SP Angel – Morning View – Tuesday 04 09 18

Stronger US dollar weighs on metal prices

 

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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.

   

SP Angel – Graphite Report – Graphite market driven by Li-ion battery growth and China environmental legislation

See full report here for further details

Altus Strategies* (ALS LN) – LOI signed on Moroccan assets

BlueRock Diamonds* (BRD LN) – Kimberlite processing restarts at Kareevlei in South Africa

Castillo Copper (CCZ AU) – High grade massive copper sulphide mineralisation at Cangai

European Metals (EMH LN) – Starting work on upgrade to Cinovec PFS

KEFI Minerals* (KEFI LN) – Tulu Kapi secures key governmental approvals

Phoenix Global Mining* (PGM LN) – Latest drilling results from the Empire mine

 

China – President Xi offers $60bn for Africa projects

  • Chinese companies are to be encouraged to invest no less than $10bn into Africa over the next three years.
  • The statement follows allegations of ‘debt-trap’ diplomacy .
  • The $60bn figure is reported to include:
    • $15bn of aid and low cost loans.
    • $20bn credit line
    • $10bn for a China-Africa development fund
    • $5bn fund to support imports from Africa
    • $10bn corporate investment
  • Xi has instructed Chinese firms to be conscious of their social responsibilities though this is easier said than done when building large-scale projects in certain parts of Africa.
  • The funding follows some $125bn in loans into Africa from 2000-2016.

 

Zijin Mining to invest $1.26bn for 63% stake in Serbian copper complex

  • Zijin Mining is reportedly set to invest $1.26bn to acquire a 63% stake in Serbian copper complex RTB Bor.
  • As part of the deal, the company has also committed to invest an additional $200m to settle RTB Bor’s debt and absorb all of the 5,000 workers currently employed at the complex.
  • According to Antic, the total investment involves $135m towards improving the environment, while $320 will be directed towards opening a new copper mine

 

South Africa – New Mining Charter planned for November

  • The new minister of minesin South Africa, Gwede Mantashe, is planning on implementing changed to the Mining Charter in November
  • The deadline for comments passed last week at end August following three months of talks with mining companies, unions, community leaders and other interest groups
  • We expect the BEE requirement to rise to rise to 30% from 26% but the charter may become easier and clearer in other respects.
  • Cyril Ramaphosa, the new South African president was a former NUM leader and is well respected on all sides for his work as a union leader in resolving issues. Ramaphosa is also a successful businessman so he understands both sides.
  • Ramaphosa, who was long seen as Mandela’s natural successor, has his hands full dealing with issues within the ANC and may not yet have the time to fully resolve certain issues within the Mining Charter.

 

Thought for the day – when will the next Bre-X come along?

  • The Canadian mining sector took steps to clean things up after the $6bn Bre-X mining scandal.
  • What was probably more telling were the three other much smaller scandals which were also uncovered around the same time.
  • While any high-risk, high-reward sector will be a target for fraudsters the mining sector now has significant checks in place to prevent similar reoccurrence.
  • We suspect the next big scandals will emerge from the rapid growth in marijuana and crypto-currency sectors.
  • See https://deadcoins.com/ for a list of ICO Exit Scams & Extinct Coins

 

Dow Jones Industrials

 

-

 

-

Nikkei 225

 

-0.05%

at

  22,697

HK Hang Seng

 

+0.80%

at

  27,933

Shanghai Composite

 

+1.10%

at

   2,751

FTSE 350 Mining

 

-0.35%

at

  16,866

AIM Basic Resources

 

-0.11%

at

   2,218

 

Economics

US – Markets are set to open stronger on Tuesday following a long weekend with the focus on a looming decision from the White House on its proposed next round of tariffs on $200bn of Chinese imports.

  • Emerging market currencies continue to slide against the US$ on course for lowest close since July 2017 (MSCI Emerging Markets Currency Index) despite pledges from Turkey and Argentina with regards to new measures to stem the crisis.

 

UK – Retail sales growth slowed in August as a two-month heatwave came to an end.

