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Today's Market View - Uranium prices look likely to climb on falling inventories

Published: 16:03 12 Dec 2018 GMT

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SP Angel – Morning View – Wednesday 12 12 18

Uranium prices look likely to climb on falling inventories

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Altus Strategies* (LON:ALS) – Zinc, copper and cobalt mineralisation discovery at Takzim, Morocco

Ariana Resources - Drilling at Kizilcukur

Horizonte Minerals - Araguaia Feasibility Study

Mkango Resources* (LON:MKA) - Songwe Hill rare earth licence renewal

 

China cuts Tariffs on US autos to 15% from 40%

  • The move is a positive first step by the Chinese and is a very smart move in the direction of calming US – China relations.

  • Though the tariff reduction is not quite a total removal of tariffs on US autos as indicated in a previous Trump tweet.

  • We suspect China will also move to cut other ‘unfair’ tariffs on US goods ahead of the resumption of trade talks next year.

  • It is important for China to move first to prove positive intention in the negotiations.

  • China has so often failed to follow through that Trump and his negotiating team are unlikely to give much value to mere verbal offers of tariff reductions.

  • Fortunately China is sufficiently concerned to move early to reduce tariffs with further reductions likely before the 1 March deadline.

 

Brexit is a local UK issue for a Mining sector perspective

  • Thankfully the rest of the world has other issues to worry about

  • Eg. Trump Tariffs, Italian Debt, US Interest rate hikes, currency volatility, the end of QE and liquidity in global markets etc….

  • UK Pension funds need to buy and hold Miners and other US$ earners or they risk significant underperformance.

  • Dividends from the major miners look strong with dividend yields of:

    • Rio Tinto 6.1% 2019, 5.8% 2020

    • BHP Billiton 8.8% June 2019, 5.9% June 2020

    • Anglo American 4.8% 2019, 4.8% 2020

    • Glencore 6.3% 2019, 7.0% 2020 – dividend may be affected subject to US DoJ investigation

    • Anglo Asian Mining* 5.2% 2019, 5.3% 2020

*SP Angel acts as nomad and broker

 

Uranium prices look likely to climb on falling inventories

  • Price appreciation of uranium is set to extend into 2019 as inventories of the nuclear material decline for the first time in nearly a decade following production cutbacks in Kazakhstan and Canada.

  • Production from state-owned Kazatomprom, responsible for more than a quarter of global output, tumbled to 19,600t during the first 11 months of 2018; declining 7% compared to 2017. Major Cameco also suspended production at its McArthur River operation at Saskatchewan, with the recent announcement updating to an indefinite shutdown of the mine – removing a further 11,000t of yellowcake.

  • The net impact of production discipline across top miners has broken the trend of rising global uranium inventories following the Fukushima nuclear disaster in Japan in 2011.

  • Inventories can be divided into two broad categories; strategic and excess inventories, with the definition of each somewhat subjective. If utilities begin to worry about the security of future supplies then excess inventories can quickly be reclassified as strategic, leading to a shift in purchasing strategies”, according to BMO Capital Markets.

  • Demand growth is also putting pressure on global inventories, with Chinese nuclear plans expanding capacity from 42 operating nuclear reactors, 16 reactors under construction with a further 43 planned.

  • Spot uranium has climbed more than 20% since the start of 2018. BMO are forecasting a gradual increase in uranium prices as inventories are consumed, with a long-term incentive price of $55/lb by 2023.

 

Dow Jones Industrials

 

+0.14%

at

  24,423

Nikkei 225

 

-0.34%

at

  21,148

HK Hang Seng

 

+0.07%

at

  25,772

Shanghai Composite

 

+0.37%

at

   2,594

FTSE 350 Mining

 

+1.44%

at

  16,307

AIM Basic Resources

 

-1.71%

at

   2,058

 

Economics

US – Trump tweet over “productive conversations going on with China” and promises of “some important announcements” helped to boost the market sentiment yesterday.

  • Additionally, Huawei CFO has been released on bail by a Canadian court yesterday following 10 days after her arrest in Vancouver.

  • Trump has previously told Reuters he will intervene in the US Justice Department’s case against Ms Meng if it would serve national security interests or help close a trade deal with China.

  • Ms Meng faces US charges of conspiracy to defraud a number of financial institutions with a maximum sentence of 30 years for each charge.

  • US futures (+0.9% S&P 500 mini) and European equities (+1.0% Stoxx Europe 600) are trading higher this morning.

