SP Angel's Morning View: Miners Gain Amid Fragile Risk-On Sentiment

Paul Kettle Kettle
SP Angel's Morning View
11:13, 14th September 2018

SP Angel – Morning View – Friday 14 09 18

Miners gain amid fragile risk-on sentiment

Major lithium supply caught in Chilean court

MiFID II exempt information – see disclaimer below

Bushveld Minerals* (BMN LN) – BUY - Target Price raised to 34.2 from 31.8p – SOJITZ stake acquisition adds to value to Bushveld

Cradle Arc* (CRA LN) – Exploration licences renewed to north of Mowana

Crusader (CAS LN) – Interim results show trebling of costs


US equity futures along with European and Asian equities are trading higher this morning as better prospects for US/China trade talks and Turkish central bank decision to hike rates more aggressively than expected helped the market sentiment.

  • Budget deficit expands to $898bn in the 11 months through August beating the fiscal annual target of the Congressional Budget Office.
  • This compares to $674bn recorded during the same period last year with spending up 7%yoy and revenues up 1%yoy.
  • Tax cuts voted through by Republicans and increased state spending seem to be driving the deficit.
  • Previously, the CBO estimated that the deficit for the fiscal year running through September would come in at $804bn, up from $666bn in 2017, before widening to $981bn in fiscal 2019 and exceeding $1tn in 2020.
  • Before CBO accounted for tax cuts and spending increases CBO projected the US deficit to exceed $1tn not before 2022.


Congo plans special economic zone to encourage domestic cobalt processing

  • President Joseph Kabila has said the Democratic Republic of Congo plans to establish special economic zones for companies that manufacture goods from the country’s minerals. He notes “there is a need to create special economic zones for the final users of Congolese natural resources”.
  • Congo is the world’s biggest source of cobalt, which is used to make rechargeable batteries in electric cars manufactured by companies including Volkswagen AG. The country also produces more than a quarter of the world’s tantalum, used in Apple iPhones and other smartphones. The area will allow producers of electric vehicles, smartphones and other goods to “install themselves in the DRC”.
  • The move is hoped to attract significant investment into the country, building on enhanced taxes and royalties from the amended mining code implemented in June. Mines Minister Martin Kabwelulu also reiterated that the government won’t brook any opposition to the amended code.


Chinese electric vehicle maker Nio closes 10% up in New York IPO debut

  • In one of the year’s largest Chinese public offerings in the US, Nio, backed by the Chinese technology giant Tencent, debuted on the New York Stock Exchange Wednesday and closed up nearly 10%, highlighting the strong demand for electric vehicles.
  • Nio stock opened below range at US$6 a share and had a mixed reception on a day when the Dow Jones Industrial Average was flat. After dropping to a low of US$5.35, however, shares recovered to close up at US$6.58.
  • Nio raised US$1 billion and has a goal to turn profitable within three to four years.
  • It’s ES8 pure-electric model is widely compared to Tesla’s Model X.


Lithos Energy introduces fourth generation of battery pack technology

  • Lithos Energy announced its fourth generation of high-voltage liquid-cooled battery packs that offer improved energy density, safety and can be rapidly scaled to high-volume production.
  • Lithos Gen4 technology is now included in the latest Lithos high-voltage battery packs, which offers significant improvements including a 23% increase in specific energy compared with previous generations.
  • Safety and reliability have also been improved with the new technology - the advanced design is passively propagation resistant to prevent thermal runaway and a redesigned liquid cooling system to improve thermal consistency throughout the battery pack, extending operating life.


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China – Economic data released this morning point to a continuing downtrend in fixed asset investments despite government efforts to boost growth including tax cuts and infrastructure spending plans.

  • YTD retail sales growth rate was unchanged through August compared to the reading in the first seven months of the year marking one of the weakest rates since early 2000s; while industrial production growth ticked down during the month.
  • “The upshot is that despite China’s strong export performance recently, economic activity still appears to be facing domestic headwinds… we think growth will continue to slow in the coming months given that policy stimulus has so far failed to drive a turnaround in infrastructure spending or broader credit growth, even as the property sector is coming under renewed pressure from regulatory tightening,” Capital Economics commented on the numbers.
  • Retail Sales (%YTD): 9.3 v 9.3 in July and 9.3 forecast.
  • Industrial Production (%YTD): 6.5 v 6.6 in July and 6.5 forecast.
  • FAIs (%YTD): 5.3 v 5.5 in July and 5.6 forecast.


