SP Angel – Morning View – Wednesday 03 07 19

Gold jumps on increased bets for a Fed rate cut

CLICK FOR PDF

MiFID II exempt information – see disclaimer below

 

Bushveld Minerals* (BMN LN) – Vanadium rental / leasing structure to accelerate value creation. Vanadium forecasts adjusted.

Highland Gold (HGM LN)  – Tax concessions secured for Kekura and Klen projects

Keras Resources* (KRS LN)  – Keras to distribute more than its market capitalisation value in Calidus shares

Rainbow Rare Earths (RBW LN) – Proposed £4m fundraising

Talga Resources* (TLG AU) – Drilling results from Niska

Thor Mining* (THR LN) – Work plan for Jervois Vanadium project

Vast Resources* (VAST LN) – All focus on Baita and Heritage

Dow Jones Industrials

 

+0.26%

at

  26,787

Nikkei 225

 

-0.53%

at

  21,638

HK Hang Seng

 

-0.28%

at

  28,796

Shanghai Composite

 

-0.94%

at

   3,015

FTSE 350 Mining

 

+0.37%

at

  21,102

AIM Basic Resources

 

+0.92%

at

   2,047

 

Economics

US – US equities post new record highs while longer term Treasury yields dropped to 1.95% hitting two year lows on expectations the Fed would be willing to ease the monetary policy.

  • Easing bias supports prices for gold which are up nearly $20/oz today trading around $1,423/oz.
  • Additionally, President Trump is reported to consider two pro-rate cut nominations to the Fed’s Board including Christopher Waller and Judy Shelton.
  • The US market closes early today and will remain shut tomorrow for the Independence Day holiday.

 

Eurozone – Better than previously reported services sector performance lifts the composite index in June more than compensating for slowdown in manufacturing.

  • Services sector recorded the best reading in eight months with the respective PMI up at 53.6 v 52.9 in May and 53.4 estimated previously.
  • “The June PMI surveys indicate that the pace of eurozone economic growth picked up at the end of the second quarter, though it would be wrong to get overly excited by the upturn,” Markit reported.
  • Region-wise, composite growth was little changed in Germany and Spain while Italy remained the weakest-performing country, despite registering a slight increase in overall activity for the first time since March.
  • New orders growth was modest overall while price pressures showed further signs of waning in June.
  • Business outlook dropped for a second month to a level that broadly matched last December’s 50-month low as global trading conditions deteriorated.
  • Services PMI: 53.6 v 53.4 flash and 52.9 in May.
  • Composite PMI: 52.2 v 52.1 flash and 51.8 in May.

 

ECB – Christine Lagarde, a former finance minister of France and a current head of the IMF, to become the next President of the ECB once Mario Draghi steps down in Oct/19.

 

EC – Ursula von der Leyen, Germany’s defence minister, has been voted nearly unanimously to replace Jean Claude Juncker and lead the European Commission

  • A longtime aide of Ms Merkel, Ms von der Leyen is the only minister to have served in every cabinet under the German chancellor since she took office more than 13 years ago, FT reports.

 

UK – PM May is set to deliver a warning over a potential risk to the unity of the UK from the no-deal Brexit during a farewell speech in Scotland.

  • “The prime minister has said we have to deliver a Brexit which works for all parts of the UK… that is a point which I’m sure she will want to make again in Scotland,” said one ally of Mrs May.
  • Mrs May is to argue that a chaotic no-deal Brexit would support Scottish demands for independence.
  • Separately, the BoE’s Carney said that a global trade war and prospects of a no-deal Brexit have been increasingly weighing on the British economy that may potentially require monetary policy support.
  • The pound hit a two-week low of 1.2584 yesterday.

 

South Korea – The nation, a bellweather for global trade and technology, cut its inflation and GDP growth forecasts for 2019.

  • The Finance Ministry forecasts price growth to slow down to 0.9% this year v 1.6% estimated previously.
  • The economy is expected to expand 2.4-2.5%, down from 2.6-2.7% forecast previously.

