SP Angel – Morning View – Wednesday 24 07 19

Major miners begin commitment to cleaner operations

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MiFID II exempt information – see disclaimer below

 

Arc Minerals* (ARCM LN) – Cheyeza East shows 7.6m at 4.15% copper

Arkle Resources* (ARK LN) – Additional gold anomaly identified at Mine River Gold Project

Caledonia Mining (CMCL LN) – Completion of Shaft Sinking at Blanket

Cora Gold* (CORA LN) – New exploration permit secured

 

Major miners begin commitment to cleaner operations

  • BHP reports it’s committing $400m investment over five years to reduce greenhouse gas emissions from its operations and mined commodities, as the world’s top mining company looks to take an industry lead on tackling climate change.
  • The announcement follows a series of recent steps from BHP in promoting itself as environmentally friendly, including carbon capture and storage and other innovations such as direct air capture.
  • Last year, BHP left the World Coal Association (WCA) over differences on climate change, noting it only wanted to belong to groups aligned with the company’s climate and energy stance.
  • Further, the miner reported it was hoping to divest its thermal coal business, including NSW Energy Coal in Australia and Cerrejon in Colombia.
  • Chief executive Andrew Mackenzie reports plans to tie executive pay more closely to environmental targets, adding “for many years performance against emissions targets has been considered in BHP’s executive remuneration plans. From next financial year [2021] we will clarify and strengthen this link and further reinforce the strategic importance of action to reduce emissions.”
  • While offering lofty targets, BHP directly produced 16.5mt of carbon dioxide-equivalent emissions in the 2017/18 fiscal year, mostly from energy and diesel use at its operations.
  • In particular, BHP will be looking to minimise Scope 3 emissions, created when a company’s products are consumed, for example in steel-making or shipped to customers. The Company’s Scope 3 emissions are 40x greater than those generated by its mines and oilfields.
  • “It may be uncomfortable for some, but many solutions to global warming — such as the increased electrification of transport — will require more mined resources rather than less. Electric motors contain 80% more copper than an internal combustion engine,” said Mackenzie.
  • He adds, “renewables, nuclear, hydrogen, long-term storage of electricity, coal and gas with carbon capture and storage [CCS], negative emissions technologies like reforestation and biomass with CCS, and other approaches will all contribute to lower carbon outcomes.” The presentation concluded by noting the cost of tackling global warming is high, but the cost of failing to do so will be even higher.

 

Dow Jones Industrials

 

+0.65%

at

  27,349

Nikkei 225

 

+0.41%

at

  21,710

HK Hang Seng

 

+0.45%

at

  28,595

Shanghai Composite

 

+0.80%

at

   2,923

FTSE 350 Mining

 

-2.21%

at

  20,282

AIM Basic Resources

 

-0.16%

at

   2,140

 

Economics

IMF cut global growth forecast on the back of US/China trade raft, Brexit worries and muted inflation.

  • The global economy is expected to grow 3.2% in 2019, down 0.1pp from April estimate and 0.3pp from start of the year forecasts. Growth is forecast to average 3.5% next year.
  • “Risks to the forecast are mainly to the downside… they include further trade and technology tensions that dent sentiment and slow investment; a protracted increase in risk aversion that exposes the financial vulnerabilities continuing to accumulate after years of low interest rates,” the IMF said.
  • “Mounting disinflationary pressures that increase debt service difficulties, constraining monetary policy space to counter downturns, and make adverse shocks more persistent than normal.”
  • China expected to grow 6.2% (-0.1pp) in 2019 and 6.0% (-0.1pp) in 2020. US to see 2.6% (+0.3pp) growth in 2019 and 1.9% (unch) in 2020 with weaker expansion next year attributed to waning fiscal support.

 

US/China – Two countries are set to resume trade talks with Robert Lighthizer set to travel to China next week for the first face-to-face negotiations after the dialogue broke down in May.

  • US Trade Representative and a small team will be in Shanghai through Wednesday.

 

Eurozone – Manufacturing sector contraction accelerated in July while services industry growth coming in below market estimates.

