SP Angel . Morning View . Thursday 28 05 20

SP Angel . Morning View . Thursday 28 05 20

Metals climb on EU stimulus and easing lockdowns 

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MiFID II exempt information – see disclaimer below

 

Anglo Asian Mining* (AAZ LN) – Earnings update: riding surging gold prices

Condor Gold* (CNR LN) – Raises £6.6m in oversubscribed placing 

Kodal Minerals* (KOD LN) –– Kodal awaits approval to start mining

Mkango Resources* (MKA LN) –– Rare earth magnet recycling 

 

UK – Prime Minister looks set to ease Lockdown further today if the five tests are finally met following three-week review

• The last test, where the government is confident that any adjustments to the current measures will not risk a second peak of Coronavirus infections which might overwhelm the NHS needs to be met for the government to ease Lockdown restrictions further.
• Schools will reopen from 1 June – probably, unlucky kids!
• Outdoor markets and car showrooms to reopen – probably
• Four out of the five lockdown tests have been met according to the Health Secretary
• Significant progress made on securing PPE

 

Peru - Mining production to drop by at least 15% this year

• According to a top mining executive at Buenaventura, production in Peru's mining sector will fall by at least 15% this year, representing a loss in revenues of up to $5bn. 
• Although some mining operations in Peru are partially reopening after the government gradually eased restrictions, the sector will go through four phases of reactivation until August. 
• Large-scale mining which makes up 80% of Peru's copper production will not be fully up and running until early June, extending losses into the second and possibly third quarters of this year.

 

China - Expect more stimulus from the National People’s Congress this week

• $1.55tn – China - Bloomberg estimates a ‘fiscal impulse of more than 11% of nominal GDP’ which was estimated at US$14.14tn 

• We have previously assumed China at $909m $344bn of China stimulus + $565bn in special bonds for infrastructure by local authorities
• $1.1tr - Japan - further stimulus to combat pandemic including significant direct spending to stop the coronavirus pandemic pushing the country's economy deeper into recession. The 117tn-yen stimulus, funded partly by a second extra budget, will be on top of another 117tn package already rolled out last month - and takes total spending in Japan at 234tn yen ($2.18tr) - 40% of Japans GDP. To fund the costs, Japan will issue an additional 31.9 tn yen in government bonds under the second supplementary budget for the current fiscal year ending in March 2021. 
• $825bn (€750bn) EU - European Commission aid package yesterday aimed at supporting EU nations hit by the pandemic.
• This is an expansion on the previous $543bn (€500bn ) EU Crisis Recovery fund backed France and Germany + $963bn (€750bn) ECB scraps limits on sovereign bond purchases. ECB PEPP buying running at around €250bn
• US$260bn - India representing 10% of GDP. 

• $2tn - US fiscal package approved by Congress. US may add $0.6t state aid for mortgage markets and travel industries
  • The House passed a $484bn aid package to rescue small small businesses, hospitals ($75bn) and coronavirus testing ($25bn).
  • $2tn US – Trump looking at $2tn infrastructure fund
  • $700bn – US + Fed rate cut to 0-0.25% last night. The $700bn QE to buy Treasuries and mortgage-backed securities.
  • US Fed may soon start buying in up to $750 billion of corporate debt and ETFs

• EU Finance Ministers have so far failed to agree on a strategy to mitigate the economic impact of the pandemic.
  • The pandemic emergency purchase programme (PEPP) and asset purchase programme (APP) have been reiterated with a cap of €750bn and €120bn, respectively.
  • The bank is reported to have used €100bn of the PEPP so far.
• $825bn (€756bn) Germany – Bundestag approved €156bn in extra borrowing and ~€600bn in emergency funds
• $996bn (108.2tn yen) – Japan +  BoJ pledge for unlimited quantitative easing
• 400bn (£330bn) UK + $242bn (£200bn) UK QE from BoE & no business rates plus £25,000 cash grants for hospitality sector
• $387bn (€304bn) France, $200bn (€200bn) Spain, $214bn (A$320bn) Australia Australia - RBA ready to buy bonds again.

