Today's Market View - Junkyard palladium in high demand as deficit widens

Proactive Published 28/02/2019

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SP Angel – Morning View – Thursday 28 02 19

Junkyard palladium in high demand as deficit widens

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MiFID II exempt information – see disclaimer below

Bluebird Merchant Ventures* (LON:BMV) – Kochang update

Kodal Minerals* (LON:KOD) – Updated JORC resource increases 23% at Bougouni lithium project

Shanta Gold (LON:SHG) – Good set of earnings as the Company turns FCF positive in FY18

Talga Resources (ASX:TLG) – Cobalt and graphite exploration update

US funding heading towards Junior UK miners with projects in Africa

Donald Trump doubled funding into OPIC the US Overseas Private Investment Corporation.
The funds which were previously focussed on more humanitarian causes are now thought to be directed towards holding back China’s influence in Africa.
China has been using effective state funds to buy its way into mineral projects across Africa with a focus on metals for electric vehicles and other new energy era products.
Trump and Republican policy is said to be directing OPIC and possibly other US state officials to put these funds to work in new mineral projects across Africa to counteract Chinese influence in commodity production as well as in the region as a whole.
We are aware of investment funds which are bidding on the new OPIC funds but have yet to see the cash flow through into the junior sector.
Trump doubled OPIC’s funding to $60bn from $29.5bn with a new ‘Equity Authority’. This is a major step forward from a Junior mining perspective as China has been beating other funders in its ability to fund early stage equity to get into projects ahead of other funders.
China’s repeated weaponisation of commodities in political disputes is worrying Western nations with China’s recent ban of coal shipments into the Dalian port the latest development.
The UK authorities are also aware of China’s increasing dominance in mining across Africa and its dominance in Rare Earths and other key industrial minerals.

Vanadium prices remain steady at $75.5-76.5/kg

Ferro-vanadium prices remain steady at $75.5-76.5/kg in Western Europe for 78% material.
Chinese prices caught up 3.1% with Europe last week at $74-76/kg but are expected to push ahead as the authorities enforce compliance with new rules on vanadium content in China.

Ilmenite – Rio Tinto posts bullish comment on ilmenite demand in annual results statement

Rio Tinto’s annual report yesterday makes a more positive comment than normal on its titanium business.

Rio says: ‘We have significant capacity for growth in titanium dioxide feedstocks, subject to market conditions. Three of the nine furnaces at RTFT are idle, two of which are currently being rebuilt. One of the four furnaces at RBM remains idle. Our focus is on maximising the productivity of the furnaces in operation, and we will decide when to restart idle furnaces with a view to maximising value over volume.’

Markets and outlook: ‘We saw stronger demand for titanium dioxide in 2018 as downstream volume growth supported high utilisation rates at pigment plants. The supply of high-grade mineral sands (titanium dioxide and zircon) remained tight due to a combination of grade decline and production disruptions – and this has underpinned robust prices. We expect long-term demand growth to be solid at 3% per year, driven by growth in emerging economies.’
Ilmenite and titanium prices: We expect prices to rise for ilmenite following on the back of stronger expected demand and the restart of furnaces
Ferro-titanium 70% prices in Europe rose 2.7% today to $4.6-4.8/kg. Ilmenite prices are at $164-180/t 47-49% CIF China, Fastmarkets MB.

Dow Jones Industrials

-0.28%

25,985

Nikkei 225

-0.79%

21,385

HK Hang Seng

-0.45%

28,629

Shanghai Composite

-0.44%

2,941

FTSE 350 Mining

-1.21%

19,170

AIM Basic Resources

-1.27%

2,167

Economics

US – Donald Trump and Kim Jong Un unexpectedly cut the Hanoi summit short cancelling the signing ceremony after the two leaders failed to agree on a denuclearisation deal.

Commenting on reasons for the cancellation Trump said “it was about the sanctions… basically, they wanted the sanctions lifted in their entirety, and we couldn’t do it”.
“He had a certain vision, and it is not exactly our vision. But it is a lot closer than it was a year ago, and eventually I think we will get there, but for this particular visit we decided that we had to walk.”

China – Miners pull back amid escalating concerns over Chinese economic growth outlook following the release of weak official manufacturing numbers in February.

Factory sector contracted for a third consecutive this month with the nation’s manufacturing PMI at three year low.
Weak overseas background have been highlighted by a decline in export orders for the manufacturing sector.
Services PMI: 54.3 v 54.7 in January and 54.5 forecast.
Manufacturing PMI: 49.2 v 49.5 in January and 49.5 forecast.

Japan – Industrial production dropped at the fastest pace in a year in January as motor vehicle and electronics recorded declines and retail sales growth missed estimates.

