SP Angel – Morning View – Friday 21 09 18

Robust China demand boost metals despite trade threats

MiFID II exempt information – see disclaimer below

 

Beowulf Mining (BEM LN) – Kallak Iron Ore project video highlights positives for permitting

Bushveld Minerals* (BMN LN) – Vanadium prices jump higher again as buyers in Europe and China compete for available supply

Golden Star Resources (GSC CN) – Drilling extends Wassa underground resource

Savannah Resources (SAV LN) –Additional licence application in Mozambique

 

Vanadium prices launch higher as environmental inspections, winter production curbs ahead of new standards for vanadium content in rebar due in October

  • Vanadium prices have jumped again to $97-104/kgV fob China according to the Metal Bulletin
  • The price in Western Europe is similarly high at $98.5-101kgV
  • Chinese steel mills are now buying more higher-grade Australian haematite which normally contain negliable vanadium grades in preference to magnetite which often comes with vanadium and titanium.
  • The change in source material is serving to restrict the supply of vanadium to the market causing prices to continue to rise beyond our expectation.
  • Winter production curbs are also likely to cause steel mills to turn off their more polluting production units
  • New regulations requiring a significant increase in the content of vanadium in steel rebar are also due to start in October with the market reacting to increased demand ahead of the new tougher standards.
  • ‘China’s new high-strength rebar standard is designed to limit the use of inferior steels in construction. The standard eliminates low strength Grade 2 rebar and sets out specifications for three different high strength standards: Grade 3 (400MPa), Grade 4 (500MPa), and Grade 5 (600MPa). These will require 0.03% V, 0.06% V, and more than 0.1% V respectively.’ according to Roskill, a well respected metals consultancy.

 

Greencoat Renewables acquires Knocknalour wind farm

  • Dublin-listed renewables investor Greencoat Renewables has acquired the 9.2 Mega Watt Knocknalour wind farm in County Wexford, which consists of four Enercon E70 turbines for €10.9m.
  • The wind farm was commissioned in September 2013, and its revenues have been contracted under the renewable energy feed-in tariff scheme, providing a long term guaranteed minimum floor price for the electricity generated. The acquisition was funded by Greencoat’s €250m credit facility.
  • Following the deal, Greencoat total borrowings will be 21% of Gross Asset Value, excluding consideration of the Coillte acquisition announced last week, which is expected to close during November 2018.

 

Lithium-Tellurium Battery Systems Show Promise for Electric Vehicle Industry

  • Deer Horn Capital Inc reports that researchers working on more efficient batteries for electronic cars are claiming significant results with new lithium-tellurium (Li-Te) battery systems.
  • The peer-reviewed Journal of Applied Electrochemistry reports development of an “Li-Te rechargeable cell with exceptionally high specific capacity and cycling stability at high charge/discharge rates…”
  • The article by Toshinari Koketsu, Benjamin Paul, Chao Wu, and Ralph Kraehnert reports that “Longterm cyclability tests involving 1000 charge/discharge cycles at 10C rate delivered an unprecedented specific capacity…at 100% efficiency.”
  • “We’re seeing more and more promising research into the application of tellurium for solving major technology and societal problems,” said Deer Horn President and CEO Tyrone Docherty. “This latest development for Li-Te batteries is one of many recent intriguing findings that we have reported over the past two years.”

 

EU backs German plan to subsidize e-car battery production

  • Berlin won support from the European Union to fund the production of electric car batteries to overcome companies' reticence to invest in a sector dominated by Asia.
  • Economics Minister Peter Altmaier has won an exemption from the European Union’s strict ban on state aid to support the seminal technology as long as at least two EU countries are involved.
  • It will be a private sector consortium with no direct state participation, but there will be state aid. EU funds for research and development will also be available. In addition, structural funds for newer EU members like Poland could also be used to develop battery production in those countries.
  • “The argument is often that you can’t make much money with batteries,” said Maximilian Fichtner, director of the Helmholtz Institutes for Battery Research. “But the more important question is what we lose if you don’t.”

