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Today's Market Review -Focus on quality raises iron ore premiums

Today's Market Review -Focus on quality raises iron ore premiums

Acacia Mining (LON:ACA) – Hounde royalty sale completed

Firestone Diamonds (LON:FDI) – Mixed Q2 results but output, quality, and demand improvements expected in H2

Georgian Mining* (LON:GEO) STRONG BUY – Michael Struthers appointed as COO to transition to mine development

IronRidge Resources* (LON:IRR) – Expanding its lithium exploration area in Ghana

Lucapa Diamonds (ASX:LOM) – More large diamonds recovered from Lulo

Sula Iron & Gold* (LON:SULA) – Sula changes name to African Battery Metals

African Battery Metals* (LON:ABM) – Sula changes name to African Battery Metals

Tahoe Resources (TSE:THO) C$5.8, mkt cap C$1.8bn – cuts quarter of workforce in Guatemala as courts delay mining license for Escobal silver mine

 

UK raises ambitious electric car targets

  • The official watchdog – Committee on Climate Change – offers a warning that three-fifths of all new cars must be electric by 2030 to meet greenhouse gas targets. While the government acknowledges the UK is raising the bar by cutting emissions faster than any other G7 nation, it has also expressed concerns that pledges need to be converted to reality unless falling short of ambitious targets. The warning arrives less than a week after the prime minister launched the ‘Clean Growth Plan’, a 25-year strategy to protect the environment.
  • The committee want 30-70% new cars to be ultra-low emission by 2030, as well as up to 40% of new vans, as part of efforts to phase out sales of conventional petrol and diesel versions by 2040. Currently fewer than 5% of new car sales, rising to 2.7 million over 2016, are ‘alternatively fuelled’. The rapid uptake in sustainable vehicles will require supportive government policies including cutting company car tax for electric vehicles and repealing the ban on onshore wind power to support the clean growing energy demands. With copper consumption alone rising 80-500% per electric vehicle (SP Angel Commodity Research Book 2017 – Battery Raw Material Review) the requirements for battery material is expected to generate significant demand across the entire supply chain.

 

DRC revises mining code to make most of battery driven cobalt boom

  • New code passed by National Assembly and now in hands of senate, provides for a ‘broadening of the base and raising of mining royalties’
  • Sets out taxes of up to 5% on strategic minerals – most likely including cobalt, and 6% on precious stones
  • Also raises stake of the state in capital of mining companies and outsourcing tasks related to the industry ‘only to firms in which the majority of the capital is owned by Congolese nationals,’ authorities want to ensure the repatriation of at least 40% of revenue of minerals sold for export
  • Many firms have fired back, stating that new code would ‘significantly weaken confidence of investors’

 

Canadian companies looking to extract nickel, cobalt and vanadium from petcoke

  • MGX Minerals and Highbury Energy have partnered to extract the metals from petroleum coke, designing a process to generate hydrogen gas and concrete metals in the form of ash by-product
  • Highbury has already completed a Phase I report on potential processes and markets for primary and secondary by-products, whilst Phase II study has started for analysis of locations and advanced design process

 

Dow Jones Industrials

 

-0.04%

at

25,793

Nikkei 225

 

-0.35%

at

23,868

HK Hang Seng

 

+0.25%

at

31,983

Shanghai Composite

 

+0.24%

at

3,445

FTSE 350 Mining

 

+0.10%

at

19,560

AIM Basic Resources

 

-0.73%

at

2,789

 

Economics

US – American automakers are warning of tougher conditions for 2018 on the back of “higher commodity costs and further adverse exchange”, Ford said announcing EPS forecasts for 2018.

  • Previously, GM also suggested the Company will not report earnings growth this year following five years of increasing profits on the back of stronger car sales in the US and China.

 

Eurozone – The euro has come off against the US$ this morning as one of the ECB policymakers expressed his concerns over the currency strong rally.

  • “I am concerned about sudden movements (in the euro) which don’t reflect changes in fundamentals,” Vitor Constnacio, vice-president of the ECB said.
  • The euro was off 0.3% in early hours on Tuesday with the EURUSD exchange rate trading around 1.2236 reducing YTD gains to 2.0%.

