SP Angel – Morning View – Thursday 27 09 18

China Blue Sky initiatives relax blanket winter production curbs

MiFID II exempt information – see disclaimer below

 

Bluejay Mining* (JAY LN) - STRONG BUY - Target 45p – Interims highlight cash strength and advances towards confirming Bluejay’s position as major new strategic producer of titanium-rich concentrates

Goldstone Resources (GRL LN) – Akrokeri Mine exploration update

Jangada Mines (JAN LN) – Raises £2.1m by way of Draw Down facility and Placing

Keras Resources (KRS LN) – High-grade gold at Calidus’ Copenhagen Deposit

Ormonde Mining* (ORM LN) – Interims and operations update

Petropavlovsk (POG LN) – POX commissioning progresses well, interim results disappoint

 

Cheaper Battery Is Unveiled as a Step to a Carbon-Free Grid

  • On Wednesday NantEnergy, headed by the California billionaire Patrick Soon-Shiong, announced that it had developed a rechargeable battery operating on zinc and air which the developers claim can store power at far less than the cost of lithium-ion batteries.
  • Tests of the zinc energy-storage systems have helped power villages in Africa and Asia as well as cell phone towers in the United States for the last six years, without any backup from utilities or the electric grid, Dr. Soon-Shiong said.
  • “It could change and create completely new economies using purely the power of the sun, wind and air,” says Dr. Soon-Shiong according to a statement in the NY Times

 

Anglo American  is latest miner to follow SolGold  and buy into Ecuador

  • Anglo American has signed a joint venture agreement with Luminex to earn-into a number of exploration properties in Ecuador.
  • The deal gives Anglo the right to earn a 60% ownership interest in a joint venture company, which indirectly holds three copper and gold concessions — Pegasus A, Pegasus B and Luz.
  • Anglo are paying $50m plus a $7.3m payment over a 7-year period.
  • Anglo will have the right to earn an additional 10% ownership interest in the venture simply by funding all the required work up to a decision to construct a mine at the properties, taking its aggregate ownership to 70%.
  • The move follows significant investment by Newcrest into SolGold and Lundin Gold and also follows BHP’s surprise 6% stake in SolGold presumably as a precursor to further stake building.
  • SolGold has amassed a significant exploration portfolio in key areas of Ecuador.

 

Dow Jones Industrials

 

-0.40%

at

26,385

Nikkei 225

 

-0.99%

at

23,797

HK Hang Seng

 

-0.45%

at

27,693

Shanghai Composite

 

-0.51%

at

2,793

FTSE 350 Mining

 

-1.68%

at

17,776

AIM Basic Resources

 

-0.53%

at

2,223

 

Economics

US - Fed raised interest rates last night by 0.25% to 2-2.5%

 

Currencies

US$1.1706/eur vs 1.1769/eur yesterday  Yen 112.68/$ vs 112.83/$  SAr 14.177/$ vs 14.289/$  $1.314/gbp vs $1.318/gbp  0.723/aud vs 0.726/aud  CNY 6.875/$ vs 6.876/$

 

Commodity News

Precious metals:         

Gold US$1,195/oz vs US$1,200/oz yesterday

  • Precious metals retreated as investors favour interest-linked assets and the outlook for monetary policy after a rate rise from the Federal Reserve. Bullion for immediate delivery lost -0.6% during yesterday’s trading as the Fed lifted its key rate by a quarter point to 2.25%.
  • Chair Jerome Powell stressed repeatedly that the US economy is ‘strong’ across the board and no longer needs the heavy stimulus the central bank put into place following the 2008 crash. The Fed also increased its growth projections for this year and next, an indication that it sees little sign that the trade war, rising oil prices and political turmoil would derail the economy.

