SP Angel – Morning View – Tuesday 28 08 18

Metals gain on risk-on sentiment driven by US/Mexico agreement

 

MiFID II exempt information – see disclaimer below

 

SP Angel are the No. 1 broker for AIM mining stocks in London

SP Angel analysts consider the Social and Environmental impact of the mines and projects they work with.

Well considered projects with good ethical consideration often lead to lower risk and higher returns which is good for investors as well as the local environment while poor social and environmental consideration can lead to problems which interrupt projects leading to reduced returns for investors.

 

Altus Strategies* (ALS LN) – Interims

Bluebird Merchant Ventures* (BMV LN) BUY – Target Price 12.8p – Bluebird completes jv commitments on Kochang gold mine

Caledonia Mining (CMCL LN) – Buying an additional 15% of the Blanket Mine

Europa Metals Limited (EUZ LN) – Mobilisation of drilling rig to theToral zinc, lead, silver project in Spain

Formerly Ferrum Crescent (FCR LN)

IronRidge Resources (IRR LN) – Drilling results from Ewoyaa lithium project

Keras Resources* (KRS LN) – Start of bulk-sampling at Nayega

Thor Mining (THR LN) – Metallurgical results from Kapunda

 

Weaponisation of copper

  • The copper price collapsed under a sustained onslaught of selling sparked by the liquidation of a massive long position in China starting mid-June.
  • A, virtually unknown fund, suddenly and unexpectedly liquidated a substantial quantity of copper into thin summer trading causing prices to fall and inspiring others to trade the momentum lower.
  • The move led to an a 21% fall in the copper price, leading other base metals lower. Copper has since recovered by 6% leading a recovery in other base metals.
  • It is our view that Chinese investors/China government effectively ‘weaponised’ copper in reaction against Trump’s hard stand on trade Tariffs.
  • While many see higher US tariffs leading to a slowing of the global economy the prospect of their introduction has revved up the US economy with China also injecting liquidity to support affected exporters.
  • All political policies appear to have unintended consequences and Trump’s tariffs should cause manufacturers to raise stock levels.
  • Brexit is acting similarly in some areas as UK as manufacturers look for orders outside the EU ahead of the inevitable politically-led disruption.
  • Even if a political deal is struck with the EU we can be sure there will be some form of trade disruption even if it is just by holding up a few lorries at the channel ports.
  • Thankfully trade flows make a hard Brexit more painful for the EU than for the UK and this will cause manufacturers to pressure politicians into some form of begrudging agreement like children being taken to the Dentist for tooth extraction.
  • Ideally we would all live in a tariff free world but then China would produce all the steel and much more of everything else and what remains of our industry would be in crisis.

 

Air pollution may harm cognitive intelligence (BBC)

  • A US-Chinese study over four years tested the maths and verbal skills of 20,000 people in China.
  • The study measured sulphur dioxide, nitrogen dioxide and particulates smaller than 10um but excluded carbon monoxide, ozone and larger particulates.
  • The China scenario showed that exposure to high levels of polluted air can cause everyone to reduce their level of education by one year according to one of the study’s co-authors with many pollutants are thought to directly affect brain chemistry.

 

Dow Jones Industrials

 

+1.01%

at

  26,050

Nikkei 225

 

+0.06%

at

  22,813

HK Hang Seng

 

+0.26%

at

  28,345

Shanghai Composite

 

-0.10%

at

   2,778

FTSE 350 Mining

 

-

 

 

AIM Basic Resources

 

-

 

 

 

Economics

US – Equity markets sentiment received a boost on the back of a revived US-Mexico trade deal announced yesterday.

  • Expectations are Canada will also agree to new terms to preserve a three-nation pact.
  • Positive news over Nafta talks saw the peso and Canadian dollar rise against the US$ while US equities represented by S&P 500 and Nasdaq Composite indices closed at an all-time high yesterday.
  • Among other things agreed between the two sides, both offices to apply stricter rules for Mexican car exports to the US, including requirements that 75% of the content be made in North America, and that 40-45% of the content be made by workers earning at least $16/h – a measure aimed at discouraging manufacturers from relocating.
  • It is unclear if the US to drop its tariffs on aluminium and steel from Mexico and Canada.
  • On a separate note, Fed Chairman Jerome Powell cemented expectation for another rate hike in September during this year’s meeting of central bankers in Jackson hole last weekend.
  • Powell highlighted there was a “good reason” to expect the US economy to sustain its recent strength and that the “gradual process of normalization remains appropriate”.

 

Germany – Business sentiment improved for the first time in nine months, the latest Ifo Institute confidence numbers showed.

