SP Angel – Morning View – Wednesday 28 08 19

Cobalt market stabilises as impact of Glencore output cut assessed

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MiFID II exempt information – see disclaimer below

  

Altus Strategies* (ALS LN) – Sale and royalty agreement with Desert Gold on two projects in Mali

Anglo American (AAL LN) – De Beers diamond sales

Ariana Resources (AAU LN) – Kiziltepe quarterly results

Chaarat Gold* (CGH LN) – Drilling continues to expand the Tulkubash orebody

Keras Resources* (KRS LN) – Fundraising of £350,000 and conversion of director loans

Premier African Minerals* (PREM LN) – Completion of loan to Otjozondu Manganese

 

Dow Jones Industrials

 

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Shanghai Composite

 

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FTSE 350 Mining

 

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Economics

UK government may extend parliament break

  • UK PM Boris Johnson may move to prorogue parliament until October 14th in a bid to hold back a cross-party coalition of MPs attempting to avoid No Deal (FT).
  • Parliament is scheduled to return on September 3rd following the traditional break for the party conference season.
  • The PM may extend the break to alleviate pressure on his dealings with the EU, as the UK seeks last-minute amendments to the previously rejected withdrawal agreement drafted by the parties.
  • The news has sent the pound lower today, dropping 1% against the US dollar, and fell by a similar margin against the euro.

 

Currencies

US$1.1088/eur vs 1.1110/eur yesterday. Yen 105.78/$ vs 105.65/$. SAr 15.302/$ vs 15.350/$. $1.227/gbp vs $1.224/gbp. 0.674/aud vs 0.675/aud. CNY 7.160/$ vs 7.164/$.

Commodity News

Precious metals:         

Gold US$1,540/oz vs US$1,534/oz yesterday

   Gold ETFs 78.5moz vs US$78.0moz yesterday

Platinum US$871/oz vs US$858/oz yesterday

Palladium US$1,480/oz vs US$1,478/oz yesterday

Silver US$18.30/oz vs US$17.76/oz yesterday

           

Base metals:   

Copper US$ 5,685/t vs US$5,646/t yesterday

Aluminium US$ 1,761/t vs US$1,763/t yesterday

Nickel US$ 15,775/t vs US$15,770/t yesterday

Zinc US$ 2,277/t vs US$2,252/t yesterday

  • Zinc prices are expected to tumble amid forecasts of rising Chinese refined supply, with suppliers looking to capitalise on margins at the highest level in more than a decade. Production levels will accelerate into the second-half as summer maintenance ends, SHZQ Futures summarise.
  • After a weekend of confusing signals, President Donald Trump’s credibility has become a key obstacle for China to reach a lasting deal with the U.S., according to Chinese officials familiar with the talks
  • Zinc spiked on Tuesday after Teck Resources reported electrical equipment failure affecting its refinery in Canada.

Lead US$ 2,085/t vs US$2,069/t yesterday

Tin US$ 15,820/t vs US$15,705/t yesterday

           

Energy:           

Oil US$60.1/bbl vs US$58.9/bbl yesterday

Natural Gas US$2.207/mmbtu vs US$2.230/mmbtu yesterday

Uranium US$25.25/lb vs US$25.30/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$80.2/t vs US$83.6/t

Chinese steel rebar 25mm US$540.6/t vs US$546.3/t

Thermal coal (1st year forward cif ARA) US$62.7/t vs US$63.5/t

Coking coal futures Dalian Exchange US$196.2/t vs US$195.6/t

           

Other:  

Cobalt LME 3m US$32,600/t vs US$32,600/t

  • Plans by Glencore to slash a fifth of global output to address the growing glut have been met with positivity by industry participants. Rival China Molybdenum Co. suggest Glencore’s move “is expected to solve the problem of excess supply in the cobalt market in the next few years”, and that will boost prices, with China Moly reporting a slump in first-half earnings. Net income declined 74% to 808m yuan ($113m) as revenue fell.
  • Cobalt hit decade highs in 2018, before crashing to multi-year lows last month. The commodity is also facing headwinds common along the battery supply chain after China slashed state support for electric vehicles. Still, the metal has seen a modest recovery this month amid renewed optimism over supply -- aided by Glencore’s move -- and some signs of a recovery in demand.
  • Zhejiang Huayou Cobalt Co., the world’s biggest refiner, also cited Glencore’s stoppage as a positive after posting a 98% collapse in net income to 32.8m yuan.

