Base metals rise as dollar pauses on FOMC announcement
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Bacanora Minerals (LON:BCN) – Sonora Lithium feasibility study results.
Highland Gold (LON:HGM) – Dividend policy announced
Kodal Minerals* (LON:KOD) – Kodal secures 90% of Bougouni mineral licenses in Mali
Ortac Resources* (LON:OTC) – Update on CASA Mining offer
Pallinghurst – plans to relist Gemfields assets in London
Savannah Resources (LON:SAV) – Drilling report from Mina do Barroso includes discovery of new high grade zone
Stratex International (LON:STI) – Thani Stratex reports maiden Mineral Resource at Anbat project in Egypt
Battery breakthrough triples electric car range
• A new battery breakthrough using negative electrodes made of lithium is said to have the potential to drastically increase storage capacity of batteries.
• The implication is that this may result in cheaper, safer, longer lasting batteries boosting the range electric vehicles to ~600km from ~200km.
• Researchers are also adding chemical compounds of phosphorus and sulphur elements to the charge carrying electrolyte.
Dow Jones Industrials +0.49% at 24,505
Nikkei 225 -0.47% at 22,758
HK Hang Seng +1.56% at 29,243
Shanghai Composite +0.68% at 3,303
FTSE 350 Mining +0.13% at 16,818
AIM Basic Resources +0.64% at 2,595
US – Wholesale prices inflation beats estimates climbing to the highest pace since 2012 on the back of stronger energy prices.
• Price pressures from producers is a welcome news to monetary policy authorities given some FOMC members previously starting to express concerns over hgeadling inflation running below the Fed target.
• Fed rate increase seems to be priced into the dollar with markets’ attention to be drawn to the accompanying statement and the subsequent press conference from Janet Yellen.
• US equity indices continued to power ahead with S&P 500 (2,664) and Dow (24,504) closing at fresh highes yesterday led by gains in telecoms and financials.
• PPI (%mom/yoy): 0.4/3.1 in November v 2.8/0.4 in October and 0.3/2.4 forecast.
• Core PPI (%mom/yoy): 0.3/2.4 v 0.4/2.4 in October and 0.2/2.4 forecast.
UK – Employment dropped more than forecast in October while core jobs earnings growth (excl bonus) inched up latest ONS numbers show.
• The number of people in work dropped by 56k in the three months to October, the most since mid-15 and marking the second consecutive decline.
• Labour earnings (excl bonuses) increased by an annual 2.3% in 3m to October compared with 2.2% in 3m to September.
• Nevertheless, wage growth came short of the latest 3.1% consumer inflation reading in November with the ONS reporting that real wages decline by an annual 0.2%.
DRC – BBC reports on humanitarian crisis in the DRC
• The UN estimate there are ~500,000 severely malnourished children at risk of starvation in the region of Kasai putting the situation on a par with the Yemen, Syria and Iraq.
• Re: mining, the government is also looking at raising taxes and government ownership of mining projects in the DRC in a move which is likely to dissuade investment.
• It is already hugely expensive to operate in the DRC due to the high cost of logistical support and problems associated with exporting metal and concentrates out of the region.
• Poor roads, lengthy boarder checks, corruption and theft are all raise the cost of exports out of the DRC meaning that only higher-grade mineral projects will work in the region.
US$1.1741/eur vs 1.1788/eur yesterday Yen 113.43/$ vs 113.40/$ SAr 13.618/$ vs 13.676/$ $1.332/gbp vs $1.337/gbp 0.757/aud vs 0.753/aud CNY 6.621/$ vs 6.617/$
Gold US$1,242/oz vs US$1,244/oz yesterday
• Gold prices inched higher after hitting an almost five-month low overnight while investors pause ahead of the conclusion of the US Federal Open Market Committee’s two-day meeting (closing today). The metal will remain under pressure as expectations for the meeting are to raise US interest rates before the end of the year.
• “The FOMC statement will be crucial this evening, setting the tone for the trajectory of US rates into 2018. Complacency in the last few months in this regard means that if the Fed holds its intention to hike at least three times next year, we could see an outsized reaction higher in both the dollar and yields. Neither would be good news for long gold positioning,” Senior Oanda market analyst.