  • The Ifo gauge increased to 103.8 in August from 101.7 in July and beating market estimates as rising trade tensions seem to have subsided.
  • An improvement has been attributed to two factors:
    • “Strong domestic activity.”
    • “The second factor is, we have a truce in the trade war with the US… the fact that tariffs on cars have at least been postponed and may not come at all is very important.”

Germany - Killing in Germany ignites far-right vigilante justice as Syrian and Iraqi immigrants held over stabbing

  • Protests in Germany against the fatal stabbing of a man in Chemnitz let to mass protest sparking violence towards migrants in Germany
  • The migrant issue appears to be feeding popularity for far-right movements in Saxony where the AfD and Pegida are seen as relatively strong.

 

UK – PM May said no-deal Brexit is “not the end of the world” commenting on Chancellor of Exchequer statement that UK economy might contract by a relative 8.8% if the country leaves the EU without an agreement.

  • In his letter to the chair of the Treasury select committee also suggested that borrowing could be £80bn higher in 15 years’ time under a no deal scenario.
  • May commenting on the letter highlighted that Treasury forecasts remain “a work in progress”.
  • The pound is little changed today holding onto gains recorded on Monday as the US$ index is trading around a one month low amid a risk on sentiment.

 

DRC - two Ebola victims are reported in the DRC to have recovered after receiving mAb114, a monoclonal antibody treatment isolated from a survivor of a 1995 outbreak.

 

Currencies

US$1.1689/eur vs 1.1564/eur last week. Yen 111.19/$ vs 111.38/$. SAr 14.176/$ vs 14.320/$. $1.289/gbp vs $1.283/gbp. 0.734/aud vs 0.728/aud. CNY 6.813/$ vs 6.882/$.

 

Commodity News

Precious metals:         

Gold US$1,211/oz vs US$1,188/oz last week

   Gold ETFs 68.1moz vs US$68.1moz last week

Platinum US$808/oz vs US$783/oz last week

Palladium US$950/oz vs US$926/oz last week

Silver US$14.90/oz vs US$14.59/oz last week

           

Base metals:   

Copper US$ 6,090/t vs US$5,991/t last week

Aluminium US$ 2,114/t vs US$2,078/t last week

Nickel US$ 13,415/t vs US$13,285/t last week

Zinc US$ 2,556/t vs US$2,485/t last week

Lead US$ 2,094/t vs US$2,071/t last week

Tin US$ 19,150/t vs US$19,075/t last week

           

Energy:           

Oil US$76.3/bbl vs US$75.2/bbl last week

Natural Gas US$2.874/mmbtu vs US$2.974/mmbtu last week

Uranium US$26.30/lb vs US$26.40/lb last week

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$66.2/t vs US$66.2/t

Chinese steel rebar 25mm US$695.1/t vs US$690.2/t

Thermal coal (1st year forward cif ARA) US$91.3/t vs US$89.0/t – Murray Energy blames new Turkish tariffs on hit to its plans to export US coal to Turkey

Premium hard coking coal Aus fob US$180.5/t vs US$182.4/t

           

Other:  

Cobalt LME 3m US$64,250/t vs US$64,250/t

Tungsten APT European US$280-300/mtu vs US$300-315/mtu

 

Company News

Altus Strategies* (ALS LN)   4.5p, Mkt Cap £8.0m – Interims

  • The extensive portfolio of early exploration stage projects currently include 18 precious metal (gold and silver) and base metal/bulk commodities (copper, zinc, bauxite, iron ore) targets across six African countries (Morocco, Ethiopia, Cameroon, Liberia, Cote d’Ivoire and Mali).
  • Additionally, the Company is currently in two JV partnership agreements with Resolute Mining in regards to the Pitiangoma gold exploration asset in southern Mali and Canyon Resources over the Birsok and Mandoum bauxite project in central Cameroon.
  • The team has been busy with advancing its portfolio of assets completing initial reconnaissance work, re-examining historical drilling results and identifying future drilling targets:
  • Among operational highlights previously announced, the team has discovered substantial artisanal gold workings at the Zolowo project in western Liberia, completed initial reconnaissance on three new licenses in central Morocco and the Prikro gold license in eastern Cote d’Ivoire, mapped and rock-chip sampled a potential VMS system at Daro copper/gold project in northern Ethiopia as well as prepared to drill test the karst style mineralisation at Lakanfla gold project in western Mali.
  • IN July this year, the Company discovered new artisanal gold workings at the Laboum gold project in northern Cameroon following an exploration programme targeted at underexplored parts of Kalardje, Tapare and Rey prospects.
  • The Company spent £328.4k on exploration during H1/18 (H1/17: £302.1k) and recorded £1,062.2k loss over the period (H1/17: 1,222.0k).
  • Having closed the £2.3m private placement earlier this year the Company had £1.6m in cash as of H1/18 (H2/17: £0.5m).
  • Additionally, the Group holds 8m shares in ASX listed Canyon Resources which have been valued at £1.1m as of 27 August.

