SP Angel . Morning View . Base metals gain as markets look forward

SP Angel . Morning View . Monday 20 04 20

Base metals gain as markets look forward

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Bacanora Lithium (BCN LN) – Non-executive director appointment

Central Asia Metals (CAML LN) – Milestone 100,000t of copper from Kounrad

Medusa Mining (MML AU) - Co-O gold mine restarted in the Philippines

Orosur Mining (OMI LN) – CEO, Ignacio Salazar resigns

Power Metal Resources* (POW LN) – Update on nickel exploration projects in Botswana

Shanta Gold (SHG LN) – Robust production with FY20 guidance reiterated

 

Encouraging data in trial for ‘remdesivir’ as a treatment for Covid-19 (Source: STAT)

• ‘After starting the drug, many patients saw their fevers reduced quickly, some came off ventilators the next day and most did not need the full course of 10 days. According to Dr Kathleen Mullane, an infectious disease specialist leading trials at University of Chicago Medicine.

 

Oil prices futures prices fall below $15/bbl – lowest level since 1999 as storage capacity fills

• Expect Sovereign wealth funds to accelerate asset sales to prop up Middle Eastern economies.

 

Only when the tide goes out do you discover who’s been swimming naked (Warren Buffett)

• Many business are about to reveal whether the are covered causing further economic and banking crises. Eg a rerun of the Asian Crisis.
• We expect many more stories like the one below from Asia where business have been propped up through corruption and improper practice

 

Oil Trader – files for bankruptcy in Singapore (FT)

• HLT, one of Asia’s largest marine oil suppliers has filed for bankruptcy in Singapore .
• The business had concealed $800m of losses under the instruction of its founder Lim Oon Kuin,.
• The trader had used funds from the sale of oil despite the oil being subject to inventory financing with banks
• “The affidavit shows HLT had total liabilities of $4.05bn, against assets valued at just $714m and its inventory was worth $141m on April 9 compared to $1.277bn in last annual accounts for the year to October 31st.“ Deloitte signed off on the accounts.
• Agritrade, another Singapore trader, also collapsed leaving banks with losses of hundreds of millions of dollars.

 

Tailings leak last month was China's biggest in nearly 20 years 

• A spillage of waste molybdenum ore in the northeast of China on the 28th of March required the toughest possible environmental emergency response, the environment ministry announced on Monday.
• The incident in Heilongjiang province sent 2.53 million cubic meters of water containing mine waste into the local river system, reaching as far as 110km southwest of the mining site.
• There were no reported casualties, however the Ministry of Ecology and Environment said on Monday that the incident required "extremely complex rectifications" (Reuters).
• The mine is the largest open-pit molybdenum mine in China and belongs to Yichun Luming Mining, who have had their production license temporarily suspended (crecg.com).

 

Mines accelerating change, cost cutting and inventory, supply chain risks

• The coronavirus is likely to have a marked impact on the way many remote mines are run
• This is likely to help in cost cutting and may potentially make some mines more efficient .
• The coronavirus is accelerating the use of more automated equipment.
• Longer shifts with potentially no overlap.
• Employment of younger staff and probably fewer people to better enable social distancing
• Far fewer site visits from outside local communities.
• Management to either be based at the mine site or to manage through conference calls.
• Costs are falling with markedly lower oil prices and with the costs of other reagents.
• Problems may arise when stocks of reagents used in mineral processing run out if suppliers are not able to restock.
• Many mineral processing plants use flocculants, emulsifiers, carbon, acids, cyanide and organic reagents in their processing.
• While we have not heard of supplies running out at mines we suspect stocks are low and an extended lockdown could cause some process plants and their associated mines to grind to a halt.

 

Dow Jones Industrials		+2.99%	at	24,242
Nikkei 225		-1.15%	at	19,669
HK Hang Seng		-0.14%	at	24,347
Shanghai Composite		+0.31%	at	2,847

 

Economics

$1bn of M&A deals fall away as Coronavirus

• Zijin Mining completed its acquisition of Continental Gold for C$1,4bn on 4 March but many other M&A deals have fallen away
• Business are rightly reassessing the risks and opportunities of .

