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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.

China’s clean energy drive rewards with bluest skies over Beijing:

  • President Xi’s drive for clean air is rewarding Beijing residents with some of the cleanest air in a decade as they begin to reap the benefits of China’s anti-smog push. Of the seven lowest monthly pollution readings in the capital city since 2008, five have been recorded since the beginning of last summer, according to data gathered by the U.S. Embassy in Beijing. July pollution levels averaged 44 micrograms of airborne particles per cubic meter, the seventh lowest since recordings began in 2008.
  • The improved air quality underscores how rapidly China is attacking the smog problem that created Beijing’s “airpocalypse” in 2013, when the tiny particles peaked at 35 times the World Health Organization’s recommended limit. Since President Xi Jinping made fighting air pollution one of the country’s main priorities, millions of northern businesses and families were forced to switch from coal to cleaner-burning natural gas for industrial power and home heating.
  • “China has made a very clear pledge to ‘bring back the blue skies’. Hardly a week goes by when China doesn’t bring in a new regulation or policy to further this commitment”, according to director of energy finance studies at the Institute for Energy Economics and Financial Analysis.
  • The switch in dominating fuel types has skyrocketed gas use and driven the nation to the world’s top importer of the fuel, helping to raise global liquified natural gas prices last winter to the highest since 2014.
  • Production cuts and capacity curbs to reduce pollution from steel mills have helped rebar futures rebound to the highest price since 2013.
  • Rapid industrialisation was the main culprit for environmental degradation, but it’s broad and stringent policies will outpace previous cleanup efforts.

US – US authorities may move to sanction Chinese oil companies if they buy Iranian crude

  • The US is highly unlikely to sanction China as a nation state but US authorities may move to block US dollar trade for Chinese parastatal companies if they are seen to openly break US sanctions on Iran.
  • Oil is an essential import into China and any oil-related sanctions might

Mine collapse in Zimbabwe kills one, injures three

  • Local media are reporting that one person died and three were injured after a wall collapsed at the community-operated Gaika Mine in Kwekwe, central Zimbabwe.
  • The miners were digging for gold and allegedly were using explosives, which weakened the shaft where they were working.
  • Three of them ended up trapped for a few hours but were rescued by colleagues working nearby while the fatal victim, identified as Stenford Machangai, was crushed by a giant rock. The Zimbabwe National Army has been dealing for months with people working illegally at the mine site. 

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Economics

US – European equities and US index futures are trading slightly higher on the news that a delegation from Beijing to hold meeting with US officials on this week.

  • A nine-member Chinese delegation is on its way to meet with American negotiators which many interpret as an effort to de-escalate the trade dispute between two nations.
  • Meanwhile, the US Trade Representative said it would extend the length of tariff hearings on the next $200bn worth of Chinese goods to six days from the previously planned three due to strong demand from companies to tetify; the hearings will be held Aug 20-24 and on August 27.
  • On a separate note, minutes of the Fed August meeting are due on Wednesday and are expected to show policy makers are upbeat on the economy and committed to further rate hikes.
  • Additionally, central bankers are set to meet at Jackson Hole, Wyoming, from Friday to discuss reasons behind low inflation, slow wage growth and weak productivity gains.

Germany – Factory gates price inflation held a 3%yoy in July, in line with the previous month’s reading, on the back of higher energy prices.

  • Energy prices are reported to have climbed 6.5%yoy last month.
  • While the ECB said it expects the rapid energy price growth to be transitory, it suggested that there is an increase evidence of a more long-lasting move higher in inflation.

UK – UK house sellers sh the deepest summer price cuts on record.

  • The average asking price for homes across the country in August fell 2.3%mom, according to Rightmove data.
  • London recorded even steeper declines at 3.1%yoy.
  • Rightmove cited lacklustre wage growth and tighter lending criteria as reasons for the “late summer sale”.
  • On the yoy basis, average UK asking price increases 1.1%yoy to £301,9773 while London prices slipped 1.2% to £609,205.

