadium redox flow batteries in partnership with Bushveld Minerals (Energy Storage News)
- Manufacturer and integrator redT will produce the batteries as part of the Energy Superhub Oxford project. Developer Pivot Power has also signed a contract with Wartsila for two 50MW lithium-ion batteries for storage. (Energy Storage News)
- The project is a hybrid with flow batteries alongside lithium-ion battery storage. It will be the largest version of a lithium-ion/flow hybrid and the UK largest example of fow batteries.
- The project is to last 3rs at a cost of £41m ($52.98) funded by the British government’s Industrial Strategy Challenge Fund.
- The vanadium electrolyte for the 2MW system is to be provided by Bushveld Minerals as part of a financing partnership co-owned by themselves and redT.
- The financing partnership with be through an SPV structured to hold vanadium and then provide the option to rent the material to redT’s commercial pipeline on a project basis.
- redT had a pre-existing relationship with Bushveld which has made an initial commitment to support vanadium for 15MW of vanadium redox flow batteries.
Anglo American (AAL LN) 1,079p, mkt cap £15bn – Green Hydrogen Consortium with BHP, Fortescue and Hatch
- Anglo is looking to go green through the adoption of new Hydrogen fuel systems
- Anglo and many other miners are already using diesel-electric dump trucks and may fit trolley assist to reduce diesel consumption on pit ramps.
- The consortium is to identify opportunities to develop green hydrogen technologies for the resources sector and other heavy industries.
- While fuel cells and hydrogen combustion works well it is the storage of hydrogen that is difficult to reconcile.
- Hydrogen systems work well in stationary applications where heat is also used alongside the electrical power generated.
- Mobile applications are hindered by the need to compress the hydrogen for storage. Storage tank capacity is also limited by weight and safety issues.
- The cost of compressing hydrogen is a major negative as is extra weight of hydrogen tanks not to mention the added risk of breaking the end off a tank in a collision and turning the tank into a missile.
Arc Minerals (ARCM LN) – Price 1.65p, Mkt cap £12m – Sale of CASA Mining asset for US$5m loan note plus royalty agreement worth up to $45m
(ARC Minerals holds an effective 71.34% of Zamsort in Zambia. Zamsort has a portfolio of copper-cobalt prospects close to FQM’s new Trident mine on the Copperbelt in Zambia. The Cheyeza project is 66% owned by Arc Minerals through its holding in Zamsort.)
- and 99% of Casa which owns ~73% of the Akyanga Project in the DRC.
- Arc Minerals reports that it has agreed to sell CASA Mining Golden Square Equity Partners Limited for up to $US50m.
- US$5m is to be paid to Arc on the Completion Date in the form of a loan note maturing on 19 March 2021 or by way of shares of the public company with a market value of US$5m to Arc.
- Arc will also hold a royalty worth up to US$45m based on potential gold production.
- The buyer is to assume all existing CASA liabilities which add up to £1.95m as at 30 September 2019 and are capped at US$3m.
- Jonathan de Thierry, a non-executive director at Arc and a founders of Casa will step down from the board on 31 March 31 2020.
- Arc’s focus and value lies in its new discovery at Cheyeza in Zambia where recent drill assays show good progress
- Hole 58 - 68.75m grading 0.61% copper from 7.50m down hole
- Including 1.14% copper over 8.00m from 11.50m down the hole
- 1.09% Cu over 3.00m from 41.50m; and
- 1.14% Cu over 11.50m from 61.50m
- Hole 61 - 26.50m grading 0.99% Cu from 18.50m down hole
- Includes 1.63% Cu over 9.50m from 35.50m
- Hole 62 - 33.00m grading 0.71% copper from 18.00m down the hole
- Includes 0.92% Cu over 4.50m from 23.50m; and
- 1.44% Cu over 8.5m from 42.50m
- Cash: Arc raised $1.7m at end December by way of a convertible which converted at 4.5p
- We reckon Arc Minerals is worth lots. It’s not easy to say how much at this stage as there is much to discover but in normal market conditions we would be looking for a very substantial uplift from where we are now
- Sentinel in 2014 with 1bnt grading 0.51% copper just 40km away from Kalaba (Arc Mineral, Zamsort asset) and is producing >190,000tpa of copper.
- Lumwana which is 100km to the east also has a reserve of 678mt grading 0.49% copper and is producing >116,000tpa of copper.
- Kanshanshi: 200km to the east hosting 1.4bnt grading 0.64% copper resource.
Conclusion: Arc is now better able to focus on adding value to the Cheyeza discovery in Zambia having offloaded a distraction and a liability in the DRC.
Discoveries in Zambia in recent years include:
*SP Angel acts as Nomad and broker. Our intrepid mining analyst and co-driver drove to Arc’s license and pilot process plant at Kalaba from Lusaka and back again.
