SP Angel . Morning View . Fear of more US tariffs drive metal prices lower

SP Angel – Morning View – Tuesday 30 10 18

Fear of more US tariffs drive metal prices lower

MiFID II exempt information – see disclaimer below 

 

Arc Minerals* (ARCM LN) – Director takes Option award in lieu of pay

KEFI Minerals (KEFI LN) – Secured convertible loan facility

Lithium Power International* (LPI AU) – Quarterly update for Chilean lithium project

Phoenix Global Mining* (PGM LN) – Exploration suggests potential for more extensive mineralisation linking Empire, Red Star and the Horseshoe Block

Serabi Gold (SRB LN) – Mine continues to perform well despite milling constraints

Sunrise Resources Plc (SRES LN) – Bulk sampling results from the CS project in Nevada

 

World’s top diamond miners trial blockchain pilot

• World’s No. 1 diamond producer Alrosa has joined rival De Beers’ end-to-end diamond blockchain programme, aimed at removing imposters and conflict precious rocks from the supply chain.
• Anglo American’s De Beers, the largest diamond miner by value, began developing its ‘Tracr’ tracking platform, with official launch of the program in Jan. The program draws majors’ attention to provide enhanced assurance for consumers and trade participants about the authenticity of their gemstones.
• De Beers’ chief executive Bruce Cleaver adds “the collective efforts of the two world’s leading diamond producers will enable more of the world’s diamonds to be tracked from their journey from mine to retail.”
• The blockchain platform yields a shared database of transaction maintained by a network of computers, with each diamond assigned a unique ID that stores stones characteristics such as weight, colour and clarity.
• “Traceability is the key to further development of our market. It helps to ensure consumer confidence and fill information gaps, enabling people to enjoy the product without any doubts about ethical issues or undisclosed synthetics”, according to Alrosa’s chief executive Sergey Ivanov.

 

Dow Jones Industrials		-0.99%	at	24,443
Nikkei 225		+1.45%	at	21,457
HK Hang Seng		-0.91%	at	24,586
Shanghai Composite		+1.02%	at	2,568
FTSE 350 Mining		+0.10%	at	16,803
AIM Basic Resources		-0.26%	at	2,072

 

Economics

US – The US is considering to expand the list of Chinese goods to be affected by US import tariffs to all remaining Chinese imports if negotiations between Trump and Xi Jinping fail next month, Bloomberg reported citing three people familiar with the matter.

• New additions may cover $257bn worth of new goods which following a 60-day public comment period may come into affect as early as next February.
• US officials are preparing for such a scenario in case a planned Trump-Xi meeting yields no progress on the sidelines of a Group of 20 summit in Buenos Aires in November.
• Equities spooked by the escalation in US-China trade row closed in the red yesterday with the S&P 500 Index posting a 2.1% decline before narrowing losses to end the day down 0.7%.
• MSCI Asia Pacific Index was down 0.6% this morning.

 

China – The government is proposing to cut taxes on small engine autos (<1.6lt) from 10% to 5% in a bid to support the faltering growth in the market.

• Chinese car market is expected to post the first decline since 1990 amid weakening consumer confidence hurt by the global trade war.
• The government previously stepped in to stimulate demand in September 2015, cutting taxes after sales fell between June and August.

 

UK – Philip Hammond delivered the last Budget before Brexit claiming the “era of austerity is finally coming to an end”.

• The government pledged to increase in NHS spending to £27.6bn by 2023/24 while balancing some personal tax cuts with increases in business and other taxes.
• On personal taxes front, the chancellor raised the income tax-free personal allowance up to $12,500 and the higher rate threshold up to £50,000 from April next year.
• The government will introduce a UK digital services tax of 2% to be levied on a turnover earned from UK users.
• Soft Brexit deal may see improvements on growth numbers as well as the release of a £15bn fiscal “buffer” which can be directed to further tax cuts and funding for other public services.
• On the other hand, no deal Brexit may bring a revision to current estimates with a whole new budget to be prepared in the spring.
• UK growth forecasts have been upgraded with latest estimates for 1.6% in 2019 (up from 1.3%), 1.4% in 2020 (up from 1.3%), 1.4% in 2021 (unchanged) and 1.5% in 2022 (unchanged).
• Stronger growth led to an improvement in tax receipts allowing to reduce the amount of borrowing forecast by £19bn by 2022-23 versus previous estimates.
• Budget deficit is expected to come down to 1.3% in 2021 while total outstanding debt to come down to 75.0% by 2022-23, down on 83.7% forecast in 2018-19.

