SP Angel – Morning View – Wednesday 03 10 18

Gold climbs past $1,200/oz on Italian deficit concerns

MiFID II exempt information – see disclaimer below 

Scotgold Resources* (SGZ LN) – BUY, target 60p – Loan terms update

Strategic Minerals Plc* (SML LN) – Drilling at Redmoor shows good tin grades over meaningful widths

 

Precious metals get safe-haven boost

• Gold and silver get major support in New York as December gold contracts equal to almost 1.57moz traded on Comex – almost 12x the 100-day average plumes for that time of day.
• The spike in trading drove prices that had been trading in narrow ranges, with trading activity suggesting “that an investor is making a significant allocation in gold at the beginning of the month”, according to precious metals trading at BMO Capital Markets.
• Money managers are giving precious metals as second look as the European Commission warned of a Greek-style crisis in Italy after Finance Minister Giovanni Tria’s effort to promote his government’s new fiscal strategy ended in failure on Monday.
• Gold futures for December delivery climbed +1.5% to $1,210.1/oz, set for the biggest gain since Aug. 24.
• Silver futures rose as much as +3.1% to $14.95/oz, the highest since Aug. 28.

 

Climate panel calls for deeper cuts to coal global coal production

• A panel of the world’s top climate scientists is preparing to recommend much deeper cuts into fossil-fuel pollution than current levels in an effort to starve off dangerous increases in global temperatures.
• According to the draft findings, utilities will have to consume just a third of the coal they burn now to hold global warming since the start of the industrial era to 1.5 degrees Celsius. The cut represents more than twice the severity of the boldest scenario proposed by the International Energy Agency.
• However, following the Paris Treaty in 2015 President Trump has declared the issue a hoax and vowed to be the only global country to withdraw from the agreement, while governments across Europe and Asia are working to restrain emissions.
• The report by the United Nations’ Intergovernmental Panel on Climate Change draws together hundreds of climate scientists from 195 countries. They’re distilling thousands of academic papers into digestible advice for policy makers.
• Coal industry officials disagree, claiming slashing access to fuel will slow economic growth and leave millions of people trapped in poverty, unable to access affordable electricity. This argument is becoming significantly less valid as falling renewable energy costs are driven by mass adoption.
• In India, wholesale solar power prices continue to reach record lows, faster than analysts predicted and further undercutting the price of fossil-fuel-generated power in the country. Power companies Phelan Energy and Avaada Power each offered to charge 2.62 rupees per kWh, representing a 40% drop from the previous record.
• Envoys at the discussion hope to endorse guidelines at the end of the year at a meeting in Poland, spelling out both how $100bn in climate-related aid will be delivered an market mechanisms that would spur further emissions cuts.

 

Norway leads the way in electric car sales

• Advisory Council of Veitrafikken AS data records Norwegians swung strongly toward electric vehicles, with zero-emissions vehicles accounting for 45% market share.
• There were 4,810 passenger cars registered in Norway, rising 25% since last year. With more electric vehicles sold, average CO2 emissions per vehicle declined to 55g/km, falling 21% yoy.
• The trend also suggests a drift from hybrid cars to all-electric, with sales of hybrids falling 34%.
• Reports from Bloomberg give strong indication for new car sales swinging to electric, with vehicle sales in the 12 months ending June increasing by 1.15m units in major markets of China, Europe, Japan and North America. Sales of all-electric reached almost half, with 565,000 sales.
• Growing sales are only serving to highlight the importance of secure, long-term supply of battery metals including lithium, cobalt, graphite, manganese, nickel and aluminium.

 

Dow Jones Industrials		+0.46%	at	26,774
Nikkei 225		-0.66%	at	24,111
HK Hang Seng		-0.16%	at	27,084
Shanghai Composite		+1.06%	at	2,821
FTSE 350 Mining		-0.24%	at	17,840
AIM Basic Resources		-0.26%	at	2,205

 

Economics

Eurozone – Growth in the business activity eased in September to a 4-month low, driven by the weakest factory growth in two years that was only partly compensated by a pick up among services providers.