 

Australia – The A$ is up 0.3% this morning on the back of stronger than forecast trade surplus in May.

  • The record high reading has been led by a spike in iron ore prices with the value of monthly iron ore shipments hitting A$8.8bn, up 17%mom/65%mom and marking the highest level since the start of the data series.
  • Overall, the trade surplus climbed to A$5.8bn in May, up from A$4.8bn recorded in April.

 

Iran – The country will resume work at its Arak nuclear reactor if Europe does not comply with obligations under a 2015 nuclear deal, President Hassan Rouhani was cited a saying in the semi-official Mehr news agency.

  • “Our level of enrichment will no longer be at 3.67%.... we put aside this commitment and will increase enrichment as we please, as it necessitates as we need.”

 

OPEC – Oil prices are hovering around the lowest level in two weeks on demand outlook concerns and despite OPEC+ agreeing production cuts’ extension.

  • OPEC cartel production is reported to have dropped by 130,000bbl a day to 30mmbbl in June on the back of a combination of both voluntary cuts and involuntary supply disruptions.
  • OPEC production has been falling for seven consecutive months now.

 

Currencies

US$1.1272/eur vs 1.1297/eur yesterday.  Yen 107.66/$ vs 108.32/$.  SAr 14.131/$ vs 14.179/$.  $1.257/gbp vs $1.263/gbp.  0.699/aud vs 0.699/aud.  CNY 6.892/$ vs  6.868/$.

 

Commodity News

Precious metals:         

Gold US$1,403/oz vs US$1,392/oz yesterday

   Gold ETFs 74.3moz vs US$74.3moz yesterday

Platinum US$833/oz vs US$838/oz yesterday

Palladium US$1,559/oz vs US$1,554/oz yesterday

Silver US$15.24/oz vs US$15.18/oz yesterday

           

Base metals:   

Copper US$ 5,896/t vs US$5,942/t yesterday

Aluminium US$ 1,776/t vs US$1,796/t yesterday

Nickel US$ 12,090/t vs US$12,180/t yesterday

Zinc US$ 2,469/t vs US$2,455/t yesterday

Lead US$ 1,891/t vs US$1,910/t yesterday

Tin US$ 17,665/t vs US$18,570/t yesterday

           

Energy:           

Oil US$62.8/bbl vs US$65.2/bbl yesterday

Natural Gas US$2.250/mmbtu vs US$2.288/mmbtu yesterday

Uranium US$24.55/lb vs US$24.55/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$117.4/t vs US$114.7/t

Chinese steel rebar 25mm US$625.6/t vs US$626.2/t

Thermal coal (1st year forward cif ARA) US$63.9/t vs US$64.9/t

Coking coal futures Dalian Exchange US$205.7/t vs US$206.0/t

           

Other:  

Cobalt LME 3m US$29,000/t vs US$29,000/t

NdPr Rare Earth Oxide (China) US$50,207/t vs US$50,251/t

Lithium carbonate 99% (China) US$9,314/t vs US$9,322/t

Ferro Vanadium 80% FOB (China) US$37.5/kg vs US$37.5/kg

Antimony Trioxide 99.5% EU (China) US$5.6/kg vs US$5.6/kg

Tungsten APT European US$250-255/mtu vs US$250-255/mtu

*Pricing sourced from Bloomberg

 

Battery News

World’s largest solar plant now online

  • Noor Abu Dhabi in United Arab Emirates, the world’s largest single solar plant, launched commercial operations, according to the Abu Dhabi governmen.
  • A 1,177 megawatt plant, Noor Abu Dhabi has 3.2 million solar panels, enough to provide electricity to 90,000 people and reduce emissions by 1 million metric tons.

 

$4.5 trillion for 100% renewable US grid

  • The cost of a total decarbonization of the US power grid is estimated at $4.5tn, according to latest Wood Mackenzie estimates.
  • That amounts to c.$450bn a year over the course of 10 years and comes in less than the current annual US military budget.
  • “The price tag may not be the highest hurdle to overcome. Eliminating fossil fuels represents a transformative investment opportunity for stakeholders of the new energy economy. But for legacy participants in the energy industry, it also creates an existential crisis. Companies, and in some cases, whole industries, must evolve or perish,” Wood Mackenzie said.