• $78bn (C$107bn) Canada, $32bn Saudi Arabia, US$43.7bn Singapore, $22.6bn India, $19.3bn HK, $13.7bn South Korea, $10bn Switzerland, $8.4bn Italy, $7bn NZ, $3.5bn Ireland, $2bn Taiwan, $0.75bn Indonesia,
• Argentina to default on $10bn of dollar debt issued til the end of the year. Does not affect the $70bn that Argentina is currently in talks to restructure.
• $1,000bn - IMF available + $12bn World Bank, 

>14.7tn Total up from $13.2bn based on expanded EU package and massive new Japan stimulus

 

Dow Jones Industrials		+2.21%	at	25,548
Nikkei 225		+2.32%	at	21,916
HK Hang Seng		-1.08%	at	23,050
Shanghai Composite		+0.33%	at	2,846

 

Economics

US – US/China tensions escalate.

• Secretary of State Michael Pompeo said the US administration can not longer certify Hong Kong’s political autonomy from China that may potentially trigger sanctions, Bloomberg reports.
• “Hong Kong does not continue to warrant treatment under United States laws in the same manner as US laws were applied to Hong Kong before July 1997,” Pompeo said yesterday.
• Later on Wednesday, the US House voted 413-1 to authorise sanctions on Chinese officials for human rights violations against Muslim minorities.
• The bill has already passed the Senate and will now go to the president to be signed into law.
• Huawei CFO failed to block her extradition to the US with Canadian court ruling proceedings will continue and Mengh Wanzhou to remain under house arrest in Vancouver.
• A Chinese embassy spokesperson in Ottawa on Wednesday called the case “aa grace political incident” and urged Canada to let Meng return to China.
• Two Canadians, detained within days of Meng’s arrest in December 2018, also remain in prison in China, Bloomberg writes.

 

The European Commission unveiled a €750bn aid package yesterday aimed at supporting EU nations hit by the pandemic.

• "Next Generation EU [consists] of €750 billion as well as targeted reinforcements to the long-term EU budget for 2021-2027 [and] will bring the total financial firepower of the EU budget to €1.85 trillion," the statement said.
• Under the plan, the EU will borrow €750bn from the recovery fund on the financial markets and to be repaid through EU budgets.
• The package will include a new “Recovery and Resilience Facility” totalling €560bn offering financial support for investment and reforms made up of €310bn in grants and €250bn in loans.
• The plan will now need to be approved by all 27 member states including the so-called “Frugal Four” comprised of Austria, Sweden, Denmark and the Netherlands that opposed grants previously.

 

Spain – Annual inflation posted a second consecutive negative reading amid a drop in consumer demand and labour earnings.

• Separate report showed retail sales fell by a third in April (-31.6%yoy).
• CPI (%yoy, EU harmonised): -1.0 v -0.7 in April and -0.9 est.

 

South Korea – The central bank cut key interest rate by 25bp to 0.50%, the lowest level since the current system was adopted in 1999, and pledged to ramp up purchases of government bonds if needed.

• The bank has also cut its 2020 economic projection to a 0.2%drop from 2.1% growth estimated in February.
• Inflation forecasts have been cut down to 0.3% this year, from 1.0% estimated in February.
• Separately, Health Minister warned that the next two weeks will be critical to control the spread of coronavirus amid concerns over the second wave of infections.
• The nation said it will strengthen quarantine measures for two weeks in Seoul and its suburbs as the country reported the biggest jump in daily infections in nearly two months.

 

Currencies

US$1.1008/eur vs 1.0955/eur yesterday.  Yen 107.84/$ vs 107.51/$.  SAr 17.392/$ vs 17.520/$.  $1.227/gbp vs $1.230/gbp.  0.661/aud vs 0.664/aud.  CNY 7.154/$ vs 7.159/$.