 

Italy – Weak GDP growth numbers come at the time when government is trying to push through the budget with higher than initially expected deficit levels.

• Q3 GDP slowed to 0% underperforming estimates for a 0.1%qoq increase.
• The economy was up 0.8%yoy marking the weakest reading in more than three years.
• “The stagnation of Italy’s economy in Q3 makes it even more likely that the EU will reject Italy’s re-drafted budget unless it includes significantly weaker assumptions for economic growth,” Capital Economics commented on the news.
• Latest government economic growth projections guided for GDP to expand 1.5%, 1.6% and 1.4% in 2019, 2020 and 2021, respectively.
• That compares Bloomberg market median estimates for 1.1%, 1.1% and 1.0%.
• Italy 10y bond spread over Bunds climbed 6bp this morning and is trading at 302bp.

 

Currencies

US$1.1370/eur vs 1.1388/eur yesterday. Yen 112.84/$ vs 111.96/$. SAr 14.624/$ vs 14.559/$. $1.278/gbp vs $1.282/gbp. 0.710/aud vs 0.710/aud. CNY 6.961/$ vs 6.956/$.

 

Commodity News

Precious metals:         

Gold US$1,230/oz vs US$1,230/oz yesterday

   Gold ETFs 68.3moz vs US$68.0moz yesterday

Platinum US$838/oz vs US$832/oz yesterday

Palladium US$1,112/oz vs US$1,103/oz yesterday

Silver US$14.44/oz vs US$14.61/oz yesterday

           

Base metals:   

Copper US$ 6,134/t vs US$6,168/t yesterday

Aluminium US$ 1,983/t vs US$1,995/t yesterday

Nickel US$ 11,750/t vs US$11,780/t yesterday

Zinc US$ 2,597/t vs US$2,642/t yesterday

Lead US$ 1,956/t vs US$1,987/t yesterday - Lead – Bullish lead fundamentals ignored by investors

• Despite all the hallmarks of a classic bull commodity story, lead has been one of the worst performing metals among the core base metals traded on the London Metal Exchange. LME three-month lead is currently trading around the $2,000/t level, having fallen almost 23% since the start of 2018, and struggling to recover from the two-year low of $1,876 recorded earlier this month.
• Lead’s demand fortunes are inextricably tied to batteries use in conventional internal combustion vehicles, with the metal a likely casualty of the electric vehicle revolution.
• Fund managers are shying away from the metal with it toxic past, with the lack of investment ‘sex appeal’ leaving the price beholden to gyrations of zinc; the second-worst performing LME metal this year.
• Despite demand performance, lead’s supply problems are more structurally severe, and the divergence in supply performance is only going to grow.
• The International Lead and Zinc Study Group (ILZSG) has just dramatically revised estimates of supply-demand balance in the lead market. At its October meeting the group lifted its assessment of the supply deficit this year to 123,000t from its April forecast of 17,000t.
• While forecast demand growth has been slashed to just 0.2% from 2.7%, the supply side of the equation has come under more radical revision.
• Mine supply, which was revised from 4.2% growth to -0.2% contraction is in turn expected to drag refined metal production growth down to just 0.4% from 3.8%.
• The current deficit in the lead market mirrors that of the zinc market; highlighting the closure of major mines over the last few years which produced both ‘sister’ metals.
• Environmental crackdowns across China have hollowed the country’s traditional role as swing producer of both metals during periods of tightness.
• Mine supply constraints have stalled the supply chain, with LME stocks falling to their lowest level since 2009 at 111,500t. In China, the amount of lead registered with the Shanghai Futures Exchange has slumped by 35,869t in Jan. to just 6,139t.
• Investors remain uninterested, with speculators holding a larger short position on LME lead than any other metal at 22% open interest, according to LME broker Marex Spectron.
• While a medium-term surge of new zinc mines is expected to boost by-product supply to shift the market into a modest 50,000t surplus next year, lead is facing more supply-chain disruption from US trade policy than its sister metal.
• Following sanctions by the US administration on key supplies from North Korea, the United States, the second-largest supplier to China, represents a more significant source of lead. With imports totalling 212,000t, a large amount of supply is likely to be hit hard by the 10% tariffs imposed by China in the latest round of tit-for-tat trade measures.
• Arguably a considerable bull market, investors remain loathe to commit to the lead market as they are transfixed by the bear narrative of a sunset industry that has already seen e-bike usage peak. While the prospect of lead-acrid battery technology succumbing to the electric vehicle revolution, usage will persist for years to come.