  • Sales climbed 1.3%yoy compared to a 1.6%yoy growth recorded in July an d2.4%yoy growth recorded in August last year.
  • Online discounting, the World Cup and good weather earlier in the summer saw total retail sales climbing 3.4%yoy in the three months through July, but the pace of growth has come down since.
  • “The continued pressure of people’s disposable income has meant that some shoppers are increasingly less able to spend on the more discretionary non-food items such as clothing and footwear,” the British Retail Consortium said.
  • The pound is off 0.4% against the US$ this morning trading at 1.2828 with a fresh round of Brexit-related headlines have added to pressure on the currency.

 

Italy – Political leaders are scheduling meetings to discuss the 2019 budget with investors watching closely how far authorities are prepared to push the EU budget rules with bond yield spreads trading at their widest in five years.

 

Turkey – The central bank signalled it may be raising rates again following the release of accelerating inflation numbers.

  • Authorities said the “monetary stance will be adjusted” when the rate-setting committee meets next week.
  • This marks a turnaround in monetary authorities’ position as the central bank failed to hike rates in nearly three months despite a currency crisis.
  • Benchmark one week repo rate was voted to be left unchanged at 17.75% during the July meeting.

 

Argentina – The government announced a series of new austerity measures in an effort to calm the sell off in the peso as well as convince the IMF to speed up a $50bn loan programme.

  • President Macri announced new taxes on exports and steep cuts to spending in an “emergency” bid to balance next year’s budget.

 

Currencies

US$1.1574/eur vs 1.1618/eur yesterday. Yen 111.46/$ vs 110.92/$. SAr 14.962/$ vs 14.703/$. $1.284/gbp vs $1.292/gbp. 0.719/aud vs 0.720/aud. CNY 6.831/$ vs 6.824/$.

 

Commodity News

Precious metals:         

Gold US$1,195/oz vs US$1,207/oz yesterday - RBI buys gold for first time in nearly a decade 

  • The Reserve Bank of India added 8.46t of gold to its stock of holdings during the financial year 2017-18, taking level of reserves to 522.63t.
  • Its last purchase was of 200t from IMF in 2009.

   Gold ETFs 68.0moz vs US$68.0moz yesterday

Platinum US$780/oz vs US$798/oz yesterday

Palladium US$969/oz vs US$979/oz yesterday

Silver US$14.30/oz vs US$14.67/oz yesterday

           

Base metals:   

Copper US$ 5,891/t vs US$6,048/t yesterday - London copper at lowest in more than a week on trade concerns

  • London copper was sitting at lowest in days on Monday following renewed trade tension between the United States and China.
  • London Metal Exchange copper traded flat at $5,976/t by 0147 GMT, having earlier slipped to $5,952.50, its weakest since Aug. 23.
  • Prices on Friday fell 1.5% to take the monthly fall in August to 5.2%. It was the biggest monthly drop in two years and the third monthly decline in a row – biggest drop in two years.

Aluminium US$ 2,080/t vs US$2,144/t yesterday

Nickel US$ 12,560/t vs US$13,115/t yesterday - Nickel also fell to a 7 month low on Monday.

Zinc US$ 2,425/t vs US$2,505/t yesterday - Zinc futures inch higher on positive spot cues

  • Zinc prices inched up by 0.09% to Rs176.60/kg in futures trades today.
  • Zinc for delivery in September edged up 0.09%, to Rs176.60/kg.
  • The metal for delivery in October contracts held steady at Rs176.85/kg.

Lead US$ 2,097/t vs US$2,096/t yesterday

Tin US$ 18,710/t vs US$18,985/t yesterday

           

Energy:           

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

Natural Gas US$2.861/mmbtu vs US$2.897/mmbtu yesterday

Uranium US$26.45/lb vs US$26.40/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$65.9/t vs US$66.1/t

Chinese steel rebar 25mm US$684.0/t vs US$682.5/t

Thermal coal (1st year forward cif ARA) US$92.8/t vs US$91.4/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$65,500/t

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

 

Company News

SP Angel – Graphite Report – Graphite market driven by Li-ion battery growth and China environmental legislation

See full report here for further details

Key themes

  • Recovering prices are driven by strengths in the steel industry, tightening Chinese environmental legislation and budding Li-ion battery demand
  • Traditional consumption is expected to plateau with electric economy growth as the main driver for future graphite pricing
  • Expandable graphite demand accelerating to dominate future markets on stringent construction trends, drawing significant large-flake deposit pressure
  • Graphene R&D investment will drive an innovative technology sector
  • China to become net importer of natural graphite due to the war on smog and diminishing domestic ore quality
  • Future supply focus in Africa and Canada, targeting highest purity raw material. Significant upside is available for value-add products, with prospective miners transitioning into technology materials companies to maximising potential market capitalisation.

