SP Angel . Morning View . Tuesday 22 10 19

Metals rangebound amid mixed news on US-China trade deal

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Anglo American (AAL LN) – Production report shows company on track to deliver guidance

Aura Energy Limited* (AURA LN) – Call for shareholder meeting

Bushveld Minerals* (BMN LN) – Mining right granted for Mokopane vanadium, magnetite mine

Keras Resources* (KRS LN) –Infill drilling to grow the Warrawoona reserve

 

Dow Jones Industrials

 

+0.21%

at

  26,828

Nikkei 225

 

+0.25%

at

  22,549

HK Hang Seng

 

+0.23%

at

  26,786

Shanghai Composite

 

+0.50%

at

   2,954

FTSE 350 Mining

 

-0.25%

at

  17,369

AIM Basic Resources

 

+1.53%

at

   2,138

 

Chile – World’s largest copper mine to hold a 24h strike (mining.com)

  • Yesterday we reported that the country’s mining industry had not been affected by the civil unrest in Chile.
  • However a 25h strike is due to take place today at Chile’s Escondida copper mine in a show of solidarity with protests elsewhere in the country.
  • Union No.1 represents 2,500 miners and has encouraged it’s members to join labour action.
  • An umbrella group of unions and mining federations, CTMIN, is calling for a mining strike on the 23rd of October.

 

Kia EV delay due to supply chain issues (autoblog)

  • The electric Kia Soul will not be available in the US until 2021 due to a shortage of electric motors and battery packs.
  • This could be the beginning of a trend in the EV industry, as supply constraints have also slowed the US rollout of other electric vehicles such as the Hyundai Kona.
  • Defective South Korean lithium-ion batteries have been well documented, after a five-month investigation concluded that 23 fires at energy storage facilities was due to “poor-quality installations, faulty operating procedures, missing protections against electrical shocks and lack of overall control systems”.
  • Supply of EV vehicles due to battery supply constraints is struggling to keep up with customer demand. According to FleetNews, Hyundai sold its entire 2019 allocation of Kona Electric models by March and has a waiting list of more than 2,000 customers.

 

Economics

US – Around 20% of S&P 500 companies are due to report their earnings this week.

  • Results so far were generally better than expected.
  • Positive mood was also supported by Trump comments that trade deal talks are advancing raising expectations two nations may sign an agreement next month in Chile.

 

China – Budget deficits limits local governments’ potential to offer fiscal stimulus, Bloomberg reports this morning.

  • Following the 1994 fiscal reform targeted at strengthening central government position at the expense of its regions led to current disbalances.
  • The share of local government of nationwide revenue dropped from 78% in 1993 to 44% in 1994 following the reform.
  • At the same time their share of spending reached 85% in 2018, up from 72% in 1993.
  • That resulted in the central government’s expenditure-to-revenue ratio of low 40% since 2010 (this is after accounting for transfers of funds from the centre to regions).  
  • Even richest and most developed cities are feeling the pressure with Shanghai and Beijing facing high expenditure-to-revenue ratios of 114% and 126% in 2017, respectively; this compares to the average 229% across the nation.
  • The fiscal gap complicated local governments’ implementation of tax cuts with businesses complaining about not feeling the fiscal stimulus announced earlier, Bloomberg concludes.

 

EU – The European Commission warned five EU members including Italy and France that their 2020 budget forecasts risk of breaching fiscal rules including a limit on budget deficit (3%) and total debt levels.

  • The Commission is seeking clarification on budget proposals and sent its letters to the government of Spain, Portugal and Belgium as well.

 

UK – The government presented the legislation implementing the Brexit deal to Parliament in an effort to meet the 31 October deadline.

  • “I hope parliament today votes to take back control for itself… the public doesn’t want any more delays, neither do other European leaders and neither do I… let’s get Brexit done on 31 October and move on,” PM Johnson said in a statement before Tuesday’s vote.
  • Parliament will start debates and then a vote on the Withdrawal Agreement Bill today.
  • The government has proposed that lawmakers vote on a second reading of the bill before setting out an accelerated timetable for its hearing in both chambers of parliament to meet the deadline.
  • Lawmakers can vote to reject the timetable that would threaten the October 31 deadline.
  • The pound is off slightly against € this morning trading at 1.16 (-0.1%).

 

Canada – Justin Trudeau secured the second term in the office as the Liberals are looking to form a minority government with support from smaller parties.