• Despite news of a terrorist attack in New York on Monday, “investors seem to have no need of security just now” (Commerzbank AG analyst). A Bloomberg index of senior gold companies fell to their lowest level since July, as the price contracted c. 9% after hitting a one-year high in September.
Gold ETFs 71.7moz vs US$71.7moz yesterday
Platinum US$878/oz vs US$886/oz yesterday
Palladium US$1,015/oz vs US$1,010/oz yesterday
Silver US$15.71/oz vs US$15.76/oz yesterday
Copper US$ 6,703/t vs US$6,648/t yesterday
• Successful commissioning of the Kamoto Cu-Co whole ore leach plant at Katanga Mining will allow Glencore to double its copper production from the Democratic Republic of Congo over the course of the next two years. Production is expected to surge to 150Kt in 2018, and ramp up to 300Kt by 2019. The operation also represents a significant source of responsible cobalt supply, which is forecast to move into severe market deficit on the back of the electric vehicle story, with investors piling into the company to raise the share price 52% since Monday’s announcement.
• London copper moved higher as the dollar pulled back from one-month highs following expectations of a fifth interest rate hike since 2015.
• Copper jumped on supply concerns while analysts reassess their projections for Chile as the top-producing nation prepares for its busiest year of wage negotiations under the new labour code whilst higher prices inflate pay expectations. Chilean mines are expected to discuss contracts with 32 unions over the next year, representing one-fifth global supply. Barclays Plc estimate potential disruption to 40% worldwide copper supply triggered from future discussions.
• Unsuccessful negotiations earlier this year at BHP’s Escondida extended striking for the longest consecutive period in mining history, while Antofagasta Plc failed to reach an early agreement with workers at its Los Pelambres site after five weeks of talks.
• Chilean mines may be wise to take a leaf out of state-owned Codelco’s book, who avoided strikes in all of its wage negotiations when CEO Nelson Pizarro famously said it didn’t have “a single f---ing peso”.
• Despite signs of slowing Chinese demand, any disruption to supply could rapidly tighten market conditions and draw the metal above $7,000.
Aluminium US$ 2,018/t vs US$2,010/t yesterday
Nickel US$ 11,190/t vs US$11,130/t yesterday
Zinc US$ 3,160/t vs US$3,120/t yesterday - Glencore see fall in zinc production at 1mtpa through 2018 vs 1.1mtpa this year
• Glencore see a small fall in zinc production next year despite the restart of some of its own idled production.
• They also see production rising again to 1.16mt in 2019 as they restart more of their idled 500,000tpa.
• Glencore looks to reduce its zinc output into 2018 to 1.09 million tonnes in a move which was met by positive surge in the metal to settle +1% to $3,157/t yesterday. Further, the company looks to increase production by 195,000 tonnes over 2018-2020 to support prices with “Glencore wanting to see prices above $3,000 for some months to come”, Commerzbank analyst.
• Restarting production falls short of the 500,000 tonnes left idle in 2015 when commodity prices were crashing, and gives the company additional capacity to react to movements in the metal price.
Lead US$ 2,518/t vs US$2,496/t yesterday
Tin US$ 18,830/t vs US$19,405/t yesterday
Oil US$64.1/bbl vs US$65.4/bbl yesterday
Natural Gas US$2.716/mmbtu vs US$2.833/mmbtu yesterday
Uranium US$25.00/lb vs US$25.00/lb yesterday
Iron ore 62% Fe spot (cfr Tianjin) US$68.0/t vs US$67.8/t
Chinese steel rebar 25mm US$755.7/t vs US$758.0/t
• Rebar continued to slide for the second day as spot prices retreat in China on caution surrounding Thursday’s release of economic data. Investors are “extremely cautious” ahead of November figures which include commodities-sensitive data on industrial production and fixed-asset investment, drawing the price nearer to monthly lows as rebar for May on Shanghai Futures Exchange closes -1.4% to 3,831 yuan/ton.
Thermal coal (1st year forward cif ARA) US$90.0/t vs US$88.4/t
Premium hard coking coal Aus fob US$236.2/t vs US$236.1/t
Tungsten APT European US$293-300/mtu vs US$291-300/mtu last week
Cobalt LME 3m US$72750/t vs US$74700/t yesterday - Glencore to double cobalt production as it negotiates deal with tesla, Apple, VW
• Glencore is to double cobalt production in the next two years, tightening its grip on the market for key battery component
• The company aims to produce as much as 34,000t in 2019, vs 20,000t guidance gave in August.
