Atalaya Mining (LON:ATYM) – Proyecto Touro update
Base Resources (LON:BSE) – Record quarterly revenue in June quarter
Kidman Resources – SQM investing US$110m in exchange for 50% of the Mt Holland lithium project
Gold climbed to the highest in a week on the back of relatively dovish Yellen comments.
• Fed Chair, Janet Yellen highlighted last night a gradual approach to future rate increases as the central bank closely monitors inflation data.
• This and better a good June Chinese trade data helped better sentiment in equities.
• Copper concentrate imports in China jumped 23%mom to 1.41mt in June as production recovers in major foreign operations.
• Refined copper imports were down 18.4%yoy at 2.23mt in the first six months of the year on the back of increased local smelting capacity, restrictions on US$-denominated credit and increased supply of scrap metal locally.
• Brent fell 0.7% this morning despite reports of falling US inventories this week.
• Iron ore prices are slightly off despite reports showing an acceleration in imports in the first six months of the year to 9.3%yoy, up from 7.9%yoy in the Jan-May period.
Copper demand set to rise as charging points for EVs roll out
UK Grid peak power demand could rise by 3.5GW by 2030 according to the National Grid
• The UK Grid is going to need some upgrading if a new forecast by the National Grid comes to pass
• The National Grid reckon that peak power demand could rise by 3.5GW by 2030 due to increased demand from Electric Vehilces.
• Sales of EVs are expected to be >90% of all new cars sold by 2050.
• The National Grid also reckons there will be an increase in demand for electric heating as the pace picks up to decarbonise the heating sector.
• They reckon peak electricity demand could rise by as much as 8GW by 2030 even without smart charging during off-peak hours and 18GW by 2050.
• Peak electricity demand is currently at around 50-55GW in winter.
• We can see a scenario whereby new, higher capacity power cables may need to be run to every lamp post and parking meter in an attempt to catch up with rising power demand
• New rules now require major services and petrol stations to have EV charging points and more rules are sure to follow.
• A committee on Climate Change report previously estimated that the UK could have ~700.000 EVs on the road by 2020 requiring another 60,000 chargers in the next three years
• The National grid had to purchase 3.5GW in reserve capacity last year to cover winter.
• The delta needed for electric cars will be quite a jump as overall base demand varies widely.
• Today, so far, the we are only needing 31GW..see today’s mix in output below
• See https://gridwatch.co.uk/ for a detailed view of UK grid power.
Lithium – new lithium mines and expansions to create 1,340 new jobs for miners in Western Australia
• State support in Western Australia is helping miners to create some 1,340 new jobs in mining in Western Australia.
• The jobs are from the new Kidman Resources, Mt Holland mine, Pilbara Minerals, Pilgangoora mine and the expansion of Talison’s Greenbushes mine and process plant.
• The new mines will produced lithium carbonate concentrate from spodumene mineralisation while the expansion of Greenbushes is for the value added production of lithium hydroxide concentrates.
• The Western Australian government is also supporting plans for a new lithium refinery to be built in the state. The State Government developer, Landcorp is proposing a site just outside of Kalgoorlie-Boulder which was better known for its skimpy bars.
• Kwinana, south of Bunbury is another suggested site due to its proximity to Tianqi’s $400m new lithium plant.
• The new proposed refinery may server to disrupt China’s control over the lithium refining sector while generating some 400 long-term and well-paid jobs at the refinery.
Lithium / graphene foil makes improved battery electrode
• ‘arsTechnica’ report that lithium / graphene foil makes for a great battery electrode.
• Its not much of a surprise as graphene appears to improve virtually anything it is bonded to but the work shows that you can wrap lots of lithium into graphene resulting in a structure which has twice the energy density and should be more stable and safer than existing battery designs
Dow Jones Industrials +0.57% at 21,532
Nikkei 225 +0.01% at 20,100
HK Hang Seng +1.16% at 26,346
Shanghai Composite +0.64% at 3,218
FTSE 350 Mining +1.06% at 15,907
AIM Basic Resources +0.63% at 2,433
Economic News
US – Dovish Yellen comments saw Treasury yields closing lower while the DXY was little changed on the day.
• In particular, Fed take on the latest slow down in inflation rates was considered unexpectedly dovish.
• Yellen said that weaker inflation was only “partly the result of a few unusual reductions” in certain parts of the CPI, a less confident wording than the Fed hhas used in the past, FT reports.
• While the Fed highlighted strong momentum in the labour market, Yellen added that the Bank is “watching inflation very carefully”.
• “I do believe part of the weakness in inflation reflects transitory factors, but well recognise that inflation has been running under our 2 per cent objective, that there could be more going on there,” Yellen said.
• Yellen continued to expect the Fed $4.5tn balance sheet to start shrinking later this year.
China – New loans and aggregate financing surge more than forecast in June the latest credit data show.
• Chinese lenders extended CNY 1.54tn in new loans in June compared to market expectations for CNY 1.2tn and up from CNY 1.11tn in May.
• Household loans, mostly mortgages, accounted for nearly half of new credit last month climbing to CNY 738.4bn from CNY 610.6bn in May.
