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Morning View . Trump Tariffs to raise local metal premiums

Morning View . Trump Tariffs to raise local metal premiums

Asiamet Resources (LON:ARS) – Start of Drilling at Beutong

BlueRock Diamonds* (LON:BRD)   – BlueRock targets turnaround as production and grades rise

Ironveld (LON:IRON) – Ironveld updates market on its Middleburg project as vanadium prices hold high levels

Stratex International (LON:STI) – CEO appointment

Wolf Minerals (LON:WLFE) – Topping up the Bridge Facility

 

Capital Growth Discipline – Glencore presentation highlights lower capex plans limiting production growth

  • Miners have always been crap at capita discipline, that it till Glencore came along
  • The Irony is that Glencore which is led by market savvy traders shows the best production discipline of all the majors
  • A further irony was that Glencore was savaged by hedge funds following the Sub-Prime banking crisis over the financing its short-term debt obligations
  • Glencore see modest capital cost inflation and some catch-up spending but not much in the way of major new capital projects
  • There is a shortage of ‘shovel-ready’ projects particularly in copper, zinc, nickel and cobalt according to Glencore
  • The increasing need for a ‘social license to operate’ is creating added complexity for greenfield project approvals
  • While Glencore is relatively aggressive in its plans miners are generally more wary of committing capital following fallout of the Sub-Prime crisis
  • Glencore claims to promote capital efficient growth. Eg it empowers local managers to organically reinvest in he project they think are best. It’s a strategy which works well
  • Glencore also reckons it’s capital discipline is non-disruptive from a supply/demand balance
  • We can only hope more miners will follow Glencore model for capital discipline and value generation.

 

Equities are weaker this morning with the US indices posting further losses on Wednesday.

  • Metal prices are trading lower with copper prices falling pas the US$6,900/t mark and gold heading for the lowest close this year as the US$ index is climbing higher.
  • The pound dropped below the 1.38 level against the US dollar as the EU released a draft Brexit treaty which rejected British proposals covering the transition period, suggesting the European Court of Justice is set as “the final arbiter” of any Brexit disputes and putting all-Ireland area under the EU single market rules as opposed to British customs rules.
  • “No Uk prime minister could ever agree to it,” May told the House of Commons as doing so would threaten UK constitutional integrity.

 

SQM is trying to talk down fears of a potential oversupply in the lithium market.

  • One of the largest lithium producers said the Company will be expanding production “based on market conditions” with the latest government agreement for a potential quadrupling of its capacities providinging “flexibility” to expand operations if needed.
  • “We will evaluate the timing for future expansions in the Salar de Atacama based on market conditions,” SQM said.
  • The Company is investing US$170m to expand operations to 70kt this year from 48kt and then to 100kt by 2019.
  • Shares in the Chilean miner dropped 15% this week after Morgan Stanley voiced fears of a market oversupply and prices potetntially dropping by 45% over the next four years.

 

Dow Jones Industrials

 

-1.50%

at

  25,029

Nikkei 225

 

-1.56%

at

  21,724

HK Hang Seng

 

+0.65%

at

  31,044

Shanghai Composite

 

+0.44%

at

   3,274

FTSE 350 Mining

 

-0.95%

at

  18,267

AIM Basic Resources

 

-0.00%

at

   2,521

 

Economics

US – Donald Trump is expected to announce steep tariffs on steel and aluminium imports today protecting those two industries at the expense of others.

  • Trump is reported to be considering tariffs of 25% on steel and 10% on aluminium from all countries, according to people familiar with the matter Bloomberg cited.
  • Previously, the president asked the Commerce Department to study the impact of steel and aluminium imports on national security with the agency recommending imposing steep curbs on inbound shipments of those two products
  • The US imports more than 30mt of steel annually with top ten sources including Canada, Brazil, South Korea, Mexico, Russia, Turkey, Japan, Taiwan, Germany and India.
  • US primary aluminium imports amount to c.4-4.5mt and account for 90% of national demand highlighting heavy reliance on those shipments and implying significant implications for pricing of a potential tariff.
  • On a different note, Q4 GDP growth has been revised slightly lower in a second reading (2.5% v 2.6% estimated previously and 2.5% forecast) on the back of minor downgrades in inventories, intellectual property investment and government spending.
  • Nevertheless, outlook remains strong as highlighted by Powell in his strong economic outlook led by fiscal stimulus; updated Fed’s GDP projections will be released on March 21 during the FOMC meeting statement.

