Altus Strategies* (LON:ALS) BUY – Target price 12.2p – Agreement to acquire Legend Gold completed
Bacanora Minerals (LON:BCN) – Founder’s family estate serves legal action against Bacanora Minerals
BHP Billiton (LON:BLT) - Establishing process for Samarco claims
Bushveld Minerals (LON:BMN) - BUY – Target price maintained at 11p – First vanadium Redox battery deployed at Eskom
Ferrum Crescent (LON:FCR) – Director comes aboard AIM company at reasonable salary level
Patagonia Gold (LON:PGD) - Raising £7.76m to proceed with Calcatreu option
Shanta Gold (LON:SHG) Hold – Target 5.2p– Valuation update
Lithium - China winning electric cars arms race
• As demand increases, Chinese companies have been doing deals around the world to secure supplies of lithium – currently top market for EV’s accounting for about half of global sales
• Many state owned companies have been hunting down lithium resources outside of China and it is predicted that over the next few years will wield increasing influence over supply of lithium
• Chinese companies currently have stakes in miners such as Pilbara Minerals, SQM and Kodal Minerals
• While there are many new wannabe lithium explorers and project companies on the market we caution that many will not have the assets, technical ability, support or determination to see their projects through to production.
Advances in Boston Dynamics’ humanoid bring new metal demand
• The latest invention from the former-Alphabet lab showcases their unassisted Atlas humanoid robot performing ever-growing dexterous tasks including a backflip. The latest successful trial for the pioneering robotics company only serves to highlight the importance and integration of technological iterations into everyday life, developing revolutionary demand for metals including aluminium, steel, copper, and specialty commodities such as rare earths.
Glencore’s Head of Copper steps down from Congo unit amid probe
• Directors of traders copper and cobalt unit, Katanga Mining Ltd, after internal review found material weaknesses in financial reporting controls across operation
• Questions about ‘appropriateness’ of some of accounting practices arose during investigation by Ontario Securities Commission leading to internal review after which billionaire Aristotelis Mistakidis and 2 executives stepped down
Dow Jones Industrials +0.31% at 23,430
Nikkei 225 +0.70% at 22,416
HK Hang Seng +1.91% at 29,818
Shanghai Composite +0.53% at 3,410
FTSE 350 Mining -0.15% at 17,076
AIM Basic Resources +0.22% at 2,661
Economics
UK – The pound is flat this morning amid the news Theresa May secured ministerial backing for her improved Brexit offer on Monday.
• Authorities are planning to announce the offer on 8 December which is expected to narrow the gap between the previously voiced €20bn by the PM and €60bn demanded by the EU.
• The issue is reported to have been discussed on Monday in Downing Street by the 10-member cabinet subcommittee on Brexit negotiations.
• British side hopes that improved offer will allow both parties to move onto negotiations of a transition deal and talks on a trade agreement following the European Council meeting in Brussels on 14-15 December.
Germany – Angela Merkel said she prefers new round of general elections to a minority government following failed talks to formal a coalition.
• The euro is back in red against the US$ (-0.12%) extending losses recorded on Monday.
Australia – Western Australia government revised gold sector regulations slightly including an increase in the gold price cut-off for higher royalties as well as assistance for marginal miners.
• The reference gold price used to set higher royalty rates has been increased to A$1,400/oz ($1,060/oz) from A$1,200 ($910/oz).
• At gold prices above/below the threshold gold royalties charged are 3.75%/2.5%.
• Additionally, the government proposed an assistance package for miners with AISC above 85% of the gold price involving a refund of the increased royalty rate.
Currencies
US$1.1748/eur vs 1.1760/eur yesterday. Yen 112.54/$ vs 112.07/$. SAr 14.118/$ vs 14.063/$. $1.325/gbp vs $1.325/gbp
0.754/aud vs 0.757/aud. CNY 6.634/$ vs 6.633/$.
Commodity News
Precious metals:
Gold US$1,280/oz vs US$1,291/oz yesterday
• Traders will keep a close watch on escalating global tensions and safe-haven trading as US President Donald Trump put North Korea back on the list of state sponsors of terrorism.
Gold becomes shoppers’ new digital way to pay after app launch
• Launched by Fintech firm glint and allows users to link their cards to app which lets them buy physical gold bullion stored in a Swiss vault
• Once linked to card customers can buy anything from a coffee to a car and whilst the app was originally aimed at wealthy people looking outside of the banking system has been interest across the financial spectrum
Gold ETFs 69.5moz vs US$69.4moz yesterday
Platinum US$929/oz vs US$942/oz yesterday
• Resurgent demand from the jewelry and industrial sectors are expected to push the market into sharp deficit, with the shortfall rising from 15,000oz this year to 275,000oz in 2018. The World Platinum Investment Council notes the sixth consecutive annual deficit, with cut above-ground stocks contracting to 1.605 million ounces by the end of the year.
