SP Angel – Morning View – Thursday 20 12 18
Fed rate rise hits Miners despite indication of less rate hikes next year
Aluminium plummets as Russian sanctions lifted
MiFID II exempt information – see disclaimer below
Arc Minerals* (LON:ARCM) – STRONG BUY – Interims
Bushveld Minerals* (LON:BMN) BUY - Target Price 87p – Chinese authorities likely to send inspectors to enforce vanadium alloy content for steel rebar
See link for last Bushveld Minerals PDF note
Noble Group - delisted – Financial restructuring
Solgold* (LON:SOLG) – SolGold option award
Vast Resources (LON:VAST) – $3m bridge facility
Tunnelling – Elon Musk to revolutionise tunnelling with $10m tunnel for electric vehicles
- Elon Musk is designing a new boring machine called Prufrock which may tunnel 10x faster than the machines used for his new car tunnel
- The new electric car tunnel is just 1.14 miles long and cost $10 to build including all internal infrastructure, lighting, communication and video, safety systems, ventilation and track, according to the company
- Musk estimates that electric cars could run at speeds of 150km through the proposed new tunnels.
- By comparison, the new Crossrail Elizabeth line is 73 miles in length with 42km of tunnels. Tunnelling progressed at 38m per day taking 3 years to complete using eight tunnel boring machines
- Crossrail tunnels are 6.2m in diameter vs the Musk car tunnel which is a more modest 3.6m in diameter, though this is clearly adequate for EV purposes. We suspect you will need a Tesla to use the tunnel.
Aluminium plummets as Russian sanctions lifted
- United Co. Rusal soars and the aluminium market is driven lower as the Trump administration is ready to remove sanctions against Russian Billionaire Oleg Deripaska’s company after reaching an agreement to significantly reduce his ownership stake.
- Deripaska will remain under U.S. sanctions and his property will remain blocked, but Treasury intends to remove financial restrictions on Rusal, En+ Group Plc and JSC EuroSibEnergo. The move will take effect in 30 days unless Congress blocks the action, according to a Treasury Department statement. Shares in the company traded in Hong Kong jumped almost 27% at the open.
- “These companies have committed to significantly diminish Deripaska’s ownership and sever his control,” Treasury Secretary Steven Mnuchin said in the statement. “The companies will be subject to ongoing compliance and will face severe consequences if they fail to comply.” The intended target of US sanctions imposed in April on associates of Russian President Vladimir Putin over Moscow’s interference in the 2016 US presidential election.
- Rusal is among the largest companies the U.S. has ever put on its sanctions designation list. The value of the aluminum producer has declined by more than half from $9.2bn more than seven months ago.
- The aluminium market spun into chaos after the sanctions against the company were announced, with global prices surging as much as +20% in the first week. Sanctioning the world’s largest aluminum supplier outside of China threatened a worldwide shortage of the metal, forcing Mnuchin to backtrack.
- London aluminium prices sank to 16-month low on the news of the lifted sanctions, drawn lower on signals the US Federal Reserve would continue to hike interest rates.
- Representatives from China’s biggest aluminium producers, the China Nonferrous Metals Industry Association, are expected to meet on Friday in the southern region of Guangxi to discuss slumping demand and falling prices.
- The producers held a similar gathering in late 2015 and the meeting comes as a protracted price decline leaves smelters struggling to turn a profit, even after significant output cuts. China is the world's biggest producer and consumer of aluminium.
- At the December 2015 meeting, Chinese aluminium smelters agreed a coordinated cut of 500,000t capacity by the end of the year to whittle down the glut, the CNIA said then. Some 4.41mt had already been cut by that point.
- Aluminium futures on the Shanghai Futures Exchange have lost 14% so far in 2018, on course for their worst year since 2015 amid ample supply and falling Chinese demand.
- The U.S. Federal Reserve on Wednesday pushed its key overnight lending rate to a range of 2.25% to 2.50%, the fourth hike of the year, and signalled "some further gradual" increases.
