Todays Market View - Gold climbs to fresh highs on delayed rate hike sentiment

Proactive Published 31/01/2019

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SP Angel – Morning View – Wednesday 30 01 19

Gold climbs to fresh highs on delayed rate hike sentiment

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Bushveld Minerals (LON:BMN) STRONG BUY (from BUY) - Target Price 87p – Q4 Operating results report US$107m EBITDA

BlueRock Diamonds* (LON:BRD) –Kareevlei resumes operations

Hummingbird Resources (LON:HUM) – Q4 operations and production report

Keras Resources* (LON:KRS) BUY, Target price 1.04p – First Ore Trucked to port from Nayega Manganese Project

Kodal Minerals (LON:KOD) – Additional exploration concessions in Bougouni Lithium Province

Serabi Gold (LON:SRB) – Coringa drilling extends strike and depth of mineralisation

Dow Jones Industrials

+0.21%

24,580

Nikkei 225

-0.52%

20,557

HK Hang Seng

+0.22%

27,592

Shanghai Composite

-0.72%

2,576

FTSE 350 Mining

+2.39%

18,441

AIM Basic Resources

+0.93%

2,218

Economics

Currencies

US$1.1432/eur vs 1.1440/eur yesterday Yen 109.31/$ vs 109.22/$ SAr 13.608/$ vs 13.709/$ $1.307/gbp vs $1.315/gbp 0.719/aud vs 0.717/aud CNY 6.714/$ vs 6.736/$

Commodity News

Precious metals:

Gold US$1,315/oz vs US$1,308/oz yesterday

Gold advances to an eight-month high as investors await clues for the US monetary policy outlook, with Federal Reserve Chairman Jerome Powell scheduled to hold a news conference following the central bank’s inaugural rate-setting meeting of 2019.
The precious metal is up 2.5% this year and is heading for a fourth straight monthly gain, while a gauge of the dollar is down for a third month. The metal is seeing strong renewed interest as a store of value as investors weigh prospects of fewer U.S. rate hikes this year and track signs of slower global growth amid the U.S.-China trade war.
Bloomberg Economics’ early indicator showed China’s economy slowed further in January. The delay of U.S. government data after the partial shutdown, as well as the negotiations over Britain’s Brexit deal, have also added to uncertainty in financial markets.
While the two largest economies are holding talks this week aimed at finding a solution to the trade war, the U.S.’s criminal charges against China’s Huawei Technologies Co. have fueled tensions.
While the Fed hiked four times last year, officials have indicated a willingness to be patient and flexible in their approach to additional increases. The latest Bloomberg survey of economists showed respondents pushed back the timing of expected hikes in 2019, but not the number, sticking with a forecast for two moves.
Investor sentiment in gold remains strong, with holdings in bullion-backed exchange traded funds at the highest since April 2013 after about 61t were added this year.

Gold ETFs 73.0moz vs US$72.7moz yesterday

Platinum US$818/oz vs US$817/oz yesterday

Palladium US$1,341/oz vs US$1,333/oz yesterday

Silver US$15.96/oz vs US$15.86/oz yesterday

Base metals:

Copper US$ 6,089/t vs US$6,019/t yesterday

Aluminium US$ 1,899/t vs US$1,868/t yesterday

Nickel US$ 12,280/t vs US$11,920/t yesterday

Zinc US$ 2,672/t vs US$2,681/t yesterday

Lead US$ 2,087/t vs US$2,084/t yesterday

Tin US$ 20,750/t vs US$20,745/t yesterday

Energy:

Oil US$61.2/bbl vs US$60.0/bbl yesterday

Natural Gas US$2.858/mmbtu vs US$2.898/mmbtu yesterday

Uranium US$29.05/lb vs US$29.05/lb yesterday

Bulk:

Iron ore 62% Fe spot (cfr Tianjin) US$82.1/t vs US$78.9/t

The global iron ore market was pitched into turmoil, with futures rising more than 9%, as the world’s largest producer Vale SA outlined plans to cut output following a deadly dam breach.
Vale will decommission some tailings dams, curbing production by 40mt a year, Chief Executive Officer Fabio Schvartsman reported, citing a plan presented to the Energy and Environment Ministries. The impact will be offset by an increase in production from other systems, Vale said. The company had planned to mine 400mt this year.
A sharp reduction in supply could tighten the global seaborne market, aiding rivals Rio Tinto Group, BHP Group and Anglo American Plc, while lifting costs for steelmakers.
One of Vale’s dams collapsed last Friday, hammering the company’s share price and spurring speculation that while the affected operation was minor, the repercussions would affect a greater share of output.
While the company potentially have 50Mt flexible production, a key question is “how quickly they’ll be able to compensate that output, bearing in mind social, political pressures, and that investigations are still ongoing”, according to Commonwealth Bank of Australia.
The global seaborne market totals about 1.6bt, according to the Australian government. 40mt equals 2.5% of that figure. However, there could be additional hits to supply “as the incident may lead authorities to tighten environmental checks and affect other companies’ production”.
Vale’s decision could also have dramatic consequences for the global shipping industry, reducing the volume of cargoes carried between Brazil and top user China, as well as to ports in Europe.

Chinese steel rebar 25mm US$599.6/t vs US$597.7/t

Thermal coal (1st year forward cif ARA) US$86.0/t vs US$83.8/t

Coking coal futures Dalian Exchange US$199.1/t vs US$198.5/t

Other:

Cobalt LME 3m US$36,500/t vs US$38,000/t

China NdPr Rare Earth Oxide US$46,395/t vs US$46,245/t

China Lithium carbonate 99% US$10,053/t vs US$10,021/t

China Ferro Vanadium 80% FOB US$70.8/kg vs US$70.8/kg

China Antimony Trioxide 99.5% EU US$7.0/kg vs US$7.0/kg

Tungsten APT European US$260-270/mtu unchanged from previous week

Battery News

Chevron Technology Ventures strategic investment in sodium-ion battery products

Natron Energy, a developer and provider of disruptive new battery products using Prussian Blue electrode chemistry, has closed a strategic investment by Chevron Technology Ventures (CTV) to support the development of stationary energy storage systems.
Prussian Blue dye, commonly used in blueprints, stores and releases energy in the form of sodium ions. Unlike the electrode materials found in most lithium-ion batteries, Prussian Blue enjoys a widespread availability and low cost that make batteries based on Prussian Blue electrodes an economically attractive, environmentally friendly technology.
Prussian Blue has a unique structure and composition that allow it to store energy much more rapidly and reversibly than other types of battery electrodes.
In addition, Natron's batteries provide improved safety compared to incumbent technology as they are nonflammable during overcharge, hard short circuit, nail penetration, and under external heating to over 200° C.
While investment into sodium-ion technologies could yield superior battery performance, long development periods (up to a decade) will support the continued use of lithium-ion in the growing electric revolution.

Company News

Bushveld Minerals (LON:BMN) 38.25p, Mkt cap £456m – Q4 Operating results report US$107m EBITDA

STRONG BUY (from BUY) - Target Price 87p

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(Bushveld Minerals now hold 74% of Vametco and 84% of Bushveld Energy it’s vanadium redox battery unit)