• The increase could raise Glencore share of global production to around 40% following the successful commissioning of Katanga Mining’s Cu-Co whole ore leach processing facility.
• The company is in discussions with Volkswagen AG, Tesla Inc, Apple Inc and other battery makers over future supply contracts
• Glencore also reckons the rise in Electric Vehicle production could require a further 390,000t of copper, 85,000t of nickel and 24,000t of cobalt by 2020
• EV’s may still only make 2% of new vehicle sales at this point, by 2030 EV’s are expected to have market share of <32%
• LME’s ongoing probe into ethical mining practices in the DRC will only emphasize the importance of Katanga supply, as battery and automotive manufacturers (particularly Volkswagen) will look to secure responsible long-term supply of the battery chemical.
Bacanora Minerals (LON:BCN) 94.5p, Mkt Cap £126m – Sonora Lithium feasibility study results.
• Bacanora Minerals reports the results of its feasibility study on the Sonora lithium project in Mexico. The study, based on the production of 35,000tpa of battery grade lithium carbonate, shows a pre-tax NPV8% of US$1.25bn and an IRR of 26.1%.
• After tax NPV8% is estimated at US$802m and IRR at 21.2%
• The study envisages an overall 19 years mine life with an initial four-year period at a production rate of 17,500tpa of lithium carbonate before a doubling of capacity to 35,000tpa for the remaining 15 years mine life.
• The capital cost for the initial stage Is estimated at approximately US$420m with the capital for the second stage expansion amounting to a further US$380m. The average life-of-mine operating costs are estimated at US$3910/tonne of lithium carbonate or US$3,418/t after credits for potassium sulphate by-product.
• The largest element of the capital cost for both the Phase 1 and the Phase 2 projects are the lithium processing plant which represents 38% (US$158m) of the Phase 1 expenditure and 42% (US$18m) of the Phase 2 capital.
• Similarly, the processing costs represent the largest proportion of operating costs in both Phase 1 (US$3,093/t of product or 85% of the cost of lithium carbonate production) and Phase 2 (82% or US$3266/t of lithium carbonate).
• The company estimates that payback is achieved in 4 years.
• A 10% change in the assumed US$11,000/t selling price of the lithium carbonate product equates to a 24.5% change in the pre-tax NPV8%.
• The company makes the point that its preferred process route for the production of lithium carbonate is an established method involving a pre-concentration phase prior to roasting ahead of a hydrometallurgical recovery process to produce final battery grade product.
Conclusion: The detailed feasibility work is to be published on the Canadian SEDAR system within 45 days and we look forward to the opportunity to examine the Sonora project in greater detail.
Highland Gold (LON:HGM) 155p, Mkt Cap £504m – Dividend policy announced
• The board adopted a dividend policy to pay out 20% of Net Cash Flow from Operating Activities in each financial year.
• Additional cash dividend is subject to the cash generation of the business including profitability and planned capital expenditures as well as debt repayments.
Conclusion: The Company has doubled its dividend payments in 2016 (10.4p/$42m or 31% of NCFO v 4.5p/$22m or 21% of NCFO in 2015) on the back of strong performance. With 2017 shaping as another good year and interim dividends reiterated at 5p, we expected the Board to reiterate last year’s final dividend of 5.4p bringing total for the year to 10.4p or 6.7% dividend yield (35% of NCFO), the highest level among major London listed precious metals miners. Applying 20% of NCFO policy to H2/17 takes dividends to 3.3p in H2/17 and 8.3p for FY17 (5.4% yield). In 2018e the policy brings dividends to 6p (3.9% yield at $1,225/oz gold price and 265koz assumption), excluding special dividends. We think the dividend policy accounts for a capital intensive 2018-19 period on the back of Kekura development costs, Novo 1.3mtpa project expenses as well as an integration of the Blagodatnoye deposit and optimisation of the processing plant at the Khabarovsk hub with dividends expected to increase once major development projects ramp up raising NCFO.
