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Bushveld Minerals* (LON:BMN) BUY – Target price 14p – Bushveld to spin out AfriTin in demerger of Namibian tin assets
Noble Group shares fell 13% earlier today as trading resumed following the announcement of the Americas-focused oil trading business divestment
• Net proceeds from the sale of the oil business to Vitol are said to come in at $576m post- and $582m pre-transaction costs.
• Additionally, the Company said third quarter loss is estimated to amount to $1.1-1.25bn.
En+ Group, a major vertically integrated aluminium and power producer, announced a price range for the coming IPO valuing the Russian Group headed by Oleg Deripaska potentially at $8.5bn.
• The Group is planning to sell shares and GDRs in Moscow and London representing between 15.8-18.8% of the issued share capital.
• The plan is to place $1bn worth of stock in new shares with another $500m to be sold by Deripaska to AnAn Group, a Chinese cornerstone investor.
• Major EN+ assets include a 48% interest in the largest ex-China aluminium producer Rusal and a number of hydropower stations.
• The IPO is expected to close in November with proceeds forecast to be directed to decrease outstanding debt
Sincohem chases $4bn stake in SQM
• China’s state chemical group among bidders for stake in SQM one of world’s largest producers of lithium
• Shares in SQM have risen by 107% this year to trade at $59.2 on back of rising demand from electric car industry
Lithium – random email from crash barrier manufacturer highlights hype around some lithium stocks
• We received two emails into SP Angel this morning on a lithium company which is listed on the ASX, AIM and in Germany.
• The email starts off by quoting an inferred resource of approx. $105bn on a lithium price of $15,000/t. At least the lithium price is about right in this one.
• The message goes on to almost suggest that VW might be a ready client due to the project’s proximity to Germany.
• Curiously, the author of the email works for a company making motorway crash barriers which is unusual for a stock promoter even from Australia.
• We would be tempted to ask if the author might also make a Lithium Stock Crash barrier to cover this one. Let’s hope he has not invested more than he can afford to lose.
• We advise a degree of caution with investing in lithium stocks. While we believe demand for lithium should continue to expand SQM are looking to double their conversion capacity in Chile and a number of brine projects are working with new technology to see if they can work as well.
• Despite this we do see space for some of the better quality, lower capex, hard rock lithium pegmatite projects so long as the quality of their concentrates is of interest to Chinese processors.
Gold hits 2 week low
• Gold hit lowest in over 2 weeks early on Monday as dollar climbed to more than 3 month high versus the yen
• Also no news on North Korea so no boost for safe haven assets
Dow Jones Industrials +0.71% at 23,329
Nikkei 225 +1.11% at 21,697
HK Hang Seng -0.53% at 28,337
Shanghai Composite +0.11% at 3,382
FTSE 350 Mining -0.28% at 17,544
AIM Basic Resources -0.13% at 2,551
Economics
This week is going to be heavy in earnings announcements including technology sector (Amazon, Alphabet, Microsoft, Facebook and Twitter), auto and air transportation (GM, Ford, Volkswagen and Boeing), financials (UBS, Deutsche and Barclays) and consumer staples (McDonalds and Coca Cola).
US – The US$ index is up 0.25% extending previous gains on the back of optimism regarding tax reforms outlook and speculations over the next hawkish Fed Chairman.
• President Trump said he is considering Stanford University economist John Taylor who is viewed a pro monetary tightening candidate and Governor Jerome Powell as potential replacements for Chair Janet Yellen.
• Q3 GDP numbers are due this Friday with estimates pointing to a 2.5% annualised growth rate, down on 3.1% in Q2/17 reflecting effects of the hurricane season disruptions.
China – House prices climbed in the fewest cities since January 2016 last month amid falling sales and growing supply.
• Prices in 44 of 70 cities climbed in September compared with 46 in August, according to the National Bureau of Statistics.
• Prices were down in 18 cities and unchanged in eight.
• Data last week showed home sales in September posted the first annual decline since Mar/15.
Japan – Equities are up on Monday as markets welcomed Shinzo Abe win in general elections with the ruling coalition on course to secure 313 seats in the 475 members House of Representatives.
• Following initial results of the vote, Abe said he wanted to push through with changes in the constitution while continuing with economic stimulus.
• Turnout was relatively weak with 53.7% of registered voters participating marking the second lowest on record and only marginally higher than at the 2014 election.
• Nikkei climbed 1.11% today while the yen down 0.4% against the US$.
Eurozone – The ECB is expected to reduce its monthly purchases in half and run the QE programme for about nine months during the policy meeting this week, according to Bloomberg estimates.
Spain – Catalan authorities are meeting today to prepare a reply to central government which threatened to oust the separatist administration and take control of key institutions including public media and the regional police forces.
• Nation’s head prosecutor sad that the regional president of the government of Catalonia Charles Puigdemont is looking at 30 years in prison should the region declare independence.
• The euro is continuing to slide lower trading 0.35% down against the US$ this morning.
Currencies
US$1.1756/eur vs.1.1799/eur yesterday. Yen 113.75/$ vs 113.38/$. SAr 13.708/$ vs 13.664/$.
