Altus Strategies* (LON:ALS) BUY – Target price 12.2p – JOGMEC terminates MOA at Tigray-Afar
Bushveld Minerals (LON:BMN) - BUY – Target price maintained at 11p – Bushveld subsidiary, Lemur Holdings signs purchase agreement for power project in Madagascar
Georgian Mining* (LON:GEO) STRONG BUY – Drilling continues to show greater copper and gold potential at Kvemo Bolnisi
Gem Diamonds (LON:GEMD) – Another large diamond recovered at Letseng
IronRidge Resources (LON:IRR) – Field exploration restarts in Chad
Rainbow Rare Earths Ltd (LON:RBW) – Geophysics identifies exploration targets for future drilling
Glencore to capitalise on rising zinc prices
• Glencore Plc is expected to restart or ramp-up production across its zinc operations as growing market deficit will support buoyant metal prices above $3,000/t. The commodity powerhouse foresee the capacity restarting “at the right point in the cycle”, with tightening metal market in 2018 giving upside risk to prices. Since Chief Executive Officer Ivan Glasenberg suspended supply in late 2015, market fundamentals have significantly improved with zinc extending its rally into 2017 as demand improved and the deficit widened.
• Some investor concerns surrounding the outlook for 2018 have arisen around whether Glencore will restart its mine, however Australia & New Zealand Banking group analysts “expect the market to easily take up any additional supply”.
• Three-month futures trade around $3,200 a ton on the London Metal Exchange, showing a 21% increase over the past 12 months.
Copper - Copper pulls back from a four-day rally as low seasonal demand and high refinery output weakens the Chinese spot market. Chinese consumption slowed as reliance on stocks fell, with SHFE copper inventories swelling on arbitrage trades from LME warehouses. LME copper stockpiles continued to fall for the 6th day to their lowest levels since September.
Dow Jones Industrials -0.27% at 23,526
Nikkei 225 +0.48% at 22,523
HK Hang Seng -0.93% at 29,723
Shanghai Composite -2.29% at 3,352
FTSE 350 Mining -0.68% at 17,300
AIM Basic Resources +1.08% at 2,679
Economics
US – Weak October durable goods orders numbers and Fed meeting minutes saw the US$ index losing 0.7% on Wednesday.
• Fed meeting minutes showed members’ concern with low inflation; although, participants remained convinced that tightness in the labour market should lead to acceleration in inflation rates.
• The tone of the minutes suggested the pace of tightening is unlikely to accelerate post a December hike, Bloomberg reported.
• Durable Goods Orders (%mom): -1.2 v 2.2 (revised from 2.0) in September and 0.3 forecast.
• Core Durable Goods (%mom): 0.4 v 1.1 in September and 0.5 forecast.
• Capital Goods Orders (%mom): -0.5 v 2.1 in September and 0.5 forecast.
China – Equities post the worst daily performance in 17 months amid a selloff in the bonds market.
• The CSI 300 Index was down 3% as yields on sovereign and top-rated corporate debt climbed to the highest level in three years.
• The yield on 10-year sovereign bonds climbed above 4% yesterday while yields on five year top rated local corporate notes were up at a three-year high of 5.3%.
Germany – Business activity boosted by surging manufacturing sector in November, according to the latest Markit PMI data.
• Economic growth picked up with growth in new orders (overseas, in particular) posting the strongest increase in over six-an-a-half years.
• Employment gains followed robust economic conditions climbing at one of the fastest rates in the 20-year history.
• Manufacturing posted to strongest increase in production volumes since Apr/11 while services sector climbed at a slightly faster rate than in October.
• Higher input costs have been passed on to consumers with the report pointing to inflation accelerating to the fastest reading in years.
• “The German economy is going great guns, with manufacturing enjoying one of the best growth spurts seen over the past two decades… businesses are inundated with new orders, including sharp growth in manufacturing export sales, which is powering a strong and sustained spell of employment growth,” Markit said in the report.
• Markit Manufacturing PMI: 62.5 v 60.6 in October and 60.4 forecast.
• Markit Services PMI: 54.9 v 54.7 in October and 55.0 forecast.
• Markit Composite PMI: 57.6 v 56.6 in October and 56.7 forecast.
UK – Productivity growth rate has been almost halved over the next five years compared to previous estimates prepared in March.
