Antofagasta (LON:ANTO) – Transfer of 40% interest in Alto Maipo in return for cheaper power
Birimian Limited (ASX:BGS) – No word yet on the receipt of A$10.75m deposit from Shandong Mingrui Group
Solgold* (LON:SOLG) – Investors anticipate further copper, gold discovery at Cascabel
Strategic minerals
President Putin has just ordered the reopening of one of the Soviet Union’s tungsten mines
The move may well be motivated by raised potential for a trade war between the US and China which may see China restrict the export of strategic minerals such as tungsten, lithium, rare earth metals etc..
China restricted supplies of rare earth metals to Japan over a territorial dispute and it is likely that similar tactics may be employed again
If the world enters a new era of ‘Cold War’ trade tactics then more governments may feel the need to stimulate the construction of new mines and processing plants to protect local industries from being cut out of the supply chains which they have so long taken for granted.
Miners come off on weaker iron ore and coal prices.
The US$ index is flat ahead of the Trump inauguration ceremony.
Gold is off slightly this morning and on course of a fourth weekly increase (+0.9% from the previous week).
Chinese equities climb on the back of an acceleration in the Q4 GDP growth rate with the annual number coming in line with estimates.
Brent is up trading around $54.8/bbl; although, losses recorded earlier in the week suggest oil is on course for a second consecutive weekly drop.
Iron ore Dalian futures fall the most in a month following steel prices lower.
Dow Jones Industrials -0.37% at 19,732
Nikkei 225 +0.34% at 19,138
HK Hang Seng -0.71% at 22,886
Shanghai Composite +0.70% at 3,123
FTSE 350 Mining -1.28% at 16,219
AIM Basic Resources -0.59% at 2,515
Economic News
US – Janet Yellen said the Fed is close to reaching the full employment level supporting the case for a gradual tightening of the monetary policy during her speech to the Stanford Institute for Economic Policy Research yesterday.
On the other hand, Yellen highlighted there are no signs the economy is overheating given only modest growth in wages with the manufacturing sector operating well below capacity.
Economic growth “seems unlikely to pick up markedly in the near term” on the back of weak overseas demand and planned moderate increases in interest rates.
China – FY16 GDP growth totalled 6.7%, in line with estimates and marking a 0.2pp slowdown from the previous year.
The annual growth number came in the middle of the state-targeted 6.5-7.0% range.
Growth consolidation is coming at the at the expense of expanding credit with total debt to GDP is estimated to have climbed to 264% from 247% in 2015, Bloomberg Intelligence estimates.
BI forecasts growth to further slowdown to 6.3% with risks shifted to the downside. On the other end of the spectrum, the IMF estimates growth to stabilise at 6.7% next year.
On a separate note, investments slowed in Dec as a decline in the state-led FAIs (-1.5pp) outweighed modest gains in the private sector (+0.1pp). Government share in FAI ended the year at 35.7%, the highest level since Feb/11, reflecting a stimulus-oriented government stance this year.
GDP (YTD %yoy): 6.7 in Q4 v 6.7 in Q3 and 6.7 forecast.
Industrial Production (YTD %yoy): 6.0 in Dec v 6.0 in Nov and 6.0 forecast.
Retail Sales (YTD %yoy): 10.4 in Dec v 10.4 in Nov and 10.4 forecast.
FAI (YTD %yoy): 8.1 in Dec v 8.3 in Nov and 8.3 forecast.
Eurozone – The ECB left the pace of the QE programme unchanged, in line with estimates, yesterday highlighting core inflation pressures remain weak.
Despite the headline inflation number nearly doubling to 1.1% in Dec from the previous month and marking the strongest level since 2013, Draghi argued the move is attributable to changes in oil prices.
Core inflation climbed only slightly to 0.9% with no clear uptrend.
Risks to growth “remain tilted to the downside and relate predominantly to global factors”, Draghi said.
The euro fell 0.7% against the US$ on the announcement.
The latest ECB survey of professional economists showed inflation is expected grow at a faster rate than estimated in 2016.
Latest estimates point to a 1.4% inflation rate this year, up from +1.2% forecast earlier.
Germany – Producer prices growth accelerated in Dec/16hitting the highest level in nearly four years.
This was the second consecutive month with a positive reading after remaining in deflation for the last three years.
The reading matched a strong acceleration in consumer prices and is likely reflects the effect of higher oil prices.
For the full year prices posted a negative 1.7% change.
PPI (%yoy): 1.0 v 0.1 in Nov and 1.0 forecast.
UK – Dec core retail sales underperform expectations following strong Nov numbers and as accelerating inflation weighs on consumer sentiment.
Despite a slowdown in Dec, a total for Q4 posted a solid 5.6%yoy growth.
