SP Angel . Morning View . Gold and oil prices jump on flaring geopolitical tensions

SP Angel . Morning View . Monday 06 01 20

Gold and oil prices jump on flaring geopolitical tensions

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MiFID II exempt information – see disclaimer below 

Caledonia Mining (CMCL LN) – Increased quarterly dividend

KEFI Minerals* (KEFI LN) – ANS signs TKGM equity subscription agreement

Serabi Gold (SRB LN) – Step out drilling extends mineralised envelope at Sao Chico

Tri-Star Resources* (TSTR LN) – SPMP financing update

 

Higher oil prices and risk to oil supplies to accelerate growth in Electric Vehicle demand

• Oil prices have jumped to >$70/bbl making the economics of electric vehicles more compelling on a cost per mile perspective.
• Potential for disruption to global oil supplies will prompt further buying of electric vehicles in the West and probably also in China which is particularly vulnerable to oil imports.
• Trump’s assassination of Qassem Soleimani has served to further destabilise the Middle East threatening oil production and transport in the region.
• Trump is also threatening to hit back hard at any attacks on any American’s or American bases with potential attacks on cultural sites in Iran.
• Soleimani is reported to have been the most important leader in Iran next to the Supreme Leader Ali Khamenei.
• Iran’s Republican Guard never needed much of an excuse for aggression against the West with the Red flag over the Holy Dome Jamkaran Mosque warning of a severe battle to come.
• While the US may not have much of a longer-term strategy for Iran they may well now look to stimulate regime change in an effort to distract the Iranian regime with internal disruption.
• Iran and Russia benefit from higher oil and energy prices making Iraq’s oil fields a target as well as repeat attacks on Saudi Aramco instillations.
• Saudi Arabia’s alliance with the US as well as its religious faction makes it a target for the Iranian’s

 

Gold miners gain on rise in gold prices and geopolitical risk following Soleimani assassination.

• Gold spot prices rose as much as 1.8% to $1,580/oz this morning
• London listed gold miners are showing small gains this morning time of writing at:
• Polymetal up 1%, Highland up 0.8%, Shanta Gold up, Hummingbird up 3.9%, Anglo Asian* up 1.6%, Hochschild up 1.7%, Fresnillo up 1.2%, Resolute Mining up 0.7%,
• Scotgold* up 5%, KEFI Minerals* up 17%, Cora Gold* up 6%.

*SP Angel acts as nomad and or broker

 

Chinese New Year starts on 25th January bringing in the year of the Metal Rat

• In 2020 the Rat will bring luck and money for those born in the year of the Dragon - thechinesezodiac.org
• See link for Metal Rat characteristics:  https://www.fengshuiweb.co.uk/animals/metalrat.htm

 

Dow Jones Industrials		-0.81%	at	28,635
Nikkei 225		-1.91%	at	23,205
HK Hang Seng		-0.79%	at	28,226
Shanghai Composite		-0.01%	at	3,083
FTSE 350 Mining		-1.29%	at	18,975
AIM Basic Resources		+0.31%	at	2,155

 

Economics

China – Private businesses growth pulled back in December as the economy continued to stabilise.

• The Caixin China Composite Index dropped to 52.6 last month from a 21-month high of 53.2 recorded in November.
• The decline was driven by a weaker growth in the services sector with the respective index coming in at 52.5 v a seven-month high of 53.5 in November.

 

Eurozone – Final PMI data confirmed the economy remained in stagnation at the end of last year.

• A pick up in services activity only partially offset a continued drop in the area’s manufacturing industry.
• “Another month of subdued business activity in December rounded off the euro zone’s worst quarter since 2013… the PMI data suggest the euro area will struggle to have grown by more than 0.1% in the closing three months of 2019,” Markit commented on the data.
• Composite index came in at 50.9 in December, up from 50.6 in November.
• Services sector index climbed to 52.8 from 51.9 the previous month while manufacturing remained in a contractionary territory for an 11^th straight month.

 

Germany – Retail sales picked up in November beating market estimates and posting a 2.1%mom/2.8%yoy increase.

 

Iran – Tehran backed from all of its commitments to the 2015 nuclear accord in retaliation of the US killing of a top Iranian commander last week.

• The announcement followed the US threat to attack 52 Iranian targets if Tehran retaliated for the killing of Qassem Soleimani.
• Earlier, the Iraqi parliament voted to cancel the government’s request for assistance from a US led coalition.
• “There is no need for the presence of American forces after defeating Daesh (Islamic State… we have our own armed forces which are capable of protecting the country,” one of members of parliament commented on the situation.
• Abdul Mahdi, who resigned as PM in November amid street protests and is currently acting as a caretaker, convened the extraordinary session to end foreign troop presence as soon as possible.
• US President threatened sanctions against Iraq should Baghdad force US troops to leave the country.
• Some 5,000 US soldiers are in Iraq as part of the international coalition against the Islamic State group.