• Weaker productivity is expected to weigh on growth forecasts with the OBR estimating the economy to expand 1.4% next year, down from 1.6% forecast previously.
• While borrowing forecasts have been reduced for 2017, the level is set to increase through 2019-21 amid estimates for a weaker economic growth.
• The pound finished higher against the US$ yesterday largely driven by a weakness in the dollar as Fed minutes highlighted officials’ concern over soft inflation.
• The second GDP reading showed growth of 0.4%qoq/1.5%yoy has been mostly driven by consumers with business investments growth rates falling and a negative contribution from trade.
France – Business confidence at the highest in nearly 10 years in November with respondents ranking current conditions on par to pre-crisis levels.
• The Insee business climate index climbed two points to 111 this month, well above the long-term average of 100.
• Markit production indices have also came in strong with business executives reporting overall confidence at a six-and-a-half year high.
• Stronger output came amid a further increase in new orders extending gains in employment to 13 months with more jobs recorded in both the services and manufacturing sectors.
• Positive demand and output numbers saw further increases in input costs as well as final product prices.
• “Taken together, the latest numbers suggest the night is still young with regard to the French private sector’s economic recovery,” Markit commented on numbers.
• Markit Manufacturing PMI: 57.5 v 56.1 in October and 55.9 forecast.
• Markit Services PMI: 60.2 v 57.3 in October and 57.0 forecast.
• Markit Composite PMI: 60.1 v 57.4 in October and 57.2 forecast.
Currencies
US$1.1837/eur vs 1.1765/eur yesterday. Yen 111.20/$ vs 112.04/$. SAr 13.866/$ vs 13.898/$. $1.331/gbp vs $1.325/gbp
0.762/aud vs 0.757/aud. CNY 6.584/$ vs 6.617/$.
Commodity News
Data falsifying scandal unveils new culprit
• The latest Japanese manufacturer involved in the series of quality assurance scandals shows a Mitsubishi Materials Corp. unit falsified product data for years according to Nikkei financial daily reporting. Despite discovering no immediate safety problems, Mitsubishi Cable Industries have falsified data on its O-rings, a sealing product supplied “to the critical areas of aircraft and aerospace and nuclear use”.
• The news follows an investigation launched on the back of the scandal which rocked Kobe Steel, which has shaken up global supply chains and forced global automakers, aircraft manufacturers and other companies to check on the safety or performance of their products.
Precious metals:
Gold US$1,290/oz vs US$1,283/oz yesterday
• The dollar index fell to its lowest level in more than a month at 93.21 as minutes from the US Federal Reserve meeting highlighted concerns over persistent low inflation. According the ANZ Research, “Investors pushed aside signs that a [US interest] rate hike is imminent in the short term; instead viewing comments about low inflation as reducing the number of anticipated rate hikes in 2018”. The minutes also showed officials were reluctant to vote for additional rate increases until confidence in rising inflation was sustained, with the near-term target range depending on positive upcoming economic data.
• Uncertainty was reflected in Fed Chair Janet Yellen who offered a prediction that US inflation will soon rebound, but was open to the possibility that prices could remain low for years to come.
• However, a buoyant gold price was halted with investors taking profits after gains of nearly 1% in the previous session over the policymaker concerns.
• Prominent industry bull, Rob McEwen, foresees gold at the base of a safe-haven surge with forecast prices surpassing $5,000/oz in five years. Lower-for-longer interest rates have fueled bubbles in the stock, real-estate and even art markets as investors seek higher returns, with the metal as a haven from inevitable geopolitical and financial risk.
Gold ETFs 69.5moz vs US$69.5moz yesterday
Platinum US$934/oz vs US$936/oz yesterday
Palladium US$1,003/oz vs US$1,005/oz yesterday
Silver US$17.09/oz vs US$17.01/oz yesterday
Base metals:
Copper US$ 6,917/t vs US$6,938/t yesterday - Chile state copper giant to get boost from election
• World’s largest copper miner, Codelco may see a boost in investment cash regardless of who wins next month’s presidential runoff in Chile as both candidates have vowed to end state run firm’s funding of the military.
• Currently dictatorship era law that transfers military 10% of export sales worth at least $866m last year.
• Will see what the Chilean Generals has to say about that!