 

Tesla secures lithium product supply from major Ganfeng

  • Tesla has designated it battery supplier to purchase lithium hydroxide products from Ganfeng Lithium and its units, according to the Chinese company in a statement to Shenzhen stock exchange.
  • The annual purchase agreement is expected to account for around 20% of Ganfeng capacity, although prices are to be decided on settlement.
  • Supply will be effective between 2018-2020, and can be extended 3 more years following expiry.
  • The agreement will sustain supply to growing EV manufacturing targets ahead of the deal with Kidman Resources’ Mt Holland project, which is facing a legal hurdle as recommendations have arisen for Western Australia’s mining ministry to not approve an exemption from past minimum exploration-expenditure obligations, which could delay vital production.

 

Dow Jones Industrials

 

+0.95%

at

26,657

Nikkei 225

 

+0.82%

at

23,870

HK Hang Seng

 

+1.75%

at

27,958

Shanghai Composite

 

+2.50%

at

2,797

FTSE 350 Mining

 

+1.83%

at

17,568

AIM Basic Resources

 

-0.21%

at

2,194

 

Economics

Gold prices have exhibited strong positive correlation with the Chinese yuan versus US$ exchange rate lately.

  • Significantly tighter trading range of CNY denominated gold prices may imply that a bullish or bearish view on gold should match the outlook for the yuan.
  • The yuan has depreciated against the US$ amid an increased outflow of funds from emerging economies together with concerns over growth dynamics in China amid a trade row with its biggest trading partner.
  • Coincidentally, gold prices have been coming down as investment demand cooled amid climbing real interest rates.
  • We highlight the relationship is not stable and has been very volatile in the past with the correlation turning negative for the most of 2016.

 

China – Despite a pick up in growth in August on a rolling three months basis the economy remains on a downward trend, Capital Economics estimates of China Activity Proxy show which are based on a set of low profile indicators.

  • Growth is estimated to have stage a partial recovery in Q2 as the government relaxed pollution controls and the pace accelerated form 5.1%yoy ni July to 5.6%yoy in August.
  • Nevertheless, Capital Economics highlights that the property controls and slower credit growth is set to limit growth rates.
  • Weaker growth outlook seem to be broadly driven by domestic factors, although, cooling global growth and US tariffs further add to downside risks weighing on the export sector.

 

Eurozone – Economic growth slowed to the weakest in four months led by subdued manufacturing sector and stagnant exports, according to flash readings .

  • New orders came in at the joint-weakest sicne October 2016 and backlogs of uncompleted orders rose at the slowest rate since September 2016.
  • Employment on the other hand held up well remaining close to 18-year high.
  • Manufacturing output increased at the slowest rate since May/16 while sectoral new orders showed the joint-weakest increase since February 2015.
  • Services sector growth picked up to the highest in three months albeit remained well below rates seen earlier in the year; new business inflow slowed with backlogs of work posting the second-weakest rise in over a year.
  • Inflation pressures remained with average selling prices rising at an identical pace to the solid gain recorded in August.
  • “Trade wars, Brexit, waning global demand (notably in the auto industry), growing risk aversion, destocking and rising political uncertainty both within the Eurozone and further afield all fuelled the slowdown in business activity,” IHS Markit reported.

 

UK – Reuters provides a compilation of British media headlines criticising lack of progress between PM May and EU leaders over the last couple of days in Austria.

  • The remaining EU countries representatives said they will for a Brexit deal next month but warned May that if she will not give ground on trade and the Irish border by November they are ready to cope with Britain crashing.
  • Looks like the agreement is down to last minute negotiations due to take place during the November summit.
  • The pound has come off against the US$ this morning at is on its way back to the 1.32 mark.

