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Today's Market View - Iron ore hits USD108.5 per tonne

Today's Market View - Iron ore hits USD108.5 per tonne

SP Angel – Morning View – Wednesday 26 05 19

Iron ore hits USD108.5 per tonne

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MiFID II exempt information – see disclaimer below  

Bluejay Mining* (LON:JAY) STRONG BUY – Marine resource adds 300-530mt to existing indicated Dundas ilmenite resource in Greenland

                                                                             – Rio Tinto smelter test on Bluejay ilmenite - traditionally smelter tests runs can be up to 10,000t of ilmenite

Keras Resources* (LON:KRS) BUY, Target price 1.04p – Move to production waiting on ministerial approval in Togo

MOD Resources (LON:MOD) 16.75p, Mkt cap £50.9m – Chairman’s comments at AGM

Premier African Minerals* (LON:PREM) 0.08p, Mkt Cap £6.4m – Issue of shares

Strategic Minerals* (LON:SML) 1.75p, Mkt Cap £24.6m – Rescheduling of acquisition payments to New Age Exploration

 

Chelsea to play Arsenal in Baku, Azerbaijan tonight

  • We hope the fans enjoy Baku today. In our view it’s one of the world’s nicest cities to visit.

 

Iron ore prices rise to US$102.5/t despite rise in transaction fees on the Dalian Commodity Exchange

  • Ongoing problems with Vale tailings dams in Brazil combined with strong demand for iron ore in China.
  • While premium product iron ore prices came off from its new high yesterday, lower quality iron ore fines prices continued to rise.
  • 62% fines hit an all-time high of $108.50/t on news that Vale could see further restrictions in Brazil. 58% fines traded at $91/t CFR Quingdao.
  • The rise in exchange fees are reported to have hit steel rebar and other metals prices.

 

Scrap import licenses to be issued by end June (Reuters)

  • The China Nonferrous Metals Industry Association reports it is to formally accept applications for import licenses from 1st July.
  • China continues to tighten up on its scrap imports with the agency restricting imports of high-grade category 6 copper scrap, aluminium and steel scrap.

 

China threatens use of Rare Earth exports in trade war

  • China’s planning experts at The National Development and Reform Commission have moved a step closer to weaponising Rare Earths in the trade war with the US.
  • “if anyone wants to use products made from rare earth to curb the development of China, then the people of the revolutionary soviet base and the whole Chinese people will not be happy,” according to the NDRC (FT).
  • We wonder if President Trump will threaten to restrict sales of Big Mac’s, Coca-Cola or Harley Davidson’s in retaliation.
  • Last time China threatened to restrict sales of REEs into Japan, the Japanese retaliated with proposed restrictions on the export of Japanese porn into China.
  • How low can this all go!

 

Dow Jones Industrials

 

-0.93%

at

  25,348

Nikkei 225

 

-1.21%

at

  21,003

HK Hang Seng

 

-0.14%

at

  27,351

Shanghai Composite

 

+0.50%

at

   2,924

FTSE 350 Mining

 

+1.50%

at

  19,260

AIM Basic Resources

 

-0.61%

at

   1,966

 

Economics

US – Bond yields drop on global growth concerns and as the China/US trade standoff does not show any signs of easing.

  • The yield on the benchmark 10y US Treasury note hit 2.268% yesterday, the lowest close since Sep/17, as chances of the Fed opting to cut rates are seen increasingly likely.
  • US rates futures are pricing in two cuts by the FOMC by the middle of next year.
  • The yield curve inverted again with the spread between 10y and 3m bond yields falling to -12bp, the most since 2007, and breaking pas the March level.
  • Global equity indices are trading lower while gold and the Japanese yen climb on risk aversion.
  • Consumer confidence climbed to the highest level since November last year helped by strong labour market and increasing wages, according to the Conference Board Index.
  • The gauge of views on the present situation increased to the highest since Dec/00, while expectations sub-index increased to a six-month high.

 

China – Economic outlook weakened in May following worse-than-expected performance recorded in the previous month, according to a Bloomberg Economic gauge.

