SP Angel . Morning View . Monday 07 09 20
SP Angel
SP Angel . Morning View
10:22, 7th September 2020

SP Angel . Morning View . Monday 07 09 20

Positive trade data in China help copper prices

 

MiFID II exempt information – see disclaimer below  

  

Botswana Diamonds (BOD LN) – Raising £300,000 for exploration

Bushveld Minerals* (BMN LN) – Vanadium rental agreement through VERL to fund 5MW flow battery

Gem Diamonds (GEMD LN) – 143 carat diamond recovered from Letšeng
Hochschild Mining (HOC LN) – Revised FY20 guidance

Kodal Minerals* (KOD LN) – BUY – Kodal raises £654,000 from sale of shares by Riverfort investors

Mkango Resources* (MKA LN) – EU Action Plan for critical raw materials.

Panther Metals (PALM LN) – Geophysical encouragement from Annaburroo

Red Rock Resources (RRR LN) – Option over Slovak Gold assets 

Rio Tinto (RIO LN) –Simandou controversy may be moving closer to resolution

Vast Resources* (VAST LN) – Baita Plai update

 

China – Exports climbed stronger than expected as China’s trading partners continued to resume business activities.

  • The increase was driven by double digit growth in shipments to the US and Asean while exports to Japan and the EU dropped.
  • At closer look, the yoy growth increase was largely driven by the low base a year earlier, Bloomberg reports.
  • On %mom basis, exports recorded a 1.0% drop marking the first negative reading since March.
  • Shipments to all major trading partners except for the US declined compared to the previous month.
  • The latter implies the recovery in external demand may not be as smooth as the market has expected.
  • Exports (%yoy, US$): 9.5 v 7.2 in July and 7.5 est.
    Imports ($yoy, US$): -2.1 v -1.4 in July and 0.2 est.

 

EV battery fires in China raise concerns about high nickel content cells

  • An EV exploded while charging last week in China, the vehicle is reportedly a BAIC PHEV. The incident joins several other incidences of battery fires in EVs across China.
  • Roskill reports there have been 2 further fires in BAIC EU5 vehicles while Chinese local media report 3 GAC Aion S sedan vehicles caught fire in May and August.
  • Bothe BAIC’s EU5 and the Aion S are equipped with NCM (nickel-cobalt-manganese) 811 battery which contains a higher proportion of nickel in the battery. This improves the energy density, enabling greater driving range but reduces the stability of the battery. CATL supplies batteries to GAC.
  • LG Chem has been supplying its own NCM811 batteries to Tesla for the Model 3 and expects to begin production of NCMA batteries with up to 90% nickel in them starting next year.
  • NCM batteries are not a new technology, the battery type has been around for almost two decades starting with the NCM111 (333). With each iteration the proportion of nickel has increased, improving energy density and extending the driving range and lowering the weight.
  • The issue is fully oxidised nickel which is what is left after charging is reactive and can produce unwanted side reactions. Increasing the proportion of nickel used in the battery increases the likelihood of damage. Elevated temperatures in the battery only serve to heighten the instability, making the batteries prone to thermal runway.
  • A Roskill Research report shows 85% of the EVs fires which have occurred in China this year had lithium-ion batteries using a nickel based ternary cathode.
  • Roskill also identified that the additional management and production costs of batteries with higher-nickel cathodes made them more expensive than lower-nickel cathodes despite savings on raw material costs.

 

UK EV sales double in August as overall sales fall

  • Battery EVs (BEV) accounted for 1 in 10 vehicles news cars sold in the UK in August.
  • BEV sales were 5,589 compared to 3,147 for the same period last year while PHEV sales increased by 220% to 2,922 units. The figures were released by the Society of Motor Manufacturers.
  • Overall demand for autos fell 5.8% compared to the same period last year, 87,226 registered vs 92,573. Vehicles registrations are down 39.7% YTD.
  • BEV sales are up 157% YTD vs 2019 with market share increasing 4.9% of total vehicles sales.
  • The data is the continuation of a positive trend for EV sales in the UK this year. BEV sales increased 259.4% in July compared to the same time last year with a similar story in June, up 261.8% vs the same time last year.

