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Todays Market View - Palladium price overtakes gold on auto-catalyst demand

Todays Market View - Palladium price overtakes gold on auto-catalyst demand

SP Angel – Morning View – Wednesday 05 12 18

Palladium price overtakes gold on auto-catalyst demand

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MiFID II exempt information – see disclaimer below

Bluebird Merchant Ventures* (LON:BMV) – Positive initial metallurgical results from Kochang

Eurasia Mining (LON:EUA) – Monchetundra update

Petra Diamonds (LON:PDL) – Sale of Kimberley Ekapa Mining JV

Shanta Gold (LON:SHG) – Singida internal economics study

Petropavlovsk (LON:POG) – First refractory concentrate processed at the POX facility

 

Palladium price overtakes gold on auto-catalyst demand

  • Gold has been toppled as the most valuable precious metal, as demand-fueled rally over the past four months has driven palladium prices to record highs. Palladium for immediate delivery swapped places with gold to trade at $1,240/oz, trading at a sustained premium for the first time in 16 years as buyers scramble for supplies of the metal used in vehicle catalytic converters.
  • Demand has risen as consumers shy away from diesel towards gasoline-powered cars, which consume higher volumes of palladium. “The supply of palladium is very restricted”, according to Metals Focus Ltd., “the narrowing of the ratio is as much about the strong performance of palladium as about the poor performance of gold”.
  • Automakers aren’t likely to catch a break on palladium prices anytime soon as the metal used to reduce exhaust emissions is poised to extend its record-breaking rally.
  • Palladium is a rare metal produced mostly in two countries, so it may not be possible to boost output immediately to meet industry demand, Aberdeen Standard Investments warned. More than 80% of global production comes as a byproduct from nickel mining in Russia and platinum mining in South Africa, so supplies are dependent on the extraction level and investment in other minerals.
  • Even if the price rally provides production incentives for mining companies, there’s likely to be a lag, and any uptick in demand from automakers “could just suck up” any output gains, Aberdeen Standard Investment continues. “Our expectation is that we should continue to see that shortfall for a number of years going forward.”

 

Exhaust system research overcomes key fusion power barrier

  • The UK Atomic Energy Authority’s centre for nuclear fusion research is at Culham, Oxford. Nuclear Fusion – seen as a source of unlimited future energy. In a fusion reactor, energy is released when two light atomic nuclei collide to form a heavier atom – the fusion process creates the Sun’s energy.
  • For a practical power source, deuterium and tritium need to be heated to over 100 million degrees to create a plasma – the aim is to produce net energy more power than required to create the fusion reaction.
  • Culham’s Joint European Torus (JET), is the world’s largest tokamak machine designed to undertake magnetically confined fusion (MCF). A tokomak is steel doughnut vacuum vessel with powerful external magnets to keep the high temperature plasma from the vessel walls.
  • The heat generated needs to be vented safely. Scientists have announced the development of a new exhaust system which directs the plasma to travel in a longer path through the tokamak in order to cool down, which subsequently comes into contact with a ‘sacrificial wall’ designed to be replaced every few years as the plasma breaks it down.
  • The researchers hope the new exhaust system will be used at an experimental ITER fusion, now under construction in France, scheduled to go live in 2025 and cost expected to cost up to $60bn.
  • ITER uses over 100,000km of low temperature, helium cooled, superconducting wire (Niobium-Titanium) to generate the magnetic fields required to contain the plasma at 150 million degrees in the tokamak machine.
  • The international team, which is scheduled for initial plasma experiments with deuterium in 2025, hope that it will be the first reactor in history to produce net energy.
  • We’re here to commercialise fusion power”, Atomic Energy Authority executive director Ian Chapman said. “I mean, fusion offers this enormous potential. There’s no long-lived radioactive waste, there’s effectively inexhaustible fuel, there’s no carbon emission. It sounds perfect, but it’s really hard to do.”

 

Antimony prices continue to fall on more cautious trading in China

  • Consumers are taking a more cautious approach to buying antimony and some other industrial metals in China in the current environment
  • Antimony prices fell to RMB49,500-50,000/t from RMB50,000-50,500/t last week as weak Chinese demand hit the market (Fastmarkets MB)
  • This is despite some consumers stocking up ahead of the Christmas / Western new year slowdown.
  • Antimony processors appear to be struggling to sell antimony oxide in China with European sales of antimony trioxide also struggling though prices for standard grade II antimony held previous week price levels
  • Note, the Chinese new year, the year of the Pig, starts on Tuesday 5 February.

