Today's Market View - E.rickshaws outnumber Chine Electric Vehicles

SP Angel – Morning View – Monday 29 10 18

E-rickshaws outnumber Chine Electric Vehicles

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Cora Gold* (LON:CORA) 8.8p, Mkt Cap £4.8m – Publication of the Exploration Target Report

Firestone Diamonds (LON:FDI) 4.4 pence, Mkt Cap £22.9m – Q1 production

Horizonte Minerals (LON:HZM) 3.5 pence, Mkt Cap £49m – Araguaia feasibility study

IronRidge Resources* (LON:IRR) 22.3, Mkt Cap £62.7m – IMARC Africa focus day presentation 2018

Kefi Minerals* (LON:KEFI) 1.7p, Mkt Cap £9.1m – Resettlement programme update

SolGold* (LON:SOLG) 38p, Mkt Cap £691m – Shares issued

URU Metals* (LON:URU) 0.35p, Mkt Cap £2.7m – Zebediela licnese renewal

Lithium expansion struggles highlight supply growth not so easy

• Even established majors are experiencing struggles ramping up essential lithium supply to match the rapidly growing Li-ion battery demand. SQM, one of the largest and most-profitable producers have revealed a five-week delay in a project to take annual capacity to 70,000t from 48,000t.
• The delay serves to highlight the challenges to meeting demand, and should appease growing concerns of global oversupply which has weighed on lithium prices during 2018. Complex chemistry and highly variable weather conditions is creating a difficult environment to extract lithium from extensive salt flat salars.
• Santander analyst adds “from a glass-half-full perspective, it shows that even the best lithium producers find it challenging to add new capacity. Therefore, as in the past, many of the capacity expansion announcements of other players (especially junior mining) will never see the light”.

E-rickshaw - India’s rickshaws outnumber china’s electric vehicles

• India is home to about 1.5m battery-powered, three-wheeled rickshaws – a fleet bigger than the 1.35m electric passenger cars sold in China since 2011.
• As many as 11,000 new e-rickshaws appear on the road every month, and annual sales are expected to increase about 9% by 2021 as drivers have discovered they are quieter, faster, cleaner and cheaper to maintain that traditional rickshaws.
• India’s dominant ride-hailing start up, Ola, plans to place 10,000 e-ricks in its service by next April
• Please see Eric-Shaw for further info

Dow Jones Industrials

-1.19%

at

24,688

Nikkei 225

-0.16%

at

21,150

HK Hang Seng

+0.38%

at

24,812

Shanghai Composite

-2.18%

at

2,542

FTSE 350 Mining

+0.37%

at

16,655

AIM Basic Resources

-0.49%

at

2,077

Economics

Germany – Angela Merkel is planning to stand down as leader of the Christian Democratic Union amid further signs of weakening support for the party in regional elections, according to German media reports.

• Sunday elections in Hesse resulted in the CDU winning the vote, although, its share of the total count fell by more than 11 points.
• The junior coalition partner, the Social Democrats, reported worse results wit increasing pressure on party leaders to quit the government which may sPark a new general election.
• The euro is 0.1% lower against the US$ this morning having narrowed some of earlier losses following the release of election results.

Italy – S&P cut Italy’s sovereign debt outlook to negative from stable on Friday citing new government’s policy plans weighing on the nation’s growth and debt prospects.

• The rating agency left the rating at BBB, or two notches, above junk status, with the negative outlook suggesting it could cut the risk measure over the next 24 months.
• “In our opinion, the plan (budget) represents a reversal of Italy’s previously sustained fiscal consolidation path and partly undoes past pension system reform… as a result, we no longer expect Italy’s government debt to GDP to continue on a downward path,” the agency wrote.
• S&P forecasts budget deficit at 2.7% of GDP in 2019, 0.3pp higher than official estimates of 2.4%.
• The spread over 10y Bunds remains high trading at 299bp which in turn complicates the sustainability of the public finances.
• As Capital Economics puts it “ stepping back, the underlying problem in Italy is one of chronically weak economic growth against a backdrop of a large public debt stock, and all set within the constraints of a monetary union in which Italy’s central bank can’t stand behind the government bond market”.
• “It’s possible that this latest spat blows over and Italy back down – after all, the EU has so far won all of its stand-offs with profligate governments… but if it doesn’t, this has the potential to reignite the euro-zone crisis – and on a scale much larger than that seen in 2010-14”.