 

China – In contrast to earlier subdued official manufacturing PMI numbers, private sector survey points to improved momentum.,

  • Caixin manufacturing PMI adjusted for seasonal factors, including the Chinese New Year, edged up to 51.6 v 51.5 in January.
  • “Though only modest, the latest reading signalled the strongest improvement in operating conditions for six months,” the release said.
  • New orders expanded at a faster pace, although overseas demand has come down slightly.
  • Companies continued to shed workers as part of efforts to reduce costs.
  • Consumer prices climbed again in February, although at a modest pace.

 

UK – House prices growth pulled back in February coming more in line with other reports, latest Nationwide numbers show.

  • Property prices climbed 2.2%yoy last month, down on 3.2%yoy recorded in January and 2.6%yoy forecast.
  • “Month-on-month changes can be volatile, but the slowdown is consistent with signs of softening in the household sector in recent months… subdued economic activity and the ongoing squeeze on household budgest is likely to exeret a modest drag on housing market activity and house price growth,” Nationwide said.
  • In a separate report, manufacturing PMI came down to the weakest level in eight months, although stronger new orders offered some optimism in the wake of good domestic and overseas demand.
  • A continuing growth in the manufacturing sector led gains in employment which climbed for the 19th consecutive month.
  • Increases in consumer prices slowed during the month but still remained high on the back of supported by elevated commodities and raw materials prices.
  • Manufacturing PMI: 55.2 v 55.3 in January and 55.0 forecast.

 

Currencies

US$1.2199/eur vs 1.2204/eur yesterday. Yen 106.84/$ vs 107.19/$. SAr 11.867/$ vs 11.767/$. $1.376/gbp vs $1.388/gbp. 0.774/aud vs 0.781/aud. CNY 6.345/$ vs 6.332/$.

 

Commodity News

 

Precious metals:         

Gold US$1,312/oz vs US$1,317/oz yesterday

   Gold ETFs 72.3moz vs US$72.3moz yesterday

Platinum US$975/oz vs US$980/oz yesterday

Palladium US$1,034/oz vs US$1,045/oz yesterday

Silver US$16.35/oz vs US$16.38/oz yesterday

           

Base metals:   

Copper US$ 6,905/t vs US$6,993/t yesterday

Aluminium US$ 2,118/t vs US$2,143/t yesterday

Nickel US$ 13,670/t vs US$13,785/t yesterday

Zinc US$ 3,418/t vs US$3,476/t yesterday

Lead US$ 2,471/t vs US$2,544/t yesterday

Tin US$ 21,580/t vs US$21,625/t yesterday

           

Energy:           

Oil US$64.9/bbl vs US$66.3/bbl yesterday

Natural Gas US$2.659/mmbtu vs US$2.675/mmbtu yesterday

Uranium US$22.00/lb vs US$21.25/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$77.2/t vs US$78.4/t

Chinese steel rebar 25mm US$689.7/t vs US$691.1/t

Thermal coal (1st year forward cif ARA) US$78.0/t vs US$79.4/t

Premium hard coking coal Aus fob US$234.9/t vs US$235.4/t

 

Other:  

Tungsten APT European US$319-326/mtu v US$319-325/mtu

Cobalt LME 3m US$81,000.0/t vs US$82,750.0/t

 

