SP Angel – Morning View – Wednesday 05 09 18

Metal prices mixed as risk off sentiment prevails

 

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.

 

BHP Billiton (BLT LN) – BHP acquires Guyana Goldfields stake in Solgold at a premium

Bluejay Mining* (JAY LN) – General manager appointed for Dundas project

Cradle Arc* (CRA LN) – Strengthening the Board

Kodal Minerals* (KOD LN) – Initial resource estimate at Bougouni

SolGold* (SOLG LN) – BHP pays a premium for Guyana Goldfields stake in Solgold - BUY

 

Dow Jones Industrials

 

-0.05%

at

  25,952

Nikkei 225

 

-0.51%

at

  22,581

HK Hang Seng

 

-2.40%

at

  27,303

Shanghai Composite

 

-1.68%

at

   2,704

FTSE 350 Mining

 

-0.81%

at

  16,472

AIM Basic Resources

 

-0.50%

at

   2,207

 

Economics

Global manufacturing PMI numbers released yesterday showed growth continued to lose momentum in August; although, they still suggest world GDP growth holding up reasonably well in Q3.

  • Global manufacturing PMI dropped from 52.8 to 52.5 in August extending a series of losses since December last year.
  • Despite waning momentum, the data is consistent with global GDP growth of around 4% annualized, which is pretty decent by past standards, Capital Economics said.

 

US – ISM manufacturing sector index climbed to a 14-month high in August on the back of strong domestic demand while export orders slowed as a result of stronger US$.

  • Markets are also following the state of US/Canada trade negotiations closely with talks to resume today after the last round ended on Friday with no deal to revamp NAFTA.

 

China – An independent survey of China’s services sector showed growth continued to slow down with the reading in August down 1.3 points to 51.5.

  • Respondents highlighted higher input costs that climbed at the fastest pace in six months.
  • Coupled with a pullback in the manufacturing sector growth, composite index reading came in at 52.0, down 0.3 on July.

 

UK – The EU is not planning to widen its system of financial market access to British banks post Brexit any time soon, according to German finance ministry official.

  • The UK strived for an “enhanced” version of the bloc’s “equivalence” regime, which grants access to nations with regulations determined by the EU to be sufficiently aligned with EU rules.
  • The system is used by banks in the US, Singapore and Japan to offer some services directly to clients in the EU without the need for a costly subsidiary on the ground.
  • However, it does not cover some common banking activities, such as lending and asset management, which Britain will be able to offer after Brexit.

 

India – The rupee extended its losing streak to an eighth session with the currency hitting a record low against the US$ of Rs71.785.

  • The currency is down 11% YTD.

 

Turkey – Fitch cut Turkey’s growth outlook and warned of “significant and widespread downside risks”.

  • The agency said “the lira’s sharp fall will force a rebalancing of Turkey’s economy through lower growth and a narrowing of the current account deficit”.
  • The economy is expected to grow 3.8% this year, down 0.7pp form its projection when it cut Turkey’s rating in July, according to Fitch.
  • 2019 growth forecasts were slashed to 1.2%, down from 3.6% forecast previously.

 

South Africa – The rand is continuing to slide this morning taking total losses since the start of the week to 5.9% and currently trading at 15.634.

  • Negative sentiment in the emerging markets sector has been further exacerbated by weak GDP numbers released yesterday.
  • The economy contracted at a 0.7%qoq annualized rate in Q2 compared to a 0.6%qoq growth forecast.
  • With a Q1 drop revised further down to -2.6%qoq, the latest data suggests the nation slipped into its first recession since 2009
  • Poor data may see Moody’s, the only rating agency who ranks rand-denominated debt in an investment grade category, joining S&P and Fitch by cutting debt securities rating to junk.

 

Currencies

US$1.1553/eur vs 1.1574/eur yesterday. Yen 111.44/$ vs 111.46/$. SAr 15.613/$ vs 14.962/$. $1.283/gbp vs $1.284/gbp. 0.716/aud vs 0.719/aud. CNY 6.841/$ vs 6.831/$.

 

Commodity News

Precious metals:         

Gold US$1,193/oz vs US$1,195/oz yesterday – Northern Star raises funds to buy gold mine in Alaska

  • The firm announced it is on track to acquire the high-grade, 4.1Moz Pogo underground gold mine in Alaska.
  • It was able to raise almost $1.3m to fund the acquisition of the operation.
  • Its total cost will be $260m, and the outstanding balance will be funded from existing cash reserves.
  • The deal is expected to go through in October.

