SP Angel – Morning View – Thursday 02 05 19
Latest deal signals bullish for accelerating lithium demand
MiFID II exempt information – see disclaimer below
African Battery Metals* (ABM LN) – Kisinka copper-cobalt project update
Bushveld Minerals* (BMN LN) – BUY – Acquisition of Vanchem unlock Mokopane Vanadium Project adding a further 4,200tpa of vanadium production
Chaarat Gold* (CHG LN) – $2.7m placing
Goldstone Resources (GRL LN) – Homase pit update
Australian conglomerate joins race for lithium battery metals
- Australian conglomerate Wesfarmers aims to gain exposure to the rapidly developing global EV battery story, agreeing to pay A$776m for Kidman Resources, a lithium mine and refinery developer. Kidman, which expects the venture with SQM to deliver refined products by the second half of 2021, already has struck supply deals with Tesla Inc., battery producer LG Chem Ltd. and Mitsui & Co.
- The A$1.90 cash a share proposal, a 47% premium to Kidman’s Wednesday close, would give Wesfarmers a 50% share of a joint venture with Sociedad Quimica y Minera de Chile SA, an industry leader.
- Entrance into the growing technology industries follows the company’s A$1.5bn proposal to acquire rare earth producer Lynas Corp.
- Managing Director Rob Scott added “the acquisition of Kidman provides an opportunity to invest in and develop a large-scale, long-life and high-grade lithium hydroxide project in Western Australia.”
- While the lithium market sits in a lull ahead of massive growth forecasts, the market is expected to tighten on rising adoption of battery-powered vehicles and energy storage systems, with major Albemarle forecasting 21% annual expansion.
- The joint Kidman-SQM venture is set to producer around 45,000tpa battery-grade lithium hydroxide, with Wesfarmers’ share of development costs totaling around A$600m.
- Kidman and SQM’s proposed lithium hydroxide refinery in Kwinana, Western Australia, is close to existing Wesfarmers facilities in the industrial hub south of Perth.
- “Wesfarmers has significant local infrastructure, experience and capability in chemical processing”, SQM’s CEO Ricardo Ramos said. The facility has the potential to be among the world’s lowest-cost sources of lithium.
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Economics
US – Stocks and Treasuries pulled back while gold dropped to $1,270/oz mark as the Fed downplayed market expectations that the next move may be a rate curt.
- “We do think out policy stance is appropriate right now – we don’t see a strong case for moving in either direction,” Jerome Powell said yesterday.
- The central bank left the federal funds rate unchanged at 2.25-2.50% while slightly reducing the rate paid on excess reserves to 2.35%, down from 2.40%. The move is said to stimulate more trading in the fed funds market in an attempt to get better control over short-term rates.
- US delegation called the latest round of trade talks in Beijing productive while separate sources say the deal is “possible” by next Friday.
China – Corporates post the worst set of earnings on record in 2018 reflecting the effect of ongoing trade tensions.
- The share of loss making companies climbed to an all-time high of 12.5% and double the number recorded in 2017.
- Technology stocks were among the worst hit.
- Goodwill impairment soared to a record CNY 166bn ($24.7bn) last year.
Eurozone – Final Manufacturing PMI data for April showed the sector continued to contract though at a slightly lower pace with Germany leading the downturn.
- Germany (44.4), Italy (49.1) and Austria (49.2) PMIs were in the red while France reported no change in output (50.0).
- Spain, Netherlands, Ireland and Greece were all up while the latter posted the highest reading in nearly 19 years.
Germany – Poor economic data released today with retail sales reported to have posted a decline in March while Markit revised its April manufacturing PMI down (although only marginally).
- Sales were down 2.1%yoy as consumers delayed pre-Easter shopping until April due to the timing of the holiday.
- While April PMI ticked up from the March’s 80-month on slower declines in output and new orders, “we perhaps wont’s have a clear picture of whether the sector’s downturn has bottomed out until the May flash results are published later this month”, Markit said.