Conclusion: The Company is advancing its extensive portfolio of early exploration assets with £1.6m in cash and £1.1m worth of Canyon shares set to fund ongoing operations. We are looking forward to the news flow from a busy field season at held exploration assets.

*SP Angel acts as Nomad and Broker to Altus Strategies plc

 

Bluebird Merchant Ventures* (BMV LN)   2.55p, Mkt cap £5.5m – Bluebird completes jv commitments on Kochang gold mine

(Bluebird is earning into a 50:50 jv with Southern Gold Ltd at Gubong and Kochang)

BUY – Target Price 12.8p

  • Bluebird Merchant Ventures report the company has met its formal joint venture commitments on the Kochang gold and silver mine in South Korea.
  • Bluebird had committed to contribute A$250,000 in a placing in Southern Gold shares and to also spend >A$250,000 on completion of a feasibility report on the reopening of the Kochang Mine.
  • Now the placing condition is complete the feasibility report on Kochang.
  • Costs will be shared on a 50:50 basis between Bluebird and Southern Gold following the completion of the feasibility study.
  • Bluebird also completed a feasibility study on the Gubong gold mine at end July.
  • The team have now started the pre-construction phase at the mine to expose further underground workings and are targeting their first gold pour in Q4 next year
  • Following the Gubon feasibility study Costs for advancing the redevelopment of the mine are now shared 50:50 with Southern Gold.
  • Management are targeting production of 100,000ozpa of gold within five years of their first gold production though final approvals will be required and there will be much work to do before the mine reopens.

Conclusion: it is good to see Bluebird meet its joint venture conditions as management progress towards first gold production in Q4 next year.

*SP Angel act as broker to Bluebird Merchant Ventures

 

Caledonia Mining (CMCL LN)   560p, Mkt Cap £59.4m – Buying an additional 15% of the Blanket Mine

  • Caledonia Mining reports that it has a Memorandum of Understanding with Fremiro Investments to purchase Fremiro’s 15% shareholding in the Blanket gold mine in Zimbabwe.
  • The transaction, which remains subject to formal legal agreements and to the approval of regulatory authorities in Zimbabwe, would increase Caledonia Mining’s interest in the mine to 64%.
  • “Caledonia will acquire Fremiro’s holding in Blanket for a gross consideration of $16.667 million to be settled through a combination of:
    • The cancellation of the loan between the two entities which stood at $11.467 million as at June 30, 2018; and
    • The issue of 727,266 new shares in Caledona at an issue price of $7.15 per share”
  • The issue of shares to Fremiro will leave it with a 6.42 percent interest in Caledonia Mining.
  • Fremiro is one of the local interests holding a portion of the mine under the Zimbabwean Indigenisation and Economic Empowerment Act the provisions of which are being eased under the new Zimbabwean Government. The remaining partners are the National Indigenisation and Economic Empowerment Fund with a 16% interest and the Blanket Employee Trust with 10%.
  • In our view, increasing its interest in the Blanket mine, an asset it knows intimately, at a time when the programme to increase the production rate and increase the mine life is well underway to delivering 80,000oz pa of gold production by 2021 is a low-risk growth opportunity for Caledonia nwhich also underlines management’s confidence in the progress of the project.
  • Commenting on the transaction, Chief Executive, Steve Curtis, said “We are delighted to agree a transaction with Fremiro for the purchse of their 15% dstake in Blanket; they have been a supportive shareholder of Blanket since 2012 and we welcome them as shareholders in Caledonia”.
  • He went on to comment that “Caledonia is evaluating further investment opportunities in Zimbabwe … By moving its participation up from Blanket to Caledonia, Fremiro is well-positioned to participate with Caledonia in any further investment opportunities.”

Conclusion: The increased holding in the Blanket Mine is, in our view, a sensible, low risk, expansion opportunity for Caledonia Mining. It may also open up further opportunities with an influential Zimbabwean investor now becoming an important shareholder in Caledonia Mining.

 

Europa Metals Limited (EUZ LN)   0.108 pence, Mkt Cap £6.0m – Mobilisation of drilling rig to theToral zinc, lead, silver project in Spain

Formerly Ferrum Crescent (FCR LN)

  • Europa Mining reports the mobilisation of a dual-purpose reverse-circulation/diamond core drilling rig to its Toral project in the Leon province of Spain.
  • Drilling is expected to commence shortly “to initially ascertain the potential continuation of the mineralised structure outside of the current defined JORC (2012) resource area.”
  • The JORC (2012) Inferred resource estimate resource shows 16mt grading 4.0% zinc, 3.3% lead and 25g/t silver (6.9% zinc equivalent) using a 4% zinc-equivalent cut-off grade.
  • After the extension drilling, “the Company will concentrate on  drilling within the upper zone of the identified JORC (2012) resource area, before moving on to a  Phase II programme, targeting key areas within the high grade zone of the inferred resource in order to increase resource confidence levels.”
  • Europa Metals has also now completed the re-logging of drill core held in Spanish national archives  and “is currently assessing all of these data sets and we look forward to announcing a further update(s) from the ongoing work in due course.  Our enhanced understanding of the host structure is already informing future workflows and targets for the Company”.

