SP Angel – Morning View – Tuesday 18 09 18

Chinese rare earth dominance causes Trump tariff reversal

 

MiFID II exempt information – see disclaimer below

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

 

Anglo Asian Mining* (AAZ LN) – Gedabek JORC mineral resource at 1moz

Keras Resources* (KRS LN) – Ogaro prospect identified at Nayega

Lonmin PLC (LMI LN) – SACC approval

Phoenix Global Mining* (PGM LN) – Latest drilling hits high grade feeder zone at the Empire mine

W Resources (WRES LN) – Drilling results from Regua

 

US revises tariffs with reliance on China rare earth supply

  • Revisions to US plans to levy tariffs on approximately $200bn appears to shelve a critical collection of rare earth metals consumed across technology sectors including hybrid and electric vehicles, electronic gadgets and military hardware.
  • The latest list excludes metals including scandium and yttrium, with the updated list taking into consideration US dependence on China supply. According to the USGS, the United States has no domestic production of rare earths in 2017, with China accounting for more than 80% of the world’s rare earth metals and compounds.
  • The decision to back-track on imports of strategically critical commodities extends to graphite flake, as well as some forms of silico and magnesium. Beijing has also dropped its plan to impose levies on imports of US crude oil, an increasingly important source of supply to the Asian nation.
  • China has approximately 37% of global reserves and supplies 78% of America’s imports. However, every-stringent environmental legislation is impacting the viability and cost of Chinese operations, boosting the importance of ex-China supply, including advanced-stage projects such as Mkango Resources in Malawi.
  • The Songwe Hill project has completed its most comprehensive drilling programme to date with positive preliminary assay results, targeting an updated resource statement and Technical Report to release additional Talaxis funding and draw the deposit closer to production.
  • Heavy reliance on Asian production has historically resulted in WTO intervention as prices spikes amid a global shortage. Alternative supply will be fundamental for nations looking to secure long-term reliable rare earths to support growing technology industries.

 

Major Philippines supply could be halted

  • President Rodrigo Duterte announces the nation needs a “period of inactivity on its soil” and a respite from mining activities, adding that he’s willing to forego national revenue potential from minerals extraction since the industry hasn’t contributed “anything significant” to the economy.
  • The Environmental Department has been encouraged to “seriously take a second look” at open-pit mining, Duterte says, citing potential dangers. Currently Typhoon Mangkhut has triggered landslides that are responsible for killing dozens across the nation.
  • The Economic Planning Secretary Ernesto Pernia, during Aug. 9 briefing, said Duterte’s mining crackdown has contributed to lower-than-expected GDP of 6% in Q2.
  • The decision will strongly impact metals markets. In 2017, the Philippines represents the world’s second largest nickel producer, delivering 230,000t to global markets.

 

Electric car race hots up as Saudi wealth fund to invest $1bn in rival Lucid

  • Aspiring electric-car manufacturer, Lucid Motors Inc., receives strong support as Saudi Arabia’s sovereign wealth fund signed an agreement to invest more than $1bn, months after building a stake in Elon Musk-led Tesla Inc. The deal clinches crucial funding to begin manufacture of the Air Seda by 2020 from their Arizona plant, which is years behind schedule.
  • Saudi Arabia, the world’s largest oil exporter, has been making efforts to diversify its economy after crude oil prices collapsed in 2015. The kingdom plans to turn its Public Investment Fund (PIF) into the world’s biggest sovereign fund, controlling more than $2tr by 2030, to provide a hedge against fluctuating oil prices. The PIF notes “by investing in the rapidly expanding electric vehicle market, PIF is gaining exposure to long-term growth opportunities, supporting innovation and technological development and driving revenue and sectoral diversification for the Kingdom of Saudi Arabia”.
  • The Air, starting at $60,000, boasts as much as 400hp with range extending 240 miles, with a higher-end version costing more than $100,000.
  • Initial targets for production in 2018 have slipped, with Chief Technical Officer Peter Rawlinson wanting the company to secure fourth round funding before breaking ground on the Arizona factory.

