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Morning View - Record level iron ore holdings remove year to date price gains

Morning View - Record level iron ore holdings remove year to date price gains

Amur Minerals (LON:AMC) – Project road access update

Apollo Minerals (ASX:AON) – Acquires remaining 20% of Couflens

MOD Resources (ASX:MOD) – A$18m fundraising to expand and accelerate Kalahari Copper Belt exploration

Scotgold Resources (LON:SGZ) – SP Angel appointed as Nomad and broker to Scotgold Resources

 

DRC – President Kabila hosts six hour meeting with top mining executives

  • Reuters report that Joseph Kabila has held a five to six hour meeting with leading mining executives in relation to the new mining legislation which was adopted by parliament in January.
  • Following an intense five-six hour discussion with executives from Glencore, Ivanhoe and five other mining companies, Kabila confirmed the law will be “promulgated shortly”.
  • Kabila is now expected to immanently approve changes to the country’s mining code that will raise taxes for major miners, despite unanimous industry objection.
  • The new code which raises royalties and proposes a new windfall profits tax raises also removes a key stability clause which currently protects miners from changes to the fiscal and customs regime for 10 years.
  • Reforms to the code aim to boost state revenue in one of the world’s poorest countries. As reported by Global Witness, more than 20% of the DRC’s mining revenue is being lost “due to corruption and mismanagement”; with more than $750 million missing since 2014. While elevated state revenue will favour the countries growth, corruption also requires significant improvement.
  • Glencore Plc and Ivanhoe Mines face 50% taxes within a windfall profit tax and increased royalty payments.
  • Glencore, Randgold and China Molybdenum reckon the changes would damage inward investment and violate existing agreements.
  • Market concerns focus on the delivery of two fundamental metals for the electric economy. Under the new law, the government could further raise royalty payments on cobalt five-fold to 10% if it categorises the mineral as a “strategic substance”.
  • With 54% global production sourced from the DRC, single-source risk for the metal remains high. Elevated royalties are expected to negatively impact the economics of cobalt production, translating into reduced margins for producers and higher costs to consumers.
  • Battery technologies are already trending toward nickel-dominant battery chemistries due to rapidly rising cobalt prices and the signing of the new mining code is expected to exacerbate this movement.
  • The Minister of Mines Martin Kabwelulu told Reuters that company concerns would be treated on a case-by-case basis.
  • Randgold has said it will challenge the new code through international arbitration if not referred back to the ministry for further consultation.
  • Ministers claim that the new code is needed to raise government revenues from an annual budget of only US$5bn. DRC GDP was US$69bn in 2016.

 

Rio Tinto says US tariffs would not be threat to iron ore

  • Rio Tinto iron ore chief executive Chris Salisbury said the threat by President Donald Trump to impose tarrifs on steel and aluminium imports raised the prospect of a destabilising trade conflict
  • However said that would have almost no impact on demand for iron ore from Rio’s mines in Western Australia
  • Major customers in China, Japan, South Korea and Taiwan export about 160 million tonnes of steel a year with less than 10 million tonnes finding its way to the US

 

Dow Jones Industrials

 

-0.33%

at

24,801

Nikkei 225

 

+0.54%

at

21,368

HK Hang Seng

 

+1.49%

at

30,645

Shanghai Composite

 

+0.51%

at

3,288

FTSE 350 Mining

 

-0.64%

at

17,833

AIM Basic Resources

 

-0.02%

at

2,536

 

Economics

US – US markets closed flat on Wednesday amid speculation the President might soften plans for new tariffs.

  • The White House raised the possibility of granting Mexico and Canada exemptions from proposed tariffs, at least temporarily, as countries negotiate changes to the NAFTA agreement.
  • Additionally, the administration is considering options to leave European and other allies out as well.
  • More than 100 congress republicans signed a letter to the President urging him to adjust the tariff plan targeting “bad actors” as opposed to US allies.
  • Peter Navarro, a top Trump trade adviser, said Trump will sign the accord today with tariffs coming into effect in 15 to 30 days.

 

China – The nation reports strong trade data in February with exports for the first two months of the year up 24.4%yoy v an increase of 10.9%yoy in 2017.

  • Despite a long week Lunar New Year celebrated in February this year, exports were up by whopping 44.5%yoy v 11.0%yoy forecast and 11.2%yoy in January.
  • Imports better reflected less working days in February with growth coming in at 6.3%, down from 36.8%yoy recorded in the previous month.
  • While commodity imports from iron ore, copper and crude oil dropped in February, inbound of shipments for the first two months which take care of seasonality showed demand remained stable.

 

Japan – Q4 GDP came in at better than expected 1.6%yoy but is likely to run into a soft patch moving forwards.

