SP Angel – Morning View – Friday 31 08 18

Risk off sentiment lifts gold prices

 

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.

 

Beowulf Mining (BEM LN) 4.85p, Mkt Cap £27.5m – Interim results

Mkango Resources* (MKA LN) 9.75p, Mkt Cap £10.6m – Grant of options to new directors

Premier African Minerals (PREM LN) 0.18p, Mkt Cap £13m – Drilling update from RHA tungsten

Serabi Gold (SRB LN) 54.5p Mkt value £32m – Step out drilling shows southward extension of Palito

 

Fund flows back into the US dollar out of emerging markets and out of other assets are distorting markets, as seen in collapsing currencies

  • Question for investors is which way will commodities fall as markets adjust to Trump’s new global order.
  • Trump with all his crazy rhetoric appears to be simply enacting ‘Republican’ policies albeit in a rather tough manner.
  • Changes to the US tax regime started the move to repatriate US funds with the impact of this exacerbated by the Fed’s insistence on raising US interest rates.
  • Trump has tried to direct the Fed not to raise rates but the Federal Reserve which is technically owned and run by a collection of US banks has ignored the President’s unsubtle hints and continued regardless.
  • China reacted with a sell-off in equities offset by injections of liquidity into specific areas and then a massive sale of copper directing commodity markets lower in a massive round of momentum selling with prices rebounding more recently.
  • Reality is returning to commodities with buying earlier this week lifting depressed prices though the impact of Trump’s hard line on tariffs has yet to be fully determined
  • While the sell-off appeared overdone this summer speculators may take a slightly cautious view to commodities over the next few weeks till demand growth is better determined.

 

Friday funny – does your dog share your political views?

 

Dow Jones Industrials

 

-0.53%

at

  25,987

Nikkei 225

 

-0.02%

at

  22,865

HK Hang Seng

 

-1.16%

at

  27,836

Shanghai Composite

 

-0.46%

at

   2,725

FTSE 350 Mining

 

-0.90%

at

  16,923

AIM Basic Resources

 

-0.52%

at

   2,219

 

Economics

US – Trump wants to move ahead with a plan to add tariffs on $200bn worth of Chinese imports as soon as public-comment period ends next week, six people familiar with the matter said.

  • When asked to confirm the news in an interview with Bloomberg News, Trump said that it was “not totally wrong”.
  • Equities are trading in the red with US stock indices futures pointing to a weaker opening.
  • Carmakers were the biggest losers in the Stoxx Europe 600 Index after Trump expressed doubts on the scope of a trade deal between the US and Europe while potentially toughening his position on Chinese imports.

 

China – Official PMI numbers ticked up in August beating market estimates for a decline in economic activity measures.

  • While an increase in the index has been driven by a rise in the output component coupled with an inventories build up, the demand side has not kept up as indicated with a decline in new orders which hit a six-month low in August, partly driven by weaker export orders, Capital Economics wrote.
  • Weaker new orders were reported both in manufacturing and services sectors.
  • Although PMI readings suggested that activity held up better than expected in August, demand growth remained on a downward trajectory.
  • Manufacturing PMI: 51.3 v 51.2 in July and 51.0 forecast.
  • Services PMI: 54.2 v 54.0 in July and 53.7 forecast.
  • Composite PMI: 53.8 v 53.6 in July.

 

Japan – Steel exports to the US dropped 12%mom in July to 107.5kt marking the lowest level in more than seven and a half years and well bewlow the 2017 average of 148.3kt.

  • The drop is attributed to President Trump steel tariffs in March this year.
  • In total, national industrial production dropped 0.1%mom last month amid softer semiconductor and auto sales.

 

Germany – Inflation disappointed in August with the EU harmonised measure easing to 1.9% versus 2.1% in July and 2.0% forecast.

 

UK – Business confidence dropped to the lowest level since December this month on the back of concerns over no clear path on post-Brexit trade agreements, according to a survey by Lloyds.

  • Sentiment was most hurt in construction and consumer services, while it only remained steady in manufacturing.
  • On the consumer side of things, the GfK consumer confidence index continued to rangebound in negative territory.
  • Property prices recorded the biggest drop in six years, Nationwide reported.
  • UK house prices fell by 0.5%mom in August following a 0.7%mom increase in the previous month which in turn left the annual pace of growth at 2%, from 2.5% in July.

 

Turkey – In an effort to desensitise people holding the US$, the government raised taxes on US$ deposits of up to a year and scrapped a 10% tax on lira accounts with maturities longer than a year.

  • The currency climbed slightly against the US$ this morning, but remained on course for a 9% weekly drop making it the second worst performing emerging market currency this year.

 

Argentine – The central bank hiked rates to 60% yesterday in a desperate attempt to shore up the peso which has fallen more than 20% since the start of the week.