 

EU Critical Raw Material Alliance to focus on the most pressing needs, eg EU resilience in the rare earth, EV and magnet value chains

  • The Commission is looking to develop strategic international partnerships to secure the supply of critical raw materials not found in Europe.
  • Pilot partnerships with Canada, interested countries in Africa and the EU's neighbourhood will start as of 2021.
  •  “The Commission will promote the use of its earth-observation programme Copernicus to improve resource exploration, operations and post-closure environmental management. At the same time, Horizon Europe will support research and innovation, especially on new mining and processing technologies, substitution and recycling.
  • In line with the European Green Deal, other actions will address the circularity and sustainability of the raw materials value chain. The Commission will therefore develop sustainable financing criteria for the mining and extractive sectors by the end of 2021. It will also map the potential of secondary critical raw materials from EU stocks and wastes to identify viable recovery projects by 2022.
  • The Commission will develop strategic international partnerships to secure the supply of critical raw materials not found in Europe. Pilot partnerships with Canada, interested countries in Africa and the EU's neighbourhood will start as of 2021. In these and other fora of international cooperation, the Commission will promote sustainable and responsible mining practices and transparency.”
  • Analysis of the supply risk of raw materials for key technologies ranks the metals as follows:
  • Light REEs, Heavy REEs, Magnesium, Niobium, Germanium, Phosphorus, Borates, Scandium, Strontium, Cobalt, PGMs, Beryllium, Graphite (natural), Bismuth, Antimony, Indium, Vanadium, Lithium, Tungsten, Tantilum, Flourspar, Titanium, Gallium, Arsenic, Silicon metal, Hafnium, Molybdenum, Manganese, Tin, Chromium, Zircon, Silver, Aluminium, Telurium, Nickel, Iron ore, Selenium, Zinc, Cadmium, Copper, Gold and Lead.
  • We would advise the European Commission to focus on the metals which are controlled by China, Russia and their dependencies from an at risk perspective. While securing mine supply is essential, the European Commission also needs to enable the development of new European refining capacity for these metals.
  • Most European refineries were killed off by low metals prices partly due to overproduction in Communist countries and rising costs due to higher labour and energy costs as well as the cost of increased environmental compliance. Restarting the industry will need new refining technologies to meet strict emissions and other health and safety regulations and probably subsidy support to compete with Chinese refineries which are able to operate on a lower cost basis.

 

IG TV / SP Angel interview

VOX Markets / SP Angel podcast

 

Dow Jones Industrials

 

-0.56%

at

28,133

Nikkei 225

 

-0.50%

at

23,090

HK Hang Seng

 

-0.53%

at

24,565

Shanghai Composite

 

-1.85%

at

3,293

 

Economics

US – Good employment numbers released on Friday showed the economy added 1,371k jobs in August with the jobless rate coming down to 8.4% v 9.8%.

  • This was a fourth consecutive month of gains, although, the labour market remains around 11.5m jobs below the pre-pandemic level.
  • The US$ and 10y Treasury yields climbed after the report while the S&P 500 increased at the open on Friday before giving up its gains amid a sell off in the technology sector.
  • NFP (‘000): 1,371 v 1,763 in July and 1,350 est.
  • Unemployment Rate (%): 8.4 v 10.2 in July and 9.8 est.
  • Participation Rate (%): 61.7 v 61.4 in July and 61.8 est.
  • Av Hourly Earnings (%mom/yoy): 0.4/4.7 v 0.2/4.8 in July and 0.0/4.5 est.

 

China - Dual circulation strategy lacks buying power from people 

  • The South China Morning post comments this morning on a lack of purchasing power by Chinese people to support the nation’s proposed Dual Circulation strategy.
  • Weak consumers spending and liquidity is a direct result of the state-led growth model which has not helped so many consumers.
  • Dual Circulation will require a massive shift in the wealth of the nation to the people.
  • Spending on gold and jewellery appears to have fallen significantly this year albeit with some recovery through the second half but sales of non-gold products such as diamonds are said to have been bleak.

China has reached 96% of 5G base station target this year

  • China has already built 480,000 5G base stations this year and is well on track to reaching its goal of building 500,000 stations this year. 
  • There are now about 100 million devices connected to 5G networks in mainland China, according to the Ministry of Industry and Information Technology (South China Morning Post). 

