SP Angel . Morning View . Thursday 31 10 19
Poor Chinese PMI and doubts over trade deal prospects weigh on sentiment
MiFID II exempt information – see disclaimer below
Altus Strategies* (ALS LN) 3.9p, Mkt Cap £6.9m – Desert Gold deal over western Mali gold assets completed
Aura Energy Limited* (AURA LN) 0.33p, Mkt Cap £4.3m – September quarterly report highlights Tiris uranium DFS
Bushveld Minerals* (BMN LN) 22.25p, Mkt Cap £257m – R375m (~US$25m) Debt Facilities Secured
Mining conference hit by Climate Change activists - No miners injured in the clashes, just activists
- The International Mining and Resources conference in Melbourne saw a violent protests yesterday when police clashed with climate change protestors.
- More than 40 protestors were arrested with two injured when police used horses to clear the blocade.
- The clashes mark a new strategy in the activist war against climate change.
- Ironically many mining companies are doing far more in practice to help improve the environment than many activists.
Panasonic boosted sales of Li-ion batteries significantly in the last quarter in North America
- The news is hardly surprising given expanding production at Tesla despite a small fall in sales in Q3.
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Economics
US – The Fed cut the rate by 25bp yesterday, in line with estimates and marking the third such decision this year, while indicated that further changes to the monetary policy remain contingent on the incoming economic data.
- While the Fed did not completely close the door on more easing this year, the expectation is the central bank provided enough of a stimulus to soften the effect of weakening global growth rates.
- Markets are pricing in only a 25% chance of a rate cut during the November meeting.
- GDP growth slowed in Q3, but outpaced market estimates downplaying risks of a recession; growth has been driven by robust private spending with business investment and trade weighing on headline growth numbers.
- GDP (%qoq, annualised): 1.9 v 2.0 in Q2 and 1.6 forecast.
US/China – The news this morning that China is doubting long term trade deal possible with Trump saw some risk sell off this morning.
- While Phase I negotiations are going well, Chinese officials downplayed expectations that future negotiations could result in anything meaningful, Bloomberg reported.
- China is expected to demand for tariffs to be lifted for talks to proceed further.
- Phase I deal is on course to be signed in November despite the news of a cancelled APEC summit in Chile, Mnuchin said yesterday.
- Chilean government decided to withdraw from hosting the APEC summit in Santiago amid raging protests that left 18 people dead so far.
- The meeting the was scheduled for November 16-17 should have acted as platform for Trump and Xi to sign an interim agreement to end the 15-month old trade war.
China – Business activity slowed in October with manufacturing sector remaining in contraction, while growth in services slowed, according to official PMI data.
- Official data tracks larger government owned enterprises with a wider survey of private companies to be released over the next few days.
- So far, the data points to a further weakness in economic growth rates at the start of the final quarter for the year.
- Weighed down by cooling domestic demand, weak investment and a protracted trade war with the US, Chinese economic growth slowed to a near 30-year low of 6.0% in Q3.
- Manufacturing PMI: 49.3 v 49.8 in September and 49.8 forecast.
- Services PMI: 52.8 v 53.7 in September and 53.6 forecast.
- Composite PMI: 52.0 v 53.1 in September.
Germany/France – Inflation measures released for October suggest inflation pressures remain muted in the single currency area.
- Germany Harmonised CPI (%mom/yoy): -0.1/+0.9 v 0.1/0.9 in September and 0.0/0.8 forecast.
- France Harmonised CPI (%mom/yoy): -0.1/+0.9 v -0.4/+1.1 in September and 0.1/1.1 forecast.
UK - Jeremy Corbyn, the Labour leader starts naming the ‘privileged few’ who benefit from a ‘corrupt system’
- Labour is naming individual millionaires who the UK opposition wants to target
- Labour is reported to be ‘going after’ the Duke of Westminster, Mike Ashley, Crispin Odey, Jim Ratcliffe and Rupert Murdoch.
- We can’t wait to see who else is on the list.
- Labour’s hard left ‘Momentum’ militia appears to have lost much of its grass roots support and momentum with recent interviews of traditional labour supporters saying they would not vote for a Corby government.
- The changing political landscape appears to play into the hands of the Liberal Democrats.
Currencies
US$1.1168/eur vs 1.1113/eur yesterday. Yen 108.43/$ vs 108.85/$. SAr 15.156/$ vs 14.636/$. $1.295/gbp vs $1.288/gbp. 0.691/aud vs 0.687/aud. CNY 7.042/$ vs 7.056/$.
