SP Angel – Morning View – Wednesday 29 08 18

Thermal coal prices continue to rise as China power consumption continues to rise

 

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.

  

Anglo Asian Mining* (AAZ LN) Buy – 77p – Capital reduction approval secured paving the way for maiden dividend payment

Asiamet Resources (ARS LN) – Beutong drilling intersects mineralisation beyond current resource boundary

Cradle Arc (CRA LN) – Mowana update and revised production guidance

Galantas Gold (GAL LN) – Underground channel sample on the Kearney Vein

IronRidge Resources (IRR LN) – Exploration update on lithium in Ghana and gold in Chad at Down Under conference in Perth

Mkango Resources* (MKA LN) – Mkango strengthens its Board team

Strategic Minerals* (SML LN) – Government approvals at Leigh Creek

 

Liberal Elite policies drive up price of thermal coal and energy threatening global growth

  • Thermal Coal prices have risen 148% to US$117/t from US$47/t FOB Newcastle (Aus) in the last 2 years as coal demand for power generation continued to increase in Asia and the rest of the world.
  • China’s ongoing crackdown on pollution and focus on closing poor quality coal mines in China has helped to lift thermal coal prices further as utilities increasingly source cleaner quality coal mainly from Australia.
  • Australia is blessed with thick, continuous coal seams of good quality coal with well capitalised mining companies which are able to offer consistent supply with relatively short shipping times.
  • China power consumption rose by71% to 5.3TWh in 2017 from 2008 highlighting the strong and continuous growth of its economy. Chinese power generation is up 6.3% YTD yoy
  • US power generation by comparison generated 4.01Twh just from coal in 2017.
  • Power consumption growth is often used as an indicator to measure the rate of economic growth in China presenting a dilemma for policymakers on how to keep the economy growing while reducing pollution from burning coal.
  • Electric Vehicle sales will only exacerbate the problem by raising power consumption massively as sales are forecast to hit 1m EVs this year representing >3% of Chinese vehicle sales for the first five months of the year vs just 1.5% last year.
  • The average distance driven per vehicle in China in 2009 was 16,900km which at around 10kWh per 100km represents potential power consumption of 1,690Mwh per million EVs being driven.
  • While real world power consumption and mileage figures may differ China’s demand for electrical power is going to rise significantly on the back of its EV incentive policies.
  • China as a major oil importer is further incentivised to move to EVs in order to reduce its dependence on the price and availability of fuel oil.
  • From an economic standpoint it may be better for China to retro-fit clean coal technology to its coal-fired power plants.

 

French and UK boats clash in Scallop War – 12 nautical miles off the Normandy coast

  • The French have sailed an Armada of 25 boats to intercept a British scallop fleet of just 5 vessels throwing rocks at the British boats.
  • British boats are allowed to fish these waters under EU regulations much to the annoyance of the French
  • The Scallop War is perhaps a forerunner of the Brexit to come

 

Dow Jones Industrials

 

+0.06%

at

  26,064

Nikkei 225

 

+0.15%

at

  22,848

HK Hang Seng

 

+0.01%

at

  28,355

Shanghai Composite

 

-0.31%

at

   2,769

FTSE 350 Mining

 

-0.26%

at

  17,419

AIM Basic Resources

 

+0.95%

at

   2,257

 

Economics

US – Global markets are relatively rangebound as positive news over the US/Mexico deal gets overshadowed by expectation for an escalation in US/China trade war.

  • The deadline for public comment on Trump’s increased tariffs on $200bn of Chinese goods is less than week away on September 5.
  • Canada’s main trade negotiator is in Washington talking to US counterparts aiming to preserve NAFTA after Monday’s deal between the United States and Mexico.
  • Consumer confidence data released yesterday showed an unexpected jump in optimism in August tot eh highest level since October 2000.
  • Positive reading has been driven by improved assessments of the economy and the outlook with the gauge climbing to 133.4 from 127.9 in July beating all forecasts in a Bloomberg survey and a median for 126.6.
  • Consumers were found eager to spend on big-ticket items including homes, cars and major appliances within six months.

 

Germany – On the heels of positive business sentiment reports, the latest GfK monthly data showed economic optimism of German consumers bucked the trend and climbed in August.

