SP Angel – Morning View – Thursday 30 08 18

Emerging markets currencies retreat amid sell off in peso and lira

 

MiFID II exempt information – see disclaimer below

 

SP Angel are the No. 1 broker for AIM mining stocks in London

SP Angel analysts consider the Social and Environmental impact of the mines and projects they work with.

Well considered projects with good ethical consideration often lead to lower risk and higher returns which is good for investors as well as the local environment while poor social and environmental consideration can lead to problems which interrupt projects leading to reduced returns for investors.

 

African Battery Metals* (ABM LN) – Management drive focus on cobalt as company drops Sierra Leone

Great Western Mining (GWM LN) – Progress report on drilling programme at M2-Sharktooth

Metminco (MNC LN) – Near surface mineralised drill intersections at Tesorito

Orosur Mining (OMI LN) – Annual results and outlook

Walkabout Resources (WKT AU) – Tanzanian government awards mining license for Lindi Jumbo graphite project in Tanzania

 

Emerging markets currencies in retreat amid sell off in peso and lira

  • Trump and Fed policy actions serve to accelerate problems in emerging markets as fund flows cause currencies to fall
  • Trump policy tax changes and Federal Reserve actions to raise US interest rates have accelerated the repatriation of funds out of emerging markets and into US dollars
  • The fund flows are having a market effect on some weaker currencies with the Argentine and Turkish currencies suffering major falls
  • While Trump gets to nominate the Fed Chair the president is not able to determine Fed rate policy

Argentine – The peso is in a free fall again having posted the largest drop since late-2015 devaluation hitting fresh lows.

  • The national currency dropped 7.9% to a record low of just below 34 against the US$ yesterday as President Mauricio Macri made a public plea for the IMF to speed up the disbursement of the bailout money.
  • 10y bond yields jumped 40bp to above the 10% mark while century bonds maturing in 2117 hit a fresh low of 70.5c on the dollar.
  • In his address broadcast on YouTube, President Macri said he had requested “all the resources that should be necessary” to guarantee the nation’s 2019 financing programme after the fund released the first tranche of $15bn in June.
  • The IMF said it had agreed to revise the terms of the $50bn bailout package to Argentine “in consideration of the more adverse international market conditions”, Christine Lagarde said.
  • “I have instructed IMF staff to work with the Argentine authorities to strengthen the Fund-supported arrangement and to re-examine the phasing of the financial programme.”
  • Earlier this month, the central bank raised rates to 5pp to 45% to reduce pressure on the currency.

Turkey – The lira remained weak dropping as much as 2.1% against the US$ to 6.5875, a new low for the week, and coming in closer to the historic trough of 7.2149 reached in August.

 

Visible Inventory levels for steel remain steady despite China increase in steel production

  • Visible steel inventories remain relatively low according to SteelHome a Chinese-based steel-focused consultancy.
  • This is good news for Australian iron ore as it suggests that global demand continues to soak up supply with little impact on visible inventory levels as yet
  • Other inventory levels for the majority of base metals are also at relatively low levels on a 10-year perspective suggesting that consumption growth continues to outpace supply

 

Coking coal futures prices pull back – (Metal Bulletin)

  • Prices for Coking Coal futures fell in early trading in China this morning to CNY1,249 ($182/t) according to the Metal Bulletin.
  • The fob Australia premium hard Coking coal price index remains at $184/t and is still higher than the $172.5 seen in July and April this year though the Chinese futures price indicates a potential pullback to come.

 

Cobalt – Toronto listed Cobalt 27 reported a theft of 76t of cobalt from Vollers warehouses in Rotterdam in early July, the Company reported in its earnings update.

  • The majority of its 2,982t holding was store in a Steinweg warehouse elsewhere in the port, it reported.
  • At current LME price of $65,500/t that equates to around $5m worth of the metal.

 

Dyson electric vehicles likely to drive demand for neodymium and other rare earths

  • Dyson is in the news today for his further investment into electric vehicle design, development and manufacture in the UK.
  • The inventor, famous for his high-power vacuum cleaners is looking to invest a further £116m into expanding facilities for the development and testing of the new Dyson electric cars.
  • The total investment is estimated to be £200m.
  • Given Dyson’s success in the vacuum cleaner and other markets and his leading position with regard to light-weight, high-power electric motors we can expect to see good things coming from these new facilities.

