SP Angel . Morning View . Friday 27 09 19

Metals slip on US dollar gains as Eurozone economy slows

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MiFID II exempt information – see disclaimer below

 

Arkle Resources* (ARK LN) 0.925p, Mkt Cap £1.2m – Interim results and project update

BlueRock Diamonds* (BRD LN) 141p, Mkt Cap £4.6m – Bluerock recovers 20.72ct diamond at kareevlei in South Africa

Edenville Energy* (EDL LN) 0.0525p, Mkt Cap £2.7m – Interim results and update

Keras Resources* (KRS LN) 0.45p, Mkt Cap £11.2m – Demerger of 724m Calidus shares, fundraising and loan conversion into stock

Premier African Minerals* (PREM LN) 0.023p, Mkt Cap £2.7m – £0.22m  fund raising

Vast Resources* (VAST LN) 0.22p, Mkt Cap £21m – Vast to agree agreement between Katanga and ZCDC next week at Chiadzwa in the Marange diamond fields

 

US leads rare earth alliance (Bloomberg)

  • Nine countries have joined the US backed initiative to discover and develop rare earth metals.
  • This is an attempt to reduce China’s control of supply, which accounts for about 70% of global production of rare earths.
  • The US will share mining expertise with member countries to help them discover, develop and manage critical minerals.
  • The countries joining the United States include Australia, Botswana, Peru, Argentina, Brazil, Democratic Republic of the Congo, Namibia, the Philippines and Zambia.
    • Mkango Resources* (MKA LN)  is well placed with its Songwe Hill rare earths project in Malawi for rapid development to serve this initiative.
    • Peak Resources are looking at developing a REE project in Tanzania along with a potential new Rare Earths refinery on Teeside in the North East of England
    • Rainbow Rare Earths (RBW LN)  are working on the Gakara rare earths mine in Burundi.

*SP Angel act as nomad and broker to Mkango

 

Tesla continues to dominate the EV market (Adamas Intelligence)

  • In the first half of this year, Tesla deployed more battery power than its next three competitors combined- 11k MWh were deployed in the first half of 2019.
  • According to Adamas, Tesla’s dominance its due to strong sales of its high capacity models, which have battery capacities of 60 to 100 kWh. The global weighted-average of all EVs sold is 19.7 kWh.

 

Chad gold mine collapse leaves 30 dead (BBC news)

  • The illegal gold mine was located in the Tibesti region, which is the North Western area of Chad, near the Libyan border.
  • The area has seen a sharp rise in illegal mining in recent years, often by refugees from Sudan which has seen clashes among rival ethnic groups.
  • Accidents are more common at illegal mines due to mines not being developed as safely as mines which are regulated.  
  • IronRidge Resources* have a gold exploration program in Chad though this is well away from the Libyan border

*SP Angel act as nomad and broker to IronRidge Resources

 

Dow Jones Industrials

 

-0.30%

at

  26,891

Nikkei 225

 

-0.77%

at

  21,879

HK Hang Seng

 

-0.29%

at

  25,965

Shanghai Composite

 

+0.11%

at

   2,932

FTSE 350 Mining

 

+1.62%

at

  18,330

AIM Basic Resources

 

-0.52%

at

   2,156

 

Economics

UK - BOE MPC member hits that a rate cut may be on the cards

 

China -  top UN environmental honour given to Ant Forest, a green initiative in China

Currencies

US$1.0918/eur vs 1.0942/eur yesterday.  Yen 107.84/$ vs 107.69/$.  SAr 15.086/$ vs 15.029/$.  $1.228/gbp vs $1.235/gbp.  0.676/aud vs 0.675/aud.  CNY 7.123/$ vs  7.128/$.

Dollar continues to gain ground against Euro

  • EUR/USD is hitting its lowest since May and nearing 1.09.
  • This is fuelled partly by German import prices dropping 0.6% in August.

