SP Angel – Morning View – Thursday 15 11 18

Trade frictions mask robust long term copper demand

MiFID II exempt information – see disclaimer below

 

Bluebird Merchant Ventures* (BMV LN) – Premium stock and warrant placement and conversion of management funding into stock at 2.5p

Kodal Minerals* (KOD LN) – New drill results from Boumou and further results from Sogola_baoule show consistently good lithium grade

Vast Resources (VAST LN) – Zimbabwean site visit

 

Trade frictions mask robust long term copper demand

  • The outlook for copper demand in the mid to long-term remains robust despite current trade frictions between China and the United States as a renewable energy revolution will require vast quantities of the metal, highlighted by delegates at the Asia Copper Conference in Shanghai. Recent Chinese indicators showed the real impact on consumption for copper-intensive goods faltering as the nation’s economic growth cools, as senior copper analyst at BGRIMM Lilan Consulting Corp. adds for air conditioning and automobiles “the current situation is becoming weaker”.
  • China’s fixed asset investment is however “showing tell-tale signs of stimulus”, according to deputy CEO of Jiangxi Copper International Trading Co., who expects more stimulus to improve domestic consumption, and for there to be some changes in the recent “pessimistic sentiment” on the market.
  • Antofagasta Minerals CEO, Ivan Arriagada, reflected comments to say there was short-term “disconnect” between the physical market and the macro sentiment, which was “driven by the uncertainty of some of the trade tensions that we see today. But beyond that, I think the fundamental driving forces of copper will prevail," he added. "If you look at the dynamics on the demand side, the boom in infrastructure, consumer goods amid higher income levels, clean energy and clean transport, all of that will mean more demand for copper."
  • The conductive nature of the metal is drawing significant demand as the requirement for renewable energy and electrification swells. Jerry Jiao, vice president of China Minmetals Corp, said he sees clean energy lifting copper demand by 2.4mt by 2030, helping sustain demand growth of 3% per year. Of that, solar power will account for an additional 1.48mt, wind for 570,000t and nuclear power 330,000t.
  • Furthermore, at least 20% of China's car fleet is set to be replaced by electric vehicles by 2030, Jiao noted. That is equivalent to 47m cars, or 2.8mt of incremental copper demand based on a requirement of 60kg/car, he said.
  • To match swelling demand, exploration spending in the mining industry has risen to near $10bn with cautious growth in preparation for the forecast booming demand. Budgets have risen around 19%, outpacing last year’s gain according to an S&P Global survey of more than 3,000 companies.
  • The value of exploration for cobalt and lithium, used in rechargeable batteries for EVs, jumped 82% in 2018, though spending remains a fraction of the amount deployed on gold or base metals.
  • The number of companies and entities working on projects in 2018 rebounded to about 1,651; the first rise in active exploration companies in six years. Rising exploration budgets are safer than a major deal for miners as the sector is pivoting towards growth, according to Aberdeen Standard Investments.
  • Industry observers are poring over satellite images for clues about a Rio Tinto Group project to find copper in a remote patch of Western Australia. Rio is studying interesting targets and keeping deliberately silent about the results, according to CEO Jean-Sebastien Jacques. “I don’t want my peers to know what I’m doing.”
  • The long-term requirement for copper has encouraged the approval of a $1.3bn expansion of the company’s flagship Los Pelambres copper mine in Chiles, according to Chief Executive Ivan Arriagada. The expansion will produce an additional ore equivalent to 60,000tpa of refined copper, equaling ~15% increase in production, over the first 15 years of the expansion project, lifting declining mine output for the first time in over a decade.
  • Construction is expected in January, with work involving an extra milling line and desalination plant towards production starting in 2021. On a company level, Antofagasta has forecast copper output at 705,000-725,000t this year, rising to 750,000-790,000t in 2019 on higher ore grades at its Centinela and Zaldívar mines.

