SP Angel . Morning View . LME week sentiment gives strong boost to copper

SP Angel – Morning View – Tuesday 09 10 18

LME weak sentiment gives strong boost to copper

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Bacanora Lithium (BCN LN) – NI 43-101 resource at Zinnwald lithium project

BlueRock Diamonds* (BRD LN) – Mike Houston to join board as Q3 production rises

Georgian Mining* (GEO LN) – Minister endorses exploration permit

Savannah Resources (SAV LN) – Settlement of Portuguese deferred consideration

Scotgold Resources* (SGZ LN) – BUY, Target 58p (from 60p) – NED buys 2.7m shares at 15% to closing price

Huawei Unveils Ultra-Fast Charging Lithium-Silicon Battery

Aiming to achieve a breakthrough in battery life, Huawei Consumer Business Group on Monday unveiled the industry's first patented lithium-silicon battery that promises to greatly improve fast-charging capability and ensures safety.
This patented technology is an iteration of the battery that is likely to be used in upcoming Huawei smartphones, the company said in a statement.
The silicon anodes in the Lithium-Silicon battery hold more power than graphite-based versions, thus making the battery more durable and increasing its power-retention capacity.

Trump says Pentagon to produce lithium sea-water batteries

President Trump said on Friday there was a shortfall in the US defence industrial base relating to lithium sea-water batteries and the Defence Department would purchase equipment for pilot production of the batteries that are critical for anti-submarine warfare.
Following a Pentagon-led report on Friday, a senior US administration official said new steps to ensure the US military supplies include an effort to build up stockpiled reserves of scarce materials and expand U.S. capabilities to manufacture products such as lithium sea-water batteries.
In letters to head of the House of Representatives Financial Services Committee and the Senate Banking Committee, Trump said initiatives to develop lithium sea-water batteries and fuel cells are “essential to national defence.”

Netherlands Top For Electric Vehicle Charger Density

According to a report, the country had 1,826 charging stations for electric vehicles in 2011 and today, it has 33,607 in total.
Last month, Vattenfall's Dutch subsidiary Nuon teamed up with McDonald's to equip every drive-thru restaurant branch with two fast-charging points, an effort that is expected to add 168 stations to the nationwide network.
Using International Energy Agency data, the report found that the Netherlands now boasts 19.3 charging stations per 100km, far ahead of all other countries analysed.
By contrast, China has 3.5, the United Kingdom has 3.1 and Germany has 2.8.

Dow Jones Industrials	+0.15%	at	26,487
Nikkei 225	-1.32%	at	23,469
HK Hang Seng	+0.23%	at	26,262
Shanghai Composite	+0.17%	at	2,721
FTSE 350 Mining	+1.40%	at	17,309
AIM Basic Resources	-1.03%	at	2,170

Economics

The IMF cut growth forecasts for the first time in more than two years on the back of escalating trade tensions and slowing growth in emerging economies.

Global economy is forecast to grow 3.7% this year and next, down from 3.9% projected three months ago.
Trade war related risks have climbed in the last three months while stronger than expected increase in interest rates might accelerate flight of capital from emerging markets hurting growth, the IMF said.
“There are clouds on the horizon… growth has proven to be less balanced than we had hoped… not only have some downside risks we identified in the WEO been realized, the likelihood of further negative shocks to our growth forecast has risen.”
2018 downgrade was led by weaker growth in Euro Area and Emerging Markets while the US and China estimates have been reiterated.
2019 US and China growth rates have been brought down to 2.5% (-0.2pp) and 6.2% (-0.2pp), respectively, as a result of tariffs.

China – A survey of 300 privately owned small and mid-sized enterprises across several sectors points to the worst drop in sentiment gauge in its seven-year history.

“Most surveyed companies are now experiencing unprecedented difficulties and have become increasingly pessimistic about business prospects for the next six months,” the economics professor at CKGSB who oversees the survey said.
“For most, business has never been worse.”

Italy – Finance Minister Tria is set to present the controversial budget to members of parliament today.