• Despite a pull back during the month, Eurozone PMIs continue to run at relatively elevated levels compared to historical data; although, the pace is expected to ease further in coming months.
• “The fourth quarter is unlikely to see such robust growth, as recent months have seen a clear loss of momentum in terms of both output and new order gains,” HIS Markit said.
• Composite PMI: 54.1 v 54.5 in August.

 

UK – Services sector PMI came off only slightly in September suggesting growth continued at solid rate with a surprising pick up in employment.

• New orders growth eased slightly since August which mirrored the softer trend for business activity with many respondents highlighting political uncertainty as a major reason for concern.
• Stronger oil prices led to another sharp increase in input costs while relatively subdued demand conditions suggested that output charges increased at the slowest pace since June 2017.
• Business confidence improved slightly in September with some companies expecting a boost to activity from pent up client demand following the conclusion of Brexit negotiations.
• On a separate note, house prices growth matched the pace recorded in August (2.0%yoy) confirming the slowest rate seen in five years, according to nationwide data.
• “Subdued economic activity and ongoing pressure on household budgets is likely to continue to exert a modest drag on housing market activity and house price growth this year, though borrowing costs are likely to remain low,” Nationwide commented on numbers.
• Services PMI: 53.9 v 54.3 in August and 54.0 forecast.
• Composite PMI: 54.1 v 54.2 in August and 53.9 forecast.

 

Italy – The euro and Italian sovereign bonds climbed on the back of reports the government will revise down its fiscal deficit targets.

• The draft budget plan will pledge to cut the deficit to 2% in 2021 revising it down from the initial proposal, according to a local news agency Corriere della Sera.
• Previously, the coalition government said the deficit would expand the deficit to 2.4% in 2019, well above the initial target of 0.8% proposed by the nation’s former centre-left government.
• This compares to a 1.6% reading targeted for this year.

 

Turkey – Consumer prices soared 25%yoy in September while producer prices inflation climbed to 46%yoy, the highest level since 2011.

• Consumer prices have been driven by huge increases in transportation costs, which climbed 37%yoy, as well as food prices that went up 28%yoy.
• Imported goods costs have risen as a result nearly a 40% depreciation in the Turkish lira over the last 12 months.
• The central bank hiked rates mid last month to 24% from 17.75% to tighten inflation pressures; seems more needs to be done at this point.

 

North Korea – Pompeo is meeting Kim Jong Un in Pyongyang this Sunday to discuss the denuclearisation programme.

• Previously, President Trump cancelled the last Pompeo trip to North Korea last month criticising lack of progress and goodwill from the other side.
• At this point, re-establishment of a dialogue between the US and North Korea is a good pointing to a potential of a second summit between two nations’ leaders.

 

Uganda - Transparency program aims to boost mining in Uganda

• Uganda plans to join a program offering to root out corruption in resources industries across east Africa, to support growth and reassure investors that it isn’t involved in “conflict minerals”.
• According to the Minister of State For Energy and Mineral Development, the cabinet has endorsed joining the Extractive Industries Transparency Initiative.
• While minerals only account or 0.3% GDP, its hoped to expand to 5% once laws are amended to include artisanal miners and construction materials. The nation is hoping to attract investment to develop deposits of copper, nickel, gold, chromite, iron ore, tin, tungsten, limestone and vermiculite.
• Around 50 countries are part of the EITI, which track payments to governments in the oil, gas and mining industries.
• “We are joining to make sure everything is done transparently and to avoid suspicion tat we may be involved in conflict minerals”. At the sam time, Uganda plans to start export certification to identify the origins of minerals.

 

Currencies

US$1.1577/eur vs 1.1530/eur yesterday.  Yen 113.81/$ vs 113.75/$.  SAr 14.366/$ vs 14.335/$.  $1.300/gbp vs $1.299/gbp.  0.717/aud vs 0.719/aud. CNY 6.869/$ vs 6.869/$.