Tin US$ 19,100/t vs US$19,295/t yesterday

           

Energy:           

Oil US$77.1/bbl vs US$77.2/bbl yesterday - Brent oil prices dips

• Brent oil prices dipped on Tuesday, weighed down by ongoing weakness in global stock markets and by signs of rising global supply despite looming sanctions on Iran's crude exports.
• Front-month Brent crude oil futures were at $77.05 a barrel at 0428 GMT, down 29 cents, or 0.4%, from their last close.
• U.S. West Texas Intermediate crude futures were firmer, however, at $67.16 a barrel, up 12 from their last settlement.

Natural Gas US$3.183/mmbtu vs US$3.127/mmbtu yesterday - China to switch more households in central provinces to gas heating

• China on Monday ordered 1.18m residential households in 11 cities located in three central provinces to switch to natural gas heating this winter as part of the country's anti-air pollution campaign.
• The 11 cities are located in the Fenwei Plain which is comprised of the provinces of Shanxi and Shaanxi, as well as Henan. The area was included by Beijing as a "key battlefield" in the war against air pollution in July on top of 28 other cities in northern China.
• The households in the cities must make the switch from coal to natural gas by the end of October, the Ministry of Ecology and Environment said on Monday.

Uranium US$27.95/lb vs US$27.85/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$74.6/t vs US$75.1/t -- China iron ore futures hit near eight-month high

• Chinese iron ore futures climbed to their highest in almost eight months on Monday as stockpiles at its ports dropped last week.
• Inventories of iron ore at China’s major ports fell 150,000t from the previous week to 143.85 mt on Friday
• The port stocks have dropped 11% since hitting a record-high of 161.98mt in June.
• The most-traded January iron ore on the Dalian Commodity Exchange rose as far as 546.50 yuan/t, its highest since March 5. It closed up 0.7% at 538 yuan/t.

 

Chinese steel rebar 25mm US$700.4/t vs US$700.5/t

Thermal coal (1st year forward cif ARA) US$95.7/t vs US$94.8/t

Coking coal futures Dalian Exchange US$206.2/t vs US$206.4/t

           

Other:  

Cobalt LME 3m US$59,250/t vs US$60,000/t

China NdPr Rare Earth Oxide US$45,537/t vs US$45,571/t

China Lithium carbonate 99% US$9,912/t vs US$9,775/t

Tungsten APT European US$275-295/mtu vs US$275-295/mtu

 

Battery New

Easyjet’s electric plane

• A prototype of Easyjet’s new battery-powered aircraft will take to the skies next year amid plans for all-electric flights between London and the European mainland.
• The nine-seat hybrid plane will be propelled by a combination of electric power and a jet engine and is being built by Wright Electric
• Easyjet said that a full-size all-electric aircraft, eventually capable of carrying about 120 passengers, would have a target range of 310 miles when it enters full service towards the end of the next decade.

 

GM pushes for national electric vehicle program

• General Motors on Friday called for a national US electric vehicle program modelled on California's zero-emission vehicle sales mandate.
• The proposal includes, among other elements, the extension of a federal tax credit for electric vehicle purchases that otherwise expires soon, plus a requirement that at least 25% of automakers' fleets be electric or hybrid vehicles.
• The percentage would be adjusted using a credit swap system, in which companies that do not meet the quota can buy credits from those exceeding it.
• "A single, 50-state solution will help move the U.S. to a leadership position in electrification," said GM CEO Mary Barra.

