SP Angel – Morning View – Tuesday 13 11 18

US dollar rises on China trade talks as investors go risk-off

MiFID II exempt information – see disclaimer below

 

Kodal Minerals* (KOD LN) –  Drilling shows 30m grading 1.51% Li2O and assays of up to 3.6% in shallow veins at Sogola-Baoule

Solgold* (SOLG LN) Mkt Price & MV - Further drilling results from Alpala 

URU Metals* (URU LN) – URU share consolidation proposal

 

African miner embraces blockchain technology to track responsible gold

  • Gold miner IAMGOLD Corp. follows strategic investment enabling reliable tracking of the provenance of responsibly sourced gold using blockchain technology. Funding supports development of a blockchain-based solution established by Emergent Technology Holdings (EmTech), a financial technology company, to track the precious metal from mine, to refinery, to vault, and then digitises the asset into secure G-Coin tokens for investing, sending and spending globally.
  • The benefit of the technology reduces the operational expenses associated with gold tracking and trading and improves the security and transparency over traditional supply chain and trading platforms.
  • IAMGOLD joins partners including Sprott Inc., Valcambi SA and Yamana Gold Inc., in investing in EmTech’s innovative gold supply chain and digital token platform.
  • CEO of IAMGOLD recognises blockchain technology “brings a unique opportunity for the gold sector to collaborate and further contribute to the improvement of socioeconomic and humanitarian conditions in jurisdictions where precious metals are mined”.
  • The introduction of blockchain solutions in the mining industry is also being explored by De Beers, with the development of the first collaborative, digital platform that securely tracks a diamond across the full value chain – Tracr. The company are actively engaging with key industry stakeholders, including other diamond producers, industry trade associations, graders, governments, logistics providers, retailers and banks to develop the best governance setup for the platform.

 

Vanadium

  • Ferro-Vanadium prices rose 2% last week in Western Europe to US$124-126/kgV (Fastmarkets MB).
  • The Chinese prices remains at US$130-140/kgV.
  • See link for vanadium note

 

Dow Jones Industrials

 

-2.32%

at

  25,387

Nikkei 225

 

-2.06%

at

  21,811

HK Hang Seng

 

+0.62%

at

  25,793

Shanghai Composite

 

+0.93%

at

   2,655

FTSE 350 Mining

 

+0.84%

at

  17,182

AIM Basic Resources

 

+1.09%

at

   2,184

 

Economics

US – The US$ index hit 18-month high yesterday as US equities recorded heavy losses on the back concerns over slowing growth, peaking profits and the global trade war.

  • While losses have been broadly spread between sectors, IT and energy stocks were leading losses.
  • Nasdaq was down 3% on Monday extending its three-day decline past 5% and wiping a post Election Day rally out.
  • Apple shares fell 5% on the back of analyst report suggesting that the Company has significantly cut back on its orders from one of its suppliers (Lumentum Holdings) fuelling questions over the sales outlook.
  • Lumentum Holdings, a developer and producer of optical communications components including 3D sensing, has been asked by one of its major customers (believed to be Apple) to “meaningfully reduce shipments” which saw Company’s shares dropping 333% on the news.
  • Bond markets were closed yesterday in observance of the Veterans Day holiday.
  • Oil prices have been in retreat for a 12th consecutive session amid slowing global growth outlook and stronger US$.
  • Trump criticised Saudi plan to cut oil production by around 1mln barrels a day from October output levels.

 

China – Weaker new credit growth numbers for October are led by lower local government bond sales (86.8bn CNY v 738.9bn CNY in September) that were mostly completed in the previous month.

  • While authorities have been trying to ease market liquidity by cutting reserve requirement ratios as well as encouraging lenders to provide financing to small and medium sized firms, the government may need to do more amid slowing economic growth momentum.
  • M2 (%yoy): 8.0 v 8.3 in September and 8.4 forecast.
  • Aggregate Financing (CNY bn): 728.8 v 2,168.2 in September and 1,300.0 forecast.

 

Japan – In an effort to stimulate growth and accelerate headline inflation, the BoJ accumulated the economy’s worth amount of assets on its balance sheet which is expected to grow further.