  • The slowdown is seen broadly led by the rise in tariffs and US administration moves to limit access of Chinese tech companies to US products and partnerships with US businesses.
  • Economists are expecting the official manufacturing PMI (to be released on Friday) to slip back into a contraction territory and come in at 49.9 on trade war risks.

 

UK – Services firms report the biggest fall in the volume of work since Aug/12 as well as being “extremely negative” about the outlook for the year ahead, according to the Confederation of British Industry data.

  • Investments are expected to drop at the fastest pace since 2010 as businesses remain uncertain over the course of the UK status in the EU.
  • “Brexit paralysis continues to take a toll on the UK’s services firms… profits, optimism and investment spending are falling sharply amidst a torrid operating environment,” CBI economist said.
  • On a separate note, Matt Hancock, Britain’s Health Secretary and one of the Conservative candidates for the PM role, said he would not pursue no-deal Brexit, FT reports.
  • While he did not rule out requesting a further Brexit delay beyond October 31, Hancock is planning to focus on securing “a majority in parliament” to see through a deal.
  • Health Secretary also ruled out a second referendum.

 

France – Inflation continued to slide in May with hitting the lowest level since the end of 2017.

  • Tighter labour market is yet to translate into stronger consumer prices’ growth while a pick-up in oil prices seen since the start of the year has not yet helped inflation.
  • ECB policymakers during the April meeting expressed concern that inflation remained “uncomfortably below the Governing Council’s inflation aim”, while this month’s reports are unlikely to alleviate those concerns.
  • CPI (%mom/yoy): 0.2/1.1 v 0.4/1.5 in April and 0.3/1.2 forecast.

 

Tanzania – The government will no longer allow Acacia Mining to manage its mines in the country and will only work with Barrick Gold to resolve the two-year impasse, a government spokesman said.

  • “We will no longer work with Acacia… under no circumstances can Acacia be a party to the agreements, or have any role in the operation or management of the Barrick mining subsidiaries in Tanzania.”
  • Barrick offered to buyout Acacia minority shareholders last week while Acacia advised its shareholders not to take any action as it verifies Tanzania’s position on the matter.
  • Barrick offered 0.153 Barrick shares for each of Acacia share valuing the Company at $787m, which was below the $832m market capitalisation at the time.

 

Currencies

US$1.1161/eur vs 1.1199/eur yesterday. Yen 109.22/$ vs 109.47/$. SAr 14.815/$ vs 14.425/$. $1.266/gbp vs $1.267/gbp. 0.692/aud vs 0.690/aud. CNY 6.909/$ vs 6.904/$.

 

Commodity News

Precious metals:         

Gold US$1,283/oz vs US$1,284/oz yesterday

   Gold ETFs 70.4moz vs US$70.6moz yesterday

Platinum US$798/oz vs US$805/oz yesterday

Palladium US$1,347/oz vs US$1,326/oz yesterday

Silver US$14.41/oz vs US$14.59/oz yesterday

        

Base metals:   

Copper US$ 5,938/t vs US$5,981/t yesterday

Aluminium US$ 1,802/t vs US$1,807/t yesterday

Nickel US$ 12,130/t vs US$12,320/t yesterday

Zinc US$ 2,543/t vs US$2,565/t yesterday

Lead US$ 1,810/t vs US$1,823/t yesterday

Tin US$ 19,180/t vs US$19,300/t yesterday

           

Energy:           

Oil US$69.6/bbl vs US$68.4/bbl yesterday

Natural Gas US$2.586/mmbtu vs US$2.581/mmbtu yesterday

Uranium US$24.10/lb vs US$24.30/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$102.5/t vs US$99.9/t -

Chinese steel rebar 25mm US$616.9/t vs US$623.6/t

Thermal coal (1st year forward cif ARA) US$67.2/t vs US$66.7/t

Coking coal futures Dalian Exchange US$197.8/t vs US$196.3/t

           

Other:  

Cobalt LME 3m US$33,500/t vs US$34,250/t

NdPr Rare Earth Oxide (China) US$47,001/t vs US$48,524/t

Lithium carbonate 99% (China) US$9,617/t vs US$9,632/t

Ferro Vanadium 80% FOB (China) US$36.5/kg vs US$39.0/kg

Antimony Trioxide 99.5% EU (China) US$5.7/kg vs US$5.9/kg

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

 

Renewable News

Seventh US town to run on 100% renewable energy, starting on 1 June

  • Glenwood Springs, Colorado is moving to run on renewable energy using mainly wind power and supplied by the Municipal Energy Agency of Nebraska (MEAN) and <7% hydropower.
  • The move should also cut electricity bills with prices forecast to fall to $46/MWh from $51/MWh saving the city $500,000pa.