 

Dow Jones Industrials

 

+0.23%

at

  26,125

Nikkei 225

 

+0.09%

at

  22,870

HK Hang Seng

 

-0.93%

at

  28,153

Shanghai Composite

 

-1.14%

at

   2,738

FTSE 350 Mining

 

-1.38%

at

 17,042

AIM Basic Resources

 

-1.18%

at

   2,231

 

Economics

US – American equities closed higher on Wednesday helped by an upbeat revision to Q2 growth data and on hopes that the US and Canada will reach a trade agreement.

  • Q2 GDP growth rate has been revised up from the already impressive pace previously reported (4.2% v 4.1%).

 

Germany – State level inflation numbers released this morning show growth in consumer prices has either notched down slightly or remained unchanged with most readings remaining above the 2% mark.

  • Nationwide headline number is due later today with estimates for no change in the 2.1% rate recorded in July.

 

UK – The pound is holding above $1.30 mark after posting nearly a 1.3% jump yesterday on optimistic Michel Barnier comments over the future of the EU/UK trade relationship.

  • Chief negotiator from the EU suggested that they were “prepared to offer a partnership with Britain such as has never been with any other third country”.

 

Spain – Inflation edged lower in August but kept above the 2% level led by stronger electricity prices.

  • CPI EU Harmonised (%mom/yoy): 0.1/2.2 v -1.2/+2.3 in July and 0.2/2.2 forecast.

 

Myanmar – Flooding following a dam failure affects 85 villages and forces more than 63,000 people from their homes, a state run newspaper said yesterday.

  • A rescue mission was launched yesterday after the spillway of an irrigation dam burst at Swar creek in central Myanmar.
  • “The retaining wall of the spillway sank into the foundation about 4-5 feet, causing the flooding, but the main dam is intact,” an irrigation at the Ministry of Agriculture, Livestock and Irrigation said.
  • Waters are reported to be receding now but two people remained missing who are feared to have been washed away.

 

Currencies

US$1.1705/eur vs 1.1680/eur yesterday. Yen 111.62/$ vs 111.22/$. SAr 14.474/$ vs 14.310/$. $1.303/gbp vs $1.287/gbp.

0.730/aud vs 0.731/aud. CNY 6.833/$ vs 6.820/$.

 

Commodity News

Precious metals:         

Gold US$1,204/oz vs US$1,205/oz yesterday – The precious metal is on course for the fifth monthly decline, marking the longest stretch of losses since 2013, as US equities climb to new highs and the FOMC continues with the tightening policy.

   Gold ETFs 68.2moz vs US$67.9moz yesterday

Platinum US$796/oz vs US$795/oz yesterday

Palladium US$971/oz vs US$947/oz yesterday

Silver US$14.70/oz vs US$14.74/oz yesterday

           

Base metals:   

Copper US$ 6,083/t vs US$6,106/t yesterday

Aluminium US$ 2,169/t vs US$2,134/t yesterday

Nickel US$ 13,490/t vs US$13,550/t yesterday

Zinc US$ 2,500/t vs US$2,511/t yesterday

Lead US$ 2,102/t vs US$2,075/t yesterday

Tin US$ 18,940/t vs US$19,140/t yesterday

           

Energy:           

Oil US$77.3/bbl vs US$76.0/bbl yesterday

Natural Gas US$2.874/mmbtu vs US$2.862/mmbtu yesterday

Uranium US$26.60/lb vs US$26.60/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$65.5/t vs US$66.1/t

Chinese steel rebar 25mm US$685.8/t vs US$689.2/t

Thermal coal (1st year forward cif ARA) US$92.6/t vs US$91.0/t

Premium hard coking coal Aus fob US$181.0/t vs US$180.9/t

           

Other:  

Cobalt LME 3m US$65,500/t vs US$64,250/t

Tungsten APT European US$280-300/mtu vs US$300-315/mtu

 

Company News

African Battery Metals* (ABM LN)  3.3p, Mkt Cap £4.4m – Management drive focus on cobalt as company drops Sierra Leone