  • BoJ assets amount to ¥553.6tn compared to ¥552.9tn economy according to nominal Q2 GDP estimates.
  • BoJ held some 42% of all outstanding government bonds and T-bills as of the end of June.
  • This compares to sizes of balance sheets at the Fed (20% of US GDP) and the ECB (40% of the Eurozone GDP)
  • With inflation rate at 1.2% as of September, a little over half of 2% target, the BoJ is expected to continue with more asset purchases moving forwards.

 

UK – PM May last night said Brexit negotiations were “in the endgame” aiming to finalise a deal during a special EC meeting later this month.

  • The pound is getting a bit of support from good labour earnings numbers released this morning.
  • UK weekly wages growth accelerated to a near 10-year high in September coming in more than forecast.
  • Tight labour market is seen filtering through into stronger wages growth making a case for a tighter monetary policy.
  • Av Weekly Earnings (3m %yoy): 3.0 v 2.8 in 3m to August and 3.0 forecast.
  • Av Weekly Earnings ex Bonus (3m %yoy): 3.2 v 3.1 in 3m to August and 3.1 forecast.

 

Currencies

US$1.1236/eur vs 1.1254/eur yesterday  Yen 114.10/$ vs 114.12/$  SAr 14.404/$ vs 14.408/$  $1.289/gbp vs $1.286/gbp  0.721/aud vs 0.720/aud  CNY 6.957/$ vs 6.969/$

 

Commodity News

Precious metals:         

Gold US$1,202/oz vs US$1,205/oz yesterday

   Gold ETFs 68.7moz vs US$68.7moz yesterday

Platinum US$849/oz vs US$850/oz yesterday

Palladium US$1,111/oz vs US$1,108/oz yesterday

Silver US$14.09/oz vs US$14.15/oz yesterday

  • The ratio between silver and gold continues to widen, with silver falling to the cheapest in a quarter century as slowing economic growth clouds the outlook for metals with industrial uses.
  • Spot silver tumbled 17% this year, close to an almost three-year low, while gold’s ytd fall records less than 8% after turmoil in world equity markets supported safe haven investing in October.
  • Decelerating global and Chinese economies are curbing demand for silver just as gold benefits from haven appeal, according to Philip Klapwijk, managing director of Hong Kong-based consultant Precious Metals Insights Ltd.

           

Base metals:   

Copper US$ 6,161/t vs US$6,058/t yesterday

  • Copper advanced in London, reversing earlier declines on reports that China and the US have resumed high-level trade discussions; some positive news as metal traders arrive in Shanghai for the annual Asia Copper Week event. US Treasury Secretary Steven Mnuchin and Chinese Vice Premier Liu He have restarted discussions on trade ahead of a planned meeting between President Trump and Xi later this month.
  • A prolonged trade stand-off between the two nations has been a major factor driving the Bloomberg Index of industrial metals to Monday’s lowest since July last year. Prices for copper, consumed across wiring and construction and used as a barometer for economic strength, have fallen around 17% in 2018 on fears the trade spat will undermine demand for industrial metals.
  • “Asia Copper Week will be an important event this year as the copper industry faces a number of challenges”, said director of copper research and strategy at CRU, citing Chinese restrictions on scrap imports and the necessity for mine investment.
  • The Asian nation hit demand this year, tightening thresholds in impurities in scrap metal imports, with an additional 25% tariff against the US.
  • Further, China’s imports of unwrought copper and concentrate both tumbled 18.7% in October, from bumper September volumes. Losses are also translated into falling orders, as one copper fabricator who supplied tubes to white goods manufacturers in southern China suggests “our expectations for next year are not too good either.”
  • Falling import volumes to the lowest levels in six months potentially strengthens miners’ hands as they negotiate for treatment and refining charges (TC/RCs) for 2019 in Shanghai. Fees typically fall when there is sufficient ore supply to meet demand, with miners arguing oversupply is growing as Chinese smelting capacity rises and mine supply growth is limited.
  • BMO Capital Markets highlight smelter expansions aren’t straight forward, with the market witnessing several disruptions. In May, the 400,000t Sterlite smelter in India was ordered to close and China's Northern Copper Industry Co has just closed its 50,000t Houma smelter for a two-year revamp.
  • Citigroup Inc. are also in the bear camp, reporting that its checks with Chinese commodity investors suggest demand has turned tepid since early October and that “recent weak China macro data, particularly declines in property and auto sales, have added more concerns over China’s economic momentum in 2019 despite the announced and potential government stimulus packages”.