  • A measure of expectations about the Germany economy climbed 6.5 points to 22.2 after having having followed a downward path for much of the year.
  • “Despite a trade conflict with the USA as well as increasing energy prices, the German consumers is once again showing greater economic optimism… they believe in the German economy’s solid growth trend,” GfK said in the report.
  • Other measures were less robust with income expectations trimmed amid accelerating inflation while spending outlook edged lower by a point but held close to previous highs, propped up by the strength of the national job market.

 

UK – Senior officials from the UK and EU involved in Brexit negotiations admit the timing on a potential agreement is likely to slip, Bloomberg reports.

  • The target is to finalise divorce terms by the middle of November at the latest, according to people familiar with British and European positions, who spoke on condition of anonymity as the discussions are private.
  • Previously sides targeted for conditions of the deal to be finalised by the beginning of the EU summit on October 18 after earlier hopes for resolving the divorce by June faded away.
  • Slipping targets point to challenges two parties are struggling to resolve and raise risks of a no deal resolution on the UK departure scheduled for March 29.
  • On a separate note, London property prices are set to drop in 2018 and 2019 should Britain fail to reach the Brexit deal, a Reuters poll of analysts and experts showed.
  • Unclear status of negotiations with the UK major trading partner add to concerns of foreign investors with responses to the survey of what effect a disorderly departure would have on London prices ranging from “short-term fall” to “damaging” to “disaster”.
  • When asked about the likelihood of a significant correction in London’s housing market before the end of 2019 the specialists gave a relatively high median of 29%.

 

Turkey – The lira took a fresh hit as Moody’s downgraded 20 of the nation’s financial institutions and a US pastor remained in detention.

  • The currency lost more than 1% against the US$ today as the credit agency highlighted “a substantial increase in the risk of a downside scenario” for lenders using low cost “foreign currency funding”.
  • Moody’s estimates banks will need to refinance around $77bn of foreign currency wholesale bonds and syndicated loans accounting to 41% of the total market funding.
  • The lira is currently trading at 6.40 versus the US$ posting a narrowing gap with a record low of 7.2 recorded in the midst of the August sell off.

 

 

Copper – Escondida operations are forecast to post an increase in unit operating costs amid the management drive to increase the usage of desalinated sea water.

  • Currently operations use 346,000 megalitres of water per annum with around half of that sourced from the sea.
  • The Company intends to reduce fresh water withdrawal by 15% by 2022.
  • BHP commissioned the $3.4bn desalination plant in South America in April to supply water to its copper operations.

 

 

 

 

Currencies

US$1.1680/eur vs 1.1689/eur yesterday. Yen 111.22/$ vs 111.19/$. SAr 14.310/$ vs 14.176/$. $1.287/gbp vs $1.289/gbp. 0.731/aud vs 0.734/aud. CNY 6.820/$ vs 6.813/$.

 

Commodity News

Precious metals:         

Gold US$1,205/oz vs US$1,211/oz yesterday

   Gold ETFs 67.9moz vs US$68.1moz yesterday

Platinum US$795/oz vs US$808/oz yesterday

Palladium US$947/oz vs US$950/oz yesterday

Silver US$14.74/oz vs US$14.90/oz yesterday

           

Base metals:   

Copper US$ 6,106/t vs US$6,090/t yesterday

Aluminium US$ 2,134/t vs US$2,114/t yesterday

Nickel US$ 13,550/t vs US$13,415/t yesterday

Zinc US$ 2,511/t vs US$2,556/t yesterday

Lead US$ 2,075/t vs US$2,094/t yesterday

Tin US$ 19,140/t vs US$19,150/t yesterday

           

Energy:           

Oil US$76.0/bbl vs US$76.3/bbl yesterday

Natural Gas US$2.862/mmbtu vs US$2.874/mmbtu yesterday

Uranium US$26.60/lb vs US$26.30/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$66.1/t vs US$66.2/t

Chinese steel rebar 25mm US$689.2/t vs US$695.1/t

Thermal coal (1st year forward cif ARA) US$91.0/t vs US$91.3/t

Premium hard coking coal Aus fob US$180.9/t vs US$180.5/t

           

Other:  

Cobalt LME 3m US$64,250/t vs US$64,250/t

Tungsten APT European US$280-300/mtu vs US$300-315/mtu

 

Company News

Anglo Asian Mining* (AAZ LN)   43p, Mkt Cap £49m – Capital reduction approval secured paving the way for maiden dividend payment

Buy – 77p

  • The Company secured the capital reduction from the Court on 28 August 2018.
  • The decision brings Anglo Asian one step closer to paying the maiden dividend with the capital distribution policy expected to be announced with its interim results in September.