Italy – Government bond yields are hovering around the highest level in four years as the government budget plans are challenged by weakening growth forecasts.

  • Bloomberg monthly survey of economists show that Italian expansion is set to slow through 2020 and continue to under-perform the euro-area average.
  • The economy grew 1.5% last year versus 2.4%yoy recorded by the Eurozone.
  • Goldman’s estimated that should the coalition government follow through with all their promises including tax cuts and a basic income for poor, budget deficit may widen to 6.4-7.4% from 2.3% recorded in 2017 which in turn would violate the EU 3% limit.
  • This in turn could see Italy-German bond yield premium jump to 470bp from current 278bp. 

Turkey – The currency lost 1% against the US$ this morning with two rating agencies having cut sovereign debt rating on Friday last week.

  • S&P highlighted “extreme lira volatility” in its report while Moody’s warned of “further weakening of Turkey’s public institutions and the related reduction in the predictability of Turkish policymaking”.
  • Further losses come despite the news that central bank of Qatar agreed to provide FX liquidity to Turkey amid a widening currency crisis.
  • The agreement, which was signed by the heads of the two central banks on Friday, will establish a two-way currency exchange line, the Qatar Central Bank said in a statement posted on its website.
  • Turkish markets will be closed form most of this week, which may mean low trading volumes and sharper currency swings than usual.

Greece – The nation exits the European creditors and IMF financial bailout programme today paving the way for the nation to return to public capital markets when needed.

  • Greece is the last country in the euro zone to have exited a financial assistance programme following eight years of economic turmoil.
  • Analysts have pointed out that Greece ends this third rescue with a “massive cash buffer” of $27.4bn which is expected to last it nearly two years before the government needs to tap capital markets.
  • While the EC forecasts the country to record accelerating growth over the next couple of years (1.9% and 2.3% in 2018/19, up from 1.4% in 2017), commentators argue that it is important that the country keeps fiscal discipline and reforms continue.
  • 10y bond yields has recently climbed to 4.3% on the back of a sell off in risky assets; although, yields have been on a declining trend over the last several years and hit a more than a decade low of 3.7% in January this year.

 Currencies

US$1.1424/eur vs 1.1382/eur last week  Yen 110.62/$ vs 110.75/$  SAr 14.633/$ vs 14.712/$  $1.274/gbp vs $1.271/gbp  0.731/aud vs 0.727/aud  CNY 6.853/$ vs 6.888/$

Commodity News 

Precious metals:          

Gold US$1,188/oz vs US$1,175/oz last week

   Gold ETFs 68.2moz vs US$68.2moz last week

Platinum US$793/oz vs US$779/oz last week

Palladium US$912/oz vs US$896/oz last week

Silver US$14.80/oz vs US$14.64/oz last week

Base metals:    

Copper US$ 5,992/t vs US$5,886/t last week

  • London copper regained following last weeks’ broad sell-off as hopes towards progress in a trade dispute between the United States and China buoyed risk appetite and undermined safe-haven demand for the dollar. London Metal Exchange copper rose by +0.7% as the dollar sagged on receding investor demand, and a focus on discussions between the world’s top two economies are due this week.
  • Reporting suggests that China and Washington will begin lower level trade talks on Aug. 21 and 22, just before $16bn in new US tariffs on Chinese goods take effect.
  • The union representing workers of Chilean copper mine Escondida signed a new collective labor contract on Friday, ending the risk of a strike that could have paralysed the world's biggest copper mine, easing supply concerns. Production is expected to support swelling Chinese imports as the nation reduces its reliance on scrap metals.
  • China’s copper ore and concentrate imports are set to rise 15% to a record 20mt this year as the country adds the most smelting capacity in four years, according to researcher SMM Information & Technology Co. in Shanghai.
  • Infrastructure spending and curbs on scrap usage are boosting demand in the world’s top consumer. Overseas buying of unwrought copper and copper products was also up in the first seven months, climbing 16%.
  • Striking actions have been dodged as the main union at Chile’s Caserones copper mine, majority-owned by Japan's JX Nippon Mining and Mitsui Mining, has accepted an adjusted contractual offer from management, which marks the end of the negotiation process and removes the threat of a strike.
  • “We have reached an agreement on the drafting of the collective contract, and we have signed the collective agreement,” the board said. Caserones mine, behind schedule ever since it began producing in May 2014, not only has been affected by threats of strikes and a series of technical problems in its ramp-up phase, it has also cost the Japanese miners hefty impairment charges.