- Retail Sales (%mom/yoy): -0.2/-2.1 v 0.5/4.4 in February and -0.5/+2.9 forecast.
Italy – Manufacturing sector remains in the contraction territory, although the pace of declines slowed down in April.
- Firms recorded a ninth consecutive decline in both output and new orders.
- On a positive note, export orders grew at the strongest pace since June last year while employment growth was at a six month high.
- “If the current trends for new business continue, the stage is set for a return to growth in output over the coming months,” Markit commented on the data.
- The economy stagnated in Q1/19 after re-emerging from a short recession recorded in H2/18, while S&P has confirmed its BBB credit rating with a negative outlook in late April. The agency expects the economy to stagnate over the next several years.
- Markit Manufacturing PMI: 49.1 v 47.4 in March and 47.8 forecast.
Spain – Manufacturing growth climbs despite a challenging international demand environment, Markit reported this morning.
- Both production and new orders recorded stronger gains compared to March.
- The data comes on the heels of good GDP growth numbers released earlier this week showing the economy climbed 0.7%qoq in Q1/19, up on 0.6%qoq recorded in Q4/18.
- This is nearly twice the rate recorded for the Euro zone region (0.4%qoq in Q1/19 and 0.2%qoq in Q4/18).
- The Economy Ministry estimates the economy to grow 2.2% this year and 1.9% in 2020 which would mark a deceleration from rates seen in 2015-18, but still more than most of the Euro zone members.
Currencies
US$1.1198/eur vs 1.1188/eur last week Yen 111.45/$ vs 111.38/$ SAr 14.452/$ vs 14.373/$ $1.307/gbp vs $1.295/gbp 0.702/aud vs 0.704/aud CNY 6.735/$ vs 6.739/$
Commodity News
Precious metals:
Gold US$1,272/oz vs US$1,284/oz yesterday
- Gold retreated for a second day following Federal Reserve meeting keeping rates unchanged, with Chairman Jerome Powell reporting the central bank has no bias to either tighten or ease, while playing down recent weakness in inflation.
- U.S. jobs data for April due Friday may provide further clues on the resilience of the economy, as well the outlook for monetary policy over the rest of 2019.
- Investors also weigh a CNBC report that said it could be possible the US and China announcing a trade deal as soon as next Friday, citing unidentified sources.
- Despite falling prices, first-quarter gold purchases by central banks, led by Russia and China, were the highest in six years as countries diversify their assets away from the dollar.
- Demand in India, the second-biggest gold-buying nation, is likely to be boosted this quarter because of the traditional wedding season purchases, the auspicious Akshaya Tritiya festival and rising crop prices, says P.R. Somasundaram, managing director for India at the World Gold Council.
Gold ETFs 70.9moz vs US$70.9moz yesterday
Platinum US$865/oz vs US$899/oz yesterday
Palladium US$1,351/oz vs US$1,372/oz yesterday
- Palladium futures, contracts for June delivery, tumbled as much as -5.7% on the Nymex, the lowest level for the most-active futures since early April and extending the fall to -10% this week.
- J.D. Power expects April auto sales of about 1.4 million cars and trucks, a decline of about 3.5% vs. April 2018 based on the daily selling rate, when automakers in the U.S. market report April sales on May 1.