Commodity News
Gold US$1,503/oz vs US$1,491/oz yesterday
Gold ETFs 82.2moz vs US$82.1moz yesterday
Platinum US$927/oz vs US$921/oz yesterday
Palladium US$1,804/oz vs US$1,788/oz yesterday
Silver US$18.03/oz vs US$17.82/oz yesterday
Base metals:
Copper US$ 5,881/t vs US$5,910/t yesterday
Aluminium US$ 1,746/t vs US$1,760/t yesterday
Nickel US$ 16,710/t vs US$16,910/t yesterday
Zinc US$ 2,496/t vs US$2,543/t yesterday
Lead US$ 2,197/t vs US$2,246/t yesterday
Tin US$ 16,820/t vs US$16,825/t yesterday
Energy:
M&A activity builds momentum across the sector
- Given the depressed economic environment, we are seeing a number of listed companies coming to the conclusion that it is cheaper to purchase reserves through the stock market rather than adding through the drill-bit.
- The past 12 months has seen the acquisition of Faroe Petroleum (FPM.L) by DNO (DNO ASA); a £380m bid for Eland Oil & Gas (ELA.L) by Seplat Petroleum (SEPL.L); and Amerisur Resources (AMER.L) currently engaged in a competitive bid.
- Aramco’s proposed IPO is another good barometer for sector sentiment in our view. Days before a widely expected official approval for what would be the world’s largest IPO ever, Saudi Arabia has yet again delayed the much-hyped listing by at least several weeks, with international investors seemingly not buying the Saudi insistence that the biggest oil company in the world is worth US$2tn.
Oil US$61.1/bbl vs US$61.7/bbl yesterday –
- Oil prices were off slightly as the EIA reported a crude oil inventory build of 5.7MMbbls for the week to October 25, pressuring prices a day after the API reported an estimated fourth consecutive inventory build, of 592,000bbls
- Consensus estimated an expected a build of 729,000bbls for last week after a 1.7MMbbl draw interrupted a string of five weekly inventory builds, which added more than 19MMbbls to crude oil inventories
- Following the reports, U.S. crude futures were also down 0.2% at $54.3/bbl on the New York Mercantile Exchange
- US-China trade tensions and the outlook for Fed policy remain the single largest drivers of oil prices in our view
Natural Gas US$2.726/mmbtu vs US$2.635/mmbtu yesterday
- Natural gas prices moved higher on yesteday rising another 3.6%, ahead of today’s inventory report Expectations are for an 84Bcf build in stockpiles according to Estimize following last week’s 87Bcf increase in inventories
- The weather is expected to be colder than normal for the next 6-10 and 8-14 day forecast according to a report from the National Oceanic Atmospheric Administration
Uranium US$23.90/lb vs US$23.90/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$83.5/t vs US$83.3/t - Chinese iron ore futures fall as shipments increase (Reuters)
- China iron ore futures fell for a third straight session due to increasing supplies from big miners.
- Imports from Brazil and Australia was 22.7mt last week, up 3mt from the week before.
- The most active iron ore future for Jan 2020 on the DCE fell 1.7% to US$86.64/t.
- An orange warning was issued in China’s Hebei province, meaning that pollution is expected to be severe.
- This is expected to curb demand for iron ore, as steel production will be limited to reduce emissions (U.S.News)
Chinese steel rebar 25mm US$561.4/t vs US$558.4/t
Thermal coal (1st year forward cif ARA) US$64.0/t vs US$64.7/t - Mongolia Coal seeking US$1bn Hong Kong IPO (Bloomberg)
- State owned coal miner Erdenes Tavan Tolgoi JSC is preparing a Hong Kong IPO that could raise over $1bn.
- The company has hired an advisor, and is currently in the process of selecting a bank to help with the offering.
- Previous attempts to develop the mine through international partnerships failed in 2011 and 2015, however Mongolian lawmakers approved a plan in 2018 which would see 30% of the Tavan Tolgoi mine sold.
- Representatives for the country’s mining industry said that size of the share sale and the timing are still being deliberated.
- The Tavan Tolgoi coal mine is the largest deposit in Mongolia, estimated at over 6bt.
