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Today's Oil and Gas Update - Top miner embraces electric vehicle battery boom

Published: 11:05 17 Oct 2018 BST

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SP Angel – Morning View – Wednesday 17 10 18

Top miner embraces electric vehicle battery boom

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MiFID II exempt information – see disclaimer below 

   

Aura Energy (LON:AURA) – Vanadium potential identified at Tiris uranium project

BHP (LON:BLT) – Quarterly update maintains production guidance

Bushveld Minerals* (LON:BMN) – Lemur progress report

Keras Resources (LON:KRS) – Calidus Resources raises A$3.7m from strategic gold miner.

Vast Resources (LON:VAST) – Marange preliminary geological assessment

Botswana Diamonds (LON:BOD)

 

Top miner embraces electric vehicle battery boom

  • BHP Billiton Ltd. is boosting sales of high-purity nickel required for electric vehicle batteries, another signal the world’s largest miner is targeting more opportunities in the booming technology sector. Sales of refined nickel, including the premium products consumed in battery manufacture, climbed +18% in the three months to Sept. 30 from a year earlier, according to the statement today. The company has begun to offer more detailed data on nickel and cobalt production amid investor interest in its exposure to the rise of EVs.

  • BHP’s Nickel West operation in Western Australia is aiming to sell 90% of output to the battery sector by the end of the year, diverging away from the traditional customer base in the stainless steel market. Laboratory tests are also developing methods to produce cobalt sulphate, another key metal in the rechargeable battery suite.

  • At present, batteries account for only about 3% of demand, with the stainless steel industry accounting for about two-thirds of consumption, according to the International Nickel Study Group.

  • The nickel sector is splitting, becoming a two-tiered market based on quality and target end-use. The traditional stainless steel industry is facing weaker outlook while robust demand growth in the EV sector that’ll support prices, according to Goldman Sachs Group Inc.

  • Global nickel demand could more than double by 2050, fueled in part by rising electric-vehicle sales, Bloomberg Intelligence analyst Eily Ong wrote in a June report. Demand for nickel from lithium-ion batteries may rise to more than 190,000t a year by 2030 from about 5,200t in 2016, Bloomberg New Energy Finance analyst Julia Attwood forecast in April.

  • In a note of caution, Russia’s nickel mining giant MMC Norilsk Nickel PJSC sees EV-related demand slowing in 2019 as some countries cut subsidies to the vehicles.

  • BHP already supplies battery manufacturers including Panasonic Corp., the partner of Tesla Inc., and is studying an expansion plan that would make Nickel West the world’s biggest supplier of nickel sulphate. Longer-term options could see the unit combine cobalt and nickel materials to develop an intermediate product for the battery supply chain that would command a higher premium.

  • Even though underlying profit at Nickel West surged in fiscal 2018 on higher prices, the unit’s future is uncertain as it contributes less than 2% of BHP’s total earnings. The producer is “happy to retain Nickel West for now, but it could go either way in the future” and the shift to service the battery sector is boosting the asset’s marketability, Chief Executive Officer Andrew Mackenzie.

 

Lithium Sulphur Battery Evolution

  • A new approach to making sulphur cathodes in lithium-sulphur batteries, could preserve their impressive energy density -- clearing a significant hurdle that had blocked their widespread use for more than a decade.

  • A breakthrough by researchers at Drexel University shows that it can hold polysulfides in place, maintaining the battery's lifespan while reducing the overall weight and the time required to produce them.

  • "We have created freestanding porous titanium monoxide nanofiber mat as a cathode host material in lithium-sulphur batteries," said Vibha Kalra, PhD, an assistant professor in the College of Engineering and lead author of the research.

  • "This is a significant development because we have found that our titanium monoxide-sulphur cathode is both highly conductive and able to bind polysulfides via strong chemical interactions, which means it can augment the battery's specific capacity while preserving its impressive performance through hundreds of cycles”

 

New research shows some drivers might emit less CO2 with a diesel engine.

  • Every major carmaker has plans for electric vehicles to cut greenhouse gas emissions, yet their manufacturers are, by and large, making lithium-ion batteries in places with some of the most polluting grids in the world.

  • New findings show that while electric cars are emission-free on the road, they still discharge a lot of the carbon-dioxide that conventional cars do.

  • Just to build each car battery—weighing upwards of 500 kg in size for sport-utility vehicles—would emit up to 74% more C02 than producing an efficient conventional car if it’s made in a factory powered by fossil fuels in a place like Germany, according to the findings.