Ariana Resources (AAU LN) 2.02p, Mkt Cap £36.6m – 2020 Production guidance
- Arian Resources has announced that it expects its Kiziltepe gold mine in Turkey to produce around 18,000 of gold during 2020.
- Production is expected to come from the mining of around 240,000 tonnes of ore and the processing of around 205,000 tonnes ʺwhich represents a 37% increase over the feasibility plan.ʺ
- The company expects that ʺOpen-pit mining will be completed at the Arzu South pit by Q3 2020, and mining transitioned completely to the Arzu North and Derya areasʺ.
- Production during 2019 amounted to 27,985oz exceeding the published guidance of 25,000oz.
- Commenting on the production outlook for 2020, Managing Director, Dr. Kerim Sener, said ʺWith the addition of lower grade ore and higher mining rates required from the satellite pits, such as Arzu North, we are expecting output to reach 18,000 oz in 2020. Importantly, this is a substantial increase over our feasibility forecasts for this stage of the operation.ʺ
- Dr. Sener also pointed out that ʺIt is important for us to note recent market developments, notably the significant reduction in the price of oil, which will have a positive effect on our mining and processing costs. Meanwhile, the gold price has continued to remain at levels substantially higher than feasibility forecast. These, along with other positive trends including the declining value of the Turkish Lira, reinforce the economics of the Kiziltepe operation.ʺ
- In reference to the impact of the Covid19 outbreak on the company’s operations, Dr. Sener outlined that ʺthe mine is taking extensive precautions against Coronavirus (COVID-19), including staggered mess hours and increased medical checks. At this time, we are not anticipating disruption to our production schedule but if this situation changes then we will inform the Market."
Bushveld Minerals* (BMN LN) 8.56p, Mkt Cap £100m – Appointment of Eskom trouble-shooter Ms Mokgatle as an Independent Non-Executive Director
(Bushveld Minerals owns 74% of Vametco, 100% of Vanchem, 84% of Bushveld Energy in South Africa, 100% of Lemur Holdings, 9.5% of Afritin)
- Bushveld Minerals report the appointment of Dolly Mokgatle as an Independent Non-Executive Director.
- Ms Mokgatle is a senior advisor to the South African government on electricity-related matters and has helped shape the nation’s energy policy.
- She has served on the steering committee of the ‘Electricity War Room’ both inside and outside Eskom
- Ms Mokgatle has also represented Eskom in the Southern African Power Pool and is a former Managing Director of the Transmission Group at Eskom.
- She has also worked as Executive Director of Corporate Affairs, Senior General Manager: Growth of Development and Acting Legal Manager.
- Ms Mokgatle was CEO of Spoornet now Transnet the South African freight network from 2003-2005
- Ms Mokgatle was also NED at Kumba Iron Ore Limited, Sasfin Bank Limited, Hudaco Industries Limited, and was Chairman of the Board of Zurich Insurance Co South Africa Limited.
- President Cyril Ramaphosa appointed Ms Mokgatle to the Advisory Panel for turning around Eskom in 2015.
Conclusion: Ms Mokgatle’s appointment and involvement to Bushveld looks like a coup for Bushveld and demonstrates confidence in the future growth of the business.
*SP Angel acts as Nomad & Broker to Bushveld Minerals.
Capital Drilling (CAPD LN) 30p, Mkt Cap £41m – After-tax profit rises 34% in 2019
- Capital Drilling has reported robust growth in after-tax profit during 2019 with a 34% increase to US$10.4m (2018 – US$7.7m)
- The increase comes on the back of a slight decrease in revenue from US$116.0m to US$114.8m although revenues remained within the guidance range of US$110-120m.
- EBITDA was also slightly below the US$28.3m of 2018 at US$27.3m; a reduction of approximately 4%.
- ʺOperating Cash Flows marginally higher (1.7%) to $28.7 million (2018: $28.2 million), driven by unprecedented levels of fleet redeployment and new contract commencementsʺ.
- The company highlights that it secured an additional 11 contracts during the year, including long term contracts for 5 years at Allied Gold’s Bonikro mine in Cote d’Ivoire and a three-year contarcct for the provision of on-site laboratory services at Kinross Gold’s Tasiast mine in Mauritania.
- The additional long-term contracts gives Capital Drilling a total of nine multi-year contracts which we expect to help underpin future revenues.
- Capital Drilling says that its ʺWest African growth strategy continues strongly with eight new exploration clients and ongoing fleet mobilisation, growing from 15 rigs in January 2018 to 44 rigs at the end Q1 2020ʺ.
- Jamie Boynton, Executive Chairman, underlined the significance of the West African region and of the long-term contracts saying that ʺCapital Drilling's focus on West Africa is a key part of our growth strategy - not only will we see almost half of or rig fleet mobilised in the region, but we have also expanded our offer to include load and haul services, enabling us to provide clients a fully integrated mining solution. This will present larger revenue opportunities across a broader client base while maintaining our exposure to less cyclical, production-based activities. Of significance, during 2019, three of the four new long term contracts added were from West Africa, which has underpinned the quality and stability of our revenueʺ.