 

Dow Jones Industrials

 

-3.10%

at

  25,027

Nikkei 225

 

-0.53%

at

  21,919

HK Hang Seng

 

-1.56%

at

  26,836

Shanghai Composite

 

-0.61%

at

   2,650

FTSE 350 Mining

 

-1.45%

at

  16,669

AIM Basic Resources

 

+0.20%

at

   2,142

 

Economics

 

Currencies

US$1.1328/eur vs 1.1395/eur yesterday  Yen 113.04/$ vs 113.03/$  SAr 13.812/$ vs 13.633/$  $1.271/gbp vs $1.277/gbp  0.729/aud vs 0.739/aud  CNY 6.869/$ vs 6.842/$

 

Commodity News

Precious metals:         

Gold US$1,234/oz vs US$1,239/oz yesterday

  • Gold reverses gains as Federal Reserve policy maker reiterates support for further gradual increases of interest rates and as investors weigh that latest commentary in the US-China trade dispute, with Beijing making a positive assessment of developments.
  • Fed Bank of New York President John Williams expressed no concern market participants has dialed back expectations for tightening in 2019, instead painting an overwhelmingly positive picture of the economy. This opinion is voiced as the market watches portions of the Treasury yield curve invert; something which historically has been a warning signal about the economic outlook.
  • China said Wednesday the trade meeting with the U.S. at the G-20 was “very successful” and it’s confident of implementing the results agreed upon, without providing any further details on the outcome. Overall trade war sentiment is “impacted by the lingering fact that it is unclear what the US and China actually agreed to”, according to Australia & New Zealand Banking Group Ltd.

   Gold ETFs 68.8moz vs US$68.7moz yesterday

Platinum US$796/oz vs US$806/oz yesterday

Palladium US$1,240/oz vs US$1,217/oz yesterday

Silver US$14.43/oz vs US$14.55/oz yesterday

           

Base metals:   

Copper US$ 6,146/t vs US$6,292/t yesterday

Aluminium US$ 1,968/t vs US$1,982/t yesterday

Nickel US$ 11,065/t vs US$11,340/t yesterday - Indonesia allows two companies to resume nickel ore exports (Reuters)

  • The permits are reward for having made sufficient progress on the development of in-country nickel smelter projects .
  • Two other companies have not had their nickel ore export licenses renewed as they have made zero progress on smelter development
  • Unprocessed ore exports out of Indonesia will be banned from January 2022

BHP green light to develop nickel mine in W. Australia

  • BHP has received approval from the government of W. Australia to develop a nickel mine to supply feed material for its Nickel West battery chemical business. The Venus deposit represents one of the most significant development options for Nickel West as the miner gears up production of nickel sulphate to supply the burgeoning EV battery industry.
  • The major miner has been ploughing investment into nickel mine exploration and development in a bid to become a vertically integrated nickel chemical producer, with the miner continuing “drilling over the coming months (to) better define the resource. We expect first stoping production early next year”.
  • Venus, discovered over six years ago, has more than 200,000t of nickel reserves and will feed the Leinster Nickel Operation mill and concentrator over the next eight years.
  • The miner's Perth nickel sulphate plant is expected to come online from April 2019, with capacity to produce 100,000t of nickel sulphate, accounting for some 22,000t of nickel. BHP is making plans to double capacity with a potential second-stage expansion.
  • Nickel is in increasingly hot demand in new battery technologies that mean cars can travel further on a single charge. Using more nickel also cuts costs by reducing the amount of expensive cobalt, a mainstay of current battery technology.