Silver US$14.65/oz vs US$14.96/oz yesterday
Base metals:
Copper US$ 6,219/t vs US$6,396/t yesterday
Aluminium US$ 1,823/t vs US$1,828/t yesterday
Nickel US$ 12,160/t vs US$12,410/t yesterday
Zinc US$ 2,736/t vs US$2,792/t yesterday
Lead US$ 1,866/t vs US$1,969/t yesterday
Tin US$ 19,585/t vs US$19,655/t yesterday
Energy:
Oil US$71.8/bbl vs US$72.3/bbl yesterday
Natural Gas US$2.615/mmbtu vs US$2.593/mmbtu yesterday
Uranium US$25.20/lb vs US$25.30/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$91.4/t vs US$91.5/t
Chinese steel rebar 25mm US$646.0/t vs US$645.6/t
Thermal coal (1st year forward cif ARA) US$69.0/t vs US$71.2/t
Coking coal futures Dalian Exchange US$179.4/t vs US$173.1/t
Other:
Cobalt LME 3m US$34,500/t vs US$34,500/t
NdPr Rare Earth Oxide (China) US$39,866/t vs US$39,841/t
Lithium carbonate 99% (China) US$9,725/t vs US$9,719/t
Ferro Vanadium 80% FOB (China) US$51.0/kg vs US$51.0/kg
Antimony Trioxide 99.5% EU (China) US$6.1/kg vs US$6.1/kg
Tungsten APT European US$270-282/mtu vs US$270-282/mtu
Battery News
UK needs to accelerate all-electric car targets to 2030
- Government advisers are recommending accelerating fully electric transportation from 2040 by as much as a decade, banning the sale of new diesel and petrol cars by that time.
- The UK’s Committee on Climate Change believes price parity between ICE and EVs will be reached by 2024-25, therefore setting 2030 as a “feasible” date for the ban.
- Setting an earlier date would do more to ensure diesel and petrol cars are off the road by 2050, when the UK government is aiming for zero carbon emissions in total.
- France is also aiming to be zero emissions by 2040. Israel, Ireland, and The Netherlands are all aiming for 2030. Norway has the most ambitious target of all — 2025 — and it’s setting the pace right now.
US has battery problem in race for electric car supremacy
- Most of the raw materials needed to make batteries for electric vehicles are dug outside of the U.S. one of the weak links to the country’s push to challenge China’s dominance in the production and sale of EV’s.
- Boosting local production of the raw minerals would be the first step toward building out a rechargeable battery industry that’s so far been concentrated in Asia.
- The U.S. controls only about 13% of the global lithium cell production capacity, with no growth expected, according to BloombergNEF. China now controls about two-thirds of that industry and BNEF is forecasting it could grow to about 73% by 2021.
- About half of the world’s electric vehicles are sold in China, a figure that’s on the rise. Sales jumped by 150% during the first quarter of 2018, compared with the previous year, according to BNEF.
- "You can’t build half a million electric vehicle battery packs without a secure supply of several critical raw materials," said Chris Berry, a battery-metals analyst at House Mountain Partners. "If the U.S. lags in the build out of lithium or cathode capacity, its supply chain dynamism and competitiveness around the new energy theme is put at risk."
- The metals needed in making rechargeable batteries used in everything from Tesla’s to energy storage to iPhones, include graphite, manganese, nickel, cobalt and lithium. The U.S. imports at least half of each of those metal requirements, according to the U.S. Geological Survey.
- "There’s no reason why companies can’t raise capital and build and operate lithium mines in the U.S," Berry said. "The permitting process can be somewhat longer in the US relative to other parts of the world, but with so much focus on sustainability and transparency of the supply chain, environmental safeguards are a must.
- No lithium mines are expected to start producing in the U.S. over the next three years and no substantial lithium production is set to hit global markets within the next five years, according to Bloomberg Intelligence chemicals analyst Christopher Perrella.
- Still, some junior mining companies are looking to build new mines over the medium and long term. Vancouver-based Lithium Americas Corp is hoping to have permits approved for its Thacker Pass project in Nevada in 2020. Construction of the mine, with an initial annual capacity of 30,000t, could start next year if the company can raise the $581m needed to build it.
Company News
African Battery Metals* (ABM LN) 0.4p, Mkt Cap £1.4m – Kisinka copper-cobalt project update
- Exploration activities at African Battery Metals’ Kisinka copper-cobalt project recommenced on 12 April, with the field camp established to base the 14 staff.
- Ongoing termite mound sampling has produced 248 samples which are in transfer to the operational office to all preparation and analysis.
- Executive Director Paul Johnson adds "after quite a gap in operational activity for the Company I am pleased to advise that operations are now underway at Kisinka where we are targeting copper-cobalt mineralisation in a highly prospective region.”
