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Today's Market View - Avesoro Resources, Botswana Diamonds, Bushveld Minerals

Today's Market View -  Avesoro Resources, Botswana Diamonds, Bushveld Minerals

Avesoro Resources  (LON:ASO) – Infill drilling at New Liberty
Botswana Diamonds (LON:BOD) – Exploration update on Free State exploration
Bushveld Minerals* (LON:BMN) BUY – Target price Reduced to 11p from 13p – Revised mineral resource statement shaves value on lower magnetite grade

Rio Tinto – Mick the motivator in running as potential Chairman of Rio Tinto
• We have followed the career of Mick Davis, from Billiton to BHP and Xstrata to its sale to Glencore
• We have sat in many analyst meetings with Davis leading the Xstrata board and have dissected the performance of the business and its divisions through numerous sets of accounts.
• Davis’ management style evolved rapidly after Billiton into a lean and highly efficient model which many miners could do well to emulate.  This may have partly come about through the connection with Glencore but Davis took the strategy, ran with the ball and beat the league in terms of management effectiveness.
• Xstrata was a mixed bag of unloved mining assets in its early days when Sir Mick took the helm.  The portfolio struggled to gain traction with little outside interest but Davis leveraged the value through the acquisition and further development of new assets.
• Big Mick, as he was then known, transformed the group through a series of bold acquisitions at surprisingly low cost.  Many of these assets were seen as second tier and has been passed over by the majors who were only interested in expensive, world-class assets.  Davis recognised the potential and the way in which to best develop their value.
• The trick was to devolve responsibility to the mines, fund efficiency gains and expand where appropriate, transforming profitability in each part of business.  Davis achieved all this with a minute head office of just five key personnel.  Unshackled from heavy corporate overheads and motivated by Mick, the mines excelled along with Xstrata’s margins, profitability and value.
• Some of the credit should also go to Marc Gonsalves, Davis’ former head of corporate affairs who helped the city to recognise the value of the Xstrata model and developing asset base.
• Many investors will welcome Davis as Chairman into Rio Tinto though transforming Rio into the new Xstrata may involve breaking Rio’s institutional mold.

Tesla’s ‘beast’ to contribute to downfall of Platinum and Palladium markets
• Tesla’s new ‘all electric’ semi-trailer truck that drives like a sports car and is powered by 2 electric motors is another step towards all electric auto future
• Sales of new trucks will almost certainly have negative consequences on platinum and palladium used in auto catalytic converters with estimates that demand will drop by 65% by 2040.
• Delivery schedules are often well suited to electric vehicles with and previous trials have shown drivers to absolutely love them

Lithium Power shares rise as Chinese show interest
• Lithium Power has entered into discussions with Fulin Group over its Maricunga lithium brine project in Chile in which Lithium Power holds 50% interest
• The project is regarded as one of the highest quality pre-production lithium project in Chile

Japanese institute trying to extract precious metal from nuclear waste
• One of largest research institutes in Japan, Riken, kicking of trial in 2018 to confirm the theoretical possibility that radioactive materials can be changed by shooting beam into them
• Whether and when applications can be developed based on findings remains unclear, goal is to find a way to reduce nuclear waste by converting it into palladium

Japanese rail company apologises after train departs 20 seconds early
• “We sincerely apologise for the inconvenience caused,” the company said.
• The rail company has assured customers that staff had been given additional training to ensure it doesn’t happen again.

Dow Jones Industrials  +0.80% at 23,458
Nikkei 225   +0.20% at 22,397
HK Hang Seng   +0.62% at 29,199
Shanghai Composite    -0.48% at 3,383
FTSE 350 Mining   -0.88% at 16,812
AIM Basic Resources   -0.07% at 2,646

Economics
Currencies
US$1.1793/eur vs 1.1781/eur yesterday.  Yen 112.56/$ vs 113.18/$.  SAr 14.182/$ vs 14.371/$.  $1.325/gbp vs  $1.316/gbp. 
0.755/aud vs 0.759/aud.  CNY 6.634/$ vs 6.634/$.