 

Commodity News

Precious metals:          

Gold US$1,720/oz vs US$1,707/oz yesterday - Gold prices rise as US-China tensions over Hong Kong escalate

• The price of gold rose on Thursday morning after hitting a two week-low in the previous session which saw the price dip below the $1,700/oz mark. 
• US Secretary of State said on Wednesday that that Hong Kong no longer qualifies for its special status under US law, while Trump said he'd announce a response this week- fuelling uncertainty between the world's two largest economies and supporting safe havens as a result.  (Kitco).
• Spot gold rose 0.6% earlier this morning to $1,719/oz, after dropping to $1,693/oz on Wednesday. US gold futures rose 0.5% to $1,718/oz (Reuters). 

   Gold ETFs 99.9moz vs US$99.7moz yesterday

Platinum US$840/oz vs US$834/oz yesterday

Palladium US$1,975/oz vs US$1,967/oz yesterday

Silver US$17.35/oz vs US$17.04/oz yesterday

            

Base metals:   

LME inventories experience minor falls this week 

• LME copper inventories fall 950 tonnes to 264,425 tonnes. 
• LME aluminium inventories fall 700 tonnes to 1.49mt. 
• LME zinc inventories fall 2,900 tonnes to 103,250 tonnes. 
• LME nickel inventories fall 696 tonnes to 233,502 tonnes. 
• LME lead inventories unchanged at 76,150 tonnes.
• LME tin inventories fall 20 tonnes to 2,930 tonnes. 

 

Copper US$ 5,318/t vs US$5,305/t yesterday

Aluminium US$ 1,530/t vs US$1,520/t yesterday - Aluminium prices gain on Economic Optimism 

• The price of aluminium is set to close at its highest level in two months on positive sentiment regarding post-virus economic prospects. 
• The metal is benefitting from a relatively strong recovery in Chinese demand and despite the influx of imported material, falling inventories and high spot premiums will keep SHFE aluminium prices firm (SMM News). 
• On Wednesday, three-month aluminium on the LME advanced to $1,534/t - a level not seen since the 17th of April. 

Nickel US$ 12,180/t vs US$12,175/t yesterday

Zinc US$ 1,916/t vs US$1,934/t yesterday

Lead US$ 1,636/t vs US$1,653/t yesterday

Tin US$ 15,400/t vs US$15,335/t yesterday

            

Energy:            

Oil US$33.8/bbl vs US$35.5/bbl yesterday

Natural Gas US$1.857/mmbtu vs US$1.780/mmbtu yesterday

Uranium US$33.95/lb vs US$34.20/lb yesterday

            

Bulk:    

Iron ore 62% Fe spot (cfr Tianjin) US$93.9/t vs US$92.0/t - Chinese iron ore futures rise on Thursday 

• Benchmark iron ore futures on the Dalian Commodity Exchange gained as much as 2.4% on Thursday, due to firm demand at steel mills as construction restarts speed up. 
• The most actively traded September contract of iron ore closed 2% higher at 711 yuan per tonne, with spot prices of iron ore also seeing gains (Reuters). 
• Iron ore's relative outperformance is as a result of bullish supply and demand stories, with the supply issue coming from the aggressive spread of the virus from the world's number two exporter Brazil (Hellenic Shipping News). 

Chinese steel rebar 25mm US$540.3/t vs US$539.9/t - Turkey tells WTO it is planning to impose tariffs on EU steel products 

• Turkey has told the WTO that it plans to impose an additional duty of 9-17% on steel product imports from the EU. 
• The European Commission started an anti-dumping investigation into imports of steel from Turkey on the 14th of May, which the Turkish Steel Producers Association told Fastmarkets that the investigation failed to comply with the principles of the Customs Union and Free Trade Agreements. 
• Turkey said it reserved the right to apply the proposed measures 30 days from the date of notification, in accordance with Article 8.2 of the WTO Agreement on Safeguards (Fastmarkets MB). 

Thermal coal (1st year forward cif ARA) US$52.2/t vs US$52.4/t

Coking coal swap Australia FOB US$114.0/t vs US$114.0/t

            

Other:  

Cobalt LME 3m US$30,000/t vs US$30,000/t

NdPr Rare Earth Oxide (China) US$37,672/t vs US$37,509/t

Lithium carbonate 99% (China) US$4,962/t vs US$4,959/t

Ferro Vanadium 80% FOB (China) US$27.0/kg vs US$27.0/kg

Antimony Trioxide 99.5% EU (China) US$5.0/kg vs US$4.9/kgTungsten APT European US$215-225/mtu vs US$215-225/mtu 

Graphite flake 94% C, -100 mesh, fob China US$485/t vs US$500/t

Graphite spherical 99.95% C, 15 microns, fob China US$2,350/t vs US$2,425/t

Diamonds – US jewellery stores are reopening in many states. It will be interesting to see how sales pickup and if the surge in engagement ring sales follows that seen after the Subprime, Global Financial Crisis.