ECB – Mario Draghi comments that uncertainty around the ECB inflation outlook is “receding” saw the euro climbing more than 0.5% against the US$.

  • Despite downward revisions to GDP growth estimates, the ECB left its inflation forecasts unchanged implying monetary authorities’ confidence in building up inflationary pressures.
  • The ECB confirmed their plans to stop the bond-purchasing programme at the end of the year; the programme will be downsized from €30bn to €15bn from October before dropped all together by the end of the year.
  • Rates, on the other hand, are expected to remain at record lows at least through the summer of 2019.


UK – Stronger economic activity as well as labour earnings growth keep officials on course for future rate hikes, according to minutes of the MPC meeting.

  • The BoE reiterated that “limited” and “gradual” rate increases will be required to control inflation, and investors see the next 0.25pp increase to come in May next year.
  • The committee voted unanimously to keep rates unchanged at 0.75% after raising it at the last meeting in early August.
  • The MPC highlighted risks to growth estimates due to uncertainty due to a no-deal Brexit.
  • The pound climbed on the news and is up 0.42% over the last two days trading at 1.3124.


Turkey – The central bank increased the benchmark rate (1-week repo rate) to 24% yesterday beating market estimates for a 21% level and up from 17.75%.

  • The lira climbed against the US$ on the announcement and is currently trading nearly 5% higher versus pre-decision levels.
  • The central bank decision has also provided support to other emerging countries’ currencies across the board.
  • Also on the positive side of things, Turkey’s current account narrowed significantly in July amid a rapid depreciation in the currency raising the cost of imports and providing a boost for export orders.



US$1.1705/eur vs 1.1619/eur yesterday  Yen 111.88/$ vs 111.50/$  SAr 14.719/$ vs 14.917/$  $1.312/gbp vs $1.304/gbp  0.721/aud vs 0.718/aud  CNY 6.852/$ vs 6.849/$


Commodity News

Precious metals:         

Gold US$1,206/oz vs US$1,204/oz yesterday

   Gold ETFs 67.7moz vs US$67.7moz yesterday

Platinum US$809/oz vs US$803/oz yesterday

Palladium US$983/oz vs US$978/oz yesterday

Silver US$14.23/oz vs US$14.21/oz yesterday

  • International industry association Silver Institute note China maintaining their position of being a major driver in the global market, fueled by continued industrial demand and silver mining activity. “China is by far the largest consumer of silver globally, accounting for 18% of global fabrication demand in recent years. In addition, to meet its robust demand needs, the country is a major destination for imported silver products fabricated in the US, Japan and other countries”.
  • While the nation is supporting growing industrial demand, representing the third-largest silver producing country, growing application across the renewable energy sector is boosting the requirement for the material, results of the ‘Prospects for the Chinese Silver Market’ report discovered.
  • The report included highlights around photovoltaic demand, reporting that China’s consumption of silver for solar applications has been rising in recent years to an estimated 65moz in 2017.
  • More than 70% of global solar panel production takes place in China and local powder fabricators are only able to satisfy a portion of the essential powder and paste for manufacturing and, therefore, rely on imported silver to fulfil their requirements. The report finds that “although policy changes will most likely see volumes decline modestly this year, the long-term uptrend is expected to resume in 2019, assisted by still sizable local installations and strong sales abroad”.
  • Technological demand is extending beyond solar panels with a growing set of use cases. “Significant areas of growth include touch panels, light emitting diodes and equipment used in electricity generation. Chinese consumption of silver for electronic and electrical uses was estimated at 78omz in 2017 and is forecast to grow modestly this year.”
  • Not all sectors are experiencing growth, as jewelry and silverware have suffered declines and demand accounting for 29moz. The report suggests changing consumer appetite and the impact of anti-corruption legislation on the gifting market to hit these markets.