So far coalition leaders have rejected to calls to reconsider certain parts of the budget despite criticisms from the EU and growing investors concerns manifested in rising government debt yields.
Lately, the IMF has questioned government growth forecasts estimating the economy wijll grow 1.0% in 2019 versus 1.5% budgeted by Italian authorities.
The fund also highlighted that Italy given its high debt levels (131% GDP) should focus on improving their fiscal position.
10y bond yields are on the rise this morning trading around the highest level (3.26%) since early 2011.

Venezuela – The IMF published update inflation forecasts for the troubled state.

Annual inflation is expected to hit 1.37m percent by the end of the year, up from 1.0m forecast in July and 100x times more than 13,000% expected in January.
GDP is expected to contract 18% this year marking a third straight year of double-digit decline in GDP on the back of falling oil revenues and reckless economic policy.
Government policies has led to an unprecedented level of emigration of local population with 2.3m people having moved to neighbouring countries since 2014.
Around half have gone to Colombia with Peru, Ecuador, Chile, Brazil and Argentina, in that order, having received most of the rest.

Currencies

US$1.1472/eur vs 1.1498/eur yesterday Yen 113.35/$ vs 113.79/$ SAr 14.869/$ vs 14.911/$ $1.308/gbp vs $1.307/gbp 0.707/aud vs 0.705/aud CNY 6.923/$ vs 6.904/$

Commodity News

Precious metals:

Gold US$1,189/oz vs US$1,196/oz yesterday

Gold ETFs 67.1moz vs US$67.1moz yesterday

Platinum US$821/oz vs US$818/oz yesterday

Palladium US$1,077/oz vs US$1,062/oz yesterday

Silver US$14.40/oz vs US$14.46/oz yesterday

Base metals:

Copper US$ 6,246/t vs US$6,151/t yesterday

LME copper rises as much as +0.9%, leading a broad rise in base metals with investors favouring the red metal’s outlook in remarks at LME week in London. Metals are shrugging off IMF’s warnings on the global economy, after the lender cut its growth forecast for the first time in more than two years, finding cause in the escalating trade tensions and stresses in emerging markets.
Freeport-McMoRan exec Javier Targhetta sees a “very powerful copper market,” citing falling inventories, long-term demand from electric vehicles, moves to cleaner energy, urbanization and constrained supply. CRU Group’s Vanessa Davidson also likes copper on expectations of solid demand, as long as China avoids a “dramatic slowdown.”
The metal could also surge above $7,000/t as demand is set to outstrip supply, according to head of commodities and Asia-Pacific foreign exchange at UBS Group AG, Dominic Schnider. “Its really demand concern. If China stimulates enough, US does quite well in activity and Europe holds up, we’re good to go for another deficit.”
While the metal trades at a -14% discount to the beginning of 2018, targets on $7,000-$8,000/t are needed to attract essential mine investment.
Concerns over a global trade war’s effect on economic growth helped drive copper into a bear market in August and price recovery since then has been tepid. However, physical spot sales of copper to China are booming and exchange inventories have fallen sharply. That disconnect has metals specialists gathering in London for LME Week -- from producers to commodity-focused hedge funds -- turning increasingly bullish on copper.
Efforts to sell up to 60,000tpa copper from Codelco to China Minmetals between 2019-2021 is marking a change in sales strategy for a longer-term agreement from typically annual deals. The aim was to agree ‘evergreen’ three-year deals in which the Chinese company would commit to buy 50-60ktpa during the period, with the three-year pact rolling over annually – so from 2020 the deal would be extended to run for three years until the end of 2022 and so on.
Typically supply contracts are agreed annually for the next year during what is known as "mating season" in October and November when producers and customers agree quantities. Premiums are set above the London Metal Exchange benchmark price. According to one source “Codelco is looking to establish a base of bigger and long-term strategic customers worldwide and Asia is not an exception”.
Codelco, the world's largest copper miner, accounted for 1.734mt of global supplies last year, about 7% of the total estimated at about 23mt. It has historically been used as a benchmark for copper premiums.
Many companies are keen to lock in long-term supplies due to expectations of shortages over coming years, created by a dearth of new projects, deteriorating ore grade and healthy demand. However, a 25% duty on Chinese imports of U.S. copper scrap imposed since from Aug. 23 has fueled uncertainty about supplies in China, the world's largest consumer of the metal used widely in power and construction. These duties could create disruptions to Chinese consumers, and the move to secure long-term supply reflects growing supply concerns.