 

North Sea Wind

  • The installation of wind turbines at East Anglia One paves the way for one of the largest offshore wind projects in the world. The project is to be built in phases, like another massive offshore wind project set for the coast of England, Hornsea.
  • East Anglia One will be a 714 MW offshore wind farm, to be followed by three larger projects in the same area. The project is expected to be completed by next year, along with Hornsea One.
  • “East Anglia One is already providing a significant boost to the local economy with over £70m being committed to date to companies across the East of England and further opportunities as the project becomes operational,” project director Charlie Jordan of ScottishPower Renewables told the BBC.

 

Company News

Bushveld Minerals* (BMN LN)  24p, Mkt Cap £269m – Vanadium rental / leasing structure to accelerate value creation. Vanadium forecasts adjusted.

(Bushveld Minerals owns 74% of Vametco, 84% of Bushveld Energy in South Africa, 100% of Lemur Holdings, 9.5% of Afritin)

(Vanchem: Our figures assume Bushveld completes the acquisition of Vanchem later this year)

BUY – Valuation 90p

CLICK FOR PDF

  • We are adjusting our valuation in Bushveld Minerals following our review of value offered by the new Vanchem business, Bushveld Energy and the other business units.
  • We have also adjusted our assumed vanadium price forecasts to account for the recent price correction.
  • Bushveld Minerals recently announced it is to acquire the operating Vanchem vanadium business in South Africa, a move which should bring low-cost expansion and greater flexibility to the group.
  • Bushveld agreed to pay US$68m to acquire the Vanchem plant and facilities to be settled in two stages. US$6.8m was paid on 30 April 2019, US$61.2m will be settled no later than 31 October plus a 12 month period after completion of the Transaction. A further US$0.5-1m will be paid to VVP, which provided services to Vanchem.
  • Vanchem is currently producing around 80mtV of vanadium per month but is also in Business Administration in South Africa. This is similar to being in Administration in the UK though the process appears to be more helpful to the longer term operation of businesses than our own medieval system.
  • Vanadium price assumption:
  • We are pulling back our Ferro-vanadium price forecasts for 2019 to $50/kgV from $60.4/kgV in response to the fall in ferro-vanadium prices to around US$36/kgV FOB China. For 2020 we assume $45/kgV and we maintain out longer term price forecast at $45/kgV.
  • We still see vanadium demand and prices rising in China in response to better compliance with the legislation introduced in November last year.
  • Demand for vanadium electrolyte for Vanadium Redox Flow Batteries VRFBs should also come into the market to support our estimate price assumptions.
  • While demand for vanadium for electrolyte may be price sensitive we see the invention of new lease finance structures for the vanadium in VRFB’s as enabling the financing of VRFBs at higher vanadium price levels going forward.
  • Bushveld Energy: Bushveld’s vanadium rental financing service should accelerate the planning and ordering of new VRFB systems to support South Africa’s power grid.
  • Critically it should reduce the cost of financing and spread the cost of the vanadium in the electrolyte over a longer period rendering the cost of vanadium less critical.
  • We are raising our valuation for Bushveld Energy to US$149m as we see the ‘VRFB’ business as offering a practical solution for the storage of growing solar and wind power in South Africa.  This assumes a relatively low margin on electrolyte sales for VRFB batteries and a more normal project finance type cost for VRFB unit sales.
  • While there are other battery solutions on offer, many of these suffer from high parasitic losses, high component renewal costs or increased risk of outright failure leaving VRFB’s as the preferred grid-scale storage solution for power utilities.
  • ADROIT market research forecast CAGR growth of 8.3%pa for grid power storage in Europe to hit $1.11bn by 2025 with VRFBs expected to account for 83.8% of the total market share.
  • Bushveld Energy aims to participate in 1,000 MWh of opportunities in Africa by 2020 and there is sufficient current demand in the market for vanadium electrolyte to support the installation of a 200 MWh capacity facility in South Africa.
  • We have cautiously assumed a more modest market of just 300,000MWh in 2021 and for Bushveld to be involved in the development of around half the VFRB instillations and electrolyte sales.
  • Bushveld’s current VRFB jv is being trialled at ESKOM should have a peak output of 450kWh as a single unit. It should be relatively simple to roll out multiple units to support the rapid growth in wind and solar farms being installed in South Africa as ESKOM moves to supplement its ageing coal-fired infrastructure.
  • Valuation: we value Bushveld Energy at US$149m representing 8.8 pence per share to our valuation on Bushveld Minerals. We have added 7.93p/s for Bushveld’s other assets, cash and subsidiaries including Lemur and the P-Q Iron and Titanium project. Our revised ferro-vanadium price forecast adjusts our valuation for the Vametco-Vanchem vanadium business to £801m representing 72 pence per share.