  • Growth outlook is weighed down by stronger currency and a potential for a global trade war.
  • While consumer demand may be front loaded ahead of another sales tax increase in October next year as was the case in 2014 placing a further fiscal burden on fragile sector of the economy is likely to add to downwards pressure on GDP growth outlook.

 

Eurozone – European markets are virtually rangebound ahead of the ECB meeting with no change to interest rates expected.

  • The Governing Council is also forecast to err on the cautious side regarding comments over the potential withdrawal of the QE programme given less optimistic economic data coming from the single currency region lately.
  • Additionally, the ECB will publish updated economic projections for the euro area today as well.
  • Earlier projections guided for the economic growth to continue strong in the  short term “supported by favourable financing conditions, improving labour markets and the continued global recovery” while inflation was forecast to remain stable in coming quarters before picking up to 1.7% in 2020.
  • Real GDP growth was forecast to slow gradually from 2.4% in 2017 to 1.7% in 2020.

 

Currencies

US$1.2410/eur vs 1.2409/eur yesterday  Yen 105.96/$ vs 105.70/$  SAr 11.866/$ vs 11.827/$  $1.390/gbp vs $1.387/gbp  0.782/aud vs 0.781/aud  CNY 6.332/$ vs 6.324/$.

 

Commodity News

Precious metals:         

Gold US$1,328/oz vs US$1,332/oz yesterday

  • Gold trades within a narrow range as investors wait on finalization of the expected Trump tariffs imposed on steel and aluminium. “The concerns about trade wars are still there and uncertainty will increase as we see reaction of more countries”, according to Kotak Commodity Services analysis, “the tensions may intensify in coming days as there is little possibility that Trump will change his stance”.
  • As Canada and Mexico receive an initial exemption from the tariffs, China reiterates that it’s not a threat to the US but warns of “justified and necessary response” to any efforts to incite a trade war. China’s foreign minister continued on to note “A trade war is never the right solution. In a globalized world, it is particularly unhelpful, as it will harm both the initiator and the target countries.”

   Gold ETFs 72.2moz vs US$72.2moz yesterday

Platinum US$952/oz vs US$963/oz yesterday

  • World Platinum Investment Council identify South African mine closures and lower Russian production as fundamental to drawing global oversupply into balance. With the addition of recycling volumes, global markets had surged to 250,000 Oz surplus in 2017. WPIC CEO notes “while 2017 was a challenging year for platinum, early indications show signs of a market that is moving in the right direction in 2018. Supply is tightening and demand remains resilient”.
  • Combined Russia and South Africa supply more than 80% world’s newly mined platinum, with production contracting 4%.
  • Investment demand was also substantially lower in 2017 at 260,000 Oz, mostly owing to a reduced level of platinum bar purchases in the largest market, Japan.”
  • There is also anecdotal evidence that automakers are initiating a switch from palladium to platinum is gasoline catalysts.

Palladium US$974/oz vs US$975/oz yesterday

Silver US$16.55/oz vs US$16.68/oz yesterday

           

Base metals:   

Copper US$ 6,890/t vs US$6,960/t yesterday - China copper imports fall as Spring Festival crimps demand

  • China’s imports of copper fell 20 percent in February from a month earlier, dropping for a third straight month as a week-long shutdown for Lunar New Year crimped buying in the world’s biggest copper consumer
  • Arrivals of anode, refined, alloy and semi-finished copper products were 352,000 tonnes, according to the General Administration of Customs
  • Down from 440,000 tonnes in January, when China imported more unwrought copper instead of types of copper scrap that are now banned, and up from 340,000 tonnes in February 2017

Aluminium US$ 2,096/t vs US$2,137/t yesterday

Nickel US$ 13,300/t vs US$13,490/t yesterday

  • The global nickel market deficit is expected extend into its third year as demand from rechargeable batteries is poised to double, according to Japan’s largest producer. Sumitomo Metal Mining Co. forecast output to fall short of consumption by 83,000 tonnes in 2018, with global production set at 2.19 million tonnes and usage at 2.27 million tonnes. As much as 100,000 tonnes battery-grade material could be consumed in electric vehicles, compared to approx. 40,000-60,000 tonnes during 2017.
  • While nickel prices have risen on the prospect of an emerging shortage of raw material, rising production of nickel pig iron (NPI) across Asia has curbed gains. NPI represents a low-grade ore targeting the stainless steel industry, while battery-grade potential ores remain global limited. China’s output of nickel pig iron is expected to expand almost 15% to 447,000 tonnes this year with the partial resumption of Indonesia’s ore exports, however a deficit in high-purity nickel is expected to remain.