*SP Angel act as broker to African Battery Metals
Bushveld Minerals* (BMN LN) 32p, Mkt Cap £358m – Acquisition of Vanchem unlocks Mokopane Project adding >4,000mtVpa of vanadium production
BUY – Target price and new forecasts to follow in flash note
- Bushveld management have been looking over the fence at Vanchem in South Africa as the best and most cost-effective way of developing the project.
- The deal to acquire Vanchem out of Business Administration is for $68m in cash is subject to regulatory approvals.
- US$6.8m is to be paid in cash on 30 April 2019 plus US$61.2m settled no sooner than 31 July 2019 and no later than 31 October 2019.
- Vanchem production is currently reduced to just 960mtVpa due to a lack of suitable feedstock and constrained resources.
- Capital expenditure of $45m is planned to restore the plant to 4,200mtVpa of production off what is probably >5,000mtVpa of capacity
- Developing the new open cast mine and infrastructure at Mokopane will cost just $20m which added to the $68m acquisition cost and $45m of capital is just $133m vs the previously estimated development cost at Mokopane of $298m.
- Mokopane ore is a very high 70% magnetite which serves to offset transport and logistics costs when compared with Vametco.
- The acquisition also adds immediately to Bushveld vanadium production without adding any new vanadium to the market enabling management to take advantages of current vanadium prices.
- Vanchem is a cheap deal for Bushveld as the business was starved of feedstock and was forced into business rescue by the closure of Highveld which formerly supplied feedstock to the Vanchem plant. We note some modification will be done to adjust to feedstock from Mokopane.
- Vanchem is a large chemicals business focussed on vanadium chemicals and products. It has multiple product streams and lots of big kit for spare capacity. It is also well connected to Vametco and Mokopane by rail and road which gives increased flexibility in its operations and potential for create for more value-added products.
- Remarkably, Vanchem is a significantly cheaper acquisition on a per tonne of capacity basis than the Vametco deal due to its distressed state, need for feedstock and capex requirements.
- Production is currently running off just one of three kilns and the new $45m capital program to ramp up production over the next five years is seen as relatively cautious.
- The plan allows for existing production to continue while refurbishing capacity which was recently mothballed for lack of feed. Hopefully reality will be faster given the presence of so much infrastructure at site.
- The strategy simply replaces vanadium production which was lost to the market after Highveld closed and should have little impact on vanadium prices.
- Highveld Steel closed in 2016 left for dead by Evraz, its Russian owner which cut around 1,800 jobs in the process. There are press reports suggesting the plant might reopen sometime though this may require higher steel prices.
- Vanadium remains in structural deficit in the market according to Bushveld supported by 2.5% compound demand growth from steel and chemicals and potential for CAGR growth of up to 8.4% driven by vanadium redox batteries.
- Vanadium prices have fallen this year due to China’s failure to fully implement its new standards on vanadium content in steel rebar. The result is that many smaller steel mills are still making brittle steel by quenching and tempering which is not good if there is ground movement or unexpected strain put on its reinforced structure.
- Chinese officials are being punished for failure to implement government policies and we expect more officials to move to impose standards rather than risk several years in a correctional facility.
- We have adjusted our model to replace our forecast $150m expansion at Vametco with new production from. While we suspect management will be busy restoring production at Vanchem it is possible that Vametco could further expand in time if the supply deficit widens and prices continue to support additional supply. This is good news for consumers as it offers the prospect for further vanadium supply into a market which could potentially see longer term constraint.
Conclusion: This is a great deal for Bushveld. It effectively accelerated the planned expansion in vanadium production at lower capital cost and with lower technical risk. It also broadens the range of value-added vanadium products and enables greater operational flexibility. All good things in an acquisition. Numbers to follow
*SP Angel acts as Nomad & broker to Bushveld Minerals.