  • African Battery Metals reports it is pulling out of Sierra Leone due to a lack of interest in the assets and the cost and hassle of working in Sierra Leone.
  • Management recently acquired further prospective interests in a number of cobalt projects through the full acquisition of Cobalt Blue Holdings 'CBH' and Regent Resources Interests Corp. 'RRIC'.
  • The acquisitions bring in prospecting licenses for cobalt and nickel in Cameroon and cobalt and chrome in Cote d'Ivoire
  • Cobalt Blue Holdings holds ground which is adjacent to and relatively close to an existing NI-43101 nickel-cobalt resource in Cameroon which was formerly held by Geovic  which suffered internal management issues between their Canadian & US senior management and local partners in Cameroon as well as a lack of funding.
  • See link to the NI-43101 Technical Report on the Nkamouna and Mada Deposits  https://www.sec.gov/Archives/edgar/data/1398005/000119312511161283/dex991.htm
  • The mineral resources for the Nkamouna and Mada cobalt-nickel deposits measure 59.8mt grading 0.24% cobalt, 0.68% nickel and 1.37% manganese classified with an additional 60.8mt grading 0.22% cobalt, 0.62% nickel and 1.32% manganese classified as Indicated Mineral Resources as Measured Mineral Resources as audited by SRK. An additional 202.5mt grading 0.20% cobalt, 0.59% nickel and 1.20% manganese is classified as Inferred Mineral resources. The resource is stated above a 0.12% cobalt cut-off for ferralite and a 0.23% cobalt cut-off for breccias, constrained above the bedrock surface.
  • The last publically available press report on Nkamouna suggests the government was considering taking the license back presumably due to a lack of development activity despite the presence of a NI-43101 resource and former feasibility study done by Lycopodium, the international engineering group.
  • The relatively high grade at Nkamouna and Mada suggests reasonable potential for development despite its remote location inland in the East Province of Cameroon. Cameroon is reported to have issued a mining permit decree for the project in April 2003 Lycopodium completed a feasibility study in 2011. The mine was projected to have a life of over 23 years producing >6,100t of cobalt 3,288t nickel and 62,600t of manganese carbonate in the first 11 years of production.
  • Regent Resources Interests Corp. also holds the right to earn into 70% of prospective nickel-cobalt licenses in the Ivory Coast.

Conclusion: Management are focusing on developing value in their expanding portfolio of cobalt licenses.

*SP Angel act as broker to African Battery Metals

 

Great Western Mining (GWM LN)  0.68p, Mkt Cap £4.6m – Progress report on drilling programme at M2-Sharktooth

  • Great Western Mining reports that hole M2-041 at its Sharktooth project in Nevada intersected 1.68m of mineralisation at an average grade of 5515ppm (0.55%) copper and 1742ppm (0.17%) nickel with 29ppm of cobalt from a depth of 486.46m.
  • “The Company believes this to be a strong indicator of (1) the multiple hydrothermal flooding events observed in the altered breccia and (2) the proximity of the mineralised diorite host rock below”.
  • Another hole (M2-042) is currently underway “located 183 metres west of, and up the structural dip from, hole M2-041 and is projected to intersect with the mineralised diorite at a depth of approximately 360 metres”.
  • Chief Executive David Fraser commented that "The mineralogic and assay data from the bottom of M2-041 is very encouraging and a good indicator that our geological model remains valid”.
  • The programme has been slowed down as a result of operational drilling difficulties which have required the implementation of a number of changes including the introduction of night shift working in order to speed up progress.

Conclusion: Drilling at Sharktooth is going slower than expected but is locating mineralisation at depth. This helps to confirm the geological exploration hypothesis but we expect considerable more work, and perhaps wider and higher grade intersections, will be required to turn the theory into a workable project.

 

Metminco (MNC LN)  0.48p, Mkt Cap £2.6m – Near surface mineralised drill intersections at Tesorito