Conclusion:  Bushveld is extraordinarily well placed to participate in the high-tech Vanadium Redox Flow Battery business. The integration of the business to produce vanadium electrolyte from its in-house vanadium feedstock gives its security of supply, while the new and innovative lease-finance model for the vanadium in electrolyte should make the financing of VRFB’s less sensitive to spot vanadium prices. We see this as a major advantage for Bushveld placing the company at the very centre of this valuable growth market.

Bushveld’s location in South Africa should also help in the participation of a World Bank funded ESKOM renewables Support Project which is designed to facilitate accelerated development of large scale renewable energy capacity in support of the long-term carbon mitigation strategy of South Africa.

Vametco 74% & Vanchem 100%

 

2018A

2019e

2020e

2021e

2022e

2023e

 

 

 

 

 

 

 

 

 

Ferro Vanadium

US$/kg

 

81.2

50.0

45.0

45.0

45.0

45.0

Vanadium sales

mtV

 

2573

3096

4370

5432

6422

7911

Sales

US$m

 

192.1

148.5

188.7

234.6

277.3

341.6

Operating costs

US$m

 

65.0

78.9

98.3

120.0

139.7

167.7

Operating costs

US$/kg

 

25.3

25.5

22.5

22.1

21.7

21.2

Operating profit

US$m

 

95.2

69.6

90.4

114.6

137.7

173.9

Pre-tax profit

US$m

74.00%

86.6

60.9

85.3

110.5

132.9

169.8

tax

US$m

 

37.6

17.4

24.3

31.5

37.9

48.4

Post-tax profit

US$m

 

49.0

43.6

61.0

79.0

95.1

121.4

EPS

US$c/s

 

2.9

3.9

5.5

7.1

8.6

10.9

PE

x

 

6.9

7.8

5.6

4.3

3.6

2.8

EV/EBITDA

x

 

4.3

5.2

4.0

3.1

2.6

2.1

EBITDA

US$m

                     -  

95.2

69.6

90.4

114.6

137.7

173.9

Free Cash Flow

US$m

                     -  

 

35.0

57.0

77.9

98.0

133.0

Vametco Cash Flow

US$m

74.00%

 

41.1

48.7

57.3

65.5

68.4

Vanchem Cash Flow

US$m

100.00%

 

-6.1

8.2

20.6

32.4

64.5

*Source SP Angel. SP Angel acts as Nomad & Broker to Bushveld Minerals. 

 

Highland Gold (HGM LN)  200.4p, Mkt Cap £729.2m – Tax concessions secured for Kekura and Klen projects

