SP Angel's Morning View: Cheap Solar Energy Is Driving Strong Battery Metal Demand
Paul Kettle
SP Angel's Morning View
12:38, 20th September 2018

SP Angel – Morning View – Thursday 20 09 18

Cheap solar energy is driving strong battery metal demand

 

MiFID II exempt information – see disclaimer below

 

BlueRock Diamonds* (BRD LN) – Interim results

Caledonia Mining (CMCL LN) – Mineral resource increases for seventh successive year

Mkango Resources Ltd (MKA LN) – Further extensions of rare earth mineralisation identified in latest released drill results

Savannah Resources (SAV LN) –Additional drilling underway in Oman

Serabi Gold (SRB LN) – Drilling extends Sao Chico mineralisation

Vast Resources (VAST LN) – Baita Plai license and Blueberry Project update

 

Solar energy now cheaper than gas in parts of US Southwest

  • Natural gas-fired power plants are undergoing major price competition from solar farms as sustained falling battery costs are making it possible to deliver reliable electricity. Solar projects that incorporate energy storage systems are becoming cheaper to manufacture per megawatt-hour in the US Southwest than new gas-fired generation, according to the latest Bloomberg NEF report.
  • The research notes a 100MW solar farm being developed in Arizona in 2021, coupled with a 25MW storage system with four hour capacity, will be able to provide power for $36/MWh. This represents a 23% saving per MWh against a new combined-cycle gas plant costing $47/MWh.
  • Technological advances position solar to replace a significant portion of the 7GWs coal-fired power expected to retire in the region over the decade, and the trend is likely to be repeated elsewhere as the costs continue to drop.
  • Utilities that buy electricity from solar farms typically still rely on gas-fired generators in the evenings. But the increasing affordability of batteries — thanks in part to a federal incentive — is making solar compelling, even after sundown.
  • Analysis notes “in the long-term, this is a threat to gas suppliers whose demand from utilities will be in decline”.

 

China’s Fosun enters discussions to buy commodity broker Marex Spectron

  • Chinese conglomerate Fosun International ltd. is in discussion to purchase British-based commodities broker Marex Spectron, aiming to expand the portfolio in both financial services and commodities. Fosun already owns iron ore, steel and oil companies. Marex Spectron’s main brokerage businesses are agricultural products, energy, base and precious metals.
  • Marex, one of the world’s largest privately-owned brokers in the commodities sector, was formed from the merger in 2011 of metals dealer Marex Financial and energy broker Spectron Group. The company has been for sale for several years, according to sources, as its private equity owners sought an exit from their investment. JRJ Group and its partners Trilantic Capital Partners and BXR Group bought a majority stake in the broker in 2010.
  • Several brokers have benefited from the volatility in industrial metals after U.S. sanctions were imposed on Russian producer Rusal, with average profits rising about 30%, London Metal Exchange (LME) members told a Reuters poll in June.
  • Marex is one of nine firms trading on the open outcry floor of the LME, owned by Hong Kong Exchanges and Clearing Ltd. With two other LME ring-dealing firms owned by Chinese parents - GF Financial Markets and CCBI Metdist - the deal would mean that a third of the top-tier LME members are Chinese owned.
  • Marex Spectron posted pre-tax profit of $17.7m last year, up 30% from $13.6m in 2016.

 

Using doughnut-shaped lithium sulphide for higher performing batteries

  • A Korea Advanced Institute of Science and Technology research team developed a lithium-sulphur battery with a doughnut-shaped active material structure.
  • Professor Hee-Tak Kim from the Department of Chemical and Biomolecular Engineering and his team used sulphide cathodes and combine them with graphite anodes to enhance energy density and lifecycles for the batteries.
  • Using this technology, the team achieved 30% higher energy density than that of conventional lithium-ion batteries and secured lifecycle of more than 600 cycles.

 

Sodium-ion battery advancement

  • In the latest development in worldwide efforts to make sodium-ion batteries just at functional at their lithium counterparts, researchers from Purdue University have made a sodium powder which can now hold its charge properly by minimising the material’s exposure to moisture.
  • "Adding fabricated sodium powder during electrode processing requires only slight modifications to the battery production process," said Vilas Pol, Purdue associate professor of chemical engineering. "This is one potential way to progress sodium-ion battery technology to the industry."
  • The batteries would, however, be heavier than lithium-ion technology.

