SP Angel – Morning View – Wednesday 22 08 18

Miners rangebound on lackluster metals prices performance

 

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.

 

Edenville Energy (EDL LN) – Contract to supply 4,000tpm of coal

Kodal Minerals* (KOD LN) – Moving towards an initial resource estimate at Bougouni

Strategic Minerals* (SML LN) – Progress report on Redmoor drilling

 

Ilmenite market likely to be squeezed further by reduced production affected by floods in Kerala, India

  • Flooding in Kerala likely to impact production of ilmenite and rutile at the Chavara operations in Southern, India
  • The state of Kerela produces some 17% of Indian ilmenite production at about 88,000tpa (2015-2016) at Chavara which produces 59.88% grade TiO2
  • The state also produces some 23% or 3,800tpa of rutile

*The analyst has previously visited Kerala, India. We offer our deepest sympathies for those suffering in the flooding.

 

Dow Jones Industrials

 

+0.25%

at

  25,822

Nikkei 225

 

+0.64%

at

  22,363

HK Hang Seng

 

+0.41%

at

  27,867

Shanghai Composite

 

-0.70%

at

   2,715

FTSE 350 Mining

 

-0.56%

at

  16,593

AIM Basic Resources

 

+0.27%

at

   2,218

 

Economics

US – Michael Cohen, a former President Trump’s lawyer, pleaded guilty in a New York court for violating campaign finance laws.

  • Cohen said he had knowingly breached laws in co-ordination and at the direction of then candidate to the office by arranging payments to two women who allegedly had affairs with Mr Trump.
  • “Today, he stood up and testified under oath that Donald Trump directed him to commit a crime by making payments to two women for the principal purpose of influencing an election… if those payments were a crime for Michael Cohen, then why wouldn’t they be a crime for Donald Trump,” Lanny Davis, a lawyer representing Cohen, said.
  • In total Cohen admitted eight counts including tax and ban fraud in a plea deal with prosecutors.
  • Sentencing is scheduled for 12 December while Cohen has been released on bail of $500,000.
  • Separately, Paul Manafort, Trump’s former campaign manager, has been convicted of tax evasion and bank fraud by the Virginia jury yesterday.
  • Equity index futures are pointing to a weaker opening on the back of growing political risks for Trump administration.
  • The US$ index is holding around some of its weakest levels of the month ahead of the Fed August meeting minutes due later today and the gathering of central bankers in Jackson Hole this weekend.

 

Brazil – The real dropped to the weakest level in more than two years crossing the 4.0 level on the back of uncertain election outlook.

  • The move is attributed to election polls released Monday that showed that support for market-friendly candidate Geraldo Alckmin is not improving as expected while jailed leftist former president Luiz Lula da Silva popularity is growing.
  • Electoral authorities are expected to bar Lula from elections, although former President scored 37.3% in the latest poll, up from 32.4% recorded in May.
  • Lula is followed by far-right candidate Jair Bolsonaro (18.3%), environmentalist Marina Silva (5.6%) and Alckmin (4.9%).
  • When asked who they would vote for if Lula is not allowed to run for presidency, 17.3% of respondents said they would cast their vote for Lula’s same party mate and former Sao Paolo mayor Fernano Haddad; another 19.3% would vote for Marina Silva, 6.2% for Bolsonaro and 3.7% for Alckmin.

 

Australia – PM Malcolm Turnbull won a leadership challenge among its party members defeating Home Affairs Minister Peter Dutton in a 48-35 vote.

  • The snap election has been called by PM himself in a bid to resolve speculation that his leadership was under threat.
  • Mr Dutton said he accepted the result and would work together with Mr Turnbull but did not rule out making another challenge.
  • Leadership challenges are not uncommon in the Australian system, so current PM Turnbull himself successfully challenged previous prime minister Tony Abbott in 2015.
  • The A$ is trading slightly stronger against the US$ counterpart this morning.

 

South Africa – The rand is off slightly today while the latest inflation data showed that price gains accelerated to 5.1%yoy in July driven by the higher cost of imported fuel.

  • The price of gasoline was 25% higher in July compared to last year as the rand slumped while excluding fuel prices inflation would have come in at 4.3%.

 

Currencies

US$1.1511/eur vs 1.1382/eur yesterday  Yen 110.07/$ vs 110.75/$  SAr 14.437/$ vs 14.712/$  $1.283/gbp vs $1.271/gbp  0.735/aud vs 0.727/aud  CNY 6.844/$ vs 6.888/$

 

Commodity News

Precious metals:         

Gold US$1,194/oz vs US$1,194/oz yesterday – Russia increased gold reserves the most in July than any other month this year amid a potential of new round of US sanctions.

  • The central bank added 26.1t last month taking its holdings to 2,170t as it diversifies its holdings from US$.
  • In April and May, Russia cut its holdings of US bills, notes and bonds by around 4/5s, and bought more gold.