  • Highland Gold reports that it has agreed with Russia’s Far East Development Corporation that its Kekura and Klen projects fall within the Chukotka Advanced Special Economic Zone (ASEZ) which aims to encourage investment in the Russian Far East
  • The agreement confers concessions including “zero or reduced income tax, precious metals royalties, land rental, land tax, and property tax over the first five to ten years of operations. They will also pay a unified social tax on payroll of 7.6% versus the statutory rate of 30%, and be entitled to an expedited refund process for value added tax expenses.”
  • The company describes the Kekura project as its “premier development project, with construction currently in progress, stripping and preliminary ore mining set to start later this year, and commercial production expected to begin in 2023”. The 2moz gold project is expected to produce “an initial 172,000 ounces of gold a year with forecasted total cash costs (TCC) of US$511 per ounce. The Company estimates that residency in the Chukotka ASEZ adds approximately US$100 million to the project's net present value (NPV).”
  • Acknowledging the support of the Federal and Regional Governments, CEO, Denis Alexandrov, said “In addition to the ASEZ, the government is building a power line to Kekura as well as a year-round road not far from this remote site. This level of support confirms Chukotka's beneficial investment climate and Kekura's importance to the development of the region”.

 

Keras Resources* (KRS LN)  0.4p, Mkt Cap £9m – Keras to distribute more than its market capitalisation value in Calidus shares

(Keras currently has 458m shares in Calidus, representing approximately 32.3% of the Calidus issued share capital. On successful completion of the PFS, due this month.

Keras will then receive an additional 265m performance shares in Calidus which will then be converted into ordinary shares)

Keras’s 723m shares in Calidus value at A$21.7m (£12m) at the current share price.

BUY, Valuation 1.04p

Click for our last full note on Keras

  • Keras Resources reports that the Escrow period for its shares in Calidus has expired and the shares are now available for trading without restriction on the ASX.
  • Keras intends to distribute its shares in Calidus pro-rata to its shareholders which should return greater value to Keras shareholders than its current market capitalisation.
  • Furthermore, we also expect Calidus shares to go better on publication of its pre-feasibility study considering progress made on its 1.25moz Warrawoona gold project where latest results include intersections of: 8m grading 8.06g/t Au from 56m down hole, 4m @ 8.87g/t Au from 48m and 12m @ 2.37g/t Au from 52m.
  • Recommendation and valuation: We base our recommendation on the value gap between the share price and our valuation of 1.04p per share.
  • Around half our valuation is based on our assumption that Keras should produce some 6,000t per month of manganese concentrate in Togo where the Keras team are currently waiting for approval to move to a full-scale mining license and for confirmation of its offtake agreement. We assume no additional capital is required following the production of a 10,000t bulk sample for shipment.
  • The remaining value is in Calidus Resources shares which recently moved higher in Australia to A$0.30c/s.

Conclusion: It is rare to see a company distribute more than its entire market value in shares in another listed vehicle. We also see Calidus Resources as offering good potential for further value depending on the results of the pre-feasibility study and ongoing exploration at the Warrawoona gold project.

*SP Angel act as Nomad and broker to Keras Resources

 

Rainbow Rare Earths (RBW LN)  3.1p, Mkt Cap £6.7m – Proposed £4m fundraising

  • Rainbow Rare Earths have announced plans to raise a minimum of £4.0m (US$5m) at a placing “price of not less than 3p per Placing Share.”
  • The proposed placing to “new and existing investors … is not being made generally available to members of the public [and]… will allow the Company to invest in increasing production growth at its fully operational Gakara Rare Earth Project in Burundi through the opening of new mining sites”.
  • The company says that its “largest shareholder, Pella Ventures Limited (in which the Company's Chairman, Adonis Pouroulis has a beneficial interest), is converting its US$700,000 loan, as announced on 7 May 2019, at the Placing Price … [and also that] … Rainbow's Board and management have agreed that a total of £145,789 in fees and deferred cash bonuses which were outstanding as of 30 June 2019, shall be satisfied by the issue to them of new Ordinary Shares, determined by reference to the Placing Price, as well as directly subscribing for at least a further £10,000 of Ordinary Shares by reference to the Placing Price”.