The pound lost nearly 0.7% against the US$ on the news.
Retail Sales ex Fuel (%mom): -2.0 v 0.2 in Nov and -0.4 forecast.
Retail Sales ex Fuel (%yoy): 4.9 v 6.4 in Nov and 7.5 forecast.
Currencies
US$1.0668/eur vs 1.0626/eur yesterday. Yen 114.80/$ vs 115.27/$. SAr 13.523/$ vs 13.599/$. $1.234/gbp vs $1.230/gbp.
0.755/aud vs 0.754/aud. CNY 6.876/$ vs 6.872/$.
Commodity News
Shanghai warehouse stock moves:
Copper stocks rose 1.3% (2,182t) to 172,979t this week with a further 8,202t coming on warrant adding 64,540t of warrants for the week
Aluminium stocks rose +0.3% (316t) to 118,551t this week with a further 11,859t on warrant to 40,313t
Zinc stocks fell 0.1% (178t) to 159,091t this week with 494t coming off warrant to 76,516t
Lead stock rose 7.7% (3,026t) to 42,097t this week with a further 8,437t on warrant to 35,885t
Nickel stocks fell 1.1% (957t) to 89,609t this week with 1,557t coming off warrant to 82,306t
Tin stocks fell 6.4% (247t) to 3,599t this week with 349t coming off warrant bringing the weeks change to 2,860t
Precious metals:
Gold US$1,204/oz vs US$1,203/oz yesterday
Gold ETFs 57.1moz vs US$57.0moz yesterday
Platinum US$959/oz vs US$963/oz yesterday
Palladium US$753/oz vs US$750/oz yesterday
Silver US$16.94/oz vs US$16.98/oz yesterday
Base metals:
Copper US$ 5,720/t vs US$5,773/t yesterday
Aluminium US$ 1,821/t vs US$1,827/t yesterday
Nickel US$ 9,805/t vs US$1,090/t yesterday
Zinc US$ 2,731/t vs US$2,749/t yesterday
Lead US$ 2,270/t vs US$2,291/t yesterday
Tin US$ 20,450/t vs US$21,075/t yesterday
Energy:
Oil US$54.6/bbl vs US$54.5/bbl yesterday
Natural Gas US$3.302/mmbtu vs US$3.330/mmbtu yesterday
Uranium US$22.75/lb vs US$22.75/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$78.0/t vs US$79.8/t
Chinese steel rebar 25mm US$499.5/t vs US$499.9/t - US affirms finding of China steel plate dumping, subsidies
Thermal coal (1st year forward cif ARA) US$67.6/t vs US$68.7/t yesterday
Premium hard coking coal Aus fob US$172.6/t vs US$175.9/t
Other:
Tungsten - APT European prices $191-200/mtu vs $187-198/mtu - Putin orders the resumption of tungsten production (Investor Intel)
Vladimir Putin has decreed that tungsten production should resume in Russia to ensure its regular supply for domestic industrial production.
Production will restart at the Tyrnyauz tungsten-molybdenum plant at Kabardino-Balkaria in southern Russia.
The capital cost of the restart is estimated to be around US$250m for 1mtpa of ore
The Tyrnyauz field contains around 360mt of ore reserves and previously had a process plant capacity of 6.6mt.
Another Russian miner has also announced plans to invest around $60m in a tungsten project in Buryatia to produce some 2,800tpa of tungsten concentrates.
Strategically we wonder if Russia is concerned about more sanctions from Trump or China restricting the market for this strategic metal. Tungsten is important as a military metal due to its high strength.
Company News
Antofagasta (LON:ANTO) 747.5p, Mkt Cap £7.37bn – Transfer of 40% interest in Alto Maipo in return for cheaper power
Antofagasta has announced that its subsidiary Minera Los Pelambres “has agreed with Gener that it will transfer its 40% interest in Alto Maipo SpA (“Alto Maipo”) to Gener and the electricity price applicable to the Power Purchase Agreement with Alto Maipo is reduced.”
Los Pelambres has been in partnership with Gener in the Alto Maipo project “to develop, construct, own and operate two run of river hydroelectric power stations located in the upper section of the Maipo River, approximately 50 kilometres to the south-east of Santiago, with a total installed capacity of 531MW.”
In October last year, the companies announced that they expected the project, which is to provide 110MW to the Los Pelambres mine under a 20 year power-purchase agreement, would incur a cost overrun of 10-20%. At that time, the company also pointed out an “expected significant decrease in long term energy prices in Chile, resulting from the growing contribution of solar and wind power generation”.