 

US - Trump focussed on economics as he looks to reopen the US for business, driven by science and economics

• Phase 1 - maintains social distancing while allowing businesses to reopen limiting meetings to no more than 10 people
• Schools and nurseries remain closed and all non-essential travel and visits to old people’s homes remain suspended.
• Phase 2 – to follow a 14-day decline in Coronavirus cases lifts the ban on non-essential travel; schools and bars can reopen but with certain restrictions and sporting venues can restart under ‘moderate’ physical distancing.
• Phase 3 – after another 14-days of falling Coronavirus cases allows businesses to resume ‘unrestricted staffing’ along with visits to senior homes.

Democrats and the White House are close to agreeing an increase in the small businesses’ loan programme by an additional $450bn, Bloomberg reports.

• Earlier, Treasury Secretary Mnuchin suggested the deal may potentially be passed in the Senate on Monday and the House on Tuesday.
• The government allowed firms to postpone their import tariff payments by 90 days in an effort to free up liquidity for pandemic hit businesses.

 

China – National lenders cut th prime lending rate by 20bp to 3.85% as authorities aim to revive growth after lifting the lockdown in  the Hubei province.

• Separately, the government committed to place CNY 1t (~$141bn) in new special local bonds by the end of the next month to fund infrastructure spending.
• The latest tranche of bonds will come on top of CNY 1.29t approved this year with local governments reported to have sold almost 90% of the existing quota.

China Q1 GDP -6.8% vs +6% in Q4 

• March industrial production fell -1.1%yoy vs a massive fall of -13.5% in February
• Retail sales fell 15.5% yoy vs -20.5% in February
• Fixed asset (ex rural) investment fell 16.1% for the year to date vs - 24.5% reported in February

 

Commodity shipping rates start to recover on Chinese optimism 

• Freight rates for bulk commodities are showing signs of recovery, as activity in China improves as the economy emerges from the coronavirus pandemic.
• The Baltic Exchange Capesize Index has risen for the past seven weeks as China recovers and iron ore volumes recover following seasonal bad weather that reduced shipments from Australia and Brazil (Bloomberg).
• The Baltic Dry Index is a measure of global shipping costs and rose 3.44% to 751 points on Friday. The Capesize 5TC opened the shortened week at $6,762 and closed at $9,875 - up 46%.
• Last week, all routes globally saw improved sentiment, particularly from Western Australia to China (Business Times).

 

Japan – A slump in trade data for March reflects disruptions from virus containment measures governments implemented around the world.

• Trade is likely to weaken further with major Western economies remaining in lockdown while the Japanese government announced a nationwide state of emergency Thursday last week.
• Hit by trade wars last year and the coronavirus pandemic this year, exports from Japan contacted for 16 months now.
• Exports (%yoy): -11.7 v -1.0 in Feb and -9.4 est.
• Imports (%yoy): -5.0 v -13.9 in Feb and -8.7 est.

 

EU car registrations fell 55% in March 

• Italy car sales -85%,
• France car sales -70%
• Spain car sales - 69%.

 

Italy – PM Conte urged European governments to issue joint euro-area bonds helping economies hardly hit by the pandemic.

• “Our economic systems are connected with each other and interlinked,” Conte said highlighting contagion risks in the EU.
• “When one country has problems, it triggers a domino effect and that’s something we should absolutely avoid. What’s needed here is the European Union’s full firepower — namely through the joint issuance of bonds.”
• EU leaders are expected to hold talks at the virtual summit on Thursday.
• Separately, the ECB floated the idea of a euro-area “bad bank” that would take toxic assets off lenders’ balance sheets, the FT reported yesterday.

 

Germany to cautiously lift lockdown from 20 April

• Germany is to allow small shops to reopen from today followed by schools on 4 May with priority for students with exams – lucky kids!.
• Large mass gatherings remain banned
• UCL professor of global health estimates the UK could see some 40,000 deaths by the time the pandemic is over.