 

Investment in lead battery technology

  • Under the terms of a new agreement signed with the U.S. Department of Energy's Argonne National Laboratory, 14 members of the Advanced Lead Acid Battery Consortium have joined forces with Electric Applications to grapple with common challenges associated with lead batteries.

  • The research will be a collaborative effort between Argonne's Advanced Photon Source, and the laboratory's Chemical Sciences and Engineering and Materials Science divisions and will explore the behaviour of materials at the atomic scale to reveal the structure-function relationships responsible for lead battery operation.

  • Tim Ellis, Chairman of ALABC, and President of RSR Technologies said, "Lead batteries are a critical foundation technology underpinning everything from the cars we drive to the cell phone networks they back up. This new project, with Argonne's scientists, will help make the leap to the next generation of advanced lead batteries, as well as supporting efforts to meet the growing demand for reliable, safe and effective rechargeable battery energy storage. This is cutting edge research employing techniques not previously utilized for lead batteries, and we are confident the results will prove ground-breaking."

 

Dow Jones Industrials

 

+2.17%

at

  25,798

Nikkei 225

 

+1.29%

at

  22,841

HK Hang Seng

 

+0.07%

at

  25,462

Shanghai Composite

 

+0.60%

at

   2,562

FTSE 350 Mining

 

+0.16%

at

  17,117

AIM Basic Resources

 

+0.63%

at

   2,161

 

Economics

US – A bounce back in the risk sentiment on Tuesday saw US equities posting the strongest one-day gain since March led by robust results from financial institutions as well as a rally in technology names.

  • Dow and S&P 500 have recorded 2.17% and 2.15% increases, respectively, with tech sector growing 3%, the best performance among S&P 500 components.

 

China – Money supply jumps in September as monetary authorities are trying to support growth outlook amid slowing domestic demand and the trade conflict with the US.

  • Aggregate Financing (CNY bn): 2,210 v 1,520 in August and 1,554 forecast.

  • New Yuan Loans (CNY bn): 1,380 v 1,280 in August and 1,359 forecast.

  • M2 Money Supply (%yoy): 8.3 v 8.2 in August and 8.3 forecast.

 

UK – Inflation slowed more than forecast in September on the back of lower cost of food and transport fares.

  • The pound came off 0.35% against the US$ on the news.

  • Core inflation (ex food, energy, tobacco and alcohol) came in at 1.9%yoy, down on the previous month (2.1%yoy) and marketed estimates for 2.0%yoy, which in turn should help consumers’ budgets.

  • Of note, house prices climbed 3.2% in in the year through August, the weakest pace since 2013, with the worst-performing region being London where values dropped 0.2%yoy.

  • CPI (%mom/yoy): 0.1/2.4 v 0.7/2.7 in August and 0.3/2.6 forecast.

 

Saudi Arabia – Authorities pledged to hold any wrongdoers in the ongoing Khashoggi disappearance investigation accountable following a meeting between King Salman and Mike Pompeo yesterday.

  • US Secretary of State has briefly visited Saudi Arabia and Turkey, two countries involved in the case, this week.

  • Turkey and Saudis are now involved in a joint investigation in the disappearance and suspected killing of a prominent journalist on October 2.

  • “They promised accountability for each of those persons whom they determine as a result of their investigation deserves accountability… they made no exceptions to who they would hold accountable,” Mike Pompeo commented on the status of the investigation.

  • Meanwhile, more people are opting out of the Future Investment Initiative conference in Riyadh, dubbed “Davos in the Desert”.

  • Among high profile speakers who suggested they would not be attending are head of the IMF, BNP Paribas chairman, JP Morgan CEO and Ford chairman.

 

Currencies

US$1.1563/eur vs 1.1573/eur yesterday  Yen 112.24/$ vs 111.83/$  SAr 14.198/$ vs 14.443/$  $1.317/gbp vs $1.312/gbp  0.714/aud vs 0.713/aud  CNY 6.922/$ vs 6.928/$

 

Commodity News

Precious metals:         

Gold US$1,224/oz vs US$1,228/oz yesterday

  • Gold is drawing more attention from investors as holdings in exchange-traded funds expand for a sixth day, the longest run in almost six months, as tensions between the US and Saudi Arabia over the disappearance of journalist Jamal Khashoggi continue to simmer, while the market continues to weigh the economic outlook and the US-China trade war.