 

Dow Jones Industrials

 

+0.61%

at

26,406

Nikkei 225

 

+0.01%

at

23,675

HK Hang Seng

 

-0.02%

at

27,401

Shanghai Composite

 

-0.08%

at

2,729

FTSE 350 Mining

 

+3.48%

at

16,973

AIM Basic Resources

 

+0.54%

at

2,198

 

Economics

Investors are attracted back into emerging markets debt markets by good yields following a five-month rout.

  • The largest ETF tracking emerging-market local currency bonds pulled in the most cash since June last year on Tuesday
  • The $6.1bn iShares JPMorgan EM Local Government Bond ETF received $169m yesterday, after losing around a quarter of total assets since early April.

 

US – The US$ is trading lower this morning after reports that said the US and Canada are unlikely to reach a deal on NAFTA this week.

 

China – The government is considering cutting the average import tariff on imports from its major trading partners in a move to ease trade tensions.

  • Beijing did not disclose the countries on the list and did not comment if the US is included.

 

UK – PM is hopeful there is an increasing chance for a deal as she met with fellow EU leaders yesterday.

  • Heads of the remaining member countries are set to discuss British proposals over lunch today after which Donald Tusk will brief May on the position of the block.
  • Despite continuing negotiations, EU officials again said Britain had to move its own position over what has become known as the Irish backstop as well as on future cooperation after Brexit day in March.
  • Meanwhile, EC President Jean-Claude Junker said a deal remained “far away”.
  • The pound is up against the US$ this morning hovering around the 1.32 mark.

 

Brazil – The central bank kept the benchmark rate unchanged at an all-time low trying to stimulate growth while inflation remains within the targeted range.

  • The rate was kept at 6.5%, although monetary authorities warned the stimulus might be gradually removed “if the outlook for inflation at the relevant horizon for the conduct of monetary policy and/or its balance of risks worsen”.
  • The central bank highlighted that reluctance to carry out structural reforms by to be elected president as a potential risk to forecasts including a continuing global trade war and concerns over emerging markets.
  • The economy is estimated to grow 1.4% in 2018, down from a 2.7% increase at the start of the year, according to a central bank survey.
  • All of the market-friendly candidates are trailing by a wide margin in opinion polls ahead of October presidential elections.

 

Currencies

US$1.1694/eur vs 1.1693/eur yesterday  Yen 112.21/$ vs 112.32/$  SAr 14.503/$ vs 14.774/$  $1.317/gbp vs $1.316/gbp  0.726/aud vs 0.725/aud  CNY 6.851/$ vs 6.856/$

 

Commodity News

Precious metals:         

Gold US$1,204/oz vs US$1,204/oz yesterday

  • Gold remains flat despite a weakening dollar amid easing concerns over full-blown trade war, with market reactions to fresh US and Chinese tariffs more muted than expected. Head of trading for Asia Pacific at Oanda Corp. adds “gold markets are edging higher again but the performance has been very meek. The weaker dollar has lent some support, but the yellow metal has not been able to break free of the downward trend which continues to run near $1,210. Until there is a convincing break higher or lower on G-10 currencies, the $1,190-1,210 range play should remain intact”.
  • Gold bulls are seeing encouraging signs for a turnaround in the metal, after falling for five straight months, the longest slump since 2013, but showing resilience to hold near $1,200/oz since later August.
  • Recent gains in gold are influenced by signs of a slowing greenback. The dollar posted monthly increases in four of the past five months through August as concerns over global trade tensions boosted demand for the currency as a haven, eroding support for bullion. The Bloomberg Dollar Spot Index is down slightly this month after reaching a more than one-year high in August. The gauge is hovering close to its 100-day average for the first time since April.
  • Hedge funds and other large speculators raised their bets on lower gold prices to a record last month, mainly because of a strong U.S. economy and the outlook for higher interest rates. While funds have started paring back on those wagers, the speculative short position is still more than 40 percent higher than the earlier record reached in 2015, Commodity Futures Trading Commission data show.

