SP Angel . Morning View . Gold hits $1,600/oz as Iran attacks US bases in Iraq

SP Angel . Morning View . Wednesday 08 01 20

Gold hits $1,600/oz as Iran attacks US bases in Iraq

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Arc Minerals* (ARCM LN) – Long intercept of copper at Cheyeza East raises prospect of much larger copper resource

Sirius Minerals (SXX LN) – Sirius in discussion with Anglo American

Trans-Siberian Gold (TSG LN) – Asacha mineral resource update

 

M&A activity rises in the mining sector with an imminent offer for Sirius Minerals likely and the sale of Reading Alloys

 

Kymera International to buy Reading Alloys for US$250m from

• Reading Alloys supplies titanium alloys for aerospace.
• Reading also produces master alloys, thermal barrier coatings and titanium powders.
• The company has sales of ~$160mpa
• Kymera is owned by affiliates of Palladium Equity Partners

 

EHang conducts trial flight of automonous aerial vehicle

• The large scale drone is a two passenger vehicle and has flight approval from the FAA

 

Volkswagen boosts EV production target to 1.5m by 2025 (Energy Live News)

• VW has announced plans to produce 1m EVs by 2023, a milestone it previously expected to hit by 2025.
• The automaker has already produced 250,000 battery and hybrid EVs to date, including 70,000 last year alone (Green Biz).
• The company said in a statement that it aims to become the world market leader in e-mobility, by investing $36.95bn in developing the EV range by 2024.

 

Dow Jones Industrials		-0.42%	at	28,584
Nikkei 225		-1.57%	at	23,205
HK Hang Seng		-0.83%	at	28,088
Shanghai Composite		-1.22%	at	3,067
FTSE 350 Mining		+0.11%	at	19,006
AIM Basic Resources		-0.56%	at	2,141

 

Economics

News over military strikes of US bases in Iraq supported the risk off sentiment seeing gold, US government debt prices and Japanese yen higher.

• Brent climbed as high as $71.75 on initial announcement of missile strike coming in close to highs set in mid-September after attacks on Saudi oil facilities.
• US Treasury yields pulled back before climbing back and the yen climbed to its strongest level in three months of 170.71 before giving up most of its gains.
• Gold climbed more than 2% to $1,601/oz, the highest level in almost seven years, and is currently trading around $1,585/oz.

 

Germany – Factory orders unexpectedly drop in November on weak foreign demand posting the steepest decline since July.

• On a positive note, the Economy Ministry highlighted that manufacturing sector outlook improved slightly.
• Industrial orders dropped 1.3%mom compared to a 0.2%mo increase in October (revised from a 0.4%mom decline).

 

UK – PM Johnson is set to meet with EU Commission President Ursula von der Leyen and EU Brexit negotiator Michel Barnier on post-Brexit trade talks today.

• UK house prices posted the strongest monthly increase in nearly 13 years in December (+1.7%mom/+4.0%yoy), according to Halifax data.
• “Longer-term issues such as shortage of homes for sale and low levels of house-building will continue to limit supply, while the ongoing challenges faced by prospective buyers in raising to limit supply, while the ongoing challenges faced by prospective buyers in raising deposits will serve to constrain demand,” Halifax wrote.
• “As a result, we expect a modest pace of gains to continue into next year.”

 

Iran – Iran fired more than a dozen ballistic missiles at US military bases in Iraq as the conflict between two nations escalated.