 

Currencies

US$1.1786/eur vs 1.1694/eur yesterday  Yen 112.71/$ vs 112.21/$  SAr 14.234/$ vs 14.503/$  $1.323/gbp vs $1.317/gbp  0.729/aud vs 0.726/aud  CNY 6.836/$ vs 6.851/$

 

Commodity News

Precious metals:         

Gold US$1,210/oz vs US$1,204/oz yesterday

   Gold ETFs 67.6moz vs US$67.7moz yesterday

Platinum US$838/oz vs US$825/oz yesterday

Palladium US$1,056/oz vs US$1,041/oz yesterday

Silver US$14.43/oz vs US$14.29/oz yesterday

           

Base metals:   

Copper US$ 6,208/t vs US$6,100/t yesterday

  • Metals reverse falling trends, appearing to have reached the bottom as Goldman Sachs Inc. report raw materials are poised to gain into the close of the year as investors have priced in trade-tensions, growth remains strong across top economies and consumers who have delayed purchasing restart. The analyst note reveals “this week the trade war was escalated and markets shrugged it off with copper rallying. The reason is the market has already factored in an extended standoff between the US and China”.
  • Broadly raw materials are heading for the biggest weekly rise since April, supported by strong growth in copper, as well as crude which closed in on $80/barrel amid concerns about dwindling supplies from Iran and Venezuela.
  • Copper climbed to its highest level in more than a month as metals extended their surge, rising +1.6% on LME.
  • Market sentiment has also reversed, as copper traders and analysts leaning heavily towards bullish on their outlook in the weekly Bloomberg survey: Bullish – 14; Neutral – 4; Bearish – 1
  • Goldman said the spike in trade tensions earlier this year had prompted some users, especially in China, to defer purchases, and draw down inventories instead. Indeed, copper inventories monitored by the Shanghai Futures Exchange fell 17.5% from last Friday. But that de-stocking can last only so long. Physical buyers “are already returning to key markets like oil and copper,” it said.
  • The mismatch between fiery trade-war rhetoric and gains for raw materials was evidence on Friday in Asia, with metals surging in time with President Donald Trump hitting out at China in a late US television interview, saying it’s “time to take a stand” and signaling the ongoing conflict.
  • Copper was among metals hit hard by the initial trade war concerns, sinking to $5,773 a ton in August, the lowest since June 2017. It’s since rebounded amid signs of tightness, including a drop in global stockpiles, and spiked to $6,195 on Friday. Goldman maintain their year-end target of $6,500.

Aluminium US$ 2,068/t vs US$2,034/t yesterday

Nickel US$ 12,895/t vs US$12,545/t yesterday

Zinc US$ 2,473/t vs US$2,467/t yesterday

Lead US$ 2,028/t vs US$2,040/t yesterday

Tin US$ 19,150/t vs US$18,900/t yesterday

           

Energy:           

Oil US$79.0/bbl vs US$79.7/bbl yesterday

Natural Gas US$2.955/mmbtu vs US$2.908/mmbtu yesterday

Uranium US$27.45/lb vs US$27.35/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$68.9/t vs US$69.1/t

Chinese steel rebar 25mm US$698.9/t vs US$699.1/t

Thermal coal (1st year forward cif ARA) US$98.0/t vs US$97.5/t

Coking coal futures Dalian Exchange US$193.4/t vs US$192.8/t

           

Specialty:  

Cobalt LME 3m US$60,000/t vs US$63,000/t

China NdPr Rare Earth Oxide US$47,394/t vs US$47,540/t

China Lithium carbonate 99% US$10,378/t vs US$10,598/t

  • Demand for energy metals and mining appears robust as the lithium industry is expected to see a bout of consolidation after producers have tumbled this year alongside prices, drawing interest from big mining companies seeking acquisitions in the booming EV battery supply market. Battery raw materials, including lithium and cobalt, will be among areas of focus for Sydney-based Tribeca Investment Partners Pty’s new listed investment company, which is raising at least A$250m ($182m) in an initial public offer. The firm’s existing resources fund was the world’s best-performing hedge fund in 2016.
  • Co-portfolio manager Craig Evans notes “buy-and-hold strategies in this sector never work over time, you do need to be really active. That’s because the economic landscape is changing, and because you do constantly find situations where there might be a fantastic resource, but it’s not being operated correctly and there are ways of making that happen.”
  • Demand for the IPO of Tribeca Global Natural Resources Ltd. shows interest is starting to return to energy and mining, particularly with deficits likely from next year across a range of raw materials after a squeeze on capital expenditure that led to under-investment in supply, according to Evans.