 

Greece – The parliament voted through another set of austerity measures as part of the nation’s bailout package including new bankruptcy procedures and limits on unions’ ability to go on strike and paving the way for the disbursement of the next bailout tranche for €6-7bn.

  • Eurozone finance ministers are expected to approve the next tranche at their meeting in Brussels on Jan 2.
  • The nation is targeting to exit the bailout programme in August this year shifting fund raising activities to debt markets given strong demand for higher yielding government bonds from investors.
  • In recent weeks yields on 10y benchmark Greek bonds dropped to the lowest level in a decade while the nation’s debt management agency rolled over a 3m bill last week at less than 1%, a nine year low.
  • Nevertheless, given the amount of exposure of European creditors to the Greek government, lenders will continue supervising the government until 75% of the debt is paid off, which is currently expected to happened in 2060.
  • What form the supervision will come in at has not been decided yet and is the subject of discussions in the coming months.

 

Currencies

US$1.2230/eur vs 1.2255/eur yesterday  Yen 110.78/$ vs 110.75/$  SAr 12.317/$ vs 12.254/$  $1.377/gbp vs $1.379/gbp  0.797/aud vs 0.797/aud  CNY 6.433/$ vs 6.436/$

 

Commodity News

 

Precious metals:         

Gold US$1,336/oz vs US$1,339/oz yesterday

  • Gold spot slips back from four-month highs as Bloomberg’s dollar index rises 0.3% from its lowest close in three-years on Tuesday. The precious metal contracted 0.3% to $1,334/54/oz, while the 14-day RSI continues to hover above 70 to give an indication the metal has been overbought.

   Gold ETFs 71.6moz vs US$71.5moz yesterday

Platinum US$1,002/oz vs US$994/oz yesterday

Palladium US$1,102/oz vs US$1,119/oz yesterday

  • Even among bearish forecasting, palladium is tipped for another record performance in 2018, according to Reuters surveying. However, the rapid surge in pricing could also lead to the trend of broad substitution for cheaper platinum in autocatalysts, reducing the market demand for palladium, and higher recycling volumes.

Silver US$17.20/oz vs US$17.26/oz yesterday

           

Base metals:   

Copper US$ 7,083/t vs US$7,124/t yesterday

  • Copper pulls back to 3.5 week low after strong profit-taking, steadying dollar and concerns are raised over fading demand in China ahead of the Lunar New Year. The dollar index against a basket of six major currencies stood at 90.73, climbing from Monday’s three-year low, and causing three-month copper on the London Metal Exchange to fall 2.3% to $7,046.50/t as dollar-priced metals become more costly for non-US investors.
  • Commodity strategists at ETF Securities also note “a bit of profit-taking on the back of a strong run. Beyond that we had some trade data from China last week which indicated imports of refined metals have been somewhat slow” as the world’s largest consumer of copper approaches the Lunar New Year in Feb. 16th. Beyond the festive lull in industrial activity, “The demand picture looks robust, global PMIs are running close to seven-year highs while supply is likely to remain constrained, so we could see price growth above 5 percent in copper this year”.
  • Shanghai Futures Exchange metals came under pressure as investors liquidated positions across broad base metals, with open interest on copper, aluminium, zinc and nickel falling sharply during yesterday’s trading session.
  • Headline LME copper inventories have also risen 12% since the beginning of December, boosting the global balance by 204,650 tonnes.

Rio Tinto hikes 2018 copper target to 28% on year

  • Hiking target for mined copper output to 510,000 – 610,000 mt in 2018, up to 28% higher than its realised output of 478,000 mt in 2017
  • Also raised refined copper output to 225,000-265,000 mt in 2018, up to 34.4% higher than the 197,200 mt it produced in 2017
  • The bullish outlook comes after both its mined and refined copper output declined on a year-on-year basis in 2017; mined copper output was down 8.6% from 523,300 mt in 2016 and refined output down 21% from 250,100 mt – which it attributed to a 43 day strike at its copper venture in Chile

Aluminium US$ 2,186/t vs US$2,195/t yesterday

  • Contracting smelting capacity since 2011 across China is expected to close on a permanent basis as the nation’s Ministry of Industry and Information Technology (MIIT) rule that output that is not updated by the end of 2018 will not be able to count as replacement capacity. Chinese aluminium firms, producing a range of products including molten aluminium and aluminium ingots, are entitled to replace their capacity (internally or via mergers and acquisitions) with more modern facilities. The move, which builds on Beijing’s supply-side reforms, looks to enhance its emissions protection and permanently remove 3-4 million tonnes of illegal smelting capacity.