Commodity News
Precious metals:         
Gold US$1,283/oz vs US$1,277/oz yesterday
   Gold ETFs 69.4moz vs US$69.5moz yesterday
Platinum US$935/oz vs US$932/oz yesterday
Palladium US$996/oz vs US$988/oz yesterday
Silver US$17.10/oz vs US$17.00/oz yesterday
           
Base metals:   
Copper US$ 6,774/t vs US$6,748/t yesterday - Chinese traders race to become growing force in global copper trading markets
• Traders on Shanghai Futures Exchange are increasingly influencing price of copper rather than on London metal exchange, with centre of gravity in metals pricing shifting 
• Accounts for nearly half worlds copper consumption and whilst traders have looked at Chinese data as an indicator on future copper demand, pricing typically followed trading in copper futures contracts from the London Metal Exchange
Aluminium US$ 2,104/t vs US$2,114/t yesterday
Nickel US$ 11,490/t vs US$11,610/t yesterday
Zinc US$ 3,158/t vs US$3,128/t yesterday
Lead US$ 2,420/t vs US$2,418/t yesterday
Tin US$ 19,430/t vs US$19,500/t yesterday
           
Energy:           
Oil US$61.7/bbl vs US$62.0/bbl yesterday
Natural Gas US$3.097/mmbtu vs US$3.075/mmbtu yesterday
Uranium US$24.40/lb vs US$23.90/lb yesterday
           
Bulk:   
Iron ore 62% Fe spot (cfr Tianjin) US$62.2/t vs US$61.1/t
Chinese steel rebar 25mm US$654.6/t vs US$654.6/t
Thermal coal (1st year forward cif ARA) US$82.0/t vs US$84.6/t
Premium hard coking coal Aus fob US$188.0/t vs US$187.6/t
           
Company News
Avesoro Resources  (LON:ASO) 1.95pence, Mkt Cap £103.8m – Infill drilling at New Liberty
• Avesoro Resources reports that it is deploying 4 diamond drill rigs to undertake a 46 hole, 14,000m, infill drilling programme within and below the designed pit at the New Liberty mine in Liberia.
• The drilling is particularly aimed at the inferred portion of the current resource which stands at “some 3.5Mt with a mean grade of 2.8g/t Au and containing 315koz of gold.” Currently the programme is expected to be completed in Q1 2018 and will provide additional information for a revision of the recently an updated mineral resource estimate for New Liberty which classed 9.6mt at an average grade of 3.2g/t gold as measured and indicated with an additional 6.4mt at 3g/t gold (620,000oz) classified as inferred.
• If the programme is successful in upgrading the inferred resource to indicated or better, the material can be included as ore in the pit model rather than as waste as is the current situation.
• The “in-pit” inferred resource to be targeted in the current drilling campaign represents, therefore, approximately half of the total inferred resource at the mine and should represent a relatively achievable, low risk route to increasing the mineral inventory at the mine.
• We find the company’s comment that “The Drilling Contract has a value of approximately US$1 million, which will be paid in cash, with a HQ drilling cost of between US$59 and US$69 per metre” provides an interesting insight into current drilling costs in the area, though the selected contractor, Zwedru Mining Inc, is a wholly owned subsidiary of Avesoro Mining’s majority shareholder and hence a related company which might be able to offer particularly competitive rates for the programme.
Conclusion: The drilling programme at New Liberty may well expand the mineable mineral inventory at New Liberty. Since the Turkish group, MNG Gold, took control of the New Liberty mine in June 2016, it has implemented improvements and remedial action to improve the plant operations and tailings disposal arrangements. The infill drilling campaign may now give them the opportunity to define the deeper level resources beneath the pit more precisely and to identify potential for modifications to the pit design. We look forward to results as they become available.