 

Commodity News

Gold US$1,499/oz vs US$1,507/oz yesterday

   Gold ETFs 81.0moz vs US$80.9oz yesterday

Platinum US$929/oz vs US$9929/oz yesterday

Palladium US$1,660/oz vs US$1,648/oz yesterday

Silver US$17.56/oz vs US$17.93/oz yesterday

           

Base metals:   

Copper US$ 5,730/t vs US$5,778/t yesterday - Shanghai Copper inventories fell 16.9% compared to last week (Reuters)

  • According to the International Copper Study group, the global copper supply deficit came in at 190,000 tons for the first five months of this year.
  • Global production has consistently fallen short of expectations due to mine disruptions and closures, such as Glencore shutting its Mutanda mine in the DRC (SeekingAlpha).
  • Shanghai copper warehouse stocks were down nearly 24,000 tonnes. Another metal which saw warehouse stocks drop significantly in Shanghai was aluminium, down 19,000 tonnes.

Aluminium US$ 1,740/t vs US$1,748/t yesterday

Nickel US$ 17,375/t vs US$17,240/t yesterday

Zinc US$ 2,320/t vs US$2,283/t yesterday

Lead US$ 2,103/t vs US$2,095/t yesterday

Tin US$ 16,375/t vs US$16,470/t yesterday

           

Energy:           

Oil US$62.4/bbl vs US$62.2/bbl yesterday -

  • The ongoing rebuilding of Abqaiq and lack of retaliation on Iran has served to ease the risk premium on oil prices following the much publicised drone strike two weeks ago
  • Elsewhere, US-China trade tensions and the outlook for Fed policy remain the single largest drivers of oil prices in our view.

Natural Gas US$2.422/mmbtu vs US$2.528/mmbtu yesterday

Uranium US$25.70/lb vs US$25.70/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$88.9/t vs US$87.9/t

Chinese steel rebar 25mm US$561.4/t vs US$562.0/t

Thermal coal (1st year forward cif ARA) US$66.1/t vs US$66.8/t

Coking coal futures Dalian Exchange US$182.4/t vs US$185.6/t

           

Other:  

Cobalt LME 3m US$37,500/t vs US$37,500/t

NdPr Rare Earth Oxide (China) US$44,993/t vs US$44,964/t

Lithium carbonate 99% (China) US$6,949/t vs US$6,945/t

Ferro Vanadium 80% FOB (China) US$38.3/kg vs US$38.3/kg

Antimony Trioxide 99.5% EU (China) US$5.0/kg vs US$5.1/kg

 

Battery News

 

Company News

Ferro-vanadium prices remain stable in China

  • Ferro-vanadium prices remain stable in China at US$35-38.5/kg despite some volatility in Europe (FastmarketsMB).
  • Prices for ferro-vanadium fell 1% in Western Europe yesterday.
  • The slowdown in Europe and China will be having some impact. Prices also fell by 2.7% last week in Pittsburg, USA despite better US housing starts and construction activity in general (Trading Economics).

 

Rare Earths Imports from China rise 1.2% to 452,473 kilograms in August

  • The US imported more rare earth magnets in August than in the previous three years.
  • The increase will be down to the increase in production in Tesla Model 3 cars which are now using permanent magnets and general growth in the use of permanent magnets in consumer, industrial and military applications.
  • China has preciously threatened to restrict exports of rare earths to the US as it has previously threatened with Japan.
  • China also tries to use the availability of raw material supplies combined with access to Chinese markets to persuade / coerce manufacturers into setting up facilities in China. Tesla’s new Shanghai Gigafactory and many other facilities demonstrates the policy clearly works.
  • China’s Rare Earth exports are 6.2% higher yoy according to Chinese customs data.
  • Back in 2010 when China represented some 97% of global supply the nation reduced rare earth exports by about 40% giving some manufacturers a bit of a scare though the move was principally aimed at Japan over territorial rights.
  • The World Trade Organization then acted to force China to lift its export limits in 2015..

 

China to open $30bn coal railway by end of month

  • China is to open the world’s longest heavy-duty freight line costing $30bn to haul coal mines in the north of China to the eastern and central provinces.
  • The Haoji line will have capacity of 200mt and runs for some 1,800km from Haole Baoji, in Inner Mongolia to Ji’an in Hiangxi province.
  • The line will help to feed the 1,100GW of existing coal fired power plants as well as an additional 259GW of potential new coal capacity.
  • By comparison HS2 is estimated to cost £42bn for 330 miles (531km) or £95m/km vs $17m/km in China
  • China’s high speed rail also costs between $17-21m/km while European high-speed rail costs around $25-39m/km according to the Global Construction Review.