• Al-Assad base in Iraq’s Anbar province and a facility in Erbil, in the autonomous Iraqi Kurdistan region, were targeted, according to the US Pentagon.
• Assessment of casualties and damages is currently in progress while Iranian state television is claiming that an attack left at least 80 “American terrorists” dead.
• Citing a senior Revolutionary Guards Corps source, the state television also said Iran had 100 other targets in the region in its sights if the US decided to retaliate.
• President Trump is expected to make a statement later today.
• Parliament of Iran has unanimously passed a bill yesterday designating the US military forces and employees of the Pentagon and affiliated organisations as “terrorists”.
• “Any aid to these forces, including military, intelligence, financial, technical, service or logistical, will be considered as cooperation in a terrorist act,” the bill read.
• Separately, an airplane carrying 167 passengers and nine crew members flying from Tehran to Kiev crashed shortly after take-off from Tehran’s international airport.
• The Ukrainian Embassy in Tehran ruled out terrorism or a consequence of military action as causes of the crash with preliminary information suggesting it might have been an engine malfunction that caused the tragedy.
• Iran’s Civil Aviation Authority said it had launched an investigation.
• The 737-800 Boeing is reported to have been using a different software system to the one utilised in the Max 8 series while the airplane is said to be new operating since 2016 and having gone through a routine maintenance check on Monday.
• Ukraine International Airlines said it had indefinitely suspended flights to Tehran after the crash.
• Death toll rises to 56 during crush at Suleimani funeral (RTE)

• Estimates suggest some 213 have been injured
• Militants fired missiles into US airbases in Iraq last night. No casualties have been reported.

 

Turkey – The government offered to mediate between the US and Iran.

 

Currencies

US$1.1131/eur vs 1.1181/eur yesterday.  Yen 108.46/$ vs 108.43/$.  SAr 14.238/$ vs 14.201/$.  $1.315/gbp vs $1.318/gbp.  0.687/aud vs 0.689/aud.  CNY 6.943/$ vs  6.937/$.

 

Commodity News

Gold US$1,580/oz vs US$1,566/oz yesterday - Gold price scales $1,600 after Iran attacks US-Iraqi base (Kitco)

• Spot gold prices hit their highest since March 2013 at $1,611/oz as US bases and other locations have come under attack early on Wednesday, hours after the funeral of Iranian commander Qasem Soleimani.
• Gold futures marked a 10^th straight climb on Tuesday, the longest streak of gains in two years (Market Watch).
• Historically, gold gains driven by geopolitical uncertainty alone may be short lived, however several other factors are currently supportive of gold including a weaker dollar and uncertainty over the US-China trade deal (mining.com).

   Gold ETFs 81.6moz vs US$81.6moz yesterday

Platinum US$964/oz vs US$967/oz yesterday

Palladium US$2,079/oz vs US$2,026/oz yesterday

Silver US$18.39/oz vs US$18.12/oz yesterday

           

Base metals:   

Copper US$ 6,168/t vs US$6,154/t yesterday

Aluminium US$ 1,804/t vs US$1,830/t yesterday

Nickel US$ 13,850/t vs US$13,930/t yesterday

Zinc US$ 2,366/t vs US$2,337/t yesterday

Lead US$ 1,912/t vs US$1,928/t yesterday

Tin US$ 16,955/t vs US$16,920/t yesterday

           

Energy:           

Oil US$68.6/bbl vs US$68.6/bbl yesterday

Natural Gas US$2.171/mmbtu vs US$2.125/mmbtu yesterday

Uranium US$24.70/lb vs US$25.80/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$93.3/t vs US$92.8/t - Chinese iron ore futures jump on strong restocking demand (Reuters)

• Dalian iron ore futures in China surged on Wednesday, rising as much as 2.9%.
• The most active May contract for iron ore futures rose 2.7% to $98.43/t.
• Steel mills in southern and eastern China are believed to be actively restocking before the upcoming Spring Festival Holiday.  
• Tianfeng Futures wrote in a note that they expect steel mills in northern China to replenish at least another 1.95mt before the holiday.

Chinese steel rebar 25mm US$567.4/t vs US$567.7/t

Thermal coal (1st year forward cif ARA) US$64.7/t vs US$63.7/t - BHP looks to India for future coal growth (Sydney Morning Herald)

• BHP believes that the Industrialisation of India and acceleration of its steelmaking output could help offset the flattening demand of China feared in the 2020s.
• According to BHP projections, Indian steelmaking is on course to grow by 7% per year over the next decade.
• India has substantial reserves of iron ore, however steelmakers import the bulk of their coal due to scarce domestic production.
• India’s yearly output of over 100mt of steel is second only to China (mining.com).

