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Today's Market View - China IP, Retail Sales and Investment within China lower than expected

Today's Market View - China IP, Retail Sales and Investment within China lower than expected

SP Angel – Morning View – Wednesday 15 05 19

China IP, Retail Sales and Investment within China lower than expected

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MiFID II exempt information – see disclaimer below 

Bushveld Minerals* (LON:BMN) BUY – Target price 90p – Operational report highlights improvements made to Vametco plant

 Savannah Resources* (LON:SAV) – High-grade 2% lithium seen at Mina do Barroso in Portugal

Solgold (LON:SOLG) – Quarterly MD&A

Tharisa (LON:THS) – Earnings drop on weaker sales and chrome prices

 

SpaceX to launch 60 satellites for the Starlink Megaconstellation

  • The 60 satellites are crammed into the payload fairing of a single Falcon 9 rocket.
  • Elon Musk’s Starlink Megaconstellation is designed to create relatively cheap global broadband coverage.
  • The Megaconstellation will require a further six successful launches to create minor Starlink coverage with another 12 further launches to boost coverage to moderate.
  • Let’s hope these are just broadband satellites? Something in this reminds me a little of James Bond and Diamonds are Forever.

 

Dow Jones Industrials

 

+0.82%

at

  25,532

Nikkei 225

 

+0.58%

at

  21,189

HK Hang Seng

 

+0.87%

at

  28,368

Shanghai Composite

 

+1.91%

at

   2,939

FTSE 350 Mining

 

-0.07%

at

  18,836

AIM Basic Resources

 

+0.20%

at

   2,006

 

Economics

China – Weaker than expected economic data out of China

  • China Industrial Production and Retail Sales and Investment within China all came in lower than expected
  • President Xi Jinping said Wednesday that Asian people expect a peaceful and stable Asia

 

Iraq – US orders all non-emergency government employees to leave Iraq right away

 

Sweden – looking for open trade for autos in the US-China trade war

 

South Africa – official unemployment rises to 27.6% in Q1

  • Two SARS officials sentenced to three years in jail for taking ZAR200,000 bribes.
  • Word is there is allot of corruption to clean up and many officials have dirt on each other within the SA Revenue service.

 

Currencies

US$1.1207/eur vs 1.1239/eur yesterday.  Yen 109.57/$ vs 109.72/$.  SAr 14.258/$ vs 14.241/$.  $1.291/gbp vs $1.294/gbp.  0.692/aud vs 0.695/aud.  CNY 6.867/$ vs  6.874/$.

 

Commodity News

Precious metals:         

Gold US$1,295/oz vs US$1,298/oz yesterday

   Gold ETFs 70.5moz vs US$70.5moz yesterday

Platinum US$855/oz vs US$861/oz yesterday

Palladium US$1,331/oz vs US$1,332/oz yesterday

Silver US$14.79/oz vs US$14.80/oz yesterday

           

Base metals:   

Copper US$ 6,074/t vs US$6,044/t yesterday

Aluminium US$ 1,840/t vs US$1,812/t yesterday

Nickel US$ 12,020/t vs US$11,780/t yesterday

Zinc US$ 2,623/t vs US$2,588/t yesterday

Lead US$ 1,819/t vs US$1,795/t yesterday

Tin US$ 19,800/t vs US$19,360/t yesterday

           

Energy:           

Oil US$71.0/bbl vs US$70.4/bbl yesterday

Natural Gas US$2.658/mmbtu vs US$2.641/mmbtu yesterday

Uranium US$24.60/lb vs US$24.65/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$90.8/t vs US$92.0/t

Chinese steel rebar 25mm US$622.3/t vs US$627.8/t

Thermal coal (1st year forward cif ARA) US$69.2/t vs US$69.4/t

Coking coal futures Dalian Exchange US$183.5/t vs US$179.5/t

           

Other:  

Cobalt LME 3m US$34,500/t vs US$34,500/t

NdPr Rare Earth Oxide (China) US$39,103/t vs US$39,065/t

Lithium carbonate 99% (China) US$9,685/t vs US$9,675/t

Ferro Vanadium 80% FOB (China) US$46.0/kg vs US$47.0/kg

Antimony Trioxide 99.5% EU (China) US$6.0/kg vs US$6.0/kg

Tungsten APT European US$270-280/mtu vs US$270-280/mtu

 

Battery News

VW looks to new battery cell factory to support planned EV production

  • VW plans to build a new battery factory to support ambitions to produce some 3m Electric Vehicles a year following the Dieselgate scandal.
  • The company currently has battery supply contracts worth US$48bn with existing battery manufacturers leaving VW at the mercy of cell manufacturers and potential supply chain disruption. The new gigawatt-hour scale factory is to be based in Germany.