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

 

Company News

Beowulf Mining (BEM LN)  5.7p, Mkt Cap £32m – Kallak Iron Ore project video highlights positives for permitting

  • Beowulf Mining have released a new corporate video .
  • The video includes interviews with Kurt Budge, Chief Executive Officer, and Robert Bernhardsson, Mayor of Jokkmokk.
  • The interview highlights the number of jobs to be created and supported by the proposed development of the Kallak iron ore mine
  • The local Mayor, Robert Bernhardsson also refers to the importance of increasing the tax base of the municipality to support its ageing population
  • The video further implies that the withholding of the ‘Exploitation’ license is bad for investment into Sweden but that the new government might be more ameanable to its proposal.
  • Beowulf is confident it has met the standards required by the Swedish Minerals Act and environmental Code.
  • Kallak is Europe’s largest deposit of unexploited high-grade iron ore with the deposit measuring 15x15km
  • https://youtu.be/CQsAvLoOwSc
  • Iron ore prices and the premiums paid for >62% iron ore continue to record high price levels 71% iron ore likely to now attract >$7/t for each percentage point above the 62% benchmark price
  • This should see Kallak iron ore fetch prices well over $100/t when sold into DRI furnaces in Europe and the Middle East.
  • The company is also advancing a number of graphite prospects in Finland where the permitting regime may be better defined and supported.

 

Bushveld Minerals* (BMN LN)  25.8p, mkt cap £285.6m – Vanadium prices jump higher again as buyers in Europe and China compete for available supply

BUY - Target Price 34.2p

(Bushveld Minerals hold 75% of Vametco)

  • Vanadium prices have jumped again to $97-104/kgV fob China according to the Metal Bulletin
  • The price in Western Europe is similarly high at $98.5-101kgV
  • Chinese steel mills are now buying more higher-grade Australian haematite which normally contain negliable vanadium grades in preference to magnetite which often comes with vanadium and titanium.
  • The change in source material is serving to restrict the supply of vanadium to the market causing prices to continue to rise beyond our expectation.
  • Winter production curbs are also likely to cause steel mills to turn off their more polluting production units
  • New regulations requiring a significant increase in the content of vanadium in steel rebar are also due to start in October with the market reacting to increased demand ahead of the new tougher standards.
  • ‘China’s new high-strength rebar standard is designed to limit the use of inferior steels in construction. The standard eliminates low strength Grade 2 rebar and sets out specifications for three different high strength standards: Grade 3 (400MPa), Grade 4 (500MPa), and Grade 5 (600MPa). These will require 0.03% V, 0.06% V, and more than 0.1% V respectively.’ according to Roskill, a well-respected metals consultancy.

Conclusion:  Sadly Bushveld staff are on an unprotected stoppage meaning that the company is not able to produce ferro-vanadium to take advantage of higher price levels till staff return to work. Such high vanadium prices are sure to attract new sources of vanadium supply into the market suggesting that vanadium prices will pull back in the future.

*SP Angel act as Nomad and broker to Bushveld Minerals. The analyst has visited the Vametco process plant and associated mining operations.

 

Golden Star Resources (GSC CN) C$1.00, Mkt Cap C$381m – Drilling extends Wassa underground resource