Coking coal futures Dalian Exchange US$184.0/t vs US$183.7/t
Other:
Cobalt LME 3m US$36,000/t vs US$36,000/t
NdPr Rare Earth Oxide (China) US$41,397/t vs US$40,745/t – Australian government considering the funding of rare earth projects (Reuters)
- Australia is considering underwriting loans in order to speed up the development of rare earth projects in the country.
- According to the country’s resource minister, Australia is seeking a partnership with the US to export the material.
- The US wants to reduce its reliance on Chinese supplies of rare earths due to the current trade spat.
- Earlier in the year, President Trump met with Australian Prime Minister to discuss a critical minerals development plan.
* SP Angel act as Nomad and broker to Mkango Resources which has a splendid rare earths project in Malawi
Lithium carbonate 99% (China) US$6,888/t vs US$6,873/t
Ferro Vanadium 80% FOB (China) US$32.0/kg vs US$33.5/kg
Antimony Trioxide 99.5% EU (China) US$5.4/kg vs US$5.4/kg
Tungsten APT European US$225-245/mtu vs US$205-215/mtu
Graphite flake 94% C, -100 mesh, fob China US$540/t vs US$540/t
Battery News
S&P Global Market Intelligence – Mining Exploration Insights for August
- The monthly industry monitor reviews exploration activity and development in the mining industry.
- S&P’s Pipeline Activity Index dropped to 82 from 84 driven by falls in the base/other metals sector.
- Drilling activity metrics improved, the number of drilling projects increased by six to 199.
- S&P’s exploration price index increased slightly to 132 from 131. The index price rose for all eight constituents of the index.
- The total number of financings by junior and intermediate companies rose to 195 from 182 in September compared to August. However, the amount raised dropped from over US$1bn to $466m, the lowest since January/February.
- Positive project milestones was up to seven from three; all of which were gold projects.
Company News
Lithium – New Li-ion battery designed to charge in 10 minutes
- EurekaAlert report on a new Li-ion battery that is able to charge an Electric Vehicle for about 200 miles of power in 10 minutes.
- The new battery design by Chao-Yang Group charges at elevated temperatures (~60OC) but critically is cool when it discharges.
- So far the test cells only last for 60 cycles but the observed ability to prevent lithium plating may indicate that fast-charging Li-ion batteries are a future reality.
- Normal Li-ion batteries struggle to take in 400kw of power in short-duration charge due to the risk of lithium plating, eg the formation of metallic lithium on the anode which limits battery life and may cause short circuiting.
- We note that Talga Resources* also claims that it’s unique-formula graphite anodes can also enable rapid battery charging.
- ‘The Talga anode product has been engineered to have excess capacity in the anode compared to a conventional cell anode, enabling ultra-fast charge rate of 20C, while top-tier conventional graphite cells lose capacity when charged at only a rate of 5C.’
- The next problem is how to get that much charge safely through a cable without electrocuting anyone standing nearby.
*SP angel acts as UK broker to Talga Resources.
Battery News
Company News
Altus Strategies* (ALS LN) 3.9p, Mkt Cap £6.9m – Desert Gold deal over western Mali gold assets completed
- Following the completion of due diligence, Altus Strategies and Desert Gold Ventures signed the royalty and property sale agreement over Sebessounkoto Sud and Djelimangara gold properties in western Mali.
- This marks the completion of the deal announced on 28 August 2019.
- In return for the 100% interest in the licenses, Altus is set to receive:
- 2.5% NSR on tenements (Desert has an option to repurchase up to 1.5% of the NSR contingent on the NI 43-101 compliant reserves in an independent DFS - $1.0m for 0.25-0.50moz, $3.0m for 0.5-1.0moz and $6.0m for >1.0moz);
- 3m shares in Desert Gold, currently valued at CAD$420k (~US$320k).
- US$50k in cash.
- Additionally, Altus will receive the following milestone payments:
- US$100k in cash and 2.0m Desert shares on proving up 0.5moz in resource;
- US$100k in cash 3.0m Desert shares on discovering the second 0.5moz in resource.
- Desert is planning to complete15,000m of drilling in 2020 including Sebessounkoto Sud and Djelimangara located within the prolific Kenieba window of western Mali, 20km southeast of Sadiola.
Conclusion: The deal reflects the Altus project generator business model with funding of future exploration works at the Sebessounkoto Sud and Djelimangara licenses to be covered by Desert with the Company retaining exposure to properties through a 2.5% royalty as well as milestone payments. Additionally, an up to 8m shares in Desert Gold offer exposure to a potential discovery over a substantial 407km2 land package along the Senegal Mali Shear Zone hosting a series of multi million ounce deposits.
