SP Angel . Morning View . Copper prices tick up as Beijing issues IP security guidelines

SP Angel . Morning View . Monday 25 11 19

Copper prices tick up as Beijing issues IP security guidelines

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MiFID II exempt information – see disclaimer below 

Arkle Resources* (ARK LN) – Considering options for Stonepark

Condor Gold (CNR LN) – Metallurgical test results confirm PFS findings

KEFI Minerals* (KEFI LN) – Tulu Kapi development update

Kodal Minerals* (KOD LN) – Approval of ESIA for Bougouni project

Ormonde Mining* (ORM LN) – Initial concentrate sales from Barruecopardo

Rainbow Rare Earths (RBW LN) – Drill results at Kiyenzi show hi-grade Rare Earth Oxides in significant intersections

Scotgold Resources* (SGZ LN) – Clarification on the exploration programme

SolGold* (SOLG LN) – BHP to invest $22m into SolGold

 

Dow Jones Industrials		+0.39%	at	27,876
Nikkei 225		+0.78%	at	23,293
HK Hang Seng		+1.50%	at	26,993
Shanghai Composite		+0.72%	at	2,906
FTSE 350 Mining		+1.44%	at	18,593
AIM Basic Resources		-0.37%	at	2,106

 

Economics

US – Equities are trading higher this morning along with copper and oil on the back of US-China trade deal optimism.

• On Sunday, Beijing issued guidelines on strengthening IP safeguards describing the measures as “the biggest incentive to boost China’s economic competitiveness, FT reports.
• The news raised investor hopes that two sides are moving closer towards the Phase One agreement.

 

Germany – Business sentiment ticked up in November, although, the outlook remains weak, according to the Ifo Institute.

• The economy expected to grow 0.2% this quarter, an improvement from 0.1% pace in the previous three months.
• Ifo Business Climate: 95.0 v 94.7 (revised from 94.6) in October and 95.0 forecast.
• Ifo Expectations: 92.1 v 91.6 (revised from 91.5) in October and 92.5 forecast.
• Ifo Current Assessment: 97.9 v 97.8 in October and 97.9 forecast.

 

UK – PM Johnson presented the party’s 59-page manifesto as the nation prepares for snap elections next month.

• Conservatives promise to “get Brexit done” by the end of January and then negotiate a new trade with the EU by the end of 2020.
• This is expected to be followed by striking trade deals with the US, Australia, New Zealand and Japan within three years, a schedule viewed by many trade experts as optimistic.
• The Brexit withdrawal agreement is promised for the Parliament before Christmas.
• The party pledged not to increase income tax, national insurance or VAT.
• Borrowing is expected to be limited with the budget forecast to remain in balance.

 

Hong Kong – Pro-democracy candidates secure the majority of seats in local elections delivering a blow to pro-establishment forces that support Beijing.

• 17 of the 18 district councils are now controlled by pro-democracy councillors.
• The election was an unprecedented turnout of more than 71%.
• While councillors get to choose only 117 of their number to sit on the 1,200 member committee that elects Hong Kong’s chief executive, it looks like that all of those will go to pro-democracy candidates.
• The landslide victory is viewed by many as a sort of referendum on the Ms Lam and her administration initiatives that led to a series of wide and prolonged protests.
• Next election of the HK leader is scheduled for 2022.

 

Currencies

US$1.1017/eur vs 1.1061/eur last week.  Yen 108.85/$ vs 108.55/$.  SAr 14.697/$ vs 14.628/$.  $1.288/gbp vs $1.288/gbp.  0.679/aud vs 0.679/aud.  CNY 7.035/$ vs  7.039/$.