Industrial production was down 3.7%yoy last month, worse than a 2.5%yoy decline expected.
Retail sales climbed 0.6%yoy in January, slowing from the 1.3%yoy growth in December and coming short of the 1.1%yoy growth estimated.
Judging on the numbers the economy may have contracted in Q1/19, Capital Economics commented on the data.
“All told, it seems that the economy slowed sharply at the start of 2019, which should rattle policymakers at the BoJ and should trigger a renewed debate about possible easing measures.”

UK – The pound is trading close to the highest since H1/18 as Jeremy Corbyn said the opposition Labour party will formally back a new Brexit referendum.

“We will back a public vote in order to prevent a damaging Tory Brexit or a disastrous no-deal outcome,” Mr Corbyn said on Wednesday night, FT reports.
Change in the strategy came after Labour’s own Brexit alternative failed in a parliamentary vote (240 to 323) yesterday
House prices continued lacklustre performance in February climbing 0.4%yoy, an improvement on 0.1%yoy recorded in January, but far below the pace seen in 2018.
“Indicators of housing market activity, such as the number of property transactions and the number of mortgages approved for house purchase, have remained broadly stable in recent months, but survey data suggests that sentiment has softened,” Nationwide chief economist commented on numbers.
On a positive side, shortage of properties, record employment and low interest rates are supporting prices on the downside.

Currencies

US$1.1389/eur vs 1.1391/eur yesterday Yen 110.74/$ vs 110.36/$ SAr 13.938/$ vs 13.849/$ $1.329/gbp vs $1.327/gbp 0.714/aud vs 0.718/aud CNY 6.687/$ vs 6.684/$

Commodity News

Precious metals:

Gold US$1,323/oz vs US$1,326/oz yesterday

Gold ETFs 72.5moz vs US$72.5moz yesterday

Platinum US$870/oz vs US$864/oz yesterday

Palladium US$1,535/oz vs US$1,553/oz yesterday

As primary palladium quickly disappears from global markets, the significance of junkyard metal is becoming more apparent as producers are forecasting a 1moz deficit for 2019 and global known inventories could run out by the close of the year.
Recyclers can recover around 90% of the metal from catalytic converters in junked cars, with extraction costs a fraction of primary mining. As prices surged, so did the amount of reclaimed palladium. In the first 10 months of 2018, 3.2moz were returned to the market, up 11% from the year earlier. That’s almost half the amount produced in mines.
Recyclers recover about three grams of palladium from the catalytic converters in junked cars in a three-step process that starts with a dealer removing the catalytic converter. Refiners will then use large semi-automated sheers to get to the palladium before it’s ground into a fine powder in a large milling machine.
To make it 99.95% pure, the powder is then concentrated using an electric arc furnace and refined through a wet chemical process, according to BASF, which has recycling facilities in South Carolina, Michigan and the U.K.
The market is expected to become more reliant on recycled resources as there is limited fresh investment to increase output in Russia and South Africa, and “the EU has a binding target of cutting emissions by at least 40% by 2030 from 1990 levels, while China aims for 26-28% cuts from 2005 levels”, Bloomberg Intelligence report.

Silver US$15.79/oz vs US$15.85/oz yesterday

Base metals:

Copper US$ 6,489/t vs US$6,480/t yesterday

Metal growth focused on optimism on a potential US-China trade deal slowed as data from China’s manufacturing further contracted, underscoring concerns over slowing economic growth across the world’s top consumer.
The manufacturing purchasing managers index in February fell further below the 50 mark that signifies contraction, with domestic holidays, the global slowdown and uncertainty from the trade war all likely playing a part. PMI dropped to 49.5, missing estimates and below January’s 49.5.
Minor positive data indicates new order rose above 50, while business activity expectations increased to 56.2.

Aluminium US$ 1,919/t vs US$1,916/t yesterday

Nickel US$ 13,110/t vs US$12,870/t yesterday

Zinc US$ 2,734/t vs US$2,729/t yesterday

Lead US$ 2,142/t vs US$2,086/t yesterday

Tin US$ 21,510/t vs US$21,530/t yesterday

Energy:

Oil US$65.9/bbl vs US$65.5/bbl yesterday

Natural Gas US$2.801/mmbtu vs US$2.775/mmbtu yesterday

Uranium US$27.85/lb vs US$27.70/lb yesterday

Bulk:

Iron ore 62% Fe spot (cfr Tianjin) US$82.2/t vs US$82.3/t

Chinese steel rebar 25mm US$609.0/t vs US$608.3/t

Thermal coal (1st year forward cif ARA) US$80.0/t vs US$78.5/t

Coking coal futures Dalian Exchange US$197.6/t vs US$197.7/t

Other:

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

China NdPr Rare Earth Oxide US$45,852/t vs US$45,876/t

China Lithium carbonate 99% US$10,248/t vs US$10,253/t

China Ferro Vanadium 80% FOB US$72.0/kg vs US$71.7/kg

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

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

Battery News

Mercedes Enlists Quantum Computing to Build a Better Electric Vehicle Battery

The research and development division of Mercedes-Benz is exploring how quantum computers could be used to discover new materials for advanced batteries in electric cars within the next 10 years.
The automaker is working with IBM’s quantum computing division to develop ways to utilize applications based on quantum computing, and hopes to deploy next-generation computing power in certain use cases.
Mercedes have said a quantum computer could help the automaker identify new materials or combinations of materials that could yield improved electrochemical performance and longer life cycles. Some of those advances could include safer, more energy-efficient organic batteries.

