SP Angel . Morning View . Commodities climb as trade conflict on pause

SP Angel – Morning View – Monday 03 01 18

Commodities climb as trade conflict on pause

MiFID II exempt information – see disclaimer below

Mkango Resources * (MKA LN) – Highest grade rare earth mineralised intersections reported at Songwe Hill project

Phoenix Global Mining* (PGM LN) – Drilling at Red Star hits high grade silver and lead

W Resources (WRES LN) – Delivery of tungsten concentrate from La Parilla

Walkabout Resources * (WKT AU) – Project update for Lindi Jumbo graphite

 

Dow Jones Industrials		+0.79%	at	25,538
Nikkei 225		+1.00%	at	22,575
HK Hang Seng		+2.55%	at	27,182
Shanghai Composite		+2.57%	at	2,655
FTSE 350 Mining		+5.01%	at	16,997
AIM Basic Resources		-0.24%	at	2,116

 

Economics

US – Risk on sentiment is driving global equities higher this morning following the news that US and China agreed to delay higher tariffs on Chinese imports for 90 days.

• In exchange for a temporary truce, China agreed to increase imports of farm, energy and industrial goods to narrow the trade gap with the US as well as address allegations of intellectual property and technology theft.
• Previously US administration threatened China to raise import tariffs rate to 25%, up 15pp, on $200bn Chinese imports from the start of 2019 as well as considered extending the list of affected goods by additional $267bn.
• Commodity prices are trading higher with copper producer Antofagasta (+7.4%) posting the strongest increase across other FTSE 100 companies.

 

China – Manufacturing sector posted another weak monthly reading in November amid reduced export orders and subdued economic outlook, Caixin PMI data showed.

• Manufacturing PMI came in at 50.2 last month, up 0.1 points on October, marking the second lowest reading in more than a year.
• Respondents to the survey highlighted strict environmental policies and relatively sluggish market conditions as factors weighing on business activity in the sector

 

France – President Macron held an urgent security meeting with the cabinet on Sunday amid a series of protests across the country.

• Demonstrations that started off following a decision to raise fuel tax have grown into anti-government protests.
• Estimated 136,000 demonstrators took protests to the streets across France on Saturday of which some 5,500 were seen in Paris.
• This compares with 166,000 protestors last Saturday and 282,000 across the country the weekend before that.
• The price of diesel, which is the most commonly used fuel by French drivers, climbed 23% over the last 12 months to €1.51/l marking the highest level since the early 2000s.
• The government raised hydrocarbon tax this year by 7.6c/l on diesel and ruled to impose a further increase of 6.5c/l from 1 January.

 

Spain/Italy – Two economies are posting diverging growth dynamics with manufacturing sector in Spain recovering from the latest slowdown in the momentum whereas Italy sees its manufacturing activity diving deeper in the contractionary territory.

• In Spain, both manufacturing output and new orders increased at stronger rates when compared to October driven by the release of new product lines and an upturn in demand, both from domestic and foreign sales.
• On a less positive side, business outlook hit the lowest since June 2013 on worries over political stability and the effect of the downturn in the autos industry.
• In Italy, both production and new orders were down in November while business confidence hit the weakest levels since May/13.
• Earlier last week, Eu governments are reported to have backed EC budget disciplinary action against Italy after Rome had not agreed to revise forecast budget deficit levels lower.
• Italy could ultimately face a fine of up to 0.5%of economic output (€9bn) if it refuses to comply with the EU rules.
• Italy’s top government officials are planning to consider a reduction of 2.4% deficit target for 2019 to somewhere closer to 2.0%, Reuters reports this morning citing La Republica.
• Spain Manufacturing PMI: 52.6 v 51.8 in October and 51.5 forecast.
• Italy Manufacturing PMI:  48.6 v 49.2 in October and 58.9 forecast.

 

Qatar – Qatar, a member since 1961, is planning to exit the OPEC from the start of 2019 and focus on its LNG production, Energy Minister Saad Sherida Al-Kaabi said.

• The nation is OPEC’s 11-biggest oil producer accounting for less than 2% of total output suggesting the departure is unlikely to have a significant impact on discussions to cut output this week.
• Qatar pumps under 1mmbbl per day but is a major producer of natural gas with plans to significantly ramp up output levels of the latter.
• Combined oil and gas production is currently running at 4.8mmbbl equivalent with plans to expand that to 6.5mmbbl, according to Al-Kaabi.