Bushveld report Q4 sales and EBITDA margins today.
Sales were 167% higher in Q4 yoy at US$60m.
FY sales were 143% higher yoy at US$192m.
EBITDA rose 320% to US$39.6m in Q4
FY EBITDA rose 349% to US$107m for the full year.
Forecasts:
Our EBITDA forecast of US$109m for 2018 is remarkably close to the company’s actual US$107.5m indicating that our financial model works relatively well.
Our sales forecast US$204m is also relatively close to the US$193m (ZAR2,545m) reported by the company.
These forecasts are remarkably close to reality considering the volatility of vanadium prices, the lag in sales vs production and the disruption caused by stoppages, holidays and plant maintenance.
Vametco produced 657mtV of Nitrovan and ferro-vanadium in Q4 to bring full year production to 2,560mtV for the year. While Q4 production was 22% higher than Q3, the year was 3.4% down on CY 2017.
Ferro-vanadium sales fared slightly worse down 8% yoy at 586kgV in Q4 and down 3.4% yoy to 2,573mtV which was just 27mtV lower than the 2,600mtV used in our forecast.
Vametco lost an estimated 230mtV from 37.5 days of stoppages. Community unrest accounted for 22.5 days of this.
We hope these issues are now resolved and there should be no more stoppages this year due to labour grievances.
2019 production forecast: we await news on the company forecast but we expect Vametco to produce substantially more vanadium through 2019 than was produced last year.
Phase 2 of the expansion was completed in June taking Vametco capacity to 3,750mtV pa but the plant is not likely to run over 3,400mtV for the year due to grade, kiln availability and silica liberation issues.
Costs: examination of the full year results indicates a significant improvement on our assumed costs which compensates for slightly lower than anticipated sales.
While costs rose by 19% yoy due to inflation and higher raw material costs the result was still better than we had anticipated.
Vametco has embarked on a transformation programme to sustainably increase production cost efficiencies reduce costs though unit costs should improve due to the expansion in capacity going forward.
Exploration at the Vametco mine shows a variety of grades above and below 2% V2O5. We have cautiously reduced our assumed grade for the year to 1.82% V2O5 from 2.01% previously assumed.
Ultimately we see Nitrovan and ferro-vanadium production rising to around 10,000mtVpa as Bushveld continue to expand their current and potential new facilities.
Price forecasts: we see ferro-vanadium prices remaining relatively high at US$75/mtV this year and next before falling back to US$45/mtV thereafter
Ferro-vanadium prices have picked up since the new year rising to $77-78.75/kgV for 78% material in Western Europe and to $70-72/kgV in China (Fastmarkets MB).
We expect the Chinese authorities to determinedly crackdown on non-compliance for strengthening steel rebar.
The effect should be for steel producers to move to buy more vanadium in, what looks like, a relatively tight market environment.
Chinese rebar prices hit a 12-month high last week but have since settled back at $545-551/t.

Conclusion: Vametco has produced a solid set of figures despite some challenges through the year. The Vametco and Bushveld management team has learnt much since Bushveld acquired control of the Vametco plant and we expect a smoother ride from now on. The Phase 2 expansion is already in place indicating a very significant increase in cash flow to come.

We retain our Buy recommendation and 87 pence per share target price

See interview on the mining sector and Bushveld Minerals

· Reuters: https://reut.rs/2MtJV3y

· IG Player: https://bcove.video/2MC3s1X

*SP Angel act as nomad and broker to Bushveld Minerals

BlueRock Diamonds* (LON:BRD) 0.325p, Mkt Cap £1.4m –Kareevlei resumes operations

BlueRock Diamonds reports that the section 54 notice suspending operations at its Kareevlei mine has now been lifted and that operations have now resumed
The company also has good news that “the individual involved in the accident is expected to make a full recovery”.

Conclusion: The resumption of operations at Kareevlei takes place less than a week after they were suspended as a result of an accident resulting in an injury to a contractor. The individual concerned is expected to make a full recovery.

*SP Angel acts as Nomad & Broker to BlueRock Diamonds

Hummingbird Resources (LON:HUM) 24.5p, Mkt Cap £86.2m – Q4 operations and production report

