SP Angel . Morning View . Monday 14 10 19

Phase one US-China agreement lifts expectation for final deal

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Bacanora Lithium (BCN LN) – Closure of Ganfeng Lithium funding and Board changes

Bluejay Mining* (JAY LN) - BUY - Target price 21.3p – 2019 Disko-Nuussuaq exploration update – new drill ready targets identified

Caledonia Mining (CMCL LN) – Power supply interruptions slow gold production at Blanket mine in Zimbabwe. Shaft sinking completed at new Central Shaft.

KEFI Minerals* (KEFI LN) – The Company congratulates PM Abiy Ahmed on Nobel Peace Prize win

Rambler Metals & Mining* (RMM LN) – Copper production rises at Ming Mine and Nugget Pond in Canada to highest level since 2014

Sirius Minerals (SXX LN) – Financing remains major question as Sirius signs offtake agreement with Muntajat Group

Vast Resources* (VAST LN) – Heritage Concessions License and Funding Update

 

Chinese industrial metal demand increases despite wider contraction of imports (Reuters)

  • Copper imports rose 10% in September from a month earlier to the highest level in eight months.
  • Unwrought copper was up at 445,000t from 404,000t a month earlier, but down 14.6% on September last year.
  • Iron ore imports rose for a third straight month to a 20 month high.
  • China brought in 99.36mt of iron ore, compared to 94.85mt in August and 93.47mt a year earlier.
  • Chinese demand for iron ore has been firm despite curbs last month due to measures to cut factory pollution levels (The West Australian).
  • Overall September imports fell 8.5% after falling 5.6% in August, the lowest since May.
  • September saw a major escalation in the US-China trade war, as the US imposed 15% tariffs on over $125bn worth of Chinese imports, causing Beijing to retaliate with similar tariffs.

 

Quantum computer breakthrough using β-Bi2Pd (inverse.com)

  • β-Bi2Pd is described as a superconducting material, that naturally exists in a quantum state without the additional influence of magnetic fields usually needed for such an effect.
  • The theory is that the material’s properties make it a perfect candidate for quantum computer systems using dancing 2-D quasi particles called anyons which can create logic gates in space-time.
  • Majorana fermions, which simultaneously exist as their own anto-particle should exist within the β-Bi2Pd and could be used to achieve fault-tolerant quantum computing.
  • What makes β-Bi2Pd superconducting material special is the unique state it occupies as its ground state, or when no other forces are being exerted on it.
  • While other superconducting materials can be forced to maintain a quantum state using external magnetic fields or energy-sustaining “quantum spin liquid,” the researchers found that this material naturally exists in a quantum superposition, in which current can simultaneously flow clockwise and counter-clockwise in a ring of the material. This discovery is the realization of a prediction made by physicists in the 80s.
  • Scientists report the observation of half-integer magnetic flux quantization in mesoscopic rings of superconducting b-Bi2Pd thin films. The half-quantum fluxoid manifests itself as a p phase shift in the quantum oscillation of the superconducting critical temperature. This result verifies unconventional superconductivity of b-Bi2Pd and is consistent with a spin-triplet pairing symmetry. Our findings may have implications for flux quantum bits in the context of quantum computing.

 

US and China reach a partial trade deal

  • News of a partial trade deal between the US and China should be good for mining stocks this week.
  • Trump comments that the negotiations have come to a very substantial Phase-one deal.
  • China has pledged to increase its buying of US agricultural produce
  • The news should halt tariff rises on many imports and benefit trade flows.
  • There is no news on some of the key areas within the trade negotiations, such as the theft of intellectual property and copyright.
  • The US is also looking for China to reform its economic management and to halt manipulation of its currency.

 

 

Dow Jones Industrials

  

+1.21%

at

  26,817

Nikkei 225

  

CLOSED

 

 

HK Hang Seng

  

+0.81%

at

  26,522

Shanghai Composite

  

+1.15%

at

   3,008

FTSE 350 Mining

  

-1.41%

at

  17,879

AIM Basic Resources

  

-0.67%

at

   2,118

 

Economics

US – Trump agrees a partial deal with a Chinese administration delaying another round of tariffs that were planned to come into force this week.