 

China unveils new electric market targets

  • China will introduce a cap-and-trade system for vehicle emissions that will be applied to the country’s largest electric car manufacturers from 2019.
  • The country will introduce a credit scale whereby car makers producing over 30,000 vehicles a year must achieve a 10% score, moving up to 12% in 2020.
  • Each car is given a credit score in line with its eco-friendliness. The greenest cars will receive six credit points, while the least efficient will receive two.
  • A company with a 30,000 car output will have to make up 3,000 credit points according to the system.
  • To receive a credit, a battery-electric vehicle must be able to travel at least 100km on one full charge and manage top speeds of 100 km/hour.

 

EV metals spending rises

  • A report by S&P Global Market Intelligence has revealed that exploration spending in the mining sector has risen for a second year to near $10bn.
  • Cobalt and lithium exploration has seen a particular increase, with a reported jump in value of 82% in 2018.
  • The number of companies and entities working on projects in 2018 has also rebounded to about 1,651, the first rise in active exploration companies observed in six years.

 

Dow Jones Industrials

 

-0.81%

at

  25,081

Nikkei 225

 

-0.20%

at

  21,804

HK Hang Seng

 

+1.73%

at

  26,097

Shanghai Composite

 

+1.36%

at

   2,668

FTSE 350 Mining

 

-2.05%

at

  16,531

AIM Basic Resources

 

-1.37%

at

   2,155

 

Economics

US – Core inflation measure excluding energy and food components held up above the 2% mark in October supporting the case for a continued monetary policy tightening.

  • 10y Treasury yields are coming down today as the Jerome Powell praised US economic growth but suggested there are headwinds ahead.
  • Touching on potential challenges to growth outlook, Powell mentioned slowing demand abroad, fading fiscal stimulus and the lagged effect on the economy of the Fed’s eight rate hikes since late 2015.
  • Commenting on the recent sell off in equities, the Fed Chairman said the equity price moves were only one of many factors that the Fed takes into account.
  • Asian equities and US index futures are trading higher on the back of hopes for a de-escalation in the US-China trade row.
  • China is reported to have provided a written response to US demands for wide-ranging trade reforms, according to Reuters citing three US government sources.
  • Unfortunately, the sources did not offer further details on the content of the response.
  • CPI (%mom/yoy): 0.3/2.5 v 0.1/2.3 in September and 0.3/2.5 forecast.
  • Core CPI (%mom/yoy): 0.2/2.1 v 0.1/2.2 in September and 0.2/2.2 forecast.

 

UK – The pound is down 0.7% this morning approaching the 1.2850 level as Brexit Secretary Dominic Raab resigned.

  • Yesterday, PM May announced the cabinet supported the latest Brexit proposal following hours of negotiations within the government.
  • The news of the Brexit negotiator resignation follows the announcement of Shaleish Vara, a junior minister in May’s government, quitting the office.
  • The deal that is “the best that could be negotiated” is expected to be going through the parliament vote before Christmas.
  • The cabinet breakthrough paved the way for formal approval for the Brexit withdrawal treaty at a special European Council meeting on November 25.
  • Exacerbating depreciation in the pound, retail sales came in weaker than expected in October contracting for a second consecutive month.
  • Retail Sales (%mom/yoy): -0.5/+2.2 v -0.4/+3.3 in September and 0.2/2.8 forecast.
  • Core Retail Sales (%mom/yoy): -0.4/+2.7 v -0.3/+3.6 in September and 0.2/3.4 forecast.