  • Oil prices extended gains on the back of higher than expected drop in nationwide crude inventories and on speculation for the easing in trade tensions.

  • In a sign of a pick up in the risk sentiment, MSCI Emerging Market Index is up 1% today marking the biggest gain in more than a week.

US considering warning Americans about travelling to China

  • Directors of major US tech companies should be particularly careful in our view, eg they should avoid China for a while in case they are detained for questioning by the authorities.

  • The Chinese have already detained a former Canadian diplomat Michael Kovrig. Kovrig is a Senior Advisor to The International Crisis Group, which may be in a bit of a crisis as a result.

  • Bail has been set at C$10m for the Huawei CFO though she must wear an electronic ankle tag and is subject to 24 hour surveillance. We wonder if the surveillance system uses Huawei electronics?

 

UK – PM May is due to face a confidence vote later today (1800-2000 GMT) with a result expected an hour or so later.

  • During the morning press conference Mrs May argued she will contest the vote.

  • PM said new leader will not have time to meet Brexit deadline and delaying the process is not in national interest.

  • The justice minister David Gauke commenting on the news said that the UK will have to delay its exit from the EU if PM loses a vote of confidence in her leadership.

  • The pound hit a low of 1.2478 this morning before recovering some of its losses and is currently trading at 1.2539 as news that May will contest the confidence vote broke out.

 

France – Police is on a manhunt in northeastern France after a gunman killed three and wounded a dozen others at a Christmas market in Strasbourg yesterday.

  • The suspect has been identified as Strasbourg born Cherif Chekatt, 29, who was previously known to the local intelligence as a potential security risk.

 

Currencies

US$1.1323/eur vs 1.1385/eur yesterday  Yen 113.44/$ vs 113.08/$  SAr 14.300/$ vs 14.396/$  $1.251/gbp vs $1.262/gbp  0.721/aud vs 0.721/aud  CNY 6.888/$ vs 6.903/$.

 

Commodity News

Precious metals:         

Gold US$1,244/oz vs US$1,249/oz yesterday

  • Gold tracks lower despite holdings in bullion-backed exchange-traded funds expanding amid concerns about slowing economic growth and a potential pause in interest rate increases by the Federal Reserve.

  • Total assets in gold ETFs grew to the highest level since Aug. 2, according to data complied by Bloomberg. Hedge funds and other large speculators reduced their short position in futures and options 22% to the lowest since July, according to CFTC data.

  • Buying interest in the precious metal focuses on uncertainty over whether the US dollar will be able to extend gains. The US central bank is unlikely to raise rates in 2019 and 2020 based on bond market indicators and the greenback in expected to weaken, according to chief investment office of DoubleLine Capital.

   Gold ETFs 69.2moz vs US$69.0moz yesterday

Platinum US$787/oz vs US$782/oz yesterday

Palladium US$1,253/oz vs US$1,244/oz yesterday

Silver US$14.60/oz vs US$14.61/oz yesterday

           

Base metals:   

Copper US$ 6,149/t vs US$6,135/t yesterday

Aluminium US$ 1,938/t vs US$1,949/t yesterday

  • President Donald Trump’s metal tariffs help spur expansions across the domestic aluminium market, adding to a globally oversupplied market. US production is expected to climb 67% this year, as new aluminium expansion projects come online, adding to capacity and creating higher employment rates, according to Robert E. Scott at the Economic Policy Institute.

  • We continue to expect that the U.S. industry as a whole will continue to expand so long as the tariffs remain in place,” Century Aluminum Co., General Counsel Jesse Gary reported. The U.S. aluminum producer wants to “keep those plants competitive and to expand when we see market opportunities.

  • Premiums paid by buyers to have the metal delivered to the U.S. Midwest more than doubled this year as tariffs on imports made domestic supply more attractive, shielding local producers from a 15% slump in prices on the London Metal Exchange. Inventories tracked by the bourse have rebounded from a low in October and Harbor Intelligence has predicted an oversupply of 360,000t next year as global production rises.

  • Expansions in the U.S. will add 663,000t in capacity, generating 1,075 new jobs, Gary said. About 2,700 jobs in iron and steel industry have been created since February 2018, as Trump tariffs spur growth, according to the Economic Policy Institute report.