  • As part of the deal China would significantly increase purchases of US agricultural goods, agree to a number of IP measures and concessions related to financial services and currency, Trump said on Friday.
  • The agreement marks the largest breakthrough in the 18-month trade war and is meant to be the first phase of a broader deal.
  • Trump hinted the deal may be finalised by the upcoming summit with China in Chile in November.
  • Although, December tariffs have not yet been called off.
  • Positive developments lifted equity indices, oil and base metal prices on Friday as investors rebalanced out of more safe have assets like gold and US Treasuries.
  • US markets are closed today as the nation celebrates the Columbus Day.

 

China – Worse than expected trade data point to the worsening both domestic as well as global demand outlook.

  • The economic growth is expected to have slowed down to the slowest pace in almost thirty years in Q3 with data due on Friday (6.1%yoy est.).
  • On the effect of Trump enacted import tariffs, September exports to the US dropped by ~22% and imports declined almost 16% for a surplus of around $26bn.
  • While the latest interim “Phase One” agreement helps to postpone the potential introduction of new tariffs this week, charges of between 15-25% covering $360bn of Chinese exports to the US remain in place.
  • Exports (US$ based): -3.2 v -1.0 in August and -2.8 forecast.
  • Imports (US$ based): -8.5 v -5.6 in August and -6.0 forecast.

 

Japan – Markets are closed today as the nation celebrates the Health-Sports Day commemorating the opening of the 1964 Summer Olympics in Tokyo and promoting an active lifestyle..

 

UK – The pound came off from a three month high following EU comments that the latest plan has not yet been good enough to form the basis of an exit agreement.

  • UK PM Johnson said that while a path to an agreement could be seen, a significant amount of work is still required and the UK must be prepared to leave the bloc at the end of the month.
  • Queen Elizabeth will lay out 22 new bills in her address to the Parliament that the government is looking to enact in the coming year.

 

Turkey – The lira is sold off this morning on the threat of US sanctions in response to the invasion of Turkish forces into northern Syria aimed at US-backed Kurdish forces who control the region.

  • Trump is reported to be working with Congress over imposing “powerful” sanctions if Turkey does anything in Syria the US considers off limits.
  • Secretary of Defence Mark Esper said he spoke with Trump on Saturday night and following discussion with the national security team, the president directed the start of the withdrawal of forces from the northern Syria but not the entire country.
  • Trump and Esper are scheduled to meet again on Tuesday.

 

Currencies

US$1.1030/eur vs 1.1007/eur last week.  Yen 108.26/$ vs 107.97/$.  SAr 14.808/$ vs 14.938/$.  $1.257/gbp vs            $1.244/gbp.  0.677/aud vs 0.679/aud.  CNY 7.060/$ vs 7.099/$.

 

Commodity News

Gold US$1,490/oz vs US$1,499/oz last week - Gold prices to rise following suspected attack on Iranian oil tanker off Saudi coast

  • Iranian foreign ministry claims Iranian oil tanker targeted twice .

   Gold ETFs 81.9moz vs US$81.8moz last week

Platinum US$892/oz vs US$903/oz last week

Palladium US$1,703/oz vs US$1,702/oz last week

Silver US$17.58/oz vs US$17.68/oz last week

           

Base metals:   

Copper US$ 5,782/t vs US$5,790/t last week

Aluminium US$ 1,722/t vs US$1,738/t last week

Nickel US$ 17,195/t vs US$17,655/t last week

Zinc US$ 2,402/t vs US$2,392/t last week

Lead US$ 2,137/t vs US$2,165/t last week

Tin US$ 16,580/t vs US$16,380/t last week

           

Energy:           

  • Oil US$60.0/bbl vs US$60.6/bbl last week - Another drift in oil prices follows the International Energy Agency’s (IEA) cut in its oil demand forecast, citing the weakening global economy
  • In its latest report the agency predicts that demand will grow by 1MMbbls/d in 2019 and 1.2MMbbls/d in 2020, both of which are downward revisions by 100,000bopd from previous estimates
  • The report also estimates that global trade volumes will only grow by 1.2% this year, down from around 3%, whilst industrial production is also stagnating
  • U.S. crude futures were down 0.5% at $54.2/bbl on the New York Mercantile Exchange, underlining uncertainties in the global economy
  • Longer term, US-China trade tensions and the outlook for Fed policy remain the single largest drivers of oil prices in our view

