Ariana Resources (LON:AAU) – Increased ore resource estimate at Kiziltepe
Ironveld (LON:IRON) – Final results and update on Middleburg acquisition
SX-EX, LIARS AND LITHIUM DREAMS – is lithium the new oil?
• Investors are faced with a confusion of opportunities in the lithium space. Below we offer some simple guidance on where to invest:
• Lithium demand looks set to outstrip supply with new supply not likely to catch up with expected demand growth for some years.
• Battery chemistries will change but we believe lithium should remain a core component battery metal due to its lightweight, conductivity and ability to store electrons.
• Tesla cars are already heavy at >2t mainly due to the nickel, steel, copper and other metals used so adding weight in not a popular option.
• Investors: many institutional investors appear reticent to buy into lithium projects in part based on potential changes in battery chemistry though this may partly be an excuse for avoiding the space.
• Bubbles: rapid growth in valuations for junior companies focussed on uranium and rare earths were short lived due to subsequent collapses in uranium and rare earth prices for very differing reasons. Uranium prices collapsed on the Fukushima event and rare earth prices collapsed on the unwinding of a major REE-based Ponzi scheme in China.
• So why should lithium be different?
• Is lithium the new oil and how long will the supply deficit maintain elevated lithium prices?
• We think the uplift in lithium prices could last much longer than that seen for uranium and REEs as the major global economies drive new demand for battery powered EVs.
• Pollution is a hot political issue and new anti-pollution legislation may well be applied in the developing world as much as in developed nations.
• Investment: For investors the first thing to understand is where does lithium come from?
• Lithium sources:
• Brines – low operating cost for lithium extraction where grades are good, impurity levels are acceptable and where there is enough of a desert to enable sufficient solar evaporation, but long concentration times (12-18 months) limit supply reaction to evolving prices.
• Geothermal brines – are considered to be more environmentally friendly while a new chemical process is claimed can capture 91% of the initial lithium in the brine.
• Clays – largely unproven and don’t work well in the rain.
• Pegmatites – lower capital but higher operating costs. Consumers prefer low mica content and new regulations in China may make high mica concentrates hard to sell.
• Lithium producers:
• Chile (brines) – SQM and Albemarle are the big Chilean lithium miners. Lithium was originally a by-product of potash production with relatively small demand but SQM and Albemarle are biggish companies and have invested heavily in billion dollar brine plants and evaporation ponds in the Atacama Desert. The evaporation ponds are expensive to construct but they harness the sun to increase lithium concentration in the brine.
• Argentina (brines) – a significant number of new junior lithium companies have set up camp in Argentina. The problem with Argentina is that it rains allot more than in Chile, it is rarely mining friendly and when the government changes back to a Peronist-style regime the companies might just loose allot of their value. Many companies are proposing to use technology to extract lithium directly from lower grade brines but the economics of these processes are not yet well proven.
• Australia (pegmatites) – good for mining and for process technology. Lithium contained in hard-rock pegmatites meaning that mining and process costs will be higher than for brines in Chile. Australia is now the world’s largest producer of lithium proving that lithium extraction from pegmatites is a fair way to go even in a higher cost environment. Rapid production of direct shipping ore is boosting Australia output, however competition for limited Chinese conversion capacity may force operations down the pecking order. Pegmatite concentrates with higher levels of mica may struggle to find a home as the mica reduces energy efficiency and raises dust/pollution levels.
• Portugal / Spain (pegmatites) – a number of explorers are proving up lithium pegmatites in Portugal. Portugal has had a difficult mining history with labour and unions and suffers from the high price of the Euro but may prove to be a beneficial destination for lithium production from a European perspective. Close proximity to European automotive manufacturers will give desirable supply for product which has traditionally been sold for glass & ceramics. Savannah Resources and Plymouth Minerals are two lithium companies in Portugal and Spain.
• Mali (pegmatites) – well known for gold production, Mali offers a low cost destination and a sensible and stable political regime from a mining perspective. A Chinese lithium processor has already offered to buy Birimian Limited in Mali and has subsequently invested in Kodal Minerals.