Kodal Minerals* (LON:KOD) 0.19p, Mkt Cap £12.1m – Kodal secures 90% of Bougouni mineral licenses in Mali
• Kodal Minerals has accelerated payments to secure 90% of its Bougouni mineral licenses in Mali.
• The company has rights to explore and to develop minerals within the 250sqm Kolassokoro licence area which included Bougouni.
• Kodal has also reached agreement with a further company covering 100sqkm of high-priority ground within the Kolassokoro licence area where by Kodal will hold 90% and the Triumvirat Mining Company SARL, a local company will hold 10% of the assets. Triumvirat has the right to be free carried through to feasibility study after which it will have to pay its share of costs. Kodal is also paying Triumvirat a fee of around £53,000.
• It is interesting to note that Triumvirat, a local Malian company, had managed to stake some ground overlapping Kodal’s mineral licenses in Mali due to an oversight by the registered license holder, EMAS Mining SA, in Mali.
• The ‘Malian National directorate of Geology and Mines’ (DNGM) has worked to resolve the matter so that Kodal has maintained its 90% holding in the ground.
• We also note, legislation in Mali requires the government to hold a 10% free carry on all mines in the region.
Conclusion: Kodal’s listed status has helped the company to resolve this license issue without any meaningful impediment to its holding. More positively the effective issuance of new licenses on the ground gives the exploration license a longer life span than the older licenses with Triumvirat replacing the 10% stake formerly held by EMAS Mining SA.
*SP Angel act as Financial Advisor and broker to Kodal Minerals. A partner at SP Angel acts as Chairman to the company.
Ortac Resources* (LON:OTC) 2.9p, Mkt Cap £9.6m – Update on CASA Mining offer
(Ortac holds 70.09% of CASA Mining which holds 71.25% of the Misisi Gold project in South Kivu in the Eastern part of the DRC. This gives Ortac an effective 49.9% stake in the Akyanga project)
• Ortac reports that it has increased its holding in Casa Mining “from approximately 45% to 84.7% since the Offer was announced on 10 November 2017”
• “The Offer remains open until 10 May 2018 and acceptances continue to be received daily.”
• To date, Ortac has issued some 66.6m new shares to accepting shareholders of the Offer.
• CASA Mining holds 71.25% of the Misisi Gold project in South Kivu in the Eastern part of the DRC. CASA’s licenses cover some 60km of the Misisi Corridor which include the Akyanga gold resource as well as the Lubitchako, Tulongwe, Kilombwe and Mutshobwe prospects.
• In June this year, the company published an initial inferred resource for Akyanga of 1moz of gold within 14.3m tonnes at an average grade of 2.27g/t. Subsequent drilling aimed at upgrading some of this to indicated status as well as establishing the geological controls and continuity of the mineralisation has encountered further mineralisation including what the company describes as the “highest ever grade and intersected thickness drilled at the Akyanga Deposit – 24.75m @ 8.04 g/y Au from 200.75m incl. 5m @22.63 g/t Au from 2017.10m” in hole MSDD0110”
Conclusion: Ortac Resources is increasing its interest in Casa Mining where further drilling of the 1m oz Akyanga deposit in the DRC continues to deliver meaningful results and opens up the possibility of further mineralisation towards the south.
*SP Angel acts as nomad and broker to Ortac Resources
Pallinghurst – plans to relist Gemfields assets in London
• Investors may be surprised to learn Brian Gilbertson is looking to relist the assets of Gemfields in London.
• Gilbertson who runs Pallinghurst, a SA based private equity firm may be equally surprised at potentially hostile reactions and opposition from investors who feel legged over by the London delisting process of Gemfields forced through by Pallinghurst.
Savannah Resources (LON:SAV) 5.6p, Mkt cap £35.8m – Drilling report from Mina do Barroso includes discovery of new high grade zone
• Savannah Resources has provided an update on its reverse-circulation drilling programme at Mina do Barroso in Portugal where 66 holes totalling 5558m have now been completed.
• The drilling has focussed on the previously known Grandao, Reservatorio and NOA deposits but it has also discovered “a newly identified sub-vertical pegmatite body … identifying a new high-grade zone of mineralisation in hole 17GRARC20 which intersected 25m at an average grade of 1.49% Li2O from a depth of 32m, including 14m grading 2.1% Li2O.”