Coking coal futures Dalian Exchange US$178.5/t vs US$176.9/t

 

Other:  

Cobalt LME 3m US$32,000/t vs US$32,250/t

NdPr Rare Earth Oxide (China) US$40,330/t vs US$40,147/t

Lithium carbonate 99% (China) US$5,689/t vs US$5,694/t

Ferro Vanadium 80% FOB (China) US$28.5/kg vs US$28.5/kg

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

Tungsten APT European US$235-245/mtu vs US$235-245/mtu

Graphite flake 94% C, -100 mesh, fob China US$540/t vs US$540/t

Graphite spherical 99.95% C, 15 microns, fob China US$2,550/t vs US$2,550/t

 

Battery News

Li-Cycle reports first shipment of recycled battery material (Mining.com)

• Canadian company Li-Cycle yesterday reported that it shipped its first batch of commercially recycled battery material in December.

• The Company have developed a two-stage recovery process capable of achieving 80-100% recycle rates of lithium ion battery material (Energy Storage News).
• By 2040 there are projected to be 559m electric vehicles on the road and there is as yet no sustainable, commercially viable system for disposing of the spent battery material.
• Capacity on their Canadian site today is 5000t, but they are still to scale to full capacity. 

 

Company News

Arc Minerals* (ARCM LN)  2.5p, Mkt Cap £18.4m – Long intercept of copper at Cheyeza East raises prospect of much larger copper resource

Arc Minerals holds an effective 71.34% interest in Zamsort Limited ("Zamsort"), a private company focused on a prospective copper licence in the Zambia Copperbelt, together with a convertible loan to Zamsort which converts into approximately a 5% additional equity interest in Zamsort. A 52.5% equity interest in Zaco Limited (“Zaco”), a private company focussed on a prospective copper and cobalt license adjacent to Zamsort.

STRONG BUY

• Arc Minerals’ show some unexpectedly large intersections in their latest set of reported drill results from the Cheyeza East discovery in the west of Zambia.
• Mineralisation starts at just 7.5m down the hole from surface at drill collar CHDDE058 grading 0.61% copper over 68.75m  with three higher grade sections within the drill hole.
• Drill assays
• Hole 58 - 68.75m grading 0.61% copper from 7.50m down hole
  • Including 1.14% copper over 8.00m from 11.50m  down the hole
  • o  1.09% Cu over 3.00m from 41.50m; and
  • o  1.14% Cu over 11.50m from 61.50m
• Hole 61 - 26.50m grading 0.99% Cu from 18.50m down hole
  • o  Includes 1.63% Cu over 9.50m from 35.50m
• Hole 62 - 33.00m grading 0.71% copper from 18.00m down the hole
  • o  Includes 0.92% Cu over 4.50m from 23.50m; and
  • o  1.44% Cu over 8.5m from 42.50m
• This long intersection follows on from other increasingly long sections of mineralisation reported in drilling in recent months.
• While the sections reported are not true widths they do represent very good intersections of copper with significant copper grade.
• There are also a significant number of intercepts running at >1% copper which should help the economics.
• Previous copper intersections from 5^th December include:
  • 1.47% Cu over 39m from 13m down hole in hole 60 including:
    • 2.25% Cu over 10m from 41m down hole
  • 1.78% Cu over 21.50m from 29m down hole in hole 57 including:
    • 2.84% Cu over 11m from 34m
  • 0.76% Cu over 24m from 15m down hole in hole 59 including:
    • 1.70% Cu over 7.50m from 23m
• Drill program: The rainy season has now started in this part of Zambia making it difficult to move drill rigs and manage other logistics.
• Evaluation of the resource will continue while the drilling pauses till the weather improves.
• The team are looking at the potential to process the near surface higher grade material in the Kalaba demonstration-scale process plant
• Map showing Cheyeza East drill locations. link: http://s2.q4cdn.com/256050873/files/images/maps/Map_58_61-62.jpg
• Arc Minerals also reported on 31 December the raising of US$1.7m through the issue of convertible loan notes to a consortium of Swedish and French institutional and high net worth investors.
• The convertible notes convert into ordinary shares at 4.5p/s representing a 110% uplift to the share price of 2.7p/s at the time.
• ‘The repayment date is 12 months following the drawdown date and Arc shall repay 120% of the aggregate value of the Principal amount’

