SP Angel – Morning View – Friday 05 10 18

Gold range bound ahead of the US jobs report

MiFID II exempt information – see disclaimer below 

 

Centamin (CEY LN) –Q3 production results

Cora Gold* (CORA LN) – Prospective ground, Proven team

SolGold* (SOLG LN) – Progress report on Alpala resource update

 

Toyota – fault on older Prius and Auris cars prompts recall

  • Toyota has announced a recall of more than 2.4m hybrid vehicles worldwide because of a system fault that can cause a loss of power.
  • Toyota are reprogramming the power management Engine Control Unit as the cars were failing to enter the ‘fail safe driving mode’ as intended which could ultimately result in a sudden loss of power if driven at high speed.
  • The recall of Prius and Auris cars includes 1.25m in Japan, 830,000 in North America and 290,000 in Europe, of which about 55,000 are in the UK most of which appear to be driven by Uber drivers.
  • The recall applies to older models produced between October 2008 and November 2014 though the company is not aware of any actual accidents caused by the fault.
  • Software faults are increasingly common on modern cars and coincidentally provide garages with an opportunity to persuade owners to trade up.

 

Dow Jones Industrials

 

-0.75%

at

  26,627

Nikkei 225

 

-0.80%

at

  23,784

HK Hang Seng

 

-0.19%

at

  26,572

Shanghai Composite

 

closed

 

 

FTSE 350 Mining

 

-2.27%

at

  17,462

AIM Basic Resources

 

-0.42%

at

   2,199

 

Economics

US – NFPs are due later today with estimates for 185k new jobs and labour earnings growth posting only a marginal pullback from a post-recession high of 2.9% recorded in August.

  • The data is expected to be affected by the Hurricane Florence in the Carolinas, although, the impact is expected to be relatively muted as demonstrated recently by jobless claims, unit motor vehicle sales and supply-chain details of various purchasing manager surveys.
  • On a separate note, durable goods orders report released yesterday highlighted strong growth recorded in August largely driven by robust demand for non-defence aircraft.
  • NFPs: 185k forecast v 201k in August.
  • Av Hourly Earnings: 2.8% forecast v 2.9% in August.

 

Germany – Factory orders recorded another drop in August reflecting latest reports of slowing growth in the manufacturing sector.

  • Factory prices released this morning point to strengthening inflation pressures amid rising oil prices and tight labour market.
  • Factory Orders (%mom/yoy): 2.0/-2.1 v -0.9/-0.9 in July and 0.8/-3.0 forecast.
  • PPI (%mom/yoy): 0.3/3.1 v 0.2/3.0 in July and 0.2/2.9 forecast.

 

UK – House prices growth slowed in September extending the soft patch since the vote to leave the EU, according to Halilfax data.

  • Nevertheless, Halifax expects the market to be supported by low borrowing costs, record-low unemployment and a shortage of properties for sale.
  • Halifax House Prices (%mom/yoy): -1.4/+2.5 v 0.1/3.7 in August and 0.2/3.4 forecast.

 

Brazil – Presidential and congressional elections are to be held this Sunday amid weak economic growth, worsening violent crime rates and several recent high-profile corruption scandals.

  • Opinion polls are led a far right Jair Bolsonaro with latest surveys putting him up with 35% of the vote suggesting the second round of elections on October 28 is unlikely to be avoided.
  • Fernando Haddad, Bolsonaro’s closest opponent and the leftist Workers’ Party replacement candidate for Lula, is trailing his contender in second place with around 22% of support.
  • The currency is marginally stronger against the US$ this morning with bond yields relatively steady while having recovered from an August sell off continuing to hover around 11.2%.

 

Currencies

US$1.1505/eur vs 1.1478/eur last week. Yen 113.85/$ vs 114.26/$. SAr 14.783/$ vs 14.668/$. $1.305/gbp vs $1.296/gbp. 0.706/aud vs 0.708/aud. CNY 6.869/$ vs 6.869/$.