 

Currencies

US$1.1351/eur vs 1.1284/eur yesterday  Yen 113.47/$ vs 113.88/$  SAr 14.227/$ vs 14.419/$  $1.299/gbp vs $1.296/gbp  0.729/aud vs 0.720/aud  CNY 6.937/$ vs 6.951/$

 

Commodity News

Precious metals:         

Gold US$1,214/oz vs US$1,200/oz yesterday

   Gold ETFs 68.6moz vs US$68.6moz yesterday

Platinum US$839/oz vs US$834/oz yesterday

Palladium US$1,136/oz vs US$1,107/oz yesterday

Silver US$14.25/oz vs US$13.97/oz yesterday

           

Base metals:   

Copper US$ 6,206/t vs US$6,040/t yesterday

Aluminium US$ 1,955/t vs US$1,934/t yesterday

Nickel US$ 11,505/t vs US$11,280/t yesterday

  • Nickel shows minor recovery from the lowest level in a year on fears of sharp slowdown in global demand and rising Indonesian production, however prices are at “unsustainably low levels” according to Macquarie Wealth Management.
  • The metal is said to have the largest deficit between supply and demand of base metals this year, around 7% of consumption, and it remains the most bullet-proof against surplus moving into 2019. While there may be further weakness in short run “nickel has now entered ‘bargain’ territory based on a misreading of the strong fundamentals likely for a number of years yet,” the report says.
  • Recent announcements of new high-pressure acid leaching plants “irrelevant to near-term price determination,” Macquarie Wealth says, noting that projects are good three years away from start-up.

Zinc US$ 2,576/t vs US$2,472/t yesterday

Lead US$ 1,970/t vs US$1,932/t yesterday

Tin US$ 19,390/t vs US$19,275/t yesterday

           

Energy:           

Oil US$66.3/bbl vs US$65.5/bbl yesterday

Natural Gas US$4.633/mmbtu vs US$4.096/mmbtu yesterday - LNG – We believe the UK national balance price is now becoming a proxy for Spot LNG rates

  • The UK national balance price is starting to take over from the Spot JKM price in Asia.

Iraq rejects US deadline to halt Iran gas imports

  • Iraq has rejected a US deadline to stop importing Iranian gas, warning that any halt to the supplies would create a domestic power shortage.
  • The announcement came after the US embassy in Iraq stated that Washington had given Baghdad 45 days to stop purchasing gas and electricity from Iran.
  • “Stopping Iranian gas after the deadline will create a real power crisis. We need more time … the Americans are completely aware of how desperately we need Iranian gas,” an Iraqi official was quoted as saying on Wednesday.

Uranium US$29.15/lb vs US$29.10/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$71.6/t vs US$71.1/t

Chinese steel rebar 25mm US$673.6/t vs US$673.4/t

Thermal coal (1st year forward cif ARA) US$85.8/t vs US$87.0/t

Coking coal futures Dalian Exchange US$197.2/t vs US$198.5/t

           

Other:  

Cobalt LME 3m US$55,000/t vs US$55,000/t

  • Disruptions to cobalt supplies in the Democratic Republic of Congo are not expected to eradicate the growing glut of global material, dampening hopes prices may receive a boost from their lowest level since March last year. Major Glencore has reported subsidiary Katanga Mining had halted cobalt exports from the Kamoto Project, as it constructs a facility to remove uranium.
  • The price of the battery metal has tumbled below $50,000/t after touching $95,000/t in March due to rapidly expanding mine production and expectations of surpluses through 2019.
  • Guidance production from Katanga was 11mt this year, rising to 34mt in 2019, however to remove discovered uranium the company must build an Ion Exchange system at a cost of around $25m, which is expected to be completed by the second quarter of next year. Mined cobalt will be stored at site, with the processing and sale expected before the end of the fourth quarter of 2019, limiting the bullish sentiment for around 8 months.
  • Macquarie analysts note "the market will still be oversupplied next year as they are planning to make up sales in the second half and there are many others selling cobalt hydroxide”. Specifically the market surplus focuses on cobalt hydroxide, used to make sulphates for the cathode part of the lithium-ion batteries for electric cars.
  • Hydroxide from the Congo, which has the world’s largest reserves of the metal, are expected to produce nearly 90,000t this year in a market estimated around 135,000t. BMO Capital Market analysts are “forecasting the largest cobalt surplus on record for 2019, albeit in a market with 13% consumption growth."
  • While the impact of disruptions could see the market more in balance in the first half of next year, the restart could produce an aggressive swing to surplus. The outlook for market balances could change if there are long delays to getting the necessary permits and importing the equipment needed to build the plant in Congo.