• Most jewellery chains are reopening in a phased approach.
• The reopening of stores may also help support online sales where clients can view rings in store but buy online or by phone to reduce transaction risk.

 

Battery News

Europe has become the go to destination for EV investment

• Europe secured a record €60bn of investment in EV and batteries last year. Europe received just €3.2bn in 2017/18. (Reuters)
• China in comparison has seen the amount of investment it receives fall from €22bn in 2017/18 to €17bn last year.
• The shift in focus is seen largely as a result of European carmakers having to comply with an EU directive which mandates fleet wide reductions in carbon footprints. Firms must reduce their carbon footprint below 95g per km by 2021 of face strict fines.
• Volkswagen and Tesla have led the charge, the former investing €33bn into EV technology on the continent whilst Tesla has put €4bn into their Berlin Gigafactory.
• Germany received the most investment, attracting €40bn predominantly from Volkswagen group. (Business Green)
• President Macron announced the next round of heavy investment in Europe with PSA and Total joining to manufacture batteries for EV and hybrid cars. (Reuters)
• He also announced an €8bn financial package for the industry, hoping to make France the top producer of clean energy vehicles. (Reneweconomy)

 

LG Chem to supply Hyundai Motor

• Hyundai Motor Group which includes Kia Motors has chosen LG Chem to be one of its suppliers for the Company’s new range of EV models. (Reuters)
• The value of the deal and further details have yet to be announced and will remain confidential.
• Hyundai announced last year that it would launch 16 EV models by 2025 with a sales target of 560,000 vehicles. Production will start in 2022.
• The range will require several orders for EV batteries. The first order was awarded to SK Innovation and the second, the current order to LG Chem. (Business Korea)
• The vehicles will be made using the Electric-Global Modular Platform (E-GMP), developed by Hyundai and Kia exclusively for the production of EVs.

 

MIT study show utility of second life EV batteries in grid scale solar storage

• MIT study published in Applied Journal of Energy has found that a managed system of EV batteries operating at 80% capacity was the most profitable way of running a solar farm. (Renew economy)
• The team compared the economics of building a 2.5MW solar farm in California using new lithium-ion battery storage, using repurposed EV batteries and using no batteries. (PV-magazine)
• The team found building the farm with a new battery installation would not provide a reasonable net return on investment.
• Limitations of using second life batteries include:
  • The cost would have to be 60% or less than the original sales price for it to be economical.
  • Enough residual value in the used batteries to justify the cost of sourcing, collection, screening, and repacking.
  • Technical road bumps like how to screen batteries and combine batteries from different cars.
• The research showed batteries could be operated at as low as 60% capacity and remain safe and worthwhile to do so.  

 

Company News

Anglo Asian Mining* (AAZ LN) 130p, Mkt Cap £148m – Earnings update: riding surging gold prices

BUY – 187p

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Strong FCF generation led by robust output, low unit costs and strong gold prices

• The Company is guiding FY20 production at 75-80koz GE in FY20 including 65-67koz gold and 2.2-2.4kt copper (FY19: 70koz gold and 2.2kt copper).
• Production estimates compare to 81.4koz GE produced in FY19 and reflect the change in the ore mix.
• Revenues are expected to post another year of growth as an increase in gold prices is forecast to more than compensate for slightly weaker gold output with Anglo Asian benefiting from >85% exposure to the precious metal.
• EBITDA is expected to come in at $57m this year implying strong >50% margins on the back of low AISCs costs of $634/oz.
• FCF is estimated at $35m in FY20 helping to further grow the net cash position to $37m by the end of the year (after accounting for ~$10m in dividend payments), up from $26m recorded as of Mar/20.
• The cash buffer that is set to expand to >20% of the current ~$180m market capitalisation represents capital that can be used to grow the business organically, potentially accommodate value accretive M&A or step up dividend payments.