 

Currencies

US$1.1682/eur vs 1.1705/eur yesterday. Yen 110.78/$ vs 111.62/$. SAr 14.771/$ vs 14.474/$. $1.301/gbp vs $1.303/gbp. 0.725/aud vs 0.730/aud. CNY 6.829/$ vs 6.833/$.

 

Commodity News

Precious metals:         

Gold US$1,207/oz vs US$1,204/oz yesterday

   Gold ETFs 68.0moz vs US$68.2moz yesterday

Platinum US$798/oz vs US$796/oz yesterday

Palladium US$979/oz vs US$971/oz yesterday

Silver US$14.67/oz vs US$14.70/oz yesterday

           

Base metals:   

Copper US$ 6,048/t vs US$6,083/t yesterday

Aluminium US$ 2,144/t vs US$2,169/t yesterday

Nickel US$ 13,115/t vs US$13,490/t yesterday

Zinc US$ 2,505/t vs US$2,500/t yesterday

Lead US$ 2,096/t vs US$2,102/t yesterday

Tin US$ 18,985/t vs US$18,940/t yesterday

           

Energy:           

Oil US$77.6/bbl vs US$77.3/bbl yesterday

Natural Gas US$2.897/mmbtu vs US$2.874/mmbtu yesterday

Uranium US$26.40/lb vs US$26.60/lb yesterday

           

Bulk:   

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

Chinese steel rebar 25mm US$682.5/t vs US$685.8/t

Thermal coal (1st year forward cif ARA) US$91.4/t vs US$92.6/t

Premium hard coking coal Aus fob US$182.2/t vs US$181.0/t

           

Other:  

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

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

 

Company News

Beowulf Mining (BEM LN)   5.3p, Mkt Cap £30m – Interim results

  • Beowulf Mining reported relatively modest administrative expenses for the first half of £349,027 vs £364,522 a year ago.
  • The loss inflated by a £97,423 share-based payment expense to give a on operating loss of £446,450 vs £468,543 last year.
  • The H1 total loss comes to £442,238 vs £467,100 yoy.
  • This loss if further inflated by an exchange loss of £458,944 vs a gain of £121,477 yoy to give a total comprehensive loss of £901,232 for the first half vs £345,623 in H1 2017.
  • Operations review
  • Management continue to talk to the Swedish Government over their application for an exploitation license for the Kallak super-high grade 71% magnetite project.
  • Iron ore premiums are currently running at unusually high levels with 71% iron ore appearing to attract a $6-7/t premium for each percentage point above the 62% benchmark price
  • In theory this could potentially nearly double the price paid for Kallak’s super-high grade ore which is reported to be low in deleterious elements and lends itself to pelletisation, and consumption in DRI furnaces in Europe and the Middle East.
  • The Swedish government delayed the permitting process through the General Election process causing Beowulf to look at other local opportunities for development.
  • The Beowulf team have moved to explore a number of graphite prospects in Finland and Sweden while they continue to pursue the development of Kallak.
  • Aitolampi graphite in Finland is the most promising to date with a JORC-Code indicated and inferred mineral resource of 19.3mt grading 4.5% Total Graphitic Carbon for 878,000t of contained graphite at >3.0% TGC cut-off.
  • The team are now preparing to initiate a scoping study at Aitolampi while looking at the potential of a number of other potential high-grade graphite projects.
  • Aitolampi has graphite lenses extending at least 350m along strike and to 700m depth. Two parallel higher-grade zones with >150m strike also appear merge to form one body of mineralisation.
  • The market for battery-grade graphite is set to expand dramatically as a number of new ‘Giga-factories’ factories come online in China and elsewhere with plans for significant battery manufacture in Scandinavia and Europe.
  • Cash (£2.1m): The company raised a further £1.5m in the quarter which enables the team to continue working on the graphite opportunities while continuing to press the authorities on the long-overdue Kallak exploitation license.
  • Significant takeup of Beowulf Swedish Depository Receipts which now stand at 337,696,135 SDRs or 59.63% of the company’s capital suggests to us that there is support in Sweden by investors for the company and the Kallak project and that the team should eventually win through with the permitting process.

Conclusion: Management are working to win permits at Kallak and to discover more graphite at Aitolampi and other potentially higher-grade prospects. The exceptional level of interest in the stock from Sweden suggests a groundswell of local support that politicians might do well to take note of.

 

Mkango Resources* (MKA LN)   9.75p, Mkt Cap £10.6m – Grant of options to new directors

  • Mkango Resources has announced the award of options to its newly appointed non-executive directors.
  • Each “of Ms Susan Muir (Non-Executive Director), Ms Sandra du Toit (Non-Executive Director) and Mr Shaun Treacy (Consultant), [have been granted] 335,000 options at an exercise price of C$0.16”.
  • Each option grants the holder the right to acquire a share in Mkango Resources for a period of ten years from the date it is granted.
  • Mkango is currently working on the feasibility study for its Songwe Hill rare-earths project in Malawi, including a major drilling programme to infill, upgrade and extend the current resource estimate.
  • The feasibility work is is being funded by Talaxis  which has “agreed to fully fund the Feasibility Study by investing £12 million for a 49% interest in the Songwe Project (via Mkango subsidiary Lancaster Exploration Ltd). Talaxis will also have the option to acquire a further 26% interest by arranging funding for project development including funding the equity component thereof. If Talaxis exercises its option, Mkango will retain a 25% interest in Songwe, free carried to production.”
  • “To-date, Talaxis has invested £5 million, which is funding the initial phase of the Feasibility Study, for a 20% interest in the project with Mkango holding 80%.”