  • Metminco has announced the “highest gold grades drilled to date at Tesorito” with an intersection of 64m at an average grade of 1.67 g/t gold from a depth of 144m in hole TS-DH-07 which forms part of a four-hole programme.
  • The result lies within a wider intersection of 253.1m at an average grade of 1.01g/t gold from a depth of 2.9m down hole.
  • “Drill hole TS-DH-07 was drilled perpendicular to and beneath TS-DH-02 which, as previously reported, gave 384m @ 1.01g/t from 16m. TS-DH-07 demonstrates the highest grades seen to date at Tesorito with significant width and downhole continuity to the higher grade mineralisation”.
  • Other results from the recent work include:
    • 140.3m averaging 0.44g/t gold, 0.6g/t silver and 0.05% copper from a depth of 1.7m in Hole TS-DH-05 which also intersected 38.7m averaging 0.4g/t gold from a depth of 179m as well as 75.8m averaging 0.6 g/t gold from a depth of 259.9m; and
    • 130m averaging 0.31g/t gold, 0.48g/t silver and 0.03% copper from a depth of 2m in Hole TS-DH-06
    • The Tesorito prospect is located 800m southeast of the company’s Miraflores deposit which already has a JORC compliant resource of 880,000oz of gold within 9.8mt at an average grade of 2.8g/t gold and around 3km southeast of the Dosquebrados project area which also has an NI-43-101 compliant resource of 920,000oz of gold. 
    • Tesorito is also close to the Chuscal deposit (2km to the south) where “Metminco is currently advancing negotiations with AngloGold Ashanti on this target”.
    • Commenting on the drilling at Tesorito, Executive Chairman, Kevin Wilson, said that they demonstrate “that there is potential for the Company's 880koz Resource at Miraflores to be complemented by this near surface mineralised target at the Tesorito porphyry, only 800m to the southeast. Importantly, any near surface, higher grade gold mineralisation delineated at Tesorito has the potential to materially improve the economics of the Miraflores feasibility study though an integrated development plan, sharing mine and process infrastructure. In addition, we have additional targets at Chuscal and Dosquebrados requiring follow-up, all within a potential radius of operation for a centralised plant."
    • The company plans to integrate the drilling information with historical records and the results of recently sourced geophysical data in order to plan a future drilling programme to “both scope the known high grade mineralisation at surface; and investigate potential repetitions of the high grade zone within the broader intrusive porphyry complex … [and] … Investigate the depth potential of mineralised porphyry by considering a deep drill hole to test the depth extension of the high grade gold zone into what is thought to be higher grade base metals at depth”.

Conclusion: The identification of near surface mineralisation close to the Miraflores project area at Tesorito will require more detailed follow-up drilling to establish the scale of the opportunity but could, in the future, allow a more flexible development plan from the integration of a possible near surface operation at Tesorito with the planned underground mining at Miraflores. We await news of future exploration with interest.

 

Orosur Mining (OMI LN)  2.5 pence, Mkt Cap £2.9m – Annual results and outlook

  • In what it describes as “a challenging year” as a result of lower than expected grades at its SGW underground mine in Uruguay, Orosur Mining reports a pre-tax loss for the year ending 31st May 2018 of US$27.2m (2017 profit of US$2.3m).
  • The results include a US$6m write-off of exploration plus a US$11m impairment charge as well as US$1.1m of inventory write-downs.
  • Gold production declined by almost 8,000oz (22%) during the year to 27,586oz while cash costs increased by 12% to US$989/oz and all-in-sustaining costs rose by 18% to US$1453/oz.
  • As a result, the company finished the year with net debt of US$0.55m compared to net cash of US$2.96m a year earlier.
  • As part of a drastic programme of remedial measures “The Company reacted quickly and decisively; drastically reducing costs and restructuring its various business units. In mid-June, the Company applied to place its key operating subsidiary in Uruguay, Loryser, into voluntary creditor protection.
  • As a result of these measures, “During FY19, the Company expects to produce between 2,500 - 3,500 ounces of gold, with operating costs of US$1,000 - US$1,100 per ounce from the San Gregorio mine in Uruguay in Q119, after which point all production is expected to be ceased and is not expected to resume in FY19, with operations placed on care and maintenance.”
  • “All future production shall depend on material developments in the funding and environmental permitting of the Veta A Underground project in Uruguay”
  • The company is now “focusing on financing the next stages of exploration of the high grade Anzá project in Colombia and is in the process of advancing a strategic alliance with a sophisticated international mining Company”. Orosur has previously announced that this investor had advanced US$250,000 to finance continuing exploration at Azna.

Conclusion: Previous announcements have shown positive exploration results from the Azna project which, with the closure of the operations in Uruguay, becomes – for the time being at least – Orosur’s main focus.

 

Walkabout Resources* (WKT AU) A$0.17c, Mkt cap A$44.7m – Tanzanian government awards mining license for Lindi Jumbo graphite project in Tanzania

  • Walkabout Resources report this morning the award of the lindi Jumbo graphite project by the Ministry of Minerals in Tanzania.
  • The company is now authorised to finalise the on-site Relocation Assistance Program , subject to payment of fees and acceptance of technical details
  • Final construction plans for the Lindi Jumbo mine site can now be agreed and the Engineering, Procurement and Construction Agreement ‘EPC’ can be finalised and set in motion
  • The company will now transfer 100% ownership of the project into the name of Walkabout subsidiary, Lindi Jumbo Limited

*SP Angel acts for Walkabout Resources

 

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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*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.

 

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