SP Angel – Morning View – Monday 16 09 19

Oil attack in Saudi lift Gold on rising Geopolitical risk

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MiFID II exempt information – see disclaimer below

 

Amur Minerals* (AMC LN) – Kun Manie project update

AfriTin Mining* (ATM LN) – Maiden JORC resource at Uis tin mine

Petra Diamonds (PDL LN) – Annual results for year to 30th June

Phoenix Copper* - formerly Phoenix Global Mining (PXC LN) – Interim results and project update for Empire oxide project

Savannah Resources* (SAV LN) – £5m fund-raising

Solgold* (SOLG LN) – Solgold helicopter accident in Ecuador kills two

 

The World Changed when Drone attacks knocked out 5.7mbopd

Gold rises on greater geopolitical rise but copper falls on worsening economic outlook

  • Iran is being blamed for fighting a proxy war against its enemies indicating that Iran will suffer further sanctions for its support if Yemeni rebel groups.
  • Rising oil prices will slow the global economy and will further raise inflation in China which is already suffering 10% yoy food inflation in August.
  • Policy makers will likely respond with further cuts to interest rates and new Quantitative Easing measures.
  • The Saudi Arabian drone attacks used sophisticated, explosive heavy drones deliberately targeting critical Saudi Aramco infrastructure
  • They were not the first drone strikes either indicating that drone strikes are hard to stop.
  • Saudi Aramco is reported to have lost around 5.7m barrels per day of production on Saturday after 10 unmanned aerial drones hit the world’s largest crude-processing facility in Abqaiq and the nation’s second largest oil field in Khurais.
  • This accounts for more than half of the 9.8m barrels the nation used to run at before the attack and is around 5% of the global supply.
  • Brent prices posting the strongest intraday jump since 1990 Kuwait invasion and hitting around $72/bbl.
  • Saudi Arabia can restart a significant volume of the halted oil production within days, but needs weeks to restore full output capacity (Bloomberg).
  • The US blamed the attack on Iran saying forces are “locked and loaded depending on verification” that the country staged the attack.
  • Iran denied US accusations that It was behind Saturday’s strikes.
  • This morning, Yemen’s Houthi movement said that Aramco’s oil processing plants remain a target and could be attacked at “any moment”, warning foreigners to leave the area, according to the Houthi military spokesman Yahya Sarea twitter account.
  • Save haven assets including gold and US Treasuries futures gained on concerns over risks of rising geopolitical tensions.
  • Meanwhile, currencies of commodity linked nations also climbed with Canadian dollar, Norwegian krone and Russian rouble trading higher this morning.

 

Dow Jones Industrials

 

+0.14%

at

27,220

Nikkei 225

 

closed

 

21,988

HK Hang Seng

 

-1.03%

at

27,071

Shanghai Composite

 

-0.02%

at

3,031

FTSE 350 Mining

 

-0.72%

at

19,003

AIM Basic Resources

 

-0.93%

at

2,179

 

Economics

US – China agreed to exclude some agricultural products from additional tariffs on US goods including pork and soybeans in the latest sign of easing Sino-US tensions before a new round of negotiations.

  • China raised the total duty on US pork imports by 60pp to 72% in three steps including 25pp hikes in April and July 2018 as well as a 10% increase this month.
  • For soybeans, additional tariffs of 25% in July 2018 and 5% this month lifted the total duty from 3% to 33%.
  • Fed meeting is an eagerly awaited event this week with expectations for the FOMC to announce the second rate cut on Wednesday.

 

China – Weak economic data released this morning adds pressure for policy response.

  • Industrial production climbed 4.4%yoy in August marking the lowest single month reading since 2002.
  • Retail sales also came in below expectations.
  • Fixed asset investment slowed to 5.5% in the first eight months, with the private sector lagging state investment for the 6th month.

 

Japan – Markets are closed for national holiday (Respect-for-the-aged Day) on Monday.

  • The BoJ monetary policy decision is on Thursday, followed by a press conference from Governor Haruhiko Kuroda.
  • The central bank is expected to keep its forward guidance unchanged (short term rate at -0.1% and 10y JGB target at around 0%, within a band of +/- 0.2pp).
  • The BoJ is likely to keep its QE programme unchanged with annual purchases of government bonds at JPY 80tn, ETF at JPY 6tn and J-REIT at JPY 90bn.
  • The balance sheet stood at JPY 575tn as of September or 105% of the national GDP.

 

UK – PM Johnson is scheduled to meet EC President in the first face-to-face meeting in the capacity of the head of the government at the start of this week.