Volvo's Polestar unveils electric car touted as Tesla rival

Volvo's electric performance brand Polestar is unveiling a battery-powered compact car touted as a rival to Tesla's Model 3.
The Polestar 2 is a five-door vehicle with a panoramic glass roof, an all-vegan interior and a battery with enough capacity to drive 500 kilometres under European tests for range measurement, or 275 miles under U.S. testing rules.
With 408 horsepower, it should accelerate from zero to 100 kph (0-62 mph) in under five seconds. Polestar said Wednesday that the car's U.S. price for the launch version will be $55,500 after tax incentives; later a lower-priced version with less range is envisioned.

Uber’s electric bicycles are starting to get more riders than their cars

While Uber’s main focus has been conventional car ridesharing, they’ve been steadily expanding into micro-mobility.
Last year Uber bought Jump, a large bicycle sharing network which has managed to secure its own fair share of the booming electric bicycle and scooter market. In fact, in Sacramento Jump is beginning to score more electric bicycle riders than Uber’s own ridesharing cars.
Uber indicated that according to a recent study which included the areas of Sacramento where both Uber’s cars and Jump Bikes are available, the breakdown of Uber riders in the area was 53% for Uber’s Jump Bikes and 47% for Uber’s car service.

Sydney university campus to go green with revolutionary zinc battery storage system

Light towers at the University of Sydney will soon be powered by a ground-breaking new energy storage platform comprised of low-cost zinc-bromide battery technology.
Developed by Gelion Technologies and University of Sydney Professor Thomas Maschmeyer, the system called Gelion Endure, is considered a far cheaper and safer technology compared with lithium ion batteries.
This is because zinc-bromide power storage does not require active cooling and can be activated remotely without the need of on-site servicing.

Company News

Bluebird Merchant Ventures* (LON:BMV) 2.9p, Mkt Cap £6.7m – Kochang update

Bluebird Merchant Ventures reports that it has held meetings and a site visit to the Kochang mine site with representatives of the South Korean Government owned Korean Resources Corporation (KORES) over the last ten days “with respect to the planned underground drill programme.”
As a result, Bluebird Merchant Ventures has expectations of “a positive approval in March” [and] “KORES expressed hope that the potential presented in the outcomes of their November 2018 report … will be confirmed by the drill results”.

Previous announcements said that ““KORES developed a total indicated and inferred resource estimate (Korean resource terms) of 113,280 oz Au from their results” while “Bluebird had reported on 20 November 2018 that the resource potential was 116,880 oz Au”.

KORES’ grade estimate of 6.55g/t gold and 35.97g/t silver compares with Bluebird’s own estimates of 5.94g/t gold and 31.54g/t silver. The results are reported to cover “a very small area of the mine, which itself operated on only a small part of the identified gold and silver system”.

Conclusion: We await news of the approval for drilling at Gubong with interest.

*SP Angel act as broker to Bluebird Merchant Ventures

Kodal Minerals* (LON:KOD) 0.19p, Mkt Cap £14.3m – Updated JORC resource increases 23% at Bougouni lithium project

Extension drilling completed during the October-December 2018 campaign has allowed the company to increase the size of the JORC Mineral Resource estimate by 23%, while classifying a major portion as Indicated Resource.
The updated resource at the 450km2 Bougouni project stands at 21.3Mt at 1.11% Li2O, with 11.6Mt at 1.13% Li2O in the Indicated category and 9.7Mt at 1.08% Li2O in the Inferred category.
The fall in resource grade from the maiden resource is largely due to the re-modelling of Ngoualana resulting from intersections with lower grade material, which draws down the average >2% Li2O high-grade mineralised zone previously reported.
The updated resource comprises three advanced prospects:
Sogola-Baoule: 12.2Mt at 1.1% Li2O (18% increase) - 69% categorised as Indicated;
Ngoualana: 5.1Mt at 1.2% Li2O (9% increase) - 61% categorised as Indicated;
Boumou: 4Mt at 1.02% Li2O (81% increase) - remains Inferred
The resource remains open along strike, with the potential to expand with further drilling. The company as advancing the mine development study with the ESIA (Environmental & Social Impact Assessment), which is nearing completion with engineering consultants commissioned to advance mine planning.
CEO Bernard Aylward adds “The significance of this updated and increased Mineral Resource estimate lies in the fact that it enabled us to classify a large portion of the Mineral Resource estimate as an Indicated Resource - this is fundamental for our ongoing mine development study.”