 

Currencies

US$1.1362/eur vs 1.1382/eur last week  Yen 113.50/$ vs 113.47/$  SAr 13.589/$ vs 13.694/$  $1.280/gbp vs $1.278/gbp  0.738/aud vs 0.731/aud  CNY 6.888/$ vs 6.946/$

 

Commodity News

Precious metals:         

Gold US$1,231/oz vs US$1,225/oz last week

   Gold ETFs 68.9moz vs US$68.9moz last week

Platinum US$813/oz vs US$814/oz last week

Palladium US$1,196/oz vs US$1,191/oz last week

Silver US$14.41/oz vs US$14.33/oz last week

           

Base metals:   

Copper US$ 6,325/t vs US$6,224/t last week

Aluminium US$ 1,986/t vs US$1,937/t last week

Nickel US$ 11,300/t vs US$11,090/t last week

Zinc US$ 2,604/t vs US$2,494/t last week

Lead US$ 2,004/t vs US$1,946/t last week

Tin US$ 18,710/t vs US$18,595/t last week

           

Energy:           

Oil US$62.4/bbl vs US$59.6/bbl last week

Natural Gas US$4.516/mmbtu vs US$4.624/mmbtu last week

Uranium US$28.90/lb vs US$28.80/lb last week

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$62.9/t vs US$64.2/t

Chinese steel rebar 25mm US$610.6/t vs US$585.1/t

• Prices of Chinese steel products and raw materials soared more than 6% on Monday as Beijing and Washington agree to a trade ceasefire, supporting market sentiment amid concerns of a supply glut. Benchmark construction steel rebar futures on the Shanghai Futures Exchange rallied +7%, recording their best intraday gain in nearly 14 months.
• Global steel industry received a boost as leaders of China and the US have sealed a truce in trade war after high-stakes talks in Argentina on Sunday, with Trump agreeing not escalating tariffs “at this time”, while China agreeing to purchase more products from the United States.
• Analysts recognise the “market has seized this uncommon opportunity to correct recent backwardation on steel prices, which were dampened by extremely pessimistic outlook amid slowing economic growth”, according to Zhuo Guiqiu.
• The most-active iron ore futures for January delivery jumped as much as +5.9%, their sharpest intraday gain since early August.
• However, the rally could be temporary and unsupported by weak market fundamentals. Steel output remains high and there is no stimulus from the government to boost demand. "Steel mills have not started to reduce production, which slowed down the process of easing concerns over glut. We expect steel prices would stay low as demand remains at a seasonal downward trend," CITIC Futures analysts write.

Thermal coal (1st year forward cif ARA) US$86.3/t vs US$86.3/t

Coking coal futures Dalian Exchange US$200.3/t vs US$198.7/t

           

Other:  

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

China NdPr Rare Earth Oxide US$46,600/t vs US$45,924/t

China Lithium carbonate 99% US$10,162/t vs US$10,077/t

Solar-powered electrolysis to extract lithium from seawater

• Researchers from Nanjing University have developed a solar-powered electrolysis process to extract lithium from seawater that is said to be faster and more controllable than the current methods, and that could overcome the limit of the concentration difference present in the dialysis method.
• The team used a lithium superionic conductor Nasicon-type solid-state electrolyte as the Li+-selective membrane, with an aprotic electrolyte instead of an aqueous solution in the anode side of the electrolysis cell to create a proton-free compartment.
• The prototype device can reportedly be powered by a solar panel.

Tungsten APT European US$275-295/mtu vs US$275-295/mtu

 

Battery News

Bio-Inspired Crystal Gives Batteries A Boost

• A research team at Osaka University, Japan, has drawn inspiration from living cells to create a material that could improve the safety of rechargeable batteries while lowering their manufacturing costs.
• To solve problems created by the larger size of sodium and potassium ions, researchers led by Professor Takumi Konno of Osaka University developed an ionic crystal using rhodium, zinc and oxygen atoms that behaves like a biological ion channel, allowing the rapid movement of potassium ions within its lattice structure.
• The researchers claim that their ionic crystal has the largest hydrated potassium ion mobility ever seen to date.
• “Such superionic conductivity of hydrated potassium ions in the solid state is unprecedented and may lead to both safer and cheaper rechargeable batteries.” said lead author Dr. Nobuto Yoshinari of Osaka University.