China scours the ocean depths to extend its cobalt lead

  • While cobalt prices remain depressed from highs of $95,000/t, China has been increasing its lead in the race for alternative sources of battery minerals by taking samples from cobalt-bearing mountains deep in the Pacific. The cobalt-rich crusts could present a chance to curb the world’s dependence on cobalt from the DRC.
  • “It’s a promising business area with the potential for significant future growth,” notes Maersk Supply Service who are working with Canada’s DeepGreen to harvest metallic rocks from the ocean floor, “production is a few years away”. Glencore has a stake in DeepGreen which would eventually give the miner 50% of copper and nickel production, signifying the industry interest in submarine exploration.
  • So far only Canadian-listed firm Nautilus Minerals has gone beyond the exploration stage to try and mine off the coast of Papua New Guinea, for copper, gold and silver, but it been slowed by funding issues and local opposition.
  • In a bid to dominate the alternative supply, China holds four of the 29 available deep sea International Seabed Authority (ISA) exploration contracts, a territory which is heavily regulated by the United Nations to manage the seabed and protect the marine environment.
  • Interest in submarine deposits serve to highlight the need to diversify supply, particularly for ‘esoteric minerals’ which are susceptible to supply disruptions from single source markets.

China NdPr Rare Earth Oxide US$45,553/t vs US$45,462/t

China Lithium carbonate 99% US$10,091/t vs US$10,071/t

Tungsten APT European US$275-295/mtu vs US$275-295/mtu

 

Battery New

BP Installs First Battery Storage Technology at U.S. Wind Energy Site

  • BP Wind Energy has installed a high-performance energy storage solution at its Titan 1 Wind Energy site in South Dakota, a first for BP’s U.S.-operated wind business.
  • The 840 kWh battery storage system is designed, manufactured and installed by Tesla, using the company’s Powerpack battery system to store and discharge energy when needed.
  • “This project will help us develop new business models around the integration of renewables, battery storage and other forms of energy – and it underscores our commitment to being a part of the transition to a lower-carbon future.” said Dev Sanyal, chief executive of BP’s global alternative energy business.

 

Lithium Australia to develop advanced silicon anodes for lithium-ion batteries

  • Lithium Australia has agreed in principle to partner with a battery researcher to develop materials for lithium-ion batteries, with plans to establish facilities for the development of graphite/silicon anodes.
  • Previously tested prototypes of the advanced anode materials indicate the potential to significantly increase the energy density of LIBs, but maintaining reliability and longevity has so far proved problematic.

 

Company News

Bluebird Merchant Ventures* (BMV LN)  2.15p, Mkt cap £5m – Premium stock and warrant placement and conversion of management funding into stock at 2.5p

(Bluebird is earning into a 50:50 jv with Southern Gold Ltd at Gubong and Kochang)