  • Golden Star reports that recent core-drilling of 8,725m in eight new holes has extended the known gold mineralisation by 200m down-plunge to the south of the current inferred underground mine resource.
  • The company expects “These results to increase Wassa’s Inferred Mineral Resources” which were already increased by almost 150% (3.1m oz) earlier this year when it announced an estimate of 5.15moz (44.9mt at an average grade of 3.6g/t) from the previously reported estimate of  2.11moz (19.8mt at 3.31g/t gold).
  • Two holes were drilled as step-out holes “confirming that high grade gold mineralization extends approximately 200 m down plunge to the south of the deposit’s Inferred Mineral Resources”. Specific results include:
    • A 64.3m wide intersection (true width) at an average grade of 7.4g/t gold from a depth of 577m in hole BS18DD391D1 which also intersected 49.7m at an average grade of 5.5g/t gold from 792m depth. The wider intersection includes higher grade sections of 17.3m averaging 9.3g/t from 584m depth; 11.9m averaging13.1g/t from 614.6m and 5.8m averaging 19.5g/t from 638m depth; and
    • A 17.5m wide true width intersection averaging 10.0g/t gold from a depth of 1,369.7m in hole BS18DD391M which includes higher grade sections of 8.9m averaging 18.7g/t from 1372.7m; 6.2m averaging 5.9g/t from 1494m and 5m averaging 10.9g/t gold from 1516m depth
  • A further five holes “tested other extensions of Wassa’s Inferred Mineral Resource, confirming that the deposit extends approximately 95 m down dip and 200 m up plunge to the north of the existing Inferred Mineral Resource” suggesting that the “extents of the F Shoot zone have not been fully tested and the deposit remains open up and down plunge and dip”
  • Significant results from this part of the campaign highlighted in the announcement include:
    • A 12.9m wide true width intersection averaging 6.8g/t gold from a depth of 298m in hole BS18DD308D2 which included a second mineralised horizon 18.4m wide averaging 6.3g/t gold from a depth of 706m; and
    • A 66.8m wide true width intersection averaging 5.2g/t gold from a depth of 675 in hole BS18DD388D2 which a number of other mineralised horizons above this section as well as a deeper intersection 40.7m wide averaging 4.8g/t gold from a depth of 766m.
  • The company comments that “The lower zone of gold mineralization was wider than previously interpreted in the April 2018 Inferred Mineral Resource update … [however] … The updated correlation between BS18DD385D3 and the new hole BS18DD388D2 has resulted in a shallower projected dip of the gold mineralization in this area of the deposit, which in turn has increased the approximate true thickness of BS18DD385D3 from 94.0 m to 134.0 m. This hole is expected to have a positive impact on the next Mineral Resource model update.”
  • The company currently has two diamond drilling rigs at work “targeting areas 75 m above the mother hole reported today and 350 m below the first daughter hole. A third DD rig has been mobilized to site and will conduct further drilling to test the extensions of the F Shoot zone at depth … [and comments that] … Upon receipt of funds from the La Mancha transaction, the drilling of Wassa’s Inferred Mineral Resources along the B and F Shoot trends is expected to be accelerated. The drilling of the B Shoot will focus on converting Inferred Mineral Resources to higher confidence Indicated Mineral Resources. Whilst drilling of the F Shoot will continue to target the expansion of Wassa’s Inferred Mineral Resources to the north and south along the high grade plunge.”
  • Work currently in hand on the preparation of a Preliminary Economic Assessment (PEA) for the southern part of the Wassa depoit had originally been timetabled for completion during the second half of 2018, however “due to the latest positive drilling results received and the plans to accelerate drilling going forwards, the Company has decided to postpone it. This will allow further drilling to be completed with the intention of gaining a more thorough understanding of the scale of the deposit and the opportunity it presents”.
  • Commenting on the results of the drilling, President/CEO of Golden Star, Sam Coetzer indicated that the company expected to release an updated mineral resource estimate for the Wassa underground operation in February 2019 and stressed that although “we had doubled Wassa’s Inferred Mineral Resources to 5.2 million ounces of gold3 and these latest results demonstrate that the deposit is larger still. The deposit remains open down plunge and up and down dip so we believe that significant further upside potential exists. With the strategic investment from La Mancha, we plan to accelerate drilling so that we can gain a more thorough understanding of the magnitude of the deposit.”
  • At the company’s other operation at Prestea, the company has updated its 2018 production guidance with “a 5% decrease from the midpoint of the previous guidance range ”to 225-235,000oz” of gold.
  • The cash operating cost guidance has also been revised upwards by 17% from the mid point of the previous guidance range to US$790-830/oz. All in sustaining costs for Prestea have also been revised upwards by 19% to US$1050-1100/oz.
  • The revised guidance reflects a slower than expected ramp-up of production at the Prestea underground operation as a result of “issues with longhole drilling and blasting productivities and the handover to in-house Alimak training … and this resulted in a lower than anticipated production rate during the year-to-date”.
  • Commenting on the performance of Prestea, Mr. Coetzer pointed out that “We are taking decisive action at Prestea to ensure that the operation begins 2019 on a robust footing”. These measures include an optimisation of the mining sequence, “right-sizing the open pit workforce at Prestea” and “downsizing the processing plant from a capacity of 4,000 tpd to 700 tpd”.