 

Commodity News

Precious metals:         

Gold US$1,206/oz vs US$1,194/oz yesterday - Gold – Prices benefited from investors’ concerns over new budget plans in Italy that risked compliance with the Eurozone fiscal rules.

• The precious metal climbed above 55-day moving average as risk appetite was hit by revived fears of the eurozone debt crisis.

   Gold ETFs 67.3moz vs US$67.4moz yesterday

Platinum US$834/oz vs US$825/oz yesterday

Palladium US$1,055/oz vs US$1,058/oz yesterday

Silver US$14.75/oz vs US$14.58/oz yesterday

           

Base metals:   

Copper US$ 6,274/t vs US$6,234/t yesterday

Aluminium US$ 2,160/t vs US$2,087/t yesterday

Nickel US$ 12,480/t vs US$12,445/t yesterday

Zinc US$ 2,641/t vs US$2,659/t yesterday - Zinc hits near two-month high

• Zinc hit its highest in nearly two months on Tuesday on falling stockpiles and rising Chinese premiums or surcharges for the physical metal, though gains were capped by signs that growth in China is cooling.
• Zinc inventories in Shanghai Futures Exchange warehouses are at more than decade lows while premiums in Shanghai, at above $200/t, have hit their highest since November 2013, according to Bank of China International.
• "Refined zinc production in China has been low because of the smelter cuts [but] the demand side [is] not very robust either," said Xiao Fu, head of Commodity Market Strategy at BOCI.
• Three-month zinc on the London Metal Exchange fell 0.5% to $2,643/t, having hit its highest since early August at $2,660.50.

 

Lead US$ 2,058/t vs US$2,029/t yesterday

Tin US$ 18,940/t vs US$18,975/t yesterday

           

Energy:           

Oil US$85.0/bbl vs US$85.1/bbl yesterday

Natural Gas US$3.171/mmbtu vs US$3.121/mmbtu yesterday

Uranium US$27.55/lb vs US$27.45/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$68.4/t vs US$68.0/t

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

Thermal coal (1st year forward cif ARA) US$99.0/t vs US$100.0/t

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

           

Other:  

Cobalt LME 3m US$63,000/t vs US$58,250/t

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

Lithium - China Lithium carbonate 99% US$10,337/t vs US$10,337/t - Six Sigma’s due diligence drilling confirms high-grade lithium mineralisation at Shamva

• Exploration company Six Sigma Metals has confirmed the intersection of “exceptional” grades of mineralisation during a drilling and rock sampling campaign at the high-priority Bonnyvale prospect, within the Shamva lithium project in northern Zimbabwe.
• The campaign was designed to drill and collect sections of continuous, unbiased samples across the Bonnyvale pegmatites as part of Six Sigma’s due diligence assessment of the project, prior to acquiring an 80% interest from Botswana-based company Mirrorplex.
• The five-hole, 287-metre reverse circulation program returned significant intersections of high-grade lithium oxide within spodumene-rich zones continuing at depth below surface outcrops and old workings.
• Best results were 8m at 3.08% lithium oxide from 1m, including 5m at 4.38% lithium oxide from 2m.

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

 

Company News

Scotgold Resources* (SGZ LN)  24p, Mkt Cap £10m – Loan terms update

BUY – 60p

• £5m secured loan terms provided by Bridge Barn Ltd, an entity owned by the Company’s Chairman and major shareholder Nathaniel le Roux, have been amended due to a delay in the start of development works at Cononish.
• Originally, the loan drawdown schedule included taking out £3m by 30 September 2018 with the balance drawdown within 30 days of the first one; term of the loan was 30 months from earliest date of draw-down.
• This has been changed to a draw down in three tranches over a maximum of a 12 month period with each tranche repayable 2 years after each respective drawdown .
• Remaining terms including no charge early repayment clause and an interest rate of 9% have been left unchanged.