Aluminium US$ 1,956/t vs US$1,957/t yesterday

Nickel US$ 11,495/t vs US$11,340/t yesterday

Zinc US$ 2,532/t vs US$2,488/t yesterday

Lead US$ 1,946/t vs US$1,957/t yesterday

Tin US$ 19,330/t vs US$19,300/t yesterday

           

Energy:           

Oil US$69.4/bbl vs US$69.5/bbl yesterday – Oil use in cars set to peak within seven years

  • Oil use in cars is set to peak within seven years, according to the International Energy Agency in its World Energy Outlook.
  • The IEA said oil consumption in cars will hit a ceiling by the middle of the next decade as adoption of electric vehicles becomes more widespread and more fuel-efficient automobiles hit the road.
  • After a 24% jump in total oil consumption between 2000 and 2017 to 95m bpd, absolute demand is set to increase by only 12% in the years to 2040 to 106m bpd.
  • Biofuels will offset 2.5m bpd of oil demand by 2040, while natural gas usage in cars offsets 1.6m bpd. The IEA forecasts that oil demand will fall sharply in advanced economies, with the EU seeing a 45% decline by 2040, while North America falls by 25%.
  • The report also predicts that Coal will be overtaken by gas and solar within two decades as thermal coal trade will decline 3.7% a year and its contribution to the global power sector will drop by 80% cent by 2040.

U.S. expected to produce half of global oil and gas output by 2025

  • Relentless American shale development is set to allow the U.S. to leapfrog the world’s other major oil and gas producers, with the potential for the country to account for roughly half of global crude and natural growth by 2025.
  • The IEA has announced its main projection scenario through to 2040 foresees the U.S. accounting for nearly 75% and 40% of global oil and gas growth, respectively, over the next six years. 
  • Growth is expected to be driven primarily by shale fracking, which should lead U.S. shale oil supply to more than double, reaching 9.2m bpd by the mid-2020s.

Oil extends record losing streak

  • Oil fell for a 12th consecutive session in its longest losing streak on record after U.S. President Donald Trump criticized top OPEC producer Saudi Arabia’s plan to cut output.
  • Futures in New York fell as much as 1.8%, extending a drop of over 11% since Oct. 26.
  • Prices “should be much lower based on supply,” Trump said in a tweet, after Saudi Energy Minister Khalid Al-Falih said producers need to cut about 1m bpd from October production levels.

Natural Gas US$3.938/mmbtu vs US$3.952/mmbtu yesterday

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

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$72.2/t vs US$72.2/t

  • Iron ore futures in Dalian weakened for the second day as sentiment in steel markets reversed to pessimism amid signals of slowing demand. Steel profitability has slumped to the lowest since May 2017, especially for production of hot-rolled coil, according to a sinking Bloomberg Intelligence gauge.
  • Chinese steel prices continue to trade near their lowest levels in months, with the most-traded January rebar on the Shanghai Futures Exchange touching a 3 ½ month low of 3,818 yuan on Monday.
  • ANZ analysts note “in particular, the lowering of prices by Baoshan Steel suggests that the seasonal downturn in demand is already upon us. Supply-side issues had little impact on the market”. Major Chinese steelmaker Baoshan Iron and Steel reported over the weekend it would cut domestic prices for key steel products for December delivery by as much as 200 yuan/t.
  • Construction activities in China typically slow down during winter, curbing demand for steel. This winter, China has allowed cities and provinces to set individual production curbs aimed at tackling smog, instead of repeating last winter's blanket restrictions, and the impact on demand is unknown.
  • Investors are awaiting a slew of Chinese data due out tomorrow, including industrial output and retail sales.