  • The pound is off against the US$ this morning as UK PM is expected to reject any further extension to the Brexit deadline of 31 October, 2019.
  • PM said in the Daily Telegraph that he is determined to strike a deal, but he’s also ready to defy a new law designed to stop him forcing the UK out of the EU with no deal next month, Bloomberg reports.

 

Japan – closed for public holiday (Respect for the Aged Day today)

  • Today Japanese companies have a day off to Respect their older partners and employees.

 

Currencies

US$1.1078/eur vs 1.1097/eur last week.  Yen 107.85/$ vs 107.99/$.  SAr 14.665/$ vs 14.552/$.  $1.246/gbp vs            $1.243/gbp.  0.688/aud vs 0.688/aud.  CNY 7.069/$ vs 7.079/$.

 

Commodity News

Gold US$1,504/oz vs US$1,505/oz last week - Gold rises 1% this morning in response to Saudi Arabia’s oil facility attack (reuters)

  • Gold prices jumped 1% at $1,503.60/oz on Monday morning as the attack on Saudi Arabia’s oil facilities has drawn investors to safe haven assets.
  • With political uncertainty escalating in the middle east, gold could see further improvements in price as investors seek to reduce risk.
  • Silver saw an even greater surge in price, rising 2.96% to $17.94/oz.

   Gold ETFs 78.8moz vs US$79.0moz last week

Platinum US$956/oz vs US$955/oz last week

Palladium US$1,625/oz vs US$1,610/oz last week

Silver US$17.88/oz vs US$18.15/oz last week

           

Base metals:   

Copper US$ 5,920/t vs US$5,892/t last week

Aluminium US$ 1,811/t vs US$1,798/t last week - Chinese aluminium output falls due to unexpected smelter outages (reuters)

  • Chinese primary aluminium output in august fell 0.5% in August from the previous month due to unexpected outages at two key smelters, according to the National Bureau of Statistics.
  • China produced 2.97 million tonnes of aluminium last month, down from the 2.984 million tonnes it produced in July, still making it the world’s top producer.
  • China’s top two private sector smelters, China Hongqiao Group and Xinfa Group experienced smelting issues which restricted production and sent Shanghai aluminium prices above $1,978/t.
  • The price improvement is an incentive for other smelters to ramp up production, however this is proving slower than expected due to being costly and time consuming for smelters to shut down and re-open.  

Nickel US$ 17,235/t vs US$17,560/t last week

Zinc US$ 2,394/t vs US$2,366/t last week

Lead US$ 2,111/t vs US$2,091/t last week

Tin US$ 16,825/t vs US$17,200/t last week

           

Energy:           

Oil US$65.4/bbl vs US$60.2/bbl last week -

Reports over the weekend of an armed drone strike at two of Saudi Arabia’s major oil facilities has sent shockwaves through global energy and stock markets. Saudi’s Energy Minister has now confirmed that the strikes have hit oil production by 5.7MMbopd – c.50% of the reported 12MMbopd currently produced by the Kingdom.

These coordinated attacks focused on two key Saudi Assets, including its largest oil processing facility, Abqaiq, located 60km south-west of Dhahran in Saudi Arabia's Eastern Province, and Khurais, 200km further south-west, which is the country's second largest oilfield.

What does this mean for the oil price?

These attacks will have a severe knock on effect on global energy prices, as traders’ price-in significant disruption to global oil supply, in addition to considerable future uncertainty. The Khurais oilfield produces c.1% of the world's oil, and Abqaiq is the country’s largest facility, with the capacity to process 7% of global supply.

US Secretary of State, Mike Pompeo, has publicly pointed the finger squarely at Iran as being squarely to blame for the attacks, and therefore further uncertainty will be placed on the 4MMbopd currently produced by Iran – the world’s fifth largest producer. In addition, the attacks raise further uncertainties over escalating tensions covering other critical geographical infrastructure, notably the Strait of Hormuz, where a fifth of the world's supply is transported.

Therefore, today’s surge in oil prices merely represents the first chapter of this multi-faceted story for the energy markets in our view. We also believe that sustained increases in energy prices in the short-to-medium term will serve to cannibalise recent fragile global economic growth, with subsequent inflationary increases across all geographies.

As such, we will not be surprised to see US$80 oil hitting the screens soon.

What next for Aramco?

Aramco, the world’s largest oil company, has been seeking a widely anticipated international listing for the past three years as the Kingdom looks to diversify its economic reliance away from global energy markets. Clearly, the recent attacks on its flagship assets will serve to considerably dampen investor appetite in the company given the heightened geopolitical risks in the region. The reported US$1.5 – US$2 trillion valuation now looks to be a dream rather than a reality in our view, and Saudi’s government will have an almost impossible task in reversing the considerable risk premium that will be imposed on any future valuation.