 

India – Chinese investment into India will now need government approval

• Foreign direct investment from the PRC will now require government approval into India
• The move appears to be aimed at preventing opportunistic investment into India as it recovers from the Coronavirus

 

UK - Brexit negotiations continue towards 31 December deadline

 

Currencies

US$1.0854/eur vs 1.0835/eur last week.  Yen 107.86/$ vs 107.73/$.  SAr 18.903/$ vs 18.789/$.  $1.246/gbp vs            $1.246/gbp.  0.635/aud vs 0.634/aud.  CNY 7.078/$ vs 7.077/$.

 

Commodity News

Gold US$1,681/oz vs US$1,698/oz last week - Gold prices slip on plans to restart US and other economies

• .

   Gold ETFs 94.1moz vs US$94.0moz last week

Platinum US$783/oz vs US$779/oz last week

Palladium US$2,207/oz vs US$2,196/oz last week

Silver US$15.24/oz vs US$15.16/oz last week

            

Base metals:    

Copper US$ 5,238/t vs US$5,208/t last week

Aluminium US$ 1,512/t vs US$1,531/t last week

Nickel US$ 12,390/t vs US$12,020/t last week - Shanghai nickel prices rise 4% on Monday

• The price of nickel in Shanghai rose to its highest in nearly six weeks on Monday as Vale lowered its output forecast of the metal for this year.
• Vale revised its production forecasts on Friday, cutting its 2020 production forecasts for nickel to 180,000- 195,000t from 200,000- 210,000t (Fastmarkets MB).
• The most traded-nickel contract on the SHFE climbed 4.7% to 102,300 yuan ($14,458)/t - its highest since the 11th of March (Reuters).
• Three-month nickel on the LME rose to $12,420/t - a five-week high.
• China cut its benchmark one-year and five-year loan prime rates to help its economy through the coronavirus pandemic, and this provided some support to base metals prices.

Zinc US$ 1,955/t vs US$1,948/t last week

Lead US$ 1,671/t vs S$1,694/t last week

Tin US$ 15,250/t vs US$15,215/t last week

 

Energy:            

Oil US$27.4/bbl vs US$28.0/bbl last week

• COVID-19 continues to hamper global oil demand, with all major oil prices down today with WTI particularly pronounced
• WTI is now at its lowest level in more than two decades ahead of the imminent expiry of a heavily traded futures contract, which will likely place additional pressure on producers to further reduce supply
• Today’s fall is driven by the imminent expiration of the WTI futures contract for May delivery
• Contracts for WTI delivery in June by comparison are down by a smaller 5.5% at US$23.66/bbl
• At the time of writing, WTI is down 19% at US$14.67/bbl, its lowest level since 1999, and had fallen as low as $14.47 in Asian trade
• Additional downward pressure is coming as a result of capacity concerns with stockpiles at Cushing, the main delivery point in the US for oil, rising almost 50% since the start of March

Natural Gas US$1.751/mmbtu vs US$1.708/mmbtu last week

• Last week the EIA reported that domestic supplies of natural gas rose by 73Bcf for the week-ended 10 April
• That was generally in line with market consensus for an increase of 71Bcf according
• Total stocks now stand at 2.097Tcf, up 876Bcf from a year ago, and 370Bcf above the five-year average
• Today’s Bloomberg survey showed projections ranging from 42Bcf to 78Bcf, with a median build of 67Bcf
• A Dow Jones poll showed estimates as low as 39Bcf and produced an average 58Bcf injection. NGI’s model pegged the build at 57Bcf.
• Last year, the EIA recorded a 73Bcf build for the similar week, and the five-year average is a build of 27Bcf

Uranium US$32.50/lb vs US$32.40/lb last week - Uranium prices have climbed 31% this year

• Mine shutdowns have caused the price of the radioactive mental to surge this year, making it the world's best performing major commodity.
• Whilst demand for energy is falling due to the pandemic, many atomic power plants are expected to keep open as they are harder to turn off than coal and gas powered plants.
• The uranium industry has struggled to recover from the 2011 Fukushima disaster in Japan, which resulted in a rethink of nuclear power worldwide- leading to huge pile-ups in warehouses and causing prices to fall by 75% (Bloomberg).