  • ETF holdings climbed to 2,107.2 tonnes on Tuesday, the highest since Sept. 10, according to data compiled by Bloomberg.

  • Rising interest was reflected in the spot price, climbing to $1,233.33 yesterday, the highest since July 26. Spot bullion has posted two consecutive weeks of gains in early October, the first back-to-back advance since April, as global equities retreated and demand for haven assets started to reemerge.

  • President Donald Trump threatened it “would be bad” if Saudi Arabia’s crown price and king knew about the disappearance of Khashoggi. Tensions mount at a Turkish forensic team allowed to search the Saudi consulate in Istanbul where Mr. Khashoggi was last seen reportedly found ‘certain evidence’ he had been killed there.

  • Trump has also called the Federal Reserve his “biggest threat”, again criticising the central bank for endangering economic growth through rate hikes. Minutes from the latest Fed meeting due today may offer more clues on the outlook for policy tightening into next year.

   Gold ETFs 67.7moz vs US$67.6moz yesterday

Platinum US$840/oz vs US$844/oz yesterday

Palladium US$1,081/oz vs US$1,075/oz yesterday

Silver US$14.64/oz vs US$14.69/oz yesterday

           

Base metals:   

Copper US$ 6,191/t vs US$6,279/t yesterday

  • Copper held in the warehouses of the major metal-trading markets in the U.S., Britain and China has been disappearing much faster than it could be consumed, suggesting extensive stockpiling with the most likely culprits being the State-Owned enterprises of the Chinese Government

  • This has been indicated by the fall of around 10% the combined stockpiles of the London Metal Exchange, the Shanghai Futures Exchange and the U.S. Comex market have dropped by 47% but there has not been a matched rise in the price of the commodity.

  • Other important metals, including nickel and aluminium, have also seen a steady decline in stockpiles since the U.S. v China trade war started earlier this year, but like copper there has not been a significant price reaction.

Aluminium US$ 2,035/t vs US$2,034/t yesterday

Nickel US$ 12,540/t vs US$12,670/t yesterday

Zinc US$ 2,613/t vs US$2,644/t yesterday

Lead US$ 2,051/t vs US$2,050/t yesterday

Tin US$ 19,200/t vs US$19,090/t yesterday

           

Energy:           

Oil US$81.5/bbl vs US$81.2/bbl yesterday

  • Oil futures climbed in electronic trading late Tuesday after the American Petroleum Institute reported that U.S. crude supplies fell by 2.1mbbls for the week ended Oct. 12, according to sources.

  • The API data also showed supplies of gasoline declined by 3.4mbbls, while distillates fell 246,000 barrels, sources said.

  • It is expected that the EIA will report a climb of 1.88mbbls in crude supplies.

OPEC yet to increase output

  • Oil cartel OPEC and allies haven’t yet kept their promise of raising oil output by 1m barrels a day, India’s oil minister Dharmendra Pradhan said, but didn’t blame supply scarcity for recent crude price trend. 

  • The Organization of Petroleum Exporting Countries and allies led by Russia had agreed to raise output by 1m barrels per day or about 1% of global supply to keep the oil market in balance. 

  • “According to our information, Russia and Saudi have increased their production but some other countries are lagging,” Pradhan said 

Natural Gas US$3.261/mmbtu vs US$3.197/mmbtu yesterday

Uranium US$27.65/lb vs US$27.50/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$69.9/t vs US$69.9/t

  • Winter heating curbs are expected to draw high-grade iron ore above the $100/t level, with both the steel and iron ore sectors rising as environmental restrictions are “more severe” than last year’s restrictions as they affect more areas, and are imposed for a longer period. Iron ore with 65% iron content has risen to $97.70/t on Tuesday, according to Mysteel.com.

  • Commonwealth Bank of Australia analyst notes “as you have these steel output cuts, to maximise productivity and reduce emissions, you want to move more towards high grade ore”.

  • The focus is expected to remain on quality ore despite a slow down in steel production next year, “we don’t expect China to push very hard on steel given the restructure that’s happening, but very much environmental measures right now seem to be a priority over economic growth”.

Chinese steel rebar 25mm US$690.7/t vs US$685.4/t

  • Steel in Shanghai advanced for the seventh consecutive trading day of eight sessions, with futures remaining on track for the highest close since Sept. 10, on reports of production limitations planned for November to combat air pollution. Rebar for January climbed +1.8% to 4,190 yuan/tonne on Shanghai Futures Exchange. “Rebar transactions in the spot market yesterday in 25 major cities averaged 4,629 yuan/tonne, 12 yuan more than the day before”, according to Hongyuan Futures.