 

Commodity News

Gold US$1,459/oz vs US$1,472/oz last week - Billions of dollars’ worth of gold smuggled out of Africa every year (Reuters)

• Reuters analysis has found that gold worth billions is being smuggled out of Africa through the United Arab Emirates.
• The UAE imported $15.1bn worth of gold from Africa in 2016, up from $1.3bn in 2006. The total weight of imports in 2016 was 446t, more than any other country.
• Gold not recorded in the exports of African states is mined artisanally, making it difficult to put an exact figure on the total value that is leaving the continent.
• Reuters compared total imports from the UAE with the exports declared by African states which showed that gold was entering the country through unknown sources. Furthermore, industrial mining firms in Africa told Reuters that they did not send their gold to the UAE.
• From 2006 to 2016, African gold in UAE’s reported gold imports increased from 18% to 50%, despite no big industrial companies saying that they send their gold there.
• The report also highlighted the environmental issues associated with illegal mining, such as using toxic chemicals to boost yields, which is then returned to rivers.
• Strong gold prices driven by investment demand and Indian jewellery has fuelled the boom in illegal mining.
• No UAE refineries are accredited by the London Bullion Market Association, the standard setter for western markets, because the body is “not comfortable dealing with the region”.
• The Dubai Multi-Commodities Centre (DMCC) say that they have firmed up a standard for refineries over the past 12 months, and now demand export certificates. However, the head of commodities at the DMCC said that a “very limited” number of refineries accept gold that has been imported as hand luggage.
• Whilst Dubai is trying to regulate the gold industry, African countries including Ivory Coast and Ghana are trying to reduce their informal mining operations, such as by sending security forces in to halt operations.

   Gold ETFs 81.0moz vs US$81.0moz last week

Platinum US$894/oz vs US$913/oz last week

Palladium US$1,786/oz vs US$1,776/oz last week

Silver US$16.90/oz vs US$17.21/oz last week

           

Base metals:   

Copper US$ 5,891/t vs US$5,850/t last week

Aluminium US$ 1,742/t vs US$1,741/t last week

Nickel US$ 14,535/t vs US$14,285/t last week - Philippine nickel miners and Chinese battery makers sign pact for strategic cooperation (Bloomberg)

• This agreement could potentially lead to collaboration within the nickel space by sharing information on policies, trading and investment for nickel ore, which will impact battery production for EVs.
• Nickel is a battery metal which is set to see a surge in demand as EVs become more popular.
• The metal is used ibn the battery’s cathode, and could experience a greater increase in demand than other battery metals due to the change in preference to 811 NMC batteries, which contain eight times more nickel than manganese and cobalt (Adamas Intelligence).

Zinc US$ 2,304/t vs US$2,289/t last week

Lead US$ 1,958/t vs US$1,972/t last week

Tin US$ 16,300/t vs US$16,445/t last week

           

Energy:           

Oil US$63.5/bbl vs US$63.9/bbl last week

Natural Gas US$2.608/mmbtu vs US$2.570/mmbtu last week

Uranium US$25.95/lb vs US$26.00/lb last week

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$86.5/t vs US$85.1/t

Chinese steel rebar 25mm US$612.5/t vs US$608.1/t

Thermal coal (1st year forward cif ARA) US$65.0/t vs US$64.7/t - Chinese coal consumption continues to increase (mining.com)

• Whilst coal’s share of the country’s total energy has fallen from 68% in 2012 to 59% last year, absolute consumption has continued to rise in line with overall energy demand.
• According to a report by Global Energy Monitor, Chins is set to fire up enough coal-based power to match the entire capacity as the EU, currently at 149 GW.
• The 148 GW of coal fired power stations which are being built or about to begin construction is also higher than the combined 105 GW under construction across the rest of the world.
• This news comes after China vowed to limit the use of coal and cancelled over 100 coal power projects less than four years ago.

Coking coal futures Dalian Exchange US$187.5/t vs US$186.9/t

           

Other:  

Cobalt LME 3m US$36,000/t vs US$36,000/t

NdPr Rare Earth Oxide (China) US$40,440/t vs US$40,050/t

Lithium carbonate 99% (China) US$6,610/t vs US$6,675/t

Ferro Vanadium 80% FOB (China) US$29.5/kg vs US$29.5/kg

Antimony Trioxide 99.5% EU (China) US$5.2/kg vs US$5.2/kg

Tungsten APT European US$225-245/mtu vs US$225-245/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

 

Company News

Arkle Resources* (ARK LN)  1.325p, Mkt Cap £1.8m – Considering options for Stonepark