   Gold ETFs 67.7moz vs US$67.6moz yesterday

Platinum US$825/oz vs US$822/oz yesterday

Palladium US$1,041/oz vs US$1,017/oz yesterday

Silver US$14.29/oz vs US$14.23/oz yesterday

           

Base metals:   

Copper US$ 6,100/t vs US$6,130/t yesterday

Aluminium US$ 2,034/t vs US$2,040/t yesterday

Nickel US$ 12,545/t vs US$12,555/t yesterday

Zinc US$ 2,467/t vs US$2,417/t yesterday

Lead US$ 2,040/t vs US$2,072/t yesterday

Tin US$ 18,900/t vs US$19,000/t yesterday

           

Energy:           

Oil US$79.7/bbl vs US$79.2/bbl yesterday

Natural Gas US$2.908/mmbtu vs US$2.928/mmbtu yesterday

Uranium US$27.35/lb vs US$27.40/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$69.1/t vs US$69.0/t

Chinese steel rebar 25mm US$699.1/t vs US$695.2/t

  • Steel rebar softens on the Shanghai Futures Exchange, dropping -0.5%, as top industry executives forecast less extensive steel production curbs this winter. In contrast to last year, it’s unlikely steelmakers will be subject to blanket percentage targets on cuts, according to Liu Zhenjiang, secretary general of the China Iron & Steel Association, adding “if the air quality is good, then fewer cuts will be needed, and vice versa”.
  • Steel and iron ore markets are focused on the scope and intensity of the upcoming winter restrictions as the curbs, combined with environmental checks over the summer, have helped to lift prices. Last year, China ordered stringent cuts to activity in major steel-producing hubs during the winter heating season, which runs from November through March, to combat chronic air pollution, and policy makers in Beijing have signaled an intention to repeat the campaign.
  • There is a suggestion that mills that meet emission standards would be exempted, with head of ferrous metals at Brazilian iron ore mining giant Vale SA adding “probably what’s going to happen is that those that are already complying to new standards will suffer probably less than others. There will be some flexibility”.
  • Rebar futures have surged to a seven-year high last month as reports of draft proposals from the government that circulated over the summer suggested an expansion of the cuts this winter. However, in recent weeks the focus has flipped to speculation local authorities could be given more flexibility to loosen the curbs, depending on pollution levels, giving downward pressure on pricing.
  • China’s mills have been churning out supplies at a record pace, aided by robust profitability, and official figures show output rose 5.8% to 617.4mt in the first eight months of 2018. Vale SA are forecasting the country’s steel capacity will fall to ~980mt by 2020, while utilization rates are likely to rise to near 90%.

Thermal coal (1st year forward cif ARA) US$97.5/t vs US$96.6/t

Coking coal futures Dalian Exchange US$193.0/t vs US$192.8/t

           

Other:  

Cobalt LME 3m US$63,000/t vs US$63,000/t

Tungsten APT European US$275-290/mtu vs US$275-290/mtu

 

Company News

BlueRock Diamonds* (BRD LN)  0.93p, Mkt Cap £1.9m – Interim results

  • Bluerock Diamonds reports reduced loss of £789,000 for the six months ending 30th June 2018 (H1 2017 – loss of £1.348m).  Total reported loss, after a £503,000 loss on foreign exchange amounted to £1.29m compared to £0.87m in H1 2017.
  • The result reflects an 81% year-on-year increase in production to 73,028 tonnes , an increasing grade profile of 3.17 carats per hundred tonne (cpht) (H1 2017 2.26 cpht and H2 2017 2.68cpht), as well as improving – product prices of US$340/carat.
  • The company reports that it has started mining the second kimberlite pipe, “KV1” which has a significantly higher estimated grade of 6.3cpht compared with the estimated 4.5cpht of the KV2 pipe which has been the principal source of production to date.
  • The company stresses its efforts to reduce “costs of production in order to reduce the breakeven point and hence improve the long term profitability of the mine” and points out that at current processing rates approaching 1500tpd “the mine is expected to run profitably”.
  • The mine does, however, “need to develop KV1 and to catch up on stripping waste from KV2 in order to start to mine at the lower depth levels, which are expected to yield a higher grade.”
  • BlueRock Diamonds confirms that the “second half of 2018 has started well with daily production figures since the reconfiguration of the crushing circuit now consistently at target levels” and points out that the “development work … at KV2 will provide us with good quality high grade kimberlite in 2019 whilst we look forward to the results from our new pipe at KV1 with enthusiasm”.
  • Commenting on the claims against the company by former director, Riaan Visser, Blue Rock Diamonds reiterates that its legal advice is that the claims “have no merit”, and that it has provided “security to the court in relation to the claims made by Mr. Visser. It is the Board’s intention to repay or refinance this loan as soon as is practicable.”