Italy is creating potential for Eurozone crisis if Italy refuses to back down to ECB demands on adjusting its proposed budget

• The ECB is used to getting its way with member states when it comes to budget discipline.
• Problem is the government in Rome is keen to support growth at the expense of reducing its fiscal debt.
• The ECB is not happy and is keen assert a more austere approach despite chronic weak growth in the Italian economy and relatively high unemployment.

Chinese companies see slower growth and weaker profits as GDP growth slows to 6.5% in Q3 and product prices fall

• Chinese companies are unable to keep pace with last year’s unusually strong growth as weaker product prices combine with a slowing of economic growth.
• Efficiency is still seen improving as operating costs and debt leverage is still falling enabling profitability to still improve.
• Profit growth gained just 4.1% in September vs 9.2% yoy in August. Still strong numbers by many standards.
• Steel, construction materials, oil and chemicals, accounted around 72% of the overall industrial profit increases in the first 9-months of this year.
• Q3 GDP growth slowed to 6.5% vs 6.8% in Q1 and 6.7% in Q2.
• Capital Economics see a more pronounced slowdown in China and further weakness ahead of US Tariffs with a cooling property market also likely to slow Chinese construction.
• Capital Economics saw Q3 GDP growth edging down to 5.5% yoy in September vs 5.5% in August

South Africa – Moody’s see weaker fiscal outlook in mini budget as a credit negative

• The South African rand continues to weaken following South Africa’s mini budget.
• The budget highlighted projects growth in government debt and greater fiscal deficit.
• This is likely to lead to further weakening of the rand and higher interest rates than previously forecast.
• Moody’s is the last major credit rating agency to continue to rank South Africa as investment grade.
• If Moody’s downgrades the nation further there may be a further exodus of funds out of the JSE and South African government bonds.

Brazil – Jair Bolsonaro secured 55.5% of the votes in the second round of presidential elections beating the leftist Workers’ Party (PT) candidate Fernando Haddad (45%).

• The vote came amid general frustration with the PT rule which has seen a number of corruption cases launched with top ranks of the party who have presided over the nation’s worst recession in history.
• Far right Bolsonaro promised to crackdown on crime and corruption and won support of investors by accepting the support of University of Chicago-trained economist Paulo Guedes, a supporter of small government and fee enterprise.
• Newly elected head of state plans to launch a privatisation programme, cut corporate and individual taxes and cap current pension spending.
• Success of reforms will largely depend on the ability to have those pushed through the national parliament where Bolsonaro’s Social Liberal Party, the second largest force, still has only 52 out of 513 seats while managing a ruling coalition may be challenging in a congress with 30 political parties.
• Markets have been climbing on the back of Bolsonaro promises to reform the pension system and launch a privatisation programme with the real up 13.5% against the US$ over the last six weeks while the regional Ibovespa benchmark up nearly 15%.
• The real is up 0.8% this morning.

Georgia – Presidential elections in Georgia go to runoff as candidates fail to score >50% of the votes.

• Salome Zurabishvili, backed by the ruling Georgian Dream party, topped the list of 25 candidates with 39% support, while Grigol Vashadze, a candidate supported by former President Mikheil Saakashvili and the representative of the Strength in Unity coalition , received 38%
• The European Georgia candidate, Davit Bakradze, who came in third with 11% of the votes has thrown his support behind Vashadze with the second round scheduled to take place within two weeks of final results.
• The new president will serve six years before the new election system comes into effect in 2024 allowing for a 300-member electoral college made up of members of parliament and local government representatives to elect the successor with the term reverting back to five years.