Whiskey – more than a third of vintage Scotch Whiskey found to be fake
- It’s a scandal set to match DieselGate and the VW emissions scandal.
- We always wondered how the economics of storing vintage Scotch whiskey worked,
- Now we suspect it probably doesn’t unless you have allot of old stock that you’ve been trying to shift for years.
- Advanced radiocarbon dating shows that 21 out of 55 bottles of rate Scotch whiskey were fakes or not distilled in the year declared.
- Doesn’t mean its not good stuff to drink though.
Blind creature that buries head in sand named after Donald Trump
- A newly discovered blind and burrowing amphibian is to be officially named Dermophis donaldtrumpi, in recognition of the US president’s climate change denial.
- The small legless creature was found in Panama and it’s ability to bury its head in the ground is said to match Donald Trump’s approach to global warming.
- Trump’s distinctive hair has already led to comparisons to a poisonous furry caterpillar and a golden-plumed pheasant, while a yellow-crowned moth was called Neopalpa donaldtrumpi in 2017.
London Black Taxis – worst polluters on London’s roads
- The BBC reports that London’s Black Taxis possibly have the worst emissions on London’s roads.
- Given that many Black cabs spend 12-24 hours a day plying their trade with drivers sharing cabs this means that they emit far more emission into London’s atmosphere than the average family car which might spend at most, a few hours a day if not a week on the roads.
- The move to new electric Black cabs may help but most need to run their combustion engines to charge their batteries much of the time, something that will get worse as battery performance declines.
Dow Jones Industrials
-1.49%
at
23,324
Nikkei 225
-2.84%
at
20,393
HK Hang Seng
-0.96%
at
25,616
Shanghai Composite
-0.52%
at
2,536
FTSE 350 Mining
-3.11%
at
16,773
AIM Basic Resources
+0.74%
at
2,084
Economics
Currencies
US$1.1426/eur vs 1.1403/eur yesterday Yen 111.90/$ vs 112.40/$ SAr 14.337/$ vs 14.278/$ $1.266/gbp vs $1.268/gbp 0.711/aud vs 0.720/aud CNY 6.898/$ vs 6.896/$
Commodity News
Precious metals:
Gold US$1,249/oz vs US$1,250/oz yesterday
Gold ETFs 70.0moz vs US$69.9moz yesterday
Platinum US$790/oz vs US$792/oz yesterday
Palladium US$1,264/oz vs US$1,257/oz yesterday
Silver US$14.63/oz vs US$14.70/oz yesterday
Base metals:
Copper US$ 5,984/t vs US$6,010/t yesterday
- As base metals tumble on lifted Fed Reserve rates, supply from the world’s largest copper producer is under fire as the company drive to modernise one of its oldest mines. The state-owned miner needs to spend $22bn through 2022 upgrading its aging mines to maintain output at a time when stockpiles in the world’s warehouses are ebbing.
- Codelco is in a late phase of it $5.5bn project to breathe new life into its Chuquicamata operation in northern Chile, which will transform the largest open-pit mine by size into an underground operation.
- The operation is expected to have significant human cost too, with changes entailing cutting 1,700 jobs from the current 5,000. With other Codelco sites set to follow a similar path, workers are feeling more urgency to make themselves heard. That suggests Codelco’s relations with the mine’s workforce may get more fraught just as global copper output is falling behind demand.
- "This will just keep escalating -- we will continue until the company understands they must respect Chuquicamata workers," Cecilia Gonzalez, president of Chuquicamata Union No. 1, said. "We are dealing with an administration that wants to transform Chuquicamata without respecting its culture and its history."
- The shift to underground mining at century-old Chuquicamata is already costing Codelco. Following a stoppage in July, workers have blocked accesses to Chuquicamata twice this month, reducing output. Three of the mine’s five unions want management to negotiate job cuts and redundancy packages, including healthcare coverage for departing workers.