   Gold ETFs 68.1moz vs US$68.2moz yesterday

Platinum US$791/oz vs US$799/oz yesterday

Palladium US$913/oz vs US$917/oz yesterday

Silver US$14.73/oz vs US$14.78/oz yesterday

 

Base metals:   

Copper US$ 6,002/t vs US$6,021/t yesterday – Three companies from Canada, China, Russia bid for Serbian copper mine

  • Three companies have placed bids for a strategic partnership in RTB Bor, Serbia's only copper mine and smelter, the Economy Ministry said
  • n July, Serbia's government said it was seeking a partner to invest at least $350 million in debt-laden RTB Bor but did not say how big a stake it would offer in return, only companies from Canada, China and Russia had bid
  • Only companies that have been involved in copper production for at least a decade and had annual revenue of at least $500m in the past year were allowed to bid
  • RTB Bor's copper exports in the first half of 2018 rose 23% to 15,000t, company data showed, export revenue between Jan and June was $107.1m and sold copper worth $30.9m domestically

Aluminium US$ 2,072/t vs US$2,066/t yesterday

Nickel US$ 13,565/t vs US$13,735/t yesterday – BHP thinks twice about Nickel West sell-off

  • Nickel West is set to remain in the BHP fold for now after chief executive Andrew Mackenzie poured cold water on rumours of an imminent sale
  • Mr Mackenzie said yesterday Nickel West was not part of an ongoing sales process and that the company was “taking a pause” with its divestment ideas, speaking after plans unveiled a 37% fall in full-year profit to $3.7bn, after taking $5.2bn in impairments and charges on its US shale business
  • Mr Mackenzie said the company’s new thinking about Nickel West was attributable to a change in the unit’s performance and the market in which it operated “the nickel that comes out of Nickel West is particularly suited for the manufacture of batteries for electric vehicles”

Zinc US$ 2,438/t vs US$2,420/t yesterday

Lead US$ 2,010/t vs US$1,998/t yesterday

Tin US$ 19,100/t vs US$18,745/t yesterday

           

Energy:           

Oil US$73.1/bbl vs US$72.2/bbl yesterday

Natural Gas US$2.986/mmbtu vs US$2.977/mmbtu yesterday

Uranium US$26.15/lb vs US$26.15/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$66.9/t vs US$68.1/t – Brazil's Samarco mine unlikely to restart in 2019: BHP

  • There is little likelihood that Brazil’s Samarco iron ore mine, a joint venture between Vale SA and BHP Billiton, will restart operations next year even though it expects to have all of the required licenses
  • The statement confirmed comments made by another BHP official, Bryan Quinn, in an interview with newspaper Valor Economico, who said that restarting operations at the disaster-struck mine depends on an agreement with prosecutors on building a new tailing dam system
  • Mining operations have stalled since 2015 when an existing dam burst, releasing a torrent of toxic mud that killed 19 people and left a trail of destruction for hundreds of km

Chinese steel rebar 25mm US$699.1/t vs US$699.4/t

Thermal coal (1st year forward cif ARA) US$89.3/t vs US$89.7/t

Premium hard coking coal Aus fob US$180.8/t vs US$181.7/t

           

Other:  

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

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

Lithium – City of London considers trial of non-electric car ban

  • Petrol and diesel cars will be fined on city centre streets for the first time as part of the toughest restrictions yet on polluting vehicles, within the next 2 weeks, motorists will have to pay £130 for driving any car other than electric and hybrid models on 9 streets in London during peak times
  • The measures are being introduced by Hackney and Islington councils on September 3, just as the school year starts
  • The City of London Corporation is considering imposing similar measures in the Square Mile, the main financial district, access to one street will be limited to low emission vehicles from April next year

 

Company News

Edenville Energy (EDL LN)   0.315 pence, Mkt Cap £4.9m -  Contract to supply 4,000tpm of coal

  • Edenville Energy reports that it has signed a contract to supply an East African industrial group with 4,000 tonnes of coal per month.
  • The contract, which lasts for two years, specifies that the tonnage is at a calorific value in excess of 4,800kCal/kg and “pricing, based on calorific content, has been agreed and is based on local commercial rates”.
  • Commenting on the contact, CEO, Rufus Short, said “I am very pleased our team have been able to work alongside this customer to ensure their needs are met and that the Company can look forward to supplying the Customer coal for at least the next two years.  I look forward to providing further updates on the progress of the operation as we expand and enter into further contracts.”