 

IronRidge Resources (IRR LN)   24.25p, Mkt Cap £68.4m- Drilling results from Ewoyaa lithium project

  • IronRidge Resources has reported results from the first 4,180m of reverse circulation drilling at its Ewoyaa lithium project in Ghana.
  • The results, which form part of an 8,090m programme including the North Extension area, has identified a broad zone of high-grade lithium mineralisation which remain open to the North Extension and the North-East Zone.
  • Further results are still pending “for the North Extension and North-East Zone where visual logging of RC drill chips indicates the presence of coarse spodumene crystal fragments within drilled pegmatite intervals”.
  • The results include intersections of:
    • 128m at an average grade of 1.21% Li2O from a depth of 3m in hole GRC0004 and includes a 70m wide section averaging 1.53% Li2O from a depth of 13m; and
    • 35m at an average grade of 1.49% Li2O from a depth of 3m in hole GRC0015 including 10m averaging 2.6% Li2O from 24m; and
    • 21m at an average grade of 1.11% Li2O from a depth of 3m in hole GRC0018; and
    • 111m at an average grade of 1.35% Li2O from a depth of 37m in hole GRC0027 and includes 35m at 1.58% Li2O from a depth of 40m and 20m averaging 1.51% Li2O from a depth of 124m;
  • Commenting on the results, Chief Geologist, Len Kolff, said “High grades over significant intervals and proximity to essential infrastructure coupled with the pro-mining and stable jurisdiction of Ghana bodes well for the future development of the Cape Coast Lithium portfolio”.
  • He went on to confirm that “We will continue to advance the regional soil sampling programme and rapid analysis using our handheld LIBS lithium analyser whilst in parallel reviewing new drilling results as they are reported and commence planning for resource and exploration drilling programmes.”

Conclusion: The initial drilling results from Ewoyaa confirm wide zones of open ended lithium mineralisation. We look forward to the rest of the results and to further exploration progress.

*SP Angel act as nomad and broker to IronRidge Resources

 

Keras Resources* (KRS LN)   0.385p, Mkt Cap £8.8m – Start of bulk-sampling at Nayega

  • Keras Resources reports that its 10,000 tonnes bulk-sampling programme at the Nayega manganese project in Togo is now underway.
  • Mining is currently taking place and the mobile screening unit required for the sample preparation has “at Port Lomé and will be at Nayega by the first week in September to commence Phase 2 of the Bulk Sample”
  • “The final phase, comprising the washing and scrubbing of the Detrital and Lateritic units of the Nayega orebody is planned to commence in mid-November. Appropriate Process Technologies Pty Ltd will commence commissioning of the 20 tonne per hour scrubber plant at the beginning of November.“
  • As previously reported, the work is being funded by “a major producer of manganese-based alloys … to assess the suitability of the ore in their Mn smelting facilities”.
  • Commenting on progress, Chief Executive, Russell Lamming described the start of the bulk-sampling programme as “another milestone in the Nayega Manganese Project's progression towards regulatory approval for commercial production.”

Conclusion: The start of the bulk-sampling at Nayega should help establish the suitability of the material for a major potential customer.

*SP Angel acts as nomad and broker to Keras Resources

 

Thor Mining (THR LN)   2.0p, Mkt Cap £13.1m – Metallurgical results from Kapunda

  • Thor Mining has announced copper recovery rates of up 78% in bottle roll leach tests of material from the Kapunda project in South Australia where Thor Mining is earning a 60% interest in the project.
  • The Kapunda project envisages in-situ leaching of  copper where, in February, the company reported an inferred resource estimate of 47.4mt at an average grade of 0.25% copper. Subsequent announcements describe a higher grade section of the deposit containing 29.0mt at an average grade of 0.32% copper and a lower grade outer zone containing 18.4mt at a grade of 0.16% copper.
  • At this stage, the results are still at a laboratory scale and there will be further work required to both upgrade the mineral resource and to establish the operational applicability of the glycine leach which has been demonstated in the laboratory.
  • Commenting on what he described as “a very positive result” Executive Chairman, Mick Billing, said “The success with glycine, a very benign substance, is an important step forward. Other lixiviants are also being trialled, and we look forward to these results when available”.

 

 

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

 

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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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