Aluminium US$ 2,066/t vs US$2,078/t yesterday

Nickel US$ 12,770/t vs US$12,450/t yesterday

Zinc US$ 2,657/t vs US$2,581/t yesterday

Lead US$ 1,995/t vs US$1,976/t yesterday

Tin US$ 18,925/t vs US$18,955/t yesterday

Energy:

Oil US$84.5/bbl vs US$83.3/bbl yesterday - Oil Prices Climb as Iran’s Crude Oil Exports Drop Further

Oil prices advanced on Tuesday as Iran’s crude oil exports dropped further, Reuters reported citing tanker data and an industry source.
Crude Oil WTI Futures for November delivery gained 0.43% to $74.61 a barrel on the New York Mercantile Exchange, while London’s Intercontinental Exchange showed that Brent Oil Futures for December delivery also rose 0.5% to $84.31 per barrel.
The Islamic Republic for Iran exported 1.1 million barrels per day of crude in the first week of October, according to the report

Chinese Oil Product Consumption Grows 6% In August

China’s oil product consumption increased by 5.9% annually and 3.2% monthly in August, with gasoline consumption up 9.5% and gasoil consumption up 2.7% on the year, according to data by the National Development and Reform Commission.
The monthly increase in China’s oil product consumption in August was the second consecutive month of month-on-month growth as higher temperatures increased car air conditioning use.
Chinese oil product consumption between January and August rose by 5.8% compared to the same period last year, with gasoline consumption up 6.5% and gasoil consumption rising by 4.5%, according to the NDRC.

Natural Gas US$3.293/mmbtu vs US$3.180/mmbtu yesterday

Uranium US$27.50/lb vs US$27.50/lb yesterday

Bulk:

Iron ore 62% Fe spot (cfr Tianjin) US$69.2/t vs US$68.4/t

Iron ore futures in Dalian rise to the highest level in almost three weeks as robust demand from steel mills indicates rising production. Huatai Futures notes “steel production rose during the National Day holidays, which indicates that iron ore demand from steel mills should be solid. We expect spot iron ore prices will be supported by this”.
High sales from inventory and curbs on output in hubs such as Tangshan, are expected to improve rebar’s fundamentals and sustain demand for the raw materials.
Iron ore for January as much as +2.8% to 512 yuan/ton on Dalian Commodity Exchange, highest level since Sept. 19.
Investors also weighing significance of the People’s Bank of China cut to required reserve ratio for some lenders by 1% point, effective Oct. 15. A sell-off in Chinese equities eased, but the IMF’s first reduction in its outlook for global growth since 2016 underscores headwinds for stocks -- particularly outside the U.S., which continues to benefit from tax cuts.

Chinese steel rebar 25mm US$680.5/t vs US$680.0/t - India’s steel output rises

India produced 52.25m mt of crude steel over April – September, up 6% from last year, latest provisional data from the country’s Joint Plant Committee showed
Finished steel production totalled 63.76m mt over the period, up 4%
India’s domestic steel demand is forecast to grow 10-11% over the next three years are construction activity ramps up, the JPC said

Thermal coal (1st year forward cif ARA) US$98.8/t vs US$99.7/t

Coking coal futures Dalian Exchange US$191.6/t vs US$192.1/t

Other:

Cobalt LME 3m US$62,000/t vs US$56,250/t

China NdPr Rare Earth Oxide US$46,582/t vs US$46,711/t

China Lithium carbonate 99% US$10,039/t vs US$10,284/t

Lithium exports from Chile, the nation with the world’s largest reserves, dropped for the first time in more than two years in September, according to a monthly report by the central bank. Shipments of lithium carbonate fell -3.1% to $57m in September from the same month last year, the first decline since January 2016.
Prices of lithium carbonate produced in South America fell to $14,500/t, the lowest since February, according to Benchmark Minerals Intelligence data, suggesting tighter rebalance of the market.

