Morning View . Copper looks strong as prices regain lost ground

SP Angel – Morning View – Tuesday 19 12 17

Copper looks strong as prices regain lost ground

Lithium - Chinese groups make$C265m swoop for Canada’s Lithium X

• China’s Tibet Summit Resources and its partner NextView Capital have agreed to buy Canadian lithium producer Lithium X for $C265m ($206 USD) in latest move by Chinese companies to secure raw battery materials for EV market
• This is a second investment for NextView Capital into lithium following its agreement to buy a 20% stake in Bacanora Minerals.
• Lithium X has two lithium projects in Argentinas’s Salta province as well as stake in Pure Energy Metals, a developing lithium project in Nevada

Chiles’s SQM to negotiate extending lithium quota after election

• SQM has said it will seek to end its long running dispute with Chilean regulators over how much lithium it can produce following election of billionaire Sebastian Pinera as president.
• The company has agreed to begin a ‘new conciliation process’ aimed at ending arbitration with Corfo the Chilean regulator for lithium so it can increase the amount of lithium it can extract.
• The process could end a deadlock that has prevented SQM, the world’s largest producer of lithium, from expanding production further.

China raises 2018 import tax on melting refined nickel

• China has raised taxes on melting refined nickel. This is likely to have the greatest impact on nickel imports from Russia as well as some impact on Finland, South Africa and Brazil. The move is part of China’s anti-pollution drive.

Dow Jones Industrials

+0.71%

at

24,827

Nikkei 225

+1.55%

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22,902

HK Hang Seng

+0.70%

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29,050

Shanghai Composite

+0.05%

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3,268

FTSE 350 Mining

+1.88%

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17,632

AIM Basic Resources

+0.98%

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2,612

Economics

US – Equities continued strong in final weeks of the year closing at record highs on Monday on increasing optimism over a potential approval of the lower corporate tax rates bill this week.

• The US$ index is rangebound this morning as the lower chamber of Congress is preparing to hold a vote on the tax package today.

China – The World Bank marginally upgraded Chinese GDP growth rate for 2017 to 6.8%, from 6.7% forecast in October, on the back of strengthening household incomes and a recovery in global trade.

• Nevertheless, estimates for 2018 and 2019 suggest growth is set to gradually comed down to 6.4% and 6.3%, respectively, amid a continued domestic policy tightening.
• “The authorities have undertaken a host of policy and regulatory measures aimed at reducing macroeconomic imbalances and limitgin fincnail risks without notable impact on growth. As a result, 2017 has been a successful year for China on many fronts,” the report read.

Germany – Business confidence held up close to the highest in years with both measures of current situation as well as outlook coming in strong.

• The report follows positive Markit PMI surveys that saw both manufacturing and services sectors posting good performance amid strengthening business outlook, increasing orders and lower unemployment.
• IFO Business Climate: 117.2 in December v 117.6 in November and 117.5 forecast.

UK – British businesses are fearing changes to the labour market regulations following Brexit will make the nation a less attractive investment destination over the next five years, the latest CBI survey showed.

• Around 2/3s of surveyed highlighted increasing pessimism about the UK outlook compared to 50% in 2016 and 25% in 2015.
• Businesses highlighted a potential difficulty in finding the right staff citing a potential skills gap as their biggest concern amid uncertainty regarding the future relationship with the UK.
• On a positive side of things, the report cited manufacturing orders hovering around a three-decade high in December amid an economic recovery elsewhere in Europe and a drop in the British pound.
• Industrial order book balance remained at +17 in December, the joint highest level since August 1998.

Spain – Catalonia will hold regional elections this Thursday after the national government dismissed the regional office and the Catalan Parliament in late October and called new elections in an effort to take the heat out of the political crisis.

• Last week, the ousted leader of Catalonia Carles Puigdemont addresses his supportrs ahead of the vote in the Catalan city of Igualada using satellite from Belgium.
• Opinion polls show that PM’s Popular Party is looking to record a major defeat in upcoming elections, although another anti-independence party (Cuidadanos) is expected to make major gains.

South Africa – Cyril Ramaphosa secured leadership of the ANC party eyeing the President seat in 2019.

• Ramaphosa has pledged to kickstart growth, rebuild investor confidence and bring a 28% unemployment rate down through the establishment of special economic zones, tax reforms and other business-oriented incentives as well as increased infrastructure spending.
• The target is to accelerate economic growth to 3% next year and 5% by 2023 compared to a meagre 0.7% forecast by the government in 2017.
• The rand is up more than 6% against the US$ since the start of December while yields on 10y government bonds fell nearly 55bp to 8.7% since last Friday when expectations for a Ramaphosa victory began to build up.