   Gold ETFs 67.6moz vs US$67.7moz yesterday

Platinum US$826/oz vs US$827/oz yesterday

Palladium US$1,075/oz vs US$1,062/oz yesterday

Silver US$14.39/oz vs US$14.49/oz yesterday

           

Base metals:   

Copper US$ 6,234/t vs US$6,292/t yesterday

Aluminium US$ 2,047/t vs US$2,073/t yesterday

Nickel US$ 12,700/t vs US$13,005/t yesterday

Zinc US$ 2,517/t vs US$2,524/t yesterday

Lead US$ 1,984/t vs US$2,024/t yesterday

Tin US$ 19,015/t vs US$18,900/t yesterday

           

Energy:           

Oil US$82.2/bbl vs US$82.0/bbl yesterday

Natural Gas US$2.969/mmbtu vs US$3.071/mmbtu yesterday

  • In a bid to combat air pollution, China will continue to convert coal-powered households to natural gas, creating additional demand and rising Chinese imports. 3.62m households burning scattered coal in the 28 cities will be converted by the end of October, including 1.74m in Hebei and 810,000 in Henan, with gas supply prioritised for projects that had started in 2017.
  • The rate of coal-gas and coal-electricity conversion projects is expected to be more sustainable this year, with the government prioritizing gas supply for existing projects instead of aggressively pushing new ones, according to a statement from the Ministry of Ecology and Environment. Last year, the lack of natural gas storage capacity, distribution and infrastructure network exacerbated the crunch.
  • The three major state-owned energy companies including China National Petroleum Corp., China Petrochemical Corp., and China National Offshore oil Corp. should boost natural gas resources to the key regions of Beijing, Tianjin and Hebei, as well as accelerate pipeline interconnections and increase storage capacity.

Uranium US$27.45/lb vs US$27.50/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$68.4/t vs US$68.0/t

Chinese steel rebar 25mm US$689.8/t vs US$692.4/t

  • China rebar retreats as the nation announces it will implement differentiated curbs on production of steel, coking, chemical, building materials and nonferrous plants across the winter heating season in 28 cities including Beijing, Shijiazhuang and Taiyuan according to the Ministry of Ecology and Environment.
  • The statement on air-pollution control removes the “one-size-fits-all” curbs, instead opting for local areas to decide on the time length of production curbs depending on air-quality situation. Steel, aluminum plants which meet ultra-low emission standards will be exempted from winter curbs.
  • This means that no blanket cuts will be applied for steel, construction, coking, casting, base metals, chemical processing, and other high-polluting industries; instead, differentiated curbs will be imposed based on air quality readings during the winter season, and companies can adjust output to meet emissions standards.
  • Companies found violating environmental standards will have to further limit output, halt completely, or risk being punished or seized, while cities will be responsible for stopping, revamping or relocating high-polluting steel mills and other companies.
  • In addition, Tangshan, Handan and Anyang cities are banned from constructing, expanding or accepting new steel capacity. Authorities will intensify capacity cuts in steel, coking and construction sectors and in particular removing polluting operations; Hebei to remove at least 10mt of steel capacity, Shanxi to cut 2.25mt, Shandong to cut 3.55mt.
  • Emissions limits for fossil fuel power stations, steel, petroleum, chemical engineering and base metal sectors to be enforced from Oct. 1 -- smoke, sulfur dioxide, nitroxide emissions cannot exceed 10, 35 and 50mg/cubic meter respectively.
  • The move also incorporates open-air mines, banning the construction of new mines while those violating environmental regulations will be shut by end Oct.

Thermal coal (1st year forward cif ARA) US$98.2/t vs US$97.8/t

Coking coal futures Dalian Exchange US$192.7/t vs US$192.3/t

           

Other:  

