Today's Market View - Surprise China data shows strong copper demand remains

SP Angel – Morning View – Thursday 14 02 19

Surprise China data shows strong copper demand remains

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IronRidge Resources (LON:IRR) – Zaranou gold project secured

Goldstone Resources (LON:GRL) – Akrokeri-Homase project update

Premier African Minerals (LON:PREM) – Discussions with Zimbabwean Ministry of Industry on RHA tungsten mine

SolGold* (LON:SOLG) – Interim financial report

Strategic Minerals* (LON:SML) – Redmoor mineral resource increase

Dow Jones Industrials

+0.46%

at

25,543

Nikkei 225

-0.02%

at

21,140

HK Hang Seng

-0.33%

at

28,404

Shanghai Composite

-0.05%

at

2,720

FTSE 350 Mining

+1.91%

at

18,955

AIM Basic Resources

-0.01%

at

2,202

Economics

US – headline inflation slowed to a 19-month low of 1.6% in January principally driven by a sharp decline in energy prices.

• Excluding food and energy core inflation remained unchanged at 2.2% providing support for FOMC’s “patient stance amid a potential weakening in growth rates in Europe and Asia, Capital Economics commented on numbers.
• Separate reports suggest President Trump is considering extending the March 1 deadline by 60 days providing more room for negotiating parties to strike an agreement.
• US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin are in Beijing for the latest round of high-level talks with Chinese Vice Premier Liu He on Thursday and Friday. A meeting between Lighthizer and Chinese President Xi Jinping is being tentatively scheduled for this week.
• CPI (%yoy): 1.6 v 1.9 in Dec/18 and 1.5 forecast.
• Core CPI (%yoy): 2.2 v 2.2 in Dec/18 and 2.1 forecast.

China – Trade data released surprise on the upside, although, market commentators highlight high volatility in reported data in the beginning of the year affected by the timing of the long Lunar new Year holidays that started on Feb 4 this year.

• The data looks particularly surprisingly positive amid the deceleration in global factory readings and weak Korean, OCBC Bank economist are reported saying.
• “Looking ahead, the downbeat outlook for global growth means that this year is likely to be challenging for Chinese exporters, even if the ongoing US-China trade negotiations culminate in a deal… meanwhile, we think cooling domestic demand and easing commodity price inflation will remain a headwind to imports in the near-term,” Capital Economics commented on the data.
• Exports (%yoy, US$ terms): 9.1 v -4.4 in Dec/18 and -3.3 forecast.
• Imports (%yoy, US$ terms): -1.5 v -7.6 in Dec/18 and -10.2 forecast.

Germany – Official figures show the economy managed to avoid recession by a narrow margin in Q4/18.

• Growth in business investment and government spending compensated for weak exports during the quarter; private spending was up marginally.
• Eurozone wide Q4 GDP numbers are due later today with estimates for growth to have remained at 1.2% during the quarter, the weakest pace since early 2014 and less than half since 2.8% recorded in Q3/17.
• The region faces a number of growth headwinds including weaker demand for its exports from China and the rest of the world, the prospect of a messy divorce with the UK, and protrcted impact from political unrestin Italy and France.
• GDP (%qoq): 0.0 v -0.2 in Q3/18 and 0.1 forecast.
• GDP (%yoy): 0.6 v 1.1 in Q3/18 and 0.7 forecast.

UK – The pound is weaker this morning ahead of a Parliament vote on Brexit deal later today.

• PM has put a new motion before parliament that effectively asks lawmakers to allow her more time to continue with negotiations with the EU to seek changes to the backstop.
• This is the second time May ha submitted an amendable parliamentary motion after the defeat of her Brexit deal after MPs successfully amended the motion twice in January.
• Two of previously supported motions included for the government to seek “alternative arrangements” to replace the Northern Ireland backstop as well as rejecting the possibility of no deal.
• On a different note, property market outlook worsens to the weakest since July 2012 following a sharper than forecast drop in January, according to the RICS data.
• Asked about the outlook for house prices over the next three months, surveyors expected the most widespread price declines since Feb/11.
• “Resolution of the Brexit negotiations is widely seen as critical to encouraging potential buyers back into the market,” RICS commented on numbers.

Russia – The rouble is off 1.5% against the US$ and trading at 66.8 this morning after a bipartisan group of senators introduced legislation to introduce new sanctions onn Russia for interfering in US elections and for exerting “malign influence” in Syria and aggression in Ukraine.

• The bill includes new sanctions on Russian banks, sovereign debt, LNG investments, political figures and oligarchs.
• Russia 10y Eurobond yields jumped to 4.8% on the news marking the highest level since beginning of the year.