Base metals:   

Copper US$ 5,987/t vs US$6,026/t yesterday

Aluminium US$ 2,049/t vs US$2,050/t yesterday

Nickel US$ 12,570/t vs US$12,650/t yesterday

  • U.S.-based private equity firm Black Mountain is set to enter the market by buying the Lanfranchi nickel project in the state of Western Australia for $15.1m from Panoramic Resources.
  • If Black Mountain Metals’ bid for Poseidon is eventually successful, the Texas-based firm would secure access to a string of nickel mines as well as exploration rights and processing infrastructure.
  • Poseidon’s assets include six mines and two concentrators.

Zinc US$ 2,351/t vs US$2,385/t yesterday

Lead US$ 2,045/t vs US$2,047/t yesterday

Tin US$ 19,015/t vs US$19,050/t yesterday



Oil US$78.4/bbl vs US$79.3/bbl yesterday

Natural Gas US$2.806/mmbtu vs US$2.832/mmbtu yesterday

Uranium US$27.20/lb vs US$27.00/lb yesterday



Iron ore 62% Fe spot (cfr Tianjin) US$68.4/t vs US$67.5/t

Chinese steel rebar 25mm US$691.5/t vs US$692.1/t

  • As the market mulls potential winter output restrictions being eased China’s official figures are showing steel output remained elevated in August as mills across the world’s top supplier target high run rates to capitalize on higher pricing.
  • Production of crude steel climbed 2.7% on year to 80.33mt, according to data from the National Bureau of Statistics on Friday. That means a daily rate of 2.591mt, down for a second month from an all-time high of 2.673mt, but in line with seasonal trends. Output rose 5.8% to a record 617.4mt in the first eight months of the year.
  • China’s steel mills have enjoyed an unusually long period of healthy profitability, supported by sustained demand as well as government-ordered plant closures and pollution curbs. The price of reinforcement bar, a basic product used in construction, rose through August and fell just short of the best monthly average since 2011. Expectations that President Xi Jinping’s government would push for a fresh splurge of infrastructure spending -- partly to offset jitters over trade -- have kept prices elevated.
  • Mills in China’s key steelmaking hubs are expecting a fresh round of curbs to fight pollution, and the government on Tuesday denied reports that the restrictions could be weaker than last winter. Everbright Futures, however, note “a draft blueprint for winter curbs in the Beijing-Tianjin-Hebei region was circulated in WeChat groups yesterday. Production restrictions may be relaxed, although this specific news would have limited impact on steel prices given that they’ve sunk so much this week”. Rebar for January lost as much as -0.7% to 4,041yuan/ton yesterday.

Thermal coal (1st year forward cif ARA) US$95.6/t vs US$96.3/t

Premium hard coking coal Aus fob US$182.2/t vs US$182.2/t

  • Hurricane Florence, which has been downgraded from a category four to a category two storm, is projected to make landfall on Friday afternoon, and has put more than one-million people under mandatory evacuation.
  • Although Hampton Roads – the main point of departure for US Central Appalachian metallurgical coal and low sulphur thermal coal – is not in the current projected path of the storm, coal loadings have ceased while shipping has moved to deeper water for safety.
  • He calculated that each delay of a week would have an impact of 0.74m t on metallurgical coal exports, based on the April to June export figures of 2.9m t/month from Hampton Roads.