Zinc US$ 2,589/t vs US$2,597/t yesterday

Lead US$ 1,985/t vs US$1,977/t yesterday

Tin US$ 19,135/t vs US$18,940/t yesterday

           

Energy:           

Oil US$61.1/bbl vs US$62.5/bbl yesterday

Natural Gas US$4.571/mmbtu vs US$4.390/mmbtu yesterday

Uranium US$28.90/lb vs US$29.00/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$65.5/t vs US$64.2/t

Chinese steel rebar 25mm US$606.7/t vs US$610.2/t

Thermal coal (1st year forward cif ARA) US$85.7/t vs US$84.9/t

Coking coal futures Dalian Exchange US$200.9/t vs US$201.7/t

           

Other:  

Cobalt LME 3m US$55,000/t vs US$55,000/t

China NdPr Rare Earth Oxide US$46,590/t vs US$46,915/t

  • The government ruling against Lynas Corporation’s Malaysian plant operation has stung the world’s largest source of rare earths outside of China, driving the share price 23% lower. While most aspects of the plant, which generates low-level radioactive waste, were approved, it also ruled that a permanent safe storage site much be constructed by the owner or export all the waste to another country.
  • Compliance within the tight timeline of 2. September 2019 licence renewal deadline is expected to hit rare earth production keenly sort by Japan as well as the US. The materials are designated ‘strategic minerals’ due to the dominance of Chinese output which accounts for 80% of global supply and 78% of US imports.
  • Lynas chief executive, Amanda Lacaze, said the Malaysian Government review committee had identified many positive aspects of the rare earth plant, including the fact that operations were based on controlled low-risk procedures and technologies, and that employee exposure to radiation and non-radiation hazards were below permitted levels.
  • The company’s rare earth plant in Malaysia produces two solid residues, including water leach purification, which is classified as the conflicting radioactive material. “This appears to be policy based on politics, not policy based on science.” Lynas report the stores of residue are in approved facilities that meet international best practices.
  • The ruling places Lynas under pressure to maintain the flow of non-Chinese rare earths, and serves to highlight the importance of establishing more consistent, reliable sources including Mkango Resources advanced-stage Songwe Hill project in Malawi.

China Lithium carbonate 99% US$10,191/t vs US$10,231/t

Tungsten APT European US$275-295/mtu vs US$275-295/mtu

 

Battery News

Hyundai building the latest “world’s largest battery system”

  • Hyundai’s Electric & Energy Systems business is on track to bring the latest ‘world’s largest’ energy storage system in the world online in Ulsan, South Korea.
  • The new 150 MW system will go live in 3 months’ time following the success of Tesla’s similar project in Australia.

 

Tesla battery technology in Australia 'hugely scalable'

  • A report by engineering company Aurecon found the world's largest lithium-ion battery built by tech billionaire Elon Musk in SA's mid-north has exceeded all expectations since operation began a year ago.
  • The report found the savings to the electricity grid have flowed directly through to South Australian consumers and is reflected in their energy bills.
  • Owner and operator Neoen says the Jamestown battery has proven its point by providing security and stability across the energy network.
  • Neoen head of development Garth Heron said the technology is "hugely scalable" and is ready to expand across the nation.

 

Australians create battery from waste

  • Lithium Australia has announced a lithium-ion battery made entirely from mining waste.
  • It had used a proprietary waste processing technique that, the company said, removed the need for including high-purity lithium hydroxide or lithium carbonate in the battery, using instead tri-lithium phosphate, which substantially reduced the production cost of the battery.
  • Lithium Australia is yet to comment on the reliability of the battery, but it did report that it performs on par with the industry standard that uses lithium carbonate.

 

Britain and Denmark seen as world leaders in climate change fight

  • The U.K ranks second in mitigating climate change behind Denmark among 25 countries analysed in a report commissioned by Drax Group Plc and compiled by academics at Imperial College London.
  • Britain’s uptake of electric vehicles is among the highest of the nations in the study.
  • The report is being launched at the United Nations climate conference in Poland delegates from nearly 200 countries will seek to transform pledges made in Paris three years ago into an international rulebook aimed at curbing greenhouse gas emissions.

 

VW says the next generation of combustion cars will be its last

  • Volkswagen AG expects the era of the combustion car to fade away after it rolls out its next-generation gasoline and diesel cars beginning in 2026.
  • The rollout of EVs across the group is forecast to comprise about 15m vehicles, as the company earmarks $50bn over the next five years to spend on its transformation to self-driving, electric cars.
  • Production of the VW brand’s I.D. Neo hatchback will start in 12 months in Germany, followed by other models from the I.D. line assembled at two sites in China as of 2020.
  • VW plans to launch fully or partly electric versions across its line-up of more than 300 cars, vans, trucks and motorbikes by 2030.

