SP Angel – Morning View – Wednesday 26 09 18
Copper continues to drop as Chinese traders dump pre-holiday supply
MiFID II exempt information – see disclaimer below
Bushveld Minerals* (BMN LN) – BUY – Target Price 34.3p – Interim figures highlight cash generation of Vametco business as vanadium prices rise
Georgian Mining* (GEO LN) – Positive meetings with government indicate permit approval is due soon
Goldplat (GDP LN) – FY18 results
Fox Marble Holdings (FOX LN) – Interims
Ironveld (IRON LN) – Ironveld trial mining test samples for potential off-take partner
Renault unveils high-tech electric vehicle concept design
- French car manufacturer, Renault, revealed its concept for the future of light commercial vehicles (LCVs) at the Hanover motor show.
- The aim of the electric vehicle is to cut inefficiencies and costs of the final stage of delivery,
- The vehicles have been designed in a pod-like fashion to either follow one another in a chain or find their own path independently. The leading pod hosts an individual who supervises the delivery of all goods and services and the fleet following behind the pod.
- When the pods are set to an autonomous mode, the concierge is able to focus on other delivery tasks, such as supervising itinerary planning, completing paperwork for deliveries etc.
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Economics
Currencies
US$1.1769/eur vs 1.1753/eur yesterday Yen 112.83/$ vs 112.90/$ SAr 14.289/$ vs 14.366/$ $1.318/gbp vs $1.311/gbp 0.726/aud vs 0.725/aud CNY 6.876/$ vs 6.862/$
Commodity News
Precious metals:
Gold US$1,200/oz vs US$1,199/oz yesterday
Gold ETFs 67.7moz vs US$67.7moz yesterday
Platinum US$827/oz vs US$827/oz yesterday
Palladium US$1,062/oz vs US$1,052/oz yesterday
Silver US$14.49/oz vs US$14.26/oz yesterday
Base metals:
Copper US$ 6,292/t vs US$6,318/t yesterday
- LME copper falls for the 3rd day, extending the drop from 2-month high at the close of last week, as Chinese traders release supply ahead of the week-long Golden Week national holiday despite signs of rising demand from Chile. The metal fell -0.6% after closing +4.6% at $6,363/t on Friday, the highest since July 9.
- According to Huatai Futures Ltd. Chinese spot premium are falling as domestic traders dump cargoes ahead of the holiday, which begins this weekend. The short term depression is reflective of market tightness as supply talks for annual contracts from Codelco have begun weeks earlier. As a consequence of rising demand and limiting supplies, Chile’s state-owned Codelco has started contract negotiations that traditionally begin in October or November.
- The negotiations are ongoing as global copper stockpiles fall and premiums in China rise. Codelco is said to be securing higher fees even as prices for the industrial metal continue to weaken over the past six months amid concerns that trade tensions between China and the US could impact global growth. It is suggested that premiums for copper deals with clients in China and the US are so far 15-17% higher than last year.
- In Europe, Codelco inked 2019 copper-cathode supply contracts at a premium of $98/t over benchmark prices, the highest since 2015. The company has also signed a contract with a Chinese client at a physical delivery premium of $88/t over London Metal Exchange prices, compared with $75/t last year.
- In June, Chief Executive Officer Nelson Pizarro suggested that Codelco would complete its annual sales talks quickly. “In the 2016 campaign, we sold all our copper in four days. I think now we will sell it in half a day”.
- With the metal in such high demand, the company want to sign contracts with fewer but more strategic clients, and its prioritizing those who agree to more flexible conditions.
- Improved China demand and declining mine output due to price consolidation is expected to result in better supply-demand balance in H2 compared with H1, as Argonaut Securities (Asia) Ltd. analyst notes Chinese refined copper demand climbed +4.8% in first 8 months of the year vs. 1.7% in the full year 2017.
Aluminium US$ 2,073/t vs US$2,040/t yesterday
- Aluminium supply from major Alcoa remains hampered as the union at operations in the state of Western Australia meet the company again today to try to resolve a strike that has lasted more than six weeks. Unionised workers at two alumina refineries and three bauxite mines walked out on Aug. 8 on worries that a new workplace agreement did not adequately address job security.
- The strike is hitting the global market as very tight supply for aluminium-making material alumina has helped prices rally by 20% over the month.
- Union members had met last Friday and recommended holding further discussions with the company after it submitted an offer that aimed to address the union’s job security concerns. “(The union’s negotiating team) is meeting with Alcoa this Wednesday to discuss a resolution to the dispute. A further (union) mass meeting has been scheduled for this Friday…where we hope to achieve a fair outcome for our members”.