- Protests at and around Chuquicamata, which produced 331,000t of copper last year, could potentially affect the rest of the mines of Codelco’s northern district, which are very close to each other and in some cases share access roads.
- Stoppages across the major operation only serves to highlight issues securing global supply, a factor which is expected to support copper prices moving forward.
Aluminium US$ 1,909/t vs US$1,925/t yesterday
Nickel US$ 10,875/t vs US$10,830/t yesterday
Zinc US$ 2,525/t vs US$2,532/t yesterday
Lead US$ 1,949/t vs US$1,960/t yesterday
Tin US$ 19,285/t vs US$19,230/t yesterday
Energy:
Oil US$56.2/bbl vs US$56.5/bbl yesterday
Natural Gas US$3.744/mmbtu vs US$3.870/mmbtu yesterday
Uranium US$28.60/lb vs US$28.60/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$68.7/t vs US$68.5/t
Chinese steel rebar 25mm US$590.2/t vs US$590.3/t
Thermal coal (1st year forward cif ARA) US$88.3/t vs US$89.1/t
Coking coal futures Dalian Exchange US$209.1/t vs US$208.8/t
Other:
Cobalt LME 3m US$55,000/t vs US$57,000/t
China NdPr Rare Earth Oxide US$45,958/t vs US$45,968/t
China Lithium carbonate 99% US$10,076/t vs US$10,078/t
China Ferro Vanadium 80% FOB US$93./kg vs US$95.5/kg
China Antimony Trioxide 99.5% EU US$7./kg vs US$7./kg
Tungsten APT European US$275-290/mtu vs US$275-295/mtu
Battery News
Battery tech development project to be led by University of Limerick
- Researchers at the University of Limerick’s Bernal Institute are leading an €8 million EU funded research project, called Si-DRIVE to develop battery technology
- The project will focus on removal of cobalt, amongst other materials, which will be supplemented by performing life cycle analysis, assessing the suitability of the cells for 2nd life applications and through the development of recycling processes for cell materials
- UL will also focus on the development of the high performance silicon based anodes materials
Drones halt flights at Gatwick
- Thousands of passengers have faced chaos at London Gatwick after drones were flown over the airfield and the runway was closed.
- Travellers were delayed at the airport while flights were halted and police investigated. Disruption continued this morning as Gatwick warned passengers to expect delays for at least the next 24 hours even if the runway reopened. At least one drone was still causing disruption this morning, 12 hours after its first sighting.
- Dr Rob Hunter, head of flight safety at the British Airline Pilots’ Association told the Today programme: “It will have caused enormous economic impact, and maybe we need a wake up call like this to drive better protection against the hazards of drones.”
Company News
Arc Minerals* (LON:ARCM) 2.8p, Mkt Cap £18m –
ARC Minerals owns Casa Gold 99.4% of Casa Minerals and holds an effective 73% stake in Casa Mining’s Akayanga project
(ARC Minerals currently owns 66% of Zamsort which holds 100% of the Kalaba copper/cobalt mine and associated mineral licenses)
STRONG BUY
- Kopara agree to jointly fund all future expenditure at Zamsort.
- Drilling on the current 11,000m drill program has exceeded all management expectations in terms of the size of the potential deposit with significant copper / cobalt mineralisation identified with grades of around 0.60% copper equivalent seen over the deposit.
- We made good progress with the commercial scale demonstration plant (“CSD”) and the front end of the plant is being dry commissioned in December 2018 and batch processing to commence early in the new year upon completion of the back end. Test work on the oxide ore is quite advanced, with two potential leaching routes being assessed to optimise the process and significantly reduce operating costs.
- A recent high resolution airborne geophysical survey over Zamsort is designed to identify new targets over 1,000 km² of license
- A separate joint venture vehicle (Zaco Limited) is being created with existing and new shareholders to hold the c.400 sq. km which Zamsort must let go under Zambian mineral regulations, though Arc Minerals will be the largest shareholder in Zaco Limited going forward.