*SP Angel act as Financial Advisor and broker to Kodal Minerals. A partner at SP Angel acts as Chairman to the company.

Shanta Gold (LON:SHG) 5.3p, Mkt Cap £40.9m – Good set of earnings as the Company turns FCF positive in FY18

Revenues climbed 2.3%yoy to $103.8m (2017: $101.5m) reflecting slightly higher gold sales (82.5koz v 80.4koz in 2017) amid little changed gold price ($1,259/oz v $1,263/oz).
EBITDA amounted to $45.7m, up 21% on 2017 implying EBITDA margins of 44.0%, an improvement on 37.1% in 2017.
AISCs (excluding development costs at Bauhinia Creek, Luika, and Ilunga underground operations) came in at $730/oz (2017: $747/oz) helped by a reduction of $2.1m in running costs in 2018. The Company is planning additional $1.2m in savings from internalisation of the HFO power plant management services.
PAT nearly doubled to $8.0m, up from $4.2m in 2017, taking EPS up to 1.03USc (2017: 0.6USc).
Operating cash flow totalled $31.0M (2017: $34.9m) after accounting for a $13.0m (2017: $1.8m) increase in working capital including a build up in VAT receivables during the year of $7.1m to $21.8m as of Dec/18.
Monthly VAT account accumulation rate has been reduced to $0.6m.
FCF (ex interest on debt) amounted to $14.4m during the year an improvement on a FCF outflow of $3.0m in 2017 that were driven by a completion of capital intensive underground operations development at the NLGM with commercial production launched in Jun/17. Capital expenditures came in at $16.6m during the year v $37.9m in 2017.
Net debt came down by $8m to $31.5m, the lowest level in six years, with closing cash balance of c.$9.0m and access to the restricted Exim Bank working capital facility of $2.5m.
2019 production and costs guided for 80-84koz and AISCs at $740-800/oz.

Conclusion: Good set of earnings results show Shanta turned FCF positive during FY18, something that is expected to be maintained this year judging from the FY19 guidance. The Company has done well in reporting a reduction in unit costs despite the impact of higher royalties introduced in July 2017 that were recorded for the full year 2018. Focusing on extending the life of mine at the NLGM including dip extensions at Bauhinia Creek and Ilunga underground mines the Company is looking to double exploration spend to $3.6m in FY19. Ilunga development is progressing fast with first development ore due in March 2019, ahead of the original mid-2019 target, bringing a third underground source of high grade ore at the NLGM.

Talga Resources (ASX:TLG) A$0.49, Mkt Cap A$106.9m – Cobalt and graphite exploration update

Advanced materials technology company report a successful surface geophysical campaign at Sweden’s largest cobalt deposit, Kiskama – a precursor to resource drilling.
Analysis of the Induced Polarisation (IP) and Moving Loop Electromagnetic (MLEM) survey data identified conductive anomalies underlying the currently delineated resource, while recording a new, very large conductor located 500-1000m east (“K2”).
The K2 conductor has a conductive signature at least twice as strong with double the size of the known Kiskama deposit, allowing Talga to infer a significantly larger, unconfirmed co-deposit. Whilst there are several historic drill holes in the vicinity of the new IP anomalies, none have tested the signal at depth.
A program of infill IP and MLEM geophysics will support improved anomaly definition ahead of planned drilling in the second quarter.
In light of the significant conductive anomaly commencement of drilling in conjunction with the maiden JORC Co-Cu-Au mineral resource estimate at Kiskama has been rescheduled.
At the flagship Vittangi graphite project, Talga recently completed a shallow-penetrating surface electromagnetic survey alongside re-processing and analysis of historic airborne and ground geophysical surveys along the graphite trend extending north from the high grade North Nunasvaara resource.
The team identified several coincident conductors with high-grade graphite surface samples (up to 39% TGC), and Talga have designed a drill campaign to test the main anomalies. Consisting of approx. 20 diamond core holes for ~1,600m, drilling targets extensions to the high-grade Nunasvaara North resource for future development potential, permitting and planning.
The programme will get underway immediately, with sample results expected once drilling is finalised in late March-early April.

Conclusion: Geophysical data significantly enhances the importance of Sweden’s largest cobalt-copper-gold deposit, which complements Talga’s battery metal suite alongside the flagship Vittangi graphite project. While the anomaly is unverified, it could have a major impact on the scale of the resource and provide vital metals to support the swelling battery industry. Growing European capacity, including Sweden’s Northvolt first large-scale battery factory at 32 GWh/yr, will become heavily reliant on strategically placed raw material deposits.