 

Company News

Bluebird Merchant Ventures* (LON:BMV) 2p, Mkt cap £4.6m – Positive initial metallurgical results from Kochang

(Bluebird is earning into a 50:50 jv with Southern Gold Ltd at Gubong and Kochang)

BUY – Target Price 12.8p

  • Bluebird Merchant Ventures reports that initial metallurgical test-work on a composite sample from the historic Kochang mine in Korea has shown recoveries of up to 80% for gold and 60% for silver using a simple gravity process.
  • The “average grade of the composite sample is almost 5 g/t gold and 19 g/t silver, confirming the results obtained from the underground programme” and the company also provides more detail, saying that “Samples of Kochang ore were evaluated for inclusion into a composite sample to be used for the initial metallurgical test work programme. Of the 425 samples received, 230 (54%) contained higher than 1 g/t gold.”
  • Further test-work is underway and the company plans to take samples from other areas of the mine in future.
  • In a more detailed comment on the recovery rates achieved during this initial phase of testing, the company explains that “It is important to note that, whilst a recovery figure of 80% may appear low, the yield is from a much shorter and cheaper process and can be significantly increased should we decide to enhance the metallurgical process with additional standard recovery methods”.
  • CEO, Colin Patterson said that “Kochang continues to 'tick the boxes' in terms of being a mine worth reopening. The completion and evaluation of this test work will enable us to confirm the future of this exciting project.”

Conclusion: The first metallurgical tests from a composite sample of the Kochang underground ore show promising recovery rates of both gold and silver using simple and relatively inexpensive gravity recovery methods. The continuing test programme should provide greater detail and establish whether the metallurgical response differs across different areas of the mine. We look forward to further results as the testing proceeds.

*SP Angel act as broker to Bluebird Merchant Ventures

 

Eurasia Mining (LON:EUA) 0.66p, mkt cap £15.6m – Monchetundra update

  • Eurasia Mining has provided an update following the final award of the mining permit for its planned Monchetundra platinum group and base metals mine late last month.
  • The company has an Engineering Procurement, Construction and Financing (EPCF) agreement in place with Sinosteel for 85% (US$149.6m) of the expected US$176m required to develop the 1.9m oz palladium equivalent hard-rock resource in the Kola Peninsula of north-west Russia.
  • Planned production rate is expected to be 130,000oz pa on a project believed, by the Directors “to be unique globally in being led by high palladium grades”
  • The company comments that this is the “first hard rock PGM mining permit to be issued in the Russian Federation since February 2016”.
  • Managing Director and Executive Chairman of Eurasia Mining, Christian Schaffalitzsky commented that “This permission and indeed recent milestones achieved by Eurasia with the Monchetundra Project are the culmination of many years of hard work and conviction to pursue a PGM project in an emerging PGM district and we are extremely thankful to the cooperation we have received at local and federal level in the jurisdiction we have chosen to operate in.”

Conclusion: Eurasia’s persistence in pursuing the development of Monchetundra looks to be paying off. We look forward to further project updates in 2019.

 

Petra Diamonds (LON:PDL) 42.48p, Mkt Cap £367.6m – Sale of Kimberley Ekapa Mining JV

  • Petra Diamonds reports that it has completed the sale of its, and its BEE partners’ 75.9% interest in the Kimberley Ekapa Joint-Venture (KEMJV) to its joint venture partner, Ekapa Mining.
  • The disposal of the “Kimberley Underground mine, extensive tailings retreatment programmes and the high volume Central Treatment Plant - all located in or around the historic diamond mining centre of Kimberley in South Africa“,  for a cash consideration of approximately R300m, had previously been announced.
  • During the year ended 30th June 2018, Petra Diamonds “recorded an attributable loss on discontinued operations of US$104.3 million relating to the reclassification of KEM JV as a discontinued operation in the Company's results”.
  • In an alteration to the previously announced terms of 24 monthly repayments, R60m of the consideration will now be paid monthly over 24 months with the “balance of the purchase consideration … repayable from a 50% share of future operating cash flows including proceeds from the sale of assets, potential proceeds from a pending insurance claim that is subject to ongoing discussions, in relation to the mud-rush incident at Bultfontein, and adjusted for sustaining capital of between R110 million and R130 million per annum, for a period of five years to 30 June 2024.”
  • The alteration to the terms is intended “to allow Ekapa Mining to maximise the prospects of the financial viability of the operation”.
  • Petra Diamonds’ CEO, Johannes Dippenaar explained that “the disposal is in line with the Company's strategic priorities which include the ongoing review of the asset portfolio in order to maximise return on capital and ensure that all assets are in a position to contribute positive cash flow to the business”.