Conclusion: The adjustment reflects new planned schedule for the start of construction works at Cononish and bears little effect on our target valuation. It is good to see support from one of major shareholders in the Company amending terms of the provided loan facility.

(Jun year end)		FY16	FY17	FY18	FY19e	FY20e	FY21e	FY22e
Gold price	US$/oz	1,168	1,258	1,298	1,268	1,325	1,350	1,350
Gold price	GBP/oz	788	992	964	905	946	964	964
AUDGBP	A$/£	2.04	1.68	1.74	1.78	1.78	1.78	1.78
Gold sales	koz	-	-	-	1.0	10.2	15.8	18.4
TCC	GBP/oz	-	-	-	484	438	321	306
Sales	A$m	0.0	0.0	0.3	1.6	17.2	27.1	31.6
EBITDA	A$m	-1.3	-1.1	-1.7	-1.1	7.5	16.8	20.2
PAT	A$m	-1.5	-1.3	-1.9	-1.9	5.0	12.6	12.0
Basic EPS	A$c	-11.8	-8.6	-7.9	-4.5	11.6	29.4	28.1
FCF	A$m	-2.7	-2.1	-2.0	-17.6	5.5	3.2	12.0
EV/EBITDA	x	-	-	-	-	3.5	1.6	1.3
PER	x	-	-	-	-	2.6	1.0	1.1
Source: SP Angel, Company

*SP Angel acts as nomad and broker to Scotgold Resources

 

Strategic Minerals Plc* (SML LN)  1.55p, Mkt Cap £21.4m – Drilling at Redmoor shows good tin grades over meaningful widths

Strategic Minerals hold 50% of the historic Redmoor mine alongside New Age Exploration Limited (NAE AU)

• Strategic Minerals and their joint venture partners New Age Exploration are to continue to invest in further drilling at Redmoor in Cornwall, UK.
• The latest set of drill assays from the two drill holes at Redmoor show some very promising grades over meaningful widths depending on the orientation of the drill holes to the intersected veins.
• The drilling was designed to test mineralisation at depth which is shown to host high tin grades and potential for the mining of >1% tin over a probable broad mineralised intersection.
  • Drill hole 23:    22.49m grading 1.00% tin equivalent from 667.10m,
    • • inc. 2.00m grading 4.25% Sn eq.
      • 1.05m grading 5.76% Sn eq. from 650.89 m

 

• • Drill hole 24:    6.21 m @ 1.46% Sn eq. from 499.42m, including 1.00m grading 4.11% Sn eq
    • • 5.62 m @ 1.83% Sn eq. from 567.94m, including 1.00m grading 7.74% Sn eq
      • 6.00 m @ 2.61% Sn eq. from 583.95m, including 3.00m grading 4.45% Sn eq

 

• The drill assays indicate an increase in the resource scale and grade at Redmoor.
• Strategic Minerals’ is funding its 50% share of the project from internal cash flow including £121,500 for further drilling in the Phase 2 program.
• Redmoor has an inferred resource of 4.5mt grading 1.0% SnEq(1). The seven-hole Phase 1 programme was funded by SML and NAE having contributed £332,000 each
• Elsewhere Strategic Minerals recently added significant value through the acquisition of the Leigh Creek Copper Mine in South Australia with a US$2.4m after tax profit registered on it’s purchase.
• The team expect to recommission the mine next year with production due in 2019
• The company has an estimated JORC 2012 compliant Resource of 3.61mt grading 0.69% copper for 24,900t of copper
• Plus a further 1.8Mt grading 0.68% copper of non-JORC compliant ore identified within the existing mining leases.
• Strategic Minerals’ Cobre operation in New Mexico, USA continue to generate significant cash flow funding the group and current exploration.

Conclusion:  Strategic Minerals continue to expand the scale and potential grade of the resource at Redmoor. The published results suggest the project may potentially generate sufficient grade and tonnes for an economic and mineable proposition going forward.

*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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Buy - Expected return >15%

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

Sell - Expected return < 15%

 

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