 

Austria announces higher speed limit for electric vehicles

• The Austrian government has announced three new EV incentives.
• It is opening bus lanes to electric vehicles, it will start promoting free parking for electric cars, and is increasing the speed limit for EVs on motorways and expressways.
• They are creating a legal exception to increase the speed limit to 130 km/h on about 440 km of highway from the 100 km/h limit during IG-L air pollution warning.

 

Company News

Arc Minerals* (ARCM LN)  3.8p, Mkt Cap £24m – Director takes Option award in lieu of pay

ARC Minerals owns Casa Gold 99.4% of Casa Minerals and holds an effective 73% stake in Casa Mining’s Akayanga project

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

STRONG BUY

• Arc Minerals reports that Mike Foster had agreed to take 1.2m options in Arc Minerals in lieu of fees for work done with Casa Minerals on the Misisi gold project in the DRC.
• The options have a strike price of some 4.5 pence per share representing a 34% premium to the closing mid-market share price.
• Foster has been with the Casa gold project for many years and has worked to develop the project to a 3moz gold resource assuming a gold price of .
• Arc upgraded the gold resource at Akayanga (Missi) to 3moz grading 2.16g/t assuming a $1,500/oz gold price reflect a longer-term view of the market.
• Casa is now working on a scoping study for a 150-200,000ozpa mine..

Conclusion: Mike Foster is a talented, measured and hugely experienced geologist. His agreement to take options at a 34% premium is a good indication of the potential for better news and value to come.

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

 

KEFI Minerals (KEFI LN)  1.8p, Mkt Cap £9.7m – Secured convertible loan facility

• The Company has entered into an agreement with a longstanding institutional shareholder regarding a secured loan facility conditional upon shareholders’ approval and finalisation of detailed documentation expected to be completed within the next 14 days.
• The loan facility is for £2m with an option for a second £2m tranche secured against the interest in the Ethiopian subsidiary (KEFI Minerals (Ethiopia) Ltd).
• The facility can be drawn upon in monthly increments of £450,000 at its own discretion.
• A 5% fee of amounts drawn upon will be payable in shares at the higher of 2p per share of the preceding 5-day VWAP at the time of drawdown.
• Instead of a coupon on the loan facility, the Company agreed to issue 12,000,000 shares to the Lender.
• A 5% fee to be paid in shares using 2p per share price will be triggered should the Company decided to draw upon a second £2m tranche.
• The facility may be repaid at any time without early repayment penalty with the Company expecting to pay back the loan once the full debt and equity funding for the Tulu Kapi Project is secured, expected at the end of Q1/19.
• The loan is repayable in 12 months from the date of entering into definitive documentation.
• Lenders have an option to convert half of any repayment by KEFI into new shares at a fixed price of 2p, representing a 14% premium to the closing mid-market price on 29 October 2018, and may convert any or all of any outstanding balance at a price not below 2p is no repayment is made.
• “The Loan Facility will expand KEFI’s working capital and will allow KEFI to trigger and accelerate selected high-impact steps in the Tulu Kapi project financing, development and exploration schedule,” KEFI commented on the announcement.

 

Lithium Power International* (LPI AU) A$0.26, Mkt Cap A$68m – Quarterly update for Chilean lithium project

• The Chilean Joint Venture Company, Minera Salar Blanco S.A., submitted the Maricunga lithium brine project’s Environmental Impact Assessment for review by the Chilean Environmental Authority, Servicio de Evaluacion Ambiental. The report focused on two years in-depth study to the highest standards in a salar which hosts the Nevado Tres Cruces National Park.
• The project’s Definitive Feasibility Study is expected to be finalised for release by December 2018, presenting updates including CAPEX, OPEX, price forecasts and revenues from the 2017 PEA. Maiden reserve calculations will be incorporated for the first time.
• LPI are steadily progressing with workflow developments in a chemically complex process, with GEA consultants fine tuning the flow circuit and equipment requirements.
• Key infrastructural requirements are being developed with the company negotiating final conditions for water supply through long-term 20 year leases and use of existing power transmission lines.
• LPI are also advancing their Centenario lithium project in Salta province, Argentina, having obtained permits for drilling with plans to drill several exploration holes. The program aims to evaluate the potential for significant volumes of brine waters within LPI’s properties indicated by a recent electrical geophysical survey.

