Morning Market Pulse - Steel production cut as smog fills China skies

Proactive Published 04/03/2019

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SP Angel – Morning View – Monday 04 03 19

Steel production cut as smog fills China skies

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Caledonia Mining (LON:CMCL) – Withdrawal of ECI scheme for gold producers

Hummingbird Resources (LON:HUM) – Yanfolila exploration update

Oriole Resources (LON:ORR) – Dalafin exploration to resume next month

Rambler Metals (LON:RMM) – Private placement raises US$11m

Rio Tinto (LONl:RIO) – Iron ore mineral resource update

Savannah Resources* (LON:SAV) – Significant new high-grade lithium discovery

Serabi Gold (LON:SRB) – Mineral resource update for Coringa

Strategic Minerals* (LON:SML) – Final shares issued for the Leigh Creek acquisition

Vale – Vale CEO and other executives resign following pressure from prosecutors

Vast Resources (LON:VAST) – c.£850 equity placing

Mineral exploration turns to smart ‘machine prospecting’

Start-up, Kobold Metals, receives backing from a coalition of billionaires for its data-crunching algorithms to scour the earth for cobalt with the aim to build a “Google Maps for the earth’s crust”.
The company has raised money from Silicon Valley capital firm Andreessen Horowitz and Breakthrough Energy Ventures, a fund backed by Gates and a dozen other tycoons including Jeff Bezos, Ray Dalio and Michael Bloomberg, owner of Bloomberg LP.
Kobold Metals is betting on “machine prospecting” – building a database of geological data to feed its algorithms which hunt for signals to indicate elevated mineral grades and resource potential for the next phases of exploration.
The company focus on cobalt is a result of “very limited history of exploration at all outside of piggybacking on nickel and copper deposits”.
While big mining companies are already experimenting with large-scale data crunching, CEO Kurt House said their efforts are principally aimed at improving operations. For example, Barrick Gold Corp. in 2016 partnered with Cisco Systems Inc. to analyse real-time data from its mines in a push to improve efficiency.
For now, the company is focused on several prospecting on properties in North America, with the Kobold exploration supported for “well over four years”, with targets for around a dozen prospective sites by the end of the year.
It will be interesting to see how well this works in cobalt. Our money is still on die-hard, in-the-field geologists like Nick Mather of SolGold to find the world’s next major discoveries in copper and other major metals. We suspect eh Kobold Metals system will become one of many tools for the next generation of geologists to work with.

Dow Jones Industrials

+0.43%

26,026

Nikkei 225

+1.02%

21,822

HK Hang Seng

+0.53%

28,965

Shanghai Composite

+1.12%

3,028

FTSE 350 Mining

+0.04%

19,018

AIM Basic Resources

-0.43%

2,156

Economics

March is proving to be an eventful month with China’s National People’s Congress holding its annual session to sign off on the government’s economic plan for the year, major central banks including the Fed, the ECB and the BoJ to announce monetary policy updates as well as the Brexit showdown towards the end of March.

Eurozone - ECB struggling to manage Eurozone slow

The ECB needs to appoint a successor to Mario Draghi to orchestrate how to manage the slowdown in the Eurozone.
The Eurozone never really recovered from its 2011 crisis.
Italy is in recession with Italian bond yields now close to Greek bond yields.
Germany narrowly missing recession in the last two quarters possibly due to alleged manipulation of the data and Brexit may not be helping.

US - appears poised to roll back tariffs on $200bn of Chinese products

Trump is reported to have asked China to immediately remove all tariffs on US agricultural products (Reuters).
The move highlights Trump’s overarching pro-business policies.
Longer term the US and China are still likely to clash over technology theft, patent issues, unfair restrictions to Chinese markets and other political issues.
Trump appears to have parked its other grievances for now to help restore trade flows and global growth.
Amongst all this the CFO of Huawei is suing Canada in a civil claim for her false imprisonment and serious breaches of her civil rights. While Huawei is trying to show it is a good corporation and is not a conduit for Chinese espionage, it also appears they are keen to show they will challenge any action against them.

UK – bumper tax receipts to give chancellor several billion pounds to play with

Might we suggest a cut in the UK’s already exorbitant taxes?

China – Opens 13th Chinese People’s Political Consultative Conference ‘CPPCC’ National Committee.

