SP Angel's Morning View: Norilsk See Major Market Deficit In Nickel

SP Angel – Morning View – Wednesday 12 09 18

Norilsk see major market deficit in Nickel

 

MiFID II exempt information – see disclaimer below

 

 

Altus Strategies* (ALS LN) – Bikoula high grade iron ore project exploration update

Arc Minerals (ARCM LN) – STRONG BUY – Drill results indicate significant scale copper project at Kalaba, Zambia

Atalaya Mining (ATYM LN) – New quarterly production record at Proyecto Riotinto

Bluejay Mining* (JAY LN) – STRONG BUY – Interest from multiple end users as management look to lock away 450,000tpa of high-grade ilmenite concentrate

Ormonde Mining* (ORM LN) – Barruecopardo project commissioning underway

 

Fear not Trump’s tariff demands

• Trump is making lots of noise over tariffs and the repatriation of jobs back into the US from China. It is a negotiating tactic we should all be used to by now.
• China is fighting back with a petition to the WTO to slap $7bn in sanctions on the US for non-compliance on US anti-dumping duties though China as a major offender when it comes to dumping and trade violations stands little chance particularly as the WTO is more about free trade than imposing sanctions.
• Trump sounds like he has further to go in his rhetoric with a threat to slap duties on all Chinese goods. At this point he cannot threaten not much more other than a full trade war.
• After that things can only get better from a tariff rhetoric perspective and we see Trumps ‘All-tariff’ option as a signal after which the LME metals could turn more positive again.
• Trump committed a U-turn with the EU on tariffs agreeing zero tariffs with Europe after much tough rhetoric and there is a good chance that this could happen again if China agrees to certain restrictions and opens up more to the US. Problem is, China is not like the EU and the chance of China fully complying with any agreement seems slim.
• President Putin and President Xi are presenting themselves as the promoters of free trade at today’s Russian summit and may struggle to object if Trump offers a zero global tariff solution.
• China might think that as they own allot of US debt this might help in negotiations with the US but the situation reminds us of a saying that if you owe a bank a small amount it’s your problem but if you owe allot it is really theirs. How often have we seen that come true?
• What is more worrying is the impact of the rising US interest rates, further strengthening of the US dollar and the flow of funds impact on a range of currencies and corporates around the world, though that is more next year’s issues in our view.
• As always, we will watch what they do and not what they say when it comes to Trump and China.

 

Luxembourg mining-focuses Space Agency ready for lift off

• One of the euro zone’s wealthiest countries is officially launching its Space Agency (LSA) today in the bid to boost exploration and commercial utilisation of resources from near Earth objects. Luxembourg has a long-standing space industry, which played a pivotal role in the development of satellite communications, forming SES (Société Européenne des Satellites), one of the world’s largest satellite service companies.
• LSA created the €100m fund with a focus on developing Europe’s centre for space mining, accelerating collaborations between economic project leaders of the space sector, investors and other partners, according to government counsellor, Paul Zenners.
• Differing from research or launches from NASA, the LSA will also manage all national space programs and the relations with the European Space Agency (ESA). Deputy prime minister, Etienne Schneider, said “we want to develop into a space nation.” The EU should “not leave this market to the Americans”.
• Since early 2016, the concept has advanced at lightspeed, with the government initially reaching an agreement with a US-based company, Deep Space Industries, to conduct prospecting missions for water and minerals in outer space. Both parties are currently developing Prospector-X, a small and experimental spacecraft that test technologies for exploring and mining near earth asteroids after 2020.
• Luxembourg also opened €200m line of credit for entrepreneurial space companies to set up their European headquarters within the nation.
• A majority stake has also been acquired for €25m in US-based asteroid miner Planetary Resources, with the goal to help the firm launch its first commercial asteroid prospecting mission by 2020.
• But the nation’s most advanced action has been to pass space mining legislation, which outlines the conditions companies must fulfil to obtain a licence for launching a space mining mission.
• More than 150 companies and space research institutes have knocked on his door in recent months about moving to Luxembourg. The country has already struck agreements with about 20 companies — many of them start-ups, according to Mr Schneider.
• The launch marks a major action in the exploration of space. Geologists believe asteroids are loaded with iron ore, nickel and precious metals at significantly higher economic concentrations than found on earth, comprising trillions of dollars market value.