- He went on to address the current Covid19 pandemic saying that ʺThe impact of the COVID-19 pandemic on our business remains unquantifiable at this stage, particularly in relation to mobilising our equipment and employees and continuity of supply chain in light of increasing travel bans currently being imposed globally. Capital Drilling will remain vigilant in implementing changes to the operation of our existing robust and flexible business model, however our principal concern remains the wellbeing and safety of our staff. We anticipate exploration activity to soften as juniors find it difficult to access capital markets.ʺ
- Capital Drilling comments that the rapidly changing impacts of the Covid19 virus makes it cautious in issuing future guidance but that it ʺwill provide an update when the situation stabilisesʺ.
Conclusion: Wet Africa is an increasingly important operating area for Capital Drilling and the securing of long-term contracts in the region should help stabilise revenues. Uncertainty surrounding the spread of Covid19 prompts Capital Drilling to hold back on providing guidance for 2020 until the situation becomes clearer.
Cora Gold* (CORA LN) 4.7p, Mkt Cap £6m – £2.9m equity raise
- The company conditionally closed a £2.9m (before expenses) equity raise through a subscription of 60.8m shares at 4.75p.
- The fundraise is conditional on the passing of required resolutions during a General Meeting due on 21 April 2020.
- Proceeds to be used for further drilling and potentially more test work at the flagship Sanankoro project as well as further exploration at the Company’s other permits.
- 52.1m shares have been subscribed for by Brookstone Business (43.0m), Lord Farmer (8.6m), Robert Monro (0.3m, CEO) and Edward Bowie (0.2m; NED).
Conclusion: The fundraise supported by key shareholders at close to the market price in challenging markets reflect their confidence in the Cora’s assets and the team. Proceeds will be used to continue to de-risk the flagship Sanankoro gold project in southern Mali as well as other permit areas in the portfolio.
*SP Angel acts as Nomad and Broker to Cora Gold
Gem Diamonds (GEMD LN) 31p, Mkt Cap £43m – Letseng small diamond tender succumbs to anti-virus precautions
- Gem Diamonds reports that the small diamond tender of production from its Letseng mine, which closed yesterday in Antwerp ʺrealised US$ 7.8 million which is 18% below the like for like prices reached at the last small diamond tender held in November last year before the Covid19 economic crisisʺ.
- The company says that ʺDue to the travel and other restrictions imposed by the Belgian government and the governments of the Company's clients, the Letseng large diamond tender, which commenced on 16 March and was due to have closed next week on 25 March, has been cancelled and, in its place, a flexible direct sale process has been put in place for these large and high quality diamonds which have seen significant demand during the tender viewings held to date.ʺ
- The company confirms that any unsold diamonds will be offered for sale at a future date.
- Gem Diamonds also confirms that ʺits Letseng mine remains in full production and that there are a number of precautionary processes in place at the mine site, and throughout the Company's operations, to prevent the outbreak of the Covid19 disease. There have been no reported instances of any Covid19 positive cases at any of the Company's operations.ʺ
Conclusion: Travel constraints as a result of measures to contain Covid19 have reduced Gem Diamonds’ small diamond sales and caused cancellation of the large diamond sale due next week. Alternative sales mechanisms are being implemented.
Highland Gold (HGM LN) 155p, Mkt Cap £557m – Capital projects update
- At Kekura, the team poured the first gold bar at the commissioned trial processing plant.
- The 120ktpa plant was launched in the first two months of the year and utilises gravity circuit recovering 35-40% of gold with tailings stored for re-processing once 800ktpa project (gravity+CIP).
- The project is expected to yield ~85% recoveries and come online in late 2022.
- “Early mining and processing work currently underway at the site will help us to build a strong team, to fine tune systems, to better understand the ore body, and to prepare for a smooth launch of commercial production down the road,” the Company commented on the news.
- At Belaya Gora, the team is on course to complete the installation of the CIP circuit allowing to increase gold recoveries from current 75% to ~90% in H2/20.
- All of the equipment arrived in Vladivostok with transportation to the site ongoing and the remaining shipment to be transported in May.
- At Novo, expansion of mining and throughput rates to 1.3mtpa from current 800ktpa is in final stages and expected to be completed later this year (H2/20).
- XRT sorting equipment is expected to arrive to the site in May that will help to accommodate higher mining rates while keeping milling rates unchanged.
Conclusion: The Company updated on the progress of capital projects as the team is building a sustainable production base at Novo and Belaya Gora/Blagodatnoye as well as advancing a major growth project, Kekura, in Chukotka.
The team forecast 290-300koz and 320-300koz n gold production in 2020 and 2021, up from 301koz, reflecting contributions from Novo capacity expansion and Belaya Gora processing circuit upgrade. High grade Kekura project is expected to add 172kozpa in gold output once commissioned.
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