Conclusion: The disposal of its interest in the KEM JV underlines Petra Diamonds focus on the core operations at Finsch, Cullinan and Koffiefontein in S Africa and the Williamson mine in Tanzania.

 

Shanta Gold (LON:SHG) 4.4p, Mkt Cap £34.1m – Singida internal economics study

  • The Company prepared Singida production profile and estimated NPV using internal owners team formed of employees from operating New Luika Gold Mine.
  • Post tax NPV(8%) is estimated at $31m using forward gold curve for price assumptions (see below).
  • The project involves mining 2.4mt of ore (open pit) at 2.3g/t for production of 158koz gold over six years mine life.
  • Mill capacity assumed at 438kt with gold recoveries running at 91%.
  • Average annual production totalled around 25.8koz (excluding final Y7 output of 3.2koz).
  • The Company used $1,300/oz gold price for economic pit shells and 0.7g/t cut-off grade with the team highlighting “there are lower grade areas that currently fall outside the mine plan, but which could be mined with no additional development, thereby providing gold price optionality”.
  • This compares to the latest mineral resource update (Jun/18) estimating 5.7mt at 2.08g/t for 381koz in Measured and Indicated category at 1.0g/t cut off.
  • Inferred resource of 6.6mt at 1.63g/t for 344koz currently sit outside of the project economics.
  • Pre-production capex of $16.0m is comprised of $7.2m for construction and installation of a processing plant, $4.4m for key infrastructure, $3.2m for construction of tailings storage facility and $1.2m for initial open pit development.
  • The pre-production capex benefited from the previous capital spend on the project including mine camp construction, completed resettlement including financial compensation and re-housing as well as drilling and testing of water supply boreholes.
  • Construction period estimated at 15 months.

 

NPV price assumptions

Y1 (2020)

Y2

Y3

Y4

Y5

Y6

Gold price fwd curve

1,296

1,331

1,366

1,401

1,437

1,472

 

NPV sensitivity

Discount rate

Gold price

5%

8%

10%

1,200

22

18

16

1,300

30

26

23

Fwd curve

36

31

28

1,400

38

33

31

 

IRR sensitivity

 

Gold price

IRR (%)

1,200

47

1,300

62

Fwd curve

67

1,400

77

 

Conclusion: Internal study highlights attractive Singida project economics. High IRR is helped by very low capex intensity of the project ($620/oz and $736/oz incl working capital) and strong gold price assumptions used. Although, IRR comes down only marginally to 62% on $1,300/oz gold price assumption applied in modelling of economic open pits. The study will be helpful during the process of attracting Singida project financing which the management is targeting to put together during the course of 2019.

 

Petropavlovsk (LON:POG) 6.1p, Mkt Cap £200.1m – First refractory concentrate processed at the POX facility

  • Autoclave 1 processed first refractory concentrate (320t in total as of 04 Dec) with gold recoveries achieved of c.93% on the way to projected design 98%.
  • The vessel is reported to have reached 50% of the 125ktpa processing capacity.
  • Autoclave 2 is in hot commissioning phase with first concentrate processing due by year end.
  • Autoclaves 3 and 4 are scheduled for the start of production in Q2/19.
  • The Company is on track for commercial gold production from the POX facility in Q1/19.
  • The facility is expected to run four autoclaves for a total capacity of 500ktpa (processed concentrate).

Conclusion: First production at POX is a welcome news given that the future production profile of the Company is dependent on the operating refractory ore processing facility. POX vessels are coming on stream with all four of them expected to be in operation in Q2/19.

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