Currencies

US$1.1805/eur vs 1.1787/eur yesterday Yen 112.44/$ v 112.05/$ SAr 12.754/$ vs 13.478/$ $1.340/gbp vs $1.343/gbp 0.768/aud vs 0.769/aud CNY 6.616/$ vs 6.607/$.

Commodity News

Precious metals:

Gold US$1,263/oz vs US$1,257/oz yesterday

• Gold spot price advances ahead of the last legs of the proposed Republican tax code reform, with House and Senate planning to vote by Wednesday. Market confidence grew as the Republican-controlled US Congress appeared all but certain to pass the sweeping tax legislation this week following further support by two Senate Republican holdouts on Monday.
• Despite short-term expectations that passing the tax reforms and getting the bill signed will boost interest in risk assets, raising interest rates and the dollar, gold prices edged higher. Optimism surrounding the bill has helped equities to continue their sustained growth, however the dollar index remained subdued as investors try to forecast its ultimate impact on economic growth with signals of a flattening yield curve. Outgoing Federal Reserve Chair Janet Yellen mirrored with the sobering assessment that the reform will give a short-term bump, but no longer-term boost.
• That being said INTL Fcstone analysts are wary of gold’s upside potential with “higher equities, surging bitcoin prices, and the possibility that the tax bill could trigger a modest short-term uptick in both the dollar and US yields”.

Gold ETFs 71.8moz vs US$71.7moz yesterday

Platinum US$913/oz vs US$882/oz yesterday

Palladium US$1,019/oz vs US$1,037/oz yesterday

Silver US$16.15/oz vs US$15.96/oz yesterday

Base metals:

Copper US$ 6,905/t vs US$6,796/t yesterday

• Rising production across China is silencing slowing demand concerns as refined copper output jumps c. 10% yoy to 786,000 tonnes, the highest rate in over three years according to data from the National Bureau of Statistics. Smelters across the nation are capitalizing on elevated copper prices, driving margins. Smelting facilities are also working at capacity to offset October’s disappointing refined import figures, with cargoes falling 5% over the first 11 months of the year.
• The rise in forecast economic growth for China by the World Bank signaled broad growth across industrial metal prices, as personal consumption and foreign trade are expected to boost growth to 6.8%.

Aluminium US$ 2,074/t vs US$2,047/t yesterday

• Slowing winter demand for aluminium is expected to see prices retreating from the three-day advance.

Nickel US$ 11,830/t vs US$11,250/t yesterday

Zinc US$ 3,196/t vs US$3,199/t yesterday

Lead US$ 2,561/t vs US$2,502/t yesterday

Tin US$ 19,350/t vs US$18,875/t yesterday

Energy:

Oil US$63.1/bbl vs US$63.6/bbl yesterday

• US shale output is set to rise for the 13th consecutive month on sustained oil prices, as the Energy Information Administration increase their forecast by 94,000 bpd to 6.41 million bpd.

Natural Gas US$2.756/mmbtu vs US$2.711/mmbtu yesterday

Uranium US$24.40/lb vs US$24.40/lb yesterday

Bulk:

Iron ore 62% Fe spot (cfr Tianjin) US$72.3/t vs US$68.1/t - Iron ore prices rise as China clean air policies drive demand for better quality ores

• Iron ore prices are rising again as China tightens its environmental policies requiring the use of better quality iron ore for more efficient steel production.
• Demand could also expand into next year as rising profits encourage steel mills to increase production

Rio Tinto embarks on automation roll out at Pilbarra iron ore operations

• Rio Tinto continues to expand its fleet of autonomous haul trucks with a new agreement with Caterpillar and Komatsu to convert traditional trucks to autonomous vehicles
• Project scheduled for completion by mid-2019 should increase the number of autonomous trucks in Rio’s fleet by 50%, allowing its mine to run entirely in AHS mode once fully deployed, projects are expected to make significant contribution to $5bn productivity programme

Chinese steel rebar 25mm US$742.7/t vs US$742.3/t

Thermal coal (1st year forward cif ARA) US$90.6/t vs US$89.1/t

• Mining giant BHP Billiton announced the preliminary withdrawal from the World Coal Association citing a disagreement over climate change mitigation. The company may also remove its status within the US Chamber of Commerce over concerns from investors over membership of groups which actively criticize the Paris climate accord and rejected targets to increase use of renewable energy sources.
• While BHP has cut emissions by c. 61% over the last six years to 2016, it still remains among the world’s top emitters, with 21% revenue from coal operations. The company, which is targeting net zero emissions from its operations in the second half of this century, aims to “continue to call out material differences where they exist and will take action where necessary” BHP chief external affairs officer, Geoff Healy.
• While a positive move, activists on climate change foresee slow progress, with a need for coal-producing companies to “realise thermal coal must be phased out faster or the world can’t meet its Paris climate targets” (Ian Dunlop, former president of the Australian Coal Association).