 

Chinese provincial authorities are expected to raise as much as CNY 4tn in so-called special bonds this year, nearly twice recorded in 2019, according to Bloomberg.

  • The proceeds will fund infrastructure projects like roads, airports and railways.

 

Germany - July industrial production rises +1.2% MoM vs 4.5% estimated

  • Capital goods rise +2.1%, consumer goods +1.8%, basic goods +4%. 
  • The report showed the industry is back at around 90% of pre-crisis levels.

 

UK – PM Johnson is planning to set October 15 as a deadline for a Brexit deal arguing Britain will accept “No Deal” and “move on” should negotiations fail, Reuters reports.

  • The pound is down against the € on the news.

 

EU - Sanctions being prepared for 31 Belarus officials

 

COVID-19 – second wave may not hit till the spring 2021 due to natural mini-quarantine in winter months

  • Professor Ben Neuman has warned that the next wave of the coronavirus may not arrive till the Spring due to more people staying at home through the winter. (Daily Mail).

 

Currencies

US$1.1831/eur vs 1.1844/eur last week.  Yen 106.24/$ vs 106.11/$.  SAr 16.645/$ vs 16.754/$.  $1.321/gbp vs $1.328/gbp.  0.728/aud vs 0.728/aud.  CNY 6.831/$ vs 6.841/$.

 

Commodity News

Precious metals:          

Gold US$1,929/oz vs US$1,935/oz last week

   Gold ETFs 109.4moz vs US$109.4moz last week

Platinum US$904/oz vs US$904/oz last week

Palladium US$2,311/oz vs US$2,295/oz last week

Silver US$26.79/oz vs US$26.81/oz last week

            

Base metals:   

Copper US$ 6,745/t vs US$6,650/t last week

Aluminium US$ 1,792/t vs US$1,788/t last week

Nickel US$ 15,225/t vs US$15,185/t last week

Zinc US$ 2,487/t vs US$2,509/t last week

Lead US$ 1,979/t vs US$1,952/t last week

Tin US$ 18,160/t vs US$18,190/t last week

            

Energy:            

Oil US$42.1/bbl vs US$43.7/bbl last week

  • Oil prices have seen a material drop on reports over the weekend that Saudi Arabia has cut pricing for oil sales in October, a sign the world’s biggest exporter sees fuel demand wavering amid more coronavirus flare-ups around the globe
  • Saudi Aramco has reduced its key Arab Light grade of crude by a larger than expected amount for shipments to Asia, its main market, in addition to the US
  • Aramco cut Arab Light to Asia to a discount against the benchmark oil price used by the Saudis for the first time since June
  • It’s the second consecutive month of reductions for barrels to the region and the first month in six that US refiners will see a cut
  • Aramco will trim pricing, too, for lighter barrels to northwest Europe and the Mediterranean region
  • Pricing is being reduced for Light exports to Asia in October by US$1.40/bbl to 50 cents below the regional benchmark
  • It was expected to pare pricing by $1/bbl a barrel to a 10-cent discount

 

Natural Gas US$2.547/mmbtu vs US$2.470/mmbtu last week

  • Natural gas prices nudged higher following the EIA’s latest inventory report
  • According to the EIA, working gas in storage was 3,455Bcf as of 28 August
  • This represents a net increase of 35Bcf from the previous week
  • Stocks were 538Bcf higher than last year at this time and 407Bcf above the five-year average of 3,048Bcf
  • At 3,455Bcf, total working gas is above the five-year historical range.
  • Traders were anticipating a relatively modest addition to underground gas stockpiles for this week with the consensus estimate calling for a build of 37Bcf
  • According to Natural Gas Intelligence, a Bloomberg survey found injection estimates ranging from 29Bcf to 43Bcf, with a median of 37Bcf, while at Reuters poll found estimates ranging from 25Bcf to 43Bcf and a median of 35Bcf.
  • NGI estimated an injection of 32Bcf, on par with Bespoke Weather Services prediction.
  • Cooling temperatures from the effect of Hurricane Laura are keeping demand and futures in check
  • The reaction to the EIA report suggests traders read the numbers as neutral. However, the 35Bcf build marks the second week that it was lower than the week before and this indicates that supply and demand is tightening
  • This could be enough to send prices higher into the close if traders decide to ignore warnings about LNG demand