- A number of NDA’s have been signed with joint venture partners in relation to site visits to the Zamsort property.
- Casa: further NDA’s have been signed in relation to a potential sale of the 3m oz gold JORC resource in the DRC.
- Šturec: the project is available-for-sale.
- ARC Minerals reports an attributable modest loss of £869k and a loss from continuing operations for the period was £1,2m to end September
- The company raised £2m on 1st October adding to the cash and cash equivalents of £484k reported at end September.
- ARC reports a 108% increase in its total Assets to £35.7m from £17.2m at 30 September 2017 principally due to the acquisitions of Zamsort Limited and of Casa Mining Limited.
- ARC’s key asset is the Kalaba copper, cobalt in Zambia in our view where management expect production to start shortly.
- Recent intersections include:
- 7.12m at 0.87% Cu and 0.10% Co
- 8m at 1.25% Cu and 0.19% Co
- 115m at 0.67% Cu Eq. – disseminated mineralisation from surface
- We refer investors to recent maps and plans at: https://www.arcminerals.com/gal.php?gID=148
- For other SP Angel reports: CLICK FOR 12/09/18 PDF & site visit report: CLICK FOR 14/08/18 PDF
*SP Angel acts as nomad and broker to Arc Minerals.
‘The copper equivalent values are estimated using current metal prices of $6200/t copper and $55,000/t cobalt and are presented for ease of interval comparison only. Metallurgical factors are assumed to be 100% although the recovery factors for the respective metals may vary significantly.’
Bushveld Minerals* (LON:BMN) 46.75p, Mkt Cap £523m – Chinese authorities likely to send inspectors to enforce vanadium alloy content for steel rebar
BUY - Target Price 87p
(Bushveld Minerals now hold 74% of Vametco and 84% of Bushveld Energy it’s vanadium redox battery unit)
See link for last Bushveld Minerals PDF note
- Chinese steel mills continue to cheat the system by failing to add sufficient vanadium to alloy their steel rebar as required under new construction regulations.
- The result is that demand for ferro-vanadium is said to be falling short of the 2,000t per month of additional vanadium estimated to meet the new standards.
- Ferro-vanadium prices continue to support extraordinary high levels despite pulling back 9.7% to $82-85/kgV in Western Europe.
- Prices for ferro-vanadium also pulled back 2.6% in China to US$93./kg for 80% FOB China according to AsiaMetals.com.
- We suspect many buyers in the steel industry are holding back till the new year or for lower price levels.
- The Metal Bulletin also report that new standards for Steel Rebar in China are not being as well enforced as was previously expected.
- China’s new standards require 600MPa-tensile strength rebar offering better earthquake resistance which should, in theory, require Grade 3 and above Rebar with higher vanadium content and should virtually eliminate production of Quench and Temper ‘Q&T’ rebar steel which is more brittle and loses strength and integrity on corrosion. Under China’s new rules and using new testing equipment ‘Q&T’ rebar should not pass quality tests.
- Problem is that corrupt Chines officials may still be allowing Q&T rebar into the building trade enabling producers to save on the cost of the vanadium.
- The new standards require 0.03-0.05% and 0.05-0.08% of vanadium to be added to differing steels adding
- This is relatively little metal in tonnage terms with the new standards requiring somewhere between 0.3—0.8Kg per tonne of alloyed steel
- The report suggests the lack of new vanadium demand is down to cost saving by steel mills driven by lower profits and steel prices, no requirement to provide data on the alloy content on the rebar produced and a lack of inspection teams.
Conclusion: The Chinese state is seen as responsible for the integrity of construction and memories of fatalities from the last major earthquake feel relatively fresh.
China’s authorities are not likely to tolerate the use of substandard rebar in construction for long and will surely send inspectors out next year to enforce the new standards.
*SP Angel act as Nomad and broker to Bushveld Minerals. *An SP Angel mining analyst and nomad have visited the Vametco in South Africa.
