Ortac Resources* (LON:OTC) – Sturec mining permit
Major miners are little changed today after posting strong gains through the week on higher commodity prices and positive economic data released in China earlier in the week.
• Gold is steady holding onto gains recorded on Wednesday on the back of the Fed’s more dovish than expected outlook over the future of the monetary policy tightening pace.
• Base metals are broadly up while iron ore futures closed down 1.5% in China taking weekly gains to 9.1%, the strongest move since Feb.
• Chinese National Development and Reform Commission is talking steel and coal prices down saying recent increases in prices are “short term and temporary” since supplies are sufficient.
• The US$ index is off for a third day now trading at the lowest level in five weeks.
• The pound is up this morning after having climbed nearly 1% on Thursday as one of the MPC members voted to hike rates and published minutes of the monetary policy meeting showed a hawkish tilt among vote-setters.
• “Some members noted that it would take relatively little further upside news on the prospects of activity or inflation for them to consider that a more immediate reduction in policy support might be warranted,” the minutes said.
• The next policy move will be conditional upon the state of the economy and should growth remain robust “monetary policy may need to be tightened sooner and to a greater degree”.
Lithium – Demand growth is set to accelerate through 2021 from 20ktpa to 30ktpa, according to one of the world’s biggest suppliers of lithium Arbemarle.
• This compares to a 15-20ktpa increase in demand to 190kt recorded in 2016.
• The company highlighted that it does not see any “disruptive non-lithium energy storage technologies on the horizon” which would challenge those growth rates.
• The Company is planning to ramp up production at its Greenbushes operations owned in a partnership with Chinese Tianqi in an effort to capture 50% of the market growth in lithium and produce 165ktpa of lithium by 2021, up from current 80ktpa.
• Tesla (TSLA) shares were higher after the electric automaker announced an offering of $250 million in stock and $750 million in convertible notes. Elon Musk's Tesla plans to use the proceeds to strengthen its balance sheet. (CNBC)
• Musk's SpaceX also launched a communications satellite into orbit atop a Falcon 9 rocket early this morning. The liftoff had been postponed by heavy winds on Tuesday. (USA Today)
Dow Jones Industrials -0.07% at 20,935
Nikkei 225 -0.35% at 19,522
HK Hang Seng +0.09% at 24,310
Shanghai Composite -0.96% at 3,237
FTSE 350 Mining -0.48% at 16,551
AIM Basic Resources +2.02% at 2,613
US – Jobless benefits applications fell last week confirming strong growth momentum in the labour market.
UK – Consumer spending, a category accounting for more than two-thirds of the nation’s GDP, is set to post a drop in growth for years to come as income gains are expected to fall behind inflation, PwC said.
• Consumer demand growth to fall to around 2% in 2017 and 1.7% in 2018, down from 3% in 2016.
• “Increased borrowing may help to the gap in the short term, but there are limits to how far UK consumers can continue to live beyond their means with spending rising faster than disposable incomes,” PwC noted.
• “We therefore expect consumer spending growth to moderate over the next couple of years as higher inflation and Brexit-related uncertainty start to bite.”
US$1.0767/eur vs 1.0712/eur yesterday. Yen 113.33/$ vs 113.43/$. SAr 12.778/$ vs 12.731/$. $1.236/gbp vs $1.225/gbp.
0.768/aud vs 0.769/aud. CNY 6.908/$ vs 6.899/$.
Gold US$1,228/oz vs US$1,224/oz yesterday
Gold ETFs 58.5moz vs US$58.6moz yesterday
Platinum US$956/oz vs US$963/oz yesterday
Palladium US$771/oz vs US$767/oz yesterday
Silver US$17.31/oz vs US$17.44/oz yesterday
Copper US$ 5,883/t vs US$5,937/t yesterday – China produced 1.37mt of refined copper (+6.7%yoy) in Jan-Feb marking record two months, according to National Statistics Bureau.
• Freeport is reported to have fired 2,100 contract workers and furloughed 250 of in-house workforce at Grasberg as negotiations over the Company’s contract of work (CoW) continue.
• Cerro Verde labour union informed Freeport that miners may go on an indefinite strike on Mar 24 demanding safer work conditions and additional benefits.
• The union at Escondida offered BHP to resume negotiations over three main pointing ending a deadlock in negotiations.
• Points include no increase in working hours, no reduction in current benefits and no differentiation between existing and new workers.
• “These are the issues on which we can build an agreement,” the union said.