Currencies

US$1.1388/eur vs 1.1378/eur last week. Yen 111.96/$ vs 112.07/$. SAr 14.559/$ vs 14.610/$. $1.282/gbp vs $1.282/gbp. 0.710/aud vs 0.703/aud. CNY 6.956/$ vs 6.956/$.

Commodity News

Precious metals:

Gold US$1,230/oz vs US$1,234/oz last week

Gold ETFs 68.0moz vs US$68.1moz last week

Platinum US$832/oz vs US$827/oz last week

Palladium US$1,103/oz vs US$1,107/oz last week

Silver US$14.61/oz vs US$14.64/oz last week

Base metals:

Copper US$ 6,168/t vs US$6,129/t last week

Aluminium US$ 1,995/t vs US$1,985/t last week

Nickel US$ 11,780/t vs US$11,915/t last week

Zinc US$ 2,642/t vs US$2,611/t last week

Lead US$ 1,987/t vs US$1,996/t last week

Tin US$ 19,295/t vs US$19,310/t last week - China tin supply expecting outages as the majority of concentrators in Gejiu city in Yunnan province, 30 of 51, were ordered to dismantle by October 31st.

• According to the International Tin Research Institute (ITRI) the outstanding 21 concentrators are expecting to face disruption when releasing capacity after settling into the new mineral processing location in the Northern Industrial Park in Gejiu. Supply disruptions may result from the initial factories built outside the Northern Industrial park being torn down.
• The government has given orders for these 21 concentrators to file an application for voluntary tear down by Dec. 20 and then dismantle their concentrators build outside the park by Dec. 21-30.
• Those concentrators which don’t comply will be forcefully shutdown by the relevant authorities during Jan.
• The impact on supply is significant, hitting around 15% China monthly tin volumes, with the ITRI estimating the removal of 1,000t per month concentrate.

Energy:

Oil US$77.2/bbl vs US$76.1/bbl last week - US crude tumbles 12% from high

• Crude oil futures posted their third consecutive weekly loss on Friday
• US West Texas Intermediate crude ended this week down 2.2% and has now tumbled about 12% from its recent high of $86.74 on Oct. 3.
• Brent crude fell 2.7% this week and is down 10.5% from its Oct. 3 high of $86.74.

Trump rolls back oil and gas drilling restrictions

• The Trump administration has leased out three times more federally controlled oil and gas land for drilling in the last year than the Obama administration averaged annually during its second term, in part by following scripts for environmental protection rollbacks laid out by the oil and gas industry.
• More than 12.8m acres were offered during the last fiscal year ending in September, a huge jump from previous years.
• Wyoming reportedly got $669 million from federal oil, gas, and coal sales last year, and New Mexico got $1 billion in bids.

Natural Gas US$3.127/mmbtu vs US$3.138/mmbtu last week

Uranium US$27.85/lb vs US$27.80/lb last week

Bulk:

Iron ore 62% Fe spot (cfr Tianjin) US$75.1/t vs US$74.4/t

Chinese steel rebar 25mm US$700.5/t vs US$699.7/t - Chinese steel rebar

• Steel rebar futures continued to rise following announcement of winter restrictions in Jiangsu, a major steel-producing province.
• East China’s Jiangsu province will implement winter production restrictions from Nov. 1 – Feb. 28, according to a notice from local authorities. The notice has announced enterprises in key industries must cut 30-50% of their emissions during the period, but without specifying cuts to steel production.
• Jiangsu is China’s second-largest steel-producing province after Hebei. In 2017, the region produced 104.28Mt crude steel accounting to one-eight of China’s total, according to data released by the National Bureau of Statistics.