Company News

Asiamet Resources (LON:ARS) 11.8p, Mkt Cap £101m – Start of Drilling at Beutong

  • Asiamet Resources reports that it has started drilling at its Beutong copper-gold project in Aceh, Indonesia where the company is in the process of earning an increase from its current 40% interest to an 80% interest.
  • The planned drilling programme consists of approximately 4,000m metres in eight holes up to 75m deep. The programme has “been designed to provide critical information on the vertical and lateral distribution of the secondary sulphide mineralisation, test the strike and depth potential of the Beutong system, and fulfil our commitments in respect of the IUP-OP permit”.
  • The Beutong project, which is located approximately 60km inland from the coastal town of Meulaboh in Sumatra and served by a nearby sealed road, has an existing measured and indicated resource estimate of 93mt at an average grade of 0.61% copper with 0.13g/t gold, 1.97g/t silver and 0.01% molybdenum with an additional inferred resource of a further 418mt at an average grade of 0.45% copper, 0.13g/t gold, 1.11g/t silver and 0.01% molybdenum.
  • The deposit outcrops at surface and remains “open in several directions including to depth.” The company comments that “Geological observations indicate excellent potential for the presence of a high-grade copper-gold core at depth similar to that seen in some of the giant Asia-Pacific porphyry systems such Wafi-Golpu (Newcrest, PNG) and Grasberg (Freeport, Indonesia). Drilling designed to test this potential is planned.”
  • The drilling is intended, initially, to test for possible eastward extensions of the mineralisation encountered in hole BEU0900-01 which intersected 374.4m at an average grade of 0.89% copper and also to “obtain representative sample for metallurgical test work.”
  • The metallurgical testing “will assess the potential for developing a large-scale heap leach SX-EW mining operation to produce copper cathode at Beutong”.

Conclusion: The new phase of drilling at Beutong will assess possible extensions to the existing resource and provide samples for metallurgical testing to establish the suitability of the material for heap leaching and SX/EW recovery of copper cathode. We look forward to results as they become available.

 

BlueRock Diamonds* (LON:BRD)  1.8p, Mkt Cap £2.5m – BlueRock targets turnaround as production and grades rise

  • BlueRock Diamonds today report they intend to treat some 275,000t of ore this year in line with previous guidance of 25,000t per month.
  • The mine works an effective 11 month year due to public holidays and other downtime.
  • Management expect grades of between 3.5-4.5cpht indicating total production of around 9,500 to 12,500cts.
  • The grade mined in November was 3.63cpht from the Kareevlei K2 pipe with a sale price of US$404.45/ct.
  • If grades rise to average ~4cpht and sales prices continue at ~$400/ct then BlueRock sales could be a respectable 11,000cts or US$4.4m for the year.
  • This could allow the repayment of loans, new capital to improve the mining operation at K2 and capital for the further investigation of the K1 and K3 kimberlite pipes in the Karevlei complex and at other diamond pipes.
  • On mine cash costs are likely to fall markedly from the US$6.2/t (US$189/ct) quoted for the 3-months to end Nov last year and we should expect to see a margin of well over US$200/ct through 2018 though rainfall and a significantly stronger South African rand in the first quarter may see higher costs through this period.
  • If operating costs pull back to US$150/ct then operating profits could rise to US$2.75m for the year.
  • Recovered diamond grades have continued to increase since the departure of the previous management and on-site mining contractor and the move to lower levels in the mine and the mining of softer kimberlite material is also allowing for a faster mining rate.
  • The better operation of the process plant appears to be producing a greater number of larger and more valuable diamonds.
  • The longer the mine and plant runs the greater the chance of recovering some significantly larger and more valuable diamonds which could have a meaningful impact on BlueRock’s sales and profit numbers.
  • We are hopeful that the Kareevlei diamond complex can produce a proportion of larger gem quality diamonds making the kimberlite pipes prized diamond mining assets.

Conclusion: We are hopeful for much improved performance from BlueRock this year. The mine should produce some 25,000t of ore per month weather permitting and recovered kimberlite grades should average around 4cpht. We are hopeful for the per carat value to realise around US$400/ct on the assumption that the mine continues to produce a reasonable proportion of gem quality diamonds.