 

Company News

Bushveld Minerals* (LON:BMN) 28p, Mkt Cap £308m – Operational report highlights improvements made to Vametco plant

BUY – Target price 90p from 87p

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  • Production: Bushveld’s Vametco vanadium mine and plant produced 649mtV in Q1 2019 vs 657 mtV in Q4 last year.
  • Sales: some 508mtV was sold in the quarter down 26.5% yoy and 13.5% lower than the last quarter.
  • The ferro-vanadium is sold as in the form of NitrovanTM, a vanadium-nitrogen product that strengthens steel more efficiently than ferrovanadium. This strengthening mechanism allows steelmakers to use less vanadium in high-strength low alloy steels and reduce vanadium costs by as much as 40%.
  • Management have started a number of productivity initiatives to raise production and efficiency starting with:
    • increasing crusher and mill availability and throughput rates to increase concentrate production;
    • improved kiln availability, hourly feed rate and recoveries;
    • higher leach plant recoveries;
    • better organisational health.
    • Phase 3 Vametco: production in excess of 4,200mtV or ~85% of 5,000mtV pa capacity
    • Tailings project at Vametco to be completed in the second half
    • Kiln off-gas project to comply with regulatory requirements and increase kiln feed throughput with commissioning planned for end-Q2 2019.
    • Vanchem: the acquisition will take time to complete and integrate into the group.
    • We are cautious in our expectations on timing and look forward to the development of a new mine at Mokopane to provide additional high-grade feedstock for the restoration of capacity at Vanchem.
    • Vanadium prices fell 32% on the last quarter but were 19% higher yoy, though vanadium prices have continue to fall due to lower than expected demand in Western Europe and in China.
      • Ferro-vanadium prices appeared to stabilise in Western Europe late last week following recent falls at $36.4-38.75/kgV (FastmarketsMB).
      • Despite this Ferro-Vanadium prices in China fell 12.5% to $44-47/kgV, though this is still stronger than the European price where there is relatively little buying activity.
      • The lack of buying in ferro-vanadium in Europe reflects a significant downturn in economic activity caused by recession in Italy and potential recession in Germany which has been slowing in recent months.
    • better in-pit geology, mine scheduling, grade and silica control for kiln feed;
  • The initiatives are already showing progress with March production of 270mtV indicating a potential annual run rate of potentially 3,240mtV.
  • Vametco vanadium production guidance for 2019 is 2,800-2,900mtV representing a 9-13% production increase on last year.
  • Phase 2 Vametco: production should see 3,400mtV ~90% of 3,750mtVpa capacity:

Conclusion: Bushveld have implemented a range of measures to optimise production and improve performance at the Vametco plant. The review and the implementation of new process controls should work well from a cost and productivity perspective and these processes should also serve to benefit the restart of production at Vanchem following the finalisation of its acquisition. The increase in production and reduction in unit costs should ensure Buchveld is well placed as a major player in the vanadium supply chain and is able to supply sufficient vanadium for a significant number of Grid-Scale, Vanadium Battery storage units going forward.

*SP Angel acts as Nomad & broker to Bushveld Minerals. 

Vanadium Sales should be in mtv

 

 Savannah Resources* (LON:SAV) 5.6p, Mkt Cap £49m – High-grade 2% lithium seen at Mina do Barroso in Portugal

  • Savannah Resources report a 22m intersection of 2% Li2O at Aldeia Block A on the Mina do Barroso project in Portugal.
  • The presence of such a high grade intersection is extremely encouraging from a mining and cost perspective.
  • Drill results at the Aldeia deposit include:
    • 45m at 1.67% Li₂O from 89m, including 22m at 2.00%
    • 31.7m at 1.47% Li₂O from 80m
    • 31.5m at 1.14% Li₂O from 114m
    • 17m at 1.48% Li₂O from 96m
    • 24m at 1.40% Li₂O from 117m
    • 21m at 1.17% Li₂O from surface

Grandao reverse circulation drill results show additional near surface extensions to the existing mineralisation:

    • 12m at 1.08% Li₂O from 28m
    • 6m at 1.70% Li₂O from 36m
  • Exploration shows pegmatite mineralisation over a 250m strike traced to 120m depth at Min do Barroso
  • Drilling at Aldeia also shows 250m of strike along with higher grade lithium grades
  • The team have now done >30,000m of drilling in <21 months highlighting rapid progress at site.