Thermal coal (1st year forward cif ARA) US$94.8/t vs US$96.8/t

Premium hard coking coal Aus fob US$206.4/t vs US$206.8/t

Other:

Cobalt LME 3m US$60,000/t vs US$60,000/t

China NdPr Rare Earth Oxide US$45,571/t vs US$45,665/t

China Lithium carbonate 99% US$9,775/t vs US$9,796/t

Tungsten APT European US$275-295/mtu vs US$275-295/mtu

Battery New

Cheaper EV Charging

• Octopus Energy Ltd. is introducing the UK’s first time-of-use tariff, allowing consumers to choose the cheapest time to charge their cars, do the laundry or top-up storage heaters.
• The flexible rate will save users money and reduce demand on the grid at the busiest times of the day.
• The half-hourly price tracker marketed as “Agile” has been running with about 150 customers on a trial basis since March.
• Users with their own EVs reduced their peak consumption by 47%, according to a report from Octopus, while the average consumer could save about £188 a year on their energy bill.
• The UK has had Peak and Off-Peak charging rates for many years though utilities have made discovering the hours for off-peak rates all but impossible.
• New meter instillations are also single-tariff meters which does not help either and seems more designed to boost profits at Utilities than to help customers.

Researchers develop battery with lower cobalt concentration at the New Jersey Institute of Technology

• Professor Datta's team of researchers from NJIT, alongside collaborators from three other universities, have computationally designed electrode materials and procedures that reduce the cobalt concentrations in rechargeable batteries. The team’s work showed that batteries can be designed with a lower cobalt concentration and still have effective capacity and charge measurements.

Company News

Cora Gold* (LON:CORA) 8.8p, Mkt Cap £4.8m – Publication of the Exploration Target Report

• Further to the 15 October announcement, the Company released the full Exploration Target Report prepared by SRK.
• The report is available on the Company’s website and provides a detailed overview of the work completed to date on the flagship Sanankoro Gold Discovery in southern Mali:
• https://www.coragold.com/2018/10/29/srk-exploration-target-report-sanankoro/
• SRK estimated the Exploration Target at Sanankoro of between 30mt and 50mt at a grade of between 1.0g/t and 1.3g/t pointing to the potential 1.0-2.1moz contained gold.
• “It is very pleasing to have our confidence in the gold potential of the Sanankoro project confirmed by SRK’s independent review… SRK’s report will now act as a springboard for the next stage of our strategy,” Cora commented on the news.
• The Company is now planning to focus on higher grade zones within the mineralised trend that would potentially form the basis of a “starter pit” for any future standalone gold operation.

*SP Angel acts as Nomad and Broker to Cora Gold

Firestone Diamonds (LON:FDI) 4.4 pence, Mkt Cap £22.9m – Q1 production

• Firestone Diamonds reports that its 75% owned Liqhobong diamond mine in Lesotho produced a total of 240,733 carats at an average grade of 23.8 carats per hundred tonnes (cpht) during the quarter ending 30th September. The output represents a decline of 8.6% on the 263,512 carats which were produced during the preceding quarter ending 30th June at ana average garde of 25.7cpht.
• During the quarter1.01mt of ore was treated at a cost of US$10.05/t which is both lower than the preceding quarter (US$10.98/t) and significantly below the company’s guidance target for the current financial year of US$15-16/t.
• The lower costs are attributed to a “combination of cost savings and continued local currency weakness against the US$” …. Costs for the quarter were US$1.2 ,million lower than planned as a result of the weaker local currency and a further benefit of US$1.3 million will be realised against the plan as forward exchange currency contracts that are currently in place mature over the next quarter”.
• Production is concentrating on the higher-grade, southern part of the pit while waste stripping of the Cut 2 south area, which was started during the quarter, is expected to result in increasing volumes of waste removal during the year.
• Prices realised on the sale of 194,206 carats of diamonds during the quarter averaged US$70/carat were “below expectation mainly due to a deterioration in prices received for smaller, lower value run of mine (“ROM”) stones” resulting from “pressure on the Indian midstream due to a weak local currency and reduced lending into the industry”.
• Among the sales were a number of “special” stones “including a 68 carat white diamond, the third most valuable stone sold to date for just under US$1.0m, and a 20 carat fancy yellow diamond”. Liqhobong also recovered the largest diamond to date, described as “a 326 carat near-gem diamond”.
• Commenting on the wider issues of the diamond industry Firestone Diamonds says that “Looking forwards, indications are, that based on strong GDP growth and favourable employment rates in the United States, which accounts for almost half the global diamond demand, the industry can expect a strong end of year retail season for diamond jewellery”.
• The company reports net cash at the end of the quarter of US£25.7 million compared to US$27.8m at the end of the preceding quarter.