Price Outlook

  • Graphite is an allotrope (a chemically similar, structural modification of carbon), exhibiting both metallic and non-metallic properties which favour a vast number of end-use markets. Further to traditional steel manufacturing, the unique qualities of graphite, including very high thermal and electrical conductivity, lend itself to innovative battery and emerging technologies.
  • Mined graphite is most commonly sold as a concentrate by private, direct negotiation, leading to opaque pricing structures. Pricing details are posted via minerals intelligence companies, for example ‘Industrial Minerals’, who provide guideline quoted prices with respect to long-term trends after surveying industry participants. Most natural graphite is typically sold to traders who upsell to intermediary refiners, polishers and shapers before retailed to final customers. With China dominating the market, responsible for 67% production in 2017 (source: USGS), the Asian powerhouse nation is setting the global standard for the commodity’s price.

 

Altus Strategies* (ALS LN)   4.5p, Mkt Cap £8.0m – LOI signed on Moroccan assets

  • The Company signed a Letter of Intent (LOI) with privately-owned Raptor Resources.
  • Under the terms of the agreement, Raptor may earn up to 100% interest in Atlantic Resources, a 100% owned subsidiary of Aterian Resources, a wholly-owned subsidiary of Altus focused on exploration in Morocco.
  • In return Altus will “receive an upfront cash payment, equity in Raptor and a royalty on the initial projects vended-in”.
  • The LOI is subject to a number of conditions including the listing of Raptor’s shares on the ASX.
  • Aterian Resources owns four base metals exploration projects in Morocco including Agdz, Zaer, Takzim and Ammas.

Conclusion: While the announcement does not disclose details on the potential consideration for Moroccan assets, the LOI may potentially provide an opportunity to monetise its early stage projects in the region as well as to retain economic interest in future exploration upside through a shareholding in Raptor and a royalty agreement. Cash proceeds could then be directed towards other projects in the Altus portfolio of African assets.

*SP Angel acts as Nomad and Broker to Altus Strategies plc

 

BlueRock Diamonds* (BRD LN)   1.1p, Mkt Cap £2.1m – Kimberlite processing restarts at Kareevlei in South Africa

  • Bluerock report the restart of kimberlite processing a their Kareevlei diamond mine in South Africa.
  • Grade: The team are now mining the higher-grade KV1 pipe which grades 6.3cpht est. in addition to the KV3 pipe, 4.5cpht est. which should increase the overall grade of the operation.
  • So far the operations have recovered just 2.7cpht but we feel these numbers are lower than they should be due to lower than expected plant recoveries in recent years indicating losses in certain areas.
  • While the KV1 pipe caries an estimated grade of 6.3cpht the overall estimated grade for the three diamond pipes tested on the property average out at 4.5cpht for KV1, KV2 and KV3. We believe there are two other pipes which we would expect to also carry diamond grades.
  • Production: The good news is the mine is now processing ore at 80tph. Management expect the mine to operate for 18-20 hours a day on a 5-day week basis rising to a 6-day week next year subject to the employment of suitable staff who can pass both police clearance and polygraph testing.
  • Assuming the company is able to process kimberlite for another 70 days this year then the company could process 80tpa x 20 x 4.5cpht for 72cts per day x 70 days for 5,040cts recovered.
  • Given the average per carat value for H1 was $352/ct the value recovered could be $1.77m to the year-end to add to the $0.86m worth of diamonds sold in the first half.

Conclusion: Its though when mines stop for breakages and other issues. We look forward to further news on operating costs and hopefully improved recoveries through the second half.

