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Today's Market View - China likely to weaponise Rare Earths in trade war revenge

Today's Market View - China likely to weaponise Rare Earths in trade war revenge

SP Angel – Morning View – Monday 22 05 19

China likely to weaponise Rare Earths in trade war revenge

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Acacia Mining (LON:ACA) – Barrick makes progress in discussions with Tanzanian Government

Bushveld Minerals* (LON:BMN) BUY – Target price 90p – Vametco ore reserve grade rises to 2.02% as reserve more than doubles to 279,100t of V2O5 in magnetite

Greatland Gold (LON:GGP) – Newcrest Mining starts drilling at Havieron

IronRidge Resources* (LON:IRR) – Metallurgical results yield premium lithium

URU Metals* (LON:URU) – Zebediela project update

 

We are now back from talking to mining investors and companies at the 121 Mining Investment Conference in London

  • Company and investor meeting schedules appeared to be full.
  • Directors and investors sounded relatively happy with the way it all worked.
  • We will summarise some of the better ideas to come out of our meetings going forward.
  • If you are trying to work out which companies offer the best prospects please feel free to contact us for our professional view.

 

Unmanned 12-meter ship to cross Atlantic without crew

  • The development of crew-less ships to cross the oceans feels like a positive development.
  • The ship is to conduct deep sea surveys on its route to the UK.
  • Ships that do not need to accommodate people carry significant economic advantage over crewed shipping.
  • Controls can be managed on land with significant health, safety and economic benefits.

 

China looks to flex its dominance on the rare earth industry

  • A highly publicised visit by Chinese president Xi Jinping to rare earths magnet maker serves to highlight in the country’s escalating trade war with the US it still holds a few fundamental cards if things get worse.
  • Last week the Global Times, a state-owned Chinese newspaper, published two articles that described the US reliance on rare earths as “an ace in China’s hand” that could be used to pressure President Donald Trump.
  • Most importantly, the visit to magnet producer JL Mag Rare-Earth in Jiangxi province in south-eastern China demonstrates the nation is the major player in downstream industrial supply chains.
  • The symbolic visit by Mr Xi follows the US decision last week to blacklist Chinese telecoms company Huawei, which threatened to send such shockwaves through the global tech industry that Washington was forced on Monday to allow a three-month grace period before the move takes full effect.
  • The weakness for the US is not the mined rare earths…but processed rare earths or the products like magnets and batteries further down the supply chain”, said David Abraham, author of ‘The Elements of Power: Gadgets, Guns, and the Struggle for a Sustainable Future in the Rare Metal Age’.
  • Rare earths are fed into complex downstream components, such as magnets, sensors or instrument panels, with any new tussles centres on crucial technology products.
  • Managing director at Adamas Intelligence adds the visit is “signalling they know its not only important to US high-tech industries – electric vehicles, wind – but also defence.”
  • Years of industrial policies, including export quotas and investment incentives, enticed the rare earths downstream processing industry to relocate to China from a traditional base in Japan.
  • The US is highly reliant on Chinese imports, sourcing 80% rare earth compounds and metals, worth $160m – up 17% from a year earlier, according to USGS data.
  • Other major imports from Estonia, France and Japan (accounting for an additional 12%) were derived from mineral concentrates and chemical intermediates produced in China.
  • Looking to capitalise on growing supply concerns in the US market, Lynas Corp is forming a joint venture with Blue Line Corp to build a rare earth separation facility in Hondo, Texas. The plant would be the only large-scale producer of separated medium and heavy rare earth products in the world outside of China, it said.
  • Lynas’ future at its current Malaysian facility remains uncertain due to low-level radioactive waste.
  • Demand for rare earths is expected to increase more than 8% through 2019 due to rising sales of electric cars, according to consultancy Roskill.
  • Investors are following the developments, with VanEck Vectors Rare Earth/Strategic Metals ETF surging the most since 2011 on the growing risk Beijing will weaponise rare earths.  