Aluminium US$ 2,042/t vs US$2,027/t last week

Nickel US$ 13,660/t vs US$13,270/t last week

Zinc US$ 2,390/t vs US$2,337/t last week

Lead US$ 2,018/t vs US$2,008/t last week

Tin US$ 18,845/t vs US$18,670/t last week

Energy:            

Oil US$71.8/bbl vs US$71.5/bbl last week

Natural Gas US$2.906/mmbtu vs US$2.919/mmbtu last week

Uranium US$26.25/lb vs US$26.25/lb last week

Bulk:    

Iron ore 62% Fe spot (cfr Tianjin) US$68.0/t vs US$66.8/t

  • Fortescue Metals Group’s financial performance has slumped as China has focused on using high-grade iron ore at its steel mills.
  • Miner’s revenues fell 18% in the 2018 financial year from $8.45bn to $6.9bn, pushing its profits 58% lower to $878m.
  • Fortescue said the reduction in average price was due to China’s move to improve steel mill profitability, which means using higher iron content ores to maximise production.

Chinese steel rebar 25mm US$695.0/t vs US$675.9/t

  • Rebar futures in Shanghai are heading to the highest close since 2012, extending the run of six weekly gains, on the potential for earlier-than-expected production curbs across Tangshan, a key steelmaking hub. Rebar for Jan. +1.1% to 4,348 yuan/ton on the Shanghai Futures Exchange, following +2.4% growth last week. 
  • On Friday, there was speculation among investors that Tangshan will advance winter curbs to Sept. 1 and mills will limit output by at least half, according to Shanghai Metals Market.
  • Recent low inventory levels near January’s bottom indicates demand is remaining robust, with stable consumption across infrastructure and real estate, with strong momentum expected into September as the construction season starts.

Thermal coal (1st year forward cif ARA) US$89.8/t vs US$88.1/t

Premium hard coking coal Aus fob US$182.6/t vs US$182.2/t

Other:   

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

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

Company News

Arc Minerals (ARCM LN)  4.9p, Mkt Cap £28.1m – 2018 annual report and financial statements

