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Todays Market View - Iron ore prices rise despite weak Asian equity markets

Todays Market View -  Iron ore prices rise despite weak Asian equity markets

SP Angel – Morning View – Friday 14 12 18

Iron ore prices rise despite weak Asian equity markets

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MiFID II exempt information – see disclaimer below

 

Bellzone Mining (LON:BZM) SUSPENDED – Bellzone liquidation effectively forced by Chinese shareholder preventing company from raising new debt or equity

Bushveld Minerals* (LON:BMN) BUY - Target Price 87p – Professional investors buying Bushveld as ferro-vanadium prices pull-back to more sensible levels

Firestone Diamonds (LON:FDI) 3.75 pence, Mkt Cap £20.0m – Liqhobong mine yields 46 carat diamond

Kodal Minerals* (LON:KOD) 0.15p, Mkt Cap £11.1m – Interim results show important progress

MOD Resources (LON:MOD) 18p, Mkt Cap £44.7m –Botswana licence renewals

Ormonde Mining* (LON:ORM) 5.075p, Mkt Cap £24.0m – Barruecopardo commissioning remains on track

 

Gold – next year may well be good for gold

  • The US Federal reserve is going to be limited in how far they can raise rates next year with maybe only one or two interest rate rises next year to take rates to ~>2.5%
  • Tax cuts and wage growth will add to potentially raise inflation in the US next year alongside tariff issues
  • Gold could easily move >$100/oz higher peaking at $1,375/oz with investors seen buying price dips to give the metal a base an expected base of around $1,208/oz
  • US dollar looks likely to remain relatively strong through next year
  • The passing of US and ECB QE will restrict available liquidity potentially making markets increasingly volatile
  • Central banks are likely to remain supportive holders of gold and may continue to raise their holdings in the face of currency volatility and likely weakness in a range of other currencies
  • The impact of continued US rate rises on fund flows may be dramatic and will continue to draw liquidity out of emerging markets causing some unpleasant currency swings
  • Trump may use this to try and persuade the Fed to slow down its rate of rate rises but the higher rates will help Trump raise further funds to support his fiscal program if allowed
  • Trump is no stranger to debt and is likely to continue to borrow to fund tax cuts and other plans
  • Problem is that Trump does not control The House of Representatives and they are likely to restrict the US government deficit bringing the Cliff closer and causing political chaos
  • Total US government debt $34 trillion of public and private debt (Bloomberg), over a third to total global debt of around $80 trillion. China debt (~US$5tr) to GDP ($12tr) is 00% unofficial (Forbes magazine)
  • Effective paralysis between Congress and the Senate is likely to tie Trump’s hands but the political elite will have to raise the debt ceiling or government staff will not get paid
  • Gold mine gold production is likely to continue to slow due to fewer new mine developments, union disruption in South Africa, declining production in key gold producing regions and a lack of new discoveries

 

Dow Jones Industrials

 

+0.29%

at

24,597

Nikkei 225

 

-2.02%

at

21,375

HK Hang Seng

 

-1.62%

at

26,095

Shanghai Composite

 

-1.53%

at

2,594

FTSE 350 Mining

 

-1.40%

at

16,863

AIM Basic Resources

 

+1.96%

at

2,089

 

Economics

Euro collapses as ECB ends QE stimulus and on worsening PMI data

  • The Eurozone economy is going to have to stand on its own feet now that the ECB has ended its €2.5tr QE.
  • Suspect the ECB will be gearing up to try to resolve the looming Italian debt crisis.
  • France is also about to breach its budget deficit by a number greater than the Italian debt to GDP ratio.
  • Italy revised it’s proposed budget deficit level to 2.04% budged deficit target following an initial offer of a 2.6%.
  • France is expected to hit a budget deficit of 2.87% following Macron’s recent tax giveaway on minimum wages and tax rebates.
  • The Euro has collapsed against the US dollar following weak French manufacturing data.
  • Weak German, French and other Eurozone PMI data indicates a lack of confidence in the Eurozone related to rising debt to GDP levels and ahead of the potential for a hard UK Brexit.
  • Maybe the ECB is ending its QE program too early from a stability perspective.