Juwi Hellas – to build a 204MW solar park in Greece this year with grid connection in 2021

  • Target >300mkWh pa.  Juwi Hellas is a subsidiary of Juwi based in Germany which has 100 MW worth of solar already running.

 

UK – coal free for 12 days as its sets new record as government is looking to close all remaining coal plants by 2025.

  • The UK is reported to have recorded its longest coal-free run since 1882 just two years after the National Grid first ran without coal power for a single day.
  • Sadly, I can report using some coal in my fire at the weekend to warm my country hovel. So sorry chaps, the UK was not entirely coal free!

 

Company News

Bluejay Mining* (LON:JAY) 10p, Mkt Cap £85m – Marine resource adds 300-530mt to existing indicated Dundas ilmenite resource in Greenland

                                                                                         – Rio Tinto smelter test on Bluejay ilmenite - traditionally smelter tests runs can be up to 10,000t of ilmenite

STRONG BUY - Target Price 45p - included in MSCI index

(Dundas Ilmenite project, Greenland, 100% owned)

  • Bluejay Mining report a significant 15% increase to the company’s JORC (2012) ilmenite resource at Dundas in the north of Greenland.
  • The resource now stands at a substantial 117mt grading 6.1% ilmenite in situ using a 0% cut-off grade for 7.1mt if contained ilmenite.
  • The previous resource was for 96mt grading 6.9% for 6.6mt on the raised beaches just south of the former settlement at Pituffik.
  • Rio Tinto Iron and Titanium Canada ‘RTIT’ reported yesterday that it is to test ilmenite material from its Dundas at its Sorel-Tracy plant in Quebec, Canada.
  • The two companies “will work together to review and improve on the technical work that has been completed on Dundas to date.” Indicating that substantial testing has already been done on samples already supplied to Rio Tinto and others.
  • We expect the next test to run some 5,000-10,000t of material through one of the Sorel furnaces. The benefit of this is to prove the quality of the Dundas ilmenite concentrate with the added benefit of demonstrating the logistics of shipping from Greenland to Canada.
  • Sorel is 3,394km from Dundas and around six days shipping making this a relatively quick and low-cost run from a transport perspective.
  • Maiden offshore JORC (2012) ‘Exploration Target’ is estimated at between 300-530mt with a potential grade of between 0.4-4.8% ilmenite in situ. Indicating much more of the same.
  • The offshore work includes drowned beaches between 0-18m water depth with the estimates derived from marine seismic bathymetry as well as many sample points along the full length of the 30km licence area.
  • Marine dredging: The team have been working with Royal IHC to produce a dredging study to mine the offshore ilmenite as an expansion to the existing operation.
  • Dredges can move huge tonnages of ilmenite material cheaply and easily. A simple dredge could move >1mt of coarse material a month in the shallow marine environment at very low cost indicating the major constraint to production should be offtake agreements and processing capacity and not the ability to move material.
  • See dredges in link below where the IHC Beaver 65 DDSP should be able to  move around 1.5mt per month of ilmenite-rich ore if there is sufficient market demand for the concentrate: https://www.royalihc.com/en/products/dredging/cutter-dredging/ihc-beaver-cutter-suction-dredger
  • Shipping to China through the North West passage brings this fast growth market much closer to Bluejay while low-cost power may also be utilised if some processing is also done in Canada. Russia has also just launched one of three new nuclear icebreakers to keep its Artic sea lanes open
  • https://www.theglobeandmail.com/world/article-us-warns-china-russia-against-aggression-in-the-arctic-region/
  • Shipping to and from the Dundas project should be relatively simple as shown in the attached video of shipping to the US airbase at Thule which is within direct sight of Dundas.
  • https://gcaptain.com/time-lapse-video-resupplying-thule-air-base-americas-northernmost-military-installation/
  • We would expect a relatively small dredge to mine and sieve around 1mt per month for starters.
  • Consistency: The resources are described as homogenous and consistent and the coarse grained and chemical nature of the ilmenite is expected to enhance the project economics over the long term.
  • The material is also said to be suitable for sulphate pigment, sulphate slag and chloride slag production which puts the company in a favourable and enviable position going forward in terms of its ability to ship to many of the world’s pigment producers.
  • EIA and SIA: Bluejay recently lodged the EIA and SIA ‘Environmental and Social Impact Assessments’ to the Greenland government which is a major step forward in the context of how big the project is. The mining license application will now be submitted by end July.
  • Scale: The huge scale of the Dundas project has never been of any doubt in our minds but the JORC resource estimates now indicate potential for up to an additional 530mt of ilmenite ore in the shallow marine environment for dredge mining on top of the existing proven 117mt of high-grade ilmenite on the raised beaches.
  • The raised beeches of ilmenite sand are proven to be remarkably consistent and run for around 30km bounded by the high-plateau behind the beech.
  • While the range given for the marine ore is between 0.4-4.8% ilmenite in-situ having visited the site in 2017 we believe a these Exploration targets released today are conservative in their nature and that a significant tonnage of very high-grade ilmenite should sit in the shallow marine, near-shore and delta area environments.
  • Extended mine life: It is these areas which should provide an extended mine life of very grade material that will further enhance project economics.
  • Ilmenite concentrate prices moved higher recently to $180-190/t CIF China after nearly a year at $170-180/t. The price rise reflects a tightening of the market for ilmenite concentrates as demand increases for pigments and as a number of idled and repaired furnaces come back on line.