Aluminium US$ 1,903/t vs US$1,908/t yesterday – aluminium having climbed 12% year to day is expected to post another good year, according to Rusal.
• Chinese market sees “high risk” of supply tightness on the back of government led anti-pollution curbs while demand is expected to post a solid 6.7% growth.
Nickel US$ 10,200/t vs US$10,320/t yesterday
Zinc US$ 2,849/t vs US$2,850/t yesterday – Chinese production of refined zinc climbed 4.4%yoy to record 982kt in in Jan-Feb.
Lead US$ 2,265/t vs US$2,284/t yesterday
Tin US$ 20,165/t vs US$19,980/t yesterday
Oil US$51.8/bbl vs US$52.4/bbl yesterday
Natural Gas US$2.901/mmbtu vs US$2.957/mmbtu yesterday
Uranium US$25.40/lb vs US$25.25/lb yesterday
Iron ore 62% Fe spot (cfr Tianjin) US$87.5/t vs US$88.5/t – China saw a 15.3%yoy increase in iron ore production through Jan-Feb (184.2mt).
Chinese steel rebar 25mm US$579.1/t vs US$580.5/t
Thermal coal (1st year forward cif ARA) US$64.3/t vs US$65.0/t yesterday
Premium hard coking coal Aus fob US$158.4/t vs US$158.6/t
Tunsgten APT European US$212-217/mtu (from the 10Mar week) v US$210-217/mtu (from the 03Mar week)
Anglo American (LON:AAL) 1300p, mkt cap £16.8bn – How to gain influence without shelling out for the stock
• Anil Agarwal (Volcan) launched a bid to acquire around 13% of Anglo American stock yesterday using a structure which means that he pays for just a fraction of the stock and does not disrupt the market through an outright purchase of the shares.
• Agarwall should gain control over the voting rights and dividends from around £2bn worth of Anglo shares through the issue of a bond offering a 4% coupon.
• The funds selling the rights to the shares only need to offer 88% of the stock with JP Morgan acquiring or potentially shorting the remainder.
• When the bond matures, Mr Agarwal’s ‘Volcan’ vehicle may simply give the borrowed stock back to the convertible desks and hedge funds which lent it to him in the first place. Many of these funds will have simply shorted the stock, though it is possible that some long-only funds may lend their stock through their ‘stock lending’ desks. Nice fees if you can get it and we wonder how many portfolio managers and investors realise what happens to the stock in their long-only funds?
• We reckon that if Anglo shares have fallen Volcan will simply return the shares. If the shares rise then Volcan may get to keep some of the stock.
• Stock borrowing costs run at around 0.5% in the market for General Collateral ‘GC’ stocks implying a potential 3.5% margin on the 4% bond.
• Question is, should Anglo take the Volcan move seriously. Do Volcan really have a right to a seat at the table, they might have voting rights but they have not bought the stock outright and when the bond matures they might not hold any stock at all?
• Can Agarwal use this stake to block any other potential bids for the company?
• The Public Investment Company in South Africa is reported to hold some 14.5% of Anglo American and has previously used its position to bid for Anglo’s leading platinum business.
• It may be that Agarwall might connect with the PIC in an attempt to carve up Anglo asset for their mutual benefit. This might seem improper in London but in South Africa there may be other possibilities?
• There is no secret in that Agarwal would like to merge certain Anglo assets with his Hindustan Zinc Limited ‘HZL’, a separately listed subsidiary of Vedanta.
• Hindustan Zinc, has a problem in that it will have a substantial and growing $8bn cash pile by the end of the year due to the unexpectedly high price of zinc.
• Anglo has $8.5bn in debt so simply putting the balance sheets together is a match. The rest of the rationale for an outright merger of Anglo with HZL is debatable in our view though banging mining assets together usually results in billion dollar cost savings in our view.
• Anglo sold its major zinc assets to Anglo back in 2010 including Skorpion Zinc in Namibia, Lisheen in Ireland and Black Mountain and Gamsberg in South Africa.
Conclusion: Anglo has been a break-up target for some years. It fought off a bid by Xstrata and a previous approaches by Vendanta. While Agarwal is almost certainly still a keen buyer of Anglo his strategy may be to keep other predators at bay with the intention of seeking his own deal in return for Anglo’s continued independence.