 

Natural Gas US$2.278/mmbtu vs US$2.225/mmbtu last week - The natural gas markets saw signs of support during the trading session on Friday, as the US$2.20/mmbtu level continues to cause a reaction

  • Prices are likely to hover at the current levels as demand will likely remain subdued during the shoulder season
  • Tropical storm Melissa is currently in the Atlantic in close proximity to New York but is predicted to move back out to sea
  • The weather is expected to remain normal for the next 8-14 days, keeping natural gas heating demand subdued
  • The EIA reported that demand declined last week driven by the power generation sector. Total US consumption of natural gas fell by 3% compared with the previous week

 

Uranium US$24.90/lb vs US$24.90/lb last week

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$87.8/t vs US$88.5/t

Chinese steel rebar 25mm US$566.5/t vs US$564.2/t

Thermal coal (1st year forward cif ARA) US$69.0/t vs US$69.1/t

Coking coal futures Dalian Exchange US$183.9/t vs US$183.1/t

           

Other:  

Cobalt LME 3m US$36,000/t vs US$36,000/t - Trafigura leads consortium investing in DRC cobalt mine (FT)

  • Trafigura, along with the First Bank of Nigeria and the Africa Finance Corporation are financing a $450m processing plant at the Mutoshi mine in the DRC.
  • The company is hoping that the mine can become a competitive producer of the battery metal as demand begins to rise.
  • Glencore shut down the Mutanda copper mine in the DRC due to a 65% fall in the price of cobalt, however since then the price has rebounded by 45% (Fastmarkets).
  • The Mutoshi mine hopes to produce 16,000t of cobalt annually by the end of this year as a result of the financing.

 

NdPr Rare Earth Oxide (China) US$44,942/t vs US$44,725/t

Lithium carbonate 99% (China) US$7,007/t vs US$6,973/t - US lithium project aiming to have pilot extraction plant built by early next year (Miami Herald)

  • Standard Lithium of Canada’s demonstration extraction plant in El Dorado, South Arkansas is expected to be completed by the end of Q1 2020.
  • The $10m pilot plant is a joint venture with German chemical firm Lanxess.
  • Lithium will be separated from a brine extracted from deep underground, before the lithium-free brine is then pumped back into the ground.
  • The company predict that the capital cost of building a secondary commercial plant will be US $437m, and the operating cost will be $4,300 per tonne of battery grade lithium.
  • The US is keen to develop strategic mineral supply chains outside of China, due to what Washington sees as an overreliance on Chinese supply (mining.com).

 

Ferro Vanadium 80% FOB (China) US$37.5/kg vs US$37.7/kg

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

Tungsten APT European US$225-245/mtu vs US$205-215/mtu

 

Company News

Bacanora Lithium (BCN LN) FOLLOW 40.5p, Mkt Cap £54.5m – Closure of Ganfeng Lithium funding and Board changes

  • The Company received the £22m investment from Ganfeng Lithium following completion of all necessary approvals.
  • In exchange, Ganfeng receives a 29.99% interest in Bacanora Lithium and a 22.5% interest in the project holding JV.
  • The Company to issue 57.6m new shares as a result taking the total number of shares to 192.1m.
  • Mr Wang Xiaoshen, the VP at Ganfeng and its vice-chairman of its BoD, will be joining the Company’s Board .
  • Mr Wang is primarily responsible for the marketing, investment and overseas business of Ganfeng with over 25 years of experience in sales and marketing of lithium products.
  • On project update, the team continues to work on the final design for the mine, concentrator and kiln sections of the processing plant with Ganfeng having commenced work on the hydrometallurgical circuit and a review of equipment suppliers from China.