Nickel US$ 13,005/t vs US$12,885/t yesterday
- Nickel favoured as the top metal over the next 12 months due to China’s reform of its stainless steel industry and robust global demand, according to Macquarie analysis. The bank are raising forecasts to $16,875/t next year, rising to $18,890/t in 2020, with the metal benefiting from long-term electric vehicle battery demand.
Zinc US$ 2,524/t vs US$2,510/t yesterday
Lead US$ 2,024/t vs US$2,019/t yesterday
Tin US$ 18,900/t vs US$18,900/t yesterday
Energy:
Oil US$82.0/bbl vs US$81.6/bbl yesterday
Natural Gas US$3.071/mmbtu vs US$3.053/mmbtu yesterday
Uranium US$27.50/lb vs US$27.40/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$68.0/t vs US$68.9/t
Chinese steel rebar 25mm US$692.4/t vs US$695.2/t
Thermal coal (1st year forward cif ARA) US$97.8/t vs US$98.6/t
Coking coal futures Dalian Exchange US$192.3/t vs US$192.6/t
- Standard Chartered is to stop financing new coal-fired plants anywhere in the world, save where the bank already has committed to funding.
- The move has been hailed by environmental groups as being a benchmark for other banks in the project finance sector. Standard Chartered had already committed to not funding any new thermal coal mines, arctic and tar-sands exploration and production, as well as the conversion or degradation of high-value forests and peatlands.
- According to lobby group Market Forces, the bank has loaned US$1.8bn to coal power since 2010. The group expects Standard Chartered to now withdraw from syndicated loans it was potentially set to be involved in in Vietnam.
Other:
Cobalt LME 3m US$62,250/t vs US$62,250/t
China NdPr Rare Earth Oxide US$46,903/t vs US$47,214/t
China Lithium carbonate 99% US$10,326/t vs US$10,346/t
- Following signing a supply deal with Tesla, Ganfeng Lithium Co., China’s top producer of the battery metal, is seeking as much as $676m from a first-time share sale in Hong Kong. The Jiangxi-based company is offering 200.2m shares at HK$16.5-HK$26.5 apiece, according to Bloomberg deal details. The price range represents a 29-56% discount to Ganfeng Lithium’s Tuesday closing price in Shenzhen.
- Six cornerstone investors, including South Korean battery makers LG Chem Ltd. and Samsung SDI Co., have agreed to buy about $230m of stock in the offering, the terms show. China Structure Reform Fund has agreed to buy about $70m of shares in Ganfeng Lithium’s offering as a cornerstone investor, while LG Chem and Samsung SDI each committed $50m, according to Wednesday’s terms. Dongfeng Asset Management will invest $30m, while carmaker FAW Group plans to buy 146 million yuan ($21m) worth of stock and Chinese private equity firm GSR Capital committed 58 million yuan.
- Ganfeng Lithium said earlier this month it signed a three-year pact with Tesla Inc. to supply a fifth of its production to the U.S. electric car maker. Shares of Ganfeng Lithium have fallen 32% in Shenzhen trading this year through Tuesday as elevated lithium prices have fallen approximately -55% year-to-date as the global market moves into oversupply and China’s battery sector responds to changes in government subsidies that favour higher-quality producer.
- With EVs still at a cost disadvantage to internal combustion engines, rapid growth in EVs recording 53% in 2016 has been made possible by China’s very generous subsidy policy. However, subsidies are expected to change to encourage technological development and to be variable upon range and battery density. Compared to old consumer subsidies of approximately $10,000 per vehicle, Central Government subsidies for EVs will range from RMB15,000 ($2,256) to RMB 60,000 ($9,022).
American Lithium Corp buys second lithium project in Nevada
- American Lithium Corp has purchased its second sedimentary lithium project from Nevada Alaska Mining Co for 75 lode claims covering 1,550 acres located northeast of Tonopah, Nevada.
- Terms of the purchase are payments of $50,000 on signing, which has already been paid, another $50,000 within 90 days, and the issuance of 250,000 common shares of American Lithium.
- "The TLC purchase is an excellent opportunity to expand our lithium portfolio in Nevada and came about as result of our multiyear working relationship with Nevada Alaska Mining and our focus on lithium claystones," said company CEO Mike Kobler.