*SP Angel acts as Nomad & Broker to BlueRock Diamonds

 

Castillo Copper (CCZ AU) A$0.04, Mkt Cap A$23.8m – High grade massive copper sulphide mineralisation at Cangai

  • Australian listed Castillo Copper has reported a number of high grade intersections from its initial five holes at the historic Cangai copper mine near the town of Grafton in the New England orogenic belt of north-eastern New South Wales.
  • Cangai forms part of the company’s wholly owned Jackaderry project in what it describes as “an area highly prospective for copper-cobalt-zinc” mineralisation where the company is planning a further 30 drill holes in this initial programme of work.
  • Among the results reported today are:
    • An 11m wide intersection at an average grade of 5.94% copper,2.45% zinc and 19.13g/t silver from a depth of 11m in hole CC0023R which contains a higher grade section of 3m (from 41m depth) averaging 8.10% copper, 2.84% zinc and 23.42g/t silver and single metre long intersections averaging 10.25% copper 1.68% zinc and 32.5g/t silver from 48m depth and 7.53% copper, 6.04% zinc and 30.6g/t silver from 50m depth as well as other deeper intersections of 2m width grading over 1% copper down to depths of over 90m; and
    • A 2m wide intersection at an average grade of 2.50% copper, 0.38% zinc and 9.78g/t silver from a depth of 92m in hole CC0022R as well as a 5m wide intersection (from a depth of 109m in the same hole) averaging 1.50% copper 0.37% zinc and 6.9g/t siilver
    • A 3m wide intersection at an average grade of 1.26% copper, 0.37% zinc and 6.36g/t silver from a depth of 103m in hole CC0025R
  • The original Cangai mine was discovered in 1901and was subsequently mined during the period 1904 to 1917 with recorded production of 5,080 tonnes of copper plus gold and silver from up to four near vertical mineralised zones. The New South Wales Geological Survey has described Cangai as “a metahydrothermal  structurally controlled deposit”.

Conclusion: The early drill results from exploration of the historic Cangai mine show high grade intersections although at this stage with drilling continuing the scale of the mineralisation has yet to be established. We await further results with interest.

 

European Metals (EMH LN)   20.3p, Mkt Cap £28.3m – Starting work on upgrade to Cinovec PFS

  • European Metals Holdings reports that it is upgrading the pre-feasibility study work for its Cinovec lithium tin project in the Czech Republic in order to evaluate the production of a higher value lithium hydroxide product which is being increasingly used in the manufacture of lithium ion batteries.
  • The results of the study, which includes a “process flowsheet whereby battery grade lithium hydroxide is precipitated directly from the roast and water leach steps”, are expected within the next two months.
  • Additional test work to verify previously reported recovery rates of around 95% is also being conducted at Dorfner Aznaplan in Germany and “Planning now continues to commence locked-cycle pilot testwork in September 2018 at Anzaplan with the selected lithium product (ie carbonate or hydroxide).”
  • Following the receipt of the necessary permits, the company is about to start a four-holes programme of geotechnical drilling to help establish the design of the initial boxcut, portal and decline for the underground workings.
  • Commenting on these developments, Managing Director, Keith Coughlan, said “The updated PFS that we aim to release in the next two months will include this work, the recent improvements in roast recoveries and on-going optimisation of the mine plan. We believe these incremental steps will provide a significant improvement to the economics of Cinovec and align ourselves with European requirements for lithium product.”

Conclusion: Partially in response to the evolving market demand for raw materials for battery production, the updated PFS aims to address the incorporation of a new flowsheet for the production of lithium hydroxide. We look forward to the results.

 

KEFI Minerals* (KEFI LN)   2.25p, Mkt Cap £12.4m – Tulu Kapi secures key governmental approvals

  • Kefi Minerals reports that it has now received the approval of the Ethiopian Central Bank for the project’s banking arrangements “complementing its approvals of proposed balance sheet capital ratios and TKGM's right to hedge the gold price.”
  • The company confirms that this approval complements the development, social, environmental and operational approvals received in 2015 and that “Whilst the remaining required Government consents are important, they are all, in essence, implementation of administrative matters, which include the registration of actual audited historical investment, registration of the updated Project development plan for its latest refinements, approval of the finance-lease structure, finalised Project insurance policies and the various ancillary local permits that can only be granted upon TKGM taking possession of the Project land from all resettled households”
  • While noting that the Government approval process had accelerated recently, Managing Director, Harry Anagnostaras-Adams said “There is every sign that the just-appointed Government leadership at the Federal, Oromia Regional and local levels is focused on making this [project] happen very successfully and smoothly. KEFI and its partners in Project Company TKGM are very appreciative of the priority given to the Project at the same time when so many transformational changes are being made in Ethiopia generally. It is an exciting time to be establishing a new sector in Ethiopia."

Conclusion: The Central Bank approvals mark another milestone for the Tulu Kapi project as it moves forward with the development of a 140,000oz pa gold mine.

