SP Angel . Morning View . Trade talks with China restart in Washington this week

SP Angel . Morning View . Monday 07 10 19

Trade talks with China restart in Washington this week

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MiFID II exempt information – see disclaimer below

 

Bezant Resources (BZT LN) – Proposed sale of Mankayan in the Philippines to China Hongxing Sports Limited on Singapore Exchange

Mali Lithium (Birimian Limited) (MLL AU) – Potential 30-40% reduction in trucking costs for Goulamina lithium concentrates to port.

Kodal Minerals (KOD LN) – potential for lower trucking costs could help project

Petra Diamonds (PDL LN) – Blue diamond

 

Dow Jones Industrials		+1.42%	at	26,574
Nikkei 225		-0.16%	at	21,375
HK Hang Seng		CLOSED
Shanghai Composite		CLOSED
FTSE 350 Mining		-0.59%	at	17,261
AIM Basic Resources		-0.36%	at	2,111

 

Economics

US – Equity futures are off marginally this morning as Chinese officials signalled the list of topics they are willing to discuss has narrowed significantly raising risks to successful trade talks resolution.

• VP Liu He who will be meeting with US counterparties in Washington this Thursday is said to not offer any commitments on reforming Chinese industrial policy or the government subsidies that have been the target of longstanding US complaints, according to people familiar with discussions.
• Labour data came in slightly below forecasts while the unemployment rate dropped to the lowest in five decades according to the NFP report released on Friday.
• Employment gains averaged 161k year to date through to September versus 223k recorded through 2018 which suggests major slowdown in gains lately.
• Earnings growth is also slowing.
• While, odds of another rate cut in October came off marginally following the report, markets are still assigning ~75% chance of that happening.
• “This is a muddled middle sort of report… it’s not weak enough to confirm that weakness is spreading from global manufacturing throughout the economy, but not strong enough to suggest that we are immune,” Mohamed El-Erian commented on the data.
• Equities posted a rebound on Friday with S&P 500 up 1.4% while bonds were little changed.
• NFPs: 136k v 168k (revised from 130k) in August and 145k forecast.
• Av Hourly Earnings (%mom/yoy): 0.0/2.9 v 0.4/3.2 in August and 0.2/3.2 forecast.
• Unemployment Rate: 3.5% v 3.7% in August and 3.7% forecast.

 

China/Hong Kong – Markets in China and Hong Kong are closed today.

 

Japan – Leading economic index slumped 2p to 91.7 in August, the lowest level in almost 10 years and down on 91.8 forecast by economists.

• The economy is faced with a number of headwinds ranging from the US/China trade war weighing on overseas trade flows to domestic-related issues in the form of recently hiked sales tax that is expected to challenge consumer demand.

 

Germany – Factory orders posted a 15^th consecutive annual decline in August weighing on growth prospects for export reliant German economy.

• Estimates are currently for the economy to post no growth in Q3/19 after contracting 0.1%qoq in Q2/19.
• Factory Orders (%mom/yoy): -0.6/-6.7 v -2.1/-5.0 in July and -0.3/-6.4 forecast.

 

UK – The pound fell -0.2% vs the Euro and -0.3% against the SU dollar this morning as Brexit deal prospects faded with two sides unable to reach agreement on terms.

• PM Johnson reiterated his stance the UK will leave the EU as planned on Halloween, regardless of whether the EU accepts his latest offer.
• In his conversation with French President Macron, Johnson said the EU shouldn’t be “lured into the mistaken belief that the UK still stay in the EU after Oct.31”.
• Both parties will be trying to strike a deal before a summit of EU leaders set for 17 and 18 October.
• Additionally, the UK government needs to seek a three-month extension of the deadline should it fail to secure a deal or win parliamentary approval for a no-deal Brexit by October 19^th.

 

Currencies

US$1.0964/eur vs 1.0974/eur last week.  Yen 106.88/$ vs 106.78/$.  SAr 15.152/$ vs 15.164/$.  $1.229/gbp vs            $1.234/gbp.  0.674/aud vs 0.676/aud.  CNY 7.148/$ vs 7.148/$.

 

Commodity News

Gold US$1,501/oz vs US$1,509/oz last week

   Gold ETFs 81.3moz vs US$81.3moz last week

Platinum US$876/oz vs US$886/oz last week

Palladium US$1,652/oz vs US$1,663/oz last week

Silver US$17.45/oz vs US$17.60/oz last week

           

Base metals:   

Copper US$ 5,662/t vs US$5,625/t last week

Aluminium US$ 1,719/t vs US$1,722/t last week

Nickel US$ 17,795/t vs US$17,550/t last week - Vale Indonesia expected to sell around 20% stake to Inalum (reuters)

• The Indonesian government has appointed state mining company PT Inalum to purchase a stake that Vale Indonesia intends to sell, according to the Directior General of Coal and Minerals.
• Vale Indonesia are one of the countries biggest nickel producers, and have to divest 20% of its stake to local investors due to laws aimed at limiting foreign ownership.
• Foreign-controlled miners are required to gradually start reducing ownership after five years of production and within ten years, foreign ownership should be cut to at least 49%.
• Inalum and Vale began talks in February this year, aiming to settle divestment before the deadline which is later this month (The Jakarta Post).
• Inalum confirmed in July that they wanted to take the 20% stake in Vale, and estimated it’s value at less than US$1.5 billion. However, the value of the deal has not yet been disclosed.