•
• Copper pulls back from a four-day rally as low seasonal demand and high refinery output weakens the Chinese spot market. Chinese consumption slowed as reliance on stocks fell, with SHFE copper inventories swelling on arbitrage trades from LME warehouses. LME copper stockpiles continued to fall for the 6th day to their lowest levels since September.
Aluminium US$ 2,102/t vs US$2,099/t yesterday
Nickel US$ 11,685/t vs US$11,780/t yesterday
• Nickel prices are expected to rise, finding support from a growing supply side deficit of 54,300 tonnes in the first three quarters of 2017. The International Nickel Study Group report envisages a deficit of almost 100,000 tonnes for the full year, implying a huge shortfall in supply in the fourth quarter.
• The support for the deficit comes as Philippine President Rodrigo Duterte, leader for the world’s largest nickel supplier, maintains his ban of new open-cast mines.
Zinc US$ 3,214/t vs US$3,228/t yesterday
Lead US$ 2,430/t vs US$2,481/t yesterday
Tin US$ 19,375/t vs US$19,375/t yesterday
Energy:
Oil US$62.9/bbl vs US$63.3/bbl yesterday
Natural Gas US$2.952/mmbtu vs US$3.008/mmbtu yesterday
Uranium US$24.50/lb vs US$26.00/lb yesterday
Lithium - Tesla builds world’s largest lithium ion battery in South Australia
• Construction completed with testing expected ahead of December 1st operation deadline
• Battery will bring much needed security to South Australian power grid and theoretically has enough energy to power 30,000 homes for eight hours or 60,000 for 4
• Unlike regular system loads battery will be recharged with power from nearby Hornsdal windfarm
• Given that one in every million lithium batteries seems to explode we hope this new power plant will have sufficient fire breaks installed
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$64.8/t vs US$63.6/t
• Iron ore futures for delivery following the Chinese winter capacity cuts surged 19% in November as the “supply of high-quality ore in the main port of Shandong is tight, and traders are optimistic about the outlook”.
Chinese steel rebar 25mm US$678.9/t vs US$663.6/t
• Global steel manufacturing surges to record 145.3 million metric tonnes in October, building 5.9% y/y. The World Steel Association data showed that despite Chinese policy makers environmental closures, the nation was responsible for approx. half the output with 72.4 million tonnes. The green push is tightening market conditions to support steel prices, while Chinese export limitations are creating encouraging conditions for steel mills around the world.
Thermal coal (1st year forward cif ARA) US$82.5/t vs US$83.8/t
Premium hard coking coal Aus fob US$197.3/t vs US$193.7/t
Other:
Tungsten APT European US$271-285/mtu vs US$275-285/mtu last week - Bosch’s new tungsten coated brakes help reduce dust, wear and pollution
• Bosch’s iDisc's goal is to greatly reduce brake dust-related emissions which damage environment
• A tungsten-carbide coating is baked into a traditional cast iron brake disc, which can allegedly reduce brake dust by up to 90 percent compared to standard iron units
Cobalt LME 3m US$61000/t vs US$61250/t yesterday - LME probes cobalt supplies after complaints over child labour links
• Members raised concerns when exchange allowed Chinese group to trade untraceable metal in London which may have come from mines using child labour in the Democratic Republic of Congo
• Earlier this month LME sent directive to all suppliers asking to detail how they guarantee responsible sourcing of commodities- If tainted cobalt found in network of warehouses could trigger backlash against exchange
Company News
Altus Strategies* (ALS LN) 8.0p, Mkt Cap 8.6m – JOGMEC terminates MOA at Tigray-Afar
BUY – Target price 12.2p
• Japan Oil, Gas and Metals National Corporation or JOGMEC decided to end a JV with Altau Resources, a wholly owned Altus subsidiary, with regards to the 322km2 Tigray-Afar and 144km2 Negash licenses, northern Ethiopia, on 19 Dec/17.
• The agreement (MOA) with was signed in 16 Sep/14 allowed JOGMEC to acquire an initial interest to 51% in the project by funding $2.5m in expenditures through 31 Mar/16.
• Additionally, Altau had an option to either co-fund the 49% interest in the project or have JOGMEC raising interest to 70% by spending a further $7.0m by Mar/19.
• As of this date, JOGMEC spent more than $3.0m since 2014 covering three drilling programmes.
• Following the termination of the agreement, Altus retains 100% ownership of the project as well as all the data generated in the course of the MOA.