Aramco has been quick to play down the overall disruption to oil supply from Abqaiq, confirming that the plant will be up and running again in a matter of weeks. They also have the benefit of considerable oil stores from which they can draw from (three in Saudi, one in each of Japan, Netherlands, and offshore Egypt). However, we remain sceptical of this rose-tinted view of the global energy markets. Investors will be pricing in the significant uncertainty of the global energy supply/demand dynamic, and additional energy disruption through further sanctions on Iran and the high probability of retaliatory attacks in the Middle East.

As such, for now, we anticipate that Aramco will have to put a pin in any near-term international listing.

 

Natural Gas US$2.643/mmbtu vs US$2.583/mmbtu last week

Uranium US$25.05/lb vs US$24.90/lb last week

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$96.3/t vs US$94.7/t - Vale partially suspends production at Brucutu iron ore mine (mining.com)

  • Brazil’s mining authority has ordered Vale to halt operations at part of its Brucutu iron ore mine, the largest in Minas Gerais state and the company’s second biggest, behind Carajás.
  • According to the National Mining Agency (ANM), production was partly halted due to the iron ore producer exceeding the mineral reserve limit approved for the exploration area in question.
  • However, Vale says this partial suspension will not affect iron ore production at the mine which has an annual capacity of 30 million tonnes of iron ore, and the miner reaffirmed its projected sales of iron ore and pellets of 307 million tonnes to 332 million tonnes for 2019.

Chinese steel rebar 25mm US$565.4/t vs US$562.3/t

Thermal coal (1st year forward cif ARA) US$70.0/t vs US$68.3/t

Coking coal futures Dalian Exchange US$211.5/t vs US$236.9/t

           

Other:  

Cobalt LME 3m US$36,500/t vs US$36,500/t

NdPr Rare Earth Oxide (China) US$46,750/t vs US$46,689/t

Lithium carbonate 99% (China) US$7,073/t vs US$7,063/t

Ferro Vanadium 80% FOB (China) US$38.5/kg vs US$38.7/kg

Antimony Trioxide 99.5% EU (China) US$5./kg vs US$5./kg

Tungsten APT European US$195-205/mtu vs US$195-205/mtu

 

Battery News

Bolivia - Bolivia is ramping up production of lithium in response to soaring global demand driven by the rise of electric vehicles.

  • The Uyuni Salt Flat is one of the world’s largest lithium reserves which Bolivia aims to exploit, as the country sits on the edge of South America's "lithium triangle”.
  • However, Bolivian lithium is higher in altitude, not as dry, and contains more magnesium (Mg) and potassium than in neighbouring Chile, making the extraction process significantly more expensive and complicated.
  • The Llipi processing plant is due to completed next year, which will have an annual production capacity of 15,000 tons of lithium carbonate.
  • This development is a result of the formation of state company Yacimientos de Litio Bolivianos (YLB) in 2008, who aim to make Bolivia the fourth-largest producer by 2021.
  • YLB have teamed up with ACI Systems of Germany and Xinjiang TBEA Group of China.

 

Company News

Amur Minerals* (AMC LN)  2.7p Mkt Cap £20m – Kun Manie project update

  • The Company updated the market on the status of the Kun Manie nickel/copper project located in a Far East of Russia.
  • The information to be included in the TEO will also form part of the western DFS that will be progressed in parallel with the TEO.
  • The Company engaged Oreol, a Moscow based consultancy, to compile the TEO and GKZ approved reserves.
  • The team handed over the exploration data including the latest 2018 field season results that have not been included in the latest JORC Resource update.
  • As such, the Company expects a considerable upgrade to the resource and reserve inventory when 2018 drilling results are incorporated into estimates.
  • Operationally, the team spent most of the year defining the project specification, agreeing contracts, collecting information for inclusion in the TEO and defining the Critical Path for the project.
  • Metallurgical testwork and flowsheet design programmes have been agreed and are due to start shortly.

*SP Angel act as Nomad and Broker to Amur Minerals

 

AfriTin Mining* (ATM LN)  – 3.3p, Mkt cap £21m – Maiden JORC resource at Uis tin mine

AfriTin holds 85% of the Uis tin project in Namibia with the remaining 15% owned by The Small Miners of Uis (SMU).