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

China NdPr Rare Earth Oxide US$46,910/t vs US$46,903/t

  • The viability of the US’s solo rare earths mine, Mountain Pass, is caught in the crossfire of the Trump administration’s trade war with China. MP Mine Operations LLC, the US consortium that owns the Mountain Pass mine in California, ships semi-processed output for refining in China, who are planning a 10% tariff on these imports, which are expected to rise to 25% next year.
  • The group of vital minerals consumed in everything from Tesla Inc. automobiles to high-tech military equipment were removed from the final $200bn catalog of tariffs on Chinese goods. CEO of JHL Capital Group LLC, the majority owner of the consortium, responded that “the 10% tariffs provide a real challenge, and the prospect of 25% is daunting. We believe that we can compete without tariffs, and we don’t understand why there would be tariffs on us, when there are no tariffs on Chinese producers”.
  • Chinese control of the market, which supplies 80% of US imports according to the USGS, has long been flagged as a risk for advanced manufacturers in developed nations. In the case of rare earths, observers have speculated that China’s reaction to U.S. trade measures could extend beyond the simple imposition of tit-for-tat import duties to cutting sales outright. It could use “targeted export restraints” to disrupt U.S. corporate supply chains as part of its response to Trump’s broader push on tariffs, Macquarie Group Ltd. analysts wrote in a recent note that cited previous rare earths export restrictions as a precedent.
  • The mine restarted in January this year with the owners aiming to build processing capacity over the next 18 months. “There is a strong bipartisan view that creating an American rare earths industry is of utmost importance”.
  • The rising tariff war only serves to highlight the significance of reliable long-term supply, with the US focusing on alternative supply from advanced-stage rare earth explorers including Mkango Resources who are working towards a full BFS by the end of next year. The Trump administration is also driving domestic mining with Mountain Pass targeting domestic processing to supply electric vehicles, wind turbines and other clean-energy sectors.

China Lithium carbonate 99% US$10,328/t vs US$10,326/t

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

 

Company News

Bluejay Mining* (JAY LN)  14p, Mkt Cap £119m – Interims highlight cash strength and advances towards confirming Bluejay’s position as major new strategic producer of titanium-rich concentrates

STRONG BUY - included in MSCI index

Target Price 45p

  • Robust project economics indicated in the PEA on the Moriusaq side of the ilmenite project.
  • We await news on the new assays from drilling at the Iterlak Delta area in the short term on which we also expect to see a significantly upgraded JORC resource in due time.
  • The project is already seen as the world’s highest-grade ilmenite project which has the added benefit of being chemically homogenous and unusually low in impurities, an important point in a world of increasing environmental legislation.
  • Solutions being proposed to effectively extend the working season in Greenland and mitigate potential weather issues.
  • The location of the deposit on a deep water Fjord and close to an active and strategic US airbase as well as the town of Qaanaaq is important from a logistical perspective and relatively close to Canada from a shipping perspective.
  • Recent concerns over potential Chinese commercial and strategic interests in Greenland are interesting. If China were to develop an airbase in Greenland it would be seen as within missile defences run by the US. Denmark effectively runs security for the nation despite ceding political and economic control to the new autonomous government of Greenland.
  • https://www.defensenews.com/global/europe/2018/09/07/how-a-potential-chinese-built-airport-in-greenland-could-be-risky-for-a-vital-us-air-force-base/
  • A number of Chinese firms are now invested in Greenland though a Chinese bid to buy a former US airbase was stopped by the Danish government.
  • PFS: new proposals to enhance the economics of the Pre-Feasibility Study for the Dundas are being considered causing further delay to the project. While these new ideas sound interesting and could add meaningfully to the project we wonder if it might be prudent to then include results from the upgraded JORC resource when the new numbers from the Iterlak Delta are included.
  • Iterlak Delta: management quote an exploration target of between 20-60mt grading between 6-10% ilmenite. This feels conservative in our view given the high grade seen at surface on our site visit and the depth of drilling being done at Iterlak without reaching bedrock. More drill pipe will be needed for future drilling campaigns.
  • 68 holes have now been drilled at Iterlak in the delta area and also to the east of the delta to give a good indication of the potential scale and grade of the deposit. Results from this and from work done in trenching to further test ilmenite grades at Moriusaq should help to lift the value and scale of the overall resource estimate.
  • Offtake: management are in close discussions with a number of consumers over the provision of high-grade ilmenite concentrates. A further 10,000t of +/-40% ilmenite material was excavated and screened through the field season for delivery to interested parties.
  • Disko: the statement reminds us of he Disko nickel project further to the south near Ilusak in Greenland. Chemical assays in oxidised surface material have returned 2.02% nickel, 0.8% copper and 0.2% cobalt causing Bluejay to stake a further 1,616km2 of ground in the region.
  • Management: Bo Møller Stensgaard joined the team as General Manager of Bluejay Mining in September as an Executive Director of Dundas Titanium A/S and Disko Exploration Ltd. Bo is a Danish national and preeminent geologist with extensive operational experience in Greenland - he was previously a senior research scientist at the Danish state survey and has advised multiple European federal and commercial entities in the field of commodity development. Bo will focus on working with the existing feasibility team to submit and secure the exploitation licence ahead of planned mining.
  • Interim financials; Bluejay reports a loss of £867,791 for the half-year vs £547,778. The figures indicate a relatively low rate of expenditure through the period for the management team and their activities in Greenland.
  • Funding: Bluejay is well funded with much of the basic field work now done and the establishment of a major man camp and other infrastructure put in place this year.
  • The company reports £13.2m of cash and cash equivalents at end June giving the business a good degree of financial security and the ability to also potentially fund the equity portion of the capital cost of building the mine and process plant in future years.