NdPr Rare Earth Oxide (China) US$43,781/t vs US$43,131/t

Lithium carbonate 99% (China) US$7,402/t vs US$7,398/t

Ferro Vanadium 80% FOB (China) US$38.5/kg vs US$38.5/kg

Antimony Trioxide 99.5% EU (China) US$5.3/kg vs US$5.3/kg

Tungsten APT European US$210-225/mtu vs US$210-225/mtu

 

Battery News

Tesla Megapack pushed to replace peaker plants

  • Elon Musk continues to drive the recently launched ‘Megapack’ to electric utilities in an aim to replace peaker plants. According to Tesla, a single Megapack has up to 3MW of storage capacity and a 1.5MW inverter.
  • Tesla was competing by simply configuring projects with a lot of Powerpacks, but now the Megapack is a new option better suited for larger projects: “Using Megapack, Tesla can deploy an emissions-free 250 MW, 1 GWh power plant in less than three months on a three-acre footprint – four times faster than a traditional fossil fuel power plant of that size. Megapack can also be DC-connected directly to solar, creating seamless renewable energy plants.”
  • Musk is especially targeting replacement of peaker plants, which are smaller and less efficient fossil fuel plants used when the grid requires a lot more energy than average, such as at its ‘peak’.
  • Musk suggests incorporation into the Supercharger network, which experiences highly variable charging intensity.

 

Supercharger network delivers impressive 72GWh electricity

  • In 2014, two years after the Supercharger network launched, Tesla had only 10GW capacity and could deliver around 72MWh in a single day. Tesla’s latest statistic shows the automaker charging network delivered 72GWh electricity in a single month.
  • Roughly 6 years of operating the Supercharger network, unanimously considered the best electric vehicle fast-charging network globally, had delivered over 405GWh energy by last year – resulting in almost 1.4bn miles.
  • On Twitter today, Tesla said that they saw 2m Supercharger sessions in July 2019 —  “totaling 72 GWh of energy.”
  • The automaker compared the energy capacity to powering:
    • Hawaii for three days
    • The Republic of Ireland for a day
    • Playing “You’re Beautiful” on repeat from every device in your house because Karen just left you
  • The Supercharger network now consists of 1,617 stations and 14,087 stalls around the world.

 

Company News

Altus Strategies* (ALS LN)   4.8p, Mkt Cap £8.5m – Sale and royalty agreement with Desert Gold on two projects in Mali

  • The Company signed a non-binding term sheet with TSX-V listed Desert Gold Ventures for the sale of 100% interest and royalty on Sebessounkoto Sud and Djelimangara gold projects in western Mali.
  • Subject to concluding a definitive agreement, Altus will receive 3m shares in Desert Gold (worth C$690k at current C$0.23 price per share), $50k in cash and a 2.5% NSR royalty on projects.
  • Additionally, contingent consideration will come in stages:
    • $100k in cash and 2m shares in Desert Gold on the first 500koz defined (N43-101 compliant);
    • $100k in cash and 3m shares in Desert Goild on the second 500koz defined.
  • Desert Gold will have an option to repurchase 1.5% of the Altus NSR contingent on the number of ounces in the reserve statement reported in an independent DFS ($6.0m for >1.0moz, $3.0m for 0.5-1.0moz or $1.0 for 0.25-0.50moz).
  • The 56km2 Djelimangara and 29km2 Sebessounkoto Sud are both located in the Kenieba window of western Mali, 20km and 50km southeast of Sadiola and former Yatela mines, respectively.
  • The projects are also reported to be hosted by the same geological formation as the Loulo & Gounkoto shear zone hosted gold deposits, operated by Barrick Gold.
  • The deal follows the recently announced JV deal (with Glomin) on other two Mali based projects (Lakanfla and Tabakorole).
  • “Of our six projects in Mali, only our most advanced asset, the Diba gold project, is not currently subject to a JV or Term Sheet for a transaction,” the Company commented on the status of its Mali exploration assets.
  • Pitiangoma Est, the sixth exploration project in Mali, is currently under an active JV with Resolute Mining.