Conclusion: Golden Star’s continuing drilling programme at Wassa has further extended the known down plunge mineralisation and generated results which are likely to further expand the resource base when included in the next update expected in February 2019. Production guidance has been revised downwards by around 5% at Prestea due to a slower than expected ramp up however, at this stage, this appears to reflect delays rather than a fundamental shortfall. The additional financial resources as a result of La Mancha’s investment gives the company the resilience to proceed with remedial action at Prestea and to accelerate the resource evaluation at Wassa underground as it seeks to establish the ultimate extent of the “F” Shoot mineralisation.

 

Savannah Resources (SAV LN)  8p, Mkt cap £68.5m –Additional licence application in Mozambique

  • Savannah Resources reports that it has applied for an additional mining lease covering an area of 11,948 hectares (119km2) contiguous with and immediately to the west of its existing Mutamba heavy mineral sands project in Mozambique.
  • The application area is reported to contain “a defined Mineral Resource Estimate of 65Mt” and the company comments that “This Application is the final Mining Lease application to be lodged that is covered by the Consortium with Rio Tinto for the Mutamba Heavy Minerals Sands Project in Mozambique (‘Mutamba’)”.
  • For reference, the current “global Mineral Resource estimate for the Mutamba project (Jangamo, Dongane and Ravene) currently stands at 4.4Bt at 3.9%total heavy minerals ("THM") comprising both indicated and inferred category material and containing ilmenite, rutile and zircon This includes a high-grade portion of 92Mt at 6.2% THM, which was defined at Ravene”.
  • The current development concept for Mutamba envisages mining a total of 450mt over a period of 30years implying an annual 15mtpa production rate
  • Referring to the main project “the scoping phase of the Pre-Feasibility Study for the Mutamba project is progressing well with anticipated completion in Q1 2019”.
  • David Archer, Savannah Resources’ Chief Executive summarised the current position at Mutamba saying “Mutamba Minerals Sand’s Mining Lease applications continue to be evaluated by the Government and it is hoped that these will be issued within the time limits established by Mozambican law.”
  • He elaborated further saying that “Due to the complexity of the analysis of the process and the number of Government entities involved in the appraisal of the applications, the Government always reserves the right to request additional clarifications that may result in short delays.”
  • In addition, the company has reported an interim loss of £1.17m for the six months to 30th June 2018 (H1 2017 loss of £1.60m). The company’s cash balance at 30th June amounted to £0.79m.
  • Savannah’s board costs have risen significantly over the past year to >£756,643 from £471,860 in 2017. The company has five permanent executive and non-executive board members plus another six board alternates. Investors have remarked at the high cost of the board ahead of suitable cash flow generation.
  • Touching upon the highlights of its activities during the period, the company highlight the progress at its Mina do Barroso lithium project in Portugal where it increased its resource base to “the largest of its kind in Western Europe” and initiated a feasibility study expected to be completed during Q12019.
  • Other projects include the Oman copper projects where licence applications have been submitted and where yesterday the company announced the start of further drilling on possible extensions to the mineralisation.
  • At the Mutamba heavy mineral sands project referred to above, “Mining Lease Applications [have been]  submitted for Heavy Mineral Sands project, and [the] scoping phase of Pre-Feasibility Study [is] progressing”.

Conclusion: The addition of an extra 65mt resource to the current 4.4bn tonnes at Mutamba and the 450mt envisaged for the initial 30 years mine plan appears incremental to the overall plan, however it appears to extend further Savannah Resources’ relationship with its consortium partner, Rio Tinto.

 

 

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                                                            

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*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.

 

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