Conclusion: Bluejay is poised to report significant newsflow on a number of fronts as it advances towards confirming its position as major new strategic producer of high-grade, clean titanium-rich ilmenite concentrates.

*The SP Angel mining analyst has visited the Dundas, Itelak ilmenite sands project in Greenland. *SP Angel act as nomad and broker to BlueJay Mining. 

 

Goldstone Resources (GRL LN)  1.4p, Mkt Cap £3.4m – Akrokeri Mine exploration update

  • The Norton Shaft has been completed to the planned 33m depth with the bottom 3m targeted for a dewatering sump and pump station.
  • The shaft has been fully timbered and is expected to provide access to old underground workings located within 8m to the south of the shaft.
  • Additionally, works have been commenced at the North Shaft, the main shaft for the historic Akrokeri mine, which is 130m deep and has access to three levels of underground workings.
  • The Company believes that the shaft has been blocked at the first level (Level 1) located some 30m below surface.
  • As soon as North shaft has been made safe, work will begin to pump the water from the old workings to a level below Level 1 to allow safe access to the historic workings.
  • Once access is secured the team is planning to carry a geological mapping and sampling of historic underground production levels.
  • The Company has also identified old artisanal workings 150m north of the Norton Shaft found along strike at the Akrokeri Mine implying mineralisation zone is larger than previously through.
  • The team is planning to evaluate and sample the area in due course.

 

Jangada Mines (JAN LN)  3.1 pence, Mkt Cap £6.1m – Raises £2.1m by way of Draw Down facility and Placing

  • Jaganda Mines reports this morning that it has raised £2.1m of funding for a potentially Bankable Feasibility Study work and general working capital.
  • The funding consists of £1.05 raised by way of an equity market placing and a 12-month unsecured draw down facility for $1m.
  • The company has also agreed to give new shares to Consulmet in lieu of fees for work being done on the project including plant design and metallurgy.
  • Jangada is looking to develop the Pedra Branca PGM project near Fortaleza in north-east Brazil.
  • Pedra Branca has a 23.114mt polymetallic resource grading 0.76g/t palladium, 0.48g/t platinum, 0.04g/t gold, 0.05% copper, 0.21% nickel, 0.85% Cr2O3, and 127ppm of cobalt.
  • In terms of tonnage, 38% (8.8mt) is contained in oxide ore, a further 19% in material classed as “transitional” with the remaining 43% described as “sulphide“ ore. Around 13% (3mt) across all ore types is identified as “Measured” in terms of the JORC Code (2012) with a further 34% (7.9mt) is “Indicated” with the remaining 12.2mt (53%) “Inferred”.
  • The BFS is looking to support earlier studies that estimates average annual production of 64,000 ounces of PGM+Au, 2.2 Mlb of nickel, 1.2Mlb of copper, 44,000 lb of cobalt and 30,000 t of chrome.
  • The statement contains further significant detail on the project.

Conclusion: Open cast PGM mines are notorious for suffering from poor recovery rates in their oxide and transitional zones caused by near and not-so near surface weathering. While Pedra Branca is said to be a ‘unique PGM Project’ investors may be right to be cautious over its potential.