            

Bulk:    

Iron ore 62% Fe spot (cfr Tianjin) US$83.1/t vs US$82.5/t

Chinese steel rebar 25mm US$530.7/t vs US$530.7/t

Thermal coal (1st year forward cif ARA) US$55.3/t vs US$55.2/t - Global coal production to grow by 0.5% in 2020

• Global coal production is expected to only grow marginally this year, due to the disruptions caused by Covid-19, mostly in China.
• Coal production declined 6% in the first two months on 2020, as the coronavirus resulted in only 57% of coal mines being operational as of the 14th of February.
• China's swift road to recovery is the reason why coal production is expected to grow this year. By the 4th of March, 83% of China's coal mining capacity was operational and coal production in China is expected to recover throughout 2020 and only decline 1.2% this year.
• Indian production is expected to be the main driving force in coal's minor production growth, as thermal coal mines have continued to operate during lockdowns. 845mt of coal is expected to be produced in India this year, an 8.3% increase compared to last year.
• Overall global production of coal is expected to increase by 9.17bt in 2020 (Mining Technology).

Coking coal swap Australia FOB US$130.5/t vs US$130.5/t

            

Other:   

Cobalt LME 3m US$30,000/t vs US$30,000/t

NdPr Rare Earth Oxide (China) US$36,734/t vs US$36,739/t

Lithium carbonate 99% (China) US$5,439/t vs US$5,440/t

Ferro Vanadium 80% FOB (China) US$26.7/kg vs US$26.5/kg

Antimony Trioxide 99.5% EU (China) US$5.0/kg vs US$5.0/kg

Tungsten APT European US$240-245/mtu vs US$240-245/mtu

Graphite flake 94% C, -100 mesh, fob China US$540/t vs US$540/t

Graphite spherical 99.95% C, 15 microns, fob China US$2,450/t vs US$2,550/t

 

Battery News

Tata Nexon EV takes the lead in India

• Tata launched the Nexon EV in January 2020 and has sold 198 units to date. (Drive Spark)
• Sales lead MG’s ZS EV (116 units) and Hyundai’s Kona EV, the latter selling in very limited numbers across India.
• The Nexon EV is powered by Ziptron technology, has a range of 312km, fast charging capabilities and an extended battery life. (Tata)
• Ziptron technology makes use of lithium-ion batteries, complete with a liquid cooled battery pack and thermal management. (Electric Vehicles)
• The battery pack includes an efficient permanent magnet AC motor with 300v plus.

 

Yokohama team develop material to improve charge capacity

• Research team at Yokohama University claim to have developed a new electrode material for lithium-ion batteries that will improve energy density and reduce costs. (Phys.org)
• The team paired a mixture of Lithium, manganese, titanium, and oxygen ions with a similarly composed mixture which could also be milled to a desired particle size. (Eurekalert)
• The nano-sized electrode comprising manganese and titanium ions results in a more robust exchange of electrons and lithium ions.
• Replacing nickel and cobalt in batteries will make batteries more cost effective and increase the number of practical applications. (Bioengineer)
• The study was published in Materials Today.

 

Lake Resources sends additional lithium brine to pilot plant (Proactive Investors)

• Lake Resources has sent an additional 20,000 litres of brine samples from its Kachi Lithium Brine project in Argentina to Lilac Solutions pilot plant in CA.
• Total volumes delivered now total 40,000 litres which will ensure Lilac can meet demand from off-takers.
• The additional brine has been pumped using additional COVID-19 measures including the use of PPE.
• The samples will be processed as the original 20,000 litres were, using Lilac’s direct extraction ion exchange process which achieves 99% purity lithium.