  • Liberal Party won or was leading in 156 of Canada’s 338 electoral districts, losing it majority in parliament and the popular vote, while gaining enough seats to secure a coalition with other parties.
  • The CAD$ is flat against the US$ this morning at 1.31.

 

Currencies

US$1.1135/eur vs 1.1173/eur yesterday.  Yen 108.51/$ vs 108.64/$.  SAr 14.736/$ vs 14.768/$.  $1.293/gbp vs $1.299/gbp.  0.686/aud vs 0.688/aud.  CNY 7.083/$ vs 7.070/$.

 

Commodity News

Gold US$1,489/oz vs US$1,489/oz yesterday

   Gold ETFs 82.2moz vs US$82.1moz yesterday

Platinum US$888/oz vs US$894/oz yesterday

Palladium US$1,763/oz vs US$1,762/oz yesterday

Silver US$17.65/oz vs US$17.68/oz yesterday

           

Base metals:   

Copper US$ 5,837/t vs US$5,828/t yesterday - BHP expected to make renewables switch worth $780m (FT.com)

  • The miner has signed four renewable power agreements for its Escondida and Spence copper mines in Chile.
  • The company predicts that the mines will be completely powered by renewables by the mid-2020s.
  • BHP has been under pressure from its shareholders of its carbon footprint.
  • Last week, more than one in five shareholders backed a resolution calling on the company to resign its membership of any industry associations whose actions are inconsistent with the Paris climate change agreement (guardian).
  • President of BHP Americas, Daniel Malchuk, said the new contracts in Chile would cut energy prices for the two mining operations by 20% and avoid 3mt of carbon pollution.

Aluminium US$ 1,725/t vs US$1,740/t yesterday

Nickel US$ 16,095/t vs US$16,170/t yesterday

Zinc US$ 2,483/t vs US$2,466/t yesterday

Lead US$ 2,220/t vs US$2,180/t yesterday

Tin US$ 16,820/t vs US$16,800/t yesterday

           

Energy:           

Oil US$58.9/bbl vs US$59.5/bbl yesterday

Natural Gas US$2.251/mmbtu vs US$2.306/mmbtu yesterday

Uranium US$24.70/lb vs US$24.85/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$82.7/t vs US$82.6/t - Vale temporarily suspends the disposal of tailings at Itabiruçu dam

  • The dam, which is part of the Itabira complex, is having its geotechnical characteristics assessed.
  • The company have adopted Level 1 emergency protocol which does not require the evacuation of the downstream population.
  • Despite this, the country reaffirmed its revised iron ore and pellet sales guidance of 307-332mt for 2019, but expected sales to be "between the lower and the midpoint of the range".
  • Vale's shares closed up 2.56% yesterday in Brazil but are down 7.4% year-to-date (mining journal).

Chinese steel rebar 25mm US$553.6/t vs US$555.3/t

Thermal coal (1st year forward cif ARA) US$67.5/t vs US$68.8/t

Coking coal futures Dalian Exchange US$180.4/t vs US$183.8/t

           

Other:  

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

NdPr Rare Earth Oxide (China) US$43,557/t vs US$43,637/t

Lithium carbonate 99% (China) US$6,989/t vs US$7,002/t

Ferro Vanadium 80% FOB (China) US$36.5/kg vs US$36.5/kg

Antimony Trioxide 99.5% EU (China) US$5.2/kg vs US$5.2/kg

Tungsten APT European US$225-245/mtu vs US$205-215/mtu

 

Battery News

UK firm to build first ‘liquid to gas’ cryogenic battery (guardian)

  • British battery firm, Highview power, plan to build a battery storage facility that can store renewable energy for weeks rather than hours.
  • The device will be built on the site of an old fossil fuel plant in the north of England to power up to 50,000 homes for up to five hours.
  • Renewable energy will be used to chill air to -196C, transforming it into a liquid that will be stored in large metal tanks.
  •  The full-scale “liquid air” battery has a capacity of 50MW or 250MWh over a five-hour release time and could be up and running by 2022 (greentechmedia).