Nickel US$ 10,770/t vs US$10,850/t yesterday

Zinc US$ 2,595/t vs US$2,598/t yesterday

Lead US$ 1,988/t vs US$1,979/t yesterday

Tin US$ 19,150/t vs US$18,935/t yesterday

           

Energy:           

Oil US$60.6/bbl vs US$60.1/bbl yesterday

Natural Gas US$4.330/mmbtu vs US$4.510/mmbtu yesterday

Uranium US$28.75/lb vs US$28.85/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$64.9/t vs US$64.8/t

Chinese steel rebar 25mm US$585.3/t vs US$590.6/t

  • Chinese rebar futures climbed as much as +1.6% on the news the key steelmaking hub of Tangshan launches ’20-day war for blue skies’, imposing harsher controls to fight smog levels, according to Steelhome.

  • Tangshan report new rules intensifying its winter environmental policy from December 13th-31st including the decision that sintering machines that fail an ultra-low emission test will have to stop production.

  • China’s new loans data for November exceeded estimates, signaling improving economic conditions, according to Sinosteel Futures.

  • The near-term outlook also remained positive as Chinese iron ore port inventories fall to the lowest since Oct. 2017.

  • However the bullish signals are expected to reverse into the new year as demand for steel and iron ore is forecast to drop as growth in the economy cools and a trade spat with the US curbs demand, according to China’s Metallurgical Industry Planning and Research Institute. “As steel margins are still high, local steel companies continued to have strong incentive to produce more even though there are winter production controls”, according to Argonaut Securities, contributing to market oversupply.

Thermal coal (1st year forward cif ARA) US$87.4/t vs US$87.3/t

Coking coal futures Dalian Exchange US$200.4/t vs US$199.9/t

           

Other:  

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

China NdPr Rare Earth Oxide US$46,461/t vs  US$46,358/t

China Lithium carbonate 99% US$10,163/t vs US$10,141/t

China Ferro Vanadium 80% FOB US$109.5/kg vs US$112.5/kg

China Antimony Trioxide 99.5% EU US$7.0/t vs US$7.1/kg

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

 

Battery News

EU fails to agree CO2 car targets for 2030

  • EU legislators failed to agree 2030 targets for car and van CO2 emissions on Tuesday, ramping up the pressure to find a compromise before Parliament breaks for elections in May.

  • Further delays would push the decision to the end of 2019, decreasing the chance that the final rules will include 2025 targets, according to EU diplomats from four member states.

  • A crucial meeting broke down in the early hours of Tuesday Morning after parliament representatives rejected the council’s compromise proposal that new cars sold in 2025 must produce 15% less CO2 on average and 37% less by 2030, according to a person familiar with the negotiations.

 

Daimler to spend €20bn on battery cells to feed electric fleet rollout

  • Daimler said it will spend €20bn on battery cells over the next decade, to meet its ambitious target to electrify its entire product line.

  • The company did not name the battery suppliers but said they are “already producing battery cells in Asia and Europe and are continuing to expand in Europe and additionally in the USA.”

  • Daimler will buy battery cells on the market and produce the final batteries at eight factories globally, including five in Germany and one each in Beijing, Bangkok and Tuscaloosa in the US.

  • It will also continue research on next generation solid-state lithium-ion batteries, it said.

 

France’s electric car sales up 111% in November

  • Sales of all-electric cars have more than doubled in November, with French manufacturers leading the chase.

  • 3,541 electric cars were registered in France this November, a plus of 111.7% compared to the same month last year.

  • The Renault Zoe defends its status as bestseller with 1,895 units, accounting for more than half of all sales.

 

Company News

Altus Strategies* (LON:ALS) 3.8p, Mkt Cap £6.7m – Zinc, copper and cobalt mineralisation discovery at Takzim, Morocco

  • Exploration at the Takzim Project , including the recently secured Takzim Est properties, in central Morocco returned high grade copper, cobalt and copper results from outcrop and grab samples across a series of veins.

  • Surface samples included 4.64% Zn, 7.78% Cu and 0.15% Co.

  • In total 59 rock chip and grab samples were collected with 6 assaying above 0.1% Co and 4 of 9 collected at the Takzim Est license returning above 1.0% Cu.

  • Quartz-carbonate veins (up to 15m wide) hosting copper have been mapped discontinuously for 1.2km with anomalous cobalt grades recorded within narrow haematitic nodules and lenses hosted within the veins.

  • Additionally, the Company reported results from a soil sampling programme covering an area of 1.6km by 1.0km with a total of 162 samples collected on 100m spacing.

  • The results identified a coherent 600 long by 150m wide northeast trending zinc/lead anomaly which remains open along strike with an extended  follow-up soil sampling programme being currently planned.