Conclusion: Although the weakness of the Indian market contributed to lower realised prices for smaller, lower quality diamonds, the recovery of a number of high-value special diamonds and large stones shows the potential of the Liqhobong mine. Increased waste stripping in the coming months may see costs increase but they are currently well below full-year guidance ranges.

Horizonte Minerals (LON:HZM) 3.5 pence, Mkt Cap £49m – Araguaia feasibility study

• Horizonte Minerals has published key highlights of its feasibility study on the Araguaia ferronickel project in located in the state of Para around 760km south of the state capital of Belem, Brazil.
• The study shows that the processing of 900,000tpa of nickel laterite ore over a 28 years period is expected to produce an average of 14,500tpa of nickel contained in 52,000tpa of ferronickel product. The study allows potential for a subsequent doubling of treatment capacity to produce 29,000tpa of contained nickel.
• Based upon a nickel price of US$14,000/tonne, the all-equity base-case study estimates that a capital cost of US$443m and an operating cost of US$8,193/t of contained nickel in product will generate an after tax NPV8% of US$401m and generates an IRR of 20.1%.
• The company highlights that “Using the consensus mid-term nickel price of US$16,800/t, the post-tax NPV increases to US$740 million with an IRR of 28.1%, reflecting the significant leverage that the Project returns have to any future increase in nickel prices”.
• Further detail on the economic sensitivity of the project indicates that key factors are the processing costs, where a 20% change in base case assumptions generates a 32% change in NPV8%; the pre-production capital, where a 20% change causes a 17% movement in NPV; electricity costs – an 11% change and mining costs where a 20% variation in base case assumptions equates to a 9% impact on NPV.
• Mining, using contractors, is expected to be conventional open-pit mining using trucks and shovels and will not necessitate the use of blasting
• The planned treatment process involves the use of Rotary Kiln Electric Furnace technology, as previously indicated. At a cost of US$137.5m, the pyrometallurgical plant represents approximately 31% of the overall capital estimate, which also includes US$107m for utilities and infrastructure and approximately US$41m for contingencies.
• Commenting on the study, CEO, Jeremy Martin explained that “With the completion of the FS the priority now is to secure project funding and to advance the early works packages. The Project is unleveraged and is in a strong position with no agreed offtake, royalty or nickel streams, giving maximum value and flexibility going into the financing process”
• He went on to point out that “The nickel market fundamentals are positive for the short to long term, driven by robust demand from stainless steel growth and strong electric vehicle (EV) penetration rates. Physical LME metal inventories continue to be drawn down to levels not seen in the last five years. This combined with a lack of new major projects scheduled to come online in the short term, means that this is an opportune time to develop Araguaia.”

Conclusion: Now that the feasibility study for Araguaia is completed, Horizonte Minerals’ emphasis will shift to securing project funding to develop the US$443m ferronickel project. We look forward to further news.

IronRidge Resources* (LON:IRR) 22.3, Mkt Cap £62.7m – IMARC Africa focus day presentation 2018

• Diversified explorer and developer of project in emerging frontier provinces, IronRidge, present corporate updates at the IMARC Africa focus day 2018, supported by the Australian African Chamber of Commerce.
• The company have a primary Africa focus with gold and lithium assets spread across Ivory Coast, Ghana and Chad, with bulk iron ore in Gabon and Bauxite, Titania, gold & nickel closer to home in North-East Australia.
• Ghana –

• The first phase totalling 8,090m RC drilling programme at the Ewoyaa discovery, trenching and rock chips indicate broad and continuous high-grade Li pegmatites (grading as high as 15m @ 2.18% in trenching and 10m @ 2.41% in rock chips).
• Exploration work has defined multiple targets to upscale the extent of pegmatites, with a focus on the historical Egyasimanku Hill deposit at 1.4Mt @ 1.67% (non-JORC).
• Additional reporting suggests 8 further pegmatite bodies; 100-170m long, 10-25m wide with 0.5-2.2% Li2O while completed high-resolution heli rad-mag survey could identify subsequent geophysical targets.
• IronRidge are targeting exploration across a combined 1,855km² portfolio which has ideal infrastructure, including Takoradi port, national highway and high-voltage transmission lines, for developing assets.