Dividends – FY20e 5.0% yield is among the highest among London listed precious metals miners

• In the view of continuing positive FCF generation and a strong balance sheet, the Company announced a FY19 final dividend of 4.5c, an increase over an interim dividend of 3.5c, bringing total FY19 payout to 8.0c or ~$9m, up on 7.0c for FY18 and , equivalent to ~33% of FCF and implying a stronger payout to the declared dividend policy of 25% of FCF.
• Moving forwards, the Company is well positioned to sustain its dividend policy and potentially distribute more than 25% of annual FCF as was the case in 2018 and 2019. While the Board ultimately has discretion over the dividend policy that is reviewed each year, we estimate that assuming flat dividend of 8.0 cents in 2020 yields 5.0% on the current share price (130p) which is among the highest for London listed precious metals producers (see charts at the back).
• The Company had $26m in cash in Q1/20, is expected to generate $35m in FCF in FY20 making 8.0c/$9m dividend payments well covered and sustainable.

COVID-19 containment measures implemented with mining and processing facilities remaining in operation – FY20 production guidance reiterated at 75-80koz GE

• The government of Azerbaijan introduced a series of measures to curtail the spread of the virus including the suspension of domestic travel limiting air flights and closing most of its land borders (including Georgia and Iran). However, these restrictions do not apply to freight shipments with the Company continuing to procure necessary supplies from outside Azerbaijan including cyanide.
• Operations at Gedabek and Gosha have not been included in the Government restrictions and continue to run normally with the management reiterating FY20 production guidance of 75-80koz GE.
• COVID-19 related challenges are currently limited to disruptions in shipments of gold dore due to air travel constraints while Swiss refining capacities that were previously temporarily shut down have since restarted operations and continue to accept dore shipments. Copper concentrate is being trucked from the site and, hence, has not been affected.
• As a precautionary measure the Company agreed a stand-by credit facility for $15.0m should COVID-19 related restrictions require external sources of funds. The Company estimated that it would cost around $1m per month to place Gedabek on care and maintenance and around $4-5m per month to continue running it at full production.
• At the moment, additional expenses related to COVID-19 are minimal (~$0.1m per month) attributed to chartering aircraft to ship gold dore to Switzerland, staff overtime and some other logistical costs.

Exploration potential – focus on LoM extension at Gedabek and unlocking value at Ordubad 