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

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

Lithium – Chile supply battle heats up in court

  • China’s Tianqi Lithium Corp. remains under scrutiny by an antitrust court amid concerns its $4.1bn offer to buy Nutrien Ltd.’s stake in Chilean producer SQM will suppress competition. Over 50% of global production is generated by the combined output of Tianqi, Albemarle and SQM, according to Bloomberg NEF.
  • Tianqi, which aims to almost triple capacity through 2020, is seeking to avoid a protracted battle at a time when an Australian mining project is already mired in a legal hurdle at home. Delays in the development of Western Australia’s Mt. Holland, which holds the world’s third-largest hard rock lithium deposit, could tilt the balance in supply, pushing up costs in battery production.
  • "I wouldn’t be surprised if they were investing because they think they can somehow influence trade flows and divert lithium exports to China," said Eduardo Bitran, the former head of the Chile development agency Corfo who asked the national economic prosecutor to investigate Tianqi. "The big question is whether SQM’s commercial policy will be completely independent from Tianqi -- and there are lots of ways to pressure them."
  • To win authorities’ approval for the deal, the Chinese producer agreed last week to give up some key shareholder privileges at Santiago-based SQM. The agreement requires Tianqi to steer clear of lithium-related decisions in SQM. The document also states that the Chinese company will be appointing outsiders to its three seats on the SQM board, instead of appointing its own employees and executives. The deal also means authorities will have to be notified about Tianqi’s purchase of lithium from SQM or Albemarle.


Company News

Bushveld Minerals* (BMN LN)  FOLLOW22.3p, mkt cap £247.0m – SOJITZ stake acquisition adds to value to Bushveld

BUY - Target Price raised to 34.2 from 31.8p

(Bushveld Minerals to hold 75% of Vametco)

  • Bushveld Minerals reported yesterday that they have negotiated and agreed to acquire a further stake in the Vametco business.
  • The team agreed $17.5m for the 20% stake in holding company, Special Metals Corporation, which raises Bushveld’s stake in Vametco to 75% from 59.1%.
  • The acquisition of the SOJITZ stake adds some 3.1p/s to Bushveld by our estimation.
  • Valuation assumptions:
  • FOREX: we expect the South African rand to average 13.28 for the year assuming the rand remains at around its current level till the year-end. We were previously at 13.2.
  • We are revising our expected ferro-vanadium price to $68/kgV from $65.5kvV though the average could be 73/kgV assuming the price remains at $85/kgV till the year-end.
  • This does not take into account the price lag or discounts/premiums which also affect Vametco sales.
  • Sadly, Vametco may not receive the full benefit of the higher vanadium price or weaker rand due to the stoppage.
  • SOJITZ payment: We have deducted $17.5m from Bushveld for the cost of the additional stake in Vametco plus $2.5m for Vametco earnings due to SOJITZ
  • Costs: we had initially assumed a fall in unit costs for the year from initiatives to reduce bottlenecks and raise production. We recently increased expected unit production costs for the year due to the ongoing unexpected stoppage and are raising our unit cost assumption again to +20%. While management reckon the impact of the stoppage is within the revised target for the second half it is difficult to see unit costs falling again given the ongoing stoppage.
  • The R20,000 rand payment by Vametco was to most staff was paid in May in lieu of an unagreed equity scheme. We have added the extra cost of this into our modelling. The new stoppage indicates that the ‘unprotected’ stoppage may also be linked to other issues.
  • Management are working hard to resolve the matter but workers should know that if bushveld is not able to take advantage of current high vanadium prices then there will be less profit to go round at the end of the day.
  • Supply/demand: While the construction of a few more large-scale vanadium redox batteries could serve to dramatically raise vanadium demand the high price of vanadium is likely to attract other sources of vanadium supply into the market. Vanadium is sometimes a by-product of graphite and other materials and may be recovered in concentrate form if there is sufficient capacity for its further processing.
  • Theoretically, if the vanadium price were to remain at current, elevated, price levels then Bushveld Minerals should be worth just over a pound more in share price terms by out modelling, though we suspect other costs might creep higher to eat into this value.

Conclusion: The acquisition of the SOJITZ stake adds value to Bushveld Minerals on our calculations assuming the current work stoppage ends soon and production is not cut below the recently revised  management target.

*SP Angel act as Nomad and broker to Bushveld Minerals. The analyst has visited the Vametco process plant and associated mining operations.