  • “Although  at an early stage, we are encouraged by these further discoveries at Takzim… the next phase of exploration is currently being planned and will focus on establishing the potential source and scale of the copper, cobalt and zinc mineralisation discovered to date,” the Company commented on the announcement.

*SP Angel acts as Nomad and Broker to Altus Strategies plc

 

Ariana Resources (LON:AAU) 1.6p, mkt cap £16.4m - Drilling at Kizilcukur

  • Ariana Resources has announced the imminent start of a 1000m programme of diamond drilling at its Kizilcukur project in Turkey

  • The project area is located approximately 22km northeast of the company's 50% owned Kiziltepe gold mine and the drilling is aimed at upgrading the current indicated and inferred mineral resource estimate of approximately 308,000t at an average grade of 2.11g/t gold and 73.4 g/t silver (around 33,000oz of gold equivalent) to measured and indicated level resources

  • The management id targeting an increase to around 500,000t at similar grades (approximately 50,000 equivalent oz of gold) with a view to trucking feed around 50km to the Kiziltepe plant for processing.

Conclusion: The delineation of satellite resources for the Kiziltepe plant may ensure the viability of a relatively small deposit at Kizilcukur which would not justify a stand-alone plant. We await results of the drilling programme as it proceeds.

 

Horizonte Minerals (LON:HZM) 2.1p, mkt cap £29.4m - Araguaia Feasibility Study

  • Horizonte Minerals reports that the feasibility study for its Araguaia ferro nickel project in Para State, Brazil has now been filed with the Canadian repository system, SEDAR.

  • The headline findings of the study were announced on 29th October and it will be of interest to have the underlying detailed information and analysis available for scrutiny.

  • The 28 year project comprises an initial production phase where approximately 900,000tpa of ore is treated in a Rotary Kiln Electric Furnace (RKEF) to produce approximately 14,500tpa of nickel contained in 52,000tpa of ferronickel.

  • Capital investment of US$443m for the initial phase of the project is expected too generate an after tax NPV8% of US$401m and an IRR of 20.1% with cash costs equivalent to US$3.08/lb of contained nickel.

  • The study includes the flexibility to double production to 29,000tpa of contained nickel by the addition of a second RKEF in the third year of the project. 

  • The additional capital expenditure of US$199.7m is to be funded from internally generated cash flow and enhances the after tax NPV8% to US$741m, increases the IRR to 23.1% and reduces the cash cost of production to US$3.00/lb.

  • Commenting on the study, CEO Jeremy Martin said that it confirms "that Araguaia is a tier 1 asset demonstrating flexibility and scalability with compelling economics."

  • He went on to confirm that "The Company is well funded as we work to advance Araguaia to the construction stage and start to advance our second 100% owned Vermelho Nickel Cobalt project as part of the company's strategy to become a leading nickel development Company. I look forward to updating the market on progress as we move into 2019."

Conclusion: The publication of the feasibility work on Araguaia should provide a detailed insight into the project as it progresses during 2019 and we look forward to further progress reports

 

Mkango Resources* (LON:MKA) 8.6p, Mkt Cap £9.6m - Songwe Hill rare earth licence renewal

  • Mkango Resources confirms the renewal, for a further two years until 21st January 2021, of its Exclusive Prospecting Licence (the Phalombe Licence) covering its Songwe Hill rare-earths project in southern Malawi.

  • Mkango has recently completed a 10,900m diamond drilling programme over Songwe Hill as it prepares to update the mineral resource estimate ahead of a Feasibility study, to be funded by Talaxis, next year.

  • The mineral resource estimate used for the pre-feasibility study work currently stands at 13.2mt of indicated resources at a grade of 1.62% TREO (total rare-earth oxides) and 18.6mt of inferred resources at an average grade of 1.38% using a 1% TREO cut-off.

  • The latest drill campaign returned the highest rare earth grades intersected over the project, with the premium ‘black carbonatite’ zone returning total rare earth oxides of 3.3% over 100.9m including 20.5m @ 4.2% and 22.2m @ 4.1%.

  • Step-out drilling also supports a more expansive rare earth mineralisation, which when combined with the elevated grades, is expected to generate a more economically significant advanced-stage rare earth deposit.

  • The company also hold interests in two exclusive prospecting licences in Malawi; the Thambani licence and the Chimimbe Hill licence.

Conclusion: The licence renewal secures Mkango's tenure of the Songwe Hill project area as it completes its mineral resource update and moves ahead with the feasibility study.

 

*SP Angel act as Nomad and broker to Mkango Resources. The analyst has visited the Songwe Hill exploration site.

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