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Morning View . Fed rate decision boosts broad metal prices

Morning View . Fed rate decision boosts broad metal prices

SP Angel are the No. 1 broker for AIM mining stocks in London 

Avesoro Resources  (LON:ASO) – Infill drilling results from New Liberty

Rio Tinto (LON:RIO) – Rio Tinto announces another Australian coal disposal

Tri-Star Resources* (LON:TSTR) – Project and Trade Finance facility for SPMP 

 

Future fusion power nears research completion

  • Specialist metal markets could experience structural changes as research from the Massachusetts Institute of Technology and Commonwealth Fusion Systems could soon achieve the long-sought goal of producing fusion power. In a recent press release, scientists and founders reveal advances in high-temperature superconductors could provide the breakthrough in accessing “inexhaustible and zero-carbon source of energy”.
  • The collision of light elements, such as hydrogen, to form heavier elements, such as helium, generates prodigious amounts of energy. The exothermic process, generating extreme temperatures of hundreds of millions of degrees Celsius, will rely on magnetic fields to support the hot plasma.
  • Scientists now want to develop the world’s most powerful large-bore superconducting electromagnets, the crucial component in the compact version of a fusion device known as a tokamak. The magnets, supported by a superconducting material that has only recently become available commercially, will produce magnetic field four times as strong as that employed in any existing fusion experiment, enabling a more than tenfold increase in the power produced by a tokamak of a given size.
  • While generating disruptive consumption for materials, while “if widely disseminated, such fusion power plants could meet a substantial fraction of the world’s growing energy needs while drastically curbing the greenhouse gas emissions that are causing global climate change”.

 

Zimbabwe signs $4.2bn platinum deal with Karo Resources

  • Karo Resources, a company linked to mining entrepreneur Loucas Pouroulis, signed a $4.2 billion platinum investment deal with the government of Zimbabwe in the first significant investment since the downfall of President Robert Mugabe in November
  • Karo's platinum project will start up in 2020 and will produce 1.4 million ounces a year of platinum-group metals at full output, Zimbabwe has the second-biggest reserves of the metals after South Africa
  • The investment will be the largest to date in Zimbabwe's mining industry

 

China poised to open markets 'beyond expectations' as tough US tariffs loom

  • A Chinese envoy to the US offered easier access to China's markets for foreign investors, promising reforms "beyond expectations", as Washington moves to institute punishing trade and other sanctions against Beijing for rules that restrict foreign participants
  • Consul said barriers will be removed or eased for foreign investors in the country's financial sector and that market entry standards will be the same for Chinese and foreign banks
  • Also said 'the general manufacturing sector will be completely opened up and access to sectors like telecommunications, medical services, education, elderly care and new energy vehicles will be expanded'

 

Dow Jones Industrials

 

-0.18%

at

24,682

Nikkei 225

 

+0.99%

at

21,592

HK Hang Seng

 

-1.24%

at

31,025

Shanghai Composite

 

-0.53%

at

3,263

FTSE 350 Mining

 

+1.41%

at

17,833

AIM Basic Resources

 

+0.10%

at

2,524

 

Economics

 

US – The FOMC leaving median rates outlook for the remained of the year unchanged (i.e. two more rate hikes).

  • Although, beyond 2018 rate projections have been revised upwards: 2.875% v 2.688% (2019), 3.375% v 3.062% (2020) and 2.875% v 2.75% (long term).
  • “The economic outlook has strengthened in recent months,” the Fed highlighted.
  • The fiscal stimulus brought by the Trump administration is expected to lead to “meaningful increases in demand… for at least, say next three years”.
  • The Fed forecasts core inflation to pick up next year to 2.1%, slightly above the fed’s target, and hover around that level in 2020 while unemployment rate is expected to continue to drop to 3.6%, down on the previous 3.9% estimate.
  • The economy is estimated to be driven by strong private consumption and business investment with growth expected to come in at 2.7% this year, up from 2.5% in December, and 2.4% in 2019, up from 2.1% estimated previously.
  • Equities pulled back on the day while 10y US sovereign bond yields surprisingly have also finished lower.

 

China – The Central Bank has slightly increased its reserve repo rates to 2.55%, up from 2.50% previously, following the decision by the Fed to hike its rates by 25bp.

 

Eurozone – Economic growth pace slowed in March coming in below market estimates, according to the latest set of Markit PMI numbers.