• Arkle Resources reports that “following interest in the Company’s Stonepark Zinc Project by other industry participants” its Board has initiated a formal review to consider the options for Arkle Resources’ 23.44% interest in the project.
• The Stonepark project lies south-east of the Glencore Pallas Green deposit which contains a resource of 45mt at an average grade of 8% combined lead and zinc. Initial drilling at Stonepark has outlined an inferred resource of 5.1mt at an average grade of 11.3% combined lead and zinc and recent analysis of the Irish Geological Survey’s “Tellus” airborne geophysical survey has identified additional exploration targets underlying Stonepark where Arkle Resources is in joint-venture with Canadian listed Group Eleven Resources.
• Elaborating on the rationale for the review, CEO, Patrick Cullen, expressed optimism for a “major discovery along the ‘Pallas Green Corridor’ … [and expressed the view that] … The southern part of the project block is sparsely explored and our recent drilling there has revealed the potential for further discovery”.
• Mr. Cullen also confirmed that the geophysical data “is assisting in refining the new targets as well as revealing newly prospective features in this area of the Stonepark block”.
• As well as its interest in the project, Arkle Resources holds rights to the offtake from 23.44% of any future production at Stonepark and also has other exploration projects in Ireland, notably its gold exploration in southeast Ireland, and its Oldcastle exploration joint venture with Teck for zinc.

Conclusion: The review of Stonepark is timely in the light of the new geophysical information. We imagine that the review will weigh the relative merits of continuing involvement with Stonepark compared to using it in some form to help fund the other projects. We await the outcome of the review with interest.

*SP Angel is Nomad and Joint-Broker to Arkle Resources

 

Condor Gold (CNR LN)  20.25p, Mkt Cap £19.2m – Metallurgical test results confirm PFS findings

• Condor Gold reports final metallurgical test results for its La India, and the satellite Mestiza and America deposits in Nicaragua.
• The results, prepared by  the SGS laboratory in Canada, “corroborate the initial findings on the abrasion, ball mill and SAG mill work indices as presented in the 2014 prefeasibility study (PFS)”.
• The results confirm  the PFS estimate of 91% gold recovery from La India  as well as demonstrating that the America and Mestiza samples are similarly comparable to the original metallurgical results, and clearly show that the satellite pits will be amenable to treatment through the proposed CIL or CIP flowsheet.
• Last week, the company announced that it had submitted applications for environmental approval of the development of the Mestiza and America satellite pits which contain around 200,000t of high grade mineralisation at an indicated grade of around 10g/t gold which “has the potential to increase annual production from open pit material by 50% to 120,000 oz gold p.a. for a seven year life of mine”.
• Commenting that the additional tests for the proposed satellite pits had not been part of the original PFS suite of tests, Chairman, Mark Child, explained that “The studies are essential as we finalise the size of the processing plant ahead of a construction decision”.
• He also commented that “The most recent iteration of metallurgical studies represents the latest of Condor's efforts to expand the district-wide potential of our concession package, while further de-risking the Project. The consistent amenability of the district ores to the planned CIP processing plant lends further evidence that the Project can achieve higher throughput for a longer period of time than has been considered in our previous studies.”

Conclusion: Confirmation of the PFS metallurgical results should provide additional confidence in the final process plant flowsheet fo the La India plant.

 

KEFI Minerals* (KEFI LN)  1.55p, Mkt Cap £15.5m – Tulu Kapi development update

• Tulu Kapi Gold Mines, a subsidiary of KEFI and an owner of the mining license, carried an official launch ceremony with regards to the Tulu Kapi gold project at the Second International Ethiopian mining Conference and Exhibition.
• The announcement highlights the project is ready for the start of development supported by all consortium members including the Government of Ethiopia at all levels.
• Following the resolution of internal Ethiopian Government administrative issues as announced earlier all equity partners (KEFI, ANS Mining, Government) are in the process of finalising of equity subscriptions that are expected to take some weeks to complete and once done will see the investment of development funding.
• The Company mentions few changes to the planned $20m and $38 equity contributions from the government and ANS Mining, respectively, including:
  • The government may be at liberty to allocate its holdings in the project between wholly-owned Government entities to reinforce social license;
  • ANS Mining is looking to invest $15.2m in the first tranche up from $11.4m that would be split into two sub-tranches being $9.5m to be released upon short term closing and $5.7m to follow in due course.
• Additionally, the TKGM has recently received a bank-based project financial proposal and a term sheet by leading African banks as a competitive alternative to the infrastructure bond option.