Conference chairman, Wang Yang delivered a work report to the 2,000 political advisors.
The Chinese equity benchmark (CSI 300) is up 3.7% trading at a more than nine-month high taking YTD increase to 29%.
The rally is partly due to the MSCI decision to increase exposure of its Emerging Market index to listed mainland Chinese stocks.
Investors are expecting more stimulus to fight a slowdown in economic growth.
Wang said top priority will be given to studying and implementing Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era.
The second task is offering high-quality suggestions on the central tasks of the Party and the country, which include completing the building of a moderately prosperous society in all respects and deepening supply-side structural reform.
The ‘deepening of supply-side structural reform’ is interesting, does this mean further environmental cleanup and control of commodity supply?.
‘A total of 5,571 proposals had been submitted by the CPPCC National Committee members over the past year, with 41% of them focusing on practicing new development concepts, deepening supply-side structural reform, and promoting high-quality economic development.’ According to Xinhuanet.

Currencies

US$1.1351/eur vs 1.1369/eur last week Yen 111.91/$ vs 111.83/$ SAr 14.235/$ vs 14.091/$ $1.324/gbp vs $1.326/gbp 0.708/aud vs 0.710/aud CNY 6.698/$ vs 6.701/$

Commodity News

Precious metals:

Gold US$1,292/oz vs US$1,308/oz last week

Gold ETFs 72.0moz vs US$72.4moz last week

Platinum US$853/oz vs US$869/oz last week

Palladium US$1,547/oz vs US$1,546/oz last week

Silver US$15.19/oz vs US$15.56/oz last week

Base metals:

Copper US$ 6,452/t vs US$6,513/t last week

Aluminium US$ 1,908/t vs US$1,910/t last week – Bauxite carrier continues to leak bunker oil into UNESCO World Heritage reef close to Solomon Islands

More than 75t of oil have leaked with some 600t of oil on board. The ship ran aground three weeks ago with no spill containment at site.
The ship continued loading bauxite despite cyclone warnings.

Nickel US$ 13,325/t vs US$13,245/t last week

Chinese nickel futures rose more than 2% tracked the ferrous complex higher to almost five-month highs. "The price of stainless steel continues to rise (and) supply of ferronickel is very tight," GF Futures report as Wuxi Stainless Steel Exchange inventories had risen by over 10,000t, or +4.2%, since the first half of February.
Chinese steel mills are "actively replenishing their stocks amid rising stainless steel prices," and nickel supply will remain tight in the short term, CITIC Futures.
On the London Metal Exchange, nickel prices have already added 24% so far this year, making the metal the best performer in the LME complex.
Industrial metals also received support on signals the US and China were close to striking a tariff deal to end the protracted trade war. The Wall Street Journal reported on Sunday Washington could lift most or all of its tariffs on Beijing while a summit between U.S. President Donald Trump and his Chinese counterpart Xi Jinping to sign a final trade deal could happen later this month.

Zinc US$ 2,790/t vs US$2,792/t last week

Lead US$ 2,149/t vs US$2,155/t last week

Tin US$ 21,630/t vs US$21,600/t last week

Energy:

Oil US$65.2/bbl vs US$66.8/bbl last week

Natural Gas US$2.831/mmbtu vs US$2.788/mmbtu last week

Uranium US$28.05/lb vs US$27.75/lb last week

Bulk:

Iron ore 62% Fe spot (cfr Tianjin) US$85.9/t vs US$81.7/t

Chinese iron ore prices climbed +5% to three-week peak as market expectations focus on steel mill stock replenishments amid low inventory levels.
"Although the restocking pace at steel mills may vary and no big range of purchase is expected, steel mills still need to bring in raw materials to support operation, which will back prices to go up," analysts from Jinrui Futures.
While the purchase of raw materials had slowed, allowing stocks of imported iron ore at Chinese ports continued to climb last week as of March 3, to 146.1mt, their highest level since late September, increasing demand from downstream sectors is seen to draw purchases.
Steel prices also rose, buoyed by concerns over tight supply as several cities in northern China ordered steel mills to trim output, an effort to clear their smog-filled skies.
Top steelmaking city Tangshan on Friday issued a level 1 smog alert, the highest in the country's four-tier pollution warning system, asking mills to curb output by 40-70% or even stop production from 1-6th March.
Wu'an city, another major steelmaking hub in Hebei province, tightened its March anti-pollution rule, by asking steel mills to cut extra 10% of production on top of its original orders, at an aim to improve its air quality, according to a statement from the city government.