BUY – Target Price 12.8p

  • Bluebird Merchant Ventures ‘BMV’ has raised US$380,000 through the placement of 11.76m new shares at 2.5p/s.
  • Bluebird is also issuing 11.76m warrants at an exercise price of 25p. The warrants also have an accelerator which forces the warrants to be exercised if the shares trade above 3p/s for 10 consecutive days or they are terminated.
  • If these warrants are exercised then a further warrant for each share subscribed will be issued with a 4p exercise price and an 18 month expiry date. Again if the share price trades at or above 5p/s for 10 consecutive days then the warrants must be exercised within 10 days or be terminated.
  • The new shares are being issued at a significant premium to the BMV share price in recent days though this is partially offset by the value of the warrants also being issued.
  • Colin Patterson, Bluebird’s CEO, is also converting US$750,000 of funding provided in December into new shares at 2.5p/s. The shares will be issued subject to the publication of a prospectus at a future date as required under the listing rules of the UKLA.
  • Bluebird recently completed a feasibility report for the re-opening of the Gubong gold mine and expects to receive the necessary development permits within the next four months
  • Management are targeting initial gold production in Q4 next year with the aim of ramping up to 100,000ozpa over a five year period.
  • The company recently announced Graeme Fulton as General Manager of the Gubong project and of Joseph Lee as President of the Joint-Venture company. Graeme Fulton in a mining engineer with over 30 years’ experience in Australasian and Asian mining. Joseph Lee “has spent the last five years in the Korean mining sector managing relations with government, corporate and community stakeholders”.

Conclusion: Bluebird management continue to substantially support the company with new funds coming in from today’s private placement. The funds should help Bluebird advance the reopening of the Gubong and Kochang gold mines in South Korea.

*SP Angel act as broker to Bluebird Merchant Ventures

 

Kodal Minerals* (KOD LN)  0.16p, Mkt Cap £12m – New drill results from Boumou and further results from Sogola_baoule show consistently good lithium grade

  • Kodal report first diamond core intersections from the Boumou prospect at their Bougouni Lithium Project in Southern Mali.
  • The prospects are all within a 450sqkm license area and lie relatively close to Birimian Limited’s Goulamina large project which has a total mineral resource of 103mt grading 1.34% Li2O.
  • Sogola-Baoule new results include:
    • 18m at 1.35% Li2O from 74.75m in drill hole MDDH005;
    • 16.5m at 1.32% Li2O from 153.5m in drill hole MDDH004;
  • Boumou first results show
    • 6m at 1.39% Li2O from 65.55m; 5m at 1.32% Li2O from 80.5m; and 9.5m at 1.41% Li2O from 93.3m in drill hole KLDH007; and
    • 7m at 1.43% Li2O from 43.49m in drill hole KLD008;
  • Drilling also restarted at Sogola-Baoule today now the wet season is over.
  • The drilling should continue to expand Kodal’s resource estimates.
  • Kodal’s JORC resource based on last season’s drill campaign currently stands at:.
 

Tonnes

(Mt)

Li2O%

Grade

Contained Li2O

 (kt)

Sogola_Baoule

10.4

1.18

122.2

Ngoualana

4.7

1.34

62.8

Boumou

2.2

1.04

22.9

Total

17.3

1.20

207.9

 

Vast Resources (VAST LN)  0.48p, Mkt Cap £27.8m – Zimbabwean site visit

  • CEO Andrew Prelea held a 10-day site visit earlier this month meeting local community in Marange as well as government officials establishing a dialogue with all stakeholders with regards to future development of operations.
  • VAST is planning to advance the Heritage Concession in a JV with Red Mercury, a company owned by the Marange-Zimunya Share Ownership Trust.
  • The Company is considering to explore for, develop and ultimately establish an alluvial diamonds production in the prolific area of the Marange Diamond Fields.
  • It is estimates that over 60m carats have been recovered form the region to date.

 

 

Analysts

John Meyer – 0203 470 0490

Simon Beardsmore – 0203 470 0484

Sergey Raevskiy – 0203 470 0474

Phil Smith (Technology) – 0203 470 0475

Zac Phillips (Oil & Gas) – 0203 470 0481

 

Sales

Richard Parlons – 0203 470 0472

Jonathan Williams – 0203 470 0471

 

SP Angel                                                            

Prince Frederick House

35-39 Maddox Street London

W1S 2PP

 

*SP Angel are the No1 integrated nomad and broker by number of mining brokerage clients on AIM according to the AIM Advisers Ranking Guide (joint brokerships excluded)

+SP Angel employees may have previously held, or currently hold, shares in the companies mentioned in this note.

 

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