*SP Angel acts as nomad and broker to Altus Strategies

 

Anglo American (AAL LN)   1702.6 pence, Mkt Cap £21.6bn – De Beers diamond sales

  • Anglo American reports that De Beers sold US$280m of diamonds in its 7th sales cycle of the year. This is US$30m higher than the US$250m  sales for the preceding  6th sales cycle but more than 40% below the US$503m of the seventh cycle last year.
  • On a year to date basis using the company’s previous sales announcements, we calculate that sales of approximately $2.9bn are approximately 26% or US$1bn  below the US$3.9bn at the end of sales cycle 7 in 2018.
  • De Beers CEO, Bruce Cleaver explained that “With midstream participants continuing to work down polished diamond inventory levels and reduced levels of manufacturing in the key cutting centres, De Beers Group provided customers with further supply flexibility during the seventh cycle of 2019.”

Conclusion: De Beers diamond sales remain well below the levels seen at this time last year in the face of continuing macroeconomic uncertainty and a slowdown in jewelry manufacturing.

 

Ariana Resources (AAU LN)   2.075p, Mkt Cap £22.0m –Kiziltepe quarterly results

  • Ariana Resource reports results from its 50% owned Kiziltepe gold mine for the quarter ending 30th June 2019.
  • The mine produced a total of 6,438oz of gold and 82,988oz of silver at an average cash cost of US$589/oz bringing year to date output to 13,734oz of gold and 167,097oz of silver keeping the operation on track to achieve its 2019 guidance of 25,000oz of gold output.
  • Cash costs rose during the quarter from the US$399/oz reported for Q1; Managing Director, Dr. Kerim Sener explained that the increase was “largely due to the annual payment of the State Right royalty to the Turkish Government within the period.  Excluding this, the operating cash cost remains fully in line with prior quarters”.
  • Dr. Sener also explained that “High strip ratios have been maintained in to the current quarter during the pushback of the southern pit wall at Arzu South, but these will decrease during Q3 and Q4.”
  • The company also confirms that “69% of the US$33 million capital loan for Kiziltepe has been repaid as at quarter ending 30 June 2019; on track to fully repay loan by April 2020.”

Conclusion: Kiziltepe remains on course to meet 2019 production guidance of 25,000oz of gold and also expects to pay-off its capital loan by April 2020.

 

Chaarat Gold* (CGH LN)   27.1p, Mkt Cap £113.3m -Drilling continues to expand the Tulkubash orebody

  • The Company completed 9,078m of drilling since the last exploration updated in mid-june with a total 12,078m drilled of a planned 20,000m for 2019 field season.
  • The most prospective target is yet to be drilled.
  • The drilling continues to identify new shallow mineralisation within and adjacent to current pit outlines with selected intersections including:
    • 10.5m at 2.99g/t from surface (DH19T503);
    • 12.0m at 1.58g/t from 38.5m (DH19T511);
    • 10.5m at 1.20g/t from 6.5m (DH19T512);
  • Shallow, high-grade gold lodes identified between the Satellite and East Pit areas potentially two small pits into a single larger one.
  • The objective of the drilling programme is to expand the Measured and Indicated category of the resource adding more ounces into Tulkubash reserves extending the oxide gold project life of mine to a minimum of 15 years.
  • Additionally, the Company continues the district-scale exploration aiming to identify new deposits in the area with the current resource lying within only 4km of the Company’s 24km long exploration license.
  • The team launched a 3,000m drilling programme at the Karator and IShakuldy areas located 1.5km and 5km northeast along the strike of the Tulkubash orebody where trenching and road cut sampling identified areas of hydrothermal alteration and anomalous geochemistry.
  • Drill road construction between the Tulkubash resource area and Karator/Ishakuldy targets has also exposed altered and mineralised host rock in road cuts with rock chip samples pointing to a continuous mineralised corridor 100-150m wide and at least 550m long. Selected road cut assays returned 8.0m at 5.12g/t and 2.0m at 19.67g/t with drilling started in the area in late July and assays now pending.
  • Reconnaissance mapping and geochemical exploration of the license area indicates that the zone of favourable geology associated with Tulkubash gold mineralisation extends for at least 15km northeast where the Tulkubash Trend intersects a granitic intrusive body. The management believes that these intrusive rocks may have provided the heat source for the Tulkubash mineralisation, in which case the intensity of mineralisation could be expected to increase approaching this zone.