 

Centrica  and Uber launch electric vehicle trial to monitor impact on UK energy grid

• Thousands of electric vehicles are to be hooked up to Britain's electricity grid to test its ability to cope with power fluctuations caused by a mass roll-out of the technology.
• The trial of 3,000 of the vehicles in London and the South of England has been approved by Ofgem and is being led by Uber and Centrica.
• The cars will be on the road by the second half of next year and the trial will continue until 2022.  Data will be collected about the distance travelled, the cost of trips, as well as the amount of energy consumed and the times of day at which vehicles were charged.    
• The data and results that Uber and Centrica collect from the trial will be shared openly, the companies said.

 

Tesco  and VW plan free electric car charging points

• Tesco has announced a new partnership with Volkswagen that will create the largest retail EV market in the UK, with the rollout of more than 2,400 EV charging bays across 600 of the retailer's stores over the next three years.
• Provided and installed by Pod Point, the EV chargers will be based at Tesco Extra and Superstore car parks, offering customers the ability to power up their electric cars using either a 7kW charger for free, or a rapid 50kW charger at a "small cost in line with the market rate", the retailer said.
• It is estimated the rollout would single-handedly boost the number of publicly available EV charger bays in the UK by 14%.

 

BMW and partners launch project to improve cobalt mining conditions

• BMW has launched a cobalt pilot project in the Democratic Republic of the Congo to improve working conditions for artisanal cobalt miners.
• Other stakeholders in the pilot project include chemicals firm BASF SE, South Korean battery maker Samsung SDI, and Samsung Electronics.
• According to BMW, the scope of the project will cover one pilot mine within the next three years.
• In a statement, BMW said: “If proven effective, these measures could then be scaled up to other legal artisanal mine sites and enhance systemic challenges in the longer run.”

 

Adapting aluminium for better batteries

• An ultrathin chemical coating on aluminium could facilitate its use in a new generation of efficient, cost effective and safe battery technologies.
• “Aluminium has long been pursued as a prized candidate for high capacity, low cost electrical energy storage,” says Lynden Archer, leader of the research team at Cornell University in the U.S. that made the breakthrough.
• The Cornell team found a way to coat aluminium with a thin chemical film that transforms the behaviour of the surface.
• The coating is added by treating the metal with a specific ionic liquid containing chloride ions and a small nitrogen-containing organic compound.
• Treated interface layers spontaneously erode existing aluminium oxide and also prevent any further oxide formation.

 

Electric driverless truck set to gain approval for public roads

• Swedish autonomous vehicle start-up Einride and German logistics group DB Schenker expect regulatory approval within weeks allowing an all-electric, driverless truck to carry freight on a public road.
• The 7.5-tonne “smart container on wheels” is called the T-Pod and lacks a steering wheel or foot pedal, offering more room for freight.
• Powered by the Nvidia Drive platform, the vehicle is considered Level 4 autonomous.

Company News

Mkango Resources * (MKA LN)  8.9p, Mkt Cap £9.8m – Highest grade rare earth mineralised intersections reported at Songwe Hill project

• Advanced-stage rare earths exploration and development company announce results for the final twenty one drill holes from the recently completed 10,900m diamond drill programme at the Songwe Hill project in Malawi, reporting the highest-grade intersection at the project to date.
• Nineteen of the latest twenty one drill holes intersected significant zones of rare earth mineralisation grading about 1% total rare earth oxides (“TREO”), including elevated grades of 3.3% over 100.9m including 20.5m @ 4.2% and 22.2m @ 4.1% TREO in hole PX112. Drill holes PX081, PX086, PX087, PX112 and PX125 successfully targeted the higher grade “black carbonatite” zone, located in the north-east.
• The positive grades will underpin a major enhancement to the resource update, anticipated in the first quarter 2019, and with the subsequent publication of the related NI 43-101 technical report will release the second £7m investment tranche from Talaxis to fund completion of the Feasibility Study for Songwe.
• The drill programme (schematic geological map available at www.mkango.ca) comprised infill drilling to confirm and upgrade the existing Indicated and Inferred Mineral Resource Estimates, step out drilling to test extensions to the mineralisation, and geotechnical drilling.