Conclusion: BlueRock Diamonds has implemented operational changes which are improving the profitability of the operation. Additional waste stripping will be required during the balance of this year but with the start of mining on a second, higher grade kimberlite pipe the company is expecting an improving picture for the Kareevlei operation into 2019.

*SP Angel acts as Nomad & Broker to BlueRock Diamonds

 

Caledonia Mining (CMCL LN)  545p, Mkt Cap £57.8m – Mineral resource increases for seventh successive year

  • Caledonia Mining reports that mineral resources at its 49% owned Blanket gold mine in Zimbabwe have risen for the seventh successive year.
  • Measured and indicated resource as of 31st July have risen by 13% to 6.74mt at an average grade of 3.72g/t for a total of 805,000oz (previously 714,000oz). In addition, inferred resource have increased by 9% to 963,000oz (previously 887,000oz) within 6.63mt at an average grade of 4.52g/t gold.
  • The results reflect additional mine development, core drilling and improvements to the geological modelling. The company points out that “The upgrade has resulted in a modest decline in the average grade of the resources in the Indicated and Inferred categories as a result of additional infill drilling data, improvements in the definition of the geological models, additional lower grade resources in peripheral areas, and upward movements of resources between categories. However, the average resource grade remains well above the current mill feed grade of 3.3g/t.
  • However, Caledonia Mining expresses the expectation that  “the mined grade to trend upwards over time as higher-grade resources are accessed at depth.” The higher grades of the inferred resource, where we expect there to be more limited drilling at depth appears to us to support this view.
  • Commenting on the successive yearly increases in the resource base of the Blanket Mine, Caledonia Mining’s CEO, Steve Curtis, explained that “This upgrade takes our total resource endowment at the mine to almost 1.8 million ounces. We have increased total resources at Blanket by 86 per cent since 2011 in addition to mining over 300,000 ounces over this period.”

Conclusion: The Blanket mine is consistently more than replenishing the gold it is mining and the increasing mineral resource underpins the current investment strategy which is increasing gold output to 80,000oz pa by 2021 and extending the mine’s life as it accesses deeper levels via the new Central Shaft, currently under construction, and the associated mine infrastructure.

 

Mkango Resources Ltd (MKA LN)  9.1p, Mkt Cap £9.9m – Further extensions of rare earth mineralisation identified in latest released drill results

  • Mkango Resources release the latest results from the subsequent nine holes from the recently completed 10,900m diamond drill programme at the Songwe Hill Rare Earths Project in Malawi. CEO William Dawes notes management are “very encouraged by the continuing consistency of results and intersections outside the area of the previous mineral resource estimate, identifying new zones of mineralisation”.
  • In particular, drill holes PX069, PX074, PX075 and PX079 indicate mineralisation extending to the north-west of the 2017 PFS delineated resource. These holes are located between the previously announced drill hole PX082 (38.0m @ 1.6% TREO – released Sept. 11) and the area drilled in the stage 1 & 2 drill programmes, the first time this zone has been drilled; with very encouraging initial results.
  • All nine drill holes intersected rare earth mineralisation, achieving an average 1.2% TREO or higher.
  • PX099 was collared to the east of mapped carbonatite outcrop, and successfully targeted the eastern contact of the mineralisation at depth. The remaining drill holes were focused on infill drilling, notably PX068 located on the north-west margin of the previously delineated mineral resource estimate.

Conclusion: The latest drill results provide ongoing positive mineralisation across previously unexplored radiometric anomalous regions of Songwe Hill, giving strong indication on the potential upside to the updated resource statement expected by the end of 2018.