  • Manufacturing performance was the weakest in more than six years on “geopolitical worries, Brexit, growing trade frictions and the deteriorating performance of the autos sector in particular”.
  • Weak data is likely to provide more rationale for the ECB to signal interest rate cuts this Thursday and potentially to restart bond purchases.
  • Markit Eurozone Manufacturing: 46.4 v 47.6 in June and 47.7 forecast.
  • Markit Eurozone Services:: 53.3 v 53.6 in June and 53.3 forecast.
  • Markit Eurozone Composite: 51.5 v 52.2 in June and 52.2 forecast.

 

Germany – Manufacturing drop to the lowest in seven years with actual July numbers coming in the most pessimistic forecast in a Bloomberg survey.

  • Manufacturing sector has been dragged lower by lower orders that dropped at the strongest rate since April with report of lower export sales (in particular China) and weakness in the automotive sector.
  • “Still-solid growth in the service sector means that the German economy is just about keeping its head above water for now, but even here there are signs of increased worries among companies,” HIS Markit wrote in the note.
  • Markit Germany Manufacturing: 46.4 v 47.6 in June and 47.7 forecast.
  • Markit Germany Services: 53.3 v 53.6 in June and 53.3 forecast.
  • Markit Germany Composite: 51.4 v 52.6 in June and 52.4 forecast.

 

France – Manufacturing sector was flat in July marking a three month low growth pace, while growth in services sector decelerated.

  • New export orders were broadly stagnant this month with a drop in the manufacturing sector broadly offsetting a modest increase at services firms.
  • Overall, “the rate of expansion in overall business activity remains historically subdued and far weaker than the averages registered during 2017 and 2018… softer growth in July dents hopes of a swift recovery to the long-run rate, which were beginning to materialise after June’s solid performance,” Markit said.
  • Markit France Manufacturing: 50.0 v 51.9 in June and 51.6 forecast.
  • Markit France Services: 52.2 v 52.9 in June and 52.8 forecast.
  • Markit France Composite: 51.7 v 52.7 in June and 52.5 forecast.

 

Currencies

US$1.1145/eur vs 1.1189/eur yesterday  Yen 108.04/$ vs 108.11/$  SAr 13.908/$ vs 13.878/$  $1.244/gbp vs $1.244/gbp  0.698/aud vs 0.702/aud  CNY 6.881/$ vs 6.881/$

 

Commodity News

Precious metals:         

Gold US$1,423/oz vs US$1,418/oz yesterday

   Gold ETFs 75.4moz vs US$75.4moz yesterday

Platinum US$863/oz vs US$848/oz yesterday

Palladium US$1,527/oz vs US$1,525/oz yesterday

Silver US$16.51/oz vs US$16.35/oz yesterday

  • Holdings in silver-backed ETFs surged 818.8t on Tuesday, the biggest daily increase in data compiled by Bloomberg since 2006.
  • Investors added to silver ETFs for a 12th straight day, bringing total known assets to a record 18,315t.

           

Base metals:   

Copper US$ 5,995/t vs US$6,019/t yesterday

Aluminium US$ 1,827/t vs US$1,815/t yesterday

Nickel US$ 14,240/t vs US$14,290/t yesterday

Zinc US$ 2,447/t vs US$2,432/t yesterday

Lead US$ 2,049/t vs US$2,012/t yesterday

Tin US$ 17,725/t vs US$17,790/t yesterday

           

Energy:           

Oil US$64.1/bbl vs US$63.4/bbl yesterday

Natural Gas US$2.295/mmbtu vs US$2.311/mmbtu yesterday

Uranium US$25.50/lb vs US$25.25/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$112.0/t vs US$113.8/t

  • Bearish sentiment rises, and iron ore’s sell-off picked up its pace as Brazil’s Vale SA is given the green light to restart some operations and downgrades to share price targets across top iron ore producers including Rio Tinto suggest prices could sink below the $100/t level.
  • Futures extended retreats from the highest levels in five year with prices in Singapore and China both sank more than 4%.
  • Vale received approval for the partial resumption of dry-processing operations at the Vargem Grande complex, allowing the return of 5mt to alleviate the forecast shortage. Brazil’s mining regulatory agency had ordered Vale to halt operations at Vargem Grande in February to guarantee the stability of its dams.
  • Vale reaffirmed its guidance for iron ore and pellets sales at 307-332mt in 2019.
  • Iron ore has seen a steep sell-off this week as market sentiment shifts following a run of bearish indicators, with port holdings in China building up, mills’ profitability slipping, steel inventories rising, and predictions for lower iron prices stacking up. Taken together, that’s eroding the rally seen in the first half, which was spurred by supply hits suffered by Vale following a January dam breach, as well as booming demand in top user China.
  • South Korea’s Posco, one of Asia’s top mills outside China, said on Tuesday it expected iron ore to drop back below $100 in the fourth quarter, citing a pick-up in supply after disruptions in Brazil.