Conclusion: The final phase of drill results continue to demonstrate broad rare earth mineralisation at the Songwe Hill project. The high-grade results from the ‘black carbonatite’ zone only serve to highlight the potential of the deposit as a significant source of rare earths outside of China. We look forward to understanding the scale of the updated resource statement and the metallurgical optimisation work as the company develops its Feasibility Study through 2019.

*SP Angel act as Nomad and broker to Mkango Resources. The analyst has visited the Songwe Hill exploration site.

 

Phoenix Global Mining* (PGM LN)  31p, Mkt Cap £9.9m – Drilling at Red Star hits high grade silver and lead

• Phoenix Global Mining reports results from the first three holes drilled at the recently discovered Red Star area as well as results from extension and infill holes on the Empire mine oxide resource.
• At Red Star, which lies approximately 330m north-northwest of the Empire oxide resource area and between Empire and the Horseshoe Claim Block, the drilling results “help confirm that the Empire mineralised system extends well beyond the near surface copper oxide resource which is currently the subject of our Empire Mine Feasibility Study”.
• The results reported today show:
  • Two mineralised intersections, each of 9.15m width in hole KX18-55. The upper section from surface to a depth of 9.15m averaged 0.43% copper, 0.31% zinc, 0.24% lead, 0.03g/t gold and 23.71g/t silver. The lower, higher grade, intersection, located between a depth of 16.77m and 25.91m averaged 0.21% copper, 0.78% zinc, 9.92% lead, 0.11g/t gold and 360.64g/t silver and included a 1.52m long zone from a depth of 19.82m which averaged 0.14% copper, 0.42% zinc,13.30% lead, 0.13g/t gold and 497.20g/t silver;
  • A 3.05m long intersection from surface in hole KX18-56 which averaged 0.21% copper, 0.23% zinc, 0.18% lead, 0.74g/t gold and 24.86g/t silver; and
  • A 15.24m long zone between 24.39m to 39.63m depth in hole KX18-57 which averaged 0.13% copper, 1.40% zinc, 2.83% lead, 0.06/t gold and 159.85g/t silver and included a 1.52m wide section from 27.44m depth which averaged 0.06% copper, 0.62% zinc, 20.00% lead, 0.17g/t gold and 1111g/t silver.
• The company comments that “The presence of high-grade lead and silver is consistent with the mineralisation expected at the "top" of similar systems that have not been subject to significant erosion.  The RedStar Zone and the Horseshoe Block appear to be in a down-dropped block of material similar to the Empire Mine zone but it has resisted erosion due to the topography. In this scenario, the equivalent copper mineralisation in the Empire Block may exist below the lead and silver system in the Horseshoe Block and RedStar Zone.”
• Welcoming the results, Chief Executive Dennis Thomas, while recognising that “We have only now begun to understand the full scale of the opportunity” within the 3.5km long zone extending from the Empire mine, though Red Star to the Horseshoe block, said that the “Red Star drilling results, coupled with the precious and base metal production history in the Horseshoe Mine itself, are further evidence of the potential existence of a major orebody along the 3.5km long strike”
• As well as the results from Red Star, the company also reports the results of further step-out and infill drilling in the Empire Mine oxide resource area which is currently the subject of a Bankable Feasibility Study.
  • Step-out hole KXD18-23 intersected 6.1m of mineralisation from surface at an average grade of 0.48% copper, 0.08% zinc,0.23% lead, 10.70g/t silver and 0.23g/t gold with a deeper intersection of 1.52m between depths of 45.73m and 47.26m averaging 0.56% copper, 1.48% zinc, 0.03% lead, 1.34g/t gold and 25.52g/t silver; and
  • Infill hole KXD18-20 intersected 18.46m of mineralisation between 32.07m an 42.53m depth at an average grade of 1.20% copper, 0.70% zinc, 0.25/t gold and 14.72g/t silver which included a 4.51m long section from 32.07m depth which averaged 2.15%copper, 1.36% zinc, 0.10/t gold and 25.01g/t silver; and
  • A second infill hole, KXD18-22 which reported multiple mineralised sections including a 1.37m long zone from 33.99m depth at an average grade of 12.05% copper, 0.13% zinc, 0.98g/t gold and 444.4g/t silver within a wider 5.95m wide zone from 33.99m depth at an average grade of 3.33% copper, 0.16% zinc, 0.31g/t gold and 147.95g/t silver as well as a 4.57m wide zone from 119.21m depth at an average grade of 1.41% copper, 0.19% zinc, 0.40g/t gold and 16.21g/t silver