 

Italy – December Italian services sector shows recovery in output

• UHS Markit PMI posted 51.1 in December up from 50.4 in the previous month.

 

Currencies

US$1.1178/eur vs 1.1161/eur yesterday.  Yen 107.96/$ vs 108.09/$.  SAr 14.291/$ vs 14.302/$.  $1.312/gbp vs $1.308/gbp.  0.695/aud vs 0.695/aud.  CNY 6.974/$ vs  6.966/$.

 

Commodity News

Gold US$1,577/oz vs US$1,552/oz yesterday - Gold nears seven-year high on US- Iran tensions

   Gold ETFs 81.6moz vs US$81.6moz yesterday

Platinum US$987/oz vs US$982p/oz yesterday

Palladium US$2,022/oz vs US$1,990/oz yesterday

Silver US$18.37/oz vs US$18.05/oz yesterday

           

Base metals:   

Copper US$ 6,104/t vs US$6,137/t yesterday - Copper maintains upward momentum on US-China trade deal hopes (FT)

• Copper rose sharply at the end of last year due to rising US-China trade deal hopes, and has continued its momentum into the opening days of 2020.
• Copper remains at a similar level to its seven-month December high of $6,100/t as it is reported that the US and China are closing in on a limited trade deal.
• On new years eve, Trump declared that a ‘phase one’ trade deal will be signed on the 15^th of January.
• This was confirmed by Chinese officials, who plan to travel to Washington on the 13^th of January (South China Morning Post).

Aluminium US$ 1,816/t vs US$1,819/t yesterday

Nickel US$ 13,665/t vs US$13,775/t yesterday

Zinc US$ 2,315/t vs US$2,312/t yesterday

Lead US$ 1,907/t vs US$1,915/t yesterday

Tin US$ 16,800/t vs US$17,195/t yesterday

           

Energy:           

Oil US$70.0/bbl vs US$69.6/bbl yesterday

Natural Gas US$2.145/mmbtu vs US$2.121/mmbtu yesterday

Uranium US$25.85/lb vs US$25.85/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$92.3/t vs US$92.2/t - Chinese iron ore futures rise on firm demand (Reuters)

• Iron ore futures in china rose for the fourth straight session this morning.
• Utilisation rates at 247 steel mills across China rose to 78.40% last week from 76.89% the week before.
• The most traded iron ore future contract on the Dalian Commodity Exchange for May 2020 jumped 1% to $96.04/t.
• Analysts are unsure if this demand will hold firm, as mills’ restocking could be coming to and end as the Chinese New Year holiday is imminent

Chinese steel rebar 25mm US$565.8/t vs US$567.0/t

Thermal coal (1st year forward cif ARA) US$63.7/t vs US$62.8/t

Coking coal futures Dalian Exchange US$180.1/t vs US$175.6/t

           

Other:  

Cobalt LME 3m US$32,250/t vs US$32,250/t

NdPr Rare Earth Oxide (China) US$40,147/t vs US$40,193/t

Lithium carbonate 99% (China) US$5,664/t vs US$5,670/t

Ferro Vanadium 80% FOB (China) US$28.5/kg vs US$28.5/kg - Ferro-vanadium prices rose 0.7% to the year end to $22.34-22.86/kg in Western Europe (Fastmarkets MB)

• Vanadium pentoxide prices also 3.8% to 4.8-5.85/lb in Rotterdam.
• Vanadium prices are expected to rise this year on the assumption that China will more fully enforce regulations on vanadium grades in structural steel for construction.
• Construction of new Vanadium Redox Flow Batteries should raise demand for vanadium electrolyte this year as power utilities work to balance new renewable energy supplies with other power sources.
• Prices for ferro-vanadium and vanadium pentoxide remain stable for now.

Antimony Trioxide 99.5% EU (China) US$5.1/kg vs US$5.1/kg

Tungsten APT European US$235-245/mtu vs US$235-245/mtu

Graphite flake 94% C, -100 mesh, fob China US$540/t vs US$540/t

Graphite spherical 99.95% C, 15 microns, fob China US$2,550/t vs US$2,550/t

 

Battery News

Stable lithium-sulphur battery has five times the capacity of lithium-ion (New Scientist)

• Scientists at Monash University in Melbourne have developed a battery with a capacity that could lead to drastically cheaper electric cars and grid energy storage.
• Previous attempts to harness lithium-sulphur chemistry have been unsuccessful, as despite offering up to five times more energy per weight, they have a far shorter lifespan (New Atlas).
• Scientists believe they have overcome this through a new type of bonding architecture, resulting in unprecedented battery charge/ discharge efficiency in a lithium-sulphur battery.
• The battery maintains an efficiency of 99% for more than 200 cycles, and a smartphone version would be able to keep a phone charged for five days.