South Africa – The nation entered a fifth day of rolling blackouts on Thursday with Eskom reported to cut 2,000 MW from the South African grid today after it lost three power generation units with a combined 823 MW.

• While one unit of 600 MW was successfully restored, its power generation system remains “vulnerable”.
• This compares to 3,000 MW removed over the previous two days.
• The rand is off 1% this morning trading around 14.15, the weakest level since the start of the year.

Currencies

US$1.1270/eur vs 1.1326/eur yesterday Yen 111.08/$ vs 110.69/$ SAr 14.084/$ vs 13.758/$ $1.285/gbp vs $1.290/gbp 0.712/aud vs 0.712/aud CNY 6.769/$ vs 6.761/$

Commodity News

Precious metals:

Gold US$1,308/oz vs US$1,313/oz yesterday

Gold ETFs 72.7moz vs US$72.7moz yesterday

Platinum US$787/oz vs US$792/oz yesterday

Palladium US$1,407/oz vs US$1,411/oz yesterday

Silver US$15.67/oz vs US$15.72/oz yesterday

Base metals:

Copper US$ 6,166/t vs US$6,124/t yesterday

• Copper climbs for the second day as China’s export-import data highlights surprise gains and President Donald Trump has reported considering a delay to the deadline to secure a trade deal.
• China’s copper imports began 2019 in lively form, with purchases of the metal in all forms rising in January from a year earlier in a tentatively positive signal for demand.
• Imports of unwrought copper and products reached 479,000t, up 8.2% on the year, according to China’s General Administration of Customs. That’s well above 2018’s average monthly volume of 441,000t and a four-month high.
• Inbound shipments of copper concentrate climbed 18% to about 1.9mt, the second-highest volume on record.
• Purchases of copper concentrate to make refined copper products indicate smelters maintaining output and even building new plants.
• Global copper stockpiles across LME warehouses are also not far off decade-lows, underscoring tight supply.
• Asian stocks steadied and US stock futures ticked higher as Trump announces he is considering adding 60 days to the March 1 deadline to secure a trade deal.

Aluminium US$ 1,865/t vs US$1,859/t yesterday

• The global aluminium market is expected to remain oversupplied as China ships a record volume of aluminium in January while the deal to lift sanctions on Russian billionaire Oleg Deripaska could lead to large volumes of Rusal’s metal is poised to return to the world market.
• Rising output from new smelters pushed more metal onto the global market, with export of unwrought aluminium and products hitting 552,000t – beating a previous high of around 543,000t in December 2014, according to customs data on Wednesday.
• Aluminum exports advanced over the year as world prices rose and buyers sought alternatives to metal from sanctions-hit United Co. Rusal, with the latest figures rising 24% on the year.
• China continues building excessive aluminum capacity according to U.S. peer Alcoa Corp.’s Chief Executive Officer Roy Harvey.

Nickel US$ 12,450/t vs US$12,350/t yesterday

Zinc US$ 2,614/t vs US$2,594/t yesterday

• Disruptions to zinc shipments caused by flooding could take six months for repairs according to Australia’s Queensland Rail. The 1,000km (620m) rail line used by major miners including Glencore, MMG Ltd and South 32 to ship zinc and lead concentrate from the Mt Isa region could draw miners towards more expensive trucking to maintain exports.
• "There is certainly a lot of work to do, but at this stage we anticipate rectification of the line ahead of the 6-12 months being reported," the rail operator said. "Unfortunately, it is too early for us to be providing more definitive advice regarding repair timeframes for the Mount Isa Line, given flood waters surrounding the site and on roads connecting to the site are yet to recede."
• South 32 Chief Executive Graham Kerr said on Thursday that the company was looking into trucking concentrate from its Cannington silver-lead operations.

Lead US$ 2,025/t vs US$2,023/t yesterday

Tin US$ 21,050/t vs US$20,965/t yesterday

Energy:

Oil US$61.9/bbl vs US$61.9/bbl yesterday

Natural Gas US$2.692/mmbtu vs US$2.692/mmbtu yesterday

Uranium US$28.80/lb vs US$28.80/lb yesterday

Bulk:

Iron ore 62% Fe spot (cfr Tianjin) US$83.9/t vs US$83.2/t

Chinese steel rebar 25mm US$607.8/t vs US$608.5/t

Thermal coal (1st year forward cif ARA) US$78.4/t vs US$76.8/t

• Germany makes the first moves to transition to clean energy, with a landmark deal to phase out coal fuel source by 2038. The agreement was only achieved after fraught discussions over the target date of completion, looking to maintain mining interests by injecting the equivalent of €40bn over 20 years into coal-dependent regions.
• The decision forms a part of a climate act which sets out restructuring of sectors to meet a 2030 target of 55% lower carbon emissions than in 1990.
• For the energy sector, the big issue will be how to bring about the coal commission’s recommendation of removing 7.7GW of hard coal and 5GW of lignite generation capacity from the grid by 2022.
• The steps needed to phase out coal need serious work and commitment, especially when considering Germany has already conceded it will miss its 2020 emissions target, which the Financial Times said was “a severe embarrassment for a country that once prided itself on its green leadership”.
• German lignite and hard coal generation capacity has fallen from 48.9GW in 2008 to 45.4GW last year, based on figures from Clean Energy Wire. However, the two fossil fuels still accounted for more than 35% of all generation in 2018, the figures show.

Coking coal futures Dalian Exchange US$195.4/t vs US$195.6/t

Other:

Cobalt LME 3m US$32,000/t vs US$32,000/t

China NdPr Rare Earth Oxide US$46,019/t vs US$46,076/t

China Lithium carbonate 99% US$9,972/t vs US$9,984/t

China Ferro Vanadium 80% FOB US$70.9/kg vs US$70.9/kg

China Antimony Trioxide 99.5% EU US$6.9/kg vs US$7.0/kg

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

Battery News

Berlin is considering extending bonus for electric cars

• German motorists can still receive a government handout if they purchase an electric car beyond the summer deadline originally set out for the scheme to end.
• In the pot for the so-called environmental bonus are a total of €600m in federal funds, but so far, only €134m has been paid out, the sources said.
• Around 100,000 applications for the bonus have been received so far. The premium was due to expire according to previous plans at the end of June.

Hyundai Mobis Introducing a Pollution-less Power Generation System Utilizing Hydrogen Vehicles

• Hyundai Mobis sought to leverage hydrogen fuel cell modules, which were applied to hydrogen fuel cell electric vehicles, to introduce the hydrogen power generation system that supplies power to buildings.
• It is the first in the world to produce the core parts of hydrogen fuel cell electric vehicles in a dedicated factory.
• The company has announced that it implemented the ‘emergency hydrogen power generation system’ in its hydrogen fuel cell plant in Chungju, Korea, and began to operate it on a pilot basis.

France's Macron unveils plan to give electric battery industry a jolt

• France will invest €700m ($790m) over the next five years into projects to boost the European electric car battery industry and reduce its automakers' reliance on dominant Asian rivals, President Emmanuel Macron said on Wednesday.
• The plan comes after Germany in November set aside €1bn to support battery cell production to reduce dependence on Asian suppliers and shore up jobs at home that may be at risk from the shift away from combustion engines.
• Macron said two factories would be built, one each in France and Germany, under a French-German initiative, at a time when their countries' automakers are waking up to the threats posed from relying on Chinese suppliers in an age of international trade wars.

Company News

IronRidge Resources* (LON:IRR) 19.3p, Mkt Cap £59.6m – Zaranou gold project secured

• IronRidge has secured the access rights to acquire the 397km2 Zaranou Gold Project in Côte d’Ivoire, located approx. 200km north-east of the capital Abidjan, adjacent to the Ghanaian border.
• The prospective Zaranou opportunity is formed within Birimian metasediments, with over 40km strike of target defined by the major through-going Shear Zone with a ‘pressure shadow’ around the margins of a rotated granitoid body in the southern extent of the license. An additional 30km priority shear zone corridor in the northern half of the license has been identified at the Zaranou opportunity with multiple gold occurrences.
• Eight high priority targets record multiple gold occurrences with artisanal workings observed in pits over 1.6km strike length, with individual artisanal pits between 60-120m wide.
• Hard-rock artisanal mining zones are evident in regional aeromagnetics data, with at least eight additional high-priority targets identified over the 40km strike length. Defined targets are interpreted as repeated en-echelon structures typically associated with favourable settings for gold deposits.
• Reports of historical mining activity during the 1930's at the Yosso occurrence with quartz vein zones between 2m to 60m thick, and over 300m in length with evidence of gold mineralisation extending 10m into pyritic schists either side of the veins and averaging 1.5g/t to 12g/t Au.
• Historical results returned during the late 1990's and 2008 include a best result of 2.2g/t over 21m (including 5.7 g/t over 5m) in a limited rotary air blast drilling program.
• The binding joint earn-in agreement with GeoServices Côte d’Ivoire SA and Atlas Resources SARL gives the option to acquire up to 100% through staged earn-in and expenditure to the Feasibility Study subject to each company retaining an aggregate net smelter royalty, of 2.5% of which 50% may be acquired for US$4m.
• CEO Vincent Mascolo adds the acquisition “complements IronRidge’s existing gold portfolio in Côte d’Ivoire which now totals 3,548km2 providing further operational synergies for exploration programmes”.