 

Keras Resources (KRS LN)  0.38p, Mkt Cap £8.6m – High-grade gold at Calidus’ Copenhagen Deposit

  • Drilling results announced by Calidus Resources Limited highlight additional shallow, thick high-grade gold mineralisation which extends a further 100m below the current resource and forms part of Keras Resources’ Warrawoona Gold Project, located in the Pilbara of Western Australia.
  • Results from the recent 8-hole step-out and infill reverse circulation drilling programme haver intersected high-grade gold at the Copenhagen deposit which is approximately 10km west of the Klondyke resource, which aims to expand the current resource to underpin a pre-feasibility study in 2019.
  • The results provide indication for the scale of mineralisaiton, with a weighted average 11.1g/t Au, and results awaiting at Coronation. RC drilling with two rigs is also continuing at both Klondyke East and St. Georges and diamond core drilling is underway beneath the current Klondyke pit targeting an interpreted +1km long high-grade zone.

 

Ormonde Mining* (ORM LN)  4.8p, Mkt Cap £22.7m – Interims and operations update

  • Preparations for the processing plant commissioning are going well targeting the start of December and first tungsten concentrate in the beginning of February.
  • Construction of the Metso crushing and screening plant has been completed with the commissioning of the crushing circuit in progress.
  • Primary crusher has been successfully commissioned in August.
  • Major equipment and structures at the plant are being installed with around 80% of works now complete.
  • Open pit dewatering is underway with water dams now constructed and lined while the pipeline to Dam A has been recently completed and commissioned.
  • Main powerline has been connected to the Barruecopardo Substation.
  • The progress of construction works can be found on the Company’s website: http://ormondemining.com/timeline-in-pictures/.
  • On financial results, the company recorded a €411k loss during he six months of the year (H1/17: -€132k) reflecting €447k in administration costs (H1/17: €386k) and €338k loss attributed to Ormonde’s 30% interest in the Barruecopardo JV (H1/17: -€120k).
  • The Company remained debt free with €481k in cash as of the end of the period: (H1/17: €582k).

Conclusion: Plant construction and commissioning are progressing well with first production remaining to be on schedule for February next year at the fully permitted and funded Barruecopardo project. “The focus over the coming period will be on the completion of construction and commissioning of the plant, in tandem with work surrounding updates to the mining schedule and operational budgets for the initial year of mining ahead of the Project entering its production phase in the first quarter of 2019,” Mike Donoghue, Chairman and Interim MD, commented on results.

*SP Angel acts as Broker to Ormonde Mining

 

Petropavlovsk (POG LN)  6.7p, Mkt Cap £222m – POX commissioning progresses well, interim results disappoint

  • First flotation line at Malomir reached full production capacity on time and delivered more than a 50% increase in concentrate grade compared to budgeted levels.
  • 15kt of concentrate at 40g/t, an improvement on the planned c.24g/t design, has been produced with the second line to come into production at the end of the month.
  • Ramping up flotation concentrate production at Malomir will help the Company to build up inventories of the POX feed ahead of the autoclave commissioning while higher grade of the material will allow the Company to sell the concentrate to a third party if required.
  • Oxygen commissioning plant is the commissioning phase with first production of oxygen expected in the mid-October; liquid oxygen will be stored to ensure smooth commissioning and production ramp up at POX facilities.
  • Dry commissioning of autoclaves and Site Acceptance Tests are well advanced with hot commissioning due shortly.
  • POX first production targeted for Q1/19.
  • Underground operations at Malomir reached full capacity in August while underground mining at Pioneer ramp up is in progress with full capacity expected towards the end of the year.
  • Production and costs guidance has been upgraded: FY18 production of 420-450koz (up from 400-410koz) at $750-800.oz TCC and $1,050-1,100/oz AISC.
  • Production is guided to climb and costs to fall back further in 2019: 500koz at $650-700/oz TCC.
  • 2020-2022 production outlook is expected to be within the range of 500-550koz.
  • H1/18 production and costs came in at 201.4koz at $899/oz TCC and $1,138/oz AISC (H1/17: 232.4koz at $675/oz and $965/oz).
  • Operating unit costs are expected to come down in H2/18 on stronger production and operational optimizations.
  • Revenues amounted to $270.5m (H1/17: $304.0m) as weaker gold sales have been slightly compensated by higher realised gold price.
  • EBITDA totalled $60.7m (H1/17: $114.1m).
  • Net loss came in at $24.8m (H1/17: $24.5m profit).
  • Net CFO was $127.8m (H1/17: $74.6m) boosted by a $102.5 advance payment received from Gazprombank and Sberbank under gold sales agreements, as well as a release of $21.1m from stockpiles.
  • FCF amounted to $60.6m (H1/17: $32.8m).