*SP Angel acts as nomad and broker to Altus Strategies
Aura Energy Limited* (AURA LN) 0.33p, Mkt Cap £4.3m – September quarterly report highlights Tiris uranium DFS
- Aura Energy’s quarterly report for the three months to 30th September highlights the milestone release, in July, of the Definitive Feasibility Study (DFS) for the company’s Tiris Uranium Project in Mauritania.
- In comparison with the previous scoping study, the DFS shows a 21% increase in the required capital cost to develop the project but a 14% reduction in operating costs, largely through the use of contract mining instead of owner operation. The company describes the revised capital cost estimate as “a good result given the greater detail in the DFS estimate. Importantly, the estimate for the main processing facility was within 3% between the studies.”
- The project is described as “fully permitted and construction ready” and the company is in discussion with seven Export Credit Agencies (ECAs) which have expressed an interest in funding the debt portion of the US$62.9m capital needed to develop the project.
- Aura Energy comments that “A number of these agencies have indicated interest to act on a sole basis” and explains that though it is clearly encouraged by the interest, which it describes as “very promising”, although it “has not completed any formal agreement at this time with an ECA.”
- As previously announced, using a US$60/lb uranium price, the DFS expects the project to deliver an after-tax NPV8% of US$89.9m and an IRR of 26% with a payback of the initial capital over 3.25 years from the production of 12.4m lbs per year of U3O8 over a period of 15 years at a cash cost of US$25.43/lb and all-in-sustaining cost, inclusive of royalties, of US$29.81/lb.
- The company has previously alluded to a number of areas which could enhance the project including the potential to enhance annual production to 3m lbs, expand the mineral reserve base through the conversion of existing known resources and/or though additional exploration as well as the scope to recover a vanadium product from the leach solution.
- Although the company emphasises that the project as described in the DFS is a low capital and operating cost opportunity in comparison to other potential uranium developments Aura Energy also confirms that it is “continuing to seek to further optimisation of the capital cost, improve elements of the process to reduce operating cost, and to validate the vanadium recovery option”.
- Work is also continuing to drill for a suitable source of water supply for the project although the announcement explains that “Ironically the Sahara region has experienced unusually heavy rainfall in the last week making movement difficult and drilling has been temporarily suspended for approximately 10 days until access is again possible.”
- Aura Energy also describes the progress at its wholly owned Häggån Battery Metals Project in Sweden where drilling earlier in the year underpinned the release during the quarter of an upgraded global mineral resource estimate of 2bn tonnes at an average grade of 0.3% vanadium pentoxide, including an indicated 42mt of ore, at a 0.2% cutoff grade, averaging 0.35% vanadium pentoxide for a contained 320m lbs which the company describes as being of “particular interest” as it represents a “coherent zone … commencing at surface and extending to +100 metres below surface. This is referred to as the Northwest High-Grade zone.”
- This high grade zone is also described as “open in all horizontal directions“ and offering “excellent potential to expand the Indicated Resource on high grade mineralisation”. The company explains that “More drilling will be required to define the limits of the high-grade resource”.
- The company’s gold, base metals and battery metals exploration tenements covering some 435km2 in Mauritania lie along strike from the 20m oz Tasiast gold mine of Kinross are described by Aura Energy as “some of the best under-explored greenstone belt targets in the world”. Recent field work is intended to “locate artisanal mining sites, determine the extent of outcrop and assess access to enable planning of further evaluation activities.
- The company highlights the efforts on the Ghassariat gold prospect where “Additional gold intersections [from aircore drilling] on the Ghassariat prospect some 1.5 kms from the previous mineralised section indicating potential for a large mineralised gold system” as well as the large, untested magnetic anomaly at the Bella prospect which is “interpreted to reflect an unusually large ultramafic complex prospective for nickel and cobalt” and “Strong, previously unreported, nickel/cobalt/copper values on the Taet permit”.
- Follow up exploration is expected to include additional ground-based geophysics, followed by drilling of the more promising targets as well as further airborne magnetic work “to better define geology and favourable structural zones”.