• Despite a pick up in new credit in June, a broad money supply measure M2 recorded the lowest increase since records began in 1996.
• New CNY Loans (CNY bn): 1,540 v 1,110 in May and 1,300 forecast.
• Aggregate Financing (CNY bn): 1,780 v 1,063 in May and 1,500 forecast.
• A separate report showed Chinese trade data finished the quarter on a strong note with exports climbing the most since March taking the nation’s trade surplus to the second-highest level for 2017.
• Exports (US$ terms %yoy): 11.3 v 8.7 in May and 8.9 forecast.
• Imports (US$ terms %yoy): 17.2 v 14.8 in May and 14.5 forecast.
Eurozone – Final CPI reports confirmed previous estimates showing a stabilisation in inflation rates in Germany and continuing declines in the pace of consumer prices’ growth in France.
• Germany (EU Harmonised %yoy): 1.5 v 1.4 in May and 1.5 forecast (1.4-2.2 min/max range in 2017).
• France (EU Harmonised %yoy): 0.8 v 0.9 in May and 0.8 forecast (0.8-1.6 min/max range in 2017).
• Spain (EU Harmonised %yoy): 1.6 v 2.0 in May and 1.6 forecast (1.6-3.0 min/max range in 2017).
Canada – In line with expectations, the central bank raised rates for the first time in seven years.
• The CAD$ has been trending upwards against the US$ lately and jumped 1.4% on the announcement.
• Local equity market gave up gains of 1% after the decision while two year bond yields climbed to the highest level since Sep/13.
Brazil – former President Lula convicted of Corruption
• The former President of Brazil, Luiz Lula da Silva has been sentenced to 9 years for corruption related to Petrobras, the state oil and gas company.
• Lula has expressed interest in running again in next years election for the left-wing Workers’ Party and claims the trial is politically motivated.
• The judgement goes to support our view of politicians with beards and dubious morals.
Currencies
US$1.1396/eur vs 1.1458/eur yesterday. Yen 113.02/$ vs 113.40/$. SAr 13.178/$ vs 13.459/$. $1.293/gbp vs $1.282/gbp.
0.773/aud vs 0.765/aud. CNY 6.782/$ vs 6.788/$.
Commodity News
Precious metals:
Gold US$1,222/oz vs US$1,219/oz yesterday
Gold ETFs 59.9moz vs US$59.9moz yesterday
Platinum US$919/oz vs US$906/oz yesterday
Palladium US$869/oz vs US$856/oz yesterday
Silver US$15.91/oz vs US$15.85/oz yesterday
Base metals:
Copper US$ 5,919/t vs US$5,892/t yesterday
Aluminium US$ 1,938/t vs US$1,897/t yesterday
Nickel US$ 9,255/t vs US$9,210/t yesterday - South Korea bought 150 tonnes of nickel for September arrival via a tender that closed on Wednesday
Zinc US$ 2,837/t vs US$2,840/t yesterday
Lead US$ 2,322/t vs US$2,320/t yesterday
Tin US$ 19,975/t vs US$19,875/t yesterday
Energy:
Oil US$47.5/bbl vs US$48.4/bbl yesterday
Natural Gas US$3.008/mmbtu vs US$3.026/mmbtu yesterday
Uranium US$20.75/lb vs US$20.75/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$64.1/t vs US$64.2/t
Chinese steel rebar 25mm US$594.9/t vs US$593.5/t
Thermal coal (1st year forward cif ARA) US$71.4/t vs US$71.2/t yesterday
Premium hard coking coal Aus fob US$162.9/t vs US$157.3/t
Other:
Tungsten APT European US$215-222/mtu vs US$212-222/mtu
Company News
Atalaya Mining (LON:ATYM) 117 pence, Mkt Cap £136m –Proyecto Touro update
• In his Chairman’s Statement at the AGM of Atalaya Mining, Roger Davey has highlighted 2016 as a “transformational year” for the company.
• The move from declaring commercial production at the Proyecto Riotinto in February through a production increase to achieve throughput of 9.5mtpa by December was achieved below the revised capital budget of US$164m and has delivered the long awaited restart of the historic Rio Tinto mine.
• The company reports that “To date, copper grades, recoveries and operating costs are well within the forecast values and the estimated copper production guidance remains between 34,000 and 40,000 tonnes.”
• Following a 12% increase in the mineral reserve and resources estimate, delivered in September 2016, the mine now has a projected life of 16.5 years.
• In our opinion, this may be further extended depending on the results of programme of near-mine exploration drilling currently underway to investigate the potential for a northern extension to the Atalaya pit and to establish the lateral extent of the Filon Sur.
• Commenting on the High Court decision, in March 2017, that “the Group was not in breach of any of its obligations and the deferred consideration under the master agreement entered into between the Company, Astor and others (the "Master Agreement") did not start to become payable when permit approval was granted for Proyecto Riotinto. … Notwithstanding this, the Court confirmed that the provisions of the Master Agreement remain in place.”