• Other results from this new zone include:
-9m averaging 0.86% Li2O from a depth of 22m also in hole 17GRARC20; and
-A further two mineralised intersections in hole 17GRARC18 where 17m averaging 0.45% Li2O was encountered from a depth of 9m and a further 17m averaging 0.37% Li2O from 40m depth; and
-A 13m wide intersection averaging 0.63% Li2O from 36m in hole 17GRARC14
-Thirty-six holes totalling 2809m have been completed on the flat-lying Grandao pegmatite and a further 16 holes have been added to the programme “to help outline the full potential of the Grandao deposit.”Among the results highlighted today from the Grandao drilling are:
-109m averaging 1.04% Li2O from surface in hole 17GRARC17 which includes a 52m wide section averaging 1.32% Li2O from a depth of 4m; and
-71m averaging 1.06% Li2O from 88m, including 57m averaging 1.2% from 88m in hole 17GRARC19; and
-31m averaging 1.2% from surface in hole 17GRARC12; and
-25m averaging 1.15% from 36m in hole 17GRARC23
-At the Reservatorio deposit, where the company expects to produce a maiden mineral resource estimate by the end of 2017, “assay results confirm that the lithium mineralisation extends to over 400m, with good down dip extensions of at least 100m”. Among the results highlighted today are:
-32m averaging 1.05% Li2O from a depth of 78m in hole 17GRARC17; and
-15m averaging 1.19% Li2O from a depth of 79m in hole 17GRARC16
-At the NOA deposit, where “further drilling and results [are] pending; drilling of a further 6 holes has confirmed the presence of lithium mineralisation over a 200m strike length together with good down dip extensions of at least 50m and pegmatite widths up to 15m.”
-The company notes that further metallurgical testing is underway and that results from the Grandao, Reservatorio and NOA deposits are expected in early 2018.
-Commenting on the results which he described as “outstanding results that represent some of the best lithium spodumene intersections ever reported for a European deposit.” Chief Executive, David Archer said “The results from Grandao are particularly exciting as there are some exceptional widths and high grades and the geometry of what we are seeing suggests there is potential for a low stripping ratio, open-cut mine development.”
Conclusion: The latest drilling results from Mina do Barroso include high grades and wide intersections as well as the discovery of a previously identified body of mineralisation. We look forward to the forthcoming maiden resource estimate for the Reservatorio deposit later this year and to the metallurgical test results and further news of the extended drilling programme.
LON:STI) 1.1p, Mkt cap £5.0m – Thani Stratex reports maiden Mineral Resource at Anbat project in Egypt
• Thani Stratex Resources has re-reported its maiden mineral resource at its Anbat project in Egypt.
• The original report on 7 December was released prematurely without the permission of CSA consultants and without full disclosure with respect to JORC public reporting requirements.
• Strates states: “The material change to the original announcement and MRE report released by TSR relates to disclosure around the conceptual pit optimisation, as follows:”
• "Inferred Mineral Resources were reported for blocks above 0.5 g/t Au and within a conceptual pit optimisation scenario based on a gold price of $1,500/oz to underpin the JORC (2012) requirement of reasonable chances of eventual extraction.
• The conceptual pit optimisation does not represent an Economic Study, since no such study has been completed, and is based upon an Inferred Mineral Resource which is not suitable for detailed mine planning. Mineral Resources located within the conceptual pit do not have proven economic viability and are not Mineral Reserves."
• “The Inferred Mineral Resources of 5.9 million tonnes, at a grade of 1.11 g/t for a total of 209,000 ounces, remain unchanged.”
• We note that the optimisation shows a smaller resource of 2.9mt grading 1.08g/t assuming a gold price of $1,250/oz though we concede that this might overly constrain the model.
Conclusion: We see this resource as a platform for future work. While the disclosure is embarrassing for Thani Stratex Resources we are not overly concerned as we see CSA’s work as of good quality with a world-class team of authors and reviewers having signed off on the document.
Click link for the CSA Mineral Resource Estimate and Conceptual Pit Optimisation: http://thanistratex.com/_resources/news/12-12th-December-2017-Anbat-report-by-CSA.pdf