 

X-rays uncover a hidden property that leads to failure in a lithium-ion battery material

  • X-ray experiments at the Department of Energy's SLAC National Accelerator Laboratory and Lawrence Berkeley National Laboratory have revealed that the pathways lithium ions take through a common battery material are more complex than previously thought.
  • The results correct more than two decades worth of assumptions about the material and will help improve battery design, potentially leading to a new generation of lithium-ion batteries.
  • An international team of researchers, led by William Chueh, a faculty scientist at SLAC's Stanford Institute for Materials & Energy Sciences and a Stanford materials science professor, published these findings yesterday in Nature Materials.

 

A novel approach of improving battery performance

  • A recent study, affiliated UNIST has introduced a novel technology that promises to significantly boost the performance of lithium metal batteries, a promising candidate for the next generation of rechargeable batteries
  • This breakthrough has been led by Professor Hyun-Wook Lee in the School of Energy and Chemical Engineering at UNIST in collaboration with the Agency for Science, Technology and Research (A*Star) in Singapore.
  • In the study, the research team suppressed dendritic growth of lithium metal anode by coating the lithium foil with a lithium silicide (LixSi) layer. Results showed excellent electrochemical performances in terms of rate capability and cycle stability.

 

Alkane Resources director Anthony Dean Lethlean snaps up more shares from the market

  • Alkane Resources Limited director Anthony Dean Lethlean is continuing to demonstrate his confidence in the company via the acquisition of more shares.
  • The latest acquisition of 40,000 shares valued at $8,200 has increased Lethlean’s total shareholding to 640,076 shares.
  • Alkane is also leveraged to the new US defence law that prevents the purchase of rare earth magnets from prohibited countries, like China, Russia, North Korea and Iran.

 

Dow Jones Industrials

 

-0.35%

at

26,062

Nikkei 225

 

+1.41%

at

23,421

HK Hang Seng

 

+0.44%

at

27,053

Shanghai Composite

 

+1.82%

at

2,700

FTSE 350 Mining

 

+0.12%

at

16,205

AIM Basic Resources

 

-0.31%

at

2,193

 

Economics

US – Trump supported a 10% tariff on further $200bn of Chinese imports threatening to raise it to 25% next year if no deal is reached to ease trade tensions between the US and China.

China vowed to retaliate arguing Trump tactics of taxing more than half of all Chinese shipments to the US undermined efforts to reach a settlement.

In August, Chinese authorities said they are prepared to implement retaliatory tariffs on US exports worth $110m or about 85% of the total.

Markets surprisingly had a muted reaction to the news with Asian equities and US equity futures trading stronger this morning.

 

UK – Draft withdrawal bill is 80% complete, the Commons select committee on Brexit reported.

Although, the committee highlighted that “significant sticking points remain” including future arrangements concerning the border between Northern Ireland and the Irish Republic.

PM May has previously warned her fellow MPs that they are due to face a choice between backing her proposed Chequers plan or having no deal.

The pound is steady this morning amid looming November UK/EU summit.

 

Argentina – The government is presenting austerity budget plant to congress including a 0.7% (of GDP) cut to transport and energy subsidies, a 0.5% reduction in capex and a 0.3% decrease in transfers to provinces.

Official estimates are for economic contraction to slow down to 0.5% next year following a drop of 2.0% this year.

Current account deficit is expected to be more than halved to $9.9bn, down from $22.4bn in 2018.

 

Currencies

US$1.1690/eur vs 1.1632/eur yesterday  Yen 112.00/$ vs 111.97/$  SAr 14.885/$ vs 15.015/$  $1.314/gbp vs $1.308/gbp  0.720/aud vs 0.716/aud  CNY 6.860/$ vs 6.869/$

 

Commodity News

Precious metals:         

Gold US$1,198/oz vs US$1,196/oz yesterday

   Gold ETFs 67.6moz vs US$67.7moz yesterday

Platinum US$800/oz vs US$794/oz yesterday

Palladium US$990/oz vs US$976/oz yesterday

Silver US$14.13/oz vs US$14.08/oz yesterday

           

Base metals:

  • Signals of rising infrastructure spending in China is giving robust stimulus to base metals which have been hammered by latest announcements of US tariffs on $200bn imports and China’s promises of retaliation. Olivia Markham, portfolio manager of BlackRock Inc’s World Mining Trust adds rising infrastructure spending after a weak first half could have the “potential to be quite commodity intensive and spur growth”.
  • While financially-traded commodities including copper, zinc and aluminum have had a sharp selloff in recent months on concerns over the trade tensions, physical commodities including iron ore and steel have been “remarkably robust” and there are reasonable underlying demand conditions in China.
  • Commodities markets have remained well supplied, however the mining sector has “had five years of under investment, so it probably is time to start thinking” again about volume growth. In particular the Fund is “looking to back quality, growth copper companies” after the firm sold off on the metal’s fall.
  • In particular, BlackRock expects to see “more change in the transport industry in the next 10 years than we’ve seen in the last 100” as vehicles become increasingly electrified, connected and eventually autonomous.
  • EVs consume almost 4x the copper than combustion-engine powered vehicles, while the metal is relied upon to develop the supporting charging infrastructure. The Fund is seeking the harness the theme with investments in lithium, cobalt and copper.

Copper US$ 5,935/t vs US$5,899/t yesterday

Aluminium US$ 2,035/t vs US$2,015/t yesterday

Nickel US$ 12,315/t vs US$12,315/t yesterday

Zinc US$ 2,353/t vs US$2,304/t yesterday

Lead US$ 2,039/t vs US$2,026/t yesterday

Tin US$ 18,940/t vs US$18,925/t yesterday

           

Energy:           

Oil US$77.7/bbl vs US$78.3/bbl yesterday

Natural Gas US$2.825/mmbtu vs US$2.781/mmbtu yesterday

Uranium US$27.40/lb vs US$27.30/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$68.7/t vs US$68.7/t

Chinese steel rebar 25mm US$690.7/t vs US$689.7/t

Thermal coal (1st year forward cif ARA) US$96.9/t vs US$94.5/t

Premium hard coking coal Aus fob US$182.2/t vs US$182.2/t

           

Other:  

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

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

 

Company News

Anglo Asian Mining* (AAZ LN)   52p, Mkt Cap £59m – Gedabek JORC mineral resource at 1moz

BUY – 84p

  • Gedabek mineral resources estimate is comprised of gold model (Au COG >0.3g/t) and an additional copper domain (Au COG <0.3g t="" and="" cu="" cog="">0.3%).
  • Gold mineral resource is provide below:

Gold model

Tons, mt

Au g/t

Au, koz

Ag g/t

Ag, koz

Cu %

Cu, kt

AuEq

Measured/Indicated

29.1

0.85

796

7.28

6,811

0.18

53.7

1,180

Inferred

8.5

0.69

189

4.98

1,361

0.11

9.7

260

Total resource

37.6

0.81

985

6.76

8,172

0.17

63.4

1,440

  • Copper mineral resource (in addition to gold mineral resources) is provided below:

Copper model

Tons, mt

Au g/t

Au, koz

Ag g/t

Ag, koz

Cu %

Cu, kt

AuEq

Measured/Indicated

6.2

0.12

24

2.03

404

0.50

30.7

200

Inferred

0.5

0.06

1

1.43

23

0.38

1.9

12

Total resource

6.7

0.12

25

1.98

427

0.49

32.6

211

AuEq estimated using SPA long term gold, silver, copper assumptions of $1,350/oz, $17/oz and $7,500/t, respectively

  • The mineral resource statement includes all drilling data up to July/2018.
  • Gedabek open pit mineral reserves estimated at 12.1mt at 0.88g/t gold, 8.90g/t silver and 0.30% copper for 343koz Au, 3,457koz Ag and 36kt Cu, respectively (see table below).

Gedabek OP reserves

Tons, mt

Au g/t

Au, koz

Ag g/t

Ag, koz

Cu %

Cu, kt

AuEq

Proved/Probable

12.1

0.88

343

8.90

3,457

0.30

36.0

587

  • The announcement highlights that latest exploration work has identified areas of copper mineralisation potentially susceptible to open pit mining and that are planned to be drill tested for possible inclusion in mineral resources/reserves.
  • “The economically mineable ore reserves remaining in the open pit mine… will extend the life of the main pit for a further five to six years,” the Company commented on the update.
  • “The reserves provide sufficient mine life… to enable a smooth transition of the Gedabek deposit to underground methods, should underground mining be proved economic.”