            

Bulk:    

Iron ore 62% Fe spot (cfr Tianjin) US$122.9/t vs US$124.3/t - Chinese August iron ore imports fall 10.9% from July

  • The world's top consumer imported 100.36mt of iron ore last month, down from 112.65mt in July, although imports were 5.8% greater than the same period last year. 
  • Shipments eased from record highs seen in July because of fewer shipments from big miners and port congestion, according to customs data. 
  • Iron ore exports from Brazil totalled 31.33mt in August, down by 7.4% compared to the same period last year (Fastmarkets MB). 
  • Despite the drop, demand for iron ore remains robust on resilient steel demand, as capacity utilisation at steel mills was 86.21% at the end of August, up from 84.96% a year earlier (Mysteel).
  • Imports in the first eight months of 2020 stood at 759.91mt, up 11% from the same period last year (Reuters). 
  • The price of iron ore recently hit six-year highs, and the near 50% surge over the past three months has lifted the product's share of Chinese steel costs to an all-time high (Argus Media).

Chinese steel rebar 25mm US$556.7/t vs US$555.9/t - US finished steel imports fall 91.5% in August

  • Imports of blooms billets and slabs plummeted in August, as Brazilian exporters exhausted their shipment quota under Section 232 earlier in the third quarter. 
  • The Q4 semi-finished steel shipment quota from Brazilian exporters has since been cut to 60,000 tonnes from 350,000 tonnes previously. 
  • The US imported 15,947 tonnes of rebar from Turkey in August, just over one-third of the 42,920 tonnes received in July. 
  • Line pipe was the one major finished steel import category that saw a significant gain month-on-month, rising 32.8% as shipments from Japan more than doubled (Fastmarkets MB). 

Thermal coal (1st year forward cif ARA) US$56.1/t vs US$56.5/t

Coking coal futures Dalian Exchange US$136.0/t vs US$131.5/t

            

Other:  

Cobalt LME 3m US$33,200/t vs US$33,200/t

NdPr Rare Earth Oxide (China) US$49,773/t vs US$49,700/t

Lithium carbonate 99% (China) US$4,977/t vs US$4,970/t

Ferro Vanadium 80% FOB (China) US$30.3/kg vs US$30.3/kg

Antimony Trioxide 99.5% EU (China) US$5.1/kg vs US$5.2/kg

Tungsten APT European US$212-220/mtu vs US$210-215/mtu 

Graphite flake 94% C, -100 mesh, fob China US$430/t vs US$430/t

Graphite spherical 99.95% C, 15 microns, fob China US$2,275/t vs US$2,275/t

 

Battery News

Indian government considering improving charging infrastructure to encourage EV take up

  • The Indian government is considering installing at least 1 charging kiosk at 69,000 petrol pumps across the country. The hope is to encourage electric mobility and the take up of electric vehicles.
  • Electric car sales remain a very small market with only 1,408 EV sales YTD.  
  • The Power Minister revealed in a review meeting on charging infrastructure that an order for oil marketing companies under administrative control to set up charging kiosks at Company-Owned, Company Operated (COCO) petrol pumps could be issued. Other petrol pump operators could be advised to follow suit.
  • The new guidelines are to specify that petrol pumps must have at least one option of alternative fuel.
  • The Power Ministry is expected to concentrate EV charging infrastructure in cities and main roads in the Delhi National Capital Region, Kolkata, Chennai, Hyderabad Bengaluru, Vadodara and Bhopal.

 

Company News

Botswana Diamonds (BOD LN) 0.65p, Mkt Cap £4.5m – Raising £300,000 for exploration

  • Botswana Diamonds has announced that it is raising £300,000 via the issue of 50m new shares at a price of 0.6p. Each new share carries a warrant to subscribe for an additional share priced at 0.6p within the next two years.
  • The additional shares, excluding any shares issued as a result of the conversion of the warrants, represent approximately 7% of the enlarged capital of Botswana Diamonds.
  • The new funds are to be used for exploration in both Botswana and South Africa.
  • The company confirms that, in Botswana work will be focussed on commercialising the KX36 project following the recent acquisition of Sekaka Diamonds from Petra Diamonds.  This will include finalising a work programme to upgrade the grades and diamond value of the kimberlite pipe as well as investigating innovative mining options.  Drilling is planned for the adjacent Sunland Minerals property and following further assessment of the comprehensive Sekaka database more drilling targets are likely”.
  • In South Africa, drilling is underway to investigate the M8 kimberlite pipe ay Marsfontein and the company plans future drilling of “kimberlite targets … on the adjacent Thorny River concession”.
  • Confirming the existing exploration work during what he described as “a very active and exciting time for Botswana Diamonds” the Chairman, John Teeling explained that “We have a number of active projects. The recently acquired KX36 diamond resource in the Kalahari offers great potential.”