• Exploration work is continuing in full swing with the team pursuing a two-pronged  strategy involving proving up resources and reserves across the Gedabek Contract Area (CA, 300sq km) and Gosha CA (300sq km) extending the life of mine at the Gedabek processing complex as well as carrying surface exploration works at the Ordubad CA (462sq km) testing the Cu/Au-porphyry potential of the prospect.
• The Company is budgeting a ~$7m exploration programme in FY20 with the majority dedicated to the Gedabek CA where the team shortlisted five discoveries (Avshacli 1, Avshancli 2, Gilar, Ugur Deeps and Zefer Cell) that can be fast tracked into production using existing leaching and flotation capacities.
• In house exploration is the cheapest way to add ounces and grow the resource as demonstrated by the Ugur discovery that cost $2m in exploration costs ($10/13 per oz in Resources/Reserves) and a total of $5m when mine construction, haul road and related infrastructure costs are included. The investment delivered ~150koz in reserves or more than two years’ worth of production at ~$50m pa in EBITDA.
• At Gedabek CA, exploration works focused on operating sites (Gedabek, Gadir and Ugur) as well as a series of highlighted ‘high-priority’ targets.
• Tunnel connecting the Gadir decline with the Gedabek orebody is progressing well with workings expected to reach targeted area of mineralisation later this year with drilling chambers being set up in the process to test underground extensions.
• Drilling from surface and underground levels at Gadir returned high grade intersections proving up lateral and down-dip extensions to the orebody.
• Some good results have been recorded at previously identified geophysical anomalies located within the trucking distance of the Gedabek processing plant including at Ayshancli (1m at 5.27g/t and 0.30% Cu as well as 4.5m at 4.29g/t and 0.49% Cu in trenches; 1.1m at 7.03g/t and 0.45% Cu from surface in a drillhole), Gilar (1.4m at 5.48g/t Au from 23m in a drillhole) and Zefer Cell 9.
• Shallow mineralisation is a priority as these orebodies can be fast tracked into production as was the case with the Ugur discovery. In the latest strategic update, the team highlighted that Ayshancli, Gilar and Zefer Cell 9 can potentially start supplying feed to the plant in 2022, 2023 and 2025, respectively, subject to exploration results.
• Drilling is ongoing at Ugur, following up on a previous drill intersection of significant copper mineralisation at depth (about 350 metres) adjacent to the Ugur open pit (25m at nearly 2% copper). The topography of the area allows for a low cost access to the mineralisation using an adit and a ramp while existing mine infrastructure including the haul road to offer further development expenses savings. Exploration is currently planned for 2020-21 with a potential underground mine construction start in 2022 followed by production in 2023.
• Medium to longer term wise, porphyry type mineralisation potential at Gedabek will be assessed during a three year programme from 2021 that may considerably extend the life of mine into mid-2030s if not longer.
• At Gosha CA, the team is compiling data from the extended drilling programme to understand whether a potential mine extension can prove economical and warrants infill drilling; step out drilling is currently ongoing; additionally, more work is planned at adjacent targets including Asrickchay, a polymetallic prospect located 7km north of the Gosha underground mine.
• At Ordubad CA, the team is working on a geological model to prioritise drilling targets with results to date highlighting significant potential for a greenfield discovery.
• Mapping, sampling, trenching and drilling is being conducted around the Dirnis-Keleki-Aylis-Urchurdag cluster with a number of high grade gold and copper close-to-surface intersections reported in 2019. Additionally, the Company engaged the Natural History Museum (London) research team that completed the second site visit in 2019 studying the copper porphyry potential of the area. Preliminary findings suggest the area is highly prospective for mineralisation types associated with a porphyry system. The high potential of the area is further supported by a number of adjacent copper/molybdenum deposits in Iran (Sungun) and Armenia (Agarak and Kajaran).
• Fully funded exploration will provide a busy news flow schedule and offers significant exposure to exciting organic growth potential at Gedabek alone, not to mention the underexplored Ordubad and Gosha contract areas.

Valuation

We have adjusted our earnings to take into account reported production guidance and applied our updated gold price forecasts amid investors increasing appetite for safe haven assets and a revision to global growth outlook as authorities embark on an unprecedented fiscal and stimulus programme amid the COVID-19 pandemic.

The Company is guiding FY20 production at 75-80koz GE in FY20 including 65-67koz gold and 2.2-2.4kt copper (FY19: 70koz gold and 2.2kt copper) reflecting the change in the ore mix including higher share of Gedabek open pit ore that is lower grade and requires longer processing times compared to the Ugur material.

Anglo Asian is among few mining companies that is well positioned to benefit from the global flight from risk given its exposure to sought after precious metal, strong balance sheet (see AAZ’s Net Debt to EBITDA v other producers in the chart below) as well as commitment to maintain the dividend policy supported by its low AISCs status. The Company’s extensive exploration programme is set to extend the life of mine at its Gedabek operations with the processing complex in place to fast track future potential discoveries into production thanks to its versatile setup able to accommodate different types of ores (oxide/sulphide/transitionary). An extension of the life of mine at Gedabek, in turn, should allow the team to accelerate exploration works at Ordubad, a potential source of organic production growth.

Using our updated EBITDA estimates for 2020 and 2021 of $57m and $54m, respectively, and applying a target 4.5x times EV/EBITDA multiple we arrive at our target valuation of $277m and 187p per share. Upside to our valuation includes an increase in reserves allowing for multiple expansion as well as better than estimated gold price performance. With regards to the latter, on flat $1,750/oz gold price respective estimated EBITDA measures increase to $61m for both years raising target valuation to $303m and 204p per share.