Conclusion – We look forward to reviewing the released DFS study at the end of the year as Lithium Power International advance the significant Maricunga resource. High grades and supportive flow rates are expected to allow the company to develop one of Chile’s most important lithium projects.

*SP Angel analyst has visited the Maricunga site

 

Phoenix Global Mining* (PGM LN)  32.5p, Mkt Cap £10.3m – Exploration suggests potential for more extensive mineralisation linking Empire, Red Star and the Horseshoe Block

• Phoenix Global Mining has released a progress report on its exploration in and around the historic Empire mine site in Idaho.
• Mineralisation has now been demonstrated over 3km of strike length within the expanded 1,837 acre (approximately 743 hectares) project area and the “existing shallow oxide resource envelope [which is currently the subject of a continuing Bankable Feasibility Study] along a 1km strike.”
• The company points out that “it is estimated that only 5% of the potential ore system has been explored to date and, accordingly, there is significant opportunity to increase the resource through phased exploration” and that the existing resource estimate of 19.4mt at an average grade of 0.47% copper, 0.13% zinc, 10g/t silver and 0.3g/t gold “relates to the oxide resource only, which remains open along strike and does not include the deeper, higher grade sulphides.”
• Phoenix Global Mining also draws attention to comments made,  in 2016, by its consulting geologist who described the skarn mineralisation developed at Empire as “poorly understood” and described “the footprint of the Empire deposit(s) is that of a major mineralised system. Indeed, to date, the Empire Mine remains largely unexplored as a result of the history of the exploration of this project which, since the closure of the underground high-grade copper mine, has largely focused on a shallow copper oxide resource and has, importantly, almost totally ignored the entire supergene and protore sulphide copper - gold - silver - zinc - tungsten resource.”
• Among drilling results reported today are several wide intersections including:
  • A 19.7m wide intersection, from a depth of 18.9m in hole KXD18-16 at an average grade of 1.10% copper, 1.1% zinc, 0.23g/t gold and 12g/t silver;
  • An 18.3m wide intersection, from a depth of 103.6m in hole KX18-52 at an average grade of 1.28% copper, 0.1% zinc, 0.22g/t gold and 18.2g/t silver; and
  • An 18.9m wide intersection, from a depth of 41.8m in hole KXD18-18 at an average grade of 1.26 copper, 0.15% zinc, 1.01g/t gold and 12.8g/t silver;
• Several of the holes contain multiple mineralised intersections from a mix of both infill drilling aimed at firming up the existing resource envelope and step-out holes intended to expand the overall resource base.
• Our review of published drilling results from the Empire site, including those in today’s announcement, show an average intersection width of almost 10m with grades averaging 1.1% copper, 0.4% zinc, 31g/t silver and 0.5g/t gold.
• In addition to the drilling results, Phoenix Global Mining also reports the results of channel and rock-chip sampling from the Red Star zone, located approximately 330m north-west of the northern edge of the current mineral resource and which “appears to be a continuation of the Empire orebody's mineralisation trend which, in turn, continues on into the Horseshoe block of claims towards the old Horseshoe Mine approximately 1km along strike from Empire.”
• Channel sampling of 1.5m long samples at Red Star showed an aggregate of 18.3m of continuous mineralisation at an average grade of 0.65% copper, 0.12% zinc, 0.36g/t gold and 16.4g/t silver. “Individual 1.5m samples ranged in grade from 0.15% copper to 1.69% copper and were all included in the grand composite”.
• A total of 20 rock chip samples taken from the Horseshoe Block “represents a small portion of the proposed exploration programme for the area in 2019” however grades reported in today’s announcement range as high as 9.19% copper (sample no. 458509) with 5 samples reporting in excess of 1% copper. Grades of other metals range as high as 5.83% zinc (sample no. 458503, which also showed 20% lead and 580g/t silver), and up to 2.02g/t gold in sample no. 458523.
• Commenting on the results and the progress of exploration, CEO, Dennis Thomas said that “The results of the current programme suggest we have a district style opportunity along a 3.5km strike. We have only really begun to understand the scale of the opportunity following the mapping, sampling and drilling work outside the oxide resource envelope which has been the focus of our attention to-date.”
• Mr. Thomas went on to explain that “The newly discovered Red Star zone is located 330m north west along strike from the present northern limit of the Empire open pit resource envelope and appears to be a continuation of the Empire orebody's mineralisation trend which, in turn, continues on into the Horseshoe block of claims towards the old Horseshoe Mine approximately 1km along strike from Empire.”