 

Bluejay Mining* (JAY LN) FOLLOW 9p, Mkt Cap £77m – 2019 Disko-Nuussuaq exploration update – new drill ready targets identified

BUY - Target price 21.3p (Dundas Ilmenite project, Greenland, 100% owned)

  • Following an extensive fieldwork programme at the Disko-Nuussuaq nickel-copper-cobalt-platinum group elements project in West Greenland, the team identified seven new drill ready targets.
  • 1,138 soil geochemical samples were collected over five key areas exploring for potential Ni-Cu-Co-PGE-Au mineralisation.
  • Total number of targets now stand at 28, up from 21 in 2018, with the largest of the lately identified prospective zones running 2km across and 12km in strike length.
  • The Company mapped new strongly mineralised outcrop as well as found the source of the high grade boulder (28t at 6.9% Ni, 3.7% Cu, 0.6% Co and 2g/t PGE) with its location added to drilling plans.
  • Although, the work in 2019 focused on surface programme along the northern coast of Disko, including the lavas and underlying Cretaceous sediments, the results support analogies with the largest nickel district in the world, Norilsk’s Talnakh nickel district in Siberial.
  • The Company is currently working on refining targets with a view to launch drilling at the highest priority ones.
  • The team is in discussions with two drilling contractors regarding a potential drilling programme next year.
  • World leading experts on Ni-Cu-PGE magmatic mineralising systems from the Centre for Exploration Targeting, University of Western Australia, as well as the Geological Survey of Denmark and Greenland agreed to work on the Disko project with the Company.
  • “Disko is starting to take shape now… it is my personal belief that all that stands between us and a globally significant discovery here is the act of drilling,” CEO Robert McIllree commented on results.
  • Target price: 21.3p is based on our production assumption of 440,000tpa of ilmenite concentrate and an ilmenite price of $207/t based on Bloomberg’s Chinese TiO2 50% ilmenite Fe 30% ilmenite price.

*SP Angel act as nomad to Bluejay Mining. *SP Angel have visited the Dundas, Itelak ilmenite sands project in Greenland.

 

Caledonia Mining (CMCL LN) FOLLOW 575p, Mkt Cap £62m – Power supply interruptions slow gold production at Blanket mine in Zimbabwe. Shaft sinking completed at new Central Shaft.

  • Caledonia Mining report gold production of 13,646oz in Q3
  • Production was 7.3% higher than in Q2 (12,712) but still missed the company’s target due to power supply interruption in July and August.
  • Gold produced for the nine months to end-September was 3.2% lower yoy at 38,306oz.
  • Caledonia remains on track to achieve full-year guidance of 50,000-53,000oz the full year.
  • The team have also completed the central shaft sinking. The shaft will now be equipped and should start hauling ore in H2 2020 to significantly expand production.
  • Gold production should rise to 75,000oz and 80,000oz in 2022.
  • Caledonia reported in August that it had ‘signed a new electricity supply agreement in terms of which it will receive un-interrupted imported power at a lower cost than it previously paid’
  • The company also reported that it was ‘at an advanced stage of evaluating a solar PV generating facility which would reduce Blanket's dependence on grid power’.
  • Management cut guidance at the time to 50,000-53,000oz from 53,000-56,000oz but maintained earnings guidance for 2019 at 86- 117c/s due to higher than expected gold prices and lower than expected costs.
  • Dividend: Caledonia recently announced a 6.875c/s dividend maintaining its strategy of declaring a quarterly dividend.

Conclusion: Caledonia seem optimistic at making guidance this year despite power supply interruptions in July and August. Management and the mine workers have done well considering power supply and other issues in Zimbabwe. The company is a major employer in the region with many families and their dependents relying on the mine for much needed income. While we hope the power supply will be more stable for the rest of the year, we suspect Caledonia will go also look to press ahead with its solar power project to reduce its reliance on the Zimbabwe grid.

 

KEFI Minerals* (KEFI LN) FOLLOW 0.80p, Mkt Cap £6.4m – The Company congratulates PM Abiy Ahmed on Nobel Peace Prize win

  • KEFI congratulated the Ethiopian Prime Minister Abiy Ahmed on being awarded the Nobel Peace Prize last week.
  • The award comes as a recognition of the profound and progressive advances on many fronts that have been embraced by the country.
  • The Company is currently in final stages of closing the Tulu Kapi Gold Project equity funding that is expected to come through before the end of October 2019.
  • This will lead to the start of development works.