 

Company News

Anglo American (AAL LN)  1934.4 pence, Mkt Cap £24.45bn – Production report shows company on track to deliver guidance

  • Anglo American reports a strong production performance for the quarter to 30th September at its metallurgical coal operations, a continuing ramp-up at the Minas Rio iron ore operation where production resumed in December last year following a lengthy suspension as a result of pipeline leaks on the 529km long ore pipeline to the port of Acu, offset by an expected decline at De Beers where the Victor mine in Canada at the end of its life and the Venetia mine is moving into underground operations.
  • Overall, the company says that “Production is up 4% for the quarter”.
  • Copper and thermal coal operations are reported to be on line “to deliver to our production guidance … albeit at the lower end of their ranges; with Copper working to mitigate the effect of drought conditions in central Chile."
  • Minas Rio produced 6.1mt of iron ore during the quarter (YTD - 16.95mt) where higher grades and “strong operational performance” has prompted the company to increase its 2019 production guidance to 20-22mt from the previously indicated 21mt.
  • Iron ore production at Kumba remained broadly unchanged at 10.5mt (YTD – 30.58mt) and the company is maintaining its annual guidance at 42-43mt.
  • Diamond production fell by 14% to 7.4m carats where, in addition to operational matters, De Beers is responding to “weaker market demand due to macro-economic uncertainty as well as continued midstream weakness.” Production guidance remains intact at approximately 31m carats although the company comments that “Diamond inventory has continued to build during the third quarter due to the subdued market conditions; the elevated inventory levels are not expected to unwind until 2020”.
  • Copper production was fell by 8% to 158,900 tonnes “due to unprecedented drought conditions impacting Los Bronces in Chile” where copper output fell by 16% to 80,400t as a result of lower plant throughput in response to “lower  water availability, partly offset by planned higher grades” although the lower output at Los Bronces was “partially offset by strong plant performance at Collahuasi” despite planned lower grades.
  • Copper production guidance “is tightened to 630,000-650,000 tonnes (previously 630,000-660,000 tonnes) due to the severe drought, which also remains a risk for 2020 production”.
  • Metallurgical export coal “production increased by 22% to 6.6 million tonnes due to improvements in wash plant throughput and equipment productivity as well as the timing of longwall moves, with a move at Moranbah in Q3 2018.” The company says that “No significant impact on production is expected from longwall moves in the fourth quarter” and as a result production guidance for the year remains at 22-24mt
  • Thermal coal production declined in both South Africa (down 15% to 4.3mt) and in Colombia (down 23% to 2.1mt) and as a result guidance has been “tightened to ~26 million tonnes (previously 26-28 million tonnes) due to lower than expected production from Cerrejón.”
  • Platinum production declined by 1% to 526,800oz while palladium output rose by 4% to 578,600oz. Production guidance for 2019 metal in concentrate is maintained at 2.0-2.1moz of platinum and 1.3-1.4moz of palladium.

Conclusion: The restart of Minas Rio and the strong performance of the metallurgical coal operations are both positive news while copper production guidance has been tightened in response to the impact of drought conditions restricting throughput at Los Bronces. Despite lower production levels, De Beers diamond inventory continues to build as the diamond market remains under pressure.

 

Aura Energy Limited* (AURA LN)  0.45p, Mkt Cap £5.9m – Call for shareholder meeting

  • Aura Energy reports that Pre-Emptive Trading, which owns 5.89% of the company has called for a shareholder meeting to consider a number of resolutions including the appointment of a non-executive director.
  • The company says that it “is seeking legal advice in relation to the Requisition Notice and will update the market in due course.”

*SP Angel act as Nomad & Broker to Aura Energy

 

Bushveld Minerals* (BMN LN)  27p, Mkt Cap £300m – Mining right granted for Mokopane vanadium, magnetite mine