 

Talga Resources* (TLG AU) A$0.48, Mkt Cap A$105.1m – Drilling results from Niska

  • Talga resource has released the balance of its drilling results from its Niska graphite prospect which forms part of the Vittangi project in Sweden.
  • Among the results released today are:
    • A 72m wide intersection averaging 29.9% graphite from 105.5m depth in hole NUN19023 – the intersection includes a 32m wide section from a depth of 127.5m at an average grade of 41.9%; and
    • A 73m wide intersection averaging 29.7% graphite from 112.1m depth in hole NUN19026; and
    • A 106.4m wide intersection averaging 25.5% graphite from 24.8m depth in hole NUN19015; and
    • A 70.2m wide intersection averaging 25.6% graphite from 19.4m depth in hole NUN19017; and
    • A 63.5m wide intersection averaging 23.1% graphite from a depth of6.6m in hole NUN19025
  • Describing the results as “world class graphite results of a grade and width rarely seen, if ever, in a global context”, Managing Director, Mark Thompson, said that “The Vittangi project already contains the largest, highest grade graphite mineral deposit in Europe and these new zones add potential for numerous larger scale and longer life development options.”
  • The company says that it will now start work on delineating a JORC compliant mineral resource estimate for the project “along with metallurgical and anode product testwork” which “will result in Niska being included with the other Nunasvaara resources in future feasibility studies.”

Conclusion – The most recent drilling results from Niska are to be included in mineral resource estimation and metallurgical testing for inclusion in feasibility work. We look forward to the resource estimate and further metallurgical results on the suitability of the high grade graphite for the company’s “planned integrated graphite anode production facility in northern Sweden”.

*SP Angel acts as UK broker to Talga Resources. SP Angel analysts have visited the leading battery R&D institution WMG partnering with Talga.  

 

Thor Mining* (THR LN)  0.80p, Mkt Cap £6.5m – Work plan for Jervois Vanadium project

  • Thor Mining reports plans for the continuing evaluation of its 40% owned Jervois vanadium project where it is in joint venture with Arafura Resources (60%) and where Thor Mining is the operator.
  • The future programme is expected to include:
    • “Resource drilling at Casper, RD, and Coco deposits” which reported a number of wide vanadium intersections in historic drilling approximately 10 years ago; and
    • “Drill test other deposits identified as magnetic targets
    • Follow up gold, and platinum group element intersections”
  • Thor Mining’s interest in the project, which is located approximately 290km east-northeast of Alice Springs in the Northern Territory of Australia, was acquired as part of the acquisition of the Bonya tungsten deposits.
  • The project has been explored over a number of years with some 60 reverse-circulation drill holes drilled between 2006 to 2008 to follow up previously identified airborne magnetic and radiometric targets.
  • Among the results from the 2008 drilling campaign, which included 1295m of mineralisation assayed for vanadium pentoxide (V2O5), titanium dioxide  (TiO2) and iron (Fe) highlighted in today’s announcement are:
    • A 44m wide intersection averaging 0.76% V2O5 and 8.30% TiO2 from an undisclosed depth in hole UNRC001; and
    • A 49m wide intersection averaging 0.96% V2O5 and 8.55% TiO2 also from an undisclosed depth in hole UNRC018 which was drilled on the Coco deposit; and
    • A 54m wide intersection averaging 0.72% V2O5 and 8.89% TiO2 from an unknow depth in hole UNRC019; and
    • A 50m wide intersection averaging 0.62% V2O5 and 5.65% TiO2 from an undisclosed depth in hole UNRC024
  • The company’s announcement says that “Significant exploration potential still exists and therefore it is possible to define an Exploration Target based on the knowledge gained from the existing drilling and assaying together with the magnetic data and modelling” and outline the potential for between 90-110m tonnes at grades ranging between 0.3-0.8% V2O5, 4-8% TiO2 and associated   25-45% iron. In accordance with JORC guidelines the company says that “The potential quantity and grade of the Exploration Target is conceptual in nature as there has been insufficient exploration to estimate a Mineral Resource and it is uncertain if further exploration will result in the estimation of a Mineral Resource.”
  • As well as the vanadium potential, Thor Mining also points out that “536 samples from the 2008 drilling were analysed for Au, Pt and Pd. Samples were selected from 14 holes from across the major magnetite rich areas” and that the historic “maximum values for Pd [palladium] in particular provide encouragement that economic levels of mineralisation may be present”.
  • “The joint venture parties plan to actively seek third party project investment in the Jervois Vanadium Project, with all potential options under consideration, to take this exciting project opportunity forward”.
  • Commenting that the Jervois project had come with the acquisition of its interest in Bonya “at no additional cost”, Executive Chairman, Mick Billing, said “We are excited to have an interest in the Jervois vanadium deposits at a time of stimulated global interest in vanadium."