• Boliva (brines) – just don’t go there under any circumstances. It’s off the scale from a mining risk perspective and we understand Bolivian lithium brines contain awkward contaminants.
• Investment strategy:
• While it is possible for the major lithium brine producers in Chile to meet demand we believe they are slow in their production growth and are likely to fail to match the new growth in demand over the next 4/5 years. Focus on highest-quality brines to enhance production while minimising concentration period. (Brines can only be concentrated up to a precipitation point of around 6,000ppm so higher initial concentration will reduce evaporation times).
• New technology in the extraction of lithium directly from brines without the use of evaporation ponds is being trialled in Argentina and the US and offers potential for scaling up. The technology is not yet proven at a commercial scale and Argentina can be a difficult mining destination. Production from Clays is some way off and is also untested from a commercial perspective.
• Hard rock, pegmatites: while lithium from pegmatites is seen as relatively high cost this is now the world’s largest source of lithium due to its relative simplicity and lower capital cost.
• Risks: The rising cost of reagents, chemicals, power and certain capital items is a risk as is the potential for changing battery chemistries. There is political as well as technology risk for the direct brine producers in Argentina and Chile. Government’s may choose to impose additional taxes on lithium producers as well as on EVs and there is always the problem of supplying sufficient electrical power for the new fleet of EVs on our streets. These are just a few of the risks ahead.
• Bank financing: so far banks have been reticent to finance lithium projects but with the LME poised to start trading in lithium futures contract in 2019 banks will have more reason to enter this market.
Conclusion: We advise investors to be careful in investing in the Lithium mining space but we feel there are good opportunities to be had with juniors which have the ability to push projects into production in the next few years.
China’s warm start to winter boosts steel mill profits
• Higher temperatures have allowed new construction projects to proceed that would normally have come to a halt, pushing profits to highest since at least 2008
• Steady ongoing demand is exacerbating the supply shortfall caused by mills in 28 Chinese cities cutting output from polluting blast furnaces
Vale cuts nickel output but is positive on long term demand
• Brazilian miner, world’s top producer of the metal, pulled back it’s nickel output forecasts by 15% for the next five years
• Vale claims it is looking to preserve its nickel optionality ahead of expected boom in electric vehicles in the next decade
• This is an unusual statement for a mining company and suggests a new discipline coming into producers thinking
• It also indicates that Vale appreciates how difficult it is to find new sources of economically recoverable nickel as well as a realisation that nickel demand and prices are both expected to grow markedly over the longer term
US$1.1790/eur vs 1.1814/eur yesterday. Yen 112.66/$ vs 112.20/$. SAr 13.572/$ vs 13.489/$. $1.338/gbp vs $1.340/gbp.
0.753/aud vs 0.758/aud. CNY 6.616/$ vs 6.615/$.
Gold US$1,257/oz vs US$1,268/oz yesterday
Gold ETFs 71.9moz vs US$71.9moz yesterday
Platinum US$900/oz vs US$915/oz yesterday
Palladium US$1,000/oz vs US$991/oz yesterday
Silver US$15.89/oz vs US$16.14/oz yesterday
Copper US$ 6,600/t vs US$6,551/t yesterday
Aluminium US$ 2,015/t vs US$2,048/t yesterday
Nickel US$ 10,815/t vs US$10,850/t yesterday
Zinc US$ 3,101/t vs US$3,080/t yesterday
Lead US$ 2,508/t vs US$2,475/t yesterday
Tin US$ 19,475/t vs US$19,450/t yesterday
Oil US$61.5/bbl vs US$62.8/bbl yesterday
Natural Gas US$2.856/mmbtu vs US$2.936/mmbtu yesterday
Uranium US$25.50/lb vs US$25.40/lb yesterday
Lithium - New green source of lithium from geothermal power plant brine
• Brine produced by geothermal power plants is seen as an environmentally friendly source of lithium.