Conclusion: The addition of southern African expertise and further corporate skills broadens Mkango’s management team as it progresses the feasibility work at Songwe Hill.

*SP Angel act as Nomad and broker to Mkango Resources. Two SP Angel mining analysts have visited the Songwe Hill project in two separate occasions

Premier African Minerals (PREM LN)   0.18p, Mkt Cap £13m – Drilling update from RHA tungsten

  • Premier African Minerals has announced that it expects its planned 15 holes drilling programme designed to assess the upper 50m of potentially open-pittable mineralisation at its THA tungsten mine in Zimbabwe to be completed by the end of September.
  • The drilling aims “to determine the depth at which the ore body is sufficiently consolidated to allow resumption of open pit mining”. Operations at RHA were suspended earlier this year as a result of the combined effect of lower than expected grades and recovery rates and the failure to achieve expected production rates in the underground mine amongst other factors.
  • The company is also currently re-mapping the open pit using ultra-violet light which causes the tungsten mineral, scheelite, to fluoresce. Although RHA principally mines a different tungsten mineral, wolframite, however, “Near surface, wolframite is often coated by a thin layer of scheelite … [and] … In the open pit, wolframite may be difficult to identify, however this scheelite surface is easily visible and is expected to greatly assist in tracking mineralised zones”.
  • Premier African Minerals says that “Existing data, open pit mining over the past two years, previous drilling, surface mapping and this new drill programme when combined will collectively lead to a definitive understanding of the mineralisation in the pit and will guide the future of the open pit.”

Conclusion: We look forward to the results of the drilling at RHA. It is encouraging that, although perhaps belatedly, the company is seeking to gain a better understanding of the shallow, open-pittable, mineralisation which may establish whether open-pit mining is sustainable for the longer term.

 

Serabi Gold (SRB LN)   54.5p Mkt value £32m – Step out drilling shows southward extension of Palito

  • Serabi Gold reports that close spaced drill traverses to the south of the Palito mine suggest that the Palito orebody “has the potential to extend south into the Currutela Prospect, which would open up an overall southerly strike of three kilometres.”
  • In particular, the company reports a series of promising intersections along the G3 Structural Zone which include:
    • A 2.0m wide intersection from a depth of 337.85m in hole PDD0557 which averages 29.82g/t gold and 1.2% copper and includes a 1.3m wide section at an average grade of 44.75g/t gold; and
    • A 2.0m wide intersection from a depth of 76.75m in hole PDD0558 which averages 33.76g/t gold and includes a 1.0m wide section at an average grade of 64.63g/t gold; and
    • A 1.5m wide intersection from a depth of 371.7m in hole PDD0534 which averages 8.02g/t gold and includes a 0.89m wide section at an average grade of 12.88g/t gold; and
    • A 0.65m wide intersection from a depth of 290.83m in hole PDD0556 which averages 3.87g/t gold
    • The company also takes the opportunity to restate drilling results dating from around the time of the discovery of the Currutela prospect in 2011 including:
      • An intersection of 2.14m from a depth of 208.54m in hole PDD0465 which averaged 12.92g/t gold; and
      • An intersection of 0.72m from a depth of 96.39m in hole PDD0519 which averaged 8.91g/t gold; and
      • An intersection of 1.36m from a depth of 71.21m in hole PDD0523 which averaged 43.24g/t gold and 2.92% copper; and
      • A0.9m wide intersection from a depth of 104.86m in hole PDD0522 which averaged 21.60g/t gold and 4.63% copper
      • Drilling is also underway on the Sao Chico orebody to seek strike extensions of the Main Vein and to investigate parallel targets identified as induced polarisation geophysical targets during exploration in 2016. Current work is directed at the first of three anomalies identified as “the Crossroads anomaly, and the initial drill holes have intersected promising sulphide and vein intersections”. Assay results are awaited however “initial results include an intersection of 1.35m at 12.02 g/t Au from 178.80m (18-SC-109)” although5 of the holes drilled at Sao Chico are reported to have “No significant assays”.

Conclusion: In April, the company received a US$15m investment from Greenstone Resources which acquired a 29.82% interest. The recent drilling success may be one of the fruits of the additional financial resources now at Serabi Gold’s disposal. We look forward to further news of the exploration and also of progress on the Coringa project.

 

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 employees may have previously held, or currently hold, shares in the companies mentioned in this note.

 

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