Nickel US$ 12,530/t vs US$12,480/t yesterday

Zinc US$ 3,406/t vs US$3,394/t yesterday

Lead US$ 2,563/t vs US$2,543/t yesterday

Tin US$ 20,470/t vs US$20,295/t yesterday

           

Energy:           

Oil US$69.2/bbl vs US$69.9/bbl yesterday

Natural Gas US$3.155/mmbtu vs US$3.117/mmbtu yesterday

Uranium US$23.75/lb vs US$23.75/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$73.5/t vs US$75.7/t

  • The global focus on iron ore quality is becoming more apparent as China’s prioritization on its environmental clean-up is generating a surging discount gap in material grades. The price premium between ore with 58% content and 62% has ballooned, widening from less than 15% at the start of 2016 to more than 45% yesterday, as benchmark ore sits at $41.76 and $75.71 respectively.
  • The attention to quality has increased massively, with steelmakers focusing on higher-quality ore to boost productivity in China’s capacity-constrained environment with a focus on cleaner air. The Ministry of Environmental Protection’s clampdown on steel supply has cut pollution over the winter warming period, prompting mills to gravitate toward batter-quality material that is cleaner and more efficient.
  • Supportive pricing is encouraging Australia’s Mount Gibson Iron Ltd. to commit millions of dollars to restart production in a flooded pit, betting the premium 66% ore will remain in high demand. Other mines are focusing on variable supply with demand pattern shifts, as Fortescue Metals Group Ltd. is now seeking to deliver a majority production above 60% during the winter while dropping to an average 58% as restrictions diminish.
  • Shipments of iron ore from Australia have been severely disrupted, as port closures due to cyclones drops exports by 35% to 9.37 million tonnes in the week to Jan. 15th.

Chinese steel rebar 25mm US$631.4/t vs US$629.7/t

Thermal coal (1st year forward cif ARA) US$84.5/t vs US$85.8/t

Premium hard coking coal Aus fob US$249.7/t vs US$254.3/t

 

Other:  

Tungsten APT European US$310-318/mtu vs US$307-318/mtu last week

Cobalt LME 3m US$75,250.0/t vs US$75,250.0/t

 

Company News

Acacia Mining (LON:ACA) 193 pence, Mkt Cap £793m – Hounde royalty sale completed

  • Acacia Mining reports the completion of its previously announced US$45m sale of its royalty over the Hounde mine in Burkina Faso.
  • The company has held the royalty over the mine, which is owned by Endeavour Mining and reached commercial production in October, since 2010 and the announcement of the sale, in mid-December, identified the purchaser as Sandstorm Gold.

Conclusion: The successful completion of the sale of the royalty, considered to be a non-core asset, should help to strengthen Acacia’s balance sheet as it addresses the challenges of the new regulatory regime for mining in Tanzania.

 

Firestone Diamonds (LON:FDI) 9.4 pence, Mkt Cap £47.2m – Mixed Q2 results but output, quality, and demand improvements expected in H2

  • Firestone Diamonds reports a 9% decline in diamond output during the quarter ending December 2017 from its 75% owned Liqhobong mine in Lesotho of recovering higher quality stones with 180,709 carats recovered compared with 199,007 carats in the preceding quarter.
  • The mine treated marginally more ore but at a lower grade of 18.8 carats per hundred tonnes (cpht) (Q1 - 21.1 cpht) as it mined through a lower grade block of the resource. The  situation is expected “to improve in the second half as mining moves to higher grade areas of the pit.”
  • Mining produced 80 “special” stones (>10.8 carats in size) compared to 45 stones recovered during the previous quarter, though “the average quality remained somewhat below expectation”.
  • Over the next eighteen months, management expects mining to move into an area of the pit where it expects to “improve the likelihood of recovering higher quality stones”.
  • Operationally, management reduced costs by approximately 5% to $11.60/tonne during the quarter but “with the stronger local currency, cost per tonne is expected to increase over the second half of the year.”
  • During the quarter, 156,942 carats of diamonds were sold (Q1 – 195,330 carats) for an improved average price of US$80/carat (Q1 – US$69/ carat). Sales included “Liqhobong’s second >US$1 million stone, a 45 carat clean white stone”.
  • The company comments that the market for its diamonds is improving with “the two sales in the quarter … better than in Q1 with the December sale stronger than the October sale.” Demand for the better quality stones, particularly the special yellow stones from Liqhobong is showing strength and the company is cautiously optimistic on 2018 diamond pricing as a result of positive retail sales reported from the US and China.

