Today's Market View - Metals rise as tariff trade tensions ease

Proactive Published 13/12/2018

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SP Angel – Morning View – Thursday 13 12 18

Metals rise as tariff trade tensions ease

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Bacanora Lithium (LON:BCN) – Blackrock cuts stake

Erris Resources (LON:ERIS) – Exploration update

Hummingbird Resources (LON:HUM) – Progress report on exploration drilling

Savannah Resources (LON:SAV) – High-quality saleable by-product from Mino do Barroso lithium project

Thor Mining (LON:THR) – Mineral resource update at Pilot Mountain

Tariff tensions ease as China places orders with the US

London copper prices surge to the highest in more than a week amid signals China is keeping promises made to the United States as part of a deal to resolve the ongoing trade row between the world’s top economies. Chinese companies have moved to order the first major purchases of US soybeans – a commodity at the heart of the trade spat – in more than six months, while Beijing also appeared to have toned down a high-tech industrial push that has long hampered Washington.
China is also set to hold a high-level economic policy meeting next week, triggering gains for everything from property stocks to steel futures as investors bet on pro-growth measures.
The metal received support from more bullish statements from Morgan Stanley; “our economists expect policy easing (i.e. tax/RRR cuts; infrastructure capex) to generate results from 2Q19, supporting demand at a level sufficient to keep those supply-constrained markets tight”.
Prices are expected to rise, climbing to an average $6,801/t in 2019, driven by flat mine supply growth offsetting slowing demand. Potential labour disruptions are also cited among risk to copper supply forecasts for 2019 as 700 workers have taken over the Chuquicamata copper mine – Codelco’s third-largest operation that produced nearly 200,000t in the first three quarters of 2018.

Trump says he will not raise Tariffs till he knows if the two sides will reach a deal

Talks are in progress by phone but we suspect the Americans are going to want to see more tariff cuts before easing the pressure.

Second Canadian detained in China

The detention of Michael Spavor is potentially related to the arrest of the Huawei cfo.

Larco – The Greek state-owned nickel producer may shut down if power supply cut off

Larco which produces some 18,000-20,000tpa of nickel in ferro-nickel owes the Greek Public Power Corp. ‘PPC’ around EUR280m
The European Court of Justice ruled in February that Greece should recover EUR135.8m which it considered to be state aid.
Never mind the rest of the power bill, the PPC may be lucky to recover the EUR135.8m it is owed by Larco.
It would seem perverse to shutdown one of Europe’s few battery metal producers at a time when Europe is looking to stimulate production to feed new planned European battery plants.

Vanadium prices pull back 8.5% to US$95-100/kg in Western Europe (Fastmarkets MB)

Bloomberg are still showing China Ferro Vanadium 80% FOB US$106.5/kg vs US$109.5/kg (Asian Metal Inc.)
The pull back in vanadium prices in Western Europe is no great surprise as buyers hold back ahead of the Christmas and new year break and given the extraordinary high levels maintained over the past four months.
Vanadium prices have held high levels through 2018 starting the year at $48/kg on 3rd January rising quickly to $60/kg on 19 January.
Implementation of China’s green shield policies cut production from stone coal and also restricted Chinese conversion of vanadium-bearing slag with Russian slag now treated elsewhere.
The situation was compounded by the introduction of new regulations raising vanadium content in steel in China and better testing of steel to ensure it is properly strengthened.
This cut out Q&T steel which had little or no vanadium content but is hard on the outside and still soft on the inside and is about as effective as a Cadbury’s Creme Egg in an earthquake
Poor quality reinforcement in concrete was seen as a major contributory factor in the failure of government buildings in China’s major 2008 earthquake which killed some 68,712 people with a further 18,392 reported missing.

California passes 500,000 EV mark

The new car market in California has reached a major milestone with the sale of its 500,000th electric vehicle.
Veloz has been keeping track of EV sales and reports that 512,717 electric cars have been sold in California as of Dec. 5, 2018.
The electric vehicles sales in the state are up 30% over last year and now account for 7.1% of all vehicle sales in California in the first three-quarters of the year.