Chinese steel rebar 25mm US$616.3/t vs US$610.4/t

Thermal coal (1st year forward cif ARA) US$80.0/t vs US$80.7/t

Coking coal futures Dalian Exchange US$197.2/t vs US$197.1/t

Other:

Cobalt LME 3m US$33,000/t vs US$33,000/t

China NdPr Rare Earth Oxide US$45,763/t vs US$45,742/t

China Lithium carbonate 99% US$10,078/t vs US$10,074/t

China Ferro Vanadium 80% FOB US$72.5/kg vs US$72.3/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

Are semi-solid state batteries game-changing technology?

The EV battery race intensifies as the US Department of Energy funds 24M, a start-up promoting a semi-solid state nickel-manganese-cobalt battery which can achieve an energy density of 280Wh.
The company target 350Wh by the end of the year, a level set by the US Advanced Battery Consortium, that together with the Department of Energy, provided 24M with US$7m in funding back in 2016.
Further supporting mass adoption, the company report it had delivered the energy density to business partners at lower cost.

Company News

Caledonia Mining (LON:CMCL) 390p mkt cap £41m – Withdrawal of ECI scheme for gold producers

Caledonia Mining reports that the Reserve Bank of Zimbabwe’s (RBZ) decision to withdraw the export credit incentive for Zimbabwean gold producers is estimated to “reduce Caledonia's earnings per share (calculated on an IFRS basis) for 2019 and thereafter by approximately US$ 5.4 million or 40 to 46 United States cents per share”.
The earnings impact assumes “a gold price of $1,300 for the remainder of the year, that Blanket achieves the production guidance for 2019 as announced on January 14, 2019 of between 53,000 and 56,000 ounces of gold and that there are no changes in Blanket's operating costs”.
Explaining the background to the incentive scheme the company said “For several years the RBZ has operated an ECI programme in terms of which Zimbabwean gold producers received a premium to the international gold price. This premium was initially at a level of 2.5% of gold revenues, which has subsequently increased to 10%. The ECI revenues were received into Caledonia's real time gross settlement bank account and were therefore not eligible for remittance outside Zimbabwe with a specific allocation of foreign exchange by the RBZ. The ECI revenues were not subject to Zimbabwean income tax.”
The company says that “At this stage it is unclear whether this policy will address the increasing inflationary pressure in Zimbabwe”.

Conclusion: The optimism for the economic future of Zimbabwe generated by President Mnangagwa succeeding Robert Mugabe is being tempered by the need to address the underlying issues and by recent civil unrest. We question whether disadvantaging expanding, foreign-exchange-earning developments such as those currently underway at Caledonia Mining’s Blanket gold mine is the optimum long term solution for Zimbabwe’s economic woes.

Hummingbird Resources (LON:HUM) 24.3p, Mkt Cap £86m – Yanfolila exploration update

The latest round of drilling focused on the resource definition at Gonka, located only 5km away from the processing plant, and further follow up drilling at Komana West.
Selected intersections at Gonka included:
18 m @ 9.39 g/t from 156 m depth (GKRCD0023B)
4.3 m @ 29.74 g/t from 250 m depth (GKRCD0050)
6.5 m @ 6.55 g/t from 37.8 m depth (GKDD0031)
3 m @ 12.89 g/t from 137 m depth (GKRCD0041B)
10 m @ 3.13 g/t from 58 m depth (GKRCD0045)
13.6 m @ 2.56 g/t from 34 m depth (GKDD00011)
A couple of closer to surface intersections returned grades of 3.36g/t and 6.35g/t but at narrower intervals of 2m (one from 5m and the other from 14m, respectively).
Drilling results at Komana West did not include noticeable intersections.
The team is planning to incorporate latest results into the resource model at Gonka for updated mineral resource and the open pitable reserves.
2019 drilling programme will among other things test high grade down dip extensions at Gonka with a view to increase the resource and reserves.
The Company completed 28,349m of drilling in total in 2018 between Gonka, (20,766m), Komana West (5,627m) and Guirin West (1,956m).