 

Zinc US$ 2,317/t vs US$2,302/t last week

Lead US$ 2,180/t vs US$2,142/t last week

Tin US$ 16,570/t vs US$16,420/t last week

           

Energy:           

Oil US$58.7/bbl vs US$58.2/bbl last week

Natural Gas US$2.313/mmbtu vs US$2.341/mmbtu last week

Uranium US$25.25/lb vs US$25.35/lb last week

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$88.4/t vs US$88.5/t

Chinese steel rebar 25mm US$559.4/t vs US$559.4/t

Thermal coal (1st year forward cif ARA) US$65.8/t vs US$65.5/t - India’s third largest coal mine flooded (ndtv.com)

• Heavy rain has led to flooding at the Dipka coal mine, in the Chhattisgarh's Korba district of India.
• The mine produces more than 35mt of coal every year, however partly closed last week due to a flooding caused by a nearby river overflowing.
• Large areas of the mine remain submerged, and as a result production has dropped by more than 50% and heavy machinery has also been damaged.
• Authorities say it could take at least a month before the mine is operating at full capacity again.
• According to local media, this could lead to fuel shortage at some Indian power plants, pushing up the demand for imported thermal coal (hellenicshippingnews.com).
• An ongoing supply shortage from Coal India, and the fact coal generates nearly 75% of India’s electricity means that coal imports are likely to increase.
• This comes at time when coal imports by Indian power plans are growing at the fastest rate in five years (qz.com).

 

Navajo Transitional Energy Company becomes third largest coal producer in the US (mining.com)

• The company purchased all of Cloud Peak Energy’s assets, in a bankruptcy auction.
• The purchase comprises of three coal mines in Wyoming and Montana which produced nearly 50mt of coal in 2018 (KallanishEnergy.com).
• Navajo Transitional say they plan to retain all 1,200 employees that work at the mines.
• The company will make a US$15.7m cash payment for the three mines, in addition to a $40m second lien promissory note, along with coal royalties for the next five years.
• According to the company, the new acquisitions along with its existing mine in New Mexico will bring in additional revenues of $1bn for the firm.

 

Coking coal futures Dalian Exchange US$181.8/t vs US$181.8/t

           

Other:  

Cobalt LME 3m US$34,500/t vs US$36,000/t

NdPr Rare Earth Oxide (China) US$44,416/t vs US$44,416/t

Lithium carbonate 99% (China) US$6,925/t vs US$6,925/t

Ferro Vanadium 80% FOB (China) US$38.3/kg vs US$38.3/kg

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

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

 

 

Company News

Bezant Resources (BZT LN)  0.245p, Mkt Cap £2.4m – Proposed sale of Mankayan in the Philippines to China Hongxing Sports Limited on Singapore Exchange

• Bezant Resources proposes the sale of 80% of its interest in Mankayan copper, gold project in the Philipines to Minerals Industries Holding Pte Ltd. into which China Hongxing Sports Limited will reverse.
• Minerals Industries Holding Pte Ltd (eg. China Hongxing Sports Limited) are offering:
  • a funding commitment of up to US$2.25m (approximately £1.82m) to be deployed, inter alia, to satisfy the Exploration Period Requirements;
  • subject to the MPSA being renewed following completion of the Exploration Period Requirements to the satisfaction of the relevant Philippine authorities, a further funding commitment of up to S$5.5m (approximately £3.23m) to be applied in undertaking a definitive feasibility study; and
  • the issue of S$10m (approximately £5.87m) of shares in CHX or other listed entity holding MMJV on the Singapore Stock Exchange ("ListCo"), subject to successful completion of the abovementioned RTO Transaction..
• Mankayan (Luzon island, Philippines); has a JORC (2004) indicated mineral resource of:
  • 221.6mt grading 0.49% copper, 0.52g/t gold
  • + inferred resource of 36.2mt grading 0.44% copper, 0.48g/t gold.
  • Optimisation of possible mine plans give:
  • Price assumptions US$3.00/lb and a gold price of US$1250/oz:
  • pre-tax NPV_8.5% of US$2.06bn and 29% IRR over a 23yr LOM assuming a 24mtpa twin block-caving plan (taken over two lifts) and costing a total of US$6.356bn and an initial US$1.4bn,
  • pre-tax NPV8.5% of 1.52bn and 27% IRR over a 34yr LOM assuming a 12mtpa four stage block caving plan taken over two lifts which costs a total of 6.032bn and an initial US$896m,
  • NPV8.5% of US$1.06bn and an IRR of 21% assuming a scaled development starting with an initial 6mtpa block cave followed by 3 12mtpa block caves which extends mine life to 38 years at an overall capital cost of US$6.2bn  but reduces the initial capital cost to US$633m,
  • NPV 8.5% of US$562m and IRR of 14% over a 58yr LOM, assuming a 6mtpa initial sub-level caving option followed by three 6mtpa block caves with an initial cost of US$529m and an overall capital cost of US$6.019bn.
  • Each of the main options in the Mankayan study are expected to cost >US$6bn with NPVs of
• Buffalo project (50%) (Zambia); reports some interesting copper grades in the pit face and sidewall mineralisation. The project is located in the Central Zambian iron oxide copper-gold belt
• The Central Zambian iron oxide copper-gold belt includes the Jifumpa copper mine, the Kalengwa mine (prod’n est. 1.9mt grading 9.44% copper, 50 g/t silver), Kitumba (Mumbwa) JORC Indicated Mineral Resource 87.6Mt grading 1.17% copper, inc. 29.8Mt grading 2.13% Cu. Kitumba was acquired by Weatherley Internation which went into Administration last year following flooding at its Tschudi mine in Namibia.
• Bezant had cash and cash equivalents of £69,000 at end June this year vs £1.1m a year earlier and £0.56m at end December.