• Chad –

• High-grade gold trenching work, returning intersections including 84m @ 1.66g/t Au, 4m @ 18.77g/t Au, defines coherent, large-scale anomalies across sheeted vein zones and main vein zone mineralisation at the Dorothe project.
• The 14,564m trenching programme targets extensive artisanal workings across the 200km² exploration licence.
• Regional airmag and soil sampling defines additional targets along structural repetitions across sheeted veins and skarns.
• Gold targets and artisanal workings define four subsequent targets of Dorothe, Guerere, Kalaka and Nabagay.

• Ivory Coast –

• A number of highly prospective targets underlain by prolific Birimian Greenstone Belts. The predominately underexposed region hosts operating mines; Tongon 5Moz, Yaoure 2.8Moz and Bonikro 2.7Moz.
• IronRidge focus on 3,187km² gold portfolios and 1,172km² lithium portfolios in a region actively explored by majors and mid-tiers including Randgold, Newcrest, Centamin and Resolute.

Conclusion: IronRidge are actively advancing exploration across highly prospective lithium and gold assets with a focus on Africa. We look forward to understanding future exploration efforts as the company take the prospects closer to production.

*SP Angel act as Nomad and broker to IronRidge Resources

Kefi Minerals* (LON:KEFI) 1.7p, Mkt Cap £9.1m – Resettlement programme update

• The Company reports that local , zonal and regional authorities confirmed their intention to accelerate community resettlement programme at the Tulu Kapi Gold Project in Ethiopia.
• The team remains focused on the start of resettlement activities in Q1/19 with field and community works now expedited following the end of the wet season.
• Construction start continues to be targeted for the early 2019 with first production due in H2/20.

*SP Angel act as Nomad and Broker to KEFI Minerals

SolGold* (LON:SOLG) 38p, Mkt Cap £691m – Shares issued

• Solgold reports that it has issued approximately 20.6m shares “as a result of the exercise of 28p options previously issued to employees of the Company in 2016”.
• The company also advises that approximately 0.83m options have expired.
• As a result, Solgold now has approximately 1,837m shares in issue plus 21.25m options exercisable at 40p and a further 47m options exercisable at 60p.

*SP Angel act as UK broker to SolGold

URU Metals* (LON:URU) 0.35p, Mkt Cap £2.7m – Zebediela licnese renewal

• URU Metals report the renewal of the Zebediela prospecting rights covering the Zebediela nickel project in the Bushveld region of South Africa for a further two years.
• The Department of Mineral Resources has visited the site and granted the renewal in principal for prospecting right 148PR which covers the principal prospecting right.
• They note the prospecting right has not been countersigned by URU and the DMR due to the prolonged closure of the regional office.
• Application in terms of Section 102 of the Mineral and Petroleum Resources Development Act of 2002 has been made to append the relevant licenses. This should enable the consolidation of the prospecting rights to enable operating efficiencies going forward.
• Recent work identified the likely geological contact to nickel-PGM (PGE) mineralisation at Zebediela with a program of survey lines now planned to further define this.
• The project showed an average grade of 0.44% nickel and 1.85% PGE over an average thickness of 4.2m and a depth of 28m to 176m below surface in a 6-hole drill program reported in July.
• A basket price value based on these grades was reported at $132/t in July ranking the project close to Anglo American’s Waterberg Project F-Zone and just behind Current mine reserves in the Merensky Reef.

*SP Angel acts as Nomad and broker to URU Metals