 

Commodity News

Precious metals:         

Gold US$1,198/oz vs US$1,199/oz yesterday

   Gold ETFs 67.1moz vs US$67.1moz yesterday

Platinum US$825/oz vs US$824/oz yesterday

Palladium US$1,059/oz vs US$1,055/oz yesterday

Silver US$14.56/oz vs US$14.61/oz yesterday

           

Base metals:   

Copper US$ 6,203/t vs US$6,296/t yesterday

Aluminium US$ 2,184/t vs US$2,251/t yesterday

Nickel US$ 12,435/t vs US$12,935/t yesterday

Zinc US$ 2,620/t vs US$2,661/t yesterday

Lead US$ 2,000/t vs US$2,034/t yesterday

Tin US$ 18,955/t vs US$19,050/t yesterday - Indonesia refined tin exports rises 18% yoy in September

  • Indonesia exported 8,854.30t of refined in September, up 18% yoy and 10% on August according to trade ministry data.

           

Energy:           

Oil US$85.0/bbl vs US$86.1/bbl yesterday - Shell approves $12bn liquefied natural gas project in Canada

US crude tumbles 2.7%, settling at $74.33

  • Oil prices tumbled as much as 3 percent on Thursday, pulling back sharply after rallying to four-year highs on concerns about the fallout of U.S. sanctions on Iran
  • International benchmark Brent crude futures fell $1.65, or 1.9%, to $84.64 a barrel. The contract hit a nearly four-year high of $86.74 on Wednesday.
  • U.S. crude futures ended Thursday's session down $2.08, or 2.7 percent, at $74.33, after hitting $76.90 on Wednesday, the highest level since November 2014.

Saudi Arabia to invest $20B on oil capacity boost

  • Saudi Arabia will spend US$20 billion on boosting its oil production capacity in the coming years, according to its Energy Minister, Khalid al-Falih
  • The country is reportedly pumping 10.7 million bpd, with current production capacity standing at 12 million bpd
  • “This spare capacity is not just a natural reservoir that we have. This is very expensive investments for the kingdom, and some of our partners within OPEC and OPEC+ have elected to invest to maintain (oil capacity) to have the readiness on a short notice,” he said at an energy industry event in Moscow.

Natural Gas US$3.205/mmbtu vs US$3.243/mmbtu yesterday - Texas to Mexico natural gas pipeline delayed

Uranium US$27.65/lb vs US$27.70/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$68.4/t vs US$68.3/t

Chinese steel rebar 25mm US$684.1/t vs US$684.1/t

Thermal coal (1st year forward cif ARA) US$99.5/t vs US$99.7/t - Ukraine cuts coal output in 2018

  • UNIAN reported that Ukraine produced nearly 25mt of thermal and coking coal over the period under review.
  • Output of thermal and coking coal in Ukraine in January-September 2018 decreased by 5% compared to the same period last year, to 24.849mt.
  • State-owned coal mines produced 3.15mt of coal during the reporting period, which is 11% less than in the same period of 2017, a report by Ukraine’s Ministry of Energy and Coal Industry said.

Coking coal futures Dalian Exchange US$193.7/t vs US$193.7/t

           

Other:  

Cobalt LME 3m US$62,000/t vs US$55,250/t

China NdPr Rare Earth Oxide US$46,951/t vs US$46,951/t

China Lithium carbonate 99% US$10,337/t vs US$10,337/t - Japan's silent submarines extend range with new batteries

  • Japan's first submarine powered by lithium-ion batteries was launched on Thursday, symbolizing domestic defence contractors' hopes that innovations can allow the industry to survive amid renewed pressure from Washington to procure more American military gear.
  • The submarine can reach speeds of roughly 20 knots and displaces 2,950t and will be delivered to the Japan Maritime Self-Defence Force in March 2020.

Tungsten APT European US$275-290/mtu vs US$275-290/mtu

 

Company News

Centamin (CEY LN)  101p, Mkt Cap £1,169m –Q3 production results

  • Centamin reports a 27% improvement in gold production during the quarter ending 30th September to 117,720oz (June quarter output 92,803oz).
  • After a difficult first half, which saw 2018 output decline by 7% to 217,099oz, the improvement, attributed to “month on month operational improvements in the open pit and underground” confirms assurances given at the interim stage that it expected “Significantly stronger production” during the second half of the year.
  • September was reported to be “a strong month with production of 48,511 ounces. However operational improvements have taken longer than planned to materialise”.
  • The company expects these improvements to be maintained during Q4 “resulting in a total 2018 annual production of approximately 480,000 ounces.” We observe, however, that this is still somewhat below the revised guidance of 505,000-515,000 ounces perhaps reflecting the slower than expected delivery of improvements.
  • Commenting on the improvements, CEO, Andrew Pardey, said that “We are extremely pleased with the operational performance from the open pit. We are through the transitional ore, grades are improving in line with the mine plan and will continue to through the fourth quarter. The underground improvements have been very encouraging and are continuing. Our focus remains on achieving optimal and consistent performance."