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

  • Bushveld Minerals report the issuance of a mining right application for the Mokopane vanadium mine in South Africa.
  • The mining right application is significant as it is a step towards the award of the mining right and a full mining license for the Mokopane mine from the Department of Mineral Resources.
  • Bushveld is keen to gain full rights to mine the Mokopane vanadium, magnetite mine ahead of its acquisition of VanChem due at the end of this month.
  • The company will now sell 3.2% of its interest in the mine sold to the Bakenberg Community Trust.
  • This along with another 1.8% from Izingwe Capital, Mokopane’s other shareholder will Bakenberg Community Trust’s stake to 5% in accordance with South Africa’s Mining Charter III.
  • Bushveld’s interest in the Mokopane mine will be 57.6% post the allocation to the local communities and the Employee Share Option Program.
  • We understand that Bushveld is fully funded for the $68m acquisition of Vanchem and will move to start development the Mokopane mine as soon as the full mining license is received and the Vanchem acquisition is done.
  • The Mokopane vanadium mine has a 298mt JORC compliant resource grading 1.75% in magnetite and 1.41% in-situ.
  • The orebody runs for 5.5 km dipping at ~20o with three parallel overlying magnetite layers grading 1.6-2% V2O5.
  • Mokopane’s relatively high grade of magnetite should reduce the cost of upgrading and processing its ore for vanadium and magnetite by-product production.
  • Vanchem is likely to use spare ore from Bushveld’s operating Vametco mine in addition to stockpiles held by Vanchem.
  • The addition of Vametco ore to existing feedstock and the ongoing operation of Vanchem means the operation can ramp up relatively quickly and efficiently with relatively little additional expenditure in proportion to the scale of its capacity.
  • We estimate the Mokopane mine can be developed for under $20m while Vanchem can be ramped up towards full capacity according to available cash flow from Vametco. Developing Mokopane will save on trucking to Vanchem from Vametco.
  • Production targets:
    • 2,800-2,900mtV - for 2019 (Vametco only) - the full year should include some production from Vanchem assuming the acquisition completes on time.
    • 3,405mtV – 2020 Vametco
    • 4,200mtV – Vametco run rate sometime in 2022.
    • Target for 8,400mtVpa with nameplate capacity of 10,000mtVpa as Vanchem restarts idled furnaces
  • Valuation: our valuation for Bushveld is based on our Net Present Value of our forecast cash flows for Vametco, Vanchem and Bushveld Energy plus more modest valuations on Bushveld’s stakes in AfriTin, Lemur Resources, P-Q Iron & Titanium. Our 80p valuation is based on a ferrovanadium price of $45/kgV.

The future of Bushveld:  While Bushveld’s engineers ramp up production at Vanchem and improve on performance at Vametco, the technical team at Bushveld Energy are positioning the business for growth in Grid Power storage through development of ‘VRFBs’ Vanadium Redox Flow Batteries.  

While our simple modelling of the potential of Bushveld Energy adds just 9.15p/s to our valuation we reckon the business has potential to perform better than expected in terms of assumed battery capacity, margins on electrolyte and fess for VRFB construction.

Conclusion: Bushveld Minerals continues to rank among the most exciting growth companies on the AIM market in London supported by its vanadium and green energy business.

Bushveld Energy should see rapid-growth supporting new Wind and Solar projects with VRFB batteries. The development of Bushveld Energy alongside Vametco and Vanchem will ensure the battery business has available vanadium supply when new demand soaks up spare vanadium stock.

Bushveld’s underlying cash flow combined with the ability to lease finance vanadium electrolyte in VRFB batteries should enable the business to develop to meet much of the significant growth expected in Southern Africa and beyond.

*SP Angel acts as Financial Advisor & Broker to Bushveld Minerals

 

Keras Resources* (KRS LN)  0.48p, Mkt Cap £12m –Infill drilling to grow the Warrawoona reserve

(Keras hold an 85% interest in Societé General des Mines which holds the Nayega manganese project license in Togo; 33.71% interest in Calidus)

BUY, Valuation 1.08p

Click for our last full note on Keras

  • Calidus Resources infill drilling results at the Warrawoona Gold returns good close to surface intersections including:
  • 35m @ 2.84 g/t Au from surface in hole 19KLRC218
  • 23m @ 2.55 g/t Au from 15m in hole 19KLRC241
  • 23m @ 2.06 g/t Au from 1m in hole 19KLRC243
  • 13m @ 2.05 g/t Au from 15m in hole 19KLRC244
  • 20m @ 1.97 g/t Au from 25m in hole 19KLRC245
  • 8m @ 1.52 g/ t Au from surface in hole 19KLRC236
  • Results support an upgrade to the Measured category of the resource to be included in the Warrawoona DFS extending the project’s life of mine.
  • Drilling at the Klondyke open pit of the Warrawoona project is ongoing with twor rigs while an additional RC drill rig is engaged at high-priority regional greenfield targets 3km west of Klobdyke.
  • The Company has also deployed a diamond core rig to accelerate conversion of Inferred resource into the Indicated category as part of the development work around a potential underground operation.
  • Valuation: our valuation on Keras is 1.08p based on the value of our estimated cash flow from the Nageya manganese mine as well as the value of Keras’s shares in Calidus Resources.
  • We ran our valuation on a Calidus Resources share price of A$0.035c/s. Calidus shares are currently A$0.026c/s having traded as high as A$0.040c/s and as low as A$0.020c/s this year.
  • Keras plan to demerge its entire 723,750,000 shareholding in Calidus and to distribute to eligible shareholders who are on the share register at 6:00pm on 19 November this year.
  • The average daily trading volume for Calidus Resources on the ASX is around 5m shares a day over the last 100 days.

*SP Angel act as Nomad and broker to Keras Resources

 

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

 

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*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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