(Bushveld Minerals* holds 8% of AfriTin)

  • AfriTin report a maiden JORC resource from its new Uis tin mine in the Erongo district of Namibia.
  • JORC resource: 71.54mt grading 0.134% tin, 85ppm (g/t) tantalum, 0.63 % Lithium Oxide containing:
    • 95,539t of in-situ tin (Measured, Indicated and Inferred);
    • 6,091t tantalum – inferred only;
    • 450,265t lithium oxide (Li2O) – inferred only.
  • Assumptions:
    • Cut-off grade of 0.05% tin for the Uis Tin Mine V1 and V2 pegmatites;
    • The pit shell is done on sales multiple of 1.5x using an average tin price of USD 20,000/t, vs a 2x multiplier as normally used;
    • Ore losses and mining dilution were set at 5%;
    • Pit slope angles were assumed to be 50°;
    •  metallurgical recovery of Sn assumed at 80%;
    • Production of a 60% tin concentrate;
    • Mining, Treatment, G&A and Sales Costs supplied by AfriTin and reviewed for reasonableness by CSA Global;
  • The reported Mineral Resources are constrained by a Whittle-derived pit shell with project economics done on the value of the tin only. 
  • Data from 4,436m of drilling in 26 new drill holes confirms information from 15,002m taken from 141 drill holes drilled by ISCOR in 1989, the South African steel group, which assayed just for tin.
  • Assays done on the by-product tantalum and lithium are not of sufficient details and are reported as Inferred Mineral Resources.
  • Afritin announced produced its first tin concentrate from the Uis tin mine in August
  • Now sufficient resource has been confirmed the team will look to progress to Phase 2 of their development plan
  • Phase 1:  Pilot plant - 500,000tpa for 720t of tin concentrate per month
  • Having successfully produced initial tin concentrates, Afritin is now building up plant throughput to 500,000tpa by the year.
  • Phase 2:  3mtpa plant -  5,000tpa of tin concentrate containing approximately 60% tin on an 85% recovery rate.
  • Dense Media Separation plant is being used and tested in the pilot plant for the upgrading of low-grade tin for further processing into a saleable tin concentrate.
  • Recoveries of tin are estimated to be 71%-91% in Stage 2 of the process.
  • Offtake with Thaisarco, (Thailand Smelting and Refining Co., Limited) for 12-months offtake with concentrate transshipment through Walvis Bay.
  • Debt facility: Nedbank agreed a N$35m (approximately £2m) working capital facility as well as an N$8m (approximately £465,000) VAT facility with its Namibian subsidiary Afritin Mining Namibia in August. Bushveld Minerals have offered surety for the loan to Nedbank

Conclusion: AfriTin’s maiden JORC resource at its Uis tin mine in Namibia to press ahead and plan for Phase 2 of its tin mining project.

*SP Angel acts as nomad and broker to Bushveld Minerals which listed AfriTin on AIM and still holds a meaningful stake in AfriTin.

 

Petra Diamonds (PDL LN)  7.4p, Mkt Cap £64.0m – Annual results for year to 30th June

  • Petra Diamonds reports a net after tax loss of US$258.1m during the year to 30th June 2019 (2018 – loss of US$203.1m) – in line with the company’s guidance range of 3.8-4.0m carats.
  • The company reports net debt at 30th June 2019 of US$541m “as compared to US$554.9m as at 31st December 2018 and US$445.7m as at 30th June 2018.”
  • The result partially reflects a non-cash impairment charge of US$246.6m “largely driven by more conservative rough diamond pricing estimates, based on prevailing market conditions and a more conservative outlook on future price growth, impacting the carrying values of all operating assets (FY 2018: US$66.0 million for Koffiefontein).”
  • The company is maintaining its FY2020 production guidance of 3.8m carats of diamond production and indicating that expected capex of US$43m in FY 202 continues “the declining trend since peak Capex was reached in FY 2016. FY 2020 Capex is ca. US$29 million lower than previous guidance, with a focus to close out the existing expansion programmes.”
  • Commenting on the diamond market, the company indicates that sales in the September tender were down “4% on a like-for-like basis compared with Q4 FY 2019, reflecting weaker market conditions. Demand remained solid across all assortments although weaker for larger white stones … [and that] … the Company expects the diamond market to remain challenging in the near-term”.