Conclusion: Comprehensive drilling programme carried at Gedabek through H2/17 resulted in an updated JORC mineral resources and reserves statement and a better understanding of the deposit. Gedabek life of mine is extended to five-six years on current mineral reserves (on our latest update we assumed seven years ie 2025, which is not unreasonable given potential inclusion of the remaining Measured and Indicated resources into the mine plan as well as possible conversion of previously highlighted mineralisation extensions encountered at surface to resources and reserves). This provides enough time to continue with underground development and exploration works testing the potential of Gedabek underground operations while maintaining continuous ore feed to the plant.

Taking into account Ugur mineral resources and reserves, at 52p Anglo Asian trades at $108/oz and $52/oz on EV/Reserves and EV/Measured and Indicated Resources which is considerably below an average of c.$200/oz and $100/oz for other junior gold producers. We highlight these estimates do not include Gadir underground mineral inventory (JORC estimate due Q4/18) as well as Gedabek underground potential. We reiterate our BUY recommendation and a target price of 84p.

*SP Angel acts as nomad and broker to Anglo Asian Mining

 

Keras Resources* (KRS LN)   0.38p, Mkt Cap £8.6m – Ogaro prospect identified at Nayega

  • Keras Resources reports that it has identified a new zone of manganese mineralisation covering some 8 hectares, the Ogaro prospect, located approximately 5km east-south-east of the main Nayega project area.
  • As part of the assessment of Ogaro, the company gathered samples from channel sampling of 14 pits which included intercepts, all on surface, of 1.76m averaging 18.6% manganese, 2.05m averaging 15.8% and 2.00m averaging 16.2%.
  • The company notes that “Mineralisation … appears to have been closed off to the south-east but is open in all other directions”. Further pitting is planned to “confirm tonnage and grade and to test for extensions to identified mineralisation”.
  • ·         For reference, the current resource at the main Nayega deposit is 13.97mt at an average grade of 12.4% manganese. As previously announced, the company is currently taking a 10,000t bulk sample of mineralisation from Nayega in order that a major producer of manganese alloys has material to “assess the suitability of the ore in its manganese smelting facilities”. The producer is funding the sampling work.
  • Commenting on the recent discovery at Ogaro, Chief Executive, Russell Lamming, said that “The identification of a significant new area of outcropping mineralisation at Nayega further lays the foundation and increases our expectations for what we believe will become a new low capex, low operating cost manganese producer.”

Conclusion: The identification of a new area of relatively high grade manganese mineralisation close to Nayega should enhance the project. The current metallurgical bulk sampling is key to establishing the suitability of the Nayega ore as potential feedstock for a major manganese alloy producer. We await the results from both the bulk sampling and further exploration at Ogaro with interest.

*SP Angel acts as nomad and broker to Keras Resources

 

Lonmin PLC (LMI LN)   23.5 pence, Mkt Cap £123m – SACC approval

  • Lonmin reports that the South African Competition Commission has recommended the approval of the proposed acquisition of Lonmin by Sibanye Stillwater by South Africa’s Competition Tribunal, subject to certain conditions.
  • The conditions, amongst others, relate to the mitigation of the effect of any job losses arising from the combination of the two companies, Sibanye-Stillwater’s agreement to “honour Lonmin’s current and future Social and Labour plans as agreed with the Department of Mineral Resources, as well as the agreements currently in place with the Bapo ba Mogale Community”, and arrangements with “Historically Disadvantaged Persons.
  • The offer remains subject to the approval of the Competition Tribunal in South Africa and of courts in the UK.