*SP Angel act as Nomad and Broker to KEFI Minerals

 

Kodal Minerals* (KOD LN)  9.5p, Mkt Cap £4.4m – Approval of ESIA for Bougouni project

• Kodal Minerals reports that the Environment Minister in Mali has approved the Environmental Permit for the development of the Bougouni Lithium Project.
• We note that, in early October, the company lodged additional documents in support of its application and that at that time the company explained that it expected formal approval within a statutory approval period of 45 days.
• CEO, Bernard Aylward, commented that the ministerial approval “recognises the excellent work of our technical team and consultants and our continued strong relationship with the Mali Government and local communities.”
• The Bougouni Lithium Project contains an indicated mineral resource estimate of 11.6mt at an average grade of 1.13% Li₂O and an additional inferred resource of 9.7mt at an average grade of 1.08% Li₂O.
• The deposit is expected to be developed as a 1mtpa open pit mine operation producing an average of around 130,000tpa of concentrates over a minimum 10 years mine life. Order of magnitude estimates available on the company’s July 2019 presentation indicate all in capital costs of around US$70m to develop  a 1.5mtpa processing plant.

Conclusion:  Kodal Minerals acquired the Bougouni Lithium Project in southern Mali in late 2016, reported an updated mineral resource estimate in February 2019  and has now secured the environmental approval for mine development

*SP Angel acts as Financial Adviser and broker to Kodal minerals

 

Ormonde Mining* (ORM LN)  2.2p, Mkt Cap £10.4m – Initial concentrate sales from Barruecopardo

• Ormonde Mining reports that it has completed initial sales of tungsten trioxide concentrate as it continues to ramp up production to the design rate of 260,000 metric tonne units (mtu) at the Barruecopardo mine in Salamanca.
• The company also reports on the progress of its mine development saying that “initial access to the south end of the main orebody, which had been anticipated early in the fourth quarter, has been delayed due to the discovery of old, backfilled, undocumented mine workings within the southern starter pit, where high grade tungsten mineralisation had been expected”.
• It appears that the current mining work has now “reached the base of these workings at their southern end and ore grades from this initial exposure of the main ore-zone are now expected to improve accordingly” and that as “mining advances northwards, the ore depletion arising from the old workings will continue to have an impact on ore feed grades until mining reaches the continuous section of the high grade main orebody below the historic pit, which is proven by drilling”.
• The local operating company, Saloro, is updating its mining plan to accommodate the impact of the old workings on its waste stripping programme on the eastern wall cut-back which opens up the full strike extent of the main orebody.
• Welcoming the initial concentrate sales as “an important milestone”, Chairman and Interim Managing Director, Michael Donoghue, commented that “The commencement of related revenues is a positive for Saloro and the mine and these are expected to ramp-up as the transition into the main orebody continues over the coming period."
• The current price of the benchpark intermediate ammonium paratungstate product has been steady at US$225/245 per mtu since early October.

Conclusion: Initial concentrate sales from Barruecopardo indicate that the new plant is producing concentrates to a marketable specification and that the operation can now build production to the planned 260,000mtu rate. The impact of the undocumented historic workings now seems to be largely passed although mining schedules and mine plans are being adjusted to accommodate the effect.

*SP Angel acts as Broker to Ormonde Mining

 

Rainbow Rare Earths (RBW LN)  3.05p, Mkt Cap £11.6m – Drill results at Kiyenzi show hi-grade Rare Earth Oxides in significant intersections