Zinc US$ 3,246/t vs US$3,288/t yesterday

Lead US$ 2,371/t vs US$2,418/t yesterday

Tin US$ 21,285/t vs US$21,350/t yesterday

           

Energy:           

Oil US$64.4/bbl vs US$65.3/bbl yesterday

Natural Gas US$2.781/mmbtu vs US$2.764/mmbtu yesterday

Uranium US$22.00/lb vs US$22.25/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$72.4/t vs US$73.3/t

  • Iron ore risks pulling back into the $60s from February highs as investors weigh the market danger from record levels of inventory accumulated over the winter in China, which is hurting sentiment days before state-mandated winter curbs on steel output are expected to be lifted. The most-active SGX AsiaClear contract lost 2.6% to $70.54/t in Singapore yesterday to extend losses to 10% from the multi-month peak hit last month. Futures on the Dalian Commodity Exchange also closed 3.3% lower.
  • Iron ore futures have given up all of their 2018 gains as investors await the lifting of production limitations on steel mills on March 15. The state-led initiative led mills to preferentially consume more-efficient higher-quality material, aiding miners including Vale SA and Rio Tinto Group, as mills and trader raise ore and steel holdings over the winter period. A significant bottleneck persists, with record holdings of ore held at mainland ports. “Most steelmakers are in a destocking phase as they try to run down stockpiles” notes Sinosteel Futures Co. analysis, as demand following the Lunar New Year holiday “has been weaker than expected, while the high inventory levels at the ports are weighing on the spot market”.
  • Iron ore stockpiles across ports total a record 54 day coverage according to Bloomberg calculations based on Shanghai Steelhome E-Commerce Co. data. Meanwhile slow steel demand is elevating stockpiles of reinforcement bar to the highest level since 2014, Steelhome figures show.

Chinese steel rebar 25mm US$673.6/t vs US$680.6/t

Thermal coal (1st year forward cif ARA) US$79.2/t vs US$79.2/t

Premium hard coking coal Aus fob US$232.1/t vs US$234.1/t

 

Other:  

Tungsten APT European US$322-330/mtu vs US$319-326/mtu

Cobalt LME 3m US$83,250.0/t vs US$83,250.0/t

 

Company News

Amur Minerals (LON:AMC) 5.3p, Mkt Cap £33.6m – Project road access update

  • The Company signed JSC Cevi Construzioni to complete the first stage design for the 350km long road access to the Kun Manie sulphide nickel/copper project.
  • This marks the first step in three component process in securing access rights to the site and starting road construction works.
  • Works are expected to commence on 12 March 2018.
  • The first step will involve a desktop review of the current available design route which is planned to require between 8 to 12 weeks.
  • This next stage would be to prepare a more detailed desktop study including capital and operating cost estimates which is going to take between four and five months.
  • In parallel to both of those steps the Company will be engaging with local communities and administration regarding the most optimal route selection.
  • All parts of the report to be compiled into a final document in six to eight months which is expected to be presented to Amur Oblast authorities for review and approval.
  • Once approval is secured the Company will start on the ground field survey for final design adjustments.
  • The final design for the road will kickstart the process of securing long term access rights to the Kun Manie and launching construction of the road.

Conclusion: The laid-out plan covers one of the major bits of infrastructure integral to the development of the Kun Manie project with estimated capital costs likely to be included into an updated PFS.

*SP Angel act as Nomad and Broker to Amur Minerals

 

Apollo Minerals (ASX:AON) A$0.24, Mkt Cap A$33.6m – Acquires remaining 20% of Couflens

  • Australian listed Apollo Minerals has announced that it is to acquire the remaining 20% of the Couflens project in southern France. “Following the completion of the transaction the Company will own 100% of the Couflens Project which covers a 42km2 license area and within which lies the high grade historical Salau tungsten mine”.
  • Since acquiring its initial 80% interest in June 2017, field exploration work has “confirmed the presence of widespread tungsten (up to 8.25% WO3) and high grade gold (up to 24.5 g/t)“ and prompted Apollo Minerals to move to full ownership of a project it describes as having “the  potential to once again become a major strategic supplier of tungsten, one of Europe’s most critical metals, to French and European industries”
  • The 20% interest is being acquired from a subsidiary of Variscan Mines for an upfront payment of A$200,000 followed by staged cash payments totalling A$800,000 over 8 months. In addition, on the announcement of a “Mineral Resource Estimate of at least 25,000 tonne WO3 at an average grade of not less than 1% WO3 using a cut-off grade of not less than 0.3% WO3 a payment of A$250,000 in shares; or A$125,000 of Shares in Apollo Minerals upon the announcement of a Mineral Resource Estimate for a lesser resource. Further share –based payments of A$500,000 are due on the completion of each of; a scoping study; a pre feasibility study, a Definitive Feasibility Study; and A$873,671 on commencement of production.

Conclusion: The historic Salau tungsten mine is the centrepiece of the Couflens project. We look forward to news of the future exploration.