 

Phoenix Global Mining* (PGM LN)   32p, Mkt Cap £10.2m – Latest drilling hits high grade feeder zone at the Empire mine

  • Phoenix Global Mining reports that its current drilling campaign has provided “extensive evidence that a high-grade feeder system exists below the Empire oxide resource and demonstrate the existence of such a sulphide system within the Empire Mine”.
  • ·         “Five drill holes … have intercepted predominantly chalcopyrite and bornite copper sulphide mineralisation in high-grade vein structures” below the oxide resource area identified for the initial open-pit mining. The company also indicates “significant gold and silver grades that would boost project economics.”
  • Among the results highlighted today are:

o    A 24.7m wide intersection averaging 1.58% copper, 1.96% zinc, 1.2g/t gold and 28.7g/t silver from a depth of 7.3m in hole KXD18-10; and

o    A 19.8m wide intersection averaging 1.88% copper, 0.65% zinc, 0.79g/t gold and 44.8g/t silver from a depth of 164.6m in hole KX18-44 from within the open pit area; and a number of results from step-out drilling beyond the pit area with sulphide intersections including

o    An intersection of 18.3m averaging 0.96% copper, 0.08% zinc, 0.83g/t gold and 26.3g/t silver from a depth of 54.9m in hole KX18-47 which also intersected 4.6m at an average grade of 2.54% copper, 0.07% zinc, 2.85g/t gold and 57.0g/t silver from a depth of 77.7m; and

o   A 2.7m wide intersection averaging 2.99% copper, 5.07% zinc, 0.33g/t gold and 39.2g/t silver from a depth of 26.4m in hole KXD18-9

  • ·         Exploration has also identified a new zone of mineralisation located around 330m north-west of the northern end of the current resource area. The new zone, identified as the Red Star zone, consists of a mixture of sulphide and oxide mineralisation seen in a “20 metre-wide surface outcrop across the structure … exposed in a heavily timbered canyon”.
  • ·         Subject to weather conditions, the company plans to “drill Red Star before the year end.” Assay results from channel sampling of the outcrop remain pending. We observe that the identification of a previously unrecognised zone of mineralisation in area which has been mined intermittently for over 100 years bodes well for the opportunities of continuing exploration in the future
  • ·         Commenting on the results which he described as “game changing”, Chief Executive, Dennis Thomas said that the results have “given us renewed confidence to explore the sulphides in more detail.  Also, quite significantly we have reported material gold and silver grades that would boost project economics.”
  • ·         He also commented on the implications for the continuing work on the Preliminary Economic Assessment (PEA) saying “we believe that these results will have a positive effect on the overall grade and tonnage in the existing resource, but the 19.8 metre intercept sits entirely below the Empire PEA pit shell, which should have a positive effect on the expansion of the resource in that area.“
  • The company has now completed a total of 7,604m of its planned 12,000m 2018 drilling programme at the Empire Mine The drilling consists of 5,328m of reverse circulation drilling with the balance as core drilling in a combination of HQ (1,573m) and the larger PQ sizes (703m).

Conclusion: The discovery of a previously undiscovered mineralised zone at Red Star and the identification of a sulphide feeder zone beneath the planned open-pit are both highly encouraging for expansion and uplift of the resource and may shift the emphasis of the PEA work over time. We look forward to the assay results from the sampling at Red Star when they become available.

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

 

W Resources (WRES LN)   0.49p, Mkt Cap £26.8m – Drilling results from Regua

  • W Resources has reported a number of high grade tungsten intersection from recent reverse circulation drilling in the north-western part of the Regua tungsten deposit in northern Portugal.
  • ·         Among the results reported today “Three of the reported assay results are above 1% and almost 50% of the results are greater than the average grade of the orebody.”
  • The results highlighted today include:

o    A 29m wide intersection averaging 0.75% tungsten trioxide from a depth of 48m in hole RGR015; and

o    A 2m wide intersection averaging 1.00% tungsten trioxide from a depth of 94m in hole RGR021; and

o    A 1m wide intersection averaging 1.06% tungsten trioxide from a depth of 43m in hole RGR015

  • ·         Commenting on the results, Chairman, Michael Masterman said that “The orebody remains open at depth and in all directions, specifically the zones to the northwest are indicating significant width and grade and are highly prospective for mine extension drilling”.

Conclusion: The recent drilling has picked up high grade tungsten mineralisation in the northwestern part of the Regua deposit though we observe that the intersection widths are variable and that this may add complexity to future geological modelling.

  

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

 

SP Angel                                                            

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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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