Conclusion: Work continues to improve and enhance the DFS at Tiris with further optimisation of the flowsheet and examination of the potential to recover vanadium as well as the continuing effort to identify cost savings. Discussions with potential ECA debt providers have shown an encouraging level of interest while the recent mineral resource upgrade in Sweden still leaves the high grade Northwest zone open laterally offering potential for further expansion. Early stage exploration of the company’s Mauritanian gold and base/battery metals licences in Mauritania is identifying sizeable targets for more detailed exploration and possible future drilling.
*SP Angel act as Nomad & Broker to Aura Energy
Bushveld Minerals* (BMN LN) 22.25p, Mkt Cap £257m – R375m (~US$25m) Debt Facilities Secured
(Bushveld Minerals owns 74% of Vametco, 84% of Bushveld Energy in South Africa, 100% of Lemur Holdings, 9.5% of Afritin)
- Bushveld Minerals reports it has secured R375m (~US$25m) of debt facilities within Vametco, its primary vanadium production unit, from Nedbank in South Africa.
- The facilities are:
- R250m (US$16.7m) 5-year amortising loan at a 3-6 months JIBAR1 rate as selected by the Company plus a 3.4% margin with semi-annual repayments.
The first payment is due 18-months after financial close.
-
- R125m (US$8.3m) revolving credit facility over a 3-year term at 3-6 month JIBAR1 as selected by the Company plus a 3.6% margin with semi-annual payments
The security provided includes cession of shares in the Borrower, security over the assets of the Borrower, and a parent guarantee.
The three month and six-month JIBAR as at 24 October 2019 is 6.78% and 7.23% respectively.
- Bushveld recently renegotiated the cost of the acquisition of Vanchem cutting the cost to US$53.5m from US$68m.
- The revised deal pays just $30m up front while deferring the $23.5m balance through the issue of unsecured convertible loan notes at 5% interest rate.
- The new debt facility gives Bushveld funding to accelerate the construction of the new Mokopane vanadium magnetite mine and to restart idled production at Vanchem.
- We note a the Vanchem convertible obligation to repay an amount equal to 50% of any debt raised over US$15m, provided no more than 50% of the Loan Notes have been repaid, redeemed or converted.
- Note: Vanchem continues to produce some 80t per month of vanadium from one of four kilns at site.
- Ferro-vanadium: prices continue to pull back with prices falling a further 2.6% in Western Europe this week to $20.5-21/kgV according to FastmarketsMB.
- Prices remain significantly higher in China but also fell last week by 3.6% to $32.5-35/kgV.
- We note Chinese Rebar prices are reported to be rising on low inventory levels indicating a turn in market activity. Prices for rebar have risen by ~$2.8 to $520-524/t this week according to FastmarketsMB
- The price rise reflects a shortage of some grades of rebar in eastern China despite steel mills raising production to 3.56mt of rebar over the past week up 24,200t on the previous week.
- While this could cause rebar prices to fall it may equally reflect expectations for further government stimulus into the construction industry to offset the impact of the US-China trade war.
- Vanadium and other metals prices are suffering from sentiment relating to the long running trade war
- Production in China from secondary sources is also an issue, which we believe may be more driven by stockpiles than new feedstock.
- These stockpiles should diminish as Chinese steel producers are largely processing Australian iron ore which contains negligible vanadium effectively removing new vanadium slag supply from the market.
Conclusion: The new debt facility makes cash available to accelerate the construction of the new Mokopane vanadium magnetite mine and to restart idled production at Vanchem.
We will report further on Bushveld after the third quarter results.
*SP Angel acts as Financial Advisor & Broker to Bushveld Minerals.
Analysts
John Meyer – 0203 470 0490
Simon Beardsmore – 0203 470 0484
Sergey Raevskiy – 0203 470 0474
Sales
Richard Parlons – 0203 470 0472
Abigail Wayne – 0203 470 0534
Rob Rees – 0203 470 0535
SP Angel
Prince Frederick House
35-39 Maddox Street London
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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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Gold, Platinum, Palladium, Silver |
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Gold ETFs, Steel |
Bloomberg |
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Copper, Aluminium, Nickel, Zinc, Lead, Tin, Cobalt |
LME |
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Oil Brent |
ICE |
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Natural Gas, Uranium, Iron Ore |
NYMEX |
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Thermal Coal |
Bloomberg OTC Composite |
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Coking Coal |
DCE |
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RRE |
Steelhome |
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Lithium Carbonate, Ferro Vanadium, Antimony |
Asian Metal |
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Tungsten |
Metal Bulletin |
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