  • The single currency area composite PMI eased to 55.3, a 14-month low and down from 57.1 in February, marking the second consecutive month of a weaker growth.
  • Production growth moderated in both manufacturing and services industries with new orders registering a slowdown and export orders showing the smallest increase since Nov/16.
  • Increase in input costs drove increases in final goods inflation with selling prices climbing at some of the fastest rates seen over the past seven years.
  • Job gains were recorded in both manufacturing and services sectors, although , rates of job gains eased to seven and six month lows, respectively.
  • Commenting on the business outlook, expectations of future output growth remained elevated although slipping to a four-month low.
  • “While the first quarter average PMI reading remains relatively robust, indicative of GDP rising by 0.7-0.8%, the loss of momentum since the buoyant start to the year has been quite dramatic,” the report read.
  • Among factors affecting the regional growth respondents mentioned stronger euro, supply chain delays and raw material shortages affected by bad weather especially in northern regions as well as political uncertainty.

 

UK – Retail sales climbed more than forecast in February following tow months of sharp declines.

  • Sales were up 0.8%mom versus a 0.4%mom forecast.
  • Counting in declines in December and January leaves sales down 0.4% (in volume terms) over the three months.

 

South Korea – The administration is planning to extend the presidential term to two four year terms (subject to re-election) as opposed to the current single five year term.

  • “It is time for us to implement the two-term four-year presidency (pending re-election) in order to enable responsible politics and stable management of national affairs amid the increased political awareness of the public,” senior presidential secretary for legal affairs said.
  • The proposal also included reducing presidential power by granting more responsibilities to the PM, stripping the president from the right to name the chief of the Constitutional Court and allowing the National Assembly to name three members of the nine-member state audit agency, FT reports.

 

Australia – Unemployment rate inched higher as more people entered the labour force in February.

  • The nation’s jobless rate increased to 5.6% last month, up from 5.5% in January, while the economy added 17,500 jobs, short of 20.0k forecast by markets.
  • As a positive news, the increase in employment was driven by full time workers (64.9k) more than compensating for a drop in part0time employment (-47.4k).
  • Participation rate inched up by 0.1pp to 65.7%.

 

Currencies

US$1.2370/eur vs 1.2279/eur yesterday  Yen 105.67/$ vs 106.33/$  SAr 11.781/$ vs 11.953/$  $1.417/gbp vs $1.403/gbp  0.775/aud vs 0.770/aud  CNY 6.320/$ vs 6.331/$

 

Commodity News

 

Precious metals:         

Gold US$1,333/oz vs US$1,316/oz yesterday

  • Gold records biggest advance in 10 months as the Federal Reserve maintained its projection for a total of three rate increases through 2018, easing market concerns for more accelerated hikes in interest rates. In its first policy meeting under new Fed Chief Jerome Powell, the US Central bank indicated that inflation should finally move higher following years below its 2% target, backed by economic momentum. Goldmoney Inc researcher said “The FOMC statement was more dovish than we thought warranted…at some stage, the Fed will have to grasp the nettle, but the danger is that in doing so, it will bring forward a credit crunch”.
  • Bullion for immediate delivery climbed 1.6% yesterday, the biggest closing gain since May 2017.
  • Economist at National Australia Bank notes “Markets were keenly awaiting the Fed’s ‘dot points, and whether it indicated 3 or 4 rate rises for this year. The fact that the Fed only indicated 3 rate rises, coupled with concerns about a possible looming trade war, provided support for gold”.
  • Following the meeting, investors see trade tensions between the US and China lending further support to gold, “if you factor in the significant near-term geopolitical concerns and the uncertain equity market fallout from an escalation of a trade war with China, gold has to be a mainstay component in any investment portfolio”, notes Oanda trader.

   Gold ETFs 72.9moz vs US$72.9moz yesterday

Platinum US$960/oz vs US$946/oz yesterday

Palladium US$992/oz vs US$988/oz yesterday

Silver US$16.58/oz vs US$16.29/oz yesterday

           

Base metals:   

  • Broad base metals extend rebound from 3-month low as the Federal Reserve maintain their outlook for just three rate hikes throughout 2018, dragging the dollar index 0.9% down.
  • LME Copper and aluminium lead gains, both climbing 0.6%. Goldman note indicates continued bullish sentiment towards metals with commodities demand in China still appear solid, underpinned by transport infrastructure investment, and construction planned by developers.