Conclusion: The Red Star drilling results add weight to the concept that mineralisation may be continuous over the 3.5km between the Empire mine and the Horseshoe claims. The high silver and lead grades support the possibility that the north-northwest end of the mineralisation at Red Star and Horseshow may lie in a down-faulted block and raises the intriguing possibility that deeper levels of the original mineralised system containing copper, as seen at the Empire mine itself, may remain intact at depth. Much detailed exploration remains to be done before these concepts can be confirmed, however, the grades and emerging extent of the mineralisation may spark more investor interest in the continuing exploration programme.

*SP Angel acts as Nomad and broker to Phoenix Global Mining

 

W Resources (WRES LN)  0.54p, Mkt Cap £29.6m – Delivery of tungsten concentrate from La Parilla

• W Resources reports that it has delivered its first shipment of tungsten concentrate from its La Parilla mine in Spain to a European customer.
• The size and grade of the concentrate shipment is not disclosed in the press release however, expressing delight at the milestone, Chairman, Michael Masterman, said that “Export size will build through December and the new year”.
• Mr. Masterman described the shipment as “the first of a three stage production programme which allows the Company to generate revenue and cash flow ahead of the move to large scaler production in 2019 at a planned rate of 2,500 tonnes per annum of tungsten concentrate”.

 

Walkabout Resources * (WKT AU) A$0.09, Mkt Cap A$27.7m – Project update for Lindi Jumbo graphite

• Management announce an alternative funding strategy for the project, resulting from exclusion of an onerous and unattractive partial funding model pursued through Chinese State-Owned Enterprise CNBM. The company instead focus on a combination of corporate debt (recently completed to strengthen the balance sheet), a level of quasi-debt, and interest at project equity level.
• Project funding remains the highest priority for the management, with several interest parties from Australia, Europe and China conducting Lindi Jumbo site visits as part of their due diligence processes and in order to familiarise themselves with the operational environment. Details cannot be disclosed at this stage, due to confidentiality and having not been finalised.
• Company executives have also been progressing additional Off-Take discussions across China and Europe with counter parties to the Heads of Agreements announced in June and potential new customers and industry participants. Visits focus on promoting the project, specifically perceived timelines and development progress at Lindi Jumbo.
• Feedback from all parties has been positive with extensive test-work conducted on the Lindi Jumbo graphite concentrate yielding supporting marketing product.
• The Company’s Project Manager and metallurgical consultants are engaged with regular reviews of the flowsheet, equipment selection and associated infrastructure and are interacting closely with engineering partners Yantai Jinpeng Mining and Machinery Co. Ltd. (Jinpeng) to ensure that any changes are finalised without compromising on the quality or standards of the plant.
• Domestic progress has targeted finalising the Relocation and Assistance Program as part of the on-site activities. Government evaluators completed the program during October, which has reconciliated against an internal audit to ensure values and measurements are correct and fair to all parties involved. The company recognise there are no significant inconsistencies with the calculations and final valuations are being socialised and discussed with the affected individuals and government bodies, with a six month deadline from the government sign-off to compensate landowners.
• Walkabout Resources also provide an update on the proposed timeline for the technical update; with the Resource Upgrade Estimation due for completion and announcement in early December following QA/QC checks. The updated resource will then be incorporated into an updated mining and economic study of the Project and the Ore Reserve will be updated accordingly. This process will take at least three weeks and is due for announcement in early 2019.

Conclusion: Walkabout Resources are systematically progressing outstanding technical and financial aspects of the jumbo flake Lindi Jumbo project in Tanzania, with due diligence site visits a positive signal for the alternative funding strategy. We look forward to understanding the scale of the resource upgrade and the updated mining and economic study reported immanently.

*SP Angel acts as UK Broker to Walkabout Resources Ltd

 

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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