  • China has an ongoing clamp down on air pollution by ordering curbs on some industrial production including steelmakers, with cold-season restriction due to start mid-way through November. Mills including Jiangsu Yonggang Group have been ordered to limit production to half of capacity, according to a report on 100ppi.com, which cited confirmation from Yonggang. The curbs will impact as Shanghai hosts the China International Import Expo from Nov. 5 to Nov. 10.

  • Despite lower emission standards in the Beijing-Tianjin-Hebei region this winter, companies will have to remain vigilant to meet targets, according to environmental experts close to the environment ministry.

  • Iron ore also climbed, rising +1.3% to 514 yuan/tonne on the Dalian Commodity Exchange, with heightened demand drawing BHP Billiton’s iron ore output up +10% to 61.4Mt in the three months to Sept. 30.

Thermal coal (1st year forward cif ARA) US$96.0/t vs US$95.5/t

Coking coal futures Dalian Exchange US$191.6/t vs US$191.5/t

           

Other:  

Cobalt LME 3m US$61,750/t vs US$61,750/t

China NdPr Rare Earth Oxide US$46,231/t vs US$46,191/t

China Lithium carbonate 99% US$9,824/t vs US$9,816/t

Tungsten APT European US$275-290/mtu vs US$275-290/mtu

 

Company News

Aura Energy (LON:AURA) 1.2p, Mkt Cap £12.3m – Vanadium potential identified at Tiris uranium project

  • Aura Energy reports that technical studies on its Tiris uranium project in Mauritania have identified the potential to recover vanadium during the uranium recovery process.

  • Commenting that “The vanadium price has risen approximately 500% over the past 3 years” and that the price continues to benefit “from significant structural shifts in the Chinese steel industry where, in some cases, legislation has driven a three-fold increase in vanadium use” Executive Chairman, Peter Reeve pointed out that the development of a vanadium revenue stream “has the potential to influence Tiris production costs strongly and takes advantage of a commodity that is currently undergoing a significant resurgence.”

 

BHP (LON:BLT)  1600p, mkt cap £92.6bn – Quarterly update maintains production guidance

  • BHP ’s quarterly production update maintains production guidance across its petroleum, iron ore, metallurgical and energy coal divisions with a 3% reduction in the guided copper production to between 1.62-1.705m tonnes as a result of reduced expectations arising from plant outages at the Spence mine’s electro-winning plant and the acid plant at Olympic Dam.

  • The company is, however, maintain unit-cost guidance for all its major assets.

  • Overall, copper production for the quarter ending 30th September amounted to 409,000t with output at Escondida (295,000t) providing over 70% of the total as “a result of the diversion of ore feed from sulphide leach to the three concentrators to maximise their utilisation, which offset the impact of expected lower copper grades and adverse weather conditions in the quarter.”

  • The company also reports that it has successfully concluded an 18 months agreement with the main union at Escondida.

  • A fire at the electro-winning plant at Spence has precipitated a reduction in production guidance from a range of 185-200kt to 160-175kt. Production at Olympic Dam remain suspended “as a result of an unplanned acid plant outage in August 2018 … Surface operations are expected to recommence at the end of October 2018 and will ramp up to full capacity during November 2018”

  • Iron-ore production of 61.4mt during the quarter “was lower than the June 2018 quarter as we optimised maintenance schedules across the supply chain and implemented a programme of work to further improve port reliability and performance.” Production guidance is maintained at 241-250mt.

  • Metallurgical coal production guidance remains unchanged at 46-46mt following production of 10.4mt during the quarter while energy coal production of 6.6mt during the quarter leaves production guidance unchanged at 28-29mt for the 2019 year.

  • BHP spent US$40m on exploration during the quarter with a principal focus on copper targets in “Chile, Ecuador, [where the company announced a  US$45m investment in Solgold yesterday taking its stake to 11.18%], Peru, Canada, South Australia and the South-west United States”.

 

Bushveld Minerals* (LON:BMN) 27p, mkt cap £300m – Lemur progress report

BUY - Target Price raised to 37p (from 34p)

(Bushveld Minerals now hold 74% of Vametco)

SEE LINK FOR PDF NOTE

  • Bushveld Minerals has provided an operational update on the progress of its wholly owned subsidiary, Lemur Holdings’ Imaloto power project in Madagascar

  • The company reports that the Bankable Feasibility Study (BFS) on the development of coal mine is underway and scheduled for completion in Q4 2018and that a joint review of the technical work is continuing with the company’s technical development partner, Sinohydro. Financial modelling has aslo been completed, subject to the final form of the BFS.