Conclusion: The company is moving closer to a start up of POX operations with first concentrate processing guided for Q1/19. Malomir flotation operations are ramping up accordingly allowing the team to provide enough stockpiles for a smooth commissioning of POX operations. Production and operating costs are expected to come in better in H2/18 with further improvements forecast for 2019. On financial side, H1/18 results highlighted a strong increase in operating costs driven by inflation of Rouble denominated components, higher volumes of stripping and suboptimal organisation of mining operations. Cash flow generation has been significantly helped by advance payments from lenders and the release of funds from stockpiles.

 

 

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

 

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.

 

DISCLAIMER

This note has been issued by SP Angel Corporate Finance LLP (“SP Angel”) in order to promote its investment services and is a marketing communication for the purposes of the European Markets in Financial Instruments Directive (MiFID) and FCA’s Rules. It has not been prepared in accordance with the legal requirements designed to promote the independence or objectivity of investment research and is not subject to any prohibition on dealing ahead of its dissemination.

SP Angel considers this note to be an acceptable minor non-monetary benefit as defined by the FCA which may be received without charge.  In summary, this is because the content is either considered to be commissioned by SP Angel’s clients as part our advisory services to them or is short term market commentary.

While prepared in good faith and based upon sources believed to be reliable SP Angel does not make any guarantee, representation or warranty, (either express or implied), as to the factual accuracy, completeness, or sufficiency of information contained herein.

The value of investments referenced herein may go up or down and past performance is not necessarily a guide to future performance. Where investment is made in currencies other than the base currency of the investment, movements in exchange rates will have an effect on the value, either favourable or unfavourable. Securities issued in emerging markets are typically subject to greater volatility and risk of loss.

The investments discussed in this note may not be suitable for all investors and the note does not take into account the investment objectives and policies, financial position or portfolio composition of any recipient. Investors must make their own investment decisions based upon their own financial objectives, resources and appetite for risk. 

This note is confidential and is being supplied to you solely for your information. It may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published in whole or in part, for any purpose. If this note has been sent to you by a party other than SPA the original contents may have been altered or comments may have been added.  SP Angel is not responsible for any such amendments. 

Neither the information nor the opinions expressed herein constitute, or are to be construed as, an offer or invitation or other solicitation or recommendation to buy or sell investments. Opinions and estimates included in this note are subject to change without notice. This information is for the sole use of Eligible Counterparties and Professional Customers and is not intended for Retail Clients, as defined by the rules of the Financial Conduct Authority (“FCA”).

Publication of this note does not imply future production of notes covering the same issuer(s) or subject matter.

SP Angel, its partners, officers and or employees may own or have positions in any investment(s) mentioned herein or related thereto and may, from time to time add to, or dispose of, any such investment(s).

SPA has put in place a number of measures to avoid or manage conflicts of interest with regard to the preparation and distribution of research. These include (i) physical, virtual and procedural information barriers (ii) a prohibition on personal account dealing by analysts and (iii) measures to ensure that recipients and persons wishing to access the research receive/are able to access the research at the same time.

SP Angel Corporate Finance LLP is a company registered in England and Wales with company number OC317049 and whose registered office address is Prince Frederick House, 35-39 Maddox Street, London W1S 2PP.  SP Angel Corporate Finance LLP  is authorised and regulated by the Financial Conduct Authority whose address is 25, The North Colonnade, Canary Wharf, London E14 5HS and is a Member of the London Stock Exchange plc.

 

Recommendations are based on a 12 month horizon as follows:

Buy - Expected return >15%

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

Sell - Expected return < 15%

 

** SP Angel acts as Broker to this Company