Oriole Resources (LON:ORR) 0.36p, Mkt cap £2.5m –Dalafin exploration to resume next month

Oriole Resources reports that IAMGOLD has confirmed that it will start drilling at Dalafin in eastern Senegal as part of its earn-in agreement to acquire a 70% interest in the project, which is located around 20km from IAMGOLD’s 2.5moz Boto gold project..
The commitment to spend US$1m under the second year of the agreement will fund an exploration programme in the southern part of the Madina Bate prospect which is expected to include 5000m of regional aircore (AC) drilling to extend the 2018 coverage further north as well as 4000m of reverse circulation (RC) drilling “to follow-up on best results from the 2018 drilling programmes.”
Previous work at Madina Bate “outlined multiple gold-in-soil anomalies (>20ppb Au) including a c.1.5km WNW-trending anomaly in the south-east (announcement dated 25 October 2018) - and a follow-up c.3,500m RC and diamond programme which confirmed the depth-continuity of mineralisation and delivered a best intersection of 8 m at 2.56 g/t Au”.
In addition, an initial 2500m aircore programme is planned to “explore for NE-structures located beneath transported laterites” and test the bedrock geochemistry at the Saroudia prospect which is located approximately 2km to the northwest of Madina Bate. There is provision for 1600m of RC drilling to “follow-up on best AC results” at Saroudia.
Oriole Resources indicates that the first results from the programme are expected to be available in late Q2 / Q3 of 2019.
Commenting on IAMGOLD’s decision to proceed with a second year of exploration at Dalafin, CEO, Tim Livesey, said that “The exploration programme outlined will continue to build on the exciting results already delivered at the Madina Bafé prospect with additional drilling planned for the Saroudia prospect to the North-West”.

Conclusion: IAMGOLD’s decision to commit to its second year of a US$1m per year, four year programme of exploration at Dalafin confirms their continuing interest in a project which could, eventually, form part of an expanded Boto project where approximately 2.5m oz of gold have already been defined.

Rambler Metals (LON:RMM) 1.625p, Mkt Cap £10.7m – Private placement raises US$11m

Rambler Metals has announced the closure of its previously publicised US$11m private placing via the issue of approximately 600m new shares at a price of £0.014/share.
Subscribers to the issue include CE Mining III Rambler Limited, Aether Real Assets Co-Investment and Lombard Odier Asset Management (Europe).
We estimate that the new shares represent approximately 48% of the enlarged company with CE Entities holding approximately 66% of the company, Aether around 10% and Lombard Odier around 15%.
The “proceeds of the Subscription will be used for working capital purposes, to repay the US$1 million unsecured loan owing to CEIII (as announced on 15 January 2019) and any accrued but unpaid interest thereon”.
The September 2018 balance sheet for Rambler shows a combined long and short term debt of US$21.3m, down from US$23.4m at the beginning of 2018.
Rambler Metals Ming mine and associated metals processing facility and year round bulk storage and shipping facility located on the Baie Verte peninsula, Newfoundland and Labrador, Canada is focussed on “sustaining mine and mill production at 1,250 metric tonnes per day. With a return to profitability and positive cash flow, Rambler will continue advancing Phase III engineering studies with a view to further increase production to 2,000 mtpd at the Ming Mine”.

Conclusion: The additional finance should strengthen the company as it works to stabilise mine production at 1250tpd before moving ahead with longer term plans to expand output to 2000tpd

Rio Tinto (LON:RIO) 4402p, Mkt cap £75bn – Iron ore mineral resource update

Rio Tinto has reported an increase of 781m tonnes in its Western Australian iron ore mineral resources to 23.3bn tonnes, in addition to proven and probable reserves of some 4bn tonnes.
The resource update, which includes an initial resource of 283mt at the Music Hall / Old Vic property and an additional 166mt outlined at the Western Hill area is underpinned by over 700,000m of drilling.
To put the mineral resources and reserves into context, Rio Tinto’s 2018 Australian production (on a 100% basis) amounted to 338mt.

Savannah Resources* (LON:SAV) 5.4p, Mkt Cap £47.2m – Significant new high-grade lithium discovery

Reverse Circulation (“RC”) drilling on Aldeia Block A has identified a new higher-grade pegmatite body approximately 2km south-east of the existing Grandao deposit; drawing total discoveries to five with subsequent priority targets.
21 assayed holes consistently intersected pegmatite over a strike length of 200m, while being traced down dip for a distance of over 200m. RC drilling is ongoing, focusing on delineating the pegmatite down dip and along strike, building on the 27 holes drilled for 2,031m.
Fast-tracked drilling aims to define the potential size and metallurgy of Pinheiro and Aldeia pegmatites for potential incorporation into the Mina do Barroso expanded and fully funded DFS, aiming to build on lithium grades including:
21m at 1.50% Li₂O from 34m in 19ALARC03
14m at 1.41% Li₂O from 37m in 19ALARC004
11m at 1.50% Li₂O from 54m in 19ALARC005
Diamond drilling to collect metallurgical test samples at Pinheiro has been completed and work at Aldeia is expected to be completed in March.
Savannah entered a Pledge and Purchase Agreement for the Aldeia License Area, following the award of a mining concession from the relevant government, for a total Option Purchase Price of €358,000. The total purchase price for the acquisition of the Aldeia Licence Area (once approved under the mining lease) is €3.25m.