 

Dow Jones Industrials		+0.44%	at	25,971
Nikkei 225		-0.27%	at	22,605
HK Hang Seng		-0.49%	at	26,293
Shanghai Composite		-0.35%	at	2,656
FTSE 350 Mining		-0.98%	at	15,608
AIM Basic Resources		+0.44%	at	2,146

 

Economics

US –Hurricane Florence approaching the US East coast forces a million people to evacuate.

• The National Hurricane Center has warned of the extreme weather bringing “life-threatening storm surge and rainfall to portions of the Carolinas and Mid-Atlantic states”.
• The hurricane that is expected to strengthen and make landfall on Friday is reported to be the most powerful storm to threaten the Carolinas in almost three decades.

 

UK – The pound is climbing back against the US$ this moring as the ECB President Juncker welcomed UK PM’s proposal for a post-Brexit partnership and said he was ready to “work day and night” on an agreement.

• Previously, the pound came off on BBC news that a group of around 50 lawmakers in the PM’s government who oppose her proposals for a post-Brexit deal with the EU have met to discuss how and when they could force her out of the office.
• A number of MPs at the meeting said that they had already submitted letters of no confidence in May.

 

Italy – Weak industrial production numbers come in the midst of budget negotiations.

• Industrial output surprisingly contracted 1.3%yoy in July with previous month’s growth revised downwards (+1.4% from +1.7%) and market estimates for a 1.6% increase.
• The decline is reported to have been driven by weaker capital goods production including machinery and equipment.
• Authorities are trying to reconcile election promises of tax cuts and income support for the poor with EU limits on the fiscal deficit levels.

 

Russia – Putin urges two suspects in a nerve-agent attack on former spy Sergei Skripal in the UK to come forward and speak out.

• “We know who they are, we found them,” President Putin said during an economic forum in Vladivostok regarding the Skripal case.
• “I hope they will come forward and talk about themselves… there’s nothing unusual or criminal there, I assure you.”
• “I want to appeal to them, so they’ll hear it today. Let them come forward to speak to any media outlet.”

 

Argentina – The central bank held benchmark overnight interest rate unchanged at 60%, in line with expectations,

• The announcement came together with a statement that monetary authorities are looking to keep rates at 60% until at least December.

 

Currencies

US$1.1583/eur vs 1.1543/eur yesterday  Yen 111.51/$ vs 111.01/$  SAr 15.145/$ vs 15.267/$  $1.301/gbp vs $1.291/gbp  0.711/aud vs 0.710/aud  CNY 6.872/$ vs 6.861/$

 

Commodity News

Precious metals:         

Gold US$1,194/oz vs US$1,196/oz yesterday

• Gold price woes have been transferred to miners as companies continue their slide, falling to the lowest since Feb. 2016 as the precious metal struggled Tuesday to eke out a gain.
• The BI Global Senior Gold Valuation Peers index was down as much as 2.2%, having tumbled -26% this year. Worst performers in the index are Sibanye Gold (-42%), Gold Fields (-39%) and Randgold Resources (-37%).

   Gold ETFs 67.7moz vs US$67.8moz yesterday

Platinum US$790/oz vs US$792/oz yesterday

Palladium US$975/oz vs US$985/oz yesterday

Silver US$14.14/oz vs US$14.21/oz yesterday

           

Base metals:   

Copper US$ 5,907/t vs US$5,926/t yesterday

Aluminium US$ 2,061/t vs US$2,086/t yesterday

Nickel US$ 12,325/t vs US$12,390/t yesterday

• Nickel futures extend their slump on the London Metal Exchange after forming a death-cross pattern, despite sustained deficit forecast by Norilsk Nickel analysts. The bearish technical signal, when the 50-day moving average crosses below the 200-day moving average, formed for the first time since 2017, and for just the third time in the past 5 years.
• Fundamentals in the market remain strong and don’t reflect the bearish sentiment and downside pressure on pricing. Norilsk Nickel analyst Alex Khodov noted during the Metal Bulletin’s 6^th Asian Nickel Conference that the global deficit hit 90,000t in first 8 months of 2018, extending to 120,000t by the close of the year.
• The forecast almost triple previous Bloomberg estimates for 41,000t deficit during 2018, suggesting the sustained global deficit forecast through to at least 2021 could be more severe than previously thought. Limited project pipelines, combined with disrupted supply from majors Philippines and Indonesia are contributing to supply side concerns.
• While the metal was earlier supported by shrinking stockpiles and arguably premature optimism over demand in batteries, however increasing concerns over how a trade war would hurt China, the top consumer of the metal in stainless steel, are weighing on prices.