• Rainbow Rare Earths reports results from drilling at its Kiyenzi Rare Earths project in Burundi.
• Another >1,000m of drill core has been sent for analysis.
• Results will be used to estimate a new Mineral Resource Statement for new mine planning
• The first two boreholes sampled show:
  • 13.87m @4.85% TREO ‘Total Rare Earth Oxides’ from 17.7m down hole excluding a 6.75m section of core grading 0.58%
    • Including: 0.20m @ 45.79%, 1.32m @ 4.99%, 0.17m @ 30.47%, 0.15m @ 33.11%, 0.15m@ 26.52%, 0.17m @ 19.10%, 0.22m @ 13.7%, 0.12m @ 23.29%,
  • 11.64m @ 3.86% TREO 12.45m down hole excluding a 24.81m section of core grading 0.58%
    • Including: 0.38m @ 10.96%, 0.42m @ 9.13%, 1.05m @ 3.05%, 0.30m @ 11.41%, 0.27m @ 11.78%, 0.70m @ 4.51%, 0.90m @ 3.34%, 0.90m @ 3.15%, 0.17m @ 13.62%, 0.14m @15.39%
• Rainbow drilled 30 holes last year covering 1,428m on a lose 25m grid.
• This drill program was shallow to an average depth of just 44m with the exception of one hole down to 150m.
• ‘The first two diamond core holes, 29 and 31, have been analysed and show continuous mineralisation from first mineralisation strike (both of which were at shallow depths)’.
• While the headline intersections each exclude lower grade sections we see these as representative of the grade to be recovered on selective mining / ore sorting.
• Rainbow has been mining the Gakara rare earth mine in recent years recovering 47-67% TREO making this the world’s highest-grade rare earth mine.
• George Bennett, now leads the team in improving the mining operations at Gakara and surrounding deposits.
• Bennett was former CEO of MDM Engineering which he listed on AIM and later sold to Foster Wheeler for $120m.
• George is leading the drive for more effective and efficient mining at Gakara with potential to expand the Gasagwe mining area to include the Murambi deposit next to Gasagwe and within the same mining area.
• Rainbow is evaluating rare earth resources within its license area to work out the optimal method for more efficient mine production and to return the mine to profit.
• Rainbow typical concentrates show magnet REEs accounting for ~19% of the contained REOs within the ore and >80% of the contained value of REOs and account for 70% of annual global REE sales due to their use in vital components in motors, generators, wind turbines, and electric vehicles.
• Bennett is overseeing the move to a more mechanised and efficient operation to include mineralisation which is seen to be present between high-grade veins and a pre-concentration stage in ore processing. This may include the instillation of a scrubber, DMS and spirals close to the new and reworked mines depending on the results of ongoing test work.
• Mining continues at Murambi with new equipment for more mechanised mining expected to deliver significant cost savings with breakeven profitability expected by January.

Conclusion: Rainbow is pressing ahead with evaluation of its mine sites, license area and plan to restore the mine to profitability. We expect more good news on drill and operational results over the next few months.  

*SP Angel act as financial advisor and broker to Rainbow Rare Earths

 

Scotgold Resources* (SGZ LN)  71p, Mkt Cap £34.8m – Clarification on the exploration programme

BUY – Target Price 88p

• In FY19 accounts, the Company provided “proposed” numbers for minimum exploration spend and license fees provided to the Crow Estate Scotland in Dec/18 as part of an application to exchange five existing mining licenses for thirteen new licenses.
• This included A$5.9m in such expenditures over the next 12 months and A$16.4m in total over the next five years.
• The clarification follows speculation in a media source that such exploration expense risks the Company’s liquidity position and may potentially challenge Cononish development schedule.
• The Company highlights the numbers provided in FY19 accounts are only estimates provided at the time of application that the Company is not contractually obliged to spend.
• The only amount the Company is contracted to pay is a ~A$0.1m license fee per annum.
• Exploration budgets are subject to change and to be based on the available cash resources available to the Company with FY20 budget currently anticipated at A$0.5m, for example, compared to A$0.6m spent in FY19.
• The Company further highlights that the amount of exploration expenditure is a relevant consideration as to the granting and retention of licenses but it is one of many and not determinative.
• The Cononish project remains fully funded to the first production currently anticipated to at the end of Feb/20.

*SP Angel acts as Nomad and Broker to Scotgold Resources

 

SolGold* (SOLG LN)  21.6p, Mkt cap £399m – BHP to invest $22m into SolGold

• BHP has agreed invest US$22m into SolGold.
• BHP may also provide secondees to help with the feasibility study at the Cascabel project in Ecuador.
• The secondees may also help in the regional exploration effort.
• There is also a standstill agreement whereby BHP will not acquire more shares or make an offer for the company for two years without the permission of the SolGold board.

Conclusion: The involvement on BHP technical staff into the project may prompt Newcrest into making an offer for the business.

*SP Angel act as Financial Advisor and broker to Solgold

 

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

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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