• Exploration programme has previously identified four copper-silver targets including a 13km long Slater prospect with grab samples returning grades up to 22% Cu and 102g/t Ag and 1.2km long Agamat prospect with grab sample grades up to 8.7% Cu, 99g/t Ag and 13.5g/t Au.
• While a number of drill holes showed modest grades, some selected drilling results came back with good looking close to surface intersections including 18m at 0.90% Cu from 27m at Agamat (ADD001) and 16m at 1.14% Cu from 25.1m, 13m at 1.24% Cu from 50m (SDD002) and 12m at 1.22% Cu (SDD015) at Slater.
• The team is currently reviewing technical data ahead of an exploration update due shortly.
Conclusion: The Company is planning a review of technical data assessing where next for Ethiopian licenses. As the potential for the termination of the agreement has been flagged previously, we used costs incurred basis to value Ethiopian assets assigning $3.4m to Altus’ share of licenses which leaves our NAVPS unchanged at 12.2p.
*SP Angel acts as Nomad and Broker to Altus Strategies
Bushveld Minerals (LON:BMN) 8.8p, mkt cap £70.7m – Bushveld subsidiary, Lemur Holdings signs purchase agreement for power project in Madagascar
BUY – Target price maintained at 11p
(Bushveld Minerals holds 100% of Lemur Holdings)
• Bushveld Mineral’s subsidiary Lemur Holdings has signed a power purchase agreement with the Madagascar State Power Utility.
• The agreement relates to a proposal to build a new 60MW capacity independent and integrated coal mine and power plant.
• The agreement runs for 30 years starting in 2021 and is for an initial and modest 10MW of power capacity.
• The power is forecast to help bring >US$1bn of economic benefits to the region and to assist with direct investments of >$300m over its lifetime.
• The project will add to an existing 15MW of existing power capacity in the town of Tulear, which will demand an additional 30MW of generation capacity.
• Off-take agreements are ongoing for this.
• Madagascar has total installed power capacity of just 504MW.
Conclusion: We have no value within our valuation for the Lemur Holdings subsidiary. We expect this project will add to value when there is sufficient detail available to calculate its potential net worth to Bushveld.
*An SP Angel Mining analyst and nomad have visited the Vametco vanadium mine and processing facilities in South Africa.
Georgian Mining* (LON:GEO) 17.4p, Mkt Cap £19.9m – Drilling continues to show greater copper and gold potential at Kvemo Bolnisi
(Georgian’s assets in Georgia are held in a 50:50 joint venture)
STRONG BUY
• Georgian Mining report results from drilling at Kvemo Bolnisi as they progress towards defining a >50mt copper, gold resource. This target should grow on new identified targets.
• The Kvemo Bolnisi site looks like three large joined hills. Geologic activity has broken much of the rock to leave a soft and friable mineralisation with historic brecciation around which much of the mineralisation sits. The site indicates very simple, low cost, mining with little blasting required and with a virtual waste to ore ratio.
• A new discovery at Gold Zone 3 'GZ3' 150m to the west of GZ2 should add meaningfully to the resource tonnage when it is better defined.
• Previously drilling produced 144m grading 0.65g/t gold from 117m including: 1.2m at 35g/t gold from 67m, 75m at 0.46g/t from 117m and 56m at 1.03g/t from 205m
• Visual inspection shows two new holes to intersect the same mineralisation indicating an increase in strike while other data indicates the mineralisation should connect at depth
• Further work also suggests that mineralisation also extends to the south of the JORC resource which currently stands at:
o 3.154mt at 0.82% Cu & 0.14g/t gold
o 2.29Mt @ 0.85g/t gold – for the overlying gold oxide resource (metallurgical work continues ahead of heap leaching this gold material)
• JV negotiations: negotiations continue over the proposal to process the gold oxide at the JV partner’s heap leach site which is within site of the new mine.
• Resource potential: new drilling scheduled to start next year at Tamarisi and Dambludka indicate potential to increase the targeted 50mt resource
• Sampling of adits shows grades of up to 775g/t gold in previous work
• Exponential tonnage growth potential: a different mineralisation style to the west in Gold Zone 3 suggests potential for much larger resource as seen in carbonate base metal low sulphidation epithermal deposits.