Conclusion: Follow work on the vanadium potential of Jervois, if successful, has the potential to add another commodity to Thor Mining’s existing portfolio. We note, however, that Thor Mining and its partner plan to seek third party involvement. We look forward to results from the follow up resource drilling and associated work.

*SP Angel act as joint broker to Thor Mining

 

Vast Resources* (VAST LN)  0.12p, Mkt Cap £10.5m – All focus on Baita and Heritage

CLICK FOR PDF

  • The Company released an updated presentation on the website highlighting the status and development plans of Vast portfolio of mining assets in Romania and Zimbabwe.
  • Baita Plai Polymetallic Mine (80%), fully permitted high grade underground brownfield operation, is only six months away from first concentrate production and involves minimal amount of capex ($3.5m to reach 10ktpm throughput rates in 12m) taking advantage of extensive available underground and surface infrastructure (>$50m worth). SRK has been engaged to prepare a JORC compliant mineral resource/reserve estimate with a current local NAEN Code C1+C2 resource of 1.8mt at 2.2% Cu, 3.1% Pb, 3.5% Zn, 1.4g/t Au and 128g/t Ag. Metallurgical studies are due shortly confirming recoveries, separation of Zn/Pb and chemical composition of the concentrate. Work on the installation of a new, independent power supply and 7km tailings pipe has already commenced as the team finalises a $10m debt refinancing.
  • Exploration potential offers an opportunity to expand the existing LoM at Baita Plai with the orebody hosted in skarn pipes remaining open at depth. Vast also owns the  Manaila Polymetallic Mine (100%) that was put on C&M in Dec/18 on the back of a bottleneck in mining operations and inefficient operations layout (plant is 32km away from the pit and dried tailings are trucked 14km to dumps). The team is considering to potentially develop an adjacent Carlibaba deposit and build a new processing plant ($4m, 30ktpm) in the vicinity of the mining operations. Manaila hosts 4.6mt at 0.97% Cu, 0.68% Zn and 0.32% Pb in open pit mineral resources with another 1.1mt at 1.58% Cu, 0.88% Zn and 0.82% Pb in the underground mineral resource (JORC-compliant). Additionally, the Company has been building positions in regional prospective targets including the Blueberry Gold Project (29%, currently being drilled for maiden mineral resource) and the Zagra Polymetallic Project (up to 90%, drilling completed and results pending).
  • Heritage Diamond Concession (Block T1A, 75% profit sharing agreement) offers an opportunity to fast track the alluvial diamond placer deposit into production utilising cheap and easy to set up beneficiation and XRT sorting circuit in the highly prospective Marange Diamond Fields that has reportedly supplied 60mcts to date. The local community secured the mining license with the Company expecting to start trial mining operations as soon as the agreement with the local community and the state-owned Zimbabwe Consolidated Diamond Company (ZCDC) is secured. Independent geological assessment has previously highlighted prospectivity of the concession with proximal placers draining the Marange Diamond Fields showing grades of 50-500cpht attracting average prices of $80/ct. Vast projections based on 50cpht and $60/ct suggest the site may potentially generate $15m in revenue on expenditure of $6m per quarter in six months and cost $10m in capex.
  • Restructuring completed in May/19 involved the disposal of gold assets in Zimbabwe that in turn allowed to deconsolidate $38m in liabilities simplifying the balance sheet and improving the Vast ability to attract capital. Proceeds from the disposal of $2.5m have been directed towards the repayment of the outstanding $3.4m loan to SSGI with another RTGS$2.5m (c.$0.4m using current spot 6.2 rate) to be retained as security before the loan is paid back in full. Furthermore, the Company expects to benefit from the less restrictive local regulations on diamond sales versus gold.
  • Jurisdiction risk is controlled by the geographical diversification and the team with knowledge of operations in the region. Andrew Prelea, CEO, is a Romanian and Australian national and has been instrumental in establishing the Vast presence in the country leveraging off a strong network of contacts in the metals and mining sector. Mark Mabhudhu, Director of the Zimbabwean Vast subsidiary, has previously acted as CEO of the state controlled ZCDC, a party to the mining agreement at the Heritage Concession, as well as having spent 11 years with Debswana.
  • Refinancing completion to provide development capital and alleviate liquidity pressures leading to a rerating in the share price. In Apr/19, the Company received a draft indicative terms sheet from a Swiss bank for loan finance of up to $10m to be directed towards repayment of the outstanding $4m Mercuria loan (9.5%, due in Mar/20) as well as Baita Plai development capex with the due diligence process ongoing.
  • On cash and liabilities, the Company raised £0.9m in equity in end of May/19. In terms of debt, Vast has $0.9m due to SSGI (as mentioned above), $4m outstanding to Mercuria under Tranche A (due Mar/20) as well as $4.2m in current unpaid bills (as of Sep/18).