 

 

Battery News

 

 

Company News

Arkle Resources* (ARK LN)  0.925p, Mkt Cap £1.2m – Interim results and project update

  • Arkle Resources reports a pre and post-tax loss of €0.17m for the six months until 30th June 2019 (2018 loss - €0.16m) and a 30th June cash balance of €0.15m.
  • The company refers to the apparent misalignment between relatively strong commodity prices for its main exploration target metals, zin and gold and the market performance of mineral exploration companies.
  • Referring to its 23% owned flagship Stonepark zinc project in Co Limerick the company says that “The zinc price, in excess of US$2,000 is very profitable for Irish zinc miners.  This makes the Stonepark discovery an attractive asset and some external interest has been shown.  We do not believe that the value of Stonepark is reflected in the Arkle price”.
  • “Group Eleven, our partner, believes that there is a highly prospective geological structure running across the southern part of both the Stonepark and Pallas Green discoveries.  Drilling conducted during the year was inconclusive but one hole, at Kilteely, produced good results.  Additional drilling is required.  Arkle has the right to participate in all agreed expenditure up to 23.44% or it can elect to dilute depending on the proposed programme”.
  • At the company’s wholly owned Inishowen exploration project in County Donegal, the discovery of a new target at the junction between the previously known Glentogher Fault structure and a newly recognised shear zone structure approximately 3km northwest of the historic Glentogher lead/silver mine in a 5km long zone between Glentogher and the company’s Meeneragh gold prospect was announced earlier this month. The company is currently reviewing the data and completing additional field work “before drilling”.
  • The sampling work in recent months at the company’s gold exploration in Wexford/Wicklow has yielded “encouraging” results and “More work needs to be done to identify further drill targets.  Some outside interest is being shown in the results”.

Conclusion: Arkle Resources is not unique among small exploration companies in struggling to gain market recognition, however, continuing fundamental geological exploration of both its zinc and gold projects is refining targets for future follow-up work.

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

 

BlueRock Diamonds* (BRD LN)  141p, Mkt Cap £4.6m – Bluerock recovers 20.72ct diamond at kareevlei in South Africa

  • Bluerock report the recovery of a 20.72 carat diamond at its Kareevlei diamond mine in the Kimberley region of South Africa.
  • This is the second >20 carat diamond recovered by Bluejay in recent months with the last stone 24.98 carat stone recovered in June and sold for US$190,000 in August.
  • The colour and quality of the new stone will determine its value at auction.
  • The discovery of a significant number of valuable diamonds this year indicates to us that the kimberlite pipes at Kareevlei should continue to produce diamonds of significant value on a regular basis.
  • Diamond pipes / dykes often have phases which produce differing diamond grades of varying quality diamonds which may account for the recent increase in better quality stones.
  • We prefer to think that the new management team and recent improvements to the plant and operation of the mine are responsible for the increase in the recovery of significant numbers of higher-value diamonds.

Conclusion: The identification of yet another valuable diamond at kareevlei indicates a significant increase in cash flow generation and the future value of BlueRock Diamonds.

*SP Angel acts as Nomad & Broker to BlueRock Diamonds

 

Edenville Energy* (EDL LN)  0.0525p, Mkt Cap £2.7m – Interim results and update

  • Edenville Energy, the operator of the Rukwa coal project in southwest Tanzania, reports an after-tax loss of £0.89m in the six months to 30th June 2019 (2018 loss - £0.54m).
  • Production during H1 amounted to 4,411 tonnes of washed coal product  from 18,722  tonnes of run-of-mine production and the company is targeting “a steady state production rate of 6,000 tonnes per month of washed coal product, which we believe will enable the Tanzania operations to break even”.
  • During the period, the wash plant was upgraded and is now fully operational and reported to be “enabling greater efficiency and productivity”.
  • Subsequently, mining of the Northern area has begun and “has yielded materially positive results, with thicker seams and higher quality coal than previously experienced at Rukwa”.
  • The company reports that, not only are the seams in the Northern area up to 40m thick and relatively close to the surface, which implies low waste:ore ratios, but they also “returned energy values averaging 6,200kcal/kg, with the highest being over 6,800kcal/kg.  These energy values are significantly higher than those seen in previously mined areas, which averaged approximately 5,000kcal/kg; the yielding of +6,000 kcal/kg GCV from unwashed coal provides the opportunity to sell coal without the requirement to put it through the wash plant”.
  • As expansion builds up, Edenville Energy raised a further £0.3m in September “to provide sufficient capital until the Company turns cash flow positive from operations”.