*SP Angel act as Nomad and Broker to KEFI Minerals

 

Rambler Metals & Mining* (RMM LN) FOLLOW 1.3p, mkt cap £17m – Copper production rises at Ming Mine and Nugget Pond in Canada to highest level since 2014

  • Rambler Metals & Mining report a 17% qoq increase in production of 1,475t for Q4 to end Septermber 2019.
  • Production rose on a 15% rise increase in mill throughput and 5% increase in copper head grade yoy
  • Saleable gold in concentrate also rose 35% yoy
  • The improvement is down to a mining process improvement program which started in mid-2018 and some executive management changes.
  • Better production rates +15% at 1,160t/d in Q3 vs 1,012t/d in Q3 2018
  • Copper grades +16% at 17.0t/d in Q3 vs 14.7t/d Q3 2018
  • Nugget Pond copper and gold milling facility processed 106,783t grading 1.53% copper and 0.59g/t gold in Q3 2019 vs 93,128t grading 1.46% copper and 0.54g/t gold Q3 2018. 
  • Daily production during the quarter averaged 1,358t/d peaking at 1,416t/d in September. 
  • On August 16, the mill achieved a new one-day record throughput of 1,526 dry tonnes per day.
  • Metal recovery rates were unchanged at 93.9% for copper and 76.0% for gold despite higher throughput.

Conclusion: Rambler continues to improve performance at its Ming Mine and Nugget Pond operations. The team are working towards increasing daily throughput to 2,000tpd which should result in a substantial improvement to the economics and general operation of the group.

*SP Angel act as Nomad and broker to Rambler Metals & Mining

 

Sirius Minerals (SXX LN) FOLLOW 3.5p, Mkt cap £246m – Financing remains major question as Sirius signs offtake agreement with Muntajat Group

  • Sirius Minerals report the signing of a 2mtpa supply and distribution agreement with Muntajat which is owned by the state of Qatar.
  • The news indicates that management are looking to keep the Woodsmith polyhalite mining project alive despite a major shortfall in funding for the project.
  • The Qatar Investment Authority reportedly acquired a 3.3% stake in Sirius Minerals earlier this year in a $425m share placing in April this year.
  • The statement from Sirius released on Friday at 12:29 does not give any further details on the contract.
  • “The bosses of Sirius Minerals must find a white knight investor by Christmas to prevent the troubled firm going bust’, a mining industry source has warned
  • The FTSE 250 firm is fighting for survival after its latest financing deal was scrapped and the Government last week refused to guarantee multi-million pound loans” according to This is Money.
  • “A well-placed source told The Mail on Sunday that the company’s financing arrangements are so complex that unless the outline of a deal is agreed by the end of the year, he feels Sirius has only a 20 per cent chance of survival.”
  • Sirius says it has enough cash to keep going for six months but the race is on to save it from collapsing into administration.
  • Last week, management launched a strategic review to find new investment for its Woodsmith Mine – either from a revised financing deal or a partnership with an investor with deep pockets.
  • Due to the funding crisis, Sirius last week slowed construction at the mine cash reserves said to be at around £180m according to This is Money, thou we expect the cash figure to fall substantially as the company pays its bills and for some 300 redundancies.
  • It would be interesting to see more details on the supply and distribution agreements being signed by offtakers as observers have little opportunity to asses the materiality of these contracts and how well they may be enforced if offtakers decide to renage on shipments.

Conclusion: While no money changes hands with signing of a supply and distribution agreement Sirius may be able to use this to encourage others to step forward to secure more offtake. Whether this will convince bond market investors to stump up the $500m the company was looking for is another question as is the matter of how the company might cover the full estimated financial cost of this $4bn project

 

Vast Resources* (VAST LN) FOLLOW 0.49p, Mkt Cap £51m – Heritage Concessions License and Funding Update

  • Last Friday, the Company released an update on the status of the Heritage Diamond Concessions mining license and the $13.5m funding.
  • The team received a confirmation that the Agreements between Katanga Mining, a JV between Vast and Chiadzwa Mineral Resources representing local community, and the ZCDC, a government body representing the nation’s interest in the diamond mining sector, are to be signed this week.
  • Additionally, the $13.5m (net) funding package is expected to be finalised and signed later this week.

Conclusion: The Company readies for a busy Q4/19 with both Zimbabwe diamond concessions’ mining license confirmation and the major funding package expected to be  closed imminently paving the way for the start of development works.

*SP Angel acts as Broker to Vast 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

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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.

 

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

DCE

RRE

Steelhome

Lithium Carbonate, Ferro Vanadium, Antimony

Asian Metal

Tungsten

Metal Bulletin

 

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