*SP Angel act as nomad and broker to IronRidge Resources

Goldstone Resources (LON:GRL) 1.9p, Mkt Cap £4.7m – Akrokeri-Homase project update

• Goldstone Resources has announced the commencement of work on a Definitive Economic Plan (DEP) to assess the capital and operating costs and timescale required to develop a mine on the Akrokeri-Homase licence area in Ghana.
• The study is scheduled to be completed during Q2 2019 and initial indications are that it will examine the development of “a low tonnage, gravity and combined heap leach facility can achieve early stage cash flow with minimal capital expenditure”.
• Environmental Impact Assessment and social relations work required for inclusion in a mining licence application is also underway.
• Commenting on the proposed gravity and heap leach development as a route to fulfil the company’s “commitment to our shareholders to bring the Akrokeri-Homase project into production in the shortest possible time” CEO, Emma Priestly, confirmed that this would be “the focus of our development efforts, as we seek to deliver our objective of near term production.”

Conclusion: We look forward to the results of the DEP on the Akrokeri-Homase project which lies close the historic Obuasi mine which was recently reopened by Ghana’s President, Nana Addo Dankwa Akufo-Addo on 22nd January. The Obuasi mine operated for over 100 years prior too closure in 2014 and according to reports should be producing gold again later in 2019.

Premier African Minerals (LON:PREM) 0.10p, Mkt Cap £7.4m – Discussions with Zimbabwean Ministry of Industry on RHA tungsten mine

• Premier African Minerals reports that it expects to meet the Zimbabwe Ministry of Industry, Commerce and Enterprise Development at its “earliest convenience” in order to discuss plans to recommission the RHA tungsten mine.
• Discussions are expected to explore the Ministry “assisting with the funding of the recommissioning of the RHA Tungsten Mine ("RHA") in which Premier currently has a 49% interest”.
• The company points out that “As part of Premier's recapitalisation proposal submitted to the Ministry of Industry on the 18 January 2018 … RHA's management established that to get the mine into a state of sustainable and potentially profitable production they would require the following: electrification of mining operations, general working capital, further exploration drilling of the underground and open pit, plant upgrades, semi mechanisation of the underground workings, and development of a decline shaft and the equipping thereof to expose ore on the 810 and 760 levels respectively.”
• The company believes “the proposed commitment will transform the project and we look forward to a close collaboration with the government of Zimbabwe in bringing RHA back in production”.
• Commenting on the discussions with the Ministry, CEO, George Roach, said “We are pleased to have had further correspondence from the Ministry of Industry, and welcome the proposed financial commitment from the Ministry of Industry to assist in bringing RHA back into production.”

Conclusion: The RHA mine has been beset by a variety of challenges – the injection of funds by the Ministry, if it can be agreed, may provide an opportunity to address these issues. We await further news once the meetings have taken place.

SolGold* (LON:SOLG) 36.85p, Mkt Cap £683.1m – Interim financial report

• SolGold reports a loss of A$33.5m for the quarter ending 31st December 2018 bringing the loss for the full half year to A$37.9m (six months ending 31st December 2017 – A411.7m).
• The result reflects a period of active drilling at the company’s Cascabel project in Ecuador which resulted in the publication , in November 2018, of an updated mineral resource estimate for the Alpala deposit based on over 68,000 assays from over 133,000m of drilling in 128 drill-holes, of approximately 2bn tonnes of indicated resources at an average grade of 0.6% copper equivalent and an additional 900mt classed as an inferred resource at an average grade of 0.35% copper equivalent.
• In addition to the drilling and resource definition work, Solgold has paved the way for a future economic assessment of the Alpala deposit with the completion of a studies covering hydrogeological data collection, preliminary geotechnical data gathering to assess the mining conditions likely to be encountered as well as work to identify “suitable locations for processing plant and other infrastructure”.
• As well as the work at Alpala, Solgold has started initial drilling of the Aguinaga and Trivinio targets within the Cascabel licence and identified further targets at Moran, Cristal, Tandayama-America and Chinambicito for future drilling.
• “The company believes there remains strong potential for further growth with the 2019 drilling campaign to continue to expand the deposit at Alpala SE, Alpala NW, Trivinio and Alpala Western Limb.”
• Initial screening of Solgold’s wholly owned projects within Ecuador has identified 11 priority targets “for second phase exploration” where the initial emphasis is on “geophysical surveys and detailed soil geochemistry, with a view to progress to drill testing as soon as permissions are in place”.
• As previously reported, the company has announced its intention to make an offer for Cornerstone Capital Resources which owns the balance of the Cascabel project. The offer, which has yet to be formally tabled values each Cornerstone share at 0.55 Solgold shares.
• Solgold is well funded to continue advancing Alpala and its other projects with a 31st December cash balance of A$118m.