 

Dow Jones Industrials

 

+0.77%

at

  25,877

Nikkei 225

 

+0.05%

at

  21,283

HK Hang Seng

 

+0.22%

at

  27,718

Shanghai Composite

 

-0.49%

at

   2,892

FTSE 350 Mining

 

+0.35%

at

  19,221

AIM Basic Resources

 

+1.59%

at

   2,011

 

Economics

 

Currencies

US$1.1153/eur vs 1.1180/eur last week  Yen 110.40/$ vs 109.70/$  SAr 14.375/$ vs 14.284/$  $1.266/gbp vs $1.279/gbp  0.688/aud vs 0.689/aud  CNY 6.912/$ vs 6.908/$

 

Commodity News

Precious metals:         

Gold US$1,273/oz vs US$1,287/oz last week

   Gold ETFs 70.6moz vs US$70.4moz last week

Platinum US$812/oz vs US$827/oz last week

Palladium US$1,314/oz vs US$1,315/oz last week

Silver US$14.41/oz vs US$14.53/oz last week

           

Base metals:   

Copper US$ 5,974/t vs US$6,035/t last week

Aluminium US$ 1,794/t vs US$1,847/t last week

Nickel US$ 12,010/t vs US$12,085/t last week

Zinc US$ 2,562/t vs US$2,602/t last week

Lead US$ 1,809/t vs US$1,819/t last week

Tin US$ 19,330/t vs US$19,430/t last week

           

Energy:           

Oil US$71.7/bbl vs US$72.6/bbl last week

Natural Gas US$2.617/mmbtu vs US$2.633/mmbtu last week

Uranium US$24.60/lb vs US$24.65/lb last week

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$98.6/t vs US$95.3/t

Chinese steel rebar 25mm US$621.4/t vs US$617.2/t

Thermal coal (1st year forward cif ARA) US$69.0/t vs US$69.7/t

  • The world’s largest miner, BHP Group, sees the outlook for thermal coal as challenging and refuse to prioritise production, increase shifting focus to commodities tied to the green economy.
  • CFO Peter Beaven reports there’s the prospect that the material will be “phased out, potentially sooner than expected”, and the producer has “no appetite for growth in energy coal regardless of asset attractiveness”.
  • BHP follows its biggest competitors Rio Tinto Group and Glencore PLC in questioning the future role of coal used for power generation, as investors press for more action to tackle climate change and tighten restrictions on holding companies that produce the fuel.
  • While thermal coal will remain a large market, the company expects demand “to plateau and then decline”.
  • We have options in copper and oil, but we need more, and we are interested in adding more nickel sulphide resource to our portfolio,” he said. “We do not need to do M&A, but we never discount it as a way to acquire great resource bases, especially early in the life of a project.”
  • BHP said last week it would retain its Nickel West operation in Western Australia for exposure to growth in electric vehicle battery markets, though sees related metals like lithium and cobalt as less attractive, Beaven said.

Coking coal futures Dalian Exchange US$196.1/t vs US$178.8/t

           

Other:  

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

NdPr Rare Earth Oxide (China) US$40,219/t vs US$38,286/t

Lithium carbonate 99% (China) US$9,621/t vs US$9,626/t

Ferro Vanadium 80% FOB (China) US$41./kg vs US$44./kg

Antimony Trioxide 99.5% EU (China) US$5.9/kg vs US$5.9/kg

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

 

Company News

Acacia Mining (LON:ACA) 151.2p, Mkt Cap £620m – Barrick makes progress in discussions with Tanzanian Government

  • Acacia Mining reports that its principal shareholder, Barrick Gold “has made significant progress towards finalising a proposed resolution [with the Government of Tanzania (GoT)], and provided the Company with a set of documents which it has indicated have been extensively negotiated but not yet finalised.”
  • The Acting Chairman of the Government’s negotiating team, which has been in discussions with Barrick Gold, is reported to have stated in a letter “that the GoT is resolved that it will not execute final agreements for the resolution of the Company’s disputes if the Company is one of the counterparties to the agreements, and that it will only sign such agreements "if satisfied that substantial changes have been made to the management style of the Operating Companies and of their shareholders" ”
  • Acacia Mining also “notes that it has received today an indicative proposal from Barrick to acquire all the issued and to be issued share capital of the Company not already owned or controlled by Barrick.  The consideration would be in the form of new common shares in Barrick, with Acacia shareholders receiving 0.153 of a new common share of Barrick for every ordinary share in Acacia”.
  • The reported statements appear to confirm that there has been a deep-seated breakdown of relations between Acacia Mining and its host Government in Tanzania which, as has been known for some time,  is negotiating directly with Acacia’s main shareholder, Barrick Gold.
  • The news of an indicative offer from Barrick Gold to take Acacia back into full ownership, were the offer to be pursued, may provide a route out of the impasse and appears at this stage to be part of the price the Tanzanian Government will exact to facilitate a normalisation of the relations.
  • The recent quarterly report outlines operational improvements, in particular at the North Mara Mine, which may be able to proceed more smoothly if relations with the Government return to a more “normal” footing. We look forward to further news

 