Chinese steel rebar 25mm US$679.1/t vs US$677.6/t

Thermal coal (1st year forward cif ARA) US$89.7/t vs US$89.7/t

Coking coal futures Dalian Exchange US$198.5/t vs US$198.0/t

           

Other:  

Cobalt LME 3m US$55,000/t vs US$51,000/t

China NdPr Rare Earth Oxide US$45,445/t vs US$45,347/t

China Lithium carbonate 99% US$10,067/t vs US$10,045/t

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

 

Battery New

Extended life of low-cost, compact, lightweight batteries

  • A new MIT design for aluminium air batteries overcomes the problem of corrosion by introducing an oil barrier between the aluminium electrode and the electrolyte.
  • The oil is rapidly pumped away and replaced with electrolyte as soon as the battery is used. As a result, the energy loss is cut to just 0.02% a month – more than a thousand-fold improvement
  • This results in a prototype with a much longer shelf life than that of conventional counterparts - the researchers showed that when the battery was repeatedly used and then put on standby for one to two days, the MIT design lasted 24 days while conventional design lasted only 3.

 

S. Korea's Renewable battery industry to create fund

  • South Korea's big three rechargeable battery makers have agreed to create a fund to jointly develop next-generation battery technologies and foster related industries, the industry ministry said on Monday.
  • LG Chem Ltd., Samsung SDI Co. and SK Innovation Co. signed a memorandum of understanding for joint R&D of key battery technologies and the creation of a fund worth $88.4m in the first quarter of 2019, the Ministry of Trade, Industry and Energy said.
  • Under the agreement, the manufacturers will collaborate in developing core technologies related to materials, process and equipment. They also agreed to form a joint technology committee to speed up commercialization of new renewable battery technologies in the global market.

 

Company News

Kodal Minerals* (KOD LN)  0.15p, Mkt Cap £12m –  Drilling shows 30m grading 1.51% Li2O and assays of up to 3.6% in shallow veins at Sogola-Baoule

  • Southern Mali is now into the Dry Season with Diamond drilling due to restart this week shortly followed by reverse circulation drilling for resource expansion. The two rigs are expected to run through to Christmas.
  •  
  • Sogola-Baoule: Kodal Minerals reports the intersection of a significant 30m intersection of Lithium in spodumene grading 1.51% Li2O from 56m down hole at Sogola-Baoule.
  • A second drill hole shows a further 16m grading 1.85% Li2O which is possibly a more significant intersection as it demonstrates higher than average grade though over a shorter section and at the deeper down-hole depth of 94m.
    • 30m at 1.51% Li2O from 56.08m and
    • 5.50m at 1.59% Li2O from 96.48m in drill hole MDDH002;
    • 16m at 1.85% Li2O from 94.35m in drill hole MDDH001;
  • High-grade assays of up to 3.6% are seen in multiple veins intersected at shallow depths.
  • The assays are intriguing and indicate significant potential for mining assuming good lithium prices and strong ongoing demand for spodumene concentrates by Chinese and other lithium processors.
  • Boumou: further drilling at Boumou is also reported to have intersected multiple pegmatite veins indicating an extension of the geological model of mineralisation.
  • Bougouni: ‘project development and review activities continue with environmental assessment evaluations continuing and site visit by Independent Mineral Resource Geologist completed.’
  • Kodal Minerals recently reported a maiden inferred mineral resource estimate at Bougouni of 17.3mt at an average grade of 1.20% Li2O.
  • This covers previous drilling at Sogola-Baoule (10.4mt at 1.18% Li2O), Ngoualana (4.7mt at 1.34% Li2O) and Boumou (2.2mt at 1.01% Li2O). The company points out, however, that these prospects remain open both laterally and at depth and only form a part of “a very large project area”, implying that potential exists for further mineral resource expansion.

Conclusion: Drilling is showing good assay grades at Sogola-Baoule and the likely potential to increase both the tonnage and the average grade of the estimated resources at Sogola-Baoule and Boumou.