*SP Angel act as Nomad to KEFI Minerals

 

Phoenix Global Mining* (PGM LN)   27.5p, Mkt Cap £8.7m – Latest drilling results from the Empire mine

  • Phoenix Global Mining reports that it has now completed a total of 7,116m of its planned 12,000m 2018 drilling programme at the historic Empire mine in Idaho. The drilling consists of 4,840m of reverse circulation drilling with the balance as core drilling in a combination of HQ (1,573m) and the larger PQ sizes (703m). Drilling is expected to continue into October.
  • The work consists of a combination of infill drilling to upgrade the existing inferred resources to measured and indicated and step-out drilling to extend the resource envelope beyond the limits established in the November 2017 resource model.
  • The step-out drilling has “intercepted previously unknown mineralisation … to the east and west of the Empire Open Pit” established in the Preliminary Economic Assessment. The company points out that “This previously untested ground is still open to the east and at depth, and we are currently targeting follow-up drilling to be completed in the next two months. In addition to these holes, we are drilling possible mineralised extensions on both the north and the south ends of the project and we await the assay results from these holes with interest.”
  • Among the results from the step-out drilling highlighted in today’s announcement are:
    • A 12.2m wide intersection at an average grade of 0.95% copper from a depth of 18.3m in hole KX18-33 which includes a 3m wide section at an average grade of 2.05% copper from a depth of 18.3m; and
    • A 13.7m wide intersection at an average grade of 0.64% copper from a depth of 112.8m in hole KX18-34 which includes a 1.5m wide section at an average grade of 1.26% copper from a depth of 112.8m; and a 3m wide intersection at an average grade of 2.85% copper higher in the hole from a depth of 70.1m; and
    • A 6.1m wide intersection at an average grade of 1.09% copper from a depth of 22.9m in hole KX18-8; and
  • The infill drilling results include:
    • An intersection averaging 1.11% copper over a width of 5.9m from a depth of 72.2m in hole KXD18-4 which includes 2.7m averaging 1.98% copper from 73.8m as well as other intersection both higher and deeper in the hole; and
    • A 7m wide intersection at an average grade of 1.21% copper from surface in hole KX18-5 which also includes 3.4m averaging 1.71% copper from 12.8m and 5.5m at an average of 0.8% copper; and
    • A 68m wide intersection at an average grade of 0.57% copper from surface in hole KX18-02 which includes a 29m wide section at an average grade of 0.75% copper from surface;
  • Noting that the step-out drilling programme is still only partially complete, Chief Executive, Dennis Thomas, expressed the aspiration that if the remaining drilling produces similar results which can be incorporated in a revised mineral resource model they “will have a positive effect on the overall grade and tonnage, which will materially enhance the economics of the project”.
  • Phoenix Global Mining has also announced that Ryan McDermott, currently CEO and General Manager of the local operating company, Konnex, is to be appointed at Chief Operating Officer of Phoenix Global Mining.
  • Ryan is an Idaho born geologist with long term roots in the Mackay community and senior operational management experience in “in the mining industry in the USA and internationally in exploration, mine development and operations in base and precious metals projects”. He was previously “responsible for overseeing the Empire Mine PEA and expanding the Empire property footprint, as well as designing and executing the 2018 drilling programme”.

Conclusion: The 2018 Empire drilling programme is now around 60% complete and has identified previously undetected mineralisation which remains open both laterally to the east and west and at depth. Infill drilling is intersecting mineralisation from surface and at shallow depths which, when added to the existing resource model should enable portions of the current inferred resource to be upgraded to indicated and perhaps to measured status and may enhance the estimated grades which currently stand at 0.53% copper . The company has also appointed the local General Manager as Chief Operating Officer in a move which we imagine will strengthen community engagement amongst the host community in Mackay.

*SP Angel acts as Nomad and broker to Phoenix Global Mining

 

 

Analysts

John Meyer – 0203 470 0490

Simon Beardsmore – 0203 470 0484

Sergey Raevskiy – 0203 470 0474

Phil Smith (Technology) – 0203 470 0475

Zac Phillips (Oil & Gas) – 0203 470 0481

 

Sales

Richard Parlons – 0203 470 0472

Jonathan Williams – 0203 470 0471

 

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*SP Angel 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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