Conclusion: We look forward to further news from Botswana Diamonds’ exploration work following the additional funding.

 

Bushveld Minerals* (BMN LN) 12.37p, Mkt Cap £143m – Vanadium rental agreement through VERL to fund 5MW flow battery

(Bushveld Energy has negotiated to holds 50% Enerox Holdings Limited (50% other investor) which holds 90% of Enerox GmbH along with 8.71% in Invinity) If no other investors participating then the €3.7m loan will be split between the Bushveld and the other investor. 

Valuation 46.5p

  • Bushveld Minerals has formed a special purpose company in partnership with Invinity Energy Systems plc called VERL ‘Vanadium Electrolyte Rental Limited’.
  • The new business is designed to provide a vanadium electrolyte rental option to Invinity's customers.
  • VERL has signed a contract for electrolyte rental with Pivot Power, part of EDF Renewables.
  • Under this contract, VERL will hold, and rent to Pivot for a period of ten years, the electrolyte in Pivot Power's five megawatt-hour flow battery.
  • The battery is being supplied by Invinity and to be delivered to Pivot Power's project at the Energy Superhub in Oxford. 
  • The rental model is made possible by the ability to recover all the vanadium at the end of the rental period.
  • The vanadium electrolyte may then simply cleaned of any impurities and reused as electrolyte or converted into other vanadium products.
  • Vanadium pricing
  • The diversion of vanadium into VRFBs will naturally take vanadium out of the market for structural steel and is likely to cause vanadium prices to rise.
  • Ferro-vanadium prices rise a further 1,4% last week to $24.8-25.8/kgV in Western Europe as steel producers start to produce more structural steel to meet new stimulus programs.
  • Slow steel production in Western Europe had depressed vanadium prices for longer than anticipated.

Conclusion: The application of Bushveld’s vanadium electrolyte rental agreement through VERL is a significant step forward in rolling out this new model to help finance and kick start other VRFB battery instillations.

*SP Angel acts as Nomad & Broker to Bushveld Minerals

 

Gem Diamonds (GEMD LN) 35.1p, Mkt Cap £49m – 143 carat diamond recovered from Letšeng

  • ​Gem Diamonds recovered a143-caratt high quality white Type II diamond on Saturday the 5th of September 2020. 
  • The announcement follows the recent recovery of a 233 carat Type II white diamond and follows the “recent recovery of a high quality 442 carat Type II diamond, one of the world's largest gem quality diamonds to be recovered this year” also from its Letšeng mine in Lesotho.

 

Hochschild Mining (HOC LN) 240p, Mkt Cap £1,231m – Revised FY20 guidance

  • The Company released updated production FY20 guidance following operational stoppages and temporary delays in mine sequencing amid Covid-19 related containment measures.
  • The Inmaculada and Pallancata mines in Peru were stopped for 11 weeks with operations at each mine resuming 31 May and 1 June, respectively, while San Jose operation in Argentina stopped for six weeks and resumed on 27 April with a phased ramp up.
  • Inmaculada is reported to have ramped up to full capacity now.
  • Attributable production brought down to 280-290koz gold equivalent ounces or 24.0-25.0moz silver equivalent ounces from 422koz and 36.0moz guided in Jan/20.
  • AISC are expected to average $,1250-1,290/oz of gold equivalent or $14.5-15.0/oz of silver equivalent, up from $1,040-1,080/oz or $12.1-12.5/oz expected previously.
  • Capex is guided to come in at $110-120m reflecting deferred mine development at Inmaculada and San Jose amid stoppages compensated by increased infill drilling at Inmaculada and additional mine development at Pallancata v $115-130m forecast before.
  • Brownfield exploration budget was increased to ~$37m with the greenfield and advance project budget now ~$9m, versus $36m and $8m expected previously.