Copper US$ 6,839/t vs US$6,732/t yesterday

Aluminium US$ 2,093/t vs US$2,069/t yesterday

Nickel US$ 13,545/t vs US$13,405/t yesterday

Zinc US$ 3,252/t vs US$3,200/t yesterday

Lead US$ 2,412/t vs US$2,357/t yesterday

Tin US$ 20,965/t vs US$20,745/t yesterday

           

Energy:           

Oil US$69.4/bbl vs US$67.5/bbl yesterday

Natural Gas US$2.647/mmbtu vs US$2.678/mmbtu yesterday

Uranium US$22.25/lb vs US$22.15/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$66.3/t vs US$65.9/t

  • Low-grade iron ore that has fallen out of favour with many of China's steelmakers is still in demand as mills keep buying the cheaper product, according to a junior Australian supplier.
  • BCI Minerals Ltd. is selling all it's lower-grade product at normal rates, Chief Executive Officer Alwyn Vorster said "Mills are still buying, demand is there, there is not a major change in which mills are buying".
  • Grade premiums decrease as producer's profit margins weaken, according to Liberum Capital Ltd., while Citigroup Inc. argues the preference for high-grade iron ore may be structural change for market.

Chinese steel rebar 25mm US$644.3/t vs US$647.9/t

Thermal coal (1st year forward cif ARA) US$74.9/t vs US$75.6/t

Premium hard coking coal Aus fob US$214.2/t vs US$216.9/t

 

Other:  

Tungsten APT European US$325-334/mtu vs US$322-330/mtu

Cobalt LME 3m US$95,250.0/t vs US$90,250.0/t

Lithium chemical demand remains understated

  • The true extent of future raw material demand from chemical producers across China and South Korea is expected to better current forecasts, as processing plant capacity is being added faster than understood, “especially in China, there’s a long tail developing that’s not transparent”, according to Pilbara Minerals Ltd. CEO.
  • The company negotiated supply deals with LG Chem Ltd. before settling with Posco, but both battery manufacturers indicated they’d require large volumes of lithium carbonate equivalent by 2020. While production of battery-grade products may remain a challenge, surging demand remains the motivator to secure deals with key customers in China and South Korea to convert raw material to products of the correct quality.

Chile to add value to lithium production

  • The Chilean government signals big dreams of moving the nation along the lithium value chain, expanding all the way to manufacturing electric vehicles. Now the billionaire investor-turned-politician Pinera administration plans to form a working group to lure more foreign investment downstream.
  • The new government will take a pragmatic approach to attracting investment via incentives, aimed to very soon bring “companies interested in manufacturing electric cars in Chile”, according to Mining Minister Baldo Prokurica.
  • While the South American nation remains far from major demand centres in the US, Europe, and Asia, it boasts the world’s biggest reserves of lithium, while generating significant wind and solar energy. Infrastructure used by the world’s biggest copper companies would also be part of Chile’s pitch to manufacturers, and copper is also a major component of electric vehicles.
  • The move follows state development agency Corfo selecting companies including Samsung SDI Co. and Posco to spend a total $754 million to develop value-added products such as lithium iron phosphate cathode material for rechargeable batteries.  

 

Company News

 

Avesoro Resources  (LON:ASO) 223 pence, Mkt Cap £185.5m – Infill drilling results from New Liberty