Catalysts

Exploration update (Ongoing)

Resource and reserves update (Q3/20)

Q2/20 and H1/20 operations report (est. Jul/20)

(Dec year end)		2016	2017	2018	2019	2020E	2021E
Gold price	US$/oz	1,253	1,261	1,271	1,408	1,649	1,600
Copper price	$/t	4,872	6,196	6,554	6,027	5,460	6,000
Gold production	koz	65	60	73	70	67	67
Copper production	kt	1.9	2.0	1.6	2.2	2.4	2.4
GE production	koz	75	72	84	81	76	78
AISC (incl PSA, reported)	US$/oz	616	604	541	591	634	664
Revenue	US$m	79	72	90	92	107	107
EBITDA	US$m	34	32	50	50	57	54
FCF	US$m	15	16	27	19	35	27
EV/EBITDA	x	1.7	1.7	1.5	3.1	2.7	2.9
PER	x	5.5	13.9	4.9	8.6	7.1	8.7
DY	%	-	-	10.4%	5.6%	5.0%	5.0%
Net Debt	US$m	35	18	-6	-12	-37	-55
Prices as of 26/05/20 (130p) Source: SP Angel, Company

*SP Angel acts as nomad and broker to Anglo Asian Mining

 

Condor Gold* (CNR LN) 41.5p, Mkt Cap £46.6m – Raises £6.6m in oversubscribed placing 

Click here for Initiation note pdf

• Condor Gold reports that it has raised £6.6m through the placing of approximately 18.1m units at a price of 36.5p per unit.
• Each Unit comprises one ordinary share and one half of one unlisted share purchase warrant entitling the holder to purchase one ordinary share at a price of 40p (approximately a 10% premium to the Placing Price) for a period of 36 months.
• Four of the company’s directors, including the Chairman and Chief Executive, Mark Child, as well as Andrew Cheatle, Ian Stalker and Jim Mellon as well as the Chief Financial Officer, Jeffery Kaloly participated in the placing subscribing for a total of approximately 2.36m units.
• The proceeds of the fundraising are to be used to advance the La India Project in Nicaragua towards production. The project contains an open-pittable mineral resource of 1.1moz of gold from 3 permitted open –pit sites in close proximity to the permitted processing plant site.
• In detail, Condor Gold says that ʺThe placement proceeds will be used to complete engineering and other technical studies, purchase land in and around the minesite infrastructure and place a deposit on a processing plant.ʺ
• The company explains its longer term plan to develop underground ore sources saying that its ʺintention is to permit the 1.2 million oz gold underground Mineral Resource following the commencement of open pit production and continue with exploration activity to demonstrate a 5 million oz Gold District at La India Project."

Conclusion: Today’s announcement of funding, supported by the company’s directors, to complete the technical work and necessary land and equipment purchases to move the La India project towards production follows  Condor Gold’s recent progress on permitting both the main La India pit and the satellite deposits at Mestiza and America and maintains the momentum of project development.

*SP Angel act as sole broker to Condor Gold

 

Kodal Minerals* (KOD LN) – 4p, Mkt cap £4.4m – Kodal awaits approval to start mining

(Kodal holds 100% of Nangalasso and Dabakala. Kodal currently holds 90% of the Bougouni Lithium project, this will adjust to 81% when the Mali government 10% free carry is applied)

• Kodal Minerals report that the Ministry of Mines and Petroleum in Mali has accepted the Bougouni Lithium Feasibility Study
• The Ministry also confirms that no further technical or financial meetings are required prior to approval of the mining license.
• The new Mining License area and new permit boundaries are also agreed along with the proposed areas for mining and associated infrastructure.
• COVID-19 restrictions have impacted the approvals process making the timing of the mining license approval less certain.
• Gold projects: 
• Kodal has a number of gold prospects in Mali and the Ivory Coast which are attracting interest from investors and other exploration and development companies.
• Management have worked up a strategy for further exploration at Nangalasso in Mali and Dabakala in Cote d'Ivoire.
• Both prospects offer interesting potential based on drilling at Nangalasso and surface geochemistry at Dabakala.
• Nangalasso has a 5,500m strike length and covers three concessions covering 310sqkm with:
  • 21m at 1.25g/t gold, including 3m at 7.1g/t gold
  • 3m at 7.84g/t gold including 1m at 13.5g/t gold (eoh)
  • 1m at 7.8g/t gold.
• The Nangalasso geological model is based on the Sissingue’s deposit which is located just 30km to the south.
• The district also contains the Syama, Tongon and Sissingue mines. We have previously visited the Syama and Tongon mine sites.
• Dabakala is at an earlier stage with a new gold anomalous zone discovered extending over 8km within a 300skqm concession.