Chinese steel rebar 25mm US$612.2/t vs US$616.2/t

Thermal coal (1st year forward cif ARA) US$71.3/t vs US$69.9/t

Coking coal futures Dalian Exchange US$207.8/t vs US$207.8/t

           

Other:  

Cobalt LME 3m US$28,000/t vs US$28,000/t

NdPr Rare Earth Oxide (China) US$43,087/t vs US$43,960/t

Lithium carbonate 99% (China) US$9,082/t vs US$9,083/t

Ferro Vanadium 80% FOB (China) US$37.4/kg vs US$37.3/kg

Antimony Trioxide 99.5% EU (China) US$5.4/kg vs US$5.4/kg

Tungsten APT European US$210-225/mtu vs US$210-225/mtu

 

Battery News

Warsaw orders 130 articulated electric buses from Solaris to replace diesel buses

  • Warsaw has placed an order for 130 articulated electric buses from Polish bus maker Solaris in one of the largest European orders for e-buses to date.
  • Warsaw city transport operator MZA announced it will acquire the 130 buses for PLN 400m ($105m). Solaris said it will deliver its Urbino 18 articulated electric buses to the Polish capital in 2020.
  • MZA says that within two years, there will be no more diesel engine buses running on Warsaw’s Royal Route, a famed stretch of connecting streets with historical landmarks that runs through the heart of the city. The transport operator says the city will have 400 zero- and low-emissions buses in its fleet by that time.
  • Solaris says the order is the “biggest ever tender of its kind in Europe,” though Solaris just won an award to supply Milan with 250 electric buses just a few weeks ago, and Paris has its own massive bus order, albeit with three different manufacturers. In this case, Solaris may be specifically referring to articulated electric buses.
  • The Solaris Urbino 18 electric seats 47 people.

 

Company News

Arc Minerals* (ARCM LN)  4.8p, Mkt Cap £33.7m – Cheyeza East shows 7.6m at 4.15% copper

(The Cheyeza project is 66% owned by Arc Minerals through its holding in Zamsort)

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  • Geologists will be turning malachite green with envy at Arc Mineral’s fourth drill result at Cheyeza East in Zambia
  • Drilling returns CHDDE004:
    • 18.00m at 2.35% Copper from 30.60m down hole including:
      • 7.60m at 4.15% Copper from 39.00m
      • 26.4m at 0.32% copper from 53.6m
  • Location:
  • This latest result is from CHDDE004 which is 300m to the south of CHDDE002 (25m at 1.05%) which is 100m from CHDDE005 (28.5m at 1.32%)
  • Previous results include
  • Drilling at hole CHDDE005 some 200m from hole 4:
    • 28.5m @ 1.32% copper
    • 13m @ 2.31% copper from 26.2m down the hole.
    • 7.5m @ 0.3% from 59.6m
  • These results follow on from:
  • Hole 1:
    • 3.94m, 0.72% copper from 35.8m down hole
  • Hole 2 results:
    • 25m of 1.05% copper mineralisation from just 2m depth including:
      • 1.7% copper over 9.3m from 18.5m depth and
  • 13.34% copper over a short 0.56m intersection from 27m depth.

Conclusion: This is a great result from hole 4 at over 4% copper. This is an exceptional result in our experience. The grade combined with the apparent scale of the prospect indicates a likely economic project from here.