Conclusion: Today’s assays represent another good set of results for Arc and significantly raises the scale of the resource being evaluated

*SP Angel acts as nomad and broker to Arc Minerals

 

Sirius Minerals (SXX LN)  5.485p, Mkt cap £385m – Sirius in discussion with Anglo American

Anglo American (AAL LN)  2122 pence, Mkt Cap £26.7bn  

• Sirius Minerals has disclosed, and Anglo American has confirmed, that it  is in “advanced discussions” in relation to a possible all cash offer for the company which is developing the Woodsmith polyhalite mine in North Yorkshire.
• The companies’ discussions are around a price of 5.5p per share which Anglo says “would value … Sirius at approximately £386 million”.
• Following Sirius Minerals’ failure to complete a $500m bond financing in August, which jeopardised the full financing, it conducted a strategic review of the $4bn project. The review included efforts to identify “a major strategic partner” for the project which Anglo American says it had “identified as being of potential interest some time ago, given the quality of the underlying asset in terms of scale, resource life, operating cost profile and the nature and quality of its product”.
• Outlining its view of the future development of the project, Anglo American confirms that it “requires a significant amount of further financing to develop and commission the operation that has proven challenging for Sirius to procure on an economic basis”.
• Anglo expects that the “first two years after an offer is successfully completed, development work on the Project is expected to be broadly in line with Sirius' revised development plan although Anglo American intends to update the development timeline, optimise mine design and ensure appropriate integration with its own operating standards and practices.”
• In the longer term, the project is expected to benefit “from Anglo American's technical expertise in both the development and operational phases, as well as from Anglo American's recognised Operating Model to drive safety and productivity to world-leading standards. Integration into Anglo American's global Marketing network would provide full mine-to-market capabilities and build on Anglo American's institutional experience in the world's major fertiliser markets.”
• Assuming that there are no last minute setbacks to concluding a formal deal, Anglo American’s financial, marketing and technical resources should secure the mine’s development while diversifying its asset mix. The nearby Boulby potash mine, now run by ICL, was originally developed by an Anglo American subsidiary, Cleveland Potash during the late 1960s.

Conclusion:  The potential acquisition of Sirius Minerals by Anglo American, although yet to be formally confirmed, could ensure the completion of the Woodsmith mine and secure the long term jobs and economic benefits to the region. Anglo American are far better placed in our view to manage the financing, construction and operation of the Woodsmith mine in Yorkshire.

 

Trans-Siberian Gold (TSG LN)  65.5p, Mkt Cap £72.1m – Asacha mineral resource update

• The Company released an updated mineral resource statement on the high grade Asacha gold operation.
• The total resources dropped by 241koz including 58koz attributed to mining depletion and  to 313koz in all three categories.
• Contained silver ounces dropped from 1,314koz as at December 2018 to 675koz as of December 2019.
• This is equivalent to a 33% drop (43% including mining depletion) in contained gold ounces in the resource from the start of 2019.
• Current resource stands at 239kt at 14g/t gold and 43g/t silver for 111koz contained gold and 332koz contained silver in Measured and Indicated categories.
• Additionally, Asacha hosts 313kt at 20g/t gold and 34g/t silver for 202koz contained gold and 343koz contained silver in the Inferred category.
• The drop is attributed to reinterpretation of the exploration data along with new drilling results as well as excluding certain areas in the underground mine due to geotechnical instability.

 

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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