Conclusion: Solgold remains well financed as it works towards a preliminary economic assessment of the Alpala deposit and advances the exploration of its other projects within the Cascabel project area and elsewhere in Ecuador

*SP Angel acts as broker and advisor to Solgold. SP Angel have raised funds for SolGold on eight previous occasions.

Strategic Minerals* (LON:SML) 1.575p, Mkt Cap £22.8m – Redmoor mineral resource increase

• Strategic Minerals has released an updated mineral resources estimate for its 50% owned joint-venture project at Redmoor in Cornwall.
• The new estimate, based on the results of its 2018 drilling programme, comprising twelve holes totalling 7,370m, in conjunction with its 2017 drilling and pre-existing historic information, increases the previously reported (March 2018) inferred resource of 4.5mt at an average grade of 1% tin equivalent (0.25% tin, 0.37% tungsten trioxide and 0.57% copper) to a new inferred resource estimate of 11.7mt at an average grade of 1.17% tin equivalent (0.17% tin, 0.56% tungsten trioxide and 0.50% copper) using a 0.45% tin equivalent cut-off grade.
• The new estimate confirms “the continuity of the Sheeted Vein System ("SVS"), which hosts the high-grade zones, over a strike length exceeding 1,000m and for some 650m down dip.” The SVS comprises a “series of discrete high-grade zones, sub-parallel to the overall SVS envelope and to each other” within a zone approximately 100m wide.
• Strategic Minerals highlights that the new resource estimate represents a 200% increase in contained metal, a 160% rise in the resource tonnage and a 17% increase in the tin equivalent grade.
• Geological interpretation “demonstrates zonation within the structure. Tin is richer in the western parts, tungsten to the east and at depth and copper is typically richer higher in the system. All metals overlap to some degree.”
• In addition to the resource estimate, Strategic Minerals has identified additional, JORC compliant, potential in a high-grade exploration target estimated to contain between 4 to 8mt at grades within the range 1.0-1.4% tin equivalent which “reflects the higher grades intersected in the 2018 drilling program, which it is expected will continue to be seen as deeper parts of the deposit are tested. The majority of the deposit remains open down-dip and along strike to the west where further potential exist and remains largely untested.”
• The company also points out that “The Blogsters prospect, around 900 m to the west of, and directly on strike with the Redmoor deposit, is known to have been mined in the early 20th century. Whilst not included in the Mineral Resource or Exploration Target above, Blogsters provides exploration potential for further strike extension of the SVS which remains to be tested.”
• Commenting on the updated estimate, Executive Director, Peter Wale, said “The significantly upgraded resource statement consolidates the strong drilling results received during the 2018 programme. This provides the Company, and joint venture partner New Age Exploration, confidence to progress towards the goal of restarting mining at Redmoor.”
• Strategic Minerals also highlights that “On a contained metal basis, and on a grade basis, the Redmoor Mineral Resource now ranks as one of the leading undeveloped tin-tungsten mining projects in the world”.
• In May 2018, following the release of the 4.5mt mineral resource estimate, the company released details of an independent high-level study which indicated that “subject to the identification of additional resources, investment grade returns can be achieved” from a mine development at Redmoor.
• The May 2018 study, which is conceptual in nature, envisaged decline access to deliver 700,000tpa of ore from up-hole stoping and paste filling of the resulting voids and concluded that the 4.5mt resource was “insufficient to meet the Joint Venture partners' investment hurdles. This indicates that, with an in-situ grade of 1.0% Sn Eq., an excellent project could be developed at Redmoor provided additional resource tonnes can be defined and added to the mining inventory”. The expanded resource announced today, even though currently still at the inferred level, goes a significant way to address those concerns.

Conclusion: The increased resource estimate should help to address, at least in part, earlier concerns that Redmoor is of insufficient scale to support a mine development. More detailed work will be required to upgrade the estimate from its current inferred status and to help establish a development strategy beyond the conceptual plans discussed to date. In our opinion, the new resource is, however, an important step towards the company’s “goal of restarting mining at Redmoor”.

*SP Angel act as Nomad and broker to Strategic Minerals