Tungsten APT European US$275-290/mtu vs US$275-290/mtu

Company News

Bacanora Lithium (BCN LN) 32.8p, Mkt Cap £44m – NI 43-101 resource at Zinnwald lithium project

Bacanora Lithium announce NI 43-101 compliant Measured + Indicated resources of 124,974t of contained lithium at its 50% owned Zinnwald lithium project in southern Saxony, Germany. The new mineral resource estimate upgrades the 2014 PERC compliant report by approximately 30% from 96,200t.
The project resource statement is based on 76 surface holes plus 12 underground holes comprising 6,465m of core; including 10 surface drill holes completed in 2012-2014 (nine diamond drill holes and one reverse circulation drill hole) covering a total length of 2,484m, and infill and verification drilling consisting of 15 surface diamond drill holes with a total length of 4,458.9m completed in 2017.
The equivalent total mineral resource (Measured + Indicated + Inferred) at a 2m minimum thickness and 2,500 ppm cut-off grade increased by 7% from 132,740t of contained Li to 142,240t.
The upgraded resource forms part of the ongoing feasibility study work at Zinnwald, building on concentrator and roasting testwork. The remaining FS workstreams, including mine design, hydrometallurgical testwork and engineering design, are all underway and proceeding on schedule.
CEO Peter Secker notes “With a strategic location in the heart of the important German battery and automotive sectors, Zinnwald is ideally situated to become a major supplier of high-value lithium products to Europe's rapidly emerging electric vehicle and energy storage industries. We are keen to realise Zinnwald's potential and, with this in mind, we are looking forward to the completion of the FS in Q2 2019.”

BlueRock Diamonds* (BRD LN) 0.93p, Mkt Cap £1.9m – Mike Houston to join board as Q3 production rises

BlueRock Diamonds report the anticipated appointment of Mike Houston to the board.
Houston is known in the London market for having rescued Shanta Gold after the disastrous tenure of Gareth Taylor as CEO.
We recall Mike as having to renegotiate a number of third party contracts as well as fixing the gold process plant to save Shanta from ruin.
Mike’s interest in BlueRock should be a good sign from a shareholder perspective as he knows how to fix process plants and to run a mining business in Southern Africa.
BlueRock also report production of 63,621t of ore through the third quarter increasing the expected output of diamonds.
The last diamond tender offered to the diamond market for sale was for 1,834cts from 58,565t mined implying a recovered grade of 3.13cpht.
The tender sale value was US$0.625m vs US$0.267m in Q2 and US$0.59m in Q1 bringing sales for the year to date to 1.48m.
Grades should improve from here as mining of the KV2 pit starts to access higher grade ore from below 20m in the pit. 20m is still very shallow in mining terms meaning that trucking distances and costs should be low.

Good diamond values continue to be attained at $341/ct in the last diamond tender and is reasonably consistent with previous tender values despite some softening in the diamond market.

A relatively valuable 10.58ct stone was recovered in the quarter which the company expects to sell for >$50,000 though this should not appreciably raise the overall value of the next parcel to be sold.

.BlueRock cut its guidance for diamond grades to 3.0cpht though the expected grade for the KV2 pit is 4.5cpht and 6.3cpht for KV1, though the estimated grade for KV1 has not been realised due to poor recoveries and possibly other reasons to date.

Management have lowered production guidance to 200,000t for the full year from 220,000t. The implication is the business should mine some 63,351t in Q4.
The move into a higher grade portion of the KV2 pit should raise grades to >3.5cpht indicating the potential recovery of around 2,217cts through Q4 at a value of US$0.756m
It won’t be possible to sell all these stones before the year end suggesting to us that reported sales will be around the £2m mark with better results to come in Q1 next year post the South African Christmas holiday break.

Conclusion: mining is ramping up for BlueRock in South Africa. While much has gone wrong in the past management should now be better able to feed the plant and better recover the stones within its throughput. Lower unit costs, helped by a weaker rand should help BlueRock turn a profit next year assuming targets are attained.