• Platinum demand is expected to rise 2% to 8.030 million ounces next year, with double-digit growth in India and Chinese jewelry usage up 3% for the first time since 2014.
• Output is forecast to drop 1% across 2017 and 2018, and with low mining capital investment the production levels will take significant time to increase.
Palladium US$991/oz vs US$997/oz yesterday
Silver US$16.96/oz vs US$17.15/oz yesterday
Base metals:
Copper US$ 6,836/t vs US$6,769/t yesterday
• The red metal price climbed on expected supply disruptions due to industrial action at Southern Copper Corp’s Peruvian mine. Production from the 870Ktpa operation is forecast to be hit by striking from midnight on November 21st with workers at Peru’s Mining Federation set to meet early next week to discuss broad striking action.
• The International Copper Study Group note the global refined copper market recorded a 50kt deficit through August on weak supply growth from major producing nations. Despite China, India and European Union nations increasing refined output, a 10% decline in Chilean supply led to an overall global reduction.
• The deficit is expected to deepen, with the ICSG forecasting a 105,000 tonnes shortfall in 2018, as world mine production falling 2.2% in the first eight months of 2017. The latest figures show 5% decline from Chile consequent of the Escondida strike, while low ore grades impacted Argentina, Canada and Mongolia concentration production which fell 50%, 19% and 18% respectively.
• Ore material declines are impacting annual contract talks for 2018, with negotiations for benchmark copper treatment and refining charges continuing. Miners will be hopeful for the low $70/t range while smelters will try to maintain the 2017 $92.5/t level.
Aluminium US$ 2,075/t vs US$2,085/t yesterday
• Ex-China aluminium production made gains against the giant nations output, as global production for October outside of China rose to 2.179 million tonnes according to International Aluminium Institute data. During the same period, Chinese daily average production fell 5.5% to 82,100 tonnes. The most traded aluminium contract on the Shanghai Futures Exchange SAFcv1 contracted to its lowest since early August.
Nickel US$ 11,620/t vs US$11,605/t yesterday
• Nickel rose steadily on positive growth from ShFE steel rebar futures SRBcv1, which closed 2.7% higher on strong sentiment for a robust demand rebound following the winter capacity restrictions. The metal, which has seen significant market interest off the back of the electric vehicle story, remains principally influenced by steel price movements, with 68% nickel consumption in the alloy compared to 3% battery usage.
• Nickel ore output from the world’s top supplier fell 11% year-to-September as the Philippine President Rodrigo Duterte maintains the open-pit mining suspension under environmental legislation. The closure followed recommendations of former environment minister Regina Lopez, which has strongly impacted near-surface nickel laterite mining operations.
Zinc US$ 3,157/t vs US$3,155/t yesterday
Lead US$ 2,460/t vs US$2,437/t yesterday
Tin US$ 19,430/t vs US$19,500/t yesterday
Energy:
Oil US$62.5/bbl vs US$62.5/bbl yesterday
Natural Gas US$3.027/mmbtu vs US$3.059/mmbtu yesterday
Uranium US$25.50/lb vs US$25.00/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$63.1/t vs US$61.7/t
Chinese steel rebar 25mm US$661.9/t vs US$656.5/t
Thermal coal (1st year forward cif ARA) US$83.6/t vs US$81.9/t
Premium hard coking coal Aus fob US$189.4/t vs US$188.9/t
Other:
Tungsten APT European US$271-285/mtu vs US$275-285/mtu last week
Cobalt LME 3m US$60750/t vs US$61500/t yesterday
Company News
Altus Strategies* (ALS LN) 8.3p, Mkt Cap £8.9m – Agreement to acquire Legend Gold completed
BUY – Target price 12.2p
• The Company signed a definitive binding agreement to acquire all Legend Gold outstanding shares in all-shares deal.
• Under the terms of the agreement Legend Gold shareholders will receive three shares in Altus Strategies for each share held in Legend.
• As a result, Altus will need to issue 41.1m shares representing 27.6% of the enlarged share capital.
• The deal is subject to regulatory, court, third-party and shareholder approvals as well as provisions for no material adverse changes in the financial condition, assets or liabilities at Altus or Legend.