 

Phoenix Copper* - formerly Phoenix Global Mining (PXC LN)  17.5p, Mkt Cap £7.5m – Interim results and project update for Empire oxide project

  • Phoenix Copper reports a net loss of US$666,682 for the six months ended 30th June 2019 (2018 – US$679,817 loss) as it moves ahead with the development of its copper oxide project at the historic Empire mine in Idaho and the continuing exploration of the wider project area now totalling approximately 2,300 hectares (5,717 acres).
  • During the first 6 months of 2019, the company has, as previously announced, updated its mineral resources estimates and economic model of the open pit copper oxide project at Empire, reducing both capital costs to US$51m (previously US$61m) and expected copper by around 14% output to 7,000tpa.
  • Using a copper price estimate of US$3.25/lb, the company now estimates that the project delivers a post-tax NPV7% of US$55.5m and IRR of 33%. Sensitivity analysis presented by the company indicates that at a lower copper price of US$2.75/lb, the after tax NPV is reduced to US$25.5m and IRR to 20%.
  • Commenting upon the revised economic study, Chairman, Marcus Edwards-Jones, said that “We also have 139,000 ounces of gold and 6 million ounces of silver in the open pit at Empire, which are not included in the above projections”.
  • He went on to say that “We believe that the Empire open pit represents the first stage in a potential world class mine, surrounded by significant exploration upside, and offering exposure to high-value metals with compelling demand and supply fundamentals, and a major role to play in a new world order of clean energy and electric vehicles”.
  • The company has expanded its exploration acreage since the IPO in 2017 and now holds claims covering the old Horseshoe mine to the north of the Empire mine as well as the high-grade Red Star discovery and the Navarre Creek claims which the company has previously described as “geologically similar to the Carlin Trend gold belt in Nevada”.
  • In addition to the results from the Empire mine, during the first half of 2019, Phoenix Copper also delivered an initial, inferred, sulphide mineral resource estimate from the Red Star prospect, which was discovered during the 2018 exploration programme.  Based on three drill-holes, the company reports an inferred resource of approximately 104,000t at an average grade of 173.4g/t silver, 0.85g/t gold with 0.33% copper, 3.85% lead and 0.92% zinc.

Conclusion: Phoenix Copper’s work is beginning to reveal the potential of its wider land holding in, below and around the former Empire mine as well as continuing work to optimise the oxide copper project which the company is describing as “very much the “starter mine” in a significant mineralised system …”

*SP Angel acts as Nomad and broker to Phoenix Copper

 

Savannah Resources* (SAV LN)  2.1p, Mkt Cap £21.5m – £5m fund-raising

  • Savannah Resources reports that it has raised approximately £3.76m through the placing of 161.4m new shares and subscription for a further 26.5m shares at a price of 2p per share.
  • In addition, the company’s principal shareholder, Al Marjan Limited has issued letters of intent to subscribe for a further £1.24m at the same price.
  • The funds are primarily intended to complete the Definitive Feasibility Study on the Mina do Barroso Lithium Project in Portugal.
  • This study, which is expected to be completed in Q2 2020, will build on the previous scoping study of June 2018 which concluded that initial capex of US$109m to develop a shallow open-pit operation producing a 6% spodumene concentrate at the rate of 175,000 tpa over 11 years would deliver a pre-tax NPV8% of US$356m and an IRR of 63.2%. At the after tax level, the project achieves an NPV8% of US$241m and IRR of 48.6%.
  • CEO, David Archer explained that “While the technical work on the Project continues, we remain actively engaged with a range of potential customers for our lithium product.”

Conclusion: Additional funding helps maintain the momentum of feasibility study work for Mina do Barroso which the company believes could develop as “the largest conventional spodumene lithium project in Europe”.

*SP Angel acts as Nomad to Savannah Resources

 

Solgold* (SOLG LN)  23.05p Mkt Cap £425.6m – Solgold helicopter accident in Ecuador kills two

  • Solgold reports that a pilot and technician operating a contracted helicopter sadly lost their lives in an accident north of the town of Salinas in Ecuador yesterday.
  • The tragic incident highlights in particularly stark fashion the sacrifices made in the course of mineral exploration and we echo the view of Solgold’s Managing Director, Nick Mather, who said “The Board, management and staff of Solgold are deeply saddened by this tragic accident and extend our condolences to the families of both the pilot and the technician”.

Conclusion: A shadow is cast today over Solgold’s considerable exploration success in Ecuador with two fatalities in a helicopter accident, while mourning the deceased,  the success of their work is a fitting memorial for the longer term.

*SP Angel acts as broker and advisor to Solgold.

 

Analysts

John Meyer – 0203 470 0490

Simon Beardsmore – 0203 470 0484

Sergey Raevskiy – 0203 470 0474

 

Oil & Gas

Sam Wahab – 0203 470 0473

 

Sales

Richard Parlons – 0203 470 0472

Abigail Wayne – 0203 470 0534

Rob Rees – 0203 470 0535

 

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.

 

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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