Conclusion: The start of mining in the northern area gives Edenville Energy access to thick, shallow seams of better quality coal which should help the company’s objective of achieving steady state production of 6,000tpm of washed coal product.

*SP Angel acts as Nomad and Broker to Edenville Energy

 

Keras Resources* (KRS LN)  0.45p, Mkt Cap £11.2m – Demerger of 724m Calidus shares, fundraising and loan conversion into stock

(Keras hold an 85% interst in Societé General des Mines which holds the Nayega manganese project license in Togo)

BUY, Valuation 1.08p

Click for our last full note on Keras

  • Keras Resources reports it has raised £350,000 in cash through the issuance of 87.5m new shares at 0.4p/s. The company is also converting £458,000 worth of directors loans into shares for another 114.725m new shares.
  • The total dilution from the fund raising and loan conversion represents dilution of 8.12% on the company’s total issued share capital.
  • The new cash is to cover costs associated with the distribution of Calidus shares to Keras shareholders.
  • Calidus share distribution: Keras will hold a General Meeting on 14 October detailing a proposed distribution of its 33.71% (724m shares ) in Calidus Resources.
  • Calidus shares are trading at A$0.028/s with a market capitalisation of A$60m making Keras’ shareholding worth A$20m (£11m) just over the market value of Keras’ listing on AIM in the UK.
  • Keras plan to demerge its entire 723,750,000 shareholding in Calidus and to distribute to eligible shareholders who are on the share register at 6:00pm on 19 November this year.
  • The directors are recommending the demerger to Keras shareholders on the basis that the total value for Keras shareholders should be materially increased by separating the interests in the two businesses. The ‘current deficit on distributable reserves will be eliminated, so that in future the Company will have flexibility to consider the payment of dividends and otherwise return value to its Shareholders’ and to enable better focus on the start of production from the Nayega manganese mine.
  • Nauega manganese mine: Keras continues to await the relevant permits to start larger scale mining at its Nayega manganese mine in Togo.
  • Management completed a bulk sample / trial run earlier this year and is ready to move to production of 75,000tpa of beneficiated manganese as soon as Togo issues the permits.
  • Nayega has a JORC compliant Measured and Indicated mineral resource of 11mt grading 13.1% manganese and a mineral reserve of 8.5mt grading 14.0% manganese.
  • Togo has been accredited by Moody’s with a B3 Credit rating and a single-B stable outlook from Standard & Poor putting it on a par with Ghana.
  • 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.
  • Calidus Resources: Calidus has developed a 1.25m oz gold resource at the Warrawoona gold project in Australia.
  • Warrawoona has a high-grade resource of 14.6mt grading 2.37g/t for 1.1moz and has developed a mine plan for 97,000ozpa gold mine with All in cash costs of $1,159/oz.
  • Calidus published a Pre-Feasibility Study in July with an in-house estimate NPV of A$150.7m and an IRR of 39.5% based on a gold price of A$1,800/oz (US$1,217/oz).
  • Calidus is also evaluating potential at the Klondyke gold prospect which has 2012 JORC inferred resource of 20mt grading 1.79g/t for 1.15moz of gold.
  • The PFS combined with ongoing exploration around the existing gold resources indicates to us good potential for further value creation and the development of significant gold production.
  • Valuation: our valuation on Keras is 1.08p based on the value of Calidus Resources and the value of our estimated cash flow from the Nageya manganese mine.

Conclusion: investors are in the fortunate position of being given stock equal to the entire market capitalisation of the company in Calidus Resources. While liquidity in Calidus appears insufficient to absorb substantial selling of its stock Calidus appears to be making good progress offering significant opportunity for value creation for those shareholders who choose to continue to hold the stock.