 

Company News

Bacanora Lithium (BCN LN) 23.25p, Mkt Cap £51.8m – Non-executive director appointment

• Bacanora Lithium has reported the appointment of Graeme Purdy as a non-executive director with immediate effect.
• Mr. Purdy is a chartered Chemical Engineer ʺwith over 25 years of global experience in the resources and battery industriesʺ who is currently ʺChief Executive Officer of Ilika Plc (AIM: IKA) ("Ilika"), a solid-state lithium battery technology developerʺ.
• Bacanora points to Mr. Purdy’s ʺearlier international career with Shell, where he managed the design, construction and commissioning of large process engineering projects in remote locations, including Latin America.ʺ
• Welcoming the appointment, Bacanora Lithium’s Chairman, Mark Hohnen, said that ʺHe brings with him a wealth of engineering and technical expertise from the battery industry, as well as experience in the UK capital markets via Ilika Plc. This appointment strengthens Bacanora's board further as the Company embarks on the next phase of its development, as it looks to finance and build its flagship asset, the Sonora Lithium Project, in Mexicoʺ.
• Expressing his appreciation of the appointment, Graeme Purdy said that ʺI have been impressed by Bacanora's achievements, particularly more recently with the arrival of Ganfeng Lithium, the world's largest lithium metals producer, as a major shareholder and offtake partner, in conjunction with the Company's existing offtake partner Hanwa Corporationʺ.

 

Central Asia Metals (CAML LN) 132 pence, Mkt Cap £238m – Milestone 100,000t of copper from Kounrad

• Central Asia Metals reports  the production of its 100,000^th tonne of copper cathode from the processing of waste dumps at it Kounrad project site in Kazakhstan.
• Since 2012, the company has produced 100,000t of cathode at an average C1 cash cost of US$0.55/lb. CEO, Nigel Robinson, expressed appreciation of the efforts of the site team ʺled by General Director Pavel Semenchenko and guided by our Technical Director, Howard Nicholson.ʺ
• Providing a progress report on the impact of Covid19, Mr. Robinson said that ʺWhile cases of COVID-19 continue to rise in Kazakhstan, there are currently no diagnosed cases of the virus amongst our Kounrad workforce or in the local town of Balkhash, and the production and sales of our copper have not been interruptedʺ. He also reported that ʺWe have recently committed to providing funding for an electrical supply solution to the local Balkhash hospital, which should help the healthcare teams maintain crucial medical treatments in the case of power outagesʺ.
• Mr. Robinson also confirmed that ʺOur operations at the Sasa mine in North Macedonia also continue uninterrupted.ʺ

 

Medusa Mining (MML AU) A$0.5, Mkt cap A$104m - Co-O gold mine restarted in the Philippines

• Mining Magazine reports that Medusa Mining is to be allowed to restart working at the Co-O gold mine in the Philipines.
• Company officials said that its Philsaga Mining affiliate received permitting from the local government of Bunawan to operate with certain conditions.
• One of those conditions was to only source mine workers from surrounding areas which the company expects would have an impact on near-term production.

 

Orosur Mining (OMI LN) 2.02p, Mkt cap £3m – CEO, Ignacio Salazar resigns

• Ignacio Salazar has resigned from Orosur to take up a new position at Highfield Resources.
• Highfield (HFR AU) A$0.33c, Mkt cap A$109m is looking to develop the Muga Potash mine in Spain
• The company recently submitted documentation to the Spanish authorities for a mining concession and is awaiting approval for water and power permits from the state.
• Ignacio has cleaned up and settled outstanding issues relating to Orosur’s exhausted Uruguay gold mine.
• Orosur continue to work with Newmont Mining on progressing the Anzá gold project in Colombia.
• Anzá is on trend from Continental Gold’s giant Buriticá gold discovery.
• Zijin Mining completed its acquisition of Continental Gold on 4 March for C$1.4bn.
• The acquisition effectively valued the project at $247/oz of M&I gold equivalent ounces.
• Buriticá has an estimated reserve of 3.71moz of gold and 10.7moz of silver and a total M&I resource of 5.67moz gold equivalent grading 11 g/t and 6.46moz Inferred gold equivalent grading 9.2 g/t.
• Louis Castro, who was recently appointed as Chairman to Orosur will work with Ignacio to ensure a smooth transition.