Reduction of emissions from existing combustion engines

As tightening emission rules force the car industry to embrace battery power, a German start up says it has the technology to give the combustion engine a reprieve.
Higher engine efficiency and reduced emissions can be achieved through a more diluted fuel air mix and higher compression. However, efficiency can be constrained by combustion initiation and flame propagation.
Microwave- assisted spark ignition is seen as a solution to these constraints and has been under investigation for a number of years.
Using pulsed microwaves to ignite fuel rather than spark plugs or glow plugs, the engineers behind MWI Micro Wave Ignition AG say they can cut consumption of gasoline and diesel by as much as 30%, and emissions by as much as 80%, as the fuel burns at a lower temperature.
The company is backed by Wendelin Wiedeking, the former CEO of Porsche, and has reportedly begun talks with large automakers in South Korea and China.

Branson’s plans for Virgin Galactic hinge on key space flight

Sir Richard Branson’s Virgin Galactic is hoping to reach the edge of space for the first time on Thursday with a test flight that could mark a turning point in its long-delayed efforts to create a new space tourism industry.
The latest test of the company’s space plane is scheduled to take it to a height of more than 80km. However, it will still fall short of the 100km Karman line
The craft, a SpaceShipTwo class vehicle, is due to be carried to a height of more than 12,000m by a specially designed plane, before its pilots ignite its rocket and steer it into a vertical climb towards space.
If the flight performs as planned, the company will probably need only “two or three” more powered tests to prove it is capable of taking paying customers into space according to the CEO

Dow Jones Industrials

+0.64%

24,527

Nikkei 225

+0.99%

21,816

HK Hang Seng

+1.18%

26,496

Shanghai Composite

+1.23%

2,634

FTSE 350 Mining

+1.11%

17,087

AIM Basic Resources

-0.33%

2,049

Currencies

US$1.1388/eur vs 1.1323/eur yesterday Yen 113.43/$ vs 113.44/$ SAr 14.073/$ vs 14.300/$ $1.265/gbp vs $1.251/gbp 0.724/aud vs 0.721/aud CNY 6.867/$ vs 6.888/$

Commodity News

Precious metals:

Gold US$1,246/oz vs US$1,244/oz yesterday

Gold ETFs 69.3moz vs US$69.2moz yesterday

Platinum US$805/oz vs US$787/oz yesterday

Palladium US$1,268/oz vs US$1,253/oz yesterday

Silver US$14.78/oz vs US$14.60/oz yesterday

Base metals:

Copper US$ 6,204/t vs US$6,149/t yesterday

Aluminium US$ 1,939/t vs US$1,938/t yesterday

Nickel US$ 10,880/t vs US$10,770/t yesterday

Zinc US$ 2,588/t vs US$2,595/t yesterday

Lead US$ 1,978/t vs US$1,988/t yesterday

Tin US$ 19,375/t vs US$19,150/t yesterday

Energy:

Oil US$60.3/bbl vs US$60.6/bbl yesterday - Global oil producers set ‘floor’ of $60 a barrel

Co-ordinated action among global producers to enact supply cuts has helped to put a “floor” under crude prices around $60 a barrel, the International Energy Agency has announced.
“The agreement aims to achieve relative stability and to bring the market towards balance. So far, the Brent crude oil price seems to have found a floor,” said the IEA in its monthly oil market report.
The IEA maintained its oil demand growth estimates for 2019, saying it will increase by 1.4m barrels a day to 100.6m bpd

Natural Gas US$4.107/mmbtu vs US$4.330/mmbtu yesterday

Uranium US$29.75/lb vs US$28.75/lb yesterday

Bulk:

Iron ore 62% Fe spot (cfr Tianjin) US$65.3/t vs US$64.9/t

Chinese steel rebar 25mm US$588.8/t vs US$585.1/t

Chinese rebar futures climbed the most since August as the key steelmaking hub of Tangshan started its ’20-day war for blue skies’ campaign, imposing harsher controls to fight smog levels, according to Steelhome.
Tangshan ruled to intensify its winter environmental policy from Dec. 13-31 according to official documents from authorities, including new rules to stop production from sintering machines that fail an ultra-low emission test.
The most-active rebar contract on the Shanghai Futures Exchange closed up +2.1%. The growth reversed falling trends as cold weather weighed on steel prices in recent weeks.
Meanwhile expectations of Chinese demand grew as the nation could launch more infrastructure projects through 2019, with the government tweaking priorities to focus more on construction, exports and fighting water pollution while slowing efforts to reduce capacity in coal and steel industries.
In its guidance to local governments and authorities, the State Council, or cabinet, said new infrastructure should focus on construction of roads and waterways. "There is this expectation of Chinese government stimulating more growth in 2019 just after the Chinese New Year," said Darren Toh, steel and iron ore data scientist at Tivlon Technologies, a Singapore-based steel and iron ore data analytics company.

Thermal coal (1st year forward cif ARA) US$89.0/t vs US$87.4/t

Coking coal futures Dalian Exchange US$201.0/t vs US$200.3/t

Other:

Cobalt LME 3m US$55,000/t vs US$55,000/t

China NdPr Rare Earth Oxide US$46,602/t vs US$46,448/t

China Lithium carbonate 99% US$10,194/t vs US$10,161/t

China Ferro Vanadium 80% FOB US$106.5/kg vs US$109.5/kg

China Antimony Trioxide 99.5% EU US$7.1/t vs US$7./kg

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

Battery News

Company News

Bacanora Lithium (LON:BCN) 24p, Mkt Cap £32.3m – Blackrock cuts stake

Blackrock report they have reduced their stake in Bacanora to below 5% from 9.96% previously.
Bacanora recently appointed Citigroup to lead the equity financing of the Sonora project.

Erris Resources (LON:ERIS) 7.25p, Mkt Cap £2.3m – Exploration update

Erris Resources has provided a further update on the progress of its exploration joint venture in Sweden which is funded by Centerra gold for up to US$1.85m.
At the Brannberg project, 14 holes, totalling 2,682m, tested the down-dip and lateral extension of mineralisation identified in historic drilling by a previous operator.
“All holes encountered strong alteration zones and traces of mineralisation including veinlets and disseminations of arsenopyrite and chalcopyrite” in a stockwork of sheeted veins.
Among the results highlighted in today’s announcement are:
A 7.55m wide intersection averaging 1.15g/t gold, 1.93% arsenic and 0.1% copper from a depth of 108.25m in hole BB001; and
A 1.95m wide intersection averaging 2.07g/t gold, 2.20% arsenic and 0.13% copper from a depth of 124.45m in hole BB002; and
A 1.65m wide intersection averaging 8.14g/t gold, 0.67% arsenic and 0.01% copper from a depth of 52.90m in hole BB003; and
A 17.22m wide intersection averaging 1.93g/t gold, 3.06% arsenic and 0.26% copper from a depth of 160.90m in hole BB004.
Although the drilling has so far only tested 900m of strike and the “results confirm that there is a gold system at Brännberg that warrants further work … ” Centerra Gold has elected not to continue drilling on the Brännberg Project due to the mineralised system not demonstrating the size to host a > 1-million-ounce gold deposit. The project now reverts back 100% to Erris Resources and the Company will undertake follow up work to determine the resource potential of the project and consider whether it can be advanced on its own or potentially in partnership with a junior gold developer”.
We observe that the relatively high arsenic contents reported in the drilling may add to the complexity of any future permitting application in Sweden.
Anton du Plessis, CEO of Erris Resources commented that although it failed to meet Centerra Gold’s criteria, the Brannberg deposit still showed “potential for a smaller gold deposit that could be suitable for a small to mid size gold producer.”
Ground electromagnetic surveying over the Kalinberget project, also in Sweden, “failed to identify any conductors that warranted drill testing [and] Centerra Gold has also made the decision not to advance this project based on the results to date … No further work will be carried out and the ground relinquished.”
Despite Centerra declining to proceed further with these two projects, “Centerra Gold has elected to continue its generative agreement with the Company covering Sweden and has also expanded the programme into Finland. Under the terms of the agreement, Centerra Gold is committed to spend $250,000 on generative exploration work in 2019 with the option to elect individual projects to earn a 70% interest by spending US$3 million, as to 51% by spending US$1 million and an additional 19% by spending US$2 million.”
Mr. du Plessis commented that “we are delighted to continue our strategic alliance with Centerra Gold and have its support as we continue to generate new exploration opportunities in Northern Sweden and expand the remit into Finland for 2019. The continuation of the Centerra programme acknowledges the cost-efficient testing of targets by Erris and the ability to continue to generate new targets - a key factor for exploration success”.