*SP Angel act as Nomad and broker to Keras Resources

 

Premier African Minerals* (PREM LN)  0.023p, Mkt Cap £2.7m – £0.22m  fund raising

  • Premier African Minerals has announced that it has raised an additional £250,000 through the placing of 1250m additional shares at a price of 0.02p/share.
  • The new shares represent approximately 11% of the enlarged capital of the company.
  • CEO, George Roach, commented that “I expect this will be the last direct placement Premier will need in advance of expectations for the exclusive prospecting order application at Zulu Lithium and Tantalum project, and the ongoing electrification at the RHA Tungsten Mine in Zimbabwe”.
  • Mr. Roach also reported “increases in production tonnage at Otjozondu Mining in Namibia and we look forward to the possibilities that a closer association with this mine will bring in the future to Premier and its shareholders”. The company has previously explained that its US$1.35m loan and evolving strategic relationship with the manganese producer, Otiozondu, are part of its strategy to diversify into cash generating assets in preference to development projects.

Conclusion: The company expects that the additional funds will carry it through to the prospecting licence for Zulu lithium and the electrification of the RHA tungsten mine.

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

 

Vast Resources* (VAST LN)  0.22p, Mkt Cap £21m – Vast to agree agreement between Katanga and ZCDC next week at Chiadzwa in the Marange diamond fields

Heritage Diamond Concession  (Block T1A, 75% profit sharing agreement)

  • Vast Resources which has the ‘Katanga’ joint venture with Chiadzwa Mineral Resources which represents the Chiadzwa Community interests is to agree to work with ZMDC (Zimbabwe Consolidated Diamond Company).
  • The agreement also settles historic claims by mutual consent.
  • Vast will update the market on the financing mechanism for the joint venture in due course
  • The deal should enable Vast to fast track the Heritage Diamond Concession alluvial diamond concession using a simple XRT sorting circuit.
  • The Marange Diamond Fields are still seen as highly prospective having supplied some 60mcts to date.
  • The Chiadzwa local community secured the mining license with the Company and will expect trial mining to start following agreement with ZMDC.
  • An independent geological assessment previously indicated highlighted the prospectivity of the concession with proximal placers draining the Marange Diamond Fields showing grades of 50-500cpht attracting average prices of $80/ct. Grades are estimated more typically to be 100-200cpht.
  • There is potential for discovery of some remnants of the basal Umkondo (conglomerate) unit in the concession, which runs at grades from 100-3,000cpht elsewhere in the Marange Diamond Fields.
  • Vast’s own projections are based on 50cpht and $60/ct suggesting the site may potentially generate $15m in revenue on expenditure of $6m per quarter in six months and cost $10m in capex..
  • The Marange diamond fields are known for their rich diamonds and have previously subjected to targeted EU Sanctions on ZMDC, the Zimbabwe state mining company. Vast is looking to mine an area at Marange that has not been previously mined by the Zimbabwe state or a Chinese military group which was said to have taken over an area of the Marange diamond fields at one stage.
  • The government evicted all diamond mining companies in 2016 including two Chinese joint venture companies from Marange after they refused to merge with ZMDC. The move may have been part of a broader  purge of Chinese companies which were seen to be exploiting Zimbabwe.
  • The Heritage concession is owned by the Marange-Zimunya Community Share Ownership Trust which has kept the concession free of exploitation and has received an undertaking from the Government of Zimbabwe for a licence to mine on the Heritage Concession.
  • The Marange diamond fields have been the subject of a Global Witness investigation uncovering evidence linking Zimbabwe’s state and partisan security forces to a decade of disappearing diamond wealth.
  • Chinese and other mining companies have been accused of syphoning value out of Marange and while much of the easy-to-mine alluvial diamonds have been mined western mining knowhow is needed for the development of more sophisticated mines.
  • Local community groups are also keen to regain control over rights to mine the Marange licenses and have invited Vast to exercise their former rights to mine certain licenses. There is no suggestion of any improper links with the military.

Conclusion:

*SP Angel acts as Broker to Vast 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

 

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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