(Dec year end)

 

2016

2017

2018E

2019E

2020E

Gold price

US$/oz

1,253

1,261

1,306

1,325

1,350

Copper price

$/t

4,872

6,196

6,902

7,500

7,500

Gold production

koz

65.4

59.6

69.0

72.0

70.5

Copper production

kt

1.9

2.0

2.3

3.9

3.9

GE production

koz

75.2

71.6

82.8

95.3

93.4

AISC (incl PSA, reported)

US$/oz

616

604

575

595

697

Revenue

US$m

79.2

71.8

90.6

103.7

103.8

EBITDA

US$m

33.7

32.0

37.0

37.5

32.8

PAT

US$m

4.0

2.5

6.2

4.3

5.0

FCF

US$m

14.6

16.3

23.3

16.4

22.6

EV/EBITDA

x

1.7

1.7

2.3

2.2

2.6

PER

x

5.5

13.9

11.9

17.0

14.6

Net Debt

US$m

34.6

18.1

-5.2

-21.6

-44.2

EV/EBITDA and PE based on 50p price

*SP Angel acts as nomad and broker to Anglo Asian Mining

 

Asiamet Resources (ARS LN)   9.1p, Mkt Cap £85.4m –Beutong drilling intersects mineralisation beyond current resource boundary

  • Asiamet Resources reports that recent drilling at its Beutong West copper/gold project in Aceh, Indonesia, which was aimed at possible eastward extensions of the Beutong West Porphyry, has intersected “strong copper mineralisation at depth well beyond the 2014 Resource envelope”.
  • The company points out that the “presence of strong molybdenum mineralisation in the deeper parts of BEU1350-02 highlights potential for extensions of the high-grade copper core to the Beutong system at depth and suggests that the Beutong East and West Porphyries may join in this area”.
  • Among the results highlighted today are intersections from hole BEU1350-02 which includes:
    • An intersection of 398m from a depth of 352m in hole at an average grade of 0.39% copper, 0.04g/t gold, 0.57g/t silver and 160ppm of molybdenum.
    • The intersection includes a higher grade section of 118m from 632m depth to the end of the hole at 750m which averaged 0.60% copper, 0.05g/t gold, 0.98g/t silver and 255ppm molybdenum.
    • The final 4m of the hole averaged 0.82% copper, 0.03g/t gold, 1.1g/t silver and 75ppm molybdenum.
  • The hole “intersected a broad zone of porphyry style mineralisation comprising covellite, chalcocite and digenite” in a previously untested zone between the Beutong East and Beutong West porphyry bodies providing support for the possibility that the two bodies may be linked at depth.
  • Commenting on the drilling, Asiamet’s CEO, Peter Bird said that “Our 2018 drilling program continues to extend mineralisation well beyond the current Resource envelope and a significant uplift in the overall deposit tonnage is expected as further rounds of drilling and Resource modelling and estimation are completed”.

Conclusion: Asiamet’s drilling programme is continuing to extend the known mineralisation at Beutong and improving the company’s insights into the geological relationship between the eastern and western porphyries. We look forward to this data being incorporated in an updated mineral resource estimate in due course.

 

Cradle Arc (CRA LN)   3.7p, mkt cap £10.2m – Mowana update and revised production guidance