The original rationale for Los Pelambres’ involvement in the project was “to ensure that Los Pelambres would be able to access a reliable source of electricity at competitive prices. We are now close to fulfilling this objective at an improved price and to ensure a clean, stable and long-term energy supply for Los Pelambres” commented the Antofagasta CEO, Ivan Arriagada.
The company adds that the carrying value of Los Pelambres share of the project is US$356m.
Conclusion: The company does not quantify the magnitude of the cost savings it has negotiated on the power purchase agreement, though presumably this needs to be offset against the carrying value of the project. The transaction does, however, provide the secure long term supply of power to the mine which the company required at the outset.
Birimian Limited (ASX:BGS) A$0.30, mkt cap A$59.7m – No word yet on the receipt of A$10.75m deposit from Shandong Mingrui Group
Birimian agreed to sell its Bougouni ‘Goulamina’ lithium project in Mali to a Chinese group for A$107.5m in cash to Shandong Mingrui Group ‘Mingrui’.
Mingrui singned a Letter of Intent ‘LOI’ which included a condition for the receipt of a deposit for A$10.75m on or before 20th January.
https://www.birimian.com/pdfs/LetterOfIntentForSaleOfTheBougouniLithiumProject03Jan17.pdf
Birimian has yet to report confirmation of the receipt of the deposit into a solicitor’s interest bearing account in Australia.
China recently imposed additional currency controls restricting the movement of funds out of China which we have reason to believe is causing problems for Chinese companies who wish to move cash overseas.
We speculate that Chinese companies may still be able to continue to invest in certain key sectors like rare earths and energy materials and that this should enable Chinese companies to continue to buy up lithium, rare earths, energy-related and other specialty commodity minerals as well as processing companies in these sectors.
Genfeng Lithium, a major Chinese lithium producer also signed an investment agreement with Lithium Americas for a US$174m investment for the development of its Cauchari-Olaroz lithium project in Jujuy, Argentina. Given Genfeng’s status in China we would expect this deal to go through.
It may also be possible that the movement of funds are delayed out of China as permission is sought from the authorities for such transfers.
We also wonder what happens to the escrowed funds should the deal fail to consummate. Would those funds then be repatriated to China or could they remain in place.
We note that major shareholder ‘The Gas Super PTY LTD ATF the Gas Super Fund has reduced its holding in Birimian to 6.3% from 9.16% through the sale of 5.1m shares indicating their level of confidence in the Chinese offer.
“The Deposit is not refundable except in the event that any consent or approval required by Birimian cannot be obtained or waived as follows:
a) any third party, regulatory, shareholder, tax consents or required approvals (if any) being received on terms satisfactory to both parties;
b) no legislation or regulation being proposed or passed that would prohibit or materially restrict the participation of either party in the Transaction.
Within 45 days of confirmation of receipt of the Deposit, Mingrui agrees to place the balance of the cash consideration (being $ AUD 96,750,000 plus any applicable taxes) in the Stakeholder Account to be held in trust pending completion. If all conditions are not satisfied or waived on or before 31 March 2017 (or such other date which is mutually agreed in writing by the Parties) then the LOI will terminate.”
Birimian’s lithium project at Goulamina is estimated to host 15-18mt of rock grading 1.8-2.2% lithium (Li2O) for 229,000t of contained lithium metal.
The new JORC resource contains 15.5mt grading 1.48% Li2O for 229,000t of contained lithium oxide
High grade near surface should allow for early cash flow generation.
Further drilling is expected to add to the resource through resource extensions with 1.67% seen in the West Zone
A second phase, 10,000 metre drilling program at Goulamina remains on track for completion by late-January 2017 alongside initial assay results. The current schedule provides for an updated resource estimate later in the March Quarter, leading to a pre-feasibility study and maiden reserve reporting in the June Quarter.
The resource grade ranks Bougouni grade as the fifth highest on our list of known hard rock lithium resources and no. 15 in terms of resource size though it looks like it will become a larger project.
See full details of the JORC resource below along with pictures of the block model, cross sections, plan views and a particularly grade/tonnage curve. See: https://www.birimian.com/pdfs/MaidenResourceAtGoulaminaConfirmsLithiumDeposit27Oct16.pdf
Solgold* (LON:SOLG) 30p, Mkt Cap £429m – Investors anticipate further copper, gold discovery at Cascabel
SolGold shares are seeing increasing investor interest based on the Cascabel copper gold discovery in Ecuador.
Investors are buying stock based on expectations for further kilometre-long intersections of mineralisation at the Alpala prospect, Cascabel.
While these huge intersections generally run from around 400-600m down hole they run for >1km and may join with a much larger mineralised body at greater depth.
Geophysical analysis of other targets within the Cascabel license area suggests that Alpala is not on its own and that further mineralised bodies should lie within easy reach of initial Alpala discovery.