Conclusion: Erris Resources is continuing its exploration joint venture with Centerra Gold in Sweden and expanding the cooperation into Finland. Although some projects have not reached Centerra Gold’s criteria, they could still prove worthwhile assets for smaller companies and the continuation of the joint venture with Centerra suggests that it is working for both parties.

Hummingbird Resources (LON:HUM) 18.75p, Mkt Cap £66m – Progress report on exploration drilling

Hummingbird Resources has issued a progress report on its 2018 exploration drilling campaign in Mali, including the second set of results from the work programme which is aimed at increasing the mine life of its Yanfolila operation.
The current indicated and inferred mineral resource inventory at Yanfolila amount to 22mt at an average grade of 2.54g/t gold representing 1.8moz of contained gold.
The original programme envisaged drilling around 50,000m, however “Through the year the drilling schedule has become more targeted and has been adapted to fit with the updated LoM plan” and as a result by the end of November 23,697m had been completed. This comprised 6,206m of reverse circulation (RC) and 9,908m of diamond drilling (DD) at Gonka, 3,091m of RC and 2,536m of DD at Komana West and 1,956m of RC at Guirin West.
Almost 70% of the total metreage was completed at Gonka where a “series of broad mineralised zones with intermittent, narrow high-grade zones” has been defined associated with northerly plunging fold hinge zones close to the contact between basalts and metamorphosed sediments. The company comments on the predictability of these ore shoots which is allowing it to “define extensions to the shoots outside of the $1,100/oz pit shell used in the DRA's 2016 open pit and underground scoping study”.
The company also comments that although these ore shoots have been “identified at depths as shallow as 34m… very little surface expression of the ore body exists, which has limited the number of orpailleurs (artisanal miners) active at Gonka.”
Among the highlights from the results for Gonka reported today are:
15m at an average grade of 16.03g/t gold from a depth of 207m in hole GKRCD0013; and
20.05m at an average grade of 4.63g/t gold from a depth of 118m in hole GKRCD0020; and
11m at an average grade of 4.11g/t gold from a depth of 79m in hole GKRCD0044; and
14m at an average grade of 3.88g/t gold from a depth of 178m in hole GKRCD0002
Drilling at Komana West and its southern extension has identified “another near-surface mineralised zone … immediately west of the main North-South grade domain within the current pit. This new in-pit zone is in addition to the high-grade zones reported previously” and “will add immediately to the mineable oxide ounces in the Reserve as they will be grade controlled drilled once mining reaches the relevant pit floor elevations over the next 6 months”.
The company highlights an intersection at Komana West of 15m from a depth of 8m in hole KWDD0609 which averaged 4.25g/t gold.
At the southern extension to Komana West, a 12m wide intersection averaging 1.9g/t gold and open at depth in hole KWRC0419 and located 650m south of the southern margin of the planned pit is to be followed up next year.
“No further drilling is being planned for 2018 at Komana East underground. Mining planning work is being scheduled to commence by CSA Global - Perth in February 2019 to prepare an underground mine design and schedule on the existing Indicated resources beneath the pit”
Expressing confidence that the recent exploration will allow Hummingbird to extend the mine life at Yanfolila, the company’s Chief Geologist, Murray Paterson, said that “So far, drilling has remained quite shallow, focussing on infilling the open pit Resources. Our attentions now switch to drilling out the underground Resources at Gonka, which is very exciting since this is where the highest grades and wider intervals have been drilled by Gold Fields Ltd."