 

China – US tariff negotiation conditions improving

  • China is seen toning down its push into technology which was treading on the toes of some major US technology giants.
  • China buying US soya beans with biggest order in 6-months
  • Beijing also appeared to have toned down a high-tech industrial push that has long hampered Washington.

 

Currencies

US$1.1324/eur vs 1.1388/eur yesterday.  Yen 113.58/$ vs 113.43/$.  SAr 14.372/$ vs 14.073/$.  $1.258/gbp vs $1.265/gbp.  0.717/aud vs 0.724/aud.  CNY 6.901/$ vs 6.867/$.

 

Commodity News

Precious metals:         

Gold US$1,238/oz vs US$1,246/oz yesterday

   Gold ETFs 69.5moz vs US$69.3moz yesterday

Platinum US$793/oz vs US$805/oz yesterday

Palladium US$1,245/oz vs US$1,268/oz yesterday

Silver US$14.62/oz vs US$14.78/oz yesterday

           

Base metals:   

Copper US$ 6,083/t vs US$6,204/t yesterday

Aluminium US$ 1,924/t vs US$1,939/t yesterday

Nickel US$ 10,770/t vs US$10,880/t yesterday

Zinc US$ 2,531/t vs US$2,588/t yesterday

Lead US$ 1,941/t vs US$1,978/t yesterday

Tin US$ 19,380/t vs US$19,375/t yesterday

           

Energy:           

Oil US$61.0/bbl vs US$60.3/bbl yesterday

Natural Gas US$3.958/mmbtu vs US$4.107/mmbtu yesterday

Uranium US$28.75/lb vs US$29.75/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$66.7/t vs US$65.3/t

Chinese steel rebar 25mm US$588.7/t vs US$588.8/t

Thermal coal (1st year forward cif ARA) US$89.5/t vs US$89.0/t

Coking coal futures Dalian Exchange US$200.0/t vs US$201.0/t

           

Other:  

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

China NdPr Rare Earth Oxide US$46,367/t vs US$46,602/t

China Lithium carbonate 99% US$10,143/t vs US$10,194/t

China Ferro Vanadium 80% FOB US$103.5/kg vs US$106.5/kg

China Antimony Trioxide 99.5% EU US$6.9/t vs US$7.1/kg

 

Battery News

Drone damages Aircraft in Mexico

  • Bloomberg report significant damage to the nose cone of a Boeing 737 Aircraft near the boarder with Mexico
  • The damage is thought to have been caused by a drone hitting the nose cone which is substantially damaged

 

Company News

Bellzone Mining (LON:BZM) SUSPENDED – Bellzone liquidation effectively forced by Chinese shareholder preventing company from raising new debt or equity

  • Bellzone Mining has called in the liquidators. WH Ireland, the company’s Nominated Advisor and broker has duly resigned which will cause the company’s AIM listing to be cancelled within a month.
  • Management are not looking for a new Nominated Advisor due to the corporate straight jacket effectively imposed by the Chinese shareholder which has directly led to the decision to cease trading and appoint a liquidator.
  • Hudson Global Group (owned by China Sonangol) legally prevented Bellzone from raising any further equity or debt, putting the company into an effective corporate straightjacket from which it could not escape.
  • The Chinese may be looking to exercise security over the company’s Mining Licences but the Guinean Mining Code requires the holder of a mining title to be able to demonstrate financial and technical capabilities at all times, so these licences may be in jeopardy without a new investor and management team taking over Bellzone as a legal entity.
  • Buying the licence from the liquidator would enable a new investor to have control over the extensive exploration and metallurgical testing database compiled by the company but potential buyers should move fast.
  • Bellzone holds a number of assets for the liquidator to sell:
  • Konta Port: Bellzone holds the land title to the Konta Port in south-west Guinea which was built in 2011-12 with a design capacity of 4mtpa for bulk commodity export.
  • The Konta Port was built at a cost of around US$120m with installed bulk capacity of 4mtpa and extension up to 10mtpa.
  • The port was used by the Forecariah Joint Venture before iron ore prices collapsed in 2014 and the JV was put into administration in December 2015.
  • The port is known to be of interest to bauxite operators as the other port areas and sites to the north are all at or near-capacity. We understand the land title includes ownership of the fixed structures built on the land but moveable equipment is controlled by the liquidator of the JV.
  • Kalia: The Kalia Mining Licence over the 5.5bt iron ore JORC Resource may be negotiable, subject to agreement of the Minister of Mines; the Resource includes 913mt of oxide and 4.63bt of magnetite.
  • Bellzone published a fully-independent bankable feasibility study over the first stage of the iron ore mine in 2013, producing 7mtpa of 58% fines. The BFS included a maiden Probable Reserve of 60mt oxide iron ore, underwriting the first stage of production.
  • Bellzone built a well-equipped exploration camp (Kalia had >275,000m of drilling) and it is understood the company holds numerous diamond drill rigs and drilling consumables as well as items of "yellow kit" that may be of interest to operators in West Africa.
  • Bellzone completed a bulk sample extraction and was looking to confirm the shipping and other logistics ahead of publication of a feasibility study expected by end 2018.
  • Kalia nickel project first stage feasibility study gives an estimated NPV of $104m at a 10% discount rate at a $17,500/t nickel prices.
  • Management also report that the Bankable Feasibility Study on the high quality iron ore at Kalia gives an NPV which is positive over a range of different iron ore prices.
  • The company has a very recent Presidential Decree updating the Kalia Mining Convention and wiping away previous breaches.
  • Liquidation: The move to liquidate the company is a setback for Guinea which badly needs new mine developments to help develop its infrastructure and economy.
  • Yesterday's announcement directs enquiries to Grant Thornton in Jersey, however we understand operational management remain in place for the time being to assist the liquidator.