Conclusion: Firestone Diamonds is expecting improvements in the quality and volume of diamond production as it moves into higher grade areas of the pit during the 2nd half of its financial year. Welcome cost reductions achieved during Q2 may be difficult to maintain in the face of strength of the local currency but the company expresses cautious optimism on future demand and pricing for its diamonds.

 

Georgian Mining* (LON:GEO) 16.3.4p, Mkt Cap £18.6m – Michael Struthers appointed as COO to transition to mine development

(Georgian’s assets in Georgia are held in a 50:50 joint venture)

STRONG BUY

  • Georgian Mining has appointed Michael Struthers, it’s COO to the board with immediate effect.
  • Struthers replaces Martyn Churchouse’s board position with Martyn remaining as a senior advisor focussed on business development.
  • Michael Struthers is a chartered engineer with 37 years of international mining experience. He was formerly project director and senior project manager for Lundin Mining Corporation overseeing Lundin’s operations in Chile.  Struthers also led studies for expansions at Neves Corvo in Portugal and a US$300m expansion plan for its zinc mining operations which started execution in April last year. Michael was formerly a director and principal geotechnical engineer for AMC Consultants in the UK.
  • Georgian Mining recently reported that it is in the process of closing negotiations with ‘CMC’ Caucasian Mining Group, its 50% partner in Georgian Copper & Gold JSC (‘GCG’), to finalise the 2018 exploration and development programme within the 860sqkm licence on the Tethyan Belt in Georgia.
  • The program, expected early 2018, incorporates a comprehensive business plan, work programmes while strengthening the board of the GCG to develop and exploit the gold oxide production target at Kvemo Bolnisi East.
  • Georgian management look to be ahead of their 3-5mt resource target with drilling ongoing at the Kvemo Bolnisi site.
  • The resource shows a substantial tonnage of brecciated and broken rock with assays confirming relatively good copper grades of copper.
  • A weathered layer of relatively soft oxide material appears to host economic gold grades which will be simply processed at one of the Madneuli heap leach sites.
  • Gold recoveries should run at >90% as seen in initial test work.
  • The topography and layout of the mine should see a near zero strip ratio and low crushing costs as the rock is highly fractured, broken and weathered with
  • Inspection of the gold heap leach operation at Madneuly confirmed the functionality of the mine's gold process plant while the large copper flotation plant looked like it could use some TLC.

Conclusion:  Greg Kuenzel and Mike Struthers are in Georgia at present advancing discussions on all aspects of the operation.  The relationship between the two partners and discussions are said to be progressing well and range from the technical details for mining to further exploration of the license area.  The developing scale of the underlying copper mining project is such that a greater degree of forward planning is prudent at this stage of development.

We are happy to continue to recommend Georgian Mining as a Strong Buy

*SP Angel acts as Nomad and Broker to Georgian Mining. 

 

IronRidge Resources* (LON:IRR) 30.5p, mkt cap £85.6p – Expanding its lithium exploration area in Ghana