   Gold ETFs 67.8moz vs US$68.0moz yesterday

Platinum US$774/oz vs US$780/oz yesterday

Palladium US$977/oz vs US$969/oz yesterday

Silver US$14.13/oz vs US$14.30/oz yesterday

           

Base metals:   

Copper US$ 5,847/t vs US$5,891/t yesterday

Aluminium US$ 2,055/t vs US$2,080/t yesterday

Nickel US$ 12,420/t vs US$12,560/t yesterday

Zinc US$ 2,409/t vs US$2,425/t yesterday

Lead US$ 2,077/t vs US$2,097/t yesterday

Tin US$ 18,775/t vs US$18,710/t yesterday

           

Energy:           

Oil US$77.6/bbl vs US$78.3/bbl yesterday

Natural Gas US$2.814/mmbtu vs US$2.861/mmbtu yesterday

Uranium US$26.60/lb vs US$26.45/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$66.5/t vs US$65.9/t

Chinese steel rebar 25mm US$684.1/t vs US$684.0/t

Thermal coal (1st year forward cif ARA) US$93.2/t vs US$92.8/t

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

           

Other:  

Cobalt LME 3m US$64,750/t vs US$64,750/t – Shares perk up for M2 Cobalt

  • During the completion of its phase 1 exploration program at Bujagali and associated infill sampling, M2 Cobalt discovered six additional large-scale anomalies with highly anomalous rock and soil samples.
  • It has also expanded the footprint of its Waragi anomaly.
  • "Our phase 1 work program has delivered excellent results with surface sample results up to 1.75% Co, 0.91% Cu and 0.26% Ni" said Simon Clarke, CEO.

Tungsten APT European US$275-290/mtu vs US$280-300/mtu

 

Researchers say they can cut rare-earth use in motors by 80%.

  • German researchers conducting the ‘Criticality of Rare Earths’ project say they have found ways to reduce the input of critical rare-earth materials needed to build electric motors by 80%.
  • They have done so by optimising manufacturing processes, developing new approaches to recycling and substitution of alternative materials.

 

Company News

BHP Billiton (BLT LN)   1621p, Mkt Cap £92.1bn – BHP acquires Guyana Goldfields stake in Solgold at a premium

  • BHP Biliton has announced that it has acquired Guyana Goldfields’ 6.1% interest in Solgold at a price of 26.592p/share representing a 20% premium to the 20-day volume weighted average price.
  • The acquisition of 103.1m shares represents an investment of approximately £27.4m by BHP Billiton.
  • Commenting on the investment, BHP Billiton’s CEO, Andrew Mackenzie said that it was “Consistent with our positive long-term outlook, copper is a key exploration focus for BHP as we seek to replenish our resource base and grow this important business.”
  • Mr. Mackenzie is also quoted as saying that “the investment in Solgold would give BHP exposure to a high quality copper exploration project in Ecuador, which is a highly prospective location for BHP.”
  • Disclosure in Solgold’s 2017 Annual Information Form shows another major mining company, Newcrest, holding a 14.54% interest in the company.

Conclusion: The Billiton investment in Solgold underlines the quality of Solgold’s 85% owned Cascabel project and its portfolio of wholly owned exploration projects in Ecuador.

 

Bluejay Mining* (JAY LN)   16p, Mkt Cap £136m – General manager appointed for Dundas project

STRONG BUY - included in MSCI index

Target Price 45p

  • Bluejay Mining has announced the appointment of Dr. Bo Moller Stensgaard as General Manager to help in the development of the company’s wholly owned Dundas Titanium Project.
  • “Dr. Stensgaard is a Danish national and preeminent geologist with extensive operational experience in Greenland.  He was a senior research scientist at the Danish state survey and has advised multiple European federal and commercial entities in the field of commodity development.”
  • Expressing his pleasure at securing the appointment, Bluejay’s CEO, Roderick McIllree, said that we “much look forward to his contribution to deliver on the critical milestones ahead. Bo's experience, geological knowledge, network and understanding of Greenland make him the ideal person to join us as we advance the Dundas project into production.”
  • Initially he will work with the feasibility team on the preparation and submission of the exploitation licence.

Conclusion: The appointment of a General Manager with specific Greenland-based operating knowledge strengthens the Bluejay team as it moves ahead with the Dundas project.

*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. 

 

Cradle Arc* (CRA LN)   3.9p, mkt cap £10.6m – Strengthening the Board

  • Cradle Arc has confirmed the previously announced appointment of two senior African focussed mining executives to its Board.
  • Roy Pitchford assumes the role of Non-Executive Chairman after a career of over 25 years in senior management roles in the African mining industry at Zimbabwe Platinum, Cluff Resources, Delta Gold Zimbabwe and Vast Resources amongst others. He replaces Toby Howell in the role and Mr. Howell steps down from the Board “in order to pursue his other business interests”.
  • Michael Golding, an African focussed corporate and project finance specialist and former head of Corporate Finance for Billiton Plc in of South Africa joins the Board as a non-Executive Director.