Zinc US$ 2,351/t vs US$2,369/t yesterday

Lead US$ 1,997/t vs US$2,010/t yesterday

Tin US$ 18,955/t vs US$19,090/t yesterday

           

Energy:           

Oil US$79.3/bbl vs US$77.8/bbl yesterday

Natural Gas US$2.837/mmbtu vs US$2.813/mmbtu yesterday

Uranium US$27.00/lb vs US$26.95/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$67.4/t vs US$67.7/t

Chinese steel rebar 25mm US$689.7/t vs US$698.4/t

• Steel prices are heavily influenced by winter output potential after a report that Chinese authorities deny market talk of softer winter production cuts. Rebar for January climbed as much as +1.8% before falling -1.5% to 4,012 yuan/t on the Shanghai Futures Exchange, sinking the most since March to its lowest in more than 6 weeks.
• China Securities Journal reports market chatter on the removal of industrial capacity curbs in winter is untrue, citing an unidentified official from the Ministry of Ecology and Environment. The official has noted the government document on air pollution was misinterpreted.
• Huatai Futures notes “prices in the spot market entered a state of confusion due to market chatter on winter curbs. Investors should be careful as recent policy announcements have had substantial impact on prices”.

Thermal coal (1st year forward cif ARA) US$96.6/t vs US$95.2/t

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

           

Other:  

Cobalt LME 3m US$62,000/t vs US$62,000/t

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

 

Company News

Altus Strategies* (ALS LN)  FOLLOW4.7p, Mkt Cap £8.3m – Bikoula high grade iron ore project exploration update

• The team completed a series of reconnaissance pitting and mapping at the Bikoula high grade colluvial iron ore project.
• The programme focused on previously untested magnetic anomalies being part of a 17km long airborne geophysical target.
• Pitting and subsequent mapping of the pit walls revealed a number of oxidised and highly weathered BIF clasts, within an iron rich matrix.
• Results indicate that the colluvial iron ore body extends along strike and points to potential to grow the existing JORC mineral resource at Bikoula.
• The 2014 mineral resources prepared by Coffey Mining estimated 46mt of both colluvial and supergene enriched haematite at an average grade of 44.2% Fe in the inferred category.
• The resource was based on less than 25% of the strike of a 17km long magnetic anomaly.
• Historical metallurgical tests suggested a potential to produce 62.3% Fe concentrate with reduced levels of contaminants (2.7% SiO2 and 3.8% Al2O3) using a gravity separation circuit.

*SP Angel acts as Nomad and Broker to Altus Strategies plc

 

Arc Minerals (ARCM LN)  FOLLOW4.9p, Mkt Cap £29m – Drill results indicate significant scale copper project at Kalaba, Zambia

(ARC Minerals currently owns 66% of Zamsort which holds 100% of the Kalaba copper/cobalt mine and associated mineral licenses)

STRONG BUY

• Arc Minerals report results from the first four Reverse Circulation ‘RC’ drill holes drilled at Kalaba in Zambia.
• The results show the project is significantly greater in scale than previously anticipated and with better copper equivalent grades than expected.
• They also show significantly higher cobalt grades over longer widths than was also anticipated with high copper and high cobalt grades combining to produce shorter but still impressive lengths of >2% and
• The first four RC holes assayed show significant scale potential for the Kalaba project with mineralisation open to the north, west and east.

To the south the stratigraphic unit (dolomite) that hosts the mineralisation daylights and crops out on surface including:

• • 20m at 1.31% CuEq.
  • 25m at 1.24% CuEq.
  • 26m at 1.10% CuEq.
• The intersections are from surface and near-surface for open cast mining with assays expected shortly from the other 12 of the 19 holes so far drilled
• Drill holes are sited along a single line 200m east of the Kalaba open pit indicating a good strike length
• Looking at the drill sections in more detail indicates potential for selective mining of very high grade mineralisation with the option of leaving the lower grade sections for processing at a later date.
• Alternatively it may prove more profitable to mine and process the 50-90m mineralised section as a whole.
• The higher than expected cobalt grades are interesting and skew the Copper Equivalent grades higher partly due to the high cobalt content and also due to the relatively high price of cobalt.
• Copper equivalent grades are calculated at current metal prices and while we feel the current copper price is relatively conservative while we note that cobalt prices remain relatively high at $62,000/t.
• We note: cobalt prices have fallen from a peak of $95,250/t but are still higher than the year-low of $55,750/t though they remain significantly higher than the five-year average of $40,770/t eg from before the start of the battery-metals revolution.
• Scale: it is too difficult to hazard a proper estimate at the tonnage of the project without access to maps or cross-sections but if we assume the mineralised strike runs for 1200m long and guess that the mineralisation runs across a 200m width and is from surface to a depth of 30m then we could guess at a tonnage of around 15mt assuming a density of 2.5t/cubic meter. The drilling is 200m to the east of the Kalaba open pit, hence our 200m width assumption.
• It is possible that the ore zone may vary from around 50m deep to 80-90m of mineralisation
• Grades: the average grade also looks to be >0.9% copper equivalent to give around 135,000t of contained copper equivalent with the emphasis on the cobalt more than the copper.
• Mineralisation is open in all directions according to the statement indicating that there should be more mineralisation to come.
• Metallurgical test work on the nature of the mineralisation still needs to be done to determine recovery rates and the eventual potential value of the project. The mineralisation is hosted by a dolomitic unit as seen in some other Copperbelt mines. The dolomite varies in composition between Ca rich and Mg rich with the latter seen as low from an acid consumption perspective. While the dolomite consumes acid raising costs its effect can be reduced before processing to improve recoveries and lower costs.
• Process plant: Zamsort appeared to be more than half way through the construction of their process plant in August. We look forward to further news on its construction and potential commissioning later this year.

Conclusion:  These are very encouraging results indicating a significantly larger cobalt / copper mine at Kalaba than previously envisaged. We look forward to being able to estimate a significantly larger tonnage of mineralised material from the next set of assay results in the short term.

*An SP Angel analyst has recently visited the Kalaba open pit mine, stockpiles, process plant and drilling operations. Our intrepid analyst and co-driver drove to site from Lusaka and back again.

*SP Angel acts as nomad and broker to Arc Minerals.

 

Atalaya Mining (ATYM LN)  FOLLOW214 pence, Mkt Cap £294m – New quarterly production record at Proyecto Riotinto

• Atalaya Mining reports an after tax profit of €15.7m for the quarter ending 30^th June (Q2 2017 - €6.1m) bringing the total for H1 2018 to €24.5m compared to the €11.8m achieved during H1 2017.
• The improved result reflects a sharp reduction in operating costs (€28.0m compared to €41.0m in Q2 2017) which more than offset a modest decline in revenues during the quarter to €48.9m (Q2 2017 - €53.4m) as a result of “lower volumes of concentrate sold and partially offset by higher realised prices.”
• The lower costs reflect, among other factors, “additional cost of sales of €10.0 million in the second quarter of 2017 as a high level of inventory held at 31 March 2017 was sold in the quarter” as well as a €3m deferred mining cost adjustment “as per the updated strip ratio of 1:1.43.”
• Operating cash flow during the quarter amounted to €10.8m and €29.2m for the half year. Capital expenditures of €12.5m in the quarter and €21.3m for the half year, offset by financing of €0.6m for the half year resulted in an increase in cash balances of €8.5m to €51.4m over the half year.
• Atalaya Mining also confirms the production of 10,446 tonnes of copper in concentrates from its Proyecto RioTinto during the three months to 30^th June. The output exceeds the 9,058 tonnes production of Q2 2017 and “replaces Q1 2018’s as the second highest quarterly production on record.”.
• The expansion of mine throughput from the current nominal 9.5mtpa rate to 15mtpa remains on schedule for mechanical completion at the end of Q2 2019 and is currently reported to be 41% complete as of 30^th June.
• The company’s Proyecto Touro in northern Spain, which is proceeding through the permitting process, is making “good progress … on addressing additional studies from the regional administration.” The required documents are expected to be submitted to the regional authorities “before the end of Q3 2018.”
• Commenting on what he described as a “very positive” half year, CEO, Alberto Lavandiera, highlighted “record production levels, robust copper prices and operating costs within our stated guidance”. He went on to report that “The Riotinto plant is operating well with recoveries at record levels during the period and our expansion plans are well on track.  We are optimistic that the second half will continue to deliver results in line with our expectations”.

Conclusion: Atalaya has delivered a strong first half performance. The expansion of the RioTinto operations appears on track to meet a programmed mechanical completion at the end of Q2 2019 documentation for the permitting of Proyecto Touro is expected to be filed by the end of the current quarter.