Botswana Diamonds (LON:BOD) 2 pence, Mkt Cap £9.2m – Exploration update on Free State exploration
• Botswana Diamonds has provided a progress report on its kimberlite exploration programme in the Free State of S Africa.
• A combination of magnetic, electro-magnetic and gravity geophysics has identified eight kimberlite bodies ranging up to 1.15 hectares in area at the surface along a northwest trending “kimberlite feeder system along which the diamond mines of Jagersfontein, Koffiefontein and Kimberley are located.”
• Study of the whole-rock geochemistry “shows similar compositions in the kimberlites to the surrounding mines.”
• The next phase of work, during early 2018, is expected to focus on the “indicator mineral chemistry for each of the pipes to determine an economic interest rating which will prioritise further work.”
• Commenting on the identification of the kimberlites, Botswana Diamonds Chairman, John Teeling, noted that “We now know the sizes of each pipe/dyke and we believe that each could contain diamonds.  The next step is to evaluate the diamond indicator minerals in each pipe to decide priorities for drilling."
Conclusion: Although exploration is at a relatively early stage, the identification of eight, potentially diamond bearing kimberlite bodies along a trend hosting existing and historic producing diamond mines close to the birthplace of the South African diamond industry, provides Botswana Diamonds with promising targets for its 2018 exploration programmes.

Bushveld Minerals (LON:BMN) 9p, mkt cap £72.6m – Revised mineral resource statement shaves value on lower magnetite grade
BUY – Target price Reduced to 11p from 13p
• Bushveld Minerals reported an operational update on the Vametco mine in which it revised its Mineral Resource Estimate statement yesterday.
• Grade: The good news within the statement is that the vanadium grade verified in the magnetite mineral within the Indicated Mineral Resource is 2.01% which is the same as the average feedstock grade into the plant and the same as that used in our financial modelling.
• Resource adjustment: the less good news is that the magnetite grade in the Indicated Mineral Resource magnetite grade is seen as 27.23% from 29.64%. This is also lower than our assumed magnetite grade of 28.14%. The adjustment reduces our valuation for the Vametco business accounting for much of the reduction in our valuation.
• AfriTin:  We have further adjusted our valuation for AfriTin within Bushveld to account for AfriTin’s revised market capitalisation following its flotation.  We have also removed value for the shares which have been distributed directly to investors.
• Ferro vanadium prices: have bounced and risen sharply in the last week to $38.5/kg from around $34/kg driven by ongoing growth in China for higher vanadium content in steel rebar at a time when production from vanadium-rich slag has been cut back due to anti-pollution measures relating to air quality regulations.
• Vanadium prices look as if they may move substantially higher in the short term and may also settle higher in the longer term.
• Price assumptions: we have elected to simply assume the current price runs for another quarter into the new year before we pull back our price assumption to $27.5/kg for the longer term.
• If we were to assume today’s ferro vanadium price over the long term then this would nearly double our valuation for Vametco and for Bushveld Minerals.
• Production:  we assume Bushveld Minerals will raise annual production capacity to 5,000tpa in 2020 from around 2,750tpa this year.  Demand growth in China should be more than sufficient to take up the new production particularly while certain sources of supply are so constrained.
• Resource scale:  There is more than enough ‘Indicated’ resource grading 2.01% vanadium in magnetite.  The 61.5mt Indicated resource is sufficient to feed production at our expanded rate till 2043 which is beyond the end point for our valuation.
• Inferred resource: the 47.4mt inferred resource figure is interesting in that while it is estimated to have a slightly lower grade at 1.99% vanadium in magnetite it has a higher magnetite grade at 29.75% which combined gives a higher overall vanadium content and may indicate some better, though less well defined areas to work in.  The inferred resources also indicates good potential for another 20 years of additional operation taking the mine and process plant to 2063, far beyond the time horizon of most investors.
Conclusion:  Our revised valuation reflects a number of adjustments.  First is the adjustment to lower magnetite grades though the vanadium grade within the magnetite remains the same as our modelling.  Second related to the removal of value due to the AfriTin listing.  There is some compensation from higher vanadium prices and we retain value for the P-Q Iron & Titanium project in South Africa.
*An SP Angel Mining analyst and nomad have visited the Vametco vanadium mine and processing facilities in South Africa.

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