  • IronRidge Resources reports that it is expanding its lithium exploration area in Ghana through a combination of a deal with a local Ghanaian company holding licences adjacent to its Ewoyaa lithium prospect and by a direct application for further licences covering potential southward extensions of the mineralised structures at Ewoyaa.
  • Subject to conditions including the successful conclusion of due diligence, IronRidge has reached agreement with the local company, Joy Transporters, to secure exploration rights over the Saltpond exploration licence and the Cape Coast application representing some 318km2 within the Cape Coast Lithium project area.
  • In addition, the company is applying for 13km2 of further exploration areas to the south of Ewoyaa.
  • The two additional areas, with a combined area of 331m2 more than double the company’s lithium exploration area in its Cape Coast project to a total of 645km2.
  • Currently the site work is relatively early stage exploration pitting aimed at identifying drilling targets for a maiden drilling programme planned for Q1 2018.
  • The company also comments that preliminary mineralogical studies of samples from Ewoyaa have identified spodumene as the principal lithium bearing mineral which offers the possibility that it may be amenable to a relatively simple process flow-sheet.
  • IronRidge also highlights the project location as particularly advantageous as it is sited within 90km of the deep water port at Takoradi, within 100km of the Ghanaian capital, Accra and served by bitumen roads and by an electricity transmission line.

Conclusion: The expansion of the exploration area within the Cape Coast Lithium Project should enhance the target generation potential ahead of the initial drilling while the mineralogical work implies that any resulting lithium discovery may be amenable to relatively straightforward processing. We look forward to further news as the exploration progresses.

*SP Angel act as nomad and broker to IronRidge Resources

 

Lucapa Diamonds (SX:LOM) A$0.25, Mkt Cap A$95.2m – More large diamonds recovered from Lulo

  • Lucapa Diamonds has announced the recovery of more large diamonds from its Lulo mine in Angola. Today’s announcement reports the recovery of a 43 carat yellow gem diamond described as “the largest coloured gem-quality diamond recovered to date from Lulo, surpassing the 39 carat pink recovered in September 2016.”
  • In addition, a 116 carat diamond has been recovered, though this is described as  “a low-quality boart stone” though the company draws encouragement from the fact that it demonstrates the potential for Lulo to deliver large diamonds.

 

Sula Iron & Gold* (LON:SULA) 0.085p, Mkt Cap £2.8m – Sula changes name to African Battery Metals

African Battery Metals* (LON:ABM)

  • Sula Iron and Gold is moving to target cobalt and other battery metals in Africa.
  • The new strategic direction marks a clear move away from gold exploration in West Africa.
  • Management recently announced that it has acquired a controlling, 70% interest, in a cobalt licence in the DRC.
  • The licence is located “close to a number of existing cobalt / copper mines …” and is underlain “by the type of rocks which hosts most of DRC’s cobalt and copper”.
  • Grades reported on grab samples analysed in the field by a portable XRF analyser are reported to range up to 2.5% cobalt.
  • We look forward to further news on assays from the new assets in cobalt and other battery metals in the near  future.
  • Management have also revamped the company website see: www.abmplc.com indicating a new professionalism within the business

Conclusion: The new direction marks a new energy in the company and a new determination to develop the company at a faster pace than seen under previous management.

*SP Angel act as broker to African Battery Metals (formerly Sula Iron & Gold)

 

Tahoe Resources (TSE:THO) C$5.8, mkt cap C$1.8bn – cuts quarter of workforce in Guatemala as courts delay mining license for Escobal silver mine

  • Tahoe Resources has cut 250 employees from its 1,030 workforce due to delays in the receipt of its mining license at the Escobal mine in Guatemala.
  • Escobal had Proven & Probable mineral reserves of 23.7mt with an average silver grade of 351g/t containing 267.5moz silver as of January 2017.
  • The mine has been running for three years and produced around 20mozpa of silver in concentrate over the past three years. The mine produced 3,500oz of gold last year.
  • Fortunately Guatemala has a very low official unemployment rate of just 3.1% suggesting that jobs are not so hard to come by though wages in coffee, sugar and banana plantations will not match those seen in mining.
  • he Escobal license was provisionally suspended by Guatemala’s Supreme Court in July after an anti-mining organization alleged that the country’s mining ministry had not consulted with an indigenous group before awarding it to Tahoe.
  • The Escobal mining licence was reinstated by the Supreme Court in September but was appealed in the Constitutional Court in October.
  • Guatemalan law reportedly states the court must rule within five calendar days of the hearing but has not done so as yet.
  • Tahoe is hoping the Constitutional Court will honour their own legal procedures and precedents with a fair and transparent ruling quickly to show Guatemala remains open to foreign investment.
  • Holding up the mine development is costing Guatemala around US$4mpa in royalties and taxes.
  • Tahoe currently had around US$182m in cash and equivalents at end September.

 

 

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