 

Savannah Resources (SAV LN)  7.7p, Mkt cap £65.9m –Additional drilling underway in Oman

  • Savannah Resources reports that it has started a 12 holes, 1,065m, drilling programme targeting possible extensions of copper mineralisation in its 65% owned Block 4 and Block 5 licences in Oman.
  • The company intends to drill two holes (560m) at its Bayda site in the northern part of Block 4 “to test the area immediately below the historical intersection of 12.5m at 2.9% Cu from 185m (OMCO 32-141) in an interpreted mineralised envelope potentially up to 50m wide”.
  • Bayda is described as a previously producing underground mine  which was worked by the Oman Mining Company “between 1982 and 1993 producing 1Mt @ 3% Cu from a small underground operation. Much of the old underground development has collapsed, but a relatively complete set of historical data from previous exploration and mining has been collated, which has identified the potential for additional mineralisation adjacent to and below the historical mine workings.”
  • At Hara Kilab, to the north-west of Savannah Resources’ Mahab 2 and Mahab3 deposits in Block 5, the company is planning a 10 holes programme totalling 515m “to convert the current mineralisation into a Mineral Resource Estimate and target potential extensions both along strike and down dip of the existing mineralisation, including a historical drill hole which intersected 9.15m @ 2.78% Cu and 0.39% Zn”.
  • Previous exploration during the 1970s “defined … a 150m by 50m gossan that is visible at surface with several slag dumps existing in the immediate area, indicating mining in ancient times. The prospect has had a variety of exploration testing in the past, including detailed mapping, grab sampling, ground geophysics and drilling. The best reported intersection at Hara Kilab is 9.15m @ 2.78% Cu and 0.39% Zn in Hole 11-4, drilled by Prospection Ltd.”

Conclusion: Drilling extensions of the known mineralisation in previously worked mining areas should be relatively low risk exploration – we look forward to results in due course.

 

Serabi Gold (SRB LN)  56.5p Mkt value £33.2m – Drilling extends Sao Chico mineralisation

  • Serabi Gold reports that step-out drilling to the west of Sao Chico has shown “likely strike continuity of mineralisation of up to 500 metres west of current mining operation, including mineable widths with intersections grading 21.97 grammes per tonne (“g/t”) and 26.86 g/t (hole 18-SC-124) over widths of 0.80m and 1.10m respectively”.
  • In addition, “Underground drilling confirms extension of current Sao Chico ore-body for a further 100 metres below the lowest level of current development with multiple high grade intersections including 99.92 g/t (hole18-SCUD-182) over a width of 1.5m”.
  • As well as the drilling, ground induced-polarisation geophysical surveying  has indicated the “potential  in the west remains very good, and as a result, the Company is extending its IP geophysics programme accordingly.” Additional IP anomalies and a coincident magnetic “high” and a zone of artisanal mine working  highlights a north-east/south-west trending zone, the Cinderella Zone, described by CEO, Mike Hodgson as “very interesting”.
  • Additional geophysical information in the form of the results of a recently completed airborne electromagnetic survey is expected in early October..
  • The company is also planning to deploy drilling rigs to the Coringa project “Before the end of the month”.

Conclusion: The exploration programme at Serabi is gearing up with encouraging results coming in from Sao Chico and drilling likely to start at Coringa shortly. We await further news as the exploration proceeds.

 

Vast Resources (VAST LN)  0.61p, Mkt Cap £33.6m – Baita Plai license and Blueberry Project update

  • The Company has resubmitted its Baita Plai mining license application to the National Agency for Mineral Resources in Romania.
  • Resubmitted documents address all changes and amendments required under the mining legislation.
  • Additionally, the Company has updated on the status of the financing of the Blueberry Project located in the “Golden Quadrilateral” of Western Romania.
  • The vendors of the project agreed to provide EMA Resources, a newly formed subsidiary of Vast Resources, more time to procure the funds for the transaction to 15 October 2018.
  • EMA has received an indicative term sheet with an institutional investor with the documentation now reaching an advanced stage.

  

Analysts

John Meyer – 0203 470 0490

Simon Beardsmore – 0203 470 0484

Sergey Raevskiy – 0203 470 0474

Phil Smith (Technology) – 0203 470 0475

Zac Phillips (Oil & Gas) – 0203 470 0481

 

Sales

Richard Parlons – 0203 470 0472

Jonathan Williams – 0203 470 0471

 

SP Angel                                                            

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35-39 Maddox Street London

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*SP Angel are the No1 integrated nomad and broker by number of mining brokerage clients on AIM according to the AIM Advisers Ranking Guide (joint brokerships excluded)

+SP Angel employees may have previously held, or currently hold, shares in the companies mentioned in this note.

 

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