Noble Group (NOBL SP) delisted – Financial restructuring
- Noble Group announce completion of its emergency $3.5bn debt-for-equity restructuring, operating under a new holding company with trade and hedging facilities of $800m.
- Effective 20th December 2018, Noble Group Holdings Limited (New Noble) asset ownership is split - 70% by Senior Creditor Special Purpose Vehicle (“SPV”), 20% by the shareholders of the company and 10% by management SPV
- Restructuring of the commodity trader follows public accusations from a former employee questioning the company’s accounts and its inability to turn profits into cash in early 2015.
- The New Trading Finance Facility, the New Hedging Support Facility and the Increase Trade Finance Facility, totalling US$800m in aggregate, have been made available to the New Noble Group.
Solgold* (LON:SOLG) 37p, Mkt Cap £682m – SolGold option award
- AGM statement passes all resolutions and sees retirement of John Bovard as a director of the company though explanation is given.
- The board of SolGold have also awarded 11.4m new options to the directors.
- The strike price of 60p/s is somewhat higher than the current price indicating a reasonably positive view by management.
- The company will have a total of 1,846,321,033 fully-paid ordinary shares, 21,250,000 share options exercisable at 40p and 141,262,000 share options exercisable at 60p following the issue.
- The company is supported by Newcrest which recently increased its holding to 15.23% and has put some US$62.8m directly into the company, principally for drilling at Alpala, Cascabel
- BHP have also invested US$45m into SolGold and has amassed a stake of 11.2% in the company.
- While this is small beer for BHP it is an interesting move in that it stakes a claim in what is possibly the world’s largest copper discovery in recent years and what could become a massive underground, block-cave, mining operation.
- We await further news on the economics of the pre-feasibility study which is being worked on and on the multi-billion capital cost estimates and forecast operating costs for this huge project.
- The following video links show SolGold executives discussing their work on the Alpala project and surrounding exploration: https://twitter.com/SolGold_plc?lang=en, https://www.solgold.com.au/videos/
*SP Angel acts as broker and advisor to Solgold. SP Angel have raised funds for SolGold on eight previous occasions.
Vast Resources (LON:VAST) 0.34p, Mkt Cap £19.7m - $3m bridge facility
- Vast Resources enter a US$3m bridge facility with the Bergen Global Opportunity Fund to support operations in Romania and Zimbabwe. A total of up to US$3,150,000 in zero coupon convertible securities in two equal trances allows Vast to fund further working capital including for the Baita Plai Polymetallic Mine and other leading projects.
- Funding has become necessary due to the continued delay of the anticipated US$5.5m of Tranche B Mercuria Prepayment facility, held up due to local administrative reasons and due early in the New Year.
- No conversion rights will attach to either Convertible Security for the first 30 days after the date of its respective issue. Thereafter, the Convertible Securities will be convertible into Shares of the Company, in whole or in part, at the option of the Funder.
- Company may elect to repay each tranche in full within 90 days of execution date, subject to prior conversion rights which arise after an initial period of 30 days from the date of each advance.
- The proceeds for the issue of the new 68,000,000 Shares and the Convertible Securities will be used by the Company for long term lead items on Baita Plai Mine, initial expenditure on the Heritage Concession for diamonds in Zimbabwe and general working capital.
Analysts
John Meyer – 0203 470 0490
Simon Beardsmore – 0203 470 0484
Sergey Raevskiy – 0203 470 0474
Phil Smith (Technology) – 0203 470 0475
Zac Phillips (Oil & Gas) – 0203 470 0481
Sales
Richard Parlons – 0203 470 0472
Jonathan Williams – 0203 470 0471
SP Angel
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*SP Angel are the No1 integrated nomad and broker by number of mining brokerage clients on AIM according to the AIM Advisers Ranking Guide (joint brokerships excluded)
+SP Angel employees may have previously held, or currently hold, shares in the companies mentioned in this note.