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

 

Arkle Resources* (ARK LN)  1.0p, Mkt Cap £1.3m – Additional gold anomaly identified at Mine River Gold Project

  • Arkle Resources reports that its recent soil sampling programme has identified a new area of anomalous gold geochemistry  extending over approximately 850m located 1km to the west of the original Tombreen discovery.
  • The new target zone is "comprised of three distinct and strongly coherent arsenopyrite anomalies"and "a further 200-m by 200-m strongly anomalous target (target ‘D’) due west of the Tombreen drilling cluster has been identified which is strongly anomalous in gold and does not appear to have an association with arsenopyrite, which is consistent with a model that involves multiple phases mineralisation. "
  • In addition, the programme has extended the Tombreen target by a further 300m to the south-west and by 250m to the north east of the existing drilling.
  • The company says that the adoption of new sampling techniques and a closer sample spacing has provided improved definition of the anomalous areas.
  • Commenting on the results, CEO, Patrick Cullen, said that "The data is better than what we have had to work with in the past: it is higher resolution and demonstrates strongly coherent anomalies as well as confirming the presence of significant concentrations of gold in soil.  Additionally, the XRF data gathered on a suite of elements will have a major impact on our understanding of the mineralisation model. 
  • He also said that following this success the company is looking "forward to rolling he programme out across the project".

Conclusion: The geochemical sol sampling programme has extended the scale of the Tombreen anomaly and identified other anomalous areas to the west. We look forward to further news as the programme is extended more widely across the project.

*SP Angel is Nomad and Joint-Broker to Arkle Resources formerly Connemara Mining

 

Caledonia Mining (CMCL LN)  468p, Mkt Cap £50m – Completion of Shaft Sinking at Blanket

  • Caledonia Mining reports the completion of shaft sinking at the new Central Shaft of the Blanket gold mine in Zimbabwe.
  • The shaft, which is the linchpin of the long term plan to increase gold output to a target of 80,000oz pa from 2022 and extend the mine's life, was completed at a depth of over 1200m at a cost of approximately $44m..
  • Work will now focus on equipping the shaft which is currently expected lead to commissioning during the third quarter of 2020.
  • Commenting on the "important milestone" of the completion of the sinking, CEO, Steve Curtis paid tribute to "the outstanding contribution of Caledonia's technical staff, led by Dana Roets, Caledonia's Chief Operating Officer, who have worked hard over the last five years to ensure that we have reached this point".
  • Mr. Curtis confirmed that "We can now commence the equipping phase, which will take approximately 12 months, after which we can commence the production ramp-up towards our target of 80,000 ounces of gold in 2022".
  • In our opinion, the completion of the shaft sinking phase as well as being a milestone in the company's expansion strategy for the mine also significantly de-risks the project and should reassure investors that the expansion remains on track.
  • We also observe that the prosecution  and completion of the shaft sinking project, while simultaneously maintaining production operations, represents one of the more complex challenges in underground mining and we feel that Mr. Curtis's recognition of the contribution of the technical team is well deserved.

Conclusion: Completion of the shaft-sinking is an important milestone in the long term development of the Blanket gold mine which brings the long-planned production increase within sight and de-risks the completion of a five year long project which should secure the longevity of the operation

 

Cora Gold* (CORA LN)  5.3p, Mkt Cap £5.4m – New exploration permit secured

  • The team secured 100% interest in the Tagan Permit, covering 82km2 across the highly prospective Yanflolila Gold Belt.
  • The license is valid for three years with an option for two extensions of two years each.
  • The permit is located midway between the Sanankoro discovery and the Yanfolila mine and covers the most prospective area in the previously held permit.
  • Historic exploration results returned drill intercepts of 44m at 1.1g/t (AC) and 14m at 1.7g/t (DD).
  • The team identified over 20 priority targets to be followed up by an exploration programme including regional geophysics and shallow reconnaissance drilling.

*SP Angel acts as Nomad and Broker to Cora Gold

 

 

Analysts

John Meyer – 0203 470 0490

Simon Beardsmore – 0203 470 0484

Sergey Raevskiy – 0203 470 0474

James Mills -0203 470 0486

 

Sales

Richard Parlons – 0203 470 0472

Jonathan Williams – 0203 470 0471

Abigail Wayne – 0203 470 0534

Rob Rees – 0203 470 0535

 

SP Angel                                                            

Prince Frederick House

35-39 Maddox Street London

W1S 2PP

 

*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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