Tungsten APT European US$275-290/mtu vs US$275-290/mtu
Company News
Bushveld Minerals* (BMN LN) 31.5p, mkt cap £349.4m – Interim figures highlight cash generation of Vametco business as vanadium prices rise
BUY - Target Price adjusted to 34.3p from 35.2p
(Bushveld Minerals hold 75% of Vametco)
- Bushveld Minerals report interim financial results for the year to end-June 2018.
- The figures represent a period when Bushveld held an effective 59.1% interest in Vametco. Bushveld now hold an effective 75% interest since the agreed deal with SOJITZ.
- Bushveld’s consolidated sales recorded £62.1m through the first half based on 100% of Vametco vs £26.4m yoy.
- Ferrovanadium prices averages US$65.5/kgV in H1 vs an average price of US$26.2/kgV yoy.
- EBITDA for Bushveld rose to £31.7m with Vametco EBITDA at £30.8m vs £5.7m yoy.
- Profit after tax: £21.1m.
- Free cash flow: £10.2m.
- Cash balance: £26.2m.
- EPS 1.14p.
- Ferro-vanadium sales as ‘Nitrovan’ was 1,403 mtV vs 1, 341mtV yoy
- Nitrovan production was lower at 1,360mtV vs 1,441mtV yoy
- Operating costs of US$20.2/KgV (ZAR248.4/KgV) vs US$15.4/KgV yoy
- Plant capacity enhanced in Phase Two to 3,750mtV pa from 3,035 mtV through self-funded capital expenditure of US$2.5m
- Brits Vanadium mine grade; vanadium in magnetite of 1.54-2.09% V2O5. Our modelling currently assumes a grade of 1.48% V2O5.
- Bushveld and Vametco management finally resolved several weeks of unprotected strike action which cost the company 16 days of work plus time to restart throughput through the furnace
- The team are currently reviewing production and cost guidance for update in the Q3 2018 Bushveld Vanadium Operational update.
- Bushveld Energy and the Industrial Development Corporation of South Africa received delivery of the first vanadium redox flow battery from UniEnergy Technologies in South Africa;
- Importantly, this included the mixed-acid vanadium electrolyte to be used in the battery.
- Commissioning of the battery and initial assessments confirmed a vanadium electrolyte constraint holding back performance meaning the battery was not able to meet the operational specified performance.
- It was also determined that it would not be possible to resolve the constraint in South Africa requiring the provision of new electrolyte and hardware for the DC module of the battery for re-commissioning in Q4 2018. A grant of US$500,000 from the US Trade and Development Agency will provide support in implementation and enhancement of the project.
- This should be considered as part of the learning and development process for vanadium redox batteries which will form Bushveld Energy’s IP going forward assuming the tests result in a positive outcome.
- Vanadium prices remain at US$101-105/kgV for Western Europe according to The Metal Bulletin and US$97-104/kgV fob China.
- Valuation: we have adjusted our forecasts to account for the cost of the SOJITZ stake and the compensation agreed with staff in relation to the unagreed ESOP program.
- We currently assume a vanadium price of US$77.8/kgV for 2018 and US$35/kgV for 2019 and thereon for our target price valuation.
- We currently assume no value for Bushveld Energy or the Lemur business units though we do include some value for Bushveld’s stake in AfriTin and Bushveld’s other vanadium assets.
- If we use vanadium prices estimated by Roskill, a leading price forecasting consultancy into our model for 2018 and 2019 we add a further 2.3p/s to our valuation.
Conclusion: Bushveld / Vametco interim figures tally with our model to within ~7% of our estimates without adjusting too much for higher H1 costs. The numbers give us some confidence in our estimates for the second half. Production guidance was lowered to 2,850-3,000mtV in August but may need to be lowered again due to the 16-day stoppage and time taken to ramp back up to full production. If the plant ramps up to the new Phase Two run rate of 3,750mtV pa or ~10.27mtV per day then the operation should, in theory be able to meet production guidance.
*SP Angel act as Nomad and broker to Bushveld Minerals. The analyst has visited the Vametco process plant and associated mining operations.
Georgian Mining* (GEO LN) 8.7p, Mkt Cap £9.9m – Positive meetings with government indicate permit approval is due soon
(Georgian’s assets in Georgia are held in a 50:50 joint venture)
HOLD
- Mike Struthers, ceo at Georgian Mining reports today on recent meetings between Georgian government ministers and the company.
- The meetings with the minister of the economy and sustainable development and the head of the mining agency appear to have gone well with an indication that a positive outcome should be due soon.