 

Kodal Minerals* (KOD LN) – 0.11p, Mkt cap £12m – Kodal raises £654,000 from sale of shares by Riverfort investors

BUY

  • Kodal Minerals reports it has raised £654,000 from the sale of shares given to Riverfort Global Opportunities PCC Limited and YA II PN Ltd.
  • The company tells us the sale has brought in more than the £500,000 subscription agreement it entered into six months ago.
  • The investors also have warrants exercisable into some 228m new shares exercisable over the next 2.5 years at a price of 0.04375p.

*SP Angel act as financial advisor and broker to Kodal Minerals

 

Mkango Resources* (MKA LN) 5.75p, Mkt cap £7.7m – EU Action Plan for critical raw materials.

(Mkango’s 75.5% subsidiary, Maginto Ltd holds a 25% stake in HyProMag which is a partner in the ‘Rare–Earth Recycling for E-Machines’ RaRE project)

  • Mkango Resources will no doubt be encouraged by news released last week in the European Commission’s 2020 update on Critical Raw Materials that not only are rare earths retained on the list of minerals considered critical but that the EU is implementing a “European Green Deal” aimed at  transforming the Union into a modern, resource-efficient and competitive economy, where
    • there are no net emissions of greenhouse gases by 2050
    • economic growth is decoupled from resource use
    • no person and no place is left behind”
  • The EU has stated that it intends to mobilise at least €100 billion over the period 2021-2027” to assist in achieving these objectives a timetable which may synchonise well with the development of Mkango’s Songwe Hill rare-earths deposit in Malawi which is currently expected to complete feasibility studies in the second half of 2021.
  • A key characteristic in defining criticality in this context is Chinese dominance of the supply chain, which in the case of rare-earths amounts to 98% of the EU’s supply according to the Commission.
  • Songwe Hill’s development may become a beneficiary of the EU’s stated aspiration to diversify its supply chains
  • The Commission’s report also says that Demand for rare earths used in permanent magnets 15 , e.g. for electric vehicles, digital technologies or wind generators, could increase tenfold by 2050”.
  • As well as the previous list of critical raw materials, the 2020 study includes bauxite, lithium, titanium and strontium for the first time.

Conclusion: Important messages of support from government both for the Songwe Hill project and the wider development of Malawi’s minerals industry indicate a constructive working relationship between Mkango Resources and Malawi which should be beneficial to the project’s development as the feasibility work moves towards completion in the second half of 2021.

*SP Angel act as nomad and broker to Mkango Resources

 

Panther Metals (PALM LN) 9p, Mkt Cap £5.2m – Geophysical encouragement from Annaburroo

  • Panther Metals reports that a review of historical geophysical data covering its wholly owned Annaburroo gold project located approximately 70km southeast of Darwin in the Northern Territory, Australia has identified Several major structures and linear features area identified with the same north-east trend as the doubly-plunging anticlinal structures within the prospective Annaburroo Dome … [with] … Several strongly magnetic targets, associated with anticlinal structures and faulted synclines delineated within the southern portion of the exploration licence area … [which] … all remain completely untested”.
  • The company explains that the Annaburroo Dome covers an area of 8.5km by 4km, while an area in the south of the Project contains a 3.6km by 0.5km structural target zone reflecting the same potential controls on mineralisation as the Donkey Hill Gold Prospect … [which] … yielded high-grade gold from grab samples, trenching and limited drilling… In more detail, several NE trending linear features are able to be mapped and may provide control on the distribution of gold mineralisation.  These will be the focus of future ground-based exploration work”.
  • CEO, Darren Hazelwood, highlighted “a strongly magnetic target with dimensions of 3.6km by 0.5 km in the south of the licence has been determined as a key area for follow-up work.  In addition, a number of other targets have been identified in this part of the licence, including a faulted syncline with dimensions of 7km by 1.5km”.
  • Mr. Hazelwood confirmed that further airborne geophysics is under consideration targeting the southern part of the of the project area, where existing coverage is poor, during Q1 2021 and that “We expect to have a team on the ground conducting a field work program and initial reconnaissance work on behalf of the company during Autumn of 2020 at Annaburroo as we build our understanding of the gold hosting structure …”.