Conclusion: Hummingbird Resources has expressed confidence in its ability to extend the life of Yanfolila as a result of positive results from its 2018 drilling work. We look forward to updated mineral resource estimates in due course.

Savannah Resources (LON:SAV) 5.7p, Mkt Cap £50.2m – High-quality saleable by-product from Mino do Barroso lithium project

Metallurgical test work has successfully produced saleable quartz and feldspar products from material sourced from Savannah Resources’ Portuguese Mina do Barroso lithium project. Co-production will be sourced from further processing of the tailings material from the spodumene concentration process.
The company has completed a series of floatation tests on bulk samples of pegmatite material, with further bulk test work planned to produce bulk mica, feldspar and quartz samples for evaluation by potential customers with preliminary offtake discussions underway with a number of parties.
Initial indications suggest three by-products can be produced in association with 175,000tpa lithium spodumene concentrate, with preliminary market studies independently evaluated by First Test Minerals providing indicative pricing for the products:
Feldspar (grades >12%) – used in tableware, glaze, sanitaryware and glass with potential price range US$65-100/t
Quartz (99.6% pure) – used in ceramics and glass with potential price range US$60-100/t
Bulk Tails (grades >7%) – combined feldspar and quartz concentrate without further upgrading or processing with potential price range US$40-45/t
Indicative pricing provided by First Test Minerals are significantly higher than those conservative values used in the earlier Scoping Study of US$39/t for feldspar and US$33/t for quartz
There is also significant environmental benefit from the sale of co-products, reducing the potential footprint of the tailings dumps, while diversifying the asset portfolio.
Work is continuing towards a potential mica co-product for its suitability for use as a building material like cements for plasterboards. Initial research by the company suggests these products can be valued at over US$500/t.

Conclusion – The potential for co-production from the Mina do Barroso is significant, boosting project revenue while minimising the environmental and infrastructural commitments for the tailings facility. Indicative pricing for products suggest a strong boost from the Scoping Study project value, and we look forward to understanding the impact on capital and operating costs to generate the individual co-products.

Thor Mining (LON:THR) 1.60p, Mkt Cap £11.5m – Mineral resource update at Pilot Mountain

Thor Mining has announced an updated mineral resource estimate at its Pilot Mountain tungsten project in Nevada. The company comments that “The upgraded mineral resource estimate represents a 6.5% increase in the scheelite inventory for Desert Scheelite”.
The new estimate of 10.7mt at an average grade of 0.26% tungsten trioxide, 19.38g/t silver, 0.15% copper and 0.38% copper at the Desert Scheelite prospect, together with the 1.83mt resource estimate for the Garnet prospect, reported in May 2017, brings the total tungsten resource estimate for Pilot Mountain to 12.53mt at an average grade of 0.27% tungsten trioxide.
Approximately 84% of the Desert Scheelite resource is classified as indicated under the JORC (2012) Code with the balance deemed inferred. All of the resource at the Garnet prospect is inferred.
Commenting on the new resource estimate Thor Mining Executive Chairman, Mick Billing, said “Pilot Mountain hosts a large and, in the directors' view, valuable tungsten resource in the USA, where there has been no primary production of tungsten for some years, despite being classified as a critical mineral by the US Department of the Interior."
The company is testing the application of flotation recovery to produce a zinc sulphide concentrate “with minimal additional cost”.

Conclusion: The resource upgrade at Pilot Mountain includes a 6.5% increase in contained tungsten trioxide. We look forward to further news on how the company plans to proceed.