Conclusion:  Partners might bring promises of funding and technical support but sometimes they have different agendas and their own cash constraints.

The Chinese partner, with an opaque background and controversial earlier association (prior to involvement with Bellzone) with an executive later placed onto the OFAC list has kept Bellzone on a drip-feed since gaining 51% control in 2014.

China International Fund bought into the Bellzone for the development of the Forecariah iron ore project deep inland into Guinea.

 

Bushveld Minerals* (LON:BMN) 41p, Mkt Cap £459m – Professional investors buying Bushveld as ferro-vanadium prices pull-back to more sensible levels

BUY - Target Price 87p

(Bushveld Minerals now hold 74% of Vametco and 84% of Bushveld Energy it’s vanadium redox battery unit)

See link for last Bushveld Minerals PDF note

  • Professional investors are seen buying into Bushveld Minerals as ferro-vanadium prices pull back.
  • Investors see a relatively strong market for vanadium going forward with the pull back in prices from extraordinary price levels seen as creating an opportunity to buy Bushveld stock.
  • Ferro-vanadium prices have fallen 19.4% in China to $80-90/kg leapfrogging the western European price at $95-100/kg (Fastmarkets MB).
  • It will be interesting to see where vanadium buyers start buying metal again.
  • The China ferrochrome price has averaged $82.32/kg so far this year and will average $82.64/kg if today’s price is maintained through to the year end.
  • Interestingly, the Western European ferro-vanadium price is almost exactly the same at US$83/kg.
  • We have assumed US$85/kg in our modelling for this year indicating some adjustment.
  • Our SA rand assumption is at 13.28 per US dollar vs the average so far of 13.2.
  • We currently assume ferro-vanadium prices remain relatively high vs past years at around US$75/kg for the next two years with prices declining thereafter to US$45/kg.
  • We assume a rand to US dollar rate of 14 going forward though the South African currency may well weaken further till the next general election.
  • We believe producers will struggle to meet ongoing demand for ferro-vanadium from steel producers over the next 18 months to two years leaving very little supply available for vanadium redox batteries.
  • Bushveld Minerals is one of very few vanadium producers which will be able to raise production to meet demand at it’s planned vanadium electrolyte facilities in South Africa.
  • New demand for vanadium electrolyte should support the planning of new primary vanadium mine and processing capacity subject to orders from ESCOM supported by the World Bank, the IDC and other agencies.

Conclusion: Bushveld’s strategy to build and promote the development of vanadium redox batteries should enable the company to confidently expand while other potential new entrants struggle to gain bank finance.

 

*SP Angel act as Nomad and broker to Bushveld Minerals. *An SP Angel mining analyst and nomad have visited the Vametco in South Africa. 

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