Conclusion: Savannah have done well with their exploration Portugal. The latest drill results suggest there will be meaningful expansion in the scale of the current 23.5mt 1.02% Li20 resource. The higher grades shown may also lead to a increase of the resource grade in some areas which will help the economics of the project. VW, Northvolt and others are looking to build battery factories in Europe with the potential to buy in significant local feedstock. This should see Savannah well placed as potentially Europe’s premier lithium spodumene miner with good support form the European Union to help fast track the project into production.

*SP Angel acts as Nomad to Savannah Resources

 

Solgold (LON:SOLG) 40p, Mkt Cap £739m – Quarterly MD&A

  • Solgold released its quarterly MD&A report including exploration update on its assets and the Company’s financial position.
  • The Company recorded a A$3.8m loss before tax during the quarter (Q3/FY18: -A$5.1m) most of which was driven by A$3.9m in admin costs (Q3/FY18: -A$5.5m).
  • Cash expenditure for nine months of FY19 totalled A$93.4m (2018: A$60.0m) with A$97.4m received from the issue of shares to BHP, the exercise of options and share placements from ‘top-up’ rights held by BHP and Newcrest.
  • Total capitalised exploration expenditure for the first nine months of the FY19 amounted to A$81.0m most of which went into Cascabel (A$67.8m or 84% of the total).
  • Closing cash balance stood at A$87.6m
  • 10 drilling rigs are currently active at the site going at c.10,000m per month rate with the Company having completed over 200,000m of diamond drilling to date.
  • The 2019 drilling programme is focused on expansion of the resource at Alpala and in the surrounding areas as well as infill drilling to increase the existing mineral resource confidence level.
  • In particular, three rigs are focused on resource upgrade drilling, five on resource expansion and two on geotechnical, hydrogeological and sterilisation drilling.
  • The Company highlights that 56,408m of drilling was completed at Alpala since the latest resource update with some 6,654m of recent drilling assay results pending.
  • Potential for upgrades to the current resource is further highlighted by discoveries of previously unknown high grade (>1.5%CuEq) and medium grade (>0.7%CuEq) mineralisation intersected within existing low grade Inferred Resource including results from Trivinio (Hole 93), Alpala North (Hole 75), Alpala Northwest (Hole 86), and Alpala South (Hole 89).
  • The PEA study is currently underway with a PFS level report targeted for end 2019.

*SP Angel acts as broker and advisor to Solgold. SP Angel have raised funds for SolGold on eight previous occasions.

 

Tharisa (LON:THS) 108p, Mkt Cap £285m – Earnings drop on weaker sales and chrome prices

  • The Company produced 614.1kt (-16.2%yoy) of chrome concentrates, including 148.1kt (-14.7%yoy) of the specialty grade chrome concentrates, and 67.6koz (-12.2%yoy) of PGMs in H1/FY19.
  • The decline was predominantly driven by lower processing facilities’ feed (-10.0%yoy) as the team continues to waste stripping operations in the open pit.
  • Recoveries weakened during the period as the team tested processing of tailings with PGM recoveries averaging 80.7% (83.2% in H1/18) and chrome recoveries coming in at 60.8% (65.9% in H1/18).
  • Realised PGM prices were up 11.9% in US$ terms and 23.9%yoy in ZAR terms helped by increases in palladium and rhodium components as well as a 10.9% depreciation in SA rand.
  • Met grade chrome concentrate price dropped to $163/t CIF China (-15.5%yoy).
  • Sales dropped to $166.5m (-16.4%yoy) on the back of highlighted lower sales and weaker chrome prices.
  • Cash costs per tonne milled were up at $39.1/t (+7.4%yoy) with the Company reporting an above inflation increase in diesel costs to ZAR14.22 (+18%yoy) which account for 14% of mining costs.
  • The Company also highlighted a temporary interruption to crusher and milling circuits in Mar/19 amid Stage 4 load shedding policy in South Africa; the team decided to add standby diesel generators to mitigate the risk of that happening in the future.
  • EBITDA was down at $30.1m (-44.4%).
  • PBT and PAT totalled $10.2m (-72%yoy) and $8.2m (-71%), respectively.
  • FCF amounted to $17.1m (-46%yoy) after accounting for $24.3m (+38%yoy) in capex.
  • Net debt closed at low $7.9m v $61m in annualised EBITDA.
  • The Company will pay a $0.5 cent per share dividend in line with the 15% of PAT policy.

 

Conclusion: Weaker interim earnings numbers reflect lower production rates and a decline in chrome prices. The team reiterated the outlook for 150koz PGM and 1.4mt chrome concentrates production (including 350kt specialty grade) for the year. Vision 2020 remains in place seeing the Company growing its production profile to 200kozpa PGMs and 2.0mtpa chrome concentrates next year.

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