Conclusion:  This is a supportive announcement from Bluejay. The initial offshore JORC (2012) estimate is significant and shows how Bluejay can ramp up production through dredge mining in future years. Rio Tinto’s announced smelter test on Bluejay’s ilmenite is great news as it confirms Rio’s interest in the project and builds on the work which has already been done by the BlueJay and Rio Tinto teams. While there is no guarantee RTIT will sign a joint venture or other agreement, the team at Sorel must like the product sufficiently to want to run a full smelter-test. This is a very good sign from a Bluejay perspective.

We await further news on the Feasibility Study in the short term.

*The SP Angel mining analyst has visited the Dundas, Itelak ilmenite sands project in Greenland.

*SP Angel act as nomad and broker to BlueJay Mining. 

 

Keras Resources* (LON:KRS) 0.3p, Mkt Cap £7m – Move to production waiting on ministerial approval in Togo

BUY, Target price 1.04p

Click for our last full note on Keras

  • Keras Resources report interim results for the year to end March.
  • Keras earned US$1.95m for the bulk sample shipped earlier this year though the payment missed the end-March deadline and will be included in the full-year accounts.
  • The Interims therefore report a pre-tax loss of £439,000 vs £177,000 a year earlier due to costs incurred in the run up to the shipment.
  • A total comprehensive loss of £2.1m was recorded after the application of a change in fair value of available for sale financial assets.
  • Management are keen to distribute the company’s holding in Calidus Resources shares to Keras investors in a generous move to its shareholders.
  • The Calidus Resources holding should be worth around £13m on issuance of a second tranche of Calidus shares following publication of Calidus’ pre-feasibility study.
  • The Nayega manganese project in Togo has a design capacity of some 75,000tpa or 6,250t per month and will be financed in conjunction with an offtake agreement for the manganese material to be shipped.

Conclusion: Keras results will be substantially improved in the second half due to its bulk shipment. A move to larger scale production should also results in further profit for the business hopefully in the second half.