• “ As a consequence of this, the Judgment requires that, in accordance with the Master Agreement, Atalaya Riotinto Minera, S.L.U. must apply any excess cash (after payment of operating expenses, sustaining capital expenditure, any senior debt service requirements and up to US$10 million for non-Proyecto Riotinto related expenses) to pay approximately €43.9 million of the deferred consideration due to Astor under the Master Agreement and the amount of €9.1 million payable under the loan assignment. Both parties have applied for permission to appeal to the Court of Appeal. It is likely that the applications will be ruled on by Q3 2017 and if permission is granted that the appeal hearings will take place in 2018.”
• Now that the Rio Tinto mine is established, the Group is turning its attentions to further growth opportunities, the first of which is the Proyecto Touro in northwest Spain. Drilling work and environmental, hydrological, metallurgical and geotechnical work is well underway “with a view to completing a capital and operating cost estimate as part of a NI 43-101 technical report.”
Conclusion: Atalaya Mining has now successfully re-established, expanded and extended mine life of it operations at the Riotinto mine and is now examining another former mining area, Proyecto Touro, in northwest Spain as well as other opportunities. We look forward to further updates as the company continues its evaluations.
Base Resources (LON:BSE) 15.8 pence, Mkt Cap £117m –Record quarterly revenue in June quarter
• Aided by continuing improvements to ilmenite and zircon prices, the Kenya based mineral sands producer, Base Resources, has reported record quarterly revenue for the final quarter of its 2017 financial year. On a unit of sales basis, quarterly revenue has increased by almost 50% during the year to $297/tonne from $200/tonne in the quarter ending 30th September 2016.
• Cost per tonne of product sold has increased more slowly, rising from US$90/t in September 2016 quarter to US$103/t.
• The company reports that “Production for financial year 2107 [was] consistent with guidance for all products”. Production during the year amounted to 90,625 tonnes of zircon (up 6% vs 2015), 467,359 tonnes of ilmenite (+3% vs 2015) and 34,228 tonnes of zircon (+9% vs 2015).
• Assuming that it mines approximately 10.2m tonnes of ore at a grade of 7.32% heavy minerals and that the mineral sands plant continues to perform at current throughput and recovery rates, Base Resources production guidance for FY 2018 amounts to 88-94,000 tonnes of rutile,400-430,000 tonnes of ilmenite and 32-37,000 tonnes of zircon.
• During the past year, Base Resources has mined a total of approximately 11mt of ore at a grade of around 7.1% heavy minerals to produce around 635,000 tonnes of heavy mineral concentrate.
• Commenting in more detail on the minerals sands markets, the company noted that “The quarter was characterised by continuing improvement in zircon markets, stabilising ilmenite prices and a positive outlook for rutile.”
• The company comments that high utilisation rates in pigment plants is leading to strong demand for titanium dioxide feedstock and that “Several of the leading global pigment producers announced a further round of significant pigment price increases taking effect through June and July 2017. … The ongoing strength in pigment demand and pricing is expected to help stabilise prices for ilmenite at the current healthy levels through the coming quarters.”
• “Despite strong demand, the overhang of high grade TiO2 feedstock capacity has resulted in only moderate price improvement for rutile in recent quarters. However, there are increasing signs of an emerging supply deficit in this high grade sector and there is an expectation that mainstream contracted rutile prices will experience increased upward momentum through the second half of 2017.”
Conclusion: As Base Resources moves towards development of its Phase 2 mining operation at Kwale in response to declining grades, there are signs of strong demand from pigment producers and stabilising or improving prices, particularly for rutile.
Kidman Resources – SQM investing US$110m in exchange for 50% of the Mt Holland lithium project
• SQM, the giant Chilean lithium brine producer is investing US$110m in exchange for 50% of the $200m Mt Holland lithium project (Earl Grey deposit).
• SQM are making a US$30m upfront payment to Kidman and US$80m in staged payments to cover initial funding costs.
• The new 50:50 joint venture means that the US$80m contribution is effectively US$40m to Kidman.
• The funds will go towards finalising feasibility studies, mine development and a lithium refinery study.
• Mt Holland is currently scheduled to produce some 40,000tpa of lithium carbonate equivalent .
• The investment poses the question, why is a low-cost lithium brine producer in Chile investing to support a higher cost, rival, hard-rock project in Western Australia?
• Production quotas for lithium in Chile are set by the Chilean government. These quotas were increased last year but new quotas may go to state-supported companies leaving SQM and to look for additional production elsewhere in the world.
• SQM and Albemarle produce some 21% and 22% of global lithium concentrates followed by Ganfeng at 12%, FMC 10% and Tianqi 10%.
• Chinese lithium processor are looking to double and triple production rates over the next few years and SQM may be moving to grab market share by whatever means it can.
• While brine production out of Chile is still thought to be the lowest cost in the world, the capital cost of these production units is huge and the politics of lithium in the region are interesting.
• It is possible that SQM are looking to gain greater market share and with it tighter control of the lithium market through this and potentially other acquisitions.
• SQM’s close rival Albemarle has a 49% stake in the Talison Lithium which runs the Greenbushes lithium mine .