Conclusion: Exploration is beginning to reveal the wider extent of mineralisation within the Empire mine district and providing indications that it may extend from the Empire mine through the recently identified Red Star area into the Horseshoe Block. Although expanding and upgrading the current oxide resource is a principal objective, the wider district potential and the deeper level sulphide mineralisation is beginning to become apparent.

*SP Angel acts as Nomad and broker to Phoenix Global Mining

 

Serabi Gold (SRB LN)  38.5p Mkt value £22.7m – Mine continues to perform well despite milling constraints

• Serabi Gold report a fall in gold production for Q3 to 8,101oz from 9,563oz in Q2 and 9,188oz in Q1.
• Mined and milled ore tonnages rose through Q3 but were offset by lower grades.
• Grades fell in the quarter to 6.93g/t from 7.71g/t in Q2 and 7.04g/t in Q1.
• Grades are reported to have fallen as a consequence of the highest quarterly rate of mine development. Presumably due to the mixing of lower grade development material with higher grade production ore.
• Guidance is reduced slightly to 36,000-37,000oz for the year due to processing constraints despite good mine performance.

Conclusion:  The mine has performed consistently well under the leadership of CEO Mike Hodgson.

 

Sunrise Resources Plc (SRES LN)  0.17 pence, Mkt Cap £4.1m – Bulk sampling results from the CS project in Nevada

• Sunrise Resources reports that a 100 ton bulk sample of natural pozzolan from its CS Project in Nevada has been tested by a cement company and found to meet all the “requirements of ASTM C618, the standard for natural pozzolan for use in cement and concrete mixes.”
• The company advises that “the cement company concerned has expressed a desire to continue co-operation with Sunrise, working towards a commercial arrangement” and that Sunrise Resources has “retained approximately 30 tons of the original bulk sample and has made test samples of this available to a number of other cement companies with whom market discussions are continuing”.
• Testing has also been conducted on an 8 ton bulk sample of perlite to evaluate its potential for use in horticulture. Results show “better-than-could-have-been-hoped-for results" with the expanded perlite product “meeting the size requirements for horticultural perlite” and with the producer of expanded perlite which tested the material expressing “a strong desire to work with the Company as a new supplier of perlite to its facility”.
• The company’s consultants, SRK in Reno, Nevada, have prepared a design plan for a three-phase open pit mine development over a 15 years mine life. “The objective of a phased approach is to minimise the amount of the initial reclamation bond.”
• The proposed phase1 pozzolan  production over the first three years life is scheduled to rise from 100,000tpa to 300,000tpa and rising to 500,000tpa during phases 2 and 3. Phase 1 perlite mining rises from 20,000tpa to 100,000tpa and is maintained at that level for the remaining planned life.
• Processing options for the pozzolan currently under consideration include the sale of mined material direct to cement companies or the option of installing an on-site grinding plant to produce a ground pozzolan product “for sale to cement companies and the ready-mix concrete companies.”
• Natural pozzolan is expected to gain market acceptance as the closure of coal-fired power plants reduces the availability of the current waste fly-ash product currently used by cement manufacturers.
• The company also advises that it is “on track” with its mine permitting process in Nevada “but given the uncertain timelines resulting from the recent changes to the NEPA process we are currently allowing extra time for permitting and estimate that permitting will be completed, and that we will be mine ready, in the third quarter of 2019, rather than in the second quarter of 2019 as previously estimated.”

Conclusion: The successful test work on the pozzolan and perlite from the CS project is attracting potential customers while the mine design work has been completed. Permitting is expected to be completed during Q3 2019 rather than the originally expected Q2 2019 as a result of recent changes to the procedures of the National Environmental Policy Act and the impact on the Bureau of Land Management.

 

 

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

 

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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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