• The process works by passing through sorbent that catches ions before pumping back underground and collecting metal
• Researchers found that sorbent of aluminium hydroxide with lithium chloride captured 91% of initial lithium in brine
Iron ore 62% Fe spot (cfr Tianjin) US$67.2/t vs US$69.5/t
Chinese steel rebar 25mm US$750.6/t vs US$760.9/t
Thermal coal (1st year forward cif ARA) US$85.9/t vs US$85.8/t
Premium hard coking coal Aus fob US$231.7/t vs US$221.8/t
Iron ore 62% Fe spot (cfr Tianjin) US$69,900.0/t vs US$69,500.0/t - Vale threatens to flood iron ore market if prices surge
• Vale, the world’s largest iron ore producer says it is prepared to unleash as much as 50mt of spare capacity to balance market if prices got too high
• High prices would lure inefficient producers back into market and risk a repeat of past excess that led to $1tr in value destruction
Tungsten APT European US$000.0/mtu vs US$000.0/mtu
Quarterly hard coking coal US$170.0/t vs US$170.0/t
Ariana Resources (LON:AAU) 1.2p, Mkt Cap £12.6m – Increased ore resource estimate at Kiziltepe
• Ariana Resources has reported on its recent exploration work at the Salinbas project in north-east Turkey, located some 4km north of the 4m Hot Maden discovery. Ariana acquired the project in December 2016 from Eldorado Gold.
• In September 2017, the company re-reported an April 2015 JORC compliant resource estimate of 9.96m indicated and inferred tonnes at an average grade of 2.03g/t gold (648,900oz) and 10.2g/t silver (3.27m oz) at Salinbas.
• The recent work, including soil sampling and mapping has identified an anomalous zone of precious and base metals measuring approximately 550m x 150m at Salinbas North and has shown “Several precious and base-metal enriched extensions of the existing Salinbas resource [which] demonstrate potential for further resource growth”.
• As a result of this preliminary work and revisions to the previously accepted geological interpretation, “The exploration team are currently working on plans for a drilling programme to be conducted on some of the areas referred to above, which is under consideration for 2018.”
Conclusion: The recent work by Ariana has shown possible extensions to the Salinbas mineralisation which may be followed up with drilling in 2018. The location near to the Hot Maden discovery, which was acquired by the US based royalty company, Sandstorm Gold, earlier this year in an all share deal worth a reported £167m, no doubt provides encouragement for the wider exploration potential to expand Salinbas. We look forward to further news when drilling gets underway.
Ironveld (LON:IRON) 2.375p, mkt cap £13.2m – Final results and update on Middleburg acquisition
• Ironveld reports a loss of £0.74m (0.2p/share) for the year ending June 2017 (2016 loss £0.59m or 0.18p).
• The company continues to pursue its acquisition of the smelting facilities at Middleburg where it remains in discussions “with Ironveld Middelburg, a subsidiary of the Company, to acquire the Smelting facility. … [and] … “Offtake agreements are in place for HPI [High Purity Iron], Vanadium and Titanium for the first five years of production”.
• Expressing confidence in a successful outcome to these discussions the company reports that “Considerable time has been spent by management on site at the Middelburg Smelting facility, preparing for the commencement of operations. However, no further work will be done until the funding for the acquisition has been concluded and the necessary upgrades have been made.”
• Negotiations are underway with local landowners for access and licences have been received for Air Emissions from the Department of Economic Development and Tourism. Licence applications for a Water Use Licence have been submitted to the Department of Water Affairs.
• Commenting on developments during the year, which included a strategic shift of direction, CEO, Peter Cox said “During the Period, we shifted our immediate focus from constructing a 15 MW smelter to securing the acquisition of the Middelburg Smelting facility, to enable early production and allow us to begin selling to offtake partners, generating revenue and cash flow for the Company. Although progress has been slower than we hoped, we remain confident in finalising funding arrangements that would allow for the necessary refurbishments to the Smelting Facility to be completed and for smelting and refining of our magnetite ore to commence.”
• Following two fund-raisings, totaling £2.1m during the year, the company reports cash of £788,000 at 30th June. A subsequent funding round of £1.765m should see Ironveld with sufficient funds to continue its negotiations.
Conclusion: Ironveld is continuing its protracted negotiations to acquire Middleburg and while expressing optimism as to a successful outcome no estimate of the likely timing has been disclosed.
Ariana Resources (LON:AAU) – Increased ore resource estimate at Kiziltepe