Conclusion:  Kodal is just a step away from receipt of its mining license in Mali. The approvals to date indicate strong support for the project within the government. We expect significant new demand for lithium concentrates as new battery manufacturing ramps up to match the €60bn of capital investment planned for the Electric Vehicle sector in Europe. Kodal’s ongoing support from its partners should give the company a head start on many other lithium projects. The partners have confirmed the metallurgical properties of the concentrate from Bougouni and we believe they should be keen to press ahead and build the project.

Ongoing interest in the other gold projects indicate potential for further discovery, joint venture propositions and potential asset sales.

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

 

Mkango Resources* (MKA LN) – 4.1p, Mkt cap £4.9m – Rare earth magnet recycling 

• Mkango Resources reports that its 75.5% owned subsidiary, Maginto Limited is part of an initiative to recycle rare-earth magnets as part of a move to establish an end-to-end supply chain for the supply of these magnets into the electric vehicle industry.
• Maginto’s 25% owned HyProMag is a partner in the ʺRare–Earth Recycling for E-Machinesʺ RaRE project which is using ʺa patented process for extracting and demagnetising neodymium iron boron ("NdFeB") alloy powders from magnets embedded in scrap and redundant equipment named HPMS (Hydrogen Processing of Magnet Scrap), originally developed within the Magnetic Materials Group ("MMG") at the University of Birmingham ("UoB") and subsequently licenced to HyProMagʺ.
• ʺHyProMag's strategy is to establish a recycling facility for NdFeB magnets at Tyseley in Birmingham to provide a sustainable solution for the supply of NdFeB magnets and alloy powders for a wide range of markets including, for example, automotive and electronicsʺ.
• The company highlights the complementary expertise of the participants in the RaRE Project which include Volkswagen’s Bentley Motors,  ʺIntelligent Lifecycle Solutions Limited - a global leader in the processing of electronics waste workingʺ and ʺUnipart Powertrain Applications Limited - one of the largest UK based Tier 1 automotive partners and a recognised volume automotive supplier able to supply globallyʺ.
• The initial budget for the project ʺis £2.6 million, of which Innovate UK will fund £1.9 million with Project partners funding the £0.7 million balance. HyProMag's contribution will be fully funded from the £300,000 investment made by Maginito in January 2020.ʺ
• Commenting on their involvement in RaRE, Mkango’s Chief Executive, William Dawes, said ʺWe envisage that recycling of rare earth magnets will play a key role in the development of robust supply chains to catalyse and support growth in the electric vehicle sector and in other clean technologies. Further building on our platform within the circular economy and downstream markets is a key component of our strategy, underpinned by the sustainable development of the Songwe Hill rare earths project in Malawi.ʺ
• Nick Mann, General Manager of HyProMag described the project as ʺa fantastic opportunity to prove the importance and worth of short loop recycled magnetic material.  NdFeB magnets are essential for many future technologies, and the emerging electric vehicle market is of increasing importance.  Being involved at this level means we not only get to work with and supply recycled magnets to some of the most innovative and globally recognised companies, but also allows us to influence the design of products with the aim of making recycling a better option in the future. I believe this is industry, technology, recycling and innovation working together at its impressive best."

Conclusion: Participation in the RaRE project via Maginto gives Mkango exposure to the downstream uses of rare earths magnets through recycling processes and an insight into end-user requirements as it progresses the development of its primary rare-earths mine development at Songwe Hill in Malawi.

*SP Angel acts as Nomad and Broker to Mkango 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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