Conclusion: Positive drilling update proves up extension of the Tulkubash orebody boding well for a potential upward revision to the existing mineral resource/reserves while the ongoing district-scale exploration programme identifies new targets within the 24km long trend of favourable geology.

*SP Angel acts as Broker to Chaarat Gold

 

Keras Resources* (KRS LN)  0.46p, Mkt Cap £10.4m – Fundraising of £350,000 and conversion of director loans

  • Keras Resources report the raising of £350,000 (before expenses) through the placing of 87,500,000 ordinary shares of 0.1p each at a price of 0.4p/ordinary share.
  • Additionally, David Reeves and Brian Mortiz have agreed to convert £458,900 in loans due to them, primarily in respect of cash advanced to the Company as working capital loans, into new ordinary shares of the Company at the same price as the placing shares, corresponding to 114,725,000 ordinary shares to directors.
  • The placing shares and director conversion shares represent approximately 8.12% of the company's issued share capital as enlarged by the placing and director conversion shares.
  • The capital raised will support the proposed distribution of the Company's shareholding in Calidus Resources Ltd and for ongoing working capital purposes.
  • The amounts being capitalised are the only material debt owed by the Company and the capitalisation will therefore facilitate court approval of the capital reduction required to demerge the CAI shares.
  • CEO Russel Lamming adds “The year to date has been highly productive and I believe the rest of 2019 will be transformational: the proposed demerger of our 724m Calidus shares, in tandem with our transition from explorer to producer (subject to the grant of an exploitation permit), will see significant value released to shareholders and manganese focussed Keras will become a cashflow positive mining company.”
  • The recent upgraded credit ratings bode well for Kera’s continued investment in Togo. In addition, the Togolese Ministry of Mines recently awarded a large-scale exploitation permit to the French company Industrie Commerce Argochimie Investissement on the Ledjoblibo clay deposit in the Keras region, approximately south of Nayega; we believe that this is very positive for the permitting process as the Ministry processes its ongoing permitting schedule.

*SP Angel act as Nomad and broker to Keras Resources

 

Premier African Minerals* (PREM LN)  0.032p, Mkt Cap £2.9m – Completion of loan to Otjozondu Manganese

  • Premier African Minerals reports the completion of the previously announced US$1.35m strategic loan in conjunction with Cambrian Limited to help fund the expansion of production and additional exploration at the Otjozondu Manganese Mining Project in Namibia.
  • The loan carries interest at 10%pa and the company confirms that Cambrian has “already provided US$350,000 in cash to MNH and Premier agreed to provide the remaining US$1 million … in the form of 1,763,668,430 new ordinary Premier Shares conditionally issued to the equivalent value of US$1,000,000 at an issue price of 0.045p”.
  • Explaining the background to the involvement with the producing manganese operation, CEO, George Roach, said that “As I have previously stated, it is essential to the future of our Company that we find a means to move to being production and cash generative, rather than development oriented and dependent on placements and the need to raise finance.”
  • Mr. Roach also noted that “export tonnages at MNH [the owner and operator of the Otjozondu mine] continue to increase and mine production more than doubled in the last 12 months.”
  • The announcement today also confirms the appointment of MNH’s Chairman, Mr. Herbert, to the Board of Premier African Minerals. Mr. Herbert is described as an accountant with “nearly three decades of experience in finance”, including executive appointments at mining companies such as Antofagasta plc and Galahad Gold plc. He is a former director of Premier African Minerals and is currently “chairman of IronRidge Resources**, Helium One, Siderian Resource Capital and the acting Chairman of MNH and its subsidiaries which operate Otjozondu”

Conclusion: The appointment of MNH’s acting Chairman to the Board and the completion of the loan to MNH is part of the strategic move towards cash generative assets in preference to development projects.

*SP Angel have an agreement with Premier African Minerals as a result of the acquisition of Northland Capital Partners

** SP Angel acts as nomad and broker to IronRidge Resources

 

Analysts

John Meyer – 0203 470 0490

Simon Beardsmore – 0203 470 0484

Sergey Raevskiy – 0203 470 0474

James Mills -0203 470 0486

 

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

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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