  • Arc Minerals, formerly Ortac Resources, revises and focuses its strategy towards its two key African projects since replacing Executive Chairman, Nick Von Schirnding in September 2017. The company increased holdings to take over control of its portfolio of copper-cobalt and gold projects comprising, drawing total assets up 72% from £15.9m in 2017 to £27.4m in 2018:
    • Casa Gold (99.4% owned) – 66km² exploration license for highly prospective gold assets. Misisi Gold Project in the eastern part of the Democratic Republic of Congo. Misisi hosts a 3moz gold project and is at scoping study level targeting annual gold production of 150k-200koz. Arc commenced an initial drilling programme focussed on the southern extensions of the 1.5moz Akyanga gold project as well as a soil sampling programme to test for continuations to the east.
    • Over 6,000m of diamond drilling was carried out at the Akyanga deposit and the 110th diamond drill hole delivered the highest ever grade assaying 8.04 g/t Au over 24.75m. The results of the drilling programme formed part of the planned resource upgrade and in June this year the company announced a doubling of the resource to 3 million ounces (JORC compliant) grading 2.16 g/t of gold.
    • Zamsort Copper-Cobalt (66% owned) – 4km² small-scale mining license, enclosed by a 1,000km² large prospecting license. The project is hosted within the Zambian Copperbelt in one of the last unexplored copper domes in Zambia and in close proximity to existing world-class mines.
    • Arc completed a comprehensive ground geophysics programme that generated a significant number of drill targets. In July 2018, the company begin an 11,000m drilling programme aimed to delineate a shallow resource for the commercial scale demonstration plant (which we expect to be in production before the end of 2018) as well as establish a maiden mineral resource at Kalaba.
  • The Company acquired a 99.4% interest in Casa Mining Limited for £4.3m. The acquisition of Casa produced a gain on business combination of £10.5m which contributed to a profit from operations of £2.0m (1.0p per share).
  • Arc also increased Zamsort ownership and control to 66% with two convertible loan notes in Zamsort, with a remaining 5% outstanding convertible loan note. There remains one minority interest in Zamsort, namely Kopara, and the company has recently agreed with Korapa to jointly fully fund all future expenditure at Zamsort.
  • The company’s interests in Slovakia have been reclassified as held for sale assets and their carrying value was written down by £6.7m. The Ṧturec Gold Project hosts a 1.3m gold-equivalent Resource with a pre-feasibility study demonstrating robust economics.
  • As part of selling non-core assets, the company entered into a non-binding head of terms with AMED, an African focussed mining private equity fund to sell its interest for US$532,000. Andiamo Exploration Limited, a company that is exploring in Eritrea for gold-copper-zinc Volcanogenic Massive Sulphide mineralisation.
  • Nick Von Schirnding notes “as we executed on our new strategy it was pleasing to see the market’s support for the company, resulting in our market capitalization increasing from circa £3.4m on 31stMarch 2017 to over £26m today”.

BHP Billiton (BLT LN)  1673p, mkt cap £96.5bn – Strong iron ore, copper to outweigh exceptional items in BHP results tomorrow

  • BHP Billiton are due to report Full Year results tomorrow morning.
  • This should be a good year for BHP Billiton as premiums for >62%, good quality, iron ore have risen beyond expectations driven by China’s new Green Shield policies
  • The significant increase in earnings from copper, coal, spot iron ore prices and premiums for quality product should enable BHP to soak up significant impairment and other costs while paying out significant dividends as flagged in BHP’s update on 18 July.
  • Management have already warned the market on a number of exceptional items primarily further US$440m for the Samarco dam failure in Brazil bringing the total Samarco impairment to US$650m for the year.
  • BHP are also expensing a further US$448m in exploration costs and expect to take a further US$60m adjustment on the sale of the Angostura gas assets.
  • The company are also due to update the market on the sale of US onshore gas assets along with any relevant financial adjustments.
  • The market is looking for consensus operating profits of US$15.9bn for FY 2018 with US$24.5bn of EBITDA and US$14.5bn of pre-tax profit on sales of US$45.4bn.

Conclusion: We are looking for a strong set of earnings tomorrow from BHP tempered by Samarco and other exceptionals.

Bluejay Mining* (JAY LN)  15p, Mkt Cap £127m – Over 5,000t of ilmenite concentrate feedstock produced at Dundas so far, see site pictures

STRONG BUY - included in MSCI index

Target Price 45p

  • Bluejay Mining have published a picture on their twitter account showing work on a +10,000ton bulk sampling operation.
  • The piles of ilmenite concentrate are 7m high and are
  • This is a significantly larger bulk sample than we had expected as the company shipped just 500t last year
  • Bluejay has screened and stockpiled >5,000t in just a few days demonstrating just how easy it is to mine, screen and stockpile inventory at the Dundas site in Greenland
  • See pictures on the Bluejay Mining twitter account below
  • https://twitter.com/bluejaymining?lang=en

Conclusion: The pictures show a significant increase in the activity and operations at the Dundas site in Greenland. This is good news as it further demonstrates Bluejay’s operational abilities, accessibility and ilmenite feedstock production at Dundas.

*An SP Angel mining analyst has visited the Dundas (formerly Pituffik) ilmenite sands project in Greenland. *SP Angel act as nomad and broker to BlueJay Mining.  