Trenching and sampling of surface mineralisation offers tantalising clues of what might lie below these targets but only drilling can reveal their true scale.
Drilling of these targets should hopefully prove the hypothesis for a number of very large mineralised masses extending toward the surface from a much larger feeder zone at around 2km depth.
The geological and drilling teams are clearly excited by the prospects of pulling out such long sections of mineralised material and the implications of the potential to repeat the Alpala discovery on other targets. Their enthusiasm comes across in the company’s latest explanatory video.
The team have identified a total of 14 targets within the licence area and the crews should start drilling some more prospective sites as new rigs arrive.
The deployment of additional drilling equipment is set to ramp up through the year with a fourth rig working on Alpala from next month and a fifth rig to be assigned to the Alpala South area, approximately 1km southeast of the current area in March.
Newcrest have bought into SolGold for the discovery at Cascabel and as experts in block caving are interested in the economic potential the discovery presents.
BHP were also sufficiently interested in Cascabel’s Alpala discovery to submit an offer though Newcrest gained a first mover advantage in their funding.
Codelco, the giant Chilean copper miner, are also back in Ecuador with a joint venture with Enami EP to explore an estimated $200bn worth of untapped copper reserve at the Llurimagua deposit just 70km south of Cascabel.
Ecuador, once seen as a pariah state in Latin America alongside Venezuela is now joining the ranks of reforming nations in Latin America after the realisation that Economic rationalism seems to lead to a better outcome for all.
The President and Minister of Mines have been working on significant improvement to the current mining legislation through tax reforms and incentives. The state recently agreed an investment protection agreement with Lundin Gold which will pay advance royalties of $65m to the government of Ecuador. Key areas are capital depreciation, tax shields and deferrals, import duties, VAT recover and most importantly windfall taxes which are now only paid after a full return of capital and only applies to copper prices of >$4/lb.
SolGold have a form of first mover advantage in its discovery at Cascabel with its activities closely followed by Lundin Mining who acquired the multi-million ounce Fruta del Norte gold project from Kinross when they sold out in 2014.
Solgold have conducted a nation wide prospectivity review leading to the identification of numerous other targets on which the company will supply its powerful exploration and discovery blueprint.
SolGold have more work to do to produce a JORC or Canadian NI 43-101 compliant resource at Alpala and may continue to evaluate the prospect for some time before working through the economic parameters required by the new JORC code for a detailed resource estimate.
Geologically fractures in the Andean plate has enabled the creation of large scale porphry mineralisation at points from Patagonia through to Panama and Mexico. A disproportionate number of the world’s largest copper mines lie on these structures many more yet to be discovered. The geologies of Chile and Peru are well known but the politics of Ecuador, Colombia and Panama mean that much remains to be discovered in these regions.
The Alpala discovery is interesting from a bulk-scale block caving perspective with its huge column of higher-grade copper, gold mineralisation. The mineralisation could be accessed via a long adit using the topography of the land to drive into a point close to the base of the current drilling. Alternatively a shaft could be sunk for access. Both methods have the advantage of minimising the footprint of the mine and limiting its environmental impact.
Newcrest are developing the $2.3bn Wafi-Golpu project in PNG in joint venture with Harmony Gold Mining. Wafi-Golpu has a large mineral resource of 8.6mt copper and 18.6moz of gold with planned peak production of 150,000tpa of copper and 320,000ozpa gold in 2025. Newcrest reported a year ago an NPV for stage one of the Wafi-Golpu project at US$1.1bn and an IRR of 15%.
Some investors reckon Cascabel could become another Grasberg based on the scale of the mineralisation. Grasberg is the world’s tenth largest copper mine according to a list on ‘Mining Technology’. A resource of sufficient scale to rank close to the world’s top ten copper mines would be of great interest to the major mining companies and could lead to a bidding war for the asset among the major players.
See 2017 corporate video for a good representation of the Cascabel project https://www.solgold.com.au/videos/
A new company presentation is also available:
https://static1.squarespace.com/static/560a5feee4b0a63bf47c76f5/t/58765899e6f2e1ab23aab391/1484150944798/SOLGOLD_January_2017.pdf
Conclusion: For now investors are looking for Cascabel to become the next big copper discovery in Latin America. SolGold is well funded with $43m of cash to advance its discovery at Alpala and to test other targets within the Cascabel license area. The team are excited about the potential to make further Alpala-like discoveries which at Moran, Alpala and Alpala south east could connect at depth. There is also potential for some near-surface copper, gold mineralisation to provide for a near-term development proposal.
*SP Angel acts as Nomad and Broker to SolGold; An SP Angel analyst has previously visited the Cascabel project.