Conclusion: The discovery of highly prospective new pegmatites at Mina do Barroso is significant for expanding the current 20Mt Mineral Resource, with the potential to extend the existing mine life of 11 years. The expanding resource is significant for Savannah Resources who target the most significant spodumene development plan in Western Europe, with base load feed of spodumene potential for a lithium refinery as European EV growth is beginning to accelerate.

*SP Angel acts as Nomad to Savannah Resources

Serabi Gold (LON:SRB) 47.5p Mkt value £30.0m – Mineral resource update for Coringa

Serabi Gold has reported a revised mineral resource estimate for its Coringa gold project in the Para State of Brazil.
The new estimate, which “represents a 37% increase over the previously disclosed information” comprises an indicated resource of 845,000t at an average grade of 7.95g/t gold for 216,000oz of contained gold plus an additional 1.436mt classed as inferred at an average grade of 6.46g/t (298,000oz of gold).
The previous estimate, dated May 2017 included 195,000 indicated oz at an average grade of 8.36g/t and 181,000oz of inferred resources at a grade of 4.32g/t.
The company says that “The mineral resource estimate incorporates seven of the nine identified gold hosting zones at Coringa. There is insufficient geological data to include the Domingo and Pista zones as a mineral resource at this time” and points out that further drilling results “will be included in the Preliminary Economic Assessment (“PEA”), which is underway and the result of which the Company expects to announce before the end of June 2019”.

Commenting on similarity of the Coringa project to the company’s existing mine at Palito, CEO, Mike Hodgson, said “We see Coringa as a Palito Complex look-a-like, where, as is common with many narrow vein mines, we have maintained a resource level of approximately 500,000 ounces whilst producing over 270,000 ounces of gold since that operation began. I therefore consider a 500,000 ounce resource as an excellent starting point for Coringa, certainly enough to support a quality, operation of similar size to the Palito Complex.”

Conclusion: The new resource estimate for Coringa, plus additional drilling results which may lead to further revisions to the stimate are being incorporated in a Preliminary Economic Assessment expected to be announced in June.

Strategic Minerals* (LON:SML) 1.65p, Mkt Cap £24.2m – Final shares issued for the Leigh Creek acquisition

Strategic Minerals reports that it has issued the final tranche of approximately 2.89m shares due to Resilience Mining for the acquisition of the Leigh Creek Copper mine in South Australia.
Since the acquisition of Leigh Creek was agreed in March 2018, Strategic Minerals has moved ahead with plans to reopen the mine “and is currently working to bring this into operation in 2019”.

Recent drilling results from Leigh Creek indicated the possibility of high grade zones of copper mineralisation within the Paltridge North deposit, where an updated mineral resource estimate is expected this month and demonstrated deeper copper mineralisation at the Rosmann East deposit.

Conclusion: Strategic Minerals has issued the final block of shares to complete the acquisition of the Leigh Creek Copper deposit where it plans to restart production later this year.

*SP Angel act as Nomad and broker to Strategic Minerals

Vale – Vale CEO and other executives resign following pressure from prosecutors

Fabio Schvartsman, CEO, and a number of other Vale executives have stepped down following the Brumadinho dam collapse which killed 186 people with 122 persons still reported missing.
Prosecutors had called for the dismissal of executives who they saw as ultimately responsible.
The situation reminds us of the words of one experienced mining executive ‘first question should always be about the tailings dams’.
Tailings dams are a major responsibility for management and their integrity and potential impact on the environment is normally closely monitored.
All the tailings dams we have looked at over the years have been robust, well inspected or undergoing further work, usually when increasing capacity.
Vale’s tailings dam failures may have been partly due to the sheer scale, high rainfall, tectonic activity and the rush to produce hundreds of millions of tonnes of iron ore in competition with other miners while prices were high. We now know this to be a dangerous combination.

Vast Resources (LON:VAST) 0.17p, Mkt Cap £12m – c.£850 equity placing

The Company raised £852,500 (before expenses) through a placing of 557m shares at 0.153.
The proceeds will be applied as follows:
£470k towards polymetallic Baita Plai asset and general corporate purposes;
£383k towards operations in the Marange Diamond Fields in Zimbabwe.