*SP Angel act as Nomad and broker to Keras Resources

 

MOD Resources (LON:MOD) 16.75p, Mkt cap £50.9m – Chairman’s comments at AGM

  • In an upbeat address to the company’s AGM in West Pert, MOD Resources’ Chairman  highlighted progress at the T3 copper project in Botswana and the emerging success of the wider exploration effort within the Kalahari Copper Belt.
  • The T3 project is now wholly owned, following the acquisition of Metal Tiger’s 30% interest in exchange for approximately 10.5% of MOD Resources.
  • Mineral resources at the T3 project were increased by 44% and underpin the results of the recently released feasibility study work which study describes a 3mtpa open-pit mining operation producing an average of approximately 28,000tpa of copper and 1.1mozpa of silver over a mine life of 11.5 years.
  • Previously published highlights envisage pre-production capital expenditure of US$182m, plus additional sustaining capital of US$84m over the T3 mine's life, is expected to produce a pre-tax NPV8% of US$368m and generate an IRR of 33% at a copper price averaging US$3.08/lb (US$6,790/t).
  • The company is also extending its exploration into other parts of the belt with initial efforts directed at the T3 expansion project as well as the T23, A1 and A4 Domes areas with initial drilling success at A4 including an intersection of 52m at an average grade of 1.5% copper.
  • Looking forward, the company will be “drilling our priority exploration and growth targets, while continuing to progress the T3 Copper Project towards a decision to mine and progressing a funding solution for the construction of the T3 open pit project.“

 

Premier African Minerals* (LON:PREM) 0.08p, Mkt Cap £6.4m – Issue of shares

  • Premier African Minerals reports that it has issued shares to the value of £145,787 to directors, employees and “certain third parties in settlement of accrued but unpaid amounts due”.
  • The new shares, which are priced at 0.09p each, represent approximately 2% of the enlarged capital of the company.
  • Within the total, directors have been issued with a further 54.2m shares (approximately 0.7% of the enlarged capital) “in settlement of accrued but unpaid fees” while certain employees receive a total of approximately 40m shares “in settlement of accrued but unpaid salaries due of £35,970” while approximately 67.8m shares are being issued to “third parties in settlement of accrued but unpaid amounts owed of £61,000”.
  • The new shares issued to CEO, George Roach, bring his interest to 8.05% of the company while other directors holdings reported today range up to approximately 0.2%.

Conclusion: Premier African Minerals is issuing shares to directors, employees and some third party suppliers in lieu of outstanding payments. The newly issued shares amount to around 2% of the enlarged capital of the company.

*SP Angel have an agreement with Premier African Minerals as a result of the acquisition of Northland Capital Partners

 

 

Strategic Minerals* (LON:SML) 1.75p, Mkt Cap £24.6m – Rescheduling of acquisition payments to New Age Exploration

  • Strategic Minerals reports that it has reached a formal agreement with New Age Exploration (NAE) “to defer the initial payment date for the acquisition of NAE’s 50% shareholding in Cornwall Resources Limited (“CRL”) from 30 May 2019 to 27 June 2019.”
  • The company explains that “The deferral is to allow for the expected receipt of the funds from Cobre's major client, referred to in the Company's announcement on 24 May 2019.  All other terms remain unchanged except that, in consideration for NAE agreeing to these arrangements, SML has agreed to pay NAE a postponement fee of A$10,000.”
  • Thanking NAE for its cooperation which he described as reflecting “the close relationship developed over the past few years”, Managing Director, John Peters said that “The deferral of the settlement date for the acquisition of the balance of CRL shares allows the Company to match expected cash flows within the SML group”.
  • Strategic Minerals’ acquisition of NAE’s share in Cornwall Resources gives it 100% ownership of the Redmoor tin/tungsten project in Cornwall where the scoping study published earlier this month outlines a potential 600tpd underground mine with a ten year mine life. Capital costs estimated at US$89m are expected to generate an NPV8% of US$94m and IRR of 19.4% using prices of US$22,000/tonne for tin, US$330/mtu for tungsten trioxide and US$3.18/lb for copper.
  • At this stage, the Redmoor mineral resource estimate is still at the inferred level indicating that additional drilling will be required to both upgrade and possibly to further extend the resource to facilitate more detailed mine-planning and assessment.

Conclusion: The readjustment of the timing of payments to NAE for its holding in Cornwall Resources helps match the outgoing A$5m with the expected imminent receipt of over US$4m from the principal client of Strategic Minerals’ Cobre magnetite tailings operation in New Mexico.

*SP Angel act as Nomad and broker to Strategic Minerals

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