 

Company News

Caledonia Mining (CMCL LN)  635, Mkt Cap £68.3m – Increased quarterly dividend

• In a move which CEO, Steve Curtis, said “reflects our increased confidence in the outlook for our business” Caledonia Mining has increased its quarterly dividend by some 9% to US$0.075/share from the previously established US$0.6875/share.
• Mr. Curtis explained that the improving operational performance and “continued higher gold price” had “continued through the final quarter of 2019” and that with the five-year capital development programme to access deeper levels of the Blanket mine reducing from mid-2020 the company had “greater flexibility to consider deploying some of our cash reserves on an increased dividend”.
• The expected commissioning of the new Central Shaft during the final quarter of 2020, underpins the long-term future of the Blanket mine to the mid-2030s and beyond, lifting annual gold production to around 80,000oz pa by 2022 and generating increased cash flow as the mine’s capital requirements diminish.

Conclusion: Since implementing its dividend policy in 2014, Caledonia Mining has remained among a small minority of the more than 100 AIM-listed mining companies which consistently delivers dividends; the decision to increase the payout to its shareholders reinforces its status among this comparatively rarefied peer group.

 

KEFI Minerals* (KEFI LN)  1.69p, Mkt Cap £19.4m – ANS signs TKGM equity subscription agreement

• ANS Mining signed the equity subscription agreement regarding an interest in Tulu Kapi Gold mines Share Company, the owner of the mining license.
• Existing TKGM shareholders, KEFI and the Ethiopian Government, have also approved the issue of TKGM to ANS Mining.
• The first ANS investment of $9.5m is expected to be competed in January 2020.
• Funds will lead to the start of the community resettlement, progress debt funding discussions and detail the final procurement and contractual arrangements.
• Full finance close and bank loan drawdown planned for mid-2020.
• Upon commitment of full $38m ANS will hold a 33% stake in TKGM with the remaining interest split between KEFI (45%) and the government (22%).

Conclusion: Positive news on the ANS Mining equity subscription agreement completion bring the Company one step closer to securing funds for the start of Tulu Kapi development works. On $1,540/oz gold price, the Company estimates the Tulu Kapi NPV at $323m including both the open pit ($236m, DFS) and underground potential ($87m, PEA) with the NPV of KEFI’s 45% beneficial interest coming in at $164m, multiples of the current market capitalisation, after accounting for the Company’s historical contributions to the project.

*SP Angel act as Nomad and Broker to KEFI Minerals

 

Serabi Gold (SRB LN)  78.5p Mkt value £46.2m – Step out drilling extends mineralised envelope at Sao Chico

• Serabi Gold reports that after completion of around 20% of a planned surface and underground diamond-drilling programme around the Sao Chico deposit the lateral extent of the mineralisation has been extended for 200m both east and west of the current mining area and for approximately 100m below the deepest current development.
• The programme, which is expected to be completed by the end of June, comprises 9,600m of step-out drilling on surface and 8,000m of underground drilling to test depth extensions of the mineralisation. The results of the full programme are to be incorporated in an updated mineral resources estimate expected during Q3 2020.
• Among the results highlighted in today’s announcement are:
  • A 2.10m wide intersection of the Main Vein to the west of the current mining area which average 21.03g/t gold from a depth of 66.20m in hole 19-SCUD-219  and a further intersection of the Main Vein, also to the west of the mining area which averaged 15.39g/t gold over 4.38m (1.81m true width) from a depth of 102.42m in hole 19-SCUD-248; and
  • A 1.50m wide intersection of the Highway Vein to the east of the mining area averaging 16.61g/t gold from a depth of 225.60m in hole 19-SCUD-143 with another intersection of the same vein, also to the east, averaging 27.35g/t gold over an intersection width of 1.64m from a depth of 194.36m in hole 19-SC-142. The intersection in hole 142 included 0.87m averaging 50.94g/t gold.
  • The underground drilling results so far include a 9.17m wide intersection of the Main Vein (1.23m true width) averaging 34.42g/t gold from a depth of 35.74m in hole 19-SCUD-284 and a 1.28m wide (1.00m true width) intersection of the Main Vein averaging 114.49g/t gold from a depth of 76.40m in hole 19-SCUD-274.
• In addition, the company has started a 6,000m programme of reverse-circulation (RC) drilling to test “geophysical anomalies that lie to the west of the Sao Chico orebody”. CEO, Mike Hodgson, commented that testing these anomalies, which he described as “quite spectacular when compared to the equivalent geophysical anomaly that overlies the Sao Chico orebody” could, subject to exploration success, “lead to an expansion in production from the Sao Chico rebodies in the longer term”.
• Mr. Hodgson explained that the RC drilling “should take approximately six months to complete although drilling will need to be suspended approximately every two months to allow for the processing of results”.
• Providing a progress report on recent production operations, Mr. Hodgson said that they “continued to perform well over the last quarter of 2019” and he commented that “the fourth quarter’s production was strong and with final production statistics currently being reconciled”.