- A further meeting with the deputy minister of environmental protection and agriculture also appears to have resulted in a productive dialogue.
- We look forward to further positive news and the resumption of drilling and further evaluation of the Kvemo Bolnisi project and other geological targets in Georgia soon.
*SP Angel acts as Nomad and Broker to Georgian Mining.
Goldplat (GDP LN) 4.95p, Mkt Cap £8.3m – FY18 results
- Gold sales and transfers totalled 39.4koz (FY17: 40.3koz) during the year coming in higher than respective production of 35.4koz (FY17: 42.9koz) driven by a destocking at Group facilities.
- Sales climbed £33.8m (FY/17: £31.7m) reflecting stronger gold prices.
- Group operating profit fell 13.8% to £2,509k (FY17: £3,312k) weighed down by performance of operations in Ghana and Kenya.
- GPL operations in South Africa recorded a 10.7% increase in operating profit to £3,667k (FY17: £3,312k).
- GRG production facilities in Ghana reported a 51% drop in operating profit to £646k (FY17: £1,325k) as the plant was underutilised during the period on a shortage of suitable material.
- Kilimapesa facilities in Kenya recorded a net loss of £892k (FY17: -£1,100k) on the back of high rainfall, disruptions from elections and production hold-ups.
- Net profit amounted to £506k (FY17: £964k).
- FCF wise the Company has broadly broke even with closing cash balance reduced to £1.5m (FY17: £2.7m) following a reduction in outstanding borrowings; net debt reduced to £0.4m (FY17: £1.1m).
- “FY18 was a year during which a lot was achieved which did not translate into increased production or profitability, but Goldplat is confident that this will materialise during FY19,” the Company commented on results.
Fox Marble Holdings (FOX LN) 7.0p, Mkt Cap £15.3m - Interims
- Sales totalled €615k (H1/17: €330k) reflecting stronger production (5,473t v 3,780t in H1/17).
- Losses amounted to €816k (H1/17: €1,427k) after accounting for €1,195k in administrative costs (H1/17: €1,427k).
- FCF came in at -€1,899k (H1/17: -€991k).
- €3.9m raised earlier this year helped to cover operational losses as well as repay a share of outstanding debt.
- Net debt reduced to €0.7m from €2.9m with closing cash balance of €154k.
- Liquidity wise, the Company received a €0.5m advance payment for the sale of processed materials for a major construction project in Dubai while €0.3m worth of convertible notes have been issued in July.
- The Company had €454k in the bank as of the end of September with €1.1m in available draw down facilities.
- On operational front the, the commissioned CMC machine allowed the Company to expand its cut to size capacities with the team having further upgraded factory facilities with a delivery of a tile line and additional bridge saws and bridge edge processors.
- The Company has been stockpiling marble ahead of the winter season when quarry production facilities stop while the factory can continue with production of slabs and cut to size pieces.
- First significant orders from China for block marble have been recorded during with the customer willing to take 300t of material each month for the next 12; on more bespoke products side, the Company established a Dubai office to service the GCC region where it had entered into a forward purchase agreement under which it has sold $500k of processed marble forward.
Conclusion: It is good to see increasing number of customers and orders as well as stronger output at Fox Marble production facilities; although, interim results highlight the Company continues to struggle financially.
Ironveld (IRON LN) 2p, mkt cap £11.4m – Ironveld trial mining test samples for potential off-take partner
- Ironveld plc who hold the Middleburg iron, vanadium and titanium project in the Bushveld complex of South Africa report that they have started mining and supplying material to a potential off-take partner.
- The potential off-taker has requested a sample of 10,000t for commercial-scale testing.
- We hope the potential off-take partner is looking for a longer term supply arrangement and not just a bulk sample to take advantage of current high vanadium prices.
- The open cast project resource contains 27mt of HPI and 1.4bnlbs of Vanadium (V2O5) in situ JORC.
- Ironveld are looking to finance and build a 7.5MW smelting facility to produce some 190.5tpa of vanadium in slag grading 36% Vanadium , 21,000tpa of HPI powder and some 4,134.5tpa of titanium TiO2 in slag grading 65%.
Analysts
John Meyer – 0203 470 0490
Simon Beardsmore – 0203 470 0484
Sergey Raevskiy – 0203 470 0474
Phil Smith (Technology) – 0203 470 0475
Zac Phillips (Oil & Gas) – 0203 470 0481
Sales
Richard Parlons – 0203 470 0472
Jonathan Williams – 0203 470 0471
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