Bushveld Minerals* (LON:BMN) 28.5p, Mkt Cap £319m – Vametco ore reserve grade rises to 2.02% as reserve more than doubles to 279,100t of V2O5 in magnetite

BUY – Target price 90p (Bushveld Minerals hold 9.5% of AfriTin which has the Uis mine in Namibia) (Bushveld holds 71% of the Vametco mine and process plant in South Africa)

(Bushveld recently agreed to buy 100% of the Vanchem process plant and associated mine in South Africa)

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  • Bushveld Minerals report a significant increase in the grade and scale of the vanadium reserve at the Vametco mine in South Africa.
  • Drilling and reserve evaluation shows the grade to has risen to 2.02% V2O5 in magnetite from 1.96% estimated previously.
  • This is a meaningful increase in the grade and shows the Vametco to still rank as one of the world’s highest grade vanadium mines.
  • Ore reserves have also rise to 279,100t of contained vanadium in magnetite from 137,152t previously.
  • Indicated resource, which are less well defined, also rises by 187% to 965,900t of V2O5 in magnetite due to a number of recently completed drill holes.
  • Probable ore reserves are 48.4mt across the three seams averaging a grade of 2.2% V2O5 and an average magnetite content of 28.5% in whole rock.
  • The Lower seam varies from 13.8-52m in thickness with 40.2mt grading a higher 2.05% V2O5.in magnetite and an average magnetite of 29.4% for 135,600t of vanadium.
  • The figures reflect the work done on the geology and an new focus on better managing and scheduling the mine which should add meaningfully to the operations.

Ferro-vanadium

  • Ferrovanadium prices stabalised at $35-36/kgV in Europe last week.
  • Prices are now at $35-39kgV in China having fallen to better match European levels.
  • European buyers have held back from vanadium purchases due to slowing German and Eurozone economic growth, recession in Italy and the potential impact of Brexit.

AfriTin facility

  • Bushveld Minerals have agreed to provide working capital support financing for ~$2.1m to AfriTin.
  • The 12-month facility to AfriTin is intended to provide working capital through the commissioning of AfriTin’s ‘Uis’ tin mine later this year.
  • The standby facility interest rate is at 12.5% and is secured against AfriTin’s process plant though it would be odd if having spun off AfriTin if Bushveld were to effectively repossess the operation.
  • Certain conditions apply to the drawdown including the completion of a £3m funding at AfriTin.

Share price movements

  • Bushveld management commented yesterday on the company’s share price movement.
  • Management state “it is not aware of any corporate developments that support such a movement. The Company notes the recent falls in the Vanadium price but believes the vanadium market remains in a structural deficit that will support higher prices in the medium to long term”.
  • The stock which opened at 22.75p yesterday morning and fell a further 11% to 19.5p then rallied by around 50% to 29.5p following the announcement.
  • We are sorry if any short-sellers were hurt in yesterday’s rally.

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

 

Greatland Gold (LON:GGP) 1.625p, Mkt cap £54m - Newcrest Mining starts drilling at Havieron

  • Greatland Gold reports that Newcrest Mining has started drilling an initial 10,000m programme as part of its farm-in under to earn a 70% interest in the Havieron gold project located some 45km east of Newcrest's Telfer gold mine in the Paterson region of Western Australia.
  • The drilling, funded by Newcrest, aims to “define the extent of the mineralisation along strike and at depth, testing the system to a depth of 1,000 metres below surface”.
  • The region is attracting the interest of major mining companies with Newcrest spending US$65m to earn its interest in the Havieron project and Rio Tinto advancing its own Winu discovery as well as currently earning a 75% interest in Antipa Minerals’ nearby Citadel project.
  • “Greatland is seeking to identify large mineral deposits in areas that have not been subject to extensive exploration previously.  It is widely recognised that the next generation of large deposits will come from such under-explored areas and Greatland is applying advanced exploration techniques to investigate a number of carefully selected targets within its focused licence portfolio”.

Conclusion: Havieron is located in a newly emerging area of exploration interest for the major mining companies. We look forward to results from the Newcrest funded drilling at Havieron.