Conclusion: Re-examination of historical geophysical data has helped Panther Metals identify the potential of the relatively underexplored potential within the southern part of its licences at Annaburroo. We look forward to further news as field exploration gets underway through the autumn.

 

Red Rock Resources (RRR LN) 0.925p, Mkt cap £6.4m– Option over Slovak Gold assets 

  • The Company announces this morning that it has entered into an option over former gold and silver exploration assets at Zlata Bana, Slovakia.
  • The vendors of the Assets are Mr Lubomir Konkol and his associated parties including Zdarboh n.o, a non-profit company and they include a license covering the area which contains old gold mines and a number of mineral-bearing veins mapped at surface, as well as land and buildings.
  • Red Rock have made a payment of €23,000 in order to acquire a 50% interest in the Zlata Bana License covering an area of approximately 12 sq km and paid €10,000 paid for a due diligence period to 21 September 2020. 
  • Upon exercise of the Option, the company would acquire a 50% interest in the other Assets, including interests in land and buildings, vehicles, and mining equipment, a permit over a mineral stockpile, and mining information and data.
  • The consideration for exercise of the Option would be the issue upon the execution of documentation to transfer the interest in the Assets of €250,000 of new Red Rock shares at an issue price equal to the prior 5-day average VWAP.
  • A further issue of €100,000 of new Red Rock shares would occur upon completion of the process of Transfer, at an issue price per share equal to the 5 -ay prior average VWAP. 
  • A joint venture between Red Rock and Mr Lubomir Konkol will be established, which will see Red Rock responsible for certain expenditures in the period after execution of the Option, which is expected to amount to not less that €100,000 in 2020.

 

Rio Tinto (RIO LN) 4653p, Mkt cap £57.0bn –Simandou controversy may be moving closer to resolution

  • We note a report from the “Rear Window” column of Australia’s  Financial Review dated 27th July https://www.afr.com/rear-window/rio-tinto-board-ignored-report-of-unethical-behaviour-20200727-p55fy3 alleging that an advisor to Rio Tinto expressed “serious misgivings” concerning the events surrounding the company’s dealings with the Republic of Guinea concerning the iron ore deposit at Simandou.
  • The article suggests, however, that Credible speculation persists that the miner is now close to reaching a Deferred Prosecution Agreement with the regulator”. If this proves to be the case it could bring a conclusion to a chain of events dating back to November 2016 when Rio Tinto “self reported” events related to the lobbying for reinstatement of its licences at Simandou leading to an investigation by the UK’s Serious Fraud Office.

 

Vast Resources* (VAST LN) 0.19p, Mkt Cap £23m – Baita Plai update

  • The Company released internal production and earnings estimates for Baita Plai as drilling of the core area to be mined over the next three years is nearing completion and as metallurgical testwork and detailed mine planning has been finalised.
  • The team expects mining rates to gradually ramp up from 3ktpm in Q4/20 to 13ktpm in Q4/21; CY21 mined tonnages estimated at 135kt.
  • Flotation plant is estimated to grow throughput from 14kt in Q4/20 to 41kt in Q4/21 and production of copper, lead and zinc concentrates from 0.9kt to 2.3kt, respectively; CY21 throughput estimated at 143kt and produced concentrated (Cu+Pb+Zn) at 8.1kt.
  • Assuming $6,655/t copper price, net revenues are estimated to climb from $1.9m in Q4/20 to $5.5m in Q4/21; CY21 net revenue estimated at $19.0m.
  • CuEq sales are estimated at 0.3kt in Q4/20 growing to 0.8kt in Q4/21; CY21 CuEq sales are estimated at 2.9kt.
  • EBITDA (mine level and excl development costs) is expected to increase from $0.5m in Q4/20 to $3.2m in Q4/21; CY21 EBITDA estimated at $10.4m.
  • Separately, the Company reports a safety issue at the railway bridge access point between the mine and the flotation plant causing a three to four weeks delay to the first concentrate sales.
  • The team has already engaged contractors to produce an alternative steel structure to refurbish the access point to the flotation plant.
  • As a result the first concentrate sale to Mercuria is now expected to be in October with 150t of already prepared copper concentrate now stored on site.
  • The team is planning to release the JORC Reserve and Resources report for the Baita Plai polymetallic mine in October 2020.
  • Craig Harvey, COO and Chief Geologist, has been granted access to Romania from South Africa following a period of extended lockdown due to Covid-19 and will be arriving to site later this month to manage Baita Plai operations on the ground.