 

Kodal Minerals* (KOD LN)   0.257p, Mkt Cap £19.8m – Moving towards an initial resource estimate at Bougouni

  • Kodal Minerals reports that it has now received all of the assay results from its drilling campaign which was  completed in June at the Bougouni lithium project in southern Mali and that it expects to incorporate the resulting data in a mineral resource estimate expected to be released during September.
  • The company reports that “High-grade mineralisation has been returned for the Sogola-Baoule prospect ("Sogola-Baoule") where mineralisation remains open along strike”. Kodal Minerals highlights that the mineralisation at Sogola-Baoule “continues to extend to north-east and has increased in thickness”.
  • The company indicates that the eastward thickening of the mineralisation may be attributable to “a thickening of the pegmatite zone to the east, possibly associated with the intersection of two structural zones”. Commenting that the mineralisation remains open in this direction the company identifies this area as “a primary target for additional drilling”.
  • Among the intersections at Sogola-Baoule highlighted in the announcement, which are described as occurring within “broader mineralised zones up to 53m in downhole width” are:
    • A 32m wide intersection at an average grade of 1.61% Li2O from a depth of 112m in hole MDRC106;
    • A 21m wide intersection at an average grade of 1.64% Li2O from a depth of 157m in hole MDRC107; and
    • A 26m wide intersection at an average grade of 1.37% Li2O from a depth of 85m in hole MDRC109
  • In addition, Kodal Minerals has identified new zones of lithium mineralisation at Boumou, South Bougouni and at Ngoualana. Results highlighted from these prospects are:
    • An intersection of 15m at an average grade of 1.05% Li2O from a depth of 88m in hole MDRC094 at South Bougouni;
    • An intersection of 6m at an average grade of 1.35% Li2O from a depth of 77m in hole KLRC108 at Boumou; and
    • An intersection of 5m at an average grade of 1.59%m Li2O from a depth of 80m in hole KLRC165 at Ngoualana South
  • Commenting on the “wide, high-grade intersections at the Sogola-Baoule prospect”, CEO, Bernard Aylward said that “We will be returning to this prospect in August to undertake diamond drilling to target geological information from infill drilling and further advance the prospect with extensional drilling.”
  • Underlining that the focus of the recent drilling campaign had been to generate the data “to underpin a maiden resource estimate which we are targeting to release in September”, Mr. Aylward went on to point out that “we are also continuing to demonstrate further potential across our licence area and as a result there is significant scope to build on the initial resource estimate going forward.”

Conclusion: We look forward to the initial resource estimate due in September and to further news on the resumption of drilling in the prospective area towards the east at Baoule-Sogola and in the other target prospects at Boumou, South Bougouni and at Ngoualana.

*SP Angel act as Financial Advisor and broker to Kodal Minerals. A partner at SP Angel acts as Chairman to the company.

 

Strategic Minerals* (SML LN)  1.35p, Mkt Cap £18.7m – Progress report on Redmoor drilling

  • Strategic Minerals has provided a progress report on its 2018 drilling campaign at its 50% owned Redmoor project in Cornwall where it has now completed the first two holes of the 4000m, (7-holes), phase 1 programme with the next two holes currently underway.
  • The drilling is being undertaken to extend and infill the existing inferred mineral resource of 4.5m tonnes at an average grade of 0.37% tungsten trioxide, 0.25% tin and 0.57% copper which the company equates to a tin equivalent grade of 1% and is intended to delineate “a sufficient resource to justify proceeding to a Prefeasibility Study in 2019.”
  • The programme is reported to be progressing well and expected to be completed in early October. Consideration of whether to proceed with the Phase 2 programme of an additional 3,500m in approximately 8 holes is expected to occur in September when management is likely to have the results of most of the first phase work available to inform their decision.
  • Assay results are expected during September but in the meantime hole CRD021 which was drilled to a depth of 728.7m intersected multiple zones of tungsten mineralisation between 600m and 715m depth and the company comments that the “hole was extended below its target depth and represents the deepest hole drilled to date”. 
  • Hole CRD022 was drilled to a depth of 516.9m and intersected “multiple zones of robust tungsten mineralisation … between 405m to 501m depth”.
  • The 2017 drilling also encountered tungsten mineralisation as, for example, a 6m wide intersection averaging 1.29% WO3 (tungsten trioxide) from a depth of 465.1m and a 7m wide intersection averaging 1.79% WO3 both in hole CRD019.
  • We note, however, that although the grades are still not available, the intersection widths reported today appear to be wider than last year’s results although they may, as in the 2017 campaign, have intersected the mineralisation obliquely and represent shorter true widths.
  • The company also discloses that its joint-venture partner at Redmoor, New Age Exploration, “has now funded its 50% of Phase 1 development costs and the Company’s previous underwriting of all Phase 1 funding has been cancelled reducing its current commitment by £332,000.”
  • In an additional development, Strategic Minerals reports that “A cash payment of £101,000, net of fees, was received from the UK Government for Research and Development tax relief for the years ending June 2016 and June 2017. A further Research and Development claim for the year ending June 2018 will be finalised and submitted this year.”

Conclusion: Phase 1 of the 2018 drilling programme at Redmoor is now well underway and encountering tungsten mineralisation. A decision on whether to proceed to a phase 2 programme is expected to be taken in September as the company aims to delineate sufficient resources to move to a Prefeasibility study in 2019. We look forward to the assay results when they become available.

*SP Angel act as Nomad and broker to Strategic Minerals

 

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 employees may have previously held, or currently hold, shares in the companies mentioned in this note.

 

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