Hummingbird Resources reports that, following production of 17,895oz of gold during Q4 2018, its Yanfolila gold mine in Mali produced a total of 91,620oz of gold during 2018.
The production lies towards the upper end of the revised production guidance of 87-92,000oz which was issued in October replacing the original 105-115,000oz guidance when, following heavy rain, pit stability issues on the western wall of the Komana East pit led to a suspension of operations in that area of the mine.
The company confirms that the “Komana East pit wall remediation [is] progressing well and completion is due in the coming weeks”.
Production guidance for 2019 is re-confirmed at 110-125,000oz though Hummingbird has revised its cost guidance, on an all-in-sustaining cost basis, upward from the previously indicated US$800/oz to a range of US$800-850/oz in order to accommodate the higher costs of remediation work at Komana East which fall into Q1.
The company also confirms that the installation of a second ball-mill at Yanfolila is now approximately one third complete and that the project remains on track and within budget for completion during Q3 2019. The additional mill “will increase throughput capacity from 1Mtpa to 1.24Mtpa, when operating with 100% fresh material, and as such offers a good return on investment in the Company's view. US$9.5m of additional debt was drawn from Coris Bank in Q4 to part-finance the US$13m capex for the construction of the second ball mill”.
Yanfolila faced an additional logistical challenge when “a public bridge on the main road to site was put under a strict weight limit. The bridge remained in use in accordance with the restrictions by the Company throughout the Q4 period and presently, however, to overcome the weight limit issue, the Company mobilised a military barge to transport heavy equipment and other large loads across the river. Work on a new bridge by a Government contractor, is progressing well and the Company understands the project is due to be completed at the end of Q2 2019.”
Commenting on what he described as “an operationally challenging quarter” during Q4 2018, CEO, Dan Betts, said that “we have made significant headway on the ground in resolving the issues we faced. January's production figures are in line with 2019's production guidance and mine plan and we are making positive progress with the construction of a second ball mill, which is due for completion in Q3 2019. This will increase throughput and, along with our exploration campaign, the long-term value of Yanfolila.”

Conclusion: Hummingbird Resources has faced a number of operational and logistical challenges during 2018, however, barring unforeseen setbacks, the additional plant capacity due on stream in Q3 2019 should help the mine to meet its increased production guidance of 110-125,000oz of gold at an AISC in the range US$800-850/oz.

Keras Resources* (LON:KRS) 0.4p, Mkt Cap £8.6m – First Ore Trucked to port from Nayega Manganese Project

BUY, Target price 1.04p

Click for our last full note on Keras

Keras report it is now moving its first ore to port from its Nayega manganese project in northern Togo
The ore is from a 10,000t stockpile of processed ore and is being stockpiled close to the deep-water port of Lomé in Togo.
Keras’ on-site team are producing 230t per day of processed ore through the recently commissioned 20tph scrubber plant operating on 4 shifts, 24 hours a day, 7 days a week
Peak haulage of 12 trucks or 420 tonnes per day expected by 31 January 2019
The Keras plant should produce some 6,500t per month of +35% Mn ore at Nayega though recent results showing concentrate grades of 41.15% indicate better prices are possible than assumed in our modelling.
Concentrate grades have so far ranged from 39.61-42.76% showing a remarkable consistency of manganese material and exceeded the specifications set by Keras’ specialist manganese alloy offtaker/producer.
We assume an ongoing production rate of around 6,000t per month in our modelling.
Manganese ore prices remain at $5.76/DMT for 37% manganese material in China and $5.11/DMT fob Port Elizabeth (Fastmarkets MB).
44% manganese material sells for $6.46/DMT in Tiajin, China highlighting the potential price increase if Keras is able to upgrade its ore further.
Prices for 37% ore peaked in March last year at $8.21/DMT having risen through Q1 on strong demand.

Conclusion: The verification of the quality of the ore and the trucking of ore in preparation for export is reducing the risk profile of Keras.

We expect Keras to potentially sell around $13m worth of manganese concentrate a year from the Nayega mine using current infrastructure assuming the sale of around 6,000t a month.