 

Solgold* (SOLG LN)  38.8p, mkt cap £712m – Further drilling results from Alpala 

 

  • Solgold has announced further results from its continuing drilling programme at the Alpala prospect at Cascabel in Ecuador where the company has now completed over 160,000m of ,drilling, including 7,259m at the Aguinaga prospect which is one of a number of promising targets in addition to the main focus currently on Alpala.

 

  • The results were obtained after the cut-off date for inclusion in the current revision of the mineral resource estimate (MRE) which is expected in December, but they will no doubt aid in the growing geological understanding of the mineralisation controls and geometry and will, of course, be available for inclusion in "MRE updates in 2019 as the company moves bon further expansion of the existing resource base at Alpala, namely high priority drill targets at Alpala SE, Alpala NW, Trivinio and Alpala Western Limb  beyond the Preliminary Economic Assessment (projected for release in January 2019) and towards a Pre-Feasibility Study as the project continues to mature."
     
  • Hole 68 at Alpala Central intersected 664m of mineralisation from a depth of 1004.4m at an average grade of 0.88% copper and 1.03g/t gold. The intersection included a higher grade section of 174m, from a depth of 1372m, which averaged 1.42% copper and 1,66g/t gold.

 

  • Hole 69, drilled on the Alpala Western Limb, intersected 852m at an average grade of 0.77% copper and 0.57g.t gold from a depth of 740m and which included a higher grade section of 152m averaging 1.53% copper and 1.66g/t gold from a depth of 1372m.

 

  • The company also reports results from hole 67 which hit 1028m of mineralisation at the Alpala Central deposit averaging 0.71% copper and 0.91g/t gold from a depth of 886m.

 

  • Holes 66 at Alpala NW and hole 64 at Alpala NW/Trivinio, hit 633m of mineralisation averaging 0.74% copper and 0.81 g/t gold from a depth of 870m and 402m averaging 0.48% copper and 0.26g/t gold from a depth of 1,690m respectively.

 

  • Outlining its future objectives, the company points out that its drilling plans for 2019 will focus on "on further expansion of the existing resource base at Alpala, namely high priority drill targets at Alpala SE, Alpala NW, Trivinio and Alpala Western Limb."

 

  • Conclusion: We look forward to the resource upgrade in December, however, with drilling continuing to intersect further wide zones of mineralisation, it is evident that subsequent further resource upgrades in 2019 are likely to continue to expand the overall resource endowment of Alpala.  

 

* SP Angel acts as broker to Solgold

 

URU Metals* (URU LN)  0.28p, Mkt Cap £2.1m – URU share consolidation proposal

  • URU is proposing to consolidate it’s shares in a one for 1,000 share consolidation.
  • Fractional shares will be aggregated and retained by the company or sold for the benefit of the company.
  • The number of new shares will be 780,571 post the consolidation.
  • The last day of dealing for the existing shares will be 20 November.
  • New share certificates will be send on or before 28 November for investors holding shares in certificated form.
  • URU Metals is working on the Zebediela, nickel, PGM project in the Bushveld region of South Africa.
  • Recent work identified the likely geological contact to nickel-PGM (PGE) mineralisation at Zebediela with a program of survey lines now planned to further define this.
  • The project showed an average grade of 0.44% nickel and 1.85% PGE over an average thickness of 4.2m and a depth of 28m to 176m below surface in a 6-hole drill program reported in July.
  • A basket price value based on these grades was reported at $132/t in July ranking the project close to Anglo American’s Waterberg Project F-Zone and just behind Current mine reserves in the Merensky Reef.
  • The South African Department of Mineral Resources recently has visited the Zebediela site and granted renewal in principal for prospecting right 148PR which covers the principal prospecting right.
  • The company noted on the 29th October the prospecting right had been countersigned by URU and the DMR due to the prolonged closure of the regional office.
  • Application in terms of Section 102 of the Mineral and Petroleum Resources Development Act of 2002 has been made to append the relevant licenses. This should enable the consolidation of the prospecting rights to enable operating efficiencies going forward.

*SP Angel acts as Nomad and broker to URU Metals

 

 

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                                                            

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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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