Conclusion: Baita Plai is nearing its first concentrate sale with the Company expecting to generate $0.5m in EBITDA before the end of the year that is forecast to grow to $10.4m in CY21 as mining and processing operations ramp up. Once ramped up operations are estimated to run at 50-55% EBITDA margins highlighting low cost status of the mine. The team recorded a safety issue with the flotation plant rail access point slightly delaying the first concentrate shipment to Mercuria (three-four weeks), but refurbishment operations have already been started. The team is planning to release JORC mineral resources and reserves statement in October.

*SP Angel acts as Broker to Vast Resources

 

Analysts

John Meyer – John.Meyer@spangel.co.uk – 0203 470 0490

Simon Beardsmore – Simon.Beardsmore@spangel.co.uk – 0203 470 0484

Sergey Raevskiy –Sergey.Raevskiy@spangel.co.uk - 0203 470 0474

 

Sales

Richard Parlons –Richard.Parlons@spangel.co.uk - 0203 470 0472

Abigail Wayne – Abigail.Wayne@spangel.co.uk - 0203 470 0534

Rob Rees – Rob.Rees@spangel.co.uk - 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

 

DISCLAIMER

This note is a marketing communication and comprises non-independent research. This means it has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of its dissemination.

This note is intended only for distribution to Professional Clients and Eligible Counterparties as defined under the rules of the Financial Conduct Authority and is not directed at Retail Clients.

This note is confidential and is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published in whole or in part, for any purpose.

This note has been issued by SP Angel Corporate Finance LLP (‘SPA’) to promote its investment services. Neither the information nor the opinions expressed herein constitutes, or is to be construed as, an offer or invitation or other solicitation or recommendation to buy or sell investments. The information contained herein is based on sources which we believe to be reliable, but we do not represent that it is wholly accurate or complete. All opinions and estimates included in this report are subject to change without notice. It is not investment advice and does not take into account the investment objectives and policies, financial position or portfolio composition of any recipient. SPA is not responsible for any errors or omissions or for the results obtained from the use of such information. Where the subject of the research is a client company of SPA we may have shown a draft of the research (or parts of it) to the company prior to publication to check factual accuracy, soundness of assumptions etc.

Distribution of this note does not imply distribution of future notes covering the same issuers, companies or subject matter.

Where the investment is traded on AIM it should be noted that liquidity may be lower and price movements more volatile.

SPA, its partners, officers and/or employees may own or have positions in any investment(s) mentioned herein or related thereto and may, from time to time add to, or dispose of, any such investment(s).

SPA is registered in England and Wales with company number OC317049.  The registered office address is Prince Frederick House, 35-39 Maddox Street, London W1S 2PP.  SPA is authorised and regulated by the UK Financial Conduct Authority and is a Member of the London Stock Exchange plc.

MiFID II - Based on our analysis we have concluded that this note may be received free of charge by any person subject to the new MiFID II rules on research unbundling pursuant to the exemptions within Article 12(3) of the MiFID II Delegated Directive and FCA COBS Rule 2.3A.19.

A full analysis is available on our website here http://www.spangel.co.uk/legal-and-regulatory-notices.html. If you have any queries, feel free to contact our Compliance Officer, Tim Jenkins (tim.jenkins@spangel.co.uk).

SPA research ratings – Based on a time horizon of 12 months: Buy = Expected return of more than 15%, Hold = Expected return between -15% and +15%, Sell = Expected return of less than 15%

Disclaimer & Declaration of Interest

The information, investment views and recommendations in this article are provided for general information purposes only. Nothing in this article should be construed as a solicitation to buy or sell any financial product relating to any companies under discussion or to engage in or refrain from doing so or engaging in any other transaction. Any opinions or comments are made to the best of the knowledge and belief of the writer but no responsibility is accepted for actions based on such opinions or comments. Vox Markets may receive payment from companies mentioned for enhanced profiling or publication presence. The writer may or may not hold investments in the companies under discussion.

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