  • Avesoro Resources has provides results from the first 29 holes of its 55-hole infill drilling programme designed to “upgrade a significant portion of Inferred Resources at New Liberty.”
  • The results “to date indicate that the mineralised zones intersected by the drilling are in general wider, or of higher grade, than predicted by the mineral resource model”. Among the results highlighted in today’s announcement are:
    • An intersection of 26m at an average grade of 8.49g/t gold from a depth of 176m in hole K497; and
    • An intersection of 43m at an average grade of 2.65g/t gold from a depth of 304m in hole K502; and
    • An intersection of 30m at an average grade of 3.17g/t gold from a depth of 240m in hole K503; and
    • An intersection of 11m at an average grade of 7.30g/t gold from a depth of 350m in hole K516.
  • Commenting on the infill drilling programme at New Liberty, Chief Executive, Serhan Umurhan, commented that the programme “was designed to increase the confidence level of the continuity of the New Liberty orebody by targeting an area of the mineral resource model containing 275,000 ounces of inferred resources to higher categories of confidence, and in turn potentially increasing the Mineral Reserve at New Liberty.  In terms of grade and width, results to date improve on the current model and we anticipate, upon receipt of the final assays, to be able upgrade significant areas of Inferred Resource into the Indicated Resource category."
  • The company comments that 3mt of inferred resources averaging 2.85g/t gold “is located below the current designed pit floor, but lies within the US$1,300 pit shell.”
  • In addition to the work at the New Liberty mine, the company has deployed 4 diamond drilling rigs on exploration in Liberia and plans to mobilise six more rigs during Q2 2018. “Two of these drill rigs are currently active at New Liberty undertaking a 7-hole 6,500 metre drill programme designed to test the plunge of the ore shoots to vertical depths of 900 metres, whilst the two other rigs are currently being mobilised to the Ndablama target, located 35 kilometres east of New Liberty, to commence a resource conversion and infill drilling campaign.”
  • Ndablama currently reports an indicated resource of 7.6mt at ana average grade of 1.6g/t gold and an inferred resource of 9.6mt at an average grade of 1.7g/t.
  • A further 7,000m drilling programme at the Silver Hills target, 15km northeast of New Liberty is expected to start later this year using two additional new drill rigs currently being mobilised to Liberia.
  • Drilling has also been completed close to the company’s Youga processing plant in Burkina Faso and the results are being incorporated in resource modelling and pit design and optimisation studies.
  • Elsewhere in Burkina Faso, exploration, including some drilling, is underway at the Gassore West target and at the Zerbogo, Songo and Ouare prospect areas.

Conclusion: Avesoro is undertaking  major drilling programmes to build and upgrade its resource base at New Liberty and expand its exploration to its other projects in Liberia and Burkina Faso. We look forward to further results from the drilling and to resource updates for New Liberty and Ndablama later in the year.

 

Rio Tinto (LON:RIO) 3687p, Mkt cap £66.4bn – Rio Tinto announces another Australian coal disposal

  • Rio Tinto has announced the sale of its 75% interest in the Winchester South coal development project in the northern Bowen Basin of Queensland.
  • Rio Tinto is selling the project to Whitehaven Coal for a total $200m. An initial $150m tranche is payable on completion with the remaining $50m payable without conditions 12 months later.
  • The Winchester South project, located approximately 30km south-east of Moranbah, contains a reserve of 356m tonnes and is expected to produce coking coal and thermal coal.
  • The announcement comes the day after Rio Tinto announced the sale of its Hail Creek and Valeria coal operations to Glencore for $1.7bn and today’s announcement also notes that “A separate process remains underway to sell Rio Tinto's interest in the Kestrel underground mine, the company's remaining Australian coal asset”.

Conclusion: Rio Tinto’s strategy for the disposal of its Australian coal assets has accelerated this week with the disposal of Hail Creek, Valeria and Winchester South for $1.9bn. The remaining underground Kestrel mine is also underway.

 

Tri-Star Resources* (LON:TSTR) 0.03p, mkt cap £20.8m – Project and Trade Finance facility for SPMP

(Tri-Star holds 40% of jv company SPMP alongside The Oman Investment Fund and Dutco Natural Resources)

(Odey Asset Management, holds a 65.1% interest in TriStar Resources)

  • Tri-Star Resources report that its 40% owned Strategic and Precious Metals Processing LLC (SPMP), which is building a state-of the art antimony and gold production facility in Oman,  has reached agreement with Alizz Islamic Bank for a $30m facility for project and trade finance.
  • “The facility [which is Shari’a compliant] will rank alongside the company's existing debt provided by Bank Nizwa S.A.O.G., and brings SPMP's total debt facility to $70 million.”
  • The company also provides an update on progress where the construction of the plant, located in the Sohar free trade zone, is now 86% complete with the concentrate storage, handling and drying facilities now “complete and ready for cold commissioning”.
  • TriStar comments that “The plant is due to produce its first antimony metal in June 2018. SPMP expects the plant to then ramp up to a production rate of between 2,000-3,000 tonnes/month by the end of the year (circa 50% of design capacity).”
  • The company is in negotiations for sales of antimony to key customers and for sales of gold dore to an unnamed gold refinery.

Conclusion: The additional facility for SPMP should help to ease any pressure on working capital as the facility in Oman is commissioned and starts to ramp up production during the second half of 2018. We look forward to further news on the commissioning and of the first metal production expected in June.

*SP Angel acts as Nomad and Broker to Tri-Star Resources

 

 

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