Chaarat Gold* (CHG LN) 27p, Mkt Cap £107m - $2.7m placing
- The Company closed the $2.7m equity placing issuing 6.9m shares at 30p, a premium to the levels the stock was trading recently.
- The issue comes in addition to the commitment to subscribe for $10m of convertible bonds announced and secured earlier in April.
- The proceeds will used for exploration work as well as development at Tulkubash with updated Feasibility Study due in Q2/19, heap leach pad construction start in Q3/19 and first gold in Q3/21.
- The capital raise together with the Ciftay JV agreement (Ciftay is investing $31.5m for 12.5% interest in Tulkubash and Kyzyltash projects) provides a “significant milestone for the funding of Tulkubash and a vote of investor confidence in Chaarat’s wider growth strategy”, the Company commented.
*SP Angel acts as Broker to Chaarat Gold
Goldstone Resources (GRL LN) 1.6p, Mkt Cap £4.0m –Homase pit update
- Goldstone Resources has provided a progress report on its continuing work to establish an open pit gold mining operation on the Akrokeri-Homase property which lies at the northern end of the renowned Ashanti Gold Belt in Ghana and some 12km from the major, century old, Obuasi gold mine which was reopened by Ghana’s President Nana Addo Dankwa Akufo-Addo in January this year.
- Goldstone Resources’ work includes metallurgical testing where pilot-plant work undertaken At the University of Mines and Technology in Tarkwa, on a 2.5t sample demonstrated that heap leaching yielded a recovery rate of 87.5% of the gold after 60 days.
- The material is known to contain coarse gold particles, which might be expected to take longer to leach, and hence the results exceeded the company’s “initial expectations and … [endorse] … plans for an initial gravity and combined heap leach facility to minimise capex”.
- In addition to the metallurgical work, the company has completed “Trenching over 900 metres at the proposed Homase North Pit completed, with six out of eight trenches encountering above cut-off mineralisation and the highest individual assay at 3.87 g/t Au (1 metre cut)”.
- The company provides further details that over 97% of the 901 samples from the trenching programme at Homase North exceeded the planned cut-off and included the widest intersection of 26m averaging 0.71g/t gold, the highest grade intersection of 1.82g/t over 3m and the highest individual sample assay of 3.87g/t gold over a single metre.
- Further trenching work has been completed over the parallel Adubriem and Krodua structures and assay results “are expected within the next few weeks”.
- The company is also starting work on the “potential new Homase Central Pit … immediately to the north of the existing Homase Pit that was mined by AngloGold Ashanti in 2002/3 and to the south of the proposed Homase North Pit.”
- Recent field investigation has shown that a previously recorded surface waste dump from the earlier phase of mining “may be considerably smaller than previously believed. Accordingly, a survey of this is being considered to confirm the amount of material needed to be moved.”
- The “Definitive Economic Plan” which is required as part of submissions to Government for approval is nearing completion and is expected to be submitted during May. Baseline work for the company’s Environmental Impact Assessment study is also nearing completion.
- Commenting on the progress, CEO, Emma Priestly, explained that “Operations are progressing in line with our commitment to move rapidly towards establishing our first operating gold mine within the Homase Trend.” She went on to report that “The initial results from the bulk heap leach test work are extremely encouraging and are an endorsement of our plans to achieve early stage cash flow with minimal capital expenditure via a low tonnage, gravity and combined heap leach facility.”
Conclusion: Goldstone Resources’ work in Ghana is advancing on a number of fronts with metallurgical testing demonstrating the potential of a combination of gravity and heap leach recovery while additional exploratory trenching is helping to assess a number of structures parallel to the main 8km long Homase trend and the preparation of some of the documents required for permitting is nearing completion.
Analysts
John Meyer – 0203 470 0490
Simon Beardsmore – 0203 470 0484
Sergey Raevskiy – 0203 470 0474
James Mills -0203 470 0496
Sales
Richard Parlons – 0203 470 0472
Jonathan Williams – 0203 470 0471
Abagail Wayne – 0203 470 0534
Rob Rees – 0203 470 0535
SP Angel
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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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