$1.320/gbp vs $1.313/gbp. 0.782/aud vs 0.784/aud. CNY 6.635/$ vs 6.621/$.
Commodity News
Precious metals:
Gold US$1,275/oz vs US$1,281/oz last week
• Spot gold prices fell as a reinvigorated dollar climbed to its highest in more than two week trading at 93.83. Confidence in US President Donald Trump’s tax reform grew as the plans obtained “all in” support from Republican Senator Rand Paul. Both the senator and White House budget director were in strong favour of the substantial tax cuts, with hopes to draft the package by the close of the year.
• Dollar strength was reinforced with boosted US 10-year Treasury yields climbing towards 2.40%. With improving bond attractiveness, investor sentiment continues to diminish towards gold as an investment asset driving down the metal price, reflected in the fifth straight week of hedge funds and money managers reducing their net long position in COMEX gold contracts.
• The climbing dollar rose to its highest in three months versus the yen following the success of Japan’s ruling bloc in Sunday’s election. Japanese Prime Minister Shinzo Abe’s Liberal Democratic Party-led coalition secured a combined 312 seats to maintain its two-thirds ‘super majority’ in the lower house. The move represents an opportunity to maintain the depreciation of the yen against the dollar under super easy monetary policy.
• The US Air Force is making preparations to put the Boeing B-52 Stratofortress back on 24-hour ready alert for the first time since the Cold War ended in 1991, in a move to ensure the country is “prepared for anything”.
Gold ETFs 69.5moz vs US$69.4moz last week easy
Platinum US$918/oz vs US$920/oz last week
Palladium US$968/oz vs US$970/oz last week
Silver US$16.95/oz vs US$17.09/oz last week
Base metals:
Copper US$ 6,953/t vsUS$7,027/t last week
• Base metals contracted following unified growth on the back of last week’s strong manufacturing results across Asia, Europe and the United States. The price reduction follows data indicating a lull in the housing market, despite Chinese authority reaffirmation of the countries target growth rate.
• Despite the stringent move against industrial pollution restricting output across the winter months, China’s head of state reiterated the economic growth target of 6.5 percent in 2017.
• September’s new home prices recorded a subsequent month of poor growth, with the largest markets and smaller cities falling off previous property boom figures. The stalling prices benefit government objectives to cool off the property markets, soothing inflation and dissuading investors using property as a speculative product.
Aluminium US$ 2,143/t vs US$2,166/t last week
Nickel US$ 11,785/t vs US$12,085/t last week
• Falling nickel production, particularly at Brazil’s Vale operation with 4.3 percent year-on-year, enhanced the global market into wider deficit of 6,700 tonnes in August. Growing deficit expectations are driving the metal prices higher, which reached a six-week high last week.
• Buoyant outlook for the metal is driving Jinchuan Group, China’s top nickel producer, to develop a new project in Guangxi to produce raw materials for electric vehicle batteries. The project, developed in Fangchenggang, will have enhanced annual production of 30,000 tonnes of nickel and 3,000 tonnes of cobalt by 2020.
Zinc US$ 3,114/t vs US$3,166/t last week
Lead US$ 2,476/t vs US$2,530/t last week
Tin US$ 19,650/t vs US$19,975/t last week
Energy:
Oil US$57.8/bbl vs US$57.0/bbl last week
• The number of active oil and gas rigs in the US continued its three-week losing streak, dipping a further 15 rigs. Contraction of US production output, with the total rig count in the United States standing at 913 rigs, is expected to fall in line with the ongoing OPEC agreement to reduce the global supply glut.
Natural Gas US$2.967/mmbtu vs US$2.900/mmbtu last week
Uranium US$20.15/lb vs US$20.30/lb last week - President Abe’s victory in the Japanese election sounds like good news for uranium prices and the potential restart of many of Japan’s nuclear reactors
• Abe’s main rival had companied with a core anti-nuclear message indicating that Japanese opinion is leading towards the pro-nuclear camp.
• The news may help lift spirits among uranium miners who were battered by the Fukushima tsunami.
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$60.6/t vs US$60.0/t last week
Chinese steel rebar 25mm US$632.7/t vs US$630.0/t last week
Thermal coal (1st year forward cif ARA) US$83.5/t vs US$83.5/t last week
Premium hard coking coal Aus fob US$177.9/t vs US$176.7/t last week
Other:
Tungsten APT European US$280-285/mtu vs US$280-285/mtu
Diesel emission fears rally minor market metals
• European consumer favoritism towards gasoline-power cars and trucks over diesels is boosting autocatalyst metals to new heights. The markets for rhodium and ruthenium are small and illiquid, with minor changes in supply and demand having strong impact on prices. Both precious metals have far exceeded all major commodity gains, with prices for the metals doubling this year to represent the highest
Company News
Bushveld Minerals* (LON:BMN) 9.8p, Mkt Cap £79m – Bushveld to spin out AfriTin in demerger of Namibian tin assets
Target price 14p
• Bushveld reports it received shareholder approval to demerge its tin-focussed subsidiary, Greenhills Resources last week.