Gemfields (GEM LN)  32.5p, Mkt Cap £179.1m – Application to cancel trading on AIM

  • A report has appeared on the website www.mining.com that the Zambian Revenue Authority has issued search warrants on Gemfields Kagemm mine “as part of a probe into alleged tax evasion”.
  • The “ZRA seized documents and files including those supposedly used to evade payment of Value Added Tax (VAT), income tax, with-holding tax and other taxes, Gemfilds said”.
  • Gemfields was acquired by Pallinghurst in June 2017.

Kenmare Resources (KMR LN)   230p, Mkt Cap £252m – Margins rise as Kenmare benefits from rise in ilmenite prices and move to direct sales into China

  • Kenmare Resources report first half 2018 results on its Moma mineral sands operations on the coast of Mozambique.
  • Kenmare report a +20% price increase in the average FOB price of US$223/t received through the period vs H1 2017.
  • Sales of are .
  • Costs also rose to US$140m though this includes an additional US$8.8m of extra costs related to the move to sell material on a CIF/CFR basis.
  • The move to CIF/CFR from the traditional FOB ‘Freight on Board’ basis appears to reflect the decision by management to ditch its agents and sell directly to consumers in China
  • Net debt fell to US$9m vs US$34m indicating the strength of cash flow generation though debt would be much higher had the company not benefitted from a massive US$275m bailout backed by the Sultanate of Oman.
  • Profits rose to US$26.4m raising margins to 19%.
  • EBITDA margins also rose 59% to US$47.5m despite a negative charge of US$11m on mineral products stock movements, costs also rise by US3.1m alongside a negative US$2.7m for the Sales Mix.
  • Operating costs rose by around 4% driven by higher fuel costs driven by issues relating to the local grid and greater power demand.
  • Kenmare is working hard to maintain ilmenite production of >1mtpa representing around 8% of the world market making the operations at Moma significant from a global perspective.
  • Management state that processing needs to rise to 20% to 2,4000tph from 2,000tpa in order to maintain production indicating that costs for the existing operations could to rise further.
  • Production volumes are forecast to rise significantly through the second half to meet the 1mtpa target with the rise in production likely to result in lower unit costs on a per-tonne processed basis.
  • A new Wet Concentrator plant should help to raise ilmenite production to 1.2mtpa.

Conclusion:  Kenmare had a good first half driven by higher product prices and a move to direct sales into China. The second half should be stronger assuming Kenmare meets its higher production targets. Ilmenite prices are recovering after a pullback in May through to mid-August caused by outages at a number of consumers. Ongoing global growth indicates that end-user demand should continue to grow reducing supply chain inventory and raising demand and prices for ilmenite concentrates.

*An SP Angel mining analyst has visited Kenmare’s Moma mineral sands project in Mozambique and BlueJay’s Dundas (formerly Pituffik) ilmenite sands project in Greenland as well as Sierra Rutile’s (now part of Illuka) operation in Sierra Leone. *SP Angel act as nomad and broker to BlueJay Mining. 

Metal Tiger (MTR LN)   2.6p, Mkt Cap £33.4m – Looking to expand holdings in the Kalahari Copper Belt

  • Metal Tiger reports that it is undertaking due diligence on acquiring a 50% interest in an additional 4,661km2 in five recently granted permits in the Kalahari Copper Belt of Botswana.
  • If it proceeds, this will more than double the company’s existing 4,063km2 (7 permits) holding which includes the Okavango Copper Project and the Ngami Copper Project where the company has recently completed geophysical airborne magnetic and electromagnetic surveys.
  • The final results of the geophysical surveys, which cover 16,700km2 of high-resolution date, are expected by the end of August and are aimed at targeting the regional dome structures and redox chemical interface at the base of the late Proterozoic D’kar group which hosts copper mineralisation at MOD Resources’ T3 project.

Conclusion: The potential expansion of its land holdings and the recently completed geophysical work should provide Metal Tiger with additional early stage copper exploration targets in the Kalahari Copper Belt.