 

MOD Resources (ASX:MOD) A$0.049, Mkt Cap A$92.9m – A$18m fundraising to expand and accelerate Kalahari Copper Belt exploration

  • Australian listed MOD Resources has announced that it is raising around A$18m to expand its exploration activities in the Kalahari Copper Belt in Botswana where it holds 70% of the T3 pit project through an unincorporated joint-venture with London based Metal Tiger (30%).
  • The funds comprise an A$6.3m fully underwritten rights issue priced at A$0.047/share on the basis of 1 new share for 16, and an oversubscribed placing of A$12m of new shares at the same price.
  • MOD also holds a number of other wholly-owned exploration projects in its extensive 12,600km2 exploration area including the T1 deposit where it is currently drilling a programme of resources extension holes and the “extensive T7 Domes prospect”.
  • In January, the company announced the findings of its pre-feasibility study at the T3 copper-silver project showing a pre-tax NPV(8%) of US$281m and an IRR of 39% based on treating a proven & probable ore reserve of 21.4mt at an average grade of 1.02% copper and 10.3g/t silver over a period of 9.6 years. The project produces around approximately 23,000tpa of copper in concentrate at all-in sustaining costs of US$1.36/lb, from the treatment of approximately 2.5mtpa of ore. Pre-production capital expenditure was estimated at US$155m and the project was assessed on an estimated copper price of US$3/lb.
  • The study also looked at an expanded case which envisaged increasing the processing rate to 4mtpa after the first three years to produce 28,000tpa of copper in concentrate at an all-in-sustaining cost of $1.46/lb. This study, which included the possibility of treating resources currently classified as inferred and hence relatively uncertain, increased the pre-tax NPV(8%) to US$402m and generated an IRR of 38% and illustrates the potential for further growth.
  • In addition to the current T3 programme, where resource drilling on the T3 Pit extension, T3 underground and T-Rex exploration target, “Starting early in the June quarter MOD plans to commence drilling of high priority targets identified within the extensive T3 Dome area and subsequently in the T20 Dome, 100km to the west.”
  • The company makes the point that the additional work, which is expected to see an increase on the current deployment of eight drilling rigs, “coincides with a greatly improved understanding of the geology and potential of the Kalahari Copper Belt, and the successful application of airborne EM to generate new targets over large areas”.

Conclusion: The additional funding puts MOD Resources in a strong position to accelerate its exploration in the Kalahari Copper Belt and we look forward to news on further progress both at T3 and on the wholly owned exploration areas.

 

Scotgold Resources (LON:SGZ) 32.5p, Mkt Cap £9.2m – SP Angel appointed as Nomad and broker to Scotgold Resources

  • Scotgold Resources report today that SP Angel has been appointed as nomad and broker to the company.
  • Scotgold recently announced the unanimous approval of the planning application for the development of the gold/silver Cononish underground operation by The Loch Lomond and Trossachs National Park Authority.
  • The renewed application included new tailings management systems and an extension to the life of mine at Cononish in the wake of a phased project development programme.
  • The approval paves the way for the start of development works at Cononish which is expected to run at above 20kozpa at full 72ktpa capacity.
  • The news of the planning application approval highlights strong support of local authorities for the project.
  • The new phased development approach allows for a lower start up capex while still providing attractive returns thanks to high grade nature of the Cononish deposit.

 

Precious metals:         

Gold US$1,328/oz vs US$1,332/oz yesterday

   Gold ETFs 72.2moz vs US$72.2moz yesterday

Platinum US$952/oz vs US$963/oz yesterday

Palladium US$974/oz vs US$975/oz yesterday

Silver US$16.55/oz vs US$16.68/oz yesterday

           

Base metals:   

Copper US$ 6,890/t vs US$6,960/t yesterday

Aluminium US$ 2,096/t vs US$2,137/t yesterday

Nickel US$ 13,300/t vs US$13,490/t yesterday

Zinc US$ 3,246/t vs US$3,288/t yesterday

Lead US$ 2,371/t vs US$2,418/t yesterday

Tin US$ 21,285/t vs US$21,350/t yesterday

           

Energy:           

Oil US$64.4/bbl vs US$65.3/bbl yesterday

Natural Gas US$2.781/mmbtu vs US$2.764/mmbtu yesterday

Uranium US$22.00/lb vs US$22.25/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$72.4/t vs US$73.3/t

Chinese steel rebar 25mm US$673.6/t vs US$680.6/t

Thermal coal (1st year forward cif ARA) US$79.2/t vs US$79.2/t

Premium hard coking coal Aus fob US$232.1/t vs US$234.1/t

 

Other:  

Tungsten APT European US$322-330/mtu vs US$319-326/mtu

Cobalt LME 3m US$83,250.0/t vs US$83,250.0/t

 

 

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