*SP Angel act as nomad and broker to Orosur Mining

 

Power Metal Resources* (POW LN) 0.33p, Mkt Cap £1.6m – Update on nickel exploration projects in Botswana

POW owns 5.6% in Katoro Gold and holds a 25% interest in Katoro’s Haneti polymetallic project in Tanzania

• Power Metals Resources has released a progress report on the work of its 18.6% owned Kalahari Key Mineral Exploration where Power Metals is earning an additional 40% interest through the funding of $500,000 of exploration including exploration drilling of massive sulphide nickel targets within the Molopo Farms Complex.
• Based on helicopter-borne and ground geophysics and analysis, four high priority drilling targets have been identified from ʺa total of eight targets prospective for nickel - platinum group metalsʺ.
• Drilling is expected to start with the Chipo target area which exhibits geophysical responses similar to those observed at ʺother massive sulphide discoveries in the regionʺ.
• The remaining three target areas mention in today’s announcement are Tshepo, Galaletsang and Tshenolo.
• Botswana is currently in lockdown until the end of April as a response to Covid19 and environmental approvals may impact the timetable for drilling.
• Chief Executive, Paul Johnson, highlighted ʺthe large number of Nickel-PGM targets identified during ground geophysics and this has now led to a clustering of targets into four groups. The MFC project is increasingly attractive and we look forward to the pursuit of ground exploration, notably high-profile target drilling.ʺ
• Referring to the opportunity to evaluate the exploration strategy and expand target identification during the lockdown. Mr. Johnson said thatʺPOW notes the positive approach taken by Kalahari Key during the period of Covid-19 lockdown in the UK and Botswana, and the determination to use this opportunity to advance their knowledge of the MFC Project and to assess additional project opportunitiesʺ.

*SP Angel act as broker to Power Metals Resources (formerly African Battery Metals)

 

Shanta Gold (SHG LN) 11.5p, Mkt Cap £90m – Robust production with FY20 guidance reiterated

• Q1 production totalled 20.2koz (Q1/19: 22.4koz) with milling operations continuing to run uninterrupted and at above nameplate capacity.
• Output came down slightly from the previous year on the back of lower processed grades (4.03g/t v 4.49g/t).
• The Songwe region recorded no cases of COVID-19, while the Company significantly increased critical inventory of spares and stocks to address potential supply chain disruptions.
• Gold sales amounted to 20.1koz with an average selling price of $1,414/oz compared to a spot of $1,582/oz reflecting a settlement of 8.8koz in forward gold sales locked in at lower prices.
• As of Q1/20, the Company had 31.3koz in forward gold sales outstanding at $1,247/oz and running through to Jan/21; those have further come down to 27.3koz post the quarter end.
• C1 and AISC costs averaged $630/oz and $833/oz, respectively (Q1/19: $500/oz and $701/oz)
• Adjusted EBITDA totalled $15.0m (Q1/19: $11.4m).
• VAT receivables increased by $1.1m to $22.9m during the quarter after accounting for a $0.7m offset against corporate taxes during the period.
• Capex totalled $3.5m during the quarter relating predominantly to underground development at operating BC and Ilunga mines.
• Net debt closed at $15.1m at the end of the quarter (Q4/19: $14.3m).
• FY20 guidance reiterated at 80-85koz at $830-880/oz AISCs.

Conclusion: Good operations result with the Company reiterating FY20 guidance. Operations continue uninterrupted with the team focused on delivering production guidance, continuing with exploration at New Luika to add new ounces to the life of mine (exploration budget increased by 65% in 2020 to $5m), deleveraging (the Company expected to be net cash positive in H1/21 after adjusting for forward gold sales that run through Jan/21 and West Kenya Project acquisition costs) and working on growth projects pipeline including Singida and West Kenya Project.

 

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

 

SP Angel                                                            

Prince Frederick House

35-39 Maddox Street London

W1S 2PP

 

*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	SSY
RRE	Steelhome
Lithium Carbonate, Ferro Vanadium, Antimony	Asian Metal
Tungsten	Metal Bulletin

 

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