 

Bluejay Mining* (JAY LN)  FOLLOW16p, Mkt Cap £136m – Interest from multiple end users as management look to lock away 450,000tpa of high-grade ilmenite concentrate

STRONG BUY - included in MSCI index

Target Price 45p

• Bluejay Mining report good progress in this year’s field season at Dundas in Greenland.
• Bulk sample: the team have just completed the processing of a 10,000t bulk sample of +/-40% ilmenite and are awaiting delivery instructions for further processing and testing.
• Offtake discussions: further samples are being sent to a number of global processing and refining groups to progress discussions with the major peers of the titanium industry for for up to the entire 450,000tpa of planned annual ilmenite production.
• Production: the 450,000tpa production number has come about through ongoing feasibility study work which sets this as a reasonable first-build production capacity. We expect the feasibility study to be published in early October.
• Iterlak Delta:
• 68 holes have been drilled
  • 23 holes in the delta av. 12m depth, no bedrock seen as yet
  • 45 holes drilled on the raised beach east of Iterlak Delta and at the foreland west of Iterlak Delta.
• Samples being sent to MetSolve in Canada for assays after Particle Size Analysis ‘PSA’ which is done at Nuuk in Greenland.
• Regional Exploration:  for ilmenite sediment and sources has been completed over the whole licence area confirming ilmenite-rich sediments throughout.
• The source of the ilmenite has also found in the form of exposed preeminent sills and dykes inland.
• Delta #2: a second delta at the east of the license area also appears to have geomorphological similarities to Iterlak Delta.
• Hard rock ilmenite sources are also being evaluated for their potential and to understand the depositional environment.
• New infrastructure and machinery
• The team have completed the hydrogeology installations around the licence area, Installed a year-round weather monitoring station and expanded the existing marine bathymetry survey past the Iterlak Delta.        
• They have also completed geotechnical assessments for construction of new infrastructure including the process plant, port loading, power generation, water filtration, accommodation, storage and workshops.
• The team also installed a mobile trommel screener, two mobile stacking units and upgraded the mining fleet with a 30t excavator, two 30t wheel loaders and two articulated dump trucks. 
• BloueJay had a busy team of 60 personnel at site through the field season and held a number of community meetings at site this season.
• Environmental baseline studies are now done enabling the completion of the social impact assessment and environmental impact assessment necessary for a full-scale mining permit

Conclusion: We expect to see a significant increase in the resource from the drilling work done in this field season and it would be reasonable to assume an increase in the resource at Iterlak.

*The SP Angel mining analyst has visited the Dundas, Itelak ilmenite sands project in Greenland. *SP Angel act as nomad and broker to BlueJay Mining. 

 

Ormonde Mining* (ORM LN)  FOLLOW4.9p, Mkt Cap £23.2m –Barruecopardo project commissioning underway

• Ormonde Mining reports that commissioning of the crushing and screening plant and the water treatment plant at its Barruecopardo tungsten project in Spain is now underway and that the company expects to start commissioning the process plant in early December with initial production of tungsten concentrates now expected “from the beginning of February”.
• Currently, electrical installation and connection is underway as is the pumping capacity and pipework required for the dewatering of the historic open pit mine.
• Equipment installation in the process plant is now reported to be 70% complete although the company reports that “a number of factors including detailed engineering, equipment delivery and contractor scheduling have combined towards the latter stages of the project to delay the completion of some installations … when compared with the original June 2017 construction schedule”.
• Despite this, however, “Projected construction costs remain within the Project’s Construction Budget of €53.6 million”.
• Commenting on the recent weakness in the price of the benchmark intermediate product, ammonium paratungstate (APT) which currently stands at US$275-290 per metric tonne unit compared with US$352/mtu in late June, the company said “This correction appears to be attributable to a combination of Chinese APT smelters coming back online following closures related to environmental inspections, and traditional weak trading demand during the summer period. Despite this short-term variability, the Board remains of the view that supply-demand fundamentals will continue to support prices over the medium to long term.”
• Expressing satisfaction at the project’s progress, Chairman, Michael Donoghue, confirmed that “The commissioning of the process plant is now due to commence in early December, slightly later than originally planned, with first tungsten expected to be produced from early February 2019, to commence a new secure supply to the global markets.”

Conclusion: Commissioning at Barruecopardo is now underway and we look forward to news of the first production of tungsten concentrates expected in early February 2019.

*SP Angel acts as Broker to Ormonde Mining

 

 

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

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Jonathan Williams – 0203 470 0471

 

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

 

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