  • Cradle Arc reports that as a result of initial production and processing setbacks at its Mowana it expects to produce a total of 4,000 tonnes of copper during H2 2018 with approximately 1,000 tonnes during Q3 and 3,000 tonnes in Q4 as production shifts from transitional ore to supergene material which is expected to deliver improved recovery rates. Guidance estimates issued in June this year envisaged output of 7,500 tonnes of copper during H2 2018.
  • Mining operations during July were adversely affected by breakdowns and by “under-performance of a drilling contractor”. An additional contractor was appointed at the beginning of August leading to the resumption  of normal drilling rates which has seen “development through to the transitional ores” and an improvement in grades. The company comments that  much of “the waste stripping required to access sustainable ore volumes has now been completed, allowing confidence in ore delivery for the rest of the year.”
  • Mining equipment has suffered from lower than expected availability rates which has adversely impacted the volumes of ore delivered to the mill.
  • Disruption of ore deliveries to the mill “resulted in 45,224 tonnes of ore being milled in July 2018, leading to a lower than forecast 292 tonnes of contained copper being produced for the month. In mid-August 2018, further intermittent breakdowns have been experienced … within the milling circuit, which resulted in further considerable periods of processing downtime.”
  • Consequently, “the total contained copper production for August 2018 is expected to be broadly in-line with the output achieved for July 2018 and therefore significantly below the Company's original expectations, such that the project is not currently breaking even in terms of operational cash flow at the current run rate.”
  • The processing of predominantly transitional ore types, in conjunction with the plant issues  resulted in recovery rates “with an overall average of approximately 51 per cent. for both Q2 and Q3 2018 to date. Recoveries of up to 76 per cent. are still expected to be obtainable from the high supergene ores currently being accessed at the 940RL level, with recoveries of copper ultimately expected to reach a level of 85 per cent. by the end of the year, as more sulphide dominant areas are accessed.”
  • Cradle Arc is in “advanced negotiations” for the funding of its planned Dense Media Separation (DMS) plant and reports that the “envisaged financing package includes an initial tranche of funding which is to be utilised to improve and rehabilitate the current processing facilities and procure an inventory of certain key spare parts, which should then serve to mitigate the occurrences of further processing plant breakdowns and interruptions during the critical ramp-up phase and which are a pre-requisite to the installation of the planned DMS upgrades”.
  • The company started to ramp up production at Mowana in April this year following its acquisition of the dormant mining operation in November 2017.
  • In addition to the operational update, Cradle Arc “plans to make certain changes to the Board via the proposed appointment of Roy Pitchford, as the Company's Non-Executive Chairman, and Michael Golding, as an additional Non-Executive Director”.
  • Mr. Pitchford “has in excess of 25 years' senior management and executive experience in Southern Africa in the mining industry” including senior management roles at Zimbabwe Platinum, Cluff Resources, Delta Gold Zimbabwe and Vast Resources amongst others.
  • Michael Golding “was previously the South African head of Corporate Finance for Billiton Plc” in a career spanning 20 years of corporate and project finance experience.

Conclusion: Cradle Arc has experienced difficult operating challenges as it builds up production at the Mowana mine. The company has taken measures to both address the operational issues and to strengthen its Board and is looking for improved production performance in Q4 as it moves into the supergene and sulphide ores exposed by recent waste stripping work.

*SP Angel acts as Joint Broker to Cradle Arc plc

 

Galantas Gold (GAL LN)   5.3p, Mkt Cap £9.8m – Underground channel sample on the Kearney Vein

  • Galantas Gold reports that an underground channel sample taken approximately 15m below the former open pit at its Omagh gold mine in Northern Ireland assayed at an average of 12.8g/t gold and 33.1g/t silver over a distance of 1.7m “taken as close to 90 degrees across the vein as was practical, given some interference by ground support”.
  • The result reported above are a composite of individual samples of individual types of mineralisation which were sampled and assayed separately.
  • The company also reports a grab sample “also taken on the Kearney vein, assayed at 9.8g/t gold and 30.1 g/t silver.”

Conclusion: Encouraging channel sample results from the underground portion of the Kearney Vein which is expected to start providing some mill feed late this year or early in 2019.

 

IronRidge Resources (IRR LN)   23.75p, Mkt Cap £67m – Exploration update on lithium in Ghana and gold in Chad at Down Under conference in Perth

  • IronRidge Resources are talking to a new presentation at the Africa Down Under conference in Perth today.
  • Management reported results from its first 4,180m of RC drilling at Ewoyaa lithium in Ghana which usefully sits on the coast not far from ports outside Accra.
  • The company which is backed by Sumitomo Corp and Assore, a major South African miner as well as DGR which has incubated a number of highly successful junior explorers including SolGold.
  • The Ironridge team recently announced a number of very positive lithium assay results and favorable metallurgy in reasonably wide intersections and decent grades at Ewoyaa indicating potential for a new lithium mine given its beneficial location
  • https://www.ironridgeresources.com.au/presentations/
  • IronRidge will also describe the gold discovery at Dorothe in Chad which show good widths and gold grades in trenching over a large 3x1km area as indicated by the presence of artisanal workings at surface.
  • A number of similar looking prospects show structural repetition along a prospective 40km strike.