• AfriTin is looking to revive what was once the largest opencast tin mine in the world in Namibia
• The new CEO, Anthony Vijoen, is looking to ramp up production to 5,000tpa of tin concentrate in next 5 years as well as offering toll treatment facilities to others.
• Uis: is the key tin project within the AfriTin (formerly Bushveld) portfolio with a historic non-JORC compliant resource of 70,000t of tin.
• The key to Uis should lie in its higher-grade tin zones which are also seen to carry some unusually high lithium grades as seen in grab samples and on the old Uis tin tailings dumps.
• The dumps are bought by Tawana (TAW AU, mkt cap A$155m) in September last year for $3m though Tawana is now focussed on moving into production at Bald Hill in Australia
• The most common lithium minerals reported from the unzoned albite rich Uis pegmatites are:
o Amblygonite (Li,Na)AlPO4(F,OH), contains 7.3-10.0% Li2O;
o Petalite LiAlSi4O10, contains 3.4-4.9% Li2O; and
o Spodumene LiAl (SiO3)2, contains 8% Li2O.”
• Erongo Tin Ltd have spent some of the A$2m previously committed towards a scoping study and on processing equipment on the Uis tin project and their expenditure plans are effectively absorbed into the AfriTin deal.
• Work by Bushveld previously confirmed a large pegmatite orebody grading an average of 0.3% tin containing some 20,000t of tin. Historic work also shows 70mt grading 0.14% tin for 90,000t of contained tin. This adds to potential resources at the other two licenses contained in the Dawnmin package gives potential for over 90,000t of contained tin.
• Elevated tin grades in parts of the orebody should enable Bushveld to start smaller scale mining relatively quickly.
• Lithium: lithium in the pegmatites could also be transformational for the future economics of the project depending on the grades and metallurgical characteristics of the contained lithium carbonate.
• Mokopane: the Mokopane tin project is situated in the northern limb of the Bushveld Complex, in the Limpopo Province of South Africa.
• The project contains some 18,447t of tin grading 0.12% tin within two adjacent deposits.
• These open-cast disseminated tin resources have been previously explored and drilled at Groenfontein and Zaaiplaats with scoping study results showing potential to produce high-purity metal.
• On 2014 numbers a simple US$16.7m capex mine could produce some 691,000tpa for ~700tpa of tin. The mine would produce 1,380tpa of concentrate grading 51.4%.
• This produces a pre-tax NPV of US$18.0m, a post-tax NPV of US$10.0m, a pre-tax IRR of 49.8% and a post-tax IRR of 34.6%.
• The project is reported to be compliant with the BEE legislation and should therefore qualify for new order mining rights. More than 26% of the shares of Renetype (Pty) Ltd, the holding company, are held by BEE shareholders.
• Marble Hill: Bushveld also previously acquired a 50% interest in the Marble Hill tin project for ZAR2m plus a commitment to spend ZAR4.3m to take the project to Pre-Feasibility study. The project has a potential resource of 3.6mt of around 0.5% with around 18,000t contained tin.
• AfriTin deal: Shareholders will continue to hold the same number of shares in Bushveld Minerals as they effectively held before the demerger date and will also be issued an equal amount of shares in AfriTin.
• Bushveld will retain a 15% interest in AfriTin to account for some intercompany debt within the tin business.
• Bushveld also holds £720,000 worth of loan notes covering admission and associated transactions costs which may be converted into AfriTin shares post the demerger.
• A further £280,000 of notes are held by private investors covering working capital requirements.
• AfriTin shares are due to start trading on AIM in November.
• AfriTin is expected to focus on development of Mokopane Tin Project and Zaaiplaat Tin Tailings Project in South Africa and the recently acquired interest in the Uis Tin Project in Namibia.
• The new tin company is planning to consolidate its interest in the Uis Tin Project through an acquisition of the a remaining 50.5% interest in Dawnmin which indirectly owns 85% in the project.
• AfriTin is proposing to issue new shares at the placing price to Naminco, an owner of Dawnmin to consolidate its holding.
• Directors:
• Anthony Viljoen, currently a director of Bushveld Minerals, will be the new CEO of AfroTin and will be joined by three new non-executive directors.
• Glen Parsons the former ceo if Mariana Resources is to be Chairman
• Laurence Robb, formerly a Professor of Economic Geology in the School of Geosciences at the University of the Witwatersrand, and a current Visiting Professor in the Department of Earth Sciences at the University of Oxford is to be a Non-Executive Director
• Roger Alyn Williams, a previously CFO of Randgold Resources is the other Non-Executive Director
Conclusion: Robust tin prices and a potential growing shortage of tin concentrates and processing capacity may create a positive environment for the few western tin producers still in production. We expect tin prices to continue to hold over $20,000/t going forwards which should enable strong margins for many producers. The closure of polluting mines and smelters in China could create raise tin prices beyond our expectations as existing western producers will struggle to keep pace with demand in this event.
*An SP Angel Mining analyst and nomad have visited the Vametco vanadium mine and processing facilities in South Africa.