*SP Angel acts as Nomad & Broker to BlueRock Diamonds

Georgian Mining* (GEO LN) 10.1p, Mkt Cap £11.6m – Minister endorses exploration permit

Georgian Mining announce a major step in the award of the pending exploration permit with the endorsement of the application by Mr. George Kobulia, the Minister of Economy and Sustainable Development in Georgia. The final step, the Government Resolution, has now been submitted by the Mining Agency.
CEO Mike Struthers notes the endorsement “allows the Mining Agency to finalise the Government Resolution”. The company are “poised to re-start physical fieldwork” with the “Resolution going to other ministries such as Finance and Environment and takes only a few weeks to complete”.

*SP Angel acts as Nomad and Broker to Georgian Mining.

Savannah Resources (SAV LN) 6.7p, Mkt Cap £57.7m – Settlement of Portuguese deferred consideration

Savannah Resources announces the commencement of the settlement of the second and final deferred consideration tranche in accordance with the terms of the acquisition of the company’s portfolio of Portuguese projects in May 2017, including the flagship Mina do Barroso project.
The company has commenced the settlement of the Milestone 2 deferred consideration of AUD1.5m cash and the issue of 20,000,000 new ordinary shares of 1 pence each in the capital of the company.
The Milestone 2 payment was triggered following the Company's announcement dated 10 September 2018, in which Savannah reported Western Europe's largest JORC-compliant spodumene lithium Mineral Resource of 20.1mt at 1.04% Li2O. This comprises a further JORC-compliant Mineral Resource of 7.5mt at no less than 1% Li2O in excess of the Milestone 1 target (initial JORC-compliant Mineral Resource exceeding 7.5mt at greater than 1% Li2O, which was announced on 26 February 2018 and settled in March 2018).

Scotgold Resources* (SGZ LN) 26p, Mkt Cap £12m – NED buys 2.7m shares at 15% to closing price

BUY – 58p (from 60p)

Mr William Styslinger, a NED of the Company, and Ms Jane Styslinger subscribed for 1.4m shares each at a price of 27.5p, raising a total of £750k.
Proceeds are planned to be directed towards funding the next stage of exploration programme at the Grampian project as well as other corporate activities.

Conclusion: The project remains fully funded for the development of Phase I that is to run at 36ktpa and deliver c.14kozpa. The Company had £6.3m in cash as of Jun/18 and £5m of outstanding loan facilities covering budgeted £7.4m Phase I development capex.

Board member support in the form of an acquisition of shares at a premium to the previous day closing price is a welcome news with the raised funds planned to cover exploration works.

A reduction in the target price accounts for a dilutive effect of the issue of 2.7m shares.

(Jun year end)		FY16	FY17	FY18	FY19e	FY20e	FY21e	FY22e
Gold price	US$/oz	1,168	1,258	1,298	1,268	1,325	1,350	1,350
Gold price	GBP/oz	788	992	964	905	946	964	964
AUDGBP	A$/£	2.04	1.68	1.74	1.78	1.78	1.78	1.78
Gold sales	koz	-	-	-	1.0	10.2	15.8	18.4
TCC	GBP/oz	-	-	-	484	438	321	306
Sales	A$m	0.0	0.0	0.3	1.6	17.2	27.1	31.6
EBITDA	A$m	-1.3	-1.1	-1.7	-1.1	7.5	16.8	20.2
PAT	A$m	-1.5	-1.3	-1.9	-1.5	5.0	12.2	12.0
Basic EPS	A$c	-11.8	-8.6	-7.9	-3.4	10.9	26.7	26.4
FCF	A$m	-2.7	-2.1	-2.0	-17.2	5.5	2.8	12.0
EV/EBITDA	x	-	-	-	-	3.8	1.7	1.4
PER	x	-	-	-	-	3.1	1.3	1.3
Source: SP Angel, Company

*SP Angel acts as nomad and broker to Scotgold 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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Buy - Expected return >15%

Hold - Expected return range -15% to +15%

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** SP Angel acts as Broker to this Company