Adani Group cancels A$2bn contract to build the Carmichael coal mine in Australia

• Adani has cancelled a contract with Downer, the Australian services company for the construction of the Carmichael coal mine.
• The decision comes after the vetoing of a A$900m low-cost loan to Adani by the Queensland state government and the failure of Chinese investors to also back A$15.5bn construction of the new mine.
• The fall in thermal coal prices, international environmental opposition and the failure of Chinese investors to fund the project are significant impediments to the project.

Premium hard coking coal Aus fob US$236.1/t vs US$236.1/t

Other:

Tungsten APT European US$295-300/mtu vs US$293-300/mtu last week

Cobalt LME 3m US$72250/t vs US$72250/t yesterday

• Automaker BMW added fuel to the fire for rapidly growing cobalt demand as it announces the plant to offer 25 electrified vehicles by 2025, drawing a 10-fold requirement for car-battery raw materials such as cobalt and lithium. CEO Markus Duesmann notes that BWM are set to sell a minimum of 100,000 cars this year which are at least partly powered by the technology and notes growing competition to secure five- and 10-year supply contracts.
• With VW and Daimler AG boosting European investment into battery-powered vehicles, committing over $40 billion in the next five years, booming EV demand is forecast to quadruple demand in excess of 450,000 tonnes by 2030.

Company News

Acacia Mining (LON:ACA) 181 pence, Mkt Cap £743m – US$45m sale of Hounde royalty

• Acacia Mining reports the sale of its 2% net smelter royalty over the Hounde mine in Burkina Faso for US$45m.
• The company has held the royalty over the mine, which is owned by Endeavour Mining and reached commercial production in October, since 2010.
• The disposal of the royalty, which was purchased by Sandstorm Gold in a competitive tender. We note that Sandstorm Gold merged with the discoverer of the 3moz Hot Maden deposit in Turkey, Mariana Resources, in July this year.

Conclusion: The disposal of the Hounde royalty, in conjunction with the remedial action taken in response to the new measures on concentrate exports from Tanzania at the Bulyanhulu and Buzwagi mines, should inject further resilience into Acacia Mining’s balance sheet.

Avesoro Resources (LON:ASO) 1.95pence, Mkt Cap £104m – Completion of Youga and Balogo acquisitions

• Avesoro Resources reports that it has now completed the previously announced US$20m (£15.2m) acquisition of the Youga and Balogo gold mines in Burkina Faso from its 73.5% owner, Avesoro Jersey Limited.
• The company describes the transaction as “transformational” adding the expected 110,000oz pa of gold production from Burkina Faso to the 70-80,000 oz from the New Liberty mine in Liberia, and offering additional future production growth opportunities.
• Commenting on the conclusion of the acquisition, CEO, Sam Umurhan, said “With the completion of the acquisition and resulting growth in our portfolio, the Company will end the year having taken a significant step forward in achieving its stated plan to become a premier mid-tier African gold producer.”
• The acquisition was financed by a placing of new shares at 1.9p/share.
• Since gaining control of the former Aureus Mining, Avesoro Mining has significantly improved the New Liberty gold mine in Liberia with improvements to the process plant to boost recovery and eliminate bottlenecks and has re-engineered the mine plan to improve returns through a shorter mine life at higher throughput.

Conclusion: The acquisition of an additional 110,000oz pa of gold production in Burkina Faso should put Avesoro in the thinly-populated 200-250,000oz pa, mid-tier gold producer range in the London market and hence offer a wider range of options to investors.

Base Resources (LON:BSE) 16.5 pence, Mkt Cap £123m –Toliara Sands acquisition and A$100m fundraising

• Base Resources has announced a binding agreement to acquire the Toliara mineral sands project in Madagascar. The company is to acquire an initial 85% interest for US$75m and the remaining 15% interest for a further US$17m payable as specified milestones in project development are achieved. The vendor is World Titane Holdings.
• The deposit contains a measured and indicated resource of 612m tonnes at an average grade of 6.7% heavy minerals with a further, implied, inferred resource of 245mt at an average grade of around 5%.
• Mining trials and metallurgical test work completed to date “support a simple dry mining operation and technically straight forward process flowsheet.”
• “Base Resources’ development plan should see the Toliara Sands Project in production in mid-2021.”
• In order to finance the initial US$75m tranche of acquisition funding, Base Resources has announced a partially underwritten share placement to raise A$100m at a price of A$0.255/share. We note that “This acquisition is conditional only on Base Resources completing an equity raising for a minimum of A$80 million to partially fund the acquisition costs.”