Conclusion: Group business plans have been hampered after Mercuria pulled back on the planned $5.5m Tranche B in Jan/19 leaving the Company short of development funding with the team now in negotiations with other parties in regards of a refinancing facility. Once secured, Vast will be in the position to execute on its strategy to fast track the high grade polymetallic Baita Plai into production in six months while concurrently progressing development works at the alluvial diamonds project located in the prolific Marange Diamond Fields region.

*SP Angel acts as Broker to Vast Resources

 

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

 

DISCLAIMER

This note is a marketing communication and comprises non-independent research. This means it has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of its dissemination.

This note is intended only for distribution to Professional Clients and Eligible Counterparties as defined under the rules of the Financial Conduct Authority and is not directed at Retail Clients.

This note is confidential and is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published in whole or in part, for any purpose.

This note has been issued by SP Angel Corporate Finance LLP (‘SPA’) to promote its investment services. Neither the information nor the opinions expressed herein constitutes, or is to be construed as, an offer or invitation or other solicitation or recommendation to buy or sell investments. The information contained herein is based on sources which we believe to be reliable, but we do not represent that it is wholly accurate or complete. All opinions and estimates included in this report are subject to change without notice. It is not investment advice and does not take into account the investment objectives and policies, financial position or portfolio composition of any recipient. SPA is not responsible for any errors or omissions or for the results obtained from the use of such information. Where the subject of the research is a client company of SPA we may have shown a draft of the research (or parts of it) to the company prior to publication to check factual accuracy, soundness of assumptions etc.

Distribution of this note does not imply distribution of future notes covering the same issuers, companies or subject matter.

Where the investment is traded on AIM it should be noted that liquidity may be lower and price movements more volatile.

SPA, its partners, officers and/or employees may own or have positions in any investment(s) mentioned herein or related thereto and may, from time to time add to, or dispose of, any such investment(s).

SPA is registered in England and Wales with company number OC317049.  The registered office address is Prince Frederick House, 35-39 Maddox Street, London W1S 2PP.  SPA is authorised and regulated by the UK Financial Conduct Authority and is a Member of the London Stock Exchange plc.

MiFID II - Based on our analysis we have concluded that this note may be received free of charge by any person subject to the new MiFID II rules on research unbundling pursuant to the exemptions within Article 12(3) of the MiFID II Delegated Directive and FCA COBS Rule 2.3A.19.

A full analysis is available on our website here http://www.spangel.co.uk/legal-and-regulatory-notices.html. If you have any queries, feel free to contact our Compliance Officer, Tim Jenkins (tim.jenkins@spangel.co.uk).

SPA research ratings – Based on a time horizon of 12 months: Buy = Expected return of more than 15%, Hold = Expected return between -15% and +15%, Sell = Expected return of less than 15%