Conclusion: Management have done well to secure funding to advance the Mankayan project in the Philippines. The next trick will be to secure funding for the Zambian assets where we would expect there to be considerable interest from other mining companies and major investors.

 

Mali Lithium (Birimian Limited) (MLL AU) A$0.077, Mkt Cap A$20.4m – Potential 30-40% reduction in trucking costs for Goulamina lithium concentrates to port.

Kodal Minerals (KOD LN)  0.053p, Mkt Cap £4.7m

• Mali Lithium formerly known as Birimian Lithium reports on the optimisation of infrastructure relating to the Goulamina lithium project in Mali.
• Management claim to have significantly reduced the project risk as a result of the optimisation.
• Power: The team are in discussion to buy hydropower from the Selingue Dam in addition to on-site diesel power generation.
• Trucking: Reduced trucking distance and use of empty trucks heading to the Port from Bamako should cut trucking costs.
• Discussions are ongoing with a company that is due to truck clinker to a new cement plant in Bamako, Mali through the backloading of trucks returning empty to ports in Abijan.
• This could potentially cut trucking costs by 30-40%.
• The mine site is around 1,050km from the San Pedro port in the Ivory Coast which is 142km shorter for trucking by road.
• The government of the Ivory Coast is spending €1.8bn on upgrading its road infrastructure with a US$58m project now due for completion at end 2020.
• Water: The company has received a license to pump water from the nearby Selingue Dam, 29km away, an important resource in this semi-arid area.
• Water volumes from the dam will be adjusted according to local boreholes and local water recovery.
• Metallurgical testwork: Mali Lithium also released metallurgical testwork results on 17^th September reporting results with 80% overall recovery in the lab indicating that actual plant performance of 70% as used in the PFS should be improved on.
• We understand that Chinese processing plants now prefer a coarser grain of spodumene in preference to finer grain lithium and have been refusing spodumene concentrate shipments which do not suit their process plants.
• While we can check the mineralogy of the spodumene ore for grain size we really need to see positive indications from consumers following bulk sample processing to better de-risk this element of the project.
• China Minmetals Corp is to test ore from Goulamina at its Lab in Changsha and sounds set to expand its relationship with Mali Lithium.
• Goulimina has a probable ore reserve of 31.2Mt grading 1.56% Li2O3 for a 16-year mine life on current planning.

Conclusion:  Mali Lithium have done well to fund a cheaper trucking option to port. We now await news on Goulamina ore testing from the China Minmetals Corp lab in Changsha, China.

*SP Angel acts as Nomad and broker to Kodal minerals

 

Petra Diamonds (PDL LN)  6.75p, Mkt Cap £58.4m – Blue diamond

• Petra Diamonds is to offer a 20.08carat blue diamond recovered from the Cullinan mine during September for sale at a special tender.
• When the recovery of this Type IIb diamond was announced in September, the company explained that “the Cullinan diamond mine remains a significant source of rare blue diamonds … [and that its recovery demonstrated] … the ability of the mine's plant to recover the full spectrum of diamonds”.
• Under Petra’s management, the Cullinan mine has previously produced blue diamonds, including a 122.52 carat blue diamond recovered in June 2014 which subsequently sold for US$27.6m.
• Typically, blue diamonds contain microscopic amounts of boron which gives them their rare colour. The Orapa mine in Botswana yielded the “Okavango Blue” diamond  last year and perhaps the best known example is the “Hope” diamond which is thought to originate from Golconda in India, later formed part of the French crown-jewels and is now on display at the Smithsonian Institute’s Museum of Natural History in Washington DC.

 

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

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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