Conclusion: The Toliara acquisition provides Base Resources with an alternative asset to the declining Kwale mineral sands operation in Kenya.

Bluebird Merchant Ventures (LON:BMV) 2.25p, Mkt Cap £4.2m – CEO commits to fund Feasibility on Gubong gold project in South Korea

• The CEO of Bluebird Merchant Ventures, Mr Colin Patterson, has personally undertaken to fund Feasibility Study work on the re-opening of the Gubong Gold mine in South Korea. Bluebird has a commitment with Southern Gold to spend US$0.5m on this work to qualify for the 50% stake it holds in the mine.
• Patterson has also taken the A$250,000 placement in Southern Gold on behalf of Bluebird, which was also part of deal for the 50% stake.
• The directors reiterate that they do not intend to place shares in Bluebird till the share price reflects reasonable value for the Gubong project
• Other soft loans of US$0.5m to the company by management and key associates have also been extended to various dates from May 2018 and carry a coupon of 8%.
• Assays from the recent underground and surface sampling programs are due in January.
• Colin Patterson and Aidan Bishop are also taking 100% of their respective remuneration in shares with the company also implementing a salary sacrifice mechanism for other members of the board and key management reducing cash outflows to minimal levels.
• The Bluebird team recently re-opened a number of portals into the Gubong gold mine abseiling 50m down a 2x4m concrete lined incline shaft which may have been the main production shaft for the mine.
• Bluebird also accessed ‘adit 4’ for a total distance of 250m which appears to give access a number of unmined narrow veins.
• Former drill results show high grade gold intersections with 17,715m drilled in 52 holes from 1968-2013
• Southern Gold, which holds the licenses, drilled a further five drill holes from 2014-15.
• Best results include:
• 1.6m at 27.9g/t Au from 845m, 1.5m at .9g/t from 347m, 3.0m at 15.2g/t from 442m, 0.9m at 8.4g/t from 111m
• The ability to see and sample ore from underground should enable the company to fast track its way through exploration to production enabling early cash flow generation from small scale mining if and when permitted.
• The Gubong mine was South Korea’s second richest gold mine and was closed in 1971 at a time when gold prices were around US$38.9/oz.
• The company also has a new website at www.bluebirdmv.com

Conclusion: It is unusual to see a smaller mining company CEO make such a positive and firm commitment to his company. Today’s statement sets Bluebird apart from many other juniors as it indicates significant confidence in the Gubong project as well as a commitment by management to preserve shareholder value through the ongoing funding of the Feasibility Study through internal finance. We look forward to further news flow in the new year on underground and surface sample assays.

*SP Angel act as broker to Bluebird Merchant Ventures

European Metals (LON:EMH) 37 pence, Mkt Cap £47.9m –Cinovec Northwest resource and update on metallurgy

• European Metals Holdings reports that “the Cinovec NorthWest Reasource has … been added to the Czech State resource register.” A similar status was granted to the Cinovec South resource in February this year and was described as “the first step in the process for the granting of a mining permit.”
• The overall Cinovec deposit currently has 372m tonnes of indicated resources at an average grade of 0.44% Li2O and a further inferred resource of 324m tonnes at an average grade of 0.39% Li2O, making it one of the world’s largest lithium deposits. The split between the different parts of the deposit is not disclosed in today’s announcement.
• The company has also provided an update on recent optimisation studies which “has demonstrated the ability to reduce roast temperatures and duration which can result in significant cost savings both in CAPEX and OPEX.”

Conclusion: The announcement today provides encouragement on progress towards applying for a mining licence and on potential cost savings in the process plant. There appears, however, to be no indication of the timetable for either the completion of feasibility work on the project or on the possible application for mining permits.

Sunstone Metals (ASX:STM) A$0.023p, Mkt Cap £26m – Bramaderos shows interesting copper and gold grades in trenching in Ecuador

• Sunstone Metals report long intersections of gold and copper in surface trenching at their Bramaderos project in Southern Ecuador.
• Trench assays show:
• 74.3m grading 0.69g/t gold and 0.15% copper, including 51.1m at 0.81g/t gold and 0.18% copper.
• Previous drilling done in 2001 also shows:
• 248.1m grading 0.56g/t gold and 0.14% copper to the end of hole starting at just 9.14m depth
• Furthermore, mineralisation at the end of the hole returned 0.93g/t gold and 0.22% copper over 2.2m.

Conclusion: These are promising results given their near-surface location. The challenge is now for Sunstone to show bulk tonnage potential with further drilling. The Sunstone press release contains a cross section of the drill hole and how the geology potentially connects between the trench results and previous drilling at Bramaderos.