 *SP Angel acts as Nomad & Broker to BlueRock Diamonds

 

Ironveld (LON:IRON) 2.3p, mkt cap £12.8m – Ironveld updates market on its Middleburg project as vanadium prices hold high levels

  • Ironveld updated the market yesterday on its vanadium, high-purity iron and titanium project.
  • The Middleburg project is located on the Northern Limb of the Bushveld Complex in the Limpopo Province of South Africa.
  • The company state ‘Following a successful statutory inspection of the Project Area by the Department of Water Affairs, the Company is pleased to announce that its water use licence application is proceeding satisfactorily with resolution expected early in Q2 2018. The water use licence represents the only outstanding licence required before the Company can commence mining operations. The Company is now in a position to timeously begin the site establishment and civil engineering works in preparation for the commencement of mining activities.’
  • The open cast project resource contains 27mt of HPI and 1.4bnlbs of Vanadium (V2O5) in situ JORC.
  • Ironveld point out that current global annual demand of Vanadium is >300mlbs (V2O5). Th
  • The Ironveld team are looking to finance and build a 7.5MW smelting facility to produce some 190.5tpa of vanadium in slag grading 36% Vanadium , 21,000tpa of HPI powder and some 4,134.5tpa of titanium TiO2 in slag grading 65%.
  • Ironveld are presently focused on concluding the financing for the acquisition of the 7.5 MW smelting facility and associated independent power plant in Middelburg from Siyanda Inkwali Smelting Services (Pty) Ltd.
  • The acquisition would enabling the early production of Vanadium, HPI and Titanium providing the company with a readymade smelter
  • Vanadium prices have remained at high levels since their dramatic rise through November/December. Prices are currently at US$59/kg V. High-purity iron prices are also relatively high with significant premiums paid for high-purity iron shipments into China as Chinese smelters seek to use cleaner and more energy efficient feedstock. Titanium slag prices are also expected to see significant price growth this year.

 

Stratex International (LON:STI) 0.9p, Mkt cap £4.2m – CEO appointment

  • Stratex reports that Tim Livesey has joined the board as Chief Executive Officer following the standing down of the interim CEO , Bob Foster as previously announced.
  • Mr Livesey is a professional geologist with some 30 years’ experience in exploration and development in Africa, the Middle East, and more recently, as COO of Reservoir Minerals in the Balkans.
  • “Tim has a broad range of experience including roles in Senior management, advanced project development, social license to operate, government relations and arbitration.”

Conclusion: The appointment of the new CEO with a well-rounded CV in exploration opens a new chapter for Stratex; we wish him success in his new role.

 

Wolf Minerals (LON:WLFE) 3.4p, Mkt Cap £37m – Topping up the Bridge Facility

  • Wolf Minerals reports that it has agreed with Resource Capital (RCF) a £10m increase in the existing Bridge Facility from £55m to £65m, with the potential for this  to be increased by a further £5m at the discretion of RCF.
  • The facility, which is in the form of a subordinated loan  carries an interest rate of 15% pa, payable quarterly in arrears in either cash or shares, matures in October 2020 at which point it is repayable in full.
  • The “Company currently has £64 million outstanding under its debt facilities with Senior Lenders.” The Lenders and RCF have “agreed to extend the standstill period of certain loan agreement conditions until 31 January 2019.”
  • The debt restructuring has agreed “that the Senior Debt principal repayments will be reduced to £1 million per quarter due on 30 April 2018, 31 July 2018 and 31 October 2018 before reverting to the current principal repayment schedule from 31 January 2019. The total deferred amount of £3.3 million has been added to the principal repayments due in 2020. In addition, the current principal repayment schedule is to be reviewed by 31 July 2019, with a view to Wolf and the Senior Lenders agreeing a resculpted repayment schedule within the existing June 2023 tenor of the Senior Debt.”
  • Commenting on 2018 as being “a transformative year for Wolf” interim Managing Director, Richard Lucas, characterised the new financing arrangements as providing a platform for the future and disclosed that “The operational ramp up at Drakelands is progressing towards completion and, with strong tungsten market conditions, should deliver long term self-sustaining cash flows.”
  • The benchmark price of the intermediate tungsten product, ammonium paratungstate, increased by around 50% during 2017 from around US$190/mtu to almost $300/mtu. In 2018, the price has continued to strengthen to a current level around $325/mtu.

Conclusion: Wolf Minerals is fortunate to have the support of RCF and its other lenders while it resolves the operational issues at its Drakelands tungsten mine in Devon. As the commodity price maintains its recovering trend we look forward to further updates on operational progress.

 

 

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