 

Cora Gold* (CORA LN)  9.8p, Mkt Cap £5.4m – Prospective ground, Proven team

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  • Cora Gold is an AIM listed gold exploration company holding a suite of early stage exploration licenses in Southern/Western Mali and Eastern Senegal.
  • The portfolio covers nearly 1,500km2 of prospective ground across two most prolific gold belts in the region, Yanfolila Gold Belt and Kenieba Window, accounting for more than 65moz discovered over the last two decades.
  • The 2018 field season focused on the flagship Sanankoro Project Area extending identified zones of gold mineralisation to 8km with the remainder of a 14km long structural corridor remaining untested.
  • At Tekeledougou, a short reconnaissance drill programme in 2017/18 intersected close to surface mineralised quartz veins in the layer of weathered material, with the team planning to follow up on identified targets in 2018/19 evaluating potential for low cost selective open pit mining operation with the potential to supply the feed to the recently commissioned Yanfolila plant located only 8km away and operated by Cora’s major shareholder Hummingbird Resources.
  • A limited amount of work has been completed over the remaining Group license areas including base level mapping, surface sampling and occasional reconnaissance drilling. Most of the area remains untested, although, extensive areas of present and historic artisanal mining works offer major opportunity for a potential discovery.
  • The exploration programme is led by CEO Jon Forster, an exploration geologist with decades of experience in the junior gold exploration space in Africa having been involved in the discovery of major gold deposits in Tanzania, Central African Republic, Mali and Senegal.
  • The Company is yet to deliver a maiden mineral resource with the team planning an ongoing drilling programme at the Sanankoro project area this coming 2018/19 field season, targeting higher grade zones within the extensive mineralised strike and collecting data for a potential MRE.
  • Geological setting and the scale of anomalism suggest the potential for a reasonable greenfield gold discovery at Sanankoro with the management aiming for a +1moz deposit.
  • Considering early- and late-stage exploration companies in the area, market valuation multiples range significantly from as low as $3-4/oz MII (Total Resource) for marginal projects to $43-60/oz for higher grade deposits with an average of $19/oz for our selected sample of names.
  • Recognising strong competition for a robust project, we have looked at latest corporate transactions in the region with valuation multiples ranging between $20-55/oz MII for an advanced stage asset; strong balance sheets of major operators in the region and subdued gold prices weighing on valuations provides a consolidation opportunity in the area; although, we would expect Cora to complete more work on the portfolio before it attracts corporate interest.

Conclusion: Cora Gold offers exposure to a portfolio of early stage projects within which there is an extensive drill discovery with typical exploration investment risks minimised by the prospective location of Cora licenses where >1moz discoveries are not uncommon as well as a highly experienced team with a proven track record in West African gold exploration and in-depth knowledge of geology in the region.

*SP Angel acts as Nomad and Broker to Cora Gold

 

SolGold* (SOLG LN)  36.8p, Mkt Cap £623m – Progress report on Alpala resource update