• Both Altus and Legend officers and directors have already expressed their support for the transaction representing 40% and 53% of issued share capital, respectively; companies are planning to seek other shareholders’ approval shortly with the deal closure expected around Jan/18.
Conclusion: The deal provides Altus with an access to a prospective exploration assets in western and southern Mali as well as an opportunity to potentially list on the Canadian market with an established shareholder base familiar with the project generation business approach.
*SP Angel acts as Nomad and Broker to Altus Strategies
Bacanora Minerals (BCN LN) 100p, Mkt Cap £133m – Founder’s family estate serves legal action against Bacanora Minerals
• We rarely like to see legal action amongst miners but in this case we take exception.
• We knew Colin Orr-Ewing, the founder of Bacanora Minerals, and we knew of the effort he put into the company and the reasoning behind the 3% gross overriding royalty which he left to his family.
• Sadly, the late Colin Orr-Ewing seems to have entrusted Bacanora Minerals to a board with less honourable motives. The board led by Mark Honen is applying to the courts in Alberta “to void … a 3% gross over-riding royalty held by the estate of Colin Orr-Ewing over certain of the Company’s lithium assets in Sonora, Mexico.”
• The move comes after “The Board of Directors of Bacanora has completed a review of the historical background and concluded that no such pre-existing royalty existed and accordingly there was no basis for the grant of the royalty by the Company”.
• We find the application by the board to remove the 3% royalty quite extraordinary as we believe the royalty was put in early on in the company’s history as a method of preserving some value for the Orr-Ewing family in return for Colin’s very considerable and largely unrewarded effort in developing value within the lithium bearing clay assets.
• The royalty has been in place for as long as we can remember and any shareholder or any person who subsequently joined the company in recent years such as Mr Honen should have been aware of the potential value and impact of the royalty at their time of joining as part of their due-diligence and review of the company.
• Bacanora has never appeared to hide the 3% royalty and a quick google search confirms many references to the presence of the 3% GOR royalty in company press releases and financial statements issued by the company over many years.
• The statement is even more interesting given that we believe the company has previously entered into discussions with the Orr-Ewing estate with regard to the royalty.
• Pilot plant: while we understand the pilot plant has worked well in campaigns over the past two years we have further technical questions in relation to the cost and recovery of lithium from clay material and the impact of rain on planned production. We hope the company will update us on in due course.
• Lithium market: also, while demand for lithium batteries should continue to increase to drive demand for good quality lithium carbonate and hydroxide concentrates some commentators are concerned that proposals to ramp up of production at the major suppliers may depress prices when this production comes through. The risk being that the high cost of chemicals used to extract lithium might squeeze margins as production levels rise and lithium prices pull back.
• It is equally possible that a proportion of proposed new production may be delayed or simply not materialise and that lithium prices may remain stronger for longer.
Conclusion: Personally I find it surprising that directors who have previously acknowledged the royalty agreement are now claiming that “no such pre-existing royalty existed”. Colin Orr-Ewing entrusted Mr Mark Honen to the board at a time when he almost certainly knew he was dying of cancer. This simply does not look right to us and we look forward to a more gentlemanly settlement of this issue without recourse to further legal action which shareholders will inevitably pay for.
BHP Billiton (BLT LN) 1367p, mkt cap £78.9bn Price & Mkt Value - Establishing process for Samarco claims
• BHP Billiton reports that a timetable has now been agreed for settlement of the claims, which exceed US$50bn, arising from the failure of the tailings dam at the Samarco iron ore operation in Brazil.
• "Samarco, Vale, BHP Brasil and the Federal Prosecutors have also jointly requested, and the 12th Federal Court has approved, an additional 150 days, ending on 20 April 2018, for the parties to continue negotiations for the settlement of the Public Civil Claims."
The claims include US$6.1bn arising from "Public Civil Claims" where the timetable has been extended by a further 180 days until 20th April 2018.
• The agreements are subject to ratification by the 12th Federal Court in Brazil.
• "The Amendment Agreement provides for the State Prosecutors to become a party to the Preliminary Agreement. It also provides for additional community consultation. The Amendment Agreement includes a process for seeking to agree new socioeconomic experts to advise the Federal Prosecutors, and contains some further requirements as to how those experts would conduct their work."
• Conclusion: The repurcussions, both legal and social, of the Samarco incident are likely to continue for a very long time, however, the parties appear tp be establishing a practical framework within which they can address the issues.