Conclusion: IronRidge are making good progress with at least two significant discoveries and a very substantial portfolio of prospective licenses ranging from Ghana and the Ivory Coast through Gabon to Chad and possibly beyond!

*SP Angel act as nomad and broker to IronRidge Resources

 

Mkango Resources* (MKA LN)   9.7p, Mkt Cap £10.5m – Mkango strengthens its Board team

  • Mkango Resources has announced a diversification and strengthening of its Board with the appointment of new non-executive directors with a spread on international, investor relations and capital markets experience.
  • Former Barrick Gold VP of Investor Relations, Susan Muir joins the Board with immediate effect with a remit to work “closely with Mkango’s management and its strategic partner, Talaxis Limited (“Talaxis”), as the Company moves towards completion of a feasibility study for Songwe, followed by project finance and mine development.” The company expects that her “experience and background will help to enhance the Company’s profile in the North American and other global markets.”
  • A Johannesburg based investment banker, Sandra du Toit is also to join the board in a non-executive role with immediate effect. She is currently Executive Vice-President at Standard Bank and has advised on “numerous transactions in the African mining and finance space”.
  • Finally, Shaun Treacy has been appointed as a consultant as a pre-cursor to being nominated to join the Board at the forthcoming shareholder meeting to be held on 2nd October. Mr. Treacy is a Sydney based strategic and financial advisor where he is currently “Chief Investment Officer for the private equity firm, Arete Capital Partners, and previously held senior investment banking positions with JPMorgan, Lehman Brothers, Nomura and UBS.”
  • Existing directors, Eugene Chen and David Berg will not be seeking re-election to the Board.
  • Commenting on the restructuring of the board, Chairman Derek Linfield welcomed “Sandra, Susan and Shaun to the Board.  The appointment of our new directors further broadens the Company’s international footprint and global network, following the Company’s major transaction with Talaxis at the end of 2017”
  • He went on to express appreciation for the work of the retiring directors “who, over the last seven years, have played key roles in setting the strategic direction for the growth of the Company, enabling us to reach our current stage of development”.

Conclusion: Mkango’s appointments reflect the transformation of the company now underway as it moves ahead with the feasibility work at Songwe Hill and adds complementary skills to those of the existing executive management team.

*SP Angel act as Nomad and broker to Mkango Resources. Two SP Angel mining analysts have visited the Songwe Hill project in two separate occasions

 

Strategic Minerals* (SML LN)   1.45p, Mkt Cap £20.0m – Government approvals at Leigh Creek

  • Strategic Minerals reports that it has received environmental approvals from the South Australian Government covering the recommencement of copper production from the Mountain of Light heap leach facility and for the completion of the drilling programme at Lynda.
  • An 18 hole drilling  programme, started in early August to sample to depths of approximately 50m, is expected to be completed during the first week of September. The company notes that the drilling to obtain samples for metallurgical testing at the Paltridge North and Lynda deposits is “the first drilling within the Mountain of Light Mining Lease for nearly 40 years” and is aimed at providing the relevant data to assist in the flowsheet design an optimisation.
  • The main purpose of the metallurgical testing is “to confirm the performance of the ores in various copper extraction processes [and] to assist in the design and scale up for the proposed copper recovery operations.” Results of the metallurgical work are expected in early 2019.
  • The company underlines that it intends that “future operations at LCCM will be well informed and designed based on high quality results from the diamond drilling programme, desktop review and metallurgical test work programme, which the Company believes will differentiate it from previous operators of the mine”. Strategic Minerals also highlights that it has assembled an experienced project team and group of internationally recognised technical advisors to assist in developing its production plans.
  • The approvals to restart processing at the Mountain of Light site are “the result of extensive discussions with the department and reflects the excellent relationship the previous owners and the current management have with the department”.
  • Commenting on the progress at Leigh Creek, Managing Director, John Peters, underlined that the work “has reinforced my confidence that we can, during 2019, deliver a project that will provide a second income stream for SML.”

Conclusion: Strategic Minerals has now received permits to restart copper production at the Mountain of Light plant and is working systematically to secure metallurgical samples which should, aided by its team of experts, optimise the flowsheet design and assist in a smooth move back to production.

*SP Angel act as Nomad and broker to Strategic Minerals

 

 

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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