Cradle Arc* (CRA LN)  FOLLOW3.8p, Mkt Cap £10.5m – Exploration licences renewed to north of Mowana

  • Cradle Arc reports the renewal, until 30th September 2020, of two licences extending to the north of its Mowana copper mine in Botswana.
  • The licences cover the same structural trend that hosts the mineralisation at Mowana and CEO, Kevin van Wouw commented that “the Board believes that the likelihood of the structure continuing to be mineralised is very high”.
  • The renewal of these licences gives Cradle Arc an overall 36km long strike length of  this “Bushman Lineament” where, in addition to the portion covered by the mine itself, previous ground magnetic geophysical exploration and limited drilling has shown that it “extends into the licence area and trends in a NNE-SSW direction along strike from Mowana.”
  • The company points out that, so-far, “the Bushman lineament has only been tested as far as the Mowana North Extension” and that the “North Extension currently forms the majority of the existing Inferred resource estimate, with future drilling planned to upgrade it to the Indicated and Measured categories. The mineralisation is open along strike”.
  • Currently, Mowana has a measured and indicated resource of 55mt at an average grade of 1.17% copper and an inferred resource of 20mt at 1.08% copper.
    • “To date, the northernmost drill holes within the Mowana licence area, at the Mowana North Extension, returned high grade intercepts, namely:
      • Hole MWN007 - 50m @ 2.11%TCu from 667m depth (including 2m @ 9.13%TCu)
      • Hole MWN025 - 19.28m @ 2.94%TCu from 272.38m
      • [The deep, vertical drillhole] Hole DPH1, drilled [to a depth of 1,270m] in 2011, and located just north of the Company's current mining activity at the Mowana open pit successfully proved that mineralisation extended down to 900m”.
      • Cradle Arc intends, “Subject to financing” to follow up with further geophysical exploration “followed by a maiden drilling programme with the objective of proving mineralisation within the known structure”.
      • Commenting on the longer term opportunities for Mowana Mr. van Wouw said that “When this significant strike length is enhanced by evidence from our planned deep drilling in due course, there is clearly significant potential for future underground workings and a substantial mine life for Mowana.”

Conclusion: The renewal of the exploration licences provides Cradle Arc the opportunity to trace the mineralisation further north along the same structure that it already mining and is therefore likely to offer a relatively low-risk strategy to expand its resource base. Deeper drilling of the mineralisation may also provide possibilities for underground mine development in the longer term. We look forward to further news as the exploration proceeds.

*SP Angel acts as Joint Broker to Cradle Arc plc


Crusader (CAS LN)  FOLLOW1.6p, Mkt Cap £8.0m – Interim results show trebling of costs

  • Crusader Resources has reported an interim loss of A$4.1m for the six months to 30th June 2018 (2017 – loss of A$2.9m). Major factors in the higher losses appear to be an increase in corporate expenses from A$0.92m in 2017 to A$2.88m and an increase in finance costs from A$0.056m to A$0.31m.
  • The combination of an operating cash outflow of A$3.74m and exploration and evaluation expenses (presumably largely for the Borborema gold project in Brazil), offset by a repayment of A$1.5m of debt and a net share issue raising of A$5.1m resulted in a reduction in the cash balance over the six months of A$1.17m to A$1.36m at 30th June.
  • During the half, Crusader Resource has undated the mineral resource estimate at Borborema, at a cut-off grade of 0.5g/t, to a JORC (2012) estimate of 8.2mt of measured resources at a grade of 1.22g/t gold (0.32moz), an indicated resource of 42.8mt at an average grade of 1.12g/t (1.55moz) and an inferred 17.6mt at an average grade of 1g/t (0.57moz) for an overall resource of 2.43m oz.
  • Work on the preparation of a bankable feasibility study is underway however the company describes a project producing around 70,000oz pa of gold over a ten year period from processing around 2mtpa of ore through a CIL plant. Current estimates are for cash costs of production of US$724/oz and an all-in-sustaining cost of US$908/oz.
  • The company describes an initial capital investment of US$93.4m generating an NPV98%) of US$117.8m and an IRR of 31% based on a gold price of US$1300/oz.

Conclusion: Crusader hold A$1.3m of cash indicating that at the current burn rate that the company could run out of money in the next six months.




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



Richard Parlons – 0203 470 0472

Jonathan Williams – 0203 470 0471


SP Angel                                                            

Prince Frederick House

35-39 Maddox Street London



*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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