Bushveld Minerals (BMN) 8.8p, mkt cap £70.6m – First vanadium Redox battery deployed at Eskom
BUY – Target price maintained at 11p
(Bushveld Minerals holds 84% of Bushveld Energy)
• Bushveld Energy has deployed its first Vanadium Redox battery ‘VRFB’ with Eskom, the South African power utility.
• The battery is designed to have a peak power capacity of 120kW and peak energy storage of 450kWh.
• “According to the International Renewable Energy Association (IRENA), VRFBs already offer some of the lowest system costs among battery technologies and are expected to decrease in cost by 66% through to 2030, which is faster than any other technology in energy storage.”
• Navigant Research expects the energy storage market to exceed US$25bn in annual revenues by 2025.
Conclusion:
*An SP Angel Mining analyst and nomad have visited the Vametco vanadium mine and processing facilities in South Africa.
Ferrum Crescent (FCR LN) 0.07 pence, Mkt Cap £2.2m – Director comes aboard AIM company at reasonable salary level
• Ferrum Crescent reports today that it has agreed a formal employment contract with Myles Campion who is the new Technical Director of the company.
• Myles Campion, a former mining analyst and fund manager has agreed a base salary of £52,000pa excluding statutory contributions to National Insurance and Pension required under UK Law.
• “Mr Campion will be eligible to participate in employee incentive schemes operated by the Company from time to time on such terms as the Board may decide.
• In addition, the Company announces that the Board has taken the decision to defer all executive and non-executive director fees/salaries until further notice, in order to conserve the Company's cash resources.”
• Ferrum Crescent has recently revised its exploration strategy and has cut its fixed costs while looking to produce a maiden JORC resource by the year end for the Toral project in Spain.
Conclusion: we see Myles Campion as a significant hire for Ferrum Crescent and the potential for better company performance from here.
Patagonia Gold (PGD LN) 1.1p, mkt cap £17.1m - Raising £7.76m to proceed with Calcatreu option
• Patagonia Gold is raising £7.76m though the issues of new shares at 1p/share in order to exercise its option to acquire the Calcatreu silver/gold project in the Rio Negro Province of Argentina from Pan American Silver.
• The deposit contains an Ni-43-101 compliant indicated resource of 8mt at an average grade of 25.7 g/t silver and 2.63 g/t gold (6.6moz of silver and 675,000 oz of gold).
• In addition, the deposit hosts an inferred resource of a further 3.4mt at an average grade of 16.6g/t silver and 2.0gg/t gold (1.8m oz of silver and 225,000 oz of gold).
• Commenting on the transaction, Chief Executive, Christopher van Tienhoven said "We are pleased to have conditionally secured the funding for the exercise of the Calcatreu Option which represents an excellent opportunity to acquire a high grade, > 1 million ounce deposit with significant exploration upside potential in a low sulphidation mineralized system within a large and under explored exploration package of tenements."
Shanta Gold (SHG LN) 3.5p, Mkt Cap £26.9m – Valuation update
Hold – 5.2p
• Following operations update announced yesterday we have updated our valuation and earnings numbers.
• Singida project contribution to Shanta NAVPS has been slightly reduced (1.8p v 2.0p) reflecting a lower mineral inventory as per the latest mineral resource estimate.
• We cut underground operating costs reflecting a substitution of the cut and fill mining method with a cheaper open stoping at the Luika underground operation; although, improved economics may be coming at a cost of increased operational risk as the choice of the former mining method envisaged in the feasibility study we understand might have accounted for more challenging ground conditions compared to the Bauhinia Creek deposit.
• Metallurgical recoveries were raised 1.5pp over NLGM LoM from H2/18 onwards based on an installation of an additional pre-leach tank at a $0.5m cost.
(Dec year end) 2013A 2014A 2015A 2016A 2017E 2018E
Gold price (incl hedge) US$/oz 1,413 1,289 1,163 1,222 1,264 1,204
Gold sales koz 61.9 87.8 80.6 86.3 81.7 86.8
AISC US$/oz 1,049 941 845 661 888 737
Revenue US$m 66.0 114.9 98.0 103.1 104.4 106.6
EBITDA US$m 1.6 33.8 32.0 50.2 29.7 45.1
PAT US$m 0.8 8.9 -17.3 -8.0 -2.2 10.2
Basic EPS USc 0.2 1.9 -3.7 -1.5 -0.4 1.3
FCF US$m -4.9 11.7 1.1 -13.6 -11.8 19.1
EV/EBITDA x 66.1 2.9 2.8 2.1 2.7 1.8
PER x 140.2 11.0 - - - 3.6
Source: SP Angel, Company