  • Over 50% of the field work needed for the community  engagement aspects of the Social and Environmental Impact Assessment (SEIA) has now been completed and the terms of reference of the study have been submitted to the Madagascar Ministry of Environment.

  • The company reports that, during Q3 2018, it has signed connection and power transmission agreements with the state power utility, JIRAMA and also that it has received “expression of interest … for baseload power offtake from global mining company in the Imaloto supply catchment area”.

  • The company summarises the progress; “Overall, the Imaloto project is on track to deliver electricity to south western Madagascar by 2021.”

  • Commenting on the progress, Fortune Mojapelo, CEO of Bushveld Minerals pointed out that progress had already been made in discussions with “institutional lenders for the construction-phase of the project, with a number of the lenders concluding the initial due-diligence on the project. We expect to advance discussions on terms of lending after the BFS is completed in Q4 2018”.

  • Mr. Mojapelo went on remark that “Furthermore, with presidential elections set for November and December 2018 we continue to monitor the political environment and to engage with the government of Madagascar”.

  • Although the immediate priority remains the delivery of the BFS and the SEIA, the company is also seeking to conclude offtake agreements to supply coal to third parties as a means to generate early cash flows ahead of the commissioning of the power plant.

Conclusion: The Imaloto power project is close to the completion of both the BFS and the SEIA and advancing discussions with sources of funding as it advances its objective of becoming a power provider to south western Madagascar by 2021.

*SP Angel act as Nomad and broker to Bushveld Minerals.

 

Keras Resources (LON:KRS) 0.4p, Mkt Cap £8.6m - Calidus Resources raises A$3.7m from strategic gold miner.

Target 1.04p

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  • Keras Resources reports the placement of 125m shares to Alkane Resources, an Australian gold miner.

  • Alkane runs the Tomingley Gold Mine in New South Wales producing 78,533oz of gold last year. Tomingley will develop a new underground mine next year as part of a major expansion program.

  • Alkane is putting A$3.7m into Calidus at a decent 13.5% premium to Calidus’ 5-day VWAP share price.

  • The funding will enable Calidus to complete its resource update and Pre-Feasibility Study at its Warrawoona Gold Project in the Pilbara of Western Australia.

  • The good news for Keras is that Calidus is now fully funded through the PFS and this should trigger the issue of a further 265m Calidus shares to Keras We had significantly discounted the value of these shares in our Keras valuation but the funding of the PFS indicates Keras should receive these performance shares without there being further need for dilution in Calidus.

  • The A$0.0295/s price paid by Alkane is a positive indication and should also lift the Keras valuation.

  • Keras is working on the mining and simple processing of a 10,000 manganese bulk sample paid for by a manganese alloy processor. We await further news on progress with this.

 

Vast Resources (LON:VAST) 0.6p, Mkt Cap £34m – Marange preliminary geological assessment

Botswana Diamonds (LON:BOD) 0.9p, Mkt Cap £4.7m

  • Vast Resources and Botswana Diamonds report the receipt of a preliminary desk-top geological assessment of the 6,913 hectares Heritage concession which is located within the Marange diamond fields of eastern Zimbabwe.

  • The study has identified the potential for modern alluvial diamond placer deposits as well as the possibility of older underlying conglomerate deposits.

  • Companies commenting on the study said that “grades of the known modern alluvial placers which drain the Marange Diamond Fields range in grade from 50-500 carats per hundred tons ("cpht"), most typically 100-200 cpht. There is also potential for remnants of the basal Umkondo (conglomerate) unit in the concession, which runs at grades from 100-3,000 cpht elsewhere in the Marange Diamond Fields.”

  • Botswana Diamonds comments that “the next steps will be to investigate the potential of the modern alluvial diamond deposits and of the older conglomerates on the property… assuming positive results, the field work will be closely followed by drilling, pitting and bulk sampling which will form part of a pre-feasibility study and this may entail further funding beyond the initial US$1 million committed to the programme by Vast”.

 

Conclusion: The potential of the Marange diamond fields is well established and the desk-top study confirms the potential within the Heritage licence area. We look forward to further news of work on the ground.

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