Berkeley Energia (LON:BKY) 57p, Mkt Cap £145m – Additional high grade drilling intersections below Zona 7
• Berkeley Energia has released drilling results from the final holes of its current campaign to investigate high grade uranium mineralisation beneath the Zona 7 resource. The results include:-
o 12 metres at an average grade of 1,003 ppm U3O8 from a depth of 10 metres in borehole Z7M-376;
o 2 metres at an average grade of 2,002 ppm U3O8 from a depth of 161m in borehole Z7D-379 and
o 2 metres at an average grade of 1,357 ppm U3O8 from a depth of 254m also in in borehole Z7D-379
• The latest drilling results support “the results from holes drilled over the last year in which high grade intersections of up to 14 metres @ 4,481 ppm U3O8 were reported”.
• The 2016 drilling programme consisted of 87 reverse-circulation holes, five diamond drill holes and 2 hybrid holes where the upper part was drilled by reverse circulation with a diamond drilled “tail” in the lower part of the hole. The part of the programme to investigate the “Zona 7 Deeps” comprised 17 holes.
• Highlighting the continuity of the lower horizon of mineralisation demonstrated by the latest drilling and the potential for further resource increases, the “Company will conduct additional drilling and resource estimation work at Zona 7 aimed at increasing the mineral resource estimate”.
• As well as the drilling update, Berkeley Energia has disclosed that while it focuses on developing the currently defined orebodies underlying only 7% of its exploration licence area “discussions have commenced with strategic partners to fund an exploration joint venture designed to delineate additional resources to extend the mine life or expand production.”
Conclusion: The Zona 7 deposit, with a measured and indicated resource currently totalling 15.7mt at an average grade of 732ppm U3O8 is already the largest and highest grade uranium resource within Berkeley Energia’s Salamanca Uranium Project, the deeper high grade drilling results look likely to expand this and we look forward to a resource update in due course.
Bushveld Minerals* (LON:BMN) 4.4p, Mkt Cap £30.7m – Update on purchase of 78.8% of Strategic Minerals Corporation from Evraz Group
• Bushveld Minerals reports that Strategic Minerals Corporation ‘SMC’ and Sojitz Noble Alloys Corp have agreed to waive their respective pre-emptive rights in terms of the SMC Shareholders Agreement so that Bushveld Minerals can acquire shares in Bushveld Vametco.
• Bushveld Vametco will acquire 78.8% of Strategic Minerals Corporation which owns the Vametco vanadium processing plant, associated mine and related infrastructure.
• The Company is also making good progress towards fulfilling the remaining conditions precedent:
o Termination of all the related party contracts to Bushveld’s reasonable satisfaction;
o Transfer of the marketing and off-take agreements;
o Key management’s agreement in writing to remain employed with the Vametco Group following Transaction completion; and
o Securing the Department of Mineral Resources’ Ministerial consent to the Transaction in terms of section 11 of the Mineral and Petroleum Resources Development Act, of 2002.
Conclusion: We expect the team at Bushveld Minerals to complete its acquisition of SMC and its stake Bushveld Vametco relatively quickly from here.
*An SP Angel mining analyst and nomad have visited the Vametco vanadium mine and processing facilities in South Africa.
Ortac Resources* (LON:OTC) 0.04p, mkt cap £3.6m – Sturec mining permit
• Ortac Resources reports that the District Mining Bureau (DMB) in Banska Bystrica has re-issued the underground mining permit for Ortac’s Sturec Gold Project in Slovakia.
• The permit was originally issued in 2014 but has since been the subject of legal challenges which concluded on 7th December 2016 when the company “was notified that the Regional Court in Banska Bystrica (“RC”) had revoked the previously issued underground mining permit.”
• “The DMB has reviewed the ruling of the RC and amended the original permit to address the insufficient reasoning that the RC felt was lacking in the issuance of the original underground mining permit in 2014.”
• Commenting on the decision to reinstate the licence, Ortac CEO, Vassilos Carellas, commented “We are naturally pleased that the DMB has re-issued the permit, which has been amended to consider the points raised by the RC. This decision, whilst welcome, does allow for an appeal process to be made by potential complainants, within a period of approximately one month from the issue of this permit, which if triggered, would result in a final judgement on the permit being undertaken by the Slovak Central Mining Bureau (“CMB”).”
Conclusion: The reinstatement of the underground mining licence is a step forward for the Sturec gold project, however, it appears that the Slovak legal system could still allow further challenges over the next month. We look forward to the end of April in the hope that no such further actions have emerged.
• *SP Angel acts as Nomad and broker to Ortac Resources