Conclusion: Cradle Arc Minerals is taking steps to address the operational issues at Mowana and to strengthen its Board

*SP Angel acts as Joint Broker to Cradle Arc plc

 

Kodal Minerals* (KOD LN)   0.195p, Mkt Cap £15m – Initial resource estimate at Bougouni

  • Kodal Minerals reports a maiden inferred mineral resource estimate for its Boubouni lithium project of 17.3mt at an average grade of 12.0% Li2O.
  • The estimate covers Kodal Minerals’ three most advanced projects at Sogola-Baoule (10.4mt at 1.18% Li2O), Ngoualana (4.7mt at 1.34% Li2O) and Boumou (2.2mt at 1.01% Li2O). The company points out, however, that these prospects remain oen both laterally and at depth and only form a part of “a very large project area”, implying that potential exists for further mineral resource expansion.
  • Kodal Minerals’ CEO, Bernard Aylward describing the first resource estimate for Bougouni as a “milestone … [at this] …  very exciting phase for the Project” points out that even at this stage “This Mineral Resource estimate places the Bougouni Project in the top 15 hard rock lithium projects worldwide”.
  • Referring to the current inferred status of the estimate, which was prepared by the consultants CSA Global, the announcement points out that “The level of data for the Ngoualana and Sogola-Baoule prospects could support an upgrade to Indicated status following completion of a field visit by the CSA Global resource geologist who is the Competent Person for the resource estimation” and that “An update of the Mineral Resource estimate is expected in the fourth quarter of 2018 following a site visit by the independent geologist and additional drill testing.”
  • The company has also outlined its preliminary work on mining optimisation, which was undertaken as part of the planning of infill and extension drilling. At this point, the company envisages a 1mtpa open-pit mining operation producing “a good quality spodumene concentrate, with grade over 6% Li2O” through a dense media separation plant.
  • Reflecting the current distribution of resources between the three prospect areas, it is intended that “Sogola-Baoule has potential to provide the most tonnage to any potential processing plant, while the Ngoualana prospect has significant potential to add higher-grade material into the processing blend.”
  • Initial estimates suggest that costs could lie in the region of US$400/tonne of spodumene concentrate produced which “compares favourably with the current market price of approximately US$800 - 900 per tonne of concentrate.”
  • The company will be continuing with further drilling, giving initial priority to the Boumou prospect area and extension to the mineralisation at Sogola-Baoule as well as the testing of new targets. Metallurgical testing will continue to investigate the optimal processing of the mineralisation and examine the most effective blend of the different source of mineralisation. Work continues to optimise the mining and to investigate the cost structures.

Conclusion: The initial mineral resource estimate is a landmark in the development of Kodal Minerals’ Bougouni lithium project. The company is voicing optimism that the initial resource, already characterised as one of the world’s fifteen largest lithium projects, is capable of expansion as further drilling proceeds. At this stage indications are that the project should be amenable to a relatively low cost and metallurgically straightforward dense media processing to produce a spodumene concentrate. We look forward to further developments.

*SP Angel act as Financial Advisor and broker to Kodal Minerals. A partner at SP Angel acts as Chairman to the company.

 

SolGold* (SOLG LN)   25.3p, Mkt Cap £429m – BHP pays a premium for Guyana Goldfields stake in Solgold - BUY

  • BHP Biliton has announced that it has acquired Guyana Goldfields’ 6.1% interest in Solgold at a price of 26.592p/share representing a 20% premium to the 20-day volume weighted average price.
  • The acquisition of 103.1m shares represents an investment of approximately £27.4m by BHP Billiton.
  • Commenting on the investment, BHP Billiton’s CEO, Andrew Mackenzie said that it was “Consistent with our positive long-term outlook, copper is a key exploration focus for BHP as we seek to replenish our resource base and grow this important business.”
  • Disclosure in Solgold’s 2017 Annual Information Form shows Newcrest holding a 14.54% interest in the company.

Conclusion: The Billiton investment in Solgold endorses the quality of Solgold’s 85% owned Cascabel project and its portfolio of wholly owned exploration projects in Ecuador.

*SP Angel act as UK broker to SolGold

 

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.

This information is a marketing communication for the purpose 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.

This document is not based upon detailed analysis by SP Angel of any market; issuer or security named herein and does not constitute a formal research recommendation, either expressly or otherwise.

The value of investments contained herein may go up or down. 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.

This note is confidential and is being supplied to you solely for your information and 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.

Neither the information nor the opinions expressed herein constitutes, or is to be construed as, an offer or invitation or other solicitation or recommendation to buy or sell investments. This information is for the sole use of Eligible Counterparties and Professional Customers only and is not intended for Retail Clients, as defined by the rules of the Financial Conduct Authority (“FCA”) and  subject to SP Angel’s Terms of Business as published or communicated to clients from time to time.

It is not investment advice and does not take into account the investment objectives and policies, financial position or portfolio composition of any recipient. This document should not to be relied upon as authoritative or taken in substitution for the exercise of you own commercial judgment. SP Angel is not responsible for any errors, omissions or for the results obtained from the use of the information in this document.

This document has been prepared on the basis of economic data, trading patterns, actual market news and events, and is only valid on the date of publication. SP Angel does not make any guarantee, representation or warranty, (either expressly or implied), as to the factual accuracy, completeness, or sufficiency of information contained herein. This document has been prepared by the author based upon information sources believed to be reliable and prepared in good faith.

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).

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.