  • Solgold reports that it expects to complete and release an updated mineral resource estimate for its Alpala project in Ecuador during December 2018.
  • The update will incorporate approximately 105,000m of additional drilling completed since the initial resource estimate of 430m indicated tonnes at an average grade of 0.5% copper and 0.4g/t gold plus 650m inferred tonnes at an average grade of 0.4% copper and 0.3g/t gold was published in January 2018 based on 53,616m of drilling.
  • The additional drilling “could deliver significant resource growth, and the conversion of a large amount of tonnage into the Indicated category” when incorporated into the new estimate.
  • Recent infill drilling shows “a potentially more robust, richer high-grade core of the Alpala Deposit, as exemplified by:
    • Hole 57 high grade intercept:  304m @ 2.52% CuEq (1.15% Cu, 2.18g/t Au);
    • Hole 41-D1-D2 high grade intercept:  340m @ 1.54% CuEq (0.78% Cu, 1.21g/t Au);
    • Hole 41-D1 high grade intercept:  252m @ 1.53% CuEq (0.86% Cu, 1.07g/t Au).”
    • In Solgold’s recently published Annual Report, Mr. Mather outlined the development path for the wider Cascabel project with “a new Mineral Resource Estimate by early December with a 43‐101 compliant report within a month, along with the Maiden PEA in January 2019. From there, continued increasingly detailed feasibility studies in the resource evaluation, mine planning, process design and plant design, capital and operating cost estimates, and environmental and Community and Social Responsibility areas will deliver an increasingly robust project by calendar end of 2019. We expect to spend 2020 on permitting, final feasibility, financing and fiscal negotiations with a plan to get to a development decision by calendar end 2020”.
  • In addition, the recent intersection of 633.8m at an average grade of 0.74% copper and 0.81g/t gold from a depth of 870m in hole CSD-18-066 has “extended the high grade core of the deposit towards the southeast at depth and intersected a zone of visible gold associated with porphyry style chalcopyrite and bornite mineralisation”.
  • The intersection in hole 66 includes higher grade portions of 301.8m averaging 1.06% copper and 1.3g/t  from a depth of 1202m and of 173.8m averaging 1.36% copper and 1.73g/t gold from a depth of 1330m and the company comments that “Very high gold grades in the core and periphery of the deposit at Alpala can be associated with related to intermediate- to high- sulfidation state sulfide-mineral assemblage associated with a phyllic alteration over-print, and is a feature common in many of the world's richest porphyry deposits, like Oyu Tolgoi, Grasberg and Wafi-Golpu”.
  • Photographs of drill core from hole 66, included in today’s announcement, show particles of visible gold up to approximately 0.5mm across within the core.
  • Solgold also comments on “notable drill hole results outside the previous resource area, such as Hole 64, which last week intersected primary bornite mineralisation deep at Alpala NW.  The discovery of primary bornite-chalcopyrite assemblages with magnetite and in the absence of pyrite, is indicative of the high temperature core many porphyry systems, and warrants follow up drill testing and may lead to unearthing further evidence of a second system adjacent to the Alpala Deposit”. Results are not yet available however, drill core photographs published with the announcement show bornite and chalcopyrite mineralisation at various depths between 1803m and 1985m.
  • Commenting on the results and the forthcoming mineral resource estimate (MRE), CEO, Nick Mather, said “We expect the MRE update to validate a far more robust high-grade core, and an additional, (much shallower) second high-grade "western lobe" extension to the high-grade core.”
  • As work proceeds for the resource update, Solgold is operating its entire fleet of 12 drilling rigs at Alpala. “Secondary targets at Cascabel, including Aguinaga, Trivinio, and Moran are planned for drill testing as the Alpala resource development program allows”.
  • He also highlighted the wider opportunities available in Ecuador where “the Government is very committed to the development of an exploration and mining industry to supplement the nation’s GDP with income to replace oil and gas revenues … [and]  The mineralisation style that we see in an outcrop or piece of core, persists across very large mineral systems and has the potential to deliver very, very large orebodies, not just at Alpala but at all the projects throughout Ecuador”.
  • Mr. Mather identified Solgold’s competitive advantage where its “experiences at Alpala and Cascabel equip SolGold like no other in the country, with abundant access to the best prospects, a familiarity with the operating environment and an understanding of the predictability of these systems – all of which lead to high discovery rates of large mineral inventories on time and at low cost.”

Conclusion: Solgold is progressing the resource update at Alpala to incorporate the results of the 2018 drilling programme and expects to release the results in December as a prelude to a PEA early in 2019 and further technical, environmental and regulatory work leading to a development decision by the end of 2020.

*SP Angel act as UK broker to SolGold

 

 

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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Recommendations are based on a 12 month horizon as follows:

Buy - Expected return >15%

Hold - Expected return range -15% to +15%

Sell - Expected return < 15%

 

** SP Angel acts as Broker to this Company