 

IronRidge Resources* (LON:IRR) 16.5p, Mkt Cap £51.1m – Metallurgical results yield premium lithium

  • IronRidge Resources report successful metallurgical test-work results from the Ewoyaa Lithium Project, one of multiple pegmatite targets in the Cape Coast portfolio in Ghana, W. Africa.
  • Preliminary metallurgical test-work at NAGROM Laboratories in Perth, W. Australia, confirms dominant spodumene minerals; the preferential customer feedstock for the advancing electric revolution. Representative samples of coarse and fine pegmatite units were collected on seventeen composite samples for a total 427kg of material.
  • Two observed pegmatites have been observed in drilling to date; coarse ‘P1’ and finer grained ‘P2’, with early core results suggesting roughly equal proportions of both types.
  • Test-work focuses on assessing mineralisation amenability to gravity beneficiation using Heavy Liquid Separation (‘HLS’) and flotation beneficiation.
  • Work included initial HLS screening to determine preferred crush size on one composite of each P1 and P2, variability HLS test-work at the defined 6.3mm crush on sixteen P1 and P2 composites and flotation test-work on one P2 fine grained pegmatite.
  • Crushed samples clearly indicate an improvement in recovery and grade with finer crushing to 6.3mm and marginal improvement after that, which compares to a number of other lithium projects either in operation or under development.
  • HLS data highlights coarser P1 mineralisation responds very well to beneficiation by gravity, with 71.5% of the lithium being recovered into 18.6% of the mass at a grade of 6.2% Li2O.
  • Finer grained P2 mineralisation displayed expected lower gravity recoveries with 34% being achieved at a grade of 5.03% Li2O using a 6.3mm crush size. While low, recovery is considered economic and when combined with flotation recovery on the middlings and fine material, is expected to result in much better and economic recoveries.
  • Future work on P2 mineralisation will focus on increasing overall recovery by using flotation as well as gravity.
  • P1 samples also produced excellent results in terms of both grade; well above industry standard 6% across recoveries, which range 69% to 85%. Further optimisation tests the gravity recovery by lowering the grade, but still maintaining an overall grade greater than 6% Li2O.
  • Results also yield low iron content, generally below the nominal threshold of 1% Fe2O3.
  • Flotation test-work on a sample of fine P2 mineralisation, the most challenging, achieved good recoveries but requires additional work.
    • First run did not incorporate a mica pre-flot and, whereas the lithium recovery was very good at 89.8%, the concentrate was contaminated and could only be raised to 4.37% Li2O after several stages of cleaning.
    • The second test incorporated a mica pre-flot and the grade immediately increased to 6% Li2O, however there was a drop in recovery to 56.5%. However, impurity levels of potassium mica reduced, important for downstream conversion plants.
    • The third test used a different collector and, although the grade dropped to 4.2% Li2O, the recovery increased again to 95.4 %.
  • The Company is planning follow-up metallurgical test-work on larger 20-50kg composites from material already held at NAGROM Laboratories from the diamond drill programme, including larger scale Dense Media Separation DMS100 cyclone gravity beneficiation.
  • Field teams are also advancing the Ewoyaa West target, where pitting and trenching has defined pegmatites over a 700m strike and up to 100m width at surface, approximately 700m west of the main Ewoyaa deposit.

Conclusion: Initial metallurgical test-work is significant for IronRidge and SP Angel are very pleased to see concentrate grades above the magical 6% benchmark for premium material. We look forward to understanding further processing developments and the scale of mineralisation at the Ewoyaa project.

*SP Angel act as nomad and broker to IronRidge Resources

 

URU Metals* (LON:URU) 142.5p, Mkt Cap £1.1m – Zebediela project update

  • URU has provided a review of its Zebediela nickel and platinum group metals project in S Africa where it has identified  a six-hole proposed drilling programme “with the intention of increasing the strike extent of Nickel Platinum Group Element, ("Ni-PGE") mineralisation and to target a maiden Inferred JORC resource of up to 60 Million tonnes of Ni-PGE mineralisation. This target resource will be dependant on the successful intersection of Ni-PGE mineralisation, as well as the extent and continuity of the mineralisation intersected.”
  • The company is also intending “to submit a Mining Right Application to the South African Department of Mineral Resources to enable the Company to extend the validity of the Zebediela mineral rights for a further 30 years once the current prospecting right expires in December 2021, as per South African legislation.”
  • The licence extension, in conjunction with the submission and approval of the required Environmental Authorisations will be necessary pre-requisites of further progress towards a production decision, however, the proposed drilling programme is estimated to require a US$1m budget although the company cautions that “this budget has not been finalised and is based on management internal assumptions. As such, the Company will need to seek further funding to allow the work programme to be undertaken”.

Conclusion, URU Metals has outlined a planned US$1m drilling programme which should lead to a subsequent mineral resource estimation as well as its plans to make licence and environmental submissions to the relevant authorities. Apparently in response to press speculation, the company has undertaken to “update the market with regard to any funding as soon as any funding has been secured”.

*SP Angel acts as Nomad and broker to URU Metals

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