Conclusion: The early stages of the drilling at Sao Chico have provided positive results and extended the mineralised envelope both laterally and at depth. We look forward to further results as the programme proceeds and to the updated mineral resource estimates in Q3.

 

Tri-Star Resources* (TSTR LN)  14.5p, Mkt Cap £13.8m – SPMP financing update

(Tri-Star holds 40% in ‘SPMP’(Strategic & Precious Metals Processing LLC) which owns the antimony-gold processing facility in the Port of Sohar Free Zone, Oman)

World’s first Clean Plant designed to EU Environmental standards.

Target gold capacity 50,000ozpa, antimony 20,000tpa

• Tri-Star resources reports that its’ 40% owned SPMP, the developer of an antimony and gold treatment plant in Oman, requires “up to USD160 million of additional finance including a working capital facility of USD60 million to fund a build-up  in inventories, a normal creditor and debt cycle, the continued investment in the plant and to meet current debt obligations”.
• The additional financing is reported to be needed to bring the plant to sustainable cash flow and 100% capacity which, as previously reported, is expected to be achieved “by the end of 2020”.
• SPMP’s discussions with potential sources of finance are continuing, but “the terms offered to date are, in the view of the board of Tri-Star, unacceptable”.
• “Negotiations between the shareholders of SPMP continue as to how to provide short term financing to SPMP in order for it to continue its operations.  No agreement has yet been reached.  However, the various outcomes might include the dilution of Tri-Star’s share-holding in SPMP (as a result of the financial contributions of other shareholders) and the temporary suspension of operations at SPMP.” The company also comments that “the long term future of SPMP will remain uncertain until any such financing is secured”.
• Part of the required funding is required to meet recent repayment obligations to Bank Nizwa and Al Aziz Bank where “the most recent repayment obligation has not, as yet, been met”, placing SPMP in technical default of its obligations to the banks.
• Tri-Star Resources, as a shareholder in SPMP is one of the guarantors of the loans provided by Bank Nizwa and Al Aziz Bank and is guaranteeing approximately US$30m (40% of the total US$75m).
• Tri-Star Resources confirms that its “obligations under the Guarantee fall away once commercial production of SPMP’s facility in Oman has been achieved. The board of Tri-Star believes this now to be the position as it has been informed by SPMP that commercial grade antimony has been produced (as announced on 18 November 2019) and commercial grade gold dore  has been produced and sold”. The company goes on to say that “The Guarantee will be formally discharged once an independent consultant certifies to the banks that commercial production has been successfully started”.
• The announcement provides no indication as to the expected timing of such a certification.
• We can deduce from the announcement that the $60m working capital facility is to fund the build-up of inventory, particularly feedstock and the debtor/creditor cycle.
• The $100m balance will be for future capex and plant maintenance plus repayment of debt obligations and debt servicing till the plant is forecast to be cash flow positive.
• The statement leaves many questions unanswered given the long-running commissioning and very substantial new capital being sought for future capex, maintenance and debt servicing.
• Tri-Star started cold-commissioning in January 2018 with commercial-grade antimony production reported in November 2019.
• The statement indicates to us that there are further substantial issues to address with 100% capacity targeted by end 2020.

Conclusion:  The SPMP facility in Oman is an environmentally advanced plant for the production of antimony and additionally its ability to recover gold from complex ores and concentrates opens up treatment possibilities not currently available for a number of gold deposits. The plant has, however, experienced a number of technical and financial setbacks which have resulted in deferments of expected steady-state production. The latest statement from Tri-Star Resources indicates that some of the issues remain to be overcome.

*SP Angel acts as Nomad to Tri-Star Resources. David Facey, a former partner at SP Angel is the CEO & CFO at Tri-Star Resources.

 

 

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

 

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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.

 

Sources of commodity prices
Gold, Platinum, Palladium, Silver	BGNL (Bloomberg Generic Composite rate, London)
Gold ETFs, Steel	Bloomberg
Copper, Aluminium, Nickel, Zinc, Lead, Tin, Cobalt	LME
Oil Brent	ICE
Natural Gas, Uranium, Iron Ore	NYMEX
Thermal Coal	Bloomberg OTC Composite
Coking Coal	DCE
RRE	Steelhome
Lithium Carbonate, Ferro Vanadium, Antimony	Asian Metal
Tungsten	Metal Bulletin

 

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