SolGold* (SOLG LN)  22.5p, Mkt Cap £382m – Latest drilling results from Alpala expanding scale of the high grade core zone

  • SolGold reports that it has now completed approximately 83,000m of additional drilling at Cascabel since it published the initial mineral resource estimate for the Alpala prospect in early January this year.
  • A further 17,000m of planned drilling at Alpala remains of the 100,000m in this year’s programme, which, with ten rigs deployed at Apala and current drilling rates of around 10,000m per month should, we estimate, see the full programme completed in around a further two months, though there will no doubt be a lag for completion of the assaying.
  • The company summarises the results a confirming that “the core of the deposit [has an] uninterrupted true dimension of up to 750m vertically, 700m long and 300m wide, at a cut-off grade of 1.5% CuEq.”
  • Among the results reported today are: 
    • An intersection of 582m at an average grade of 0.64% copper and 0.85g/t gold, including 340m averaging 0.78% copper and 1.21g/t gold in hole 41-D1-D2 from the infill drilling programme at Alpala Central.
    • Other holes reported today do not yet have assays but reported visible mineralisation of “over 170m of significant visible mineralisation including mineralised zones with visual estimates of up to 6% chalcopyrite” in hole 63 on the western lobe of the Alpala Extension drilling area where drilling is continuing; and
    • A 640m intersection of visible mineralisation estimated at up to 6% chalcopyrite in hole 58-D1 on the NW extension of Alpala; as well as over 480m estimated to contain over 3.5% chalcopyrite in hole 55R D1 where drilling is continuing; and
    • Over 400m also visually estimated at over 3.5% chalcopyrite in hole 62 on the eastern margin of Alpala; and
    • Hole 65 on the western lobe where drilling is continuing and has encountered “strong mineralisation from 762m depth to 832m depth”.
    • On a theoretical basis, pure chalcopyrite contains approximately 35% copper suggesting that 6% chalcopyrite mineralisation would grade over 2% copper.
      • The initial resource estimate, based on 53,616m of drilling, outlined 430mt of indicated resources at an average grade of 0.52% copper and 0.43g/t gold and of inferred resources at an average grade of 0.45% copper and 0.3g/t gold.
      • In addition to the results from Alpala, drilling is continuing at the Aguinaga prospect, approximately 3km northeast of Alpala, where the 11th hole of the programme is underway. The company clarifies that the “drilling programme “at Aguinaga is in its early stages. As drilling progresses, the geometry and extent of the mineralisation is becoming more apparent, and Solgold geologists believe potential exists for ongoing discoveries through further drilling.”

Conclusion: The current drilling seems to have expanded the scale of the higher grade central core of Alpala. We look forward to the updated resource for Alpala and for further news of the drilling progress at Aguinaga.

*SP Angel act as UK broker to SolGold

Wolf Minerals (WLFE LN)  2.1p, Mkt Cap £22.4m – Debt restructuring conditions precedent satisfied

  • Wolf Minerals reports that all of the conditions precedent to the debt restructuring and standstill agreements  with the senior lenders and with RCF Capital have now been met.
  • The conditions include a waiver granted by the ASX permitting “the Company … to grant security over its assets, including its shares in the Subsidiary and assets at the Hemerdon Project … in favour of a security trustee … for the benefit of RCF VI, pursuant to a bridging loan facility … under which RCF VI may provide the Company up to £70 million, without obtaining shareholder approval …”
  • The company comments that “the support of its key stakeholders, including RCF VI, is fundamental to the long term success of the Company”.
  • In its earlier announcement on 30th July, Wolf Minerals reported that the bridging facility and the new financing arrangements would provide it with sufficient working capital to the period to 28th October 2018 by which time it expected to have completed a strategic review of the Company’s finances. The company also reported continuing operational improvements at the Drakelands site in Devon.
  • We note that, having reached over US$350 per metric tonne unit (mtu) during June and July, prices of the benchmark intermediate ammonium paratungstate product have softened in recent weeks to around US$310/mtu.

Conclusion: Wolf Minerals is continuing to rely on the support of RCF pending the outcome of a strategic review of its finances due at the end of October.

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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