*SP Angel act as Nomad and broker to Keras Resources

Kodal Minerals (LON:KOD) 0.2p, Mkt Cap £14.6m – Additional exploration concessions in Bougouni Lithium Province

Kodal Minerals announce exclusive rights to explore and an option to acquire two new concessions totaling 200km2 within 25km of the advanced Bougouni Lithium Project in Southern Mali.
The concessions lie immediately adjacent to the Goulamina Lithium project owned by ASX listed Birimian Limited, who have defined a pegmatite hosted Mineral Resource of 103Mt @ 1.34% LiO2. The Kodal geological team will focus on the potential extensions to the mineralised structures defined by Birimian’s work.
The agreement grants Kodal the right to acquire 80% of Bambara Resources’ Mafele Ouest and Nkemene Ouest concessions via option payments totalling £185,000 in cash and £195,000 in Kodal shares over three stages. The three staged payments accommodates additional geological and technical knowledge as exploration advances before committing additional funds.
The company will utilise its proven geological team to undertake detailed reconnaissance mapping to follow up known pegmatites and seek undiscovered outcrops. There are also a number of geophysical anomalies defined from existing datasets, which represent priority targets for on-the-ground follow up mapping and sampling.
The Bougouni West project is located in the Bougouni-Sikasso region, and regional studies completed by CSA Global in 2008 identified high-grade lithium bearing pegmatites. The study was commissioned and funded by the World Bank as part of the SYSMIN economic development programme.
At completion of a potential feasibility study and lodging of a mining licence application, Kodal has the right to purchase the remaining 20% of the concession for a £500,000 cash payment and 2% net sale royalty to Bambara.

Serabi Gold (LON:SRB) 42p Mkt value £24.7m – Coringa drilling extends strike and depth of mineralisation

Serabi Gold reports that it has completed approximately 5000m of drilling at its wholly owned Coringa gold project in Brazil and that results so far show both strike and depth extensions to a number of the known mineralised structures.
The results are part of a programme aimed at producing a revised mineral resource estimate by the end of the first quarter and a Preliminary Economic Assessment (PEA) for Coringa “before the end of the second quarter”.
The current mineral resource estimate for Coringa shows 195,000oz of indicated resources (726,000t at an average grade of 8.36g/t gold) and an additional 1.3mt of inferred resource at an average grade of 4.32g/t gold (181,000oz).
Among the highlights reported by Serabi Gold are:
Extension of the Meio #2 Vein by a further 480m to the south increasing the total drilled strike length to almost 1200m with individual drill intersections including:
A 0.35m intersection at an average grade of 15.57/t gold from a depth of 197.05m in hole COR0372 and
A 1.30m intersection at an average grade of 32.04/t gold from a depth of 144.75m in hole COR0373.
The known depth of the Meio #4 vein has been “increased by approximately 200 metres along a 400 metre strike zone to the north” with highlighted intersections of the vein including:
A 0.60m intersection at an average grade of 4.65g/t gold from a depth of 210.70m in hole COR0378; and
A 0.75m intersection at an average grade of 7.72g/t gold from a depth of 174.80m in hole COR0380; and
A 0.60m intersection at an average grade of 4.65g/t gold from a depth of 210.70m in hole COR0378; and
A 1.40m intersection at an average grade of 14.69g/t gold from a depth of 275.00m in hole COR0381.
Drilling has also extended the known strike length of the Galena Vein by 100m to the south with an intersection of 2m averaging 25.02g/t gold from a depth of 141.5m depth in hole COR0367, and
The footprint of the Serra Vein has been extended “for a further 150 metres down dip and 140 metres along strike to the north” with an intersection of 4m at an average grade of 3.36g/t gold from a depth of 354.0m in hole COR 0370.
Commenting on the results, CEO, Mike Hodgson said that “We are already well advanced with the preparation of an updated geological resource estimate and I believe that these results will translate into significant resource growth”.
He went on to outline the plans to progress Coringa saying that “we are continuing preparations to go underground at Coringa, which has principally involved some site clearance as we develop the portal. We have the Trial Mining License (GUIA) which permits underground development, and we hope to be underground and into the first ore during the second quarter. This will provide invaluable understanding of the ore body geometry which, given the nature of narrow, vertically dipping orebodies, can be difficult to understand from drill hole data alone.”

Conclusion: Recent and continuing drilling and plans to go underground, which as well as providing access to the mineralisation may open up additional drill sites, at Coringa look likely to deliver increases to the existing mineral resource estimate at Coringa. We look forward to the revised estimate later this quarter and to a PEA expected by the end of the 2nd quarter.