• Drilling at GZ3 already shows an intersection of around 143m grading an average 0.64g/t gold. Two further step-out drill holes have been completed and are awaiting analysis.
• Resource update: a further update on the mineral resource is underway.
• See full press release for maps and further details: https://www.rns-pdf.londonstockexchange.com/rns/2838X_-2017-11-22.pdf
Conclusion: It is good news to see the project continue to expand in terms of its potential copper and gold JORC resources. Less good are delays in the assaying of drill cores and in the signing of agreements to start processing Georgian Mining gold oxide material at the Madneuli heap leach. We feel reassured at the growing scale of the copper and gold resources and look forward to further updates.
*SP Angel acts as Nomad and Broker to Georgian Mining. An SP Angel mining analyst recently visited the Kvemo Bolnisi site in Georgia.
Gem Diamonds (LON:GEMD) 78p, Mkt Cap £108m – Another large diamond recovered at Letseng
• Gem Diamonds reports that its 70% owned Letseng mine in Lesotho has yielded another large diamond.
• The latest discovery is described as “a high quality 202 carat, D colour Type IIa diamond” and is the seventh stone larger than 100 carats recovered so far in 2017 and appears to be the largest stone recovered this year.
• The recovery of a 115 carat D colour Type IIa diamond was reported in September; a 126 carat stone in July; a 105 carat and 152 carat stone were reported in June; and a 114 carat diamond in April.
• The company’s website discloses that a sale of large diamonds is scheduled to take place between 29th November and 7th December. It is unclear whether the recent discovery will be offered for sale in this forum or at another time, however, the forthcoming sale will provide a useful indication of the market’s current appetite for the large, high value diamonds which are coming from Letseng.
• The Letseng mine has built a reputation for the recovery of large, high value and quality diamonds, including the 123 carat "Star of Lesotho", the 603 carat, Lesotho Promise and the 357 carat Letseng Dynasty diamond which was recovered in July 2015 and subsequently sold for US$19.3m.
Conclusion: The latest large diamond recovered from Letseng underlines the success of the company’s moves to minimize breakage and optimise the recovery of larger diamonds.
IronRidge Resources (LON:IRR) 29.3p, mkt cap £80.3p – Field exploration restarts in Chad
• IronRidge Resources is restarting exploration at its Dorothe project in Chad with the mobilisation of an excavator to resume trenching for the 2017/2018 field season.
• Trenching is intended to test the strike continuity of the target zones located during the previous work, including the potential southward extension of the Dorothe Main Vein, and to test “for possible extensions concealed below recent cover sediments.”
• Additional work planned for the coming exploration programme also includes regional soil sampling at Dorothe and infill soil sampling at the Echbara prospect.
• The company comments that during the wet season since its last phase of work, “artisanal miners have identified new zones within the Dorothe prospect, and opened new workings over 25m strike and up to 10m vertical depth. The new workings coincide with reported intersections in previous trenching”.
Conclusion: The resumption of exploration following the wet season allows IronRidge to follow up on previous targets with further early stage exploration which should lead to the identification of targets for an initial drilling programme. We look forward to further news on the most promising targets as work proceeds.
*SP Angel act as Nomad and Broker to IronRidge Resources
Rainbow Rare Earths Ltd (LON:RBW) – 16.3p, mkt cap £25m – Geophysics identifies exploration targets for future drilling
• Rainbow Rare Earths reports that a helicopter mounted aero-magnetic and radiometric survey conducted over the Gakara licence in Burundi has identified “four conspicuous magnetic anomalies … although this figure may increase as the data is analysed further”.
• The company comments that “these anomalies present the targets for the Company’s first ever drill programme when cashflows from operations allow.”
• The geophysical anomalies are interpreted to represent carbonatite intrusions which may be related to the emplacement of the rare earth bearing veins comprising the Gakara deposit.
• Chief Executive, Martin Eales, also confirms that “the first shipment of Gakara concentrate [is] imminent” and went on to comment that “We have believed for some time that the high-grade Gakara veins must have emanated from a substantial carbonatite source and through our recent work we have established some extremely positive indicators for the locations of what may be multiple carbonatites within our licence area that will be a key focus for our near-term exploration campaign.”
Conclusion: The geophysical survey points to a potential source for the mineralised veins at Gakara. We await news of the follow up exploration and of the initial concentrate shipments.